Ord. 1111 05-12-03ORDINANCE NO. 1111
AN ORDINANCE AUTHORIZING THE ISSUANCE OF CITY OF PEARLAND,
TEXAS CERTIFICATES OF OBLIGATION, SERIES 2003; PRESCRIBING THE TERMS
AND FORM THEREOF; PROVIDING FOR THE PAYMENT OF THE PRINCIPAL
THEREOF AND INTEREST THEREON; AWARDING THE SALE THEREOF;
AUTHORIZING THE PREPARATION AND DISTRIBUTION OF AN OFFICIAL
STATEMENT TO BE USED IN CONNECTION WITH THE SALE OF THE CERTIFICATES;
AUTHORIZING THE PURCHASE OF BOND INSURANCE; MAKING OTHER
PROVISIONS REGARDING SUCH CERTIFICATES, INCLUDING USE OF THE
PROCEEDS THEREOF, AND MATTERS INCIDENT THERETO; AND DECLARING AN
EMERGENCY
BE IT ORDAINED BY THE CITY COUNCIL OF THE CITY OF PEARLAND:
ARTICLE I
FINDINGS AND DETERMINATIONS
Section 1.1: Findings and Determinations. The City Council hereby officially finds
and determines that:
(a) The City of Pearland, Texas (the "City"), acting through its City Council, is
authorized pursuant to and in accordance with the provisions of Texas Local Government Code,
Chapter 271, Subchapter C, as amended (the "Act"), to issue certificates of obligation to provide
all or part of the funds to pay contractual obligations to be incurred for (i) certain City-wide road
and drainage projects and improvements incident thereto; (ii) City-wide water meter
replacement; (iii) the purchase and refurbishment of certain equipment including a gradall
vehicle, fire truck and ambulance; (iv) certain improvements at Independence Park located at
3919 Liberty, Pearland, Texas 77581; (v) certain improvements and acquisitions associated with
an expansion to the City's service center located at 3509 Orange Street in Pearland, Texas, and
the purchase of equipment related thereto; and (vi) professional services rendered in connection
with the above listed projects.
(b) The City Council authorized the publication of a notice of intention to issue
Certificates of Obligation, Series 2003 (the "Certificates") to the effect that the City Council was
tentatively scheduled to meet at 7:30 p.m. on May 12, 2003 at its regular meeting place to adopt
an ordinance authorizing the issuance of the Certificates to be payable from (i) an ad valorem tax
levied, within the limits prescribed by law, on the taxable property located within the City, and
(ii) the revenues to be derived from the City's waterworks and sanitary sewer system (the
"System") after the payment of all operation and maintenance expenses thereof (the "Net
Revenues") in an amount not to exceed $10,000, to the extent that ad valorem taxes are ever
insufficient or unavailable for such purposes, provided that the pledge of Net Revenues is and
shall be junior and subordinate in all respects to the pledge of Net Revenues to the payment of
any obligation of the City, whether authorized heretofore or hereafter, which the City designates
as having a pledge senior to the pledge of the Net Revenues to the payment of the Certificates.
HOU:2148670.1
(c) Such notice was published at the times and in the manner required by the Act.
(d) No petition signed by at least five percent (5%) of the qualified voters of the City has
been filed with or presented to any official of the City protesting the issuance of such Certificates
on or before May 12, 2003, or the date of passage of this Ordinance.
(e) The City has determined that it is in the best interests of the City and that it is
otherwise desirable to issue the Certificates to provide all or part of the funds to pay contractual
obligations to be incurred for the purposes authorized by the Act.
ARTICLE II
DEFINITIONS AND INTERPRETATIONS
Section 2.1: Definitions. As used herein, the following terms shall have the meanings
specified, unless the context clearly indicates otherwise:
"Act" shall mean Texas Local Government Code, Chapter 271, Subchapter C, as
amended.
"Attorney General" shall mean the Attorney General of the State of Texas.
"Certificate" or "Certificates" shall mean any or all of the City of Pearland, Texas
Certificates of Obligation, Series 2003, authorized by this Ordinance.
"City" shall mean the City of Pearland, Texas and, where appropriate, its City Council.
"City Council" shall mean the governing body of the City.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Comptroller" shall mean the Comptroller of Public Accounts of the State of Texas.
"Fiscal Year" shall mean the City's then designated fiscal year, which currently is the
twelve-month period beginning on the first day of October of a calendar year and ending on the
last day of September of the next succeeding calendar year and each such period may be
designated with the number of the calendar year in which such period ends.
"Interest Payment Date," when used in connection with any Certificate, shall mean
September 1, 2003, and each March 1 and September 1 thereafter until maturity or earlier
redemption of such Certificate.
"Issuance Date" shall mean the date on which the Certificates are delivered to and paid
for by the Purchaser.
hereto.
"Ordinance" shall mean this Ordinance and all amendments hereof and supplements
2
HOU:2148670.1
"Outstanding", when used with reference to the Certificates, shall mean, as of a particular
date, all Certificates theretofore and thereupon delivered pursuant to this Ordinance except: (a)
any Certificates canceled by or on behalf of the City at or before such date; (b) any Certificates
defeased pursuant to the defeasance provisions of this Ordinance or otherwise defeased as
permitted by applicable law; and (c) any Certificates in lieu of or in substitution for which a
replacement Certificate shall have been delivered pursuant to this Ordinance.
"Paying Agent/Registrar" shall mean Wells Fargo Bank Texas, N.A., Houston, Texas,
and its successors in that capacity.
"Purchaser" shall mean the entity or entities specified in Section 6.1 hereof.
"Record Date" shall mean the close of business on the fifteenth day of the calendar
month immediately preceding the applicable Interest Payment Date.
"Register" shall mean the registration books for the Certificates kept by the Paying
Agent/Registrar in which are maintained the names and addresses of, and the principal amounts
registered to, each Registered Owner of Certificates.
"Registered Owner" shall mean the person or entity in whose name any Certificate is
registered in the Register.
Section 2.2: Interpretations. All terms defined herein and all pronouns used in this
Ordinance shall be deemed to apply equally to singular and plural and to all genders. The titles
and headings of the articles and sections of this Ordinance have been inserted for convenience of
reference only and are not to be considered a part hereof and shall not in any way modify or
restrict any of the terms or provisions hereof. This Ordinance and all the terms and provisions
hereof shall be liberally construed to effectuate the purposes set forth herein and to sustain the
validity of the Certificates and the validity of the levy of ad valorem taxes to pay the principal of
and interest on the Certificates.
ARTICLE III
TERMS OF THE CERTIFICATES
Section 3.1: Amount, Purpose and Authorization. (a) The Certificates shall be issued
in fully registered form, without coupons, under and pursuant to the authority of the Act in the
total authorized aggregate principal amount of NINETEEN MILLION SIX HUNDRED FIFTY
THOUSAND AND NO/100 DOLLARS ($19,650,000) for the purpose of providing all or part of
the funds to pay contractual obligations to be incurred for (i) certain City-wide road and
drainage projects and improvements incident thereto; (ii) City-wide water meter replacement;
(iii) the purchase and refurbishment of certain equipment including a gradall vehicle, fire truck
and ambulance; (iv) certain improvements at Independence Park located at 3919 Liberty,
Pearland, Texas 77581; (v) certain improvements and acquisitions associated with an expansion
to the City's service center located at 3509 Orange Street in Pearland, Texas, and the purchase of
equipment related thereto; and (vi) professional services rendered in connection with the above
listed projects.
3
HOU:2148670.1
Section 3.2: Designation, Date and Interest Payment Dates. The Certificates shall be
designated as the "City of Pearland, Texas Certificates of Obligation, Series 2003," and shall be
dated May 1, 2003. The Certificates shall bear interest at the rates set forth in Section 3.3 below,
from the later of May 1, 2003 or the most recent Interest Payment Date to which interest has
been paid or duly provided for, calculated on the basis of a 360-day year of twelve 30-day
months, payable on September 1, 2003, and each March 1 and September 1 thereafter until
maturity or earlier redemption.
If interest on any Certificate is not paid on any Interest Payment Date and continues
unpaid for thirty (30) days thereafter, the Paying Agent/Registrar shall establish a new record
date for the payment of such interest, to be known as a Special Record Date. The Paying
Agent/Registrar shall establish a Special Record Date when funds to make such interest payment
are received from or on behalf of the City. Such Special Record Date shall be fifteen (15) days
prior to the date fixed for payment of such past due interest, and notice of the date of payment
and the Special Record Date shall be sent by United States mail, first class, postage prepaid, not
later than five (5) days prior to the Special Record Date, to each affected Registered Owner as of
the close of business on the day prior to mailing of such notice.
Section 3.3: Numbers, Denomination, Interest Rates and Maturities. The Certificates
shall be initially issued bearing the numbers, in the principal amounts and bearing interest at the
rates set forth in the following schedule, and may be transferred and exchanged as set out in this
Ordinance. The Certificates shall mature on March 1 in each of the years and in the amounts set
out in such schedule. Certificates delivered in transfer of or in exchange for other Certificates
shall be numbered in order of their authentication by the Paying Agent/Registrar, shall be in the
denomination of $5,000 or integral multiples thereof and shall mature on the same date and bear
interest at the same rate as the Certificate or Certificates in lieu of which they are delivered.
Certificate Year of Principal Interest
Number Maturity Amount Rate
I-1 2004 $ 310,000
I-2 2005 340,000
I-3 2006 370,000
I-4 2007 390,000
I-5 2008 415,000
I-6 2009 435,000
I-7 2010 1,110,000
I-8 2011 1,175,000
I-9 2012 1,235,000
I-10 2013 1,295,000
I-11 2014 1,035,000
I-12 2015 1,090,000
I-13 2016 1,145,000
I-14 2017 1,210,000
I-15 2018 1,180,000
I-16 2019 1,240,000
I-17 2020 1,310,000
I-18 2021 1,380,000
4
HOU:2148670.1
I-19 2022 1,455,000
I-20 2023 1,530,000
Section 3.4: Redemption Prior to Maturity. (a) Optional Redemption. The Certificates
maturing on and after March 1, 2014 are subject to redemption prior to maturity, at the option of
the City, in whole or in part, on March 1, 2013, or any date thereafter, at par plus accrued interest
to the date fixed for redemption.
(b) Certificates may be redeemed in part only in integral multiples of $5,000. If a
Certificate subject to redemption is in a denomination larger than $5,000, a portion of such
Certificate may be redeemed, but only in integral multiples of $5,000. In selecting portions of
Certificates for redemption, each Certificate shall be treated as representing that number of
Certificates of $5,000 denomination which is obtained by dividing the principal amount of such
Certificate by $5,000. Upon presentation and surrender of any Certificate for redemption in part,
the Paying Agent/Registrar, in accordance with the provisions of this Ordinance, shall
authenticate and deliver in exchange therefor a Certificate or Certificates of like maturity and
interest rate in an aggregate principal amount equal to the unredeemed portion of the Certificate
so surrendered.
(c) Notice of any redemption, identifying the Certificates or portions thereof to be
redeemed, shall be sent by United States mail, first class, postage prepaid, to the Registered
Owners thereof at their addresses as shown on the Register, not less than thirty (30) days before
the date fixed for such redemption. By the date fixed for redemption, due provision shall be
made with the Paying Agent/Registrar for the payment of the redemption price of the Certificates
called for redemption. If such notice of redemption is given, and if due provision for such
payment is made, all as provided above, the Certificates which are to be so redeemed thereby
automatically shall be redeemed prior to their scheduled maturities, they shall not bear interest
after the date fixed for redemption, and they shall not be regarded as being Outstanding except
for the purpose of being paid with the funds so provided for such payment.
Section 3.5: Manner of Payment, Characteristics, Execution and Authentication. The
Paying Agent/Registrar is hereby appointed the paying agent for the Certificates. The
Certificates shall be payable, shall have the characteristics and shall be executed, sealed,
registered and authenticated, all as provided and in the manner indicated in the FORM OF
CERTIFICATES set forth in Article IV of this Ordinance. If any officer of the City whose
manual or facsimile signature shall appear on the Certificates shall cease to be such officer
before the authentication of the Certificates or before the delivery of the Certificates, such
manual or facsimile signature shall nevertheless be valid and sufficient for all purposes as if such
officer had remained in such office.
The approving legal opinion of Andrews & Kurth L.L.P., Houston, Texas, Bond Counsel,
may be printed on the back of the Certificates over the certification of the City Secretary, which
may be executed in facsimile. CUSIP numbers also may be printed on the Certificates, but errors
or omissions in the printing of either the opinion or the numbers shall have no effect on the
validity of the Certificates.
5
HOU:2148670.1
Section 3.6: Authentication. Except for the Certificates to be initially issued, which
need not be authenticated by the Registrar, only such Certificates as shall bear thereon a
certificate of authentication, substantially in the form provided in Article IV of this Ordinance,
manually executed by an authorized representative of the Paying Agent/Registrar, shall be
entitled to the benefits of this Ordinance or shall be valid or obligatory for any purpose. Such
duly executed certificate of authentication shall be conclusive evidence that the Certificate so
authenticated was delivered by the Paying Agent/Registrar hereunder.
Section 3.7: Ownership. The City, the Paying Agent/Registrar and any other person
may treat the person in whose name any Certificate is registered as the absolute owner of such
Certificate for the purpose of making and receiving payment of the principal thereof and interest
thereon and for all other purposes, whether or not such Certificate is overdue, and neither the
City nor the Paying Agent/Registrar shall be bound by any notice or knowledge to the contrary.
All payments made to the person deemed to be the Registered Owner of any Certificate in
accordance with this Section shall be valid and effective and shall discharge the liability of the
City and the Paying Agent/Registrar upon such Certificate to the extent of the sums paid.
Section 3.8: Registration, Transfer and Exchange. The Paying Agent/Registrar is
hereby appointed the registrar for the Certificates. So long as any Certificate remains
Outstanding, the Paying Agent/Registrar shall keep the Register at the City Administrator's
office in which, subject to such reasonable regulations as it may prescribe, the Paying
Agent/Registrar shall provide for the registration and transfer of the Certificates in accordance
with the terms of this Ordinance.
Each Certificate shall be transferable only upon the presentation and surrender thereof at
the principal corporate trust office of the Paying Agent/Registrar, accompanied by an assignment
duly executed by the Registered Owner or his authorized representative in form satisfactory to
the Paying Agent/Registrar. Upon due presentation of any Certificate for transfer, the Paying
Agent/Registrar shall authenticate and deliver in exchange therefor, within seventy-two (72)
hours after such presentation, a new Certificate or Certificates, registered in the name of the
transferee or transferees, in authorized denominations and of the same maturity and aggregate
principal amount and bearing interest at the same rate as the Certificate or Certificates so
presented and surrendered.
All Certificates shall be exchangeable upon the presentation and surrender thereof at the
principal corporate trust office of the Paying Agent/Registrar for a Certificate or Certificates,
maturity and interest rate and in any authorized denomination, in an aggregate principal amount
equal to the unpaid principal amount of the Certificate or Certificates presented for exchange.
The Paying Agent/Registrar shall be and is hereby authorized to authenticate and deliver
exchange Certificates in accordance with the provisions of this Section. Each Certificate
delivered by the Paying Agent/Registrar in accordance with this Section shall be entitled to the
benefits and security of this Ordinance to the same extent as the Certificate or Certificates in lieu
of which such Certificate is delivered.
All Certificates issued in transfer or exchange shall be delivered to the Registered
Owners thereof at the principal corporate trust office of the Paying Agent/Registrar or sent by
United States mail, first class, postage prepaid.
6
HOU:2148670.1
The City or the Paying Agent/Registrar may require the Registered Owner of any
Certificate to pay a sum sufficient to cover any tax or other governmental charge that may be
imposed in connection with the transfer or exchange of such Certificate. Any fee or charge of
the Paying Agent/Registrar for such transfer or exchange shall be paid by the City.
The Paying Agent/Registrar shall not be required to transfer or exchange any Certificate
called for redemption in whole or in part during the forty-five (45) day period immediately prior
to the date fixed for redemption; provided, however, that this restriction shall not apply to the
transfer or exchange by the Registered Owner of the unredeemed portion of a Certificate called
for redemption in part.
Section 3.9: Replacement Certificates. Upon the presentation and surrender to the
Paying Agent/Registrar of a damaged or mutilated Certificate, the Paying Agent/Registrar shall
authenticate and deliver in exchange therefor a replacement Certificate, of the same maturity,
interest rate and principal amount, bearing a number not contemporaneously outstanding. The
City or the Paying Agent/Registrar may require the Registered Owner of such Certificate to pay
a sum sufficient to cover any tax or other governmental charge that may be imposed in
connection therewith and any other expenses connected therewith, including the fees and
expenses of the Paying Agent/Registrar and the City.
If any Certificate is lost, apparently destroyed or wrongfully taken, the City, pursuant to
the applicable laws of the State of Texas and ordinances of the City, and in the absence of notice
or knowledge that such Certificate has been acquired by a bona fide purchaser, shall execute, and
the Paying Agent/Registrar shall authenticate and deliver, a replacement Certificate of the same
maturity, interest rate and principal amount, bearing a number not contemporaneously
outstanding, provided that the Registered Owner thereof shall have:
(a) furnished to the City and the Paying Agent/Registrar satisfactory evidence of the
ownership of and the circumstances of the loss, destruction or theft of such Certificate;
(b) furnished such security or indemnity as may be required by the Paying
Agent/Registrar and the City to save and hold them harmless;
(c) paid all expenses and charges in connection therewith, including, but not limited to,
printing costs, legal fees, fees of the Paying Agent/Registrar and any tax or other governmental
charge that may be imposed; and
(d) met any other reasonable requirements of the City and the Paying Agent/Registrar.
If, after the delivery of such replacement Certificate, a bona fide purchaser of the original
Certificate in lieu of which such replacement Certificate was issued presents for payment such
original Certificate, the City and the Paying Agent/Registrar shall be entitled to recover such
replacement Certificate from the person to whom it was delivered or any person taking
therefrom, except a bona fide purchaser, and shall be entitled to recover upon the security or
indemnity provided therefor to the extent of any loss, damage, cost or expense incurred by the
City or the Paying Agent/Registrar in connection therewith.
7
HOU:2148670.1
If any such mutilated, lost, apparently destroyed or wrongfully taken Certificate has
become or is about to become due and payable, the City in its discretion may, instead of issuing a
replacement Certificate, authorize the Paying Agent/Registrar to pay such Certificate.
Each replacement Certificate delivered in accordance with this Section shall be entitled to
the benefits and security of this Ordinance to the same extent as the Certificate or Certificates in
lieu of which such replacement Certificate is delivered.
Section 3.10: Cancellation. All Certificates paid or redeemed in accordance with this
Ordinance, and all Certificates in lieu of which exchange Certificates or replacement Certificates
are authenticated and delivered in accordance herewith, shall be canceled and destroyed upon the
making of proper records regarding such payment or redemption. The Paying Agent/Registrar
shall periodically furnish the City with certificates of destruction of such Certificates.
ARTICLE IV
FORM OF CERTIFICATES
The Certificates, including the Form of Comptroller's Registration Certificate, Form of
Paying Agent/Registrar Authentication Certificate and Form of Assignment, shall be in
substantially the following forms, with such omissions, insertions and variations as may be
necessary or desirable, and not prohibited by this Ordinance:
8
HOU:2148670.1
NUMBER
R-
REGISTERED
UNITED STATES OF AMERICA
STATE OF TEXAS
CITY OF PEARLAND, TEXAS
DENOMINATION
CERTIFICATE OF OBLIGATION REGISTERED
SERIES 2003
INTEREST RATE: ISSUE DATE: MATURITY DATE: CUSIP:
May 1, 2003 March 1,
REGISTERED OWNER:
PRINCIPAL AMOUNT: DOLLARS
THE CITY OF PEARLAND, TEXAS, a municipal corporation of the State of Texas (the
"City"), for value received, hereby promises to pay to the Registered Owner identified above or
its registered assigns, on the maturity date specified above (or on earlier redemption as herein
provided), upon presentation and surrender of this Certificate at the principal corporate trust
office of Wells Fargo Bank Texas, N.A., Houston, Texas, or its successor (the "Paying
Agent/Registrar"), the principal amount identified above (or so much thereof as shall not have
been paid or deemed to have been paid upon prior redemption) payable in any coin or currency
of the United States of America which on the date of payment of such principal is legal tender
for the payment of debts due to the United States of America, and to pay interest thereon at the
rate shown above, calculated on a basis of a 360-day year composed of twelve 30-day months,
from the later of the Issue Date identified above or the most recent interest payment date to
which interest has been paid or duly provided for. Interest on this Certificate is payable on
September 1, 2003, and each March 1 and September 1 thereafter until maturity or earlier
redemption of this Certificate, by check sent by United States mail, first class, postage prepaid,
by the Paying Agent/Registrar to the Registered Owner of record as of the close of business on
the fifteenth day of the calendar month immediately preceding the applicable interest payment
date, as shown on the registration books kept by the Paying Agent/Registrar. Any accrued
interest payable at maturity or earlier redemption shall be paid upon presentation and surrender
of this Certificate at the principal corporate trust office of the Paying Agent/Registrar.
THIS CERTIFICATE IS ONE OF A DULY AUTHORIZED SERIES OF
CERTIFICATES (the "Certificates") in the aggregate principal amount of $19,650,000 issued
pursuant to an ordinance adopted by the City Council of the City on May 12, 2003 (the
"Ordinance") for the purpose of providing all or part of the funds to pay contractual obligations
to be incurred for (i) certain City-wide road and drainage projects and improvements incident
thereto; (ii) City-wide water meter replacement; (iii) the purchase and refurbishment of certain
equipment including a gradall vehicle, fire truck and ambulance; (iv) certain improvements at
Independence Park located at 3919 Liberty, Pearland, Texas 77581; (v) certain improvements
and acquisitions associated with an expansion to the City's service center located at 3509 Orange
9
HOU:2148670.1
Street in Pearland, Texas, and the purchase of equipment related thereto; and (vi) professional
services rendered in connection with the above listed projects.
REFERENCE IS HEREBY MADE TO THE FURTHER PROVISIONS OF THIS
CERTIFICATE SET FORTH ON THE REVERSE HEREOF, WHICH PROVISIONS SHALL
HAVE THE SAME FORCE AND EFFECT AS IF SET FORTH AT THIS PLACE.
THIS CERTIFICATE shall not be valid or obligatory for any purpose or be entitled to
any benefit under the Ordinance unless this Certificate either (i) is registered by the Comptroller
of Public Accounts of the State of Texas by due execution of the registration certificate endorsed
hereon or (ii) is authenticated by the Paying Agent/Registrar by due execution of the
authentication certificate endorsed hereon.
IN WITNESS WHEREOF, the City has caused its corporate seal to be impressed or
placed in facsimile hereon and this Certificate to be signed by the Mayor, countersigned by the
City Secretary by their manual, lithographed or printed facsimile signatures.
(AUTHENTICATION OR REGISTRATION
CERTIFICATE) CITY OF PEARLAND, TEXAS
c- 2--1Zori
(SEAL)
Mayor
COUNTERSIGNED:
10
HOU:2148670.1
* * *
[REVERSE OF CERTIFICATE]
THE CITY RESERVES THE RIGHT, at its option, to redeem, prior to their maturity,
Certificates maturing on and after March 1, 2014, in whole or in part, on March 1, 2013, or any
date thereafter, at par plus accrued interest to the date fixed for redemption.
CERTIFICATES MAY BE REDEEMED IN PART only in integral multiples of $5,000.
If a Certificate subject to redemption is in a denomination larger than $5,000, a portion of such
Certificate may be redeemed, but only in integral multiples of $5,000. In selecting portions of
Certificates for redemption, each Certificate shall be treated as representing that number of
Certificates of $5,000 denomination which is obtained by dividing the principal amount of such
Certificate by $5,000. Upon surrender of any Certificate for redemption in part, the Paying
Agent/Registrar, in accordance with the provisions of the Ordinance, shall authenticate and
deliver in exchange therefor a Certificate or Certificates of like maturity and interest rate in an
aggregate principal amount equal to the unredeemed portion of the Certificate so surrendered.
NOTICE OF ANY SUCH REDEMPTION, identifying the Certificates or portions
thereof to be redeemed, shall be sent by United States mail, first class, postage prepaid, to the
Registered Owners thereof at their addresses as shown on the books of registration kept by the
Paying Agent/Registrar, not less than thirty (30) days before the date fixed for such redemption.
By the date fixed for redemption, due provision shall be made with the Paying Agent/Registrar
for the payment of the redemption price of the Certificates called for redemption. If such notice
of redemption is given, and if due provision for such payment is made, all as provided above, the
Certificates which are to be so redeemed thereby automatically shall be redeemed prior to their
scheduled maturities, they shall not bear interest after the date fixed for redemption, and they
shall not be regarded as being outstanding except for the purpose of being paid with the funds so
provided for such payment.
THIS CERTIFICATE IS TRANSFERABLE only upon presentation and surrender at the
principal corporate trust office of the Paying Agent/Registrar, accompanied by an assignment
duly executed by the Registered Owner or its authorized representative, subject to the terms and
conditions of the Ordinance.
THIS CERTIFICATE IS EXCHANGEABLE at the principal corporate trust office of the
Paying Agent/Registrar for a Certificate or Certificates of the same maturity and interest rate and
in the principal amount of $5,000 or any integral multiple thereof, subject to the terms and
conditions of the Ordinance.
THE PAYING AGENT/REGISTRAR is not required to accept for transfer or exchange
any Certificate called for redemption, in whole or in part, during the forty-five (45) day period
immediately prior to the date fixed for redemption; provided, however, that such limitation shall
not apply to the transfer or exchange by the Registered Owner of an unredeemed portion of a
Certificate called for redemption in part.
THE CITY OR PAYING AGENT/REGISTRAR may require the Registered Owner of
any Certificate to pay a sum sufficient to cover any tax or other governmental charge that may be
11
HOU:2148670.1
imposed in connection with the transfer or exchange of a Certificate. Any fee or charge of the
Paying Agent/Registrar for a transfer or exchange shall be paid by the City.
THE REGISTERED OWNER of this Certificate by acceptance hereof, acknowledges
and agrees to be bound by all the terms and conditions of the Ordinance.
IT IS HEREBY DECLARED AND REPRESENTED that this Certificate has been duly
and validly issued and delivered; that all acts, conditions and things required or proper to be
performed, exist and to be done precedent to or in the issuance and delivery of this Certificate
have been performed, exist and have been done in accordance with law; that the Certificates do
not exceed any constitutional or statutory limitation; and that annual ad valorem taxes sufficient
to provide for the payment of the interest on and principal of this Certificate, as such interest
comes due and such principal matures, have been levied and ordered to be levied, within the
limits prescribed by law, against all taxable property in the City and have been irrevocably
pledged for such payment.
IT IS FURTHER DECLARED AND REPRESENTED that the revenues to be derived
from the City's waterworks and sanitary sewer system, after the payment of all operation and
maintenance expenses thereof (the "Net Revenues"), in an amount not to exceed $10,000, are
pledged to the payment of the principal of and interest on the Certificates, provided that the
pledge of Net Revenues is and shall be junior and subordinate in all respects to the pledge of Net
Revenues to the payment of any obligation of the City, whether authorized heretofore or
hereafter, which the City designates as having a pledge senior to the pledge of the Net Revenues
to the payment of the Certificates. The City also reserves the right to issue, for any lawful
purpose at any time, in one or more installments, bonds, certificates of obligation and other
obligations of any kind, secured in whole or in part by a pledge of Net Revenues, that may be
prior and superior in right to, on a parity with, or junior and subordinate to the pledge of Net
Revenues securing the Certificates.
REFERENCE IS HEREBY MADE TO THE ORDINANCE, a copy of which is filed
with the Paying Agent/Registrar, for the full provisions thereof, to all of which the Registered
Owners of the Certificates assent by acceptance of the Certificates.
***
12
HOU:2148670.1
FORM OF COMPTROLLER'S REGISTRATION CERTIFICATE
The following form of Comptroller's Registration Certificate shall be attached or affixed
to each of the Certificates initially delivered:
THE STATE OF TEXAS
REGISTER NO.
OFFICE OF THE COMPTROLLER OF PUBLIC ACCOUNTS
I hereby certify that this certificate has been examined, certified as to validity and
approved by the Attorney General of the State of Texas, and that this certificate has been
registered by the Comptroller of Public Accounts of the State of Texas.
WITNESS MY SIGNATURE AND SEAL OF OFFICE this
[SEAL]
Comptroller of Public Accounts
of the State of Texas
* * *
FORM OF PAYING AGENT/REGISTRAR'S AUTHENTICATION CERTIFICATE
The following form of authentication certificate shall be printed on the face of each of the
Certificates other than those initially delivered:
AUTHENTICATION CERTIFICATE
This Certificate is one of the Certificates described in and delivered pursuant to the
within -mentioned Ordinance; and, except for the Certificates initially delivered, this Certificate
has been issued in exchange for or replacement of a Certificate, Certificates, or a portion of a
Certificate or Certificates of an issue which originally was approved by the Attorney General of
the State of Texas and registered by the Comptroller of Public Accounts of the State of Texas.
WELLS FARGO BANK TEXAS, N.A.
By:
Authorized Signature
Date of Authentication:
***
13
STATEMENT OF INSURANCE
[TO COME]
14
HOU:2148670.1
FORM OF ASSIGNMENT
The following form of assignment shall be printed on the back of each of the Certificates:
ASSIGNMENT
For value received, the undersigned hereby sells, assigns and transfers unto
(Please print or type name, address, and zip code of Transferee)
(Please insert Social Security or Taxpayer Identification Number of Transferee)
the within certificate and all rights thereunder, and hereby irrevocably constitutes and appoints
attorney to transfer such certificate on the books kept
for registration thereof, with full power of substitution in the premises.
DATED:
Signature Guaranteed:
NOTICE: Signature must be guaranteed by a member firm of the New York Stock Exchange or
a commercial bank or trust company.
Registered Owner
NOTICE: The signature above must correspond to the name of the registered owner as shown
on the face of this certificate in every particular, without any alteration, enlargement or change
whatsoever.
ARTICLE V
SECURITY FOR THE CERTIFICATES
Section 5.1: Pledge and Levy of Taxes and Revenues. (a) To provide for the payment
of principal of and interest on the Certificates, there is hereby levied, within the limits prescribed
by law, for the current year and each succeeding year thereafter, while the Certificates or any
part of the principal thereof and the interest thereon remain outstanding and unpaid, an ad
valorem tax upon all taxable property within the City sufficient to pay the interest on the
Certificates and to create and provide a sinking fund of not less than 2% of the principal amount
of the Certificates or not less than the principal payable out of such tax, whichever is greater,
with full allowance being made for tax delinquencies and the costs of tax collection, and such
taxes, when collected, shall be applied to the payment of principal of and interest on the
15
HOU:2148670.1
Certificates by deposit to the Certificates of Obligation, Series 2003 Debt Service Fund and to no
other purpose.
(b) The City hereby declares its purpose and intent to provide and levy a tax legally
sufficient to pay the principal of and interest on the Certificates, it having been determined that
the existing and available taxing authority of the City for such purpose is adequate to permit a
legally sufficient tax. As long as any Certificates remain outstanding, all moneys on deposit in,
or credited to, the Certificates of Obligation, Series 2003 Debt Service Fund shall be secured by
a pledge of security, as provided by law for cities in the State of Texas.
(c) In addition, pursuant to the authority of Chapter 1502, Texas Government Code, as
amended, the City also hereby pledges the revenues to be derived from the City's waterworks
and sanitary sewer system, after the payment of all operation and maintenance expenses thereof
(the "Net Revenues"), in an amount not to exceed $10,000, to the payment of the principal of and
interest on the Certificates, provided that the pledge of Net Revenues is and shall be junior and
subordinate in all respects to the pledge of Net Revenues to the payment of any obligation of the
City, whether authorized heretofore or hereafter, which the City designates as having a pledge
senior to the pledge of the Net Revenues to the payment of the Certificates. The City also
reserves the right to issue, for any lawful purpose at any time, in one or more installments,
bonds, certificates of obligation and other obligations of any kind, secured in whole or in part by
a pledge of Net Revenues, that may be prior and superior in right to, on a parity with, or junior
and subordinate to the pledge of Net Revenues securing the Certificates.
(d) The City hereby appropriates from current funds on hand and legally available
therefor, funds sufficient, when added to the accrued interest received from the sale of the
Certificates, to pay the interest on the Certificates payable on September 1, 2003.
Section 5.2: Debt Service Fund. The Certificates of Obligation, Series 2003 Debt
Service Fund is hereby created as a special fund solely for the benefit of the Certificates. The
City shall establish and maintain such fund at an official City depository and shall keep such
fund separate and apart from all other funds and accounts of the City. Any amount on deposit in
the Certificates of Obligation, Series 2003 Debt Service Fund shall be maintained by the City in
trust for the Registered Owners of the Certificates. Such amount, plus any other amounts
deposited by the City into such fund and any and all investment earnings on amounts on deposit
in such fund, shall be used only to pay the principal of, premium, if any, and interest on the
Certificates.
Section 5.3: Further Proceedings. After the Certificates to be initially issued have been
executed, it shall be the duty of the Mayor to deliver the Certificates to be initially issued and all
pertinent records and proceedings to the Attorney General for examination and approval. After
the Certificates to be initially issued shall have been approved by the Attorney General, they
shall be delivered to the Comptroller for registration. Upon registration of the Certificates to be
initially issued, the Comptroller (or a deputy lawfully designated in writing to act for the
Comptroller) shall manually sign the Comptroller's registration certificate prescribed herein to
be affixed or attached to the Certificates to be initially issued, and the seal of said Comptroller
shall be impressed, or placed in facsimile, thereon.
16
HOU:2148670.1
ARTICLE VI
CONCERNING THE PAYING AGENT/REGISTRAR
Section 6.1: Acceptance. Wells Fargo Bank Texas, N.A., Houston, Texas, is hereby
appointed as the initial Paying Agent/Registrar for the Certificates pursuant to the terms and
provisions of the Paying Agent/Registrar Agreement by and between the City and the Paying
Agent/Registrar. The Paying Agent/Registrar Agreement shall be substantially in the form
attached hereto as Exhibit A, the terms and provisions of which are hereby approved, and the
Mayor is hereby authorized to execute and deliver such Paying Agent/Registrar Agreement on
behalf of the City in multiple counterparts and the City Secretary is hereby authorized to attest
thereto and affix the City's seal. Such initial Paying Agent/Registrar and any successor Paying
Agent/Registrar, by undertaking the performance of the duties of the Paying Agent/Registrar
hereunder, and in consideration of the payment of any fees pursuant to the terms of any contract
between the Paying Agent/Registrar and the City and/or the deposits of money pursuant to this
Ordinance, shall be deemed to accept and agree to abide by the terms of this Ordinance.
Section 6.2: Trust Funds. All money transferred to the Paying Agent/Registrar in its
capacity as Paying Agent/Registrar for the Certificates under this Ordinance (except any sums
representing Paying Agent/Registrar's fees) shall be held in trust for the benefit of the City, shall
be the property of the City and shall be disbursed in accordance with this Ordinance.
Section 6.3: Certificates Presented. Subject to the provisions of Section 6.4, all
matured Certificates presented to the Paying Agent/Registrar for payment shall be paid without
the necessity of further instructions from the City. Such Certificates shall be canceled as
provided herein.
Section 6.4: Unclaimed Funds Held by the Paying Agent/Registrar. Funds held by the
Paying Agent/Registrar that represent principal of and interest on the Certificates remaining
unclaimed by the Registered Owner thereof after the expiration of three years from the date such
funds have become due and payable (a) shall be reported and disposed of by the Paying
Agent/Registrar in accordance with the provisions of Title 6 of the Texas Property Code, as
amended, to the extent such provisions are applicable to such funds, or (b) to the extent such
provisions do not apply to the funds, such funds shall be paid by the Paying Agent/Registrar to
the City upon receipt by the Paying Agent/Registrar of a written request therefor from the City.
The Paying Agent/Registrar shall have no liability to the Registered Owners of the
Certificates by virtue of actions taken in compliance with this Section.
Section 6.5: Paying Agent/Registrar May Own Certificates. The Paying
Agent/Registrar in its individual or any other capacity, may become the owner or pledgee of
Certificates with the same rights it would have if it were not the Paying Agent/Registrar.
Section 6.6: Successor Paying Agents/Registrars. The City covenants that at all times
while any Certificates are Outstanding it will provide a legally qualified bank, trust company,
financial institution or other agency to act as Paying Agent/Registrar for the Certificates. The
City reserves the right to change the Paying Agent/Registrar for the Certificates on not less than
17
HOU:2148670.1
sixty (60) days' written notice to the Paying Agent/Registrar, as long as any such notice is
effective not less than 60 days prior to the next succeeding principal or interest payment date on
the Certificates. Promptly upon the appointment of any successor Paying Agent/Registrar, the
previous Paying Agent/Registrar shall deliver the Register or a copy thereof to the new Paying
Agent/Registrar, and the new Paying Agent/Registrar shall notify each Registered Owner, by
United States mail, first class, postage prepaid, of such change and of the address of the new
Paying Agent/Registrar. Each Paying Agent/Registrar hereunder, by acting in that capacity,
shall be deemed to have agreed to the provisions of this Ordinance.
ARTICLE VII
PROVISIONS CONCERNING SALE AND
APPLICATION OF PROCEEDS OF CERTIFICATES
Section 7.1: Sale of Certificates; Insurance. The sale of the Certificates to
(the "Purchaser") at a price of the par value thereof plus accrued
interest on the Certificates, is hereby approved, and delivery of the Certificates to the Purchaser
shall be made upon payment therefor in accordance with the terms of sale and the terms and
conditions of the Purchaser's bid. It is hereby officially found, determined and declared that the
Purchaser is the highest bidder for the Certificates as a result of invitations for competitive bids.
It is further officially found, determined and declared that the Certificates have been sold at
public sale to the bidder offering the lowest interest cost, which is hereby determined to be a net
effective interest rate of %, after receiving sealed bids pursuant to an Official
Notice of Sale and Preliminary Official Statement prepared and distributed in connection with
the sale of the Certificates.
The City hereby acknowledges that the Purchaser's bid is contingent upon the issuance of
a policy of municipal bond guaranty insurance from
(" ") insuring the timely payment of principal of and interest on the Certificates. Such
insurance is to be obtained at the Purchaser's expense. The appropriate officials and
representatives of the City are hereby authorized and directed to execute such documents and
certificates and to do any and all things necessary or desirable to obtain such insurance, and the
printing on the Certificates of an appropriate legend or statement regarding such insurance, as
provided by , is hereby approved.
Section 7.2: Approval, Registration and Delivery. The Mayor is hereby authorized to
have control and custody of the Certificates and all necessary records and proceedings pertaining
thereto pending their delivery, and the Mayor and other officers and employees of the City are
hereby authorized and directed to make such certifications and to execute such instruments as
may be necessary to accomplish the delivery of the Certificates and to assure the investigation,
examination and approval thereof by the Attorney General and the registration of the initial
Certificates by the Comptroller. Upon registration of the Certificates, the Comptroller (or the
Comptroller's certificates clerk or an assistant certificates clerk lawfully designated in writing to
act for the Comptroller) shall manually sign the Comptroller's Registration Certificates
prescribed herein to be attached or affixed to each Certificates initially delivered and the seal of
the Comptroller shall be impressed or printed or lithographed thereon.
18
HOU:2148670.1
Section 7.3: Offering Documents; Ratings. The City hereby approves the form and
contents of the Official Notice of Sale, Preliminary Official Statement and the final Official
Statement, dated as of the date hereof, relating to the Certificates, and any addenda, supplement
or amendment thereto, and ratifies and approves the distribution of such Preliminary Official
Statement and Official Statement in the offer and sale of the Certificates and in the reoffering of
the Certificates by the Purchaser, with such changes therein or additions thereto as the officials
executing same may deem advisable, such determination to be conclusively evidenced by their
execution thereof. The Mayor is hereby authorized and directed to execute, and the City
Secretary is hereby authorized and directed to attest, the final Official Statement. It is further
hereby officially found, determined and declared that the statements and representations
contained in the Official Notice of Sale, Preliminary Official Statement and final Official
Statement are true and correct in all material respects, to the best knowledge and belief of the
City Council, and that, as of the date thereof, the Preliminary Official Statement was an official
statement of the City with respect to the Certificates that was deemed "final" by an authorized
official of the City except for the omission of no more than the information permitted by
subsection (b)(1) of Rule 15c2-12 of the Securities and Exchange Commission. Copies of the
Official Notice of Sale, the Preliminary Official Statement and the Official Statement are
attached hereto as Exhibits B, C and D, respectively.
Further, the City Council hereby ratifies, authorizes and approves the actions of the
Mayor, the City's financial advisor and other consultants in seeking a rating on the Certificates
from Moody's Investors Service, Inc. and Standard & Poor's Ratings Services and such actions
are hereby ratified and confirmed.
Section 7.4: Application of Proceeds of Certificates; Appropriation. Proceeds from the
sale of the Certificates shall, promptly upon receipt by the City, be applied as follows:
(1) Accrued interest shall be deposited into the Certificates of Obligation, Series 2003
Debt Service Fund created in Section 5.2 of this Ordinance;
(2) A portion of the proceeds shall be applied to pay expenses arising in connection
with the issuance of the Certificates;
(3) The remaining proceeds shall be applied, together with other funds of the City, to
provide funds to pay contractual obligations to be incurred for the purposes set forth in Section
3.1 of this Ordinance.
Section 7.5: Tax Exemption. The City intends that the interest on the Certificates shall
be excludable from gross income of the owners thereof for federal income tax purposes pursuant
to Sections 103 and 141 through 150 of the Internal Revenue Code of 1986, as amended (the
"Code"), and all applicable temporary, proposed and final regulations (the "Regulations") and
procedures promulgated thereunder and applicable to the Certificates. For this purpose, the City
covenants that it will monitor and control the receipt, investment, expenditure and use of all
gross proceeds of the Certificates (including all property the acquisition, construction or
improvement of which is to be financed directly or indirectly with the proceeds of the
Certificates) and take or omit to take such other and further actions as may be required by
Sections 103 and 141 through 150 of the Code and the Regulations to cause interest on the
19
HOU:2148670.1
Certificates to be and remain excludable from the gross income, as defined in Section 61 of the
Code, of the owners of the Certificates for federal income tax purposes. Without limiting the
generality of the foregoing, the City shall comply with each of the following covenants:
(a) The City will use all of the proceeds of the Certificates to (i) provide funds for
provide funds to pay contractual obligations to be incurred for the purposes set forth in Section
3.1 hereof and (ii) to pay the costs of issuing the Certificates. The City will not use any portion
of the proceeds of the Certificates to pay the principal of or interest or redemption premium on,
any other obligation of the City or a related person.
(b) The City will not directly or indirectly take any action, or omit to take any action,
which action or omission would cause the Certificates to constitute "private activity bonds"
within the meaning of Section 141(a) of the Code.
(c) Principal of and interest on the Certificates will be paid solely from ad valorem taxes
and pledged revenues collected by the City, investment earnings on such collections, and as
available, proceeds of the Certificates.
(d) Based upon all facts and estimates now known or reasonably expected to be in
existence on the date the Certificates are delivered, the City reasonably expects that the proceeds
of the Certificates will not be used in a manner that would cause the Certificates or any portion
thereof to be an "arbitrage bond" within the meaning of Section 148 of the Code.
(e) At all times while the Certificates are outstanding, the City will identify and properly
account for all amounts constituting gross proceeds of the Certificates in accordance with the
Regulations. The City will monitor the yield on the investments of the proceeds of the
Certificates and, to the extent required by the Code and the Regulations, will restrict the yield on
such investments to a yield which is not materially higher than the yield on the Certificates. To
the extent necessary to prevent the Certificates from constituting "arbitrage bonds," the City will
make such payments as are necessary to cause the yield on all yield restricted nonpurpose
investments allocable to the Certificates to be less than the yield that is materially higher than the
yield on the Certificates.
(f) The City will not take any action or knowingly omit to take any action, if taken or
omitted, would cause the Certificates to be treated as "federally guaranteed" obligations for
purposes of Section 149(b) of the Code.
(g) The City represents that not more than fifty percent (50%) of the proceeds of the
Certificates will be invested in nonpurpose investments (as defined in Section 148(f)(6)(A) of the
Code) having a substantially guaranteed yield for four years or more within the meaning of
Section 149(g)(3)(A)(ii) of the Code, and the City reasonably expects that at least eighty-five
percent (85%) of the spendable proceeds of the Certificates will be used to carry out the
governmental purpose of the Certificates within the three-year period beginning on the date of
issue of the Certificates.
(h) The City will take all necessary steps to comply with the requirement that certain
amounts earned by the City on the investment of the gross proceeds of the Certificates, if any, be
rebated to the federal government. Specifically, the City will (i) maintain records regarding the
20
HOU:2148670.1
receipt, investment, and expenditure of the gross proceeds of the Certificates as may be required
to calculate such excess arbitrage profits separately from records of amounts on deposit in the
funds and accounts of the City allocable to other obligations of the City or moneys which do not
represent gross proceeds of any obligations of the City and retain such records for at least six
years after the day on which the last outstanding Certificate is discharged, (ii) account for all
gross proceeds under a reasonable, consistently applied method of accounting, not employed as
an artifice or device to avoid in whole or in part, the requirements of Section 148 of the Code,
including any specified method of accounting required by applicable Regulations to be used for
all or a portion of any gross proceeds, (iii) calculate, at such times as are required by applicable
Regulations, the amount of excess arbitrage profits, if any, earned from the investment of the
gross proceeds of the Certificates and (iv) timely pay, as required by applicable Regulations, all
amounts required to be rebated to the federal government. In addition, the City will exercise
reasonable diligence to assure that no errors are made in the calculations required by the
preceding sentence and, if such an error is made, to discover and promptly correct such error
within a reasonable amount of time thereafter, including payment to the federal government of
any delinquent amounts owed to it, interest thereon and any penalty.
(i) The City will not directly or indirectly pay any amount otherwise payable to the
federal government pursuant to the foregoing requirements to any person other than the federal
government by entering into any investment arrangement with respect to the gross proceeds of
the Certificates that might result in a reduction in the amount required to be paid to the federal
government because such arrangement results in a smaller profit or a larger loss than would have
resulted if such arrangement had been at arm's length and had the yield on the Certificates not
been relevant to either party.
(j) The City will timely file or cause to be filed with the Secretary of the Treasury of the
United States the information required by Section 149(e) of the Code with respect to the
Certificates on such form and in such place as the Secretary may prescribe.
(k) The City will not issue or use the Certificates as part of an "abusive arbitrage device"
(as defined in Section 1.14810(a) of the Regulations). Without limiting the foregoing, the
Certificates are not and will not be a part of a transaction or series of transactions that attempts to
circumvent the provisions of Section 148 of the Code and the Regulations, by (i) enabling the
City to exploit the difference between tax-exempt and taxable interest rates to gain a material
financial advantage, or (ii) increasing the burden on the market for tax-exempt obligations.
(1) Proper officers of the City charged with the responsibility for issuing the Certificates
are hereby directed to make, execute and deliver certifications as to facts, estimates or
circumstances in existence as of the date of issuance of the Certificates and stating whether there
are facts, estimates or circumstances that would materially change the City's expectations. On or
after the date of issuance of the Certificates, the City will take such actions as are necessary and
appropriate to assure the continuous accuracy of the representations contained in such
certificates.
(m)The covenants and representations made or required by this Section are for the benefit
of the Certificate holders and any subsequent Certificate holder, and may be relied upon by the
Certificate holders and any subsequent Certificate holder and bond counsel to the City.
21
HOU:2148670.1
In complying with the foregoing covenants, the City may rely upon an unqualified
opinion issued to the City by nationally recognized bond counsel that any action by the City or
reliance upon any interpretation of the Code or Regulations contained in such opinion will not
cause interest on the Certificates to be includable in gross income for federal income tax
purposes under existing law.
Notwithstanding any other provision of this Ordinance, the City's representations and
obligations under the covenants and provisions of this Section 7.5 shall survive the defeasance
and discharge of the Certificates for as long as such matters are relevant to the exclusion of
interest on the Certificates from the gross income of the owners for federal income tax purposes.
Section 7.6: Related Matters. In order that the City shall satisfy in a timely manner all
of its obligations under this Ordinance, the Mayor, the Mayor, City Secretary and all other
appropriate officers, agents, representatives and employees of the City are hereby authorized and
directed to take all other actions that are reasonably necessary to provide for the issuance and
delivery of the Certificates, including, without limitation, executing and delivering on behalf of
the City all certificates, consents, receipts, requests, notices, and other documents as may be
reasonably necessary to satisfy the City's obligations under this Ordinance and to direct the
transfer and application of funds of the City consistent with the provisions of this Ordinance.
ARTICLE VIII
CONTINUING DISCLOSURE UNDERTAKING
Section 8.1: Annual Reports. The City shall provide annually to each NRMSIR and
any SID, within six months after the end of each fiscal year ending in or after 2003, financial
information and operating data with respect to the City of the general type included in the final
Official Statement authorized by Section 7.3 of this Ordinance, being the financial information
and operating data described in the Official Statement under the captions "CITY TAX DEBT,"
"TAX DATA," "SELECTED FINANCIAL DATA" and in Appendix B to the Official
Statement. Any financial statements so to be provided shall be (1) prepared in accordance with
the accounting principles described in Appendix B to the Official Statement and (2) audited, if
the City commissions an audit of such statements and the audit is completed within the period
during which they must be provided. If audited financial statements are not so provided, then the
City shall provide audited financial statements for the applicable fiscal year to each NRMSIR
and any SID, when and if audited financial statements become available.
If the City changes its fiscal year, it will notify each NRMSIR and any SID of the change
(and of the date of the new fiscal year end) prior to the next date by which the City otherwise
would be required to provide financial information and operating data pursuant to this Section.
The financial information and operating data to be provided pursuant to this Section may
be set forth in full in one or more documents or may be included by specific reference to any
document (including an official statement or other offering document, if it is available from the
MSRB) that theretofore has been provided to each NRMSIR and any SID or filed with the SEC.
22
HOU:2148670.1
Section 8.2: Material Event Notices. The City shall notify any SID and either each
NRMSIR or the MSRB, in a timely manner, of any of the following events with respect to the
Certificates, if such event is material within the meaning of the federal securities laws:
(a) Principal and interest payment delinquencies;
(b) Non-payment related defaults;
(c) Unscheduled draws on debt service reserves reflecting financial difficulties;
(d) Unscheduled draws on credit enhancements reflecting financial difficulties;
(e) Substitution of credit or liquidity providers, or their failure to perform;
(f) Adverse tax opinions or events affecting the tax-exempt status of the Certificates;
(g) Modifications to rights of holders of the Certificates;
(h) Certificate calls;
(i) Defeasances;
(j) Release, substitution, or sale of property securing repayment of the Certificates; and
(k) Rating changes.
The City shall notify any SID and either each NRMSIR or the MSRB, in a timely
manner, of any failure by the City to provide financial information or operating data in
accordance with Section 8.1 of this Ordinance by the time required by such Section.
Section 8.3: Limitations, Disclaimers and Amendments. The City shall be obligated to
observe and perform the covenants specified in this Article for so long as, but only for so long as,
the City remains an "obligated person" with respect to the Certificates within the meaning of the
Rule, except that the City in any event will give the notice required by Section 8.2 of any
Certificate calls and defeasance that cause the City to be no longer such an "obligated person."
The provisions of this Article are for the sole benefit of the holders and beneficial owners
of the Certificates, and nothing in this Article, express or implied, shall give any benefit or any
legal or equitable right, remedy, or claim hereunder to any other person. The City undertakes to
provide only the financial information, operating data, financial statements, and notices which it
has expressly agreed to provide pursuant to this Article and does not hereby undertake to provide
any other information that may be relevant or material to a complete presentation of the City's
financial results, condition, or prospects or hereby undertake to update any information provided
in accordance with this Article or otherwise, except as expressly provided herein. The City does
not make any representation or warranty concerning such information or its usefulness to a
decision to invest in or sell Certificates at any future date.
23
HOU:2148670.1
UNDER NO CIRCUMSTANCES SHALL THE CITY BE LIABLE TO THE HOLDER
OR BENEFICIAL OWNER OF ANY CERTIFICATE OR ANY OTHER PERSON, IN
CONTRACT OR TORT, FOR DAMAGES RESULTING IN WHOLE OR IN PART FROM
ANY BREACH BY THE CITY, WHETHER NEGLIGENT OR WITHOUT FAULT ON ITS
PART, OF ANY COVENANT SPECIFIED IN THIS ARTICLE, BUT EVERY RIGHT AND
REMEDY OF ANY SUCH PERSON, IN CONTRACT OR TORT, FOR OR ON ACCOUNT
OF ANY SUCH BREACH SHALL BE LIMITED TO AN ACTION FOR MANDAMUS OR
SPECIFIC PERFORMANCE.
No default by the City in observing or performing its obligations under this Article shall
constitute a breach of or default under the Ordinance for purposes of any other provision of this
Ordinance.
Nothing in this Article is intended or shall act to disclaim, waive, or otherwise limit the
duties of the City under federal and state securities laws.
The provisions of this Article may be amended by the City from time to time to adapt the
changed circumstances that arise from a change in legal requirements, a change in law, or a
change in the identity, nature, status, or type of operations of the City, but only if (1) the
provisions of this Article, as so amended, would have permitted an underwriter to purchase or
sell the Certificates in the primary offering of the Certificates in compliance with the Rule,
taking into account any amendments or interpretations of the Rule to the date of such
amendment, as well as such changed circumstances, and (2) either (a) the holders of a majority in
aggregate principal amount (or any greater amount required by any other provision of this
Ordinance that authorizes such an amendment) of the outstanding Certificates consent to such
amendment or (b) a person that is unaffiliated with the City (such as nationally recognized bond
counsel) determines that such amendment will not materially impair the interests of the holder
and beneficial owners of the Certificates. If the City so amends the provisions of this Article, it
shall include with any amended financial information or operating data next provided in
accordance with Section 8.1 an explanation, in narrative form, of the reasons for the amendment
and of the impact of any change in the type of financial information or operating data so
provided. The City may also amend or repeal the provisions of this Article if the SEC amends or
repeals the applicable provisions of the Rule or a court of final jurisdiction enters judgment that
such provisions of the Rule are invalid, and the City also may amend the provisions of this
Article in its discretion in any other manner or circumstance, but in either case only if and to the
extent that the provisions of this sentence would not have prevented an underwriter from
lawfully purchasing or selling Certificates in the primary offering of the Certificates, giving
effect to (a) such provisions as so amended and (b) any amendments or interpretations of the
Rule.
Section 8.4: Definitions. As used in this Article, the following terms have the
meanings ascribed to such terms below:
"MSRB" means the Municipal Securities Rulemaking Board.
24
HOU:2148670.1
"NRMSIR" means each person whom the SEC or its staff has determined to be a
nationally recognized municipal securities information repository within the meaning of the Rule
from time to time.
"Rule" means SEC Rule 15c2-12, as amended from time to time.
"SEC" means the United States Securities and Exchange Commission.
"SID" means any person designated by the State of Texas or an authorized department,
officer, or agency thereof as, and determined by the SEC or its staff to be, a state information
depository within the meaning of the Rule from time to time.
ARTICLE IX
MISCELLANEOUS
Section 9.1: Defeasance. The City may defease the provisions of this Ordinance and
discharge its obligations to the Registered Owners of any or all of the Certificates to pay the
principal of and interest thereon in any manner permitted by law, including by depositing with
the Paying Agent/Registrar or with the State Treasurer of the State of Texas either:
(a) cash in an amount equal to the principal amount of such Certificates plus interest
thereon to the date of maturity or redemption; or
(b) pursuant to an escrow or trust agreement, cash and/or (i) direct noncallable
obligations of United States of America, including obligations that are unconditionally
guaranteed by the United States of America; (ii) noncallable obligations of an agency or
instrumentality of the United States, including obligations that are unconditionally guaranteed or
insured by the agency or instrumentality and that, on the date the governing body of the issuer
adopts or approves the proceedings authorizing the issuance of refunding bonds, are rated as to
investment quality by a nationally recognized investment rating firm not less than AAA or its
equivalent; or (iii) noncallable obligations of a state or an agency or a county, municipality, or
other political subdivision of a state that have been refunded and that, on the date the governing
body of the issuer adopts or approves the proceedings authorizing the issuance of refunding
bonds, are rated as to investment quality by a nationally recognized investment rating firm not
less than AAA or its equivalent, which, in the case of (i), (ii) or (iii), may be in book -entry form,
and the principal of and interest on which will, when due or redeemable at the option of the
holder, without further investment or reinvestment of either the principal amount thereof or the
interest earnings thereon, provide money in an amount which, together with other moneys, if
any, held in such escrow at the same time and available for such purpose, shall be sufficient to
provide for the timely payment of the principal of and interest thereon to the date of maturity or
earlier redemption;
provided, however, that if any of the Certificates are to be redeemed prior to their respective
dates of maturity, provision shall have been made for giving notice of redemption as provided in
this Ordinance. Upon such deposit, such Certificates shall no longer be regarded to be
Outstanding or unpaid. Any surplus amounts not required to accomplish such defeasance shall
be returned to the City.
25
HOU:2148670.1
Section 9.2: Ordinance a Contract - Amendments. This Ordinance shall constitute a
contract with the Registered Owners from time to time, be binding on the City, and shall not be
amended or repealed by the City so long as any Certificate remains Outstanding except as
permitted in this Section. The City may, without the consent of or notice to any Registered
Owners, from time to time and at any time, amend this Ordinance in any manner not detrimental
to the interests of the Registered Owners, including the curing of any ambiguity, inconsistency,
or formal defect or omission herein. In addition, the City may, with the consent of Registered
Owners who own in the aggregate 51 % of the principal amount of the Certificates then
Outstanding, amend, add to, or rescind any of the provisions of this Ordinance; provided that,
without the consent of all Registered Owners of Outstanding Certificates, no such amendment,
addition, or rescission shall (i) extend the time or times of payment of the principal of and
interest on the Certificates, reduce the principal amount thereof, the redemption price, or the rate
of interest thereon, or in any other way modify the terms of payment of the principal of or
interest on the Certificates, (ii) give any preference to any Certificate over any other Certificate,
or (iii) reduce the aggregate principal amount of Certificates required to be held by Registered
Owners for consent to any such amendment, addition, or rescission.
Section 9.3: Legal Holidays. In any case where the date interest accrues and becomes
payable on the Certificates or principal of the Certificates matures or the date fixed for
redemption of any Certificates or a Record Date shall be in the City a Saturday, Sunday, legal
holiday or a day on which banking institutions are authorized by law to close, then payment of
interest or principal need not be made on such date, or the Record Date shall not occur on such
date, but payment may be made or the Record Date shall occur on the next succeeding day which
is not in the City a Saturday, Sunday, legal holiday or a day on which banking institutions are
authorized by law to close with the same force and effect as if (i) made on the date of maturity or
the date fixed for redemption and no interest shall accrue for the period from the date of maturity
or redemption to the date of actual payment or (ii) the Record Date had occurred on the fifteenth
day of that calendar month.
Section 9.4: No Recourse Against City Officials. No recourse shall be had for the
payment of principal of or interest on any Certificates or for any claim based thereon or on this
Ordinance against any official of the City or any person executing any Certificates.
Section 9.5: Further Proceedings. The Mayor, Mayor Pro-Tem, City Secretary and
other appropriate officials of the City are hereby authorized and directed to do any and all things
necessary and/or convenient to carry out the terms of this Ordinance.
Section 9.6: Severability. If any Section, paragraph, clause or provision of this
Ordinance shall for any reason be held to be invalid or unenforceable, the invalidity or
unenforceability of such Section, paragraph, clause or provision shall not affect any of the
remaining provisions of this Ordinance.
Section 9.7: Open Meeting. It is hereby found, determined and declared that a
sufficient written notice of the date, hour, place and subject of the meeting of the City Council at
which this Ordinance was adopted was posted at a place convenient and readily accessible at all
26
HOU:2148670.1
times to the general public at City Hall for the time required by law preceding this meeting, as
required by the Open Meetings Law, Chapter 551, Texas Government Code, and that this
meeting has been open to the public as required by law at all times during which this Ordinance
and the subject matter thereof has been discussed, considered and formally acted upon. The City
Council further ratifies, approves and confirms such written notice and the contents and posting
thereof.
Section 9.8: Repealer. All orders, resolutions and ordinances, or parts thereof,
inconsistent herewith are hereby repealed to the extent of such inconsistency.
Section 9.9: Emergency. It is hereby officially found and determined that this
Ordinance relates to an immediate public emergency affecting life, health, property and the
public peace, and that such emergency exists, the specific emergency being that the proceeds
from the sale of the Certificates are required as soon as possible for necessary and urgently
needed improvements, and that this Ordinance be passed and approved on the date of its
introduction.
Section 9.10: Effective Date. This Ordinance shall be in force and effect from and after
its passage on the date shown below.
27
HOU:2148670.1
PASSED AND APPROVED on first reading pursuant to Section 3.10 of the City Charter
this May 12 , 2003.
CITY OF PEARLApE
XAS
Mayor
ATTEST
Secret;
(SEAL)
Exhibit A - Paying Agent/Registrar Agreement
Exhibit B - Official Notice of Sale
Exhibit C - Preliminary Official Statement
Exhibit D - Official Statement
28
HOU:2148670.1
EXHIBIT A
PAYING AGENT/REGISTRAR AGREEMENT
See Tab No. _
HOU:2148670.1
EXHIBIT B
OFFICIAL NOTICE OF SALE
See Tab No. _
HOU:2148670.1
EXHIBIT C
PRELIMINARY OFFICIAL STATEMENT
See Tab No. _
HOU:2148670.1
EXHIBIT D
OFFICIAL STATEMENT
See Tab No. _
HOU:2148670.1
CERTIFICATE FOR ORDINANCE
THE STATE OF TEXAS
COUNTIES OF BRAZORIA AND HARRIS
CITY OF PEARLAND
We, the undersigned officers of the City of Pearland, Texas (the "City"), hereby certify as
follows:
1. The City Council of the City convened in a regular meeting on May 12, 2003, at
the regular meeting place thereof, within the City, and the roll was called of the duly constituted
officers and members of the City Council, to wit:
Tom Reid Mayor
Woodrow "Woody" Owens Mayor Pro Tem
Richard F. Tetens Council Member
Klaus Seeger Council Member
Charles Viktorin Council Member
Larry R. Marcott Council Member
Young Lorfing City Secretary
and all of such persons were present except N/A , thus constituting a
quorum. Whereupon, among other business, the following was transacted at said meeting: a
written
AN ORDINANCE AUTHORIZING THE ISSUANCE OF CITY OF
PEARLAND, TEXAS CERTIFICATES OF OBLIGATION, SERIES 2003;
PRESCRIBING THE TERMS AND FORM THEREOF; PROVIDING FOR THE
PAYMENT OF THE PRINCIPAL THEREOF AND INTEREST THEREON;
AWARDING THE SALE THEREOF; AUTHORIZING THE PREPARATION
AND DISTRIBUTION OF AN OFFICIAL STATEMENT TO BE USED IN
CONNECTION WITH THE SALE OF THE CERTIFICATES; AUTHORIZING
THE PURCHASE OF BOND INSURANCE; MAKING OTHER PROVISIONS
REGARDING SUCH CERTIFICATES, INCLUDING USE OF THE
PROCEEDS THEREOF, AND MATTERS INCIDENT THERETO; AND
DECLARING AN EMERGENCY
(the "Ordinance") was duly introduced for the consideration of the City Council and read in full.
It was then duly moved and seconded that the Ordinance be adopted on first reading; and, after
due discussion, such motion, carrying with it the adoption of the Ordinance, prevailed and
carried by the following vote:
AYES: 3_
NAYS: 0 ABSTENTIONS: 0
2. That a true, full and correct copy of the Ordinance adopted at the meeting
described in the above and foregoing paragraph is attached to and follows this certificate; that the
Ordinance has been duly recorded in the City Council's minutes of such meeting; that the above
1
HOU:2148670.1
and foregoing paragraph is a true, full and correct excerpt from the City Council's minutes of
such meeting pertaining to the adoption of the Ordinance; that the persons named in the above
and foregoing paragraph are the duly chosen, qualified and acting officers and members of the
City Council as indicated therein; that each of the officers and members of the City Council was
duly and sufficiently notified officially and personally, in advance, of the date, hour, place and
subject of the aforesaid meeting, and that the Ordinance would be introduced and considered for
adoption at such meeting, and each of such officers and members consented, in advance, to the
holding of such meeting for such purpose; that such meeting was open to the public as required
by law; and that public notice of the date, hour, place and subject of such meeting was given as
required by the Open Meetings Law, Chapter 551, Texas Government Code.
SIGNED AND SEALED this
Mayor
Y • ' ' EARLAND, TEXAS CITY OF PEARLAND, TEXAS
(SEAL)
2
HOU:2148670.1
AFFIDAVIT OF PUBLICATION
The Pearland Reporter News
2404 South Park
Pearland, Texas 77581
State of Texas
Brazoria and Harris Counties
I, Randy Emmons, hereby certify that the notice hereby appended was published
in Brazoria and Harris Counties in THE REPORTER NEWS, a newspaper of general
circulation in Brazoria, Harris & Galveston Counties, for / issues; as follows:
No. / Date C _I 20
No. Date 20
No Date 20
No Date 20
No. Date 20
Subscribe and sworn to before me this
2003
LAURA ANN EMMONS
Notary Public, State of Texas
Commission Expires 09-09-2006
President
Laura Ann Emmons, Publisher
Notary Public, State of Texas
Joint Public Hearing - Application No. 1111
Published 05/28&06/04/2003
Published May 28 & June 4,
2003
NOTICE OF A JOINT
PUBLIC HEARING OF THE
CITY COUNCIL AND THE
PLANNING AND ZONING
COMMISSION OF THE CITY
OF PEARLAND, TEXAS
Notice is hereby given thaton
the 16th day of June, 2003, at
6:30 p.m., the City Council
and Planning and Zoning
Commission of the City of
Pearland, Brazoria, Harris
and Fort Bend Counties,
Texas, will conduct a joint
public hearing in the Council
Chambers of City Hall, 3519
Liberty Drive, Peariand,;
Texas, on the rer eet of Eric
E. and Viseeta Brown, own-
ers, for an ameiximia to the
Land Use and Urban
Development Ordinance of
said City from Classification
Suburban Development
District (SD) to Single Family
Dwelling District (R-1) on the
following described property,
to wit:
0.59 acres of land, being out
of and part of the Commercial
Reserve of Block 12, Lot 2,
West Lea Subdivision,
Section 3, Abstract 546, as
recorded in Volume 12, Page
23, of the Plat Records of
Brazoria County, Texas (FM
1128 at Heron Lane)
At said hearing all interested
parties shall have the right
and opportunity to appear
and be heard on the $ubject:
/s/ Theresa Grahmann
Planner I
CITY OF PEARLAND, TEXAS
(Brazoria and Harris Counties)
OFFICIAL STATEMENT
DATED- APRIL 30, 2003
$19,650,000
COMBINATION TAX AND REVENUE
CERTIFICATES OF OBLIGATION
SERIES 2003
SELLING 5.00 P.M.
MONDAY, MAY 12, 2003
C.D.S T.
RBC
Dain Rauscher
Member NYSE/SIPC
Financial Advisor to the City
This Official Notice of Sale does not alone constitute an offer to sell but is merely notice of sale of the Certificates
described herein. The offer to sell such Certificates is being made by means of this Official Notice of Sale, the
Official Bid Form and the Preliminary Official Statement.
f
OFFICIAL NOTICE OF SALE
CITY OF PEARLAND, TEXAS
(Brazoria and Harris Counties, Texas)
$19,650,000
CERTIFICATES OF OBLIGATION, SERIES 2003
Sealed Bids Will Be Received
Monday, May 12, 2003 at 5:00 P.M.
Central Daylight Saving Time
This Official Notice of Sale does not alone constitute an invitation for bids but is merely notice of sale of the
Certificates described herein. The invitation for bids on such Certificates is being made by means of this Official
Notice of Sale, the Official Bid Form and the Official Statement. Prospective purchasers are urged to carefully
examine all the documents to determine the investment quality of the Certificates.
OFFICIAL NOTICE OF SALE
$19,650,000
CITY OF PEARLAND, TEXAS
(Brazoria and Harris Counties, Texas)
CERTIFICATES OF OBLIGATION
SERIES 2003
1'HE SALE
CERTIFICATES OF OBLIGATION OFFERED FOR SALE AT COMPETITIVE BID The City Council (the
"Council") of The City of Pearland, Texas (the "City") is offering for sale at competitive bid its $19,650,000
Certificates of Obligation, Series 2003 (the "Certificates).
PLACE AND TIME OF SATE The Council will receive sealed bids at the City Hall, 3519 Liberty Drive,
Pearland, Texas 77581 until 5.00 P.M., C.D.S.T., Monday, May 12, 2003, and the bids will be opened and publicly
read at 7.00 P.M. Sealed bids, which must be submitted in duplicate on the Official Bid Form and plainly marked
"Bid for Certificates," are to be addressed to "Mayor and City Council, City of Pearland, Texas." All bids must be
delivered at the above address prior to the above -scheduled time. Any bid received after such scheduled time for bid
opening will not be accepted and will be returned unopened.
ELECTRONIC BIDDING PROCEDTTRE. Any prospective bidder that intends to submit an electronic bid must
submit its electronic bid through the facilities of PARITY Bidders must submit, prior to Monday, May 12, 2003,
SIGNED Official Bid Forms, in duplicate, to Frank Ildebrando, RBC Dain Rauscher Inc., 1001 Fannin, Suite 400,
Houston, Texas 77002. Subscription to the i-Deal's BIDCOMP Competitive Bidding System is required in order to
submit an electronic bid. The City will neither confirm any subscription nor be responsible for the failure of any
prospective bidder to subscribe. Electronic bids must be received via PARITY in the manner described below, until
5.00 p.m., C.D.S.T., on Monday, May 12, 2003
Electronically bids must be submitted via PARITY in accordance with this Official Notice of Sale, until 5.00 p.m.,
C.D.S.T., but no bid will be received after the time for receiving bids specified above. An electronic bid made through
the facilities of PARITY shall be deemed an irrevocable offer to purchase the Certificates on the terms provided in the
Official Notice of Sale, and shall be binding upon the bidder as if made by a signed, sealed bid delivered to the City
The City shall not be responsible for any malfunction or mistake made by, or as a result of the use of the facilities of,
PARITY, the use of such facilities being the sole risk of the prospective bidder.
If any provisions of the Official Notice of Sale shall conflict with information provided by PARITY as the approved
provider of electronic bidding services, this Official Notice of Sale shall control. Further information about PARITY,
including any fee charged, may be obtained from i-Deal, 395 Hudson Street, New York, New York 10014, (212) 806-
8304
For purposes of both the written bid process and the electronic bidding process, the time as maintained by
PARITY shall constitute the official time. For information purposes only, bidders are requested to state in their
electronic bids the true interest cost to the City, as described under "CONDITIONS OF THE SALE - Basis of Award"
below All electronic bids shall be deemed to incorporate the provisions of this Official Notice of Sale and the Official
Bid Form.
BIDS BY TELEPHONE OR FACSIMILE Bidders must submit, prior to Monday, May 12, 2003, SIGNED
Official Bid Forms to Frank Ildebilando, RBC Dain Rauscher Inc., 1001 Fannin, Suite 400, Houston, Texas 77002 and
submit their bid by telephone or fa simile (fax) on the date of sale by 5.00 p.m., C.D.S.T
Frank Ildebrando of RBC Dain R
Forms prior to the date of the sale.
Frank Ildebrando of RBC Dain Rat
uscher Inc. will call telephone bidders who have submitted SIGNED Official Bid
Fax bids must be received by 5.00 p.m, C.D.S.T., on the date of the sale. Contact
Scher Inc. on the day of the sale to obtain the fax phone numbers.
RBC Dain Rauscher Inc. will not be responsible for the submission of any bids received after the above
deadlines. RBC Dain Rauscher Inc. assumes no responsibility or liability with respect to any irregularities
associated with the submission of any bids.
AWARD OF THE CERTIFICATES. The Council will take action to award the Certificates (or reject all bids) at
a regular meeting of the City Council on the date of the bid opening, and will adopt an ordinance authorizing the
Certificates and approving the Official Statement (the "Ordinance"). The City reserves the right to reject any or all
bids and to waive any irregularities.
THE CERTIFICATES
DESCRIPTION The Certificates will be dated May 1, 2003 and interest will be calculated on the basis of a 360-
day year of twelve 30-day months. Interest on the Certificates will be paid on September 1, 2003, and semiannually
on March 1 and September 1 of edch year thereafter until maturity or prior redemption. The Certificates maturing on
or after March 1, 2014 are subjegt to redemption prior to their scheduled maturities on March 1, 2013, or any date
thereafter, at the option of the city Upon redemption the Certificates will be payable at a price equal to the
principal amount thereof plus accrued interest to the date of redemption. The Certificates will be issued in fully
registered form in principal amo is of $5,000 or any integral multiple thereof. Principal and semiannual interest
will be paid by Wells Fargo Bank Texas, N.A., Houston, Texas, the Paying Agent/Registrar Interest will be paid by
check dated as of the interest p yment date and mailed on or before each interest payment date by the Paying
Agent/Registrar to the registers owner appearing on the Paying Agent/Registrar's books on the Record Date
(hereinafter defined). Principal 11 be paid to the registered owners at maturity upon presentation of the Certificates
to the Paying Agent/Registrar Th Certificates will mature March 1 in each year as follows.
Maturity
Date
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Principal Maturity Principal
Amount Date Amount
$ 310,000 2014 $1,035,000
340,000 2015 1,090,000
370,000 2016 1,145,000
390,000 2017 1,210,000
415,000 2018 1,180,000
435,000 2019 1,240,000
1,110,000 2020 1,310,000
1,175,000 2021 1,380,000
1,235,000 2022 1,455,000
1,295,000 2023 1,530,000
PAYING AGENT/REGISTRAR The initial Paying Agent/Registrar shall be Wells Fargo Bank Texas, N.A.,
Houston, Texas (see "Paying Agent/Registrar" in Official Statement).
SOTTRCE OF PAYMENT The Certificates are direct obligations of the City, and the principal thereof and interest
thereon are payable solely from the proceeds of an annual ad valorem tax levied upon all taxable property within the
City, within the limits prescribed by law and are further payable from a limited junior and subordinate pledge of the
Net Revenues (as defined in the Ordinance) of the City's waterworks and sewer system (the "System"), but only to
the extent of and in an amount not in excess of $10,000 00 of the Net Revenues of such System.
ii
CONDITIONS OF THE SALE
TYPES OF BIDS AND INTEREST RATES The Certificates will be sold in one block on an "All or None" basis,
and at a price of not less than their par value plus accrued interest to the date of delivery of the Certificates. Bidders
are invited to name the rate(s) of interest to be bome by the Certificates provided that each rate bid must be in a
multiple of 1/8 of 1% or 1/20 of 1% and the net effective interest rate for the Certificates (calculated in the manner
required by Chapter 1204, Texas Government Code, as amended) must not exceed 15%. The highest rate bid may
not exceed the lowest rate bid by more than 2% in rate. No limitation is imposed upon bidders as to the number of
rates or changes which may be used. All Certificates of one maturity must bear one and the same rate. No bids
involving supplemental interest rates will be considered. Each bidder shall state in his bid the total interest cost in
dollars and the net effective interest rate determined hereby, which shall be considered informative only and not as a
part of the bid.
BASIS OF AWARD. For the purpose of awarding sale of the Certificates, the interest cost of each bid will be
computed by determining at the rate(s) specified therein, the total dollar cost of all interest on the Certificates from
the date thereof to their respective maturities, using the table of Bond Years herein, and deducting therefrom the
premium bid, if any Subject to the City's right to reject any or all bids and to waive any irregularities, the
Certificates will be awarded to the bidder (the "Purchaser") whose complying bid, based on the above computation,
produces the lowest net interest cost to the City
GOOD FAITH DEPOSIT A Good Faith Deposit, payable to the "City of Pearland" in the amount of $393,000 is
required. Such Good Faith Deposit shall be in the form of a Cashier's Check, which is to be retained uncashed by the
City pending the Purchaser's compliance with the terms of his bid and the Notice of Sale and Bidding Instructions.
The Good Faith Deposit may accompany the Official Bid Form or it may be submitted separately If submitted
separately, it shall be made available to the City prior to the opening of the bids, and shall be accompanied by
instructions from the bank on which drawn which authorize its use as a Good Faith Deposit by the Purchaser who
shall be named in such instructions. Unless otherwise agreed, the Good Faith Deposit will be returned to the
purchaser of the Certificates on the date of delivery of the Certificates. No interest will be allowed on the Good
Faith Deposit. In the event the Purchaser should fail or refuse to take up and pay for the Certificates in accordance
with his bid, then said check shall be cashed and accepted by the City as full and complete liquidated damages. The
checks accompanying bids other than the winning bid will be returned immediately after the bids are opened, and an
award of the Certificates has been made.
FTNANCIAT, ADVISOR'S RIGHT TO BID- The City has given RBC Dain Rauscher Inc., its Financial Advisor,
the right to bid on the Certificates.
INITIAL OFFERING PRICE CERTIFICATE, To provide the City with information to enable it to comply with
certain conditions of the Internal Revenue Code of 1986 relating to the exclusion of interest on the Certificates from
gross income for federal income tax purposes, the successful bidder will be required to complete, execute, and
deliver to the City, at the time that the Certificates are awarded, a certification regarding "issue price" substantially in
the form attached hereto. If the successful bidder will not reoffer the Certificates for sale or has not sold a
substantial amount of the Certificates of any maturity by the date of delivery, such certificate may be modified in a
manner approved by the City and the City's Bond Counsel (as hereinafter defined). In no event will the City fail to
deliver the Certificates as a result of the successful bidder's inability to certify actual sales of Certificates at a
particular price prior to delivery Each bidder, by submitting its bid, agrees to complete, execute, and deliver such a
certificate by the date of the award of the Certificates, if its bid is accepted by the City It will be the responsibility
of the successful bidder to institute such syndicate reporting requirements, to make such investigation, or otherwise
to ascertain the facts necessary to enable it to make such certifications with reasonable certainty Any questions
concerning such certification should be directed to Bond Counsel.
iii
DELIVERY OF THE CERTIFICATES AND ACCOMPANYING DOCUMENTS
The delivery of the Certificates is subject to receipt of the opinion of Andrews & Kurth L.L.P., Houston, Texas,
Bond Counsel for the City, as hereinafter described.
CTJSTP NUMBERS It is anticipated that CUSIP identification numbers will appear on the Certificates, but neither
the failure to print or type such number on any Certificates nor any error with respect thereto shall constitute cause
for a failure or refusal by the Purchaser to accept delivery of and pay for the Certificates in accordance with the
terms of this Notice of Sale and the terms of the Official Bid Form. All expenses in relation to the printing or typing
of CUSIP numbers on the Certificates shall be paid by the City; provided, however, that the CUSIP Service Bureau
fee for the assignment of the numbers shall be the responsibility of and shall be paid for by the Purchaser
INITIAL DELIVERY OF INITIAL CFRTTFTCATFS: Initial delivery will be accomplished by the issuance of
registered Certificates in the aggregate principal amount of $19,650,000, payable to the Purchaser, signed by the
manual or facsimile signature of the Mayor and City Secretary of the City, approved by the Attorney General, and
registered by the Comptroller of Public Accounts. Initial delivery will be at the corporate trust office of the Paying
Agent/Registrar Payment for the Certificates must be made in immediately available funds for unconditional credit
to the City, or as otherwise directed by the City The Purchaser will be given five (5) business days' notice of the
time fixed for delivery of the Certificates. It is anticipated that initial delivery of the Initial Certificates can be made
on or about June 12, 2003, and it is understood and agreed that the Purchaser will accept delivery and make payment
for Initial Certificates by 10.00 A.M., C.D.S.T on June 12, 2003, or thereafter on the date the Certificates are
tendered for delivery, up to and including July 15, 2003 If for any reason the City is unable to make delivery on or
before July 15, 2003, then the City shall immediately contact the Purchaser and offer to allow the Purchaser to
extend its offer for an additional fifteen (15) days. If the Purchaser does not elect to extend its offer within six (6)
days thereafter, then its Good Faith Deposit will be returned, and both the City and the Purchaser shall be relieved of
any further obligation. In no event shall the City be liable for any damages, whether direct, consequential or
otherwise, by reason of its failure to deliver the Certificates.
DELIVERY OF DFFINITTVE CERTIFICATES. Upon payment for the Initial Certificates at the time of the
initial delivery, the Paying Agent/Registrar shall cancel the Initial Certificates, provided registration instructions
have been received by the Paying Agent/Registrar, and shall register and deliver the registered definitive Certificates,
in any integral multiple of $5,000 for any one maturity, in accordance with written instructions received from the
Purchaser and/or members of the Purchaser's syndicate account. It shall be the duty of the Purchaser and/or
members of the Purchaser's syndicate account to furnish to the Paying Agent/Registrar, at least five business days
prior to the initial delivery, final written instructions designating the names in which the Certificates, are to be
registered, the addresses of the registered owners, the maturities, interest rates and denominations. The Paying
Agent/Registrar will not be required to accept registration instructionsafter the fifth business day prior to initial
delivery If such instructions are not received within the specified time period, the cancellation of the Initial
Certificates and delivery of registered definitive Certificates will be delayed until such instructions are received.
CONDITIONS TO DELIVERY The obligation of the Purchaser to take up and pay for the Certificates is subject
to the Purchaser's receipt of (a) the legal opinion of Andrews & Kurth L.L.P., Houston, Texas, Bond Counsel for the
City ("Bond Counsel"), (b) a certificate to the effect that no litigation of any nature has been filed or is then pending
to restrain the issuance and delivery of the Certificates, and (c) the certification as to the Official Statement, all as
further described in the Official Statement.
T.FGAT, OPINION The City will furnish the Purchaser a transcript of certain certified proceedings held incident to
the authorization and issuance of the Certificates, including a certified copy of the unqualified approving opinion of
the Attorney General of Texas, as recorded in the Bond Register of the Comptroller of Public Accounts of the State
of Texas, to the effect that the Certificates, which the Attomey General will have examined, are valid and binding
obligations of the City under the Constitution and laws of the State of Texas. The City also will furnish the approving
legal opinion of Andrews & Kurth L.L.P., Houston, Texas, Bond counsel, to the effect that, based upon an
examination of such transcript, the Certificates are valid and binding obligations of the City under the Constitution
iv
and laws of the State of Texas. The legal opinion of Bond Counsel will further state that taxable property in the City
is subject to the levy of a continuing, direct annual ad valorem tax, within the limits prescribed by law, to pay the
Certificates and interest thereon. The opinion of Bond Counsel is expected to be reproduced on the back panel of
the Certificates over a certification by the City Clerk of the City attesting that such legal opinion was dated as of the
date of delivery of and payment for the Certificates and is a true and correct copy of the original opinion. Errors or
omissions in the printing of such legal opinion on the Certificates shall not affect the validity of the Certificates nor
constitute case for the failure or refusal by the Purchaser to accept delivery of and pay for the Certificates.
REGISTRATION The Certificates are transferable only on the bond register kept by the Paying Agent/Registrar
upon surrender and reissuance. The Certificates are exchangeable for an equal principal amount of Bonds of the
same maturity in any authorized denomination upon surrender of the Certificates to be exchanged at the principal
office of the Paying Agent/Registrar. No service charge will be made for any transfer or exchange, but the City may
require payment of a sum sufficient to cover any tax or governmental charge payable in connection therewith.
NO -LITIGATION CERTIFICATE; The customary closing papers, including a certificate to the effect that no
litigation of any nature has been filed or is then pending to restrain the issuance and delivery of the Certificates, or,
which would affect the provisions made for their payment or security, or in any manner questioning the validity of
said Certificates will also be furnished.
NO MATERIAL ADVERSE CHANGE. The obligations of the Initial Purchaser to take and pay for the
Certificates, and of the City to deliver the Certificates, are subject to the condition that, up to the time of delivery of
and receipt of payment for the Certificates, there shall have been no material adverse change in the condition
(fmancial or otherwise) of the City subsequent to the date of sale from that set forth or contemplated in the
Preliminary Official Statement, as it may have been supplemented or amended through the date of sale.
CHANGE IN TAX EXEMPT STATIJS At any time before the Certificates are tendered for delivery, the
Purchaser may withdraw its bid if the interest received by private owners of certificates of the same type and
character as the Certificates shall be declared to be taxable income under present federal income tax laws, either by
ruling of the Internal Revenue Service or by a decision of any Federal court, or shall be declared taxable or be
required to be taken into account in computing any federal income taxes, by the terms of any federal income tax law
enacted subsequent to the date of this Official Notice of Sale.
CONTTNTTING DISCI,OSTTRE AGREEMENT The City will agree in the Ordinance authorizing the Certificates
to provide certain periodic information and notices of material events in accordance with the Securities and
Exchange Commission Rule 15c-12, as described in the Preliminary Official Statement under "CONTINUING
DISCLOSURE OF INFORMATION " The Purchaser's obligation to accept and pay for the Certificates is
conditioned upon delivery to the Purchaser or its agent of a certified copy of the Ordinance containing the agreement
described under such heading.
GENERAL CONSIDERATIONS
FINANCIAT. ADVISOR RBC Dain Rauscher Inc. is employed as Financial Advisor to the City in connection with
the issuance of the Certificates. The Financial Advisor's fee for services rendered with respect to the sale of the
Certificates is contingent upon the issuance and delivery of the Certificates. RBC Dain Rauscher Inc., in its capacity
as Financial Advisor, has not verified and does not assume any responsibility for the information, covenants and
representations contained in any of the legal documentation with respect to the federal income tax status of the
Certificates.
BLUE SKY LAWS By submission of its bid, the Purchaser represents that the sale of the Certificates in states
other than Texas will be made only pursuant to exemptions from registration or, where necessary, the Purchaser will
register the Certificates in accordance with the securities law of the states in which the Certificates are offered or
sold. The City agrees to cooperate with the Purchaser, at the Purchaser's written request and expense, in registering
the Certificates or obtaining an exemption from registration in any state where such action is necessary, but the City
will not consent to service of process in any such state.
v
MTTNTCTPAT, BOND INSITRANCF.. The City has submitted an application for municipal bond insurance under
the bidder option program. The premium for such insurance, if any, will be paid by the Purchaser
OFFICIAL STATEMENT
By accepting the winning bid, the City agrees to the following representations and covenants to assist the Purchaser
in complying with Rule 15c2-12 of the Securities and Exchange Commission ("SEC").
FINAL OFFICIAL STATEMENT. The City has prepared the accompanying Official Statement for dissemination
to potential purchasers of the Certificates, but will not prepare any other document or version for such purpose
except as described below The Purchaser will be responsible for informing the City of the initial offering yields.
The City will prepare a fmal Official Statement describing these offering yields, the interest rates on the Certificates,
the selling compensation, the final debt service schedule, the ratings assigned to the Certificates (if not currently
included), and the terms of and obligor on any policy of municipal bond insurance. Accordingly, the City deems the
accompanying Official Statement to be final as of its date, within the meaning of SEC Rule 15c2-12(b)(1), except for
the omission of the foregoing items. By delivering the final Official Statement or any amendment or supplement
thereto to the Purchaser on or after the sale date, the City represents the same to be complete as of such date, within
the meaning of SEC Rule 15c2-12(e)(3). Notwithstanding the foregoing, the only representations concerning the
absence of material misstatements or omissions from the Official Statement which are or will be made by the City are
those described in the Official Statement under "GENERAL CONSIDERATIONS - Certification as to Official
Statement."
CHANGES TO OFFICIAL STATEMENT If, subsequent to the date of the Official Statement, the City learns,
through the ordinary course of business and without undertaking any investigation or examination for such purposes,
or is notified by the Purchaser of any adverse event which causes the Official Statement to be materially misleading,
and unless the Purchaser elects to terminate its obligation to purchase the Certificates, as described above under
"DELIVERY AND ACCOMPANYING DOCUMENTS - Conditions to Delivery," the City will promptly prepare
and supply to the Purchaser an appropriate amendment or supplement to the Official Statement satisfactory to the
Purchaser; provided, however, that the obligation of the City to do so will terminate when the City delivers the
Certificates to the Purchaser, unless the Purchaser notifies the City on or before such date that less than all of the
Certificates have been sold to ultimate customers, in which case the City's obligations hereunder will extend for an
additional period of time (but not more than 90 days after the date the City delivers the Certificates) until all of the
Certificates have been sold to ultimate customers.
DELIVERY OF OFFICIAL STATEMENTS. The City will furnish to the Purchaser (and to each other
participating purchaser of the Certificates, within the meaning of SEC Rule 15c2-12(a), designated by the
Purchaser), within seven days after the sale date, up to 200 copies of the Official Statement. The City will also
furnish to the Purchaser a like number of any supplement or amendment prepared by the City for dissemination to
potential purchasers of the Certificates as described above as well as such additional copies of the Official Statement
or any supplement or amendment as the Purchaser may request prior to the 90th day after the end of the underwriting
period referred to in SEC Rule 15c2-12(e)(2). The City will pay the expense of preparing up to 200 copies of the
Official Statement and up to 200 copies of any supplement or amendment issued on or before the delivery date, but
the Purchaser must pay for all other copies of the Official Statement or any supplement or amendment thereto.
OFFICIAL STATEMENT- Upon the award of the sale of the Certificates, the Preliminary Official Statement will
be amended to conform to the terms of the Purchaser's bid and, if necessary, to make certain other changes. In
connection therewith, the Purchaser will be required to furnish information concerning the initial resale offering
prices and yields of the Certificates as well as the names of the members of the underwriting syndicate.
vi
&DDMONAI. COPIES OF NOTICE, Rill FORM AND STATEMENT A limited number of additional copies
of this Official Notice of Sale, the Official Bid Form and the Official Statement, as available over and above the
normal mailing, may be obtained at the offices of RBC Dain Rauscher Inc., 1001 Fannin, Suite 400, Houston, Texas,
77002, Financial Advisor to the City
On the date of the sale, the City Council will, in the Ordinance authorizing the issuance of the Certificates, confirm
its approval of the form and content of the Official Statement, and any addenda, supplement or amendment thereto,
and authorize its use in the reoffering of the Certificates by the Purchaser
April 30, 2003
/s/ Tom Reid
Mayor
City of Pearland, Texas
vii
OFFICIAL BID FORM
Mayor and City Council
City of Pearland
3519 Liberty Drive
Pearland, Texas 77581
Gentlemen.
May 12, 2003
Subject to the terms of your Official Notice of Sale and Official Statement, dated April 30, 2003, which are
incorporated herein by reference, we hereby submit the following bid for the $19,650,000 THE CITY OF
PEARLAND, TEXAS, CERTIFICATES OF OBLIGATION, SERIES 2003, dated May 1, 2003 This offer is being
made for all said Certificates and for not less than all.
For said legally issued Certificates of Obligation, we will pay you the par value thereof, plus accrued interest from
their date to the date of delivery to us, plus a cash premium of $ for the Certificates maturing and
bearing interest per annum as follows:
Maturity Principal Interest Maturity Pnncipal Interest
Date Amount Rate Date Amount Rate
March 1, 2004(a) $ 310,000 % March 1, 2014(a)(b) $1,035,000
March 1, 2005(a) 340,000 March I, 2015(a)(b) 1,090,000
March 1, 2006(a) 370,000 March 1, 2016(a)(b) 1,145,000
March 1, 2007(a) 390,000 March 1, 2017(a)(b) 1,210.000
March 1, 2008(a) 415,000 March 1, 2018(a)(b) 1,180,000
March 1, 2009(a) 435,000 March 1, 2019(a)(b) 1,240,000
March 1, 2010(a) 1,110,000 March 1, 2020(a)(b) 1,310,000
March 1, 2011(a) 1,175,000 March 1, 2021(a)(b) 1,380,000
March 1, 2012(a) 1,235,000 March 1, 2022(a)(b) 1,455,000
March 1, 2013(a) 1,295,000 March 1, 2023(a)(b) 1,530,000
(a) At the option of the Initial Purchaser, any or all of such serial maturities may be designated as tern bonds
subject to mandatory sinking fund redemption as follows; provided that the mandatory sinking fund
amount in each year shall equal the amounts shown above as maturing in such year
Term Bonds Years of First
Maturity Date Mandatory
(March 1) Redemption
Principal Amount
of Term Certificates
$
Interest
Rate
(b) Subject to optional redemption and payment, at the option of the City, in whole or, from time to time, in
part, on March 1, 2013, or on any date thereafter at a price equal to the principal amount thereof, plus
accrued interest to the date fixed for redemption.
Interest cost, in accordance with the above bid, is:
Total Interest Cost from May 1, 2003 $
Less: Premium. $
NET INTEREST COST $
NET EFFECTIVE INTEREST RATE
The Initial Certificates shall be registered in the name of (syndicate manager). We
will advise Wells Fargo Bank Texas, N.A., in Houston, Texas the Paying Agent/Registrar, on forms to be provided
by the Paying Agent/Registrar and on registration instructions at least five business days prior to the date set for
initial delivery
Cashier's Check of the Bank, , Texas, in the amount of $393,000 which
represents our Good Faith Deposit (is attached hereto) or (has been made available to you prior to the opening of this
Bid), and is submitted in accordance with the terms as set forth in the "Official Notice of Sale" and "Official
Statement."
We agree to accept delivery of and make payment for the Initial Certificates in immediately available firndR at the
Corporate Trust Office, Wells Fargo Bank Texas, N.A., in Houston, Texas not later than 10:00 A.M., on June 12,
2003, or thereafter on the date the Certificates are tendered for delivery, pursuant to the terms set forth in the Official
-Notice of Sale.
The undersigned agrees to complete, execute and deliver to the City, by the date of delivery of the Certificates, a
certificate relating to the "issue price" of the Certificates in the form and to the effect attached to or accompanying
the Official Notice of Sale, with such changes thereto as may be acceptable to the City and its Bond Counsel.
Respectfully submitted,
By
Authorized Representative
ACCEPTED this 12th day of May, 2003, the City. Council, City of Pearland, Texas.
Mayor
ATTEST
City Clerk
(For your information you will fmd attached a list of the group of purchasers associated with us in this proposal)
OFFICIAL BID FORM
Mayor and City Council
City of Pearland
3519 Liberty Drive
Pearland, Texas 77581
Gentlemen.
May 12, 2003
Subject to the terms of your Official Notice of Sale and Official Statement, dated April 30, 2003, which are
incorporated herein by reference, we hereby submit the following bid for the $19,650,000 THE CITY OF
PEARLAND, TEXAS, CERTIFICATES OF OBLIGATION, SERIES 2003, dated May 1, 2003 This offer is being
made for all said Certificates and for not less than all.
For said legally issued Certificates of Obligation, we will pay you the par value thereof, plus accrued interest from
their date to the date of delivery to us, plus a cash premium of $ for the Certificates maturing and
bearing interest per annum as follows:
Maturity Principal Interest Maturity Principal Interest
Date Amount Rate Date Amount Rate
March 1, 2004(a) $ 310,000 % March I, 2014(a)(b) $1,035,000
March 1, 2005(a) 340,000 March I, 2015(a)(b) 1,090,000
March 1, 2006(a) 370,000 March 1, 2016(a)(b) 1,145,000
March 1, 2007(a) 390,000 March 1, 2017(a)(b) 1,210,000
March 1, 2008(a) 415,000 March I, 2018(a)(b) 1,180,000
March 1, 2009(a) 435,000 March 1, 2019(a)(b) 1,240,000
March 1, 2010(a) 1,110,000 March 1, 2020(a)(b) 1,310,000
March 1, 2011(a) 1,175,000 March 1, 2021(a)(b) 1,380,000
March 1, 2012(a) 1,235,000 March 1, 2022(a)(b) 1,455,000
March 1, 2013(a) 1,295,000 March 1, 2023(a)(b) 1,530,000
(a) At the option of the Initial Purchaser, any or all of such serial maturities may be designated as term bonds
subject to mandatory sinking fund redemption as follows; provided that the mandatory sinking fund
amount in each year shall equal the amounts shown above as maturing in such year
Term Bonds Years of First
Maturity Date Mandatory
(March 1) Redemption
Principal Amount
of Term Certificates
Interest
Rate
(b) Subject to optional redemption and payment, at the option of the City, in whole or, from time to time, in
part, on March 1, 2013, or on any date thereafter at a price equal to the principal amount thereof, plus
accrued interest to the date fixed for redemption.
Interest cost, in accordance with the above bid, is:
Total Interest Cost from May 1, 2003. $
Less: Premium. $
NET INTEREST COST $
NET EFFECTIVE INTEREST RATE
The Initial Certificates shall be registered in the name of (syndicate manager). We
will advise Wells Fargo Bank Texas, N.A., in Houston, Texas the Paying Agent/Registrar, on forms to be provided
by the Paying Agent/Registrar and on registration instructions at least five business days prior to the date set for
initial delivery
Cashier's Check of the Bank, , Texas, in the amount of $393,000 which
represents our Good Faith Deposit (is attached hereto) or (has been made available to you prior to the opening of this
Bid), and is submitted in accordance with the terms as set forth in the "Official Notice of Sale" and "Official
Statement."
We agree to accept delivery of and make payment for the Initial Certificates in immediately available finnd.s at the
Corporate Trust Office, Wells Fargo Bank Texas, N.A., in Houston, Texas not later than 10.00 A.M., on June 12,
2003, or thereafter on the date the Certificates are tendered for delivery, pursuant to the terms set forth in the Official
Notice of Sale.
The undersigned agrees to complete, execute and deliver to the City, by the date of delivery of the Certificates, a
certificate relating to the "issue price" of the Certificates in the form and to the effect attached to or accompanying
the Official Notice of Sale, with such changes thereto as may be acceptable to the City and its Bond Counsel.
Respectfully submitted,
By
Authorized Representative
ACCEPTED this 12th day of May, 2003, the City Council, City of Pearland, Texas.
Mayor
ATTEST
City Clerk
(For your information you will find attached a list of the group of purchasers associated with us in this proposal)
CERTIFICATE REGARDING ISSUE PRICE
The undersigned hereby certifies with respect to the sale of $19,650,000 City of Pearland, Texas (the "Issuer"),
Certificates of Obligation, Series 2003 (the "Certificates"):
1 The undersigned is the underwriter or the manager of the syndicate of underwriters (the
"Underwriters") which has purchased the Certificates at competitive sale. In this capacity, the undersigned is
familiar with the facts stated herein.
2. The term "Initial Offering Prices" means the respective initial offering prices for the Certificates
(expressed as a dollar amount, yield percentage, or percentage of principal amount and exclusive of accrued interest)
as set forth in the following table:
Principal Principal
Amount Year of Offering Amount Year of Offering
Maturing Maturity Price Maturing Maturity Price
$ 310,000 March 1, 2004 % $1,035,000 March 1, 2014
340,000 March 1, 2005 % 1,090,000 March 1,.2015 %
370,000 March 1, 2006 % 1,145,000 March 1, 2016 %
390,000 March 1, 2007 % 1,210,000 March 1, 2017 %
415,000 March 1, 2008 % 1,180,000 March 1, 2018 %
435,000 March 1, 2009 % 1,240,000 March 1, 2019 %
1,110,000 March 1, 2010 % 1,310,000 March 1, 2020 %
1,175,000 March 1, 2011 % 1,380,000 March 1, 2021
1,235,000 March 1, 2012 % 1,455,000 March 1, 2022 %
1,295,000 March 1, 2013 % 1,530,000 March 1, 2023
3 The term "Sale Date" means the first day on which there was a binding contract in writing for the
sale of the Certificates by the Issuer to the Underwriters on specific terms that were not later modified or adjusted in
any material respect. In the case of the Certificates, the Sale Date is May 12, 2003
4 The term "Issue Date" means the first day on which there is physical delivery of the written
evidence of the Certificates in exchange for the purchase price (but not earlier than the day interest on the
Certificates begins to accrue for federal income tax purposes). In the case of the Certificates, the Issue Date is June
12, 2003
5 The term "Public" shall not include bond houses, brokers, and similar persons or organizations
acting in the capacity of wholesalers or underwriters.
6. Based on the actual facts and reasonable expectations in existence on the Sale Date, the Initial
Offering Price for each Certificate:
a. Represented the price (payable in cash, with no other consideration being included, and
exclusive of accrued interest), at which the Underwriters reasonably expected, as of the Sale Date, each
such Certificate would be sold to the Public; and
b. Did not exceed what the Underwriters believed to be the respective fair market value of
each such Certificate.
7 The Underwriters have purchased the Certificates for contemporaneous sale to the Public and not
for investment for their own account. Each of the Certificates has actually been offered to the Public at its respective
Initial Offering Price in a bona fide offering of all the Certificates and, as of the Issue Date, a substantial amount of
the Certificates (at least 10 percent) of each maturity has been sold to the Public in arm's length transactions for cash
prices (with no other consideration being included).
8. The accrued interest on the Certificates as of the Issue Date is $ The aggregate of
the respective Initial Offering Prices of all of the Certificates, without adjustmentfor any costs of issuance, is
9 The Underwriter [has] [has not] purchased bond insurance or another form of credit enhancement
("Guarantee") from securing the payment of the principal of, or interest on, any of the Bonds. With respect to the
Guarantee,
a. The provider of the Guarantee is (the "Guarantor").
b. The fee or premium paid to the Guarantor for the Guarantee is $ (the
"Premium"). The Premium is set forth in the Guarantor's commitment, does not exceed a reasonable charge
for the transfer of the credit risk provided, and does not include any direct or indirect payment or
compensation for any service other than the transfer of such credit risk. The Guarantor has not provided
any service other than the Guarantee, except for any such service for which the Guarantor has charged a
reasonable arm's length price which will be in addition to, and stated separately from, the Premium No
portion of the Premium is refundable upon the redemption or defeasance of any of the Certificates.
c. As a result of the Guarantee, the interest rates on the Bonds, as set forth above, are less
than those which would have been necessary in order to sell the bonds at the respective Initial Offering
Prices without the Guarantee. As of the Issue Date, the present value of such interest savings expected to
result from the Guarantee is greater than the present value of the Premium, using the yield on the Bonds
(computed for this purpose by treating the Premium as additional interest on the Certificates) as the discount
rate.
We understand that the Issuer will rely on the above in making certain representations to Andrews & Kurth L.L.P.,
Houston, Texas, Bond Counsel, and in complying with the conditions of the Internal Revenue Code of 1986, as
amended, and the Treasury Regulations in effect thereunder, necessary for interest on the Certificates to be and
remain excludable from gross income for federal income tax purposes.
EXECUTED and DELIVERED this , 2003
(Name of Underwriter or Manager)
By
Title:
CERTIFICATE REGARDING ISSUE PRICE
The undersigned hereby certifies with respect to the sale of $19,650,000 City of Pearland, Texas (the "Issuer"),
Certificates of Obligation, Series 2003 (the "Certificates"):
1 The undersigned is the underwriter or the manager of the syndicate of underwriters (the
"Underwriters") which has purchased the Certificates at competitive sale. In this capacity, the undersigned is
familiar with the facts stated herein.
2. The term "Initial Offering Prices" means the respective initial offering prices for the Certificates
(expressed as a dollar amount, yield percentage, or percentage of principal amount and exclusive of accrued interest)
as set forth in the following table:
Principal Principal
Amount Year of Offering Amount Year of Offering
Maturing Maturity Price Maturing Maturity Price
$ 310,000 March 1, 2004
340,000 March 1, 2005
370,000 March 1, 2006
390,000 March 1, 2007
415,000 March 1, 2008
435,000 March 1, 2009
1,110,000 March 1, 2010
1,175,000 March 1, 2011
1,235,000 March 1, 2012
1,295,000 March 1, 2013
$1,035,000 March 1, 2014 %
1,090,000 March 1,.2015 %
1,145,000 March 1, 2016 %
1,210,000 March 1, 2017 %
1,180,000 March 1, 2018 %
1,240,000 March 1, 2019 %
1,310,000 March 1, 2020 %
1,380,000 March 1, 2021 %
1,455,000 March 1, 2022 %
1,530,000 March 1, 2023
3 The term "Sale Date" means the first day on which there was a binding contract in writing for the
sale of the Certificates by the Issuer to the Underwriters on specific terms that were not later modified or adjusted in
any material respect. In the case of the Certificates, the Sale Date is May 12, 2003
4 The term "Issue Date" means the first day on which there is physical delivery of the written
evidence of the Certificates in exchange for the purchase price (but not earlier than the day interest on the
Certificates begins to accrue for federal income tax purposes). In the case of the Certificates, the Issue Date is June
12, 2003
5 The term "Public" shall not include bond houses, brokers, and similar persons or organisations
acting in the capacity of wholesalers or underwriters.
6. Based on the actual facts and reasonable expectations in existence on the Sale Date, the Initial
Offering Price for each Certificate:
a. Represented the price (payable in cash, with no other consideration being included, and
exclusive of accrued interest), at which the Underwriters reasonably expected, as of the Sale Date, each
such Certificate would be sold to the Public; and
b. Did not exceed what the Underwriters believed to be the respective fair market value of
each such Certificate.
7 The Underwriters have purchased the Certificates for contemporaneous sale to the Public and not
for investment for their own account. Each of the Certificates has actually been offered to the Public at its respective
Initial Offering Price in a bona fide offering of all the Certificates and, as of the Issue Date, a substantial amount of
the Certificates (at least 10 percent) of each maturity has been sold to the Public in arm's length transactions for cash
prices (with no other consideration being included).
8. The accrued interest on the Certificates as of the Issue Date is $ The aggregate of
the respective Initial Offering Prices of all of the Certificates, without adjustment for any costs of issuance, is
9 The Underwriter [has] [has not] purchased bond insurance or another form of credit enhancement
("Guarantee") from securing the payment of the principal of, or interest on, any of the Bonds. With respect to the
Guarantee,
a. The provider of the Guarantee is (the "Guarantor").
b. The fee or premium paid to the Guarantor for the Guarantee is $ (the
"Premium"). The Premium is set forth in the Guarantor's commitment, does not exceed a reasonable charge
for the transfer of the credit risk provided, and does not include any direct or indirect payment or
compensation for any service other than the transfer of such credit risk. The Guarantor has not provided
any service other than the Guarantee, except for any such service for which the Guarantor has charged a
reasonable arm's length price which will be in addition to, and stated separately from, the Premium. No
portion of the Premium is refundable upon the redemption or defeasance of any of the Certificates.
c. As a result of the Guarantee, the interest rates on the Bonds, as set forth above, are less
than those which would have been necessary in order to sell the bonds at the respective Initial Offering
Prices without the Guarantee. As of the Issue Date, the present value of such interest savings expected to
result from the Guarantee is greater than the present value of the Premium, using the yield on the Bonds
(computed for this purpose by treating the Premium as additional interest on the Certificates) as the discount
rate.
We understand that the Issuer will rely on the above in making certain representations to Andrews & Kurth L.L.P.,
Houston, Texas, Bond Counsel, and in complying with the conditions of the Internal Revenue Code of 1986, as
amended, and the Treasury Regulations in effect thereunder, necessary for interest on the Certificates to be and
remain excludable from gross income for federal income tax purposes.
EXECUTED and DELIVERED this , 2003
(Name of Underwriter or Manager)
By.
Title:
CERTIFICATE YEARS
Dated. May 1, 2003 Due: As shown below
Years
Maturity Certificate Cumulative
Date Amount Years Certificate Years
March 1, 2004 $ 310,000 258.3333 258.3333
March 1, 2005 340,000 623.3333 881 6667
March 1, 2006 370,000 1,048.3333 1,930 0000
March 1, 2007 390,000 1,495 0000 3,425 0000
March 1, 2008 415,000 - 2,005 8333 5,430 8333
March 1, 2009 435,000 2,537.5000 7,968.3333
March 1, 2010 1,110,000 7,585 0000 15,553.3333
March 1, 2011 1,175,000 9,204 1667 24,757.5000
March 1, 2012 1,235,000 10,909 1667 35,666.6667
March 1, 2013 1,295,000 12,734 1667 48,400.8333
March 1, 2014 1,035,000 11,212.5000 59,613.3333
March 1, 2015 1,090,000 12,898.3333 72,511 6667
March 1, 2016 1,145,000 14,694 1667 87,205.8333
March 1, 2017 1,210,000 16,738.3333 103,944 1667
March 1, 2018 1,180,000 17,503.3333 121,447.5000
March 1, 2019 1,240,000 19,633.3333 141,080.8333
March 1, 2020 1,310,000 22,051.6667 163,132.5000
March 1, 2021 1,380,000 24,610 0000 187,742.5000
March 1, 2022 1,455,000 27,402.5000 215,145 0000
March 1, 2023 1,530,000 30,345 0000 245,490 0000
AVERAGE MATURITY — 12.493 YEARS
PRELIMINARY OFFICIAL STATEMENT DATED APRIL 30, 2003
This Preliminary Official Statement is subject to completion and amendment. Upon sale of the Certificates, the Official
l i Statement will be completed and delivered to the Underwriter. Prospective purchasers must read the entire Official Statement to
make an informed investment decision.
75 0
o IN THE OPINION OF BOND COUNSEL, INTEREST ON THE CERTIFICATES IS EXCLUDABLE FROM GROSS INCOME
t .p, FOR FEDERAL INCOME TAX PURPOSES UNDER EXISTING LAW SUBJECT TO THE MATTERS DESCRIBED UNDER
B "TAX EXEMPTION" HEREIN, AND IS NOT INCLUDABLE IN THE ALTERNATIVE MINIMUM TAXABLE INCOME OF
n INDIVIDUALS. SEE "TAX EXEMPTION" FOR A DISCUSSION OF THE OPINION OF BOND COUNSEL, INCLUDING THE
ALTERNATIVE MINIMUM TAX ON CORPORATIONS.
1
4 . NEW ISSUE Ratings: Moody's Investors Service, Inc. " "
CO i Standard & Poor's Ratings Services "_"
4 o $19,650,000
s irl CITY OF PEARLAND
'o. " (A political subdivision of the State of Texas located within Brazoria and Harris Counties)
I.a CERTIFICATES OF OBLIGATION, SERIES 2003
Dated: May 1, 2003 Due: March 1, as shown below
ils Principal and interest on the $19,650,000 City of Pearland, Texas, Certificates of Obligation, Series 2003 (the "Certificates") are
g § payable by Wells Fargo Bank Texas, N.A., Houston, Texas, the paying agent/registrar (the "Paying Agent/Registrar"). The
o c Certificates are issued in fully registered form in principal denominations of $5,000 or any integral multiple thereof. Interest on
1 l the Certificates is payable on March 1 and September 1 of each year, commencing September 1, 2003, to the registered owners
.8 appearing on the registration books of the Paying Agent/Registrar on the 15th day of the month preceding each interest payment
.0 § date (the "Record Date"). Upon redemption the Certificates will be payable at a price equal to the principal amount thereof plus
accrued interest to the date of redemption. See "THE CERTIFICATES - Description" and "THE CERTIFICATES - Redemption
a 1 Provisions."
g . The Certificates are authorized by an ordinance (the "Ordinance") to be approved by City Council on May 12, 2003. The
Yt o Certificates, when issued, will constitute valid and binding obligations of the City of Pearland, Texas (the "City") and will be
payable from the proceeds of an annual ad valorem tax, levied within the limits prescribed by law, against taxable property within
g
the City and will be further payable from a limited junior and subordinate pledge of the Net Revenues (as defined in the
g o Ordinance) of the City's waterworks and sewer system (the "System") in an amount not to exceed $10,000. See "THE
. CERTIFICATES - Source of Payment."
6 : PRINCIPAL AMOUNTS, MATURITIES; INTEREST RATES AND PRICES
(Due March 1)
o g Initial Initial
% q Principal Interest Reoffering Principal Interest Reoffering
s
o Amount Maturity Rate Yield (a) Amount Maturity Rate Yield (a)
t;
8 0' $ 310,000 2004 % % $1,035,000 2014(b)
V I 340,000 2005 1,090,000 2015(b)
370,000 2006 1,145,000 2016(b)
§ 390,000 2007 1,210,000 2017(b)
s 3 415,000 2008 1,180,000 2018(b)
V i 435,000 2009 1,240,000 2019(b)
2I1,110,000 2010 1,310,000 2020(b)
'Li p 1,175,000 2011 1,380,000 2021(b)
8 2.8 1,235,000 2012 1,455,000 2022(b)
g °' 1,295,000 2013 1,530,000 2023(b)
111
-A ot i (a) The initial yields will be established by and are the sole responsibility of the Underwriter (as defined herein), and may
1 subsequently be changed.
e Ill (b) The Certificates maturing on or after March 1, 2014, are subject to redemption, at the option of the City, at the par value
thereof plus accrued interest, in whole or in part, on March 1, 2013, or any date thereafter. See
THE CERTIFICATES — Redemption Provisions."
The Certificates are offered when, as and if issued, subject to the approving opinion of the Attorney General of the State of Texas
o s and the opinion of Andrews & Kurth L.L.P., Houston, Texas, Bond Counsel to the City, as to the validity of the issuance of the
:I ,...0 Certificates under the Constitution and the laws of the State of Texas. See "LEGAL MATTERS" Delivery of the Certificates is
expected to be on or about June 12, 2003.
rE
SELLING: MONDAY, MAY 12, 2003
w
AT 5:00 P.M. C.D.S.T.
USE OF INFORMATION IN OFFICIAL STATEMENT
No dealer, broker, salesman or other person his been authorized by the City to give any information or to make any
representation 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
This Official Statement is not to be used in an offer to sell or the solicitation of an'offer to buy in any state in which
such offer or solicitation is not authorized or in which the person making such offer or solicitation is not qualified to
do so or to any person to whom it is unlawful to make such offer or solicitation.
This Official Statement contains, in part, estimates, assumptions and matters of opinion which are not intended as
statements of fact, and no representation is made as to the correctness of such estimates, assumptions or matters of
opinion or as to the likelihood that they will be realized. Any information and expressions of opinion herein
contained are subject to change without notice, and neither the delivery of this Official Statement nor any sale made
hereunder shall, under any circumstances, create any implication that there has been no change in the condition of
the City or other matters described herein since the date hereof.
The Underwriters have provided the following sentence for inclusion in this Official Statement. The Underwriters
have reviewed the information in this Official Statement in accordance with, and as part of, their responsibilities to
investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the
Underwriters do not guarantee the accuracy or completeness of such information.
TABLE OF CONTENTS
Page
USE OF INFORMATION IN OFFICIAL
STATEMENT ...... 1
INTRODUCTION ... ... ...... ... 3
SALE AND DISTRIBUTION OF THHE
CERTIFICATES .3
Sale of the Bonds 3
Prices and Marketability 3
Securities Laws 3
Municipal Bond Ratings 4
Municipal Bond Insurance. 4
OFFICIAL STATEMENT SUMMARY 5
INTRODUCTION .. .... ...... ...... 7
THE CERTIFICATES 7
Description. 7
Redemption Provisions 7
Paying Agent/Registrar 7
Successor Paying Agent/Registrar 8
Source of Payment 8
Authority for Issuance 8
Use of Proceeds. 8
Future Debt 8
Legal Investments in Texas 8
Remedies in the Event of Default. 9
INVESTMENT AUTHORITY AND
INVESTMENT OBJECTIVES OF THE
CITY 9
Legal Investments 9
Investment Policies 10
Current Investments 10
Additional Provisions 10
CITY TAX DEBT 11
11
General
Bonded Indebtedness Payable from Ad
Page
Valorem Taxes 11
Pro -Forma Debt Service Schedule 12
Estimated Overlapping Debt 13
Debt Ratios13
TAX DATA ... ....... 13
General 13
Property Tax Code and County -Wide
Appraisal District 13
Tax Rate Limitations 14
Property Subject to Taxation by the City 14
Notice and Hearing Procedures 15
Levy and Collection of Taxes. 15
Collection of Delinquent Taxes 15
Historical Analysis of Tax Collection 16
Analysis of Tax Base 17
Estimated Overlapping Taxes. 18
Sales Tax 18
SELECTED FINANCIAL DATA ...... ... 19
Historical Operations of the City's
General Fund. 19
General Fund and Debt Service Fund
Balance for the Past Five Fiscal
Years. .20
Pension Fund. 20
Financial Statements .20
ADMINISTRATION OF THE CITY 20
Mayor and City Council 20
Administration 21
Consultants 21
LEGAL MATTERS ........... ....Zl
Legal Opinions .21
No -Litigation Certificate. 22
No Material Adverse Change .22
TAX EXEMPTION ...
TAX TREATMENT OF ORIGINAL ISSUE
DISCOUNT AND PREMIUM
CERTIFICATES ... ...
Discount Certificates.
Premium Certificates
CONTINUING DISCLOSURE OF
INFORMATION ...
Annual Reports
Material Event Notices
. 22
. 23
23
24
....25
25
.25
Availability of Information From
NRMSIRs and SID• .25
Limitations and Amendments. 26
Audited Financial Report of the City .26
Compliance With Prior Undertakings .26
GENERAL CONSIDERATIONS 26
Sources and Compilation of Information .26
Certification as to Official Statement .27
Updating of Official Statement. .27
APPENDIX A - Economic and Demographic Characteristics of the City
APPENDIX B - Audited Financial Statements of the City
APPENDIX C - Form of Bond Counsel Opinion
2
INTRODUCTION
All of the summaries of the statutes, resolutions, ordinances, contracts, audits, engineering, and other related reports
set forth in this Official Statement are made subject to all of the provisions of such documents. These summaries do
not purport to be complete statements of such provisions, and reference is made to such documents, copies of which
are available from the City
This Official Statement contains, in part, estimates, assumptions, and matters of opinion which are not intended as
statements of fact and no representation is made as to the correctness of such estimates, assumptions, or matters of
opinion, or as to the likelihood that they will be realized. However, the City has agreed to keep this Official
Statement current by amendment or sticker to reflect material changes in the affairs of the City and to the extent that
information actually comes to its attention, the other matters described in this Official Statement until delivery of the
Certificates to the Underwriter and thereafter only as specified in "GENERAL CONSIDERATIONS - Updating of
Official Statement" and "CONTINUING DISCLOSURE OF INFORMATION "
SALE AND DISTRIBUTION OF THE CERTIFICATES
Sale of the Bonds
After requesting competitive bids for the. Certificates, the City has accepted the bid resulting in the lowest net
interest cost, which bid was tendered by a syndicate managed by ("Underwriter") to
purchase the Certificates bearing the interest rates shown on the cover page hereof under "PRINCIPAL AMOUNTS,
MATURITIES, INTEREST RATES AND PRICES" at a price of the par value thereof, plus a cash premium of
$ plus accrued interest to the date of delivery The net effective interest rate on the Certificates is %.
Prices and Marketability
The delivery of the Certificates is conditioned upon the receipt by the City of a certificate executed and delivered by
the Underwriter on or before the date of delivery of the Certificates stating the prices at which a substantial amount
of the Certificates of each maturity have been sold to the public. For this purpose, the term "public" shall not
include any person who is bondhouse, broker or similar person acting in the capacity of underwriter or wholesaler
The City has no control over trading of the Certificates after a bona fide offering of the Certificates is made by the
Underwriter at the yields specified on the cover page. Information concerning reoffering yields or prices is the
responsibility of the Underwriter
The prices and other terms respecting the offering and sale of the Certificates may be changed from time to time by
the Underwriter after the Certificates are released for sale, and the Certificates may be offered and sold at prices
other than the initial offering price, including sales to dealers who may sell the Certificates into investment accounts.
IN CONNECTION WITH THE OFFERING OF THE CERTIFICATES, THE UNDERWRITER MAY OVER -
ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE
CERTIFICATES AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
Securities Laws
For purposes of compliance with Rule 15c2-12 (the "Rule") of the Securities and Exchange Commission (the
"SEC"), this document, as may be supplemented or corrected by the City from time to time, may be treated as an
Official Statement with respect to the Certificates described herein "deemed fmal" by the City as of the date hereof
(or of any such supplement or correction) except for the omission of certain information referred to in the
succeeding sentence. This document, when further supplemented by adding information specifying the interest rates
and certain other information relating to the Certificates shall constitute a "FINAL OFFICIAL STATEMENT" of
the City with respect to the Certificates, as such term is defined in the Rule.
No registration statement relating to the Certificates has been filed with the SEC under the Securities Act of 1933, as
amended, in reliance upon the exemptions provided thereunder The Certificates have not been registered or
qualified under the Securities Act of Texas in reliance upon various exemptions contained therein; nor have the
Certificates been registered or qualified under the securities acts of any jurisdiction. The City assumes no
responsibility for registration or qualification of the Certificates under the securities laws of any jurisdiction in
which the Certificates may be offered, sold or otherwise transferred. This disclaimer of responsibility for
registration or qualification for sale or other disposition of the Certificates shall not be construed as an interpretation
of any kind with regard to the availability of any exemption from securities registration or qualification provision in
such jurisdictions.
3
Municipal Bond Ratings
In connection with the sale of the Certificates, the City has made application to Moody's Investors Service, Inc.
("Moody's") and Standard & Poor's Ratings Services ("S&P") for ratings and the ratings of "_" and "",
respectively, have been assigned to the Certificates. An explanation of the significance of such ratings may be
obtained from Moody's and S&P The ratings reflect only the views of Moody's and S&P, and the City makes no
representation as to the appropriateness of such ratings.
There is no assurance that such ratings will continue for any period of time or that they will not be revised
downward or withdrawn entirely by Moody's and/or S&P, if, in the judgment of Moody's and S&P, circumstances
so warrant. Any such downward revision or withdrawal of the ratings may have an adverse effect on the market
price of the Certificates.
Municipal Bond Insurance
The City has made application for municipal bond insurance under the bidder option program. The premium for
such insurance, if purchased, will be paid for by the Underwriter
4
OFFICIAL STATEMENT SUMMARY
The following material is a summary of certain information contained herein and is qualified in its entirety by the
detailed information and financial statements appearing elsewhere in this Official Statement. The reader should
refer particularly to sections that are indicated for more complete information.
The Issuer The City of Pearland, Texas (the "City") is a political subdivision and
home rule city of the State of Texas located primarily within Brazoria
and Harris Counties, Texas. See "ADMINISTRATION OF THE
CITY" and "APPENDIX A -Economic and Demographic
Characteristics of the City" herein.
The Certificates $19,650,000 Certificates of Obligation, Series 2003 (the "Certificates"),
are dated May 1, 2003 and mature March 1, 2004 through March 1,
2023 Interest on the Certificates accrues from May 1, 2003, and is
payable September 1, 2003, and on each March 1 and September 1
thereafter until maturity See "THE CERTIFICATES - Description."
Other Characteristics The Certificates are issued in fully registered form in integral multiples
of $5,000 The Certificates maturing on or after March 1, 2014 are
subject to redemption prior to their scheduled maturities on March 1,
2013 or any date thereafter at the option of the City Upon redemption
the Certificates will be payable at a price equal to the principal amount
thereof plus accrued interest to the date of redemption. See "THE
CERTIFICATES - Description of the Certificates" and "THE
CERTIFICATES - Redemption Provisions."
Paying Agent/Registrar The initial paying agent/registrar is Wells Fargo Bank Texas, N.A.,
Houston, Texas (the "Paying Agent/Registrar"). See "THE
CERTIFICATES - Paying Agent/Registrar "
Source of Payment Principal of and interest on the Certificates are payable from the
proceeds of a continuing, direct annual ad valorem tax, levied within
the limits prescribed by law against taxable property located within the
City and will be further payable from a limited junior and subordinate
pledge of the Net Revenues (as defined in the Ordinance) of the City's
waterworks and sewer system (the "System") in an amount not to
exceed $10,000. See "THE CERTIFICATES - Source of Payment."
Use of Proceeds Proceeds from the sale of the Certificates will be used for the
acquisition, construction and improvement of certain public works and
pay costs of issuance.related hereto. See "THE CERTIFICATES - Use
of Proceeds."
Ratings Moody's Investors Service, Inc.
Standard & Poor's Ratings Services
Payment Record. The City has never defaulted on the timely payment of principal of and
interest on its obligations.
5
- Selected Financial Information -
(Unaudited)
The Certificates
2002 Certified Assessed Valuation (100% of estimated market value) $2,171,317,975
Direct Debt:
Outstanding Bonds and Certificates (as of April 1, 2003). $ 79,715,000
The Certificates 19,650,000
The Bonds. 15,000.000 (b)
Total Direct Debt. $ 114,365,000
Estimated Overlapping Debt. $ 179,470,120
Direct and Estimated Overlapping Debt $ 293,83 ,120
Debt Service Fund Balance (as of April 1, 2003) $ 3,951,826 (c)
% of 2002 Per
Assessed Capita
Valuation (43,103)
Debt Ratios:
Direct Tax Supported Debt 5.27% $2,653
Direct Tax Supported and Estimated
Overlapping Debt 13.53% $6,817
2002 Tax Rate (per $100 of Assessed Valuation)
Maintenance and Operation. $0 406
Debt Service 0.280
Total $0.686
Estimated Annual Debt Service Requirements:
Average (Fiscal Years 2003-2028). $ 6,195,346
Maximum (2007) $ 7,985,158
Tax Collections:
Arithmetic Average, Tax Years (1996/2001) - Current Years
- Current and Prior Years
97.84 %
99.20 %
(a) Provided by the Brazoria County Appraisal District (the "Appraisal District") and net of exemptions. See
"TAX DATA."
(b) Concurrently with the issuance of the Certificates, the City anticipates issuing $15,000,000 Permanent
Improvement Bonds, Series 2003 (the "Bonds"). See "CITY TAX DEBT," herein.
(c) Includes the City's remaining debt service requirements due in 2003 on Outstanding Bonds and Certificates of
Obligation in the aggregate amount of $1,602,587 to be paid September 1, 2003
6
INTRODUCTION
This Official Statement and the Appendices hereto provide certain information with respect to the issuance by the
City of Pearland, Texas (the "City") of its $19,650,000 Certificates of Obligation, Series 2003 (the "Certificates").
The Certificates are issued pursuant to the Texas Constitution, the general laws of the State of Texas, and an
Ordinance authorizing issuance of the Certificates (the "Ordinance") adopted by the City Council of the City (the
"Council").
This Official Statement describes the Certificates, the plan of financing, and certain information about the City and
its finances. All descriptions of documents contained herein are only summaries and are qualified in their entirety
by reference to each such document and speak only as of the date of this Official Statement. Copies of such
documents may be obtained from the City upon request. Certain capitalized terms used in this Official Statement
have the same meanings assigned to such terms in the Ordinance, except as otherwise indicated herein.
THE CERTIFICATES
Description
The Certificates are dated May 1, 2003, bear interest from such date at the stated interest rates indicated under
"PRINCIPAL AMOUNTS, MATURITIES, INTEREST RATES AND PRICES," which interest is payable
September 1, 2003, and each September 1 and March 1 thereafter until maturity or prior redemption. The
Certificates are issued in fully registered form in denominations of $5,000 each or any multiple thereof. Principal of
the Certificates is payable at the principal payment office of Wells Fargo Bank Texas, N.A., Houston, Texas (the
"Paying Agent/Registrar"). Interest on the Certificates will be payable by check, dated as of the interest payment
date, and mailed by the Paying Agent/Registrar to registered owners as shown on the records of the Paying
Agent/Registrar See "THE CERTIFICATES - Paying Agent/Registrar "
The Certificates are transferable only on the bond register kept by the Paying Agent/Registrar upon surrender and
reissuance. The Certificates are exchangeable for an equal principal amount of Certificates of the same maturity in
any authorized denomination upon surrender of the Certificates to be exchanged at the principal payment office of
the Paying Agent/Registrar No service charge will be made for any transfer, but the City may require payment of a
sum sufficient to cover any tax or governmental charge payable in connection therewith.
The record date (the "Record Date") for the interest payable on any interest payment date means the 15th day of the
month next preceding such interest payment date.
It will be required that all transfers be made within three business days after request and presentation.
The City has agreed to replace mutilated, destroyed, lost or stolen Certificates upon surrender of the mutilated
Certificates, or receipt of satisfactory evidence of such destruction, loss or theft, and receipt by the City and the
Paying Agent/Registrar of security or indemnity to keep them harmless. The City may require payment of taxes,
governmental charges and other expenses in connection with any such replacement.
Redemption Provisions
The Certificates maturing on March 1, 2014 and thereafter are subject to optional redemption prior to maturity, in
whole or in part, on March 1, 2013, or any date thereafter, at the option of the City at a price equal to the principal
amount thereof plus accrued interest to the date of redemption. If less than all of the Certificates are to be redeemed
at any time, the maturities of the Certificates to be redeemed shall be selected by the City
The Ordinance requires that notice of any redemption, identifying the Certificates or portions thereof to be
redeemed, must be given by the Paying Agent/Registrar to the registered owners thereof by first class mail, postage
prepaid, at least 30 days prior to the redemption date.
Paying Agent/Registrar
The initial Paying Agent/Registrar is Wells Fargo Bank Texas, N.A., Houston, Texas. The Certificates are being
issued in fully registered form in integral multiples of $5,000 of principal amount. Interest on the Certificates will
be payable semiannually by the Paying Agent/Registrar by check mailed on each interest payment date by the
Paying Agent/Registrar to the registered owner at the last known address as it appears on the Paying
Agent/Registrar's books on the Record Date.
7
Successor Paying Agent/Registrar
Provision is made in the Ordinance for replacing the Paying Agent/Registrar If the City replaces the Paying
Agent/Registrar, such Paying Agent/Registrar shall, promptly upon the appointment of a successor, deliver the
Paying Agent/Registrar's records to the successor paying agent/registrar (the "Successor Paying Agent/Registrar"),
and the Successor Paying Agent/Registrar shall act in the same, capacity as the previous Paying Agent/Registrar
Any Successor Paying Agent/Registrar selected by the City shall, be a commercial bank or trust company organized
under the laws of the United States or any state and duly qualified and legally authorized to serve and perform the
duties of the Paying Agent/Registrar for the Certificates.
Source of Payment
The Certificates, are payable as to principal and interest from, and secured by, the proceeds of a continuing, direct
annual ad valorem tax, levied within the limits prescribed by law, against taxable property within the City The
Certificates will be further payable from a limited junior and subordinate pledge of Net Revenues (as defined in the
Ordinance) of the City's waterworks and sewer system (the "System") in an amount not to exceed $10,000 In the
Ordinance the City covenants that while the Certificates are outstanding, it will levy, assess and undertake to collect
such tax. See "TAX DATA - Tax Rate Limitations" and "THE CERTIFICATES - Remedies in the Event of
Default."
Authority for Issuance
The Certificates are being issued pursuant to the applicable provisions of the Constitution and laws of the State of
Texas, particularly Sections 271.041-271.065, Texas Local Government Code, as amended, and the provisions of
the Ordinance, which specifically authorizes the sale and issuance of the Certificates. Further reference to the
Ordinance is hereby made. No election was required as a prerequisite to the sale and issuance of the Certificates, as
a petition signed by 5% of the qualified voters of the City was not filed with the City Secretary protesting the
issuance of such Certificates prior to the authorization of their issuance.
Use of Proceeds
Proceeds of the Certificates are being used for (1) certain City-wide road and drainage projects, (2) City-wide water
meter replacement, (3) purchase of certain equipment, (4) certain improvements at Independence Park and the City's
service center, and (5) to pay the costs of issuance of the Certificates, including the Financial Advisor's fee and
Bond Counsel's fee, both of which is contingent upon the sale of the Certificates, as well as other administrative
costs incurred.
Future Debt
Concurrently with the issuance of the Certificates, the City anticipates issuing $15,000,000 Permanent Improvement
Bonds, Series 2003 (the "Bonds"). After the issuance of the Bonds the City will have $75,000,000 authorized but
unissued bonds. The City plans to issue such authorized bonds in annual installments over the next four years. The
City may also issue additional certificates of obligation for City projects. Depending on the rate of development
within the City, changes in assessed valuation, and the amounts, interest rates, maturities and time of issuance of
additional certificates of obligation or bonds, increases in the City's annual ad valorem tax rate may be required to
provide for the payment of the principal of and interest on the City's outstanding bonds (including the Bonds), the
Certificates, and such future certificates of obligation or bonds.
Legal Investments in Texas
The Public Security Procedures Act provides that the Certificates are negotiable instruments, are investment
securities to which Chapter 8, Texas Business and Commerce Code applies, and are legal and authorized
investments for insurance companies, for fiduciaries or trustees and for a sinking fund of a municipality or other
political subdivision or public agency of the State of Texas.
Texas law further provides that the Certificates are eligible to secure deposits of any public funds of the state, its
agencies or political subdivisions and are lawful and sufficient, security for those deposits to the extent of their
market value. For political subdivisions in the State which have adopted investment policies and guidelines in
accordance with the Public Funds Investment Act (Texas Government Code, Chapter 2256), the Certificates may
have to be assigned a rating of "A" or its equivalent as to investment quality by a national rating agency before such
obligations are eligible investments for sinking funds and other public funds.
8
The City has not made any investigations of any other laws, rules, regulations or investment criteria that might affect
the suitability of the Certificates for any of the above purposes or limit the authority of any of the above entities or
persons to purchase or invest in the Certificates.
Remedies in the Event of Default
The Ordinance requires the City to assess and collect ad valorem taxes each year sufficient to pay principal and
interest when due on the Certificates. The Ordinance does not provide any other security for the payment of the
Certificates (other than the limited, subordinate Net Revenue pledge described above), or any express remedies in
the event of default, makes no provision for acceleration of maturity of the Certificates in the event of default, and
does not provide for a trustee to protect the rights of the holders of the Certificates.
Although a holder of the Certificates could presumably obtain judgment against the City in the event of default in
the payment of principal or interest on the Certificates, such judgment could not be satisfied by execution against
any property of the City A holder of the Certificates could, in the event of default, ask a court for a mandamus or
court order compelling the City to levy, assess and collect sufficient ad valorem taxes to pay principal of and interest
on the Certificates as it falls due. Such remedy might need to be enforced on a periodic basis. The enforcement of a
claim for payment of principal or interest on the Certificates would be subject to judicial discretion, sovereign police
powers and the applicable provisions of the federal bankruptcy laws and to any other similar laws affecting the
rights of political subdivisions generally
INVESTMENT AUTHORITY AND INVESTMENT OBJECTIVES OF THE CITY
The City invests its investable funds in investments authorized by Texas law in accordance with investment policies
approved by the City Council of the City Both state law and the City's investment policies are subject to change.
Legal Investments
Current Texas law provides the City with authority to invest in: (1) obligations of the United States or its agencies
and instrumentalities, (2) direct obligations of the State of Texas or its agencies and instrumentalities,
(3) collateralized mortgage obligations directly issued by a federal agency or instrumentality of the United States,
the underlying security for which is guaranteed by an agency or instrumentality of the United States, (4) other
obligations, the principal of and interest on which are unconditionally guaranteed or insured by, or backed by the
full faith and credit of, the State of Texas or the United States or their respective agencies and instrumentalities,
(5) obligations of states, agencies, counties, cities, and other political subdivisions of any state rated as to investment
quality by a nationally recognized investment rating firm not less than A or its equivalent, (6) certificates of deposit
that are issued by a state or national bank domiciled in the State of Texas, a savings bank domiciled in the State of
Texas, or a state or federal credit union domiciled in the State of Texas and are guaranteed or insured by the Federal
Deposit Insurance Corporation or the National Credit Union Share Insurance Fund or are secured as to principal by
obligations described in the preceding clauses or in any other manner and amount provided by law for City deposits,
(7) fully collateralized repurchase agreements that have a defined termination date, are fully secured by obligations
described in clause (1), and are placed through a primary government securities dealer or a financial institution
doing business in the State of Texas, (8) certain bankers' acceptances with the remaining term of 270 days or less, if
the short-term obligations of the accepting bank or its parent are rated at least A-1 or P-1 or the equivalent by at least
one nationally recognized credit rating agency, (9) commercial paper with a stated maturity of 270 days or less that
is rated at least A-1 or P-1 or the equivalent by either (a) two nationally recognized credit rating agencies or (b) one
nationally recognized credit rating agency if the paper is fully secured by an irrevocable letter of credit issued by a
U.S. or state bank, (10) no-load money market mutual funds registered with the Securities and Exchange
Commission that have a dollar -weighted average stated maturity of 90 days or less and include in their investment
objectives the maintenance of a stable net asset value of $1 for each share, (11) no-load mutual funds registered -with
the Securities and Exchange Commission that have an average weighted maturity of less than two years, invest
exclusively in the foregoing obligations and are continuously rated as to investment quality by at least one nationally
recognized investment rating firm of no less than AAA or its equivalent, (12) bonds issued, assumed, or guaranteed
by the State of Israel, and (13) guaranteed investment contracts that have a defined termination date and are secured
by obligations described in clause (1) above in an amount at least equal to the amount of bond proceeds invested
under such contract.
The City may invest in such obligations directly or through government investment pools that invest solely in such
obligations provided that the pools are continuously rated no lower than AAA or AAA-m or an equivalent by at least
one nationally recognized rating service. The City is specifically prohibited from investing in: (1) obligations whose
payment represents the coupon payments on the outstanding principal balance of the underlying mortgage -backed
9
security collateral and pays no principal, (2) obligations whose payment represents the principal stream of cash flow
from the underlying mortgage -backed security and bears no interest; (3) collateralized mortgage obligations that
have a stated final maturity of greater than 10 years; and (4) collateralized mortgage obligations the interest rate of
which is determined by an index that adjusts opposite to the changes in the market index.
Investment Policies
Under Texas law, the City is required to invest its funds under written investment policies that primarily emphasize
safety of principal and liquidity; that address investment diversification, yield, maturity, and the quality and
capability of investment management; and that includes a list of authorized investments for City funds, maximum
allowable stated maturity of any individual investment and the maximum average dollar -weighted maturity allowed
for pooled fund groups. All City funds must be invested consistent with a formally adopted "Investment Strategy
Statement" that specifically addresses each fund's investment. Each Investment Strategy Statement will describe its
objectives concerning: (1) suitability of investment type, (2) preservation and safety of principal, (3) liquidity, (4)
marketability of each investment, (5) diversification of the portfolio, and (6) yield.
Under Texas law, City investments must be made "with judgment and care, under prevailing circumstances, that a
person of prudence, discretion, and intelligence would exercise in the management of the person's own affairs, not
for speculation, but for investment, considering the probable safety of capital and the probable income to be
derived." At least quarterly, the investment officers of the City shall submit an investment report detailing: (1) the
investment position of the City; (2) the beginning market value, any additions and changes to market value and the
ending market value for each pooled fund group, (3) the book value and market value of each separately listed asset
at the beginning and end of the reporting period, (4) the maturity date of each separately invested asset, (5) the
account or fund or pooled fund group for which each individual investment was acquired, and (6) the compliance of
the investment portfolio as it relates to: (a) adopted investment strategy statements and (b) state law No person may
invest City funds without express written authority from the City Council.
The City's policies require investments in accordance with applicable state law The City's Statement of Investment
Policy does not exclude any investments allowable under State 'law described above under "Legal Investments."
The City generally invests in certificates of deposit, money market accounts and obligations of the United States or
its agencies and instrumentalities.
Current Investments
The City's investment balances on March 31, 2003 were as follows:
Principal Market Book
Amount Value Value
Repurchase Agreements $ 970,077 $ 970,077 $ 970,977
Money Market Funds 11,368,393 11,368,393 11,368,393
Government Securities 12,920,000 12,891,492 12,850,248
Certificates of Deposit 14,361,628 14,361,628 14,361,628
Investment Pool 25,530,631 25,530,631 25,530,631
Total Portfolio $65,150,729 $65,122,222 $65,110,978
Additional Provisions
Under Texas law, the City is additionally required to: (1) annually review its adopted policies and strategies; (2)
require any investment officers with personal business relationships or relatives with firms seeking to sell securities
to the entity to disclose the relationship and file a statement with 'the Texas Ethics Commission and the Mayor and
Council, (3) require the registered principal of firms seeking to sell securities to the City to: (a). receive and review
the City's investment policy, (b) acknowledge that reasonable controls and procedures have been implemented to
preclude imprudent investment activities, and (c) deliver a written statement attesting to these requirements; (4)
perform and annual audit of the management controls on investments and adherence to the City's investment policy;
(5) provide specific investment training for the Treasurer, Chief Financial Officer and investment officers; (6)
restrict reverse repurchase agreements to not more than 90 days and restrict the investment of reverse repurchase
agreement funds to no greater than the term of the reverse repurchase agreement; (7) restrict the investment in
money market mutual funds in the aggregate to no more than 80% of the City's monthly average fund balance,
excluding bond proceeds and reserves and other funds held for debt service, and further restrict the investment in
10
non -money market mutual funds to not more than 15% of the City's monthly average fund balance, excluding bond
proceeds and reserves and other funds held for debt service; and (8) require local government investment pools to
confirm to the new disclosure, rating, net asset value, yield calculation, and advisory board requirements.
CITY TAX DEBT
General
The following tables and calculations relate to the Certificates and to all other tax supported debt of the City In
addition to outstanding certificates and bonds, the City also has issued revenue bonds and has incurred contractual
and other indebtedness and liabilities which are not included below The City and various other political
subdivisions of government which overlap all or a portion of the City are empowered to incur debt to be paid from
revenues raised or to be raised by taxation against all or a portion of property within the City
Bonded Indebtedness Payable from Ad Valorem Taxes
2002 Certified Assessed Valuation (100% of estimated market value). $2,171,317,975 (a)
Direct Debt:
Outstanding Debt (as of April 1, 2003) $ 79,715,000
The Certificates. 19,650,000
The Bonds 15,000,000 (b)
Total Direct Debt. $ 114,365,000
Debt Service Fund Balance (as of April 1, 2003) $ 3,951,826
(a) 'Provided by the Brazoria County Appraisal District (the "Appraisal District") and net of exemptions. See
"TAX DATA."
(b) Concurrently with the issuance of the Certificates, the City anticipates issuing $15,000,000 Permanent
Improvement Bonds, Series 2003 (the "Bonds"). See "CITY TAX DEBT," herein.
(c) Includes the City's remaining debt service requirements due in 2003 on Outstanding Bonds and Certificates of
Obligation in the aggregate of $1,602,587 to be paid September 1, 2003
11
Pro -Forma Debt Service Schedule
The following sets forth the principal and interest on the City's Outstanding Debt and the Certificates.
Fiscal
Year Plus: Debt Total Debt
Ending Outstanding Plus: The Certificates (b) Service on Service
9/30 Debt (a) Principal Interest the Bonds (c) Requirement
2003 $ 5,544,806 $ 333,083 $ 250,000 $ 6,127,889
2004 5,620,374 $ 310,000 992,175 750,000 7,672,549
2005 5,809,314 340,000 977,331 847,500 7,974,145
2006 5,791,654 370,000 961,138 852,250 7,975,041
2007 5,794,801 390,000 943,856 856,500 7,985,158
2008 5,784,201 415,000 925,619 860,250 7,985,070
2009 5,593,204 435,000 906,456 863,500 7,798,160
2010 4,738,284 1,110,000 869,306 1,046,625 7,764,215
2011 4,727,749 1,175,000 812,994 1,044,500 7,760,243
2012 4,725,714 1,235,000 753,625 1,046,500 7,760,839
2013 4,727,766 1,295,000 691,269 1,047,500 7,761,535
2014 4,739,984 1,035,000 632;269 1,047,500 7,454,753
2015 4,757,559 1,090,000 576;694 1,051,375 7,475,628
2016 4,758,018 1,145,000 518,238 1,049,125 7,470,380
2017 3,474,230 1,210,000 456,638 1,289,625 6,430,493
2018 3,483,358 1,180,000 394,013 1,292,375 6,349,745
2019 2,852,375 1,240,000 330,488 1,293,125 5,715,988
2020 2,856,875 1,310,000 263,550 1,291,875 5,722,300
2021 2,865,625 1,380,000 192,938 1,288,625 5,727,188
2022 2,878,125 1,455,000 118,519 1,293,125 5,744,769
2023 1,811,625 1,530,000 40,163 1,290,250 4,672,038
2024 1,817,375 1,290,000 3,107,375
2025 1,819,125 1,292,125 3,111,250
2026 1,826,625 1,291,500 3,118,125
2027 1,829,625 1,293,000 3,122,625
2028 1,291,500 1,291,500
Total $100,628,391 $19,650,000 $12,690,362 $28,110,250 $161,079,001
(a) Excludes $17,000,000 Certificates of Obligation, Series 1998 which are self-supporting.
(b) Interest estimated at 5.50% for illustration purposes.
(c) Concurrently with the issuance of the Certificates, the City anticipates issuing $15,000,000 Permanent
Improvement Bonds, Series 2003 (the "Bonds").
Estimated Average Annual Requirements (2003-2028) $6,195,346
Estimated Maximum Annual Requirement (2007) $7,985,158
12
Estimated Overlapping Debt
The following table indicates the indebtedness, defined as outstanding obligations payable from ad valorem taxes, of
governmental entities overlapping the City and the estimated percentages and amounts of such indebtedness
attributable to property within the City This information is based upon data secured from the individual
jurisdictions and/or the Texas Municipal Reports. Such figures do not indicate the tax burden levied by the
applicable taxing jurisdictions for operation and maintenance or for other purposes. The City has not independently
verified the accuracy or completeness of the information shown below except for amounts related to the City
Taxing Jurisdiction
Brazoria County
Brazoria County MUD No. 17
Brazoria County MUD No. 18
Brazoria County MUD No. 19
Fort Bend County
Pearland ISD
Harris County
Harris County Flood Control District
Port of Houston Authority
TOTAL ESTIMATED OVERLAPPING
The City
Total Direct and Estimated Overlapping Debt
Debt Ratios
Debt as of Overlapping
April 1, 2003 Percent Amount
$ 25,955,000
14,885,000
17,070,000
13,900,000
84,670,000
179,276,130
1,195,546,590
92,089,985
324,595,000
6.97%
100.00
99.86
100.00
0.01
73.35
0.02
0 02
0.02
$ 1,809,064
14,885,000
17,046,102
13,900,000
8,467
131,499,041
239,109
18,418
64,919
$179,470,120
114,365,000
$293,835,120
Direct and
Direct Debt Overlapping Debt
Per 2002 Certified Assessed Valuation ($2,171,317,975) 5.27% 13.53%
Per Capita (42,103) $2,653 $6,817
TAX DATA
General
One of the City's principal sources of operational revenue and its principal source of funds for debt service payments
is the receipts from ad valorem taxation. See "SELECTED FINANCIAL DATA" The following is a recapitulation
of (a) the Texas Property Tax Code, including methodology, limitations, remedies and procedures; (b) historical
analysis of collection and trends of tax receipts and provisions for delinquencies; (c) an analysis of the tax base,
including relative property composition, principal taxpayers and adequacy of the tax base to service debt
requirements; and (d) taxation that may add to the City's taxpayers' tax costs.
Property Tax Code and County -Wide Appraisal District
The Texas Property Tax Code (the "Property Tax Code") establishes for each county in Texas a single appraisal
district with responsibility for recording and appraising property for all taxing units within the county, and a single
appraisal review board, with responsibility for reviewing and equalizing the values established by the appraisal
district. The Property Tax Code requires the appraisal district, by May 15 of each year, or as soon thereafter as
practicable, to prepare appraisal records of property as of January 1 of each year based upon market value. The chief
appraiser must give written notice before May 15, or as soon thereafter as practicable, to each property owner whose
property value is appraised higher than the prior tax year or the value rendered by the property owner or whose
property was not on the appraisal roll the preceding year or whose property was reappraised in the current tax year
Notice must also be given if ownership of the property changed during the preceding year The appraisal review
board has the ultimate responsibility for determining the value of all taxable property within the City; however, any
property owner who has timely filed notice with the appraisal review board may appeal a fmal determination by the
appraisal review board by filing suit in a Texas district court. Prior to such appeal or any tax delinquency date,
however, the property owner must pay the tax due on the value of that portion of the property involved that is not in
13
dispute or the amount of tax imposed in the prior year, whichever is greater, or the amount of tax due under the
order from which the appeal is taken. In such event, the value of the property in question will be determined by the
court, or by a jury, if requested by any party In addition taxing units such as the City are entitled to challenge
certain matters before the appraisal review board, including the level of appraisals of a certain category of property,
the exclusion of property from the appraisal records or the grant in whole or in part of an exemption. A taxing unit
may not, however, challenge the valuation of individual properties.
Although the City has the responsibility for establishing tax rates and levying and collecting its taxes each year,
under the Property Tax Code the City does not establish appraisal standards or determine the frequency of
revaluation or reappraisal. The appraisal district is governed by a board of directors elected by the governing bodies
of the county and all cities, towns, school districts and, if entitled to vote, the conservation and reclamation districts
that participate in the appraisal district. The Property Tax Code requires each appraisal district to implement a plan
for periodic reappraisal of property to update appraised values. Such plan must provide for reappraisal of all real
property in the appraisal district at least once every three years. It is not known what frequency of reappraisals will
be utilized by the Brazoria County Appraisal District or whether reappraisals will be conducted on a zone or
county -wide basis.
Tax Rate Limitations
Article XI, Section 5 of the Texas Constitution, provides for an overall limitation for Home Rule Cities of $2.50 per
$100 assessed valuation. The Attorney General of Texas follows a policy, with respect to Home Rule Cities which
have such a $2.50 limitation, of approving ad valorem tax bonds only to the extent that all of such city's ad valorem
tax debt can be serviced by a debt service tax rate of $1.50 at 90% collection.
Property Subject to Taxation by the City
Except for certain exemptions provided by Texas law, all real and tangible personal property and certain categories
of intangible personal property with a tax situs in the City are subject to taxation by the City; however, no effort is
expected to be made by the Brazoria County Appraisal District to include on the tax roll tangible or intangible
personal property not devoted to commercial or industrial use. Principal categories of exempt property include:
property owned by the State of Texas or its political subdivisions; property used for public purposes; property
exempt from ad valorem taxation by federal law; certain household goods, family supplies, and personal effects;
farm products owned by the producer; certain property owned by charitable organizations, youth development
associations, religious organizations, and qualified schools; designated historical sites; solar and wind -powered
energy devices; most individually -owned automobiles; and property of disabled veterans, only to the extent of
$3,000 of taxable property In addition, taxpayers who are over 65 years of age are entitled to apply for an
additional exemption from market value of their residential homestead of $25,000. These over 65 exemptions and
disabled veterans exemptions amounted to $66,413,223 from the 2002 tax roll.
The state constitution permits local governments the option of granting homestead exemptions of up to 20% of
market value. The City has not granted such additional homestead exemption for the 2002 tax year
An eligible owner of agricultural and timberland may apply to have such properties which meet certain requirements
appraised on the basis of productivity value or market value, whichever is less. The loss of value due to property
values based on productivity value on the 2002 tax roll was approximately $42,789,750.
The City has authority to enter into tax abatement agreements to encourage economic development. Under such
agreements, a property owner agrees to construct certain improvements on its property The City in turn agrees not
to levy a tax on all or part of the increased value attributable to the improvements until the expiration of the
agreement. Such abatement agreement may last for a period of up to 10 years. The City has $16,257,530 of such
property that was subject to abatement on January 1, 2002.
The constitution of the State of Texas authorizes a property tax exemption for certain business personal property
The City Council had the option to take official action to override, the exemption and to continue taxing the property
exempted by the amendment. On December 18, 1989, the City's City Council took such official action not to tax the
property in 1990 and to allow the exemption for 1991 and all future years. This Freeport Goods exemption
amounted to $22,012,030 on the 2002 tax roll.
14
Notice and Hearing Procedures
The Property Tax Code establishes procedures for providing notice and the opportunity for a hearing for taxpayers
in the event of certain proposed tax increases and provides for taxpayer referenda which could result in the repeal of
certain tax increases. The Property Tax Code also establishes a procedure for notice to property owners of
reappraisals reflecting increased property values over $1,000, appraisals which are higher than renditions, and
appraisals of property not previously on an appraisal roll.
Levy and Collection of Taxes
The City is responsible for the collection of its taxes, unless it elects to transfer such functions to another
governmental entity Before the later of September 30 or the 60th day after the date the certified appraisal roll is
received by the City, the rate of taxation is set by the City Council based upon the valuation of property within the
City as of the preceding January 1 and the amount required to be raised for debt service, maintenance purposes and
authorized contractual obligations.
The City Council may under certain circumstances be required to advertise and hold a public hearing within the City
on a proposed tax rate before the City Council can hold a public meeting to vote on the tax rate. If the tax rate
adopted exceeds by more than 8% the rate needed to pay debt service and certain contractual obligations and to
produce, when applied to the property which was on the prior year's roll, the prior year's total taxes levied for
purposes other than debt service and such contractual obligations (the "rollback rate"), such excess portion of the
levy may, subject to constitutional restrictions on the impairment of existing obligations, be repealed at an election
within the City held upon petition of 10% of the City's qualified voters and the tax rate adopted for the current year
be reduced to the rollback rate.
The City is prohibited from adopting a tax rate that exceeds the lower of the rollback tax rate or 103 percent of the
"effective tax rate!' until it has held a public hearing on the proposed tax rate and has otherwise complied with the
Property Tax Code. Reference is made to the Property Tax Code for defmitive requirements for the levy and
collection of ad valorem taxes and the calculation of the various defined tax rates.
Taxes are due on receipt of the tax bill, and become delinquent after January 31 of the following year, or on the first
day of the calendar month next following the expiration of twenty-one (21) days after mailing of the tax bills,
whichever occurs later A delinquent tax account incurs an initial penalty of six percent (6%) of the amount of the
tax and accrues an additional penalty of one percent (1%) per month up to July 1, at which time the total penalty
becomes twelve percent (12%). In addition, delinquent taxes accrue interest at one percent (1%) per month. If the
tax is not paid by July 1, an additional penalty of up to fifteen percent (15%) may under certain circumstances be
imposed by the City The Property Tax Code also makes provision for the split payment of taxes, discounts for early
payments, partial payments of taxes and the postponement of the delinquency date of taxes under certain
circumstances. The City does not permit such payments, except for those property owners who are over the age of
65 as provided in the Property Tax Code.
Collection of Delinquent Taxes
Taxes levied by the City are a personal obligation of the property owner on January 1 of the year for which the tax is
imposed. On January 1 of each year, a tax lien attaches to property to secure the payment of all taxes, penalties and
interest ultimately imposed for the year on the property The lien exists in favor of the State and each taxing unit,
including the City, having the power to tax the property The City's tax lien is on a parity with tax liens of all other
such taxing units. A tax lien on real property has priority over the claim of most creditors and other holders of liens
on the property encumbered by the tax lien, whether or not the debt or lien existed before the attachment of the tax
lien. In the event a taxpayer fails to make timely payment of taxes due the City, the City may file suit to foreclose its
lien securing payment of the tax, to enforce personal liability for the tax, or both. Whether a lien of the United
States is on a parity with or takes priority over a tax lien of the City is determined by applicable federal law In the
absence of such federal law, the City's tax lien takes priority over a tax lien of the United States. The ability of the
City to collect delinquent taxes by foreclosure may be adversely affected by the amount of taxes owed to other
taxing units, the foreclosure sale price attributable to market conditions, the taxpayer's right to redeem the property
within two years of foreclosure, or by bankruptcy proceedings which restrain the collection of a taxpayer's debts.
15
Historical Analysis of Tax Collection
- Collection Ratios -
Tax Rate Fiscal
Per $100 of % of Collections Year
Tax Assessed Assessed Adjusted Current Current and Ending
Year Valuation Valuation Tax Levy Year Prior Years (b) 9-30
1990 $ 575,624,520 $.8000 $ 4,604,996 98.24% 99.99% 1991
1991 617,887,160 .8000 4,943,097 97.80 98.97 1992
1992 654,804,750 7970 5,218,794 98.53 100.37 1993
1993 730,329,940 7153 5,224,050 96.11 98.24 1994
1994 763,443,870 .6974 5,316,625 98.37 99.65 1995
1995 844,357,847 .6950 5,869,525 98.65 99 72 1996
1996 875,483,990 .6950 6,343,113 98.31 99 43 1997
1997 1,012,049,410 .6950 7,062,826 98.29 99 45 1998
1998 1,172,298,277 .6950 8,147,473 98.10 99.27 1999
1999 1,322,581,461 .6950 9,174,224 98.35 99.65 2000
2000 1,563,565,809 .6950 10,864,049 97.66 99.31 2001
2001 1,760,551,863 .6860 12,890,902 96.79 98.34 2002
2002 2,171,317,975 .6860 14,895,214 91.31(a) 96.62(a) 2003
(a) Collections as of April 1, 2003
- Tax Rate Distribution -
2002 2001 2000 1999 1998 1997 1996
Maintenance $ $0.430 $0 435 $0.440 $0.440 $0 440 $0.440
Debt Service 0.256 0.260 0.255 0.255 0.255 0.255
Total $0.686 $0.686 $0.695 $0.695 $0.695 $0.695 $0.695
- Analysis of Delinquent Taxes -
The following is an analysis, by tax year, of taxes delinquent as of September 30, 2002.
Uncollected Adjusted Percentage
Tax Year As of September 30, 2002 Tax Levy (a) of Tax Levy
2001 $699,841 $12,890,902 5 43%
2000 285,091 10,864,049 2.62
1999 479,170 9,174,224 5.22
1998 389,445 8,147,473 4.87
1997 293,915 7,062,826 4 16
1996 258,104 6,343,113 4.07
1995 280,499 5,869,525 4 78
1994 383,032 5,316,625 7.20
1993 286,677 5,224,050 5 49
1992 303,983 5,218,769 5.82
(a) The total tax levy has been adjusted to reflect additions and deletions from the tax roll for prior
years.
- Delinquent Tax Collection Procedures -
In addition to the legal procedures and penalties described under "Levy and Collection of Taxes", the City has
retained a delinquent tax attorney on a contract basis to file suit to collect delinquent taxes due the City The fees
due such attorney for acting as delinquent tax attorney are payable from an additional penalty imposed upon the
delinquent taxpayer, not to exceed 15% of the tax due.
16
Analysis of Tax Base
2002 Tax Roll
- Tax Base Distribution -
2001 Tax Roll
Type of Property Amount % Amount
Residential $1,569,533,680 71 7% $1,319,762,380
Acreage 61,390,260 2.8 67,023,150
Vacant Lots/Tracts 78,875,380 3.6 66,695,330
Farm & Ranch 4,627,370 .2 4,810,310
Commercial/Industrial 428,454,870 19 4 398,620,140
Utilities 43,116,930 2.0 39,293,380
Real Inventory 5,982,970 .3 3,109,880
Other 16,693,020 .8 4,383,520
Gross Assessed
Value $2,208,674,480
Less: Exemption (148,669,259)
Net Assessed
Value
$2,060,005,221(a)
$1,903,698,090
(143,146,227)
$1,760,551,863(a)
68.7%
3.6
3.6
.3
20.7
2.1
4
.6
2000 Tax Roll
Amount
$1,085,401,620 67 4'
67,239,100 4.2
46,888,440 2.9
3,826,610 .2
358,489,680 22.3
32,500,440 2.0
7,180,080 4
9,643,330 .6
$1,611,169,300
(86,664,421)
$1,524,504,870 (a)
(a) Value may differ from those shown elsewhere in this Official Statement due to subsequent adjustments to the
tax roll.
Principal Taxpayer (a)
Weatherford U.S. Inc.
Reliant Energy
Lowe's Home Centers
Southwestem Bell Telephone
Aggreko, Inc.
Landar Mary's Creek Apartments
Green Hollow
Krogers
West Lake Residential
Texas Windmill Apts.
Pearland Enclave Apts.
TurboCare
Home Depot USA Inc.
Continental 34 Fund Ltd.
Phillips Petroleum
Total Ten Principal Taxpayers
- Principal Taxpayers -
Type of Property
Oil Field Equipment
Utility
Retail Store
Utility
Mobile Temperature Control
Apartments
Apartments
Shopping Center
Apartments
Apartments
Apartments
Manufacture
Retail Store
Department Store
Oil Field
Percentage Ten Principal Taxpayers
Comprise of their Respective Tax Rolls
(a) Not a principal taxpayer in such tax year
2002
Taxable
Assessed
Valuation
2001
Taxable
Assessed
Valuation
2000
Taxable
Assessed
Valuation
$ 35,033,690 $ 29,100,820 $ 29,100,820
16,221,790 14,070,710 14,070,710
13,599,840 6,931,600 6,931,600
11,405,920 10,758,360 10,758,260
10,581,530 7,649,420 7,649,420
10,097,750 (a) (a)
9,119,750 (a) (a)
8,808,890 7,719,520 7,719,520
7,649,780 (a) (a)
6,483,841 (a) (a)
(a) 10,235,020 10,235,020
(a) 6,479,410 (a)
(a) 6,199,660 6,199,660
(a) 6,044,420 6,044,420
(a) (a) 5,998,890
$128,957,781 $105,18 8,940 $104,760,320
6.88%
6 70%
17
- Tax Adequacy -
Estimated Average Annual Debt Service Requirements
based on Total New Debt Service (2003-2028)
Tax Rate of $0.301 per $100 assessed valuation against
the 2002 Certified Assessed Valuation, at 95% collection, produces
$6,195,346
$6,208,884
Estimated Maximum Annual Debt Service Requirements
based on Total New Debt Service (in the year 2008) $7,985,158
Tax Rate of $0.388 per $100 assessed valuation against
the 2002 Certified Assessed Valuation, at 95% collection, produces $8,003,478
Estimated Overlapping Taxes
Under Texas law, if ad valorem taxes levied by a taxing authority become delinquent, a lien is created upon the
property which has been taxed, which lien is on a parity with any tax lien on such property in favor of the City In
addition to ad valorem taxes required to retire the aforementioned direct and estimated overlapping debt, certain
taxing jurisdictions including those mentioned in Estimated Overlapping Debt are also authorized by Texas law to
assess, levy, and collect ad valorem taxes for operation, maintenance, administrative and/or general revenue
purposes.
Set forth below is an estimation of ad valorem taxes levied on a $100,000 single-family residence by such
jurisdictions, assuming the assessments are made at their claimed basis of assessment (100%). Such residence is
further assumed to be located within Brazoria County wherein substantially all of the residential property within the
City is located. No recognition is given to local assessments for civic association dues, fire department
contributions, or other charges made by other than political subdivisions.
2002 Tax Estimated
Taxing Jurisdiction Rate/$100 2002 Tax Bill
The City
Brazoria County
Brazoria Drainage District No. 4
Pearland ISD
Estimated Total 2002 Tax Bill.
$0.686
0.420
0.150
1.837
$ 686.00
420.00
150.00
1.837.00
$3,093.00(a)
(a) Ad valorem taxes are levied by three separate municipal utility districts ("MUD") on property located within
the specific MUD These taxes are paid in addition to the above noted City taxes.
Sales Tax
- Authority -
The City has adopted the provisions of Article 1066c, Vernon's Texas Civil Statutes, as amended, which grants the
City the power to impose and levy a 1% sales tax. The City has also voted an additional 1/2% sales and use tax for
economic development under Article 5190.6, Vernon's Texas Civil Statutes, as amended. The City may not pledge
the proceeds from the Sales and Use Tax as security for the Bonds.
18
- Collection History -
The State Comptroller, after deduction of a 2% service fee, currently remits the City's portion of sales tax collections
monthly By statute the Comptroller is required to remit at least twice annually The following is an analysis of the
collection history of the City's sales and use tax:
Ad Valorem Tax Comparisons
Fiscal Year Sales and Use Equivalent Tax Rate % of Actual
Ended 9-30 Tax Receipts Tax Year Equivalent Tax Levy
1990 $1,460,341 (1989) $0.254 30.71
1991 1,548,190 (1990) 0.269 33.62
1992 1,704,160 (1991) 0.260 32.65
1993 1,733,901 (1992) 0.265 33.22
1994 1,905,741 (1993) 0.261 36.48
1995 2,166,219 (1994) 0.284 40.74
1996 2,298,546 (1995) 0.272 3916
1997 2,589,918 (1996) 0.298 40.83
1998 2,962,481 (1997) 0.297 41.94
1999 3,415,183 (1998) 0.291 41.92
2000 3,684,676 (1999) 0.279 40.16
2001 4,795,355 (2000) 0.307 4414
2002 5,025,749 (2001) 0.285 38.99
SELECTED FINANCIAL DATA
Historical Operations of the City's General Fund
The following is a condensed statement of revenues and expenses of the City's General Fund for the past five fiscal
years. The inclusion of the following table is not intended to imply that any revenues of the City, other than receipts
from ad valorem taxes as provided in the Ordinance, are pledged to pay principal and interest on the Bonds.
Fiscal Year Ended September 30
2002 2001 2000 1999 1998
REVENUES
General Property Taxes (a) $ 8,054,173 $ 6,784,591 $ 5,876,495 $ 5,260,551 $ 4,555,749
Sales Taxes 5,025,749 4,795,353 3,697,523 3,426,576 2,973,058
Franchises 2,453,829 2,303,730 2,022,789 1,943,545 1,703,715
Licenses & Permits 2,256,638 1,896,728 1,469,799 955,819 615,808
Charges for Services 3,651,825 3,202,767 3,061,545 2,960,214 2,508,087
Fines & Forfeitures 845,322 856,641 731,959 675,691 576,856
Intergovernmental -0- - 0 - 15,000 489,860 345,674
Other Revenues 908,154 863,457 827,950 655,582 615,016
Total Revenues $23,195,690 $20,703,267 $17,703,060 $16,367,838 $13,893,963
EXPENDITURES
General Government $ 5,052,056 $ 4,217,744 $ 3,580,693 $ 3,685,523 $ 2,828,787
Public Safety 7,411,992 6,692,138 5,944,516 5,695,956 5,015,602
Public Works 7,603,804 5,974,667 5,635,397 5,137,708 4,925,693
Community Services 2,271,052 2,043,620 1,762,770 1,580,624 1,543,440
Total $22,338,904 $18,928,169 $16,923,376 $16,099,811 $14,313,522
(a) Includes penalties and interest.
Source: City's audited financial statements.
19
General Fund and Debt Service Fund Balance for the Past Five Fiscal Years
General Fund
Debt Service Fund
Fiscal Year Ended September 30
2002 2001 2000 1999
1998
$5,024,946 $6,563,942 $ 5,205,209 $ 4,457,492 $ 3,468,849
$2,229,529 $1,544,987 $ 681,148 $ 208,324 $ 273,742
Pension Fund
The City participates in the Texas Municipal Retirement System (TMRS), an agency operated by the State of Texas.
Employees of the City who participate in TMRS contribute a fixed percentage, currently 7%, of their gross pay and
the City matching percent is currently 10.06%. As employees leave municipal employment other than through
retirement, they may withdraw from TMRS those funds they contributed, but forfeit their employer's contributions.
Each municipal employer's requirements for current contributions are offset by the amounts of such forfeitures.
As of March 1, 2003, the City employed 306 full-time employees and 79 part-time and seasonal employees. All
full-time employees are covered by TMRS and the City's contribution for this fiscal year as of September 30, 2001,
amounted to approximately $857,939 which includes amortization of prior service cost over 25 years. The City had
an unfunded pension benefit obligation in the amount of approximately $3,109,399 as of December 31, 2001 The
liability for prior service benefits will be amortized over a period of twenty-five years or less by contributions from
the City which are a level percentage of payroll.
Financial Statements
A copy of the City's Financial Statements for the fiscal year ended September 30, 2002, is attached hereto in the
APPENDIX B. Copies of such statements for preceding years are available, for a fee, upon request.
ADMINISTRATION OF THE CITY
Mayor and City Council
Policy -making and supervisory functions are the responsibility of and are vested in the Mayor and City Council for
the City, under provisions of the "Charter of the City of Pearland" (the "Charter") approved by the electorate
February 6, 1971 The Council is elected at large on the first Saturday in May The Mayor and five Council
members serve three-year staggered terms. The Mayor is entitled to vote only in the event of a tie and has no power
to veto Council action. Members of the Council are described below.
Council Members Period Served
Tom Reid
Mayor
Woody Owens
Council Member
Mayor Pro-Tem
Larry Marcott
Council Member
Richard Tetens
Council Member
Charles Viktorin
Council Member
Klaus Seeger
Council Member
13 Years
3 Years
Term
Expires May
Occupation
2005 Retired
2003 Consultant
3 Years 2003 Management
2 Years (a) 2004 Retired
1 Year 2005 Financial Analyst
5 Years 2004 Engineer
(a) Elected May, 2001, however Councilman Tetens has served two previous terms (6 years) on the City Council.
20
Administration
Under provisions of the Charter, the City Council enacts local legislation, adopts budgets, determines policies and
appoints the City Manager, who is charged with the duties of executing the laws and administering the government
of the City As the chief executive officer and head of the administrative branch of the City government, the City
Manager is given the power and duties to:
(1) Appoint and remove all department heads and all other employees in the administrative service of
the City and may authorize the head of a department to appoint and remove subordinates in his
respective department;
(2) Prepare the budget annually, submit it to City Council, and be responsible for its administration;
(3) Prepare and submit to City Council a complete report on the finances and administrative activities
of the City;
(4) Keep City Council advised of the financial condition and future needs of the City and make
appropriate recommendations; and
Perform such other necessary duties as prescribed by the Charter or required by City Council.
(5)
Members of the administrative staff are described below.
Name
Position Period Served
Bill Eisen City Manager 2 Years
Alan Mueller Deputy City Manager 6 Years
Tobin Maples Executive Director of Community Services 3 Years
Mary Ross Director of Finance 5 Months
Jerry Burns Director of Public Works 5 Years
Young Lorfin City Secretary 6 Years
John Hargrove City Engineer 11 Years
Darrin Coker City Attorney 6 Years
Joseph Wertz Director of Projects 1.5 Years
Christopher Doyle Police Chief 24 Years
Consultants
The City has retained several consultants to perfonn professional services in connection with the independent
auditing of its books and records and other City activities. Several of these consultants are identified below -
Bond Counsel
Certified Public Accountants
Financial Advisor
LEGAL MATTERS
Andrews & Kurth L.L.P
Houston, Texas
.Pattillo, Brown & Hill, P C.
Waco, Texas
RBC Dain Rauscher Inc.
Houston, Texas
Legal Opinions
The City will furnish the Underwriter a transcript of certain certified proceedings prepared incident to the
authorization and issuance of the Certificates, including a certified copy of the unqualified approving opinion of the
Attorney General of Texas, as recorded in the Bond Register of the Comptroller of Public Accounts of the State of
Texas, to the effect that the Certificates, which the Attorney General will have examined, are valid and binding
obligations of the City under the Constitution and laws of the State of Texas. The City also will furnish the
approving legal opinion of Andrews & Kurth L.L.P., Houston, Texas, Bond Counsel, to the effect that, based upon
an examination of such transcript, the Certificates are valid and binding obligations of the City under the
Constitution and laws of the State of Texas. The legal opinion of Bond Counsel will further state that the
21
Certificates are payable, both as to principal and interest, from the levy of ad valorem taxes, within the limits
prescribed by law, against taxable property within the City The opinion of Bond Counsel is expected to be
reproduced on the back panel of the Certificates over a certification by the City Secretary attesting that such legal
opinion is dated as of the date of delivery of and payment for the Certificates and is a true and correct copy of the
original opinion. Errors or omissions in the printing of such legal opinion on the Certificates shall not affect the
validity of the Certificates nor constitute cause for the failure or refusal by the Underwriter to accept delivery of and
pay for the Certificates.
Bond Counsel was not requested to participate, and did not take part, in the preparation of the Official Statement,
and such firm has not assumed any responsibility with respect thereto or undertaken independently to verify any of
the information contained therein, except that, in its capacity as Bond Counsel, such firm has reviewed the
information describing the Certificates in the Official Statement to verify that such description conforms to the
provisions of the Ordinance. The legal fee to be paid Bond Counsel for services rendered in connection with the
issuance of the Certificates is contingent upon the sale and delivery of the Certificates. The legal opinion will be
printed on the Certificates.
No -Litigation Certificate
The City will furnish to the Underwriter a certificate, dated as of the date of delivery of the Certificates, executed by
appropriate City officials, to the effect that no litigation of any nature has been filed or is then pending or threatened,
either in state or federal courts, contesting or attacking the Certificates; restraining or enjoining the issuance,
execution or delivery of the Certificates; affecting the provisions made for the payment of or security for the
Certificates; in any manner questioning the authority or proceedings for the issuance, execution, or delivery of the
Certificates; or affecting the validity of the Certificates.
No Material Adverse Change
The obligations of the Underwriter to take and pay for the Certificates, and of the City to deliver the Certificates, are
subject to the condition that, up to the time of delivery of and receipt of payment for the Certificates, there shall have
been no material adverse change in the condition (fmancial or otherwise) of the City subsequent to the date of sale
from that set forth or contemplated in the Preliminary Official Statement, as it may have been supplemented or
amended through the date of sale.
TAX EXEMPTION
In the opinion of Andrews & Kurth L.L.P., Houston, Texas, Bond Counsel, interest on the Certificates (1) is
excludable under Section 103 of the Internal Revenue Code of 1986, as amended (the "Code"), from gross income
of the owners thereof for federal income tax purposes and (2) is not includable in the alternative minimum taxable
income of individuals or corporations, except as described below
The foregoing opinions of Bond Counsel are based on the Code and the regulations, rulings and court decisions
thereunder in existence on the date of issue of the Certificates. Such authorities are subject to change and any such
change could prospectively or retroactively result in the inclusion of the interest on the Certificates in gross income
of the owners thereof or change the treatment of such interest for purposes of computing alternative minimum
taxable income.
In rendering its opinions, Bond Counsel has assumed continuing compliance by the City with certain covenants of
the ordinance authorizing the issuance of the Certificates (the "Ordinance) and has relied on representations by the
City, the City's financial advisor, and the Underwriter with respect to matters solely within their knowledge,
respectively, which Bond Counsel has not independently verified. The covenants and representations relate to,
among other things, the use of Certificate proceeds and any facilities fmanced therewith, the source of repayment of
the Certificates, the investment of Certificate proceeds and certain other amounts prior to expenditure, and
requirements, that excess arbitrage earned on the investment of Certificate proceeds and certain other amounts be
paid periodically to the United States and that the City file an information report with the Internal Revenue Service.
If the City should fail to comply with the covenants in the Ordinance, or if its representations relating to the
Certificates that are contained in the Ordinance should be determined to be inaccurate or incomplete, interest on the
Certificates could become taxable from the date of delivery of the Certificates, regardless of the date on which the
event causing such taxability occurs.
22
Except as stated above and set forth below under "TAX TREATMENT OF ORIGINAL ISSUE DISCOUNT AND
PREMIUM CERTIFICATES," Bond Counsel will express no opinion as to any federal, state or local tax
consequences resulting from the ownership of, receipt or accrual of interest on or acquisitions or disposition of the
Certificates.
Bond Counsel's opinion is not a guarantee of a result, but represents its legal judgment based upon its review of
existing statutes, regulations, published rulings and court decisions and the representations and covenants of the City
described above. No ruling has been sought from the Internal Revenue Service (the "Service") with respect to the
matters addressed in the opinion of Bond Counsel, and Bond Counsel's opinion is not binding on the Service. The
Service has an ongoing program of auditing the tax-exempt status of the interest on municipal obligations. If an
audit of the Certificates is commenced, under current procedures the Service is likely to treat the City as the
"taxpayer," and the owners of the Certificates may have no right to participate in the audit process. In responding to
or defending an audit of the tax-exempt status of the interest on the Certificates, the Issuer may have different or
conflicting interests from the owners of the Certificates. Public awareness of any future audit of the Certificates
could adversely affect the value and liquidity of the Certificates during the pendency of the audit, regardless of its
ultimate outcome.
Interest on all tax-exempt obligations, such as the Certificates, owned by a corporation (other than an S corporation,
a regulated investment company, a real estate investment trust (REIT), a real estate mortgage investment conduit
(REMIC) or a fmancial asset securitization investment trust (FASIT)) will be included in such corporation's adjusted
current earnings for purposes of calculating such corporation's alternative minimum taxable income. A corporation's
alternative minimum taxable income is the basis on which the alternative minimum tax imposed by the Code is
computed.
Under the Code, taxpayers are required to provide information on their returns regarding the amount of tax-exempt
interest, such as interest on the Certificates, received or accrued during the year
Prospective purchasers of the Certificates should be aware that the ownership of tax-exempt obligations, such as the
Certificates, may result in collateral federal income tax consequences to, among others, financial institutions,
property and casualty insurance companies, certain foreign corporations doing business in the United States, certain
S corporations with Subchapter C earnings and profits, individual recipients of Social Security or Railroad
Retirement benefits, taxpayers who are deemed to have incurred or continued indebtedness to purchase or carry tax-
exempt obligations and individuals otherwise eligible for the eamed income credit. Such prospective purchasers
should consult their owner tax advisors as to the consequences of investing in the Certificates.
If a tax-exempt obligation, such as the Certificates, was acquired at a "market discount" and if the fixed maturity of
such obligation is equal to, or exceeds, one year from the date of issue, the Code provides ordinary income tax
treatment of gain recognized upon the disposition of such "market discount bond." A "market discount bond" is
one which is acquired by the holder at a purchase price which is less than the stated redemption price at maturity or,
in the case of a bond issued at an original issue discount, the "revised issue price" (i.e., a market discount). Such
treatment applies to "market discount bonds" to the extent the gain from the disposition thereof exceeds the accrued
market discount of such bonds unless a statutory de minimis rule applies. The "accrued market discount" is the
amount which bears the same ratio to the market discount as the number of days during which the holder holds the
obligation bears to the number of days between the acquisition date and the final maturity date. The applicability of
the market discount rules may adversely affect the liquidity or secondary market price of the Certificates.
Purchasers should consult their own tax advisors regarding the potential implications of market discount with
respect to the Certificates.
TAX TREATMENT OF ORIGINAL ISSUE DISCOUNT AND PREMIUM CERTIFICATES
Discount Certificates
According to representations of the Underwriter, certain of the Certificates may be offered at initial offering prices
which are less than the stated redemption prices at maturity of such Certificates. If the initial offering prices of the
Certificates are lower than the stated redemption price payable at maturity, the Certificates of that maturity (the
"Discount Certificates") will be considered to have "original issue discount" for federal income tax purposes. An
initial owner who purchases a Discount Certificate in the initial public offering of the Certificates at such an initial
offering price will acquire such Discount Certificate with original issue discount equal to the difference between (a)
the stated redemption price payable at the maturity of such Discount Certificate and (b) the initial offering price to
the public of such Discount Certificate. Under existing law, such original issue discount will be treated for federal
income tax purposes as additional interest on a Certificate and such initial owner will be entitled to exclude from
23
gross income for federal income tax purposes that portion of such original issue discount deemed to be earned (as
discussed below) during the period while such Discount Certificate continues to be owned by such initial owner
Except as otherwise provided herein, the discussion regarding interest on the Certificates under the caption "TAX
EXEMPTION" generally applies to original issue discount deemed to be earned on a Discount Certificate while held
by an owner who has purchased such Certificate at the initial offering price in the initial public offering of the
Certificates and that discussion should be considered in connection with this portion of the Official Statement.
In the event of a redemption, sale, or other taxable disposition of a Discount Certificate prior to its stated maturity,
however, any amount realized by such initial owner in excess of the basis of such Discount Certificate in the hands
of such owner (increased to reflect the portion of the original issue discount deemed to have been earned while such
Discount Certificate continues to be held by such initial owner) will be includable in gross income for federal
income tax purposes.
Because original issue discount on a Discount Certificate will be treated for federal income tax purposes as interest
on a Certificate, such original issue discount must be taken into account for certain federal income tax purposes as it
is deemed to be earned even though there will not be a corresponding cash payment. Corporations that purchase
Discount Certificates must take into account original issue discount as it is deemed to be earned for purposes of
determining alternative minimum tax. Other owners of a Discount Certificate may be required to take into account
such original issue discount as it is deemed to be earned for purposes of determining certain collateral federal tax
consequences of owning a Certificate. See "TAX EXEMPTION" for a discussion regarding the alternative
minimum taxable income consequences for corporations and for a reference to collateral federal tax consequences
for certain other owners.
The characterization of original issue discount as interest is for federal income tax purposes only and does not
otherwise affect the rights or obligations of the owner of a Discount Certificate or of the City The portion of the
principal of a Discount Certificate representing original issue discount is payable upon the maturity or earlier
redemption of such Certificate to the registered owner of the Discount Certificate at that time.
Under special tax accounting rules prescribed by existing law, a portion of the original issue discount on each
Discount Certificate is deemed to be earned each day The portion of the original issue discount deemed to be
earned each day is determined under an actuarial method of accrual, using the yield to maturity as the constant
interest rate and semi-annual compounding.
The federal income tax consequences of the purchase, ownership, redemption, sale or other disposition of Discount
Certificates by an owner that did not purchase such Certificates in the initial public offering and at the initial
offering price may be determined according to rules which differ from those described above. All prospective
purchasers of Discount Certificates should consult their tax advisors with respect to the determination for federal,
state and local income tax purposes of interest and original issue discount accrued upon redemption, sale or other
disposition of such Discount Certificates and with respect to the federal, state, local and foreign tax consequences of
the purchase, ownership, redemption, sale or other disposition of such Discount Certificates.
Premium Certificates
According to representations of the Underwriter, certain of the Certificates may be offered at initial offering prices
which exceed the stated redemption prices payable at the maturity of such Certificates. If any of the Certificates of
such maturities are sold to members of the public (which for this purpose excludes bond houses, brokers and similar
person or organizations acting in the capacity of wholesalers or underwriters) at such initial offering prices, each of
the Certificates of such maturities ("Premium Certificates ") will be considered for federal income tax purposes to
have "bond premium" equal to the amount of such excess. The basis for federal income tax purposes of a Premium
Certificate in the hands of an initial purchaser who purchases such Certificate in the initial offering must be reduced
each year and upon the sale or other taxable disposition of the Certificate by the amount of amortizable bond
premium. This reduction in basis will increase the amount of any gain (or decrease the amount of any loss)
recognized for federal income tax purposes upon the sale or other taxable disposition of a Premium Certificate by
the initial purchaser Generally, no corresponding deduction is allowed for federal income tax purposes, for the
reduction in basis resulting from amortizable bond premium. The amount of bond premium on a Premium
Certificate which is amortizable each year (or shorter period in the event of a sale or disposition of a Premium
Certificate) is determined under special tax accounting rules which use a constant yield throughout the term of the
Premium Certificate based on the initial purchaser's original basis in such Certificate.
i
24
The federal income tax consequences of the purchase, ownership, redemption, sale or other disposition by an owner
of Certificates that are not purchased in the initial offering or which are purchased at an amount representing a price
other than the initial offering prices for the Certificates of the same maturity may be determined according to rules
which differ from those described above. Moreover, all prospective purchasers of Certificates should consult their
tax advisors with respect to the federal, state, local and foreign tax consequences of the purchase, ownership,
redemption, sale or other disposition of Premium Certificates.
CONTINUING DISCLOSURE OF INFORMATION
In the Ordinance, the City has made the following agreement for the benefit of the holders and beneficial owners of
the Certificates. The City is required to observe the agreement for so long as it remains obligated to advance funds
to pay the Certificates. Under the agreement, the City will be obligated to provide certain updated financial
information and operating data annually, and timely notice of specified material events, to certain information
vendors. This information will be available to securities brokers and others who subscribe to receive the
information from the vendors.
Annual Reports
The City will provide certain updated financial information and operating data to certain information vendors
annually The information to be updated includes all quantitative financial information and operating data with
respect to the City of the general type included in this Official Statement under the headings "CITY TAX DEBT,"
"TAX DATA," "SELECTED FINANCIAL DATA," and in Appendix "B" The City will update and provide this
information within six months after the end of each fiscal year ending in or after 2003 The City will provide the
updated information to each nationally recognized municipal securities information repository ("NRMSIR") and to
the Texas Municipal Advisory Council, the state information depository ("SID") designated by the State of Texas
and approved by the staff of the United States Securities and Exchange Commission (the "SEC").
The City may provide updated information in full text or may incorporate by reference certain other publicly
available documents, as permitted by SEC Rule 15c2-12, as amended and in effect from time to time (the "Rule").
The updated information will include audited financial statements, if the City commissions an audit and it is
completed by the required time. If audited financial statements are not commissioned or are not available by the
required time, the City will provide unaudited fmancial statements and audited fmancial statements when and if they
become available. Any such fmancial statements will be prepared in accordance with the accounting principles
described in Appendix "B" or such other accounting principles as the City may be required to employ from time to
time pursuant to state law or regulation.
The City's current fiscal year end is September 30. Accordingly, it must provide updated information by March 31
in each year, beginning March 31, 2004, unless the City changes its fiscal year If the City changes its fiscal year, it
will notify each NRMSIR and the SID of the change.
Material Event Notices
The City will also provide timely notices of certain events to certain information vendors. The City will provide
notice of any of the following events with respect to the Certificates, if such event is material to a decision to
purchase or sell Certificates: (1) principal and interest payment delinquencies; (2) non-payment related defaults; (3)
unscheduled draws on debt service reserves reflecting fmancial difficulties; (4) unscheduled draws on credit
enhancements reflecting financial difficulties; (5) substitution of credit or liquidity providers, or their failure to
perform; (6) adverse tax opinions or events affecting the tax-exempt status of the Certificates; (7) modifications to
rights of holders of the Certificates; (8) calls; (9) defeasances; (10) release, substitution, or sale of property securing
repayment of the Certificates; and (11) rating changes. Neither the Certificates nor the Ordinance makes any
provision for debt service reserves or liquidity enhancement. In addition, the City will provide timely notice of any
failure by the City to provide information, data, or financial statements in accordance with its agreement described
above under "Annual Reports." The City will provide each notice described in this paragraph to the SID and to
either each NRMSIR or the Municipal Securities Rulemaking Board.
Availability of Information From NRMSIRs and SID:
The City has agreed to provide the foregoing information only to NRMSIRs and the SID The information will be
available to holders of and beneficial owners of the Certificates only if the holders comply with the procedures and
pay the charges established by such information vendors or obtain the information through securities brokers who do
so.
25
The Municipal Advisory Council of Texas has been designated by the State of Texas as a SID and has been
approved as such by the SEC staff. The address of the Municipal Advisory Council is 600 West 8th Street, P 0
Box 2177, Austin, Texas 78768-2177, and its telephone number is 512/476-6947
Limitations and Amendments
The City has agreed to update information and to provide notices of material events only as described above. The
City has not agreed to provide other information that may be relevant or material to a complete presentation of its
financial results of operations, condition, or prospects or agreed to update any information that is provided, except as
described above. The City makes no representation or warranty concerning such information or concerning its
usefulness to a decision to invest in or sell Certificates at any future date. The City disclaims any contractual or tort
liability for damages resulting in whole or in part from any breach, WHETHER NEGLIGENT OR WITHOUT
FAULT ON ITS PART, of its continuing disclosure agreement or from any statement made pursuant to its
agreement. Holders or beneficial owners of Certificates may seek as their sole remedy a writ of mandamus to
compel the City to comply with its agreement. No default by the City with respect to its continuing disclosure
agreement shall constitute, a breach -of or default under the Ordinance for purposes of any other provision of the
Ordinance. Nothing in this paragraph is intended or shall act to disclaim, waive, or otherwise limit the duties of the
City under federal and state securities laws. The City's undertakings and agreements are subject to appropriation of
necessary funds and to applicable legal restrictions.
The City may amend its continuing disclosure agreement to adapt to changed circumstances that arise from a change
in legal requirements, a change in law, or a change in the identity, nature, status or type of operations of the City if,
but only if (i) the agreement, as so amended, would have permitted a purchaser to purchase or sell the Certificates in
the offering made hereby in compliance with the Rule, taking into account any amendments or interpretations of the
Rule to the date of such amendment, as well as such changed circumstances, and (2) either (a) the holders of a
majority in aggregate amount of the outstanding Certificates consent to such amendment or (b) a person unaffiliated
with the City (such as nationally recognized bond counsel) determines that the amendment will not materially impair
the interests of the holders and beneficial owners of the Certificates. The City may also amend or repeal the
agreement if the SEC amends or repeals the applicable provisions of the Rule or a court of fmal jurisdiction
determines that such provisions are invalid, and the City may amend the agreement in its discretion in any other
circumstance or manner, but in either case only to the extent that its right to do so would not prevent the
Underwriters from purchasing the Certificates in the offering described herein in compliance with the Rule. If the
City amends the agreement, it has agreed to include with any financial information or operating data next provided
in accordance with its agreement described above under "Annual Reports" an explanation, in narrative form, of the
reasons for the amendment and of the impact of any change in the type of financial information and operating data
so provided.
Audited Financial Report of the City
The City presently requires that an annual audit be performed by an independent public accounting firm in
accordance with generally accepted auditing standards for governmental units. The most recent audit, and additional
financial information are available for public inspection, or copies may be obtained by written request, to the extent
permitted by law, addressed to the City, with such fee, if any, for copies as may from time to time be authorized by
the City
Compliance With Prior Undertakings
The City has complied in all material respects with its prior continuing disclosure agreements made in accordance
with the Rule.
GENERAL CONSIDERATIONS
Sources and Compilation of Information
The information contained in this Official Statement has been obtained primarily from the City and from other
sources believed to be reliable. No representation is made as to the accuracy or completeness of the information
derived from sources other than the City The summaries of the statutes, orders, ordinances and other related
documents are included herein subject to all of the provisions of such documents. These summaries do not purport to
be complete statements of such provisions and reference is made to such documents for further information.
26
The information contained in this Official Statement in the section entitled "APPENDIX B - Audited Financial
Statements of the City" has been provided by Null - Lairson, P.C., Houston, Texas and has been included herein in
reliance upon their authority as an expert in the fields of auditing and accounting. Bond Counsel has reviewed the
information herein contained under the captions "THE CERTIFICATES" (except for sections captioned "Future
Debt" and "Use of Proceeds"), "LEGAL MATTERS - Legal Opinions," "TAX EXEMPTION," "TAX
TREATMENT OF ORIGINAL ISSUE DISCOUNT AND PREMIUM CERTIFICATES," and "CONTINUING
DISCLOSURE OF INFORMATION (except for the section captioned "Compliance With Prior Undertakings"),"
solely to determine whether such information fairly and accurately describes the Certificates, the Ordinance, and the
law set out therein. Bond Counsel has neither independently verified other factual information contained in this
Official Statement nor conducted an investigation of the affairs of the City for the purpose of passing upon the
accuracy or completeness of this Official Statement. No person is entitled to rely upon the limited participation of
such firms as an assumption of responsibility for, or an expression of opinion of any kind with regard to, the
accuracy or completeness of any of the other information contained herein.
Neither this Official statement nor any statement that may have been made orally or in writing is to be constructed
as or as part of a contract with the original purchasers or subsequent owners of the Certificates.
Certification as to Official Statement
At the time of payment for and delivery of the Certificates, the City will furnish the Underwriter a certificate,
executed by the City Secretary and Mayor, acting in their official capacities, to the effect that to the best of their
knowledge and belief: (a) the descriptions and statements of or pertaining to the City contained in this Official
Statement, on the date thereof and on the date of delivery were and are true and correct in all material respects; (b)
insofar as the City and its affairs, including its fmancial affairs, are concerned, this Official Statement did not and
does not contain an untrue statement of a material fact or omit to state a material fact required to be stated herein or
necessary to make the statements herein, in the light of the circumstances under which they were made, not
misleading; and (c) insofar as the descriptions and statements, including financial data contained in this Official
Statement, of or pertaining to entities other than the City and their activities are concerned, such statements and data
have been obtained from sources which the City believes to be reliable and that the City has no reason to believe that
they are untrue in any material respect.
Updating of Official Statement
The City will keep the Official Statement current by amendment or sticker to reflect material changes in the affairs
of the City and, to the extent that information comes to its attention, in the other matters described in the Official
Statement, until the delivery of the Certificates.
This Official Statement was duly authorized and approved by the City Council of the City of Pearland, Texas as of
the date specified on the first page hereof.
ATTEST
/s/
/s/
Mayor
City of Pearland
City Secretary
City of Pearland
27
THIS PAGE LEFT BLANK INTENTIONALLY
APPENDIX A
ECONOMIC AND
DEMOGRAPHIC CHARACTERISTICS OF THE CITY
The following information has been derived from various sources, including the 2002-2003 Texas Almanac, Texas
Municipal Reports, U.S. Census data, "Sales Management Survey of Buying Power", and District officials. While
such sources are believed tobe reliable, no representation is made as to the accuracy thereof.
- District Economics -
Pearland Independent School District (the "District"), a residential and agricultural area, includes the City of
Pearland, Texas (the "City"), a commercial center located 15 miles south of downtown Houston at the intersection of
State Highway 35 and Farm to Market Road 518 in the northeast corner of Brazoria County, with a small portion in
Harris County. Also included within the District is the Town of Brookside Village with a reported 2000 population
of 1,960.
According to the Texas Financial Institutions Directory and Fact Book (2000/2001), there are eight banks in the
Pearland area including Bank of America, N.A., First Community Bank; The Frost National Bank Pearland;
Merchants Bank Pearland; Moody National Bank; Pearland State Bank; Union Planters Bank, N.A., and Wells
Fargo Bank Texas, N.A.
- Economic Factors -
Because of the District's proximity to downtown Houston, it has become an area of continuing growth in residential,
commercial and some light industrial development. At present, there are numerous residential subdivisions either
developed or under construction within the District with homes ranging in value from $75,000 to $400,000, the
average being approximately $125,000. Commercial and industrial activity is centered primarily within the City
Approximately 66% of all taxable values within the District are within the City
- Building Permits -
(Source - City. of Pearland)
Residential Commercial
Year
12-3.1 No.
1990 670
1991 382
1992 402
1993 481
1994 362
1995 340
1996 478
1997 415
1998 506
1999 536
2000 818
2001 1,245
2002(b) 1,424
Value
35,378,197
36,416,253
37,249,884
39,236,381
25,173,050
34,734,829
38,301,224
43,712,441
60,691,036
64,525,679
202,795,755
212,152,849
257,282,301
(a) Includes Apartments.
(b) As of December 31, 2002
No. Value No.
90 2,947,222 119
12 2,503,500 402
16 6,849,000 453
15 6,475,570 863
12 2,997,021 582
13 3,762,900 528
19 5,189,850 392
30 10,785,050 402
23 12,696,415 422
22 13,847,245 532
17 43,414,385 604
20 10,868,583 705
20 29,585,122 719
Other (a) Total
Value
931,546
5,507,501
11,764,178
5,961,881
7,425,514
7,799,090
85,320,262
50,038,171
40,739,351
48,265,402
59,823,285
21,129,833
15,782,222
No. Value
879 39,256,965
796 44,427,254
871 55,863,062
1,359 51,673,832
956 35,595,585
881 46,296,819
889 128,811,066
847 104,535,662
951 114,126,808
1,090 126,638,386
1,439 306,033,425
1,970 244,151,265
2,163 302,649,645
Manufacturing and Commerce
Employment in Brazoria County (the "County") is provided by the extensive petro-chemical industry (Source:
Texas Municipal Report and 2002-2003 Texas Almanac. Also adding to the general economy, of the County are
fishing, tourism and recreation activities and agribusiness. The Gulf Intracoastal Waterway comes through the
lowlands near Surfside Beach and is an important waterway in America with reported annual tonnage comparable
to the Panama and Suez Canals.
Major Employers
Industrial activities within the District include the manufacturing of pipe, concrete building materials, mining
equipment, lighting fixtures, large storage tanks and the fabrication and forging of steel. According to the Pearland
Chamber of Commerce the following is a list of the industrial employers located within the District with
employment numbers above 100.
Albertson's
Bredero Price
Davis Lynch
FlightSafety International
Home Depot
K-Mart
Kemlon
Kroger
Lowe's
Pauluhn Electric Manufacturing
Pearland, City of
Pearland ISD
Powell Industries
U.S. Census of Population
1930
1940
1950
1960
1970
1980
1990
2000
100 — 999 Employees
Pro Fax
Randall's
Raytheon Aircraft Services
Strickland Chevrolet
Super Targer
Tele-Flow, Inc.
Third Coat Packaging
TurboCare
Universal Weather & Aviation
Weatherford Manufacturing
1000+ Employees
Southwest Airlines
Wal-Mart
ECONOMIC ECONOMIC AND GROWTH INDICATORS
City of Pearland
Number % Change
1,497
6,444
13,248
18,927
37,640
Employment Statistics
Source: Texas Workforce Commission
+330.46
+105.59
+42.87
+98.87
Brazoria County
Number % Change
23,054 +11.84
27,069 +17 42
46,549 +71.96
76,204 +63 71
108,312 +42.13
169,587 +56.57
191,707 +13.04
241,767 +26.11
City of Pearland
2002 2001 2000 1999 1998 1997 1996
Labor Force 12,555 12,074 12,010 11,773. 11,905 11,809 11,699
Employed 12,004 11,640 11,556 11,290 11,466 11,282 11,217
Unemployed 551 434 454 483 439 527 482
Rate 4 4 3.6 3.8 4 1 3 7 4.5 4 1
Brazoria County
2002(a) 2001 2000 1999 1998 1997 1996
Labor Force 110,179 106,660 106,312 104,330 105,383 105,274 104,171
Employed 102,593 100,336 99,685 97,274 98,970 97,580 97,144
Unemployed 7,586 6,324 6,627 7,056 6,413 7,694 7,027
Rate 6.9 5.9 6.2 6.8 6.1 7.3 6.7
(a) As of December 31, 2002.
Marketing Survey of Buying Power *
Houston -Galveston
Brazoria CMSA Brazoria County
Population (000s)
Total Population 4,854 4 252.2
18-24 10.1 8.8
25-34 15.3 14.0
35-49 24.0 25.2
50+ 21.6 23.3
Households 1,700.4 85.8
Retail By Store Group Sales (000's)
Total Retail Sales $ 62,625,297 $2,457,246
Food & Beverage Stores 7,892,221 418,712
Food & Beverage Stores Estab. 6,340,324 172,988
General Merchandise 7,175,810 393,373
Fumit. & Home Furnish. and Electron. & Appin. 3,787,452 57,079
Motor Vehicle & Parts Dealers $ 19,710,041 $ 789,237
Total EIB ($000) $100,908,572 $4,182,291
Median Household EBI 45,482 41,647
$20,000 - $34,999 20.2 23 1
$35,000 - $49,999 18.0 19.6
$50,000 and Over 44.0 39 4
Buying Power Index 1.8076 .0773
* Statistical data from "Sales & Marketing Management - 2002 Survey of Buying Power", copyright in 2002
Sales Management Survey of Buying Power Further reproduction is forbidden.
THIS PAGE LEFT BLANK INTENTIONALLY
APPENDIX B
AUDITED FINANCIAL STATEMENTS OF THE CITY
CITY OF PEARLAND, TEXAS
COMPREHENSIVE ANNUAL FINANCIAL REPORT
YEAR ENDED SEPTEMBER 30, 2002
Prepared by:
Finance Department
THIS PAGE LEFT BLANK INTENTIONALLY
CITY OF PEARLAND, TEXAS
TABLE OF CONTENTS
YEAR ENDED SEPTEMBER 30, 2002
INTRODUCTORY SECTION
Letter of Transmittal
GFOA Certificate of Achievement for
Excellence in Financial Reporting
Organization Chart.
Principal Officials
Executive Managers
FINANCIAL SECTION
Independent Auditors' Report
General Purpose Financial Statements:
Combined Balance Sheet — All Fund Types, Account
Groups and Discretely Presented Component Units
Exhibit
Page
Numb er
i-vi
1-2
1 3-4
Combined Statement of Revenue, Expenditures and
Changes in Fund Balances — All Governmental Fund Types
and Discretely Presented Component Units 2 5 — 6
Combined Statement of Revenue, Expenditures and Changes in
Fund Balance — Budget and Actual — General and
Debt Service Funds 3 7 — 8
Combined Statement of Revenue, Expenses and Changes m
Retained Earnings — Proprietary Fund Type (Enterprise Fund)
4 9
(continued)
CITY OF PEARLAND, TEXAS
TABLE OF CONTENTS
(Continued)
YEAR ENDED SEPTEMBER 30, 2002
FINANCIAL SECTION (Continued)
General Purpose Financial Statements: (Continued)
Combined Statement of Cash Flows — All Proprietary
Fund Type (Enterprise Fund)
Notes to Financial Statements
Required Supplementary Information:
Exhibit
5
Page
Number
10
11— 34
Pension Information — Texas Municipal Retirement System. 35
Combining and Individual Fund and Account Group
Financial Statements and Schedules:
Governmental Fund Types
General Fund
Comparative Balance Sheets A — 1 36
Statement of Revenue, Expenditures and Changes in
Fund Balance — Budget and Actual. A — 2 37
Schedule of Expenditures — Budget and Actual A — 3 38 — 45
(continued)
CITY OF PEARLAND, TEXAS
TABLE OF CONTENTS
(Continued)
YEAR ENDED SEPTEMBER 30, 2002
Exhibit
Page
Number
FINANCIAL SECTION (Continued)
Combining and Individual Fund and Account Group
Financial Statements and Schedules: (Continued)
Governmental Fund Types (Continued)
Special Revenue Funds
Combining Balance Sheet B —1 46 — 47
Combining Statement of Revenue, Expenditures and
Changes in Fund Balances B — 2 48 — 49
Debt Service Fund
Comparative Balance Sheets C — 1 50
Statement of Revenue, Expenditures and Changes in
Fund Balance — Budget and Actual. C — 2 51
Capital Projects Funds
Combining Balance Sheet D — 1 52 — 55
Combining Statement of Revenue, Expenditures and
Changes in Fund Balance D — 2 56 — 59
(continued)
CITY OF PEARLAND, TEXAS
TABLE OF CONTENTS
(Continued)
YEAR ENDED SEPTEMBER 30, 2002
Exhibit
Page
Number
FINANCIAL SECTION (Contmued)
Combining and Individual Fund and Account Group
Financial Statements and Schedules: (Continued)
Account Groups
General Fixed Assets
Schedule of General Fixed Assets by Source E —1 60
Schedule of Changes m General Fixed Assets by
Function and Activity E — 2 61
Schedule of General Fixed Assets by Function and
Activity E — 3 62 — 63
General Long-term Debt:
Schedule of General Long-term Debt Service
Requirements to Maturity F 64 — 67
Enterprise Fund Debt
Schedule of Enterprise Fund Debt Service Requirements to
Maturity G 68 — 69
(continued)
CITY OF PEARLAND, TEXAS
TABLE OF CONTENTS
(Continued)
YEAR ENDED SEPTEMBER 30, 2002
Exhibit
FINANCIAL SECTION (Continued)
Page
Number
Combining and Individual Fund and Account Group
Financial Statements and Schedules: (Continued)
Component Units
Combining Balance Sheet H —1 70
Combining Statement of Revenue, Expenditures and
Changes in Fund Balance H — 2 71
Combining Balance Sheet — Pearland Economic Development
Corporation (PEDC). H — 3 72
Combining Statement of Revenue, Expenditures and
Changes in Fund Balance — Pearland Economic
Development Corporation (PEDC) H — 4 73
Combining Balance Sheet TIRZ #1 and TIRZ #2 H — 5 74
Combining Statement of Revenue, Expenditures and
Changes in Fund Balance TIRZ #1 and TIRZ #2 H — 6 75
Schedule of Component Unit Funds Debt Service
Requirement to Maturity
H-7 76
(continued)
CITY OF PEARLAND, TEXAS
TABLE OF CONTENTS
(Continued)
YEAR ENDED SEPTEMBER 30, 2002
Exhibit
Page
Number
UNAUDITED STATISTICAL SECTION
General Governmental Expenditures by Function Last Ten
Fiscal Years 1 77
General Governmental Revenue by Source — Last Ten
Fiscal Years 2 78
Property Tax Levies and Collections — Last Ten Fiscal Years 3 79
Assessed Value of Taxable Property — Last Ten Fiscal Years 4 80
Property Tax Rates — Direct and Overlapping Governments —
Last Ten Fiscal Years 5 81
Principal Taxpayers 6 82
Property Values, Construction and Bank Deposits 7 83
Ratio of Net General Long-term Debt to Assessed Value and
Net Long-term Debt Per Capita — Last Ten Fiscal Years 8 84
Ratio of Annual Debt Service Expenditures for General
Long-term Debt to Total General Governmental
Expenditures and legal Debt Limits — Last Ten Fiscal Years 9 85
Computation of Direct and Overlapping Debt 10 86
Demographic Statistics 11 87
Miscellaneous Statistical Data. 12 88 — 89
INTRODUCTORY SECTION
THIS PAGE LEFT BLANK INTENTIONALLY
To the Honorable Mayor, Members
of City Council, and Citizens of
the City of Pearland
Pearland, Texas:
The comprehensive annual fmancial report of the City of Pearland, Texas (the "City") for
the fiscal year ended September 30, 2002, is hereby submitted. Responsibility for both
the accuracy of the data, and the completeness and fairness of the presentation, including
all disclosures, rests with the City To the best of our knowledge and belief, the enclosed
data are accurate in all material respects and are reported m a manner designed to present
fairly the financial position and results of operations of the various funds and account
groups of the City All disclosures necessary to enable the reader to gain an
understanding of the City's fmancial activities have been included.
The comprehensive annual financial report is presented in three sections: Introductory,
Financial, and Statistical Section. The Introductory Section includes this transmittal
letter, the City's organizational chart, and a list of principal officials. The Financial
Section includes the general purpose financial statements and the combining and
individual fund and account group financial statements and schedules, as well as the
auditor's report on the financial statements and schedules. The Statistical Section
includes selected financial and demographic information, generally presented on a multi-
year basis.
The financial reportmg entity (the "City") includes all the funds and account groups of
the primary government (i.e., the City of Pearland as legally defined), as well as all of its
Component Units. Component Umts are legally separate entities for which the primary
government is financially accountable. The City provides the full range of municipal
services contemplated by statute or charter. This includes police and fire protection,
health and social services, public improvements, planning and zoning, and general
administrative services. The City also provides water, sewer, and sanitation services.
Additionally, the City has an Economic Development Corporation, designed to attract
and retain jobs and more fully develop the local ad valorem tax base.
ECONOMIC CONDITION AND OUTLOOK
The City of Pearland hes 15 miles southeast of downtown Houston and 10 miles from the Texas Medical
Center in the northeast corner of Brazona County, with small areas within Harris and Fort Bend Counties
Pearland is accessible by way of four major highways and is six miles from Houston Hobby Airport.
Sales tax receipts have shown favorable increases for the last several years. The Pearland Economic
Development Corporation (PEDC) awarded incentive packages to either attract new businesses or allow
existing businesses to expand.
MAJOR INITIATIVES
The Pearland City Council sets its goals each year in a strategic planning workshop Some of the
highlighted goals include:
• Implement the 2001 bond projects;
• Advance improvements to mitigate drainage and flooding issues mcluding regional
detention facilities and storm water detention regulations,
• Address the growth management needs of the City;
• Fiscal responsibility;
• Update the Comprehensive Plan and related City codes;
• Address the infrastructure needs of the City;
• Address the transportation and mobility needs of the City; and
• Maintain and expand intergovernmental communication and cooperation.
FUTURE OUTLOOK
Brazona County's current population is just under 228,000 It is estimated that this will increase to over
330,000 in the next 10 to 15 years. According to the Brazona County Partnership, job growth will be
focused in four primary areas 1) aerospace/high technology, 2) transportation and distribution, 3)
petrochemical and downstream petrochemical companies, and 4) tourism.
In late 1998, the City of Pearland created a Tax Increment Reinvestment Zone (TIRZ #2). This involved
the annexation of over 3,000 acres west of the State Highway 288 (SH 288) corridor The City hmit now
extends to portions of Fort Bend County The proposed development, Shadow Creek Ranch, has the
potential to develop the acreage over a 15 to 20-year time frame. It is estimated that 7,000 new single-
family homes, 1,800 assisted hvmg units, and 3,900 multi -family umts could be developed. More than
two billion dollars worth of value would be added over the next 20 years
Shadow Creek Ranch will not only improve roads in the area, but will also bring in sewer and drainage,
water, and major landscaping to the area. The added population poises SH 288 for major retail and
commercial development that could eventually include major office buildings, a hospital, and hotels.
11
DEPARTMENT FOCUS
Finance The Finance Department continues to improve in multiple major areas Additional staff has
allowed for enhanced interest earnings and improved financial projections. The Department continues
to submit winning GFOA awards for budget presentation and financial audit reportmg.
FINANCIAL INFORMATION
Management of the City is responsible for establishing and maintaining an internal control structure
designed to ensure that the assets of the City are protected from loss, theft or misuse, and to ensure that
adequate accounting data are compiled to allow for the preparation of financial statements in conformity
with generally accepted accounting principles. The internal control structure is designed to provide
reasonable, but not absolute, assurance that these objectives are met. The concept of reasonable
assurance recognizes that (1) the cost of controls should not exceed the benefits expected to be derived
and (2) the evaluation of costs and benefits requires estimates and judgments by management.
Accounting Controls. We believe that the City's accounting controls provide reasonable assurance that
errors or irregularities that could be material to the financial statements are prevented or would be detected
within a timely period by employees in the normal course of performing then- assigned function.
Budgeting Controls In addition, the City maintains budgetary controls. The objective of these budgetary
controls is to ensure compliance with legal provisions embodied in the annual appropriated budget
approved by the City's governing body Activities of the General, Debt Service, and Enterprise Funds are
included in the annual appropriated budget. The level of budgetary control (the level at which
expenditures cannot legally exceed the appropriated amount) is the total approved budget for each
department.
As demonstrated by the statements and schedules included in the financial section of this report, the City
continues to meet its responsibility for sound financial management.
General Government Functions The revenue from the General, Special Revenue, and Debt Service
Funds, and the amount and percentage of increases and decreases in relation to prior year revenue, is
summarized in the following schedule.
Revenue Source
Property taxes and penalties
Sales and hotel/motel taxes
Franchise and gross receipts taxes
Licenses and permits
Fines and forfeitures
Intergovernmental
Charges for services
Interest
Other
2002 2001
2002 Percent 2001 Percent
Amount of Total Amount of Total
$12,857,995 34 60% $10,833,292 42.18%
5,103,241 13 73% 4,862,571 18.93%
2,453,829 6.60% 2,303,730 8.97%
2,256,638 6.07% 1,896,728 7.38%
845,322 2.27% 856,641 3.34%
8,383,743 22.56% 333,677 1.30%
3,651,825 9 83% 3,202,767 12.47%
202,296 0.54% 416,572 1 62%
1,404,342 3.78% 977,589 3 81%
$37,159,231 100.00% .$25,683,567 100 00%
Increase
(Decrease)
$ 2,024,703
240,670
150,099
359,910
(11,319)
8,050,066
449,058
(214,276)
426,753
$11,475, 664
Percent of
Increase
(Decrease)
18.69%
4.95%
6.52%
18.98%
( 1.32)%
2,412.53%
14 02%
(51 44%
43 65%
11 68%
fir
The most significant percentage mcrease m revenue was derived from intergovernmental revenues This
was primarily due to revenues from the FEMA buyout program. This revenue was a non -recurring
revenue source received from FEMA. The other areas of healthy increases were m the property tax
revenues and licenses and permits. These increase were due to the increase in the tax base and buildmg
activity The decrease in mterest was due to the lower interest rate market in this past fiscal year
Allocations of property tax levy by purpose for 2001-2002 fiscal year and the preceding two fiscal years
are as follows (amount per $100/assessed value)
Purpose 2002
2,001 2000
General Fund
General Obligation Debt
Total Tax Rate
0.430
0.256
0.686
0.435
0.260
0 695
0 440
0.255
0 695
The expenditures for the general, special revenue, and debt service funds and the amount, and
percentage of increases and decreases in relation to the prior year expenditures, are summarized in the
following schedule:
Function
2002
Amount
2002
Percent
of Total
2001
2001 Percent Increase
Amount of Total (Decrease)
Percent of
Increase
(Decrease)
General Government
Public Safety
Public Works
Community Services
Debt Service
$16,107, 540
7,413,321
7,603,804
2,932,228
4,112,490
$38,169,383
42.20%
19 42%
19.92%
7 68%
10.78%
100.00%
$ 4,235,344
6,692,138
5,974,667
2,662,367
3,275,682
$22, 840,198
19%
29%
26%
12%
14%
100%
$11,872,196
721,183
1,629,137
269,861
836,808
$15,329,185
280.31%
10.78%
27.27%
10.14%
25.55%
67 11%
The most significant mcrease was in general government. Of this amount, approximately $11 million
was due to the FEMA buyout program expenditures.
Enterprise Operations. The City's enterprise operations are comprised of the Water and Sewer System.
Water and Sewer System. Operating revenues totaled $8,223,719 compared to $7,453,484 last year, a
10 3% The increase is due to increase m growth and annexations. Comparative data for the past two
fiscal years are presented in the followmg schedule
Water and Sewer System
Operating Revenues
Operating Expenses (before depreciation)
Operating Income (before depreciation)
Number of customers
2002 2001 2000
$8,223,719 $7,453,484 $7,146,031
5,243,633 4,946,621 3,899,289
$2,980,086 $2,506,863 $3,246,742
14,161 11,780 11,000
iv
Debt Administration. The ratio of net debt to assessed valuation and the amount of bonded debt per
capita are useful indicators of the City's debt position to municipal management, citizens, and investors.
This data for the City of Pearland at September 30, 2002, are presented m the statistical section of this
report.
The City's assigned "insured" bond ratings on its most recent issue were as follows:
Moodv's Standard & Poors
Revenue Bonds AAA AAA
Tax Bonds AAA AAA
Cash Management. Cash, temporarily idle during the year, was invested in certificates of deposit
ranging from 60 to 365 days to matunty Certificate of deposit and cash amounts which exceed FDIC
coverage are collateralized by securities owned by the City's depository All investments held by the
City during the year and at September 30, 2002, are classified in the category of lowest credit risk as
defined by the Governmental Accounting Standards Board.
Risk Management. During 2001-02, the City continued an aggressive risk management program for
workers' compensation. Various risk control techniques, including employee accident prevention
training, have been emphasized during the year in order to minimize accident -related losses
OTHER INFORMATION
Independent Audit. The City Charter requires an annual audit of the books of account, financial records,
and transactions of all administrative departments of the City by an independent certified public
accountant. The accounting firm of Pattillo, Brown and Hill, L.L.P was selected by the City Council.
This requirement has been complied with, and the auditors' opinion has been included in this report.
Awards The Government Fmance Officers Association of the United States and Canada (GFOA)
awarded a Certificate of Achievement for Excellence in Financial Reporting to the City of Pearland for
its Comprehensive Annual Financial Report for the fiscal year ended September 30, 2001 This was the
25th consecutive year that the City has received this prestigious award.
In order to be awarded a Certificate of Achievement, a governmental unit must publish an easily
readable and efficiently organized comprehensive annual financial report, whose contents conform to
program standards. Such reports must satisfy both generally accepted accounting principles and
apphcable legal requirements
A Certificate of Achievement is valid for a period of one year only We beheve our current report
continues to conform to Certificate of Achievement Program requirements and we are submitting it to
GFOA to determine its eligibility for another certificate.
In addition, the City also received the GFOA's Award for Distinguished Budget Presentation, the 15th
consecutive year for its annual appropriated budget dated September 13, 2001 In order to qualify for
the Distinguished Budget Presentation Award, the City's budget document was judged to be proficient
m several categories including policy documentation, financial planning, and orgamzation.
v
Acknowledgments. We would like to express our appreciation to all members of the Finance and
Administration Departments who assisted and contributed to its preparation. We would also like to
thank the Mayor, members of the City Council, and City Manager for their interest and support in
planmng and conductmg the financial operations of the City in a responsible and progressive manner
Respectfully sub rutted,
a e,
Mary A. Ross
Director of Finance
March 13, 2003
vi
Certificate of
Achievement
for Excellence
in Financial
Reporting
Presented to
City of Pearland,
Texas
For its Comprehensive Annual
Financial Report
for the Fiscal Year Ended
September 30, 2001
A Certificate of Achievement for Excellence in Financial
Reporting is presented by the Government Finance Officers
Association of the United States and Canada to
government units and public employee retirement
systems whose comprehensive annual financial
reports (CAFRs) achieve the highest
standards in government accounting
and financial reporting.
N OF Ofp,C
�c� OF THE et,
Y UNITED STATES ,
S2 AND
CANADA
CORPORATION 3
SEAL
gaz
President
Executive Director
City of Pearland Organizational Chart
CITIZENS
MUNICIPAL JUDGES
ECONOMIC
DEVELOPMENT
FINANCE
ACCOUNTING
PURCHASING
UTILITY BILLING
INFORMATION
SYSTEMS
FIRE MARSHAL
EMERGENCY MANAGEMENT
FIRE
EMERGENCY
MEDICAL
SERVICES
r
PARKS & RECREATION
PARKS
COMMUNITY
CENTER
CUSTODIAL
BUILDING MAINT
RECREATION
ATHLETICS
AQUATICS/SP
EVENTS
RECREATION
CENTER
CITY COUNCIL
CPT MANAGER
CITY ATTORNEY
DEPUTY CITY
MANAGER
ENGINEERING
PROJECTS
PUBLIC WORKS
FLEET
MAINTENANCE
STREETS AND
DRAINAGE
WATER
PRODUCTION
AND
WASTEWATER
TREATMENT
WATER AND
WASTEWATER
DISTRIBUTION
AND COLLECTION
WATER AND
WASTEWATER
CONSTRUCTION
POLICE
CRIMINAL
INVESTIGATION
DIVISION
CIVILIAN
d COMMUNITY
SERVICE
EXECUTIVE
DIRECTOR OF
COMMUNITY
SERVICES
CITY SECRETARY
HUMAN
RESOURCES
MUNICIPAL
COURT
INSPECTION
SERVICES
BUILDING
INSPECTION
CODE
ENFORCEMENT
PLANNING AND
ZONING
ANIMAL
CONTROL
GRANTS/PUBLIC
AFFAIRS
SENIORS
PATROL
Vlll
CITY OF PEARLAND, TEXAS
LIST OF PRINCIPAL OFFICIALS
AS OF SEPTEMBER 30, 2002
ELECTED OFFICIALS
Tom Reid Mayor
Richard Tetens (Position No 1) Council Member
Woody Owens (Position No 2) Council Member, Mayor Pro -Tern
Charles Viktorin (Position No 3) Council Member
Larry Marcott (Position No 4) Council Member
Klaus Seeger (Position No 5) Council Member
APPOINTED OFFICIALS
Bill Eisen City Manager
Alan Mueller Deputy City Manager
Young Lorfmg City Secretary
Darrin Coker City Attorney
(continued)
ix
CITY OF PEARLAND, TEXAS
LIST OF PRINCIPAL OFFICIALS
(continued)
AS OF SEPTEMBER 30, 2002
EXECUTIVE MANAGERS
Vacant Executive Director of P.E.D C.
Cindy Soto Interim Director of Finance
Chris Doyle Police Chief
Larry Steed Fire Marshall/Emergency
Management Director
Tobin Maples Manager of Administrative Services
Ed Hersh Director of Parks and Recreation
Jerry Burns Director of Public Works
Joseph Wertz Director of Projects
Vacant Director of Inspection Services
John Hargrove City Engineering
Glenn Chaney Municipal Court Judge
Edward Sillas Municipal Court Judge
Floyd Myers Municipal Court Judge
z
FINANCIAL SECTION
THIS PAGE LEFT BLANK INTENTIONALLY
PATTILLO, BROWN & HILL,L.L.P
CERTIFIED PUBLIC ACCOUNTANTS ■ BUSINESS CONSULTANTS
INDEPENDENT AUDITORS' REPORT
To the Honorable Mayor and Members
of the City Council
City of Pearland, Texas
We have audited the accompanying general purpose financial statements of the City of Pearland,
Texas, as of and for the year ended September 30, 2002, as listed in the table of contents. These general
purpose financial statements are the responsibility of the City's management. Our responsibility is to
express an opinion on these general purpose financial statements based on our audit.
We conducted our audit rn accordance with auditing standards generally accepted in the United
States of America. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the general purpose financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the general
purpose financial statements An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall general purpose financial
statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opimon, the general purpose financial statements referred to above present fairly, in all
matenal respects, the financial position of the City of Pearland, Texas, as of September 30, 2002, and
the results of its operations and the cash flows of its proprietary fund type for the year then ended in
conformity with accounting principles generally accepted in the United States of America.
1
401 WEST HIGHWAY 6 ■ P 0 BOX 20725 ■ WACO, TX 76702-0725 ■ (254) 772-4901■ FAX. (254) 772-4920 ■ www.pbhcpa.com
AFFILIATE OFFICES: AUSTIN, TX (512) 345-1452 ■ BROWNSVILLE, TX (956) 544-7778 ■ HILLSBORO, TX (254) 582-2583
LUFKIN, TX (936) 632-7648 ■ TEMPLE, TX (254) 791-3460 ■ ALBUQUERQUE, NM (505) 266-5904 ■ RIO RANCHO, NM (505) 898-3516
In accordance with Government Auditing Standards, we have also issued our report dated
December 20, 2002, on our consideration of the City of Pearland, Texas' mternal control over financial
reportmg and our tests of its compliance with certain provisions of laws, regulations, contracts and
grants. That report is an mtegral part of an audit performed in accordance with Government Auditing
Standards and should be read m conjunction with this report in considering the results of our audit.
Our audit was conducted for the purpose of forming an opinion on the general purpose financial
statements taken as a whole. The combining and individual fund and account group financial
statements, schedules and statistical data hsted in the table of contents are presented for purposes of
additional analysis and are not a required part of the general purpose financial statements of the City of
Pearland, Texas. Such information, except for that portion marked "unaudited" on which we express no
opmmon, has been subjected to the auditing procedures applied in the audit of the general purpose
financial statements and, m our opinion, is fairly presented in all material respects in relation to the
general purpose financial statements taken as a whole.
The Required Pension System Supplementary Information listed in the table of contents is not a
required part of the general purpose financial statements, but is supplementary information required by
the Government Accounting Standards Board. We have applied certain limited procedures, which
consisted principally of inquiries of management regarding the methods of measurement and
presentation of the supplementary information. However, we did not audit the information and express
no opinion on it.
fied,6-,e,4
December 20, 2002
2
GENERAL PURPOSE
FINANCIAL STATEMENTS
CITY OF PEARLAND, TEXAS
COMBINED BALANCE SHEET
ALL FUND TYPES, ACCOUNT GROUPS
AND DISCRETELY PRESENTED COMPONENT UNITS
SEPTEMBER 30, 2002
(With Comparative Totals for September 30, 2001)
ASSETS AND OTHER DEBITS
Assets:
Cash and cash equivalents
Investments
Receivables:
Property taxes
Accounts receivable
Less: allowance for estimated uncollectibles
Grants Receivable
Sales and Other Taxes Receivable
Accrued interest
Due from other funds
Inventories
Restricted assets:
Cash and cash equivalents
Deferred charges
Construction in progress
Fixed assets (net where applicable of accumulated depreciation)
accumulated depreciation)
Other Debits:
Amount available for debt service
Amount to be provided for retirement of general long-term debt
Governmental Fund Types
General
$ 253,932
4,804,725
462,989
588,692
( 65,590)
1,415,722
1,626
612,373
51,915
Special
Revenue
$ 1,130,747
15,000
4,834
58
Debt
Service
Capital
Projects
$ 176,152 $ 5,563,010
2,053,377 26,193,112
236,852
Total Assets and Other Debits $ 8,126,384 $ 1,150,639 $
LIABILITIES, EQUITY AND OTHER CREDITS
Liabilities:
Accounts payable $ $
Accrued liabilities
Due to other funds
Security deposits
Accrued compensated absences
Deferred revenue
Deferred issuance cost
Current portion oflong-term debt
Certificates of obligation
Revenue bonds - less current portion
Obligations under capital leases
General obligation bonds
Total Liabilities _ 3,101,438 273,566
1,692,549
2,266
690,584
716,039
$ 187,526
71,334
14,706
Equity and Other Credits:
Contributed capital
Investment in general fixed assets
Retained earnings
Fund balances:
Reserved for encumbrances 234,010
Reserved for inventories and prepaid items 51,915
Unreserved:
Designated for debt service Designated for subsequent years' expenditures 877,073
Undesignated 4,739,021
Total Equity and Other Credits
5,024,946
Total Liabilities, Equity and Other Credits $ 8,126,384
187,841
55,085
2,466,381 $ 31,999,048
236,852
236.852
2,229,529
877,073 2,229,529
$ 3,408,190
81,173
15,966
3,505,329
28,493,719
28,493,719
$ 1,150,639 $ 2,466,381 $ 31,999,048
The accompanying notes are an integral part of these financial statements.
3
EXIT 1
Proprietary
Fund Type
Enterprise
28,416,480
1,094,087
( 115,883)
31,791
340,000
654,760
14,425,830
34,139,822
$ _ 78286,887
Account Groups
General
Fixed
Assets
$ 2,731,007 $
192,682
459,866
750,519
310,541
675,000
16,835,000
24,985,000
46,939,615
22,233,110
9,814,162
32,047,272
$ 78,986,887
65,479,400
General
Long-term
Debt
2,229,529
64,487,273
Total
Primary
Government
(Memorandum
Only)
$ 7,123,841
61,482,694
699,841
1,870,620
( 181,473)
4,834
1,415,722
88,560
612,373
51,915
340,000
654,760
14,425,830
99,619,222
2,229,529
64,487,273
65,479,400 $ 66,716,802 $ 254,925,541
65,479,400
65,479,400
1,796,802
51,585,000
13,335,000
66,716,802
$ 8,019,272
194,948
612,373
750,519
2,797,927
983,563
675,000
68,420,000
24,985,000
13,335,000
120,773,602
22,233,110
65,479,400
9,814,162
234,010
51,915
2,229,529
29,370,792
4,739,021
134,151,939
Discretely
Presented
Component
Unit
$ 1,142,958
3,761,047
142
470,552
6,288
•
55,403
Totals
(Memorandum Only)
September 30,
2002 2001
$ 8,266,799
65,243,741
4,556,023
$ 9,992,413 $
$ 74,305 $
7,726
6,023
4,550,000
$. 5,801,136
35,432,242
699,841 550,553
1,870,762 2,419,893
181,473) ( 181,473)
4,834
1,886,274 1,937,737
94,848 41,649
612,373 2,154,884
51,915 51,915
340,000 444,949
654,760 657,777
14,425,830 11,423,287
99,674,625 79,018,306
2,229,529 1,544,987
69,043,296 32,976,911
264,917,954 $ 174,274,753
8,093,577
202,674
612,373
750,519
2,803,950
983,563
675,000
72,970,000
24,985,000
13,335,000
$ 1,606,225
166,320
2,154,884
623,913
2,289,414
808,237
52,002
645,000
15,680,000
32,495,000
74,724
17,260,000
4,638,054 125,411,656 73,855,719
55,403
5,298,956
22,233,110
65,534,803
9,814,162
234,010
51,915
2,229,529
29,370,792
10,037,977
22,233,110
54,694,569
10,867,988
1,433,514
1,544,987
3,552,583
6,092,283
5,354,359 139,506,298 100,419,034
65,479,400 $ 66,716,802 $ 254,925,541 $ 9,992,413
$ 264,917,954 $ 174,274,753
4
CITY OF PEARLAND, TEXAS
COMBINED STATEMENT OF REVENUE, EXPENDITURES
AND CHANGES IN FUND BALANCES
ALL GOVERNMENTAL FUND TYPES
AND DISCRETELY PRESENTED COMPONENT UNITS
YEAR ENDED SEPTEMBER 30, 2002
(With Comparative Totals for Year Ended September 30, 2001)
Governmental Fund Types
General
REVENUE
Property taxes and penalties
Other taxes
Licenses and permits
Fines and forfeitures
Franchise fees
Charges for services
Intergovernmental
Interest
Other
Total Revenue
EXPENDITURES
Current:
General government
Public safety
Public works
Community services
Economic development
Capital outlay
Debt service:
Principal retirement
Interest and fiscal charges
Bond issuance costs
Total Expenditures
EXCESS OF REVENUE OVER
(UNDER) EXPENDITURES
OTHLR FINANCING SOURCES (USES)
Operating transfers in
Proceeds from bond issuance
Payments to bond escrow
Operating transfers out
Total Other Financing Sources (Uses)
EXCESS OF REVENUE AND OTHER FINANCING
SOURCES OVER (UNDER) EXPENDITURES
AND O71iER FINANCING USES
FUND BALANCE, BEGINNING OF YEAR
PRIOR PERIOD ADJUSTMENT
FUND BALANCE, END OF YEAR
Special
Revenue
$ 8,054,173 $
5,044,972
2,256,638
845,322
2,453,829
3,651,825
155,628
733,303
23,195,690
5,052,056
7,411,992
7,603,804
2,271,052
(
(
58,269
8,383,743
1,649
671,039
Debt
Service
$ 4,803,822
45,019
9,114,700 4,848,841
11,055,484
1,329
661,176
22,338,904 11,717,989
856,786 ( 2,603,289)
91I,552
3,224,732)
2,313,180)
( 1,456,394)
6,563,942
( 82,602)
$ 5,024,946
1,920,000
2,192,490
4,112,490
Capital
Projects
617,545
446,525
179,336
1,243,406
117,437
890,055
12,239,136
181,812
13,428,440
736,351 ( 12,185,034)
2,619,677 - 850,439
1,900,000 36,650,000
( 1,900,000)
( 51,809) ( 475,440)
2,619,677 ( 51,809) 37,024,999
16,388
860,685
684,542
1,544,987
24,839,965
3,653,754
877,073 $ 2,229,529 $ 28,493,719
The accompanying notes are an integral part of these financial statements.
5
Totals Totals
(Memorandum Discretely (Memorandum Only)
Only) Presented
Primary Component September 30,
Government Units 2002 2001
$ 12,857,995 $ 2,926 $ 12,860,921 $ 10,833,292
5,103,241 2,512,463 7,615,704 7,259,846
2,256,638 2,256,638 1,896,728
845,322 845,322 856,641
2,453,829 2,453,829 2,303,730
3,651,825 3,651,825 3,202,767
9,001,288 9,001,288 363,677
648,821 648,821 691,715
1,583,678 206,383 1,790,061 1,676,909
38,402,637 2,721,772 41,124,409 29,085,305
16,224,977 16,224,977 4,235,344
8,303,376 8,303,376 6,692,138
7,603,804 7,603,804 5,974,667
2,932,228 - 2,932,228 2,662,369
571,379 571,379 1,079,177
12,239,136 1,269,651 13,508,787 4,920,448
1,920,000 368,779 2,288,779 2,050,616
2,192,490 - 2,192,490 1,595,682
181,812 181,812 -
51,597,823 2,209,809 53,807,632 29,210,441
( 13,195,186)
(
(
4,381,668
38,550,000
1,900,000)
3,751,981)
37,279,687
511,963 ( 12,683,223)
411,639
( 110,000)
301,639
(
(
4,793,307
38,550,000
1,900,000)
3,861,981)
37,581,326
125,136)
700,007
( 128,000)
572,007
24,084,501 813,602 24,898,103 446,871
12,623,368 4,526,038 17,149,406 15,128,676
( 82,602) ( 40,684) ( 123,286) 1,573,868
36,625,267 $ 5,298,956 $ 41,924,223 $ 17,149,415
CITY OF PEARLAND, TEXAS
COMBINED STATEMENT OF REVENUE, EXPENDITURES
AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL
GENERAL AND DEBT SERVICE FUNDS
YEAR ENDED SEPTEMBER 30, 2002
REVENUE
Property taxes and penalties
Other taxes
Licenses and permits
Fines and forfeitures
Franchise fees
Charges for services
Interest
Other
Total Revenue
General
Variance
Favorable
Budget Actual (Unfavorable)
$ 8,206,442 $ 8,054,173 $( 152,269)
4,712,800 5,044,972 332,172
1,637,000 2,256,638 619,638
885,700 845,322 ( 40,378)
2,135,011 2,453,829 318,818
3,586,383 3,651,825 65,442
483,000 155,628 ( 327,372)
395,625 733,303 337,678
22,041,961 23,195,690 1,153,729
EXPENDITURES
Current:
General government 6,916,970
Public safety 7,126,729
Public works 6,595,637
Community services 2,138,983
Debt service:
Principal retirement
Interest and fiscal agent fees
Total Expenditures 22,778,319
EXCESS (DEFICIENCY) OF REVENUE
OVER (UNDER) EXPENDITURES ( 736,358)
OTHER FINANCING SOURCES (USES)
Operating transfers in 810,000
Proceeds from debt issuance -
Payments to bond escrow
Operating transfers out ( 518,000)
Total Other Financing Sources (Uses) 292,000
EXCESS (DEFICIENCY) OF REVENUE
AND OTHER FINANCING SOURCES
AND OTHER FINANCING USES
FUND BALANCES, BEGINNING OF YEAR
PRIOR YEAR ADJUSTMENT
( 444,358)
6,563,942
FUND BALANCES, END OF YEAR 1 $ 6,119,584
5,052,056
7,411,992
7,603,804
2,271,052
22,338,904
856,786
911,552
( 3,224,732)
( 2,313,180)
( 1,456,394)
6,563,942
( 82,602)
$ 5,024,946
The accompanying notes are an integral pert of these financial statements.
7
1,864,914
( 285,263)
( 1,008,167)
( 132,069)
439,415
1,593,144
101,552
( 2,706,732)
( 2,605,180)
( 1,012,036)
( 82,602)
$( 1,094,638)
Debt Service
Variance
Favorable
Budget Actual (Unfavorable)
$ 4,752,927 $ 4,803,822 $ 50,895
58,000
4,810,927
45,019 ( 12,981)
4,848,841 37,914
2,080,000 1,920,000 160,000
3,326,065 2,192,490 1,133,575
5,406,065
( 595,138)
4,112,490 1,293,575
736,351 1,331,489
1,900,000 1,900,000
- ( 1,900,000) ( 1,900,000)
( 51,809) ( 51,809)
( 51,809) ( 51,809)
( 595,138) 684,542 1,279,680
1,544,987 1,544,987
$ 949,849 $ 2,229,529 $ 1,279,680
8
EXHIBIT 4
CITY OF PEARLAND, TEXAS
COMBINED STATEMENT OF REVENUE, EXPENSES
AND CHANGES IN RETAINED EARNINGS -
PROPRIETARY FUND TYPE (ENTERPRISE FUND)
YEAR ENDED SEPTEMBER 30, 2002
Enterprise
OPERATING REVENUE
Water and sewer sales and services $ 7,974,288
Other 249,431
Total Operating Revenue 8,223,719
OPERATING EXPENSES
Production and wastewater 2,752,987
Distribution and collection 950,263
Accounting and collections 386,932
Other requirements 525,621
Construction and engineering 627,830
Total Operating Expenses 5,243,633
OPERATING INCOME BEFORE DEPRECIATION 2,980,086
DEPRECIATION AND AMORTIZATION 1,405,238
OPERATING INCOME 1,574,848
NONOPERATING REVENUE (EXPENSES)
Earnings on investments 813,424
Impact fees 3,906,666
Interest and fiscal charges ( 1,891,400)
Total Nonoperating Revenue (Expenses) 2,828,690
TRANSFERS FROM (TO) OTHER FUNDS
Transfers in 128,000
Transfers (out) ( 1,059,326)
Total Operating Transfers ( 931,326)
NET INCOME 3,472,212
RETAINED EARNINGS, BEGINNING OF YEAR 6,341,950
RETAINED EARNINGS, END OF YEAR $ 9,814,162
The accompanying notes are an integral part of these fmancial statements.
9
EDIT 5
CITY OF PEARLAND, TEXAS
COMBINED STATEMENT OF CASH FLOWS -
PROPRIETARY FUND TYPE (ENTERPRISE FUND)
YEAR ENDED SEPTEMBER 30, 2002
Enterprise
CASH FLOWS FROM OPERATING ACTIVITIES
Operating income $ 1,574,848
Adjustments to reconcile operating income to
net cash provided by operating activities:
Depreciation and amortization 1,405,238
Changes in Assets and Liabilities:
Decrease (increase) in accounts receivable 219,403
Decrease (increase) in accrued interest receivable 9,858
Decrease (increase) in due from other funds 31,549
Decrease (increase) in deferred charges ( 48,985)
Increase (decrease) m customer deposits 126,606
Increase (decrease) in accounts payable 2,410,016
Increase (decrease) in accrued compensated absences 79,349
Increase (decrease) in due to other funds 396,858
Increase (decrease) in current portion of long-term debt 30,000
Increase (decrease) in accrued liabilities 60,390
Net Cash Provided by Operating Activities 6,295,130
CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES
Transfers from other funds 128,000
Transfers to other funds ( 1,059,326)
Net Cash Used in Noncapital Financing Activities ( 931,326)
CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES
Contributed capital - impact fees 3,906,666
Purchase of fixed assets (14,223,865)
Revenue bond principal payments ( 675,000)
Proceeds from revenue bonds 10,000,000
Interest and fiscal charges ( 1,891,400)
Net Cash Used in Capital and Related Financing Activities ( 2,883,599)
CASH FLOWS FROM INVESTING ACTIVITIES
Interest on investments 813,424
Purchase of investments (10,957,640)
Proceeds from sale of investments 5,108,467
Net Cash Used in Investment Activities ( 5,035,749)
NET DECREASE IN CASH ( 2,555,544)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 2,895,544
CASH AND CASH EQUIVALENTS, END OF YEAR $ 340,000
Cash
Restricted cash
Cash and Cash Equivalents, End of Year
The accompanying notes are an integral part of these financial statements.
10
340,000
$ 340,000
CITY OF PEARLAND, TEXAS
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2002
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The City of Pearland, Texas, was incorporated m December 1959, and adopted the "Home Rule
Charter" February 6, 1971, pursuant to the laws of the State of Texas. The City operates under a
"Council -Manager" form of government and provides services authorized by its charter Presently,
these services include police and fire protection, water and sewer services, drainage, sanitation,
building and code inspection, planning, zoning, engineering, street repair and maintenance, park
maintenance, recreational activities for citizens, and general administrative services
The financial statements of the City of Pearland have been prepared in conformity with generally
accepted accounting prmciples (GAAP) as applied to governmental units. The Governmental
Accounting Standards Board (GASB) is the accepted standard -setting body for establishing
governmental accounting and financial reporting prmciples The more significant of the City's
accounting policies are described below.
Reporting Entity
The City is an independent pohtical subdivision of the State of Texas, governed by an elected
mayor and five -member Council, and is considered a primary government. As required by
generally accepted accounting principles, these general purpose financial statements have
been prepared based on the City's financial reporting entity The Pearland Economic
Development Corporation (PEDC) has been included in the City's financial reporting entity
as a discretely presented component unit. The City is considered a primary government for
financial reporting purposes and its activities are not considered a part of any other
governmental or other type of reporting entity
Considerations regarding the potential for inclusion of other entities, organizations, or
functions in the City's financial reporting entity, are based on criteria prescribed by generally
accepted accounting principles These same criteria are evaluated in considering whether the
City is a part of any other governmental or other type of reporting entity The overriding
elements associated with prescribed criteria considered in determining that the City's
financial reportmg entity status is that of a primary government are that it has a separately
elected governing body; it is legally separate; and is fiscally independent of other state and
local governments. Additional prescribed criteria under generally accepted accounting
principles include considerations pertaining to organizations for which the primary
government is fmancially accountable; and considerations pertaining to other organizations
for which the nature and significance of their relationship with the primary government are
such that exclusion would cause the reporting entity's financial statements to be misleading
or incomplete.
(continued)
11
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Renortine Entity (Continued)
As required by generally accepted accounting principles, the financial statements of the
reporting entity mclude those of the City of Pearland (the primary government) and its
component units, entities for which the City is considered to be fmancially accountable
Blended component units, although legally separate entities, are, in substance, part of the
government's operations and so data for these units would be combined with data of the City
The City has no blended component units. The City's discretely presented component unit is
reported in a separate column in the combined financial statements
Discretely Presented Component Unit:
The component units in the combined financial statements include the financial data of
the City's component units They are reported in a separate column to emphasize they
are legally separate from the City The City Council appoints the Board members for the
Pearland Economic Development Corporation. The City Council appoints several
members to the Tax Increment Reinvestment Zones with the remaining members being
appointed in accordance with state law
1 The Pearland Economic Development Corporation (PEDC) is responsible
for economic development within the City's jurisdiction. The PEDC is
fiscally dependent upon the government because, besides appointing the
Board, the City Council also must approve the PEDC's budget and any
debt issuances.
2. The two Tax Increment Reinvestment Zone's (TIRZ #1 and TIRZ #2)
provide tax assisted property development and/or redevelopment in
specific geographic areas in accordance with apphcable state laws
Besides appointing Board members, the City Council must also approve
the TIRZ's budgets and any debt issuances
The following page presents condensed financial statements for each of the three
discretely presented component units. Additional financial information may be obtained
from their respective administrative offices at the following address:
Pearland Economic Development Corporation
or
Tax Increment Remvestment Zones
3 519 Liberty Drive
Pearland, Texas 77581-5416
(continued)
12
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Reporting Entity (Continued)
Condensed financial statements of each discretely presented component unit are as follows.
Condensed Balance Sheet
ASSETS
Cash and investments
Accounts receivable
Fixed assets
Amount to be provided for
retirement of long-term debt
Total Assets
LIABILITIES
Current liabilities
General long-term debt
Total Liabilities
FUND EQUITY
Investment in fixed assets
Fund balance, unreserved
Total Fund Equity
Total Liabilities and Fund Equity
Economic
Development
Corporation
$ 4,716,064
476,982
55,403
4,556,023
$ 9,804,472
Tax Increment Tax Increment
Reinvestment Reinvestment
Zone #1 Zone #2
Totals
$ 11,057 $ 176,884 $ 4,904,005
476,982
55,403
4,556,023
$ 11,057 $ 176,884 $ 9,992,413
$ 51,802 $
4,550,000
4,601,802
$ 36,252
$ 88,054
4,550,000
36,252 4,638,054
55,403 55,403
5,147,267 11,057 140,632 5,298,956
5,202,670 11,057 140,632 5,354,359
$ 9,804,472 $ 11,057 $ 176,884 $ 9,992,413
Condensed Statement of Revenue, Expenditures and Changes in Equity
REVENUE $ 2,586,560
EXPENDITURES
Current 428,818
Capital outlay 1,269,651
Debt service 368,779
Total Expenditures 2,067,248
EXCESS (DEFICIENCY) OF REVENUE
OVER (UNDER) EXPENDITURES 519,312 ( 7,616)
OTHER FINANCING USES
Operating transfers in
Operatmg transfers out ( 110,000)
Total Other Financing Uses ( 110,000)
EXCESS OF REVENUE AND OTHER
SOURCES OVER EXPENDITURES
AND OTHER USES 409,312
FUND EQUITY, BEGINNING 4,778,639
PRIOR PERIOD ADJUSTMENT ( 40,684)
FUND EQUITY, ENDING $ 5,147,267
$ 198 $ 135,014 $ 2,721,772
7,814
7,814
(continued)
134,747
571,379
1,269,651
368,779
134,747 2,209,809
267
511,963
411,639 411,639
( 110,000)
411,639 301,639
( 7,616) 411,906 813,602
18,673 ( 271,274) 4,526,038
( 40,684)
$ 11,057 $ 140,632 $ 5,298,956
13
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Fund Accounting
The City uses funds and account groups to report on its financial position and the results of
its operations Fund accounting is designed to demonstrate legal compliance and to aid
financial management by segregating transactions related to certain government functions or
activities.
A fund is a separate accounting entity with a self -balancing set of accounts An account
group, on the other hand, is a financial reporting device designed to provide accountability
for certain assets and liabilities that are not recorded in the funds because they do not directly
affect net expendable available financial resources. The followmg is a description of the
various funds and account groups
GOVERNMENTAL FUND TYPES
General Fund — The General Fund is used to account for all financial
transactions not properly includable in other funds. The principal source of
revenue of the General Fund are property taxes, sales and use taxes, franchise
fees, permit fees, and fines and forfeitures. Expenditures are for general
government, finance, public safety, public works, park maintenance and
recreation, municipal court, planning and zoning, and engineering.
Special Revenue Funds — The Special Revenue Funds are used to account for all
financial transactions for the Regional Detention, Hotel/Motel Tax, Pohce,
Federal Police, Community Service Funds, and special grant revenue where the
funds are for specific uses.
Debt Service Fund — The Debt Service Fund is used to account for the payment
of interest and principal on all general obligation debts of the City The primary
source of revenue for debt service is local property taxes.
Capital Projects Funds — The Capital Projects Funds are used to account for the
proceeds from the sale of general obligation bonds and certificates of obligation
and expenditures of these proceeds for the acquisition of fixed assets as
designated in each bond issue.
PROPRIETARY FUND TYPE
Enterprise Fund — The Enterprise Fund is used to account for those operations
that are financed and operated in a manner similar to pnvate business or where the
Council has decided that the determination of revenue earned, costs incurred,
and/or net income is necessary for management accountability The Enterpnse
fund is used to account for the City's water and sewer service operations.
(continued)
14
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Contmued)
Fund Accounting (Continued)
ACCOUNT GROUPS
General Fixed Assets Account Group — General fixed assets are not capitalized
in the funds used to acquire or construct them. Instead, capital acquisition and
construction are reflected as expenditures in governmental funds, and the related
assets are reported in the General Fixed Assets Account Group All purchased
fixed assets are valued at cost. Donated fixed assets are valued at their estimated
fair market value on the date received.
The costs of normal maintenance and repairs that do not add to the value of the
asset, or materially extend asset hves, are not capitahzed. Improvements to fixed
assets are capitalized. Assets in the General Fixed Assets Account Group are not
depreciated. Interest is not capitahzed on general fixed assets acquired through
the issuance of tax-exempt debt. Pubhc domain (infrastructure) general fixed
assets, consisting of roads, bridges, curbs and gutters, streets, and drainage
systems, are capitalized.
General Long-term Debt Account Group — This account group is used to account
for the City's long-term liabilities, which include general obligation bonds,
certificates of obligation and obligations under capital leases due at varying dates
through 2022, and the long-term liability for employees' accrued compensated
absences.
Basis of Accounting
The accounting and financial reporting treatment applied to a fund is determined by its
measurement focus. All governmental funds are accounted for using a current financial
resources measurement focus. As such, only current assets and current liabilities generally
are included on the balance sheet.
Operating statements of these funds present increases (revenue and other financing sources)
and decreases (expenditures) m net current assets.
The proprietary fund type and component unit are accounted for on a flow of economic
resources measurement focus. With this measurement focus, all assets and all liabilities
associated with the operation of the funds are mcluded on the balance sheet. Fund equity
(net total assets) is segregated into contributed capital, if applicable, and retained earnings
components. Propnetary fund type operating statements present increases (revenue) and
decreases (expenses) in net total assets.
(continued)
15
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Basis of Accounting (Continued)
The modified accrual basis of accounting is used by the government fund types. Under the
modified accrual basis of accounting, revenue is recognized when susceptible to accrual
(when it becomes both measurable and available.) "Measurable" means the amount of the
transaction can be determined and "available" means collectible within the current penod or
soon enough thereafter to be used to pay liabilities of the current period. The City considers
the majority of its major revenue as available when collected. Expenditures are recorded
when the related fund liability is incurred. Principal and interest on general long-term debt
are recorded as liabilities when due.
Those revenue susceptible to accrual under the modified accrual basis are property taxes and
other taxes (primarily sales taxes), franchise fees, mtergovernmental revenue, and interest
revenue. Licenses and permits and fines and forfeitures revenue are not susceptible to
accrual because generally they are not measurable until received in cash.
The City recognized deferred revenue on its balance sheet. Deferred revenue arises when
potential revenue does not meet both the "measurable" and "available" criteria for
recognition in the current period.
The accounts of the proprietary fund type are maintained, and the financial statements have
been prepared on the accrual basis of accounting. Under this basis, revenue is recognized
when it is earned and expenses are recognized when they are incurred. The proprietary fund
type follows generally accepted accounting principles prescribed by the Governmental
Accounting Standards Board (the GASB) and all Financial Accounting Standards Board's
standards issued prior to November 30, 1989 Subsequent to this date, the City accounts for
its propnetary fund type as prescribed by the GASB
Budgets
Annual budgets are adopted for the General and Debt Service Funds. The City does not
legally adopt an annual budget for the Special Revenue and Capital Projects Funds. The City
adopts project budgets for the Capital Projects and Special Revenue Funds, which are revised
annually
These budgets are created by ordinance and include all sources and uses of funds as approved
by Council. All annual budgets are prepared on a basis consistent with generally accepted
accounting principles (GAAP)
(continued)
16
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Contmued)
Budgets (Contmued)
Encumbrance accounting is utilized in all governmental fund types. Encumbrances for
materials, other goods, and purchased services are documented by purchase orders or
contracts. Encumbrances outstanding at year-end do not constitute expenditures or liabilities.
The City generally honors these commitments, and it has been the City's practice to increase
the subsequent year's appropriations to complete these transactions At year-end, the City
reserved a portion of fund balance for outstanding encumbrances of $234,010 m the General
Fund.
Cash and Temporary Investments
Cash and temporary investments consist of amounts in an interest -bearing time deposit
account, petty cash funds, and TexPool. TexPool is an external investment pool established
by interlocal contract under state law Investments are stated at fair value based on quoted
market prices at September 30,, 2002. The net increase or decrease in the fair value of
investments is recorded as mvestment earnings. Investments are generally held to maturity
The City pools cash resources of its various funds to facilitate the management of cash. Cash
apphcable to a particular fund is readily identifiable. The balance in the pooled cash
accounts is available to meet current operating requirements. Cash in excess of current
requirements is invested in various interest -bearing securities and disclosed as part of the
City's investments The City pools excess cash of the various individual funds to purchase
investments. These pooled investments are reported in the combined balance sheet as
investments in each fund based on each fund's share of the pooled investments. Interest
income is allocated to each respective individual fund monthly based on its respective share
of pooled in vestments.
Receivables
All trade receivables are shown net of an allowance for uncollectibles.
Property taxes are recorded as revenue when levied for the current year and due, payable and
collected in the current year Uncollected amounts at year-end are reported as deferred
revenue. Property taxes collected within 60 days subsequent to September 30, 2002, were
not considered material.
Interfund Receivables and Payables
During the course of operations, transactions occurred between individual funds for specified
purposes. These receivables and payables are classified as "due from other funds" or "due to
other funds" on the combined balance sheet.
(continued)
17
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting
prmciples requires management to make estimates and assumptions that affect the reported
amounts of assets and habilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenue, expenditures and expenses
during the reporting period. Actual results could differ from those estimates.
Inventory, which consists of gasoline and auto parts for use rn the City's vehicles, is stated at
cost (first-m, first -out method) Expenditures are recognized as the fuel and auto parts are
used.
Restricted Assets
Certain proceeds of Enterpnse Fund revenue bonds, as well as certain resources set aside for
their repayment, are classified as restricted assets on the combined balance sheet because
their use is limited by applicable bond covenants.
Compensated Absences
Compensated absences, which include unpaid vacation, sick and other employee benefit
amounts, are accumulated dunng employment. Amounts accumulated are paid to employees
upon separation from City service. Under the modified accrual basis of accounting, such are
recorded in the General Long-term Debt Account Group net of amounts expected to be
liquidated with expendable available financial resources at the end of the fiscal year, which
are recorded as expenditures of the General Fund. Compensated absences are accrued when
incurred in the proprietary funds and recorded as a fund habihty
Fund Equity
Contributed capital is recorded m proprietary funds that have received capital grants or
contributions from developers, customers, or other funds. Reserves represent those portions
of fund equity not available for expenditure or legally segregated for a specific future use.
Designations of fund balance represent tentative management plans that are subject to
change.
Cash and Cash Equivalents
For the purpose of the statement of cash flows, the proprietary fund type and component unit
consider all mvestments with onginal maturities of three months or less from the date of
acquisition to be cash equivalents.
(continued)
18
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Total Columns on Combined Statements
Total columns on the general purpose fmancial statements are captioned as "memorandum
only" because they do not represent consolidated financial information and are presented
only to facilitate financial position, results of operations or cash flows m accordance with
generally accepted accounting principles. Interfund eliminations have not been made in the
aggregation of this data.
Comparative Data/Reclassifications
Comparative total data for the prior year have been presented m selected sections of the
accompanying financial statements m order to provide an understanding of the changes in the
government's fmancial position and operations. Also, certain amounts presented in the prior
year data have been reclassified m order to be consistent with the current year's presentation.
2. BUDGETARY COMPLIANCE
The City Manager, on or before the 10th day of July of each year, shall submit to Council a
proposed budget. The Council shall review the proposed budget and revise as deemed
appropriate prior to circulation for public hearing.
After the public hearmg, the Council may adopt the budget with or without amendment. In
amending the budget, Council may add or increase programs or amounts and may delete or
decrease any amount, except expenditures required by law or for debt or for estimated cash
deficits, provided no amendments to the budget shall increase the authonzed expenditures to an
amount greater than the total of estimated mcome plus funds available from prior years
The Council shall adopt the budget by the 15th of September of each year Adoption of the
budget shall constitute appropnation of the amounts specified therein as expenditures and shall
constitute a levy of the property tax therein proposed.
Every appropriation lapses at the close of the fiscal year to the extent it has not been expended.
Any encumbered appropnation lapses at year-end, but is generally reappropnated as part of the
subsequent year's budget. Expenditures may not legally exceed appropriations at the fund level.
At any time during the fiscal year, the City Manager may request Council to transfer by
ordmance any unencumbered appropriation balance between funds
No significant supplemental appropriations were necessary during the year
19
3. DEPOSITS (CASH) AND INVESTMENTS
The City's cash and investments are classified as cash and cash equivalents, investments, and
restricted cash and investments. The cash and cash equivalents mclude cash on hand, deposits
with financial institutions and other Investments which have maturities at purchase date of less
than three months. The restricted cash includes cash on deposit with financial institutions.
The Council has adopted a wntten investment pohcy regarding the investment of its funds as
defined by the Public Funds Investment Act (Chapter 2256 Texas Government Code) The
investments of the City are in compliance with the Council's investment pohcies It is the City's
policy to restrict its investments to direct obhgations of the U S Government, commercial
paper, fully collateralized certificates of deposit and other interest -bearing time and demand
deposits, and other instruments and investments in public funds investment pools such as the
Texas Local Government Investment Pool (TexPool) State law provides that collateral pledged
as security for bank deposits must have a market value of not less than the uninsured amount of
the deposits and must consist of 1) obligations of the United States of its agencies and
instrumentalities; 2) direct obhgations of the State of Texas or its agencies; 3) other obhgations,
the principal and interest on which are unconditionally guaranteed or insured by the State of
Texas; and/or 4) obhgations of states, agencies, counties, cities, and other political subdivisions
of any state having been rated as to investment quality by a nationally recognized investment
rating. firm and having received a rating of not less than A or its equivalent.
At year-end, the City's carrying amount of deposits was $27,904,793 and the bank balance was
$28,952,694 Of the bank balance, $300,000 was covered by federal depository insurance or by
collateral held by the City's agent in the City's name. Of the remaining balance, $28,652,694
was collaterahzed with securities held by the pledging financial institution's trust department or
agent in the City's name.
Investments are categorized into these three categories of credit risk:
1 Insured or registered, or securities held by the City or its agent in the government's
name.
2. Uninsured and unregistered,with securities held by the counterparty's trust
department or agent in the City's name.
3 Uninsured and unregistered, with securities held by the counterparty, or by its trust
department or agent, but not in the City's name.
Category Fair
1 2 3 Uncategorized Value
U. S. Government securities $ 10,370,865 $ $ $ $ 10,370,865
TexPool - 35,571,048 35,571,048
$ 10,370,865 $ $ $ 35,571,048 $ 45,941,913
(continued)
20
3. DEPOSITS (CASH) AND INVESTMENTS (Continued)
The deposits m TexPool are not evidenced by securities that exist in physical or book entry form
and, accordingly, are not categorized by risk. However, the nature of these funds requires that they
be used to purchase investments authorized by the Public Funds Act. The pnmary objective of
these investment pools is to provide a safe environment for the placement of public funds rn short-
term, fully collaterah7ed investments.
The State Comptroller of Public Accounts exercises oversight responsibihty over TexPool, the
Texas Local Government Investment Pool. Oversight includes the ability to significantly influence
operations, designation of management and accountabihty for fiscal matters. Additionally, the
State Comptroller has established an advisory board composed of both participants m TexPool and
other persons who do not have a business relationship with TexPool. The Advisory Board
members review the investment policy and management fee structure. Finally, TexPool is rated
AAAm by Standard & Poors, as well as the office of the Comptroller of Public Accounts for
review
TexPool operates m a manner consistent with the SEC's Rule 2a7 of the Investment Company Act
of 1940 Its amortized cost rather than market value to report net assets to compute share paces
Accordingly, the fair value of the position m TexPool is the same as the value of TexPool shares.
Fair value of investments are based on quoted market prices in accordance with GASB Statement
No. 31, Accounting and Financial Reporting for Certain Investments and for External Investment
Pools. The amount of increase or decrease in the fair value of investments durmg the year ended
September 30, 2002, was not significant.
4. PROPERTY TAXES
Property taxes for each year are required to be levied by September 15 and are due upon receipt
of the City's tax bill and become delinquent on February 1 of the following year On January 1
of each year, a tax hen is attached to the property to secure the payment of all taxes, penalties,
and interest. The lien exists in the favor of the State and each taxing unit. Appraised values are
established by the Central Appraisal District (CAD) of Brazona County, Texas, through
procedures established by the Texas Legislature. The Pearland Independent School District bills
and collects the City's property taxes
A penalty of 7% is added to delinquent taxes on February 1 and increases 2% each month through
September An additional penalty of 15% is added in July for attorney costs. There are no
discounts allowed m taxes.
The City is permitted, by Article XI, Section 5, of the State of Texas Constitution and the City
Charter, to levy property taxes up to $2.50 per $100 of assessed valuation for general governmental
services. With the $2.50 maximum levy, there is no legal limit upon the amount of property taxes,
which can be levied for debt service. The property tax rates to finance general governmental
services and debt service for the 2001-2002 tax year were $.4300 and $.2560, respectively, per
$100 of assessed valuation. The 2001 assessed value and total tax levy as adjusted through
September 30, 2002, were $1,877,520,613 and $1,524,504,879, respectively
(continued)
21
4. PROPERTY TAXES (Continued)
The following is an analysis of the September 30, 2002, delinquent tax balances in the General
and Debt Service Funds, by year of levy
Year
of Levy
General
Debt
Service
Total
2001 $ 227,518 $ 135,452 $ 362,970
2000 83,365 37,526 120,891
1999 45,707 25,554 71,261
1998 22,792 12,743 35,535
1997 14,509 8,111 22,620
1996 8,725 4,878 13,603
1995 8,020 4,484 12,504
1994 11,078 6,614 17,692
1993 8,584 5,110 13,694
1992 2,644 1,574 4,218
1991 1,807 1,076 2,883
1990 and prior 13,771 8,199 21,970
$ 448,520
$ 251,321 $ 699,841
The City has enacted an ordmance providing for the exemption of $25,000 of the assessed value of
residential homesteads of persons 65 years of age or older from property taxes. This is provided by
Section 1-b(a) of Article 8 of the Constitution of Texas. Additionally, the market value of
agricultural land is reduced to agricultural value for purposes of the City's tax levy calculation.
5. INTERFUND RECEIVABLES AND PAYABLES
Due From Due To
General Fund
Street Assessments $ 81,173 $
Grant Fund 71,334
Enterprise Fund 459,866
612,373
Special Revenue Fund
Grant Fund - 71,334
Capital Projects Fund
Street Assessments
Enterprise Fund
General Fund
Total
81,173
459,866
612,373 $ 612,373
22
6. CHANGES IN FIXED ASSETS
The following is a summary of changes in general fixed assets for the year ended September 30,
2002.
Land
Buildings
Construction in progress
Improvements other than buildings
Machinery and equipment
Totals
Balance
September 30,
2001
$ 1,607,086
9,888,234
5,961,546
25,623,297
11,559,002
Additions Deletions
$ 277,319 $
24,359 -
8,712,381 678,568
1,071,348
1,433,396 -
Balance
September 30,
2002
$ 1,884,405
9,912,593
13,995,359
26,694,645
12,992,398
$ 54,639,165 $ 11,518,803 $ 678,568 $ 65,479,400
The following is a summary in the Enterprise Fund fixed assets for the year ended September 30,
2002.
Land
Equipment
Buildings and improvements
Construction in progress
Less allowance for depreciation
Totals
Balance
September 30,
2001
$ 189,070
2,586,951
32, 836, 061
11,423,322
47,035,404
( 11,288,343)
$ 35,747,061
$
Additions
717,997
10,471,528
12,628,206
23,817,731
( 1,373,442)
$ 22,444,289
Deletions
Balance
September 30,
2002
$ $ 189,070
3,304,948
43,307,589
9,625,698 14,425,830
9,625,698 61,227,437
- (12,661,785)
$ 9,625,698 $ 48,565,652
Depreciation on Enterprise Fund fixed assets is recorded usmg the straight-line method over the
following estimated useful lives of the assets:
Description
Equipment
Buildings and infrastructure
Estimated
Useful Lives
5 to 10 years
3 to 50 years
23
1
7. LONG-TERM DEBT
General Lone -term Debt
The followmg is a summary of general long-term debt transactions for the year ended September
30, 2002.
Certificates of obligation
General obligation bonds
Capital leases
Compensated absences
Totals
Balance
September 30,
2001
$ 15,680,000
12, 610, 000
74,724
1,488,646
Additions Deletions
$ 36,650,000
1,900,000
308,156
$ 745,000
1,175,000
74,724
Balance
September 30,
2002
$ 51,585,000
13,335,000
1,796,802
$ 29,853,370 $ 38,858,156 $ 1,994,724 $ 66,716,802
Certificates of Obligation and General Obligation Bonds:
Certificates ofobhgation and general obligation bonds at September 30, 2002, are comprised
of the following individual issues:
Issue
$5,000,000 Public Works
Series 1995
$25,000,000 Certificate of
Obligation, Series 2002
$6,250,000 Tax and Revenue
Series 1997
$5,500,000 Tax and Revenue
Series 1997-A
$11,650,000 Certificate of
Obligation, Series 2001
$10,830,000 Refunding Bonds
Series 2000
$2,000,000 Street Improvement
Bonds, Series 1992
$1, 900, 000 TIRZ Refunding
Bond, Series 2001
$6,510,000 Refunding Bonds
Series 1993
7 10% to
7.35% 4 6480%
6.00% to
8.00% 4 7613%
3.9% 4 7613%
2.65% to
4 63% 4.3623%
Total General Obhgation Bonds
(continued)
Interest
Rates
5 00% to
700%
5.9% to
7 9%
5.25% to
7.25%
5.20% to
7.20%
4.9%to
Net
Effective
Interest
Rate
Principal
Payment
Date/
Maturity
Interest
Payment
Dates
Debt
Outstanding
March 1/
03/01/14 September 1 $ 4,085,000
March 1/
03/01/27 September 1 25,000,000
March 1/
03/01/16 September 1 5,850,000
March 1/
03/01/18 September 1 5,200,000
March 1/
5 1% 03/01/21 September 1 11,450,000
March 1/
03/01/09 September 1 10, 690, 000
March 1/
03/01/09 September 1 130,000
March 1/
03/01/10 September 1 1,760,000
755,000
March 1/
03/01/03 September 1
$ 64,920,000
24
7. LONG-TERM DEBT (Continued)
General Lone -term Debt (Continued)
The annual requirements to amortize all certificates of obhgation and general obhgation
bonds outstanding as of September 30, 2002, are as follows:
Year Ending
September 30,
Total
Interest Principal
2003 $ 5,869,145 $ 3,829,145 $ 2,040,000
2004 5,882,410 3,192,410 2,690,000
2005 6,073,162 3,038,162 3,035,000
2006 6,056,922 2,866,922 3,190,000
2007-2027 78,850,684 24,885,684 53,965,000
$ 102,732,323
$ 37,812,323 $ 64,920,000
There is $2,229,529 available in the Debt Service Fund to service the above obligations and
the City's obligations under capital leases.
Compensated Absences
Employees earn vacation leave at the rate of 15 days per year from one to 15 years, 20 days
per year for service of 16 to 19 years, and 25 days per year for service of 20 years or more.
Employees are required to take their earned vacation. Employees who are unable to use their
vacation, for various reasons, may, with the City Manager's approval, carry over 50 percent
of the unused portion of the vacation, or received compensation for a maximum of 40 hours.
City employees receive 11 paid holidays per year Employees may be paid or may elect to
receive compensatory time off for the hohday Overtime is earned at one and one-half times
the regular rate of pay Employees may be paid or receive compensatory time The
maximum accrual for overtime is 160 hours, except for employees involved in public safety,
who can accrue up to 320 hours.
The liability for compensated absences at September 30, 2002, is comprised of the following
components.
Beginning Ending
Balance Additions Retirement Balance
Vacation $ 169,631 $ 44,258 $ $ 213,889
Sick 1,093,044 228,229 1,321,273
Compensatory time 225,971 35,669 261,640
Totals $ 1,488,646 $ 308,156 $ $ 1,796,802
(continued)
25
7. LONG-TERM DEBT (Continued)
Enterprise Fund Debt
The following is a summary of Enterprise Fund long-term debt transactions of the City for
the year ended September 30, 2002.
Balance
October 1,
2001 Additions Retirement
Certificates of obligation $ 17,000,000 $
Revenue bonds
Totals
$ 75,000
16,140,000 10,000,000 570,000
Balance
September 30,
2002
$ 16,925,000
25,570,000
$ 33,140,000 $ 10,000,000 $ 645,000 $ 42,495,000
Revenue Bonds and Certificates of Obligation
Issue
$8,870,000 Water and Sewer
Revenue Bonds, Series 1996B
$8,000,000 Water and Sewer
Revenue Bonds, Series 1999
$10,000,000 Water and Sewer
Revenue Bonds, Series 2001
Total Water and Sewer
Revenue Bonds
$17,100,000 Certificates of
Obligation, Series 1998
Total Water and Sewer
Certificates of Obligation
Total
Rates
Principal
Payment
Date!
Maturity
Interest
Payment
Dates
2.9% to March 1/
5.20% 09/01/16 September 1
March 1/
4.90% 09/01/20 September 1
March 1/
5.5% 09/01/23 September 1
2.6%to
March 1/
3 8% 03/01/18 September 1
(continued)
Debt
Outstanding
$ 7,880,000
7,690,000
10,000,000
25,570,000
16,925,000
16,925,000
$ 42,495,000
26
7. LONG-TERM DEBT (Continued)
Enterprise Fund Debt
Revenue Bonds and Certificates of Obligation (Continued)
The annual requirements to amortize all revenue and certificates of obhgation bonds
outstanding as of September 30, 2002, are as follows:
Year Ending
September 30,
Total
Interest Principal
2003 $ 2,425,530 $ 1,750,530 $ 675,000
2004 2,595,181 1,725,181 870,000
2005 3,337,234 1,677,234 1,660,000
2006 3,335,129 1,615,129 1,720,000
2007-2023 51,817,507 14,247,507 37,570,000
Component Unit Debt
$ 63,510,581 $ 21,015,581 $ 42,495,000
The following is a summary of component unit long-term debt transactions for the year
ended September 30, 2002
Sales tax revenue
Total
Balance Balance
October 1, September 30,
2001 Additions Retirement 2002
$ 4,650,000 $ $ 100,000 $ 4,550,000
$ 4,650,000 $ $ 100,000 $ 4,550,000
The terms of Sales Tax Revenue Bonds recorded in the Economic Development Corporation
Fund, as of September 30, 2002, are as follows -
Issue
Sales Tax Revenue Bonds,
Series 1997
Principal
Payment Interest
Interest Date/ Payment Debt
Rates Maturity Dates Outstanding
5.2% to March 1/
7% 09/01/16 September 1 $ 4,550,000
Total $ 4,550,000
(continued)
27
7. LONGTERM DEBT (Continued)
Component Unit Debt (Continued)
Annual requirements to amortize all Sales Tax Revenue bonds outstanding as of September
30, 2002, are as follows
Year Ending
September 30,
2003
2004
2005
2006
2007-2016
Total
$ 445,370
447,050
442,650
437,530
4,949,100
$ 6,721,700
Annual Debt Service Requirements
Year Ending
September 30,
2003
2004
2005
2006
2007 - 2027
Less interest
General
Long-term
Debt
$ 5,869,145
5,882,410
6,073,162
6,056,922
78,850,684
(
Enterprise
Fund
Debt
$ 2,425,530
2,595,181
3,337,234
3,335,129
51,817,507
102,732,323
37,812,323) (
$ 64,920,000
63,510,581
21,015,581)
42,495,000
Interest Principal
$ 260,370 $ 185,000
247,050 200,000
232,650 210,000
217,530 220,000
1,214,100 3,735,000
$ 2,171,700
Total
Primary
Government
$ 8,294,675
8,477,591
9,410,396
9,392,051
130,668,191
166,242,904
( 58,827,904)
107,415,000
General
Long-term
Debt
Component
Unit
$ 445,370
447,050
442,650
437,530
4,949,100
(
4,550,000
Total
$ 8,740,045
8,924,641
9,853,046
9,829,581
135,617,291
6,721,700 172,964,604
2,171,700) ( 60,999,604)
$ 4,550,000 $ 111,965,000
28
8. OPERATING TRANSFERS BETWEEN FUNDS
For the year ended September 30, 2002, operatmg transfers between funds consisted of the
following:
Transfers Transfers
In Out
General Fund.
Water and Sewer Fund $ 786,552 $ 128,000
Economic Development Corporation 110,000 -
TIRZ #2 - 87,056
Capital Projects Fund 15,000 390,000
Fema Fund - 2,619,677
Total General Fund 911,552 3,224,733
Special Revenue Funds:
General Fund
Total Special Revenue Funds
Debt Service Fund:
TIRZ #2
Total Debt Service Fund
2,619,677
2,619,677
51,809
51,809
Capital Projects Funds:
General Fund 390,000 15,000
Capital Improvement 1997 73,765 -
Certificates of Obligation 1997A 386,674
2001 Certificates of Obligation - 460,439
Total Capital Projects Funds 850,439 475,439
Enterprise Funds -
General Fund 128,000 786,552
TIRZ #2 - 272,774
Total Enterprise Funds 128,000 1,059,326
Economic Development Fund - Component Unit:
General Fund 110,000
Total Economic Development Fund 110,000
TIRZ #2 - Component Unit:
Debt Service Fund 51,809
General Fund 87,056
Enterprise Fund 272,774
Total TIRZ 411,639
Total All Funds
4,921,307 $ 4,921,307
29
9. FUND EQUITY
The City's Capital Projects Fund equity at September 30, 2002, has been designated for
subsequent years' expenditures. Tentative plans for the expenditure of these resources are as
follows:
Balance
September 30,
2002
Drainage improvements $ 11,848,458
Transportation improvements 16,495,915
Buildings and vehicles 149,346
Total $ 28,493,719
10. PENSION PLAN
Plan Description
The City provides pension benefits for all of its fulltime employees through a nontraditional,
joint, contributory, hybrid, defined benefit plan in the statewide Texas Municipal Retirement
System (TMRS), one of 758 administered by TMRS, an agent multiple -employer public
employee retirement system.
Benefits depend upon the sum of the employee's contributions to the plan, with interest, and
the City -financed monetary credits, with interest. At the date the plan began, the City
granted monetary credits for service rendered before the plan began of a theoretical amount
equal to two times what would have been contributed by the employee, with interest, prior to
establishment of the plan. Monetary credits for service since the plan began are a percent
(100%, 150%, or 200%) of the employee's accumulated contributions In addition, the City
can grant, as often as annually, another type of monetary credit referred to as an updated
service credit which is a theoretical amount which, when added to the employee's
accumulated contributions and the monetary credits for service since the plan began, would
be the total monetary credits and employee contributions, accumulated with interest, if the
current employee contribution rate and City matchmg percent had always been in existence;
and if the employee's salary had always been the average of his salary in the last three years
that are one year before the effective date. At retirement, the benefit is calculated as if the
sum of the employee's accumulated contributions, with interest, and the employer -financed
monetary credits, with interest, were used to purchase an annuity
Members can retire at age 60 and above with 5 or more years of service or with 20 years of
service regardless of age. A member is vested after 5 years The plan provisions are adopted
by the governing body of the City, within the options available in the state statutes governing
TMRS and within the actuarial constraints also in the statutes
(continued)
30
10. PENSION PLAN (Continued)
Contributions
The contribution rate for the employees is 7% and the City matching ratio is currently 2 to 1,
both as adopted by the governmg body of the City Under the state law governing TMRS,
the actuary annually determines the City contribution rate. This rate consists of the normal
cost contribution rate and the pnor service contribution rate, both of which are calculated to
be a level percent of payroll from year to year The normal cost contribution rate finances
the currently accruing monetary credits due to the City matching percent, which the
obligation of the City as of an employee's retirement date, not at the time the employee's
contributions are made. The normal cost contribution rate is the actuarially determined
percent of payroll necessary to satisfy the obligation of the City to each employee at the time
his/her retirement becomes effective. The prior service contribution rate amortizes the
unfunded (overfunded) actuanal liability (asset) over the remainder of the plan's 25-year
amortization period. When the City periodically adopts updated service credits and increases
its annuities in effect, the increased unfunded actuarial liability is to be amortized over a new
25-year period. The unit credit actuarial cost method is used for determining the City
contribution rate. Both the employees and the City make contributions monthly Since the
City needs to know its contribution rate in advance to budget for it, there is a one-year delay
between the actuanal valuation that is the basis for the rate and the calendar year when the
rate goes into effect (i.e., December 31, 2000, valuation is effective for rates beginning
January 2000)
Because the actuary determines contribution rates on an annual basis and the City pays the
calculated rate each month, the City will always have a net pension obligation (NPO) of zero
at the beginning and end of the period, and the annually required contributions (ARC) will
always equal contributions made. Trend information regarding ARC and NPO is shown
below
2002
2001 2000
Net Pension Obligation (NPO)
at Beginning of Period $ $ $
Annual Pension Costs
Annual Required Contribution (ARC) 983,172 857,939 736,702
Contributions Made ( 983,172) ( 857,939) ( 736,702)
NPO at End of Period
Percent Annual Pension Cost Contributed
100% 100% 100%
A schedule of funding progress for TMRS for the three most recent actuarial valuations may
be found in the required supplementary information section of the City's Comprehensive
Annual Financial Report.
(continued)
31
10. PENSION PLAN (Continued)
Contributions (Continued)
Information as to the latest actuarial valuation follows
Actuarial Valuation Date 12/31/01
Actuarial cost method entry age
Amortization method level percentage
of payroll
Amortization period 25 years
Asset valuation method Amortized
cost
Amortization period open
Actuarial Assumptions:
Investment rate of return 8.00%
Projected salary increases None
Includes inflation at None
The City is one of 758 mumcipahties having its benefit plan administered by TMRS. Each of
the 758 municipalities has an annual, mdividual actuarial valuation performed. All
assumptions for the December 31, 2001, valuations are contained m the 2001 TMRS
Comprehensive Annual Financial Report, a copy of which may be obtained by wasting to P 0
Box 149153, Austin, Texas 78714-9153
11. RISK MANAGEMENT
The City is exposed to various risks of loss related to torts. theft of, damage to, and destruction
of assets; errors and omissions; mjuries to employees; and natural disasters The City's risk
management program mainly encompasses obtaining property and liability insurance through
Texas Municipal League (TML-IRP), an Intergovernmental Risk -Pool and through commercial
msurance carriers The City purchases commercial general msurance through the Texas
Municipal League, an unincorporated association of political subdivisions of the State of Texas
This policy encompasses general liability, incidental, medical malpractice, automobile liability,
law enforcement liability, errors and omissions liability, property, automobile vehicle liability,
and damages with limits of liability for each occurrence. The City has not had any significant
reduction in insurance coverage, and the amounts of insurance settlements have not exceeded
insurance coverage for any of the last three years. The participation of the City in the TML-IRP
is limited to payment of premiums. At year-end, the City did not have any significant claims
pending.
(continued)
32
11. RISK MANAGEMENT (Continued)
Workers' Compensation
The City is a member of the Texas Municipal League (TML) Workers' Compensation
Intergovernmental Risk Pool, an unincorporated association of political subdivisions of the
State of Texas The fund contracts with a third -party administrator for administration,
mvestigation, and adjustment services in the handling of claims. Premiums are based on the
estimated City payroll by risk factor and rates. The premiums are adjusted by the City's
experience modifier All loss contingencies, including claims incurred, but not reported, if
any, are recorded and accounted for by the TML Pool. The City's liability is limited to the
payment of premiums as assessed by TML.
12. FEDERAL TAX COMPLIANCE (ARBITRAGE) FOR LONG-TERM DEBT
In accordance with provisions of Section 148 of the Internal Revenue Code of 1986, as amended,
(the "Code") the City's long-term debt obligations must meet certain minimum criteria to be
considered and continue to be considered "tax-exempt." This "tax-exempt" status means that
interest income earned by purchasers of the City's long-term debt instruments is not subject to
federal income taxes. Related Treasury Regulations promulgated under Section 148 of the Code
generally provide that the determination of whether these obhgations are tax-exempt is made as
of the date such obhgations are issued based on a reasonable expectation regarding the use of the
proceeds of the bonds issued. Long-term debt that does not meet and continue to meet the
minimum criteria of Section 148 of the Code and the related Treasury Regulations described
above are considered "arbitrage bonds" and are not considered "tax-exempt" as described above.
Rebate
Obligations will become arbitrage bonds (as described above) if certain arbitrage profits are
not paid to the federal government as rebate under Section 148(f) of the Code. The City's
obligations to calculate and make rebate payments (if any) will continue as long as there are
gross proceeds allocable to outstanding debt issues. The City has performed calculations
required under Section 148(f) of the Code and has no present liability nor has the City ever
been required to make rebate payments for issued debt in past years
Unexpended Debt Issuance Proceeds (Yield Restriction Requirements)
Section 148 of the Code also provides that in order for debt not to be considered arbitrage
bonds (as described above), proceeds of such debt must be invested at a yield that is not
materially higher than the yield on the debt issued starting on the third anniversary of the issue
date of such debt. Accordingly, any unexpended proceeds of debt issued by the City that
remam unexpended more than three years after such debt was issued should be yield restricted.
The yield restriction may be accomplished by makmg yield reduction payments pursuant to
Treasury Regulation Section 1 148-5(c) The City is currently pursuing comphance with these
yield restriction requirements and does not anticipate associated sigmficant noncomphance
issues The City is contmuing to proceed with reasonable diligence to expend any remaining
unexpended debt issuance proceeds on qualifying projects.
33
13. FUND DEFICIT
The fund balance in Grants Fund is a negative $81,223, also, the Streets Assessments Fund has a
deficit balance of $49,772. These deficits will be funded by future revenue.
14. PRIOR PERIOD ADJUSTMENT
The sales tax receivable amounts did not agree to the receivable amounts per the State
Comptroller's sales tax reports. The amounts decreased beginning fund balance of the General
Fund and the Economic Development Corporation by $82,602 and $40,684, respectively
34
THIS PAGE LEFT BLANK INTENTIONALLY
REQUIRED
SUPPLEMENTARY INFORMATION
THIS PAGE LEFT BLANK INTENTIONALLY
CITY OF PEARLAND, TEXAS
REQUIRED SUPPLEMENTARY INFORMATION
SEPTEMBER 30, 2002
PENSION DATA - TEXAS MUNICIPAL RETIREMENT SYSTEM
The City's annual covered payroll and annual pension cost are actuarially valued on a calendar year basis. Because
the City makes all of the annually required contributions, no net pension obligation exists. The information
presented below was determined as part of the actuarial valuation, as of December 31, for each period presented.
Schedule of Funding Progress
Actuarial
Valuation
Date
Actuarial
Value Plan
Assets
Actuarial
Accrued
Liability
12/31/97 $ 8,759,905 $ 11,129,222
12/31/98
12/31/99
12/31/00
12/31/01
9,615,238
10,976,420
11,842,529
14,000,841
12,280,029
14,117,504
14,951,928
17,152,477
Percentage
Funded
Annual Percentage
Unfunded Covered of Covered
AAL Payroll Payroll
78 7% $ 2,369,317 $ 6,820,450 34 7%
78.3% 2,664,791 6,787,171 39.3%
77 8% 3,141,084 7,189,179 43 7%
79.2% 3,109,399 8,005,001 38.8%
816% 3,151,636 9,161,949 344%
35
THIS PAGE LEFT BLANK INTENTIONALLY
AUSTIN
DALLAS
LONDON
LOS ANGELES
NEW YORK
THE WOODLANDS
WASHINGTON, D.C.
APPENDIX C - FORM OF BOND COUNSEL OPINION
ANDREWS & KURTH L.L.P.
ATTORNEYS
600 TRAVIS, turrg 4200
HOUSTON, TEXAS 77002
June 2003
TELEPHONE: 713.220.4200
FACSIMILE: 713.220.4285
WE HAVE ACTED as Bond Counsel for the City of Pearland, Texas (the "City"),
in connection with an issue of certificates of obligation (the "Certificates") described as follows:
CITY OF PEARLAND, TEXAS CERTIFICATES OF OBLIGATION, SERIES
2003, dated May 1, 2003, in the aggregate principal amount of $19,650,000,
maturing on March 1 in each year from 2004 through and including 2023 The
Certificates are issuable in fully registered form only, in denominations of $5,000
or integral multiples thereof, bear interest and may be transferred and exchanged
as set out in the Certificates and in the ordinance (the "Certificate Ordinance")
adopted by the City Council of the City authorizing their issuance.
WE HAVE ACTED as Bond Counsel for the sole purpose of rendering an
opinion with respect to the legality and validity of the Certificates under the Constitution and
laws of the State of Texas and with respect to the exclusion of interest on the Certificates from
gross income under federal income tax law In such capacity we have examined the Constitution
and laws of the State of Texas; federal income tax law; and a transcript of certain certified
proceedings pertaining to the issuance of the Certificates, as described in the Certificate
Ordinance. The transcnpt contains certified copies of certain proceedings of the City; certain
certifications and representations and other material facts within the knowledge and control of
the City, upon which we rely; and certain other customary documents and instruments
authorizing and relating to the issuance of the Certificates. We have also examined executed
Certificate No. R-1 of this issue.
WE HAVE NOT BEEN REQUESTED to examine, and have not investigated or
verified, any original proceedings, records, data or other material, but have relied upon the
transcript of certified proceedings. We have not assumed any responsibility with respect to the
financial condition or capabilities of the City or the disclosure thereof in connection with the sale
of the Certificates. Our role in connection with the City's Official Statement prepared for use in
connection with the sale of the Certificates has been limited as described therein.
HOU:21 51959.2
BASED ON SUCH EXAMINATION, it is our opinion as follows.
(1) The transcript of certified proceedings evidences complete
legal authority for the issuance of the Certificates in full compliance with the
Constitution and laws of the State of Texas presently in effect; the Certificates
constitute valid and legally binding obligations of the City enforceable in
accordance with the terms and conditions thereof, except to the extent that the
rights and remedies of the owners of the Certificates may be limited by laws
heretofore or hereafter enacted relating to bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting the rights of creditors of political
subdivisions and the exercise of judicial discretion in appropnate cases; and the
Certificates have been authorized and delivered in accordance with law; and
(2) The Certificates are payable, both as to pnncipal and interest,
from, and secured by, the proceeds of a continuing, direct annual ad valorem tax,
levied within the limits prescribed by law, against taxable property within the
City, which taxes have been pledged irrevocably to pay the principal of and
interest on the Certificates; and
(3) The Certificates are further secured by a subordinate pledge of
the revenues of the park system of the City
The revenues to be derived from the operation of the City's park
system after the payment of all operation and maintenance expenses thereof (the
"Net Revenues"), in an amount not to exceed $10,000, are pledged to the payment
of the principal of and interest on the Certificates, to the extent that ad valorem
taxes may ever be insufficient or unavailable forsaid purpose; provided, however,
that such pledge is junior and subordinate in all respects to the pledge of Net
Revenues to the payment of any obligation of the City, whether authorized
heretofore or hereafter, which the City designates as having a pledge senior to the
pledge of Net Revenues to the payment of the Certificates.
The City has reserved the nght to issue, for any lawful purpose at
any time, in one or more installments, bonds, certificates of obligation and other
obligations of any kind secured by a pledge of the Net Revenues that may be prior
and superior in right to, on a parity with, or junior and subordinate to the pledge
of Net Revenues securing the Certificates.
ALSO BASED ON OUR EXAMINATION AS DESCRIBED ABOVE, it is our
further opinion that, subject to the restrictions hereinafter described, interest on the Certificates is
excludable from gross income of the owners thereof for federal income tax purposes under
existing law and is not subject to the alternative minimum tax on individuals or, except as
hereinafter described, corporations. The opinion set forth in the first sentence of this paragraph
HOU:2151959.2
is subject to the condition that the City comply with all requirements of the Internal Revenue
Code of 1986, as amended (the "Code"), that must be satisfied subsequent to the issuance of the
Certificates in order that interest thereon be, or continue to be, excluded from gross income for
federal income tax purposes. The City has covenanted in the Certificate Ordinance to comply
with each such requirement. Failure to comply with certain of such requirements may cause the
inclusion of interest on the Certificates in gross income for federal income tax purposes to be
retroactive to the date of issuance of the Certificates. The Code and the existmg regulations,
rulings and court decisions thereunder, upon which the foregoing opinions of Bond Counsel are
based, are subject to change, which could prospectively or retroactively result in the inclusion of
the interest on the Certificates in gross income of the owners thereof for federal income tax
purposes.
INTEREST ON all tax-exempt obligations, including the Certificates, owned by a
corporation (other than an S corporation, a regulated investment company, a real estate
investment trust (REIT), a real estate mortgage investment conduit (REMIC) or a financial asset
secuntization investment trust (FASIT)) will be included in such corporation's adjusted current
earnings for purposes of calculating such corporation's alternative minimum taxable income. A
corporation's alternative minimum taxable income is the basis on which the alternative minimum
tax imposed by the Code is computed. Purchasers of Certificates are directed to the discussion
entitled "TAX EXEMPTION" set forth in the Official Statement.
UNDER EXISTING LAW and based upon the assumptions stated in the Official
Statement prepared for use in connection with the sale of the Certificates, it is also our opinion as
follows. (1) the difference .between (a) the stated redemption price at matunty of each.
Certificate maturing in the years 20_ through 20_, inclusive (the "Discount Certificates"), and
(b) the initial offering price at which a substantial amount of such Discount Certificates of the
same matunty were sold to the public, as described in the Official Statement, constitutes original
issue discount with respect to each such Discount Certificate in the hands of an owner who
purchased such Discount Certificate at the initial offering pnce in the initial public offering of
the Certificates; and (2) such initial owner is entitled to exclude from gross income for federal
income tax purposes with respect to such Discount Certificate that portion of the onginal issue
discount deemed to be earned for federal income tax purposes during the period that such
Discount Certificate continues to be owned by such owner In the event of the redemption, sale
or other taxable disposition of such Discount Certificate prior to its stated maturity, however, any
amount realized by such owner in excess of the basis of such Discount Certificate in the hands of
such owner (adjusted upward by the portion of the onginal issue discount deemed to be earned
dunng the period for which such Discount Certificate was held by such initial owner) is
includable in gross income for federal income tax purposes.
PURCHASERS OF DISCOUNT CERTIFICATES in the initial public offering
are directed to the discussion entitled "TAX TREATMENT OF ORIGINAL ISSUE DISCOUNT
AND PREMIUM CERTIFICATES" set forth in the Official Statement for purposes of
determining the portion of the original issue discount which is deemed to be earned for federal
HOU:2151959.2
income tax purposes during the period such Certificates are held by an initial owner The federal
income tax consequences of the purchase, ownership and redemption, sale or other taxable
disposition of Discount Certificates which are not purchased in the initial public offenng at the
imtial offenng price may be determined according to rules which differ from those described
above and in the Official Statement.
EXCEPT AS DESCRIBED ABOVE, we express no opinion as to any federal,
state or local tax consequences resulting from the ownership of, receipt or accrual of interest on,
or the acquisition or disposition of, the Certificates. Prospective purchasers of the Certificates
should be aware that the ownership of tax-exempt obligations, such as the Certificates, may
result in collateral federal income tax consequences to, among others, financial institutions,
property and casualty insurance companies, certain foreign corporations doing business in the
United States, certain S corporations with Subchapter C earnings and profits, individual
recipients of Social Security or Railroad Retirement benefits, taxpayers who are deemed to have
incurred or continued indebtedness to purchase or carry tax-exempt obligations and individuals
otherwise qualified for the earned income credit. Such prospective purchasers should consult
their tax advisors as to the consequences of investing in the Certificates.
7867/7866
HOU.2151959.2