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Home My WebLink AboutDecember 5, 2013 Official Statement for $9,900,000 General Obligation Bonds, Series 2013 OFFICIAL STATEMENT dated December 5,2013 NEW ISSUE BANK+QUALIFIED BOOK-ENTRY ONLY RATING.. Moody'sc "Aa?" (See"RATING"herein) In the opinion of Llorsey& Whitney LLP, Bond Counsel, under existing laws, regulations, rulings and decisions, assuming compliance with certain covenants, interest on the Bonds is excludable from gross income of the recipient fbr purposes of federal income taxation and State of Montana individual income taxation. Interest is not an item of tax preference in determining federal alternative minimum tax applicable to individuals. Interest is includable,however, in the computation of'the alternative minimum taxable income of corporations f6r purposes ofthe alternative minimum tax imposed under the fraternal Revenue Code of 1980, as amended. The City has designated the Bonds "qualified tax- exempt obligations"within the meaning of`Section 265(b)(3) ofthe Internal Revenue Code of 1986, as amended. (See "QUALIFIED TAX- EXI;A9PT OBLIGATIONS"and..TAX EXEMPTION AND RELATED CONSIDERATIONS"herein.) $9,900,000 CITY OF BOZEMAN, MONTANA GENERAL OBLIGATION BONDS, SERIES 2013. Dated. Date of Delivery(expected to be December 23,2013) Due. July I,as shown on the inside cover herein The City of Bozeman, Montana (the "City") provides this Official Statement in connection with the issuance of its General Obligation Bonds, Series 2013 (the "Bonds"). The Bonds mature on July 1 in each of the years and amounts set forth on the inside cover herein and will bear interest from the date of delivery to their respective maturities, or date of prior redemption, at the interest rates as shown on the inside cover. The Bonds will be issued as fully registered bonds and will be registered in the name of Cede & Co., as registered owner and nominee for The Depository Trust Company ("DTC"),New York,New York. DTC will act as securities depository of the Bonds. Individual purchases and sales of the Bonds may be made in book-entry form only, in the principal amount of$5,000 within a single maturity and in integral multiples thereof. Purchasers of the Bonds (the "Beneficial Owners")will not receive physical bond certificates. Interest on the Bonds will be payable semi-annually on each January 1 and July 1, commencing January 1, 2015. The City has appointed U.S. Bank National Association to serve as registrar and paying agent(the"Registrar")for the Bonds. The principal of and interest on the Bonds will be payable by the Registrar to DTC, which will in turn remit such principal and interest to DTC Participants for subsequent disbursement to the Beneficial Owners of the Bonds. (See"THE BONDS-Book-Entry System"herein.) The Bonds are general obligations of the City payable from the proceeds of an ad valorem tax, which the City will covenant to levy annually on all taxable property within the City, other than certain excluded property, without limitation as to rate or amount. Certain agricultural and forest land and improvements thereon located in the City will not be subject to the tax levy to pay debt service on the Bonds, as described herein. The Bonds are being issued as authorized by 'Section 76-6-109, Montana Code Annotated and in accordance with the provisions of Title 7, Chapter 7, Montana Code Annotated. The Bonds are being issued for the purpose of paying a portion of the costs of on open space lands designing, constructing or equipping trails, parks and natural areas or multi-use recreational fields and facilities or for use in the preservation or enhancement of water quality, and paying the costs of acquiring rights to or interests in or improving open space lands in or near the City (such as land for trails in and around the Bridger Mountain Foothills), to include necessary or appropriate infrastructure for the use, enjoyment or functioning of such lands or facilities and the operation, maintenance, repair, management, or planning of such lands or facilities; and paying costs associated with the sale and issuance of Bonds. The City expects it will issue the remaining$5,100,000 of Bond Authorization (as hereinafter defined) in a second and final series of bonds in 2015 (the "Series 2015 Bonds"). (See "THE BONDS - Authorization", "- Security," and "- Purpose and Sources and Application of Funds" and "CITY FINANCIAL INFORMATION — Trends in Property Valuations"herein.) The Bonds maturing on or after July 1, 2024 are subject to redemption at the option of the City on January 1, 2024 and on any day thereafter at a price equal to the principal amount being redeemed plus interest accrued to the date of redemption, without premium. Term Bonds are subject to mandatory sinking fund redemption. (See"THE BONDS-Redemption"herein.) The Bonds are offered when, as and if issued by the City, subject to prior sale, to withdrawal or modification of the offer without notice, and to the opinion as to validity and tax exemption of the Bonds by Dorsey & Whitney LLP, Missoula,Montana and Minneapolis, Minnesota, Bond Counsel. It is expected that the Bonds in definitive form will be available for book-entry delivery through the facilities of DTC on or about December 23, 2013 (the "Date of i Delivery"or"Closing"). This cover page contains certain information for quick reference only. It is not a summary of this issue. Investors must read the entire official statement to obtain information essential to making an injbrmed investment decision. D.A. DAVIDSON & CO. $%900,000 City of Bozeman, Montana General Obligation Bonds, Series 2013 MATURITY SCHEDULE Dated: Date of Delivery(expected to be December 23,2.013) Due: July 1, as shown below Interest Price Year Amount Rate Yield % of Par CUSIP" 2015 $225,000 2.00% 0.30% 102.579% 103637FT6 2016 395,000 2,00 0.50 103.754 103637FU3 2017 405,000 2.00 0.75 104.337 103637FV l 2018 410,000 2.00 1.15 103.735 103637FW9 2019 420,000 2.00 1.58 102.212 103637FX7 2020 430,000 2.25 1.90 102.137 103637FY5 2021 435,000 2.50 2.20 102.069 103637FZ2 2022 450,000 2.75 2.45 102.2'94 1.03637GA6 2023 460,000 3.00 2.63 103.098 103637GB4 2024 475,000 2.80 2.80 100.000 103637GC2 2025 490,000 3.25 2.97 102.41 12 103637GDO 2026 505,000 3.50 3.10 103.4222 103637GE8 2027 520,000 3.75 3.26 104.1602 103637GF5 2028 540,000 4.00 3.40 105.0592 103637GG3 2029 565,000 4.00 3.55 103.7662 103637GHI 2030 585,000 4.00 3.72 102.3232 103637GJ7 $1,245,000, 4.00'% Term Bond due July 1, 2032 to yield 4.05%, price 99.352%`0, CUSIP' 103637GL2 $1,345,000, 4.00% Term Bond due July 1, 2034 to yield 4.10%0, price 98.620%, CUSIP' 103637GN8 02013 CUSIP Global Services, CUSIPR is a registered trademark of the American Bankers Association, CUSIP numbers are provided by CUSIP Global Services, managed on behalf of the American Bankers Association by Standard& Poor's. The CUSIP numbers are not intended to create a database and do not serve in any way as a substitute for CUSIP service. CUSIP numbers are provided for convenience and reference only,and are subject to change. Neither the City nor the Underwriter takes responsibility for the accuracy of the CUSIP numbers. 2 Priced to the call date of January 1,2024. ii CITY OF BOZEMAN 121 North Rouse Avenue P.O. Box 1230 Bozeman, Montana 59771-1230 (406) 582-2300 Certain City Officials: Mayor................................................................................... ...................... Sean Becker City Commission.................... ............................................Jeff Krauss, Deputy Mayor Cynthia Andrus Chris Mehl Carson Taylor CityManager................................................ ........................... .............Chris Kukulski Assistant City Manager............................................................... ................Chuck Winn CityAttorney.................................................... ................................... ....Greg Sullivan CityClerk........................... ...............................................................I—1.1 1Stacy Ulmen Administrative Services Director........................................................Anna Rosenberry City Parks, Recreation and Cemetery Director.........................................Mitch Overton Underwriter D.A. DAVIDSON & CO. 8 Third Street North Great Falls, Montana 59401 (406) 727-4200 Bond Counsel DORSEY & WHITNEY LLP Millennium Building 125 Bank Street, Suite 600 Missoula, Montana 59802 iii No dealer, broker, salesman or other person has been authorized by the City to give any information or to make any representations, other than those contained in this Official Statement, and if given or made, such other information or representations must not be relied upon as having been authorized by the City. The information in this Official Statement was obtained from sources believed to be reliable, but is not guaranteed as to accuracy or completeness. The information and expressions of opinion herein are subject to change without notice and neither the delivery of the Official Statement nor any sale made hereby shall, under any circumstances, create any implication that there has been no change in the affairs of the City since the date hereof. The Underwriter has reviewed the information in the Official Statement in accordance with and as a part of its responsibilities under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriter does not guarantee the accuracy or completeness of the information. This Official Statement contains, in part, estimates and matters of opinion that are not intended as statements of fact, and no representation or warranty is made as to the correctness of such estimates and opinions or that they will be realized. The following descriptions of summaries of the Bonds and Bond Resolution and all references to other documents or materials not claiming to be quoted in full are only brief outlines of some of the provisions and do not claim to summarize or describe all provisions thereof. Copies of such documents may be obtained from the City, Bond Counsel or Underwriter. THE BONDS HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT OF 1933, AS AMENDED. IN MAKING AN INVESTMENT DECISION INVESTORS MUST RELY ON THEIR OWN EXAMINATION OF THE ISSUER AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND RISKS INVOLVED. THESE SECURITIES HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE, THE FOREGOING AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY OF THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY" IS A CRIMINAL OFFENSE. In connection with the offering and issuance of the Bonds, the Underwriter may over-allot or effect transactions which stabilize or maintain the market price of the Bonds at a level above that which might otherwise prevail in the open market. Such stabilizing, if commenced,may be discontinued at any time. Certain statements included or incorporated by reference in this Official Statement constitute "forward- looking statements" within the meaning of the United States Private Securities Litigation Reform Act of 1995, section 21E of the United States Securities Act of 1934, as amended, and Section 27A of the United States Securities Act of 1933, as amended. Such statements are generally identifiable by the terminology used such as"plan,""expect," `•estimate,""projection,""budget"or other similar words. 02013 CUSIP Global Services, CUSIP9 is a registered trademark of the American Bankers Association. CUSIP numbers are provided by CUSIP Global Services, managed on behalf of the American Bankers Association by Standard & Poor's. The CUSIP numbers are not intended to create a database and do not serve in any way as a substitute for CUSIP service. CUSIP numbers are provided for convenience and reference only, and are subject to change. Neither the City nor the Underwriter takes responsibility for the accuracy of the CUSIP numbers. iv TABLE OF CONTENTS 3lJMM/QlY STATEMENT...................... ...... -- ...... .............................. ....................... ---_-------.1 ]HEB8NDS Descriptionuf the Bonds -- .......... ...........................................—_.............................................. ...........2 Registrar............................................... ........ ............................... ........ ...... ............................................2 Redemption- _ __-_—__--_-------_—_--~-----_--._._—_----_----..2 Book-Entry System........ ...................................................................................... ......................................3 Aotboozution ..........— ....................................................................................... — ...................................4 Security...................................................... ................. ............ ................................................................ . Purpose and Sources and Application uf Funds.................___....... ............ —............... ................... ......4 GENERAL FINANCIAL INFORMATION Financial Operations, Sources oJ Revenue and Budgeting Process........... .............................. ...... ......... ..5 The Montana Property Tax System ......... ...... ...................___....................................................................h CITY FINANCIAL INFORMATION FinancialSummary............. ...... ...... ................... ................ ....................................... ......... ................l2 FutureFinancing.........— .......... ............ .......................................... .......................................................|2 Summary of Overlapping Debt............................................ — ........... .................. .................. .........l3 DebtRepayment Record..................................................................................... ...................... ................l3 General Obligation Debt I<udum ......................................................................... ........ ... ...—................l4 DebtLimitation................................................ ....................... .................................................. ....... ....]4 Schedule o[General Bond Debt Service..........................................................— ....................l5 Trends in Property Valuations.......... ........................................ ........................... ....................................l0 TaxCollections....... _ ............ ---............. ................................... ........................................... — ...]7 TaxLevies............. ................— ...................................................................... ...... -------........... l7 MajorTaxpayers.................................. ................................ ................... .................................................IR THE CITY Geuezalufmzmutimo----_--------'-------_--------_-----------._—I8 Government........... ....................... — .......................................................___........... ....... ....................I9 Principal GovermuneoTuServio*o-------------------------------------.l9 Employment and Employee Relations.............. --........ ..........................................................................20 PensionPlans.......................................... ............................ ............................___....... ...........................2O Investments...................................................................... .............___.............. .................... ...................24 Risk Management—_-----_--------_---_—_---__--.----.------24 City Trails, Open Space and Parks........................................... ........ ........ ............. .................................25 QUALIFIEDTAX-EXEMPT ......................................................................................... .........27 —..... .....___........................................................................................... _........ ........................ 9 UNDERWRITING..................... .............................................................................................................................3V RATING.... .............................................. ...... ..................................... ....................... .........................................3O NO CONFLICTS (}F INTEREST.............................. —..... .......... .......................................................................30 COMMITMENT TO PROVIDE CONTINUING DISCLOSURE_.....___..... ............................. ....... ..............SO [H8CLO0LDl5 STATEMENT..... .................................................... ................ .............. ............ .... .................3I ADDITIONAL INFORMATION AND MISCELLANEOUS ...... ...___...............................................................3| APPROVAL 0FOFFICIAL STATEMENT................................................. —......................................................32 APPENDIX A: SUMMARY 0F THE CITY OF8OZBMAN"S GENERAL FUND FINANCIAL STATEMENTS....................... ............. ..........................A,l Statement ofRevenues, Expenditures&Changes iu Fund Balance-General Fund................. &-2 Balance Sheet—General Fund........ .......... ... ........... ................................... ......... .......... . A-3 APPENDIX B: ECONOMIC AND DEMOGRAPHIC INFORMATION --------------------D-1 APPENDIXC. C ..................................................... ....... ........... .........................C-1 APPENDIX D: FORM OF LEGAL OPINION ....................................... ............................................... ..... .... Z)-1 APPENDIX E: Il SYSTEM........................................................ ...........................___...............E-1 vi $9,900,000 City of Bozeman,Montana General Obligation Bonds,Series 2013 SUMMARY STATEMENT The following summary is qualified in its entirety by reference to the detailed information appearing elsewhere in this Official Statement. No person is authorized to detach this Summary Statement from this Official Statement or to otherwise use it without this entire Official Statement. ISSUER........................................ The City of Bozeman, Montana (the "City"), the State's fourth largest city based on population,is located along Interstate 90 in southwestern Montana. The City is the County seat for Gallatin County (the "County"), The City had a 2012 estimated population of 38,695 as estimated by the United States Bureau of the Census,an increase of 3.8% over the 2000 Census estimate of 37,280, The City is located approximately 145 miles west of the City of Billings, the largest municipality in the State based on population, approximately 200 miles east of the City of Missoula, the second largest municipality in the State based in population, and approximately 90 miles north of the west entrance of Yellowstone National Park. (See"THE CITY"herein.) INTEREST AND REDEMPTION......................... Interest is payable semiannually each January I and July 1, commencing January 1,2015. For so long as the Bonds are held in book-entry format,principal and interest payments will be made as described under the heading"THE BONDS -Book-Entry System." The Bonds maturing on or after July 1,2024 are subject to optional redemption. Tenn Bonds are subject to mandatory sinking fund redemption, (See"THE BONDS—Redemption" herein.) AUTHORITY FOR ISSUANCE....................... The Bonds are being issued as authorized by Section 76-6-109, Montana Code Annotated and in accordance with the provisions of Title 7, Chapter 7, Montana Code Annotated, and pursuant to a resolution to be duly adopted by the City Commission on or about December 16, 2013 (the "Bond Resolution"). The City expects it will issue the remaining $5,100,000 of Bond Authorization (as hereinafter defined)in a second and final series of bonds in 2015 (the"Series 2015 Bonds"), (See"THE BONDS-Authorization"herein.) SOURCE OF REPAYMENT........................... The Bonds are general obligations of the City, payable from general ad valorem taxes levied on taxable property in the City, other than certain excluded property, without limitation as to rate or amount. Certain agricultural and forest land and improvements thereon located in the City will not be subject to the tax levy to pay debt service on the Bonds as described herein. (See "THE BONDS - Security" and "CITY FINANCIAL INFORMATION — Trends in Property Valuations" herein.) USE OF PROCEEDS............................... The Bonds are being issued for the purpose of paying a portion of the costs of on open space lands designing, constructing or equipping trails, parks and natural areas or multi-use recreational fields and facilities or for use in the preservation or enhancement of water quality, and paying the costs of acquiring rights to or interests in or improving open space lands in or near the City (such as land for trails in and around the Bridger Mountain Foothills), to include necessary or appropriate infrastructure for the use, enjoyment or functioning of such lands or facilities and the operation,maintenance, repair,management, or planning of such lands or facilities; and paying costs associated with the sale and issuance of Bonds. (See"THE BONDS-Purpose and Sources and Application of Funds"herein.) I THE BONDS Description of the Bonds The City's General Obligation Bonds, Series 2013 (the"Bonds") will be issued as fully registered bonds and will be registered in the name of Cede & Co., as registered owner and nominee for DTC (as defined herein) as securities depository of the Bonds. Individual purchases and sales of the Bonds may be made in book-entry form only, in the principal amount of $5,000 within a single maturity and in integral multiples thereof. The Bonds will be dated, as originally issued, as of the date of delivery. The Bonds shall mature on July I in the years and amounts set forth on the inside cover hereof and shall bear interest from the date of original registration to their respective maturities or date of prior redemption at the interest rate or rates per annum as shown on the inside cover hereof. Interest on the Bonds will be payable semi-annually on January I and July I (each an "Interest Payment Date"), commencing January 1, 2015, by wire transfer on the Interest Payment Dates to Cede & Co. Interest on the Bonds will be payable to the Beneficial Owners of record as of the close of business on the 15`x' day of the month immediately preceding an Interest Payment Date. Principal and interest payments to the Beneficial Owners of the Bonds are to be made as described herein under "Book-Entry System." Registrar The City has appointed U.S. Bank National Association, a national banking association organized under the laws of the United States, to serve as paying agent and registrar (the "Registrar") for the Bonds. The Registrar is to carry out those duties assignable to it under the Bond Resolution. Except for the contents of this section, the Registrar 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 Bond Resolution or the Bonds, or for the validity, sufficiency, or legal effect of any of such documents. The mailing address of the Registrar is U.S. Bank National Association, 1420 Fifth Avenue, Seventh Floor, Seattle, Washington 98101, Attention: Corporate Trust Services. Additional information about the Registrar 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. Redemption Qpdonal Redemption. Bonds with stated maturities in the years 2015 through 2023 shall not be subject to redemption prior to their stated maturities. The Bonds with stated maturities on or after July 1, 2024 will be subject to redemption on January 1, 2024, and any day thereafter, at the option of the City, in whole or in part, at a redemption price equal to the principal amount thereof to be redeemed plus interest accrued to the redemption date, without premium. If less than all of the Bonds are to be redeemed, the Bonds to be redeemed shall be from such stated maturities and in such principal amounts as the City may designate in writing to the Registrar (or, if no designation is made, in inverse order of maturities) and in principal amounts of$5,000 within a single maturity and integral multiples thereof selected by the Registrar by lot or other manner it deems fair. 2 Mandatory Sinking Fund Redemption. The Bonds with stated maturities in the years 2032 and 2034 are Term Bonds and are subject to mandatory sinking fund redemption prior to maturity on July 1, in the year 2031 for the Term Bond maturing in 2032 and in the year 2033 for the Tenn Bond maturing in 2034 at 100% of the principal amount thereof in $5,000 principal amounts selected by the Registrar, by lot or other manner it deems fair at a redemption price equal to the principal amount thereof to be redeemed plus accrued interest to the date of redemption, from mandatory sinking fund deposits in the total principal amount set forth below. 2032 Tenn Bond 2034 Term Bond Redemption Redemption Date Amount Date Amount July 1, 2031 $610,000 July 1, 2033 $660,000 July 1, 2032' 635,000 July 1, 2034' 685,000 Total $1,245,000 $1,345,000 .......... Maturity. Notice of Redemption. Notice of redemption stating the redemption price, the date fixed for redemption, the numbers, the interest rates, CUSIP numbers, and the maturity date of the Bonds or portions thereof called for redemption will be mailed by first-class mail to the holder of each Bond to be redeemed at such person's address as shown in the Bond Register at least thirty days before the redemption date; provided that any defect in or failure to give such mailed notice will not affect the validity of proceedings for the redemption of any Bond not affected thereby. Notice of the redemption of any Bond having been mailed as so provided and funds sufficient for its payment with accrued interest having been deposited with the Registrar on or before the redemption date, interest on such Bond will cease to accrue on the redemption date, and the holder will have no further rights with respect thereto or under the Bond Resolution except to receive the redemption price so deposited. Book-Entry System The Bonds will be issued under a book-entry system, initially registered to Cede & Co., as nominee of the Depository Trust Company ("DTC"), New York, New York, which will act as securities depository for the Bonds. Individual purchases of the Bonds will be made in the principal amount of $5,000, or integral multiples thereof within a single maturity. When the Bonds are issued, ownership interest will be available to purchasers only through a book-entry system (the "Book-Entry System") maintained by DTC or such other depository institution designated by the City pursuant to the Bond Resolution. See Appendix E to this Official Statement for further information about the Book-Entry System. The information presented in Appendix E was obtained from DTC, and the City makes no representation as to the accuracy or completeness thereof. If the Bonds are removed from the Book-Entry System and delivered to the person named as the registered owner of the Bonds on the registration records maintained by the Registrar in physical form, as described in Appendix E, the discussion therein of the Book-Entry System will not apply. 3 Authorization The Bonds are being issued in accordance with the provisions of an authorizing resolution (the "Authorizing Resolution") adopted by the City Commission on October 28, 2013 and pursuant to a final resolution to be duly adopted by the City Commission on or about December 16, 2013 (the "Bond Resolution") providing security for the Bonds as authorized by Section 76-6-109, Montana Code Annotated and in accordance with the provisions of Title 7, Chapter 7, Montana Code Annotated. pursuant to Title 7, Chapter 7, Montana Code Annotated, Pursuant to an election held on November 6, 2012, the electors in the City authorized the issuance of $15,000,000 in aggregate principal amount of general obligation bonds (the "Bond Authorization"). The City has determined to issue the first series of the Bond Authorization in the amount of$9,900,000, with the issuance of the Bonds. The Bonds represent the first series of bonds of the Bond Authorization, and taking into consideration the issuance of the Bonds, the City will have $5,100,000 in principal amount of Bond Authorization remaining unissued. The City expects to issue the remaining $5,100,000 of Bond Authorization in a second and final series of bonds in 2015 (the"Series 2015 Bonds"). Security The Bonds are general obligations of the City payable from the proceeds of an ad valorem tax, which the City will covenant to levy annually on all taxable property within the City, other than certain excluded property as described below, without limitation as to rate or amount. Certain agricultural and forest land and improvements thereon located in the City will not be subject to the tax levy to pay debt service on the Bonds as described below. The full faith, credit and taxing power of the City will be pledged to the payment of the Bonds. Agricultural and Forest Property Exemption for Open Space Bonds. Pursuant to 76-6-109, Montana Code Annotated, property taxes levied to pay the principal and interest on general obligation bonds for open space purposes may not be levied against the following property: (a) agricultural land; (b) forest land; (c) all agricultural improvements on agricultural land; (d) all noncommercial improvements on forest land; (e) agricultural implements and equipment; and (f) livestock. The first year the DOR will certify the City's taxable value for open space purposes will be tax year 2014 (fiscal year 2014/15), which will coincide with first year that the City will levy for debt service on the Bonds. Based on preliminary and estimated information provided by the DOR, the estimated taxable valuation of property in the City that would have been exempt from taxation for open space bonds in fiscal year 2013/14 equaled $22,028, or 0.03% of the City's 2013/14 taxable valuation of $85,637,356. (See "CITY FINANCIAL INFORMATION—Trends in Property Valuations"herein.) Purpose and Sources and Application of Funds The Bonds are being issued for the purpose of paying a portion of the costs of on open space lands designing, constructing or equipping trails, parks and natural areas or multi-use recreational fields and facilities or for use in the preservation or enhancement of water quality, and paying the costs of acquiring rights to or interests in or improving open space lands in or near the City (such as land for trails in and around the Bridger Mountain Foothills), to include necessary or appropriate infrastructure 4 for the use, enjoyment or functioning of such lands or facilities and the operation, maintenance, repair, management, or planning of such lands or facilities, and paying costs associated with the sale and issuance of Bonds. The Bonds represent the first series of bonds of the Bond Authorization. The City expects it will issue the remaining $5,100,000 of Bond Authorization in a second and final series of bonds in 2015 (the "Series 2015 Bonds"). The estimated sources and application of funds are shown in the table that follows. Sources of Funds: Principal Amount of the Bonds $9,900,000.00 Net Original Issue Premium 191,847.30 Total Sources of Funds $10,091,847.30 Application of'Funds: Deposit to the Project Fund $9,969,924.30 Costs of Issuance of the Bonds' 121,923.00 Total Application of Funds $10,091,847.30 Includes Bond Counsel fees, Underwriter's discount, costs of printing and distributing the Preliminary and final Official Statements,initial Registrar fees,and other related fees and expenses. GENERAL FINANCIAL INFORMATION Financial Operations, Sources of Revenue and Budgeting Process General. Montana local governments rely on local property taxes as the principal source for funding their general operations under rules prescribed by the State Legislature. Historically, cities were permitted by law to levy special purpose levies for pension, insurance, debt service, and other categories permitted by State law. The mill levy rate ("mills") is determined by dividing the tax receipts budgeted to be received by a taxing jurisdiction by the taxable value of all taxable property within such jurisdiction. The tax on each property is then determined by applying the mills to the taxable value of the property. The fiscal year of the City and other taxing bodies in the State commences July I of each year and ends June 30 of the following year. Taxes are payable in two installments, due on November 30 and May 31 of each fiscal year. If not paid on or before these dates, taxes become delinquent and accrue interest at a rate of 5/6 of 1% per month from and after such delinquency until paid, plus 2% of the amount delinquent as a penalty. For fiscal year ended June 30, 2014, the City levied 134.76 mills in the general fund, which constituted 47,2% of the City's general fund budget. Other sources of funding for Montana cities include State, County, and Federal revenues, fines, special assessments, charges for services, license and permit fees and investment earnings. Local governments, even home rule municipalities, do not have the authority to impose taxes unless specifically granted by the State Legislature. (See "APPENDIX A — SUMMARY OF THE CITY OF BOZEMAN'S GENERAL FUND FINANCIAL STATEMENTS" herein.) 5 Budget Process. The financial operations of the City are conducted primarily through its General Fund, Special Revenue Fund, Debt Service Fund, Capital Projects Fund and Enterprise Funds, All revenues not attributable to any other fund are accounted for in the General Fund and recorded therein, and any lawful expenditure of the City may be made from its General Fund. The City's budget must conform to the standards set forth in the Local Government Budget Act. The City Manager is responsible for preparation of the preliminary annual budget. The City Commission modifies and/or approves this budget. The City Commission must meet prior to the budget adoption for the purpose of holding a public hearing on the final budget. This hearing can be continued until the budget is finally approved and adopted by the later of the second Monday in August of each year or within 45 calendar days of receiving the certified taxable value. State law requires that by the later of the first Thursday in September or within 30 calendar days of receiving the certified taxable value, the City Commission will fix the tax levy for each fund. The City Clerk forwards a copy of the final budget to the State Department of Administration no later than October I of each year. The Montana Property Tax System GeneraL As a general role, all real and personal property in the State is subject to taxation by both the State and its counties, municipalities and other political subdivisions to finance various general and special governmental functions and capital improvements. This rule is subject to exceptions in the case of specified classes of exempt property, including public property, property of churches, schools, hospitals, cemeteries and charities, household goods, certain agricultural products, automobiles, smaller trucks, business inventory, money and credits. The State imposes a beneficial use tax upon property otherwise exempt from property tax used by private parties or for industrial trade or business purposes. Property is classified according to its use and character, and the different classes of property are taxed at different percentages of their market valuation. Both cities and counties can grant property tax benefits to new and expanding businesses within their jurisdictions, but only with respect to the taxes they levy for a period of up to five years. The amount of property tax payable with respect to any piece of property is the product of the assessed market value of the property, less any exemption, times the rate of taxation per classification (the "taxable value") times the number of mills levied by each taxing jurisdiction, all as more fully described herein. Appraisal, Assessment, and Revaluation. All taxable property except farm-land and mines is to be assessed at 100 percent of market value, as such market value is determined by the Montana Department of Revenue (the "Department of Revenue" or the "DOW'). The Department of Revenue determines the market value of most real property by appraisal using one or more of the three accepted appraisal approaches. (a) the cost approach, based on the cost of the property, using the national cost service manuals and the Montana Appraisal Manual; (b) the sales comparison approach, based on comparable arm's-length sales; and (e) the income approach, based on a calculation of the net property income (reflected by market rents minus property management and other expenses). The Montana Constitution requires that property tax values be equalized across the State. The Legislature has directed the Department of Revenue to administer and super-vise a program, pursuant to a written plan for the periodic revaluation of all taxable property within Class Three, Four and Ten, which are real property classifications that include all residential and commercial property. The last three reappraisals were performed at six year intervals. The market and taxable values of most classes of property and particularly Classes Three, Four and Ten are assessed on a county basis and are attributed to the local taxing jurisdictions in which the property is located. The DOR has completed the reappraisal that was required for Class Three, Four and Ten property by December 31, 2008, effective for tax year 2009, and 6 presented it to the 2009 Legislature. See "Classification, Exemption and Tax Rates" below for a discussion of the implementation of the reappraisal and establishment of the rates of taxation on Class Three, Four and Ten property. Centrally Assessed Property. The DOR is required to revalue all other classes of property annually and to "centrally assess" certain types of property owned by corporations or other entities operated as a single, integrated continuous property located in more than one county. Property to be centrally assessed includes telegraph, telephone, microwave, electric power or transmission lines, natural gas or oil pipelines; property of scheduled airlines; railroad transportation properties operating in more than one county or more than one state; net proceeds of mines; and gross proceeds of coal mines. These properties are assessed each year, and the property values, other than railroad property values, are apportioned by the DOR among the counties in which such property is located, either on a mileage basis or on the basis of the original installed cost of the property located in the respective counties. If neither of these methods is appropriate, the DOR may adopt such other method or basis of apportionment as it determines to be proper. Centrally assessed property constitutes a significant amount of taxable values of most counties. The DOR and the owner of property to be centrally assessed may agree to have the property assessed by a qualified independent appraiser, agree to share the costs of the appraisal and agree to accept the result. Otherwise, the DOR will assess those properties as described below. State law does not describe the factors to be taken into consideration by the DOR in determining the assessed value of public utilities, but rather states the appraisal is to be made using factors determined proper by the DOR. Pursuant to its rules, the DOR uses the unit method of valuation to appraise centrally assessed property when appropriate. The unit method may include a cost indicator method, a capitalized income indicator and a market indicator. If in the DOR's judgment these indicators fail to reflect a company's value or there is insufficient information to use those methods, it may adopt a different method or methods to reflect the company's market value. Further, the DOR may derive a market, or stock and debt indicator of value based on outstanding securities and liabilities, or construct a market indicator using sales comparison data or any other analysis or data bases for similar property. The income indicator may be deterimined by using capitalization of historical income, capitalization of projected income, discounted cash flow analysis or other method. As provided by law, a railroad system's property value is calculated by starting with the railroad system's property value for the previous year and adjusting up or down by an amount calculated to reflect the changes in the system's income, gross profit margin and depreciated property costs. Railroad property values are apportioned among the states and the counties in which the property is located, based on the average of the ratios of the track miles, revenue ton miles, gross investment, operating revenue and railroad car and locomotive miles in each state or county to the railroad system as a whole. On or before June 1 of each year, the DOR must notify owners of centrally assessed property of the appraisal and report. Such values must be reported to the counties on or before July 1 of each year. Property owners may appeal their assessed valuation to the State Board of Tax Appeals. Classification, Exemption, and Tax Rates. The taxable value for property is determined by applying a statutorily established percentage rate to the assessed market value of the property less the value of the property to be exempted from taxation according to a system of classifications, which are established by State statute. Currently, there are 15 classifications of property for tax purposes. For most State taxing jurisdictions, a substantial portion of the property tax base is in Class Four (residential and commercial property) and several classes of centrally assessed property; Class Nine (allocations for centrally assessed gas and electrical distribution systems); Class Twelve (centrally assessed railroad property); 7 and Class Thirteen (electrical generation facilities and centrally assessed telecommunications companies). Other classes of property include: Class Five (various types of equipment and machinery); Class Seven (property owned by rural cooperatives serving less than 15% of electricity consumers in an incorporated town; electric transformers and machines, electric light and power station machines, natural gas measuring and regulating station equipment owned by non-centrally assessed public utilities); and Class Eight(inining and manufacturing machinery, fixtures, equipment, "business equipment"). Effective July 1, 2011 through December 31, 2013, Class Eight property is taxed at 2% for the first $2 million of taxable market value or, beginning with fiscal year 2013 1.5% for the first $3 million of taxable market value, if certain criteria were met, and is taxed at 3% for taxable market value in excess of such thresholds. Class Eight property of a person or business entity that owns an aggregate of $20,000 or less in market value of Class Eight property is exempt from taxation through December 31, 2013. Commencing January 1, 2014 (fiscal year 2014115), pursuant to Senate Bill 96 ("SB 96") passed by the 2013 Legislature, the first $100,000 in market value of business equipment owned by a person or entity will be exempt from taxation. Class Eight property will be taxed at 1.5% for the first $6 million or taxable market value in excess of the $100,000 exempt amount, and at a rate of 3% for taxable market value in excess of$6 million. In addition, personal property intended for rent or lease in the ordinary course of business is generally exempt from property tax if the cost of such property is less than $15,000 and the lease period does not exceed one month. In an effort to prevent large property tax increases resulting from the periodic statewide reappraisals, the Legislature has previously provided not only for the phase-in of increases in valuation, but also a phased in tax rate reduction. The 2009 Legislature in implementing the reappraisal completed December 31, 2008, for establishing taxable values effective as of January 1, 2009, phased in the increase in market value attributable to the reappraisal at the rate of 16.66% over six years and phased in an increase in the amount of the market value of Class Four property to be exempted from taxation from 36.8% to 47.0% for residential property (the "homestead exemption") and in amounts from 14.2% to 21.5% for commercial property (the "comstead exemption") over six years. The increase in exemption for Class Four property over the six-year period was also matched with reductions in the tax rates from 2.93%in 2009 to 2,47% in 2014. Annual Exemption Annual Applied to "Phase-In Tax Rate Applied to (Cumulative) Value"to Calculate "Taxable Market Phase-In Amount of "Taxable Market Value" Value" to Calculate Tax Year Reappraisal Value Residential Commercial "Taxable Value" 2009/10 16.67% (16.67%) 36.8%® 14.2% 2.93% 2010/11 16.67% (33.34%) 39.5 15.9 2.82 2011112 16.67% (50.01%) 41.8 17.5 2.72 2012/13 16.67% (66.68%) 44.0 19.0 2.63 2013/14 16.67% (83.35%) 45.5 20.3 2.54 2014/15 16,67% (100.02%) 47.0 21.5 2.47 For single family residences, the homestead exemption is applied only to the first $1.5 million of market value. The 2009 Legislature directed that the next reappraisal cycle be completed by January 1, 2015, effective for 2015/16 and further directed the DOR to complete a sales assessment ratio study of residential property at the end of the second and fourth year of the reappraisal cycle in order to ascertain trends in market values and the accuracy of the values in the latest appraisal. 8 Certification of Values, Levy and Collection of Taxes and Tax Liens. The Department of Revenue is required by law to furnish market and taxable values to each taxing jurisdiction prior to the first Monday in August and the market and taxable values of centrally assessed property on or before July 1, for purposes of enabling local governments to prepare fiscal year budgets. The fiscal year of the City and other taxing jurisdictions commences July 1 of each year and ends June 30 of the following year. The amount of real property taxes and taxes on centrally assessed personal property and equipment to be levied and collected in each fiscal year by the City is determined in July and August as a part of the budget process. Taxes are levied against the taxable value of property in the City based on the certified taxable values as of the preceding January I as described above. Tax bills are assembled by the County Assessor based on the combined mill levies of the city, county, school district and special taxing jurisdictions in which the subject property is located, in addition to any State mill levies. Taxes are payable in two installments. Bills are normally sent to property owners on October 30, and installments become due on November 30 and May 31. For example, taxes for the fiscal year ending June 30, 2014 are payable in equal installments due on November 30, 2013 and May 31, 2014, and will be based on the mill levies established in August 2013 and on the taxable value of the property as of January 1, 2013. Class Eight or "business equipment" taxes are billed and collected on a different schedule. The owners of personal property report the property they own as of January 1 of each year. The property is assessed by the local representatives of the DOR in May of each year. The tax bills are distributed in July and are due within 30 days of receipt. All property taxes are collected by the counties and remitted to the various taxing jurisdictions. Under State law, if property taxes are not paid in full when due, the delinquent installment bears a penalty and interest at a delinquent rate anal, if not paid, the property is sold at tax sale. Current law provides that delinquent installments bear 'interest at a rate of 5/6 of I% per month (10% per annum) and a penalty of 2%. Property subject to a property tax lien may be redeemed by the owner, the occupant, a mortgagee, a contract vendor or any other interested party within 36 months after the date of the tax sale or within 60 days after notice of application for a tax deed, whichever is later; provided, however, that if the property is subdivided as a residential or commercial lot upon which special improvement district assessments or rural special improvement district assessments are delinquent and upon which no habitable dwelling or commercial structure is situated, redemption must be made within 24 months after the date of the tax sale or within 60 days after notice of application for a tax deed, whichever is later. Enforcement of a property tax lien may be a lengthy process. Most local government taxing bodies have statutory limits on the amount of taxes they may levy. (See "GENERAL FINANCIAL INFORMATION - The Montana Property Tax System - Property Tax Limitations"herein.) Other Recent Developments Relating to Property Taxation in Montana. The heavy reliance on property taxation as the primary source of funding for local governments and public school systems resulted in the late 1980's and the 1990's in numerous attempts, both legislative and through voter initiatives and proposed constitutional amendments, to limit property taxes. During this same period of time, the Legislature, in an effort to spur economic development and achieve other purposes, frequently revised (usually reducing) the rates of taxation on various classes of property, which resulted in a lack of 9 predictability in local government revenue streams. Both of these matters continue to arise, to some degree, in subsequent legislative sessions. Property Tax Limitations. Since 1986, as a result of voter approved legislative initiative, there has been a statutory limitation of some kind on the amount of property tax a local governinent can impose. In 1995, the State Legislature determined that the State's reliance on property tax to support education and local government had placed an unreasonable burden on all classes of property and declared it to be the policy of the State that no further tax increases be imposed on the classes of property subject to taxation. Current law, enacted in 1995 and codified, as amended from time to time, in Title 15, Chapter 10, Part 4, Montana Code Annotated, limits the total amount of taxes which can be levied in tax years commencing after December 31, 1996 by a taxing unit to the dollar amount levied in the 1996 tax year, subject to certain exceptions described below. As currently applied, a local government that is entitled to levy a property tax may impose a levy sufficient to generate the amount of property taxes actually assessed in the prior year, based on the then current taxable value, less the current year's value of newly taxable property, plus one-half of the average rate of inflation for the three prior years. The amount of that levy, plus any newly authorized levies may be applied to all property in the taxing jurisdictions, including newly taxable property. Newly taxable property includes: properties annexed or transferred into the taxing jurisdiction, new construction and remodeled improvements, subdivision of real property, transfer of property from tax exempt to taxable status, and the release of taxable value from tax increment financing districts. The value of newly taxable Class Four property, which is defined as property that was constructed, expanded, or remodeled since the last reappraisal cycle, is equal to the current year market value of such property less the previous year market value of that property. This mechanism is intended to allow local goverrunents to capture the full taxable value of newly taxable Class Four property for purposes of calculating mill levies. A local government that does not impose the maximum allowable levy in any given year may carry forward the authority to impose mills in a subsequent tax year equal to the amount actually levied and the authorized amount. A local government taxing jurisdiction inay also impose, without limitation: (a) additional levies authorized by the voters of the jurisdiction, including amounts necessary to pay voted general obligation debt; (b) taxes levied to pay premiums of certain insurance policies procured by the local government and contributions to certain state employment benefit plans; (c) certain mining proceeds taxes; (d) mills levied to account for a decrease in reimbursements from the State; (e) levies to pay for legal judgments against the jurisdiction; (f) levies to repay taxes paid under protest; or(g) an emergency levy in the case of a natural disaster or an unforeseen event affecting a school or community college district budget. Reduction in Rates on Other Classes of Property. The rate of taxation for all classes of property is established by the Legislature and thus can be changed at any legislative session. For example, the tax rate on Class Eight property, which is primarily items of business equipment, was reduced from 9% to 3% from 1995-2005. The 2011 Legislature further reduced the tax rate on Class Eight property to 2% for the first $2 million of taxable market value or, beginning with fiscal year 2013 1.5% for the first $3 million of taxable market value, if certain criteria were met. Taxable market value in excess of such thresholds is taxed at 3%. The 2013 Legislature changed the current $20,000 market value threshold exemption into a full exemption for the first $100,000 in market value of business equipment owned by a person or entity, and provides that the first $6 million of taxable market value in excess of the exemption amount is taxed at 1.5%, and the taxable market value in excess of$6 million is taxed at 3% effective January 1, 2014.of taxable market value. Taxable market value in excess of such thresholds is taxed at 3%. 10 As a general rule, the Legislature has provided for State reimbursement to local government taxing jurisdictions for property tax and other tax losses that are attributable to reductions in the tax rates on business equipment, oil and gas production, telecommunications property, and electrical generating facilities, for specified periods of time, but has not reimbursed local governments for property tax losses attributable to the reduction in the tax rates on residential and commercial real estate. The 2011 Legislature provided for State reimbursement to local government taxing jurisdictions for tax losses attributable to the previously discussed reductions in tax rates on Class Eight property. The 2013 Legislature provides for reimbursement to local governments in an amount, for fiscal years 2013/14 and 2014/15, equal to the difference between (i) business equipment tax collections as reduced by the 2011 Legislature and the 2013 Legislature and (ii) what business equipment tax collections would have been in the absence of such reductions. Revenue Sharing Entitlement Program, In 2001, the Legislature approved a revenue sharing program with local governments predicated on local governments giving up various dedicated revenue sources controlled by the State, including gaming taxes, taxes on motor vehicles, and a number of different reimbursements used for local government support in exchange for a payment made by the State known as the "Entitlement Share," which is not tied to any specific revenue source, but rather to the general economic condition of the State. This enables the Legislature to make tax changes and revenue reallocations without impacting the revenue for local government since the local government Entitlement Share is not tied to any particular revenue source or revenue allocation. Pursuant to House Bill 495, adopted by the 2011 Legislature, the Entitlement Share received by each local government in fiscal year 2011 is the base component for fiscal year 2012 and 2013 distributions, and in each subsequent year the prior year Entitlement Share is each local government's base component. The sum of all local governments' base components is the Entitlement Share pool, which must be increased annually by a growth rate that is tied to the State economy and is the lesser of- (1) a factor determined by a calculation based on gaming revenue, alcohol taxes, certain district court fees and State income tax revenue for the three preceding fiscal years and (2) 1.03 for counties, 1.0325 for consolidated local governments and 1.035 for cities and towns. Annual "growth" of the Entitlement Share is distributed 50% based on population and 50% based on each local government's share of the prior fiscal year entitlement calculation. For purposes of the Entitlement Share, local governments do not include tax increment districts. However, tax increment districts created and existing as of June 30, 2000 are entitled to receive an allocation of the Entitlement Share until those districts terminate. (The remainder of this page intentionally left blank.) 11 CITY FINANCIAL INFORMATION Financial Summary As of the Date Including the of Issuance of Proposed the Bonds' 2015 Bonds' 2012 City Population. ............................................... ............................... 38,695 38,695 2013/14 Taxable Market Valuation ........................................................... $3,386,295,608 $3,386,295,608 2013/14 Taxable Valuation.................................................. ................. $85,637,356 $85,637,356 2013/14 Open Space Taxable Valuation (applicable for the Bonds).......... $85,615,328 $85,615,328 General Obligation ("Direct") Debt Outstanding(including the Bonds)' .. $13,364,412 $18,464,412 Overlapping General Obligation Debt Outstanding.................................... $70,505,501 $70,505,501 Total Direct and Overlapping General Obligation Debt Outstanding6....... $83,869,913 $88,969,913 Total General Obligation Debt Capacity Remaining ................................. $71,292,978 $66,192,978 ' Includes the issuance of the Bonds and other outstanding general obligation debt, The City expects to issue $5,100,000 of Series 2015 Bonds in 2015 that are not included. (See"CITY FINANCIAL INFORMATION- Schedule of General Obligation Bond Debt Service"herein.) 2 Preliminary; subject to change. Includes the issuance of the Bonds and the Series 2015 Bonds as included in the Bond Authorization. 3 According to estimates and data from the U.S.Census Bureau. 4 Excludes tax increment district incremental valuations,which equaled$4,013,561 for 2013/14. ' Based on preliminary and estimated information provided by the DOR. The City's open space taxable valuation excludes approximately $22,028 of taxable valuation of property that would have been exempt from taxation for open space bonds in fiscal year 2013114. The first year the DOR will certify the City's taxable value for open space purposes will be tax year 2014 (fiscal year 2014/15), which will coincide with first year that the City will levy for debt service on the Bonds. (See "CITY FINANCIAL INFORMATION—Trends in Property Valuations"herein.) 6 See"CITY FINANCIAL INFORMATION—Schedule of General Obligation Bond Debt Service" and'-Debt Limitation" herein. Future Financing Near-Term Financing. The City anticipates borrowing up to $1.7 million from the State Revolving Fund for installation of a gas mitigation system at the City landfill. While this loan is currently expected to be secured by the wastewater fund or other pen-nissible fund, it is expected that the General Fund will make the annual payments of approximately $120,000 over a term of 20 years. (See "THE CITY—Risk Management — Potential Liabilities of the City" herein.) Other than the Bonds, the Series 2015 Bonds and the revolving fund loan described above, the City does not anticipate as of the date of this Official Statement the need to incur any additional general obligation indebtedness during the next 12 months. Future Financing. The City anticipates asking voters to approve a general obligation bond in an approximate amount ranging between $15-$20 million for the construction of a new police and municipal court building in November of 2014. The City also anticipates asking voters to approve a general obligation bond in an approximate amount ranging between $12-$14 million for the construction of an indoor/outdoor family aquatics facility in the spring of 2015. 12 Summary of Overlapping Debt The following information sets forth the indebtedness of the City following the issuance of the Bonds and of taxing jurisdictions with boundaries that overlap with all or portions of the City that have general obligation debt outstanding. General Outstanding Debt Chargeable Obligation Bonds to Property Within the City Outstanding Percent Amount Bozeman Elementary District $55,131,108 66,72% $36,783,785 Bozeman High School District 30,280,000 55.97 16,949,181 Gallatin County' 48,292,238 34.73 16,7721535 Total Overlapping General Obligation Debt.................................I......1—...I....- $70,505,501 Total Direct Debt .—................................................................**..................... 13,364,412 Total Direct and Overlapping General Obligation Debt2................................... $83,869,913 Total Direct Debt Including the $5,100,000 Series 2015 BondS3 111.11.11.1......... $18,464,412 Total Direct and Overlapping General Obligation Debt Including the $5,100,000 Series 2015 Bonds. .................................................... $88,969,913 'The County also has $3,200,000 of authorized but unissued open space bonds that are not included above. 2 Includes the issuance of the Bonds and the City's other outstanding general obligation debt. The City expects to issue the Series 2015 Bonds in 2015 that are not included. (See"CITY FINANCIAL INFORMATION- Schedule of General Obligation Bond Debt Service"herein.) 3 Preliminary; subject to change. Includes the issuance of the Bonds, other outstanding general obligation debt, and the Series 2015 Bonds. Debt Repayment Record The City has never defaulted on a payment of principal or interest on any of its general obligation bonds. Furthermore, the City has never issued refunding bonds for the purpose of avoiding an impending default on its general obligation bonds. (The remainder of this page intentionally left blank.) 13 Major Taxpayers The following table lists the largest taxpayers within the City for fiscal year 2013/14 in declining order of taxable valuation. Percent of 2013/14 2013/14 Taxable Value Taxpayer Business Taxable Value ($85,637,356]) 1. Northwestern Energy Utility $3,668,602 4.28% 2. Qwest Corporation Telecommunications 1,040,298 1.21 3. Bresnan/Optimum Telecommunications 813,246 0.95 4. Cellco/Verizon Telecommunications 555,252 0.65 5. Harry Daum Retail Shopping Mall 500,755 0.58 6. Stone Ridge Partners LLC Retail Shopping Center 468,297 0.55 7. J&D Family Limited Partnership Car Dealership 350,638 0.41 8. Bridger Peaks Holding LLC Retail Stores 350,440 0.41 9. First Security Bank Financial 349,000 0.41 10. Wal-Mart Retailer 338,929 0.40 Total ..................................... ................ ..................... $8,435,457 9.85% Excludes tax increment district valuations,which equaled$4,013,561 in 2013/14, Source: The County Treasurer and Department of Revenue—Gallatin County THE CITY General Information The City of Bozeman (the "City") is situated on the eastern slope of the Rocky Mountains in southwestern Montana along Interstate 90. The City is the County seat for Gallatin County (the "County") and is currently the State's fourth largest municipality by population. The City is located approximately 145 miles west of the City of Billings, the largest municipality in the State based on population, approximately 200 miles east of the City of Missoula, the second largest municipality in the State based in population, and approximately 90 miles north of the west entrance of Yellowstone National Park. The City encompasses an area of over 7 square miles with a 2012 Census population estimate of 38,695 according to United States Census Bureau, an increase of 3.8% over the 2010 Census estimate of 37,280. The County encompasses 2,510 square miles in southwestern Montana and is bordered by Yellowstone National Park to the south. According to the U.S. Census Bureau, the County had a 2012 population estimate of 92,614, an increase of 3.5% over the 2010 Census estimate. The County is currently the State's third largest county based on population behind the counties of Yellowstone and Missoula. The economy of the area is most notably impacted by the contributions of Montana State University, agriculture, technology-based businesses, tourism and recreation and trade center activities. (See "APPENDIX B. - ECONOMIC AND DEMOGRAPHIC INFORMATION"herein.) 18 Government The City is a municipal corporation, organized under the laws of the State of Montana in 1883. A Commission/Manager fonn of government governs the City with a five member Commission comprised of a Mayor and four Commissioners. The City's legislative and policy-making body is the City Commission who are elected every two years and serve overlapping four-year terms. The Mayor is the member of the Commission who received the highest number of votes in the regular municipal election. The current Commission members and the expiration of their respective terms of office are as follows: Elected Official Title Years on Commission Expiration of Term_ Sean Becker Mayor 7 years 12/31/13 Jeff Krauss Deputy Mayor 11 years 12/31/15 Cynthia Andrus Commissioner 2 years 12/31/15 Chris Mehl Commissioner 2 years 12/31/13 Carson Taylor Commissioner 2 years 12/31/13 The City employs a full time City Manager who is the chief administrative officer of the City. Mr. Chris Kukulski has served as the City Manager since August of 2004. Prior to serving as City Manager, Mr. Kukulski was the city manager for the City of Kalispell, Montana, for five years. Mr. Kukulski also worked for two cities in Michigan in city management and economic development capacities. He has a Master's degree in Public Administration from Western Michigan University and is a graduate of the University of Oklahoma's Economic Development Institute. Ms. Anna Rosenberry is the Administrative Services Director and serves as the City's Chief Financial Officer. Ms. Rosenberry served as the City's Director of Finance since February 8, 2005 and as the Administrative Services Director since 2012. Prior to joining the City, Ms. Rosenberry served as the County Treasurer for Gallatin County for four years. Mr. Greg Sullivan is the City Attorney and serves at the pleasure of the Commission. Mr. Sullivan graduated from the University of Montana - School of Law and has served as City Attorney since April 2006. Mr. Mitch Overton is the City's Parks, Recreation and Cemetery Director. Mr. Overton has served in this position since July of 2012. Prior to working for the City, Mr. Overton served as the Parks Superintendent for the City of Lancaster, Pennsylvania for over five years. Principal Governmental Services The City provides a number of basic services to its residents which include police and fire protection, the City Court, municipal water, sewer and sanitation systems, public works, planning, building inspection, zoning enforcement,public library, and parks and recreation. 19 Employment and Employee Relations As of October 1, 2013, the City employed 361.26 full-time equivalent ("FTE") employees. State law requires municipalities to bargain collectively with formally recognized collective bargaining units. Currently, four unions represent approximately 71% of the City's FTE employees. The bargaining organizations, -number of employees represented and the contract expiration are shown in the table below. The City considers its employee relations to be satisfactory. Number of Expiration Bargaining Unit Employees of Contract Bozeman Firefighters Association 39 06/30/2015 Bozeman Police Protective Association 57 06/30/2015 Teamsters Local#2 89 06/30/2016 Montana Public Employees Association 72 06/30/2015 Souree: The City Pension Plans All full-time City employees are eligible to participate in one of the cost-sharing retirement plans listed below. The plans are established by State law and administered by the State of Montana. The plans are cost-sharing multiple-employer defined benefit plans (the PERS (defined below) also has a defined contribution option) that provide retirement, disability and death benefits to plan members and beneficiaries, with amounts determined by the State. Contribution rates are required and determined by State law. These multiple-employer plans are administered by the State of Montana for a number of public entities in the State. Financial reports for each plan are available by contacting the designated retirement plans. Additional information can be found at http://mpera.mtgQv/index.shtm]. Such website is not incorporated into this Official Statement by such reference and are not a part hereof PERS. The Public Employee Retirement System ("PERS") is a state wide retirement plan established in 1945 and governed by Title 19, Chapters 2 and 3 of the Montana Code Annotated, providing retirement services to substantially all public employees. PERS is a mandatory, except for those employed less than one-half time, multiple-employer, cost-sharing plan administered by the Montana Public Employees' Retirement Administration ("MPERA") Board. PERS offers retirement, disability and death benefits to plan members and their beneficiaries and covers two retirement plans: the Defined Benefit Retirement Plan (the "DBRP") and the Defined Contribution Retirement Plan (the "DCRP"). Members choose which plan they will participate in. For members hired before July 1, 2011, benefit eligibility commences at age 60 with at least five years of service; age 65 regardless of service; or 30 years of service regardless of age. Actuarially reduced benefits may be taken with 25 years of service or at age 50 with at least five years of service. For members hired on or after July 1, 2011, benefit eligibility commences at age 65, with at least 5 years of service, or at age 70 regardless of service. Actuarially reduced benefits may be taken at age 55 with at least 5 years of service. Rights vest after 5 years of service. Benefits under the DCRP depend on the amounts contributed and the earnings on those amounts contributed. Benefits under the DBRP are determined based on number of years of service and what is determined to be the "highest average compensation" amount. For example, monthly retirement benefit for a member hired before July 1, 2011 with less than 20 25 years of service, or for a member hired after July 1, 2011 with between 10 and 30 years of service, is 1/56 of the member's "highest average compensation" multiplied by the number of years of the member's total service credit. PERS Current Contribution. Rates (based on participant compensation) DBRP Contribution Rates for Members Hired Hired On or Before After 7/1/2011 7/1/2011 Employee Employer State State/University 7.90% 7.90% 8.17% N/A Local Governments 7.90% 7.40%® 8.07% 0.10% K-12 School Districts 7.40% 7.90%m 7.80% 0.37% DCRP Contribution Rates for Members Employee Employer State State/University 7.90% 4.19%0. N/A Local Governments 7.90% 4.19%* 0.10% K-12 School.Districts 7.90°./ 4.19%b` 0.37% In addition to the 4,19%contribution to member retirement accounts, employers also contribute the following to PERS, for a total of 8.17%: Plan Choice Rate ("PCR") - 237%y DCRP — PCR Additional Contribution -- 0.27%; Education Fund - 0.04%;Long-Term.Disability Fund-0.30%; and temporary additional contributions to PERS--DBRP and Disability Funds— 1.00%. FURS: The Firefighters' Unified Retirement System ("FURS") funding is provided by local units of government, the covered employees and the State. Participants are eligible for benefits after 20 years of service regardless of age or for early retirement at age 50 with at least five years of service. A participant who retires with at least 5 years of service must receive a retirement benefit equal to 2.5% of the participant's "highest average compensation" for each year of service. "highest average compensation" means the monthly compensation of a participant averaged over the most highly paid 36 months of the participant's service. A participant hired before July 1, 1981 who retires with less than 20 years of service is entitled to the greater of(i) 2.5% of the participant's "highest average compensation" for each year of service or (ii) 2% of the participant's highest monthly compensation for each year of service. A participant hired before July 1, 1981 who retires with 20 or more years of service is entitled to the greater of(i) 2.5%n of the participant's "highest average compensation" for each year of service or (ii) 50%m of the participant's highest monthly compensation plus 2% of the participant's highest monthly compensation for each year of service over 20 years. Rights become vested after 5 years of service. FURS Current Contribution Rates (based on participant compensation) Em to ee Employer State FURS 10.70% 14.36% 32.61% 21 MPORS. The Municipal Police Officers' Retirement. System ("MPORS") funding is provided by local units of government, the covered employees and the State. Participants are eligible for benefits after 20 years of service regardless of age or age 50 with at least five years of service. Eligible participants must receive a retirement benefit equal to 2.5% of the participant's "final average compensation" for each year of service. "Final average compensation" means the participant's monthly compensation averaged over the last 36 months of the participant's service. Rights become vested after 5 years of service. MPORS Current Contribution Rates (based on participant compensation) Employee _ Employer State MPORS 9.00% 14.41% 29.37%n Actuarial Valuation for PERS, FURS and MPORS. The assumptions used in the actuarial valuations are assumptions and subject to change and actual results may vary. Cheiron located in McLean Virginia conducted the most recent actuarial valuations as of June 30, 2013. Statewide Actuarial Accrued Actuarial Value Unfunded Actuarial Liability of Assets Accrued Liability Actuarial ("AAL") ("AVA") ("UAAL") Funded Plan Valuation Date (in thousands) (in thousands) (in thousands) Ratio PERS June 30, 2013 $5,160,951 $4,139,921 $1,012,281 80.0% PERS June 30, 2012 $5,661,281 $3,816,919 $1,844,362 67.4% PERS June 30, 2011 $5,410,144 $3,800,479 $1,609,665 70.3% FURS June 30, 2013 $396,769 $263,483 $133,286 66.4% FURS June 30, 2012 $377,211 $233,121 $144,090 61.8% FURS June 30, 2011 $355,188 $219,959 $1.35,229 61.9% MPORS June 30, 2013 $450,043 $262,678 $187,365 58.4% MPORS June 30, 2012 $427,257 $234,025 $1.93,232 55.0% MPORS June 30, 2011. $401,381 $221,669 $179,711 55.2% Source Actuarial Valuation Reports andlor Summary Presentations by Cheiron Recent Legislation. House Bill 454 ("HB 454"), which was passed by the 2013 Legislature and signed into law by the Governor, is designed to provide for the funding of PERS on an actuarially sound basis. Effective July 1, 2013, HB 454 provides for an allocation of coal severance tax revenues to the PERS plan each year, provides for an increase in members' contributions to 7.90'%, an increase in the total employer contribution rate for all employers to 8.17%, and reduces the guaranteed annual benefit adjustment to a maximum of 1.50%, from a maximum of 3.00%. HB 454 is projected to decrease the amortization period for the PERS plan from"does not amortize"to 15.2 years. A lawsuit has been filed challenging the section of HB 454 that reduces the guaranteed annual benefit adjustment for the PERS plan participants. The plaintiffs argue that the reduction violates the federal and State constitutions by taking plaintiffs' property interests without just compensation, violating the State's contractual commitment to plaintiffs and impairing the State's contracts with plaintiffs. It is not possible to predict the outcome of this litigation or its impact, if any, on the City's required contributions to PERS. 22 Pension Contributions of the City. The City made the following contributions in fiscal year ending June 30, 2013 on behalf of the City employees who participated in the plans listed below. Number of City 2012113 Plan Participants City Contribution PERS 231 $811,087 FURS 46 411,099 MPORS 62 607,665 Total 339 $1,829,851 Source: The City GASB 45. The Governmental Accounting Standards Board ("GASB") has issued a new standard concerning Accounting and Financial Reporting by Employers for Post-Employment Benefits Other than Pensions ("GASB 45"). In addition to pensions, many state and local governmental employers provide other post-employment benefits ("OPEB") as a part of total compensation to attract and retain the services of qualified employees. OPEB includes post-employment healthcare, as well as other forms of post-employment benefits when provided separately from a pension plan. The new standard provides for the measurement, recognition and display of OPEB expenses/expenditures, related liabilities (assets), note disclosures, and if applicable, required supplementary information in the financial reports. City OPEB. The City provides OPEB allowing its retired employees to continue their health insurance coverage through the City's group health plan until death if they pay 100% of the premiums. The plan allows retirees to participate, as a group, at a rate that does not cover all of the related costs. In accordance with State law, the City's retirees may continue coverage for themselves and their covered eligible dependents if they are eligible far public employees' retirement by virtue of their employment with the City. The City also allows terminated employees to continue their health care coverage, if they pay 100% of the premiums, for 18 months past the date of termination as required by the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA"). For fiscal year ended June 30, 2013, the City had 73 retired members and dependents receiving benefits, as reported in the most recent actuarial report dated November 5, 2013. The City's annual OPEB cost (expense) is calculated on the annual required contribution ("ARC") of the employer. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover normal cost each year and to arnortize any unfunded actuarial liabilities (or funding excess) over a period not to exceed thirty years. The ARC for the year 2012 was equal to $263,074 and the Net OPEB obligation at the close of 2011 was $1,729,462. The City made contributions toward its OPEB obligation in the amount of$113,273 in 2012, The City pays OPEB liabilities on a pay-as-you-go basis. Fiscal Year 2011 June 30, 2011 June 30, 2012 June 30, 2013 ARC $263,074 $263,074 $252,049 Interest on Net OPEB Obligation 58,882 64,334 69,178 Adjustment to ARC (85,130) (93,011) (100,015) Annual OPEB Cost $236,826 $234,397 $221,212 Contributions Made (100,543) (113,273) (108,703) Change in Net OPEB Obligation $136,283 $121,124 $112,509 Net OPEB Obligation—Beginning of Year 1,472,055 1,608,338 1,729,462 Net OPEB Obligation—End of Year $1,608,338 $1,729,462 $1,841,971 23 As of July 1, 2012 (the most recent actuarial valuation date), the City's actuarial accrued liability ("AAL") for bencfits related to the health insurance for retirees equaled $2,002,345, of which the entire amount was unfunded. The most recent actuarial valuation information was prepared for the City by Clarity in Numbers, LLC, which is a different actuary/consulting firm than the firm that prepared the prior actuarial valuation information. The report, dated November 5, 2013, provided information regarding the City's July 1, 2012 liability information and the 2013 annual OPEB costs as described herein. Actuarial valuations are ongoing and involve estimates and assumptions, which may be variable and change. Certain assumptions can be found in the City's 2012 Comprehensive Annual Financial Report. Investments The City's investments may include cash and cash items; demand, time, saving and fiscal agent deposits; investments in the State Short-terrn Investment Pool ("STIP"); direct obligations of the United States Govenu-nent; and repurchase agreements. As of October 1, 2013, the City's investments had a market value of$48,996,479.67, of which the entire amount was held in cash and investments outside of STIP. Risk Management The City has been involved in litigation that resulted in the use of its Montana Municipal Interlocal Authority ("MMIA") insurance policy related to employee torts. In 2008, a judgment was ordered against the City, and although the MMIA made payment in accordance with the judgment, MMIA cited that the policy does not provide coverage in this particular case. In April 2012, a District Court judgment was issued in favor of MMIA that required the City to repay MMIA the amount that the insurer had paid on behalf of the City. On May 16, 2012, the City filed an appeal with the Montana Supreme Court regarding the District Court judgment in favor of MMIA. On December 10, 2012, the City reached a settlement with MMIA, with a liability of$2 million accrued on the City's entity-wide financial statements with one-third of this amount applied to each of the fiscal years ended June 30, 2012, 2013 and 2014, The City faces a considerable number of risks of loss, including (a) damage to and loss of property and contents, (b) employee torts, (c) professional liability, i.e., errors and omissions, (d) environmental damage, (e) workers' compensation, i.e., employee injuries, and (f) medical insurance costs of employees. A variety of methods is used to provide insurance for these risks. Commercial policies, transferring all risks of losses, except for relatively small deductible amounts, are purchased for property and content damage and professional liabilities. The City participates in four state-wide public risk pools operated by the MMIA for workers' compensation, property damage, employee medical insurance, and for tort liability coverage. Employee medical insurance is provided through a privately administered partially self-insured plan. The City has limited coverage for potential losses from environmental damages through a policy rider provided by the MMIA's liability coverage program. The City joined together with other Montana cities to form the MMIA, a self-insurance pool offering workers' compensation and tort liability coverage. Both public entity risk pools currently operate as common risk management and insurance programs for the member governments. 24 The liability limits for damages in tort actions are $750,000 per claim and $1.5 million per occurrence, with an $11,250 deductible per occurrence. State tort law limits the City's liability to $1.5 million. The City pays an annual premium for its employee injury insurance coverage, which is allocated to the employer funds based on total salaries and wages paid. The agreements for formation of the pools provide that they will be self-sustaining through member premiums. The total liability plan and workers' compensation program issued bonds in the amount of $4.41 million and $6.155 million, respectively, to finance the necessary insurance reserves. All members signed a contingent note for a pro rata share of this liability in case operating revenue was insufficient to cover the debt service. This debt was retired in 2011. Separate financial statements are available from the MMIA. The City also owns a policy with MMIA for loss or damage to property. This is an all risk policy, essentially all property owned by the City being insured for 100% of replacement costs, subject to a $5,000 deductible per occurrence. MMIA reinsures their property insurance with a national municipal pool, Public Entities Property Insurance. Separate financial statements are available from the MMIA. Since July 1, 2006, the City has purchased employee health insurance from the MMIA's Employee Health Benefits program. Potential Liabilities of the City. In addition to the MMIA litigation described above, the City has on- going issues, many of which are related to pollution remediation expenses, that may become potential liabilities reflected on the City's financial statements as described herein. In October 2012, the City began an investigation, which is still on-going, into the existence of volatile organic compounds on and adjacent to the City's Story Mill landfill, which closed in 2008. Volatile organic compounds are emitted as gasses from certain solids and/or liquids that may have adverse health effects. These issues are common problems for any landfill. There is currently a gas extraction system for methane at the landfill, which the City installed in 1997. In early 2013, test probes were installed in eight locations near the landfill, three of which found volatile organic compounds that are cause for concern. Approximately 25 residences near the landfill have been identified by the City for free air quality testing, which will be paid for by the City. As of October 2013, the City is actively mitigating adjacent properties and is in the process of developing long-term remediation plans for the site. As of the date of this Official Statement, the City has not received any formally filed litigation claims relating to the above matter; however, the City is not able to predict if any litigation will occur in the future. (See "CITY FINANCIAL INFORMATION—Future Financing"herein.) City Trails, Open Space and Parks General Description. The purpose of the City's Trails, Open Space and Parks ("TOP") program is to promote and facilitate on open space lands designing, constructing or equipping trails, parks and natural areas or multi-use recreational fields and facilities or for use in the preservation or enhancement of water quality, and paying the costs of acquiring rights to or interests in or improving open space lands in or near the City (such as land for trails in and around the Bridger Mountain Foothills), to include necessary or appropriate infrastructure for the use, enjoyment or functioning of such lands or facilities and the operation, maintenance, repair, management, or planning of such lands or facilities. Pursuant to an election held on November 6, 2012, the electors in the City authorized the $15,000,000 Bond Authorization. The City has determined to issue the first series of the Bond Authorization in the amount of$9,900,000, with the issuance of the Bonds. 25 The Bonds represent the first series of bonds of the Bond Authorization, and taking into consideration the issuance of the Bonds, the City will have $5,100,000 in principal amount of Bond Authorization remaining unissued. The City expects to issue the Series 2015 Bonds with the remaining $5,100,000 of Bond Authorization in 2015. The first year the DOR will certify the City's taxable value for open space purposes will be tax year 2014 (fiscal year 2014/15), which will coincide with first year that the City will levy for debt service on the Bonds. (See"CITY FINANCIAL INFORMATION—Trends in Property Valuations"herein.) Trails, Open Space and Parks Committee. The TOP Committee is comprised of five members that review project proposals. The TOP Committee has adopted program procedures and evaluation criteria for reviewing proposals. Any person or entity interested in applying for funds must first submit a proposal to the TOP Committee addressing the requirements of the application. The TOP Committee evaluates all preliminary proposal against arough-cut checklist to determine if such proposal is meets the TOP guiding documents, which would allow the TOP Committee to continue with its review under its procedures and evaluation criteria. However, if a project does not meet the rough-cut checklist, the TOP Committee will prepare a report for the City Commission and the City Commission may request the TOP Committee continue its review of the proposal. The current members of the TOP Committee are listed as follows. The TOP Committee was recently created in the fall of 2013; therefore, all of the members are new and are serving their first term. Expiration of Member Term (April 151`) Don Beeman, Chair 2016 Doug Chandler 2015 Sandy Dodge 2015 Bob Hawks 2014 Tom Starner 2016 Current ProjectslProposals. The TOP Committee has recommended to the City Commission a project regarding a planned bicycle/pedestrian rail connection Story Mill Road to the Drinking Horse Mountain and "M" trailheads (the "Trail to the M Projeef'). The City was awarded $3.4 million from a Federal Land Access Program in 2013. The local match required by the City is expected to be approximately $530,000, with $50,000 of this amount required in January 2014 and the remaining $480,000 required in 2015. It is anticipated that the Trail to the M Project could be completed by the end of 2015. The City Commission approved the proposal on October 28, 2013. The TOP Committee recently received a proposal regarding the purchase of 9 acres of land adjacent to the Bozeman Pond park area (the "Land Purchase"), which is located in the western part of the City. The Bozeman Pond park area is owned by the State, but maintained by the City. The Land Purchase would increase the Bozeman Pond park area. The TOP Committee reviewed this proposal in November 2013 and recommended the purchase of the property. The City Commission will receive and is expected to act on the TOP Committee recommendation in December 2013. Additionally, the TOP Committee recently received a proposal regarding the restoration of Bozeman Creek at Bogart Park (the "Bozeman Creek Enhancement Project"). The Bozeman Creek Enhancement Project would restore the watercourse as it flows through the historic City park- The TOP Committee reviewed this proposal in November 2,013 and recommended funding the project improvements. The 26 City Commission will receive and is expected to act on the TOP Committee recommendation in December 2013. The City expects that there are other projects on the horizon, such as projects for the purchase of Story Mill property for park land and land for an athletics facility. However, none are considered to be pending at this time nor have any proposals been submitted to the TOP Committee for formal review or recommendation to the City Commission. QUALIFIED TAX-EXEMPT OBLIGATIONS The City will designate the Bonds as "qualified tax-exempt obligations" within the meaning of Section 265(b)(3) of the Internal Revenue Code of 1986, as amended (the "Code"). Accordingly, financial institutions described in Section 265(b)(5) of the Code may treat the Bonds for purposes of Sections 265(b)(2) and 291(e)(1)(b) of the Code as if they were acquired on August 7, 1986 for purposes of partial deductibility of interest allocable to the Bonds. Non-compliance with certain requirements of the Code may cause the Bonds retroactively to lose their character as qualified tax-exempt obligations TAX EXEMPTION AND RELATED CONSIDERATIONS Tax Exemption In the opinion of Dorsey & Whitney LLP, as Bond Counsel, under federal and State of Montana laws, regulations, rules and decisions in effect on the date of issuance of the Bonds, interest on the Bonds is not includable in gross income for federal income tax purposes or for State of Montana individual income tax purposes. Interest on the Bonds is not excludable, however, from the computation of income for purposes of the Montana corporate income tax and the Montana corporate license tax. Certain provisions of the Internal Revenue Code of 1986, as amended (the "Code"), however, impose continuing requirements that must be met after the issuance of the Bonds in order for interest thereon to be and remain not includable in gross income for purposes of federal income taxation. Noncompliance with such requirements by the City may cause the interest on the Bonds to be includable in gross income for purposes of federal income taxation, prospectively or retroactive to the date of issuance of the Bonds, irrespective in some cases of the date on which such noncompliance occurs or is ascertained. No provision has been made for redemption of or for an increase in the interest rate on the Bonds in the event that interest on the Bonds becomes includable in federal gross incorne or Montana individual income taxation. Related Considerations Interest on the Bonds is not an item of tax preference for purposes of the federal alternative minimum tax applicable to all taxpayers, but is included in adjusted current earnings for purposes of the federal alternative minimum tax imposed on corporations. Section 86 of the Code requires recipients of certain Social Security and railroad retirement benefits to take into account interest on the Bonds in determining the taxability of such benefits. Passive investment income, including interest on the Bonds, may be subject to taxation under Section 1375 of the Code for an S corporation that has accumulated earnings and profits at the close of the taxable year if more than twenty-five percent of its gross receipts is passive investment income. Interest on the Bonds may be includable in the income of a foreign corporation for purposes of the branch profits tax imposed by Section 884 of the Code and is includable in the net 27 investment income of foreign insurance companies for purposes of Section 842(b) of the Code. In the case of an insurance company subject to the tax imposed by Section 831 of the Code, the amount which otherwise would be taken into account as losses incurred under Section 832(b)(5) of the Code must be reduced by an amount equal to fifteen percent of the interest on the Bonds that is received or accrued during the taxable year. From time to time legislation is proposed, and there are or may be legislative proposals pending in the Congress of the United States that, if enacted, could alter or amend the federal tax matters referred to above or adversely affect the market value of the Bonds. For example, President Obama's Fiscal Year 2013 budget proposal would reduce the individual income tax benefit of certain deductions and exclusions, including the exclusion of interest on certain state and local bonds, by limiting the reduction of tax liability to a maximum of 28 percent, affecting married taxpayers filing a joint return with income over $250,000 (at 2009 levels) and single taxpayers with income over $200,000. If this proposal is enacted, interest on the Bonds received by taxpayers in higher tax brackets would be partially subject to tax. The President proposed a similar provision in September 2011, and the Majority Leader of the U.S. Senate, at the request of the President, introduced it as part of the American Jobs Act of 2011 (the "Jobs .Bill"). The version of the Jobs Bill that included this proposal failed to receive the number of votes needed in the Senate to proceed to a vote on the merits. No prediction is made whether this proposal will be enacted as proposed or concerning other future legislation affecting the tax treatment of interest on the Bonds. Prospective purchasers should consult with their own tax advisors regarding this and any other pending or proposed federal income tax legislation. Bond Counsel expresses no opinion regarding any pending or proposed federal tax legislation. Original Issue Discount The Term Bonds with a stated maturity in the years 2032 and 2034 are being sold at a discount from the principal amount payable on such Bonds at maturity (the "Discount Bonds"). The difference between the initial offering price at which a substantial amount of the Discount Bonds of a given maturity is sold to the public and the principal amount payable at maturity constitutes "original issue discount" under the Code. The amount of original issue discount that is deemed to accrue to a holder of a Discount Bond under Section 1288 of the Code is excluded from gross income for federal income tax purposes to the same extent that stated interest on such Discount Bond would be excluded from gross income. The amount of the original issue discount that is treated as accruing with respect to a Discount Bond is added to the tax basis of the owner in determining, for federal income tax purposes, gain or loss upon disposition of such Discount Bonds (whether by sale, exchange,redemption or payment at maturity). Interest in the form of original issue discount is treated under Section 1288 as accruing at a constant yield and compounding semiannually on days that are determined by reference to the maturity date of the Discount Bond. The amount of original issue discount that is treated as accruing for any particular semiannual accrued period generally is equal to the excess of(1) the product of(a) one-half of the yield on such Bonds (adjusted as necessary for an initial short period) and (b) the adjusted issue price of such Bonds, over (2) the amount of stated interest actually payable. For purposes of the preceding sentence, the adjusted issue price is determined by adding to the initial offering price for such Bonds the original issue discount that is treated as having accrued during all prior semiannual accrual periods. If a Discount Bond is sold or otherwise disposed of between semiannual compounding dates, then the original issue discount that would have accrued for that semiannual accrual period for federal income tax purposes is to be apportioned in equal amounts among the days in such accrual period. 28 If a Discount Bond is purchased for a cost that exceeds the sum of the Issue Price plus accrued interest and accrued original issue discount, the amount of original issue discount that is deemed to accrue thereafter to the purchaser is reduced by an amount that reflects amortization of such excess over the remaining term of such Bond. If such excess is greater than the amount of remaining original issue discount, the Code's basis reduction rules for amortizable bond premium might result in taxable gain upon sale, redemption or maturity of the Bonds, even if the Bonds are sold, redeemed or retired for an amount equal to or less than their cost. No opinion is expressed as to state and local income tax treatment of original issue discount. It is possible under certain state and local income tax laws that original issue discount on a Discount Bond may be taxable in the year of accrual, and may be deemed to accrue earlier than under federal law. Holders of Discount Bonds should consult their tax advisors with respect to the computation and accrual of original issue discount and with respect to the other federal, state and local tax consequences associated with the purchase, ownership, redemption, sale or other disposition of Discount Bonds. Original Issue Premium The Bonds with a stated maturity in the years 2015 through 2023, inclusive, and 2025 through 2030, inclusive, are being issued at a premium to the principal amount payable at maturity (the "Premium Bonds"). Except in the case of dealers, who are subject to special rules, bondholders from time to time must reduce their federal income tax bases for the Premium Bonds for purposes of determining gain or loss on the sale or payment of such Bonds. Premium generally is amortized on the basis of a bondholder's constant yield to maturity with semiannually compounding, This might result in taxable gain upon sale of the Premium Bonds, even if they are sold for an amount equal to or less than their original cost. Amortized premium is not deductible for federal income tax purposes. Bondholders should consult their tax advisors concerning the timing and rate of premium amortization. THE FOREGOING IS NOT INTENDED TO BE AN EXHAUSTIVE DISCUSSION OF COLLATERAL TAX CONSEQUENCES ARISING FROM RECEIPT OF INTEREST ON THE BONDS. PROSPECTIVE PURCHASERS OR BONDHOLDERS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO COLLATERAL TAX CONSEQUENCES, INCLUDING WITHOUT LIMITATION THE DETERMINATION Or GAIN OR LOSS ON THE SALE OF A BOND, THE CALCULATION OF ALTERNATIVE MINIMUM TAX LIABILITY, THE INCLUSION OF SOCIAL SECURITY OR OTHER RETIREMENT PAYMENTS IN TAXABLE INCOME, THE DISALLOWANCE OF DEDUCTIONS FOR CERTAIN EXPENSES ATTRIBUTABLE TO THE BONDS, AND STATE AND LOCAL TAX RULES. LITIGATION There is no controversy or litigation of any nature now pending or, to the knowledge of the City, threatened, restraining or enjoining the issuance, sale, execution or delivery of the Bonds, or in any way contesting or affecting the validity of the Bonds or any proceedings of the City taken with respect to the issuance or sale thereof, or the validity of the levy of taxes for the payment thereof. The City has been involved in litigation that may impact the City's general fund operations. The City may need to utilize monies in the general fund to pay for judgments but because the Bonds are secured by a levy of an unlimited ad valorem tax, general fund payments for such judgment amounts would not directly affect the amounts available for repayment of the Bonds. 29 UNDERWRITING D.A. Davidson & Co. (the "Underwriter") has agreed, subject to the terms of the Bond Purchase Agreement, to purchase the Bonds from the City at a price of 101.137852% of the par value of the Bond. The Bonds will be initially reoffered at a price of 101.937852% of the par value of the Bonds. The Bonds are being offered for sale to the public at the prices as shown on the inside cover of this Official Statement. Concessions from the initial offering price may be allowed to selected dealers and special purchasers. The initial offering price is subject to change after the date hereof RATING As noted on the cover page of this Official Statement, Moody's Investors Service ("Moody's") has assigned its municipal rating of"AaY to this issue of Bonds (the "rating"). No application was made to any other rating agency for the purpose of obtaining an additional rating on the Bonds. The rating reflects only the view of Moody's. The above rating is not a recommendation to purchase, sell, or hold the Bonds, inasmuch as it does not comment as to market price or suitability for a particular investor. There is no assurance that the rating will be retained for any given period of time or that the rating will not be revised downward or withdrawn entirely by the rating agency if, in its judgment, circumstances so warrant. Any downward revision or withdrawal of the rating would be likely to have an adverse effect on the market price of the Bonds. Any further explanation of the significance of the rating may be obtained from Moody's. NO CONFLICTS OF INTEREST The City is not aware of the existence of any actual or potential conflict of interests, breach of duty or less than arm's-length transaction regarding the selection of the Underwriter of the Bonds and other participants in the offering of the Bonds. COMMITMENT TO PROVIDE CONTINUING DISCLOSURE In order to permit participating underwriters in the primary offering of the Bonds to comply with paragraph (b)(5) of Rule 15c2-12 promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934(the"Rule"), the City will covenant and agree in the Bond Resolution for the benefit of the Owners (as hereinafter defined) from time to time of any Bonds that are outstanding to provide annual reports of specified information and notice of the occurrence of certain events as hereinafter described (the "Disclosure Covenants") to the Municipal Securities Rulemaking Board ("MSRB") through its Electronic Municipal Market Access system website ("EMMA"). The City is the only "obligated person" in respect of the Bonds within the meaning of the Rule. The information to be provided on an annual basis, the events as to which notice is to be given and a summary of other provisions of the Disclosure Covenants, including termination, amendment and remedies, are set forth in Appendix C to this Official Statement. Breach of the Disclosure Covenants will not constitute a default or an "Event of Default" under the Bonds or the Bond Resolution. A broker or dealer is to consider a known breach of the Disclosure Covenants, however,before recommending the purchase or sale of the Bonds in the secondary market. Thus, a fault on 30 the part of the City to observe the Disclosure Covenants may adversely affect the transferability and liquidity of the Bonds and their market price. Prior Compliance with Continuing Disclosure Undertakings. The City entered into previous continuing disclosure undertakings under the Rule with respect to bonds that were issued by the City and are currently outstanding (collectively, the "Prior Undertakings"). Other than the Prior Undertakings, the City did not have any other prior continuing disclosure undertakings in respect of bonds of the City fully paid and discharged on a date that is more recent that five years prior to the date hereof In 2012, the City discovered that it was not in compliance with these Prior Undertakings currently outstanding. Specifically, the City discovered that it had not provided annual audited financial reports, other certain operating data, and notice of certain rating changes as required by its Prior Undertakings for fiscal years ended June 30, 2008, 2009, 2010 and 2011. On May 18, 2012 the City responded to this discovery by submitting an event notice of such failure to provide information, notice of certain rating changes and the required audited financial statements and other operating data for fiscal years ended June 30, 2008, 2009, 2410 and 2011 through the Municipal Rulemaking Board's ("MSRB") Electronic Municipal Market Access ("EMMA") system. During the preparation of this Official Statement the City discovered it had submitted a majority of,but had not submitted all of the certain other operating data as required by the Prior Undertakings. On November 13, 2013, the City submitted the missing other operating data to the MSRB through the EMMA. The City was reminded of its obligations with respect to continuing disclosure undertakings. The City believes it is currently in compliance with its Prior Undertakings. DISCLOSURE STATEMENT The City will deliver to the Underwriter at the time of the delivery of the Bonds statements substantially to the effect that the information contained in this Official Statement, and in any supplements or amendments hereto, delivered by the City (which shall be deemed an original part hereof for the purposes of such statement) did not, as of the date of sale of the Bonds to the Underwriter, and do not, as of the date of delivery of the Bonds to the Underwriter, contain any untrue statement of a material fact or omit to state a material fact where necessary to make a statement therein not misleading in light of the circumstances under which it was made. ADDITIONAL INFORMATION AND MISCELLANEOUS The descriptions herein of the Bond Resolution and other documents are brief summaries of certain provisions thereof Such summaries do not purport to be complete, and reference is made to such documents and contracts, copies of which are available, upon request and upon payment to the City a charge for copying, mailing and handling, from the City. Additional information concerning the Bonds and the City may be obtained by contacting the City Administrative Services Director, 121 North Rouse Avenue, P.O. Box 1230, Bozeman, Montana 59771-1230, telephone (406) 582-2300. This Official Statement is not to be construed as a contract or agreement between the City and the Underwriter(s) or holders of any of the Bonds. Any statements made in this Official Statement involving matters of opinion or estimates, whether or not so expressly stated, are set forth as such and not as representations of fact. No representation is made that any of such statements will be realized. 31 APPROVAL OF OFFICIAL STATEMENT The execution and delivery of this Official Statement have been duly authorized by the City. CITY OF BOZEMAN, MONTANA By: /s/ Sean Becker Mayor ATTEST: By: /s/ Stacy Ulmen City Clerk 32 APPENDIX A Summary of the City of Bozeman's General Fund Financial Statements The City's financial information contained in the summaries of financial statements that follow was extracted from the Comprehensive Annual Financial Reports ("CAFRs") and audits of the City with fiscal years ended June 30, 2008 through 2012 and unaudited financials provided by the City for fiscal year ended June 30, 2013. The City's complete CAFRs, audits or financial reports may be obtained by contacting the City Administrative Services Director at (406) 582-2300. A..1 City of Bozeman,Montana Summary Statement of Revenues, Expenditures, and Changes in Fund Balance- +General Fund For the Fiscal Years Ended,June 30, 2008 through 2013 Audited Audited Audited Audited Audited Unaudited 2007/08 2008109 2009/10 2010/11 2011/12 2012/13 Revenues: Taxes $7,878,280 $9,390,134 $9,390,202 $11,764,146' $11,535;471 $11,744,306 Special Assessments 541 20 4,857 38 9,257 7,041 Licenses and permits 289,211 281,547 288,708 300,571 294,411 301,817 Intergovernmental Revenue 4,502,019 4,959,092 5,323,697 6,046,956 6,139,548 6,277,896 Charges for services 2,021,056 2,399,401 2,324,185 2,382,714 2,166,750 2,139,772 Fines and forfeitures 1,305,701 1,331,656 1,336,298 1,305,490 1,241,798 1,259,382 Miscellaneous revenues 184,663 72,090 69,587 17,757 25,425 10,627 Interest Earnings 82,153 66,042 80,455 33,399 55,104 48,582 Total Revenue $16,263,624 $18,499,982 $18,817,989 $21,851,071 $21,467,764 $21,789,423 Expenditures: General government $4,369,604 $5,173,738 $4,922,606 $5,169,311 $5,529,823 $6,467,477 Public safety 8,545,711 9,172,239 10,153,415 11,022,971 11,180,578 12,253,503 Public Service 481,337 465,868 420,381 415,396 125,634 167,537 Public Welfare 3,711,578 3,921,637 3,731,763 4,007,511 4,292,126 4,624,364 Other 570,578 0 0 0 0 0 Capital outlay 336,959 659,874 911;455 536,457 771,296 487,316 Debt service 82,024 0 52;480 357,581 212,771 311,887 Total Expenditures $18,097,791 $19,393,356 $20,192,100 $21,509,227 $22,11.2,228 $24,312,087 Excess of Revenues Over (Under)Expenditures S(1,834,167) $(893,374) $(1,374,111) $341,844 $(644,464) $(2,522,661) Other Financing Sources/(Uses) Sale of Assets $3,363 $22,985 $757,959 $4,167 $0 $0 Transfers In2 2,955,947 3,356,803 3,282,903 2,256,965 1,952,844 3,174,742 Transfers(Out)3 (975,867) (1,641,831) (2,911,748) (818,956) (878,575) (651,759) Total Other Financing Sources/(Uses) $1,983,443 $1,737,957 $1,129,114 $1,442,176 $1,074,269 $2,522,983 Net Change in Fund Balance $149,276 $844,583 $(244,997) $1,784,020 $429,805 $322 Fund Balance(July 1) 54,370,538 $4,519,814 $5,364,397 $5,113,2304 $6,897,250 $7,327,055 Adjustments 0 0 0 (6,170)4 0 0 Fund Balance,June 30 $4,519,814 $5,364,397 $5,119,4004 $6,897,250 $7,327,055 $7,327,377 Fund Balance as a %„of Expenditures 25.0% 27.7% 25.4% 32.1% 33.1% 30.1%Q Beginning in 2010/11, the City began recording tax revenues received for pensions and comprehensive property/liability insurance in the General Fund. These revenues were previously accounted for in a special revenue fund and subsequently transferred to the General Fund. Transfers to the General Fund also decreased as a result of such accounting change. Additionally,the City collected more delinquent taxes in 2010/11. '`Transfers In primarily relate to employee health insurance costs covered by the Permissive medical Levy Fund and is a regularly occurring monthly transfer. 3 Transfers Out account for various items such as local contributions to Law Enforcement BARE and Missouri River Drug Task Force,Library Depreciation Fund and support of Planning Fund Operations,which are all normal annual operating transfers from the General Fund 4 Due to the accounting change mentioned above in footnote 1,the City discovered an error in the amount of$6,170,which resulted in and adjustment to the fund balance. Source.- City CAFRs and financial statements A-2 City of Bozeman, Montana Summary of Balance Sheets- General Fund As of June 30, 2008 through 2013 Audited Audited Audited Audited Audited Unaudited 6/30/08 6/30/09 6/30/10 6/30/2011 6/'30/2012 6130/2013 ASSETS Cash and Investments $4,101,389 $1,783,652' $4,142,395 $5,539,953 $6,888,488 $7,533,603 Property Taxes Receivable 869,423 1,444,458 1,545,117 2,101,526 1,178,339 961,660 Accrued Interest Receivable 15,497 12,276 12,487 7,690 10,750 8,016 Customers Receivable 1,180,724 1,780,396 1,903,633 1,989,101 1,908,113 1,828,551 Special Assessments Receivable 95 0 0 520 5,315 333 Other Governments Receivable 83,504 216,393 314,202 214,729 187,236 2,443 Prepaid Expenditures 3,000 63,000 0 0 0 189 Due from Other City Funds' 888,888 3,427,488' 776,397 566,288 461,553 0 TOTAL ASSETS _ $7,142,520 $8,727,663 $8,699,231 $10,419,807 $10,639,794 $10,334,795 LIABILITIES Accounts Payable $1,148,594 '$1,009,694 $682,191 $859,164 $975,322 $924,450 Accrued.Employee Benefits 155,891 169,315 211,213 220,212 220,832 242,619 Deferred Revenue 1,289,804 2,154,876 2,656,121 2,410,629 2,081,527 1,798,990 Escheat Property Payable 28,417 29,381. 30,306 32,552 35,058 41,359 Due to Other City]Funds 0 0 0 0 0 0 TOTAL LIABILITIES $2,622,706 $3,363,266 $3,579,831 $3,522,557 $3,312,739 $3,007,418 FUND BALANCE Reserved $3,000 $63,000 $0 $0 $0 $0 Unrestricted Assigned 0 0 0 5,991,3383 7,062,9643 6,201,6603 Unassigned 4,516,814 5,301,397 5,119,400 905,862 264,091 1,125,717 TOTAL FUND BALANCE $4,519,814 $5,364,397 $5,119,400 $6,897,250 $7,327,055 $7,327,377 TOTAL LIABILITIES AND FUND BALANCE $7,142,520 $8,727,663 $8,699,231 $10,419,807 $10,639,794 $10,334,795 ' The Due from Other City Funds line item is used as a result of transfers for reporting purposes to cover a negative cash balance within a fund and such transfers are reversed as cash becomes available in the fund where cash previously had a deficit. The Cash and Investments is decreased by the amount allocated to Due from Other City Funds. Of the $3,427,488 shown, approximately $2,283,935 was allocated or due to the Capital Projects Fund to cover a negative cash balance,with the remaining allocations to other funds ranging from$1,132 to$299,100. Cash and Investments declined in 2008/09 due to a portion of the funds being allocated as an interfund transfer for reporting purposes for Due from Other City Funds. 2 In fiscal year 2011, the City implemented GASB Statement 54 Fund Balance Deporting and Governmental Fund Type Definitions, which is intended to provide clearer fund balance classification. The new classifications include nonspendable (amounts not in spendable form, such inventory, or are required to be maintained intact such as an endowment fund) and spendable,which are further reported as restricted (amounts for a specific purposes by constitutional provisions or legislation), committed (amounts for specific purposes by the City Commission unless the City Commission takes action to change the constraint),assigned(amounts intended for a specific purposes with intent expressed by the City Commission or anyone to which the City Commission delegates such authority) and unassigned(amounts only reported in the General Fund and available for any purpose). 3 Of these amounts, the following amounts are assigned to a budget ordinance minimum for each of the following fiscal years: $3,824,078 in 2010/11,$3,823,432 in 2011/12;and$3,987,498 in 2012/13. Source: City CAFRs and financial statements A-3 (This Page Intentionally Left Blank) APPENDIX B Economic and Demographic Information B-1 ECONOMIC AND DEMOGRAPHIC INFORMATION The following discussion includes descriptive information obtained from a variety of sources. The information is presented to provide the reader with an overview of'the City and County area economy, but is not intended to be exhaustive or comprehensive. The Lodi Economy The City of Bozeman (the "City") is located along Interstate 90 in southwestern Montana in Gallatin County (the "County"). The City, the County seat, is located approximately 145 miles west of the City of Billings, the largest municipality in the State based on population, approximately 200 miles east of the City of Missoula, the second largest municipality in the State based in population, and approximately 90 miles north of the west entrance of Yellowstone National Park. Many area residents commute to Bozeman for work and trade center activities. The County is a fast growing county known for its year-round vacation and recreation opportunities, higher education facilities at Montana State University-Bozeman, technology-based businesses, and agricultural products such as beef, wheat, feed grains and hay. Founded in 1864 under the Montana Territory Law, the City was a commercial center during Montana's gold rush days providing the numerous mining camps in the area with supplies. After the frontier mining days had passed, the City further developed as an agricultural and commercial trade center for southwestern Montana_ The City had a 2012 estimated population of 38,695 according to the United States Census Bureau, an increase of 3.8% over the 2010 Census estimate. The City is currently the State's fourth largest municipality by population behind the cities of Billings, Missoula and Great Falls. According to the U.S. Bureau of the Census, the County had a 2012 estimated population of 92,614, an increase of 3.5% over the 2010 Census estimate. The County is currently the State's third largest county based on population behind the counties of Yellowstone and Missoula. Higher Education, Founded in 1893 as a land grant college in the City, Montana State University ("MSU") represents the largest single component of the local economy. As of fall semester 2013, a record 15,92:4 students were enrolled at MSU, which offers bachelor degree programs in approximately 60 fields, master's degrees in approximately 45 fields and doctorates in approximately 20 fields. As of fall semester 2013, MSU employed approximately 2,993 permanent faculty and staff (2,251 full-time and 742 part- time) and approximately 543 graduate and research assistants. Approximately 86% of the students are undergraduates who take courses offered by the following major programs: Engineering, Business, Education, Health and Human Development, Architecture, Agriculture, Nursing, Liberal Arts and the Basic Sciences. The 1,170-acre campus operates on a semester system with two semesters during the academic year and a two-part, twelve-week summer session. As a land-grant university, MSU has a long tradition of supporting basic and applied research and creative activity. MSU had approximately $93.76 million in research expenditures in 2012/13 funded through competitively awarded grants and contracts. The Burns Telecommunications Center. The Burns Telecommunications Center (the "Center") commenced operation in 1997 in the Engineering/Physical Sciences Building at MSU and functions as a self-sustaining, multi-purpose, instructional communications facility. Using state-of-the-art technology, the Center is a community resource that joins with individuals, schools and businesses to assist them in using multi-media, telecommunications, and networking technologies to enhance their programs and services. The following facilities are available at the Center: the NASA multimedia development lab, a B-2 computer classroom with 24 desktops, a conference room with interactive video conferencing capabilities, three distance-learning classrooms, and a 218-seat TCI Amphitheater. Agriculture. As in much of Montana, agriculture is a significant economic force in the County. According to the 2007 Agriculture Census, the most recent Census, the primary agricultural commodities produced by the 1,071 area farms and ranches in the County consists of potatoes, hay, barley, oats, wheat and livestock. The County contains approximately 1,667,739 acres of which 776,868 (or 46.6%) are encompassed by farms and ranches. The average farm size is 725 acres. In 2011, the County ranked 1St out of the 56 counties in the State for the production of potatoes, 5h for the production of barley and 9'h for the production of alfalfa. Below are summarized cash receipt figures for agricultural production in the County for the five years shown below. Cash Receipts (000's) 2007 2008 2009 2010 2011 Livestock and Products $44,098 $39,847 $33,193 $38,346 $43,856 Crops 43,687 51,908 63,319 73,686 82,655 Government Payments 2,061 2,188 2,638 2,596 2,000 TOTALS $89,846 $93,943 $99,150 $114,628 $128,511 Source: Regional Economic Information System, Bureau of Economic Analysis Technology-Based Businesses. A growing segment of the area's economy is technology-based business, for which university resources and an educated labor force are significant assets. The County is the home to over 85 high-tech companies. The various focuses of high-tech companies in the City and the surrounding areas range from computer software development to laser technology to pharmaceutical research. Past and present graduates of MSU provide the expanding high-tech community with a strong labor pool. Approximately 45% of the residents county-wide and 51% of the City's residents have a bachelor's degree or higher. Oracle (formerly RightNow Technologies). One of the area's most recent success stories is a leading provider of web-based customer service solutions for the Internet known as Oracle (formerly RightNow Technologies), The company was a leader in the Internet customer service market with an installed base of over 2,000 customers, including Match.com, Nike and Cabelas. RightNow had offices in North America, Europe and Asia. On January 25, 2012, Oracle, traded on the NASDQ under "ORCL," completed the acquisition of RightNow Technologies for $1.5 billion. At the time of the acquisition, RightNow had approximately 500 employees located in the City and was in the middle of expanding its campus to accommodate an additional 120 employees. RightNow had over 1,000 employees company- wide. Zoot Enterprises. Founded in 1990, Zoot Enterprises ("Zoot") acts as a third party credit analysis service for large financial institutions. Zoot utilizes a diverse set of software development tools to provide customers with instant credit decision checks in 2-10 seconds. In addition to using the Internet, Zoot maintains dedicated network connections to their customers who include top financial institutions like Bank of America, First Union Corporation and Wells Fargo. In October 2002, Zoot completed construction of an $18 million, 150,000 square foot building to house its headquarters, which is located approximately 8 miles west of the City in an unincorporated area referred to as "Four Comers." Since August 2003, the Zoot campus has operated on fuel cell energy. In October 2001, Zoot received a $1,4 million grant from the U.S. Department of Energy toward buying the $3.8 million fuel cell for Zoot's Four Comers campus. A fuel cell is similar to a "giant battery" that produces clean energy with the only by-products being electricity and hot water. Because Zoot will not use the energy created by B-3 the fuel cell 24-hours a day, Zoot can sell excess power back to the main grid or other neighboring companies. As of January 2013, Zoot employed approximately 235 people. ILX Lightwave. Founded in 1986, ILX Lightwave ("ILX") is based in the City and builds production equipment for companies that make fiber optic components. Since reducing its staff in the Bozeman office and closing its international offices due to the downturn in the telecommunications market, :ILX returned to profitability in 2004 by refocusing on its core business. As of January 2012, ILX employed approximately 40 people in its Bozeman office. ILX has third-party service centers in England, Japan and China and distributors worldwide. On January 17, 2012, California-based Newport Corp. finalized the acquisition of ILX for $9.3 million, with ILX being a wholly owned subsidiary of Newport Corp. ILX will continue to operate in Bozeman as a part of the Newport's photonics and precision technologies division. MSU TechLink Center. The TechLink. Center was established in 1996 at MSU. TechLink is funded by the Department of Defense, NASA, and other federal agencies to link companies in Montana and the surrounding region with federal laboratories for joint research and technology transfer. An overriding purpose is to contribute to the success of both technology-based companies and key resource-based industries in the state and region. TechLink provides specialized assistance in the industry areas of advanced materials, aerospace, agricultural technologies, biomedicine and biotechnology, electronics, environmental technologies, information technologies and software, and photonics and sensors. Manufacturing Facilities Blackhawk Products ("Blackhawk") is a subsidiary of Alliant Techsystems Inc. ("ATK"), a defense contractor. In June 2012 Blackhawk opened an 80,000 square foot facility that is located in the Farmstead subdivision on the south side of the Town of Manhattan, approximately 20 miles west of the City,which employs approximately 150 people. ATK has more than 60 facilities located in 22 states, Puerto Rico and internationally, and is headquartered in Arlington, Virginia. Blackhawks' headquarters are located in Norfolk, Virginia, and it also has manufacturing facilities in Meridian, Idaho; and Southport, North Carolina. Blackhawk manufactures accessories for military, law enforcement, corporate security applications and outdoor use and include items such as specialized apparel, an-nor, eye wear,backpacks and gun holsters. Simms Fishing Products ("Simms") was established in 1980 and relocated to the Bozeman in 1993. Simms is a fishing product, apparel and accessories manufacturing company and is the sole fishing wader manufacturer in the U.S. In late 2012, Simms relocated its corporate headquarters, warehouses and production facility from the City to the Four Corners Area upon the completion of remodel of a 60,000 square foot building;, which added an additional 15,000 square feet from its prior facility. Simms employs approximately 120 people. Additionally, three major manufacturing plants are located within the County, near the City of Three Forks, which is approximately 30 miles west of the City. The three plants include Flolcim Inc., a cement manufacturing facility, Luzenac America, a talc processing facility and Kanta Products, a manufacturer of concrete blocks. Holeim Inc. and Luzenac America represent two of the top ten taxpayers of the County according to taxable valuation. Trade Center. The City functions as a distribution and trading center for Gallatin, Park, Broadwater, Madison and Beaverhead counties. This region has an aggregate population of approximately 129,500 people in addition to the approximately 14,660 students of MSU. Retail and wholesale trade industries employed 15.0% of the total employees in the County and contributed approximately 10.9% to total personal income in 2011. B-4 Some of the larger nationally affiliated chain stores in the City include J.C. Penney, Albertsons, Safeway, K-Mart, Sears, Macy's, Costco, Target, Wal-Mart, Home Depot, Staples, Borders, Michaels The Arts and Crafts Store, PETsMART, Ross Dress for Less, Pier One Imports, Smith's grocery, The Gap, Famous Footwear, Old Chicago, Rosauer's Supermarket and others. Within the past decade, many businesses and hotels recently opened near the North 19ffi Interchange including the Outback Steakhouse, the Hilton Garden Inn, the C'Mon Inn, Residence Inn, My Place, Bed Bath and Beyond, Coldwater Creek, a second Staples, Cost Plus World Market, Lowe's Home Improvement and Office Depot. The Gallatin Valley Mall is the fourth largest shopping mall in the State with 60 stores and approximately 261,000 leasable square feet. A nine-screen movie theater opened in the mall in 2003 and has since expanded with two additional screens. A new development is currently being constructed across from the mall and includes retail shopping,banking, grocery stores and other businesses where a 55,363 square foot Kohl's opened in r 2011 adding approximately 130 jobs. Located in the City is the Bozeman Deaconess Hospital (the "Hospital"), an 86-bed acute care medical facility with 77 physicians on staff and approximately 1,400 employees. Since 1986, the Hospital has undergone major expansions. The Hospital provides a fall range of inpatient and outpatient acute care services for medical, surgical, pediatric and obstetrical and gynecological patients. In recent years, the Hospital has constructed three medical office buildings adjoining the Hospital facility. In addition, a cardiac catheterization lab, dialysis treatment center and an occupational health and rehabilitation department recently opened. The Hospital recently completed construction of an 110,000 square foot, five-story building for expansion of hospital and medical services. The Hospital owns, operates and manages a not-for-profit retirement and assisted living home called Aspen Pointe at Hillcrest that was completed in 2001. Aspen Pointe replaced the previous community which was originally built in 1963. In 2006, 32 additional independent living apartments were completed at Aspen Pointe. Transportation. A variety of transportation systems serve the City and the surrounding areas of the County. Of particular importance are- (1) Interstate 90, a primary east/west route through the County connecting the northern tier of the United States, which runs adjacent to the City; (2) air service through Bozeman Yellowstone International Airport; and (3) the Montana Rail Link rail line (formerly owned by Burlington Northern). The City completed construction of the $12 million Bridger Park parking garage in 2009, which accommodates 435 vehicles in the downtown area. The parking garage also serves as the p rimary hub for the Streamline public bus system. The north and west sides of the facility feature approximately 10,000 square feet of new retail, restaurant and office space. Construction commenced in the fall of 2013 on a new interchange along Interstate 90 at the Bozeman Yellowstone International Airport just east of the City of Belgrade. The entire construction project is expected to cost $50 million. The new interchange will help relieve traffic on the frontage road between Belgrade and the City. The project is scheduled to be complete by fall 2015. Bozeman Yellowstone International Airport ("BZN") currently services four major airlines and two smaller lines. With more than 16 jets arriving and departing daily, BZN is the second busiest airport in the state. Airline boardings in the past ten years have increased over 55.3% from 256,134 in 2001 to 397,822 in 2011, as recorded by the BZN Airport Authority. Nationally, financial woes have penetrated the airline industry, however BZN continues to grow. During the summer of 2009, the BZN Airport Authority embarked on a significant expansion of the airline terminal building. This expansion is the largest airline terminal expansion ever in the State. The $40 million project concluded in August 2011, after two years, and more than doubled the size of the terminal. The project expanded the number of gates from five to B-5 seven, provided an expanded passenger screening checkpoint, added a third baggage claim carousel and increased food, beverage and retail concessions, particularly inside the concourse. The project is also expected to accommodate the increase in passengers that is expected over the next ten to fifteen years. The project was funded through a combination of Airport Improvement Program grants, the BZN Airport Authority's capital improvement fund and approximately $16 million in airport revenue bonds. With completion of the project, southwest Montana has a world class air transportation facility that has ability of efficiently handling more than 1.5 million passengers each year. Tourism. The economy of the County has benefited from the rise in tourist travel to the area as seen in the growth of the services industry. To serve business and other visitors, the City has approximately 28 motels/hotels and approximately 2,500 rooms. The Bridger, Gallatin, and Tobacco Root Mountains surround the Gallatin Valley on three sides. The western gate to Yellowstone National Park (the "Park") is approximately 90 miles south of the City and approximately 45 miles south of Big Sky. The north entrance to the Park near Gardiner is located approximately 100 rMiles southeast from the City. In 2012, the Park attracted approximately 3,447,729 visitors. Another attraction to the City is the Museum of the Rockies, which is a university, community and state- supported regional museum dedicated to the interpretation of the physical and cultural heritage of the Northern Rocky Mountains. The Museum of the Rockies was founded in 1957 and today is the largest natural history museum in the region with 94,000 square feet. Focusing on paleontology, astronomy, and regional natural/cultural history, the Museum of the Rockies houses a living history farm, earth and dinosaur halls, a fossil bank, and the Taylor Planetarium. The Museum of the Rockies attracts over 120,000 visitors every year. Recreational activities abound in the area including skiing, snowmobiling, biking, hiking, float trips and many more. Fishing and hunting are also popular for local residents as well as visitors to the County area. A wide variety of trout may be caught nearby in the Gallatin, Madison, Yellowstone and Missouri Rivers. Two public ski areas are located near Big Sky, Big Sky Ski and Summer Resort and Moonlight Basin as described below. A private ski area, the Yellowstone Club, is also located near Big Sky. Bridger Bowl, another public ski area, is located northeast of the City. Big Sky Ski and Summer Resort and Surrounding Area. The unincorporated community of Big Sky is located in the County, however Big Sky Ski and Summer Resort and much of the surrounding area is located in Madison County. Boyne USA, Inc. purchased Big Sky Ski and Summer Resort in 1976. Big Sky Ski and Summer Resort has 4,350 vertical feet and 3,600 acres of ski terrain. Big Sky has received national recognition as one of the top ten winter ski destinations in North Ainerica (according to the ski magazine, Snow Country). Of the U.S. ski resorts, Big Sky currently ranks 3d in vertical drop, 7"' in patrolled acres, and 15"' in average snowfall. Big Sky is at a higher elevation (base area 7,500 feet, peak of Lone Mountain 11,166 feet) and a higher latitude (45-degrees) than most other ski resorts. Other amenities at Big Sky include tennis courts, an 18-hole golf course designed by Arnold Palmer, a newly built convention center (1991) with 43,000 square feet of meeting space, hotel and indoor mall - all of which contribute to year-round use. The resort completed the $45-million Summit Hotel Condominium complex in 2000. Big Sky Resort began the next step in its planned $400 million capital investment with the completion of Village Center One in 2007, which included 10,000 square feet for shops and restaurants and new slopeside ski/entertainment suites on the upper floors. On October 7, 2008, Boyne USA signed a lease-buy-back agreement with CNL Lifestyle Properties ("CNL"), a Florida based Real Estate Investment B-6 Trust. CNL has similar relationships with other Boyne properties that have been in place for a number of years. CNL will own the resort, but Boyne will lease and manage the property. The cash generated from the agreement will be used for continued infrastructure improvements. Moonlight Basin. The newest public ski area, Moonlight Basin, opened on the north slope of Lone Peak adjacent to Big Sky Resort in 2003. Moonlight Basin became the 17t"public ski area in Montana. The ski area has 1,500 acres of skiable terrain and 1,850 feet of vertical drop, 265 acres of groomed terrain and the State's first high speed, six-passenger chairlift. Moonlight Basin Ranch has been developing property in the Jack Creek drainage since 1992. Two existing ski lifts connect the housing development to Big Sky Resort. Aside from the ski area improvements, Moonlight Basin Ranch includes a lodge, a restaurant, a health spa and a heated outdoor pool. Future plans include eventually opening more than 3,000 skiable acres and 12 lifts. Since the 2005/06 ski season, Moonlight Basin and Big Sky Ski and Summer Resort have offered joint lift tickets (only two other ski resorts in the United States offer joint lift tickets). The collaboration between Moonlight Basin and Big Sky Ski and Summer Resort forms the nation's largest ski complex with 5,512 acres of skiable terrain. The Reserve at Moonlight Basin is an 8,027 yard,par 72 Jack Nicklaus Signature Golf Course that opened in 2010. The real estate market collapse in recent years has impacted the Big Sky area. Moonlight Basin went into foreclosure proceedings with its major lender, Lehman Bros. ("Lehman") in 2009. On January 19, 2012, Lehman purchased Moonlight Basin, effectively moving the resort out of bankruptcy. Lehman has started investing in several projects in Moonlight Basin in preparation for both the winter and summer operations. In August 2013, CrossHarbor Capital Partners, LLC ("CrossHarbor") and Boyne Resorts announced an agreement with Lehman to purchase Moonlight Basin ski resort. The companies have plans to merge Big Sky Resort and Moonlight Basin into one mountain resort with over 5,700 skiable areas, 4,350 vertical feet and 23 chairlifts. CrossHarbor and Boyne Resorts had previously partnered together to purchase Spanish Peaks. See "The Club at Spanish Peaks"below for more information regarding the sale. Bridger Bowl. Located approximately 16 miles northeast of the City is Bridger Bowl, a well-developed, private,non-profit ski area with 2,600 vertical feet, 2,000 acres of skiing terrain, five double chair lifts, one triple chair lift and one quad chair lift. Construction was completed in 2004 of a new base lodge. The Jim Bridger Lodge remains in use, but the new lodge expanded food service, rental shop, ski school, lockers lmd daycare; consolidated offices; provided more accessible ticket windows; and complied with the Americans with Disabilities Act Codes. Exclusive Big Sky Communifies. The Yellowstone Club. The Yellowstone Club was established in 2000 with 13,400 acres of private land as an all-inclusive private alpine community for the wealthy. The Yellowstone Club is the world's only private ski and golf community. Members have access to 2,000 skiable acres as well as the neighboring Big Sky Ski Resort's 3,600 acres and Moonlight Basin's 1,500 acres. The club's ski area is managed by winter-sport filmmaker Warren Miller. The area has 10 lifts and 60 trails for the exclusive use of Yellowstone Club's members and their guests. The 18-hole golf course was designed by Tom Weiskopf, Ownership is limited to 864 residences. The minimum lot size is two acres for most single-family homes and prices for lots begin at $1.7 million. Four-to-five bedroom condominiums and cottages begin at $3.5 million and semicustom homes (4,500 to 6,000 square feet) range from $4.9 to $6 million. There are currently fewer than 350 members. Membership is by invitation only. Club membership costs an additional $300,000 initial fee and annual dues of$22,000. B-7 CrossHarbor, a national leader in commercial real estate investment and comprised of a large group of Yellowstone Club members and Discovery Land Company LLC of Arizona, announced on July 17, 2009 that it completed the acquisition of the equity interests in the reorganized Yellowstone Club that also involved the significant investment on the part of existing members. Together with Discovery Land Company, CrossHarbor manages the private ski and golf resort. Discovery has completed Yellowstone Club's long-delayed centerpiece, the more than 143,000 square-foot Warren Miller Lodge. The company is also moving ahead with previously shelved plans for the town of Rock Ridge, a base village located adjacent to the lodge that will incorporate luxury condominiums, shops and a skating rink. On the lower level of the lodge is the recently opened '20 Below,' a 15,000-square-foot youth center that includes a diner, a basketball court, climbing walls, an arcade, and a movie theater. The Club at Spanish Peaks. In August of 2007, The Club at Spanish Peaks, a private residential community located near Big Sky, opened its 18-hole Tom Weiskopf-designed golf course and club house. Golf Digest ranked The Club at Spanish Peaks #2 in the Country for best new private golf courses for 2009. The Club at Spanish Peaks was ranked 47 of America's top 100 golf communities in the January/February 2009 issue of Travel + Leisure Golf. The golf course is an amenity included with membership at the 5,700-acre Spanish Peaks community which includes the capacity for 850 residences including more than 400 cabins, condos and town houses. Estimated costs for home sites, cabins and custom homes at the Club at Spanish Peaks range from $400,000 to $9,000,000. Spanish Peaks also offers a private high speed ski lift to the Big Sky Ski Resort as well as other amenities for its residents. On October 14, 2011, Spanish Peaks filed for Chapter 7 Bankruptcy in U.S. Bankruptcy Court in Delaware, four days after announcing that it was closing and suspending all operations. A bankruptcy auction was held on June 3, 2013, for The Club at Spanish Peaks, with CrossHarbor Capital Partners, LLC, the current owner of the neighboring Yellowstone Club, submitting the highest bid at $26.1 million. The auction terms stated the closing was to occur 15 days after the sale was approved by a federal bankruptcy judge. The sale closed on Friday, July 19, 2013 after such approval was received. Population Trends Historical population figures for the City, the County and the State of Montana since 1980 are set forth below to show population trends in the area. More than 90% of the County's population lives either in the City or within a 30-minute drive of the City. City of Percent of Gallatin Percent of State of Percent of Year Bozeman Change County . Chan ge Montana Change 2012' 38,695 3.8% 92,614 3.5% 1,005,141 1.6% 2010 37,280 35.5 89,513 32.0 989,415 9.7 2000 27,509 21.4 67,831 34.4 902,195 12.9 1990 22,660 4.7 50,463 17.9 799,065 1.6 1980 21,645 15.9 42,865 31.9 786,690 13.3 'fntercensus estimates as of July 1,2012. Source: U.S. Census Bureau B-8 Building Permit Trends The City's building permit trends over the last 10 years are shown in the fallowing table. Commercial Permits Residential Permits Total Number of Value Number of Value Number of Value Year Permits (in millions) Permits (in iillions) Permits (in millions) 2012 416 $41.60 1,549 $79.40 1,965 $121.00 2011 817 88.01 2,972 54.00 3,789 142.01 2010 252 38.55 879 46.00 1,131 84.55 2009 284 100.71 705 28.10 989 128.81 2008 234 103.98 431 77.60 665 181.58 2007 50 38.54 764 118.15 814 156.69 2006 44 43.1.1 890 135.64 934 178.75 2005 37 36.85 927 118.25 964 155.10 2004 22 27,91 257 34.11 279 62.02 2003 30 22.04 440 67.29 470 89.33 Sotirce: The City's CAFR Gallatin County Bank Deposits The total bank deposits in the County for the past ten years are listed below. Total deposits have grown 89% from 2003 through June 2012.. Total Deposits Year (in millions) 2012 $1,916,752 2011 I,824,365 2010 1,853,000 2009 1,746,000 2008 1,599,000 2007 1,635,000 2006 1,522,000 2005 1,315,000 2004 1,174,000 2003 1,014,000 Source: Bozeman Area Charnber of Cornnieree and FDIC B-9 Travel and Recreation Indicators Shown in the table below is the number of airline boardings at Bozeman. Yellowstone International Airport located approximately seven miles west of the City. Over the past ten years boardings have increased 58.0%, which is an indication of the strength in the tourism and recreation sector of the area's economy. Also shown in the table below is the number of skier days at Big Sky Ski Resort and Bridger Bowl Ski Area. Calendar Year Total Boardings Fiscal Year Big Sky Skier Da s Bridger Skier Da ys 2012 433,829 2012/13 370,000 184,000 2011 397,822 2011/12 341,000 147,077 2010 365,210 2010/11 338,979 21.0,966 2009 342,714 2009/10 297,375 199,061. 2008 351,214 2008/09 285,000 188,621 2007 335,276 2007/08 309,000 196,569 2006 317,850 2006107 308,000 135,555 2005 335,000 2005/06 323,000 183,812 2004 308,985 2004/05 290,699 157,732 2003 281,052 2003/04 298,000 168,266 2002 274,499 2002/03 298,000 146,383 Sources: Bozeman Yellowstone International Airport Authority; Big .sky Ski and Summer Resort, Bridger Bowl Ski Area (The remainder of this page intentionally left blank.) B-10 Major Private Employers The following table shows the largest private employers in the County and the estimated number of employees as of 2nd quarter 2011. according the Montana Department of Labor and Industry. The top major public employers include the State of Montana (including MU), the U.S. Government, the County, Bozeman and school districts located throughout the County. Employer Product/Service Size Class 1. Bozeman Deaconess Hospital Healthcare 9 2. Right Now Technologies Web-based Technology 8 3. Wal-Mart Retail 7 4, Albertsons Grocer 6 5. Community Food Coop Food Coop 6 6. Costco Retail 6 7. First Security Bank Financial 6 8. Gibson Guitar Manufacturing 6 9. Kenyon Noble Lumber and Hardware Retail 6 10. Lowes Retail 6 11. Martel Construction Construction 6 12. McDonalds Restaurant 6 13. Murdoch's Ranch & Horne Supply Ranch & Home Supply 6 14. Reach Inc. Non-Profit Support Organization 6 15, Ressler Motor Auto Dealership 6 16. Rosauers Grocer 6 17. Target Retail 6 18. Town & Country Foods Grocer 6 19. Town Pump Fuel/Convenience Store 6 20, Zoot Enterprises Financial Services 6 Class Size: Class 9 = 1,000 + employees; Class 8 = 500-999 employees; Class 7 .— 250-499 employees; and Class 6= 100-249 employees Source: Montana Department of.Labor &Industry (The remainder of this page intentionally left blank.) B-11 Earnings By Industry The following table shows County wages and salary, labor and proprietors' earnings by major industry type for the years 2007 through 2011. Figures shown are in thousands. 2007 2008 2009 2010 2011 Total Personal Income $3,191,440 $3,290,862 $3,042,414 $3,152,126 $3,356,725 Earnings by Industry: Farm 15,655 11,609 19,274 23,842 29,670 Non-farm 2,355,449 2,401,809 2,256,007 2,321,436 2,450,888 Private 1,928,258 1,950,110 1,784,687 1,839,635 1,956,711 Forestry, Fishing and Other 13,241 12,290 13,278 12,724 14,835 Mining 18,648 18,028 15,626 15,493 17,497 Utilities 10,065 11,536 11,687 11,658 12,046 Construction 395,204 357,110 277,638 254,891 264,660 Manufacturing 145,103 140,303 119,437 118,091 123,095 Wholesale Trade 95,941 96,771 92,526 98,686 105,905 Retail Trade 249,895 253,154 238,789 250,358 260,150 Transportation and Warehousing 46,167 46,742 44,308 46,658 48,384 Information 36,563 36,267 32,513 32,514 36,144 Finance and Insurance 87,399 96,733 96,704 119,059 118,856 Real Estate, Rentals and Leasing 82,778 73,309 60,067 60,322 62,388 Professional and Technical Services 256,094 294,202 255,820 264,582 300,048 Management of Companies 4,339 2,763 5,576 7,625 9,200 Administrative and Waste Services 47,725 52,245 50,687 50,760 55,039 Educational Services 12,488 14,427 14,645 15,779 18,844 Healthcare and Social Assistance 173,193 196,468 210,151 229,629 244,10"2 Arts, Entertainment and Recreation 46,235 42,469 44,360 43,070 45,300 Accommodation and Food Services 113,521 113,778 109,922 115,934 122,904 Other Services 93,659 91,515 91,223 91,802 97,314 Government 427,194 451,699 471,320 481,801 494,177 Federal/Civilian 56,054 55,989 56,397 60,000 62,058 Military 18,308 20,938 23,407 22,874 22,539 State and Local 352,829 374,772 391,516 398,927 409,580 Source: U.S. Department of`Commerce Regional Economic Information System Bureau of Economic Analysis B-12 Labor Farce and Unemployment The table below shows the County employment figures as well as State of Montana and United States unemployment rates since 2003. Unemployment rates in the County have historically been among the lowest of Montana's largest counties and major cities. - - - - - - - -Unemploymentliates - -- - -- - Gallatin State of United Year Labor Force Employment County Montana States 2013' 52,953 51,115 3.5% 4.8% 7.3% 2012 50,329 47,643 5.3 6.0 8.1 2011 49,265 46,377 5.9 6.6 8.9 2010 48,136 44,991 6.5 6.8 9.6 2009 48,226 45,274 6.1 6.0 9.3 2008 50,990 49,081 3.7 4.5 5.8 2007 50,482 49,214 2.5 3.4 4.6 2006 49,123 48,013 2.3 3.2 4.6 2005 46,233 45,011 2.6 3.6 5.1 2004 44,365 42,995 3.1 4.0 5.5 ° Preliminary, as of August 2013. Source: U.S. Department of'Labor and Industry;Bureau of Labor Statistics Personal Income"Trends The following table shows total and per capita personal income growth in the County since 2007. Total Personal Percent of Per Capita Percent Year Income (000's) Change Income Of Change 2011 $3,356,725 6.49% $36,735 4.44% 2010 3,152,126 3.61 35,174 3.11 2009 3,042,414 (7.55) 34,1.13 (7.81) 2008 3,240,862 3.12 37,004 0.43 2007 3,191,440 7.12 36,844 3.86 Source: U.S. Department of Commerce, Bureau of Economic Analysis, Regional Economic lnformation System B-13 Employment by Major Industry The table below sets forth the total number of full time and part-time employees in the County for the years and industries shown. 2007 2008 2009 2010 2011 Employment by Place of Work: Total Employment 68,752 68,915 65,683 64,807 66,153 By Type: Wage and Salary 50,1.11 50,159 46,986 46,461 47,630 Proprietor 18,641 18,756 18,697 18,346 18,523 Farm 890 895 900 889 887 Non-Farm' 17,751 17,861 17,797 17,457 17,636 By Industry: Farm 1,118 1,134 1,122 1,118 1,144 Non-Farm 67,634 67,781 64,561 63,689 65,009 Private 58,231 58,137 54,645 53,837 55,167 Forestry, Fish. & Other 539 613 556 543 580 Mining 413 429 335 389 434 Utilities 103 121 112 115 117 Construction 9,327 7,879 6,2.08 5,660 5,661 Manufacturing 3,105 2,995 2,757 2,623 2,702 Wholesale Trade 1,726 1,732 1,659 1,684 1,655 Retail Trade 8,494 9,026 8,361 8,163 8,294 Transportation and Warehousing 1,400 1,420 1,271 1,231 1,233 Information 924 921 852 850 885 Finance and Insurance & Real Estate 2,054 2,130 2,284 2,011 2,044 Real Estate, Rental and Leasing 4,492 4,407 4,351 4,474 4,550 Professional and Technical. Services 5,843 6,005 5,651 5,689 5,795 Management of Companies 50 62 76 163 166 Administrative and Waste Services 2,319 2,440 2,261 2,270 2,403 Educational Services 1,002 1,058 1,074 1,108 1,224 Healthcare and Social Assistance 4,408 4,619 4,851 5,062 5,281 Art, Entertainment and Recreation 2,507 2,622 2,526 2,492 2,589 Accommodation and Food Services 5,937 6,076 5,897 5,856 5,999 Other Services 3,588 3,582 3,563 3,454 3,555 Govenunent & Government Enterprises 9,403 9,644 9,916 9,852 9,842 Federal/Civilian 638 640 647 670 660 Military 448 456 453 451 469 State and Local 8,317 8,548 8,816 8,731 8,713 'Excludes limited partners. .Source.` U.S. Department of Commerce, Regional Economic Information System, Bureau of Economic tlnalysis B-14 APPENDIX C Continuing Disclosure C-1 If any part of the Disclosure Information is changed because it is no longer compiled or publicly available or can no longer be generated because the operations of the City 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 discontinued operations have been replaced by other operations of the City 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 material and such data is customarily compiled and publicly available, 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 Disclosure Covenants are amended as permitted by the Bond Resolution, then the City is to include in the next Disclosure Information to be delivered hereunder, 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. Certain Events. In a timely manner,but not in excess of 10 business days of the occurrence of an event, the City must file with the MSRB through EMMA in an electronic format as prescribed by the MSRB, if any, notice of the occurrence of any of the following events: (1) Principal and interest payment delinquencies; (2) Non-payment related defaults, if material; (3) Unscheduled draws on debt service reserves reflecting financial difficulties; (4) Unscheduled draws on credit enhancements reflecting financial difficulties; (5) Substitution of credit or liquidity providers, or their failure to perform; (6) Adverse tax opinions, the issuance by the Internal Revenue Service of proposed or final determinations of taxability, Notices of Proposed Issue (IRS Form 5701 •TEB) or other material notices or determinations with respect to the tax status of the security, or other material events affecting the tax status of the security; (7) Modifications to rights of security holders, if material; (8) Bond calls, if material, and tender offers; (9) Defeasances; (1 d) Release, substitution, or sale of property securing repayment of the securities, if material; (11) Rating changes; (12) Bankruptcy,insolvency, receivership, or similar event of the obligated person; 0 3) The consummation of a merger, consolidation, or acquisition involving an obligated person or the sale of all substantially all of the assets of the obligated person, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action, or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms, if material; and (14) Appointment of a successor or additional trustee or the change of name of a trustee, if material. C-4 As used herein, for those events that must be reported if material, an event is "material" if it is an event as to which a substantial likelihood exists that a reasonably prudent investor would attach importance thereto in deciding to buy or sell a Bond or, if not disclosed, would significantly alter the total information otherwise available to an investor from the Official Statement, information disclosed under the Disclosure Covenants or information generally available to the public. Notwithstanding the foregoing sentence, an event is also "material" if it is an event that would be deemed material for purposes of the purchase, holding or sale of a Bond within the meaning of applicable federal securities laws, as interpreted at the time of discovery of the occurrence of the event. Certain Other Information. The City will provide notice in a timely manner to the MSRB through EMMA in an electronic forinat as prescribed by the MSRB notice of the occurrence of any of the following events or conditions: (1), the failure of the City to provide the Disclosure Information at the time specified under "Annual Infon-nation"herein; (2) the amendment or supplementing of the Disclosure Covenants pursuant to the Bond Resolution, together with a copy of such amendment or supplement and any explanation provided by the City under"Amendments"herein; (3) the termination of the obligations of the City under the Disclosure Covenants pursuant to the Bond Resolution; and (4) any change in the fiscal year of the City. Manner of Disclosure The City agreed to make available the information described herein under "Information To Be Disclosed" to the following entities by electronic, telecopy, overnight delivery, mail or other means, as appropriate: (A) the information described under "Information To Be Disclosed - Certain Events" and "Information To Be Disclosed - Certain Other Information", to the MSRB through EMMA in an electronic format as prescribed by the MSRB; (B) the information described under "Information To Be Disclosed — Annual Information", to the MSRB through EMMA in an electronic fon-nat as prescribed by the MSRB; (C) the information described under "Information To Be Disclosed" to any rating agency then maintaining a rating of the Bonds and, at the expense of such Bondowner, to any Bondowner who requests in writing such information at the time of the transmission under clauses (A) or (B) above as the case may be, or, if such information is transmitted with a subsequent time of release, at the time such information is to be released; and (D) all documents provided to the MSRB shall be accompanied by identifying information as prescribed by the MSRB. C-5 (This Page Intentionally Left Blank) APPENDIX E Book-Entry stern E-1 BOOK-ENTRY SYSTEM The information presented below was obtained from The Depository Trust Company ("DTC') and the City makes no representation as to the accuracy or completeness thereof. As used herein, "Issuer" refers to the City and "Securities" refers to the General Obligation Bonds, Series 2013, of'the City. 1. The Depository Trust Company ("DTC"), New York, NY, will act as securities depository for the securities (the "Securities"). The Securities will be issued as fully registered securities registered in the name of Cede & Co. (DTC's partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered Security certificate will be issued for each issue of the Securities, each in the aggregate principal amount of such issue, and will be deposited with DTC. 2. DTC, the world's largest depository, is a limited-purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a"clearing agency" registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC's participants ("Direct Participants") deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities through electronic computerized book-entry transfers and pledges between Direct Participants' accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation ("DTCC"). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others, such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ("Indirect Participants"). DTC has a Standard & Poor's rating of AA+. 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. 3. Purchases of Securities under the DTC system must be made by or through Direct Participants, which will receive a credit for the Securities on DTC's records. The ownership interest of each actual purchaser of each Security ("Beneficial Owner") is in turn to be recorded on the Direct and Indirect Participants' records, Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Securities are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in the Securities, except in the event that use of the book-entry system for the Securities is discontinued. 4. To facilitate subsequent transfers, all Securities deposited by Direct Participants with DTC are registered in the name of DTC's partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of the Securities with DTC and their E-2 registration in the name of Cede & Co., or such other nominee, do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Securities; DTC's records reflect only the identity of the Direct Participants to whose accounts such Securities are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. 5. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. 6. Redemption notices shall be sent to DTC. If less than all of the Securities within an issue are being redeemed, DTC's practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed. 7. Neither DTC nor Cede & Co. (nor such other DTC nominee), will consent or vote with respect to Securities unless authorized by a Direct Participant in accordance with DTC's MMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the Issuer as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct Participants to whose accounts Securities are credited on the record date (identified in a listing attached to the Omnibus Proxy). 8. Redemption proceeds on the Securities will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC's practice is to credit Direct Participants' accounts upon DTC's receipt of funds and corresponding detail information from the Issuer or 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, Agent, or the Issuer, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the Issuer or Agent, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants. 9. DTC may discontinue providing its services as depository with respect to the Securities at any time by giving reasonable notice to the Issuer or Agent. Under such circumstances, in the event that a successor depository is not obtained, Security certificates are required to be printed and delivered. 10. The Issuer may decide to discontinue use of the system of boob.-entry-only transfers through DTC (or a successor securities depository). In that event, Security certificates will be printed and delivered to DTC. 1.1. 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. E-3 (This Page Intentionally Left Blank) (This Page Intentionally Left Blank)