NEW ISSUE--BOOK-ENTRY ONLY
Ratings: Moody’s: “Aaa”
S&P: “AAA”
Fitch: “AAA”
(See “MISCELLANEOUS - Ratings” herein.)
In the opinion of Bond Counsel, under existing law, interest on the 2011 Bonds is (1) excludable from gross
income of a recipient thereof for federal income tax purposes, (2) not an item of tax preference for purposes of the
federal alternative minimum tax imposed on individuals and corporations and (3) exempt from all State of North
Carolina income taxation. See “LEGAL MATTERS - Tax Treatment” herein.
$93,390,000
CITY OF CHARLOTTE, NORTH CAROLINA
Water and Sewer System Revenue Refunding Bonds, Series 2011
Dated: Date of Issuance Due: As shown on the inside cover page
This Official Statement has been prepared by the City of Charlotte, North Carolina (the “City”) to provide
information on the 2011 Bonds. Selected information is presented on this cover page for the convenience of the
user. Investors must read the entire Official Statement to obtain information essential to the making of an informed
investment decision.
Security:The 2011 Bonds and all other Bonds Outstanding under the General Indenture
(as defined herein), are special obligations of the City, secured solely by the
pledge of Net Revenues of the City’s Water and Sewer System, except to the
extent payable from proceeds of the 2011 Bonds, certain investment earnings
and certain net insurance and other proceeds. Neither the credit nor the taxing
power of the City or the State of North Carolina (the “State”) or any of the
State’s political subdivisions is pledged for the payment of the principal of,
premium if any, or interest on the 2011 Bonds. No Owner of the 2011 Bonds has
the right to compel the exercise of the taxing power of the State, the City or any
of the State’s political subdivisions or the forfeiture of any of their respective
properties in connection with any default on the 2011 Bonds. The principal of
and premium, if any, and interest on the 2011 Bonds are payable solely from
the Net Revenues pledged by the City and neither the State, the City nor any of
the State’s political subdivisions is obligated to pay the principal of, premium,
if any, or interest on the 2011 Bonds except from such Net Revenues. See
“SECURITY AND SOURCES OF PAYMENT” herein.
Redemption:The 2011 Bonds are subject to optional redemption before maturity as described herein.
Issued Pursuant to:The 2011 Bonds will be issued pursuant to The State and Local Government Revenue
Bond Act, specifically, Article 5, Chapter 159 of the General Statutes of North Carolina,
as amended; a General Indenture dated as of November 1, 1996, as heretofore amended
(the “General Indenture”), between the City and First Union National Bank of North
Carolina, the successor to which is U.S. Bank National Association, as trustee (the
“Trustee”); and Series Indenture, Number 13, dated as of August 1, 2011, between the
City and the Trustee (“Series Indenture, Number 13”).
Purpose:Proceeds of the 2011 Bonds will be used to (a) refund the City’s Water and Sewer System
Revenue Bonds, Series 2001 maturing on and after June 1, 2012 and (b) pay certain costs
related to the issuance of the 2011 Bonds.
Interest Payment Dates:
June 1 and December 1 of each year, commencing December 1, 2011.
Denomination:
$5,000 or integral multiples thereof.
Closing/Delivery Date:
On or about August 3, 2011.
Registration:
Full book-entry only; The Depository Trust Company. See Appendix E.
Trustee:
U.S. Bank National Association.
Bond Counsel:
Parker Poe Adams & Bernstein LLP, Charlotte, North Carolina.
City Counsel:
DeWitt F. McCarley, Esq., Charlotte, North Carolina.
Underwriters’ Counsel:
McGuireWoods LLP, Charlotte, North Carolina.
Financial Advisor:
DEC Associates, Inc., Charlotte, North Carolina.
BofA Merrill Lynch
Wells Fargo Securities
Date of this Official Statement is July 21, 2011
MATURITY SCHEDULE
$93,390,000 Serial 2011 Bonds
Due
June 1, 2012
December 1, 2012
December 1, 2013
December 1, 2014
December 1, 2015
December 1, 2015
December 1, 2016
December 1, 2016
December 1, 2017
December 1, 2017
December 1, 2018
December 1, 2019
December 1, 2019
December 1, 2020
December 1, 2020
December 1, 2021
December 1, 2022
December 1, 2023
December 1, 2023
December 1, 2024
Amount
$3,320,000
3,775,000
5,685,000
5,865,000
1,070,000
4,990,000
1,310,000
4,990,000
1,545,000
5,030,000
6,895,000
2,235,000
4,990,000
2,570,000
4,985,000
7,930,000
8,340,000
3,590,000
5,135,000
9,140,000
*Yield to the December 1, 2021 optional call date at 100%.
Rate
1.50%
3.00
3.00
3.00
1.50
4.00
1.50
5.00
2.00
5.00
5.00
3.00
5.00
4.00
5.00
5.00
5.00
3.00
5.00
5.00
Yield
0.23%
0.33
0.51
0.81
1.07
1.07
1.37
1.37
1.74
1.74
2.12
2.46
2.46
2.69
2.69
2.84
2.99*
3.15
3.15*
3.28*
IN CONNECTION WITH THIS OFFERING, MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED AND WELLS FARGO BANK, NATIONAL ASSOCIATION (THE "UNDERWRITERS") MAY
OVERALLOT OR EFFECT TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF THE 2011
BONDS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET, AND SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
No dealer, broker, salesman or other person has been authorized to give any information or to
make any representation in connection with this offering other than as contained in this Official
Statement, and, if given or made, such other information or representation must not be relied upon. This
Official Statement does not constitute an offer to sell or the solicitation of an offer to buy, nor shall there
be any sale of the 2011 Bonds by any person, in any jurisdiction in which it is not lawful for such person
to make such offer, solicitation or sale. The information set forth herein has been obtained from the City
and from other sources that are deemed to be reliable, but is not guaranteed as to accuracy or
completeness by the Underwriters, and is not to be construed as a representation by the Underwriters.
The electronic distribution of this Official Statement does not constitute an offer to sell or the
solicitation of an offer to buy the 2011 Bonds described herein to the residents of any particular state and
is not specifically directed to the residents of any particular state. The 2011 Bonds shall not be offered or
sold in any state unless and until they are either registered pursuant to the laws of such state, or qualified
pursuant to an appropriate exemption from registration in such state.
The information set forth herein has been obtained from sources which are believed to be reliable
and is in form deemed final by the City for the purpose of Rule 15c2-12 under the Securities Exchange
Act of 1934, as amended (except for certain information permitted to be omitted under Rule 15c212(b)(1)).
NEITHER THE 2011 BONDS NOR THE GENERAL INDENTURE HAS BEEN REGISTERED OR QUALIFIED
WITH THE SECURITIES AND EXCHANGE COMMISSION BY REASON OF THE PROVISIONS OF SECTION 3(a)(2)
OF THE SECURITIES ACT OF 1933, AS AMENDED AND SECTION 304(a)(4) OF THE TRUST INDENTURE ACT
OF 1939, AS AMENDED. THE REGISTRATION OR QUALIFICATION OF THE 2011 BONDS AND THE GENERAL
INDENTURE IN ACCORDANCE WITH APPLICABLE PROVISIONS OF SECURITIES LAWS OF THE STATES IN
WHICH THE 2011 BONDS AND THE GENERAL INDENTURE HAVE BEEN REGISTERED OR QUALIFIED, AND
THE EXEMPTION FROM REGISTRATION OR QUALIFICATION IN OTHER STATES, SHALL NOT BE REGARDED AS
A RECOMMENDATION THEREOF.
IN MAKING AN INVESTMENT DECISION INVESTORS MUST RELY ON THEIR OWN EXAMINATION OF
THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND RISKS INVOLVED. THESE SECURITIES HAVE
NOT BEEN RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY
AUTHORITY. FURTHERMORE, THE FOREGOING AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR
DETERMINED THE ADEQUACY OF THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
All quotations from and summaries and explanations of laws and documents herein do not
purport to be complete, and reference is made to such laws and documents for full and complete
statements of their provisions. Any statements made in this Official Statement involving estimates or
matters of opinion, whether or not expressly so stated, are intended merely as estimates or opinions and
not as representations of fact. The information and expressions of opinion herein are subject to change
without notice, and neither the delivery of this Official Statement nor any sale of the 2011 Bonds shall
under any circumstances create any implication that there has been no change in the affairs of the City
since the date hereof.
The Underwriters have provided the following sentence for inclusion in this Official Statement.
The Underwriters have reviewed the information in this Official Statement in accordance with, and as a
part of, their respective responsibilities to investors under the federal securities laws as applied to the facts
and circumstances of this transaction, but the Underwriters do not guarantee the accuracy or completeness
of such information.
[THIS PAGE INTENTIONALLY LEFT BLANK]
TABLE OF CONTENTS
Page
INTRODUCTION ....................................................................................................................................... 1
THE 2011 BONDS ...................................................................................................................................... 3
Authorization .................................................................................................................................. 3
General Terms................................................................................................................................. 3
Redemption Provisions ................................................................................................................... 3
Book-Entry-Only Form................................................................................................................... 4
THE PLAN OF REFUNDING .................................................................................................................... 4
ESTIMATED SOURCES AND USES OF FUNDS ................................................................................... 5
DEBT SERVICE REQUIREMENTS .......................................................................................................... 6
FINANCIAL SCHEDULES ........................................................................................................................ 7
Historical Financial Information ..................................................................................................... 7
Projected Financial Information ..................................................................................................... 8
SECURITY AND SOURCES OF PAYMENT ......................................................................................... 10
Special Obligations ....................................................................................................................... 10
Pledge of Net Revenues ................................................................................................................ 11
Rate Covenant ............................................................................................................................... 11
Funds and Accounts Held Under General Indenture .................................................................... 12
The Reserve Fund ......................................................................................................................... 12
Additional Bonds .......................................................................................................................... 13
Amortization of Liquidity Facility Bonds ..................................................................................... 13
THE WATER AND SEWER SYSTEM .................................................................................................... 13
Personnel ....................................................................................................................................... 13
Water System ................................................................................................................................ 15
Sanitary Sewer System ................................................................................................................. 17
Regionalization ............................................................................................................................. 18
Water and Sewer Line Extensions ................................................................................................ 18
Environmental Compliance .......................................................................................................... 19
Capital Improvements Program .................................................................................................... 19
Work and Asset Management System .......................................................................................... 20
Water and Sanitary Sewer Rates ................................................................................................... 20
Number of Accounts ..................................................................................................................... 22
Major Users................................................................................................................................... 22
Billing and Collection Procedures ................................................................................................ 22
Budget Procedures ........................................................................................................................ 23
Future Rate Increases .................................................................................................................... 23
THE CITY OF CHARLOTTE................................................................................................................... 23
General Description and Demographic Characteristics ................................................................ 23
Business and Economic Profile .................................................................................................... 24
Development Activity ................................................................................................................... 30
Labor Force And Unemployment ................................................................................................. 33
Government and Major Services .................................................................................................. 33
Pension Plans ................................................................................................................................ 36
Health and Life Benefits ............................................................................................................... 38
Other Post-Employment Benefits ................................................................................................. 38
Contingent Liabilities.................................................................................................................... 39
Financial Information.................................................................................................................... 39
GENERAL INDENTURE SUMMARY ................................................................................................... 39
LEGAL MATTERS ................................................................................................................................... 39
Litigation ....................................................................................................................................... 39
Opinions of Counsel ..................................................................................................................... 40
Tax Treatment ............................................................................................................................... 40
CONTINUING DISCLOSURE OBLIGATION ....................................................................................... 43
MISCELLANEOUS .................................................................................................................................. 45
i
Ratings ......................................................................................................................................... 45
Underwriting ................................................................................................................................. 45
Related Parties .............................................................................................................................. 46
Financial Advisor .......................................................................................................................... 46
Approval ....................................................................................................................................... 46
APPENDIX A
CITY FINANCIAL STATEMENTS
APPENDIX B
SUMMARY OF INDENTURE
APPENDIX C
THE NORTH CAROLINA LOCAL GOVERNMENT COMMISSION
APPENDIX D
PROPOSED FORM OF BOND COUNSEL'S OPINION
APPENDIX E
BOOK-ENTRY SYSTEM
ii
State of North Carolina
Department of State Treasurer
Janet D. Cowell
Treasurer
State and Local Government Finance Division
and the Local Government Commission
T. Vance Holloman
Deputy Treasurer
OFFICIAL STATEMENT
relating to
$93,390,000
CITY OF CHARLOTTE, NORTH CAROLINA
Water and Sewer System Revenue Refunding Bonds, Series 2011
INTRODUCTION
This Official Statement, which includes the cover and the appendices, provides certain
information in connection with the issuance of $93,390,000 Water and Sewer System Revenue Refunding
Bonds, Series 2011 (the "2011 Bonds") of the City of Charlotte, North Carolina (the "City").
This introduction provides certain limited information to serve as a guide to this Official
Statement, and is expressly qualified by this Official Statement as a whole. Prospective investors should
make a full review of the entire Official Statement and of the documents summarized or described herein.
This Official Statement speaks only as of its date, and the information contained herein is subject to
change. Neither the delivery of this Official Statement nor of the 2011 Bonds shall under any
circumstances create any implication that there has been no change in the City's affairs since the date of
this Official Statement.
Purpose. The City will use the proceeds of the 2011 Bonds to (a) refund the Water and Sewer
System Revenue Bonds, Series 2001 maturing on and after June 1, 2012 in the aggregate principal
amount of $114,930,000 (the "Refunded 2001 Bonds") and (b) pay certain costs related to the issuance of
the 2011 Bonds. See "THE PLAN OF REFUNDING" and "ESTIMATED SOURCES AND USES
OF FUNDS."
The 2011 Bonds. The 2011 Bonds will be dated as of their date of issuance and will bear interest
from their date. Interest on the 2011 Bonds will be payable on December 1, 2011, and semiannually
thereafter on each June 1 and December 1, at the rates shown on the inside cover page. Principal on the
2011 Bonds will be payable, subject to redemption as described herein, on June 1, 2012 and thereafter on
December 1 in the years and amounts shown on the inside cover page. The 2011 Bonds are offered in
denominations of $5,000 and integral multiples thereof. The 2011 Bonds will be subject to optional
redemption as described below.
Security. The 2011 Bonds will be special obligations of the City, solely secured by and payable
from net revenues (the "Net Revenues," as defined in the General Indenture referenced below) of the
City's water and sanitary sewer utilities system (the "Water and Sewer System") on a parity with all other
Bonds Outstanding from time to time under the General Indenture, except to the extent payable from
proceeds of the 2011 Bonds, certain investment earnings and certain net insurance and other proceeds.
THE 2011 BONDS ARE NOT PAYABLE FROM THE CITY'S GENERAL FUNDS AND DO NOT
CONSTITUTE A LEGAL OR EQUITABLE PLEDGE, CHARGE, LIEN OR ENCUMBRANCE ON ANY OF THE CITY'S
PROPERTY OR ON ANY OF ITS INCOME, RECEIPTS OR REVENUES, EXCEPT THE NET REVENUES AND OTHER
FUNDS PLEDGED TO THEIR PAYMENT. NEITHER THE CITY'S CREDIT NOR ITS TAXING POWER IS PLEDGED
FOR THE PAYMENT OF THE PRINCIPAL OF OR INTEREST ON THE 2011 BONDS, AND NO OWNER HAS THE
RIGHT TO COMPEL THE EXERCISE OF THE CITY'S TAXING POWER OR THE FORFEITURE OF ANY CITY
PROPERTY IN CONNECTION WITH ANY DEFAULT ON THE 2011 BONDS. See "SECURITY AND
SOURCES OF PAYMENT."
The 2011 Bonds will be authorized and issued pursuant to a bond order and a resolution adopted
by the City Council of the City and pursuant to (1) a General Indenture (the "General Indenture") dated
as of November 1, 1996, as heretofore amended, between the City and First Union National Bank of
North Carolina (the successor of which is U.S. Bank National Association), as trustee (the "Trustee"), and
(2) Series Indenture, Number 13 ("Series Indenture, Number 13" and collectively with the General
Indenture, the "Indentures"), dated as of August 1, 2011, between the City and the Trustee.
Under the General Indenture, the City has previously issued $1,920,170,000 in principal amount
of its Water and Sewer System Revenue Bonds, of which $1,465,220,000 aggregate principal amount of
Bonds is currently Outstanding (the "Prior Bonds").
After the refunding of the Refunded 2001 Bonds, Bonds in the aggregate principal amount of
$1,443,680,000 will remain Outstanding under the General Indenture, consisting of Prior Bonds in the
aggregate principal amount of $1,350,290,000 and the 2011 Bonds in the aggregate principal amount of
$93,390,000. The 2011 Bonds will be secured by and payable from the Net Revenues on a parity with the
Prior Bonds and any Additional Bonds Outstanding from time to time under the General Indenture.
Tax Treatment. In the opinion of Bond Counsel, under existing laws, interest on the 2011 Bonds
is (1) excludable from gross income of a recipient thereof for federal income tax purposes, (2) not an item
of tax preference for purposes of the federal alternative minimum tax imposed on individuals and
corporations and (3) exempt from all State of North Carolina income taxation. See "LEGAL
MATTERS—TAX TREATMENT" herein.
Professionals. Merrill Lynch, Pierce Fenner & Smith Incorporated and Wells Fargo Bank,
National Association (the "Underwriters"), are underwriting the 2011 Bonds. DEC Associates, Inc.,
Charlotte, North Carolina, is serving as Financial Advisor to the City. Waters and Company, LLC,
Birmingham, Alabama, is serving as Financial Consultant to the City. Parker Poe Adams & Bernstein
LLP, Charlotte, North Carolina, is serving as Bond Counsel to the City. McGuireWoods LLP, Charlotte,
North Carolina, is serving as counsel to the Underwriters. DeWitt F. McCarley, Esq., Charlotte, North
Carolina, is the City Attorney. U.S. Bank National Association, Charlotte, North Carolina, is serving as
Trustee under the Indentures.
Additional Information. Additional information and copies in reasonable quantity of the
principal financing documents may be obtained from the City Treasurer or Director of Finance at 600
East Fourth Street, Charlotte, North Carolina 28202, Attention: City Treasurer (704-336-5883) or
Director of Finance (704-336-5885). Copies of such documents can also be obtained during the offering
period from Merrill Lynch, Pierce Fenner & Smith Incorporated, 214 North Tryon Street, Charlotte,
North Carolina 28255, Attention: Public Finance. The City will make available to any interested party
any reasonably available information otherwise compiled by the City concerning the 2011 Bonds, the
Water and Sewer System or the City's condition or operations such as annual audited financial statements
(and, if prepared, its comprehensive annual financial reports), on written request to the City Treasurer or
the Director of Finance at the above address and the payment of duplicating costs.
Continuing Disclosure. The City has undertaken in Series Indenture, Number 13, for the benefit
of the beneficial owners of the 2011 Bonds, to provide certain annual financial information and operating
data and to provide notice of certain material events. See "CONTINUING DISCLOSURE
OBLIGATION" below.
2
THE 2011 BONDS
AUTHORIZATION
The 2011 Bonds will be issued pursuant to the Indentures.
The City's issuance of the 2011 Bonds is authorized by The State and Local Government Revenue
Bond Act (the "Act"), which is Article 5, Chapter 159 of the North Carolina General Statutes, and by a
bond order and resolution adopted by the City Council of the City.
The City's issuance of the 2011 Bonds has received the required approval of the North Carolina
Local Government Commission (the "LGC"). The LGC is a division of the North Carolina State
Treasurer's office charged with general oversight of local government finance in the State of North
Carolina (the "State"). The LGC's approval is required for substantially all local government bond issues
and substantially all other local government financing arrangements in the State.
Under the Act, in determining whether to allow bonds to be issued, the LGC has wide discretion
to consider the need for and feasibility of the projects to be financed, the local government's capability to
repay the amount financed from the pledged revenue sources, and the local government's general
compliance with State budget and finance laws. Under the Act, the LGC is also responsible, with the
issuing unit's approval, for selling bonds issued pursuant to the Act. See Appendix C for additional
information on the LGC and its powers and duties.
GENERAL TERMS
Payment Terms. The 2011 Bonds will be dated their date of issuance and will bear interest from
their date. Interest on the 2011 Bonds will be payable on December 1, 2011, and semiannually thereafter
on each June 1 and December 1 (the "Interest Payment Dates"), at the rates shown on the inside cover
page (calculated on the basis of a 360-day year consisting of twelve 30-day months). Principal on the
2011 Bonds will be payable, subject to redemption as described herein, on June 1, 2012 and thereafter on
December 1 in the years and amounts shown on the inside cover page. Payments will be effected through
The Depository Trust Company, New York, New York ("DTC"). See Appendix E. The Trustee will
make payments due on non-Business Days on the succeeding Business Day.
Denominations. The 2011 Bonds are offered in denominations of $5,000 and integral multiples
thereof.
Registration and Exchange. So long as DTC or its nominee is the registered owner of the 2011
Bonds, transfers and exchanges of beneficial ownership interests in the 2011 Bonds will be available only
through DTC participants, as hereinafter described. See Appendix E. The General Indenture describes
the provisions for transfer and exchange applicable if a book-entry system is no longer in effect.
REDEMPTION PROVISIONS
Optional Redemption of 2011 Bonds. The 2011 Bonds maturing on or before December 1, 2021
are not subject to optional call and redemption prior to maturity. The 2011 Bonds maturing after
December 1, 2021 may be redeemed prior to their maturities, at the option of the City, from any funds
that may be available for such purpose, either in whole or in part on any date on or after December 1,
2021. The 2011 Bonds called for redemption under this paragraph will be redeemed at a redemption price
equal to 100% of the principal amount of 2011 Bonds to be redeemed, together with accrued interest, if
any, to the Redemption Date.
Notice of Redemption. The Trustee will send notice of redemption not less than 30 days nor
more than 60 days before the Redemption Date of the 2011 Bonds or portions thereof to be redeemed (1)
to the LGC by first-class United States mail, postage prepaid ("Mail") or facsimile, (2)(a) to DTC or its
3
nominee by registered or certified mail at the address provided to the Trustee by DTC or as otherwise
permitted by DTC's rules and procedures or (b) if DTC or its nominee is no longer the Owner of the 2011
Bonds, by Mail to the then-registered Owners of 2011 Bonds to be redeemed at the last address shown on
the registration books kept by the Registrar, (3) to each of the then-existing securities depositories, by
Mail or facsimile transmission and (4) to the Municipal Securities Rulemaking Board (the "MSRB") in a
electronic format as prescribed by the MSRB.
Selection of 2011 Bonds for Redemption. If less than all of the 2011 Bonds are called for
redemption, the City will select the maturity or maturities of the 2011 Bonds to be redeemed. If less than
all 2011 Bonds of any maturity are to be redeemed, the 2011 Bonds to be redeemed will be selected (1)
by DTC pursuant to its rules and procedures or (2) if a book-entry system is no longer in effect, by the
Trustee by lot in such manner as the Trustee in its discretion may deem proper. If the 2011 Bonds are to
be redeemed in part, they may be redeemed only in integral multiples of $5,000. If a portion of a 2011
Bond is called for redemption, a new 2011 Bond in principal amount equal to the unredeemed portion
thereof will be issued to the Owner thereof upon surrender thereof.
Effect of Call for Redemption. If notice is properly given and the City makes available sufficient
funds or securities for redemption at the time and place indicated for redemption, in accordance with the
Indentures, the 2011 Bonds or portions thereof so called for redemption shall become due and payable on
the Redemption Date, and interest on such 2011 Bonds or portions thereof shall cease to accrue from and
after such date.
BOOK-ENTRY-ONLY FORM
The 2011 Bonds will be delivered as fully registered certificates in book-entry-only form without
physical delivery of certificates to the beneficial owners of the 2011 Bonds. The Trustee will make
payments of principal and interest on the 2011 Bonds to DTC, which will in turn remit such payments to
its direct participants for subsequent distribution to the beneficial owners of the 2011 Bonds. See
Appendix E.
THE PLAN OF REFUNDING
In connection with the issuance of the City's Water and Sewer System Revenue Bonds, Series
2001 (the "2001 Bonds"), an account of the Reserve Fund was established for the 2001 Bonds (the "2001
Reserve Fund"). In connection with the refunding of the Refunded 2001 Bonds, the amount of the reserve
requirement in the 2001 Reserve Fund will be released and transferred by the Trustee to the Debt Service
Fund created under the General Indenture.
The Refunded 2001 Bonds in the aggregate principal amount of $114,930,000 are to be called for
redemption on the date the 2011 Bonds are issued at a price equal to 101% of the outstanding principal
amount of the Refunded 2001 Bonds, plus accrued interest to the date of redemption. To accomplish the
refunding of the Refunded 2001 Bonds, (1) proceeds from the sale of the 2011 Bonds will be deposited by
the Trustee in the Debt Service Fund created under the General Indenture, (2) the City will transfer, from
its own funds, an amount equal to the accrued interest on the Refunded 2001 Bonds to the Redemption
Date to the Trustee for deposit in the Debt Service Fund and (3) the Trustee will transfer the amount
released from the 2001 Reserve Fund to the Debt Service Fund.
After the refunding of the Refunded 2001 Bonds, Bonds in the aggregate principal amount of
$1,443,680,000 Outstanding under the General Indenture, consisting of Prior Bonds in the aggregate
principal amount of $1,350,290,000 and the 2011 Bonds in the aggregate principal amount of
$93,390,000.
4
ESTIMATED SOURCES AND USES OF FUNDS
The following table presents estimated information as to sources and uses of funds for the Plan of
Refunding:
1
2
Sources of Funds:
Par Amount of 2011 Bonds
Net Original Issue Premium
Release of 2001 Reserve Fund
City Contribution1
Total
$ 93,390,000
12,238,644
11,169,531
1,022,299
$117,820,474
Uses of Funds:
Deposit to the Debt Service Fund
Costs of Issuance2
Total
$117,101,599
718,875
$117,820,474
Consists of accrued interest due on the Refunded 2001 Bonds.
Includes various professional fees, other financing costs and underwriters' discount.
[Remainder of page intentionally left blank]
5
DEBT SERVICE REQUIREMENTS
The following table presents information on the City's debt service obligations on the 2011 Bonds, the Prior Bonds and other obligations of the City, the
proceeds from which were applied to improvements to the Water and Sewer System and the principal of and interest on which are payable from the Net Revenues
of the Water and Sewer System.
FISCAL YEAR
ENDING JUNE 30
PRINCIPAL
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
2037
2038
2039
2040
TOTALS
1
2
PRIOR BONDS
2011 BONDS
$ 3,320,000
3,775,000
5,685,000
5,865,000
6,060,000
6,300,000
6,575,000
6,895,000
7,225,000
7,555,000
7,930,000
8,340,000
8,725,000
9,140,000
---------------$93,390,000
INTEREST
TOTAL
$ 3,249,069
3,818,625
3,676,725
3,503,475
3,307,675
3,065,275
2,789,500
2,475,925
2,145,275
1,810,975
1,436,700
1,029,950
639,225
228,500
---------------$33,176,894
$ 6,569,069
7,593,625
9,361,725
9,368,475
9,367,675
9,365,275
9,364,500
9,370,925
9,370,275
9,365,975
9,366,700
9,369,950
9,364,225
9,368,500
---------------$126,566,894
OUTSTANDING
REVENUE BONDS
TOTAL1,2
$
45,173,768
96,914,154
97,509,748
96,903,199
96,903,508
97,571,552
97,024,172
97,654,992
97,063,491
97,098,993
97,122,376
94,220,342
94,277,043
88,917,906
81,578,417
81,574,093
81,586,872
69,689,756
69,682,501
69,681,579
69,675,577
69,673,417
69,672,470
69,661,373
69,676,315
69,787,293
45,922,056
45,917,306
24,026,653
$2,282,160,922
TOTAL
$
51,742,837
104,507,779
106,871,473
106,271,674
106,271,183
106,936,827
106,388,672
107,025,917
106,433,766
106,464,968
106,489,076
103,590,292
103,641,268
98,286,406
81,578,417
81,574,093
81,586,872
69,689,756
69,682,501
69,681,579
69,675,577
69,673,417
69,672,470
69,661,373
69,676,315
69,787,293
45,922,056
45,917,306
24,026,653
$2,408,727,816
CONTRACTUAL
OBLIGATIONS
(INCLUDING
GENERAL
OBLIGATION
INDEBTEDNESS)
$ 42,768,882
39,515,982
39,370,572
36,059,414
35,744,292
34,563,224
31,374,891
27,374,756
20,243,752
15,782,695
6,704,186
6,603,809
2,195,908
----------------$338,302,363
TOTAL
$
94,511,719
144,023,761
146,242,045
142,331,088
142,015,475
141,500,051
137,763,563
134,400,673
126,677,518
122,247,663
113,193,262
110,194,101
105,837,176
98,286,406
81,578,417
81,574,093
81,586,872
69,689,756
69,682,501
69,681,579
69,675,577
69,673,417
69,672,470
69,661,373
69,676,315
69,787,293
45,922,056
45,917,306
24,026,653
$2,747,030,179
Debt Service on Prior Bonds excludes debt service on the Refunded 2001 Bonds.
The foregoing table assumes the following: (a) $174,755,000 Variable Rate Water and Sewer System Revenue Bonds, Series 2006B is calculated at an interest rate of 4.04% per annum to reflect the
Interest Rate Swap Agreement dated as of August 19, 2005 between the City and Wachovia Bank, National Association and the related confirmation dated July 29, 2009, (b) $102,565,000 Variable
Rate Water and Sewer System Refunding Revenue Bonds, Series 2002C maturing on June 1, 2025 is calculated at an interest rate of 3.79% per annum to reflect the Interest Rate Swap Agreement
dated as of February 14, 2002 between the City and Bank of America, N.A. (the "Bank of America Master Swap Agreement") and the related confirmation dated July 26, 2002 and (c) $114,430,000
Variable Rate Water and Sewer System Revenue Bonds, Series 2002B maturing July 1, 2027 has been calculated at an interest rate of 4.03% per annum to reflect the Bank of America Master Swap
Agreement and the related confirmation dated February 14, 2002. See Note 4 "DETAILED DISCLOSURES ON ALL FUNDS – (j) Long-term Liabilities – (7) Derivative Instruments" in the notes
to the City's Financial Statements included in Appendix A to this Official Statement for a more complete description of these interest rate swap agreements and the City's obligations thereunder.
6
FINANCIAL SCHEDULES
The following table prepared by the City summarizes certain historical financial information
related to the Water and Sewer System.
HISTORICAL FINANCIAL INFORMATION(1)
FISCAL YEAR ENDED JUNE 30 (000'S OMITTED)
2008
2009
2010
2011(2)
$217,100
$225,599
$243,212
$255,802
14,837
9,300
7,395
5,618
8,953
6,053
3,647
2,698
REVENUE
Total operating revenue
Capacity charges (3)
Investment income (4)
Other nonoperating revenue, net
(before amortization) (5)
Total revenue
2007
$207,662
18,652
9,684
1,508
$237,506
2,936
$243,826
1,968
$242,920
1,744
$255,998
3,860
$267,978
Operating expenditures (6)
$ 90,863
$ 97,940
$98,312
$97,115
$101,389
Net income available for debt service
$146,643
$145,886
$144,608
$158,883
$166,589
Revenue bond debt service (7)
$ 51,141
$ 68,236
$72,715
$78,477
$90,279
2.87x
2.14x
1.99x
2.02x
1.85x
$108,185
$126,050
$114,596
$127,184
$136,200
1.36x
1.16x
1.26x
1.25x
1.22x
457,084
464,524
466,933
473,029
477,006(10)
Revenue bond debt service coverage
(times) (7),(8)
Total debt service (9)
Total system debt service coverage
(times) (8),(9)
Number of water and sewer accounts
_______________
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
Extracted from City of Charlotte Comprehensive Annual Financial Report and supporting documentation,
except for Fiscal Year 2011 information which is unaudited.
Unaudited.
Relates to capital recovery charges collected at time of customer connection.
Includes earnings on debt service funds, existing debt service reserve funds, operating funds and construction
funds which do not contain revenue bond proceeds. Excludes earnings on the Construction Fund and the
accounts thereof established under the Indentures.
Includes gain or loss (if any) on sale of fixed assets.
Excludes depreciation.
Includes debt service on the Prior Bonds and Commercial Paper. Debt service calculations include interest on
Commercial Paper, but not redemption of principal of Commercial Paper.
Excludes the unrestricted fund balance in the Surplus Fund. See "FINANCIAL SCHEDULES - PROJECTED
FINANCIAL INFORMATION – Statement of Assumptions."
Includes debt service on the Prior Bonds and Commercial Paper, General Obligation Indebtedness and
contractual obligations related to the Water and Sewer System.
Through June 1, 2011.
7
PROJECTED FINANCIAL INFORMATION
Statement of Assumptions.
Certain assumptions were made in conjunction with the financial projections prepared by the City
for the Water and Sewer System for the five fiscal years ending June 30, 2012 through 2016. These
assumptions, as well as the financial projections, were reviewed by an independent consultant
experienced in the preparation of financial projections for water and sewer systems and found to be
reasonable. The following is a summary of the primary assumptions made in conjunction with the
financial projections:
(a)
The fixed charge component of the rate structure for water service is projected to remain
constant at $2.40 per month in fiscal year 2012 and then increase to $2.49 thereafter. The
fixed charge component of the rate structure for sewer services is also projected to remain
constant at $2.40 per month in fiscal year 2012 and then increase to $2.49 thereafter. In
addition, a new availability charge will be collected monthly for both water and sewer
accounts beginning in fiscal year 2012 with such charges established at levels sufficient
to recover 20% of annual debt service on (i) all Bonds outstanding under the General
Indenture and (ii) outstanding General Obligation Indebtedness and outstanding Other
Indebtedness related to the Water and Sewer System. For fiscal year 2012, the monthly
availability charge for a typical residential water and sewer customer with a 5/8" meter
will be $6.55. When the $6.55 availability charge is combined with both $2.40 fixed
charges for water services and sewer services as described above, the total monthly fixed
charge for a residential water and sewer customer will be $11.35 in fiscal year 2012.
Revenues from availability charges are projected to increase from $28.8 million in fiscal
year 2012 to $32.8 million in fiscal year 2016.
(b)
The number of water accounts is projected to increase by 0.5% annually, and demand for
water service is projected to increase by 0.43% during fiscal year 2012 and then increase
by 0.5% annually thereafter.
(c)
The volume charge component of the rate structure for water service is projected to
decrease by an average of 0.2% in fiscal year 2012 and then increase by an average of
8.6% in fiscal year 2013, with the rates for some tiers increased and others decreased.
The volume charge component for all tiers is projected to increase by 6.3% in fiscal year
2014 and 5.5% in fiscal years 2015 and 2016.
(d)
The number of sewer accounts is projected to increase by 0.5% annually. Sewer usage is
projected to decrease by 3.49% during fiscal year 2012 as the monthly cap for residential
usage is reduced from 24 Ccf to 16 Ccf. Sewer usage after fiscal year 2012 is projected
to increase at 0.5% annually.
(e)
The volume charge component of the rate structure for sewer service is projected to
decrease by 3.9% in fiscal year 2012 and then increase by 6.5% in fiscal year 2013, 6.0%
in fiscal year 2014, 7.0% in fiscal year 2015 and 6.0% in fiscal year 2016.
(f)
Receipts from water and sewer capacity charges are projected to be $5.7 million
annually.
(g)
Operating expenditures excluding bank charges and financing-related operating
expenditures are projected to be $112.9 million in fiscal year 2012 and are projected to
increase by 4.5% annually.
(h)
Previously appropriated pay-as-you-go funds totaling $70,000,000 have been reallocated
for expenditure on other capital projects for the Water and Sewer System in fiscal years
8
2012-2016. Additional capital expenditures for Water and Sewer System capital projects
for fiscal years 2012-2016 are projected to be $584,250,000 funded on a "cash needed"
basis as follows: $331,000,000 from future Bond and future Commercial Paper,
$20,000,000 from future installment purchase financing proceeds, and $233,250,000
from internally generated pay-as-you-go funds. Capital expenditures for Water and
Sewer System capital projects (other than those funded using installment purchase
financing proceeds and pay-as-you-go funds) are projected to be funded from future
Bond and future Commercial Paper as follows: $81,000,000 in fiscal year 2013,
$70,000,000 in fiscal year 2014, $90,000,000 in fiscal year 2015 and $90,000,000 in
fiscal year 2016. It is assumed that future Commercial Paper notes will be redeemed
periodically with proceeds of future refunding bonds, resulting in a $151,000,000 bond
issue at the beginning of fiscal year 2015 and a $180,000,000 bond issue at the beginning
of fiscal year 2017. Future refunding bonds are assumed to be issued as 30-year fixedrate obligations with level annual debt service. The assumed all-in interest rate for future
fixed-rate bonds is 5.50% and for future Commercial Paper notes is 3.50%.
(i)
The 2011 Bonds are assumed to be issued on August 3, 2011 at an all-in true interest cost
of 3.088%, resulting in annual savings of approximately $3,000,000 in fiscal years 2012
and 2013 and $868,000 in fiscal years 2014 through 2016.
(j)
Except for the debt service reserve fund on the 2002A Bonds currently invested in an
investment agreement, investment yields on fund balances are projected to be 1.25%.
See "SECURITY AND SOURCES OF PAYMENT – THE RESERVE FUND" herein.
[Remainder of page intentionally left blank]
9
The General Indenture permits the City, for purposes of complying with the annual rate covenant
requirement, to include 50% of the balance in the Surplus Fund at the end of the preceding Fiscal Year as
"Revenues." However, for purposes of the following projections, the City has excluded all amounts in the
Surplus Fund. As of June 30, 2011, the estimated unrestricted fund balance in the Surplus Fund was
approximately $132,735,000.
Projected Financial Information.
Revenue
Total operating revenue
Capacity charges (1)
Investment income (2)
Total revenue
FISCAL YEAR ENDING JUNE 30 (000'S OMITTED)
2013
2014
2015
2016
2012
$287,044
$306,971
$325,153
$343,761
$364,013
5,700
5,700
5,700
5,700
5,700
1,890
2,063
2,234
2,344
2,337
$294,634
$314,734
$333,087
$351,804
$372,050
Operating expenditures (3)
$113,318
$115,861
$121,510
$126,435
$132,389
Net income available for debt service
$181,316
$198,873
$211,577
$225,370
$239,661
Revenue bond debt service (4)
$100,380
$107,277
$112,668
$114,142
$122,978
1.81x
1.85x
1.88x
1.97x
1.95x
$144,048
$148,590
$154,735
$153,795
$163,215
1.26x
1.34x
1.37x
1.47x
1.47x
477,375
479,762
482,161
484,571
486,994
Revenue bond debt service
coverage (times) (4)
Total debt service (5)
Total system debt service
coverage (times) (5)
Number of water and sewer accounts
_______________
(1)
(2)
(3)
(4)
(5)
Relates to capital recovery charges collected at time of customer connection.
Includes earnings on debt service funds, existing debt service reserve funds, operating funds and construction funds which
do not contain revenue bond proceeds. Excludes earnings on the Construction Fund and the accounts thereof established
under the Indentures.
Excludes depreciation.
Includes debt service on the Prior Bonds, the 2011 Bonds, future Commercial Paper notes and future refunding bonds. A
future bond issue of $151,000,000 is projected to be issued early in fiscal year 2015. In addition, $180,000,000 of future
Commercial Paper notes is projected to be outstanding as of June 30, 2016. Debt service includes interest on future
Commercial Paper notes, but not redemption of principal on future Commercial Paper notes.
Includes debt service on the Prior Bonds, the 2011 Bonds, future Commercial Paper notes, future refunding bonds, General
Obligation Indebtedness, outstanding contractual obligations related to the Water and Sewer System and $20,000,000 of
additional contractual obligations projected to be incurred in fiscal years 2012 – 2016. A future bond issue of $151,000,000
is projected to be issued through fiscal year 2015. In addition, $180,000,000 of future Commercial Paper notes is projected
to be outstanding as of June 30, 2016. Debt service includes interest on future Commercial Paper notes, but not redemption
of principal on future Commercial Paper notes.
SECURITY AND SOURCES OF PAYMENT
SPECIAL OBLIGATIONS
The 2011 Bonds will be special obligations of the City, solely secured by and payable from the
Net Revenues on a parity with the Prior Bonds and all other Bonds and Commercial Paper Outstanding
from time to time under the General Indenture, except to the extent that the 2011 Bonds are payable from
proceeds of the 2011 Bonds, certain investment earnings and certain net insurance and other proceeds.
THE 2011 BONDS ARE NOT PAYABLE FROM THE CITY'S GENERAL FUNDS AND DO NOT
CONSTITUTE A LEGAL OR EQUITABLE PLEDGE, CHARGE, LIEN OR ENCUMBRANCE ON ANY OF THE CITY'S
PROPERTY OR ON ANY OF ITS INCOME, RECEIPTS OR REVENUES, EXCEPT THE NET REVENUES AND OTHER
10
FUNDS PLEDGED THERETO UNDER THE GENERAL INDENTURE AND SERIES INDENTURE, NUMBER 13.
NEITHER THE CITY'S CREDIT NOR ITS TAXING POWER ARE PLEDGED FOR THE PAYMENT OF THE PRINCIPAL
OF OR INTEREST ON THE 2011 BONDS, AND NO OWNER HAS THE RIGHT TO COMPEL THE EXERCISE OF THE
CITY'S TAXING POWER OR THE FORFEITURE OF ANY OF ITS PROPERTY IN CONNECTION WITH ANY DEFAULT
ON THE 2011 BONDS.
The concept of the Net Revenues, as more fully described below, is related to revenues derived
from services provided by the "Water and Sewer System." The components of the Water and Sewer
System currently are the City's water and sanitary sewer utilities. See "THE WATER AND SEWER
SYSTEM" herein.
After the refunding of the Refunded 2001 Bonds, Bonds in the aggregate principal amount of
$1,443,680,000 will remain Outstanding under the General Indenture, consisting of Prior Bonds in the
aggregate principal amount of $1,350,290,000 and the 2011 Bonds in the aggregate principal amount of
$93,390,000. The City Council has authorized the issuance of up to $400,000,000 of Commercial Paper
(the "Commercial Paper") pursuant to the City's revenue bond anticipation note commercial paper
program. The City currently does not intend to use this Commercial Paper until the fall of 2012. The
2011 Bonds will be secured by and payable from the Net Revenues on a parity with the Prior Bonds, any
future Commercial Paper and any Additional Bonds Outstanding from time to time under the General
Indenture.
PLEDGE OF NET REVENUES
The Net Revenues are pledged to the payment of, and as security for, all Bonds Outstanding
under the General Indenture, including the 2011 Bonds, the Prior Bonds, any future commercial paper
notes and any Additional Bonds that may be issued under the General Indenture.
"Net Revenues" means the excess of Revenues over Current Expenses.
"Revenues" means all fees (including any tap or impact fees), rentals or other charges or other
income received by the City in connection with the ownership, management and operation of the Water
and Sewer System, and all parts thereof, including amounts received from the investment or deposit of
moneys in any Fund or Account (but not including amounts received from interest or other investment
income earned in the Construction Fund and, during the construction period, the Reserve Fund), all as
calculated in accordance with generally accepted accounting principles except as otherwise provided in
the General Indenture, but does not include (1) net proceeds of insurance or condemnation awards or
other extraordinary items, (2) any amounts collected by the City representing sales or use taxes which
may be required by law or agreement to be paid to the State or a governmental unit thereof, or (3)
refundable deposits made by customers of the Water and Sewer System.
"Current Expenses" means the current expenses of operation, maintenance and current repair of
the Water and Sewer System, as calculated in accordance with generally accepted accounting principles
except as otherwise provided in the General Indenture, but not including (1) any allowance for
depreciation or replacements of capital assets of the Water and Sewer System, (2) moneys payable as
Interest or interest on General Obligation Indebtedness, Subordinate Indebtedness or Other Indebtedness,
or (3) moneys deposited or transferred to the Reserve Fund. For a complete definition of "Current
Expenses," see "--DEFINITIONS OF CERTAIN TERMS" in Appendix B.
RATE COVENANT
Under the General Indenture, before the beginning of each Fiscal Year, the City is required to fix,
establish or maintain or cause to be fixed, established and maintained such rates and charges for the
provision of services of the Water and Sewer System, and to revise or cause to be revised the same, as
necessary, as will produce (a) Revenues which, together with 50% of the balance in the Surplus Fund at
the end of the preceding Fiscal Year, is at least equal in such Fiscal Year to the total of (1) the Current
11
Expenses budgeted for such Fiscal Year, as amended from time to time, plus (2) 120% of the Principal
and Interest Requirements to become due during that Fiscal Year, which includes interest on Commercial
Paper and debt service on the 2011 Bonds, the Prior Bonds and any other Bonds hereafter issued by the
City pursuant to the General Indenture, plus (3) 100% of the principal and interest due on the City's
outstanding General Obligation Indebtedness, Other Indebtedness and Subordinate Indebtedness, plus (4)
100% of the amount required to reimburse the provider of a Qualified Reserve Fund Substitute and (b)
Revenues at least equal in such Fiscal Year to the total of (1) the Current Expenses budgeted for such
Fiscal Year, as amended from time to time, plus (2) 110% of the Principal and Interest Requirements on
the Bonds to become due during that Fiscal Year, which includes interest on Commercial Paper and debt
service on the 2011 Bonds, the Prior Bonds and any other Bonds Outstanding under the General
Indenture, plus (3) 100% of the Principal and Interest Requirements on Subordinate Indebtedness to
become due in such Fiscal Year plus (4) 100% of the Principal and Interest Requirements on General
Obligation Indebtedness to become due in such Fiscal Year plus (5) 100% of the Principal and Interest
Requirements on Other Indebtedness to become due in such Fiscal Year plus (6) 100% of the amount
required to reimburse the provider of a Qualified Reserve Fund Substitute for any amounts owing
thereunder. The City has covenanted in the General Indenture that all users, including political
subdivisions and public bodies (State or federal) who receive services from the Water and Sewer System
will pay therefor at the established rates, fees and charges, but the City may adopt specific policies with
respect to use by persons of low income and the rates, fees and charges need not be uniform.
FUNDS AND ACCOUNTS HELD UNDER GENERAL INDENTURE
The General Indenture establishes several separate funds and accounts for the custody and
application of Bond proceeds, Revenues and other funds.
Proceeds of the 2011 Bonds will be transferred by the Trustee to (1) the Debt Service Fund and
(2) the 2011 Cost of Issuance Account of the Construction Fund to pay costs of issuance for the 2011
Bonds.
The City will cause all Revenues to be deposited in the Water and Sewer Operating Fund as such
Revenues are received by the City. Under the General Indenture, the City is required periodically to
transfer amounts from the Water and Sewer Operating Fund to other funds and accounts, including funds
and accounts to be used for payment of Current Expenses and debt service on the Prior Bonds and the
2011 Bonds, and for payment of other contractual obligations related to the Water and Sewer System.
See "--FUNDS AND ACCOUNTS" in Appendix B.
All of the money and securities held in these funds and accounts, except for the Water and Sewer
Revenue Bond Fund, the Water and Sewer Operating Fund, the Extension and Replacement Fund, the
Surplus Fund and the Reserve Fund are pledged to the Trustee for the benefit of the Owners to secure
payment of the Prior Bonds, the 2011 Bonds and any other Bonds Outstanding from time to time under
the General Indenture.
THE RESERVE FUND
The General Indenture provides for the creation of the Reserve Fund and further provides that the
respective series indenture for each series of Bonds issued under the General Indenture will determine
whether the Reserve Fund is to be used for such series and will establish the provisions regarding the use
of the Reserve Fund with respect to such series.
In connection with the issuance of the City's Water and Sewer System Revenue Bonds, Series
2002A (the "2002A Bonds"), a separate account of the Reserve Fund was established in an amount equal
to the reserve requirement for the 2002A Bonds (the "2002A Reserve Fund"). The 2002A Reserve Fund
provides security only for the 2002A Bonds. After the release of the 2001 Reserve Fund in connection
with the refunding of the Refunded 2001 Bonds, the only account of the Reserve Fund existing under the
12
General Indenture will be the 2002A Reserve Fund. THE 2011 BONDS ARE NOT ENTITLED TO THE
BENEFITS OF THE 2002A RESERVE FUND.
Series Indenture, Number 13 does not provide for the establishment of an account of the Reserve
Fund as additional security for the 2011 Bonds.
ADDITIONAL BONDS
Under the conditions described in the General Indenture and without the approval or consent of
the Owners, the City can incur additional parity indebtedness secured by a lien on Net Revenues and other
funds ranking on a parity with the lien securing the Prior Bonds and the 2011 Bonds. See "COVENANTS
OF THE CITY --Issuance of Additional Bonds" in Appendix B.
AMORTIZATION OF LIQUIDITY FACILITY BONDS
Under the General Indenture, the City has previously issued variable rate Bonds which, are
Outstanding in the aggregate principal amount of $391,750,000, the purchase price of which upon tender
for purchase is supported by various liquidity facilities entered into in connection with the issuance of
such variable rate bonds (collectively, the "Liquidity Facility Bonds"). The General Indenture and the
various liquidity facilities provide that the principal amount of any Liquidity Facility Bond is to be paid to
the respective liquidity provider in accordance with the terms specified in the applicable liquidity facility.
According to the terms of the General Indenture and the various liquidity facilities, the City could be
required to amortize the principal of any Liquidity Facility Bonds that become Liquidity Facility Bonds,
as applicable, in accordance with the terms of the applicable liquidity facility over a shorter period of time
(generally a 5-year period from the date purchased) than would be applicable if none of the Liquidity
Facility Bonds subsequently become Liquidity Facility Bonds, as applicable, which could have a material
adverse effect on the projected Revenue Bond Debt Service Coverage set forth under "FINANCIAL
SCHEDULES - PROJECTED FINANCIAL INFORMATION" herein.
THE WATER AND SEWER SYSTEM
The Charlotte-Mecklenburg Utilities Department ("Utilities") was formed in 1972 as an
administrative department of the City to operate the water and wastewater treatment, water distribution,
and wastewater collection systems for the City and the County. In the 1980's, Utilities was further
expanded to provide the same services for the remaining six incorporated towns in the County. As
created and so expanded, this water and sewer system constitutes the "Water and Sewer System." The
agreements with the County and with the other six incorporated towns in the County prevent the County
and the other towns from providing water or sanitary sewer services. At June 1, 2011, the City had
248,155 water accounts and 228,851 sanitary sewer accounts.
PERSONNEL
W. Curtis Walton, Jr. is the City Manager of Charlotte, North Carolina. Previous positions with
the City include Assistant City Manager, Budget and Evaluation Director, Deputy City Manager for
Internal Operations, Budget and Evaluation Analyst, Budget and Evaluation Manager and Interim Key
Business Executive for Business Support Services. Mr. Walton received his bachelors' degrees in
Political Science and Psychology from The University of North Carolina at Chapel Hill and completed a
master's degree in Urban Administration (now Public Administration) from The University of North
Carolina at Charlotte in 1982. He is a member of the International City/County Management Association
(ICMA), the North Carolina City and County Managers Association, and served on the board of the North
Carolina Local Government Budget Association. His professional development includes the Public
Executive Leadership Academy and the Municipal Administration Program at UNC-Chapel Hill,
Leadership for the 21st Century through Harvard University and Leadership Charlotte. He currently
serves on the board of directors for the Levine Museum of the New South.
13
Greg C. Gaskins is the Chief Financial Officer for the City. In such capacity, he supervises the
Treasury, Revenue, Accounting, Systems and Risk Management Divisions of the City's Finance
Department. He has over 22 years of high level management experience with the City. Prior to joining
the City, Mr. Gaskins served as the Departmental Attorney for the State Treasurer of North Carolina and
was Counsel to the North Carolina Local Government Commission. In that capacity, he advised local
governments throughout North Carolina on various legal matters concerning debt issuance and
management. Mr. Gaskins is a graduate of Wake Forest University and the Wake Forest University Law
School. He also holds a Masters of Business Administration degree from the University of South
Carolina.
Barry Gullet has served as the Key Business Executive (Director) of Utilities since June 2010.
Leading up to this position, he worked as a Civil Engineer I for six years beginning in 1978, as Assistant
Chief Engineer for eight years and as Deputy Director for the past eighteen years. His initial assignment
as Deputy Director was to serve as interim Superintendent of Water Treatment for approximately one
year. In addition, Mr. Gullet served as interim Wastewater Superintendent for three years. Mr. Gullet
earned a Bachelor of Science in Engineering from The University of North Carolina at Charlotte in 1978
and has completed an Engineering Management Certificate Program also at UNCC. He is a registered
Professional Engineer and Certified Water Treatment Facility Operator. He served as Chair of the North
Carolina American Water Works Association and the Water Environment Association in 2007 and is
currently Chair of the Catawba-Wateree Water Management Group.
Kimberly S. Eagle joined the City in 1995 and has served as Deputy Director of Utilities since
November 2010. Leading up to this position, Dr. Eagle worked for 8 years in the City of Charlotte
Budget and Evaluation Department as the Evaluation Manager and prior to that, she served for 8 years in
several roles within Utilities, including Assistant Business Manager. She earned her doctorate in public
administration from the Center for Public Administration and Policy at Virginia Tech. She also holds a
master's degree in public administration and an education specialist degree, both from Appalachian State
University, and a Bachelor of Arts degree from Wingate University. Dr. Eagle has taught several
graduate courses in public administration, published articles on administrative reform and performance
measurement, and has led numerous workshops on strategic planning both at the local level and in
conjunction with local governments and universities in the United States, Trinidad and Sweden. She is an
active member of the America Society for Public Administration and the North Carolina American Water
Works Association.
Barry Shearin was appointed Chief Engineer of Utilities in January 1999. In this capacity, he is
responsible for the approximately 100-person Engineering Division of Utilities. Mr. Shearin was
previously employed by the City of Winston-Salem, North Carolina, serving as a civil engineer, plants
engineer and finally as Utilities Superintendent, responsible for managing water and wastewater systems,
customer billing and solid waste disposal activities. Mr. Shearin earned a Bachelor of Science in Civil
Engineering from North Carolina State University. He is a registered Professional Engineer and holds a
certification in water treatment. Mr. Shearin is active in the American Water Works Association, North
Carolina chapter, received its 1997 Outstanding Service Award and was its Chair in 2003.
Michael B. Hicks has served as Business Manager of Utilities since May 2002. Prior to joining
Utilities, Mr. Hicks worked in the City's Finance Department for 18 years and was responsible for the
City's Comprehensive Annual Financial Report. Mr. Hicks also worked as an external auditor with a
certified public accounting firm for eight years. Mr. Hicks holds a Bachelor of Science and Masters in
Accountancy from the University of South Carolina. He is a Certified Public Accountant, member of the
North Carolina Association of Certified Public Accountants, American Institute of Certified Public
Accountants, the North Carolina Local Government Budget Association, past member of the Government
Finance Officers Association Special Review Committee and has commented to the Government
Accounting Standard Board.
14
WATER SYSTEM
Water Supply. The City's water supply comes from the Catawba River which begins in the
mountains of North Carolina and flows approximately 225 miles as it passes through 11 impoundments
operated by Duke Energy Company ("Duke Energy"). Two of the three impoundments that border
Mecklenburg County, Lake Norman and Mountain Island Lake, are the source of the City's water supply.
These two lakes have a combined surface area greater than 35,000 acres and contain approximately 375
billion gallons of water.
Duke Energy operates these lakes under a license issued by the Federal Energy Regulatory
Commission ("FERC"). The existing FERC license expired in 2008. In 2003, Duke Energy convened
more than 160 stakeholders representing approximately 80 organizations to develop a Comprehensive
Relicensing Agreement (CRA) that was submitted to FERC in 2006 along with Duke Energy's license
renewal application. The FERC has completed an environmental impact statement, and Duke Energy
expects that FERC will issue a new 40 to 50 year license to Duke Energy by the first quarter of 2012.
The CRA and the license application include strategies for maintaining the Catawba as a source
of drinking water for the region while balancing the needs for power generation, recreation and wildlife
habitat. The CRA contains provisions to help protect the water supply including a detailed drought
response plan referred to as the "Low Inflow Protocol (LIP)" and guidelines for the creation of a regional
association, the Catawba-Wateree Water Management Group ("WMG"), made up of the public water
users and Duke Energy. The City is a charter member of the WMG which was officially formed in
December 2007, as a 501(c)(3) non-profit organization. The City's Key Business Executive of Utilities is
serving as the Chair of the WMG and is leading the implementation of the WMG's 5-year Strategic Plan
to help preserve, extend and enhance the capabilities of the Catawba River to provide water resources for
human needs (water supply, power production, industry, agriculture, and commerce).
Because of drought, the LIP was implemented throughout the basin in 2007 and 2008. The LIP
has been effective in reducing the water withdrawals from the Catawba River by Duke Energy, public
water systems and industrial users. By making these reductions, lake levels have been maintained above
critical elevations needed to sustain all water users.
A relicensing study completed by Duke Energy and their consultants analyzed water use
throughout the basin and developed 50-year projections of water supply needs. The Water Supply Study
showed that the safe-yield of Mountain Island Lake and Lake Norman are not expected to be exceeded for
at least 40 to 50 years.
The watershed for the City's water supply is protected through land use and development
restrictions. Watershed zoning limits density and impervious area, provides treatment requirements for
stormwater run-off and establishes buffers along streams and lakes.
Drought. The City and its surrounding region experienced a record-breaking drought in 2007
and 2008. Conditions have improved and the City and its surrounding region are no longer in a drought.
In response to this drought, the regional drought response plan worked well, and communities
along the Catawba River curtailed water usage. In the City and the County, water use decreased by
approximately 37%. Since the drought, State legislation was enacted that requires separate meters for
new irrigation accounts on lots platted after July 1, 2009.
Infrastructure. Raw water is supplied to the Franklin and Vest Plants by the Catawba River
Pump Station on Mountain Island Lake. The pumps at this facility deliver water through three separate
pipelines (54", 60" and 120" diameters) approximately five miles to the Franklin Plant site. The 120"
diameter was completed and placed in service in September 2001. At that point, the water is stored in
three reservoirs awaiting treatment and providing several days of raw water supply on site. Two of the
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three reservoirs are under construction to combine and expand them from 100 million gallons to
approximately 250 million gallons. The third reservoir, constructed in 1989, also has a capacity of 250
million gallons. The reservoirs are constructed to allow gravity flow of water from this site to the Vest
Water Plant about three miles away. Under extreme conditions, pumps near the reservoirs can be
operated to supplement the gravity flow. The Catawba River Pump Station takes maximum advantage of
energy management practices to minimize electrical costs which are the most significant item in its
operating budget. The Catawba River Pump Station's capacity is 330 MGD.
The Franklin Water Plant is the largest in North Carolina. The plant was originally constructed
in 1959 and has been expanded incrementally to its current treatment capacity of 181 MGD of treatment
and nominal pumping capacity of 235 MGD. The treatment processes include flash mixing, flocculation,
settling, dual media filtration, disinfection, pH adjustment, and fluoridation. Operation is facilitated by
computerized monitoring of processes and pumping operations. Investments in equipment and
technology have kept the plant in a high state of readiness to provide safe, potable water to the City's
customers.
Vest Water Plant, constructed in 1924, is a well-maintained structure with state of the art
technology in the areas of plant control and monitoring equipment, chemical feed equipment, and
electrical equipment. The plant's treatment capacity is rated at 32 MGD and the nominal pumping
capacity is 54 MGD. The plant is designated as an AWWA Historic Landmark as well as a local historic
site.
The Lee S. Dukes Water Treatment Plant began operation in February, 1998. This facility is
designed to facilitate easy and economical expansion from its initial capacity of 18 MGD to an ultimate
capacity of at least 108 MGD. The current treatment capacity of this facility is 25 MGD and the nominal
pumping capacity is 43 MGD. The plant is designed to allow operators maximum flexibility in process
operation, anticipating that future technologies and regulations will give rise to different treatment
strategies than are currently employed. For example, valves and controls are in place to allow the plant to
be operated in a conventional or direct filtration mode. The plant will require a minimum amount of
physical maintenance and is constructed to minimize staffing and operational costs. The site for this new
facility was selected, in part, because it allows raw water to flow by gravity from Lake Norman to the
plant. Low lake levels are restricted by Duke Power's FERC license. At the lowest allowable levels, full
raw water capacity to the plant is ensured by operation of the raw water main as a siphon.
Once treated, water is pumped from each of the plants into approximately 4,064 miles of water
mains ranging in size from 2" to 72" diameter. Four booster pumping stations are used to transfer water
to the two higher pressure zones in the distribution system. System storage includes 87 mg clearwell
capacity at the treatment plant sites where generators and diesel driven pumps can keep the system
pumping even in the event of power failures. There are also 8 elevated storage tanks with a total capacity
of 10.5 mg and two ground level repumped storage facilities with a total capacity of 10 mg strategically
located in the system. A systematic tank maintenance/rehabilitation program assures that the storage
tanks are well maintained and will achieve the maximum useful life expectancy. Water levels in each
tank are transmitted by microwave or telephone lines to the treatment plants to facilitate system operation.
The water system has a total treatment capacity of 238 million gallons per day ("MGD"). Its
average water processing in Fiscal Year 2010 was 108.1 MGD. A maximum day water demand of 169.2
MGD was reached in August 2007.
The City completed a water system master plan in 2009 which recommended improvements to
the water transmission, treatment and storage system including expansion of the City's water treatment
facilities to meet the City's projected needs for the next ten years. Since the completion of the master
plan, lower growth trends have resulted in the adjustment of a number of capacity oriented capital
projects including the need to expand the water treatment plant. The City anticipates meeting this need by
pursuing a low cost re-rating of the Vest Water Treatment Plant and expanding the Lee S. Duke Water
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Treatment Plant when future growth trends show the need for the additional capacity. Recent
completions of several large diameter water mains within the system have been successful in meeting the
current capacity needs of the water system and could accommodate any short-term growth.
SANITARY SEWER SYSTEM
Sanitary sewer treatment is provided by five advanced treatment plants which are owned and
operated by the City and by contract at a plant owned by the Water and Sewer Authority of Cabarrus
County. Each Sanitary Sewer Treatment Plant ("WWTP") has a National Pollution Discharge Elimination
System ("NPDES") permit that ensures maximum protection of the receiving stream through stringent
effluent quality requirements. Two of the plants, Sugar Creek and Irwin Creek, are located upstream of
the McAlpine Creek Plant and divert flows in excess of their capacity to that facility. All of the plants are
staffed continuously and are well maintained. The sanitary sewer system includes approximately 4,047
miles of wastewater mains and lines and has a total permitted treatment capacity of 123 MGD. The
average wastewater treatment rate in Fiscal Year 2010 was 83.1 MGD.
McAlpine Creek WWTP is the largest plant in the City's system. The current capacity is 64
MGD. The plant uses primary treatment, activated sludge processes, clarification, effluent filtration,
biological and chemical phosphorous removal and disinfection to achieve water quality requirements.
Anaerobic digestion is used to treat the sludge that is produced. Centrifuges remove water from the
residual sludge before it is either directly land applied to farmland or is transferred to the Residuals
Management Facility ("RMF") on site for storage until weather conditions allow land application. The
City has a multi-year contract with Synagro – WWT, Inc. to manage and operate its land application
program and the RMF. This contract provides a guaranteed price for beneficial re-use of residuals. A
flow equalization basin was created from out-of-service polishing lagoons to equalize loading to
treatment units during daily peaks and to protect the plant during wet weather flows. The basin has the
capacity to hold and provide preliminary treatment to approximately 80 mg of excess flow for reintroduction into the plant when flows subside.
Sugar Creek WWTP and Irwin Creek WWTP are sister plants with capacities of 20 MGD and 15
MGD respectively. These plants were constructed in the 1920's using similar designs and have been
upgraded several times. Both plants provide complete advanced treatment using conventional activated
sludge processes, clarification, effluent filtration and use ultraviolet light for effluent disinfection. At
Irwin Creek WWTP, sludge is treated using anaerobic digestion and dewatered using belt filter presses.
Sludge from Sugar Creek WWTP is pumped to McAlpine Creek WWTP for treatment and dewatering.
Flow equalization facilities are in place at the Irwin Creek WWTP and the Sugar Creek WWTP. The
basins have an approximate capacity of 30 MG at Irwin Creek WWTP and 20 MG at Sugar Creek WWTP
and are used to manage wet weather flows. Work is underway to expand Sugar Creek WWTP so that it
can treat 28 MGD and to upgrade Irwin Creek WWTP.
Mallard Creek WWTP and McDowell Creek WWTP are also sister plants, each with a capacity
of 12 MGD. McDowell Creek WWTP is equipped to use biological nutrient removal ("BNR") processes
to remove phosphorus and nitrogen from the waste stream in addition to other pollutants as required by its
NPDES permit. Both plants use effluent filtration and ultraviolet ("UV") disinfection. Anaerobic
digesters are used to treat residual sludge which is dewatered by a centrifuge at Mallard Creek WWTP
and by belt filter presses at McDowell WWTP.
The sanitary sewer collection system consists of approximately 4,047 miles of pipe ranging from
8" through 78" diameter and approximately 74 sanitary sewer lift stations. A computerized maintenance
management program is used to optimize operation of this system. Resources also available to the
maintenance crews include TV inspection units and hydraulic cleaning equipment as well as the usual
complement of heavy trucks, backhoes, excavators, and other heavy equipment. Infiltration/Inflow ("I/I")
is the focus of an ongoing program with a three-prong approach: first, problem areas are identified for
rehabilitation or replacement to control I/I; second, computer modeling is used to locate and correct
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hydraulic restrictions in the major sewer trunk system; and third, flow equalization facilities at the
treatment plants. Continuous measurement and monitoring of flows at strategic locations in the trunk
system, along with rainfall data, are used to prioritize work and gauge effectiveness.
The City completed a wastewater master plan for the Sugar, Irwin and McAlpine Creek plan
service areas in 2007. As recommended by this plan, expansion of the Sugar Creek plant, improvements
to the Irwin and McAlpine plants and the design of a new plant at Long Creek are currently in progress.
Because growth has been slower than the 2007 projections, the construction schedule of these projects has
been adjusted to meet revised projected capacity needs. The McAlpine and Phase I of the Irwin projects
are still anticipated to proceed to construction bidding or design/build proposal in the fall of 2011.
Utilities has completed the design and major permitting of the Sugar Creek expansion and is working to
complete the Environmental Impact Statement for the Long Creek Project to allow those projects to move
forward into construction expeditiously if future growth indicates the need for increased capacity.
REGIONALIZATION
The City and the County are geographically located along a ridgeline separating the Catawba
River basin and the Rocky River basin. This location tends to make regional provision of utility services
an effective strategy. The City has established cooperative working relationships with the cities, counties
and utility agencies surrounding Charlotte-Mecklenburg.
Agreements are in place with the Water and Sewer Authority of Cabarrus County (WSACC) that
provide for that agency to treat up to six million gallons per day of wastewater from northeast
Mecklenburg. A separate agreement provides for the City to treat up to three million gallons per day of
wastewater from Union County. The agreements provide for future expansions, industrial pretreatment
programs and other operational and management concerns. The City also sells treated water to York
County, South Carolina; the Town of Harrisburg, North Carolina and to the Lancaster County Water and
Sewer District, South Carolina. In addition, the City sells treated water to the City of Concord, North
Carolina on an as needed basis.
The State of South Carolina filed suit in the United States Supreme Court against the State of
North Carolina seeking to increase flows in the Catawba River coming into South Carolina from North
Carolina. South Carolina's United States Supreme Court challenge to North Carolina withdrawals from
the Catawba River has been settled, based on an agreement among the parties to the litigation (the
"Settlement Agreement"). The Settlement Agreement was based on key provisions of the Comprehensive
Relicensing Agreement (CRA), an agreement among Duke Energy and other stakeholders representing a
broad range of interests in the Catawba-Wateree River Basin in both North Carolina and South Carolina,
and does not adversely affect North Carolina's ability to withdraw water from the Catawba River. Under
the terms of the Settlement Agreement (1) the United States Supreme Court does not have any continuing
review over disputes among the parties or compliance with the settlement terms and (2) during the term of
the CRA, South Carolina cannot file another action seeking to limit North Carolina's withdrawals from
the Catawba River so long as North Carolina is complying with the CRA and the Settlement Agreement
and there have been no material changes in water use/demand from those contemplated in the CRA.
WATER AND SEWER LINE EXTENSIONS
Water and sewer mains are extended in accordance with City Council approved policy. Current
policy provides for several extension methods. The most prevalent is for the developers of new
subdivisions to construct and donate mains to the City. In this case, the developer contracts with the City,
agreeing to design and construct the mains according to Utilities standards in exchange for Utilities
accepting the completed line for operation and maintenance. The developer pays capacity charges for
each connection. For residential customers, the policy provides for extension of water or sewer mains for
distances up to 1,000 feet on receipt of connection and capacity charges from the residential customer.
Businesses are not eligible for extensions under this program. Extensions to serve commercial property
are made through a cost-sharing program in which the customer pays 50% of the extension cost and
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Utilities pays the other 50%. Connection and capacity charges are in addition to the business customer's
50% share.
ENVIRONMENTAL COMPLIANCE
In calendar year 2009, all five wastewater plants earned Peak Performance Awards from the
National Association of Clean Water Agencies (NACWA) for outstanding permit compliance.
The City has focused on reducing wastewater collection system overflows by increasing
resources allocated to sewer line replacement, rehabilitation, operation and maintenance. U.S. EPA
Region IV has aggressively audited major sewer systems in the southeast since the mid-1990's. As a
result, the City received an Administrative Order on Consent in February 2007 that requires the City to
take specific steps over the five-year term of the Order to reduce overflows. Those steps include
completion of five capital projects, review and refinement of collection system operation and maintenance
programs, rehabilitation programs, grease control programs, development of a capacity assurance
program and completion of a supplemental environmental project (SEP) to enhance water quality
protection. All of the capital projects are complete. The City has met the EPA's schedule and
requirements for all work due to date. The EPA approved the City's planned revisions to the grease
control program and its capacity assurance program which are currently being implemented.
CAPITAL IMPROVEMENTS PROGRAM
To respond to the growth of the City, the County and surrounding areas, the City has a Capital
Improvements Program ("CIP") that, when completed, will expand, improve, maintain and rehabilitate
the consolidated water and sewer system of Utilities. A new CIP is approved prior to the start of each
fiscal year and each CIP covers a five-year period and describes specific projects including their
estimated costs and proposed funding sources. The current CIP, covering Fiscal Year 2012 through
Fiscal Year 2016, includes $489,550,675 of water and sanitary sewer projects. $256,300,675 of these
projects is expected to be funded with bonds or Commercial Paper issued under the General Indenture.
The remaining $233,250,000 of these projects is expected be funded from Water and Sewer System
Revenues.
In addition to the $256,300,675 of water and sanitary sewer projects included in the current CIP
to be funded with Bonds or Commercial Paper issued under the General Indenture, $690,886,000 of water
and sanitary sewer projects to be funded by Bonds or Commercial Paper issued under the General
Indenture were approved in prior CIP's. Consequently, the total amount of approved projects expected to
be funded through the issuance of Bonds or Commercial Paper under the General Indenture is
$947,186,675.
Revenue Bond Program
Sewer
Water
Sewer and Water Consolidated Facilities
TOTAL SEWER AND WATER
$600,672,000
331,465,500
15,049,175
$947,186,675
The revenue bond program schedule above was prepared from City Council approved capital
budgets. It includes prior years' appropriations and approved appropriations for years 2011-2016.
The City anticipates that $634,250,000 of total approved or identified water and sanitary sewer
projects will be funded over the five-year period ending June 30, 2016. $331,000,000 of these projects is
expected to be funded through Bonds or Commercial Paper issued under the General Indenture.
$303,250,000 of these projects is expected to be funded from Revenues, including $70 million of
previously appropriated funds that have been reallocated and not from Bonds or Commercial Paper issued
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under the General Indenture. In addition to the CIP, the City also intends to finance $20 million of
equipment purchases using installment financing over a five-year period. See "FINANCIAL
SCHEDULES - PROJECTED FINANCIAL INFORMATION - Statement of Assumptions - paragraph (h)."
The City plans to finance an additional $335,000,000 of currently approved or identified water and
sanitary sewer projects with Bonds or Commercial Paper issued under the General Indenture after fiscal
year 2016.
Under the General Indenture, the City has previously issued $1,920,170,000 in principal amount
of its Water and Sewer System Revenue Bonds, of which $1,465,220,000 aggregate principal amount of
Bonds is currently Outstanding.
After the refunding of the Refunded 2001 Bonds, Bonds in the aggregate principal amount of
$1,443,680,000 will remain Outstanding under the General Indenture, consisting of Prior Bonds in the
aggregate principal amount of $1,350,290,000 and the 2011 Bonds in the aggregate principal amount of
$93,390,000. The 2011 Bonds will be secured by and payable from the Net Revenues on a parity with the
Prior Bonds and any Additional Bonds Outstanding from time to time under the General Indenture.
WORK AND ASSET MANAGEMENT SYSTEM
Utilities is currently developing a work and asset management system (the "WAM"). When
completed, the WAM will track the Water and Sewer System's extensive infrastructure, the condition of
the infrastructure and recommend a schedule for repairs to the infrastructure. The goal of the WAM is to
enable Utilities to proactively manage maintenance which should result in cost reductions, cost deferrals
and cost reallocation.
WATER AND SANITARY SEWER RATES
The City Council sets the water and sanitary sewer rates. No State or other authority regulates
the City's water and sanitary sewer rates.
Monthly service charges consist of minimum fixed charges, an availability fee and tiered
consumption charges. In addition, charges are imposed for various specific services including charges on
discharged sewage that contains suspended solids or has a biological oxygen demand greater than normal
domestic sewage. Rates and charges are reviewed and approved annually by the City Manager on
consideration of the next Fiscal Year's operating budget, existing debt service and future debt service for
bonds supported by Revenues. The rates of Utilities do not differentiate between City and County
residents.
In 1994 the City implemented an inclining block rate structure designed to promote water
conservation. In April of 2008, the City Council approved a change in the water rate methodology that
adjusts the inclining block rate structure to more aggressively promote water conservation. This modified
rate structure is intended to allocate the cost of providing infrastructure for peak and excess demand to the
users creating the demand. In February, 2011 the City again modified the water and sewer rate
methodology by adding an availability fee which will initially be implemented in FY 2012. The
availability fee applies to both water and sewer. It helps pay for projects as well as reduce the impact of
consumption changes due to weather. The fee varies based on the size of a customer's meter. See
"PROJECTED FINANCIAL INFORMATION – Statement of Assumptions (a)."
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The following table outlines the monthly water and sanitary sewer rates that will be in effect
July 1, 2011.
SUMMARY OF WATER AND SANITARY SEWER RATES
FISCAL YEAR 2012
Residential Multi-Family,
Water
Swimming Pool Classes(1)
Fixed Charge (per account/mo.)
$2.40
Availability Fee (per account/mo.)(5)
$2.25
Variable Rate (per Ccf)
Tier 1: Lifeline
$0.98
Tier 2: Base Rate
$1.96
Tier 3: Excess Use Rate
$3.41
Tier 4: Peak Demand
$5.32
Sanitary Sewer
Fixed Charge (per account/mo.)
Availability Fee(5)
Variable Rate (per Ccf)
(1)
(2)
(3)
(4)
(5)
Residential
Class(2)
$2.40
$4.30
$4.14
Irrigation(4)
$2.40
$2.25
All Other
Classes(3)
$2.40
$2.25
$3.41
$3.41
$3.41
$5.32
$2.20
$2.20
$2.20
$2.20
Multi-Family
Class
$2.40
$4.30
$4.14
Tier Summary:
Tier 1
Tier 2
Residential, et. al
0 to 4 Ccf/Mo.
5 to 8 Ccf/Mo.
Residential class is not charged for sanitary sewer over 16 Ccf .
All other classes at uniform rate.
Irrigation 1 to 16 Ccf – Tier 3 rates, greater than 16 Ccf – Tier 4 rates.
Amount shown is for 5/8th meter; charge will vary depending on meter site.
All Other
Classes
$2.40
$4.30
$4.14
Tier 3
9 to 16 Ccf/Mo.
Tier 4
>16
As of July 1, 2011, the City will have had an average rate increase of 8.4% for the last five years.
The following is a summary comparison of the City's combined water and sanitary sewer rates
with those of other municipalities in the Southeastern United States:
SUMMARY OF COMBINED WATER AND SANITARY SEWER RATES (8 CCF USAGE)
2011 SURVEY
____________
*Blended Rate
Atlanta, GA
Chapel Hill, NC
Charleston, SC*
Birmingham, AL
Rock Hill, SC*
Cary, NC*
Richmond, VA
Greensboro, NC*
Asheville, NC
Raleigh, NC*
CHARLOTTE, NC
Jacksonville, FL
Union County, NC
Winston-Salem, NC*
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$120.82
95.89
93.85
90.73
81.84
80.52
77.85
77.18
75.95
73.11
51.64
51.03
47.70
44.74
NUMBER OF ACCOUNTS
The following table provides information on the number of active water and sanitary sewer
accounts at the end of each of the last five fiscal years:
AT JUNE 30
2007
2008
2009
2010
2011
NUMBER OF
ACTIVE ACCOUNTS
Water
237,930
241,637
242,631
245,854
248,155
Sewer
219,154
222,887
223,855
226,978
228,851
Total
457,084
464,524
466,486
472,832
477,006
PERCENTAGE
INCREASE
4.3%
1.6
.4
1.4
.9
MAJOR USERS
The following table presents information on the ten largest users of the City's water utility during
the fiscal year ended June 30, 2010. There have been no substantial new users added to the system since
June 30, 2010, nor has there been any substantial change in the usage patterns of the following customers:
CUSTOMER
York County Water & Sewer
Chesapeake Treatment Co. LLC
UNC Charlotte
Frito Lay Inc.
Independent Beverage Corp.
City of Charlotte - Airport
Cargill, Inc.
Presbyterian Hospital
Paramount Carowinds
Lance
ANNUAL
USE (CCF)
558,246
249,198
246,231
182,296
146,184
111,496
109,741
105,304
97,858
95,524
1,902,078
ANNUAL
REVENUES
$1,495,070
506,992
500,564
369,755
296,815
226,339
222,865
215,691
197,968
193,559
$4,225,618
No single user contributes more than 1% of water Revenues. The largest ten users comprise
approximately 5% of usage. Use is measured in hundreds of cubic feet ("Ccf").
BILLING AND COLLECTION PROCEDURES
Charlotte-Mecklenburg is geographically divided into 20 areas and then into a multiplicity of
routes within each area to allow Utilities to read water meters on a monthly basis. Utilities has
successfully completed a conversion of its residential customers to a radio transmitted meter reading
system. This process began in fiscal year 2003 and cost approximately $30 million. The system's
benefits include increasing bill accuracy, reducing time between meter reading and billing and reducing
the number of employees required to read meters. The Finance/Revenue Division is responsible for
providing customer service and revenue collection services for Utilities. The division processed an
estimated 2,640,708 payments in the Fiscal Year ended June 30, 2010. Approximately 25,887 of Utilities'
customers utilize automatic bank draft for bill payment.
The City bills customers on a monthly basis, using a single invoice which includes charges for
water, sewer and storm water. Amounts collected as stormwater fees do not constitute Revenues under
the General Indenture.
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As permitted by State law, the City has adopted an ordinance specifying that payments by
customers are to be allocated first to delinquent fees, then to the stormwater fee component of the
customer's invoice and then to the current charge for water and/or sewer service.
An allowance for uncollectible accounts equal to 5% of active/new accounts less than 3 years old,
5% of final/inactive accounts less than 60 days, and 100% of final/inactive accounts between 60 days and
3 years was approximately $7,969,662 at June 30, 2010. This represents 3.2% of total water/sewer
receivables billed in the fiscal year ending June 30, 2010.
Utilities initiated a revenue recovery program in 2002 which was designed to identify
unauthorized and unbilled users of the City's water and sewer services. The program employs two City
employees. Since inception, the program has resulted in increases to water, sewer and industrial waste
billings of over $22 million by identifying unauthorized users of water and sewer services and
incorporating them into the water and sewer billing system.
BUDGET PROCEDURES
Operating and capital budgets for the Water and Sewer System are formulated in the same
manner as other City departments. The Utilities Director prepares an initial budget request. The City
Manager reviews, and may revise, the submitted budget request and incorporates the request into the
overall budget submitted to the City Council for its consideration.
FUTURE RATE INCREASES
In February, 2011, the City Council adopted a rate and service charge methodology which
provides for pricing based on actual cost recovery, maintenance of adequate working capital and debt
service reserves. The average monthly residential water and sewer bills for the fiscal year ending June
30, 2012 are estimated to be $16.41 and $39.82, respectively, based on 8 Ccf per month usage. In order
to accommodate projected expansion, it is anticipated that the total monthly residential water and sewer
bill will have average increases of approximately 8.9%, 8.3%, 5.3%, 5.2% and 5.4% for the fiscal years
ending June 30, 2012 through 2016, respectively.
THE CITY OF CHARLOTTE
GENERAL DESCRIPTION AND DEMOGRAPHIC CHARACTERISTICS
The City, a municipal corporation of the State located in the County of Mecklenburg (the
"County"), is the largest city between Washington, D.C. and Atlanta. The City was incorporated in 1768,
became the County seat in 1774, and has grown from an initial 360 acres to a present area covering 299
square miles of the 527-square mile County. The City is empowered by statute to extend its corporate
limits through annexation and it engages in a continuing review of areas for possible future annexation.
Under the City's adopted two-year annexation policy, the last annexation became effective on June 30,
2011. The City is prohibited from annexing incorporated municipalities and limited areas adjacent to it
which are located in the County. In addition, the North Carolina General Assembly enacted legislation
during its 2011 session which provides that, if 60% of the property owners in the area proposed to be
annexed file petitions to deny the annexation within the requisite statutory period, the annexation is to be
terminated and a municipality may not adopt a resolution considering the area for annexation for at least
36 months thereafter. In addition, residents within an involuntary annexation area are to be provided
water and sewer connections without cost. This legislation may adversely affect the City's ability to
complete future involuntary annexations.
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The City has experienced significant population growth over the past several decades. The
United States Department of Commerce, Bureau of the Census, has recorded the population of the City to
be as follows:
1990
395,934
2000
540,828
2010
731,424
As of 2009, the City is the core of the Charlotte-Gastonia-Salisbury Combined Statistical Area
(the "CSA"), a region of over 2.38 million people (representing a 12.2% increase over 2005) that includes
the Charlotte-Gastonia-Concord metropolitan area and five micropolitan areas – Albemarle, Mooresville,
Salisbury, Shelby and Lincolnton, North Carolina and Lancaster and Chester, South Carolina. The
combination of population growth and location reinforce the City's role as a regional center in the
Southeast.
BUSINESS AND ECONOMIC PROFILE
The City serves as the financial, communications, distribution, transportation, manufacturing and
healthcare center of the CSA and is one of the South's leading commercial and industrial areas. The City
is also at the center of the nation's 6th largest urban region.
The City and County are important locations for regional headquarters of major national and
international companies. A number of national corporations have selected the City and County for
establishment of sales offices, division headquarters, research and development facilities and other
administrative units. Fortune magazine's 2009 Fortune 500 list indicated that 365 of the nation's "Fortune
500" companies had facilities in the City or County. Seven of these firms are currently headquartered in
the County.
The types of businesses located in the City or County are illustrated by the following table:
Rank
1
2
3
4
5
6
7
8
Classification
Services
Wholesale Trade
Manufacturing
Retail Trade
Construction
Finance, Insurance, Real Estate
Transportation, Communication, Utilities
Other
Total
____________
Source: Dun and Bradstreet's "Million Dollar Directory/2009."
24
Number Of Companies
With Sales Of At Least
$10 Million Located In The
City Or County
238
165
152
116
114
93
77
2
957
The largest employers in the Charlotte Region (defined by the Charlotte Chamber of Commerce
to include Mecklenburg County and the 15 surrounding counties) are shown by employment ranges in the
following table:
COMPANY
Carolinas HealthCare System*
Wells Fargo Bank
Bank of America*
Charlotte-Mecklenburg Schools*
Wal-Mart Stores, Inc.
Adecco
City of Charlotte*
Duke Energy Corp*
Food Lion
Lowe's Companies Inc.
North Carolina State Government
Presbyterian Hospital*
US Airways
U.S. Postal Service
AT&T North Carolina*
Compass Group*
Diamler Trucks North America
LLC/MFG
Ruddick/Harris-Teeter, Inc.*
Lowe's Foods, Merchants
Distributors, Inc., Institution Food
House Inc., Consolidation Services*
Mecklenburg County*
The University of North Carolina at
Charlotte*
Parkdale Mills Inc.*
United States Government
BB&T
Belk, Inc.*
Best Western
Bi-Lo Food Stores
Bojangles' Restaurants, Inc.*
Burger King
Carowinds
Catawba valley Medical Center
Central Piedmont Community
College*
Chick-Fil-A
Chili's Grill & Bar and Maggiano's
Little Italy
Commscope*
CVS Caremark
Family Dollar Stores, Inc.*
Fedex Freight; Ground; Air and
Office
Frye Regional Medical Center
Hickory Springs Manufacturing Co.
Hilton, Double Tree and Embassy
Suites
PRODUCT OR SERVICE
Health Care
Banking Services
Banking Services
Schools
Retail Trade
Staffing
Government
Electric Utility
Grocery Products
Retail Trade
Government
Health Care
Air Transportation
Government
Communications
Food Service and Vending
NUMBER
EMPLOYED
20,000-29,999
20,000-29,999
10,000-15,999
10,000-15,999
10,000-15,999
5,000-9,999
5,000-9,999
5,000-9,999
5,00009,999
5,000-9,999
5,000-9,999
5,000-9,999
5,000-9,999
5,000-9,999
3,000-4,999
3,000-4,999
Manufacturing
Grocery Products
3,000-4,999
3,000-4,999
Grocery Products
Government
3,000-4,999
3,000-4,999
Education
Textile Products
Government
Banking Services
Retail Trade
Hotel
Grocery Products
Restaurant
Restaurant
Entertainment
Healthcare
3,000-4,999
3,000-4,999
3,000-4,999
1,500-2,999
1,500-2,999
1,500-2,999
1,500-2,999
1,500-2,999
1,500-2,999
1,500-2,999
1,500-2,999
Education
Restaurant
1,500-2,999
1,500-2,999
Restaurant
Communications
Pharmaceutical/Retail Trade
Retail Trade
1,500-2,999
1,500-2,999
1,500-2,999
1,500-2,999
Delivery Service
Health Care
Manufacturing
1,500-2,999
1,500-2,999
1,500-2,999
Hotel
1,500-2,999
25
Home Depot Inc.
IBM Corp.
Ingersoll-Rand Co.
Invista
Iredell Memorial Hospital
JC Penney Corp Inc.
Labor Ready Inc.
Marriott, Courtyard, Renaissance
and Fairfield
McDonald's
Parkdale Mills Inc.*
Pharr Yarns LLC*
Piedmont Medical Center
Pizza Hut, Taco Bell, Kentucky
Fried chicken, Long John Silvers
and A&W Restaurants
Red Lobster, Olive Garden, Long
Horns Steakhouse and Capital
Grille
Rite Aid Corp
Robert Half International; Robert
Half Technology
Ross Dress for Less
Rowan Regional Medical Center*
Schaeffler Group
Snyder's-Lance Inc.*
Subway
Target Stores
TIAA-CREF*
Time Warner Cable
Tyson Foods
United Parcel Service/Freight
Wendy's–Carolina Rest. Group, Inc.*
WG (Bill) Hefner Veterans Affair
Medical Center
Windstream Communications
YMCA of Greater Charlotte*
Retail Trade
Computer Terminals
Manufacturing
Textile Industry
Health Care
Retail Trade
Staffing
1,500-2,999
1,500-2,999
1,500-2,999
1,500-2,999
1,500-2,999
1,500-2,999
1,500-2,999
Hotel
Restaurant
Health Care
1,500-2,999
1,500-2,999
1,500-2,999
1,500-2,999
1,500-2,999
Restaurants
1,500-2,999
Restaurants
Pharmaceutical/Retail Trade
1,500-2,999
1,500-2,999
Delivery Service
Restaurant
1,500-2,999
1,500-2,999
1,500-2,999
1,500-2,999
1,500-2,999
1,500-2,999
1,500-2,999
1,500-2,999
1,500-2,999
1,500-2,999
1,500-2,999
1,500-2,999
Health Care
Communications/Television Services
Fitness Services
1,500-2,999
1,500-2,999
1,500-2,999
Retail Trade
Health Care
Restaurant
Retail Trade
Financial Services
Communications/Television Services
__________________________________________________
*
Source:
Principal office is located in the City or County.
Based upon The Charlotte Chamber of Commerce publication, Charlotte's Largest Employers, dated February, 2011.
26
The following table reflects the gross retail sales for the City during the last four fiscal years
ended June 30, 2010:
Fiscal Year
2007
2008
2009
2010
2011 (4 months)
Taxable Sales
$12,964,011,795
13,593,120,411
12,081,824,358
13,319,501,983
4,712,319,437
Increase (Decrease)
From
Previous Year
N/A
(1.08)%
(13.09)
3.24
N/A
Source: North Carolina Department of Revenue, Sales and Use Tax Division.
Finance. The City ranked as the nation's second largest financial center in headquartered
banking assets based on the top 50 United States bank holding companies as of December 31, 2009.
Twenty banks, including a branch of the Federal Reserve Bank, operate in the City and County. The City
is headquarters for Bank of America Corporation and was the headquarters for the Wachovia Corporation
until December 31, 2008, when it was acquired by Wells Fargo & Co. In the merger announcement
release, Wells Fargo & Co. stated that the combined company will maintain a strong presence in the City,
which will be the headquarters for Wells Fargo & Co.'s East Coast retail and commercial and corporate
banking business.
U.S. Bancorp, with $281 billion in assets, is the parent company of U.S. Bank, the 5th largest
commercial bank in the United States. U.S. Bank opened its corporate trust office in downtown Charlotte
in 2006 and has added additional employees in the past four years, primarily through its addition of a
corporate banking group in 2010. U.S. Bank currently has 190 employees in the City.
Fifth Third Bank completed its acquisition of First Charter Bank of Charlotte, North Carolina in
2008 and moved its North Carolina corporate headquarters to the City's Uptown in 2010.
Ally Bank expanded its corporate presence in the City. This expansion is anticipated to bring
approximately 200 net new jobs to the City.
Advisors Asset Management Inc. is doubling its office space in SouthPark and hopes to double its
number of local employees as well.
Citco Fund Services Inc., a financial services company that works closely with hedge funds, plans
to create abut 250 jobs in North Carolina over the next five years.
Healthcare. Healthcare is becoming increasingly important to the City's economy. Premier,
Inc., a global health care company, is moving its headquarters to Charlotte and will be adding
approximately 300 new jobs over the next five years.
Carolinas Healthcare System ("CHS") is in the process of forming the Levine Cancer Institute, an
oncology center to be used to provide community-based cancer care across the Carolinas. CHS has
announced plans to invest more than $500 million over a 10-year period through the Levine Cancer
Institute in communities served by CHS facilities.
The County is a location for regional medical care facilities and is one of the leading medical
centers in the southern United States. County residents are served by seven general acute-care hospitals,
two specialty hospitals, one rehabilitation hospital, one hospital for psychiatric care and one substance
abuse treatment facility. These health care facilities serve more than one million patients a year.
Carolinas Medical Center, part of Carolinas HealthCare System, the largest hospital system in North and
27
South Carolina and third largest nationally, operates a State-designated Academic Medical Center
Teaching Hospital and Level I Trauma Center. In addition, Carolinas Medical Center operates the James
G. Cannon Research Center, providing a central research facility for basic and clinical medicine. In
October 2007, Carolinas HealthCare System opened Levine Children's Hospital, the largest children's
hospital between Atlanta and Washington, D.C. Presbyterian Hospital houses the Center for Women's
Health, which includes the most active maternity center in the City, the 72-bed Hemby Children's
Hospital, the Belk Heart Center and the Charlotte region's most comprehensive cancer center.
Presbyterian Hospital also houses the Center for Surgery, which performs more surgeries in the State than
any other hospital specializing in same day service. Three of the colleges in the County offer degree
programs in nursing and send their students to the local hospitals for clinical training. Three hospitals
have their own diploma nursing programs.
The hospitals located in the County and their respective licensed bed capacities as of 2011 are
shown below:
Number of
Licensed Beds
Hospital
Carolinas Medical Center
Carolinas Medical Center – Mercy
Carolinas Medical Center – Mercy Horizons
Carolinas Medical Center - Pineville
Carolinas Medical Center -Randolph
Carolinas Medical Center - University
Carolinas Rehabilitation
Carolinas Specialty Hospital
Levine Children's Hospital
Presbyterian Hospital
Presbyterian Hospital - Huntersville
Presbyterian Hospital - Matthews
Presbyterian Orthopedic Hospital
____________
Notes:
5741
1692
11
125
66
130
1193
40
234
607
60
117
156
Carolinas Medical Center ("CMC"), CMC-Mercy, CMC-Mercy Horizons, CMC-Pineville, CMCRandolph, CMC-University, Carolinas Rehabilitation and Levine Children's Hospital are part of Carolinas
HealthCare System. Presbyterian Hospital, Presbyterian Hospital Huntersville, Presbyterian Hospital
Matthews and Presbyterian Orthopaedic Hospital are part of Novant Health, Inc. Carolinas Specialty
Hospital is managed by Acuity Healthcare.
1
Does not include the 66 CMC-Randolph beds or the 234 Levine Children's Hospital beds.
Does not include the 39 beds for Carolina Rehabilitation or the 11 beds for Mercy Horizons.
3
Includes 80 beds at Carolinas Rehabilitation and 39 beds at CMC - Mercy.
Source: Charlotte Chamber of Commerce.
2
In addition, as of August 2009, 26 long-term care facilities providing 3,064 beds were located in
the County.
Energy. The Chamber of Commerce is attempting to build on the City's existing base of energy
companies, Duke Energy, The Shaw Group Inc. and Fluor Corporation, to create an energy hub in the
City. The Shaw Group Inc. which serves the energy industry, relocated its Shaw Power Group to
Charlotte. Flour Corporation, an engineering firm that services power plants, has recently expanded in
the City. URS Corporation, which provides services for power, infrastructure, industrial and commercial
and federal projects and programs, is also located in the City.
28
In 2009, a nuclear division of Toshiba announced that it would add approximately 200 jobs to the
area.
Siemens Energy announced plans for a $130 million expansion to its manufacturing plant for
turbines and generators. The expansion is anticipated to add approximately 650 jobs to its current City
work force.
New Businesses. Notwithstanding the recent economic downturn and its effects on the City's
economy, the Charlotte Chamber of Commerce continues to pursue new investments in various types of
industries including finance, healthcare and energy. According to the Charlotte Chamber of Commerce,
464 firms announced new or expanding operations during the first half of 2010 creating approximately
6,759 jobs. The following companies have recently announced new or expanded business in the City.
Zenta, a company that provides outsourcing services to lenders, announced plans to add 1,002
Charlotte jobs over the next five years. Ally Financial Inc., formerly GMAC Financial Services LLC, is
expanding its corporate center in the City. This expansion is anticipated to bring approximately 200 net
new jobs to the City.
Electrolux USA, a home-appliance manufacturer, established its North American corporate
headquarters in the City. Electrolux USA has announced an expansion to this North American
headquarters to begin summer 2011 and expects to consolidate additional positions in the City, creating
approximately 200 jobs over the next 4 years with a $14 million capital investment in the City.
Husqvarna, an outdoor power equipment manufacturer, has plans to move its North American
headquarters to Charlotte, create approximately 160 new jobs and complete a $2.75 million expansion to
its current facilities in the City.
Neighborhood Assistance Corporation of America is in the process of expanding its operations in
the City, currently projecting an addition of approximately 1,000 employees and an investment of over $4
million in the City over the next four years.
Hewitt Associates, a resources consulting and outsourcing firm, announced plans to add 463
positions in the City.
The following chart indicates new and expanded business growth in the City:
ANNUAL SUMMARY ANNOUNCED NEW AND EXPANDED BUSINESS
Year
2011*
2010
2009
2008
2007
Number of Firms
268
912
1,029
1,337
1,326
Employment
2,321
10,781
15,542
12,165
14,648
Square Feet
(Millions)
1.4
6.4
11.3
27.6
25.1
Investment
(Millions)
$ 127.6
1,063.7
1,461.7
2,324.9
2,274.8
*As of March 31, 2011. Corresponding numbers as of March 31, 2010 are 206, 3,817, 4.1 and $279.5, respectively.
Source: Based on information provided by the Charlotte Chamber of Commerce.
Except where otherwise noted, the statistical data in this "BUSINESS AND ECONOMIC PROFILE"
has been derived from the Charlotte Chamber of Commerce website and City employees.
29
DEVELOPMENT ACTIVITY
Construction activity in the City and County is illustrated by the following table showing the
number and value of building permits issued by the City and County Building Inspection Department as
reported by the Chamber of Commerce:
Calendar Year
2006
2007
2008
2009
Number of
Permits
24,250
21,462
16,243
11,549
Value (Millions)
Residential
$2,709.4
2,223.7
1,486.3
669.8
Value (Millions)
Nonresidential
$1,560.8
1,823.4
2,236.8
715.8
Total
$4,270.2
4,047.1
3,723.2
1,385.6
Since 1984, a County land use planning process has been used to produce policy guidelines for
Charlotte-Mecklenburg as to future growth. The City is currently operating under the 2025 Transit/Land
Use Plan, a long-range plan for Charlotte-Mecklenburg.
The City is currently pursuing a centers and corridors approach to development to accommodate
transit/land use planning and smart growth initiatives. As part of the City's comprehensive land use plan,
infill growth, including infill condominium developments, is being encouraged, particularly in the transit
corridors. With the opening of the South Corridor Light Rail line in 2007, many infill developments have
been completed along that line.
Downtown Development. Significant commercial growth has occurred throughout the City. The
downtown area is home to a number of projects completed over the past decade including: (1) a 19-story
Bank of America office tower which includes adjacent retail shops and an adjacent 800-space parking
garage, (2) a 1,600-space parking deck that includes retail space at the street level, (3) renovations to 201
South Tryon Street and the 17-story 200 South Tryon Building, (4) the Hearst Tower, a 45-story office
building, which includes 40,000 square feet of retail space and a 1,400 space parking garage, (5) First
Ward Place, an approximately 32-acre urban village that is a mixture of residential units, offices, stores
and restaurants, (6) the EpiCentre, an approximately 260,000 square foot entertainment and retail center
located on the City's old convention center site (7) a mixed-use project that includes a 150-room RitzCarlton hotel and an approximately 750,000 square foot 32-story office tower owned and used by Bank of
America Corporation. In addition, a developer has announced plans to develop Skye Condominiums at
the 22-story project formerly known as The Park. Skye Condominiums is currently under construction as
a mixed-use project that will feature condominiums, a 172-room Hyatt Hotel, ground-floor retail space
and an open-air rooftop restaurant.
In March 2006, the City was awarded a license by NASCAR to construct and operate a NASCAR
Hall of Fame complex (the "NASCAR Hall of Fame"). The NASCAR Hall of Fame consists of an
approximately 130,000 square foot museum, an approximately 80,000 square foot Great Hall, a
ballroom/theater facility with over 5,000 theater-style seats or 2,500 dining seats connected to the existing
convention center and ancillary improvements. Adjacent to the NASCAR Hall of Fame, a 19-story office
tower with approximately 390,000 square feet of rentable space opened in 2009.
The focal point of the new Levine Center for the Arts is a 48-story office tower. A portion of the
office tower has been leased to Duke Energy Corporation, and the office tower is called Duke Energy
Center. The Levine Center for the Arts also includes (1) a new approximately 145,000 square foot Mint
Museum of Art, (2) an approximately 35,000 square foot Bechtler Museum of Modern Art, (3) an 1,150
seat Knight Theater which is the primary venue for the North Carolina Dance Theatre and (4) the Harvey
B. Gantt Center for African-American Art and Culture which includes an outdoor amphitheater, an indoor
theater and two galleries.
30
Five hotels have opened in the downtown area in the past decade including: (1) a 181-room
Courtyard by Marriott, (2) a 700-room Westin Hotel, (3) a 176-room Aloft hotel, which is part of the
EpiCentre complex, (4) the 150-room Ritz-Carlton hotel described above and (5) a 17-floor, 163room/suites Hotel Sierra next to the Time Warner Cable Arena (defined below) opened March 1, 2011.
The existing Adam's Mark hotel has been upgraded to a 308-room facility named The Blake Hotel. In
addition, a new Hyatt Place Hotel is contemplated as part of the Skye Condominiums mixed-use project
discussed above.
Johnson & Wales University (the "University") consolidated its Norfolk, Virginia and Charleston,
South Carolina campuses and relocated them to an approximately $112 million campus in the City. The
University's campus is located on approximately 6.8 acres in downtown Charlotte and includes an
approximately 145,000 square-foot academic and administrative building and 2 student residence
facilities. In addition, the University is a minority investor in City View Towers, an additional eightstory, 145-apartment building for student housing. The University purchased the 187-room Doubletree
Hotel Charlotte at Gateway Village to enhance its hotel management and operations curriculum. The
University's current student population is more than 2,500.
In April 2009, UNC Charlotte began construction of a 12-story, approximately 143,000 square
foot building for offices and academic programs in graduate, professional and continuing education. In
the fall of 2011, students in UNC Charlotte's MBA program and other graduate programs will be
attending classes in this building. In August 2008, the Charlotte School of Law opened a four-story
approximately 102,000 square foot building to house classrooms, a law library and various meeting
spaces in west Charlotte's Bryant Park Development.
Wake Forest University's School of Business has expanded its presence in the City by leasing
approximately 30,000 square feed on the ground floor in an Uptown Building that will be renamed the
Wake Forest University Charlotte Center.
In addition to the residential development for the University and Gateway Village, downtown
Charlotte has seen significant residential growth over the past decade. In the summer of 2006, residents
moved into the City's first high-rise condominium tower called Courtside. Two additional towers,
Trademark and Avenue, and the retrofitting of an existing office building into a 13-story condominium
were completed in 2007. Catalyst, a 27-story luxury apartment high-rise tower, was completed in 2009.
Today, there are approximately 12,000 people living in downtown Charlotte. Harris Teeter opened a
grocery store in downtown Charlotte in 2002 to serve the growing downtown residential population.
First Ward, east of downtown, is being redeveloped from a public housing neighborhood to a
mixed income residential neighborhood including elderly housing, public housing units, single family
homes, luxury homes and condominiums.
The Metropolitan, an approximately $225,000,000 reconstruction of a pre-existing shopping mall,
includes approximately 575,000 square feet of retail, residential units, restaurants and office space.
Retailers currently include Best Buy, Marshalls, Staples, Target and Trader Joe's.
The North Carolina Music Factory (the "Music Factory"), a mixed use development located in
Fourth Ward, east of downtown, opened in June 2009. The Music Factory contains indoor and outdoor
music venues, including an amphitheatre with 2,000 fixed seats and 3,000 lawn seats and features office
space, retail stores and currently anticipates adding condo-style residences in the future.
The City has experienced significant growth from government projects including: (1) ImaginOn,
an approximately $45 million project funded by the County, to house the children's library and the
Children's Theatre of Charlotte, opened in 2005, (2) an approximately 18,500 seat, 780,000 square foot,
31
downtown sports arena and entertainment facility (the "Time Warner Cable Arena") to house the National
Basketball Association's Charlotte Bobcats, opened in October, 2005, (3) a nine-story, 568,000 square
foot courthouse which includes approximately 35-finished courtrooms, 4-shell courtrooms, 35 holding
cells and 50 parking spaces opened in 2007, (4) Jail Central, located in downtown Charlotte, an
approximately 900-bed pre-trial facility that cost approximately $58 million opened in 1996 and
expanded in 2002 and (5) the NASCAR Hall of Fame. The Federal Government plans to construct a new
Federal courthouse and parking deck.
Development Beyond Downtown.
Northeast. The northeast quadrant of the City and the County, the location of "University City,"
is a sprawling community, anchored by The University of North Carolina at Charlotte ("UNCC") campus.
University City was designed by City planners and university and community leaders and has experienced
significant growth. University City is a "city-within-a-city" combining four contiguous parts: university,
hospital, town center and research park. Northlake Mall, an approximately 1.1 million-square-foot mall,
opened in September 2005.
Near UNCC is the University Research Park, a business park for expanding firms in the Charlotte
area engaged in product research, technology research, light assembly and information processing. The
area is presently recognized as one of the two leading research and technology oriented areas in the state
and has approximately nine million square feet of building space. Carolinas HealthCare System owns and
operates Carolinas Medical Center - University, a 130-bed acute care hospital, located near University
Research Park. Wells Fargo Bank, National Association has a 2.1 million square-foot office complex in
the University Research Park at which approximately 9,500 individuals are employed. Bank of America
plans to develop a satellite campus on a 24-acre site which will have room for approximately 2,000
employees.
Ikea opened an approximately 345,000 square-foot store with a 1,700-space parking lot, on
approximately 25 acres in first quarter 2009. Crescent Resources, LLC currently anticipates developing
over 100 acres surrounding Ikea.
Northwest. Significant growth has recently occurred in the Northwest corner of the City near
Mountain Island Lake on the Catawba River. According to the Brookshire Boulevard/Mountain Island
area plan, significant residential and commercial growth will occur in this area over the next decade. This
is one of the last areas of the City that is relatively rural in character where ample space and infrastructure
are available for development.
West. The western portion of the City and County, which includes the Charlotte/Douglas
International Airport and several residential communities, has been a major growth area. The expansion
of Tyvola Road, development of the York Road Renaissance Park and expansions at the Airport represent
significant public economic development investment in the area. A portion of the City-owned acreage
proximate to the old Charlotte Coliseum along the Billy Graham Parkway has been exchanged with
Crescent Resources, Inc., a Duke Energy subsidiary, for several hundred acres of land along the Catawba
River watershed. This portion of the County also includes a notable example of public/private
revitalization which is ongoing in the area known as the north-west corridor. Anchored by Johnson C.
Smith University, this community is the site of City-funded "Streetscape" projects, newly developed
privately-funded shopping areas, and federally-funded housing redevelopment. The Billy Graham
Evangelistic Association relocated its corporate headquarters to Charlotte and moved into its newly
constructed headquarters building located on land formerly owned by the City in 2004. A private
company bought the old Charlotte Coliseum, demolished it and plans to begin construction of a mixed
residential, office and retail development. Rivergate, an approximately 600,000 square-foot shopping
center, opened in 2005.
32
South. The southern part of the City and County continues to experience rapid growth. Carolina
Place, a 1.3 million square foot regional mall, has six anchors and approximately 135 shops. The
Centrum, a 450,000 square foot shopping center, is also located in this area. Spurred on by the
completion of Interstate 485 in southwestern Mecklenburg County, the "Ballantyne" area, a 2,000-acre
residential, commercial and recreational development, has been a major source of growth in the Charlotte
area. Extensive development began in 1994 with the opening of the Ballantyne Country Club.
Ballantyne consists of (1) a 535-acre corporate park planned to include over 5 million square feet of
office space, 1,150 hotel rooms and over 500,000 square feet of retail space, (2) extensive residential
development, (3) a 151-acre town center and (4) a resort hotel facility. A majority of Ballantyne has been
annexed by the City. The neighboring Blakeney project, 240-acres currently under development, will
provide approximately 400 residential units, over 525,000 square feet of retail and dining space and office
space. Another 150 acres in this area are under development and are planned to include a 700,000 square
foot office park, two retail centers totaling 230,000 square feet and an 800-unit apartment community.
LABOR FORCE AND UNEMPLOYMENT
The Employment Security Commission of North Carolina has estimated the percentage of
unemployment (not seasonally adjusted) in the County to be as follows:
January
February
March
April
May
June
July
August
September
October
November
December
2008
5.0%
5.0
5.0
4.8
5.5
6.0
6.4
6.7
6.3
6.7
7.2
7.7
2009
9.2%
10.0
10.1
10.0
10.8
11.4
11.6
11.5
11.0
11.2
11.2
11.4
2010
11.9%
12.0
11.6
10.9
11.1
11.1
11.3
10.8
10.0
10.1
10.4
9.9
2011
10.2%
10.2
9.9
9.9
10.2
The Employment Security Commission of North Carolina has estimated the percentage of
unemployment (not seasonally adjusted) in the County, the State and the United States to be as
follows:
March 2008
March 2009
March 2010
March 2011
County
5.0%
10.1
11.6
9.9
State
5.2%
10.6
11.5
9.7
United States
5.2%
9.0
10.2
9.2
GOVERNMENT AND MAJOR SERVICES
Government Structure. The City is governed by a mayor and an 11-member Council elected
biennially on a partisan basis. The mayor presides over all Council meetings and can vote only in case of
a tie, but does have limited veto power. The Council enacts all general and technical ordinances,
including budgetary appropriations and construction and zoning ordinances, approves contracts and
originates general management policies. The Council employs a City Manager who directs the daily
operations of the City through department heads appointed by the City Manager.
33
Transportation. Major expansion, maintenance and betterment of primary highways within the
City limits are primarily the responsibility of the State. The City shares with the State acquisition of
right-of-way for such expansion or betterment, and is primarily responsible for related sidewalk
improvements, street lighting and landscaping. City residents have historically approved the issuance of
general obligation bonds for improvements to state-system roads.
The City has the primary responsibility for expansion, maintenance and improvement of the local
street system. Major expansions are funded principally by the sale of bonds and the application of current
revenues. A major portion of the maintenance and improvements is funded from the City's proportionate
share of the amount produced by a one and three-quarter cent State tax on each gallon of motor fuel. In
response to the approval of a 25-year, $3.6 Billion Transportation Action Plan ("TAP"), City Council is
seeking alternative revenue sources that would provide adequate funding to implement the TAP.
Two interstate highways pass through the City limits, Interstate Highway 77 and 85, running
north-south and northeast-southwest, respectively. The North Carolina Department of Transportation (the
"NCDOT") has completed major roadway improvement projects to both of these highways, including
widening both highways and constructing the State's first High Occupancy Vehicle (HOV) lanes on I-77.
The money for these projects comes from federal and State funding sources. Construction on a 67-mile
interstate by-pass ("I-485") for the City is scheduled to be completed by the year 2015.
In addition, NCDOT has completed five phases of a multi-phase improvement program to
Independence Boulevard, a major artery for traffic into Downtown Charlotte. These improvements
include a dedicated bus lane and limited access freeway design. The next phase has been funded by
NCDOT. The total estimated cost of this phase is estimated to be $153.5 million. NCDOT and the
Charlotte Area Transit System ("CATS") have jointly funded a study that concurrently analyzed the rapid
transit and highway needs.
CATS was created by the City in 1999. CATS maintains a dual focus: (1) managing and
continually improving day-to-day operations of the City's current transit services (bus, rail services,
special Americans with Disabilities Act transportation and vanpool) and (2) developing and implementing
a regional transit system which includes light rail, commuter rail, bus rapid transit, streetcars and
expanded bus service. CATS currently serves: (1) the City, (2) the six surrounding towns: Cornelius,
Davidson and Huntersville to the north; Matthews, Pineville and Mint Hill to the south (collectively the
"Surrounding Towns"), (3) the Town of Mooresville in Iredell County, (4) the City of Rock Hill in York
County, South Carolina, (5) the City of Gastonia in Gaston County, (6) the City of Concord in Cabarrus
County, (7) the Town of Denver in Lincoln County and (8) the City of Monroe in Union County.
In October 1998, the City and County, with significant participation from Charlotte-Mecklenburg
Schools and the Surrounding Towns, developed a long-term plan for CATS known as the "2025
Integrated Transit/Land-Use Plan for Charlotte-Mecklenburg" (the "2025 Plan"). In November 1998, the
residents of the County approved, by a margin of 58% to 42%, a one-half cent increase in the local sales
tax to fund new transit operations throughout the County based on the 2025 Plan. In the fall of 2006, the
Metropolitan Transit Commission (MTC - the oversight board for CATS) began the process to update the
2025 Plan to a new 2030 Plan. The 2030 Plan is intended to develop CATS into a regional mass
transportation system over a period of approximately 25 years. The 2030 Plan calls for the development
and operation of mass transit along five corridors originating in downtown Charlotte and carrying
passengers to every corner of Mecklenburg County, into adjacent counties and South Carolina.
The South Corridor LYNX Blue Line light rail service line from downtown Charlotte to I-485
just outside the Town of Pineville began service in November 2007. The South Corridor LYNX Blue
Line has 15 stations and runs from the center of the City for approximately 9.6 miles. Two additional
rapid transit projects, the North and Northeast corridor projects, are currently being advanced. The North
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has completed the majority of all design level plans and the Northeast has advanced preliminary
engineering to the 30% level. Approximately $39.65 million in Federal Earmarks has been awarded for
the Northeast Corridor project. The State has committed to match 50% of the local share of the project
cost.
The 2030 Plan contemplates the priority for future projects beyond the South Corridor and
updates assumptions on the qualifications for state and federal funding, changes in operating and
construction costs and the capacity to fund the City's portion of new projects from existing revenues.
The City owns the Charlotte/Douglas International Airport (the "Airport"), a leader in air
transportation in the United States. Additional information concerning the Airport is set forth under
"Utility and Public Service Enterprises" below.
Recreational, Visitor and Cultural Facilities. The Charlotte Regional Visitors Authority
("CRVA") focuses jointly on tourism promotions and facilities management for the City. Visit Charlotte,
an unincorporated division of CRVA, serves as a contractor to the City for the purpose of economic
development. Six percent of the City's hotel/motel and 1% of the City's prepared food and beverage taxes
have provided a dedicated resource to Visit Charlotte for the purpose of marketing the City as a
destination for convention, business and leisure travel.
Through CRVA, the City provides entertainment and exhibition facilities consisting of an
auditorium, Bojangles' Coliseum, an enclosed sports arena and a convention center. The 2,600-seat
auditorium is designed for the presentation of plays and concerts. CRVA operates the Charlotte
Convention Center, which provides approximately 843,000 square feet of total building area, including
approximately 277,000 square feet of exhibition space, 58,000 square feet of meeting rooms and 34,000
square feet of ballroom space. The 10,500-seat Bojangles' Coliseum is the site for various sporting events
and concerts.
CRVA operates the NASCAR Hall of Fame complex. The County has imposed an additional 2%
hotel/motel tax solely for the acquisition, construction, repair, maintenance and financing of the
NASCAR Hall of Fame complex.
The City is home to two major-league sports franchises: (1) the Carolina Panthers and (2) the
Charlotte Bobcats. Charlotte is also home to the American Hockey League's Charlotte Checkers. The
Bobcats and the Checkers are currently playing in the Time Warner Cable Arena.
In August, 2006 the U.S. National Whitewater Center (the "Whitewater Center") opened on land
owned by the County just west of the City. The U.S. National Whitewater Center has a multiple-channel
artificial river for canoeing, kayaking and rafting, access to the Catawba River for flatwater boating, a
high adventure center, biking and hiking trails and other outdoor amenities. Total cost of the project was
approximately $38 million.
The City also offers diverse facilities for cultural, the arts and nature and science activities. The
Charlotte Nature Museum, founded in 1946, provides programs and exhibits centered on a science theme
of "Nature and Man." The oldest and best known cultural institution is the Mint Museum of Art, founded
in 1933. In addition to the Levine Center for the Arts discussed in "Downtown Development" herein, the
following facilities are also located in the downtown area: (1) Discovery Place, a "hands-on" science and
technology museum which features a 300-seat Omnimax theater and the Spitz planetarium, the largest
planetarium dome in the United States, (2) Spirit Square, a place for people of all ages to participate in the
arts, music, theater, dance, photography, painting and ceramics, includes a restored historic church
structure which serves as an auditorium for performances, (3) the McColl Center for the Visual Arts,
located in a former ARP church, is an artist colony that hosts "Artists in Residence" to promote the
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development of the arts in the Charlotte region, (4) ImaginOn, a collaborative venture between the Public
Library of Charlotte & Mecklenburg County and the Children's Theatre of Charlotte, (5) The North
Carolina Blumenthal Center for the Performing Arts, a three-level, 125,000 square foot Performing Arts
Center with a 2,100-seat performance hall and a 440-seat theater, and (6) the Levine Museum of the New
South, an interactive history museum See "Downtown Development" herein.
Utility and Public Service Enterprises. The City presently owns and operates several utility and
public service enterprises. See "THE WATER AND SEWER SYSTEM" herein.
Water and Sanitary Sewer System. See "THE WATER AND SEWER SYSTEM" herein.
Charlotte Douglas International Airport. The Airport occupies approximately 6,000 acres of
land within the City, located seven miles west of downtown Charlotte. The Airport currently has four
runways, all equipped with precision instrument landing systems. The City is a gateway for international
travelers and is a port of entry and export with customs service and a foreign trade zone designation at the
Airport. Extensive island service has established the Airport as the second largest United States gateway
to the Caribbean. For the month of March, 2011, the Bureau of Transportation Statistics reported that the
Airport was the 7th largest in the United States in terms of scheduled enplanements and 36th largest in
terms of freight/mail by weight.
The Airport is served by 7 domestic carriers, 14 regional carriers and three foreign flag carriers.
During July, 2010 – May, 2011, 17,924,871 passengers enplaned on airline flights at the Airport. The
Airport is also served by several cargo airlines and is the base for approximately 145 general aviation
aircraft. The Airport operates the single fixed base operator at the Airport. A unit of the North Carolina
Air National Guard and other aviation support facilities are also located at the Airport.
The major passenger airlines which serve the Airport are Air Canada, American Airlines, AirTran
Airways, Continental, Delta Air Lines, JetBlue Airways, Lufthansa, United Airlines and US Airways.
PENSION PLANS
The following information on the pension plans is presented on a fiscal year basis. The
information included in this pension plans disclosure section relies on information produced by the
pension plans and their independent accountants and actuaries. Actuarial assessments are (i) "forwardlooking" information that reflect the judgment of the fiduciaries of the pension plans, and (ii) are based
upon a variety of assumptions, one or more of which may prove to be inaccurate or be changed in the
future, and will change with the future experience of the pension plans.
The City participates in the (1) North Carolina Local Governmental Employees' Retirement
System, administered by the State of North Carolina and (2) the Charlotte Firefighters' Retirement
System, administered through a board of trustees. In addition, the City administers (1) the Law
Enforcement Officers' Separation Allowance and (2) a Supplemental Retirement Income Plan for Law
Enforcement Officers.
North Carolina Local Governmental Employees' Retirement System. The North Carolina
Local Governmental Employees' Retirement System (the "System") is a service agency administered
through a board of trustees by the State for public employees of counties, cities, boards, commissions and
other similar governmental entities. While the State Treasurer is the custodian of System funds,
administrative costs are borne by the participating employer governmental entities. The State makes no
contributions to the System.
The System provides, on a uniform System-wide basis, retirement and, at each employer's option,
death benefits from contributions made by employers and employees. Employee members contribute 6%
36
of their individual compensation. Each employer makes a normal contribution plus, where applicable, a
contribution to fund any accrued liability. The normal contribution rate, uniform for all employers, is
currently 6.35% of eligible payroll for general employees and 6.83% of eligible payroll for law
enforcement officers. The accrued liability contribution rate is determined separately for each employer
and covers the liability of the employer for benefits based on employees' service rendered prior to the date
the employer joins the system.
Members qualify for a vested deferred benefit at age 60 after at least five years of creditable
service to the unit of local government. Unreduced benefits are available: at age 65, with at least five
years of creditable service; at age 60, with at least 25 years of creditable service; or after 30 years of
creditable service, regardless of age. Benefit payments are computed by taking an average of the annual
compensation for the four consecutive years of membership service yielding the highest average. This
average is then adjusted by a percentage formula, by a total years of service factor, and by an age service
factor if the individual is not eligible for unreduced benefits.
Contributions to the System are determined on an actuarial basis. The City's contributions to the
System for the years ended June 30, 2010, 2009, and 2008, were $14.0 million, $13.9 million, and $13.0
million, respectively. The contributions made by the City equaled the required contributions for each
year. For information concerning the City's participation in the North Carolina Local Governmental
Employees' Retirement System and the Supplemental Retirement Income Plan of North Carolina see Note
5(a) to the City's audited financial statements included in Appendix A.
Financial statements and required supplementary information for the North Carolina Local
Governmental Employees' Retirement System are included in the Comprehensive Annual Financial
Report ("CAFR") for the State. Please refer to the State's CAFR for additional information.
Charlotte Firefighters' Retirement System. The Charlotte Firefighters' Retirement System, a
single-employer defined benefit plan, provides retirement, disability and death benefits to civil service
employees of the City Fire Department. As of July 1, 2010, the most recent actuarial valuation date, the
City's Firefighters' Retirement System was 90.45% funded. The actuarial accrued liability for benefits
was $395,393,000 and the actuarial value of assets was $357,652,000 resulting in an unfunded actuarial
accrued liability (UAAL) of $37,741,000. The covered payroll (annual payroll of active employees
covered by the plan) was $59,080,000, and UAAL as a percentage of covered payroll was 63.88%. See
Note 5 "PENSION PLANS AND OTHER BENEFITS" – (b) "Charlotte Firefighters' Retirement System"
in the Notes to the Financial Statements included as Appendix A for a more complete description of such
benefits and the City's obligations thereunder.
LEO Separation. The City administers a public employee retirement system ("LEO
Separation"), a single-employer defined benefit pension plan that provides retirement benefits to the
City's qualified sworn law enforcement officers. The LEO Separation is equal to .85% of the annual
equivalent of the base rate of compensation most recently applicable to the officer for each year of
creditable service. The retirement benefits are not subject to any increases in salary or retirement
allowances that may be authorized by the General Assembly. All full-time law enforcement officers of
the City are covered by the LEO Separation. At December 31, 2009, the LEO Separation's membership
consisted of 1,940 individuals: (1) 188 retirees receiving benefits and (2) 1,752 active plan members.
The City is required by Article 12D of G.S. Chapter 143 to provide these retirement benefits and
has chosen to fund the benefit payments on a pay-as-you-go basis through appropriations made in the
General Fund operating budget. The City's obligation to contribute to this plan is established and may be
amended by the North Carolina General Assembly. There were no contributions made by employees.
37
As of December 1, 2009, the most recent actuarial valuation date, the City's LEO Separation was
0% funded. The actuarial accrued liability for benefits was $58,656,000 and the unfunded actuarial
accrued liability (UAAL) of $58,656,000. The covered payroll (annual payroll of active employees
covered by the plan) was $105,765,000, and UAAL as a percentage of covered payroll was 55.46%. See
Note 5 "PENSION PLANS AND OTHER BENEFITS" – (c) "LEO Separation" in the Notes to the
Financial Statements included as Appendix A for a more complete description of such benefits and the
City's obligations thereunder.
Supplemental Retirement Income Plan for Law Enforcement Officers. The City contributes
to the Supplemental Retirement Income Plan ("Plan"), a defined contribution pension plan administered
by the Department of State Treasurer and a Board of Trustees. The Plan provides retirement benefits to
law enforcement officers employed by the City. Article 5 of G.S. Chapter 135 assigns the authority to
establish and amend benefit provisions to the North Carolina General Assembly.
Article 12E of G.S. Chapter 143 requires the City to contribute each month an amount equal to
5.0% of each officer's salary, and all amounts contributed are vested immediately. Also, the law
enforcement officers may make voluntary contributions to the Plan. The City is currently making
contributions for 1,761 law enforcement officers. Contributions for the year ended June 30, 2010 were
$8,070,000 which consisted of $5,211,000 from the City and $2,859,000 from the law enforcement
officers. See Note 5 "PENSION PLANS AND OTHER BENEFITS" – (d) "Supplemental Retirement
Income Plan for Law Enforcement Officers" in the Notes to the Financial Statements included as
Appendix A for a more complete description of such benefits and the City's obligations thereunder.
HEALTH AND LIFE BENEFITS
The City provides health and life benefits to employees and retirees. See Note 5 "PENSION
PLANS AND OTHER BENEFITS" and Note 6 "OTHER INFORMATION" in the Financial Statements
included as Appendix A for a more complete description of such benefits and the City's obligations
thereunder.
OTHER POST-EMPLOYMENT BENEFITS
The City provides retiree medical benefits to employees hired before July 1, 2009 as part of the
total compensation offered to these employees. These benefits qualify as Other Post-Employment Benefit
("OPEB") under Governmental Accounting Standards Board Statement No. 45 relating to the Accounting
and Financial Reporting by Employers for Postemployment Benefit Plans Other Than Pension Plans (the
"GASB 45"). As of July 1, 2009, the most recent actuarial valuation date, the plan was 16% funded. The
actuarial accrued liability for benefits was $207,301,000. The actuarial value of assets was $33,006,000
resulting in an unfunded actuarial accrued liability (UAAL) of $174,295,000. The covered payroll
(annual payroll of active employees covered by the plan) was $322,162,000 and the ratio of the UAAL to
the covered payroll was 54.10%. See Note 5(f) "PENSION PLANS AND OTHER BENEFITS - Other
Postemployment Benefits" in the Financial Statement included as Appendix A for a more complete
description of such benefits and the City's obligations thereunder.
The City has taken actions to continue to manage its OPEB liability. In December 2007, the City
established an irrevocable trust qualifying under Section 115 of the Internal Revenue Code (the
"Employee Benefit Trust") to meet the requirements of GASB 45 and segregate assets for this benefit. The
North Carolina General Assembly enacted legislation in July 2007 that provides the City with expanded
investment options including investment in equities and other long-term investments which will allow
improved asset/liability matching. The City has contributed a total of approximately $37.5 million to the
Employee Benefit Trust for the purpose of advance funding its actuarially accrued liability. Advance
funding the liability on an actuarially determined basis allows the City to build an asset base including
38
investment earnings that will partially offset its actuarial accrued liability and reduce its OPEB cost. In
addition, the City has eliminated future retiree medical benefits for new employees hired after July 1,
2009 which will reduce its OPEB liability in future years.
CONTINGENT LIABILITIES
The City is a party defendant in various legal actions for damages arising from, among other
things, personal injuries suffered by the plaintiffs arising from the City's alleged negligence or alleged
social injustice and by plaintiffs alleging discriminatory practices by the City in hiring, promoting or
terminating employees. In certain of these actions, the City Attorney is of the opinion that the plaintiff's
likelihood of success is remote. Although in a number of other cases the City Attorney is unable to
express an opinion as to the probable outcome due to the preliminary stage of the litigation, taking into
account valid defenses which are available to the City, the City's liability insurance coverage when
available and, in certain instances, indemnification available to the City from third parties, the ultimate
outcome of the other suits either individually or as a whole is, in the opinion of the City Attorney, not
expected to have a materially adverse effect upon the City's financial position.
FINANCIAL INFORMATION
The financial statements of the City are audited annually by certified public accountants. The
most recent audited financial statements available are for the fiscal year ended June 30, 2010. Copies of
these financial statements containing the unqualified report of the independent certified public
accountants
are
available
on
the
City's
web-site
at
http://charmeck.org/city/charlotte/Finance/Pages/Publications.aspx or for a bound copy, in the office of
Mr. Greg C. Gaskins, Director of Finance (704-336-5885) or Mr. Scott L. Greer, City Treasurer (704336-5883), City of Charlotte, Charlotte-Mecklenburg Government Center, 600 East Fourth Street,
Charlotte, North Carolina 28202.
The Government Finance Officers Association ("GFOA") has awarded a Certificate of
Achievement for Excellence in Financial Reporting to the City for its Comprehensive Annual Financial
Report for the fiscal years ended June 30, 1985 through 2010. To receive this award, the highest form of
recognition in governmental financial reporting, a governmental unit must publish a financial report that
complies with both generally accepted accounting principles and applicable legal requirements. A
Certificate of Achievement is valid for a period of one year. The City anticipates that it will continue to
meet the requirements under the Certificate of Achievement Program and plans to submit its
Comprehensive Annual Financial Report for the Fiscal Year ended June 30, 2011, once available, to the
GFOA for review.
GENERAL INDENTURE SUMMARY
A summary of certain provisions of the General Indenture, including a list of definitions of
certain terms, is included as Appendix B. The summary does not purport to be complete, and is limited
in all respects by reference to the complete document. See the Introduction for information on the
availability of copies of the General Indenture and Series Indenture, Number 13.
LEGAL MATTERS
LITIGATION
No litigation is now pending or, to the best of the City's knowledge, threatened, against or
affecting the City which seeks to restrain or enjoin the authorization, execution or delivery of the 2011
Bonds, the General Indenture or Series Indenture, Number 13, or which contests the validity or the
39
authority or proceedings for the adoption, authorization, execution or delivery of the 2011 Bonds, or the
City's creation, organization or corporate existence, or the title of any of the present officers thereof to
their respective offices or the authority or proceedings for the City's authorization, execution and delivery
of the General Indenture, Series Indenture, Number 13 or the 2011 Bonds, or the City's authority to carry
out its obligations thereunder, or which would have a material adverse impact on the City's condition,
financial or otherwise.
As stated under "THE WATER AND SEWER SYSTEM-- REGIONALIZATION," a case filed
by the State of South Carolina in the United States Supreme Court against the State of North Carolina
regarding water withdrawals from the Catawba River, was settled and has been dismissed. See "THE
WATER AND SEWER SYSTEM-- REGIONALIZATION" for a more complete discussion.
OPINIONS OF COUNSEL
All legal matters related to the authorization, execution, sale and delivery of the 2011 Bonds are
subject to Bond Counsel's approval. The proposed form of Bond Counsel's opinion is included as
Appendix D.
Certain legal matters will be passed upon for the City by the City Attorney and for the
Underwriters by their counsel.
TAX TREATMENT
General. On the date of issuance of the 2011 Bonds, Parker Poe Adams & Bernstein LLP,
Charlotte, North Carolina ("Bond Counsel"), will render an opinion that, under existing law and assuming
compliance by the City with certain provisions of the Internal Revenue Code of 1986, as amended (the
"Code"), the interest on the 2011 Bonds is excludable from gross income for federal income tax purposes
and is not an item of tax preference for purposes of the federal alternative minimum tax imposed on
individuals and corporations; however, such interest is taken into account in determining adjusted current
earnings for the purpose of computing the federal alternative minimum tax imposed on certain
corporations.
The Code imposes various restrictions, conditions and requirements relating to the exclusion of
interest on obligations, such as the 2011 Bonds, from gross income for federal income tax purposes,
including, but not limited to, the requirement that the City rebate certain excess earnings on proceeds and
amounts treated as proceeds of the 2011 Bonds to the United States Treasury, restrictions on the
investment of such proceeds and other amounts, and restrictions on the ownership and use of the facilities
financed or refinanced with proceeds of the 2011 Bonds. The foregoing is not intended to be an
exhaustive listing of the post-issuance tax compliance requirements of the Code, but is illustrative of the
requirements that must be satisfied by the City subsequent to issuance of the 2011 Bonds to maintain the
excludability of the interest on the 2011 Bonds from gross income for federal income tax purposes. Bond
Counsel's opinion is given in reliance on certifications by representatives of the City as to certain facts
material to the opinion and the requirements of the Code. The City has covenanted in Series Indenture,
Number 13 to comply with all requirements of the Code that must be satisfied subsequent to the issuance
of the 2011 Bonds in order that the interest on the 2011 Bonds be, or continue to be, excludable from
gross income for federal income tax purposes. The opinion of Bond Counsel assumes compliance by the
City with such covenants, and Bond Counsel has not been retained to monitor compliance by the City
with such covenants subsequent to the date of issuance of the 2011 Bonds. Failure to comply with certain
of such requirements may cause the interest on the 2011 Bonds to be included in gross income for federal
income tax purposes retroactive to the date of the issuance of the 2011 Bonds. No other opinion is
expressed by Bond Counsel regarding the federal tax consequences of the ownership of or the receipt or
accrual of interest with respect to the 2011 Bonds.
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If the interest on the 2011 Bonds subsequently becomes included in gross income for federal
income tax purposes due to a failure by the City to comply with any requirements described above, the
City is not required to redeem the 2011 Bonds or to pay any additional interest or penalty.
The Internal Revenue Service has established an ongoing program to audit tax-exempt obligations
to determine whether interest on such obligations is includible in gross income for federal income tax
purposes. Bond Counsel cannot predict whether the Internal Revenue Service will commence an audit of
the 2011 Bonds. Prospective purchasers and owners of the 2011 Bonds are advised that, if the Internal
Revenue Service does audit the 2011 Bonds, under current Internal Revenue Service procedures, at least
during the early stages of an audit, the Internal Revenue Service will treat the City as the taxpayer, and
the owners of the 2011 Bonds may have limited rights, if any, to participate in such audit. The
commencement of an audit could adversely affect the market value and liquidity of the 2011 Bonds until
the audit is concluded, regardless of the ultimate outcome.
Prospective purchasers of the 2011 Bonds should be aware that ownership of the 2011 Bonds and
the accrual or receipt of interest on the 2011 Bonds may result in collateral federal income tax
consequences to certain taxpayers, including, without limitation, financial institutions, property or
casualty insurance companies, individual recipients of Social Security or Railroad Retirement benefits,
certain Subchapter S Corporations with "excess net passive income," foreign corporations subject to the
branch profits tax, life insurance companies and taxpayers who may be deemed to have incurred or
continued indebtedness to purchase or carry the 2011 Bonds. Bond Counsel does not express any opinion
as to any such collateral tax consequences. Prospective purchasers of the 2011 Bonds should consult their
own tax advisors as to the collateral tax consequences.
Proposed legislation is considered from time to time by the United States Congress that, if
enacted, would affect the tax consequences of owning the 2011 Bonds. Accordingly, prospective
purchasers of the 2011 Bonds should be aware that future legislation may have an adverse effect on the
tax consequences of owning the 2011 Bonds. No assurance can be given that any future legislation, or
clarifications or amendments to the Code, if enacted into law, will not contain provisions which could
cause the interest on the 2011 Bonds to be subject directly or indirectly to federal or State of North
Carolina income taxation, adversely affect the market price or marketability of the 2011 Bonds or
otherwise prevent the owners of the 2011 Bonds from realizing the full current benefit of the status of the
interest on the 2011 Bonds.
Bond Counsel is further of the opinion that, under existing law, the interest on the 2011 Bonds is
exempt from State of North Carolina income taxation.
Bond Counsel's opinion is based on existing law, which is subject to change. Such opinion is
further based on factual representations made to Bond Counsel as of the date thereof. Bond Counsel
assumes no duty to update or supplement its opinion to reflect any facts or circumstances that may
thereafter come to Bond Counsel's attention, or to reflect any changes in law that may thereafter occur or
become effective. Moreover, Bond Counsel's opinion is not a guarantee of a particular result, and is not
binding on the Internal Revenue Service or the courts; rather, such opinions represent Bond Counsel's
professional judgment based on its review of existing law, and in reliance on the representations and
covenants that Bond Counsel deems relevant to such opinions. Bond Counsel's opinion expresses the
professional judgment of the attorneys rendering the opinion regarding the legal issues expressly
addressed therein. By rendering its opinion, Bond Counsel does not become an insurer or guarantor of the
result indicated by that expression of professional judgment, of the transaction on which the opinions are
rendered, or of the future performance of the City, nor does the rendering of such opinion guarantee the
outcome of any legal dispute that may arise out of the transaction.
41
Original Issue Discount. As indicated on the inside cover page, the 2011 Bonds maturing on
December 1, 2023 in the principal amount of $3,590,000 (the "OID Bonds"), are being sold at initial
offering prices which are less than the principal amount payable at maturity. Under the Code, the
difference between (a) the initial offering prices to the public (excluding bond houses and brokers) at
which a substantial amount of each maturity of the OID Bonds is sold and (b) the principal amount
payable at maturity of such OID Bonds, constitutes original issue discount treated as interest which will
be excluded from the gross income of the owners of such OID Bonds for federal income tax purposes.
In the case of an owner of the OID Bond, the amount of original issue discount on such OID
Bond is treated as having accrued daily over the term of such OID Bond on the basis of a constant yield
compounded at the end of each accrual period and is added to the owner's cost basis of such OID Bond in
determining, for federal income tax purposes, the gain or loss upon the sale, redemption or other
disposition of such OID Bond (including its sale, redemption or payment at maturity). Amounts received
upon the sale, redemption or other disposition of an OID Bond which are attributable to accrued original
issue discount on such OID Bonds will be treated as interest exempt from gross income, rather than as a
taxable again, for federal income tax purposes, and will not be a specific item of tax preference for
purposes of the federal alternative minimum tax imposed on corporations and individuals.
Original issue discount is treated as compounding semiannually (which yield is based on the
initial public offering price of such OID Bond) at a rate determined by reference to the yield to maturity
of each individual OID Bond. The amount treated as original issue discount on an OID Bond for a
particular semiannual accrual period is equal to (a) the product of (i) the yield to maturity for such OID
Bond (determined by compounding at the close of each accrual period) and (ii) the amount which would
have been the tax basis of such OID Bond at the beginning of the particular accrual period if held by the
original purchaser, less (b) the amount of interest payable on such OID Bond during the particular accrual
period. The tax basis is determined by adding to the initial public offering price on such OID Bond the
sum of the amounts which have been treated as original issue discount for such purposes during all prior
accrual periods. If an OID Bond is sold between semiannual compounding dates, original issue discount
which would have accrued for that semiannual compounding period for federal income tax purposes is to
be appointed in equal amounts among the days in such compounding period.
The Code contains additional provisions relating to the accrual of original issue discount in the
case of owners of the OID Bonds who subsequently purchase any OID Bonds after the initial offering or
at a price difference from the initial offering price during the initial offering of the 2011 Bonds. Owners
of OID Bonds should consult their own tax advisors with respect to the precise determination for federal
and state income tax purposes of the amount of original issue discount accrued upon the sale, redemption
or other disposition of an OID Bond as of any date and with respect to other federal, state and local tax
consequences of owning and disposing of an OID Bond. It is possible that under the applicable
provisions governing the determination of state or local taxes, accrued original issue discount on an OID
Bond may be deemed to be received in the year of accrual even though there will not be a corresponding
cash payment attributable to such original issue discount until a later year.
Original Issue Premium. As indicated on the inside cover page, all of the 2011 Bonds except the
2011 Bond maturing on December 1, 2023 in the principal amount of $3,590,000 (the "Premium Bonds"),
are being sold at initial offering prices which are in excess of the principal amount payable at maturity.
The difference between (a) the initial offering prices to the public (excluding bond houses and brokers) at
which a substantial amount of the Premium Bonds is sold and (b) the principal amount payable at
maturity of such Premium Bonds constitutes original issue premium, which original issue premium is not
deductible for federal income tax purposes. In the case of an owner of a Premium Bond, however, the
amount of the original issue premium which is treated as having accrued over the term of such Premium
Bond is reduced from the owner's cost basis of such Premium Bond in determining, for federal income
tax purposes, the taxable gain or loss upon the sale, redemption or other disposition of such Premium
42
Bond (whether upon its sale, redemption or payment at maturity). Owners of Premium Bonds should
consult their tax advisors with respect to the determination, for federal income tax purposes, of the
"adjusted basis" of such Premium Bonds upon any sale or disposition and with respect to any state or
local tax consequences of owning a Premium Bond.
CONTINUING DISCLOSURE OBLIGATION
The City agrees, in accordance with Rule 15c2-12 (the "Rule") promulgated by the Securities and
Exchange Commission (the "SEC"), to provide:
(1)
by not later than seven months after the end of each Fiscal Year, beginning with
the Fiscal Year ended June 30, 2011, to the Municipal Securities Rulemaking Board (the
"MSRB"), the audited financial statements of the City for the preceding Fiscal Year, if available,
prepared in accordance with Section 159-34 of the General Statutes of North Carolina, as it may
be amended from time to time, or any successor statute, or if such audited financial statements are
not then available, unaudited financial statements of the City for such Fiscal Year to be replaced
subsequently by audited financial statements to the City to be delivered within 15 days after such
audited financial statements become available for distribution;
(2)
by not later than seven months from the end of each Fiscal Year of the City,
beginning with the Fiscal Year ended June 30, 2011, to the MSRB (a) the financial and statistical
data as of the date not earlier than the end of the preceding Fiscal Year for the type of information
included under "THE WATER AND SEWER SYSTEM—WATER AND SANITARY SEWER
RATES," "—NUMBER OF ACCOUNTS" and "—MAJOR USERS" in this Official Statement
(excluding any information on overlapping units) and (b) the combined budget of the City for the
current Fiscal Year, to the extent such items are not included in the audited financial statements
referred to in paragraph (1) above;
(3)
in a timely manner not in excess of 10 Business Days after the occurrence of the
event, to the MSRB notice of any of the following events with respect to the 2011 Bonds:
(a)
principal and interest payment delinquencies;
(b)
non-payment related defaults, if material;
(c)
difficulties;
unscheduled draws on the debt service reserves reflecting financial
(d)
difficulties;
unscheduled draws on any credit enhancements reflecting financial
(e)
perform;
substitution of any credit or liquidity providers, or their failure to
(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 events affecting the tax status of the 2011 Bonds;
(g)
material;
(h)
modification of the rights of the Beneficial Owners of the 2011 Bonds, if
call of any of the 2011 Bonds, if material, and tender offers;
43
(i)
defeasance of any of the 2011 Bonds;
(j)
release, substitution or sale of any property securing repayment of the
2011 Bonds, if material;
(k)
rating changes;
(l)
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 obligated person, other
than in the ordinary course of business, the entry into a definitive agreement to undertake
such an action or the termination of a definitive agreement relating to such actions, other
than pursuant to its terms, if material; and
(n)
the appointment of a successor or additional trustee, or the change in the
name of a trustee, if material;
(4)
in a timely manner, to the MSRB, notice of a failure of the City to
provide required annual financial information described in (a) or (b) above on or before
the date specified.
At present, Section 159-34 of the General Statutes of North Carolina requires that the City's
financial statements be prepared in accordance with generally accepted accounting principles and that
they be audited in accordance with generally accepted auditing standards.
The City has agreed to provide all documents described in this section in a electronic format as
prescribed by the MSRB and accompanied by identifying information as prescribed by the MSRB.
The City has acknowledged in Series Indenture, Number 13 that its undertaking pursuant to Rule
15c2-12 is intended to be for the benefit of the Owners and the beneficial owners of the 2011 Bonds.
THE RIGHT TO ENFORCE THE PROVISIONS OF THE CITY'S RULE 15C2-12 UNDERTAKINGS IS LIMITED TO A
RIGHT TO OBTAIN SPECIFIC PERFORMANCE OF THE CITY'S OBLIGATIONS AND A FAILURE BY THE CITY TO
COMPLY WITH ITS RULE 15C2-12 UNDERTAKINGS WILL NOT BE AN EVENT OF DEFAULT UNDER THE
GENERAL INDENTURE OR SERIES INDENTURE, NUMBER 13 AND WILL NOT RESULT IN ACCELERATION OF
THE 2011 BONDS. ALL ACTIONS SHALL BE INSTITUTED, HAD AND MAINTAINED IN THE MANNER
PROVIDED IN SERIES INDENTURE, NUMBER 13 FOR THE BENEFIT OF ALL OWNERS AND BENEFICIAL
OWNERS OF THE 2011 BONDS.
During the past five years, the City has complied in all material respects with all continuing
disclosure agreements to which it is a party in accordance with Rule 15c2-12.
The City may modify from time to time, consistent with the Rule, the information provided to the
extent necessary or appropriate in the judgment of the City, but:
44
(1)
any such modification may only be made in connection with a change in
circumstances that arises from a change in legal requirements, change in law or change in the
identity, nature or status of the City;
(2)
the information to be provided, as modified, would have complied with the
requirements of the Rule as of the date of the Official Statement, after taking into account any
amendments or interpretations of the Rule as well as any changes in circumstances; and
(3)
any such modification does not materially impair the interest of the Owners or
the beneficial owners, as determined by the Trustee or Bond Counsel or by the approving vote of
the Owners of a majority in principal amount of the 2011 Bonds under the terms of the General
Indenture.
Any annual financial information containing modified operating data or financial information will
explain, in narrative form, the reasons for the modification and the impact of the change in the type of
operating data or financial information being provided. The City's Rule 15c2-12 undertakings will
terminate on payment, or provision having been made for payment in a manner consistent with the Rule
15c2-12, in full of the principal of and interest on the 2011 Bonds.
The City may discharge its undertakings described above by transmitting the documents or
notices referred to above in a manner subsequently authorized or required by the SEC in lieu of the
manner described above.
MISCELLANEOUS
RATINGS
As shown on the cover, the 2011 Bonds have been rated "Aaa" by Moody's, Investors Service
("Moody's), "AAA" by Standard and Poor's Ratings Services ("S&P") and "AAA" by Fitch Ratings
("Fitch"). Further explanation of the significance of such ratings may be obtained from Moody's, S&P
and Fitch. The ratings are not a recommendation to buy, sell or hold the 2011 Bonds and should be
evaluated independently. There is no assurance that such ratings will not be withdrawn or revised
downward by Moody's, S&P or Fitch. Any such action may have an adverse effect on the market price of
the 2011 Bonds. Neither the City nor the Underwriters have undertaken any responsibility after the
execution and delivery of the 2011 Bonds to assure maintenance of the ratings or to oppose any such
revision or withdrawal.
UNDERWRITING
The Underwriters are offering the 2011 Bonds pursuant to a firm underwriting contract. The
Underwriters have agreed to purchase the 2011 Bonds at a price equal to $93,390,000.00, plus a net
original issue premium of $12,238,644.45, less an Underwriters' discount of $383,258.10. The
Underwriters' contract is subject to certain terms and conditions, including the approval of certain legal
matters by counsel. The Underwriters may offer and sell the 2011 Bonds to certain dealers (including
dealers depositing the 2011 Bonds into investment trusts) and others at prices different from the initial
public offering prices shown on the inside cover page. The Underwriters may change the public offering
prices from time to time at their discretion.
Wells Fargo Securities is the trade name for certain capital markets and investment banking
services of Wells Fargo & Company and its subsidiaries, including Wells Fargo Bank, National
Association ("WFBNA"). WFBNA, one of the underwriters of the Bonds, has entered into an agreement
(the "Distribution Agreement") with Wells Fargo Advisors, LLC ("WFA") for the retail distribution of
45
certain municipal securities offerings, including the Bonds. Pursuant to the Distribution Agreement,
WFBNA will share a portion of its underwriting compensation with respect to the Bonds with WFA.
WFA is also a subsidiary of Wells Fargo & Company.
RELATED PARTIES
Parker Poe Adams & Bernstein LLP is serving as bond counsel for the City and, from time to
time it and McGuireWoods LLP, counsel to the Underwriters, have represented the Underwriters as
counsel in other financing transactions. Neither the City nor the Underwriters have conditioned the future
employment of either of these firms in connection with any proposed financing issues for the City or for
the Underwriters on the successful issuance of the 2011 Bonds.
FINANCIAL ADVISOR
DEC Associates, Inc., Charlotte, North Carolina, is serving as financial advisor to the City.
APPROVAL
The LGC and the City have each duly authorized the delivery of this Official Statement.
Members of the LGC staff have participated in the preparation of this Official Statement and
other documents related to the issuance of the 2011 Bonds, but the LGC and its staff assume no
responsibility for the accuracy or completeness of any representation or statement in this Official
Statement, other than those in Appendix C.
46
APPENDIX A
CITY FINANCIAL STATEMENTS
Financial Statements for the Fiscal Year Ended June 30, 2010
[THIS PAGE INTENTIONALLY LEFT BLANK]
MANAGEMENT’S DISCUSSION AND ANALYSIS
(Dollar Amounts in Millions)
This section of the City of Charlotte’s (City) annual financial report presents a narrative overview and
analysis of the City’s financial performance for the fiscal year ended June 30, 2010. Please read it in
conjunction with the transmittal letter at the front of this report and the City’s financial statements,
which follow this section.
FINANCIAL HIGHLIGHTS
The assets of the City exceeded its liabilities at the close of the most recent fiscal year by
$8,473.8 (net assets). Of this amount, $1,025.7 (unrestricted net assets) may be used to meet the
government’s ongoing obligations to citizens and creditors.
The overall financial position of the City improved in 2010 as evidenced by an increase in total net
assets of $244.9. This increase was from both governmental ($102.2) and business-type ($142.7)
activities.
As of the close of the current fiscal year, the City’s governmental funds reported combined ending
fund balances of $636.7, an increase of $25.6, including amounts for restatements, in comparison
with the prior year. The majority of this increase resulted from the issuance of commercial paper
and installment purchases that will be used to finance major capital items.
Unreserved fund balance in the General fund was $100.7 at June 30, 2010. Of this amount,
$100.3 is undesignated and represents a traditional fund balance reserve maintained for
emergencies, liquidity and overall financial strength. This is approximately 19.6 percent of the
budget for fiscal year 2011, exceeding the City Council’s goal of 16 percent by the end of the fiscal
year.
The City maintained its AAA bond rating from all three major rating agencies.
OVERVIEW OF THE FINANCIAL STATEMENTS
This
discussion
and
analysis
serves as an introduction to the
Components of the Annual Financial Report
City’s basic financial statements.
The basic financial statements
present two different views of the
City
through
the
use
of
Management's
Discussion and
Analysis
Basic Financial Statements
government-wide statements and
fund financial statements.
diagram
shows
how
This
the
Governmentwide Financial
Statements
components of the annual report
are arranged and relate to one
another.
Summary
A-1
Fund Financial
Statements
Notes to the
Financial
Statements
Detail
The first two statements (pages 29-31) are government-wide financial statements that provide both
long-term and short-term information about the City’s overall financial status. The remaining
statements (pages 32-49) are fund financial statements that focus on individual parts of the City
government, reporting the City’s operations in more detail than the government-wide statements.
The governmental funds statements tell how general government services like public safety
were financed in the short term as well as what remains for future spending. A budgetary
comparison statement has been provided for the General fund to demonstrate budgetary
compliance.
Proprietary funds statements offer short- and long-term financial information about the
activities the City operates like businesses, such as the water and sewer system.
The fiduciary funds statements reflect the financial relationship with the Firefighters’
Retirement System, which provides benefits exclusively for certain City employees, and the
Employee Benefit Trust, which accumulates resources for the provision of other
postemployment benefit payments to retirees and their beneficiaries.
The financial statements also include notes that explain some of the information in the financial
statements and provide more detailed data (pages 50-111). A section is also included with combining
statements that provides details about nonmajor governmental funds, internal service funds, and
fiduciary funds, each of which are totaled and presented in single columns in the basic financial
statements. This section (pages 113-162) also includes detailed budgetary information required by
North Carolina General Statutes.
The remainder of this overview section explains the structure and contents of the government-wide
and fund financial statements.
Government-wide financial statements. The government-wide statements report information about
the City as a whole using accounting methods similar to those used by private-sector companies.
The statement of net assets includes all of the City’s assets and liabilities, with the difference between
the two reported as net assets. Over time, increases or decreases in net assets may serve as a useful
indicator of whether financial position is improving or deteriorating. Other nonfinancial factors such as
changes in the City’s property tax base and the condition of the City’s roads must be considered to
assess the overall health of the City.
The statement of activities presents information showing how the City’s net assets changed during the
most recent fiscal year. The statement accounts for all of the current year’s revenues and expenses
regardless of when cash is received or paid.
The government-wide financial statements are divided into three categories:
Governmental activities - Most of the City’s basic services are included here, such as public
safety, community planning and development, and streets and highways. Property taxes,
other taxes, and grants and contributions finance most of these activities.
Business-type activities - The City charges fees to customers to cover the costs of certain
services provided. The City’s water and sewer system, storm water system, airport, and public
transit system are included here.
A-2
Component unit - The City’s annual report includes one other entity, the Charlotte Regional
Visitors Authority. Although legally separate, the City appoints the governing board and
provides financial support.
Fund financial statements. The fund financial statements provide more detailed information about
the City’s most significant funds, not the City as a whole. Funds are accounting groups that the City
uses to keep track of specific sources of funding and spending for particular purposes. Some funds
are required by State Statutes.
Other funds are established to control and manage resources
designated for specific purposes.
The City has three kinds of funds:
Governmental funds - Most of the City’s basic services are included in governmental funds,
which focus on (1) the flow in and out of cash and other financial assets that can readily be
converted to cash and (2) the balances left at year-end that are available for spending. These
funds are reported using the modified accrual accounting basis and a current financial
resources measurement focus. Consequently, the governmental funds statements provide a
detailed short-term view that helps determine the financial resources available in the near
future to finance the City’s programs.
The relationship between governmental activities
(reported in the Statement of Net Assets and the Statement of Activities) and governmental
funds is described in a reconciliation that follows the governmental fund financial statements.
The City adopts an annual budget for the General fund, as required by State Statutes. A
budgetary comparison statement is presented for the General fund using the City’s budgetary
basis of accounting. This statement reflects the following: (a) the original budget, (b) the final
budget as amended, (c) actual resources, and (d) the variance between the final budget and
actual resources.
Because the budgetary basis of accounting differs from the modified
accrual basis used in the funds statements, a reconciliation is provided at the end of the
statement.
Proprietary funds – Services for which the City charges customers a fee are generally
reported in proprietary funds. Proprietary funds, like the government-wide statements, provide
both long- and short-term financial information. The City has two types of proprietary funds.
Enterprise funds are the same as the business-type activities (shown in the government-wide
financial statements), but provide more detail and additional information, such as cash flows.
Internal service funds are used to report activities that provide supplies and services for the
City’s other programs and activities. These internal service activities predominately benefit
governmental rather than business-type activities; therefore, they have been included with
governmental activities in the government-wide financial statements.
Fiduciary funds - The City is the trustee, or fiduciary, for the Firefighters’ Retirement System
and the Employee Benefit Trust. The City is responsible for ensuring that the assets reported
in these funds are used for their intended purposes. This fiduciary activity is reported in a
separate statement of fiduciary net assets and a statement of changes in fiduciary net assets.
These funds are excluded from the City’s government-wide financial statements because the
City cannot use these assets to finance its operations.
A-3
FINANCIAL ANALYSIS OF THE CITY AS A WHOLE
Net assets. As noted earlier, net assets may serve over time as a useful indicator of a government’s
financial position. For the City, assets exceeded liabilities by $8,473.8 at the close of the most recent
fiscal year. A summary of the City’s net assets at June 30, 2010 and 2009, as restated, is presented
below. Information about the restatement is presented in Note 1.d.8 to the financial statements.
Net Assets
Governm ental
Business-type
Total Prim ary
Activities
Activities
Governm ent
2010
Current and other assets
Capital assets
Total assets
Current and other liabilities
Noncurrent liabilities
Total liabilities
Net assets:
Invested in capital assets,
net of related debt
Restricted
Unrestricted
Total net assets
2010
2009
2010
2009
877.2
5,532.7
$ 1,544.4
4,942.7
$ 1,118.8
4,783.0
$ 2,465.4
10,728.2
$ 1,996.0
10,315.7
6,706.5
6,409.9
6,487.1
5,901.8
13,193.6
12,311.7
121.6
1,489.7
118.8
1,298.0
144.4
2,964.1
142.9
2,523.0
266.0
4,453.8
261.7
3,821.0
1,611.3
1,416.8
3,108.5
2,665.9
4,719.8
4,082.7
4,443.3
237.1
414.8
4,371.0
238.0
384.1
2,522.7
245.0
610.9
2,393.7
199.5
642.7
6,966.0
482.1
1,025.7
6,764.7
437.5
1,026.8
$ 5,095.2
$ 4,993.1
$ 3,378.6
$ 3,235.9
$ 8,473.8
$ 8,229.0
$
921.0
5,785.5
2009
$
By far the largest portion of the City’s net assets (82 percent) reflects its investment in capital assets
(land, buildings, roads, bridges, etc.), less any related debt used to acquire those assets that are still
outstanding. The City uses these capital assets to provide services to citizens; consequently, these
assets are not available for future spending.
An additional portion of the City’s net assets (6 percent) represents resources that are subject to
external restrictions on how they may be used. The remaining balance of unrestricted net assets
($1,025.7) may be used to support operations and provide for payment of long-term debt.
At the end of the current fiscal year, the City is able to report positive balances in all three categories
of net assets, both for the government as a whole, as well as for its separate governmental and
business-type activities. The same situation held true for the prior fiscal year.
Government-wide net assets increased by $244.8 during the current fiscal year from increases in both
governmental and business-type activities. The increases resulted in part from contributed assets
including the addition of streets due to annexation and contributions of infrastructure assets from
developers.
A-4
Changes in net assets. The following table presents the City’s changes in net assets for the fiscal
years ended June 30, 2010 and 2009, as restated:
Change in Net Assets
Governm ental
Business-type
Total Prim ary
Activities
Activities
Governm ent
2010
Revenues
Program revenues:
Fees, fines and charges for services
Operating grants and contributions
Capital grants and contributions
General revenues:
Property taxes
Other taxes
Grants and contributions not restricted
to specific programs
Other
Total revenues
Program expenses
Public safety
Sanitation
General administration
Support services
Engineering and property management
Streets and highw ays
Culture and recreation
Community planning and development
Interest and other charges
Water
Sew er
Storm w ater
Airport
Public transit
Total expenses
Excess before transfers
Transfers
Increase in net assets
Net assets - beginning, as restated
Net assets - ending
$
88.4
65.0
135.1
2009
$
89.3
63.7
451.0
2010
$
506.9
12.8
98.5
2009
$
491.7
14.4
119.4
2010
$
595.3
77.8
233.6
2009
$
581.0
78.1
570.4
356.9
185.9
345.7
187.8
57.8
59.5
356.9
243.7
345.7
247.3
13.5
18.9
16.7
24.3
17.5
33.2
13.5
36.4
16.7
57.5
863.7
1,178.5
693.5
718.2
1,557.2
1,896.7
318.6
55.7
38.2
21.1
29.2
116.2
17.8
81.7
64.6
-
301.9
49.8
48.8
23.7
33.0
103.3
13.9
74.1
45.6
-
97.9
157.5
21.6
137.1
155.2
103.0
160.7
21.7
157.4
155.6
318.6
55.7
38.2
21.1
29.2
116.2
17.8
81.7
64.6
97.9
157.5
21.6
137.1
155.2
301.9
49.8
48.8
23.7
33.0
103.3
13.9
74.1
45.6
103.0
160.7
21.7
157.4
155.6
743.1
694.1
569.3
598.4
1,312.4
1,292.5
120.6
(18.5)
484.4
(18.4)
124.2
18.5
119.8
18.4
244.8
-
604.2
-
102.1
4,993.1
466.0
4,527.1
142.7
3,235.9
138.2
3,097.7
244.8
8,229.0
604.2
7,624.8
$ 5,095.2
$ 4,993.1
$ 3,378.6
$ 3,235.9
$ 8,473.8
$ 8,229.0
Total government-wide revenues of $1,557.2 were derived primarily from grants and contributions (20
percent) and property and other taxes (39 percent). These sources of revenues decreased 27 percent
from the prior year, primarily due to decreased donations of infrastructure through annexation.
The total expenses of all programs were $1,312.4. The expenses cover a range of services with the
two largest being transportation (streets and highways, airport and public transit) for 31 percent and
public safety (fire and police) for 24 percent. Transportation expenses decreased from the prior year
due to payment of a swap termination fee by the Airport in the previous fiscal year.
A-5
Governmental Activities
Governmental Revenues
by Source
As shown in the chart, property, sales and other
taxes (63 percent) and grants and contributions
(25 percent) were the major sources of revenues
10% 2%
for governmental activities.
25%
63%
Governmental expenses increased from $694.1 to
$743.1 during this fiscal year. Expenses related
Taxes (Property, sales, and other)
Grants and contributions
Fees, fines and charges for services
Other
to additional public safety positions and increased
street resurfacing activities contributed to the
increase.
As in prior years, public safety
continues to be the largest expense with 43
percent in both the current and the prior years.
This chart highlights the net cost (total cost less fees generated by the activities and intergovernmental
grants) of the City’s governmental programs mainly public safety, streets and highways and
community planning and development. The net cost shows the financial support provided by taxes
and other general revenue sources not restricted to specific programs.
Governmental Expenses Compared with Program Revenues
$400
$300
$200
$100
Expenses
Community
planning and
development
Culture and
recreation
Streets and
highways
Engineering and
property
management
Support services
General
administration
Sanitation
Public safety
$-
Program revenues
In addition to property and other taxes, the total cost of services of $743.1 was supported by $200.1
provided by other governments and organizations for specific programs and $88.4 provided by fees,
fines and charges from those who directly benefited from the programs.
A-6
Business-type Revenues
by Source
Business-type Activities
8%
Revenues for the business-type activities were
16%
$693.5, a decrease of 2 percent from the prior
year.
3%
73%
This decrease is due in part to the
continued economic downturn which resulted in a
Fees, fines and charges for services
decrease in donated infrastructure assets due to
Grants and contributions
slowed construction.
Sales taxes levied for Public Transit
Other
This chart highlights the net cost of the City’s business-type programs. For all business-type activities
except Public Transit, user rates and fees are established to provide for operating expenses, debt
service costs and adequate working capital. Public transit passenger fares are established to provide
reasonably priced public mass transportation and therefore may not cover all operating costs. In
addition to fare revenues, state operating assistance grants, a one-half percent sales tax and
contributions from other local governments fund the transit program.
Business-type Expenses Compared with
Program Revenues
$250
$200
$150
$100
$50
Expenses
Public
transit
Airport
Storm
water
Sewer
Water
$-
Program revenues
Water and sewer expenses decreased $8.3 or 3 percent from the prior year due in part to completion
in the prior year of two large system evaluation surveys. Airport expenses decreased $20.3 or 13
percent from the prior year due in part to a swap termination payment in the previous fiscal year.
A-7
FINANCIAL ANALYSIS OF THE CITY’S FUNDS
The City uses fund accounting to ensure and demonstrate compliance with finance-related legal
requirements.
Governmental funds. The focus of the City’s governmental funds is to provide information on nearterm inflows, outflows, and balances of spendable resources. Such information is useful in assessing
the financing requirements. In particular, unreserved fund balance may serve as a useful measure of
a government’s net resources available for spending at the end of the fiscal year. At June 30, 2010,
the governmental funds reported a combined fund balance of $636.7, an increase of $25.6, including
amounts for restatements, or 4 percent from last year. This amount consists of the following:
(a) $195.6 designated for future debt service payments,
(b) $128.6 designated for capital projects,
(c) $122.8 designated for specific programs,
(d) $89.0 reserved primarily for encumbrances, debt service, and State Statutes, and
(e) $100.7 unreserved.
The general fund is the chief operating fund of the City.
At the end of the current fiscal year,
unreserved fund balance of the general fund was $100.7, while total fund balance reached $155.3.
Undesignated fund balance is a sub-classification of unreserved fund balance after consideration for
management’s designations. At June 30, 2010, designations totaled $0.4. The remaining unreserved
fund balance of $100.3 was undesignated and decreased $2.5 or 2 percent from the prior year. This
flat growth is due to a slight increase in property tax revenues offset by an increase in public safety
expenditures due to additional officers.
Other major governmental funds are the debt service and the capital projects funds. The debt service
fund has a total fund balance of $211.3, all of which will be used for either the payment of debt service
or is reserved by State Statutes. Debt service fund balance increased $6.9, including amounts from
restatements, from the prior year due primarily to transfers from other funds to pay future debt service.
The capital projects fund has a total fund balance of $128.6, all of which is designated for future
capital projects. Capital project fund balance increased $19.3, including amounts from restatements,
from the prior year due to a decrease in capital outlay relating to the completion of the NASCAR Hall
of Fame and numerous cultural facilities.
Proprietary funds. Proprietary funds provide the same type of information found in the governmentwide financial statements, but in more detail.
Unrestricted net assets at the end of the year amounted to $153.9 in the Water and Sewer fund, $53.1
in the Storm Water fund, $253.2 in the Airport fund and $162.5 in the Public Transit fund. The change
in net assets for the funds was $15.7, $34.3, $93.5 and $4.0, including amounts for restatements,
respectively. Factors concerning the finances of these funds have already been addressed in the
discussion of the business-type activities.
A-8
GENERAL FUND BUDGETARY HIGHLIGHTS
During the fiscal year, City Council approved several immaterial budget amendments.
The most
significant amendments related to funding for 75 additional police officers. Another 50 officers were
funded by an American Recovery and Reinvestment Act grant. Amendments were made for the
associated startup equipment and supplies for the 125 total officers.
Revenues were $8.8 above the final budgeted amount. Property tax revenues were $7.8 greater than
expected due to a slightly higher property tax base than expected combined with a decrease in the
amount of rebate requests from taxpayers and higher than anticipated revenues from interest and
penalties.
In addition, utility franchise tax revenues were $2.1 more than expected due to an
abnormally warm summer.
Offsetting these increases is a $1.7 decrease in business privilege
licenses due to the continued downturn in the economy.
In light of the worsening economy, the city instituted lower budget requirements that reduced
expenditures to ensure they were in line with anticipated revenues. Budget reductions of $6.5 made in
mid-year 2009 were carried over to the 2010 budget and 120.75 positions remained frozen. Efforts
were made to ensure that citizens did not experience notable reductions in services. Actual
expenditures were $6.2 below final budget amounts for fiscal year 2010.
CAPITAL ASSET AND DEBT ADMINISTRATION
Capital Assets. At June 30, 2010, the City had $10,728.2 (net of accumulated depreciation) in capital
assets consisting primarily of land, buildings, roads, and water and sewer lines.
This amount
represents a net increase of $412.5, or 4 percent over last year. The following is a summary of capital
assets at June 30, 2010 and 2009:
Capital Assets
(Net of Depreciation)
Governm ental
Business-type
Total Prim ary
Activities
Activities
Governm ent
2010
Land
Buildings
Improvements other than buildings
Infrastructure
Intantibles
Machinery and equipment
Construction in progress
Totals
2009
2010
2009
2010
$
2,981.6
800.0
1,639.0
1.3
46.3
317.3
$
2,894.7
492.9
1,625.3
1.8
42.4
475.6
$
344.1
336.5
3,140.6
2.8
126.0
992.7
$
338.1
306.5
3,056.5
4.3
132.1
945.5
$
$
5,785.5
$
5,532.7
$
4,942.7
$
4,783.0
$ 10,728.2
A-9
3,325.7
1,136.5
3,140.6
1,639.0
4.1
172.3
1,310.0
2009
$
3,232.8
799.4
3,056.5
1,625.3
6.1
174.5
1,421.1
$ 10,315.7
This year’s major capital asset additions included:
NASCAR Hall of Fame and cultural arts facilities - $322.8
Streets in annexed areas - $147.5
Wastewater treatment and sewage collection - $39.0
Runway construction - $111.3
At June 30, 2010, authorized and unexpended capital projects totaled $1,649.4 as follows:
governmental ($468.5), water and sewer ($820.7), airport ($165.1), storm water ($97.6), and public
transit ($97.5). The City has plans to issue additional debt to finance these projects in addition to using
resources currently available.
More detailed information about the City’s capital assets is presented in Note 4.f. to the financial
statements.
Long-term Debt. At June 30, 2010, the City had $4,298.0 of debt outstanding in bonds, installment
purchases, commercial paper notes, derivative instrument liability, and other financing agreements.
This was an increase of $505.2 or 13 percent over last year. Details by type of debt are presented in
the following table:
Outstanding Debt
Governmental
Activities
General obligation bonds (backed by
the City’s taxing authority)
Revenue bonds (backed by specific
fee revenues)
Special obligation bonds
Installment purchases
Commercial paper notes
Derivative instrument liability
Other financial agreements
Totals
Business-type
Activities
Total Primary
Government
2010
2009
2010
2009
2010
2009
$ 483.8
$ 377.2
$ 290.5
$ 313.6
$ 774.3
$ 690.8
11.0
759.1
46.5
32.5
54.4
11.0
522.4
293.8
12.2
21.9
2,360.6
187.5
65.0
7.1
1,919.6
203.0
55.6
54.5
8.0
2,360.6
11.0
946.6
46.5
97.5
61.5
1,919.6
11.0
725.4
349.4
66.7
29.9
$ 1,387.3
$ 1,238.5
$ 2,910.7
$ 2,554.3
$ 4,298.0
$ 3,792.8
New debt for 2010 resulted from issuing water sewer revenue bonds ($460.1) to repay commercial
paper notes and for water sewer infrastructure improvements; issuing installment purchases to repay
commercial paper notes for NASCAR Hall of Fame and cultural arts facilities ($239.1), for equipment
($21.9), and for public facilities improvements ($13.7); and issuing general obligation bonds ($20.0) for
housing.
The City’s sound financial condition is evidenced by the continuation of its Aaa rating from Moody’s
Investors Service and AAA rating from Standard & Poor’s Ratings Services and Fitch Ratings.
Charlotte is one of the few cities in the nation that maintains the highest financial category rating from
these major rating agencies. This achievement is a primary factor in keeping interest costs low on the
City’s outstanding debt.
A-10
The City’s total debt of $4,298.0 arises from both governmental and business-type activities. The
largest portion of debt is revenue bonds (55 percent), which are backed by specific fee revenues,
rather than the City’s taxing authority.
North Carolina General Statutes limit the amount of general obligation debt that the City can issue to 8
percent of the total assessed value of taxable property. The legal debt margin for the City at June 30,
2010, was $4.2 billion. The City had $352.2 in authorized but unissued debt for streets, housing,
neighborhood improvements.
More detailed information about the City’s long-term liabilities is presented in Note 4.j. of the financial
statements.
ECONOMIC FACTORS AND NEXT YEAR’S BUDGETS AND RATES
The following economic indicators impact the City’s budget outlook:
During fiscal year 2010, 12,238 building permits were issued with a value of over $1.4 billion
compared to 12,745 permits for 2009.
The occupancy rate in the uptown area has decreased to 92 percent for 2010, compared to 94
percent for 2009.
Retail sales during 2009 were $12.1 billion compared to $13.6 billion for 2008.
The June 2010 unemployment rate was 9.5 percent compared to 10.2 percent for the state
and 9.6 percent for the nation.
Assessed property valuations are expected to exceed $77.5 billion for 2010 compared to
$76.6 billion for 2009, or an increase of 1 percent, and is due to growth.
The fiscal 2011 budget reflects the transition from a period of low- to no- growth to a slow economic
recovery and maintains the current property tax rate of 45.86 cents per $100 valuation.
The General fund budget increased to $511.6. Property tax revenues including current and prior year
collections, interest, and other penalties and rebates are expected to increase 1.5 percent over 2010.
Utilities franchise tax and intragovernmental revenues are expected to increase 3.1 and 16.4 percent
respectively. The most significant expenditure increases are $6.1 to fund increases in the pay plan
which is offset by an $1.8 decrease in the City’s contribution to the employees’ 401k plan, $1.7 to fund
staff at the new Airport Fire Station, and $1.6 to fund increased operating costs for Police.
The following are highlights for the 2011 budgets for the business-type activities:
Sewer volume rates and administrative fixed charges on both water and sewer will increase in
FY11. The average residential water and sewer bill will increase $3.68 per month. Operating
expenses will increase 4.5 percent.
Storm water revenues are expected to increase 4.3 percent due to an impervious surface fee
rate increase of 7 percent.
A-11
Airport revenues and operating expenses are expected to decrease 8.9 percent. This
decrease is due primarily to reduced debt service requirements.
Public transit fare revenue and service reimbursements are expected to increase 2.4 percent.
This increase is attributable in part to a rate increase. However, sales tax is expected to
decrease 5.3 percent. Operating expenditures are expected to decrease $12.6 due in part to
decreased fuel costs and transferring $2.8 in operating expenses to the capital program and
grants.
CONTACTING THE CITY’S FINANCIAL MANAGEMENT
This financial report is designed to provide citizens, taxpayers, customers, investors and creditors with
a general overview of the City’s finances and to demonstrate the City’s accountability. Questions
concerning this report or requests for additional financial information should be directed to the City of
Charlotte’s Finance Department, 600 East Fourth Street, Charlotte, NC 28202-2848.
A-12
CITY OF CHARLOTTE, NORTH CAROLINA
STATEMENT OF NET ASSETS
JUNE 30, 2010
(In Thousands)
Primary Government
Governmental Business-type
Activities
Activities
ASSETS
Cash and cash equivalents
$
Receivables, net
Due from other governmental agencies
Due from component unit
Due from primary government
Internal balances
Inventories
Other
Restricted assets:
Temporarily restrictedCash and cash equivalents
Investments
Permanently restrictedCash and cash equivalents
Receivables
Notes receivable
Deferred charges
Deferred outflow of resources
Other postemployment benefit assets (Note 5.f.)
Pension assets (Note 5.b.)
Capital assets (Note 4.f.)
Land
Buildings, improvements, infrastructure,
intangibles, and machinery and equipment, net
Construction in progress
Total assets
LIABILITIES
Accounts payable/claims payable
Deposits and retainage payable
Accrued interest payable
Due to component unit
Due to primary government
Unearned revenues
Liabilities payable from restricted assets
Noncurrent liabilities (Note 4.j.):
Due within one year
Due after one year
Total liabilities
NET ASSETS
Invested in capital assets, net of related debt
Restricted for:
Debt service
Capital projects
Perpetual care - Nonexpendable
Firefighters' retirement benefits
Public safety
Streets and highways
Culture and recreation
Community planning and development
Passenger facility charges
Airport working capital
Unrestricted
Total net assets
$
646,486
18,619
71,258
4,078
11,862
930
221
$
Total
818,114 $
68,644
53,625
(11,862)
7,191
-
1,464,600
87,263
124,883
4,078
8,121
221
Component Unit
Charlotte Regional
Visitors
Authority
$
9,479
2,105
516
1,954
358
1,034
1,440
36,293
65,163
421,278
66,603
457,571
-
3,111
10
95,054
7,569
17,136
6,927
29,357
65,018
27,853
-
3,111
10
95,054
36,926
82,154
27,853
6,927
-
2,981,608
344,102
3,325,710
-
2,486,530
317,348
6,706,480
3,605,976
992,643
6,487,102
6,092,506
1,309,991
13,193,582
15,446
95,073
8,243
9,850
1,814
4,727
1,876
41,911
9,261
24,125
140
727
68,259
136,984
17,504
33,975
1,954
5,454
70,135
5,215
4,495
4,078
175
-
92,853
1,396,866
1,611,302
81,312
2,882,758
3,108,493
174,165
4,279,624
4,719,795
1,932
15,895
4,443,273
2,522,680
6,965,953
-
10,970
77,725
3,121
6,927
16,295
15,755
101,884
4,470
414,758
5,095,178
65,398
161,022
18,613
610,896
$ 3,378,609
76,368
77,725
3,121
6,927
16,295
15,755
101,884
4,470
161,022
18,613
1,025,654
8,473,787
The notes to the financial statements are an integral part of this statement.
A-13
$
$
125
(574)
(449)
CITY OF CHARLOTTE, NORTH CAROLINA
STATEMENT OF ACTIVITIES
FOR THE YEAR ENDED JUNE 30, 2010
(In Thousands)
ACTIVITIES
Primary Government:
GovernmentalPublic safety
Sanitation
General administration
Support services
Engineering and property management
Streets and highways
Culture and recreation
Community planning and development
Interest and other charges
Total governmental
Business-typeWater
Sewer
Storm water
Airport
Public transit
Total business-type
Total primary government
Component Unit:
Charlotte Regional
Visitors Authority
Expenses
$
Program Revenues
Fees, Fines
and
Operating
Capital
Charges for Grants and Grants and
Services Contributions Contributions
318,576
55,721
38,188
21,066
29,232
116,141
17,834
81,691
64,630
743,079
$ 23,719
11,895
14,853
14,906
5,342
5,576
654
11,440
88,385
97,894
157,503
21,565
137,144
155,226
569,332
$ 1,312,411
98,954
151,653
45,782
188,935
21,548
506,872
$ 595,257
$
$ 22,401
48,698
$
16,946
482
25
272
19,816
2,151
25,359
65,051
$
$
12,803
12,803
77,854
$
5,230
9,378
6,881
34,760
42,255
98,504
233,584
$
-
$
-
General revenues:
TaxesProperty
Sales
Sales, levied for Public Transit
Utility franchise
Occupancy
Prepared foods
Business privilege
Municipal vehicle
Payment from City of Charlotte
Grants and contributions not restricted
to specific programs
Investment earnings
Miscellaneous
Transfers
Total general revenues and transfers
Change in net assets
Net assets - beginning, as previously reported
Prior period adjustment (Note 1.d.8)
Net assets - ending
The notes to the financial statements are an integral part of this statement.
A-14
3,842
123,709
5,843
1,686
135,080
Net (Expense) Revenue and
Changes in Net Assets
Primary Government
Component Unit
Charlotte Regional
Governmental Business-type
Visitors
Activities
Activities
Total
Authority
$ (274,069) $
(43,344)
(23,335)
(6,135)
(23,618)
32,960
(9,186)
(43,206)
(64,630)
(454,563)
(454,563)
6,290
3,528
31,098
86,551
(78,620)
48,847
48,847
$ (274,069) $
(43,344)
(23,335)
(6,135)
(23,618)
32,960
(9,186)
(43,206)
(64,630)
(454,563)
-
6,290
3,528
31,098
86,551
(78,620)
48,847
(405,716)
-
-
-
-
356,913
72,715
36,911
25,999
19,598
16,250
14,388
-
57,870
-
356,913
72,715
57,870
36,911
25,999
19,598
16,250
14,388
-
13,508
7,212
13,181
11,683
4,358
(18,465)
18,465
556,712
93,874
102,149
142,721
4,996,739
3,231,715
(3,710)
4,173
$ 5,095,178 $ 3,378,609
13,508
20,393
16,041
650,586
244,870
8,228,454
463
$ 8,473,787
(26,297)
25,495
$
99
160
25,754
(543)
94
(449)
A-15
CITY OF CHARLOTTE, NORTH CAROLINA
BALANCE SHEET
GOVERNMENTAL FUNDS
JUNE 30, 2010
(In Thousands)
Other
Total
Capital Governmental Governmental
Projects
Funds
Funds
General
Debt
Service
$ 149,506
$ 206,459
$ 102,042
7,278
2,694
9,972
33,031
3,151
930
417
417
4,768
3,780
-
1,012
4,420
5,432
13,149
298
-
101
44
306
451
20,310
-
8,808
7,158
306
16,272
71,258
3,151
4,078
930
Restricted assets:
Cash and cash equivalents
Investments
Total restricted assets
Notes receivable
Total assets
19
$ 196,609
3
116
119
$ 215,543
1,437
36,177
37,614
43,440
$ 201,975
51,595
206,955
1,440
36,293
37,733
95,054
821,082
LIABILITIES AND FUND BALANCES
Liabilities:
Accounts payable
Deposits and retainage payable
Due to other funds
Due to component unit
Deferred revenues
Liabilities payable from restricted assets
Total liabilities
$ 27,761
2,247
639
10,710
41,357
$
30
4,198
4,228
$ 16,416
5,293
513
49,303
1,876
73,401
35,909
17,673
930
-
4,768
10,970
-
-
12,850
2,721
3,121
40,677
10,970
30,523
930
2,721
3,121
100,740
155,252
$ 196,609
195,577
211,315
$ 215,543
128,574
128,574
$ 201,975
122,833
141,525
206,955
100,740
195,577
128,574
122,833
636,666
821,082
ASSETS
Cash and cash equivalents
Receivables, net:
Property taxes
Accounts
Other
Total receivables
Due from other governmental agencies
Due from other funds
Due from component unit
Inventories
Fund balances:
Reserved forState statute
Special obligation debt service
Encumbrances
Inventories
Loans
Perpetual care
Unreserved, reported inGeneral fund
Debt service fund
Capital projects fund
Special revenue funds
Total fund balances
Total liabilities and fund balances
The notes to the financial statements are an integral part of this statement.
A-16
$
$
$
$
134,599
4,012
703
3,151
1,289
56,275
65,430
$
$
$
$
592,606
48,219
8,243
3,790
1,802
120,486
1,876
184,416
CITY OF CHARLOTTE, NORTH CAROLINA
RECONCILIATION OF THE GOVERNMENTAL FUNDS
BALANCE SHEET TO THE STATEMENT OF NET ASSETS
JUNE 30, 2010
(In Thousands)
Total fund balances for governmental funds
$
636,666
Total net assets reported for governmental activities in the
statement of net assets is different because:
Capital assets used in governmental activities are not financial
resources and, therefore, are not reported in the funds.
5,785,473
Pension assets resulting from contributions in excess of the
annual required contributions are not financial resources and
therefore are not reported in the funds.
6,927
Other long-term assets are not available to pay for current-period
expenditures and, therefore, are deferred in the funds.
142,247
Internal service funds are used to charge the costs of insured and
uninsured risks of loss as well as employee health and life claims to
individual funds. The assets and liabilities of the internal service funds
are included in governmental activities in the statement of net assets.
18,452
Long-term liabilities are not due and payable in the current period
and therefore are not reported in the funds. (Note 2.a.)
Total net assets of governmental activities
(1,494,587)
$
The notes to the financial statements are an integral part of this statement.
A-17
5,095,178
CITY OF CHARLOTTE, NORTH CAROLINA
STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES
GOVERNMENTAL FUNDS
FOR THE YEAR ENDED JUNE 30, 2010
(In Thousands)
Debt
Service
Other
Total
Capital Governmental Governmental
Projects
Funds
Funds
General
REVENUES:
Property taxes
$ 292,099 $ 52,837 $ 10,825 $
Other taxes
53,931
10,272
18,465
Intergovernmental
64,397
1,365
9,944
Licenses, fees and fines
47,075
67
12,289
Investment earnings
2,157
4,098
1,300
Private contributions
1,811
5,787
Administrative charges
25,446
Charges for current services
7,717
Miscellaneous
3,203
320
538
Total revenues
496,025
70,770
59,148
EXPENDITURES:
CurrentPublic safety
290,800
Sanitation
46,200
General administration
35,579
Support services
18,523
Engineering and property management
21,563
Streets and highways
30,404
Culture and recreation
Community planning and development
26,724
Debt servicePrincipal
68,766
Interest and other charges
70,900
Capital outlay
252,408
Total expenditures
469,793
139,666
252,408
Excess (deficiency) of revenues
over (under) expenditures
26,232
(68,896) (193,260)
OTHER FINANCING SOURCES (USES):
Sales of capital assets
1,029
1,656
General obligation bonds issued
20,000
Commercial paper issued
195
87,997
Installment purchases issued
1,130
87,465
Refunding debt issued
393,509
Premium on debt issuance
25,092
10,753
Private loan
32,558
Payment to refunded bond escrow agent
- (425,542)
Transfers in
3,671
80,639
1,158
Transfers out
(26,764)
(204)
(30,054)
Total other financing sources (uses)
(22,064)
74,819
211,533
Net change in fund balances
4,168
5,923
18,273
Fund balances - beginning, as previously reported 137,762
204,361
109,257
Prior period adjustment (Note 1.d.8)
13,322
1,031
1,044
Fund balances - ending
$ 155,252 $ 211,315 $ 128,574 $
The notes to the financial statements are an integral part of this statement.
A-18
3,518
44,814
61,941
899
3,033
4,135
118,340
$
359,279
127,482
137,647
60,330
10,588
7,598
25,446
7,717
8,196
744,283
14,727
1,716
245
27,928
17,798
27,657
305,527
46,200
37,295
18,523
21,808
58,332
17,798
54,381
90,071
68,766
70,900
252,408
951,938
28,269
(207,655)
475
3,160
20,000
88,192
88,595
393,509
35,845
32,558
(425,542)
11,250
96,718
(58,161)
(115,183)
(46,436)
217,852
(18,167)
10,197
159,692
611,072
15,397
141,525 $ 636,666
CITY OF CHARLOTTE, NORTH CAROLINA
RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN
FUND BALANCES OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES
FOR THE YEAR ENDED JUNE 30, 2010
(In Thousands)
Net change in fund balances - total governmental funds
$
10,197
The change in net assets reported for governmental activities in the
statement of activities is different because:
Governmental funds report capital outlays as expenditures.
However, in the statement of activities the cost of those assets is
allocated over their estimated useful lives and reported as
depreciation expense. This is the amount by which capital outlays
exceeded depreciation in the current period. (Note 2.b.)
133,303
The net effect of various miscellaneous transactions involving
capital assets (i.e., sales and donations) is to increase
net assets. (Note 2.b.)
119,492
Revenues in the statement of activities that do not provide current
financial resources are not reported as revenues in the funds.
4,106
The issuance of long-term debt (e.g., bonds and installment purchases)
provides current financial resources to governmental funds, while the
repayment of the principal of long-term debt consumes the current financial
resources of governmental funds. Neither transaction has any effect on net
assets in the government-wide statements. Also, governmental funds report
the effect of issuance costs, premiums, discounts and similar items when
debt is issued, whereas these amounts are deferred and amortized in the
statement of activities. This amount is the net effect of these differences
in the treatment of long-term debt and related items. (Note 2.b.)
(164,001)
Some expenses reported in the statement of activities do not
require the use of current financial resources and therefore are not
reported as expenditures in governmental funds. (Note 2.b.)
(2,852)
Internal service funds are used to charge the costs of insured and
uninsured risks of loss as well as employee health and life claims to
individual funds. The net revenue of certain activities of the internal
service funds is reported with governmental activities.
1,904
Change in net assets of governmental activities
$ 102,149
The notes to the financial statements are an integral part of this statement.
A-19
CITY OF CHARLOTTE, NORTH CAROLINA
STATEMENT OF BUDGETARY COMPARISON
GENERAL FUND
FOR THE YEAR ENDED JUNE 30, 2010
(In Thousands)
Budgeted Amounts
Original
Final
Actual
(Budgetary Basis)
Variance with
Final Budget
Positive
(Negative)
292,099
50,836
36,911
14,797
1,603
11,964
15,756
14,800
2,547
8,736
3,813
4,635
4,462
537
2,486
1,029
1,734
2,973
25,336
3,671
500,725
10,807
511,532
$
194,189
98,345
46,319
22,614
18,370
11,351
5,187
1,376
2,045
512
15,494
4,087
9,489
23,361
1,397
57,396
511,532
$
Resources (inflows):
Property tax
Sales tax
Utilities franchise tax
Police services
Tax reimbursements
Solid waste fee
Business privilege licenses
Licenses and permits
Fines, forfeits and penalties
Interlocal grants and agreements
Federal and state shared revenues
General government
Public safety
Cemeteries
Use of money and property
Sale of salvage and land
Other
Occupancy taxes
Intragovernmental
Transfers from other funds
Resources available for appropriation
Fund balance appropriated
Total amounts available for appropriation
$ 284,348
57,500
34,822
14,671
3,786
12,128
17,500
14,482
3,029
9,870
3,103
5,039
3,334
503
2,104
529
1,039
3,114
21,090
2,292
494,283
13,616
$ 507,899
$ 284,348
50,100
34,822
14,671
1,786
12,128
17,500
14,482
3,029
10,083
4,121
4,584
3,789
503
2,728
529
1,063
3,114
24,704
3,866
491,950
25,819
$ 517,769
$
Charges to appropriations (outflows):
Police
Fire
Solid waste
Transportation
Engineering and property management
Neighborhood development
Planning
Mayor and council
City attorney
City clerk
City manager
Human resources
Finance
Business support services
Budget and evaluation
Non-departmentals
Total charges to appropriations
$ 186,760
95,985
48,517
23,035
21,395
11,867
5,344
1,219
1,744
550
15,459
4,168
9,780
20,253
1,486
60,337
$ 507,899
$ 194,189
98,345
48,003
23,278
20,078
11,956
5,573
1,376
2,155
550
15,688
4,168
9,780
23,494
1,489
57,647
$ 517,769
$
The notes to the financial statements are an integral part of this statement.
A-20
$
$
$
$
7,751
736
2,089
126
(183)
(164)
(1,744)
318
(482)
(1,347)
(308)
51
673
34
(242)
500
671
(141)
632
(195)
8,775
1,684
664
1,708
605
386
110
38
194
81
291
133
92
251
6,237
CITY OF CHARLOTTE, NORTH CAROLINA
RECONCILIATION OF THE STATEMENT OF BUDGETARY COMPARISON TO THE
STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES
GENERAL FUND
FOR THE YEAR ENDED JUNE 30, 2010
(In Thousands)
Sources (inflows) of resources:
Actual amounts (budgetary basis) "available for appropriation" from
the statement of budgetary comparison
Differences - budget to GAAP:
Contributed fund balance is a budgetary resource available for appropriation
but is not a current-year revenue for financial reporting purposes.
Transfers from other funds are inflows of budgetary resources but
are not revenues for financial reporting purposes.
Proceeds from the sale of salvage and land are budgetary
resources but are regarded as other financing resources, rather
than revenue, for financial reporting purposes.
Total revenues as reported on the statement of revenues,
expenditures and changes in fund balances - governmental funds
Uses (outflows) of resources:
Actual amounts (budgetary basis) "total charges to appropriations" from
the statement of budgetary comparison
Differences - budget to GAAP:
Encumbrances for supplies and equipment ordered but not received are
reported in the year the order is placed for budgetary purposes, but in the
year the supplies are received for financial reporting purposes.
Transfers to other funds are outflows of budgetary resources but are not
expenditures for financial reporting purposes.
Total expenditures as reported on the statement of revenues, expenditures
and changes in fund balances - governmental funds
The notes to the financial statements are an integral part of this statement.
A-21
$ 511,532
(10,807)
(3,671)
(1,029)
$ 496,025
$ 511,532
(14,975)
(26,764)
$ 469,793
CITY OF CHARLOTTE, NORTH CAROLINA
STATEMENT OF NET ASSETS
PROPRIETARY FUNDS
JUNE 30, 2010
(In Thousands)
Water and
Sewer
ASSETS
Current assets:
Cash and cash equivalents
Receivables, netAccounts
Other
Total receivables
Due from other governmental agencies
Due from other funds
Prepaid insurance
Inventories
Restricted assetsCash and cash equivalents
Investments
Total restricted assets
Total current assets
Noncurrent assets:
Deferred charges
Deferred outflow of resources
Other postemployment benefit assets
Capital assetsLand
Buildings
Improvements other than buildings:
Water and sewer systems
Storm water systems
Runways
Transit corridors
Other
Total improvements other than buildings
Intangibles
Machinery and equipment
Construction in progress
Total capital assets
Less accumulated depreciation
Total capital assets, net
Total noncurrent assets
Total assets
A-22
Business-type Activities Storm
Water
Airport
$ 181,193
$ 51,209
$ 462,960
37,758
812
38,570
1,200
1,428
6,018
168
6,186
2,461
-
21,063
1,480
22,543
4,520
-
16,959
217,532
234,491
456,882
1,691
1,691
61,547
46,506
203,746
250,252
740,275
12,346
65,018
17,157
974
1,446
13,927
6,811
38,894
10,801
-
255,206
600,532
3,294,638
3,294,638
11,659
26,198
498,805
3,880,995
926,564
2,954,431
3,048,952
3,505,834
176,397
176,397
3,359
33
238,306
418,095
34,692
383,403
385,823
447,370
332,951
79,909
412,860
19,896
113,251
1,401,745
460,104
941,641
962,379
1,702,654
Enterprise Funds
Public
Transit
Total
$
Governmental
Activities Internal Service
Funds
122,752
$ 818,114
$
56,991
932
413
1,345
45,444
1
5,763
65,771
2,873
68,644
53,625
1
7,191
574
574
638
209
-
7
7
175,312
65,163
421,278
486,441
1,434,016
58,412
2,110
2,439
29,357
65,018
27,853
-
50,002
85,242
344,102
696,575
-
330,740
23,703
354,443
4,880
182,228
142,281
819,076
155,830
663,246
667,795
843,107
3,294,638
176,397
332,951
330,740
103,612
4,238,338
19,898
228,355
992,643
6,519,911
1,577,190
4,942,721
5,064,949
6,498,965
159
159
146
13
13
58,425
Continued on next page
A-23
CITY OF CHARLOTTE, NORTH CAROLINA
STATEMENT OF NET ASSETS-(Continued)
PROPRIETARY FUNDS
JUNE 30, 2010
(In Thousands)
Water and
Sewer
LIABILITIES
Current liabilities:
Accounts payable
Claims payable
Deposits and retainage payable
Accrued interest payable
Due to component unit
Unearned revenue
Current maturities of long-term liabilities
Current liabilities payable from
restricted assetsAccounts payable
Deposits and retainage payable
Accrued interest payable
Revenue bonds payable
Arbitrage
Total current liabilities payable from
restricted assets
Total current liabilities
Noncurrent liabilities:
General obligation bonds payable - net of deferred
amount on refunding and unamortized premium
Revenue bonds payable - net of deferred
amount on refunding and unamortized premium
Other financing agreements - net of unamortized premium
Derivative instrument liability
Refundable water and sewer construction deposits
Due to participants
Compensated absences payable
Arbitrage payable
Total noncurrent liabilities
Total liabilities
NET ASSETS
Invested in capital assets, net of related debt
Restricted for:
Debt service
Passenger facility charges
Working capital
Unrestricted
Total net assets
$
Business-type Activities Storm
Water
Airport
6,261
3,433
22,960
67,642
A-24
2,647
3,839
546
4,504
$
20,013
1,730
140
727
18,919
4,098
10,013
-
-
4,190
874
14,026
15,933
206
33,030
133,326
11,536
35,229
57,839
261,548
11,617
-
1,520,179
17,443
65,018
6,131
1,299
499
1,872,117
2,005,443
117,900
200
129,717
141,253
712,926
565
713,491
771,330
1,318,194
251,328
463,022
28,261
153,936
$ 1,500,391
1,691
53,098
$ 306,117
35,446
161,022
18,613
253,221
$ 931,324
Adjustment to reflect the consolidation of internal service fund activities related to
enterprise funds.
Net assets of business-type activities
The notes to the financial statements are an integral part of this statement.
$
Enterprise Funds
Public
Transit
Total
$
$
12,990
259
619
727
8,439
$
41,911
9,261
24,125
140
727
81,312
Governmental
Activities Internal Service
Funds
$
46,854
-
-
23,109
4,972
24,039
15,933
206
-
23,034
68,259
225,735
46,854
2
273,167
-
165,578
1,853
167,433
190,467
2,351,005
183,021
65,018
6,131
3,917
499
2,882,758
3,108,493
4,832
150
4,982
51,836
490,136
2,522,680
13
162,504
652,640
65,398
161,022
18,613
622,759
3,390,472
6,576
6,589
$
(11,863)
$ 3,378,609
A-25
CITY OF CHARLOTTE, NORTH CAROLINA
STATEMENT OF REVENUES, EXPENSES AND CHANGES IN FUND NET ASSETS
PROPRIETARY FUNDS
FOR THE YEAR ENDED JUNE 30, 2010
(In Thousands)
Water and
Sewer
OPERATING REVENUES:
Charges for services
Capacity fees
Miscellaneous
Total operating revenues
OPERATING EXPENSES:
Administration
Operations and maintenance
Claims and insurance premiums
Other
Depreciation
Total operating expenses
Operating income (loss)
NONOPERATING REVENUES (EXPENSES):
Sales tax
Grant contributions
Passenger facility charges
Contract facility charges
Investment earnings
Interest expense and other charges
Non-airline terminal revenue distribution
Miscellaneous
Total nonoperating revenues (expenses)
Income (loss) before contributions and transfers
CAPITAL CONTRIBUTIONS
TRANSFERS IN
Change in net assets
Total net assets - beginning, as previously reported
Prior period adjustment (Note 1.d.8)
Total net assets - ending
$ 240,399
7,395
2,813
250,607
29,060
69,657
1,272
83,014
183,003
67,604
Business-type Activities Storm
Water
Airport
$
45,782
45,782
$ 112,531
21,876
134,407
1,663
10,221
3,344
15,228
30,554
11,320
40,320
11,915
32,311
95,866
38,541
48,088
6,440
3,723
828
6,867
(72,203)
(6,360)
(29,420)
(11,373)
1,999
2,359
(432)
(66,481)
(3,173)
20,170
1,123
27,381
58,711
14,608
6,881
34,760
15,731
34,262
93,471
1,484,660
271,855
837,853
$ 1,500,391 $ 306,117 $ 931,324
Adjustments to reflect the consolidation of internal service fund activities related to enterprise funds.
Change in net assets of business-type activities
The notes to the financial statements are an integral part of this statement.
A-26
Enterprise Funds
Public
Transit
Total
$
$
21,548
21,548
$ 420,260
7,395
24,689
452,344
Governmental
Activities Internal Service
Funds
$
96,436
96,436
9,063
96,415
38,587
144,065
(122,517)
51,106
216,613
13,187
157,256
438,162
14,182
7,198
88,770
2
95,970
466
57,870
12,803
1,763
(7,846)
(2,963)
61,627
(60,890)
42,255
18,465
(170)
648,637
4,173
652,640
57,870
12,803
48,088
6,440
13,181
(115,829)
(11,373)
963
12,143
26,325
98,504
18,465
143,294
865
865
1,331
1,331
5,258
6,589
$
(573)
$ 142,721
A-27
CITY OF CHARLOTTE, NORTH CAROLINA
STATEMENT OF CASH FLOWS
PROPRIETARY FUNDS
FOR THE YEAR ENDED JUNE 30, 2010
(In Thousands)
Business-type Activities Water and
Storm
Sewer
Water
Airport
CASH FLOWS FROM OPERATING ACTIVITIES:
Receipts from customers
Receipts from participants
Payments to suppliers
Internal activity - (payments to) receipts from other funds
Receipts from trust
Payments to employees
Payments to airlines for non-airline
terminal revenue distribution
Payments for claims
Payments for premiums
Other receipts (payments)
Net cash provided (used) by operating activities
CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES:
Operating grants
Sales tax
Transfers in
Net cash provided by noncapital financing activities
CASH FLOWS FROM CAPITAL AND RELATED
FINANCING ACTIVITIES:
Proceeds from capital debt
Proceeds from commercial paper
Water and sewer construction deposits
Passenger facility charges
Contract facility charges
Acquisition and construction of capital assets
Principal paid on capital debt
Interest and other charges paid on capital debt
Capital contributions
Net cash provided (used) by capital and
related financing activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of investments
Proceeds from sale and maturities of investments
Interest received
Net cash provided (used) by investing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents - beginning of year
Cash and cash equivalents - end of year
A-28
$ 247,384 $ 45,312 $ 134,750
(44,813)
(4,901)
(41,839)
(23,684)
(1,790)
(8,412)
(34,553)
(4,807)
(13,718)
19,924
164,258
2,619
36,433
-
-
(12,624)
1,488
59,645
-
268,428
54,388
819
(131,040)
(59,247)
(74,225)
-
(26,343)
(4,506)
(6,550)
38
161,361
47,586
5,933
(103,128)
(49,755)
(31,446)
32,990
59,123
(37,361)
63,541
(405,906)
210,319
4,055
955
(191,532)
955
31,849
27
166,303
52,873
$ 198,152 $ 52,900
(313,538)
138,695
8,667
(166,176)
(42,990)
552,456
$ 509,466
Enterprise Funds
Public
Transit
Total
$
$
21,552 $
(39,173)
(9,044)
(54,477)
Governmental
Activities Internal Service
Funds
448,998 $
(130,726)
(42,930)
(107,555)
32,145
(5,456)
58,451
16,339
(1,478)
531
(80,611)
(12,624)
24,562
179,725
12,803
54,839
18,465
86,107
12,803
54,839
18,465
86,107
-
(52,720)
(7,155)
(7,869)
28,234
429,789
54,388
819
47,586
5,933
(313,231)
(120,663)
(120,090)
61,262
-
(39,510)
45,793
-
2,306
2,306
(31,708)
154,467
122,759 $
(719,444)
349,014
15,983
(354,447)
(42,822)
926,099
883,277 $
(82,447)
(13,647)
3,907
1,322
1,322
5,229
51,762
56,991
Continued on next page
A-29
CITY OF CHARLOTTE, NORTH CAROLINA
STATEMENT OF CASH FLOWS-(Continued)
PROPRIETARY FUNDS
FOR THE YEAR ENDED JUNE 30, 2010
(In Thousands)
Business-type Activities Water and
Storm
Sewer
Water
Airport
RECONCILIATION OF OPERATING INCOME (LOSS) TO NET
CASH PROVIDED (USED) BY OPERATING ACTIVITIES:
Operating income (loss)
Adjustments to reconcile operating income (loss)
to net cash provided (used) by operating activitiesDepreciation
Other receipts (payments)
Non-airline terminal revenue distribution
Change in assets and liabilities:
(Increase) decrease in receivables
(Increase) decrease in due from other governmental agencies
(Increase) in due from other funds
(Increase) decrease in inventories
(Increase) in prepaid insurance
(Increase) decrease in other postemployment benefit assets
Increase in accounts payable
(Decrease) in claims payable
Increase in due to participants
Increase (decrease) in deposits and retainage payable
(Decrease) in due to component unit
Increase (decrease) in compensated absences payable
Total adjustments
Net cash provided (used) by operating activities
NONCASH INVESTING, CAPITAL AND FINANCING ACTIVITIES:
Donated assets
Proceeds from refunding bonds
Payment to refunded bond escrow agent
Net noncash investing, capital and
financing activities
The notes to the financial statements are an integral part of this statement.
A-30
$ 67,604
$ 30,554
83,014
19,924
-
3,344
2,619
-
$ 38,541
32,311
1,488
(12,624)
(3,287)
(470)
343
44
(3)
(3,915)
38
52
876
315
401
64
(890)
(59)
(19)
33
38
96,654
5,879
21,104
$ 164,258 $ 36,433 $ 59,645
$ 14,505 $
210,000
(210,000)
4,781
-
$
$ 14,505
4,781
$
$
70,893
(70,893)
-
Enterprise Funds
Public
Transit
Total
$
(122,517) $
38,587
531
-
$
14,182
Governmental
Activities Internal Service
Funds
$
157,256
24,562
(12,624)
6
(4)
(1)
966
281
1,456
(2)
86
41,906
(80,611) $
$
-
$
$
-
$
2
-
(3,408)
40
(1)
963
(3,544)
3,048
(828)
(59)
138
165,543
179,725 $
19,286 $
280,893
(280,893)
19,286
466
$
(88)
(125)
(209)
(143)
4,002
2
3,441
3,907
-
A-31
CITY OF CHARLOTTE, NORTH CAROLINA
FIDUCIARY FUNDS
STATEMENT OF FIDUCIARY NET ASSETS
JUNE 30, 2010
(In Thousands)
Firefighters'
Retirement
Pension
Trust
ASSETS
Cash and cash equivalents
Receivables:
Employer contributions
Member contributions
Interest and dividends
Total receivables
Investments:
Equity securities - stocks
Fixed income securities - bonds
Mutual funds
Total investments
Capital assets, at cost, net of accumulated depreciation
of $201
Total assets
LIABILITIES
Accounts payable
NET ASSETS
Held in trust for pension/other postemployment benefits
$
$
5,403
$
37,709
236
225
393
854
138
138
87,142
37,929
164,889
289,960
-
234
296,451
37,847
766
-
295,685
The notes to the financial statements are an integral part of this statement.
A-32
Employee
Benefit Other Employee
Benefit Trust
$
37,847
CITY OF CHARLOTTE, NORTH CAROLINA
FIDUCIARY FUNDS
STATEMENT OF CHANGES IN FIDUCIARY NET ASSETS
FOR THE YEAR ENDED JUNE 30, 2010
(In Thousands)
Firefighters'
Retirement
Pension
Trust
ADDITIONS:
ContributionsMember
Employer
Other
Total contributions
Investment income Net appreciation in fair value of investments
Interest
Dividends
$
Investment expense
Net investment income
Total additions
DEDUCTIONS:
Benefits
Refunds
Insurance premiums
Administration
Depreciation
Total deductions
Change in net assets
Net assets - beginning
Net assets - ending
$
7,758
7,440
15,198
$
4,772
14,967
398
20,137
26,550
1,617
1,896
30,063
1,669
28,394
43,592
794
794
794
20,931
19,210
200
583
18
20,011
23,581
272,104
295,685
13,401
2,292
722
16,415
4,516
33,331
37,847
The notes to the financial statements are an integral part of this statement.
A-33
Employee
Benefit Other Employee
Benefit Trust
$
CITY OF CHARLOTTE, NORTH CAROLINA
INDEX TO THE NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2010
Note
1.
Topic
Page
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Reporting Entity .................................................................................................................................... 52
Basis of Presentation ............................................................................................................................ 53
Measurement Focus and Basis of Accounting ..................................................................................... 55
Assets, Liabilities and Net Assets/Fund Balances
Cash and Investments ................................................................................................................... 56
Receivables and Payables ............................................................................................................. 57
Inventories ...................................................................................................................................... 57
Capital Assets ................................................................................................................................ 57
Compensated Absences ................................................................................................................ 58
Long-term Liabilities ....................................................................................................................... 58
Net Assets/Fund Balances ............................................................................................................. 59
Restatement ................................................................................................................................... 60
2. RECONCILIATION OF GOVERNMENT-WIDE AND FUND FINANCIAL STATEMENTS
Explanation of certain differences between the governmental funds balance sheet and the
government-wide statement of net assets………………… .................................................................. 61
Explanation of certain differences between the governmental funds statement of revenues,
expenditures and changes in fund balances and the government-wide statement of activities .......... 61
3.
STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY
Budgetary Information .......................................................................................................................... 63
4.
DETAILED DISCLOSURES ON ALL FUNDS
Deposits ................................................................................................................................................ 64
Investments .......................................................................................................................................... 65
Receivables .......................................................................................................................................... 68
Property Taxes ..................................................................................................................................... 68
Restricted Assets .................................................................................................................................. 69
Capital Assets ....................................................................................................................................... 70
Interfund Receivables, Payables and Transfers................................................................................... 71
Payables ............................................................................................................................................... 73
Deferred Revenues .............................................................................................................................. 74
Long-term Liabilities ............................................................................................................................. 75
General Obligation Bonds .............................................................................................................. 77
Special Obligation Bonds ............................................................................................................... 79
A-34
CITY OF CHARLOTTE, NORTH CAROLINA
INDEX TO THE NOTES TO THE FINANCIAL STATEMENTS-(Continued)
JUNE 30, 2010
Note
4.
Topic
Page
DETAILED DISCLOSURES ON ALL FUNDS-(Continued)
Revenue Bonds .............................................................................................................................. 80
Installment Purchases .................................................................................................................... 83
Commercial Paper ......................................................................................................................... 85
Other Long-term Liabilities
Section 108 Loan Guarantee................................................................................................... 86
Private Loan............................................................................................................................. 86
Municipal Systems ................................................................................................................... 87
Derivative Instruments ................................................................................................................... 88
Refundings ..................................................................................................................................... 91
Other Debt Information................................................................................................................... 92
Early Extinguishment ..................................................................................................................... 93
Subsequent Events ........................................................................................................................ 93
5.
PENSION PLANS AND OTHER BENEFITS
Local Governmental Employees’ Retirement System .......................................................................... 93
Charlotte Firefighters’ Retirement System ........................................................................................... 94
Law Enforcement Officers’ Separation Allowance ............................................................................... 96
Supplemental Retirement Income Plan for Law Enforcement Officers ................................................ 99
Death Benefit Plan ................................................................................................................................ 99
Other Postemployment Benefits ........................................................................................................... 99
Deferred Compensation Plan ............................................................................................................. 103
6.
OTHER INFORMATION
Airport Leasing Arrangements with Tenants ...................................................................................... 103
Passenger Facility Charges ................................................................................................................ 104
Insurance
Employee Health and Life ............................................................................................................ 104
Risk Management ........................................................................................................................ 105
Commitments and Contingencies....................................................................................................... 106
NASCAR Hall of Fame ....................................................................................................................... 109
Arena .................................................................................................................................................. 109
US Airways ......................................................................................................................................... 110
A-35
CITY OF CHARLOTTE, NORTH CAROLINA
NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2010
(Dollar Amounts In Thousands)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Reporting Entity
The City of Charlotte (City) is a municipal corporation governed by an elected mayor and elevenmember council. The accompanying financial statements present the activities of the City and its
two component units, entities for which the City is financially accountable. The Charlotte Firefighters’
Retirement System (System) is so intertwined with the City that it is, in substance, the same as the
City. Accordingly, the System is blended and reported as if it was part of the City. The Charlotte
Regional Visitors Authority (Authority) is reported in a separate column in the government-wide
financial statements to emphasize that it is legally separate from the City. The following table
describes the City’s component units:
Component
Unit
Criteria for Inclusion
Reporting
Method
Separate Financial Statements
Charlotte
Firefighters’
Retirement
System
The
System
provides
retirement,
disability
and
death benefits to civil service
employees of the Charlotte
Fire Department.
These
services are exclusively for
the City.
Blended
Charlotte Firefighters’ Retirement
System
428 East Fourth Street, Suite 205
Charlotte, North Carolina 28202
Charlotte
Regional
Visitors
Authority
A “special district” as defined
by state statutes. The City
Council
appoints
the
governing board and the City
pays outstanding general
obligation bonded debt. Net
operating proceeds are to be
used to pay principal and
interest on the bonded debt or
as otherwise directed by City
Council.
Discrete
Charlotte Regional Visitors
Authority
501 South College Street
Charlotte, North Carolina 28202
The Charlotte Housing Authority (Housing Authority), which is excluded from the City’s financial
statements, is considered a related organization. The City Council appoints the Housing Authority’s
governing board; however, the City is not financially accountable for the Housing Authority.
The Charlotte Transit Center, Inc. is a joint venture resulting from an agreement between the City
and Bank of America. The corporation was established to build and operate a public transportation
terminal known as the Charlotte Transit Center (Center). The Board of Directors is comprised of two
members appointed by the City and two members appointed by Bank of America. The City provided
A-36
CITY OF CHARLOTTE, NORTH CAROLINA
NOTES TO THE FINANCIAL STATEMENTS-(Continued)
JUNE 30, 2010
(Dollar Amounts In Thousands)
the land and Bank of America constructed the building. The Center has two sections, transit and
retail. The City funds all expenses related to the transit section and common areas which benefit
transit riders and employees. Bank of America funds all expenses related to the retail area which is
available for lease to tenants. The City does not have an equity interest but does have an ongoing
financial responsibility because the Center’s existence depends on continued funding by the City.
The City’s expenditures related to the transit section are reflected in the Public Transit Enterprise
Fund. The financial statements of the Center, which has a December 31 year-end, may be obtained
from the following address:
Charlotte Transit Center, Inc
c/o Lincoln Harris, LLC
200 North College Street, Suite 100
Charlotte, North Carolina 28202
b. Basis of Presentation
Government-wide Statements: The statement of net assets and the statement of activities display
information about the primary government (the City) and its component unit. These statements
include the financial activities of the overall government, except for fiduciary activities. Eliminations
have been made to minimize the double counting of internal activities. These statements distinguish
between the governmental and business-type activities of the City as well as the City and its
discretely presented component unit. Governmental activities generally are financed through taxes,
intergovernmental revenues, and other nonexchange transactions. Business-type activities are
financed in whole or in part by fees charged to external parties.
The statement of activities presents a comparison between direct expenses and program revenues
for a given function or activity. Direct expenses are those that are clearly identifiable with a specific
program. Program revenues include (a) charges paid by recipients of goods or services offered by
the program and (b) grants and contributions that are restricted to meeting the operational or capital
requirements of a particular program. Taxes and other items not properly included as program
revenues are reported as general revenues.
As a general rule the effect of interfund activity has been eliminated from the government-wide
financial statements. Exceptions to this general rule are certain charges between the City’s
enterprise functions and various other functions of the government. Elimination of these charges
would distort the direct costs and program revenues reported for the various functions concerned.
Fund Financial Statements: The fund financial statements provide information about the City’s
funds. Separate statements for each fund category – governmental, proprietary, and fiduciary – are
presented. The emphasis of fund financial statements is on major governmental and enterprise
funds, each displayed in a separate column. All remaining governmental funds are aggregated and
reported as nonmajor funds.
A-37
CITY OF CHARLOTTE, NORTH CAROLINA
NOTES TO THE FINANCIAL STATEMENTS-(Continued)
JUNE 30, 2010
(Dollar Amounts In Thousands)
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 enterprise funds, charges for services, result from exchange transactions associated
with the principal activity of the fund. Exchange transactions are those in which each party receives
and gives up essentially equal values. Nonoperating revenues, such as subsidies and investment
earnings, result from nonexchange transactions or ancillary activities.
The City reports the following major governmental funds:
General fund. This is the City’s primary operating fund. It accounts for all financial resources of the
general government, except those required to be accounted for in another fund.
Debt Service. This fund accounts for the resources accumulated and payments made for principal
and interest on debt of governmental activities.
Capital projects. This fund accounts for financial resources, primarily proceeds from bonds, other
financing agreements and taxes, used for the acquisition, construction and improvement of capital
equipment and facilities.
The City reports the following major enterprise funds:
Water and sewer. This fund accounts for the activities of Charlotte-Mecklenburg Utilities, provider
of water and sewer services
Storm water. This fund accounts for the activities of Storm Water Services, administrator of storm
water programs and policies.
Airport. This fund accounts for the activities of the Charlotte/Douglas International Airport.
Public transit. This fund accounts for the activities of the Charlotte Area Transit System, provider of
public mass transportation.
A-38
CITY OF CHARLOTTE, NORTH CAROLINA
NOTES TO THE FINANCIAL STATEMENTS-(Continued)
JUNE 30, 2010
(Dollar Amounts In Thousands)
The City reports the following fund types:
Internal service funds. These funds account for (a) the general insurance program of the City, as
well as risk management services provided, on a cost-reimbursement basis, to other governmental
units and agencies in Mecklenburg County, and (b) funds contributed by the City and its employees
for health and life benefits.
Fiduciary funds. These funds account for (a) resources accumulated for the provision of benefit
payments to the Charlotte Firefighters’ Retirement System members and their beneficiaries, and (b)
resources accumulated for the provision of other postemployment benefit payments to retirees and
their beneficiaries.
c.
Measurement Focus and Basis of Accounting
Government-wide, Proprietary, and Fiduciary Fund Financial Statements: The government-wide,
proprietary fund, and fiduciary fund financial statements are reported using the economic resources
measurement focus and the accrual basis of accounting. Revenues are recorded when earned and
expenses are recorded at the time liabilities are incurred, regardless of when the related cash flows
take place. Nonexchange transactions, in which the City gives (or receives) value without directly
receiving (or giving) equal value in exchange, include property taxes, grants, and donations.
Revenue from property taxes is recognized in the fiscal year for which the taxes are levied. Revenue
from grants and donations is recognized in the fiscal year in which all requirements have been
satisfied.
Governmental Fund Financial Statements: Governmental fund financial statements are reported
using the current financial resources measurement focus and the modified accrual basis of
accounting. Under this method, revenues are recognized when measurable and available. The City
considers all revenues reported in the governmental funds to be available if the revenues are
collected within ninety days after the end of the current fiscal period except reimbursement grants
which are accrued based on expenditures. Primary sources of revenue susceptible to accrual
include occupancy tax, sales tax, Alcoholic Beverage Commission profits and federal and state
grants. Expenditures are recorded when a liability is incurred, except for principal and interest on
general debt, claims and judgments, and compensated absences, which are recognized as
expenditures when payment occurs. General capital asset acquisitions are reported as expenditures
in governmental funds. Proceeds of debt issues are reported as other financing sources.
The government-wide and proprietary funds financial statements follow Financial Accounting
Standards Board (FASB) Statements and Interpretations issued on or before November 30, 1989;
Accounting Principles Board (APB) Opinions; and Accounting Research Bulletins, unless those
pronouncements conflict with GASB pronouncements.
A-39
CITY OF CHARLOTTE, NORTH CAROLINA
NOTES TO THE FINANCIAL STATEMENTS-(Continued)
JUNE 30, 2010
(Dollar Amounts In Thousands)
Under the terms of grant agreements, the City funds certain programs by a combination of specific
cost-reimbursement grants, categorical block grants, and general revenues. Thus, when program
expenses are incurred, there are both restricted and unrestricted net assets available to finance the
program. It is the City’s policy to first apply grant resources to such programs followed by general
revenues.
d. Assets, Liabilities and Net Assets/Fund Balances
(1) Cash and Investments
The City maintains a cash management pool to facilitate disbursement and investment and maximize
investment income. Earnings on the pooled funds are apportioned and credited to the funds monthly
based on the average daily balance of each fund. Since individual funds may deposit additional
amounts at any time and may withdraw funds at any time without prior notice or penalty, the pool is
used essentially as a demand deposit account and considered cash and cash equivalents. The pool
is used by all funds except the Firefighters’ Retirement System Fund. For arbitrage purposes, the
City also maintains separate pools for the proceeds of each bond sale subsequent to 1986 in
compliance with the Internal Revenue Code relative to yield restrictions and rebate requirements.
For funds not included in the pools described above, cash and cash equivalents consist of cash,
demand deposits and short-term, highly liquid investments. Short-term refers to investments with an
original maturity of three months or less at date of acquisition. Highly liquid investments are those
that are both readily convertible to known amounts of cash and so near their maturity that the risk of
changes in value because of changes in interest rates is insignificant.
The restricted cash and cash equivalents/investments are restricted pursuant to bond covenants and
other financing agreements. All restricted money market funds of the enterprise funds are
considered cash and cash equivalents. The remaining amount of restricted assets is considered
investments.
Investments, except for North Carolina Capital Management Trust (NCCMT) and Firefighters’
Retirement System Fund, are reported at fair value as determined by quoted market prices. The
securities of the NCCMT Cash Portfolio, a SEC registered money market mutual fund, are valued at
fair value, which is the NCCMT’s share price. The NCCMT Term Portfolio’s securities are valued at
fair value. Money market investments that have a remaining maturity at the time of purchase of one
year or less are reported at amortized cost. Non-participating interest earning investment contracts
are reported at cost. See Note 5.b., “Method Used to Value Investments,” for an explanation of
reporting the Firefighters’ Retirement System’s investments at fair value.
Component Unit: The authority considers investments with an original maturity of three months or
less to be cash equivalents.
A-40
CITY OF CHARLOTTE, NORTH CAROLINA
NOTES TO THE FINANCIAL STATEMENTS-(Continued)
JUNE 30, 2010
(Dollar Amounts In Thousands)
(2) Receivables and Payables
Activity between funds that are representative of lending/borrowing arrangements outstanding at the
end of the fiscal year are referred to as “due to/from other funds.” Any residual balances outstanding
between the governmental activities and business-type activities are reported in the governmentwide financial statements as “internal balances.”
Property tax and accounts receivables are shown net of an allowance for uncollectibles. Notes
receivable in governmental funds consist of housing rehabilitation and economic development loans
that are generally not expected or scheduled to be collected in the subsequent year.
(3) Inventories
Inventories are recorded as an expenditure/expense when consumed rather than when purchased.
Inventories are valued at cost, which approximates market, using the first-in, first-out (FIFO) method.
(4) Capital Assets
Purchased or constructed capital assets are reported at cost or estimated historical cost. Donated
capital assets are recorded at their estimated fair value at the date of donation. General
infrastructure assets include annexed streets that were acquired or received substantial
improvements subsequent to July 1, 1980 and are reported at estimated historical cost using
deflated replacement cost. The cost of normal maintenance and repairs that do not add value to the
assets or materially extend assets’ lives are not capitalized.
Capital assets are assets with an initial, individual cost of more than $5, except intangible assets
which have a minimum cost of $100. Capital assets are depreciated using the straight-line method
over the following estimated useful lives:
Buildings
Infrastructure
Improvements other than buildings
Intangible
Machinery and equipment
20 - 40 years
40 years
10 - 60 years
5 - 10 years
3 - 40 years
Net interest cost on debt issued to finance the construction of capital assets was capitalized during
the construction period in the Water and Sewer, Storm Water, Airport and Public Transit Enterprise
Funds in the amounts of $8,184, $209, $1,235 and $21, respectively, for the year ended June 30,
2010.
A-41
CITY OF CHARLOTTE, NORTH CAROLINA
NOTES TO THE FINANCIAL STATEMENTS-(Continued)
JUNE 30, 2010
(Dollar Amounts In Thousands)
(5) Compensated Absences
Employees earn vacation leave at the rate of 10 to 20 days per year and can accrue a maximum of
20 to 40 days, depending on length of service. Unused vacation days are payable upon termination,
resignation, retirement or death.
Employees accumulate sick leave at the rate of one day per month and can accrue an unlimited
number of days. Sick leave can be taken for personal illness or illness of a member of the
immediate family. Sick leave is lost upon termination or resignation. However, twenty percent of
outstanding sick leave, with a maximum of 43.5 days, is payable upon retirement or death.
Compensated absences payable includes accumulated unpaid vacation leave and sick leave. This
liability is recorded in the government-wide and proprietary fund financial statements.
(6) Long-term Liabilities
In the government-wide financial statements and proprietary fund financial statements, long-term
debt and other long-term obligations are reported as liabilities in the applicable governmental
activities, business-type activities, or proprietary funds statement of net assets.
Bond premiums and discounts, as well as issuance costs, are deferred and amortized over the life of
the bonds using the straight-line method. Bonds payable are reported net of the applicable premium
or discount.
Long-term liabilities are reported net of the deferred amounts on refunding. The deferred amount on
refunding is the difference between the reacquisition price and the net carrying amount of the old
debt. This amount is amortized as a component of interest expense, using the straight-line basis,
over the life of the old debt or new debt, whichever is shorter.
In the fund financial statements, governmental fund types recognize bond premiums and discounts,
as well as bond issuance costs, during the current period. The face amount of the debt issued is
reported as other financing sources. Premiums received on debt issuances are reported as other
financing sources while discounts on debt issuances are reported as other financing uses. Issuance
costs, whether or not withheld from the actual debt proceeds received, are reported as debt service
expenditures.
The City enters into interest rate swap agreements to modify interest rates on outstanding debt. The
swaps are reported at fair market value in the government-wide financial statements and proprietary
fund financial statements using hedge accounting.
A-42
CITY OF CHARLOTTE, NORTH CAROLINA
NOTES TO THE FINANCIAL STATEMENTS-(Continued)
JUNE 30, 2010
(Dollar Amounts In Thousands)
(7) Net Assets/Fund Balances
Net assets in government-wide and proprietary fund financial statements are classified as invested in
capital assets, net of related debt; restricted; and unrestricted. Restricted net assets represent
constraints on resources that are externally imposed by creditors, grantors, contributors, bond
covenants, regulations of other governments or by State statute.
The governmental fund types classify fund balances as reserved and unreserved.
Reserved. This represents fund balance that is not available for appropriation or is legally
segregated for a specific purpose as follows:
Reserved for State statute - fund balance that is not available for appropriation under State law.
This is primarily comprised of accounts receivable which have not been offset by deferred
revenues.
Reserved for debt service - fund balance that is legally restricted through financing agreements for
future payment of debt service requirements.
Reserved for encumbrances - fund balance representing commitments outstanding related to
purchase orders and unperformed contracts.
Reserved for inventories - fund balance representing the balance of inventories which is not an
available expendable financial resource.
Reserved for loans - fund balance representing the balance of notes receivable which are not an
available expendable financial resource.
Reserved for perpetual care - fund balance available to pay cemetery maintenance costs.
A-43
CITY OF CHARLOTTE, NORTH CAROLINA
NOTES TO THE FINANCIAL STATEMENTS-(Continued)
JUNE 30, 2010
(Dollar Amounts In Thousands)
Unreserved.
Designated for subsequent years’ expenditures – fund balance appropriated for the budget for the
year ending June 30, 2011 and other tentative managerial and/or City Council plans for future use
of financial resources. Unreserved fund balance is designated at June 30 in the following amounts:
General
Debt Service
Capital Projects
Nonmajor
$
453
195,577
128,574
122,833
$
447,437
Undesignated – fund balance that is uncommitted and available for appropriation.
(8) Restatement
To properly record sales tax distributions in the appropriate year, beginning fund balances for the
General, Debt Service, Capital Projects, and Public Transit Enterprise funds have been increased by
$13,322, $1,031, $1,044, and $4,173 respectively. In addition, the government-wide financial
statements net assets at the beginning of the year have been restated by $15,397 for governmental
activities and $4,173 for business type activities.
Government-wide financial statement net assets at the beginning of the year have been restated by
$19,107 for governmental activities in order to reflect the implementation of Governmental
Accounting Standards Board Statement No. 53, Accounting and Financial Reporting for Derivative
Instruments, in relation to the City’s swaption as discussed in Note 4.j.7.
A-44
CITY OF CHARLOTTE, NORTH CAROLINA
NOTES TO THE FINANCIAL STATEMENTS-(Continued)
JUNE 30, 2010
(Dollar Amounts In Thousands)
2. RECONCILIATION OF GOVERNMENT-WIDE AND FUND FINANCIAL STATEMENTS
a. Explanation of certain differences between the governmental fund balance sheet and the
government-wide statement of net assets
The governmental fund balance sheet includes a reconciliation between fund balance - total
government funds and net assets - governmental activities as reported in the government-wide
statement of net assets. One element of that reconciliation explains that “Long-term liabilities are not
due and payable in the current period and therefore are not reported in the funds.” The details of this
$1,494,587 difference are as follows:
Bonds and installment purchases payable
Net of deferred amounts on refunding, premiums and discounts
Commercial paper notes
Derivative instrument liability
Swaption borrowing payable
Compensated absences
Arbitrage
Section 108 loan guarantee
Private Loan
Law enforcement officers' separation allowance
Unfunded OPEB liability
Accrued interest payable
$ 1,253,817
44,621
46,462
32,557
7,258
38,295
150
12,133
35,045
10,915
3,484
9,850
Net adjustment to reduce fund b alance - total
governmental funds to arrive at net assets governmental activities
$ 1,494,587
b. Explanation of certain differences between the governmental funds statement of revenues,
expenditures and changes in fund balances and the government-wide statement of activities
The governmental fund statement of revenues, expenditures and changes in fund balances includes
a reconciliation between net changes in fund balances - total governmental funds and changes in net
assets of governmental activities as reported in the government-wide statement of activities. One
element of that reconciliation explains that “Governmental funds report capital outlays as
expenditures. However, in the statement of activities the cost of those assets is allocated over their
estimated useful lives and reported as depreciation expense.” The details of this $133,303
difference are as follows:
Capital outlay
Depreciation expense
Net adjustment to increase net changes in fund
b alances - total governmental funds to arrive at
changes in net assets of governmental activities
A-45
$ 226,924
(93,621)
$ 133,303
CITY OF CHARLOTTE, NORTH CAROLINA
NOTES TO THE FINANCIAL STATEMENTS-(Continued)
JUNE 30, 2010
(Dollar Amounts In Thousands)
Another element of that reconciliation states “The net effect of various miscellaneous transactions
involving capital assets (i.e., sales and donations) is to increase net assets.” The details of this
$119,492 difference are as follows:
In the statement of activities, only the loss on the sale of capital assets is
reported. However, in the governmental funds, the proceeds from the sale
increase financial resources. Thus, the change in net assets differs from
the change in fund balance by the cost of the capital assets sold.
Donations of capital assets increase net assets in the statement of
activities, but do not appear in the governmental funds because they are
not financial resources.
Net adjustment to increase net changes in fund b alances - total
governmental funds to arrive at changes in net assets of governmental
activities
$
(145)
119,637
$
119,492
Another element of that reconciliation states “The issuance of long-term debt (e.g., bonds and
installment purchases) provides current financial resources to governmental funds, while the
repayment of the principal of long-term debt consumes the current financial resources of
governmental funds. Neither transaction has any effect on net assets. Also, governmental funds
report the effect of issuance costs, premiums, discounts, and similar items when debt is issued,
whereas these amounts are deferred and amortized in the statement of activities.” The details of this
($164,001) difference are as follows:
Debt issued or incurred:
Issuance of general obligation bonds
Issuance of installment purchase
Issuance of commercial paper notes
Private loan
Plus premium on debt issuance
Less issuance cost
Derivative instrument
Swaption borrowing
Arbitrage
Principal repayments:
General obligation debt
Installment purchases
Commercial paper
Section 108 loan guarantee
Net adjustment to decrease net changes in fund
b alances - total governmental funds to arrive at
changes in net assets of governmental activities
$
(20,000)
(88,595)
(88,192)
(32,558)
(35,845)
3,293
(3,257)
(315)
137
35,701
36,270
28,828
532
$ (164,001)
A-46
CITY OF CHARLOTTE, NORTH CAROLINA
NOTES TO THE FINANCIAL STATEMENTS-(Continued)
JUNE 30, 2010
(Dollar Amounts In Thousands)
Another element of that reconciliation states, “Some expenses reported in the statement of activities
do not require the use of current financial resources and therefore are not reported as expenditures
in governmental funds.” The details of this $(2,852) difference are as follows:
Accrued interest
Amortization on deferred amount on refunding
Amortization of issuance costs
Amortization of debt premiums
Amortization of discounts
Compensated absences
Law enforcement officers' separation allowance
Unfunded OPEB liability
Change in pension assets
Net adjustment to increase net changes in fund
b alances - total governmental funds to arrive at
changes in net assets of governmental activities
$
1,257
(911)
(450)
3,428
(32)
(545)
(1,350)
(3,484)
(765)
$ (2,852)
3. STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY
Budgetary Information
As required by State statutes, prior to July 1 each year the City Council adopts an annual
appropriation ordinance for all funds except those for which expenditures are authorized by project
ordinance and the Internal Service and Fiduciary Funds. City funds budgeted by project ordinance
include the Capital Projects Fund, Public Safety Grants, Neighborhood Development, Employment
and Training, the Stimulus Grants, and Emergency Communications Special Revenue Funds and
the Enterprise Funds capital projects.
The annual budgets are adopted at the fund level which is the legal level of budgetary control.
Supplemental appropriations at this level require approval of the City Council. During the year,
several amendments to the budget were necessary. Administrative control is maintained through the
establishment of more detailed line-item budgets. The budget is entered into the accounting records
and comparisons of actual to budget are made throughout the year. City administration has the
authority to amend line-item budgets. The final budgets shown in the statements are as amended at
June 30, 2010.
Annual budgets are adopted on the modified accrual basis except that they include encumbrances
for the current year.
Current year’s appropriations are charged for encumbrances when
commitments for the expenditures of monies are issued. Encumbrances outstanding at year-end are
reported as reservations of fund balances and do not constitute expenditures or liabilities because
the commitments will be reappropriated and honored during subsequent year.
A-47
CITY OF CHARLOTTE, NORTH CAROLINA
NOTES TO THE FINANCIAL STATEMENTS-(Continued)
JUNE 30, 2010
(Dollar Amounts In Thousands)
The accompanying Statement of Revenues, Expenditures and Changes in Fund Balance - Budget
and Actual (Non-GAAP Basis) - General Fund presents comparisons of the original and final budget
with actual data. Since the legally adopted budget is on a basis which differs from GAAP, the actual
data is similarly presented on a budgetary basis for comparison purposes. A reconciliation of the
non-GAAP basis to the GAAP basis is presented.
4. DETAILED DISCLOSURES ON ALL FUNDS
a. Deposits
As of June 30, 2010, the bank balances and carrying amounts of bank deposits were as follows:
Bank Balance
City - Governmental and Business-type Activities
City - Fiduciary Fund
Component unit - Authority
$117,377
224
9,556
Carrying Amount
$ 59,724
37,731
9,124
All deposits of the City are made in board-designated official depositories and are secured as
required by State statutes. The City may designate as an official depository any bank or savings and
loan association whose principal office is located in North Carolina. Also, the City may establish time
deposit accounts such as NOW and SuperNOW accounts, money market accounts, and certificates
of deposit.
All of the City’s deposits are either insured or collateralized by using the Pooling Method. Under the
Pooling Method, a collateral pool, all uninsured deposits are collateralized with securities held by the
State Treasurer’s agent in the name of the State Treasurer. Since the State Treasurer is acting in a
fiduciary capacity for the City, these deposits are considered to be held by the City’s agent in the
City’s name. The amount of the pledged collateral is based on an approved averaging method for
non-interest bearing deposits and the actual current balance for interest bearing deposits.
Depositories using the Pooling Method report to the State Treasurer the adequacy of their pooled
collateral covering uninsured deposits. The State Treasurer does not confirm this information with
the City or the escrow agent. Because of the inability to measure the exact amount of collateral
pledged for the City under the Pooling Method, the potential exists for under collateralization, and
this risk may increase in periods of high cash flows. However, the State Treasurer of North Carolina
enforces strict standards of financial stability for each depository that collateralizes public deposits
under the Pooling Method. The City has no policy regarding custodial credit risk for deposits. Of the
City’s bank balances, $1,228 was covered at the federal depository insurance coverage level
(including coverage by the Temporary Liquidity Guarantee Program) and $116,373 was covered by
collateral held under the Pooling Method.
Component Unit: The Authority must comply with the requirements of the State statutes as
previously described for the City. Of the bank balances, $2,669 was covered by federal depository
A-48
CITY OF CHARLOTTE, NORTH CAROLINA
NOTES TO THE FINANCIAL STATEMENTS-(Continued)
JUNE 30, 2010
(Dollar Amounts In Thousands)
insurance (including coverage by the Certificate of Deposit Account Registry Service Program). The
remaining balances were covered by collateral held under the Pooling Method.
b. Investments
State statute 159-30 authorizes the City and the Authority to invest in obligations of the United States
or obligations fully guaranteed both as to principal and interest by the United States; obligations of
the State of North Carolina; bonds and notes of any North Carolina local government or public
authority; obligations of certain non-guaranteed federal agencies; certain high quality issues of
commercial paper and bankers’ acceptances; repurchase agreements having third-party
safekeeping; and the North Carolina Capital Management Trust (NCCMT), an SEC registered mutual
fund. The City is not authorized to enter into reverse repurchase agreements. The investments of
the Charlotte Firefighters’ Retirement System (System) Pension Trust fund are governed by the
North Carolina Act (Act) establishing the System. This Act authorizes additional investment types
which include corporate bonds, common stock, guaranteed investment contracts and mutual funds.
The investments of the Other Employee Benefit Trust fund are governed by state statute 14769.2(b)(1)-(6)&(8). This legislation authorizes additional investment types which include corporate
bonds, common stock, and mutual funds.
The investments and maturities at June 30, 2010, were as follows:
City - Governmental and Business-type Activities
Fair Value
Investment type
U.S. Agencies
Commercial Paper
Mutual Funds
NCCMT Cash Portfolio
NCCMT Term Portfolio*
Total
$ 1,468,269
75,997
66,604
312,682
8,000
$ 1,931,552
Investment Maturities (in Years)
Less than 1
1-3
More than 3
$
$
613,056
75,997
N/A
N/A
8,000
697,053
$ 806,316
N/A
N/A
$ 806,316
$
$
48,897
N/A
N/A
48,897
* Because the NCCMT Term Portfolio had a weighted average maturity of 0.8 years, it was
presented as an investment with a maturity of 6-12 months.
Interest Rate Risk. Although the City does not have a formal investment policy, internal investment
guidelines prohibit maturities longer than five years which helps manage exposure to fair value
losses in rising interest rate environments.
Credit Risk. State law limits investments in commercial paper to the top rating issued by nationally
recognized statistical rating organizations (NSRO’s). Although the City had no formal policy on
managing credit risk, internal investment guidelines for commercial paper require at least two ratings
from either Standard & Poor’s (S&P), Fitch Ratings (Fitch), or Moody’s Investors Service (Moody’s).
A-49
CITY OF CHARLOTTE, NORTH CAROLINA
NOTES TO THE FINANCIAL STATEMENTS-(Continued)
JUNE 30, 2010
(Dollar Amounts In Thousands)
As of June 30, 2010, the City’s investments in commercial paper carried at least S&P A1, Moody’s
P1 or Fitch F1 ratings. The City’s investments in the NCCMT Cash Portfolio carried a credit rating of
AAAm by S&P as of June 30, 2010. The City’s investment in the NCCMT Term Portfolio is unrated.
The Term Portfolio is authorized to invest in instruments permitted by State statute 159-30 described
above. The City’s investments in U.S. Agencies (Federal Home Loan Bank, Federal National
Mortgage Association, Federal Home Loan Mortgage Corporation and Federal Farm Credit Bank)
are rated AAA by S&P and Aaa by Moody’s.
Custodial Credit Risk. For an investment, custodial credit risk is the risk that in the event of the
failure of the 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. At June 30, 2010, the City had no
investments subject to custodial credit risk. The City had no formal policy on custodial credit risk.
However, the City’s internal policy limits custodial credit risk by providing that security in the
collateral be delivered to a third party safekeeping bank designated by the City.
Concentration of Credit Risk. The City’s informal investment policy limits the amount of commercial
paper or bankers acceptances to a maximum of 25 percent of the portfolio. For commercial paper, a
maximum of $10 million may be invested in any one issuer. For bankers acceptances, the maximum
investment is limited to 10 percent of the portfolio for any one issuer.
The investments and maturities at June 30, 2010 of the Charlotte Firefighters’ Retirement System
were as follows:
City – Fiduciary Fund
Investment Maturities (in Years)
Investment type
U.S. Treasuries
U.S. Agencies
Corporate bonds
Common stocks
Mutual funds
Total
Fair Value
$
6,540
9,229
22,160
87,142
164,889
$ 289,960
Less than
1
$
474
N/A
N/A
$
474
1-5
$ 4,039
176
9,347
N/A
N/A
$ 13,562
6 - 10
$ 1,643
5,390
N/A
N/A
$ 7,033
More than
10
$
858
9,053
6,949
N/A
N/A
$
16,860
Interest Rate Risk. The System does not have a formal investment policy that limits investment
maturities.
A-50
CITY OF CHARLOTTE, NORTH CAROLINA
NOTES TO THE FINANCIAL STATEMENTS-(Continued)
JUNE 30, 2010
(Dollar Amounts In Thousands)
Credit Risk. The System is authorized to invest in bonds with a quality rating of no less than
investment grade and unrated U.S. Treasuries and Agencies. The quality ratings of investments in
fixed income securities as described by nationally recognized statistical rating organizations at June
30, 2010 are as follows:
Quality Rating
AAA
Baa > AA
B > Ba
Total credit risk debt securities
US Government fixed income securities:
Government National Mortgage Association
U.S. Treasury
Not rated
Total fixed income securities
Fair Value
$
11,000
15,642
82
26,724
Percentage
of Portfolio
29.00%
41.24%
0.21%
70.45%
573
6,540
4,092
37,929
1.52%
17.24%
10.79%
100.00%
$
Concentration of Credit Risk. The System limits the amount of equity holdings in any one company
to 8 percent of the market value of the portfolio; the amount of equity holdings in any one sector to
30 percent of the market value of the portfolio; and the amount of fixed-income securities in any one
corporation to 5 percent of the market value of the portfolio. There is no limit on securities backed by
the full faith and credit of the U.S. Government or any of its instrumentalities.
In accordance with the Act, the System has invested in collateralized mortgage obligations (CMO)
and mortgage backed securities. CMO and mortgage backed securities are based on cash flows
from principal and interest payments on underlying mortgages. CMO rates trade in sympathy with
treasury rates. At year-end, the System held $1,850 of these securities.
Component Unit: At June 30, 2010, the Authority had investments of $190 in the NCCMT’s Cash
Portfolio, which carried a credit rating of AAAm by Standard and Poor’s.
A-51
CITY OF CHARLOTTE, NORTH CAROLINA
NOTES TO THE FINANCIAL STATEMENTS-(Continued)
JUNE 30, 2010
(Dollar Amounts In Thousands)
c.
Receivables
Accounts receivable are presented net of allowance for uncollectibles in the accompanying financial
statements. The receivables and applicable allowances for uncollectibles are as follows:
Gross
Net
Receivable Allowance Receivable
Governmental
General
Debt Service
Capital Projects
Nonmajor
Total Governmental
Proprietary
W ater and Sewer
Storm W ater
Airport
Public Transit
Internal Service
Total Proprietary
$ 33,030
2,648
13,032
4,100
$ 23,058
2,231
7,600
3,649
52,810
36,538
16,272
46,635
8,229
22,687
1,783
574
8,065
2,043
144
438
-
38,570
6,186
22,543
1,345
574
79,908
10,690
69,218
854
138
-
854
138
$133,710
$ 47,228
$ 86,482
Fiduciary
Firefighters' Retirement
Employee Benefit
Total
$
9,972
417
5,432
451
In February 2002, City Council approved an interest-free loan to the Authority for $5,000 for the
renovation of Ovens Auditorium. In May 2007, the Council approved a new repayment schedule for
the loan agreement. The term of the loan was extended by thirty years and established a $160 per
year repayment through fiscal year 2037. At June 30, 2010 the balance of the loan outstanding was
$4,078.
d. Property Taxes
Pursuant to State statutes, property taxes levied on July 1, the beginning of the fiscal year, are due
September 1; however, penalties do not accrue until January 6. The taxes levied effective July 1,
2009, were based on the assessed values listed as of January 1, 2009, which is the lien date.
A-52
CITY OF CHARLOTTE, NORTH CAROLINA
NOTES TO THE FINANCIAL STATEMENTS-(Continued)
JUNE 30, 2010
(Dollar Amounts In Thousands)
The City and Mecklenburg County have a common tax base and overlapping bonded debt.
Mecklenburg County is the City’s agent for listing and collecting property taxes levied. The
distribution of the City’s levy for 2010 (tax rate per $100 valuation) to its funds is shown below:
General
Debt Service
Capital Projects
Total
$ 0.3758
0.0687
0.0141
$ 0.4586
In addition, special taxes are levied on areas referred to as Municipal Services Districts. The
purpose of these taxes is to aid the revitalization of these areas. The tax rates for 2010 for Districts
1, 2, 3, 4 and 5 were $.0174, $.0239, $.0386, $.0668 and $.0300, respectively.
e. Restricted Assets
Cash, cash equivalents and investments are restricted in the accompanying statements as follows by
fund:
GovernmentalDebt Service
Capital Projects
$
Total Governmental
37,733
EnterpriseW ater and Sewer
Storm W ater
Airport
Public Transit
234,491
1,691
250,252
7
Total Enterprise
Total
119
37,614
486,441
$ 524,174
These fund assets are restricted pursuant to bond orders and other financing agreements.
A-53
CITY OF CHARLOTTE, NORTH CAROLINA
NOTES TO THE FINANCIAL STATEMENTS-(Continued)
JUNE 30, 2010
(Dollar Amounts In Thousands)
f.
Capital Assets
Capital asset activity for governmental activities for the year ended June 30, 2010 was as follows:
Beginning
Governmental activitiesCapital assets, not being depreciated:
Land
Construction in progress
Tot al capit al asset s,
not being depreciated
Capital assets, being depreciated:
Buildings
Infrastructure
Intangibles
Machinery and equipment
Total capital assets being depreciated
Less accumulated depreciation for:
Buildings
Infrastructure
Intangibles
Machinery and equipment
Total accumulated depreciation
Tot al capit al asset s,
being depreciated, net
Governmental activities capital assets, net
Ending
Balance
Increases
Decreases
$ 2,894,707
475,555
$ 86,901
230,219
$
3,370,262
Balance
388,426
$2,981,608
317,348
317,120
388,426
3,298,956
676,846
2,202,637
10,975
149,680
327,631
69,506
1,288
19,442
9,744
1,004,477
2,272,143
12,263
159,378
3,040,138
417,867
9,744
3,448,261
183,933
577,333
9,207
107,234
20,551
55,800
1,772
15,500
9,599
204,484
633,133
10,979
113,135
877,707
93,623
9,599
961,731
2,162,431
324,244
145
2,486,530
$ 5,532,693
$ 641,364
$ 388,571
$5,785,486
Depreciation expense was charged to activities as follows:
Governmental activities:
Public safety
Sanitation
General administration
Support services
Engineering and property management
Streets and highways
Community planning and development
Capital assets held by the City's internal
service funds are charged to the various
functions based on the usage of assets
Total depreciation expense - governmental activities
$
$
A-54
11,865
3,287
1,419
2,692
6,419
53,886
14,053
2
93,623
CITY OF CHARLOTTE, NORTH CAROLINA
NOTES TO THE FINANCIAL STATEMENTS-(Continued)
JUNE 30, 2010
(Dollar Amounts In Thousands)
Capital asset activity for business-type activities for the year ended June 30, 2010 was as follows:
Beginning
Balance
Bus ines s -type activities Capital as s ets , not being depreciated:
Land
Cons truction in progres s
$
Total capital as s ets ,
not being depreciated
338,066
945,465
Ending
Increas es Decreas es
$
7,332
295,622
$
1,296
248,444
Balance
$
344,102
992,643
1,283,531
302,954
249,740
1,336,745
642,386
54,189
-
696,575
3,238,006
169,060
221,539
328,558
83,600
19,520
233,062
56,632
7,337
111,412
2,182
20,012
378
15,164
19,871
3,294,638
176,397
332,951
330,740
103,612
19,898
228,355
4,935,731
267,306
19,871
5,183,166
335,908
24,164
-
360,072
813,854
27,816
82,643
27,357
32,498
15,241
100,954
79,357
2,933
8,023
18,639
4,617
1,814
17,709
16,337
893,211
30,749
90,666
45,996
37,115
17,055
102,326
Total accum ulated depreciation
1,436,271
157,256
16,337
1,577,190
Total capital as s ets ,
being depreciated, net
3,499,460
110,050
3,534
3,605,976
$ 4,782,991
$ 413,004
$ 253,274
$ 4,942,721
Capital as s ets , being depreciated:
Buildings
Im provem ents other than buildings :
Water and s ewer s ys tem s
Storm water s ys tem s
Runways
Trans it corridors
Other
Intangibles
Machinery and equipm ent
Total capital as s ets being depreciated
Les s accum ulated depreciation for:
Buildings
Im provem ents other than buildings :
Water and s ewer s ys tem s
Storm water s ys tem s
Runways
Trans it corridors
Other
Intangibles
Machinery and equipm ent
Bus ines s -type activities capital as s ets , net
g. Interfund Receivables, Payables and Transfers
The following is a summary of interfund receivables and payables at June 30, 2010, by fund:
Interfund
Interfund
Payables
Due to/from other funds:
Receivables
General
Nonmajor governmental
Enterprise - Public Transit
Employee Health and Life
$
3,151
1
638
$
639
3,151
-
$
3,790
$
3,790
Total
The balances are for reimbursable expenditures and will be paid within 30 days.
A-55
CITY OF CHARLOTTE, NORTH CAROLINA
NOTES TO THE FINANCIAL STATEMENTS-(Continued)
JUNE 30, 2010
(Dollar Amounts In Thousands)
Due to/from primary government and component unit for reimbursable expenditures:
Receivable
Entity
Primary Government:
Debt Service
Capital Projects
Nonmajor governmental
Enterprise - Airport
Component Unit - Authority
Total
$
$
3,780
298
1,954
6,032
Payable
Entity
$
$
525
1,289
140
4,078
6,032
Interfund transfers:
Transfers In:
Capital
Nonmajor
Enterprise Projects Governmental Public Transit
General
Debt
Service
General
$
Debt Service
97
Capital Projects
18
Nonmajor governmental
3,556
$ 21,953
5,239
53,447
$
1,158
$
4,811
101
6,338
-
$
6
18,459
-
$ 26,764
204
30,054
58,161
Total
$ 80,639
$ 1,158
$
11,250
$
18,465
$ 115,183
Transfer out:
$ 3,671
Total
The transfers consist primarily of the following: (a) $80,639 to Debt Service from General, Capital
Projects and nonmajor governmental to cover debt service costs, (b) $18,400 to Enterprise - Public
Transit from Capital Projects pursuant to an interlocal agreement for regional mass transit and (c)
$11,250 to nonmajor governmental from General, Debt Service and Capital Projects.
A-56
CITY OF CHARLOTTE, NORTH CAROLINA
NOTES TO THE FINANCIAL STATEMENTS-(Continued)
JUNE 30, 2010
(Dollar Amounts In Thousands)
h. Payables
Payables at June 30, 2010 were as follows:
Vendors
Governmental
General
Debt Service
Capital Projects
Nonmajor governmental
$
Total Governmental
Proprietary
W ater and Sewer
Storm W ater
Airport
Public Transit
Internal Service
Total Business-type
Total
14,250
30
18,008
4,001
Salaries
$
$
8,182
150
-
Total
$
27,761
30
18,158
4,012
36,289
5,340
8,332
49,961
22,557
2,443
23,599
7,092
46,792
1,739
204
604
2,379
62
884
3,519
-
25,180
2,647
24,203
12,990
46,854
4,988
102,483
$
5,329
11
Other
138,772
A-57
$
10,328
4,403
$
12,735
111,874
$
161,835
CITY OF CHARLOTTE, NORTH CAROLINA
NOTES TO THE FINANCIAL STATEMENTS-(Continued)
JUNE 30, 2010
(Dollar Amounts In Thousands)
i.
Deferred Revenues
Governmental funds report deferred revenue in connection with receivables for revenues that are not
considered to be available to liquidate liabilities of the current period. Governmental funds also defer
revenue recognition in connection with resources received but not yet earned. At the end of the
current fiscal year, the components of deferred revenue and unearned revenue reported in the
governmental funds were as follows:
Unavailable
Property taxes receivable:
General
Debt Service
Capital Projects
Nonmajor governmental
Notes receivable:
General
Capital Projects
Nonmajor governmental
Accounts receivable:
General
Capital Projects
Nonmajor governmental
Due from component unit:
Debt Service
Capital Projects
Due from other governmental agencies
General
Grant advances:
Nonmajor governmental
$
Unearned
7,723 $
418
1,013
100
19
43,440
51,595
-
2,924
4,552
298
-
3,780
298
-
44
-
4,282
4,282
$ 120,486 $
A-58
445
-
4,727
CITY OF CHARLOTTE, NORTH CAROLINA
NOTES TO THE FINANCIAL STATEMENTS-(Continued)
JUNE 30, 2010
(Dollar Amounts In Thousands)
j. Long-term Liabilities
A summary of changes in long-term liabilities for governmental activities for the year ended June 30,
2010 follows:
Beginning
Balance
Additions
R eductions
$ 229,110
$ 122,496
Ending
Balance
D ue Within
One Year
Governm ental Activities
General obligation bonds
Les s unam ortized deferred on
refundings
Plus unam ortized prem ium s
Total bonds payable
Special obligation bonds
Ins tallm ent purchas es
Les s unam ortized deferred on
refundings
Plus unam ortized prem ium s
Les s unam ortized dis counts
Total ins tallm ent purchas es
$
377,156
$
483,770
$ 27 ,761
(6,964)
8,130
378,322
24,967
254,077
(504)
1,508
123,500
(6,460)
31,589
508,899
(505)
2,265
29 ,521
10,970
522,353
272,994
36,270
10,970
759,077
36 ,268
(4,320)
15,361
(946)
532,448
10,878
283,872
(407)
1,920
(32)
37,751
(3,913)
24,319
(914)
778,569
(403)
2,134
(32)
37 ,967
C om m ercial paper notes payable
D erivative ins trum ent liability
Sw aption borrow ing payable
C om pens ated abs ences
Arbitrage
Section 108 loan guarantee
Private loan
D ue to particip ants
La w enforcem ent officers '
s eparation allow ance
U nfunded OPEB liability
293,812
12,163
6,944
37,898
287
12,665
2,322
570
88,192
20,394
314
31,090
5
32,723
4,262
335,542
30,543
142
532
-
46,462
32,557
7,258
38,445
150
12,133
35,045
4,832
24 ,657
150
558
-
9,565
-
1,350
3,484
-
10,915
3,484
-
Total governm ental activities
$ 1,297,966
$ 719,763
$ 528,010
$ 1,489,719
$ 92 ,853
For governmental activities, compensated absences and law enforcement officers’ separation
allowance are primarily liquidated by the General Fund. Payments due to participants are made by
Internal Service Funds.
A-59
CITY OF CHARLOTTE, NORTH CAROLINA
NOTES TO THE FINANCIAL STATEMENTS-(Continued)
JUNE 30, 2010
(Dollar Amounts In Thousands)
A summary of changes in long-term liabilities for business-type activities for the year ended June 30,
2010 follows:
Beginning
Balance
Additions
Reductions
Ending
Due Within
Balance
One Year
Business-type Activities
Water and Sewer:
General obligation bonds
$
300,175
$
-
$
21,913
$
278,262
$ 23,113
Less unamortized deferred on
refundings
Plus unamortized premiums
Revenue bonds
(15,474)
-
(1,593)
(13,881)
(1,594)
22,268
-
1,791
20,477
1,791
1,183,070
460,145
125,390
1,517,825
32,790
Less unamortized deferred on
refundings
Plus unamortized premiums
Total bonds payable
Installment purchases
Plus unamortized premiums
Total installment purchases
Commercial paper notes payable
(11,734)
-
(979)
(10,755)
(979)
15,100
33,348
1,477
46,971
2,051
1,493,405
493,493
147,999
1,838,899
57,172
25,663
1,752
10,067
17,348
6,702
1,034
170
393
811
289
26,697
1,922
10,460
18,159
6,991
55,612
54,388
110,000
-
-
Other financing agreements Municipal systems
7,975
-
855
7,120
845
54,457
10,561
-
65,018
-
Refundable construction deposits
7,115
819
1,125
6,809
678
Compensated absences
3,173
2,698
2,717
3,154
1,855
Derivative instrument liablity
Arbitrage
Total Water and Sewer
449
151
-
600
101
1,648,883
564,032
273,156
1,939,759
67,642
13,465
-
1,231
12,234
820
Storm Water:
General obligation bonds
Less unamortized deferred on
refundings
Plus unamortized premiums
Revenue bonds
(643)
-
(48)
(595)
(48)
879
-
65
814
64
123,660
-
3,275
120,385
3,420
Less unamortized deferred on
refundings
Plus unamortized premiums
Total bonds payable
Compensated absences
Total Storm Water
(1,675)
-
(108)
(1,567)
(108)
2,596
-
101
2,495
101
138,282
-
4,516
133,766
4,249
422
399
366
455
255
138,704
399
4,882
134,221
4,504
continued on next page
A-60
CITY OF CHARLOTTE, NORTH CAROLINA
NOTES TO THE FINANCIAL STATEMENTS-(Continued)
JUNE 30, 2010
(Dollar Amounts In Thousands)
Beginning
Balance
Additions
Reductions
$ 229,015
$ 119,505
Ending
Due Within
Balance
One Year
Airport:
Revenue bonds
$
612,855
$
722,365
$ 15,535
Less unamortized deferred on
refundings
Plus unamortized premiums
Total bonds payable
Compensated absences
Arbitrage
Total Airport
(2,341)
(1,143)
(801)
(2,683)
(269)
6,545
3,244
612
9,177
667
617,059
231,116
119,316
728,859
15,933
1,254
1,055
1,017
1,292
727
117
89
-
206
206
618,430
232,260
120,333
730,357
16,866
9
-
5
4
2
177,350
-
7,150
170,200
7,430
Public Transit:
General obligation bonds
Installment purchases
Less unamortized deferred on
refundings
Plus unamortized premiums
Total installment purchases
Compensated absences
Arbitrage
Total Public Transit
Total business-type activities
-
(29)
3,327
(309)
-
134
3,193
(280)
134
(29)
180,368
-
7,255
173,113
7,535
2,631
1,420
1,334
2,717
864
9
29
-
38
38
183,017
1,449
8,594
175,872
8,439
$ 2,589,034
$ 798,140
$ 406,965
$ 2,980,209
$ 97,451
The government-wide statement of net assets includes $16,139 of long-term liabilities due within one
year for business-type activities in the liabilities payable from restricted assets. The remaining
amount of $81,312 is displayed as noncurrent liabilities, due within one year on that same statement.
(1) General Obligation Bonds
The City issues general obligation bonds to finance acquisition or construction of major capital
facilities and the purchase of other major capital items. Bonded indebtedness has also been issued
to advance refund several general obligation bonds. Interest rates on fixed rate general obligation
bonds outstanding range from 1.50 to 5.25 percent with final maturity in the year 2030. Interest on
the variable rate bonds is determined by a remarketing agent based upon market conditions.
A-61
CITY OF CHARLOTTE, NORTH CAROLINA
NOTES TO THE FINANCIAL STATEMENTS-(Continued)
JUNE 30, 2010
(Dollar Amounts In Thousands)
Debt service requirements to maturity for general obligation bonds are as follows:
Governm ental A c tivities
Y ear E nded
June 30
P rinc ipal
2011
$
27,761
2012
28,477
2013
27,479
2014
26,588
2015
27,357
2016-2020
129,672
2021-2025
135,256
2026-2030
81,180
$ 483,770
Interes t
22,705
21,479
20,313
18,963
17,657
69,428
37,662
8,555
$ 216,762
$
B us ines s -ty pe A c tivities
W ater and S ewer
Y ear E nded
June 30
P rinc ipal
Interes t
2011
$
23,113
$ 13,125
2012
24,287
11,955
2013
24,961
10,733
2014
26,087
9,508
2015
26,453
8,231
2016-2020
124,066
21,568
2021-2024
29,295
1,991
$ 278,262
$ 77,111
S torm W ater
P rinc ipal
Interes t
$
820
$
592
859
551
914
508
960
463
1,000
415
4,872
1,327
2,809
241
$ 12,234
$ 4,097
A-62
P ublic Trans it
P rinc ipal
Interes t
$
2
$
2
$
4
$
-
CITY OF CHARLOTTE, NORTH CAROLINA
NOTES TO THE FINANCIAL STATEMENTS-(Continued)
JUNE 30, 2010
(Dollar Amounts In Thousands)
(2) Special Obligation Bonds
In November 2004, the City issued taxable variable rate special obligation bonds to acquire property
for purposes of revitalizing the uptown area. Interest on the variable-rate bonds is determined by a
remarketing agent based upon market conditions. These bonds are solely secured by and payable
from a portion of the sales and use tax distributed revenues and are non-general obligation
financings. These revenues are not pledged by the City, directly or indirectly, as collateral, and no
lien or claim can be made against such revenues. In accordance with State statutes, no deficiency
judgment may be rendered against the City for amounts owed and the taxing power of the City may
not be pledged directly or indirectly to collateralize amounts due pursuant to these bonds.
Debt service requirements to maturity for special obligation bonds are as follows:
Governmental Activities
Year Ended
June 30
Principal
2011
$
2012
850
2013
900
2014
950
2015
1,000
2016-2020
5,890
2021
1,380
$ 10,970
Interest
$
38
38
36
32
29
88
5
$
266
A-63
CITY OF CHARLOTTE, NORTH CAROLINA
NOTES TO THE FINANCIAL STATEMENTS-(Continued)
JUNE 30, 2010
(Dollar Amounts In Thousands)
(3) Revenue Bonds
The following table summarizes the City’s revenue bonds:
Business-type activities
Date Sold
W ater and Sewer June 2001
February 2002
March 2002
August 2002
March 2005
July 2006
July 2006
August 2008
August 2009
December 2009
Storm W ater January 2002
October 2004
October 2006
Airport December 1985
December 1999
December 1999
September 2004
September 2004
August 2007
August 2007
February 2010
February 2010
Airport Special FacilityJune 1987
March 1998
September 2000
Original
Issue
Refunded
Original
Interest Rates
Final
Maturity
Balance
June 30, 2010
$ 149,000
61,035
114,430
108,390
68,790
100,290
300,000
342,715
93,765
366,380
*
August 2009
**
-
4.25% - 5.50%
3.50% - 5.50%
Variable
Variable
3.00% - 5.00%
4.00% - 5.00%
Variable
3.50% - 5.00%
3.00% - 5.25%
3.50% - 5.00%
2026
2016
2028
2025
2022
2037
2037
2039
2036
2040
29,840
54,265
43,675
***
-
3.00% - 5.25%
3.00% - 5.00%
4.00% - 5.00%
2025
2034
2036
28,505
49,855
42,025
108,780
102,255
88,805
150,775
16,160
99,995
47,570
130,100
31,145
February 2009
February 2010
November 2008
November 2008
****
*****
-
2.50% - 5.00%
4.63% - 6.85%
Variable
2.31% - 5.25%
Variable
4.00% - 5.00%
Variable
2.00% - 5.50%
Variable
2017
2029
2030
2035
2035
2038
2038
2040
2040
51,180
67,770
24,480
138,415
15,860
96,775
45,940
130,100
31,145
67,000
19,700
34,700
March 1998
-
5.60%
5.60%
7.75%
2028
2028
2028
66,300
19,700
34,700
$
119,905
37,025
114,430
103,225
60,895
95,135
184,350
342,715
93,765
366,380
* The August 2002 issue for $108,390 includes refunding of $37,890 of August 1999 bonds
and $58,990 of October 2000 bonds.
** The August 2009 issue for $93,765 refunds $100,000 of July 2006 variable rate bonds.
*** The January 2002 issue for $29,840 includes refunding of $27,355 of May 2000 bonds.
**** The August 2007 issue for $99,995 includes refunding of $7,950 of December 1999 bonds.
***** The February 2010 issue for $130,100 includes refunding of $3,000 of December 1985 bonds.
A-64
CITY OF CHARLOTTE, NORTH CAROLINA
NOTES TO THE FINANCIAL STATEMENTS-(Continued)
JUNE 30, 2010
(Dollar Amounts In Thousands)
Interest on the variable-rate bonds is determined by a remarketing agent based upon market
conditions. The City entered into interest rate swap agreements for the variable rate March 2002
Water and Sewer Revenue Bonds, the August 2002 Water and Sewer Refunding Revenue bonds
and the July 2006 Water and Sewer Refunding Revenue Bonds. See note 4.j.7 for additional
information concerning derivative instruments.
The principal and interest on the Airport Revenue bonds are payable from net revenues of the
Airport. Pursuant to the Revenue Bond Order, the City has covenanted to charge rates which
produce revenues sufficient to cover principal and interest payments.
The Airport Special Facility Revenue Bonds are payable solely from and secured solely by a pledge
of debt service rentals pursuant to a Special Facility Lease (Lease) agreement with US Airways
Group, Inc.
The principal and interest on the Water and Sewer and Storm Water Revenue Bonds are payable
from net revenues of the water and sewer and storm water systems, respectively. Pursuant to the
general trust indentures, the City has covenanted to charge rates that produce net revenues which
(1) including 50 percent of the surplus fund, after providing for a two-month operating reserve, are at
least 120 percent of the principal and interest requirements plus 100 percent of non-revenue bond
debt service requirements and (2) are at least 110 percent of the principal and interest requirements
plus 100 percent of non-revenue bond debt service requirements. Based on the 2010 Water and
Sewer Fund budgets, revenue bond debt service coverage was at least 121 percent. Based on the
2010 Storm Water Fund budgets, revenue bond debt service coverage was at least 343 percent.
The Revenue and Special Facility Revenue Bonds do not constitute a legal or equitable pledge,
charge, lien or encumbrance upon any of the City’s property or upon any of its income, receipts or
revenues, except as provided in the Revenue Bond Orders or Lease. Neither the credit nor the
taxing power of the City is pledged for the payment of the principal or interest, and no owner has the
right to compel the exercise of the taxing power of the City or the forfeiture of any of its property in
connection with any default under the Revenue Bond Orders or Lease.
The Revenue Bond Orders provide for the establishment of reserves for working capital and debt
service. The reserves in the Airport Enterprise Fund at June 30, 2010 are $18,613 for working
capital and $35,446 for debt service. The reserve requirements for the Water and Sewer Revenue
Bonds, except for the June 2001 and February 2002 issues, were satisfied with the purchase of
surety bonds or insurance policies. For the June 2001 and February 2002 Water and Sewer and the
Storm Water Revenue bonds, the reserve for debt service in the Water and Sewer and Storm Water
Enterprise Funds is $14,429 and $1,691, respectively, at June 30, 2010.
A-65
CITY OF CHARLOTTE, NORTH CAROLINA
NOTES TO THE FINANCIAL STATEMENTS-(Continued)
JUNE 30, 2010
(Dollar Amounts In Thousands)
Revenue bond debt service requirements to maturity are as follows:
Business-type Activities
Year Ended
Water and Sewer
June 30
Principal
Interest
2011
$
32,790
$
56,261
2012
34,025
53,989
2013
41,285
52,503
2014
43,890
50,676
2015
45,445
48,701
2016-2020
263,520
217,678
2021-2025
314,190
174,719
2026-2030
250,380
126,451
2031-2035
260,475
78,054
2036-2040
231,825
22,272
$ 1,517,825
$ 881,304
Storm Water
Principal
Interest
$ 3,420
$ 5,732
3,550
5,601
3,690
5,463
3,845
5,310
4,025
5,128
23,275
22,481
29,370
16,400
22,035
9,939
24,430
4,019
2,745
123
$ 120,385
$ 80,196
A-66
Airport
Principal
Interest
$ 15,535
$ 29,349
18,425
30,057
19,060
29,392
19,915
28,663
20,675
27,916
90,945
127,699
97,895
109,618
253,330
69,750
116,840
26,219
69,745
6,063
$ 722,365
$ 484,726
CITY OF CHARLOTTE, NORTH CAROLINA
NOTES TO THE FINANCIAL STATEMENTS-(Continued)
JUNE 30, 2010
(Dollar Amounts In Thousands)
(4) Installment Purchases
The following table summarizes the City’s installment purchases:
Original
Date Sold
Issue
Governmental activities:
Convention Center July 1991
$ 120,695
July 1991
24,335
April 2000
27,775
October 2000
16,500
May 2005
33,665
February 2007
22,655
June 2009
30,620
Refunded
Original
Interest Rates
Final
Maturity
September 2003
February 2007
February 2007
May 2005
February 2007
-
5.00% - 5.50%
Variable
5.00% - 5.63%
5.00% - 7.25%
3.00% - 5.00%
5.34% - 5.49%
2.00% - 5.00%
2020
2022
2011
2011
2026
2012
2034
Balance
June 30, 2010
$
92,255
19,490
875
530
19,160
9,790
30,620
Tourism May 2003
August 2003
August 2003
41,000
136,850
16,800
-
Variable
4.00% - 5.38%
2.00%
2033
2033
2015
19,785
136,850
5,900
Cultural Facilities September 2009
139,135
-
4.00% - 5.00%
2039
139,135
14,000
10,500
12,865
15,725
16,805
2,139
41,675
13,685
May 2003
November 2001
-
2.00% - 4.00%
3.50% - 4.50%
4.13% - 5.25%
Variable
3.00% - 5.00%
4.00% - 5.00%
3.00% - 5.00%
3.625% - 5.00%
2013
2016
2021
2025
2025
2012
2029
2024
2,895
4,425
3,550
12,740
16,560
926
39,790
13,685
Hall of Fame June 2009
July 2009
37,295
100,000
-
5.00%
Variable
2039
2035
37,295
100,000
Equipment 2006 - 2010
78,394
-
3.00% - 5.00%
2016
52,821
Business-type activities:
W ater and Sewer Equipment 2006 - 2010
33,972
-
3.00% - 5.00%
2016
17,348
Public Transit Equipment and Facilities November 2001
11,840
December 2003
58,440
January 2004
28,595
August 2005
74,400
June 2008
34,965
*
3.50% - 5.25%
2.00% - 5.00%
Variable
3.00% - 5.00%
3.50% - 5.00%
2011
2033
2014
2035
2035
1,510
54,895
12,495
67,750
33,550
Public Safety July 1993
March 1995
November 2001
April 2005
May 2005
March 2007
June 2009
May 2010
* The June 2008 issue for $34,965 includes refunding of $35,905 of August 2005 installment purchases.
A-67
CITY OF CHARLOTTE, NORTH CAROLINA
NOTES TO THE FINANCIAL STATEMENTS-(Continued)
JUNE 30, 2010
(Dollar Amounts In Thousands)
Interest on the variable-rate installment purchases is determined by a remarketing agent based upon
market conditions.
The City entered into an installment purchase contract in July 1991 to construct a new convention
center. An indenture of trust required the creation and maintenance of a reserve fund in an amount
equal to the lesser of (a) 10 percent of the proceeds of the contract, (b) the maximum annual
installment payments or (c) 125 percent of the average annual installment payments. The July 1991
installment purchase contract matured during 2010 and the reserve fund was liquidated. The April
and October 2000 installment purchase financings were for additions and modifications. For these
two contracts a surety bond was purchased in lieu of funding a debt service requirement.
These installment purchase contracts are non-general obligation financings. In accordance with
State statutes, no deficiency judgment may be rendered against the City for amounts owed and the
taxing power of the City may not be pledged directly or indirectly to collateralize amounts due
pursuant to these contracts. Net revenues from room occupancy and prepared food and beverage
taxes are dedicated for debt service payments for these financings. These revenues are not pledged
by the City, directly or indirectly, as collateral, and no lien or claim can be made against such
revenues.
The City enters into installment purchase contracts annually for the purchase of capital equipment.
These financings are payable over five years.
A-68
CITY OF CHARLOTTE, NORTH CAROLINA
NOTES TO THE FINANCIAL STATEMENTS-(Continued)
JUNE 30, 2010
(Dollar Amounts In Thousands)
Installment purchases debt service requirements to maturity are as follows:
Governmental Activities
Year Ended
June 30
Principal
2011
$ 36,268
2012
43,702
2013
35,867
2014
36,190
2015
31,410
2016-2020
152,475
2021-2025
138,755
2026-2030
116,075
2031-2035
102,705
2036-2039
65,630
$ 759,077
Interest
$ 29,408
28,030
26,261
24,770
23,152
96,217
67,500
43,894
24,818
8,317
$ 372,367
Business-type Activities
Year Ended
Water and Sewer
June 30
Principal
Interest
2011
$ 6,702
$
818
2012
4,898
514
2013
2,473
273
2014
2,575
155
2015
350
26
2016-2020
350
9
2021-2025
2026-2030
2031-2035
$ 17,348
$ 1,795
Public Transit
Principal
Interest
$ 7,430
$ 7,548
6,120
7,355
6,350
7,217
6,570
7,089
4,415
6,951
25,195
31,637
31,660
25,162
40,115
16,710
42,345
5,857
$ 170,200
$ 115,526
(5) Commercial Paper
The City has available a general obligation commercial paper bond program to finance street
improvements, neighborhood improvements, public improvements and housing projects. The City
has authorized the issuance of bonds up to the amount of $150,000 outstanding at any time. The
bonds are general obligations of the City, and the City has pledged its faith and credit to the payment
of principal of and interest on the bonds. In addition, the City has entered into a Standby Bond
Purchase Agreement which will expire in November 2012. The bonds will mature no later than 270
days after the date of issuance or October 1, 2034. The bonds will be replaced by general obligation
bonds. The City had general obligation commercial paper bonds payable of $46,462 outstanding at
June 30, 2010. Interest rates are based upon market conditions.
A-69
CITY OF CHARLOTTE, NORTH CAROLINA
NOTES TO THE FINANCIAL STATEMENTS-(Continued)
JUNE 30, 2010
(Dollar Amounts In Thousands)
Commercial paper debt service requirements to maturity are as follows:
Governm ental A c tivities
Y ear E nded
June 30
P rinc ipal
2011
$
2012
2013
46,462
$ 46,462
Interes t
$
232
232
89
$
553
(6) Other Long-term Liabilities
(a) Section 108 Loan Guarantee
This is the loan guarantee provision of the Community Development Block Grant (CDGB) program
that provides communities with a source of financing for economic development, housing
rehabilitation, public facilities, and large-scale physical development projects. Local governments
borrowing funds guaranteed by Section 108 loans must pledge their current and future CDBG
allocations to cover the loan amount as security for the loan. Debt service requirements to maturity
are as follows:
Governm ental A c tivities
Y ear E nded
June 30
Princ ipal
2011
$
558
2012
583
2013
610
2014
643
2015
696
2016-2020
3,340
2021-2025
2,858
2026-2029
2,845
$ 12,133
Interes t
$
197
180
162
143
122
317
66
18
$ 1,205
(b) Private Loan
The City has entered into a private loan agreement for up to $41.5 million dollars to finance preopening expenses for the NASCAR Hall of Fame project, construction of additional parking and
construction of the facility. The interest rate is 4.00 percent and will be due in June 2014. As of
June 30, 2010, $35,045 had been advanced under this agreement.
A-70
CITY OF CHARLOTTE, NORTH CAROLINA
NOTES TO THE FINANCIAL STATEMENTS-(Continued)
JUNE 30, 2010
(Dollar Amounts In Thousands)
Debt service requirements to maturity are as follows:
Governm ental A ctivities
Y ear E nded
June 30
Principal
2011
$
2012
2013
2014
35,045
$ 35,045
Interest
$ 1,402
1,402
1,402
1,401
$ 5,607
(c) Municipal Systems
Pursuant to agreements, the City is leasing water and sewer facilities owned by municipalities within
Mecklenburg County. These lease agreements continue until the outstanding bonds on these
facilities have been retired, at which time title to the facilities will be conveyed to the City. Debt
service requirements to maturity are as follows:
Business-type Activities
Year Ended
June 30
Principal
2011
$
845
2012
835
2013
830
2014
835
2015
825
2016-2020
2,950
$ 7,120
Interest
$
316
281
245
210
175
358
$ 1,585
Certain developers have contracted with the City for construction of water and sewer lines. Under
terms of these contracts, the developers are required to deposit with the City an amount equal to the
estimated cost of constructing the lines. The lines become the property of the City upon completion
and acceptance. Refunds of deposits may be either wholly or partially refundable depending upon
terms of the contracts. They will be paid over periods of five to twenty years. There are no stated
interest requirements for these deposits.
In accordance with Section 148 of the Internal Revenue Code of 1986, as amended, and Sections
1.103-13 to 1.103-15 of the related Treasury Regulations, the City must rebate to the federal
government “arbitrage profits” earned on governmental bonds issued after August 31, 1986.
Arbitrage profits are the excess of the amount earned on investments over the interest paid on the
borrowings. At June 30, 2010, a liability for $600, $206 and $38 is included in the Water and Sewer,
A-71
CITY OF CHARLOTTE, NORTH CAROLINA
NOTES TO THE FINANCIAL STATEMENTS-(Continued)
JUNE 30, 2010
(Dollar Amounts In Thousands)
Airport and Public Transit Enterprise Funds, respectively. A liability for $150 is included in the
Capital Projects Fund for estimated arbitrage profits payable.
(7) Derivative Instruments
The fair value balances and notional amounts of derivative instruments outstanding at June 30, 2010
classified by type, and the changes in fair value of such derivative instruments for the year then
ended are as follows:
Changes in Fair V alue
Classif ication
Fair V alue at June 30
A mount
Clas sif ication
A mount
Notional
$ (17,136)
Debt
$ (17,136) $
100,000
(3,258)
Debt
$ (15,421) $
128,245
$ (10,561)
Debt
$ (65,018) $
402,005
Governmental activities
Cash f low hedges:
Pay-f ix ed interes t rate sw ap
Def erred outf low
Pay-f ix ed interes t rate sw aption
Investment revenue $
Business-type activities
Cash f low hedges:
Pay-f ix ed interes t rate sw ap
Def erred outf low
A-72
CITY OF CHARLOTTE, NORTH CAROLINA
NOTES TO THE FINANCIAL STATEMENTS-(Continued)
JUNE 30, 2010
(Dollar Amounts In Thousands)
The following table displays the objective and terms of the City’s hedging derivative instruments
outstanding at June 30, along with the credit rating of the associated counterparty:
Type
Objective
Notional
Ef f ec tive
Maturity
A mount
Date
Date
Pay-f ix ed interest
rate sw ap
Hedge of changes in
c ash f low s on the 2002B
Water and Sew er
Revenue Bonds
$
114,430
3/13/2002
Pay-f ix ed interest
rate sw ap
Hedge of changes in
c ash f low s on the 2002C
Water and Sew er
Revenue Bonds
$
103,225
Pay-f ix ed interest
rate sw ap
Hedge of changes in
c ash f low s on the 2006B
Water and Sew er
Revenue Bonds
$
Pay-f ix ed interest
rate sw ap
Hedge of changes in
c ash f low s on the 2009D
Hall of Fame Certif icates
of Participation
Pay-f ix ed interest
rate sw aption
Hedge of changes in
c ash f low s in the 2003G
Tourism Certif icates of
Participation
Counterparty
Terms
Credit Rating
7/1/2027 Pay 4.03% ; receive 67%
of LIBOR
A 2/A
8/8/2002
6/1/2025 Pay 3.79% ; receive lesser
of the bond f loating rate
or 67% of LIBOR not to
exceed 12.00%
A 2/A
184,350
8/1/2006
7/1/2036 Pay 4.04% ; receive
SIFMA sw ap index
A a2/A A
$
100,000
8/18/2009
6/1/2035 Pay 4.725% ; receive
LIBOR
A a2/A A
$
128,245
6/1/2013
6/1/2033 Pay 5.10% ; receive
SIFMA sw ap index
A a2/A A
Interest rate risk. The City is exposed to interest rate risk on its interest rate swaps. On its payfixed, receive-variable interest rate swaps, as LIBOR, the bond floating rate swap index, or the
SIFMA swap index decreases, the City’s net payment on the swaps increases.
Basis risk. The City’s hedging derivative instruments expose the City to basis risk since the variable
payment received from the counterparty is determined on a basis different from that used to
calculate the bond floating rate for the associated bonds. As of June 30 the rate received by the City
for the 2002B and 2002C agreements was 67 percent of LIBOR or 0.23 percent, whereas the bond
floating rates paid by the City were 0.30 percent for Series 2002B and 0.29 percent for Series
2002C. As of June 30 the rate received by the City for the 2006B agreement was 0.25 percent,
whereas the bond floating rate paid by the City was 0.30 percent. As of June 30 the rate received by
the City for the 2009D agreement was 0.35 percent, whereas the bond floating rate paid by the City
was 0.35 percent.
Termination risk. Either the City or its counterparties may terminate the hedging derivative
instruments if the other party fails to perform under the terms of the contract. Termination could
result in the City being required to make a termination payment.
A-73
CITY OF CHARLOTTE, NORTH CAROLINA
NOTES TO THE FINANCIAL STATEMENTS-(Continued)
JUNE 30, 2010
(Dollar Amounts In Thousands)
Rollover risk. The City is exposed to rollover risk on hedging derivative instruments that are hedges
of debt that may be terminated prior to the maturity of the hedged debt. If the option to terminate the
hedging derivative instrument is exercised, then the City will be re-exposed to the risks being hedged
by the hedging derivative instrument.
Hedging derivative instrument payments and hedged debt. As of June 30, aggregate debt service
requirements of the City’s variable-rate debt and net receipts/payments on associated hedging
derivative instruments are as follows. These amounts assume that current interest rates on variablerate bonds and the current reference rates of hedging derivative instruments will remain the same for
their term. As these rates vary, interest payments on variable-rate bonds and net receipts/payments
on the hedging derivative instruments will vary.
Governmental A ctivities
Y ear Ended
June 30
2011
V ariable Rate Bonds
Principal
$
2,025
Interest
$
350
Hedging
Derivatives, Net
$
4,380
Total
$
6,755
2012
2,125
343
4,286
6,754
2013
2,255
335
4,193
6,783
2014
2,380
328
4,095
6,803
2015
2,510
319
3,991
6,820
2016-2020
14,785
1,455
18,181
34,421
2021-2025
19,405
1,165
14,564
35,134
2026-2030
25,435
786
9,820
36,041
2031-2035
29,080
288
3,602
32,970
5,369
$ 67,112
$ 172,481
$ 100,000
$
Business-type A ctiv ities
Y ear Ended
June 30
2011
V ariable Rate Bonds
Principal
$
6,345
Interest
$
Hedging
Derivatives, Net
Total
$ 22,233
1,131
$ 14,757
2012
4,585
1,171
14,467
20,223
2013
4,780
1,157
14,293
20,230
2014
4,955
1,142
14,114
20,211
2015
5,145
1,127
13,927
20,199
2016-2020
103,875
4,923
60,859
169,657
2021-2025
130,000
3,112
38,594
171,706
2026-2030
69,325
1,480
18,443
89,248
2031-2035
41,980
788
9,829
52,597
2036-2037
31,015
99
1,229
32,343
$ 402,005
$ 16,130
$ 200,512
$ 618,647
Total
Commitments. The City’s derivative instruments include provisions that require the City to post
collateral in the event its credit rating falls below A3 by Moody’s and A- by S&P. The hedging
derivative instruments will be collateralized at fair value with cash and/or U.S. government securities.
Collateral will be posted with the City or its agent. At June 30, the aggregate fair value of all hedging
A-74
CITY OF CHARLOTTE, NORTH CAROLINA
NOTES TO THE FINANCIAL STATEMENTS-(Continued)
JUNE 30, 2010
(Dollar Amounts In Thousands)
derivative instruments with these collateral posting provisions is ($97,575). If the collateral posing
requirements were triggered at June 30, the City would not be required to post collateral to its
counterparties because they had negative fair values. The City’s credit rating is Aaa/AAA, therefore,
no collateral has been posted at June 30.
(8) Refundings
In July 2009, the City issued $100,000 variable rate NASCAR Hall of Fame installment purchase
contracts. Net proceeds of $99,413 (after payment of $587 in underwriting fees, insurance and other
issue costs), and $17,236 of City funds were used to refund $103,075 outstanding commercial paper
certificates of participation and to finance completion of the NASCAR Hall of Fame facilities. The
variable rate installment purchase contracts were swapped to a fixed rate of 4.73 percent with a final
maturity in 2035. See note 4.j.7 for additional information concerning swap agreements.
In August 2009, the City issued $93,765 in fixed rate Water Sewer Revenue Bonds with interest
rates ranging from 3.00 to 5.25 percent to refund $100,000 of outstanding variable rate Water and
Sewer System Revenue Bonds, Series 2006B. The net proceeds of $100,000 (after payment of
$856 in underwriting fees, insurance and other issue costs) were used to purchase U.S. government
securities. The City completed the refunding to reduce its total debt service payments over a period
of 28 years by $2,559 and to obtain an economic gain (difference between the present values of the
old and new debt service payments) of $1,520.
In September 2009, the City issued $139,135 fixed rate Cultural Arts Facilities installment purchase
contracts. The net proceeds of $145,838 (after payment of $1,138 in underwriting fees, insurance
and other issue costs) were used to refund $98,016 outstanding commercial paper certificates of
participation and to finance completion of the Cultural Arts Facilities. The fixed rate installment
purchase contracts have interest rates ranging from 4.00 to 5.00 percent with a final maturity in
2039.
In October 2009, the City issued $122,315 fixed rate general obligation refunding bonds. The net
proceeds of $134,454 (after payment of $830 in underwriting fees, insurance and other issue costs)
were used to refund $134,451 outstanding commercial paper certificates of participation. The fixed
rate general obligation bonds have interest rates ranging from 3.00 to 5.00 percent with a final
maturity in 2029. See note 4.j.5 for additional information on the general obligation commercial
paper bond program.
In December 2009, the City issued $366,380 fixed rate Water and Sewer System Revenue Bonds.
The net proceeds of $390,161 (after payment of $2,477 in underwriting fees, insurance and other
issue costs) were used to refund $110,000 outstanding commercial paper certificates of participation
and to finance additional improvements to the Water and Sewer system. The fixed rate revenue
bonds have interest rates ranging from 3.50 to 5.00 percent with a final maturity in 2040.
A-75
CITY OF CHARLOTTE, NORTH CAROLINA
NOTES TO THE FINANCIAL STATEMENTS-(Continued)
JUNE 30, 2010
(Dollar Amounts In Thousands)
In January 2010, the City issued $86,795 fixed general obligation refunding bonds with interest rates
ranging from 3.00 to 5.00 percent to refund $90,000 of outstanding variable rate general obligation
bonds, Series 2007. The net proceeds of $90,001 (after payment of $8,508 in underwriting fees,
swap termination fee, insurance and other issue costs) were used to purchase U.S. government
securities. The City completed the refunding to reduce its total debt service payments over a period
of 18 years by $1,536 and to obtain an economic gain (difference between the present values of the
old and new debt service payments) of $1,321.
In February 2010, the City issued $197,870 fixed rate Airport Revenue bonds with interest rates
ranging from 1.25 to 5.50 percent to refund $69,750 of outstanding Airport Revenue Bonds, Series
1999B. The net proceeds of $199,074 (after payment of $2,039 in underwriting fees, insurance and
other issue costs) were used to purchase U.S. government securities, acquire and construct certain
improvements to the Airport, and fund the debt service reserve fund for the 2010 bonds. The
refunding resulted in a difference between the reacquisition price and the net carrying amount of the
old debt of $1,143. This difference, reported in the accompanying financial statements as a
deduction from revenue bonds payable, is being charged to operations through the year 2029 using
the effective-interest method. The City completed the refunding to reduce its total debt service
payments over a period of 19 years by $7,105 and to obtain an economic gain (difference between
the present values of the old and new debt service payments) of $4,645.
(9) Other Debt Information
In prior years, the City defeased various general obligation bonds, revenue bonds and installment
purchases by placing the proceeds of the new debt in an irrevocable trust to provide for all future
debt service payments on the old debt. Accordingly, the trust account assets and the liability for the
defeased debt are not included in the City’s financial statements. At June 30, 2010, $46,740 of
general government debt outstanding is considered defeased.
As of June 30, 2010, the City has authorized but unissued bonds of $352,218 consisting of $278,794
for street improvements, $19,373 for housing and $54,051 for neighborhood improvements.
Pursuant to the North Carolina General Statutes, the City’s outstanding general obligation debt is
subject to a legal limitation based on 8 percent of the total assessed value of real and personal
property. As of June 30, 2010, the City’s legal debt limit was $6,177,413. The outstanding debt
subject to this limit was $1,959,961, leaving a net legal debt margin of $4,217,452.
A-76
CITY OF CHARLOTTE, NORTH CAROLINA
NOTES TO THE FINANCIAL STATEMENTS-(Continued)
JUNE 30, 2010
(Dollar Amounts In Thousands)
(10)Early Extinguishment
On February 10, 2010, the City early extinguished $38,465 of variable rate Airport Refunding Bonds,
Series 1997A.
(11)Subsequent Events
On August 24, 2010, the City early extinguished $5,790 of fixed rate Airport Special Facility Revenue
Bonds, Series 2000.
5. PENSION PLANS AND OTHER BENEFITS
Primary Government: The City participates in the North Carolina Local Governmental Employees’
Retirement System (LGERS), administered by the State of North Carolina; the Charlotte Firefighters’
Retirement System, administered through a board of trustees; and the Law Enforcement Officers’
Separation Allowance (LEO Separation). The City also participates in a Supplemental Retirement
Income Plan for Law Enforcement Officers.
Component Unit: The Authority participates in the North Carolina LGERS which is described in Note
5.a. The Authority’s contribution to the LGERS for the year ended June 30, 2010 was $520, which
was 4.80 percent of annual covered payroll.
a. LGERS
Description: The City of Charlotte contributes to the statewide LGERS, a cost-sharing multipleemployer defined benefit pension plan. All employees of the City, except members of the Charlotte
Firefighters’ Retirement System, participate in LGERS which provides retirement and disability
benefits to plan members and beneficiaries. Article 3 of G.S. Chapter 128 assigns the authority to
establish and amend benefit provisions to the North Carolina General Assembly. The Local
Governmental Employees Retirement System is included in the Comprehensive Annual Financial
Report (CAFR) for the State of North Carolina. The State’s CAFR includes financial statements and
required supplementary information for LGERS. That report may be obtained by writing to the North
Carolina Office of the State Controller, Accounting and Financial Reporting Section, 1410 Mail
Service Center, Raleigh, North Carolina 27699-1410.
Funding Policy: Plan members are required to contribute 6.0 percent of their annual covered salary.
The City is required to contribute at an actuarially determined rate. For the City, the current rate for
employees not engaged in law enforcement and for law enforcement officers is 4.80 percent and
4.86 percent, respectively, of annual covered payroll. The contribution requirements of members
and of the City are established and may be amended by the North Carolina General Assembly. The
City’s contributions to LGERS for the years ended June 30, 2010, 2009, and 2008, were $14.0
A-77
CITY OF CHARLOTTE, NORTH CAROLINA
NOTES TO THE FINANCIAL STATEMENTS-(Continued)
JUNE 30, 2010
(Dollar Amounts In Thousands)
million, $13.9 million, and $13.0 million, respectively. The contributions made by the City equaled
the required contributions for each year.
b. Charlotte Firefighters’ Retirement System
Description: The Charlotte Firefighters’ Retirement System (System), a single-employer defined
benefit plan, provides retirement, disability and death benefits to civil service employees of the
Charlotte Fire Department. The System issues a publicly available financial report that includes
financial statements and required supplementary information. That report may be obtained by
writing to Charlotte Firefighters’ Retirement System, 428 East Fourth Street, Suite 205, Charlotte,
North Carolina 28202.
Basis of Accounting: The financial statements of the System are presented on the accrual basis of
accounting. Plan member and City contributions are recognized in the period in which the
contributions are due. Benefits and refunds are recognized when due and payable in accordance
with the terms of the plan. Interest and dividend income are reported as earned. The net
appreciation (depreciation) in the fair value of investments includes realized gains and losses on
investments that were both bought and sold during the year.
Method Used to Value Investments: The investments of the System are reported at fair value.
Short-term investments are reported at cost, which approximates fair value. Securities traded on a
national or international exchange are valued at the last reported sales price at current exchange
rates. Mortgages are valued on the basis of future principal and interest payments and are
discounted at prevailing interest rates for similar instruments. The fair value of real estate
investments is based on independent appraisals. Investments that do not have an established
market are reported at estimated fair values.
Contributions: Pursuant to the North Carolina Act (Act) which established the System, the City is
required to match the member’s contribution. The Act establishes the contribution rate pursuant to
the Board of Trustees’ recommendation and approval by the City Council. The current rate is 12.65
percent. The Act was established and may be amended by the North Carolina General Assembly.
A-78
CITY OF CHARLOTTE, NORTH CAROLINA
NOTES TO THE FINANCIAL STATEMENTS-(Continued)
JUNE 30, 2010
(Dollar Amounts In Thousands)
Annual Pension Cost and Net Pension Obligation: The City’s annual pension cost and net pension
obligation to the System for the current year were as follows:
Annual required contribution
Interest on net pension obligation
Adjustment to annual required contribution
$
7,440
(596)
1,361
Annual pension cost
Contributions made
8,205
(7,440)
Increase in net pension obligation
Net pension obligation, beginning of year
765
(7,692)
Net pension obligation, end of year
$
(6,927)
Trend Information
Year
Ended
June 30
2008
2009
2010
Annual
Pension
Cost (APC)
$
6,825
6,560
8,205
Net
Pension
Obligation
$
(6,911)
(7,692)
(6,927)
Percentage
of APC
Contributed
101.40%
111.91
90.68
Schedule of Funding Progress
A ctuarial
V aluation
Date
A ctuarial
V alue of
A ssets
(a)
A ctuarial
A ccrued
Liability
(A A L)Entry A ge
(b)
Unf unded
AAL
(UA A L)
(b-a)
Funded
Ratio
(a/b)
$
99.21%
2,839
Covered
Payroll
(c)
7/1/2008
$ 358,536
$ 361,375
7/1/2009
360,003
376,027
16,024
95.74
56,890
28.17
7/1/2010
357,652
395,393
37,741
90.45
59,080
63.88
A-79
$
55,219
UA A L as a
Percentage
of Covered
Payroll
[(b-a)/c]
5.14%
CITY OF CHARLOTTE, NORTH CAROLINA
NOTES TO THE FINANCIAL STATEMENTS-(Continued)
JUNE 30, 2010
(Dollar Amounts In Thousands)
The information presented in the schedule of funding progress was determined as part of the
actuarial valuation. Additional information follows:
Actuarial valuation date
Actuarial cost method
Amortization method
Remaining amortization period
Asset valuation method
Actuarial assumptions:
Investment rate of return
Projected salary increases
Includes inflation at
Cost of living adjustments
7/1/10
Entry age
Level Percent of Pay, Open
30 years
5-year smoothed market value
7.75%
4.25 to 11.25%
3.25%
None
Concentrations: The System had individual fixed income or equity investments at June 30, 2010
managed by the following organizations that represented five percent or more of the System’s net
assets:
State Street Global Advisors
Barrow, Hanley, Mewhinney & Strauss
Morgan Stanley
Winslow Capital Management
Aronson + Johnson + Oritz
Robeco Boston Partners
Cadence Capital Management
DE Shaw Investment Management
Investment Counselors of Maryland
c.
22%
13
13
10
9
6
5
5
5
LEO Separation
Description: The City of Charlotte administers a public employee retirement system (LEO
Separation), a single-employer defined benefit pension plan that provides retirement benefits to the
City’s qualified sworn law enforcement officers. The LEO Separation is equal to .85 percent of the
annual equivalent of the base rate of compensation most recently applicable to the officer for each
year of creditable service. The retirement benefits are not subject to any increases in salary or
retirement allowances that may be authorized by the General Assembly. Article 12D of G.S. Chapter
143 assigns the authority to establish and amend benefit provisions to the North Carolina General
Assembly. A stand-alone financial report is not issued for the LEO Separation.
A-80
CITY OF CHARLOTTE, NORTH CAROLINA
NOTES TO THE FINANCIAL STATEMENTS-(Continued)
JUNE 30, 2010
(Dollar Amounts In Thousands)
All full-time law enforcement officers of the City are covered by the LEO Separation. At December
31, 2009, the LEO Separation’s membership consisted of:
Retirees receiving benefits
Active plan members
Total
188
1,752
1,940
Basis of Accounting: The City has chosen to fund the LEO Separation on a pay-as-you-go basis.
Pension expenditures are made from the General Fund, which is maintained on the modified accrual
basis of accounting.
Method Used to Value Investments: No funds are set aside to pay benefits and administration costs.
These expenditures are paid as they become due.
Contributions: The City is required by Article 12D of G.S. Chapter 143 to provide these retirement
benefits and has chosen to fund the benefit payments on a pay-as-you-go basis through
appropriations made in the General Fund operating budget. The City’s obligation to contribute to this
plan is established and may be amended by the North Carolina General Assembly. There were no
contributions made by employees.
Annual Pension Cost and Net Pension Obligation: The City’s annual pension cost and net pension
obligation to the LEO Separation for the current year were as follows:
Annual required contribution
Interest on net pension obligation
Adjustment to annual required contribution
$
Annual pension cost
Contributions made
4,538
693
(602)
4,629
(3,279)
Increase in net pension obligation
Net pension obligation, beginning of year
Net pension obligation, end of year
1,350
9,565
$
10,915
Trend Information
Year
Ended
June 30
2008
2009
2010
Annual
Pension
Cost (APC)
$
3,624
4,175
4,629
Net
Percentage
Pension
of APC
Obligation
Contributed
83.28% $
8,420
72.57
9,565
70.85
10,915
A-81
CITY OF CHARLOTTE, NORTH CAROLINA
NOTES TO THE FINANCIAL STATEMENTS-(Continued)
JUNE 30, 2010
(Dollar Amounts In Thousands)
Schedule of Funding Progress
A ctuarial
V aluation
Date
12/31/2004
A ctuarial
V alue of
A ssets
(a)
$
-
A ctuarial A ccrued
Liability (A A L)Project Unit Credit
(b)
$
Unf unded
AAL
(UA A L)
(b-a)
Funded
Ratio
(a/b)
Covered
Payroll
(c)
UA A L as a
Percentage
of Covered
Payroll
[(b-a)/c]
41.61%
33,010
$ 33,010
-
$ 79,325
12/31/2005
-
30,823
30,823
-
83,671
36.84
12/31/2006
-
34,026
34,026
-
87,917
38.70
12/31/2007
-
39,453
39,453
-
93,043
42.40
12/31/2008
-
42,984
42,984
-
100,289
42.86
12/31/2009
-
58,656
58,656
-
105,765
55.46
Schedule of Employer Contributions
Y ear Ended
June 30
2005
A nnual
Required
Contribution
$
3,242
Percentage
Contributed
70.39%
2006
3,548
68.97
2007
3,268
82.83
2008
3,538
85.30
2009
4,079
74.28
2010
4,538
72.27
The information presented in the previous schedules was determined as part of the actuarial
valuation. Additional information follows:
Actuarial valuation date
Actuarial cost method
Amortization method
Remaining amortization period
Asset valuation method
Actuarial assumptions:
Investment rate of return
Projected salary increases
Includes inflation at
Cost of living adjustments
12/31/09
Projected Unit Credit
Level percent of pay closed
21 years
Market Value
5.00%
4.50 to 12.30%
3.75%
None
A-82
CITY OF CHARLOTTE, NORTH CAROLINA
NOTES TO THE FINANCIAL STATEMENTS-(Continued)
JUNE 30, 2010
(Dollar Amounts In Thousands)
d. Supplemental Retirement Income Plan for Law Enforcement Officers
Description: The City contributes to the Supplemental Retirement Income Plan (Plan), a defined
contribution pension plan administered by the Department of State Treasurer and a Board of
Trustees. The Plan provides retirement benefits to law enforcement officers employed by the City.
Article 5 of G.S. Chapter 135 assigns the authority to establish and amend benefit provisions to the
North Carolina General Assembly.
Funding Policy: Article 12E of G.S. Chapter 143 requires the City to contribute each month an
amount equal to 5.0 percent of each officer’s salary, and all amounts contributed are vested
immediately. Also, the law enforcement officers may make voluntary contributions to the plan. The
City is currently making contributions for 1,761 law enforcement officers. Contributions for the year
ended June 30, 2010 were $8,070, which consisted of $5,211 from the City and $2,859 from the law
enforcement officers.
e. Death Benefit Plan
The City provides death benefits to law enforcement officers through the Death Benefit Plan for
members of the Local Governmental Employees’ Retirement System (LGERS), a multiple-employer,
State-administered, cost-sharing plan funded on a one-year term cost basis. The beneficiaries of
those employees who die in active service after one year of contributing membership in the LGERS,
or who die within 180 days after retirement of termination of service and have at least one year of
contributing membership service in the System at the time of death are eligible for death benefits.
Lump sum death benefit payments to beneficiaries are equal to the employee’s 12 highest months’
salary in a row during the 24 months prior to the employee’s death, but the benefit may not exceed
$50 or be less than $25. All death benefit payments are made from the Death Benefit Plan. The
City has no liability beyond the payment of monthly contributions. Contributions are determined as a
percentage of monthly payroll, based upon rates established annually by the State. Because the
benefit payments are made by the Death Benefit Plan and not by the City, the City does not
determine the number of eligible participants. For the fiscal year ended June 30, 2010, the City
made contributions of $148 to the State for death benefits. The City’s contributions for employees
engaged in law enforcement represented .14 percent of covered payroll.
f.
Other Postemployment Benefits
Description: The City of Charlotte Employee Benefit Trust Plan (EBTP) is a single-employer defined
benefit healthcare plan administered by the City of Charlotte. The EBTP provides health and welfare
benefit plans for the benefit of eligible retired employees of the City. Section 4.05 of the Charlotte
City Code assigns the authority to establish benefit provisions for EBTP to the City Council. A standalone financial report is not issued.
A-83
CITY OF CHARLOTTE, NORTH CAROLINA
NOTES TO THE FINANCIAL STATEMENTS-(Continued)
JUNE 30, 2010
(Dollar Amounts In Thousands)
Membership of the EBTP consisted of the following at July 1, 2009, the date of the latest actuarial
valuation:
Retirees and beneficiaries receiving benefits
Active plan members
1,916
5,930
7,846
Basis of Accounting: The City’s financial statements are prepared using the accrual basis of
accounting. Plan member contributions are recognized in the period in which the contributions are
due. Employer contributions to the plan are recognized when due and the employer has made a
formal commitment to provide the contributions. Benefits and refunds are recognized when due and
payable in accordance with the terms of the plan.
Contribution Information: Funding Policy. The contribution requirements of plan members and the
City are established and may be amended by the City Council. For retired employees, the City
Council set the employer contribution rate based on the annual required contribution (ARC), an
amount actuarially determined in accordance with the parameters of GASB Statement 45. The ARC
represents a level of funding that, if paid on an ongoing basis, is projected to cover normal cost each
year and amortize any unfunded actuarial liabilities (or fund excess) of the plan over a period not to
exceed thirty years. For fiscal year 2010, the City contributed $14,967 to the plan for current
premiums which exceeded the required contribution. Administrative costs of the plan are financed
through contributions and investment earnings. Plan members receiving benefits contributed $4,772
through their required contribution.
The required contribution rates per plan members were as follows:
Years of service
20 or more – Retiree only
20 or more – Retiree and spouse and/or
dependents
15 to 20 – Retiree only
15 to 20 – Retiree and spouse and/or
dependents
10 to 15 – Retiree only
10 to 15 – Retiree and spouse and/or
dependents
Less than 10
Range of rates
$93 to $220
$258 to $827
$93 to $220
$380 to $1,380
$286 to $678
$573 to $1,838
Not eligible
A-84
CITY OF CHARLOTTE, NORTH CAROLINA
NOTES TO THE FINANCIAL STATEMENTS-(Continued)
JUNE 30, 2010
(Dollar Amounts In Thousands)
Annual OPEB Cost and Net OPEB Obligation: The City’s annual other postemployment benefit
(OPEB) cost (expense) and net OPEB Obligation for the current year were as follows:
Annual required contribution
$ 14,405
Interest on net OPEB obligation
(512)
Adjustm ent to annual required contribution
1,116
Annual OPE B cost (expense)
15,009
Contributions m ade
(14,967)
Increase in net OPEB obligation
Net OP E B obligation, beginning of year
Net OP E B obligation, end of year
42
(24,353)
$ (24,311)
Trend Inform ation
Year
Annual
Percentage of
Net
Ended
OPEB
Annual OPEB Cost
OPEB
June 30
Cost
Contributed
Obligation
2008
$ 17,041
166.49% $ (11,331)
2009
15,076
186.38
(24,353)
2010
15,009
99.72
(24,311)
Funded Status and Funding Progress: As of July 1, 2009, the most recent actuarial valuation date,
the plan was 16 percent funded. The actuarial accrued liability for benefits was $207,301. The
actuarial value of assets was $33,006, resulting in an unfunded actuarial accrued liability (UAAL) of
$174,295. The covered payroll (annual payroll of active employees covered by the plan) was
$332,162 and the ratio of the UAAL to the covered payroll was 54.10 percent.
Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and
assumptions about the probability of occurrence of events far into the future. Examples include
assumptions about future employment, mortality, and the healthcare cost trend. Amounts determined
regarding the funded status of the plan and the annual required contributions of the employer are
subject to continual revision as actual results are compared with past expectations and new
estimates are made about the future.
A-85
CITY OF CHARLOTTE, NORTH CAROLINA
NOTES TO THE FINANCIAL STATEMENTS-(Continued)
JUNE 30, 2010
(Dollar Amounts In Thousands)
The schedule of funding progress, presented below, presents multiyear trend information about
whether the actuarial value of plan assets is increasing or decreasing over time relative to the
actuarial accrued liabilities for benefits.
S chedule of Funding P rogress
UA AL as a
A ctuarial
A ctuarial
A ctuarial A ccrued
V aluation
Value of
Liability (A A L) -
Date
01/01/07
07/01/09
Assets (a)
$
33,006
E ntry A ge (b)
$
229,764
207,301
P ercentage of
Funded
Unfunded A A L
Ratio (a /
Covered
Covered P ayroll
(UA A L) (b - a)
b)
Payroll ( c)
([b - a] / c)
-%
15.92
$ 275,955
322,162
$
229,764
174,295
S chedule of E m ployer Contributions
A nnual
Year E nded
Required
Percentage
June 30
Contribution
Contributed
2008
$
17,041
166.49%
2009
14,405
195.06
2010
14,405
103.90
Actuarial Methods and Assumptions: Projections of benefits for financial reporting purposes are
based on the substantive plan (the plan as understood by the employer and the plan members) and
include the types of benefits provided at the time of each valuation and the historical pattern of
sharing of benefit costs between the employer and plan members to that point. The actuarial
methods and assumptions used include techniques that are designed to reduce the effects of shortterm volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the
long-term perspective of the calculations.
A-86
83.26%
54.10
CITY OF CHARLOTTE, NORTH CAROLINA
NOTES TO THE FINANCIAL STATEMENTS-(Continued)
JUNE 30, 2010
(Dollar Amounts In Thousands)
Additional information follows:
Actuarial valuation date
07/01/09 Actuarial cost method
Asset valuation method
Actuarial assumptions:
Investment rate of return
Projected salary increases
Annual healthcare cost trend rate
Includes inflation at
Amortization method
Remaining amortization period
Projected Unit Credit
Market Value
7.75%
4.50%
8.50 to 5.00% (year of ultimate trend rate 2015)
4.50%
Level percentage of projected payroll, closed
28 years
g. Deferred Compensation Plan
The City offers its employees a deferred compensation plan created in accordance with Internal
Revenue Code Section 457. The plan, which is available to all City employees, permits them to
defer a portion of their salary until future years. The deferred compensation is not available to
employees until termination, retirement, death, or unforeseeable emergency. The plan assets are
placed in trust for the exclusive benefit of the participants and their beneficiaries and therefore are
not included in the City’s financial statements.
6. OTHER INFORMATION
a. Airport Leasing Arrangements with Tenants
A major portion of the Airport’s assets are leased under operating agreements with airlines and other
tenants. The total cost and accumulated depreciation of the assets at June 30, 2010 follows:
Land
Buildings
Runways
Improvements other than buildings
Machinery and equipment
$
Total
Less accumulated depreciation
255,206
600,532
332,951
79,909
19,896
1,288,494
460,104
Total
$
A-87
828,390
CITY OF CHARLOTTE, NORTH CAROLINA
NOTES TO THE FINANCIAL STATEMENTS-(Continued)
JUNE 30, 2010
(Dollar Amounts In Thousands)
The following is a schedule of minimum future rental income on noncancelable operating leases
subsequent to June 30, 2010:
2011
2012
2013
2014
2015
2016-2020
2021-2025
2026-2028
Total minumum future rental income
$
$
39,165
39,284
39,404
39,525
39,647
59,792
37,526
140,808
435,151
Of the $435,151 minimum future rental income on noncancelable operating leases, $314,512 relates
to agreements with US Airways, Inc. See Note 6.g. for additional information related to US Airways,
Inc.
Contingent rentals that may be received under certain leases based on the tenant’s revenues, fuel
flow or usage are not included above. Contingent rentals of approximately $40,615 were received
during the year ended June 30, 2010.
b. Passenger Facility Charges
The Federal Aviation Administration (FAA) authorized the Airport to collect Passenger Facility
Charges (PFC) of $3 per qualifying enplaned passenger commencing November 1, 2004. The net
receipts from PFC are accounted for on the accrual basis of accounting and are restricted to use on
FAA approved projects. The Airport has been authorized to collect PFC in the aggregate amount of
$875,474. Collections during fiscal year 2010 were $48,088 and aggregate collections from
inception through June 30, 2010 were $248,345.
c.
Insurance
(1) Employee Health and Life
The City provides health and life benefits to employees and retirees. Private companies administer
these benefits pursuant to administrative services agreements. The City maintains insurance
coverage with private carriers for life claims, vision claims, and excess coverage for health claims in
excess of $275 per year per person. The City has an Employee Health and Life Insurance Fund
(EHLIF), an internal service fund, to account for and finance its health and life insurance program.
All City funds participate in the program and make payments to the EHLIF for both an amount per
employee and a proportionate share of the administrative cost. The amount per employee is based
on actuarial estimates of amounts needed to pay prior and current year claims. The employees and
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CITY OF CHARLOTTE, NORTH CAROLINA
NOTES TO THE FINANCIAL STATEMENTS-(Continued)
JUNE 30, 2010
(Dollar Amounts In Thousands)
retirees contribute a portion of the cost for health coverage. The City provides life insurance for
employees in the amount of two times the employees’ salary up to a maximum of $100. Employees
may purchase additional life insurance up to a maximum of four times their salary.
Liabilities include amounts for both reported and incurred but not reported claims. The changes in
the fund’s liabilities follow:
Beginning
Of Year
2010 $
7,185
2009
6,754
Claims and
Changes in
Estimates
$
65,492
64,692
Claims
Payments
End of Year
$
(65,178) $
7,499
(64,261)
7,185
At June 30, 2010, the EHLIF held $6,585 in cash and equivalents for payments of these claims.
(2) Risk Management
The City is exposed to various risks of loss related to torts; thefts of, damage to, and destruction of
assets; errors and omissions; injuries to employees; and natural disasters.
The City has a Risk Management Fund (RMF), an internal service fund, to account for and finance
its insured and uninsured risks of loss. Currently, insurance coverage is purchased for excess
property damage for buildings, contents and City buses; excess workers’ compensation; excess
vehicle and general liability; police professional liability; police helicopter liability and property
damage; airport liability, City bus liability, railroad protective liability, passenger railway liability for the
light rail train operations and property insurance on the light rail vehicles. Insurance coverage
includes vehicle and general liability claims in excess of $2,000 but less than $22,000 per
occurrence, workers’ compensation claims in excess of $1,000, property damage claims in excess of
$500 and flood insurance $100,000 in all flood zones, except $5,000 in flood zone A in excess of
federal flood program maximums. The finance officer is bonded for $100. Employees who handle
funds or have access to inventories are bonded under a blanket bond for $250. Settled claims have
not exceeded insurance coverage in the past three years. The actuarially determined losses for the
remaining risks and deductible amounts are funded in the RMF. All funds of the City participate in
the risk management program and make payments to the RMF based on historical cost information
or actuarial estimates of the amounts needed to pay prior and current year claims and establish a
reserve for catastrophic losses.
Pursuant to administrative agreements, the City provides risk management services to Mecklenburg
County and the Charlotte-Mecklenburg Board of Education. There is no transfer or pooling of risks
among entities. Amounts collected or due and amounts paid or to be paid to settle claims for
Mecklenburg County and the Charlotte-Mecklenburg Board of Education are reported as a net
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CITY OF CHARLOTTE, NORTH CAROLINA
NOTES TO THE FINANCIAL STATEMENTS-(Continued)
JUNE 30, 2010
(Dollar Amounts In Thousands)
liability on an accrual basis. At June 30, 2010, $4,832 was held as deposits for these entities. This
amount is reflected as a long-term liability, Due to Participants, in the RMF.
The claims liability of $39,355 reported in the RMF at June 30, 2010, is based on GASB Statement
No. 10, which requires that a liability for claims be reported if information prior to the issuance of the
financial statements indicates that it is probable that a liability has been incurred at the date of the
financial statements and the amount of the loss can be reasonably estimated. Claims liabilities are
based on the estimated ultimate cost of settling the claims, which includes incremental claim
adjustment expenditures/expenses (i.e., outside legal assistance) and estimated recoveries on
unsettled claims as required by GASB Statement No. 30. The changes in the fund’s liabilities follow:
Beginning
Of Year
2010 $
39,812
2009
29,893
Claims and
Changes in
Estimates
$
16,812
25,610
Claims
Payments
End of Year
$
(17,269) $
39,355
(15,691)
39,812
At June 30, 2010, the RMF held $50,406 in cash and cash equivalents for payments of these claims.
d. Commitments and Contingencies
Noise litigation suits have been filed against the City in connection with the operation of the
Charlotte/Douglas International Airport. In the opinion of the City’s attorney and management, the
ultimate outcome of the suits is not expected to have a significant impact upon the financial position
or results of operations of the Airport Fund.
The City is also party to a number of other civil injustice lawsuits and legal actions. In the opinion of
the City’s attorney and management, the ultimate outcome of these legal matters is not expected to
have a significant impact upon the City’s financial position.
The City has filed an agreement with the Internal Revenue Service to reallocate proceeds of the
September 2004 Airport Revenue Bonds. The request is under consideration but has not been
finalized as of the date of this report.
The City is currently evaluating a number of environmental issues including two former landfill sites.
Until site assessments and further studies are completed, the cleanup costs can only be estimated.
During the current fiscal year a provision for cleanup costs of $466 has been provided within the
financial statements. In the opinion of City management, costs ultimately incurred are not expected
to have a material effect on the City’s financial position after giving effect to the provision for clean-up
costs.
A-90
CITY OF CHARLOTTE, NORTH CAROLINA
NOTES TO THE FINANCIAL STATEMENTS-(Continued)
JUNE 30, 2010
(Dollar Amounts In Thousands)
The City manages a Brownfield Assessment Grant Program which assists property and business
owners and infill developers in overcoming barriers that contamination presents for the
redevelopment of underutilized brownfield sites in distressed business districts and neighborhoods.
The Program provides fifty percent matching funds, up to $20 per site, to property owners for site
assessment, design of remediation activities, and legal expenses for redevelopment sites suspected
of contamination. When the City enters into the agreements, it legally obligates itself to participate
in the cleanup activities of the remediation effort. The amount of the liability is derived from the grant
agreements and assumes no unexpected change orders.
The City has received a number of federal and state grants for specific purposes that are subject to
review by the grantor agencies. Such reviews could lead to requests for reimbursement to the
grantor agencies for expenditures disallowed under terms of the grants. The City management
believes that such disallowances, if any, would not be significant.
Authorized capital projects at June 30, 2010, are comprised of the following by fund:
Project
Authorization
GovernmentalCapital Projects
EnterpriseW ater and Sewer
Storm W ater
Airport
Public Transit
$
Total Enterprise
Total
$
1,916,362
Expended
$
1,447,911
Unexpended
$
468,451
2,344,756
345,145
842,783
865,297
1,524,083
247,497
677,699
767,762
820,673
97,648
165,084
97,535
4,397,981
3,217,041
1,180,940
6,314,343
$
4,664,952
$
1,649,391
Financial resources are available to fund the total amount of unexpended authorizations.
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CITY OF CHARLOTTE, NORTH CAROLINA
NOTES TO THE FINANCIAL STATEMENTS-(Continued)
JUNE 30, 2010
(Dollar Amounts In Thousands)
The City has construction and other contractual commitments at June 30, 2010, as follows by fund:
GovernmentalGeneral
Capital Projects
Nonmajor governmental
$
Total Governmental
122,454
EnterpriseW ater and Sewer
Storm W ater
Airport
Public Transit
89,321
22,504
38,801
41,182
Total Enterprise
Total
325
91,158
30,971
191,808
$
314,262
The City has operating lease commitments for land and office space with future rentals under these
leases at June 30, 2010, as shown below:
Year
2011
2012
2013
2014
2015
2016-2029
Amount
$ 2,937
2,294
1,714
1,045
744
2,595
$ 11,329
Related lease expense was approximately $3,266 in 2010.
Under Municipal Agreements with the North Carolina Department of Transportation, the City has
obligations to share the cost of certain street and highway construction or improvements in the
Charlotte area. As of June 30, 2010, the City’s estimated obligation for future costs under these
agreements was approximately $549.
The City has obligations issued to local financial institutions, in the form of “master notes,” to
evidence borrowings for mortgage loan programs in redevelopment areas. The obligations are
collateralized by and payable solely from program revenues and therefore do not represent a claim
against the revenues of the City. Funds are advanced under the notes, up to the face amounts
thereof, as required to fund qualifying mortgage loans.
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CITY OF CHARLOTTE, NORTH CAROLINA
NOTES TO THE FINANCIAL STATEMENTS-(Continued)
JUNE 30, 2010
(Dollar Amounts In Thousands)
The amounts authorized and outstanding by loan program at June 30, 2010, are as follows:
Loan Program
Purpose
Third/Fourth Ward
Residential
Amount Authorized
$44,000
Amount Outstanding
$
-
Five Points
Residential
1,850
3
Uptown
Residential
21,000
-
The City has issued $10,165 in Mortgage Revenue Bonds, Series 1983A to fund an FHA-insured
mortgage loan for acquisition and rehabilitation of a multi-family housing project. The City also has
issued $5,045 in Mortgage Revenue Bonds, Series 1983B to establish a residential mortgage loan
program to finance the acquisition, construction and rehabilitation of residences in a redevelopment
area. These obligations are payable exclusively from the income, proceeds and revenues of the
project. In 1993 Series 1983A was refunded at $9,000 with final maturity in 2026 and Series 1983B
was refunded at $4,935 with final maturity in 2025.
e. NASCAR Hall of Fame
On March 8, 2006, the City of Charlotte, Charlotte Regional Visitors Authority (Authority), and
NASCAR Inc. entered into an agreement to “establish a museum and hall of fame facility to be
known as the NASCAR Hall of Fame” to commemorate competitive stock car and stock truck racing
and its founders, participants, fans and industry contributors. The facility is wholly owned by the City
of Charlotte and operated by the Authority. The NASCAR Hall of Fame opened in May 2010.
The $189.0 million project is funded through a number of sources: $134.5 million installment
purchases to be repaid from the new two percent Occupancy Tax, $36.5 million from private bank
loans to be repaid from State donated land sales and private donations (no recourse to the City) and
$30.3 million from installment purchases to be repaid by the Convention Center Tax Special
Revenue Fund. In addition, the Convention Center Tax Special Revenue Fund is financing a $6.0
million pedestrian bridge and a $6.3 million modification to accommodate light rail. A 2,500 seat
convention center ballroom was built on site and connects to the main convention center and Hall of
Fame.
NASCAR Inc. participated with a developer for the construction of an office tower and parking deck
on the site of the Hall of Fame to house local NASCAR operations. NASCAR has an option to
purchase at the market rate, a parcel adjacent to the property for future development.
f.
Arena
During 2003 the City entered into several agreements related to the construction of a new arena and
the awarding of a National Basketball Association (NBA) expansion team to Charlotte. The
agreements are with various parties including the National Basketball, RLJ Basketball, LLC, RLJ
Arena Operations, LLC and the Charlotte Regional Visitors Authority (Authority). The Arena opened
in October 2005.
A-93
CITY OF CHARLOTTE, NORTH CAROLINA
NOTES TO THE FINANCIAL STATEMENTS-(Continued)
JUNE 30, 2010
(Dollar Amounts In Thousands)
The City funded the cost of the arena project, including land, through (1) the issuance of installment
financing obligations that will be supported solely by revenues derived from the hotel/motel tax levied
as authorized by North Carolina State law and the three percent rental car tax; (2) funds provided by
corporate underwriters; (3) funds from the sales of assets; and (4) other funding sources currently
available to the City and the Authority. The corporate underwriters provided $100.0 million
consisting of $50.0 by various corporations for the purchase of City assets and an additional $50.0
million of which $10.0 million is a corporate community contribution, $16.8 million is to be repaid by
the City, and $23.2 million is to be repaid by the Team. As of June 30, 2010, $55.6 million of City
assets had been purchased by various corporations. The City issued a $16.8 million installment
purchase contract which provides for repayment of the corporate underwriters during 2005 through
2015. In addition, the City issued $177.9 million of installment purchase contracts to acquire land
and fund construction costs.
The City is the sole owner of the arena and the arena site. During the twenty-five year term of the
agreement with the Team, the City and the Team shall each make an annual contribution to a capital
reserve fund of $250 beginning in 2007 and increasing five percent per year to a maximum of $500
per year. Capital expenses in excess of the amount in the capital reserve fund will be the
responsibility of the City. The Team will be obligated to play all home games in the arena. If the
Team violates this agreement, the City will be entitled to liquidated damages in varying amounts
depending upon the number of years remaining under the agreement.
The Team will operate the Arena for twenty-five years and have one five year extension option. The
Team will be entitled to all revenues including operations, naming rights, advertising and
broadcasting. The Team will be responsible for operating expenses including maintenance and
operating losses. The Authority will also provide certain “back of house” operations including
maintenance and event preparation and will be compensated by the Team for these services. The
Authority will also provide food and beverage services at the arena and pay the Team a percentage
of the gross revenues.
g. US Airways
US Airways, Inc. (US Airways), a wholly owned subsidiary of US Airways Group, Inc., is the major
passenger airline serving Charlotte/Douglas International Airport (Airport). For the fiscal year ended
June 30, 2010, US Airways and its affiliates provided 24.73 percent of the Airport’s operating
revenues.
US Airways conducts its passenger air carrier operations at the Airport pursuant to several
agreements, the most significant of which is the City of Charlotte’s 1985 Airport Agreements and
Lease (Airport Agreement), which has also been executed by American Airlines, Continental Airlines,
Delta Air Lines, Northwest Airlines, and United Airline (collectively, the Signatory Airlines). Pursuant
to the Airport Agreement, the Signatory Airlines lease certain premises in the passenger terminal
building (terminal) and are obligated to pay landing fees and terminal rentals which, in the aggregate,
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CITY OF CHARLOTTE, NORTH CAROLINA
NOTES TO THE FINANCIAL STATEMENTS-(Continued)
JUNE 30, 2010
(Dollar Amounts In Thousands)
are sufficient to enable the City to pay the annual operating expenses of the airfield and terminal,
and the annual debt service on General Airport Revenue Bonds (GARBS) issued by the City to fund
airfield and terminal improvements.
As of June 30, 2010, the City had $601,665 of GARBS outstanding, the proceeds of which were
used for airfield and terminal improvements. The GARBS are not general obligations of the City and
are payable solely from revenues generated by the City in the airfield and terminal. The City has
$35,446 in reserve to pay principal and interest on GARBS.
In addition to the GARBS, the City has also issued Special Facility Revenue Bonds to finance the
construction of crew training, airfield maintenance and other Airport facilities (Special Facilities) that
are leased to US Airways by the City. As rental for the Special Facilities, US Airways is obligated to
pay directly to the City a Ground Rental and an Airport Service Fee Rental. In addition, US Airways
is obligated to pay directly to a Trustee for the benefit of bondholders a facility rental (Special
Facilities Debt Service Rental) in an amount equal to the annual installments of principal and interest
on the Special Facility Revenue Bonds. The Special Facilities Debt Service Rental is not a general
obligation of the City. If US Airways fails to pay the Special Facilities Debt Service Rentals, the City
is obligated to use reasonable efforts to re-let the Special Facilities to another tenant and apply the
debt service rentals from such re-letting to the payment of the principal and interest on the Special
Facility Revenue Bonds. The City is not obligated to make any payments relating to the Special
Facilities or the Special Facility Revenue Bonds except for such debt service rentals as it receives
from the tenant of the Special Facilities. As of June 30, 2010, there was $120,700 of Special Facility
Revenue Bonds outstanding. The Special Facility Revenue Bonds provide for the semi-annual
payment of interest with a lump-sum payment of principal on the maturity date of the bonds. The
Special Facility Revenue Bonds mature on July 1, 2027 and February 1, 2028.
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A-96
APPENDIX B
SUMMARY OF INDENTURE
[THIS PAGE INTENTIONALLY LEFT BLANK]
APPENDIX B
SUMMARY OF INDENTURE
In addition to summaries of the provisions of the General Indenture and Series Indenture,
Number 13 contained under the caption “THE 2011 BONDS” and elsewhere in this Official Statement,
the following is a brief summary of certain provisions of the General Indenture and the Series Indenture,
Number 13 applicable to the 2011 Bonds. This summary is not intended to be definitive and is qualified
in its entirety by express reference to the General Indenture and Series Indenture, Number 13 for the
complete terms thereof.
DEFINITIONS OF CERTAIN TERMS
“Account” or “Fund” means one of the special funds or accounts created and established under
the General Indenture.
“Accountant” means a firm of independent certified public accountants as may be selected by the
City and not unacceptable to the Trustee.
“Accreted Value” means (i) on a Compounding Date with respect to any Capital Appreciation
Bond, an amount equal to the principal amount of such Capital Appreciation Bond at the date of delivery
to the original purchasers thereof plus the interest accrued on such Capital Appreciation Bond from such
date to that Compounding Date as shown in the Series Indenture under which it is issued, or (ii) as of any
date of computation with respect to any Capital Appreciation Bond, an amount equal to the principal
amount of such Capital Appreciation Bond at the date of delivery to the original purchasers thereof plus
the interest accrued on such Capital Appreciation Bond from such date to the date of computation,
calculated based on the assumption that Accreted Value as shown in the Series Indenture under which it is
issued accrues during any period in equal daily amounts on the basis of a year of 360 days consisting of
twelve months of thirty days each.
“Act” means The State and Local Government Revenue Bond Act, General Statutes of North
Carolina Section 159-80 et seq., and as the same may hereafter be amended.
“Annual Budget” means the annual budget approved by the City concerning the operation of the
Water and Sewer System for each Fiscal Year.
“Authenticating Agent” means with respect to any given Series of Bonds, the Registrar or any
other entity appointed in the related Series Indenture to act as an authenticating agent for such Series of
Bonds or a portion thereof.
“Authorized Denomination” means $5,000 or any integral multiple thereof.
“Bond” means one of the obligations delivered pursuant to the General Indenture, including all
Series of Bonds issued pursuant to a Series Indenture.
“Bond Counsel” means an attorney or firm of attorneys of nationally recognized standing in the
field of law relating to municipal, state and public agency financing, selected by the City and not
unacceptable to the Trustee.
“Business Day” means any day other than (a) a day on which banking institutions in New York,
New York, or in the State or in the cities in which the Trustee or the Paying Agent have their respective
principal offices are authorized to close or (b) a day on which the New York Stock Exchange is closed.
B-1
“Capital Appreciation Bonds” means any Bonds, however denominated in the related Series
Indenture, as to which interest is compounded periodically on each Compounding Date and which are
payable in an amount equal to the then-current Accreted Value only at maturity, earlier redemption or
other payment date therefor.
“Certificate” means (i) a signed document either attesting to or acknowledging the
circumstances, representations or other matters therein stated or set forth or setting forth matters to be
determined pursuant to the General Indenture or (ii) the report of an accountant as to audit or other
procedures called for by the General Indenture.
“City” means the City of Charlotte, North Carolina.
“City Representative” means the City Manager, the Finance Officer, the Treasurer or the Debt
Manager of the City and, in the case of any act to be performed or duty to be discharged, any other
member, officer or employee of the City then authorized to perform such act or discharge such duty.
“Code” means the Internal Revenue Code of 1986, as amended. Each reference to a section of
the Code in the General Indenture will be deemed to include the United States Treasury Regulations in
effect with respect thereto.
“Compounding Date” means, with respect to any Capital Appreciation Bond, the dates set forth
in the Series Indenture under which it is issued.
“Construction Fund” means the Fund so designated and established under the General Indenture.
“Consulting Engineer” means the City’s professional engineer or a firm of engineers or utilities
consultants with recognized expertise for advising governmental entities with respect to the construction,
maintenance and use of the Water and Sewer System from time to time employed by the City and not
unacceptable to the Trustee.
“Costs of Construction” means the costs reasonably incurred in connection with the Water and
Sewer System, including but not limited to the costs of (1) acquisition of all property, real or personal,
tangible or intangible, and all interests in connection therewith including all rights-of-way and easements
therefor, (2) physical construction, installation and testing, including the costs of labor, services,
materials, supplies and utility services used in connection therewith, (3) architectural, engineering, legal,
financial advisory and other professional services, (4) premiums for insurance policies taken out and
maintained during construction, to the extent not paid for by a contractor for construction and installation,
(5) any taxes, assessments or other charges which become due during construction, (6) expenses incurred
by the City or on its behalf with its approval in seeking to enforce any remedy against any contractor or
sub-contractor in respect of any default under a contract relating to construction, (7) Costs of Issuance,
(8) Interest on the Bonds during the construction of any portion of the Water and Sewer System,
(9) miscellaneous expenses incidental thereto and (10) reimbursements of such Cost of Construction
properly incurred prior to the issuance of the Bonds.
“Costs of Issuance” means all items of expense, directly or indirectly payable by or reimbursable
to the City, related to the authorization, sale and issuance of Bonds.
“Current Expenses” means the current expenses of operation, maintenance and current repair of
the Water and Sewer System, as calculated in accordance with generally accepted accounting principles
except as otherwise provided in the General Indenture, and includes, without limiting the generality of the
foregoing: insurance premiums; any rebate required to be paid to the United States Government; fees and
B-2
expenses of the Trustee and any Paying Agent; fees and expenses of any entity providing credit support or
liquidity for any Series of the Bonds; administrative and engineering expenses of the City relating solely
to the Water and Sewer System; labor; executive compensation; the cost of materials and supplies used
for current operations; and charges for the accumulation of appropriate reserves for current expenses not
annually recurrent, but which are such as may reasonably be expected to be incurred as determined by the
City in accordance with generally accepted accounting principles except as otherwise provided in the
General Indenture. “Current Expenses” will not include (i) any allowance for depreciation or
replacements of capital assets of the Water and Sewer System, (ii) moneys payable as Interest and as
interest on General Obligation Indebtedness, Subordinate Indebtedness or Other Indebtedness, and
(iii) moneys deposited or transferred to the Reserve Fund pursuant to the applicable Series Indenture.
“Debt Service Fund” means the Fund so designated and established under the General Indenture.
“Derivative Agreement” means an interest rate swap, cap, collar, floor, forward, option, put, call
or other agreement however denominated, relating to the Bonds.
“Event of Default” means any of the events specified in the General Indenture together with any
other events specified as such in a Series Indenture.
“Extension and Replacement Fund” means the Fund so designated and established by the
General Indenture.
“Federal Securities” means (a) direct obligations of the United States of America for the
payment of which the full faith and credit of the United States of America is pledged; (b) obligations
issued by any agency controlled or supervised by and acting as an instrumentality of the United States of
America, the payment of the principal of and interest on which is fully guaranteed as full faith and credit
obligations of the United States of America (including any securities described in (a) or (b) issued or held
in the name of the Trustee in book entry form on the books of the Department of Treasury of the United
States of America), which obligations, in either case, are held in the name of the Trustee and are not
subject to redemption or purchase prior to maturity at the option of anyone other than the Owner; (c) any
bonds or other obligations of the State or of any agency, instrumentality or local governmental unit of the
State which are (i) not callable prior to maturity or (ii) as to which irrevocable instructions have been
given to the trustee or escrow agent of such bonds or other obligations by the obligor to give due notice of
redemption and to call such bonds for redemption on the date or dates specified, and which are rated by
Moody’s, if the Bonds are rated by Moody’s, S&P, if the Bonds are rated by S&P, and Fitch, if the Bonds
are rated by Fitch, within the highest rating category and which are secured as to principal, redemption
premium, if any, and interest by a fund consisting only of cash or bonds or other obligations of the
character described in clause (a) or (b) hereof which fund may be applied only to the payment of such
principal of and interest and redemption premium, if any, on such bonds or other obligations on the
maturity date or dates thereof or the specified redemption date or dates pursuant to such irrevocable
instructions, as appropriate; or (d) direct evidences of ownership of proportionate interests in future
interest and principal payments on specified obligations described in (a) held by a bank or trust company
as custodian, under which the owner of the investment is the real party in interest and has the right to
proceed directly and individually against the obligor on the underlying obligations described in (a), and
which underlying obligations are not available to satisfy any claim of the custodian or any person
claiming through the custodian or to whom the custodian may be obligated.
“Finance Officer” means the Director of Finance of the City or any successor to his functions.
“Financial Consultant” means an independent person or firm with recognized expertise for
advising governmental entities with respect to financial forecasting and analysis of the Water and Sewer
System from time to time employed by the City and not unacceptable to the Trustee.
B-3
“Fiscal Year” means a twelve-month period commencing on the first day of July of any year, or
such other twelve-month period adopted as the Fiscal Year of the City.
“Fitch” means Fitch, Inc., a corporation organized and existing under the laws of the State of
Delaware, its successors and assigns and, if such corporation shall be dissolved or liquidated or shall no
longer perform the functions of a securities rating agency, “Fitch” shall be deemed to refer to any other
nationally recognized securities rating agency designated by the Finance Officer of the City by notice to
the Trustee.
“General Indenture” means the General Trust Indenture dated as of November 1, 1996 between
the City and the Trustee, as amended by (1) Series Indenture, Number 2 dated as of August 15, 1999
between the City and the Trustee and (2) by Series Indenture, Number 5 dated as of February 15, 2002
between the City and the Trustee, and any further amendments and supplements thereto.
“General Obligation Indebtedness” means (i) general obligation indebtedness incurred by the
City which is payable from Net Revenues and the proceeds of which were or are to be used to provide for
capital costs of the Water and Sewer System and (ii) general obligation indebtedness of another
governmental unit, the payment on which is assumed by the City in connection with acquisition of assets
for the Water and Sewer System.
“Independent Insurance Consultant” means a person or firm, appointed by the City and not
unacceptable to the Trustee, qualified to survey risks and to recommend insurance coverage for facilities
of the type operated by the City and having a favorable reputation for skill and experience in such surveys
and such recommendations, which insurance consultant, in the case of an individual, must not be an
officer or employee of the City and, in the case of a firm, must not have a partner, director, member,
officer or employee who is an officer or employee of the City.
“Interest” means (i) the amount designated as interest on any Bonds and (ii) payments due from
the City under a Derivative Agreement other than for the termination thereof.
“Interest Payment Date” means each December 1 and June 1, beginning December 1, 2011.
“Investment Securities” means (i) Federal Securities or (ii) any other investments (a) which at the
time of investment are authorized investments under the investment policy of the City, (b) which are legal
investments under Sections 159-30 and 36A-3 of the North Carolina General Statutes, as amended from
time to time, and (c) which are on the following list:
(1)
Certificates of deposit or other time deposits of banks, savings and loan associations or
trust companies, including the Trustee, in the State which deposits are secured as provided in
N.C.G.S. § 159-31(b) and either (1) are fully insured by the Federal Deposit Insurance
Corporation or (2) are with institutions which have an aggregate of capital, paid-in surplus and
retained earnings of at least $50,000,000 and whose long-term debt is rated at least “A” by
Moody’s and S&P.
(2)
Interests in a money market mutual fund registered under the Investment Company Act
of 1940, which fund is rated by Moody’s and S&P in one of the two highest rating categories and
the portfolio of which is limited to United States Government Obligations (defined below) and
repurchase agreements fully collateralized thereby.
(3)
Obligations of the Federal Financing Bank, the Federal Farm Credit Bank, the Bank for
Cooperatives, the Federal Intermediate Credit Bank, the Federal Land Banks, the Federal Home
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Loan Banks, the Federal Home Loan Mortgage Corporation, the Federal National Mortgage
Association, the Government National Mortgage Association, the Federal Housing
Administration, the Farmers Home Administration and the United States Postal Service.
(4)
Obligations of the State rated by Moody’s and S&P in one of the two highest rating
categories.
(5)
Bonds and notes of any North Carolina local government or public authority so long as
such bonds and notes are rated at least one of the two highest ratings by Moody’s and S&P.
(6)
Savings certificates issued by any savings and loan association organized under the laws
of the State or by any federal savings and loan association having its principal office in the State
which certificates, which association, or an uninsured, unsecured and unguaranteed obligation of
which association is rated by Moody’s and S&P in one of the two highest rating categories;
provided that any principal amount of such certificate in excess of the amount insured by the
federal government or any agency thereof, or by a mutual deposit guaranty association authorized
by the Administrator of the Savings Institutions Division of the Department of Commerce of the
State, be fully collateralized by obligations described in items (i) and (ii)(3) above; further
provided that such savings certificates must provide that the value of the underlying obligations
shall be maintained at a current market value, calculated at least daily, of not less than 100% of
the principal and accrued interest and that the financial institution holding the obligations
securing the savings certificates or the depository issuing the safekeeping receipt shall not be the
provider of the savings certificates.
(7)
Prime quality commercial paper bearing the highest rating of Moody’s and S&P and not
bearing a rating below the highest by any nationally recognized rating service which rates the
particular obligation.
(8)
Bills of exchange or time drafts drawn on and accepted by a commercial bank and
eligible for use as collateral by member banks in borrowing from a federal reserve bank, provided
that the accepting bank or its holding company has outstanding publicly held obligations bearing
the highest rating of Moody’s and S&P and not bearing a rating below the highest by any
nationally recognized rating service which rates the particular obligations.
(9)
Participating shares in the North Carolina Cash Management Trust; and participating
shares in any other mutual fund for local government investment, provided that the investments
of the fund are limited to those qualifying for investment under the investments listed in the
General Indenture and that said fund is certified by the Local Government Commission of the
State.
(10)
A commingled investment pool established and administered by the State Treasurer
pursuant to N.C.G.S. § 147-69.3 which is rated by Moody’s and S&P in one of the two highest
rating categories.
(11)
Evidences of ownership of, or fractional undivided interests in, future interest and
principal payments on Federal Securities within the meaning of clause (a) of the definition
thereof, which obligations are held by a bank or trust company organized and existing under the
laws of the United States or any state in the capacity of custodian; provided that any such
investments may be made in only the following categories of stripped securities: (i) U.S. Treasury
strips, (ii) Resolution Funding Corp. (REFCORP) strips, (iii) Financing Corp. (FICO) strips, and
(iv) any other stripped securities assessed or rated by Moody’s and S&P in one of the two highest
rating categories.
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(12)
Repurchase agreements with respect to Federal Securities within the meaning of clause
(a) of the definition thereof if entered into with a broker or dealer, as defined by the Securities
Exchange Act of 1934, which is a dealer recognized as a primary dealer by a Federal Reserve
Bank, or any commercial bank, trust company or national banking association, the deposits of
which are insured by the Federal Deposit Insurance Corporation or any successor thereof if such
broker/dealer, bank or trust company has an uninsured, unsecured and unguaranteed obligation
rated at least “AA” or “A-1+” by S&P if:
(a)
Such obligations that are subject to such repurchase agreement are delivered (in
physical or in book-entry form) to the Trustee, or any third party financial
institution acting solely as agent for the Trustee, and such third party is (i) a
Federal Reserve Bank or (ii) a bank which is a member of the Federal Deposit
Insurance Corporation and which has combined capital, surplus and undivided
profits of not less than $50 million, or are supported by a safekeeping receipt
issued by a depository satisfactory to the Trustee and the City, provided that such
repurchase agreement must provide that the value of the underlying obligations
shall be maintained at a current market value, calculated at least daily, of not less
than 100% of the repurchase price, and, provided further, that the Trustee and
any financial institution serving as agent for the Trustee holding the obligations
subject to the repurchase agreement or the depository issuing the safekeeping
receipt shall not be the provider of the repurchase agreement;
(b)
A valid and perfected first security interest in the obligations which are the
subject of such repurchase agreement has been granted to the Trustee or its agent
or book-entry procedures, conforming, to the extent practicable, with federal
regulations and satisfactory to the Trustee and the City have been established for
the benefit of the Trustee or its agent;
(c)
Such securities are free and clear of any adverse third party claims; and
(d)
Such repurchase agreement is in a form satisfactory to the Trustee and the City.
(13)
In connection with funds which are subject to the arbitrage and rebate provisions of the
Code, participating shares in tax-exempt mutual funds, to the extent such participation, in whole
or in part, is not subject to such rebate provisions, and taxable mutual funds, to the extent such
fund provides services in connection with the calculation of arbitrage rebate requirements under
federal income tax law; provided such fund bears one of the two highest ratings of Moody’s and
S&P and does not bear a rating below one of the two highest ratings by any nationally recognized
rating service which rates the particular fund.
(14)
Any other investments that meet the permitted investment criteria of Moody’s and S&P
for its applicable rating or that are otherwise authorized by Moody’s and S&P from time to time.
“LGC” means the North Carolina Local Government Commission or any successor to its
functions under the laws of the State.
“Mail” means first-class United States mail, postage prepaid.
“Moody’s” means Moody’s Investors Service, a corporation organized and existing under the
laws of the State of Delaware, its successors and their assigns, and, if such corporation for any reason no
longer performs the functions of a securities rating agency, “Moody’s” will be deemed to refer to any
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other nationally recognized rating agency designated by the Finance Officer of the City by notice to the
Trustee.
“Net Revenues” means the excess of Revenues over Current Expenses.
“Other Indebtedness” means capital leases, installment financing agreements or other contracts
used to provide capital improvements to the Water and Sewer System, the payments under which are
payable from Net Revenues after payment of the Principal of and Interest on the Bonds.
“Outstanding” means all Bonds which have been authenticated and delivered by the Trustee
under the General Indenture, except:
(1)
Bonds canceled after purchase in the open market or because of payment (it being
understood that a payment to an Owner of the purchase price of a Bond, as prescribed in the
related Series Indenture, is not payment of a Bond) at or redemption prior to maturity or on
acceleration;
(2)
Bonds deemed paid under the General Indenture;
(3)
Bonds for the payment of the Principal of, redemption premium, if any, and Interest on
which Federal Securities have been irrevocably set aside; and
(4)
Bonds in lieu of which other Bonds have been authenticated under the General Indenture.
“Owner” means (1) any person in whose name any Outstanding Bond is registered on the books
of the Registrar, and (2) with respect to the 2011 Bonds, the registered owners of the 2011 Bonds.
“Paying Agent” means any entity appointed in a Series Indenture to act as a paying agent for a
Series of Bonds.
“Person” means any individual, corporation, partnership, joint venture, association, joint-stock
company, trust, unincorporated organization, or government or any agency or political subdivision
thereof.
“Principal” means the principal amount of an Outstanding Bond (including as to Capital
Appreciation Bonds, the Accreted Value thereof except with respect to the order of priority of payment of
Bonds after an event of default under the General Indenture, in which case, “Principal” means the
principal amount of such Capital Appreciation Bonds on their date of delivery and the balance of the
Accreted Value will be “Interest”) payable as a Sinking Fund Payment or at maturity.
“Principal and Interest Requirements on the Bonds” means, with respect to any particular Fiscal
Year, an amount equal to the sum of (i) all Interest payable on the Outstanding Bonds during such Fiscal
Year excluding any capitalized Interest payable from the proceeds of a Series of the Bonds, plus (ii) any
Principal Installments of the Outstanding Bonds during such Fiscal Year.
(1)
For purposes of computing “Principal and Interest Requirements on the Bonds,” the rate
of interest used to determine (i) above will be a rate per annum equal to (a) with respect to Bonds
which bear interest at a fixed rate, the rate of interest borne or to be borne by such Bonds, and
(b) with respect to Bonds which bear interest at a variable or periodically determined rate of
interest, the rate which is equal to the greater of (A) the average of all the interest rates in effect
on the Bonds (or, as certified by a financial institution or investment banking firm acceptable to
the Finance Officer, which would have been in effect on the Bonds had such Bonds been
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Outstanding) during the immediately preceding twelve-month period or (B) the average of all the
interest rates in effect on the Bonds (or, as certified by a financial institution or investment
banking firm acceptable to the Finance Officer, which would have been in effect on the Bonds
had such Bonds been Outstanding) during the immediately preceding one-month period. If the
City has entered into a Derivative Agreement under which it will receive payments calculated on
a notional amount equal to the aggregate Principal amount of a Series of the Bonds and will make
payments calculated on the same notional amount, the interest used to calculate (a) above will be
the amount to be paid by the City, and the amount to be received will be deducted; payments on a
variable or periodic basis under such an agreement will be calculated in accordance with clause
(b) above.
(2)
For purposes of computing “Principal and Interest Requirements on the Bonds,” the
Principal Installments for each Series of Bonds used to determine (ii) above will be the actual
planned Principal Installments, except as follows:
(a)
for a Series of Bonds, the Principal Installments of which are payable in
consecutive annual periods and the Principal Installment for one Fiscal Year of which is
at least 10% but not more than 25% of the original principal amount of the Series of
Bonds, the Principal Installment for any Fiscal Year in which no Principal is due will be
assumed to be the largest required annual Principal Installment with respect to the Series
of Bonds multiplied by a fraction whose numerator is the number of Fiscal Years the
Series of Bonds has been Outstanding and whose denominator is the number of Fiscal
Years after issuance of the Series of Bonds in which no Principal is due;
(b)
for a Series of Bonds, 25% or more of the Principal Installments of which are
payable in a single Fiscal Year, the Principal Installment in any Fiscal Year will be
assumed to be the result derived by dividing (A) the outstanding aggregate Principal
amount of such Series of Bonds by (B) the number of full years in the remaining term of
such Series of Bonds, but if the date of calculation is within 12 months of the final
maturity date of such Series of Bonds and a binding commitment by an institutional
lender or municipal underwriting firm exists to provide moneys to refinance the
aggregate Principal of such Series of Bonds then Outstanding, then the payment terms
contained in the commitment are to be used for purposes of calculating Principal for such
Series of Bonds; and
(c)
for a Series of Bonds issued as notes or other obligations with a term of less than
one year which are issued in anticipation of the issuance of a Series of Bonds (“Take Out
Obligations”), result derived by dividing (A) the outstanding principal amount of such
notes or other obligations by (B) the number of full years expected to be in the term of
the Take Out Obligation as certified to the Trustee by the Finance Officer.
“Principal and Interest Requirements for General Obligation Indebtedness” means, with respect
to any particular Fiscal Year, an amount equal to the sum of (i) all interest payable on the General
Obligation Indebtedness during such Fiscal Year excluding any capitalized interest, plus (ii) any principal
of the General Obligation Indebtedness during such Fiscal Year. Principal and interest for purposes of
this definition will be computed in the manner in which the Principal of and Interest on the Bonds is
calculated under the definition of “Principal and Interest Requirements on the Bonds.”
“Principal and Interest Requirements for Other Indebtedness” means, with respect to any
particular Fiscal Year, an amount equal to the sum of all payment obligations with respect to Other
Indebtedness during such Fiscal Year. If the payment obligation under any Other Indebtedness is stated
in terms of principal and interest, such principal and interest will be computed for purposes of this
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definition in the manner in which the Principal of and Interest on the Bonds is calculated under the
definition of “Principal and Interest Requirements on the Bonds.”
“Principal and Interest Requirements for Subordinate Indebtedness” means, with respect to any
particular Fiscal Year, an amount equal to the sum of (i) all interest payable on Subordinate Indebtedness
during such Fiscal Year excluding any capitalized interest, plus (ii) any principal of Subordinate
Indebtedness during such Fiscal Year. Principal and interest for purposes of this definition will be
computed in the manner in which the Principal of and Interest on the Bonds is calculated under the
definition of “Principal and Interest Requirements on the Bonds.”
“Principal Installment” means, as of any date of calculation, (i) the aggregate Principal amount
of Outstanding Bonds (including as to Capital Appreciation Bonds, the Accreted Value thereof) due on a
certain future date, reduced by the aggregate Principal amount of such Bonds which would be retired by
reason of the payment when due and application in accordance with the General Indenture of Sinking
Fund Payments payable before such future date, plus (ii) any Sinking Fund Payments due on such certain
future date, together with the aggregate amount of the premiums, if any, applicable on such Sinking Fund
Payments.
“Principal Payment Date” means any date upon which Principal is due and payable.
“Qualified Reserve Fund Substitute” means (i) an irrevocable letter of credit, naming the Trustee
as beneficiary, issued by any domestic or foreign bank, or any branch or agency thereof, whose long-term
debt obligations are rated by Moody’s and S&P in one of the two highest rating categories without regard
to gradation within category or (ii) a surety bond issued by a financial institution whose long-term rating
is in one of the two highest rating categories of Moody’s and S&P without regard to gradation within
category or (iii) a policy of reserve fund insurance issued by an insurance company whose claims-paying
ability is rated by Moody’s and S&P in one of the two highest rating categories without regard to
gradation within category.
“Record Date” means the 15th day of the month next preceding the Interest Payment Date.
“Redemption Date” means the date on which 2011 Bonds have been called for redemption or are
to be redeemed pursuant to the Series Indenture.
“Redemption Price” means, with respect to any 2011 Bond, the principal amount thereof plus the
applicable premium, if any, payable on redemption thereof plus accrued interest to the Redemption Date.
“Registrar” means any entity appointed in a Series Indenture to act as the Registrar for a Series
of Bonds or a portion thereof.
“Reserve Fund” means the Fund so designated and established pursuant to the General Indenture.
“Reserve Requirement” means, as of any date of calculation, the collective amount required to be
on deposit in the Reserve Fund as determined by the Series Indentures under which all Series of Bonds
secured by an account in the Reserve Fund are issued.
“Revenues” means all fees (including any tap or impact fees), rentals, assessments or other
charges or other income received by the City in connection with the ownership, management and
operation of the Water and Sewer System, and all parts thereof, including amounts received from the
investment or deposit of moneys in any Fund or Account (but not including amounts received from
interest or other investment income earned in the Construction Fund and, during the construction period,
the Reserve Fund), all as calculated in accordance with generally accepted accounting principles except as
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otherwise provided in the General Indenture, but shall not include (i) net proceeds of insurance or
condemnation awards or other extraordinary items, (ii) any amounts collected by the City representing
sales or use taxes which may be required by law or agreement to be paid to the State or a governmental
unit thereof or (iii) refundable deposits made by customers of the Water and Sewer System.
“S&P” means Standard & Poor’s, a Division of The McGraw-Hill Companies, Inc., a
corporation organized and existing under the laws of the State of New York, its successors and their
assigns, and, if such corporation for any reason no longer performs the functions of a securities rating
agency, “S&P” will be deemed to refer to any other nationally recognized securities rating agency
designated by the Finance Officer of the City by notice to the Trustee.
“Series of Bonds” or “Series” means any series of Bonds issued under the General Indenture
pursuant to a Series Indenture.
“Series Indenture” means any indenture or other document supplementing the General Indenture
executed by the City and effective in accordance with the General Indenture, providing for the issuance of
a Series of Bonds, and when specifically referring to the 2011 Bonds, Series Indenture, Number 13 dated
as of August 1, 2011 between the City and the Trustee and any amendments or supplements adopted in
accordance with the terms thereof.
“Sinking Fund Payment” means, as of any particular date of calculation, the amount required to
be paid by the City on a certain future date for the retirement of Outstanding Bonds which mature after
said future date, but does not include any amount payable by the City by reason of the maturity of a Bond
or by call for redemption at the election of the City.
“State” means the State of North Carolina.
“Subordinate Indebtedness” means debt, other than General Obligation Indebtedness, the
payment of the principal and interest on which is secured by Net Revenues after payment of the Principal
of and Interest on the Bonds.
“Supplemental Indenture” means any indenture supplemental to the General Indenture delivered
amending or supplementing the General Indenture.
“Surplus Fund” means the fund so designated and established by the General Indenture.
“Trustee” means the Trustee with respect to the Bonds and any other person at any time
substituted in its place as provided in the General Indenture.
“Trust Estate” means all property and rights conveyed by the City under the Granting Clauses of
the General Indenture.
“2001 Bonds” means the City’s outstanding Water and Sewer System Revenue Bonds, Series
2001 maturing on and after June 1, 2012.
“2011 Bonds” means the City’s Water and Sewer System Revenue Refunding Bonds, Series
2011 to be issued pursuant to the Series Indenture.
“2011 Costs of Issuance Account” means the account by that name in the Construction Fund
created under the Series Indenture.
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“Water and Sewer Operating Fund” means the Fund so designated and established pursuant to
the General Indenture.
“Water and Sewer Revenue Bond Fund” means the Fund so designated and established pursuant
to the General Indenture.
“Water and Sewer System” means the City’s water and sanitary sewer system, providing water
and sanitary sewer services within the jurisdiction of the City and its surrounding areas, including any and
all additions, modifications, replacements and parts thereof and currently known as the CharlotteMecklenburg Utility Department.
PLEDGE UNDER THE GENERAL INDENTURE
The City has assigned and pledged to the Trustee, to the extent provided in the General Indenture
(1) all Net Revenues of the Water and Sewer System, (2) all moneys and securities held by the Trustee,
the City or any other depositaries in any and all of the funds and accounts held under the General
Indenture, except the Water and Sewer Operating Fund, the Water and Sewer Revenue Bond Fund, the
Extension and Replacement Fund and the Surplus Fund and (3) any additional property that may, from
time to time, by delivery or by writing of any kind, be subjected to the lien of the General Indenture, by
the City or by anyone on its behalf. The General Indenture does not convey, mortgage, pledge or create
any lien on any real estate or tangible personal property owned by the City or on any revenues of the City
other than Net Revenues.
FUNDS AND ACCOUNTS
Under the General Indenture, the City has established the following special funds:
(1)
(2)
(3)
(4)
(5)
(6)
(7)
Water and Sewer Operating Fund;
Water and Sewer Revenue Bond Fund;
Debt Service Fund;
Extension and Replacement Fund;
Construction Fund;
Reserve Fund; and
Surplus Fund.
The Trustee or the City may also create such other Funds or Accounts as either deems necessary
or desirable in the administration of the General Indenture. The Debt Service Fund, the Construction
Fund and the Reserve Fund will be held by the Trustee. The Water and Sewer Operating Fund, the Water
and Sewer Revenue Bond Fund, the Extension and Replacement Fund and the Surplus Fund will be held
by the City.
Construction Fund. The City has created the 2011 Cost of Issuance Account in the Construction
Fund under the Series Indenture. Proceeds of the 2011 Bonds not otherwise deposited in the Debt Service
Fund for the redemption of a portion of the 2001 Bonds will be deposited in the 2011 Cost of Issuance
Account and applied to the payment of Costs of Issuance on the filing from time to time with the Trustee
of a requisition from the City pursuant to the Series Indenture. Any balance remaining in the 2011 Cost
of Issuance Account on December 1, 2011 will be deposited in the Debt Service Fund and applied to the
payment of interest due on the 2011 Bonds.
Water and Sewer Operating Fund. The City will cause all Revenues to be deposited in the
Water and Sewer Operating Fund. There will also be deposited in the Water and Sewer Operating Fund
any other amounts required to be deposited therein pursuant to the General Indenture or any Supplemental
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Indenture and any other amounts available therefor and determined by the City to be deposited therein.
All amounts collected by the City as (i) sales and use taxes and (ii) refundable deposits made by
customers of the Water and Sewer System, which have been deposited in the Water and Sewer Operating
Fund, may be paid out of the Water and Sewer Operating Fund in the amounts and at the times
determined by the City Representative.
Except as provided in the preceding paragraph, the City will cause disbursements to be made
from the Water and Sewer Operating Fund as follows:
FIRST:
Directly to the Persons entitled thereto at any time as may be required, the
amount required to pay the Current Expenses as shown in the Annual Budget for the current
Fiscal Year;
SECOND:
To the Water and Sewer Revenue Bond Fund, on or before the 15th day of the
month, an amount such that (after taking into consideration amounts then on deposit in the Water
and Sewer Revenue Bond Fund allocated to pay Interest due with respect to the Bonds), if the
same amount is transferred thereto on the first day of each succeeding month, there will be in the
Water and Sewer Revenue Bond Fund an amount equal to the Interest due on the next Interest
Payment Date;
THIRD:
To the Water and Sewer Revenue Bond Fund, on or before the 15th day of the
month, an amount such that (after taking into consideration amounts then on deposit in the Water
and Sewer Revenue Bond Fund allocated to pay Principal due with respect to the Bonds), if the
same amount is transferred thereto on the first day of each succeeding month, there will be in the
Water and Sewer Revenue Bond Fund an amount equal to the Principal due on the next Principal
Payment Date;
FOURTH:
At any time as may be required, to the provider of any Qualified Reserve Fund
Substitute in satisfaction of the then current obligations of the City incurred in connection
therewith;
FIFTH:
At any time as may be required, to the Trustee for deposit in the Reserve Fund
(i) the amount necessary for the balance therein to equal the Reserve Requirement, but if the
Revenues are insufficient therefor, to each Account of the Reserve Fund pro rata on the basis of
the Reserve Requirement for each Series of Bonds secured by an Account of the Reserve Fund or
(ii) if the Reserve Fund is less than 90% of the Reserve Requirement as a result of a valuation of
investments therein, the amount necessary for the balance therein to equal the Reserve
Requirement; but the City is not required to transfer in any month more than an amount such that
if the same amount were deposited in equal monthly installments over the subsequent 11 months,
the Reserve Fund would equal the Reserve Requirement;
SIXTH:
At any time as may be required, to the Debt Service Fund, the amount necessary
to make up any deficiency therein in accordance with the priorities described under “FUNDS AND
ACCOUNTS--Debt Service Fund” below;
SEVENTH:
At any time as may be required, to the Persons entitled to payment of any
principal, premium, if any, or interest on any Subordinate Indebtedness, an amount equal to the
principal, premium or interest then due and owing;
EIGHTH:
At any time as may be required, to the paying agent or directly to the registered
owners of General Obligation Indebtedness in an amount necessary to pay when due the principal
of, premium, if any, and interest on the General Obligation Indebtedness;
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NINTH:
At any time as may be required, to the Persons entitled to payment with respect
to any Other Indebtedness, an amount equal to the payment then due and owing;
TENTH:
On the last day of each month, to the Extension and Replacement Fund, 1/12th of
the amount, if any, shown in the Annual Budget; and
ELEVENTH: On the first day of each Fiscal Year, to the Surplus Fund, the balance remaining
in the Water and Sewer Operating Fund as of the last day of the preceding Fiscal Year after
reserving therein an amount sufficient to pay the Current Expenses for the first two months of that
Fiscal Year as shown in the Annual Budget.
Debt Service Fund. The Trustee will disburse amounts deposited in the Debt Service Fund as
follows:
(1)
On each Interest Payment Date, to the Persons entitled thereto, Interest due on such date.
(2)
Subject to the provisions of the General Indenture requiring the application thereof to the
payment or redemption of any particular Bond, on each Principal Payment Date, to the Owners,
the amounts required for the payment of the Principal due on such date.
(3)
On each Redemption Date, to the Owners, the amount required for redemption of Bonds
called for redemption.
If on any Interest Payment Date or Principal Payment Date, there is a deficiency in the Debt
Service Fund, the amount of such deficiency will be made up from the following Funds and in the order
or priority set forth below:
(1)
Water and Sewer Revenue Bond Fund;
(2)
Water and Sewer Operating Fund;
(3)
Surplus Fund;
(4)
Extension and Replacement Fund;
(5)
the Account of the Reserve Fund securing a Series of Bonds to pay the Principal of and
Interest on such Series of Bonds, to the extent such deficiency is attributable to the Series of
Bonds secured by that Account of the Reserve Fund; and
(6)
Construction Fund.
Water and Sewer Revenue Bond Fund. There will be deposited from time to time in the Water
and Sewer Revenue Bond Fund all amounts required to be deposited therein pursuant to the General
Indenture and any other amounts available therefor and determined by the City to be deposited therein.
The City shall transfer from the Water and Sewer Revenue Bond Fund to the Debt Service Fund (i) on or
before the fifth day preceding each Interest Payment Date, an amount sufficient to pay Interest due on that
Interest Payment Date and (ii) on or before the fifth day preceding each Principal Payment Date, an
amount sufficient to pay Principal due on that Principal Payment Date. The City will not transfer moneys
from the Water and Sewer Revenue Bond Fund for any other purpose than the payment of the Principal of
and Interest on the Bonds.
Extension and Replacement Fund. The Extension and Replacement Fund will be applied for the
following purposes:
(1)
paying the cost of extensions, additions and capital improvements to, or the renewal and
replacement of capital assets of, or purchasing and installing new equipment for, the Water and
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Sewer System, or paying any extraordinary maintenance and repair or any expenses which are not
Current Expenses;
(2)
transfer to the Debt Service Fund to make up any deficiency therein in accordance with
the order of priorities described under the caption “FUNDS AND ACCOUNTS--Debt Service Fund”
above; and
(3)
repayment of Subordinate Indebtedness, General Obligation Indebtedness or Other
Indebtedness.
The Finance Officer will authorize disbursements to be made from the Extension and
Replacement Fund for the purposes set forth in clauses (1) and (3) on the filing of a requisition signed by
a City Representative setting forth the purpose for which the disbursement is to be made and stating that
the work has been performed or that materials, supplies or equipment have been delivered, installed or
fabricated or that the payment of principal of or interest on Subordinate Indebtedness, General Obligation
Indebtedness or Other Indebtedness is due, as appropriate.
Surplus Fund. Moneys held in the Surplus Fund will be applied in the following order of
priority: (1) first, to the Water and Sewer Operating Fund to make up any deficiency therein to meet the
obligations therefor; (2) second, to pay the Person entitled thereto a termination payment under a
Derivative Agreement; (3) third, to the Persons entitled to payment of any principal, premium, if any, or
interest on any Subordinate Indebtedness, an amount equal to the principal, premium or interest then due
and owing; (4) fourth, to the paying agent or directly to the registered owners of General Obligation
Indebtedness in an amount necessary to pay when due the principal of, premium, if any, and interest on
the General Obligation Indebtedness; (5) fifth, to the Persons entitled to payment with respect to any
Other Indebtedness, an amount equal to the payment then due and owing; and (6) sixth, for any lawful
other purpose related to the Water and Sewer System from time to time authorized by the City.
INVESTMENTS
The Trustee will invest moneys held in the Debt Service Fund, the Construction Fund and the
Reserve Fund, at the written direction of the City, in Investment Securities. The City will invest all Funds
and Accounts held by it pursuant to the General Indenture in such Investment Securities as it determines
in its sole discretion. The proceeds of any remarketing of a Series of the Bonds will be held uninvested or
will be invested in Federal Securities maturing not later than the earlier of 30 days or the date needed for
payment. The City will invest, and as to the Debt Service Fund, the Reserve Fund and the Construction
Fund, will direct the Trustee (in writing or orally with subsequent confirmation in writing) to invest all
moneys held under the General Indenture pursuant to the investment instructions as provided in
connection with a Series of Bonds. Whenever the Trustee has not received written direction from the City
and moneys in a Fund or Account created under this Indenture or a Series Indenture are therefore
uninvested, the Trustee shall invest the moneys in Federal Securities maturing the earlier of (i) the date
such moneys are needed to meet an obligation under this Indenture or a Series Indenture or (ii) 30 days
after such investment. The Trustee may rely on the City’s directions and is not responsible for any loss
on the investment of moneys under the General Indenture made pursuant to the City’s directions.
Unless otherwise provided in a Series Indenture, the Trustee will deposit earnings from
investment of moneys (i) in the Construction Fund immediately on receipt thereof into the Construction
Fund and (ii) in the Reserve Fund as set forth in each Series Indenture. All other earnings from the
investment of moneys held in any other Fund or Account under the General Indenture will be credited to
the Water and Sewer Operating Fund.
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COVENANTS OF THE CITY
Accounts and Reports. The City will keep, or cause to be kept, proper books of record and
account in which complete and accurate entries will be made relating to the Water and Sewer System,
which will at all reasonable times be subject to the inspection of the Trustee and the Owners or their
representatives duly authorized in writing.
The City will file with the Trustee and the LGC, within 180 days after the close of each Fiscal
Year, a copy of an audited annual financial report as to the obligations and activities of the Water and
Sewer System during such Fiscal Year. The financial statements for each Fiscal Year, shall set forth in
reasonable detail:
(1)
a balance sheet for the Water and Sewer System at the end of such Fiscal Year;
(2)
a statement of the Water and Sewer System revenues and expenses in accordance with
the categories or classifications established by the City for its operating and program purposes
and showing the Revenues and Current Expenses during such Fiscal Year; and
(3)
Year.
a statement of cash flows of the Water and Sewer System as of the end of such Fiscal
In addition, the City will file with the Trustee and the LGC an audited calculation demonstrating its
compliance with the covenant described under “COVENANTS OF THE CITY--Rate Covenant” below
which may be contained (i) in the audited annual financial report or (ii) in a separate document that has
been certified by the Accountant which prepares such calculation. The contents of the financial
statements may vary from that set forth in clauses (1) through (3) if the Accountant certifies that they
conform to then-existing generally accepted accounting principles. The financial statements must be
accompanied by an Accountant’s Certificate stating whether the financial statements examined fairly
present the financial position of the City, including the Water and Sewer System, at the end of the Fiscal
Year, and whether the results of its operations and the changes in financial position for the period
examined are in conformity with generally accepted accounting principles. The Trustee will make a copy
of the financial statements available to any Owner of a Bond on written request therefor.
The City may employ Consulting Engineers to inspect the operation and maintenance of the
Water and Sewer System or to review the performance by the City of the duties relating thereto provided
for in the General Indenture. The City will file any report of the Consulting Engineers regarding their
inspection or review with the Trustee and the LGC.
Within 60 days after the close of each Fiscal Year, the City will file or cause to be filed with the
Trustee and the LGC (i) a certificate that no event of default under the General Indenture has occurred or
(ii) if an event of default has occurred, a special report, accompanied by an Accountant’s Certificate as to
the fair presentation of the financial statements contained therein, setting forth in reasonable detail the
individual balances and receipts and disbursements for each Fund under the General Indenture.
Annual Budgets. The City will approve by July 1 of each year an Annual Budget covering the
fiscal operations of the Water and Sewer System for the Fiscal Year and will file the same with the
Trustee. Such budget need not necessarily be the budget prepared by the City for budgeting purposes.
The Annual Budget will set forth for such Fiscal Year the estimated Revenues; the Principal and Interest
Requirements on the Bonds, the Principal and Interest Requirements on Subordinate Indebtedness, the
Principal and Interest Requirements on General Obligation Indebtedness and the Principal and Interest
Requirements on Other Indebtedness, due and payable or estimated to become due and payable during
such Fiscal Year; estimated Current Expenses; and, unless capital expenditures for the Water and Sewer
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System are included in the City’s capital investment plan or similar document, the estimated amounts, if
any, to be expended for extension, improvement, enlargement, renewal or replacement of the Water and
Sewer System, whether begun, continued or completed during such Fiscal Year. The City may at any
time adopt and file with the Trustee an amended Annual Budget in the manner provided in the General
Indenture for the adoption of the Annual Budget. Copies of the Annual Budget as then amended and in
effect will be made available by the Trustee at normal business hours in the Trustee’s principal corporate
trust office for inspection by any Owner. If the City does not approve or adopt an Annual Budget for a
Fiscal Year on or before the first day of such Fiscal Year, the Annual Budget for the preceding Fiscal
Year will be deemed to have been adopted and be in effect for such Fiscal Year until the Annual Budget
for such Fiscal Year has been adopted as above provided.
Rate Covenant. Before the commencement of each Fiscal Year, the City will fix, establish or
maintain or cause to be fixed, established and maintained such rates and charges for the provision of
services of the Water and Sewer System, and revise or cause to be revised the same, as necessary, as will
produce (a) Revenues which together with 50% of the balance in the Surplus Fund at the end of the
preceding Fiscal Year at least equal in such Fiscal Year to the total of (i) the Current Expenses budgeted
for such Fiscal Year, as may be amended from time to time, plus (ii) 120% of (1.20 times) the Principal
and Interest Requirements on the Bonds to become due during that Fiscal Year plus (iii) 100% of (1.00
times) the Principal and Interest Requirements on Subordinate Indebtedness to become due in such Fiscal
Year plus (iv) 100% of (1.00 times) the Principal and Interest Requirements on General Obligation
Indebtedness to become due in such Fiscal Year plus (v) 100% of (1.00 times) the Principal and Interest
Requirements on Other Indebtedness to become due in such Fiscal Year plus (vi) 100% of (1.00 times)
the amount required to reimburse the provider of a Qualified Reserve Fund Substitute for any amounts
owing thereunder and (b) Revenues at least equal in such Fiscal Year to the total of (i) the Current
Expenses budgeted for such Fiscal Year, as may be amended from time to time, plus (ii) 110% of
(1.10 times) the Principal and Interest Requirements on the Bonds to become due during that Fiscal Year
plus (iii) 100% of (1.00 times) the Principal and Interest Requirements on Subordinate Indebtedness to
become due in such Fiscal Year plus (iv) 100% of (1.00 times) the Principal and Interest Requirements on
General Obligation Indebtedness to become due in such Fiscal Year plus (v) 100% of (1.00 times) the
Principal and Interest Requirements on Other Indebtedness to become due in such Fiscal Year plus
(vi) 100% of (1.00 times) the amount required to reimburse the provider of a Qualified Reserve Fund
Substitute for any amounts owing thereunder. All users, including political subdivisions and public
bodies (State or federal) who receive services from the Water and Sewer System will pay therefor at the
established rates, fees and charges, but the City may adopt specific policies with respect to use by persons
of low income and the rates, fees and charges need not be uniform.
Issuance of Additional Bonds. The City will not issue any other obligations, except on the
conditions and in the manner provided in the General Indenture, payable from the Revenues, having
priority to or being on a parity with the lien of the Bonds issued pursuant to the General Indenture, nor
voluntarily create or cause to be or suffer to be created any debt, lien, pledge, assignment, encumbrance
or any other charge having priority to or being on a parity with the lien of the Bonds issued pursuant to
the General Indenture.
The City may issue Bonds to refund all or any Principal amount of the Bonds; if, however, the
debt service in any Fiscal Year on the Outstanding Bonds remaining Outstanding after the issuance of the
refunding Bonds will increase as a result of such refunding or if the maximum annual Principal and
Interest Requirements on the Bonds after the issuance of the refunding Bonds exceeds the maximum
annual Principal and Interest Requirements on the Bonds before the issuance of the refunding Bonds, then
the City must satisfy the requirements in the fourth paragraph under this caption below.
If the City has issued Bonds, the proceeds of which were used to acquire or construct any portion
of the Water and Sewer System and such proceeds are insufficient to pay the Costs of Construction, the
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City may issue a Series of Bonds in an amount equal to (i) the insufficiency, (ii) any required deposit to
the Reserve Fund with respect to such Series and (iii) the Costs of Issuance related thereto. Before the
issuance of any Series of Bonds under this paragraph, the City shall deliver to the Trustee a Certificate of
a Consulting Engineer stating that the proceeds from the Series of Bonds together with other available
funds will be sufficient to pay the Costs of Construction of the portion of the Water and Sewer System for
which such Series of Bonds are being issued.
No Series of Bonds, other than the Bonds described in the second or third paragraphs above, will
be issued under the General Indenture unless either:
(1)
the Net Revenues for any 12 consecutive months of the 18 months preceding the issuance
of the Series of Bonds, as certified by the Finance Officer, adjusted in the manner described in the
paragraph below, were at least equal to (a) 120% of (1.20 times) the maximum Principal and
Interest Requirements on the Bonds, including the Series of Bonds to be issued, (b) 100% of
(1.00 times) the Principal and Interest Requirements for Subordinate Indebtedness in that Fiscal
Year,(c) 100% of (1.00 times) the Principal and Interest Requirements for General Obligation
Indebtedness in that Fiscal Year and (d) 100% of (1.00 times) the Principal and Interest
Requirements for Other Indebtedness in that Fiscal Year; or
(2)
(A) the Net Revenues for any 12 consecutive months of the 18 months preceding the
issuance of the Series of Bonds, as certified by the Finance Officer, were at least equal to
(a) 120% of (1.20 times) the Principal and Interest Requirements on the Bonds for such Fiscal
Year, excluding the Series of Bonds to be issued, (b) 100% of (1.00 times) the Principal and
Interest Requirements for Subordinate Indebtedness in such Fiscal Year, (c) 100% of (1.00 times)
the Principal and Interest Requirements for General Obligation Indebtedness in such Fiscal Year
and (d) 100% of (1.00 times) the Principal and Interest Requirements for Other Indebtedness in
such Fiscal Year; and
(B) the Net Revenues, as projected by a report of a Financial Consultant filed with the
Trustee, for the first two Fiscal Years following (I) the date capitalized interest, if any, provided
from the proceeds of the proposed Series of Bonds is expended in the case of the acquisition of
assets for or construction of improvements to the Water and Sewer System or (II) the date the
proposed Series of Bonds is issued in any other case, are at least equal to (a) 120% of (1.20 times)
the Principal and Interest Requirements on the Bonds, including the Series of Bonds to be issued,
for such Fiscal Years, (b) 100% of (1.00 times) the Principal and Interest Requirements for
Subordinate Indebtedness to become due in such Fiscal Years, (c) 100% of (1.00 times) the
Principal and Interest Requirements for General Obligation Indebtedness to become due in such
Fiscal Years and (d) 100% of (1.00 times) the Principal and Interest Requirements for Other
Indebtedness to become due in such Fiscal Years; and
(3)
no Event of Default under the General Indenture has occurred and is continuing.
For purposes of calculating Net Revenues in paragraph (1) or paragraph (2)(A), (1) if any rates,
fees or charges of the Water and Sewer System have been increased since the date of such audited
financial statements or will be increased on or before the date the proposed Series of Bonds is issued, the
Finance Officer may add to the Net Revenues his estimate of the additional Revenues that would have
been included in the calculation of Net Revenues if such rates, fees and charges had been in effect in such
Fiscal Year and (2) if users of the Water and Sewer System have been added as a result of an acquisition
of assets from another provider of water or sewer services or as a result of a contract with another
governmental unit, the Finance Officer may add to the Net Revenues his estimate of the additional
Revenues that would have been included in the calculation of Net Revenues if such users had been a part
of the Water and Sewer System in such Fiscal Year.
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Issuance of Subordinate Indebtedness The City may issue Subordinate Indebtedness if:
(1)
the Net Revenues for any 12 consecutive months of the 18 months preceding the issuance
of the Subordinate Indebtedness, as certified by the Finance Officer, adjusted in the manner
described in “COVENANTS OF THE CITY--Issuance of Additional Bonds” above, were at least
equal to (a) 120% of (1.20 times) the maximum Principal and Interest Requirements on the
Bonds, (b) 100% of (1.00 times) the Principal and Interest Requirements for Subordinate
Indebtedness in that Fiscal Year, including the Subordinate Indebtedness to be issued,(c) 100% of
(1.00 times) the Principal and Interest Requirements for General Obligation Indebtedness in that
Fiscal Year and (d) 100% of (1.00 times) the Principal and Interest Requirements for Other
Indebtedness in that Fiscal Year; or
(2)
(A) the Net Revenues for any 12 consecutive months of the 18 months preceding the
issuance of the Subordinate Indebtedness, as certified by the Finance Officer, were at least equal
to (a) 120% of (1.20 times) the Principal and Interest Requirements on the Bonds for such Fiscal
Year, (b) 100% of (1.00 times) the Principal and Interest Requirements for Subordinate
Indebtedness in such Fiscal Year, excluding the Subordinate Indebtedness to be issued, (c) 100%
of (1.00 times) the Principal and Interest Requirements for General Obligation Indebtedness in
such Fiscal Year and (d) 100% of (1.00 times) the Principal and Interest Requirements for Other
Indebtedness in such Fiscal Year; and
(B) the Net Revenues, as projected by a report of a Financial Consultant filed with the
Trustee, for the first two Fiscal Years following (I) the date capitalized interest, if any, provided
from the proceeds of the proposed Subordinate Indebtedness is expended in the case of the
acquisition of assets for or construction of improvements to the Water System or (II) the date the
proposed Subordinate Indebtedness is incurred in any other case, are at least equal to (a) 120% of
(1.20 times) the Principal and Interest Requirements on the Bonds for such Fiscal Years, (b)
100% of (1.00 times) the Principal and Interest Requirements for Subordinate Indebtedness,
including the Subordinate Indebtedness to be issued, to become due in such Fiscal Years, (c)
100% of (1.00 times) the Principal and Interest Requirements for General Obligation
Indebtedness to become due in such Fiscal Years and (d) 100% of (1.00 times) the Principal and
Interest Requirements for Other Indebtedness to become due in such Fiscal Years; and
(3)
no Event of Default under the General Indenture or under the agreement securing the
Subordinate Indebtedness has occurred and is continuing.
Construction; Maintenance of Water and Sewer System. The City will complete or cause to be
completed the additions, extensions and improvements of the Water and Sewer System provided for in the
General Indenture in accordance with plans and specifications approved by a Consulting Engineer and in
an economical and efficient manner with all practicable dispatch and thereafter will maintain or cause to
be maintained the Water and Sewer System in good condition and will continuously operate or cause to
be operated the same in an efficient manner and at a reasonable cost as a municipal revenue-producing
enterprise.
Each contractor entering into a construction contract shall be required to furnish a performance
bond and a separate labor and material payment bond as required by the laws of the State, showing the
Trustee as an additional loss payee.
In the event of any material default by a contractor under any construction contract, or in the
event of a material breach of warranty with respect to any materials, workmanship or performance, the
City shall promptly proceed, either separately or in conjunction with others, to pursue diligently its
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remedies against any such contractor or against each surety of any bond securing the performance of the
construction contract.
Insurance; Condemnation. The City will carry or cause to be carried such insurance with a
reputable insurance carrier or carriers, such as is maintained or carried by similar municipal systems as
the Water and Sewer System, including, public liability insurance against loss or damage by fire,
explosion, hurricane, flood, cyclone, occupancy or other hazards and risks, and said property loss and
damage insurance will at all times be in an amount sufficient to indemnify in amounts sufficient to repair
the Water and Sewer System for loss, but not less than the aggregate Principal amount of the Bonds
Outstanding, to the extent that such insurance is obtainable.
The City will deposit the proceeds of any insurance or condemnation, with respect to the Water
and Sewer System, in excess of $2,000,000 in any given Fiscal Year (i) in the Construction Fund, to
rebuild or replace the Water and Sewer System or portion thereof giving rise to the referenced proceeds or
(ii) in the Debt Service Fund, to redeem or pay the Principal of the Bonds pursuant to a Series Indenture.
The City may provide for and maintain the insurance required under the General Indenture
partially or wholly by means of an adequate self-insurance fund. Reserves for a self-insurance fund will
be determined by using actuarial principles. Any self-insurance fund will be reviewed annually by the
City’s risk manager or an Independent Insurance Consultant. The Trustee may rely on a letter of the
City’s risk manager or an Independent Insurance Consultant (dated as of the first day of the Fiscal Year)
as to the adequacy of any self-insurance fund as measured against standards in the industry for the risks
being assumed.
Adding to or Removing from the System. The Water and Sewer System may be sold, mortgaged,
leased or otherwise disposed of, in whole or in part, to another political subdivision, public agency, public
authority or other public instrumentality in the State authorized by law to own and operate such systems
only (i) if there is filed with the Trustee (A) a report prepared by a Financial Consultant satisfactory to the
Trustee showing that there is no material adverse effect on the ability of the Water and Sewer System to
produce Revenues to satisfy the rate covenant described in “COVENANTS OF THE CITY--Rate Covenant”
above, (B) written evidence from any rating agency then rating the Bonds that such sale will not adversely
affect its rating then in effect on the Bonds (without regard to gradation within category), (C) an opinion
of counsel to the City that such disposition has been properly authorized and (D) an opinion of Bond
Counsel that such disposition will not adversely affect the federal or state income tax treatment of Interest
on the Bonds, and (ii) for a disposition in whole, if such political subdivision, public agency, public
authority or other public instrumentality assumes all of the obligations of the City related to such
enterprise under the General Indenture.
Any part of the Water and Sewer System constructed on behalf of or with funds provided by
another governmental unit may be sold, leased or otherwise disposed of to that governmental unit, if the
Trustee receives a certificate from the Financial Consultant which states that the projected Revenues of
the Water and Sewer System as it will exist after the proposed disposition for each of the two Fiscal Years
subsequent to the year in which the disposition is expected to be completed are equal to the sum of the
Current Expenses projected for such period plus 120% of (1.20 times) the Principal and Interest
Requirements on the Bonds for such Fiscal Year plus 100% of (1.00 times) the maximum Principal and
Interest Requirements on Subordinate Indebtedness plus the maximum Principal and Interest
Requirements on General Obligation Indebtedness plus 100% of (1.00 times) the maximum Principal and
Interest Requirements for Other Indebtedness due in any Fiscal Year.
Any part of the Water and Sewer System may be sold, mortgaged, leased or otherwise disposed
of, in whole or in part to a nongovernmental entity only if (i) the net proceeds to be realized will be
sufficient, together with other moneys available therefor, to discharge the lien of the General Indenture as
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to all Series of Bonds or the portion thereof related thereto and such net proceeds are deposited in a
separate segregated account for such purpose and (ii) the Trustee has received (A) an opinion of counsel
to the City that such disposition has been properly authorized and is permitted by the law of the State, (B)
an opinion of Bond Counsel to the effect that such disposition will not adversely affect the federal and
state income tax treatment of the Interest on the Bonds, (C) written evidence from any rating agency then
rating the Bonds that such sale will not adversely affect its rating then in effect on the Bonds (without
regard to gradation within category) and (D) a certificate from the Finance Officer that the disposition
will not materially adversely affect the ability of the City to meet its financial obligations under the
General Indenture, including the ability of the City to meet its rate covenant described in “COVENANTS
OF THE CITY--Rate Covenant” above.
The City reserves the right to sell, lease or otherwise dispose of any of the property comprising a
part of the Water and Sewer System determined in the manner provided in the General Indenture to be no
longer necessary, useful or profitable in the operation thereof. Before any such sale, lease or other
disposition of such property, a City Representative will make a finding in writing determining that such
property comprising a part of the Water and Sewer System is no longer necessary, useful or profitable in
the operation thereof and the Finance Officer will make a finding in writing that the disposition of such
property will not materially adversely affect the ability of the City to meet its financial obligations under
the General Indenture, including the ability of the City to meet its rate covenant described in
“COVENANTS OF THE CITY--Rate Covenant” above. Such findings will be approved by resolution of
the City if the amount to be received therefor is in excess of .50% of the total assets of the Water and
Sewer System net of accumulated depreciation. All proceeds derived from the sale, lease or other
disposition of any property comprising a part of the Water and Sewer System as provided above, will be
deposited in the Water and Sewer Operating Fund.
Liens or Charges. The City may create or permit to be created a lien on the Water and Sewer
System in order to secure the issuance of Other Indebtedness as long as the Finance Officer certifies at the
time of the creation of the lien that (i) loss of the property secured by the lien will not materially adversely
affect the ability of the City to meet its financial obligations under the General Indenture, including the
ability of the City to meet its rate covenant described in “COVENANTS OF THE CITY--Rate Covenant”
above and (ii) the current value of all parts of the Water and Sewer System subject to a lien securing
Other Indebtedness, including property which may be added to the Water and Sewer System as a result of
issuance of the proposed Other Indebtedness, does not exceed 20% of the current value of the Water and
Sewer System’s tangible assets. The City will not otherwise create or permit to be created any lien or
charge on the Water and Sewer System. The City will pay or cause to be discharged or make provisions
to satisfy and discharge, within 60 days after the same accrues, all claims and demands for labor,
materials, supplies or other items which, if unpaid, might by law become a lien on the Water and Sewer
System or the Revenues on a parity with the lien of the Bonds, except for the liens permitted by the
General Indenture. The City need not pay or cause to be discharged or make provision for any lien or
charge as long as the validity thereof is being contested in good faith by appropriate legal proceedings.
SUPPLEMENTAL INDENTURES
Supplemental Indentures Effective On Filing With the Trustee. For any one or more of the
following purposes and at any time or from time to time, a Supplemental Indenture of the City may be
executed and delivered, which, on the filing with the Trustee of a copy thereof certified by a City
Representative and execution by the Trustee, will be fully effective in accordance with its terms:
(1)
to close the General Indenture against, or provide limitations and restrictions in addition
to the limitations and restrictions contained in the General Indenture on, the delivery of Bonds or
the issuance of other evidences of indebtedness;
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(2)
to add to the covenants and agreements of and the limitations and restrictions on the City
in the General Indenture other covenants and agreements or limitations and restrictions to be
observed by the City which are not contrary to or inconsistent with the General Indenture as
theretofore in effect;
(3)
to surrender any right, power or privilege reserved to or conferred on the City by the
terms of the General Indenture, but only if the surrender of such right, power or privilege is not
contrary to or inconsistent with the covenants and agreements of the City contained in the
General Indenture;
(4)
to confirm, as further assurance, any pledge under, and the subjection to any lien or
pledge created or to be created by, the General Indenture of the Trust Estate, including the Net
Revenues or any other revenues or assets;
(5)
to modify any of the provisions of the General Indenture in any respect whatsoever, but
only if (i) such modification will be, and be expressed to be, effective only after all Bonds
Outstanding at the date of the adoption of such Supplemental Indenture cease to be Outstanding
and (ii) such Supplemental Indenture will be specifically referred to in the text of all Bonds
delivered after the date of the adoption of such Supplemental Indenture and of Bonds issued in
exchange therefor or in place thereof;
(6)
to provide for the delivery of a Qualified Reserve Fund Substitute; or
(7)
to include additional facilities, property or equipment within the definition of “Water and
Sewer System” and the revenues therefrom within the definition of “Revenues”;
provided that any changes do not, in the opinion of Bond Counsel, adversely affect the interests
of the owners of the Bonds.
Supplemental Indentures Effective On Consent of Trustee. For any one or more of the
following purposes and at any time or from time to time, a Supplemental Indenture may be executed and
delivered, which, on (i) the filing with the Trustee of a copy thereof certified by a City Representative,
and (ii) the filing with the Trustee and the City of an instrument in writing, made by the Trustee
consenting thereto, will be fully effective in accordance with its terms:
(1)
to cure any ambiguity, supply any omission or cure or correct any defect or inconsistent
provision in the General Indenture; or
(2)
to insert such provisions clarifying matters or questions arising under the General
Indenture as are necessary or desirable and are not contrary to or inconsistent with the General
Indenture as theretofore in effect.
(3)
to effectuate such changes in the General Indenture which do not adversely affect the
interests of the Owners.
Any such Supplemental Indenture may also contain one or more of the purposes specified under
the caption “SUPPLEMENTAL INDENTURES--Effective on Filing with the Trustee” above and, in that
event, the consent of the Trustee required by the General Indenture will be applicable only to those
provisions of such Supplemental Indenture as contain one or more of the purposes set forth in (1), (2) and
(3) above.
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Supplemental Indentures Effective On Consent of Owners. Exclusive of Supplemental
Indentures covered above, the written consent of the Owners of not less than a majority in aggregate
Principal amount of the Bonds Outstanding, will be required for the execution by the City and the Trustee
of any indenture or indentures supplemental to the General Indenture; provided, however, that without the
consent of the Owners of all the Bonds Outstanding nothing in the General Indenture contained will
permit, or be construed as permitting:
(1)
A change in the terms of redemption or maturity of the Principal amount of or the Interest
on any Outstanding Bond, or a reduction in the Principal amount of or premium payable on any
redemption of any outstanding Bond or the rate of interest thereon;
(2)
The deprivation of the Owner of any Bond Outstanding of the lien created by Indenture
(other than as originally permitted by the General Indenture);
(3)
A privilege or priority of any Bond over any other Bond; or
(4)
A reduction in the aggregate Principal amount of the Bonds required for consent to such
Supplemental Indenture.
If at any time the City requests the Trustee to enter into a Supplemental Indenture for any of the
purposes outlined above, the Trustee will, on being satisfactorily indemnified with respect to expenses,
cause notice of the proposed execution of such Supplemental Indenture to be given by mail to the Owners
of the Bonds Outstanding at the address shown on the registration books maintained by the Registrar.
Such notice will briefly set forth the nature of the proposed Supplemental Indenture and will state that
copies thereof are on file at the principal corporate trust office of the Trustee for inspection by all Owners.
If, within 60 days (or such longer period prescribed by the City) following the giving of such notice, the
Owners of not less than a majority in aggregate Principal amount of the Bonds Outstanding (and in the
case of Supplemental Indentures involving (1) through (4) above, the Owners of all of the Bonds
Outstanding) at the time of the execution of any such Supplemental Indenture have consented to and
approved the execution thereof as in the General Indenture provided, no Owner will have any right to
object to any of the terms and provisions contained therein, or in the operation thereof, or in any manner
to question the propriety of the execution thereof, or to enjoin or restrain the Trustee or the City from
executing the same or from taking any action pursuant to the provisions thereof.
DEFAULTS AND REMEDIES
Events of Default. If any of the following events occur, the General Indenture defines and deems
it an “Event of Default” under the General Indenture:
(1)
A failure to pay the Principal of or premium, if any, on any Bond when the same
becomes due and payable, whether at the stated maturity thereof or on proceedings for
redemption including sinking fund redemptions;
(2)
A failure to pay any installment of Interest when the same becomes due and payable; and
(3)
A failure by the City to observe and perform any covenant, condition, agreement or
provision (other than as described in clauses (1) and (2) above) contained in the Bonds or in the
General Indenture on the part of the City to be observed or performed, which failure continues for
a period of 30 days after written notice, specifying such failure and requesting that it be remedied,
has been given to the City by the Trustee, which may give such notice in its discretion and must
give such notice at the written request of Owners of not less than 25% of the aggregate Principal
amount of the Bonds, unless the Trustee, or the Trustee and Owners of a Principal amount of
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Bonds not less than the Principal amount of Bonds the Owners of which requested such notice, as
the case may be, agrees in writing to an extension of such period prior to its expiration.
Further events which will constitute “Events of Default” under the General Indenture may be set
forth in a Series Indenture.
Remedies on Default. On the occurrence and continuance of an Event of Default, the Trustee
may, or if required by a majority of the registered Owners of the Bonds Outstanding, must, declare the
Bonds to be immediately due and payable, whereupon they will, without further action, become due and
payable, anything in the General Indenture or in the Bonds to the contrary notwithstanding.
The provisions of the preceding paragraph are subject to the condition that if, after the Principal
of any of the Bonds has been so declared to be due and payable, and before any judgment or decree for
the payment of the moneys due has been obtained or entered, the City causes to be deposited with the
Trustee a sum sufficient to pay all matured installments of the Principal of and Interest on all Bonds
which will have become due otherwise than by reason of such declaration (with interest on such overdue
installments of Interest, at the rate per annum borne by the respective Bonds) and such amount as is
sufficient to cover reasonable compensation and reimbursement of expenses payable to the Trustee, and
all Events of Default under the General Indenture other than nonpayment of the Principal of the Bonds
which have become due by said declaration have been remedied, then, in every such case, such Event of
Default will be deemed waived and such declaration and its consequences rescinded and annulled, and the
Trustee will promptly give written notice of such waiver, rescission or annulment to the City and will
give notice thereof by Mail to all Owners; but no such waiver, rescission and annulment will extend to or
affect any subsequent Event of Default or impair any right or remedy consequent thereon.
On the occurrence and continuance of any Event of Default, the Trustee in its discretion may, and
on the written direction of registered owners of not less than a majority in aggregate Principal amount of
the Bonds Outstanding and receipt of indemnity to its satisfaction, must, in its own name and as the
trustee of an express trust:
(1)
by mandamus, or other suit, action or proceeding at law or in equity, enforce all rights of
the Owners, and require the City to carry out any agreements with or for the benefit of the
Owners and to perform its duties under the General Indenture;
(2)
take custody of the Water and Sewer Operating Fund, the Water and Sewer Revenue
Bond Fund, the Extension and Replacement Fund and the Surplus Fund; or
(3)
take whatever action at law or in equity may appear necessary or desirable to enforce its
rights against the City.
No right or remedy is intended to be exclusive of any other rights or remedies, but each and every
such right or remedy will be cumulative and in addition to any other remedy given under the General
Indenture or now or subsequently existing at law or in equity or by statute. If any Event of Default has
occurred and if requested by the Owners of a majority in aggregate Principal amount of Bonds
Outstanding and indemnified as in the General Indenture provided, the Trustee will be obligated to
exercise such one or more of the rights and powers conferred by the General Indenture as the Trustee,
being advised by counsel, deems most expedient in the interests of the Owners.
Priority of Payments After Default. If, on the happening and continuance of any Event of
Default, the funds held by the Trustee are insufficient for the payment of the Principal or Redemption
Price then due of and Interest then due on the Bonds, such funds (other than funds held for the payment of
particular Bonds which have theretofore become due at maturity or by redemption) and any other
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amounts received or collected by the Trustee acting pursuant to the General Indenture, after making
provision for the payment of any expenses necessary in the opinion of the Trustee to protect the interest of
the Owners and for the payment of the charges and expenses and liabilities incurred and advances made
by the Trustee in the performance of its duties under the General Indenture, will be applied, subject to the
restrictions contained under the caption “DEFAULT AND REMEDIES--Subordination of Claims for
Interest” below, as follows:
Unless the Principal of all of the Bonds has become or has been declared due and payable:
FIRST:
To the payment to the Persons entitled thereto of all installments of Interest then due
in the order of the maturity of such installments, and, if the amounts available are not sufficient to
pay in full any installment, then to the payment thereof ratably, according to the amounts due on
such installment, to the persons entitled thereto, without any discrimination or preference;
SECOND: To the payment to the Persons entitled thereto of the unpaid Principal or Redemption
Price of any Bonds which have become due and, if the amounts available are not sufficient to pay
in full all the Bonds due, then to the payment thereof ratably, according to the amounts of
Principal or Redemption Price due on such date, to the persons entitled thereto, without any
discrimination or preference; and
THIRD:
To be held for the payment to the Persons entitled thereto, as the same become due,
of the Principal or Redemption Price of and Interest on the Bonds which thereafter become due
and, if the amounts available are not sufficient to pay in full all the Bonds due on any date,
together with such Interest, payment will be made ratably according to the amount of Principal
due on such date to the Persons entitled thereto, without any discrimination or preference.
If the Principal of all of the Bonds has become or has been declared due and payable, to the
payment of the Principal and Interest then due and unpaid on the Bonds without preference or priority of
Principal over Interest or of Interest over Principal, or of any installment of Interest over any other
installment of Interest, or of any Bond over any other Bond, ratably, according to the amounts due
collectively for Principal and Interest, to the Persons entitled thereto without any discrimination or
preference except as to any difference in the respective rates of interest specified in the Bonds.
Whenever moneys are to be applied by the Trustee pursuant to the provisions of the General
Indenture, such moneys will be applied by the Trustee at such times, and from time to time, as the Trustee
determines in its prudent discretion, having due regard to the amount of moneys available for such
application. The setting aside of such moneys in trust for the proper purpose, will constitute proper
application by the Trustee, and the Trustee will incur no liability whatsoever to the City, to any Owner or
to any other person for any delay in applying such moneys, so long as the Trustee acts with reasonable
diligence, having due regard for the circumstances, and ultimately applies the same in accordance with
such provisions of the General Indenture. Whenever the Trustee will exercise discretion in applying such
moneys, it will fix the date (which must be an Interest Payment Date unless the Trustee deems another
date more suitable) on which such application is to be made. The Trustee will not be required to make
payment to any Owner unless its Bond is presented to the Trustee for appropriate endorsement or for
cancellation if fully paid.
Owners’ Right to Direct Proceedings. Anything in the General Indenture to the contrary
notwithstanding, the Owners of a majority in aggregate Principal amount of the Bonds Outstanding will
have the right, at any time, to the extent permitted by law, by instruments in writing executed and
delivered to the Trustee, to direct the time, method and place of conducting all proceedings to be taken in
connection with the enforcement of the terms and conditions of the General Indenture, or for the
appointment of a receiver, and any other proceedings under the General Indenture; provided that such
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direction may not be otherwise than in accordance with the provisions of the General Indenture. The
Trustee will not be required to act on any direction given to it until the indemnity described in the General
Indenture is furnished to it by such Owners.
Limitation on Rights of Owners. No Owner will have any right to institute any suit, action,
mandamus or other proceeding in equity or at law under the General Indenture, for the protection or
enforcement of any right under the General Indenture unless such Owner has given to the Trustee written
notice of the Event of Default or breach of duty on account of which such suit, action or proceeding is to
be taken, and unless the Owners of not less than 25% in aggregate Principal amount of the Bonds
Outstanding have made written request of the Trustee after the right to exercise such powers or right of
action, as the case may be, has accrued, and has afforded the Trustee a reasonable opportunity either to
proceed to exercise the powers in the General Indenture granted or granted under the law or to institute
such action, suit or proceeding in its name and unless, also, there has been offered to the Trustee
reasonable indemnity against the costs, expenses and liabilities to be incurred therein or thereby, and the
Trustee has refused or neglected to comply with such request within a reasonable time. Such notification,
request and offer of indemnity are by the General Indenture declared in every such case, at the option of
the Trustee, to be conditions precedent to the execution of the powers under the General Indenture or for
any other remedy under the General Indenture or by law. It is understood and intended that no one or
more Owners will have any right in any manner whatever by his or their action to affect, disturb or
prejudice the security of the General Indenture, or to enforce any right under the General Indenture or
under law with respect to the Bonds or the General Indenture, except in the manner in the General
Indenture provided, and that all proceedings at law or in equity must be instituted, had and maintained in
the manner in the General Indenture provided and for the benefit of all Owners.
Each Owner by its acceptance of a Bond will be deemed to have agreed that any court in its
discretion may require, in any suit for the enforcement of any right or remedy under the General Indenture
or any Series Indenture or in any suit against the Trustee for any action taken or omitted by it as Trustee,
the filing by any party litigant in such suit of an undertaking to pay the reasonable costs of such suit, and
that such court may in its discretion assess reasonable costs, including reasonable pre-trial, trial and
appellate attorneys’ fees, against any party litigant in any such suit, having due regard to the merits and
good faith of the claims or defenses made by such party litigant. The provisions of this paragraph will not
apply to any suit instituted by the Trustee, to any suit instituted by Owners of at least 25% in aggregate
Principal amount of the Bonds Outstanding, or to any suit instituted by any Owner for the enforcement of
the payment of any Bond on or after the respective due date thereof expressed in such Bond.
Subordination of Claims for Interest. No claim for interest appertaining to any of the Bonds
which in any way at or after maturity has been transferred or pledged separate and apart from the Bond to
which it appertains will, unless accompanied by such Bond, be entitled, in case of an Event of Default
under the General Indenture, to any benefit by or from the General Indenture, except after the prior
payment in full of the Principal of all of the Bonds then due and of all claims for interest then due not so
transferred or pledged.
DEFEASANCE
If the City pays or causes to be paid or is deemed to have paid to the Owner of any Bond the
Principal of and Interest due and payable, and thereafter to become due and payable on such Bond, or any
portion of such Bond in any integral multiple of the authorized denomination thereof, such Bond or
portion thereof will cease to be entitled to any lien, benefit or security under the General Indenture. If the
City pays or causes to be paid the Principal of, premium, if any, and Interest due and payable on all
Outstanding Bonds, pays or causes to be paid all other sums payable by the City, including all fees,
expenses and other amounts payable to the Trustee and any Paying Agent and all amounts owing to the
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provider of a Qualified Reserve Fund Substitute, then the right, title and interest of the Trustee in and to
the Trust Estate will thereupon cease, terminate and become void.
Any Bond will be deemed to be paid within the meaning of the General Indenture and for all
purposes of the General Indenture when (a) payment of the Principal and premium, if any, of such Bond
plus Interest thereon to the due date thereof (whether such due date is by reason of maturity or upon
redemption as provided in the General Indenture) either (i) has been made or caused to be made in
accordance with the terms thereof, or (ii) has been provided for by irrevocably depositing with the Trustee
in trust and irrevocably set aside exclusively for such payment and, in either case, the Trustee has
received verification from an independent certified public accounting firm that the moneys or Federal
Securities deposited with the Trustee, together with investment earnings thereon, will be sufficient to pay
when due the Principal and premium, if any, of and Interest due and to become due on the Bond on and
before the redemption date or maturity date thereof, (1) moneys, sufficient to make such payment or
(2) non-callable Federal Securities maturing as to principal and interest in such amount and at such time
as will insure the availability of sufficient moneys to make such payment, and (b) all necessary and proper
fees, compensation and expenses of the Trustee and any Paying Agent pertaining to the Bonds with
respect to which such deposit is made have been paid or the payment thereof provided for to the
satisfaction of the Trustee. At such times as a Bond is deemed to be paid under the General Indenture, as
aforesaid, such Bond will no longer be secured by or entitled to the benefits of the General Indenture,
except for the purposes of any such payment from such moneys or Federal Securities.
Notwithstanding the foregoing paragraph, no deposit under clause (a)(ii) of the immediately
preceding paragraph will be deemed a payment of such Bonds as aforesaid until (a) proper notice of
redemption of such Bonds has been previously given in accordance with the applicable Series Indenture,
or if said Bonds are not to be redeemed within the next 35 days, until the City has given the Trustee, in
form satisfactory to the Trustee, irrevocable instructions to notify, as soon as practicable, the Owners of
such Bonds in accordance with the applicable Series Indenture, that the deposit required by (a)(ii) above
has been made with the Trustee and that said Bonds are deemed to have been paid in accordance with the
General Indenture and stating the maturity or redemption date on which moneys are to be available for the
payment of the Principal and premium, if any, of said Bonds plus Interest thereon to the due date thereof,
or (b) the maturity of such Bonds.
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APPENDIX C
THE NORTH CAROLINA LOCAL GOVERNMENT COMMISSION
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APPENDIX C
THE NORTH CAROLINA LOCAL GOVERNMENT COMMISSION
The Local Government Commission (the "Commission") is composed of nine members: The
State Treasurer, the Secretary of State, the State Auditor, the Secretary of Revenue and five others by
appointment (three by the Governor, one by the General Assembly upon recommendation of the President
Pro Tempore of the Senate and one by the General Assembly upon recommendation of the Speaker of the
House of Representatives). The State Treasurer serves as Chairman and selects the Secretary of the
Commission, who heads the administrative staff serving the Commission.
A major function of the Commission is the approval, sale and delivery of all North Carolina local
government bonds and notes. A second key function is monitoring certain fiscal and accounting
standards prescribed for units of local government by The Local Government Budget and Fiscal Control
Act. In addition, the Commission furnishes, upon request, on-site assistance to units of local government
concerning existing financial and accounting systems as well as aid in establishing new systems. Further,
educational programs and materials are provided for local officials concerning finance and cash
management.
Before any unit of local government can incur bonded indebtedness, the Commission must
approve the proposed bond issue. In determining whether to give such approval the Commission may
consider, among other things, the unit's debt management procedures and policies, its compliance with
The Local Government Budget and Fiscal Control Act, and its ability to service the proposed debt. The
Commission maintains records for all units of local government of principal and interest payments
coming due on bonded indebtedness in the current and future years and monitors the payment by the units
of local government of their debt service through a system of monthly reports.
As a part of its role in assisting and monitoring the fiscal programs of units of local government,
the Commission attempts to ensure that the units of local government follow generally accepted
accounting principles, systems and practices. The Commission's staff also counsels the units of local
government in treasury and cash management, budget preparation, and investment policies and
procedures. Educational programs, in the form of seminars or classes, are also provided by the
Commission in order to accomplish these tasks. The monitoring of the financial systems of units of local
government is accomplished through the examination and analysis of the annual audited financial
statements and other required reports. The Local Government Budget and Fiscal Control Act requires
each unit of local government to have its accounts audited annually by a certified public accountant or by
an accountant certified by the Commission as qualified to audit local government accounts. A written
contract must be submitted to the Secretary of the Commission for his approval prior to the
commencement of the audit.
The Commission has the statutory authority to impound the books and records of any unit of local
government and assume full control of all its financial affairs (a) when the unit defaults on any debt
service payment or, in the Commission's opinion, will default on a future debt service payment if the
financial policies and practices of the unit are not improved or (b) when the unit persists, after notice and
warning from the Commission, in willfully or negligently failing or refusing to comply with the
provisions of The Local Government Finance Act. When the Commission takes action under this
authority, the Commission is vested with all of the powers of the governing board of the unit of local
government as to the levy of taxes, expenditure of money, adoption of budgets and all other financial
powers conferred upon the governing board by law.
In addition, if a unit of local government fails to pay any installment of principal or interest on its
outstanding debt on or before its due date and remains in default for 90 days, the Commission may take
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such action as it deems advisable to investigate the unit's fiscal affairs, consult with its governing board
and negotiate with its creditors in order to assist the unit in working out a plan for refinancing, adjusting
or compromising such debt. When a plan is developed that the Commission finds to be fair and equitable
and reasonably within the ability of the unit of local government to meet, the Commission is authorized to
enter an order finding that the plan is fair, equitable and within the ability of the unit to meet and to advise
the unit to take the necessary steps to implement such plan. If the governing board of the unit declines or
refuses to do so within 90 days after receiving the Commission's advice, the Commission may enter an
order directing the unit to implement such plan and may apply for a court order to enforce such order.
When a refinancing plan has been put into effect, the Commission has the authority (a) to require any
periodic financial reports on the unit's financial affairs that the Secretary deems necessary and (b) to
approve or reject the unit's annual budget ordinance. The power and authority granted to the Commission
as described in this paragraph will continue with respect to a defaulting unit of local government until the
Commission is satisfied that the unit has performed or will perform the duties required of it in the
refinancing plan and until agreements made with the unit's creditors have been performed in accordance
with such plan.
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APPENDIX D
PROPOSED FORM OF BOND COUNSEL'S OPINION
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APPENDIX D
PROPOSED FORM OF BOND COUNSEL’S OPINION
[Letterhead of Parker Poe Adams & Bernstein LLP]
August 3, 2011
City of Charlotte, North Carolina
Charlotte, North Carolina
U.S. Bank National Association
Charlotte, North Carolina
$93,390,000
City of Charlotte, North Carolina
Water and Sewer System Revenue Refunding Bonds, Series 2011
Ladies and Gentlemen:
We have acted as bond counsel (“Bond Counsel”) in connection with the issuance and delivery
by the City of Charlotte, North Carolina (the “City”) of $93,390,000 aggregate principal amount of its
Water and Sewer System Revenue Refunding Bonds, Series 2011 (the “Bonds”). The City is a municipal
corporation of the State of North Carolina (the “State”) and is empowered to issue the Bonds pursuant to
the State and Local Government Revenue Bond Act, General Statutes of North Carolina Section 159-80 et
seq., as amended (the “Act”), subject to the approval of the Local Government Commission of North
Carolina.
The Bonds are issuable only as fully registered bonds and will be numbered, will bear interest
payable at the rates and at the times, and will be subject to redemption, all as provided in the General
Trust Indenture dated as of November 1, 1996 (the “General Indenture”) between the City and First
Union National Bank of North Carolina, the successor to which is U.S. Bank National Association, as
trustee (the “Trustee”), as amended, and the provisions of Series Indenture, Number 13 dated as of
August 1, 2011 (the “Series Indenture” and together with the General Indenture, the “Indenture”)
between the City and the Trustee.
The Bonds are being issued to (1) refund in advance of their maturities a portion of the City’s
outstanding Water and Sewer System Revenue Bonds, Series 2001 maturing on and after June 1, 2012
and (2) pay certain costs related to the issuance of the Bonds. In connection with the issuance of the
Bonds, we have examined the following: (a) the Act; (b) executed copies of the General Indenture and the
Series Indenture; and (c) such other laws, documents, instruments, proceedings and opinions as we have
deemed relevant in rendering this opinion. We have also examined a specimen Bond.
From such examination, we are of the opinion, under existing law, that:
1.
The City is a municipal corporation of the State. Pursuant to the Act, the City is
empowered to issue the Bonds for the purposes set forth in the General Indenture and to execute, deliver
and perform its obligations under the Indenture.
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City of Charlotte, North Carolina
U.S. Bank National Association
August 3, 2011
Page 2
2.
The General Indenture and the Series Indenture have been duly authorized, executed and
delivered by the City, and, assuming due authorization and execution by the Trustee, are valid, binding
and enforceable obligations, respectively, of the City. All right, title and interest of the City in and to the
Trust Estate (as defined in the General Indenture) have been validly pledged and assigned to the Trustee
and the General Indenture creates a valid security interest in the Trust Estate.
3.
The Bonds have been duly authorized, executed and issued in accordance with applicable
law, including the Act, and represent valid, binding and enforceable special obligations of the City. The
Bonds are entitled to the benefits and security of the Indenture for the payment thereof in accordance with
the terms of the Indenture.
4.
The principal of and interest on the Bonds are special obligations payable by the City
solely from the sources described in the Indenture. The principal of, premium, if any, and interest on the
Bonds are not payable from the general funds of the City, nor do they constitute a legal or equitable
pledge, charge, lien or encumbrance on any of its property or on any of its income, receipts or revenues,
except the funds which are pledged under the Indenture. Neither the credit nor the taxing power of the
State or the City are pledged for the payment of the principal of, premium, if any, or interest on the
Bonds, and no owner of the Bonds has the right to compel the exercise of the taxing power by the State or
the City or the forfeiture of any of its property in connection with any default thereon.
5.
Interest on the Bonds is excludable from gross income for federal income tax purposes
and is not an item of tax preference for purposes of the federal alternative minimum tax imposed on
individuals and corporations; however, such interest is taken into account in determining adjusted current
earnings for the purpose of computing the federal alternative minimum tax imposed on certain
corporations. The opinion set forth in the preceding sentence is subject to the condition that the City
complies 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 the interest on the Bonds be, or
continue to be, excludable from gross income for federal income tax purposes. The City has covenanted
to comply with all such requirements. Failure to comply with certain of such requirements may cause the
interest on the Bonds to be included in gross income for federal income tax purposes retroactively to the
date of issuance of the Bonds. We express no opinion regarding other federal tax consequences arising
with respect to the Bonds.
6.
Interest on the Bonds is exempt from all State income taxation.
It is to be understood that the rights of the owners of the Bonds and the enforceability of the
Bonds and the Indenture may be limited by bankruptcy, insolvency, reorganization, moratorium and other
similar laws affecting creditors’ rights generally or by equitable principles, whether considered at law or
in equity.
Our services as Bond Counsel in connection with the issuance of the Bonds have been limited to
rendering the opinions expressed above based on our review of such proceedings and documents as we
deem necessary to approve the validity of the Bonds and the tax-exempt status of interest thereon. In
rendering the foregoing opinions, we have assumed the accuracy and truthfulness of all public records and
of all certifications, documents and other proceedings examined by us that have been executed or certified
by public officials acting within the scope of their official capacities and have not verified the accuracy or
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City of Charlotte, North Carolina
U.S. Bank National Association
August 3, 2011
Page 3
truthfulness thereof. We have also assumed the genuineness of the signatures appearing on such public
records and certifications, documents and other proceedings.
We have not been engaged or undertaken to review the accuracy, completeness or sufficiency of
the Preliminary Official Statement or the Official Statement (collectively, the “Official Statement”), or
any other offering material relating to the Bonds (except to the extent, if any, stated in the Official
Statement) and we express no opinion relating thereto (excepting only the matters set forth as our opinion
in the Official Statement and the section entitled “--TAX TREATMENT”) or as to the financial resources
of the City, or the ability of the City to make the payments required under the Indenture, that may have
been relied on by anyone in making the decision to purchase Bonds.
Respectfully submitted,
PARKER POE ADAMS & BERNSTEIN LLP
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APPENDIX E
BOOK-ENTRY SYSTEM
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THE FOLLOWING DESCRIPTION OF DTC, OF PROCEDURES AND RECORD KEEPING ON BENEFICIAL
OWNERSHIP INTERESTS IN THE BONDS, PAYMENT OF INTEREST AND OTHER PAYMENTS ON THE 2011
BONDS TO DTC PARTICIPANTS OR TO BENEFICIAL OWNERS, CONFIRMATION AND TRANSFER OF
BENEFICIAL OWNERSHIP INTERESTS IN THE 2011 BONDS, AND OR OTHER TRANSACTIONS BY AND
BETWEEN DTC, DTC PARTICIPANTS AND BENEFICIAL OWNERS IS BASED ON INFORMATION FURNISHED
BY DTC.
The Depository Trust Company
a subsidiary of The Depository Trust & Clearing Corporation
1.
The Depository Trust Company ("DTC"), New York, NY, will act as securities
depository for the 2011 Bonds. The 2011 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
2011 Bonds, in the aggregate principal amount of such maturity, and will be deposited with DTC. SO
LONG AS CEDE & CO. IS THE REGISTERED OWNER OF THE 2011 BONDS, AS DTC'S PARTNERSHIP NOMINEE,
REFERENCE HEREIN TO THE OWNERS OR REGISTERED OWNERS OF THE 2011 BONDS SHALL MEAN CEDE &
CO. AND SHALL NOT MEAN THE BENEFICIAL OWNERS OF THE 2011 BONDS.
2.
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 the 2011 Bonds. 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 highest rating: AAA. The DTC rules applicable to
its Participants are on file with the Securities and Exchange Commission. More information about DTC
can be found at www.dtcc.com and www.dtc.org.
3.
Purchases of 2011 Bonds under the DTC system must be made by or through Direct
Participants, which will receive a credit for the 2011 Bonds on DTC's records. The ownership interest of
each actual purchaser of the 2011 Bonds ("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
2011 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
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ownership interests in 2011 Bonds, except in the event that use of the book-entry system for the 2011
Bonds is discontinued.
4.
To facilitate subsequent transfers, all 2011 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 2011 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 2011 Bonds; DTC's records
reflect only the identity of the Direct Participants to whose accounts such 2011 Bonds arc credited, which
may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible
for keeping account of their holdings on behalf of their customers.
5.
Conveyance of notices and other communications by DTC to Direct Participants, by
Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to
Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory
requirements as may be in effect from time to time. Beneficial Owners of 2011 Bonds may wish to take
certain steps to augment the transmission to them of notices of significant events with respect to the 2011
Bonds, such as prepayments, tenders, defaults, and proposed amendments to the security documents. For
example, Beneficial Owners of 2011 Bonds may wish to ascertain that the nominee holding the 2011
Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative,
Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies
of notices be provided directly to them.
6.
Prepayment notices shall be sent to DTC. If less than all of the 2011 Bonds within a
maturity are being redeemed, DTC's practice is to determine by lot the amount of the interest of each
Direct Participant in such issue to be redeemed.
7.
Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with
respect to 2011 Bonds unless authorized by a Direct Participant in accordance with DTC's MMI
Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to 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 2011 Bonds are credited on the record date (identified in a listing attached
to the Omnibus Proxy).
BECAUSE DTC IS TREATED AS THE OWNER OF THE 2011 BONDS FOR SUBSTANTIALLY ALL
PURPOSES UNDER THE GENERAL INDENTURE, BENEFICIAL OWNERS MAY HAVE A RESTRICTED ABILITY TO
INFLUENCE IN A TIMELY FASHION REMEDIAL ACTION OR THE GIVING OR WITHHOLDING OF REQUESTED
CONSENTS OR OTHER DIRECTIONS. IN ADDITION, BECAUSE THE IDENTITY OF BENEFICIAL OWNERS IS
UNKNOWN TO THE COMMISSION, TO THE CITY, TO DTC OR TO THE TRUSTEE, IT MAY BE DIFFICULT TO
TRANSMIT INFORMATION OF POTENTIAL INTEREST TO BENEFICIAL OWNERS IN AN EFFECTIVE AND
TIMELY MANNER. BENEFICIAL OWNERS SHOULD MAKE APPROPRIATE ARRANGEMENTS WITH THEIR
BROKER OR DEALER REGARDING DISTRIBUTION OF INFORMATION REGARDING THE 2011 BONDS THAT
MAY BE TRANSMITTED BY OR THROUGH DTC.
8.
Prepayment proceeds, distributions, and dividend payments on the 2011 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 Trustee, on the payable date in accordance with their respective holdings shown
on DTC's records. Payments by Participants to Beneficial Owners will be governed by standing
instructions and customary practices, as is the case with securities held for the accounts of customers in
bearer form or registered in "street name," and will be the responsibility of such Participant and not of
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DTC, the Trustee, the City or the Commission, subject to any statutory or regulatory requirements as may
be in effect from time to time. Payment of prepayment proceeds, distributions, and dividend payments to
Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the
Trustee's responsibility, 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. THE COMMISSION AND THE CITY CANNOT AND DO NOT GIVE ASSURANCE THAT
DIRECT AND INDIRECT PARTICIPANTS WILL PROMPTLY TRANSFER PAYMENTS TO BENEFICIAL OWNERS.
9.
A Beneficial Owner shall give notice to elect to have its 2011 Bonds purchased or
tendered, through its Participant, to the Remarketing Agent, and shall effect delivery of such 2011 Bonds
by causing the Direct Participant to transfer the Participant's interest in the 2011 Bonds, on DTC's
records, to the Remarketing Agent. The requirement for physical delivery of 2011 Bonds in connection
with an optional tender or a mandatory purchase will be deemed satisfied when the ownership rights in
the 2011 Bonds are transferred by Direct Participants on DTC's records and followed by a book-entry
credit of tendered 2011 Bonds to the Remarketing Agent's DTC account.
10.
DTC may discontinue providing its services as depository with respect to the 2011 Bonds
at any time by giving reasonable notice to the Commission, the City and the Trustee. Under such
circumstances, in the event that a successor depository is not obtained, physical certificates are required to
be printed and delivered.
11.
The Commission or the City may decide to discontinue use of the system of book-entryonly transfers through DTC (or a successor securities depository). In that event, 2011 Bonds will be
printed and delivered to DTC.
12.
The information in this section concerning DTC and DTC's book-entry system has been
obtained from sources the Commission and the City believe to be reliable, but the Commission and the
City take no responsibility for the accuracy thereof.
THE COMMISSION, THE CITY AND THE TRUSTEE HAVE NO RESPONSIBILITY OR OBLIGATION TO
DTC, THE DIRECT PARTICIPANTS, THE INDIRECT PARTICIPANTS OR THE BENEFICIAL OWNERS WITH
RESPECT TO (1) THE ACCURACY OF ANY RECORDS MAINTAINED BY DTC OR ANY PARTICIPANT, OR THE
MAINTENANCE OF ANY RECORDS; (2) THE PAYMENT BY DTC OR ANY PARTICIPANT OF ANY AMOUNT DUE
TO ANY BENEFICIAL OWNER IN RESPECT OF THE 2011 BONDS, OR THE SENDING OF ANY TRANSACTION
STATEMENTS; (3) THE DELIVERY OR TIMELINESS OF DELIVERY BY DTC OR ANY PARTICIPANT OF ANY
NOTICE TO ANY BENEFICIAL OWNER WHICH IS REQUIRED OR PERMITTED UNDER THE GENERAL
INDENTURE TO BE GIVEN TO OWNERS; (4) THE SELECTION OF THE BENEFICIAL OWNERS TO RECEIVE
PAYMENTS UPON ANY PARTIAL PREPAYMENT OF THE 2011 BONDS; OR (5) ANY CONSENT GIVEN OR OTHER
ACTION TAKEN BY DTC OR ITS NOMINEE AS THE REGISTERED OWNER OF THE 2011 BONDS, INCLUDING
ANY ACTION TAKEN PURSUANT TO AN OMNIBUS PROXY.
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CITY OF CHARLOTTE, NORTH CAROLINA • Water and Sewer System Revenue Refunding Bonds, Series 2011