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HomeMy WebLinkAboutR-2004-134 Irrigation System Revenue BondsCITY OF YAKIIVIA, WASHINGTON RESOLUTION NO. R-2004-134 A RESOLUTION authorizing the execution and delivery of a contract for purchase of the City's Irrigation System Revenue Bonds, 2004, in the aggregate principal amount of $5,215,000, fixing certain terms of the bonds, and approving the form of the official statement, insurance and surety bond. WHEREAS, the City of Yakima, Washington (the "City"), by Ordinance No. 2003-68 passed November 4, 2003 (the "Bond Ordinance"), authorized the issuance of the City's Irrigation System Revenue Bonds, 2004, in one or more series in an amount not to exceed $10,000,000; and WHEREAS, certain terms of the Bonds were to be determined by subsequent resolution of the Council; and WHEREAS, the City finds that it is in the best interest of the City to issue the Bonds in the aggregate principal amount of $5,215,000; and WHEREAS, the Director of Finance and Budget of the City, as authorized by the Bond Ordinance, has negotiated the sale of the City's Irrigation System Revenue Bonds, 2004 in the principal amount of $5,215,000 (the "Bonds"); and WHEREAS, the Director of Finance and Budget recommends that the City accept the offer to purchase the Bonds made by Seattle -Northwest Securities Corporation (the "Purchaser"), which offer is set forth in the Purchase Agreement for the Bonds dated August 24, 2004 (the "Purchase Agreement"), a copy of which has been presented at this meeting and is on file with the City Clerk; NOW, THEREFORE, BE IT RESOLVED by the City of Yakima, Washington, as follows: Section 1. Definitions. Capitalized terms used herein and not otherwise defined shall have the same meanings, respectively, in this resolution as such terms are given in Section 1 of the Bond Ordinance. Section 2. Acceptance of Offer. The Council hereby finds that the Purchase Agreement is fair and reasonable and in the best interest of the City and that the Bonds shall be sold to the Purchaser upon the terms and conditions set forth in the Purchase Contact and upon the basis of the representations therein set forth. The Council further finds that all conditions precedent to or concurrent with the acceptance of the Purchase Agreement by the Council have been met. The Council hereby accepts the Purchase Agreement and authorizes and directs the Director of Finance and Budget to execute the Purchase Agreement and deliver it to the Purchaser. The Bonds shall be issued and delivered to the Purchaser upon payment of the purchase price specified in the Purchase Agreement, plus accrued interest from their date to the date of their delivery. Section 3. Terms, Schedule of Maturities and Interest Rates. The Bonds shall be designated the "City of Yakima Irrigation System Revenue Bonds, 2004." The Bonds shall be dated as of September 1, 2004, shall be fully registered as to both principal and interest, shall be in the denomination of $5,000 each or any integral multiple thereof, provided that no Bond shall represent more than one maturity, shall be numbered separately in such manner and with any additional designation as the Bond Registrar deems necessary for purposes of identification and control, and shall bear interest payable on March 1, 2005, and semiannually thereafter on the first days of September and March. -2- PiDG\DG033 04/08/25 The Bonds shall mature on September 1 of the following years in the following amounts and shall bear interest as follows: Maturity Date Amount Rate 2005 $ 95,000 2.00 % 2006 105,000 2.00 2007 105,000 2.25 2008 105,000 2.375 2009 110,000 2.75 2010 115,000 3.00 2011 115,000 3.20 2012 120,000 3.375 2013 125,000 3.50 2014 130,000 3.375 2017 410,000 4.00 2020 465,000 4.125 2024 720,000 4.50 2034 2,495,000 4.80 Section 4. Redemption. (a). Optional Redemption. The Bonds maturing on or prior to September 1, 2014 are not subject to redemption prior to their stated maturity dates. The Bonds maturing on or after September 1, 2017 are subject to redemption at the option of the City on and after September 1, 2014, in whole or in part (within one or more maturities to be selected by the City) on any date, at a price of par plus accrued interest, if any, to the date of redemption. (b) Mandatory Redemption. The Bonds maturing on September 1, 2017, September 1, 2020, September 1, 2024 and September 1, 2034, (which shall be deemed to be Term Bonds), shall be redeemed prior to maturity by lot (or paid at maturity), not later than September 1 in the years set forth below (to the extent such Bonds have not been previously -3- P'\DG\DG033 04/08/25 redeemed or purchased) and in the principal amounts set forth below, without premium, together with the interest accrued to the date fixed for redemption. * Final Maturity * Final Maturity * Final Maturity * Final Maturity 2017 Term Bond Year Amount 2015 $ 130,000 2016 135,000 2017* 145,000 2020 Term Bond Year Amount 2018 $ 150,000 2019 155,000 2020* 160,000 2024 Term Bond Year Amount 2021 $ 170,000 2022 175,000 2023 185,000 2024* 190,000 2034 Term Bond Year Amount 2025 $ 200,000 2026 210,000 2027 220,000 2028 230,000 2029 240,000 2030 255,000 2031 265,000 2032 280,000 2033 290,000 2034* 305,000 -4- P:\DG\DG033 04108/25 Section 5. Execution and Delivery of the Bonds. The Director of Finance and Budget of the City and other appropriate officers of the City are hereby authorized and directed to do all things necessary or proper for the printing, execution and delivery of the Bonds to the Purchaser in accordance with the terms of the Purchase Agreement and the Bond Ordinance, as well as this resolution, and for the proper application and use of the proceeds of such sale. Section 6. Official Statement; Use of Documents. The Director of Finance and Budget is authorized and directed to execute and deliver to the Purchaser copies of an Official Statement in substantially the form of the Preliminary Official Statement dated August 16, 2004; provided, however, that the Director of Finance and Budget is authorized to supplement or amend the Official Statement as the Director of Finance and Budget, with the approval of bond counsel to the City, deems necessary or appropriate. The Council represents and warrants to the Purchaser that the Preliminary Office Statement is "deemed final" by the City as of the date hereof within the meaning of paragraph 17 C.F.R. § 240.15c2-12 promulgated by the Securities and Exchange Commission ("Rule 15c2-12"), except for the omission of such information as may be permitted by Rule 15c2-12. The Council approves and authorizes the use of the Official Statement (including any such supplements and amendments thereto) in connection with the public offering and sale of the Bonds by the Purchaser. Section 7. Bond Insurance and Surety Policy. (a) Acceptance of Insurance. In accordance with the offer of the Purchaser to purchase the Bonds, the Council hereby approves the commitments of Financial Security Assurance Inc., a New York stock insurance company, or any successor thereto or assignee thereof (the "Insurer") to provide a bond insurance policy guaranteeing the payment when due of -5- P- DG\DG033 04/08/25 principal of and interest on the Bonds (the "Bond Insurance Policy") and a debt service reserve insurance policy to satisfy the Reserve Account Requirement (the "Reserve Surety Policy"). The Council further authorizes and directs all proper officers, agents, attorneys and employees of the City to cooperate with the Insurer in preparing such additional agreements, certificates, and other documentation on behalf of the City as shall be necessary or advisable in providing for the Bond Insurance Policy and the Reserve Surety Policy. (b) Payments Under the Bond Insurance Policy and Rights of the Insurer. The provisions of this section shall govern, notwithstanding anything to the contrary set forth in this resolution or the Bond Ordinance. (1) The prior written consent of the Insurer shall be a condition precedent to the deposit of any credit instrument provided in lieu of a cash deposit into the Reserve Account. Notwithstanding anything to the contrary set forth in this resolution or the Bond Ordinance, amounts on deposit in the Reserve Account shall be applied solely to the payment of debt service on the Parity Bonds. (2) No contract shall be entered into nor any action taken by which the rights of the Insurer or security for or sources of payment on the Bonds may be impaired or prejudiced except upon obtaining the prior written consent of the Insurer. (3) The Insurer shall be deemed to be the sole holder of the Bonds insured by it for the purpose of exercising any voting right or privilege or giving any consent or direction or taking any other action that the holders of the Bonds insured by it are entitled to take pursuant to this resolution and the Bond Ordinance (4) Any maturity of the Bonds shall not be accelerated without the consent of the Insurer. In the event the maturity of the Bonds is accelerated, the Insurer may -6- P\DG\DG033 04/08/25 elect, in its sole discretion, to pay accelerated principal and interest accrued on such principal to the date of acceleration (to the extent unpaid by the City) and the Bond Registrar shall be required to accept such amounts. Upon payment of such accelerated principal and interest accrued to the acceleration date as provided above, the Insurer's obligations under the Bond Insurance Policy with respect to such Bonds shall be fully discharged. (5) No grace period for a covenant default shall exceed 30 days, nor be extended for more than 60 days, without the prior written consent of the Insurer. No grace period shall be permitted for payment defaults. (6) The Insurer shall be included as a third party beneficiary to this resolution or the Bond Ordinance. (7) This resolution or the Bond Ordinance may not be amended or modified without the prior written consent of the Insurer. Copies of any modification or amendment to this resolution or the Bond Ordinance shall be sent to Standard & Poor's Credit Market Services and Moody's Investors Service, Inc. at least 10 days prior to the effective date thereof. (8) Unless the Insurer otherwise directs, upon the occurrence and continuance of an event of default or the occurrence and continuance of an event which with notice or lapse of time or both would constitute an event of default amounts on deposit in the Bond Account shall not be disbursed but shall instead be applied to the payment of debt service or redemption price of the Bonds. (9) Rights of the Insurer to direct or consent to City or Bondholder actions under this resolution or the Bond Ordinance shall be suspended during any period in which the Insurer is in default in its payment obligations under the Bond Insurance Policy -7- P'\DG\DG033 04/08/25 (except to the extent of amounts previously paid by the Insurer and due and owing to the Insurer) and shall be of no force or effect in the event the Bond Insurance Policy is no longer in effect or the Insurer asserts that the Bond Insurance Policy is not in effect or the Insurer shall have provided written notice that it waives such rights. (10) The rights granted to the Insurer under this section to request, consent to or direct any action are rights granted to the Insurer in consideration of its issuance of the Bond Insurance Policy. Any exercise by the Insurer of such rights is merely an exercise of the Insurer's contractual rights and shall not be construed or deemed to be taken for the benefit or on behalf of the Bondholder nor does such action evidence any position of the Insurer, positive or negative, as to whether Bondholder consent is required in addition to consent of the Insurer. (11) Only (1) cash, (2) non -callable direct obligations of the United States of America ("Treasuries"), (3) evidences of ownership of proportionate interests in future interest and principal payments on Treasuries held by a bank or trust company as custodian, under which the owner of the investment is the real party in interest and has the right to proceed directly and individually against the obligor and the underlying Treasuries are not available to any person claiming through the custodian or to whom the custodian may be obligated, (4) pre -funded municipal obligations rated "AAA" and "Aaa" by S&P and Moody's, respectively or (5) securities eligible for "AAA" defeasance under then existing criteria of S&P (or any combination thereof) shall be authorized to be used to effect defeasance of the Bonds unless the Insurer otherwise approves. To accomplish defeasance of the Bonds, the City shall cause to be delivered (i) a report of an independent firm of nationally recognized certified public accountants or such other -8- P \DG\DG033 04/08/25 accountant as shall be acceptable to the Insurer ("Accountant") verifying the sufficiency of the escrow established to pay the Bonds in full on the maturity date ("Verification"), (ii) an escrow deposit agreement (which shall be acceptable in form and substance to the Insurer), and (iii) an opinion of nationally recognized bond counsel to the effect that the Bonds are no longer "Outstanding" under this resolution or the Bond Ordinance, each Verification and defeasance opinion shall be acceptable in form and substance, and addressed to the City, the Bond Registrar and the Insurer. The Insurer shall be provided with final drafts of the above -referenced documentation not less than five business days prior to the funding of the escrow. Bonds shall be deemed "Outstanding" under this resolution or the Bond Ordinance unless and until they are in fact paid and retired or the above criteria are met. (12) Amounts paid by the Insurer under the Bond Insurance Policy shall not be deemed paid for purposes of this resolution or the Bond Ordinance and shall remain Outstanding and continue to be due and owing until paid by the City in accordance with this resolution and the Bond Ordinance. This resolution or the Bond Ordinance shall not be discharged unless all amounts due or to become due to the Insurer have been paid in full or duly provided for. (13) Claims upon the Bond Insurance Policy and payments by and to the Insurer: (i) If, on the third business day prior to the related scheduled interest payment date or principal payment date ("Payment Date") there is not on deposit with the Bond Registrar, after making all transfers and deposits required under this resolution or the Bond Ordinance, moneys sufficient to pay the principal of and interest on the Bonds due on such Payment Date, the Bond Registrar shall give notice to the Insurer and to its designated agent (if -9- P \DG\DG033 04/08/25 any) (the "Insurers Fiscal Agent") by telephone or telecopy of the amount of such deficiency by 12:00 noon, New York City time, on such business day. If, on the second business day prior to the related Payment Date, there continues to be a deficiency in the amount available to pay the principal of and interest on the Bonds due on such Payment Date, the Bond Registrar shall make a claim under the Bond Insurance Policy and give notice to the Insurer and the Insurer's Fiscal Agent (if any) by telephone of the amount of such deficiency, and the allocation of such deficiency between the amount required to pay interest on the Bonds and the amount required to pay principal of the Bonds, confirmed in writing to the Insurer and the Insurer's Fiscal Agent by 12:00 noon, New York City time, on such second business day by filling in a form of Notice of Claim and Certificate delivered with the Bond Insurance Policy. (ii) In the event the claim to be made is for a mandatory sinking fund redemption installment, upon receipt of the money due, the Bond Registrar shall authenticate and deliver to affected Bondholders who surrender their Bonds, a new Bond or Bonds in an aggregate principal amount equal to the unredeemed portion of the Bond surrendered. The Bond Registrar shall designate any portion of payment of principal on Bonds paid by the Insurer, whether by virtue of mandatory sinking fund redemption, maturity or other advancement of maturity, on its books as a reduction in the principal amount of Bonds registered to the then current Bondholder, whether DTC or its nominee or otherwise, and shall issue a replacement Bond to the Insurer, registered in the name of Financial Security Assurance Inc., in a principal amount equal to the amount of principal so paid (without regard to authorized denominations); provided that the Bond Registrar's failure to so designate any payment or issue any replacement Bond shall have no effect of the amount of principal or interest payable by the City of any Bond or the subrogation rights of the Insurer. -10- P\DG\DG033 04/08/25 (iii) The Bond Registrar shall keep a complete and accurate record of all funds deposited by the Insurer into the Policy Payments Account and the allocation of such funds to payment of interest on and principal paid in respect to any Bond. The Insurer shall have the right to inspect such records at reasonable times upon reasonable notice to the Bond Registrar. (iv) Upon payment of a claim under the Bond Insurance Policy the Bond Registrar shall establish a separate special purpose trust account for the benefit of Bondholders referred to herein as the "Policy Payments Account" and over which the Bond Registrar shall have exclusive control and sole right of withdrawal. The Bond Registrar shall receive any amount paid under the Bond Insurance Policy in trust on behalf of Bondholders and shall deposit any such amount in the Policy Payments Account and distribute such amount only for purposes of making the payments for which a claim was made. Such amounts shall be disbursed by the Bond Registrar to Bondholders in the same manner as principal and interest payments are to be made with respect to the Bonds under the sections hereof regarding payment of Bonds. It shall not be necessary for such payments to be made by checks or wire transfers separate from the check or wire transfer used to pay debt service with other funds available to make such payments. Notwithstanding anything to the contrary otherwise set forth in this resolution or the Bond Ordinance, and to the extent permitted by law, in the event amounts paid under the Bond Insurance Policy are applied to claims for payment of principal of or interest on the Bonds, interest on such principal of or interest on such Bonds shall accrue and be payable from the date of such payment at the greater of (i) the per annum rate of interest, publicly announced from time to time by JPMorgan Chase Bank or its successor at its principal office in the City of New York, as its prime base lending rate plus 3 percent and (ii) the then applicable -11- P \DG\DG033 04/08/25 rate of interest on the Bonds provided that in no event shall such rate exceed the maximum rate permissible under applicable usury or similar laws limiting interest rates. (v) Funds held in the Policy Payments Account shall not be invested. (vi) Any funds remaining in the Policy Payments Account following a Bond payment date shall promptly be remitted to the Insurer. (14) The Insurer shall, to the extent it makes any payment of principal of (or, in the case of capital appreciation bonds, accreted value) or interest on the Bonds, become subrogated to the rights of the recipients of such payments in accordance with the terms of the Bond Insurance Policy. The obligations to the Insurer shall survive discharge or termination of this resolution or the Bond Ordinance. (15) The City shall agree to pay or reimburse the Insurer any and all charges, fees, costs and expenses which the Insurer may reasonably pay or incur in connection with (i) the administration, enforcement, defense or preservation of any rights or security in respect to this resolution or the Bond Ordinance, (ii) the pursuit of any remedies under this resolution or the Bond Ordinance or otherwise afforded by law or equity, (iii) any material amendment, waiver or other action with respect to, or related to, this resolution or the Bond Ordinance, (iv) the violation by the City of any law, rule or regulation, or any judgment, order or decree applicable to it or (v) any litigation or other dispute in connection with this resolution or the Bond Ordinance or the transactions contemplated thereby, other than amounts resulting from the failure of the Insurer to honor its obligations under the Bond Insurance Policy. The Insurer reserves the right to charge a reasonable fee as a condition to executing any amendment, waiver or consent proposed in respect to this resolution or the Bond Ordinance. -12- ROG 04/08/25 (16) After payment of reasonably expenses of the Bond Registrar, the application of funds realized upon default shall be applied to the payment of expenses of the City or rebate only after the payment of debt service due and past due on the Bonds, together with the replenishment of the Reserve Account. (17) The Insurer shall be entitled to pay principal (or, in the case of capital appreciation bonds, accreted value) or interest on the Bonds that shall become Due for Payment but shall be unpaid by reason of Nonpayment by the City (as such terms are defined in the Bond Insurance Policy) and any amounts due on the Bonds as a result of acceleration of the maturity thereof in accordance with this resolution or the Bond Ordinance, whether or not the Insurer has received a Notice (as defined in the Bond Insurance Policy) of Nonpayment or a claim upon the Bond Insurance Policy. (18) The notice address of the Insurer is: Financial Security Assurance Inc., 350 Park Avenue, New York, New York 10022-6022, Attention: Managing Director -- Surveillance -- Re: Policy No. _. Telephone: (212) 826-0100; Telecopier: (212) 339-3529. In each case in which notice or other communication refers to an Event of Default or with respect to which failure on the part of the Insurer to respond shall be deemed to constitute consent or acceptance, then a copy of such notice or other communication shall also be sent to the attention of General Counsel and shall be marked to indicate "URGENT MAI'hRIAL ENCLOSED." (19) The Insurer shall be provided with the following information: (i) Annual audited financial statements when they are received from the Washington State Auditor (together with a certification of the City that it is not aware of any default or event of default under the Bond Ordinance) and the City's annual budget within -13- P\DG\DG033 04/08/25 30 days after the approval thereof together with such other information, data or reports as the Insurer shall reasonably request from time to time; (ii) Notice of any draw upon the Reserve Account within two business days after knowledge thereof other than (a) withdrawals or amounts in excess of the Reserve Account Requirement and (b) withdrawals in connection with a refunding of Bonds; (iii) Notice of any default within five business days after knowledge thereof; (iv) Prior notice of the advance refunding or redemption of any of the Bonds, including the principal amount, maturities and CUSIP numbers thereof; (v) Notice of the resignation or removal of the Paying Agent and Bond Registrar and the appointment of, and acceptance of duties by, any successor thereto other than a change of state fiscal agents; (vi) The commencement of any proceeding by or against the City commenced under the United States Bankruptcy Code or any other applicable bankruptcy, insolvency, receivership, rehabilitation or similar law (an "Insolvency Proceeding"); (vii) The making of any claim in connection with any Insolvency Proceeding seeking the avoidance as a preferential transfer of any payment of principal of, or interest on, the Bonds; (viii) A full original transcript of all proceedings relating to the execution of any amendment or supplement to this resolution or the Bond Ordinance; and (ix) All reports, notices and correspondence to be delivered under the terms of this resolution or the Bond Ordinance. -14- P 1DG\DG033 04/08/25 (20) Notwithstanding satisfaction of other conditions to the issuance of additional bonds contained in this resolution or the Bond Ordinance, no such issuance may occur (1) should any event of default (or any event which, once all notice or grace periods have passed, would constitute an event of default) have occurred and be continuing unless such default shall be cured upon issuance and (2) unless the Reserve Account is fully funded at its requirement (including the new issue) upon the issuance of such additional bonds, in either case unless otherwise permitted by the Insurer. (21) In determining whether any amendment, consent or other action to be taken, or any failure to act, under this resolution or the Bond Ordinance would adversely affect the security for the Bonds or the rights of Bondholders, consideration shall be given to the effect of any such amendment, consent, action or inaction as if there were no Bond Insurance Policy. (c) Reserve Surely Policy. The following provisions shall apply so long as the Reserve Surety Policy is in effect. (1) The City shall repay any draws under the Reserve Surety Policy and pay all related reasonable expenses incurred by the Insurer. Interest shall accrue and be payable on such draws and expenses from the date of payment by the Insurer at the Late Payment Rate. "Late Payment Rate" means the lesser of (a) the greater of (i) the per annum rate of interest, publicly announced from time to time by JPMorgan Chase Bank at its principal office in the City of New York, as its prime or base lending rate ("Prime Rate") (any change in such Prime Rate to be effective on the date such change is announced by JPMorgan Chase Bank) plus 3 percent, and (ii) the then applicable highest rate of interest on the Bonds; and (b) the maximum rate permissible under applicable usury or similar laws limiting interest rates. The Late Payment -15- P\DG\DG033 04/08/25 Rate shall be computed on the basis of the actual number of days elapsed over a year of 360 days. In the event JPMorgan Chase Bank ceases to announce its Prime Rate publicly, Prime Rate shall be the publicly announced prime or base lending rate of such national bank as the Insurer shall specify. Repayment of draws and payment of expenses and accrued interest thereon at the Late Payment Rate (collectively, "Policy Costs") shall commence in the first month following each draw, and each such monthly payment shall be in an amount at least equal to 1/12 of the aggregate of Policy Costs related to such draw. Amounts in respect of Policy Costs paid to the Insurer shall be credited first to interest due, then to the expenses due and then to principal due. As and to the extent that payments are made to the Insurer on account of principal due, the coverage under the Reserve Surety Policy will be increased by a like amount, subject to the terms of the Reserve Surety Policy. In calculating the Future Parity Bonds test in Section 14 of the Bond Ordinance and the rate covenant in Section 13 of the Bond Ordinance, the City shall include any Policy Costs then due and owing. All cash and investments in the Reserve Account for the Bonds shall be transferred to the Bond Fund for payment of debt service on Bonds before any drawing may be made on the Reserve Surety Policy or any other credit facility credited to the Reserve Account in lieu of cash ("Credit Facility"). Payment of any Policy Costs shall be made prior to replenishment of any such cash amounts. Draws on all Credit Facilities (including the Reserve Surety Policy) on which there is available coverage shall be made on a pro -rata basis (calculated by reference to the coverage then available thereunder) after applying all available cash and investments in the Reserve Account. Payment of Policy Costs and reimbursement amounts with respect to other -16- P \DG\DG033 04/08/25 credit facilities shall be made on a pro -rata basis prior to replenishment of any cash drawn from the Reserve Account. (2) If the City shall fail to pay any Policy Costs in accordance with the requirements of this section, the Insurer shall be entitled to exercise any and all legal and equitable remedies available to it, including those provided under the Bond Ordinance other than (a) acceleration of the maturity of the Bonds or (b) remedies which would adversely affect owners of the Parity Bonds. (3) This resolution or the Bond Ordinance shall not be discharged until all Policy Costs owing to the Insurer shall have been paid in full. The City's obligation to pay such amounts shall expressly survive payment in full of the Bonds. (4) The Bond Registrar shall ascertain the necessity for a claim upon the Reserve Surety Policy and shall provide notice to the Insurer in accordance with the terms of the Reserve Surety Policy at least five business days prior to each date upon which interest or principal is due on the Bonds. Where deposits are required to be made by the City to the Reserve Account for the Bonds more often than semi-annually, the Bond Registrar shall be instructed to give notice to the Insurer of any failure of the City to make timely payment in full of such deposits within two business days of the date due. Section 8. Ratification of Past Acts. All actions and proceedings heretofore taken by the officers, agents, attorneys and employees of the City in connection with the issuance and sale of the Bonds are hereby ratified, approved and confirmed. Section 9. Effective Date. This resolution shall be in effect from and after its adoption in accordance with law. -17- P'\DG\DG033 04/08/25 ADOPTED at a meeting of the City Council of the City of Yakima, Washington, this 24th day of August, 2004. ATTEST: Kcutz-v.- City Clerk APPROVED AS TO FORM: City Attorney -18- CITY OF YAKIMA, WASHINGTON By P-\DG\DG033 04!08/25 CERTIFICATE I, the undersigned, Clerk of the City of Yakima, Washington (the "City"), and keeper of the records of the City Council (the "Council"), DO HEREBY CERTIFY: 1. That the attached Resolution No. is a true and correct copy of a resolution of the City Council, as finally adopted at a meeting of the Council held on the 24th day of August, 2004, and duly recorded in my office. 2. That said meeting was duly convened and held in all respects in accordance with law, and to the extent required by law, due and proper notice of such meeting was given; that a legal quorum was present throughout the meeting and a legally sufficient number of members of the Council voted in the proper manner for the passage of said Resolution; that all other requirements and proceedings incident to the proper adoption of said Resolution have been fully fulfilled, carried out and otherwise observed; and that I am authorized to execute this certificate. IN WITNESS WHEREOF, I have hereunto set my hand this 24th day of August, 2004. (SEAL) City Clerk P'\DG\DG033 04/08/25 BUSINESS OF THE CITY COUNCIL YAKIMA, WASHINGTON AGENDA STATEMENT Item No. For Meeting Of 8/24/2004 ITEM TITLE: A Resolution authorizing the execution and delivery of a contract for purchase of the City's Irrigation System Revenue Bonds, 2004, in the principal amount of approximately $5.45 million,* fixing certain terms of the bonds, and approving the form of the official statement and insurance. (*Preliminary, subject to change) SUBMITTED BY: Finance Department CONTACT PERSON/TELEPHONE: Tim Jensen, Treasury Services Officer #575-60 Rita Anson, Finance Director #575-6070 SUMMARY EXPLANATION: Background: Last November, the Council passed Ordinance #2003-68 authorizing the issuance of Irrigation System Revenue bonds in an amount not to exceed ten million dollars. This transaction of approximately $5.45 million is the first issuance of that total authorization. The bonds are to finance the first phase of reconstruction of the City's Irrigation System. Preliminary design for the project is complete and construction is scheduled to begin in late October 2004. The Bonds: These will be 30 -year revenue bonds and we estimate (as of late Thursday) the total interest cost to be approximately 5% including bond insurance and issuance costs. Approximate annual debt Continued... Resolution X Ordinance — Other (Specify) Draft Purchase Offer, Preliminary Official Statement and draft amortization schedule Contract Mail to (name and address): Phone Funding Source �--� APPROVED FOR SUBMITTAL: City Manager STAFF RECOMMENDATION: Adopt Resolution BOARD/COMMISSION RECOMMENDATION: COUNCIL ACTION Resolution adopted. RESOLUTION NO. R-2004-134 Legal/BD rev. effective 7/21/92 service at that rate will be $345,000. The capital portion of the Irrigation rate structure is adequate to support this level of debt. (it should be noted that market conditions cot,id change before Monday, August 23rd when the bonds are priced, and that rate could be affected). Staff recently held interviews with three top bond insurers and have to date received one favorable bid to insure the bonds. (That bid is incorporated in the rate mentioned earlier). Bond insurance with one of the top insurers makes the issue more attractive to investors and therefore Tess expensive to market. We did not seek a credit rating on this issue because it was felt that the cost of obtaining the rating would not justify any savings that could result from the rating we would probably receive. Bond insurance gives the bonds a AAA rating. Included in this packet are: • Draft Sale Resolution (blank as to terms) • Draft Purchase Offer from Seattle Northwest Securities (blank as to terms) • Draft amortization schedule • Preliminary Official Statement (as submitted to insurers and investors) Note: We will not have final documents until after pricing is completed and the underwriters have made the City a formal purchase offer on Monday, August 23rd. Therefore the final documents will be provided to Council at the Council meeting scheduled for 9:00 AM on Tuesday, August 24th in Council Chambers Legal/BO rev. effective 7/21/92 MEMORANDUM August 24, 2004 To: Honorable Mayor and Members of the City Council Dick Zais, City Manager From: Rita Anson, Finance Directo Tim Jensen Treasury Services Offi er U Subject: Agenda item #2 (2004 Irrigation bonds) We pleased y Council, r y rmr ny � nnn 30 are pleased to submit to Council, for your ratification, the issuance of $5,215,000 30 - year Irrigation System Revenue Bonds. Orders were subscribed on Monday, August 23rd in the offices of Seattle Northwest Securities, in Seattle. The bond proceeds are for phase 1 of the Irrigation System refurbishment. Total interest cost on the bonds is 4.85%, including bond issuance and insurance costs. Debt service is flat, at approximately $320,000 a year. The transaction will result in just over $5 million cash for the refurbishment project after payment of issuance costs. The bonds will be insured. The expected savings in interest cost by having bond insurance on this issue is estimated to be almost $345,000 at present value. Having bond insurance gives the bonds a AAA credit rating in the market. In order to consummate the transaction the following documents require Council adoption/approval: • Resolution ratifying all terms and fixing rates, maturities and bond insurance • Bond Purchase Agreement from Seattle Northwest Securities Staff recommends approval of the above documents. • An amortization schedule is also included for your review. August 24, 2004 Honorable Mayor and City Council City of Yakima 129 North Second Street Yakima, Washington 98901 Re: City of Yakima, Washington $5,215,000 Irrigation System Revenue Bonds, 2004 Dated: September 1, 2004 Honorable Mayor and City Council: Seattle -Northwest Securities Corporation ("Purchaser") offers to purchase from City of Yakima, Washington ("Seller") all the above-described bonds (the "Bonds") on the terms and based upon the covenants, representations and warranties set forth below. Appendix A, which is incorporated into this Bond Purchase Agreement (the "Agreement") by reference, contains a brief description of the Bonds, including principal amounts, redemption provisions, maturities, interest rates, purchase price, and the proposed date and place of delivery and payment (the "Closing"). Other provisions of this Agreement are as follows: 1. Prior to the Closing, Seller will approve a Preliminary Official Statement, with such changes as are requested by the Seller and its counsel, and will adopt a resolution and pass an ordinance authorizing the Bonds (collectively, the "Bond Ordinance"). The Purchaser is authorized by Seller to use these documents and the information contained in them in connection with the public offering of the Bonds and the final Official Statement in connection with the sale and delivery of the Bonds. 2. Seller, to the best of its knowledge, represents and covenants to the Purchaser that: (a) it has and will have at the Closing the power and authority to enter into and perform this Agreement, to pass the Bond Ordinance and to deliver and sell the Bonds to the Purchaser; (b) this Agreement and the Bonds do not and will not conflict with, or constitute or create a breach or default under, any existing law, regulation, order or agreement to which Seller is subject; (c) no governmental approval or authorization (other than the Bond Ordinance) which has not been obtained, or will not be obtained prior to Closing, is required in connection with the sale of the Bonds to the Purchaser; (d) the Preliminary Official Statement with corrections, if any, noted by the Seller and its counsel, as of its date and (except as to matters corrected or added in the final Official Statement) as of the Closing, is accurate and complete in all material respects as of its date to the knowledge and belief of the officers and employees of the Seller, after due review; (e) the Seller has previously provided the Purchaser with a copy of its Preliminary Official Statement dated August 16, 2004. As of its date, the Preliminary Official Statement has been "deemed final" by the Seller for purposes of Securities and Exchange Commission ("S.E.C.") Rule 15c2 - 12(b)(1), except for the omission of maturity amounts, interest rates, redemption dates and prices, ratings, underwriter's discount and related twins; Honorable Mayor and City Council City of Yakima, Washington August 24, 2004 Page 2 (f) (g) the Seller agrees to cooperate with the Purchaser to permit the Purchaser to deliver or cause to be delivered, within seven business days after any final agreement to purchase, offer, or sell the securities and in sufficient time to accompany any confirmation that requests payment from any customer of the Purchaser, copies of a final Official Statement in sufficient quantity to comply with paragraph (b)(4) of the S.E.C. Rule 15c2-12 and the rules of the Municipal Securities Rulemaking Board ("MSRB"). The Purchaser agrees to deliver the required number of copies of the final Official Statement to the MSRB and to all nationally recognized municipal securities information repositories on the huslness day on which the final Official Statement is available, and in any event no later than ten business days after the date hereof; the Seller agrees to enter into a written agreement or contract, constituting an undertaking (the "Undertaking") to provide ongoing disclosure about the Seller for the benefit of the owners of the Bonds on or before the Closing as required by Section (b)(5)(i) of S.E.C. Rule 15c2-12 (the "Rule"), and in the form as summarized by the Preliminary Official Statement, with such changes as may be agreed to in writing by the Purchaser; and (h) if, at any time prior to the Closing, any event occurs as a result of which the Preliminary Official Statement might include an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, the Seller shall promptly notify the Purchaser thereof. 3 The Purchaser shall have the right to cancel this Agreement to purchase the Bonds by notifying the Seller of its election to do so if, after the execution of this Agreement and prior to the Closing: (a) a decision by a court of the United States or the United States Tax Court shall be rendered, or a ruling or a regulation (final, temporary, or proposed) by or on behalf of the Treasury Department of the United States, the Internal Revenue Service or other governmental agency shall be issued and in the case of any such regulation, published in the Federal Register, or legislation shall have been introduced in, enacted by or favorably reported to either the House of Representatives or the Senate of the United States, with respect to Federal taxation upon interest received on bonds of the type and character of any of the Bonds which, in the reasonable judgment of the Purchaser, materially adversely affects the marketability of the Bonds or their sale by the Purchaser, at the contemplated public offering prices; or (b) The United States shall have become engaged in hostilities or existing hostilities shall have escalated or a national emergency or other national or international calamity or other event shall have occurred, escalated, or accelerated to such an extent as, in the reasonable opinion of the Purchaser, to have a materially adverse effect on the marketability of the Bonds or the Purchaser's ability to enforce contracts for the sale of the Bonds; or (c) there shall have occurred a general suspension of trading on the New York Stock Exchange; or (d) a general banking moratorium shall have been declared by the United States, New York State or Washington State authorities; or (e) legislation shall hereafter be enacted, or actively considered for enactment, with an effective date prior to the date of the delivery of the Bonds, or a decision by a court of the United States shall hereafter be rendered, or a ruling or regulation by the S.E.C. or other governmental agency having jurisdiction of the subject matter shall hereafter be made, the effect of which is that Honorable Mayor and City Council City of Yakima, Washington August 24, 2004 Page 3 (i) the Bonds are not exempt from the registration, qualification or other requirements of the Securities Act of 1933, as amended and as then in effect, or the Securities Exchange Act of 1934, as amended and then in effect, or (ii) the Bond Ordinance is not exempt from the registration, qualification or other requirements of the Trust Indenture Act of 1939, as amended and as then in effect; or (0 a stop order, ruling or regulation by the S.E.C. shall hereafter be issued or made, the effect of which is that the issuance, offering or sale of the Bonds, as contemplated herein or in the final Official Statement, is in violation of any provision of the Securities Act of 1933, as amended and as then in effect, the Securities Exchange Act of 1934, as amended and as then in effect, or the Trust Indenture Act of 1939, as amended and as then in effect, and which, in its reasonable judgment, adversely affects the marketability of the Bonds or the market price thereof. -r. The Purchaser's obligations hereunder are also subject to the condition that at or prior to the Closing Seller will deliver to the Purchaser all of the following: (a) the Bonds, fully registered in book -entry form only in the name of Cede & Co., as bond owner and nominee for The Depository Trust Company; (b) the approving opinion of Bond Counsel dated the Closing date; (c) issuance of a municipal bond insurance policy by Financial Security Assurance Inc. and assignment to the Bonds of a rating of AAA by Standard & Poor's; (d) the following documents executed by authorized officers of the Seller: a certificate setting forth the facts, estimates and circumstances in existence on the date of Closing which establish that it is not expected that the proceeds of the Bonds will be used in a manner that could cause the Bonds to be "arbitrage bonds" within the meaning of Section 148 of the Internal Revenue Code of 1986, as amended, and any applicable regulations thereunder; (e) a certified copy of the Bond Ordinance; (f) designation of the Bonds as "qualified tax-exempt obligations" for banks, thrift institutions and other financial institutions, as defined in Section 265 of the Internal Revenue Code of 1986, as amended; and such additional certificates, instruments or other evidence as the Purchaser may deem reasonably necessary or desirable to evidence the due authorization, execution, authentication and delivery of the Bonds, the truth and accuracy as of the time of the Closing of the Seller's representations and warranties, and the conformity of the Bonds and Bond Ordinance with the terms thereof as summarized in the Official Statement, and to cover such other matters as it reasonably requests. (g) 5. Seller will pay the cost of preparing, printing and executing the Bonds; the fees and disbursements of Bond Counsel; bond registration and rating fees and expenses; bond insurance; the cost of printing and distributing the Preliminary and final Official Statements; travel and lodging expenses of Seller's employees and representatives; and other expenses of Seller. Purchaser will pay fees and disbursements of Purchaser's counsel, if any, the cost of preparation and filing of blue sky and legal investment surveys where necessary, Purchaser's travel expenses, and other expenses of Purchaser. As a convenience to Seller, Purchaser may from time to time, but only upon the prior written direction from the Seller, make arrangements for certain items for which Seller is responsible hereunder, such as printing of the Official Statement and travel or lodging arrangements for Seller's representatives. Honorable Mayor and City Council City of Yakima, Washington August 24, 2004 Page 4 Purchaser also may advance for Seller's account when appropriate and when directed in advance in writing by the Seller, the cost of the items for which Seller is responsible by making payments to third - party vendors. In such cases, Seller shall pay such costs or expenses directly, upon submission of appropriate invoices by Purchaser, or promptly reimburse Purchaser in the event Purchaser has advanced such costs or expenses for Seller's account. It is understood that Seller shall be primarily responsible for payment of all such items and that Purchaser may agree to advance the cost of such items from time to time solely as an accommodation to Seller and on the condition that it shall be reimbur&ed in fill by Celler. 6. This Agreement is intended to benefit only the parties hereto, and Seller's representations and warranties shall survive any investigation made by or for the purchase, delivery and payment for the Bonds, and the termination of this Agreement. Should the Seller fail to satisfy any of the foregoing conditions or covenants, or if the Purchaser's obligations are terminated for any reasons permitted under this Agreement, then neither the Purchaser nor the Seiler shall have any further obligations under this Agreement, except that any expenses incurred shall be borne in accordance with Section 5. 7. This Agreement may be modified or amended by an instrument in writing executed by the parties hereto. 8. This offer expires on the date, and at the time, set forth on Appendix A. Respectfully submitted, Seattle -Northwest Securities Corporation By: Lindsay A. Sovde, Vice President Accepted August 24, 2004 City of Yakima, Washington By: APPENDIX A City of Yakima, Washington Irrigation System Revenue Bonds, 2004 Description of Bonds (a) Principal Amount. $5,215,000 (b) Purchase Price. $5,072,839.35 ($97.274005 per $100), representing an original issue discount of $90,010.65 and an underwriter's discount of $52,150.00, plus accrued interest from the dated date of September 1, 2004 to date of Closing. (c) Denominations. $5,000, or integral multiples thereof. (d) Form. Fully registered in book -entry form only in the name of Cede & Co., as bond owner and nominee for The Depository Trust Company. (e) Interest Payment Dates. March 1 and September 1, commencing March 1, 2005. (f) Maturity Schedule. Bonds shall mature and bear interest as follows: Due Interest Due Interest Sept. 1 Amount Rate Yield CUSIP Sept. 1 Amount Rate Yield CUSIP 2005 $ 95,000 2.000% 1.60% 98453PAA8 2010 $ 115,000 3.000% 3.07% 98453PAF7 2006 105,000 2.000 1.81 98453PAB6 2011 115,000 3.200 3.30 98453PAG5 2007 105,000 2.250 2.18 98453PAC4 2012 120,000 3.375 3.47 98453PAH3 2008 105,000 2.375 2.56 98453PAD2 2013 125,000 3.500 3.63 98453PAJ9 2009 110,000 2.750 2.85 98453PAE0 2014 130,000 3.375 3 74 98453PAK6 $410,000 4.00% Term Bonds due September 1, 2017 to yield 4.05%; CUSIP: 98453PAN0 $465,000 4.125% Term Bonds due September 1, 2020 to yield 4.32%; CUSIP: 98453PAR1 $720,000 4.50% Term Bonds due September 1, 2024 to yield 4.67%; CUSIP: 98453PAV2 $2,495,000 4.80% Term Bonds due September 1, 2034 to yield 4.94%; CUSIP: 98453PAF6 (g) Optional Redemption. The Bonds maturing on or prior to September 1, 2014 are not subject to redemption prior to their scheduled maturity. The Bonds maturing on or after September 1, 2017 are subject to redemption at the option of the City on and after September 1, 2014, in whole or in part (within one or more maturities to be selected by the City) on any date, at a price of par plus accrued interest, if any, to the date of redemption (h) Mandatory Redemption. If not previously redeemed as described above, the Term Bonds due on September 1 in the years 2017, 2020, 2024 and 2034 will be called for redemption (in such manner as DTC will determine) at a price of par, plus accrued interest on the date of redemption, on September 1 in the years and amounts as follows: * Final maturity. (i) 2017 Term Bonds Years Amounts 2015 $ 130,000 2016 135,000 2017* 145,000 Total $ 410,000 2024 Term Bonds Years Amounts 2021 $ 17n,99n 2022 175,000 2023 185,000 2024* 190,000 Total $ 720,000 2020 Term Bonds Years Amounts 2018 $ 150,000 2019 155,000 2020* 160,000 Total $ 465,000 2034 Term Bonds Years Amounts 2025 $ /00,000 2026 210,000 2027 220,000 2028 230,000 2029 240,000 2030 255,000 2031 265,000 2032 /80,n00 2033 290,000 2034* 305,000 Total $2,495,000 Rating/Insurance. Issuance of a municipal bond insurance policy by Financial Security Assurance Inc. and assignment to the Bonds a rating of AAA by Standard & Poor's Ratings Services. Closing Date. With definitive Bonds or a temporary Bond on or about September 14, 2004. Delivery. It is expected that the Bonds will be available for delivery at the facilities of DTC in New York, New York, or to the Paying Agent on behalf of DTC by Fast Automated Securities Transfer. Offer Expires. 11:00 p.m., August 24, 2004. Bond Counsel. Preston Gates & Ellis LLP For Information Purposes Only: True Interest Cost: 4.803550% Period Ending Principal BOND DEBT SERVICE City of Yakima, Washington Irrigation System Revenue Bonds, 2004 FINAL NUMBERS Dated Date 09/01/2004 Delivery Date 09/14/2004 Annual Coupon Interest Debt Service Debt Service 09/14/2004 03/01/2005 109,782.50 109,782.50 09/01/2005 95,000 2.000% 109,782.50 204,782.50 314,565 00 03/01/2006 108,832.50 108,832.50 09/01/2006 105,000 2.000% 108,832.50 213,832.50 322,665.00 03/01/2007 107,782.50 107,782.50 09/01/2007 105,000 2.250% 107,782.50 212,782.50 320,565.00 03/01/2008 106,601.25 106,601.25 09/01/2008 105,000 2.375% 106,601.25 211,601.25 318,202.50 03/01/2009 105,354.38 105,354.38 09/01/2009 110,000 2.750% 105,354.38 215,354.38 320,708.76 03/01/2010 103,841.88 103,841.88 09/01/2010 115,000 3.000% 103,841.88 218,841.88 322,683 76 03/01/2011 102,116.88 102,116.88 09/01/2011 115,000 3.200% 102,116.88 217,116.88 319,233 76 03/01/2012 100,276.88 100,276.88 09/01/2012 120,000 3.375% 100,276.88 220,276.88 320,553.76 03/01/2013 98,251.88 98,251.88 09/01/2013 125,000 3.500% 98,251.88 223,251.88 321,503 76 03/01/2014 96,064.38 96,064.38 09/01/2014 130,000 3.375% 96,064.38 226,064.38 322,128.76 03/01/2015 93,870.63 93,870.63 09/01/2015 130,000 4.000% 93,870.63 223,870.63 317,741.26 03/01/2016 91,270.63 91,270.63 09/01/2016 135,000 4 000% 91,270.63 226,270.63 317,541.26 03/01/2017 88,570.63 88,570.63 09/01/2017 145,000 4.000% 88,570 63 233,570.63 322,141.26 03/01/2018 85,670.63 85,670.63 09/01/2018 150,000 4 125% 85,670.63 235,670.63 321,341.26 03/01/2019 82,576.88 82,576.88 09/01/2019 155,000 4.125% 82,576.88 237,576.88 320,153.76 03/01/2020 79,380.00 79,380.00 09/01/2020 160,000 4 125% 79,380.00 239,380.00 318,760.00 03/01/2021 76,080 00 76,080.00 09/01/2021 170,000 4.500% 76,080 00 246,080.00 322,160.00 03/01/2022 72,255 00 72,255.00 09/01/2022 175,000 4.500% 72,255 00 247,255.00 319,510.00 03/01/2023 68,317.50 68,317.50 09/01/2023 185,000 4.500% 68,317.50 253,317.50 321,635.00 03/01/2024 64,155.00 64,155 00 09/01/2024 190,000 4.500% 64,155 00 254,155.00 318,310.00 03/01/2025 59,880 00 59,880.00 09/01/2025 200,000 4.800% 59,880.00 259,880.00 319,760.00 03/01/2026 55,080.00 55,080 00 09/01/2026 210,000 4.800% 55,080.00 265,080.00 320,160.00 03/01/2027 50,040 00 50,040.00 09/01/2027 220,000 4.800% 50,040.00 270,040.00 320,080.00 03/01/2028 44,760 00 44,760.00 09/01/2028 230,000 4 800% 44,760.00 274,760.00 319,520.00 03/01/2029 39,240 00 39,240.00 Aug 23, 2004 10:07 am Prepared by 7MW - Seattle -Northwest Securities Corp. (Finance 5.007a Yakima.IRRIG-04IRR) Page 1 BOND DEBT SERVICE City of Yakima, Washington Irrigation System Revenue Bonds, 2004 FINAL NUMBERS Period Annual Ending Principal Coupon Interest Debt Service Debt Service 09/01/2029 240,000 4.800% 39,240.00 279,240.00 318,480.00 03/01/2030 33,480.00 33,480.00 09/01/2030 255,000 4.800% 33,480.00 288,480.00 321,960.00 03/01/2031 27,360.00 27,360.00 09/01/2031 265,000 4.800% 27,360.00 292,360.00 319,720.00 03/01/2032 21,000.00 21,000.00 09/01/2032 280,000 4.800% 21,000.00 301,000.00 322,000.00 03/01/2033 14,280.00 14,280.00 09/01/2033 290,000 4.800% 14,280.00 304,280.00 318,560.00 03/01/2034 7,320.00 7,320.00 09/01/2034 305,000 4.800% 7,320,00 312,370.00 319,640.00 5,215,000 4,386,983.86 9,601,983.86 9,601,983.86 Aug 23, 2004 1007 am Prepared by JMW - Seattle -Northwest Securities Corp. (Finance 5.007a Yakima:IRRIG-04IRR) Page 2 O C' ▪ E E o ca ▪ 7.4 c o • T ▪ a c w E 0 a. t ▪ ia w c o a Ti 0 vo CD L 113 hi 15 T.: '0 o c E.6 Wa 'c o • V 0 g aio Of m cf, .ccs; uv v c om° c o o • m o O 0 o m •.r .0• 0. ca E_ m ▪ v m o To • > of t•2 c • a E . a 16 • 0 PRELIMINARY OFFICIAL STATEMENT DATED AUGUST 16, 2004 $5,545,000* City of Yakima, Washington Irrigation System Revenue Bonds, 2004 DATED: September 1, 2004 DUE:'September 1, as shown below NO UNDERLYING RATING—Municipal Bond Insurance applied for. BANK QUALIFIED—The City has designated the Bonds as "qualified tax-exempt obligations" for banks, thrift institutions and other financial institutions. See "Certain Federal Tax Income Consequences" herein for a discussion of this designation. BOOK -ENTRY ONLY—The Bonds will 'be issued as fully registered bonds in denominations of $5,000, or integral multiples thereof, and will be registered in the name of Cede & Co., as bond owner and nominee for The Depository Trust Company ("DTC"). DTC will act as securities depository for the Bonds. Purchasers will not receive certificates representing their interest in the Bonds purchased. PRINCIPAL AND INTEREST PAYMENTS—Interest on the Bonds will be payable on March 1, 2005 and semiannually thereafter on September 1 and March 1 of each year to their maturity or earlier redemption of the Bonds. Principal of and interest on the Bonds will be payable by the fiscal agency of the State of Washington in New York, New York, currently The Bank of New York, as further described herein. See "Description of the Bonds." For so long as the Bonds remain in a "book -entry only" transfer system, the fiscal agent will make such payments only to DTC, which in turn will remit such principal and interest to its Participants for subsequent disbursement to Beneficial Owners of the Bonds 'as further described herein in Appendix C. MATURITY SCHEDULE— Due Interest Prices or Due Interest Prices or Sept. 1 Amounts* Rates Yields CUSIPSept.1 Amounts* Rates Yields CUSIP 2005 $ 100,000 2020 $ 170,000 2006 100,000 2021 180,000 2007 105,000 2022 185,000 2008 110,000 2023 195,000 2009 110,000 2024 205,000 2010 115,000 2025 215,000 2011 120,000 2026 225,000 2012 125,000 2027 235,000 2013 125,000 2028 250,000 2014 130,000 , 2029 260,000 2015 140,000 2030 275,000 2016 145,000 2031 290,000 2017 150,000 2032 305,000 2018 155,000 2033 320,000 2019 165,000 2034 340,000 (Plus accrued interest from the Dated Date) REDEMPTION—The Bonds are subject to redemption prior to their stated maturities as further described herein. See "Description of the Bonds – Redemption Provisions." SECURITY The Net Revenue of the System is pledged irrevocably to the payment of the Bonds. This pledge shall constitute a lien and charge upon the Net Revenue of the System. Additional bonds may be issued on a parity of lien with the Bonds, subject to certain conditions described herein. The Bonds are special obligations of the City payable only from the Bond Account. The Bonds are not general obligations of the City, the State of Washington, or any other municipal corporation or political subdivision thereof. See "Security for the Bonds." TAX EXEMPTION—In the opinion of Bond Counsel, interest on the Bonds is excluded from gross income subject to federal income taxation pursuant to the Internal Revenue Code of 1986, as amended, subject to certain conditions and assumptions described herein under "Tax Exemption." The Bonds are not private activity bonds. Interest on the Bonds is included in the computation of certain federal taxes on corporations. DELIVERY—The Bonds are offered by the Underwriter when, as and if issued, subject to the approving legal opinion of Preston Gates & Ellis LLP of Seattle, Washington, Bond Counsel. It is expected that the Bonds will be ready for delivery to the Bond Registrar through the facilities of The Depository Trust Company by Fast Automated Securities Transfer, on or about September 14, 2004. * Preliminary, subject to change. This cover page contains certain information for quick reference only. It is not a summary of the issue. Investors must read the entire Official Statement to obtain information essential to the making of an informed investment decision. 111111 SEATTLE -NORTHWEST Milli SECURITIES CORPORATION (This Page Intentionally Left Blank) City of Yakima, Washington 129 North Second Street Yakima, Washington 98901 Phone: (509) 575-6000 Fax: (509) 575-6107 ' www.ci.yakima.wa.us* Paull'. George Neil McClure Ronald J. Bonlender Dave Edler Mary Place Bernard J. Sims Susan J. Whitman Richard A. Zais, Jr. Glenn K. Rice Rita M. Anson, CPA Timothy M. Jensen Cindy Epperson Dave Brown Ray Paolella Mayor and City Council Mayor Assistant Mayor Council Member Council Member Council Member Council Member Council Member Administrative Officials City Manager Assistant City Manager Director of Finance & Budget Treasury Services Officer Financial Services Manager Water/Irrigation Manager City Attorney Bond Counsel Preston Gates & Ellis LLP Seattle, Washington 206-623-7580 Current Bond Registrar The Bank of New York New York, New York 1-800-438-5473 * 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. This Official Statement does not constitute an offer to sell the Bonds in any jurisdiction in which or to a person to whom it is unlawful, to make such an offer. No dealer, salesperson or other person has been authorized by the City or the Underwriter to give any information or to make any representations, other than those contained herein, in connection with the offering of the Bonds and, if given or made, such information or representations must not be relied upon. The City makes no representation regarding the accuracy or completeness of the information provided in Appendix C—Book-Entry Transfer System, which has been furnished by DTC. Estimates and opinions are included and should not be interpreted as statements of fact. Summaries of documents do not purport to be complete statements of the provisions. The information and expressions of opinion herein are subject to change without notice, and neither the delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create an implication that there has been no change in the affairs of the City since the date hereof. The Underwriter has provided the following sentence for inclusion in this Official Statement. The Underwriter has reviewed the information in this Official Statement in accordance with, and as part of, its responsibility to investors under 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. This Preliminary Official Statement has been "deemed final" by the City, pursuant to Rule 15c2-12 promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, except for information which is permitted to be excluded from this Preliminary Official Statement under said Rule 15c2-12. In connection with this offering, the Underwriter may over -allot or effect transactions that stabilize or maintain the market price of the Bonds at levels above those which might otherwise prevail in the open market. Such stabilizing, if commenced, may be discontinued at any time. i (This Page Intentionally Left Blank) Table of Contents Page Description of the Bonds 1 Principal Amount, Date, Interest Rates and Maturities 1 Redemption Provisions 1 Purchase 1 Bond Registrar and Registration Features 2 Book -Entry Bonds L 2 Authorization for Issuance 2 Purpose and Use of Proceeds 2 Purpose 2 Sources and Uses of Funds 3 Security for the Bonds 3 Bond Account 3 Revenue Fund/Priority of Payments 4 Rate Covenant 4 Certain Other Covenants 1 5 Future Parity Bonds 5 Defeasance 6 Indebtedness of the System 7 Parity Bonds 7 Irrigation Revenue Bonds — Debt Service Requirements ,, 7 Debt Payment Record 7 Future Financings 8 The Irrigation System 8 Description 8 Water Supply 8 Irrigation Customers 10 Major Accounts of the System 11 Irrigation Rates and Charges 11 Capital Improvement Plan 11 Billing and Collection Practices 12 Endangered Species Act 12 Financial Results 12 Statement of Net Assets/Comparative Balance Sheet 13 Projected Financial Information 14 Projected Coverage Table 15 The City 15 Key Administrative Staff 16 Labor Relations 16 Pension System 17 Risk Management 17 Accounting Policies 19 Budgetary Process 19 Cash and Investments 19 Auditing of City Finances 20 Demographic Information 21 Tax Exemption 24 General 24 Certain Federal Income Tax Consequences 24 Continuing Disclosure 25 Legal and Underwriting 26 Approval of Counsel 26 Litigation 26 Limitation on Remedies 26 Official Statement 1 27 Underwriting 27 Concluding Statement 27 Bond Ordinance Appendix A Form of Opinion of Bond Counsel Appendix B Book -Entry Transfer System Appendix C 2002 Annual Financial Statements Appendix D ll (This Page Intentionally Left Blank) OFFICIAL STATEMENT City of Yakima, Washington $5,545,000* Irrigation System Revenue Bonds, 2004 The City of Yakima, Washington (the "City"), a municipal corporation duly organized and existing under and by virtue of the laws of the State of Washington (the "State") furnishes this Official Statement in connection with the offering of $5,545,000* aggregate principal amount of Irrigation System Revenue e Bonds, 2004, dated September 1, 2004 (the "Bonds"). This Official Statement provides information concerning the City, the Bonds and the City's irrigation system (the "System"). Additional bonds may be issued on a parity of lien with the Bonds, subject to, certain conditions described herein (the Bonds and any Future Parity Bonds are hereinafter referred to as the "Parity Bonds"). Certain capitalized words and phrases used in this Official Statement have the meanings as defined in the Bond Ordinance attached hereto in Appendix A. Description of the Bonds Principal Amount, Date, Interest Rates and Maturities The Bonds will be issued in the aggregate principal amount of $5,545,000* and will be dated and bear interest from September 1, 2004. The Bonds will mature on the dates and in the principal amounts and will bear interest (payable semiannually on March 1 and September 1, first interest payable March 1, 2005) at the respective rates as set forth on the inside cover of this Official Statement. Interest on the Bonds will be computed on the basis of a 360 -day year consisting of twelve 30 -day months. Redemption Provisions Optional Redemption. The Bonds maturing on or prior to September 1, 2014 are not subject to redemption prior to their scheduled maturity. The Bonds maturing on or after September 1, 2015 are subject to redemption at the option of the City on and after September 1, 2014, in whole or in part (within one or more maturities to be selected by the City) on any date, at a price of par plus accrued interest, if any, to the date of redemption. For as long as the Bonds are in book -entry only form, if fewer than all of the Bonds of a maturity are called for redemption, the selection of Bonds within a maturity to be redeemed shall be made by DTC in accordance with its operational procedures then in effect. See Appendix C attached hereto. If the Bonds are no longer held in book -entry only form, then the Bond Registrar would select Bonds for redemption using a random selection method. Notice of Redemption (DTC). So long as the Bonds are in book -entry only form, the Bond Registrar shall notify DTC of an early redemption not less than 30 days and no more than 60 days prior to the date fixed for redemption, and shall provide such information as required by a letter of representation submitted to DTC in connection with the issuance of the Bonds. Neither the City nor the Bond Registrar will provide notice of redemption to any beneficial owner of Bonds. It is the sole responsibility of the DTC Participants to provide notice of redemption to individual beneficial owners of the Bonds. Purchase The City has reserved the right in the Bond Ordinance (defined herein) to use at any time any surplus Revenue of the System available after providing for maintenance and operation, debt service, bond * Preliminary, subject to change. 1 redemption and,capitai improvements or other available funds, to purchase any of the Bonds at any price deemed reasonable by the City. Bond Registrar and Registration Features The Bonds w ll be issued as fully r stcrcd bonds and, when n __�.. ..___ ,,.. ....� ..�.b�«,icu atiu, issued, will be registered in the name OI Cede & Co. as Bondy Owner and as nominee for The Depository Trust Company ("DTC"), New York, New York. DTC will act as securities depository for the Bonds. individual purchases and sales of the Bonds may be made in book -entry form' only in minimum denominations of $5,000 within a maturity and integral multiples thereof. Purchasers ("Beneficial Owners") will not receive certificates representing their interest in the Bonds. Principal of and interest on the Bonds will be payable by the State fiscal agent in New York, New York, currently The Bank of New York (the "Bond Registrar"). Sp long as Cede & Co. is the registered owner of the Bonds, principal of and interest on the Bonds are payable by wire transfer by the Bond Registrar to DTC, which, in turn,obligated remit such _, .,, is vvaabun�a.n. to principal and interest to its participants for subsequent disbursement to the Beneficial Owners of the Bonds, as further described herein in Appendix C. Book -Entry Bonds DTC will act as securities depository for the Bonds. The ownership of one fully registered Bond for each series and maturity of the Bonds, as set forth on the cover of this Official Statement; each in the aggregate aa- -a-- principal amount of such maturity, will be registered in the name of Cede & Co., as nominee for DTC. See Appendix C attached hereto for additional information. Procedures in the Event of Revisions of Book -Entry Transfer System. If DTC resigns as the securities depository and the City is unable to retain a qualified successor to DTC, or the City has determined that it is in the best interest of the City not to continue the book -entry system of transfer or that interests of the Beneficial Owners of the Bonds might be adversely affected if the book -entry system of transfer is continued, the City will execute, authenticate and deliver at no cost to the Beneficial Owners of the Bonds or their nominees, Bonds in fully registered form, in the denomination of $5,000 or any integral multiple thereof within a maturity. In the event the Bonds are transferred by the City to fully registered form, the payments of principal and interest on the Bonds will be made by the Bond Registrar. Principal of the Bonds will be payable upon due presentment and surrender thereof at the office designated by the Bond Registrar. Under the State's current fiscal agency agreement, the Bonds also may be presentedfor payment in the State of Washington at any office off Wells Fargo Bank, National Association. Interest on the Bonds will be payable by check or draft mailed to the owners of the Bonds at the address appearing on the Bond Register on the 15th day of the month preceding an interest payment date, and the Bonds will be transferable as provided in the Bond Ordinance (defined herein). Authorization for Issuance The Bonds are issued pursuant to Ordinance No. 2003-68 passed by the City Council on November 4, 2003 (the "Bond Ordinance"), Resolution No. adopted on August 24, 2004 and under and in accordance with the laws and provisions of the State, including chapters 35.92 and 39.46 RCW. The Bonds are the first series of the City Council's total authorization of $10 million. The City expects to issue the remaining $4.455 million in 2007 or 2008. Purpose and Use of Proceeds Purpose The proceeds from the sale of the Bonds will be used to (i) design and replace portions of the System, including laying new pipe (the "Project") as further defined herein under "The irrigation System — Capital Improvement Plan;" (ii) satisfy the Reserve Account Requirement with cash or authorized Qualified Insurance; and (iii) pay for the costs of issuance of the Bonds. 2 Sources and Uses of Funds The proceeds from the Bonds (less accrued interest) are estimated to be applied as follows: Sources of Funds Par Amount of Bonds Premium/Discount Total Sources of Funds $ Uses of Funds Project Fund $ Reserve Fund Issuance Expenses and Underwriter's Discount (and Bond Insurance) Total Uses of Funds $ 5,545,000* Security for the Bonds The principal of and interest on the Bonds are secured by a pledge of Net Revenues of the System equal to the pledge for any future Parity Bonds, subject only to the payment of the Costs of Maintenance and Operation of the System and the required payments into the Irrigation System Bond Account (the "Bond Account"). The City has covenanted that, so long as the Bonds are outstanding, no bonds may be issued subsequent to the issuance of the Bonds with a lien and charge on the Net Revenues superior to the lien and charge of the Bonds. The Bonds are a special limited obligation of the City payable only from the Bond Account. The Bond Account will at all times be completely segregated and set apart from all other funds and accounts of the City for the security and the payment of the principal of and interest on the Parity Bonds, as they become due. The Bonds are not general obligations of the City, the State or any political subdivision thereof. Bond Account The Bond Account will be used solely for the purpose of paying and securing the payment of Parity Bonds. The City will deposit the System Revenues or Assessments into the Bond Account for payment of the principal of and interest on Parity Bonds without allocation to any particular series of bonds payable from the Bond Account. All accrued interest received by the City at the, time of delivery of the Bonds will be paid into the Bond Account. As long as any of the Parity Bonds emain outstanding, the City has obligated itself to set aside and pay from the Revenue Account into the Bond Account, on or before the date due,.those amounts necessary, together with Revenue of the System, to pay the interest or principal and interest next coming due on the outstanding Parity Bonds Reserve Account. The City has created a Reserve Account for the purpose of securing the payment of the principal of and interest on all Parity Bonds. The City has covenanted that on the date of issuance of the Bonds it will have on deposit an amount or Qualified Insurance in an amount equal to the Reserve Account Requirement. Each ordinance providing for the issuance of Future Parity Bonds will provide for payments into the Reserve Account from any other money lawfully available therefor in amounts that within not less than five years of equal monthly payments, will provide for deposit of the Reserve Account Requirement or may provide for the City to obtain Qualified Insurance or a Qualified Letter of Credit for specific amounts required to be paid into the Reserve Account. Such Qualified Letter of Credit or Qualified Insurance will not be cancelable on less than five years notice. In the event of any cancellation, the Reserve Account will be funded as if the Parity Bonds which remain outstanding had been issued on the date of such notice of cancellation. * Preliminary, subject to change. 3 In the event there is. a'deficiency in the Bond Account to meet maturing installments of either interest on or principal of and interest on the outstanding Parity Bonds payable out of such Account, such deficiency will be made up from the Reserve Account by the withdrawal of money therefrom and by the sale or redemption of obligations held in the Reserve Account, if necessary, in such amounts as will provide cash in the Reserve Account sufficient to make up anv such deficiency, and if a' defieiPney s+;lt exists immediately prior to an interest payment date and after the withdrawal of cash, the City will then draw from any Qualified Letter of Credit or Qualified Insurance to, make up the deficiency. Such draw will be made at such times and under such conditions as the agreement for such Qualified Letter of Credit or such Qualified Insurance provides. If more than one Qualified Letter of Credit or Qualified Insurance is available, draws will be made ratably to make up the deficiency. Revenue Fund/Priority of Payments The City has obligated and bound itself to deposit the Revenues of the System into the Revenue Fund. Revenues of the System deposited therein will be used only for the following purposes and in the fnliow ng priority. _.,....... ,� order of gsxx_xxx! . First, to pay the Costs of Maintenance and Operation of the System; Second, to make all payments required to be made into the Bond Account to pay the interest on any Parity Bonds and amounts to repay any bond insurer for interest payments on Parity Bonds; Third, to pay the principal of and any sinking fund payments for the Parity Bonds and amounts to repay any bond insurer for principal and sinking fund installments for any Parity Bonds; Fourth, to make all payments required to be made into any Reserve Account to secure the payment of any Parity Bonds; Fifth, to make all payments required to be made into any other revenue bond redemption fund or revenue warrant or note redemption fund and Bond Account or reserve account created to pay and secure the payment of the principal of and interest on any revenue bonds or revenue warrants or notes of the City having a lien upon the Revenue of the System and the money in the Revenue Fund junior and inferior to the lien thereon for the payment of the principal of and interest on Parity Bonds; and Sixth, to retire by redemption or purchase any outstanding revenue bonds or revenue warrants or notes of the City or to make necessary additions, betterments, improvements, extraordinary repairs, extensions and replacements of the System or any other lawful City purposes. Rate Stabilization Account. The Rate Stabilization Account has been created within the Revenue Fund to cope with future increases in revenue requirements of the System. The City may from time to time appropriate or budget amounts in the Revenue Fund for deposit in the Rate Stabilization Account and may from time to time withdraw amounts therefrom to prevent or mitigate irrigation rate increases or for other lawful purposes of the City related to the System. Amounts withdrawn from the Rate Stabilization Account will increase Revenue of the System for the period for which they are withdrawn, and amounts deposited in the Rate Stabilization Account will reduce Gross Revenue of the System for the period for which they are deposited. Credits to or from the Rate Stabilization Account that occur within 90 days after the end of a fiscal year may be treated as occurring within such fiscal year. Earnings on the Rate Stabilization Account will be credited to the Revenue Fund Rate Covenant The City has covenanted in the Bond Ordinance to establish, maintain and collect rates and charges for the use of the services and facilities and all commodities sold, furnished or supplied by the System which will be fair and nondiscriminatory and will adjust such rates and charges from time to time so that (i) the Revenue of the System collected (together with Assessments collected) will at all times be sufficient (a) to pay all the costs of charges and expenses in connection with the proper operation and maintenance of the System, (b) to pay the principal of and interest on the outstanding Parity Bonds, as and when the same 4 will become due and payable, (c) to make when due all payments which the City is obligated to make into the Bond Account and Reserve Account and all other payments which the City is obligated to make pursuant to the Bond Ordinance, and (d) to pay all taxes, assessments or other governmental charges lawfully imposed on the System or the revenue therefrom or payments in lieu thereof and any and all other amounts which the City may now or ,hereafter become obligated to pay from the Revenue of the System by law or contract; and (ii) the Net Revenues in each calendar year will be at least equal to 1.40 times Annual Debt Service for such year (after deducting Assessments actually collected for such year). Certain Other Covenants Certain other covenants in the Bond Ordinance include: Sale or Disposition of System. The City will not sell, mortgage„lease or otherwise dispose of the System in its entirety unless, simultaneously with such sale or other disposition, provision is made for payment into the Bond Account of cash or Government Obligations sufficient together with interest to pay the principal of and interest on all then outstanding Parity Bonds, nor will it sell or otherwise dispose of any part of the useful operating properties of the System in excess of five percent of the value of the net utility plant of the System unless (i) a certificate of a Professional Utility Consultant is filed with the City stating that such sale, mortgage, lease or other disposition will not impair the rate covenants of the City; or (ii) a provision is made for payment into the Bond Account of the amount set forth in the Bond Ordinance. Collection of Assessments. The City will promptly collect all Assessments levied in any utility local improvement district now or hereafter created to secure the payment of the principal of and interest on arty Parity Bonds and will pay the same into the Bond Account without allocation of such Assessments to any particular series of Parity Bonds. However, nothing in the Bond Ordinance will be construed to prohibit the City from issuing revenue bonds having a lien on Gross Revenue junior to the lien on such revenue for the payment of the principal of and interest on Parity Bonds and pledging as security for the payments of such junior lien bonds assessments levied in any utility local improvement district that may have been created to pay part or all the cost of improvements to the System for which such junior lien revenue bonds were specifically issued. Books and Accounts. The City will maintain complete, books and records relating to the operation of the System and its financial affairs, and will cause such books and records to be audited annually, and cause to be prepared an annual financial and operating statement, which statement will be mailed to any owner of Parity Bonds upon request. Insurance. The City will carry extended coverage insurance on the System as is ordinarily carried on the property of similar public utilities by other municipal corporations engaged in the operation of the same if such insurance can be obtained at a reasonable cost and will also carry adequate public liability insurance and other kinds of insurance as under good practices are ordinarily carried on the properties of similar public utilities; provided, however, that the City may, if deemed necessary and advisable by the Council, institute or continue a self-insurance program with respect to any or all of the aforementioned risks. The premiums paid for all such insurance shall be regarded and paid as a Cost of Maintenance and Operation. No Free Service. Except as permitted by law, the City will not furnish any service of the System to any customer free of charge. Future Parity Bonds For as long as any Bonds remain outstanding, the City will not issue any bonds having a greater or equal priority of lien upon the Revenue of the System to pay and secure the payment of the principal of and interest on the Bonds than the priority of lien created on such Revenue to pay and secure the payment of the principal of and interest on the Bonds or any outstanding Parity Bonds. The City reserves the right to issue Future Parity Bonds for the purposes of (i) providing funds to acquire, construct, reconstruct, install, or replace any equipment, facilities, additions, betterments, or other capital improvements to the System for which it is authorized by law to issue revenue bonds or for other lawful purposes of the System, or (ii) refunding at or prior to their maturity any revenue bond anticipation notes or outstanding 5 revenue bonds or other obligations payable out of the Revenue of the System and to pledge that payments will be made out of the Revenue of the System and into the Bond Account to pay and secure the payment of the principal of and interest on such Future Parity Bonds on a parity with required payments to be made out of such Revenue into such account to pay and secure the payment of the principal of and interest on any Parity Bonds then outstanding, upon compliar, the following - --_-_-�___�__��.�, ...t..,,,,.. �.....rwaa.c with conditions: a) At the time of the issuance of any Future Parity Bonds there is no deficiently in the Bond Account or the Reserve Account. b) If there are Assessments levied in any utility local improvement district in which additions and improvements to and extensions of the System will be constructed from the proceeds of such Future Parity Bonds, the ordinance authorizing such Future Parity Bonds will require that such Assessments be paid into the Bond Account. c) If there are Assessments pledged to be paid into a warrant or bond redemption fund for revenue bonds or warrants being refunded by Future Parity Bonds, the ordinance authorizing such Future Parity Bonds will require such Assessments to be paid into the Bond Account. d) The principal of and interest on any Future Parity Bonds will be payable out of the Bond Account and the requirements for Reserve Account payments as set forth 'in the Bond Ordinance will be met. e) Prior to the delivery of any Future Parity Bonds, with limited exception, the City will have on file in the office of the City Clerk, as further provided in the Bond Ordinance, either: (i) a certificate of the Director of Finance and Budget showing that the Net Revenue determined as hereafter provided for each calendar or fiscal year after the issuance of such Future Parity Bonds will .equal at least 1.40 times Annual Debt Service (defined as maximum Annual Debt Service) during any calendar or fiscal year for all Parity Bonds plus the Future Parity Bonds proposed to be issued; or (ii) a certificate of a Professional Utility Consultant showing that the Net Revenue determined and adjusted as provided in the Bond Ordinance for each calendar or fiscal year after the issuance of such Future Parity Bonds (the "Adjusted Net Revenue") will equal at least 1.40 times the Annual Debt Service for each such calendar or fiscal year for all Parity Bonds plus the Future Parity Bonds proposed to be issued. The City may issue any revenue bonds, warrants or other obligations that are a charge upon the (i) money in the Revenue Fund junior or inferior to the payments required to be made into the Bond Account and the Reserve Account; and (ii) Revenue of the System junior or inferior to the payments required td be made out of such Revenue into the Bond Account and accounts therein to pay and secure the payment of any outstanding Parity Bonds. The City may issue revenue bonds to refund maturing Parity Bonds for the payment of which money is not otherwise available. Defeasance In the event that money and/or Governmental Obligations in amounts sufficient to redeem and retire any Bonds are irrevocably set aside to effect such redemption and retirement, then no further payments need be made into the Bond Account for payments on such bonds and the owner of such bonds will cease to be entitled to any lien, benefit or security of the Bond Ordinance except the right to receive the funds so set aside and pledged, and such Bonds will be deemed not to be outstanding. 6 Indebtedness of the System The Bonds will be the only outstanding Parity Bonds of the System. The City currently has a subordinate lien Public Works Trust Fund loan (the "Loan") outstanding in the amount of $485,350 and maturing on July 1, 2011. A portion of the Loan (approximately 56 percent), is paid for out of the Irrigation Utility Enterprise Fund for the refurbishment of the Fruitvale Canal. The Loan is not on a parity lien with the Bonds. Irrigation Revenue Bonds - Debt Service Requirements Due The Bonds* Sept. 1 Principal 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 3034 $ 100,000 100,000 105,000 110,000 110,000 115,000 120,000 125,000 125,000 130,000 140,000 145,000 150,000 155,000 165,000 170,000 180,000 185,000 195,000 205,000 215,000 225,000 235,000 250,000 260,000 275,000 290,000 305,000 320,000 340,000 Total $ 5,545,000 Interest $ 255,248 253,198 250,798 247,910 244,555 240,925 236,900 232,520 227,770 222,833 217,568 211,758 205,595 199,070 192,250 184,825 177,005 168,545 159,758 150,300 140,153 129,403 117,928 105,825 92,950 79,560 65,260 50,180 34,320 17,680 Total Debt Service* $ 355,248 353,198 355,798 357,910 354,555 355,925 356,900 357,520 352,770 352,833 357,568 356,758 355,595 354,070 357,250 354,825 357,005 353,545 354,758 355,300 355,153 354,403 352,928 355,825 352,950 354,560 355,260 355,180 354,320 357,680 $ 5,112,585 $ 10,657,585 * Preliminary, subject to change. Interest amounts are estimates only and assume interest rates ranging from 2.05% to 5.20%. Debt Payment Record The City has promptly met all debt service payments on outstanding obligations. No refunding bonds have been issued to avoid an impending default. 7 Future Financings Other than the Bonds, the System does not have any ,other outstanding Parity Bonds. The City does not anticipate issuing additional long-term System debt within the next 12 months. The Bonds are the first portion of the City Council's total authorization of $10 million. The City expects to' issue the second series of $4455 million in 2007 2008 (see "The Irrigation System Capital Improvement -- T --or -....... ��.... - �,aYuai tatIlan" herein for a description of the second portion of the Project). The Irrigation System Description The City was originally developed on irrigated farmland, with irrigation water provided by several irrigation districts and private irrigation companies (the ,"Irrigation Companies"). Eventually, urban development replaced the farming activities. The existing irrigation systems remained and are now used irrigate lawns, gardens and all farm The City -owned _ to __.��._ gardens oli;all x'311;:7. a 3!!-i;w(s!'.xmi C]S3d maintained irrigation system (the "System") now consists of (i) the diversion, transmission and delivery systems for irrigation water in the General Sub -System (as described below) and (11) portions of several other transmission and delivery systems that also provide water to City residents ("non -General Sub -Systems"). The City owns all of the transmission and delivery infrastructure for transporting water from its point of supply to residences within the System. The System currently serves over 10,500 parcels/accounts (generally, one parcel equals one account), totaling 2,055 irrigated acres. The piping networks, which make up the System, are primarily wood stave, while more recent additions are cast iron, high-density polyethylene ("HDPE") or polyvinyl chloride ("PVC"). The System typically operates only from April through October annually, although users are billed bi-monthly throughout the year. The System is supplied by City -owned water rights and by water provided under long-term water supply contracts from the following Irrigation Companies: (i) Naches and Cowiche Canal Company; (ii) Yakima Valley Canal Company; (iii) New Schanno Ditch Company; and (iv) Old Union Ditch Company. For over 50 years, the Irrigation Companies have provided water supply to the System based on the City's ownership of i.rnn of water shares in the companies. e long-term water supply contracts supplement and clarify the City's continued entitlement to water supply in the future. The contracts with each of the Irrigation Companies have terms ending in 2054 and provide for automatic renewal for successive 50 -year terms unless one of the parties opts out. In addition, the System receives a small portion of its supply from the Yakima-Tieton Irrigation District (the "District"). The Irrigation Companies and the District are responsible for delivering supply water to the System, including its pumping stations. For the General Sub -System, the City's largest Sub -System, the City owns the water rights in its own name. The City diverts water under these water rights at the City -owned and operated Nelson Bridge Diversion Dam on the Naches River. The General Sub -System supplies 40 to 50 percent of the water flow of the System, depending on the season. For the non -General Sub -Systems, as described above, the City purchases water from the Irrigation Companies and the District who deliver the water to the System to then deliver to its customers. Water Supply The water supply for the System is diverted from the Naches River. As discussed above, the City diverts the water authorized by its water rights and the Irrigation Companies and the District are responsible for diverting and delivering the water the City acquires from them under water rights held in their names. The following table shows the areas served by the General and non -General Sub Systems. It also shows the maximum quantities of surface water the City is authorized to divert under the General Sub -System water rights, and the maximum quantities the System is contractually entitled to receive from the Irrigation Companies and the District. Under the City's and Irrigation Companies' water rights, the maximum authorized quantities vary at different times in the irrigation season (April - August; September and October). These variations in authorized quantities are also shown in the table. Finally, the table indicates the priority dates of the water rights held by the City, the Irrigation Companies and the 8 District. Because the ,priority dates of the majority of the water rights predate the United States' 1905 development of the Yakima Irrigation Project, they are not subject to "pro -ration" or automatic reduction during times of drought. System, Company or District City General Sub -System Yakima Valley Canal Co. Naches-Cowiche Canal Co. New Schanno Ditch Co. Old Union Canal Co. Yakima-Tieton Irrigation District Total , Water Supply Priority Date (1) 1869, 1878, 1905 ],893,1894,1905 1880 1871, 1873, 1885 1878 1905 Acres Parcels Served Served (2) 580 3,296 590 2,545 476 2,754 369 1,773 36 169 4 16 Maximum Daily Flows (MGD) Apr. - Aug. Sept. Oct. 24.95 18.65 15.56 8.38 5.47 4.19 8.92 5.89 4.46 5.75 3.81 2.89 5.99 3.96 2.99 0.04 0.04 0.04 2,055 10,553 54.03 37.82 30.13 (1) Priority dates indicate the seniority of the underlying water rights for each entity. Multiple dates for an entity indicate multiple water rights. (2) Number of parcels is approximate as parcels are combined and divided over time. Source: City of Yakima The General and non -General Sub -Systems have the capacity to and regularly do transmit the maximum quantities authorized under the City's water rights and under its contracts with the Irrigation Companies and the District. Since 1977, all rights to surface water within the Yakima River watershed, including the surface water rights that are the supply for the System, have been under review in the Yakima River general stream adjudication (Ecology v. Acquavella). In 2002, the City reached a settlement with the State and the United States in the adjudication quantifying the City's water rights. On November 21, 2002, the Court issued a Conditional Final Order confirming the terms of the settlement, which include a reduction of water rights as described in the following paragraphs. No appeals to the Conditional Final Order were filed by any party. The water rights of the Irrigation Companies and the District that provide water to the System are also reflected in Conditional Final Orders that were not appealed and do not include water right reductions such as the City's. At the conclusion of the Acquavella adjudication, the Court will combine all of the rulings reflected in the Conditional Final Orders into a single Final Decree that may be subject to appeal by any of the litigants. The Conditional Final Orders resolve all issues regarding the rights under review in the adjudication, subject to their incorporation into the Court's Final Decree at the conclusion of the adjudication. The quantity of water rights confirmed in the adjudication in the City's own name for use in the General Sub -System is 8,030 acre feet until January 21, 2013. After January 21, 2013, the rights are reduced to 4,741 acre feet. Based on engineering studies, these amounts are fully expected to be sufficient to meet the Sub - System's current and future needs. The General Sub -System is currently considered inefficient (i.e., a significant portion of the water diverted from the Naches River is lost through leakage during conveyance and is not available to deliver to System customers). As described in the "C pital Improvement Plan" section below, the purpose of the Bonds is to provide a portion of the capital necessary to rehabilitate parts of the System, including the General Sub -System, to improve its efficiency. The City hired Carollo Engineers (the "Engineers") to provide information regarding the efficiency of the General Sub -System. Based on their findings and conclusions developed during previous investigations, the System appears to be losing between 50 and 60 percent of its water due to leakage. The Engineers estimate that pipeline improvements constructed during the Project should reduce the loss rate from 60 percent to between five and 10 percent of the total diversion rate, which is consistent with industry standards for a well -constructed system. Based on these findings, the City believes that the improvements to the General Sub -System through the improvements described in "Capital Improvement Plan" should increase System efficiency sufficiently to offset the reduction in water rights contained in the Conditional Final Orders. 9 A rehabilitation schedule has been developed for the System. The schedule will stage pipeline upgrade projects over an eight-year period. Projects will be prioritized so that larger transmission pipes that convey the majority of system flows will be upgraded early in the Project. This will' improve System performance, and should lead to greater improvements in efficiency sooner rather than later during the eight-year improvement window. It is possible that the quantities of water confirmed to the Irrigation Companies and the District that supply the System could in the future be reduced through statutory relinquishment under State law. In order for this to occur, the State would need to demonstrate that a company or district had voluntarily failed to use some of the water to which it is entitled for a consecutive period of five years or longer. Such non-use would have to be without "sufficient cause." Weather conditions that result in lower water demand are "sufficient cause," i.e., if demonstrated, they would prevent relinquishment from occurring. It should be noted that if relinquishment occurs after a five-year period it will have been demonstrated that the Irrigation Companies or the District did not need that supply for their customers, and there is therefore no adverse effect to the System. The water rights the City holds in its own name are for "municipal supply purposes" and are therefore not subject to statutory relinquishment. Irrigation Customers The following is a five-year history of the number of irrigation customers and annual amounts billed. The City does not make distinctions between residential and commercial customers. Irrigation Billing Total No. of Total Year Accounts Amount Billed 2003 10,542 $1,789,852 2002 10,563 1,733,767 2001 10,488 1,729,091 2000 10,296* 1,739,361 1999 10,733 1,693,703 * Number of accounts fluctuate over time as parcels are merged and/or divided, creating fewer or greater numbers of accounts for the same area; however the square footage served remains the same. Source: City ofYakimn 10 Major Accounts of the System The following table shows the City's major irrigation customers by amount billed in 2003. Major 2003 Irrigation System Customers Total Amount Percent of 2003 Customer Billed, System Revenues Yakima School District No. 7 $ 42,076 2.35% Yakima Housing Authority 13,295 0.74 Yakima Valley Memorial Hospital 12,865 0.72 Doug Lemon 5,927 0.33 City of Yakima Parks 4,693 0.26 Yakima Resources (1) 3,516 0.20 Opportunities Industrialization Center 3,208 0:18 Yakima Medical Enterprises 2,639 0.15 Yakima HMA Inc. (2) 2,381 0.13 Sheridan Folsom 2,328 0.13 Total $ 92,928 5.19% (1) Formerly Boise Cascade Corporation. (2) Formerly Providence Health Systems, a non-profit medical facility. Yakima HMA Inc. is doing business as Yakima Regional Medical and Cardiac Center. Source: City of Yakima Irrigation Rates and Charges Annual charges are established by the City Council and are calculated as a function of the total square footage of each lot, tract or parcel served. Rates and charges are not based on consumption because there are no customer meters. The billing rate effective September 2003 is $0.0277 per square foot annually, or an approximate projected amount of $2,513,787 in 2004. The System operates each year from April 19t through October 15th. All parcels/accounts are billed on a bi-monthly basis annually, so revenue recognition is even throughout the entire year. Previous rates were effective from 1998 through September 2003. No rate increases are planned at this time. The City charges a connection fee for new users of the System. The connection fee is based on actual cost of materials and labor for hook-up so there is no standard fee. Although there were no new users added in 2003, the City expects that some new users could be added as the Project nears completion. In 2003, the City passed an ordinance that prevents the users of the System from voluntarily withdrawing from the System unless the user can prove that water cannot be delivered to their property. Capital Improvement Plan The City's primary capital improvement plan is to rebuild all of the System, with the General Sub -System being the first priority (the "Project") and the non -General Sub -Systems as the second priority. General Sub -System. The General Sub -System improvements in the amount of approximately $13.45 million will be funded with revenue bonds (including the Bonds), revenues of the System and funds from the Community Development Block Grant ("CDBG"), as available. Completion of the Project is estimated to take seven to ten years. In 2004, the City plans to (i) complete the pre -design for irrigation refurbishment and (ii) design the first phase of rebuild at a design cost of approximately $200,000. In 2004 and 2005, the City plans to (i) begin the first phase of actual construction in the amount of approximately $4.3 million and (ii) start designing the next phase of construction at a design cost of between $350,000 to $450,000. 11 The remainder of the Project will be funded with the second series of the irrigation bond authorization in the amount of $4.455 million expected in late 2007 or 2008. It will completely replace/refurbish the remainder of the General Sub -System and will include completing the replacement of 169,000 feet of pipe; two new pump stations; new water measurement device; new residential services including valves for each property in the General Sub -System; modifications to debris screening facilities; and other capital improvements. Other Systems. improvements to, the non -General Sub -Systems are estimated to cost $6.5 million and are anticipated to take place over the next 18 years. Funding will come from existing capital improvement rates and possibly from Future Parity Bonds. Billing and Collection Practices There are two general procedures for collections of irrigation accounts: Accounts which have _t__ �� ,.••.. charges for both domestic water and irrigation water generally r.prGseni, approximately 66 percent of all irrigation accounts. Bills are sent on a bi-monthly basis and are due 14 days after they are sent. If the bills are not paid by that date, a reminder notice is sent requesting payment within 10 days. If the bill is not paid by the end of the 10 day period, a suspension notice is sent to the customer. If the bill is not paid by the end date of the suspension notice (day 35), domestic water service may be suspended until the balance is paid. If the balance remains unpaid for three ,weeks after the service suspension (day 56), the account is closed and turned over to a collection agency. Accounts which are billed for irrigation water only generally represent approximately 33 percent of all irrigation accounts. If the account is not paid by the due date (day 14), the customer is sent a reminder notice. Ten days after the reminder notice, a suspension notice is sent out. If the balance is not paid by the end date of the suspension notice (day 35), irrigation water service can be suspended until the balance is paid. Any unpaid balance is sent to a collection agency 90 days after the bill is sent. Endangered Species Act In planning projects, the City evaluates the construction and operation of the facilities to determine if there will be any impact on endangered species through the use of site evaluations, special environmental studies, biological assessments, consultations with NOAA-Fisheries_ U.S. Fish and Wildlife and Washington Department of Fish and Wildlife, preparation of Joint Aquatic Resources Permit Application Form, Shoreline assessments and preparation of State Environmental Policy Act ("SEPA") checklists or environmental impact statements, as appropriate. Alternatives are developed to minimize or avoid impacts on endangered species. Where federal permits or funding are involved, the City also complies with the Endangered Species Act's ("ESA") "consultation" requirement, which serves to evaluate and address any potential effect on endangered species. Best management practices are employed during routine operation and maintenance activities to minimize impacts on the environment. It is possible that all users of surface water from the Naches River, including the City and the Irrigation Companies and the District that provide water to the System, regardless of their state -issued water rights, may have to reduce their use of surface water in order to protect listed species under the Endangered Species Act. While some courts have concluded that restrictions on the exercise of state -issued water rights do not constitute a taking of property, a recent decision from the United States Court of Federal Claims holds the United States responsible for providing just compensation for the value of the water rights restricted for ESA purposes. Financial Results The following tables provide a historical comparative balance sheet and historical and projected combining statement of revenues and expenses for the City's Irrigation Utility Enterprise Fund. 12 Irrigation Utility Enterprise Fund Statement of Net Assets/Comparative Balance Sheet (Years Ending December 31) Unaudited (1) Audited 2003 2002 2001 2000 1999 ASSETS ASSETS Current Assets Cash and Equity (2) $ 1,948,047 $ 899,824 $ 1,179,085 $ 920,905 Cash and Equity (2) $ 512,611 Receivables Receivables Accounts ' 142,705 127,794 112,670 102,236 Accounts 117,935 Interest/Penalties 1,110 2,109 5,448 0 Interest/Penalties 1,110 Due from other Gov't Units 0 0 0 0 Due from other Gov't Units 8,951 Investments, at amortized cost • I 49,607 682,455 298,874 0 Investments, at amortized cost 1,549,957 Land 98,500 98,500 98,500 98,500 Total Current Assets 2,190,564 Other Improvements 4,684,462 4,674,462 4,674,462 4,674,462 Noncurrent Assets Machinery & Equipment 42,531 42,531 33,639 33,639 Land 98,500 Accumulated Depreciation (2,281,374) (2,23(464) (2,180,354) (2,130,244) Other Improvements 4,684,462 Construction in Progress 785,403 729,476 229,682 172,867 Machinery & Equipment 55,614 Total Assets 5,470,991 5,026,687 4,452,006 3,872,365 Accumulated Deprecation (2,333,462) Construction in Progress 1,370,532 LIABILITIES Total Noncurrent Assets 3,875,646 Warrants/Accounts Payable 18,471 35,396 17,856 24,527 Total Assets 6,066,210 Wages/Benefits Payable 38,996 35,005 33,622 31,813 Compensated Absences Payable 56,505 52,277 47,230 43,791 LIABILITIES Total Liabilities 113,972 122,678 98,708 100,131 Warrants/Accounts Payable 28,838 Wages/Benefits Payable 38,265 FUND EQUITY Compensated Absences Payable 50,541 Contributed Capital 2,408,324 2,408,324 2,408,324 2,408,324 Total Liabilities 117,644 Unreserved Retained Earnings 2,948,695 2,495,685 ' 1,944,974 1,363,910 Total Fund Equity 5,357,019 4,904,009 4,353,298 3,772,234 NET ASSETS Total Liabilities and Fund Equity $ 5,470,991 $ 5,026,687 $ 4,452,006 $ 3,872,365 Inv. In Capital Assets Unrestricted Retained Earnings Total Net Assets 3,875,646 2,072,920 $ 5,948,566 (1) Reported in accordance with GASB 34 and subsequent pronouncements. (2) Increase of cash and equity from 2001 to 2002 primarily due to matured investments combined with the standard annual growth in equity. Source: City of Yakima 13 Irrigation Utility Enterprise Fund Combining Statement of Revenues and Expenses (Years Ending December 31) Unaudifpd (1) 2003 Operating Revenues: Charges for Services $ 1,789,852 $ 1,731,879 $ 1,729,091 $ 1,739,361 $ 1,693,703 Other Operating Revenues 1,863 1;888 0 0 0 Total Operating Revenues 1,791,715 1733,767 1,799,091 1,739,361 1,693,703 Operating Expenses: Operating Expense 980,981 916,193, 839,045 844,350 822,952 Administration/Overhead 143,925 181,796 , 162,550 133,315 90,153 Depreciation Expense 52,088 50,910 50,110 50,110 50,055 State Excise Taxes 48,226 43,580 39,381 34,752 33,567 r�uuaacu 2002 2001 2000 1999 Total Operating Expenses 1,225,220 1,192,479 1,091,086 1,062,527 996,727 Net Operating Income 566,495 541,288 638,005 676,834 696,976, Other Income: Interest Revenue Other Non -Operating Revenues Total Other Income Total Income Available for Debt Service (2) 7,127 303 29,001 39,665 32,227 , 20 1 0 7,697 7,430 29,021 39,666 32,227 7,697 573,925 570,309 677,671 709,061 704,673 $ 769,938 $ 803,015 $ 890,331 $ 892,486 $ 844,881 (1) Reported in accordance with GASB 34 and subsequent pronouncements. (2) Net Revenues as defined in Bond Ordinance. Source: City of Yakima Projected Financial Information The City does not as a matter of course make public projections as to future sales, earnings, or other results. However, the City's management has prepared the projected financial information set forth in this Official Statement. In the preparation of the Projects in this Official Statement, the City has made certain assumptions with respect to conditions that may occur in the future. While the City believes these assumptions are reasonable for the purpose of the projections, they are dependent upon future events, and actual conditions may differ from those assumed. To the extent actual future factors differ from those assumed or provided to the City by others, the actual results will vary from those forecast. This information is not fact and should not be relied upon as being necessarily indicative of future results, and readers of this Official Statement are cautioned not to place undue reliance on the projected financial information. All operating expenses, except depreciation, are increased two percent for 2005, 2.5 percent for 200, and three percent for 2007 and 2008. Operating revenues include no factor for growth since the number of accounts existing fully penetrates the System. Only rate increases will significantly affect the revenue estimates. Rates are reviewed annually and will be adjusted for inflation as needed, however no rate increases are currently planned. Debt service on the expected Future Parity Bonds is expected to begin in 2008. 14 Total Operating Revenues Irrigation Utility Enterprise Fund Combining Statement of, Revenues and Expenses Projected Coverage Table (Years Ending December 31) Budget Projected 2004 2005 1 2006 2007 2008 ' $ 2,513,787 $ 2,513,787 $ 2,513,787 $ 2,513,787 $ 2,513,787 Operating Expenses: Operating Expense 1,206,672 1,230,805 1,261,576 1,299,423 1,338,406 Depreciation Expense 102,088 102,088 102,088 142,088 142,088 Total Operating Expenses 1,308,760 1,332,893 1,363,664 1,441,511 1,480,494 Net Operating Income 1,205,027 1,180,894 1,150,123 1,072,276 1,033,293 Other Income: Interest Revenue 7,127 7,127 7,127 7,127 7,127 Other Non -Operating Revenues 302 302 302 302 302 Total Other Income 7,429 7,429 7,429 7,429 7,429 Total Income 1,212,456 1,188,323 1,157,552 1,079,705 1,040,722 Available for Debt Service (1) $ 1,314,544 $ 1,290,411 $ 1,259,640 $ 1,221,793 $ 1,182,810 Parity Bond Debt Service (the Bonds) $ 0 $ 355,248 $ 353,198 $ 355,798 $ 690,683 (2) Debt Service Coverage N/A 3.63 3.57 3.43 1.71 (2) (1) Net Revenues as defined in the Bond Ordinance. (2) 2008 debt service increases and debt service coverage declines in anticipation of issuing remaining portion of the total $10 million bond authorization. Source: City of Yakima The City The City of Yakima was incorporated in 1886. It is the tenth largest city in the State, and encompasses approximately 23 square miles. The City provides the full range of municipal services including public safety (police, fire, building), public improvements (streets, traffic signals, storm sewer, irrigation utility), sanitation (solid waste disposal, wastewater utility), water utility, irrigation utility, community development, parks and recreation, and general administrative services. The City operates under a council/manager form of government with a full-time city manager. The City Council consists of seven council members. Four members are elected from individual districts and three are elected at large. The mayor is chosen by the City Council (the "Council") from within its own membership every two years. Elected Officials City Council Paul P. George, Mayor Neil McClure, Asst. Mayor Ronald J. Bonlender Dave Edler Mary Place Bernard J. Sims Susan J. Whitman 15 Term Expires December 31, 2005 December 31, 2007 December 31, 2007 December 31, 2007 December 31, 2005 December 31, 2005 December 31, 2007 Key Administrative Staff Richard A. Zais, Jr., City Manager. Mr. Zais joined the City in 1973 as the Administrative Assistant to the City Manager and was appointed to the position of City Manager in January 1979. Mr. Zais has held this position for 25 years and is responsible for the supervision and direction of a full-service city with seven operating departments. Mr. Zais prepares .-d administers the operating aliu au11u1uJter3 $140 million annual City budget with a $55 million annual payroll for over 700 full-time employees. , Mr. Zais serves as the Council's chief advisor, appoints all administrative officers and employees and executes Council policy ftrid programs. Mr. Zais' educational background is in public administration with a B.A. and M.P.A. from the University of Washington. Rita M. Anson, Director of Finance & Budget. Ms. Anson joined the City in 1999 as the Director of Finance and Budget, coming from Puget Sound Energy Corporation. Ms. Anson is responsible for all financial and treasury services, budgeting and accounting, utility customer services and information systems for the City. During her 21 years with Puget Sound Energy, Ms. Anson served in many capacities including following key management positions: Manager of District _. .. the following �.� .... � ....... ..... ewe, a.a.s.s ee 1.rvoAltilS tom, ° °�^'ii: °...3pL3ra�Y ��'i:.� 1'Li ilatii�g�'i of Corporate Budgets; and Manager of Information Systems Project. Ms. Anson has a degree in Accounting from Central Washington University, is a CPA and is a member of the AICPA, WSCPA and just completed a two-year term serving as the Treasurer for the Yakima Sunrise Rotary. Timothy M. Jensen, Treasury Services Officer. Mr. Jensen joined the City in 1990 as an accountant, coming from a national public accounting firm where his primary duties were as a senior auditor. Mr. Jensen was appointed the City's Treasury Services Officer in 2001 where he oversees the security of the City's investments, cash management, and debt administration and performs high-level financial analysis. Mr. Jensen obtained a B.S. in Accounting from Central Washington University in 1986, and studied Economics at the University of California, Berkeley and the University of Nevada, Reno from 1974 through 1977. Mr. Jensen is an executive officer of the Washington Finance Officers Association and will be President of that organization in 2008. He has served on the Board of Directors of WFOA since 1998. Mr. Jensen is a past member of the Washington State Local Government Investment Pool Advisory Committee. He is also currently serving on the Washington State Auditor's Local Government Advisory Committee and has served two different State Treasurers on select issue committees. Dave Brown, Water/Irrigation Division Manager. In 1984 Mr. Brown joined the City as its Naches River Water Treatment Plant Supervisor coming from the City of Fort Benton, Montana where he had served as Water Superintendent for two years. Mr. Brown became the City's Water/Irrigation Engineer in 1997 and was appointed as the Manager in August of 2003. Mr. Brown's background is in water and wastewater treatment with 32 years of experience and over 25 years in supervision. Mr. Brown graduated from Technical Sciences Group at Sheppard Air Force Base in Texas. LaboiRelations The City currently employs approximately 750 people including part-time and temporary employees. A majority of the City's employees are represented by bargaining units as follows: Number of Employees 265 105 63 51 13 16 Bargaining Unit AFSCME Municipal YPPA Fire Suppression AFSCME Transit Fire Communications Fire PERS *Currently under negotiation. Contract Expiration Date December 31, 2004 December 31, 2005 December 31, 2003* December 31, 2005 December 31, 2003* December 31, 2003* The City has a long history of good working relationships with its employee groups and bargaining units. 16 Pension System Substantially all full-time and qualifying part-time employees participate in one of the following statewide local government retirement systems administered by the Washington State Department of Retirement ' Systems, under cost-sharing, multiple -employer public employee retirement systems. Actuarial information is on a system -wide basis and is not considered pertinent to the City's financial statements. City employees are covered by the Public Employees' Retirement System ("PERS"). Police officers and firefighters are covered by the Law Enforcement Officers and Firefighters Retirement Fund ("LEOFF"). Contributions to the systems by both employee and employer are based upon gross wages covered by plan benefits. LEOFF includes two plans and PERS includes three plans: Plans I and II are defined benefit plans and Plan III is a combination defined benefit/defined contribution plan. PERS participants who joined the system by September 30, 1977 are Plan I members. Those who joined thereafter are enrolled in Plan II unless they exercise an option to transfer their membership to Plan III. Plan III became effective March 1, 2003. Retirement benefits are financed from both employee and employer contributions and investment earnings. Retirement benefits under Plans I and II are vested after completion of five years of eligible service. Plan III members are vested after ten years of eligible service. Participants enrolled in Plan II may elect to transfer to Plan III, during the specified transfer window period that occurs in January of each year. Once employees transfer to Plan III, they may not return to Plan II membership. In addition, new PERS eligible employees after September 1, 2002 who do not specify a plan choice will transfer automatically to Plan III. Retirement benefits are financed from both employee and employer contributions and investment earnings and are vested after completion of five years of eligible service. For the year ending December 31, 2003, the City's contribution of $295,010, or 1.36 percent of covered payrolls, represents its full liability under the system, except that future rates may be adjusted to meet the system needs. LEOFF. LEOFF includes two plans. For the year ending December 31, 2003, the City's contribution to LEOFF I (for participants who joined the system by September 30, 1977) of 0.2 percent and to LEOFF II (participants who joined after September 30, 1977) of 2'.8 percent of covered payroll totaled $335,586, representing its full liability under the system, except that future rates may be adjusted to meet the system needs. Unfunded Pension Liabilities. The City maintains two single employer defined benefit pension plans, Firemen's Pension and Police Pension, which are closed systems covering Firemen and Police Officers hired prior to March 1, 1970. Both plans had their first annual actuarial valuation as of March 31, 1989, and the required contributions identified in that valuation have been the basis for recording the unfunded pension liability since 1989. The Police Pension is a 'department in the General Fund, and is operating on a pay-as-you-go basis. The unfunded pension liability will be adjusted annually by comparing actual expenditures for pension benefits to the actuarially determined contribution. The City intends to maintain this plan on a pay-as-you-go basis. The Firemen's Relief and Pension Fund is a trust fund, and has as its funding sources a portion of local property taxes, a state tax on fire insurance premiums and interest income. This fund had an unfunded pension liability of $449,768 at December 31, 2002. An actuarial study is currently underway to determine unfunded liability for December 31, 2003. Actuarial studies are performed every five years. Risk Management The City maintains reserve funds to provide for self-insurance coverage in the areas of Unemployment Compensation, Medical/Dental coverage, and Workers' Compensation. In addition, the City maintains a Risk Management Fund to provide for property, liability, and other coverages. 17 Unemployment Compensation. In 1978, the City established an Unemployment Compensation Reserve Fund to provide unemployment compensation coverage for its employees, and thereby elected to participate with the State in a cost -reimbursement instead of monthly premium program. In doing so, the City retained its right to appeal awards and determinations made by the ' State Department of Employment Security. Self-insured Medical/Dental Program. The City, in August 1979, self-insured its medical and dental programs for all employees other,than temporary employees and employees hired to work less than half- time. The City's Human Resources Office administers the self-insured prograni and claims payment services are provided by Health Care Management Administration, Inc. Each operating fund is charged an amount per covered employee which would otherwise have been paid to an insurance carrier. Interfund premiums to the Employee Health Benefit Reserve Fund for 2003 were $5,366,130. Incurred but not reported claims of $993,143 were accrued as a liability. In order to avoid catastrophic losses, the City "reinsures" the program by purchasing insurance known as "stop -loss insurance." Two types of "stop -loss" insurance are purchased: (i) individual stop -loss, and (ii) aggregate stop -loss, with both provided through Safeco Insurance Company. Under the individual stop -loss insurance, the City pays the first $150,000 of claims for an individual employee or ,dependent. Any charges accrued by an individual in excess of $1 c0 000 in a ` lendar thereafter bused � v� w�....,.,.... a year are rcuiivut ecu by Safeco. The aggregate stop -loss is designed to protect the City from multiple large claims which may not reach the individual stop -loss attachment point of $150,000. The aggregate stop -loss attachment point is calculated by determining the projected amount of claims for the year and adding an additional 25 percent of that amount (125 percent of projected claims). Workers' Compensation Program. The City self-insured its workers' compensation program for all employees except those covered by the LEOFF I Retirement System in July 1984. This workers' compensation program provides coverage identical to the state administered workers' compensation program; however, the City pays only the direct injury -related costs and certain administrative fees. The program is administered by the City's Personnel Office with claims administration and safety services provided by Ward North America (formerly Scott Wetzel Services, Inc.). Each operating fund is charged an appropriate accrual amount, per employee, based on rate requirements prescribed by the State. Each year the Reserve Fund is reviewed to determine a contribution rate which provides for an appropriate reserve. Interfund premiums to the Workers' Compensation Fund for 2003 were $1,380,154. In order to avoid catastrophic losses, the City "reinsures" the program by purchasing insurance known as "stop -loss insurance." This insurance is provided through Marsh Advantage America under a policy purchased from Employers Reinsurance. Under the individual stop -loss portion of the insurance, the City is liable for the first $500,000 of claims resulting from a specific accident. Charges beyon that $500,000 are covered by stop -loss insurance up to $25 million. Risk Management Program. The Risk Management Reserve Fund was established in 1986 when the City elected to self -insure the liability exposure portion of its insurance program. Resources accrue to the fund through interfund premiums to Operating Funds for appropriate insurance coverage and the replenishment and building of reserves for potential liability claims. City contributions to the Risk Management Reserve Fund for 2003 were $1,384,310. The Fund provides for administration, legal services, claims adjustment, and for the purchase of property, excess liability and other insurance coverages. Excess liability coverage is provided from Genesis Underwriters Management Company in an amount of $8 million, with a $1 million retention. 18 Accounting Policies Accounting records for the City are maintained in ' accordance with methods prescribed by the State Auditor under the authority of Washington State law. The City financially reports on the calendar year basis and employs a double -entry modified' accrual system for all fund categories with the exception of proprietary, nonexpendable and pension trust funds which require full accrual reporting. The modified accrual basis differs from the accrual basis in the following ways: (i) purchases of capital assets are considered expenditures; (ii) redemption of long-term debt is considered an expenditure when due; (iii) revenues are recognized only when they become both measurable and available to finance expenditures of the current period, revenues that are measurable but not available are recorded as receivable and offset by deferred revenues; (iv) inventories and prepaid items are reported as expenditures when purchased; (v) interest on long-term debt is not accrued but is recorded as an expenditure when due; and (vi) accumulated unpaid vacation and sick pay are considered expenditures when paid. In accordance with GASB 34, the City has implemented this accounting standard in its December 31, 2003 financial statement. Fund Accounting. The accounts of the City are organized on the basis of funds, each of which is considered a separate accounting entity. The City uses governmental, proprietary and fiduciary funds. Each governmental fund and expendable trust or agency fund is accounted for with a separate set of self - balancing accounts that comprise its assets, liabilities, fund balances, revenues and expenditures. Proprietary and similar trust funds use the revenue, expense and equity accounts of similar btasinesses in the private sector. The City's resources are allocated to and accounted for in individual funds depending on what they are to be spent for and how they are controlled. Governmental Funds. All governmental funds are accounted for on a spending or "financial flow" measurement focus. This means that only current assets and ,current liabilities are generally included on their balance sheets. Their reported fund balance (net current assets) is considered a measure of "available expendable resources." Governmental fund operating statements focus on measuring changes in financial position, rather than net income; they present increases (revenues and other financing sources) and decreases (expenditures and other financing uses) in net current assets. Budgetary Process The City Council annually approves the City's operating budget. The operating budget is designed to allocate available resources among the City's services and programs and to provide for associated financing decisions. Annual appropriated budgets are adopted on the modified accrual basis of accounting. For governmental funds, there are no differences between budgetary basis and generally accepted accounting principles. Budgetary accounts are integrated in fund ledgers for all budgeted funds, but the financial statements include budgetary comparisons for the General Fund and Special Revenue Funds only. Budgets for debt service and capital projects are adopted at the level of the individual debt issue or project and for fiscal periods that correspond to the lines of debt issues or projects. Annual appropriated budgets are adopted at the fund level. Subsidiary revenue and expenditure ledgers are used to compare the budgeted amounts with actual revenues and expenditures. As a management control device, the subsidiary ledgers monitor expenditures for individual functions and activities by object class. Appropriations for general and special revenue funds lapse at year-end. The City Manager is authorized to transfer budgeted appropriations between departments within any fund; however, any revisions that alter the total expenditures of a fund, or that affect the number of permanently authorized employee positions, salary ranges, or other conditions of employment must be approved by the City Council. Cash and Investments Cash and investments are managed under the guidance of the City's Investment Policy adopted by a resolution of the City Council. The policy was based on the Model Investment Policy prepared by the 19 Municipal Treasurers' Association of the United States and Canada and applies to all financial assets of the City. Investments are made using the "prudent person" standard with primary objectives being safety of principal liquidity, enabling the City to meet all operating requirements and a return on investment objective of attaining a market rate of return through budgetary and economic cycles. _ City policies require the City to minimize counterparty risks by safekeeping' all purchased securities and conducting all trades on a delivery versus payment basis. A report on the performance of the Treasury Division is prepared quarterly for review by the City Council and City Manager. Investments of City funds except those of the Firemen's Relief and Pension Fund are limited to: (i) investment deposits, including certificates of deposit with qualified public depositories as defined in chapter 39.59 RCW; (ii) certificates, notes or bonds of the United States, or other obligations of the United States, or its agencies, or of any corporation wholly owned by the government of the United States; (iii) obligations of government-sponsored corporations which are eligible as collateral for advances to member banks as determined by the Board of Governors of the Federal Reserve System; (iv) banker's acceptances sold on the secondary market; and (v) the Local Government Investment Pool (the"LGIP"). The market value of investments held in the combined portfolios under the control of the Department of Finance and Budget as of December 31, 2003 was $54.7 million. Of that amount, 58 percent was in the LGIP; 35 percent was in agency securities, five percent was invested in U.S. .J. T_e asAIAeS, and two percent was invested in municipal securities. Auditing of City Finances Accounting systems and budgetary controls are prescribed by the Office of the State Auditor in accordance with RCW 43.09.200 and RCW 43.09.230. The City complies with the systems and controls prescribed by the Office of the State Auditor and establishes procedures and records which reasonably assure safeguarding of assets and the reliability of financial reporting. The State Auditor is required to examine the affairs of 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 finance department of the City. The audited financial statements of the City for the year ended December 31, 2002, attached as Appendix D, are incorporated by reference to this Official Statement and have been filed with the current nationally recognized municipal securities information repositories ("NRMSIR"). Future financial statements may be ordered by contacting the individual NRMSIRs or by accessing the'NRMSIR website, located at: 'http://www.sec.gov/info/municipal/nrmsir.htm. Bloomberg Financial Markets Municipal Repository P.O. Box 840 Princeton, NJ 08542-0840 Phone: (609) 279-3225 Fax: (609) 279-5962 munis@bloomberg.com DPC Data Inc. One Executive Drive Fort Lee, NJ 07024 Phone: (201) 346-0701 Fax: (201) 947-0107 nrmsir@dpcdata.com 20 Interactive Data Attn: Repository 100 Williams Street New York, NY 10038 Phone: (212) 771-6899 Fax: (212) 771-7390 NRMSIR@interactivedata.com Standard & Poor's Securities Evaluations Inc. 55 Water Street, 45th Floor New York, NY 10041 Phone: (212) 438-4595 Fax: (212) 438-3975 nrmsir_repository@sandp.com Demographic Information The City lies in central Washington State in Yakima County (the "County") about 142 miles southeast of Seattle and 188 miles northeast of Portland, Oregon. Yakima County ranks second in the State in terms of square miles and seventh in terms of population. The City is the County seat and the largest incorporated community in the • County encompassing 23 square miles. Population history for both the City and County in recent years is shown in the following table: Population Yakima County and the City of Yakima April 1 2004 2003 2002 2001 2000* Yakima County 227,500 226,000 225,000 224,500 222,581 City of Yakima 79,480 79,220 79,120 73,040 71,845 April 1 1990* 188,823 54,843 * U.S. Census Count Source: Washington State Office of Financial Management Employment The economy of the City is based on government -related jobs and agriculture that produces and processes tree fruits, hops, mint, vegetables, livestock, dairy and grapes for wine. The City is the center of the County's economic activity. Employer Dept. of Social & Health Services Yakima Valley Memorial Hospital Yakima School District Yaki to County Yakima HMA Inc.* Snokist Growers City of Yakima Yakima Valley Community College Western Recreational Vehicles Shields Bag & Printing City of Yakima Major Employers Product Government Medical Education Government Medical Fruit canning Government College Trailers, motor homes Flexible packaging Number of Employees 1,439 1,100 1,001 1,000 941 851 750 •590 550 470 * Formerly Providence Health Systems, a non-profit medical facility. Yakima HMA Inc. is doing business as Yakima Regional Medical and Cardiac Center. Source: Yakima County Development Association, July 2003 21 Income. Historic personal income and per capita income levels for Yakima County and the State are shown below: Yakima County and State of Washington Total Personal and Per Capita Income Yakima County ' Total Personal Per Capita Year Income (in millions) Income 2003 N/ N/A 2002 $5,323.7 $23,714 2001 5,108.9 22,872 2000 4,933.5 22,145 1999 4,605.6 20,786 1998 4,550.8 20,709 Source: U.S. Department of Commerce, Bureau of Economic Analysis State of Washington Total Personal Per Capita Income (in millions) Income $204,3732 198,317.3 191,644.6 186,843.1 174,147.8 163,192.3 $33,332 32,677 31,976 31,605 29,807 28,285 Taxable Retail Sales. Taxable retail sales reflect only those sales subject to retail sales tax. Historic taxable retail sales for the City of Yakima and Yakima County are shown below: City of Yakima and Yakima County Taxable Retail Sales Year 2003 2002 2001 2000 1999 City of Yakima $ 1,246,026,347 1,205,189,471 1,176,022,552 1,168,665,601 1,157,451,996 Yakima County $ 2,294,202,221 2,178,920,758 2,122,049,462 2,140,980,425 2,057,895,211 Sn urce: Washington State Department of Revenue Building Permits. Residential building permits are an indicator of growth within a region. The number and valuation of new single-family and multi -family residential building permits in Yakima County are listed in the following table: City of Yakima, Washington Residential Building Permits New Single Family Units New Multi Year Number Family Units Valuation Number 2003 72 $ 9,377,031 2002 34 3,690,494 2001 13 997,460 2000 18 1,291,524 1999 26 1,919,800 1998 28 2,523,785 Source: City of Yakima Codes Division 22 45 31 71 75 79 247 Valuation $ 3,992,851 1;874,833 3,156,466 3,865,711 3,951,413 11,409,511 Total Valuation $ 13,369,882 5,565,327 4,153,923 5,157,235 5,871,213 13,933,296 Employment within the County is described in the following table: Yakima County Nonagricultural Wage & Salary Workers and Labor Force and Employment Data Civilian Labor Force Employment Unemployment Percent of labor force Total Nonagricultural Wage and Salary Earners Manufacturing Construction and mining Transportation and public utilities Wholesale trade Retail trade Finance, insurance and real estate Services and miscellaneous Government NAICS Industry Title (1) Civilian Labor Force Employment Unemployment Percent of labor force Total Nonfarm Total Private Goods Producing Construction, Natural Resources & Mining Manufacturing Durable Goods Non -durable Goods Food Manufacturing Service Providing Trade, Transportation and Utilities Wholesale Trade Retail Trade Transportation, Warehousing and Utilities Information & Financial Activities Professional and Business Services Educational and Health Services Government Federal Government State and Local Government Annual Average 2001 2000 1999 108,000 109,700 111,500 95,800 98300 100,400 12,200 11,400 11,100 11.3% 10.4% 10.0% 74,600 11,500 3,000 3,000 5,300 13,200 2,300 20,600 15,800 75,300 11,800 3,100 2,700 6,500 13,500 2,300 21,300 14,100 Annual Average 2003 2002 112,200 100,300 11,800 10.6% 74,742 58,325 13,108 3,150 9,958 4,267 5,683 5,308 61,642 15,892 3,742 9,592 2,558 3,875 4,675 10,842 16,417 1,350 15,066 109,800 98,500 11,300 10.3% 74;025 57,792 13,267 3,125 10,142 4,342 5,817 5,317 60,750 15,792 3,925 9,175 2,692 1,275 4,508 10,667 16,242 1,375 14,833 74,70Q 11,300 3,300 2,700 7,200 13,700 2,400 20,300 13,900 1998 1997 1'15,000 114,700 103,000 103,300 12,000 11,400 10.4% 9.9% 75,200 75,100 10,900 11,000 3,500 3,500 3,000 2,900 7,400 8,400 14,000 13,800 2,600 2,500 20,100 '19,500 13,700 13,600 (1) The North American Industry Classification (NAICS) is replacing the Standard Industrial Classification (SIC) code system. Source: Washington State Employment Security Department 23 Tax Exemption General In the opinion of Preston Gates & Ellis LLP„ Seattle, Washington, Bond Counsel, interest on the Bonds is excluded from gross income subject to federal income taxation pursuant to Section 103 of the Internal Revenue Code of 1986, as amended and any Treasury Regulations promulgated thereunder (collectively the "Code"). The Bonds are not private activity bonds, and interest on the Bonds is not an item of tax preference for pmposes of determining alternative minimum taxable income for individuals or corporations under the Code. However, interest on the Bonds is taken into account in the computation of adjusted current earnings for purposes of the corporate alternative minimum, tax under Section 55 of the Code as more fully described in this section under the heading "Certain Federal Income Tax Consequences." Except as described herein, Bond Counsel exnreaaec nn opinion o federal, state or ,___, tax consequence arising with respect to ownership of the Bonds. Certain Federal Income Tax Consequences The following is a discussion of certain federal tax matters under the Code. This discussion does not purport to deal with all aspects of federal taxation that may be relevant to particular bbndowners. Prospective bondowners, particularly those who may be subject to special rules, are advised to consult their own tax advisors regarding the federal tax consequences of owning and disposing of the Bonds, as well as any tax consequences arising under the laws of any state or other taxing jurisdiction. Alternative Minimum Tax on Corporations. Section 55 of the Code imposes an alternative minimum tax on corporations equal to the excess of the tentative minimum tax for the taxable year over the regular tax for such year. The tentative minimum tax is based upon alternative minimum taxable income which is regular taxable income with certain adjustments and increased by the amount of certain items of tax preference. One of the adjustments is a portion (75 percent for any taxable year beginning after 1989) of the amount by which a corporation's adjusted current earnings exceeds the corporation's alternative minimum taxable income (determined without regard to such adjustment and the alternative tax net operating loss deduction). Interest on tax-exempt obligations, such as the Bonds, is included in a corporation's adjusted current earnings. For taxable years beginning after December 31, 1997, the corporate alternative minimum tax is repealed for small business corporations that had average gross receipts of less then $5 million for the three-year period beginning after December 31, 1994, and such small business corporations will continue to be exempt from the corporate alternative minimum tax so long as their average gross receipts do not exceed $7.5 million. Borrowed Funds. The Code provides that interest paid on funds borrowed to purchase or carry tax-exempt obligations during a tax year is not deductible. In addition, under rules used by the internal Revenue Service for determining when borrowed funds are considered used for the purpose of purchasing or when carrying particular assets, the purchase of obligations may be considered to have been made with borrowed funds even though the borrowed funds are not directly traceable to the purchase of such obligations. Property and Casualty Insurance Companies. The deduction for loss reserves for property and casualty insurance companies is reduced by 15 percent of the sum of certain items, including the interest received on tax-exempt obligations, such as the Bonds. Social Security and Railroad Retirement Benefits. The Code also requires recipients of certain Social Security or Railroad Retirement benefits to take into account, in determining gross income, receipts or accruals of interest that is exempt from federal income tax. 24 Branch Profits Tax. Certain foreign corporations doing business in the United States may be subject to a branch profits tax on their effectively connected earnings and profits, including tax-exempt interest on obligations such as the Bonds. S Corporations. Certain S corporations that have subchapter C earnings and profits at the close of a taxable year and gross receipts more than 25 percent of which are passive investment income, which includes interest on tax-exempt obligations, such as the Bonds, may be subject to a tax on excess net passive income. Continuing Disclosure In accordance with Section (b)(5) of Securities and Exchange Commission Rule 15c2--12 under the Securities Exchange Act of 1934, as the same may be amended from time to time (the "Rule"), the City has agreed in the Bond Ordinance for the benefit of the owners of the Bonds to provide or cause to be provided to each nationally recognized municipal securities information repository ("NRMSIR") and to the state information depository for the State of Washington (if one is created) ("SID"), in each case as designated by the Securities and Exchange Commission (the "Commission") in accordance with the Rule, the following annual financial information and operating data for the prior fiscal year (commencing in 2005 for the fiscal year ending December 31, 2004 ): (i) annual financial statements, which statements may or may not be audited, prepared in accordance with the Budget Accounting and Reporting System ("BARS") prescribed by the State Auditor pursuant to RCW 43.09.200 (or any successor statute); (ii) Principal amount of Bonds of the System; (iii) Debt service coverage for Outstanding Bonds; (iv) Rates for the System; and (v) Number of customers of the System. Such annual information and operating data described above will be so provided on or before the end of nine months after the end of the City's fiscal year. The City's current fiscal year ends on December 31. In lieu of providing such annual financial information and operating data, the City may cross-reference to other documents provided to the NRMSIR, the SID, if any or to the Commission, and, if such document is a final official statement within the meaning of the Rule, such document will be available from the Municipal Securities Rulemaking Board ("MSRB"). If not provided as part of the annual financial information discussed above, the City will provide the City's audited annual financial statement prepared in accordance with BARS prescribed by the Washington State Auditor pursuant to the statute cited above (or any successor statutes) when and if available to each then existing NRMSIR and the SID, if any. The City further agrees to provide or cause to be provided, in a timely manner, to each NRMSIR or to the SID, if any, and to the MSRB, 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) 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 the rights of Bond holders; (vii) Bond calls (optional redemption of the Bonds prior to their maturity); (ix) defeasances; (x) release, substitution or sale of property securing repayment of the Bonds; and (xi) rating changes. The City's obligations to provide annual financial information and notices of material events will terminate upon the legal defeasance, prior redemption or payment in full of all of the Bonds. This section, or any provision hereof, will be null and void if the City (i) obtains an opinion of nationally recognized bond counsel to the effect that those portions of the Rule which require this section, or any such provision, are invalid, have been repealed retroactively or otherwise do not apply to the Bonds; and (ii) notifies each then existing NRMSIR and the SID, if any, of such opinion and the cancellation of this section. Notwithstanding any other provision of the undertaking, the City may amend the provisions described in this section and any provision of this section may be waived, with an approving opinion of nationally recognized bond counsel and in accordance with the Rule. 25 In the event of any amendment of or waiver of a provision of this section, the City will describe such amendment in the next annual report, and will include, as applicable, a narrative explanation of the reason for the amendment or waiver and its impact on the type (or in the case of a change of accounting principles, on the presentation) of financial information or operating data being presented by the City_ In addition, if the amendment relates to the accounting principles to be followed in preparing financial statements, (i) notice of such change will be given in the same manner as for a material event, and (ii) the annual report for the year in which the change is made will present a comparison (in narrative form and also, if feasible, in quantitative form) between the financial statements as prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles. A Bond Owner's or Beneficial Owner's right to enforce the provisions of the City's undertaking described in this section will be limited to a right to obtain specific enforcement of the City's Obligations, and any failure by the City to comply with the provisions of this undertaking will not be an event of default with respect to the Bonds. For purposes of this section, "Beneficial Owner" means any person who has the power, directly or indirectly, to vote or consent with respect to, or to dispose of ownership of, any bonds, including persons holding bonds through nominees or depositories. Other Continuing Disclosure Undertakings of the City. The City has entered into undertakings to provide annual information and the notice of the occurrence of certain events with respect to all bonds issued by the City and is in compliance with all such undertakings. Legal and Underwriting Approval of Counsel Legal matters incident to the authorization, issuance and sale of the Bonds by the City are subject to the approving legal opinion of Bond Counsel. A specimen of the opinion of Bond Counsel is attached hereto. Bond Counsel will be compensated only upon the issuance and sale of the Bonds. Bond Counsel has not been retained to review and has not reviewed this Official Statement for completeness or accuracy and will not offer an opinion concerning this Olficial Statement. Litigation There is no litigation pending or threatened questioning the validity of the Bonds nor the power and authority of the City to issue the Bonds. There is no litigation pending or threatened which would materially affect the City's ability to meet debt service requirements on the Bonds. Since 1977, all rights to surface water within the Yakima River watershed, including the surface water rights,; that are the supply for the System, have been under review in the Yakima River general stream adjudication. See "The Irrigation System - Water Supply" herein for a discussion of Ecology v. Acquavella. Because of the nature of its activities, the City is subject to certain pending legal actions which arise in the ordinary course of business. The City believes, based on the information presently known, that the ultimate liability for any of such legal actions will not be material to the financial position'of the City. Limitation on Remedies Any remedies available to the owners of the Bonds upon the occurrence of an event of default under the Bond Ordinance are in many respects dependent upon judicial actions which are in turn often subject to discretion and delay and could be both expensive and time-consuming to obtain. If the City fails to comply with its covenants under the Bond Ordinance or to pay principal of or interest on the Bonds, there can be no assurance that available remedies will be adequate to fully protect the interests of the owners of the Bonds. In addition to the limitations on remedies contained in the Bond Ordinance, the rights and obligations under the Bonds and the Bond Ordinance may be limited by and are subject to bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium and other laws relating to or affecting creditors' 26 rights, to the application of equitable principles, and to the exercise of judicial discretion in appropriate cases. The opinion to be delivered by Preston, Gates, Ellis LLP, as Bond Counsel, concurrently with the issuance of the Bonds, will be subject to limitations regarding bankruptcy, insolvency and other laws relating to or affecting creditors' rights. A copy of the proposed form of the opinion of Bond Counsel is set forth in Appendix B. Official Statement In the Bond Ordinance the City will deem final this Preliminary Official Statement as of its date for the purpose of Securities and Exchange Commission Rule 15c2-12. Underwriting The Bonds are being purchased by Seattle -Northwest Securities Corporation, the Underwriter. The purchase contract provides that the Underwriter will purchase all of the Bonds, if any are purchased, at a price of percent of the par value of the Bonds, plus accrued interest. The Bonds will be reoffered at an average price of percent of the par value of the Bonds. After the initial public offering, the public offering prices may be varied from time to time. Concluding Statement All estimates, assumptions, statistical information and other statements contained herein, while taken from sources considered reliable, are not guaranteed by the Underwriter or the City. 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 maybe obtained from the City. The statements relating to the Bond Ordinance are in summarized form, and in all respects are subject to and qualified in their entirety by express reference to the provisions of such document in its complete form. The agreements of the City are set forth in such documents, and the information assembled herein is not to be construed as a contract with the Owners of the Bonds. Information with respect to the City set forth in this Official Statement has been supplied by the City, and the Underwriter has relied on the City with respect to the accuracy and sufficiency of such information. 27 (This Page Intentionally Left Blank) Appendix A Bond Ordinance (This Page intentionally Left Blank) CITY OF YAKIMA, WASHINGTON IRRIGATION SYSTEM REVENUE BONDS $10,000,000 ORDINANCE NO. AN ORDINANCE OF THE CITY OF YAKIMA, WASHINGTON, AUTHORIZING THE ISSUANCE AND SALE OF IRRIGATION SYSTEM REVENUE BONDS OF THE CITY IN THE PRINCIPAL AMOUNT OF NOT TO EXCEED $10,000,000 IN ONE OR MORE SERIES AND FIXING THE TERMS AND COVENANTS OF THE BONDS. PASSED: November 4, 2003 Prepared by: PRESTON GATES & ELLIS LLP Seattle, Washington TABLE OF CONTENTS Section 1. Definitions 1 Section 2. Approval of Plan and System 6 Section 3. Authorization of Bonds 6 Section 4. Registration, Exchange and Payments 7 Section 5. Redemption; Purchases 11 Section 6. Form of Bonds 12 Section 7. Execution of Bonds 15 Section 8. Bond Registrar 16 Section 9. Priority of Payments From Revenue of the System; Rate Stabilization Account 16 Section 10. Bond Account 18 Section 11. Payments Into Bond Proceeds Account 21 Section 12. Defeasance 22 Section 13. General Covenants 22 Section 14. Issuance of Future Parity Bonds 25 Section 15. Disposition of Bond Proceeds 29 Section 16. Tax Covenants 30 Section 17. Amendments 30 Section 18. Severability - _ 32 Section 19. Sale of Bonds 32 Section 20. Undertaking to Provide Ongoing Disclosure - 32 Section 21. General Authorization - 36 Section 22. Effective Date 36 Exhibit A Description of the Projects -i- r:wceGO18 owls. ORDINANCE NO. AN ORDINANCE OF THE CITY OF YAKIMA, WASHINGTON, AUTHORIZING THE ISSUANCE AND SALE OF IRRIGATION SYSTEM REVENUE BONDS OF THE CITY IN THE PRINCIPAL AMOUNT OF NOT TO EXCEED $10,000,000 IN ONE OR MORE SERIES AND FIXING THE TERMS AND COVENANTS OF THE BONDS. WHEREAS, the City of Yakima, Washington (the "City") now operates and maintains an irrigation system (the "System"); and WHEREAS, it is in the best interest of the City to undertake certain capital improvements to the System (as further described herein, the "Projects"); and WHEREAS, the Council hereby finds that it is in the best interests of the City that the Bonds be offered in one or more series as further provided in a resolution of the City; NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF YAKIMA, WASHINGTON, DO ORDAIN as follows: Section 1. Definitions. As used in this ordinance, the following words shall have the following meanings: "Annual Debt Service" for any fiscal year or calendar year means the sum of (a) the interest due in such year on all outstanding Panty Bonds excluding, however, interest to be paid from the proceeds of Parity Bonds, (b) the principal of all outstanding serial bonds due in such year, and (c) the sinking fund requirement, if any, for such year. If the interest rate on any such bonds is other than a fixed rate, the rate applicable at the time of the computation shall be used. "Assessments" means all assessments levied in any utility local improvement district of the City created for the acquisition or construction of additions and improvements to and extensions of the System, if such assessments are pledged to be paid into the Bond Account "Assessments" include any installments of assessments and any interest or penalties which may be due thereon. "Average Annual Debt Service" means the amount determined by dividing (a) the sum of all interest and principal to be paid on all Parity Bonds from the date of determination to the last maturity date of such Parity Bond, by (b) the (number of fiscal years or calendar years from and including the fiscal year or calendar year in which the determination is made to the last fiscal year or calendar year in which any of such Parity Bonds will be outstanding. "Bond Account" means the account or fund created herein within the Revenue Fund to pay debt service on parity bonds. - "Bond Proceeds Account" means the account created herein within the Revenue Fund. "Bond Register" means the records maintained on behalf of the City by the Bond Registrar containing the name and mailing address of each owner of the Bonds or the nominee of such owner, and such other information as the Bond Registrar shall determine. "Bond Registrar" means the fiscal agency of the State of Washington in New York,New York, for the purposes of registering and authenticating the Bonds, maintaining the Bond Register, effecting transfer of ownership of the Bonds, and paying the principal of and interest on the Bonds. "Bonds" means the City of Yakima Irrigation System Revenue Bonds, 2003, issued pursuant to this ordinance in one or more series in the aggregate principal amount of not to exceed $10,000,000. -2- Pmuwco1a uenaros "City" means the City of Yakima, Washington, a municipal corporation duly organized and existing under and by virtue of the laws of the State of Washington. "Code" means the Federal Intemal Revenue Code of 1986, as amended, together with applicable regulations and revenue rulings issued or amended with respect thereto by the United States Treasury Department or the Internal Revenue Service, to the extent applicable to the Bonds. - "Cost of Maintenance and Operation" means all necessary operating expenses, current maintenance expenses, expenses of reasonable upkeep and repairs, and insurance and administrative expenses with respect to the System, but excludes depreciation, payments for debt service or into reserve accounts, costs of capital additions to or replacements of the System, but not including municipal taxes, payments to the City in lieu of taxes or depreciation. "Council" means the Council of the City as the same shall be duly and regularly constituted from time to time. "DTC" means The Depository Trust Company. "Finance Director" means the duly qualified and acting Director of Finance and Budget of the City. "Future Parity Bonds" means all the series or issues of irrigation revenue bonds of the City issued after the date of issuance of the Bonds and having a lien upon the money in the Revenue Fund for the payment of the principal of and interest thereon equal to the lien upon the money in such fund for the payment of the principal of and interest on the Bonds. "Government Obligations" has the meaning given to such term in RCW Chapter 39.53, as the same may be amended from time to time. - -3- P:836100018 08/18101 "Letter of Representations" means the Blanket Issuer Letter of Representations from the City to DTC. "MSRB" means the Municipal Securities Rulemaking Board or any successor to its functions. "Net Revenue" means the Revenue of the System less the Cost of Maintenance and Operation. "NRMSIR" means a nationally recognized municipal securities information repository. "Parity Bonds" means any revenue bonds, notes, warrants or obligations issued by the City which have a lien upon the Revenue of the System to pay and secure the payment of the principal thereof and interest thereon equal to the lien created upon the Revenue of the System to pay and secure the payment of the principal of and interest on the Bonds. The words "Parity Bonds" include the Bonds and any Future Parity Bonds. "Professional Utility Consultant" means the independent person(s) or firm(s) selected by the City having a favorable reputation for skill and experience with irrigation systems of comparable size and character to the System in such areas as are relevant to the purposes for which they are retained. "Qualified Letter of Credit" means any irrevocable letter of credit issued by a financial institution for the account of the City on behalf of the owners of any Parity Bonds, which institution maintains an office, agency or branch in the United States and as of the time of issuance of such letter of credit, is currently rated in one of the two highest rating categories by Moody's Investors Service and Standard & Poor's Ratings Services, a Division of the McGraw-Hill Companies, or their comparably recognized business successors. -4- P:10G8]G018 08/18/01 "Qualified Insurance" means any noncancelable municipal bond insurance policy or surety bond issued by any insurance company licensed to conduct an insurance business in any state of the United States (or by a service corporation acting on behalf of one or more such insurance companies), which insurance company or companies, as of the time of issuance of such policy or surety bond, are currently rated in one of the two highest rating categories by Moody's Investors Service and Standard & Poor's Ratings Services, a Division of the McGraw-Hill Companies, or their comparably recognized business successors. "Rate Stabilization Account" means the account or fund of that name authorized to be created within the Revenue Fund pursuant to Section 9. "Reserve Account" means the account of that name created in the Bond Account. "Reserve Account Requirement" means with respect to each series of outstanding Parity Bonds the lesser of (a) 125% of Average Annual Debt Service or (b) maximum Annual Debt Service; provided, however, that at the time of issuance of any series of Parity Bonds, the Reserve Account Requirement allocable to a series of Parity Bonds shall not exceed 10% of the initial principal amount of that series of Parity Bonds. "Revenue Fund" means the "City of Yakima Irrigation System Operating Fund." "Revenue of the System" means all earnings, revenue and money, except Assessments, received by the City from or on account of the operation of the System, including income from investments of money in the Revenue Fund or from any other investment of such earnings and revenue except the income from investments irrevocably pledged to the payment of any irrigation revenue bonds pursuant to a plan of refunding or retirement. The words "Revenue of the System" shall also include federal, state or municipal reimbursements of operating expenses to the extent such expenses are part of the Cost of Maintenance and Operation of the System. -5- P:IDGDG018 08118104 "Rule" means the SEC's Rule 15c2-12 under the Securities and Exchange Act of 1934, as the same may be amended from time to time. "Sale Resolution" means the resolution or resolutions to be adopted by the Council setting the final terms of the Bonds. "SEC" means the U.S. Securities and Exchange Commission - "SID" means a state information depository for the State of Washington (if one is created). "System" means the City's existing irrigation system as the same may be added to, improved, and extended from time to time. "Tenn Bonds" means any Parity Bonds identified as Term Bonds .in the ordinance authorizing the issuance thereof, the payment of the principal of which is (provided for by a mandatory schedule of deposits of money equal (in the aggregate) to the full principal amount of such Term Bonds, into the Bond Account, and by a mandatory redemption schedule corresponding (as to time and amounts) to such mandatory schedule ofdeposits. Secticlg 2. Approval of Plan and System. The public interest and necessity require that the City finance certain improvements to the System described in Exhibit A (the "Projects"). The City hereby adopts such Projects as a plan and system. The estimated cost of the Projects is $10,000,000. Section 3. Authorization of Bonds. The City shall issue the Bonds in the aggregate principal amount of not to exceed $10,000,000 in one or more series for the purpose of providing the funds necessary to pay costs of the Projects, to satisfy the Reserve Requirement, and to pay the expenses incidental to the issuance of the Bonds. The Bonds shall be designated the "City of Yakima Irrigation System Revenue Bonds, -6- P:43GDG01a 08/18104 200j" shall be in fully registered form, shall be in the denomination of 85,000 each, provided that no Bond shall represent more than one maturity. The Bonds may be issued in one or more series, shall be numbered separately and in such manner and with any additional designation as the Bond Registrar deems necessary for purposes of identification and control; shall be dated such date, bear interest at the rates per annum, and be payable in the amounts and dates as shall be determined by a Sale Resolution. The Bonds shall be obligations only of the Bond Account and shall be payable and secured as provided herein. The Bonds shall not be general obligations of the City The Finance Director of the City is hereby authorized to obtain insurance for the payment of principal of and interest on the Bonds, if she should determine that it is in the best interests of the City to do so. The City hereby authorizes the preparation and execution of the preliminary official statement describing, among other things, the terms of the Bonds. Section 4. Registration, Exchange and Payments. A. Registrar/Bond Register. The City hereby adopts the system of registration approved by the Washington State Finance Committee, which utilizes the fiscal agency of the State of Washington in New York, New York, as registrar, authenticating agent, paying agent and transfer agent (the "Bond Registrar"). The Bond Registrar shall keep, or cause to be kept, at its principal corporate trust office, sufficient records for the registration and transfer of the Bonds (the "Bond Register"), which shall be open to inspection by the City. The Bond Registrar is authorized, on behalf of the City, to authenticate and deliver Bonds transferred or exchanged in accordance with the provisions of such Bonds and this ordinance and to cavy out all of the Bond -7- P:/D01DG018 08/18/04 Registrar's powers and duties under this ordinance. The Bond Registrar shall be responsible for its representations contained in the Certificate of Authentication on the Bonds. B. Registered Ownership. The City and the Bond Registrar may deem and treat the Registered Owner of each Bond as the absolute owner for all purposes, and neither the City nor the Bond Registrar shall be affected by any notice to the contrary. Payment of any such Bond shall be made only as described in Section 4(H) hereof, but such registration may be transferred as herein provided. All such payments made as described in Section 4(H) shall be valid and shall satisfy the liability of the City upon such Bond to the extent of the amount or amounts so paid. C. DTC Acceptance/Letter of Representations. The Bonds shall initially be held in fully immobilized form by DTC acting as depository To induce DTC to accept the Bonds as eligible for deposit at DTC, the City has executed and delivered to DTC a Blanket Issuer Letter of Representations (the "Letter of Representations"). - 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 for the accuracy of any records maintained by DTC or any DTC participant, the payment by DTC or any DTC participant of any amount in respect -of the principal of or interest on Bonds, any notice that is permitted or required to be given to Registered Owners under this ordinance (except such notices as shall be required to be given by the City to the Bond Registrar or to DTC), or any consent given or other action taken by DTC as the Registered Owner. For so long as any Bonds are held in fully immobilized form hereunder, DTC or its successor depository shall be deemed to be the Registered Owner for all purposes, and all references in this ordinance to the Registered Owners shall mean DTC or its nominee and shall not mean the owners of any beneficial interest in any Bonds. -8- P// avasOIe 08/18.04 D. Use of Depository. (i) The Bonds shall be registered initially in the name of CEDE & Co., as nominee of DTC, with a single Bond for each maturity in a denomination equal to the total principal amount of such maturity. Registered ownership of such immobilized Bonds, or any portions thereof, may not thereafter be transferred except (A) to any successor of DTC or its nominee, provided that any such successor shall be qualified under any applicable laws to provide the service proposed to be provided by it; (B) to any substitute depository appointed by the City pursuant to subsection (ii) below or such substitute depository's successor; or (C) to any person as provided in subsection (iv) below. (ii) Upon the resignation of DTC or its successor (or any substitute depository or its successor) from its functions as depository or a determination by the City to discontinue the system of book entry transfers through DTC or its successor (or any substitute depository or its successor), the City may appoint a substitute depository. Any such substitute depository shall be qualified under any applicable laws to provide the services proposed to be provided by it. (iii) In the case of any transfer pursuant to clause (A) or (B) of subsection (i) above, the Bond Registrar shall, upon receipt of all outstanding Bonds, together with a written request on behalf of the City, issue a single new Bond for each maturity then outstanding, registered in the name of such successor or substitute depository, or its nominee, all as specified in such written request of the City. (iv) In the event that (A) DTC or its successor (or substitute depository or it, successor) resigns from its functions as depository, and no substitute depository can be obtained, or (B) the City determines that it is in the best interest of the beneficial_owners of the Bonds that the Bonds be provided in certificated form, the ownership of such Bonds may then be transferred -9- P OGIDG015 08/1681 to any person or entity as herein provided, and shall no longer be held in fully immobilized form. The City shall deliver a written request to the Bond Registrar, together with a supply of definitive Bonds in certificated form, to issue Bonds in any authorized denomination. Upon receipt by the Bond Registrar of al then outstanding Bonds, together with a written request on behalf of the City to the Bond Registrar, new Bonds shall be issued in the appropriate denominations and registered in the names of such persons as are provided in such written request. E. Transfer or Exchange of Registered Ownership: Change in Denominations. The registered ownership of any Bond may be transferred or exchanged, but no tnmsfer of any Bond shall be valid unless it is surrendered to the Bond Registrar with the assignment form appearing on such Bond duly executed by the Registered Owner or such Registered Owner's duly authorized agent in a manner satisfu;tory to the Bond Registrar. Upon such surrender, the Bond Registrar shall cancel the surrendered Bond and shall authenticate and deliver, without charge to the Registered Owner or transferee, a new Bond (or Bonds at the option of the new Registered Owner) of the same date, maturity and interest rate and for the same aggregate principal amount in any authorized denomination, naming as Registered Owner the person or persons listed as the assignee on the assignment form appearing on the surrendered Bond, in exchange for such surrendered and canceled Bond. Any Bond may be surrendered to the Bond Registrar and exchanged, without charge, for an equal aggregate principal amount of Bonds of the same date, maturity and interest rate, in any authorized denomination. The Bond Registrar shall not be obligated to transfer or exchange any Bond during a period beginning at the opening of business on the 15th day of the month next peceding any interest payment date and ending at the close of business on such interest payment date. _ e:mcnc018 08/1504 F. Bond Registrar's Ownership of Bonds. The Bond Registrar may become the Registered Owner of any Bond with the same rights it would have if it were not the Bond Registrar, and to the extent permitted by law, may act as depository for and permit any of its officers or directors to act as member of, or m any other capacity with respect to, any committee formed to protect the rights of the Registered Owners of the Bonds. G. Registration Covenant. The City covenants -that, until all Bonds have been surrendered and canceled, it will maintain a system for recording the ownership of each Bond that complies with the provisions of Section 149 of the Code. H. Place and Medium of Payment. Both principal of and interest on the Bonds shall be payable in lawful money of the United States of America. For so long as all Bonds are in fully immobilized form, payments of principal and interest shall be made as provided in accordance with the operational arrangements of DTC referred to in the Letter of Representations. 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 shall be payable upon presentation and surrender of such Bonds by the Registered Owners at the principal office of the Bond Registrar. Section 5. Redemption; Purchases. The Bonds may be subject to redemption prior to their scheduled maturities as provided further in a Sale Resolution. The City reserves the right to use, at any time, any surplus Revenue of the System available, after satisfaction of the requirements of paragraphs First through Fifth of Section 9, to purchase for retirement any of the Bonds offered to the City at any price deemed reasonable by the City. -11- PAncmGOt5 08/10'01 Section 6. Form of Bonds. The Bonds shall be in substantially the following form: UNITED STATES OF AMERICA NO. $ [STATEMENT OF INSURANCE] STATE OF WASHINGTON CITY OF YAKIMA IRRIGATION SYSTEM REVENUE BOND, 200_ INTEREST RATE: REGISTERED OWNER. PRINCIPAL AMOUNT. MATURITY DATE: DOLLARS CUSIP NO.: The City of Yakima, Washington, a municipal corporation organized and existing under and by virtue of the laws and Constitution of the State of Washington (the "City"), hereby acknowledges itself to owe and for value received promises to pay to the Registered Owner identified above, or registered assigns, on the Maturity Date identified above, but solely from the sources identified herein, the Principal Amount specified above, unless redeemed prior thereto as provided herein, together with interest on such Principal Amount from the date hereof or the most recent date to which interest has been paid or duly provided for at the Interest Rate set forth above payable , and semiannually thereafter on each 1 and 1 until payment of the principal sum has been made or duly provided for. Both principal of and interest on this bond are payable in lawful money of the United States of America. For so long as the bonds of this issue are held in fully immobilized form, payments of principal and interest thereon shall be made as provided in accordance with the operational arrangements of The Depository Trust Company ("DTC") referred to in the Blanket Issuer Letter of Representations from the City to DTC. In the event that the bonds of this issue are no longer held in fully immobilized form, interest on this bond shall -be paid by check or draft mailed to the Registered Owner at the address appearing on the Bond Register on the 15th day of the month preceding the interest payment date, and principal of this bond shall be payable upon presentation and surrender of this bond by the Registered Owner at the principal office of the fiscal agency of the State of Washington in New York, New York (the "Bond Registrar"). This bond is one of an issue of irrigation system revenue bonds in the aggregate principal amount of $_,000,000 issued pursuant to Ordinance No. of the City passed on November 4, 2003 (the "Bond Ordinance'), for the purpose of financing certain capital improvements to the irrigation system. This bond is payable solely from the City of Yakima Irrigation System Revenue Fund (the "Revenue Fund") created pursuant to Ordinance No. of the City. The bonds of this issue are not general obligations of the City. The bonds of this issue are subject to redemption prior to maturity. -12- P:DGwroie 05111 The bonds of this issue are interchangeable for bonds of any authorized denomination of equal aggregate principal amount and of the same interest rate and maturity upon presentation and surrender to the Bond Registrar. The City has irrevocably obligated and bound itself to set aside from the Revenue Fund out of the Revenue of the System into the Bond Account and the accounts created therein the various amounts required by the Bond Ordinance to be paid into and maintained in such fund and accounts, all within the times provided in the Bond Ordinance. [The bonds of this issue have been designated as "qualified tax-exempt obligations" pursuant to Section 265(6)(3) of the Code.] To the extent more particularly provided by the Bond Ordinance, the amounts so pledged to be paid into the Bond Account and the accounts therein shall be a lien and charge upon the Revenue of the System superior to all other charges of any kind or nature except the Costs of Maintenance and Operation of the System and equal in rank to the charges upon such Revenue o:f the System to pay and secure the payment of the principal of and interest on such bonds. Reference also is made to the Bond Ordinance as more fully describing the covenants with and the rights of Registered Owners of the bonds or registered assigns and the meanings of capitalized terms appearing on this bond which are defined in such ordinance. The City has further bound itself to maintain the System in good repair, working order and condition, to operate the same in an efficient manner and at a reasonable cost, to establish, maintain and collect rates and charges, for as long as any of the bonds are outstanding, that will make available for the payment of the principal of and the interest on all of such bonds as the same shall become due Net Revenue in an amount which, together with Assessments, will be equal to at least 140 times the average amount required in any year hereafter to be paid out off the Bond Account to pay the principal of and interest on all of such bonds and any bonds then outstanding (which average amount shall be determined as set forth in the Bond Ordinance). The pledge of revenues and other obligations of the City under the Bond Ordinance may be discharged at or prior to the maturity of the bonds upon the making of provision for the payment thereof on the terms and conditions set forth in the Bond Ordinance. Reference to the Bond Ordinance and any and all modifications and amendments thereto is made for a description of the nature and extent of the security for the Bonds, the funds or revenues pledged, and the terms and conditions upon which the bonds are issued. This bond shall not be valid or become obligatory for any purpose or be entitled to any security or benefit under the Bond Ordinance until the Certificate of Authentication hereon shall have been manually signed by the Bond Registrar. It is hereby certified that the bonds of this issue are issued pursuant to and in stricl. compliance with the Constitution and laws of the State of Washington and ordinances of the -13- P:10G10G018 08118/01 City, and that all acts, conditions and things required to have happened, been done and performed precedent to and in the issuance of this bond have happened, been done and performed. IN WITNESS WHEREOF, the City of Yakima, Washington, has caused this bond to be executed with the facsimile signature of the Mayor, to be attested with the facsimile signature of the City Clerk, and the seal of the City to be imprinted hereon, as of this day of 200 ATTEST: /s/ manual or facsimile City Clerk CITY OF YAKIMA, WASHINGTON By /s/ manual or facsimile - - Mayor CERTIFICATE OF AUTHENTICATION Date of Authentication: This bond is one of the bonds described in the within -mentioned Bond Ordinance and is one of the Irrigation System Revenue Bonds, 200_, of the City of Yakima, Washington, dated 200_. - - - WASHINGTON STATE FISCAL AGENCY, as Bond Registrar By ASSIGNMENT Authorized S igner FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto PLEASE INSERT SOCIAL SECURITY OR TAXPAYER IDENTIFICATION NUMBER OF TRANSFEREE (Please print or typewrite name and address, including zip code, of Transferee) 14- P.10G11G018 08118101 the within bond and does hereby irrevocably constitute and appoint of , or its successor, as agent to transfer said bond on the books kept for registration thereof with full power of substitution in the premises. DATED: NOTE. The signature on this Assignment must correspond with the name of the registered owner as it appears upon the face of the within bond in every particular, without alteration or enlargement or any change whatever. SIGNATURE GUARANTEED: NOTICE: Signature(s) must be guaranteed pursuant to law Section 7. Execution of Bonds. The Bonds shall be signed on behalf of the City by the facsimile or manual signature of the Mayor, shall be attested by the facsimile or manual signature of the City Clerk, and shall have the corporate seal of the City impressed or imprinted thereon. Only such Bonds as shall bear thereon a Certificate of Authentication in the form recited above, manually executed by the Bond Registrar, shall be valid or obligatory for any purpose or entitled to the benefits of this ordinance. Such Certificate of Authentication shall be conclusive evidence that the Bonds so authenticated have been duly executed, authenticated and delivered hereunder and are entitled to the benefits of this ordinance. In case either of the officers who shall have executed the Bonds shall cease to be such officer of the City before the Bonds so signed shall have been authenticated or delivered by the Bond Registrar, or issued by the City, such Bonds may nevertheless be authenticated, delivered and issued and upon such authentication, delivery and issuance, shall be as binding upon the City -15- P:1GG10G018 08/10/06 as though those who signed the same had continued to be such officers of the City. Any Bond may also be signed and attested on behalf of the City by such persons as at the actual date of execution of such Bond shall be the proper officers of the City although at the original date of such Bond any such person shall not have been such officer of the City. Section 8. Bond Registrar. The Bond Registrar shall -keep, or cause to be kept, at its principal corporate trust office, sufficient books for the registration and transfer of the Bonds which shall at all times be open to inspection by the City. The Bond Registrar is authorized, on behalf of the City, to authenticate and deliver the Bonds transferred or exchanged in accordance with the provisions of such Bonds and this ordinance and to carry out all of the Bond Registrar's powers and duties under this ordinance. The Bond Registrar shall be responsible for its representations contained in the Certificate of Authentication on the Bonds. The Bond Registrar may become the owner of Bonds with the same rights it would have if it were not the Bond Registrar, and to -the extent permitted by law, may act as depositary for and permit any of its officers or directors to act as a member of, or in any other capacity with respect to, any committee formed to protect the rights of owners of the Bonds. Section 9. Priority of Payments From Revenue of the System; Rate Stabilization Account. There has heretofore been established in the office of the Finance Director of the City a special fund of the City known as the "City of Yakima Irrigation System Revenue Fund" (the "Revenue Fund"). The Revenue of the System, except income from the investment of money in the Bond Account, shall be deposited in the Revenue Fund as collected and- the Revenue Fund shall be held separate and apart from all other funds and accounts of the City The Revenue of the System shall be used only for the following purposes and in the following order of priority: -16- P.10G10G018 08/16101 First to pay the Cost of Maintenance and Operation of the System; Second, to make all payments required to be made into the Bond Account to pay the interest on any Parity Bonds and amounts to repay any bond insurer for interest payments on Parity Bonds; Third, to make all payments required to be made into the Bond Account to pay the principal or sinking fund installments for any Parity Bonds and amounts to repay any bond insurer for principal and sinking fund installments for any Parity Bonds; Fourth, to make all payments required to be made into the Reserve Account to secure the payment of any Parity Bonds; Fifth, to make all payments required to be made into any other revenue bond redemption fund or revenue warrant or note redemption fund and Bond Account or reserve account created to pay and secure the payment of the principal of and interest on any revenue bonds or revenue warrants or notes of the City having a lien upon the Revenue of the System and the money in the Revenue Fund junior and inferior to the lien thereon for the payment of the principal of and interest on Parity Bonds; and Sixth, to retire by redemption or purchase any outstanding revenue bonds or revenue warrants or notes of the City or to make necessary additions, betterments, improvements, extraordinary repairs, extensions and replacements of the System or any other lawful City purposes. A special account of the City to be designated the "Irrigation Rate Stabilization Account" (the "Rate Stabilization Account") is hereby authorized to be created within the Revenue Fund, at the discretion of the Finance Director, to cope with future increases in revenue requirements of the System. The City may from time to time appropriate or budget amounts in the Revenue Fund -17- P.43013G0111 08/10104 for deposit in the Rate Stabilization Account and may from time to time withdraw amounts therefrom to prevent or mitigate irrigation rate increases or for other lawful purposes of the City related to the System. Amounts withdrawn from the Rate Stabilization Account shall increase Revenue of the System for the period for which they are withdrawn, and amounts deposited in the Rate Stabilization Account shall reduce Gross Revenue of the System lbr the period for which they are deposited. Credits to or from the Rate Stabilization Account that occur within 90 days after the end of a fiscal year may be treated as occurring within such fiscal year. Earnings on the Rate Stabilization Account shall be credited to the Revenue Fund. Section 10. Bond Account. A special account of the City known as the "City of Yakima Irrigation System Bond Account" (the "Bond Account") is hereby created and shall be drawn upon for the sole purpose of paying and securing the payment of Parity Bonds. The City shall deposit the Assessments into the Bond Account for payment of the principal of and interest on Parity Bonds without allocation to -any particular series of bonds payable from the Bond Account. A. Payments Into Bond Account. All accrued interest received by the City at the time of delivery, of the Bonds shall be paid into the Bond Account._ As long as any of the Parity Bonds remain outstanding, the City hereby irrevocably obligates and binds itself to set aside and pay from the Revenue Fund into the Bond Account, on or before the date due, those amounts necessary, together with Revenue of the System collected and deposited and such other money as is on hand and available therefor in the Bond Account, to pay the irn:erest or principal and interest next coming due on the outstanding Parity Bonds. The City covenants that in the event it issues any Future Parity Bonds that are Term Bonds, it will provide in each ordinance authorizing the issuance of the same for annual -18- P.IOG(DG010 08(4864 payments to be made from the Revenue Fund into the Bond Account sufficient, together with Revenue collected and deposited and such other money as is on hand and available therefor in such account, to satisfy the Sinking Fund Requirement with respect to such Term Bonds. B. Reserve Account. A Reserve Account is hereby created for the purpose of securing the payment of the principal of and interest on all Parity Bonds. The City covenants that it will upon delivery of the Bonds have on deposit an amount or Qualified Insurance in an amount equal to the Reserve Account Requirement. The City further covenants that in the event it issues any Future Parity Bonds it will provide in each ordinance authorizing the issuance of the same that approximately equal monthly payments will be made into the Reserve Account out of the Revenue Fund so that within five years or less from the date of the issuance of such Parity Bonds the total amount of such payments, with the amount already in the Reserve Account, will be at least equal to the Reserve Account Requirement. The City further covenants that when the required deposits have been made into the Reserve Account, it will at all times maintain therein an amount at least equal to such Reserve Account Requirement. Whenever there is a sufficient amount in the Bond Account and Reserve Account to pay the principal of, premium, if any, and interest on all Parity Bonds then outstanding, the money in the Reserve Account may be used to pay such principal, premium, if any, and interest. Money in the Reserve Account may be withdrawn to redeem and retire, and to pay the interest due to such date of redemption and premium, if any, on the outstanding Parity Bonds so long as the money remaining on deposit in the Reserve Account is at least equal to the Reserve Account Requirements for all of the Parity Bonds then outstanding. In the event there shall be a deficiency in the Bond -Account to meet maturing installments of either interest on or principal of and interest on any Parity Bonds, such deficiency -19- P.100106018 06/18/04 shall be made up from the Reserve Account by the withdrawal of money therefrom. Any deficiency created in the Reserve Account by reason of any such withdrawal shall be made up within 12 months of the deficiency out of Assessments and Revenue of the System after making necessary provision for the payments required to be made by subparagraphs First, Second, and Third of Section 9 hereof. The City may substitute or deposit Qualified Insurance or a Qualified Letter of Credit for amounts required to be deposited into the Reserve Account. Such Qualified Letter of Credit or Qualified Insurance shall not be cancelable on less than five years' notice. In the event of any cancellation, the Reserve Account shall be funded in accordance with the provisions of this section providing for payment in the event of a deficiency therein, as if the Parity Bonds that remain outstanding had been issued on the date of such notice of cancellation. In the event there is a deficiency in the Bond Account to meet maturing installments of either interest on or principal of and interest on the outstanding Parity Bonds payable out of such Account, such deficiency shall be made up from the Reserve Account by the withdrawal of money therefrom and by the sale or redemption of obligations held in the Reserve Account, if necessary, in such amounts as will provide cash in the Reserve Account sufficient to make up any such deficiency, and if a deficiency still exists immediately prior to an interest payment date and after the withdrawal of cash, the City shall then draw from any Qualified Letter.of Credit or Qualified Insurance to make up the deficiency. Such draw shall be made at such times and under such conditions as the agreement for such Qualified Letter of Credit or such Qualified Insurance shall provide. If more than one Qualified Letter of Credit or Qualified insurance is available, draws shall be made ratably to make up the deficiency. -20- P:10G0)0010 08/16/04 C. Priority of Lien of Payments Into Bond Account. The amounts so pledged to be paid into the Bond Account and the Reserve Account from the Revenue Fund are hereby declared to be a prior lien and charge upon the Revenue of the System superior to all other charges of any kind or nature whatsoever except the Costs of Maintenance and Operation of the System and except that the amounts so pledged are of equal lien to the charges upon such Revenue heretofore made and which may hereafter be made to pay and secure the payment of the principal of and interest on any outstanding Parity Bonds. D. Application and Investment of Money in Bond Account. Money in the Bond Account not needed to pay the interest or principal and interest next coming due on any outstanding Parity Bonds or to maintain required reserves therefor may be used to redeem and retire such bonds. Money in the Bond Account and Reserve Account may be invested as permitted by law. Investments in the Bond Account shall mature prior to the date on which such money shall be needed for required interest or principal payments. Investments in the Reserve Account shall mature not later than the last maturity of any then outstanding Parity Bonds. All interest earned and income derived by virtue of such investments shall remain in the Bond Account and be used to meet the required deposits into any account therein. E. Sufficiency of Revenues. The Council hereby finds that in fixing the amounts to be paid into the Bond Account out of the Revenue of the System, it has exercised due regard for the Cost of Maintenance and Operation and has not obligated the City to set aside and pay into such Fund a greater amount of such Revenue than in its judgment will be available over and above the Cost of Maintenance and Operation. Section 11. Payments Into Bond Proceeds Account. A Bond Proceeds Account is hereby authorized to be created within the Irrigation Fund, at the discretion of the Finance -21- - P.DGDG018 08118I06 Director, for the deposit of a portion of the proceeds of the Bonds received by the City at the time of delivery of the Bonds as stated in Section 15. Section 12. Defeasance. In the event that money and/or Government Obligations maturing at such time or times and bearing interest to be earned thereon in amounts (together with such money if necessary) sufficient to redeem and retire the Bonds or any of them in accordance with their terms are set aside in a special account to effect such redemption or retirement and such money and/or the principal of and interest on such obligations are irrevocably set aside and pledged for such purpose, then no further payments need be made into the Bond Account for the payment of the principal of and the interest on the 13onds so provided for, and the owners of such Bonds shall. cease to be entitled to any lien, benefit or security of this ordinance except the right to receive the funds so set aside and pledged, and such Bonds shall be deemed not to be outstanding hereunder. - Section 13. General Covenants. The City hereby covenants with the owner of each of the Bonds for as long as any of the same remain outstanding as follows: A. System Rates. The City shall establish, maintain and collect rates and charges for the use of the services and facilities of the System and all commodities ;old, furnished or supplied by the System, which shall be fair and nondiscriminatory and shall adjust such rates and charges from time to time so that: 1. The Revenue of the System, together with Assessments collected, will at all times be sufficient (a) to pay all costs of and charges and expenses in connection with the proper operation and maintenance of the System, (b) to pay the principal off and interest on the outstanding Parity Bonds, as and when the same shall become due and payable, (c) to make when due all payments which the City is obligated to make into the Bond Account and Reserve -22- F:1DODGOl8 08118/04 Account and all other payments which the City is obligated to make pursuant to this ordinance, and (d) to pay all taxes, assessments or other governmental charges lawfully imposed on the System or the revenue therefrom or payments in lieu thereof and any and all other amounts which the City may now and hereafter become obligated to pay from the Revenue of the System by law or contract; and 2. the Net Revenue in each calendar year will equal at least 1.40 times Annual Debt Service for such year (after deducting Assessments actually collected for such year). For the purpose of meeting the requirement of this paragraph there may be added to Net Revenue for any calendar year any amount withdrawn from the Rate Stabilization Account and credited to Revenue as provided in Section 9. There shall be subtracted from Net Revenue for any calendar year any amounts in such year withdrawn from the Revenue Fund and deposited into the Rate Stabilization Account in such calendar year. B. Sale or Disposition of the System. The City will not sell, mortgage, lease or otherwise dispose of or encumber all or any portion of the System, except as follows: (1) The City may sell, mortgage, lease or otherwise dispose of all or substantially all of the System if, simultaneously with such sale, mortgage, lease or other disposition or encumbrance, provision is made for the payment into the Bond Account of cash or Government Obligations sufficient together with interest to be earned thereon to pay the principal of and interest on all then outstanding Parity Bonds. (2) Except as provided in subsection (3) below, the City will not sell, mortgage, lease or otherwise dispose of or encumber any part of the useful operating properties of the System in excess of 5% of the value of the net utility plant of the System unless prior to such sale, mortgage, lease or other disposition or encumbrance: -23- P:1DGADGOIa mum (i) there shall have been filed with the Finance Director a certificate of a Professional Utility Consultant stating that such sale, mortgage, lease or other disposition or encumbrance will not impair the ability of the City to comply with the rate covenants set forth in Section 13 of this ordinance; or (ii) provision is made for the payment, redemption or other retirement of a principal amount of outstanding Parity Bonds equal to the greater of the following amounts: (X) an amount that will be in the same proportion to the net principal amount of Parity Bonds then outstanding (defined as the total principal amount of the Parity Bonds less the amount of cash and investments in the Bond Account and accounts therein) that the Net Revenue from the portion of the System sold or disposed of for the 12 preceding months bears to the total Net Revenue for such period; or (Y) an amount that will be in the same proportion to the net principal amount of Parity Bonds then outstanding that the book value of the part of the System sold or disposed of bears to the book value of the entire System immediately prior to such sale or disposition. (3) The City may sell or otherwise dispose of any of the works, plant, properties and facilities of the System or any real or personal property comprising a part of the same with a value less than 5% of the net utility plant of the System or which shall have become unserviceable, inadequate, obsolete or unfit to be used in the operation of the System, or no longer necessary, material to or useful in such operation, without making any deposit into the Bond Account. C. Collection of Assessments. The City shall promptly collect all Assessments levied in any utility local improvement district now or hereafter created to secure the payment of the principal of and interest on any Parity Bonds and shall pay the same into the Bond Account -24- PAD(TDGOI8 01110.04 without allocation of such Assessments to any particular series of Parity Bonds. It is hereby provided further, however, that nothing in this ordinance or in this subsection shall be construed to prohibit the City from issuing revenue bonds having a lien on Gross Revenue junior to the lien on such revenue for the payment of the principal of and interest on Parity Bonds and pledging as security for the payments of such junior ben bonds assessments levied in any utility local improvement district that may have been created to pay part or all the cost of improvements to the System for which such junior lien revenue bonds were specifically issued. D. Books and Accounts. The City covenants that it will maintain complete books and records relating to the operation of the System and its financial affairs, and will cause such books and records to be audited annually, and cause to be prepared an annual financial and operating statement, which statement shall be mailed to any owner of Parity Bonds upon request. E. Insurance. The City covenants that it will carry insurance on the System as is ordinarily carried on the property of similar public utilities by other municipal corporations engaged in the operation of the same if such insurance can be obtained at a reasonable cost and will also carry adequate public liability insurance and other kinds of insurance as under good practices are ordinarily carried on the properties of similar public utilities; provided, however, that the City may, if deemed necessary and advisable by the Council, institute or continue a self- insurance program with respect to any or all of the aforementioned risks. The premiums paid for all such insurance shall be regarded and paid as a Cost of Maintenance and Operation. F No Free Service. Except as permitted by law, the City will not furnish any service of the System to any customer free of charge. Section 14. Issuance of Future Parity Bonds. The City hereby covenants and agrees with the owners of each of the Bonds for as long as any of the same remain outstanding as -25= P.YIGIDG018 08/18104 follows: The City will not issue any bonds having a greater or equal priority of lien upon the Revenue of the System to pay and secure the payment of the principal of and interest on the Bonds than the priority of lien created on such Revenue to pay and secure the payment of the. principal of and interest on the Bonds or any outstanding Parity Bonds except as follows: A. The City reserves the right to issue Future Parity Bonds for the purposes of: First, providing funds to acquire, construct, reconstruct, install, or replace any equipment, facilities, additions, betterments, or other capital improvements eo the System for which it is authorized by law to issue revenue bonds or for other lawful purposes of the System; or Second refunding at or prior to their maturity any revenue bond anticipation notes or outstanding revenue bonds or other obligations payable out of the Revenue of the System and to pledge that payments will be made out of the Revenue of the System and into the Bond Account to pay and secure the payment of the principal of and interest on such Future Parity Bonds on a parity with the payments required herein to be made out of such Revenue into such account to pay and secure the payment of the principal) of and interest on any Parity Bonds then outstandiing, upon compliance with the following conditions: (1) At the time of the issuance of any Future Parity Bonds there is no deficiency in the Bond Account or the Reserve Account. (2) If there are Assessments levied in any utility local improvement district in which additions and improvements to and extensions of the System will be constructed from the proceeds of such Future Parity Bonds, the ordinance authorizing such Future Parity Bonds shall require that such Assessments be paid into the Bond Account. -26- P:i06030018 08/10414 (3) If there are Assessments pledged to be paid into a warrant or bond redemption fund for revenue bonds or warrants being refunded by Future Parity Bonds, the ordinance authorizing such Future Parity Bonds shall require such Assessments to be paid into the Bond Account. (4) The principal of and interest on any Future Parity Bonds shall be payable out of the Bond Account and the requirements for Reserve Account payments in Section 10 hereof shall be met. (5) Prior to the delivery of any Future Parity Bonds, the City shall have on file in the office of the City Clerk either: (i) a certificate of the Finance Director showing that the Net Revenue determined as hereafter provided for each calendar or fiscal year after the issuance of such Future Parity Bonds will equal at least 1.40 times Annual Debt Service (after deducting Assessments allocated to the years in which they would be received if the unpaid balance of each assessment roll were paid in the remaining number of installments with interest on the declining balance at the times and at the rate provided in the ordinance confirming the assessment roll) during any calendar or fiscal year for all Parity Bonds plus the Future Parity Bonds proposed to be issued. For purposes of this certificate, "Net Revenue" shall be the Net Revenue for a period of any 12 consecutive months (which may include amounts withdrawn from the Rate Stabilization Account, as provided in Section 9 of this ordinance) out of the 24 months immediately preceding the date of delivery of such proposed Future Parity Bonds; or (ii) a certificate of a Professional Utility Consultant showing that the Net Revenue determined and adjusted as hereafter provided for each calendar or fiscal year after the issuance of such Future Parity Bonds (the "Adjusted Net Revenue") will equal at _ 2L P:100100018 09110101 least 1.40 times the Annual Debt Service (after deducting Assessments allocated to the years in which they would be received if the unpaid balance of each assessment roll were paid in the remaining number of installments with interest on the declining balance at the times and at the rate provided in the ordinance confirming the assessment roll) for each such calendar or fiscal year for all Parity Bonds plus the Future Parity Bonds proposed to be issued. The Adjusted Net Revenue shall be the Net Revenue for a period of any 12 consecutive months (which may include amounts withdrawn from the Rate Stabilization Account, as provided in Section 9 of this ordinance) out of the 24 months immediately preceding the date of delivery of such proposed Future Parity Bonds as adjusted by such Professional Utility Consultant to take into consideration changes in Net Revenue estimated to occur under the following conditions for each year after such delivery for so long as any Parity Bonds, including the Future Parity Bonds proposed to be issued, shall be outstanding: - (i) the additional Net Revenue that would have been received if any change in rates and charges adopted prior to the date of such certificate and subsequent to the beginning of such 12 -month period, had been in force during the full 12 -month period; (ii) the additional Net Revenue that would have been received if any facility of the System that became fully operational after the beginning of such 12 -month period had been so operating for the entire period; and (iii) the additional Net Revenue estimated by such Professional Utility Consultant to be received as a result of any additions, betterments and improvements to and extensions of any facilities of the System that are (a) under construction at the time of such certificate or (b) will be constructed from the proceeds of the Future Parity Bonds to be issued. -28- PAM:40 019 08116/04 Such Professional Utility Consultant may rely upon, and his or her certificate shall have. attached thereto, financial statements of the System certified by the Finance Director showing income and expenses for the period upon which the same is based. B. Notwithstanding the foregoing requirement, if Future _Parity Bonds are to be issued for the purpose of (1) refunding at or prior to their maturity any part or all of the then outstanding Parity Bonds and the issuance of such refunding Future Parity Bonds will result in a, debt service savings and does not require an increase of more than 55,000 in any fiscal or calendar year for principal of and interest on such refunding Future Parity Bonds over and above. the amount required in such year for the principal of and interest on the bonds being refunded. thereby or (2) avoiding a pending default of debt of the System, the condition stated in subsection A(5) of this section need not be met. C. Nothing herein contained shall prevent the City from issuing any revenue bonds, warrants or other obligations that are a charge upon the money in the Revenue Fund junior or inferior to the payments required by this ordinance to be made into the Bond Account and the Reserve Account. D. Nothing herein contained shall prevent the City from issuing revenue bonds or other obligations which are a charge upon the Revenue of the System junior or inferior to the payments required by this ordinance to be made out of such Revenue into the Bond Account and accounts therein to pay and secure the payment of any outstanding Parity Bonds. E. Nothing herein contained shall prevent the City from issuing revenue bonds to refund maturing Parity Bonds for the payment of which money is not otherwise available. Section 15. Disposition of Bond Proceeds. The Bond proceeds shall be deposited as follows: -29- P.,OG,.oGa1a 03/99/01 (1) Accrued interest shall be deposited into the Bond Account. (2) The amount necessary to fund the Reserve Account Requirement shall be deposited in the Reserve Account. (3) The remaining proceeds shall be deposited into the account designated by the Finance Director and used for the Projects and to pay costs of issuance of the Bonds. Section 16. Tax Covenant The City covenants to undertake all actions required to maintain the tax-exempt status of interest on the Bonds under Section 103 of the Code. Section 17. Amendments. A. The Council may adopt an ordinance or ordinances supplemental hereto, which ordinance or ordinances thereafter shall become a part of this ordinance, for any one or more of the following purposes: 1. To add to the covenants and agreements of the City contained in this ordinance other covenants and agreements thereafter to be observed which shall not adversely affect the interests of the owners of any Parity Bonds, or to surrender any right or power herein reserved to or conferred upon the City. 2. To make such provisions for the purpose of curing any ambiguities or of curing, correcting or supplementing any defective provisiottcontained in this ordinance or any ordinance authorizing Parity Bonds in regard to matters or questions arising under such ordinances as the Council may dean necessary or desirable and not inconsistent with such ordinances and which shall not adversely affect the interests of the owners of Parity Bonds. Any such supplemental ordinance of the City may be adopted without the consent of the owners of any Parity Bonds at any time outstanding, notwithstanding any of the provisions of subsection B of this Section. -30- P.DWOGa1e 0811604 13. With the consent of the owners of not less than 65% in aggregate principal amount of the Parity Bonds at the time outstanding, the Council may adopt an ordinance or ordinances supplemental hereto for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this ordinance or of any supplemental ordinance; provided, however, that no such supplemental ordinance shall: 1. Extend the fixed maturity of any Parity Bonds, or reduce the rate of interest thereon, or extend the times of payment of interest from their respective due dates, or reduce the amount of the principal thereof, or reduce any premium payable on the redemption thereof, without the consent of the owner of each bond so affected; or 2. Reduce the aforesaid percentage of bondowners required to approve any such supplemental ordinance, without the consent of the owners of all of the Parity Bonds then outstanding. It shall not be necessary for the consent of bondowners under this subsection B to approve the particular form of any proposed supplemental ordinance, but it shall be sufficient if such consent shall approve the substance thereof. C. Upon the adoption of any supplemental ordinance pursuant to the provisions of this Section, this ordinance shall be deemed to be modified and amended in accordance therewith, and the respective rights, duties and obligations of the City under this ordinance and all owners of Parity Bonds outstanding hereunder shall thereafter be determined, exercised and enforced thereunder, subject in all respects to such modification and amendments, and all the terms and conditions of any such supplemental ordinance shall be deemed to be a part of the terms and conditions of this ordinance for any and all purposes. - -31- P:*G10001e 08/18/04 D. Parity Bonds executed and delivered after the execution of any supplemental ordinance adopted pursuant to the provisions of this Section may have a notation as to any matter provided for in such supplemental ordinance, and if such supplemental ordinance shall so provide, new bonds so modified as to conform, in the opinion of the Council, to any modification of this ordinance contained in any such supplemental ordinance may be prepared by the City and delivered without cost to the owners of any affected Parity Bonds then outstanding, upon surrender for cancellation of such bonds in equal aggregate principal amounts. Section 18. Severability If any one or more of the covenants or agreements provided in this ordinance to be performed on the part of the City shall be declared by any court of competent jurisdiction to be contrary to law, then such covenant or covenants, agreement or agreements, shall be null and void and shall be deemed separable from the remaining covenants and agreements in this ordinance and shall in no way affect the validity of the other provisions of this ordinance or of any Parity Bonds. Section 19. Sale of Bonds. The Council shall adopt a Sale Resolution, which will set the interest rates, maturity amounts and years of the Bonds and approve the purchase contract and official statement for the Bonds. The Sale Resolution also -may establish redemption provisions, approve bond insurance and set any other terms for the Bonds. Section 20. Undertaking to Provide Ongoing Disclosure. A. Contract/Undertaking. This Section constitutes the City's written undertaking for the benefit of the owners and Beneficial Owners of the Bonds as required by Section (b)(5) of the Rule. 13. Financial Statements/Operating Data. The City agrees to provide or cause to be provided to each NRMSIR and to the SID, if any, in each case as designated by the SEC in -32- P:/ncerme oeneua accordance with the Rule, the following annual financial information and operating data for the prior fiscal year (commencing in 2004 for the fiscal year ended December 31, 2003): 1. Annual financial statements showing ending fund balances for the System prepared in accordance with generally accepted accounting principles applicable to government entities (and modified as may be required by the Washington State Auditor pursuant to RCW 43.09.200 (or any successor statute); 2. The principal amount of Parity Bonds; 3. Debt service coverage for Parity Bonds; 4. Number of customers of the System; and 5. Rates of the System. Items 2-5 shall be required only to the extent that such information is not included in the information provided pursuant to item 1 above. Such annual financial information and operating data described above shall be provided on or before nine months after the end of the City's fiscal year. The City's fiscal year currently ends December 31. The City may adjust such fiscal year by providing written notice of the change of fiscal year to each then existing NRMSIR and the SID, if any. In lieu of providing such annual financial information and operating data, the City may cross-reference to other documents provided to the NRMSIRs and the SID, or filed with the SEC and, if such document is a final official statement within the meaning of the Rule, available from the MSRB. If not provided as part of the annual financial information discussed above, the City shall provide the City's audited annual financial statement prepared in accordance with generally accepted accounting principles (and modified as may be required by the Washington State P:1DG'11GD18 OBI18)01 Auditor pursuant to RCW 43.09.200 (or any successor statute)), when and if available, to each then existing NRMSIR and the SID., Wang. C. Material Events. The City agrees to provide or cause to be provided, in a timely manner, to the SID, if any, and to each NRMSIR or to the MSRB notice of the occurrence of any of the following events with respect to the Bonds, if material: I. Principal and interest payment delinquencies; 2. Nonpayment related defaults; 3. Unscheduled draws on debt service reserves reflecting financial difficulties; 4. Unscheduled draws on credit enhancements reflecting financial difficulties; 5. Substitution cfcredit or liquidity providers, or their failure to perform; 6. Adverse tax opinions or events affecting the tax-exe mpt status -of the Bonds; 7. Modifications to the rights of Bond owners; 8. Optional, contingent br unscheduled calls of any Bonds other than scheduled sinking fund redemptions for which notice is given pursuant to Exchange Act Release 34-23856; 9. Defeasances; 10. Release, substitution or sale of property securing repayment of the Bonds; and 11. Rating changes. 34- P IDG➢G018 08)18/01 D. Notification Upon Failure to Provide Financial Data. The City agrees to provide or cause to be provided, in a timely manner, to each NRMSIR or to the MSRB and to the SID, if any, notice of its failure to provide the annual financial information and operating data described in subsection B above on or prior to the date set forth in subsection B above. E. Termination/Modification. The City's obligations to provide annual financial information and notices of material events shall terminate upon the legal defeasance, prior redemption or payment in full of all of the Bonds. This Section, or any provision hereof, shall be null and void if the City (1) obtains an opinion of nationally recognized bond counsel to the effect that those portions of the Rule which require this Section, or any such provision, are invalid, have been repealed retroactively or otherwise do not apply to the Bonds; and (2) notifies each then existing NRMSIR and the SID, if any, of such opinion and the cancellation of this Section. Notwithstanding any other provision of this ordinance, the City may amend this Section 20, and any provision of this Section 20 may be waived, with an approving opinion of nationally recognized bond counsel. In the event of any amendment or waiver of a provision of this Section 20, the City shall describe such amendment in the next annual report, and shall include, as applicable, a narrative explanation of the reason for the amendment or waiver and its impact on the type (or in the case of a change of accounting principles, on the presentation) of financial information or operating data being presented by the City. In addition, if the amendment relates to the accounting principles to be followed in preparing financial statements, (i) notice of such change shall be given in the same manner as for a material event under subsection C of this Section 20, and (ii) the annual report for the year in which the change is made should present a comparison (in -35- P:IOGIDG018 09118/01 narrative form and also, if feasible, in quantitative form) between the financial statements as prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles. F. Bond Owner's Remedies under this Section. Notwithstanding any other provisions of this ordinance, the right of any Bond owner or Beneficial Owner of the Bonds to enforce the provisions of this Section 20 shall be limited to a right to obtain specific enforcement of the City's obligations hereunder, and any failure by the City to comply with the provisions of this Section shall not be an event of default with respect to the Bonds under this ordinance. For purposes of this Section 20, "Beneficial Owner" means any person who has the power, directly or indirectly, to vote or consent with respect to, or to dispose of ownership of, any Bonds, including persons holding Bonds through nominees or depositories. Section 21. General Authorization. The Mayor, the Finance Director, the City Manager and the Clerk of the City and each of the other appropriate officers of the City -are each hereby authorized and directed to take such steps, to do such other acts and things, and to execute such letters, certificates, agreements, papers, financing statements, assignments or instruments as in their judgment may be necessary, appropriate or desirable in order to carry out the terms and provisions of, and complete the transactions contemplated by, this ordinance. All acts taken pursuant to the authority of this ordinance but prior to its effective date are hereby ratified and confirmed. Section 22. Effective Date. This ordinance shall be effective five days from and after its passage, approval and publication as required by law. - - - -36- PODGIDG018 08/1604 PASSED by the Council of the City of Yakima, Washington, and. approved by its Mayor at a regular meeting thereof held this 4th day of November, 2003 CITY OF YAKIMA, WASHINGTON ATTEST City Clerk APPROVED AS TO FORM: City Attorney 37• By Mayor r:eGGncaie 0811861 Exhibit A Description of the Project CERTIFICATE I, the undersigned, City Clerk of the City of Yakima, Washington, (the "City") and keeper of the records of the City Council (the "Council"), DO HEREBY CERTIFY: 1 That the attached ordinance is a true and correct copy of Ordinance No. of the Council (the "Ordinance"), duly passed at a regular meeting thereof held on the 4th day of November, 2003. 2. That said meeting was duly convened and held in all respects in accordance with law, and to the extent required by law, due and proper notice of such meeting was given; that a quorum was present throughout the meeting and a legally sufficient number of members of the Council voted in the proper manner for the passage of said Ordinance; that all other requirements and proceedings incident to the proper passage of said Ordinance have been duly fulfilled, carried out and otherwise observed; and that I am authorized to execute this certificate. Dated this 4th day of November, 2003. City Clerk P:IO.MGO1B 0811B0I (This Page Intentionally Left Blank) Appendix B Form of Opinion of Bond Counsel (This Page Intentionally Left Blanc) Preston I Gates I Ellis LLP September 1, 2004 City of Yakima Yakima, Washington Seattle -Northwest Securities Corporation Seattle, Washington Re: City of Yakima, Washington, Irrigation System Revenue Bonds, 2004 — $ Ladies and Gentlemen: We have acted as bond counsel to the City of Yakima, Washington (the "City") and have examined a certified transcript of the proceedings taken in the matter of the issuance by the City of its Irrigation System Revenue Bonds, 2004 in the aggregate principal amount of $ (the `Bonds"). The Bonds are dated September 1, 2004 and are issued pursuant to Ordinance No. 2003-68 of the City, adopted on November 4, 2003 and Resolution No. adopted on , 2004 (together, the "Bond Ordinance"). The Bonds are issued for the purpose of financing various projects and capital improvements relating to the City's irrigation system. Capitalized terms not otherwise defined in this opinion shall have the meanings given such terms in the Bond Ordinance. The Bonds are subject to redemption as provided in the Bond Ordinance. We have not been engaged nor have we undertaken to review the accuracy; completeness or sufficiency of the official statement or other offering material related to the Bonds (except to the extent, if any, stated in the official statement), and we express no opinion relating thereto, or relating to the undertaking by the City to provide ongoing disclosure pursuant to SEC Rule 15c2-12. As to questions of fact material to our opinion, we have relied upon representations of the City contained in the Bond Ordinance and in the certified proceedings and other certifications of public officials and others' furnished to us without undertaking to verify the same by independent investigation. From such examination it is our opinion, as of this date and under existing law, that: 1. The Bonds have been legally issued and constitute valid special obligations of the City, both principal thereof and interest thereon being payable solely out of a special fund of the City known as the "City of Yakima Irrigation System Bond Account" (the "Bond Account"), except to the extent that the enforcement of the rights and remedies of the holders and owners of the Bonds may be subject to the laws relating to bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the rights of creditors heretofore or hereinafter A LAW FIRM I A LIMITED LIABILITY PARTNERSHIP INCLUDING OTHER LIMITED LIABILITY ENTITIES 925 FOURTH AVENUE SUITE 2900 SEATTLE, WA 98104-1158 TEL: (206) 623-7580 FAX: (206) 623-7022 www.prestongates.com Anchorage Beijing Coeur d'Alene Hong Kong Orange County Portland San Francisco Seattle Spokane Taipei Washington, DC City of Yakima Seattle -Northwest Securities Corporation September 1, 2004 Page 2 enacted, to the extent constitutionally applicable, and that their enforcement may also be subject to the exercise of judicial discretion in appropriate cases. 2. The City has irrevocably bound itself to set aside and pay into said Bond Account out of the earnings and revenue of the irrigation System of the City (the "System") and out of all utility local improvement district assessments required by law and ordinances of the City to be paid into said Bond Account, certain fixed amounts necessary to pay the principal of and interest on the Bonds as the same become due. 3. The City has further pledged that the payments to be made into said Bond Account out of the Assessments shall constitute a lien and charge upon such Assessments superior to all other charges of any kind or nature whatsoever, except for Costs of Maintenance and Operation and equal in rank to any irrigation system revenue bonds of the City hereafter issued on a parity with the Bonds. The City has reserved the right to issue such parity bonds on terms and conditions set forth in the Bond Ordinance. 4. Interest on the Bonds is excluded from gross income for purposes of federal income taxation pursuant to Section 103 of the Internal Revenue Code of 1986, as amended (the "Code"). The Bonds are not private activity bonds. Interest on the Bonds is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals or corporations, but is taken into account in the computation of adjusted current earnings for purposes of the corporate alternative minimum tax under Section 55 of the Code. The opinions stated in this paragraph are subject to the condition that the City comply with all requirements of the Code that must be satisfied subsequent to the issuance of the Bonds in order that interest thereon be, or continue to be, excluded num gross income for federal income tax purposes. The City has covenanted to comply with all such requirements. Failure to comply with certain of such requirements may cause the interest on the Bonds to be included in gross income for federal income tax purposes retroactive to the date of issuance of the Bonds. The City has designated the Bonds as "qualified tax-exempt obligations" pursuant to Section 265(b)(3) of the Code. We express no opinion regarding any other federal, state or local tax consequences arising with respect to ownership of the Bonds. This opinion is given as of the date hereof, and we assume no obligation to update, 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. K:\25739\00066\NMN\NMN L31 B7 Very truly yours, PRESTON GATES & ELLIS LLP By Nancy M. Neraas Appendix t Book -Entry Transfer System (This Page Intentionally Left Blank) TIE. DEPOSITORY TR.U.ST COMPANY Sample Official Statement Language Describing Book -Entry -Only Issuance (Prepared by DTC—bracketed material may be applicable only to certain issues) 1. The Depository Trust Company ("DTC"), New York, NY, will act as securities depository for the securities (the "Securities"). The Securities will be issued as fully registered securities registered in the name of Cede & Co. (DTC's partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully registered Security certificate will be issued for [each issue of] the Securities, [each] in the aggregate principal amount of such issue, and will be deposited with DTC. [If,, however, the aggregate principal amount of [any] issue exceeds $400 million, ohe certificate will be issued with respect to each $400 million of principal amount and an additional certificate will be issued with respect to any remaining principal amount of such issue.] 2. DTC is a limited -purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds securities that its participants ("Participants") deposit with DTC. DTC also facilitates the settlement among Participants of securities transactions, such as transfers and pledges,,in deposited securities through electronic computerized book -entry changes in Participants' accounts, thereby eliminating the need for physical movement of securities certificates. Direct Participants include securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is owned by a number of its Direct Participants and by the New York Stock Exchange, Inc., the American Stock Exchange, Inc., and the National Association of Securities Dealers, Inc. Access to the DTC system is also available to others, such as securities brokers and dealers, banks, and trust companies that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ("Indirect Participants"). The rules applicable to DTC and its Participants are on file with the Securities and Exchange Commission. 3. Purchases of Securities under the DTC system must be made by or through Direct Participants, which will receive a credit for the Securities on DTC's records. The ownership interest of each actual purchaser of each Security ("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, but Beneficial Owners are 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 Securities are to be accomplished by entries made on the books of Participants acting on behalf of Beneficial' Owners. Beneficial Owners will not receive certificates representing their ownership interests in Securities, except in the event that use of the book -entry system for the Securities is discontinued. 4. To facilitate subsequent transfers, all Securities deposited by Participants with DTC are registered in the name of DTC's partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of Securities with DTC and their registration in the name of Cede & Co., or such other DTC nominee, do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Securities; DTC's records reflect only the identity of the Direct Participants to whose accounts such Securities are credited, which may or may not be the Beneficial Owners. The Participants will remain responsible for keeping account of their holdings on behalf of their customers. 5. Conveyances of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. [Beneficial Owners of Securities may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Securities, such as redemptions, tenders, defaults, and proposed amendments to the Security documents. Beneficial Owners of Securities may wish to ascertain that the nominee holding the Securities for their benefit has agreed to obtain and ,transmit notices to Beneficial Owners, or in the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of notices be provided directly to them.] [6. Redemption notices shall be sent to DTC. If less than all of the Securities within an issue are being redeemed, D i els practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed.] 7. Neither DTC nor Cede &' Co. (nor such other DTC nominee) will consent or vote with respect to Securities. Under its usual procedures, DTC mails an Omnibus Proxy to Issuer as soon as possible after the record date, T'ne Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct Participants to whose accounts Securities are credited on the record date (identified in a listing attached to the Omnibus Proxy). 8. Principal and interest payments on the Securities will 'be made to Cede & Co., or such other nominee as may be requested, by an authorized representative of DTC. DTC's practice is to credit Direct Participants' accounts, upon DTC's receipts of funds and corresponding detail information from issuer or Agent on payable date in accordance with their respective holdings shown on DTC's records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in "street name," and will be the responsibility of such Participant and not of DTC, Agent, or Issuer, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal and interest to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of Issuer or Agent, disbursement of such payments to Direct Participants shall be the responsibility of DTC, and disbursement of such payments to Beneficial Owners shall be the responsibility of Direct and Indirect Participants. [9. A Beneficial Owner shall give notice to elect to have its Securities purchased or tendered, through its Participant, to [Tender/Remarketing] Agent, and shall effect delivery of such Securities by causing the Direct Participant to transfer the Participant's interest in the Securities, on DTC's records, to [Tender/Remarketing] Agent. The requirement for physical delivery, of Securities in connection with an optional tender or a mandatory purchase will be deemed satisfied when the ownership rights in the Securities are transferred by Direct Participants on DTC's ',molds and followed by a book -entry credit of tendered Securities to [Tender/Remarketing] Agent's DTC account.] 10. DTC may discontinue its --•�, providing sci diCcs as securities depository with respect to the Securities at any time by giving reasonable notice to Issuer or Agent. Under such circumstances, in the event that a successor securities depository is not obtained, Security certificates are required to be printed and delivered. 11. Issuer may decide to discontinue use of the system of book -entry transfers through DTC (or a successor securities depository). In that event, Security certificates will be printed and delivered. 12. The information in this section concerning DTC and DTC's book -entry system has been obtained from sources that Issuer believes to be reliable, but Issuer takes no responsibility for the accuracy thereof. i Appendix D 2002 Annual Financial Statements ('This Page Intentionally Left Blank) Legislative Building PO Box 40021 Olympia, Washington 98504-0021 0 Washington State Auditor Brian Sonntag INDEPENDENT AUDITOR'S REPORT September 17, 2003 The Honorable Mayor and City Council (360) 902-0370 FAX (360) 753-0646 TDD Relay 1-800-833-6388 http: //www.wa.gov /sao/ We have audited -the accompanying general purpose financial statements of the City of Yakima Yakima County, Washington, as of and for the year ended December 31, 2002 and 2001, as listed in the table of contents. These financial statements are the responsibility of the City's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. 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 audits provide a reasonable basis for our opinion. Our audits were performed pursuant to the Revised Code of Washington 43.09.260, under which a full report on the results of these audits will be issued. This report may include findings and recommendations on compliance matters, internal control procedures, and questionable costs or contingencies that would not be material in relation to the City's general purpose financial statements taken as a whole. In our opinion, the general purpose financial statements referred to above present fairly, in all material respects, the financial position of the City of Yakima, Yakima County, Washington, as of December 31, 2002 and 2001, and the results of its operations and cash flows of its proprietary fund types and similar nonexpendable trust funds for the years then ended, in conformity with accounting principles generally accepted in the United States of America. Our audits were made for the purpose of forming an opinion on the general purpose financial statements taken as a whole. The combining, individual fund, and account group financial statements and schedules listed in the table of contents are presented for purposes of additional analysis and are not a required part of the general purpose financial statements of the City of Yakima, Yakima County, Washington. (Such information has been subjected to the auditing procedures applied in the audit of the general purpose financial statements and, in our opinion, is fairly stated, in all material respects, in relation to the general purpose financial statements taken as a whole. The other data included in this report, designated as the statistical section in the table of contents, has not been audited by us and, accordingly, we express no opinion on such data. Sincerely, BRIAN SONNTAG, CGFM STATE AUDITOR 1 City of Yakima Combined Balance Sheet December 31, 2002 with comparative totals for December 31, 2001 Page 1 of 4 GOVERNMENTAL FUND TYPES Special Debt Capital General Revenue Service Prolecto ASSETS AND OTHER DEBITS Cash & Equity in Pooled Invesbn'ts 57,704,560 54,143,610 $790,627 59.043,7591 Deposits w/ Fiscal Agent/Trustee 0 100 0 0 Receivables: Taxes 862,274 0,798 56,536 0 Accounts 174,086 160.777 0 8,248 Special Assessments 0 1,830 0 0 IJDAssessments -Current 0 0 0 0 LID Assessments - Delinquent 0 0 4,619 0 LID Assessments - Deferred 0 0 249,266 0 Notes/Contracts 0 7,786,823 0 0 Interest/Penalties 287,596 70,630 0 66,866 Other Receivables 0 0 0 0 Due from other Funds 1,066,733 0 0 0 Interfund Loans Receivable 0 0 0 0 Due from other Government Units 26,964 505,424 0 415,56 Inventories 26,802 0 0 0 Investments, at amortized cost 0 2,710,492 9,370 1,527,201 Restricted Assets: Cash 0 0 0 0 Fiscal Agent 0 0 0 0 Investments, at amortized cost 0 0 0 0 Property, Plant, and Equipment: Land 0 0 0 0 Buildings 0 0 0 0 Other Improvements 0 0 0 0 Machinery & Equipment 0 0 0 0 Accumulated Depredation 0 0 0 0 Canstnution in Progress 0 0 0 0 Completed Const. - not Classifd 0 0 0 0_ Intangibles 0 0 0 . 0 Advances to other Funds 0 0 0 0 Unamortized Debt issue Costs 0 0 0 0 Available in Debt Service • 0 0 0 0 To be Provided for Long -tens Debt 0 0 0 0 TOTAL ASSETS AND OTHER DEBITS 510,148515 515,460,484 51,110,418 511.061,630 The notes to the finandal statements are an Integral part of this statement. 2 reparesnosessr Page 2 of 4 FIDUCIARY TOTALS PROPRIETARY RIND TYPES FUND TYPES ACCOUNT GROUPS (MEMORANDUM ONLY) Internal Trust General General December December Enterprise Service and Agency Fixed Assets 1JT Debt 332002 31, 2001 57,788,160 54,721,234 51,794,634 O 10,620 0 s°0 50 535,986584 527,292,179 0 10,720 336,001 0 0 0 0 0 999,608 786,028 3,333,242 485,729 0 0 0 4,1162,082 4,041,122 O 0 0 0 0 1,830 2,498 O 0 0 '0 0• 0 5,520 O 0 0 0 0 4,619 7,321 O 0 0 0 0 249266 309,782 12,203 0 0 0 0 7,799,026 8,022,185 81,257 149,410 1,293 0 0 657,052 601,677 25,050 0 0 0 0 25,050 257350 O 0 0 0 0 1,056,233 153,003 O 1,420,000 0 0 .0 1,420,000 710,000 1,220,858 0 0 0 0 2168,802 2,800.466 189,270 140,895 O 0 0 356,967 369,768 6453,403 3,149,663 58,318 0 0 14.308.447 17.291,398 2085,358 0 0 0 0 2,085,358 1,749,415 425 0 0 0 0 425 409,185 O . 0 0 0 0 0 501,712 2,186,700 0 0 8,480,732 0 10,667,432 10,429,922 62,694,835 16,984 0 34,378,629 0 97,090,448 95,255,520 67,308,535 0 0 5,958,663 0 73267,198 68477,939 12,513,665 12730,535 0 8,279,693 0 33J43,893 32,456,618 -64,953,369 -7,153,229 0 0 0 -72,106598 -68,603,654 111181,452 0 0 1,678280 0 12,759,732 9,949,446 2,232,245 0 0 0 0 - 2.232,245 2232,245 221,830 0 0 0 0 221,830 221,830 0 0 0 0 0 0 0 37,553 0 0 0 0 37.553 41,939 O 0 0 0 804,211 804211 930,386 O 0 0 0 30,123,456 30,123,456 25,163,890 5114,712,672 515,191,841 51,854245 558,775,997 530,927,667 5259243,469 5242370,391 .®.o_.�x>: ami seams®.oma 3 np1/29/201r933 wv City of Yakima Page 3 of 4 Page 4 of 4 Combined Balance Sheet December 31, 2002 PROPRIETARY FUND TYPES FUND TYPES ACCOUNT GROUPS (MEMORANDUM ONLY) with comparative totals for December 31, 2001 GOVERNMENTAL FUND TYPES Interval 7taot General General December December Special Debt Capital Enterprise Service and Aaenev Fixed Assets UT Debt 3541,$200112,972, 31, 2001 General Revenue - Service Protects LIABILITIES 52,655,910 5280,907 5711,042 50 50 54,221,370 Warrants/Accounts Payable 5389,798 5358,750 50 5515.565 773,490 744373 0 0 0 3,735,023 3,418,893 Wages/BnsnefitsPayable 2,296,608 570,672 0 0 860,367 162,033 0 0 3,547,165 4,569,365 4,436,584 Compensated Absences Payable 0 0 0 0 0 2,485,886 0 0 0 2,485,866 2,759,980137 Claims and Judgements Payable 0 0 0 0 0 0 0 0 2,654,020 2,654,020 2,780,260 Unfunded Pension Liability 0 0 0 0 0 0 0 0 0 113,042 114, Contracts Payable 0 28,086- 0 84,956 0 0 Arbitrage Rebate Tax Payable 0 0 0 0 Due to other Funds 0 87,274 0 29,432 0 949527 0 0 0 1,066233 153,003 Interfund Loans Payable 0 0 0 0 - 0 0 0 0 0 0 Due to otherGovernment Units 24,585_ 14,266 0 12,8117 0 0 0 0 0 -51,718 55,609 Mature Interest Payable 0 0 0 0 0 0 0 0 0 0 0 Mature Bands Payable 0 0 0 0 0 0 0 0 0 0 10,000 Accrued Payables 0 0 0 0 192,438 0 12,015 0 0 204,053 170,659 Deferred Compensation 0 0 0 0 0 0 0 0 0 0 0 Deposits Payable 214,524 8,707 404 0 206.776 0 0 0 0 430,411 503.281 Deferred Revenue 897,784 7,875,328 305,802 10,061 0 0 0 0 0 9,088,975 9,982,893 Custodial Accounts 0 0 0 0 0 0 0 0 0 0 -5,182 Current Portion Long-term Debt 0 0 0 0 690,259 0 0 D 0 690259 684,077 Restricted Payables: 0 0 0 0 0 0 11760 Matured Interest Payable 0 0 0 0 p 0 0 0 0 0 0 In Lieu of LID 0 0 0 01045,000 0 0 0 . 0 1,045,000 1,110,000 Current Portion LT Debt 0 0 0 0 8,,450,000 0 0 0 20,020,000 28,470,000 24,880.000 Bonds Payable 0 0 0 0 -61,843 0 0 0 0 61,843 -70,396 Unamortized Bond Discount 0 0 0 0 -291,489 0 0 0 0 -291,489 -326,840 Deferred Amount On debt Refunding 0 0 0 0 .0 0 0 - 0 39,057 39,057 63,215 Capital Leases Payable - LT 0 0 0 0 Special Assessments Debt with 0 - 0 0 0 92,000 92,000 141,330 Govemmer# Conunimrem 0 0 0 0 5,472,715 0 0 0 3,770,374 9,213,089 30,515,783 Loans Payable - Long Term 0 0 0 0 0 0 0 0 805,051 805,051 973,343 Notes Payable -Long Tenn 0 0 0 0 1420,000 0 0 0 0 1,420,000 710,000 Advances from other Funds 0 0 0 0 21,413,423 4,022,666 723,057 0 30,927,667 7)9,762222 66,795,757 Total Liabilities 3,773,299 8,943,023 306,206 652,881 - FUND EQUITY AND OTHER CREDITS FUND BALANCE _ Reserved: - 0 0 0 0 0 1514 1,514 Restricted Donations 0 1,514 0 - 0 0 0 0 0 0 26,802 30,082 Inventory 26,802 0 -0 0 0 0 0 0 02,314,940 2.141,669 Encumbrances 522,005 1,004,139 0 787,996 0 0 0 0 0 6,948,742 1,177,716 Continuing Appropriations 0 0 0 6,948,742 0 0 0 0 0 804,212 930,384 Debt Service 0 0 804,212 0 0 0 473,299 0 0 473,299 467,878 Endowment 0 0 0 0 189,075 239,096 Probation Center 189,075 50832 48,307 Active Employees Credited Reserves 50,812 0 0 657,889 0 0 657,889 538436 Employee Retirem't System 0 0 0 0 0 0 0 -0 0 3,096,2442,570,749 Unreserved Designated 0 1.193,525 0 1,902,719 0 0 0 0 0 10,674,097 10,544,166 Unreserved 5,586,522 4,318,283 _ 0 769.292 74,178,880 1,044,233 0 0 0 75.223,113 75223;113 CONTRIBUTED CAPITAL 0 0 0 0 _ - RETAINED EARNINGS - Reserved: 2,085,358 - 0 0 0 0 2.065.358 2,751,127 Deb! Service 0 0 0 0 0 8.738;074 0 0 0 8,738,074 8,121,844 Replacement 0 0 0 0 17035,011 1,386.868 0 0 0 18,421,879 14,570,607 Unreserved 0 0 0 0 0 0 0 58,775,997 -0 58.775,997 56,717,945 VESTMENT IN GEN, FIXED ASSETS 0 - 0 0 0 93,299,249 11,169,175 1,131,188 58.775.997 0 188,481,247 3755'74,633 IN Total Equity and other Credib 6,375,216 6,517,461 804212 10,408,749 evo 5114,712,672 535,191,841 51,854,245 m. 558.775,997 530oss ,927.667 5259243,469 5242,370,390 TOTAL LIAB1LrrIES, EQUITY AND OTHER CREDITS 510,148,515 515mi.am.460484 51cooliema ,110.418 511,061,630, -- The notes to the financial statements are an integral part of this statanent. 4 aper/71/2om932 AM 5 apa/20/200t32 aa1 City of Yakima Combined Statement of Revenues, Expenditures, and Changes in Fund Balance All Governmental Fund Types for the year ended December 31, 2002 with comparative totalsfor the year ended Detember31, 2001 GOVERNMENTAL FUND TYPES Page 1 of 2 TOTAL (MEMORANDUM ONLY) Spedal Debt Capital 2002 2001 General Revenue Service Protects REVENUES 435,960,071 533,251,211 Taxes and Special Assessments 526,565,287 56,450,283 51209355 51,244,146 405,856 408,688 Licenses and Permits 405,856 0 0 0 11,995,662 10,297,729 Intergovernmental Revenues 1,749290 8,176,651 33,476 2,035,745 5,080,469 4,754,505 Charges for Services 3,723,724 1,356245 0 0 1,631,877 1,553036 Fines and Forfeits 1,631,877 0 0 0 1005,919 1,592,005 Interest 558,359 178,532 887 268,141 1,143,813 1,247,473, Other Revenues 56,453 793,203 56,003 238,154 57,223,667 53,104,647 Total Revenues 34,691,346 16,955,414 1,790,721 3,786,186 EXPENDITURES CURRENT - 8,743,899 13,123,493 General Government 8,662,004 81,895 0 0 23,720,907 22094,466 Security of Persons and Property 20,794,442 2,672,667 0 253,798 1579,665 1,406,572 Physical Environment 1242,009 337,656 0 0 7,312.126 6,693,929 Transportation 0 6.525,612 0 787,114 2,836,440 2266,878 Economic Environment 419,434 2,416,355 0 651 23,219 22,608 Mental & Physical Health 23,219 0 0 0 5,685,414 5,440,092 Cultural & Recreational Envmt 1,251,178 4,404,400 0 29,836 3,991,139 2568,115 CAPITAL OUTLAY 93,030 476,960 0 3,421,149 DEBT SERVICE 2,373,122 2.255,895 Principal retirement 131,390 259,984 1,824,330 157,418 1,069041 1072,147 Interest 81,013 34,533 925,924 27,573 57.334,972 52,444,195 Total Expenditures 32,697,719 17,209,462 2.750,254 4,677,537 - -111,305 660,452 Excess of Revenues overfunded Expenditures 1,993,627 -254,048 -959533 -891,351 OTHER FINANCING SOURCES (USES) Proceeds from Capital lease Financing 0 0 0 0 Proceeds from LT Debt -GA. Bonds 0 0 0 6,620,189 Proceeds from intergovernmental Loans 0 0 0 0 Other Note Proceeds 0 0 0 0 Operating Transfers In 110,000 2.320,132 850,549 529,861 Operating Transfers (Out) -1,919,371 -1,582.5511 -17,188 435,000 Sale of Fixed Assets 0 0 0 25,915 Comp. For Loss of Gen. Fixed Assets 2774 31190 0 0 Total ether Finandng Sources (Uses) -1,806,597 768,811 833,361 6,740,965 Excess of Revenues and Other Sources Over (Under) Expenditures and Other Uses 187,030 514,763 -126,172 5,849,614 FUND BALANCES, January 1 6,191.466 6,002,690 930,384 4,559,135 Change in Reserve for Inventory -3,280 0 0 0 Prior Period Adjustment 0 0 0 0 Residual Equity Transfer In 0 0 0 0 Residual Equity Transfer (Out) o a 0 0 FUND BALANCES, December 31 56,375,216 $6517,461 5804,212 510,408,749 The notes to the financial statements are an integral part of this statement. 6 ep 1/29/2003 933 AM O 0 6,620,189 0 O 44.000 O 0 3,810,542 3,377,996 3,954,070 -3,357,981 25,915 16,582 33,964 34919 6,536,540 115,516 6,425,235 775,968 17,683,683 16,853,603 - -3,280 -13,815 O 0 O 208,534 O -_�-,-11 J0 /A7 424305,638 417,610,683new Page 2 of 2 7 le" a/r9n=9.3s aM City of Yakima Page 1 oft Combined Statement of Revenues, Expenditures, and Changes in Fund Balance Actual and Budget -General fund and Special Revenue Fund Types for the year ended December 31, 2002 GENERAL FUND Variance Favorable Actual Budget (Unfavorable) REVENUES Taxes and Special Assessments 526,565,287 525,556,850 51,008,437 Licenses and Permits 405,856 448,627 -42,771 Intergovenunental Revenues 1,749,790 2,074085 -324,295 Charges for Services 3,723,724 3542,975 180,749 Fines and Forfeits 1,631,877 1,516.590 113,287 Interest 558,359 741,000 -182,641 Other Revenues 56,453 29,050 27,403 Total Revenues 34,691,346 33,911,177 ' 780,169 EXPENDITURES CURRENT General Government 8,662,004 9,369,572 707,568 Security of Persons and Property 20,794,442 21,476,669 687777 Physical Environunent 1,242,009 1,197,730 -44,279 Transportation 0 0 0 Economic Environment 419,434 420,910 1,476 Mental & Physical Health 23,219 21,659 -1,560 Cultural & Recreational Envmt 1,251,178 1,251,211 33 CAPITAL OUTLAY 93,030 115,117 22,087 DEBT SERVICE Principal retirement 131,390 130,326 -1,064 Interest 81,013 80,909 -104 Total Expenditures 32,697,719 34,064,103 1,366,384 Excess of Revenues over (under) Expenditures 1,993,627 -152,926 2,146,553 Page 2 of 2 TOTAL SPECIAL REVENUE FUNDS (MEMORANDUM ONLY) Variance Variance Favorable Favorable Actual Budget (Unfavorable) Actual Budget (Unfavorable) 56,450,283 56,265,287 5184,996 533,015,570 537,822337 51,193,433 0 0 0 405,856 448,627 42,771 8,176,651 10928,441 -2,751,790 9,926,441 13,002,526 -3,076,085 1,356,745 1,431,608 -74,863 5,080,469 4.974,583 105,886 0 0 0 1,631,877 1,518,590 113,287 178,532 216,127 -37,595 736,891 - - 957,127 -220,736 793,203 712,594 80,609 849,656 741,644 108,012 16,955,414 19,554,057 -2,598,643 51,646,760 53,465,234 -1,818,474 81,895 105,712 23,817 8,743,899 9,475,284 731,385 2,672,667 2,738,729 66,062 23,467,109 24,215,398 -748,289 337,656 376,366 38,710 1,579,665 1,574,096 -5,569 6,525,012 10,112,595 3,587,583 6,525,012 10,112,595 3,587,583 2,416,355 3,380,112 963,757 2,635789 3,801,022 965,233 0 0 0 23,219 21,659 -1,560 4,404,400 4,612,001 207,601 5,655,578 5,863212 207,634 _ 476,960 898,078 421.118 569,990 1,013,195 443,205 259.984 259,789 -195 391,374 390,115 -1,259 34.513 34,728 195 115,546 115,637 91 17,209,462 22,518,110 5,308;648 49,907,181 56,582213 6,675,032 -254,048 -2,964,053 2710,0115_ 1,739,579 -3,116,979 4,856,558 OTHER FINANCING SOURCES (USES) 0 0 0 0 0 0 Proceeds from Intergovernmental Loans 0 0 0 0 2205,772 -2,205,772 0 2,205772 -2,205,772 Proceeds from LT Debt-G.O. Bonds 0 0 0 - 2,320,132 -1,870,429 4,190,561 2,430,132 -1,760,429 4,190,561 Operating Transfers In 110,000 110,000 0 -1582511 0 -1,582,511 -3,501,882 -1,837,000 -1.664,882 OperatingTransfers(Out) -1,919,371 -1,837,000 -82,371 0 0 0 . 0 0 0 Sale of Fixed Assets 0 0 0 31, Fixed 190 20,000 11,190 33,964 22,000 11,964 Comp. For Loss of Gen. xed Assets 2,774 2,000 774 768,811 355.343 413,468 -7,037,786 -1,369,657 331,871 Total other Finandng Sources (Uses) -1,806,597 -1,725,000 -81,597 Excess of Revenues and Other Sources Over . 514,763 -2,608,710 3,173,473 701,793 - -4,486,636 5,788,429 (Under) Expenditures and Other Uses 187,030 -1,877926 2,064,956 6,002,698 5,038,498 964,200 12,794,764 9,311,570 2,882,594 FUND BALANCES, January 1 6,191,466 4,273,072 1,918,394 0 0 0 -3,280 0 -3,280 Change in Reserve for Inventory -3,280 0 -3,780 0 0 0 0 0 0 Residual Equity Transfer In 0 0 0 0 0 0 0 0 0 Residual Equity Transfer (Out) 0 0 0,51746152,429,a 54,087,673512,89®,677 54,824,934 58,067,743 FUND BALANCES, December 37 56,375,216 52395,146 53,980,070 The notes to the fuuuxial statements are an integral part of this statement. 9 ap 1r9/2003?.1 AM 8 •ma/29/2003SUs w City of Yakima Page 1 of 2 Combined Statement of Revenues, Expenses, and Changes in Fund Equities - All Proprietary Fund Types and Similar Trust Funds for the fiscal year ended December 31, 2002 with comparative totals for Ow year ended December 31, 2001 PROPRIETARY FUND TYPES FIDUCIARY FUND TYPES Internal Noo.Expendable Pension Enterprise Cs, de Tent Trust OPERATING REVENUES Charge for lnsurance SO 51,181,514 50 S0 Charges for Services 21,211,421 4,137,579 7,455 0 Employer Contributions 0 6,237,098 0 1,325,372 Employee Contributions 0 1,661,734 0 0 Interest Revenue 0 0 -12,465 5,260 Other Operating Revenues 3,018 69,589 0 0 Total Operating Revenues 21,214,439 13,287,514 19,920 1,330,632 OPERATING EXPENSES - Operations and Maintenance 13,877,102 3,6941.:3 0 0 Administration/Overhead3533,559 1,871,452 0 23,363 Taxes 2,940,468 0 0 0 Depredation/Amortization 3,933,131 1,003,401 0 0 Pension Benefits 0 0 0 680,448 Other Benefits 0 6,761,670 0 507,368 Total Operating Expenses 24,234,260 13,270,756 0 1,211,179 Operating Income (Loss) 3,019,021 16,758 19,920 119,453 NON-OPERATING REVENUES (EXPENSES) Operating Grants and Subsidies 5,037,33233 0 0 0 Proceeds of Long -Term Debt 0 0 0 0 Interest Revenue 414,773446,318 0 0 Other Non -.Operating Revenues 15,695 0 0 0 Interest Expenses -541593 0 0 0 Amortization of Bond Pay. Discount -48,290 0 0 0 Gain (Loss) on Sale of Investments 0 0 0 0 Gain (Loss) on Fixed Assets Disposition 0 11,129 0 0 Non -Operating Revenue Net of Expenses 4,877,508 457,447 0 0 Income Before Operating Transfers 1,857,687 4741,205 19,920 119,453 Capital Contributions 2,064,622 379,898 0 0 Operating Transfers In 356 0 0 0 Operating Transfers (Out) 222,227 0 -14,499 0 NETINCOME(LOSS) 3,700,438 856103 5,421 119,453 TRUST FUND EQUITY CHANGES Fund Balances,January 1 0 0 467,878 538,436 Fund Balance, December 31 0 0 473,299 657,889 PROPRIETARY FUND EQUITY CHANGES Retained Eandnga Balance, January 1 15,672,739 9,270,839 0 0 Prior Period Corrections -252,808 0 0 0 Residual Equity Transfer In 0 0 0 0 Residual Equity Transfer (Out) 0 0 0 0 Retained Earnings Balance, December31 19,120,369 10,124,942 0 0 Contributed Capital, January 1 74,178,880 - 1,044,233 0 0 Capital Grants Received 0 0 0 0 Other Contributed Capital 0 0 0 0 Residual Equity Transfer In 0 0 0 0 Residual Equity Transfer Out 0 0 0 0 Contributed Capital, December 31. 74,178,880 1,044&33 0 0 Proprietary and Similar Trust Funds Equities, December 31 593,299,249 511,16,9,975 3473,299 5657,889 The notes to the financial statements are an integral part of this statement. 10 ey11/79/2013935.04 TOTAL (MEMORANDUM ONLY) 2002 2001 51,181,514 5883,904 25,356,455 23,343,634 7,562,470 6,879,874 1,661,734 1,399,924 17,725 25,501 72,607 55,043 35.852,505 32,587,883 17,461.335 16,651,199 5,428,374 4,295,439 2,940,468 2596,108 4,936,532 4,677,002 680,448 675,228 7269,038 7,337,490 38,716,195 36,232,466 -2,863,690 -3,644,583 5,037,323 5,405,132 O 0 861,091 1,120,898 15,695 307,172 -541,993 -567,732 -48,290 48,290 0 _ 0 .11129 44.086 5,334,955 6,261,266 2,471,265 2,616,683 2,444,520 2,631,941 356 0 -236,726 -261,949 4,679,415 4,986,675 1,006,314 819,626 1,131,188 1,006,314 24,943578 20,143591 -252,808 0 O 0 O 0 29,245,311 24,943.578 75223,113 75,223,113 O 0 0_ 0 O 0 0 0 75,223,113 75,223,113 5105,599.612 5101,173,005 11 Page 2 of 2 cpBM/rrar 495:001 City of Yakima Combined Statement of Cash Flows - All Proprietary Fund Types and Similar Trust Funds for the year ended December 31, 2002 with comparative totals for the year ended December 31, 2001 Page 1 of PROPRIETARY FUND TYPES FIDUCIARY FUND TYPES Internal Non -Expendable Pension Enterprise Service Tnnt Trust Cash flows from operating activities: Cash received from customers 520,757,786 54224535 57,455 SO Contributions received - employer and employee 0 8,972525 0 1,325,372 Cash paid to suppliers for goods and services -9538,382 13,041,870 0 -22,757 Cash paid for salaries and benefits -8,635,534 -1.603,478 0 0 Other operating revenues collected 3,018 69589 0 0 Cash paid to claimants and beneficiaries 0 -7,397,210 0 -1,187,816 Interest received on invesbnents 0 0 13,076 5,115 Cash paid in lieu of tares -2,286,188 0 0 0 Net cash provided by operating activities 500,700 1,224,091 20,531 119,914 Cash flows from noncapilal financing activities: Cash received from other Fundallnterhmd Loans Receivable) 0 0 0 0 Cash advances to other Funds 0 -710,000 0 0 Operating grants received 5569574 0 0 0 Operating transfers in from other funds 356 0 0 0 Operating transfers out to other funds 0 0 -14,499 0 Residual Equity transfers In from other funds 0 0 0 0 Residual Equity transfers out to other funds 0 0 0 0 Net cash pnrvlded by noncapital tlnandng activities 5,570,030 -710500 -14,499 0 Cash flown from capital flnandng act ides: Proceeds from Public Works Trust Loan/Interfund loan 710,000 0 0 0 Proceeds for Debt Service from other governments 15,625 0 0 0 Cash contributions in aid of construction 1578591 0 0 0 Lid Contributions 0 0 0 0 Cash received from disposal of capital assets 70 41,098 0 0 Principal paid on revenue fronds -1,148177 0 0 0 Principal paid on Public Works Trust Loan -840,167 0 0 0 Principal paid on Advances from other lands 0 0 0 0 Capital expenditures paid -7,195,921 -6735065 0 0 interest and other debt service paid 471,001 0 0 0 Capital grants received 86,265 0 0 0 Residual equity transfer in 0 379,898 0 0 Residual equity transfer out -222227 0 0 - 0 Net cash used for upltal financing activities -7,386,942 -252,069 _ 0 0 Cash flows from investing activities: Proceeds from sale and maturity of investment securities 1554,017 1513,460 253,304 0 Interest received on investment 444,171 400,264 0 0 Purchase of investment securities 0 0 0 -1,022 Net cash provided by investing acdvides 1,998.188 2.013,724 253,304 -1522 Net increaaeldecrease) in cash and cash equivalents 681,976 2.275,746 259,336 118,892 Cash and cash equivalents at beginning of year Cash and cash equivalents al end of year 9,191542 2 445,488 201,593 489,653 59503518 54,7212334 5463,929 5608545 TOTAL IMEMORANDUM ONLY) 2002 2001 124,989,776 523,409461 10,297,897 9,082,548 -12,403,009 -10,926517 -10,239,012 -9,859,767 72,607 24349 4585526 -7,664,915 18,191 26,131 -2,286,188 -2,069,241 1,865,236 2,022,249 O 0 -710,000 -710,000 5569,674 3592,190 356 0 -14,499 -20,015 O 0 O 0 4,845531 2,962,175 710,000 1529,937 15425 307,016 1478591 925,912 O 0 41,168 44.241 -1348.177 -1,105.000 -840,167 -828,163 O 0 -7568,986 4518,257 471,001 -596,743 86.265 0 379,898 174,007 -222,227 -N1,934 -7439,011 4,408,984 3,420,781 2,944,695 844,435 1,187,691 -1522 -2,081,304 4,264,194 2551,082 3,335,950 626,522 12,331,276 11,704,754 515467.226 512,331,276 Cash al the End of the Year Consist of Operating Fund Cuh 57,788,160 54,721,234 5463,929 5608515 511591,468 57158,82 Revenue bond reserve account cash 1494A730 0 0 7 390,885 90,885 1,46805869 Revenue bond redemption account cash 390,885 0 0 0 460,786 Total cash at the end of the year $9,473518 56,721.234 5463,929 $606545 The notes to the financial statements are an integral part of this statement 12 spa/irtams:isaw 515,667,726 512.331,276 13 Page 2of4 City of Yakima Combined Statement of Cash Flows— Proprietary Fund Types and Similar Trust Fun s for the year ended December 31, 2002 with comparative Mtgs./or the year noted December 31, 2001 Recondliation of net operating income(loss) to net ash provided(used) by operating activities: Page 3 of 4 TOTAL (MEMORANDUM ONLY) PROPRIETARY FUND 77PE5 FIDUCIARY FU140 TYPES Internal Non -Expendable Pension 2002 2001 Fnte se Service Trust Trust -52,863,690 -53,644,583 Net operating Income(loss) 33,019021 506,758 519,920 5119,453 Adjustments to reconcile operating income(loss) to net ash provided by operating activities: 4036532 4,677,002 Depredation 3,933,131 10(0,401 0 0 Change in assets and liabilities: 0 0 (Increase)decrease in deposits w/ Fiscal Agent/Trustee 0 0 0 0 474,499 -45,821 (lnaease)decrease in accounts receivable 453434 40,865 0 0 466 627 (Increase)decrease in interest receivable -0 0 611 -145 9,521 5,884 Uncrease)deaease in inventory 10.539 -1,018 0 0 -518,700 945317 Increase(decrease) in warrants/accounts payable 66,749 -451,557 0 606 64,303 16,176 lncrease(decrease) in wages/benefits payable 60,776 3,527 0 35,027 34,071 increase(decrease) in compensated absences payable 36,458 -0.431 0 0 0 -10519 (Inaease)decrease in contracts payable 0 0 _273,251 48,350 lncrease(decrease) in claims and judgements payable 0 -215.251 0 0 0 0 Increase(decrease) in unfunded pension liability 0 0 0 499,527 -4055 lncrease(dectease) in due to other funds 0 949527 0 0 4,728,926 5,666032 Total Adjustments 3,520,571 1,207,333 611 461 51265]36- 52022,249 Net cash provided by operating activities Schedule of Noncash Capital and Related Financing Activities Capital Assets Acquired by: Noncash contributions 5500,700 S1,224,091 520,531, v 5119,914 5248.388 � 0 50 ®®,moi The notes to the financial statements are an integral pan of this statement 14 nay1/21/som9.5Ata 5248,388 SI 10,161 15 Page 4 of 4 sp1/29/200935A1.1 NOTE 1 - NOTE 2 - NOTE 3 - NOTE 4 - NOTE 5 - NOTE 6 - NOTE 7 - FINRPI CAFR Now 2002 I — 92303 NOTES TO THE FINANCIAL STATEMENTS - CONTENTS OF THE NOTES SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 18 A- Reporting Entity 18 B - Basis of Presentation - Fund Accounting 19 C - Basis of Accounting 21 D - Budgets and Budgetary Accounting 22 E - Assets, Liabilities and Equities 23 F - Revenues, Expenditures and Expenses 26 G - Memorandum Only Total Columns 26 H - Comparative Data 26 COMPLIANCE AND ACCOUNTABILITY 27 DEPOSITS AND INVESTMENTS 28 PROPERTY TAXES 29 FIXED ASSETS AND DEPRECIATION 30 A - General Policies 30 B - General Fixed Assets 3Q C - Proprietary Fund Assets 31 PENSION PLANS 32 A - Public Employees' Retirement System (PERS) 32 B - Law Enforcement Officers' and Firefighters' Retirement System (LEOFF) 34 C - Other Retirement Systems — Volunteer Firefighters Relief and Pension Fund 35 D - Firemen's Pension 36 E - Police Pension 37 SELF-INSURANCE FUNDS 38 A - Unemployment Compensation 38 B - Self -Insured Medical/Dental Program .38 C - Workers' Compensation Program 39 D - Risk Management Program 39 16 NOTE 8 - LONG-TERM DEBT AND CAPITAL LEASES 40 A - -General Obligation Debt 40 B - Revenue Bonds 41 C - Intergovernmental Loans and Contractual Agreements 41 D - Special Assessment Debt with Governmental Commitment 43 E - Lease Purchase Agreements 44 F - Unfunded Pension Liabilities - 44 NOTE 9 - CONTINGENCIES 45 NOTE 10 - INTERFUND TRANSACTIONS AND BALANCES 46 A - Classification of Interfund Transactions _ 46 B - Interfund Loans and Receivables 46 C - Interfund Operating Transfers 47 NOTE 11- FUND EQUITIES 48 A - Government Fund Types _ 48 B - Proprietary Fund Types 48 C - Designated Fund Balances 49 D - Reserved Fund Balance in Trust Funds - 49 NOTE 12 - SEGMENT INFORMATION 50 NOTE 13 - JOINT VENTURES - 51 NOTE 14 - POST RETIREMENT BENEFITS OTHER THAN PENSION BENEFIT 52 NOTE 15 - OTHER DISCLOSURES A - Accounting and Reporting Changes 52 B - Subsequent Events 52 FINRPI -CAFR Now 2002 2 — 92303 17 CITY OF YAKIMA NOTES TO THE FINANCIAL STATEMENTS for the year ended December 31, 2002 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accounting policies of the City of Yakinia, Washington, conform to_generally accepted accounting principles (GAAP) as applicable to governmental units. The City has adopted the pronouncements of the Governmental Accounting Standards Board (GASB) which is the accepted standard-setting body for establishing governmental accounting and financial reporting principles nationally. The following is a summary of the more significant policies. The policies should be reviewed as an integral part of the financial statements and are presented to assist the reader in interpreting the financial statements and other data in this report. A. REPORTING ENTITY The City of Yakima was incorporated in 1886, and operates under a Council/Manager form of government with a full time city manager. The City of Yakima provides a full range of municipal services, which include: police, fire, engineering, parks, cemetery, street, and administrative services. Included in the City's Enterprise Fund financial reports are: water, sanitary sewer, solid waste, and transit. The Yakima Air Terminal is operated under a joint venture agreement with Yakima County, see Note #13. The City's financial statements include all funds, account groups, agencies and boards which are financially accountable to the City. Financial accountability is manifest when the primary government appoints the majority of an organization's governing body and is able to impose its will on that organization or there is a potential for the organization to provide specific financial burdens on the primary government. The primary government may be financially accountable if an organization is fiscally dependent on the primary government regardless of whether the organization has a separately elected governing board, a governing board appointed by a higher level of government, or a jointly appointed board. An organization is fiscally dependent if it is unable to determine its budget without another government having the substantive authority to approve or modify the budget, to levy taxes or - set rates or charges without substantive approval by another government, or to issue bonded debt without substantive approval by another government. Applying these criteria, the combined financial statements do not include the financial position or results of operations of: YAKIMA SCHOOL DISTRICT NO. 7: WEST VALLEY SCHOOL DISTRICT NO. 208; UNION GAP SCHOOL DISTRICT _NO. Z. These school districts are municipal corporations empowered by the state to educate the children of the City of Yakima. These school districts have independently elected boards of directors, adopt and control their own budgets and have their own taxing authority. _ - YAKIMA COUNTY. The County of Yakima was incorporated in 1865 under the authority of the Revised Code of Washington. The County has an elected board of commissioners, adopts and controls its own budget, and has its own taxing authority. The City has no legal interest in or responsibility for the assets or liabilities -d the County. F!HRPI CAFR Nae 2002 3 - 1!29/03 13 YAKIMA VALLEY REGIQNAL LIBRARY. The Yakima Valley Regional Library is a separate county -wide municipal corporation with its own taxing authority. It provides library services, under contract, for the City of Yakima, Yakima County and its other cities. The City has no legal interest in or responsibility for the assets or liabilities of the Library. YAKIMA HEALTH DISTRICT. The Yakima Health District has its own board of directors, and adopts and controls its own budget. The City has rio legal interest in or responsibility for the assets or liabilities of the Yakima Health District. YAKIMA CONFERENCE QF GOVERNMENTS. The Yakima Conference of Gov- ernments is an agency comprised) of the County, cities, and other boards which assists in long range planning for the member entities. The City has no legal interest in or responsibility for its assets or liabilities. RELATED ORGANIZATION. The City's officials are also responsible for appointing the members of the boards of another organization, Fut the City's accountability for this organization does not extend beyond making the appointments. YAKIMA HOUSING AUTHORITY. The Yakima Housing Authority was created by Resolution No. D-1575, in 1971, and, under certain conditions, can be dissolved by theCity. Yet, it is an independent entity with distinct governmental -character and organization. The City of Yalkima created the Housing Authority per Washington State Revised Code Chapter 35.82 which provides that liabilities incurred by the Housing Authority will be satisfied from its assets, and that no person shall have any right of action against the City on account of its debts, obligations, and liabilities. - YAKIIMILEEQHMAILLUBLIC FACILITIES DISIBICI. The cities of Yakima, Selah and Union Gap formed a Public Facilities District (PFD) for the purpose of expanding the Yakima Convention Center. The City appoints a majority of the board members, and must approve the annual budget. The :financial agreement stipulates that all revenue derived by the PFD (primarily a state sales tax credit) be transferred to the City, and the City will use these funds forCcnter debt service and operations, and reimbursement of adminstrative costs of the PFD. A special revenue fund was established in the City's records to account for activity of the PFD. - B. BASIS OF PRESENTATION • FUND ACCOUN'T'ING The accounts of the City are organized on the basis of funds and account groups; each of which is considered a separate accounting entity. The City uses governmental, proprietary and fiduciary funds. Each governmental fund and expendable trust or agency fund is accounted for with a separate set of self -balancing accounts that comprise its assets, liabilities, fund balances, revenues and expenditures. Proprietary and similar trust funds use the revenue, expense and -equity accounts of similar businesses in the private sector. The City's resources are allocated to and accounted for in individual funds depending on what they are to be spent for and how they are controlled. The following are the fund types and account groups used by the City: FINRPI CAFR Nass 2002 4 - V29/03 19 GOVERNMENTAL FUNDS All governmental funds are accounted for on a spending or "financial flow" measurement focus. This means that only current assets and current liabilities are generally included on their balance sheets. Their reported fund balance (net current assets) is considered a measure of "available expendable resources". Govemmental fund operating statements focus on measuring changes in financial position, rather than net income; they present increases (revenues and other financing sources) and decreases (expenditures and other financing uses) in net current assets. General Fund - The General Fund is the operating fund of the City. It accounts for all of the financial resources of the City except those required to be accounted for in a separate fund. Special Revenue Funds - Special Revenue Funds are used to account for the proceeds of specific revenue sources or to finance specified activities as required by law or administrative regulation. Debt Service Funds - Debt Service Funds account for accumulation of resources for and payment of principal, interest and related costs on general long teen debt. Capital Projects Funds - Capital Project Funds account for financial resources to be used for the acquisition or construction of major capital facilities other than those financed by proprietary funds. PROPRIETARY FUNDS Proprietary funds are accounted for on a cost of services or "economic resources" measurement focus. This means that all assets and all liabilities (whether current or noncurrent) associated with their activity are included on their balance sheets. Their reported fund equity (net total assets) is segregated into contributed capital and retained earnings components. Proprietary fund operating statements present in- creases (revenues and gains) and decreases (expenses and losses) in net total assets. Proprietary funds disclose changes in cash flows by a separate statement that presents their investing and financing activities. The City applies all applicable GASB pronouncements as well as all FASB Statements and Interpretations, APB Opinions and ARB's issued on or before November 30, 1989, unless those pronouncements conflict with or contradict GASB pronouncements. The City has elected to implement GASB Statement 20, Accounting and Financial Reporting for Proprietary Funds and Other Governmental Entities that Use Proprietary Fund Accounting, with regard to the application of FASB pronouncements to its propriety funds. In accordance with the provisions of GASB Statement 20, the City has elected not to apply those FASB Statements and Interpretations issued after November 30, 1989. Enterprise Funds - Enterprise funds account for services to the general public where all or most of the expenses, including depreciation, are intended to be financed or recovered from users of such services. See Note #12 for segmented information on enterprise funds. Jnternal Service Funds - Internal service funds account for the financing of goods or services provided by one department or fund to other funds, departments, or governments on a cost -reimbursement basis. The City maintains an Equipment Rental Fund for all vehicles and equipment except those relating to fire suppression and transit. FINRPI CAR Na., 2002 5 - 42953 FIDUCIARY FUNDS Fiduciary funds account for assets held by the City on behalf of individuals, private organizations, other governments and other funds. Expendable Trust Funds - Expendable trust funds earn revenue and make expenditures on behalf of the parties for which a trust was established. The entire income and principal of an expendable trust may be disbursed in the course of its operations; accordingly, expendable trust funds are accounted for in essentially the same manner as governmental funds. Nonexpendable Trust Funds - Nonexpendable trust funds earn revenue on behalf of the parties for which the trust was established, but the principal of the trust must remain intact. Nonexpendable trust funds are accounted for in essentially the same manner as proprietary funds, since capital maintenance is a primary consideration. Pension Trust Funds - Pension trust funds are used to account for the operations of trust established for employee retirement benefits, They are accounted for in essentially the same manner as proprietary funds because of the need for determining the periodic income of the trust. _ Agency Fund, - Agency funds are custodial in nature (assets equal liabilities) and do not involve the measurement of results of operations. - ACCOUNT GROUPS The City uses two self -balancing account groups to account for fixed assets and general long-term debt. General Fixed Asset Account Group - This account group establishes account control over all the general fixed assets used in general government operations. Assets acquired by proprietary and trust funds are accounted for in the appropriate fund. General Long -Term Debt Account Group - The general Tong -tern debt acoount group accounts for all urunatured principal of general obligation bonds and other debt of a long-term nature of the City except that accounted for in proprietary funds and trust funds. This includes special assessment debt for which the City is obligated in some manner, as defined in GASB Statement 6. C. BASIS OF ACCOUNTING Basis of accounting refers to when revenues and expenditures or expenses are recognized in the accounts and reported in the financial statements. Basis of accounting relates _to the timing of the measurements made, regardless of the measurement focus applied. Accounting records for the City are maintained in accordance with methods prescribed by the State Auditor under the authority of Washington State law. The City financially reports on the calendar year basis and employs a double -entry modified accrual system for all fund categories with the exception of proprietary, nonexpendable and pension trust funds which require full accrual reporting. The modified accrual basis differs from the accrual basis in the following ways: FINRPI CAFR Nan 2092 6-42953 21 1. Purchases of capital assets are considered expenditures. 2. Redemption of long-term debt is considered an expenditure when due. 3. Revenues are recognized only when they become both measurable and available to finance expenditures of the current period. Note #1, F identifies which revenue sources have been treated as susceptible to accrual. Revenues that are measurable but not available are recorded as receivable and offset by deferred revenues. 4. Inventories and prepaid items are reported as expenditures when purchased. 5. Interest on long-term debt is not accrued but is recorded a§ an expenditure when due. 6. Accumulated unpaid vacation and sick pay are considered expenditures when paid. D. JI ►lt t11° 11 1 #IIIc 1. ,Scope of Bpda_et The City Council annually approves the City's operating budget. The operating budget is designed to allocate annually available resources among the City's services and programs and to provide for associated financing decisions. Annual appropriated budgets are adopted on the modified accrual basis of accounting. For governmental funds, there are no differences between budgetary basis and generally accepted accounting principles. Budgetary accounts are integrated in fund ledgers for all budgeted funds, but the financial statements include budgetary comparisons for the General Fund and Special Revenue Funds only. Budgets :For debt service and capital projects are adopted at the level of the individual debt issue or project and for fiscal periods that correspond to the lines of debt issues or projects. Budgetary comparisons for proprietary funds, although not legally required, may be requested from the Department of Finance and Budget. Annual appropriated budgets are adopted at the fund level. Subsidiary revenue and expenditure ledgers are used to compare the budgeted amounts with actual revenues and expenditures. As a management control device, the subsidiary ledgers monitor expenditures for individual functions and activities by object class. Appropriations for general and special revenue funds lapse at year-end. 2. frisaufahrAdmingihrakiginaundget The City's budget procedures are mandated by Washington State Law. The steps in the budget process are as follows: a. Prior to November 1, the City Manager submits a proposed budget to the City Council. This budget is based on priorities established by the Council and estimates provided by City departments during the proceeding months, and balanced with revenue estimates. b. The Council conducts public hearings on the proposed budget in November to obtain taxpayer comments. c. During mid-December, the budget is legally enacted through passage of an ordinance. FINRPI CAFR Nan 2002 7 - 7129103 3. &pending the Budget The City Manager is authorized to transfer budgeted appropriations between departments within any fund; however, any revisions that alter the total expenditures of a fund, or that affect the number of permanently authorized employee positions, salary ranges, or other conditions of employment must be approved by the City Council. When the City Council determines that it is in the best interest of the City to increase or decrease the appropriation for a particular fund, it may do so by an ordinance approved by a one more than simple majority of those present after holding pm public hearings. The budget amounts shown in the financial statements represent the original budgeted amounts and all supplemental appropriations. Supplemental appropriations totaled $11,618,.303. The principal three amendments were to reappropriate 2001 outstanding encumbrances in the amount of 52,440,422; the reappropriation of non -lapsing appropriations in the amount of 53,475,519; and to implement a Wastewater Cost -of -Service and Rate Study and corresponding operational and capital adjustments in the amount of $1,344,736. 4. Encumbrances Encumbrance accounting, under which purchase orders, contracts, and other commitments for the expenditure of funds are recorded in order to reserve that portion of the applicable appropriation, is employed as an extension of formal budgetary integration in the governmental finds. Encumbrances are reported as reservations of fund balances since they do not constitute expenditures or liabilities. The City reappropriates outstanding encumbrances in the subsequent year. E ASSETS. LIABILITIES AND ]y0U1T1ES 1. Casb and Investments Cash and investments are managed under the guidance of the City's Investment Policy adopted by Resolution No. 1D-5642 of the City Council. The policy was based on the Model Investment Policy prepared by the Municipal Treasurers' Association of the United States and Canada and applies to all financial assets of the City of Yakima. Investments are made using the "prudent person" standard with printery objectives being safety of principal, liquidity enabling the City to .meet all operating requirements and a return on investment objective of attaining a market rate of return through budgetary and economic cycles. Investments of City funds except those of the Firemen's Relief and Pension Fund are limited to: 1) Investment deposits, including certificates of deposit with qualified public depositories as defined in Chapter 39.58 Revised Code of Washington. 2) Certificates, notes or bonds of the United States, or other obligations of the United States, or its agencies, or of any corporation wholly owned by the government of the lJnited States (such as the Government National Mortgage Association). 3) Obligations of government-sponsored corporations which are eligible as -collateral - for advances to member banks as determined by the Board of Governors of the Federal Reserve System. (These include but are not limited to Federal Home Loan Bank notes and bonds, Federal Farm -Credit Bank consolidated notes and bonds, FINRpa CAFR Nan 8002 0 - 1'2953 23 Federal National Mortgage Association notes, debentures, and guaranteed certificates of participation). 4) Bankers Acceptances and Commercial Paper purchased on the secondary market 5) Washington State Local Government Investment Pool. 6) General obligation bonds of any state or local government in the United States and revenue bonds from jurisdiction in Washington state having a long-term credit rating of no less than A3 as rated by Moodys and A- by Standard and Poor's. • Repurchase and reverse repurchase agreements are excluded as eligible investments. Resources of the Firemen's Relief and Pension Fund may be invested in high quality corporate bonds in addition to instruments listed above. The City purchases investments from SEC registered security broker- dealers and banks having offices within Washington State. The City's Investment Officer under the direction of the Director of Finance and Budget invests or deposits all temporary cash. These investments and time deposits do not result in reductions to the cash balances of the various funds and are considered to be cash equivalents to the funds under the definition promulgated in GASB. Statement #9, which states that investments purchased within 90 days of maturity are considered to be cash equivalents. These amounts are reported on the Combined Balance Sheet as part of "Cash and Equity in Pooled Investments." Earnings from state pool deposits are allocated to the funds owning the cash, while interest on the remaining investments is allocated to the General Fund. 2. Receivables Taxes receivable consist of property and other taxes including related interest and penalties (See Note #4). Accrued interest receivable consists of amounts earned on investments, notes, and contracts as of year- end. Special assessments are recorded when levied. Special assessments receivable consists of current and delinquent assessments. Deferred assessments consist of unbilled special assessments that are liens against the property benefited. As of December 31, 2002 54,619 of special assessments receivables were delinquent. Customer accounts receivable consist of amounts due from private individuals or organizations for goods and services including amounts due for billings which have not been prepared. Notes and contracts receivable consist of amounts owed on open account from private individuals or organizations for goods and services rendered. 3. Amounts Due To and From Other Funds: Interfund Loans and Advances Receivable These accounts include all interfund receivables and payables. A separate schedule of interfund loans receivable and payable is furnished in Note #10. Long-term interfund loans are separately identified as "Advances". 4. Amounts Due To and From Other Governmental Units These accounts include amounts due to or from other governments for grants, entitlements, temporary loans, taxes and charges for services, except amounts billed for utility usage which is included in customer receivables. FINRPI CAFR Nan 2002 9 - l2953 5. Inventories - Inventories in governmental funds consist of expendable supplies held for consumption. The cost is recorded as an expenditure at the time individual inventory items are purchased. The 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 expenditure. _ Inventories in the General Fund, Enterprise Funds and Internal Service Funds are valued at cost on a moving average method. 6. Restricted Assets and Liabilities These accounts may contain resources for construction, capital purchases and debt service in the enterprise funds. The current portion of related liabilities is shown as Payables from Restricted Assets. Specific debt service reserve requirements are described in Note #8. _ The restricted assets of the enterprise funds are composed of the following: Cash - Debt Service Deposits with Fiscal Agent Investments - Debt Service $2,085,358 425 0 S2lenent.0 7. Custodial Accountti These accounts reflect the liability for net monetary assets being held by the City in its trustee or agency capacity. 8. Accumulated Unpaid Employee Leave Benefits The contract with employees calls for the accumulation of vacation and sick leave. At termination of employment, employees may receive cash payment for all accumulated vacation up to a maximum of 352 hours and a percentage of sick leave. The payment is based on current wage at termination. The amounts of unpaid vacation and sick leave accumulated by City employees are accrued as expenses when incurred in proprietary funds, which use the accrual basis of accounting. In the governmental funds, only the amounts that normally would be liquidated with expendable available financial resources are accrued as current -year expenditures. The City uses the last -in, first -out method of recognizing the hours used of compensated absences. Employees are charged for the last day of vacation or sick leave - eamed when the leave is used. Thus, unless it is anticipated that compensated absences will be used in excess of a normal year's accumulation, no additional -expenditures are accrued. Therefore, the entire unpaid liability for the governmental funds is recorded in the General Long -Term Debt Account Group. 9. Other Accrued Liabilities Other accrued liabilities include primarily interest payable on long-term debt, Public Works Trust Loans and small miscellaneous payables not classified in other categories in Enterprise Funds. 10. Deferred Revenues This account includes amounts recognized as receivables but not as revenue in governmental funds because the revenue recognition criteria has not been met. (See Note #1-F) FINRPI CAFR Naas 2002 10 - V2953 F. REVENUES. EXPENDITURES AND EXPO Under the Modified -Accrual Basis of Accounting, revenues are recognized when susceptible to accrual (i.e., when they become both measurable and available). "Measurable" means the amount of the transaction can be determined and "available" means collectible within the current period or soon enough thereafter to be used to pay liabilities of the current period. Charges for services, interest on investments, and rents are generally considered measurable and available when earned in governmental funds. Taxes and federal or state entitlements or shared revenues that have been collected but not remitted by an intermediary collection agency to the City are considered measurable and available. Special assessments are considered measurable and available when they become current. Grants are considered measurable and available to the extent that expenditures have been made. Other intergovernmental revenues are considered measurable and available when earned. Interfund revenues for goods and services are considered measurable and available when earned. Proceeds from the sale or loss of fixed assets are recognized as an other financing source. All other revenues are either not measurable or considered not available until collected. Expenditures are generally recognized when the related fund liability is incurred. (See Note #1-C) NOTE 2_=_COMPLJANCE A.,J W ACCOUNTABILITY The State law provides that debt cannot be incurred in excess of the following percentages of the value of the taxable property of the City. Limit by Cumulative Section Limit 1. Genal Puepooe Without a Vote (includes capital leases) 1.50% With a Vote 1.00% 2.50% 2.50% 11. Utilities Purpose 2:50% 5.00% 10. Open Space and Parks Facilities _ 2.50% 7.50% TOTAL LEGAL LIMIT 7;__50% The basic percentages for Section I are Phe maximum levels off indebtedness those sections may incur. However, utility or parks indebtedness may each exceed 2.50% and reduce the general indebtedness margin. The percentages are applied to the taxable assessed value (regular levies) of 53,673,433,731• resulting in the debt limits, as of December 31, 2002, for the City as follows: Under the Full Accrual Basis of Accounting: Without Vote with a Vac Open Space Revenues are recognized when earned, if measurable, and expenses are recognized when incurred, if General Purpose General Purpose —Utilities and Parks measurable. 1.5% - 2.5% 5.0% 7.5% G. MEMORANDUM ONLY TOTAL COLUMNA Total columns on the combined statements are captioned memorandum totals to indicate that they are presented only for financial analysis. Data in these columns do not present financial position, results of operations, or changes in cash flows in conformity with generally accepted accounting principles. Neither is such data comparable to a consolidation because interfund eliminations have not been made. H. COMPARATIVE DATA Comparative total data for the prior year has been presented in the accompanying financial statements in order to provide an understanding of changes in the City's cash flow and operations. Such data is not comparable to a consolidation because interfund eliminations have not been made. FINRPJ CAFR No[,, 2002 11 — maim 26 Legal Limit $55,101,507 $91,835,845 5183,671,590 5275,507,535 Net Outstanding Indebtedness* 16,769,214 19.267.894 19.267.894 19.267.894 Margin Available S38.332.293 572.567,951 3164.403:'96 5256.239.64411 t=====..ammse ,==eameeiieive== • Indebtedness is the outstanding debt less cash, investments, and tax receivables available to redeem debt. There have been no material violations of finance -related legal or contractual provisions in any of the funds of the City. FINRPI CAFR Now 2002 12 — 8229/03 27 NOTE 3 - DEPOSITS AND INVESTMENTS The following table.presents the components of "Cash and Equity in Pooled Investments." Cash and Equity In Pooled investments Cash Deposits U.S. Treasuries US Agency Obligations, net State & Local Securities, net Local Govt. Investment Pool Total (includes 52,085,358 restricted cash) Carrying Amount S 2,512,392 1,000,381 8,743,150 400,000 25,427,164 538,083,087 Non -pooled investments are held by several of the City's funds and are separately classified on the Combined Balance Sheet. These investments are shown on the Combined Balance Sheet at par, net of unamortized premium or discount which approximates market. Premiums and discounts on investment purchases are amortized on a straight-line basis. Gains or losses on all investments sold or exchanged are recognized at the time the transactions are completed. leposits All deposits of the City are insured by the FDIC up to $100,000 and by the Washington Public Deposit Protection Commission for amounts over $100,000. Interest bearing savings accounts totaling 520,000 are included on the Combined Balance Sheet as investments. Deposits with Fiscal Agent at December 31, total 511,145 and are also FDIC & PDPC insured. Investments The following schedule categorizes the City's investments to provide an indication of the degree of risk assumed as of year-end. Category I investments are insured or registered in the City's name and held by the City or its agent in the City's name. Category 2 investments include uninsured and unregistered securities that are held by the counterparty's trust department or agent in the City's name. At the balance sheet date the City held no category 2 investments. The State Investment Pool cannot be categorized because it is a government pool, and as such, is not evidenced by securities that exist in physical or book entry form, either in the City or counterparty's name. Investments by Category of Risk With Carrying and Market Values Category 1 U.S. Treasuries S 2,650,965 Agencies 20,085,042 Municipal Securities 1,515,971 Commerical Paper 0 Category 2 Carrying Value Markel Value S 0 S 2,650,965 S 2,700,719 0 .20,085,042 20,236,739 0 1,515,971 1,543,885 0 0 0 524,251,978 S 0 524,251,978 524,481,343 State Investment Pool 25,427,164 25.427,164 Total Investments 549.679,142 549,908,507 The carrying value of total investments relates to the Combined Balance Sheet totals as follows: Cash and Equity in Pooled Investments investments, Net Less: Cash Deposits Total investments 538,083,087 14,108,447 (2,512,392) 549,679,142 smamemoaceoolocesser In accordance with GAAP applicable to regulated industries and GASB Statement #31, changes in fair value are reflected as unrealized income in the financial statements. Other gains or losses on investments sold or exchanged are recognized at the time transactions are completed. FRORP1 CAFR Nan 2002 13 — //29/03 NOTE 4 - PROPERTY TAXES The County Treasurer acts as an agent to collect property taxes levied within the county for all taxing authorities. Collections are distributed after the end of each month, on the tenth day of the following month. PROPERTY TAX CALENDAR January 1 Taxes are levied and become an enforceable lien against properties. February 14 Tax bills are mailed. April 30 First of two equal installment payments is due. May 31 Assessed value of property is established for next year's levy at 100 percent of market value. October 31 Second installment is due. During the year, property tax revenues are recognized when cash is collected. At year-end, .property tax revenues are recognized for collections in the hands of the County Treasurer at December 31st. No allowance for uncollectable taxes is established because delinquent taxes are considered fully collectable. The City is permitted by law to levy up to 53.60 per $1,000 of assessed valuation for general government services. This amount may be reduced for any of the following reasons: _ (a) The Washington State Constitution_ limits total regular property tax levies to 1 percent of assessed valuation or 510 per $1,000 of value. If the tax levies_of all districts exceed this amount, each is proportionately reduced until the total is at or below the 1 percent limit. (b) On November 6, 2001, the voters approved Initiative 747 ("1-747"). 1-747 amended RCW 84.55.010 by reducing the limit on the total dollar amount of regular property taxes that may be _ levied annually by a taxing district (including the City) without a vote of its electors from 106 percent to the lesser of inflation or 101 percent of the highest levy in the three previous years (excluding new construction, improvements, and State -assessed property). Because I -747's 101 percent limitation applies to the dollar amount levied rather than to levy rates, increases in the value of existing property exceeding one percent per year would result in decreasing tax levy rates. Special levies approved by the voters are not subject to the above limitations. For 2002, the City's regular tax levy was 53.5177 per $1,000 on a total assessed valuation of 53,272,221,573 for a total regular levy of 511,510,648. Included in the City's regular levy is an authorization to levy for the Firemen's Relief and Pension Fund (see Note #6). This levy is subject to the same limitations as the levy for general government services. The Firemen's Relief and Pension portion of the regular tax levy for 2002 was 5.394 per 51,000, or 51,289,280. Additionally, special levies for G.O. bond obligations totaled 5836,000. FMR% CAFR Noes 2002 14 — 1/29/03 LIOILiz-f.:DiED-ASSEIEANDJELERECIATION A. GENERAL POL.ICIF_N Major expenditures for fixed assets, including capital leases and major repairs that increase useful lives, are capitalized. Maintenance, repairs and minor renewals are accounted for as expenditures or expenses when incurred. Obligations under capital leases are disclosed in Note #8 E. All fixed assets are valued at historical cost or estimated historical cost if actual cost information is not available. Donated assets are valued at their estimated fair market value on the date of the gift. B. GENERAL FIXED ASSETS General fixed assets are long-lived assets of the City as a whole. When purchased, leased, or constructed, such assets are recorded as capital outlay expenditures in the governmental funds and capitalized in the general fixed assets account group. No depreciation has been provided on general fixed assets, nor has interest been capitalized. General fixed assets purchased or constructed from special assessment funds, and all infrastructure assets (such as roads, bridges, curbs and sidewalks) are considered public property and are not accounted for in the general fixed assets account group. A summary of changes in General fixed assets follows: Land Buildings 34,117,099 281,173 (19,643) 0 34,378,629 1mpn3vements Other Than Buildings 4,652,835 1,551,891 (246,063) 0 5,958,663 Equipment Construction in Progress Capitalized Leases 1 364,883 0 (76,864) 0 1,2811019 - Total Assets $56,717,945 $3,991,138 (51,933,086) $ 0 558,775,997 Beginning Endling Balance Balance 01/01/2002 Additions Deletions Adjustments 12/31/2002 $ 8,243,222 S 237,510 S 0 S 0 S 8,480,732 8,159,749 422,441 (1,590,516) 0 6,991,674 180,157 1,498,123 0 0 1,678280 FINRPI CAFR Nan 2002 15 - L29n3 C. PROPRj1ETARY FUND FIX1 P ASSETS Fixed assets of proprietary funds are capitalized in their respective balance sheets. Depreciation expense is 'charged to operations of proprietary funds to allocate the cost of fixed assets over their estimated useful lives, using the straight-line method with useful lives as follows: Estimated Service Life Buildings 25 - 40 Years 7 - 50 Years 33 - 50 Years 2 - 25 Years Improvements Other Than Buildings Utility Plant Equipment intangibles (organization costs, 75 - 100 Years water rights, and goodwill) A summary off proprietary fund type property, plant, and equipment at December 31, 2002 follows: Enterprise internal Service Land 5 2,186,700 -S 0 Buildings_ 62,694,835 16,984 Improvement; Other Than Buildings 67,08,535 0 Equipment 12,513,665 12,250,535 Construction lin Progress 11,081,452 0 Completed Construction — Not Classified 2,232,245 0 Intangibles 221 830 0 Total 5158,239,262 512,267,519 Less Accumulated Depreciation and Amanizat on _ (64,953,369) _ (7,153,229) Net $ 93,285.893 S 5,114,290 fINRPI CAFR Now 2002 16 - 129/03 31 NOTE 6 - PENSION PLANS Substantially all City full-time and qualifying part-time employees participate in one of the following statewide retirement systems administered by the Washington State De_paitment of Retirement Systems, under cost-sharing multiple -employer public employee defined benefit and defined contribution retirement plans. The Department of Retirement 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 by writing to: Department of Retirement Systems Communications Unit P.O. Box 48380 - Olympia, WA 98504-8380 The following disclosures are made pursuant to GASB Statement 27, Accounting for Pensions by State and Local Government Employers. A. PUBLIC EMPLOYEES' RETIREMENT SYSTEM (PERM PLANS 1. 2 AND 3 Plan Description PERS is a cost-sharing multiple employer retirement system comprised of three separate plans for membership purposes: Plans 1 and 2 are defined benefit plans and Plan 3 is a combination defined benefit/defined contribution plan. Membership in the system includes: elected officials; state employees; employees of the Supreme, Appeals, and Superior courts (other than judges in a judicial retirement system); employees of legislative committees; community and technical colleges, college and university employees (not in national higher education retirement programs); judges of district and municipal courts; and employees of local governments. PERS participants who joined the system by September 30, 1977, are Plan I members. Those who joined on or after October 1, 1977 and by either, February 28, 2002 for state and higher education employees, or August 31, 2002 for local government employees, are Plan 2 members unless they exercise an option to transfer their membership to Plan 3. PERS participants joining the system on or after March 1, 2002 for state and higher education employees, or September 1, 2002 for local government employees have the option of choosing membership in either PERS Plan 2 or PERS Plan 3. The option must be exercised within 90 days of employment. An employee is reported in Plan 2 until a choice is made. Employees who fail to choose within 90 days default to PERS Plan 3. PERS defined benefit retirement benefits are financed from a combination of investment earnings and employer and employee contributions. PERS retirement benefit provisions are established in state statute and may be amended only by the State Legislature. Plan 1 retirement benefits are vested after an employee completes five years of eligible service. Plan 1 members are eligible for retirement at any age after 30 years of service, or at the age of 60 with 5 years of service, or at age of 55 with 25 years of service. The annual pension is 2 percent of the average final compensation per year of service, capped at 60 percent. The average final compensation is based on the greatest compensation during any 24 eligible consecutive compensation months. If qualified, after reaching the age of 66 a cost -of -living allowance is granted based on years of service credit and is capped at 3 percent annually. FINRPI CAFR Nous 2002 17 .. 529/03 32 Plan 2 retirement benefits are vested after an employee completes five years of eligible service. Plan 2 members may retire at the age of 65 with five years of service, or at age 55 with 20 years of service, with an allowance of 2 percent of the average final compensation per year of service. The average final compensation is based on the greatest compensation during any eligible consecutive 60 - month period. Plan 2 retirements prior to the age of 65 receive reduced benefits. If retirement is at age 55 or older with at least 30 years of service, a 3 percent per year reduction applies; otherwise an actuarial reduction will apply. There is no cap on years of service credit; and a cost -of -living allowance is granted (indexed to the Seattle Consumer Price Index), capped at 3 percent annually. Plan 3 has a dual benefit structure. Employer contributions finance a defined benefit component, and member contributions finance a defined contribution component. The defined benefit portion provides a benefit calculated at 1 percent of the average final compensation per year of service. The average final compensation is based on the greatest compensation during any eligible consecutive 60 - month period. Plan 3 members become eligible for retirement if they have: at least ten years of service; or live years including twelve months that were earned after age 54; or five service credit years earned in PERS Plan 2 prior to June 1, 2003. Plan 3 retirements prior to -the age of 65 receive reduced benefits. If retirement is at age 55 or older with at least 30 years of service, a 3 percent per year reduction applies; otherwise an actuarial reduction will apply. There is no cap on years of service credit; and Plan 3 provides the same cost -of -living allowance as Plan 2. The defined contribution portion can be distributed in accordance with an option selected by the member, either as a lump sum or pursuant to other options authorized by the Employee Retirement Benefits Board. There are 1,155 participating employers in PERS. Membership in PERS consisted of the following as of the latest actuarial valuation date for the plans of September 30, 2001: Retirees and Beneficiaries Receiving Benefits 62,189 Terminated Plan Members Entitled to But Not Yet Receiving Benefits 18,412 Active Plan Members Vested 97,777 Active Plan Members Nonvested 55,159 Total 233,537 Funding Policy Each biennium, the state Pension Funding Council -adopts Plan 1 employer contribution rates, - Plan 2 employer and employee contribution rates; and Plan 3 employer contribution rates. Employee contribution rates for Plan 1 are established by statute at 6 percent and do not vary from year to year. 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 fully fund Plan 2 and the defined benefit portion of Plan 3. All employers are required to contribute at the level established by the Legislature. PERS Plan 3 defined contribution is a non-contributing plan for employers. Employees who participate in the defined contribution portion of PERS Plan 3 do not contribute to the defined benefit portion of PERS Plan 3. The Employee Retirement Benefits Board sets Plan 3 employee contribution rates. Six rate options are available ranging from 5 to 15 percent; two of the options are graduated rates dependent on the employee's age. The methods used to determine the contribution requirements are established under state statute in accordance with Chapters 41.40 and 41.45 RC W. The required contribution rates expressed as a percentage of current -year covered payroll, as of December 31, 2002, were as follows: - FINRPI CAFR Nae 2002 It - U39/03 33 • Employer + Employee PERS Plan 1 1.32% 6.00% EIR Plan 2 PERS Plan 3 1.32% L32%* 0.65% •O• The employer rates include the employer administrative expense fee currently set at 0.22%. Plan 3 defined benefit portion only. Variable from 5.0•/ minimum to 15.0% maximum based on rate selected by the PERS 3 member. Both the City and the employees made the required contributions. The City's required contributions for the years ended December 31 were as follows: PIERS Plan 1 PERS Plain 2 PERS Plan 3 2002 $50,468 $220,393 $1,043 2001 $69,782 5270,001 2000 5198,985 $673,093 B. LAW ENFORCEMENT OFFICERS' AM) FIREFIGHTERS RETIREMENT SYSTEM (1:EOFF1 PLANS 1 AND 2 Plan Description LEOFF is a cost-sharing multiple employer retirement system comprised of two separate dlefined benefit plans. Membership in the system includes all full-time, fully compensated, local law enforcement officers and firefighters. LEOFF is comprised primarily of non -state employees. L.EOFF 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. LEOFF retirement benefits are financed from a combination of investment earnings, employer and employee contributions, and a special funding situation in which the state pays the remainder through state legislative appropriations. LEOFF retirement benefit provisions are established in state statute and may be amended only by the State Legislature. Plan 1 retirement benefits are vested after an employee completes five years of eligible service. Plan 1 members are eligible for retirement with five years of service at age 50. The benefit per year of service calculated as a percent of final average salary is as follows: Term of Service Percent of Final Average 20 or more years 2.0% 10 but less than 20 years 1.5% 5 but less than 10 1.0% The final average salary is the basic monthly salary received at the time of retirement, proviided a member has held the same position or rank for 12 months preceding the date of retirement. Otherwise, it is the average of the highest consecutive 24 months' salary within the last 10 years of service. If membership was established in LEOFF after February 18, 1974, the service retirement benefit is capped at 60 percent of final average salary. A.cost-of-living allowance is granted (indexed to the Seattle Consumer Price Index). Plan 2 retirement benefits are vested after an employee completes five years of eligible service. Plan 2 members may retire at the age of 50 with 20 years of service, or at the age of 53 with five years of service, with an allowance of 2 percent of the final average salary per year of service. The final average salary is based on the highest consecutive 60 months. Plan 2 retirements prior to the age of 5.3 are reduced 3 percent for each year that the benefit commences prior to age 53. There is no cap on years of service credit; and a cost -of -living allowance is granted (indexed to the Seattle Consumer Price Index), capped at 3 percent annually. - FINRPr CAFR Nan 2002 19 - V29/03 There are 359 participating employers in LEOFF. Membership in LEOFF consisted( of the following as of the latest actuarial valuation date for the plans of September 30, 2001: Retirees and Beneficiaries Receiving Benefits 8,078 Terminated Plan Members Entitled to But Not Yet Receiving Benefits 332 Active Plan Members Vested 10,894 Active Plan Members Nonvested 4,006, 23,310 Total Funding Poky Starting on July 1, 2000, Plan 1 +employers and employees will contribute zero percent as long as the plan remains fully funded. Employer and employee contribution rates are developed by the Office of the State Actuary to fully fund the plan. Plan 2 employers and employees are required to pay at the level adopted by the Department of Retirement Systems in accordance with 41.45 RCW. All employers are required to contribute at the level required by state law. The Legislature:, by means of a special funding arrangement, appropriated money from the state General Fuuid to supplement the current service liability and fund the prior service costs of Plan 1 in accordance with the requirements of the Pension Funding Council. However, this special funding situation is not mandated by the state constitution and this funding requirement could be returned to the employers by a change of statute. The methods used to determine the contribution rates are established under state statute in accordance with chapters 41.26 and 41.45 RCW. - The required contribution rates expressed as a percentage of current -year covered payroll, as of December 31, 2002., were as follows: _ LE 1)FF Plan 1 LES2EF Plan 11 Ernployer+ 0.22% 2.86%** _ Employee 0.00% 4.39% State n/a 1.75% • The employer rates include the employer administrative expense fee currently set at 0.23%. •• The employer rate for ports and universities is 4.69%. — Both the City and the employees made the required contributions. The City's required contributions for the years ending December 31 were as follows: LE,DFF Plan 1 LEOFF Plan 11 2002 52,631 5293,793 2001 53,629 - 5267,337 2000 55,203 5343,112 C. OT�RETZ MENT SYSTEIIIIS - VOLUNTEER FIRE FIGHTER' RELIEF AND PENSION FUND - - - The Volunteer Fire Fighters' Relief and Pension Fund System is a cost-sharing multiple - employer retirement system which was created by the Legislature in 1945 under Chapter 41.16 RCW. It provides pension, disability and survivor benefits. Membership in the system requires service with a fire department of an electing municipality of Washington State except those covered by LEOFF. The system is funded through member contributions -of 530 per year; employer contributions of 530 -per year; and 40 percent of the Fire Insurance Premium Tax; and earnings from the investment of moneys by the Washington State Investment Board. However, members may elect to withdraw their contribution upon termination. FINRPI CAFR Non 5002 20 - V29 03 35 SUMMARY OF FIREMEN'S PENSION AND Schedule of Funding Progress: Fire Pension Single Employer Defined Benefit POLICE PENSION Police Pension Single Employer Defined Benefit Total Valuation Date Actual Value of Plan Assets Actuarial Accrued Liabilities Total Unfunded Actuarial Liabilities (UAL) Funded Ratio Annual Covered Payroll UAL as percentage of covered payroll Schedule of Employer Contributions: January 1, 1998 S 658,786 10,445,000 January 1, 1998 S 0 S 658,786 8.277.000 18.722.000 Annual Required Contribution (ARC) Actual Fire Insurance Premiums Total Actual Employer Contribution Percentage of ARC Contributed Significant Actuarial Assumptions: Salary increases (inflation only) Investment Earnings Post -Retirement Benefit Increases: 1. Related to Salaries 2. Related to Consumer Price Index 59,786,214 6.7% S 0 0.0% 5840,067 536,092 5799,901 95.2% 58,277,000 518,063,214 0.0% 3.6% 5133,938 5133,938 6179.7% 13486.2% 5671,522 51,511,589 SO S36,092 5512,241 51,312,142 763% 86.8% 5.0%/Year 5.0'54/Year 7.0%/Year 7.0%/Year 5.0%/Year 4.0%/Year 5.0°A/Year 4.08/./Year D. FIREMEN'S PENSION The City has a single employer, defined benefit pension plan for Firefighters employed prior to March 1, 1970 and govemed by Washington State Law RCW 41.26. Under the terms of the governing law, the pension member is entitled to payment from the City's pension plan for those benefits in excess of those calculated under the LEOFF plan. The City's Firemen's Pension Fund is a closed group. No new members are permitted. Employees attaining the age of 50 who have completed 25 or more years of service are entitled to annual benefits of 50% of their salary plus an additional 2% for each year of service in excess of 25 years -- up to a maximum of 60% of salary. The pension plan also provides death and disability pension benefits plus sick benefits for eligible active and retired employees. If the employee terminates his employment with the Fire Department and is not eligible for any other benefit under the Firemen's Pension, the employee is entitled to the following: -- Return of accumulated contributions less any benefits paid. -- When Firefighter would have had 25 years of service, 2% of salary for each year of service. Firefighters are no longer required to contribute to the Firemen's Pension. The City is required to contribute the amount necessary to fund the Firemen's Pension, using the aggregate projected benefit method. Under state law, partial funding of the Firemen's Pension Fund may be provided by an annual tax levy of up to 5.45 per 51,000 of assessed valuation of all taxable property of the City. The Firemen's Pension Fund also receives a proportionate share of the 25 percent of the tax on fire insurance premiums set aside by the state for all paid firemen in the state. Additional funding is provided by investment interest earnings. During the year ended December 31, 2002, there were no plan amendments. FINRPI CAFR No,,. 2002 21 - //29/03 Contributions Required and Contributions Made The City's funding policy is to provide for periodic employer contributions at actuarially determined rates that, expressed as percentages of annual covered payroll, are designed to accumulate sufficient assets to pay benefits when due. The required contributions are determined using an aggregate projected benefit funding method with the annual cost increasing 6% per year over the period ending December 31, 2012. Under this method, the normal cost is a portion of the actuarial present value of benefits allocated to a valuation year. The actuarial accrued liability is equal to the actuarial value of assets. (Thus. there is no unfunded actuarial accrued liability under this method.) - Significant actuarial assumptions used to compute contribution requirements were the same as those used to compute the standardized measure of the pension benefit obligation. E FOLICE PENSION The City has a single employer, defined benefit pension plan for Police Officers employed prior to March I, 1970 and governed by Washington State Law-RCW 4120 and 41.26. Under the goveming law, the pension member is entitled to payment from the City's pension plan for those benefits in excess of those calculated under the LEOFF plan. The City also covers four members who were ineligible under the State Law Enforcement Officers and Fire Fighters (LEOFF) Program. The City's Police Pension Fund is a closed group. No new members are permitted. Employees who have completed 25 years or more of service are entitled to annual benefits of 50% of their salary plus an additional 2% for each year of service in excess of 25 years -- up to a maximum of 60% of salary. The plan provides death and disability pension benefits plus sick benefits for eligible active and retired employees. If the employee terminates his employment with the Police Department and is not eligible for any other benefit under the Police Pension, the employee is entitled to the following: -- Return of 75% of contributions made after June 8, 1955, less any benefits paid. -- When Police Officer would have had 25 years of service, 2% of salary for each year of service. One individual who is ineligible for LEOFF is contributing 6 percent. The remaining members are no longer required to contribute to the Police Pension. The City is operating on a pay-as-you-go basis. During the year ended December 31, 2002, there were no plan amendments. Contributions Required and Contributions Made The Police Pension is a department within the General Fund. The City engaged Milliman and Robertson, Inc. to perform the pension's actuarial study. They issued a valuation dated January 1, 1998. The valuation provided actuarially determined rates to accumulate sufficient assets to pay benefits when due rather than the current pay -as -you -gni basis. The required •contributions are determined using an aggregate projected benefit method with the annual cost increasing 6% per year over the period ending December 31, 2010. Under this method, the normal cost is a portion of the actuarial present value of benefits allocated to a valuation year. The actuarial accrued liability is equal to the actuarial value of assets. (Thus, there is no unfunded actuarial accrued liability under this method.) Significant actuarial assumptions -used to compute contribution requirements were the same as those used to compute the standardized measure of the pension benefit obligation. FINRPI CAFR Nan 2002 22 - 9/23/03 37 NOTE 7 - SELF-INSURANCE FUNDS The City maintains Reserve Funds to provide for self-insurance coverage fn the areas of Unemployment Compensation, MedicaVDental coverage, and Workers' Compensation. In addition, the City maintains a Risk Management Fund to provide for property, liability, and other coverages. A_ UNEMPLOYMENT COMPENSATION In 1978, the City of Yakima established an Unemployment Compensation Reserve Fund to provide unemployment compensation coverage for its employees, and thereby elected to participate with the State of Washington in a cost -reimbursement instead of monthly premium program. In doing so, the City retained its right to appeal awards and determinations made by the State Department of Employment Security. The City has contracted with U.C. Express to represent the City in appeal hearings, and to provide audits of state awards. The State of Washington invoices the City on a quarterly basis for reimbursement of claims which represent payment of unemployment compensation and related administrative costs. Resources accrue to the Unemployment Compensation Reserve Fund through monthly charges made to each Operating Fund based on employee earnings. Normal accrual rates have been between .5 and .75 percent of gross payroll, while costs under the monthly premium program would have been approximately 3 percent of payroll. The City has achieved considerable savings. Interfund premiums are based primarily upon the insured funds claims experience and are reported as quasi -external interfund transactions, a total for 2002 of $141,405. Incurred but not reported claims of $37,677 have been accrued as a liability. B. SELF-INSURED SELEM511REDBEDICALMENTALERSraRAM The City, in August, 1979, self-insured its medical and dental programs for all employees other than temporary employees, employees hired to work less than half-time. The City's Human Resources Office administers the self-insured program and claims payment services are provided by Health Care Management Administration, Inc.. Each Operating Fund is charged an accrual amount per covered employee which would otherwise have been paid to an insurance carrier. These amounts are determined by the City based upon :recom- mendations made by Fisher Consulting. Factors considered by Fisher Consulting include the amount of claims paid the previous year, increases over prior years, claims administration costs, projected insurance industry inflation rates and the status of the Fund's Reserve. Interfund premiums to the Employee Health Benefit Reserve Fund for 2002 were $4,741,325. Incurred but not reported claims of $876,505 have been accrued as a liability. FINRP€ CAFR Neo 2002 23 - S/29/03 38 In order to avoid catastrophic losses, the City "reinsures" the program by purchasing insurance known as "stop -loss insurance." Two types of "stop -loss" insurance are purchased: 1) individual stop -loss; and, 2) aggregate stop -loss, with both provided through SAFECO Insurance Co: Under the individual stop -loss insurance, the City pays the first $150;000 of -claims for an individual employee or dependent. Any charges accrued by an individual in excess of $150,000 in a calendar year are thereafter reimbursed by SAFECO. The aggregate stop -loss is designed to protect the City from multiple large clairns which may not reach the individual stop -loss attachment point ($150,000). The aggregate stop -loss attachment point is calculated by determining the projected amount of claims for the year and adding an additional 25% of that amount (125% of projected claims.) C. WORKERS' COMPENSATION PROGRAM The City :self-insured hs workers' compensation program for all employees except those covered by the LEOFF 1 Retirement System in July, 1984. This workers' compensation program provides cov- erage identical to the state administered workers' compensation program; however, the City pays only the direct injury -related costs and certain administrative fees. The program is administered by the City's Personnel Office with claims administration and safety services provided by Ward North America. Each Operating Fund is charged an appropriate accrual amount, per employee, based on rate requirements prescribed by the State of Washington. Each year the Reserve Fund is reviewed to deter- mine a contribution rate which provides for an appropriate reserve. Interfund premiums to the Workers' Compensation Fund for 2002 were $1,294,368. Based on the claims manager's estimate, the City has accrued incurred but not reported claims of $521,704 at December 31, 2002. In order to avoid catastrophic losses, the City "reinsures" the program by purchasing insurance known as "stop -loss insurance." This insurance, is provided through Marsh Advantage America under a•policy purchased from Employers Reinsurance Corporation. Under the individual stop -loss portion of the insurance, the City is liable for the first $500,000 of claims resulting from a specific accident. Charges beyond that $500,000 are covered by the stop -loss insurance.- The City's maximum exposure for all claims in a year is $1,000;000. - D. RISK MANAGEMENT PROGRAM The Risk Management Reserve Fund was established in 1986 when the City elected to self -insure the liability exposure portion of its insurance program. Resources accrue to the fund through interfund premiums to Operating Funds for appropriate insurance coverage aro the replenishment and building of reserves for potential liability claims. City Contributions to the Risk Management Reserve Fund for 2002 were $1,094,558. The Fund provides for administration, legal services, claims adjustment, and for the purchase of property and other insurance coverages. Based on the claims manager's estimate, the City has accrued incurred but not repotted claims of $1,050,000 at December 31, 2002. FINRPI CAFR Nolo 2002 24 - ®49/03 39 NOTE 8 - LONG-TERM DEBT AND CAPITAL LEASES The accompanying schedule of long-term debt provides a listing of the outstanding debt of the City and summarizes the City's debt transactions for 2002. General Obligation Debt: Notes Line of Credit Bonds Intergovernmental Loans Contractual Agreement - Yakima County Special Assessment Notes Bonds Lease Purchase Agreements Unfunded Pension Liability Vacation/Sick Leave Accrual Total General Long -Term Debt Payable Revenue Debt Payable Revenue Bonds Intergovernmental Loans Unfunded Pension Liability Total Revenue Debt Payable Total Long Term Debt LONG-TERM DEBT Balance Payments/ Balance 01/01/2002 Additions Retirements 12/312002 S 45,587 5 0 S 3,357 S 42,230 88,500 0 70,000 18,500 14,990,000 6,735,000 1 705,000 10.020.000 15,124,087 6,735,000 1,778,357 20,080,730 4,196,717 0 426,343 3,770,374 839,256 0 94,935 744,321 141,330 0 49,330 92,000 0 0 0 0 63,215 0 24,158 39,057 2,280,260 373,760 0 2,654,020 3,449,411 97,754 0 3,547,165 526,094,276 57,206,514 52,373,123 530,927,667 510,605,000 $ 0 $1,110,000 59,495,000 7,003,141 0 840,167 6,162,974 339,669 110,099 0 449,768 517,947,810 5110,099 51,950,167 516,107,742 544,042,086 57,316,613 5443323 547,035,409 A. GEN2AL OBLIGATION DEBT General obligation bonds are all. serial bonds, to be retired through the fiscal year ending December 31, 2026 with the exception of the Housing Bonds which mature in one lump sum 10 years from issuance (interest is paid semi-annually). The City levies a special property tax; collected motel/hotel and utility taxes; and special assessments for the principal and interest payments due within a fiscal year and provides the amounts in the respective Debt Service Fund. FINRPI CAFR Non 2002 25 - ar29a3 Special Property Tax Levy: 1995 Fire Improvement Bonds Regular Property Tax Levy/Real Excise Tax: 1998 Street Overlay Program Bonds Motel/Hotel Tax. 1996 Convention Center Expansion Bonds Special Assessment: G.O. Line of Credit - Irrigation Main Replacement Outstanding Interest Rate Original Issue 12/31/2002 3.7% - 5.4% 53,700,000 4.0% -4.5% 1,430,000 5.29% 6,000,000 Variable 325,000 Public Facilities District (State Sales Tax Credit): 2002 Convention Center Addition 3.0%- 5.0% 6,735,000 Home Ownership: 1993 Single Family Rehab Bonds 2000 Notes 7.25% 6.00% Utility Tax: 1994 Criminal Justice/1-82 Bonds 4.35% - 5.25% 52,710,000 935,000 4,910,000 18,500 6,735,000 200,000 200,000 50,000 42,230 -6.800.000 4.530.000 525,240.000 520�080,730a B. REVENUE BONDS Water/Sewer revenue bonds are all serial bonds, to be retired through the fiscal year ending December 31, 2018, with the exception of the Apple Tree Bond which will mature June 1, 2041. The City shall have no obligation to make any payment into this Apple Tree Bond from any other source other than the Ahtanum connection charges:- The principal and interest for the water/sewer revenue bonds are provided by the results of operations and hook -on fees initiated to primarily finance specific capital improvements. 1968 Series B Water/Sewer Revenue Bonds 1996 Water/Sewer Revenue Bonds (Refund of 1978 Issue) 1998 Water/Sewer Revenue Bonds (Refund of 1991 Issue) 1998 Water Revenue Bonds 2001 Apple Tree Bond Interest Rate Original Issue 5.0% - 5.5% 52,800,000 4.0%- 5.2% 3,320,000 4.0% - 4.3% 4.0% - 5.0% 6.00%- 4,715,000 .00% 4,715,000 3,195,000 600.006 514,630.000 Outstanding 12/31/2002 5 270,000 1,860,000 4,030,000 2,735,000 600,000 59,495,000 C. INTERGOVERNMENTAL LOANS AND CONTRACTUAL AGREEMENTS The City participated in a program administered by the State's Department of Community Development on behalf of the Public Works Board. The program provides financial assistance for general government activities, such as street, bridge, water or proprietary activities, such as water or sewage projects. The City has 17 loans through the Public Works Trust Fund as described below: FINRPI CAFR Nope 2002 26 - W9xl3 41 Real Estate Transfer Tax: PW -86-040 Tieton Drive, 40th Ave. to 65th Ave. PW -87-002 Nob Hill Overpass PW -5-89-962-0056 Resignalization and Lighting PW -5-89-962-0057 Fruitvale Canal Wasteway Piping PW -5-91-280-071 Fruitvale Canal Wasteway Arterial Street Gas Tax: PW -5-90-280-050 Tieton Drive, 5th Ave. to 16th Ave. PW -5-91-280-070 N. 1st Avenue, Yakima Ave. to "7" St. PW -5-95-791-052 Fair Avenue Improvements PW -00-691-062 Downtown Yakima Rehabilitation Project General Fund Sales Tax: CERB Loan #C95-107 Utilities -Madison Ave. & 8th, "3" St. & 8th Sub -Total - General Long -Term Debt Sewer Operating Revenue: PW -88-962-54 Treatment Plant Rehabilitation PW -5-92-280-046 Sewer Collection System Improvements PW -5-93-280-054 Wastewater Facility Rehabilitation PW -5-94-784-049 Sewer Collection System Imprdvements PW -5-95-791-053 Headworks/Digester Rehabilitation PW -5-95-791-054 Sewer Improvements King Street Collector PW -0I.691-071 Fruitvale Neighborhood Sewer -Water Project Phase I L9200018 - State • Revolving Fund Loan WaterOpemting Revenue: PW -5-89-962-0058 Domestic Well and Pumphouse Sub -Total -- Revenue Debt Total Intergovernmental Loans Maximum Outstanding Interest_ Maturity Dale - Authorized 12/31/2002 3% 07/01/2006 1% 07/01/2007 1% 07/012009 3% 07/01/2009 3% 07/01/2011 3% 07/01/2010 1% 07/01/2011 I% 07/01/2015 1% 06/10/2010 6% 07/01/2016 1% 07/01/2008 1% 07/01/2012 1% 07/01/2013 I% 07/01/2014 1% 07/01/2015 1% 07/01/2015 .5% 07/01/2021 1720,000 213,454 765,000 174,879 1,188,000 803,157 1,155,000 1,000,000 1,180,000 1151,579 51,634 295,053 44,639 546,019 254,049 449,738 1592,260 944,000 425,448 141 403 13,770,374 945,000 1,120,000 3,221,708 1,481,000 3,030,558 209,367 1,466,250 333,475 617,310 1,875,561 490,789 2,123,868 151,906 219,937 The City entered into a contractual agreement -with Yakima County for financing an agricultural trade and convention facility, the SunDome. The agreement will run over the teen of County bonds issued for this purpose. The County issued bonds in the amount of 51,280,000 in 1988, and $3,000,000 in 1989. The City of Yakima is contractually responsible for the repayment of a portion of the issues plus corresponding interest and will make semi-annual payments to the County over the 20 year bond redemption schedule. In 2002, the City entered into a contractual agreement with Yakima -County for a Supporting Investments in Economic Development (SIED) Loan for $44,000 to fund public infrastructure improvements related to Cascade Quality Molding. Outstanding JENnding Source Maturity Date Original Issue 12/31/2002 1988 Issue Business Licenses I1/1/2007 - 1780,000 5304,687- 1989 Issue 304,6871989Issue Real Estate Excise Taxes 11/1/2009 781,518 399,283 2001 Issue Contacted Assessment 06/1/2011 44,000 40,351 _ 11.605518 5744,321 The following schedule sets forth the general obligation debt, intergovernmental loans and contracts, and revenue bond indebtedness service requirements (in thousands); including interest, to maturity: - General O$UPation -- Bonded Notes and Debt Contracts - Revenue ---- Bonded _Bonded Notes and Debt Contracts Total Debt 2003 5 2,201 $ 620 $ 1,596 5 675 $ 5,092 2004 1,956 615 1,160 669 4,400 2005 1,953 607 1,160 639 4,359 2006 1,954 598 1,164 575 4,291 2007 1,956 555 1,159 569 4,239 2008 1,954 464 1,158 563 4,139 2009-2013 8,898 950 2,855 2,289 14,992 2014-2025 9,241 108 1,213 396 .10 958 $30,113 54,517 511.465 S6.375 152,470 At December 31, 2002, the City had 5304,212 available in debt service funds to service the general Obligation Bonds and notes. Additionallly, there is 52,085,358 in reserved retained earnings for debt service for the enterprise funds. These represent sinking funds and reserve requirements as contained in the various indentures. There are a number of other limitations and restrictions contained in the various bond indentures. The City is in compliance with all significant hmitations and restrictions. D. SPECIAL ASSESSMENT DEBT WITH (",OVERNMENTAL COMMITMENT Debt -service requirements for special assessment notes are met by assessments levied against 4% 05/28/2002 2,550,559 159,211 property owners. The special assessment debt are notes, that are due as moneys become available from payments on individual assessments. Special assessment debts currently outstanding are as follows: 3% 07/01/2009 495,000 190,917 6,162,974 59,933,348 »a»azwz� The loans have a term not to exceed 20 years and require 1/19th of the original principal plus interest to be paid each July 1st. FINRPI CAFR Nan 2002 27 - 1/29/03 spedal Asses100ent Notes LID 51052; 10/23/05 Water - Willow Street Installment Note; 9.75% Interest 511,000 LID 51053; 02/10/07 Sewer -- Alpine Crum Installment Note; 9.25%, Interest 10,000 LID 51054; 10/01/07 Sewer --'South 70th Ave. and Lindgrenflr.Installment Note; 9.21% Interest 27,000 LID 51055; 06/05/10 Sewer - North 85th Avenue Sewer Installment Note; 111.75% Interest 44,000 592,000 FtPRPI CAFR Nan 2002 28 - V29/03 43 Debt service requirements for special assessment notes/bonds are met by assessments levied against property owners. At December 31, 2002, outstanding assessments tgtaled 8253,885 of which 84,619 are delinquent. (The assessments are liens against the property and are -subject to foreclosure.) Pursuant to RCW 35.54, the City maintains a Local Improvement Guarantee Fund for the purpose of guaranteeing, to the extent of the fund, the payments of its LID bonds. The fund balance at December 31, 2002 of the LID Guarantee Fund totaled 843,568. LEASE P 1RCAASE A F NT : General Fixed Assets As part of the City's capital equipment budgeting program, selected items are obtained via lease purchase and municipal lease/deferred purchase plans. Since the leases are financing agreements which transfer ownership to the City at the end of the lease term, the City records the present value of future lease payments as a capital outlay expenditure and as an offset to other financial sources in the year that the asset is received. The present value of payments due in future periods is shown as a liability in the general long-term debt account group and the cost of the asset is recorded in the general fixed asset account group. A summary of the leased equipment is detailed below. Lease N 23 24 Equipment High Speed Copier Laser Printer Effective Date Term 11/98 60 Monthly Payments 07/99 60 Monthly Payments The following is a schedule of the future minimum lease payments under the above capital leases, and the present value of net minimum lease payments at December 31, 2002. Fiscal Year 1998 High Speed Copier 1999 Laser Printer Total Minimum Lease Payments Less: Amount Representing Interest Present Value of Net Minimum Lease Payments 537,622 22,290 559,912 20,856 839.056 F. UNFUNDED PENSION LIABILITIES' The City maintains two single employer defined benefit pension plans, Firemen's Pension and Police Pension, which are closed systems covering Firemen and Police Officers hired prior toMarch1; 1970. Both plans had their first annual actuarial valuation as of March 31, 1989, and the required contributions identified in these studies were the basis for recording the unfunded pension liability since 1989. The Police Pension is a department in the General Fund, and is operating on a pay-as-you-go basis. The unfunded pension liability will be adjusted annually by comparing actual expenditures for pension benefits to the actuarially determined contribution. The City intends to maintain this plan on a pay-as- you-go basis. The liability incurred is 8373,760 in 2002, and the outstanding balance at December 31, 2002 is 82,654,020. The Firemen's Pension is a trust fund, and has as its funding sources a portion of local property taxes, a state tax on fire insurance premiums, and interest income. This fund has an unfunded pension liability of 8449,768 at December 31, 2002. See Note #6 for additional information on the pension funds._ FINRPI CAFR Nan 2002 29 — 329/03 NOTE 9 - CONTINGENCIES In March 2002, the Washington State Supreme Court issued an opinion in which it found that the petition method of annexation is unconstitutional because it violates the privileges and immunities clause of the Washington State Constitution. The City moved for reconsideration and the Court withdrew the opinion and, in March 2003, heard oral argument. The Court has not issued a new opinion and it is uncertain as to whether it will find the statutes unconstitutional. The City's counsel believes that, based on prior case law, it is unlikely in any event that the Court would retroactively invalidate any annexations completed prior to January 1, 1999. The City has annexed eight areas since January 1, 1999 with a total assessed value of 8398,325,090. The City has used the petition method of annexation for approximately 50 years. A class action lawsuit (Murphy et al v. City of Yakima, Yakima County Case No. 99-2-00611-8) is pending against the City alleging personal and property damages arising from alleged odors from the City's Wastewater Treatment Plant. The approximately 3,500 plaintiffs are seeking damages based on negligence, nuisance and inverse condemnation. The lawsuit is pending the scheduling of a trial date, which is not likely to be set prior to October 2003. Any judgment in the lawsuit would be an obligation of the City's wastewater utility and is anticipated to be .paid from the revenues of the wastewater utility. The City cannot reasonably estimate the loss, if any, at this time. The City participates in a number of federal and state assisted programs. These grants are subject to audit by the grantors or their representatives. Such audits could result in requests for reimbursement to grantor agencies for expenditures disallowed under the terms of the grants. City management believes that such disallowances, if any, will be immaterial. FINRPI CAFR Notes 2002 30 — 029/03 45 NOTE 10 - INTERFUND TRANSACTIONS AND BALANCES A. CLASSIFICATION OF INTERFUND TRANSACTIONS Interfund transactions are classified as follows: 1. Transactions that would be treated as revenues, expenditures or expenses if they involved external organizations, such as buying goods and services or payments in lieu of taxes, are similarly treated when they involve other funds of the City. 2. Transfers to support the operations of other funds are recorded as "Operating Transfers" and classified with "Other Financing Sources or Uses." 3. Contributions to the capital of enterprise or internal service funds, (transfers between those funds and the general fixed assets account group,) transfers to establish or reduce working capital in other funds, and transfers of remaining balances when funds are closed are classified as operating transfers and reported as non-operating revenues. 4. Loans between funds are classified as interfund loans receivable and payable or as advances to and from other funds on the combined balance sheet depending on the time 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. B. INTERFUNI) LOANS AND RECEIVABLES The following table depicts interfund loan activity during 2002: Loan Activity Balance Balance: Sorrowing Fund LendingTo 12/31/01 Nraigans Repayments .1.2L)1/02 551 -Equipment Rental 973 -Wastewater $710,000 $710,000 $ 0 $1,420,000 The following table depicts the total due from other funds presented on the Combined Balance Sheet -- All Fund Types and Account Groups during 2002, and represents temporary cash overdrafts (i.e. over -investment) in individual funds: General Fund Special Revenue Funds: Tourist Promotion Capital Project Funds: Fire Capital Internal Service Funds: Risk Management FINRPI CAFR Notes 2002 31 - 629/03 Due From Due to Other Other Funds Funds 51,066,233 $ 0 87,274 29,432 949,527 51,066,233 $1,066,233 C. I ITERFUND OPERATINGTRANSFERS The following table depicts interfund operating transfer activity during 2002: JEtwd General Fund Special Revenue Funds: Economic Developmen€ Community Development Parks and Recreation Streets Arterial Street Cemetery Emergency Services Public Safety Communication Parking and Business Improvement Tourist Promotion Capitol Theatre Public Facilities District Contingency Capitol Theatre Reserve Debt Service Funds: Housing G.O. Notes 2002 G.O. Convention Center - PFD '85 L.G.O. Diversion Dams '98 G.O. Street Overlay '94 L.G.O. Criminal Justice/I-82 '97 G.O. Line of Credit LID Debt Control Capital Projects Funds: Parks and Recreation (Law and Justice Public WorksConstructic.m Convention Center Cumulative Reserve Enterprise Funds: Transit Refuse Sewer %Vater Irrigation Internal Service Funds: Equipment Rental Non -Expendable Trust Funds: Cemetery Trust FINRPI CAFR Notes 2002 32 - 629/03 47 Transfer In Transfer Out 5 110,000 SI.919,371 95,00(1 794,17!1 _ 0 94,031 166,499' 886,000 0 0 159,427 0 125,000 0 205,000 250,000 13:549 182,000 120,000 80,000 0 100,000 105,596 75,000 49,265 200,000 356 0 0 0 0 379,898 0 $4.190.796 0 205.000 235,000 427,819 70,000 0 166,000 0 20,000 30,000 0 269,265 0 159,427 0 0 0 0 0 0 17,188 0 - 0 100,000 0 335,000 0 0 55,870 39;058 127,299 0 14,499 54.1902796 NOTE 11 - FUND EOUITIES A. GOVERNMENT FUND TYPES Reservations of Fund Balance: Fund balance in governmental fund types is reserved for two purposes: (1) where certain amounts are legally committed for specific future uses, such as outstanding purchase orders (encumbrances), continuing appropriations, •capital projects, debt service, or by State mandate; and (2) where assets are not available for appropriation, because they have been advanced to another fund, because they are non-current receivables, or because they have been expended as inventories or prepayments. Reserve for Encumbrances Reserve for Inventory Reserve for Active Employees' Retirement Contribution Reserve for Restricted Donations Reserve for Probation Center/Programs Reserve for Continuing Appropriations B. PROPRIETARY FUND TYPES General Fund 5522,005 26,802 50,812 0 189,075 0 Special Revenue Capital Project Funds Funds 51,004,139 $ 787,996 0 0 0 1,514 0 0 0 0 0 6.948.742 5788.694 51.005.653 = 57.736.738 Contributed Capital: Contributed capital of the internal service funds records the amounts of working capital and fixed assets received from other funds. Contributed capital in enterprise funds consists of contributed fixed assets or contributions for fixed asset acquisition from other funds, governments, customers, developers and other sources. Proprietary funds of the City do not amortize contributed capital. Reservations of Retained Earnings: Retained earnings in proprietary fund types is generally reserved to indicate that a portion of retained earnings is being held or set aside for a specific purposes. The amount reserved for debt service and replacement of rolling stock are: Enterprise Funds Internal Service Reserve for Debt Service 52,085,358 $ 0 Reserve for Replacement 0 8,738,074 52.085,358 58,738,074 FR1RPI CAFR Naos 2002 33 — 1!29/03 Deficit Retained Earnipj;I: The Sewer Fund unreserved retained earnings deficit of $2,500,616 is a result of a change in estimated useful lives used to calculate depreciation to better match expense with useful asset life. This change (implemented in 1993) resulted in additional depreciation of approximately $1,300,000 in the first year and has continued to negatively affect unreserved retained earnings. A cost of service study was completed in 2001, that resulted in 37% rate increase to adequately provide for future capital and operational needs. Accordingly, the deficit retained earnings will be replenished over the next several years. The Workers Compensation Reserve Fund has a retained -earnings deficit of $237,762 due to an extraordinary increase in claims benefits. A 20% rate increase for operating funds contribution has been implemented in 2003, plus an additional 20% surcharge for the divisions experiencing exceptionally high claims. C. DESIGNATED FUND BALANCES This category is used to set aside governmental fund balances when city management has plans or tentative commitments to expend resources for certain purposes in future periods. Further legal action will be required to authorize the actual expenditures. Special Revenue Funds have a designated fund balance of $1,193,525 for the Capitol Theatre Reserve Fund for replacement of the Capitol Theatre. The Capital Project Funds have a designated fund balance of $565,911 in the Fire Capital Fund for replacement of fire equipment. D. RESERVED FUND BALANCE IN TRUST FUNDS The reserve of $473,299 in the Cemetery Trust Fund represents a portion of the amounts paid for cemetery plots. Provisions of these sales require $120 of the sales price be held in trust and that the income on the investment of these amounts be used to maintain the plots. The Reserve for Endowments represents an endowment for cemetery beautification. The provisions of the endowment stipulate that income from the endowment be used only for grounds improvements. The $657,889 Reserve for Employees' Retirement System is the Firemen's Relief and Pension Fund balance which represents the accumulated contributions made by the government through property taxes {see Note #4) plus interest earnings and state fire insurance premium tax .proceeds. FINRPI CAFR Nodes 2002 31 — 5/29/03 49 LvOTE 12 - SEGMENT INFORMATION The City maintains four Enterprise Funds. These funds provide bus transportation, refuse, water/irrigation and sewer services. It is the intention of the City to maintain adequate rate structures or provide operating subsidies to sustain the operations of its Enterprise funds. The key financial data for the year ended December 31, 2002, for these utilities are as follows: Transit Refuse Sew Water 1r ' tion Total Total operating revenues S 382,351 32,989,068 511,061,537 35,047,716 31,733,767 521,214,439 Operating expenses: Operations and maintenance Taxes Depreciation/ amortization Total operating expenses Operating income (loss) Non-operating revenues (expenses): Operating grants and subsidies Miscellaneous interest (net) Other(net) Total non-operating revenues (expenses) Operating transfers (net) Net income (loss) Current capital: Capital grants received Other capital contributed Properry/plant/equipment: Increases (decreases), net Net working capital Total assets Bonds and other long term liabilities: Payable from operating revenues Fund equity FINRPI CAFR Nan 2002 35 - 11/29/03 4,529,516 2,886,075 5,989,079 2,814,422 1,141,569 17,360,661 0 0 1,858,498 1,081,970 0 2,940,468 456.975 0 2,725,912 699,334 50,910 34,986,491 32,886,075 310,573,489 54,595,726 31,192,479 (4,604,140) 102,993 488,048 451,990 541,288 5,037,323 0 0 0 3,933.131 324,234,260 (3,019,821) 0 5,037,323 82,351 754 (233,978) (53,638) 29,001 (175,510) 86.315 0 618.146 1365.836 10.020 2.030.317 5,205,989 356 754 384,168 1,312,198 0 55 870 39,021 6,942,130 39 058 127 99 11,8711 S 602.205 5 103 747 S 816 346 31.725 130 $ 453 010 S3 71x1 ,433 0 0 1,934,564 1,840,905 12,753,489 0 0 0 0 0 0 1,558,894 129,131 5,859,378 402,770 65,249,660 0 0 1,150,091 5,368,275 31,147,699 0 12,235,821 3,013,562 0 0 0 0 15,017 4,658,566 2,005,573 15,203,262 5,470,991 115.024,609 0 15,249,383 511,194,959 3129,131 349,970,933 326,647,207 55,357,019 393,299,249 NOTE 13 L ,1OINT VENTURF - The City and the County of Yakima entered into a joint venture for operation of the Yakima Air Terminal on July 1, 1982. The Yakima Air Terminal Board is comprised of five individuals; two appointed by the City, two by the County, and one selected by the four appointees. Annually, the governing bodies of the City and Country each designate one of its members as an advisory ex -officio member of the Air Terminal Board. The City and the County contribute equally to the joint venture, share equally all profits and losses, and own jointly, in equal shares, all properties or facilities. The Yakima Air Terminal is presently self-sustaining. We have considered disclosure requirements promulgated in GASB 14 and have elected to continue to disclose the joint venture in a manner consistent with prior years. We feel the effects M the joint venture on the combined Financial statements taken as a whole is immaterial. The Air Terminal budget is approved, amended and/or supplemented by joint resolution of the City and County. Real property acquisition and :ale in excess of $50,000 must be approyed by both the City and County. Issuance of bonds for Airport purposes by the City or County requires the other party's approval. Key financial data for the year ended December 31., 2002, is as follows: Current assets $ 910,376 Property, plant and equipment, net 11,022,808 Other assets -d- Total assets Current liabilities Other liabilities Total Liabilities Retained earnings Contributed capital Total fund equity Total liabilities and equity Total operating revenues Operationstmaintenance Depreciation Taal operating expenses Operating income (loss) Non-operating rev= i es (expenses) Misc. interest reveal Engineering study Disposal of equipment Other Total nit -operating avenues (expenses) Net income' floss) Fund equity, January 1 Contributed capital Fund equity, December 31 �511.933a84 $94,236 0 394,236 2,205,658 9.633.290 11.838.,948 -:11®�1 9333184 $ 980,805 986,844- 1.670.446 2,657,290 (1,676,485) 9,139 0 0 8.730 17,869 (1,658,616) 12,861,424 636,140 311.838,9488 Complete financial statements for the Airport can be obtained from the Yakima Air Terminal at 23 West Washington Avenue, Yakima, WA, 98903. FINRPt CAFR Nan 2002 36 -• /49/03 51 11 NOTE 14 - POST RETIREMENT BENEFITS OTHER THAN PENSION BENEFIT In addition to providing pension benefits, the City provides certain health care (100% of medically necessary costs) and life insurance benefits for retired employees under the City's Firemen's and Police Pensions as prescribed by state statutes. Current employees under these two pensions become eligible for those benefits if they reach normal retirement age while working for the City. The cost of retiree health care insurance and Life insurance benefits is recognized as an expenditure as claims are paid. Both plans are being funded 100% by the City on a pay-as-you-go basis. For 2002, the costs totaled $507,369 for the Firemen's Pension which has a total of 77 participants currently eligible to receive benefits and $478,507 for the Police Pension which has a total of 60 participants currently eligible to receive benefits. NOTE 15 - OTHER DISCLOSURES A. ACCOUNTING AND REPORTING CHANGES A new Special Revenue Fund titled Public Facilities District Fund was established to account for the revenues received from the Yakima Regional Public Facilities District (PFD) which was created in 2001 by the cities of Yakima, Union Gap and Selah. The primary revenue to the PFD is a 0.033% state sales tax credit, which is remitted by the PFD to the City of Yakima in accordance with an interlocal agreement. The primary use of these funds is debt service for an expansion of the Yakima Convention Center. Page 1 of 2 CITY OF YAKIMA Required Supplementary Information Police Pension December 31, 2002 Analysis of Funding Progress (Dollars io Thousands) (6) Unfunded Pension Benefit Obligation (1) (2) (3) (4) (5) Asa Percentage Net Assets Pension Percentage Unfunded Annual of Covered Fiscal Available For Benefit Funded Pension Benefit Covered Payroll Yet Benefits Obligation 11) / (2) Obligation yavrolt (4)+ 15) 2002 -0- n/a 0.0% n/a 5134 n/a 2001 -0- n/a 0.0% n/a 139 n/a 2000 -0- n/a 0.0% n/a 153 n/a 1999 -0- nia 0.0% nia 189 nia 1998 -0- n/a 0.0% n/a 186 n/4 1997 -0- n/a 0.0% n/a 276 n/a 1996 -0- n/a 0.0% n/a 379 n/a 1995 -0- n/a 0.0% n/a 513 n/a 1994 -0- 9,695 0.0% 9,695 506 1,916% 1993 -0- 9,292 0.0% 9,292 575 1,616% Revenues by Source and Other Financing Sources PFD/Convention Center 2002 Bonds - A new Debt Service Fund was created to account for the Fiscal Operating repayment of the 2002 Limited Tax General Obligation Bond for the expansion of the Convention Year Transfer lri 35181 Center. Debt service will be supported by the PFD state sales tax credit, described above. 2002 S 991,009 S 991,009 2001 933,831 933,831 B. 5UBSEOUENT EVENTS 2000 1,147,5601,147,560 1999 1,090,8011 1,090,8011 In June 2003, the City issued $1.43 million in Limited Tax General Obligation (LTGO) Bonds to 1998 986,878 986,878 provide moneys to expand and remodel the SunDome, a sports/multi-purpose facility owned by Yakima 1997 900,713 900,713 County. Additionally, in the same issue, the Ci refunded one LTGO issue with a $3.87 millionpar 1996 894,360 894,360 y y City 1995 749,034 749,034 value. Total debt issued amounts to S5.6 million. The bonds bear interest rates from 2.34% to 4.72%, 1994 698,357 698,357 and will be redeemed over the next 20 years. Debt service for the new money will be supported by- 1993 706,437 - 706,437 Business License revenues and Real Estate Excise Taxes, while the refunded issue will continue to be supported by Cable Television Utility Tax and Gas Tax revenues. Expenses by Type There have been no' other events involving the City which have taken place between year-end 2002 and the printing of this CAFR which would significantly alter the information presented in this document. Fiscal Benefits- -- Administrative Year Erasion Medical Exesatst Islai 2002 5512,241 5478,507 5 262 $ 991,009 2001 490,953 442,565 313 933,831 2000 633,782 512,914 _ 864 1,147,660 1999 629,492 456,871 - 4.438 1,090,801 1998 596,066 389,997 815 986,878 1997 563,035 335,275 2403 900,713 1996 550,215 343,698 447 -894,360 1995 - 485,515 262,495 1.024 - 749,034 1994 - 437,535 255,294 5.528 698,357 1993 466,813 238,401 1,223 706,437 FINRPI x FINRPI CAFR Notes 2002 1 •- 5/23/03 37 - 1149/01 52 53 Page 2 of 2 CITY OF YAKIMA Required Supplementary Information Fire Pension December 31, 2002 Analysis of Funding Progress {Dollars in 'Thousands) (1) Net Assets Fiscal Available For XetE Benefits 2002 n/a 2001 n/a 2000 n/a 1999 ry'a 19913 n/a 1997 n/3 1996 n/a 1995 n/a 1994 25 8993 (129) (2) (3) (4) Pension Percentage Unfunded Benefit Funded Pension Benefit Obligation (111(2) Obi gangs n/a n/a n/a n/a n/a n/a n/a n/a -n/a n/a n/a n/a 11/3 n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a 12,911 .2% 12,886 12,453 (1.0%) 12,582 Revenues b Source and Other Fin nein (6) Unfunded Pension Benefit Obligation (5) As a Percentage Annual of Covered Covered Payroll Payroll 141+(5) S -0- n/8 0- n/a 19 11/3 144 n/a 215 0/a 292 1 /8 371 n/3 495 11/8 434 2,969% 471 2,671% Sources Fiscal Yea 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 Taxes $1,325,372 1,332,816 1,256,578 1,221,698 1,170,318 1.025,782 887,689 800,628 949,588 949,047 Other Income $5,2.60 5,489 4,982 1,232 602 272 1,368 4,672 2,873 1,262 Total 81,330,632 1,338,305 1,261,560 1,222,930 1,170,920 1,026,054 889,057 805,300 952,461 950,309 Expenses by Type _ Fiscal -----Benefits Actuarial Administrative Ysat Pension Medical Contributions &PS= Total 2002 S680,448 8507,369 $ -0- $23,363 81,211,180 2001 675,229 458,557 -0- 22,997 1,156,783 2000 749,239 425,215 -0- 20,278 1,194,732 1999 746,720 358,192 -0- 22,268 1,127,180 1998 721,919 304,079 -0- 17,110 1,043,108 1997 703,739 278,736 -0- 16,489 998,964 1996 719,124 284,570 -0- 20,961 1,024,655 1995 743,721 191,616 172,067 10,751 1,118,155 1994 615,698 198,852 -0- 14,687 829,237 1993 654,888 135,122 (79,724) 12,788 723,074 Fn4RPI X 2 -- 5/23/03 (This Page Intentionally Left Blank) The Traeslt Fend was created on Septanber 26, 1966, pursuant to the reauk of a special election on September 20. 1966, ratifying Ordinance 121, which proposed that the City of Yakima lease, operate end subsidize aCky trunk system. On October I, 1970, the City assumed full maoagememt of the City transit system. The system is subsidized by • .03% sales tax which became effective in November 1910 by the vote of the citizens ratifying Ordinance 2469. The Refuse Feed is a self supporting fiord. This fiord was established for the purpose of m:cumulating moneys derived from the operation and maintenance of the garbage collection and disposal service of the City, and for the purpose of defraying all of the operating and maintenance expenses and costs incurred by the City in the collation and disposal of refuse. The Water and Sewer Funds account for the provision of wata and sewer services to the residents of the City and other outside utility agreements. MI activities ueca sty to provide such servkes are accounted for in these finds, including, but not limited to, administration, financing and related debt sella, billing end collection. The Irrigation utility Feed was established in 1991 to replace the Special Revenue Fund titled Irrigation. This fiend is responsible for the operation, maintenance and reconstruction of the existing ieigation syahsn. 101 City of Yakima. Combining Balance Sheet -Enterprise Funds December 31, 2002 ugh aonip rot itc t0WsJbr &&coin 31,2001 A55E15 Cash &Equity in Pooled inveatm'ts 51,007,014 5317563 53,048,437 51,467,069 51948/00 Raoefvabls: Amounts 0 85207 724,886 2380,444 1423705 Notes/Contracts 0, 0 12240 0 0 In a est/Penalties 16,472 1) 44690 16,977 1,110 OOrrRaodvables 0 Il18,000 7,050 0 Due from otlrQGoveamtentUnits 1,275858 0 0 0 0 Inventories 0 0 - 11,0228176247 0 8nvestmenb, at amortized mat 1,155,061 0 3,143,713 2.35,( 49,8107 Restricted Meet& Cash 0 0 1586487 499,971 0 Find Aged/Trustee 0 fl 0 425 0 investments. atamortized oast 0 0 0 0 0 Land 1,307,909 0 588,454 191,757 98.00 Buildings 6.426,270 0 54,529,0161,939549 0 Otherlmpnovnn fls 915,974 0 30,710,685 90,997,414 4,664062 Machinery & Equipment 5,619,796 48,803 3034099 2,964.354 42,533 Accumulated Depredation 4715977 44683 42,476,160 45,430975 X81,374 'Cana aim he Program 0 0 9,132,662 1,163,351 78.103 Caotpkled Crest.- not ClaWl'd 0 00 2232245 • 0 Intangibles 0 0 0 221,830 0 Uaamartlard Debt issue Coon 0 0 24,620 12,933 0 TOTAL ASSETS 812,753,489,fidag772 564,937,723331147® 55,470,91 Page 1of2 4462 & 4364 8671 11973 4974 4975 Transit Rehm Steer Water 1114528160 -- TOTAL 3005 2001 57789,140 57,447127 3.33,242 3;139445 12203 19,031 61,237 110,656 23,050 25950 1220556 1,753,209 189,270 199909 63553,403 7,705,719 2.085,358 1,749,415 425 409,185 0 531,712 3296700 2.186,700 62691835 61,126,477 67508,535 64025,104 12513,665 10085,918 64,953369 -44.020237 12.081,452 9,769269 2.732,245 7232245 221,830 221,830 37,533 41,939 V14.712,672®1111723612 ]dAHII.T1115 Wsnrania/AccoPayabk 81,177,266 8104673 8915,171 5440,129 516.471 9,723490 81,676,648 ask Wages/Benefits Payable 193,679 92,004 304071 146,760 38,996 T�•'� 712,714 860,167 523,709 CaotpsrwtdAbsalom Payable 181,465 76,762 21141,005 185.410 56,535 192,430 159,622 Accrued Payables 0 0 129587 62,851 0 206,,776 289,634 Deposits Payer 4100 0 4500 196,176 0 694259 684197 CYemtt Ration Lai - nm Debt 0 0 662965 47,274 0 Restricted Payable= mud Interest Payable 0 0 0 0 0 0 13,760 Nsl In Lieu otCalstrrtdiorr 0 0 0 0 0 0 0 lament Puniest LT Debt 0 0 618,650 426,380 - 0 1.04.5900 2.330900 Bonds 400900 9590000 Payable 0 0 5538,875 2911,175 0 -41,843 70596 Urumatlmd Bad Discount 0 0 -33690 24133 0 791.469 406,840 Deigned AmamtOn Debt Refunding 0 0 -258,436 -33,058 0 5,472715 6319,064 Loom Payable -Iutg Tem 0 0 3,309.072 163,643 0 1470940 710000 Advance, From Other Funds 0 0 1,470.000 0 0 21,413513 74671,992 TOTAL UASRy'?ES 1,556530 24639 14,966.790 4,504492 113,972 2.88143 BQUI'1Y 74,1783080 74,178,860 CONTRIBUTED CAPITAL 3,961,440 0 32,473549 15917567 2,406,38864 ROAMED EARNINGS Reserved: - Debt Service 0 0 15 0 85,387 499,971 0 7985558 2257,17) Replacement 0 0 0 0 0 0 17,035,011 13,421,612 Unreserved 7)313519 129,131 -4,086003 10,279669 2,948495 93,299,249. :39,651,619 TOTAL FUND EQUITY 11,194959 129,131 49970,933 26,60297 4357,019 'TOTAL LUADIUTIES AND EQUITY 512753M9 5407.770 - 964537,773 533,547,699 s,...2=1, Themes to the (Mandel al sialemeb are an integral pen of ells pumlud '2.02 tor SM/Min RIC sr 5114,712,672 61112a& 103 865882 of 2 yvare2011111tUare City of Yakima Page 1 of 2 Page 2 of 2 Combining Statement of Revenues, Expenses, and Changes in Fetid Equities - Enterprise Funds for the year ended December 31, 2002 sofa mopamUae Mals for O eyen node December 31, 2001 896268364 8471 4973 . 4974 Transit ideas Server • Water OPERATING REVENUES Charges for Services 5981.351 82,989.068 511.060737 15,047.386 Other Operating Revenues 0 0 goo 330 Total Operaneg Revenues 382,361 2989968 11,061237 5,047.716 ' OPERATING EXPENSES Operations and Maintenance 3,759,90 2,613367 4814,402 1,679,411 Admhdstration/Ovadved 769567 214508 1274677 1,135,011 Taxa 0 0 1.858,498 1,081.970 Depradatlm/Amatl7Jtion 456,975 0 2725912 699,334 Total Operating Expenses 4986,491 2,886,075 .10,573489 4.595726 °pastingIncome !!.Oral -1,601,140 102,9913 488,048 451,990 NON-OPERATING REVENUES 07(PEN5ES) Operating Grants and Subsidies 5037323 0 0 0 Proceeds of Ling Term Ode 0 0 0 0 Interest Revenue 82,351 754 175909 126,758 Oiler Non -Operating Revenues 50 0 15,625 0 Interest Expenses 0 0 469993 -172900 Amortization of Hood Pay.Disc ant 0 0 49,894 4,396 Gain (los) an Sale of Investments 0 0 0 0 Gain (Loss) on Fixed Anew Disposition 0 0 0 0 Non•Operattng Revenue Net of Expenses 5,119324 754 -218263 41.618 Initiate Before Contributions sad Trausfs 515,584 103747 269,695 998252 Capital Conhtudau 86,265 0 69.521 1,365236 Operating Transfers In 356 0 0 0 Op.rsthg Transfers (but) 0 0 -810 99,058 NET INCOME 0.055) 602.216 103,70 816,346 1.725330 PROPRIETARY 9)3840 EQUf1YCHANGES ReWnedEarninga,paesy1 7211,314 83948 9,191,558 9,073250 Pam Period Adjustments 0 58,364 425,604 48,840 Residual Equity Transfers In 0 0 0 0 Residual Equity Trandsra (Out) 0 O 0 0 Retained Earnings, December 31 7,813319 129,131 -2,500.616 10229440 Contributed Capital. January 1 3,381,440 0 52.471,589 15,917,567 Capital Grants Received 0 O 0 0 Other Contributed Capital 0 0 0 0 Coetsibated Capita, December31 3,381,440 0 52,471,549 15,917,567 PROPRIETARY FUND EQUITIES, DECEMBER 31 511,194,959 519,131 549,970,933 12.4647,207 The notes tthe fhunciaiMainmasts are =integral partofthiastatement 104 ga/71/31101LMr I 4975 TOTAL Ini cion 2002 2001 51,731,879 62131121 519,465,667 1888 3,018 416 1733,767 21,214,439 19,466,063 959,773 13,827,102 13,228,158 181,796 3533,559 2749,463 O 2.940.468 2996,106 83.910 3,933,131 3853,573 1,192,479 24.234,260 22,27322 • 561,88 -3,019221 2,961339 O 5,097323 5,405,132 0 0 0 29,001 414773 694.037 20 15,695 307,172 o -50,993 -567,732 o .48,290 -48790 O 0 0 o 0 401 29,811 4,877,508 5,790,720 570,309 1238487 2229,481 10,000 2.064422 2,457,934 - O 356 0 -127,299 222.227 -241934 453,010 3300.438 5945,481 2,49505 15,672.739 10,627,758 O -291308 0 O 0 0 O 0 0 2340495 19,120369 15,672,739 2408,324 74178,880 74,178,880 O -0 0 O 0 0 2408,324 74178,880 74178,880 5457419 5932999749 889251419 105 ..van..au111 City of Yakima Combining Statement of Cash Flows-Entapeise Funds for the year ended December 31, 2002 with a wishjwreser ended Deco* x31,2011 Cash flaws ham operating Writhe Cath rewired ham customers Cash paid b supplies for goods and services Cash paid for salaries and beefs Oder operating revenues sanded Cash paid inlieu dtor Net cash provided by operating activities Cash flows from nanrapitai fraudag activities; Operating grants received Operating tanners in hon other funds Operating transfers ororootherfronds Net cash provided by amnpitd frauds olivine" 5,574130 Cash flows foam appal finschog activineu Proceeds from Public Works Trutt Loan/Refunding on Debt Proceeds for Debt Service from other goverrussds Cash received ham dispsd of ford ares Cash contributions in old of contrails ild Contribution Principal paid o revenue bands Principal paid an Public Wars Trust Loan Pdncipd paid an Advances horn other bads Capital aspanditwas sal boost and other debt service paid Capdbl grans revived Residual equity amain In Residual equity transfer out Net cash used farcapiral 6oandog activities Cash fleas Pram investing stria= Prorscbfrom sale ofinvslnent4aaltis 401,830 0 20919 236.435 breast waived o increments 97,710 753 177893 137753 Purchase of brvaemtoane securities 0 0 0 0 Net orb pwlda4byhasstloga/tivities 499600 753 458,812 - 576375 0460 di 6364 Tart 5332,351 -2250,896 -2283902 0 0 0471 Adam/ Page l d4 078 Sews 074 Waw 5092901 510,89064 54814292 -1,624,403 -306,575 -1,733.098 94005 5911427 4,614,285 O 800 390 ,26805 4,322,373 495230 4151,847 64668 , 32219 792009 5,,50676 356 0 0 0 50 0 0 0 0 0 405,528 0 86,263 0 0 -120903 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 710,000 • 85.625 0 457,638 -735,125 412,893 0 4,139,923 -283,876 0 0 45,870 0 -480424 0 0 0 0 0 0 0 1.124963 0 -413,0.4 -27,274 0 -104543 -1,125 0 0 .19.058 -1,150,099 Net leaeueefdeaam) hoods and ash egoisluds C66k and cash sodomises at horsing of year ties and ash agdsalsb at wit dyes -Cash at the Pad ed nue Yoart_omabb ok Cpeeti gFundCash Revenue bad serve account cash Reams band ratemption aasamt cash Total ash at the sad of the year 708,570 67,421 298,474 251]42 $1,007.044 .3317,563 -1,160333 58085 5,794.347 1948965 ®� 51317,044 8317963 $3044437 51467069 O 0 1,299;434 368,639 O 0 _ 2859553 ISS 51.00704 017,563 14.633.53424 51,56700 Meares to tefinnoin statements wean fes degeal pan of t is Orso t 1106 0769941X1 SEISM 9975 TOTAL Weans 21108 2001 51716068 $00737,786 519,442,132 495410 4334382 -704566 -456,865 -8,635,534 -6,304,635 1,048 3,018 416 O �._ 188 •2,069,241 568.587 510,700 1A65,106 0 504674 3,692,190 O 356 0 O 0 0 O 5,574030 3,692190 O 710,000 1,529,937 O 15,675 307,016 20 Al 556 O 1,478591 92.912 O 0 0 O -1340377 -1,305,400 O -804.167 5$163 O 0 0 45,977 -7195921 -6496808 O 471,001 -596,743 O 86.76_ 0 O 0 0 -127299 - 222.272 -241,934 -183,206 -7,386,942 4.705,127 632868 1556017 302,186 30000 444,171 709,648 O 0 -2.048,949 662.846 1,994104 -1037,115 1,06&223 651976 365.016 899049.. .19MRt _ 9774585 51,90047003511 19.191.542 51,940,117 62.784100 57.442.127 0 1.48,473 1.288,628 0, 3906 _460.786 1 0.191942 107 - Page 2 a14 Qty of Yakima Combining Statement of Cash Flows—Enterprise Funds for the year ended December 31, 2002 talk ospardigr to4afefatlteyarrended Decanber.31,2001 Reosadliation of Ret operating ineome0ou) W net each paonWedlaieed) by operating aetfdtine Page 3of4 0462 & 1366 0471 1973 1974 Transit Refuge Shaer Water Net operating b me) 44,401,140 : ' $102,993 5488,048 $451,990 Adjwfatmtb lo madk uprating itcoute(lom) to net cub provided by operaiing aci2vibet Depaedatim 456.975 0 , 2.725.912 699,334 Change in amen and liabilities: (btamse)deauee in acantmb receivable 0 -59,757 -165,873 -213,093 (htasm)deaseeininventory 0 0 -13 10,552 Ltaaretdaaaaee) in warnote/ano ntspayable 40.136 18,614 132.914 -181.216 lnamee(dscroam) in wags/bbteftspayable 10,148 5,709 25.467 15.461 1ncteese(dwvaee)inamputated abantcmpayable 5306 -891 18,834 8,981 w Total &Quitmb ' 40 /93 -36,323 2,737241 340,019 • Net at& provided by operating activities Schedule of Naradt Capital and Related Rnardng Activities Capital Amen Acgoied by: Nomad&eanibutlar 44,151,847 566,668 53225.289 5792309 1166011•IO 0 50 5144,893 $103.505 Mendes to Ow&tmedal statements are an integral pert of Ode Oakum* 100 werbaieraeani 1976 TOTAL kr4Pdao 2002 2001 5541,268 43,019,821 42.961,239 50,910 3,933,131 3243,573 -14,911 -453,631 43,535 0 10,539 -16,711 -16.925 -66,749 586245 3,991 60776 596 4, 36,458 19,737 27293 .e4,'a1 4,426945 i®1�� 51465,106 SO 5248.388 91510161 Page 4of4 109 .Ianvmmta.tm