Ord. 1504-2014-09-22 CERTIFICATE FOR ORDINANCE NO.2014-1504
THE STATE OF TEXAS §
COUNTIES OF BRAZORIA, FORT BEND AND HARRIS §
CITY OF PEARLAND §
I, 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 September 22, 2014,
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
Keith Ordeneaux Mayor Pro-Tem
Tony Carbone Councilmember
Scott Sherman Councilmember
Gary Moore Councilmember
Greg Hill Councilmember
and all of such persons were present, thus constituting a quorum. Whereupon, among other business, the
following was transacted at said meeting: a written
ORDINANCE AUTHORIZING ISSUANCE OF CITY OF PEARLAND,
TEXAS, WATER AND SEWER SYSTEM REVENUE BONDS, SERIES 2014;
PRESCRIBING THE TERMS THEREOF; PROVIDING FOR THE PAYMENT
THEREOF; AWARDING THE SALE THEREOF; MAKING OTHER
PROVISIONS REGARDING SUCH BONDS 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; and, after due discussion, such motion,
carrying with it the adoption of the Ordinance,prevailed and carried by the following vote:
AYES: 5 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 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
HOU:3478531.1
SIGNED AND SEALED this 5921,6er aa. 2014.
Cit secretary 4 / Mayor
C OF PEA• AND,TE AS CITY OF PEARLAND,TEXAS
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(SEAL) '
1UOU:3 l7853I.I
} CITY OF PEARLAND, TEXAS
WATER AND SEWER SYSTEM REVENUE BONDS
SERIES 2014
ORDINANCE NO.2014-1504
HOU:3473933.4
TABLE OF CONTENTS
Page
ARTICLE I FINDINGS AND DETERMINATIONS 1
Section 1.1. Findings and Determinations 1
ARTICLE II DEFINITIONS AND INTERPRETATIONS 1
Section 2.1. Definitions 1
Section 2.2. Interpretations 5
ARTICLE III TERMS OF THE SERIES 2014 BONDS 5
Section 3.1. Name,Amount, Purpose, Authorization 5
Section 3.2. Numbers, Date and Denomination. 5
Section 3.3. Interest Payment Dates, Interest Rates and Maturities 5
Section 3.4. Redemption Prior to Maturity. 6
Section 3.5. Manner of Payment, Characteristics, Execution and Authentication 8
Section 3.6. Approval by Attorney General; Registration by Comptroller 8
Section 3.7. Authentication 8
Section 3.8. Special Record Date 9
Section 3.9. Ownership 9
Section 3.10. Book-Entry Only System 9
Section 3.11. Payments and Notices to Cede& Co. 10
Section 3.12. Successor Securities Depository; Transfer Outside Book-Entry Only
System 10
Section 3.13. Registration,Transfer,and Exchange 10
Section 3.14. Cancellation of Series 2014 Bonds 11
Section 3.15. Mutilated, Lost, or Stolen Series 2014 Bonds 11
ARTICLE IV FORM OF SERIES 2014 BONDS AND CERTIFICATES 12
Section 4.1. Forms 12
Section 4.2. Legal Opinion; CUSIP Numbers 12
ARTICLE V SECURITY AND SOURCE OF PAYMENT FOR THE BONDS 13
Section 5.1. Pledge and Source of Payment 13
Section 5.2. Rates and Charges 13
Section 5.3. Special Funds 13
Section 5.4. Flow of Funds 14
Section 5.5. Interest and Sinking Fund 14
Section 5.6. Reserve Fund 15
Section 5.7. Deficiencies in Funds 16
Section 5.8. Investment of Funds;Transfer of Investment Income 16
Section 5.9. Security for Uninvested Funds 17
ARTICLE VI ADDITIONAL BONDS 17
Section 6.1. Additional Bonds 17
Section 6.2. Subordinate Lien Obligations 18
Section 6.3. Special Project Bonds 19
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ARTICLE VII COVENANTS AND PROVISIONS RELATING TO BONDS 19
Section 7.1. Punctual Payment of Bonds 19
Section 7.2. Power to Own and Operate System; Ratemaking Power 19
Section 7.3. Maintenance of System 19
Section 7.4. Sale or Encumbrance of System 19
Section 7.5. Insurance 20
Section 7.6. Accounts, Records and Audits 20
Section 7.7. Competition 20
Section 7.8. Pledge and Encumbrance of Net Revenues 20
Section 7.9. Covenants with Respect to Certain Assumed Water District Bonds 20
Section 7.10. Registered Owners' Rights and Remedies 21
Section 7.11. Defeasance 21
Section 7.12. Legal Holidays 22
Section 7.13. Unavailability of Authorized Publication 22
Section 7.14. No Recourse Against City Officials 22
Section 7.15. Amendment to Ordinance 23
ARTICLE VIII CONCERNING THE PAYING AGENT/REGISTRAR 23
Section 8.1. Acceptance 23
Section 8.2. Fiduciary Account 23
Section 8.3. Bonds Presented 23
Section 8.4. Series 2014 Bonds Not Timely Presented 23
Section 8.5. Paying Agent/Registrar May Own Series 2014 Bonds 24
Section 8.6. Successor Paying Agents/Registrars 24
ARTICLE IX TAX EXEMPTION 25
Section 9.1. Covenants to Maintain Tax Exempt Status 25
ARTICLE X CONTINUING DISCLOSURE UNDERTAKING 28
Section 10.1. Annual Reports 28
Section 10.2. Material Event Notices 28
Section 10.3. Limitations, Disclaimers, and Amendments 29
Section 10.4. Definitions 30
ARTICLE XI 31
SALE AND DELIVERY OF BONDS;DEPOSIT OF PROCEEDS 31
Section 11.1. Sale of Series 2014 Bonds; Bond Purchase Agreement 31
Section 11.2. Approval, Registration and Delivery 31
Section 11.3. Offering Documents; Ratings 31
Section 11.4. Application of Proceeds of Series 2014 Bonds 32
Section 11.5. Related Matters 32
Section 11.6. Control and Delivery of Series 2014 Bonds 32
ARTICLE XII MISCELLANEOUS 33
Section 12.1. Related Matters 33
Section 12.2. Severability 33
Section 12.3. Open Meeting 33
Section 12.4. Governing Law 34
Section 12.5. Repealer 34
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Section 12.6. Emergency 34
Section 12.7. Effective Date 34
HOU:3473933.4
CITY OF PEARLAND
ORDINANCE NO. 1504
ORDINANCE AUTHORIZING ISSUANCE OF CITY OF PEARLAND,
TEXAS, WATER AND SEWER SYSTEM REVENUE BONDS, SERIES 2014;
PRESCRIBING THE TERMS THEREOF; PROVIDING FOR THE PAYMENT
THEREOF; AWARDING THE SALE THEREOF; MAKING OTHER
PROVISIONS REGARDING SUCH BONDS AND MATTERS INCIDENT
THERETO; AND DECLARING AN EMERGENCY
BE IT ORDAINED BY THE CITY COUNCIL OF THE CITY OF PEARLAND,
TEXAS:
ARTICLE I
FINDINGS AND DETERMINATIONS
Section 1.1. Findings and Determinations. It is hereby officially found and determined
that:
(a) The City is authorized by Chapter 1502, Texas Government Code, as
amended, to issue revenue bonds payable from the revenues of its water and sewer
system for the purpose of constructing repairs, improvements, additions and extensions to
the City's waterworks and sanitary sewer system.
(b) The City Council now deems it to be in the best interest of the City to
issue, sell and deliver the Series 2014 Bonds (hereinafter defined) as hereinafter
authorized, pursuant to the laws of the State of Texas, including specifically, Chapter
1502,Texas Government Code.
(c) The conditions precedent to the issuance of additional bonds which are
contained in the ordinances authorizing the issuance of the Previously Issued Bonds and
the Series 2014 Bonds (hereinafter defined) have been met, and the City is authorized to
issue the revenue bonds and make the pledges and covenants set forth herein
ARTICLE II
DEFINITIONS AND INTERPRETATIONS
Section 2.1. Definitions. In this Ordinance, the following terms shall have the
following meanings, unless the context clearly indicates otherwise:
"Act"shall mean, collectively Chapter 1502,Texas Government Code, as amended.
"Additional Bonds" shall mean the additional revenue bonds permitted to be issued by
the City pursuant to Section 6.1 hereof.
"Average Annual Principal and Interest Requirements" shall mean the average annual
principal and interest requirements for all Bonds. Upon the issuance of the Series 2014 Bonds,
the Average Annual Principal and Interest Requirements are hereby determined to be $7,087,440
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and shall be recomputed upon the issuance of each series of Additional Bonds and set forth in
each ordinance authorizing the issuance of Additional Bonds. For purposes of calculating the
Average Annual Principal and Interest Requirements with respect to any variable rate Additional
Bonds, interest on such bonds shall be calculated in accordance with Section 6.1 of this
Ordinance.
"Bonds" shall mean any or all of the Previously Issued Bonds, the Series 2014 Bonds
and any Additional Bonds from time to time hereafter issued, but only to the extent such Bonds
remain Outstanding within the meaning of this Ordinance.
"Business Day" shall mean any day other than (1) a Saturday or a Sunday, (2) a legal
holiday or the equivalent on which banking institutions generally are authorized or required to
close in New York, New York or Houston, Texas or any other city in which is located the
principal corporate trust office of the Paying Agent/Registrar or (3) a day on which the New
York Stock Exchange is closed in whole or in part.
"City" shall mean the City of Pearland, Texas, and, where appropriate, the City Council
thereof and any successor to the City as owner of the System.
"Code" shall mean the Internal Revenue Code of 1986,as amended.
"Defeasance Securities"means(1)direct, non-callable obligations of the United States of
America, including obligations that are unconditionally guaranteed by the United States of
America, (2) non-callable obligations of an agency or instrumentality of the United States of
America, including obligations that are unconditionally guaranteed or insured by the agency or
instrumentality and that, on the date of the purchase thereof are rated as to investment quality by
a nationally recognized investment rating firm not less than "AAA" or its equivalent, and (3)
non-callable 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
City adopts or approves the proceedings authorizing the financial arrangements are rated as to
investment quality by a nationally recognized investment rating firm not less than "AAA" or its
equivalent.
"DTC" shall mean The Depository Trust Company of New York, New York, or any
successor securities depository.
"DTC Participant" shall mean brokers and dealers, banks, trust companies, clearing
corporations and certain other organizations on whose behalf DTC was created to hold securities
to facilitate the clearance and settlement of securities transactions among DTC Participants.
"Fiscal Year" shall mean the City's fiscal year, which currently runs from October 1 to
September 30,but which may be changed from time to time by the City.
"Gross Revenues" shall mean all revenues, income and receipts of every nature derived
or received by the City from the operation and ownership of the System; the interest income
from the investment or deposit of money in the Revenue Fund and the Reserve Fund (each
hereinafter defined in Article V hereof);and any other revenues hereafter pledged to the payment
of all Bonds. Gross Revenues shall not include any of (i) grants from, or payments by, any
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federal, state or local governmental agency or authority or any other entity or person, the use of
which is restricted by law or by the terms of the grant or payment to capital expenditures of the
System, (ii) capital assets, debt service funds or debt service reserve funds of water districts or
other public or private sewer systems annexed, acquired or otherwise assumed by the City or(iii)
any interest earned on items(i) or(ii)above.
"Interest Payment Date, " when used in connection with any Series 2014 Bond, shall
mean September 1 or March 1 of each year as applicable commencing March 1,2015.
"Maintenance and Operation Expenses" shall mean the reasonable and necessary
expenses of operation and maintenance of the System, including all salaries, labor, materials,
repairs and extensions necessary to render efficient service (but only such repairs and extensions
as, in the judgment of the governing body of the City, are necessary to keep the System in
operation and render adequate service to the City and the inhabitants thereof, or such as might be
necessary to meet some physical accident or conditions which would otherwise impair the
Bonds), and all payments (including payments of amounts equal to all or a part of the debt
service on bonds issued by other political subdivisions and authorities of the State of Texas)
under contracts which are now or hereafter defined as operating expenses by the Legislature of
Texas. Depreciation shall never be considered as a Maintenance and Operation Expense.
Maintenance and Operation Expenses shall include, without limitation, all payments under
contracts for the impoundment, conveyance or treatment of water or otherwise which are now or
hereafter defined as operating expenses by the Legislature of Texas and the treatment of such
payments as Maintenance and Operation Expenses shall not be affected in any way if,
subsequent to entering into such contracts, the City acquires as a part of the System title to any
properties or facilities used to impound, convey or treat water under such contracts,or if the City
contracts to acquire title to such properties or facilities as a part of the System upon the final
payment of debt service on the bonds issued to finance such properties or facilities.
"MSRB"means the Municipal Securities Rulemaking Board.
"Net Revenues" shall mean all Gross Revenues remaining after deducting the
Maintenance and Operation Expenses.
"Ordinance" shall mean this Bond Ordinance and all amendments hereof and
supplements hereto.
"Outstanding" when used with reference to the Bonds shall mean, as of a particular date,
all such bonds theretofore delivered except: (a) any such bond canceled by or on behalf of the
City at or before said date; (b) any such bond defeased pursuant to the defeasance provisions of
the ordinance authorizing its issuance, or otherwise defeased as permitted by applicable law; and
(c) any such bond in lieu of or in substitution for which another bond shall have been delivered
pursuant to the ordinance authorizing the issuance of such bond.
"Owner" or "Registered Owner" when used with respect to any Bond, shall mean the
person or entity in whose name such Bond is registered in the Register. Any reference to a
particular percentage or proportion of the Owners of the Bonds of a particular class or series of
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Bonds shall mean the Owners at a particular time of the specified percentage or proportion in
aggregate principal amount of all Bonds or the Bonds of such class or series then Outstanding.
"Paying Agent/Registrar" shall mean Wells Fargo Bank,N.A., Minneapolis, Minnesota,
and its successors in that capacity.
"Previously Issued Bonds" shall mean the Outstanding City of Pearland, Texas, Water
and Sewer System Adjustable Rate Revenue Bonds, Series 1999, City of Pearland, Texas, Water
and Sewer System Revenue Bonds, Series 2003, the City of Pearland, Texas, Water and Sewer
System Revenue and Refunding Bonds, Series 2006, the City of Pearland, Texas, Water and
Sewer System Revenue Bonds, Series 2007, the City of Pearland, Texas, Water and Sewer
System Revenue Bonds, Series 2008, the City of Pearland, Texas, Water and Sewer System
Revenue Bonds, Series 2009, the City of Pearland, Texas, Water and Sewer System Revenue
Bonds, Series 2010A, the City of Pearland, Texas, Water and Sewer System Revenue Refunding
Bonds, Series 2010B, and the City of Pearland, Texas Water and Sewer System Revenue and
Refunding Bonds, Series 2012.
"Purchaser" shall mean Raymond James&Associates, Inc.
"Record Date" shall mean, with respect to any Interest Payment Date, the fifteenth day
of the month,whether or not a Business Day,next preceding each Interest Payment Date.
"Register" shall mean the books of registration kept by the Paying Agent/Registrar in
which are maintained the names and addresses of and the principal amounts registered to each
Owner of Series 2014 Bonds.
"Series 2014 Bonds" shall mean the City of Pearland, Texas, Water and Sewer System
Revenue Bonds, Series 2014, authorized by this Ordinance.
"Special Project" shall mean, to the extent permitted by law, any water or sewer system
property, improvement or facility declared by the City not to be part of the System, for which the
costs of acquisition, construction, and installation are paid from proceeds of a financing
transaction other than the issuance of bonds payable from ad valorem taxes or revenues of the
System and for which all maintenance and operation expenses are payable from sources other
than ad valorem taxes or revenues of the System, but only to the extent that and for so long as all
or any part of the revenues or proceeds of which are or will be pledged to secure the payment or
repayment of such costs of acquisition, construction, and installation under such financing
transaction.
"Subordinate Lien Obligations" shall mean the obligations permitted to be issued by the
City pursuant to Section 6.2 hereof.
"Surety Policy" shall mean and include a surety bond, bond insurance policy or other
credit agreement, as authorized by Section 1502.064, Texas Government Code, provided that the
issuer of any Surety Policy shall be rated in the highest rating category at the time of issuance of
such Surety Policy by A.M. Best Company, Standard & Poor's Ratings Group, or Moody's
Investors Service. A Surety Policy shall insure all Bonds and Additional Bonds on a pro rata
basis. A Surety Policy may include a letter of credit or other agreement or instrument, including
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any related reimbursement or financial guaranty agreement, whereby the issuer is obligated to
provide funds up to and including the maximum amount and under the conditions specified in
such agreement or instrument.
"System" shall mean all properties, facilities, improvements, equipment, interests, rights
and powers constituting the water and sewer system of the City, and all future extensions,
replacements, betterments, additions, improvements, enlargements, acquisitions, purchases and
repairs to the System, including without limitation, all those heretofore or hereafter acquired as a
result of the annexation and dissolution of water districts or the acquisition of the properties or
assets of any other public, private or non-profit entities. The System shall not include any
Special Project.
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 and the Table of Contents 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 Bonds and the validity of the lien
on and pledge of the Net Revenues to secure the payment of the Bonds.
ARTICLE III
TERMS OF THE SERIES 2014 BONDS
Section 3.1. Name, Amount, Purpose, Authorization. The City of Pearland, Texas
Water and Sewer System Revenue Bonds, Series 2014 shall be issued in fully registered form,
without coupons, in the aggregate principal amount of Nine Million Two Hundred Ten Thousand
Dollars ($9,210,000) for the purposes of (i) constructing certain repairs, improvements,
additions and extensions to the System, and (ii) payment of expenses of issuance of the Series
2014 Bonds, all under and pursuant to the authority of the Act and all other applicable law.
Section 3.2. Numbers, Date and Denomination. The Series 2014 Bonds shall be
initially issued bearing the numbers, in the principal amounts and bearing interest at the rates set
forth in Section 3.3 hereof. The Series 2014 Bonds shall be dated as of October 1, 2014, and
shall be issued in denominations of$5,000 of principal amount or any integral multiple thereof.
Section 3.3. Interest Payment Dates, Interest Rates and Maturities. The Series 2014
Bonds shall bear interest from the later of the October 1, 2014, or the most recent Interest
Payment Date to which interest has been paid or duly provided for, at the rate or rates per annum
set forth below, calculated on the basis of a 360-day year composed of twelve 30-day months
and payable semiannually on March 1 and September 1 of each year, commencing March 1,
2015,until maturity or prior redemption.
The Series 2014 Bonds shall mature and become payable on the dates and in the
respective principal amounts set forth below, subject to prior redemption as set forth in this
Ordinance:
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Bond Maturity Principal Interest
Number (09/01) Amount Rate
R-1 2015 $ 150,000 2.000%
R-2 2016 195,000 4.000
R-3 2017 210,000 4.000
R-4 2018 220,000 4.000
R-5 2019 230,000 4.000
R-6 2020 240,000 4.000
R-7 2021 255,000 4.000
R-8 2022 270,000 4.000
R-9 2023 280,000 4.000
R-10 2024 295,000 4.000
R-11 2025 310,000 4.000
R-12 2026 330,000 4.000
*** *** *** ***
R-13 2028 710,000 3.000
R-14 2029 385,000 3.125
R-15 2030 405,000 3.250
R-16 2031 425,000 3.250
R-17 2032 445,000 3.375
R-18 2033 470,000 3.375
*** *** *** ***
R-19 2035 1,015,000 3.500
*** *** *** ***
R-20 2037 1,125,000 3.500
*** *** *** ***
R-21 2039 1,245,000 3.625
Section 3.4. Redemption Prior to Maturity.
(a) Optional Redemption -The City reserves the right, at its option, to redeem
prior to maturity Series 2014 Bonds maturing on or after September 1, 2025, in whole or
in part, in principal installments of$5,000 or any integral multiple thereof, on September
1, 2024, or any date thereafter, at a price equal to the principal amount of the Series 2014
Bonds or portions thereof called for redemption plus accrued interest to the date of
redemption.
(b) The Series 2014 Bonds maturing on September 1 in the years 2028, 2035,
2037 and 2039 (the "Term Bonds") are subject to mandatory sinking fund redemption in
the following amounts (subject to reduction as hereinafter provided), on the following
dates, in each case at a redemption price equal to the principal amount of the Series 2014
Bonds or the portions thereof so called for redemption plus accrued interest to the date
fixed for redemption:
Mandatory Redemption Dates Principal Amounts
Term Bonds Maturing September 1,2028_ September 1,2027 $345,000
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September 1,2028 * 365,000
Mandatory Redemption Dates Principal Amounts
Term Bonds Maturing September 1,2035 September 1,2034 $495,000
September 1,2035* 520,000
Mandatory Redemption Dates Principal Amounts
Term Bonds Maturing September 1,2037 September 1,2036 $550,000
September 1,2037* 575,000
Mandatory Redemption Dates Principal Amounts
Term Bonds Maturing September 1,2039 September 1,2038* $605,000
September 1,2039* 640,000
*Maturity
The particular Term Bonds to be redeemed shall be selected by the Registrar by
lot or other customary random selection method, on or before July 15 of each year in
which Term Bonds are to be mandatorily redeemed. The principal amount of Term
Bonds to be mandatorily redeemed in each year shall be reduced by the principal amount
of such Term Bonds that have been optionally redeemed on or before July 15 of such
year and which have not been made the basis for a previous reduction.
(c) Series 2014 Bonds may be redeemed only in integral multiples of$5,000
of principal amount. If a Series 2014 Bond subject to redemption is in a denomination
larger than $5,000, a portion of such Series 2014 Bond may be redeemed, but only in
integral multiples of$5,000. In selecting portions of Series 2014 Bonds for redemption,
the Registrar shall treat each Series 2014 Bond as representing that number of Series
2014 Bonds of$5,000 denomination which is obtained by dividing the principal amount
of such Series 2014 Bond by $5,000. Upon surrender of any Series 2014 Bond for
redemption in part, the Registrar, in accordance with Section 3.13 hereof, shall
authenticate and deliver in exchange therefor a Series 2014 Bond or Bonds of like
maturity and interest rate in an aggregate principal amount equal to the unredeemed
portion of the Series 2014 Bond so surrendered.
(d) Not less than thirty (30) days prior to a redemption date for the Series
2014 Bonds, a notice of redemption will be sent by U.S. mail, first class postage prepaid,
in the name of the City to each Owner of a Series 2014 Bond to be redeemed in whole or
in part at the address of such Owner appearing on the Register at the close of business on
the Business Day next preceding the date of mailing. Such notices shall state the
redemption date, the redemption price, the place at which Series 2014 Bonds are to be
surrendered for payment and, if less than all Series 2014 Bonds outstanding are to be
redeemed, the numbers of Series 2014 Bonds or portions thereof to be redeemed. Any
notice of redemption so mailed as provided in this Section will be conclusively presumed
to have been duly given, whether or not the Owner receives such notice. By the date
fixed for redemption, due provision shall be made with the Registrar for payment of the
redemption price of the Series 2014 Bonds or portions thereof to be redeemed. When
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Series 2014 Bonds have been called for redemption in whole or in part and notice of
redemption has been given as herein provided, the Series 2014 Bonds or portions thereof
so redeemed shall no longer be regarded to be outstanding, except for the purpose of
receiving payment solely from the funds so provided for redemption, and interest which
would otherwise accrue or compound after the redemption date on any Series 2014 Bond
or portion thereof called for redemption shall terminate on the date fixed for redemption.
Section 3.5. Manner of Payment, Characteristics, Execution and Authentication. The
Paying Agent/Registrar shall be the paying agent for the Series 2014 Bonds. The Series 2014
Bonds shall be payable, shall have the characteristics, shall be signed and executed, shall be
sealed, and shall be authenticated, all as provided Form of Bond included as Exhibit A to this
Ordinance. The Series 2014 Bonds initially delivered shall also have attached or affixed to each
such Series 2014 Bond the registration certificate of the Comptroller of Public Accounts of the
State of Texas.
The Series 2014 Bonds shall be signed on behalf of the City by the Mayor and
countersigned by the City Secretary by their manual, lithographed, or facsimile signatures
thereon. Such facsimile signature on the Series 2014 Bonds shall have the same effect as if each
of the Series 2014 Bonds had been signed manually and in person by each of said officials. If
any officer of the City whose manual or facsimile signature shall appear on the Series 2014
Bonds, as provided in the Form of Bond included as Exhibit A hereto, shall cease to be such
officer before the authentication of the Series 2014 Bonds or before the delivery of the Series
2014 Bonds, 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 LLP, Houston, Texas, Bond Counsel,
may be printed on the Series 2014 Bonds over the certification of the City Secretary, which may
be executed in facsimile. CUSIP numbers also may be printed on the Series 2014 Bonds, but
errors or omissions in the printing of either the opinion or the numbers shall have no effect on the
validity of the Bonds.
Section 3.6. Approval by Attorney General; Registration by Comptroller. The Initial
Series 2014 Bond shall be delivered to the Attorney General of the State of Texas for
examination and approval and shall be registered by the Comptroller of Public Accounts of the
State of Texas. The manually executed registration certificate of such Comptroller substantially
in the form provided in Exhibit A of this Ordinance shall be affixed or attached to the Initial
Series 2014 Bonds.
Section 3.7. Authentication. Except for the Series 2014 Bonds to be initially issued,
which need not be authenticated, only such Series 2014 Bonds as shall bear thereon a certificate
of authentication substantially in the form provided in Exhibit A 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 Series 2014 Bond so
authenticated was delivered by the Paying Agent/Registrar hereunder.
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Section 3.8. Special Record Date. If interest on any Series 2014 Bond is not paid on
any Interest Payment Date and continues unpaid for 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 Registered Owner of an affected Series 2014 Bond as of the close of
business on the day prior to the mailing of such notice.
Section 3.9. Ownership. Subject to the further provisions of this Section, the City, the
Paying Agent/Registrar, and any other person may treat the person in whose name any Series
2014 Bond is registered on the Register as the absolute Owner of such Series 2014 Bond for the
purpose of making and receiving payment of the principal of or interest on such Series 2014
Bond, and for all other purposes, whether or not such Series 2014 Bond 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 Owner of any Series 2014 Bond in
accordance with this Section 3.9 shall be valid and effectual and shall discharge the liability of
the City and the Paying Agent/Registrar upon such Series 2014 Bond to the extent of the sums
paid.
Section 3.10. Book-Entry Only System. The definitive Series 2014 Bonds shall be
initially issued in the form of a separate single fully registered Series 2014 Bond for each of the
maturities thereof. Upon initial issuance, the ownership of each such Series 2014 Bond shall be
registered in the name of Cede & Co., as nominee of DTC, and except as provided in Section
3.12 hereof, all of the Outstanding Bonds shall be registered in the name of Cede & Co., as
nominee of DTC. Upon delivery by DTC to the Paying Agent/Registrar of written notice to the
effect that DTC has determined to substitute a new nominee in place of Cede & Co., and subject
to the provisions in this Ordinance with respect to interest checks being mailed to the Owner at
the close of business on the Record Date, the word "Cede & Co." in this Ordinance shall refer to
such new nominee of DTC.
With respect to Series 2014 Bonds registered in the name of Cede & Co., as nominee of
DTC, the City and the Paying Agent/Registrar shall have no responsibility or obligation to any
DTC Participant or to any person on behalf of whom such a DTC Participant holds an interest in
the Series 2014 Bonds. Without limiting the immediately preceding sentence, the City and the
Paying Agent/Registrar shall have no responsibility or obligation with respect to (a)the accuracy
of the records of DTC, Cede & Co. or any DTC Participant with respect to any ownership
interest in the Series 2014 Bonds, (b) the delivery to any DTC Participant or any other person,
other than a Registered Owner of a Series 2014 Bond, as shown on the Register, of any notice
with respect to the Series 2014 Bonds, including any notice of redemption or (c) the payment to
any DTC Participant or any other person, other than a Registered Owner of a Series 2014 Bond
as shown in the Register, of any amount with respect to principal of Series 2014 Bonds,
premium, if any,or interest on the Series 2014 Bonds.
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•
Except as provided in Section 3.11 of this Ordinance, the City and the Paying
Agent/Registrar shall be entitled to treat and consider the person in whose name each Series
2014 Bond is registered in the Register as the absolute owner of such Series 2014 Bond for the
purpose of payment of principal of, premium, if any, and interest on Series 2014 Bonds, for the
purpose of giving notices of redemption and other matters with respect to such Series 2014
Bond, for the purpose of registering transfer with respect to such Series 2014 Bond, and for all
other purposes whatsoever. The Paying Agent/Registrar shall pay all principal of Series 2014
Bonds, premium, if any, and interest on the Series 2014 Bonds only to or upon the order of the
respective owners, as shown in the Register as provided in this Ordinance, or their respective
attorneys duly authorized in writing, and all such payments shall be valid and effective to fully
satisfy and discharge the City's obligations with respect to payment of principal of, premium, if
any, and interest on the Series 2014 Bonds to the extent of the sum or sums so paid. No person
other than an owner shall receive a Series 2014 Bond evidencing the obligation of the City to
make payments of amounts due pursuant to this Ordinance.
Section 3.11. Payments and Notices to Cede & Co. Notwithstanding any other
provision of this Ordinance to the contrary, as long as any Series 2014 Bonds are registered in
the name of Cede & Co., as nominee of DTC, all payments with respect to principal of,
premium, if any, and interest on the Series 2014 Bonds, and all notices with respect to such
Series 2014 Bonds shall be made and given, respectively, in the manner provided in the
representation letter of the City to DTC.
Section 3.12. Successor Securities Depository; Transfer Outside Book-Entry Only
System. In the event that the City or the Paying Agent/Registrar determines that DTC is
incapable of discharging its responsibilities described herein and in the representation letter of
the City to DTC, and that it is in the best interest of the beneficial owners of the Series 2014
Bonds that they be able to obtain certificated Series 2014 Bonds, the City or the Paying
Agent/Registrar shall (a) appoint a successor securities depository, qualified to act as such under.
Section 17(a) of the Securities and Exchange Act of 1934, as amended, notify DTC of the
appointment of such successor securities depository and transfer one or more separate Series
2014 Bonds to such successor securities depository or(b) notify DTC of the availability through
DTC of Series 2014 Bonds and transfer one or more separate Series 2014 Bonds to DTC
Participants having Series 2014 Bonds credited to their DTC accounts. In such event, the Series
2014 Bonds shall no longer be restricted to being registered in the Register in the name of Cede
& Co., as nominee of DTC, but may be registered in the name of the successor securities
depository, or its nominee, or in whatever name or names a Registered Owner of a Series 2014
Bond transferring or exchanging Series 2014 Bonds shall designate, in accordance with the
provisions of this Ordinance.
Section 3.13. Registration, Transfer, and Exchange. The Paying Agent/Registrar shall
keep the Register at its principal corporate trust office and, subject to such reasonable regulations
as it may prescribe, the Paying Agent/Registrar shall provide for the registration and transfer of
Series 2014 Bonds in accordance with the terms of this Ordinance.
Each Series 2014 Bond shall be transferable only upon the presentation and surrender
thereof at the principal corporate trust office of the Paying Agent/Registrar, duly endorsed for
transfer, or accompanied by an assignment duly executed by the Registered Owner or his
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authorized representative in form satisfactory to the Paying Agent/Registrar. Upon due
presentation of any Series 2014 Bond in proper form for transfer, the Paying Agent/Registrar
shall authenticate and deliver in exchange therefor, within three (3) Business Days after such
presentation, a new Series 2014 Bond or Series 2014 Bonds, registered in the name of the
transferee or transferees, in the same maturity and aggregate principal amount and bearing
interest at the same rate as the Series 2014 Bond or Series 2014 Bonds so presented.
All Series 2014 Bonds shall be exchangeable upon presentation and surrender thereof at
the principal corporate trust office of the Paying Agent/Registrar for a Series 2014 Bond or
Series 2014 Bonds of the same maturity in any authorized denomination and interest rate, in an
aggregate amount equal to the unpaid principal amount of the Series 2014 Bond or Series 2014
Bonds presented for exchange. The Paying Agent/Registrar shall be and is hereby authorized to
authenticate and deliver exchange Series 2014 Bonds in accordance with the provisions of this
Section 3.11. Each Series 2014 Bond delivered in accordance with this Section 3.11 shall be
entitled to the benefits and security of this Ordinance to the same extent as the Series 2014 Bond
or Series 2014 Bonds in lieu of which such Series 2014 Bond is delivered.
The City or the Paying Agent/Registrar may require the Owner of any Series 2014 Bond
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 Series 2014 Bond. 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 Series 2014
Bond 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 Series 2014
Bond called for redemption in part.
Section 3.14. Cancellation of Series 2014 Bonds. All Series 2014 Bonds paid or
redeemed in accordance with this Ordinance, and all Series 2014 Bonds in lieu of which
exchange Series 2014 Bonds or replacement Series 2014 Bonds 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 furnish the City with
appropriate certificates of destruction of such Series 2014 Bonds.
Section 3.15. Mutilated, Lost, or Stolen Series 2014 Bonds. Upon the presentation and
surrender to the Paying Agent/Registrar of a mutilated Series 2014 Bond, the Paying
Agent/Registrar shall authenticate and deliver in exchange therefor a replacement Bond of like
maturity, interest rate, and principal amount, bearing a number not contemporaneously
outstanding. The City or the Paying Agent/Registrar may require the Owner of such Series 2014
Bond 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.
If any Series 2014 Bond is lost, apparently destroyed, or wrongfully taken, the City,
pursuant to the applicable laws of the State of Texas, and in the absence of notice or knowledge
that such Series 2014 Bond has been acquired by a bona fide purchaser, shall execute and the
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Paying Agent/Registrar shall authenticate and deliver, a replacement Series 2014 Bond of like
maturity, interest rate, and principal amount, bearing a number not contemporaneously
outstanding,provided that the 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 Series
2014 Bond;
(b) furnished such security or indemnity as may be required by the Paying
Agent/Registrar and the City to save 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 Series 2014 Bond, a bona fide purchaser of the
original Bond in lieu of which such replacement Bond was issued presents for payment such
original Series 2014 Bond, the City and the Paying Agent/Registrar shall be entitled to recover
such replacement Series 2014 Bond 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.
If any such mutilated, lost, apparently destroyed, or wrongfully taken Series 2014 Bond
has become or is about to become due and payable, the City in its discretion may, instead of
issuing a replacement Series 2014 Bond,authorize the Paying Agent/Registrar to pay such Series
2014 Bond.
Each replacement Series 2014 Bond delivered in accordance with this Section 3.13 shall
be entitled to the benefits and security of this Ordinance to the same extent as the Series 2014
Bond or Series 2014 Bonds in lieu of which such replacement Series 2014 Bond is delivered.
ARTICLE IV
FORM OF SERIES 2014 BONDS AND CERTIFICATES
Section 4.1. Forms. The form of the Series 2014 Bonds, including the form of the
Paying Agent/Registrar's Authentication Certificate, the form of Assignment, the form of the
Comptroller's Registration Certificate and the form of the Statement of Insurance, if any, which
shall be attached or affixed to the Initial Series 2014 Bonds, shall be, respectively, as described
in Exhibit A to this Ordinance, with such additions, deletions, and variations as may be necessary
or desirable and not prohibited by this Ordinance.
Section 4.2. Legal Opinion; CUSIP Numbers. The approving legal opinion of
Andrews Kurth LLP, Houston, Texas, Bond Counsel, may be printed on the Series 2014 Bonds
over the certification of the City Secretary, which may be executed in facsimile. CUSIP numbers
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also may be printed on the Series 2014 Bonds, but errors or omissions in the printing of either
the opinion or the numbers shall have no effect on the validity of the Series 2014 Bonds.
ARTICLE V
SECURITY AND SOURCE OF
PAYMENT FOR THE BONDS
Section 5.1. Pledge and Source of Payment. The City hereby covenants and agrees
that Gross Revenues of the System shall, as collected and received by the City, be deposited and
paid into the special funds hereinafter established, and shall be applied in the manner hereinafter
set forth, in order to provide for the payment of all Maintenance and Operation Expenses and to
provide for the payment of principal of, interest on and any redemption premiums on the Bonds
and all expenses of paying same; and to provide for the disposition of the remaining Net
Revenues. The Bonds shall constitute special obligations of the City that shall be payable solely
from and shall be equally and ratably secured by a first lien on and pledge Of the Net Revenues
as collected and received by the City from the operation and ownership of the System,which Net
Revenues shall, in the manner herein provided, be set aside for and are hereby pledged to the
payment of the Bonds in the Interest and Sinking Fund and the Reserve Fund as hereinafter
provided, and the Bonds shall be, in all respects, on a parity with and of equal dignity with one
another. The Owners of the Bonds shall never have the right to demand payment of either the
principal of, interest on or any redemption premium on the Bonds out of any funds raised or to
be raised by taxation.
Section 5.2. Rates and Charges. So long as any Bonds remain Outstanding, the City
shall fix, charge and collect rates and charges for the use and services of the System which are
calculated to be fully sufficient to produce Net Revenues in each Fiscal Year at least equal to
115% of the principal and interest requirements scheduled to occur in such Fiscal Year on all
Bonds then Outstanding, plus an amount equal to the sum of all deposits required to be made to
the Reserve Fund in such Fiscal Year (but in no event shall Net Revenues ever be less than the
amount required to establish and maintain the Interest and Sinking Fund and the Reserve Fund as
hereinafter provided) and, to the extent that funds for such purpose are not otherwise available,
to pay all other outstanding obligations payable from the Net Revenues of the System, including
all amounts owed by the City to a provider of a Surety Policy, if any, as and when the same
become due. For the purpose of complying with its obligation to fix, charge and collect rates and
charges, as herein provided, the City shall be entitled to rely on the certificate described in
Section 6.1 of this Ordinance, as therein provided, in determining the amount of interest
anticipated to be paid in respect of Bonds bearing interest at a variable rate.
The City will not grant or permit any free service from the System, except for public
buildings and institutions operated by the City. In addition, the City will not grant or permit any
free service from the System permitted by the previous sentence if to do so would violate any
condition or covenant to which the City is bound in connection with any federal grant agreement
or otherwise.
Section 5.3. Special Funds. The following "Special Funds" shall be established,
maintained and accounted for as hereinafter provided so long as any of the Bonds remain
Outstanding:
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(a) Revenue Fund;
(b) Interest and Sinking Fund; and
(c) Reserve Fund.
All of such Funds shall be maintained as separate accounts on the books of the City. The
Interest and Sinking Fund and the Reserve Fund shall constitute trust funds which shall be held
in trust for the Owners of the Bonds and the proceeds of which shall be pledged to the payment
of the Bonds. All of the Funds named above shall be used solely as herein provided so long as
any Bonds remain Outstanding.
Section 5.4. Flow of Funds. Gross Revenues of the System shall be deposited as
collected into the Revenue Fund. Moneys from time to time on deposit to the credit of the
Revenue Fund shall be applied in the following manner and in the following order of priority:
(a) First, to pay Maintenance and Operation Expenses and to provide by
encumbrance for the payment of all obligations incurred by the City for Maintenance and
Operation Expenses and to establish and maintain an operating reserve equal to one
month's estimated Maintenance and Operation Expenses;
(b) Second, to make all deposits into the Interest and Sinking Fund required
by any ordinance authorizing the issuance of Bonds;
(c) Third, to reimburse the provider of a Surety Bond any amounts advanced
under such Surety Bond;
(d) Fourth, to pay interest to any provider of a Surety Bond any amounts
advanced under such Surety Bond;
(e) Fifth, to make all deposits into the Reserve Fund required by any
ordinance authorizing the issuance of Bonds;
(f) Sixth, to make all deposits, as may be required by any ordinance of the
City authorizing the issuance of certain Subordinate Lien Obligations described in
Section 6.2 hereof, in order to provide for the payment of and security for such
Subordinate Lien Obligations; and
(g) Seventh,for any lawful purpose.
Section 5.5. Interest and Sinking Fund. On or before the last Business Day of each
month so long as any Bonds remain Outstanding, after making all required payments and
provision for payment of Maintenance and Operation Expenses, there shall be transferred into
the Interest and Sinking Fund from the Revenue Fund the following amounts:
(a) Such amounts, in approximately equal monthly installments, as will be
sufficient to accumulate the amount required to pay the interest scheduled to become due
on the Bonds on the next Interest Payment Date; and
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(b) Such amounts, in approximately equal monthly installments, as will be
sufficient to accumulate the amount required to pay the next maturing principal of the
Bonds (i.e., the principal amount payable on the next September 1), including the
principal amounts of, and any redemption premiums on, any Bonds payable as a result of
the operation or exercise of any mandatory or optional redemption provision contained in
any ordinance authorizing the issuance of Bonds.
Whenever the total amounts on deposit to the credit of the Interest and Sinking Fund and
the Reserve Fund shall be equivalent to the sum of the aggregate principal amount of all
Outstanding Bonds plus the aggregate amount of all interest accrued and to accrue thereon, no
further payments need be made into the Interest and Sinking Fund or the Reserve Fund, and such
Bonds shall not be regarded as being Outstanding except for the purpose of being paid with the
moneys on deposit in such Funds.
Moneys deposited to the credit of the Interest and Sinking Fund shall be used solely for
the purpose of paying principal (at maturity, prior redemption or tender, or to purchase Bonds in
the open market to be credited against mandatory redemption requirements), interest and
redemption premiums on the Bonds, plus all bank charges and other costs and expenses relating
to such payment.
On or before each date principal becomes due and/or each Interest Payment Date on the
Bonds, the City shall transfer from the Interest and Sinking Fund to the Paying Agent for the
Bonds an amount equal to the principal of, interest on and any redemption premiums payable on
the Bonds on such date, together with an amount equal to all bank charges and other costs and
expenses relating to such payment. The Paying Agent shall destroy all paid Bonds and shall
provide the City with an appropriate certificate of destruction.
Section 5.6. Reserve Fund. On or before the last Business Day of each month so long
as any Bonds remain Outstanding, after making all required payments and provision for payment
of Maintenance and Operation Expenses and after making all required transfers into the Interest
and Sinking Fund, there shall be transferred into the Reserve Fund from the Revenue Fund
amounts equal to one-sixtieth (1/60th) of the Average Annual Principal and Interest
Requirements on the Bonds unless or until there has been accumulated in the Reserve Fund
money and investments in an aggregate amount at least equal to the Average Annual Principal
and Interest Requirements on the Bonds; provided that additional deposits into the Reserve Fund
sufficient to provide for the increased reserve requirements resulting from the issuance of any
Additional Bonds shall be made by not later than 60 months from the date of issuance of such
Additional Bonds as required by Section 6.1(d)hereof. Such additional deposits into the Reserve
Fund in connection with the issuance of any Additional Bonds shall be made each month in
amounts equal to one-sixtieth (1/60th) of the Average Annual Principal and Interest
Requirements on the Bonds and such Additional Bonds. After such amount has accumulated in
the Reserve Fund and so long thereafter as such fund contains such amount, no further deposits
shall be required to be made into the Reserve Fund, and any excess amounts in the Fund may be
transferred to the Revenue Fund; but if and whenever the balance in the Reserve Fund is reduced
below such amount, monthly deposits into such Fund shall be resumed and continued in amounts
at least equal to one-twelfth (1/12th) of the Average Annual Principal and Interest Requirements
on the Bonds until the Reserve Fund has been restored to such amount. The Reserve Fund shall
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be used to pay the principal of and interest on the Bonds at any time when there is not sufficient
money available in the Interest and Sinking Fund for such purpose and it may be used finally to
pay and retire the last Bonds to mature or be redeemed.
The requirements of the immediately preceding paragraph of this Section
notwithstanding, the City may provide a Surety Policy or Policies issued in amounts equal to all
or part of the Average Annual Principal and Interest Requirements on the Bonds in lieu of
depositing cash into the Reserve Fund;provided, however, that no such Surety Policy may be so
substituted unless (i)the ordinance authorizing the substitution of the Surety Policy for all or part
of the Average Annual Principal and Interest Requirements on the Bonds contains a finding that
such substitution is cost effective and (ii) the City obtains an opinion of nationally recognized
bond counsel that such substitution is permitted by applicable Texas law then in effect. If a
Surety Policy or Policies are issued in accordance with the preceding sentence, such Surety
Policy or Policies shall be drawn upon and reimbursed on a pro rata basis.
In the event a Surety Policy issued to satisfy all or a part of the City's obligation with
respect to the Reserve Fund causes the amount then on deposit in the Reserve Fund to exceed the
Average Annual Principal and Interest Requirements on all Bonds, the City may transfer such
excess amount to any fund or funds established for the payment of or security for Bonds or any
Subordinate Lien Obligations (including any escrow established for the final payment of any
such obligations pursuant to Chapter 1207, Texas Government Code); provided, however, that
no funds constituting bond proceeds shall be transferred for the benefit of the Subordinate Lien
Obligations.
Section 5.7. Deficiencies in Funds. If in any month there shall not be deposited into
any fund maintained pursuant to this Article the full amounts required hereinabove, amounts
equivalent to such deficiency shall be set apart and paid into such Special Fund or Funds from
the first available and unallocated moneys in the Revenue Fund, and such payment shall be in
addition to the amounts otherwise required to be paid into such Funds during any succeeding
month or months. To the extent necessary, the rates and charges for the System shall be
increased to make up for any such deficiencies.
Section 5.8. Investment of Funds;Transfer of Investment Income.
(a) Money in the Revenue Fund, the Interest and Sinking Fund and the
Reserve Fund may, at the option of the City, be invested in time deposits or certificates of
deposit secured in the manner required by law for public funds, or be invested in direct
obligations of, or obligations the principal of and interest on which are unconditionally
guaranteed by, the United States of America, in obligations of any agencies or
instrumentalities of the United States of America or as otherwise permitted by state law;
provided that all such deposits and investments shall be made in such manner(which may
include repurchase agreements for such investments with any national bank) that the
money required to be expended from any Special Fund will be available at the proper
time or times, and provided further that in no event shall such deposits or investments of
moneys in the Reserve Fund mature later than the final maturity date of the Bonds. All
such investments shall be valued in terms of current market value no less frequently than
the last Business Day of the City's Fiscal Year, except that any direct obligations of the
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United States of America - State and Local Government Series shall be continuously
valued at their par value or principal face amount. Any obligation in which money is so
invested shall be kept and held in an official depository of the City, except as hereinafter
provided. For purposes of maximizing investment returns, money in such funds may be
invested, together with money in other funds or with other money of the City, in common
investments of the kind described above, or in a common pool of such investments which
shall be kept and held at an official depository of the City, which shall not be deemed to
be or constitute a commingling of such money or funds provided that safekeeping
receipts or certificates of participation clearly evidencing the investment or investment
pool in which such money is invested and the share thereof purchased with such money
or owned by such fund are held by or on behalf of each such fund. If necessary, such
investments shall be promptly sold to prevent any default.
(b) All interest and income derived from such deposits and investments shall
be credited monthly to the Special Fund from which such investment was made.
Section 5.9. Security for Uninvested Funds. So long as any Bonds remain
Outstanding, all uninvested moneys on deposit in, or credited to, the Revenue Fund, the Interest
and Sinking Fund and the Reserve Fund shall be secured by the pledge of security as provided by
law for cities in the State of Texas.
ARTICLE VI
ADDITIONAL BONDS
Section 6.1. Additional Bonds. The City reserves the right to issue, for any lawful
purpose, including the refunding of any previously issued Bonds or any other bonds or
obligations of the City issued in connection with the System or payable from Net Revenues, one
or more series of Additional Bonds on a parity with the Outstanding Bonds and any Additional
Bonds then Outstanding, payable from, and secured by a first lien on, the Net Revenues of the
System;provided,however, that no Additional Bonds may be issued unless:
(a) All Additional Bonds shall mature only on September 1 and interest
thereon shall be payable only on March 1 and September 1;
(b) The Interest and Sinking Fund and the Reserve Fund each contains the
amount of money then required to be on deposit therein;
(c) For either the preceding Fiscal Year or any consecutive 12-month period
out of the 15-month period immediately preceding the month in which the bond
ordinance authorizing such Additional Bonds is adopted(the"Base Period") either:
(1) Net Revenues are certified by the Director of Finance of the City to
have been equal to at least one hundred and forty percent (140%) of the Average
Annual Principal and Interest Requirements on all Bonds, after giving effect to
the issuance of the Additional Bonds to be issued; or
(2) Net Revenues, adjusted to give effect to any rate increase or
annexation of territory placed into effect or consummated prior to the adoption of
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the ordinance authorizing the Additional Bonds to the same extent as if such rate
increase or annexation had been placed into effect or consummated prior to the
commencement of the Base Period, would have been equal to at least the amount
required in paragraph (1) above, as certified by an independent consulting
engineer or independent firm of consulting engineers;
Provided, however, that this requirement shall not apply to the issuance of any series of
Additional Bonds for refunding purposes that will not have the result of increasing the average
annual principal and interest requirements on the Bonds; and
(d) Provision is made in the bond ordinance authorizing the Additional Bonds
then proposed to be issued for (1) additional payments into the Interest and Sinking Fund
sufficient to provide for the payment of the increased principal of and interest on the
Bonds resulting from the issuance of such Additional Bonds, and (2) additional payments
into the Reserve Fund sufficient to provide for the accumulation therein of the increased
reserve requirement resulting from the issuance of such Additional Bonds, by not later
than sixty(60) months from the date of issuance of such Additional Bonds.
The provisions of this Section 6.1(a) notwithstanding, the City may issue Additional
Bonds that bear interest at a variable rate. Such variable rate bonds may mature on dates other
than September 1 and interest thereon may be payable on dates other than March 1 or September
1; provided that the issuance of Additional Bonds as variable rate bonds may not cause the total
amount of Outstanding Bonds that are variable rate bonds to exceed 50% (20% as long as the
Series 1999 Bonds shall remain outstanding) of the aggregate principal amount of all
Outstanding Bonds and Subordinate Lien Obligations at the time of such issuance. For purposes
of calculating the funding requirements for the Reserve Fund and for the purposes of calculating
compliance with the conditions precedent to the issuance of Additional Bonds pursuant to
Section 6.1(c) and the rate covenant set forth in Section 5.2, any Bonds that are variable rate
bonds shall be assumed to bear interest at a rate which shall be estimated and certified by the
financial advisor to the City as the rate that would be borne by such variable rate bonds if they
were at the date of such certification issued as Bonds bearing a fixed rate of interest to their
scheduled maturity or maturities.
Section 6.2. Subordinate Lien Obligations. The City reserves the right to issue, for any
lawful purpose, bonds, notes or other obligations secured in whole or in part by liens on the Net
Revenues that are junior and subordinate to the lien on Net Revenues securing payment of the
Bonds. Such Subordinate Lien Obligations may be further secured by any other source of
payment lawfully available for such purposes. In the event that the City should decide to issue
such Subordinate Lien Obligations as variable rate bonds, for purposes of calculating the funding
requirements for the reserve fund for such Subordinate Lien Obligations, the variable rate bonds
shall be assumed to bear interest at the rate of 10% per annum, and for purposes of calculating
compliance with any conditions precedent to the issuance of additional Subordinate Lien
Obligations and any rate covenants relating to such Subordinate Lien Obligations, the variable
rate bonds shall be assumed to bear interest at the higher of 9%per annum or the highest variable
rate over the preceding twenty-four(24)months.
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Deposits may be made pursuant to Section 5.4(f) of this Ordinance into such funds as
may be created and maintained for the payment of and security for Subordinate Lien Obligations
described in this Section (including a reserve fund not to exceed the Average Annual Principal
and Interest Requirements on such Subordinate Lien Obligations and any provisions for curing
deficiencies in such funds), but only to the extent that the aggregate Outstanding principal
amount of such Subordinate Lien Obligations does not exceed 50% of the aggregate principal
amount of Bonds and Subordinate Lien Obligations Outstanding on the date of such calculation.
Section 6.3. Special Project Bonds. The City reserves the right to issue revenue bonds
secured by liens on and pledges of revenues and proceeds derived from Special Projects.
ARTICLE VII
COVENANTS AND PROVISIONS
RELATING TO BONDS
Section 7.1. Punctual Payment of Bonds. The City covenants that it will punctually
pay or cause to be paid the interest on and principal of all Bonds according to the terms thereof
and will faithfully do and perform, and at all times fully observe, any and all covenants,
undertakings, stipulations and provisions contained in this Ordinance and in any other ordinance
authorizing the issuance of such Bonds.
Section 7.2. Power to Own and Operate System; Ratemaking Power. The City
covenants that it has all necessary power and authority to own and operate the System as herein
described and provided and that it possesses, and shall exercise, all necessary power and
authority to establish, fix, increase, impose and collect rates and charges for the use and services
of the System in the amounts required to comply with the covenants and provisions contained
herein.
Section 7.3. Maintenance of System. So long as any Bonds remain Outstanding, the
City covenants that it will at all times maintain the System, or within the limits of its authority
cause the same to be maintained, in good condition and working order and will operate the same,
or cause the same to be operated, in an efficient and economical manner at a reasonable cost and
in accordance with sound business principles. In operating and maintaining the System,the City
will comply with all contractual provisions and agreements entered into by it and with all valid
rules, regulations, directions or orders of any governmental, administrative or judicial body
promulgating same, noncompliance with which would materially and adversely affect the
operation of the System.
Section 7.4. Sale or Encumbrance of System. So long as any Bonds remain
Outstanding, the City covenants that it will not sell, dispose of or, except as permitted in Article
VI, further encumber the System; provided, however, that this provision shall not prevent the
City from disposing of any portion of the System which is being replaced or is deemed by the
City to be obsolete, worn out, surplus or no longer needed for the proper operation of the System.
Net proceeds from any such disposition may be deposited in the Revenue Fund and,
notwithstanding any other provision contained herein, shall be used only for System purposes.
Any agreement pursuant to which the City contracts with a person, corporation, municipal
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corporation or political subdivision to operate the System or to lease and/or operate all or part of
the System shall not be considered as an encumbrance of the System.
Section 7.5. Insurance. The City covenants that it will keep the System insured with
insurers of good standing, against risks, accidents or casualties against which and to the extent
customarily insured against by political subdivisions of the State of Texas operating similar
properties, to the extent that such insurance is available. All net proceeds of such insurance shall
be applied to repair or replace any insured property that is damaged or destroyed, or shall be
deposited in the Revenue Fund, or shall be used to redeem Outstanding Bonds. The cost of all
such insurance, together with any additional insurance, shall be a part of the Maintenance and
Operation Expenses.
Section 7.6. Accounts, Records and Audits. So long as any Bonds remain Outstanding,
the City covenants that it will maintain a proper and complete system of records and accounts
pertaining to the operation of the System in which full, true and proper entries will be made of all
dealings, transactions, business and affairs which in any way affect or pertain to the System or
the Gross Revenues or the Net Revenues thereof. The City shall, after the close of each Fiscal
Year, prepare financial statements of the System, and have those financial statements audited by
an independent certified public accountant or independent firm of certified public accountants.
After the audit, the City shall furnish a copy of these audited financial statements, together with
the independent certified public accountant's report thereon, without cost, to the Municipal
Advisory Council of Texas, the major municipal rating agencies, and any Owners of Bonds who
shall request the same. All expenses incurred in preparing such audits shall be Maintenance and
Operation Expenses.
Section 7.7. Competition. To the extent it legally may, the City covenants that it will
not grant any franchise or permit for the acquisition, construction or operation of any competing
facilities which might be used as a substitute for the System and will prohibit the operation of
any such competing facilities to the extent that such competing facilities would impair the City's
ability to pay principal of or interest on the Bonds.
Section 7.8. Pledge and Encumbrance of Net Revenues. The City covenants that it has
the lawful power to create a lien on and to pledge the Net Revenues to secure the payment of the
Bonds, and has lawfully exercised such power under the Constitution and laws of the State of
Texas. The City further covenants that, other than to the payment of the Bonds, the Net
Revenues are not and will not be made subject to any other lien, pledge or encumbrance to
secure the payment of any debt or obligation of the City, unless such lien, pledge or
encumbrance is junior and subordinate to the lien and pledge securing payment of the Bonds.
Section 7.9. Covenants with Respect to Certain Assumed Water District Bonds. So
long as any Bonds remain Outstanding,the City covenants as follows:
(a) To the extent it legally may, the City will impose, and strictly enforce, the
requirement upon all water districts located within the City's extraterritorial jurisdiction
that any bonds issued by such water districts which are secured in whole or in part by
pledges of or liens on water or sewer system revenues shall provide that all such pledges
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of and liens on water or sewer system revenues shall automatically terminate upon the
annexation and dissolution of the district by the City;
(b) The City shall use its best efforts to redeem, refund or defease all annexed
water district bonds assumed by the City which by their own terms are secured in whole
or in part by pledges of or liens on water or sewer system revenues which do not
terminate upon annexation and dissolution by the City of such water district, or otherwise
to provide for the discharge of such pledges or liens on water or sewer system revenues;
and
(c) Pursuant to Section 43.075, Texas Local Government Code (successor to
Article 1182c-1, Vernon's Texas Civil Statutes, as amended), the City shall, unless it has
theretofore made adequate provision for the payment thereof, annually levy and cause to
be collected taxes upon all taxable property of the City sufficient to pay principal of and
interest, as they respectively become due and payable, on all assumed bonds, warrants
and other obligations that were issued by water districts that have been annexed to, and
dissolved by, the City, and which are by their own terms secured in whole or in part by a
lien on or pledge of water or sewer system revenues which did not terminate upon the
annexation and dissolution by the City of such water district.
Section 7.10. Registered Owners' Rights and Remedies. This Ordinance shall constitute
a contract between the City and the Owners of the Series 2014 Bonds from time to time
Outstanding and this Ordinance shall be and remain irrepealable until the Series 2014 Bonds and
the interest thereon shall be fully paid or discharged or provision therefor shall have been made
as provided herein. In the event of a default in the payment of the principal of or interest on any
of the Series 2014 Bonds or a default in the performance of any duty or covenant provided by
law or in this Ordinance, the Owner or Owners of any of the Series 2014 Bonds may pursue all
legal remedies afforded by the Constitution and laws of the State of Texas to compel the City to
remedy such default and to prevent further default or defaults. Without in any way limiting the
generality of the foregoing, it is expressly provided that any Owner of any of the Series 2014
Bonds may at law or in equity, by suit, action, mandamus, or other proceedings, enforce and
compel performance of all duties required to be performed by the City under this Ordinance,
including the making and collection of reasonable and sufficient rates and charges for the use
and services of the System, the deposit of the revenues thereof into the Special Funds herein
provided, and the application of such revenues in the manner required in this Ordinance.
Section 7.11. Defeasance. The City may defease the provisions of this Ordinance and
discharge its obligations to the Registered Owners of any or all of the Series 2014 Bonds to pay
the principal of and interest thereon in any manner now or hereafter 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 Series 2014
Bonds 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
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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 Series 2014 Bonds 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 Series 2014 Bonds 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.
Section 7.12. Legal Holidays. In any case where the date of maturity of interest on or
principal of the Series 2014 Bonds or the date fixed for redemption of any Series 2014 Bonds
shall be in the City a legal holiday or a day on which the Paying Agent/Registrar for the Series
2014 Bonds is authorized by law to close,then payment of interest or principal need not be made
on such date but may be made on the next succeeding day not in the City a legal holiday or a day
on which such Paying Agent Registrar is authorized by law to close with the same force and
effect as if 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.
Section 7.13. Unavailability of Authorized Publication. If, because of the temporary or
permanent suspension of any newspaper, journal or other publication, or, for any reason,
publication of notice cannot be made meeting any requirements herein established, any notice
required to be published by the provisions of this Ordinance shall be given in such other manner
and at such time or times as in the judgment of the City or of the Paying Agent/Registrar (or
paying agent) for the Series 2014 Bonds shall most effectively approximate such required
publication and the giving of such notice in such manner shall for all purposes of this Ordinance
be deemed to be in compliance with the requirements for publication thereof.
Section 7.14. No Recourse Against City Officials. No recourse shall be had for the
payment of principal of or interest on any Series 2014 Bonds or for any claim based thereon or
on this Ordinance against any official of the City or any person executing any Series 2014
Bonds.
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•
Section 7.15. Amendment to Ordinance. The City may, with the consent of Owners
holding a majority in aggregate principal amount of the Bonds then Outstanding affected
thereby, amend, add to, or rescind any of the provisions of this Ordinance; provided that, without
the consent of all Owners of Outstanding Bonds, no such amendment, addition, or rescission
shall (1) extend the time or times of payment of the principal of, premium, if any, and interest on
the Bonds, reduce the principal amount thereof, the redemption price therefor, or the rate of
interest thereon, or in any other way modify the terms of payment of the principal of,premium,if
any, or interest on the Bonds, (2) give any preference to any Bond over any other Bond, or (3)
reduce the aggregate principal amount of Bonds required to be held by Owners for consent to
any such amendment, addition,or rescission.
ARTICLE VIII
CONCERNING THE PAYING AGENT/REGISTRAR
Section 8.1. Acceptance. Wells Fargo Bank, N.A., Dallas, Texas, is hereby appointed
as the initial Paying Agent/Registrar for the Series 2014 Bonds. 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 fees
and/or deposits of money pursuant to this Ordinance, shall be deemed to accept and agree to
abide by the terms of this Ordinance. The registration of and payment of the principal of,
premium, if any, and interest on the Series 2014 Bonds when due shall be effectuated pursuant to
the terms of a Paying Agent/Registrar Agreement to be entered into by and between the City and
the Paying Agent/Registrar,which shall be substantially in the form attached hereto as Exhibit B,
the terms and provisions of which are hereby approved, and the Mayor and/or the Mayor Pro
Tern are 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
and affix the City's seal thereto.
Section 8.2. Fiduciary Account. All money transferred to the Paying Agent/Registrar
under this Ordinance (except sums representing Paying Agent/Registrar's fees) shall be held in a
fiduciary account for the benefit of the City, shall be the property of the City, and shall be
disbursed in accordance with this Ordinance.
Section 8.3. Bonds Presented. Subject to the provisions of Section 8.4, all matured
Series 2014 Bonds properly and timely presented to the Paying Agent/Registrar for payment
shall be paid without the necessity of further instructions from the City. Such Series 2014 Bonds
shall be canceled as provided herein.
Section 8.4. Series 2014 Bonds Not Timely Presented. The Paying Agent/Registrar
shall remit to the City, upon receipt of the certificate provided for herein, a sum equal to the
aggregate face amount of all Series 2014 Bonds which have not been presented for payment
prior to the date specified in such certificate. Such certificate shall:
(a) Specify the Series 2014 Bonds or portions thereof to which it applies and
the amount of each;
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(b) Specify the date on which the City believes itself to be no longer obligated
to pay such Series 2014 Bonds or portions thereof by virtue of the expiration of the
applicable statute of limitations under the laws of the State of Texas; and
(c) Be signed by the Mayor and attested by the City Secretary.
Funds held by the Paying Agent/Registrar that represent principal of and interest on the
Series 2014 Bonds remaining unclaimed by any Registered Owner 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 Owners of the Series 2014
Bonds by virtue of actions taken in compliance with this Section.
Section 8.5. Paying Agent/Registrar May Own Series 2014 Bonds. The Paying
Agent/Registrar in its individual or any other capacity, may become the Owner or pledgee of
Series 2014 Bonds with the same rights it would have if it were not the Paying Agent/Registrar.
Section 8.6. Successor Paying Agents/Registrars. The City covenants that at all times
while any Series 2014 Bonds are Outstanding it will provide a legally qualified bank, trust
company, financial institution, or other agency to act as Paying Agent/Registrar for the Series
2014 Bonds. If the Paying Agent/Registrar or its successor for any reason no longer acts as
Paying Agent/Registrar hereunder, the City covenants that it will appoint a bank in the same city
as the Paying Agent/Registrar initially appointed to perform the duties of Paying Agent/Registrar
hereunder. Any successor Paying Agent/Registrar shall be either a national or state banking
institution,and a corporation organized and doing business under the laws of the United States of
America or any state, which is authorized under such laws to exercise trust powers and is subject
to supervision or examination by federal or state authority.
The City reserves the right to change the Paying Agent/Registrar for the Series 2014
Bonds on not less than sixty (60) days written notice to the Paying Agent/Registrar, as long as
any such notice is effective not less than sixty(60) days prior to the next succeeding principal or
interest payment date on the Series 2014 Bonds. 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 first-class mail, 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.
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ARTICLE IX
TAX EXEMPTION
Section 9.1. Covenants to Maintain Tax Exempt Status.
(a) Definitions. When used in this Section, the following terms have the following
meanings:
"Code" means the Internal Revenue Code of 1986, as amended by all legislation,
if any, enacted on or before the Issue Date.
"Computation Date" has the meaning stated in Section 1.148-1(b) of the
Regulations.
"Gross Proceeds" has the meaning stated in Section 1.148-1(b) of the
Regulations.
"Investment"has the meaning stated in Section 1.148-1(b) of the Regulations.
"Issue Date" for each series or sub-series of the Series 2014 Bonds or other
obligations of the City is the respective date on which such series or sub-series of the
Series 2014 Bonds or other obligations of the City is delivered against payment therefor.
"Net Sale Proceeds" has the meaning stated in Section 1.148-1(b) of the
Regulations.
"Nonpurpose Investment" has the meaning stated in Section 1.148-1(b) of the
Regulations.
"Proceeds"has the meaning stated in Section 1.148-1(b)of the Regulations.
"Rebate Amount"has the meaning stated in Section 1.148-3 of the Regulations.
"Regulations"means the temporary or final Income Tax Regulations applicable to
the Bonds issued pursuant to Sections 141 through 150 of the Code. Any reference to a
section of the Regulations shall also refer to any successor provision to such section
hereafter promulgated by the Internal Revenue Service pursuant to Sections 141 through
150 of the Code and applicable to the Series 2014 Bonds.
"Yield of'
any Investment shall be computed in accordance with Section
1.148-5 of the Regulations, and
the Series 2014 Bonds shall be computed in accordance with
Section 1.148-4 of the Regulations.
(b) Not to Cause Interest to Become Taxable. The City shall not use, permit the use
of or omit to use Gross Proceeds or any other amounts (or any property the acquisition,
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construction or improvement of which is to be financed directly or indirectly with Gross
Proceeds) in a manner which, if made or omitted, respectively, would cause the interest on such
Series 2014 Bond to become includable in the gross income, as defined in Section 61 of the
Code, of the owner thereof for federal income tax purposes. Without limiting the generality of
the foregoing, unless and until the City shall have received a written opinion of counsel
nationally recognized in the field of municipal bond law to the effect that failure to comply with
such covenant will not adversely affect the exemption from federal income tax of the interest on
any Series 2014 Bond,the City shall comply with each of the specific covenants in this Section.
(c) No Private Use or Private Payments. Except as permitted by Section 141 of the
Code and the regulations and rulings thereunder, the City shall, at all times after the Issue Date
of any Series 2014 Bond and prior to the last stated maturity of the Series 2014 Bonds
(1) exclusively own, operate, and possess all property the acquisition, construction, or
improvement of which is to be financed directly or indirectly with Gross Proceeds
of such Series 2014 Bond and not use or permit the use of such Gross Proceeds or
any property acquired, constructed, or improved with such Gross Proceeds in any
activity carried on by any person or entity other than a state or local government,
unless such use is solely as a member of the general public,or
(2) not directly or indirectly impose or accept any charge or other payment for use of
Gross Proceeds of such Series 2014 Bond or any property the acquisition,
construction or improvement of which is to be financed directly or indirectly with
such Gross Proceeds other than taxes of general application and interest earned on
investments acquired with such Gross Proceeds pending application for their
intended purposes.
(d) No Private Loan. Except to the extent permitted by Section 141 of the Code and
the regulations and rulings thereunder, the City shall not use Gross Proceeds of such Series 2014
Bond to make or finance loans to any person or entity other than a state or local government. For
purposes of the foregoing covenant, Gross Proceeds are considered to be "loaned"to a person or
entity if(1) property acquired, constructed or improved with Gross Proceeds is sold or leased to
such person or entity in a transaction which creates a debt for federal income tax purposes, (2)
capacity in or service from such property is committed to such person or entity under a take-or-
pay, output, or similar contract or arrangement, or (3) indirect benefits, or burdens and benefits
of ownership, of such Gross Proceeds or such property are otherwise transferred in a transaction
which is the economic equivalent of a loan.
(e) Not to Invest at Higher Yield. Except to the extent permitted by Section 148 of
the Code and the regulations and rulings thereunder, the City shall not, at any time prior to the
earlier of the final stated maturity or final payment of such Series 2014 Bond, directly or
indirectly invest Gross Proceeds of such Series 2014 Bond in any Investment (or use such Gross
Proceeds to replace money so invested), if as a result of such investment the Yield of all
Investments allocated to such Gross Proceeds whether then held or previously disposed of,
exceeds the Yield on the Series 2014 Bonds.
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(f) Not Federally Guaranteed. Except to the extent permitted by Section 149(b) of
the Code and the regulations and rulings thereunder, the City shall not take or omit to take any
action which would cause the Series 2014 Bonds to be federally guaranteed within the meaning
of Section 149(b)of the Code and the regulations and rulings thereunder.
(g) Information Report. The City shall timely file with the Secretary of the Treasury
the information required by Section 149(e) of the Code with respect to each converted series of
the Series 2014 Bonds on such forms and in such place as such Secretary may prescribe.
(h) Payment of Rebate Amount. Except to the extent otherwise provided in Section
148(f)of the Code and the regulations and rulings thereunder,the City shall:
(1) account for all Gross Proceeds (including all receipts, expenditures and
investments thereof) on its books of account separately and apart from all other
funds (and receipts, expenditures and investments thereof) and shall retain all
records of such accounting for at least six years after the final Computation Date.
The City may, however, to the extent permitted by law, commingle Gross
Proceeds of the Series 2014 Bonds with other money of the City, provided that
the City separately accounts for each receipt and expenditure of such Gross
Proceeds and the obligations acquired therewith,
(2) calculate the Rebate Amount with respect to such Series 2014 Bond not less
frequently than each Computation Date, in accordance with rules set forth in
Section 148(f) of the Code, Section 1.148-3 of the Regulations, and the rulings
thereunder. The City shall maintain a copy of such calculations for at least six
years after the final Computation Date,
(3) as additional consideration for the purchase of the Series 2014 Bonds by the
initial purchasers thereof and the loan of the money represented thereby, and in
order to induce such purchase by measures designed to ensure the excludability of
the interest thereon from the gross income of the owners thereof for federal
income tax purposes, pay to the United States the amount described in paragraph
(2) above at the times, in the installments, to the place, in the manner and
accompanied by such forms or other information as is or may be required by
Section 148(f)of the Code and the regulations and rulings thereunder, and
(4) exercise reasonable diligence to assure that no errors are made in the calculations
required by paragraph (2) and, if such error is made, to discover and promptly to
correct such error within a reasonable amount of time thereafter, including
payment to the United States of any interest and any penalty required by the
Regulations.
(i) Not to Divert Arbitrage Profits. Except to the extent permitted by Section 148 of
the Code and the regulations and rulings thereunder,the City shall not, at any time after the Issue
Date of the Series 2014 Bonds and prior to the earlier of the final stated maturity or final
payment of the Series 2014 Bonds, enter into any transaction that reduces the amount required to
be paid to the United States pursuant to Subsection (h) of this Section because such transaction
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results in a smaller profit or a larger loss than would have resulted if the transaction had been at
arm's length and had the Yield of the Series 2014 Bonds, not been relevant to either party.
ARTICLE X
CONTINUING DISCLOSURE UNDERTAKING
Section 10.1. Annual Reports. The City shall provide annually to the Municipal
Securities Rulemaking Board (the "MSRB"), within six months after the end of each fiscal year
ending in or after 2014, financial information and operating data with respect to the City of the
general type described in Exhibit F hereto. Any financial statements so to be provided shall be
(1) prepared in accordance with the accounting principles described in Exhibit F hereto 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 unaudited financial statements for the applicable fiscal year
by the required time, and audited financial statements when and if audited financial statements
become available.
If the City changes its fiscal year, it will notify the MSRB 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
documents(i)available to the public on the MSRB's internet web site or(ii) filed with the SEC.
Section 10.2. Material Event Notices. The City shall notify the MSRB in a electronic
format prescribed by the MSRB, in a timely manner (not in excess of ten (10) days after the
occurrence of the event), of any of the following events with respect to the Series 2014 Bonds:
(a) Principal and interest payment delinquencies;
(b) Non-payment related defaults, if material;
(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, the issuance by the Internal Revenue Service of
proposed or final determinations of taxability, Notices of Proposed Issue
(IRS Form 5701-TEB) or other material notices or determinations with
respect to the tax status of the Bonds, or other material events affecting the
tax status of the Bonds;
(g) Modifications to rights of holders of the Series 2014 Bonds, if material;
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(h) Bond calls, if material, and tender offers;
(i) Defeasances;
(j) Release, substitution, or sale of property securing repayment of the Series
2014 Bonds, if material;
(k) Rating changes;
(1) Bankruptcy, insolvency, receivership or similar event of the City;
(m) The consummation of a merger, consolidation, or acquisition involving the
City or the sale of all or substantially all of the assets of the City other than
in the ordinary course of business, the entry into a definitive agreement to
undertake such an action or the termination of a definitive agreement
relating to any such actions, other than pursuant to its terms, if material;
and
(n) Appointment of a successor or additional Paying Agent/Registrar or the
change of name of Paying Agent/Registrar, if material.
For the purposes of the event identified in clause (1), the event is considered to occur when
any of the following occur: the appointment of a receiver, fiscal agent or similar officer for an
obligated person in a proceeding under the U.S. Bankruptcy Code or in any other proceeding under
state or federal law in which a court or governmental authority has assumed jurisdiction over
substantially all of the assets or business of the obligated person, or if such jurisdiction has been
assumed by leaving the existing governing body and officials or officers in possession but subject to
the supervision and orders of a court or governmental authority,or the entry of an order confirming a
plan of reorganization, arrangement or liquidation by a court or governmental authority having
supervision or jurisdiction over substantially all of the assets or business of the obligated person.
The City shall notify the MSRB in an electronic format prescribed by the MSRB, in a
timely manner, of any failure by the City to provide financial information or operating data in
accordance with Section 10.1 of this Ordinance by the time required by such Section.
Section 10.3. 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 Series 2014 Bonds within the
meaning of the Rule, except that the City in any event will give the notice required by Section
10.2 of any Series 2014 Bond 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 Owners and beneficial owners
of the Series 2014 Bonds, 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
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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 Series 2014 Bonds at any future
date.
UNDER NO CIRCUMSTANCES SHALL THE CITY BE LIABLE TO THE OWNER
OR BENEFICIAL OWNER OF ANY SERIES 2014 BOND 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 this 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 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, but only if (1) the
provisions of this Article, as so amended, would have permitted an underwriter to purchase or
sell Series 2014 Bonds in the primary offering of the Series 2014 Bonds 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 Owners 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 Series 2014 Bonds consent to
such amendment or (b) a person or entity that is unaffiliated with the City (such as nationally
recognized bond counsel) determines that such amendment will not materially impair the
interests of the Owners and beneficial owners of the Series 2014 Bonds. 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 10.1 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 prevent an
underwriter from lawfully purchasing or selling Series 2014 Bonds in the primary offering of the
Series 2014 Bonds.
Section 10.4. Definitions. As used in this Article, the following terms have the
meanings ascribed to such terms below:
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HOU:3473933.4
"MSRB"means the Municipal Securities Rulemaking Board.
"Rule"means SEC Rule 15c2-12, as amended from time to time.
"SEC"means the United States Securities and Exchange Commission.
ARTICLE XI
SALE AND DELIVERY OF BONDS; DEPOSIT OF PROCEEDS
Section 11.1. Sale of Series 2014 Bonds; Bond Purchase Agreement. The sale of the
Series 2014 Bonds to the Purchaser at a price of $9,302,100.00, (representing the principal
amount of the Series 2014 Bonds plus a premium on the Series 2014 Bonds of$202,172.35 and
less an underwriting discount of$110,072.35), plus accrued interest to the date of delivery of the
Series 2014 Bonds, in accordance with the terms of the Bid Form presented to and hereby
approved by the City Council, in substantially the form attached hereto as Exhibit C which price
and terms are hereby found and determined to be the most advantageous reasonably obtainable
by the City. The Mayor,Mayor Pro-Tem and all other officials, agents and representatives of the
City are hereby authorized to do any and all things necessary or desirable to provide for the
issuance and delivery of the Bonds.
Section 11.2. Approval, Registration and Delivery. The Mayor and the City Secretary
are hereby authorized to have control and custody of the Series 2014 Bonds and all necessary
records and proceedings pertaining thereto pending their delivery, and the Mayor of the City, the
City Secretary of the City, the City Manager of the City and other officers and employees of the
City are hereby authorized, directed and instructed to make such certifications and to execute
such instruments (including by printed facsimile signature, the Series 2014 Bonds) as may be
necessary to accomplish the delivery of the Series 2014 Bonds and to assure the investigation,
examination, and approval thereof by the Attorney General of Texas and the registration of the
initial Series 2014 Bonds by the Comptroller of Public Accounts of the State of Texas. Upon
registration of the Series 2014 Bonds, the Comptroller of Public Accounts of the State of Texas
(or a deputy designated in writing to act for him) shall be requested to sign manually the
registration certificate prescribed herein to be attached or affixed to each Series 2014 Bond
initially delivered and the seal of the Comptroller of Public Accounts of the State of Texas shall
be impressed or printed or lithographed thereon. Delivery of the Series 2014 Bonds is subject to
the unqualified approving opinion as to the legality of the Series 2014 Bonds of the Attorney
General of Texas and of Andrews Kurth LLP,Houston,Texas, Bond Counsel.
Section 11.3. Offering Documents; Ratings. The City hereby approves the form and
contents of the Notice of Sale and the Preliminary Official Statement and the final Official
Statement, dated as of the date hereof, relating to the Series 2014 Bonds, 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 Series 2014 Bonds and in
the reoffering of the Series 2014 Bonds 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
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HOU:3473933.4
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 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 Series 2014 Bonds 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 Preliminary Official
Statement and the Official Statement are attached hereto as Exhibits D and Exhibit E,
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 Series 2014
Bonds from Moody's Investors Service, Inc. and Standard & Poor's Ratings Services and such
actions are hereby ratified and confirmed.
Section 11.4. Application of Proceeds of Series 2014 Bonds. Proceeds from the sale of
the Series 2014 Bonds shall,promptly upon receipt by the City,be applied as follows:
(a) First, accrued interest and premium, if any, shall be deposited into the
Interest and Sinking Fund;and
(b) Second, the remaining proceeds from the sale of the Series 2014 Bonds
shall be deposited to a separate construction fund of the City and used for the purposes
set forth in Section 3.1 of this Ordinance and to pay all expenses arising in connection
with the issuance of the Series 2014 Bonds. Any proceeds of the Series 2014 Bonds
remaining after making all such deposits and payments shall be deposited into the Interest
and Sinking Fund.
Section 11.5. Related Matters. In order that the City shall satisfy in a timely manner all
of its obligations under this Ordinance, the Mayor, the City Manager, the City Secretary, the
Director of Finance 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 Bonds, 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.
Section 11.6. Control and Delivery of Series 2014 Bonds.
(a) The City Manager of the City is hereby authorized to have control of the
Series 2014 Bonds and all necessary records and proceedings pertaining hereto pending
investigation, examination and approval of the Attorney General of the State of Texas,
registration by the Comptroller of Public Accounts of the State and registration with
initial exchange or transfer by,the Paying Agent/Registrar.
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HOU:3473933.4
(b) The Initial Bond(s) shall be the Bonds submitted to the Office of the
Attorney General of the State of Texas for approval, certified and registered by the Office
of the Comptroller of Public Accounts of the State of Texas and delivered to the
Purchaser. After registration by the Comptroller of Public Accounts, delivery of the
Bonds shall be made to the Purchaser under and subject to the general supervision and
direction of the Mayor, against receipt by the City of all amounts due to the City under
the terms of sale.
(c) The Mayor, the City Manager, the Director of Finance of the City, and all
other officers, employees, and agents of the City, and each of them, shall be and they are
expressly authorized, empowered, and directed from time to time and at any time to do
and perform all such acts and things and to execute, acknowledge, and deliver in the
name and under the corporate seal and on behalf of the City all such agreements,
certificates, and instruments, whether herein mentioned, as may be necessary or desirable
to carry out the terms and provisions of this Ordinance, the bonds, the sale and delivery
of the Bonds,the DTC Blanket Letter of Representations and the Official Statement. The
City Council hereby authorizes the payment of the fee of the Office of the Attorney
General of the State of Texas for the examination of the proceedings relating to the
issuance of the Bonds, in the amount determined in accordance with the provisions of
Section 1202.004,Texas Government Code.
ARTICLE XII
MISCELLANEOUS
Section 12.1. Related Matters. In order that the City shall satisfy, in a timely manner,
all of its obligations under the Ordinance, the Mayor, the City Secretary and other appropriate
officers and agents of the City are hereby authorized and directed to take all other actions that are
reasonably necessary to provide for issuance and delivery of the Series 2014 Bonds, including
executing by manual or facsimile signature and delivering on behalf of the City all certificates,
consents, receipts, requests, notices, investment agreements and other documents as may be
reasonably necessary to satisfy the City's obligations under the Ordinance and to direct the
transfer and application of funds of the City consistent with the provisions of such Ordinance. If
requested by the Attorney General of Texas or his representatives, the Mayor may authorize such
ministerial changes in the written text of this Ordinance as are necessary to obtain the Attorney
General's approval and as he determines are consistent with the intent and purposes of this
Ordinance, which determination shall be final.
Section 12.2. 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 12.3. 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
times to the general public at the City Hall of the City for the time required by law preceding this
meeting, as required by the Open Meetings Act, Chapter 551, Texas Government Code, as
33
HOU:3473933.4
amended, 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 12.4. Governing Law. This Ordinance shall be construed in accordance with
and governed by the laws of the State of Texas.
Section 12.5. Repealer. All ordinances, or parts thereof inconsistent herewith, are
hereby repealed to the extent of such inconsistency.
Section 12.6. Emergency. It is hereby officially found and determined that this
Ordinance relates to an immediate public emergency affecting life, health, property and public
peace, and that such emergency exists, the specific emergency being that the proceeds from the
sale of the Series 2014 Bonds 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 12.7. Effective Date. This Ordinance shall be in force and effect from and after
its passage on the date shown below.
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HOU:3473933.4
PASSED AND APPROVED on first reading pursuant to the City Charter this September
22, 2014.
c_____-_-_36-k-td c C.1.—:19
Mayor, City of Pearland,Texas
•TTEST:
C/Secret ', City • i•ea ,nd,Texas
``„will', ,,�i
o�c? �•.
(SEAL) '
Exhibit A Form of Bond
Exhibit B Paying Agent/Registrar Agreement
Exhibit C Bond Purchase Agreement
Exhibit D Preliminary Official Statement
Exhibit E Official Statement
Exhibit F Description of Annual Financial Information
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EXHIBIT A
FORM OF BOND
United States of America
State of Texas
NUMBER DENOMINATION
IR-
REGISTERED REGISTERED
CITY OF PEARLAND, TEXAS
WATER AND SEWER SYSTEM REVENUE BONDS
SERIES 2014
21NTEREST RATE: DATED DATE: 2MATURITY DATE: 2CUSIP:
_% October 1, 2014 September 1,
REGISTERED OWNER:
PRINCIPAL AMOUNT: DOLLARS
3THE CITY OF PEARLAND, TEXAS (the "City"), a municipal corporation duly
incorporated under the laws of the State of Texas, for value received hereby promises to pay, but
solely from certain Net Revenues as hereinafter provided, to the Registered Owner identified
above or registered assigns, on the Maturity Date specified above, upon presentation and
surrender of this Series 2014 Bond at the designated payment office of Wells Fargo Bank, N.A.
in Minneapolis, Minnesota, Texas (the "Paying Agent/Registrar"), the principal amount
identified above, 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 the United States of
America, and to pay, solely from such Net Revenues, interest thereon at the rate described
below, calculated on the basis of a 360-day year, composed of twelve 30-day months, from the
I Initial Bond shall be numbered T-1.
2 Omitted from Initial Bond.
3 The first sentence of the Initial Bond shall read as follows:
"THE CITY OF PEARLAND, TEXAS (the"City"), a municipal corporation duly incorporated under the
laws of the State of Texas,for value received hereby promises to pay,but solely from certain Net Revenues as
hereinafter provided, to the Registered Owner identified above or registered assigns, on the Maturity Date
specified below, upon presentation and surrender of this Series 2014 Bond at the designated payment office of
Wells Fargo Bank, N.A. in Minneapolis, Minnesota (the "Paying Agent/Registrar"), the principal amount set
forth in the following schedule: [Insert information regarding years of maturity,principal amounts and interest
rates from Section 3.3,] 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 the United States of America, and to pay,solely
from such Net Revenues,interest thereon at the rate described above,calculated on the basis of a 360-day year,
composed of twelve 30-day months, from the later of the Dated Date identified above or the most recent
interest payment date to which interest has been paid or duly provided for."
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HOU:3473933.4
later of the Dated Date identified above or the most recent interest payment date to which interest
has been paid or duly provided for. Interest on this Series 2014 Bond is payable by check sent
by United States mail, first class, postage prepaid, payable on March 1 and September 1,
beginning on March 1, 2015, mailed to the Registered Owner as shown on the books of
registration kept by the Paying Agent/Registrar as of the fifteenth calendar day of the month next
preceding each interest payment date. Any accrued interest payable at maturity or earlier
redemption shall be paid upon presentation and surrender of this Series 2014 Bond at the
principal corporate trust office of the Paying Agent/Registrar.
THIS SERIES 2014 BOND IS ONE OF A DULY AUTHORIZED SERIES OF BONDS
(the "Series 2014 Bonds") aggregating $ , issued for the purpose of constructing certain
repairs, improvements, additions and extensions to the City's waterworks and sanitary sewer
system and payment of costs of issuance of the Series 2014 Bonds, all under and pursuant to
Chapter 1502, Texas Government Code, as amended, and an ordinance adopted by the City on
September 22, 2014 (the "Ordinance"), and other applicable law. Capitalized terms used herein
without definition are defined in the Ordinance.
THIS SERIES 2014 BOND AND THE SERIES OF WHICH IT IS A PART are special
obligations of the City that are payable from and are equally and ratably secured by a first lien on
and pledge of the Net Revenues collected and received by the City from the operation and
ownership of the City's water and sewer system as defined and provided in the Ordinance, which
Net Revenues are required to be set aside and pledged to the payment of the Outstanding Bonds,
as described in the Ordinance, the Series 2014 Bonds, and all Additional Bonds issued on a
parity therewith, in the Interest and Sinking Fund and the Reserve Fund maintained for the
payment of all such Bonds,all as more fully described and provided for in the Ordinance.
THIS SERIES 2014 BOND AND THE SERIES OF WHICH IT IS A PART ARE
PAYABLE SOLELY FROM SUCH NET REVENUES AND NEITHER THE STATE, NOR
ANY POLITICAL SUBDIVISION OR AGENCY OF THE STATE, SHALL BE OBLIGATED
TO PAY THE SAME OR THE INTEREST THEREON AND NEITHER THE FAITH AND
CREDIT NOR THE TAXING POWER OF THE STATE, THE CITY, OR ANY OTHER
POLITICAL CORPORATION, SUBDIVISION OR AGENCY THEREOF IS PLEDGED TO
THE PAYMENT OF THE PRINCIPAL OF OR THE INTEREST ON THE SERIES 2014
BONDS. THE OWNER HEREOF SHALL NEVER HAVE THE RIGHT TO DEMAND
PAYMENT OF THIS SERIES 2014 BOND OUT OF ANY FUNDS RAISED OR TO BE
RAISED BY AD VALOREM TAXATION.
REFERENCE IS HEREBY MADE TO THE ORDINANCE, a copy of which is on file in
the office of the Paying Agent/Registrar, and to all of the provisions of which the Registered
Owner of this bond by the acceptance hereof hereby assents, for definitions of terms; the
description of and the nature and extent of the security for the Series 2014 Bonds; the priority for
the application and use of the income and revenues of the System; the Net Revenues pledged to
the payment of the principal of and interest on the Series 2014 Bonds; the nature and extent and
manner of enforcement of the lien and pledge securing the payment of the Series 2014 Bonds;
the terms and conditions for the issuance of additional revenue obligations, including Additional
Bonds; the terms and conditions for amending the Ordinance; the terms and conditions relating
to the transfer or exchange of this bond; the rights, duties, and obligations of the City and the
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HOU:3473933.4
Paying Agent/Registrar; the terms and provisions upon which the liens, pledges, charges and
covenants made therein may be discharged at or prior to the maturity of this bond, and deemed to
be no longer Outstanding thereunder; and for the other terms and provisions thereof. Capitalized
terms used herein,unless otherwise defined,have the same meanings assigned in the Ordinance.
THE CITY RESERVES THE RIGHT, at its option, to redeem the Series 2014 Bonds
maturing on September 1, 2025, and thereafter prior to their scheduled maturities, in whole or in
part, in integral multiples of $5,000 on September 1, 2024, or any date thereafter at par plus
accrued interest on the principal amounts called for redemption to the date fixed for redemption.
THE SERIES 2014 BONDS MATURING on September 1 in the year (the
"Term Bonds") are subject to mandatory sinking fund redemption in the following amounts
(subject to reduction as hereinafter provided), on the following dates, in each case at a
redemption price equal to the principal amount of the Series 2014 Bonds or the portions thereof
so called for redemption plus accrued interest to the date fixed for redemption:
Mandatory Redemption Dates Principal Amounts
Term Bonds Maturing September 1,
The particular Term Bonds to be redeemed shall be selected by the Registrar by lot or other
customary random selection method, on or before July 15 of each year in which Term Bonds are
to be mandatorily redeemed. The principal amount of Term Bonds to be mandatorily redeemed
in each year shall be reduced by the principal amount of such Term Bonds that have been
optionally redeemed on or before July 15 of such year and which have not been made the basis
for a previous reduction.
NOT LESS THAN THIRTY (30) DAYS prior to a redemption date, a notice of
redemption will be sent by U.S. mail, first class postage prepaid, in the name of the City to each
registered owner of a Series 2014 Bond to be redeemed in whole or in part at the address of the
registered owner appearing on the registration books of the Paying Agent/Registrar at the close
of business on the business day next preceding the date of mailing. When Series 2014 Bonds or
portions thereof have been called for redemption and due provision has been made to redeem the
same, the amounts so redeemed-shall be payable solely from the funds provided for redemption,
and interest which would otherwise accrue on the Series 2014 Bonds or portions thereof called
for redemption shall terminate on the date fixed for redemption.
4THIS Series 2014 Bond shall not be valid or obligatory for any purpose or be entitled to
any benefit under the Ordinance unless this Bond is authenticated by the Paying Agent/Registrar
by due execution of the authentication certificate endorsed hereon.
4 In the Initial Bond, this paragraph shall read as follows: "THIS SERIES 2014 BOND shall not be valid or
obligatory for any purpose or be entitled to any benefit under the Ordinance unless this Bond is registered by
the Comptroller of Public Accounts of the State of Texas by registration certificate attached or affixed hereto."
A-3
HOU:3473933.4
THIS SERIES 2014 BOND IS TRANSFERABLE only upon presentation and surrender
at the designated payment office of the Paying Agent/Registrar, duly endorsed for transfer or
accompanied by an assignment duly executed by the Registered Owner or his authorized
representative, subject to the terms and conditions of the Ordinance.
THIS SERIES 2014 BOND IS EXCHANGEABLE at the corporate trust office of the
Paying Agent/Registrar for bonds 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 Series 2014 Bond called for redemption in whole or in part during the 45 day
period immediately prior to the date fixed for redemption.
THE REGISTERED OWNER of this Series 2014 Bond, by acceptance hereof,
acknowledges and agrees to be bound by all the terms and conditions of the Ordinance.
THE CITY has covenanted in the Ordinance that it will at all times provide a legally
qualified Paying Agent/Registrar for the Series 2014 Bonds and will cause notice of any change
of Paying Agent/Registrar to be mailed to each Registered Owner.
THE CITY HAS RESERVED THE RIGHT TO ISSUE ADDITIONAL PARITY
BONDS, subject to the restrictions contained in the Ordinance,which may be equally and ratably
payable from, and secured by a first lien on and pledge of, the Net Revenues in the same manner
and to the same extent as the Outstanding Bonds, which includes this Series 2014 Bond and the
series of which it is a part.
IT IS HEREBY DECLARED AND REPRESENTED that this Series 2014 Bond has
been duly and validly issued and delivered; that all acts, conditions,and things required or proper
to be performed, to exist, and to be done precedent to or in the issuance and delivery of this
Series 2014 Bond have been performed, have existed, and have been done in accordance with
law; that the Series 2014 Bonds do not exceed any statutory limitation; and that provision has
been made for the payment of the principal of and interest on this Series 2014 Bond and all of
the Series 2014 Bonds by the creation of the aforesaid lien on and pledge of the Net Revenues.
IN WITNESS WHEREOF, the City has caused its corporate seal to be impressed or
placed in facsimile hereon and has caused this Series 2014 Bond to be executed by the Mayor
and countersigned by the City Secretary by manual, lithographed, or printed facsimile signatures.
CITY OF PEARLAND,TEXAS
Mayor
(SEAL)
COUNTERSIGNED
City Secretary
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HOU:3473933.4
[FORM OF COMPTROLLER'S REGISTRATION CERTIFICATE]
The following form of Comptroller's Registration Certificate shall be attached or affixed
to each of the Series 2014 Bonds initially delivered.
THE STATE OF TEXAS
REGISTER NO.
OFFICE OF THE COMPTROLLER
OF PUBLIC ACCOUNTS
I hereby certify that there is on file and of record in my office a certificate of the Attorney
General of the State of Texas to the effect that this bond and the proceedings for the issuance
hereof have been examined by him as required by law, that he finds that it has been issued in
conformity with the Constitution and laws of the State of Texas and that it is a valid and binding
special obligation of the City of Pearland, Texas, payable from the revenues and other funds
pledged to its payment by and in the proceedings authorizing the same, and I do further certify
that this bond has this day been registered by me.
WITNESS MY SIGNATURE AND SEAL OF OFFICE this
Comptroller of Public Accounts
of the State of Texas
[SEAL]
* * * * *
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HOU:3473933.4
[FORM OF AUTHENTICATION CERTIFICATE]
The following form of Authentication Certificate shall appear on each of the Series 2014
Bonds.
AUTHENTICATION CERTIFICATE
This bond is one of the Series 2014 Bonds described in and delivered pursuant to the
within-mentioned Ordinance; and, except for the Series 2014 Bonds initially delivered,this bond
has been issued in conversion of and exchange for or replacement of a bond, bonds or a portion
of a bond or bonds 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,N.A., Minneapolis,
Minnesota
By:
Authorized Signature:
Date of Authentication:
* * * * *
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HOU:3473933.4
[FORM OF ASSIGNMENT]
The following form of assignment shall appear on each of the Series 2014 Bonds.
ASSIGNMENT
For value received, the undersigned hereby sells, assigns, and transfers unto
(Social Security or Other Identibiing Number)
(Print or type name, address, and zip code of transferee)
the within bond and hereby irrevocably constitutes and appoints attorney to
transfer said bond on the books kept for registration thereof, with full power of substitution in the
premises.
DATED:
Signature Guaranteed:
Registered Owner
NOTICE: The signature must be guaranteed NOTICE: The signature on this assignment
by a commercial bank or a member firm of a must correspond with the name of the
national securities exchange. Notarized or Registered Owner as it appears on the face of
witnessed signatures are not acceptable. the within bond in every particular, without
alteration or enlargement or any change
whatever.
* * * *
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HOU:3473933.4
EXHIBIT B
PAYING AGENT/REGISTRAR AGREEMENT
See Tab 6
HOU:3473933.4
EXHIBIT C
BID FORM
See Tab 2
HOU:3473933.4
EXHIBIT D
PRELIMINARY OFFICIAL STATEMENT
See Tab 4
HOU:3473933.4
EXHIBIT E
OFFICIAL STATEMENT
See Tab 5
HOU:3473933.4
EXHIBIT F
DESCRIPTION OF ANNUAL FINANCIAL INFORMATION
The following information is referred to in Article X of this Ordinance:
Annual Financial Statements and Operating Data
The financial information and operating data with respect to the City to be provided
annually in accordance with such Article are as specified below:
1. The financial statements of the City for the most recently concluded fiscal year
and the information in the Official Statement under the headings "CITY REVENUE DEBT," and
"THE SYSTEM."
Accounting Principles
The accounting principles referred to in Article X are the accounting principles described
in the notes to the financial statements referred to in paragraph 1 above.
HOU:3473933.4
OFFICIAL STATEMENT DATED SEPTEMBER 22,2014
In the opinion of Bond Counsel, interest on the Bonds-is excludable from gross income for federal income tax purposes under existing law, subject to the
matters described under"TAX MATTERS"herein. Interest on the Bonds is not includable in the altemative.minimum taxable income of.individuals. See
"TAX MATTERS"for a discussion of the opinion of Bond Counsel,including the alternative minimum tax consequences for corporations.
The Bonds have NOT been designated as"Qualified Tax-Exempt Obligations for Financial Institutions."
NEW ISSUE: BOOK-ENTRY-ONLY RATINGS: Moody's Investors Service,Inc. "Aa3"
Fitch Ratings "AA-"
See"SALE AND DISTRIBUTION OF THE BONDS—Municipal Bond Ratings"
$9;210,000
CITY OF PEARLAND,TEXAS.
(A political subdivision of the State of Texas located within Brazoria,Fort Bend and Hams Counties)
WATER AND SEWER SYSTEM REVENUE-BONDS,SERIES 2014
Dated: October 1,2014 Due: September 1,as shown below
Principal of and interest on the$9,210,000 City of Pearland,Texas,Water and Sewer System Revenue Bonds,Series 2014(the"Bonds")'are payable by Wells
Fargo Bank,NA,Minneapolis,Minnesota,the paying agent/registrar(the"Paying Agent/Registrar"). Interest on the Bonds accrues from October 1,2014 and
is payable on September1 and March 1 of each year,commencing March 1,2015'and thereafter until maturity or.prior-redemption. The-definitive Bonds will
be initially registered and delivered-only to Cede&Co.,.the nominee of The Depository'Trust Company("DTC")pursuant to the Book-Entry-Only System
described herein. The Bonds will be issued in denominations of$5,000 of principal amount or.any integral multiple thereof. Beneficial ownership of the
Bonds may be acquired in denominations of$5;000 or integral multiples thereof 'No physical delivery of the Bonds will be made to.the beneficial owners
thereof. Principal of the Bonds will be payable by the'Paying Agent/Registrar.to Cede&Co.,which will make distribution of the'amounts sO paid to the
participating members of DTC for subsequent payment to the beneficial owners of the Bonds. See"THE BONDS—Book-Entry-Only System"herein. The
Bonds maturing on September 1,2025 and thereafter are subject to redemption prior to their scheduled maturities on September 1,2024 or any date thereafter,
at the option'of the City Upon redemption the Bonds will be payable at a price equal to the principal amount thereof plus accrued-interest to the date of
redemption. See"THE BONDS-Description"and"THE BONDS-Redemption Provisions."
The Bonds are special obligations'of the City of Pearland,Texas (the"City")and'are payable solely from a first lien on and-pledge of the Net Revenues
(hereinafter defined)from the operations of the City's waterworks and sanitary sewer system(the"System")on a parity with the City's outstanding water and
sewer revenue bonds. The Bonds are not a charge upon any other income or revenues of the City,and shall never constitute an indebtedness or pledge of the
general credit or taxing powers of the City See"THE BONDS—Source of Payment."-
The Bonds are.issued pursuant to.the Texas Constitution,the general laws.of the State of Texas,particularly Chapters 1502,Texas Government Code,as
amended,and the provisions of an ordinance.(the"Ordinance").adopted by the City Council of the City Soo"THE BONDS—Authority for Issuance."
Proceeds of the Bonds-will be used for.waterworks and sanitary sewer system improvements,and to pay the costs of issuance of the Bonds. See"THE BONDS
-.Use of Proceeds"and='-Sources and Uses of Funds."
PRINCIPAL AMOUNTS,MATURITIES,INTEREST RATES AND PRICES
(Due September 1)
$5,115,000 Serial.Bonds
Initial CUSIP Initial 'CUSIP
Maturity Principal Interest Reoffering Nos. Maturity Principal Interest Reoffering 'Nos.
.(September 1) Amount. Rate Yield(a) . 704883(b) (September.1) AmountRate Yield(a). 704883(b).
2015 $150,000 2.000% 0.230% MP9 2024 $295,000 4.000% 2.600% MY0
2016 .1.95,000 4.000' 0.450 MQ7 2025(c) 310,000 4.000 2.700 MZ7
2017 210,000 4.000 0.750 MR5 2026(c) 330,000 4.000 2:830 NAl
2018 220,000 4.000 1.040 MS3 **** **** *** *** ***
2019 230,000 4.000 1.360 MT1 2029(c) 385,000 3.125 3.250 .NDS
2020 240,000 4.000- 1.660 MU8 2030(c) 405,000 3.250 3.350 NE3
2021 255,000 4.000 1.950 MV6 2031(c) 425,000. 3.250 3.410 NFO
2022 270,000 4.000 2.210 MW4 2032(c) 445,000 3.375 3.470 NG8
2023 280,000 4.000 2.430 MX2 2033(c) 470,000 3.375 3.520 NH6
$4,095;000 Term Bonds
$710,000 Term Bonds Due September 1,2028-(a)(c)(d)Interest Rate 3.000%(Pride$98.322)CUSIP Number 704883 NC7(b)
$1,015,000 Term Bonds Due September 1,2035-(a)(c)(d)Interest Rate 3.500%(Price$98.249)CUSIP.Number 704883 NK9(b)
$1,125,000 Term Bonds Due September 1,2037(a)(c)(d)Interest Rate 3.500%(Price$96.928)CUSIP Number 704883 NM5(b)
$1,245;000 Term Bonds Due.September 1,2039(a)(c)(d)Interest Rate-3.625%(Price.$97.986)CUSIP Number 704883 NP8(b).
(a) The initial yields will be established by and are the sole responsibility of the Initial Purchaser(hereinafter defined),and may subsequently be changed.
(b) -CUSIP numbers have been assigned to the Bonds by CUSIP Global Service,managed by Standard&Poor's Financial Services LLC on behalf of the
American Banker Association,and are.included solely for the convenience of the registered owners of the Bonds. Neither the City.,the Financial Advisor,
nor the Initial Purchaser are responsible for the selection or correctness of the CUSIP numbers set forth herein.
(c) The Bonds maturing on September 1,2025 and thereafter,are subject to redemption on September 1,2024 or any date thereafter,at the option of the City,_
at the par value thereof plus accrued interest from the most recent interest payment date to the date of redemption. See"THE BONDS-Redemption
Provisions."
(d) Subject to mandatory redemption in the years and in.the amounts set forth herein under the caption"THE BONDS—Redemption Provisions—Mandatory
Redemption."
The Bonds are offered when,as and-if issued,subject to the approving opinion of the Attorney General of the State of Texas and the opinion of Andrews Kurth
LLP,Houston,Texas,Bond Counsel for the City,as to the validity of the issuance of the Bonds under the Constitution and laws of the State of Texas. See
"LEGAL MATTERS." Delivery of the Bonds through DTC is expected to be on or about October 16,'2014
No dealer,broker, salesman or other person has 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
NEITHER THE CITY, THE FINANCIAL ADVISOR, THE INITIAL PURCHASER NOR BOND COUNSEL
MAKE ANY REPRESENTATION OR WARRANTY WITH RESPECT TO THE INFORMATION CONTAINED
IN THIS OFFICIAL STATEMENT REGARDING DTC OR ITS BOOK-ENTRY-ONLY SYSTEM.
THE COVER PAGE CONTAINS CERTAIN INFORMATION FOR.GENERAL REFERENCE ONLY AND IS
NOT INTENDED AS A SUMMARY OF THIS OFFERING. INVESTORS SHOULD READ THIS ENTIRE
OFFICIAL STATEMENT, INCLUDING THE ATTACHED APPENDICES, TO OBTAIN INFORMATION
ESSENTIAL TO MAKING AN INFORMED INVESTMENT DECISION
References to web site addresses presented herein are for informational purposes only and may be in the form of a
hyperlink solely for.the reader's convenience. Unless specified otherwise, such web sites and the information or
links contained therein are not incorporated into,and are not part of,this final official statement for purposes of,.and
as that term is defined in,SEC rule 15c2-12.
2
TABLE OF CONTENTS
INTRODUCTORY STATEMENT 4 BOND ORDINANCE 21
SALE AND DISTRIBUTION OF THE BONDS 4 Defmitions 21
Sale of the Bonds. 4 Pledge and Source of Payment. 22
Prices and Marketability 4 Rates and Charges 22
Securities Laws. 4 Flow of Funds. 22
Municipal Bond Ratings 5 Reserve Fund 23
OFFICIAL STATEMENT SUMMARY 6 Additional Bonds. 23
INTRODUCTION 9 ADMINISTRATION OF THE CITY 24
PLAN OF FINANCING 9 Mayor and City Council. 24
Purpose 9 Administration 25
THE BONDS. 9 Consultants 25
Description. 9 LEGAL MATTERS 25
Redemption Provisions 9 Legal Opinion 25
Notice of Redemption 10 No-Litigation Certificate 26
Paying Agent/Registrar 11 No Material Adverse Change. 26
Transfer,Exchange and Registration 11 TAX MATTERS. 26
Record Date for Interest Payment. 11 Tax Exemption 26
Book-Entry-Only System. 11 Proposed Tax Legislation. 27
Source of Payment. 13 TAX TREATMENT OF ORIGINAL ISSUE
Authority for Issuance 14 DISCOUNT AND PREMIUM BONDS 27
Use of Proceeds 14 Discount Bonds 27
Sources and Uses of Funds 14 Premium Bonds 28
Future Debt 14 CONTINUING DISCLOSURE OF
Legal Investments and Eligibility to INFORMATION 28
Secure Public Fund in Texas 14 Annual Reports 29
Remedies in the Event of Default 15 Material Event Notices 29
INVESTMENT AUTHORITY AND Availability of Information 29
INVESTMENT OBJECTIVES OF THE Limitations and Amendments 30
CITY 15 Compliance With Prior Undertakings. 30
Legal Investments. 15 FINANCIAL ADVISOR 30
Investment Policies. 17 GENERAL CONSIDERATIONS. 30
Current Investments 17 Sources and Compilation of Information. 30
Additional Provisions 18 Certification as to Official Statement. 31
CITY REVENUE DEBT 18 Forward Looking Statements 31
Debt Statement 18 Updating of Official Statement 31
Revenue Bond Debt Service Schedule 19
THE SYSTEM. 20
Description of the System 20 APPENDIX A— Economic and Demographic Characteristics
Water and Sewer Rates 20 APPENDIX B— Audited Financial Statements of the City
Historical Operations of the System 21 APPENDIX C— Form of Bond Counsel Opinion
SELECTED PROVISIONS OF THE REVENUE
3
$9,210,000
CITY OF PEARLAND,TEXAS
(A political subdivision of the State of Texas located within Brazoria,Fort Bend and Harris Counties)
WATER AND SEWER SYSTEM REVENUE BONDS, SERIES 2014
INTRODUCTORY STATEMENT
Information contained in this Official Statement, including APPENDIX B, has been obtained from the City of
Pearland, Texas (the "City")in connection with the offering by the City of its $9,210,000 Water and Sewer System
Revenue Bonds, Series 2014(the"Bonds")identified on the cover page hereof.
All financial and other information presented in this Official Statement has been provided by the City from its
records, except for information expressly attributed to other sources. The presentation of information, including
tables of receipts from taxes and other sources, is intended to show recent historic information,and is not intended to
indicate future or continuing trends in the financial position or other affairs of the City No representation is made
that past experience, as is shown by that financial and other information,will necessarily continue or be repeated in
the future.
SALE AND DISTRIBUTION OF THE BONDS
Sale of the Bonds
After requesting competitive bids for the Bonds, the City has accepted the bid resulting in the lowest true interest
cost,which bid was tendered by a syndicate composed of Raymond James&Associates,Inc. ("Initial Purchaser")to
purchase the Bonds bearing the interest rates shown on the cover page hereof at a price of the par value thereof,plus
accrued interest to the date of delivery The true interest rate on the Bonds was 3 429723%as calculated pursuant to
Chapter 1204,Texas Government Code.
Prices and Marketability
The delivery of the Bonds is conditioned upon the receipt by the City of a certificate executed and delivered by the
Initial Purchaser on or before the date of delivery of the Bonds stating the prices at which a substantial amount of the
Bonds of each maturity have been sold to the public. For this purpose, the term "public" shall not include any
person who is a bondhouse,broker or similar person acting in the capacity of underwriter or wholesaler The City
has no control over trading of the Bonds after a bona fide offering of the Bonds is made by the Initial Purchaser at
the yields specified on the cover page. Information concerning reoffering yields or prices is the responsibility of the
Initial Purchaser
The prices and other terms respecting the offering and sale of the Bonds may be changed from time to time by the
Initial Purchaser after the Bonds are released for sale,and the Bonds may be offered and sold at prices other than the
initial offering price, including sales to dealers who may sell the Bonds into investment accounts. IN
CONNECTION WITH THE OFFERING OF THE BONDS, THE INITIAL PURCHASER MAY OVER-ALLOT
OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE BONDS
AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET SUCH
STABILIZING,IF COMMENCED,MAY BE DISCONTINUED AT ANY TIME.
Securities Laws
No registration statement relating to the Bonds has been filed with the Securities and Exchange Commission under
the Securities Act of 1933, as amended, in reliance upon the exemptions provided thereunder The Bonds have not
been registered or qualified under the Securities Act of Texas in reliance upon various exemptions contained therein,
nor have the Bonds been registered or qualified under the securities acts of any jurisdiction. The City assumes no
responsibility for registration or qualification of the Bonds under the securities laws of any jurisdiction in which the
Bonds may be offered, sold or otherwise transferred. This disclaimer of responsibility for registration or
qualification for sale or other disposition of the Bonds shall not be construed as an interpretation of any kind with
regard to the availability of any exemption from securities registration or qualification provisions in such
jurisdictions.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE BONDS OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS DOCUMENT ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
4
Municipal Bond Ratings
In connection with the sale of the Bonds, the City has made applications to Moody's Investors Service, Inc.
("Moody's") and Fitch Ratings, Inc. ("Fitch") for ratings and ratings of"Aa3" and"AA-", respectively, have been
assigned to the Bonds. The City has furnished to Moody's and Fitch certain information and materials relating to
the Bonds and the City, including certain information and materials which have not been included in this Official
Statement.
An explanation of the significance of such ratings may be obtained from the company furnishing the rating. The
ratings reflect only the view of such organization and the City makes no representation as to the appropriateness of
the ratings. There is no assurance that such ratings will continue for any given period of time or that they will not be
revised downward or withdrawn entirely by such rating company, if in the judgment of such rating company,
circumstances so warrant.
5
1
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 within Brazoria, Fort Bend and Harris
Counties, Texas. For additional information regarding the City, see
"ADMINISTRATION OF THE CITY" and "APPENDIX A —Economic and
Demographic Characteristics"herein.
The Bonds $9,210,000 Water and Sewer System Revenue Bonds, Series 2014 (the
"Bonds"), are dated October 1, 2014 The Bonds mature September 1, 2015 ,,
through September 1, 2026, inclusive and on September 1 in the years 2028,
2029 through 2033, inclusive, 2035, 2037, and 2039 Interest on the Bonds
accrues from October 1, 2014, and is payable initially on March 1, 2015, and
on each September 1 and March 1 thereafter until the earlier of maturity or
prior redemption. The Bonds include $5,115,000 principal amount of serial 1
bonds maturing September 1 in each of the years 2015 through 2026, inclusive
and 2029 through 2033, inclusive (the "Serial Bonds") and $4,095,000
principal amount of term bonds maturing September 1 in the years 2028,2035,
2037 and 2039 (the"Term Bonds"). The Serial Bonds and the Term Bonds are
collectively referred to herein as the "Bonds." See "THE BONDS -
Description."
Other Characteristics The Bonds are issued in fully registered form in integral multiples of$5,000
The Bonds maturing on and after September 1,2025 are subject to redemption
on September 1,2024 or any date thereafter, at the option of the City,at a price
of the par value thereof plus accrued interest from the most recent interest
payment date to the date of redemption. See "THE BONDS - Redemption
Provisions—Optional Redemption." Term Bonds are also subject to mandatory
sinking fund redemption as described under the heading "THE BONDS —
Redemption Provisions—Mandatory Redemption."
Authority The Bonds are issued pursuant to the Texas Constitution, the general laws of
the State of Texas, particularly Chapters 1502, Texas Government Code, as
amended, and the provisions of an ordinance (the "Ordinance") adopted by the
City Council of the City See"THE BONDS—Authority for Issuance."
Paying Agent/Registrar The initial paying agent/registrar is Wells Fargo Bank, N.A., Minneapolis,
Minnesota (the "Paying Agent/Registrar"). The City intends to use the book-
entry-only system of The Depository Trust Company("DTC"),but reserves the
right on its behalf or on behalf of the DTC to discontinue such system. (See
"THE BONDS-Book-Entry-Only System.")
Source of Payment. Principal of and interest on the Bonds are payable from a first lien on and
pledge of the Net Revenues (hereinafter defined) from the operations of the
City's waterworks and sanitary sewer system (the "System") on a parity with
the City's outstanding water and sewer revenue bonds. The Bonds are not a
charge upon any other income or revenues of the City, and shall never
constitute an indebtedness or pledge of the general credit or taxing powers of
the City See"THE BONDS-Source of Payment."
Use of Proceeds Proceeds of the Bonds will be used for waterworks and sanitary sewer system
improvements, and to pay the costs of issuance of the Bonds. See "THE
BONDS-Use of Proceeds"and"-Sources and Uses of Funds."
Ratings Moody's Investors Service,Inc. "Aa3"
Fitch Ratings "AA-"
6
Payment Record. The City has never defaulted on the timely payment of principal of and interest
on its indebtedness.
Tax Exemption In the opinion of Bond Counsel, interest on the Bonds is excludable from gross
income for federal income tax purposes under existing law, subject to the
matters described under"TAX MATTERS—Tax Exemption"herein,and is not
includable in the alternative minimum taxable income of individuals. See
"TAX MATTERS —Tax Exemption" for a discussion of the opinion of Bond
Counsel,including the alternative minimum tax consequences for corporations.
The Bonds have NOT been designated as "Qualified Tax-Exempt Obligations
for Financial Institutions."
[Remainder of Page Intentionally Left Blank]
7
-Selected Financial Information-
(Unaudited)
The Revenue Bonds
Outstanding Revenue Supported Bonds(as of August 1,2014) $ 111,920,000 (a)
Plus: The Bonds. 9,210,000
Total Revenue Supported Debt $ 121,130,000
Reserve Fund(Unaudited,as of June 30,2014) $ 1.886,150 (b)
Water and Sewer Operations(Unaudited,as of June 30,2014):
Total Revenues $ 20,981,416
Total Expenditures 12,634,935
Net Revenues Available for Debt Service $ 8,346,481
Coverage Based on Revenue Available for Debt Service:
Average Annual Debt Service of$7,087,439(2014-2039). 1 72 x
Maximum Annual Debt Service of$9,217,813(2031) 1.32 x
Water Customers(as of June 30,2014) 33,239
Sewer Customers(as of June 30,2014) 32,874
Summary of Revenues Available for Debt Service:
Fiscal Year Ended September 30,
2013 2012 2011 2010 2009
Revenues $29,607,735 $27,821,136 $28,848,755 $25,908,001 $29,467,023
Expenditures 17,423,282 15,980,059 15,529,281 13,584,384 12,876,927
Revenue Available for Debt Service $12,184,453 $11,841,077 $13,319,474 $12,323,617 $16,590,096
(a) Includes a portion of the City's Permanent Improvement Refunding Bonds, Series 2012 debt requirement,
which is paid from revenues of the City's System.
(b) The Reserve Fund for the Bonds will be satisfied by a cash Reserve Fund funded over a 60 month period as
described herein. The Reserve Fund for the City's Water and Sewer System Revenue Bonds, Series 2009,
Water and Sewer System Revenue Bonds, Series 2010A and Water and Sewer System Revenue and Refunding
Bonds, Series 2012 are also cash funded. (See "SELECTED PROVISIONS OF THE REVENUE BOND
ORDINANCE.") The Reserve Fund in the approximate amount of$5,304,421 is provided by various debt
service reserve fund surety policies issued in connection with the issuance of certain other series of water and
sewer revenue bonds on parity with the Bonds. See"THE BONDS—Source of Payment"herein.
8
INTRODUCTION
This Official Statement and the Appendices hereto provide certain information with respect to the issuance by the
City of Pearland, Texas (the "City") in connection with the offering by the City of its $9,210,000 Water and Sewer
System Revenue Bonds, Series 2014(the "Bonds").
The Bonds are issued pursuant to the Texas Constitution, the general laws of the State of Texas, particularly
Chapters 1502,Texas Government Code,as amended,and the provisions of an ordinance(the"Ordinance")adopted
by the City Council of the City Further discussion of the Ordinance is provided in"SELECTED PROVISIONS OF
THE REVENUE BOND ORDINANCE"herein.
There follows in this Official Statement descriptions of the Bonds, 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. 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.
PLAN OF FINANCING
Purpose
Proceeds of the Bonds will be used for waterworks and sanitary sewer system improvements, and to pay costs of
issuance of the Bonds. See "THE BONDS—Use of Proceeds"and"-Sources and Uses of Funds."
THE BONDS
Description
The Bonds are dated October 1,2014, bear interest from such date at the stated interest rates indicated on the cover
page of this Official Statement, which interest is payable March 1, 2015, and each September 1 and March 1
thereafter until the earlier of maturity or prior redemption. The Bonds are issued in fully registered form in
denominations of$5,000 each or any multiple thereof. Principal of the Bonds is payable at the principal payment
office of Wells Fargo Bank, N.A., Minneapolis, Minnesota(the 'Paying Agent/Registrar"). Interest on the Bonds
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 BONDS - Paying
Agent/Registrar"
The defmitive Bonds will be initially registered only in the name of Cede & Co., as nominee of The Depository
Trust Company ("DTC") pursuant to the Book-Entry-Only System described herein. Beneficial ownership of the
Bonds may be acquired in denominations of$5,000 or integral multiples thereof. No physical delivery of the Bonds
will be made to the beneficial owners thereof. Principal of and interest on the Bonds will be payable by the Paying
Agent/Registrar to Cede&Co.,which will make distribution of the amounts so paid to the participating members of
DTC for subsequent payment to the beneficial owners of the Bonds. See "THE BONDS — Book-Entry-Only
System"herein.
Redemption Provisions
-Optional Redemption-
The Bonds maturing on September 1, 2025 and thereafter are subject to optional redemption prior to maturity, in
whole or in part, on September 1, 2024, 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 Bonds are to be
redeemed,the City may select the maturities of Bonds to be redeemed. If less than all the Bonds of any maturity are
to be redeemed,the Paying Agent/Registrar(or DTC while the Bonds are in Book-Entry-Only form)shall determine
by lot the Bonds,or portions thereof,within such maturity to be redeemed. If a Bond(or any portion of the principal
sum thereof) shall have been called for redemption and notice of such redemption shall have been given,such Bond
(or the principal amount thereof to be redeemed)shall become due and payable on such redemption date and interest
thereon shall cease to accrue from and after the redemption date,provided funds for the payment of the redemption
price and accrued interest thereon are held by the Paying Agent/Registrar on the redemption date.
9
-Mandatory Redemption-
The Term Bonds are subject to mandatory sinking fund redemption and shall be redeemed by the City prior to their
scheduled maturities on September 1 in the years and in the amounts set forth below at a redemption price equal to
the principal amount redeemed plus accrued interest to the mandatory redemption date(the "Mandatory Redemption
Dates"):
$710,000 Term Bonds Maturing on September 1,2028
Mandatory Redemption Date Principal Amount
September 1,2027 $345,000
September 1,2028(Final Maturity) 365,000
$1,015,000 Term Bonds Maturing on September 1,2035
Mandatory Redemption Date Principal Amount
September 1,2034 $495,000
September 1,2035(Final Maturity) 520,000
$1,125,000 Term Bonds Maturing on September 1,2037
Mandatory Redemption Date Principal Amount
September 1,2036 $550,000
September 1,2037(Final Maturity) 575,000
$1,245,000 Term Bonds Maturing on September 1,2039
Mandatory Redemption Date Principal Amount
September 1,2038 $605,000
September 1,2039(Final Maturity) 640,000
The particular Term Bonds to be mandatorily redeemed shall be selected by lot or other customary random selection
method. The principal amount of any Term Bonds to be mandatorily redeemed on such Mandatory Redemption
Date shall be reduced by the principal amount of such Term Bond which, by the 45th day prior to such Mandatory
Redemption Date, either has been purchased in the open market and delivered or tendered for cancellation by or on
behalf of the City to the Paying Agent/Registrar or optionally redeemed and which,in either case,has not previously
been made the basis for a reduction under this sentence.
Notice of Redemption
At least 30 days prior to the date fixed for any such redemption, the City shall cause a written notice of such
redemption to be deposited in the United States mail, postage prepaid, addressed to each registered owner at the
address shown on the Registration Books of the Paying Agent/Registrar at the close of business on the Business Day
next preceding the date of mailing such notice.
ANY NOTICE SO MAILED SHALL BE CONCLUSIVELY PRESUMED TO HAVE BEEN DULY GIVEN
WHETHER OR NOT THE REGISTERED OWNER RECEIVES SUCH NOTICE.UPON THE GIVING OF THE
NOTICE OF REDEMPTION AND THE DEPOSIT OF THE FUNDS NECESSARY TO REDEEM SUCH
BONDS, THE BONDS CALLED FOR REDEMPTION SHALL BECOME DUE AND PAYABLE ON THE
SPECIFIED REDEMPTION DATE, AND INTEREST ON SUCH BONDS OR PORTION THEREOF SHALL
CEASE TO ACCRUE, IRRESPECTIVE OF WHETHER SUCH BONDS ARE SURRENDERED FOR
PAYMENT
The Paying Agent/Registrar, so long as a Book-Entry-Only System is used for the Bonds, will send any notice of
redemption,notice of proposed amendment to the Ordinance or other notices with respect to the Bonds only to DTC
Any failure by DTC to advise any DTC participant, or of any DTC participant or indirect participant to notify the
beneficial owner, shall not affect the validity of the redemption of the Bonds called for redemption or any other
action premised on any such notice. Redemption of portions of the Bonds by the City will reduce the outstanding
principal amount of such Bonds held by DTC. In such event, DTC may implement, through its Book- Entry-Only
10
System, a redemption of such Bonds held for the account of DTC participants in accordance with its rules or other
agreements with DTC participants and then DTC participants and indirect participants may implement a redemption
of such Bonds from the beneficial owners.
Any such selection of Bonds to be redeemed will not be governed by the Ordinance and will not be conducted by the
City or the Paying Agent/Registrar Neither the City nor the Paying Agent/Registrar will have any responsibility to
DTC participants, indirect participants or the persons for whom DTC participants act as nominees, with respect to
the payments on the Bonds or the providing of notice to DTC participants,indirect participants, or beneficial owners
of the selection of portions of the Bonds for redemption. See "THE BONDS Book-Entry-Only System"
Paying Agent/Registrar
The initial Paying Agent/Registrar is Wells Fargo Bank,N.A., Minneapolis,Minnesota. In the Ordinance,the City
retains the right to replace the Paying Agent/Registrar The City covenants to maintain and provide a Paying
Agent/Registrar at all times until the Bonds are duly paid and any successor Paying Agent/Registrar shall be a
commercial bank or trust company organized under the laws of the State of Texas or other entity duly qualified and
legally authorized to serve as and perform the duties and services of Paying Agent/Registrar for the Bonds.
Transfer,Exchange and Registration
In the event the Book-Entry-Only System should be discontinued, the Bonds may be transferred and exchanged on
the registration books of the Paying Agent/Registrar only upon presentation and surrender to the Paying
Agent/Registrar and such transfer or exchange shall be without expense or service charge to the registered owner,
except for atiy tax or other governmental charges required to be paid with respect to such registration, exchange or
transfer
Bonds may be assigned by the execution of an assignment form on the respective Bonds or by other instrument of
transfer and assignment acceptable to the Paying Agent/Registrar New Bonds will be delivered by the Paying
Agent/Registrar, in lieu of the Bonds being transferred or exchanged, at the designated office of the Paying
Agent/Registrar, or sent by United States mail, first class, postage prepaid, to the new registered owner or his
designee. To the extent possible, new Bonds issued in an exchange or transfer of Bonds will be delivered to the
registered owner or assignee of the registered owner in not more than three business days after the receipt of the
Bonds to be canceled, and written instrument of transfer or request for exchange duly executed by the registered
owner or his duly authorized agent, in form satisfactory to the Paying Agent/Registrar New Bonds registered and
delivered in an exchange or transfer shall be in any integral multiple of$5,000 for any one maturity and for a like
aggregate principal amount as the Bonds surrendered for exchange or transfer See "THE BONDS —Book-Entry-
Only System"herein for a description of the system to be utilized initially in regard to ownership and transferability
of the Bonds.
Neither the City nor the Paying Agent/Registrar shall be required to transfer or exchange any Bond called for
redemption, in whole or in part, within 45 days of the date fixed for redemption,provided,however,such limitation
of transfer shall not be applicable to an exchange by the registered owner of the uncalled balance of a Bond.
Record Date for Interest Payment
The record date("Record Date")for the interest payable on the Bonds on any interest payment date means the close
of business on the 15th day of the month next preceding each interest payment date. In the event of a non-payment
of interest on a scheduled payment date, and for 30 days thereafter, a new record date for such interest payment(a
"Special Record Date") will be established by the Paying Agent/Registrar, if and when funds for the payment of
such interest have been received from the City Notice of the Special Record Date(which shall be 15 days prior to
the date fixed for payment of past due interest) and of the scheduled payment date of the past due interest shall be
sent at least five business days prior to the Special Record Date by United States mail, first class postage prepaid,to
the address of each Holder of a Bond appearing on the registration books of the Paying Agent/Registrar at the close
of business on the last business day next preceding the date of mailing of such notice.
Book-Entry-Only System
This section describes how ownership of the Bonds is to be transferred and how the principal of premium, if any,
and interest on the Bonds are to be paid to and credited by The Depository Trust Company ("DTC'), New York
New York, while the Bonds are registered in its nominee name. The information in this section concerning DTC and
the Book-Entry-Only System has been provided by DTC for use in disclosure documents such as this Official
Statement. The City, the Financial Advisor and the Initial Purchaser believe the source of such information to be
reliable, but takes no responsibility for the accuracy or completeness thereof
11
The City, the Financial Advisor and the Initial Purchaser cannot and do not give any assurance that (1) DTC will
distribute payments of debt service on the Bonds, or redemption or other notices, to DTC Participants, (2) DTC
Participants or others will distribute debt service payments paid to DTC or its nominee (as the registered owner of
the Bonds), or redemption or other notices, to the Beneficial Owners, or that they will do so on a timely basis, or(3)
DTC will serve and act in the manner described in this Official Statement. The current rules applicable to DTC are
on file with the Securities and Exchange Commission, and the current procedures of DTC to be followed in dealing
with DTC Participants are on file with DTC.
DTC will act as securities depository for the Bonds. The Bonds will be issued as fully-registered securities
registered in the name of Cede& Co. (DTC's partnership nominee) or such other name as may be requested by an
authorized representative of DTC One fully registered certificate will be issued for each maturity of the Bonds, in
the aggregate principal amount of each such maturity,and will be deposited with DTC.
DTC, the world's largest securities depository, is a limited-purpose trust company organized under the New York
Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the
Federal Reserve System, a"clearing corporation" within the meaning of the New York Uniform Commercial Code,
and a "clearing agency" registered pursuant to the provisions of Section 17A of the Securities Exchange Act of
1934 DTC holds and provides asset servicing for over 3.5 million issues of U.S and non-U.S. equity issues,
corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC's
participants ("Direct Participants") deposit with DTC DTC also facilitates the post-trade settlement among Direct
Participants of sales and other securities transactions in deposited securities,through electronic computerized book-
entry transfers and pledges between Direct Participants' accounts. This eliminates the need for physical movement
of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks,
trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The
Depository Trust& Clearing Corporation ("DTCC"). DTCC is the holding company for DTC,National Securities
Clearing Corporation and Fixed Income Clearing Corporation,all of which are registered clearing agencies. DTCC
is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both
U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear
through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ("Indirect
Participants"). DTC has Standard& Poor's rating of"AA+" The DTC Rules applicable to its Participants are on
file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com.
Purchases of Bonds under the DTC system must be made by or through Direct Participants, which will receive a
credit for the Bonds on DTC's records. The ownership interest of each actual purchaser of each Bond("Beneficial
Owner") is in turn to be recorded on the Direct and Indirect Participants' records. Beneficial Owners will not
receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive
written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the
Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of
ownership interests in the Bonds are to be accomplished by entries made on the books of Direct and Indirect
Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing
their ownership interests in the Bonds, except in the event that use of the book-entry system for the Bonds is
discontinued.
To facilitate subsequent transfers,all Bonds deposited by Direct Participants with DTC are registered in the name of
DTC's partnership nominee,Cede&Co.,or such other name as may be requested by an authorized representative of
DTC. The deposit of Bonds with DTC and their registration in the name of Cede&Co. or such other DTC nominee
do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the
Bonds;DTC's records reflect only the identity of the Direct Participants to whose accounts such Bonds are credited,
which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for
keeping account of their holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect
Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by
arrangements among them,subject to any statutory or regulatory requirements as may be in effect from time to time.
Beneficial Owners of Bonds may wish to take certain steps to augment the transmission to them of notices of
significant events with respect to the Bonds,such as redemptions,tenders,defaults,and proposed amendments to the
Bond documents. For example, Beneficial Owners of Bonds may wish to ascertain that the nominee holding the
Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative,Beneficial
Owners may wish to provide their names and addresses to the Paying Agent/Registrar and request that copies of
notices be provided directly to them.
12
Redemption notices shall be sent to DTC. If less than all of the Bonds within an issue are being redeemed, DTC's
practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed.
Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to the Bonds unless
authorized by a Direct Participant in accordance with DTC's MMI Procedures. Under its usual procedures, DTC
mails an Omnibus Proxy to the City as soon as possible after the record date. The Omnibus Proxy assigns Cede&
Co.'s consenting or voting rights to those Direct Participants to whose accounts the Bonds are credited on the record
date(identified in a listing attached to the Omnibus Proxy).
Redemption proceeds and principal and interest payments on the Bonds will be made to Cede& Co., or such other
nominee as may be requested by an authorized representative of DTC. DTC's practice is to credit Direct
Participants' accounts upon DTC's receipt of funds and corresponding detail information from the City or the
Paying Agent/Registrar, on payable dates in accordance with their respective holdings shown on DTC's records.
Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices,
as in the case with securities held for the accounts of customers in bearer form or registered in "street name," and
will be the responsibility of such Participant and not of DTC,the Paying Agent or the City, subject to any statutory
or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds and principal
and interest to Cede& Co. (or such other nominee as may be requested by an authorized representative of DTC) is
the responsibility of the City or the Paying Agent/Registrar, disbursement of such payments to Direct Participants
will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the
responsibility of Direct and Indirect Participants.
A Beneficial Owner shall give notice to elect to have its Bonds purchased or tendered,through its Participant,to the
Tender Agent, and shall effect delivery of such Bonds by causing the Direct Participant to transfer the Participant's
interest in the Bonds, on DTC's records, to the Tender Agent. The requirement for physical delivery of Bonds in
connection with an optional tender or a mandatory purchase will be deemed satisfied when the ownership rights in
the Bonds are transferred by Direct Participants on DTC's records and followed by a book-entry credit of tendered
Bonds to the Tender Agent's DTC account.
DTC may discontinue providing its services as depository with respect to the Bonds at any time by giving
reasonable notice to the City or the Paying Agent/Registrar Under such circumstances, in the event that a successor
depository is not obtained,Bond certificates are required to be printed and delivered.
The City may decide to discontinue use of the system of book-entry transfers through DTC(or a successor securities
depository).In that event,Bond certificates will be printed and delivered.
The information in this section concerning DTC and DTC's book-entry system has been obtained from sources that
the City believes to be reliable,but the City takes not responsibility for the accuracy thereof.
Use of Certain Terms in Other Sections of this Official Statement
In reading this Official Statement it should be understood that while the Bonds are in the Book-Entry-Only System,
references in other sections of this Official Statement to registered owners should be read to include the person for
which the Participant acquires an interest in the Bonds, but (i) all rights of ownership must be exercised through
DTC and the Book-Entry-Only System,and,(ii)except as described above,notices that are to be given to registered
owners under the Ordinance will be given only to DTC.
Source of Payment
The Bonds are special obligations of the City payable,both as to principal and interest,solely from and secured by a
first lien on and pledge of the Net Revenues (as hereinafter defined) of the City's waterworks and sanitary sewer
system (the "System") after the payment of maintenance and operating expenses of the System. The Ordinance
defines Net Revenues as all Gross Revenues remaining after deducting Maintenance and Operation Expenses.
Gross Revenues are defined as all revenues, income and receipts of every nature (other than those specifically
excluded as described in the Ordinance) derived or received by the City from the operation and ownership of the
System and the interest income from the investment or deposit of money in the Revenue Fund, the Interest and
Sinking Fund and the Reserve Fund. The Bonds are not a charge upon any other income or revenues of the City and
shall never constitute an indebtedness or pledge of the general credit or taxing powers of the City The Ordinance
does not create a lien or mortgage on the System and any judgment against the City may not be enforced by levy and
execution against any property owned by the City, except the Net Revenues. See "SELECTED PROVISIONS OF
THE REVENUE BOND ORDINANCE"and"THE BONDS-Remedies in the Event of Default."
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As additional security for the Bonds, a Reserve Fund has been established pursuant to the Ordinance which is to be
funded in an amount equal to the average annual debt service requirements of the Bonds, and any additional bonds
issued on a parity with the Bonds. The City intends to fund the Reserve Fund with cash as provided in the
Ordinance. The City has purchased various debt service reserve fund surety bonds in connection with the issuance
of certain bonds previously issued on a parity with the Bonds in order to satisfy the Reserve Fund requirement with
respect to such previously issued bonds. The Reserve Fund will be used to pay the principal of and interest on the
Bonds and bonds previously issued on a parity with the Bonds at any time when there is not sufficient money
available in the Interest and Sinking Fund for such purpose. Pursuant to the Ordinance, in the event of a
nonpayment of principal and interest on the Bonds and bonds previously issued on a parity with the Bonds, monies
in the Reserve Fund and debt service reserve fund surety bonds shall be drawn upon and reimbursed on a pro rata
basis. See"SELECTED PROVISIONS OF THE REVENUE BOND ORDINANCE."
Authority for Issuance
The Bonds are issued pursuant to the Texas Constitution, the general laws of the State of Texas, particularly
Chapters 1502, Texas Government Code, as amended, and the provisions of the Ordinance adopted by the City
Council of the City Further discussion of the Ordinance is provided in "SELECTED PROVISIONS OF THE
REVENUE ORDINANCE"herein.
Use of Proceeds
Proceeds of the Bonds will be used for waterworks and sanitary sewer system improvements, and to pay the costs of
issuance of the Bonds. See"THE BONDS-Sources and Uses of Funds."
Sources and Uses of Funds
The proceeds from the sale of the Bonds will be applied as follows.
SOURCES OF FUNDS
Principal Amount of Bonds $ 9,210,000.00
Net Premium on the Bonds 202,172.35
Accrued Interest 13,650.78
Total Sources of Funds $ 9,425,823.13
USES OF FUNDS
Deposit to Construction Fund $ 9,207,734.00
Accrued Interest Deposit to Debt Service Fund 13,650 78
Expenses.
Underwriters' Discount 110,072.35
Other Issuance Expenses 94,366.00
Total Uses of Funds $ 9,425,823.13
Future Debt
The City's capital project plan calls for the issuance of approximately $85.8 million in additional System revenue
bonds over the next 3 years. The City intends to issue approximately$4,625,000 Certificates of Obligation, Series
2014 simultaneously with the Bonds. In addition to the Bonds and the Series 2014 Certificates of Obligation, the
City issued $40,410,000 Permanent Improvement and Refunding Bonds, Series 2014, which was delivered on
September 23,2014
Legal Investments and Eligibility to Secure Public Fund in Texas
Section 1201.041 of the Public Security Procedures Act(Chapter 1201, Texas Government Code)provides that the
Bonds are negotiable instruments governed by Chapter 8, Texas Business and Commerce Code, and are legal and
authorized investments for insurance companies,fiduciaries,and trustees,and for the sinking funds of municipalities
or other political subdivisions or public agencies of the State of Texas. With respect to investment in the Bonds by
municipalities or other political subdivisions or public agencies of the State of Texas,the Public Funds Investment
Act, Chapter 2256,Texas Government Code,requires that the Bonds be assigned a rating of"A" or its equivalent as
to investment quality by a national rating agency See "SALE AND DISTRIBUTION OF THE BONDS —
Municipal Bond Ratings"herein. In addition,various provisions of the Texas Finance Code provide that, subject to
a prudent investor standard, the Bonds are legal investments for state banks, savings banks,trust companies with at
capital of one million dollars or more, and savings and loan associations. The Bonds are eligible to secure deposits
of any public funds of the State, its agencies, and its political subdivisions, and are legal security for those deposits
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to the extent of their market value. The City has made no investigation of other laws, rules, regulations or
investment criteria which might apply to such institutions or entities or which might limit the suitability of the
Bonds for any of the foregoing purposes or limit the authority of such institutions or entities to purchase or invest in
the Bonds for such purposes. No review by the City has been made of the laws in other states to determine whether
the Bonds are legal investments for various institutions in those states.
Remedies in the Event of Default
The Ordinance requires the City to maintain water and sewer charges sufficient to produce Net Revenues at least
equal to 115%of the annual payment of debt service for such fiscal year and provides for a lien on Net Revenues in
the Interest and Sinking Fund and a Reserve Fund for the benefit of the Bonds and the outstanding revenue bonds.
The Ordinance does not provide any other'security for the payment of the Bonds, or any express remedies in the
event of default,makes no provision for acceleration of maturity of the Bonds in the event of default, and does not
provide for a trustee to protect the rights of the holders of the Bonds.
The Ordinance does not provide for the appointment of a trustee to represent the interests of the Bondholders upon
any failure of the City to perform in accordance with the terms of the Ordinance or upon any other condition and, in
the event of any such failure to perform,the registered owners would be responsible for the initiation and cost of any
legal action to enforce performance of the Ordinance. Furthermore,the Ordinance does not establish specific events
of default with respect to the Bonds and, there is no right to the acceleration of maturity of the Bonds upon the
failure of the City to observe any covenant under the Ordinance. A registered owner of Bonds could seek a
judgment against the City if a default occurred in the payment of principal of or interest on any such Bonds,
however, such judgment could not be satisfied by execution against any property of the City and a suit for monetary
damages could be vulnerable to the defense of sovereign immunity A registered owner's only practical remedy, if a
default occurs, is a mandamus proceeding to compel the City to maintain or increase water and sewer charges
sufficient to produce revenues to pay principal of and interest on the Bonds as they become due or perform other
material terms and covenants contained in the Ordinance. The issuance of a writ of mandamus is controlled by
equitable principles and rests with the discretion of the court, but may not be arbitrarily refused. However, the
enforcement of any such remedy may be difficult and time consuming and a registered owner could be required to
enforce such remedy on a periodic basis. The Texas Supreme Court has ruled in Tooke v City of Mexia, 197 S.W
3d 325 (Tex. 2006),that a waiver of sovereign immunity in a contractual dispute must be provided for by statute in
"clear and unambiguous" language. Because it is unclear whether the Texas legislature has effectively waived the
City's sovereign immunity from a suit for money damages,bondholders may not be able to bring such a suit against
the City for breach of the Bonds or Ordinance covenants.
Furthermore, the City is eligible to seek relief from its creditors under Chapter 9 of the U.S. Bankruptcy Code
("Chapter 9"). Chapter 9 also includes an automatic stay provision that would prohibit, without Bankruptcy Court
approval, the prosecution of any other legal action by creditors or bondholders of an entity which has sought
protection under Chapter 9 Therefore,should the City avail itself of Chapter 9 protection from creditors,the ability
to enforce would be subject to the approval of the Bankruptcy Court(which could require that the action be heard in
Bankruptcy Court instead of other federal or state court);and the Bankruptcy Code provides for broad discretionary
powers of a Bankruptcy Court in administering any proceeding brought before it. The opinion of Bond Counsel will
note that all opinions relative to the enforceability of the Ordinance and the Bonds are qualified with respect to the
customary rights of debtors relative to their creditors and by general principles of equity which permit the exercise
of judicial discretion.
See "THE BONDS — Book-Entry-Only System" herein for a description of the duties of DTC with regard to
ownership of Bonds. Initially,the only registered owner of the Bonds will be The Depository Trust Company See
"THE BONDS—Book-Entry-Only System"herein.
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 Mayor and Council of the City Both state law and the City's investment policies are subject to
change.
Legal Investments
Available City funds are invested as authorized by Texas law and in accordance with investment policies approved
by the Mayor and Council of the City Both state law and the City's investment policies are subject to change.
Under Texas law, the City is authorized to invest in (1) obligations of the United States or its agencies and
instrumentalities, including letters of credit; (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
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United States,the underlying security for which is guaranteed by an agency or instrumentality of the United States;
(4) other obligations, the principal and interest of which is 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, including
obligations that are fully guaranteed or insured by the Federal Deposit Insurance Corporation or by the explicit full
faith and credit of the United States; (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)bonds issued, assumed or guaranteed by the State of Israel, (7) certificates of deposit
(i) meeting the requirements of the Texas Public Funds Investment Act (Chapter 2256, Texas Government Code)
that are issued by or through an institution that either has its main office or a branch in 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 clauses (1) through (6) or in any other manner and amount
provided by law for City deposits or,(ii)where(a)the funds are invested by the City through(I)a broker that has its
main office or a branch office in the State of Texas and is selected from a list adopted by the City as required by law
or(II) a depository institution that has its main office or a branch office in the State of Texas that is selected by the
City; (iii) the broker or the depository institution selected by the City arranges for the deposit of the funds in
certificates of deposit in one or more federally insured depository institutions, wherever located, for the account of
the City; (iv)the full amount of the principal and accrued interest of each of the certificates of deposit is insured by
the United States or an instrumentality of the United States, and (v) the City appoints the depository institution
selected under (ii) above, an entity as described by Section 2257.041(d) of the Texas Government Code, or a
clearing broker-dealer registered with the Securities and Exchange Commission and operating pursuant to Securities
and Exchange Commission Rule 15c3-3 (17 C.F.R. Section 240 15c3-3)as custodian for the City with respect to the
certificates of deposit issued for the account of the City; (8) fully collateralized repurchase agreements that have a
defined termination date, are secured by a combination of cash and obligations described in clause (1) require the
securities being purchased by the City or cash held by the City to be pledged to the City, held in the City's name,
and deposited at the time the investment is made with the City or with a third party selected and approved by the
City, and are placed through a primary government securities dealer, as defined by the Federal Reserve, or a
financial institution doing business in the State of Texas;(9)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; (10) 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;(11)no-load money market mutual funds registered with and regulated
by 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; and(12)
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 obligations described in the this paragraph, and are
continuously rated as to investment quality by at least one nationally recognized investment rating firm of not less
than AAA or its equivalent. In addition, bond proceeds may be invested in guaranteed investment contracts that
have a defined termination date and are secured by obligations, including letters of credit, of the United States or its
agencies and instrumentalities in an amount at least equal to the amount of bond proceeds invested under such
contract,other than the prohibited obligations described below
A political subdivision such as the City may enter into securities lending programs if(i)the securities loaned under
the program are 100% collateralized, a loan made under the program allows for termination at any time and a loan
made under the program is either secured by(a) obligations that are described in clauses (1)through(6) above, (b)
irrevocable letters of credit issued by a state or national bank that is continuously rated by a nationally recognized
investment rating firm at not less than A or its equivalent or(c)cash invested in obligations described in clauses(1)
through (6) above, clauses (10) through (12) above, or an authorized investment pool, (ii) securities held as
collateral under a loan are pledged to the City, held in the City's name and deposited at the time the investment is
made with the City or a third party designated by the City; (iii) a loan made under the program is placed through
either a primary government securities dealer or a fmancial institution doing business in the State of Texas, and(iv)
the agreement to lend securities has a term of one year or less.
The City may invest in such obligations directly or through government investment pools that invest solely in such
obligations provided that the pools are rated no lower than "AAA" or "AAAm" or an equivalent by at least one
nationally recognized rating service. The City may also contract with an investment management firm registered
under the Investment Advisers Act of 1940 (15 U.S.C. Section 80b-1 et seq.) or with the State Securities Board to
provide for the investment and management of its public funds or other funds under its control for a term up to two
years, but the City retains ultimate responsibility as fiduciary of its assets. In order to renew or extend such a
contract,the City must do so by order,ordinance,or resolution.
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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 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 fmal 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 a 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 funds' 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) that all investment officers jointly prepared and signed the report, (3) the
beginning market value, any additions and changes to market value and the ending value of each pooled fund group,
(4)the book value and market value of each separately listed asset at the beginning and end of the reporting period,
(5)the maturity date of each separately invested asset, (6)the account or fund or pooled fund group for which each
individual investment was acquired, and(7)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 Council.
Current Investments
The City's Investment Policy authorizes the City to invest in direct obligations of the U.S. Treasury with maturity
dates of three years or less, obligations of agencies of the U.S. Government with maturity dates of three years or
less, certificates of deposit, and certain investment pools. The City's investment balances on May 31,2014 were as
follows:
Face Principal Market Book
Amount Invested Value Value
Cash $ 9,605,323 $ 9,605,323 $ 9,605,323 $ 9,605,323
Certificates of Deposit 15,632,421 15,632,421 15,630,125 15,632,421
Government Securities 21,509,000 21,528,770 21,571,382 21,499,333
Total Portfolio $96,746,744 $96,766,514 $96,806,830 $96,737,077
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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 City 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 an
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 its investment in mutual funds in the
aggregate to no more than 15 percent of its monthly average fund balance, excluding obligation proceeds and
reserves and other funds held for debt service, and to invest no portion of obligation proceeds, reserves and funds
held for debt service, in mutual funds; and (8) require local government investment pools to conform to the new
disclosure,rating,net asset value,yield calculation,and advisory board requirements.
CITY REVENUE DEBT
Debt Statement
The following tables, calculations and narratives relate to the Bonds. The Bonds are not a charge upon any other
income or revenues of the City and shall never constitute an indebtedness or pledge of the general credit or taxing
powers of the City See"THE BONDS- Source of Payment."
-Bonded Indebtedness-
Outstanding Revenue Supported Bonds(as of August 1,2014) $ 111,920,000 (a)
Plus: The Bonds. 9,210,000
Total Revenue Supported Debt $ 121,130,000
Reserve Fund(Unaudited,as of June 30,2014) $ 1,886,150 (b)
(a) Includes a portion of the City's Permanent Improvement Refunding Bonds, Series 2012 debt requirements,
which is paid from revenues of the City's water and sewer system.
(b) The Reserve Fund for the Bonds will be satisfied by a cash Reserve Fund funded over a 60 month period as
described herein. The Reserve Fund for the City's Water and Sewer System Revenue Bonds, Series 2009,
Water and Sewer System Revenue Bonds, Series 2010A and Water and Sewer System Revenue and Refunding
Bonds, Series 2012 are also cash funded. (See "SELECTED PROVISIONS OF THE REVENUE BOND
ORDINANCE.") The Reserve Fund in the approximate amount of$5,304,421 is provided by various debt
service reserve fund surety policies issued in connection with the issuance of certain other series of water and
sewer revenue bonds on parity with the Bonds. See"THE BONDS—Source of Payment"herein.
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Revenue Bond Debt Service Schedule
The following is a combined schedule of the principal and interest due on the City's outstanding water and sewer revenue
supported bonds and the Bonds.
Total
FY Current Debt Service
Ending Debt Service Plus. The Bonds For Coverage
9/30 Requirements(a) Principal Interest Total Requirements
2014 $ 8,587,124 $ 8,587,124
2015 8,580,569 $ 150,000 $ 300,317 $ 450,317 9,030,886
2016 8,583,109 195,000 324,619 519,619 9,102,728
2017 8,584,214 210,000 316,819 526,819 9,111,033
2018 8,581,211 220,000 308,419 528,419 9,109,630
2019 8,579,390 230,000 299,619 529,619 9,109,009
2020 8,580,168 240,000 290,419 530,419 9,110,586
2021 8,630,958 255,000 280,819 535,819 9,166,776
2022 8,628,120 270,000 270,619 540,619 9,168,739
2023 8,631,720 280,000 259,819 539,819 9,171,539
2024 8,628,169 295,000 248,619 543,619 9,171,788
2025 8,631,474 310,000 236,819 546,819 9,178,293
2026 8,632,949 330,000 224,419 554,419 9,187,368
2027 8,631,686 345,000 211,219 556,219 9,187,905
2028 8,632,325 365,000 200,869 565,869 9,198,194
2029 8,632,813 385,000 189,919 574,919 9,207,731
2030 8,632,306 405,000 177,888 582,888 9,215,194
2031 8,628,088 425,000 164,725 589,725 9,217,813
2032 4,335,250 445,000 150,913 595,913 4,931,163
j 2033 4,339,575 470,000 135,894 605,894 4,945,469
2034 4,339,300 495,000 120,031 615,031 4,954,331
2035 1,255,725 520,000 102,706 622,706 1,878,431
2036 370,556 550,000 84,506 634,506 1,005,063
2037 373,050 575,000 65,256 640,256 1,013,306
2038 605,000 45,131 650,131 650,131
2039 640,000 23,200 663,200 663,200
Totals $170,029,847 $9,210,000 $5,033,580 $14,243,580 $184,273,427
(a) Includes a portion of the City's Permanent Improvement Refunding Bonds,Series 2012 debt requirements,which is paid
from revenues of the City's System.
Average Annual Requirements(2014-2039) $7,087,439
Maximum Annual Requirement(2031) $9,217,813
/
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THE SYSTEM
Description of the System
The Public Works Department, Water Production and Sewer Treatment Division are charged with providing safe
drinking water through both ground and surface water applications. The current system has 11 producing water
wells and 3 surface water connections with approximately 484.8 miles of water line pipe. The average monthly well
pumping capacity is approximately 348.2 million gallons. Surface water is purchased from the City of Houston and
a Municipal Utility District (MUD) and averages a little over 197 7 million gallons per month. There are plans to
move away from well consumption because of the subsidence problem experienced on the Gulf Coast and to reduce
dependence on ground water
The Public Works Department is also responsible for all wastewater treatment activities. Presently the City has 5
treatment plants capable of treating up to 12.555 million gallons per day or 50.299 million per day at peak flow
The City has 76 sanitary and 5 storm water lift stations and approximately 407.87 miles of sanitary sewer line pipe.
Water and Sewer Rates
The City currently serves 33,239 water customers and 32,874 sewer customers. The following is a summary of the
City's current water and sewer rates which became effective October 1, 2009 The City is scheduled to approve a
4.63%increase in the water and sewer rates on September 29,2014 The new rates will become effective October 1,
2014
-Water Rates-
Old Rate New Rate(October 2014)
Minimum Usage Over 2,000 gallons Usage Over 2,000 gallons
Residential Single-Unit $11.98 2,001-6,000 gallons 2,001-6,000 gallons
$2.93 per 1,000 gallons $3 16 per 1,000 gallons
6,001-15,000 gallons 6,001-15,000 gallons
$3 67 per 1,000 gallons $3.96 per 1,000 gallons
15,001-25,000 gallons 15,001-25,000 gallons
$4 40 per 1,000 gallons $4 75 per 1,000 gallons
25,000+gallons 25,000+gallons
$5.86 per 1,000 gallons $6.33 per 1,000 gallons
Non-Residential $11.98 $3.67 per 1,000 gallons $3.96 per 1,000 gallons
Irrigation $11.98 $4 40 per 1,000 gallons $4 75 per 1,000 gallons
Multi-Unit $10.89 $3.67 per 1,000 gallons $3.96 per 1,000 gallons
- Sewer Rates-
Old Rate New Rate(October 2014)
Minimum Usage Over 2,000 gallons Usage Over 2,000 gallons
Residential Single-Unit $14 41 $3.03 per 1,000 gallons of $3.28 per 1,000 gallons of
water usage water usage
Multi-Unit $14 41 $3.03 per 1,000 gallons of $3.28 per 1,000 gallons of
water usage water usage
Commercial and Industrial $14 41 $3 03 per 1,000 gallons of $3.28 per 1,000 gallons of
Users water usage water usage
Users not having water service will be charged the same rates as determined by a meter on the private water supply
For users without a metered water well,the monthly charge will be based on a water consumption of 10,000 gallons.
The City has implemented a wastewater cap based upon the average consumption of December, January and
February with a maximum cap of 12,000 gallons. Rates for out-of-City customers are 1.5 times.
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Historical Operations of the System
Fiscal Year Ended September 30,
2014(a) 2013 2012 2011 2010
REVENUES
Water and Sewer Services $20,701,231 $29,007,476 $27,535,464 $28,664,325 $24,960,621
Other Revenue 221,622 505,982 217,622 68,497 847,120
Interest Income 58,563 94,277 68,050 115,933 100,260
Total Revenues $22,981,416 $29,607,735 $27,821,136 $28,848,755 $25,908,001
EXPENDITURES
Production&Wastewater $ 7,721,392 $10,130,205 $ 9,692,098 $ 9,463,813 $ 7,799,144
Distribution&Collection 1,604,209 2,169,471 1,844,853 1,836,657 1,760,355
Accounting 1,376,908 2,712,671 2,112,863 1,927,245 1,823,017
Construction 749,326 1,054,607 891,932 1,333,772 851,560
Lift Stations 749,095 901,210 782,206 897,489 410,775
Other 434,005 455,119 656,108 70,305 939,533
Total Expenditures $12,634,935 $17,423,282 $15,980,059 $15,529,281 $13,584,384
Available for Debt Service $ 8,346,481 $12,184,453 $11,841,077 $13,319,474 $12,323,617
Connections:
Water 33,239 32,518 32,600 29,941 28,639
Sewer 32,874 32,088 31,241 28,842 27,607
(a) Unaudited,as of June 30,2014
Source: City's audited financial statements.
SELECTED PROVISIONS OF THE REVENUE BOND ORDINANCE
Definitions
The following are selected terms that are defined in the Ordinance.
"Definitions" in the Ordinance, the following terms shall have the following meanings, unless the context clearly
indicates otherwise:
"Gross Revenues"shall mean all revenues,income and receipts of every nature derived or received by the City from
the operation and ownership of the System, the interest income from the investment or deposit of money in the
Revenue Fund and the Reserve Fund(each hereinafter defined in Article V hereof);and any other revenues hereafter
pledged to the payment of all Bonds. Gross Revenues shall not include any of(i)grants from, or payments by, any
federal, state or local governmental agency or authority or any other entity or person,the use of which is restricted
by law or by the terms of the grant or payment to capital expenditures of the System, (ii) capital assets, debt service
funds or debt service reserve funds of water districts or other public or private sewer systems annexed, acquired or
otherwise assumed by the City or(iii)any interest earned on items(i)or(ii)above.
"Maintenance and Operation Expenses" shall mean the reasonable and necessary expenses of operation and
maintenance of the System, including all salaries, labor, materials, repairs and extensions necessary to render
efficient service (but only such repairs and extensions as, in the judgment of the governing body of the City, are
necessary to keep the System in operation and render adequate service to the City and the inhabitants thereof, or
such as might be necessary to meet some physical accident or conditions which would otherwise impair the Bonds),
and all payments (including payments of amounts equal to all or a part of the debt service on bonds issued by other
political subdivisions and authorities of the State of Texas) under contracts which are now or hereafter defined as
operating expenses by the Legislature of Texas. Depreciation shall never be considered as a Maintenance and
Operation Expense. Maintenance and Operation Expenses shall include, without limitation, all payments under
contracts for the impoundment,conveyance or treatment of water or otherwise which are now or hereafter defined as
operating expenses by the Legislature of Texas and the treatment of such payments as Maintenance and Operation
Expenses shall not be affected in any way if,subsequent to entering into such contracts,the City acquires as a part of
the System title to any properties or facilities used to impound, convey or treat water under such contracts, or if the
City contracts to acquire title to such properties or facilities as a part of the System upon the final payment of debt
service on the bonds issued to finance such properties or facilities.
"Net Revenues"shall mean all Gross Revenues remaining after deducting the Maintenance and Operation Expenses.
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"System"shall mean all properties,facilities,improvements,equipment,interests,rights and powers constituting the
water and sewer system of the City, and all future extensions, replacements, betterments, additions, improvements,
enlargements,acquisitions,purchases and repairs to the System, including without limitation, all those heretofore or
hereafter acquired as a result of the annexation and dissolution of water districts or the acquisition of the properties
or assets of any other public,private or non-profit entities.The System shall not include any Special Project.
Pledge and Source of Payment
In the Ordinance,the City covenants and agrees that Gross Revenues of the System shall, as collected and received
by the City, be deposited and paid into the special funds established in the Ordinance, and shall be applied in the
manner set forth in the Ordinance, in order to provide for the payment of all Maintenance and Operation Expenses
and to provide for the payment of principal of, interest on and any redemption premiums on the Bonds and all
expenses of paying same; and to provide for the disposition of the remaining Net Revenues. The Bonds shall
constitute special obligations of the City that shall be payable solely from and shall be equally and ratably secured
by a first lien on and pledge of the Net Revenues as collected and received by the City from the operation and
ownership of the System, which Net Revenues shall, in the manner provided in the Ordinance, be set aside for and
pledged to the payment of the Bonds in the Interest and Sinking Fund and the Reserve Fund as hereinafter provided,
and the Bonds shall be, in all respects, on a parity with and of equal dignity with one another The Owners of the
Bonds shall never have the right to demand payment of either the principal of, interest on or any redemption
premium on the Bonds out of any funds raised or to be raised by taxation.
Rates and Charges
So long as any Bonds remain Outstanding, the City shall fix, charge and collect rates and charges for the use and
services of the System which are calculated to be fully sufficient to produce Net Revenues in each Fiscal Year at
least equal to 115% of the principal and interest requirements scheduled to occur in such Fiscal Year on all Bonds
then Outstanding, plus an amount equal to the sum of all deposits required to be made to the Reserve Fund in such
Fiscal Year(but in no event shall Net Revenues ever be less than the amount required to establish and maintain the
Interest and Sinking Fund and the Reserve Fund as hereinafter provided) and, to the extent that funds for such
purpose are not otherwise available, to pay all other outstanding obligations payable from the Net Revenues of the
System, including all amounts owed by the City to a provider of a Surety Policy, if any, as and when the same
become due. For the purpose of complying with its obligation to fix, charge and collect rates and charges, as herein
provided, the City shall be entitled to rely on the certificate described in the Ordinance, as therein provided, in
determining the amount of interest anticipated to be paid in respect of Bonds bearing interest at a variable rate.
The City will not grant or permit any free service from the System, except for public buildings and institutions
operated by the City In addition,the City will not grant or permit any free service from the System permitted by the
previous sentence if to do so would violate any condition or covenant to which the City is bound in connection with
any federal grant agreement or otherwise.
Flow of Funds
Gross Revenues of the System shall be deposited as collected into the Revenue Fund. Moneys from time to time on
deposit to the credit of the Revenue Fund shall be applied in the following manner and in the following order of
priority.
(a) First, to pay Maintenance and Operation Expenses and to provide by encumbrance for the payment
of all obligations incurred by the City for Maintenance and Operation Expenses and to establish and
maintain an operating reserve equal to one month's estimated Maintenance and Operation Expenses;
(b) Second, to make all deposits into the Interest and Sinking Fund required by any ordinance
authorizing the issuance of Bonds,
(c) Third,to reimburse the provider of a Surety Bond any amounts advanced under such Surety Bond,
(d) Fourth, to pay interest to any provider of a Surety Bond any amounts advanced under such Surety
Bond,
(e) Fifth,to make all deposits into the Reserve Fund required by any ordinance authorizing the issuance
of Bonds;
(f) Sixth,to make all deposits,as may be required by any ordinance of the City authorizing the issuance
of certain Subordinate Lien Obligations described in the Ordinance, in order to provide for the
payment of and security for such Subordinate Lien Obligations,and
(g) Seventh,for any lawful purpose.
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Reserve Fund
On or before the last Business Day of each month so long as any Bonds remain Outstanding, after making all
required payments and provision for payment of Maintenance and Operation Expenses and after making all required
transfers into the Interest and Sinking Fund,there shall be transferred into the Reserve Fund from the Revenue Fund
amounts equal to one-sixtieth (1/60th) of the Average Annual Principal and Interest Requirements on the Bonds
unless or until there has been accumulated in the Reserve Fund money and investments in an aggregate amount at
least equal to the Average Annual Principal and Interest Requirements on the Bonds, provided that additional
deposits into the Reserve Fund sufficient to provide for the increased reserve requirements resulting from the
issuance of any Additional Bonds shall be made by not later than 60 months from the date of issuance of such
Additional Bonds as required by the Ordinance. Such additional deposits into the Reserve Fund in connection with
the issuance of any Additional Bonds shall be made each month in amounts equal to one-sixtieth (1/60th) of the
Average Annual Principal and Interest Requirements on the Bonds and such Additional Bonds. After such amount
has accumulated in the Reserve Fund and so long thereafter as such fund contains such amount,no further deposits
shall be required to be made into the Reserve Fund, and any excess amounts in the Fund may be transferred to the
Revenue Fund, but if and whenever the balance in the Reserve Fund is reduced below such amount, monthly
deposits into such Fund shall be resumed and continued in amounts at least equal to one-sixtieth (1/60th) of the
Average Annual Principal and Interest Requirements on the Bonds until the Reserve Fund has been restored to such
amount. The Reserve Fund shall be used to pay the principal of and interest on the Bonds at any time when there is
not sufficient money available in the Interest and Sinking Fund for such purpose and it may be used finally to pay
and retire the last Bonds to mature or be redeemed.
The requirements of the immediately preceding paragraph of this Section notwithstanding, the City may provide a
Surety Policy or Policies issued in amounts equal to all or part of the Average Annual Principal and Interest
Requirements on the Bonds in lieu of depositing cash into the Reserve Fund,provided,however,that no such Surety
Policy may be so substituted unless(i)the ordinance authorizing the substitution of the Surety Policy for all or part
of the Average Annual Principal and Interest Requirements on the Bonds contains a fmding that such substitution is
cost effective and (ii) the City obtains an opinion of nationally recognized bond counsel that such substitution is
permitted by applicable Texas law then in effect. The Reserve Fund shall be used to pay the principal of and interest
on the Bonds at any time when there is not sufficient money available in the Interest and Sinking Fund for such
purpose and it may be used finally to pay and retire the last Bonds to mature or be redeemed.
In the event a Surety Policy issued to satisfy all or a part of the City's obligation with respect to the Reserve Fund
causes the amount then on deposit in the Reserve Fund to exceed the Average Annual Principal and Interest
Requirements on all Bonds, the City may transfer such excess amount to any fund or funds established for the
payment of or security for Bonds or any Subordinate Lien Obligations (including any escrow established for the
final payment of any such obligations pursuant to Chapters 1502 and 1207,Texas Government Code).
Additional Bonds
The City reserves the right to issue, for any lawful purpose, including the refunding of any previously issued Bonds
or any other bonds or obligations of the City issued in connection with the System or payable from Net Revenues,
one or more series of Additional Bonds on a parity with the Outstanding Bonds and any Additional Bonds then
Outstanding,payable from, and secured by a first lien on,the Net Revenues of the System,provided,however, that
no Additional Bonds may be issued unless.
(a) All Additional Bonds shall mature only on September 1 and interest thereon shall be payable only on
March 1 and September 1,
(b) The Interest and Sinking Fund and the Reserve Fund each contains the amount of money then
required to be on deposit therein,
(c) For either the preceding Fiscal Year or any consecutive 12-month period out of the 15-month period
immediately preceding the month in which the bond ordinance authorizing such Additional Bonds is
adopted(the "Base Period")either
(1) Net Revenues are certified by the Director of Finance of the City to have been equal to at least
one hundred and forty percent (140%) of the Average Annual Principal and Interest Requirements
on all Bonds,after giving effect to the issuance of the Additional Bonds to be issued;or
(2) Net Revenues, adjusted to give effect to any rate increase or annexation of territory placed
into effect or consummated prior to the adoption of the ordinance authorizing the Additional Bonds
to the same extent as if such rate increase or annexation had been placed into effect or consummated
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prior to the commencement of the Base Period, would have been equal to at least the amount
required in paragraph (1) above, as certified by an independent consulting engineer or independent
firm of consulting engineers,
Provided, however, that this requirement shall not apply to the issuance of any series of Additional Bonds for
refunding purposes that will not have the result of increasing the average annual principal and interest requirements
pn the Bonds,and
(d) Provision is made in the bond ordinance authorizing the Additional Bonds then proposed to be
issued for (1) additional payments into the Interest and Sinking Fund sufficient to provide for the
payment of the increased principal of and interest on the Bonds resulting from the issuance of such
Additional Bonds, and (2) additional payments into the Reserve Fund sufficient to provide for the
accumulation therein of the increased reserve requirement resulting from the issuance of such
Additional Bonds, by not later than sixty (60) months from the date of issuance of such Additional
Bonds.
The provisions described above notwithstanding,the City may issue Additional Bonds that bear interest at a variable
rate. Such variable rate bonds may mature on dates other than September 1 and interest thereon may be payable on
dates other than March 1 or September 1,provided that the issuance of Additional Bonds as variable rate bonds may
not cause the total amount of Outstanding Bonds that are variable rate bonds to exceed 50% of the aggregate
principal amount of all Outstanding Bonds and Subordinate Lien Obligations at the time of such issuance. For
purposes of calculating the funding requirements for the Reserve Fund and for the purposes of calculating
compliance with the conditions precedent to the issuance of Additional Bonds pursuant to the Ordinance and the rate
covenant set forth in the Ordinance,any Bonds that are variable rate bonds shall be assumed to bear interest at a rate
which shall be estimated and certified by the financial advisor to the City as the rate that would be borne by such
variable rate bonds if they were at the date of such certification issued as Bonds bearing a fixed rate of interest to
their scheduled maturity or maturities.
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 second 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.
Term
Council Members Period Served Expires May Occupation
Tom Reid 32 Years 2017 Retired
Mayor
Tony Carbone 1 Year 2016 Certified Public Accountant
Council Member
Scott Sherman 5 Years 2015 Attorney
Council Member
Gary Moore (a) 2017 Senior Environmental Technologist
Council Member
Keith Ordeneaux 3 Years 2015 Energy and Risk Manager
Council Member
Greg Hill 2 Years 2016 Attorney
Mayor Pro-Tern
Council Member
(a) Elected on May 10,2014
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Administration
Under provisions of the Charter, the 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 Council,and be responsible for its administration,
(3) Prepare and submit to Council a complete report on the finances and administrative activities of the
City;
(4) Keep Council advised of the financial condition and future needs of the City and make appropriate
recommendations,and
(5) Perform such other necessary duties as prescribed by the Charter or required by Council.
Members of the administrative staff are described below.
Name _ Position Period Served(a)
Clay Pearson City Manager 6 Months
Jon Branson Deputy City Manager 8 Years
Trent Epperson Assistant City Manager 8 Years
Claire Bogard Director of Finance 8 Years
Eric Wilson Director of Public Works 1 Year
Young Lorfmg City Secretary 17 Years
Lata Krishnarao Director of Community Development 11 Years
Darrin Coker City Attorney 17 Years
Christopher Doyle Police Chief 36 Years
Michelle Smith Director of Parks&Recreation 14 Years
Vance Riley Fire Chief 3 Years
Bonita Hall Director of Human Resources 4 Years
Sparkle Anderson Communications Manager 2 Years
Matt Buchanon Executive Manager of Development 4 Years
Services&PEDC President
(a) Reflects the total number of years worked for the City
Consultants
The City has retained several consultants to perform 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 Andrews Kurth LLP
Houston,Texas
Certified Public Accountants Grant Thornton LLP
Houston,Texas
Financial Advisor .BOSC,Inc.
Houston,Texas
LEGAL MATTERS
Legal Opinion
The delivery of the Bonds is subject to the approving opinion of the Attorney General of Texas to the effect that the
Bonds are valid and legally binding obligations of the City payable from the Net Revenues, the approving legal
opinion of Andrews Kurth LLP, Bond Counsel to the City ("Bond Counsel"), in substantially the form attached as
APPENDIX C. In connection with the issuance of the Bonds, Bond Counsel has represented only the City The
legal fee to be paid Bond Counsel for services rendered in connection with the issuance of the Bonds is contingent
upon the sale and delivery of the Bonds.
25
The various legal opinion to be delivered concurrently with the delivery of the Bonds express the professional
judgment of the attorneys rendering the opinion as to the legal issues explicitly addressed therein. In rendering a
legal opinion, the attorney does not become an insurer or guarantor of the expression of professional judgment, of
the transaction opined upon,or of the future performance of the parties to the transaction. Nor does the rendering of
an opinion guarantee the outcome of any legal dispute that may arise out of the transaction.
No-Litigation Certificate
The City will furnish to the Initial Purchaser a certificate, dated as of the date of delivery of the Bonds,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 Bonds,restraining or enjoining the issuance,execution or
delivery of the Bonds, affecting the provisions made for the payment of or security for the Bonds, in any manner
questioning the authority or proceedings for the issuance, execution, or delivery of the Bonds, or affecting the
validity of the Bonds.
No Material Adverse Change
The obligations of the Initial Purchaser to take and pay for the Bonds, and of the City to deliver the Bonds, are
subject to the condition that, up to the time of delivery of and receipt of payment for the Bonds, there shall have
been no material adverse change in the condition(financial 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 MATTERS
Tax Exemption
In the opinion of Andrews Kurth LLP, Houston, Texas, Bond Counsel, interest on the Bonds is excludable from
gross income of the owners thereof for federal income tax purposes under Section 103 of the Internal Revenue Code
of 1986, as amended (the "Code"), and interest on the Bonds is not includable in the alternative minimum taxable
income of individuals,or except as described below,corporations.
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 Bonds. Such authorities are subject to change and any such
change could prospectively or retroactively result in the inclusion of the interest on the Bonds 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 opinion,Bond Counsel has assumed continuing compliance by the City with certain covenants of the
Ordinance and has relied on representations by the City with respect to matters solely within the knowledge of the
City,which Bond Counsel has not independently verified. The covenants and representations relate to, among other
things, the use of Bond proceeds and any facilities financed therewith, the source of repayment of the Bonds, the
investment of Bond proceeds and certain other amounts prior to expenditure, and requirements that excess arbitrage
earned on the investment of Bond 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(the "Service"). If the City should fail to
comply with the covenants in the Ordinance, or if its representations relating to the Bonds that are contained in the
Ordinance should be determined to be inaccurate or incomplete, interest on the Bonds could become taxable from
the date of delivery of the Bonds,regardless of the date on which the event causing such taxability occurs.
Interest on the Bonds 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 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.
Except as stated above, 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 acquisition or disposition of the Bonds.
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 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 Bonds is commenced,
under current procedures the Service is likely to treat the City as the "taxpayer," and the owners of the Bonds may
26
A
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 Bonds,the City may have different or conflicting interests from the owners of the Bonds. Public
awareness of any future audit of the Bonds could adversely affect the value and liquidity of the Bonds during the
pendency of the audit,regardless of its ultimate outcome.
Under the Code,taxpayers are required to provide information on their returns regarding the amount of tax-exempt
interest,such as interest on the Bonds,received or accrued during the year
Prospective purchasers of the Bonds should be aware that the ownership of tax-exempt obligations, such as the
Bonds, may result in collateral federal income tax consequences to, among others, financial institutions, life
insurance companies,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, taxpayers owning an interest in a FASIT that holds tax-exempt obligations, and
individuals otherwise eligible for the earned income tax credit. Such prospective purchasers should consult their tax
advisors as to the consequences of investing in the Bonds.
Proposed Tax Legislation
Tax legislation, administrative actions taken by tax authorities,and court decisions may cause interest on the Bonds
to be subject, directly or indirectly, to federal income taxation or state income taxation, or otherwise prevent the
beneficial owners of the Bonds from realizing the full current benefit of the tax status of such interest. For example,
future legislation to resolve certain federal budgetary issues may significantly reduce the benefit of, or otherwise
affect,the exclusion from gross income for federal income tax purposes of interest on all state and local obligations,
including the Bonds. In addition, such legislation or actions (whether currently proposed,proposed in the future or
enacted) could affect the market price or marketability of the Bonds. Prospective purchasers of the Bonds should
consult their own tax advisors regarding any pending or proposed federal or state tax legislation, regulations or
litigation,and its impact on their individual situations,as to which Bond Counsel express no opinion.
TAX TREATMENT OF ORIGINAL ISSUE DISCOUNT AND PREMIUM BONDS
Discount Bonds
Some of the Bonds may be offered at an initial offering price which is less than the stated redemption price payable
at maturity of such Bonds. If a substantial amount of any maturity of the Bonds is sold to members of the public
(which for this purpose excludes bond houses, brokers and similar persons or entities acting in the capacity of
wholesalers or underwriters)at such initial offering price, an initial owner who purchases the Bonds of that maturity
(the "Discount Bonds")will be considered to have "original issue discount" for federal income tax purposes equal to
the difference between (a)the stated redemption price payable at the maturity of such Discount Bond and (b)the
initial offering price to the public of such Discount Bond. Under existing law, such original issue discount will be
treated for federal income tax purposes as additional interest on a Bond and such initial owner will be entitled to
exclude from 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 Bond continues to be owned by such initial
owner Except as otherwise provided herein,the discussion regarding interest on the Bonds under the caption"TAX
MATTERS—Tax Exemption"generally applies to original issue discount deemed to be earned on a Discount Bond
while held by an owner who has purchased such Bond at the initial offering price in the initial public offering of the
Bonds 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 Bond prior to its stated maturity,
however, any amount realized by such initial owner in excess of the basis of such Discount Bond in the hands of
such owner (increased to reflect the portion of the original issue discount deemed to have been earned while such
Discount Bond 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 Bond will be treated for federal income tax purposes as interest on a
Bond,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
Bonds 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 Bond 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 Bond. See "TAX MATTERS — 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.
27
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 Bond or of the City The portion of the
principal of a Discount Bond representing original issue discount is payable upon the maturity or earlier redemption
of such Bond to the registered owner of the Discount Bond at that time.
Under special tax accounting rules prescribed by existing law, a portion of the original issue discount on each
Discount Bond 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
Bonds by an owner that did not purchase such Bonds 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 Bonds 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 Bonds and with respect to the federal, state, local and foreign tax consequences of the purchase,
ownership,redemption,sale or other disposition of such Discount Bonds.
Premium Bonds
Some of the Bonds may be offered at an initial offering price which exceeds the stated redemption price payable at
the maturity of such Bonds. If a substantial amount of any maturity of the Bonds is sold to members of the public
(which for this purpose excludes bond houses, brokers and similar persons or entities acting in the capacity of
wholesalers or underwriters) at such initial offering price, each of the Bonds of such maturity ("Premium Bonds")
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 Bond in the hands of an initial purchaser who purchases
such Bond in the initial offering must be reduced each year and upon the sale or other taxable disposition of the
Bond 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 Bond 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 with respect to the
Premium Bonds. The amount of bond premium on a Premium Bond which is amortizable each year (or shorter
period in the event of a sale or disposition of a Premium Bond) is determined under special tax accounting rules
which use a constant yield throughout the term of the Premium Bond based on the initial purchaser's original basis
in such Bond.
The federal income tax consequences of the purchase, ownership,redemption, sale or other disposition by an owner
of Bonds that are not purchased in the initial offering or which are purchased at an amount representing a price other
than the initial offering price for the Bonds of the same maturity may be determined according to rules which differ
from those described above. Moreover, all prospective purchasers of Bonds 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 Bonds.
CONTINUING DISCLOSURE OF INFORMATION
In order to provide certain continuing disclosure with respect to the Bonds in accordance with Rule 15c2-12 of the
United States Securities and Exchange Commission under the Securities Exchange Act of 1934,as the same may be
amended from time to time ("Rule 15c2-12"), the City has entered into a Disclosure Dissemination Agent
Agreement ("Disclosure Dissemination Agreement") for the benefit of the holders of the Bonds with Digital
Assurance Corporation, L.L.0 ("DAC"), under which the City has designated DAC as Disclosure Dissemination
Agent. The form of Disclosure Dissemination Agreement can be obtained on www.dacbond.com.
In the Ordinance,the City has made the following agreement for the benefit of the holders and beneficial owners of
the Bonds. The City is required to observe the agreement for so long as it remains obligated to advance funds to pay
the Bonds. Under the agreement, the City will be obligated to provide certain updated fmancial information and
operating data annually, and timely notice of specified material events, to the Municipal Securities Rule Making
Board ("MSRB"). Information will be available free of charge via the Electronic Municipal Market Access
("EMMA")system at www.emma.msrb.org.
28
Annual Reports
The City will provide certain updated financial information to the MSRB annually via EMMA. The information to
be updated includes all quantitative fmancial information and operating data with respect to the City of the general
type included in this Official Statement under the headings "CITY REVENUE DEBT," "THE SYSTEM," and in
APPENDIX "B" The City will update and provide this information within six months after the end of each fiscal
year
The City may provide updated information in full text or may incorporate by reference certain other publicly
available documents, as permitted by Rule 15c2-12. 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 financial statements
and audited financial 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 unless the City changes its fiscal year If the City changes its fiscal year,it will notify the MSRB of the
change.
Material Event Notices
The City will also provide timely notices of certain events to the MSRB. The City will provide notice in a timely
manner not in excess of ten business days after the occurrence of the event of any of the following events with
respect to the Bonds. (1)principal and interest payment delinquencies, (2)non-payment related defaults,if material,
(3) unscheduled draws on debt service reserves reflecting financial difficulties; (4) unscheduled draws on credit
enhancements reflecting fmancial difficulties; (5) substitution of credit or liquidity providers, or their failure to
perform, (6) adverse tax opinions,the issuance by the Internal Revenue Service of proposed or final determinations
of taxability, Notices of Proposed Issue (IRS Form 5701-TEB) or other material notices or determinations with
respect to the tax status of the Bonds,or other material events affecting the tax status of the Bonds;(7)modifications
to rights of holders of the Bonds, if material, (8) bond calls, if material, and tender offers, (9) defeasances, (10)
release, substitution, or sale of property securing repayment of the Bonds, if material, (11) rating changes, (12)
bankruptcy,insolvency,receivership or similar event of the City; (13)the consummation of a merger,consolidation,
or acquisition involving the City or the sale of all or substantially all of the assets of the City, other than in the
ordinary course of business,the entry into a defmitive agreement to undertake such an action or the termination of a
definitive agreement relating to any such actions, other than pursuant to its terms, if material, and(14) appointment
of a successor Paying Agent/Registrar or change in the name of the Paying Agent/Registrar, if material. As used
above,the phrase"bankruptcy,insolvency,receivership or similar event"means the appointment of a receiver,fiscal
agent or similar officer for the City in a proceeding under the U.S. Bankruptcy Code or in any other proceeding
under state or federal law in which a court of governmental authority has assumed jurisdiction over substantially all
of the assets or business of the City,or if jurisdiction has been assumed by leaving the Board and officials or officers
of the City in possession but subject to the supervision and orders of a court or governmental authority, or the entry
of an order confirming a plan of reorganization, arrangement or liquidation by a court or governmental authority
having supervision or jurisdiction over substantially all of the assets or business of the City (Neither the Bonds nor
the Ordinance make any provision for debt service reserves, liquidity enhancement or credit enhancement). In
addition, the City will provide timely notice of any failure by the City to provide information, data, or fmancial
statements in accordance with its agreement described above under"Annual Reports."
For these purposes, any event described in(12)in the immediately preceding paragraph is considered to occur when
any of the following occur the appointment of a receiver,fiscal agent,or similar officer for the City in a proceeding
under the United States Bankruptcy Code or in any other proceeding under state or federal law in which a court or
governmental authority has assumed jurisdiction over substantially all of the assets or business of the City,or if such
jurisdiction has been assumed by leaving the existing governing body and officials or officers in possession but
subject to the supervision and orders of a court or governmental authority,or the entry of an order confirming a plan
of reorganization, arrangement, or liquidation by a court or governmental authority having supervision or
jurisdiction over substantially all of the assets or business of the City
Availability of Information
The City has agreed to provide the foregoing information only as described above. Investors will be able to access
continuing disclosure information filed with the MSRB free of charge at www.emma.msrb.org.
29
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 bonds at any future date. The City disclaims any contractual or tort
liability for damages resulting in whole or in part from a breach of its continuing disclosure agreement or from any
statement made pursuant to its agreement, although holders of Bonds may seek a writ of mandamus to compel the
City to comply with its agreement. The City may amend its continuing disclosure agreement from time to time 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(i)the agreement, as amended,would have permitted an
Initial Purchaser to purchase or sell Bonds in the offering described herein 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(ii) either(a) the holders of a majority in aggregate principal amount of the outstanding Bonds
consent to the amendment or(b)any 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
Bonds. The City may also amend or repeal the provisions of this continuing disclosure agreement if the SEC
amends or repeals the applicable provisions of Rule 15c2-12 or a court of fmal jurisdiction enters judgment that such
provisions of Rule 15c2-12 are invalid, but only if and to the extent that the provisions of this sentence would not
prevent an Initial Purchaser from lawfully purchasing or selling Bonds in the primary offering of the Bonds. If the
City so amends the agreement, it has agreed to include with the next financial information and operating data
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.
Compliance With Prior Undertakings
Due to an administrative oversight by a consultant of the City,the 2009 audit was filed approximately 4 hours late.
The City is working with the consultant to ensure that such filing errors will not occur again in the future.
Otherwise, during the last 5 years,the City has complied in all material respects with its prior continuing disclosure
agreements made in accordance with Rule 15c2-12.
FINANCIAL ADVISOR
BOSC, Inc. is employed as Financial Advisor to the City in connection with the issuance of the Bonds. The
Financial Advisor's fee for services rendered with respect to the sale of the Bonds is contingent upon the issuance
and delivery of the Bonds. The Financial Advisor is not obligated to undertake, and has not undertaken to make,an
independent verification or to assume responsibility for the accuracy,completeness, or fairness of the information in
this Official Statement.
BOSC, Inc., in its capacity as Financial Advisor, does not assume any responsibility for the information, covenants
and representations contained in any of the legal documents with respect to the federal income tax status of the
Bonds,or the possible impact of any present,pending or future actions taken by any legislative or judicial bodies.
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.
The information contained in this Official Statement in the section entitled "APPENDIX B - Audited Financial
Statements of the City"has been provided by Grant Thornton LLP,Houston,Texas and has been included herein in
reliance upon their authority as an expert in the fields of auditing and accounting.
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 Bonds.
30
Certification as to Official Statement
At the time of payment for and delivery of the Bonds,the Initial Purchaser will be furnished a certificate, executed
by a proper officer acting in his or her official capacity, to the effect that to the best of his or her knowledge and
belief: (a) the descriptions and statements of or pertaining to the City contained in its Official Statement, and any
addenda,supplement or amendment thereto,on the date of such Official Statement,on the date of sale of said Bonds
and the acceptance of the best bid therefor, and on the date of the delivery, were and are true and correct in all
material respects, (b) insofar as the City and its affairs, including its financial affairs, are concerned, such Official
Statement did not and does not contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in the light of the circumstances under
which they were made, not misleading; (c)insofar as the descriptions and statements, including financial data, of or
pertaining to entities, other than the City, and their activities contained in such Official Statement are concerned,
such statements,and data have been obtained from sources which the City believes to be reliable and the City has no
reason to believe that they are untrue in any material respect; and(d)there has been no material adverse change in
the financial condition of the City since the date of the last audited financial statements of the City
Forward Looking Statements
The statements contained in this Official Statement, and in any other information provided by the City,that are not
purely historical, are forward-looking statements, including statements regarding the City's expectations, hopes,
intentions, or strategies regarding the future. Readers should not place undue reliance on forward-looking
statements. All forward-looking statements included in this Official Statement are based on information available to
the City on the date hereof,and the City assumes no obligation to update any such forward-looking statements. It is
important to note that the City's actual results could differ materially from those in such forward-looking statements.
The forward-looking statements herein are necessarily based on various assumptions and estimates and are
inherently subject to various risks and uncertainties, including risks and uncertainties relating to the possible
invalidity of the underlying assumptions and estimates and possible changes or developments in social, economic,
business, industry, market, legal and regulatory circumstances and conditions and actions taken or omitted to be
taken by third parties,including customers,suppliers,business partners and competitors,and legislative,judicial and
other governmental authorities and officials. Assumptions related to the foregoing involve judgments with respect
to, among other things, future economic, competitive, and market conditions and future business decisions, all of
which are difficult or impossible to predict accurately and many of which are beyond the control of the City Any of
such assumptions could be inaccurate and,therefore, there can be no assurance that the forward-looking statements
included in this Official Statement would prove to be accurate.
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 Bonds to the Initial Purchaser
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.
/s/ Tom Reid
Mayor
City of Pearland,Texas
ATTEST
/s/ Young Lorfmg
City Secretary
City of Pearland,Texas
31
APPENDIX A
GENERAL INFORMATION REGARDING THE CITY OF PEARLAND
The following information has been derived from various sources, including the U.S. Census data,Texas Workforce
Commission, "Sales Management Survey of Buying Power", Claritas, and City of Pearland, Texas officials. While
such sources are believed to be reliable,no representation is made as to the accuracy thereof.
RESIDENTIAL AND COMMERCIAL DEVELOPMENT
Because of the City'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 City with homes ranging in value from$75,000 to$400,000,the average
being approximately$185,400
Manufacturing and Commerce
Employment in Brazoria County (the "County") is provided by the extensive petro-chemical industry (Source:
Texas Municipal Report.) 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.
ECONOMIC AND GROWTH INDICATORS
U.S.Census of Population
City of Pearland Brazoria County
Number %Change Number %Change
1930 --- --- 23,054 +11.84
1940 --- --- 27,069 +17 42
1950 --- --- 46,549 +71.96
1960 1,497 --- 76,204 +63 71
1970 6,444 +330 46 108,312 +42.13
1980 13,248 +105.59 169,587 +56.57
1990 18,927 +42.87 191,707 +13.04
2000 37,640 +98.87 241,767 +26.11
2010 91,252 +142.43 313,166 +29.53
2011 95,600 +4 76
2012 97,200 +1.67
2013 103,800 +6.79
2014(a) 106,900 +2.99
(a) Estimated.
Source. U.S.Census Bureau and estimates from the City
A-1
City of Pearland
2014(a) 2013 2012 2011 2010
Labor Force 53,216 52,406 51,179 49,587 48,474
Employed 51,329 49,886 48,469 46,350 45,334
Unemployed 1,887 2,520 2,710 3,237 3,140
Unemployment Rate 3.5% 4.8% 5.3% 6.5% 6.5%
Brazoria County
2014(a) 2013 2012 2011 2010
Labor Force 160,501 158,876 155,215 153,346 150,544
Employed 152,720 148,427 144,213 140,067 137,078
Unemployed 7,781 10,449 11,002 13,279 13,466
Unemployment Rate 4.8% 6.6% 7 1% 8.7% 8.9%
(a) As of April,2014
Employment Statistics
Source: Texas Workforce Commission
1
1
11
A-2
APPENDIX B
AUDITED FINANCIAL STATEMENTS OF THE CITY
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CITY OF PEARLAND, TEXAS
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COMPREHENSIVE ANNUAL
FINANCIAL REPORT
E
Fiscal Year Ended
September 30, 2013
Officials Issuing Report
Clay Pearson Jon Branson Mickiel Hodge Claire Bogard Rick Overgaard
City Manager Assistant City Assistant City Director of Finance Assistant Director
Manager Manager of Finance
(This page intentionally left blank.)
Introductory Section
RESPONSIVE RESULTS-ORIENTED TRUST-BUILDERS ACCOUNTABLE
City of Pearland
3519 Liberty Drive
Pearland,Texas 77581
Tel 281.652.1600
cityofpearland.com
March 10, 2014
Honorable Mayor,Members
Of City Council, and Citizens of the
City of Pearland,Texas
The Comprehensive Annual Financial Report (CAFR) of the City of Pearland, Texas (the
"City") for the fiscal year ending September 30, 2013, is hereby submitted as mandated by
both local and state statutes. These ordinances and statutes require that the City issue an
annual report on its financial position and activity and that an independent firm of certified
public accountants audit this report.
Management assumes full responsibility for the completeness and reliability of the
information contained in this report, based upon a comprehensive framework of internal
control that it has estabhshed for this purpose. Because the cost of internal control should
not exceed anticipated benefits, the objective is to provide reasonable, rather than absolute,
assurance that the financial statements are free of any material misstatements.
Grant Thornton, LLP, Certified Public Accountants, have issued an unqualified (or "clean")
opinion on the City of Pearland's financial statements for the year ending September 30,
2013. The independent auditor's report is located at the front of the financial section of this
report.
Management's discussion and analysis (MD&A) immediately follows the independent
auditor's report and provides a narrative introduction, overview, and analysis of the basic
financial statements. MD&A complements this letter of transmittal and should be read in
conjunction with it.
PROFILE OF THE GOVERNMENT
The City of Pearland, incorporated in 1959, is located across the northern end of Brazoria
County and shares a common border with Houston, Texas to the north. The City also
extends into Fort Bend and Harris Counties. The City of Pearland, encompassing
approximately 48 square miles, is the fastest growing city in Brazoria County, increasing
from approximately 18,000 residents in 1990 to 104,100 residents estimated as of September
2013.
The City of Pearland is a home-rule City operating under a Council Manager form of
government.
i
RESPONSIVE RESULTS-ORIENTED TRUST-BUILDERS ACCOUNTABLE
Policy-making and legislative authority are vested in a governing council (Council)
consisting of the mayor and five other members. The Mayor and all Council members are
elected at large. The Mayor is allowed to vote only in case of a tie vote. The Mayor and
each Council member hold office for a period of three years and until his/her successor is
elected and qualified. Council members are limited to two full consecutive terms of office
and there is no limitation on the office of Mayor. The City Manager is appointed by Council
and is responsible for implementation of Council policy, execution of the laws, and all day-
to-day operations of the City
A full range of municipal services is provided by the City of Pearland including public
safety (police, fire, and emergency medical services), solid waste, water and wastewater
utilities, public improvements, repair and maintenance of infrastructure, recreational and
community activities, convention and visitors bureau, and general administrative services.
In addition, the City provides planning for future land use, traffic control, building codes,
and health inspections, and plans for new infrastructure and rehabilitation of
infrastructure to meet the needs of the citizens today, as well as tomorrow The City is
authorized to issue debt, subject to certain limitations, for the purpose of financing its
capital projects and the City is empowered to levy a property tax on real property within its
boundaries.
Activities of the general, debt service, water and sewer, solid waste, capital project funds,
and special revenue funds such as hotellmotel tax are included in the City's annual
appropriated budget. Capital project funds are budgeted for project length. The legal level
of control for each budget is at the fund level, which is to say that total expenditures for
each fund should not exceed total budgeted expenditures for that fund. The City Manager
is authorized to transfer budgeted amounts within and among departments. The City
Council must approve any budget amendment that increases appropriations by fund. The
City amends the budget at the end of each fiscal year to reflect current year projections for
revenues and expenditures/expenses.
As an independent political subdivision of the State of Texas, the City is considered a
primary government. Pursuant to standards established by the Governmental Accounting
Standards Board (GASB), the City also reports for all funds for which the City, as the
primary government, is financially accountable. As such, this report includes financial
activities of three component units as follows. The Pearland Economic Development
Corporation was created by the City in 1995 under the Texas Development Corporation Act
of 1979 to promote, assist, and enhance economic and related development activities on
behalf of the City The Tax Increment Reinvestment Zone(TIRZ#2)was created in 1998 for
the purposes of development and redevelopment in the Zone Area, better known as Shadow
Creek Ranch. The City participates in the Zone by contributing a portion of tax increments
produced in the Zone to the Tax Increment Fund. The Development Authority of Pearland
was created in 2004 to provide financing for the development of TRIZ #2. All these
component units are considered blended component units and have been included as major
funds in the Governmental Funds.
ECONOMIC CONDITIONS
Local Economy
Located minutes away from downtown Houston,Texas, the nation's second largest seaport,
ii
RESPONSIVE RESULTS-ORIENTED TRUST-BUILDERS ACCOUNTABLE
the world-renowned Texas Medical Center, and NASA Johnson Space Center, Pearland is
the premier location for residential and commercial growth. With abundant land, busmess
facilities, a sound infrastructure, and a diverse workforce supported by educational
programs,Pearland's growth has been consistent and will continue to be sustained over time
with continued residential and commercial development.
The total of all new construction permitted during the 2013 calendar year totaled over
$284.5 million, a 12.0% increase in value from 2012. New single-family housing permits
totaled 954 with a construction value of$214 million. While this is only 3 permits higher
than last year, permitted value is up $22.0 million or 11.6%. Pearland's economy continues
to maintain strong levels.Residential permitting activity for the 2014 fiscal year is expected
to remain at 2013 levels, budgeted at 1,000 permits. For calendar year 2013, the City had
184 commercial permits with a value of$74 million, compared to 77 permits with a value of
$62 million in 2012.The commercial real estate market also remains strong.
Sales of homes throughout the greater Houston area remained robust in 2013, driven by a
combination of good local job numbers and historically low interest rates. The Houston
Association of Realtors reported 73,232 single family home sales for 2013, up 17 7%from the
62,226 sales in 2012. Indications are that the Houston area will continue to have a healthy
market with a balanced supply of housing inventory and strong pricing—conditions that put
Houston in an enviable position compared to other markets around the Country
While new residential construction and home sales remain strong, the average value of
existing homes have slightly declined since fiscal year 2009 The average residential home
value in fiscal year 2013 was $172,331, down half a percent, from the average value in fiscal
year 2009 of$173,308. Fiscal year 2014 average value has stayed flat, thereby having to
rely on new added value to fund operations and debt service.
Houston is the world's energy capital. Growth in the oil and gas industry, spurred by
technological advances such as the use of hydraulic fracturing, continued in 2013 reaching
levels unseen in 30 years. Texas is now producing more than twice the oil it did three years
ago, and more than one-third of all U.S production, according to federal data. Oil
production in Texas has surpassed 1.8 million barrels per day and is on track to reach 3
million barrels per day in 2017 and potentially 4 million barrels per day by 2020.This trend
will continue keeping the Houston oil industry busy for many years.
Pearland's unemployment rate was 5 0% in September 2013, down from 5.3% in September
2012. This is compared to the national unemployment rate of 7 6% and the State of Texas
unemployment rate of 6.5% as of September 2013.Pearland's unemployment is less than the
national and state rates with the economy turning around. Texas has been named the top
state for doing business by Area Development Magazine stating "With its proven model of
success,the Lone Star State continues to dominate the national conversation on job creation
and economic prosperity" Earlier in 2013, the state was also named best business climate
by Business Facilities Magazine and the most competitive state by Site Selection Magazine.
Chief Executive Magazine has also ranked Texas as the best state for business for nine
years in a row through their annual survey of Chief Executive Officer's. Houston added
82,000 jobs in 2013 and the Greater Houston Partnership is forecasting 69,800 new jobs for
2014. The Houston area, and the State of Texas, is built on businesses, on jobs, and on
economic opportunities.Pearland is poised to take advantage of those opportunities.
iii
RESPONSIVE RESULTS-ORIENTED TRUST-BUILDERS ACCOUNTABLE
Pearland has two prime areas for commercial, mixed use, and livable developments along
the Highway 288 corridor. A strategic and target market study shows that energy,
healthcare, life sciences, and manufacturing are key areas of interest for Pearland.
Combined with a mix of reinforcing land uses, urban planning, key entertainment and
cultural attractions, public spaces, and walkabihty and connectivity, all will provide for
livable sustainable developments.
Kelsey-Seybold, a major healthcare organization of 370 physicians, completed construction
of a new 170,000 square foot,four story corporate headquarters on an 18 acre site in Shadow
Creek Ranch in the summer of 2013, which is home to approximately 800 employees. The
facility is next to the Shadow Creek Business Center, an 80,000 square foot office building
built in 2009, and Hospital Corporation of America's (HCA) 78,000 square foot medical office
building. Merit Medical Systems, a global medical device company, completed of 120,000
square foot facility for research and development and manufacturing in early March 2014.
Merit Medical is expected to employ 220 employees at the Pearland facility
HCA Gulf Coast Division broke ground September 17, 2013, for the new $71 million
Pearland Medical Center As an HCA affiliated hospital, Pearland Medical Center joins the
continuum of nine other Houston-area medical centers, ambulatory surgery centers,
diagnostic imaging facilities, and off-campus emergency centers.The 144,000-square-foot, 30
bed acute-care hospital will open in the fall of 2014 and feature surgical suites,
medical/surgical beds, intensive care beds and a 24-hour emergency department. Imaging
services will include magnetic resonance imaging, computerized tomography, a
catheterization lab, echocardiogram testing, and nuclear medicine modalities. The Center's
new women's services will provide digital mammography, labor and delivery suites,
cesarean-section operating rooms and a newborn nursery The new hospital will be located
at the southwest intersection of Highway 288 and Shadow Creek Parkway on a 48-acre site
currently home to a full-service, freestanding emergency department, imaging center and 3
story, 80,000 square foot medical office building
Memorial Hermann Health Systems will also establish a medical campus in Pearland. The
centerpiece will be a 64 bed acute care hospital which will open in 2015 It will feature an
intensive care unit, operating rooms, cardiac catheterization labs, surgical units, women's
and neonatology services. The campus will be built on a 40-acre site currently home to an
outpatient imaging center, diagnostic lab services, and medical office building The new
facility will include a one-of-a kind convenient care center that will provide one stop
coordinated access to adult and pediatric primary care, specialty physicians, sports medicine
and a 24 hour emergency room.
Sales tax for fiscal year 2013 totaled $23.6 million, an increase of$1.6 million or 7.3% over
fiscal year 2012. Of the $23.6 million, $15.7 million went to the City's General Fund for
operations and $7.9 million went to the City's Economic Development Corporation for
economic development programs and activities. The City's General Fund is 29% funded by
sales tax, an elastic revenue stream that will fluctuate with the economy As such, the City
closely monitors sales tax and the economy
Pearland is a regional shopping destination and the economy has turned around since the
recession of 2010 and 2011. The City saw a resurgence of spending in 2012, which continued
in 2013. As such, the City projected a 7.8% growth in sales tax for fiscal year 2014. The
nation's largest retail group, National Retail Federation, expects retail sales to increase at a
iv
RESPONSIVE RESULTS-ORIENTED TRUST-BUILDERS ACCOUNTABLE
slightly faster pace this year than last year as continued improvements in jobs and housing
should help shoppers feel more confident about spending.
Long-Term Financial Planning
The City adopts a one-year operating budget, including a five-year capital improvement
program (CIP) Even though a one-year budget is adopted, the budget implements
strategies, both financial and operational, to meet existing challenges and to plan for the
future.
The City's Five-Year CIP for fiscal year 2014 through fiscal year 2018 totals $354 million
and continues to implement the $162 million bond program approved by the voters in May
2007 As of September 30, 2013 there was $95.2 million in unissued bonds approved by the
voters and based on the 2014 2018 CIP, there would be $12.5 million in unissued bonds
approved by the voters at the end of fiscal year 2018. Projects include drainage ($23M),
streets ($160M), facilities ($21M), parks ($36M),water and wastewater ($114M) Projects in
the CIP have identified funding sources or potential funding sources. Funding for these
projects comes from the issuance of debt through Certificates of Obligation, General
Obligation Bonds, and Revenue Bonds, as well as impact fees, cash, and contributions from
the State, County, and other sources. Those projects that are unfunded, currently totaling
$53 1 million will be identifying projects for the City's next bond referendum, potentially as
early as 2016.
The Debt Service Fund forecast shows a need to increase the Debt Service component of the
tax rate to $0.5325 by fiscal year 2017 to implement the Five-Year CIP, excluding unfunded
projects, which is consistent with the financial modeling that the City undertook when
analyzing the Debt Service tax implications of implementing the $162 million bond
referendum. The debt service component of the tax rate for fiscal year 2014 remains the
same as in fiscal year 2013 at$0 4900
The City completes a Water/Sewer Cost of Service Rate Study annually for the forecast.The
study is built around the Five-Year CIP, operating budget, and future needs.Due to funds on
hand for pay-as-you go capital improvements, no rate increase was necessary for fiscal year
2011, 2012 or 2013, however, the model anticipates rate increases for 2015, 2017 and 2018.
The City's utility system continues to be self-supporting and financially sound.
Relevant Financial Policies/Guidelines
Financial Policies guide the development and implementation of the budget and are a
framework for fiscal decision making and that ensure financial resources are available to
meet the current and future needs of the City The policy statements address areas of
reporting and auditing, budgeting, revenues, capital improvements, debt, and grants to
name a few Some of the most relevant policies are.
• Recurring revenues fund recurring expenditures/expenses.
• Non-recurring funds fund non-recurring expenditures/expenses.
• General Fund Operating Reserves should be a minimum of two months of
operations.
• Water and Wastewater Operating Reserves shall strive to be maintained at 25% of
operations.
v
RESPONSIVE RESULTS-ORIENTED TRUST-BUILDERS ACCOUNTABLE
• Budget revenues on a conservative basis.
• Fund existing services at current service levels.
• Enterprise Funds must be self-supporting.
• Leverage City dollars by seeking outside funding sources.
• Maintain stable property tax rates.
Major Initiatives
The City Council, staff, and community share a vision that combines progress and
innovation with prudent controls to shape Pearland's future, as it becomes one of the largest
suburbs in the Houston area.Some of the major initiatives are as follows.
Public Safety
Among numerous other reasons, families move to Pearland for a high degree of personal
safety and a low crime rate. Pearland was recently rated as one of the safest Cities in the
United States ranking number 48 out of the top 50 Cities. Pearland was one of two Cities in
the Houston area in the top 50 The City Council continues to emphasize public safety and
the City delivers programs in the areas of law enforcement, emergency management,
emergency medical services, and fire protection.
For more than a decade, the City of Pearland public safety departments have been
subscribers to an 800 MHZ trunked radio system provided by Harris County This system
was originally designed for mobile radios in vehicles and at a time when the western half of
Pearland was sparsely populated. Pearland public safety departments have experienced
significant radio reception difficulties creating safety issues for the City Harris County is
not able to improve radio coverage in west Pearland, and to switch to the digital version of
the Harris County system is costly and would not guarantee improved radio coverage. The
City of Houston has recently established a $130 million dollar 700 MHz trunked radio
system designed for in-building coverage using portable radios. After radio testing and
research, the City of Pearland will be switching to the City of Houston's radio system which
will result in improvements in coverage, improving public safety for employees and citizens
of Pearland, and at a lesser cost than creating a new radio system or staying as a subscriber
to the current radio system.
The City of Pearland Police Department communications division provided dispatch services
for the City's Pohce, Fire, and EMS departments. Due to the rapid population growth and
increased demands for service in the City, it became apparent that the Police
communications division workload was unsustainable. As an alternative to hiring more
dispatchers, the City has contracted with Harris County Emergency Corps for the provision
of Fire Department and EMS dispatch services. In addition to the cost savings of not having
to hire additional employees, the contracted dispatch center brings added capabilities to the
Fire and EMS departments. By utilizing personnel specifically trained and certified for the
Fire and EMS dispatch role, as well as employing a Computer Aided Dispatch system
specifically configured for Fire and EMS dispatching, this arrangement has contributed to
increased safety for emergency responders as well as better deployment and utilization of
resources.
Brazoria County MUD's 21 and 22 in cooperation with Friendswood Development have
constructed Fire Station 6 in the City's ETJ,which opened in 2012. This station is staffed
vi
RESPONSIVE RESULTS-ORIENTED TRUST-BUILDERS ACCOUNTABLE
and operated by Pearland Volunteer Firefighters with the MUD's bearing the cost of
operations, pursuant to a Strategic Partnership Agreement. This has greatly enhanced
response times out in the City's southwestern ETJ, where development continues. The City
is also nearing completion of design for the reconstruction of Fire Station#3, anticipated to
open fall 2014, on the eastern edge of the City to accommodate a 24/7 crew, and will be
beginning design for reconstruction of Fire Station#2, to improve response times to these
service areas of the City
Another initiative of the City, is the approved merger of the Fire and EMS departments
effective October 1, 2014. In 2010, the City engaged the firm of McGrath Consulting Group
to evaluate the City's Fire and EMS departments. One of the recommendations was to
consolidate the Departments, the purpose being to improve the efficiency and effectiveness
of current and future delivery of services at the highest possible level of quality while
considering costs. The consolidation is multi-year, multi-phase plan with cross-training
occurring in fiscal year 2014 and full-implementation in fiscal year 2015
Economic Development
The Pearland Economic Development Corporation (PEDC) is a Type 4B non-profit
corporation under the Texas Development Corporation Act that utilizes a half cent sales tax
collected in the City to carry out economic development activities for the City The
Corporation is committed to enhancing the City's economic vitality through attraction,
retention, and expansion of primary employers. The Corporation works with the City to
utilize various tools such as tax abatement and the authority granted the City under
Chapter 380 of the Local Government Code to encourage new jobs and investment in the
community The following highlights a few of the most recent Corporation attraction efforts.
Dover Energy kicked off construction in June 2013 for the global manufacturer's new facility
m Pearland. Dover Energy, which provides highly-engineered solutions for the safe and
efficient extraction and handling of critical fluids worldwide in the drilling, production and
downstream markets, selected Pearland during a multi-city site search. The new facility,
which will consolidate Dover's multiple Texas locations into one regional facility, is
expected to be completed in February 2014.Dover Energy's new consolidated manufacturing
and operations center will be located in the Lower Kirby Urban District on a 14-acre site at
the northeast corner of Spectrum Boulevard and Hooper Road, directly behind Merit
Medical's new facility The facility will be 150,000 square feet with space for a staff of
approximately 200 employees.
Amerlux, a manufacturer of energy efficient lighting for retail, supermarket, and
commercial markets, just announced plans to build a 100,000 square foot manufacturing
facility in Pearland on 11 acres on Kirby Drive.It is anticipated that the facility will open in
the fourth quarter of 2014. The facility will include a wide array of new materials and
equipment to help produce and service the extensive line of interior and exterior products.
Mitsubishi Heavy Industries has chosen Pearland for its first U.S plant. The $100 million
new compressor facility will sit on a 26-acre site and include a 100,000 square foot space for
assembly, packaging, shipping and storage of compressors that serve the petrochemical
facilities. A 40,000 square foot office facility will also be built. The first phase estimated to
cost $40 million should be complete November 2014. By 2016, the full-scale manufacturing
facility will be complete with 100 new employees on-site.
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RESPONSIVE RESULTS-ORIENTED TRUST-BUILDERS ACCOUNTABLE
The Corporation also spearheaded legislation that passed the State Legislature in 2013, to
create a Highway 288 Management District for corridor beautification. The corridor
currently is non landscaped and does not reflect City standards. The goal is to create a
vibrant visually appealing corridor that will attract investment in the City District board
members have been appointed and the District has levied a 10-cent tax rate, which is
anticipated to generate approximately $300,000 annually The next step is to plan the
aesthetic improvements and build a phased landscaping program for implementation.
In 2012, the PEDC, along with local partners in government, education, healthcare and
business, embarked upon a long-term strategic community and economic development
planning process in order to create a shared vision for the community's future growth and
an action plan to achieve it. The planning process resulted in a Pearland 20/20 Strategic
Plan incorporating nine strategies to improve Pearland's product. The nine strategies are 1.
Marketing, 2. Mobility, 3. Corridors, 4. Recreation and Culture, 5. Beautification, 6. Lower
Kirby Mixed Use District, 7 Multi-Use Event Center, 8. Workforce Pipeline, and 9 Image
Campaign. More than ever before, companies are considering education, workforce,
entertainment, parks, etc. into their decisions to locate or remain in the City It will take a
myriad of partners to develop and maintain a successful community product.
One of the City's prime areas for development, the Lower Kirby Mixed Use District at Hwy
288 and Beltway 8, has infrastructure needs that make it more difficult to develop The
PEDC is working with two area Municipal Management Districts to coordinate a multi-
phase plan for the construction and funding of some of the major infrastructure that is
needed. The Pearland Economic Development Corporation continues to promote Pearland
and is working with a myriad of companies on future relocations and site visits as well as
working with existing businesses on future expansions.
The City's Convention and Visitor's Bureau (CVB), funded by hotel occupancy taxes, also
focuses on economic development through tourism and putting heads in beds. In late 2012,
the City Council authorized the creation of a city department for the Convention and
Visitor's Bureau, service that had been previously contracted out. In fiscal year 2013, an
Executive Director and staff was hired. The location of Pearland, as previously mentioned,
makes Pearland a perfect hub and spoke for visitors and"A Perfect Pick. to play, stay, meet,
and getaway", the tag line for the CVB. The time has come for Pearland to complement and
support its development with cultural and lifestyle amenities to include a multi-use events
center. This need has been noted in multiple Pearland planning processes as an
enhancement to make the city more competitive for employers and residents. Annul hotel
occupancy taxes total slightly over $1 million dollars and the funds ending balance is $2.3
million as of September 30, 2013.
Land Use Plan/Annexation
Land use planning seeks to order and regulate the use of land in an efficient and ethical
way, thus preventing land use conflicts. Land use planning is the systematic assessment of
land, alternatives for land use, and social and economic conditions in order to select and
adopt the best land use options. Its purpose is to select and put into practice those land uses
that will best meet the needs of the people while safeguarding resources and ensuring
sustainabihty.
viii
RESPONSIVE RESULTS-ORIENTED TRUST-BUILDERS ACCOUNTABLE
PEDC and the City of Pearland, in partnership with Gateway Planning, finalized a market-
based master plan and implementation strategy for the area formerly known as the
Spectrum District, and currently known as the Lower Kirby Mixed Use District, that
leverages the area's unique location (on Beltway 8 and 288) and creates a de facto "master
development" context. The area is planned to be a regional employment center with
destination mixed use urban living, and concentrated retail/entertainment areas.
The key issues addressed by the plan include drainage, transportation access, linkages, and
transit, revision of the existing zoning and development standards, incorporating new
development with existing uses, involving the existing municipal management districts, and
incorporating public parks and open spaces.
The master plan and associated regulatory recommendation of a form-based code envisions
a market-based approach and identifies different "character zones" of development, each
implementing a unique neighborhood within the Lower Kirby Mixed Use District.This form
based code is combined with the overall infrastructure strategy that identifies the major
regional drainage and roadway improvements needed to bring the plan together This
master plan and implementation strategy for Lower Kirby ensure that the vision for the
mixed use regional destination is feasible, but flexible to address changing market
conditions. In order to implement this vibrant vision for the Lower Kirby Mixed Use
District, PEDC is working with the City of Pearland and the two area Municipal
Management District Boards to create a coordinated action plan that identifies the
responsibilities and roles of each of the entities.
The City's annexation of Brazoria County MUD #4, occurred December 31, 2012, pursuant
to a Strategic Partnership Agreement between the City and MUD Brazoria County MUD#4
encompassed approximately 600 acres and had an estimated population of 3,100 Upon
annexation, all assets and obligations of the MUD transferred to the City
In January 2013, City Council voted to incorporate the Grand Avenue Master Plan into the
City's Comprehensive Plan. The plan is designed to facilitate future development of Grand
Avenue as a focal point for the Old Town Site while also responding to existing growth
patterns in the city A primary initiative for this plan is to reinvent the Old Town Site as a
modern village with a compatible mix of residential and non-residential uses. The Plan
recommends adopting form based codes that would be used to ensure buildings and streets
are coordinated in a manner that is attractive to pedestrians and encourages outdoor
activities. Using form based codes allows for more flexibility and a mix of uses as compared
to traditional zoning used throughout the City
Capital Improvement Projects and Planning
With continued residential and commercial growth, and to plan for the future, the need to
build new infrastructure and maintain existing infrastructure is a priority and will be
implemented through an aggressive capital improvement program.The City's Five-Year CIP
2014 — 2018 totals $354 million. Projects include drainage ($23M), streets ($160M),
facilities($21M),parks ($36M),water and wastewater($114M)
Major thoroughfare projects include the widening of Bailey Road between FM1128 and
Veterans, reconstruction of one mile of Old Alvin Road from Plum Street to McHard Road,
McHard Road extension from Mykawa to Cullen, expansion of Smith Ranch Road from two
ix
RESPONSIVE RESULTS-ORIENTED TRUST-BUILDERS ACCOUNTABLE
lanes asphalt to four lanes concrete, curb and gutter from Hughes Ranch to North of
Broadway, the widening of Max Road between Broadway and Hughes Ranch Road, and the
extension of Fite between McLean and Veterans. Major drainage projects include expansion
of the D.L. Smith detention pond by approximately 150 acre-feet and future storm water
regional detention at FM518 and Cullen. Major park projects include a soccer complex,
improvements to Independence and Centennial Parks, Phase I development of the Shadow
Creek Ranch Park, and a 7,000 square foot Nature Center Facility projects include an
11,500 square feet expansion and renovation to the Tom Reid Library, reconstruction of Fire
Station #3 and Fire Station #2 to accommodate a 24/7 manned station, relocation of Fire
Station#1, and City Hall and Hill House Road facility improvements.Water projects include
the preliminary design of a 20 million gallon per day surface water plant along with various
waterline extensions. Wastewater projects include the expansion of the Far Northwest,
Barry Rose and JHEC wastewater treatment plants, extension of trunk sewer on McHard,
and various lift station projects.
Transportation Improvements and Strategic Planning
Charged with planning, establishing, and maintaining an effective transportation system,
the City of Pearland is involved in numerous activities to face this challenge. The $84
million transportation bond program (passed in 2007) will construct major projects
mentioned previously
The City is also involved in regional efforts for long-range transportation planning and
funding The Mayor is a member of H-GAC's Transportation Policy Council (TPC), and an
Assistant City Manager is a member of the Technical Advisory Committee (TAC), a sub-
committee of the TPC and the Transportation Improvement Program(TIP) Subcommittee.
The City submitted several proposed roadway projects from its Capital Improvement
Program for possible funding in the region's Transportation Improvement Program (TIP) for
2013-2016 and five of the City's projects were selected for funding. The projects are McHard
Road Extension(Mykawa to Cullen), Bailey Road(Veterans to FM1128), Smith Ranch Road
Extension and Green Tee Terrace and Shadow Creek Ranch Trails. These projects will
receive 80% funding from state or federal sources totaling $63,251,113 with the City
providing 20% matching funds. These projects are in addition to the four projects that
received funding in 2011 totaling $20,180,901 in state or federal funding from the TIP
These projects are slated to be completed within the City's current Five-Year Capital
Improvement Program.
With the growth in population along the Highway 288 corridor and the number of Pearland
residents that rely on Hwy 288 to commute to Houston and the Texas Medical Center, the
City along with Brazoria County have been meeting and working with the Texas
Department of Transportation to provide traffic relief on the corridor through managed toll
lanes. Brazoria County is preparing to begin design work, anticipated to be awarded on
March 25, 2014, on four new toll lanes on Texas 288 from the Brazoria Harris County line to
County Road 58. Design will take approximately nine months with bids to be advertised
around January 2015 Construction is likely to begin March 2015 with a three-year
construction schedule. In 2007, State legislation was passed giving authority for the
Brazoria County Toll Road Authority to construct their own toll roads.
The Gulf Coast Center operates a transportation program known as Connect Transit.
x
RESPONSIVE RESULTS-ORIENTED TRUST-BUILDERS ACCOUNTABLE
Connect Transit provides "curb cab" service to Pearland. Services are shared ride services
with pick-up and delivery from curb to curb by reservation. The City funds approximately
$20,000 for this service annually to its citizens meeting the ehgibihty requirements, seniors,
person with disabilities, or low-income. This is a way to provide those needing
transportation to grocery stores, doctor visits, etc.
Fiscal Responsibility and Sustainability
Fiscal sustainability can be defined as "the extent to which patterns of Government
spending do not undermine the capability of the Government to continue to spend to achieve
its public purposes?' City Council takes a proactive stance in ensuring the fiscal health and
sustainability of the City Council adopted a set of Financial Management Policy Statements
and receives quarterly Finance "Snapshot" presentations, which includes economic
indicators. The City also prepares a Five-Year Forecast for the City's major funds to see how
the spending decisions made today affect the future as well as to identify any
issues/concerns that are forthcoming and to put strategies in place today to address those
issues/concerns for the future.
Over the past three years because of the sluggish economy the City has seen base budget
reductions to the General Fund totaling $4.9 million. During fiscal year 2013, however, we
have seen a turnaround in the economy and growth. The improving Houston area economy
and the City's increasing population played major roles in the development of the fiscal year
2014 budget. The improving economy will most likely result in improved revenues in the
current fiscal year, 2014, most noticeably in sales tax and building permits. Sales tax
revenue for fiscal year 2013 is up 7.3% over the prior year The fiscal year 2014 Adopted
Budget includes an increase of 7.8% over fiscal year 2013. Building Permit revenue is also
projected to maintain the strong levels that have developed during fiscal year 2013. The
Adopted Budget for fiscal year 2014 anticipates 1,000 single family permits. Another
significant factor that impacts the Adopted Budget is a 3% increase in population. This
increase in population results in a need for increased services to meet needs of new
residents. This projected increase in population is the result of both newly constructed
homes and multifamily dwellings. The Adopted Budget includes no increase in either the
property tax rate or water and sewer rates. Of the total adopted tax rate of 70.51 cents per
hundred dollars valuation, the operating tax rate remains at 21.51 cents per hundred
dollars and the debt service tax rate remains unchanged at 49 cents.
While only a few months into the 2014 fiscal year, the City is already beginning to prepare
for the 2015 budget process and up-coming forecast with the same goal of being fiscally
responsible to our citizens.
AWARDS AND ACKNOWLEDGEMENTS
Parks and Recreation earned national accreditation through the Commission for
Accreditation of Park and Recreation Agencies and the National Recreation and Park
Association. The accreditation is a measure of the overall quality of operation, management
and service to the community and has meet rigorous standards related to the management
and administration of lands, facilities, resources,programs, safety and services.
The City of Pearland received Crystal Awards in two categories recognizing marketing
excellence-Online Social Media Non Profit for the City's campaign promoting its three social
xi
RESPONSIVE RESULTS-ORIENTED TRUST-BUILDERS ACCOUNTABLE
media pages, and Maverick Marketing for the promotion of its CATFAX cat adoption event.
The Texas Fire Marshal's Association awarded the City with the 2013 Achievement of
Excellence Gold Level Award. The award recognizes organizations for performing excellence
in fire prevention.
The Government Finance Officers Association of the United States and Canada (GFOA)
awarded a Certificate of Achievement for the Excellence in Financial Reporting to the City
of Pearland, Texas, for its Comprehensive Annual Financial Report for the year ended
September 30, 2012. This was the 36th 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. This report must satisfy both generally accepted principles and applicable legal
requirements.A Certificate of Achievement is valid for a period of one year only We believe
that our current comprehensive annual financial report continues to meet the Certificate of
Achievement Program's requirements, and we are submitting it to GFOA to determine its
eligibility for another certificate.
The City has also received the GFOA's Distinguished Budget Presentation Award for its
annual budget document. In order to qualify for the Distinguished Budget Presentation
Award, the government's budget document had to be judged proficient as a policy document,
a financial plan, an operations guide, and a communications device.
The preparation of this report was accomphshed with the dedicated service of the
Accounting staff of the Finance Department. We express our sincere appreciation to these
individuals who have continually demonstrated the core beliefs of the City and who assisted
and contributed to the preparation of this report. We also thank the Mayor and members of
the City Council for their support in planning and conducting the financial operations of the
City in a responsible manner.
Respectfully submitted,
C J e son, City Manager Claire Bogard,Director of Finance
xii
CITY OF PEARLAND,TEXAS
PRINCIPAL OFFICIALS
Term
Expires
Elected Officials Position May
Tom Reid Mayor 2014
Tony Carbone Council Member at Large-Position One 2016
Scott Sherman Council Member at Large-Position Two 2015
Susan Sherrouse Council Member at Large-Position Three 2014
Keith Ordeneaux Council Member at Large-Position Four 2015
Greg Hill Council Member at Large-Position Five,Mayor Pro Tern 2016
Appointed Officials Position
Clay Pearson City Manager
Darrin Coker City Attorney
Letitia Farnie Municipal Court Judge
City Management Position
Mickiel Hodge Assistant City Manager
Jon Branson Assistant City Manager
Claire Bogard Director of Finance
Matt Buchanan President,PEDC
Daniel Baum Emergency Medical Services Chief
Young Lorfmg City Secretary
Eric Wilson Director of Public Works
Bonita Hall Director of Human Resources
Chris Doyle Police Chief
Michelle Smith Director of Parks and Recreation
Vance Riley Fire Chief
Andrew Fearn Head Librarian
Lata Krishnarao Director of Community Development
Trent Epperson Director of Engineering and Capital Projects
Kim Sinistore Executive Director, CVB
xiii
ORGANIZATION CHART
CITY OF PEARLAND.,TEXAS
it. CITIZENS OF PEARLAND
i MAYOR AND CITY COUNCIL
t MUNICIPAL JUDGES
LI1TY
rTTOR1J=f ----'- BO,ARDSAND COMMISSIONS
CITY MANAGER 't
ECONOMIC DEVELOPMENT
i i -- .,
1 ASSISTANT CITY MANAGER i
MANAGER
I ASSISTANT CITY I f, -
I
I Engineering& ( Fire + City Secretary _ Convention& j
ICapital Projects _ Visitors'Bureau
Administration Fire Marshal
I Finance ) --I Animal Control )
Capital Projects Emergency
Management Accounting �. `\
Engineering Budget `Human Resources)
Traffic Oper.& Emergency Information
Maintenance Medical Technology r—{ Communications )
Geographic r,� Services Purchasing
Information - P �
UtilityBilling --( Munici al Court i
Systems 8 Collections -- - `
r- --------."\� Police f---,......�_ -
�4 . ! Public tlorks -y Parks&Recreation
Community --�
Development ) Administration 1— Administration Administration
Patrol — Fleet Resource
Planning Investigations — Lift Stations Development
Permits& Community _ — Service Center Aquatics
Inspections Services Athletics
Support — Streets&
Health&Code Services Drainage Custodial Svcs.
Enforcement Jail — Distribution& Facilities Mtce.
Collection Parks Mtce.East
Commercial Vehicle Water
Enforcement '� Production '— Parks Mtce.'Nest
School Resource Wastewater Recreation Ctr.l
Officers Treatment T Natatorium
Traffic Enfcmt.d — Water/Sewer — Recycling Center
Motorcycles Construction — Senior Center
Special __ Public Works — Special Events
Investigations Geographic
— Information
Information ���estside Events
Training — Systems Center
r� Youth
Development
*as of 9-30.2013
xiv
GD
Government Finance Officers Association
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, 2012
el, • os e. 04 ft-
Executive Director/CEO
xv
Financial Section
' GrantThornton
Grant Thornton LLP
700 Milam Street,Suite 300
Houston,TX 77002-2848
T 832.476.3600
F 713.655.8741
GrantThomton.com
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Iinkd.in/GrantThorntonUS
twitter.com/GrantThorntonUS
The Honorable Mayor and Members of the City Council
City of Pearland,Texas
Report on the financial statements
We have audited the accompanying financial statements of the governmental activities, the
business-type activities, each major fund, and the aggregate remaining fund information of City
of Pearland, Texas (the "City") as of and for the year ended September 30, 2013, and the
related notes to the financial statements, which collectively comprise the City's basic financial
statements as listed in the table of contents.
Management's responsibility for the financial statements
Management is responsible for the preparation and fair presentation of these financial
statements in accordance with accounting principles generally accepted in the United States of
America, this includes the design,implementation,and maintenance of internal control relevant
to the preparation and fair presentation of financial statements that are free from material
misstatement,whether due to fraud or error.
Auditor's responsibility
Our responsibility is to express opinions on these financial statements based on our audit. We
conducted our audit in accordance with auditing standards generally accepted in the United
States of America and the standards applicable to financial audits contained in Government
Auditing Standards issued by the Comptroller General of the United States. Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and
disclosures in the financial statements. The procedures selected depend on the auditor's
judgment, including the assessment of the risks of material misstatement of the financial
statements, whether due to fraud or error. In making those risk assessments, the auditor
considers internal control relevant to the Entity's preparation and fair presentation of the
financial statements in order to design audit procedures that are appropriate in the
1
Grant Thornton LLP
U.S.member firm of Grant Thornton International Ltd.
GrantThornton
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the
City's internal control. Accordingly, we express no such opinion. An audit also includes
evaluating the appropriateness of accounting policies used and the reasonableness of significant
accounting estimates made by management,as well as evaluating the overall presentation of the
financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a
basis for our audit opinions.
Opinions
In our opinion, the financial statements referred to above present fairly,in all material respects,
the respective financial position of the governmental activities, the business-type activities,
each major fund, and the aggregate remaining fund information of the City of Pearland,Texas
as of September 30, 2013, and the respective changes in financial position and, where
applicable, cash flows thereof for the year then ended in accordance with accounting principles
generally accepted in the United States of America.
Other matters
Required supplementary information
Accounting principles generally accepted in the United States of America require that the
management's discussion and analysis on pages 6 - 16, the Schedule of Revenues, Expenditures
and Changes in Fund Balances — Budget and Actual on pages 67 - 68 schedules of funding
progress for Texas Municipal Retirement System and City of Pearland Other Post-Employment
Benefit Obligation on page 69 be presented to supplement the basic financial statements. Such
information, although not a required part of the basic financial statements, is required by the
Governmental Accounting Standards Board who considers it to be an essential part of financial
reporting for placing the basic financial statements in an appropriate operational, economic, or
historical context. This required supplementary information is the responsibility of
management. We have applied certain limited procedures to the required supplementary
information in accordance with auditing standards generally accepted in the United States of
America. These limited procedures consisted of inquiries of management about the methods
of preparing the information and comparing the information for consistency with
management's responses to our inquiries, the basic financial statements, and other knowledge
we obtained during our audit of the basic financial statements. We do not express an opinion
or provide any assurance on the information because the limited procedures do not provide us
with sufficient evidence to express an opinion or provide any assurance.
Supplementary information
Our audit was conducted for the purpose of forming opinions on the financial statements that
collectively comprise the City's basic financial statements. The combining and individual fund
statements and schedules are presented for purposes of additional analysis and are not a
required part of the basic financial statements. Such supplementary information is the
2
Grant Thornton LLP
U.S.member firm of Grant Thornton International Ltd.
GrantThornton
responsibility of management and was derived from and relates directly to the underlying
accounting and other records used to prepare the basic financial statements. The information
has been subjected to the auditing procedures applied in the audit of the basic financial
statements and certain additional procedures. These additional procedures included comparing
and reconciling the information directly to the underlying accounting and other records used to
prepare the basic financial statements or to the basic financial statements themselves, and other
additional procedures in accordance with auditing standards generally accepted in the United
States of America. In our opinion, the supplementary information is fairly stated,in all material
respects,in relation to the basic financial statements as a whole.
Other information
The introductory section and the statistical section on pages i-xv and 117-147, respectively are
presented for purposes of additional analysis and are not a required part of the basic financial
statements. Such information has not been subjected to the auditing procedures applied in the
audit of the basic financial statements, and accordingly, we do not express an opinion or
provide any assurance on it.
Other reporting required by Government Auditing Standards
In accordance with Government Auditing Standards, we have also issued our report, dated
March 12,2014, on our consideration of the City's internal control over financial reporting and
on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant
agreements and other matters. The purpose of that report is to describe the scope of our
testing of internal control over financial reporting and compliance and the results of that
testing, and not to provide an opinion on the effectiveness of internal control over financial
reporting or on compliance. That report is an integral part of an audit performed in accordance
with Government Auditing Standards in considering the City's internal control over financial
reporting and comphance.
4 AVM
Houston,Texas
March 12,2014
3
Grant Thornton LLP
U.S.member firm of Grant Thornton International Ltd.
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4
Management's Discussion and Analysis
5
CITY OF PEARLAND,TEXAS
MANAGEMENT'S DISCUSSION AND ANALYSIS
As management of the City of Pearland, we offer readers of the City's financial statements this narrative
overview and analysis of the financial activities of the City for the fiscal year ended September 30,2013
FINANCIAL HIGHLIGHTS
• The assets of the primary government of the City of Pearland exceeded its liabilities as of
September 30, 2013, by $645.2 million (net position). Of this amount, $609 6 million is for
investments in capital assets, net of related capital debt and $44.2 million is restricted for
economic development, capital projects, debt service, public safety, and community development
projects.
• The City's total primary government net position increased by $58.3 million primarily due to the
annexation of Brazoria MUD No 4 and capital contributions from developers for infrastructure.
• At the close of the current fiscal year, the City of Pearland's governmental funds reported
combined ending fund balances of$64 8 million, an increase of$4.3 million in comparison with
the prior year Increases are seen in the Pearland Economic Development Corporation of
$1.9 million, $1 1 million is in the General Fund, $800,000 in Capital Project Fund, and the
remaining in the City other Governmental Funds. Approximately $48.8 million of the $64 8
million is considered restricted or assigned, $20 8 million for economic development, and $14.5
million can be attributed to unspent bond proceeds for capital projects.
• As of September 30, 2013, the unassigned fund balance for the General Fund was $16.9 million
or 31% of total General Fund expenditures. This exceeds the City's reserve policy of 16 6%.
The total fund balance for the General Fund is $18.6 million or 34% of General Fund
expenditures.
• The City of Pearland's outstanding General Obligation and Certificates of Obligation debt for
governmental activities totaled $294 7 million, a net increase of$5 1 million over the previous
year The increase is attributable to new money being issued of$12.1 million offset by principal
payments. Revenue Bonds for the City's component units total $75 1 million, down to
$3 6 million from last year due to payment of principal. The City's debt for business activities
totaled $119 7 million, a net decrease of approximately $4 7 million from the previous year
principal outstanding.
Overview of the Financial Statements
This discussion and analysis is intended to serve as an introduction to the City's basic financial
statements. The City's basic financial statements are comprised of three components. (1) government-
wide financial statements, (2) fund financial statements and (3) notes to the financial statements. This
report also contains other supplementary information in addition to the basic financial statements
themselves.
Government-wide Financial Statements - The government-wide financial statements are designed to
provide readers with a broad overview of the City's finances, in a manner similar to a private-sector
business.
The Statement of Net Position presents information on all of the City's assets and liabilities, with the
difference between the two reported as net position. Over time, increases or decreases in net position may
serve as a useful indicator of whether the financial position of the City is improving or deteriorating.
6
CITY OF PEARLAND,TEXAS
MANAGEMENT'S DISCUSSION AND ANALYSIS
The Statement of Activities presents information showing how the City's net position changed during the
fiscal year All changes in net position are reported when the underlying event giving rise to the change
occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are reported in this
statement for some items that will only result in cash flows in the future fiscal periods (e.g., uncollected
taxes and earned but unused compensated absences)
Both of the government-wide financial statements distinguish functions of the City that are principally
supported by taxes and intergovernmental revenues (governmental activities) from functions that are
intended to recover all or a significant portion of their costs through user fees and charges (business-type
activities). The governmental activities of the City of Pearland include general government, economic
development, public safety, public works, community services and parks and recreation. The business-
type activities of the City include water, sewer, and solid waste.
The government-wide financial statements can be found on pages 20 through 22 of this report. The
government-wide financial statements include not only the City of Pearland, itself(known as the primary
government), but also a legally separate Economic Development Corporation, Tax Increment
Reinvestment Zone (TIRZ) and the Development Authority of Pearland for which the City of Pearland is
financially accountable. Financial information for these blended component units is reported together
with the financial information presented for the primary government, itself.
Fund Financial Statements - A fund is a grouping of related accounts that is used to maintain control
over resources that have been segregated for specific activities or objectives. The City, like other state
and local governments, uses fund accounting to ensure and demonstrate compliance with finance-related
legal requirements. All funds of the City can be divided into two categories - governmental funds and
proprietary funds.
Governmental Funds - Governmental funds are used to account for essentially the same functions
reported as governmental activities in the government-wide financial statements. However, unlike the
government-wide financial statements, governmental fund financial statements focus on current sources
and uses of spendable resources, as well as on balances of spendable resources available at the end of the
fiscal year Such information may be useful in evaluating a government's near-term financing
requirements.
Because the focus of governmental funds is narrower than that of the government-wide financial
statements, it is useful to compare the information presented for governmental funds with similar
information presented for governmental activities in the government-wide financial statements. By doing
so, readers may better understand the long-term impact of the government's near-term financing
decisions. Both the governmental funds balance sheet and the governmental fund statements of revenues,
expenditures, and changes in fund balance provide a reconciliation to facilitate this comparison between
governmental funds and governmental activities.
Beginning on page 23 of this report, information is presented separately in the Governmental Fund
Balance Sheet and in the Governmental Fund Statement of Revenues,Expenditures, and Changes in Fund
Balances for the General, Debt Service, Capital Projects, Pearland Economic Development Corporation,
Tax Increment Reinvestment Zone #2, and Development Authority of Pearland, which are considered to
be major funds. Data from the other governmental funds are combined into a single, aggregated
presentation. Individual fund data for each of these non-major governmental funds is provided in the
form of combining statements elsewhere in this report.
7
CITY OF PEARLAND,TEXAS
MANAGEMENT'S DISCUSSION AND ANALYSIS
The City of Pearland adopts an annual appropriated budget for its General Fund. A budgetary
comparison statement has been provided for the General Fund to demonstrate compliance with the
budget.
Proprietary Funds- The City maintains two types of proprietary fund. Enterprise Funds are used to report
the same functions presented as business-type activities in the government-wide financial statements. The
City uses an Enterprise Fund to account for its Water and Sewer Fund and Solid Waste Fund. The City
also maintains two internal service funds to account for its property insurance and health insurance.
These funds are part of the governmental activities in the government-wide financial statements and are
reported separately beginning on page 27 of the Statement of Net Position.
Proprietary funds provide the same type of information as the government-wide financial statements, only
in more detail. The basic proprietary fund financial statements, which can be found on pages 27 through
30 of this report, provide separate information for the Water and Sewer and Solid Waste Enterprise Funds
since it is considered to be a major fund of the City
Notes to the Financial Statements - The notes provide additional information that is essential to a full
understanding of the data provided in the government-wide and fund financial statements. The notes to
the financial statements can be found beginning on page 31 of this report.
Other Information - In addition to the basic financial statements and accompanying notes, this report
also presents other required supplementary information as well as combining and individual fund
statements and schedules that further support the information in the financial statements. This
information is presented immediately following the notes to the financial statements beginning on page 67
of this report.
Government-wide Financial Analysis
As noted earlier, net position may serve over time as a useful indicator of a government's financial
position. In the case of the City, assets exceeded liabilities by $645.2 million at the close of the most
recent fiscal year
By far the largest portion of the City's net position (94 percent) reflects its investment in capital assets
(e.g., land, buildings, machinery, and equipment), less any capital related debt used to acquire those
assets that is still outstanding. The City uses these capital assets to provide services to citizens,
consequently, these assets are not available for future spending. Although the City's investment in its
capital assets is reported net of capital related debt, it should be noted that the resources needed to repay
this debt must be provided from other sources, since the capital assets themselves cannot be used to
liquidate these liabilities.
8
CITY OF PEARLAND,TEXAS
MANAGEMENT'S DISCUSSION AND ANALYSIS
Governmental activities - Governmental activities increased the City's net position by $46 0 million,
thereby accounting for 79% percent of the total increase in the net position of the City Key elements of
this increase are as follows.
• Property taxes, sales and use taxes, and franchise taxes totaled $54 4 million, $24 9 million, and
$6 0 million, respectively These revenues increased by $4.5 million from prior year primarily
as a result of the annexation of Brazoria MUD No 4 and collection of their property taxes,
increase in property taxes due to a 2 cent increase in the property tax rate, and increased
consumer spending.
• Charges for services increased to $22.7 million. This is $10 1 million over the prior year of
which $5 4 million is TIRZ administrative fees previously classified as Operating Grants and
Contributions
• Capital Contributions totaled $53 1 million as a result of infrastructure contributed by
developers, the annexation of Brazoria MUD No. 4, and grants and contributions for capital
projects. This is an increase of$34.3 million over last year
• The revenues were offset by expenses for general government, public safety, public works, and
economic development of $13 4 million, $28.9 million, $31 7 million, and $17 4 million,
respectively In total,these expenses were relatively consistent with the prior year
Expenses and Program Revenues-Governmental Activities
S55,000
$60,0ou
555,000
5SQ000 ■Expenses
7. 545,000
e 540,000 ■Program Revenues'
= S35.no
— S30,ocio
S25i,o00
S20,o00
$15,000
S1o,ono
55,ann
5_ Mill rateIli 111
}` y s `/ a, I" gyp+.
44.
S</ <04 NOs
*includes Brazoria County MUD4 capital contribution for infrastructure
Revenues by Source-Governmental Activities
Charges for Services,
14%
Other,1%
Grants and
contributions, 34%
nA. '
a` ,t f- rid
V.11.* V - :
Property taxes,33; , i+ 1
Sales and use tdxeS
15%
Franchise taxes,4%
11
CITY OF PEARLAND,TEXAS
MANAGEMENT'S DISCUSSION AND ANALYSIS
Business-type activities - Business-type activities increased the City's net position by $12.3 million. Key
elements of this increase are as follows.
• Charges for services of$37.2 million increased approximately $2.0 million over the prior year
primarily due to an increase in water and sewer consumption due to the annexation of Brazoria
MUD No 4
• Capital grants and contributions of $16.3 million increased $8.2 million from the prior year
mainly due to the annexation of Brazoria MUD No 4 and recordation of assets.
• The revenues listed above were offset by expenses of $32.0 million and $8.3 million,
respectively for Water and Sewer and Solid Waste Expenses increased from prior year by
$2.6 million mainly due to an increase in solid waste of $800,000 due to increase in rates
pursuant to the contract, and annexation of Brazoria County MUD No 4, increase in
depreciation and amortization of assets of $770,000, and increase in system repairs of
$643,000
Expenses and Program Revenues- Business-type Activities
S50,000
$45,000
■Expenses
S40,000
S35 000 ■Program Revenu es'
e 530,000
o ,
$25,000
$20,000
$15,000
$10,000
S5,000-
S
Water and Sewer Solid Waste
*includes Brazoria County MUD4 capital contribution for infrastructure
Revenues by Source-Business-type Activities
Other,1%
Charges for Services,
Grants and 69%
contributions, 30%
12
CITY OF PEARLAND,TEXAS
MANAGEMENT'S DISCUSSION AND ANALYSIS
FINANCIAL ANALYSIS OF THE CITY'S FUNDS
As noted earlier, fund accounting is used to demonstrate and ensure compliance with finance-related legal
requirements.
Governmental Funds - The focus of the City's governmental funds is to provide information of near-term
inflows, outflows, and balances of spendable resources. Such information is useful in assessing the
City's financing requirements. In particular, unassigned fund balance may serve as a useful measure of
the City's net resources available for spending at the end of the fiscal year
The City's governmental funds reflect a combined fund balance of$64 8 million.A portion of the combined
fund balance, or $16.9 million, is unassigned and available for day-to-day operations of the City;
$14.5 million is restricted for capital projects; $20.8 million for economic development and the remaining
balance is restricted for debt service and other programs.
There was an increase in the combined fund balance of$4.3 million friom the prior year The increase in
fund balance includes an increase in the capital projects fund balance of aiproximately$800,000 due to bond
proceeds, a decrease of $300,000 in the debt service fund balance, offset by a combined increase of
approximately $973,000 in the special revenue funds. $1 1 million increase in the General Fund is seen
mainly in Charges for Services for TIIRZ Administration fees and Recreation Center/Natatorium fees; the
General Fund's fund balance totaled$18.6 million at year end.
In the Capital Projects Fund, the City spent $17 5 million on various improvement projects, leaving an
ending fund balance of$14 5 million,which will be spent on various capital projects.
The Pearland Economic Development Corporation, TIRZ#2, and Development Authority; the City's
component units, but blended with the primary government, had expenditures totaling$23.9 million, leaving
an ending fund balance of $15 4 million, $4.3 million, and $1.8 million, respectively, all considered
restricted.
Proprietary Funds - The City's business-type activities contain two activities (water and sewer, and solid
waste) The City's proprietary funds provide the same type of information found in the government-wide
financial statements.
GENERAL FUND BUDGETARY HIGHLIGHTS
During the year, there was a $2.2 million increase in appropriations between the original and final
amended budget, from $57 6 million to $59 8 million. The increase in appropriations is attributable to
carryover funding from prior-year encumbrances and projects and to reflect projections during the
2012-2013 budget process.
Budget estimates for revenues and other sources combined increased by approximately $2.8 million for the
year; also to reflect carryovers and revised projections. Actual revenues and other sources of$59 4 million
were $1 7 million under the fmal budget mainly due to capital lease fmancing occurring in FY 2014 versus
FY 2013 for FY 2013 purchases. Actual expenditures of$55.3 million were under budget by $4 6 million,
resulting in the year-end fund balance of$18.6 million over budget by$2.8 million.
At year-end, equipment purchases and several projects were still in progress and $976,713 of the
$2.8 million was carried over and re-appropriated in the 2013-2014 budget year
13
CITY OF PEARLAND,TEXAS
MANAGEMENT'S DISCUSSION AND ANALYSIS
CAPITAL ASSETS AND DEBT ADMINISTRATION
Capital Assets - At the end of fiscal year 2013, the City's governmental activities and business-type
activities had invested $749 0 million and $281.2 million, respectively, in a variety of capital assets and
infrastructure, as reflected in the following schedule. This represents a net increase of $14 9 million, or
5 6 percent over the end of last fiscal year for the business-type activities capital assets and a net increase of
$43 7 million or 6.2 percent over the end of last fiscal year for the governmental activities capital assets. The
increase is mainly due to the recordation of Brazoria County MUD No.4 assets upon annexation.
Governmental Activities Business-Type Activities Totals
2013 2012 2013 2012 2013 2012
Land $ 31,264 $ 31,260 $ 3,796 $ 3,610 $ 35,060 $ 34,870
Construction in progress 23,306 23,489 8,918 5,419 32,224 28,908
Infrastructure 607,940 573,752 212,666 199,511 820,606 773,263
Buildings and improvements 77,899 70,762 27,168 27,898 105,067 98,660
Machinery and equipment 6,165 5,200 1,401 1,199 7,566 6,399
Furniture and fixtures 2,464 873 37 44 2,501 917
Contractual water rights - - 27,227 28,607 27,227 28,607
Total Capital Assets $ 749,038 $ 705,336 $ 281,213 $ 266,288 $ 1,030,251 $ 971,624
Construction in progress at year-end represents numerous ongoing projects, the largest of which relate to
street, drainage and water/sewer projects. Additional information on the City's capital assets can be found
in Note 4 to the financial statements.
Long-Term Debt - At the end of the current fiscal year, the City had total bonds, certificates of
obligation, notes, capital leases, and post employment liabilities outstanding of$496 6 million. Of this
amount, $230 0 million is composed of general obligation bonds, $78.7 million is composed of certificates
of obligation and$180 8 million represents revenue bonds secured solely by specified revenue sources.
Governmental Activities Business-Type Activities Totals
2013 2012 2013 2012 2013 2012
General obligation bonds $ 230,040 $ 224,170 $ - $ - $ 230,040 $ 224,170
Certificates of obligation 64,690 65,425 14,020 15,130 78,710 80,555
Revenue bonds 75,125 78,725 105,690 109,305 180,815 188,030
Unamortized amount for issuance
premium/(discount) 6,159 6,479 730 882 6,889 7,361
Deferred loss on refunding (11,053) (12,351) (560) (610) (11,613) (12,961)
Capital leases payable 3,681 3,407 261 342 3,942 3,749
Compensated absences 5,007 4,724 463 539 5,470 5,263
Post employment benefit liability 1,955 1,535 357 282 2,312 1,817
$ 375,604 $ 372,114 $ 120,961 $ 125,870 $ 496,565 $ 497,984
The City of Pearland's General Obligation and Certificates of Obligation debt for governmental activities
increased to $294 7 million. The $5 1 million increase is due to new monies issued. The City's debt for
business activities decreased to $119 7 million, a net decrease of$4 7 million from the previous year,
which was the result of the principal payments.
14
CITY OF PEARLAND,TEXAS
MANAGEMENT'S DISCUSSION AND ANALYSIS
Current ratings on debt issues are as follows:
Standard
and Poors Fitch
General obligation bonds AA- AA
Revenue bonds AA- AA-
Both the Pearland Economic Development Corporation (PEDC) and the Development Authority of
Pearland (DAP), blended component units of the City, have issued debt. The PEDC bonds are rated Al
from Moody's. The DAP bonds are rated A-by Standard and Poors. Additional information on the City's
long-term debt can be found in Note 5 to the financial statements.
ECONOMIC FACTORS AND NEXT YEAR'S BUDGET AND RATES
Two primary factors in the 2014 budget are the improving Houston area economy and the continued
growth in population served by the City The improving regional economy will result in substantially
improved revenues in the coming fiscal year Improved economic conditions will be most noticeable in
two major revenue sources—sales tax and building permits. Sales tax revenue for FY 2013 was up 7.3%
over FY 2012. The adopted budget for FY 2014 includes a total increase in sales tax of 7 8% over
FY 2013 revenues. The nation's largest retail group, National Retail Federation, expects retail sales to
increase at a slightly faster pace this year than last year as continued improvements in jobs and housing
should help shoppers feel more confident about spending. Building Permit revenue is also projected to
maintain the strong levels that have developed during FY 2013 The FY 2013 Adopted Budget was based
on an estimated 1,000 single-family permits. Due to the strengthening regional economy during
FY 2013,housing starts were 941 The FY 2014 Adopted Budget anticipates 1,000 single-family permits.
Another economic factor that will impact revenues is an increase in property values of$504 million or
7 7%, due to new construction and the addition of MUD No 4, which was annexed on December 31,
2012. Values of existing residential properties have declined slightly over the past few years, from an
average value in FY 2009 of$173,308 to an average value in FY 2013 of$172,331, and indications are
that residential property values have stayed flat for the FY 2014 budget year The impact of new
residential and commercial construction will more than offset home values for existing properties for
2014 The budget incorporates no increase in the property tax rate. Of the total adopted tax rate of
70.51 cents per hundred dollars valuation, the operating tax rate remains at 21.51 cents per hundred
dollars and the debt service tax rate is 49 cents. Another significant factor that impacts the adopted
budget is a 3% increase in population. This increase in population results in increased services to meet
the needs of the new residents. This projected increase in population is a combination of two factors —
newly constructed homes and multifamily dwellings and the annexation of Brazoria MUD No 4
The Pearland City Council approved a $63.3 million General Fund budget for FY 2014 This is an 8%
increase from the FY 2013 adopted budget. The increase is mainly due to compensation adjustments
recommended from a Class and Compensation Study and new positions added in FY 2014 for a new 5th
ambulance, opening of Max Road Sportsplex, and manned staffing at Fire Station #3 In addition,
$400,000 is budgeted in FY 2014 for bunker gear and cross-training of emergency medical personnel in
anticipation of the approved Fire-EMS merger effective October 1, 2014 The FY 2014 budget also
includes year one implementation of a Five-Year Information Technology Strategic Plan that
recommends the replacement of the City's integrated Financial and Community Development systems in
15
CITY OF PEARLAND,TEXAS
MANAGEMENT'S DISCUSSION AND ANALYSIS
year two, FY 2015 The Five-Year Plan totals $7 1 million. Caring for the City's existing infrastructure
to ensure the long-term economic well being and financial health of the City is a priority As such, the
City budgeted $300,000 in FY 2014 for an in-depth street and sidewalk assessment that will provide for a
rehabilitation, replacement, and maintenance program and dollars required. The Water and Sewer fund is
able to fund operations, debt service, and bond coverage requirements with no increase in rates. This is
mainly attributable to efficient operations and transfers in from water and sewer impact fee funds used
towards annual debt service payments.
REQUESTS FOR INFORMATION
The financial report is designed to provide our citizens, customers, investors and creditors with a general
overview of City's fmances. If you have questions about this report or need any additional financial
information, contact Claire Bogard,Director of Finance, at 3519 Liberty Drive,Pearland, Texas 77581, or call
(281) 652-1600 The report and general information can be found on the City's website at
www.cityofpearland.com.
16
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1
17
Basic Financial Statements
18
CITY OF PEARLAND,TEXAS
STATEMENT OF NET POSITION
September 30, 2013
Primary Government
Governmental Business-Type
Activities Activities Total
Assets
Cash and cash equivalents $ 49,965,161 $ 4,769,402 $ 54,734,563
Investments 19,960,608 5,760,545 25,721,153
Receivables, net of allowance
for uncollectibles 21,130,475 3,833,506 24,963,981
Due from other
governmental agencies 753,725 - 753,725
Inventories 105,230 - 105,230
Prepaid items 245,906 12,562 258,468
Restricted cash and investments 716,315 26,679,900 27,396,215
Unamortized issuance costs 2,816,829 1,076,799 3,893,628
Capital assets.
Nondepreciable capital assets 54,570,742 12,714,417 67,285,159
Capital assets, net of
accumulated depreciation 694,467,679 268,498,649 962,966,328
Total Capital Assets 749,038,421 281,213,066 1,030,251,487
Total Assets 844,732,670 323,345,780 1,168,078,450
Liabilities
Accounts payable and
accrued liabilities 12,205,785 5,711,756 17,917,541
Accrued interest 1,246,881 411,650 1,658,531
Unearned revenues 3,633,280 - 3,633,280
Customer deposits 84,808 3,023,012 3,107,820
Long-term liabilities
Due within one year 15,918,732 5,082,862 21,001,594
Due in more than one year 359,684,992 115,878,489 475,563,481
Total Liabilities 392,774,478 130,107,769 522,882,247
Net Position
Net investment in capital assets 442,581,308 166,991,827 609,573,135
Restricted for
Capital improvements 3,568,609 7,681,267 11,249,876
Debt service 4,161,020 1,860,731 6,021,751
Community development
programs 4,756,143 - 4,756,143
Economic development 20,527,040 - 20,527,040
Public safety 1,652,989 - 1,652,989
Unrestricted (25,288,917) 16,704,186 (8,584,731)
Total Net Position $ 451,958,192 $ 193,238,011 $ 645,196,203
The accompanying notes are an integral part of these basic financial statements.
20
CITY OF PEARLAND,TEXAS
STATEMENT OF ACTIVITIES
For the Year Ended September 30, 2013
Program Revenue
Operating Capital
Charges for Grants and Grants and
Functions/Programs Expenses Services Contributions Contributions
Primary Government
Governmental Activities:
General Government $ 13,358,412 $ 6,326,156 $ 43,847 $ 180,000
Public Safety 28,944,507 7,410,197 602,850 -
Public Works 31,689,576 3,095,679 1,388,392 52,921,691
Community Services 3,807,513 3,263,783 107,519 -
Parks and Recreation 9,523,793 2,209,118 182,496 -
Economic Development 17,410,535 414,000 - -
Interest on long-term debt 16,223,583 - - -
Total Governmental Activities 120,957,919 22,718,933 2,325,104 53,101,691
Business-Type Activities:
Water and Sewer 32,040,246 29,007,476 - 16,273,170
Solid Waste 8,323,786 8,175,198 - -
TotalBusiness-TypeActivities 40,364,032 37,182,674 - 16,273,170
Total Primary Government 161,321,951 59,901,607 2,325,104 69,374,861
General Revenues
Taxes.
Property taxes
Sales and use taxes
Franchise taxes
Unrestricted investment earnings
Gain on sale of assets
Miscellaneous
Transfers
Total General Revenues and Transfers
Change in net assets
Net position-beginning,as restated
Net position-ending
The accompanying notes are an integral part of these basic financial statements.
21
Net(Expense)Revenue and Changes in Net Position
Primary Government
Governmental Business-Type
Activities Activities Total
$ (6,808,409) $ - $ (6,808,409)
(20,931,460) - (20,931,460)
25,716,186 - 25,716,186
(436,211) - (436,211)
(7,132,179) - (7,132,179)
(16,996,535) - (16,996,535)
(16,223,583) _ - (16,223,583)
(42,812,191) - (42,812,191)
- 13,240,400 13,240,400
- (148,588) (148,588)
- 13,091,812 13,091,812
(42,812,191) 13,091,812 (29,720,379)
54,433,047 - 54,433,047
24,941,540 - 24,941,540
5,999,154 - 5,999,154
154,723 94,889 249,612
8,487 - 8,487
1,692,870 681,892 2,374,762
1,606,753 (1,606,753) -
88,836,574 (829,972) 88,006,602
46,024,383 12,261,840 58,286,223
405,933,809 180,976,171 586,909,980
$ 451,958,192 $ 193,238,011 $ 645,196,203
22
CITY OF PEARLAND,TEXAS
BALANCE SHEET
Governmental Funds
September 30, 2013
Pearland Tax
Economic Increment Development Other Total
General Capital Development Reinvestment Authority of Governmental Governmental
Fund Debt Service Projects Fund Corporation Zone#2 Pearland Funds Funds
Assets
Cash and cash equivalents $ 8,887,567 $ 3,073,485 $ 14,824,931 $ 4,685,369 $ 4,200,431 $ 8,148,177 $ 5,290,853 $ 49,110,813
Investments 8,742,291 1,496,355 744,000 8,729,962 - 248,000 19,960,608
Receivables,net of allowance
for uncollectibles 6,094,897 9,692,829 868,241 1,425,984 130,541 12 2,854,234 21,066,738
Due from other governments 581,579 - 172,146 753,725
Due from other funds 118,097 - - - 118,097
Inventories 105,230 - 105,230
Prepaid items 53,217 166,894 11,547 4,162 235,820
Restricted cash 665,254 51,061 716,315
Total Assets $ 24,582,878 $ 14,429,563 $ 16,437,172 $ 15,518,116 $ 4,330,972 $ 8,447,250 $ 8,321,395 $ 92,067,346
Liabilities and Fund Balances
Liabilities
Accounts payable $ 1,707,531 $ 166,894 $ 1,475,090 $ 43,493 $ 485 $ 6,639,030 $ 155,137 $ 10,187,660
Accrued expenditures 1,197,097 38,870 426,495 - - 80,946 1,743,408
Deposits 46,475 38,333 84,808
Due to other funds - 118,097 118,097
Unavailable/unearned revenue 3,008,658 9,580,978 69,785 - 2,491,869 15,151,290
Total Liabilities 5,959,761 9,786,742 1,901,585 151,611 485 6,639,030 2,846,049 27,285,263
Fund balances:
Non-spendable:
Inventories 105,230 - 105,230
Prepaid items 53,217 166,894 - 11,547 - 4,162 235,820
Restricted for
Debt service 4,475,927 665,254 51,061 5,192,242
Capital improvements 14,535,587 - 14,535,587
Community development
programs 4,756,143 4,756,143
Public safety - - - - 715,041 715,041
Economic development - 14,689 704 4,330,487 1,757,159 20,777,350
Assigned for
Encumbrances 1,553,390 - - 1,553,390
Unassigned:
General fluid 16,911,280 - 16,911,280
Total Fund Balances 18,623,117 4,642,821 14,535,587 15,366,505 4,330,487 1,808,220 5,475,346 64,782,083
Total Liabilities and
Fund Balances $ 24,582,878 $ 14,429,563 $ 16,437,172 $ 15,518,116 $ 4,330,972 $ 8,447,250 $ 8,321,395 $ 92,067,346
The accompanying notes are an integral part of these basic financial statements.
23
CITY OF PEARLAND,TEXAS
RECONCILIATION OF THE BALANCE SHEET OF GOVERNMENTAL FUNDS TO
THE STATEMENT OF NET POSITION
September 30, 2013
Total fund balance,governmental funds $ 64,782,083
Amounts reported for governmental activities in the
Statement of Net Position are different because
Capital assets used in governmental activities are not current financial
resources and therefore are not reported in the fund financial statements,
but are reported in the governmental activities of the Statement of Net Position. 749,038,421
Certain other long-term assets(property taxes receivable,adjudicated court
fines receivable and unamortized bond issuance costs) are not available to pay
current period expenditures and therefore are not reported in the fund financial
statements,but are reported in the governmental activities of the Statement of
Net Position 14,334,839
Some liabilities are not due and payable in the current period and are not included
in the fund financial statement,but are included in the governmental activities of
the Statement of Net Position.
Bonds payable (369,855,000)
Unamortized premium/discount (6,158,967)
Deferred loss on refunding 11,053,492
Capital lease payable (3,681,366)
Compensated absences (5,006,729)
Accrued interest payable (1,246,881)
Other post employment benefit liability (1,955,154)
The assets and liabilities of certain internal service funds are not included in the
fund financial statement, but are included in the governmental activities of the
Statement of Net Position. 653,454
Net Position of Governmental Activities in the Statement of Net Position $ 451,958,192
The accompanying notes are an integral part of these basic financial statements.
24
CITY OF PEARLAND,TEXAS
STATEMENT OF REVENUES, EXPENDITURES AND
CHANGES IN FUND BALANCES
GOVERNMENTAL FUNDS
For the Year Ended September 30, 2013
Pearland Tax
Economic Increment Development Other Total
General Capital Development Reinvestment Authority of Governmental Governmental
Fund Debt Service Projects Fund Corporation Zone#2 Pearland Funds Funds
Revenues
Property taxes $ 11,178,950 $ 25,898,494 $ $ $ 17,397,567 $ $ $ 54,475,011
Sales and use taxes 15,919,784 7,871,396 1,150,360 24,941,540
Franchise fees 5,758,776 240,378 5,999,154
Licenses and permits 2,988,859 2,988,859
Fines and forfeitures 3,333,675 199,988 3,533,663
Charges for services 12,567,693 414,000 12,981,693
Investment earnings 54,063 19,296 18,070 40,811 12,238 2,182 7 485 154,145
Intergovernmental 3,593,783 1,001,515 4,595,298
Other 814,956 1,946,973 4,116,743 24,326 1,070,549 7,973,547
Total Revenues 52,616,756 27,864,763 7,728,596 8,350,533 17,409,805 2,182 3,670,275 117,642,910
Expenditures
Current:
General government 7,098,242 9,806 849,916 7,957,964
Public safety 26,082,178 122,479 26,204,657
Public works 7,502,356 309,833 7,812,189
Community services 3,263,146 259,741 3,522,887
Parks and recreation 7,111,012 133,064 7,244,076
Economic development 4,400,139 6,375,434 6,638,430 17 414,003
Debt Service:
Principal 86,254 11,950,504 880,000 2,720,000 15,636,758
Interest and other charges 28,232 12,667,961 1,165,585 1,671,965 15,533,743
Bond issuance costs 324,993 324,993
Capital outlay 4,088,048 17 487,825 525,218 22,101,091
Intergovernmental 4,057,682 4,057,682
Total Expenditures 55,259,468 28,676,147 18,122,651 6,445,724 6,375,434 11,040,201 1,890,418 127,810,043
Excess(deficiency)of revenues
over(under)expenditures (2,642,712) (811,384) (10,394,055) 1,904,809 11,034,371 (11,038,019) 1,779,857 (10,167,133)
Other Financing Sources(Uses)
Issuance of debt 12,060,000 12,060,000
Bond premium 331,309 331,309
Capital leases 1,179,413 1,179,413
Transfers in 3,613,122 461,726 421,615 10,997,930 20,748 15,515,141
Transfers out (1,098,667) (1,659,245) (10,997,930) (827,546) (14,583,388)
Total Other Financing Sources(Uses) 3,693,868 461,726 11,153,679 (10,997,930) 10,997,930 (806,798) 14,502,475
Net change in fund balances 1,051,156 (349,658) 759,624 1,904,809 36,441 (40,089) 973,059 4,335,342
Fund balances-beginning 17,571,961 4,992,479 13,775,963 13,461,696 4,294,046 1,848,309 4,502,287 60,446,741
Fund balances-ending $ 18,623,117 $ 4,642,821 $ 14,535,587 $ 15,366,505 $ 4,330,487 $ 1,808,220 $ 5,475,346 $ 64,782,083
The accompanying notes are an integral part of these basic financial statements.
25
CITY OF PEARLAND,TEXAS
RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES,AND
CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO THE
STATEMENT OF ACTIVITIES
For the Year Ended September 30, 2013
Net change in fund balances-total governmental funds: $ 4,335,342
Amounts reported for governmental activities in the
Statement of Activities are different because:
Governmental funds report outlays for capital assets as expenditures because
such outlays use current financial resources. In contrast,the Statement of
Activities reports only a portion of the outlay as expense. The outlay is
allocated over the assets'estimated useful lives as depreciation expense for
period. This is the amount by which depreciation of$29,360,934 exceeded
capital outlays of$22,427,041 in the current period. (6,933,893)
Governmental funds report only the proceeds from the disposal of capital
assets and not the difference between the carrying value and the accumulated
depreciation of the asset. This is the amount by which the carrying
value exceeded the accumulated depreciation. (44,911)
Capital assets contributed by developers that do not represent current assets
and are not reflected in the governmental fund financial statements 18,503,918
Capital assets net of related debt acquired as a result of
Municipal Utility Annexation 27,098,685
Governmental funds do not present revenues that are not available to pay
current obligations. In contrast,such revenues are reported in the Statement
of Activities when earned. 2,174,369
Governmental funds report bond proceeds as current financial resources. In
contrast,the Statement of Activities treats such issuance of debt as a
liability Governmental funds report repayment of bond principal as an
expenditure. In contrast,the Statement of Activities treats such repayments
as a reduction in long-term liabilities. This is the amount by which proceeds
exceeded repayments. 2,333,691
Governmental funds report bond issuance costs as expenditures. In contrast
the government-wide financial statements amortizes such a cost over the life
of the bonds 324,993
Some expenses reported in the statement of activities do not require the use of
current financial resources and these are not reported as expenditures in
governmental funds:
Accrued interest (14,977)
Amortization of bond related costs (940,048)
Compensated absences (282,486)
Capital lease activity (274,607)
Post employment benefit liability (419,768)
Internal service funds are used by management to charge the costs of certain
activities,such as property and liability insurance coverage and employee
health benefits,to individual funds. The net revenue(expense)of certain
internal service funds is reported with governmental activities. 164,075
Change in net position of governmental activities $ 46,024,383
The accompanying notes are an integral part of these basic financial statements.
26
CITY OF PEARLAND,TEXAS
STATEMENT OF NET POSITION
PROPRIETARY FUNDS
September 30, 2013
Governmental
Business-Type Activities-Enterprise Funds Activities-
Water and Solid Waste Internal
Sewer Fund Fund Total Service Fund
Assets
Current assets:
Cash and cash equivalents $ 3,670,426 $ 1,098,976 $ 4,769,402 $ 854,348
Investments 5,760,545 - 5,760,545 -
Accounts receivable,net of allowance
for doubtful accounts 3,011,164 822,342 3,833,506 63,737
Prepaid items 12,562 - 12,562 10,086
Restricted cash and cash equivalents 18,680,551 - 18,680,551 -
Restricted investments 7,999,349 - 7,999,349 -
Total current assets 39,134,597 1,921,318 41,055,915 928,171
Non-current assets:
Unamortized issuance costs 1,076,799 - 1,076,799 -
Capital assets:
Land and improvements 3,796,382 - 3,796,382 -
Construction in progress 8,918,035 - 8,918,035 -
Contractual rights to water supply 34,511,428 - 34,511,428 -
Infrastructure 300,748,324 - 300,748,324 -
Buildings and improvement 31,256,473 - 31,256,473 -
Machinery and equipment 3,706,656 - 3,706,656 -
Furniture and fixtures 106,127 - 106,127 -
Less: Accumulated depreciation (101,830,359) - (101,830,359) -
Total non-current assets 282,289,865 - 282,289,865 -
Total Assets 322,501,261 1,921,318 324,422,579 928,171
Liabilities
Current liabilities:
Accounts payable and
accrued expenses $ 4,002,839 $ 1,708,917 $ 5,711,756 $ 274,717
Accrued interest payable 411,650 - 411,650 -
Customer deposits 3,023,012 - 3,023,012 -
Compensated absences-
current portion 78,740 - 78,740 -
Bonds payable-current portion 4,920,000 - 4,920,000 -
Capital lease-current portion 84,122 - 84,122 -
Total current liabilities 12,520,363 1,708,917 14,229,280 274,717
Non-current liabilities:
Compensated absences 384,742 - 384,742 -
Capital lease obligation 176,862 - 176,862 -
Other post-employment benefits 356,544 - 356,544 -
Bonds payable,net 114,960,341 - 114,960,341 -
Total non-current liabilities 115,878,489 - 115,878,489 -
Total Liabilities 128,398,852 1,708,917 130,107,769 274,717
Net Position
Net Investment in capital assets 166,991,827 - 166,991,827 -
Restricted for debt service 1,860,731 - 1,860,731 -
Restricted for capital projects 7,681,267 - 7,681,267 -
Unrestricted 16,491,785 212,401 16,704,186 653,454
Total Net Position $ 193,025,610 $ 212,401 $ 193,238,011 $ 653,454
The accompanying notes are an integral part of these basic financial statements
27
CITY OF PEARLAND,TEXAS
STATEMENT OF REVENUES, EXPENSES AND CHANGES IN FUND NET POSITION
PROPRIETARY FUNDS
For the Year Ended September 30, 2013
Governmental
Business-Type Activities-Enterprise Funds Activities-
Water and Solid Waste Internal
Sewer Fund Fund Total Service Fund
Revenues
Charges for services $ 29,007,476 $ 8,175,198 $ 37,182,674 $ 6,532,572
Operating Expenses
Personnel services 5,042,612 - 5,042,612 -
Supplies and materials 2,752,203 - 2,752,203 -
Contractual services 7,369,515 8,317,836 15,687,351 6,881,016
Repairs and maintenance 1,669,554 - 1,669,554 4,774
Other expenses 589,398 5,950 595,348 158,285
Depreciation and amortization 9,335,337 - 9,335,337 -
Total Operating Expenses 26,758,619 8,323,786 35,082,405 7,044,075
Operating income(loss) 2,248,857 (148,588) 2,100,269 (511,503)
Non-Operating Revenues(Expenses)
Earnings on investments 94,277 612 94,889 578
Miscellaneous revenue(expense) 664,418 17,474 681,892 -
Interest expense (5,281,627) - (5,281,627) -
Total Non-Operating Revenues(Expenses) (4,522,932) 18,086 (4,504,846) 578
Loss before contributions and transfers (2,274,075) (130,502) (2,404,577) (510,925)
Capital contributions 16,273,170 - 16,273,170 -
Transfers in 218,961 - 218,961 675,000
Transfers out (1,825,714) - (1,825,714) -
Change in net position 12,392,342 (130,502) 12,261,840 164,075
Total net position-beginning 180,633,268 342,903 180,976,171 489,379
Total net position-ending $ 193,025,610 $ 212,401 $ 193,238,011 $ 653,454
The accompanying notes are an integral part of these basic financial statements
28
CITY OF PEARLAND,TEXAS Page 1 of 2
STATEMENT OF CASH FLOWS
PROPRIETARY FUNDS
For the Year Ended September 30, 2013
Governmental
Business-Type Activities-Enterprise Funds Activities-
Water and Solid Waste Internal
Sewer Fund Fund Total Service Fund
Cash Flows from Operating Activities
Receipts from customers and users $ 28,990,245 $ 8,083,250 $ 37,073,495 $ 5,345,055
Receipts from interfund transactions - - - 1,135,012
Disbursed for personnel services (5,019,856) - (5,019,856) -
Disbursed for goods and services (10,716,040) (7,926,751) (18,642,791) (7,084,133)
Net cash provided by(used in)
operating activities 13,254,349 _ 156,499 13,410,848 (604,066)
Cash Flows From Noncapital
Financing Activities
Transfers from funds 218,961 - 218,961 675,000
Transfers to other funds (1,825,714) - (1,825,714) -
Cash received from non-operating revenues 644,316 - 644,316 -
Net cash provided by(used in)
noncapital financing activities (962,437) - (962,437) 675,000
Cash Flows from Capital and
Related Financing Activities
Proceeds from the sale of equipment 20,102 - 20,102 -
Capital grants and contributions 5,942,763 - 5,942,763 -
Principal payments on debt (4,725,000) - (4,725,000) -
Principal payments on leases (81,380) - (81,380) -
Acquisition and construction of -
capital assets (13,866,825) - (13,866,825) -
Net cash used in capital and related
financing activities (12,710,340) - (12,710,340) -
Cash Flow from Investing Activities
Purchase of investments (10,776,720) - (10,776,720) -
Sales of investments 13,713,512 - 13,713,512 -
Interest received 108,075 612 108,687 578
Interest paid (5,305,812) - (5,305,812) -
Net cash provided by(used in)
investing activities (2,260,945) 612 (2,260,333) 578
Net increase(decrease)in cash and equivalents (2,679,373) 157,111 (2,522,262) 71,512
Cash and equivalents,beginning 25,030,350 _ 941,865 25,972,215 782,836
Cash and equivalents,end $ 22,350,977 $ 1,098,976 $ 23,449,953 $ 854,348
Unrestricted cash and equivalents $ 3,670,426 $ 1,098,976 $ 4,769,402 $ 854,348
Restricted cash and equivalents 18,680,551 - 18,680,551 -
$ 22,350,977 $ 1,098,976 $ 23,449,953 $ 854,348
The accompanying notes are an integral part of these basic financial statements
29
CITY OF PEARLAND,TEXAS Page 2 of 2
STATEMENT OF CASH FLOWS
PROPRIETARY FUNDS
For the Year Ended September 30, 2013
Governmental
Business-Type Activities-Enterprise Funds Activities-
Water and Solid Waste Internal
Sewer Fund Fund Total Service Fund
Reconciliation of operating income(loss)to net
cash provided by(used in)operating activities
Operating income(loss) $ 2,248,857 $ (148,588) $ 2,100,269 $ (511,503)
Adjustments to reconcile operating income to
net cash provided by(used in)operating activities:
Depreciation and amortization 9,335,337 - 9,335,337 -
Recovery of allowance - 17,474 17,474 -
(Increase)decrease in accounts receivable (249,131) (109,422) (358,553) (52,505)
(Increase)decrease in prepaid expenses 50,559 - 50,559 (10,086)
Increase(decrease)in accounts payable 1,638,146 397,035 2,035,181 (29,972)
Increase(decrease)in compensated absences (75,396) - (75,396) -
Increase(decrease)in customer deposits 231,900 - 231,900 -
Increase(decrease)in other post
employment benefits 74,077 - 74,077 Net cash provided by(used in)
operating activities $ 13,254,349 $ 156,499 $ 13,410,848 $ (604,066)
Summary of non-cash transactions
Contributed capital assets $ 10,330,407 $ - $ 10,330,407 $ -
Change in value of investments $ 9,791 $ - $ 9,791 $ -
The accompanying notes are an integral part of these basic financial statements.
30
CITY OF PEARLAND,TEXAS
NOTES TO FINANCIAL STATEMENTS
Note 1 -Summary of Significant Accounting Policies
The City of Pearland, Texas (the "City") was incorporated in December 1959 and adopted a "Home Rule
Charter" February 6, 1971 The Charter, as amended, provides for a Council-Manager form of government
and provides services authorized by its charter These services include police, fire and emergency medical,
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. Fire protection is provided through a combination full-time/volunteer and part-time/volunteer
department. The City is governed by an elected mayor and five-member Council.
The Mayor and all members are elected at large. The Mayor is allowed to vote only in case of a tie vote. The
Mayor and each Council member hold office for a period of three years and until his/her successor is elected
and qualified. Council members shall be limited to two full consecutive terms of office and there is no
limitation on the office of the Mayor The City Manager is appointed by Council and is responsible for
implementation of Council policy,execution of the laws,and all day-to-day operations of the City
A. Financial Reporting Entity
The City is an independent political subdivision of the State of Texas governed by an elected council and a
mayor and is considered a primary government. As required by accounting principles generally accepted in
the United States of America, these financial statements have been prepared based on considerations
regarding the potential for inclusion of component units, which are other entities or organizations that are
fmancially accountable to the City Blended component units are component units that are considered so
closely related to the legal entity that the blended component unit funds appear as if the funds are integral parts
of the primary government. Based upon GASB 61 criteria, the City's fmancial statements include the
following blended component units. the Pearland Economic Development Corporation (PEDC); the Tax
Increment Reinvestment Zone (TIRZ #2); and the Development Authority of Pearland (DAP). No other
entities have been included in the City's reporting entity Additionally, as the City is considered a
primary government for fmancial reporting purposes, 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 fmancial reporting entity status is that of a primary government are
that it has a separately elected Governing body; it is legally separate; and it is fiscally independent of other
state and local governments. Additionally 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
fmancial statements to be misleading or incomplete. The component units discussed below are included in
the City's reporting entity because of the significance of their operational or fmancial relationships with the
City The component units do not issue separate fmancial statements.
31
CITY OF PEARLAND,TEXAS
NOTES TO FINANCIAL STATEMENTS(continued)
Note 1 -Summary of Significant Accounting Policies(continued)
A. Financial Reporting Entity(continued)
Blended Component Units.
Pearland Economic Development Corporation(PEDC)
In 1995, the citizens of Pearland established the Pearland Economic Development Corporation (PEDC) to
help the citizens and public officials of Pearland attract new businesses and to help existing businesses to
expand. The mechanism to fund the operations of the corporation is through a sales tax levy at a rate of one-
half of one percent(1/2%). The PEDC is fiscally dependent upon the primary government because,besides
appointing the Board,the City Council also must approve the PEDC's budget and any debt issuances.
Tax Increment Reinvestment Zone(TIRZ#2)
In 1998, the Tax Increment Reinvestment Zone (TIRZ#2) was established for a period of 30 years or until
dissolved by the City The TIRZ#2 provides tax-assisted property development and/or redevelopment in a
specific geographic area known as Shadow Creek Ranch, in accordance with applicable state laws. Besides
appointing Board members, the City Council must also approve any debt issuances done on behalf of the
TIRZ. A major land owner within the City of Pearland sits on the Board of Directors for the TIRZ#2.
Development Authority of Pearland
In 2004,the City created the Development Authority of Pearland to provide financing for the development of
the TIRZ#2. Proceeds from bond sales are to be used to reimburse developers and fund a debt service reserve.
Besides appointing Board members, the City Council must also approve any debt issuances done on behalf
of the Development Authority
Related Organizations
The City Council of Pearland appoints the voting majority of members to the board of directors for the
Pearland Municipal Management District No. 1, Pearland Municipal Management District No.2 and Lower
Kirby District. However, the City's accountability for these entities does not extend beyond making
appointments. There is no financial benefit/burden relationship or the ability to impose its will on these
entities.
B. Government-wide and Fund Financial Statements
The government-wide financial statements (i.e., the Statement of Net Position and the Statement of
Activities) report information about the City as a whole. These statements include all activities of the
primary government and its blended component units. For the most part,the effect of interfund activity has
been eliminated from the government-wide statements. Exceptions to this general rule are charges between
the City's business-type and governmental funds. Elimination of these charges would distort the direct costs
and program revenues reported for the various functions concerned. Governmental activities, which
normally are supported by taxes and intergovernmental revenues,are reported separately from business-type
activities,which rely to a significant extent on fees and charges for support.
The statement of activities demonstrates the degree to which the direct expenses of a given function or
segment is offset by program revenues. Direct expenses are those that are clearly identifiable with a specific
function or segment. Program revenues include(1)charges to customers or applicants who purchase, use or
directly benefit from goods, services, or privileges provided by a given function or segment and (2)grants
and contributions that are restricted to meeting the operational or capital requirements of a particular
function or segment. Taxes and other items not properly included among program revenues are reported
instead as general revenues.
32
CITY OF PEARLAND,TEXAS
NOTES TO FINANCIAL STATEMENTS(continued)
Note 1 -Summary of Significant Accounting Policies (continued)
C. Measurement Focus,Basis of Accounting and Financial Statement Presentation
The government-wide financial statements and all proprietary funds are reported using the economic
resources measurement focus and the accrual basis of accounting Revenues are recognized when earned
and expenses are recorded when a liability is incurred, regardless of the timing of the related cash flows.
With this measurement focus, all assets and all liabilities associated with the operations of these activities
are included on the statement of net position. Proprietary fund-type operating statements present
increases(i.e.,revenues) and decreases(i.e.,expenses)in net position.
The governmental fund fmancial statements are presented on a current financial resources measurement
focus and modified accrual basis of accounting This is the manner in which these funds are normally
budgeted. Revenues are recognized as soon as they are both measurable and available. Measurable means
that the amount of the transaction can be determined and available means collectible within the current period
or soon enough thereafter to pay liabilities of the current period. For this purpose, the City considers
revenues to be available if they are collected within 60 days of the end of the current fiscal period. Revenues
susceptible to accrual include property taxes, sales and use taxes, franchise fees, charges for services and
interest on temporary investments. Other receipts become measurable and available when cash is received
by the government and are recognized as revenue at that time.
Under modified accrual accounting, expenditures are recognized in the accounting period in which the
liability is incurred, if measurable, except for interest on general long-term debt, which is recognized when
due. Since the governmental fund statements are presented on a different measurement focus and basis of
accounting than the government-wide statements' governmental activities column, a reconciliation is
presented which briefly explains the adjustments necessary to reconcile fund-based financial statements
with the governmental activities column of the government-wide presentation.
In the fund fmancial statements,the accounts of the City are organized on the basis of funds,each of which is
considered a separate accounting entity The operations of each fund are accounted for with a separate set of
self-balancing accounts that comprise its assets, liabilities, fund equity, revenues, and expenditures or
expenses,as appropriate.Following is a description of the various funds.
Governmental funds are those funds through which most governmental functions are typically financed. The
City reports the following major governmental funds:
The General Fund is used to account for all financial transactions not properly includable in other funds.
The principal sources of revenues include local property taxes, sales and franchise taxes, licenses and
permits,fines and forfeitures, and charges for services. Expenditures include general government,community
services,public works,parks and recreation,economic development,and public safety
The Debt Service Fund is used to account for the payment of interest and principal on all general
obligation bonds and other governmental long-term debt of the City The primary source of revenue for
debt service is local property taxes. The Debt Service Fund is considered a major fund for reporting
purposes.
The Capital Projects Fund is used to account for the expenditures of resources accumulated on a pay-as-you
go basis and the sale of bonds and related interest earnings for capital improvement projects. The Capital
Projects Fund is considered a major fund for reporting purposes.
33
CITY OF PEARLAND,TEXAS
NOTES TO FINANCIAL STATEMENTS(continued)
Note 1 -Summary of Significant Accounting Policies (continued)
C. Measurement Focus,Basis of Accounting and Financial Statement Presentation(continued)
The Pearland Economic Development Corporation fund is used to account for the revenues and expenditures
associated with the half-cent sales tax for economic development approved by the voters in 1995 Use of
funds are governed by State Law The Pearland Economic Development Corporation is considered a major
fund for reporting purposes.
The Tax Increment Reinvestment Zone #2 fund is used to account for the incremental property tax revenues in
the specific geographical area and use thereof from the participating taxing entities in the Zone. The Tax
Increment Re-investment Zone#2 is considered a major fund for reporting purposes.
The Development Authority of Pearland fund is used to account for the financing of the development of the
TIRZ#2. The Development Authority of Pearland is considered a major fund for reporting purposes.
The City's Business-type activities consist of the following funds.
The Enterprise Funds are used to account for the operations that provide water and sewer utility services as
well as solid waste collection services to the public. The services are financed and operated in a manner
similar to private business enterprises where the intent of the governing body is that the costs (expenses
including depreciation) of providing goods or services to the general public on a continuing basis will be
financed or recovered primarily through user charges.
Additionally, the City maintains Internal Service Funds used to account for the financing of goods or
services provided by one department or agency to other departments or agencies of the City on a cost-
reimbursement basis. Services provided by the Internal Service Funds include property and liability
insurance coverage and employee health benefits. The Internal Service Funds are included in
governmental activities for government-wide reporting purposes.
All assets, liabilities, equities, revenues, expenses and transfers relating to the government's business-type
activities are accounted for through proprietary funds. The measurement focus is on determination of net
income, financial position and cash flows.
As a general rule, the effect of interfund activity has been eliminated from the government-wide financial
statements. Exceptions to this general rule are charges between the City's water and sewer function and
various other functions of the government. Elimination of these charges would distort the direct costs and
program revenue reported for the various functions concerned.
Amounts reported as program revenues include. (1) charges to customers or applicants for goods, services,
or privileges provided, (2)operating grants and contributions, and (3)capital grants and contributions,
including special assessments. Internally dedicated resources are reported as general revenues rather than as
program revenue.Likewise,general revenue includes all taxes.
Proprietary funds distinguish operating revenues and expenses from nonoperating items. Operating revenues
and expenses generally result from providing services and producing and delivering goods in connection with
a proprietary fund's principal ongoing operations. The principal operating revenues of the City's Enterprise
Funds are charges to customers for sales and services. Operating expenses for Enterprise Funds include the
cost of sales and services, administrative expenses, and depreciation on capital assets. All revenue and
expenses not meeting this definition are reported as nonoperating revenue and expenses.
34
CITY OF PEARLAND,TEXAS
NOTES TO FINANCIAL STATEMENTS(continued)
Note 1 - Summary of Significant Accounting Policies(continued)
D. Fund Balance Working Capital Policies
Fund balances are classified as follows
Nonspendable — Amounts that cannot be spent either because they are not in a spendable form or
because they are legally or contractually required to be maintained intact.
Restricted —Amounts that can be spent only for specific purposes because of the City Charter, City
Code, State or Federal laws, or externally imposed conditions by grantors or creditors.
Committed —Amounts that can be used only for specific purposes determined by ordinances passed
by City Council, the City's highest level of decision making authority Commitments may be
modified or rescinded only through ordinances approved by City Council.
Assigned—Amounts that are intended to be used for specific purposes, but do not meet the definition
of restricted or committed fund balance. Under the City's policy, amounts can be assigned by the
City's Director of Finance.
Unassigned—All amounts not included in other spendable classifications.
When multiple categories of fund balance are available for an expenditure, the City would typically use
Restricted fund balances first, followed by Committed, and then Assigned, but reserves the right to
selectively spend from any of the categories, including Unassigned based upon the individual
circumstances.
The City Council has authorized the Director of Finance as the official authorized to assign fund balance
to a specific purpose. The City shall maintain the fund balance and working capital of the various
operating funds at the following levels
General Fund Unassigned Fund Balance
The City shall maintain the General Fund unassigned fund balance equivalent to 2 months of
recurring operating expenditures,based on current year expenditures. If the fund balance exceeds this
amount, funding non-recurring expenditures in the following fiscal year may be used to draw down
the balance.
Water/Sewer Unreserved Working Capital
The City shall maintain a working capital sufficient to provide for reserves for emergencies and
revenue shortfalls. A cash equivalent operating reserve will be established and maintained at 25% of
the current year's budget appropriation for recurring operating expenses.
The cash operating reserve is derived by dividing the total cash equivalents balance by recurring
operating expenses.
Use of Fund Balance/Working Capital
Fund balance/Working Capital shall only be used for emergencies, non-recurring
expenditures/expenses or major capital purchases that cannot be accommodated through current year
savings. Should such use reduce balances below the level established as the objective for that fund,
restoration recommendations will accompany the request/decision to utilize said balances.
35
CITY OF PEARLAND,TEXAS
NOTES TO FINANCIAL STATEMENTS(continued)
Note 1 -Summary of Significant Accounting Policies (continued)
D. Fund Balance Working Capital Policies(continued)
Debt Service Fund Total Fund Balance
The City shall maintain the debt service fund balance at 10% of annual debt service requirements or a
fund balance reserve as required by bond ordinances,whichever is greater
Property Insurance Fund Unrestricted Net Position
The Property Insurance Fund accounts for uninsured and deductible claims for the City's property
and liability insurance. Claims cannot be reasonably predicted and budgeted for; therefore the fund
will maintain a balance that approximates the prior average annual expense for the last three years,
excluding extra-ordinary expenses in the fund.
Employee Benefits Fund Unrestricted Net Position
The Employee Benefits Fund is funded through City and employee contributions. Estimated costs
shall be determined during each budget year and the contributions adjusted accordingly There is no
minimum balance for this fund.
Economic Development Corporation
As sales tax revenue fluctuates due to changes in economic conditions, the PEDC shall maintain a
fund balance of no less than 10%of budgeted sales tax revenues.
Water/Sewer Revenue Debt Coverage Reserves
Revenues shall be maintained at 1 15 times coverage in a fiscal year where the water/sewer fund is
not issuing additional debt and 1 4 times coverage in a year where debt is anticipated to be issued.
Bond Issuance Reserves
Debt service reserves should be maintained for each bond issue as required by bond covenants.
Contingency Fund
Pursuant to the City Charter, a provision shall be made within the annual budget for a contingency
fund in an amount not more than seven percent of the total budget (General Fund) to be used in case
of unforeseen items of expenditure.
E. Cash and Cash Equivalents
The City's cash and cash equivalents are considered to be cash on hand, demand deposits, and short-term
investments with original maturities of three months or less from the date of acquisition. For the purpose of
the statement of cash flows, the Proprietary Fund Types consider temporary investments with maturity of
three months or less when purchased to be cash equivalents.
The City pools cash resources of its various funds to facilitate the management of cash. Cash applicable 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
accounts and securities and disclosed as part of the City's investments.
36
CITY OF PEARLAND,TEXAS
NOTES TO FINANCIAL STATEMENTS(continued)
Note 1 -Summary of Significant Accounting Policies (continued)
E. Cash and Cash Equivalents(continued)
The City pools excess cash of the various individual funds to purchase these 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 their respective share of investments in the pooled investments.
F Investments
Investments consist of United States (U S) Government Agency securities and Certificates of Deposit
with original maturities greater than three months from date of acquisition. The City reports all
investments at fair value based on quoted market prices at year-end date.
G. Receivables
All receivables are reported at their gross value, and where appropriate,are reduced by the estimated portion
that is expected to be uncollectible. Trade accounts receivable in excess of 120 days comprise the trade
accounts receivable allowance for uncollectibles.
H. Due to and Due from Other Funds
Interfund receivables and payables arise from interfund transactions and are recorded by all funds affected
in the period in which the transactions are executed. These receivables and payables are classified as "due
from other funds" or"due to other funds" Interfund receivables and payables which are not expected to be
paid within 12 months are classified as loans from/loans to other funds.
I. Inventories and Prepaid Items
In''entory, which consists of fuel and auto parts for use in the City's vehicles, is stated at cost(first-in, first-
out method). Expenditures are recognized as the fuel and auto parts are consumed rather than when
purchased.
J. Restricted Assets
Certain proceeds of the Water and Sewer Enterprise Fund revenue bonds and certain resources set aside for
their repayment are classified as restricted assets on the statement of net position because their use is limited by
applicable bond covenants. Certain resources are also set aside for repayment of Pearland Economic
Development Corporation Bonds and are reported as restricted assets.
K. Capital Assets
Capital assets which include property, plant, equipment and infrastructure, are reported in the applicable
governmental or business-type activities columns in the government-wide financial statements. The City
defines capital assets as assets with an initial, individual cost of more than $5,000 and an estimated useful
life of three years or more. Such assets are recorded at historical cost or estimated historical cost if
purchased or constructed. Donated capital assets are recorded at estimated fair market value at the date of
donation. The costs of normal maintenance and repairs that do not add to the value of the asset or materially
37
CITY OF PEARLAND,TEXAS
NOTES TO FINANCIAL STATEMENTS(continued)
Note 1 - Summary of Significant Accounting Policies (continued)
K. Capital Assets(continued)
extend assets' lives are not capitalized. Additionally, at September 30, 2013 the City reports intangible
assets under business-type activities, which include $34.5 million in surface water rights with a life of 25
years.
Property, plant, equipment and intangible assets are depreciated using the straight-line method over the
following useful lives:
Asset Years
Buildings and improvements 10-45
Machinery and equipment 3-15
Infrastructure 10-50
Intangible Assets-Water Rights 25
L. Compensated Absences
It is the City's policy to permit employees to accumulate earned but unused vacation, sick and holiday pay
benefits.
Employees hired prior to October 1, 2005, earn vacation leave at the rate of 15 days per year from 1 to
15 years of service,20 days per year for service of 16 to 19 years,and 25 days per year for service of 20 years
or more. Employees, who are not classified and are hired after October 1, 2005, earn vacation at a rate of
10 days per year from 1-6 years of service, 15 days per year for 7-15 years of service and 20 days for 16 and
over years of service. Employees cannot carry over unused vacation from one year to the next with the
exception of police department personnel in classified positions. Employees are required to use their vacation
in the year it is earned. Employees who are unable to use their vacation due to departmental scheduling or
staffing problems, may, with the City Manager's approval, receive compensation for half of the remaining
balance up to a maximum of forty(40)hours.
City employees receive 12 paid holidays per year Employees required to work on a City-observed holiday
may be paid or may elect to receive compensatory time off for the holiday Overtime is earned at one and
one-half times the regular rate of pay for non-exempt employees. Employees may be paid or receive
compensatory time. The maximum accrual for compensatory time is 120 hours, including employees
involved in public safety
All sick leave benefits are accumulated and paid to employees, in good standing, upon separation from the
City not to exceed 720 hours for employees hired prior to July 24,2006, and 360 hours for employees hired
after Vacation, sick and holiday pay benefits are accrued when incurred in the government-wide and
proprietary fund financial statements. A liability for these amounts is reported in governmental funds only if
they have matured,for example,as a result of employee resignations and retirements.
M. Estimates
The preparation of financial statements, in conformity with generally accepted accounting principles, requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of fmancial statements and the reported amounts of
revenues and expenditures during the reporting period. Actual results could differ from those estimates.
38
CITY OF PEARLAND,TEXAS
NOTES TO FINANCIAL STATEMENTS(continued)
Note 1 - Summary of Significant Accounting Policies(continued)
N. Comparative Data
Comparative data for the prior year have been presented in certain sections of the accompanying financial
statements in order to provide an understanding of changes in the City's financial position and operations.
O. Current Accounting Pronouncements
In December 2010, the GASB issued Statement No 61, The Financial Reporting Entity Omnibus — an
amendment of GASB Statements No 14 and No 34 This Statement is intended to improve financial
reporting for a governmental financial reporting entity The requirements of this Statement result in
financial reporting entity fmancial statements being more relevant by improving guidance for including,
presenting, and disclosing information about component units and equity interest transactions of a
financial reporting entity This Statement provides amendments to GASB No 14, "The Financial
Reporting Entity," and GASB No 34, "Basic Financial Statements — and Management's Discussion and
Analysis—for State and Local Governments." The requirements of this Statement are effective for fiscal
periods beginning after June 15,2012. The City implemented this statement in fiscal year 2013
As a result of implementation, the City determined that the three previously identified discretely
presented component units met the criteria for inclusion as blended component units. These blended
component units have been reflected as major governmental funds and are included in governmental
activities in the government-wide statements. This implementation resulted in a retroactive adjustment to
reduce beginning net position by $43,231,585 Additionally, as reflected in Notes 4 and 5, beginning
(2012) capital assets and long-term debt have been restated to include the blending of the component
units.
In December 2010, the GASB issued Statement No. 62, Codification of Accounting and Financial
Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements This
Statement is intended to improve financial reporting by contributing to the GASB's efforts to codify all
sources of generally accepted accounting principles for state and local governments so that they derive
from a single source. This requirement will bring the authoritative accounting and fmancial reporting
literature together in one place. This Statement will eliminate the need for financial statement preparers
and auditors to determine which FASB and AICPA pronouncement provisions apply to state and local
governments, resulting in more consistent application of applicable guidance. The requirements of this
Statement are effective for fiscal periods beginning after December 15, 2011 The City implemented this
statement in fiscal year 2013,this had no effect on the financial statements.
In June 2011, the GASB issued Statement No. 63, Financial Reporting of Deferred Outflows of
Resources, Deferred Inflows of Resources, and Net Position. This statement is intended to improve
financial reporting by standardizing the presentation of deferred outflows of resources and deferred
inflows of resources and their effects on a government's net position which required the City to change
references to net assets to net position. It alleviates uncertainty about reporting those financial statement
elements by providing guidance where none previously existed. The requirements of this Statement are
effective for fiscal periods beginning after December 15, 2011 The City implemented this statement in
fiscal year 2013,which required the City to change references to net assets to net position.
39
CITY OF PEARLAND,TEXAS
NOTES TO FINANCIAL STATEMENTS(continued)
Note 1 -Summary of Significant Accounting Policies(continued)
O. Current Accounting Pronouncements(continued)
Future Accounting Pronouncements
In March 2012, the GASB issued Statement No 65,Items Previously Reported as Assets and Liabilities
This statement establishes accounting and financial reporting standards that reclassify, as deferred
outflows of resources or deferred inflows of resources, certain items that were previously reported as
assets and liabilities and recognizes, as outflow of resources or inflows of resources, certain items that
were previously reported as assets and liabilities. This statement also provides other financial reporting
guidance related to the impact of the financial statement elements deferred outflows of resources and
deferred inflows of resources, such as changes in the determination of the major fund calculations and
limiting the use of the term"deferred"in financial statement presentations. This statement is effective for
periods beginning after December 15, 2012. The City anticipates implementation of this statement in
fiscal year 2014
Also in March of 2012, the GASB issued Statement No 66, Technical Corrections — 2012 — an
amendment of GASB Statements No 10 and No. 62 The objective of this statement is to improve
accounting and financial reporting for a government financial reporting entity by resolving conflicting
guidance that resulted from issuance of two pronouncements, Statements No 54, "Fund Balance
Reporting and Governmental Fund Type Definitions" and No 62, "Codification of Accounting and
Financial Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA
Pronouncements." The City anticipates implementation of this statement in fiscal year 2014
In June of 2012, the GASB issued Statement No 67, Financial Reporting for Pension Plans — an
amendment of GASB Statement No 25 This statement is intended to improve financial reporting by state
and local governmental pension plans and replaces the requirements of Statements No 25, "Financial
Reporting for Defined Benefit Pension Plans and Note Disclosures for Defined Contribution Plans" and
No. 50, "Pension Disclosures." This statement is effective for financial statements for fiscal years
beginning after June 15,2013 The City anticipates implementation of this statement in fiscal year 2014
Also in June of 2012, the GASB issued Statement No 68, Accounting and Financial Reporting for
Pensions — an amendment of GASB Statement No. 27 The primary objective of this statement is to
improve accounting and financial reporting by state and local governments for pensions. It replaces the
requirements of Statement No. 27, "Accounting for Pensions by State and Local Governmental
Employers" as well as the requirements of Statement No 50, "Pension Disclosures." This statement is
effective for financial statements for fiscal years beginning after June 15, 2014 The City anticipates
implementation of this statement in fiscal year 2015
GASB issued Statement No 69, Government Combinations and Disposals of Government Operations
This statement establishes accounting and financial reporting standards related to government
combinations and disposals of government operations. The term, "government combinations," includes a
variety of transactions referred to as mergers, acquisitions, and transfers of operations. This statement is
effective for government combinations and disposals of government operations occurring in financial
reporting periods beginning after December 15, 2013 The City anticipates implementation of this
statement in fiscal year 2015
40
CITY OF PEARLAND,TEXAS
NOTES TO FINANCIAL STATEMENTS(continued)
Note 1 - Summary of Significant Accounting Policies(continued)
P Current Accounting Pronouncements(continued)
Future Accounting Pronouncements(continued)
GASB issued Statement No 70, Accounting and Financial Reporting for Nonexchange Financial
Guarantees This Statement requires a government that extends a nonexchange financial guarantee to
recognize a liability when qualitative factors and historical data, if any, indicate that it is more likely than
not that the government will be required to make a payment on the guarantee. This Statement also
requires a government that has issued an obligation guaranteed in a nonexchange transaction to report the
obligation until legally released as an obligor, and requires a government that is required to repay a
guarantor for making a payment on a guaranteed obligation or legally assuming the guaranteed obligation
to continue to recognize a liability until legally released as an obligor This statement is effective for
reporting periods beginning after June 15, 2013 The City anticipates implementation of this statement, if
applicable in fiscal year 2014
GASB issued Statement No 71, Pension Transition for Contributions Made Subsequent to the
Measurement Date (an amendment of GASB Statement No 68) This Statement amends Statement
No 68 related to transition provisions for certain pension contributions made to defined benefit pension
plans prior to implementation of Statement No 68 by employers and nonemployer contributing entities.
This statement is effective for fiscal years beginning after June 15, 2014 The provisions of this
Statement should be applied simultaneously with the provisions of Statement No. 68. The City
anticipates implementation of this statement in fiscal year 2015
Note 2-Deposits (Cash) and Investments
Authorization for Deposits and Investments
The Texas Public Funds Investment Act(PFIA), as prescribed in Chapter 2256 of the Texas Government
Code, regulates deposits and investment transactions of the City
In accordance with applicable statutes, the City has a depository contract with an area bank (depository)
providing for interest rates to be earned on deposited funds and for banking charges the City incurs for
banking services received. The City may place funds with the depository in interest and non-interest
bearing accounts. State law provides that collateral pledged as security for bank deposits must have a
market value of not less than the amount of the deposits and must consist of: (1)obligations of the United
States or its agencies and instrumentalities; (2)direct obligations of the State of Texas or its agencies,
(3) other obligations, the principal and interest on which are unconditionally guaranteed or insured by the
State of Texas; and/or (4)obligations 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. City policy requires the collateralization
level to be at least 102% of market value of principal and accrued interest.
The Council has adopted a written investment policy regarding the investment of City funds as required
by the Public Funds Investment Act (Chapter 2256, Texas Government Code). The investments of the
City are in compliance with the City's investment policy The City's investment policy is more restrictive
than the PFIA requires. It is the City's policy to restrict its direct investments to obligations of the U S
41
CITY OF PEARLAND,TEXAS
NOTES TO FINANCIAL STATEMENTS(continued)
Note 2-Deposits (Cash) and Investments(continued)
Authorization for Deposits and Investments (continued)
Government or U S. Government Agencies, obligations of the State of Texas, counties, cities, and other
political subdivisions rated not less than A, fully collateralized certificates of deposit, mutual funds,
repurchase agreements and local government investment pools. The maximum maturity allowed is five
years from date of purchase. The City's investment policy does not allow investments in collateralized
mortgage obligations.
Deposit and Investment Amounts
The City's cash and investments are classified as. cash and cash equivalents, investments, and restricted
cash and investments. The cash and cash equivalents include cash on hand, deposits with financial
institutions, and short-term investments, which have maturities at purchase of less than three months,
consisting mainly of certificates of deposit. The restricted cash and investments are assets restricted for
specific use. The restricted cash and investments include cash on deposit with financial institutions. For
better management of cash, the City pools the cash, based on the City's needs, into either bank/sweep
accounts, or in longer-term investments as allowed by the City's investment policy However, each
fund's balance of cash and investments is maintained in the books of the City
The deposit and investment policies for the Pearland Economic Development Corporation, TIRZ No. 2
and Development Authority of Pearland are substantially the same as the City
The following schedule shows the City's recorded cash deposits and investments at year-end.
Total
Fair
Value
Cash deposits $ 73,177,112
Investments.
FFCB discount note 7,513,881
FHLB discount note 3,012,122
FHLMC discount note 5,018,755
FNMA discount note 2,521,657
Certificates of deposit 16,608,404
$ 107,851,931
Quoted market prices are the basis of the fair value for U S Treasury and Agency securities. The amount
of increase or decrease in the fair value of investments during the current year is included in the City's
investment earnings as follows
Interest income $ 245,070
Unrealized gain on temporary investments 4,542
Investment earnings $ 249,612
42
CITY OF PEARLAND,TEXAS
NOTES TO FINANCIAL STATEMENTS(continued)
Note 2-Deposits (Cash) and Investments (continued)
Custodial Credit Risk
For deposits, custodial credit risk is the risk that in the event of a bank failure,the City's deposits may not
be returned to it. The City's investment policy follows state statutes, which require that all deposits in
financial institutions be fully collateralized or insured. For investments, custodial credit risk is the risk
that in the event of the failure of a counterparty, the City will not be able to recover the value of its
investments or collateral securities that are in the possession of an outside party
To control custody and safekeeping risk, the City shall have pledged collateral held at an independent
third-party institution and evidenced by a written receipt. The value of the pledged collateral should be
marked to market monthly and shall be at least 102 percent of par or market value of the investments,
whichever is greater Substitutions of collateral shall meet the requirements of the collateral agreement.
Collateral shall not be released until the replacement collateral has been received, if the release of the
collateral should result in the value being under 102 percent of par value. The pledge of collateral shall
comply with the City's investment policy The City was not exposed to any custodial credit risk during
the year
Interest Rate Risk
At year-end, the City had the following investments subject to interest rate risk, under U S generally
accepted accounting principles.
Weighted
Average
Total Maturity
Fair Value (Days)
Temporary investments.
FFCB discount note $ 7,513,881 332
FHLB discount note 3,012,122 361
FHLMC discount note 5,018,755 996
FNMA discount note 2,521,657 314
$ 18,066,415
Portfolio weighted average maturity 519
The City's investment policy specifies a maximum weighted average maturity for the portfolio of
900 days or 30 months based on the stated maturity date of the investments. When including cash
investments,the weighted average maturity for the City is 165 days.
To the extent possible, the City attempts to match investments with anticipated cash flow requirements.
The City does not directly invest in securities with a stated maturity date more than five years or
1,825 days from date of purchase. The settlement date is considered the date of purchase.
43
CITY OF PEARLAND,TEXAS
NOTES TO FINANCIAL STATEMENTS(continued)
Note 2-Deposits (Cash) and Investments (continued)
Concentration of Credit Risk
With the exception of U.S Treasury securities and interest-bearing checking accounts that are fully
collateralized, no more than 75 percent of the City's total investment portfolio will be invested in a single
security type. As of September 30, 2013, the City had investments in U S. Agency securities that
exceeded five percent of the total investment portfolio at year-end.
Percentage of
Total
Total Investment
Investment Type Fair Value Portfolio
FFCB discount note $ 7,513,881 41%
FHLB discount note 3,012,122 17%
FHLMC discount note 5,018,755 28%
FNMA discount note 2,521,657 14%
Total $ 18,066,415 100%
Credit Risk
Federal Home Loan Bank, Federal Home Loan Mortgage Corporation, Federal Farm Credit Bank and the
Federal National Mortgage Association Discount Notes were rated AA+ by Standard & Poor's, AAA by
Fitch Ratings, and Aaa by Moody's Investors Service.
All credit ratings meet acceptable levels required by guidelines prescribed by both the PFIA and the
City's investment policy A public fund investment pool must be continuously rated no lower than AAA
or AAAm or no lower than investment grade by at least one nationally-recognized rating service and have
a weighted average maturity no greater than 90 days. Investments with minimum required ratings do not
qualify as authorized investments during the period the investment does not have the minimum rating.
The city had no investments in an investment pool.
Restricted Assets
The Enterprise Funds have restricted certain cash and investments for customer deposits, reserve and
emergency expenditures, capital improvements, cash restricted for others, and revenue bond debt service.
Because of certain bond covenants, the Enterprise Fund is required to maintain prescribed amounts of
resources that can be used only to service outstanding debt. Some of the proceeds from debt or from funds
received from acquisition of Municipal Utility Districts are restricted for use on capital projects
Revenue bond debt service $ 2,988,697
Customer deposits 3,023,012
Capital improvements 21,384,506
Total $ 27,396,215
44
CITY OF PEARLAND,TEXAS
NOTES TO FINANCIAL STATEMENTS(continued)
Note 3-Receivables
Receivables at September 30,2013,consisted of the following:
Governmental Funds:
Pearland Tax Increment
Capital Economic Reinvestment Development Other
General Debt Service Projects Development Zone Authority of Non-Major
Fund Fund Fund Corporation Developments Pearland Funds Total
Receivables:
Property taxes,including
penalties and interest $ 536,148 $ 873,642 $ - $ - $ 130,541 $ - $ - $ 1,540,331
Lease receivable - 8,835,487 - - - 8,835,487
Sales and other taxes 3,938,047 - 1,344,827 - 32,981 5,315,855
Fines and forfeitures 930,995 - - - - - 6,953 937,948
Interest 7,801 771 123 8,010 12 71 16,788
Other 693,515 - 868,118 73,147 - - 2,822,079 4,456,859
Allowance for uncollectibles (11,609) (17,071) - - - (7,850) (36,530)
$ 6,094,897 $ 9,692,829 $ 868,241 $ 1,425,984 $ 130,541 $ 12 $ 2,854,234 $ 21,066,738
Enterprise Funds:
Water and Solid Waste Internal Service
Sewer Fund Fund Fund Total
Receivables.
Customer accounts $ 3,020,156 $ 867,157 $ - $ 3,887,313
Interest 25,938 - - 25,938
Other 19,088 - 63,737 82,825
Allowance for uncollectibles (54,018) (44,815) _ (98,833)
$ 3,011,164 $ 822,342 $ 63,737 $ 3,897,243
Governmental funds report receivables for revenues that are not considered to be available to liquidate
liabilities of the current period. At the end of the current fiscal year, the various components of
unavailable/unearned revenue reported in the governmental funds were as follows:
Unavailable Unearned
Delinquent property taxes receivable-general fund $ 470,445 $ -
Delinquent property taxes receivable-debt service fund 745,491 -
Lease revenues-principal 6,809,424 -
Municipal fines and forfeitures 937,948 -
Street assessments 2,484,917 -
Other 69,785 -
Lease interest revenues - 2,026,064
Grants and revenues prior to meeting all eligibility requirements - 1,607,216
Total Unavailabe/Unearned for Governmental Funds $ 11,518,010 $ 3,633,280
45
CITY OF PEARLAND,TEXAS
NOTES TO FINANCIAL STATEMENTS(continued)
Note 3-Receivables (continued)
Property Taxes
Property taxes are levied by October 1 in conformity with Subtitle E, Texas Property Tax Code. Taxes are
due on receipt of the tax bill and are delinquent if not paid before February 1 of the year following the year in
which 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. The Central Appraisal District ("CAD") of Brazoria County,
Harris County, and Fort Bend County, Texas, establishes appraised values. Taxes are levied by the City
Council based on the appraised values and operating needs of the City The City contracts billing and
collection of tax levies with the Brazoria County Tax Assessor-Collector
Note 4- Capital Assets
A summary of changes in the primary government's capital assets for the year ended September 30, 2013,
follows:
Balance
September 30, Balance
2012 September 30,
(Restated) Increases Decreases 2013
Governmental Activities
Non-depreciable Capital Assets
Land $ 31,260,913 $ 3,372 $ - $ 31,264,285
Construction in progress 23,488,810 18,394,519 (18,576,872) 23,306,457
Total Non-depreciable
capital assets 54,749,723 18,397,891 (18,576,872) 54,570,742
Depreciable Capital Assets
Infrastructure 804,204,296 58,680,475 - 862,884,771
Buildings and improvements 87,473,376 10,457,147 - 97,930,523
Machinery and equipment 13,519,791 2,111,961 (600,435) 15,031,317
Furniture and fixtures 2,662,298 2,037,431 - 4,699,729
Total depreciable capital assets 907,859,761 73,287,014 (600,435) 980,546,340
Less accumulated depreciation for
Infrastructure (230,452,471) (24,492,719) - (254,945,190)
Buildings and improvements (16,711,196) (3,320,164) - (20,031,360)
Machinery and equipment (8,319,855) (1,101,666) 555,524 (8,865,997)
Furniture and fixtures (1,789,729) (446,385) - (2,236,114)
Total accumulated depreciation (257,273,251) (29,360,934) 555,524 (286,078,661)
Depreciable capital assets,net 650,586,510 43,926,080 (44,911) 694,467,679
Totals $ 705,336,233 $ 62,323,971 $ (18,621,783) $749,038,421
46
CITY OF PEARLAND,TEXAS
NOTES TO FINANCIAL STATEMENTS(continued)
Note 4- Capital Assets (continued)
Balance Balance
September 30, September 30,
2012 Increases Decreases 2013
Business-Type Activities
Capital assets.
Land $ 3,609,542 $ 186,840 $ - $ 3,796,382
Construction in progress 5,418,810 3,499,225 8,918,035
Total nondepreciaable
capital assets 9,028,352 3,686,065 - 12,714,417
Other capital assets:
Water and sewer system 280,739,923 20,008,401 300,748,324
Buildings and improvements 31,256,473 31,256,473
Machinery and equipment 3,368,901 492,765 (155,010) 3,706,656
Furniture and fixtures 96,127 10,000 106,127
Contractual water rights 34,511,428 34,511,428
Total depreciable capital assets 349,972,852 20,511,166 (155,010) 370,329,008
Less accumulated depreciation for
Water and sewer system (81,229,112) (6,853,177) (88,082,289)
Buildings and improvements (3,358,082) (729,978) (4,088,060)
Machinery and equipment (2,169,842) (314,380) 178,146 (2,306,076)
Furniture and fixtures (51,767) (17,750) (69,517)
Contractual water rights (5,903,960) (1,380,457) (7,284,417)
Total accumulated depreciation (92,712,763) (9,295,742) 178,146 (101,830,359)
Depreciable capital assets,net 257,260,089 11,215,424 23,136 268,498,649
Totals $ 266,288,441 $ 14,901,489 $ 23,136 $281,213,066
Depreciation was charged to programs as follows.
General government $ 758,797
Public safety 1,918,725
Public works 24,241,247
Community services 227,991
Parks and recreation 2,214,174
Total Government Activity $ 29,360,934
Water and sewer $ 9,295,742
Total Business-Type Activity $ 9,295,742
47
CITY OF PEARLAND,TEXAS
NOTES TO FINANCIAL STATEMENTS(continued)
Note 4- Capital Assets (continued)
The City had active construction projects as of September 30, 2013 The projects included various
improvements to streets, drainage and facilities as well as and water and sewer improvements. At
year-end,the City's contractual commitments on projects were as follows
Project Description Progress Commitment
Drainage improvement $ 5,099,765 $ 1,997,611
Building improvements 2,770,425 2,534,291
Street improvement 12,383,037 4,212,683
Park improvements 2,745,652 1,617,073
Water and sewer improvements 9,225,613 6,678,510
Totals $ 32,224,492 $ 17,040,168
Note 5- Long-Term Debt
A. General Obligation Bonds,Certificates of Obligation and Revenue Bonds
The City issues general obligation bonds and certificates of obligation,and upon annexation and dissolution of
Municipal Utility Districts, assumes unlimited tax and revenue obligations. The assumed obligations were
used to acquire and construct major capital facilities. General obligation bonds, certificates of obligation, and
assumed obligations from dissolved and annexed areas are for both governmental and business-type
activities. The bonds are reported in the Proprietary Funds only if they are expected to be repaid from
proprietary revenues. The general long-term bonds, certificates of obligation and assumed obligations are
paid through the Debt Service Fund from tax revenues.
The City's component units, which are considered blended components units, have revenue bonds used to
acquire and construct or to reimburse developers for major capital improvements. Revenue bonds are paid
through the Pearland Economic Development Corporation from sales tax and through the Development
Authority of Pearland from property tax increment.
48
CITY OF PEARLAND,TEXAS
NOTES TO FINANCIAL STATEMENTS(continued)
Note 5- Long-Term Debt(continued)
A. General Obligation Bonds,Certificates of Obligation and Revenue Bonds(continued)
The following is a summary of changes in the City's total governmental long-term liabilities for the year
ended September 30, 2013 In general, the City uses the General and Debt Service funds as well as the
Economic Development Corporation and Development Authority to liquidate governmental long-term
liabilities.
Balance
September 30, Balance Amounts
2012 September 30, Due Within
(Restated) Additions Reductions 2013 One Year
Governmental Activities:
Bonds payable:
General obligation bonds $ 224,170,000 $ 13,515,000 $ (7,645,000) $ 230,040,000 $ 6,765,000
Certificates of obligation 65,425,000 2,745,000 (3,480,000) 64,690,000 3,710,000
Sales tax revenue bonds 24,490,000 - (880,000) 23,610,000 920,000
Tax increment revenue bonds 54,235,000 - (2,720,000) 51,515,000 2,800,000
Deferred loss on refunding (12,351,438) - 1,297,946 (11,053,492) -
Unamortized
premium/(discount) 6,479,066 303,003 (623,102) 6,158,967 -
Total bonds payable 362,447,628 16,563,003 (14,050,156) 364,960,475 14,195,000
Other liabilities:
Obligations under capital leases 3,406,759 1,186,346 (911,739) 3,681,366 929,000
Compensated absences 4,724,243 2,678,203 (2,395,717) 5,006,729 794,732
Other post-employment benefits 1,535,386 419,768 - 1,955,154 -
Total Governmental Activities $ 372,114,016 $ 20,847,320 $ (17,357,612) $ 375,603,724 $ 15,918,732
Long-term liabilities applicable to the City's governmental activities are not due and payable in the current
r period, and accordingly, are not reported as fund liabilities in the governmental funds. Interest on
long-term debt is not accrued in governmental funds,but rather is recognized as an expenditure when due.
The full amount estimated to be required for debt service on general obligation debt is provided by(1)the debt
service portion of the tax levy; (2) interest earned in the Debt Service Fund; and(3)transfers from the Water
and Sewer Enterprise Fund. Transfers from the Enterprise Funds are approved at the discretion of City
Council and are not intended to service a specific bond series.
49
CITY OF PEARLAND,TEXAS
NOTES TO FINANCIAL STATEMENTS(continued)
Note 5- Long-Term Debt(continued)
A. General Obligation Bonds,Certificates of Obligation and Revenue Bonds(continued)
A summary of the terms of general obligation bonds and certificates of obligation, as of September 30,2013,
follows.
Interest Debt
Series Original Issue Matures Rate(%) Outstanding
General Obligation Bonds
Permanent Improvement and Refunding Bonds,Series 2005 37,015,000 2029 4 00-5 00 $ 20,725,000
Permanent Improvement and Refunding Bonds,Series 2006 32,165,000 2029 4 00-5 00 30,860,000
Permanent Improvement and Refunding Bonds,Series 2007 69,640,000 2032 4.00-5.00 66,625,000
Permanent Improvement,Series 2008 22,835,000 2032 4.50-5.50 21,695,000
Permanent Improvement Refunding Bonds,Series 2009 16,735,000 2034 2.50-5.00 15,375,000
Permanent Improvement,Series 2010A 12,415,000 2035 2.00-4.25 11,350,000
Permanent Improvement Refunding,Series 2010B 1,630,000 2018 2.00-4 00 1,000,000
Permanent Improvement,Series 2011 5,400,000 2036 3.00-4.125 5,200,000
Permanent Improvement Refunding Bonds,Series 2012 43,575,000 2029 3 00-5.00 43,575,000
Permanent Improvement Bond Series 2013 9,315,000 2038 3.00-4 625 9,315,000
Annexed Municipal Utility District Bonds
BC MUD 1 Series 2007 1,940,000 2030 3.8-4.35 1,810,000
BC MUD 4 Series 2011 2,640,000 2032 2.50-5.00 2,510,000
Total General Obligation Bonds $ 230,040,000
Certificates of Obligations
Certificates of Obligation,Series 2003 25,000,000 2014 3 60-3.75 1,035,000
Certificates of Obligation,Series 2004 21,000,000 2015 4 00 1,420,000
Certificates of Obligation,Series 2006 9,700,000 2029 4 125-6.125 8,825,000
Certificates of Obligation,Series 2007 23,250,000 2032 3.25-5.25 22,450,000
Certificates of Obligation,Series 2008 9,000,000 2032 3.875-5.00 8,480,000
Certificates of Obligation,Series 2009 8,520,000 2034 2.50-5.00 7,835,000
Certificates of Obligation,Series 2009A 12,145,000 2029 2.25-4.50 10,225,000
Certificates of Obligation,Series 2011 2,095,000 2021 2.09 1,675,000
Certificates of Obligation,Series 2013 2,745,000 2038 3.00-4.625 2,745,000
Total Certificates of Obligation $ 64,690,000
A summary of the terms of the revenue bonds recorded as long-term liabilities in the Pearland Economic
Development Corporation and Development Authority of Pearland funds as of September 30, 2013, is as
follows.
Interest Debt
Series Original Issue Matures Rate(%) Outstanding
Pearland Economic Development Corporation
Sales Tax Revenue and Refunding Bonds,Series 2005 $ 11,050,000 2026 4.0-5.0 $ 7,540,000
Sales Tax Revenue Bonds,Series 2006 10,235,000 2030 4.25-5 0 9,075,000
Sales Tax Revenue Bonds,Series 2010 7,685,000 2030 Variable-resets 6,995,000
every 6 months
Development Authority of Pearland
Tax Increment Contract Revenue and
Refunding Bonds,Series 2012 56,915,000 2028 3.07* , 51,515,000
Total Revenue Bonds $ 75,125,000
*Fixed for 10 years,then rate changes to be 65%of LIBOR,not to exceed 6.0%.
50
CITY OF PEARLAND,TEXAS
NOTES TO FINANCIAL STATEMENTS(continued)
Note 5- Long-Term Debt(continued)
A. General Obligation Bonds,Certificates of Obligation and Revenue Bonds(continued)
Prior Year Refunding
In prior years, the City defeased certain general obligation and other bonds by placing the proceeds of the
new bonds in an irrevocable trust to provide for all future debt service payments on the refunded bonds.
Accordingly, the trust account assets and the liability for the defeased bonds are not included in the City's
fmancial statements. At September 30, 2013, approximately $26.4 million of previously refunded bonds
outstanding were considered defeased.
Capital Lease Obligations
The City has entered into certain capital lease agreements in order to purchase public safety and management
information systems, equipment and other construction-related equipment. The capital lease obligations are
paid out of the General, Debt Service and Water and Sewer Funds. The historical purchase price of the
capital assets under lease is approximately$6.8 million.
Following is a summary of future lease payments due on this equipment:
Fiscal Year Obligations
2014 $ 1,118,848
2015 1,118,848
2016 809,406
2017 629,950
2018-2019 527,391
Total 4,204,443
Less Interest 262,093
Obligations under capital leases $ 3,942,350
51
CITY OF PEARLAND,TEXAS
NOTES TO FINANCIAL STATEMENTS(continued)
Note 5- Long-Term Debt(continued)
A. General Obligation Bonds,Certificates of Obligation and Revenue Bonds(continued)
The annual requirements to amortize governmental activity general obligation bonds and certificates of
obligation outstanding at September 30,2013,were as follows:
Governmental Activities
General Obligation _Certificates of Obligation
Fiscal Year Principal Interest Principal Interest
2014 $ 6,765,000 $ 9,913,967 $ 3,710,000 $ 2,722,249
2015 7,765,000 9,572,070 2,745,000 2,592,723
2016 8,865,000 9,190,377 2,120,000 2,500,538
2017 8,490,000 8,805,299 2,190,000 2,416,016
2018 8,375,000 8,443,772 2,765,000 2,312,640
2019 10,745,000 8,026,805 3,010,000 2,192,779
2020 11,580,000 7,541,328 3,050,000 2,065,511
2021 11,845,000 7,033,931 3,165,000 1,933,459
2022 12,840,000 6,496,949 3,060,000 1,796,233
2023 13,160,000 5,929,679 3,180,000 1,654,141
2024 13,925,000 5,332,766 3,310,000 1,504,781
2025 14,350,000 4,731,384 3,430,000 1,347,751
2026 14,615,000 4,133,095 3,580,000 1,180,803
2027 15,720,000 3,498,791 3,950,000 1,018,540
2028 16,255,000 2,835,511 3,995,000 863,823
2029 16,680,000 2,128,625 4,175,000 700,421
2030 9,650,000 1,534,628 3,410,000 544,513
2031 9,590,000 1,085,420 3,805,000 384,238
2032 10,125,000 627,044 4,185,000 199,088
2033 2,650,000 333,419 635,000 86,263
2034 2,765,000 208,507 660,000 55,163
2035 1,520,000 112,044 130,000 22,813
2036 795,000 62,122 140,000 16,650
2037 480,000 33,763 140,000 10,175
2038 490,000 11,331 150,000 3,469
$ 230,040,000 $ 107,622,627 $ 64,690,000 $ 30,124,780
52
CITY OF PEARLAND,TEXAS
NOTES TO FINANCIAL STATEMENTS(continued)
Note 5- Long-Term Debt(continued)
A. General Obligation Bonds,Certificates of Obligation and Revenue Bonds(continued)
The annual requirements to amortize blended component unit revenue bonds outstanding at September 30,
2013,were as follows.
Governmental Activities
Pearland Economic Development Development Authority of
Corporation Pearland
Fiscal Year Principal Interest Principal Interest
2014 $ 920,000 $ 1,110,514 $ 2,800,000 $ 1,581,511
2015 965,000 1,068,839 2,885,000 1,495,550
2016 1,010,000 1,025,057 2,970,000 1,406,981
2017 1,060,000 976,218 3,070,000 1,315,802
2018 1,115,000 924,986 3,160,000 1,221,553
2019 1,175,000 870,739 3,255,000 1,124,541
2020 1,230,000 819,126 3,120,000 1,024,613
2021 1,285,000 764,705 3,215,000 928,828
2022 1,350,000 707,225 3,030,000 830,128
2023 1,415,000 645,158 3,130,000 737,107
2024 1,480,000 579,894 3,225,000 641,016
2025 1,555,000 511,083 3,320,000 542,008
2026 1,635,000 438,397 3,425,000 440,085
2027 1,715,000 361,922 3,530,000 334,937
2028 1,805,000 275,920 3,635,000 226,566
2029 1,895,000 188,544 3,745,000 114,972
2030 2,000,000 96,818 - -
$ 23,610,000 $ 11,365,145 $ 51,515,000 $ 13,966,198
53
CITY OF PEARLAND,TEXAS
NOTES TO FINANCIAL STATEMENTS(continued)
Note 5- Long-Term Debt(continued)
B. Enterprise Fund Debt
The following is a summary of changes in the City's total business-type long-term liabilities for the year
ended September 30,2013
Balance Balance Amounts
September 30, September 30, Due Within
2012 Additions Reductions 2013 One Year
Business-Type Activities:
Bonds payable:
Permanent Improvement bonds $ 15,130,000 $ - $ (1,110,000) $ 14,020,000 $ 1,155,000
Water and sewer revenue bonds 109,305,000 - (3,615,000) 105,690,000 3,765,000
Deferred loss on refunding (610,450) - 50,481 (559,969) -
Unamortized
premium/(discount) 881,600 - (151,290) 730,310 -
Total bonds payable 124,706,150 - (4,825,809) 119,880,341 4,920,000
Other liabilities:
Obligations under capital leases 342,364 - (81,380) 260,984 84,122
Compensated absences 538,878 276,771 (352,167) 463,482 78,740
Other post-employment benefits 282,467 74,077 - 356,544 -
Total Business-Type Activities $ 125,869,859 $ 350,848 $ (5,259,356) $ 120,961,351 $ 5,082,862
A summary of the terms of permanent improvement bonds and revenue bonds recorded in the Enterprise
Funds as of September 30,2013,is as follows:
Interest Debt
Series Original Issue Matures Rate(%) Outstanding
Water and Wastewater Fund
Water and Sewer System Adjustable Rate Revenue Bonds,
Series 1999 $ 8,000,000 2020 4.60 $ 2,710,000
Water and Sewer System Revenue Bonds,Series 2003 9,500,000 2014 4.00 340,000
Water and Sewer System Revenue and Refunding Bonds,
Series 2006 13,845,000 2031 4.3-5 125 10,850,000
Water and Sewer System Revenue Bonds,Series 2007 40,135,000 2031 3.50-5.50 36,625,000
Water and Sewer System Revenue Bonds,Series 2008 14,950,000 2034 4 125-5 00 13,945,000
Water and Sewer System Revenue Bonds,Series 2009 13,130,000 2034 3.00-5.50 11,720,000
Permanent Improvement and Refunding Bonds,Series 2009 11,660,000 2018 2.50-5.00 7,790,000
Water and Sewer System Revenue Bonds,Series 2010A 14,040,000 2035 2.00-4.50 12,900,000
Water and Sewer System Revenue and Refunding Bonds,
Series 2010B 8,970,000 2023 2.00-4 00 8,225,000
Permanent Improvement and Refunding Bonds,Series 2012 6,230,000 2025 3 00-5 00 6,230,000
Water and Sewer System Revenue and Refunding Bonds,
Series 2012 8,670,000 2037 2.00-3.625 8,375,000
Total Utility System Fund $ 119,710,000
54
CITY OF PEARLAND,TEXAS
NOTES TO FINANCIAL STATEMENTS(continued)
Note 5- Long-Term Debt(continued)
B. Enterprise Fund Debt(continued)
The annual requirements to amortize business-type activity revenue bonds and permanent improvement
bonds outstanding at September 30,2013,were as follows.
Business Type Activities
Revenue Bonds Permanent Improvement Bonds
Fiscal Year Principal Interest Principal Interest
2014 $ 3,765,000 $ 4,584,324 $ 1,155,000 $ 525,325
2015 3,575,000 4,439,468 1,530,000 474,812
2016 3,725,000 4,302,208 1,560,000 427,900
2017 3,880,000 4,153,814 2,415,000 344,001
2018 4,030,000 4,005,011 2,515,000 232,188
2019 4,195,000 3,847,690 365,000 171,700
2020 4,370,000 3,683,168 370,000 157,000
2021 4,615,000 3,503,757 370,000 142,200
2022 4,810,000 3,306,021 385,000 127,100
2023 5,025,000 3,100,221 395,000 111,500
2024 4,190,000 2,884,169 1,480,000 74,000
2025 4,440,000 2,689,273 1,480,000 22,200
2026 6,155,000 2,477,948 - -
2027 6,450,000 2,181,686 - -
2028 6,765,000 1,867,325 - -
2029 7,080,000 1,552,814 - -
2030 7,375,000 1,257,306 - -
2031 7,680,000 948,088 - -
2032 3,710,000 625,250 - -
2033 3,895,000 444,575 - -
2034 4,075,000 264,360 - -
2035 1,180,000 75,725 - -
2036 345,000 25,556 - -
2037 360,000 13,050 - -
$ 105,690,000 $ 56,232,807 $ 14,020,000 $ 2,809,926
C. Legal Compliance
Long-term debt assumed by the City upon dissolution of annexed municipal utility districts in fiscal years
2006,2007,and 2013 has been recorded as part of the City's long-term debt. A portion of the assumed debt
is related to assets recorded in the Water and Sewer Fund.Even though the debt is related to assets recorded
in the Water and Sewer Fund,the debt is considered general obligation debt based on Texas law
55
CITY OF PEARLAND,TEXAS
NOTES TO FINANCIAL STATEMENTS(continued)
Note 6-Interfund Transactions
A summary of interfund transfers,the purpose of which is to cover operational expenses/expenditures,for the
year ended September 30,2013, is as follows.
Summary Table of Interfund Transfers
for the Year Ended September 30,2013
Transfers From Transfers To Other
Other Funds Funds
General
Debt Service Fund $ - $ 161,445
Capital Projects 1,654,245 137,263
Water&Sewer Fund 1,426,126 218,961
Internal Service Fund - 560,250
Nonmajor-Aggregate Remaining Funds 532,751 20,748
Total General Fund 3,613,122 1,098,667
Debt Service
Capital Projects 5,000 -
Water&Sewer Fund 284,838 -
General Fund 161,445 -
Nonmajor-Aggregate Remaining Funds 10,443 -
Total Debt Service Fund 461,726 -
Capital Projects
General Fund 137,263 1,654,245
Debt Service - 5,000
Internal Service Fund 284,352 -
Total Capital Projects 421,615 1,659,245
Water&Sewer
Debt Service Fund - 284,838
General Fund 218,961 1,426,126
Internal Service Fund - 114,750
Total Water and Sewer 218,961 1,825,714
Internal Service-COP Health Claims Fund
General Fund 560,250 -
Water&Sewer Fund 114,750 -
Total Internal Service Fund 675,000 -
Tax Increment Reinvestment Zone#2
Development Authority of Pearland - 10,997,930
Development Authority of Pearland
Tax Increment Reinvestment Zone#2 10,997,930 -
Other Governmental Funds
General Fund 20,748 532,751
Capital Projects - 284,352
Debt Service Fund - 10,443
Total Other Governmental Funds 20,748 827,546
Total $ 16,409,102 $ 16,409,102
56
CITY OF PEARLAND,TEXAS
NOTES TO FINANCIAL STATEMENTS(continued)
Note 6-Interfund Transactions (continued)
A summary of interfund receivables and payables at September 30, 2013, follows.
Receivable Fund Payable Fund Amount Purpose
General Fund Non-Major Governmental Fund $ 118,097 Short-term loan to fund operations
Note 7-Fund Balance
Encumbrances
Encumbrance accounting is employed as an extension of formal budgetary integration for the general
fund,special revenue funds, and capital projects funds. As of September 30,2013, certain amounts which
were classified as restricted or assigned for specific purposes have been encumbered in the governmental
funds. Significant encumbrances included in governmental fund balances are as follows.
Encumbrances
General Fund-assigned $ 1,553,390
Capital Projects-restricted 5,799,338
Debt service-restricted 7,405
Aggregate non-major funds-restricted 357,583
$ 7,717,716
Note 8-Deferred Compensation Plan
The City maintains,for its employees,a tax-deferred compensation plan meeting the requirements of Internal
Revenue Code Section 457 The plan was established in the 1995 fiscal year by City Ordinance,and ICMA
Retirement Corporation is the plan administrator The deferred compensation is not available to employees
until termination, retirement, death, or unforeseen emergency The plan's trust arrangements are established
to protect deferred compensation amounts of employees under the plan from any other use other than intended
under the plan (eventual payment to employees deferring the compensation) in accordance with federal tax
laws. Amounts of compensation deferred by employees under plan provisions are disbursed bi-weekly by the
City to a third-party administrator The third-party administrator handles all funds in the plan and makes
investment decisions and disburses funds to employees in accordance with plan provisions.
Note 9- Employee Retirement System
Plan Description and Provisions
The City provides pension benefits for all of its full-time employees through a non-traditional, joint
contributory, defined benefit plan in the state-wide Texas Municipal Retirement System ("TMRS"), one of
849 currently administered by TMRS,an agent multiple-employer public employee retirement system.
57
CITY OF PEARLAND,TEXAS
NOTES TO FINANCIAL STATEMENTS(continued)
Note 9 - Employee Retirement System (continued)
Plan Description and Provisions(continued)
Benefits depend upon the sum of the employee's contributions to the plan, with interest, and the City-
fmanced 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
matching 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-fmanced monetary credits,with interest,were used to purchase an annuity
The plan provisions are adopted by the City Council of the City, within the options available in the state
statutes governing TMRS and within the actuarial constraints also in the statutes. Plan provisions for the City
were as follows.
Plan Year 2012 Plan Year 2013
Employee deposit rate 7 0% 7 0%
Matching ratio(City to employee) 2 to 1 2 to 1
Years required for vesting 5 5
Service retirement eligibility
(expressed as a age/years of service) 60/5, 0/20 60/5, 0/20
Updated service credit 100%Repeating,Transfers 100%Repeating,Transfers
Annuity increase(to retirees) 70% of CPI Repeating 70%of CPI Repeating
Members can retire at ages 60 and above with 5 or more years of service or with 20 years of service
regardless of age.
Contributions
Under the state law governing TMRS, the actuary annually determines the City's contribution rate. This
rate consists of the normal cost contribution rate and the prior 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 City matching percent, which are 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 retirement becomes effective. The prior service contribution rate
amortizes the unfunded (over funded) actuarial liability (asset) over the remainder of the plan's 30-year
amortization period. The projected unit credit actuarial cost method is used for determining the City
contribution rate using a 28-year closed period. 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 actuarial valuation that is the basis for the rate and the calendar year when the rate goes
into effect.
58
CITY OF PEARLAND,TEXAS
NOTES TO FINANCIAL STATEMENTS(continued)
Note 9- Employee Retirement System (continued)
Contributions (continued)
The City's total payroll in fiscal year 2013 was $31.2 million and the City's contributions were based
on a payroll of$29 7 million. Contributions made by employees totaled $2.1 million, and the City made
contributions of$3.8 million during the fiscal year ended September 30,2013
Three-year trend information is presented below
2013 2012 2011
Annual Pension Cost(APC) $ 3,780,847 $ 3,518,289 $ 3,302,952
Percentage of APC contributed 100% 100% 100%
NPO at the end of the period $ - $ - $ -
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.
All assumptions for the December 31, 2012, valuations are contained in the 2012 TMRS Comprehensive
Annual Financial Report, a copy of which may be obtained by writing to P 0 Box 149153, Austin, Texas
78714-9153 The following is a summary of the actuarial assumptions.
Actuarial Cost Method Projected unit credit
Amortization Method Level percent of payroll
Remaining Amortization Period 25.3 years-closed period
Asset Valuation Method Amortized cost
Actuarial Assumptions.
Investment rate of return 7 00%
Projected salary increases Varies by age and service
Includes inflation at 3 00%
Cost-of-living adjustments 2.10%
In order to provide a reasonable retirement benefit at a reasonable cost to employers and to provide better
long-range rate forecasts, TMRS' actual funding method is the Projected Unit Credit method using a
25-30 year"closed"period.
For cities that have adopted annually repeating annuity increases (COLA's)this change in method results
in increased contribution rates, which will provide advanced funding and positive improvement in the
pension funding rates. The TMRS Board adopted an eight-year phase-in period for new rates to enable
cities to slowly increase contributions. These new rates were first reflected in 2009
59
CITY OF PEARLAND,TEXAS
NOTES TO FINANCIAL STATEMENTS(continued)
Note 9 - Employee Retirement System (continued)
Contributions (continued)
A schedule of funding status and progress for TMRS for the most recent valuation date follows.
Unfunded
Actuarial Actuarial (UAAL)as a
Valuation Actuarial Actuarial Accrued Annual Percentage
Date Value of Accrued Percentage Liability Covered of Covered
December 31, Assets Liabilities Funded (UAAL) Payroll Payroll
2012 $ 69,800,322 $ 85,022,771 82% $ 15,222,449 $ 28,876,260 53%
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 Annual Financial Report.
Note 10- Other Post-Employment Benefits
In addition to pension benefits, the City provides access to medical and dental coverage through its selected
insurance carrier, to retirees and/or retiree dependents. The City's other post-employment benefit plan is a
single-employer plan. To qualify for retiree's medical or dental insurance, the retiree must have a minimum
of ten years of continuous service with the City and be at least sixty years of age, or with 20 years of
continuous service at any age. The City provides the coverage on a pay-as-you-go basis similar to current
employees, but the City does not pay any portion of the retiree premium. Therefore, there is an implicit
subsidy due to the blended rate paid by the retirees, but there is no direct liability due from the City as it
does not pay any portion of the retiree's costs.
The costs of providing these benefits and number of retired employees are as follows:
Number of
Total City's Emp/Dep Retired
Cost Cost Coverage Cost Employees
$ 77,684 $ - $ 77,684 9
Retirees who are entitled to receive retirement benefits under the City's retirement plan may purchase
continued health benefits coverage for the retiree and the retiree's dependents, but shall pay 100% of the
premium for coverage. The retiree,however,is able to receive a lower rate by participating in the City's plan
as opposed to individually purchasing health insurance. The City's coverage is secondary to Medicare when
the person becomes eligible for these benefits.
60
CITY OF PEARLAND,TEXAS
NOTES TO FINANCIAL STATEMENTS(continued)
Note 10- Other Post-Employment Benefits (continued)
The Governmental Accounting Standards Board published guidelines regarding accounting and financial
reporting by employers for post-employment benefits other than pensions. This standard gives guidance
regarding the methods and timing for reporting. The effect of the standard is to cause the cost of retiree
benefits to be accrued for during the working lifetime of the employees. This requires pre-funding or
accruing of a liability The City has elected to accrue the liability, and the unfunded liability will be funded
over a period of 30 years. The results of the City's most recent actuarial valuation are as follows.
Unfunded
Actuarial (UAAL)as a
Actuarial Actuarial Actuarial Accrued Annual Percentage
Valuation Date Value Accrued Percentage Liability Covered of Covered
October 1, of Assets Liabilities Funded (UAAL) Payroll Payroll
2012 $ - $ 8,339,937 0% $ 8,339,937 $ 28,876,260 29%
Net OPEB obligations at year-end for the last three fiscal years are as follows.
2011 2012 2013
Normal cost $ 206,293 $ 190,706 $ 243,253
Amortization of UAAL 141,837 141,837 177,878
Annual required contribution(ARC) 348,130 332,543 421,131
Interest on prior-year net OPEB obligation 41,540 57,127 72,715
Estimated increase in net OPEB obligation 389,670 389,670 493,846
Net OPEB obligation-beginning of year 1,038,512 1,428,182 1,817,852
Net OPEB obligation-end of year $ 1,428,182 $ 1,817,852 $ 2,311,698
The annual cost recorded to the general ledger for fiscal year 2013 is$493,846,which includes the estimated
normal cost of$243,253 to provide for the benefits earned by active employees. The total liability, which is
not recorded to the general ledger, is$8,339,937,and represents the actuarial present value of benefits.
Actuarial valuations for OPEB plans involve estimates of the value of reported amounts and assumptions
about the probability of events far into the future. Actuarially determined amounts are subject to
continual revision as results are compared to past expectations and new estimates are made about the
future. The methods and assumptions used as of the measurement date of October 1, 2012 include using
the Projected Unit Credit actuarial costs method, a closed amortization period of 26 years, a discount rate
of 4%, medical inflation and ultimate pre-Medicare rate of 10% and 5%, respectively, with a straight
years of service amortization method.
61
CITY OF PEARLAND,TEXAS
NOTES TO FINANCIAL STATEMENTS(continued)
Note 11- Commitments and Contingencies
Litigation and Other Contingencies
The City was involved in various lawsuits and arbitration proceedings at September 30, 2013 The City and
its legal counsel believe that any amounts which the City might ultimately be required to pay will not exceed
underlying insurance coverage.
Reimbursements due to Developers
Pursuant to the Local Government Code, the City of Pearland offers incentives to attract businesses to
Pearland. The following are the current incentives.
Current Incentives Amount Prior Years FY 2013 Balance
Altus Harbor $ 87,500 $ 65,000 $ 15,000 $ 7,500
Braska/Neela,Inc. 150,000 - 150,000 -
Cardiovascular Systems,Inc. 5,100,000 4,100,000 - 1,000,000
Hatch Mott 100,000 - 100,000 -
KS Management 2,600,000 - - 2,600,000
KS Management Sales Tax Est. 600,000 - - 600,000
Merit Medical Systems,Inc. 888,000 - - 888,000
Ref-Chem 340,000 - 340,000 -
SCR HH GP,LLC 300,000 180,000 - 120,000
Dover 630,000 - - 630,000
$ 10,795,500 $ 4,345,000 $ 605,000 $ 5,845,500
Shadow Creek Town Center
In 2004, the City, along with the Reinvestment Zone Number Two (the Zone) and the Development
Authority of Pearland (the Authority), component units of the City, entered into an agreement with a
developer to reimburse the developer all or a portion of the project costs to implement the Shadow Creek
Ranch Development TIRZ (TIRZ Plan). As projects implementing the TIRZ Plan are completed, the
Zone Board may recommend to the City that the Authority reimburse developers on behalf of the Zone
and the City The Zone Board will forward to the City and the Authority all of the necessary and required
documentation supporting the requested reimbursement and a determination of the exact amount
requested for reimbursement, including a calculation of the amount of interest to be reimbursed on funds
advanced for the projects. In addition all monies available in the Tax Increment Fund shall be transferred
to the escrow agent no less than once per year and no later than the fifteenth day of each August, subject
to the retention by the City of: (1)an amount equal to the City's administrative costs connected with the
Zone and the TIRZ Plan, as provided in the TIRZ plan (36% of the City's Tax Increment, but not more
than $0.255, in years four through eight, and 64% of the City's Tax Increment, but not more than $0 44,
in years nine through 30 shall be retained by the City; (2)amounts required to be maintained in the Alvin
ISD Suspense Account; (3)an amount sufficient to pay reasonable current and anticipated administrative
and operating costs of the Zone, as determined by the Zone Board.
62
CITY OF PEARLAND,TEXAS
NOTES TO FINANCIAL STATEMENTS(continued)
Note 11 - Commitments and Contingencies (continued)
Shadow Creek Town Center(continued)
On November 13, 2006,the City of Pearland, Pearland Economic Development Corporation (PEDC) and
Shadow Creek Retail, LP entered into an agreement whereby the developer would build and construct a
mixed use commercial development located at the northwest corner of State Highway 288 and Broadway,
also known as FM 518.
The Developer provided for the construction of segments of Broadway Street, Business Center Drive,
Memorial Hermann Drive, as well as landscaping, underground utilities, pipeline relocation and other
associated costs. The source of funds for reimbursement of the public infrastructure is both the TIRZ#2
and City and PEDC sales tax revenue generated from the project. The total funded from TIRZ#2 is
$11,749,618 and the amount of TIRZ improvements to be funded from sales tax is $2,001,931 Once
completion and tenant occupancy of at least 318,000 square feet is achieved for a period of three
consecutive months,the City and PEDC, shall remit, monthly,thirty-three percent of sales tax received by
the City and PEDC to the Developer until paid in full plus interest at eight percent per annum for the first
two years following completion of the widening of Broadway and interest at five percent per annum for
the subsequent two years. The Developer met the targets set forth in the agreement in fiscal year 2008.
Through September 30, 2013,the City remitted sales tax to the developer pursuant to the agreement in the
amount of$1,900,828, of which $444,060 was remitted in fiscal year 2013 To date, $1.5 million has
been reimbursed towards principal and $448,585 for interest. The balance due as of September 30, 2013
is $555,820
Note 12-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, injuries to employees, and natural disasters. The City's risk management program
mainly encompasses obtaining property and liability insurance through Texas Municipal League's
Intergovernmental Risk-Pool (TML-IRP), and through commercial insurance carriers. The participation
of the City in TML-IRP is limited to payment of premiums. 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 City also provides Workers' Compensation insurance on its employees through TML-Workers'
Compensation Fund. Workers' Compensation premiums are subject to change when audited by TML
Workers' Compensation Fund. At fiscal year-end September 30, 2013, the City believed the amounts
paid on Workers' Compensation would not change significantly from the amounts recorded.
Note 13 - Capital Lease
The City has a 20-year agreement to lease a facility to the University of Houston Clear Lake (UHCL),
which commenced in July 2010 Rent or lease payments are broken into two parts, debt service and
operating. For accounting purposes the City has classified the lease as a direct financing lease.
UHCL has an option to purchase the facility upon the commencement date of July 2010 until the 61st day
preceding the 20th anniversary of the commencement date.
63
CITY OF PEARLAND,TEXAS
NOTES TO FINANCIAL STATEMENTS(continued)
Note 13 - Capital Lease(continued)
The lease payments related to debt service to be received coincide with debt service payments the City is
required to make on a bond that matures on March 1, 2029 At September 30, 2013,the future minimum
debt service lease payments to be received under the lease are as follows.
Fiscal year ending
September 30, Payment
2014 $ 664,384
2015 654,255
2016 643,059
2017 627,598
2018 610,030
2019-2023 2,826,396
2024-2029 2,863,729
Total $ 8,889,451
Note 14- Operating Lease
The City has a five-year agreement to lease a portion of the UHCL facility to the Pearland Economic
Development Corporation which commenced in July 2010 For accounting purposes the City has
classified the lease as an operating lease. The agreement calls for up to three additional five-year terms
for a total of 20 years. The rent/lease payments are broken into two parts, debt service and operating.
The debt service lease payments to be received coincide with debt service payments the City is required
to make on a bond that matures on March 1, 2029 At September 30, 2013, the future minimum debt
service lease payments to be received under the lease are as follows.
Fiscal year ending
September 30, Payment
2014 $ 111,858
2015 110,153
2016 108,268
2017 105,665
2018 102,707
2019-2023 475,863
2024-2029 482,148
Total $ 1,496,662
64
CITY OF PEARLAND,TEXAS
NOTES TO FINANCIAL STATEMENTS(continued)
Note 15- Subsequent Events
Lease Purchase
City Council approved a Notice of Intent to reimburse itself from future capital lease proceed on
October 22, 2012 in an amount not to exceed $2,100,000 On October 14, 2013, City Council awarded
the bid to U S. Bancorp Government Leasing and Finance, Inc. that provided an interest rate of 2.028%.
The amount financed via lease/purchase is $1,852,938 as follows.
Financing
Equipment Description Amount
Alcatel-Lucent data equipment: (11)0S6850E-P48X
switches, (5)OS685pE-P24X switches, (2) 0S6450-P10
swithces, (20)wireless access points and appurtenances $ 121,159
Alcatel-Lucent OmniPCX Enterprise Voice Solution system 166,653
(1)Pierce Impel Pumper Truck and(1)Pierce 75'HAL
Aerial, quint, alum. body, single axle Truck 1,277,195
(1)New Frazer Type 1 ambulance on F-350 diesel
cab/chassis, and(1)refurbished Frazer Type 1 ambulance
module onto new F-350 diesel cab/chassis 211,575
(1)Dybapac model CA134PD 54" pad roller 76,356
Total for financing $ 1,852 938
The first semi-annual payment is due in January, 2014 in the amount of $141,722 with the final
semi-annual payment due in July, 2020 in the amount of$141,722. The total repayment amount for the
seven-year lease term will be $1,948,110 There is no pre-payment penalty for early payoff, and the
lender has waives its usual administrative and escrow fees.
Development Authority of Pearland Bond Sale,Series 2013
On November 26, 2013, the Development Authority of Pearland issued $9,140,000 in tax increment
contract revenue bonds. Proceeds from the bonds will be used to reimburse the developer approximately
$8.9 million pursuant to the TIRZ financing plan. The remaining amount on the bonds are for issuance
costs. The interest rate is 3 75% with an average annual debt service on the bonds of$779,202 and a
maturity of 2029 Based on valuation in the Tax Increment Reinvestment Zone, the Zone is able to pay
the debt and maintain a 1.25 coverage.
65
APPENDIX C
FORM OF BOND COUNSEL OPINION
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AN D R E W S 600 Travis,Suite 4200
ATTORNEYS K U RI H LLP Houston,Texas 77002
713.220 4200 Phone
713.220 4285 Fax
andrewskurth.com
DRAFT
October 16, 2014
WE HAVE ACTED as Bond Counsel for the City of Pearland, Texas (the "City"), in connection
with an issue of bonds(the"Bonds")described as follows.
CITY OF PEARLAND, TEXAS WATER AND SEWER SYSTEM REVENUE
BONDS, SERIES 2014, dated October 16, 2014, in the aggregate principal amount of
$9,210,000 The bonds mature, bear interest, are subject to redemption prior to maturity,
and may be transferred and exchanged as set out in the Bonds and in the ordinance (the
"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 Bonds under the Constitution and laws of the State of Texas and with
respect to the exclusion of interest on the Bonds 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 Bonds, as described in the
Ordinance. The transcript 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 Bonds. We have also examined executed Bond 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 Bonds. Our role in
connection with the City's Official Statement prepared for use in connection with the sale of the Bonds
has been limited as described therein.
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 Bonds in full compliance with the Constitution and laws of the State of
Texas presently in effect; the Bonds 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 Bonds 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 appropriate cases, and the Bonds have been
authorized and delivered in accordance with law; and
(2) The Bonds are special obligations of the City of Pearland, Texas and are payable solely
from a first lien on and pledge of the net revenues of the City's waterworks and sanitary
sewer system. "Net Revenues" are the revenues to be derived from the operation of the
Austin Beijing Dallas Houston London New York The Woodlands Washington, DC
October 16, 2014
Page 2
City's waterworks and sewer system after the payment of all operation and maintenance
expenses thereof.
ALSO BASED ON OUR EXAMINATION AS DESCRIBED ABOVE, it is our further opinion
that, subject to the restrictions hereinafter described, interest on the Bonds 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 is subject to the condition that the City comply with all
requirements of the Internal Revenue Code of 1986, as amended (the "Code"), that must be satisfied
subsequent to the issuance of the Bonds in order that interest thereon be, or continue to be, excluded from
gross income for federal income tax purposes. The City has covenanted in the Ordinance to comply with
each such requirement. Failure to comply with certain of such requirements may cause the inclusion of
interest on the Bonds in gross income for federal income tax purposes to be retroactive to the date of
issuance of the Bonds. The Code and the existing 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 Bonds in gross income of the
owners thereof for federal income tax purposes. If the City fails to comply with the foregoing provisions
of the Ordinance, interest on the Bonds could become includable in gross income from the date of original
delivery,regardless of the date on which the event causing such inclusions occurs.
INTEREST ON all tax-exempt obligations, including the Bonds, 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 securitization investmenist (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 Bonds are
directed to the discussion entitled"TAX EXEMPTION"set forth in the Official Statement.
EXCEPT AS DESCRIBED ABOVE, we express no opinion as to any federal, state or local tax
consequences under present law, or future legislation, resulting from the ownership of, receipt or accrual
of interest on, or the acquisition or disposition of,the Bonds. Prospective purchasers of the Bonds should
be aware that the ownership of tax-exempt obligations, such as the Bonds, may result in collateral federal
income tax consequences to, among others, financial institutions, life insurance companies, 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, taxpayers owning an interest in a financial asset securitization investment
trust that holds tax-exempt obligations and individuals otherwise qualified for the earned income tax
credit. For the foregoing reasons, prospective purchasers should consult their tax advisors as to the
consequences of investing in the Bonds.
OUR OPINIONS ARE BASED ON EXISTING LAW, which is subject to change. Such
opinions are further based on our knowledge of facts as of the date hereof. We assume no duty to update
or supplement our opinions to reflect any facts or circumstances that may thereafter come to our attention
or to reflect any changes in any law that may thereafter occur or become effective. Moreover, our
opinions are not a guarantee of result and are not binding on the Internal Revenue Service; rather, such
opinions represent our legal judgment based upon our review of existing law that we deem relevant to
such opinions and in reliance upon the representations and covenants referenced above.