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HomeMy WebLinkAboutR-2008-073 Wastewater BondsRESOLUTION NO. R-2008-73 A RESOLUTION authorizing the execution and delivery of a contract for purchase of the City's Water and Sewer Revenue and Refunding Bonds, 2008, in the amount of $8,840,000, fixing certain terms of the bonds, approving the form of the official statement and insurance, and ratifying certain acts and proceedings. WHEREAS, the City of Yakima, Washington (the "City"), by Ordinance No. 2008-19 passed on March 18, 2008 (the "Bond Ordinance"), authorized the issuance of the City's Water and Sewer Revenue and Refunding Bonds, 2008, in one or more series in an amount not to exceed $9,750,000; 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 amount of $8,840,000; 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 Water and Sewer Revenue and Refunding Bonds, 2008 in the amount of $8,840,000 (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 Contract for the Bonds dated May 6, 2008 (the "Purchase Contract"), 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 1.1 of the Bond Ordinance. 1 P:\20978_NMN120978_33J 517/2008 Section 2. Acceptance of Offer. The Council hereby finds and determines that the Purchase Contract 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 and determines that all conditions precedent to or concurrent with the acceptance of the Purchase Contract by the Council have been met. The Council hereby accepts the Purchase Contract and authorizes and directs the Director of Finance and Budget to execute the Purchase Contract 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 Contract. Section 3. Terms, Schedule of Maturities and Interest Rates. The Bonds shall be designated the "City of Yakima Water and Sewer Revenue and Refunding Bonds, 2008". The Bonds shall be dated as of the date of their initial delivery, 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 November 1, 2008, and semiannually thereafter on the first days of May and November. The Bonds shall mature on November 1 of the following years in the following amounts and shall bear interest as follows: Maturity Date Principal Interest (November 1) Amount Rate 2008 $ 90,000 4.00% 2009 830,000 4.00 2010 865,000 4.00 2011 900,000 4.00 2012 390,000 4.00 2013 405,000 4.00 2 Maturity Date Principal Interest (November 1) Amount Rate 2014 430,000 4.00 2015 440,000 4.00 2016 455,000 4.00 2017 470,000 5.00 2018 495,000 5.00 2021 905,000 4.25 2025 1,390,000 4.00 2027 775,000 4.00 Section 4. Redemption. (a) Optional Redemption. The Bonds maturing on or prior to November 1, 2017 are not subject to redemption prior to their stated maturity dates. The Bonds maturing on or after November 1, 2018 are subject to redemption at the option of the City on and after May 1, 2018, 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 November 1 in the years 2021, 2025 and 2027 (which shall be deemed to be Term Bonds), shall be redeemed prior to maturity randomly (or paid at maturity), not later than November 1 in the years set forth below (to the extent such Bonds have not been previously 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. 2021 Term Bond Year Amount 2019 $ 290,000 2020 300,000 2021* 315,000 2025 Term Bond Year Amount * Final Maturity. 2022 $' 325,000 2023 340,000 2024 355,000 2025* 370,000 2027 Term Bond Year Amount 2026 $ 380,000 2027* 395,000 * Final Maturity. Section 5. Execution and Delivery of the Bonds. The proper officers of the Council and the Director of Finance and Budget 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 Contract 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 April 30, 2008; 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 such Official Statement (including any such supplements and amendments thereto) in connection with the public offering and sale of the Bonds by the Purchaser. 4 Section 7. Disposition of Bond Proceeds; Refunding Plan. (a) Refunding Plan. For the purpose of realizing a debt service savings, the City Council proposes to apply a portion of the proceeds of the Bonds for the purpose of providing for the payment of the principal of and interest on all of the outstanding $3,430,000 of the 1998 Bonds maturing in the years 2009 through 2018 (the "Refunded Bonds"). The Refunded Bonds shall be called for redemption at a price of 100% on September 1, 2008. (b) Refunding Account. There is hereby authorized to be created in the Debt Service Fund an account known as the "Refunding Account," which account is to be drawn upon for the sole purpose of paying the principal of and interest on the Refunded Bonds until their respective dates of redemption and of paying costs related to the refunding of the Refunded Bonds. A portion of the proceeds of sale of the Bonds shall be credited to the Refunding Account. Money in the Refunding Account shall be used immediately upon receipt to defease the Refunded Bonds as authorized by the Bond Ordinance and to pay costs of issuance. The City shall defease the Refunded Bonds and discharge such obligations by the use of money in the Refunding Account to purchase certain Government Obligations (which obligations so purchased are herein called "Acquired Obligations"), bearing such interest and maturing as to principal and interest in such amounts and at such times which, together with any necessary beginning cash balance, will provide for the payment of: (1) interest on the Refunded Bonds due and payable through and including September 1, 2008; and (2) the redemption price of the Refunded Bonds (100% of the principal amount thereof) on September 1, 2008. Such Acquired Obligations shall be purchased for the Refunded Bonds at a yield not greater than the yield permitted by the Code and regulations relating to acquired obligations in connection with refunding bond issues. 5 (c) Escrow Agent/Escrow Agreements. To carry out the refunding and defeasance of the Refunded Bonds, the Director of Finance and Budget is hereby authorized to appoint as escrow agent a bank or trust company qualified by law to perform the duties described herein (the "Escrow Agent"). A beginning cash balance, if any, and Acquired Obligations shall be deposited irrevocably with the Escrow Agent on the date of issuance of the Bonds in an amount sufficient to defease the Refunded Bonds. The proceeds of the Bonds remaining in the Refunding Account after acquisition of the Acquired Obligations and provision for the necessary beginning cash balance shall be utilized to pay expenses of the acquisition and safekeeping of the Acquired Obligations and expenses of the issuance of the Bonds. In order to carry out the purposes of this section, the Director of Finance and Budget is authorized and directed to execute and deliver to the Escrow Agent, an Escrow Deposit Agreement for the Bonds. (d) Implementation of Refunding Plan. The City will irrevocably set aside sufficient funds out of the purchase of Acquired Obligations from proceeds of the Bonds to make the payments described in subsections (a) and (b) of this section. The City hereby irrevocably calls the Refunded Bonds for redemption on September 1, 2008 in accordance with the provisions of Ordinance No. 98-31, authorizing the redemption and retirement of the Refunded Bonds prior to their fixed maturities. Said defeasance and call for redemption of the Refunded Bonds shall be irrevocable after the final establishment of the applicable escrow account and delivery of the applicable Acquired Obligations to the Escrow Agent. The Escrow Agent is hereby authorized and directed to provide for the giving of notice of the redemption of the Refunded Bonds in accordance with the applicable provisions of Ordinance No. 98-31. Section 8. Insurance. (a) Acceptance of Insurance. In accordance with the offer of the Purchaser to purchase the Bonds, the Council hereby approves the commitment of Assured Guaranty Corp. 6 (the "Insurer") to provide a bond insurance policy insuring the payment when due of principal of and interest on the Bonds (the "Bond Insurance 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. The follow provisions of this Section 8 shall apply so long as the Bond Insurance Policy is in effect. (b) Notices and Other Information. Any notice that is required to be given to holders of the Bonds (the "Bondholders"), NRMSIRs or the SID, if any, pursuant to the Rule or to the Bond Registrar pursuant to this resolution or the Bond Ordinance shall also be provided to the Insurer, simultaneously with the sending of such notices. In addition, all information furnished pursuant to Section 11.1 of the Bond Ordinance shall also be provided to the Insurer, simultaneously with the furnishing of such information. All notices required to be given to the Insurer shall be in writing and shall be sent by registered or certified mail addressed to: Assured Guaranty Corp., 1325 Avenue of the Americas, New York, New York 10019, Attention: General Counsel, with a copy to Assured Guaranty Corp., Attention: Risk Management Department -Public Finance Surveillance. (1) The Insurer shall have the right to receive such additional information as it may reasonably request. (2) The City will permit the Insurer to discuss the affairs, finances and accounts of the City or any information the Insurer may reasonably request regarding the security for the Bonds with appropriate officers of the City, and will use best efforts to enable the Insurer to have access to the facilities, books and records of the City on any business day upon reasonable prior notice. (3) The Bond Registrar shall notify the Insurer of any failure of the City to provide notices, certificates and other information under this resolution or the Bond Ordinance. 7 (4) The City shall provide to the Insurer (i) the fiscal year budget of the City, with respect to the System, within 30 days after the adoption of such budget, and (ii) not later than 180 days after the end of the fiscal year of the City the unaudited financial statements of the City, with respect to the System, and the audited financial statements of the City, with respect to the System, once available, together with a certificate of the City stating that no Event of Default has occurred or is continuing under this resolution or the Bond Ordinance. (c) Defeasance. Notwithstanding anything herein to the contrary, in the event that the principal and/or interest due on the Bonds shall be paid by the Insurer pursuant to the Bond Insurance Policy, the Bonds shall remain outstanding for all purposes, not be defeased or otherwise satisfied and not be considered paid by the City, and all covenants, agreements and other obligations of the City to the Registered Owners shall continue to exist and shall run to the benefit of the Insurer, and the Insurer shall be subrogated to the rights of such Registered Owners. In the event that the Bonds are defeased pursuant to Section 5.3 of the Bond Ordinance, the Insurer shall receive: (1) An opinion of bond counsel stating that such defeasance will not adversely impact the exclusion from gross income for federal income tax purposes of interest on the Bonds. (2) An escrow agreement and an opinion of bond counsel regarding the validity and enforceability of the escrow agreement. The escrow agreement shall provide that: (i) Any substitution of securities shall require verification by an independent certified public accountant and the prior written consent of the Insurer. (ii) The City will not exercise any optional redemption of the bonds secured by the escrow agreement or any other redemption other than mandatory sinking fund redemptions unless (i) the right to make any such redemption has been expressly reserved in the escrow agreement and such reservation has been disclosed in detail in the official statement 8 for the refunding bonds, and (ii) as a condition of any such redemption there shall be provided to the Insurer a verification of an independent certified public accountant as to the sufficiency of escrow receipts without reinvestment to meet the escrow requirements remaining following such redemption. (iii) The City shall not amend the escrow agreement or enter into a forward purchase agreement or other agreement with respect to rights in the escrow without the prior written consent of the Insurer. (d) Bond Registrar. The Insurer shall receive prior written notice of any name change of the Bond Registrar or the removal, resignation or termination and replacement of the Bond Registrar. (e) Amendments and Supplements. With respect to amendments or supplements to this resolution or the Bond Ordinance which do not require the consent of the Bondholders, the Insurer must be given notice of any such amendments or supplements. With respect to amendments or supplements to this resolution or the Bond Ordinance which do require the consent of the Bondholders, the Insurer's prior written consent is required. Any amendments or supplements to this resolution or the Bond Ordinance which are consented to by the Insurer shall be sent to the rating agencies that have assigned a rating to the Bonds. Notwithstanding any other provision of this resolution or the Bond Ordinance, in determining whether the rights of Bondholders will be adversely affected by any action taken pursuant to the terms and provisions thereof, the City shall consider the effect on the Bondholders as if there were no Bond Insurance Policy. (f) Insurer as Third Party Beneficiary. To the extent that this resolution or the Bond Ordinance confer upon or gives or grants to the Insurer any right, remedy or claim under or by reason of this resolution or the Bond Ordinance, the Insurer is explicitly recognized as being a third party beneficiary hereunder and may enforce any such right, remedy or claim conferred, given or granted hereunder. (g) Control Rights. The Insurer shall be deemed to be the holder of all of the Bonds for purposes of (1) exercising all remedies and directing the Bond Registrar to take actions or for any other purposes following an Event of Default, and (2) granting any consent, direction or approval or taking any action permitted by or required under this resolution or the Bond Ordinance, to be granted or taken by the Bondholders. Anything in this resolution or the Bond Ordinance to the contrary notwithstanding, upon the occurrence and continuance of an Event of Default, the Insurer shall be entitled to control and direct the enforcement of all rights and remedies granted to the Bondholders or the Bond Registrar for the benefit of the Bondholders under this resolution and the Bond Ordinance subject to the rights of other Parity Bond owners. (h) Consent of the Insurer. Any provision of this resolution or the Bond Ordinance expressly recognizing or granting rights in or to the Insurer may not be amended in any manner that affects the rights of the Insurer hereunder without the prior written consent of the Insurer. (i) Consent of the Insurer in Addition to Bondholder Consent. Wherever this resolution or the Bond Ordinance require the consent of Bondholders, the Insurer's prior written consent shall also be required. (j) Consent of the Insurer in the Event of Insolvency. To the extent permitted by law, any reorganization or liquidation plan with respect to the City must be acceptable to the Insurer. In the event of any such reorganization or liquidation, the Insurer shall have the right to vote on behalf of all Bondholders who hold Bonds guaranteed by the Insurer, absent a payment default by the Insurer under the Bond Insurance Policy. (k) Payment Procedure Under the Bond Insurance Policy. At least two (2) business days prior to each payment date on the Bonds, the Bond Registrar will determine whether there will be sufficient funds to pay all principal of and interest on the Bonds due on the related payment date and shall immediately notify the Insurer or its designee on the same business day by telephone or electronic mail, confirmed in writing by registered or certified mail, of the amount 10 of any deficiency. Such notice shall specify the amount of the anticipated deficiency, the Bonds to which such deficiency is applicable and whether such Bonds will be deficient as to principal or interest or both. If the deficiency is made up in whole or in part prior to or on the payment date, the Bond Registrar shall so notify the Insurer or its designee. (1) The Bond Registrar shall, after giving notice to the Insurer as provided above, make available to the Insurer and, at the Insurer's direction, to any fiscal agent, the registration books of the City maintained by the Bond Registrar and all records relating to the funds maintained under this resolution and the Bond Ordinance. (2) As provided in the Bond Ordinance, 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, the Bond Registrar shall provide the Insurer and any fiscal agent with a list of Registered Owners of Bonds entitled to receive principal or interest payments from the Insurer under the terms of the Bond Insurance Policy, and shall make arrangements with the Insurer, the fiscal agent or another designee of the Insurer to (i) mail checks or drafts to the Registered Owners of Bonds entitled to receive full or partial interest payments from the Insurer and (ii) pay principal upon Bonds surrendered to the Insurer, the fiscal agent or another designee of the Insurer by the Registered Owners of Bonds entitled to receive full or partial principal payments from the Insurer. (3) The Bond Registrar shall, at the time it provides notice to the Insurer of any deficiency pursuant to clause (1) above, notify Registered Owners of Bonds entitled to receive the payment of principal or interest thereon from the Insurer (i) as to such deficiency and its entitlement to receive principal or interest, as applicable, (ii) that the Insurer will remit to them all or a part of the interest payments due on the related payment date upon proof of its entitlement thereto and delivery to the Insurer or any fiscal agent, in form satisfactory to the 11 Insurer, of an appropriate assignment of the Registered Owner's right to payment, (iii) that, if they are entitled to receive partial payment of principal from the Insurer, they must surrender the related Bonds for payment first to the Bond Registrar, which will note on such Bonds the portion of the principal paid by the Bond Registrar and second to the Insurer or its designee, together with an appropriate assignment, in form satisfactory to the Insurer, to permit ownership of such Bonds to be registered in the name of the Insurer, which will then pay the unpaid portion of principal, and (iv) that, if they are entitled to receive full payment of principal from the Insurer, they must surrender the related Bonds for payment to the Insurer or its designee, rather than the Bond Registrar, together with the an appropriate assignment, in form satisfactory to the Insurer, to permit ownership of such Bonds to be registered in the name of the Insurer. (4) In addition, if the Bond Registrar has notice that any holder of the Bonds has been required to disgorge payments of principal or interest on the Bonds previously due for payment pursuant to a final non -appealable order by a court of competent jurisdiction that such payment constitutes an avoidable preference to such holder within the meaning of any applicable bankruptcy laws, then the Bond Registrar shall notify the Insurer or its designee of such fact by telephone or electronic notice, confirmed in writing by registered or certified mail. (5) The Bond Registrar will be hereby irrevocably designated, appointed, directed and authorized to act as attorney-in-fact for Bondholders as follows: (i) If and to the extent there is a deficiency in amounts required to pay interest on the Bonds, the Bond Registrar shall (a) execute and deliver to the Insurer, in form satisfactory to the Insurer, an instrument appointing the Insurer as agent for such holders in any legal proceeding related to the payment of such interest and an assignment to the Insurer of the claims for interest to which such deficiency relates and which are paid by the Insurer, (b) receive as designee of the respective holders (and not as Bond Registrar) in accordance with the tenor of the Bond Insurance Policy payment from the Insurer with respect to the claims for interest so assigned, and (c) disburse the same to such respective holders; and 12 (ii) Ifand to the extent of a deficiency in amounts required to pay principal of the Bonds, the Bond Registrar shall (a) execute and deliver to the Insurer, in form satisfactory to the Insurer, an instrument appointing the Insurer as agent for such holder in any legal proceeding related to the payment of such principal and an assignment to the Insurer of the Bonds surrendered to the Insurer in an amount equal to the principal amount thereof as has not previously been paid or for which moneys are not held by the Bond Registrar and available for such payment (but such assignment shall be delivered only if payment from the Insurer is received), (b) receive as designee of the respective holders (and not as Bond Registrar) in accordance with the tenor of the Bond Insurance Policy payment therefore from the Insurer, and (c) disburse the same to such holders. (6) Payments with respect to claims for interest on and principal of Bonds disbursed by the Bond Registrar from proceeds of the Bond Insurance Policy shall not be considered to discharge the obligation of the City with respect to such Bonds, and the Insurer shall become the owner of such unpaid Bond and claims for the interest in accordance with the tenor of the assignment made to it under the provisions of this subsection or otherwise. (7) Irrespective of whether any such assignment is executed and delivered, the City hereby agrees for the benefit of the Insurer that: (i) it recognizes that to the extent the Insurer makes payments directly or indirectly (e.g., by paying through the Bond Registrar), on account of principal of or interest on the Bonds, the Insurer will be subrogated to the rights of such holders to receive the amount of such principal and interest from the City, with interest thereon as provided and solely from the sources stated in this resolution, the Bond Ordinance and the Bonds; and (ii) it will accordingly pay to the Insurer the amount of such principal and interest, with interest thereon as provided in this resolution and the Bonds, but only from the sources and in the manner provided herein and in the Bond Ordinance for the payment of principal of and interest on the Bonds to holders, and will otherwise treat the Insurer as the owner of such rights to the amount of such principal and interest. 13 (8) To the extent permitted by law, the City hereby agrees to pay or reimburse the Insurer all amounts paid by the Insurer under the Bond Insurance Policy and any and all charges, fees, costs and expenses which the Insurer may reasonably pay or incur, including, but not limited to, fees and expenses of attorneys, accountants, consultants and auditors and reasonable costs of investigations, in connection with (i) any accounts established to facilitate payments under the Bond Insurance Policy, (ii) the administration, enforcement, defense or preservation of any rights in respect of the trust agreement or any other financing document, including defending, monitoring or participating in any litigation or proceeding (including any bankruptcy proceeding in respect of the City or any affiliate thereof) relating to this resolution, any party to this resolution or any other financing document or the transaction contemplated by this resolution; (iii) the pursuit of any remedies under this resolution, to the extent such costs and expenses are not recovered from other sources, or (iv) any amendment, waiver or other action with respect to, or related to, this resolution whether or not executed or completed; costs and expenses shall include a reasonable allocation of compensation and overhead attributable to time of employees of the Insurer spent in connection with the actions described in clauses (ii) - (iv) above. In addition, the Insurer reserves the right to charge a reasonable fee as a condition to executing any amendment, waiver or consent proposed in respect of this resolution. The City will pay interest on the amounts owed in this paragraph from the date of any payment due or paid, at the per annum rate of interest publicly announced from time to time by JP Morgan Chase Bank, National Association, or its successor, at its principal office in New York, New York as its prime lending rate (any change in such prime rate of interest to be effective on the date such change is announced by JPMorgan Chase Bank, National Association) plus three percent (3%) per annum (the "Reimbursement Rate"). The Reimbursement Rate shall be calculated on the basis of the actual number of days elapsed over a 360-day year. In the event JPMorgan Chase Bank ceases to announce its prime rate publicly, the prime rate shall be the publicly announced prime rate or base lending rate of such national 14 bank, as the Insurer shall specify. The provisions of this paragraph shall survive the redemption, defeasance -or termination of the Bonds or the termination of this resolution. (9) In addition to any and all rights of reimbursement, subrogation and any other rights pursuant hereto or under law or in equity, to the extent permitted by law the City agrees to pay or reimburse the Insurer any and all charges, fees, costs, claims, losses, liabilities (including penalties), judgments, demands, damages, and expenses which the Insurer or its officers, directors, shareholders, employees, agents and each person, if any, who controls the Insurer within the meaning of either Section 15 of the Securities Act of 1933, as amended, or Section 20 of the Securities Exchange Act of 1934, as amended, may reasonably pay or incur, including, but not limited to, fees and expenses of attorneys, accountants, consultants and auditors and reasonable costs of investigations, of any nature in connection with, in respect of or relating to the transactions contemplated by this resolution by reason of: (I) any omission or action (other than of or by the Insurer) in connection with the offering, issuance, sale, remarketing or delivery of the Bonds; (ii) the negligence, bad faith, willful misconduct, misfeasance, malfeasance or theft committed by any director, officer, employee or agent of the City or the City in connection with any transaction arising from or relating to this resolution; (iii) the violation by the City of any law, rule or regulation, or any judgment, order or decree applicable to it; (iv) the breach by the City of any representation, warranty or covenant under this resolution or the Bond Ordinance or the occurrence, in respect of the City, under this resolution or the Bond Ordinance of any Event of Default or any event which, with the giving of notice or lapse of time or both, would constitute any "event of default"; or (v) any untrue statement or alleged untrue statement of a material fact contained in any official statement, if any, or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein 15 not misleading, except insofar as such claims arise out of or are based upon any untrue statement or omission in information included in an official statement, if any, and furnished by the Insurer in writing expressly for use therein. (10) The Insurer shall be entitled to pay principal 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), 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. (11) In addition, the Insurer shall, to the extent it makes any payment of principal 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, and to evidence such subrogation (i) in the case of claims for interest, the Bond Registrar shall note the Insurer's rights as subrogee on the registration books of the City maintained by the Bond Registrar, upon receipt of proof of payment of interest thereon to the registered holders of the Bonds, and (ii) in the case of claims for principal, the Bond Registrar, if any, shall note the Insurer's rights as subrogee on the registration books of the City maintained by the Bond Registrar, upon surrender of the Bonds together with receipt of proof of payment of principal thereof. (I) No Purchase by City. Without the prior written consent of the Insurer, no Bonds insured by the Insurer shall be purchased by the City, or any of its affiliates, in lieu of redemption, unless such Bonds are redeemed, defeased or cancelled. Section 9. 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. 16 Section 10. Effective Date. This resolution shall be in effect from and after its adoption in accordance with law. ADOPTED at a regular meeting of the City Council of the City of Yakima, Washington, this 6th day of May, 2008. ATTEST ,69„,,c, (.1 City Clerk APPROVED AS TO FORM: �,' City Attorney 17 CITY OF YAKIMA, WASHINGTON All / AI _A, , -I '' David '' Mayor • • PRELIMINARY OFFICIAL STATEMENT DATED APRIL 30, 2008 $9,195,000* City of Yakima, Washington Water and Sewer Revenue and Refunding Bonds, 2008 DATED: Date of Delivery DUE: November 1, as shown on the inside cover STANDARD AND POOR'S RATING—Applied for (see "Rating" herein). BANK QUALIFIED—The City has designated the Bonds as "qualified tax-exempt obligations" for purposes of Section 265(b)(3)(B) of the Code. See "Tax Matters." 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"), New York, New York. 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 November 1, 2008 and semiannually thereafter on November 1 and May 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, (the "Bond Registrar"), as further described herein. 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 is obligated to 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 Nov. 1 Amounts* Rates Yields CUSIP Nov. 1 Amounts* Rates Yields CUSIP 2008 $115,000 % % 2018 $ 505,000 % 2009 900,000 2019 290,000 2010 915,000 2020 300,000 2011 940,000 2021 315,000 2012 420,000 2022 330,000 2013 425,000 2023 340,000 2014 450,000 2024 355,000 2015 460,000 2025 375,000 2016 470,000 2026 390,000 2017 490,000 2027 410,000 PURPOSE—The proceeds of the Bonds will be used to fnance various improvements, repairs and replacements to the system; refund a portion of the City's outstanding 1998 Bonds; and to pay the cost of issuance. 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 principal of and interest on the Bonds are payable solely from and secured by the Gross Revenue of the Water and Sewer System after all required payments for the Costs of Maintenance and Operation have been made or duly provided for. The Bonds are issued on a parity of lien with the City's Water and Sewer Revenue Refunding Bonds, 1996 currently outstanding in the amount of $350,000; its Water and Sewer Revenue and Refunding Bonds, 1998 outstanding in the amount of $4,040,000; its Water and Sewer Revenue Bonds, 2003 Series A currently outstanding in the amount of $4,700,000; and its Water and Sewer Revenue Bonds, 2003 Series B currently outstanding in the amount of $10,155,000. For so long as the Bonds are outstanding, no bonds may be issued with a lien and charge on the Gross Revenues superior to the lien and charge of the Bonds. Additional bonds may be issued on a parity of lien with the Bonds and the Parity Bonds, subject to certain conditions described herein. The Bonds are special obligations of the City payable only from the Bond Fund. 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 K&L Preston Gates Ellis LLP of Seattle, Washington ("Bond Counsel"), assuming compliance with certain covenants of the City, interest on the Bonds is excludable from gross income for federal income tax purposes under existing law. Interest on the Bonds is not an item of tax preference for purposes of either individual or corporate alternative minimum tax. Interest on the Bonds may be indirectly subject to corporate alternative minimum tax and certain other taxes imposed on certain corporations. See "Tax Matters" herein for a discussion of the opinion of Bond Counsel. DELIVERY—The Bonds are offered by the Underwriter when, as and if issued, subject to the approving legal opinion of 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 June 5, 2008. * 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. �_SNW City of Yakima, Washington 129 North Second Street Yakima, Washington 98901 Phone: (509) 575-6000 Fax: (509) 576-6614 www. ci.yakima.wa. us * Mayor and City Council David Edler Mayor Micah Cawley Assistant Mayor Kathy Coffey Council Member Rick Ensey Council Member Norm Johnson Council Member Bill Lover Council Member Neil McClure Council Member Richard A. Zais, Jr. Dave Zabell Rita M. DeBord, CPA Ray Paolella Cindy Epperson Timothy Jensen Administrative Officials City Manager Assistant City Manager Finance Director City Attorney Deputy Director, Budget and Accounting Treasury Services Officer Bond.Counsel K&L Preston Gates Ellis LLP Seattle, Washington 206-623-7580 Bond Registrar The Bank of New York, Mellon 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 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 will, 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. The City will "deem final", for the sole purpose of the Underwriter's compliance with Securities and Exchange Commission ("SEC") Rule 15c2 -12(b)(1), this Preliminary Official Statement as of its date, except for the omission of information as to offering prices, interest rates, selling compensation, aggregate principal amount, principal amount per maturity, maturity dates, options of redemption, delivery dates, and other terms of the Bonds dependent on such matters. 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. The CUSIP numbers are included on the front cover of this Official Statement for convenience of the holders and potential holders of the Bonds. No assurance can be given that the CUSIP numbers for the Bonds will remain the same after the date of issuance and delivery of the Bonds. • • • • • Table of Contents Page Description of the Bonds 1 Authorization for Issuance 1 Principal Amount, Date, Interest Rates and Maturities 1 Redemption Provisions 1 Purchase 2 Bond Registrar and Registration Features 2 Book-EntryBonds 2 Purpose and Ue of Proceeds 3 Purpose 3 Plan of Refunding 3 Sources and Uses of Funds 4 Security for the Bonds 4 Bond Fund 4 Revenue Fund/Priority of Payments 6 Rate Covenant 6 Certain Other Covenants 7 Additional Bonds 8 Defeasance of the Bonds 9 Events of Default 10 City Indebtedness of the System 12 Outstanding Long:Term Borrowings 12 Water and SewerRevenueBonds — Debt Service Requirements 13 Debt Payment Record 13 Future Financings 13 The Water System 13 Description 13 Water Customers 14 Major Accounts of the Water System 15 Water Service Charges within City limits 15 Historical Residential Bi -Monthly Water Base Rates 15 Water System Capital Improvement Plan 16 The Sewerage (Wastewater) System 17 Description 17 Sewer Customers 18 Major Accounts of the Sewer System 18 Sewer Service Charges 19 Wastewater Treatment Plant Capital Improvement Plan 20 Billing and Collection Policy 21 Endangered Species Act 21 Financial Results 21 Statement of Net Assets 22 Historical Coverage Table 23 The City 24 The City 24 Elected Officials 24 Key Administrative Staff 24 Labor Relations 25 Pension System 25 Other Post Employment Benefits 27 Risk Management 27 AccountingPolicies 29 Budgetary Process 29 Cash and Investments 30 Auditing of City Finances 30 Demographic Information 31 Major Employers 31 Total Personal and Per Capita Income 32 Taxable Retail Sales 32 Residential Building Permits 32 Nonagricultural Wake & Salary Workers 33 and Labor Force anc. Employment Data 33 Initiative and Referendum 33 State Initiatives 33 Tax Matters 34 Qualified Tax -Exempt Obligations 35 Rating 35 Continuing Disclosure 35 Legal and Underwriting 36 Approval of Counsel 36 Litigation 36 Official Statement 37 Underwriting 37 Concluding Statement 37 Bond Ordinance Appendix A Form of Opinion of Bond Counsel Appendix B Book -Entry Transfer System Appendix C 2006 Annual Financial Statements Appendix D ii • This page left blank intentionally. • iii • • OFFICIAL STATEMENT City of Yakima, Washington $9,195,000* Water and Sewer Revenue and Refunding Bonds, 2008 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 $9,195,000* aggregate principal amount of Water and Sewer Revenue and Refunding Bonds, 2008 (the "Bonds"). This Official Statement provides information concerning the City, the Bonds and the City's combined water and sewerage system (the "Water System" and the "Sewerage System" and together, the "System"). The Bonds are issued on a parity of lien with the City's Water and Sewer Revenue Refunding Bonds, 1996 (the "1996 Bonds"); its Water and Sewer Revenue and Refunding Bonds, 1998 (the "1998 Bonds"); its Water and Sewer Revenue Bonds, 2003 Series A (the "2003A Bonds"); and its Water and Sewer Revenue Bonds, 2003 Series B (the "2003B Bonds") (collectively, the "Outstanding Parity Bonds"). The City has reserved the right in the Bond Ordinance (as defined herein) to issue additional bonds on a parity of lien with the Outstanding Parity Bonds and the Bonds, subject to certain conditions described herein (the "Additional Bonds"). The Outstanding Parity Bonds, the Bonds and any Additional Bonds are referred to herein as "Parity Bonds." The Bonds are special obligations of the City payable only from the Bond Fund. The 'Bonds are not general obligations of the City, the State of Washington, or any other municipal corporation or political subdivision thereof. 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 Authorization for Issuance The Bonds are issued pursuant to Ordinance No. 2008-19 passed by the City Council (the "Council") on March 18, 2008 (the "Bond Ordinance"), Sale Resolution No. adopted on , 2008 (the "Resolution") and under and in accordance with the laws and provisions of the State, including chapters 35.92, 39.46 and 39.53 of the Revised Code of Washington ("RCW"). Principal Amount, Date, Interest Rates and Maturities The Bonds will be issued in the aggregate principal amount of, not to exceed, $9,195,000* and will be dated and bear interest from the date of initial issuance and delivery. The Bonds will mature on the dates and in the principal amounts and will bear interest payable semiannually thereafter on November 1 and May 1 of each year beginning November 1, 2008 at the respective rates as set forth on the 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 November 1, 2017 are not subject to redemption prior to their scheduled maturity. The Bonds maturing on or after November 1, 2018 are subject to redemption at the option of the City on and after May 1, 2018, 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 - 0 entry only form, then the Bond Registrar would select Bonds for redemption using a random selection method. * Preliminary, subject to change. 1 Notice of Redemption (DTC). For so long as the Bonds are held in book -entry only form, notice of redemption shall be given in accordance with the operational arrangements of DTC as then in effect, and neither the City nor the Bond Registrar will provide any notice of redemption to any Beneficial Owners. It is the sole responsibility of the DTC Participants to provide notice of redemption to individual Beneficial Owners of the Bonds. If the Bonds are no longer held in book -entry form, notice of redemption shall be given by or on behalf of the City not less than 30 nor more than 60 days prior to the date fixed for redemption by first-class mail, postage prepaid, to the Owner of any Bond to be redeemed at the address appearing on the Bond Register on the day notice is mailed, and the requirements of this sentence shall be deemed to have been fulfilled when notice has been mailed as so provided, whether or not it is actually received by the Owner of any Bond. Purchase The City has reserved the right in the Bond Ordinance to use at any time any surplus Gross Revenue of the System available after providing for maintenance and operation, debt service, bond redemption and capital 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 will be issued as fully registered bonds and, when issued, will be registered in the name of Cede & Co. as Bond 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 single 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, currently The Bank of New York, (the "Bond Registrar"). So 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, is obligated to remit such 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 maturity of the Bonds, as set forth on the cover of this Official Statement, each in the aggregate principal amount of such maturity, will be registered in the name of Cede & Co., as nominee for DTC. See Appendix C attached hereto for additional information. Procedure 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 presented for payment in the State of Washington at any office of 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. 2 • • Purpose and Use of Proceeds Purpose A portion of the proceeds of the Bonds will be used to finance (i) the completion and final modernization of the System's Supervisory Communication and Data Administration (SCADA) system used to monitor and control the facility process; (ii) the repair of the System's dissolved air flotation tank ("DAFT"); and (iii) the replacement of centrate lagoon tanks with a million gallon tank, or other legal purposes the Council may deem necessary. A portion of the proceeds of the Bonds may also be used to refund a portion of the City's outstanding 1998 Bonds to obtain the benefit of savings in annual and total debt service requirements, and to pay costs of issuance of the Bonds. Plan of Refunding Depending on market conditions on the day of pricing, a portion of the proceeds from the sale of the Bonds may be used to refund $3,430,000 of the City's 1998 Bonds maturing on September 1 in the years 2009 through 2011, 2013, 2014, 2015 and 2018 (as selected on the day of pricing, the "Refunded Bonds"). The proceeds of the Bonds allocated to the refunding of the Refunded Bonds will be escrowed to the call date for the Refunded Bonds (September 1, 2008) at which time they will be called at a price of par plus accrued interest to the date of redemption. From a portion of the proceeds of the Bonds, the City will purchase certain direct non -callable United States government obligations, including obligations of the State and Local Government Series ("Government Obligations"). These Government Obligations will be deposited in the custody of U.S. Bank National Association (the "Refunding Agent"). The maturing principal of the Government Obligations, interest earned thereon, and necessary cash balance, if any, will provide payment of: (a) Interest on the Refunded Bonds when due up to and including September 1, 2008; and (b) On September 1, 2008, the redemption price (par) of the Refunded Bonds. The Government Obligations, interest earned thereon, and necessary cash balance, if any, will irrevocably be pledged to and held in trust for the benefit of the owners of the Refunded Bonds by the Refunding Agent, pursuant to an escrow deposit agreement to be executed by the City and the Refunding Agent. Information on the Refunded Bonds is as follows: * Term Bond. Refunded Bonds Maturity Years Principal Interest CUSIP (September 1) Amounts Rates Numbers 2009 $ 640,000 4.20% 984538GB8 2010 665,000 4.25 984538GC6 2011 695,000 4.30 984538GD4 2013* 365,000 4.45 984538GF9 2014 200,000 4.45 984538GG7 2015 205,000 4.50 984538GH5 2018* 660,000 4.60 984538GL6 3 Sources and Uses of Funds The proceeds from the Bonds will be applied as follows: Sources of Funds Par Amount of Bonds (1) $ 9,195,000 Net Premium/(Discount) Total Sources of Funds $ Use of Funds Project Costs $ Refunding Escrow Requirements Issuance Costs (2) Additional Proceeds Total Use of Funds (1) Preliminary, subject to change. (2) Includes Bond Counsel fees, rating fee, underwriter's discount, and other costs associated with the issuance of the Bonds. Security for the Bonds The principal of and interest on the Bonds are secured by a pledge of Gross Revenues of the System equal to the pledge for the Parity Bonds, subject only to the payment of the Costs of Maintenance and Operation of the System and the required payments into the Water and Sewer Revenue Bond Fund (the "Bond Fund"). 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 Gross 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 Fund. The Bond Fund 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 Fund The Bond Fund will be used solely for the purpose of paying the principal of, premium, if any, and interest on the Parity Bonds, of retiring the Parity Bonds prior to maturity as specified in the Bond Ordinance and of paying any reimbursement obligation with respect to any credit enhancement device providing additional security for any Variable Rate Bonds. The Bond Fund has been divided into three subaccounts: the Interest Account, the Serial Bond Principal Account and the Term Bond Principal Account (see "Bond Fund" herein). In addition, the City maintains a Reserve Fund. Interest Account. An Interest Account has been created in the Bond Fund for the purpose of paying the interest on the Parity Bonds. Upon the issuance of the Bonds, all accrued interest on the Bonds will be paid into the Interest Account. In the case of all Parity Bonds other than Variable Rate Bonds, the City will transfer to the Interest Account amounts sufficient to pay when due the installment of interest next falling due on all Parity Bonds. In the case of Variable Rate Bonds, not later than on the last day of the month immediately succeeding the month of closing of such bonds and on or before the last day of each succeeding month, the City will transfer to the Interest Account an amount equal to the interest on such Variable Rate Bonds estimated to become due and payable on the due date. If on any date on which an installment of interest on Variable Rate Bonds falls due there are insufficient amounts in the Interest Account to make such interest payment, the City will withdraw from the Revenue Fund and transfer to the Interest Account an amount that when added to other money therein will equal the amount of interest falling due and payable on such interest payment date. Any amounts credited to the Interest Account representing accrued interest received on the sale of the Bonds or other Parity Bonds, interest capitalized from the proceeds of any Parity 4 • • • Bonds and any other transfers and credits otherwise made or required to be made to the Interest Account will be taken into consideration and allowance made with respect to the full amount of such transfers and credits. Serial Bond Principal Account. The City has created a separate account in the Bond Fund known as the "Serial Bond Principal Account" to provide for the payment of the principal of Serial Bonds as the same shall mature and become due and payable. The City will transfer to the Serial Bond Principal Account amounts sufficient to pay when due the installment of principal next falling due on the Serial Bonds. Term Bond Principal Account. The City will create and establish a separate account in the Bond Fund to be known as the "Term Bond Principal Account" in order to meet the specified Sinking Fund Requirements of Term Bonds and to otherwise retire the Bonds, if any, and other Parity Bonds prior to maturity. The City will transfer to the Term .Bond Principal Account amounts sufficient to pay when due the Sinking Fund Requirement next falling due on all Term Bonds. Additionally, the City will apply the money paid into the Bond Fund for credit to the Term Bond Principal Account to the redemption of Term Bonds on the next ensuing Sinking Fund Requirement due date (or may so apply such money prior to such Sinking Fund Requirement due date). The City may also apply the money paid into the Bond Fund for credit to the Term Bond Principal Account for the purpose of retiring Term Bonds by the purchase of such Term Bonds at a purchase price (including any brokerage charge) not in excess of the principal amount thereof. The City will apply such money to the redemption or purchase of Term Bonds in an amount such that the aggregate principal amount of Term Bonds so purchased or redeemed is at least equal to such next ensuing Sinking Fund Requirement. Any such purchase of Term Bonds by the City may be made with or without tenders of Term Bonds in such manner as the City will, in its discretion, deem to be in its best interest. iiReserve Fund. The City has created the "Reserve Fund" to provide a reserve for the payment of the principal, premium, if any, and interest on the Parity Bonds. The City has covenanted and agreed that on the date of issuance of the Bonds the City will have on deposit in the Reserve Fund an amount equal to the lesser of (i) the maximum Annual Debt Service during any Fiscal Year on a series of Parity Bonds; (ii) 125 percent of the Average Annual Debt Service on all Outstanding Parity Bonds of such series; or (iii) 10 percent of the stated principal amount of such series of Parity Bonds (the "Reserve Fund Requirement"). Each ordinance providing for the issuance of Additional Bonds will provide for payments into the Reserve Fund from any other money lawfully available therefore in amounts that within not less than five years of equal monthly payments, will provide for deposit of the Reserve Fund 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 Fund. 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 Fund will be funded as if the Parity Bonds which remain Outstanding had been issued on the date of such notice of cancellation. Money in the Bond Fund and Reserve Fund may, at the option of the City, be invested and reinvested as permitted by law in Permitted Investments maturing, or which are retirable at the option of the owner, prior to the date needed or prior to the maturity date of the final installment of principal of the Parity Bonds payable out of the Bond Fund and Reserve Fund. Earnings on investments in the Bond Fund and Reserve Fund will be transferred to the Revenue Fund, except that earnings on investments in the Reserve Fund will first be applied to remedy any deficiency in such account. For the purpose of determining the amount credited to the Reserve Fund, obligations in which money in the Reserve Fund have been invested will be valued at the market value thereof. The term "market value" shall mean, in the case of securities that are not then currently redeemable at the option of the owner, the current bid quotation for such securities, as reported in any nationally circulated financial journal, and the current redemption value in the case of securities that are then redeemable at the option of the owner. For obligations that mature within six months, the market value shall be the par value thereof. The valuation will include accrued interest thereon. The valuation of the amount in the Reserve Fund will be made by the City as of the close of business on each December 031 (or on the next preceding business day if December 31 does not fall on a business day) and after any withdrawal and may be made on each June 30 (or on the next preceding business day if June 30 does not fall on a business day). 5 If the amount in the Reserve Fund is less than the Reserve Fund Requirement, the City will transfer from the Revenue Fund, for credit to the Reserve Fund, no later than the 25th day of the sixth succeeding calendar month the amount necessary to restore the Reserve Fund to the Reserve Fund Requirement. Prior to such time, such transfer will come from money in the Revenue Fund first available after making the current specified payments into the Interest Account and Principal Account. If the amount in the Reserve Fund is greater than the Reserve Fund Requirement, then may the City withdraw at any time prior to the next date of valuation from the Reserve Fund the difference between the amount in the Reserve Fund and the Reserve Fund Requirement and deposit such difference in the Revenue Fund. Money in the Interest Account, the Serial Bond Principal Account and the Term Bond Principal Account will be transmitted to the Bond Registrar in amounts sufficient to meet the next maturing installments of principal, interest and premium, if any, at or prior to the time upon which any interest, principal or premium, if any, is to become due. In the event there shall be a deficiency in the Interest Account, the Serial Bond Principal Account or the Term Bond Principal Account for such purpose, the City shall make up any such deficiency from the Reserve Fund by the withdrawal of cash therefrom for that purpose, and, if necessary, by sale or redemption of any authorized investments in such amount as will provide cash in the Reserve Fund sufficient to make up any such deficiency. If a deficiency still 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. Such draw will be made at such times and under such conditions as the agreement for such Reserve Fund credit facility will provide. The balance in the Reserve Fund as of February 25, 2008 was $2,390,984. Revenue Fund/Priority of Payments The City has obligated and bound itself to pay into the Revenue Fund the Gross Revenues of the System. Revenues deposited therein will be used only for the following purposes and in the following order of priority: First, to pay the Costs of Maintenance and Operation of the System; Second, to make all required payments into the Bond Fund; Third, to pay the interest on the Parity Bonds; Fourth, to pay the principal of and any sinking fund payments for the Parity Bonds; Fifth, to make all payments required to be made into the Reserve Fund; Sixth, to make all payments required to be made into any other revenue bond redemption fund or debt service account or reserve account created to pay and secure the payment of the principal of and interest on any revenue bonds of the City having a lien upon the Gross Revenues of the System junior and inferior to the lien thereon for the payment of the principal of and interest on the Parity Bonds; Seventh, to retire by redemption or purchase in the open market any outstanding revenue bonds of the City, to make necessary additions, improvements and repairs to or extensions and replacements of the System, or for any other lawful City purposes. The City may create a Rate Stabilization Account in the Revenue Fund. To the extent that surplus Gross Revenues remain after the payments so required to be made out of the Revenue Fund, the City may credit up to the full amount of such surplus to the Rate Stabilization Account. 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 Gross Revenues collected (together with Assessments collected) will at all times be sufficient (a) to pay Costs of Maintenance and Operation of the System, (b) to pay the principal of, premium, if any, and interest on the Parity Bonds, as and when the same 6 • • • • will become due and payable, (c) to make adequate provision for the payment of any Term Bonds, (d) to make when due all payments which the City is obligated to make into the Reserve Fund and all other payments which the City is obligated to make pursuant to the Bond Ordinance, and (e) 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 Gross Revenues by law or contract; and (ii) the Net Revenues in each Fiscal Year will be at least equal to (a) 1.25 times Annual Debt Service on all Parity Bonds then Outstanding minus the aggregate principal amount of nondelinquent Assessments paid or to be paid into the Bond Fund in such year for any period during which Assessments may be paid without becoming delinquent; or (b) for any other period, 1.25 times Annual Debt Service on all Parity Bonds then Outstanding (the "Coverage Requirement"). - • • Certain Other Covenants Certain other covenants in the Bond Ordinance include: Maintenance of System. The City will at all times maintain, preserve and keep the properties of the System in good repair, working order and condition and will from time to time make all necessary and proper repairs, renewals, replacements, extensions and betterments thereto, so that at all times the business carried on in connection therewith will be properly and advantageously conducted and the City will at all times operate or cause to be operated the properties of the System and the business in connection therewith in an efficient manner and at a reasonable cost. Disposition of System. The City will not sell 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 Fund of cash or Government Obligations sufficient 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 unless such facilities are replaced or provision is made for payment into the Bond Fund of the amount set forth in the Bond Ordinance. The City will not sell or otherwise dispose of the System in its entirety unless simultaneously with such sale or other disposition, provision is made for the payment into the Bond Fund of cash or "Government Obligations," as now or hereafter defined in chapter 39.53 RCW, as amended, or its successor statute, if any, sufficient together with interest to be earned thereon to pay the principal of and interest on the then Outstanding Parity Bonds, nor will it sell or otherwise dispose of any part of the useful operating properties of the System unless such facilities are replaced or provision is made for payment into the Bond Fund of the greater of: An amount which will be in the same proportion to the net amount of Parity Bonds then Outstanding (defined as the total amount of the Parity Bonds less the amount of cash and investments in the Bond Fund and accounts therein) that the Net Revenues from the portion of the System sold or disposed of for the preceding year bears to the total Net Revenues for such period; or An amount which 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. The proceeds of any such sale or disposition of a portion of the properties of the System (to the extent required above) shall be paid into the Bond Fund. 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 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 Fund. 7 Liens or Encumbrances. The City will not at any time create or permit to accrue or to exist any lien or other encumbrance or indebtedness upon the System or the Gross Revenues or any part thereof, prior or superior to the lien thereon for the payment of the Parity Bonds, and will pay and discharge, or cause to be paid and discharged, all lawful claims for labor, materials or supplies which, if unpaid, might become a lien or charge upon the Revenues of the System, or any part thereof, or upon any funds in the hands of the City, prior to or superior to the lien of the Parity Bonds, or which might impair the security of the Parity Bonds. Insurance. The City will, to the extent insurance coverage is available at reasonable cost with responsible insurers, keep, or cause to be kept, the System and the operation thereof insured, with policies payable to the City, against the risks of direct physical loss, damage to or destruction of the System, or any part thereof, and against accidents, casualties or negligence, including liability insurance and employer's liability, at least to the extent that similar insurance is usually carried by utilities operating like properties as determined by the City Manager. A program of self insurance against certain risks or as to part of the potential liability for certain risks may be included as part of the City's insurance coverage plan. Books and Accounts. The City will keep proper books of account which will be kept in accordance with any applicable rules and regulations prescribed by the State. The City will prepare, and any owner or holder of Parity Bonds may, upon written request, obtain copies of, balance sheets and profit and loss statements showing in reasonable detail the financial condition of the System as of the close of each year, and the income and expenses of such year, including the amounts paid into the Revenue Fund, the Bond Fund, and into any special funds or accounts created pursuant to the provisions of this ordinance, and the amounts expended for maintenance, renewals, replacements, and capital additions to the System. Additions and Improvements. The City will not expend any of the revenues derived by it from the operation of the System or the proceeds of any indebtedness payable from the Revenues of the system for any extensions, betterments or improvements to the System which are not legally required or economically sound, and which will not properly and advantageously contribute to the conduct of the business of the system in an efficient manner; provided, that to the extent permitted by law, the City may provide commodities, services or facilities free of charge or at a reduced charge in order to carry out a plan adopted by the Council for conservation of water or to benefit elderly, handicapped or poor persons. Tax Covenants. The City has covenanted to undertake all actions required to maintain the tax-exempt status of interest on the Bonds as set forth in the Bond Ordinance. Additional Bonds The City may issue Additional Bonds (i) for the purpose of acquiring, constructing and installing additions and improvements to and extensions of, acquiring necessary equipment for or making necessary repairs, replacements or other capital improvements to the System and other lawful purposes related to the System, or (ii) for the purpose of refunding, or purchasing and retiring prior to their maturity, any outstanding Bonds or other revenue obligations of the System. The City may issue such additional Bonds upon compliance with the following conditions: 1. At the time of the issuance of such Additional Bonds, there will be no deficiency in the Bond Fund. 2. In each ordinance authorizing such Additional Bonds, provision will be made for payments into the Reserve Fund in accordance with the Bond Ordinance. 3. At the time of the issuance of such Additional Bonds, the City will have on file a certificate from a Professional Utility Consultant, showing that the Net Revenue received during any' consecutive 12 -month period for which financial statements are available within the 24 months preceding the date of delivery of such Additional Bonds equals the Coverage Requirement in each calendar year or Fiscal Year thereafter on the then Outstanding Parity Bonds and the Additional Bonds to be issued, and that the Adjusted Net Revenues to be received each calendar year or Fiscal Year thereafter, will equal at least 1.25 times the Average Annual Debt Service each such calendar year or Fiscal Year, on the Outstanding Parity Bonds and the Additional Bonds to be issued. 8 • • •The Adjusted Net Revenues will be the Net Revenues for a period of any 12 consecutive months out of the 24 months immediately preceding the date of delivery of such proposed Additional Bonds, as adjusted to take into consideration changes in Net Revenues estimated to occur under one or more of the following conditions for each year after such delivery for so long as any Bonds, including the Additional Bonds proposed to be issued, will be outstanding: (a) Any increase or decrease in Net Revenues that would result if any change in rates and charges adopted by the Council 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: (b) The additional Net Revenues from any rate increases that have been approved by ordinance of the Council but that are not then in effect; (c) Any increase or decrease in Net Revenues estimated by such Professional Utility Consultant to result from any additions, betterments and improvements to and extensions of any facilities of the System that (i) became fully operational during such 12 -month period, (ii) were under construction at the time of such certificate, or (iii) will be constructed from the proceeds of the Additional Bonds to be issued; (d) The additional Net Revenues that would have been received if any customers added to the System during such 12 -month period were customers for the entire period; and (e) The additional Net Revenues that may be derived by the City from any users of the System with whom the City has entered into a contract for utility services to be furnished, which revenues have not otherwise been included in Net Revenues. Such Professional Utility Consultant will base his certification upon financial statements of the System audited by the State Examiner (unless such an audit is not available for a 12 -month period within the preceding 24 months) 0 and certified by the chief financial officer of the City, showing income and expenses for the period upon which the same is based. Notwithstanding the foregoing, if Additional Bonds are to be issued for the purpose of refunding at or prior to their maturity any part or all of the then Outstanding Bonds and the issuance of such refunding Additional Bonds results in a debt service savings and does not require an increase of more than $5,000 in any year for principal and interest on such refunding Additional Bonds, the certificate need not be obtained. Once the 1996 and 1998 Bonds are no longer Outstanding, in lieu of a certificate from a Professional Utility Consultant, the Director of Finance and Budget or other financial officer of the City may certify that the Net Revenues of the System for any 12 consecutive months of the 24 months prior to the date of issuance of such Additional Bonds are at least 125 percent of the Average Annual Debt Service due in any fiscal or calendar year thereafter, including in such calculation debt service on such Additional Bonds. The City may issue revenue bonds or other obligations which are a charge upon the Gross Revenues of the System junior or inferior to the payments required by the Bond Ordinance to be made out of such Gross Revenues into the Bond Fund and accounts therein to pay and secure the payment of any Outstanding Bonds. Furthermore, nothing in the Bond Ordinance prohibits the City from issuing revenue bonds to refund maturing Bonds for the payment of which money is not otherwise available. For so long as the 2008 Bonds are Outstanding, no bonds may be issued subsequent to the issuance of the 2008 Bonds with a lien and charge on the Gross Revenues superior to the lien and charge of the 2008 Bonds. Defeasance of the Bonds In the event that money and/or Governmental Obligations (see below for definition) in amounts sufficient to redeem and retire any Parity Bonds are irrevocably set aside to effect such redemption and retirement, then no further payments need be made into the Bond Fund for payments on such bonds and the owner of such bonds will Ocease 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. 9 Governmental Obligations. As currently defined in chapter 39.53 RCW, "Government Obligations" mean (a) direct obligations of or obligations, the principal and interest on which are unconditionally guaranteed by the United States of America and bank certificates of deposit secured by such obligations; (b) bonds, debentures, notes, participation certificates or other obligations issued by the Banks for Cooperatives, the Federal Intermediate Credit Bank, the Federal Home Loan Bank System, the Export-import Bank of the United States, federal land banks or the Federal National Mortgage Association; (c) public housing bonds and project notes fully secured by contracts with the United States; and (d) obligations of financial institutions insured by the Federal Deposit Insurance Corporation to the extent insured or guaranteed as permitted under any other provision of State law. Events of Default The City has covenanted and agreed with the purchasers and owners from time to time of any Parity Bonds, in order to protect and safeguard the covenants and obligations undertaken by the City securing any Parity Bonds, that the following will constitute "Events of Default": (a) If the City defaults in the performance of any obligation with respect to payments into the Bond Fund and such default is not remedied within a period of 30 days; (b) If default is made in the due and punctual payments of the principal of and premium, if any, on any of the Parity Bonds when the same becomes due and payable, either at maturity or by proceedings for redemption or otherwise; (c) If default is made in the due and punctual payment of any installment of interest on any Parity Bonds; (d) If the City defaults in the observance and performance of any other of the covenants, conditions and agreements on the part of the City contained in the Bond Ordinance and such default or defaults have continued for a period of 90 days after the City has received from the Bondowners Committee or from the owners of not less than 20 percent in principal amount of the Parity Bonds outstanding, a written notice specifying, and demanding the cure of, such default; (e) If the City sells, transfers, assigns or conveys any properties constituting the System or interests therein, or any part or parts thereof, or makes any agreement for such sale or transfer (except as expressly authorized by the Bond Ordinance and summarized herein under "Security for the Bonds — Certain other Covenants — Disposition of the System."); (f) If an order, judgment or decree is entered by a court of competent jurisdiction (i) appointing a receiver, trustee or liquidator for the whole or any substantial part of the System, (ii) approving a petition filed against the City seeking the bankruptcy, arrangement or reorganization of the City under any applicable law of the United States or the State, or (iii) assuming custody or control of the whole or any substantial part of the System under the provisions of any other law for the relief or aid of debtors and such order, judgment or decree will not be vacated or set aside or stayed (or, in case custody or control is assumed by such order, such custody or control will not be otherwise terminated), within 60 days from the date of entry of such order, judgment or decree; and If the City (i) admits in writing its inability to pay the debts of the System generally as they become due, (ii) files a petition in bankruptcy or seeking a composition of indebtedness under any state or federal bankruptcy or insolvency law, (iii) makes an assignment for the benefit of its creditors, (iv) consents to the appointment of a receiver of the whole or any substantial part of the System, or (v) consents to the assumption by any court of competent jurisdiction under the provisions of any other law for the relief or aid of debtors of custody or control of the whole or any substantial part of the System. (g) During the continuance of an Event of Default, the owners of Parity Bonds representing 20% in principal amount of the Parity Bonds then Outstanding may call a bondholders meeting for the purpose of electing a committee (the "Bondowners Committee") to act on behalf of all Parity Bondowners (the "Bondowners"). Such meeting shall be called and the proceedings thereof shall be conducted in the manner provided in Article IX of the Bond Ordinance. 10 • 0 A such meeting the Bondowners present in person or by proxy may, by a majority of the votes cast, elect one or more persons, who may or may not be Bondowners, to the Bondowners Committee, which shall act as trustee for all registered owners of Parity Bonds outstanding, and the Bondowners Committee as such trustee may have and exercise all the rights and powers provided for in the Bond Ordinance to be exercised by the Bondowners Committee. The Bondowners present in person or by proxy at said meeting, or, at any adjourned meeting thereof, shall prescribe the manner in which the successors of the persons elected to the Bondowners Committee at such Bondowners meeting shall be elected or appointed, and may prescribe rules and regulations governing the exercise by the Bondowners Committee of the powers conferred upon it herein, and may provide for the termination of the existence of the Bondowners Committee. The members of the Bondowners Committee elected by the Bondowners in the manner herein provided, and their successors, as a committee are hereby declared to be trustees for the owners of all the Parity Bonds then Outstanding, and are empowered to exercise in the name of the Bondowners Committee as trustee, all the rights and powers hereinafter conferred on the Bondowners Committee. No owner of any one or more of the Parity Bonds shall have any right to institute any action, suit or proceeding at law or in equity for the enforcement of any provision of the Bond Ordinance or the execution of any trust under the Bond Ordinance or for any remedy under the Bond Ordinance, unless an Event of Default shall have happened and be continuing, and unless no Bondowners Committee has been created as herein provided, but any remedy herein authorized to be exercised by the Bondowners Committee, may be exercised individually by any Bondowner, in his own name and on his own behalf or for the benefit of all Bondowners, in the event no Bondowners Committee has been created, or with the consent of the Bondowners Committee, if such Bondowners Committee has been created; provided, however, that nothing in the Bond Ordinance or in the Parity Bonds shall affect or impair the obligation of the City, which is absolute and unconditional, to pay at the respective dates of maturity and places therein expressed the principal of and premium, if any, and interest on the Parity Bonds to the respective owners thereof, or affect .or impair the rights of action, which are also absolute and unconditional, of any owner to enforce the payment of his Parity Bonds, or to reduce to judgment his claim against the City for the payment of the principal eland interest on his Parity Bonds, without reference to, or consent of, the Bondowners Committee or any other owner of the Parity Bonds. 11 City Indebtedness of the System The City may issue revenue bonds "...if it deems it advisable to purchase, lease, condemn, or otherwise acquire, construct, develop, improve, extend or operate any land, building, facility, or utility and adopts an ordinance which has been ratified by the voters of the city or town in those instances where it is required to be ratified by the voters...such city or town my issue revenue bonds against the special fund or funds created solely from revenues..." pursuant to chapter 35.41 RCW (the Municipal Revenue Bond Act). Outstanding Long -Term Borrowings (As of June 5, 2008) The City's outstanding long term debt of the System is composed of the following bond issues. The Public Works Trust Fund loans and the AppleTree Project Bonds are subordinate in lien to the Parity Bonds: Class and Series of Obligation Water and Sewer Revenue Bonds (Parity 1996 Bonds 1998 Bonds 2003 Bonds, Series A 2003 Bonds, Series B The Bonds Total Revenue Bonds Outstanding Bonds) Date of Issue 10/01/96 10/01/98 12/15/03 12/15/03 06/05/08 Date of Amount of Maturity Original Issue 12/01/08 09/01/08 (1) 11/01/15 11/01/23 11/01/27 Public Works Trust Fund ("PWTF") Loans (Subordinate Lien Debt) (3) Sewer Treatment Plant Rehabilitation Domestic Well & Pumphouse Sewer Collection System Improvements Wastewater Facility Rehabilitation Sewer Collection System Improvements Headworks/Digester Rehabilitation Sewer Improvements King Street Fruitvale Neighborhood Water Treatment Filter Rehabilitation River Road Sewer Project Water Treatment Plant Improvements Wastewater Ultraviolet Disinfection Total Revenue PWTF Loans Outstanding 06/19/88 07/01/08 06/12/89 07/01/09 09/03/92 07/01/12 06/01/93 07/01/13 05/16/94 07/01/14 08/07/95 07/01/15 06/14/95 07/01/15 06/01/01 07/01/21 07/01/05 10/01/25 12/30/05 07/01/25 09/04/03 07/01/23 07/01/07 07/01/27 Junior Lien Bond (Subordinate Debt) (4) AppleTree Project Bonds 02/27/01 (1) (2) (3) (4) $ 3,320,000 7,910,000 7,390,000 10,155,000 9,195,000 (2) $ 37,970,000 $ 945,000 495,000 1,120,000 3,221,708 1,220,900 3,030,558 209,367 1,466,250 9,666,772 1,614,900 2,559, 775 2,300,000 $ 27,850,230 Outstanding as of 6/05/08 $ 350,000 610,000 4,700,000 10,155,000 9,195,000 (2) $ 25,010,000 $ 55,579 54,548 308,655 1,023,034 286,293 1,306,996 93,481 1,086,750 837,735 1,529,905 2,155,600 460,000 $ 9,198,576 02/27/31 $ 600,000 $ 492,508 The Date of Maturity reflects the redemption of the Refunded Bonds. The September 1, 2008 principal payment remains after this refunding. Preliminary, subject.to change. As of April 15, 2008. The AppleTree Project Bonds are subordinated six percent debentures for the AppleTree Project, privately placed bonds to finance Wastewater infrastructure to a newly annexed portion of the City. The AppleTree Project Bonds have a lien only on connection charges collected from within the Project boundaries. If there are not sufficient connection charge revenues collected to pay principal and interest on the bonds, neither the System nor the City has any obligation to pay. 12 • • • Water and Sewer Revenue Bonds - Debt Service Requirements (As of June 5, 2008) Cal. Outstanding Parity Bonds (1) Series 2008 Bonds (2) Total Years Principal Interest Principal Interest (3) Debt Service 2008 $ 1,645,000 $ 355,166 $ 115,000 $ 130,370 $ 2,245,536 2009 705,000 642,794 900,000 318,930 2,566,724 2010 725,000 621,644 915,000 298,680 2,560,324 2011 750,000 598,706 940,000 276,720 2,565,426 2012 775,000 572,456 420,000 251,810 2,019,266 2013 805,000 543,394 425,000 239,630 2,013,024 2014 835,000 511,194 450,000 226,455 2,022,649 2015 870,000 478,750 460,000 211,830 2,020,580 2016 910,000 435,250 470,000 195,960 2,011,210 2017 955,000 389,750 490,000 179,040 2,013,790 2018 1,005,000 342,000 505,000 160,665 2,012,665 2019 1,055,000 291,750 290,000 140,970 1,777,720 2020 1,110,000 239,000 300,000 129,225 1,778,225 2021 1,165,000 183,500 315,000 116,625 1,780,125 2022 1,220,000 125,250 330,000 103,080 1,778,330 2023 1,285,000 64,250 340,000 88,395 1,777,645 2024 0 0 355,000 72,925 427,925 2025 0 0 375,000 56,418 431,418 2026 0 0 390,000 38,605 428,605 2027 0 0 410,000 19,885 429,885 Total $ 15,815,000 $ 6,394,854 $ 9,195,000 $ 3,256,218 $ 34,661,072 (1) Excludes the Refunded Bonds. (2) Preliminary, subject to change. (3) Assumed interest rates range from 2.20% to 4.85%. 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. Future Financings Other than the Bonds and the Outstanding Parity Bonds, the City does not anticipate issuing additional long-term parity debt within the next twelve months. The Water System Description The City supplies water to the City and a small portion of the Gleed area. The City's water supply comes from the Naches River. Water is treated at the water treatment plant prior to delivery. The City has three high production •wells to back up its gravity surface supply system. The Nob Hill Water Association (a private utility) serves a portion of the western part of the urban area, a portion of which is within the City's boundaries. 13 The City's total water system capacity is 25 million gallons per day ("MGD") plus three emergency wells which provide an additional 11.4 MGD. The City's historic water demands are shown in the following table: Peak Flows (MGD) Annual Average Flows (MGD) Source: City of Yakima. Water Customers Water System Demand 2007 21.2 13.1 2006 20.2 13.0 2005 19.1 12.3 2004 20.5 11.3 2003 20.6 12.1 Residential. The residential customer class includes both single-family and multi -family. This class represents 84 percent of all water customers. Within the City, approximately 63 percent of all residential customers have irrigation water supplied from a separate irrigation system of the City. Only five percent of potable residential water use is for irrigation. Commercial and Industrial. Commercial users include shopping centers, banks, office complexes, motels, and other businesses. The commercial monthly demand is generally uniform throughout the year. Industrial customers are primarily manufacturing facilities and the fruit and vegetable processing industries with summer use generally being twice the monthly average. Governmental. The governmental group of users includes state, federal, county and City facilities. Residential Commercial Industrial Government Total * Preliminary. Source: City of Yakima. Residential Commercial/Industrial Government/Other Total * Preliminary. Source: City of Yakima. Number of Water Customers 2007* 16,561 2,878 105 134 2006 16,596 2,859 108 117 2005 2004 2003 16,573 16,536 3,021 2,766 108 110 106 101 16,507 2,820 109 108 19,678 19,680 19,808 19,513 19,544 2007* $3,722,905 2,262,709 236,441 $6,222,055 Water Billing 2006 $3,619,220 2,198,826 218,716 $6,036,762 14 2005 2004 2003 $3,213,246 $3,083,426 $3,023,658 1,924,043 1,890,792 1,810,525 173,841 159,585 141,025 $5,311,130 $5,133,803 $4,975,208 • • 0Major Accounts of the Water System The following table shows the City's major water customers by amount billed. • • Major 2007 Water System Customers* Total Amount Percent of Customer Billed Water Revenues Cintas Commercial Laundry $56,927 0.86% Yakima Housing Authority 54,869 0.83 Jewell Apple 46,772 0.71 Yakima Valley Community College 41,687 0.63 Seneca Foods 37,202 0.56 Yakima Regional Hospital 34,048 0.51 Kiwanis Park 31,613 0.48 Broadmoor Mobile Home Park 29,046 0.44 Golden Villa Mobile Home Park 28,833 0.44 Riverview Manor Mobile Home Park 25,680 0.39 Total $ 386,677 5.85% * 2007 numbers are preliminary. Source: City of Yakima. Water Service Charges within City limits The Council has approved rate adjustments, effective February 1, 2008, which are estimated to increase total water revenue by an amount of 5.5 percent per year through 2012. The rate increases vary between different classes of customers. The historical residential bi-monthly water base rates are as follows: Historical Residential Bi -Monthly Water Base Rates (By Meter Size) Meter Size 2008* 2007 2006 2005 2004 3/4" $ 9.18 $ 9.00 $ 9.00 $ 8.25 $ 3.65 1" 12.67 12.60 12.60 12.04 5.65 1 1/2" 22.26 21.58 21.58 20.57 12.80 2" 33.30 32.35 32.35 30.81 26.00 3" 59.06 57.49 57.49 54.69 67.00 4" 95.83 93.40 93.40 88.81 107.00 6" 187.74 183.17 183.17 174.10 190.00 8" 371.62 362.71 362.71 344.70 310.00 10" 555.46 542.26 542.25 515.29 700.00 * Effective February 2008. Source: City of Yakima. Charges for water consumed per one hundred cubic feet ("UOC") are as follows: UOC Rate per UOC 0-250 $1.26 Over 250 1.18 Source: City of Yakima 15 Rate Comparison of Comparable Water Systems. Shown below are comparative water rate charges of the City and other water utilities in the State: 2008 Single Family Monthly Water Rate Comparison Water System City of Chehalis City of Centralia City of Richland City of Kelso City of Longview City of Yakima City of Olympia City of Ellensburg City of Vancouver (1) Rate per 1,000 cubic feet. Source: Websites of individual municipalities. Monthly Rate (1) $35.00 33.50 30.20 28.10 23.87 21.78 20.54 20.07 19.85 Water System Capital Improvement Plan The improvements identified in the City's water system plan are described in the following functional component categories: (i) Source of Supply; (ii) Water Treatment; (iii) Storage; and (iv) Distribution. The following are descriptions of projects anticipated to be completed. However, the plan may change based on available funds and perceived needs. Funding sources expected include Parity Bonds of approximately $3 million in 2009, reserves, grants, balances and Public Works Trust Fund loans. A cost of service and rate study was completed in 2007. The City plans to spend approximately $7.5mil for its water system capital improvement projects over the next two or three years, depending on construction schedules. Source of Supply. The current source of supply is the Naches River Water Treatment Plant with a nominal capacity of 25 MGD. This supply is adequate to meet the projected maximum day demand ("MDD") in 2008. In 2009 service will begin from the well located in Gardner Park. The City expects to begin service from two additional Aquifer and Storage and recovery wells in 2011 and 2012. With the new additions the City expects to have adequate capacity until 2025. The three active wells (Kiwanis, Airport and Kissel Park) are designated as emergency use sources. Since 1977, the surface water rights that are the primary supply for the City's municipal water treatment and delivery 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. Under the settlement, adequate water quantities are provided to meet expected current and future demand. On November 21, 2002, the Court issued a Conditional Final Order confirming the terms of the settlement. No appeals to the Conditional Final Order were filed by any party. The Conditional Final Order finally resolves all issues regarding the rights under review in the adjudication. The final order is expected to be issued in 2009. A proposed 3,000 gallons per minute ("gpm") deep well located in Gardner Park is in the design process and is expected to enable the City to beneficially use the balance of the Ranney Well water right, and provide the additional year-round source which is needed to meet projected MDD after 2008. The estimated cost of a new well including well pump, well house and engineering and administrative costs is $2,500,000. The City has financed the well through a PWTF loan. Aquifer storage and recovery ("ASR") is a possible source of additional supply during peak use periods or under emergency conditions. Two ASR wells have been proposed which would initially be emergency -only supply sources. If the projected maximum day demands are realized by the year 2015, one of the proposed ASR wells would be converted from an emergency source of supply status to a normal supply source. The first ASR well is expected to be installed in 2011. The second ASR well is expected to be installed in 2012. The estimated cost for each of the ASR wells is expected to be the same as the Gardner Park Well, or approximately $2,500,000. Water Treatment. The recommended improvements in the water treatment facilities are described below. 16 • • • • • • Residuals Handling. Construction of two concrete lined lagoons with a recycle pump station is recommended to replace the existing residuals handling process. The recommended improvements to the residuals handling facilities are scheduled for installation in 2010. Distribution. Various distribution projects, while not needed to correct any existing deficiencies, are included in the capital improvement program as part of the City's on-going efforts to maintain and upgrade the quality of the system to meet current and future needs. All distribution projects are in the planning stages and immediate timelines and projected costs have yet to be determined. The City is upgrading to a new customer services system in 2008 and 2009. The Sewerage (Wastewater) System Description The City treats wastewater for City residents and the surrounding urbanized area. The City has two collection systems, one for wastewater from food processing industries and one for other wastewater. All wastewater is treated at the Regional Wastewater Treatment Plant, which is owned by the City. In 1974, the City accepted regional responsibility for protecting the environment by agreeing to provide regional wastewater treatment. The 'investments made to date in the City's wastewater collection treatment and facilities exceed $100 million. The City has contracts with the City of Union Gap and the Terrace Heights Wastewater District in which the City provides wholesale wastewater treatment and disposal services. The City's historic wastewater demands are shown in the following table: Wastewater Treatment Plant Demand Plant Permitted Capacity (MGD) Peak Day (MGD) Annual Average Flows (MGD) Source: City of Yakima 2007 2006 2005 2004 2003 21.5 21.5 21.5 21.5 22.3 13.3 14.7 14.2 15.0 14.8 10.7 10.8 10.0 11.0 10.9 17 Sewer Customers The City provides wastewater service to approximately 24,000 accounts, 91 percent of which are residential. Approximately 99.8 percent of all residential and commercial customers of the System Customer data and usage by class for the last five years is presented below. Residential Commercial/Industrial Government/Other Wholesale** Total Number of Sewer Customers 2007* 21,993 2,023 129 2 2006 2005 21,896 2,026 128 2 21,634 1,998 126 2 24,147 24,052 23,760 * Preliminary. ** Includes The City of Union Gap and Terrace Heights Sewer District. Source: City of Yakima Residential Commercial/Industrial Government/Other Wholesale** Total 2007* $8,821,923 4,662,428 414,506 369,883 $14,268,740 * Preliminary. ** Includes charges to the City of Union Gap and three percent of the total system billing. Source: City of Yakima. Sewer Billing 2006 2005 $9,002,893 $8,788,519 4,630,095 4,342,962 439,901 459,642 475,689 393,322 $14,548,578 $13,984,445 2004 21,114 1,964 128 2 23,208 2004 $8,752,767 4,415,202 455,576 421,582 $14,045,127 Terrace Heights Sewer District; the two customers Major Accounts of the Sewer System The following table shows the City's major sewer customers by amount billed. Major 2007 Sewer System Accounts* Customer Del Monte Corporation City of Union Gap Jewell Apple Seneca Foods Terrace Heights Sewer District Cintas Commercial Laundry Yakima Housing Authority Yakima Regional Hospital Broadmoor Mobile Home Park Yakima Valley Community College Total * 2007 numbers are preliminary. Source: City of Yakima. Total Amount Billed $ 382,270 242,499 223,681 152,011 137,283 105,097 96,713 77,190 70,801 64,665 $1,552,210 18 are within the City. 2003 20,621 1,912 127 2 22,662 2003 $7,597,273 3,445,284 382,644 441,492 $11,866,693 contribute approximately Percentage of Sewer Revenues 2.68% 1.70 1.57 1.07 0.96 0.74 0.68 0.54 0.50 0.45 10.89% • • • • Sewer Service Charges The Council has approved wastewater rate increases in total of approximately 3.5 percent per year through 2010. The rate increases vary for different customer classes. • Rates To Properties Within City Limits. The domestic wastewater service charge consists of a ready -to -serve charge and a volume charge based on domestic water consumption. The volume charge is $2.42 per one hundred cubic feet of water consumption, or if metered, quantity discharged. Ready -to -serve charges for the wastewater system are based on water meter size. The historical residential bi-monthly sewer base rates are as follows: Historical Residential Bi -Monthly Sewer Ready -to -Serve Charges (Inside City Limits) (By Meter Size) Meter Size 2008* 2007 2006 2005 2004 3/4" $ 27.62 $ 26.68 $ 26.68 $ 26.68 $ 26.02 1" 35.08 33.88 33.88 33.88 33.04 1 1/2" 45.30 43.76 43.76 43.76 42.68 2" 72.92 70.49 70.49 70.49 68.70 3" 276.20 266.80 266.80 266.80 260.20 4" 351.60 339.64 339.64 339.64 331.24 6" 527.54 509.58 509.58 509.58 496.98 8" 728.06 703.28 703.28 703.28 685.88 10" 1,506.74 1,406.56 1,406.56 1,406.56 1371.78 Volume charge 2.42 2.34 2.34 2.34 2.28 * Effective February 2008. Source: City of Yakima. For multiple -unit residential customers within City limits, the monthly ready -to -serve charge is $7.18 per account plus $6.63 per dwelling unit. Rates to Properties Outside City Limits. For customers located outside the City limits, a wastewater service charge is composed of a ready -to -serve charge and a volume charge based on domestic water consumption. The volume charge is $3.54 per one hundred cubic feet of water consumption. The average difference between charges inside and outside the City is 43.8 percent. The wastewater service ready -to -serve charge for all customers outside City limits other than multiple -family residential customers is calculated and charged according to the following schedules: Residential Sewer Ready -to -Serve Charges (Outside City Limits) Meter Size Monthly Charge* Bi -monthly Charge* 3/4" $ 19.86 $ 39.72 1" 25.22 50.44 1'/2" 32.57 65.14 2" 52.43 104.86 3" 198.60 397.20 4" 252.82 505.64 6" 379.33 758.66 8" 523.51 1,047.02 10" 1,047.02 2,094.04 * The "one-month period" is defined as any period of time from one day up to and including one month and fourteen days, and the "two-month period" is defined as any period of time from one month and fifteen days to two month and fourteen days. Rates were effective January 2008. For multiple -unit residential customers outside City limits, the monthly ready -to -serve charge is $10.33 per account 41) plus $9.53 per dwelling unit. 19 Rate Comparison of Comparable Sewer Systems. Shown below are comparative sewer rate charges of other sewer utilities in the State: 2008 Single Family Monthly Sewer Rate Comparison Sewer System City of Chehalis City of Centralia City of Kelso City of Longview City of Olympia City of Yakima City of Vancouver City of Richland City of Ellensburg (1) Rate per 1,000 cubic feet. Source: Websites of individual municipalities. Monthly Rate (1> $79.13 62.29 45.51 43.60 42.02 38.01 33.16 24.13 22.04 Strong Waste Surcharge. For all commercial and industrial customers discharging wastewater which contains more than 300 parts per million of biochemical oxygen demand ("BOD") and/or suspended solids ("SS") there will be a surcharge, in addition to the ready -to -serve charge and the volume charge, which will be calculated utilizing the national average values of BOD and SS concentrations typical to each classification under the Standard Industrial Code or by actual concentrations verified by the City. If the commercial industrial customer chooses at its expense to install a sampling station, the strong waste charge is calculated based upon actual concentrations. The following formula is utilized to calculate the strong waste charge: Monthly Surcharge = (Unit costs per pound of BOD or SS) times (weight of one gallon of water) times (customer's flow in one hundred cubic feet divided by one thousand three hundred thirty-seven per month) times (customer's concentration of BOD or SS in parts per million minus three hundred per the national average values or verified concentrations) In the above formula: Inside City Outside City Unit cost per pound for BOD = $ 0.355/lb. $ 0.470/lb. Unit cost per pound for SS = 0.363/Ib. 0.476/Ib. Weight of one gallon of water = 8.34 lbs. 8.34 lbs. Septage Charge. A charge of $0.381 per gallon is paid for septic tank waste dumped at the wastewater treatment plant. Wastewater Treatment Plant Capital Improvement Plan The City's approved wastewater facilities plan has identified several. priorities to be implemented at the Wastewater Treatment Plant to comply with new and existing environmental rules and regulations. Compliance is required to meet the Washington Department of Ecology ("WDOE") criteria to provide adequate capacity and backup operations to major processes of the plant as identified in the City's National Pollutant Discharge Elimination System ("NPDES") Permit and associated rules and regulations. The following projects are currently in progress. Funding for these projects is expected from sources such as; these Bond proceeds, Future Parity Bond proceeds, rates, available cash balances and Public Works Trust Fund loans. The City plans to spend approximately $9.7mil for its sewer system capital improvement projects over the next two or three years. (i) One of two centrifuges is currently functional for dewatering bio -solids and requires extensive maintenance to continue operating. Contracts to purchase a new centrifuge and build a new solids handling building were let in 2006 for an alternate source of dewatering bio -solids. This is required to maintain compliance when the 20 • • • older centrifuge is out of service. The project is 85 percent completed and will cost approximately $6,000,000 at completion. (ii) There is currently one DAFT to thicken secondary sludge. A second thickening unit is needed to meet Department of Ecology criteria. The existing centrifuge will be used for regulatory redundancy for both dewatering and thickening. This retrofit is currently contracted and will cost approximately $120,000 to complete. (iii) New Blower Building and Emergency Power - The older 400 horsepower blowers and variable frequency drives (VFDs) that operate them were worn out and parts to fix the VFDs were not available. A contract was let in 2006 to replace the blowers and build a new blower building. Additional emergency power was also added in the blower building to assure minimum wastewater treatment is provided under utility power failures. This project is 95 percent complete and will have a total cost of approximately $5,000,000. (iv) Wastewater Disinfection - Construction to replace the existing chlorine gas disinfection process with an Ultraviolet Disinfection system is just starting and is expected to cost $3,200,000. The following areas have been identified and prioritized as the Yakima Wastewater Treatment Plant's most important improvements to be implemented next and will be funded by the Bonds: (i) Process Communications - Replacing the remaining Supervisory Communication and Data Administration (SCADA) system with updated hardware and programs will be designed and contracted in 2008 and 2009 and is estimated to cost $1,500,000. (ii) Solids thickening - The waste activated sludge (WAS) thickening process reduces the volume of solids sent to the dewatering processes. The repair of the DAFT, that thickens the sludge, will include replacing all mechanical components and resurfacing the concrete launders and tank walls. This will be performed in 2008 and 2009 and is expected to cost $750,000. (iii) Centrate Storage - Replacement of the last centrate lagoon with two one million gallon centrate tanks will be designed in 2008 and constructed in 2009. The estimated cost for this is $3,250,000. Billing and Collection Policy The City bills on a bi-monthly basis. Bills are due 14 days after they are sent and if the bills are not paid by that date, a reminder notice is sent requesting payment within 14 days. If the bill is not paid by the end of the 14 day period, a suspension notice is sent to the customer stating that if the bill is not paid in 7 days, service will be suspended and the account will be turned over to collection. If the bill is not paid by the suspension date, water service is suspended. If the bill is not paid 90 days after the original billing date, it is sent to a collection agency. Endangered Species Act In planning future 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, 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 "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. Financial Results The following tables provide a comparative combined balance sheet and historical combined statement of revenues 0 and expenses for the City's Water and Sewer Enterprise Funds. 21 Water and Sewer Enterprise Funds Statement of Net Assets (Years Ending December 31) Audited 2006 2005 2004 2003 2002 Assets Cash and Equity (1) $ 7,731,493 $ 6,609,493 $ 7,285,290 $ 13,709,947 $ 4,515,506 ' Receivables: Accounts 1,615,155 1,295,029 1,617,843 1281,659 3,105,330 Notes/Contracts 5,374 5,374 5,374 5,374 12,203 Interest/Penalties 57,681 22,515 44,329 36,902 63,675 Other Receivables 9,750 9,750 15,000 16,950 2 5,05 0 Due from other Governments 25,000 0 0 38,852 0 Inventories 250,638 222,287 190,102 2 00,48 2 189,270 Investments, at amortized cost (2) 6,010,914 11,515,784 12,220,975 5,685,846 5,448,735 Restricted Assets: Cash 2,669,690 965,165 2,665,164 2,609,505 2,085,783 Investments, at amortized cost 0 1,700,000 0 0 0 Land 775,026 775,027 780,211 780,211 780,211 Buildings 59,000,841 58,392,418 58,243,221 56,468,565 56,468,565 Other Improvements 83,182,412 70,471,669 69,027,695 63,874,649 61,708,099 Machinery & Equipment 8,958,012 8,918,893 7,130,213 6,845,676 6,802,453 Accumulated Depreciation' (72,502,488) (68,800,295) (65,223,714) (61,609,967) (57,907,135) Construction in Progress 13,113,027 15,748,025 10,747,175 10,508,526 10,296,049 Completed Construction 0 2,232,245 2,232,245 2232,245 2,232,245 Intangibles 221,830 221,830 221,830 2 21,83 0 221,830 Unamortized Debt Issue Costs 102,277 111,504 120,729 129,955 37,553 Total Assets 111,226,632 110,416,713 107,323,682 103,037,207 96,085,422 Liabilities Warrants/Accounts Payable 929,162 1,311,917 1,140,375 552,489 1,355,300 Wages/Benefits Payable 574,199 545,830 509,504 485,692 448,811 Compensated Absences Payable 711,137 636,225 631,303 549,156 545,415 Accrued Payables 216,853 236,096 242,245 145,902 192,438 Deposits Payable 225,404 2 61,3 74 224,910 223,115 200,676 Current Portion - Long-term Debt 748,213 747,854 746,177 604,361 690,259 Restricted Payables 1,590,000 1,540,000 1,485,000 1,535,000 1,045,000 Bonds Payable 19,845,000 21,435,000 22,975,001 24,460,000 8,450,000 Unamortized Bond Discount 290,865 303,565 316,266 328,966 (61,843) Deferred Amount on Debt Refunding (150,081) (185,432) (220,784) (256,136) (291,489) Loans Payable - Long Term 7,787,536 8,306,447 7,781,639 6,506,941 6,892,715 Total Liabilities 32,768,288 35,138,876 35,831,636 35,135,486 19,467,282 Net Assets Invested Capital Assets 69,081,452 68,430,364 65,774,061 63,671,656 Retained Earnings Restricted for Debt Service 2,669,690 2,665,165 2,665,164 2,609,505 Unrestricted 6,707,202 4,182,308 3,052,821 1,620,560 Total Net Assets 78,458,344 75,277,837 71,492,046 67,901,721 Total Liabilities and Fund Equity 68,389,116 2,085,358 6,143,666 76,618,140 $ 111,226,632 $ 110,416,713 $ 107,323,682 $ 103,037,207 $ 96,085,422 (1) The cash balance in 2003 includes the 2003 bond issue. (2) Reduction of investments in 2005 and 2006 is result of spending remaining bond proceeds on projects. Sou rcc City of Yakima 22 • • • • • Operating Revenues: Charges for Services Other Operating Revenues Total Operating Revenues Water and Sewer Operating Statement Combining Statement of Revenues and Expenses Historical Coverage Table (Years Ending December 31) Audited 2006 2005 2004 2003 2002 $ 20,756,282 15,404 20,771,686 $ 19,501,459 4,398 19,505,857 $ 19,881,046 17,970 19,899,016 $ 17,072,071 2,801 17,074,872 5 16,108,123 1,130 16,109,253 Operating Expenses: Operations and Maintenance 11,173,761 10,648,292 10,730,670 9,409,255 8,803,501 Taxes 1,033,203 996,298 1,145,372 983,420 922,865 In -lieu Taxes 2,738,199 2,601,323 2,432,000 2,273,948 2,017,603 Depreciation Expense 3,702,193 3,576,581 3,677,522 • 3,702,832 3,425,246 Total Operating Expenses 18,647,356 17,822,494 17,985,564 16,369,455. 15,169,215 Net Operating Income 2,124,330 1,683,363 1,913,452 705,417 940,038 Other Income (Expenses): Interest Income 456,886 368,669 214,029 101,290 302,667 Gain (Loss) on Sale of Assets 86,247. 88,566 0 0 0 Other Non -Operating Revenues 827,162 384,931 460,835 279,183 15,625 Interest Expenses (964,545) (888,880) (883,214) (468,684) (541,993) Amortization of Bond Payment Discount (31,878) (31,878) (31,878) (46,253) (48,290) Total Other Income 373,872 (78,592) (240,228) (134,464) (271,991) Total Income 2,498,202 1,604,771 1,673,224 570,953 668,047 Capital Contributions 1,912,037 2,386,711 2,015,279 4,084,862 1,968,357 Transfers In 32,939 32,939 32,939 32,000 0 Transfers (Out) (1) (199,068) (238,630) (131,117) (8,930,771) (94,928) Change in Net Assets $ 4,244,110 $ 3,785,791 $ • 3,590,325 $ (4,242,956) $ 2,541,476 Total Net Assets Dec 31 (2) 5 78,458,344 $ 75,277,837 $ 71,492,046 $ 67,901,721 $ 76,618,140 Available for Debt Service on First Lien Bonds (3) $ 9;848,770 $ 8,614,867 $ 8,697,838 $ 7,062,670 ' $ 6,701,179 First Lien Debt Service 5' 0 $ 0 $ 0 $ 276,075 $ 273,653 Coverage N/A - N/A N/A 25.58 24.49 Available for Debt Service on Second Lien Bonds (4) $ 9,848,770 $ 8,614,867 $ 8,697,838 5 6,786,595 $ 6,427,526 Parity Bond Debt Service 1992 Loan $ 0 $ 0 $ 0 $ 324,791 $ 324,791 1996 Bonds 366,035 365,585 369,360 361,915 363,875 1998 Bonds 797,610 794,380 790,210 795,410 909,210 2003A Bonds 847,806 845,606 918,204 0 0 2003B Bonds 501,950 501,950 440,601 0 0 Second Lien Parity Bonds Debt Service $ 2,513,401 $ 2,507,521 $ 2,518,375 $ 1,482,116 $ 1,597,876 Debt Service Coverage 3.92 3.44 3.45 4.58 4.02 (1) 2003 Transfers (Out) includes an extrodinary item of $8,332,443 paid toward settlement of litigation and litigation expenses. The majority of this item was funded through the 2003 Bonds. (2) The 2005 net assests were restated in the 2006 financial statements, to correct an overstatment of $1,063,603 in the construction in progress account of the water find. The 2002 net assets were restated in 2003 financial statements during the implementation of GASB 34. (3) Net Revenues as defined in the Bond Ordinance which excludes depreciation, municipal taxes and costs of capital additions to or replacements • of the System. The First Lien Bonds are the City's 1968 Water and Sewer Revenue Bonds which matured on March 1, 2003. (4) Net Revenues less First Lien debt service. For as long as the First Lien Bonds remained outstanding, the Second Lien Bonds included the City's 1992 State Revolving Fund Loan, 1996 Bonds and 1998 Bonds. Source: City of Yakima 23 The City The City of Yakima was incorporated in 1886. It is the ninth largest city in the State in terms of square miles, encompassing 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, 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 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 Council from within its own membership every two years. City Council David Edler, Mayor Micah Cawley, Asst. Mayor Kathy Coffey Rick Ensey Norm Johnson Bill Lover Neil McClure Elected Officials Term Expires December 31, 2011 December 31, 2009 December 31, 2011 December 31, 2011 December 31, 2009 December 31, 2009 December 31, 2011 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 1979. Mr. Zais is responsible for the supervision and direction of a full-service city with seven operating departments. Mr. Zais administers the $164 million annual City budget with a $55 million annual payroll for over 600 full-time employees. Mr. Zais serves as the Council's chief advisor, appoints all administrative officers and employees and executes Council policy and programs. Mr. Zais' educational background is in public administration with a B.A. and M.P.A. from the University of Washington. Rita M. DeBord, Director of Finance & Budget. Ms. DeBord joined the City in 1999 as the Finance Director, coming from Puget Sound Energy Corporation. Ms. DeBord 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. DeBord served in many capacities including the following key management positions: Manager of District Operations; Manager of Corporate Budgets; and Manager of Information Systems Project. Ms. DeBord has a degree in Accounting from Central Washington University, is a Certified Public Accountant ("CPA") and is a member of the American Institute of Certified Public Accountants and the Washington Society of Certified Public Accountants. Cindy J. Epperson, Deputy Director, Budget and Accounting. Ms. Epperson joined the City in 1990 as an accountant, previously working in the agricultural industry as an accounting manager and as a Senior Auditor for an international accounting firm. Ms. Epperson was promoted to Deputy Director over Budget and Accounting in 2007, where she has the responsibility for the City's accounting systems and processes including financial statement preparation and annual Budget preparation. Ms. Epperson is a key strategic participator in the development of the City's budget, in maintaining the City's fiscal stability, and in generating and/or analyzing complex financial proposals to further the City's critical goals and objectives. Ms. Epperson obtained a Bachelor of Science degree in Accounting from the University of Arkansas in Little Rock and passed the CPA exam. 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 Bachelor of Science in Accounting from Central Washington University in 1986, passed the CPA exam, and practiced as a CPA for six years. Mr. Jensen also studied Economics at the University of California, Berkeley and the University of Nevada, 24 • • eReno from 1974 through 1977. Mr. Jensen is currently President of the Washington Finance Officers Association ("WFOA"). 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. Labor Relations The City currently employs approximately 675 full-time and 97 part-time and temporary employees - some of which belong to a union. A majority of the City's employees are represented by bargaining units as follows: Bargaining Unit American Federation of State, County and Municipal Employees - Municipal Yakima Police Patrolman's Association Fire Suppression AFSCME - Transit Fire Communications Fire PERS Confidential/Management * N/A — no contract Number of Employees 280 124 78 51 16 19 145 Contract Expiration Date December 31, 2009 December 31, 2008 December 31, 2009 December 31, 2009 December 31, 2009 December 31, 2009 * Pension System Public Employees' Retirement System ("PERS"). Substantially all of the City's full-time and qualifying part-time employees, other than those covered under union plans, participate in PERS. This is a statewide local government retirement system administered by the Washington State Department of Retirement Systems, under cost-sharing, multiple -employer defined benefit public employee retirement plans. The PERS system includes three plans. Participants who joined the system by September 30, 1977, are PERS Plan I members. Those joining thereafter are enrolled in PERS Plan II. A third plan, entitled PERS Plan III, provides members with a defined benefit plan similar to PERS Plan II and the opportunity to invest their retirement contributions in a defined contribution plan. PERS Plan I members are eligible for retirement at any age after 30 years of service, at age 60 with five years of service, or at age 55 with 25 years of service. The annual pension is two percent of the average final compensation per year of service, capped at 60 percent. The average final compensation is based on the greatest compensation earned during any 24 eligible consecutive compensation months. PERS Plan II members may retire at age 65 with five years of service or at 55 with 20 years of service. The annual pension is two percent of the average final compensation per year of service. PERS Plan II retirements prior to 65 are actuarially. reduced. On July 1 of each year following the first full year of retirement service, the benefit will be adjusted by the percentage change in the Consumer Price Index ("CPI") of Seattle, capped at three percent annually. PERS Plan III is structured as a dual benefit program that will provide members with the following benefits: • A defined benefit allowance similar to PERS Plan II calculated as one percent of the average final compensation per year of service (versus a two percent formula) and funded entirely by employer contributions. • A defined contribution account consisting of member contributions plus the full investment return on those contributions. Each biennium, the State Pension Funding Council adopts PERS Plan I employer contribution rates and PERS Plan II employer and employee contribution rates. Employee contribution rates for PERS Plan I are established by 0 statute at six percent and do not vary from year to year. The employer and employee contribution rates for PERS Plan II are set by the director of the Department of Retirement Systems, based on recommendations by the Office of the State Actuary, to continue to fully fund PERS Plan II. Unlike PERS Plan II, which has a single contribution rate 25 (which is currently 4.15 percent), with PERS Plan III, the employee chooses how much to contribute from one to six contribution rate options. Once an option has been selected, the contribution rate choice is irrevocable unless the employee changes employers. All employers are required to contribute at the level established by State law. The methods used to determine the contribution requirements are established under State statute in accordance with chapters 41.40 and 41.26 RCW. For the year ending December 31, 2007, the City's total contribution to all systems of $2,228,929, or 8.97 percent of all covered payrolls, represents its full liability under the system, except that future rates may be adjusted to meet the system needs. Law Enforcement Officers' and Fire Fighters' Retirement System ("LEOFF"). LEOFF is a cost-sharing multiple -employer defined benefit pension plan. Membership in the plan includes all full-time, fully compensated local law enforcement officers, and fire fighters. The LEOFF system includes two plans. Participants who joined the system by September 30, 1977, are LEOFF Plan I members. Those joining thereafter are enrolled in LEOFF Plan II. Retirement benefits are financed from employee and employer contributions, investment earnings, and State contributions. Retirement benefits in both LEOFF Plan I and LEOFF Plan II are vested after completion of five years of eligible service. LEOFF Plan I members are eligible to retire with five years of service at age 50. The service retirement benefit is dependent upon the final average salary and service credit years at retirement. On April 1 of each year following the first full year of retirement service, the benefit will be adjusted by the percentage change in the CPI of Seattle. Term of Service 5-9 Years 10-19 Years 20 or more years Percent of Final Average 1.0% 1.5 2.0 LEOFF Plan II members are eligible to retire at the age of 50 with 20 years of service or at 53 with five years of service. Retirement benefits prior to age 53 are actuarially reduced at a rate of three percent per year. The benefit is two percent of the final average salary per year of service. The final average salary is determined as the 60 highest paid consecutive service months. There is no limit on the number of service credit years, which may be included in the benefit calculation. On July 1 of each year following the first full year of retirement service, the benefit will be adjusted by the percentage change in the CPI of Seattle, capped at three percent annually. LEOFF Plan I employer and employee contribution rates are established by statute, and the State is responsible for the balance of the funding at rates set by the Pension Funding Council to fully amortize the total costs of the plan. Employer and employee rates for LEOFF Plan II are set by the director of the Department of Retirement Systems, based on recommendations by the Office of the State Actuary, to continue to fully fund the plan. LEOFF Plan II employers and employees are required to contribute at the level required by State law. The methods used to determine the contribution rates are established under State statute in accordance with Chapters 41.26 and 41.45 RCW. For the year ending December 31, 2007, the City's contribution to LEOFF I (for participants who joined the system by September 30, 1977) of 0.0005 percent and to LEOFF II (participants who joined after September 30, 1977) of 4.9 percent of covered payroll totaled $783,921, representing its full liability under the system, except that future rates may be adjusted to meet the system needs. Pension Contribution Rates - Employers System: 1/01/07 — 6/30/07 7/01/07 — 6/30/08 7/01/08 — 6/30/09 PERS 1,2, & 3 5.46 % 6.15% 8.33% PSERS 8.53% 8.57% 9.45% LEOFF 1 0.18% 0.18% 0.18% LEOFF 2 4.92% 5.37% 5.48% Source: Association of Washington Cities. 26 • • Historical trend information regarding all of these plans is presented in Washington State's Department of Retirement Systems' annual financial report. A copy of this report may be obtained at: Department of Retirement Systems Point Plaza West 1025 East Union Street P.O. Box 48380 Olympia, WA 98504-8380 Internet Address: www.drs.wa.gov* * This inactive textual reference to the Department of Retirement System's website is not a hyperlink and does not incorporate the website by reference. 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 actuarial studies are performed every five years with the most recent update completed January 1, 2003. The required contributions identified in these valuations have been the basis for recording the unfunded pension liability since 1989. The next actuarial study scheduled is for September 2008. 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. This fund had an unfunded pension liability of $4,800,754 at December 31, 2007. • 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 $1,453,254 at December 31, 2007. An actuarial study was completed January 1, 2003. Other Post Employment Benefits The Government Accounting Standards Board ("GASB") has issued a new standard concerning Accounting and Financial Reporting by Employers for Post Employment Benefits Other than Pensions ("GASB 45"). In addition to pensions, many state and local governmental employers provide other post employment benefits ("OPEB") as a part of total compensation to attract and retain the services of qualified employees. OPEB includes post employment healthcare, as well as other forms of post employment benefits when provided separately from a pension plan. The new standard provides for the measurement, recognition and display of OPEB expenses/expenditures, related liabilities (assets), note disclosures, and if applicable, required supplementary information in the financial reports. This pronouncement is effective for the City for the fiscal year beginning after December 15, 2007. To date, the City has not had an actuarial study performed to comply with GASB 45. The City plans to have an actuarial study performed by September 30, 2008 for the fiscal year ending December 31, 2008. 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 coverage. 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. 27 Self-insured Medical/Dental Program. The City, in 1979, self-insured its medical and dental programs for all eligible employees (temporary employees and employees hired to work less than half-time are not eligible under the plan). The City's Human Resources Office administers the self-insured program and claims payment services are provided by Health Care Management Administrators, 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 2007 were $6,712,843. Incurred but not reported claims of $1,161,993 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 Sun Life 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 $150,000 in a calendar year are thereafter reimbursed by Sun Life up to $1 million per person. 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 Law Enforcement Officers' and Fire Fighters' ("LEOFF") I Retirement System in 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 Human Resources Office with claims administration and safety services provided by NovaPro Risk Solutions (formerly Ward North America). 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 2007 were $982,990. Based on the claim manager's estimate, the City has accrued incurred but not reported claims of $792,000 at December 31, 2007. In order to avoid catastrophic losses, the City "reinsures" the program by purchasing insurance known as "stop- loss insurance." This insurance is provided through Wells Fargo Insurance Company under a policy purchased from Employers Reinsurance Corporation. Under the individual stop -loss portion of the insurance, the City pays the first $500,000 of a claim and the insurance company pays (a) the balance up to $1 million for an individual claim or (b) the balance up to a maximum of $25 million for multiple claims arising from a single incident. 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 2007 were $1,941,659. The Fund provides for administration, legal services, claims adjustment, and for the purchase of property, excess liability and other insurance coverage. Liabilities of the fund are reported when it is probable that a loss has occurred and the amount of the loss can be reasonably estimated. Liabilities include an amount for claims that have been incurred but not reported. The result of the process to estimate the claims liability is not an exact amount as it depends on many complex factors, such as inflation, changes in legal doctrines and damage awards. Accordingly, claims are reevaluated periodically to consider recent claim settlement trends, inflation and other economic and social factors. The estimate of the claims liability also includes amounts for incremental claims adjustment expenses related to specific claims. Based on these factors, the claims manager's estimate of claims liability was $1,100,000 as of December 31, 2007. In late 2005, the City joined an insurance pool and now maintains general liability coverage of $15 million, insured by St. Paul Fire and Marine Insurance Company with a $100,000 deductible. The City also joined the Washington State Transit 28 • • • •Insurance Pool (WSTIP) in September 2005. The deductible for the Transit Division for this program is $5,000 with $12 million in general liability coverage. 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 with the exception of the infrastructure component which will be complete as prescribed by GASB in the 2007 Financial Statements. 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 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. Governmental Funds. All governmental funds are accounted for on a spending or "financial flow" measurement elfocus. 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 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 Council. 29 Cash and Investments • Cash and investments are managed under the guidance of the City's Investment Policy adopted by a resolution of the 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. 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 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 and 35.39 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) Bonds of the State of Washington or any local government within the State of Washington, which have at the time of investment one of the three highest credit ratings of a nationally recognized rating agency; (v) General obligation bonds of a state other than the state of Washington and general obligation bonds of a local government of a state other than the state of Washington which have at the time of investment one of the three highest credit ratings of a nationally recognized rating agency; (vi) banker's acceptances sold on the secondary market; (vii) the Local Government Investment Pool ("LGIP"); and (viii) high quality commercial paper. The market value of investments held in the combined portfolios under the control of the Department of Finance and Budget as of December 31, 2007 was $55,541,472. Of that amount, 52 percent was in agency securities, 45 percent was in the LGIP, and 2 percent was invested in U.S. Treasuries and 2 percent was in high grade taxable 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 (see "Authorized Investments" herein). 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 City Clerk's Office. The audited financial statements of the City for the year ended December 31, 2006, 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"). 30 • • • Demographic Information The City lies in central Washington State in the County approximately 142 miles southeast of Seattle and 188 miles northeast of Portland, Oregon. The County ranks second in the State in terms of square miles and eighth 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 City of Yakima Yakima City of April 1 County Yakima 2007 234,200 82,940 2006 231,800 81,710 2005 229,300 81,470 2004 227,500 79,480 2003 226,000 79,220 Source: Washington State Office of Financial Management, March 2008. Economic Indicators Major Employers. 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. Yakima County Major Employers Employer Yakima Valley Memorial Hospital Washington Dept of Social and Health Services Yakima School District No. 7 Yakima County Yakima Regional Hospital Sno-kist Growers Wal-Mart Washington Beef Inc/ AB Foods, Inc, City of Yakima Yakima Valley Community College Yakama Nation Legends Casino Shields Bag & Printing Company Tree Top, Inc. Yakima Training Center Quality Transportation West Valley School District Source: Yakima County Development Association, March 2008. 31 Type of Business Healthcare Social Services Education Government Healthcare Food Processing Retail Food Processing Government Education Entertainment Printing Fruit Processing Military Trucking/Shipping Education Number of Employees 1,500 1,034 1,001 1,000 941 851 825 725 623 590 573 525 475 415 410 408 Income. Historic personal income and per capita income levels for the County and the State are shown below: Yakima County and State of Washington Total Personal and Per Capita Income Yakima County State of Washington Total Personal Per Capita Total Personal Per Capita Year Income (in millions) Income Income (in millions) Income 2006 N/A N/A $243,471,226 $38,067 2005 $5,850,933 $25,336 224,807,529 35,730 2004 5,647,222 24,637 218,366,056 35,189 2003 5,457,861 24,154 202,942,123 33,105 2002 5,179,243 23,058 197,451,578 32,528 2001 5,151,726 23,055 193,498,304 32,274 Source: U.S. Department of Commerce, Bureau of Economic Analysis, March 2008. Taxable Retail Sales. Taxable retail sales reflect only those sales subject to retail sales tax. Historic taxable retail sales for the City and the County are shown below: City of Yakima and Yakima County Taxable Retail Sales City of Yakima Year Yakima County 2007* $1,114,147,123 $2,073,164,799 2006 1,427,555,564 2,653,521,999 2005 1,350,618,320 2,503,736,875 2004 1,307,845,725 2,411,522,348 2003 1,246,026,347 2,294,202,221 2002 1,205,189,471 2,178, 920, 758 2001 1,176,022,552 2,122,049,462 *Data through third quarter only. Source: Washington State Department of Revenue, March 2008. 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 the County are listed below: Year City of Yakima Residential Building Permits New Single Family Units New Multi Family Units Total Number Valuation Number Valuation Valuation 2007 199 $40,714,849 67 $20,594,452 $61,309,301 2006 128 24,931,847 36 9,494,499 34,426,346 2005 79 13,242,711 27 8,959,367 22,202,078 2004 63 8,617,810 45 6,729,124 15,346,934 2003 71 9,367,964 19 3,992,851 13,360,815 2002 35 3,753,917 12 1,874,833 5,628,750 Source: City of Yakima, April 2008. 32 • ®Employment. Employment within the County is described in the following tables. Civilian Labor Force data is based on household surveys of residents. North American Industry Classification System ("NAICS") data are estimates based on surveys of employers and benchmarked based on covered employment as reported by all employers. • Yakima MSA Nonagricultural Wage & Salary Workers and Labor Force and Employment Data Annual Average Civilian Labor Force Total Employment Total Unemployment Percent of Labor Force NAICS INDUSTRY TOTAL NONFARM TOTAL PRIVATE GOODS PRODUCING NAT. RESOURCES, MINING, and CONSTR. MANUFACTURING Non -Durable Goods SERVICES PROVIDING PRIVATE SERVICES PROVIDING TRADE, TRANSPORTATION, & WAREHSG. Wholesale Trade Retail Trade Transportation, Warehousing, and Utilities PROFESSIONAL and BUSINESS SERVICES EDUCATIONAL and HEALTH SERVICES Health Services LEISURE and HOSPITALITY Food Services GOVERNMENT Federal Government State Government Local Government 2007 119,670 112,180 7,490 6.3 2006 2005 2004 2003 118,730 117,910 116,470 114,570 110,500 109,150 106,550 103,580 8,230 8,750 9,910 10,980 6.9 7.4 8.5 9.6 2007. 2006 2005 2004 2003 80,000 78,400 75,900 75,100. 74,900 62,400 61,200 59,000 58,400 58,300 13,200 13,000 12,700 12,700 12,900 4,000 4,100 3,600 3,400 3,200 9,200 8,900 9,100 9,300 9,800 5,500 5,400 5,000 5,000 5,500 66,800 65,400 63,200 62,300 62,000 49,200 48,200 46,300 45,600 45,400 17,700 17,200 16,300 16,300 15,700 4,700 4,600 4,200 4,000 3,800 9,800 9,600 9,500 9,400 9,500 3,200 3,000 2,700 2,900 2,400 4,300 4,500 4,200 4,200 4,500 13,800 13,300 12,600 12,200 11,800 12,700 12,200 11,500 11,100 10,800 7,000 6,900 6,700 6,400 6,400 4,700 4,800 4,800 4,600 4,600 17,600 17,200 17,000 16,700 16,600 1,300 1,300 1,300 1,300 1,400 3,100 3,000 3,000 3,000 2,900 13,200 12,900 12,700 12,400 12,300 Source: Washington State Employment Security Department, March 2008. Initiative and Referendum State Initiatives Under the State Constitution, the voters of the State have the ability to initiate legislation and require the Legislature to refer legislation to the voters through the powers of initiative and referendum, respectively. The initiative power in Washington may not be used to amend the State Constitution. Initiatives and referenda are submitted to the voters upon receipt of a petition signed by at least eight percent (initiative) and four percent (referenda) of the number of 0 voters registered and voting for the office of Governor at the preceding regular gubernatorial election. Any law approved in this manner by a majority of the voters may not be amended or repealed by the Legislature within a. period of two years following enactment, except by a vote of two-thirds of all the members elected to each house of 33 the Legislature. After two years, the law is subject to amendment or repeal by the Legislature in the same manner as other laws. Current and Future Initiative Legislation. Tax and fee initiative measures have been and may be filed from time to time. It cannot be predicted whether any such initiatives might gain sufficient signatures to qualify for submission to the Legislature and/or the voters or, if submitted, whether they ultimately would be approved. Tax Matters In the opinion of Bond Counsel, interest on the Bonds is excludable from gross income for federal income tax purposes and is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations; however, interest on the Bonds is taken into account in determining adjusted current earnings for the purpose of computing the alternative minimum tax imposed on certain corporations. Federal income tax law contains a number of requirements that apply to the Bonds, including investment restrictions, periodic payments of arbitrage profits to the United States, requirements regarding the use of proceeds of the Bonds and the facilities financed or refinanced with proceeds of the Bonds and certain other matters. The City has covenanted to comply with all applicable requirements. Bond Counsel's opinion is subject to the condition that the City comply with the above -referenced covenants and, in addition, will rely on representations by the City and its advisors with respect to matters solely within the knowledge of the City and its advisors, respectively, which Bond Counsel has not independently verified. If the City fails to comply with such covenants or if the foregoing representations are determined to be inaccurate or incomplete, interest on the Bonds could be included in gross income for federal income tax purposes retroactively to the date of issuance of the Bonds, regardless of the date on which the event causing taxability occurs. In rendering its opinion, Bond Counsel has relied on the report of Grant Thornton LLP with respect to the accuracy of certain mathematical calculations. Except as expressly stated above, Bond Counsel expresses no opinion regarding any other federal or state income tax consequences of acquiring, carrying, owning or disposing of the Bonds. Owners of the Bonds should consult their tax advisors regarding the applicability of any collateral tax consequences of owning the Bonds, which may include original issue discount, original issue premium, purchase at a market discount or at a premium, taxation upon sale, redemption or other disposition, and various withholding requirements. Prospective purchasers of the Bonds should be aware that ownership of the Bonds may result in collateral federal income tax consequences to certain taxpayers, including, without limitation, financial institutions, property and casualty insurance companies, individual recipients of Social Security or Railroad Retirement benefits, certain S corporations with "excess net passive income," foreign corporations subject to the branch profits tax, life insurance companies and taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry or have paid or incurred certain expenses allocable to the Bonds. Bond Counsel expresses no opinion regarding any collateral tax consequences. Prospective purchasers of the Bonds should consult their tax advisors regarding collateral federal income tax consequences. Payments of interest on tax-exempt obligations such as the Bonds, are in many cases required to be reported to the Internal Revenue Service (the "IRS"). Additionally, backup withholding may apply to any such payments made after March 31, 2007 to any owner who is not an "exempt recipient" and who fails to provide certain identifying information. Individuals generally are not exempt recipients; whereas corporations and certain other entities generally are exempt recipients. Bond Counsel's opinion is not a guarantee of result and is not binding on the IRS; rather, the opinion represents Bond Counsel's legal judgment based on its review of existing law and in reliance on the representations made to Bond Counsel and the City's compliance with its covenants. The IRS has established an ongoing program to audit tax-exempt obligations to determine whether interest on such obligations is includable in gross income for federal income tax purposes. Bond Counsel cannot predict whether the IRS will commence an audit of the Bonds. Owners of the Bonds are advised that, if the IRS does audit the Bonds, under current IRS procedures, at least during the 34 • *early stages of an audit, the IRS will treat the City as the taxpayer, and the owners of the Bonds may have limited rights to participate in the audit. The commencement of an audit could adversely affect the market value and liquidity of the Bonds until the audit is concluded, regardless of the ultimate outcome. Qualified Tax -Exempt Obligations The City has designated the Bonds as "qualified tax-exempt obligations" within the meaning of Section 265(b)(3)(B) of the Code. Rating As noted on the cover page of this Official Statement, the City will apply for a rating for the Bonds from Standard & Poor's Ratings Services. When and if obtained, the rating will reflect only the views of the rating agency and an explanation of the significance of the rating may be obtained from the rating agency. There is no assurance that the rating, once obtained, will be retained for any given period of time or that the rating will not be revised downward or withdrawn entirely by the rating agency if, in its judgment, circumstances so warrant. Any such downward revision or withdrawal of the rating will be likely to have an adverse effect on the market price of the Bonds. 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 2009 for the fiscal year ended December 31, 2008): (i) annual financial statements showing retained earnings for the System 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) and (ii) financial and operating data for the System, generally of the type included herein under the headings: (a) City Indebtedness of the System; (b) Water and Sewer Operating Statement — Combining Statement of Revenues and Expenses — Historical Coverage Table; (c) Water Service Charges Within City Limits and Sewer Services Charges; and (d) Number of Water Customers and Number of Sewer Customers. 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. 35 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. 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 attached hereto in Appendix B. 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 Official 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. Because 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 that any such legal actions will not be material to the financial position of the City. On February 15th, 2005 Congdon Orchards, Inc. and Congdon Development Company LLC (Congdon) filed a damage claim with the City alleging Congdon has been wrongfully damaged by Yakima's breaches of contract, negligence, tortious conduct, breaches of duties, errors and omissions, and other wrongful conduct. Congdon alleged its damages exceeded $21 million and continue. The City entered into letter agreements extending a 2005 tolling agreement, and the tolling agreement will now expire on October 1, 2009. Congdon has not filed a lawsuit, and it is not known whether it will do so. The City believes the chances of recovery are low. 36 • Official Statement In the Resolution 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 may be 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. • 37 • This page left blank intentionally. • • 38 • Appendix A Bond Ordinance Passed by Council on March 18, 2008 (Copy available upon request from the City Clerk's office) • This page left blank intentionally. • • • Appendix B Form of Opinion of Bond Counsel • • This page left blank intentionally. • • • K&LIGATES t June 5, 2008 City of Yakima Yakima, Washington Seattle -Northwest Securities Corporation Seattle, Washington K&L Preston Gates Ellis ur 925 fourth Avenue Suite 2900 Seattle, WA 98104-1158 r 206.823.7580 www,klgates.com Re: City of Yakima, Washington Water and Sewer Revenue and Refunding Bonds, 2008 — $ 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 Water and Sewer Revenue and Refunding Bonds, 2008, dated as of the date of their delivery, in the aggregate principal amount of $ (the "Bonds"), issued pursuant to Ordinance No. 2008-19 of the City passed on March 18, 2008 and Resolution No. R-2008- adopted on , 2008 (together, the "Bond Ordinance"), for the purpose of financing capital improvements to the City's water and sewer system and to refund certain outstanding water and sewer revenue bonds of the City. Capitalized terms not otherwise defined herein shall have the meanings given such terms in the Bond Ordinance. The Bonds are subject to redemption prior to their stated maturities 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 Securities and Exchange Commission Rule 15c2-12. Regarding questions of fact material to our opinion, we have relied on representations of the City in the Bond Ordinance and in the certified proceedings and on other certifications of public officials and others furnished to us without undertaking to verify the same by independent investigation. Based on the foregoing, we are of the opinion that, under existing law: 1. The Bonds have been legally issued and constitute valid and binding special obligations of the City, both principal thereof and interest thereon being payable solely out of City of Yakima Seattle -Northwest Securities Corporation June 5, 2008 Page 2 a special fund of the City known as the "Water and Sewer Revenue Bond Fund" (the "Bond Fund"), except to the extent that the enforcement of the rights and remedies of owners of the Bonds may be limited by laws relating to bankruptcy, reorganization, insolvency, moratorium or other similar laws of general application affecting the rights of creditors, by the application of equitable principles and the exercise of judicial discretion. 2. The Bond Ordinance is a legal, valid and binding obligation of the City, has been duly authorized, executed and delivered and is enforceable in accordance with its terms, except to the extent that enforcement may be limited by laws relating to bankruptcy, insolvency, moratorium, reorganization or other similar laws of general application affecting the rights of creditors, by the application of equitable principles and the exercise of judicial discretion. 3. The City has irrevocably bound itself to set aside from the Revenue Fund and pay into the Bond Fund out of the earnings and Gross Revenues of the System (as such terms are defined in the Bond Ordinance) and out of all utility local improvement district assessments required by law and ordinances of the City to be paid into the Bond Fund, certain fixed amounts necessary to pay and secure the payment of the principal of and interest on the Bonds as the same become due. 4. The City has pledged that the payments to be made into the Bond Fund and the Reserve Fund out of the Gross Revenues of the System shall be a lien and charge thereon equal in rank to the lien and charge upon the revenue of the amounts required to pay and secure the payment of any water and sewer revenue bonds of the City heretofore or hereafter issued on a parity with the Bond and superior to all other liens and charges, except the Costs of Maintenance and Operation of the System. The City has reserved the right to issue future parity bonds on the terms set forth in the Bond Ordinance. 5. Interest on the Bonds is excludable from gross income for federal income tax purposes and is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations; however, interest on the Bonds is taken into account in determining adjusted current earnings for the purpose of computing the alternative minimum tax imposed on certain corporations. The opinion set forth in the preceding sentence is subject to the condition that the City comply with all requirements of the Internal Revenue Code of 1986, as amended (the "Code"), that must be satisfied subsequent to the issuance of the Bonds in order that the interest thereon be, and continue to be, excludable from gross income for federal income tax purposes. The City has covenanted to comply with all applicable requirements. Failure to comply with certain of such covenants may cause interest on the Bonds to be included in gross income for federal income tax purposes retroactively to the date of issuance of the Bonds. The City has designated the Bonds as "qualified tax-exempt obligations" within the meaning of Section 265(b)(3) of the Code. • • • City of Yakima Seattle -Northwest Securities Corporation June 5, 2008 Page 3 Except as expressly stated above, we express no opinion regarding any other federal or state income tax consequences of acquiring, carrying, owning or disposing of the Bonds. Owners of the Bonds should consult their tax advisors regarding the applicability of any collateral tax consequences of owning the Bonds, which may include original issue discount, original issue premium, purchase at a market discount or at a premium, taxation upon sale, redemption or other disposition, and various withholding requirements. 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. Very truly yours, K&L PRESTON GATES & ELLIS LLP K.\2025739\00081 \20978_N M N\20978L21 YJ This page left blank intentionally. • • • • Appendix C Book -Entry Transfer System • This page left blank intentionally. • • • • • • 12,1J, S.'.T SAMPLE OFFERING DOCUMENT LANGUAGE DESCRIBING BOOK -ENTRY -ONLY ISSUANCE (Prepared by DTC --bracketed material may apply 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 $500 million, one certificate will be issued with respect to each $500 million of principal amount, and an additional certificate will be issued with respect to any remaining principal amount of such issue.] 2. DTC, the world's largest securities depository, is a limited -purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non -U.S. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC's participants ("Direct Participants") deposit with DTC. DTC also facilitates the post -trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book -entry transfers and pledges between Direct Participants' accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non -U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation ("DTCC"). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non -U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ("Indirect Participants"). DTC has Standard & Poor's highest. rating: AAA. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com and www.dtc.org. 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. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Securities are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in 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 Direct Participants with DTC are registered in the name of DTC's partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of 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 Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. 5. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. [Beneficial Owners of 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. For example, 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. 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, DTC's 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 any other DTC nominee) will consent or vote with respect to Securities unless authorized by a Direct Participant in accordance with DTC's MMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to Issuer as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct Participants to whose accounts Securities are credited on the record date (identified in a listing attached to the Omnibus Proxy). 8. Redemption proceeds, distributions, and dividend 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 receipt 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 redemption proceeds, distributions, and dividend payments 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 will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will 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 records and followed by a book -entry credit of tendered Securities to [Tender/Remarketing] Agent's DTC account.] 10. DTC may discontinue providing its services as 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 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 -only transfers through DTC (or a successor securities depository). In that event, Security certificates will be printed and delivered to DTC. 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. [03/08] • • • Appendix D 2006 Annual Financial Statements (Copy available from the Finance Department, upon request) • • This page left blank intentionally. • • • • • • CITY OF YAKIMA, WASHINGTON RESOLUTION NO. 7)Aaat A RESOLUTION authorizing the execution and delivery of a contract for purchase of the City's Water and Sewer Revenue and Refunding Bonds, 2008, in the amount of $ , fixing certain terms of the bonds, approving the form of the official statement [and insurance], and ratifying certain acts and proceedings. WHEREAS, the City -of Yakima, Washington (the "City"), by Ordinance No. 2008-19 passed on March 18, 2008 (the "Bond Ordinance"), authorized the issuance of the City's Water and Sewer Revenue and Refunding Bonds, 2008, in one or more series in an amount not to exceed $9,750,000; 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 amount of $ ; 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 Water and Sewer Revenue and Refunding Bonds, 2008 in the amount of $ (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 Contract for the Bonds dated May 6, 2008 (the "Purchase Contract"), 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: P120978 NMN120978 33J 5/1/2008 Aaat Section 1. Definitions. Capitalized teims used herein and not otherwise defined shall have the same meanings, respectively, in this resolution as such terms are given in Section 1.1 of the Bond Ordinance. Section 2. Acceptance of Offer. The Council hereby finds and determines that the Purchase Contract 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 and determines that all conditions precedent to or concurrent with the acceptance of the Purchase Contract by the Council have been met. The Council hereby accepts the Purchase Contract and authorizes and directs the Director of Finance and Budget to execute the Purchase Contract 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 Contract. Section 3. Terms, Schedule of Maturities and Interest Rates. The Bonds shall be designated the "City of Yakima Water and Sewer Revenue and Refunding Bonds, 2008". The Bonds shall be dated as of the date of their initial delivery, currently scheduled for June 5, 2008, 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 November 1, 2008, and semiannually thereafter on the first days of May and November. • • • • The Bonds shall mature on November 1 of the following years in the following amounts and shall bear interest as follows: Maturity Date Amount 2008 $ 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 Section 4. Redemption. Rate (a) Optional Redemption. The Bonds maturing on or prior to November 1, 2017 are not subject to redemption prior to their stated maturity dates. The Bonds maturing on or after November 1, 2018 are subject to redemption at the option of the City on and after May 1, 2018, 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 November 1, 20 (which shall be deemed to be Term Bonds), shall be redeemed prior to maturity randomly (or paid at maturity), not later than November 1 in the years set forth below (to the extent such Bonds have not been previously redeemed or purchased) and in the principal amounts set forth below, without premium, together with the interest accrued to the date fixed for redemption. Year Amount * * Final Maturity.] Section 5. Execution and Delivery of the Bonds. The proper officers of the Council and the Director of Finance and Budget 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 Contract 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 April 30, 2008; 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 such 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. Disposition of Bond Proceeds; Refunding Plan. (a) Refunding Plan. For the purpose of realizing a debt service savings, the City Council proposes to apply the proceeds of the Bonds for the purpose of providing for the payment of the principal of and interest on all of the outstanding $[ ] of the 1998 Bonds maturing in the years 2009 through 2018 (the "Refunded Bonds"). The Refunded Bonds shall be called for redemption at a price of 100% on September 1, 2008. (b) Refunding Account. There is hereby authorized to be created in the Debt Service Fund an account known as the "Refunding Account," which account is to be drawn upon for the sole purpose of paying the principal of and interest on the Refunded Bonds until their respective dates of redemption and of paying costs related to the refunding of the Refunded Bonds. The proceeds of sale of the Bonds shall be credited to the Refunding Account. Money in the Refunding Account shall be used immediately upon receipt to defease the Refunded Bonds as authorized by the Ordinance and to pay costs of issuance. The City shall defease the Refunded Bonds and discharge such obligations by the use of money in the Refunding Account to purchase certain Government Obligations (which obligations so purchased are herein called "Acquired Obligations"), bearing such interest and maturing as to principal and interest in such amounts and at such times which, together with any necessary beginning cash balance, will provide for the payment of: (1) interest on the Refunded Bonds due and payable through and including September 1, 2008; and (2) . the redemption price of the Refunded Bonds (100% of the principal amount thereof) on September 1, 2008. Such Acquired Obligations shall be purchased for the Refunded Bonds at a yield not greater than the yield permitted by the Code and regulations relating to acquired obligations in connection with refunding bond issues. (c) Escrow Agent/Escrow Agreements. To carry out the refunding and defeasance of the Refunded Bonds, the Director of Finance and Budget is hereby authorized to appoint as escrow agent a bank or trust company qualified by law to perform the duties described herein (the "Escrow Agent"). A beginning cash balance, if any, and Acquired Obligations shall be deposited irrevocably with the Escrow Agent on the date of issuance of the Bonds in an amount sufficient to defease the Refunded Bonds. The proceeds of the Bonds remaining in the Refunding Account after acquisition of the Acquired Obligations and provision for the necessary beginning cash balance shall be utilized to pay expenses of the acquisition and safekeeping of the Acquired Obligations and expenses of the issuance of the Bonds. In order to carry out the purposes of this section, the Director of Finance and Budget is authorized and directed to execute and deliver to the Escrow Agent, an Escrow Deposit Agreement for the Bonds. (d) Implementation of Refunding Plan. The City will irrevocably set aside sufficient funds out of the purchase of Acquired Obligations from proceeds of the Bonds to make the payments described in subsections (a) and (b) of this section. The City hereby irrevocably calls the Refunded Bonds for redemption on September 1, 2008 in accordance with the provisions of Ordinance No. 98-31, authorizing the redemption and retirement of the Refunded Bonds prior to their fixed maturities. Said defeasance and call for redemption of the Refunded Bonds shall be irrevocable after the final establishment of the applicable- escrow account and delivery of the applicable Acquired Obligations to the Escrow • • • Agent. The Escrow Agent is hereby authorized and directed to provide for the giving of notice of the redemption of the Refunded Bonds in accordance with the applicable provisions of Ordinance No. 98-31. [Section 8. Insurance. (a) Acceptance of Insurance. In accordance with the offer of the Purchaser to purchase the Bonds, the Council hereby approves the commitment of (the "Insurer") to provide a bond insurance policy guaranteeing the payment when due of principal of and interest on the Bonds (the "Bond Insurance 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. (b) Payments Under the Bond Insurance Policy and Rights of the Insurer. To come upon acceptance of insurance. Section 9. 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. weat6 Section 10. Effective Date. This resolution shall be in effect from and after its adoption in accordance with law. ADOPTED at a regular meeting of the City Council of the City of Yakima, Washington, this 6th day of May, 2008. CITY OF YAKIMA, WASHINGTON David Edler, Mayor ATTEST Deborah J. Moore, City Clerk APPROVED AS TO FORM: City Attorney • • • • 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 regular meeting of the Council held on the 6th day of May, 2008, 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 6th day of May, 2008. (SEAL) City Clerk P.120978 NMN120978 33J 5/1/2008 • Bond Purchase Offer (Not available at this time) Thispage intentionally left blank • • • MEMORANDUM May 6, 2008 To: The Honorable Mayor and Council Members Dick Zais, City Manager From: Rita DeBord, Finance Directo Tim Jensen, Treasury Services Of� Subject: 2008 Water and Wastewater Bonds - Update Attached, is an addendum to Agenda Statement #11 - included in your Council packets on Thursday. As noted in the Agenda Statement, staff would update that information with the final terms and conditions of the bond sale after pricing occurred. (Pricing took place this morning.) BUSINESS OF THE CITY COUNCIL YAKIMA, WASHINGTON ADDENDUM AGENDA STATEMENT - Item No. 11 For Meeting Of 5-6-2008 This addendum is a supplement to the Agenda Statement item # 11 included in your packets on Thursday. This addendum contains final terms and conditions - and related documents - of the 2008 Water and Wastewater Bonds issued on the morning of May 6,'2008. Since preparation of the Bond Ordinance, staff completed the Preliminary Official Statement and conducted a comprehensive credit review with Standard and Poor's, which resulted in an unusual two -notch upgrade in the System's credit rating - from "A" to "AA-". This is a strong investment grade credit rating, (a copy of the credit report attached). In their report, Standard and Poor's cited rational for the upgrade was: • The System's sustained record of ample debt service coverage, which is attributed to good management practices • Council's willingness to authorize multi-year rate increases, which support the long-term capital and operational needs of the utilities. • The utility's practice of performing regular cost of service studies to determine operational and capital system requirements. Terms and Conditions of Bond Sale - for Council consideration: • The City received a purchase offer from Seattle Northwest Securities; Aggregate principal par amount of bonds offer is $8,840,000; this includes both the 2008 Water/Wastewater Revenue bonds and refunding of the 1998 Water/ Wastewater bonds. • The Par amount of the new money portion of the bonds is $5,440,000; 20 year bonds ❖ Interest cost of 4.01 % including legal and underwriting costs • The refunding bonds par amount is $3,400,000 to refund $3,430,000 of the 1998 Water/ Wastewater bonds ❖ Interest cost of 3.58%, resulting in average debt service savings of approximately $94,400 at present value over the life of the issue (about $9,500 annually). This is a savings is about 2.75% of the refunded bonds. • Bond insurance has been purchased for the entire issue, saving approx. $15,000. • Total interest cost on the combined sale is 3.91 %, including issuance costs and bond insurance. (Amortization schedules on the projects are included in this packet for your review). To accept the purchase offer and execute this bond sale, Council would need to approve the following documents: • Final Bond Sale Resolution* - prepared by the City's Bond Counsel, KL Preston Gates) • Bond Purchase Agreement* - from Seattle Northwest Securities • Preliminary Official Statement (included in your packet on Friday). • Staff Recommendation: In today's interest rate environment, staff feels this is an acceptable offer and recommends Council to approve the sale of the 2008 Revenue and Refunding bonds. Legal/BD rev. effective 7/21/92 • • .• /iay z, LUU Summary: Yakima, Washington; Water/Sewer Primary Credit Analyst: Chris Morgan, San Francisco (1)415-371-5032; chris_morgan@standardandpoors.com Secondary Credit Analyst: Misty Newland, San Francisco (1) 415-371-5073; misty_newland@standardandpoors.com Table Of Contents . Rationale Outlook • www.standardandpoors.com/ratingsdirect 1 Standard & Poor's. All rights reserved No reprint or dissemination without S&P?s permission See Terms of I Icottlicrlairnor r tho Ior nano • • Summary: Yakima, Washington; Water/Sewer US$9.195 mil wtr & swr rev & rfdg bnds ser 2008 due 11/01/2027 Long Term Rating AA -/Stable . n New Yakima second lien wtr and swr rev and rfdg.bnds ser 1998 (SPUR) Unenhanced Rating AA-(SPUR)/Stable -Upgraded Yakima wtr/swr Unenhanced Rating Many issues are enhanced by bond insurance. AA-(SPUR)/Stable Upgraded Rationale Standard & Poor's Ratings Services raised its underlying rating (SPUR) to 'AA-' from 'A' on Yakima, Wash.'s water and sewer revenue bonds. The outlook is stable. In addition, we assigned an 'AA-' rating and stable outlook to the city's series 2008 water and sewer revenue and refunding bonds. The upgrade reflects the city's record of sustained ample debt service coverage (DSC) and operating liquidity for its combined water and wastewater utilities. We attribute this to good management practices, particularly the city's focus on how rate adjustments support long-term capital and operational requirements. The bonds are secured by the net revenues of the water and sewer utilities. Proceeds will be used to improve the wastewater treatment facility. Key rating factors include the combined utilities': • Economic base, which serves as a market and processing center for a surrounding agricultural area with above-average unemployment; • Strong financial performance, including net revenues sufficient to cover debt service by more than 3x during the past five years; and • Practice of setting multiyear rate increases based on long-term capital and operational needs. The water and wastewater systems serve 19,678 and 24,147 accounts, respectively, with the difference stemming from the water system's smaller and largely -built out service area. Located about 142 miles southwest of Seattle in eastern Washington, Yakima has a population of 82,940 and participates in an agricultural region that produces fruits, grains and, increasingly, wine. The surrounding county's total employment has increased by a moderate 2% a year on average in the five years through 2007 and its unemployment rate has declined for four straight years, although the 6.3% rate in 2007 still exceeded the 4.6% national average. The median household effective buying income within the city is an adequate 70% of the U.S. level, suggesting potential household sensitivity to utility costs. ' _ Despite general softness in the U.S. housing market, Yakima continues to see modest development, and management expects the wastewater utility to add new accounts in line with its 0.7% average annual growth of the past five years. Standard & Poor's RatingsDirect I May 2, 2008 2 Standard & Poor's. All rights reserved. No reprint er dissemination without S&P?s permission. See Terms of Use/Disclaimer on the last page. • • • CITY OF YAKIMA, WASHINGTON RESOLUTION NO. A RESOLUTION authorizing the execution and delivery of a contract for purchase of the City's Water and Sewer Revenue and Refunding Bonds, 2008, in the amount of $8,840,000, fixing certain terms of the bonds, approving the form of the official statement and insurance, and ratifying certain acts and proceedings. WHEREAS, the City of Yakima, Washington (the "City"), by Ordinance No. 2008-19 passed on March 18, 2008 (the "Bond Ordinance"), authorized the issuance of the City's Water and Sewer Revenue and Refunding Bonds, 2008, in one or more series in an amount not to exceed $9,750,000; 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 amount of $8,840,000; 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 Water and Sewer Revenue and Refunding Bonds, 2008 in the amount of $8,840,000 (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 Contract for the Bonds dated May 6, 2008 (the "Purchase Contract"), 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: P'120978 NMN120978 33J 5/6/2008 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 1.1 of the Bond Ordinance. Section 2. Acceptance of Offer. The Council hereby finds and determines that the Purchase Contract 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 and determines that all conditions precedent to or concurrent with the acceptance of the Purchase Contract by the Council have been met. The Council hereby accepts the Purchase Contract and authorizes and directs the Director of Finance and Budget to execute the Purchase Contract 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 Contract. Section 3. Terms, Schedule of Maturities and Interest Rates. The Bonds shall be designated the "City of Yakima Water and Sewer Revenue and Refunding Bonds, 2008". The Bonds shall be dated as of the date of their initial delivery, 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 November 1, 2008, and semiannually thereafter on the first days of May and November. The Bonds shall mature on November 1 of the following years in the following amounts and shall bear interest as follows: • • • • • Maturity Date Principal Interest (November 1) Amount - Rate 2008 $ 90,000 4.00% 2009 830,000 4.00 2010 865,000 4.00 2011 900,000 4.00 2012 390,000 4.00 2013 405,000 4.00 2014 430,000 4.00 2015 440,000 4.00 2016 455,000 4.00 2017 470,000 5.00 2018 495,000 5.00 2021 905,000 4.25 2025 1,390,000 4.00 2027 775,000 4.00 Section 4. Redemption. (a) Optional Redemption. The Bonds maturing on or prior to November 1, 2017 are not subject to redemption prior to their stated maturity dates. The Bonds maturing on or after November 1, 2018 are subject to redemption at the option of the City on and after May 1, 2018, 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 November 1 in the years 2021, 2025 and 2027 (which shall be deemed to be Term Bonds), shall be redeemed prior to maturity randomly (or paid at maturity), not later than November 1 in the years set forth below (to the extent such Bonds have not been previously 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. 2021 Term Bond Year Amount 2019 $ 290,000 2020 300,000 2021* 315,000 2025 Term Bond Year Amount 2022 $ 325,000 2023 340,000 2024 355,000 2025* 370,000 2027 Term Bond Year Amount 2026 $ 380,000 2027* 395,000 * Final Maturity. Section 5. Execution and Delivery of the Bonds. The proper officers of the Council and the Director of Finance and Budget 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 Contract 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 April 30, 2008; 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 such 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. Disposition of Bond Proceeds; Refunding Plan. (a) Refunding Plan. For the purpose of realizing a debt service savings, the City Council proposes to apply a portion of the proceeds of the Bonds for the purpose of providing for the payment of the principal of and interest on all of the outstanding $3,430,000 of the 1998 Bonds maturing in the years 2009 through 2018 (the "Refunded Bonds"). The Refunded Bonds shall be called for redemption at a price of 100% on September 1, 2008. (b) Refunding Account. There is hereby authorized to be created in the Debt Service Fund an account known as the "Refunding Account," which account is to be drawn upon for the sole purpose of paying the principal of and interest on the Refunded Bonds until their respective dates of redemption and of paying costs related to the refunding of the Refunded Bonds. A portion of the proceeds of sale of the Bonds shall be credited to the Refunding Account. Money in the Refunding Account shall be used immediately upon receipt to defease the Refunded Bonds as authorized by the Bond Ordinance and to pay costs of issuance. The City shall defease the Refunded Bonds and discharge such obligations by the use of money in the Refunding Account to purchase certain Government Obligations (which obligations so purchased are herein called "Acquired Obligations"), bearing such interest and maturing as to principal and interest in such amounts and at such times which, together with any necessary beginning cash balance, will provide for the payment of: (1) interest on the Refunded Bonds due and payable through and including September 1, 2008; and (2) the redemption price of the Refunded Bonds (100% of the principal amount thereof) on September 1, 2008. Such Acquired Obligations shall be purchased for the Refunded Bonds at a yield not greater than the yield permitted by the Code and regulations relating to acquired obligations in connection with refunding bond issues. (c) Escrow Agent/Escrow Agreements. To carry out the refunding and defeasance of the Refunded Bonds, the Director of Finance and Budget is hereby authorized to appoint as escrow agent a bank or trust company qualified by law to perform the duties described herein (the "Escrow Agent"). A beginning cash balance, if any, and Acquired Obligations shall be deposited irrevocably with the Escrow Agent on the date of issuance of the Bonds in an amount sufficient to defease the Refunded Bonds. The proceeds of the Bonds remaining in the Refunding Account after acquisition of the Acquired Obligations and provision for the necessary beginning cash balance shall be utilized to pay expenses of the acquisition and safekeeping of the Acquired Obligations and expenses of the issuance of the Bonds. In order to carry out the purposes of this section, the Director of Finance and Budget is authorized and directed to execute and deliver to the Escrow Agent, an Escrow Deposit Agreement for the Bonds. • (d) Implementation of Refunding Plan. The City will irrevocably set aside sufficient funds out of the purchase of Acquired Obligations from proceeds of the Bonds to make the payments described in subsections (a) and (b) of this section. The City hereby irrevocably calls the Refunded Bonds for redemption on September 1, 2008 in accordance with the provisions of Ordinance No. 98-31, authorizing the redemption and retirement of the Refunded Bonds prior to their fixed maturities. Said defeasance and call for redemption of the Refunded Bonds shall be irrevocable after the final establishment of the applicable escrow account and delivery of the applicable Acquired Obligations to the Escrow Agent. The Escrow Agent is hereby authorized and directed to provide for the giving of notice of the redemption of the Refunded Bonds in accordance with the applicable provisions of Ordinance No. 98-31. Section 8. Insurance. (a) Acceptance of Insurance. In accordance with the offer of the Purchaser to purchase the Bonds, the Council hereby approves the commitment of Assured Guaranty Corp. (the "Insurer") to provide a bond insurance policy insuring the payment when due of principal of and interest on the Bonds (the "Bond Insurance 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. The follow provisions of this Section 8 shall apply so long as the Bond Insurance Policy is in effect. (b) Notices and Other Information. Any notice that is required to be given to holders of the Bonds (the "Bondholders"), NRMSIRs or the SID, if any, pursuant to the Rule or to the Bond Registrar pursuant to this resolution or the Bond Ordinance shall also be provided to the Insurer, simultaneously with the sending of such notices. In addition, all information furnished pursuant to Section 11.1 of the Bond Ordinance shall also be provided to the Insurer, simultaneously with the furnishing of such information. All notices required to be given to the Insurer shall be in writing and shall be sent by registered or certified mail addressed to: Assured Guaranty Corp., 1325 Avenue of the Americas, New York, New York 10019, Attention: General Counsel, with a copy to Assured Guaranty Corp., Attention: Risk Management Department - Public Finance Surveillance. (1) The Insurer shall have the right to receive such additional information as it may reasonably request. (2) The City will permit the Insurer to discuss the affairs, finances and accounts of the City or any information the Insurer may reasonably request regarding the security for the Bonds with appropriate officers of the City, and will use best efforts to enable the Insurer to have access to the facilities, books and records of the City on any business day upon reasonable prior notice. (3) The Bond Registrar shall notify the Insurer of any failure of the City to provide notices, certificates and other information under this resolution or the Bond Ordinance. (4) The City shall provide to the Insurer (i) the fiscal year budget of the City, with respect to the System, within 30 days after the adoption of such budget, and (ii) not later than 180 days after the end of the fiscal year of the City the unaudited financial statements of the City, with respect to the System, and the audited financial statements of the City, with respect to the System, once available, together with a certificate of the City stating that no Event of Default has occurred or is continuing under this resolution or the Bond Ordinance. • • (c) Defeasance. Notwithstanding anything herein to the contrary, in the event that the principal and/or interest due on the Bonds shall be paid by the Insurer pursuant to the Bond Insurance Policy, the Bonds shall remain outstanding for all purposes, not be defeased or otherwise satisfied and not be considered paid by the City, and all covenants, agreements and other obligations of the City to the Registered Owners shall continue to exist and shall run to the benefit of the Insurer, and the Insurer shall be subrogated to the rights of such Registered Owners. In the event that the Bonds are defeased pursuant to Section 5.3 of the Bond Ordinance, the Insurer shall receive: (1) An opinion of bond counsel stating that such defeasance will not adversely impact the exclusion from gross income for federal income tax purposes of interest on the Bonds. (2) An escrow agreement and an opinion of bond counsel regarding the validity and enforceability of the escrow agreement. The escrow agreement shall provide that: (i) Any substitution of securities shall require verification by an independent certified public accountant and the prior written consent of the Insurer. (ii) The City will not exercise any optional redemption of the bonds secured by the escrow agreement or any other redemption other than mandatory sinking fund redemptions unless (i) the right to make any such redemption has been expressly reserved in the escrow agreement and such reservation has been disclosed in detail in the official statement for the refunding bonds, and (ii) as a condition of any such redemption there shall be provided to the Insurer a verification of an independent certified public accountant as to the sufficiency of escrow receipts without reinvestment to meet the escrow requirements remaining following such redemption. (iii) The City shall not amend the escrow agreement or enter into a forward purchase agreement or other agreement with respect to rights in the escrow without the prior written consent of the Insurer. (d) Bond Registrar. The Insurer shall receive prior written notice of any name change of the Bond Registrar or the removal, resignation or termination and replacement of the Bond Registrar. (e) Amendments and Supplements. With respect to amendments or supplements to this resolution or the Bond Ordinance which do not require the consent of the Bondholders, the Insurer must be given notice of any such amendments or supplements. With respect to amendments or supplements to this resolution or the Bond Ordinance which do require the consent of the Bondholders, the Insurer's prior written consent is required. Any amendments or supplements to this resolution or the Bond Ordinance which are consented to by the Insurer shall be sent to the rating agencies that have assigned a rating to the Bonds. Notwithstanding any other provision of this resolution or the Bond Ordinance, in determining whether the rights of Bondholders will be adversely affected by any action taken pursuant to the terms and provisions thereof, the City shall consider the effect on the Bondholders as if there were no Bond Insurance Policy. (f) Insurer as Third Party Beneficiary. To the extent that this resolution or the Bond Ordinance confer upon or gives or grants to the Insurer any right, remedy or claim under or by reason of this resolution or the Bond Ordinance, the Insurer is explicitly recognized as being a third party beneficiary hereunder and may enforce any such right, remedy or claim conferred,. given or granted hereunder. • • • (g) Control Rights. The Insurer shall be deemed to be the holder of all of the Bonds for purposes of (1) exercising all remedies and directing the Bond Registrar to take actions or for any other purposes following an Event of Default, and (2) granting any consent, direction or approval or taking any action permitted by or required under this resolution or the Bond Ordinance, to be granted or taken by the Bondholders. Anything in this resolution or the Bond Ordinance to the contrary notwithstanding, upon the occurrence and continuance of an Event of Default, the Insurer shall be entitled to control and direct the enforcement of all rights and remedies granted to the Bondholders or the Bond Registrar for the benefit of the Bondholders under this resolution and the Bond Ordinance subject to the rights of other Parity Bond owners. (h) Consent of the Insurer. Any provision of this resolution or the Bond Ordinance expressly recognizing or granting rights in or to the Insurer may not be amended in any manner that affects the rights of the Insurer hereunder without the prior written consent of the Insurer. (i) Consent of the Insurer in Addition to Bondholder Consent. Wherever this resolution or the Bond Ordinance require the consent of Bondholders, the Insurer's prior written consent shallalso be required. (j) Consent of the Insurer in the Event of Insolvency. To the extent permitted by law, any reorganization or liquidation plan with respect to the City must be acceptable to the Insurer. In the event of any such reorganization or liquidation, the Insurer shall have the right to vote on behalf of all Bondholders who hold Bonds guaranteed by the Insurer, absent a payment default by the Insurer under the Bond Insurance Policy. - (k) Payment Procedure Under the Bond Insurance Policy. At least two (2) business days prior to each payment date on the Bonds, the Bond Registrar will determine whether there will be sufficient funds to pay all principal of and interest on the Bonds due on the related payment date and shall immediately notify the Insurer or its designee on the same business day by telephone or electronic mail, confirmed in writing by registered or certified mail, of the amount of any deficiency. Such notice shall specify the amount of the anticipated deficiency, the Bonds to which such deficiency is applicable and whether such Bonds will be deficient as to principal or interest or both. If the deficiency is made up in whole or in part prior to or on the payment date, the Bond Registrar shall so notify the Insurer or its designee. (1) The Bond Registrar shall, after giving notice to the Insurer as provided above, make available to the Insurer and, at the Insurer's direction, to any fiscal agent, the registration books of the City maintained by the Bond Registrar and all records relating to the funds maintained under this resolution and the Bond Ordinance. (2) As provided in the Bond Ordinance, 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, the Bond Registrar shall provide the Insurer and any fiscal agent with a list of Registered Owners of Bonds entitled to receive principal or interest payments from the Insurer under the terms of the Bond Insurance Policy, and shall make arrangements with the Insurer, the fiscal agent or another designee of the Insurer to (i) mail checks or drafts to the Registered Owners of Bonds entitled to receive full or partial interest payments from the Insurer and (ii) pay principal upon Bonds surrendered to the Insurer, the fiscal agent or another designee of the Insurer by the Registered. Owners of Bonds entitled to receive full or partial principal payments from the Insurer. • • • • • • (3) The Bond Registrar shall, at the time it provides notice to the Insurer of any deficiency pursuant to clause (1) above, notify Registered Owners of Bonds entitled to receive the payment of principal or interest thereon from the Insurer (i) as to such deficiency and its entitlement to receive principal or interest, as applicable, (ii) that the Insurer will remit to them all or a part of the interest payments due on the related payment date upon proof of its entitlement thereto and delivery to the Insurer or any fiscal agent, in form satisfactory to the Insurer, of an appropriate assignment of the Registered Owner's right to payment, (iii) that, if they are entitled to receive partial payment of principal from the Insurer, they must surrender the related Bonds for payment first to the Bond Registrar, which will note on such Bonds the portion of the principal paid by the Bond Registrar and second to the Insurer or its designee, together with an appropriate assignment, in form satisfactory to the Insurer, to permit ownership of such Bonds to be registered in the name of the Insurer, which will then pay the unpaid portion of principal, and (iv) that, if they are entitled to receive full payment of principal from the Insurer, they must surrender the related Bonds for payment to the Insurer or its designee, rather than the Bond Registrar, together with the an appropriate assignment, in form satisfactory to the Insurer, to permit ownership of such Bonds to be registered in the name of the Insurer. (4) In addition, if the Bond Registrar has notice that any holder of the Bonds has been required to disgorge payments of principal or interest on the Bonds previously due for payment pursuant to a final non -appealable order by a court of competent jurisdiction that such payment constitutes an avoidable preference to such holder within the meaning of any applicable bankruptcy laws, then the Bond Registrar shall notify the Insurer or its designee of such fact by telephone or electronic notice, confirmed in writing by registered or certified mail. (5) The Bond Registrar will be hereby irrevocably designated, appointed, directed and authorized to act as attorney-in-fact for Bondholders as follows: (i) If and to the extent there is a deficiency in amounts required to pay interest on the Bonds, the Bond Registrar shall (a) execute and deliver to the Insurer, in form satisfactory to the Insurer, an instrument appointing the Insurer as agent for such holders in any legal proceeding related to the payment of such interest and an assignment to the Insurer of the claims for interest to which such deficiency relates and which are paid by the Insurer, (b) receive as designee of the respective holders (and not as Bond Registrar) in accordance with the tenor of the Bond Insurance Policy payment from the Insurer with respect to the claims for interest so assigned, and (c) disburse the same to such respective holders; and (ii) If and to the extent of a deficiency in amounts required to pay principal of the Bonds, the Bond Registrar shall (a) execute and deliver to the Insurer, in form satisfactory to the Insurer, an instrument appointing the Insurer as agent for such holder in any legal proceeding related to the payment of such principal and an assignment to the Insurer of the Bonds surrendered to the Insurer in an amount equal to the principal amount thereof as has not previously been paid or for which moneys are not held by the Bond Registrar and available for such payment (but such assignment shall be delivered only if payment from the Insurer is received), (b) receive as designee of the respective holders (and not as Bond Registrar) in accordance with the tenor of the Bond Insurance Policy payment therefore from the Insurer, and (c) disburse the same to such holders. (6) Payments with respect to claims for interest on and principal of Bonds disbursed by the Bond Registrar from proceeds of the Bond Insurance Policy shall not be considered to discharge the obligation of the City with respect to such Bonds, and the Insurer • • • • shall become the owner of such unpaid Bond and claims for the interest in accordance with the tenor of the assignment made to it under the provisions of this subsection or otherwise. (7) Irrespective of whether any such assignment is executed and delivered, the City hereby agrees for the benefit of the Insurer that: (i) it recognizes that to the extent the Insurer makes payments directly or indirectly (e.g., by paying through the Bond Registrar), on account of principal of or interest on the Bonds, the Insurer will be subrogated to the rights of such holders to receive the amount of such principal and interest from the City, with interest thereon as provided and solely from the sources stated in this resolution, the Bond Ordinance and the Bonds; and (ii) it will accordingly pay to the Insurer the amount of such principal and interest, with interest thereon as provided in this resolution and the Bonds, but only from the sources and in the manner provided herein and in the Bond Ordinance for the payment of principal of and interest on the Bonds to holders, and will otherwise treat the Insurer as the owner of such rights to the amount of such principal and interest. (8) To the extent permitted by law, the City hereby agrees to pay or reimburse the Insurer all amounts paid by the Insurer under the Bond Insurance Policy and- any and all charges, fees, costs and expenses which the Insurer may reasonably pay or incur, including, but not limited to, fees and expenses of attorneys, accountants, consultants and auditors and reasonable costs of investigations, in connection with (i) any accounts established to facilitate payments under the Bond Insurance Policy, (ii) the administration, enforcement, defense or preservation of any rights in respect of the trust agreement or any other financing document, including defending, monitoring or participating in any litigation or proceeding (including any bankruptcy proceeding in respect of the City or any affiliate thereof) relating to this resolution, any party to this resolution or any other financing document or the transaction contemplated by this resolution; (iii) the pursuit of any remedies under this resolution, to the extent such costs and expenses are not recovered from other sources, or (iv) any amendment, waiver or other action with respect to, or related to, this resolution whether or not executed or completed; costs and expenses shall include a reasonable allocation of compensation and overhead attributable to time of employees of the Insurer spent in connection with the actions described in clauses (ii) - (iv) above. In addition, the Insurer reserves the right to charge a reasonable fee as a condition to executing any amendment, waiver or consent proposed in respect of this resolution. The City will pay interest on the amounts owed in this paragraph from the date of any payment due or paid, at the per annum rate of interest publicly announced from time to time by JP Morgan Chase Bank, National Association, or its successor, at its principal office in New York, New York as its prime lending rate (any change in such prime rate of interest to be effective on the date such change is announced by JPMorgan Chase Bank, National Association) plus three percent (3%) per annum (the "Reimbursement Rate"). The Reimbursement Rate shall be calculated on the basis of the actual number of days elapsed over a 360 -day year. In the event JPMorgan Chase Bank ceases to announce its prime rate publicly, the prime rate shall be the publicly announced prime rate or base lending rate of such national bank, as the Insurer shall specify. The provisions of this paragraph shall survive the redemption, defeasance or termination of the Bonds or the termination of this resolution. (9) In addition to any and all rights of reimbursement,' subrogation and any other rights pursuant hereto or under law or in equity, to the extent permitted by law the City agrees' to pay or reimburse the Insurer any and all charges, fees, costs, claims, losses, liabilities (including penalties), judgments, demands, damages, and expenses which the Insurer or its • • • • • officers, directors, shareholders, employees, agents and each person, if any, who controls the Insurer within the meaning of either Section 15 of the Securities Act of 1933, as amended, or Section 20 of the Securities Exchange Act of 1934, as amended, may reasonably pay or incur, including, but not limited to, fees and expenses of attorneys, accountants, consultants and auditors and reasonable costs of investigations, of any nature in connection with, in respect of or relating to the transactions contemplated by this resolution by reason of: (i) any omission or action (other than of or by the Insurer) in connection with the offering, issuance, sale, remarketing or delivery of the Bonds; (ii) the negligence, bad faith, willful misconduct, misfeasance, malfeasance or theft committed by any director, officer, employee or agent of the City or the City in connection with any transaction arising from or relating to this resolution; (iii) the violation by the City of any law, rule or regulation, or any judgment, order or decree applicable to it; (iv). the breach by the City of any representation, warranty or covenant under this resolution or the Bond Ordinance or the occurrence, in respect of the City, under this resolution or the Bond Ordinance of any Event of Default or any event which, with the giving of notice or lapse of time or both, would constitute any "event of default"; or (v) any untrue statement or alleged untrue statement of a material fact contained in any official statement, if any, or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as such claims arise out of or are based upon any untrue statement or omission in information included in an official statement, if any, and furnished by the Insurer in writing expressly for use therein. (10) The Insurer shall be entitled to pay principal 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), 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. (11) In addition, the Insurer shall, to the extent it makes any payment of principal 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, and to evidence such subrogation (i) in the case of claims for interest, the Bond Registrar shall note the Insurer's rights as subrogee on the registration books of the City maintained by the Bond Registrar, upon receipt of proof of payment of interest thereon to the registered holders of the Bonds, and (ii) in the case of claims for principal, the Bond Registrar, if any, shall note the Insurer's rights as subrogee on the registration books of the City maintained by the Bond Registrar, upon surrender of the Bonds together with receipt of proof of payment of principal thereof (1) No Purchase by City. Without the prior written consent of the Insurer, no Bonds insured by the Insurer shall be purchased by the City, or any of its affiliates, in lieu of redemption, unless such Bonds are redeemed, defeased or cancelled. Section 9. 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 10. Effective Date. This resolution shall be in effect from and after its adoption in accordance with law. ADOPTED at a regular meeting of the City Council of the City of Yakima, Washington, this 6th day of May, 2008. ATTEST Deborah J. Moore, City Clerk APPROVED AS TO FORM: City Attorney CITY OF YAKIMA, WASHINGTON David Edler, Mayor • • • 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 regular meeting of the Council held on the 6th day of May, 2008;, 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 6th day of May, 2008. (SEAL) City Clerk P:\20978 NMN\20978 33J 5/6/2008 • S N W r i May 6, 2008 Honorable Mayor and City Council City of Yakima 129 North Second Street Yakima, Washington 98901 Re: City of Yakima, Washington $8,840,000 Water and Sewer Revenue and Refunding Bonds, 2008 Honorable Mayor and City Council: Seattle -Northwest Securities Corporation (the "Underwriter") offers to enter into this purchase agreement (the "Purchase Agreement") with the City of Yakima, Washington (the "Issuer"). Each of the Underwriter and the Issuer may be referred to herein as a "Party" or collectively as the "Parties." This offer is contingent upon acceptance by the Issuer by execution and delivery of this Purchase Agreement to the Underwriter at or prior to 11:59 p.m. Pacific Time on the date hereof, by means of hand delivery, facsimile or other secure electronic transmission, such as a PDF file. Upon execution of this Purchase Agreement by the Parties, this Purchase Agreement will constitute a binding agreement between the Issuer and the Underwriter. Capitalized terms in this Purchase Agreement that are not otherwise defined herein shall have the meanings given to such terms in the Ordinance as defined below: 1. Authorization and Documents The issuance, sale and delivery of the Bonds (as defined below) shall be authorized by Ordinance No. 2008-19 passed by the Mayor and City Council of the Issuer on March 18, 2008 and a sale resolution adopted by the Mayor and City Council of the Issuer on May 6, 2008 (collectively, the "Ordinance"). The transaction at which the Bonds are delivered by the Issuer to the Underwriter and paid for by the Underwriter is referred to herein as the "Closing" and the date of such transaction, the "Closing Date." The Ordinance includes art undertaking to provide certain information to DisclosureUSA (so long as such method of disclosure continues to be approved by the Securities and Exchange Commission for such purposes) or to nationally recognized municipal securities information repositories and regulatory bodies or their designees. The Ordinance and this Purchase Agreement are collectively referred to herein as the "Documents." Honorable Mayor and City Council City of Yakima, Washington May 6, 2008 Page 2 2. Purchase and Sale Subject to the terms and conditions of this Purchase Agreement, the Underwriter hereby agrees to purchase from the Issuer for offering to the public and the Issuer hereby agrees to sell to the Underwriter all, but not less than all of the $8,840,000 aggregate principal amount of Water and Sewer Revenue and Refunding Bonds, 2008 (the "Bonds"). The Bonds shall be dated, shall mature, shall bear interest, shall be payable, and shall have redemption provisions, all as set forth in Exhibit C attached hereto. The Underwriter's purchase price for the Bonds also is set forth in Exhibit C. 3. Fiscal Agent; Enhancement; Insurance a) The fiscal agent of the State of Washington shall be the fiscal agent for the Bonds, serving as registrar, authenticating agent and paying agent (the "Bond Registrar"). The Bonds shall be payable and shall be secured as provided in the Ordinance and as described in the document entitled Preliminary Official Statement, which is dated April 30, 2008 and which describes the Issuer and the Bonds (the "POS"). b) Payment when due of the regularly scheduled principal of and interest on the Bonds shall be insured by a municipal bond insurance policy (the "Policy") issued by Assured Guaranty Corporation (the "Insurer"). 4. Offering The Underwriter agrees to make a bona fide public offering of all the Bonds, at prices not in excess of the initial public offering prices or at yields not lower than the initial yields as set forth in Exhibit C attached hereto. 5. Official Statement a) In the Ordinance, the Issuer has ratified and "deemed final" the POS for purposes of Rule 15c2-12 of the Securities Exchange Act of 1934, as amended (the "Rule"). The Issuer approves and ratifies the use and distribution by the Underwriter of the POS in connection with the public offering for sale of the Bonds by the Underwriter. b) The final official statement shall be substantially in the form of the POS with only such changes permitted by the Rule as shall have been reviewed by the Underwriter (such final official statement, incorporating such changes, if any, shall be referred to herein as the "Final Official Statement"). The Issuer shall cooperate with the Underwriter in the preparation of the Final Official Statement for delivery within seven (7) business days after the date hereof and, in any event, for delivery in sufficient time to accompany any order confirmation from the Underwriter to its customer, and in sufficient time to permit the Underwriter to comply with the provisions of the Rule and with all applicable rules of the Municipal Securities Rulemaking Board. -2- • • • Honorable Mayor and City Council City of Yakima, Washington May 6, 2008. Page 3 The Issuer will not amend or supplement the Final Official Statement without the consent of the Underwriter. The Issuer agrees to notify the Underwriter promptly if, on or prior to the 25th day after the End of the Underwriting Period (as defined below), any event shall occur, or information come to the attention of the Issuer, that would cause the Final Official Statement (whether or not previously supplemented or amended), as of its date, to contain any untrue statement of a material fact or to omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. If, in the opinion of the Issuer, such event requires the preparation and distribution of a supplement or amendment to the Final Official Statement, the Issuer at its expense and with Underwriter's assistance, shall amend or supplement the Final Official Statement in a form and manner approved by the Underwriter and will provide such number of copies of the supplement or amendment to the Final Official Statement, as the Underwriter may reasonably request. For purposes of this Purchase Agreement, the "End of the Underwriting Period" shall occur on the Closing Date. 6. Representations, Warranties and Covenants The Issuer represents, warrants and covenants to the Underwriter that as of the date hereof and as of the Closing Date: a) The Issuer is a municipal corporation duly organized and validly existing under the laws and Constitution of the State of Washington; b) The Issuer has duly adopted the Ordinance and it is a valid, legal and binding ordinance of the Issuer; c) The Issuer is duly authorized and has full legal right, power, and authority to issue, sell and deliver the Bonds and perform its obligations under the Documents; d) The Ordinance is in full force and effect and has not been superseded, rescinded or amended; e) The Issuer has full legal right, power and authority to and will apply or cause to be applied the proceeds of the Bonds as described in the Ordinance; f) The execution of and performance by the Issuer of its obligations under the Documents will not cause the Issuer to be (i) in violation of any constitutional provision, law, court decree, administrative regulation or judgment or (ii) in material default under any loan agreement, indenture, bond, note, resolution or other material agreement or instrument to which the Issuer is a party or to which the Issuer or any of its properties or assets is otherwise subject; g) All governmental approvals or authorizations required to be obtained by the Issuer prior to the Closing in connection with the issuance and delivery of the Bonds or the -3- Honorable Mayor and City Council City of Yakima, Washington May 6, 2008 Page 4 performance by the Issuer of its obligations under the Documents have been or will be obtained prior to Closing; h) No filing or registration of the Ordinance or other instrument or financing statement is required to be made to create, protect or preserve the pledge of revenues under the Ordinance or is required for the validity and enforceability of the Ordinance; j) As of the Closing, the Bonds will be legal, valid and binding obligations of the Issuer, and, subject only to the laws of bankruptcy and insolvency, will be enforceable in accordance with their terms and will be in full force and effect; Except as described in the Final Official Statement there is no action, suit, proceeding, inquiry or investigation before or by any court, governmental agency, public board or body pending or, to the knowledge of the Issuer, threatened against the Issuer, (i) in any way questioning the legal existence of the Issuer or the titles of the officers of the Issuer to their' respective offices; (ii) in any way affecting or contesting or seeking to prohibit, restrain or enjoin the issuance or delivery of the Bonds; (iii) wherein an unfavorable decision, ruling, or finding would have a material adverse effect on the collection and application of revenues for the payment of the Bonds, the financial condition of the Issuer, or would have an adverse effect on the validity or enforceability of the Bonds or the Ordinance, or which would in any way adversely affect the exclusion of interest on the Bonds from gross income for federal income fax purposes; or (iv) contesting the completeness or accuracy of the POS or the Final Official Statement; (v) to the actual knowledge of the Issuer, there is no reasonable basis for any action, proceeding, inquiry or investigation of the nature described in the foregoing clauses (i) through (iv); k) The financial statements of the Issuer contained in the Final Official Statement fairly present the financial position of the Issuer as of the dates and for the periods therein set forth in accordance with the accounting standards applicable to the Issuer, and since the date thereof, there has been no material adverse change in the financial position of the Issuer; 1) In connection with the financing process, the Underwriter may have provided the format for and certain of the content for inclusion in the POS and may have assumed principal drafting responsibility for the preparation of the POS and may coordinate the preparation and dissemination of the Final Official Statement. The Issuer understands and acknowledges, however, that the ultimate responsibility for the POS and the Final Official Statement with respect to content, accuracy and completeness is the responsibility of the Issuer as an issuer of municipal securities. The Issuer hereby represents and warrants to the Underwriter that the POS did not, as of its date, and the Final Official Statement will not, as of its date and at the Closing Date, contain any untrue statement of material fact nor omit any statement or information which is necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; provided, however, that no representation or warranty is made with respect to information within the POS or the Final Official Statement relating to DTC, the book entry system, the Insurer, the State Guarantee or the Underwriter; and -4- Honorable Mayor and City Council City of Yakima, Washington May 6, 2008 Page 5 The Issuer has not failed to comply with any prior undertaking under the Rule in the past five years. 7. Termination The Underwriter may terminate its obligation under this Purchase Agreement, without liability therefor, by notifying the Issuer of its election to do so in writing if, after the execution of this Purchase Agreement and prior to the Closing, any one or more of the following events shall have occurred and such event, in the reasonable opinion of the Underwriter (i) would materially and adversely affect the marketability of the Bonds or the prices or yields of the Bonds as set forth in Exhibit C, or (ii) would materially and adversely affect the Underwriter's ability to enforce contracts for the sale of the Bonds: a) A material disruption in commercial banking or securities settlement or clearance services; 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, including but not limited to terrorist attack(s) or other event; or c) A general suspension of trading or other material restrictions not in force as of the date of this Purchase Agreement on the New York Stock Exchange or other national securities exchange; or d) Declaration of a general banking moratorium by the United States, New York State or Washington State authorities; or e) Legislation with respect to eliminating or reducing the exemption from 'federal or state taxation for interest income received on obligations of the general character of the Bonds shall be introduced or enacted by the legislature of the State of Washington or by Congress of the United States or adopted by either the United States House of Representatives or the United States Senate or shall have been recommended to the Congress or otherwise endorsed for passage by the Treasury Department of the United States, the Internal Revenue Service or by the chairman of the Senate Finance Committee or a decision or an order or ruling with respect to eliminating or reducing such exemption, shall have been issued by a court of the United States, including the United States Tax Court, or by or on behalf of the Treasury Department of the United States or the Internal Revenue Service; or f) Legislation shall hereafter be enacted, or actively considered for enactment, or a decision by a court of the United States shall hereafter be rendered, or a ruling, stop order or regulation by the Securities and Exchange Commission or other governmental agency having jurisdiction of the subject matter shall hereafter be made, the effect of which is or would be that the offering and sale of the Bonds would be illegal or that: -5- Honorable Mayor and City Council City of Yakima, Washington May 6, 2008 Page 6 i) The Bonds are not exempt from the registration, qualification or similar requirements of the Securities Act of 1933, as amended and as then in effect (the "33 Act") or distribution of the Bonds, as contemplated herein or in the Final Official Statement, is in violation of or not exempt from the registration, qualification or other requirements of the 33 Act, as amended and as then in effect, or the Securities Exchange Act of 1934, as amended and then in effect or the Investment Company Act of 1940, as amended and then in effect (the "Investment Company Act") or, in each case, the rules or regulations promulgated thereunder as then in effect; or ii) The 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 iii) This Purchase Agreement is subject to the Investment Company Act or requires any registration under the Investment Company Act; or Any litigation, except as described in the Final Official Statement, shall be instituted or pending at Closing to restrain or enjoin the authorization, issuance, execution, sale or delivery of the Bonds or the execution and delivery of any of the Documents, or in any way contesting or affecting any authority for or the validity or enforceability of the Bonds, the Ordinance or any of the other Documents, any moneys or securities provided for the payment of the Bonds or the existence or powers of the Issuer; or h) Any legislation, ordinance, rule or regulation shall be introduced in or enacted by any governmental body, board, department or agency of Washington State or of the United States, or a decision by any court of competent jurisdiction within Washington State or any court of the United States shall be rendered materially affecting the Issuer or the Bonds; or i) There shall have been established any new restrictions on transactions in securities materially affecting the free market for securities or the extension of credit by, or the charge to the net capital requirements of the Underwriter, including without limitation, the fixing of minimum or maximum prices for trading or maximum ranges of prices, by any exchange, the Securities and Exchange Commission, any other federal or state agency or the Congress of the United States, or by Executive Order; or j) Except for such changes to the Final Official Statement as provided in Section 5(c) of this Purchase Agreement, there shall have been a material adverse change in the affairs of the Issuer or there shall exist any event or fact or set of facts that either (a) makes untrue or incorrect in any material respect any statement or information contained in the Final Official Statement or (b) is not reflected in the Final Official Statement but should be reflected therein to make the statements and information contained therein under the circumstances in which made not misleading in any material respect; or -6- Honorable Mayor and City Council City of Yakima, Washington May 6, 2008 Page 7 The withdrawal or downgrading of any rating of the Bonds by a national rating agency from those shown in (c)(i) of Exhibit B. 8. Closing; Conditions of Closing The Closing shall occur on such date and at such time and place as is set forth in Exhibit C or otherwise agreed between the Issuer and the Underwriter, and subject to the satisfaction of the terms and conditions of this Purchase Agreement. At Closing, the following shall occur: the Issuer will deliver the duly executed Bonds or cause to be delivered to the fiscal agent for re- delivery through Fast Automated Transfer System to DTC and will deliver or cause to be delivered to the Underwriter the Ordinance; the Underwriter will accept such delivery and pay the purchase price of the Bonds as set forth in Exhibit C hereof in same day funds. The Issuer shall cause the applicable CUSIP identification numbers to be printed on the Bonds of each maturity, but neither the failure to print such number on any such Bond nor any error with respect thereto shall constitute cause for a failure or refusal by the Underwriter to accept delivery of and to pay for the Bonds. The Bonds shall be prepared and delivered to the Bond Registrar at or prior to the Closing Date. In addition to the other requirements of this Purchase Agreement, Underwriter's obligations hereunder are subject to and conditioned upon Issuer, at or prior to the Closing Date, delivering or making available to Underwriter copies of the Documents and such items as are listed in Exhibit B attached hereto and incorporated herein. 9. Fees and Expenses The Issuer 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; the bond insurance premium; the escrow agent fee; the cost of printing and distributing the POS and Final Official Statement; travel and lodging expenses of the Issuer's employees and representatives; and other expenses of the Issuer. The Underwriter will pay fees and disbursements of its counsel, if any, the cost of preparation and filing ofblue sky and legal investment surveys where necessary, the Underwriter's travel expenses, and other expenses of the Underwriter. As a convenience to the Issuer, the Underwriter may from time to time, but only upon the prior written direction from the Issuer, make arrangements for certain items for which Issuer is responsible hereunder, such as printing of the POS and the Final Official Statement and travel or" lodging arrangements for the Issuer's representatives. The Underwriter also may advance for the Issuer's account when appropriate and when directed in advance in writing by the Issuer, the cost of the items for which the Issuer is responsible by making payments to third -party vendors. In such cases, the Issuer shall pay such costs or expenses directly, upon submission of appropriate invoices by the Underwriter, or promptly reimburse the Underwriterin the event the Underwriter has advanced such costs or expenses for the Issuer's account. It is understood that the Issuer shall be primarily responsible for payment of all such items and that the Underwriter may agree to advance the cost of such items from time to -7- Honorable Mayor and City Council City of Yakima, Washington May 6, 2008 Page 8 time solely as an accommodation to the Issuer and on the condition that it shall be reimbursed in full by the Issuer. 10. Miscellaneous a) All matters relating to the Purchase Agreement shall be governed by the laws of the state of Washington. b) This Purchase Agreement is intended to benefit only the parties hereto. Unless it can be shown that the untruth of any representation or warranty of the Issuer or the violation of any agreement of the Issuer hereunder actually was or should have been discovered by the Underwriter through its review of the information in the Final Official Statement in accordance with and as a part of its responsibilities under federal securities laws as applied to the facts and circumstances of this transaction, all representations and warranties and agreements of the Issuer in this Purchase Agreement shall remain operative and in full force and effect, regardless of (i) any investigation made by or on behalf of the Underwriter, (ii) delivery of and payment for the Bonds hereunder, or (iii) any termination of this Purchase Agreement. If the Issuer fails to satisfy any of the foregoing conditions or covenants, or if the Underwriter's obligations are terminated for any reason permitted under this Purchase Agreement, then neither the Underwriter nor the Issuer shall- have any further obligations under this Purchase Agreement, except that any expenses incurred shall be borne in accordance with the Fees and Expenses Section hereof. c) Any notice or other communication to be given to the Issuer by the Underwriter under this Purchase Agreement may be given by delivering the same in writing to the Finance Director or other authorized official of the Issuer at 129 North Second Street, Yakima, Washington 98901; and any notice or other communication to be given to the Underwriter by the Issuer under this Purchase Agreement may be given by delivering the same in writing to the attention of the officer of the Underwriter executing this Purchase Agreement at Seattle -Northwest Securities Corporation, 1420 Fifth Avenue, Suite 4300, Seattle, Washington, 98101. Written communications may be delivered by electronic means. d) This Purchase Agreement may be executed in any number of counterparts, all of which shall be one and the same instrument, and either Party hereto may execute this Purchase Agreement by signing any such counterpart. e) This Purchase Agreement, including all documents incorporated herein by reference, constitutes the entire agreement between and among the Parties, supersedes any other representations, understandings or communications between the Parties or their representatives, and may be amended only in a writing signed by both Parties. This Purchase Agreement is intended solely for the benefit of the Parties (including any successors and assigns thereof but not any holder of any Bonds). No other person shall acquire or have any rights hereunder or by virtue hereof. -8- Honorable Mayor and City Council City of Yakima, Washington May 6, 2008 Page 9 Respectfully submitted, SEATTLE -NORTHWEST SECURITIES CORPORATION By Title: Senior Vice President Accepted May 6, 2008 CITY OF YAKIMA, WASHINGTON By: Rita M. DeBord, Finance Director Time Signed • • • EXHIBIT A FINAL PRICING NUMBERS BOND DEBT SERVICE City of Yakima Water and Sewer Revenue and Refunding Bonds, 2008 FINAL NUMBERS Dated Date Delivery Date 06/05/2008 06/05/2008 Period Annual Ending Principal Coupon Interest Debt Service Debt Service 11/01/2008 90,000 4.000% 148.235.62. 238,235.62 238,235.62 05/01/2009 180,956.25 180,956.25 11/01/2009 830,000 4.000% 180,956.25 1,010,956.25 1,191,912.50 05/01/2010 164,3 56.25 164,3 56.25 11/01/2010 865.000 4.000% 164,356.25 1,029,356.25 1,193,712.50 05/01/2011 147,056.25 147,056.25 11/01/2011 900,000 4.000% 147,056.25 1,047,056.25 1,194,112.50 05/01/2012 129,056.25 129,056.25 11/01/2012 390,000 4.000% . 129,056.25 519,056.25 648,112.50 05/01/2013 121,256.25 121,256.25 11/01/2013 405,000 4.000% 121,256.25 526,256.25 647,512.50 05/01/2014 113,156.25 113,156.25 11/01/2014 430,000 4.000% 113,156.25 543,156.25 656,312.50 05/01/2015 104,5 56.25 104,5 56.25 11/01/2015 440,000 4.000% 104,556.25 544,556.25 649,112.50 05/01/2016 95,756.25 95,756.25 11/01/2016 455,000 4.000% 95,756.25 550,756.25 646,512.50 05/01/2017 86,656.25 86,656.25 11/01/2017 470,000 5.000% 86,656.25 556,656.25 643,312.50 , 05/01/2018 74,906.25 74,906.25 11/01/2018 495,000 5.000% ' 74,906.25 569,906.25 644,812.50 05/01/2019 62,531.25 62,531.25 11/01/2019 290,000 4.250% 62,531.25 352,531.25 415,062.50 05/01/2020 56,368.75 56,368.75 11/01/2020 300,000 4.250% 56,368.75 356,368.75 412,737.50 05/01/2021 49,993.75 49,993.75 11/01/2021 . 315,000 4.250% 49,993.75 364,993.75 414,987.50 05/01/2022 43,300.00 43,300.00 11/01/2022 325,000 4.000% 43,300.00 368,300.00 411,600.00 05/01/2023 36,800.00 36,800.00 11/01/2023 340,000 4.000% 36,800.00 376,800.00 413,600.00 05/01/2024 30,000.00 30,000.00 11/01/2024 355.000 4.000% 30,000.00 385,000.00 . 415,000.00 05/01/2025 22,900.00 22,900.00 11/01/2025 370.000 4.000% 22,900.00 392,900.00 415,800.00 05/01/2026 15,500.00 15,500.00 11/01/2026 380,000 4.000% 15,500.00 395,500.00 411,000.00 05/01/2027 7,900.00 7,900.00 11/01/2027 395,000 . 4.000% 7,900.00 402,900.00 410,800.00 8.840.000 3,234,248.12 12,074,248.12 12,074,248.12 May 6, 2008 11:52 am Prepared by Seattle -Northwest Securities Corp - 3MW (k:\analysis \dbc\city\Yakima:2008) Page 3 • Bond Component BOND PRICING City of Yakima Water and Sewer Revenue and Refunding Bonds, 2008 FINAL NUMBERS Maturity Yield to Call Call Premum Date Amount Rate Yield Price Maturity Dale Price (-Dixountl Serial Bonds 2021 Tenn Bond 2025 7 ornr Bond 2027 'Peon Bond 11/01/2008 90,000 4 000% 2 250% 100 699 629.10 11/01/2009 830,000 4 000% 2 150% 102 266 18.807 80 11/01/2010 865.000 4 000% 2 550% 103 360 29.(64 00 11/01/2011 9110.000 4 0011% 2 850% 103 705 33.345 00 11/01/2012 390,000 4010% 3 06040 103.844 14 991 60 11/01/2013 405,000 4000% 3 150% 104.192 16,977 60 11/01/2014 430,000 4000% 3.300% 104.009 17,23870 11/01/2015 440.000 4 000% 3 400% 103 696 17.142.40 11/01/2016 455,000 4 000% 3 550% 103 242 14,751 10 11/01/2017 4711,0(10 5000% 3650°/ 110662 50,111 40 11/01/2018 495,000 5000% 37(10% 110695 C 3749% 05/01/2018 100000 52,940 25 5.770,000 265.998 95 11/01/2019 290,000 4 250% 3 85046 103 265 C 3 934% 05/01/2018 100 000 11/01/2020 300,000 4 250% 1 850% 103 265 C 3 014% 05/01/2018 100000 11/01/2021 315,000 4 250% 1 850% 103 265 C 3 934% 05/01/2018 100,000 905,000 11/01/2022 325.0)01 4000% 4000% 100.000 11/01/2023 340,000 4 000% 4 000°/ 100 000 11/01/2024 355.000 4000% 4.000% 100000 11)01/21125 370 ,I0(1 4,000% 4,00(4% 11H/000 1 390,1)00 11/01/2026 380,000 4.0105% 4,070% 99063 11/01/2027 395,000 4.00(1% 4,0705% 99063 775,000 9.468 50 9.795 00 10.284 75 29.548 25 -3,560.60 -3,701 15 -7,261 75 8,840,000 288,285 45 Dated Date 06/05/2008 Delis en Date 06/05/2008 First Coupon 11/01/2008 Par Amount Premum Pt oducuon Underwriter's Discount Purchase ['nee Accrued Interest 8,840,000 (0) 288,285 45 9,128,285 45 103 261148% -53.04(100 -0 6001(91/ 9075.245 45 102 661148% Net Proceeds 9,075.245 45 May 6, 2008 11:52 am Prepared by Seattle -Northwest Securities Corp - JMW (k:\analysis\dbc\city\Yakima:2008) Page 2 • SOURCES AND USES OF FUNDS City of Yakima Water and Sewer Revenue and Refunding Bonds, 2008 FINAL NUMBERS Dated Date Delivery Date 06/05/2008 06/05/2008 Sources: 08REV2 R98WS Total Bond Proceeds: Par Amount 5,440,000.00 Original Issue Discount -7,261.75 Premium 150,398.75 3,400,000.00 145,148.45 8,840.000.00 -7,261.75 295,547.20 5.583,137.00 3,545.148.45 9,128,285.45 Uses: 08REV2 R98WS Total Project Fund Deposits: Project Fund 5,500,000.00 5,500,000.00 Refunding Escrow Deposits: - - Cash Deposit 1.90 1.90 SLGS Purchases 3,492.331.00 3,492.331.00 Delivery Date Expenses: Cost of Issuance Underwriter's Discount Bond Insurance (Assured Guaranty @ 42 bps) 18,307.69 32,640.00 31,207.29 3,492,332.90 12,192.31 20,400.00 19,504.55 3,492,332.90 30,500.00 53,040.00 50,711.84 82,154.98 Other Uses of Funds: Additional Proceeds . 982.02 52,096.86 134,251.84 718.69 1,700.71 5,583,137.00 3,545,148.45 9,128,285.45 May 6, 2008 11:52 am Prepared by Seattle -Northwest Securities Corp - JMW (k:\analysis\dbc\city\Yakima:2008) Page 1 EXHIBIT B CLOSING DOCUMENTS Issuer's Closing Documents At Closing, Issuer shall provide the following: a) Copies of the Ordinance and the Blanket Issuer Letter of Representation; b) The approving opinion of Bond Counsel dated as of the Closing Date and addressed to the Issuer, substantially in the form set forth in Appendix B to the Final Official Statement and a letter addressed to the Insurer and the Underwriter to the effect that the Insurer and the Underwriter may rely upon such opinion as if it were addressed to the Insurer and the Underwriter; c) Evidence of each of the following: i) That Standard & Poor's ("S&P") has assigned its (i) underlying rating of "AA-" to the Bonds and that such rating is in full force and effect on and as of the date of Closing and (ii) insured rating of "AAA" based upon the Issuer's purchase of the Policy issued by the Insurer; ii) Issuer's purchase of the Policy, induding a copy of the Policy and an opinion of counsel to the Insurer in form and substance satisfactory to the Underwriter; and iii) designation of the Bonds as "qualified tax-exempt obligations" for banks, thrift institutions and other financial institutions, as defined in Section 265(b)(3) of the Internal Revenue Code of 1986, as amended. d) A copy of completed Form 8038-G; e) The following certifications, which may be combined, executed by an authorized officer of the Issuer and dated as of the Closing Date, to the effect that: i) The representations, warranties and covenants of the Issuer contained herein and in the Ordinance are true and correct in all material respects on and as of the Closing Date with the same effect as if made on the Closing Date; ii) No litigation or other proceedings are pending or, to the knowledge of the Issuer, threatened in any court in any way (a) affecting the position or title of the authorized officers of the Issuer, or (b) seeking to restrain or to enjoin the authorization, issuance, sale or delivery of, or security for, any of the Bonds, or (c) contesting or affecting the validity or enforceability of the Bonds, the Ordinance, this Purchase Agreement, or (d) contesting the completeness or accuracy of the POS or the Final Official Statement, or (e) contesting the powers of the Issuer or its authority with respect to the Bonds, the Ordinance or this Purchase Agreement, or (f) materially affecting the finances of the Issuer. For the purpose of this subparagraph, the Issuer may rely upon a certificate of the Issuer's legal counsel with respect to the legal matters set forth therein; iii) No event affecting the Issuer has occurred since the date of the Final Official Statement which should be disclosed in the Final Official Statement for the purpose for which it is to be used or which is necessary to disclose therein in order to make the statements therein not misleading, and the Final Official Statement does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; provided, however, that no representation or warranty is made with respect to information within the Final Official Statement relating to DTC, the book entry system, the Insurer or the Underwriter; and f) Such additional certificates, instruments or opinions or other evidence as the Underwriter or Bond Counsel may deem reasonably necessary or desirable to evidence the due authorization, issuance, execution, authentication and delivery of the Bonds, the truth and accuracy as of the time of the Closing of the representations and warranties contained in this Purchase Agreement, and the conformity of the Bonds and Ordinance with the terms thereof as summarized in the POS and the Final Official Statement, and to cover such other matters as the Underwriter or Bond Counsel reasonably requests. Underwriter's Closing Documents At Closing, Underwriter shall deliver or cause to be delivered to the Issuer or Bond Counsel a receipt for the Bonds including therein a representation that all closing conditions set forth in this Purchase Agreement have been provided to the satisfaction of the Underwriter or waived by it. • • • • EXHIBIT C DESCRIPTION OF THE BONDS (a) Principal Amount: $8,840,000 (b) Purchase Price: (c) Denominations: (d) Form: (e) Interest Payment Dates: (f) Maturity and Interest Rates: $9,075,245.45 ($102.661148 per. $100), representing a net original issue premium of $288,285.45 and an underwriter's discount of $53,040.00. $5,000, or integral multiples thereof Registered; Book -entry only May 1 and November 1, commencing November 1, 2008. The Bonds shall mature on November 1 of each year and bear interest as follows: 45^:,.Ceh •_-'h;F - .,•- t' n.':-t}.`'iR'- 'y!°;..i,w Duea�, T -i_ teresi CUSIP °z1-u��1 ..}'y�i i -Y` G - 5i'' 5:v } ffiE PrL 4 �" y+ �a' ?-c Nov' 1= mounts Rat s V Yields 984538 -..��>.q.,mc� .. � �T P3`:N -. u. -.ce> y„" .S- •3(i dt:{K Due , ,_ Interes CLTSIP r j ka m... -"a". "�.t:. t'w rx .4. 5 b. w4:'' ^�Yr F' }2,='l� .X .sYc'n" "L 'r�S' -E., rte'?. dy "'l• � OV: 1 ;Amounts ` � � � RafesiYields��,,984538 . 2008 $ 90,000 4.00% 2.25% HJO 2014 $ 430,000 4.00% 3.30% HQ4 2009 830,000 4.00 2.35 HK7 2015 440,000 4.00 3.40 HR2 2010 865,000 4.00 2.55 HL5 2016 455,000 4.00 3.55 HSO 2011 900,000 4.00 2.85 I -1M3 2017 470,000 5.00 3.65 HTS 2012 390,000 4.00 3.06 HN1 2018* 495,000 5.00 3.70 HU5 2013 405,000 4.00 3.15 HP6 $905,000 4.25% Term Bond due November 1 2021* @ 3.85% Yield; CUSIP No. 984538HX9 $1,390,000 4.00% Term Bond due November 1, 2025 @ 4.00% Yield; CUSIP No. 9984538JB5 $775,000 4.00% Term Bond due November 1, 2027 @ 4.07% Yield; CUSIP No. 984538JD1 " Priced to the call date of May 1, 2018. (g) Optional Redemption: The Bonds maturing on November 1 in years 2008 through 2017, inclusive, are not subject to redemption prior to maturity. The Bonds maturing on or after November 1, 2018 are subject to redemption at the option of the Issuer, in whole or in part on any date on or after May 1, 2018 ata price of par plus accrued interest, if any, to the date of redemption. p (h) Mandatory Redemption: The Term Bonds due on November 1 in the. years 2021, 2025 and 2027 will be called for redemption (in such manner as the Bond Registrar will determine) at a price of par, plus accrued interest on the date of redemption, on November 1 in the years and amounts as follows: 2021 Term Bond Years Amounts 2019 $ 290,000 2020 300,000 2021 0) 315,000 $ 905,000 (1) Final maturity. 2025 Term Bond Years 2022 2023 2024 2025 (1) Amounts $ 325,000 340,000 355,000 370,000 1,390,000 (1) Final maturity. 2027 Term Bond Years Amounts 2026 $ 380,000 2027 (1) 395,000 $ 775,000 (1) Final maturity. (i) Dated Date: Date of Delivery, expected to be June 5, 2008. (j) Offer Expires: 11:59 p.m. Pacific Time, May 6, 2008. (k) Bond Counsel: K&L Preston Gates Ellis LLP (1) Closing: Via conference call initiated by Bond Counsel on June 5, 2008, at 9:00 a.m. (m) Delivery: To the Bond Registrar on behalf of DTC by Fast Automated Securities Transfer. (n) Bond Insurance: Payment of the principal of and interest on the Bonds, when due, will be insured by the Policy to be issued by the Insurer (Assured Guaranty Corporation) simultaneously with the delivery of the Bonds. • • • • • (o) Ratings: S&P will assign its rating of "AAA" to the Bonds based on the Issuer's purchase of the Policy described above. Furthermore, S&P has assigned its underlying rating of "AA-" to the Bonds. BOND DEBT SERVICE City of Yakima Water and Sewer Revenue and Refunding Bonds, 2008 FINAL NUMBERS Dated Date 06/05/2008 Delivery Date 06/05/2008 Period Annual Ending Principal Coupon Interest Debt Service Debt Service 11/01/2008 90,000 4.000% 148,235.62 238,235.62 238,235.62 05/01/2009 180,956.25 180,956.25 11/01/2009 830,000 4.000% 180,956.25 1,010,956.25 1,191,912.50 05/01/2010 164,356.25 164,356.25 11/01/2010 865,000 4.000% 164,356.25 1,029,356.25 1,193,712.50 05/01/2011 147,056.25 147,056.25 11/01/2011 900,000 4.000% 147,056.25 1,047,056.25 1,194,112.50 05/01/2012 129,056.25 129,056.25 11/01/2012 390,000 4.000% 129,056.25 519,056.25 648,112.50 05/01/2013 121,256.25 121,256.25 11/01/2013 405,000 4.000% 121,256.25 526,256.25 647,512.50 05/01/2014 113,156.25 113,156.25 11/01/2014 430,000, 4.000% 113,156.25 543,156.25 .656,312.50 05/01/2015 104,556.25 104,556.25 11/01/2015 440,000 4.000% 104,556.25 544,556.25 649,112.50 05/01/2016 95,756.25 95,756.25 11/01/2016 455,000 4.000% 95,756.25 550,756.25 646,512.50 05/01/2017 86,656.25 86,656.25 11/01/2017 470,000 5.000% 86,656.25 556,656.25 643,312.50 05/01/2018 74,906.25 74,906.25 11/01/2018 495,000 5.000% 74,906.25 569,906.25 644,812.50 05/01/2019 62,531.25 62,531.25 11/01/2019 290,000 4.250% 62,531.25 352,531.25 415,062.50 05/01/2020 , 56,368.75 56,368.75 11/01/2020 300,000 4.250% 56,368.75 356,368.75 412,737.50 05/01/2021 49,993.75 49,993.75 11/01/2021 • 315,000 4.250% 49,993.75 364,993.75 414,987.50 05/01/2022 43,300.00 43,300.00 11/01/2022 325,000 4.000% 43,300.00 368,300.00 411,600.00 05/01/2023 36,800.00 36,800.00 11/01/2023 340,000 4.000% 36,800.00 376,800.00 413,600.00 05/01/2024 30,000.00 30,000.00 11/01/2024 355,000 4.000% 30,000.00 385,000.00 415,000.00 05/01/2025 22,900.00 22,900.00 11/01/2025 370,000 4.000% 22,900.00 392,900.00 415,800.00 05/01/2026 15,500.00 15,500.00 11/01/2026 380,000 4.000% 15,500.00 395,500.00 411,000.00 05/01/2027 7,900.00 7,900.00 11/01/2027 395,000 4.000% 7,900.00 402,900.00 410,800.00 8,840,000 3,234,248.12 12,074,248.12 12,074,248.12 May 6, 2008 10:57 am Prepared by Seattle -Northwest Securities Corp - JMW (k:\analysis\dbc\city\Yakima:2008) Page 8 BOND DEBT SERVICE City of Yakima Water and Sewer Revenue Bonds, 2008 FINAL NUMBERS New Money Portion Dated Date 06/05/2008 Delivery Date 06/05/2008 Period Annual Ending Principal Coupon Interest Debt Service Debt Service 11/01/2008 75,000 4.000% 91,336.18 166,336.18 166,336.18 05/01/2009 111,106.25 111,106.25 11/01/2009 190,000 4.000% 111,106.25 301,106.25 412,212.50 05/01/2010 107,306.25 107,306.25 11/01/2010 200,000 4.000% 107,306.25 307,306.25 414,612.50 05/01/2011 103,306.25 103,306.25 11/01/2011 205,000 4.000% 103,306.25 308,306.25 411,612.50 05/01/2012 99,206.25 99,206.25 11/01/2012 215,000 4.000% 99,206.25 314,206.25 413,412.50 05/01/2013 94,906.25 94,906.25 11/01/2013 225,000 4.000% 94,906.25 319,906.25 414,812.50 05/01/2014 90,406.25 90,406.25 11/01/2014 235,000 4.000% 90,406.25 325,406.25 415,812.50 05/01/2015 85,706.25 85,706.25 11/01/2015 240,000 4.000% 85,706.25 325,706.25 411,412.50 05/01/2016 80,906.25 80,906.25 11/01/2016 250,000 4.000% 80,906.25 330,906.25 411,812.50 05/01/2017 75,906.25 75,906.25 11/01/2017 260,000 5.000% 75,906.25 335,906.25 411,812.50 05/01/2018 69,406.25 69,406.25 11/01/2018 275,000 5.000% 69,406.25 344,406.25 413,812.50 05/01/2019 62,531.25 62,531.25 11/01/2019 290,000 4.250% 62,531.25 352,531.25 415,062.50 05/01/2020 56,368.75 56,368.75 11/01/2020 300,000 4.250% 56,368.75 356,368.75 412,737.50 05/01/2021 49,993.75 49,993.75 11/01/2021 315,000 4.250% 49,993.75 364,993.75 414,987.50 05/01/2022 43,300.00 43,300.00 11/01/2022 325,000 4.000% 43,300.00 368,300.00 411,600.00 05/01/2023 36,800.00 36,800.00 11/01/2023 340,000 4.000% 36,800.00 376,800.00 413,600.00 05/01/2024 30,000.00 30,000.00 11/01/2024 355,000 4.000% 30,000.00 385,000.00 415,000.00 05/01/2025 22,900.00 22,900.00 11/01/2025 370,000 4.000% 22,900.00 392,900.00 415,800.00 05/01/2026 15,500.00 15,500.00 11/01/2026 380,000 4.000% 15,500.00 395,500.00 411,000.00 05/01/2027 7,900.00 7,900.00 11/01/2027 395,000 4.000% 7,900.00 402,900.00 410,800.00 5,440,000 2,578,248.68 8,018,248.68 8,018,248.68 • May 6, 2008 10:57 am Prepared by Seattle -Northwest Securities Corp - JMW (k:\analysis\dbc\city\Yakima:2008) Page 9 • • BOND DEBT SERVICE City of Yakima Water & Sewer Revenue Ref Bonds, 2008 (Ref 98) FINAL NUMBERS Refunding Portion Dated Date 06/05/2008 Delivery Date 06/05/2008 Period Annual Ending Principal Coupon Interest Debt Service Debt Service 11/01/2008 15,000 4.000% 56,899.44 71,899.44 71,899.44 05/01/2009 69,850.00 69,850.00 11/01/2009 640,000 4.000% 69,850.00 709,850.00 779,700.00 05/01/2010 57,050.00 57,050.00 11/01/2010 665,000 4.000% 57,050.00 722,050.00 779,100.00 05/01/2011 43,750.00 43,750.00 11/01/2011 695,000 4.000% 43,750.00 738,750.00 782,500.00 05/01/2012 29,850.00 29,850.00 11/01/2012 175,000 4.000% 29,850.00 204,850.00 234,700.00 05/01/2013 26,350.00 26,350.00 11/01/2013 180,000 4.000% 26,350.00 206,350.00 232,700.00 05/01/2014 22,750.00 22,750.00 11/01/2014 195,000 4.000% 22,750.00 217,750.00 240,500.00 05/01/2015 18,850.00 18, 850.00 11/01/2015 200,000 4.000% 18,850.00 218,850.00 237,700.00 05/01/2016 14,850.00 14,850.00 11/01/2016 205,000 4.000% 14,850.00 219,850.00 234,700.00 05/01/2017 10,750.00 10,750.00 11/01/2017 210,000 5.000% 10,750.00 220,750.00 231,500,00 05/01/2018 5,500.00 5,500.00 11/01/2018 220,000 5.000% 5,500.00 225,500.00 231,000.00 3,400,000 655,999.44 4,055,999.44 4,055,999.44 May 6, 2008 10:57 am Prepared by Seattle -Northwest Securities Corp - JMW (k:\analysis\dbc\city\Yakima:2008) Page 10 BUSINESS OF THE CITY COUNCIL YAKIMA, WASHINGTON AGENDA STATEMENT Item No. / I For Meeting of: May 6, 2008 ITEM TITLE: A Resolution authorizing the execution and delivery of a contract for sale and purchase of the City's Water/Wastewater Revenue and Refunding Bonds (The Bonds) in the aggregate amount of not to exceed $9,750,000 and fixing the terms of The Bonds, approving the form of the Preliminary Official Statement and ratifying certain acts and proceedings. SUBMITTED BY: Finance Department CONTACT PERSON / TELEPHONE: Rita DeBord, Finance Director, #575-607 Tim Jensen, Treasury Services Officer; # 575-60 SUMMARY EXPLANATION: On March 18,2008, City Council passed Ordinance #2008-19 authorizing the issuance of up to $9.75 million of Water/Wastewater Revenue and Refunding Bonds of the City for the purpose of providing funds for certain new capital projects and a current refunding certain outstanding bonds and directing staff to take all appropriate actions and perform all proceedings and tasks necessary to accomplish this transaction. Subsequently, staff worked with bond counsel (K & L Preston Gates Ellis LLP) and the bond underwriters (Seattle Northwest Securities) to structure the bond issue, prepare the Preliminary Official Statement (POS) and other necessary legal documents and we continued to assess market conditions. The POS is a legal document utilized by potential investors; it describes the City of Yakima and our local economy, provides information regarding the water and wastewater utilities and the specific use of the bond •proceeds, as well as significant legal and financial information relative to the fiscal condition of the City, the ability of the utilities to repay the bonds and the terms and conditions of the bond repayment. Based on the latest assessment of the bond market, bond insurance and issuance costs, we anticipate issuing bonds in the aggregate amount of approximately $9,195,000; approximately $5.6 million will be utilized for wastewater facility improvements with the balance utilized to refund the 1998 water/sewer bonds. Staff has engaged in a credit rating interview with Standard and Poor's on April 30th and completed the Preliminary Official Statement, dated April 30, 2008. Staff anticipates receiving Standard and Poor's rating on Friday, May 2nd and has a bond -pricing meeting scheduled with the Bond Underwriters, Monday, May 5th. (Note: due to market fluctuations, the projected savings from the refinancing of the 1998 Water/Wastewater Revenue Bonds may change prior to the pre -pricing call. Staff is closely monitoring the bond market and, during our pricing call on Monday, May 5th, we will make a final determination regarding whether to move forward with refunding of these bonds or pulling them from the overall bond issue and waiting for more favorable market conditions before proceeding with the refunding. At this point in time, we do not anticipate any problems in the issuance of the "new money" portion of this bond issue, which is expected to be approximately $5.6 million.) Continued.... illSTAFF RECOMMENDATION: Approve Final Resolution, POS and Bond Purchase Offer BOARD/COMMISSION RECOMMENDATION: N/A COUNCIL ACTION: Resolution X Ordinance Other (Specify) Final POS, Bond Purchase Offer Contract Mail to (name and address): Phone: Funding Source APPROVED FOR SUBMITTAL: �-.C\ City Manager The actual pricing of the Bonds (at which time the bonds are officially offered for sale and the Underwriters make a purchase offer) is scheduled for Tuesday, May 6th 2008. Once the pricing is complete, all of the final terms and conditions of The Bond purchase offer will be known, including the interest rates, discounts/premiums if any, the final amortization schedule, etc. Assuming a reasonable offer has been made; staff will submit this offer to Council for your consideration at your regular business meeting on Tuesday, May 6th. Subject to Council's acceptance and authorization of the bond purchase offer, the transaction will be executed and scheduled to close within 30 days after Council authorization; the City will receive the bond proceeds at closing. After pricing is complete, Council will need to approve; (1) Final Preliminary Official Statement (POS), attached, (2) the purchase offer and (3) The Bond Sale Resolution. Enclosed, you will find a draft version of the Bond Sale Resolution for your review. (A draft Purchase Offer is not available at this time.) Final documents will be provided to Council on Tuesday's meeting. 1091 CONTRACTS Contract Title Purchase Agreement Contracting Party Seattle -Northwest Securities Corporation Purpose Sale and delivery of Wastewater bonds - Water and Sewer Revenue and Refunding Bonds, 2008 Originating Division Finance Staff Liaison Rita DeBord Amendments Effective Date 05/06/2008 Eff. Date Explanation Expiration Date Exp. Date Explanation Dollar Amount 8,840,000.00 Dollar Amt Explanation Contract ID 2008-072 Resolution ID R-2008-73 Insurance (yes/no) Insurance Expires Insurance Name File Location No. C 08 071 Archive Info Comments