Document Fernley_doc_663e558dba

*Preliminary, subject to change. PRELIMINARY OFFICIAL STATEMENT $32,600,000* City of Fernley, Nevada General Obligation (Limited Tax) Water and Sewer Bonds (Additionally Secured by Pledged Revenues) Series 2008 Selling: Wednesday, March 12, 2008 8:30 a.m. Pacific time ---PAGE BREAK--- *Preliminary, subject to change. **As provided by CUSIP© a registered trademark of the American Bankers Association. CUSIP® data herein is provided by Standard & Poor's, CUSIP® Service Bureau, a division of The McGraw-Hill Companies, Inc. Maturities, Principal Amounts, Interest Rates, and Yields or Prices Maturity Date (February 1) Principal Amount* Interest Rate** Yield** CUSIP® (base 315221) 2010 $640,000 2011 660,000 2012 675,000 2013 695,000 2014 715,000 2015 740,000 2016 765,000 2017 790,000 2018 820,000 2019 850,000 2020 885,000 2021 915,000 2022 955,000 2023 995,000 2024 1,035,000 2025 1,080,000 2026 1,130,000 2027 1,175,000 2028 1,230,000 2029 1,285,000 2030 1,345,000 2031 1,405,000 2032 1,470,000 2033 1,535,000 2034 1,605,000 2035 1,680,000 2036 1,760,000 2037 1,840,000 2038 1,925,000 ---PAGE BREAK--- Preliminary, subject to change. March 5, 2008 i This Preliminary Official Statement and the information contained herein are subject to completion or amendment. These securities may not be sold nor may offers to buy be accepted prior to the time the Official Statement is delivered in final form. Under no circumstances shall this Preliminary Official Statement constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any jurisdiction in which such offer, solicitation, or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. $32,600,000* City of Fernley, Nevada General Obligation (Limited Tax) Water and Sewer Bonds (Additionally Secured by Pledged Revenues) Series 2008 NEW ISSUE - FULL BOOK-ENTRY Rating Requested: Moody’s: Underlying Rating: See “BOND RATINGS.” DATED: As of date of delivery DUE: February 1, as shown on inside cover The Bonds, when issued, will be fully registered bonds in denominations of $5,000, or any integral multiple thereof. The Bonds will initially be registered in the name of Cede & Co., as nominee of DTC, securities depository for the Bonds. Purchases of the Bonds are to be made in book-entry form only. Purchasers will not receive certificates representing their beneficial ownership interest in the Bonds. See Appendix E - Book-Entry-Only System. The Bonds will be dated as of the date of delivery, and will be due on February 1, as shown on the inside cover. The Bonds bear interest at the rates set forth on the inside cover, payable on August 1, 2008, and semiannually thereafter on February 1 and August 1 of each year, to and including the maturity dates shown on the inside cover, to the registered owners of the Bonds (initially Cede & Co.). The principal of the Bonds will be payable upon presentation and surrender at the corporate trust office designated by the Paying Agent, or its successor as the paying agent for the Bonds. See "THE BONDS - Professionals.” The Bonds, or portions thereof, maturing on and after February 1, 2019, will be subject to prior redemption before their respective maturities, at the option of the City, on or after February 1, 2018. Certain of the Bonds may be subject to mandatory sinking fund redemption at the option of the Initial Purchaser. See “THE BONDS - Prior Redemption”, herein, and Appendix G - Official Notice of Bond Sale. The Bonds constitute direct and general obligations of the City. The full faith and credit of the City are pledged for the payment of principal and interest subject to Nevada constitutional and statutory limitations on the aggregate amount of property taxes. The Bonds are also secured by the pledge of the revenues derived by the City from the Utility System. See “THE BONDS - Security for the Bonds.” In the opinion of Bond Counsel, assuming continuous compliance with certain covenants described herein, interest on the Bonds is excluded from gross income under federal income tax laws pursuant to Section 103 of the Internal Revenue Code of 1986, as amended to the date of delivery of the Bonds, and interest on the Bonds is excluded from alternative minimum taxable income as defined in Section 55(b)(2) of the Tax Code except that such interest is required to be included in calculating the “adjusted current earnings” adjustment applicable to corporations for purposes of computing the alternative minimum taxable income of corporations. See “TAX MATTERS.” This cover page contains certain information for quick reference only. It is not a summary of this issue. Investors must read the entire Official Statement to obtain information essential to the making of an informed investment decision. The Bonds are offered when, as, and if issued, and subject to the approval of validity and enforceability by Swendseid & Stern, a member in Sherman & Howard L.L.C., Reno, Nevada. It is expected that the Bonds will be available for delivery on or about April 1, 2008. ---PAGE BREAK--- ii This Official Statement, which includes the cover page and the appendices, does not constitute an offer to sell or the solicitation of an offer to buy any of the Bonds in any jurisdiction in which it is unlawful to make such offer, solicitation, or sale. No dealer, salesperson, or other person has been authorized to give any information or to make any representations other than those contained in this Official Statement in connection with the offering of the Bonds, and if given or made, such information or representations must not be relied upon as having been authorized by the City or the Initial Purchaser of the Bonds. The information set forth in this Official Statement has been obtained from the City and from sources referenced throughout this Official Statement which the City believes to be reliable. No representation or warranty is made, however, as to the accuracy or completeness of such information provided from sources other than the City, and nothing contained herein is or shall be relied upon as a guarantee of the City. The Initial Purchaser has reviewed the information in this Official Statement in accordance with, and as a part of, their responsibilities to investors under the Federal Securities Laws as applied to the facts and circumstances of this transaction, but the Initial Purchaser does not guarantee the accuracy or completeness of such information. This Official Statement contains, in part, estimates and matters of opinion which are not intended as statements of fact, and no representation or warranty is made as to the correctness of such estimates and opinions, or that they will be realized. The information, estimates, and/or expressions of opinion contained in this Official Statement are subject to change without notice, and neither the delivery of this Official Statement nor any sale of the Bonds shall, under any circumstances, create any implication that there has been no change in the affairs of the City or in the information, estimates, or opinions set forth herein, since the date of this Official Statement. Information for investors regarding the City and the Bonds is contained in this Official Statement. Although the City maintains an internet website for various purposes, none of the information on that website is a part of this Official statement nor is it intended to assist investors in making any investment decision with respect to the Bonds or to provide any continuing information with respect to the Bonds or any other bonds or obligations of the City. This Official Statement has been prepared only in connection with the original offering of the Bonds and may not be reproduced or used in whole or in part for any other purpose. The Bonds have not been registered with the SEC due to certain exemptions contained in the Securities Act of 1933, as amended. The Bonds have not been recommended by any federal or state securities commission or regulatory authority, and the foregoing authorities have neither reviewed nor confirmed the accuracy of this document. THE PRICES AT WHICH THE BONDS ARE OFFERED TO THE PUBLIC BY THE INITIAL PURCHASER (AND THE YIELDS RESULTING THEREFROM) MAY VARY FROM THE INITIAL PUBLIC OFFERING PRICES OR YIELDS APPEARING ON THE INSIDE COVER HEREOF, IN ADDITION, THE INITIAL PURCHASER MAY ALLOW CONCESSIONS OR DISCOUNTS FROM SUCH INITIAL PUBLIC OFFERING PRICES TO DEALERS AND OTHERS. IN ORDER TO FACILITATE DISTRIBUTION OF THE BONDS, THE INITIAL PURCHASER MAY ENGAGE IN TRANSACTIONS INTENDED TO STABILIZE THE PRICE OF THE BONDS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. ---PAGE BREAK--- *Preliminary, subject to change. iii $32,600,000* City of Fernley, Nevada General Obligation (Limited Tax) Water and Sewer Bonds (Additionally Secured by Pledged Revenues) Series 2008 CITY COUNCIL Todd Cutler, Mayor Elayne Logue, Ward 1 Joe Mortensen, Ward 2 Monte Martin, Ward 3 Curt Chaffin, Ward 4 Ralph Menke, Ward 5 ADMINISTRATION Gary Bacock, City Manager Bonnie Duke, Finance Director/City Treasurer Patricia Norman, City Clerk Lowell Patton, Public Works Director Robert Terry Gilbert, Community Development Director Jeff McGowan, City Attorney Keith Penner, Parks & Recreation Director FINANCIAL ADVISOR BOND COUNSEL JNA Consulting Group, LLC Swendseid & Stern 1400 Wyoming Street, Suite 3 a member in Sherman & Howard L.L.C. Boulder City, Nevada 89005 50 West Liberty Street, Suite 1000 [PHONE REDACTED] Reno, Nevada 89501 [PHONE REDACTED] REGISTRAR & PAYING AGENT Wells Fargo Bank, NA 100 West Washington Street, 22nd Floor Phoenix, Arizona 85003-1808 [PHONE REDACTED] ---PAGE BREAK--- iv TABLE OF CONTENTS Page INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 The Issuer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 The Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Authority for Issuance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Prior Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Professionals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Tax Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Continuing Disclosure Undertaking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Regulatory Risks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Forward-Looking Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Secondary Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 THE BONDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Prior Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Notice of Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Tax Covenant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Defeasance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Book-Entry-Only System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Estimated Sources and Uses of Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Security for the Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Additional Securities Paid From Pledged Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Rate Covenant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Additional Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 THE CITY’S UTILITY SYSTEM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 The Utility System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Police Power . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Legal Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 TAX MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Federal Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 State Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 BOND RATINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 ---PAGE BREAK--- v INDEPENDENT AUDITORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 FINANCIAL ADVISOR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 UNDERWRITING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 APPENDIX A - CITY OF FERNLEY, NEVADA CITY OF FERNLEY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1 City Council . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1 Administration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1 Employee Relations and Pension Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-2 FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-4 Annual Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-4 Budgeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-4 Accounting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-4 Management’s Discussion and Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-5 General Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-6 Risk Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-8 Property Tax Base and Tax Roll Collection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-8 Property Tax Limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-11 Property Tax Abatement Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-12 Overlapping Tax Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-15 DEBT STRUCTURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-16 Debt Limitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-16 Outstanding and Proposed Debt and Other Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . A-17 Selected Debt Ratios . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-19 ECONOMIC AND DEMOGRAPHIC INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-20 Population and Age Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-21 Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-23 Labor and Employment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-24 Retail Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-28 Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-29 Transportation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-29 Development Activity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-30 Utilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-30 Education . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-30 Gaming . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-30 ---PAGE BREAK--- vi APPENDIX B - EXCERPTS FROM CITY OF FERNLEY, NEVADA COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR FISCAL YEAR ENDING JUNE 30, 2007 APPENDIX C - SUMMARY OF CERTAIN PROVISIONS OF THE BOND ORDINANCE APPENDIX D - FORM OF APPROVING OPINION OF BOND COUNSEL APPENDIX E - FORM OF CONTINUING DISCLOSURE CERTIFICATE APPENDIX F - BOOK-ENTRY-ONLY SYSTEM APPENDIX G - OFFICIAL NOTICE OF BOND SALE ---PAGE BREAK--- vii TABLES Page SOURCES AND USES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 *PLEDGED REVENUE AND COVERAGE SCHEDULE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 *ANNUAL DEBT SERVICE REQUIREMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 *GENERAL FUND REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE . . . . . . A-7 *ASSESSED VALUATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-9 *TAX LEVIES, COLLECTIONS AND DELINQUENCIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-9 *LARGEST TAXPAYERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-10 *LARGEST TAXPAYERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-11 *STATEWIDE AVERAGE AND OVERLAPPING TAX RATES . . . . . . . . . . . . . . . . . . . . . . . . . . A-15 *STATUTORY DEBT LIMITATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-16 *OUTSTANDING AND PROPOSED DEBT AND OTHER OBLIGATIONS . . . . . . . . . . . . . . . A-17 *OUTSTANDING OVERLAPPING GENERAL OBLIGATION INDEBTEDNESS . . . . . . . . . . . . A-18 NET DIRECT & OVERLAPPING GENERAL OBLIGATION INDEBTEDNESS . . . . . . . . . . . . . . A-18 SELECTED DEBT RATIOS FOR THE CITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-19 POPULATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-21 AGE DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-22 MEDIAN HOUSEHOLD EFFECTIVE BUYING INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-23 HOUSEHOLDS BY EFFECTIVE BUYING INCOME GROUPS . . . . . . . . . . . . . . . . . . . . . . . . . A-23 AVERAGE ANNUAL LABOR FORCE SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-24 ESTABLISHMENT BASED INDUSTRIAL EMPLOYMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-25 LARGEST EMPLOYERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-26 FIRM EMPLOYMENT SIZE BREAKDOWN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-27 TAXABLE SALES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-28 BUILDING PERMITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-29 *Annual Financial Information to be updated pursuant to SEC Rule 15c2-12, as amended. ---PAGE BREAK--- THIS PAGE INTENTIONALLY LEFT BLANK ---PAGE BREAK--- *Preliminary, subject to change. 1 $32,600,000* City of Fernley, Nevada General Obligation (Limited Tax) Water and Sewer Bonds (Additionally Secured by Pledged Revenues) Series 2008 INTRODUCTION General This Official Statement, which includes the cover page and the appendices, provides information concerning the City of Fernley (the "City" or “Fernley”) located in Lyon County, Nevada (the "County" and the "State", respectively) in connection with the sale of the $32,600,000* City of Fernley, Nevada, General Obligation (Limited Tax) Water and Sewer Bonds (Additionally Secured by Pledged Revenues) Series 2008 (the “Bonds”). The Bonds will be issued pursuant to a bond ordinance (the "Bond Ordinance") to be considered for adoption by the City Council (the "Council") on February 20, 2008. The offering of the Bonds is made only by way of this Official Statement, which supersedes any other information or materials used in connection with the offer or sale of the Bonds. The following introductory material is only a brief description of and is qualified by the more complete information contained throughout this Official Statement. A full review should be made of the entire Official Statement and the documents summarized or described herein. Detachment or other use of this "INTRODUCTION" without the entire Official Statement, including the cover page and appendices, is unauthorized. Unless otherwise provided, capitalized terms used herein, which are not defined, have the meanings given such terms as set forth in the Bond Ordinance. See Appendix C. The Issuer Fernley is one of the fastest growing communities in the State. It is home to approximately 19,600 people which includes surrounding agricultural areas. The City is situated on Interstate 80, 39 miles east of Reno. The City currently occupies approximately 164 square miles in the County. The City was established in 1904 primarily as an agricultural and ranching community and incorporated July 1, 2001. Since the 1980's development has been stimulated by the construction of two major industrial parks. See Appendix A. ---PAGE BREAK--- 2 The Bonds The Bonds are issued solely as fully registered certificates in the denomination of $5,000, or any integral multiple thereof. The Bonds will initially be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York the securities depository for the Bonds. Purchases of the Bonds are to be made in book-entry form only. Purchasers will not receive certificates representing their beneficial ownership interest in the Bonds. See Appendix F. The Bonds will be dated as of the date of delivery, and mature on February 1, in each of the years and amounts as shown on the inside cover of this Official Statement. Interest on the Bonds (calculated based on a 360-day year consisting of twelve 30-day months) is payable on February 1 and August 1, commencing August 1, 2008. Principal on the Bonds will be payable at maturity at the office of the Paying Agent upon presentation and surrender thereof. See "THE BONDS - General.” Authority for Issuance The Bonds are issued in full conformity with the constitution and laws of the State, the Local Government Securities Law, Sections 350.500 to 350.720, Nevada Revised Statutes ("NRS") (the "Bond Act"), Chapter 348, NRS (the "Supplemental Bond Act"), the City Charter, NRS 268.672 to 268.740 inclusive, and the Bond Ordinance. Prior Redemption Optional Prior Redemption - The Bonds, or portions thereof, maturing on and after February 1, 2019 will be subject to prior redemption before their respective maturities, at the option of the City, on or after February 1, 2018. See “THE BONDS - Prior Redemption.” Mandatory Prior Redemption - Bonds maturing on or after February 1, 2019, may be included in term bonds at the option of the Initial Purchaser. See Appendix G. Purpose Proceeds of the Bonds will be issued for the purpose of building water and sewer infrastructure within the City and paying the costs of issuance of the Bonds. See “THE BONDS - Use of Proceeds.” Security The Bonds constitute direct and general obligations of the City, and the full faith and credit of the City are pledged for the payment of principal, interest, and any prior redemption premium due thereon, subject to Nevada constitutional and statutory limitations on the aggregate amount of property taxes. The Bonds are also secured by the pledge of certain of the revenues received from the City’s Utility System. See “THE BONDS - Additional Security for the Bonds.” ---PAGE BREAK--- 3 Professionals Swendseid & Stern, a member in Sherman & Howard L.L.C., Las Vegas and Reno, Nevada, has acted as bond counsel (the “Bond Counsel”)in connection with the execution and delivery of the Bonds. The fees of Bond Counsel will be paid from Bond proceeds at closing. Wells Fargo Bank, N.A., Phoenix, Arizona, will act as the paying agent for the Bonds (the “Paying Agent”). JNA Consulting Group, LLC, Boulder City, Nevada is acting as financial advisor (the “Financial Advisor”) to the City. The fees paid to the Financial Advisor will also be paid from Bond proceeds at closing. See "FINANCIAL ADVISOR.” The financial statements of the City included in this Official Statement as Appendix B have been audited by Kafoury, & Co., certified public accountants, Fallon, Nevada, (the “Independent Auditors”) to the extent and for the period indicated in their report thereon. See "INDEPENDENT AUDITORS.” Tax Status In the opinion of Bond Counsel assuming continuous compliance with certain covenants described herein, interest on the Bonds is excluded from gross income under federal income tax laws pursuant to Section 103 of the Internal Revenue Code of 1986, as amended to the date of delivery of the Bonds (the “Tax Code”), interest on the Bonds is excluded from alternative minimum taxable income as defined in Section 55(b)(2) of the Tax Code except that such interest is required to be included in calculating the “adjusted current earnings” adjustment applicable to corporations for purposes of computing the alternative minimum taxable income of corporations. See “TAX MATTERS.” Under the laws of the State in effect as of the date of delivery of the Bonds, the Bonds, their transfer, and the income therefrom, are free and exempt from taxation by the State or any subdivision thereof except for the tax on estates imposed pursuant to Chapter 375A of NRS, and the tax on generation-skipping transfers imposed pursuant to Chapter 375B of NRS. See "TAX EXEMPTION - State Tax Exemption.” Continuing Disclosure Undertaking The City will execute a continuing disclosure certificate (the "Disclosure Certificate") at the time of the closing for the Bonds. The Disclosure Certificate will be executed for the benefit of the beneficial owners of the Bonds and the City has covenanted to comply with its terms. The Disclosure Certificate will provide that so long as the Bonds remain outstanding, the City will annually provide certain financial information and operating data to each nationally recognized municipal securities information repository ("NRMSIR") approved in accordance with Rule 15c2-12 promulgated under the Securities Exchange Act of 1934 (the "Rule"), and will provide notice of certain material events to the Municipal Securities Rulemaking Board ("MSRB"), in compliance with the Disclosure Certificate. The form of the Disclosure Certificate is attached hereto as Appendix E. The City has not failed to materially comply with any prior continuing disclosure undertaking entered into pursuant to the Rule. ---PAGE BREAK--- 4 Additional Information This introduction is only a brief summary of the provisions of the Bonds and the Bond Ordinance. A full review of the entire Official Statement should be made by potential investors. Brief descriptions of the Bonds, the Bond Ordinance, and the City are included in this Official Statement. All references herein to the Bonds, the Bond Ordinance, and other documents are qualified in their entirety by reference to such documents and all capitalized terms used herein, which are not defined, have the meanings given such terms as set forth in the Bond Ordinance. This Official Statement speaks only as of its date and the information contained herein is subject to change. Additional information and copies of the documents referred to herein are available from the City and the Financial Advisor at the addresses set forth below: City of Fernley JNA Consulting Group, LLC Finance Department 1400 Wyoming Street 595 Silver Lace Boulevard Suite 3 Fernley, Nevada 89408 Boulder City, Nevada 89005 [PHONE REDACTED] [PHONE REDACTED] Regulatory Risks The City’s Utility System is subject to numerous federal and State regulatory requirements. Those regulations are subject to change at any time. Failure to comply with regulatory changes, or the inability to comply with them in a timely manner, could cause portions of the City’s Utility System to be unavailable. Any disruption of service could negatively impact Net Revenues. Should any water or sewer related regulations become effective in the future, the City will be required to take action to comply with them in a timely manner. Forward-Looking Statements This Official Statement contains statements relating to future results that are "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. These statements are included in this Official Statement under the sections discussing estimated or unaudited financial results and in sections discussing the 2008 budgets for the City, among others. When used in this Official Statement, the words "estimate", "forecast", "intend", "expect", and similar expressions identify forward-looking statements. Any forward-looking statement is subject to uncertainty. Accordingly, such statements are subject to risks that could cause actual results to differ, possibly materially, from those contemplated in such forward-looking statements. Inevitably, some assumptions used to develop forward-looking statements will not be realized or unanticipated events and circumstances may occur. Therefore, investors should be aware that there are likely to be differences between forward-looking statements and actual results. Secondary Market No guarantee can be made that a secondary market for the Bonds will develop or be maintained by the Initial Purchaser or others. Thus, prospective investors should be prepared to hold their Bonds to maturity. ---PAGE BREAK--- 5 THE BONDS General The Bonds will be issued as fully registered bonds in denominations of $5,000 and any integral multiple thereof. The Bonds will be dated as of the date of delivery, and mature on February 1, in each of the years and amounts as shown on the inside cover of this Official Statement. The Bonds will be initially registered in the name of Cede & Co., as nominee for DTC, the securities depository for the Bonds. Purchases of the Bonds are to be made in book-entry-only form. Purchasers will not receive certificates evidencing their beneficial ownership interest in the Bonds. See Appendix F. Interest on the Bonds is payable on February 1 and August 1 (each an interest payment date), commencing August 1, 2008, by check or draft mailed by the Paying Agent on the interest payment date, or if such day is not a business day, on the next succeeding business day, to the person in whose name each Bond is registered Cede & Co.) on the 15th day of the month preceding the interest payment date (the "Regular Record Date"), at the address shown on the registration records maintained by the Registrar as of the close of business on the Regular Record Date. However, if there is a default in payment or provision of interest due with respect to a Bond on any interest payment date, such interest thereafter will be paid to the registered owner of such Bond as of a special record date (the "Special Record Date") to be established by the Registrar whenever moneys become available for payment of the defaulted interest. The Special Record Date will be fixed by the Paying Agent whenever money becomes available for payment of the defaulted interest, and notice of the Special Record Date will be given to the registered owners of the Bonds not less than 10 days prior thereto by first-class mail to each registered owner as shown on the Registrar's registration records on a date selected by the Registrar, stating the date of the Special Record Date and the date selected for the payment of the defaulted interest. Principal on the Bonds will be payable at maturity at the principal corporate trust office of the Paying Agent (or at such other office designated by the Paying Agent) upon presentation and surrender thereof. Any Bond not paid upon presentation and surrender at or after maturity shall continue to draw interest at the rate stated in the Bond until the principal is paid in full. All such payments of principal and interest shall be made in lawful money of the United States of America. Payments to beneficial owners are to be made as described in Appendix F, attached hereto. Prior Redemption Optional Prior Redemption - The Bonds, or portions thereof, maturing on and after February 1, 2019, will be subject to redemption before their respective maturities, at the option of the City, on or after February 1, 2018, in whole or in part at any time from any maturity selected by the City and by lot within a maturity at a price equal to the principal amount of each Bond, or portion thereof so redeemed, and accrued interest thereon to the redemption date. Mandatory Prior Redemption - Bonds maturing on or after February 1, 2019, may be included in term bonds at the option of the Initial Purchaser. See Appendix G. ---PAGE BREAK--- 6 Notice of Redemption Notice of redemption prior to maturity of the Bonds will be given by the Registrar by registered or certified mail as long as Cede & Company is the registered owner of the Bonds and otherwise by first class, postage prepaid mail, at least 30 days but not more than 60 days prior to the redemption date, to the MSRB, and the registered owner of any Bonds all or a part of which is called for redemption at his address as it last appears on the registration records of the Registrar. The notice will identify the Bonds or portions thereof (in the case of redemption of the Bonds in part but not in whole) to be redeemed, specify the redemption date, and state that on the redemption date, the principal amount thereof will become due and payable at the office of the Paying Agent (accrued interest to the redemption date being payable by mail or as otherwise provided in the Bond Ordinance) and that after the redemption date, no further interest will accrue on the principal of any Bonds called for redemption. Actual receipt of mailed notice by the MSRB or the registered owners of Bonds is not a condition precedent to redemption of such Bonds. Failure to give such notice as described above to a registered owner of any Bond or the MSRB, or any defect therein, shall not affect the validity of the proceedings for the redemption of any other Bonds. A notice of redemption may contain a statement that the redemption is conditioned upon the receipt by the Paying Agent of funds on or before the date fixed for redemption sufficient to pay the redemption price of the Bonds so called for redemption, and that if such funds are not available, such redemption shall be canceled by written notice to the owners of the Bonds called for redemption in the same manner as the original redemption notice was mailed. Tax Covenant In the Bond Ordinance, the City covenants for the benefit of the owners of the Bonds that it will not take any action or omit to take any action with respect to the Bonds, the proceeds thereof, any other funds of the City, or any project financed with the proceeds of the Bonds if such action or omission would cause the interest on the Bonds to lose its exclusion from gross income for federal income tax purposes under Section 103 of the Tax Code, or would cause interest on the Bonds to lose its exclusion from alternative minimum taxable income as defined in Section 55(b)(2) of the Tax Code except to the extent such interest is required to be included in the adjusted current earnings adjustment applicable to corporations under Section 56 of the Tax Code in calculating corporate alternative minimum taxable income. The foregoing covenant shall remain in full force and effect notwithstanding the payment in full or defeasance of the Bonds until the date on which all obligations of the City in fulfilling the above covenant under the Tax Code have been met. REMAINDER OF PAGE INTENTIONALLY LEFT BLANK ---PAGE BREAK--- 7 Defeasance When all bond requirements of any Bond have been duly paid, the pledge, lien, and all obligations hereunder shall thereby be discharged as to the Bond and the Bond shall no longer be deemed to be outstanding within the meaning of the Bond Ordinance. There will be deemed to be due payment of any outstanding Bond or other security when the City has placed in escrow or in trust with a trust bank located within or without the State, an amount sufficient (including the known minimum yield available for such purpose from Federal Securities in which such amount wholly or in part may be initially invested) to meet all bond requirements of the Bond or other security, as the same become due to the final maturity of the Bond or other security, or upon any redemption date as of which the City shall have exercised or shall have obligated itself to exercise its prior redemption option by a call of the Bonds or other security for payment. The Federal Securities shall become due before the respective times on which the proceeds thereof shall be needed, in accordance with a schedule established and agreed upon between the City and the bank at the time of the creation of the escrow or trust, or the Federal Securities shall be subject to redemption at the option of the owners thereof to assure availability as so needed to meet the schedule. For the purpose of this section "Federal Securities" shall include only Federal Securities which are not callable for redemption prior to their maturities except at the option of the owner thereof. Book-Entry-Only System The Bonds will be available only in book-entry form in the principal amount of $5,000 or any integral multiples thereof. DTC will act as the initial securities depository for the Bonds. The ownership of one fully registered Bond for each maturity as set forth on the inside cover page 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 F. SO LONG AS CEDE & CO., AS NOMINEE OF DTC, IS THE REGISTERED OWNER OF THE BONDS, REFERENCES IN THIS OFFICIAL STATEMENT TO THE REGISTERED OWNERS OF THE BONDS WILL MEAN CEDE & CO. AND WILL NOT MEAN THE BENEFICIAL OWNERS. None of the City, the Registrar, or the Paying Agent will have any responsibility or obligation to DTC's Participants or Indirect Participants (defined in Appendix or the persons for whom they act as nominees, with respect to the payments to or the providing of notice for the Direct Participants, the Indirect Participants, or the beneficial owners of the Bonds as further described in Appendix F to this Official Statement. Use of Proceeds The City is issuing the Bonds to finance the building of water and sewer infrastructure within the City and to pay the costs of issuance of the Bonds. ---PAGE BREAK--- 8 Estimated Sources and Uses of Funds The sources and uses of the proceeds of the Bonds are set forth in the following table. SOURCES AND USES Fernley, Nevada SOURCES Par Amount of Bonds Original Issue Premium/(Discount) TOTAL SOURCES USES Acquisition Account Cost of Issuance1 TOTAL USES 1 Includes underwriting, legal and financing fees, printing costs, rating fees, and other miscellaneous expenses relating to the issuance of the Bonds. SOURCE: Initial Purchaser; compiled by JNA Consulting Group, LLC Security for the Bonds The Bonds constitute direct and general obligations of the City, and the full faith and credit of the City is pledged for the payment of principal, interest and any redemption premium due thereon, subject to State constitutional and statutory limitations on the aggregate amount of property taxes that may be levied by and within the City. See Appendix A - City of Fernley, Nevada, FINANCIAL INFORMATION - Property Tax Limitations. In any year in which the total property taxes levied within the City by all overlapping units the State, any town, the City, or any special district) exceed such tax limitations, the reduction to be made by those units must be in taxes levied for purposes other than the payment of their bonded indebtedness, including interest on such indebtedness. State statutes provide that no act concerning the Bonds or their security may be repealed, amended, or modified in such a manner as to impair adversely the Bonds or their security until all of the Bonds have been discharged in full or provision for their payment and redemption has been fully made. ---PAGE BREAK--- 9 Additional Security - The Bonds are additionally secured by certain pledged revenues. The City expects the revenues pledged to be sufficient to pay the debt service on the Bonds; therefore, the City does not expect to levy property taxes to pay the Bonds. In the event, however, that the pledged revenues are insufficient therefore, the City is obligated to levy a general (property) tax on all taxable property within the City, subject to the limitations provided in the constitution and statutes of the State. The Bond Requirements of the Bonds (the “Bond Requirements”) will be additionally secured by an irrevocable pledge of revenues derived by the City from the operation of the City’s sewer system (the “Sewer Net Revenues”), the City’s Alternate Water System (the “Alternate Water Net Revenues”) and the City’s water system (the “Water Net Revenues”) (collectively, the City’s water system, sewer system, and alternate water system are referred to herein as the “Utility System”), each after the deduction of operation and maintenance expenses of the Utility System (the remaining Utility System revenues being herein the “Net Revenues”) Additional Securities Paid From Pledged Revenues The City is issuing the Bonds with a lien on the Water Net Revenues subordinate to the City’s $950,000 General Obligation (Limited Tax) (Additionally Secured by Water Revenues) Water Refunding Bonds Series 2003 (the “2003 Bonds”), with a lien on the Sewer Net Revenues subordinate to the City’s $2,000,000 General Obligation (Limited Tax) Sewer Bonds (Additionally Secured by Pledged Revenues) Series 1992 (the “1992 Bonds”), and with a lien on the City’s Utility System Net Revenues on a parity with the City’s $50,000,000 City of Fernley, Nevada General Obligation (Limited Tax) Water and Sewer Bonds (Additionally Secured by Pledged Revenues) Series 2007 . Under the Bond Ordinance, the City is permitted to incur other debt payable on a parity with the lien on the Net Revenues of the Bonds. See "SECURITY FOR THE BONDS - Additional Bonds.” Debt service on all Parity Securities will be payable from Net Revenues on a pro-rata basis. Accordingly, to the extent that future obligations are issued on a parity with the lien on the Net Revenues of the Bonds, the security for the Bonds may be diluted. See "SECURITY FOR THE BONDS - Pro-Forma Debt Service Coverage.” REMAINDER OF PAGE INTENTIONALLY LEFT BLANK ---PAGE BREAK--- 10 The following table shows the pledged revenues from the funds within the City’s Utility System and their ability to pay debt service. Growth in the City has begun to slow and connection fees have decreased compared to prior years. See “Management’s Discussion and Analysis” in Appendix A. PLEDGED REVENUE AND COVERAGE SCHEDULE Fernley, Nevada Fiscal Year Fiscal Year 2003 (Audited) Fiscal Year 2004 (Audited) Fiscal Year 2005 (Audited) Fiscal Year 2006 (Audited) Fiscal Year 2007 (Audited) Fiscal Year 2008 (Budgeted) Water Fund User Fees $1,508,903 $1,794,430 $1,975,451 $2,201,916 $2,306,193 $2,798,000 Operating Expenses1 (1,148,692) (1,336,859) (1,399,676) (1,657,560) (1,969,255) (2,453,360) Connection Charges 868,331 1,529,900 2,026,164 1,014,573 362,051 1,125,000 Other Pledged Revenues2 489,207 1,701,365 1,028,957 871,875 1,449,730 1,934,000 Total Water Net Revenues 1,717,749 3,688,836 3,630,896 2,430,804 2,148,719 3,403,640 Sewer Fund User Fees 992,222 1,187,212 1,441,455 1,686,101 1,754,820 1,655,500 Operating Expenses1 (667,166) (759,197) (939,053) (990,354) (1,176,952) (1,403,800) Connection Charges 1,096,977 1,907,505 2,182,969 1,120,919 497,034 1,386,000 Other Pledged Revenues2 51,588 42,604 163,832 362,497 419,292 447,000 Total Sewer Net Revenues 1,473,621 2,378,124 2,849,203 2,179,163 1,494,194 2,084,700 Alternate Water Fund User Fees 0 0 0 0 0 0 Operating Expenses 0 0 0 (120) (9,340) (433,900) Connection Charges 0 0 131,300 117,000 105,301 130,000 Other Pledged Revenues2 0 0 990 19,433 48,683 20,000 Total Alt. Water Net Revenues 0 0 132,290 136,313 144,644 (283,900) Combined Pledged Revenues $3,191,370 $6,066,960 $6,612,389 $4,746,280 $3,787,557 $5,204,440 Senior Lien 2003 Bonds3 $182,104 $186,483 $175,425 $178,425 $180,925 $178,050 Senior Lien 1992 Bonds4 156,900 156,900 156,900 156,900 156,900 156,900 2007 Parity Bonds 0 0 0 0 0 1,869,131 Proposed Debt Service 0 0 0 0 0 1,786,075 5 Combined Debt Service $339,004 $343,383 $332,325 $335,325 $337,825 $3,990,156 Coverage 9.41 17.67 19.90 14.15 11.21 1.30 1 Operating Expenses exclude depreciation. 2 Includes interest earnings, developer contributions, and other miscellaneous revenues. 3 The 2003 Bonds are secured by Water Net Revenues. 4 The 1992 Bonds are secured by Sewer Net Revenues. 5 Maximum annual debt service which occurs in FY 2013. SOURCE: The City’s audited financial statements fiscal years 2003 through 2007 and the City’s 2007-2008 Final Budget; compiled by JNA Consulting Group, LLC ---PAGE BREAK--- 11 The following table sets forth the estimated debt service requirements for Bonds payable from the Net Revenues. ANNUAL DEBT SERVICE REQUIREMENTS Fiscal Year Ended June 30 Senior Lien1 Parity Bonds The Bonds2 Grand Total Principal Interest Principal Interest 2008 $334,950 $0 $1,869,131 $0 $0 $2,204,081 2009 336,700 820,000 2,220,750 0 1,090,693 4,468,143 2010 344,675 860,000 2,185,900 $640,000 1,372,900 5,403,475 2011 156,900 895,000 2,150,425 660,000 1,356,900 5,219,225 2012 156,900 940,000 2,114,625 675,000 1,339,080 5,225,605 2013 78,450 980,000 2,077,025 695,000 1,319,505 5,149,980 2014 0 1,030,000 2,037,825 715,000 1,298,308 5,081,133 2015 0 1,080,000 1,996,625 740,000 1,275,428 5,092,053 2016 0 1,135,000 1,953,425 765,000 1,250,638 5,104,063 2017 0 1,190,000 1,896,675 790,000 1,223,863 5,100,538 2018 0 1,250,000 1,837,175 820,000 1,195,423 5,102,598 2019 0 1,315,000 1,774,675 850,000 1,164,673 5,104,348 2020 0 1,380,000 1,708,925 885,000 1,131,948 5,105,873 2021 0 1,450,000 1,639,925 915,000 1,096,991 5,101,916 2022 0 1,520,000 1,567,425 955,000 1,059,936 5,102,361 2023 0 1,595,000 1,491,425 995,000 1,020,300 5,101,725 2024 0 1,675,000 1,411,675 1,035,000 978,510 5,100,185 2025 0 1,760,000 1,342,581 1,080,000 934,005 5,116,586 2026 0 1,850,000 1,269,981 1,130,000 887,025 5,137,006 2027 0 1,940,000 1,193,669 1,175,000 837,305 5,145,974 2028 0 2,040,000 1,111,219 1,230,000 785,018 5,166,236 2029 0 2,140,000 1,024,519 1,285,000 729,668 5,179,186 2030 0 2,245,000 925,544 1,345,000 671,200 5,186,744 2031 0 2,350,000 821,713 1,405,000 610,003 5,186,715 2032 0 2,460,000 713,025 1,470,000 545,373 5,188,398 2033 0 2,570,000 599,250 1,535,000 477,753 5,182,003 2034 0 2,690,000 490,025 1,605,000 407,143 5,192,168 2035 0 2,815,000 375,700 1,680,000 333,313 5,204,013 2036 0 2,945,000 256,063 1,760,000 256,033 5,217,095 2037 0 3,080,000 130,900 1,840,000 175,073 5,225,973 2038 0 0 0 1,925,000 89,513 2,014,513 TOTAL $1,408,575 $50,000,000 $42,187,819 $32,600,000 $26,913,512 $153,109,906 1 Includes 1992 and 2003 Bonds. 2 Preliminary, subject to change. SOURCE: The City; compiled by JNA Consulting Group, LLC ---PAGE BREAK--- 12 Rate Covenant In the Bond Ordinance, the City covenants that it will charge against users or against purchasers of services or commodities pertaining to the City’s Utility System such fees, rates, and other charges as shall be sufficient to produce Gross Revenues annually which, together with any other funds available therefor, will be in each fiscal year of the City at least equal to 100 percent of the sum of: an amount equal to the annual Operation and Maintenance Expenses for such fiscal year; an amount equal to the debt service due in such fiscal year on the then Outstanding Bonds and any Outstanding Parity Securities and any Outstanding Superior Securities; and any other amounts payable from the Net Revenues and pertaining to the City’s Utility System, including, without limitation, debt service on any Subordinate Securities and any other securities pertaining to the City’s Utility System operation and maintenance reserves, capital reserves, and prior deficiencies pertaining to any account relating to Gross Revenues, in an amount at least equal to 100 percent of such amounts due and owing. The foregoing rate covenant is subject to compliance by the City with any legislation of the United States of America, the State, or other governmental body, or any regulation or other action taken by the United States, the State, or any agency or political subdivision of the State pursuant to such legislation, in the exercise of the police power thereof for the public welfare, which legislation, regulation or action limits or otherwise inhibits the amounts of fees, rates, and other charges collectible by the City for the use of or otherwise pertaining to, and all services rendered by, the City’s Utility System . Subject to the foregoing, the City shall cause all fees, rates, and other charges pertaining to the City’s Utility System to be collected as soon as reasonable, and shall provide methods of collection and penalties to the end that the Gross Revenues shall be adequate to meet the requirements of the Bond Ordinance. Additional Bonds Additional Parity Securities - The Bond Ordinance permits the City to issue additional Parity Securities having a lien on Net Revenues on a parity with the lien of the Bonds upon the satisfaction of certain conditions. Additional Parity Securities may be issued only if the following conditions are met: 1. At the time of adoption of the instrument authorizing the additional Parity Securities, the City shall not be in default in the payment of principal of or interest on the Bonds. 2. The Net Revenues (subject to adjustments as discussed below) projected by the City’s Treasurer, City Engineer, Independent Accountant, or consulting engineer to be derived in the later of the fiscal year immediately following the fiscal year in which the facilities to be financed with the proceeds of the additional Parity Securities are projected to be completed or the first fiscal year for which no interest has been capitalized for the payment of any additional Parity Securities, including the Parity Securities proposed to be issued, will be sufficient to pay at least an amount equal to the principal and interest requirements of the Outstanding Bonds, any other Outstanding Parity Securities, and the Parity Securities proposed to be issued (excluding any reserves therefor). In any determination of whether or not additional Parity Securities may be issued in accordance with the foregoing earnings test, consideration must be given to any probable estimated increase or reduction in Operation and Maintenance Expenses that will result from the expenditure of the funds proposed to be derived from the issuance and sale of the additional Parity Securities. In addition, the respective annual principal (or redemption price) and interest requirements must be reduced to the extent such requirements are scheduled to be paid with moneys held in trust or in escrow for that purpose by any trust bank within or without the State, including the known minimum yield from any investment in Federal Securities. ---PAGE BREAK--- 13 A written certificate or written opinion by the City Treasurer, an independent accountant, the City Engineer, Independent Accountant, or a consulting engineer that the earnings test is met will be conclusively presumed to be accurate in determining the right of the City to authorize, issue, sell, and deliver additional Parity Securities. Completion Bonds may be issued on a parity with the Bonds, without complying with the provisions of the foregoing, if the City Treasurer or City Manager certifies in writing that the principal amount of the Completion Bonds proposed to be issued to finance the costs of one or more improvement projects initially financed in whole or in part by the Bonds does not exceed 20 percent of the aggregate principal amount of the Bonds, ; and the issuance of the Completion Bonds is necessary to provide funds to complete the improvement projects. Such written certificate shall be conclusively presumed to be aggregate in determining the right of the City to authorize, issue, sell, and deliver Completion Bonds as Parity Securities. Superior Obligations Permitted; Subordinate Obligations Permitted - When the 1992 Bonds are paid in full, defeased, or otherwise discharged, the City may issue additional special obligations with a lien on the Net Revenues which is superior to the lien of the Bonds. The City may issue obligations with a lien on the Net Revenues which is subordinate to the lien of the Bonds. Refunding Bonds - The City may issue refunding bonds upon satisfaction of the conditions described in Appendix C - Summary of Certain Provisions of the Bond Ordinance - Issuance of Refunding Securities. REMAINDER OF PAGE INTENTIONALLY LEFT BLANK ---PAGE BREAK--- 14 THE CITY’S UTILITY SYSTEM The Utility System General - The City’s Utility System is generally defined in the Bond Ordinance to mean the Water Systems and Sewer System of the City, consisting of all properties, real, personal, mixed, or otherwise, now owned or acquired by the City through purchase, construction, or otherwise, and used in connection with such system, and in any way pertaining thereto, whether or not located within the boundaries of the City, including, without limitation, machinery, apparatus, structures, buildings, and related or appurtenant furniture, fixtures or other equipment, as such system is from time to time extended, bettered, or otherwise improved. The City is responsible for operation and maintenance of the water production (wells), disinfections (chlorination), distribution (booster pumps, storage tanks, and transmission mains), and system expansion. The City will expand its water production by beginning construction of water treatment facility capable of treating groundwater to meet the USEPA Arsenic Rule, as well as, treating surface water for potable consumption. The construction of the treatment plant will allow for the addition of surface water rights to the current potable production capabilities. The City performs water quality testing and monitoring in conformance with established health and safety standards. The City is responsible for operation and maintenance of the collection system (sewer mains, lift stations, and force mains) and treatment plant. No change in the overall treatment capacity is anticipated at this time; however, interceptor, and lift station upgrades will allow increased collection capabilities. Customer Base - Customer base information is often expressed in terms of number of equivalent units (generally an equivalent unit is equal to a typical single family home). The City currently has approximately 7,783 water equivalent units and approximately 7,730 sewer equivalent units. These connections range in size from 3/4" residential meters to 10" commercial meters. System Rates and Charges - The City currently charges typical residential water customers a base rate of $10.07 per month plus $1.11 per thousand gallons for the first 8,000 gallon used, $1.61 per thousand gallons for the next 22,000 used, and $2.11 per thousand gallons for water used in excess of 30,000 gallons per month. The graduated rates are intended to encourage conservation. The City currently charges residential master-metered properties (e.g. apartment buildings, four-plexes) a base rate of ranging from $10.04 to $228.44 per months depending on the size of the meter plus $1.42 per thousand gallons used. The City currently charges commercial customers a base rate ranting from $11.69 to $492.42 per month depending on the size of the meter plus $1.44 per thousand gallons used. The City currently charges typical residential sewer customers a base rate of $19.84 per month. The City charges commercial customers a base rate ranging from $16.57 to $653.50 per month depending on meter size. The meter information for water is also used for sewer billing calculations. There is an additional volume charge for all commercial customers of $1.01 per 1000 gallons of wastewater. Connection Fees - The City currently charges $5,165 per equivalent unit for new water service. The City currently charges $3,474 per equivalent unit for new sewer service. The City will reevaluate connection fees annually and the Council may adjust the fees based on new evaluations. ---PAGE BREAK--- 15 Rate Increases - In June 2007, the City Council adopted a multi-year rate increase for both water and sewer rates and fees. The first phase of the increase was effective July 1, 2007 and resulted in approximately a 50% increase in water rates and approximately 2.5% increase in sewer rates. The next phase will be implemented effective July 1, 2008 and will result in approximately a 35% increase in water rates and a 2.5% increase in sewer rates. This will be followed by two more increases effective July 1, 2009 and July 1, 2010 of 35% and 3% for water and 2.5% and 3.0% for sewer. Effective July 1, 2007, connection fees for water increased 244% from $1,500 to $5,165 per equivalent unit and connection fees for sewer increased 88 % from $1,848 to $3,474 per equivalent unit. Rates were increased to fund system replacements (depreciation) and increased operating costs for regulatory compliance (such as arsenic treatment in water and discharge requirements in sewer). The City intends to review both user fees and other fees, such as connection fees, annually so that fees can be set at proper levels to recover costs. Environmental and Other Regulatory Matters - The City’s Public Works Department is unaware of any environmental or regulatory issues which may impact its ability to continue water and sewer services. REMAINDER OF PAGE INTENTIONALLY LEFT BLANK ---PAGE BREAK--- 16 LEGAL MATTERS Police Power The obligations of the City are subject to the reasonable exercise in the future by the State and its governmental bodies of the police power and powers of taxation inherent in the sovereignty of the State, and to the exercise by the United States of the powers delegated to it by the Federal Constitution. Litigation The City's legal counsel is of the opinion that there is no litigation either pending or threatened which may materially affect the City's ability to perform its obligations to the owners of the Bonds. In view of the financial condition of the City, the City's legal counsel is of the opinion that the City's financial condition will not be materially affected by any pending litigation, based on information known at the time this report was prepared. Chapter 41 of the NRS provides a $75,000 limit, EFFECTIVE October 1, 2007, and the limit will increase to $100,000 effective October 1, 2011, per claim to the City’s tort liability which may not be applicable to suits against the City in courts of another state and in some suits in federal court. The limitation does not apply to federal actions brought under federal law such as civil rights actions under 42 U.S.C. Section 1983 and actions under The Americans with Disabilities Act of 1990, or to actions in other states. No such extended liability suits are pending or known at this time. Legal Opinion The legal opinion of Swendseid & Stern, a member in Sherman & Howard L.L.C., Las Vegas and Reno, Nevada, Bond Counsel, as to the validity and enforceability of the Bonds will be made available to the Initial Purchaser at the time of the initial delivery of the Bonds. REMAINDER OF PAGE INTENTIONALLY LEFT BLANK ---PAGE BREAK--- 17 TAX MATTERS Federal Tax Matters In the opinion of Bond Counsel, assuming continuous compliance with certain covenants described below, interest on the Bonds is excluded from gross income under Section 103 of the Tax Code, and interest on the Bonds is excluded from alternative minimum taxable income as defined in Section 55(b)(2) of the Tax Code except that such interest is required to be included in calculating the “adjusted current earnings” adjustment applicable to corporations for purposes of computing the alternative minimum taxable income of corporations as described below. The Tax Code imposes several requirements which must be met with respect to the Bonds in order for the interest thereon to be excluded from gross income and alternative minimum taxable income (except to the extent of the aforementioned adjustments applicable to corporations). Certain of these requirements must be met on a continuous basis throughout the term of the Bonds. These requirements include: limitations as to the use of proceeds of the Bonds; limitations on the extent to which proceeds of the Bonds may be invested in higher yielding investments; and a provision, subject to certain limited exceptions, that requires all investment earnings on the proceeds of the Bonds above the yield on the Bonds to be paid to the United States Treasury. The City will covenant and represent in the Bond Ordinance that it will take all steps to comply with the requirements of the Tax Code to the extent necessary to maintain the exclusion of interest on the Bonds from gross income and alternative minimum taxable income (except to the extent of the aforementioned adjustment applicable to corporations) under federal income tax laws in effect when the Bonds are delivered. Bond Counsel's opinion as to the exclusion of interest on the Bonds from gross income and alternative minimum taxable income (to the extent described above) is rendered in reliance on these covenants, and assumes continuous compliance therewith. The failure or inability of the City to comply with these requirements could cause the interest on the Bonds to be included in gross income, alternative minimum taxable income or both from the date of issuance. Bond Counsel's opinion also is rendered in reliance upon certifications of the City and other certifications furnished to Bond Counsel. Bond Counsel has not undertaken to verify such certifications by independent investigation. Section 55 of the Tax Code contains a 20 percent alternative minimum tax on the alternative minimum taxable income of corporations. Under the Tax Code for taxable years beginning after 1989, 75 percent of the excess of a corporation's “adjusted current earnings” over the corporation's alternative minimum taxable income (determined without regard to this adjustment and the alternative minimum net operating loss deduction) is included in the corporation's alternative minimum taxable income for purposes of the alternative minimum tax applicable to the corporation. “Adjusted current earnings” includes interest on the Bonds. REMAINDER OF PAGE INTENTIONALLY LEFT BLANK ---PAGE BREAK--- 18 The Tax Code contains numerous provisions which may affect an investor's decision to purchase the Bonds. Owners of the Bonds should be aware that the ownership of tax-exempt obligations by particular persons and entities, including, without limitation, financial institutions, insurance companies, recipients of Social Security or Railroad Retirement benefits, taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry tax-exempt obligations, foreign corporations doing business in the United States, and certain “subchapter S” corporations may result in adverse federal tax consequences. Under section 3406 of the Tax Code, backup withholding may be imposed on payments on the Bonds made to any owner who fails to provide certain required information, including an accurate taxpayer identification number, to certain persons required to collect such information pursuant to the Tax Code. Backup withholding may also be applied if the owner under reports “reportable payments” (including interest and dividends) as defined in section 3406, or fails to provide a certificate that the owner is not subject to backup withholding in circumstances where such certificate is required by the Tax Code. Certain of the Bonds may be sold at a premium, representing a difference between the original offering price of those Bonds and the principal amount thereof payable at maturity. Under certain circumstances, an initial owner of such bonds (if any) may realize a taxable gain upon their disposition, even though such bonds are sold or redeemed for an amount equal to the owner's acquisition cost. Bond Counsel's opinion relates only to the exclusion of interest on the Bonds from gross income and alternative minimum taxable income as described above and will state that no opinion is expressed regarding other federal tax consequences arising from the receipt or accrual of interest on or ownership of the Bonds. Owners of the Bonds should consult their own tax advisors as to the applicability of these consequences. The opinions expressed by Bond Counsel are based on existing law as of the date of delivery of the Bonds. No opinion is expressed as of any subsequent date nor is any opinion expressed with respect to pending or proposed legislation. Amendments to the federal tax laws may be pending now or could be proposed in the future which, if enacted into law, could adversely affect the value of the Bonds, the exclusion of interest on the Bonds from gross income or alternative minimum taxable income, or both from the date of issuance of the Bonds or any other date, or which could result in other adverse federal tax consequences. In addition, future court actions or regulatory decisions could affect the market value of the Bonds. For example, the U.S. Supreme Court recently heard arguments on an appeal of a Kentucky state court decision on the issue of whether the U.S. Constitution precludes states from giving more favorable tax treatment to state and local government bonds issued within their state than the tax treatment given outside the state. The outcome of this or any similar case cannot be predicted but the ultimate result could be a change in the treatment for state tax purposes of obligations such as the Bonds, or a change in the market value of the Bonds. Bondowners are advised to consult with their own tax advisors with respect to such matters. The Internal Revenue Service (the “Service”) has an ongoing program of auditing tax-exempt obligations to determine whether, in the view of the Service, interest on such tax-exempt obligations is includable in the gross income of the owners thereof for federal income tax purposes. No assurances can be given as to whether or not the Service will commence an audit of the Bonds. If an audit is commenced, the market value of the Bonds may be adversely affected. Under current audit procedures, the Service will treat the City as the taxpayer and the Owners may have no right to participate in such procedures. The City has covenanted in the Bond Ordinance not to take any action that would cause the interest on the Bonds to lose its exclusion from gross income for federal income tax purposes or lose its exclusion from alternative minimum taxable income except to the extent described above for the owners thereof for federal income tax purposes. None of the City, the Underwriter, the Financial Advisor, or Bond Counsel is responsible for paying or reimbursing any Registered Owner or Beneficial Owner for any audit or litigation costs relating to the Bonds. ---PAGE BREAK--- 19 State Tax Matters The Bonds, their transfer, and the income therefrom, are free and exempt from taxation by the State or any subdivision thereof except for the tax on estates imposed pursuant to Chapter 375A of NRS and the tax on generation skipping transfers imposed pursuant to Chapter 375B of NRS. BOND RATINGS As noted on the inside cover of this Official Statement, the City has requested ratings on the Bonds from Moody’s Investors Service, Inc. ("Moody's"). There is no assurance that such ratings will continue for any given period of time after they are received or that they will not be lowered or withdrawn entirely if, in the judgment of the rating agency, circumstances so warrant. Other than the City's obligations under the Disclosure Certificate, neither the City nor the Financial Advisor has undertaken any responsibility either to bring to the attention of the owners of the Bonds any proposed change in or withdrawal of such a rating or to oppose any such proposed revision. Any such change in or withdrawal of the rating could have an adverse effect on the marketability or market price of the Bonds. INDEPENDENT AUDITORS The excerpts of the Comprehensive Annual Financial Report of the City as of and for the year ended June 30, 2007, included hereto as Appendix B, have been audited by Kafoury, & Co., certified public accountants, Fallon, Nevada. FINANCIAL ADVISOR JNA Consulting Group, LLC is serving as financial advisor to the City in connection with the Bonds. The Financial Advisor has not audited, authenticated, or otherwise verified the information set forth in the Official Statement, or any other related information available to the City, with respect to the accuracy and completeness of disclosure of such information, and no guarantee, warranty, or other representation is made by the Financial Advisor respecting accuracy and completeness of the Official Statement or any other matter related to the Official Statement. UNDERWRITING The Bonds will be offered for competitive sale on or about Wednesday, March 12, 2008. ---PAGE BREAK--- 20 MISCELLANEOUS Additional information is available from the City’s Administrative Services Director, 595 Silver Lace Boulevard, Fernley, Nevada 89408, [PHONE REDACTED] or the City’s Financial Advisor, JNA Consulting Group, LLC,1400 Wyoming Street, Suite 3, Boulder City, Nevada 89005, [PHONE REDACTED]. Any statements made in this Official Statement involving matters of opinion, assumptions, projections, anticipated events, or estimates, whether or not expressly stated, are set forth as such and not as presentations of fact and actual results may differ substantially from those set forth therein. Neither this Official Statement nor any statement which may have been made verbally or in writing is to be construed as a contract with the holders of the Bonds. The summary of certain provisions of the Bonds, the Bond Ordinance, the State statutes and other documents referred to in this Official Statement do not purport to be complete, and reference is made to each of them for a complete statement of their provisions. Copies of such documents are available for review by making requests to the office of the City Treasurer. The appendices are an integral part of this Official Statement and must be read together with all other parts of the Official Statement. City of Fernley, Nevada Bonnie Duke Finance Director ---PAGE BREAK--- A-1 APPENDIX A CITY OF FERNLEY General The City is one of the fastest growing communities in the State. It is home to approximately 19,600 people. The City is situated on Interstate 80, 39 miles east of Reno. The City currently occupies approximately 164 square miles in Lyon County. The City was established in 1904 primarily as an agricultural and ranching community, however since the 1980's development has been stimulated by the construction of two major industrial parks. The City was incorporated July 1, 2001, and provides water and sewer utilities, streets, culture and recreation, planning and zoning, animal control and general administrative services to its citizens. Prior to July 1, 2001, the city was organized as an unincorporated town in accordance with NRS Chapter 269. City Council The City has a council/manager form of government where the mayor and council make policy decisions which the City Manager and his staff implement. The mayor and five-member council are elected for staggered four year terms. The current members of the Council and their terms of office are as follows: Term Expiration Todd Cutler, Mayor 2010 Elayne Logue, Ward 1 2010 Joe Mortensen, Ward 2 2008 Monte Martin, Ward 3 2010 Curt Chaffin, Ward 4 2008 Ralph Menke, Ward 5 2008 Administration The City Manager is appointed by the Council and oversees the day-to-day operations of the City. He is charged with performing administrative duties assigned by the Council and may appoint clerical and administrative assistants as he deems necessary, subject to the approval of the Council. The Office of the City Manager is directly responsible for human resources, labor relations, media and public relations, as well as general administration. GARY BACOCK, City Manager - In September of 1998, Mr. Bacock became The City’s first town manager and on July 1, 2001, when the town was incorporated, became the City’s first city manager. He earned his BS degree in business administration and masters degree in public administration from Cal State University, Long Beach. He worked 20 years for two southern California cities in administration, personnel, labor relations, telecommunications, and other miscellaneous duties as assigned. ---PAGE BREAK--- A-2 BONNIE DUKE, Finance Director - Ms. Duke was hired as the City’s Finance Director in November 2001. She is a native of Elko Nevada and earned a BS degree in accounting from Weber State University in 1983. Prior to her employment with the City, she spent four years as county manager for Lander County, Nevada and approximately one year doing general consulting work. She spent three years as the treasurer for Bethel, Alaska. LOWELL PATTON, Public Works Director - Mr. Patton has 17 years of experience in construction field inspection, project management, project engineering design, and contract management. His unique combination of project design, management, administration, and field inspection experience creates an exceptional ability in the area of field implementation of plans and specification. Mr. Patton’s project engineering design experience includes system modeling, alternative analysis, and field studies. ROBERT TERRY GILBERT, Community Development Director - Mr. Gilbert recently came to The City from Sarasota County, Florida, where he held numerous senior level management positions related to planning and development activities. Certified through the American Institute of Certified Planners and the American Planning Association, Mr. Gilbert is fully qualified in planning and development activities and has held each level of land use planner through principal planner and zoning administrator. KEITH PENNER, Parks and Recreation Director - Mr. Penner worked with parks departments on the county level in California. In Nevada he held positions ranging from ranger to supervisor III. Mr. Penner has 23 years experience in park management, and a bachelor degree from Sonoma State University in recreation and resource management. Employee Relations and Pension Benefits Employee Relations - As of February 6, 2008, the City has approximately 70 full time employees. The City considers its relations with its employees satisfactory. The City’s has one bargaining unit with a contract which expires June 30, 2008. A compensation study was done in cooperation with the current contract. Pension Matters - The State’s Public Employees’ Retirement System ("PERS", the “System” or the “Plan”) covers substantially all public employees of the State, its agencies and its political subdivisions, including the City. The System, established on July 1, 1948, by the State Legislature (the “Legislature”), is governed by the Public Employees’ Retirement Board (the “Retirement Board”) whose seven members are appointed by the Nevada governor. Retirement Board members serve for a term of four years. All public employees who meet certain eligibility requirements participate in the System, which is a cost sharing multiple-employer defined benefit plan. All public employees employed in positions which are half-time or more are mandated by State law to participate in the Plan. Benefits are fully vested with five years of service. Vested members are entitled to a life-time retirement benefit equal to 2.5 percent of a member’s average compensation for each year of service (to a maximum of 30 years) earned before July 1, 2001, and 2.67 percent for each year of service earned on or after July 1, 2001. Average compensation is the average of the member’s highest compensation for 36 consecutive months. The plan also provides death and disability benefits. Benefits are established by State statute. ---PAGE BREAK--- A-3 Members of the System with five years of service are eligible to retire at 65. Regular members with 10 or more years of service can receive an unreduced benefit at age 60 or older. Members with 30 or more years of service can retire at any age without penalty. Police and fire members with 10 or more years or police/fire service credit can receive an unreduced benefit at age 55 or older, members with 20 or more years of police/fire service credit can receive an unreduced benefit at age 50 or older and police/fire members can retire at any age with 25 years of service. Plan benefits are funded under one of two methods. Under the employer pay contribution plan, the City is required to contribute all amounts due under the plan. The rate for those contributions was 19.75 percent for regular members in 2006. The City's contribution rates for fiscal years 2004 and 2005 were 20.25 percent. The second funding mechanism for providing benefits to regular employees is the employer/employee paid contribution plan. Under this method, employees are required to contribute a percentage of their compensation to the plan, while the City is required to match that contribution. The rate for regular employees under this plan during fiscal year 2006 was 10.5 percent. The contribution requirements of the plan are established by NRS Chapter 286 and may only be amended through legislation. The City’s contributions to PERS for the years ended June 30, 2004, 2005, 2006, and 2007 were $237,940, $271,684 , $194,978, and $203,027, respectively. See Note 5 in Appendix B for a summary description of the Plan. In addition, copies of the most recent audited financial statements for the System are available from the Public Employees Retirement System of the State, 693 West Nye Lane, Carson City, Nevada 89703-1599, [PHONE REDACTED]. Retiree Health Insurance Subsidy - A law passed in 2003 by the Legislature requires local governmental entities to provide retirees with the option of joining the State sponsored health plan and subsidizing the retiree's health insurance with the same subsidy as the State provides. The City currently only has two retirees and expects that given its previous small employee base, any impact for retiree benefits will be minimal for the foreseeable future. The City hired a consultant to prepare an actuarial study to determine if the City should withdraw from the State plan. The same actuary will provide information to implement GASB #45. REMAINDER OF PAGE INTENTIONALLY LEFT BLANK ---PAGE BREAK--- A-4 FINANCIAL INFORMATION Annual Reports The City prepares a financial report setting forth the financial condition of the City as of June 30 of each fiscal year. The latest completed report on the financial statements is for the year ended June 30, 2007. See Appendix B. The entire audit is available on the City's website. The basic financial report is the official financial report of the City. It was prepared following generally accepted accounting principles. See Appendix B for significant accounting policies and exceptions. The City received a “Certificate of Achievement for Excellence in Financial Reporting” from the Government Finance Officers Association GFOA”) for its 2006 Comprehensive Annual Financial Report. Budgeting Prior to April 15 of each year, the City is required to submit to the State Department of Taxation the tentative budget for the next fiscal year which commences on July 1. The tentative budget contains the proposed expenditures and means of financing them. After reviewing the tentative budget, the State Department of Taxation is required to notify the City upon its acceptance of the budget. Following acceptance of the proposed budget by the State Department of Taxation, the Council is required to conduct public hearings on the third Wednesday in May. The Council normally is required to adopt the final budget on or before June 1. The City is authorized to transfer budgeted amounts within functions or funds, but any other transfers must be approved by the Council. Increases to a fund’s budget other than by transfers are accomplished through formal action of the Council. With the exception of monies appropriated for specific capital projects or Federal and State grant expenditures, all unencumbered appropriations lapse at the end of the fiscal year. GFOA has awarded the City's 2007 budget its "Distinguished Budget Presentation," the fifth year the City has received this award. Accounting All governmental funds are accounted for using the modified accrual basis of accounting in which revenues are recognized when they become measurable and available as net current assets. Sales and use taxes, motor vehicle fuel taxes, and privilege taxes are considered "measurable” when in the hands of intermediary collecting governments and are recognized as revenue at that time. Property taxes are considered measurable when received by the City. Expenditures are generally recognized under the modified accrual basis of accounting when the related fund liability is incurred. The exceptions to this general rule are principal and interest on general long-term debt which is recognized when due and the liability for compensated absences is generally recorded at year end. All proprietary funds are accounted for using the accrual basis of accounting in which revenues are recognized when they are earned and expenses are recognized when they are incurred. Unbilled service receivables are recorded at year end. ---PAGE BREAK--- A-5 Management’s Discussion and Analysis General - As required by GASB 34, an overview of the financial activity and overall financial condition of the Agency is presented in the “Management’s Discussion and Analysis” for the fiscal year ended June 30, 2007, attached to this Official Statement as Appendix B. The Management’s Discussion and Analysis includes a general description of the District’s funds and pertinent results in those funds, a government-wide financial analysis, a brief discussion of factors impacting the City’s 2007-08, its planning for the upcoming 2008-09 budget, and other information, including the effect of property tax caps passed by the 2005 State legislature. Recent Events - During the current fiscal year the City has experienced a slowdown in new home construction. Based on the reduced construction activity, the City anticipates receiving less revenues from construction related fee and permit revenue than currently budgeted. However, a recently enacted increase in public utility business license fees offset the reduced revenue allowing the City to maintain its current budget plan. Connection fees for the water and sewer fund have also been less than anticipated year-to-date and the City anticipates receiving approximately $500,000 less than budgeted for the water fund and approximately $1,000,000 less then budgeted in the sewer fund. The City has deferred expansion projects due to the reduced revenue. Economic activity continues in the City with various “big box” retailers including WalMart and Lowe’s, opening recently. Other businesses opening in the City include, Starbucks, Quiznos, Burger King, Taco Bell, KFC, and several additional small businesses. The assessed value for fiscal year 2008 is $679,959,918 which is up over 30 percent from the prior year and double the valuation for fiscal year 2005. The City’s general fund has historically maintained fund balances within its targeted range of between 8% and 17% of annual expenditures. On January 4, 2008, severe storms caused localized flooding in the Fernley area. On January 5, 2008 at approximately 4:00 am, the Truckee Canal failed and a breach of the canal (levee) occurred. The breach caused flooding over an area of approximately 2 square miles. Approximately 600 homes sustained some degree of damage from minor damage to some structural damage. The Nevada Department of Emergency Management and the Federal Emergency Management Agency responded to assess the damage. The event was declared as disaster which qualified the City for FEMA grants for a portion of the costs to recover from the event. Individual also qualified for FEMA grants to rebuild their homes. The damage to public facilities was primarily roadways and sidewalks. The City water system was not damaged and the City sewer system sustained minor damage. The City completed the initial emergency response and is nearing completion of debris removal activities. Activities to repair streets and sidewalks are scheduled for completion within the next 90 days. The City estimates that approximately $2 million has been spent or will be spent as a result of this event. FEMA grants should pay for 75% of the costs. The City should be able to use the value of donated labor, equipment, and materials to offset its 25% match for the grants. The City has a special revenue fund of approximately $550,000 that can be used to meet the match if other sources are not identified. ---PAGE BREAK--- A-6 General Fund The purpose of the General Fund is to finance the ordinary operations of the City, including debt service to the extent that any pledged revenues are not sufficient to service outstanding debt, and to finance those operations not provided for in other funds. Included are all transactions related to the approved current operating budget, its accompanying revenue, expenditures and encumbrances, and its related asset, liability, and fund equity accounts. The City derives the majority of its revenues from licenses, fees, permits, property taxes, and consolidated taxes. The City’s expenditures from the general fund include community development, culture and recreation, and several general government services. The following table presents a record of revenues and expenditures associated with the City's General Fund. Also see Appendix B. REMAINDER OF PAGE INTENTIONALLY LEFT BLANK ---PAGE BREAK--- A-7 The following table provides an overview of the City's general fund. GENERAL FUND REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE Fernley, Nevada Fiscal Year Ending June 30 2003 (Audited) 2004 (Audited) 2005 (Audited) 2006 (Audited) 2007 (Audited) 2008 (Budgeted) REVENUES Taxes $374,654 $427,738 $491,820 $590,127 $929,276 $1,130,000 Licenses and permits 1,724,743 2,230,728 2,765,687 2,231,632 1,920,189 2,351,400 Intergovernmental revenues 708,336 192,492 203,299 242,754 248,128 272,336 Fines and forfeits 104,330 141,028 144,407 192,646 199,723 153,000 Other revenues 51,734 78,861 124,430 289,389 256,871 155,000 TOTAL REVENUES 2,963,797 3,070,847 3,729,643 3,546,548 3,554,187 4,061,736 EXPENDITURES General government 475,065 530,474 595,297 717,355 1,025,295 1,073,400 Judicial 118,839 151,937 170,595 163,631 192,468 243,100 Culture and recreation 229,550 365,773 397,853 537,507 653,083 731,900 Community development 301,269 421,771 669,105 837,307 817,441 1,124,680 Health 40,828 48,395 124,091 275,985 337,051 391,910 Public Works 517,855 0 0 0 0 0 Debt Service 95,431 0 0 94,789 379,032 378,702 Contingency 0 0 0 0 0 40,000 TOTAL EXPENDITURES 1,778,837 1,518,350 1,956,941 2,626,574 3,404,370 3,983,692 Excess (Def.) of Rev. over Expend. 1,184,960 1,552,497 1,772,702 919,974 149,817 78,044 OTHER FINANCING (USES) Operating Transfers In/(Out) (950,000) 0 0 0 0 0 Proceeds from Sale of Capital Assets 0 4,277 0 0 61,450 0 Capital projects fund 0 (1,776,830) (1,690,000) (850,000) (567,317) 0 Total Other Financing Uses (950,000) (1,772,553) (1,690,000) (850,000) (505,867) 0 Excess (Def.) of Rev. over Expend. & Other Financing Uses 234,960 (220,056) 82,702 69,974 (356,050) 78,044 FUND BALANCE, JULY 1 777,416 1,012,376 792,320 875,022 944,996 588,946 1 FUND BALANCE, JUNE 30 $1,012,376 $792,320 $875,022 $944,996 $588,946 $666,990 1 Beginning fund balance does not match the 2008 Final Budget because the beginning fund balance in that document was based on estimated 2007 results and the 2007 column of this table is actual results. SOURCE: The City’s audits for fiscal years 2003 through 2007 and the City’s 2007-2008 Final Budget ---PAGE BREAK--- A-8 Risk Management The City, as are all government entities, is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors and omissions, injuries of employees; and natural disasters. General - The City has joined together with similar public agencies throughout the State to create a pool under the Nevada Interlocal Cooperation Act. The Nevada Public Agency Insurance Pool (the "Pool") is a public entity risk pool currently operating as a common risk management and insurance program for its members. The City pays an annual premium and specific deductibles, as necessary, to the Pool for its general insurance coverage. The Pool is considered a self-sustaining risk pool that will provide coverage for its members for up to $10,000,000 per event and a $13.000,000 general aggregate per member. The City has also joined together with similar public agencies, under the Nevada Interlocal Cooperation Act, to create an intergovernmental self-insured association for workers compensation insurance, the Public Agency Compensation Trust (“PACT”). The City pays a premium based on payroll costs to the PACT. The PACT is considered a self sustaining pool that will provide coverage based on established statutory limits. The City continues to carry commercial insurance for other risks of loss, including specific risks of loss not covered by the Pool, including bonding and employee health and accident insurance. Settled claims resulting from these risks have not exceeded commercial insurance coverage in any of the past three years. Property Tax Base and Tax Roll Collection The State Department of Taxation reports the total assessed valuation of property within the City for the fiscal year ending June 30, 2008, is $679,959,918, which represents a 33.02 percent increase from the $511,154,623 assessed value for fiscal year 2007. State law requires that the county assessor reappraise at least once every five years all real and secured personal property (other than certain utility owned property which is centrally appraised and assessed by the Nevada Tax Commission). While the law provides that in years in which the property is not reappraised, the county assessor is to apply a factor representing typical changes in value in the area since the preceding year, it is the policy of the County assessor to reappraise all real and secured personal property in the County each year. State law requires that property be assessed at 35 percent of taxable value, which percentage may be adjusted upward or downward by the Legislature. Based upon the assessed valuation for the fiscal year 2008, the taxable value of all taxable property within the City is $1,942,742,623. "Taxable value" is defined in the statutes as the full cash value in the case of land and as the replacement cost less straight-line depreciation in the case of improvements to land and in the case of taxable personal property, replacement value less depreciation in accordance with the regulations of the Nevada Tax Commission but in no case an amount in excess of the full cash value. Depreciation of improvements to real property must be calculated at 1.5 percent of the cost of replacement for each year of adjusted actual age up to a maximum of fifty years. Adjusted age is actual age adjusted for any addition or replacement made which is valued at 10 percent or more of the replacement cost after the addition or replacement. The maximum depreciation allowed is 75 percent of the cost of replacement. Consequently, when a substantial addition or replacement is made to depreciable property, its "actual age" will be adjusted, i.e., reduced to reflect the increased useful term of the structure. ---PAGE BREAK--- A-9 The following table provides a record of the assessed valuation in the City. ASSESSED VALUATION Fernley, Nevada Fiscal Year Assessed Valuation Percent Change 2004 $279,452,986 13.30% 2005 303,180,006 8.49% 2006 377,743,200 24.59% 2007 511,154,623 35.32% 2008 679,959,918 33.02% 2009 1 755,501,231 11.11% 1 Preliminary estimate, subject to change. SOURCE: Nevada Department of Taxation’s Property Tax Rates for Nevada Local Governments, fiscal years 2004 through 2008 and Preliminary Local Government Revenue Projections Fiscal Year 2008-2009 The County’s tax roll collection history appears in the following table. TAX LEVIES, COLLECTIONS AND DELINQUENCIES1 Lyon County, Nevada As of January 25, 2008 Fiscal Year Ending June 30 Net Levy Roll Current Taxes Collected % of Net Levy Collected Delinquent Taxes Collected Total Taxes Collected as a % of Net Levy2 2003 $17,604,003 $16,543,358 93.98% $924,467 99.23% 2004 19,981,873 19,526,921 97.72% 301,830 99.23% 2005 23,545,461 23,089,856 98.07% 263,594 99.18% 2006 27,494,746 26,945,099 98.00% 271,602 98.99% 2007 32,718,014 32,086,686 98.07% 222,395 98.75% 2008 36,187,712 26,893,719 74.32% n/a n/a 1 Represents the real property tax roll levies and collections. 2 Figured on collections to net levy (actual levy less stricken taxes). SOURCE: County Treasurer's Office ---PAGE BREAK--- A-10 Taxes on real property are due on the third Monday in August unless the taxpayer elects to pay in quarterly installments, in which case the taxes can be paid in approximately four equal installments on or before the third Monday in August and the first Mondays in October, January, and March. Penalties are assessed if any taxes are not paid within 10 days of the due date as follows: four percent of the delinquent amount if one quarterly installment is delinquent, five percent of the delinquent amount plus accumulated penalties if two quarterly installments are delinquent, six percent of the delinquent amount plus accumulated penalties if four installments are delinquent. In the event the taxes remain delinquent as of the first Monday in June, the city treasurer is authorized to hold the property in trust for the benefit of the State and the County for two years, subject to redemption upon payment of taxes, penalties, and costs, together with interest at the rate of 10 percent per year from the date the taxes were due until paid. If delinquent taxes are not paid within the two-year redemption period, the County treasurer obtains a deed to the property free of all encumbrances. Upon receipt of a deed, the County treasurer may sell the property, after giving notice of sale, to satisfy the tax lien and assessments by local governments for improvements to the property. As an alternative remedy with respect to certain delinquencies over $1,000, the District Attorney may, and shall when directed by the Board of County Commissioners (the “Commissioners”), commence a judicial foreclosure action against the delinquent taxpayer before the expiration of the two-year redemption period. The following tables represents the largest taxpayers in the County and the City and the respective assessed values of the property for the 2008 fiscal year. No independent investigation has been made, and consequently there can be no representation as to the financial conditions of the taxpayers listed, or that such taxpayers will continue to maintain their status as major taxpayers based on the assessed valuation of their property. LARGEST TAXPAYERS Fiscal Year 2008 Lyon County, Nevada Taxpayer Type of Business Assessed Value1 % of Total Assessed Value2 Sierra Pacific Power Company Utility $34,300,618 2.06% BMO Leasing US Inc. (Quebecor) Printing 14,180,157 0.85% Southwest Gas Corporation Utility 10,073,559 0.60% 1600 East Newlands Dr. LLC (location of Amazon.com) Industrial 8,327,062 0.50% Trex Company Inc. Industrial 8,123,519 0.49% Nevada Cement Company Manufacturing 7,944,390 0.48% Amazon.com Internet Books 7,665,286 0.46% MSC Industrial Direct Co. Inc. Manufacturing 6,587,628 0.40% Reynen & Bardis Development 6,289,429 0.38% SBC (AT&T) Nevada Utility 4,794,789 0.29% TOTAL $108,286,437 6.50% 1 Does not include net proceeds of mines. 2 Based on the total 2008 assessed valuation for the County of $1,665,751,811. SOURCE: County Assessor's office ---PAGE BREAK--- A-11 LARGEST TAXPAYERS June 30, 2007 Fernley, Nevada Taxpayer Assessed Value1 % of Total Assessed Value2 Amazon.com $15,992,348 2.35% BMO Leasing US, Inc. (Quebecor) 14,180,157 2.09% TREX Company 8,123,519 1.19% Nevada Cement Company 7,944,390 1.17% MSC Industrial Direct Co. Inc. 6,587,628 0.97% Reynen & Bardis 6,197,259 0.91% Sonterra Development Co. Inc. 4,230,980 0.62% Sherwin-Williams Acceptance Corp. 3,957,185 0.58% John Manville International Inc. 3,768,193 0.55% Paramount-Nevada Asphalt Co. LLC 1,966,980 0.29% TOTAL $72,948,639 10.73% 1 Does not include net proceeds of mines. 2 Based on the total 2008 assessed valuation for the City of $679,959,918. SOURCE: City’s 2007 audit, Statistical Section Property Tax Limitations Overlapping Property Tax Caps - Article X, Section 2, of the Constitution of the State of Nevada limits the total property taxes levied by all overlapping governmental units within the boundaries of any county the county, the school district, the State, and any other city, town, or special district) to an amount not to exceed five cents ($0.0500) per dollar of assessed valuation per $100 of assessed valuation) of the property being taxed. Further, the combined overlapping tax rate is limited by statute to $3.64 per $100 of assessed valuation in all counties of the State, except for certain statutory exceptions that permit a combined overlapping tax rate of up to $5.00 per $100 of assessed valuation. Notwithstanding the foregoing, the State is authorized to levy an additional two cents ($0.0200) outside of the $3.64 statutory cap; one cent is used for Statewide capital improvements and the other for debt service on certain voter-approved State bonds. State statutes provide a priority for taxes levied for the payment of general obligation bonded indebtedness. In any year in which the proposed tax rate to be levied by overlapping units within a county exceeds any rate limitation, a reduction must be made by those units for purposes other than the payment of general obligation bonded indebtedness, including interest thereon. ---PAGE BREAK--- A-12 Local Government Property Tax Revenue Limitation - State statutes limit the revenues local governments, other than school districts, may receive from property taxes for purposes other than paying certain general obligation indebtedness which is exempt from such property revenue limits. This rate is generally limited as follows: The assessed value of property is first differentiated between that for property existing on the assessment rolls in the prior year (old property) and new property. Second, the property tax revenue derived in the prior year is increased by no more than six percent and the tax rate to generate the increase is determined against the current assessed value of the old property. Finally, this tax rate is applied against all taxable property to produce the allowable property tax revenues. This cap operates to limit property tax revenue dependent upon changes in the value of old property and the growth and value of new property. A local government, other than a school district, may exceed the property tax revenue limitation if the proposal is approved by its electorate at a general or special election. In addition, the executive director of the State Department of Taxation will add, to the allowed revenue from property taxes, the amount approved by the Legislature for the costs to a local government of any substantial programs or expenses required by legislative enactment. In the event sales tax estimates from the State Department of Taxation exceed actual revenues available to local governments, Nevada local governments receiving such sales tax may levy a property tax to make up the revenue shortfall. State statutes limit the revenues school districts may receive from property taxes for operating purposes. Pursuant to NRS 387.195, each board of county commissioners shall levy a tax of $0.75 per $100 of assessed valuation for the support of the public schools within the county school district. School districts are also allowed additional levies for voter-approved debt service and voter-approved tax overrides for capital projects. The Nevada Tax Commission monitors the impact of tax legislation on local government services. Property Tax Abatement Provisions Recent Constitutional Amendment - At the November 5, 2002 election, the State’s voters approved an amendment to the State Constitution authorizing the State Legislature to enact a law proving for abatement of the tax upon or an exemption of part of the assessed value of an owner-occupied single family residence to the extent necessary to avoid severe economic hardship to the owner of these residences. The legislation implementing that amendment provides that the owner of a single-family residence may file a claim with the county assessor to postpone the payment of all or part of the property tax due against his residence if (among other requirements): the residence has an assessed value of not more than $175,000; the property owner does not own any other real property in the State with an assessed value of more than $30,000; the owner is not in bankruptcy; the owner owes no delinquent property taxes on the residence; the owner has suffered severe economic hardship caused by circumstances beyond his control (such as illness or a disability expected to last for at least 12 continuous months); and the total annual income of the owner's household is at or below the federally designated poverty level. The amount of tax that may be postponed may not exceed the amount of property tax that will accrue against the residence in the succeeding three fiscal years. Any postponed property tax (and any penalties and the interest that accrued as provided in the statute) constitutes a perpetual lien against the residence until paid. The postponed tax becomes due and payable if: the residence ceases to be occupied by the claimant or is sold; any non-postponed property tax becomes delinquent; if the claimant dies; or on the date upon which the postponement expires, as determined by the county treasurer. To date, the County treasurer has not received any material requests for postponement of payment of property tax due to severe economic hardship. ---PAGE BREAK--- A-13 Required Property Tax Abatements - In its 2005 session, the Legislature approved two bills, Assembly Bill 489 ("AB489") and Senate Bill 509 ("SB509"), that require reductions (abatements) of property taxes in certain situations. AB489 and SB509 are referred together as the "Abatement Act". Generally, through adoption of the Abatement Act, the Legislature determined that increases in property tax bills exceeding three percent over the prior year constitute a severe economic hardship to homeowners that the State constitution permits the Legislature to prevent. In order to address that hardship, the Legislature established formulas to determine tax abatements for residential property owners. In addition, the Legislature established formulas for the abatement of a portion of the property taxes on low-income rental property and all other property. The Abatement Act directs the Nevada Tax Commission and the Committee on Local Government Finance to adopt regulations for the administration and interpretation of certain of its provisions and some provisions of the Abatement Act likely will require additional interpretation through legislation, regulation, or by the State's courts. However, the general impact of the Abatement Act will be to limit increases in property tax revenues received by any taxing entity on existing property to approximately three percent per year (plus larger increases allowed for nonresidential properties). That limitation could negatively impact the future finances and operations of the taxing entities in the State, including the City, to an extent that cannot be determined at this time. The estimated impact to the City for fiscal year 2008 is $1,267,527 in the General Fund. Formulas to Determine Abatements - For existing owner occupied residential properties, an abatement generally is required to reduce the amount of property taxes owed to not more than three percent more than the amount levied in the immediately preceding fiscal year. That same formula applies (as a charitable exemption) to commercial property that qualifies as low-income rental housing. Finally, for all existing properties, an abatement from property taxation is required to reduce the amount of property taxes owed to no more than an amount determined pursuant to a two-part formula. The first part of the formula requires a determination of the lesser of: the average percentage change in the assessed valuation of all taxable property in the county over the 10-year period immediately preceding the fiscal year in which a levy is to be made; or eight percent. The second part of the formula requires determination of the percentage equal to twice the increase in the Consumer Price Index or all Urban Consumers, U.S. City Average (All Items) for the immediately preceding calendar year. After making both determinations, whatever part of the formula yields the greatest percentage is used to establish the maximum percentage increase (over the prior year) in tax liability for each existing property. This abatement formula also must be applied to existing owner-occupied residential properties and low-income rental properties if it yields a greater reduction in property taxes than the three percent test described above. Unless otherwise provided by a specific statute, if any legislative act imposes a duty on a taxing entity to levy a new property tax or to increase the rate of an existing property tax, the amount of any new tax or increase in the rate of the existing tax is exempt from the partial abatement formulas. In addition to the required abatements, the Abatement Act requires the Nevada Tax Commission to adopt regulations simplifying the procedures to be followed by any business in the State to obtain a reduction in the assessed value of property used to conduct a business if such a reduction is appropriate under the "income approach" to property valuation. ---PAGE BREAK--- A-14 Apportionment of Abatements - If the application of the partial abatement provisions require a reduction in the amount of property taxes levied in a county for a fiscal year, the Abatement Act requires that the amount of the reduction be deducted from the amount of property taxes each taxing entity otherwise would be entitled to receive for that fiscal year. Those tax rate increases are to be allocated to the entities that increased their tax rates in proportion to the amount of tax rate increases for each such entity. Other abatements those caused by an increase in assessed value) generally are required to be allocated among taxing entities in the same proportion as the rate of property taxes levied for that taxing entity bears to the total combined rate of all property taxes levied for the fiscal year. In order to assure that any required abatements apply to all taxing entities uniformly, the Tax Commission has adopted a regulation clarifying that future year abatements resulting from tax rate increases are to allotted against the entity that would benefit from the tax increase rather than among all entities uniformly. Recapture of Lost Revenue in Certain Cases - Notwithstanding the abatement provisions discussed above, if the taxable value of any property decreases by 15 percent or more from its taxable value on the later of July 1, 2003 or July 1 of the second year immediately preceding the lien date for the current year; and for any fiscal year beginning on or after July 1, 2005, increases by 15 percent or more from its taxable value for the immediately preceding fiscal year, the amount of property taxes which would have been collected for the property as a result of that amount attributable to any increase in taxable value if not for the abatement provisions discussed above (but excluding any amount attributable to any increase in the taxable value of the property above its taxable value on the most recent date determined pursuant to clause above), must be levied on the property over three fiscal years. The amount of taxes carried forward and levied on any property must be added to the amount of property taxes each taxing entity would otherwise be entitled to receive in a fiscal year using the same proportional formula described above. Levies for Debt Service - Notwithstanding the abatement provisions discussed above, a taxing entity may, if otherwise authorized by law, increase the rate of a property tax for the payment of any obligations secured by the proceeds of that tax (tax-secured obligations) if the entity determines that the additional tax rate is necessary to satisfy those obligations. Pursuant to the Abatement Act, an additional tax rate is deemed necessary if the rate of the property tax most recently levied for the payment of the tax-secured obligations will not produce sufficient revenue, after considering the effect of the partial abatement, to satisfy those obligations during the next fiscal year. For obligations issued on or after July 1, 2005, such an increase in the rate of a property tax for the payment of tax-secured obligations is exempt from the partial abatement formulas if before the issuance of the obligations the governing body of the taxing entity makes a finding that no increase in the rate of a property tax is anticipated to be necessary for payment of the obligations during their term and the debt management commission of the county approves the finding. The tax rate also may be increased if otherwise authorized by law if voter approval is obtained. However, tax rates which were voter-approved before April 6, 2005, generally are not exempt from the Abatement Act formulas. Any increase in the rate of property taxes required to pay the principal of or interest on the Bonds is exempt from the partial abatement formulas described above. Possible Effects on Operating Levies - Under existing State law, limited tax levies must be used to pay debt service on general obligation bonds before being used for operations. Even though increases in the rate of a property tax for the payment of tax-secured obligations and voter-approved taxes may be exempt from the partial abatement formulas, the revenue limits imposed by the Abatement Act may require taxing entities in the State to cut operating revenues, and therefore the services funded by those revenues, to an extent that cannot be determined at this time. In addition, the abatement formulas may cause the statutory maximum combined overlapping tax rate of $3.64 per $100 of assessed valuation to be reached sooner than it would otherwise be reached. ---PAGE BREAK--- A-15 Overlapping Tax Rates The overlapping rate for the City depends on the rates imposed by applicable taxing jurisdictions. For fiscal year 2008, the overlapping taxing rate of the City is $3.0988. The following table shows a history of the overlapping tax rate in the City. STATEWIDE AVERAGE AND OVERLAPPING TAX RATES1 Fernley, Nevada Fiscal Year Ended June 30 2004 2005 2006 2007 2008 Average Statewide Rate $3.1115 $3.1182 $3.1124 $3.1471 $3.1526 City of Fernley 0.1528 0.1528 0.1528 0.3481 0.3505 School District 1.3367 1.3367 1.3367 1.3367 1.3367 Combined Special Districts 0.3627 0.3726 0.3736 0.3755 0.3772 County Tax Rate 0.8350 0.8644 0.8644 0.8644 0.8644 State of Nevada 0.1700 0.1700 0.1700 0.1700 0.1700 TOTAL $2.8572 $2.8965 $2.8975 $3.0947 $3.0988 1 Per $100 of assessed valuation. SOURCE: The State Department of Taxation, Property Tax Rates for Nevada Local Governments, fiscal years 2004-2008 REMAINDER OF PAGE INTENTIONALLY LEFT BLANK ---PAGE BREAK--- A-16 DEBT STRUCTURE Debt Limitation State statutes limit the aggregate principal amount of the City's general obligation debt to 30 percent of the City's total assessed valuation. Based upon the assessed valuation for fiscal year 2008 of $679,959,918, the City's debt limit for general obligations is $203,987,975, with $83,595,329 of such debt to which the limit applies outstanding and proposed as of March 1, 2008. The following table presents a record of the City's outstanding general obligation indebtedness with respect to its statutory debt limitation. STATUTORY DEBT LIMITATION Fernley, Nevada Fiscal Year Ended June 30 Assessed Valuation Debt Limit Outstanding and Proposed General Obligation Debt Additional Statutory Debt Capacity 2004 $279,452,986 $83,835,896 $2,071,200 $81,764,696 2005 303,180,006 90,954,002 1,823,027 89,130,975 2006 377,743,200 113,322,960 1,560,282 111,762,678 2007 511,154,623 153,346,387 51,282,780 102,063,607 2008 679,959,917 203,987,975 83,595,329 1 120,392,646 1 Outstanding and proposed as of March 1, 2008; includes the Bonds. SOURCE: The State Department of Taxation, Property Tax Rates for Nevada Local Governments, for fiscal years 2004 through 2008, and the City; compiled by JNA Consulting Group, LLC The City may issue general obligation bonds by means of authority granted to it by its electorate, the Legislature, or, under certain circumstances, without an election as provided in existing statutes. REMAINDER OF PAGE INTENTIONALLY LEFT BLANK ---PAGE BREAK--- A-17 Outstanding and Proposed Debt and Other Obligations The following table presents the outstanding and proposed indebtedness of the City. OUTSTANDING AND PROPOSED DEBT AND OTHER OBLIGATIONS Fernley, Nevada as of March 1, 2008 Bonds Date Issued Original Amount Amount Outstanding GENERAL OBLIGATION REVENUE BONDS State Water Pollution Control 10/28/92 $2,000,000 $640,329 2003 Refunding Bonds 11/25/03 950,000 355,000 2007 Water & Sewer Bonds 03/08/07 50,000,000 50,000,000 2008 Water & Sewer Bonds (this issue) 04/03/08 32,600,000 32,600,000 TOTAL GENERAL OBLIGATION REVENUE BONDS $83,595,329 OTHER OBLIGATIONS City Hall Installment Purchase 12/29/05 $5,000,000 $4,677,000 SOURCE: The City; compiled by JNA Consulting Group, LLC REMAINDER OF PAGE INTENTIONALLY LEFT BLANK ---PAGE BREAK--- A-18 OUTSTANDING OVERLAPPING GENERAL OBLIGATION INDEBTEDNESS Fernley, Nevada June 30, 2007 Entity1 Total General Obligation Indebtedness Presently Self-Supporting General Obligation Indebtedness Percent Applicable2 Overlapping General Obligation Indebtedness3 Lyon County School District $60,440,000 $0 40.82% $24,668,647 Lyon County 22,751,958 22,751,958 40.82% 0 State of Nevada4 2,381,420,000 1,002,270,000 0.51% 6,985,235 TOTAL $31,653,882 1 Excludes entities with no direct overlapping general obligation indebtedness. 2 Based on fiscal year 2008 assessed valuation in the respective jurisdiction. 3 Overlapping General Obligation Indebtedness equals total existing general obligation indebtedness less presently self-supporting general obligation indebtedness times percent applicable. 4 From the State Treasurer’s office as of March 2, 2008. SOURCE: State Treasurer's Office and State Department of Taxation; compiled by JNA Consulting Group, LLC NET DIRECT & OVERLAPPING GENERAL OBLIGATION INDEBTEDNESS Fernley, Nevada March 1, 2008 Total Direct General Obligation Indebtedness1 $83,595,329 Less Self Supporting G.O. Indebtedness (83,595,329) Total Net Direct Debt 0 Plus: Overlapping General Obligation Indebtedness2 31,653,882 Net Direct & Overlapping General Obligation Indebtedness $31,653,882 1 Includes the Bonds. 2 As of June 30, 2007. See table "OUTSTANDING OVERLAPPING GENERAL OBLIGATION INDEBTEDNESS", above. SOURCE: The City, State Department of Taxation, and the State Treasurer Office; compiled by JNA Consulting Group, LLC ---PAGE BREAK--- A-19 Selected Debt Ratios The following table illustrates selected ratios of the net direct debt of the City, including the Bonds, and overlapping debt within the City to assessed valuation, taxable value and population within the City. SELECTED DEBT RATIOS FOR THE CITY Fernley, Nevada Population1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,600 Net Direct Debt2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $0 Overlapping Debt2 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31,653,882 Total Direct Debt & Overlapping Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . $31,653,882 Per Capita Net Direct Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $0.00 Per Capita Net Total Direct Debt & Overlapping Debt . . . . . . . . . . . . . . . . . . $1,614.99 2008 Assessed Valuation4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $679,959,918 % Net Direct Debt to Assessed Valuation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.00% % Net Total Direct Debt & Overlapping Debt to Assessed Valuation . . . . . . . . . . . 4.66% 2008 Taxable Value4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,942,742,623 % Net Direct Debt to Taxable Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.00% % Net Total Direct Debt & Overlapping Debt to Taxable Value . . . . . . . . . . . . . . 1.63% 1 2007 estimate from the State Demographer. 2 Outstanding and proposed debt as March 1, 2008; includes the Bonds. See the tables "OUTSTANDING AND PROPOSED DEBT AND OTHER OBLIGATIONS" and "NET DIRECT & OVERLAPPING GENERAL OBLIGATION INDEBTEDNESS" above. 3 Figure is based on information supplied by other taxing authorities and does not include self- supporting general obligation debt. See the table "ESTIMATED OVERLAPPING GENERAL OBLIGATION DEBT", herein. 4 See "FINANCIAL INFORMATION-Property Tax Base and Tax Roll Collection" for an explanation of the Assessed Value and Taxable Value. SOURCE: The State Demographer’s website, State Department of Taxation Property Tax Rates for Nevada Local Governments for FY2007-2008, and the City; compiled by JNA Consulting Group, LLC ---PAGE BREAK--- A-20 ECONOMIC AND DEMOGRAPHIC INFORMATION This portion of Appendix A contains general information concerning the economic and demographic conditions in the City. The information presented was obtained from the sources indicated, and neither the City nor the Initial Purchaser of the Bonds guarantees or makes any representation as to the accuracy or completeness of the data presented. The City was formed in 1904 primarily as an agricultural and ranching community. It was established as a township in the 1930's with the Commissioners as the governing body. In 1985, the citizens installed a self-governing "town board" separate from the Commissioners. Effective July 1, 2001, Fernley incorporated as a city and assumed additional functions. The close proximity to the Reno-Sparks metropolitan area has encouraged the growth that the City is experiencing. The City is located in the most northern part of Lyon County and is approximately 39 miles east of the Reno-Sparks metropolitan area on Interstate 80. In the 1980's, the City experienced development in business and industry with the establishment of two industrial parks. Today a number of companies have located facilities in the City, including, Amazon.com, Trex Inc., Quebecor Printing, MSC Industrial Supply, Allied Signal, UPS Worldwide Logistics (Honeywell), ARE Campers, Johns Manville, Sherwin Williams, and Feldmeir Corporation, just to name a few. Other companies, including “Big Box” retailers, are looking to construct facilities in the City. Total gross area within the exterior boundary of the City is approximately 104,900 acres or 164 square miles. The population is approximately 19,600, the median resident age is 34.8, with a median household income in 2000 of $44,695. The City continues to enjoy a robust and affordable housing market. In the past five years the City has welcomed well over six thousand new residents. REMAINDER OF PAGE INTENTIONALLY LEFT BLANK ---PAGE BREAK--- A-21 Population and Age Distribution The following table shows a record of the State’s, the County’s, and the City’s population. POPULATION Fiscal Year1 State % Increase County % Increase Fernley % Increase 1970 488,738 8,437 n/a 1980 800,493 63.79% 13,594 61.12% n/a 1990 1,236,130 54.42% 20,590 51.46% 5,164 2000 1,998,257 61.65% 34,501 67.56% 8,646 67.43% 2001 2,132,498 6.72% 37,329 8.20% 9,529 10.21% 2002 2,206,022 3.45% 38,777 3.88% 10,440 9.56% 2003 2,296,566 4.10% 41,244 6.36% 11,718 12.24% 2004 2,372,821 3.32% 44,646 8.25% 13,775 17.55% 2005 2,448,201 3.18% 48,860 9.44% 16,357 18.74% 2006 2,631,057 7.47% 54,031 10.58% 18,850 15.24% 2007 2,736,786 4.02% 53,832 -0.37% 19,600 3.98% 2008 2,851,387 4.19% 56,250 4.49% n/a n/a 1 1970, 1980, 1990 and 2000 figures are from the U.S. Census Bureau. 2001 thru 2006 are estimates and 2007 and 2008 are projections from the Nevada State Demographer as of July 2006. The 2007 population for the City is provided by the City. SOURCE: Nevada State Demographer and U.S. Census Bureau; compiled by JNA Consulting Group, LLC REMAINDER OF PAGE INTENTIONALLY LEFT BLANK ---PAGE BREAK--- A-22 The following table sets forth a comparative age distribution profile for the County, the State, and the United States as of January 1, 2007. AGE DISTRIBUTION Age County County Percent of Population State State Percent of Population United States U.S. Percent of Population 0-5 3,610 6.9% 218,504 8.6% 24,249,659 8.1% 6-11 4,125 7.9% 219,456 8.6% 24,496,933 8.1% 12-17 4,753 9.1% 212,792 8.4% 25,130,552 8.3% 18-24 4,808 9.2% 228,817 9.0% 29,763,065 9.9% 25-34 7,072 13.5% 367,009 14.5% 40,250,638 13.4% 35-44 7,077 13.5% 380,251 15.0% 43,260,395 14.4% 45-54 7,357 14.1% 342,774 13.5% 43,462,833 14.4% 55 or older 13,472 25.8% 568,639 22.4% 70,431,447 23.4% SOURCE: 2007 Demographics USA, County Edition REMAINDER OF PAGE INTENTIONALLY LEFT BLANK ---PAGE BREAK--- A-23 Income The following tables reflect Median Household Effective Buying Income ("EBI") and Percent of Households by Effective Buying Income Groups for the years 2000 through 2004 as reported in Sales & Marketing Management, Survey of Buying Power; and for years 2005 and 2006 as reported in the 2006 and 2007 editions of Demographics USA, County Edition. EBI is defined as money income less personal tax and non-tax payments, a number often referred to as “disposable” or “after-tax” income. EBI is computed as a derivative of household income, with the correspondence between before-tax and after-tax income being identified for each state based on three year combinations of Current Population Survey (CPS) data. MEDIAN HOUSEHOLD EFFECTIVE BUYING INCOME January 1, 2007 Year County State United States 2002 $37,957 $41,114 $38,035 2003 39,128 41,389 38,201 2004 39,381 42,322 39,324 2005 1 40,956 43,676 40,529 2006 1 41,965 45,041 41,255 1 The 2005 and 2006 information was taken from a different source and may not be directly comparable to previous years. SOURCE: Sales and Marketing Management, Survey of Buying Power, 2000 through 2005 editions; and Demographics USA, County Editions 2006-2007 HOUSEHOLDS BY EFFECTIVE BUYING INCOME GROUPS January 1, 2007 Effective Buying Income Group County Households % of Total State Households % of Total United States Households % of Total Under $15,000 2,223 11.29% 101,225 10.62% 15,714,859 13.83% $15,000-$24,999 2,422 12.30% 113,780 11.94% 15,042,976 13.23% $25,000-$49,999 7,429 37.71% 314,441 33.00% 38,391,013 33.77% $50,000-$74,999 4,824 24.49% 221,812 23.28% 22,641,110 19.92% $75,000-$99,999 1,822 9.25% 114,295 11.99% 11,981,568 10.54% $100,000-$149,999 608 3.09% 57,877 6.07% 6,711,466 5.90% $150,000 or more 370 1.88% 29,434 3.09% 3,185,011 2.80% Total Households 19,698 952,864 113,668,003 SOURCE: 2007 Demographics USA, County Edition; compiled by JNA Consulting Group, LLC ---PAGE BREAK--- A-24 Labor and Employment The County’s average annual labor force summary as prepared by the State's Department of Employment, Training and Rehabilitation (“DETR”) is as follows: AVERAGE ANNUAL LABOR FORCE SUMMARY1 Lyon County, Nevada (Estimates in Thousands) CALENDAR YEAR 2003 2004 2005 2006 2007 TOTAL LABOR FORCE 19.7 19.2 19.8 21.4 22.3 Unemployment 1.1 1.0 1.0 1.3 1.5 Unemployment Rate3 5.5% 5.3% 5.1% 6.1% 6.9% Total Employment4 18.6 18.2 18.8 20.1 20.8 1 All numbers are subject to periodic revision; based on unrounded numbers, data may not add due to rounding. 2 The U.S. unemployment rates for the years 2003 through 2007 were 6.0%, 5.5%, 5.1%, 4.5%, and 5.0%, respectively. 3 Adjusted by census relationships to reflect number of persons by place of residence. SOURCE: DETR REMAINDER OF PAGE INTENTIONALLY LEFT BLANK ---PAGE BREAK--- A-25 The following tables indicate the number of persons employed, by type of employment, in non-agricultural industrial employment in Lyon County. ESTABLISHMENT BASED INDUSTRIAL EMPLOYMENT1 2 Lyon County, Nevada (Annual Average) CALENDAR YEAR 2002 2003 2004 2005 2006 20073 TOTAL ALL INDUSTRIES 10,870 11,290 10,910 12,050 12,600 12,870 Goods Producing Natural Resources & Mining 110 170 170 140 150 130 Construction 910 950 1,210 1,470 1,410 1,160 Manufacturing 1,990 2,100 2,310 2,480 2,400 2,530 TOTAL GOOD PRODUCING 3,010 3,220 3,690 4,090 3,960 3,820 Services Producing Trade, Transportation & Public Utilities 2,460 2,240 2,230 2,430 2,650 2,700 Information 30 30 20 30 20 30 Financial Activities 220 230 250 280 270 280 Professional & Business Services 1,220 1,550 590 650 740 760 Education & Health Services 530 550 570 610 640 670 Leisure & Hospitality 990 1,050 1,140 1,360 1,590 1,670 Other Services 320 550 490 530 530 530 Government 1,810 1,880 1,930 2,080 2,200 2,400 TOTAL SERVICES PRODUCING 7,580 8,080 7,220 7,970 8,640 9,040 1 Reflects employment by place of work; does not necessarily coincide with labor force concept; includes multiple job holders. 2 All numbers are subject to periodic revision; detail may not add due to rounding. 3 Average as of June 2007. SOURCE: DETR ---PAGE BREAK--- A-26 The table below lists the largest employers in the City for fiscal year 2007. The table is derived from unemployment insurance tax account numbers and is an estimate based on reported information. No independent investigation has been made of and consequently no assurances can be given as to the financial condition or stability of the employers listed below or the likelihood that such entities will maintain their status as major employers in the City. LARGEST EMPLOYERS Fernley, Nevada June 30, 2007 Employer Number of Employees Amazon.com 800 - 899 BMO Leasing US Inc (Quebecor) 200 - 299 MSC Industrial Supply Company 200 - 299 TREX Company 100 - 199 Nevada Cement Company 100 - 199 Scolaris Warehouse Markets, Inc. 100 - 199 Silverado Casino 100 - 199 Manpower Temporary Services 90 - 99 Fernley Pioneers, LLC 90 - 99 Valley Joist Inc. 80 - 89 SOURCE: The City’s 2007 Audit, Statistical Section REMAINDER OF PAGE INTENTIONALLY LEFT BLANK ---PAGE BREAK--- A-27 The following table lists the firm employment size breakdown for County for the time frames indicated. FIRM EMPLOYMENT SIZE BREAKDOWN1 Lyon County, Nevada 2nd Qtr 2003 2nd Qtr 2004 2nd Qtr 2005 2nd Qtr 2006 2nd Qtr 2007 % Change 2003/2007 Employees 2nd Qtr 2007 TOTAL 680 776 857 970 1,038 52.65% 11,227 0-4 Employees 350 425 472 540 602 72.00% 924 5-9 Employees 137 152 172 202 190 38.69% 1,283 10-19 Employees 97 92 101 107 134 38.14% 1,848 20-49 Employees 59 66 70 76 68 15.25% 2,080 50-99 Employees 24 28 28 29 30 25.00% 2,172 100-249 Employees 10 11 12 15 13 30.00% 1,931 250-499 Employees 1 1 1 0 0 -100% 0 500-999 Employees 2 1 1 1 1 -50.00% 989 1000+ Employees 0 0 0 0 0 0 1 Subject to revision. SOURCE: DETR REMAINDER OF PAGE INTENTIONALLY LEFT BLANK ---PAGE BREAK--- A-28 Retail Sales Retail sales in the County for fiscal year 2007 decreased 15.63% over the prior fiscal year. TAXABLE SALES1 Lyon County, Nevada Fiscal Year County Total Percent Change State Total Percent Change 2003 $276,314,974 8.92% $33,908,130,387 6.01% 2004 333,238,614 20.60% 38,505,761,784 13.56% 2005 395,400,076 18.65% 44,192,447,817 14.77% 2006 445,074,154 12.56% 48,581,095,724 9.93% 2007 375,522,868 -15.63% 49,427,707,106 1.74% Jul-Oct 2006 $165,412,476 $20,201,490,235 Jul-Oct 2007 159,659,050 -3.48% 19,899,093,929 -1.50% 1 Subject to revision. SOURCE: State Department of Taxation REMAINDER OF PAGE INTENTIONALLY LEFT BLANK ---PAGE BREAK--- A-29 Construction The following table illustrates a history of building permits issued in the County and their total valuation. BUILDING PERMITS Fernley, Nevada Fiscal Year Residential1 New Commercial2 Other3 Total 2002 429 18 16 463 2003 843 69 190 1,102 2004 1,230 108 246 1,584 2005 846 115 257 1,218 2006 158 141 [PHONE REDACTED] 121 158 [PHONE REDACTED] 4 32 83 88 203 1 Includes single and multi-family dwellings and duplexes. 2 Includes commercial buildings and manufacturing facilities. 3 Includes permits issued for the purpose of mobile homes, remodeling, constructing additions, rehabilitation, rebuilding and all other permits required by codes adopted by the County. 4 As of January 31, 2008, partial year. SOURCE: City Building Department Transportation The City’s recent growth is due in part to its location near the Reno-Sparks metropolitan area and its excellent transportation systems that provide access to west coast markets. The City is situated on Interstate 80, approximately 39 miles east of Reno, and at the intersection of U.S. Highways 40, 50, and alternate 95. The City also has rail freight access. Northern and central California markets are reached overnight, while Los Angeles, San Francisco, Portland, Salt Lake City, and Las Vegas are all within a 500 mile radius. ---PAGE BREAK--- A-30 Development Activity The Northern Nevada Development Authority (the “NNDA”) serves to promote economic development activity in Carson City, Douglas, Lyon, and Storey counties. Complimenting the area’s emphasis on economic diversification are the numerous business incentives unique to the state of Nevada. Competitive wage rates, an expanding labor force, low cost and readily available electrical power, proximity and favorable transportation costs to prominent western markets, and a graduated schedule for payment of sales and use tax on new capital equipment, combine to give business and industry an attractive advantage. The NNDA reports that during the fiscal year 2005-2006 a total of nine companies relocated to, and 10 companies expanded in the four-county service area resulting in more than 667 new jobs with an economic impact to the region of over $111,300,000. Utilities Sierra Pacific Power Company provides electricity in the City. Natural gas is provided by Southwest Gas Corporation. Education The Lyon County School District operates three elementary, one intermediate, and one high school within the City. The Western Nevada Community College, which has its main campus in Carson City, has auxiliary campuses in The City and Yerington. Other nearby colleges and universities include University of Nevada, Reno and Truckee Meadows Community College. Gaming The economy of the State is based in the tourism industry and largely dependent upon legalized casino gambling. Gaming has been legal in Nevada since 1931 and is controlled and policed by the State. Control is vested in a five-member Gaming Commission and a three-member Gaming Control Board appointed by the Nevada governor. These bodies investigate and approve all licenses, establish operating rules, collect taxes due the State and oversee the operations of casinos on a continuing basis. California Gaming Measure - On March 7, 2000, California voters approved a constitutional amendment legalizing Las Vegas-style slot machines and card games at tribal casinos within California and a number of tribes are presently operating casinos. The Nevada gaming industry officials estimate that approximately 30 percent of the State’s gambling visitors come from California. If tribes in California establish additional casinos, it is possible that those visitors may elect to visit the more conveniently located tribal casinos, rather than traveling to the State’s casinos. It is not possible at this time to predict what impact the California Gaming Measure will have on the gaming revenues. It also is not possible to predict when the impact of the casinos to be approved pursuant to the compacts will be felt. Other Gaming Risks - Different forms of legal gaming have been authorized by many states, as well as the tribal casinos, across the United States. The different forms of gaming range from casino and river boat gaming to state lotteries. Various forms of gaming also are available on the internet. Other states may authorize gaming in the future in one form or another. The City cannot predict the impact on the State and area economy of state lotteries, casino gaming in other states, or internet gaming. ---PAGE BREAK--- APPENDIX B CITY OF FERNLEY, NEVADA EXCERPT FROM COMPREHENSIVE ANNUAL FINANCIAL REPORT JUNE 30, 2007 ---PAGE BREAK--- THIS PAGE INTENTIONALLY LEFT BLANK ---PAGE BREAK--- FINANCIAL SECTION ---PAGE BREAK--- Independent Auditor's Report To the Honorable City Council of City of Fernley, Nevada We have audited the accompanying financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Fernley, Nevada, (the "City") as of and for the year ended June 30, 2007, which collectively comprise the City’s basic financial statements as listed in the table of contents. These financial statements are the responsibility of the City's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City as of June 30, 2007, and the respective changes in financial position and where applicable, cash flows thereof and the respective budgetary comparisons for the General Fund, Residential Construction Tax District #1 Special Revenue Fund and the Streets and Storm Drains Special Revenue Fund for the year then ended in conformity with accounting principles generally accepted in the United States of America. The management’s discussion and analysis on pages 3A through 3M is not a required part of the basic financial statements but is supplementary information required by accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consist principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the information and express no opinion on it. Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City of Fernley, Nevada’s basic financial statements. The introductory section, combining and individual nonmajor fund financial statements, schedules, and statistical tables are presented for purposes of additional analysis and are not a required part of the basic financial statements. The combining and individual nonmajor fund financial statements have been subjected to the auditing procedures applied in the ---PAGE BREAK--- audit of the basic financial statements and, in our opinion, are fairly stated in all material respects in relation to the basic financial statements taken as a whole. The introductory section and statistical tables have not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we express no opinion on them. Fallon, Nevada November 12, 2007 ---PAGE BREAK--- 3-A Management’s Discussion and Analysis As management of the City of Fernley, we offer readers of the City of Fernley’s financial statements this narrative overview and analysis of the financial activities of the City of Fernley for the fiscal year ended June 30, 2007. We encourage readers to consider the information presented here in conjunction with additional information that we have furnished in our letter of transmittal, which can be found on pages i through v of this report. Financial Highlights • The assets of the City of Fernley exceeded its liabilities at the close of the most recent fiscal year by $131,125,409 (net assets). Of this amount, $65,081,075 (unrestricted net assets) may be used to meet the government’s ongoing obligations to citizens and creditors. • The government’s total net assets increased by $24,880,405. The increase is attributable primarily to capital grants and contributions. • As of the close of the current fiscal year, the City of Fernley’s governmental funds reported combined ending fund balances of $4,584,334, a decrease of $5,791,456 in comparison with the prior year. Approximately $6 million was used for construction of the City Hall Expansion Project in FY07. Of the $4,584,334, approximately $1 million is committed for additional expenditures for the City Hall Project. The remaining amounts (approximately $3.6 million) are available for spending at the government’s discretion. • At the end of the current fiscal year, unreserved fund balance for the general fund was $588,946 or 17 % of general fund expenditures. This ending fund balance is in line with the targeted ending fund balance of 8% to 17% of general fund expenditures. • The City of Fernley’s total bonded debt increased by $49,722,498 during the fiscal year, primarily due to issuance of $50 million in debt for water and sewer projects. Overview of the Financial Statements This discussion and analysis are intended to serve as an introduction to the City of Fernley’s basic financial statements. The City of Fernley’s basic financial statements comprise three components: 1) government-wide financial statements, 2) fund financial statements, and 3) notes to the financial statements. This report also contains other supplementary information in addition to the basic financial statements themselves. Government-wide financial statements. The government-wide financial statements are designed to provide readers with a broad overview of the City of Fernley’s finances, in a manner similar to a private-sector business. The Statement of Net Assets presents information on all of the City of Fernley’s assets and liabilities, with the differences between the two reported as net assets. Over time, increases or decreases in net assets may serve as a useful indicator of whether the financial position of the City of Fernley is improving or deteriorating. ---PAGE BREAK--- 3-B The Statement of Activities presents information showing how the government’s net assets changed during the most recent fiscal year. All changes in net assets are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are reported in this statement for some items that will only result in cash flows in future fiscal periods uncollected taxes and earned but unused vacation leave). Both of the government-wide financial statements distinguish functions of the City of Fernley that are principally supported by taxes and intergovernmental revenues (governmental activities) from other functions that are intended to recover all or a significant portion of their costs through user fees and charges (business-type activities). The governmental activities of the City of Fernley include general government, judicial, public works, culture and recreation, community development, and health. The business- type activities of the City of Fernley are water and sewer operations. The government-wide financial statements can be found on pages 4 through 5 of this report. Fund financial statements. A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. The City of Fernley, like other state and local governments, uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. All of the funds of the City of Fernley can be divided into three categories: governmental funds, proprietary funds, and fiduciary funds. Governmental funds. Governmental funds are used to account for essentially the same functions reported as governmental activities in the government-wide financial statements. However, unlike the government-wide financial statements, governmental fund financial statements focus on near-term inflows and outflows of spendable resources, as well as on balances of spendable resources available at the end of the fiscal year. Such information may be useful in evaluating a government’s near-term financing requirements. Because the focus of governmental funds is narrower than that of the government-wide financial statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the government- wide financial statements. By doing so, readers may better understand the long-term impact of the government’s near-term financing decisions. Both the governmental fund balance sheet and the governmental fund statement of revenues, expenditures, and changes in fund balance provide a reconciliation to facilitate this comparison between governmental funds and governmental activities. The City of Fernley maintains nine individual governmental funds. Information is presented separately in the governmental fund balance sheet and in the governmental fund statement of revenues, expenditures, and changes in fund balances for the general fund and the three funds, which are considered major funds. Data for the other five governmental funds are combined into a single, aggregated presentation. Individual fund data for each of ---PAGE BREAK--- 3-C these nonmajor governmental funds is provided in the form of combining statements elsewhere in this report. The City of Fernley adopts an annual appropriated budget for its general fund. A budgetary comparison statement has been provided for the general fund to demonstrate compliance with this budget. The basic governmental fund financial statements can be found on pages 6 through 14 of this report. Proprietary funds. The City of Fernley maintains three proprietary funds as enterprise funds to account for its potable water, non-potable (alternative) water, and sewer (wastewater) operations. Enterprise funds are used to report the same functions presented as business-type activities in the government-wide financial statements. Proprietary funds provide the same type of information as the government-wide financial statements, only in more detail. The proprietary fund financial statements provide separate information for the water, sewer and non-potable water (alternative water) operations. The Water Fund and Sewer Fund are considered to be major funds of the City of Fernley. The basic enterprise fund financial statements can be found on pages 15 through 17 of this report Fiduciary funds. Fiduciary funds are used to account for resources held for the benefit of parties outside the government. Fiduciary funds are not reflected in the government-wide financial statements because the resources of those funds are not available to support the City of Fernley’s own programs. The accounting used for fiduciary funds is much like that used for proprietary funds. The basic fiduciary fund financial statements can be found on page 18 of this report. Notes to the financial statements. The notes provide additional information that is essential to a full understanding of the data provided in the government-wide and fund financial statements. The notes to the financial statements can be found on pages 19 through 39 of this report Other Information. The combining statements referred to earlier in connection with nonmajor governmental funds are presented immediately following the notes to the financial statements. Combining and individual fund statements and schedules can be found on pages 40 through 51 of this report. ---PAGE BREAK--- 3-D Government-wide Financial Analysis As noted earlier, net assets may serve over time as a useful indicator of a government’s financial position. In the case of the City of Fernley, assets exceeded liabilities by $131,125,409 at the close of the most recent fiscal year. A large portion of the City of Fernley’s net assets (35%) reflects its investment in capital assets land, buildings, machinery, and equipment); net of any related outstanding debt used to acquire those assets. The City of Fernley uses these capital assets to provide services to citizens; consequently, these assets are not available for future spending. Although the City of Fernley’s investment in its capital assets is reported net of related debt, it should be noted that the resources needed to repay this debt must be provided from other sources, since the capital assets themselves cannot be used to liquidate these liabilities. City of Fernley’s Net Assets Governmental Activities Business-type Activities Totals FY07 FY06 FY07 FY06 FY07 FY06 Current & other assets $5,950,705 $11,871,446 $64,315,362 $19,877,496 $70,266,067 $31,748,942 Capital 35,534,157 24,608,748 87,129,484 59,178,986 122,663,641 83,787,734 Total Assets 41,484,862 36,480,194 151,444,846 79,056,482 192,929,708 115,536,676 Long-term liabilities 4,752,359 4,919,944 51,461,804 1,357,749 56,214,163 6,277,693 Other liabilities 1,461,993 1,416,179 4,128,143 1,597,800 5,443,271 3,013,979 Total liabilities 6,214,352 6,336,123 55,589,947 2,955,549 61,657,434 9,291,672 Net assets: Invested in capital assets, net of related debt 30,692,157 24,608,748 35,352,177 57,581,522 66,044,334 82,190,270 Restricted - - - 579,560 - 579,560 Unrestricted 4,578,353 5,535,323 60,502,722 17,939,851 65,081,075 23,475,174 Total net assets $35,270,510 $30,144,071 $95,854,899 $76,100,933 $131,125,409 $106,245,004 Unrestricted net assets 65,081,075 may be used to meet the government’s ongoing obligations to citizens and creditors. Approximately $50 million of this amount is going to be used for water and sewer projects during FY2008. At the end of the current fiscal year, the City of Fernley is able to report positive balances in all three categories of net assets, both for the government as a whole, as well as for its separate governmental and business-type activities. The same situation held true for the prior fiscal year. ---PAGE BREAK--- 3-E The government’s net assets increased $24,880,405 during the current fiscal year. The increase is primarily due to capital grants and contributions that were greater than the related program expenses. Net Assets Invested in Capital Assets, net of related debt, declined about $11 million due to the $50 million increase in debt, partially offset by capital assets contributed and acquired. Governmental activities. Governmental activities increased the City of Fernley’s net assets by $5,126,439, thereby accounting for 21% of the total growth in net assets of the City of Fernley. Key elements of this increase are donated (dedicated) infrastructure and purchased infrastructure for streets and storm drains. Property tax rates increased 128% between FY06 and FY07 and assessed value of property increased 35.32%; however the increased revenue from property taxes was only 57% due to property tax limitation legislation. The City also transferred money into its Streets and Storm Drains fund that resulted in an increase in fund balance of that fund. The following table summarizes the change in net assets for the current fiscal year: Governmental Activities Business-Type Activities Total FY07 FY06 FY07 FY06 FY07 FY06 Revenues: Program revenues: Charges for services $1,988,793 $ 2,378,981 $4,061,013 $3,888,017 $6,049,806 $6,266,998 Operating grants and contributions 60,000 348,627 - - 60,000 348,627 Capital grants and contributions 6,052,749 7,531,080 19,015,855 18,729,430 25,068,604 26,260,510 General revenues: Property taxes 925,297 591,082 - - 925,297 591,082 Shared revenues 546,484 513,970 - - 546,484 513,970 Other revenues 361,411 718,960 1,557,688 762,222 1,919,099 1,481,182 Total revenues 9,934,734 12,082,700 24,634,556 23,379,669 34,569,290 35,462,369 Expenses: General government 1,084,095 796,403 - - 1,084,095 796,403 Judicial 194,353 170,479 - - 194,353 170,479 Public works 1,547,750 954,419 - - 1,547,750 954,419 Culture & recreation 838,674 646,259 - - 838,674 646,259 Community develop. 848,010 875,056 - - 848,010 875,056 Health 295,413 263,919 - - 295,413 263,919 Water - - 3,058,605 2,422,583 3,058,605 2,422,583 Sewer - - 1,812,645 1,530,898 1,812,645 1,530,898 Other - - 9,340 700 9,340 700 Total expenses 4,808,295 3,706,535 4,880,590 3,954,181 4,880,590 7,660,716 Increase in net assets 5,126,439 8,376,165 19,753,966 19,425,488 24,880,405 27,801,653 Net assets, July 1 30,144,071 21,767,906 76,100,933 56,675,445 106,245,004 78,443,351 Net assets, June 30 $35,270,510 $30,144,071 $95,854,899 $76,100,933 $131,125,409 $106,245,004 ---PAGE BREAK--- 3-F FY07 Program Revenues and Expenses- Governmental Activities 0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 General Govt Revenue General Govt Expenses Judicial Revenues Judicial Expenses Public Works Revenues Public Works Expenses Culture & Rec Revenues Culture & Rec Expenses Comm. Dev. Revenues Comm Dev Expenses Health Expenses Program $ in thousands Program Expenses Capital Grants and Contributions Operating G&C Charges for services The major sources of program revenues for general government activities are business licenses and public utility license/franchise fees. The program expenses associated with general government activities include the operations of the Office of the City Manager, the Office of the City Clerk, Mayor and City Council activities and a portion of the expense for the Finance Department. The sources of program revenue for judicial activities include fines and fees (unrestricted) as well as administrative assessment and court facility fees (restricted). The program expenses associated with judicial activities include expenses for the Judge, City Prosecutor, Public Defender, direct court costs, and a portion of the costs of the Finance Department. Overhead costs are not allocated. The major sources of program revenues for public works activities are dedications (non- cash transactions) of streets and storm drain systems from developers, regional transportation commission distributions, fuel taxes, and shared county property tax revenues. The program expenses associated with public works activities are operating costs and depreciation related to streets and storm drain activities as well as the City Hall Expansion Project. Overhead costs are not allocated. The major sources of program revenues for culture and recreation activities include grants, dedications of park property and improvements, and residential construction tax. The program expenses associated with culture and recreation activities include the operating costs in the general fund parks budget and depreciation related to two residential construction tax funds for which the Parks Department is responsible. Overhead costs are not allocated. ---PAGE BREAK--- 3-G The major source of program revenues for community development activities is building permits and fees. Planning fees are also included in program revenues. The program expenses associated with these revenues include the operations of the Community Development Department. Overhead costs are not allocated. The health operations of the City include animal control and vector control activities. Neither of these activities produces significant revenue. The program revenue consists of animal license fees and donations. The major sources of general revenues (revenues that are not specifically allocated to a particular program) are property taxes, consolidated taxes, fuel taxes and interest earnings. FY07 Revenues by Source - Governmental Activities (in thousands of Charges for Serv., $1,989 , 20% Oper. Grants & Contr., $60 , 1% Shared Revenues, $546 , 5% Other, $361 , 4% Capital Grants & Cont., $6,052 , 61% Property Tax, $925 , 9% The Charges for Services category includes primarily fees, fines, and licenses. The Capital Grants and Contributions primarily includes donated (dedicated) infrastructure (streets and storm drains). The Shared Revenue category includes primarily consolidated tax, fuel tax and gaming licenses. The Other category includes interest income and other miscellaneous sources of revenue. For the most part, increases in operating expenses closely paralleled inflation and growth in demand for services. Capital projects and donated (dedicated) infrastructure represent the largest part of the increase. Business-type activities. Business-type activities increased the City of Fernley’s net assets by $19,753,966 accounting for 79% of the total growth in the government’s net assets. Key elements of this increase are higher revenues for water and sewer use fees, donated (dedicated) infrastructure and connection fees. • Charges for services for business-type activities increased by $172,996 or 4% due to a greater number of customers. User rates were not increased during FY07. User rates were increased approximately 50% effective July 1, 2007. ---PAGE BREAK--- 3-H • Capital contributions increased by $286,425 or 1.5%, primarily as a result of acceptance of subdivision improvements. • Investment earnings increased due to higher interest rates and higher levels of cash available for investment. FY07 Program Revenues and Expenses Business-type Activities 0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 18,000 20,000 Water Revenues Water Expenses Non- Potable Water Non- Potable Water Expenses Sewer Revenue Sewer Expenses Program $ in thousands Expenses Capital Grants and Contributions Operating Grants & Contributions Charges for Serv. Revenues include both cash and non-cash capital contributions in the “Capital Grants and Contributions” section. ---PAGE BREAK--- 3-I FY07 Revenue by Source Business Type Activities (in thousands of Unrestricted Interest Income, $1,511 , 6% Capital Grants & Contr., $19,016 , 78% Charges for Serv., $4,061 , 16% Other, $46 , 0% Financial Analysis of the Government’s Funds As noted earlier, the City of Fernley uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. Governmental funds. The focus of the City of Fernley’s governmental funds is to provide information on the near-term inflows, outflows, and balances of spendable resources. Such information is useful in assessing the City of Fernley’s financing requirements. In particular, unreserved fund balance may serve as a useful measure of a government’s net resources available for spending at the end of the fiscal year. As of the end of the current fiscal year, the City of Fernley’s governmental funds reported combined ending fund balances of $4,584,334, a decrease of $5,791,456 in comparison with the prior year. Approximately $6 million was spent during FY07 for the construction of the City Hall Expansion Project. The remaining amount (approximately $3.4 million) is available for spending at the government’s discretion. The general fund is the chief operating fund of the City of Fernley. At the end of the current fiscal year, unreserved, undesignated fund balance of the general fund was $582,237, while total fund balance reached $588,946. As a measure of the general fund’s liquidity, it may be useful to compare both unreserved fund balance and total fund balance to total general fund expenditures. Unreserved, undesignated fund balance represents 17% of total general fund expenditures, while total fund balance also represents about 17% of that same amount. The fund balance of the City of Fernley’s general fund decreased by $356,050 during the current fiscal year. Key factors in this decrease are as follows: ---PAGE BREAK--- 3-J • Increased appropriations in various cost centers in the general fund to provide services to more people • Increased debt service for the City Hall Expansion Project • Transfers out of the general fund to other funds Expenditures exceeded estimates in several cost centers in the general fund. The general government cost center exceeded estimated due to additional wages and supplies for the new City Hall building. The parks cost center exceeded estimates due to use of parks employees for special events. The community development cost center exceeded estimates (based on a revised final budget) due to anticipated lower costs from unfilled positions, although expenditures were significantly less than planned in the original budget. The Residential Construction Tax District #1 Fund is used to account for the receipt and use of a special tax that is dedicated to specific purposes of construction of parks in accordance with the Park Plan. At the end of the current fiscal year, unreserved, undesignated fund balance of the fund was $(9,000). Revenues in this fund are significantly lower than originally projected due to the slow down in the residential housing market. No projects are planned for this fund during FY08. Amounts were collected during the first quarter of FY08 to bring the fund balance out of the negative ending position. The Streets and Storm Drains Fund is used to account for gas taxes that must be used for street maintenance and capital expenditures as well as other revenues that may be used for projects associated with street and storm drains. At the end of the current fiscal year, unreserved, undesignated fund balance of the fund was $444,108. Unreserved, undesignated fund balance represents 19% of total fund expenditures, while total fund balance also represents about 19% of that same amount. The City is currently considering the implementation of impact fees for streets to provide the necessary funding for street construction projects. The Capital Projects Fund is used to accrue funds under a “pay as you go” program to provide funding for future projects involving replacement of equipment and buildings or new facilities and equipment. The largest project accounted for in this fund during FY07 is the City Hall Expansion Project. The total project cost for the City Hall Expansion project is $7 million of which $5 million is funded through the issuance of debt and $2 million from the money in the Capital Fund. At the end of the current fiscal year fund balance of the Capital Fund was $2,426,800. Approximately $1 million of this fund balance will be used in FY08 to complete the City Hall Expansion Project. Smaller projects planned for FY08 include purchase of vehicles, technology upgrades and replacements, and records management equipment and facilities. ---PAGE BREAK--- 3-K Proprietary funds. The City of Fernley’s proprietary funds provide the same type of information found in the government-wide financial statements, but in more detail. Unrestricted net assets of the Water Fund at the end of the year amounted to $50,188,079; those for the Sewer Fund amounted to $9,194,273; and those of the Non-Potable Water Fund amounts to $1,120,370 resulting in total unrestricted net assets of $59,908,266. The total growth in net assets for these funds was $16,952,293, $2,404,587, and $397,086, respectively. These amounts are available, primarily for capital replacements, capital expansion, and water rights acquisition. Other factors concerning the finances of these three funds have already been addressed in the discussion of the City of Fernley’s business- type activities. General Fund Budgetary Highlights During the year there was a $456,500 decrease in revenues between the original and final amended budget, primarily due to decreased building permit revenue from a slow down in the residential development market. There was a $446,340 increase in appropriations between the original and final amended budget. Following are the main components of the increase: • Appropriations were reduced in the Community Development to reflect unfilled positions during the year. • Appropriation for the General Government, Judicial, Culture and Recreation, and Health were increased due to higher than estimated costs for services to the growing customer base. • Fund Balance for the prior year was higher than expected which provided funds for the increased appropriations. Capital Asset and Debt Administration Capital assets. The City of Fernley’s investment in capital assets for its governmental and business-type activities as of June 20, 2007 amounts to $122,663,641 (net of accumulated depreciation). This investment in capital assets includes land, construction in progress, buildings, improvements, machinery and equipment, infrastructure (streets and bridges), and other capital assets. The total increase in the City of Fernley’s investment in capital assets for the current fiscal year was 46% (a 44% increase for governmental activities and a 47% increase for business-type activities). Major capital asset events during the current fiscal year included the following: • Donation of capital assets from developers • Construction of the City Hall Expansion Project • Design costs for the planned water treatment plant • Sewer interceptor improvements • Well improvements • Street improvements ---PAGE BREAK--- 3-L City of Fernley Capital Assets (net of depreciation) Governmental activities Business-type activities Totals FY07 FY06 FY07 FY06 FY07 FY06 Land $3,909,624 $3,789,274 $677,677 $ 268,810 $4,587,301 $4,058,084 Water rights - - 33,278,836 18,798,981 33,278,836 18,798,981 Construction in progress 6,469,314 730,876 13,322,319 3,281,172 19,791,633 4,012,048 Buildings 676,050 882,648 3,662 4,661 679,712 887,309 Improvements other than buildings 5,758,849 3,938,635 38,366,458 35,500,087 44,125,307 39,438,722 Machinery & Equipment 423,386 409,161 287,234 67,387 710,620 476,548 Infrastructure 18,326,224 14,858,154 - - 18,326,224 14,858,154 Other capital assets - - 1,193,298 1,257,888 1,193,298 1,257,888 TOTAL $35,563,447 $24,608,748 $87,129,484 $59,178,986 $122,692,931 $83,787,734 Additional information on the City of Fernley’s capital assets can be found in note 4 of this report. Long-term debt. At the end of the current fiscal year, the City of Fernley had total bonded debt outstanding of $51,282,780 and lease-purchase debt of $4,842,000. All of the debt is backed by the full faith and credit of the government. Governmental activities Business-type activities Totals 7/1/07 7/1/06 7/1/07 7/1/06 7/1/07 7/1/06 General obligation/revenue bonds - - $51,282,780 $1,560,282 $51,282,780 $1,560,282 Lease/Purchase Debt $4,842,000 $5,000,000 - - 4,842,000 5,000,000 Unamortized bond premium - - 494,527 37,181 494,527 37,181 Compensated absences 94,359 77,944 41,308 37,789 135,667 115,733 TOTAL $4,936,359 $5,077,944 $51,818,615 $1,635,252 $56,754,974 $6,713,196 The City of Fernley’s total debt increased by $50,041,778 during the current fiscal year. The key factor in this increase was issuance of $50 million in debt for construction of water and sewer projects. ---PAGE BREAK--- 3-M State statutes limit the amount of general obligation debt a city may issue to 30% of its total assessed valuation. The current debt limitation for the City of Fernley is approximately $153 million, which is significantly in excess of the City of Fernley’s outstanding general obligation debt of $51,282,780. Additional information of the City of Fernley’s long-term debt can be found in note 7 on pages 36 through 37 of this report. Economic Factors and Next Year’s Budget and Rates Both water rates and sewer rates were increased effective July 1, 2007 to pay for operating expenses, capital replacements and capital expansion. • Several new businesses are starting or are planned for Fernley which will result in growth in jobs. • The City of Fernley is the fastest growing City in Nevada and has doubled in population in the last five years. • Inflationary trends in the region compare favorably to national indices. • Residential development has slowed significantly but commercial development has increased All of these factors were considered in preparing the City of Fernley budget for FY08. During the current fiscal year, unreserved, undesignated fund balance in the general fund decreased to $582,237. The FY08 General Fund budget assumes a beginning fund balance of $575,149. Very little of the current fiscal year ending fund balance is used for FY08 costs. The rates for the enterprise funds went up effective July 1, 2007 to provide the necessary funds to operate the water and sewer utility funds. Additional increases are scheduled to be implemented on July 1 each subsequent four years. Requests for Information This financial report is designed to provide a general overview of the City of Fernley’s finances for all those with an interest in the City’s finances. Questions concerning any of the information provided in this report or requests for additional information should be addressed to the City Treasurer/Finance Director, 595 Silver Lace Blvd, Fernley NV 89408. ---PAGE BREAK--- BASIC FINANCIAL STATEMENTS ---PAGE BREAK--- BUSINESS- GOVERNMENTAL TYPE ACTIVITIES ACTIVITIES TOTAL Current assets: Cash and investments 5,398,685 $ 62,444,951 $ 67,843,636 $ Cash held for customer deposits - 594,456 594,456 Interest receivable 20,638 231,545 252,183 Taxes receivable 15,211 - 15,211 Accounts receivable, net 229,903 421,730 651,633 Accounts receivable, other 83,144 85,484 168,628 Due from other governments 196,415 - 196,415 Inventories - 151,461 151,461 Prepaid expenses 6,709 5,000 11,709 Total Current Assets 5,950,705 63,934,627 69,885,332 Noncurrent assets: Deferred charges - 380,735 380,735 Capital assets: Land and construction in progress 10,378,938 47,278,832 57,657,770 Other capital assets, net of depreciation 25,184,509 39,850,652 65,035,161 Total Capital Assets 35,563,447 87,129,484 122,692,931 Total Noncurrent Assets 35,563,447 87,510,219 123,073,666 Total Assets 41,514,152 151,444,846 192,958,998 Current liabilities: Accounts payable and accrued expenses 688,242 2,587,261 3,275,503 Accrued interest - 589,615 589,615 Refundable deposits - 594,456 594,456 Due to developers 392,395 - 392,395 Due to other governments 146,865 - 146,865 Due within one year 184,000 356,811 540,811 Unearned revenue 79,781 - 79,781 Total Current Liabilities 1,491,283 4,128,143 5,619,426 Noncurrent liabilities: Due in more than one year 4,752,359 51,461,804 56,214,163 Total Liabilities 6,243,642 55,589,947 61,833,589 NET ASSETS Invested in capital assets, net of related debt 30,721,447 35,352,177 66,073,624 Unrestricted 4,549,063 60,502,722 65,051,785 Total Net Assets 35,270,510 $ 95,854,899 $ 131,125,409 $ ASSETS LIABILITIES CITY OF FERNLEY STATEMENT OF NET ASSETS JUNE 30, 2007 See accompanying notes. 4 ---PAGE BREAK--- CHARGES OPERATING CAPITAL BUSINESS- FOR GRANTS AND GRANTS AND GOVERNMENTAL TYPE FUNCTIONS/PROGRAMS EXPENSES SERVICES CONTRIBUTIONS CONTRIBUTIONS ACTIVITIES ACTIVITIES TOTAL Governmental Activities: General government 1,173,360 $ 1,137,510 $ - $ - $ (35,850) $ - $ (35,850) $ Judicial 194,353 89,248 - - (105,105) - (105,105) Public works 1,547,750 29,754 - 5,851,177 4,333,181 - 4,333,181 Culture and recreation 838,674 48,355 60,000 201,572 (528,747) - (528,747) Community development 848,010 679,608 - - (168,402) - (168,402) Health 295,413 4,318 - - (291,095) - (291,095) Total Governmental Activities 4,897,560 1,988,793 60,000 6,052,749 3,203,982 - 3,203,982 Business-type Activities: Water 3,058,553 2,306,193 - 16,610,645 - 15,858,285 15,858,285 Sewer 1,812,583 1,754,820 - 2,047,468 - 1,989,705 1,989,705 Other 9,340 - - 357,743 - 348,403 348,403 Total Business- type Activities 4,880,476 4,061,013 - 19,015,856 - 18,196,393 18,196,393 Total 9,778,036 $ 6,049,806 $ 60,000 $ 25,068,605 $ 3,203,982 18,196,393 21,400,375 General Revenues: Property taxes 925,297 - 925,297 Consolidated taxes 188,128 - 188,128 Fuel taxes 259,603 - 259,603 Unrestricted gaming licenses 98,753 - 98,753 Unrestricted interest income 361,301 1,511,286 1,872,587 Miscellaneous revenue 89,375 46,287 135,662 Total General Revenues 1,922,457 1,557,573 3,480,030 Change in Net Assets 5,126,439 19,753,966 24,880,405 NET ASSETS, July 1 30,144,071 76,100,933 106,245,004 NET ASSETS, June 30 35,270,510 $ 95,854,899 $ 131,125,409 $ PROGRAM REVENUES AND CHANGES IN NET ASSETS CITY OF FERNLEY STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2007 NET (EXPENSE) REVENUES See accompanying notes. 5 ---PAGE BREAK--- STREETS RESIDENTIAL AND CONSTRUCTION STORM CAPITAL OTHER TOTAL GENERAL TAX DISTRICT DRAINS PROJECTS GOVERNMENTAL GOVERNMENTAL FUND #1 FUND FUND FUND FUNDS FUNDS Cash and investments 979,360 $ - $ 472,613 $ 2,703,620 $ 1,243,092 $ 5,398,685 $ Interest receivable 4,778 - 517 11,218 4,125 20,638 Accounts receivable 232,292 - - - 7,588 239,880 Due from other governments 92,720 - 103,695 - - 196,415 Prepaid items 6,709 - - - - 6,709 Total Assets 1,315,859 $ - $ 576,825 $ 2,714,838 $ 1,254,805 $ 5,862,327 $ Liabilities: Accounts payable and accrued liabilities 227,872 $ - $ 132,717 $ 317,328 $ 10,325 $ 688,242 $ Due to developers 272,395 9,000 - - 111,000 392,395 Due to other governments 146,865 - - - - 146,865 Deferred revenue 79,781 - - - - 79,781 Total Liabilities 726,913 9,000 132,717 317,328 121,325 1,307,283 Fund Balance: Reserved for prepaid items 6,709 - - - - 6,709 Unreserved - reported in: General Fund 582,237 - - - - 582,237 Special revenue funds - (9,000) 444,108 - 1,133,480 1,568,588 Capital projects funds - - - 2,397,510 - 2,397,510 Total Fund Balance 588,946 (9,000) 444,108 2,397,510 1,133,480 4,555,044 Total Liabilities and Fund Balance 1,315,859 $ - $ 576,825 $ 2,714,838 $ 1,254,805 $ 5,862,327 $ BALANCE LIABILITIES AND FUND ASSETS CITY OF FERNLEY GOVERNMENTAL FUNDS BALANCE SHEET JUNE 30, 2007 See accompanying notes. 6 ---PAGE BREAK--- Total Fund Balances - Governmental Funds 4,555,044 $ Amounts reported for governmental activities in the statement of net assets are different because: Capital assets used in governmental activities are not financial resources and therefore are not reported in the governmental funds: Capital assets 38,475,266 Less: Accumulated depreciation 2,911,819 35,563,447 Revenues in the statement of activities that do not provide current financial 88,378 resources are not reported as revenues in the fund. Certain liabilities are not reported in the governmental funds because they are not due and payable in the current period: Bonds payable (4,842,000) Compensated absences (94,359) (4,936,359) Total Net Assets - Governmental Activities 35,270,510 $ CITY OF FERNLEY RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET ASSETS JUNE 30, 2007 See accompanying notes. 7 ---PAGE BREAK--- STREETS RESIDENTIAL AND CONSTRUCTION STORM CAPITAL OTHER TOTAL GENERAL TAX DISTRICT DRAINS PROJECTS GOVERNMENTAL GOVERNMENTAL FUND #1 FUND FUND FUND FUNDS FUNDS REVENUES Taxes 929,276 $ 6,000 $ - $ - $ 52,780 $ 988,056 $ Licenses and permits 1,920,189 - 29,758 - - 1,949,947 Intergovernmental 248,128 - 2,025,205 - 60,000 2,333,333 Fines and forfeits 199,723 - - - 34,630 234,353 Miscellaneous 256,871 4,641 2,235 258,076 60,010 581,833 Total Revenues 3,554,187 10,641 2,057,198 258,076 207,420 6,087,522 EXPENDITURES Current: General government 1,025,295 - - - - 1,025,295 Judicial 192,468 - - - 2,050 194,518 Public works - - 515,394 - - 515,394 Culture and recreation 646,383 - - - 1,159 647,542 Community development 800,700 - - - 33,803 834,503 Health 275,905 - - - - 275,905 Total Current 2,940,751 - 515,394 - 37,012 3,493,157 Debt service: Principal 158,000 - - - - 158,000 Interest 221,032 - - - - 221,032 Total Debt Service 379,032 - - - - 379,032 Capital outlay: Public works - - 1,827,862 - - 1,827,862 Culture and recreation 6,700 - - - 157,269 163,969 Community development 16,741 - - 6,027,811 - 6,044,552 Health 61,146 - - - - 61,146 Total Capital Outlay 84,587 - 1,827,862 6,027,811 157,269 8,097,529 Total Expenditures 3,404,370 - 2,343,256 6,027,811 194,281 11,969,718 Excess (Deficiency) of Revenues over (under) Expenditures 149,817 10,641 (286,058) (5,769,735) 13,139 (5,882,196) OTHER FINANCING SOURCES (USES) Transfers out (567,317) (144,395) - - - (711,712) Transfers in - - 550,000 134,766 26,946 711,712 Proceeds from Sale of Capital Assets 61,450 - - - - 61,450 Total Other Financing Sources (Uses) (505,867) (144,395) 550,000 134,766 26,946 61,450 Net Change in Fund Balance (356,050) (133,754) 263,942 (5,634,969) 40,085 (5,820,746) FUND BALANCE, JULY 1 944,996 124,754 180,166 8,032,479 1,093,395 10,375,790 FUND BALANCE, JUNE 30 588,946 $ (9,000) $ 444,108 $ 2,397,510 $ 1,133,480 $ 4,555,044 $ CITY OF FERNLEY GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES FOR THE YEAR ENDED JUNE 30, 2007 See accompanying notes. 8 ---PAGE BREAK--- Net Change if Fund Balances - Governmental Funds (5,820,746) $ Amounts reported for governmental activities in the statement of activities are different because: Governmental funds report capital outlay as expenditures and the proceeds from the sale of assets as other financing sources. However, in the statement of activities, the cost of those assets is depreciated over their useful lives and only the gain or loss is recorded when assets are sold. Expenditures for capital assets 8,085,908 $ Less: Current year depreciation 1,059,479 Sale/disposition of assets 157,305 6,869,124 Revenues in the statement of activities that do not provide current financial resources are not reported as revenues in the governmental fund statements: Donated capital assets 4,085,575 Fine and forfeitures (149,098) The issuance of long-term debt (i.e. bonds) provides current financial resources to governmental funds, while the repayment of the principal of long-term debt consumes the current financial resources of governmental funds. Neither transaction, however, has any effect on net assets. 158,000 Generally expenditures recognized in the fund financial statements are limited to only those that use current financial resources but expenses are recognized in the statement of activities when incurred: Change in long-term compensated absences payable (16,416) Change in Net Assets - Governmental Activities 5,126,439 $ CITY OF FERNLEY RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, FOR THE YEAR ENDED JUNE 30, 2007 EXPENDITURES, AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES See accompanying notes. 9 ---PAGE BREAK--- ORIGINAL FINAL ORIGINAL FINAL ACTUAL TO FINAL TO ACTUAL REVENUES Taxes: Ad valorem 888,000 $ 934,000 $ 929,276 $ 46,000 $ (4,724) $ Licenses and permits: Business licenses 120,000 140,000 123,382 20,000 (16,618) Franchise fees 850,000 850,000 968,650 - 118,650 Liquor licenses 27,000 32,000 27,736 5,000 (4,264) City gaming licenses 82,000 92,000 98,753 10,000 6,753 Building permits and fees 1,400,000 815,000 614,080 (585,000) (200,920) Planning and zoning permits and fees 100,000 65,000 65,528 (35,000) 528 Other permits 12,000 14,500 22,060 2,500 7,560 2,591,000 2,008,500 1,920,189 (582,500) (88,311) Intergovernmental revenues: Consolidated tax distribution 215,345 215,345 188,128 - (27,217) Fernley park agreement 60,000 60,000 60,000 - - 275,345 275,345 248,128 - (27,217) Fines and forfeits: Municipal court fines 120,000 120,000 174,971 - 54,971 Municipal court fees 18,500 20,500 24,752 2,000 4,252 138,500 140,500 199,723 2,000 59,223 Miscellaneous: Interest 65,000 65,000 40,234 - (24,766) Building rental 20,000 20,000 20,000 - - Park development 1,000 3,500 48,355 2,500 44,855 Developer agreements - 55,500 55,414 55,500 (86) Miscellaneous 25,000 35,000 92,868 10,000 57,868 111,000 179,000 256,871 68,000 77,871 Total Revenues 4,003,845 3,537,345 3,554,187 (466,500) 16,842 EXPENDITURES General government: Administration: Salaries and wages 266,500 266,500 296,960 - (30,460) Employee benefits 113,000 113,000 112,929 - 71 Services and supplies 401,400 427,950 445,916 (26,550) (17,966) Total Administration 780,900 807,450 855,805 (26,550) (48,355) BUDGET VARIANCE WITH FOR THE YEAR ENDED JUNE 30, 2007 (Page 1 of 3) CITY OF FERNLEY STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE - BUDGET (GAAP BASIS) AND ACTUAL GENERAL FUND See accompanying notes. 10 ---PAGE BREAK--- ORIGINAL FINAL ORIGINAL FINAL ACTUAL TO FINAL TO ACTUAL Finance: Salaries and wages 91,700 $ 83,700 $ 80,529 $ 8,000 $ 3,171 $ Employee benefits 44,700 42,700 35,393 2,000 7,307 Services and supplies 46,200 56,200 53,568 (10,000) 2,632 Total Finance 182,600 182,600 169,490 - 13,110 Total General Government 963,500 990,050 1,025,295 (26,550) (35,245) Judicial: Municipal court: Salaries and wages 81,000 89,000 93,473 (8,000) (4,473) Employee benefits 32,400 40,300 27,142 (7,900) 13,158 Services and supplies 78,000 72,250 71,853 5,750 397 Total Judicial 191,400 201,550 192,468 (10,150) 9,082 Culture and Recreation: Parks: Salaries and wages 246,100 265,500 301,049 (19,400) (35,549) Employee benefits 155,800 118,000 97,844 37,800 20,156 Services and supplies 222,060 248,520 247,490 (26,460) 1,030 Capital outlay 13,000 13,000 6,700 - 6,300 Total Culture and Recreation 636,960 645,020 653,083 (8,060) (8,063) Community development: Building and planning: Salaries and wages 611,000 378,000 439,229 233,000 (61,229) Employee benefits 316,900 183,600 157,412 133,300 26,188 Services and supplies 257,400 174,900 204,059 82,500 (29,159) Capital Outlay 15,000 16,800 16,741 (1,800) 59 Total Community Development 1,200,300 753,300 817,441 447,000 (64,141) Health: Animal control: Salaries and wages 61,600 49,600 48,643 12,000 957 Employee benefits 32,800 30,100 17,084 2,700 13,016 Services and supplies 24,250 47,250 39,585 (23,000) 7,665 Capital outlay - 25,100 25,044 (25,100) 56 Total Animal Control 118,650 152,050 130,356 (33,400) 21,694 Vector control: Salaries and wages 55,800 55,800 38,380 - 17,420 Employee benefits 26,700 26,700 16,103 - 10,597 Services and supplies 93,900 126,400 116,110 (32,500) 10,290 Capital outlay 39,200 39,200 36,102 - 3,098 Total Vector Control 215,600 248,100 206,695 (32,500) 41,405 Total Health 334,250 400,150 337,051 (65,900) 63,099 CITY OF FERNLEY GENERAL FUND BUDGET STATEMENT OF REVENUES, EXPENDITURES, AND FOR THE YEAR ENDED JUNE 30, 2007 (Page 2 of 3) CHANGES IN FUND BALANCE - BUDGET (GAAP BASIS) AND ACTUAL VARIANCE WITH See accompanying notes. 11 ---PAGE BREAK--- ORIGINAL FINAL ORIGINAL FINAL ACTUAL TO FINAL TO ACTUAL REVENUES Taxes: Residential construction tax 200,000 $ 46,000 $ 6,000 $ (154,000) $ (40,000) $ Miscellaneous: Interest 1,000 5,000 4,641 4,000 (359) Excess (Deficiency) of Revenues Over (Under) Expenditures 201,000 51,000 10,641 (150,000) (40,359) OTHER FINANCING SOURCES (USES) Transfers in (out:) Residential construction tax district #2 - 175,000 (144,395) 175,000 (319,395) Net Change in Fund Balance 201,000 226,000 (133,754) 25,000 (359,754) FUND BALANCE, July 1 21 124,754 124,754 124,733 - FUND BALANCE, June 30 201,021 $ 350,754 $ (9,000) $ 149,733 $ (359,754) $ BUDGET VARIANCE WITH FOR THE YEAR ENDED JUNE 30, 2007 CITY OF FERNLEY STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE - BUDGET (GAAP BASIS) AND ACTUAL RESIDENTIAL CONSTRUCTION TAX DISTRICT #1 FUND See accompanying notes. 13 ---PAGE BREAK--- ORIGINAL FINAL ORIGINAL FINAL ACTUAL TO FINAL TO ACTUAL Debt service: Principal 158,000 $ 158,000 $ 158,000 $ - $ - $ Interest 220,400 220,400 221,032 - (632) Total Debt Service 378,400 378,400 379,032 - (632) Total Expenditures 3,704,810 3,368,470 3,404,370 336,340 (35,900) Excess of Revenues Over Expenditures 299,035 168,875 149,817 (130,160) (19,058) OTHER FINANCING SOURCES (USES) Contingency (155,000) (155,000) - - 155,000 Transfer out: Capital Projects Fund (250,000) (565,000) (567,317) (315,000) (2,317) Proceeds from Sale of Capital Assets - - 61,450 - 61,450 Total Other Financing Sources (Uses) (405,000) (720,000) (505,867) (315,000) 214,133 Net Change in Fund Balance (105,965) (551,125) (356,050) (445,160) 195,075 FUND BALANCE, July 1 489,161 944,996 944,996 455,835 - FUND BALANCE, June 30 383,196 $ 393,871 $ 588,946 $ 10,675 $ 195,075 $ CITY OF FERNLEY GENERAL FUND BUDGET STATEMENT OF REVENUES, EXPENDITURES, AND FOR THE YEAR ENDED JUNE 30, 2007 (Page 3 of 3) CHANGES IN FUND BALANCE - BUDGET (GAAP BASIS) AND ACTUAL VARIANCE WITH See accompanying notes. 12 ---PAGE BREAK--- ORIGINAL FINAL ORIGINAL FINAL ACTUAL TO FINAL TO ACTUAL REVENUES Licenses and permits: Public works fees 34,000 $ 16,000 $ 29,758 $ (18,000) $ 13,758 $ Intergovernmental revenues: Motor vehicle fuel tax 273,348 273,348 259,603 - (13,745) Regional transportation commission 1,133,000 1,800,000 1,765,602 667,000 (34,398) 1,406,348 2,073,348 2,025,205 667,000 (48,143) Miscellaneous: Interest 30,000 - 2,235 (30,000) 2,235 Total Revenues 1,470,348 2,089,348 2,057,198 619,000 (32,150) EXPENDITURES Public works: Salaries and wages 102,200 122,200 132,565 (20,000) (10,365) Employee benefits 53,245 41,595 49,825 11,650 (8,230) Services and supplies 430,100 357,100 333,004 73,000 24,096 Capital outlay 1,516,500 1,620,000 1,827,862 (103,500) (207,862) Total Expenditures 2,102,045 2,140,895 2,343,256 (38,850) (202,361) Excess (Deficiency) of Revenues Over (Under) Expenditures (631,697) (51,547) (286,058) 580,150 (234,511) OTHER FINANCING SOURCES (USES) Transfers in: General Fund 250,000 550,000 550,000 300,000 - Net Change in Fund Balance (381,697) 498,453 263,942 880,150 (234,511) FUND BALANCE, July 1 1,083,679 180,166 180,166 (903,513) - FUND BALANCE, June 30 701,982 $ 678,619 $ 444,108 $ (23,363) $ (234,511) $ BUDGET VARIANCE WITH FOR THE YEAR ENDED JUNE 30, 2007 CITY OF FERNLEY STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE - BUDGET (GAAP BASIS) AND ACTUAL STREETS AND STORM DRAINS FUND See accompanying notes. 14 ---PAGE BREAK--- WATER SEWER OTHER TOTAL UTILITY UTILITY ENTERPRISE ENTERPRISE FUND FUND FUND FUNDS Current assets: Cash and cash equivalents 51,260,441 $ 10,068,161 $ 1,116,349 $ 62,444,951 $ Cash - refundable deposits 284,066 310,390 - 594,456 Interest receivable 188,443 39,081 4,021 231,545 Accounts receivable, net 259,098 162,632 - 421,730 Accounts receivable, other 70,032 15,452 - 85,484 Inventories 145,144 6,317 - 151,461 Prepaid expenses 5,000 - - 5,000 Total Current Assets 52,212,224 10,602,033 1,120,370 63,934,627 Noncurrent assets: Deferred charges 340,308 40,427 - 380,735 Capital assets: Not being depreciated 38,981,622 8,194,993 102,217 47,278,832 Depreciable assets 28,458,098 22,255,446 571,478 51,285,022 67,439,720 30,450,439 673,695 98,563,854 Less: Accumulated depreciation 6,380,651 5,043,799 9,920 11,434,370 Total Capital Assets 61,059,069 25,406,640 663,775 87,129,484 Total Noncurrent Assets 61,399,377 25,447,067 663,775 87,510,219 Total Assets 113,611,601 36,049,100 1,784,145 151,444,846 Current liabilities: Accounts payable and accrued liabilities 1,548,238 1,039,023 - 2,587,261 Accrued interest 511,495 78,120 - 589,615 Refundable deposits 284,066 310,390 - 594,456 Debt due within one year 206,984 149,827 - 356,811 Total Current Liabilities 2,550,783 1,577,360 - 4,128,143 Noncurrent liabilities: Bonds payable, due after one year 45,271,526 6,190,278 - 51,461,804 Total Noncurrent Liabilities 45,271,526 6,190,278 - 51,461,804 Total Liabilities 47,822,309 7,767,638 - 55,589,947 NET ASSETS Invested in capital assets, net of related debt 15,601,213 19,087,189 663,775 35,352,177 Unrestricted 50,188,079 9,194,273 1,120,370 60,502,722 Total Net Assets 65,789,292 $ 28,281,462 $ 1,784,145 $ 95,854,899 $ ASSETS LIABILITIES CITY OF FERNLEY STATEMENT OF NET ASSETS PROPRIETARY FUNDS JUNE 30, 2007 BUSINESS-TYPE ACTIVITIES - ENTERPRISE FUNDS See accompanying notes. 15 ---PAGE BREAK--- WATER SEWER OTHER TOTAL UTILITY UTILITY ENTERPRISE ENTERPRISE FUND FUND FUND FUNDS User fees 2,306,193 $ 1,754,820 $ - $ 4,061,013 $ Salaries and wages 392,176 379,598 - 771,774 Employee benefits 157,984 155,831 - 313,815 Services and supplies 1,146,095 641,523 - 1,787,618 Depreciation 836,132 540,918 (9,340) 1,367,710 Total Operating Expenses 2,532,387 1,717,870 (9,340) 4,240,917 Operating Income (Loss) (226,194) 36,950 (9,340) (179,904) Interest earned on investments 1,047,914 414,689 48,683 1,511,286 In lieu of water rights fees 307,160 - - 307,160 Miscellaneous 46,094 193 - 46,287 Interest expense (526,166) (94,713) - (620,879) Total Nonoperating Revenue (Expense) 875,002 320,169 48,683 1,243,854 Income (Loss) Before Capital Contributions 648,808 357,119 39,343 1,063,950 Customer connection fees 362,051 497,034 105,301 964,386 Developer agreements 48,562 4,410 - 52,972 Developer contributed infrastructure 1,520,734 1,546,024 252,442 3,319,200 Developer contributed water rights 14,372,138 - - 14,372,138 Total Capital Contributions 16,303,485 2,047,468 357,743 18,708,696 Change in Net Assets 16,952,293 2,404,587 397,086 19,772,646 NET ASSETS, July 1 48,836,999 25,876,875 1,387,059 76,100,933 NET ASSETS, June 30 65,789,292 $ 28,281,462 $ 1,784,145 $ 95,873,579 $ CAPITAL CONTRIBUTIONS OPERATING REVENUES NONOPERATING REVENUE (EXPENSE) CITY OF FERNLEY STATEMENT OF REVENUES, EXPENSES, AND CHANGE IN NET ASSETS PROPRIETARY FUNDS FOR THE YEAR ENDED JUNE 30, 2007 BUSINESS-TYPE ACTIVITIES - ENTERPRISE FUNDS OPERATING EXPENSES See accompanying notes. 16 ---PAGE BREAK--- WATER SEWER OTHER TOTAL UTILITY UTILITY ENTERPRISE ENTERPRISE FUND FUND FUND FUNDS Cash received from customers 2,330,586 $ 1,741,523 $ - $ 4,072,109 $ Cash paid for employees services (389,122) (376,508) - (765,630) Cash paid to vendors for services and supplies (1,305,438) (1,304,270) (120) (2,609,828) Net Cash Provided (Used) by Operating Activities 636,026 60,745 (120) 696,651 CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES: Principal payments on debt (167,394) (122,502) - (289,896) Interest paid on debt (19,638) (34,398) - (54,036) Deferred charges (321,986) (40,427) - (362,413) In lieu of water rights fees 307,160 - - 307,160 Acquisition of capital assets (5,602,388) (5,940,945) (102,217) (11,645,550) Developer agreements 48,562 4,410 - 52,972 Connection fees 362,051 497,034 105,301 964,386 Proceeds from short-term trade accounts used to finance equipment acquisition 1,414,106 970,931 - 2,385,037 Proceeds from issuance of debt 44,918,068 5,551,671 - 50,469,739 Net Cash Provided (Used) by Capital and Related Financing Activities 40,938,541 885,774 3,084 41,827,399 CASH FLOWS FROM INVESTING ACTIVITIES: Interest received on investments 910,903 428,923 50,689 1,390,515 Net Increase (Decrease) in Cash and Cash Equivalents 42,485,470 1,375,442 53,653 43,914,565 9,059,037 9,003,109 1,062,696 19,124,842 51,544,507 $ 10,378,551 $ 1,116,349 $ 63,039,407 $ REPRESENTED BY: Cash and cash equivalents 51,260,441 $ 10,068,161 $ 1,116,349 $ 62,444,951 $ Cash - refundable deposits 284,066 310,390 - 594,456 51,544,507 $ 10,378,551 $ 1,116,349 $ 63,039,407 $ RECONCILIATION OF OPERATING INCOME (LOSS) TO NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES: Operating income (loss) (226,194) $ 36,950 $ (9,340) $ (198,584) $ Adjustments to reconcile operating income (loss) to net cash provided (used) by operating activities: Depreciation 836,132 540,918 9,340 1,386,390 Miscellaneous Revenues 46,128 159 46,287 Changes in assets and liabilities: (Increase) decrease in: Accounts receivable, net (32,749) (13,713) - (46,462) Accounts receivable, other 5,281 - - 5,281 Due from other funds 5,733 255 - 5,988 Inventories (4,268) (656) - (4,924) Increase (decrease) in: Accounts payable (640) (541,125) (120) (541,885) Accrued liabilities 3,054 23,090 - 26,144 Compensated absences payable 1,760 1,760 - 3,520 Refundable deposits 1,789 13,107 - 14,896 Total Adjustments 862,220 23,795 9,220 895,235 Net Cash Provided (Used) by Operating Activities 636,026 $ 60,745 $ (120) $ 696,651 $ SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND CAPITAL AND RELATED FINANCING ACTIVITIES Contribution of capital assets from developers 17,306,978 $ 2,516,955 $ 252,442 $ 20,076,375 $ CASH AND CASH EQUIVALENTS, June 30 CASH FLOWS FROM OPERATING ACTIVITIES: CASH AND CASH EQUIVALENTS, July 1 CITY OF FERNLEY STATEMENT OF CASH FLOWS PROPRIETARY FUNDS FOR THE YEAR ENDED JUNE 30, 2007 BUSINESS-TYPE ACTIVITIES - ENTERPRISE FUNDS See accompanying notes. 17 ---PAGE BREAK--- AGENCY FUND Cash and cash equivalents 9,433 $ Bail bond deposits held for others 9,433 $ ASSETS LIABILITIES CITY OF FERNLEY STATEMENT OF FIDUCIARY ASSETS AND LIABILITIES FIDUCIARY FUND JUNE 30, 2007 See accompanying notes. 18 ---PAGE BREAK--- CITY OF FERNLEY, NEVADA NOTES TO FINANCIAL STATEMENTS JUNE 30, 2007 19 NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: The financial statements of the City of Fernley, Nevada (“the City”) have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) as applied to governmental units. The Government Accounting Standards Board (“GASB”) is the accepted standard-setting body for establishing governmental accounting and financial reporting principles. A summary of the more significant accounting policies consistently applied in the preparation of the accompanying general purpose financial statements follows. A. Reporting Entity: The City of Fernley, Nevada was incorporated on July 1, 2001. The City operates under a Council-Manager form of government and provides the following services as authorized by law: water and sewer utilities, streets, culture and recreation, planning and zoning, animal control, and general administrative services. Prior to July 1, 2001, the entity was organized as an unincorporated town in accordance with Nevada Revised Statutes 269. The financial statements present the financial position and results of operations and changes in fund balances for those funds under the direct jurisdiction of the Mayor and City Council of the City of Fernley for which the Mayor and City Council are financially accountable. B. Government-wide and Fund Financial Statements: The government-wide financial statements report information on all of the non- fiduciary activities of the City of Fernley, Nevada. Governmental activities, which normally are supported by taxes and intergovernmental revenues, are reported separately from business-type activities, which rely to a significant extent on fees and charges for support. The statement of activities demonstrates the degree to which the direct expenses of a given function or business-type activities are offset by program revenues. Direct expenses are those that are specifically associated with a specific function or business-type activity. Program revenues include 1) charges to customers or applicants who purchase, use, or directly benefit from goods, services, or privileges provided by a given function or business-type activity and 2) grants and contributions that are restricted to meeting the operational or capital requirements of a particular function or business-type activity. Taxes and other items properly not included among program revenues are reported instead as general revenues. ---PAGE BREAK--- CITY OF FERNLEY, NEVADA NOTES TO FINANCIAL STATEMENTS JUNE 30, 2007 20 The fund financial statements provide information about the City’s funds, including its fiduciary funds. Separate statements for each fund category – governmental, proprietary and fiduciary – are presented. The emphasis of fund financial statements is on major governmental and enterprise funds, each displayed in a separate column. All remaining governmental and enterprise funds are aggregated and reported as nonmajor funds. C. Measurement Focus, Basis of Accounting and Financial Statement Presentation: The government-wide financial statements are reported using the economic resources measurement focus, and the accrual basis of accounting, as are the proprietary funds and fiduciary fund financial statements. Revenues are recorded when earned and expenses are recorded when liabilities are incurred, regardless of the timing of related cash flows. Property taxes are recognized as revenues in the year for which they are levied. Grants and similar items are recognized as revenues as soon as all eligibility requirements imposed by the provider have been met. Governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenues are recognized as soon as they are both measurable and available. Revenues are considered to be measurable when the amount of the transaction can be determined and available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the government considers revenues to be available if they are collected within 60 days of the end of the current fiscal period. When revenues are due, but will not be collected within this 60 day period, the receivable is recorded and an offsetting deferred revenue account is established. Deferred revenues also arise when the government receives resources before it has legal claim to them, and thus in subsequent periods, when both revenues recognition criteria are met, or when the government has a legal claim to the resources, the liability for deferred revenue is removed and revenue is recognized. Expenditures generally are recorded when liabilities are incurred, as under accrual accounting. However, debt service expenditures, as well as expenditures related to compensated absences and claims and judgment are recorded only when payment is due. Property taxes, consolidated tax revenue (sales tax, cigarette taxes, business services tax, liquor taxes), gaming taxes, gasoline taxes, grants and interest associated with the current fiscal period are all considered to be susceptible to accrual and so have been recognized as revenues of the current fiscal period. All other revenue items are considered to be measurable and available only when the City receives cash. ---PAGE BREAK--- CITY OF FERNLEY, NEVADA NOTES TO FINANCIAL STATEMENTS JUNE 30, 2007 21 In accordance with GASB Statement No. 20 “Accounting and Financial Reporting for Proprietary Funds and other Governmental Entities That Use Proprietary Fund Accounting”, the City applied all applicable FASB pronouncements issued on or before November 30, 1989 unless those pronouncements conflict with or contradict GASB pronouncements. The City has elected not to apply FASB pronouncements issued after November 30, 1989. As a general rule, the effect of interfund activity has been eliminated from the government-side financial statements. Exceptions to this general rule are interfund services provided and used and other charges between the City’s business-type activities and various other functions of the government. Elimination of these charges would distort the direct costs and program revenues reported for the various functions concerned. Proprietary funds distinguish operating revenues and expenses from nonoperating items. Operating revenues and expenses generally result from an exchange transaction such as providing services and producing and delivering goods in connection with a proprietary fund’s principal ongoing operations. Nonoperating revenues and nonoperating expenses result from nonexchange transactions and ancillary services. When both restricted and unrestricted resources are available for use, it is the City’s policy to use restricted resources first, and then unrestricted resources as they are needed. The City reports the following major governmental funds: The General Fund is the City’s general operating fund and is used to account for all financial resources except those required to be accounted for in other funds. The Residential Construction Tax District #1 Special Revenue Fund is used to account for a tax to be used for park development in the District #1 identified in the City of Fernley park plan. The Streets and Storm Drains Special Revenue Fund is used to account for gas taxes that must be used for street maintenance and capital expenditures as well as other revenues that may be used for projects associated with streets and storm drains. The Capital Projects Fund is used to accrue funds under a “pay as you go” program to provide funding for future projects involving replacement of equipment or buildings or new facilities and equipment. ---PAGE BREAK--- CITY OF FERNLEY, NEVADA NOTES TO FINANCIAL STATEMENTS JUNE 30, 2007 22 The City reports the following major enterprise funds: The Water Utility Fund is used to account for the provision of water services to the residents of the City and some residents of Lyon County. All activities necessary to provide services are accounted for in this fund, including, but not limited to, administration, operations, maintenance, financing and related debt. The Sewer Utility Fund is used to account for the provision of sewer services to the residents of the City and some residents of Lyon County. All activities necessary to provide services are accounted for in this fund, including, but not limited to, administration, operations, maintenance, financing and related debt. Additionally, the City reports the following fund types: Agency funds are custodial in nature and do not present results of operations or have a measurement focus. Agency funds are accounted for using the accrual basis of accounting. These funds are used to account for assets that the City holds for others in an agent capacity. Included are bonds posted with the municipal court. These funds are excluded from the government-wide financial statements. D. Assets, Liabilities and Net Assets or Equity: Cash and Investments: Cash resources of the individual funds are combined to form a pool of cash and investments, which is managed by the City Treasurer. The City invests in the State of Nevada Local Government Pooled Investment Fund, which is reported at fair value. Interest income earned is distributed to the appropriate funds based on each fund’s equity in the investment. Pursuant to NRS 355 and NRS 355.170, the City of Fernley may only invest in the following types of securities: • Certain “A rated notes and bonds purchased by a registered broker-dealer that are issued by corporations organized and operating in the United States and that mature within five years from the date of purchase; asset-backed securities and collateralized mortgage obligations rated “AAA” or higher by a nationally recognized rating service. These investments must not, in the aggregate, exceed 20 percent of the total portfolio at the time of purchase, nor include notes and bonds issued by any one corporation in excess of 25 percent of such investments • United States bonds and debentures maturing within ten (10) years from the date of purchase • Certain farm loan bonds • Bills and notes of the United States Treasury, maturing within ten (10) years from the date of purchase ---PAGE BREAK--- CITY OF FERNLEY, NEVADA NOTES TO FINANCIAL STATEMENTS JUNE 30, 2007 23 • Obligations of an agency of the United States or a corporation sponsored by the government, maturing within ten (10) years from the date of purchase • Obligations of state and local governments if, the interest is exempt for federal income tax purposes and the obligations have been rated or higher by a nationally recognized bond credit rating agency • Negotiable and nonnegotiable certificates of deposit from commercial banks and insured savings and loan associations • State of Nevada Local Government Pooled Investment Fund • Certain securities issued by local governments of the State of Nevada • Certain bankers’ acceptances • Certain short-term paper issued by a corporation organized and operating in the United States • Other securities expressly provided by other statutes, including repurchase agreements • Certain “AAA” rated mutual funds that invest in securities issued by the Federal Government or agencies of the Federal Government, Master, bank notes or other short-term commercial paper rates as “A-1” or “P-1” issued by a corporation or depository institution organized, licensed and operating in the United States and/or Repurchase agreements that are fully collateralized by and above. Cash Equivalents: Cash equivalents include short-term highly liquid investments (with maturities of 3 months or less when purchased) that are both readily convertible to known amounts of cash, and so near their maturity that they present insignificant risk in changes in value. Based on the nature of the investment policies, all amounts are available on demand and are, therefore, classified as cash equivalents on the Statements of Cash Flows. Receivables and Payables: Activities between funds that are representative of lending/borrowing arrangements outstanding at the end of the fiscal year are referred to as “due to/from other funds.” Any residual balances outstanding between governmental activities and business- type activities are reported in the government-wide financial statements as “internal balances.” Significant receivable balances not expected to be collected within one year are classified as notes receivable on the government-wide financial statements. ---PAGE BREAK--- CITY OF FERNLEY, NEVADA NOTES TO FINANCIAL STATEMENTS JUNE 30, 2007 24 Real property taxes result in a lien on the property and attach on July 1 (the levy date) of the year for which the taxes are levied. Taxes may be paid in four installments payable on the third Monday in August, and the first Mondays in October, January and March to the County Clerk/Treasurer of Lyon County in which the City of Fernley is located. Penalties are assessed if a taxpayer fails to pay an installment within ten days of the installment due date. After a two year waiting period, if taxes remain unpaid, a tax deed is issued conveying the property to Lyon County with a lien for back taxes and accumulated charges. Redemption may be made by the owner and such persons as described by statute by paying all back taxes and accumulated penalties, interest and costs before sale. As such, real property taxes receivable reflect only those taxes receivable from the delinquent roll years, and current taxes collected within 60 days of year end and delinquent taxes from all roll years prior to 2003-2004 have been written off. No provision for uncollectible accounts has been established, as management does not anticipate any material collection losses with respect to the remaining balances. Taxes on personal property are collected currently. Personal property declarations are mailed out annually and the tax is computed using percentages of taxable values established by the Department of Taxation at the tax rates described above. Receivables in proprietary fund types have arisen in the ordinary course of business, and are shown net of an allowance for uncollectible accounts, if applicable. Inventories and Prepaids: All inventories are valued at cost using the first in/first out (FIFO) method. Inventories of governmental funds in the fund financial statements are considered consumable supplies and as such are recorded as expenditures at the time of purchase. Certain payments to vendors reflect costs applicable to future accounting periods and are recorded as prepaid items in both government-wide and fund financial statements. Restricted Assets: City policy requires that certain resources be set aside for various purposes in the City’s water and sewer utility funds. These amounts are reported as restricted assets. ---PAGE BREAK--- CITY OF FERNLEY, NEVADA NOTES TO FINANCIAL STATEMENTS JUNE 30, 2007 25 Capital Assets: Capital assets, which include land, construction in progress, water rights, property, plant, equipment and infrastructure, are capitalized and reported in the applicable governmental activities and business-type activities columns of the government- wide financial statements. For governmental fund types, outlays for capital assets are expensed during the current period. The City defines capital assets as assets with an initial, individual cost of more than $5,000 for non-infrastructure assets and $100,000 for infrastructure assets and an estimated useful life in excess of two years. Water rights are considered real property. A water right can be conveyed or transferred. Water rights, however, are appurtenant to the land and are conveyed by deed with the land unless the seller specifically reserves the water right in the deed. Water rights are not depreciable or amortizable. Capital assets are recorded at cost for purchased or constructed assets. Interest incurred during the construction phase of capital assets of business-type activities is included as part of the capitalized value of the assets constructed. Donated capital assets are recorded at estimated fair value at the date of donation. Depreciation is computed using the straight-line method over the following estimated useful lives: Buildings 25-40 years Improvements other than buildings 10-20 years Machinery and equipment 5-10 years Other capital assets 25-40 years Infrastructure 20-40 years GASB Statement No. 34 requires the City to report and depreciate new infrastructure assets effective fiscal year June 30, 2004, the initial year of implementation. Infrastructure assets include roads, bridges, underground pipe (other then related to utilities), traffic signals, etc. These infrastructure assets are likely to be the largest asset class of the City. Neither their historical cost nor related depreciation has been reported in prior years’ financial statements. The retroactive reporting of infrastructure is subject to an extended implementation period and is first effective for fiscal years ending June 30, 2008. The City will implement the retroactive infrastructure provisions for major assets acquired between July 1, 1980 and June 30, 2003, by or before fiscal year ending June 30, 2008. ---PAGE BREAK--- CITY OF FERNLEY, NEVADA NOTES TO FINANCIAL STATEMENTS JUNE 30, 2007 26 Long-Term Liabilities: In the government-wide financial statements and the proprietary fund types in the fund financial statements, long-term debt and other long-term liabilities are reported as liabilities in the applicable government activities, business-type activities, or proprietary fund type statement of net assets. It is the City’s policy to permit employees to accumulate earned but unused vacation and sick pay benefits. The liability for compensated absences is calculated under the provisions of GASB Statement No. 16, “Accounting for Compensated Absences.” All vacation and sick pay is accrued when incurred in the government-wide and proprietary fund statements. Bond premiums and discounts, as well as issuance costs, are deferred and amortized over the life of the bonds using the effective interest method. For current and advance refundings resulting in a defeasance of debt, the difference between the reacquisition price and the net carrying amount of the old debt is deferred and amortized as a component of interest expense using the straight-line method. Bond issuance costs are reported as deferred charges and amortized over the term of the related debt. A liability for compensated absences is reported in the governmental funds, primarily the General Fund, only if they have matured as a result of employee resignations, terminations and retirements. For governmental fund types, bond premiums and discounts, as well as issuance costs, are recognized during the current period. The face amount of bonds is reported as other financing sources, as are bond premiums. Bond discounts are recorded as other financing uses. Issuance costs, even if withheld from the actual net proceeds received, are reported as debt service expenditures. ---PAGE BREAK--- CITY OF FERNLEY, NEVADA NOTES TO FINANCIAL STATEMENTS JUNE 30, 2007 27 Equity Classification: In the government-wide financial statements, equity is classified as net assets and displayed in three components: • Invested in Capital Assets, Net of Related Debt – Consists of capital assets, net of accumulated depreciation and reduced by outstanding balances of any bonds, notes, or other borrowings that are attributable to the acquisition, construction or improvement of those assets. • Restricted Net Assets – Consists of net assets with constraints placed on their use either by external groups such as creditors, grantors, contributors, or laws and regulations or other governments; law through constitutional provisions or enabling legislation. • Unrestricted Net Assets – All other net assets that do not meet the definition of “restricted” or “invested in capital assets, net of related debt.” In the fund financial statements, governmental fund equity is reported as fund balances and is displayed as reserved, unreserved/designated and unreserved/undesignated. Reservations of fund balance are established for amounts that are not available for appropriation or are legally restricted by outside parties for use for a specific purpose. Unreserved/designated fund balance represents amounts that are designated by management for a specific purpose. NOTE 2 – STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY: A. Budgetary Information: The City of Fernley adheres to the Local Government Budget and Finance Act (Act) incorporated within the statutes of the State of Nevada, in which annual budgets are legally adopted for all funds except Agency funds. The Act and City policy include the following procedures to establish the budgetary data, which is reflected in these financial statements: 1. On or before April 15, the City Manager submits to the Fernley City Council a tentative budget for the fiscal year commencing the following July 1, to be filed with the Nevada Department of Taxation. 2. Public hearings on the tentative budget are held on the third Tuesday in May to obtain taxpayer comments. ---PAGE BREAK--- CITY OF FERNLEY, NEVADA NOTES TO FINANCIAL STATEMENTS JUNE 30, 2007 28 3. Prior to June 1, at a public hearing, the Council indicates changes, if any, to be made to the tentative budget and adopts a final budget by the favorable vote of a majority of the members of the Council. The final budget must then be forwarded to the Nevada Tax Commission for final approval. 4. The City may not amend the budget without approval by the City Council. The City Manager is authorized to transfer appropriations between accounts within any department, with notification to the City Council. Any revisions that alter the total appropriations of a function or fund must be approved in advance by the City Council. Formal budgetary integration in the financial records of all funds is employed to enhance management control during the year. The City does not use the encumbrance method of accounting. 5. Budgets for all fund types are adopted on a basis consistent with accounting principles generally accepted in the United States of America (GAAP). Appropriations lapse at year end. 6. In accordance with State statute, actual expenditures may not exceed budgeted appropriations of the various governmental functions of the General, Special Revenue, and Capital Project Funds. Per NRS 354.626, expenditures over budgeted appropriations are allowed for bond repayments, medium term obligation repayments, and other long-term contracts expressly authorized by law. The sum of operating and nonoperating expenses in Proprietary Funds also may not exceed total appropriations. The budget reflected in the financial statements has been amended from the original budget amounts in accordance with State statute. Such amendments included augmentations for prior obligations, as well as supplemental appropriations needed for grants, contingencies, and other uses. B. Excess of Expenditures/Expenses Over Appropriations: The City conformed to all significant statutory constraints on its financial administration during the year with the following possible exceptions: • Actual expenditures exceeded appropriations in the General Government function of the General Fund by $35,254. This is an apparent violation of NRS 354.626. ---PAGE BREAK--- CITY OF FERNLEY, NEVADA NOTES TO FINANCIAL STATEMENTS JUNE 30, 2007 29 • Actual expenditures exceeded appropriations in the Culture and Recreation function of the General Fund by $8,063. This is an apparent violation of NRS 354.626. • Actual expenditures exceeded appropriations in the Community Development function of the General Fund by $64,141. This is an apparent violation of NRS 354.626. • Actual expenditures exceeded appropriations in the Debt Service function of the General Fund by $632. This is an apparent violation of NRS 354.626. • Actual expenditures exceeded appropriations in the Culture and Recreation function of the Private Sector Community Support Special Revenue Fund by $4,662. This is an apparent violation of NRS 354.626. • Actual expenditures exceeded appropriations in the Community Development function of the Capital Projects Fund by $198,521. This is an apparent violation of NRS 354.626. • Actual operating and nonoperating expenses exceeded appropriations in the Water Utility Enterprise Fund by $69,043. This is an apparent violation of NRS 354.626. • Actual operating and nonoperating expenses exceeded appropriations in the Sewer Utility Enterprise Fund by $22,383. This is an apparent violation of NRS 354.626. • Actual operating expenses exceeded appropriations in the Non-Potable Water Enterprise Fund by $9,340. This is an apparent violation of NRS 354.626. NOTE 3 – CASH AND INVESTMENTS: A summary schedule of cash and investments for the City of Fernley at June 30, 2007 is as follows: Cash Balances Held by: Governmental Funds $ 5,398,685 Fiduciary Funds 9,433 Proprietary Funds Unrestricted 62,444,951 Restricted 594,456* Total Cash and Investments $ 68,447,525 *Restricted cash in the Proprietary Funds consists of refundable customer deposits. ---PAGE BREAK--- CITY OF FERNLEY, NEVADA NOTES TO FINANCIAL STATEMENTS JUNE 30, 2007 30 Balances Classified by: On hand $ 400 Wells Fargo Bank: Checking 236,994 NVEST 10,648,701 Local Government Investment Pool 57,561,430 Total Cash and Investments $ 68,447,525 As of June 30, 2007, the City of Fernley had the following investments and maturities: Investment Maturities (in Years) Investment Type Fair Value Less Than 1 1-5 6-10 More Than 10 U.S. Treasuries $ 890,156 $ 890,156 $ - $ - $ - U.S. Agencies 3,263,859 - 3,263,859 - - Mortgage-Backed 1,902,339 - 1,316,192 586,147 Corporate Bonds 3,808,387 710,446 3,097,941 - - Money Market Fund 783,960 383,335 400,625 - - State of Nevada Local Government Investment Pool 57,561,430 57,561,430* - - - Total $68,210,131 $59,545,367 $8,078,617 $586,147 $ - * represents average weighted maturity The City is a voluntary participant in the State of Nevada Local Government Investment Pool (LGIP), which has regulatory oversight from the Board of Finance of the State of Nevada. The City’s investment in the LGIP is equal to its original investment plus allocation of interest income, and realized and unrealized gains and losses, which is the same as the value of the pool shares. The City’s investment in the LGIP is reported at fair value. ---PAGE BREAK--- CITY OF FERNLEY, NEVADA NOTES TO FINANCIAL STATEMENTS JUNE 30, 2007 31 Nevada Revised Statutes (NRS 355.170) set forth acceptable investments for Nevada local governments. The City has not adopted a formal investment policy that would further limit its investment choices nor further limit its exposure to certain risks as set forth below. Interest Rate Risk. Interest rate risk is the risk of possible reduction in the value of a security, especially a bond, resulting from a rise in interest rates. As noted above, the City does not have a formal investment policy that limits investment maturities as a means of managing its exposure to fair value losses arising from increasing interest rates beyond those specified in the statute. Credit Risk. Credit risk is the risk that an issuer or other counterparty to an investment will not fulfill its obligation and is a function of the credit quality ratings of its investments. As of June 30, 2007, the City’s investments in Mortgage-Backed securities were rated AAA by Standard and Poor’s and Aaa by Moody’s Investors Service. Of the City’s investments in corporate bonds, $2,283,823 was rated AAA/Aaa, $1,133,276 was rated AA/Aa, and $391,288 was rated A. The State of Nevada Local Government Investment Pool is an unrated external investment pool. As noted above, the City does not have a formal investment policy that specifies minimum acceptable credit ratings. Custodial Credit Risk- Deposits. Custodial credit risk is the risk that in the event of a bank failure, the City’s deposits may not be returned. All of the bank balance was covered by FDIC insurance or collateralized by the Office of the State Treasurer/ Nevada Collateral Pool. ---PAGE BREAK--- CITY OF FERNLEY, NEVADA NOTES TO FINANCIAL STATEMENTS JUNE 30, 2007 32 NOTE 4 – CAPITAL ASSETS: Capital asset activity for the year ended June 30, 2007 was as follows: Balance July 1, 2006 Additions or Transfers In Deletions or Transfers Out Completed Construction Balance June 30, 2007 Governmental Activities: Capital assets, not being depreciated Land $ 3,789,274 $ 120,350 $ - $ - $ 3,909,624 Construction in progress 730,876 7,806,745 - (2,068,307) 6,469,314 Total capital assets, not being depreciated 4,520,150 7,927,095 - (2,068,307) 10,378,938 Capital assets, being depreciated Buildings 1,395,144 - (168,983) - 1,226,161 Improvements other than buildings 4,135,320 2,056,488 - - 6,191,808 Machinery and Equipment 709,769 170,632 (11,313) - 869,088 Infrastructure 15,723,696 4,085,575 - - 19,809,271 Total capital assets, being depreciated 21,963,929 6,312,695 (180,296) - 28,096,328 Less accumulated depreciation for: Buildings (512,496) (55,883) 18,268 - (550,111) Improvements other than buildings (196,685) (236,274) - - (432,959) Machinery and Equipment (300,608) (149,817) 4,723 - (445,702) Infrastructure (865,542) (617,505) - - (1,483,047) Total accumulated depreciation (1,875,331) (1,059,479) 22,991 - (2,911,819) Total capital assets, being depreciated, net 20,088,598 5,253,216 (157,305) - 25,184,509 Governmental activities capital assets, net $ 24,608,748 $ 13,180,311 $ (157,305) $ (2,068,307) $ 35,563,447 ---PAGE BREAK--- CITY OF FERNLEY, NEVADA NOTES TO FINANCIAL STATEMENTS JUNE 30, 2007 33 Balance July 1, 2006 Additions or Transfers In Deletions or Transfers Out Completed Construction Balance June 30, 2007 Business-Type Activities: Capital assets, not being depreciated Land $ 268,810 $ 408,867 $ - $ - $ 677,677 Water rights 18,798,981 14,479,855 - - 33,278,836 Construction in progress 3,281,172 11,034,780 (16,035) (977,598) 13,322,319 Total capital assets, not being depreciated 22,348,963 25,923,502 (16,035) (977,598) 47,278,832 Capital assets, being depreciated Buildings 17,530 - - - 17,530 Improvements other than buildings 44,390,965 4,131,092 - - 48,522,057 Machinery and Equipment 813,944 259,861 - - 1,073,805 Other capital assets 1,655,564 16,066 - - 1,671,630 Total capital assets, being depreciated 46,878,003 4,407,019 - - 51,285,022 Less accumulated depreciation for: Buildings (12,869) (999) - - (13,868) Improvements other than buildings (8,890,878) (1,264,721) - - (10,155,599) Machinery and Equipment (746,557) (40,014) - - (786,571) Other capital assets (397,676) (80,656) - - (478,332) Total accumulated depreciation (10,047,980) (1,386,390) - - (11,434,370) Total capital assets, being depreciated, net 36,830,023 3,020,629 - - 39,850,652 Business-type activities capital assets, net $ 59,178,986 $ 28,944,131 $ (16,035) $ (977,598) $ 87,129,484 ---PAGE BREAK--- CITY OF FERNLEY, NEVADA NOTES TO FINANCIAL STATEMENTS JUNE 30, 2007 34 Depreciation expense was charged to functions/programs of the City as follows: Governmental Activities: General government $ 50,886 Public works 797,860 Culture and recreation 158,373 Health 15,131 Community development 37,229 Total depreciation expense – governmental activities $ 1,059,479 Business-type Activities: Water $ 836,132 Sewer 540,918 Non Potable 9,340 Total depreciation expense – business-type activities $ 1,386,390 NOTE 5 – DEFINED BENEFIT PENSION PLAN: Plan Description. The City of Fernley contributes to the Public Employees Retirement System of the State of Nevada (PERS), a cost sharing, multiple employer, defined benefit plan administered by the Public Employees Retirement System of the State of Nevada. PERS provides retirement benefits, disability benefits, and death benefits, including annual cost of living adjustments, to plan members and their beneficiaries. Chapter 286 of the Nevada Revised Statutes establishes the benefit provisions provided to the participants of PERS. These benefit provisions may only be amended through legislation. The Public Employees Retirement System of the State of Nevada issues a publicly available financial report that includes financial statements and required supplementary information for PERS. That report may be obtained by writing to the Public Employees Retirement System of the State of Nevada, 693 West Nye Lane, Carson City, NV 89703-1599 or by calling (775) 687-4200. ---PAGE BREAK--- CITY OF FERNLEY, NEVADA NOTES TO FINANCIAL STATEMENTS JUNE 30, 2007 35 Funding Policy. Benefits for plan members are funded under one of two methods; the employer (ER) pay contribution plan or the employer/employee (ER/EE) paid contribution plan. Under the ER contribution plan, the City is required to contribute all amounts due under the plan. Under the ER/EE contribution plan, employees are required to contribute a percentage of their compensation to the plan, while the City is required to match that contribution. The contribution requirements of the City are established by Chapter 286 of Nevada Revised Statutes. The funding mechanism may only be amended through legislation. The City's contribution rates and amounts contributed (equal to the required contributions for the year) for the last three years are as follows: Fiscal Year Contribution Rate ER Contribution Rate ER/EE Total Contribution 2006-07 20.50% 10.50% $203,027 2005-06 19.75% 10.50% $194,978 2004-05 20.25% 10.50% $271,684 NOTE 6 – INTERFUND TRANSFERS: The composition of interfund transfers as of June 30, 2007, is as follows: Transfer In: Transfer Out: Capital Projects Fund Streets and Storm Drains Fund Other Governmental Funds Total General Fund $ - $ 550,000 $ 17,317 $ 567,317 Residential Const. Tax District # 1 Fund 134,766 - 9,629 144,395 Total $ 134,766 $ 550,000 $ 26,946 $ 711,712 Transfers were used to move fund revenues to finance capital projects in the current year. ---PAGE BREAK--- CITY OF FERNLEY, NEVADA NOTES TO FINANCIAL STATEMENTS JUNE 30, 2007 36 NOTE 7 – LONG TERM DEBT: A. The City was, in accordance with Nevada Revised Statutes, within the legal debt limit at June 30, 2007. B. The bonded following schedule summarizes the changes in long-term debt: Issue Date Interest Rate Maturity Date Authorized and Issued Outstanding July 1, 2006 Additions (Deletions) Outstanding June 30, 2007 Due in 2007-2008 Governmental Activities: Compensated absences payable - - - - $ 77,944 $ 35,259 $ (18,844) $ 94,359 $ 19,000 City Hall Expansion Bonds 12/29/05 4.49% 12/01/2025 $ 5,000,000 5,000,000 - (158,000) 4,842,000 165,000 Total governmental activities 5,077,944 35,259 (176,844) 4,936,359 184,000 Business-type Activities: State Water Pollution Control Revolving Fund 10/28/92 4.00% 6/30/2012 $ 2,000,000 890,282 - (122,502) 767,780 127,451 2003 Refunding Bonds 11/25/03 3% - 5% 5/01/2010 $ 950,000 670,000 - (155,000) 515,000 160,000 2007 Water/Sewer Bonds 3/28/07 4% - 5% 2/1/2037 $50,000,000 - 50,000,000 - 50,000,000 - 1,560,282 50,000,000 (277,502) 51,282,780 287,451 Unamortized Bond Premium 37,181 469,739 (12,393) 494,527 28,052 Compensated Absences payable 37,789 78,479 (74,960) 41,308 41,308 Total business-type activities 1,635,252 50,548,218 (364,855) 51,818,615 356,811 Total Long Term Debt $ 6,713,196 $50,583,477 $ (541,699) $ 56,754,974 $ 540,811 ---PAGE BREAK--- CITY OF FERNLEY, NEVADA NOTES TO FINANCIAL STATEMENTS JUNE 30, 2007 37 The following schedule reflects debt service requirements to maturity of the City's long-term debt: Debt Supported by General Obligation Debt Supported by Sewer Fund Revenues Debt Supported by Water Fund Revenues Total Requirements to Maturity Fiscal Year Principal Interest Principal Interest Principal* Interest* Principal Interest 2008 $ 165,000 $ 213,702 $ 127,451 $ 235,053 $ 160,000 $ 1,681,577 $ 452,451 $ 2,130,332 2009 173,000 206,113 222,800 268,583 899,800 1,986,268 1,295,600 2,460,964 2010 181,000 198,166 232,557 259,392 950,400 1,948,226 1,363,957 2,405,784 2011 189,000 189,860 241,981 249,917 796,550 1,913,878 1,227,531 2,353,655 2012 198,000 181,172 252,729 240,180 836,600 1,882,016 1,287,329 2,303,368 2013- 2017 1,132,000 761,055 672,562 1,097,311 4,819,350 8,865,802 6,623,912 10,724,168 2018- 2022 1,417,000 476,097 760,650 938,094 6,154,350 7,590,031 8,332,000 9,004,222 2023- 2027 1,387,000 127,987 970,200 738,026 7,849,800 5,971,305 10,207,000 6,837,318 2028- 2032 - - 1,235,850 505,562 9,999,150 4,090,457 11,235,000 4,596,019 2033- 2037 - - 1,551,000 203,713 12,549,000 1,648,224 14,100,000 1,851,937 Total $ 4,842,000 $ 2,354,152 $ 6,267,780 $ 4,735,831 $ 45,015,000 $ 37,577,784 $ 56,124,780 $ 44,667,767 * Exclusive of unamortized premium and issuance costs. ---PAGE BREAK--- CITY OF FERNLEY, NEVADA NOTES TO FINANCIAL STATEMENTS JUNE 30, 2007 38 The liability for compensated absences is included in noncurrent liabilities on the government- wide Statement of Net Assets. The liability will be liquidated primarily by the General Fund for governmental activities and the Water and Sewer Funds for business-type activities. NOTE 8 – RISK MANAGEMENT: The City, like any governmental entity, is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors and omissions; injuries of employees; and natural disasters. The City has joined together with similar public agencies (cities, counties and special districts) throughout the State of Nevada to create a pool under the Nevada Interlocal Cooperation Act. The Nevada Public Agency Pool Insurance (Pool) is a public entity risk pool currently operating as a common risk management and insurance program for its members. The City pays an annual premium and specific deductibles, as necessary, to the Pool for its general insurance coverage. The Pool is considered a self-sustaining risk pool that will provide coverage for its members for up to $10,000,000 per event and a $13,000,000 general aggregate per member The City has also joined together with similar public agencies, under the Nevada Interlocal Cooperation Act, to create an intergovernmental self-insured association for workers compensation insurance, the Public Agency Compensation Trust (PACT). The City pays premiums based on payroll costs to the PACT. The PACT is considered a self-sustaining pool that will provide coverage based on established statutory limits. The City continues to carry commercial insurance for other risks of loss, including specific risks of loss not covered by the Pool, including bonding and employee health and accident insurance. Settled claims resulting from these risks have not exceeded commercial coverage for the past three years. NOTE 9 – COMMITMENTS AND CONTINGENGIES: There are lawsuits and unresolved disputes involving the city or its employees in which the City is represented by outside counsel. However, in the opinion of the outside counsel, these actions will not, in aggregate, have a material adverse effect upon the operations or financial position of the City. ---PAGE BREAK--- CITY OF FERNLEY, NEVADA NOTES TO FINANCIAL STATEMENTS JUNE 30, 2007 39 The City has entered into a construction contract for $6,719,910 to build an expansion of the City Hall. At June 30, 2007, $6,263,421 has been billed by the contractor related to the original contract. The project is expected to be completed by August 2007. NOTE 10 – SUBSEQUENT EVENTS: In July 2007, the City began the process to authorize up to $50 million of General Obligation Water and Sewer Bonds for the purpose of providing infrastructure for the City’s water and sewer system. The Lyon County Debt Management Commission approved the authorization process in August 2007. A public hearing on the bond issue was held in November 2007. The City anticipates that the bond authorization process, including a required 90 day petition period, will be completed on January 3, 2008. The City intends to issue bonds in all or part of the authorized amount between February and April 2008. Effective July 1, 2007 new water and sewer rates will go into effect, primarily due to the increasing debt service demands. On average, the water rate increase is approximately 50%, and the sewer rates are 2.5%. These amounts are consistent with the rate study completed during fiscal year 2007, which suggested the rates increase 200% over the next five years. ---PAGE BREAK--- THIS PAGE INTENTIONALLY LEFT BLANK ---PAGE BREAK--- C-1 APPENDIX C SUMMARY OF CERTAIN PROVISIONS OF THE BOND ORDINANCE The following is a brief summary of certain provisions of the Bond Ordinance and is qualified in its entirety by the provisions of the Bond Ordinance itself. Definitions As used in the Bond Ordinance, the following terms shall, for all purposes, have the following meanings, except where the context by clear implication otherwise requires: “Acquisition Account” means the account designated as the “City of Fernley, Nevada, General Obligation (Limited Tax) Water and Sewer Bonds, Series 2008, Acquisition Account” and created in the Bond Ordinance. “Alternate Water Gross Revenues” means all income and revenues derived directly or indirectly by the City from the operation and use and otherwise pertaining to the Alternate Water System or any part thereof, whether resulting from repairs, enlargements, extensions, betterments or other improvements to the Alternate Water System, or otherwise, and includes all revenues received by the City from the Alternate Water System, including, without limitation, all fees, rates and other charges for the use of the Alternate Water System, or for any service rendered by the City in the operations thereof, directly or indirectly, the availability of any such service or the sale or other disposal of any commodity derived therefrom, but excluding any moneys borrowed and used for the acquisition of capital improvements and any moneys received as grants, appropriations or gifts from the United States, the State or other sources, the use of which is limited by the grantor or donor to the construction of capital improvements for the Alternate Water System, except to the extent any such moneys shall be received as payments for the use of the Alternate Water System, services rendered thereby, the availability of any such service or the disposal of any such commodities. “Alternate Water Gross Revenues” shall also include all income or other gain from the investment of such income and revenues and of the proceeds of securities payable from Alternate Water Gross Revenues or Alternate Water Net Revenues to the extent lawfully available for the purposes of the Alternate Water System. “Alternate Water Net Revenues” means the Water Gross Revenues remaining after the deduction of Operation and Maintenance Expenses relating to the Alternate Water System. ---PAGE BREAK--- C-2 “Alternate Water System” means the alternate water system of the City, consisting of facilities for the acquisition, transportation, treatment, purification and distribution of untreated water or non-potable water for domestic, commercial or industrial use and irrigation (or any combination thereof), and in any way pertaining thereto, whether or not located within or without or both within and without the boundaries of the City, including, without limitation, springs, wells, ponds, lakes, other raw water sources, basin cribs, dams, spillways, retarding basins, detention basins, reservoirs, towers, other storage facilities, pumping plants, infiltration galleries, filtration plants, purification systems, other water treatment facilities, power plants, waterworks plants, pumping stations, gauging stations, ventilating facilities, stream gauges, rain gauges, valves, standpipes, connections, hydrants, conduits, flumes, sluices, canals, channels, ditches, pipes, lines, laterals, service pipes, force mains, submains, syphons, other water transmission and distribution mains, engines, boilers, pumps, meters, apparatus, tools, equipment, fixtures, structures, buildings and other facilities for the acquisition, transportation, treatment, purification and distribution of untreated water or non-potable water for domestic, commercial and industrial use and irrigation (or any combination thereof). “Bond Fund” means, collectively, the accounts designated as the “City of Fernley, Nevada, General Obligation (Limited Tax) Water and Sewer Bonds (Additionally Secured by Pledged Revenues), Series 2008, Interest Account” (the “Interest Account”) and the “City of Fernley, Nevada, General Obligation (Limited Tax) Water and Sewer Bonds (Additionally Secured by Pledged Revenues), Series 2008, Principal Account” (the “Principal Account”) and created in the Bond Ordinance. “2007 Bonds” means the Outstanding City of Fernley, Nevada, General Obligation (Limited Tax) Water and Sewer Bonds (Additionally Secured by Pledged Revenues), Series 2007. “Bond Year” means the 12 month period commencing on February 2 of a calendar year and ending on February 1 of the following calendar year. “City Manager” means the de jure or de facto City Manager of the City and chief administrative officer of the City or his or her successor in functions, if any. “Commercial Bank” means a state or national bank or trust company which is a member of the Federal Deposit Insurance Corporation. “Completion Bonds” means, any parity bonds or parity securities issued in accordance with Section 46(F) of the Bond Ordinance for the purpose of defraying additional costs of one or more improvement projects initially financed in whole or in part by the Bonds and the principal amount of which does not exceed 20% of the aggregate principal amount of the Bonds. “Cost of the Project” means all or any part designated by the City of the cost of the Project, which cost, at the option of the City, except as limited by law, may include all or any part of the incidental costs relating to the Project, including, without limitation: Preliminary expenses advanced by the City from funds available for use therefor or from any other source, or advanced with the approval of the City from funds available therefor or from any other source by the State, the Federal Government, or by any other Person with the approval of the City (or any combination thereof); ---PAGE BREAK--- C-3 The costs of appraising, printing, estimates, advice, of engineers, architects, accountants, financial consultants, attorneys at law, clerical help, or other agents or employees; The costs of making, publishing, posting, mailing and otherwise giving any notice in connection with the Project, the filing or recordation of instruments, the taking of options, the issuance of the Bonds and any other securities relating to the Project, and bank fees and expenses; The costs of contingencies; The costs of the capitalization with the proceeds of the Bonds of any interest on the bonds or other securities for any period not exceeding the period estimated by the City to effect the Project plus one year, of any discount on the bonds or other securities, and of any reserves for the payment of the principal of and interest on the Bonds or other securities, of any replacement expenses, and of any other cost of the issuance of the Bonds or other securities relating to the Project; The costs of amending any ordinance, resolution or other instrument authorizing the issuance of or otherwise relating to the Outstanding Bonds or other securities relating to the Project; The costs of funding any emergency loans, construction loans and other temporary loans of not exceeding 10 years relating to the Project and of the incidental expenses incurred in connection with such loans; The costs of any properties, rights, easements or other interests in properties, or any licenses, privileges, agreements and franchises; All other expenses necessary or desirable and relating to the Project, as estimated or otherwise ascertained by the City. “Federal Government” means the United States, or any agency, instrumentality or corporation thereof. “Federal Securities” means bills, certificates of indebtedness, notes, bonds or similar securities which are direct obligations of, or the principal and interest of which securities are unconditionally guaranteed by, the United States. “Fiscal Year” means the 12 months commencing on July 1 of any calendar year and ending on June 30 of the next succeeding calendar year; but if the Nevada Legislature changes the statutory fiscal year relating to the City, the Fiscal Year shall conform to such modified statutory fiscal year form the time of each such notification, if any. “General Taxes” means general (ad valorem) taxes levied by the City against all taxable property within the boundaries of the City (unless otherwise qualified). ---PAGE BREAK--- C-4 “Gross Revenues” means all income and revenues derived directly or indirectly by the City from the operation and use and otherwise pertaining to the Utility System or any part thereof, whether resulting from repairs, enlargements, extensions, betterments or other improvements to the Utility System, or otherwise, and includes all revenues received by the City from the Utility System, including, without limitation, all fees, rates, and other charges for the use of the Utility System, or for any service rendered by the City in the operation thereof, directly or indirectly, the availability of any such service or the sale or other disposal of any commodity derived therefrom, but excluding any moneys borrowed and used for the acquisition of capital improvements and any moneys received as grants, appropriations or gifts from the United States, the State or other sources, the use of which is limited by the grantor or donor to the construction of capital improvements for the Utility System, except to the extent any such moneys shall be received as payments for the use of the Utility System, services rendered thereby, the availability of any such service or the disposal of any such commodities. “Gross Revenues” shall also include all income or other gain from the investment of such income and revenues and of the proceeds of securities payable from Gross Revenues or Net Revenues. “Net Revenues” means the Gross Revenues remaining after the deduction of Operation and Maintenance Expenses of the Utility System. “Operation and Maintenance Expenses” means all reasonable and necessary current expenses of the City, paid or accrued, of operating, maintaining and repairing the Sewer System, the Water System, the Alternate Water System or the Utility System, as the case may be, including, without limitation: engineering, auditing, reporting, legal and other overhead expenses relating to the administration, operation and maintenance of the Utility System; fidelity bond and property and liability insurance premiums pertaining to the Utility System or a reasonably allocable share of a premium of any blanket bond or policy pertaining to the Sewer System, the Water System, the Alternate Water System or the Utility System, as the case may be; payments to pension, retirement, health and hospitalization funds, and other insurance and to any self-insurance fund as insurance premiums not in excess of such premiums which would otherwise be required for such insurance; any general taxes, assessments, excise taxes or other charges which may be lawfully imposed upon the City, the Sewer System, the Water System, the Alternate Water System or the Utility System, as the case may be, revenues therefrom or the City's income from or operations of any properties under its control and pertaining to the Sewer System, the Water System, the Alternate Water System or the Utility System, as the case may be, or any privilege in connection with the Sewer System, the Water System, the Alternate Water System or the Utility System, as the case may be, or its operations; the reasonable charges of any Paying Agent or Registrar and any depository bank pertaining to the Bonds or any other securities payable from Gross Revenues or otherwise pertaining to the Sewer System, the Water System, the Alternate Water System or the Utility System, as the case may be ; ---PAGE BREAK--- C-5 contractual services, professional services, salaries, other administrative expenses and costs of materials, supplies, repairs and labor pertaining to the Sewer System, the Water System, the Alternate Water System or the Utility System, as the case may be, or to the issuance of the Bonds, or any other securities relating to the Sewer System, the Water System, the Alternate Water System or the Utility System, as the case may be, including, without limitation, the expenses and compensation of any receiver or other fiduciary under the Bond Act; the costs incurred by the Council in the collection and any refunds of all or any part of Gross Revenues; any costs of utility services furnished to the Sewer System, the Water System, the Alternate Water System or the Utility System, as the case may be; any lawful refunds of any Gross Revenues; and all other administrative, general and commercial expenses pertaining to the Sewer System, the Water System, the Alternate Water System or the Utility System, as the case may be; but excluding: any allowance for depreciation; (ii) any costs of extensions, enlargements, betterments and other improvements, or any combination thereof; (iii) any reserves for major capital replacements, other than normal repairs; (iv) any reserves for operation, maintenance or repair of the Sewer System, the Water System, the Alternate Water System or the Utility System, as the case may be; any allowance for the redemption of any Bond or other security or the payment of any interest thereon or any prior redemption premium due in connection therewith; (vi) any liabilities incurred in the acquisition or improvement of any properties comprising any project or any existing facilities, or any combination thereof, pertaining to the Sewer System, the Water System, the Alternate Water System or the Utility System, as the case may be, or otherwise; and (vii) any liabilities imposed on the City for any ground legal liability not based on contract, including, without limitation, negligence in the operation of the Sewer System, the Water System, the Alternate Water System or the Utility System, as the case may be. ---PAGE BREAK--- C-6 “Outstanding” when used with reference to the Bonds or any other designated securities payable from Net Revenues and as of any particular date means all of the Bonds in any manner theretofore and thereupon being executed and delivered: Except any Bond or other security canceled by the City, the Paying Agent or otherwise on the City's behalf, at or before such date; Except any Bond or other security for the payment or the redemption of which moneys at least equal to its Bond Requirements to the date of maturity or to any Redemption Date shall have theretofore been deposited with a trust bank in escrow or in trust for that purpose, as provided in Section 56 of the Bond Ordinance; and Except any Bond or other security in lieu of or in substitution for which another Bond or other security shall have been executed and delivered. “Parity Securities” means securities of the City pertaining to the Utility System and payable from and secured by Net Revenues on a parity with the Bonds and the 2007 Bonds, to the extent issued in accordance with the terms, conditions and limitations hereof. “Paying Agent” means Wells Fargo Bank, N.A. or any successor thereto as paying agent for the Bonds. “Registrar” means Wells Fargo Bank, N.A. or any successor thereto as registrar for the Bonds. “1992 Sewer Bonds” means the Outstanding Town of Fernley, Nevada, General Obligation (Limited Tax) Sewer Bond (Additionally Secured by Pledged Revenues), Series October, 1992. “Sewer Gross Revenues” means all income and revenues derived directly or indirectly by the City from the operation and use and otherwise pertaining to the Sewer System or any part thereof, whether resulting from repairs, enlargements, extensions, betterments or other improvements to the Sewer System, or otherwise, and includes all revenues received by the Town from the Sewer System, including, without limitation, all fees, rates, and other charges for the use of the Sewer System, or for any service rendered by the City in the operation thereof, directly or indirectly, the availability of any such service or the sale or other disposal of any commodity derived therefrom, but excluding any moneys borrowed and used for the acquisition of capital improvements and any moneys received as grants, appropriations or gifts from the United States, the State or other sources, the use of which is limited by the grantor or donor to the construction of capital improvements for the Sewer System, except to the extent any such moneys shall be received as payments for the use of the Sewer System, services rendered thereby, the availability of any such service or the disposal of any such commodities. “Sewer Gross Revenues” shall also include all income or other gain from the investment of such income and revenues and of the proceeds of securities payable from Sewer Gross Revenues or Sewer Net Revenues. “Sewer Net Revenues” means the Sewer Gross Revenues remaining after the payment of the Operation and Maintenance Expenses related to the Sewer System. “Sewer System” means the sewer system of the City, consisting of all properties, real, personal, mixed or otherwise, now owned or hereafter acquired by the City through purchase, construction or otherwise, and used in connection with such system of the City, and in any way pertaining thereto, whether or not located within or without or both within and without the boundaries of the City, including, without limitation, machinery, apparatus, structures, buildings and related or appurtenant furniture, fixtures and other equipment, as such system is from time to time extended, bettered or otherwise improved, or any combination thereof. ---PAGE BREAK--- C-7 “Subordinate Securities” means securities of the City pertaining to the Utility System and payable from and secured by Net Revenues subordinate and junior to the pledge thereof to the Bonds, to the extent issued in accordance with the terms, conditions and limitations hereof. “Superior Securities” means special obligation bonds or securities which have a lien on all or a portion of the Net Revenues that is superior to the lien thereon of the Bonds herein authorized and, where the context requires, also means the 1992 Sewer Bonds with a lien on the Sewer Net Revenues superior to the lien thereon of the Bonds and also means the 2003 Water Bonds with a lien on the Water Net Revenues superior to the lien thereon of the Bonds. “Tax Code” means the Internal Revenue Code of 1986, as amended to the date of delivery of the Bonds. “Treasurer” means the de jure or de facto Treasurer of the City and chief financial officer of the City or his or her successor in functions, if any. “Trust Bank” means a “commercial bank,” as defined herein, which bank is authorized to exercise and is exercising trust powers, and also means any branch of Federal Reserve Bank. “Utility System” means the Water System, the Alternate Water System and the Sewer System of the City, consisting of all properties, real, personal, mixed or otherwise, now owned or hereafter acquired by the City through purchase, construction or otherwise, and used in connection with such system of the City, and in any way pertaining thereto, whether or not located within or without or both within and without the boundaries of the City, including, without limitation, machinery, apparatus, structures, buildings and related or appurtenant furniture, fixtures and other equipment, as such system is from time to time extended, bettered or otherwise improved, or any combination thereof. “2003 Water Bonds” means the Outstanding City of Fernley, Nevada, General Obligation (Limited Tax) Water Refunding Bond (Additionally Secured by Net Revenues), Series 2003. “Water Gross Revenues” means all income and revenues derived directly or indirectly by the City from the operation and use and otherwise pertaining to the Water System or any part thereof, whether resulting from repairs, enlargements, extensions, betterments or other improvements to the Water System, or otherwise, and includes all revenues received by the City from the Water System, including, without limitation, all fees, rates and other charges for the use of the Water System, or for any service rendered by the City in the operations thereof, directly or indirectly, the availability of any such service or the sale or other disposal of any commodity derived therefrom, but excluding any moneys borrowed and used for the acquisition of capital improvements and any moneys received as grants, appropriations or gifts from the United States, the State or other sources, the use of which is limited by the grantor or donor to the construction of capital improvements for the Water System, except to the extent any such moneys shall be received as payments for the use of the Water System, services rendered thereby, the availability of any such service or the disposal of any such commodities. “Water Gross Revenues” shall also include all income or other gain from the investment of such income and revenues and of the proceeds of securities payable from Water Gross Revenues or Water Net Revenues to the extent lawfully available for the purposes of the Water System. “Water Net Revenues” means the Water Gross Revenues remaining after the deduction of Operation and Maintenance Expenses relating to the Water System. ---PAGE BREAK--- C-8 “Water System” means the water system of the City, consisting of all properties, real, personal, mixed or otherwise, now owned or hereafter acquired by the City through purchase, construction or otherwise, and used in connection with such system of the City, and in any way pertaining thereto, whether or not located within or without or both within and without the boundaries of the City, including, without limitation, improvements, machinery, apparatus, structures, buildings and related or appurtenant furniture, fixtures and other equipment, as such system is from time to time extended, bettered or otherwise improved, or any combination thereof. Bonds Equally Secured The covenants and agreements herein set forth to be performed shall be for the equal benefit, protection and security of the owners of any and all of the outstanding Bonds, all of which, regardless of the time or times of their issue or maturity, shall be of equal rank without preference, priority or distinction except as otherwise expressly provided in or pursuant to the Bond Ordinance. General Obligations All of the Bonds, as to the principal thereof, the interest thereon and any prior redemption premiums due in connection therewith (the “Bond Requirements”), shall constitute general obligations of the City, which hereby pledges its full faith and credit for their payment. So far as possible, Bond Requirements shall be paid from Net Revenues of the Utility System of which the Project is a part (the “Pledged Revenues”). However, the Bonds as to all Bond Requirements shall also be payable from the General Taxes (except to the extent that other moneys such as Net Revenues are available therefor) as provided in the Bond Ordinance. Pledge Securing Bonds Subject only to the provisions of the Bond Ordinance permitting the application thereof for or to the purposes and on the terms and conditions set forth herein, there are additionally pledged to secure the payment of principal of and interest on the Bonds in accordance with their terms and the provisions of the Bond Ordinance, all of the Gross Revenues of the Utility System, after provision is made for the payment of the Operation and Maintenance Expenses of the Utility System. This pledge shall be valid and binding from and after the date of the delivery of the Bonds; and the Gross Revenues, as received by the City shall immediately be subject to the lien of this pledge without any physical delivery thereof, any filing or further act; and the lien of this pledge shall be valid and binding as against all parties having claims of any kind in tort, contract or otherwise against the City (except as herein otherwise provided) irrespective of whether such parties have notice thereof. The lien of this pledge and the obligation to perform the contractual provisions hereby made shall have priority over any and all other obligations and liabilities of the City payable from the Gross Revenues, after provision is made for the payment of the Operation and Maintenance Expenses, except as herein otherwise provided. The lien of this pledge for the Bonds is subordinate to the pledge of the Sewer Net Revenues for the Outstanding 1992 Bonds and subordinate to the pledge of the Water Net Revenues for the City’s Outstanding 2003 Bonds. The Bonds and any Parity Securities shall be equitably and ratably secured by the pledge of Gross Revenues hereunder, after provision is made for the payment of the Operation and Maintenance Expenses; and the Bonds and any Parity Securities are not entitled to any priority one over the other in the application of Gross Revenues. ---PAGE BREAK--- C-9 Flow of Funds So long as any of the Bonds authorized by the Bond Ordinance shall be Outstanding as to any Bond Requirements, the entire Gross Revenues of the Water System upon their receipt from time to time by the City shall be set aside and credited immediately to a special account designated as the “City of Fernley Water System Gross Revenue Fund” (the “Water Revenue Fund”). In addition, and so long as any of the Bonds hereby authorized shall be Outstanding as to any Bond Requirements, the entire Gross Revenues of the Alternate Water System upon their receipt from time to time by the City shall be set aside and credited immediately to a special account heretofore created, hereby created and designated as the “City of Fernley Alternate Water System Gross Revenue Fund” (the “Alternate Water Revenue Fund”). In addition, and so long as any of the Bonds shall be Outstanding as to any Bond Requirements, the entire Gross Revenues of the Sewer System upon their receipt from time to time by the City shall be set aside and credited immediately to a special designated as the “City of Fernley Sewer System Gross Revenue Fund” (the “Sewer Revenue Fund”); so long as any of the Bonds shall be Outstanding as to any Bond Requirements in each Fiscal Year, the Water Revenue Fund, the Alternate Water Fund and the Sewer Revenue Fund shall be administered and the moneys on deposit in each account shall be applied in the following order of priority: First, as a first charge on the Water Revenue Fund so long as any of the Bonds shall be Outstanding as to any Bond Requirements, there shall be set aside in and credited to, from time to time, a separate account heretofore created, hereby continued and designated as “City of Fernley Water System Operation and Maintenance Fund” (the “Water System Operation and Maintenance Fund”) money sufficient to pay operation and maintenance expenses of the Water System; so long as any of the Bonds shall be Outstanding as a first charge on the Alternate Water Revenue Fund there shall be set aside in and credited to, from time to time, a separate account heretofore created and designated as the “City of Fernley Alternate Water System Operation and Maintenance Fund” (the “Alternate Water System Operation and Maintenance Fund”) money sufficient to pay operation and maintenance expenses of the Alternate Water System; and so long as any of the Bonds shall be Outstanding as a first charge on the Sewer Revenue Fund there shall be set aside in and credited to, from time to time, a separate account heretofore created, hereby continued, renamed and designated as the “City of Fernley Sewer System Operation and Maintenance Fund” (the “Sewer System Operation and Maintenance Fund”) money sufficient to pay operation and maintenance expenses of the Sewer System Such operation and maintenance expenses of the Water System, the Alternate Water System and of the Sewer System are to be as budgeted and approved in accordance with the Budget Act and as such expenses become due and payable thereupon they shall be paid. Any surplus remaining at the end of the Fiscal Year and not needed for operation and maintenance expenses of the Water System shall be transferred to the Water Revenue Fund and shall be used for the purposes thereof as herein provided. Any surplus remaining at the end of the Fiscal Year and not needed for operation and maintenance expenses of the Alternate Water System shall be transferred to the Alternate Water Revenue Fund and shall be used for the purposes thereof as herein provided. Any surplus remaining at the end of the Fiscal Year and not needed for operation and maintenance expenses of the Sewer System shall be transferred to the Sewer Revenue Fund and shall be used for the purposes thereof as herein provided. Second, from any moneys remaining in the Water Revenue Fund, the Alternate Water Fund and Sewer Revenue Fund, i.e., from the Net Revenues, and concurrent with transfers to any bond funds, reserve funds and rebate funds created with respect to Superior Securities, there shall be credited to such bond funds reserve funds, and rebate funds such amounts as are required to be deposited by the ordinances authorizing the issuance of the Superior Securities and concurrent with transfers to the bond funds created with respect to the Outstanding 1992 Sewer Bonds of Sewer Net Revenues from the Sewer Revenue Fund and concurrent with transfers to the bond funds created with respect to the Outstanding 2003 Water Bonds of Water Net Revenues from the Water Revenue Fund. ---PAGE BREAK--- C-10 Third, and subject to the aforesaid provisions, from any moneys thereafter remaining in the Water Revenue Fund, the Alternate Water Fund and Sewer Revenue Fund, i.e., from the Net Revenues, concurrent with transfers to the bond funds created with respect to with respect to any other Parity Securities, there shall be transferred and credited to the Bond Fund, the following: commencing on the first day of the month immediately succeeding the delivery date of the Bonds, an amount in equal installments necessary, together with any other moneys from time to time available therefor from whatever source, to pay the next maturing installment of interest on the Outstanding Bonds, and thereafter, commencing on each interest payment date, one-sixth of the amount necessary, together with any other moneys from time to time available therefor and on deposit therein from whatever source, to pay the next maturing installment of interest on the Outstanding Bonds. commencing on the first day of the month immediately succeeding the delivery date of the Bonds, an amount in equal installments necessary, together with any other moneys from time to time available therefor from whatever source, to pay the next maturing installment of principal on the Outstanding Bonds, and thereafter, commencing on each principal payment date, one twelfth of the amount necessary to pay the next maturing installments of principal of the Outstanding Bonds. The money credited to the Bond Fund shall be used to pay the Bond Requirements of the Bonds as such Bond Requirements become due. Fourth, after the aforementioned deposits, and from the Net Revenues there shall be transferred and credited to a special and separate account hereby created and designated as the “City of Fernley, General Obligation (Limited Tax) Water and Sewer Bonds (Additionally Secured by Pledged Revenues), Series 2008, Rebate Account” (the “Rebate Account”) and to any other fund or account established for payment of amounts due the United States under Section 148(f) of the Tax Code in connection with any Parity Securities such amounts as are required to be deposited therein to meet the City's obligations under the covenant contained in § 56 hereof, in accordance with Section 148(f) of the Tax Code. Such deposits shall be made at such times as are required by Section 148(f) of the Tax Code and such covenant and amounts in the Rebate Account shall be used for the purpose of making the payments to the United States required by such covenant and Section 148(f) of the Tax Code. Any amounts in the Rebate Account in excess of those required to be on deposit therein may be withdrawn therefrom and deposited into the Revenue Fund. Fifth, any moneys thereafter remaining in the Water Revenue Fund, the Alternate Water Fund and Sewer Revenue Fund, i.e., from the Net Revenues, may be used by the City for the payment of the principal of and interest on, and payments to the United States required by Section 148(f) of the Tax Code with respect to, Subordinate Securities, and may be used to create reasonable reserves for such securities. Sixth, any moneys thereafter remaining in the Water Revenue Fund, the Alternate Water Fund and Sewer Revenue Fund, i.e., from the Net Revenues, may be used by the City at the end of any Fiscal Year of the City, or whenever there shall have been credited all amounts required to be deposited in the respective foregoing separate accounts for all of that Fiscal Year, for any lawful purposes of the City, as the Council may from time to time determine, including, without limitation, for the creation of operation and maintenance reserves and capital reserves, the payment of capital costs and major maintenance costs of the Utility System, to pay any other obligations pertaining to the Utility System or otherwise. ---PAGE BREAK--- C-11 No payment need be made into the Bond Fund if the amounts in that Fund total a sum at least equal to the entire amount of the Outstanding Bonds as to all Bond Requirements to their respective maturities both accrued and not accrued, in which case moneys in such Fund in an amount, except for any interest or other gain to accrue from any investment of moneys in Federal Securities from the time of any such investment to the time or respective times the proceeds of any such investment or deposit shall be needed for such payment, at least equal to such Bond Requirements, shall be used, together with any such gain from such investments, solely to pay such Bond Requirements as the same become due. Issuance of Parity Securities Nothing in the Bond Ordinance, except as expressly provided therein, shall prevent the issuance by the City of additional securities payable from Net Revenues and constituting a lien thereon on a parity with the lien thereon of the Bonds, provided, however, that the following are express conditions to the authorization and issuance of any such Parity Securities: At the time of adoption of the instrument authorizing the issuance of the additional Parity Securities, the City shall not be in default in the payment of principal of or interest on the Bonds. The Net Revenues (subject to adjustments as hereinafter provided) projected by the Treasurer, City Engineer, an Independent Accountant or consulting engineer to be derived in the later of the Fiscal Year immediately following the Fiscal Year in which the facilities to be financed with the proceeds of the additional Parity Securities are projected to be completed or (ii) the first Fiscal Year for which no interest has been capitalized for the payment of any Parity Securities, including the Parity Securities proposed to be issued, will be sufficient to pay at least an amount equal to the principal and interest requirements (to be paid during that Fiscal Year) of the Outstanding Bonds, any other Outstanding Parity Securities of the City and the Parity Securities proposed to be issued (excluding any reserves therefor). In any determination of whether or not additional Parity Securities may be issued in accordance with the foregoing earnings test, consideration shall be given to any probable estimated increase or reduction in Operation and Maintenance Expenses that will result from the expenditure of the funds proposed to be derived from the issuance and sale of the additional Parity Securities. In any determination of whether or not additional Parity Securities may be issued in accordance with the foregoing earnings test, the respective annual principal (or redemption price) and interest requirements shall be reduced to the extent such requirements are scheduled to be paid with moneys held in trust or in escrow for that purpose by any Trust Bank, including the known minimum yield from any investment in Federal Securities. Completion Bonds may be issued on a parity with the Bonds without complying with the provisions of this section relating to the issuance of additional Parity Securities set forth in the Bond Ordinance, if the City Treasurer or the City Manager, certifies in writing that: the principal amount of the Completion Bonds proposed to be issued to finance the costs of one or more improvement projects initially financed in whole or in part by the Bonds does not exceed 20% of the aggregate principal amount of the Bonds; and (ii) the issuance of the Completion Bonds is necessary to provide funds to complete the improvement projects. Such written certificate of the City Treasurer or the City Manager shall be conclusively presumed to be accurate in determining the right of the City to authorize, issue, sell and deliver Completion Bonds as Parity Securities. ---PAGE BREAK--- C-12 Subordinate Securities Nothing in the Bond Ordinance, subject to the limitations stated therein, shall prevent the City from issuing additional Subordinate Securities payable from all or a portion of the Net Revenues and constituting a lien thereon subordinate to the lien thereon of the Bonds and any outstanding Parity Securities. Superior Securities As long as the 1992 Sewer Bonds are Outstanding, nothing in the Bond Ordinance permits the issuance of securities having a lien on the Net Revenues superior to the lien thereon of the Bonds. Nothing in the Bond Ordinance permits the issuance of securities having a lien on the Sewer Net Revenues on a parity with the lien of the 1992 Sewer Bonds. Nothing in the Bond Ordinance permits the issuance of securities having a lien on the Water Net Revenues on a parity with the lien of the 2003 Water Bonds. After the 1992 Sewer Bonds are no longer Outstanding, the City may issue Superior Securities payable from all or a portion of the Net Revenues and having a lien thereon prior and superior to the lien thereon of the Bonds, as long as the Superior Securities are issued as special obligations and the requirements of for the issuance of additional Parity Securities in the Bond Ordinance are met. Refunding Securities At any time after the Bonds, or any part thereof, are issued and remain Outstanding, if the City shall find it desirable to refund any Outstanding Bonds or other Outstanding Parity Securities, Superior Securities or Subordinate Securities, such Bonds or other securities, or any part thereof, may be refunded only if the Bonds or other securities at the time or times of their required surrender for payment shall then mature or shall be then callable for prior redemption for the purpose of refunding them at the City's option upon proper call, unless the owner or owners of all such Outstanding securities consent to such surrender and payment, regardless of whether the priority of the lien for the payment of the refunding securities on the Gross Revenues is changed (except as otherwise provided in the Bond Ordinance). The refunding bonds or other refunding securities so issued shall enjoy complete equality of lien with the portion of any securities of the same issue which is not refunded, if there is any; and the owner or owners of the refunding securities shall be subrogated to all of the rights and privileges enjoyed by the owner or owners of the unrefunded securities of the same issue partially refunded by the refunding securities. Any refunding bonds or other refunding securities payable from any Gross Revenues shall be issued with such details as the Council may by ordinance provide, subject to the provisions of this section but without any impairment of any contractual obligation imposed upon the City by any proceedings authorizing the issuance of any unrefunded portion of the Outstanding securities of any one or more issues (including, without limitation, the Bonds). ---PAGE BREAK--- C-13 If only a part of the Outstanding Bonds and other Outstanding securities of any issue or issues payable from the Gross Revenues is refunded, then such securities may not be refunded without the consent of the owner or owners of the unrefunded portion of such securities: Unless the refunding bonds or other refunding securities do not increase for any Bond Year the aggregate principal and interest requirements evidenced by the refunding securities and by the Outstanding securities not refunded on and before the last maturity date or last Redemption Date, if any, whichever is later, of the unrefunded securities, and unless the lien of any refunding bonds or other refunding securities on the Net Revenues is not raised to a higher priority than the lien thereon of the Bonds or other securities thereby refunded; or Unless the lien on any Gross Revenues for the payment of the refunding securities is subordinate to each such lien for the payment of any securities not refunded; or Unless the refunding bonds or other refunding securities are issued in compliance with the Bond Ordinance. Rate Maintenance Covenant The City shall charge against users or against purchasers of services or commodities pertaining to the Utility System such fees, rates and other charges as shall be sufficient to produce Gross Revenues annually which, together with any other funds available therefor, will be in each Fiscal Year of the City at least equal to the sum of: an amount equal to the annual Operation and Maintenance Expenses for such Fiscal Year; an amount equal to the debt service due in such Fiscal Year on the then Outstanding Bonds, any Outstanding Parity Securities and any Outstanding Superior Securities; and any other amounts payable from the Net Revenues and pertaining to the Utility System, including, without limitation, debt service on any Subordinate Securities and any other securities pertaining to the Utility System, operation and maintenance reserves, capital reserves and prior deficiencies pertaining to any account relating to Gross Revenues. The foregoing rate covenant is subject to compliance by the City with any legislation of the United States of America, the State or other governmental body, or any regulation or other action taken by the United States, the State or any agency or political subdivision of the State pursuant to such legislation, in the exercise of the police power thereof for the public welfare, which legislation, regulation or action limits or otherwise inhibits the amounts of fees, rates and other charges collectible by the City for the use of or otherwise pertaining to, and all services rendered by, the Utility System. Subject to the foregoing, the City shall cause all fees, rates and other charges pertaining to the Utility System to be collected as soon as reasonable and shall provide methods of collection and penalties to the end that the Gross Revenues shall be adequate to meet the requirements hereof. ---PAGE BREAK--- C-14 Tax Covenant The City covenants for the benefit of the owners of the Bonds that it will not take any action or omit to take any action with respect to the Bonds, the proceeds thereof, any other funds of the City or any facilities financed with the proceeds of the Bonds if such action or omission would cause the interest on the Bonds to lose its exclusion from gross income for federal income tax purposes under Section 103 of the Tax Code or (ii) would cause interest on the Bonds to lose its exclusion from alternative minimum taxable income as defined in Section 55(b)(2) of the Tax Code except to the extent such interest is required to be included in the adjusted current earnings adjustment applicable to corporations under Section 56 of the Tax Code in calculating corporate alternative minimum taxable income. The foregoing covenant shall remain in full force and effect notwithstanding the payment in full or defeasance of the Bonds until the date on which all obligations of the City in fulfilling the above covenant under the Tax Code have been met. Amendment of the Bond Ordinance The Bond Ordinance may be amended or supplemented by instruments adopted by the City, without receipt by the City of any additional consideration, but with the written consent of the insurer, if any, of the Bonds or in lieu thereof, the owners of 66% in aggregate principal amount of the Bonds outstanding at the time of the adoption of the amendatory or supplemental instrument, excluding Bonds which may then be held or owned for the account of the City, but including such refunding securities as may be issued for the purpose of refunding any of the Bonds if the refunding securities are not owned by the City. No such instrument shall permit: A change in the maturity or in the terms of redemption of the principal or any installment thereof of any Outstanding Bond or any installment of interest thereon; A reduction in the principal amount of any Bond, the rate of interest thereon, without the consent of the owner of the Bond; or A reduction of the principal amount or percentages or otherwise affecting the description of Bonds the consent of the owners of which is required for any modification or amendment; or The establishment of priorities as between Bonds issued and Outstanding under the provisions of the Bond Ordinance; or The modification of, or other action which materially and prejudicially affects the rights or privileges of the owners of less than all of the Bonds then Outstanding. Whenever the City proposes to amend or modify the Bond Ordinance, it shall cause notice of the proposed amendment to be mailed within 30 days to the insurer of the Bonds, if any, or each registered owner of each registered Bond. The notice shall briefly set forth the nature of the proposed amendment and shall state that a copy of the proposed amendatory instrument is on file in the office of the City Clerk for public inspection. ---PAGE BREAK--- C-15 Whenever the insurer of the Bonds, if any, shall consent, or at any time within one year from the date of such notice there shall be filed in the office of the City Clerk an instrument or instruments executed by the owners of at least 66% in aggregate principal amount of the Bonds then outstanding, which instrument or instruments shall refer to the proposed amendatory instrument described in the notice and shall specifically consent to and approve the adoption of the instrument; thereupon, but not otherwise, the Council may adopt the amendatory instrument and the instrument shall become effective. If the insurer of the Bonds, if any, or the owners of at least 66% in aggregate principal amount of the Bonds Outstanding, at the time of the adoption of the amendatory instrument, or the predecessors in title of such owners, shall have consented to and approved the adoption thereof as herein provided, no owner of any Bond, whether or not the owner shall have consented thereto, shall have any right or interest to object to the adoption of the amendatory instrument or to object to any of the terms or provisions therein contained or to the operation thereof or to enjoin the City from taking any action pursuant to the provisions thereof. Any consent given by the insurer of the Bonds or the holder of a Bond pursuant to the provisions hereof shall be irrevocable. ---PAGE BREAK--- THIS PAGE INTENTIONALLY LEFT BLANK ---PAGE BREAK--- D-1 APPENDIX D FORM OF BOND COUNSEL'S APPROVING OPINION City of Fernley, Nevada 595 Silver Lace Boulevard Fernley, Nevada 89408 City of Fernley, Nevada General Obligation (Limited Tax) Water and Sewer Bonds (Additionally Secured by Pledged Revenues) Series 2008 Ladies and Gentlemen: We have acted as bond counsel to the City of Fernley, Nevada (the "City" and the "State," respectively), in connection with its issuance of the "City of Fernley, Nevada, General Obligation (Limited Tax) Water and Sewer Bonds (Additionally Secured by Pledged Revenues), Series 2008" in the aggregate principal amount of (the "Bonds"), pursuant to an authorizing ordinance adopted and approved by the City Council on February 20, 2008 (the "Ordinance"). In such capacity, we have examined the City’s certified proceedings and such other documents and such law of the State and of the United States of America as we have deemed necessary to render this opinion letter. Capitalized terms not otherwise defined herein shall have the meanings ascribed to such terms in the Ordinance. Regarding questions of fact material to our opinions, we have relied upon the certified proceedings and other representations and certifications of public officials and others furnished to us without undertaking to verify the same by independent investigation. Based upon such examination, it is our opinion as bond counsel that: 1. The Bonds constitute the valid and legally binding limited tax general obligations of the City. 2. All of the taxable property in the City is subject to the levy of annual general (ad valorem) taxes to pay the same, subject to the limitations imposed by the Constitution and laws of the State. 3. As provided in the Ordinance and in accordance with the provisions of Nevada Revised Statutes ("NRS") 361.463, taxes levied for the payment of the bonded indebtedness of all overlapping units within the boundaries of the City the State, the City, and any other political subdivision therein) and for the payment of interest on such indebtedness enjoy a priority over taxes levied by each such unit (including, without limitation, the State and the City) for all other purposes (subject to any exception implied by law in the exercise of the police power) where reduction is necessary in order to comply with the limitations of NRS 361.453. 4. The Ordinance creates a valid lien on the Net Revenues and on the Bond Fund pledged therein for the security of the Bonds on a parity with the lien of any Parity Securities Outstanding or hereafter issued, subject to the lien of any Superior Securities Outstanding or hereafter issued. Except as described in this paragraph, we express no opinion regarding the priority of the lien on the Net Revenues or on the Bond Fund created by the Ordinance. ---PAGE BREAK--- D-2 5. Interest on the Bonds is excluded from gross income under federal income tax laws pursuant to Section 103 of the Internal Revenue Code of 1986, as amended to the date hereof (the "Tax Code"), and interest on the Bonds is excluded from alternative minimum taxable income as defined in Section 55(b)(2) of the Tax Code, except that such interest is required to be included in calculating the adjusted current earnings adjustment applicable to corporations for purposes of computing the alternative minimum taxable income of corporations. The opinions expressed in this paragraph assume continuous compliance with the covenants and representations contained in the City’s certified proceedings and in certain other documents or certain other certifications furnished to us. 6. Under the laws of the State in effect on the date hereof, the Bonds, their transfer, and the income therefrom are free and exempt from taxation by the State or any subdivision thereof except for the tax on estates imposed pursuant to Chapter 375A of NRS and the tax on generation skipping transfers imposed pursuant to Chapter 375B of NRS. The opinions expressed in this opinion letter are subject to the following: The obligations of the City pursuant to the Bonds and the Ordinance are subject to the application of equitable principles, to the reasonable exercise in the future by the State and its governmental bodies of the police power inherent in the sovereignty of the State and to the exercise by the United States of America of the powers delegated to it by the Federal Constitution, including without limitation, bankruptcy powers. [We understand that has issued a municipal bond insurance policy relating to the Bonds. We express no opinion as to the validity or enforceability of such policy or the security afforded thereby.] In this opinion letter issued in our capacity as bond counsel, we are opining only upon those matters set forth herein, and we are not passing upon the accuracy, adequacy or completeness of the Official Statement relating to the Bonds or any other statements made in connection with any offer or sale of the Bonds or upon any state or federal tax consequences arising from the receipt or accrual of interest on or ownership or disposition of the Bonds, except those specifically addressed herein. This opinion letter is issued as of the date hereof and we assume no obligation to revise or supplement this opinion letter to reflect any facts or circumstances that may hereafter come to our attention or any changes in law that may hereafter occur. Respectfully submitted, ---PAGE BREAK--- E-1 APPENDIX E FORM OF CONTINUING DISCLOSURE CERTIFICATE This Continuing Disclosure Certificate (the "Disclosure Certificate") is executed and delivered by the City of Fernley, Nevada (the "Issuer") in connection with the issuance of the Issuer's City of Fernley, Nevada, General Obligation (Limited Tax) Water and Sewer Bonds (Additionally Secured by Pledged Revenues), Series 2008, in the aggregate principal amount of (the "Bonds). The Bonds are being issued pursuant to bond ordinance of the Issuer adopted February 20, 2008 (the "Ordinance"). The Issuer covenants and agrees as follows: SECTION 1. Purpose of the Disclosure Certificate. This Disclosure Certificate is being executed and delivered by the Issuer for the benefit of the holders and beneficial owners of the Bonds and in order to assist the Participating Underwriter in complying with Rule 15c2-12(b)(5) of the Securities Exchange Commission. SECTION 2. Definitions. In addition to the definitions set forth in the Ordinance or parenthetically defined herein, which apply to any capitalized terms used in this Disclosure Certificate unless otherwise defined in this Section, the following capitalized terms shall have the following meanings: "Annual Report" shall mean any Annual Report provided by the Issuer pursuant to, and as described in, Sections 3 and 4 of this Disclosure Certificate. "Dissemination Agent" shall mean, initially, the Issuer, or any successor Dissemination Agent designated in writing by the Issuer and which has filed with the Issuer a written acceptance of such designation. "Listed Events" shall mean any of the events listed in Section 5 of this Disclosure Certificate. "National Repository" shall mean, at the Issuer’s option, either each Nationally Recognized Municipal Securities Information Repository (collectively, the “NRMSIRs”) for purposes of the Rule, as set forth on an updated list of NRMSIRs currently available on the Internet at the website www.sec.gov/info/municipal/nrmsir.htm; or (ii) any other filing system approved by the Securities and Exchange Commission for transmission of continuing disclosure filings under the Rule for submission to the NRMSIRs (without also separately submitting such filings to the NRMSIRs and any applicable State Repository by some other means) (a “Repository Agent”), including without limitation the central post office known as DisclosureUSA, managed by the Municipal Advisory Council of Texas and located on the Internet at the website www.DisclosureUSA.org. "Participating Underwriter" shall mean any of the original underwriters of the Bonds required to comply with the Rule in connection with an offering of the Bonds. "Repository" shall mean each National Repository and each State Repository. "Rule" shall mean Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time. ---PAGE BREAK--- E-2 "State Repository" shall mean any public or private repository or entity designated by the State of Nevada as a state information depository for the purpose of the Rule. As of the date of this Disclosure Certificate, there is no State Repository. SECTION 3. Provision of Annual Reports. The Issuer shall, or shall cause the Dissemination Agent to, not later than March 31 following the end of the Issuer's fiscal year of each year, commencing March 31 following the end of the Issuer's fiscal year ending June 30, 2008, provide to each Repository an Annual Report which is consistent with the requirements of Section 4 of this Disclosure Certificate. Not later than five business days prior to said date, the Issuer shall provide the Annual Report to the Dissemination Agent (if other than the Issuer). The Annual Report may be submitted as a single document or as separate documents comprising a package, and may cross-reference other information as provided in Section 4 of this Disclosure Certificate; provided that the audited financial statements of the Issuer may be submitted separately from the balance of the Annual Report. If the Issuer is unable to provide to the Repositories an Annual Report by the date required in subsection the Issuer shall send a notice to the Repository Agent or (ii) each of the NRMSIRs or the Municipal Securities Rulemaking Board ("MSRB") and to the State Repository, if any, in substantially the form attached as Exhibit The Dissemination Agent shall: determine each year prior to the date for providing the Annual Report the name and address of each National Repository and each State Repository, if any; and (if the Dissemination Agent is other than the Issuer) (ii) file a report with the Issuer certifying that the Annual Report has been provided pursuant to this Disclosure Certificate, stating the date it was provided and listing all the Repositories to which it was provided. SECTION 4. Content of Annual Reports. The Issuer's Annual Report shall contain or incorporate by reference the following: 1. A copy of its annual financial statements prepared in accordance with generally accepted accounting principles audited by a firm of certified public accountants. If audited annual financial statements are not available by the time specified in Section 3(a) above, unaudited financial statements will be provided as part of the Annual Report and audited financial statements will be provided when and if available. 2. An update of the information of the type contained in the tables identified by asterisk under the heading "TABLES" found on page of the Official Statement, a copy of which page is attached hereto as Exhibit ---PAGE BREAK--- E-3 Any or all of the items listed above may be incorporated by reference from other documents, including official statements of debt issues of the Issuer or related public entities, which have been submitted to each of the Repositories or the Securities and Exchange Commission. If the document incorporated by reference is a final official statement, it must be available from the MSRB. The Issuer shall clearly identify each such document incorporated by reference. SECTION 5. Reporting of Significant Events. The Issuer shall provide or cause to be provided, in a timely manner, to either the Repository Agent, or (ii) each of the NRMSIRs and the MSRB and to the State Repository, if any, notice of any of the following events with respect to the Bonds, if such event is material: 1) Principal and interest payment delinquencies; 2) Non-payment related defaults; 3) Unscheduled draws on debt service reserves reflecting financial difficulties; 4) Unscheduled draws on credit enhancements reflecting financial difficulties; 5) Substitution of credit or liquidity providers, or their failure to perform; 6) Adverse tax opinions or events affecting the tax-exempt status of the Bonds; 7) Modifications to rights of bondholders; 8) Bond calls; 9) Defeasances; 10) Release, substitution or sale of property securing repayment of the Bonds; or 11) Rating changes. SECTION 6. Termination of Reporting Obligation. The Issuer's obligations under this Disclosure Certificate shall terminate upon the earlier of: the date of legal defeasance, prior redemption or payment in full of all of the Bonds; (ii) the date that the Issuer shall no longer constitute an "obligated person" within the meaning of the Rule; or (iii) the date on which those portions of the Rule which require this written undertaking are held to be invalid by a court of competent jurisdiction in a non-appealable action, have been repealed retroactively or otherwise do not apply to the Bonds. SECTION 7. Dissemination Agent. The Issuer may, from time to time, appoint or engage a Dissemination Agent to assist the Issuer in carrying out its obligations under this Disclosure Certificate, and may discharge any such Dissemination Agent, with or without appointing a successor Dissemination Agent. SECTION 8. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Certificate, the Issuer may amend this Disclosure Certificate, and any provision of this Disclosure Certificate may be waived, without the consent of the holders of the Bonds, if such amendment or waiver does not, in and of itself, cause the undertakings herein to violate the Rule, but taking into account any subsequent change in or official interpretation of the Rule. The Issuer will provide notice of such amendment or waiver to the Repository. ---PAGE BREAK--- E-4 SECTION 9. Additional Information. Nothing in this Disclosure Certificate shall be deemed to prevent the Issuer from disseminating any other information, using the means of dissemination set forth in this Disclosure Certificate or any other means of communication, or including any other information in any Annual Report or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Certificate. If the Issuer chooses to include any information in any Annual Report or notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Certificate, the Issuer shall have no obligation under this Disclosure Certificate to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event. SECTION 10. Default. In the event of a failure of the Issuer to comply with any provision of this Disclosure Certificate, any holder or beneficial owner of the Bonds may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the Issuer to comply with its obligations under this Disclosure Certificate. A default under this Disclosure Certificate shall not be deemed an event of default under the Ordinances, and the sole remedy under this Disclosure Certificate in the event of any failure of the Issuer to comply with this Disclosure Certificate shall be an action to compel performance. SECTION 11. Duties, Immunities and Liabilities of Dissemination Agent. The Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Certificate, and the Issuer agrees to indemnity and save the Dissemination Agent, its officers, directors, employees and agents, harmless against any loss, expense and liabilities which it may incur arising out of or in the exercise or performance of its powers and duties hereunder, including the costs and expenses (including attorneys fees) of defending against any claim of liability, but excluding liabilities due to the Dissemination Agent's negligence, gross negligence or willful misconduct. The obligations of the Issuer under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Bonds. SECTION 12. Beneficiaries.This Disclosure Certificate shall inure solely to the benefit of the Issuer, the Dissemination Agent, the Participating Underwriter, the holders and beneficial owners from time to time of the Bonds, and shall create no rights in any other person or entity. DATE: 2008. CITY OF FERNLEY, NEVADA Treasurer ---PAGE BREAK--- E-5 EXHIBIT NOTICE TO REPOSITORIES OF FAILURE TO FILE ANNUAL REPORT Name of Issuer: City of Fernley, Nevada Name of Bond Issue: General Obligation (Limited Tax) Water and Sewer Bonds (Additionally Secured by Pledged Revenues), Series 2008 Date of Issuance:__________ 2008. NOTICE IS HEREBY GIVEN that the Issuer has not provided an Annual Report with respect to the above-named Bonds as required by the Ordinance adopted on February 20, 2008, and the Continuing Disclosure Certificate executed on 2008 by the Issuer. The Issuer anticipates that the Annual Report will be filed by Dated: CITY OF FERNLEY, NEVADA ---PAGE BREAK--- E-6 EXHIBIT TABLES Page SOURCES AND USES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 *PLEDGED REVENUE AND COVERAGE SCHEDULE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 *ANNUAL DEBT SERVICE REQUIREMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 *GENERAL FUND REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE . . . . . . . . . . . . A-7 *ASSESSED VALUATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-9 *TAX LEVIES, COLLECTIONS AND DELINQUENCIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-9 *LARGEST TAXPAYERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-10 *LARGEST TAXPAYERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-11 *STATEWIDE AVERAGE AND OVERLAPPING TAX RATES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-15 *STATUTORY DEBT LIMITATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-16 *OUTSTANDING AND PROPOSED DEBT AND OTHER OBLIGATIONS . . . . . . . . . . . . . . . . . . . . . A-17 *OUTSTANDING OVERLAPPING GENERAL OBLIGATION INDEBTEDNESS . . . . . . . . . . . . . . . . . . A-18 NET DIRECT & OVERLAPPING GENERAL OBLIGATION INDEBTEDNESS . . . . . . . . . . . . . . . . . . . . A-18 SELECTED DEBT RATIOS FOR THE CITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-19 POPULATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-21 AGE DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-22 MEDIAN HOUSEHOLD EFFECTIVE BUYING INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-23 HOUSEHOLDS BY EFFECTIVE BUYING INCOME GROUPS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-23 AVERAGE ANNUAL LABOR FORCE SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-24 ESTABLISHMENT BASED INDUSTRIAL EMPLOYMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-25 LARGEST EMPLOYERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-26 FIRM EMPLOYMENT SIZE BREAKDOWN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-27 TAXABLE SALES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-28 BUILDING PERMITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-29 *Annual Financial Information to be updated pursuant to SEC Rule 15c2-12, as amended. ---PAGE BREAK--- F-1 APPENDIX F BOOK-ENTRY-ONLY FORM The Bonds will be available only in book-entry form in the principal amount of $5,000 or any integral multiple thereof. DTC will act as the initial securities depository for the Bonds. The ownership of one fully registered Bond for each maturity, as set forth on the inside cover of this Official Statement, in the aggregate principal amount of such maturity coming due thereon, will be registered in the name of Cede & Co., as nominee for DTC. DTC will act as securities depository for the Bonds. The Bonds will be issued as fully-registered securities registered in the name of Cede & Co. (DTC's partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered Bond certificate will be issued for each maturity of the Bonds, each in the aggregate principal amount of such maturity, and will be deposited with DTC. DTC, the world's largest 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 2 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments from over 85 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, in turn, is owned by a number of Direct Participants of DTC and Members of the National Securities Clearing Corporation, Government Securities Clearing Corporation, MBS Clearing Corporation, and Emerging Markets Clearing Corporation (NSCC, GSCC, and EMCC, also subsidiaries of DTCC), as well as by the New York Stock Exchange, Inc., the American Stock Exchange LLC, and the National Association of Securities Dealers, Inc. 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. Purchases of Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Bonds on DTC’s records. The ownership interest of each actual purchaser of each Bond ("Beneficial Owner") is in turn to be recorded on the Direct and Indirect Participants' records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in Bonds, except in the event that use of the book-entry system for the Bonds is discontinued. ---PAGE BREAK--- F-2 To facilitate subsequent transfers, all Bonds deposited by Direct Participants with DTC are registered in the name of DTC's partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Bonds; DTC’s records reflect only the identity of the Direct Participants to whose accounts such Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Bonds, such as redemptions, tenders, defaults, and proposed amendments to the Bond documents. For example, Beneficial Owners of Bonds may wish to ascertain that the nominee holding the Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of notices be provided directly to them. Redemption notices shall be sent to DTC. If less than all of the Bonds 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. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to Bonds unless authorized by a Direct Participant in accordance with DTC's Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the 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 Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). Principal, interest and redemption proceeds on the Bonds will be made to Cede& Co., or such other nominee as may be requested by an authorized representative of DTC. DTC's practice is to credit Direct Participants' accounts upon DTC's receipt of funds and corresponding detail information from the Issuer or the Paying Agent, on payable date in accordance with their respective holdings shown on DTC's records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in "street name," and will be the responsibility of such Participant and not of DTC, nor its nominee, the Paying Agent, or the Issuer, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal, interest or redemption proceeds to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the Issuer or the Paying 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. DTC may discontinue providing its services as depository with respect to the Bonds at any time by giving reasonable notice to the Issuer or the Registrar and Agent. Under such circumstances, in the event that a successor depository is not obtained, Bond certificates are required to be printed and delivered. The Issuer may decide to discontinue use of the system of book-entry transfers through DTC (or a successor securities depository). In that event, Bond certificates will be printed and delivered. ---PAGE BREAK--- F-3 The information in this section concerning DTC and DTC’s book-entry system has been obtained from sources that the Issuer believes to be reliable, but the Issuer takes no responsibility for the accuracy thereof. SO LONG AS CEDE & CO., AS NOMINEE OF DTC, IS THE REGISTERED OWNER OF THE BONDS, REFERENCES IN THIS OFFICIAL STATEMENT TO THE REGISTERED OWNERS OF THE BONDS WILL MEAN CEDE & CO. AND WILL NOT MEAN THE BENEFICIAL OWNERS. The Issuer and the Paying Agent may treat DTC (or its nominee) as the sole and exclusive owner of the Bonds registered in its name for the purpose of payment of the principal of or interest or premium, if any, on the Bonds, giving any notice permitted or required to be given to registered owners under the Bond Resolution, including any notice of redemption, registering the transfer of Bonds, obtaining any consent or other action to be taken by registered owners and for all other purposes whatsoever, and will not be affected by any notice to the contrary. The Issuer and the Paying Agent will not have any responsibility or obligation to any DTC Participant, any person claiming a beneficial ownership interest in the Bonds under or through DTC or any DTC Direct Participant, Indirect Participant or other person not shown on the records of the Registrar as being a registered owner with respect to: the accuracy of any records maintained by DTC, any DTC Direct Participant or Indirect Participant regarding ownership interests in the Bonds; the payment by DTC, any DTC Direct Participant or Indirect Participant of any amount in respect of the principal of or interest or premium, if any, on the Bonds; the delivery to any DTC Direct Participant, Indirect Participant or any Beneficial Owner of any notice which is permitted or required to be given to registered owners under the Bond Resolution, including any notice of redemption; the selection by DTC, any DTC Direct Participant or any Indirect Participant of any person to receive payment in the event of a partial redemption of the Bonds; or any consent given or other action taken by DTC as a registered owner. As long as the DTC book-entry system is used for the Bonds, the Registrar will give any notice of redemption or any other notices required to be given to registered owners of Bonds only to DTC or its nominee. Any failure of DTC to advise any DTC Direct Participant, of any DTC Direct Participant to notify any Indirect Participant, of any DTC Direct Participant or Indirect Participant to notify any Beneficial Owner, of any such notice and its content or effect will not affect the validity of the redemption of the Bonds called for redemption or of any other action premised on such notice. REMAINDER OF PAGE INTENTIONALLY LEFT BLANK ---PAGE BREAK--- THIS PAGE INTENTIONALLY LEFT BLANK ---PAGE BREAK--- *Preliminary, subject to change. G-1 APPENDIX G OFFICIAL NOTICE OF BOND SALE $32,600,000* CITY OF FERNLEY, NEVADA GENERAL OBLIGATION (LIMITED TAX) WATER AND SEWER BONDS (ADDITIONALLY SECURED BY PLEDGED REVENUES) SERIES 2008 PUBLIC NOTICE IS HEREBY GIVEN that the City Council of the City of Fernley, in the State of Nevada (the “Council”, the “City”, and the “State”, respectively), on Wednesday, March 12, 2008 at the hour of 8:30 a.m., Pacific Time, will cause to be received electronically via DALCOMP/PARITY or via sealed bid, as described under “BID PROPOSALS” below, for the purchase of the bonds of the City, particularly described below. Bids must be delivered via DALCOMP/PARITY or sealed bid and must be received by 8:30 a.m. Pacific Time, on such day of sale in the office of Swendseid & Stern, 50 W. Liberty Street, Suite 1000, Reno, NV 89501. BOND PROVISIONS ISSUE: The City of Fernley, Nevada, General Obligation (Limited Tax) Water and Sewer Bonds (Additionally Secured by Pledged Revenues), Series 2008 in the aggregate principal amount of $32,600,000* (the “2008 Bonds”; or the “Bonds”) will be dated as of the date of delivery of the Bonds and will be issued by means of a book entry system with no physical distribution of bond certificates to the public. See “BOOK ENTRY TRANSFER AND EXCHANGE” below. The Bonds will be in book entry form. MATURITIES: Except as provided in “ADJUSTMENT OF MATURITIES AFTER DETERMINATION OF BEST BID” below, the Bonds will mature on February 1, of the years and in the amounts designated in the preliminary official statement relating to the Bonds (the “Preliminary Official Statement”). ADJUSTMENT OF MATURITIES AFTER DETERMINATION OF BEST BID: The aggregate principal amount and the principal amount of each serial maturity and sinking fund redemption of the Bonds described herein are subject to adjustment by the City, after the determination of the best bid. Changes to be made will be communicated to the successful bidder by the time of the award of the Bonds to the successful bidder. ---PAGE BREAK--- G-2 The adjustment of maturities will not reduce or increase the aggregate principal amount of the Bonds or the amount of the Bonds maturing in any year by more than ten percent (10%) of the aggregate principal amount as shown in the Preliminary Official Statement. The dollar amount of the price bid par less the discount or plus the premium bid) by a successful bidder may be changed as described below, but the interest rates specified by the successful bidder for all maturities will not change. A successful bidder may not withdraw its bid as a result of any changes made within these limits. The dollar amount of the price bid will be changed so that the percentage net compensation to the successful bidder the percentage resulting from dividing the aggregate difference between the offering price of the Bonds to the public and the price to be paid to the City, less any bond insurance premium to be paid by the bidder, by (ii) the principal amount of the Bonds) does not increase or decrease from what it would have been if no adjustment was made to the principal amounts shown in the Preliminary Official Statement. To facilitate any adjustment in the principal amounts, the successful bidder is required to indicate by facsimile transmission to the City Treasurer at fax # (775) 784-9999 and JNA Consulting Group, LLC (the “Financial Advisor”) at fax # (702) 294-5145 within one-half hour of the time of bid opening, the amount of any original issue discount or premium on each maturity of the Bonds, the amount received from the sale of the Bonds to the public that will be retained by the successful bidder as its compensation, and in the case of a bid submitted with bond insurance, the cost of the insurance premium. A bidder who intends to insure the Bonds shall also state, in that facsimile transmission, whether the amount of the insurance premium will change as a result of changes in the principal amount of the Bonds or the amount of the principal maturing in any year, and the method used to calculate any such change in the insurance premium. OPTIONAL PRIOR REDEMPTION: The Bonds, or portions thereof ($5,000 or any integral multiple), maturing on and after February 1, 2019, will be subject to redemption prior to their respective maturities, at the option of the City on and after February 1, 2018, in whole or in part at any time, from any maturities selected by the City and by lot within a maturity (giving proportionate weight to Bonds in denominations larger than $5,000), at a price equal to the principal amount of each Bond, or portion thereof, so redeemed, accrued interest thereon to the redemption date . MANDATORY SINKING FUND REDEMPTION: A bidder may request that the Bonds maturing on or after February 1, 2019 be included in one or more term Bonds. Amounts included in a single term Bond must consist of consecutive maturities of Bonds, must bear the same rate of interest and must include the entire principal amount for any maturity included in the term Bond an amount for any year may not be divided between a serial maturity and a mandatory sinking fund redemption). Any such term Bond will be subject to mandatory sinking fund redemption in installments in the same amounts and on the same dates as the Bonds would have matured if they were not included in a term Bond. Bonds redeemed pursuant to the mandatory sinking fund redemption provisions will be redeemed at a redemption price equal to the principal amount of the Bonds to be redeemed plus accrued interest to the redemption date in the manner and as otherwise to be provided in the bond ordinance adopted by the Council on February 20, 2008 authorizing the issuance of the Bonds (the “2008 Bond Ordinance”). Any election to designate the Bonds as being included in a term Bond must be made via DALCOMP/PARITY or sealed bid (see “TERMS OF SALE--BID PROPOSALS” below). ---PAGE BREAK--- G-3 NOTICE OF REDEMPTION: Notice of redemption, unless waived, will be given by mailing an official redemption notice by registered or certified mail at least 30 days and not more than 60 days prior to the date fixed for redemption addressed to the Municipal Securities Rulemaking Board and the registered owner of the Bond or Bonds to be redeemed (which shall be Cede & Co., the nominee of The Depository Trust Company), in the manner and upon the conditions to be provided in the 2008 Bond Ordinance. Notice of redemption having been given as aforesaid, the Bonds or portions of Bonds so to be redeemed shall, on the redemption date, become due and payable at the redemption price therein specified, and from and after such date such Bonds or portions of Bonds shall cease to bear interest. Failure to give such notice to the Municipal Securities Rulemaking Board or the registered owner of any Bond, or any defect therein, shall not affect the validity of the proceedings for the redemption of any other Bonds. INTEREST RATES AND LIMITATIONS: The following interest limitations are applicable with respect to the Bonds: A. Interest on the Bonds will be payable on February 1 and August 1 in each year, commencing on August 1, 2008. B. The interest rate on any Bond and the True Interest Cost for the Bonds (see “BASIS OF AWARD”, below) may not exceed by more than 3% the “Index of Twenty Bonds” most recently published in The Bond Buyer before the bids are received. C. Each interest rate specified must be stated in a multiple of 1/8th or 1/20th of 1% per annum. D. Only one interest rate can be stated for any maturity, i.e, all Bonds with the same maturity date must bear the same rate of interest. E. Each Bond as initially issued will bear interest from its date to its stated maturity date (or earlier prior redemption) at the interest rate stated in the bid. A zero rate of interest may not be named. It is permissible to bid different interest rates for the Bonds, but only as stated in the bid and subject to the above limitations. If any Bond is not paid upon presentation at maturity, it will draw interest at the same rate until principal is paid in full. DISCOUNT OR PREMIUM ALLOWED: A bidder may offer to purchase the 2008 Bonds at a discount not to exceed $400,000 or at a premium. The dollar amount of such discount or premium may be adjusted as provided in “ADJUSTMENT OF MATURITIES AFTER DETERMINATION OF BEST BID” above. ---PAGE BREAK--- G-4 PAYMENT: The principal of the Bonds and any prior redemption premium due in connection therewith, shall be payable at the corporate trust office of Wells Fargo Bank, N.A., as Paying Agent, to the registered owner thereof Cede & Co.) as shown on the registration records of Wells Fargo Bank, N.A., as Registrar, upon maturity thereof (or earlier prior redemption) and upon presentation and surrender of such Bonds at such Paying Agent. Payment of interest on any Bond shall be made to the registered owner thereof Cede & Co.) by check or draft mailed by the Paying Agent, on each interest payment date (or, if such interest payment date is not a business day, on the next succeeding business day), to the registered owner thereof at his or her address as it appears on the registration records of the Registrar for such Bonds as of the close of business on the 15th day of the calendar month preceding such interest payment date (or by such other arrangement as may be mutually agreed to by the Paying Agent and The Depository Trust Company). All such payments shall be made in lawful money of the United States of America. BOOK ENTRY/TRANSFER AND EXCHANGE: The Bonds will be issued as fully registered book entry bonds, in the denomination of $5,000 or any integral multiple thereof. The Bonds will be issued in registered form and bond certificates for each maturity will be issued to The Depository Trust Company, New York, New York registered in the name of its nominee, Cede & Co., and immobilized in its custody, with transfers of ownership effected on the records of DTC and its participants pursuant to rules and procedures adopted by DTC and its participants. Principal of and interest on the Bonds will be payable by the Paying Agent by wire transfer or in same day funds to DTC or its nominee as registered owner of the Bonds. Transfer of principal and interest payments to participants of DTC will be the responsibility of DTC. Transfer of principal and interest payments to the beneficial owners by participants of DTC will be the responsibility of such participants and other nominees of beneficial owners. Neither the City nor the Paying Agent will be responsible or liable for payments by DTC to its participants or by DTC participants to beneficial owners or for maintaining, supervising or reviewing the records maintained by DTC, its participants or persons acting through such participants. FORM OF BOND ORDINANCE: Copies of the 2008 Bond Ordinance (the “Bond Ordinance”) are available for inspection at the office of the City Clerk and at the office of the City's Financial Advisor at the addresses listed under “INFORMATION”, below. SECURITY FOR THE BONDS: The Bonds, in the opinion of Swendseid & Stern, a member in Sherman & Howard LLC (“Bond Counsel”), will be direct general obligations of the City payable as to all principal, interest and any prior redemption premium (the “Bond Requirements”) from general (ad valorem) taxes (herein “General Taxes”) levied against all taxable property within the City except to the extent that other revenues are made available therefor, subject to the limitations imposed by the statutes and Constitution of the State (see “CONSTITUTIONAL TAX LIMITATION,” and “STATUTORY TAX LIMITATION” below). The Bonds will be a debt of the City and the City shall thereby pledge its full faith and credit for their payment. ADDITIONAL SECURITY: The Bond Requirements of the 2008 Bonds (the “2008 Bond Requirements”) will be additionally secured by an irrevocable pledge of revenues derived by the City from the operation of the City's sewer system (the “Sewer Net Revenues”), the City’s alternate water system (the “Alternate Water Net Revenues”) and the City’s water system (the “Water Net Revenues) (collectively, the City’s water system, alternate water system and sewer system are referred to herein as the “Utility System”), each after the deduction of operation and maintenance expenses of the Utility System (the remaining Utility System revenues being herein the “Net Revenues”). ---PAGE BREAK--- G-5 SPECIAL ACCOUNT FOR THE 2008 BONDS: As security for the payment of the 2008 Bond Requirements there will be irrevocably pledged, pursuant to the 2008 Bond Ordinance, a special account, identified as the Bond Fund, into which account the City covenants to pay from the Net Revenues sums sufficient to pay when due the 2008 Bond Requirements, except to the extent any other monies are available therefor. BOND LIENS ON NET REVENUES: The 2008 Bonds will be equitably and ratably secured by a lien on the Net Revenues, and the 2008 Bonds will constitute an irrevocable lien (but not necessarily an exclusive lien) upon the Net Revenues, on a parity with the lien upon the Net Revenues of the 2007 Bonds; but, subordinate to the lien of the outstanding 1992 Sewer Bonds on the portion of the Net Revenues constituting the Sewer Net Revenues, and subordinate to the lien of the 2003 Water Bonds on the portion of the Net Revenues constituting the Water Net Revenues (as defined in the 2008 Bond Ordinance, see Appendix C, “Summary of Certain Provisions of the 2008 Bond Ordinance”). Other than the 1992 Sewer Bonds, the 2003 Water Bonds and the 2007 Bonds, the City has issued no bonds or other securities which are now outstanding and to which any portion of the Net Revenues are pledged. ADDITIONAL SECURITIES PAYABLE OR SECURED BY NET REVENUES: Bonds and other securities, in addition to the 2008 Bonds, may be issued and made payable from the Net Revenues having a lien thereon subordinate and junior to the lien or, subject to additional expressed conditions, having a lien thereon superior to or on a parity with the lien of the 2008 Bonds. The City is not permitted to issue additional bonds or additional securities payable from the Sewer Net Revenues having a lien thereon superior to the lien of the 1992 Sewer Bonds; however, when the 1992 Sewer Bonds are defeased, discharged or otherwise paid in full, special obligation bonds payable solely from the Net Revenues may be issued with a lien on the Net Revenues superior to the lien of the 2007 Bonds and 2008 Bonds. Upon the issuance of the 2007 Bonds, the liens of the 1992 Sewer Bonds on the portion of the Net Revenues constituting Sewer Net Revenues and 2003 Water Bonds on the portion of the Net Revenues constituting Water Net Revenues were closed. (See Appendix C, “Summary of Certain Provisions of the 2008 Bond Ordinance”). ADDITIONAL BONDS: The City reserves the privilege of issuing additional general obligation bonds hereafter authorized at any time or from time to time for any lawful purpose, as permitted by law. BOND INSURANCE/ RATING LETTER: A bidder, at its option, may select a bond insurer to provide a policy to insure payment of the principal of and interest on the Bonds when due. The City will pay for ratings on the Bonds from Moody's Investors Service. AUTHORIZATION OF BONDS: The Bonds are authorized to be issued pursuant to Chapter 268 of NRS, NRS 350.500 through 350.720, designated in NRS 350.500 as the Local Government Securities Law (the “Bond Act”); and Chapter 348 of NRS (the “Supplemental Bond Act”). FEDERAL TAX MATTERS: In the opinion of Bond Counsel, assuming continuous compliance with certain covenants described below, interest on the Bonds is excluded from gross income under federal income tax laws pursuant to Section 103 of the Internal Revenue Code of 1986, as amended to the date of delivery of the Bonds (the “Tax Code”), and interest on the Bonds is excluded from alternative minimum taxable income as defined in Section 55(b)(2) of the Tax Code except that such interest is required to be included in calculating the “adjusted current earnings” adjustment applicable to corporations for purposes of computing the alternative minimum taxable income of corporations as described in the Preliminary Official Statement. STATE TAX EXEMPTION: In the opinion of Bond Counsel, under the laws of the State as of the date ---PAGE BREAK--- G-6 hereof, the Bonds, their transfer, and the income therefrom are free and exempt from taxation by the State or any subdivision thereof except for the tax on estates imposed pursuant to Chapter 375A of NRS and the tax on generation skipping transfers imposed pursuant to Chapter 375B of NRS. CONSTITUTIONAL TAX LIMITATION: Sec. 2, art. 10, Constitution of the State, provides: “The total tax levy for all public purposes including levies for bonds, within the state, or any subdivision thereof, shall not exceed five cents on one dollar of assessed valuation.” STATUTORY TAX LIMITATION: NRS 361.453 provides: “Except as otherwise provided in NRS 354.705, the total ad valorem tax levy for all public purposes must not exceed $3.64 on each $100 of assessed valuation, or a lesser or greater amount fixed by the state board of examiners if the state board of examiners is directed by law to fix a lesser or greater amount for that fiscal year.” STATUTORY PRIORITY FOR BONDS: NRS 361.463: In any year in which the total taxes levied by all overlapping units within the boundaries of the state exceed the limitation imposed by NRS 361.453, and it becomes necessary for that reason to reduce the levies made by any of those units, the reduction so made must be in taxes levied by those units (including the state) for purposes other than the payment of bonded indebtedness, including interest thereon. 2. The taxes levied for the payment of bonded indebtedness and the interest thereon enjoy a priority over taxes levied by each such unit (including the state) for all other purposes where reduction is necessary to comply with the limitation imposed by NRS 361.453.” STATUTORY PROVISION FOR TAX LEVIES: NRS 350.592 provides in relevant part: There must be levied annually in due season a special tax on all property, both real and personal, subject to taxation within the boundaries of the municipality, fully sufficient together with the revenue which will result from application of the rate to the net proceeds of minerals, without regard to any statutory or charter tax limitation, now or hereafter existing, other than the limitation set forth in NRS 361.453, to pay the interest on the general obligation municipal securities and to pay and retire the securities as provided in the Local Government Securities Law and in any act supplemental hereto. The amount of money to be raised by the tax must be included in the annual estimate or budget for each county within the state for each year for which the tax is hereby required to be levied. The tax must be levied and collected in the same manner and at the same time as other taxes are levied and collected. 2. The proceeds thereof levied to pay interest on the securities must be kept by the treasurer in a special fund, separate and apart from all other funds, and the proceeds of the tax levied to pay the principal of the securities must be kept by the treasurer in a special fund, separate and apart from all other funds. The two special funds must be used for no other purpose than the payment of the interest on the securities and the principal thereof, respectively, when due; . . . ---PAGE BREAK--- G-7 TIME OF LEVIES: NRS 350.594 provides “Such tax shall be levied immediately after the issuance of any general obligation securities issued in accordance with the provisions of the Local Government Securities Law, and annually thereafter, at the times and in the manner provided by law, until all of the securities, and the interest thereon, have been fully discharged. Such tax may be first levied after the municipality has contracted to sell any securities but before their issuance.” STATUTORY APPROPRIATIONS: NRS 350.602 provides: “There is by the Local Government Securities Law, and there shall be by ordinance authorizing the issuance of any indebtedness contracted in accordance with the provisions of the Local Government Securities Law, specially appropriated the proceeds of such taxes to the payment of such principal and interest; and such appropriations shall not be repealed nor the taxes postponed or diminished (except as herein otherwise expressly provided) until the principal of and interest on the municipal securities evidencing such debt have been wholly paid.” NO PLEDGE OF PROPERTY: The payment of the Bonds is not secured by an encumbrance, mortgage or other pledge of property of the City. IMMUNITY OF INDIVIDUALS. NRS 350.606 provides: “No recourse shall be had for the payment of the principal of, any interest on, and any prior redemption premiums due in connection with any bonds or other municipal securities or for any claim based thereon or otherwise upon the ordinance authorizing their issuance or other instrument appertaining thereto, against any individual member of the governing body or any officer or other agent of the municipality, past, present or future, either directly or indirectly through the governing body or the municipality, or otherwise, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any penalty or otherwise, all such liability, if any, being by the acceptance of the securities and as a part of the consideration of their issuance specially waived and released.” ACTS IRREPEALABLE: NRS 350.610 provides: “The faith of the state is hereby pledged that the Local Government Securities Law, any law supplemental or otherwise appertaining thereto, and any other act concerning the bonds or other municipal securities, taxes or the Net revenues or any combination of such securities, such taxes and such revenues shall not be repealed nor amended or otherwise directly or indirectly modified in such a manner as to impair adversely any outstanding municipal securities, until all such securities have been discharged in full or provision for their payment and redemption has been fully made, including without limitation the known minimum yield from the investment or reinvestment of moneys pledged therefor in federal securities.” ---PAGE BREAK--- G-8 TERMS OF SALE BID PROPOSALS: Except as otherwise provided below in “ELECTRONIC BIDDING”, each bidder must use the printed official bid form provided by the City. Any bid in any other form may be disregarded. A bidder is required to submit an unconditional bid for all the Bonds specifying: the lowest rate or rates of interest and the discount or premium at which the bidder will purchase all of the Bonds. It is also requested for informational purposes only, but is not required, that each bid disclose: The True Interest Cost (i.e, actuarial yield) on the Bonds expressed as a nominal annual percentage rate. (See “BASIS OF AWARD”, below). Bids submitted on an official bid form must be in a sealed envelope marked on the outside: “Proposal for 2008 Bonds” and addressed to City Treasurer Fernley, Nevada ELECTRONIC BIDDING: Unless submitting a printed official bid form, a prospective bidder may submit a bid for the Bonds via DALCOMP/PARITY no later than 8:30 a.m., Pacific time, on Wednesday, March 12, 2008. By submitting an electronic bid for the Bonds, a bidder represents and warrants to the City that such bidder's bid for the purchase of the Bonds is submitted for and on behalf of such bidder by an officer or agent who is duly authorized to bind the bidder to a legal, valid and enforceable contract for the purchase of the Bonds. Once the bids are communicated electronically via DALCOMP/PARITY, each bid will constitute an irrevocable offer to purchase the Bonds on the terms therein provided. Each electronic bidder shall be solely responsible to make necessary arrangements to access DALCOMP/PARITY for purposes of submitting its bid in a timely manner and in compliance with the requirements of this Official Notice of Bond Sale. Neither the City nor the Financial Advisor shall have any duty or be obligated to undertake to bid for any bidder or to provide or assure such access to any bidder, and neither the City nor the Financial Advisor shall be responsible for a bidder's failure to bid or for proper operation of, or have any liability for any delays or interruptions of, or any damages caused by DALCOMP/PARITY. DALCOMP/PARITY is a communication mechanism and is not the City's agent for to conducting electronic bidding for the Bonds. ---PAGE BREAK--- G-9 GOOD FAITH DEPOSIT: A good faith deposit (“Deposit”) in the form of a certified or cashier's check drawn on a solvent commercial bank or trust company in the United States of America or a financial surety bond issued by an insurance company licensed to issue such financial surety bond in the State of Nevada (“Financial Surety Bond”) made payable to City of Fernley, Nevada in the amount of $326,000 is required for each bid to be considered. If a check is used, it must accompany each bid. If a Financial Surety Bond is used, such Financial Surety Bond must be submitted to the City or its Financial Advisor prior to the opening of the bids. The Financial Surety Bond must identify each bidder whose Deposit is guaranteed by such Financial Surety Bond. The winning bidder is required to submit its Deposit to the City in the form of a cashier's check (or wire transfer such amount as instructed by the City) not later than 10:00 a.m. (Pacific time) on the next business day following the bid opening. If such Deposit is not received by that time, the Financial Surety Bond may be drawn by the City to satisfy the Deposit requirement. The Deposit will be held as evidence of good faith pending the delivery of the Bonds, to secure the City against any loss resulting from a failure of the best bidder to comply with the terms of its bid. The City, prior to the delivery of the Bonds, shall deposit such Deposit and will invest such Deposit pending the delivery of the Bonds. (Any investment income earned on the Deposit will not be credited to the successful bidder on the purchase price of Bonds but will be paid to the successful bidder in the event the City is unable to deliver the Bonds as provided under “MANNER AND TIME OF DELIVERY”, below.) CUSIP NUMBERS: It is anticipated that CUSIP identification numbers will be printed on the Bonds, but neither the failure to print such number on any Bond nor any error with respect thereto shall constitute cause for a failure or refusal by the purchaser(s) to accept delivery of and pay for the Bonds in accordance with the terms of the purchase contract. All expenses relating to printing the CUSIP numbers on the Bonds and the CUSIP Service Bureau charge for the assignment of the numbers will be the responsibility of and must be paid by the purchaser(s). METHOD OF EXERCISING BIDDER'S OPTIONS: Any option granted a bidder may be exercised only as expressly provided herein. SALES RESERVATIONS: The City reserves the privilege: A. Of waiving any irregularity or informality in any bid; B. Of rejecting any and all bids; and C. Of reoffering the Bonds for sale as provided by law. In addition, the City reserves the privilege of changing the date and/or time of sale of the Bonds. Any change in the date and/or time of sale of the Bonds will be communicated via DALCOMP/PARITY. If the City changes the sale date and/or time, this Notice shall remain effective, except as amended by such communication or other amendment communicated to potential bidders. ---PAGE BREAK--- G-10 BASIS OF AWARD: The 2008 Bonds, subject to such sale reservations, will be sold by the City to the responsible bidder making the best bid for all the 2008 Bonds. The best bid will be determined by computing the actuarial yield on the issue of 2008 Bonds using an actuarial or true interest cost method) for each bid received and an award will be made (if any is made) to the responsible bidder submitting the bid which results in the lowest true interest cost on the 2008 Bonds. “True interest cost” on the 2008 Bonds as used herein means that yield which if used to compute the present worth as of the date of the 2008 Bonds of all payments of principal and interest to be made on the 2008 Bonds from their date to their respective maturity dates (or mandatory sinking fund redemption dates), using the interest rates specified in the bid, produces an amount equal to the principal amount of the 2008 Bonds, less the discount or plus the premium bid. No adjustment shall be made in such calculation for any accrued interest on the 2008 Bonds from their date to the date of delivery thereof. Such calculation shall be based on a 360 day year and a semiannual compounding interval. If there are two or more equal bids and such equal bids are the best bids received, the City will determine which bid will be accepted. PLACE AND TIME OF AWARD: The City Treasurer, as chief financial officer of the City, or in her absence the City Manager, will take action awarding the Bonds or rejecting all bids not later than 36 hours after the time stated for opening bids. A bid may not be withdrawn within such 36-hour period. An award may be made after the stated period if the bidder shall not have given to the City Clerk notice in writing of the withdrawal of its bid. MANNER AND TIME OF DELIVERY: The Deposit will be credited to the purchaser of the Bonds at the time of delivery of the Bonds (without accruing interest). If the successful bidder fails, neglects, or refuses to complete the purchase of the Bonds on the date on which the Bonds are made ready and tendered by the City for delivery, the amount of its Deposit will be forfeited (as liquidated damages for noncompliance with the bid) to the City. In that event, the City may reoffer the Bonds for sale, as provided by law. The purchaser will not be required to accept delivery of any of the Bonds if they are not ready and are not tendered by the City for delivery within 60 days from the date for opening bids; and if the Bonds are not so tendered within such period of time, the applicable Deposit will be refunded to the purchaser upon its request. The Bonds will be made available for delivery by the City to the purchaser(s) as soon as reasonably possible after the date of the sale, and the City contemplates delivering them on or about April 1, 2008. The purchaser(s) of the Bonds will be given 72 hours' notice of the time fixed by the City for tendering the Bonds for delivery. PAYMENT AT AND PLACE OF DELIVERY: The successful bidder(s) will be required to accept delivery of the Bonds at DTC in New York, New York. Payment of the balance of the purchase price due for the Bonds at the time of their delivery must be made in Federal Reserve Bank funds or other funds acceptable to the Council for immediate and unconditional credit to the account of the City as directed by the City Treasurer so that such Bond proceeds may be deposited or invested, as the City Treasurer may determine, simultaneously with the delivery of such Bonds. The balance of the purchase price, including without limitation any premium, must be paid in such funds and not by any waiver of interest, and not by any other concession as a substitution for such funds. ---PAGE BREAK--- G-11 INFORMATION: This Official Notice of Bond Sale, an official statement, and financial and other information concerning the City and the Bonds may be obtained prior to the sale from the City Treasurer: Bonnie Duke Director of Finance/Treasurer Fernley City Hall 595 Silver Lace Boulevard Fernley, Nevada 89408 (775) 784-9840 or the City's Financial Advisor: JNA Consulting Group LLC 1400 Wyoming Street, Suite 3 Boulder City, Nevada 89005 (702) 294-5100 LEGAL OPINION, BONDS AND TRANSCRIPT: The validity and enforceability of the Bonds will be approved by: Swendseid & Stern, a member in Sherman & Howard 50 West Liberty Street, Suite 1000 Reno, Nevada 89501 (775) 323-1980 whose final, approving opinion in substantially the form set forth in the Preliminary Official Statement as Appendix D, together with the printed Bonds, a certified transcript of the legal proceedings, including a certificate stating that there is no litigation pending affecting the validity of the Bonds as of the date of their delivery (the “Closing Date”), and other closing documents, will be furnished to the purchaser of the Bonds on or after the Closing Date. OFFICIAL STATEMENT: The City has prepared the Preliminary Official Statement relating to the Bonds which is deemed by the City to be final as of its date for purposes of allowing bidders to comply with Rule 15c2-12(b) of the Securities Exchange Commission (the “Rule”), except for the omission of certain information as permitted by the Rule. The Preliminary Official Statement is subject to revision, amendment and completion in a “Final Official Statement”. The City will prepare a Final Official Statement, dated as of the date of its delivery to the winning bidder(s) as soon as practicable after the date of award to the winning bidder(s). The City will provide to the winning bidder of the Bonds up to 100 copies of the Final Official Statement on or before seven business days following the date of the award to the winning bidder(s). The Final Official Statements will be delivered to the winning bidder(s) at the offices of the Financial Advisor at the address listed in this Notice. If a winning bidder fails to pick up the Final Official Statements at the offices of the Financial Advisor, the Final Official Statements will be forwarded to the winning bidder by mail or another delivery service mutually agreed to between the winning bidder and the Financial Advisor. The winning bidder may obtain additional copies of the Final Official Statement at the expense of the winning bidder. ---PAGE BREAK--- G-12 The City authorizes the winning bidder to distribute the Final Official Statement in connection with the offering of the Bonds. For a period beginning on the date of the Final Official Statement and ending twenty five days following the date the winning bidder shall no longer hold for sale any of the Bonds (such date shall be the Closing Date unless the winning bidder advises the City in writing of another date), if any event concerning the affairs, properties or financial condition of the City shall occur as a result of which it is necessary to supplement the Final Official Statement in order to make the statements therein, in light of the circumstances existing at such time, not misleading, at the request of the winning bidder, the City shall forthwith notify the winning bidder of any such event of which it has knowledge and shall cooperate fully in the preparation and furnishing of any supplement to the Final Official Statement necessary, in the reasonable opinion of the City and the winning bidder, so that the statements therein as so supplemented will not be misleading in the light of the circumstances existing at such time. DISCLOSURE CERTIFICATES: The closing certificates for the Bonds included in the transcript of legal proceedings will include: 1. A certificate, dated as of the Closing Date, and signed by the Mayor, the City Clerk, the City Manager, the City Treasurer and the City Attorney (or deputy thereof) in which each of them states, after reasonable investigation, that to the best of his or her knowledge no action, suit, proceeding, inquiry, or investigation, at law or in equity, before or by any court, public board, or body, is pending, or, to the best of the knowledge of each of them, threatened, in any way contesting the completeness or accuracy of the Final Official Statement, the Final Official Statement as it pertains to the City and the Bonds does not contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements made therein, in the light of the circumstances under which they were made, not misleading; and no event affecting the City has occurred since the date of the Final Official Statement which should be disclosed therein for the purpose for which it is to be used or which it is necessary to disclose therein in order to make the statements and information therein not misleading in any respect; provided, however, that the City does not make any representation concerning the pricing information contained in the Final Official Statement; and 2. A certificate, dated as of the Closing Date, and signed by the City Treasurer, stating after reasonable investigation, that to the best of her knowledge, as of the date of the Final Official Statement and on the date of such certificate, the information contained in the Final Official Statement relating to revenues and expenditures of the City is true and correct and does not contain any untrue statement of a material fact or omit any information necessary to be included therein in order that the Final Official Statement be not misleading for the purposes for which it is to be used. CONTINUING DISCLOSURE UNDERTAKING. Pursuant to the Rule, the City will undertake in a continuing disclosure certificate which is authorized in the 2008 Bond Ordinance, to provide certain ongoing disclosure, including annual operating data and financial information, audited financial statements and notices of the occurrences of certain material events. A copy of the continuing disclosure certificate is included as Appendix E to the Official Statement. ---PAGE BREAK--- G-13 SUCCESSFUL BIDDER'S REOFFERING YIELDS: Within one-half hour of the bid opening each successful bidder (or manager of the purchasing account) shall notify by facsimile transmission to the City Treasurer at fax # (775) 784-9999 and the Financial Advisor at fax # (702) 294-5145, of the initial offering prices of such Bonds to the public (excluding bond houses, brokers, or similar persons acting in the capacity of underwriters or wholesalers) at which prices a substantial amount of each maturity of the Bonds was sold in an aggregate dollar amount, including any accrued interest. The information about the initial offering prices shall be based on the successful bidder's expectations as of the date of sale of the Bonds. Such facsimile notification must be confirmed in a written certificate in the form and substance satisfactory to Bond Counsel prior to the delivery of the Bonds, which shall be in substantially the following form: “A bona fide public offering was made for all of the Bonds on the sale date at the initial public offering prices (or yields) shown on the cover page of the Official Statement. As of such sale date based upon our assessment of market conditions, investor demand, sale and offering prices for comparable bonds, and the recent behavior of interest rates, we reasonably expected that the first prices (or yields) at which at least 10% of each maturity of the Bonds would be sold to the public (excluding such bond houses, brokers or similar persons or organizations acting in the capacity of underwriters or wholesalers) would be those prices (or yields) and that none of the Bonds would be sold to the public at prices higher than or at yields less than those prices (or yields), and (ii) such initial offering prices (or yields) represented a fair market value for the Bonds.” CONSENT TO JURISDICTION: A bid submitted by sealed bid or electronic bidding, if accepted by the City Treasurer or City Manager on behalf of the City, forms a contract between the winning bidder and the City subject to the terms of this Official Notice of Bond Sale. By submitting a bid, the bidder consents to the exclusive jurisdiction of any court of the State of Nevada located in Lyon County or the United States District Court for the State of Nevada for the purpose of any suit, action or other proceeding arising as a result of the submittal of the bid, and the bidder irrevocably agrees that all claims in respect to any such suit, action or proceeding may be heard and determined by such court. The bidder further agrees that service of process in any such action commenced in such State or Federal court shall be effective on such bidder by deposit of the same as registered mail addressed to the bidder at the address set forth in the bid. By order of the City Council of the City of Fernley, Nevada, this March 5, 2008. Bonnie Duke City Treasurer ---PAGE BREAK--- THIS PAGE INTENTIONALLY LEFT BLANK