Document Missoula_doc_680b452e34

FINAL OFFICIAL STATEMENT DATED OCTOBER 21, 2010 NEW ISSUE Moody’s Rating: A2 In the opinion of Dorsey & Whitney, LLP, Bond Counsel, interest paid on the Series 2010 Bonds is not excluded from gross income for federal income tax purposes. (See “TAX MATTERS” herein.) $10,345,000 City of Missoula, Montana Taxable Sewer System Revenue Bonds, Series 2010 (Recovery Zone Economic Development Bonds - Direct Pay) (Book Entry Only) Dated Date: Date of Delivery Interest Due: Each July 1 and January 1, commencing July 1, 2011 The Series 2010 Bonds will mature July 1 as follows: Maturity Interest CUSIP Maturity Interest CUSIP (July 1) Amount Rate 605855 (July 1) Amount Rate [PHONE REDACTED] $ 50,000 1.755% CX 1 2018 $145,000 4.199% DD 4 2013 125,000 2.058 CY 9 2019 150,000 4.349 DE 2 2014 130,000 2.421 CZ 6 2020 255,000 4.549 DF 9 2015 130,000 2.871 DA 0 2021 270,000 4.649 DG 7 2016 135,000 3.346 DB 8 2022 380,000 4.749 DH 5 2017 140,000 3.596 DC 6 2023 355,000 4.849 DJ 1 $1,000,000 4.949% Term Bond Due July 1, 2025 CUSIP 605855 DL 6 $3,020,000 6.038% Term Bond Due July 1, 2030 CUSIP 605855 DR 3 $4,060,000 6.138% Term Bond Due July 1, 2035 CUSIP 605855 DW 2 These Bonds are being reoffered at Par. The City may elect on January 1, 2021, and on any day thereafter, to prepay Bonds due on or after January 1, 2022 at a price of par plus accrued interest. The Series 2010 Bonds are also subject to extraordinary redemption if issued as Taxable Bonds. See “THE SERIES 2010 BONDS – Extraordinary Redemption” herein. The City will elect to treat the Series 2010 Bonds as “Build America Bonds” as defined under Section 54AA of the Code and to have Subsection 54AA(g) of the Code apply, will designate the Series 2010 Bonds as “Recovery Zone Economic Development Bonds” under Section 1400U-2 of the Code; and will elect under Code Section 6431 to receive a direct payment from the United States Treasury in an amount equal to 45% of the interest payable on the Series 2010 Bonds on each interest payment date. Direct payments are expected to be paid to the City within 45 days of filing of IRS Form 8038- CP with respect to each interest payment date identifying the amount of interest to be paid. The holders of the Series 2010 Bonds are not entitled to a tax credit as a result of ownership of the Series 2010 Bonds. (See “THE SERIES 2010 BONDS – Recovery Zone Economic Development Bonds” herein.) The Series 2010 Bonds will be special obligations of the City of Missoula, Montana (the “City”), payable solely from, and secured as to the payment of principal and interest by a pledge of, the Net Revenues derived by the City from the operation of its Sewer System (the “System”) on a parity with its sewer system revenue bonds outstanding in the principal amount of $13,943,000 (the “Outstanding Bonds”), and any additional bonds issued on a parity therewith, collectively, the Bonds. The Series 2010 Bonds shall not be or constitute a general obligation of the City, nor shall they constitute an indebtedness of the City within the meaning of any constitutional, statutory or charter provision, limitation or restriction, and the taxing power of the City is not pledged to the payment of the Series 2010 Bonds, either as to principal or interest. The proceeds will be used to finance various system improvements, fund a debt service reserve, and pay costs of issuance. The Series 2010 Bonds will be issued as fully registered Bonds without coupons and, when issued, will be registered in the name of Cede & Co., as nominee of The Depository Trust Company DTC will act as securities depository for the Series 2010 Bonds. Individual purchases may be made in book entry form only, in the principal amount of $5,000 and integral multiples thereof. Investors will not receive physical certificates representing their interest in the Series 2010 Bonds purchased. (See “THE SERIES 2010 BONDS - Book Entry System” herein.) U.S. Bank National Association, Seattle, Washington will serve as registrar (the “Registrar” or the “Paying Agent”) for the Series 2010 Bonds. The Series 2010 Bonds are expected to be available for delivery at DTC on or about November 15, 2010. The Series 2010 Bonds are being offered when, as and if issued and received by D.A. Davidson & Co. (the “Underwriter”), subject to prior sale, to withdrawal or modifications of the offer without any notice, and to the opinion as to validity and tax- exempt status of the Series 2010 Bonds by Dorsey & Whitney LLP, of Missoula, Montana and Minneapolis, Minnesota. D.A. Davidson & Co. ---PAGE BREAK--- No dealer, broker, salesman or other person has been authorized by the Underwriter or the City to give any information or to make any representations with respect to the Obligations, other than as contained in the Preliminary or Final Official Statements, and if given or made, such other information or representations must not be relied upon as having been authorized by the City. Certain information contained in Preliminary or Final Official Statements may have been obtained from sources other than records of the City and, while believed to be reliable, is not guaranteed as to completeness or accuracy. THE INFORMATION AND EXPRESSIONS OF OPINION IN THE PRELIMINARY OFFICIAL STATEMENT ARE SUBJECT TO CHANGE, AND NEITHER THE DELIVERY OF THE FINAL OFFICIAL STATEMENT NOR ANY SALE MADE UNDER EITHER SUCH DOCUMENT SHALL CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE CITY SINCE THE DATE THEREOF. References herein to laws, rules, regulations, resolutions, agreements, reports and other documents do not purport to be comprehensive or definitive. All references to such documents are qualified in their entirety by reference to the particular document, the full text of which may contain qualifications of and exceptions to statements made herein. Where full texts have not been included as appendices to the Preliminary or Final Official Statements, they will be furnished on request. Any CUSIP numbers for the Obligations included in the Final Official Statement are provided for convenience of the owners and prospective investors. The CUSIP numbers for the Obligations have been assigned by an organization unaffiliated with the City. The City is not responsible for the selection of the CUSIP numbers and makes no representation as to the accuracy thereof as printed on the Obligations or as set forth in the Final Official Statement. No assurance can be given that the CUSIP numbers for the Obligations will remain the same after the date of issuance and delivery of the Obligations. ---PAGE BREAK--- City of Missoula, Montana 435 Ryman Street Missoula, Montana 59802 Phone (406) 552-6108 www.ci.missoula.mt.us Mayor and City Council Term Expires John Engen Mayor January 6, 2014 Ed Childers President January 2, 2012 Dick Haines Council Member January 2, 2012 Lyn Hellegaard Council Member January 2, 2012 Roy Houseman Council Member January 6, 2014 Bob Jaffe Council Member January 6, 2014 Marilyn Marler Council Member January 6, 2014 Renee Mitchell Council Member January 2, 2012 Stacy Rye Council Member January 2, 2012 Dave Strohmaier Council Member January 6, 2014 Pam Walzer Council Member January 2, 2012 Jason Wiener Council Member January 2, 2012 Jon Wilkins Council Member January 6, 2014 Administrative Officials Bruce Bender Chief Administrative Officer Brentt G. Ramharter Finance Director/Treasurer James P. Nugent City Attorney Steve King Public Works Director Martha L. Rehbein City Clerk Mark Muir Police Chief Michael Painter Fire Chief Financial Advisor Springsted Incorporated Saint Paul, Minnesota Bond Counsel Dorsey & Whitney LLP Missoula, Montana and Minneapolis, Minnesota Paying Agent/Registrar U.S. Bank National Association Seattle, Washington ---PAGE BREAK--- TABLE OF CONTENTS Page(s) Summary of Terms i-ii Introductory Statement 1 Continuing Disclosure 2 The Series 2010 Bonds 2 The Project 8 Sources and Uses of Funds 9 Authorization 10 The City’s Sewer System 13 Future Financing 20 Litigation 20 Legality 21 Tax Matters 21 Rating 21 Financial Advisor 22 Paying Agent 22 Certification 22 Underwriting 22 Summary of Certain Provisions of the Bond Resolution and Key Definitions Appendix I Description of Continuing Disclosure Undertaking Appendix II General Information Concerning the City Appendix III Excerpt of Audited Financial Statements for the Year Ended June 31, 2009 Appendix IV ---PAGE BREAK--- - i - SUMMARY OF TERMS $10,345,000 City of Missoula, Montana Taxable Sewer System Revenue Bonds, Series 2010 (Recovery Zone Economic Development Bonds – Direct Pay) The following is a summary of pertinent information discussed in this Official Statement. Capitalized terms used herein are defined in the text and in the Bond Resolution. This summary is qualified in its entirety by reference to the more detailed information included elsewhere in this Official Statement. Authority for The Series 2010 Bonds: The Series 2010 Bonds are authorized pursuant to Montana Code Annotated Title 7, Chapter 7, Parts 42 and 43, and the resolution to be duly adopted by the City Council of the City (the “City Council”) on or about October 18, 2010 (the “Bond Resolution”). (See “THE SERIES 2010 BONDS - Authorization” herein.) Missoula County, Montana has designated its boundaries, which includes the City, as a “Recovery Zone” under the Code, and has received an allocation from the State of Montana Department of Administration for the issuance of Recovery Zone Economic Development Bonds. The City will elect to treat the Series 2010 Bonds as “Build America Bonds” as defined under Section 54AA of the Code and to have Subsection 54AA(g) of the Code apply, will designate the Series 2010 Bonds as “Recovery Zone Economic Development Bonds” under Section 1400U-2 of the Code, and will elect under Code Section 6431 to receive a direct payment from the United States Treasury in an amount equal to 45% of the interest payable on the Series 2010 Bonds on each interest payment date Source of Repayment: The Series 2010 Bonds are special, limited obligations of the City and, except to the extent payable from the Reserve Account or other amounts on deposit in the Sewer System Fund as provided in the Bond Resolution, will be payable solely from and secured by the Net Revenues of the Sewer System received by the City from charges imposed by the City for all services and facilities furnished and made available by the Sewer System to all users of the Sewer System and from amounts received from the United States Department of the Treasury as federal credit payments under Section 6431 of the Code in respect of the Series 2010 Bonds (“Federal Payments”). The Series 2010 Bonds are issued on parity with the Outstanding Bonds and any Additional Bonds. The Series 2010 Bonds are not general obligations of the City and the ---PAGE BREAK--- - ii - full faith, credit and taxing power of the City are not pledged for the payment thereof. Repayment Term: The Series 2010 Bonds will mature annually on July 1, 2012 through July 1, 2035. Interest will be payable semi-annually each January 1 and July 1, commencing July 1, 2011. Use of Proceeds: Proceeds of the Series 2010 Bonds will be used for the Missoula Wastewater Treatment Plant Headworks and Order Control Improvements. See “THE PROJECT”. Security for The Series 2010 Bonds: The Series 2010 Bonds shall be special obligations of the City payable on a parity with the Outstanding Bonds solely from, and secured as to the payment of principal and interest by a pledge of, the Net Revenues derived by the City from the operation of the System. The Series 2010 Bonds are also secured by a debt service reserve account. THE SERIES 2010 BONDS SHALL NOT BE OR CONSTITUTE A GENERAL OBLIGATION OF THE CITY, NOR SHALL THEY CONSTITUTE AN INDEBTEDNESS OF THE CITY WITHIN THE MEANING OF ANY CONSTITUTIONAL, STATUTORY OR CHARTER PROVISION, LIMITATION OR RESTRICTION, AND THE TAXING POWER OF THE CITY IS NOT PLEDGED TO THE PAYMENT OF THE SERIES 2010 BONDS, EITHER AS TO PRINCIPAL OR INTEREST. See “SECURITY FOR THE BONDS”. Extraordinary Redemption: An “Extraordinary Event” will have occurred if a material adverse change has occurred to Section 54AA, 1400U-2, or 6431 of the Internal Revenue Code of 1986, as applicable (as such Sections were added by the American Recovery and Reinvestment Act of 2009, pertaining specifically to Section 1401) pursuant to which the City’s 45% direct payment credit from the United States Treasury is reduced or eliminated. Optional Redemption: The City may elect on January 1, 2021, and on any day thereafter, to prepay the Series 2010 Bonds due on or after January 1, 2022. Redemption may be in whole or in part and if in part at the option of the City and in such manner as the City shall determine. If less than all Series 2010 Bonds of the stated maturity are called for redemption, the City will notify DTC of the particular amount of such maturity to be prepaid. DTC will determine by lot the amount of each participant’s ownership interests in such maturity to be redeemed. All prepayments shall be at a price of par plus accrued interest. ---PAGE BREAK--- - 1 - FINAL OFFICIAL STATEMENT $10,345,000 CITY OF MISSOULA, MONTANA TAXABLE SEWER SYSTEM REVENUE BONDS, SERIES 2010 (RECOVERY ZONE ECONOMIC DEVELOPMENT BONDS – DIRECT PAY) (BOOK ENTRY ONLY) INTRODUCTORY STATEMENT This Preliminary Official Statement contains certain information regarding the City of Missoula, Montana (the “City” or the “Issuer”) and its issuance of $10,345,000 Taxable Sewer System Revenue Bonds, Series 2010 (Recovery Zone Economic Development Bonds – Direct Pay) (the “Series 2010 Bonds”, the “Obligations” or the “Issue”). The Series 2010 Bonds are being issued for the purpose of financing certain improvements to the City’s sanitary sewer system (the “System”), fund a debt service reserve, and pay costs of issuance. The Series 2010 Bonds shall be special obligations of the City payable solely from, and secured as to the payment of principal and interest by a pledge of, the Net Revenues derived by the City from the operation of the System on parity with the City’s Outstanding Bonds described below. The Series 2010 Bonds are also secured by a debt service reserve account (the “Reserve Account”) to be funded at closing from the Bond proceeds. The general taxing power of the City is not pledged to the payment of the Series 2010 Bonds or the interest thereon. See “THE SERIES 2010 BONDS – Security for The Series 2010 Bonds” herein. The Outstanding Bonds consist of:  $1,820,000 Sewerage System Revenue Bond (DNRC Revolving Loan Program), Series 1999A, which is outstanding as of October 1, 2010 in the amount of $997,000;  $718,000 Sewerage System Revenue Bond (DNRC Revolving Loan Program), Series 2000B, which is outstanding as of October 1, 2010 in the amount of $430,000;  $537,000 Sewerage System Revenue Bond (DNRC Revolving Loan Program), Series 2001A, which is outstanding as of October 1, 2010 in the amount of $283,000;  $1,395,000 Sewerage System Revenue Bond (DNRC Revolving Loan Program), Series 2002A, which is outstanding as of October 1, 2010 in the amount of $854,000;  $5,000,000 Sewerage System Revenue Bond (DNRC Revolving Loan Program), Series 2002B, which are outstanding as of October 1, 2010 in the amount of $3,458,000;  $3,800,000 Sewerage System Revenue Bond (DNRC Revolving Loan Program), Series 2003, which are outstanding as of October 1, 2010 in the amount of $2,776,000;  $3,688,000 Sewerage System Revenue Bond (DNRC Revolving Loan Program), Amended and Restated Series 2004, which is outstanding as of October 1, 2010 in the amount of $2,783,000;  $1,731,833 Sewer System Revenue Bond (DNRC Revolving Loan Program), Series 2005, which is outstanding as of October 1, 2010 in the amount of $1,368,000; ---PAGE BREAK--- - 2 -  $310,190 Sewer System Revenue Bond (DNRC Revolving Loan Program), Series 2006A, which is outstanding as of October 1, 2010 in the amount of $251,000;  $731,000 Sewer System Revenue Bond (DNRC Water Pollution Control State Revolving Loan Program), Series 2009B, which is deemed to be outstanding in the amount of $731,000; and  $64,000 Sewer System Revenue Bond (DNRC Water Pollution Control State Revolving Loan Program), Series 2009C, which is outstanding as of October 1, 2010 in the amount of $64,000. The City has issued a Subordinate Lien of $361,012 Sewer System Bond (DNRC Water Pollution Control State Revolving Loan Program), Series 2009A, which is outstanding as of October 1, 2010 in the amount of $361,012, payable out of available Surplus Net Revenues in the Replacement and Depreciation Account or the Surplus Account in the Fund of the City. The City has retained the right under the Bond Resolution (hereinafter defined) to issue additional bonds on a parity with the Series 2010 Bonds and the Outstanding Bonds, and payable from the same sources and secured by the same revenues as the Series 2010 Bonds, but only in accordance with and subject to the terms and conditions set forth in the Resolution. See “APPENDIX I – Summary of Certain Provisions of the Bond Resolution.” CONTINUING DISCLOSURE In order to permit bidders for the Series 2010 Bonds and other participating underwriters in the primary offering of the Series 2010 Bonds to comply with paragraph of Rule 15c2-12 promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended (the “Rule”), the City will covenant and agree, for the benefit of the registered holders or beneficial owners from time to time of the outstanding Bonds, in the Bond Resolution to provide annual reports of specified information and notice of the occurrence of certain events, if material, as hereinafter described (the “Disclosure Covenants”). The information to be provided on an annual basis, the events as to which notice is to be given, if material, and a summary of other provisions of the Disclosure Covenants, including termination, amendment and remedies, are set forth in Appendix II to this Official Statement. Breach of the Disclosure Covenants will not constitute a default or an “Event of Default” under the Series 2010 Bonds or the Resolutions. A broker or dealer is to consider a known breach of the Disclosure Covenants, however, before recommending the purchase or sale of the Series 2010 Bonds in the secondary market. Thus, a failure on the part of the City to observe the Disclosure Covenants may adversely affect the transferability and liquidity of the Series 2010 Bonds and their market price. The City has never failed in any previous continuing disclosure undertaking. THE SERIES 2010 BONDS General Description The Series 2010 Bonds will be dated and bear interest from the date of delivery and are issued in denominations of $5,000 and integral multiples thereof. The Series 2010 Bonds are issued in book entry form and will mature on the dates and in the principal amounts as shown on the cover of this Official Statement. Interest on the Series 2010 Bonds will be computed on the basis of a 360-day year consisting of twelve 30-day months and is payable on January 1 and July 1 of each year, commencing July 1, 2011. ---PAGE BREAK--- - 3 - Interest on the Series 2010 Bonds will be payable to the holder (initially Cede & Co.) registered on the books of the Registrar on the fifteenth day of the calendar month next preceding such interest payment date. Principal of and interest on the Series 2010 Bonds will be paid as described in the Section below entitled “Book Entry System.” The City has named U.S. Bank National Association, Seattle, Washington as Registrar for the Series 2010 Bonds. The City will pay for registration services. The City will elect to treat the Series 2010 Bonds as “Build America Bonds” as defined under Section 54AA of the Code and to have Subsection 54AA(g) of the Code apply, will designate the Series 2010 Bonds as “Recovery Zone Economic Development Bonds” under Section 1400U-2 of the Code, and will elect under Code Section 6431 to receive a direct payment from the United States Treasury in an amount equal to 45% of the interest payable on the Series 2010 Bonds on each interest payment date. Optional Redemption The City may elect on January 1, 2021, and on any day thereafter, to prepay the Series 2010 Bonds due on or after January 1, 2022. Redemption may be in whole or in part and if in part at the option of the City and in such manner as the City shall determine. If less than all Series 2010 Bonds of the stated maturity are called for redemption, the City will notify DTC of the particular amount of such maturity to be prepaid. DTC will determine by lot the amount of each participant’s ownership interests in such maturity to be redeemed. All prepayments shall be at a price of par plus accrued interest. Mandatory Redemption of the Term Bonds The Term Bonds maturing on July 1 in the years 2025, 2030, and 2035 (the “Term Bonds”) are subject to mandatory sinking fund redemption and shall be redeemed in part at par plus accrued interest on the mandatory dates and in the principal amounts as follows: 2025 Term Bond Year Amount 2024 $490,000 2025* 510,000 2030 Term Bond 2035 Term Bond Year Amount Year Amount 2026 $535,000 2031 $720,000 2027 570,000 2032 760,000 2028 600,000 2033 810,000 2029 640,000 2034 860,000 2030* 675,000 2035* 910,000 * Final Maturity The principal amount of the Term Bonds (the “Term Bonds”) may be reduced through the earlier optional redemption, with any partial optional redemptions of the Term Bonds credited against future mandatory redemption requirements for such Term Bonds in such order as the City shall determine. ---PAGE BREAK--- - 4 - Extraordinary Redemption An “Extraordinary Event” will have occurred if a material adverse change has occurred to Section 54AA, 1400U-2, or 6431 of the Internal Revenue Code of 1986, as applicable (as such Sections were added by the American Recovery and Reinvestment Act of 2009, pertaining specifically to Section 1401) pursuant to which the City’s 45% direct payment credit from the United States Treasury is reduced or eliminated. Book Entry System The Depository Trust Company New York, New York, will act as securities depository for the Obligations. The Obligations 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 certificate will be issued for each maturity of the Obligations, each in the aggregate principal amount of such maturity, and will be deposited with DTC. DTC is a limited-purpose trust company organized under the New York Banking Law, a “banking organization” within the meaning of the New York Banking Law, a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code, and a “clearing agency” registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for securities that its 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 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 and Fixed Income Clearing Corporation all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as securities brokers and dealers, banks, trust companies and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly (“Indirect Participants”). The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com and www.dtc.org. Purchases of Obligations under the DTC system must be made by or through Direct Participants, which will receive a credit for the Obligations on DTC’s records. The ownership interest of each actual purchaser of each Obligation (“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 Obligations are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in the Obligations, except in the event that use of the book-entry system for the Obligations is discontinued. To facilitate subsequent transfers, all Obligations 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 Obligations with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any ---PAGE BREAK--- - 5 - change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Obligations; DTC’s records reflect only the identity of the Direct Participants to whose accounts such Obligations 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 Obligations may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Obligations, such as redemptions, tenders, defaults, and proposed amendments to the Obligations documents. For example, Beneficial Owners of the Obligations may wish to ascertain that the nominee holding the Obligations for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of the notices be provided directly to them. Redemption notices are required to be sent to DTC. If less than all of the Obligations within a maturity are being redeemed, DTC’s practice is to determine by lot the amount of the interest of each Direct Participant in such maturity to be redeemed. Neither DTC nor Cede & Co. (nor such other DTC nominee) will consent or vote with respect to the Obligations unless authorized by a Direct Participant in accordance with DTC’s procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the Issuer or Bond Registrar as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.’s consenting or voting rights to those Direct Participants to whose accounts the Obligations are credited on the record date (identified in a listing attached to the Omnibus Proxy). Payment of principal, interest, and redemption premium, if any, on the Obligations 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 its agent on the 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 Bond Registrar, or the Issuer, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal, interest, and redemption premium, if any, to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the Bond Registrar, Issuer, or the Issuer's 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. A Beneficial Owner shall give notice to elect to have its Obligations purchased or tendered, through its Participant, to Trustee, and shall effect delivery of such Obligations by causing the Direct Participant to transfer the Participant’s interest in the Obligations, on DTC’s records, to Trustee. The requirement for physical delivery of Obligations in connection with an optional tender or a mandatory purchase will be deemed satisfied when the ownership rights in the Obligations are transferred by Direct Participants on DTC’s records and followed by a book- entry credit of tendered Obligations to Trustee’s DTC account. DTC may discontinue providing its services as securities depository with respect to the Obligations at any time by giving reasonable notice to the Issuer or its agent. Under such circumstances, in the event that a successor securities depository is not obtained, certificates are required to be printed and delivered. ---PAGE BREAK--- - 6 - The Issuer may decide to discontinue use of the system of book-entry-only transfers through DTC (or a successor securities depository). In that event, certificates will be printed and delivered to DTC. 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. Recovery Zone Economic Development Bonds Designation of Bonds as “Recovery Zone Economic Development Bonds.” Sections 54AA, 1400U-2 and 6431 of the Internal Revenue Code of 1986, as amended (the “Code”), and as further amended by the American Recovery and Reinvestment Act of 2009 (“ARRA”), authorizes the City to issue taxable bonds known as “Recovery Zone Economic Development Bonds” to finance capital expenditures for certain “qualified” economic development purposes for which it could otherwise issues tax-exempt bonds and to elect to receive a direct payment from the United States Treasury in an amount equal to 45% of the interest payable on the Series 2010 Bonds on each interest payment date (the “Federal Subsidy Payments”). A Recovery Zone Economic Development Bond is a bond that is issued as part of an issue that meets the following requirements: the bond is a Build America Bond; the bond is issued before January 1, 2011; 100% of the excess of the available project proceeds (as defined in Section 54A to mean sale proceeds of such issue less not more than 2% of such proceeds used to pay issuance costs, plus investment proceeds thereon), over (ii) the amounts in a reasonably required reserve fund (within the meaning of Section 150(a)(3))with respect to such issue are to be used for one or more “qualified economic development purposes” (as defined in Section 1400U-2(c)); and the issuer designated such bond for this purpose. Missoula County, Montana has designated its boundaries, which includes the City, as a “Recovery Zone” under the Code, and has received an allocation from the State of Montana Department of Administration for the issuance of Recovery Zone Economic Development Bonds. The City will elect to treat the Series 2010 Bonds as “Build America Bonds” as defined under Section 54AA of the Code and to have Subsection 54AA(g) of the Code apply, will designate the Series 2010 Bonds as “Recovery Zone Economic Development Bonds” under Section 1400U-2 of the Code, and elect under Code Section 6431 to receive a direct payment from the United States Treasury in an amount equal to 45% of the interest payable on the Series 2010 Bonds on each interest payment date (the “Federal Payments”). As a result of these actions, interest on the Series 2010 Bonds is not excludable from gross income of owners of the Series 2010 Bonds for federal income tax purposes, and owners of the Series 2010 Bonds will not be allowed any federal tax credits as a result of ownership of or receipt of interest payments on the Series 2010 Bonds. (See “TAX MATTERS” herein.) The obligation of the United States Treasury under Section 6431 of the Code to make direct payments to the City in respect of interest payments on the Series 2010 Bonds does not constitute a full faith and credit guarantee of the Series 2010 Bonds by the United States of America. Federal Credit Payments for “Recovery Zone Economic Development Bonds.” The Code establishes certain ongoing requirements that must be met subsequent to the delivery of the Series 2010 Bonds in order for the City to continue to receive federal credit payments. Many of these requirements are identical to those applicable to tax-exempt bonds, such as requirements relating to the use and expenditure of the available project proceeds of the Series 2010 Bonds, yield and other restrictions on investments of available project proceeds. The Internal Revenue Service has advised that in general, the federal credit payments made in respect of Recovery Zone Economic Development Bonds, such as the Series 2010 Bonds are ---PAGE BREAK--- - 7 - payments that are treated as overpayment of tax. Accordingly, rules relating to overpayments of tax, such as credits against liabilities in respect of an internal revenue tax and offsets, interest on overpayments of tax and limitations on credits or refunds of overpayments of tax also apply to the federal credit payments made in respect of Recovery Zone Economic Development Bonds. Noncompliance by the City with any of the provisions required to claim the federal credit payments, or an internal revenue tax liability of the City (such as a federal payroll tax liability) against which federal credit payments may be offset could result in the City not receiving expected federal credit payments. The City has authorized its appropriate officers to take such actions as are necessary or appropriate for the City to receive from the United States Treasury the applicable federal credit payments in respect of the Series 2010 Bonds, such as the timely filing with the Internal Revenue Service of Form 8038-CP – “Return for Credit Payments to Issuers of Qualified Bonds” in the manner prescribed by Internal Revenue Service Notice 2009-26. The City has covenanted in the Bond Resolution that it will not take or permit to be taken on its behalf any action that would adversely affect the entitlement of the City to receive from the United States Treasury the applicable federal credit payments in respect of any bonds, including the Series 2010 Bonds, sold and issued as Recovery Zone Economic Development Bonds. The City has covenanted to comply with the provisions of the Code compliance with which would result in the interest on such bonds being excluded from gross income for federal income tax purposes but for an irrevocable election to have Section 54AA of the Code apply to such bonds, including the Series 2010 Bonds. Annual Filing Agent for The Series 2010 Bonds – Receipt of Federal Subsidy Payments At the time of issuance of the Series 2010 Bonds, the City will enter into an agreement with U.S. Bank National Association in Seattle, Washington, as Annual Filing Agent in addition to serving as Registrar for the Series 2010 Bonds, to take such actions and to execute all agreements, documents, instruments and certificates as are necessary or appropriate for the City to receive from the United States Department of the Treasury the applicable Federal Subsidy Payments in respect of the Series 2010 Bonds, including, but not limited to, the preparation and/or timely filing with the IRS of Form 8038-CP – “Return for Credit Payments to Issuers of Qualified Bonds”. Subject to further guidance from the IRS, Federal Subsidy Payments are expected to be paid to the City within 45 days of filing of IRS Form 8038-CP with respect to each interest payment date identifying the amount of interest to be paid. Each such Form may not be filed more than 90 days prior to the relevant interest payment date. Receipt of Federal Subsidy Payments Receipt of the Federal Subsidy Payments described herein with respect to Series 2010 Bonds is expected by the City, but cannot be assured. The failure to properly and timely file the required forms could result in the delay or denial of receipt of the Federal Subsidy Payments. In addition, the Federal Subsidy Payments described herein are payable under current law. There can be no assurance that future changes in the law would not reduce or eliminate Federal Subsidy Payments with respect to the Series 2010 Bonds. However, the City’s pledge of the Net Revenues of its Sewer System, as described herein, is not abated or offset by the anticipated receipt of Federal Subsidy Payments described herein, but rather continue to secure the Series 2010 Bonds whether the anticipated Federal Subsidy Payments are received or not. (See “THE SERIES 2010 BONDS – Recovery Zone Economic Development Bonds,” and “THE SERIES 2010 BONDS – Redemption” herein.) ---PAGE BREAK--- - 8 - Extraordinary Optional Redemption of The Series 2010 Bonds. Upon the occurrence of an Extraordinary Event, the Series 2010 Bonds are subject to extraordinary optional redemption by the City prior to maturity, in whole or in part, at a redemption price of 100% (expressed as a percentage of the principal amount), plus interest accrued to the date fixed for redemption. The term “Extraordinary Event” means a determination by the City that a material adverse change has occurred to Sections 54A, 54F, 54AA or 6431 of the Code or the publication of any procedures, rules or guidance by the Internal Revenue Service or the Treasury Department with respect to such Sections or any other determination by the Internal Revenue Service or the Treasury Department which determination is not the result of any act or omission by the City or the County to satisfy the requirements of the City to qualify to receive a direct cash subsidy payment from the Treasury Department equal to the amount of interest which would have been payable on such Series 2010 Bonds on such Interest Payment Date if such Series 2010 Bonds bore interest at the Applicable Credit Rate, pursuant to which such direct cash subsidy payment is reduced, deferred or eliminated. THE PROJECT Missoula Wastewater Treatment Plant Headworks and Odor Control Improvements The Project involves construction of a new headworks facility to replace the existing facility which has reached the end of its service life. The new headworks building will house three new influent screens, three new influent pumps, as well as screening washer compactors, grit washers, and odor control equipment. New vortex grit basins and grit pumps will also be constructed. The Project also includes a new septage receiving station, new effluent measurement weir, new TWAS tank aeration system blower and odor control, and influent and effluent piping modifications. The existing Headworks facility was constructed in 1984 with minimal improvement since then. The existing facility includes three screw pumps, two mechanically cleaned coarse bar screens (1-inch spacing), two aerated grit chambers with three blowers, four submersible grit pumps (installed in 2004) and a hydrocyclone grit washer (installed in 2004). The 2008 Wastewater Facilities Plan Update identified deficiencies including aging equipment and poor screening which contributes to excessive plastics in the fermenter and digester sludge. In addition, the 2009 Odor Characterization Study mandated by the City-County Health Department identified the existing Headworks and Thickened WAS storage tank as primary sources of odors at the plant. The Project includes the addition of new Parshall flume for influent flow measurement which is required by the City’s Montana Pollutant Discharge Elimination System (MPDES) discharge permit. The Project also includes modification of the effluent flow measurement weir to improve accuracy. The Project will greatly improve the preliminary treatment at the plant, contributing to a better quality biosolids, improved screening and grit capture resulting in less wear on equipment, and a significant reduction of odors from the plant. The Project will be constructed entirely on the existing WWTP site. There are no outstanding legal issues that could potentially delay the project. The project will be constructed entirely on the existing WWTP site. No land purchase, right-of-way or other land acquisition is required for this project. ---PAGE BREAK--- - 9 - Proposed Improvements  Only the Headworks portion of the plant will have a capacity increase from the current 12 MGD average annual flow to 15 MGD (aaf) which will take Headworks capacity out 30-35 years. Additionally the new Headworks design incorporates a modular approach in that future expansion can be done by adding modules to Headworks.  The Current MPDES permit requires all treatment plants to have influent flow metering. The Missoula WWTP currently does not. This project will include that requirement.  The Project will incorporate state of the art odor control. The 2009 Odor Characterization Study found the existing Headworks to be a major source of nuisance odor in the area.  The Project is designed to meet capacity for the next 30-35 years.  The existing Headworks is more than 25 years old. When constructed no consideration was made for corrosion or odor control. The existing structure is well beyond its life cycle and structure is deteriorating rapidly.  Improved removal of inorganic debris from the biological process’ will improve treatment and reduce plant maintenance.  This project involves construction of a new headworks facility to replace the existing facility which has reached the end of its service life. The new headworks building will house three new influent screens, three new influent pumps, as well as screening washer compactors, grit washers, and odor control equipment. New vortex grit basins and grit pumps will also be constructed. The project also includes a new septage receiving station, new effluent measurement weir, new TWAS tank aeration system blower and odor control, and influent and effluent piping modifications. SOURCES AND USES OF FUNDS The following is a list of sources and uses of funds associated with the Project and the Series 2010 Bonds, exclusive of accrued interest: Sources: Principal Amount of Bonds $10,345,000 Total Sources of Funds $10,345,000 Uses: Deposit to Project Fund $ 9,469,069 Deposit to Debt Service Reserve Fund 707,788 Costs of Issuance* 100,900 Underwriters’ Discount 67,243 Total Uses of Funds $10,345,000 * Includes attorney fees, financial advisor fees, paying agent fees, and rating agency fees. ---PAGE BREAK--- - 10 - AUTHORIZATION The Series 2010 Bonds are authorized pursuant to Montana Code Annotated Title 7, Chapter 7, Parts 42 and 43, and the Restated and Amended Bond Resolution and a Supplemental Resolution to be duly adopted by the City Council of the City (the “City Council”) on or about November 1, 2010 (collectively, the “Bond Resolution”). (See “THE SERIES 2010 BONDS - Authorization” herein.) Missoula County, Montana has designated its boundaries, which includes the City, as a “Recovery Zone” under the Code, and has received an allocation from the State of Montana Department of Administration for the issuance of Recovery Zone Economic Development Bonds. The City will elect to treat the Series 2010 Bonds as “Build America Bonds” as defined under Section 54AA of the Code and to have Subsection 54AA(g) of the Code apply, will designate the Series 2010 Bonds as “Recovery Zone Economic Development Bonds” under Section 1400U-2 of the Code, and will elect under Code Section 6431 to receive a direct payment from the United States Treasury in an amount equal to 45% of the interest payable on the Series 2010 Bonds on each interest payment date (the “Federal Payments”). Security Special, Limited Obligations. The Series 2010 Bonds are special, limited obligations of the City and, except to the extent payable from the Reserve Account or other amounts on deposit in the System Fund as provided in the Bond Resolution, will be payable solely from and secured by the Net Revenues of the System received by the City, including from charges imposed by the City for all services and facilities furnished and made available by the System to all users of the System. The Series 2010 Bonds are not general obligations of the City and the full faith, credit and taxing power of the City are not pledged for the payment thereof. The Series 2010 Bonds are issued on parity with the following outstanding bonds of the City:  $1,820,000 Sewerage System Revenue Bond (DNRC Revolving Loan Program), Series 1999A, which is outstanding as of October 1, 2010 in the amount of $997,000;  $718,000 Sewerage System Revenue Bond (DNRC Revolving Loan Program), Series 2000B, which is outstanding as of October 1, 2010 in the amount of $430,000;  $537,000 Sewerage System Revenue Bond (DNRC Revolving Loan Program), Series 2001A, which is outstanding as of October 1, 2010 in the amount of $283,000;  $1,395,000 Sewerage System Revenue Bond (DNRC Revolving Loan Program), Series 2002A, which is outstanding as of October 1, 2010 in the amount of $854,000;  $5,000,000 Sewerage System Revenue Bond (DNRC Revolving Loan Program), Series 2002B, which are outstanding as of October 1, 2010 in the amount of $3,458,000;  $3,800,000 Sewerage System Revenue Bond (DNRC Revolving Loan Program), Series 2003, which are outstanding as of October 1, 2010 in the amount of $2,776,000;  $3,688,000 Sewerage System Revenue Bond (DNRC Revolving Loan Program), Amended and Restated Series 2004, which is outstanding as of October 1, 2010 in the amount of $2,783,000;  $1,731,833 Sewer System Revenue Bond (DNRC Revolving Loan Program), Series 2005, which is outstanding as of October 1, 2010 in the amount of $1,368,000;  $310,190 Sewer System Revenue Bond (DNRC Revolving Loan Program), Series 2006A, which is outstanding as of October 1, 2010 in the amount of $251,000; ---PAGE BREAK--- - 11 -  $731,000 Sewer System Revenue Bond (DNRC Water Pollution Control State Revolving Loan Program), Series 2009B, which is deemed to be outstanding in the amount of $731,000; and  $64,000 Sewer System Revenue Bond (DNRC Water Pollution Control State Revolving Loan Program), Series 2009C, which is outstanding as of October 1, 2010 in the amount of $64,000; and with any additional Sewer system revenue bonds of the City that may hereafter be issued on a parity therewith under the Resolution (collectively with such outstanding bonds, the “Bonds”). THE SERIES 2010 BONDS SHALL NOT BE OR CONSTITUTE A GENERAL OBLIGATION OF THE CITY, NOR SHALL THEY CONSTITUTE AN INDEBTEDNESS OF THE CITY WITHIN THE MEANING OF ANY CONSTITUTIONAL, STATUTORY OR CHARTER PROVISION, LIMITATION OR RESTRICTION, AND THE TAXING POWER OF THE CITY IS NOT PLEDGED TO THE PAYMENT OF THE SERIES 2010 BONDS, EITHER AS TO PRINCIPAL OR INTEREST. Net Revenue Pledge. Principal of and interest on the Series 2010 Bonds are payable from and constitute a first and prior lien upon the Gross Revenue of the System after payment of all current, necessary and reasonable operating and maintenance expenses of the System (the “Net Revenues”). Gross revenue of the System includes all revenues and receipts from rates, fees, charges and rentals imposed for connections with and for the availability, benefit and use of the System and from penalties and interest thereon, and from a direct payment from the United States Treasury in an amount equal to 45% of the interest payable on the Series 2010 Bonds on each interest payment date (the “Federal Payments”) and from any sales of property acquired for the System and all income received from the investment of such revenues and receipts , including interest earnings on the Reserve Account and the Operating Account, but excluding interest on the Construction Account, Repair and Replacement Account and the Surplus Account, and excluding any special assessments or taxes levied for the contraction of any part of the System and the proceeds of any grant or loans from the State or the United States, and any investments income there, to the extent that such exclusion is a condition to such grant or loan. Rate Covenant. The City has covenanted in the Bond Resolution to maintain rates, charges and rentals for all services and facilities furnished and made available by the System to the City and its inhabitants, and to all customers either within or without the boundaries of the City, taking into consideration the costs and value of the System and the costs of maintaining and operating it, and the amounts necessary for the payment of all Outstanding Bonds and the interest accruing thereon and all Subordinate Obligations and the interest thereon, and necessary allowance for depreciation of the System. Specifically, the City has agreed that the rates, charges and rental shall be maintained and revised whenever necessary and as often as is necessary, such that the Gross Revenues for each Fiscal Years will be at least sufficient to pay current expenses of the operations and maintenance of the System, to maintain the Operating Reserve, as to provide Net Revenues during each Fiscal Year, not less than 125% of the maximum Principal and Interest Requirements for any Outstanding Bonds in the current or any future Fiscal Years, to pay the principal of and interest on any Subordinate Obligations and to provide reserves for the repair and replacement of the System, Additional Bonds may not be issued unless Net Revenue is sufficient to provide coverage of projected 1.25 times the maximum annual Principal and Interest Requirements due on all Outstanding and Additional Bonds in any fiscal year during the term of the then Outstanding Bonds and such Additional Bonds. Reserve Account. The Series 2010 Bonds are further secured by a Reserve Account in the System Fund which is established in the Bond Resolution for the sole purpose of paying ---PAGE BREAK--- - 12 - principal and interest on all Bonds of the System secured by the Reserve Account if the balance in the Debt Service Account is not sufficient to pay debt service when due. The City has covenanted in the Bond Resolution to maintain the Reserve Account for the Series 2010 Bonds, in an amount equal as of the date of determination, to the maximum annual principal and interest due in the current or any future fiscal on all Outstanding Bonds (the “Reserve Requirement”). Upon the closing for the Series 2010 Bonds, the Reserve Requirement will be on deposit in the Reserve Account. If upon any semiannual apportionment of Gross Revenue, the balance in the Reserve Account is less than the Reserve Requirement, all Net Revenues in the Sanitary System Fund remaining after the required credit to the Debt Service Account shall be credited to the Reserve Account until the balance therein equals the Reserve Requirement. Deficiencies in the Reserve Account may also be satisfied by a transfer from the Surplus Account or the Replacement and Depreciation Account. If Additional Bonds are issued, the City is required to cause the balance in the Reserve Account to be increased as of the date of issuance of the Additional Bonds, to an amount equal to the funded Reserve Requirement, calculated to give effect to the issuance of such Additional Bonds. (See “Summary of Certain Provisions of the Bond Resolution” in Appendix A of this Official Statement.) Recovery Zone Economic Development Bonds. The City will elect to treat the Series 2010 Bonds as “Build America Bonds” as defined under Section 54AA of the Code and to have Subsection 54AA(g) of the Code apply. The City has made irrevocable elections to have Section 54AA of the Code apply to the Series 2010 Bonds so that the Series 2010 Bonds are designated “Recovery Zone Economic Development Bonds,” and furthermore to have Subsection 54AA(g) of the Code apply to the Series 2010 Bonds so that the Series 2010 Bonds are treated as “qualified bonds” with respect to which the City will be allowed a credit payable by the United States Treasury to the City pursuant to Section 6431 of the Code in an amount equal to 45% of the interest payable on the Series 2010 Bonds on each interest payment date. As a result of these elections, interest on the Series 2010 Bonds is not excludable from gross income of owners of the Series 2010 Bonds for federal income tax purposes, and owners of the Series 2010 Bonds will not be allowed any federal tax credits as a result of ownership of or receipt of interest payments on the Series 2010 Bonds. (See “TAX MATTERS” herein.) The obligation of the United States Treasury under Section 6431 of the Code to make direct payments to the City in respect of interest payments on the Series 2010 Bonds does not constitute a full faith and credit guarantee of the Series 2010 Bonds by the United States of America. THE HOLDERS OF THE SERIES 2010 BONDS ARE NOT ENTITLED TO A TAX CREDIT AS A RESULT OF OWNERSHIP OF THE SERIES 2010 BONDS. Municipal Utility Regulation And Rate Increase Process A Montana municipality has authority to establish its system of rates and charges for public utility services provided to its inhabitants and to other persons served by the utility and to alter and adjust those rates in accordance with statutory provisions as it considers just and reasonable. The approval of the Montana Public Service Commission for municipal utility system rate increases is not necessary. Municipalities must properly notice and conduct a public hearing concerning increases in rates for utility systems at which all affected or interested parties may be represented and at the conclusion of which all affected parties may make arguments as they consider proper. Notice shall be published three times prior to the hearing with the first notice appearing not more than 28 days and the last notice not less than 3 days before the hearing, with at least 6 days separating each notice. Notice of the rate increase and hearing will also be mailed to persons served by the utility. The governing body of the municipality shall issue its decision as to the ---PAGE BREAK--- - 13 - requested rate increase within 30 days of the public hearing. The decision will become final and the new rates may be implemented 10 days after its filing with the City Clerk. The City has duly followed proper procedure and state law in approving the rates and charges that are currently in place. THE CITY’S SEWER SYSTEM General Description The City has operated the System since 1964. The ongoing operation of the System is the responsibility of the City’s Sewer Department. It is responsible for the collection and treatment of sanitary sewage and assuring that effluent meets state and federal requirements. The City of Missoula's Treatment plant is a 12 MGD (million gallon per day annual average flow) advanced secondary treatment using biological nutrient removal facility. The plant utilizes a headworks, primary clarification, primary effluent pump station, bio-reactors, secondary clarification, ultraviolet disinfection, a fermentor, dissolved air flotation solids thickener, an anaerobic digester as well as centrifuge dewatering. There are approximately 300 miles of sewer line including gravity and pressure lines; 21 main lift stations with 12 community STEP systems with approximately 1300 individual STEP systems. As of June 30, 2009, the City's wastewater plant and collection system had a book value of $81,129,069. The Missoula Wastewater Facilities Service Area (MWFSA) is defined in the utility’s Missoula Wastewater Facilities Plan Update approved in 2000. The MWFSA was created to encourage infill growth within the existing urban area. Centralized wastewater service is not intended to be allowed outside this zone, except in extraordinary circumstances subject to special review by the City. The MWFSA extends beyond the current City’s limits to provide wastewater service to unincorporated areas within the urban growth area as identified in the Missoula Comprehensive Plan. Major extensions to the collection system have been undertaken to implement the wastewater management plan. Wastewater treatment capacity has been planned for the MWFSA to come on line as the system grows. Collection system and treatment plant expansion projects are planned through the City’s Capital Improvement Program in coordination with the Wastewater Facilities Plan Update. Organization of the Sewer System The Missoula Public Works Department oversees the operation of the City's Sewer System. The Public Works Department is comprised of five Divisions with responsibilities including municipal engineering and infrastructure maintenance, City fleet and facilities management, private development Building Code compliance and project facilitation, along with public utility coordination and environmentally responsible treatment of the community's wastewater. Mr. Steve King, City Public Works Director, has over twenty years of professional experience as a land surveyor, civil engineer, project manager, and municipal administrator. Mr. King currently oversees a City department with over 95 full time employees. Mr. King is a graduate ---PAGE BREAK--- - 14 - of Montana State University with a Bachelor of Science degree in Civil Engineering, and is a licensed Professional Engineer in Montana. Ms. Starr Sullivan, City Wastewater Division Superintendent, has over 31 years of experience in wastewater treatment and collection, twenty five of those years have been in a supervisory position. The last 21 years have been with the City. Ms. Sullivan has been involved with many WWTP upgrades in both the City and in Utah. Effluent Standards and System Operations The National Permit Discharge Elimination System (NPDES) permits the City wastewater treatment plants and sets limits for numerous effluent parameters. The Missoula WWTP is authorized to discharge under the Montana Pollutant Discharge Elimination System to the Clark Fork River and specified land application. Sludge disposal is regulated by the USEPA CFR section 503 regulations. The pre-treatment program is regulated by the USEPA CFR 40 section 403 regulations. Billings and Collections Pursuant to City Resolution No. 7492, customers of the System are classified generally in the different user classifications shown in the rate tables below. The City does not own the municipal water system, but works with Mountain Water Company and other water utilities serving City residents currently connected to the municipal wastewater sewer systems to identify customers of the System in single family residence, mobile homes and multifamily residential categories who have metered water hookups. The City bases sewer rates for such customers on actual water usage rather than the flat rate structure when feasible. All other residential customers are billed at a flat rate as shown in the rate tables below. All customers in the other user classifications are billed based on the amount of water usage. In addition such flow-based customers are charged a fixed charge per billing. Generally, charges for sewer services are collected on an annual basis, to be billed semiannually in advance. Those accounts that are flow-based are billed in advance based on previous usage. Customers in certain commercial classifications, and residential account customers whose annual bill exceeds $1,000, are entitled to be billed on a quarterly basis. Water consumption records for such customers are updated on an annual basis, with bills divided into four equal bills, each to include the fixed charge per bill. The billing dates for the quarterly billing are January 1, April 1, July 1, and October 1 of each calendar year. Water use volume for such property is determined by the records of the water utility that serves the property. For all metered users that have a known or estimated volume of 1,000 or more hundred cubic feet per year, water consumption shall be determined by a meter installed in a manner approved by the City. In any case where a meter is required to determine the proper charges and the user refuses to Install a meter at his own expense or, if the volume is less than 1,000 hundred cubic feet per year, the City will estimate the charge to be made. This estimate will be made by a comparison of a similar user of similar size. Pursuant to Resolution No. 7492, the City must review the user charge system annually and revise the user charge system as necessary to assure equity of the System and to assure that sufficient funds will be collected from the System to operate and maintain wastewater treatment services adequately. ---PAGE BREAK--- - 15 - [The City applies a 1% per month penalty to all past-due billing balances. If a sewer customer does not pay its sewer bill within 60 days of the date of billing, notice to the owner of such lot or parcel of real estate shall be provided by the City in writing stating the amount of the assessment owing and in arrears, including any penalty and interest assessed. If such amount is not paid within 30 days of the notice, the amount will become a tax lien upon the real property subject to the charges and remain until paid. The City may also bring suit to collect past-due assessments, interest, and penalties against such owners in any court of competent jurisdiction, and disconnect sewer service to such property.] Sewer Rates Pursuant to Resolution No. 7492, the City approved a rate increase that became effective immediately and are phased in over a five year period commencing July 2009. These rate increases result in an average of 4.89%, 4.60%, 5.26%, and 5.11% increase each fiscal year, 2009 through 2013, respectively. Effective July 2010, semi-annual sewer service charges increase from the fiscal year 2009 rates as follows (note: ccf = 100 cubic feet): Classification FY 2009 FY 2010 Per billing charge (all customers) $5.27 $5.53 Semi-annual charge*: Flat Rate: 101 – Single family residential $63.72 $66.90 102 – Multi-family residential (per unit) $52.50 $55.14 Metered Rate: 101 – Single family residential $1.28 $1.34 102 – Multi-family residential (per unit) $1.28 $1.34 200 – Commercial (per ccf of water consumption) $1.28 $1.34 300 – Food Service (per ccf of water consumption) $2.62 $2.75 400 – Hospitals (per ccf of water consumption) $1.24 $1.30 500 – Schools (per ccf of water consumption) $1.12 $1.18 600 – Industrial: Charge per ccf $0.94 $0.99 Charge per lb. BOD $0.162 $0.17 Charge per lb. SS $0.14 $0.15 Minimum semi-annual account charge (all customers) $52.50 $55.14 * Customers in certain commercial classifications, and residential account customers whose annual bill exceeds $1,000, are entitled to be billed on a quarterly basis. ---PAGE BREAK--- - 16 - The rates for each user classification will increase effective on July 1 of each of the fiscal years from 2011 through 2013, as shown below. Classification FY 2011 FY 2012 FY 2013 Per billing charge (all customers) $5.81 $6.10 $6.41 Flat Rate: 101 – Single family residential $70.26 $73.74 $77.46 102 – Multi-family residential (per unit) $57.90 $60.78 $63.84 Metered Rate: 101 – Single family residential $1.41 $1.48 $1.56 102 – Multi-family residential (per unit) $1.41 $1.48 $1.56 200 – Commercial (per ccf of water consumption) $1.41 $1.48 $1.56 300 – Food Service (per ccf of water consumption) $2.89 $3.03 $3.18 400 – Hospitals (per ccf of water consumption) $1.37 $1.44 $1.51 500 – Schools (per ccf of water consumption) $1.23 $1.30 $1.36 600 – Industrial: Charge per ccf $1.04 $1.09 $1.14 Charge per lb. BOD $0.18 $0.19 $0.20 Charge per lb. SS $0.15 $0.16 $0.17 Minimum account charge (all customers) $57.90 $60.78 $63.84 The City does not anticipate any additional rate increases as a result of issuing the Series 2010 Bonds. The City has covenanted and agreed that the rates, charges and rentals to be charged to all recipients of sewer services shall be maintained and shall be revised whenever and as often as may be necessary, according to schedules such that the revenues for each fiscal year will be at least sufficient to pay the current expenses of operation and maintenance, to maintain the Operating Reserve, to produce Net Revenues during each fiscal year, not less than 125% of the maximum debt service requirement for any Outstanding Bonds in the current or any future fiscal year, to pay debt service on any Subordinate Obligations and to provide reserves for the repair and replacement of the System. Number of Customers The following table lists the approximate number of customers of the System from 2004 to 2009. Sanitary Sewer Year Customers 2009 21,187 2008 20,737 2007 20,218 2006 19,561 2005 18,865 2004 17,585 ---PAGE BREAK--- - 17 - Customer Classifications The following is a list of customer breakdown for the System as of June 30, 2010. Over 90% of total customers are located within the City limits. Sewer Customers Residential and Multi-Family 19,410 Commercial 1,910 Of the residential and multi-family users, 7.38% are metered; of the commercial users 92.62% are metered. Approximately 75% of the customers will be metered by the Fall of 2011. Sewage Treatment Requirements The following table indicates the historical sewage treatment requirement of the City. Average Daily Flow Annual Flow Gallons Percent Increase/ Gallons Percent Increase/ Year (in millions) (Decrease) (in millions) (Decrease) 2009 10.34 7.3% 3,772.39 7.0% 2008 9.63 15.9 3,526.03 16.6 2007 8.31 (2.2) 3,023.57 (2.5) 2006 8.50 1.9 3,101.77 1.9 2005 8.34 1.8 3,044.47 12.4 2004 8.19 1.6 2,709.35 0.6 2003 8.06 (1.5) 2,694.25 (0.5) 2002 8.18 2,708.79 Sewer Peak Daily Demand The following table indicates the maximum daily flow for the sewage treatment system for each of the last three years. Sewage System Maximum Daily Flow Year (in millions of gallons) 2009 13.38 2008 12.28 2007 10.70 ---PAGE BREAK--- - 18 - Largest Customers The following tables list the ten largest users of the System as of June 30, 2010 based on the percentage of total 2009 revenue generated. 2010 Total 2010 Customer Type of Enterprise Sewer Charge System Revenues University of Montana Education $202,407 3.04% St. Patrick Hospital Health Care 73,150 1.10 Big Sky Brewing Beverage Production 66,976 1.01 John R. Daily, Inc. Food Production 61,970 0.93 Holiday Inn Parkside Accommodation 47,679 0.72 Community Medical Center Health Care 43,758 0.66 Travois-Harveys Mobile Home Court 36,964 0.55 Individual Apartments 32,250 0.48 Double Tree Hotel Accommodation 30,837 0.46 Southgate Mall Retail 25,187 0.38 Historical Financials Audited Audited Audited Audited Audited Unaudited 2005 2006 2007 2008 2009 2010 Revenues $ 8,553,051 $ 6,623,745 $ 6,513,295 $ 6,711,812 $ 6,738,691 $ 6,662,397 Operating and Maintenance Expense (3,151,625) (3,263,652) (3,498,263) (3,904,863) (3,886,531) (3,749,684) Net Income $ 5,401,426 $ 3,360,093 $ 3,015,032 $ 2,806,949 $ 2,852,160 $ 2,912,913 Debt Service(a) $ 1,466,699 $ 1,504,337 $ 1,623,541 $ 1,626,916 $ 1,626,248 $ 1,380,076 Parity Bond Coverage 3.68X 2.23X 1.86X 1.73X 1.75X 2.11X Debt Service(b) $ 1,467,662 $ 1,600,872 $ 1,626,916 $ 1,626,916 $ 1,626,916 $ 2,159,860 Parity Bond Coverage 3.68X 2.10X 1.85X 1.73X 1.75X 1.35X Debt Service(c) $ 2,159,860 Parity Bond Coverage 1.32X Current year debt service. Maximum annual debt service. Includes debt service on the Series 2010 Bonds for 2012 through 2035 maturities. ---PAGE BREAK--- - 19 - Estimated Coverage The table below indicates the increase in sewer rates pursuant to Resolution No. 7492 and a one-time addition of 190 new customers in 2010 over the audited 2009 information. Unaudited Unaudited Unaudited Unaudited Unaudited 2010 2011 2012 2013 2014 Revenues $ 6,662,397 $ 6,990,787 $ 7,307,476 $ 7,640,000 $ 7,814,575 Operating and Maintenance Expense (3,749,684) (3,862,175) (3,978,040) (4,097,381) (4,220,302) Net Income $ 2,912,713 $ 3,128,612 $ 3,329,436 $ 3,542,619 $ 3,594,273 Debt Service* $ 2,159,860 $ 2,159,860 $ 2,158,114 $ 2,158,114 $ 2,158,114 Parity Bond Coverage 1.35X 1.45X 1.54X 1.64X 1.67X * Maximum annual debt service. Outstanding Debt of the System* Principal Date Original Final Outstanding of Issue Amount Purpose Maturity As of 9-20-10 6-24-99 $ 1,820,000 Sewer 7-1-2019 $ 997,000 10-03-00 718,000 Sewer 7-1-2020 430,000 4-27-01 537,000 Sewer 1-1-2021 283,000 5-16-02 1,395,000 Sewer 1-1-2022 854,000 11-21-02 5,000,000 Wastewater Treatment Plant 7-1-2022 3,458,000 10-15-03 3,800,000 Wastewater Treatment Plant 7-1-2023 2,776,000 3-23-04 3,688,000 Wastewater Treatment Plant 1-1-2024 2,783,000 11-28-05 1,731,833 Sewer 7-1-2025 1,368,000 9-21-06 310,190 Sewer Revolving Fund 7-1-2026 251,000 12-1-09 731,000 Rattlesnake 2009B 7-1-2030 731,000 12-1-09 64,000 Rattlesnake 2009C 7-1-2029 64,000 11-1-10 10,345,000 Sewer (this Issue) 7-1-2035 10,345,000 Subtotal $24,340,000 12-1-09 361,012 Rattlesnake 2009A 7-1-2029 361,012 Total $24,701,012 * The City anticipates issuing approximately $945,000 Sanitary Sewer System Revenue Bonds to the DNRC Program in order to reimburse itself for certain improvements to the System that it funded from cash during the 2009-2010 fiscal year. The reimbursed proceeds will be deposited in the Sewer System Fund. Debt Service Fund Current Funds $1,405,836 Bond Proceeds 707,788 Total Debt Service Fund $2,113,624 ---PAGE BREAK--- - 20 - Debt Service Requirement of the System The following table shows the debt service requirements as of the dated date of the Series 2010 Bonds. Debt service on the Series 2010 Bonds is gross debt service, and not net of expected federal subsidy. Subordinate Principal & Principal Interest Principal Interest Parity Debt Interest Total 2011 $863,214 $524,789.38 $359,682.74 $1,747,686.12 $20,385.96 $1,768,072.08 2012 915,497 497,625.03 $50,000.00 572,945.96 $2,036,067.99 27,235.34 2,063,303.33 2013 950,592 461,795.51 125,000.00 572,068.46 $2,109,455.97 27,235.19 2,136,691.16 2014 988,689 424,606.16 130,000.00 569,495.96 $2,112,791.12 27,234.88 2,140,026.00 2015 1,029,792 385,859.37 130,000.00 566,348.66 $2,112,000.03 27,234.65 2,139,234.68 2016 1,067,897 345,596.19 135,000.00 562,616.36 $2,111,109.55 27,234.66 2,138,344.21 2017 1,109,006 303,795.29 140,000.00 558,099.26 $2,110,900.55 27,235.14 2,138,135.69 2018 1,155,121 260,384.00 145,000.00 553,064.86 $2,113,569.86 27,235.17 2,140,805.03 2019 1,198,238 215,182.13 150,000.00 546,976.30 $2,110,396.43 27,234.91 2,137,631.34 2020 1,110,361 169,628.31 255,000.00 540,452.80 $2,075,442.11 27,235.42 2,102,677.53 2021 1,085,488 126,823.59 270,000.00 528,852.86 $2,011,164.45 27,234.77 2,038,399.22 2022 1,064,620 84,956.57 380,000.00 516,300.56 $2,045,877.13 27,234.96 2,073,112.09 2023 685,757 48,227.04 355,000.00 498,254.36 $1,587,238.40 27,234.96 1,614,473.36 2024 307,900 24,816.08 490,000.00 481,040.40 $1,303,756.48 27,234.70 1,330,991.18 2025 183,047 15,649.71 510,000.00 456,790.30 $1,165,487.01 27,235.07 1,192,722.08 2026 69,201 9,852.77 535,000.00 431,550.40 $1,045,604.17 27,234.92 1,072,839.09 2027 51,360 7,425.01 570,000.00 399,247.10 $1,028,032.11 27,234.07 1,055,266.18 2028 52,524 5,478.74 600,000.00 364,830.50 $1,022,833.24 27,234.30 1,050,067.54 2029 54,696 3,488.74 640,000.00 328,602.50 $1,026,787.24 27,235.28 1,054,022.52 2030 - - 675,000.00 289,959.30 $964,959.30 964,959.30 2031 - - 720,000.00 249,202.80 $969,202.80 969,202.80 2032 - - 760,000.00 205,009.20 $965,009.20 965,009.20 2033 - - 810,000.00 158,360.40 $968,360.40 968,360.40 2034 - - 860,000.00 108,642.60 $968,642.60 968,642.60 2035 - - 910,000.00 55,855.80 $965,855.80 965,855.80 Total $13,943,000.00 $3,915,979.62 $10,345,000.00 $10,474,250.44 $38,678,230.06 $510,614.35 $39,188,844.41 Existing Debt Series 2010 Bonds FUTURE FINANCING Other than the $945,000 Sanitary Sewer System Revenue Bonds the City expects to issue in January or February, the City does not expect to issue any additional sewer system revenue bonds in the next year. LITIGATION There is no litigation pending questioning the validity of the Series 2010 Bonds or the power and authority of the City to issue the Series 2010 Bonds. The City is party to litigation under which it may be required to pay certain moneys upon the decision of the courts. The cases under litigation are not anticipated to have a material impact on the financial condition of the City on the Series 2010 Bonds. ---PAGE BREAK--- - 21 - LEGALITY The Series 2010 Bonds are subject to approval as to certain matters by Dorsey & Whitney LLP, of Missoula, Montana and Minneapolis, Minnesota, as Bond Counsel. Bond Counsel has not participated in the preparation of this Official Statement except for guidance concerning the following section, “Tax Matters” and will not pass upon its accuracy, completeness, or sufficiency. Bond Counsel has not examined nor attempted to examine or verify, any of the financial or statistical statements, or data contained in this Official Statement, and will express no opinion with respect thereto. TAX MATTERS The interest to be paid on the Series 2010 Bonds is includable in gross income for federal income tax purposes. Interest to be paid on the Series 2010 Bonds is not includable in gross income for purposes of State of Montana individual income taxation, but is includable in the computation of income for purposes of the Montana corporate income tax and the Montana corporate license tax. No other opinion has been obtained or is given regarding the federal, state or local tax consequences of the purchase, ownership, retirement or disposition of the Series 2010 Bonds. Prospective purchasers or bondholders should consult with their tax advisers concerning such tax issues, including, without limitation, the treatment of interest in jurisdictions other than Montana, the calculation and timing of inclusion of interest in income, the tax consequences of dispositions of Series 2010 Bonds at a gain or loss and the determination of the amount thereof, rules applicable if Series 2010 Bonds are acquired at a premium or discount from their face amount (including without limitation the possible treatment of accrued market discount as ordinary income, deferral of certain interest deductions attributable to indebtedness incurred or continued to purchase or hold Series 2010 Bonds, and the amortization of market premium). Interest payments and proceeds of the sale, exchange, redemption or retirement of Series 2010 Bonds are expected to be reported to the Internal Revenue Service to the extent required by law. A backup withholding tax might apply to payments to bondholders under circumstances described in section 3406 of the Code, including without limitation failure of the bondholder to provide the bondholder’s tax identification number or certain other information. Payments to bondholders who are not U.S. residents or who are foreign entities might also be subject to tax withholding in certain circumstances. RATING Moody’s Investors Service (“Moody’s”), 7 World Trade Center, 250 Greenwich Street, 23rd Floor, New York, New York has assigned a rating of “A2” to the Series 2010 Bonds. The rating will reflect only the opinion of Moody’s. Any explanation of the significance of the rating may be obtained only from Moody’s. There is no assurance the rating will continue for any given period of time, or that such rating will not be revised or withdrawn, if in the judgment of Moody’s, circumstances so warrant. A revision or withdrawal of the rating may have an adverse effect on the market price of the Series 2010 Bonds. ---PAGE BREAK--- - 22 - FINANCIAL ADVISOR The District has retained Springsted Incorporated, Public Sector Advisors, of St. Paul, Minnesota, as financial advisor (the “Financial Advisor”) in connection with the issuance of the Series 2010 Bonds. In preparing the Official Statement, the Financial Advisor has relied upon governmental officials, and other sources, who have access to relevant data to provide accurate information for the Official Statement, and the Financial Advisor has not been engaged, nor has it undertaken, to independently verify the accuracy of such information. The Financial Advisor is not a public accounting firm and has not been engaged by the District to compile, review, examine or audit any information in the Official Statement in accordance with accounting standards. The Financial Advisor is an independent advisory firm and is not engaged in the business of underwriting, trading or distributing municipal securities or other public securities and therefore will not participate in the underwriting of the Series 2010 Bonds. PAYING AGENT The City has appointed U.S. Bank National Association, Seattle, Washington, a national banking association organized under the laws of the United States, to serve as Paying Agent. The Paying Agent is a national banking association organized and existing under the laws of the United States of America, having all of the powers of a bank, including fiduciary powers, and is a member of the Federal Deposit Insurance Corporation and the Federal Reserve System. The Paying Agent is to carry out those duties assignable to it under the Resolution. Except for the contents of this section, the Paying Agent has not reviewed or participated in the preparation of this Official Statement and assumes no responsibility for the nature, contents, accuracy, fairness or completeness of the information set forth in this Official Statement or for the recitals contained in the Resolution or the Series 2010 Bonds, or for the validity, sufficiency, or legal effect of any of such documents. The mailing address of the Paying Agent is U.S. Bank National Association, 1420 Fifth Avenue, Seventh Floor, Seattle, Washington 98101, Attention: Corporate Trust Services. Additional information about the Paying Agent may be found at its website at http://www.usbank.com/corporatetrust. The U.S. Bank website is not incorporated into this Official Statement by such reference and is not a part hereof. CERTIFICATION The City has authorized the distribution of this Official Statement for use in connection with the initial sale of the Series 2010 Bonds. As of the date of the settlement of the Series 2010 Bonds, the Underwriter will be furnished with a certificate signed by the appropriate officers of the City. The certificate will state that as of the date of the Official Statement, the Official Statement did not and does not as of the date of the certificate contain any untrue statement of material fact or omit to state a material fact necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading. UNDERWRITING Pursuant to the Bond Purchase Agreement, the Underwriter has agreed to purchase the Series 2010 Bonds from the City for a purchase price of $10,277,757.50. ---PAGE BREAK--- APPENDIX I I-1 SUMMARY OF CERTAIN PROVISIONS OF THE BOND RESOLUTION AND KEY DEFINITIONS Sanitary Sewerage System Fund Pledge and Appropriation. A special Sewer System Fund (the “Fund”) is created and shall be maintained as a separate and special bookkeeping account on the official books of the City until all Bonds and interest and redemption premiums due thereon have been fully paid, or the City’s obligations with reference to such Bonds have been discharged as provided in the Bond Resolution. All proceeds of Bonds and all other funds presently on hand derived from the operation of the System are irrevocably pledged and appropriated to the Fund. In addition, there is irrevocably pledged and appropriated to the Fund all Gross Revenues. The Fund shall be subdivided into separate accounts as designated and described in the Bond Resolution, to segregate income and expenses received, paid and accrued for the respective purposes described in those sections as set forth below. The Gross Revenues received in the Fund shall be apportioned semi-annually, [on the first day of January and July]. The following accounts are to be established in the Fund: Construction Account. The City shall maintain a Acquisition and Construction Account in the Fund. The Acquisition and Construction Account shall be used only to pay as incurred and allowed costs which under accepted accounting practice are capital costs of a Project and of such future reconstructions, improvements, betterments or extensions of the System as may be authorized in accordance with law, including but not limited to payments due for work and materials performed and delivered under construction contracts, architectural, engineering, inspection, supervision, fiscal and legal expenses, the cost of lands and easements, reimbursement of any advances made from other City funds, and all other expenses incurred in connection with the acquisition, construction and financing of any such undertaking. To the Acquisition and Construction Account shall be credited as received all proceeds of Bonds issued under the Bond Resolution (except proceeds of refunding bonds appropriated to the payment of outstanding Bonds and amounts required to be credited to the Revenue Bond Account), all other funds appropriated by the City for the System and any other funds appropriated by the City to the Acquisition and Construction Account for improvements to the System, and all income received from the investment of the Acquisition and Construction Account. Upon completion of a capital improvement or program of capital improvements for the System the balance remaining in the Acquisition and Construction Account shall be credited to the reserve balance in the Reserve Account to the extent required to establish the required balance therein and, to the extent not so required, to the Replacement and Depreciation Account. Operating Account. The City shall maintain an Operating Account in the Fund. On each semi-annually apportionment there shall first be set aside and credited to the Operating Account, as a first charge on the gross revenues of the System, such amount as may be required over and above the balance then held in the account to pay the reasonable and necessary operating expenses of the System which are then due and payable, or are to be paid prior to the next semi- annual apportionment. The term “operating expenses” shall mean the current expenses, paid or accrued, of operation, maintenance and current repair of the System and its facilities, as calculated in accordance with sound accounting practices, and shall include, without limitation, ---PAGE BREAK--- I-2 administrative expenses of the City relating solely to the System, premiums for insurance on the properties thereof, labor and the cost of materials and supplies used for current operation and for maintenance, and charges for the accumulation of appropriate reserves for current expenses which are not recurrent but may reasonably be expected to be incurred in accordance with sound accounting practices. Such expenses shall not include any allowance for interest expense or depreciation, renewals or replacements of capital assets of the System and shall not include any portion of the salaries or wages paid to any officer or employee of the City, except such portion as shall represent reasonable compensation for the performance of duties necessary to the operation of the System. The City shall establish and maintain within the Operating Account an Operating Reserve in an amount equal to the estimated average operating expenses of the System for a sixty day period. The Operating Reserve shall be maintained by additional transfers upon each semi-annual apportionment from the Surplus Account whenever necessary. The Operating Reserve may be augmented by transfers of additional amounts from the Surplus Account described below if determined by the governing body of the City to be necessary to meet contingencies arising in the operation and maintenance of the System. Money in the Operating Account shall be used solely for the payment of current operating expenses of the System. Revenue Bond Account. The City shall maintain a Revenue Bond Account in the Fund. Upon each semi-annual apportionment there shall be set aside and credited to the Revenue Bond Account out of the Net Revenues an amount equal to not less than one-half of the interest and principal to become due within the next twelve months with respect to outstanding Bonds payable from the Revenue Bond Account; provided that the City shall be entitled to reduce any semi-annual credit by the amount of any surplus previously credited and then on deposit in the Revenue Bond Account. Money from time to time held in the Revenue Bond Account shall be disbursed only to meet payments of principal of, premium, if any, and interest on the Bonds payable therefrom as such payments become due. If any payment of principal or interest becomes due when moneys in the Revenue Bond Account are temporarily insufficient therefor, such payment shall be advanced out of any Net Revenues theretofore segregated and then on hand in the Reserve Account, the Replacement and Depreciation Account or the Surplus Account. Reserve Account. The City shall maintain a Reserve Account in the Fund. Upon each semi-annual apportionment, from the Net Revenues remaining after the apportionment to the Revenue Bond Account, the City shall credit to the Reserve Account such Net Revenues as may be required to establish and thereafter maintain the balance in an amount equal, as of the date of calculation, to the Reserve Requirement. If the Reserve Account falls below the Reserve Requirement, the City shall transfer thereto amounts on hand in the Replacement and Depreciation Account or the Surplus Account. Money in the Reserve Account shall be used only to pay maturing principal, premium and interest when money within the Revenue Bond Account is insufficient therefor; provided that on any date when all outstanding Bonds of a series are due or prepayable by their terms, if the amount then on hand in the Reserve Account allocable to such Bonds and available for such appropriation is sufficient with money available for the purpose to pay all such Bonds and the interest accrued thereon in full, it may be used for that purpose; and provided, further, that so long as the amount on hand in the Reserve Account is not less than the Reserve Requirement, the City may credit earnings on investment of the Reserve Account to the Replacement and Depreciation Account. Upon the issuance of any Additional Bonds, the balance in the Reserve Account is to be increased to an amount equal to the Reserve Requirement, calculated to give effect to the issuance of the Additional Bonds. ---PAGE BREAK--- I-3 Replacement and Depreciation Account. There shall next be set aside and credited, upon each semi-annual apportionment, to a Replacement and Depreciation Account in the Fund such Surplus Net Revenues of the System as the governing body of the City shall determine to be required for the accumulation of a reasonable allowance for depreciation of the System and for replacement or renewal of worn out, obsolete or damaged properties and equipment thereof. Money in this account shall be used only for the purposes above stated or, if so directed by the governing body of the City, to redeem Bonds which are prepayable according to their terms, to pay principal or interest when due thereon, to restore a balance in the Reserve Account or to pay the cost of improvements to the System; provided that in the event construction and installation of additional improvements or additions to the System are financed other than from proceeds of Bonds payable from the Revenue Bond Account, Surplus Net Revenues from time to time received may be segregated and paid into one or more separate and additional accounts for the repayment of such indebtedness and interest thereon, in advance of payments required to be made into the Replacement and Depreciation Account. Surplus Account. Any amount of the Surplus Net Revenues from time to time remaining after the above required applications thereof shall be credited to a Surplus Account (or such other account in the Fund as the City may establish for bookkeeping purposes to account for surplus money in accordance with the purposes of this Amended and Restated Resolution), and the money from time to time in that account, when not required to restore a current deficiency in the Revenue Bond Account, may be used for any of the following purposes and not otherwise: To redeem bonds payable from the Net Revenues when and as such bonds become prepayable according to their terms; or To purchase Bonds on the open market, whether or not the Bonds or other such Bonds may then be prepayable according to their terms; or To be held as a reserve for redemption of bonds payable from the Net Revenues which are not then but will later be prepayable according to their terms; or To pay for repairs of or for the construction and installation of improvements or additions to the System; or To restore the Operating Reserve or increase the same when determined to be necessary by the governing body of the City. No money shall at any time be transferred from the Surplus Account or any other account of the Fund to any other fund of the City, nor shall such moneys at any time be loaned to other municipal funds or invested in warrants, special improvement bonds or other obligations payable from other funds, except as provided in the Bond Resolution. Rebate Account. The Rebate Account is established as a separate account within the Sewer System Fund. The City shall make deposits to and disbursements from the Rebate Account pursuant to the Rebate Certificate, and for such purposes may make transfers, in the following order of priority, from the Surplus Account, the Repair and Replacement Account and the Reserve Account, as necessary, to meet the requirements of the Rebate Account. The City shall invest the Rebate Account in accordance with the provisions of the Rebate Certificate and ---PAGE BREAK--- I-4 shall deposit income from such investments immediately upon receipt thereof in the Rebate Account Deposit and Investment of Funds The Finance Director of the City shall cause all money appropriated to the Fund to be deposited as received with one or more depository banks duly qualified in accordance with the provisions of Montana Code Annotated, Section 7-6-201, in a deposit account or accounts. The balance in such accounts, except such portion thereof as shall be guaranteed by federal deposit insurance, shall at all times be secured to its full amount by bonds or securities of the types set forth in said Section 7-6-201. Any of such moneys not necessary for immediate use may be deposited with such depository banks in savings or time deposits. No money shall at any time be withdrawn from such deposit accounts except for the purposes of the Fund as defined and authorized in this Amended and Restated Resolution; except that money from time to time on hand in the Fund may at any time, in the discretion of the governing body of the City, be invested in securities which are direct, general obligations of, or obligations the prompt payment of the principal of and the interest on which is fully and unconditionally guaranteed by, the United States of America, bank repurchase agreements with respect to such obligations, certificates of deposits of national banks having a combined capital and surplus of at least $1,000,000 or in the Montana short-term investment program administered by the Board of Investments, which investments mature and bear interest at the times and in the amounts estimated to be required to provide cash when needed for the purposes of the respective accounts; provided that funds on hand in the Reserve Account, the Replacement and Depreciation Account and the Surplus Account may be invested in said securities maturing not later than five years from the date of the investment; and provided, further, that money on hand in the Surplus Account of the Fund may, in the discretion of the governing body of the City, be invested in any securities which are direct, general obligations of the City. Income received from the deposit or investment of moneys in said accounts shall be credited to the account from whose moneys the deposit was made or the investment was purchased, and handled and accounted for in the same manner as other moneys in that account. Additional Bonds The Bond Resolution provides for the issuance of Additional Bonds. The City reserves the right to issue additional Bonds payable from the Revenue Bond Account of the Fund, on a parity as to both principal and interest with Outstanding Bonds, if the Net Revenues of the System for the last complete fiscal year preceding the date of issuance of such additional Bonds have equaled at least 125% of the maximum amount of principal and interest payable from said Revenue Bond Account in any subsequent fiscal year during the term of the Outstanding Bonds, on all Bonds then outstanding and on the additional Bonds proposed to be issued. For the purpose of the foregoing computation, the Net Revenues for the fiscal year preceding the issuance of Additional Bonds shall be those shown by the financial reports caused to be prepared by the City pursuant to the Bond Resolution, except that if the rates and charges for services provided by the System have been changed since the beginning of such preceding fiscal year, then the rates and charges in effect at the time of issuance of the Additional Bonds or finally authorized to go into effect within 60 days thereafter shall be applied to the quantities of service actually rendered and made available during such preceding fiscal year to ascertain the gross revenues, from which there shall be deducted to determine the Net Revenues, the actual ---PAGE BREAK--- I-5 operation and maintenance cost plus any additional annual costs of operation and maintenance which the Consultant estimates will be incurred because of the improvement or extension of the System to be constructed from the proceeds of the additional Bonds proposed to be issued. In no event shall any additional Bonds be issued and made payable from the Revenue Bond Account if the City is then in default in any payment of principal of or interest on any outstanding Bonds payable therefrom or if there then exists any deficiency in the balances required by this Amended and Restated Resolution to be maintained in any of the accounts of the Fund, which will not be cured or restored upon the issuance of the additional Bonds. In connection with the issuance of a series of additional Bonds, the City shall cause the Reserve Account in the Revenue Bond Account to be increased, from the proceeds of the additional Bonds or from Surplus Net Revenues, to an amount equal to the Reserve Requirement during the term of the outstanding Bonds or so much thereof as will not cause the City to violate the tax provisions of Bond Resolution. Subordinate Obligations Nothing contained in the Bond Resolution is intended to be construed to preclude the City from issuing additional Obligations which are expressly made a charge on only the Surplus Net Revenues of the System subordinate to the pledge of Net Revenues to the Revenue Bond Account. Covenants Maintenance of System; Liens. The City covenants to maintain the System in good condition and make all necessary renewals, replacements, additions, betterments and improvements thereto, and the City shall not grant or permit to exist any lien on the Project or any other property making up part of the System, other than liens securing debt where a parity lien secures outstanding Bonds. Maintenance of Existence; Merger, Consolidation, Etc; Disposition of Assets. The City covenants to maintain its corporate existence, except that it may consolidate with or merge into another governmental unit or permit one or more governmental units to consolidate with or merge into it or may transfer all or substantially all of its assets to another governmental unit and then dissolve if the surviving, resulting or transferee entity (if other than the City) is a public entity and (ii) assumes in writing all of the obligations of the City under the Resolution and any outstanding Bonds, and such action does not result in any default in the performance or observance of any of the terms, covenants or agreements of the City under the Resolution or any outstanding Bonds. Competing Service. The City will agree not to establish or authorize the establishment of any other system for the public supply of service or services in competition with any or all of the services supplied by the facilities of the System. Property Insurance. The City will agree to cause all buildings, properties, fixtures and equipment constituting a part of the System to be kept insured with a reputable insurance carrier or carriers, qualified under the laws of Montana, in such amounts as are ordinarily carried, and against loss or damage by such hazards and risks as are ordinarily insured against, by public bodies owning and operating properties of a similar character and size; provided that if at any ---PAGE BREAK--- I-6 time the City is unable to obtain insurance, it will obtain insurance in such amounts and against risks as are reasonably obtainable. The proceeds of all such insurance are to be made available for the repair, replacement or reconstruction of damaged or destroyed property, and until paid out in making good such loss or damage, are pledged as security for the Outstanding Bonds. All insurance proceeds received in excess of the amount required for restoration of the loss or damage compensated thereby are to become part of the revenues appropriated to the Fund. If for any reason insurance proceeds are insufficient for the repair, replacement and reconstruction of the insured property, the City will agree to supply the deficiency from revenues on hand in the Repair and Replacement Account and Surplus Account. Liability Insurance and Surety Bonds. The City will agree to carry insurance against liability of the City and its employees for damage to persons and property resulting from the operation of the System in such amounts as the City determines from time to time to be necessary or advisable by reason of the character and extent of such operation. It will also agree to cause all persons handling money and other assets of the Fund to be adequately bonded for the faithful performance of their duties and to account for and pay over such money to the City. All amounts received under such insurance and bonds are to be applied to the payment of the loss or damage covered thereby. The premiums for all such insurance and bonds constitute part of the operating expenses of the System, but no insurance liabilities of the City in excess of amounts received under such insurance and bonds are to constitute a lien or charge on revenues or any other assets of the System or otherwise pledged to the Fund. Disposition of Property. The City will agree not to mortgage, lease, sell or otherwise dispose of any real or personal properties of the System, unless: prior to or simultaneous with such mortgage, lease, sale or other disposition, all of the Bonds then Outstanding shall be discharged; or the properties to be mortgaged, leased sold or otherwise disposed of are unserviceable, inadequate, obsolete or no longer required for use in connection with the System; and the mortgage, lease, sale or other disposition will not prevent the City from complying with the provisions of the Bond Resolution; and all proceeds of the mortgage, lease, sale or other disposition of such properties are deposited into the Fund. Books and Records. The City will agree to cause proper and adequate books of record and account to be kept showing complete and correct entries of all receipts, disbursements and other transactions relating to the System, the Net Revenues derived from its operation, and the segregation and application of the Net Revenues in accordance with the Bond Resolution, in such reasonable detail as may be determined by the City in accordance with generally accepted accounting practice and principles. It will agree to cause such books to be maintained on the basis of a fiscal year. The City will agree that it will, within 180 days after the close of each fiscal year, cause to be prepared and supply to the original purchasers of any series of Bonds then outstanding and the Registrar a financial report with respect to the System for such fiscal year. The report is to be prepared at the direction of the City Controller in accordance with generally ---PAGE BREAK--- I-7 accepted accounting principles applicable to governmental entities. The City will agree to also have prepared and supplied to the Original Purchaser or Purchasers of any series of Bonds then outstanding and the Registrar, within 180 days of the close of each fiscal year, an audit report prepared by an Independent Accountant or an agency of the State of Montana in accordance with generally accepted accounting principles applicable to governmental entities with respect to the financial statements and records of the System. The audit report is to include an analysis of the City’s compliance with the provisions of the Bond Resolution. Rates and Charges. While any Bonds are Outstanding and unpaid, the rates, charges and rentals for all services and facilities furnished and made available by the System to the City and its inhabitants, and to all customers within or without the boundaries of the City, shall be reasonable and just, taking into consideration the cost and value of the System and the cost of maintaining and operating it, and the amounts necessary for the payment of all Outstanding Bonds and the interest accruing thereon and all subordinate obligations and interest accruing thereon, and the proper and necessary allowances for the depreciation of the System. No free service shall be provided to any Person. It is covenanted and agreed that the rates, charges and rentals to be charged to all recipients of sewer services shall be maintained and shall be revised whenever and as often as may be necessary, according to schedules such that the Revenues for each Fiscal Year will be at least sufficient to pay the current expenses of operation and maintenance, to maintain the Operating Reserve, to produce Net Revenues during each Fiscal Year commencing with the Fiscal Year, not less than 125% of the maximum Principal and Interest Requirements for any Outstanding Bonds in the current or any future Fiscal Year, to pay the principal of and interest on any subordinate obligations and to provide reserves for the repair and replacement of the System. Bondholders’ Rights The owners of not less than 25% in principal amount of Outstanding Bonds may, either at law or in equity, through suit, action or other proceedings, to protect and enforce the rights of all owners of such Outstanding Bonds and to compel the performance of any and all of the covenants required in the Bond Resolution to be performed by the City, and its officers and employees, including but not limited to the fixing and maintaining of rates, fees and charges and the collection and proper segregation of gross revenues and the application and use thereof. The owners of a majority in principal amount of Outstanding Bonds have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Bondholders or the exercise of any power conferred on them and the right to waive a default in the performance of any such covenant, and its consequences, except a default in the payment of the principal of, premium, or interest on any Outstanding Bond when due. Subject to applicable law, any court having jurisdiction of the action may appoint a receiver to administer the System on behalf of the City with power to charge and collect rates, fees and charges sufficient to provide for the payment of any Outstanding Bonds, and to apply the gross revenues of the System in conformity with the Bond Resolution and applicable law. Nothing in the Bond Resolution is intended, however, to impair the absolute and unconditional right of the holder of each Bond to receive payment of the principal of, premium, if any, and interest on such Bond as such principal, premium and interest respectively become due, and to institute suit for any such payment. ---PAGE BREAK--- I-8 Amendments The City reserves the right to adopt supplemental resolutions from time to time and at any time, for the purpose of curing any ambiguity or of curing, correcting or supplementing any defective provision contained in the Bond Resolution, or of making such provisions with regard to matters or questions arising under the Bond Resolution as the City may deem necessary or desirable and not inconsistent with the Bond Resolution, and which shall not adversely affect the interests of the holders of Outstanding Bonds, or for the purpose of adding to the covenants and agreements therein contained, or to the Net Revenues therein pledged, other covenants and agreements thereafter to be observed and additional revenues or income thereafter appropriated to the Fund, or for the purpose of surrendering any right or power reserved to or conferred upon the City, or for the purpose of authorizing the creation and issuance of a series of Additional Bonds or subordinate obligations, as provided in and subject to the conditions and requirements thereof. Any such supplemental resolution may be adopted, without notice to or the consent of the holder of any of the Bonds. With the consent of the holders of two-thirds in principal amount of the Bonds then Outstanding, the City may from time to time and at any time adopt a supplemental resolution for the purpose of amending the Bond Resolution by adding any provisions thereto or changing in any manner or eliminating any of the provisions thereof or of any supplemental resolution, except that no supplemental resolution may be adopted at any time without the consent of the holders of all Bonds issued under the Bond Resolution and affected thereby, if it would extend the time of payment of interest thereon or principal thereof, would reduce the interest rate thereon or the amount of the principal or redemption price thereof, would give to any Bond or Bonds any privileges over any other Bond or Bonds, would reduce the sources of revenues or income appropriated to the Fund, or would reduce the percentage in principal amount of such Bonds required to authorize or consent to any such supplemental resolution. Notice of the supplemental resolution to be adopted with such consent of the holders is to be mailed by first-class mail to the holders of all Bonds affected thereby at their addresses appearing in the bond register, and may become effective only upon the filing of written consents with the City Clerk, signed by the holders of not less than two-thirds in principal amount of the Bonds then Outstanding and affected thereby. Any consent by the holder of any Bond shall bind him and every future holder of the same Bond with respect to any supplemental resolution adopted by the City pursuant to such consent, provided that any holder may revoke his consent with reference to any Bond by written notice received by the City Clerk before the supplemental resolution has become effective. In the event that unrevoked consents of the holders of the required amount of Bonds have not been received by the City Clerk within one year after the mailing of notice of the supplemental resolution, the supplemental resolution and all consents theretofore received will be of no further force and effect. Discharge; Defeasance When the liability of the City on all Obligations issued under and secured by the Bond Resolution and all interest thereon has been discharged, all pledges, covenants and other rights granted by the Bond Resolution to the holders of such Obligations shall cease, other than to the payment of such Obligations from money segregated for such purpose. The City may discharge its liability with reference to any Obligations and interest thereon which are due on any date by ---PAGE BREAK--- I-9 depositing with the Registrar for such Obligations on or before the date a sum sufficient for the payment thereof in full; or if any Obligation or interest thereon shall not be paid when due, the City may nevertheless discharge its liability with reference thereto by depositing with the Registrar a sum sufficient for the payment thereof in full with interest accrued to the date of such deposit. The City may also discharge its liability with reference to any Obligations which are called for redemption on any date in accordance with their terms, by depositing with the Registrar on or before that date an amount equal to the principal, interest and redemption premium, if any, which are then due thereon, provided that notice of such redemption has been duly given as provided in the Bond Resolution. The City may also at any time discharge its liability in its entirety with reference to any Obligations, subject to the provisions of law authorizing and regulating such action, by depositing irrevocably in escrow, with a bank qualified by law as an escrow agent for this purpose, cash or government obligations authorized by law to be so deposited, bearing interest payable at such times and at such rates and maturing on such dates as shall be required, without reinvestment, to provide funds sufficient to pay all principal, interest and redemption premiums, if any, to become due on such Obligations at their stated maturities or, if such Obligations are prepayable and notice of redemption thereof has been given or irrevocably provided for, to such earlier redemption date. No defeasance shall be made unless there has first been presented to the escrow agent a written opinion of Bond Counsel to the effect that such defeasance shall not cause the interest on any outstanding Obligations to be included in the gross income of the holders thereof for federal income tax purposes. Certain Definitions Set forth below are the definitions of certain terms used in the Bond Resolution and this Preliminary Official Statement. “Additional Bonds” means any Bonds issued pursuant to a Supplemental Resolution, excluding Subordinate Obligations. “Supplemental Resolution” means the resolution of the City pursuant to which the Series 2010 Bonds are to be issued as it may from time to time be amended or supplemented in accordance with its terms. “Acquisition and Construction Account” means the account so named within the Fund. “Act” means Montana Code Annotated Title 7, Chapter 7, Parts 44 and 45, as amended. “Bond Counsel” means any Counsel acceptable to the Bondholder which is nationally recognized as bond counsel. Counsel is nationally recognized as bond counsel if it has rendered a legal opinion as to the validity and enforceability of state or municipal bonds and as to the exclusion of interest thereon from gross income for federal income tax purposes (short-term issues excluded) during the two-year period preceding the date of determination. “Bondholder” means, with respect to a Bond, the Holder of such Bond. ---PAGE BREAK--- I-10 “Bond Register” means, with respect to a series of Additional Bonds, the register to be maintained by the Registrar pursuant to Section 2.7 or the Supplemental Resolution authorizing the issuance of such Bonds. “Bond Resolution” means the Amended and Restated Bond Resolution, approved by the City Council of the City on October 2010, as amended or supplemented by a Supplemental Resolution. “Bonds” means the Series 2010 Bonds, the Outstanding Bonds and any Obligations issued on a parity therewith. “Business Day” means any day which is not a Saturday or Sunday and is not a day on which banks in Montana are authorized or required by law to close. “City” means the City of Missoula, Montana. “Code” means the Internal Revenue Code of 1986, as amended. “Counsel” means an attorney duly admitted to practice law before the highest court of any state and satisfactory to the Bondholder. “Enabling Act” means Montana Code Annotated, Title 7, Chapter 13, Part and Title 7, Chapter 7, Part 44, as amended, which authorizes the City to own and operate the System, to undertake the Projects and to issue Bonds to finance a portion of the costs of the Projects. “Federal Payments” means amounts received from the United States Department of the Treasury as federal credit payments under Section 6431 of the Code in respect of the Series 2010 Bonds. “Fiscal Year” means the period commencing on the first day of July of any year and ending on the last day of June of the next year, or any other specified twelve-month period, authorized by law and specified by the Council as the City’s fiscal year. “Fund” means the Sewer System Fund. “Gross Revenues” means all revenues and receipts from rates, fees, charges and rentals imposed for the availability, benefit and use of the System, and from penalties and interest thereon, and from Federal Payments, and from any sales of property which is a part of the System and income received from the investment of such revenues and receipts, including interest earnings on the Reserve Account and the Operating Account, but excluding interest earnings on the Construction Account, Repair and Replacement Account and Surplus Account, and excluding any special assessments or taxes levied for construction of any part of the System and the proceeds of any grant or loan from the State or the United States, and any investment income thereon, to the extent such exclusion is a condition to such grant or loan. “Holder” means, with respect to an Obligation, the holder of record of such Obligation. ---PAGE BREAK--- I-11 “Net Revenues” means the entire amount of the Gross Revenues of the System, including Federal Payments remaining upon each semi-annual apportionment, after crediting to the Operating Account the amount required under the Bond Resolution, including sums required to maintain the Operating Reserve in the minimum amount provided in the Bond Resolution. “Obligations” means all Bonds and any other debt payable solely from the revenues of the System incurred to acquire, construct, extend, improve, add to or otherwise pay expenses of or related to the System. “Operating Account” means the account so named within the Fund. “Operating Expenses” means the current expenses, paid or accrued, of operation, maintenance and current repair of the System and its facilities, as calculated in accordance with sound accounting practices, and shall include, without limitation, administrative expenses of the City relating solely to the System, premiums for insurance on the properties thereof, labor and the cost of materials and supplies used for current operation and for maintenance, and charges for the accumulation of appropriate reserves for current expenses which are not recurrent but may reasonably be expected to be incurred in accordance with sound accounting practices; but does not include any allowance for interest expense or depreciation, renewals or replacements of capital assets of the System and shall not include any portion of the salaries or wages paid to any officer or employee of the City, except such portion as shall represent reasonable compensation for the performance of duties necessary to the operation of the System. “Operating Reserve” means the reserve to be maintained in the Operating Account as required by the Resolution. “Opinion of Counsel” means a written opinion of Counsel. “Original Purchaser” means, with respect to any series of Bonds, the original purchaser or underwriter of such series of Bonds. The Original Purchaser of the Series 2010 Bonds is “Outstanding” means, when used with reference to Bonds, as of the date of determination, all Bonds theretofore issued except: Bonds theretofore cancelled by the City or the Registrar or delivered to the City or the Registrar cancelled or for cancellation; (ii) Bonds and portions of Bonds for whose payment or redemption money or Government Obligations (as provided in Article IX) shall have been theretofore deposited in trust for the Holders of such Bonds; provided, however, that if such Bonds are to be redeemed, notice of such redemption shall have been duly given pursuant to this Resolution or irrevocable instructions to call such Bonds for redemption at a stated Redemption Date shall have been given to the City; and (iii) Bonds in exchange for or in lieu of which other Bonds shall have been issued and delivered pursuant to this Resolution; ---PAGE BREAK--- I-12 provided, however, that in determining whether the Holders of the requisite principal amount of Outstanding Bonds have given any request, demand, authorization, direction, notice, consent or waiver, Bonds owned by the City shall be disregarded and deemed not to be Outstanding. “Outstanding Bonds” means the Series 1999A Bond, the Series 2000B Bond, the Series 2001A Bond, the Series 2002A Bond, the Series 2002B Bond, the Series 2003 Bond, the Series 2004 Bond, the Series 2005 Bond, the Series 2006 Bond, the Series 2009A Bond, the Series 2009B Bond and the Series 2009C Bond “Person” means any Private Person or public entity. “Principal and Interest Requirements” means, with respect to any Outstanding Bonds and for any Fiscal Year, the amount of principal of and interest on such Bonds due and payable during such Fiscal Year, assuming that Outstanding Serial Bonds are to be paid at their Stated Maturities and Outstanding Term Bonds are to be paid on their Sinking Fund Payment Dates according to the mandatory redemption requirements established by the Resolution. “Principal Payment Date” means the Stated Maturity of principal of any Serial Bond and the Sinking Fund Payment Date for any Term Bond. “Project” means an improvement, betterment, reconstruction or extension of the System. “Rebate Account” shall mean the account so named within the Fund. “Rebate Certificate” shall mean the rebate certificate executed by the City and filed in the office of the City Clerk, if any, in connection with the issuance of any series of Additional Bonds, as such may be amended or supplemented from time to time in accordance with the provisions thereof. “Redemption Date” means, with respect to any Obligation to be redeemed, the date on which it is to be redeemed. “Redemption Price” means, when used with respect to any Obligations to be redeemed, the price at which it is to be redeemed. “Replacement and Depreciation Account” means the account so named within the Fund. “Reserve Account” means the account so named within the Fund. “Reserve Requirement” means, as of the date of calculation, an amount equal to the maximum amount of principal and interest payable on the Bonds in any future Fiscal Year (giving effect to mandatory sinking fund redemption, if any). “Revenue Bond Account” means the account so named within the Fund. “Serial Bonds” means Bonds which are not Term Bonds. ---PAGE BREAK--- I-13 “Series 1999A Bond” means the City’s $1,820,000 Sewerage System Revenue Bond (DNRC Revolving Loan Program), Series 1999A, outstanding as of October 1, 2010 in the principal amount of $997,000. “Series 2000B Bond” means the City’s $718,000 Sewerage System Revenue Bond (DNRC Revolving Loan Program), Series 2000B, outstanding as of October 1, 2010 in the principal amount of $430,000. “Series 2001A Bond” means the City’s $537,000 Sewerage System Revenue Bond (DNRC Revolving Loan Program), Series 2001A, outstanding as of October 1, 2010 in the principal amount of $283,000. “Series 2002A Bond” means the City’s $1,395,000 Sewerage System Revenue Bond (DNRC Revolving Loan Program), Series 2002A, outstanding as of October 1, 2010 in the principal amount of $854,000. “Series 2002B Bond” means the City’s $5,000,000 Sewerage System Revenue Bond (DNRC Revolving Loan Program), Series 2002B, outstanding as of October 1, 2010 in the principal amount of $3,458,000. “Series 2003 Bond” means the City’s $3,800,000 Sewerage System Revenue Bond (DNRC Revolving Loan Program), Series 2003, outstanding as of October 1, 2010 in the principal amount of $2,776,000. “Series 2004 Bond” means the City’s $3,688,000 Sewerage System Revenue Bond (DNRC Revolving Loan Program), Series 2004, outstanding as of October 1, 2010 in the principal amount of $2,783,000. “Series 2005 Bond” means the City’s $1,997,000 Sewer System Revenue Bond (DNRC Revolving Loan Program), Series 2005, outstanding as of October 1, 2010 in the principal amount of $1,368,000. “Series 2006A Bond” means the City’s $419,000 Sewer System Revenue Bond (DNRC Revolving Loan Program), Series 2006A, outstanding as of October 1, 2010 in the principal amount of $251,000. “Series 2009B Bond” means the City’s $925,000 Sewer System Revenue Bond (DNRC Water Pollution Control State Revolving Loan Program), Series 2009B, deemed for this purpose of the Resolution to be outstanding as of October 1, 2010 in the principal amount of $925,000. “Series 2009C Bond” means the City’s $64,000 Sewer System Revenue Bond (DNRC Water Pollution Control State Revolving Loan Program), Series 2009C, outstanding as of October 1, 2010 in the principal amount of $63,485. “Sinking Fund Payment Date” means mean one of the dates set forth in any applicable provisions of a Supplemental Resolution (as to any series of Additional Bonds) for the making of mandatory principal payments for Additional Bonds which are Term Bonds. ---PAGE BREAK--- I-14 “State” means the State of Montana. “Stated Maturity” means, with respect to any Obligation, the date specified in such Obligation as the fixed date on which the principal of such Obligation is due and payable. “Subordinate Obligation” means any additional Obligation which is expressly made a charge on only the Surplus Net Revenues of the System subordinate to the pledge of Net Revenues to the Revenue Bond Account. “Supplemental Resolution” means any resolution supplemental to or amendatory of the Bond Resolution. “Surplus Account” means the account so named within the Fund. “Surplus Net Revenues” shall mean that portion of the Net Revenues in excess of the current requirements of the Operating Account, the Revenue Bond Account and the Reserve Account. “System” means the existing sewer system of the City and all extensions, improvements and betterments thereof hereafter constructed and acquired, including, without limitation, each Project. ---PAGE BREAK--- APPENDIX II II-1 DESCRIPTION OF CONTINUING DISCLOSURE UNDERTAKING Purpose and Beneficiaries To provide for the public availability of certain information relating to the Series 2010 Bonds and the security therefor and to permit the original purchaser and other participating underwriters in the primary offering of the Series 2010 Bonds to comply with amendments to Rule 15c2-12 promulgated by the Securities and Exchange Commission (the “SEC”) under the Securities Exchange Act of 1934 (17 C.F.R. §240.15c2-12), relating to continuing disclosure (as in effect and interpreted from time to time, the “Rule”), which will enhance the marketability of the Series 2010 Bonds, the City has made in the Bond Resolution the following covenants and agreements for the benefit of the Owners (as hereinafter defined) from time to time of the Outstanding Bonds. The City is the only “obligated person” in respect of the Series 2010 Bonds within the meaning of the Rule for purposes of identifying the entities in respect of which continuing disclosure must be made. The City has complied in all material respects with any undertaking previously entered into by it under the Rule. If the City fails to comply with any provisions of the “Continuing Disclosure” section of the Bond Resolution (the “Continuing Disclosure”), the Owners of any Outstanding Bonds, may take whatever action at law or in equity may appear necessary or appropriate to enforce performance and observance of any agreement or covenant contained in the Continuing Disclosure, including an action for a writ of mandamus or specific performance. Direct, indirect, consequential and punitive damages shall not be recoverable for any default hereunder. Notwithstanding anything to the contrary contained in the Continuing Disclosure, in no event shall a default under the Continuing Disclosure constitute a default under the Series 2010 Bonds or under any other provision of the Bond Resolution. As used in the Continuing Disclosure, “Owner” or “Bondowner” means, in respect of a Bond, the registered owner or owners thereof appearing in the bond register maintained by the Registrar or any “Beneficial Owner” (as hereinafter defined) thereof, if such Beneficial Owner provides to the Registrar evidence of such beneficial ownership in form and substance reasonably satisfactory to the Registrar. “Beneficial Owner” means, in respect of a Bond, any person or entity which has the power, directly or indirectly, to vote or consent with respect to, or to dispose of ownership of, such Bond (including persons or entities holding Bonds through nominees, depositories or other intermediaries), or is treated as the owner of the Bond for federal income tax purposes. Information to be Disclosed The City will provide, in the manner set forth in the Continuing Disclosure, either directly or indirectly through an agent designated by the City, the following information at the following times: to the Municipal Securities Rulemaking Board (the “MSRB”) in an electronic format as prescribed by the MSRB, on or before 270 days after the end of each fiscal year of the City, commencing with the fiscal year ending June 30, 2010, the following financial information and operating data in respect of the City (the “Disclosure Information”): the audited financial statements of the City (or the System if separate audited statements are prepared) for such fiscal year, accompanied by the audit report and opinion of the accountant or government auditor relating thereto, as permitted or required by the laws of the State of Montana, containing balance sheets as of the end of such fiscal year and a statement of operations, changes in fund balances and cash flows for the fiscal year then ended, prepared in accordance with generally accepted accounting principles promulgated by the Financial Accounting Standards Board as modified in accordance with the governmental accounting standards promulgated by the Governmental Accounting Standards Board or as otherwise provided under Montana law, as in effect from time to time, or, if and to the extent such financial statements have not been prepared in accordance with such generally accepted accounting principles for reasons beyond the reasonable control of the City, noting the discrepancies therefrom and the effect thereof, and certified as to accuracy and completeness in all material respects by the Finance Director of the City; and ---PAGE BREAK--- II-2 to the extent not included in the financial statements referred to in paragraph hereof, the information for such fiscal year or for the period most recently available of the type contained in the Official Statement under headings: “Billings and Collections,” “Sewer Rates,” “Number of Customers,” “Customer Classifications,” “Sewage Treatment Requirements,” “Sewer Peak Daily Demand,” “Largest Customers,” “Historical Financials,” “Outstanding Debt of the System” and “Debt Service Requirement of the System.” Notwithstanding the foregoing paragraph, if the audited financial statements are not available by the date specified, the City shall provide on or before such date unaudited financial statements in the format required for the audited financial statements as part of the Disclosure Information and, within 10 days after the receipt thereof, the City shall provide the audited financial statements. Any or all of the Disclosure Information may be incorporated by reference, if it is updated as required hereby, from other documents, including official statements, which have been submitted to the MSRB in the manner described below. If the document incorporated by reference is this official statement, it must be available from the MSRB. The City shall clearly identify in the Disclosure Information each document so incorporated by reference. If any part of the Disclosure Information can no longer be generated because the operations of the System have materially changed or been discontinued, such Disclosure Information need no longer be provided if the City includes in the Disclosure Information a statement to such effect; provided, however, if such operations have been replaced by other City operations in respect of which data is not included in the Disclosure Information and the City determines that certain specified data regarding such replacement operations would be a Material Fact (as defined below), then, from and after such determination, the Disclosure Information shall include such additional specified data regarding the replacement operations. If the Disclosure Information is changed or the Continuing Disclosure is amended as permitted by the Continuing Disclosure, then the City shall include in the next Disclosure Information to be delivered, to the extent necessary, an explanation of the reasons for the amendment and the effect of any change in the type of financial information or operating data provided. In a timely manner, notice of the occurrence of any of the following events with respect to the Series 2010 Bonds which is a Material Fact: Principal and interest payment delinquencies; Non-payment related defaults; Unscheduled draws on debt service reserves reflecting financial difficulties; Unscheduled draws on credit enhancements reflecting financial difficulties; Substitution of credit or liquidity providers, or their failure to perform; Adverse tax opinions or events affecting the tax-exempt status of the Series 2010 Bonds; Modifications to rights of Holders; Bond calls; Defeasances; Release, substitution, or sale of property securing repayment of the Series 2010 Bonds; and Rating changes. ---PAGE BREAK--- II-3 A “Material Fact” is a fact as to which a substantial likelihood exists that a reasonably prudent investor would attach importance thereto in deciding to buy, hold or sell a Bond or, if not disclosed, would significantly alter the total information otherwise available to an investor from this Official Statement, information disclosed in the Bond Resolution or information generally available to the public. Notwithstanding the foregoing sentence, a “Material Fact” is also an event that would be deemed “material” for purposes of the Rule. In a timely manner, notice of the occurrence of any of the following events or conditions: the failure of the City to provide the Disclosure Information required under the Continuing Disclosure at the time specified thereunder; the amendment or supplementing of the Continuing Disclosure, together with a copy of such amendment or supplement and any explanation provided by the City; the termination of the obligations of the City under the Continuing Disclosure; any change in the accounting principles pursuant to which the financial statements constituting a portion of the Disclosure Information or the audited financial statements, if any, are prepared; and any change in the fiscal year of the City. Manner of Disclosure The City agrees to make available the information described in the Continuing Disclosure to the following entities by telecopy, overnight delivery, mail or other means, as appropriate: the information described in paragraphs and of “Information to be Disclosed”, to the MSRB via the Electronic Municipal Market Access System (“EMMA”) operated by the MSRB or in a manner as may be otherwise proscribed by the MSRB consistent with the Rule; and the information described in “Information to be Disclosed”, to any rating agency then maintaining a rating of the Series 2010 Bonds and, at the expense of such Bondowner, to any Bondowner who requests in writing such information, at the time of transmission under paragraph above, or, if such information is transmitted with a subsequent time of release, at the time such information is to be released. All documents provided to the MSRB shall be accompanied by identifying information as prescribed by the MSRB. Term; Amendments; Interpretation The covenants of the City in the Continuing Disclosure remain in effect so long as any of the 2010 Bonds are Outstanding. Notwithstanding the preceding sentence, however, the obligations of the City under the Continuing Disclosure terminate and are without further effect as of any date on which the City delivers to the Registrar an opinion of Bond Counsel to the effect that, because of legislative action or final judicial or administrative actions or proceedings, the failure of the City to comply with the requirements of the Continuing Disclosure will not cause participating underwriters in the primary offering of the Series 2010 Bonds to be in violation of the Rule or other applicable requirements of the Securities Exchange Act of 1934, as amended, or any statutes or laws successory thereto or amendatory thereof. The Continuing Disclosure (and the form and requirements of the Disclosure Information) may be amended or supplemented by the City from time to time, without notice to (except as provided in paragraph of “Manner of Disclosure”) or the consent of the Owners of any Bonds, by a resolution of the Council filed in the office of the City Clerk of the City accompanied by an opinion of Bond Counsel, who may rely on certificates of the City and others and the opinion may be subject to customary qualifications, to the effect that: such amendment or supplement is made in connection with a change in circumstances that arises from a change in law or regulation or a change in the identity, nature or status of the City or the type of operations conducted by the City, or is required by, or better ---PAGE BREAK--- II-4 complies with, the provisions of paragraph of the Rule; (ii) the Continuing Disclosure as so amended or supplemented would have complied with the requirements of paragraph of the Rule at the time of the primary offering of the Series 2010 Bonds, giving effect to any change in circumstances applicable under clause and assuming that the Rule as in effect and interpreted at the time of the amendment or supplement was in effect at the time of the primary offering; and (iii) such amendment or supplement does not materially impair the interests of the Bondowners under the Rule. If the Disclosure Information is so amended, the City agrees to provide, contemporaneously with the effectiveness of such amendment, an explanation of the reasons for the amendment and the effect, if any, of the change in the type of financial information or operating data being provided hereunder. The Continuing Disclosure is entered into to comply with the continuing disclosure provisions of the Rule and should be construed so as to satisfy the requirements of paragraph of the Rule. Further Limitation of Liability of City In and to the extent the limitations of liability contained in “Purpose and Beneficiaries” above are not effective, anything contained in the Continuing Disclosure to the contrary notwithstanding, in making the agreements, provisions and covenants set forth in the Continuing Disclosure, the City has not obligated itself except with respect to the Net Revenues of the System. None of the agreements or obligations of the City contained in the Bond Resolution shall be construed to constitute an indebtedness of the City within the meaning of any constitutional or statutory provisions whatsoever or constitute a pledge of the general credit or taxing powers of the City. ---PAGE BREAK--- APPENDIX III III-1 GENERAL INFORMATION CONCERNING THE CITY The Series 2010 Bonds are not general obligations of the City and do not represent a charge upon their general credit or taxing powers. The following information concerning the City is provided for informational purposes only and not as a representation of security for the Series 2010 Bonds. CITY PROPERTY VALUES 2009 Taxable Value by Property Type Real Property $ 96,362,321 88.5% Electric, Railroad, Airline, and Telecommunications: Centrally Assessed 5,132,517 4.7 Equipment and Fixtures 7,039,881 6.5 Electric, Telephone Co-ops and Pollution Control 380,458 0.3 2009 Taxable Value $108,915,177 100.0% Less: Tax Increment (4,507,159) 2009 Net Taxable Value $104,408,018 Source: Missoula County. Trend of Values Taxable Value Excluding Tax City of Missoula Levy Year Market Value Increment Mill Levy 2010* $3,965,146,053 $106,229,033 225.56 2009 3,757,969,949 104,408,018 222.45 2008 3,544,854,088 102,580,713 212.23 2007 3,369,424,088 102,081,168 204.73 2006 3,195,587,513 99,332,558 196.39 2005 2,901,638,641 93,533,579 182.57 * Property type breakout is not yet available. ---PAGE BREAK--- III-2 Major Taxpayers 2009 Taxpayer Business Taxable Value NorthWestern Energy LLC Gas and Electric Utility $ 3,030,470 Qwest Communications Telecommunications 2,022,489 Mountain Water Company Water Utility 1,049,135 Southgate Mall Retail Shopping Mall 909,293 Gateway Limited Partnership Retail 763,174 St. Patrick Hospital Corp. Medical Facility 643,666 Verizon Wireless Telecommunications 484,352 Mountain States Leasing Property Leasing 446,133 Western Hospitality Group Motel 410,986 Alltel Corp. Telecommunications 396,445 Total $10,156,143* * Represents 9.7% of the City’s 2009 Net Taxable Value. Source: Missoula County. CITY INDEBTEDNESS General Obligation Debt Supported by Taxes* Principal Date Original Final Outstanding of Issue Amount Purpose Maturity As of 9-20-10 5-1-04 $8,100,000 Aquatic Facilities 7-1-2024 $ 6,205,000 6-15-04 2,705,000 Refunding 7-1-2013 725,000 7-1-06 5,740,000 Fire 7-1-2026 4,930,000 2-1-07 4,355,000 Refunding 7-1-2018 3,205,000 Total $15,065,000 * These issues are subject to the statutory debt limit. Debt Supported by General Fund Revenues – Limited Obligation Debt* Principal Date Original Final Outstanding of Issue Amount Purpose Maturity As of 9-20-10 7-1-06 $1,100,000 General Fund Bonds 7-1-2026 $ 945,000 12-1-06 1,860,000 General Fund Bonds 7-1-2026 1,565,000 6-1-07 680,000 General Fund Bonds 7-1-2026 605,000 11-1-07 840,000 General Fund Bonds 7-1-2027 740,000 5-1-10 1,000,000 Refunding Bonds 7-1-2020 1,000,000 Total $4,855,000 * These issues are not subject to the statutory debt limit. ---PAGE BREAK--- III-3 Debt Supported by Sewer Revenues Principal Date Original Final Outstanding of Issue Amount Purpose Maturity As of 9-20-10 6-24-99 $ 1,820,000 Sewer 7-1-2019 $ 997,000 10-03-00 718,000 Sewer 7-1-2020 430,000 4-27-01 537,000 Sewer 1-1-2021 283,000 5-16-02 1,395,000 Sewer 1-1-2022 854,000 11-21-02 5,000,000 Wastewater Treatment Plant 7-1-2022 3,458,000 10-15-03 3,800,000 Wastewater Treatment Plant 7-1-2023 2,776,000 3-23-04 3,688,000 Wastewater Treatment Plant 1-1-2024 2,783,000 11-28-05 1,731,833 Sewer 7-1-2025 1,368,000 9-21-06 310,190 Sewer Revolving Fund 7-1-2026 251,000 12-1-09 361,012 Rattlesnake 2009A 7-1-2029 361,012 12-1-09 731,000 Rattlesnake 2009B 7-1-2030 731,000 12-1-09 64,000 Rattlesnake 2009C 7-1-2029 64,000 11-1-10 10,345,000 Sewer (this Issue) 7-1-2035 10,345,000 Total $24,701,012 * The City anticipates issuing approximately $945,000 Sanitary Sewer System Revenue Bonds to the DNRC Program in order to reimburse itself for certain improvements to the System that it funded from cash during the 2009-2010 fiscal year. The reimbursed proceeds will be deposited in the Sewer System Fund. Debt Supported by Parking Revenues Principal Date Original Final Outstanding of Issue Amount Purpose Maturity As of 9-20-10 11-1-00 $1,700,000 Parking Commission 11-1-2015 $835,000 Intercap Loan* Intercap loans are short-term loans for capital equipment from the Montana Board of Investments and are subject to debt limit. Payments are due in August and February. The City currently has one intercap loan outstanding as follows: Principal Date Original Final Outstanding of Issue Amount Purpose Maturity As of 9-20-10 7-9-04 $300,000 Art Museum 8-15-2014 $159,063 * Paid by Missoula County. City Demographic Information The City, the County seat of Missoula County (the “County”), is located in the western part of Montana at the junction of Interstate 90 and U.S. Highways 10, 12, and 93. The City lies in the hub of five valleys in the middle of the Rocky Mountains approximately 120 miles west of Helena, the capital of Montana; 200 miles east of Spokane, Washington; 135 miles south of Glacier National Park; and 300 miles north of Yellowstone National Park. ---PAGE BREAK--- III-4 Population The 2000 Census population ranks the City as the second-largest city in Montana and the County as the second-largest county. Population trends for the City and the County are shown in the table below. City of Missoula Year Missoula County 2010 68,876 108,623 2000 57,053 95,802 1990 42,918 78,687 1980 33,388 76,016 NOTE: U.S. Census Bureau figures are used for 1980, 1990, 2000 and 2010. Economic Base With abundant forested federal and private lands, air transportation facilities and ground transportation links, the local economy is based on regional trade, wood products and transportation (trucking and other), as well as the federal government and the University of Montana. The following table, compiled by the Missoula Area Economic Development Corp., shows the components of the economic base of the City: City of Missoula, Montana Annual Average Employment by Major Industry Type 1990 2000 2008* Agriculture, Forestry, Fisheries 188 244 394 Mining 15 48 36 Construction 1,427 2,340 3,430 Manufacturing 3,890 3,331 2,435 Transportation, Communication, and Public Utilities 2,147 2,830 2,805 Wholesale Trade 1,614 2,180 2,003 Retail Trade 7,658 11,028 8,368 Financial, Insurance, and Real Estate 1,326 2,194 2,586 Services 8,908 14,693 24,942 Government 6,209 8,117 8,461 Total Employees 33,382 47,005 55,460 * Most recent data available. Source: City's June 30, 2009 Comprehensive Annual Financial Report and Audit. ---PAGE BREAK--- III-5 Regional Trade Center The City is a regional trade and medical center, serving a total population base of over 413,892 people, including Missoula County and ten neighboring counties. Retail. Southgate Mall is the largest indoor shopping mall in the region, with over 105 stores. Costco, Wal-Mart, and Target have also built stores in the City in the last several years and have added significant retail volume. Healthcare. The City provides healthcare services to an area roughly the size of its total trade area. St. Patrick Hospital and Health Sciences Center provide major medical services to the region. The area is also served by four nursing homes and seven medical clinics. The region’s healthcare personnel include approximately 275 physicians, 1,055 nurses, and 55 dentists. Forest Products Industry The forest products industry has historically been a significant factor in the City’s economy. This includes the harvesting and processing of logs as well as the various related manufacturing uses. This industry also contributes to the significant amount of trucking in the region and to a portion of the federal government (U.S. Forest Service) presence in the area. Tourism and Travel The tourism and travel industries are increasingly important sources of economic activity for the County. Recreation. Visitors are attracted to the area by the numerous recreational opportunities, including hunting, fishing, hiking, skiing, and other outdoor activities. The City is a major entry point for travelers to visit nearby recreational attractions, including the Bitterroot, Bob Marshall, Frank Church/River of No Return, Mission Mountains, and Scapegoat Wilderness areas. The Montana Snow Bowl and Marshall Mountain ski areas are within 25 miles of the City. Transportation. The City is served by four commercial airlines: Delta, Alaska/Horizon, United Airlines, and Alliegent, as well as by three charter airlines: Minuteman Vet Center, Air Express and Homestead Helicopters. Air freight services are provided by Airborne Express, Butte Aviation, Corporate Air, Ameriflight, Emery Air Freight, and Methow. Burlington Northern and Montana Rail Link provide commercial rail service. Bus service is provided by Beach transportation, Bitterroot Stage, Greyhound Bus Lines, and Mountain Line Bus Service. Over 200 motor carrier services provide freight and trucking services. University of Montana The University of Montana, the original campus of the Montana university system, is located in the City. Founded in 1893, the 200-acre campus is comprised of the College of Arts and Sciences and eight professional schools: business, education, fine arts, forestry, journalism, law, pharmacy and allied health sciences, and technology. Approximately 15,700 students are enrolled for the 2010/2011 academic year. Additional Economic Indicators The tables on the following pages provide additional information about the economy of the City and the region. ---PAGE BREAK--- III-6 Historical Retail Sales and Effective Buying Income in Missoula County Total Retail Total Median Sales ($000) EBI ($000) Household EBI 2008 $2,644,883 $1,949,567 $36,347 2007 2,661,270 1,880,113 35,988 2006 2,623,794 1,820,755 35,707 2005 2,522,265 1,722,728 34,505 2004 1,481,496 1,636,713 33,037 The 2008 median household EBI for the State of Montana was $36,900. Source: 2008 data taken from Nielsen Market Demographics, 2009 edition. 2005 through 2007 data taken from Demographics USA, 2006 through 2008 editions. 2004 data taken from Sales and Marketing Management, “Survey of Buying Power,” 2004 and 2005 editions. New Construction Single-Family Homes All Construction Fiscal No. of No. of Year Permits Valuation Permits Valuation 2010 139 $12,643,362 1,306 $ 54,867,213 2009 142 11,627,586 1,291 63,987,567 2008 229 21,554,764 1,530 133,165,009 2007 333 31,466,438 1,613 89,139,137 2006 243 21,692,592 1,494 99,855,627 2005 457 35,521,132 1,677 113,217,490 2004 367 31,611,232 1,663 109,963,100 2003 419 38,976,115 2,180 193,963,792 2002 365 34,135,109 1,930 102,287,782 2001 285 28,288,095 1,694 135,701,353 Source: City Building Inspection Office and Missoula County Assessor. Major Employers Within the City Approximate Number Employer Product/Service of Employees University of Montana Post-secondary education 3,626* St. Patrick Hospital Healthcare 1,600 Missoula County Public Schools Public education 1,384 Community Medical Center Healthcare 1,155 DirectTv Customer Service Customer service 930 U.S. Forest Service Government 750 Missoula County County government 700 Wal-Mart Retail 500 City of Missoula City government 514 Montana Rail Link Rail transportation 391 Western Montana Clinic Healthcare 296 Washington Corporations Manufacturing 80 * Does not include student employees. Source: Telephone survey of individual employers, March 2010. ---PAGE BREAK--- III-7 Missoula County Annual Average Labor Force and Employment August Annual Average 2010 2009 2008 2007 2006 2005 Labor Force: Employed Labor Force 57,937 54,918 54,972 58,410 57,406 55,500 Unemployed Labor Force 4,087 3,324 2,599 2,127 1,698 2,015 Total Labor Force 62,064 58,242 57,571 60,537 57,104 57,515 County Unemployment Rate 6.6% 5.7% 4.5% 3.5% 2.9% 3.5% State Unemployment Rate 6.8% 6.2% 4.5% 3.6% 3.2% 3.9% Source: Montana Department of Labor and Industry, Office of Research and Analysis. http://www.ourfactsyourfuture.org/cgi/dataanalysis/AreaSelection.asp?tableName=Labforce (2010 data are preliminary.) Governmental Organization and Services The City was originally incorporated in 1883 and re-incorporated in 1889. The City is the second largest city in the State, and encompasses approximately 20.5 square miles. The City is a first-class city, governed by a self-government charter and operating under the mayor/council form of government, with a 12-member City Council. The City provides a wide range of municipal services, including police, fire, recreation, public works, and general administration services. Mayor and City Council Term Expires John Engen Mayor January 6, 2014 Ed Childers President January 2, 2012 Dick Haines Council Member January 2, 2012 Lyn Hellegaard Council Member January 2, 2012 Roy Houseman Council Member January 6, 2014 Bob Jaffe Council Member January 6, 2014 Marilyn Marler Council Member January 6, 2014 Renee Mitchell Council Member January 2, 2012 Stacy Rye Council Member January 2, 2012 Dave Strohmaier Council Member January 6, 2014 Pam Walzer Council Member January 2, 2012 Jason Wiener Council Member January 2, 2012 Jon Wilkins Council Member January 6, 2014 The Mayor is elected at large. As the chief executive officer of the City, the Mayor is responsible for the oversight of City departments and the execution of City Council policies. The Mayor has line-item power to veto ordinances and resolutions, including budget resolutions, subject to a two-thirds override vote, of the City Council. The Mayor does not vote, except in the case of a tie, when he may cast the tie-breaking vote. The Mayor presides at all meetings of the City Council; however, the President of the City Council presides at meetings of the City Council when the Mayor is absent or unable to act. The City Council meets on the first four Mondays of each month. ---PAGE BREAK--- III-8 Key Administrative Staff All non-elective officers of the City are appointed by the Mayor with the consent of the City Council, except those provided by State law. Mr. Bruce Bender, the City’s Chief Administrative Officer, was appointed on March 20, 2006. Previous to his appointment as Chief Administrative Officer, Mr. Bender served as the Acting Chief Administrative Officer since June 13, 2005 and also as the City's Public Works Director from 1995 to 2005. Mr. Brentt Ramharter, the Finance Director/Treasurer, was appointed in October 1997. Prior to his appointment, Mr. Ramharter served as Finance Director of the City of Post Falls, Idaho for seven years, and Finance Officer for Missoula County for eight years. Mr. Ramharter has an MBA from Gonzaga University and a Ph.D. in biology from the University of Minnesota. Ms. Martha L. Rehbein, the City Clerk, was appointed in December 1994. Prior to her appointment, she worked for the City’s Redevelopment Agency beginning in October 1991. Ms. Rehbein holds a B.A. in Political Science from the University of Montana. Labor Relations As of June 30, 2010, the City employed approximately 658 FTEs, more than half of which are members of formally recognized bargaining groups. The City strives to complete agreements with all of its bargaining groups in a timely manner, consistent with all applicable State of Montana law, to ensure equity in contract provisions, and to promote mutually beneficial labor relations policies. The City considers relations with its bargaining groups to be satisfactory. Bargaining Group Expiration International Association of Firefighters, Local No. 271 June 30, 2015 Missoula Police Protective Association June 30, 2011 Montana Public Employees Association Maintenance Technicians in Parks & Recreation Dept. June 30, 2013 Wastewater Lab Techs June 30, 2015 Parking Commission June 30, 2011 Teamsters Union, Local No. 2 June 30, 2015 Operators’ Union, Local No. 4000 June 30, 2015 Machinists Union, Local No. 88, District No. 86 June 30, 2015 Teamsters, Parks and Recreation Seasonal June 30, 2013 Wastewater Operator’s Union, Local 400 June 30, 2015 Accounting Policies GASB 34 Financial Report Model. Fiscal year ended June 30, 2003, was the first year that the City presented its basic financial statements under the new reporting model required by Statement No. 34 of the Governmental Accounting Standards Board (“GASB 34”). This reporting model changes significantly both the recording and presentation of financial data from prior years. Basis of Accounting. The accounting policies of the City conform to generally accepted accounting principles (“GAAP”) as applicable to governmental units. Governmental funds are accounted for using the modified accrual basis under which revenues are recognized in the accounting period in which they become measurable and available to pay current period liabilities. Material revenues susceptible to accrual include federal grants, property taxes and interest on investments. Taxes collected by the County in June, but received by the City in July are included in revenues. Tax collections after June 30 are ---PAGE BREAK--- III-9 relatively insignificant. Interest earned in June, but receipted in July is also accrued. Major revenues that are not accrued include licenses, permits and fines due to uncertainty about collectibility. Expenditures are included when incurred and include expenditures incurred prior to June 30, but paid in July or August. Proprietary funds are accounted for using the accrual basis of accounting. Fund Accounting. The accounts of the City are organized on the basis of funds and account groups, each of which is considered a separate accounting entity. The operations of each fund are accounted for with a separate set of self-balancing accounts that comprise its assets, liabilities, fund equity, revenues and expenditures, or expenses, as appropriate. The City has four major governmental funds and one major proprietary fund in addition to several non-major funds. Auditing of City Finances. The State requires a biennial audit for first-class cities, such as the City, by independent certified public accountants selected by the City. Audit contracts are usually for three years, and must be approved by the State of Montana. Because the City is subject to the single audit act, the City has annual audits. The City is currently audited by Anderson ZurMuehlen & Co., P.C., Certified Public Accountants. Risk Management The City participates in two statewide public risk pools operated by the Montana Municipal Insurance Authority for workers’ compensation and for tort liability coverage. Both public entity risk pools currently operate as common risk management and insurance programs for the member governments. The liability limits for damages in tort action are $750,000 per claim and $1.5 million per occurrence with a $15,000 deductible per occurrence. The City pays an annual premium for its employee injury insurance coverage, which is allocated to the respective City funds based on total salaries and wages. The agreements for formation of the pools provide that they will be self-sustaining through member premiums. Employee medical insurance is provided through a privately administered, self-insured plan. Given the lack of coverage available, the City has no coverage for potential losses from environmental damages. Employee Pension and Retirement Plans Substantially all full-time City employees are eligible for one of three State-wide cost-sharing, multiple-employer retirement plans – PERS, MPORS and FURS (see descriptions below). In the fiscal year ending June 30, 2009, 92.6% of the City’s payroll of $22,494,767 was covered by one of these plans. All three plans are administered by the state’s Public Employee’s Retirement Division and offer retirement, disability and death benefits to plan members. Employees can also participate in a deferred compensation plan, described below. In addition, there are two union-operated pension plans. The Central Pension Fund of the International Union of Operating Engineers, for which the City does not provide any matching funds, covers seven employees. There is a similar union agreement for 16 teamsters. Public Employees’ Retirement System (“PERS”). PERS was established in 1945 and provides retirement services to substantially all public employees. Benefit eligibility is age 60 with at least five years of service; age 65 regardless of service; or 30 years of service regardless of age. Actuarial reduced benefits may be taken with 25 years of service or at age 50 with at least five years of service. Members’ rights become vested after five years of service. The retirement benefit is 1/56 times the number of years of service times the final average salary. A guaranteed annual benefit adjustment (“GABA”) of 1.5% or depending on date of hire, is provided each January for benefit recipients if they have been receiving a benefit for at least 12 months. Members’ rights become vested after five years of service. The authority to establish, amend and provide cost of living adjustments for the plan is assigned to the State of Montana legislature. ---PAGE BREAK--- III-10 Firefighters’ Unified Retirement System (“FURS”). FURS was established in 1981 and provides retirement services to fully paid firefighters. Benefit eligibility is 20 years of service, regardless of age. The retirement benefit for members hired before July 1, 1981, who did not elect to be covered under GABA, is one-half of the last compensation, plus an additional two percent for each year in excess of 20 years. For those hired on or after July 1, 1981, and members hired prior to July 1, 1997 who have elected to be covered by GABA, the retirement allowance is 2.5% of the highest average compensation for the last consecutive 36 months of service. For members hired after June 30, 1997, and members hired prior to July 1, 1997 who have elected to be covered by GABA, a guaranteed annual benefit adjustment (GABA) of 3.0% is provided each January for benefit recipients if they have been receiving a benefit for at least 12 months. Members’ rights become vested after five years of service. The authority to establish, amend and provide cost of living adjustments for the plan is assigned to the State legislature. Municipal Police Officers’ Retirement Systems (“MPORS”). MPORS was established in 1975 and provides retirement services for all municipal police officers of cities covered by the plan. Benefit eligibility is 20 years of regardless of age. The retirement benefit is 2.5 percent of the final average salary for each year of service. Officers hired prior to July 1, 1997, not electing GABA, shall receive a minimum of one-half of the compensation of a newly hired officer. For members hired after June 30, 1997, and members hired prior to July 1, 1997, who have elected GABA coverage a guaranteed annual benefit adjustment (GABA) of 3.0% is provided each January if the benefit recipient has been receiving a benefit for 12 months prior to January 1. Members’ rights become vested after 20 years of service. The authority to establish, amend and provide cost of living adjustments for the plan is assigned to the State legislature. Contribution rates for the plan are determined by state law. Expressed as a percentage of covered payroll for the fiscal year ended June 30, 2009, the contribution rates were as follows: PERS MPORS FURS Employee 6.90 % 5.8% - 9.0%(a) 9.5% - 10.7%(b) Employer 6.935 14.41 14.36 State 0.10 29.37 32.61 5.0% for members hired prior to July 1, 1975; 7.0% for members hired between July 1, 1975 and June 30, 1979 (not covered by GABA); 8.5% for members hired on or after July 1, 1979; 9.0% for members hired on or after January 1, 1998. From July 1, 1997 to January 1, 1998 existing members could join the new plan (GABA). 9.5% for members hired prior to July 1, 1997; 10.7% for members hired after June 30, 1997. From July 1, 1997 to January 1, 1998 existing members could join the new plan (GABA). The City and the State of Montana contributions (including component units) for the years ending June 30, 2009, 2008, and 2007, as listed below, were equal to the required contributions for each year. Primary Government Component Units PERS MPORS FURS PERS City State City State City State City State 2009 $689,774 $10,320 $750,166 $1,608,246 $715,942 $1,667,135 $47,295 $684 2008 656,741 9,564 731,885 1,670,873 677,821 1,538,654 45,[PHONE REDACTED] 606,774 8,923 678,509 1,382,916 676,155 1,535,474 42,925 631 ---PAGE BREAK--- III-11 Other Postemployment Benefits The Governmental Accounting Standards Board (“GASB”) has issued Statement No. 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions (“GASB 45”), which addresses how state and local governments must account for and report their obligations related to post-employment healthcare and other non-pension benefits (referred to as Other Post Employment Benefits or “OPEB”). GASB 45 requires that local governments account for and report the annual cost of OPEB and the outstanding obligations and commitments related to OPEB in essentially the same manner as they currently do for pensions. Terminated employees may remain on the City's health insurance plan for up to 18 months if they pay the premiums. This benefit is required under the federal Consolidated Omnibus Budget Reconciliation Act (the “C.O.B.R.A.” law). Retirees may remain on the City's health plan as long as they wish, provided they pay the premiums. State law requires the City to provide this benefit. There are no other post-employment benefits provided by the City. No costs can be estimated for the above benefits, although there is the probability that there are higher medical costs for retirees which would result in additional costs to the insurance program. Out of 484 employees covered by the insurance plan in June 30, 2009, there were 50 retirees and one C.O.B.R.A. participant. Based on an actuarial study prepared as of June 30, 2009, the City’s annual other post-employment benefit cost was $499,446 for the fiscal year ended June 30, 2009. This costs and the related net other post-employment benefit obligation consisted of the annual required contribution for the year. There were no additional components since fiscal year 2009 was the first year of implementation of GASB 45. Budget Process Operating budgets are adopted each year for the general fund, debt service funds, special revenue funds, enterprise fund, internal service fund, and capital project funds. All budgets are presented on the budgetary basis appropriate for the fund type all governmental funds were budgeted on a modified accrual basis and all proprietary funds were budgeted on the accrual basis). Beginning with the City’s 1999 budget, the budget is prepared on a GAAP basis. A preliminary budget is presented in June, budget hearings are held, and the final budget is adopted by the second Monday in August. The operating fund budgets cannot be increased except by a public hearing or public emergency that could not have been reasonable foreseen at the time that budget was adopted. The overall budget may be increased in unanticipated funds are received during the fiscal year from the federal or state government. Budget appropriations may be transferred between line items or increased by budget amendment only upon adoption of a resolution by the City Council. The legal level of budgetary control is at the department level. All appropriations, except construction in process, lapse at the end of the fiscal year. The City does not use encumbrance accounting. ---PAGE BREAK--- III-12 General Fund Budget 2009 2010 2011 Actual Adopted Adopted General Fund Revenues: Taxes and Assessments $18,477,296 $19,419,245 $20,108,340 Licenses and Permits 1,180,657 1,242,824 1,233,117 Intergovernmental 10,123,957 10,556,001 10,722,585 Charges for Services 3,568,065 4,275,777 4,265,338 Fines and Forfeitures 1,086,994 1,088,821 1,000,634 Miscellaneous 131,153 164,600 170,004 Investment Earnings 107,986 300,000 25,000 Transfers In 4,660,694 4,911,506 4,291,325 Total Revenues $39,336,802 $41,958,774 $41,816,343 General Fund Expenditures: General Government $ 7,291,495 $ 7,104,983 $ 6,217,151 Public Safety 20,292,803 21,835,646 22,294,001 Public Works 6,326,179 7,134,069 6,109,527 Public Health 1,404,043 1,400,390 2,053,741 Social and Economic Services 118,450 118,450 87,184 Culture and Recreation 3,231,729 3,427,901 3,222,140 Capital Outlay 208,801 - 0 - 2,219,794 Transfers Out 764,988 937,335 1,341,174 Total Expenditures $39,638,488 $41,958,774 $41,544,712 ---PAGE BREAK--- APPENDIX IV IV-1 AUDITED FINANCIAL STATEMENT FOR THE FISCAL YEAR ENDING JUNE 30, 2009