CITY OF DANVILLE, VIRGINIA

Transcription

1 NEW ISSUE BOOK ENTRY ONLY RATINGS: Moody s: Aa2/A1 BANK QUALIFIED S&P: A+ Fitch: AA- (See RATINGS herein) In the opinion of Bond Counsel, under current law and subject to conditions described in the section herein Tax Exemption, interest on the Bonds (as defined herein) (1) is not included in gross income for Federal income tax purposes, and (2) is not an item of tax preference for purposes of the Federal alternative minimum income tax imposed on individuals and corporations. Such interest on the Bonds may be included in the calculation of a corporation s alternative minimum income tax. See THE BONDS - Tax Exemption for certain provisions regarding the Code that may subject a holder to other Federal tax consequences. Interest on the Bonds is exempt from income taxation by the Commonwealth of Virginia. Further, in the opinion of Bond Counsel, under current law and subject to conditions described in the section Designation for Purchase by Financial Institutions, the Bonds will be qualified tax-exempt obligations within the meaning of Section 265(b)(3) of the Code. CITY OF DANVILLE, VIRGINIA $6,360,000 GENERAL OBLIGATION PUBLIC IMPROVEMENT BONDS, SERIES 2013A Dated: Date of Delivery Due: July 1, as shown on the inside cover This Official Statement has been prepared by the City of Danville, Virginia (the City ), to provide information on its General Obligation Public Improvement Bonds, Series 2013A (hereinafter, the Bonds ), the security therefor, the City and other relevant information. Selected information is presented on this cover page for the convenience of the user. To make an informed decision regarding the Bonds, a prospective investor should read this Official Statement in its entirety. Security Redemption Purpose Interest Rates/Yields The Bonds will be general obligations of the City for the payment of which its full faith and credit will be irrevocably pledged. The City Council is authorized and required, unless other funds are lawfully available and appropriated for timely payment of the Bonds, to levy and collect on all locally taxable property in the City an annual ad valorem tax over and above all other taxes authorized or limited by law and without limitation as to rate or amount sufficient to pay when due the principal of and premium, if any, and interest on the Bonds as the same respectively become due and payable. The Bonds are subject to optional and mandatory sinking fund redemption as set forth herein. The proceeds of the Bonds will be used to finance the costs of various capital improvements and to pay the costs of issuing the Bonds. See inside cover. Interest Payment Dates January 1 and July 1, commencing January 1, Denominations $5,000 or integral multiples thereof. Closing/Delivery Dates On or about September 24, Registration Registrar/Paying Agent Bond Counsel City Attorney Underwriter s Counsel Conditions Affecting Issuance Full book-entry only; The Depository Trust Company, New York, New York. City Treasurer. Hunton & Williams LLP, Richmond, Virginia. W. Clarke Whitfield, Jr., Esquire. Christian & Barton, L.L.P. The Bonds are offered for delivery when, as and if issued, subject to the approving opinion of Hunton & Williams LLP, Bond Counsel, and to certain other conditions referred to herein. Official Statement Dated September 6, 2013 WELLS FARGO SECURITIES

2 CITY OF DANVILLE, VIRGINIA MATURITIES, AMOUNTS, INTEREST RATES, YIELDS AND CUSIP NUMBERS $6,360,000 GENERAL OBLIGATION PUBLIC IMPROVEMENT BONDS, SERIES 2013A Year (July 1) Principal Amount Interest Rate Yield CUSIP ** $ 60, % 0.630% KM , KN , * KR , * KS , * KT , * KU , * KV , * KW , * KX6 $190, % Term Bonds due July 1, 2018, priced at % to yield 2.000%, CUSIP No KP3 $205, % Term Bonds due July 1, 2021, priced at % to yield 3.050%, CUSIP No KQ1 $925, % Term Bonds due July 1, 2030, priced at % to yield 4.250%, CUSIP No LA5 $1,545, % Term Bonds due July 1, 2033, priced at % to yield 4.470%, CUSIP No KY4 $660, % Term Bonds due July 1, 2038, priced at % to yield 4.550% *, CUSIP No KZ1 * Yields shown reflect bonds having been priced to the first optional call date of July 1, ** CUSIP numbers have been assigned by an organization not affiliated with the City and are included solely for the convenience of the holders of the Bonds. The City is not responsible for the selection or uses of these CUSIP numbers, nor is any representation made as to their correctness on the Bonds or as indicated above.

3 CITY OF DANVILLE, VIRGINIA CITY COUNCIL Sherman M. Saunders, Mayor Lawrence G. Campbell, Jr. Alonzo Jones Albert K. Rawley, Jr. Adam J. Tomer John Gilstrap Dr. Gary P. Miller Fred O. Shanks, III J. Lee Vogler CERTAIN CITY OFFICIALS Joseph C. King City Manager Susan M. DeMasi City Clerk Barbara A. Dameron Director of Finance W. Clarke Whitfield, Jr. City Attorney Bond Counsel Hunton & Williams LLP Richmond, Virginia Auditors Dixon Hughes Goodman, LLP Danville, Virginia

4 The Bonds will be exempt from registration under the Securities Act of 1933, as amended. As obligations of a political subdivision of the Commonwealth of Virginia, the Bonds will also be exempt from registration under the securities laws of Virginia. No broker, dealer, salesman or other person has been authorized by the City or Wells Fargo Bank, National Association, doing business as Wells Fargo Securities, as the Underwriter, to give any information or to make any representations, other than those contained in this Official Statement, and, if given or made, such other information or representations must not be relied upon as having been authorized by the City. 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 Bonds by any person in any jurisdiction in which it is unlawful for such person to make such offer, solicitation or sale. This Official Statement is not to be construed as a contract or agreement between the City and the purchasers or owners of any of the Bonds. The information and expressions of opinion herein are subject to change without notice, and neither the delivery of this Official Statement nor any sale made thereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the City since the date hereof. The Underwriter has provided the following sentence for inclusion in this Official Statement: The Underwriter has reviewed the information in this Official Statement in accordance with, and as part of, its responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriter does not guarantee the accuracy or completeness of such information. Certain persons participating in this offering may engage in transactions that stabilize, maintain or otherwise affect the price of the Bonds, including transactions to (a) overallot in arranging the sales of the Bonds and (b) make purchases and sales of Bonds, for long or short account, on a when-issued basis or otherwise, at such prices, in such amounts and in such manner as the Underwriter may determine. TABLE OF CONTENTS SECTION ONE: INTRODUCTION... 1 The Issuer... 1 The Bonds... 1 Use of Proceeds... 1 Redemption... 1 Delivery... 2 Auditors... 2 Ratings... 2 Financial Advisor... 2 Continuing Disclosure... 2 Additional Information... 2 SECTION TWO: THE BONDS... 3 Authorization of the Bonds... 3 Description of the Bonds... 3 Form and Denomination... 3 Optional Redemption... 3 Mandatory Redemption... 3 Manner of Redemption... 4 Notice of Redemption... 5 DTC and Book-Entry System... 5 Plan of Financing... 7 Security for and Sources of Payment of the Bonds... 7 Bondholders Remedies in the Event of Default... 8 Approval of Legal Proceedings... 8 Tax Exemption... 9 Designation for Purchase by Financial Institutions...10 SECTION THREE: CITY ADMINISTRATION AND SERVICES...10 Introduction...10 (i)

5 Government...10 Certain City Officials and Administrative Staff Members...11 City of Danville Organizational Chart...14 Utility Systems...14 Transportation...17 Public Education...17 Higher Education...18 Medical...18 SECTION FOUR: ECONOMIC AND DEMOGRAPHIC DATA...19 Population...19 Employment...19 Unemployment...20 Per Capita Personal Income Estimates...21 Taxable Retail Sales...21 Building Permits...21 SECTION FIVE: FINANCIAL INFORMATION...22 Budgeting, Accounting, and Auditing...22 Five-Year Summary of General Fund Revenues and Expenditures...22 Fiscal Year 2013 Budget Discussion and Projected Year-End Results...24 Fiscal Year 2014 Budget Discussion...25 General Fund Revenues and Expenditures...25 Revenues...25 Expenditures...26 Operating Data...27 Pension Fund Information...29 Post-Employment Benefits Other than Pensions (OPEB)...30 SECTION SIX: CITY INDEBTEDNESS AND CAPITAL PLANS...31 Debt Administration...31 Statement of Legal Debt Margin...31 Statement of Bonded Debt...32 Key Debt Ratios...35 Capital Improvement Plan...36 SECTION SEVEN: MISCELLANEOUS...37 Pending Litigation and Administrative Proceedings...37 Ratings...37 Financial Advisor...37 Underwriting...37 Continuing Disclosure...38 Certain Relationships...38 Approval of Official Statement...38 APPENDIX A: Basic Financial Statements of the City for the Fiscal Year Ended June 30, 2012 APPENDIX B: Proposed Form of Bond Counsel Opinion APPENDIX C: Form of Continuing Disclosure Agreement (ii)

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7 OFFICIAL STATEMENT CITY OF DANVILLE, VIRGINIA $6,360,000 GENERAL OBLIGATION PUBLIC IMPROVEMENT BONDS, SERIES 2013A SECTION ONE: INTRODUCTION The purpose of this Official Statement, including the cover page and Appendices hereto, is to furnish information in connection with the sale by the City of Danville, Virginia (the City ), of its General Obligation Public Improvement Bonds, Series 2013A (the Bonds ). The Bonds will be general obligations of the City, to the payment of which the full faith and credit of the City are irrevocably pledged. Financial and other information contained in this Official Statement has been prepared by the City from its records (except where other sources are noted). This information speaks as of its date and is not intended to indicate future or continuing trends in the financial or economic position of the City. The Issuer The issuer of the Bonds is the City of Danville, Virginia, located near the North Carolina state line and adjacent to the southern part of Pittsylvania County. According to the U.S. Census Bureau, the City of Danville had an estimated population of 43,400 people at July 1, The Bonds The Bonds consist of $6,360,000 General Obligation Public Improvement Bonds, Series 2013A, dated the date of their delivery, with principal payments due annually, or will be subject to mandatory sinking fund installments due, on July 1 in the years set forth on the inside cover. The Bonds will be issued in authorized denominations of $5,000 and integral multiples thereof and will be held by The Depository Trust Company, New York, New York ( DTC ), or by its nominee as securities depository with respect to the Bonds. Interest on the Bonds will be payable semi-annually on each January 1 and July 1, commencing January 1, 2014 until the earlier of maturity or redemption. As long as the Bonds are held by DTC or its nominee, interest will be paid to Cede & Co., as nominee of DTC, in same day funds on each interest payment date. Use of Proceeds The City is issuing the Bonds to (i) finance the costs of various City capital improvement projects, and (ii) pay the costs of issuing the Bonds, all as further described in the subsection, Plan of Financing in Section Two. Redemption The Bonds maturing on or after July 1, 2022, will be subject to redemption prior to maturity, at the option of the City, in whole or in part (in integrals of $5,000) at any time on or after July 1, The Bonds maturing on July 1 in the years 2018, 2021, 2030, 2033 and 2038 are subject to mandatory sinking fund redemption. A more complete description of the redemption features is provided in the subsections Optional Redemption and Mandatory Redemption in Section Two.

8 Delivery The Bonds are offered for delivery, when, as and if issued, subject to the approval of their validity by Hunton & Williams LLP, Bond Counsel, and to certain other conditions referred to herein. Certain legal matters will be passed upon for the City by the City Attorney, W. Clarke Whitfield, Jr., Esquire, and for Wells Fargo Bank, National Association, doing business as Wells Fargo Securities (the Underwriter ) by its counsel, Christian & Barton, L.L.P. It is expected that the Bonds will be available for delivery, at the expense of the City, in New York, New York, through the facilities of DTC, on or about September 24, Auditors The City s general purpose financial statements for the fiscal year ended June 30, 2012, have been audited by the independent public accounting firm of Dixon Hughes Goodman, LLP, Danville, Virginia, and are attached as Appendix A. Dixon Hughes Goodman, LLP has not reviewed this Official Statement or any other matters related to the issuance of the Bonds. The City s financial statements are available for inspection at the Office of the Director of Finance, 427 Patton Street, Danville, Virginia The City s general purpose financial statements for the fiscal year ended June 30, 2013, are being audited by Dixon Hughes Goodman LLP and are expected to be available, as typical, by November Ratings The Bonds have been rated as shown on the cover page hereto by Moody s Investors Service, 7 World Trade Center, 250 Greenwich Street, New York, New York 10007; by Standard & Poor s, 55 Water Street, New York, New York 10041; and by Fitch Ratings, One State Street Plaza, New York, New York A more complete description of the ratings are provided in the section herein Ratings in Section Seven. Financial Advisor Davenport & Company LLC, Richmond, Virginia, is employed as Financial Advisor to the City in connection with the issuance of the Bonds. The Financial Advisor s fee for services rendered with respect to the sale of the Bonds is not contingent upon the issuance and delivery of the Bonds. Continuing Disclosure The City has agreed to execute a Continuing Disclosure Agreement at closing to assist the Underwriter in complying with the provisions of Rule 15c2-12 (the Rule ), promulgated by the Securities and Exchange Commission (the SEC ) and as in effect on the date hereof, that requires the provision of annual financial information and event notices required by the Rule. See the section herein Continuing Disclosure in Section Seven. Additional Information Any questions concerning the content of this Official Statement should be directed to Barbara A. Dameron, Director of Finance, 427 Patton Street, Danville, Virginia ( ). 2

9 SECTION TWO: THE BONDS Authorization of the Bonds The Bonds were authorized by ordinance adopted by the City Council on June 4, The Bonds are being issued pursuant to the Constitution of the Commonwealth of Virginia, the provisions of the Public Finance Act of 1991 (Chapter 26 of Title 15.2 of the Code of Virginia, 1950, as amended), the City Charter and a resolution adopted by the City Council on July 16, 2013 (the Bond Resolution ). Description of the Bonds The Bonds will be dated the date of their delivery and will mature, or be subject to mandatory sinking fund installments, on July 1 in the years set forth on the inside cover. Interest on the Bonds will be payable on January 1 and July 1, commencing January 1, 2014, by check or draft mailed to the registered owners at their addresses as they appear on the registration books on the December 15 and June 15 immediately preceding each January 1 and July 1; provided, however, that as long as the Bonds are held by DTC or its nominee, interest will be paid to Cede & Co., as nominee of DTC, in same day funds on each interest payment date. If such interest payment date is not a business day, such payment shall be made on the next succeeding business day with the same effect as if made on the interest payment date and no additional interest shall accrue. The registration books are kept by the City Treasurer, who has been appointed paying agent and registrar (the Paying Agent ). Form and Denomination The Bonds will be issued by means of a book-entry system with no physical distribution of Bond certificates made to the public. One Bond certificate for each maturity will be issued to DTC, or its nominee, and immobilized in its custody. Beneficial Owners (as hereinafter defined) will not receive physical bond certificates representing their interests in the Bonds purchased. So long as DTC or its nominee is the registered owner of the Bonds, references in this Official Statement to the owners of the Bonds shall mean DTC or its nominee and shall not mean the Beneficial Owners. The Bond Resolution contains provisions applicable to periods when DTC or its nominee is not the registered owner. See the section herein DTC and Book-Entry System. Optional Redemption Bonds maturing on or before July 1, 2021, are not subject to redemption prior to maturity. Bonds maturing on or after July 1, 2022, are subject to redemption prior to maturity at the option of the City on or after July 1, 2021, in whole or in part (in integrals of $5,000) at any time, upon payment of 100% of the Bonds to be redeemed plus interest accrued and unpaid to the date fixed for redemption. Mandatory Redemption Bonds maturing on July 1, 2018, are required to be redeemed prior to maturity in part upon payment of 100% of the principal amount thereof plus interest accrued to the redemption date on July 1 in years and amounts, as follows: Year Amount 2016 $60, , (final maturity) 65,000 3

10 Bonds maturing on July 1, 2021, are required to be redeemed prior to maturity in part upon payment of 100% of the principal amount thereof plus interest accrued to the redemption date on July 1 in years and amounts, as follows: Year Amount 2019 $65, , (final maturity) 70,000 Bonds maturing on July 1, 2030, are required to be redeemed prior to maturity in part upon payment of 100% of the principal amount thereof plus interest accrued to the redemption date on July 1 in years and amounts, as follows: Year Amount 2029 $455, (final maturity) 470,000 Bonds maturing on July 1, 2033, are required to be redeemed prior to maturity in part upon payment of 100% of the principal amount thereof plus interest accrued to the redemption date on July 1 in years and amounts, as follows: Year Amount 2031 $495, , (final maturity) 535,000 Bonds maturing on July 1, 2038, are required to be redeemed prior to maturity in part upon payment of 100% of the principal amount thereof plus interest accrued to the redemption date on July 1 in years and amounts, as follows: Manner of Redemption Year Amount 2034 $120, , , , (final maturity) 145,000 Manner of Redemption. If less than all of the Bonds are called for redemption, the Bonds to be redeemed will be selected in such manner as the City s Director of Finance may determine to be in the best interest of the City. If less than all of the Bonds of a particular maturity are called for redemption, the Bonds to be redeemed will be selected by DTC or any successor securities depository pursuant to its rules and procedures or, if the book entry system is discontinued, will be selected by the Registrar by lot in such manner as the Registrar at its discretion may determine. The portion of any Bond to be redeemed shall be in the principal amount of $5,000 or some multiple thereof. In selecting Bonds for redemption, each Bond shall be considered as representing that number of Bonds which is obtained by dividing the principal amount of such Bond by $5,000. If a portion of a Bond shall be called for redemption, a new Bond in principal amount equal to the unredeemed portion thereof shall be issued to the registered owner upon the surrender thereof. 4

11 Notice of Redemption The City shall cause notice of the call for redemption identifying the Bonds or portions thereof to be redeemed to be sent by facsimile or electronic transmission, registered or certified mail or overnight express delivery, not less than 30 nor more than 60 days prior to the redemption date, to DTC, or its nominee, as the registered owner of the Bonds. If a portion of this Bond is called for redemption, a new Bond in principal amount of the unredeemed portion hereof shall be issued to the registered owner upon surrender hereof. The City shall not be responsible for mailing notice of redemption to anyone other than DTC or another qualified securities depository or its nominee unless no qualified securities depository is the registered owner of the Bonds. If no qualified securities depository is the registered owner of the Bonds, notice of redemption shall be mailed to the registered owners of the Bonds. In the case of an optional redemption, the notice may state that (i) it is conditioned upon the deposit of moneys, in an amount equal to the amount necessary to effect the redemption, no later than the redemption date or (ii) the City retains the right to rescind such notice on or prior to the scheduled redemption date (in either case, a Conditional Redemption ), and such notice and optional redemption shall be of no effect if such moneys are not so deposited or if the notice is rescinded as described herein. Any Conditional Redemption may be rescinded at any time. The City shall give prompt notice of such rescission to the affected Bondholders. Any Bonds subject to Conditional Redemption where redemption has been rescinded shall remain outstanding, and the rescission shall not constitute an event of default. Further, in the case of a Conditional Redemption, the failure of the City to make funds available on or before the redemption date shall not constitute an event of default, and the City shall give immediate notice to all organizations registered with the Securities and Exchange Commission as securities depositories or the affected Bondholders that the redemption did not occur and that the Bonds called for redemption and not so paid remain outstanding. DTC and Book-Entry System The description which follows of the procedures and recordkeeping with respect to beneficial ownership interests in the Bonds, payments of principal of and interest on the Bonds to DTC, its nominee, Direct Participants (defined below) or Beneficial Owners, confirmation and transfer of beneficial ownership interests in the Bonds and other bond-related transactions by and between DTC, the Direct Participants and Beneficial Owners is based solely on information furnished by DTC. DTC will act as securities depository for the Bonds. The Bonds will be issued as fully-registered securities registered in the name of Cede & Co., DTC s partnership nominee, or such other name as may be requested by an authorized representative of DTC. One fully-registered Bond certificate will be issued for each maturity of each series of the Bonds, each in the aggregate principal amount of such maturity, and will be deposited with DTC. DTC, the world s largest depository, is a limited-purpose trust company organized under the New York Banking Law, a banking organization within the meaning of New York Banking Law, 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 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 (the Direct Participants ) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-u.s. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation ( DTCC ). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-u.s. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly (the Indirect Participants ). DTC has a Standard & Poor s rating of AA+. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at 5

12 Purchases of the Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Bonds on DTC s records. The ownership interest of each actual purchaser of each Bond (the Beneficial Owner ) is in turn to be recorded on the Direct and Indirect Participants records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Bonds are to be accomplished by entries made on the books of Direct or Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in the Bonds, except in the event that use of the book-entry system for the Bonds is discontinued. To facilitate subsequent transfers, all Bonds deposited by Direct Participants with DTC are registered in the name of DTC s partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of the Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Bonds; DTC s records reflect only the identity of the Direct Participants to whose accounts such Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holding on behalf of their customers. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Redemption notices shall be sent to DTC. If less than all of the Bonds within an issue are being redeemed, DTC s practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to the Bonds unless authorized by a Direct Participant in accordance with DTC s MMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the City as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co. s consenting or voting rights to those Direct Participants to whose accounts the Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). Principal of and interest payments on the Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC s practice is to credit Direct Participants accounts upon DTC s receipt of funds and corresponding detail information from the Issuer or the Paying Agent on 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 Direct or Indirect Participant and not of DTC, the Paying Agent, or the City, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal and interest to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the City or the Paying Agent, disbursement of such payments to Direct Participants shall be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners shall be the responsibility of Direct and Indirect Participants. DTC may discontinue providing its services as securities depository with respect to the Bonds at any time by giving reasonable notice to the City or the Paying Agent. Under such circumstances, in the event that a successor securities depository is not obtained, Bond certificates will be printed and delivered. The City may decide to discontinue use of the system of book-entry transfers through DTC (or a successor securities depository). In that event, Bond certificates will be printed and delivered. The information in this section concerning DTC and DTC s book-entry system has been obtained from sources that the City believes to be reliable, but the City takes no responsibility for the accuracy thereof. 6

13 Neither the City nor the Paying Agent has any responsibility or obligation to the Direct or Indirect Participants or the Beneficial Owners with respect to (a) the accuracy of any records maintained by DTC or any Direct or Indirect Participant; (b) the payment by any Direct or Indirect Participant of any amount due to any Beneficial Owner in respect of the principal of and interest on the Bonds; (c) the delivery or timeliness of delivery by any Direct or Indirect Participant of any notice to any Beneficial Owner that is required or permitted under the terms of the Bond Resolution to be given to Bondholders; or (d) any other action taken by DTC, or its nominee, Cede & Co., as Bondholder, including the effectiveness of any action taken pursuant to an Omnibus Proxy. So long as Cede & Co. is the registered owner of the Bonds, as nominee of DTC, references in this Official Statement to the Owners of the Bonds shall mean Cede & Co. and shall not mean the Beneficial Owners, and Cede & Co. will be treated as the only holder of Bonds for all purposes under the Bond Resolution. The City may enter into amendments to the agreement with DTC or successor agreements with a successor securities depository, relating to the book-entry system to be maintained with respect to the Bonds without the consent of Beneficial Owners or Bondholders. Plan of Financing The City is issuing the Bonds to (i) finance (a) capital expenditures for general governmental projects including, without limitation, fire headquarter improvements, emergency communications center improvements, street improvements, curb and gutter improvements, sidewalk and road improvements, Social Services Building improvements, Adult Detention facility improvements and (b) capital expenditures relating to the City s electric system, including without limitation, downtown vault replacement and a new transformer, and (ii) pay the costs of issuing the Bonds. The following table sets forth the anticipated application of the proceeds of the Bonds for the purposes described above: Estimated Sources of Funds Par Amount of Bonds $6,360, Net Original Issue Premium 59, Funds from City for Costs of Issuance 228, Total Sources $6,648, Estimated Uses of Funds Deposit to Project Fund $6,415, Costs of Issuance (including Underwriter s compensation) 233, Security for and Sources of Payment of the Bonds Total Uses $6,648, The Bonds will be general obligations of the City for the payment of which the City s full faith and credit will be irrevocably pledged. While the Bonds remain outstanding and unpaid, the City Council is authorized and required, unless other funds are lawfully available and appropriated for the timely payment of the Bonds, to levy and collect an annual ad valorem tax, over and above all other taxes authorized or limited by law, and without limitation as to rate or amount, upon all locally taxable property within the City sufficient to pay when due the principal of and premium, if any, and interest on the Bonds. The City has never defaulted in the payment of either principal of or interest on any indebtedness. 7

14 Bondholders Remedies in the Event of Default Section of the Code of Virginia of 1950, as amended, provides that upon affidavit filed with the Governor of the Commonwealth of Virginia (the Commonwealth ) by any holder of or paying agent for a general obligation bond in default as to payment of principal, premium, if any, or interest, the Governor shall conduct a summary investigation to his satisfaction and, if satisfied that such default has occurred, the Governor shall order the State Comptroller to withhold all funds appropriated and payable by the Commonwealth to the political subdivision so in default and apply such funds to payment of the defaulted principal, premium, if any, and interest. Section also provides for notice to the registered owners of such bonds of the default and the availability of withheld funds. The State Comptroller advises that to date no order to withhold funds pursuant to Section or the predecessor provisions of Section have ever been issued. Although neither Section nor its predecessor provisions have been approved by a Virginia court, the Attorney General of Virginia has ruled that appropriated funds may be withheld by the Commonwealth pursuant to its predecessor section, Section In the fiscal year ended June 30, 2013, of the $30,042, (unaudited) total direct appropriations paid by the Commonwealth to the City, an aggregate amount equal to $18,050, (unaudited) was deposited in the City s general fund and in the City s transportation-related fund. Neither the Bonds, nor the proceedings with respect thereto specifically provide any remedies that would be available to a bondholder if the City defaults in the payment of principal of or interest on the Bonds, nor do they contain any provision for the appointment of a trustee to protect and enforce the interests of the bondholders upon the occurrence of such a default. Upon any default in the payment of principal or interest, a bondholder may, among other things, seek a writ of mandamus from an appropriate court requiring the City Council to levy and collect taxes as described above. The mandamus remedy, however, may be impracticable and difficult to enforce. Furthermore, the right to levy and collect taxes and to enforce payment of the Bonds may be limited by bankruptcy, insolvency, reorganization, moratorium and similar laws and equitable principles, which may limit the specific enforcement of certain remedies. Chapter 9 of the United States Bankruptcy Code (the Bankruptcy Code ) permits a municipality such as the City, if insolvent or otherwise unable to pay its debts as they become due, to file a voluntary petition for the adjustment of debts, provided that such municipality is specifically authorized, in its capacity as a municipality or by name, to be a debtor... Bankruptcy Code 109(c)(2). Current Virginia statutes do not expressly authorize the City or municipalities generally to file for bankruptcy under Chapter 9. Chapter 9 does not authorize the filing of involuntary petitions against municipalities such as the City. Bankruptcy proceedings by the City could have adverse effects on bondholders including: (a) delay in the enforcement of their remedies, (b) subordination of their claims to claims of those supplying goods and services to the City after the initiation of bankruptcy proceedings and to the administrative expenses of bankruptcy proceedings, and (c) imposition without their consent of a reorganization plan reducing or delaying payment of the Bonds. The effect of these and other provisions of the Bankruptcy Code cannot be predicted and may be significantly affected by judicial interpretations. Approval of Legal Proceedings Certain legal matters relating to the authorization and validity of the Bonds will be subject to the approving opinions of Hunton & Williams LLP, Bond Counsel, which will be furnished at the expense of the City upon delivery of the Bonds, in substantially the forms set forth in Appendix B (collectively, the Bond Opinion ). The Bond Opinion will be limited to matters relating to authorization and validity of the Bonds and to the tax status of interest on the Bonds as described in the section herein Tax Exemption. Bond Counsel has not been engaged to investigate the financial resources of the City or its ability to provide for payment of the Bonds, and the Bond Opinion will make no statement as to such matters or as to the accuracy or completeness of this Official Statement or any other information that may have been relied on by anyone in making the decision to purchase Bonds. Certain legal matters will be passed upon for the City by W. Clarke Whitfield, Jr., Esquire, City Attorney, and for the Underwriter by its counsel, Christian & Barton, L.L.P. 8

15 Tax Exemption Opinion of Bond Counsel. In the opinion of Bond Counsel, under current law, interest, including accrued original issue discount ( OID ), on the Bonds (a) is not included in gross income for Federal income tax purposes, (b) is not an item of tax preference for purposes of the Federal alternative minimum tax imposed on individuals and corporations; however, with respect to corporations (as defined for Federal tax purposes) subject to the alternative minimum income tax, such interest is taken into account in determining adjusted current earnings for purposes of computing such tax and (c) is exempt from income taxation by the Commonwealth of Virginia. Except as discussed below regarding OID, no other opinion is expressed by Bond Counsel regarding the tax consequences of the ownership of or the receipt or accrual of interest on the Tax-Exempt Bonds. Bond Counsel s opinion is given in reliance upon certifications by representatives of the City as to certain facts relevant to both the opinion and requirements of the Internal Revenue Code of 1986, as amended (the Code ) and is subject to the condition that there is compliance subsequent to the issuance of the Bonds with all requirements of the Code that must be satisfied in order for interest thereon to remain excludable from gross income for Federal income tax purposes. The City has covenanted to comply with the current provisions of the Code regarding, among other matters, the use, expenditure and investment of the proceeds of the and the timely payment to the United States of any arbitrage rebate amounts with respect to the Bonds. Failure by the City to comply with such covenants, among other things, could cause interest, including accrued OID, on the Bonds to be included in gross income for Federal income tax purposes retroactively to their date of issue. Original Issue Discount. The initial public offering prices of the Bonds maturing in the years 2018, 2021, 2030 and 2033 (the OID Bonds ) will be less than their stated principal amount. In the opinion of Bond Counsel, under current law, the difference between the stated principal amount and the initial offering price of each maturity of OID Bonds to the public (excluding bond houses and brokers) at which a substantial amount of such maturity of such Tax-Exempt Bonds is sold will constitute OID. The offering prices set forth on the inside cover of this Official Statement for the OID Bonds are expected to be the initial offering prices to the public at which a substantial amount of each maturity of such Tax-Exempt Bonds are sold. Under the Code, for purposes of determining the holder s adjusted basis in an OID Bond, OID treated as having accrued while the holder holds the Tax-Exempt Bond will be added to the holder s basis. OID will accrue on a constant yield-to-maturity method. The adjusted basis will be used to determine taxable gain or loss upon the sale or other disposition (including redemption or payment at maturity) of an OID Bond. Prospective purchasers of the OID Bonds should consult their own tax advisors with respect to the calculation of accrued OID and the state and local tax consequences of owning or disposing of such Bonds. Original Issue Premium. Bonds purchased, whether upon issuance or otherwise, for an amount (excluding any amount attributable to accrued interest) in excess of their principal amount will be treated for federal income tax purposes as having amortizable bond premium. A holder s basis in such a Bond must be reduced by the amount of premium which accrues while such Bond is held by the holder. No deduction for such amount will be allowed, but it generally will offset interest on the Bonds while so held. Purchasers of such Bonds should consult their own tax advisors as to the calculation, accrual and treatment of amortizable bond premium and the state and local tax consequences of holding such Bonds. Other Tax Matters. In addition to the matters addressed above, prospective purchasers of the Bonds should be aware that the ownership of tax-exempt obligations may result in collateral Federal income tax consequences to certain taxpayers, including without limitation financial institutions, property and casualty insurance companies, S corporations, foreign corporations subject to the branch profits tax, recipients of Social Security or Railroad Retirement benefits and taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry tax-exempt obligations. Prospective purchasers of the Bonds should consult their tax advisors as to the applicability and impact of such consequences. Prospective purchasers of the Bonds should consult their own tax advisors as to the status of interest on the Bonds under the tax laws of any state other than Virginia. 9

16 The Internal Revenue Service (the Service ) has a program to audit state and local government obligations to determine whether the interest thereon is includible in gross income for federal income tax purposes. If the Service does audit the Bonds, under current Service procedures, the Service will treat the City as the taxpayer and the owners of the Bonds will have only limited rights, if any, to participate. Bond Counsel s opinions represent its legal judgment based in part upon the representations and covenants referenced therein and its review of existing law, but are not a guarantee of result or binding on the Service or the courts. Bond Counsel assumes no duty to update or supplement its opinions to reflect any facts or circumstances that may come to Bond Counsel s attention after the date of its opinions or to reflect any changes in law or the interpretation thereof that may occur or become effective after such date. There are many events that could affect the value and liquidity or marketability of the Bonds after their issuance, including but not limited to public knowledge of an audit of the Bonds by the Service, a general change in interest rates for comparable securities, a change in federal or state income tax rates, legislative or regulatory proposals affecting state and local government securities and changes in judicial interpretation of existing law. In addition, certain tax considerations relevant to owners of Bonds who purchase Bonds after their issuance may be different from those relevant to purchasers upon issuance. Neither the opinions of Bond Counsel nor this Official Statement purports to address the likelihood or effect of any such potential events or such other tax considerations and purchasers of the Bonds should seek advice concerning such matters as they deem prudent in connection with their purchase of Bonds. Designation for Purchase by Financial Institutions The Code generally provides that financial institutions may not deduct any of the interest expense (the cost of carry ) allocable to tax-exempt obligations acquired after August 7, 1986, other than qualified tax-exempt obligations. Financial institutions may not deduct 20% of the cost of carry allocable to qualified tax-exempt obligations. An obligation s status as a qualified tax-exempt obligation is dependent upon an affirmative act of designation by the issuer or a qualified 501(c)(3) borrower and is subject to, among other things, the issuer or a qualified 501(c)(3) borrower and their respective subordinate entities, within the meaning of Section 265(b)(3) of the Code, complying with limitations on the amount of obligations that may be issued and designated in the same calendar year. The City has designated the Bonds as qualified tax-exempt obligations and has covenanted to comply with the provisions of Section 265(b)(3) of the Code. In the opinion of Bond Counsel, under current law, the Bonds are qualified tax-exempt obligations within the meaning of Section 265(b)(3) of the Code. Such opinion is given in reliance upon certifications by representatives of the City as to certain facts material to both such opinion and the requirements of Section 265(b)(3) of the Code. Introduction SECTION THREE: CITY ADMINISTRATION AND SERVICES The City, situated on the Dan River, is located near the North Carolina state line in the Piedmont section of Virginia. U. S. Highways 29, 58, and 360 provide access to the City. The City is located adjacent to the southern part of Pittsylvania County and covers an area of approximately 44 square miles, which includes approximately 26 square miles annexed by the City on December 31, The City was founded in 1793 and incorporated in Government The City is operated by a Council-Manager form of government. The City Council is comprised of nine members who are elected at large to serve four-year terms. The elections are held biennially with five members being elected in one biennium and four in the next. The Mayor and Vice-Mayor are elected by members of the Council from its membership. 10

17 The City Manager is appointed by the City Council as the Chief Executive Officer of the City and is responsible to the City Council for the proper administration of the City government. He appoints all department heads of the City with the exception of the City Attorney, City Clerk and certain elected officials. The City currently employs approximately 1,205 full-time and part-time employees. Under Virginia law, a municipality does not have the right to bargain collectively with employee organizations. All services normally offered by municipalities are provided by the City, including the operation of a utilities department that provides water, sewer, gas, electric and telecommunications services. The School Board members are elected by the voters at large. Under Virginia law, all operations of the School Board are completely independent of the City Council or the City Administration. The City Council is required to make an annual appropriation to the School Board, but has no legal authority to direct how the appropriation is spent. The School Board currently employs approximately 883 full-time employees. Certain City Officials and Administrative Staff Members City Council L. G. Larry Campbell Jr., was first elected to City Council in May 2008 and has served as Co-Assistant Pastor at Bible Way Cathedral Church since The Rev. Campbell received his Bachelor of Arts degree in History from Averett University and his Master s degree in Guidance from North Carolina A & T University. He serves as a board member for Goodwill, Daden, Rotary Club, Big Brothers and Big Sisters, the Boys and Girls Club, the Ministers Alliance, Head Start, and Neighbors Helping Neighbors. The Rev. Campbell also serves on the Board of the Free Clinic of Danville, the Dan River Business Development Center, the Transportation Advisory Board, SMART, the CAP Committee on Uranium Mining, and the Virginia Transportation Department Metropolitan Planning Organization. The Rev. Campbell is Vice President of the NAACP and serves on the Community Health Coalition. He also founded the Wisdom in Networking Program (an ex-offender back-to-work initiative). John B. Gilstrap, was elected to City Council in May Mr. Gilstrap is a graduate of Clemson University and served in the United States Army. He served the City of Danville as Director of Parks, Recreation, and Tourism for thirty years and after his retirement from the City served as Manager of Community Engagement for the Institute for Advanced Learning and Research. Mr. Gilstrap has been a member of numerous boards that includes the Community Improvement Council, Head Start, Danville Area Association for Arts and Humanities, Riverview Rotary Club, Opera Ebony Concert Guild, March of Dimes, Project Access to Healthcare Services, Goodwill Industries, Christmas Parade Chairman, United Way Fund Raising Campaign Chairman, President of the Blue Ridge District Boy Scouts, Coalition for a Safe Danville, and Chairman of the Board of Deacons of First Baptist Church. Mr. Gilstrap was twice elected as President of Virginia Recreation and Parks Society and recipient of its highest recognition, the Fellows Award. He currently serves as Director of Big Brothers Big Sisters of the Danville Area. Alonzo L. Jones, was elected to City Council in Mr. Jones received his education in the Danville Public Schools, served in the Armed Forces for six years, and is currently employed by Averett University. Mr. Jones has served as Vice Chairman of the City of Danville Social Services Advisory Board from He was appointed by Governor Mark Warner to the State of Virginia Child Daycare Council from and he served as Vice President of EQUS, Inc. from Mr. Jones serves on the board of the Womack Foundation, he is co-facilitator of Enrollment Services Team at Averett University, was appointed to the BB&T Advisory Board in 2009, as well as serving on the Board of Directors of the Museum of Fine Art. Mr. Jones also was elected to the Danville School Board in 2006 and is the Founder and President of One Accord Unlimited, Inc. Gary P. Miller, M.D. F.A.C.C., a local cardiologist, was appointed to City Council in 2008 to fill an unexpired term, and won re-election in 2010 for his second term. Dr. Miller received his Bachelor of Science degree in Biology in 1970 from Virginia Polytechnic Institute and State University in Blacksburg and his medical degree at the Medical College of Virginia. He was the Fifth District representative to the Virginia Board of Medicine, appointed by Governor Allen from Dr. Miller has served as a Counselor to the Medical 11

18 Society of Virginia for the Fifth District and in 2005 was appointed to the position of Director of Student Medical Education at Danville Regional Medical Center. He is the co-owner and President of Cardiology Consultants of Danville, Inc. Dr. Miller currently serves on the West Piedmont Planning District Commission. Albert K. Buddy Rawley Jr. was first appointed to City Council in 2002 to fill an unexpired term left vacant by the death of Council Member Charles Scott. Mr. Rawley resigned from City Council in 2004 to accept the position of Customer Service Director of MSC, Inc. in Fayetteville, North Carolina. Prior to 2004, Mr. Rawley was a twenty-nine year employee of Dan River Inc., where he served as Director of Apparel Customer Service and Account Executive for Southeastern Sales. He returned to Danville in 2006 to take the position of Director of Development at Danville Community College and in November 2010 moved to Averett University as Vice President for Institutional Advancement. Mr. Rawley was again elected to City Council in May He graduated in 1975 from Averett University with a Bachelor of Science degree in Business Management and currently serves on the Board of the Dan River Business Development Center, Roman Eagle Nursing Home, and West Piedmont Planning Commission. He is a former Board member and past President of the Danville YMCA and past Chairman of the Advisory Board for the Department of Clothing and Textiles at Virginia Polytechnic Institute and State University. Mr. Rawley is an active member of the Riverview Rotary Club. Sherman M. Saunders, Mayor, was first elected to City Council in May He was appointed to City Council in December 2001 and served to June Mr. Saunders was subsequently re-elected to City Council in 2004, 2008, and He served as Vice Mayor from July 2006 through December He first became Mayor in January 2008 and continues in this capacity. On November 1, 2012, Mr. Saunders retired from Pittsylvania County Community Action, Inc., after 42 years of service, with 33 years as the Executive Director. The organization consists of 160 employees, has an annual budget of $10 Million, and serves the Counties of Pittsylvania, Henry, Patrick, Franklin, Campbell, and the Cities of Martinsville and Danville. He has served on numerous local, state, and national boards and commissions, including as President of the Pittsylvania County Chamber of Commerce, Danville Development Council, Chairman of the Regional Industrial Facilities Authority, Pittsylvania County Economic Development Organization, and Chairman of the Danville Community College Center for Business Industry and Government. He is past Chairman of the Dan River Business Development Center. He served for 11 years as President of the Virginia Council Against Poverty. He has received appointments to various boards and commissions by former Governors Charles Chuck Robb, Gerald Baliles, and John Dalton. He is past President of Region III Community Action Agencies for the states of Pennsylvania, Delaware, Maryland, Virginia, West Virginia, and the nation s capital Washington. D.C. He is a past board member of The National Association of Community Action Agencies and The National Community Action Foundation. Mr. Saunders is a veteran of the United States Army. Fred O. Shanks III, a professional engineer, was elected to City Council in May The Danville native and local small business owner graduated with a Bachelor of Science degree in Civil Engineering from Virginia Polytechnic Institute and State University. Following graduation, he was employed as a civil engineer with firms in Richmond and Roanoke. In 1987, he founded Shanks Associates, P.C. and opened a Danville office in In 1998, his firm acquired two land surveying businesses in Martinsville, Virginia. After returning to Danville in 1992, Mr. Shanks served on the City Planning Commission for 12 years. In 1991, he served as state President of the Virginia Association of Surveyors where he also served as Legislative Liaison from 1997 to He is currently a member of the Danville Utility Commission, the Danville-Pittsylvania Regional Industrial Facility Authority, and the policy board of the Virginia Department of Transportation Metropolitan Planning Organization. Adam J. Tomer was elected to City Council in May 2006 and was re-elected in May Mr. Tomer, a Danville native, received his Bachelor of Arts degree in Political Science from Catawba College and both his M.B.A. and Master of Science in Accounting degrees from Appalachian State University. Mr. Tomer is a federal tax accountant with KPMG, LLP and specializes in corporate and higher education clients. In the past, Mr. Tomer served as Chief Financial Officer and Chief Operating Officer of The Wizard s Cauldron, the nation s largest organic sauce and salad dressing producer. Mr. Tomer also held the positions of Controller and Operations Manager for Wilson, NC based Triangle Process Equipment. Mr. Tomer served as the Council representative to the Danville Utility Commission from J. Lee Vogler was elected to Danville City Council in May A native of Southside Virginia, Mr. Vogler graduated from Virginia Commonwealth University in 2010 with a bachelor s degree in Political 12

19 Science. He is currently employed as an Account Executive for Showcase Magazine. Mr. Vogler is involved in several community activities including founding and leading the group Moving Danville Forward, serving on the Regional Industrial Facility Authority (RIFA) and on the Board of Directors for Danville Center Stage. City Staff Joseph C. King, City Manager, received his bachelor s and master s degrees in urban affairs from Virginia Polytechnic Institute and State University in 1974 and 1981, respectively. He worked in various positions for the cities of Oak Ridge, Tennessee, and Texarkana, Arkansas, before serving as City Manager of Lexington, Virginia from August 1986 to August He was subsequently City Manager of Richland, Washington, from August 1990 to March 1998; County Administrator of Los Alamos, New Mexico, from April 1998 to October 2000; and overseas advisor with the International City/County Management Association from October 2000 to September Mr. King was appointed Danville s Assistant City Manager for Utilities in October 2002, Deputy City Manager in June 2009, and has served as City Manager since May Kenneth F. Larking, Deputy City Manager, received his B.A. and M.P.A. degrees from Appalachian State University in 1995 and 1999, respectively. He worked as the Budget and Performance Manager for the City of Hickory, North Carolina, from April 1999 to January 2003 before serving as Town Manager of Yadkinville, North Carolina from January 2003 to February He subsequently served as Assistant County Manager of Moore County, North Carolina, from February 2010 to March Mr. Larking was appointed Danville s Deputy City Manager in March Susan M. DeMasi, City Clerk, is currently obtaining certification as a Municipal Clerk from Old Dominion University s Municipal Clerks Institute. Ms. DeMasi was formerly a Legal Assistant at the law firm of Daniel, Medley & Kirby in Danville, Virginia. In 2011, she was appointed by the City Council of Danville as the City Clerk. Ms. DeMasi is an active member of the International Institute of Municipal Clerks and Virginia Municipal Clerks Association. W. Clarke Whitfield, Jr., City Attorney, received his B.A. degree from the University of Virginia in 1990 and his J.D. degree from Regent University School of Law in Mr. Whitfield practiced as an independent attorney in 1993 and was a practicing attorney with the firm of Turner, Haskins, and Whitfield in Chatham, Virginia, from 1994 to He was appointed Assistant City Attorney in 1998 and appointed City Attorney on June 1, Mr. Whitfield is active in various professional and community organizations. He is a member of the Danville Employees Federal Credit Union Board of Trustees, a member of the board of directors for the Local Government Attorneys of Virginia, as well as the past president of both the Pittsylvania County Bar Association and the Danville Bar Association. Barbara A. Dameron, CPA, Director of Finance, received her B.S. degree in Business Administration - Accounting from Averett College in She received her Certified Public Accountant Certificate in 1993 and was employed in both public accounting and private industry prior to her employment with the City. Ms. Dameron began her career with the City in February 1999 as a Senior Accountant and was appointed Deputy Director of Finance in June 1999 and Director of Finance in April Ms. Dameron is a past president of the Danville Chapter of the International Management Council, a current member of the Government Finance Officers Association, and Virginia Government Finance Officers Association Board member. She earned a Graduate Certificate in Virginia Tech s Local Government Management Program. Cynthia L. Thomasson, Budget Director, received her B.S. degree in Business Administration-Accounting from Old Dominion University in From 1975 to 1981 she worked as Accounting Manager and Secretary/Treasurer of Anders Williams & Co., Inc. and Marine Oil Service, Inc. Ms. Thomasson served as Senior Accountant from 1989 to 1999 for the City of Danville and was appointed Budget Director in She is a member of the Government Finance Officers Association and a 2001 graduate of Leadership Southside. Jeremy A. Stratton, Director of Economic Development, has served in that capacity since August Mr. Stratton is a native of Montana. He has a Bachelor s degree in Economics from Central College in Pella, Iowa, and a Master s degree in Urban and Regional Planning with a concentration in Economic Development from the University of Tennessee, Knoxville. Mr. Stratton has completed EDI course training and is a certified CEcD. He 13

20 has over 15 years of experience in economic development on the local level in Tennessee, South Carolina, and North Carolina. Most recently, Mr. Stratton worked as the Vice President for the Carolinas Gateway Partnership in Rocky Mount, North Carolina. Dr. Edward Newsome, Jr., Superintendent of Schools, received his B.S. degree from Elizabeth City State University, M.S. degree from Bowie State University, and Ed.D degree from Nova Southeastern University. Dr. Newsome has served as a teacher, principal at the elementary, middle, and high school levels, Director of School Performance, CEO Flight to Excellence Educational Consultants, Middle and High School Assistant Superintendent, and Adjunct Professor. Dr. Newsome has participated on several Higher Education and Community Foundations and Boards. City of Danville Organizational Chart Utility Systems The Department of Utilities provides water, wastewater, natural gas, electric, and limited telecommunications services. Water/Wastewater System. The City has owned and operated a potable water supply system since The water treatment plant has a design capacity of 18 million gallons per day ( MGD ) and is presently treating about 6.6 MGD. The system now consists of 2,076 hydrants and approximately 338 miles of distribution mains ranging in size from 2 to 24 and serves approximately 17,340 residential and commercial accounts within the City 14

21 limits. It complies with the Waterworks Regulations of the Commonwealth of Virginia State Board of Health and regulations of the Federal Environmental Protection Agency. This system also serves customers outside the City limits through master meters to the Pittsylvania County Service Authority and two master meters to Caswell County, North Carolina. The water distribution grid consists of six service areas -- one service area supplied from Ballou Park Reservoirs (one holding up to eight million gallons and one holding up to four million gallons) and a Westover standpipe and five high-pressure service areas at higher elevations with storage tanks supplied by pumps. Total aggregate storage on the system is million gallons. Static pressures in the system range from 20 pounds persquare-inch ( psi ) at the higher elevations, to over 90 psi at the lower elevations. Distribution mains in the older sections of the City are over 100 years old and are being replaced or renovated as needed. Regular system evaluations are made to prioritize the need for cleaning and repair or replacement of old mains. Major future system initiatives in the City s Capital Improvements Program include replacement of mains, lead service line replacements, and extensions into the unserved portions of the City. A Water Systems Master Plan, which outlined the City s construction program, was completed in This plan identified modifications, repairs and replacements of various equipment and systems at the Water Treatment Plant and also identified water mains that require replacement. Main replacements are prioritized according to industry criteria. The City s Industrial Water System was constructed in It has a capacity of three MGD with 20% of the capacity now being utilized. This system provides industrial process water for one major industry and serves as a backup nonpotable water supply for the City s Southside pumping station and Northside wastewater treatment plant. Reserve capacity is available to serve additional industrial customers. The City s wastewater treatment facility has a design capacity of 24.0 MGD. Present usage is about 5.2 MGD, down substantially over recent years due to manufacturing plant closures in the community. A $7.3 million improvement project was completed in 2000 to address maintenance needs, reserve capacity, and additional requirements imposed by regulatory agencies. The City completed modifications to the plant during the 2012 calendar year to allow operations at reduced capacities of 6 to 12 MGD in order to lower operating costs. These modifications change the plant process from a pure oxygen activated sludge plan to a conventional sludge plan using ambient air. Plant modifications also included converting the two floatation grit separators into high rate primary clarifiers. Gas System. The City s gas system is one of three municipally owned gas utility systems in the Commonwealth of Virginia. The gas system began business on January 27, 1874, and was delivered into possession of the town of Danville on May 1, It manufactured coal gas which was used to light the streets of Danville. On December 5, 1950, the system was switched from manufactured gas to natural gas, and Danville became the first customer to receive gas on the Transcontinental Gas Pipeline (TRANSCO). The TRANSCO pipeline is a 10,500-mile system that transports natural gas to markets in the eastern United States. It secures natural gas from onshore and offshore wells in Texas and Louisiana and supplies a portion of the natural gas requirements for cities from Texas to Pennsylvania. Danville s gas system is connected to the TRANSCO pipeline only. The City Gate Station is located 2.5 miles west of the City limits. From this location, two steel mains carry gas into the City at 280 psi to supply the gas distribution grid. The distribution system contains approximately 356 miles of distribution mains, ranging in size from 1¼ inches to 16 inches, and 32 district regulators that supply suitable pressures to customers. Gas is distributed to approximately 15,200 service accounts including the following large industries: Goodyear Tire and Rubber Company, DanChem Technologies, Nestle USA Inc., Intertape Inc., Swedwood, and Yorktown Cabinetry. The distribution grid supplies gas at intermediate- and low-pressure through a system of steel, cast iron, and polyethylene plastic gas mains. Currently, the City has contracted with BP Energy Company to manage its natural gas capacity and storage assets. TRANSCO capacity assets consist of 16,910 dekatherms per day of firm transportation, plus 3,876 dekatherms per day of storage service, for a total of up to 20,786 dekatherms per day to Danville. Gas supply is 15

22 provided through Municipal Energy Resource Corporation at a discount. BP Energy Company manages the scheduling of all deliveries to the Danville area, including those for transporting industrial customers. Electric System. The City s electric distribution system covers approximately 500 square miles, including the City and portions of three adjacent counties. The 1,400 miles of 12,470/7,200-volt distribution lines originate from 17 substations that are serviced by 122 miles of 69,000-volt transmission lines. At the end of fiscal year June 30, 2012, approximately 42,124 meters were in service. The average residential customer paid an average annual bill of $1, for electricity used domestically. In March 2006, the City became a member of American Municipal Power-Ohio, Inc. (AMP-Ohio). AMP-Ohio is a nonprofit wholesale power supplier and services provider for 125 member communities in six states. The objective of the membership is to obtain a cost-effective, diversified portfolio of electric general assets and a power supply contract consistent with the City s self-sufficiency strategy to meet the electric needs of its utility customers. In the past several years, Danville has entered into multiple contracts with AMP-Ohio to participate in three large general projects. Such projects are intended to decrease exposure to the volatility of the wholesale energy market for the purchase of electric power. These projects are also intended to be the means for the City to stabilize future retail rates. The City s electric system served a peak load of 222,690 kilowatts (kw) with 985,652 kw hours (kwh) of energy purchased for the fiscal year ended June 30, These figures are comparable to previous fiscal years. The City continues to own and operate a three-unit hydroelectric generating plant with a maximum capacity of 11,000-kW, a 450-kW unit at the Talbott Dam site. The City generated 28,818,194 kwh of energy in the same time period previously mentioned. Appalachian Electric Power also provides transmission service for all purchased power to three of the City s delivery points. Each delivery point has a capacity of 252,000 kw, which is just above the system s historic consumption of 246,800. The City recently completed improvements to electric system generation, transmission, substation, and distribution facilities. The City maintains a Five-Year Capital Improvement Plan (the CIP ) for major infrastructure improvements funded through electric revenues, reserves, and the issuance of general obligation bonds. See Section Six: CITY INDEBTEDNESS AND CAPITAL PLANS Capital Improvement Plan. In addition, annual operating budgets include funding for ongoing operating, maintenance, and capital upgrade needs to provide reliable, cost-competitive electric power for its customers and offer an attractive electric power supply to potential businesses and industries looking at sites within the Danville service area. In 2009, as part of the CIP, the City began a 14-month implementation of an Advanced Metering Infrastructure project. The project was substantially completed in 2011 and replaced all water and electric meters and added registers to all gas meters. The project was designed to provide cost-effective implementation, allowing reduced operating costs through automated meter reading and electric meter connects and disconnects. The project also intended to accommodate time of use billing and energy management functionalities. Telecommunications System. The City of Danville d/b/a Danville Department of Utilities was granted a certificate of public convenience and necessity on November 1, 2002, to provide local exchange telecommunications services in the City and the Counties of Halifax, Henry, Patrick, and Pittsylvania by the State Corporation Commission of the Commonwealth of Virginia. The City is also registered with the Federal Communications Commission as a telecommunications service provider. The City completed the initial construction of ndanville in ndanville is a 150 route-mile fiber optic broadband network that covers the City of Danville and Pittsylvania County. The third phase of a three-phase business plan is now underway, which involves extending fiber optic lines gradually to homes. Phase One involved connecting all municipal government and public school buildings and Phase Two allowed ndanville to start serving businesses. A major focus in previous years was the creation of the ndanville Medical Network, which extended fiber optic infrastructure to the medical community in the area. The local hospital and nearly sixty medical and dental facilities are currently connected. ndanville s open access architecture provides opportunities for service providers to take advantage of a municipally constructed and operated telecommunication system to conduct business in return for a share of their revenues. The business model allows service providers to make use of ndanville as if it was their own network by 16

23 activating and deactivating customer services freely without the interaction of the network operator; i.e., Danville Utilities. The open access model provides an equal broadband marketplace that promotes competition that will likely offer customers increased bandwidth for less money. ndanville s operating principle, since its inception, is that the City of Danville s businesses, institutions, and households should have affordable broadband services on par with those available elsewhere in Virginia in order to ensure access to entertainment, cultural, health, and especially to educational and economic opportunities. Many advanced broadband applications require fiber optic communications, particularly those requiring symmetrical up and down bandwidth greater than a few megabits per second. Conventional cable and DSL services offer only limited asymmetrical bandwidth. The City and the Danville Public Schools use ndanville to improve communications and data transmission, support shared use of computer applications and data files, enable distance conferencing and learning, expand internet access, monitor and control equipment, and improve the reliability of utility systems. Operating revenues were around $1.5 million during fiscal year Today there are over 160 businesses connected and utilizing the network through a third-party service provider. The City and the service providers enter into a revenue sharing agreement that provides funding for the network. Revenues are also generated by services rendered to the City s public schools and Pittsylvania County public schools. Payments for services to schools and libraries are subsidized with federal E-Rate funds. Transportation The transportation network supporting commerce and industry in the City includes general aviation service at Danville Regional Airport, rail passenger service by Amtrak, and rail freight service by Norfolk Southern Railway. The major highways include U.S. 29, a divided four-lane north-south route, and U.S. 58, a divided fourlane east-west route. Air Service. The City owns the Danville Regional Airport located just east of the City that provides both air freight and local commuter service to the City and surrounding area. Passenger Rail Service. Amtrak has one northbound and one southbound train per day serving the City, providing transportation to New York, New York; Washington, D.C.; New Orleans, Louisiana; Charlotte, North Carolina; and other points. Motor. Greyhound Trailways Bus Lines provide bus service through the City daily. The City operates a mass transit system providing bus service on established routes to the general public. Bus service is provided daily from 6:00 a.m. to 6:00 p.m. Monday through Friday and Reserve-a-Ride service from 4:00 a.m. to 12:30 a.m., Monday through Saturday. Trucking. There are five motor freight carriers with terminals in the City and numerous carriers who offer daily local service from nearby cities. Public Education The Danville Public Schools are organized into four instructional levels; two preschools, six elementary schools, two middle schools, one alternative school and two high schools. George Washington High School offers a comprehensive high school program. Galileo Magnet High School features air and space technology, biotechnology, and advanced communications. Galileo also offers an International Baccalaureate Program. Langston Focus School serves students in grades 9-12 needing a more individualized educational program to be successful. Also on the Langston Campus is a credit recovery program for students who work individually, using technology to complete one course at the time. Students also attend programs through the Piedmont Governor s School for Math, Science, and Technology, as well as the Adult and Career Education Center. W.W. Moore Detention Home Program also has an educational program for students. The entering total public school enrollment for the past five years is set forth in the table below: 17

24 ,556 6,459 6,416 6,330 6,362 While current school sites were constructed over a period from 1934 to 1995, there is an ongoing maintenance and improvement program. All sites have been upgraded with high-speed local area computer networks that interconnect all classrooms and administrative functions through a wide area network that provides Internet access throughout the system. Higher Education Danville Community College is a two-year institution of higher education established under the statewide system of community colleges. It is operated by the State Board for Community Colleges with the support and direction of a local board. Danville Community College offers a wide variety of programs ranging from university parallel courses to occupational and technical programs. Danville Community College also offers a comprehensive program of adult and continuing education. Other courses are offered in cooperation with the special training division of the State Board for training personnel in new and expanding industries. Danville Community College had a total enrollment of 6,241 students for the school year. Averett University, located in the City and founded in 1859 as a private, co-educational, liberal arts college, offers undergraduate and graduate degree programs. Averett University has a total enrollment of more than 2,600 students, with 35 undergraduate programs and three masters degree programs. Averett University s students represent 25 states and 19 foreign countries. Averett University also offers evening and summer programs for the adult community. Medical The Danville Regional Medical Center ( DRMC ), located in the City, provides acute health care services to the citizens of the City, Pittsylvania County, and Caswell County in North Carolina. The DRMC is currently licensed for 250 beds and 18 bassinets. The 2011 average daily census was 111. A full range of diagnostic and therapeutic services is provided, including rehabilitation services in the areas of cardiac and alcohol rehabilitation. In 2003, DRMC opened a Heart Center in affiliation with Duke University Medical Center, which allows physicians to perform open heart surgery in the City. 18

25 SECTION FOUR: ECONOMIC AND DEMOGRAPHIC DATA Population The following table indicates the City s and the Commonwealth s comparative population data since City of Danville 45,642 53,056 48,411 43,055 43,400 Commonwealth of Virginia 5,346,818 6,189,317 7,079,030 8,001,024 8,185,867 Sources: U.S. Census Bureau; Weldon Cooper Center for Public Service, University of Virginia. Employment The Danville area industries have diversified considerably since the City s historic focus on textiles, tires, tobacco, and glass. City. Selected data are presented below and on the following page to illustrate employment conditions in the NON-AGRICULTURAL EMPLOYMENT as of May 2013 Industry Average Employment Health Care and Social Assistance 4,648 Manufacturing 4,668 Retail Trade 4,190 Local Government 2,876 Accommodation and Food Services 2,599 Administrative and Support and Waste Management 1,945 State Government 873 Finance and Insurance 684 Educational Services 533 Wholesale Trade 616 Other Services (except Public Administration) 628 Professional, Scientific and Technical Services 615 Transportation and Warehousing 397 Construction 278 Real Estate and Rental and Leasing 301 Information 198 Management of Companies and Enterprises 189 Arts, Entertainment and Recreation 156 Federal Government 126 Agriculture, Forestry, Fishing and Hunting 7 Utilities * TOTAL 26,546 Source: Virginia Employment Commission. Latest available information. Note: Asterisk (*) indicates non-disclosable data 19

26 TEN LARGEST EMPLOYERS The following table sets forth the ten largest employers in the Danville metropolitan statistical area (MSA) as of June 2013: Employer Product Estimated Employment Goodyear Tire & Rubber Co. Tires 2,120 Danville Regional Health System Medical Services 1,241 Danville Public Schools Education 1,214 City of Danville Government Services 1,057 Nestle Refrigerated Food Pasta, Sauce, and Cookie Dough 640 Averett University College 550 Wal-Mart Retail 474 EBI LLC (Com40) Mattresses 470 Food Lion (7 stores) Grocery Store 376 Swedwood Furniture 375 Source: Department of Economic Development, City of Danville. Note: Danville MSA includes the City and Pittsylvania County. Unemployment The following tables show various unemployment data for the City and the Commonwealth since 2003: Year Labor Force City of Danville Unemployed Unemployment Rate Labor Force Commonwealth of Virginia Unemployed Unemployment Rate ,143 1, % 3,857, , % ,029 2, ,921, , ,179 1, ,983, , ,765 1, ,017, , ,096 1, ,111, , ,427 2, ,203, , ,656 2, ,255, , ,783 2, ,306, , ,100 2, ,209, , * 19,031 1, ,217, , Source: Virginia Employment Commission. Labor force includes only residents of the City who are available for employment. * As of April

27 Per Capita Personal Income Estimates The following table shows the per capita income estimates for the Danville MSA and the Commonwealth since Danville MSA $28,793 $29,754 $29,189 $29,881 $31,297 Commonwealth of Virginia 43,261 44,691 42,929 44,134 46,107 Source: U.S. Department of Commerce, Bureau of Economic Analysis. Latest available information. Note: Danville MSA includes the City and Pittsylvania County. Taxable Retail Sales The City s retail sales information is presented below. Calendar Year Taxable Retail Sales 2003 $624,388, ,972, (1) 583,087, (1) 674,383, ,644, ,312, ,641, ,215, ,973, ,187,036 Source: Virginia Department of Taxation: Includes only those sales subject to Virginia Sales and Use Tax. (1) Due to the implementation of a new accounting system at the Virginia Department of Taxation (TAX) and subsequent database modifications, the business classification categories were converted to reflect NAICS codes, effective with the 3rd quarter of 2005; however, historic taxable sales were not converted. Consequently, data prior to the 3rd quarter of 2005 is not directly comparable with data that has been converted to NAICS. Furthermore, due to the controlled production environment utilized by TAX, the 3rd and 4th quarter of 2005 reports are underreported, along with the 1st quarter of 2006 being overstated. Also, the annual 2005 report is similarly underreported. Building Permits The value of building permits for the past ten fiscal years is shown below: Residential Non-Residential Total Fiscal Year No. Value No. Value No. Value $18,784, $17,084, $35,868, ,908, ,029, ,937, ,797, ,440, ,238, ,577, ,696, ,274, ,862, ,528, ,390, ,650, ,009, ,659, ,322, ,466, ,789, ,853, ,384, ,237, ,872, ,385, ,258, * 337 3,742, ,911, ,654,301 Source: Inspection Division, Department of Engineering, City of Danville. * Through May

28 Budgeting, Accounting, and Auditing SECTION FIVE: FINANCIAL INFORMATION No later than April 1 of each year, the City Manager is required by the City Charter to prepare, and submit to the City Council for its consideration, a proposed annual budget (the Budget ) for the ensuing fiscal year beginning on the next July 1 and ending on June 30 of the following year. The Budget is to be based upon detailed estimates furnished by the departments and divisions of the City. No later than April 30, the City Manager, after consultation with the City Council, is required to have the Budget completed and ready for introduction at a regular or special meeting of the City Council. A public hearing on the Budget is held after a synopsis of the Budget is published in a newspaper having general circulation in the City and notice is given of the public hearing. After the conclusion of the public hearing, the City Council may insert new items of expenditure or may increase, decrease, or strike out items of expenditures in the Budget, except that items of expenditure for debt service or items required by the City Charter or other provisions of law cannot be reduced or stricken out. Prior to the beginning of each fiscal year, the City Council will pass an appropriation ordinance which will be based on the Budget submitted by the City Manager and will levy such tax for the ensuing fiscal year as may be necessary to meet the appropriations not met by other revenues and all sums required by law to be raised for account of the City debt. The total amount of appropriations will not exceed the estimated revenues of the City. A modified accrual basis of accounting is maintained for general governmental operations whereby expenditures are recorded when paid or when liabilities are incurred and revenues are recorded in the period when earned and available to fund appropriations for that period. The accrual basis of accounting is used in the Enterprise Funds and Internal Service Funds. An annual audit is made of the accounts and records maintained in the offices of the Director of Finance and the School Board. The annual audit is made by independent certified public accountants appointed by the City Council. The financial statements of the City, presented in Appendix A to this Official Statement, are accompanied by a letter from Dixon Hughes Goodman LLC, Certified Public Accountants, Danville, Virginia, the City s independent auditors. Dixon Hughes Goodman LLC will not be reviewing any matters in connection with this Official Statement or any other matters related to the issuance of the Bonds. Five-Year Summary of General Fund Revenues and Expenditures The financial data presented on the following page summarize General Fund revenues and expenditures for the five fiscal years ended June 30, Such data have been compiled from the audited financial statements of the City for the fiscal years 2008 through Financial data for the fiscal year ended June 30, 2012, should be read in conjunction with the related financial statements and notes thereto appearing in Appendix A. 22

29 FIVE-YEAR SUMMARY OF GENERAL FUND REVENUES Source General Property Taxes $ 26,556,332 $ 27,085,091 $ 26,898,585 $ 26,150,093 $ 27,284,133 Other Local Taxes 21,546,035 20,696,492 21,834,771 22,481,496 23,110,519 Fines and Forfeitures 560, , , , ,063 Permits, Privilege Fees & Regulatory Licenses 270, , , , ,461 Revenues from Use of Money and Property 1,874,345 2,540,011 1,180,927 1,177,080 1,422,237 Charges for Services 3,562,920 3,679,665 3,543,026 3,536,954 3,572,557 Miscellaneous 117,426 97, ,248 81,255 54,156 Recovered Costs 4,947,636 5,269,383 5,165,740 5,501,871 5,774,490 Intergovernmental 28,835,180 28,857,438 27,364,378 27,686,829 26,780,931 Total Revenue $ 88,270,253 $ 88,959,893 $ 86,948,449 $ 87,423,522 $ 88,770,547 Other Sources: Utilities 13,632,000 13,632,000 13,632,000 13,748,388 16,632,000 Other: Fund Balance , Total Revenues and Other Sources $101,902,253 $103,025,780 $100,580,449 $101,171,910 $102,402,547 FIVE-YEAR SUMMARY OF GENERAL FUND EXPENDITURES Function General Government Administration $ 6,961,300 $ 7,313,591 $ 7,168,865 $ 7,400,571 $ 7,349,502 Judicial Administration 5,297,583 5,400,671 5,224,144 5,106,294 5,319,681 Public Safety 24,669,022 25,946,917 26,405,393 25,895,659 25,882,155 Public Works 10,213,515 12,248,328 11,389,785 11,569,256 11,281,109 Health and Welfare 9,443,600 9,997,589 9,655,762 9,396,717 8,351,937 Education 31,340 30,973 10,425 30,757 11,615 Parks, Recreation, and Cultural 4,986,668 5,096,939 5,038,871 5,131,717 4,567,776 Community Development 1,796,914 1,357,644 1,395,481 1,418,136 1,305,425 Non-departmental 3,952,931 4,370,594 5,494,121 6,062,030 6,390,130 Debt Service: Principal 4,242,206 4,275,988 1,410,402 1,680,804 4,911,916 Interest/Other Charges 1,438,487 1,654,426 1,086, ,047 2,323,243 Total Expenditures $92,456,962 $ 77,693,660 $74,280,134 $74,607,988 $ 77,694,489 Operating Transfers to Component Units (1) $19,423,466 $ 16,672,987 $17,511,613 $19,170,049 20,450,584 Operating Transfers/Out 7,038,645 10,875,142 6,973,893 5,301,703 9,015,451 Total Expenditures and Other Uses $99,495,607 $105,241,789 $98,765,640 $99,079,740 $107,160,524 (1) Majority of transfers to component units for education. FIVE-YEAR SUMMARY OF GENERAL FUND BALANCES Net Changes in Fund Balance $ 2,406,646 $ (2,216,009) $ 1,814,808 $ 2,092,170 $ (908,427) Fund Balance - Beginning of year 33,974,398 36,381,044 34,165,035 35,979,844 38,072,014 Fund Balance - End of year 36,381,044 34,165,035 35,979,844 38,072,014 37,163,587 [Remainder of this page is intentionally left blank.] 23

30 GENERAL FUND BUDGETS FOR FISCAL YEARS 2013 AND 2014 Fiscal Year Adopted Budget % Fiscal Year Amended Budget % Fiscal Year Adopted Budget % Estimated Revenues General Property Tax $26,067, % $25,978, % $27,567, % Other Local Taxes 22,760, ,879, ,135, Charges for Services 3,300, ,587, ,138, Recovered Cost 5,339, ,792, ,638, Non-Categorical Aid-State 6,065, ,065, ,618, Categorical Aid-State-Shared 4,195, Expenses 4,195, ,370, Categorical Aid-State * 7,943, ,013, ,104, Other Revenue Sources 1,679, ,699, ,770, Transfers In 14,382, ,382, ,830, Transfers In from Fund Balance 4,663, ,060, Total Revenues and Other Sources $96,396, % $95,594, % $96,223, % Appropriations City Manager s Office & Council $ 1,094, % $ 1,092, % $ 1,084, % Human Resources 6,963, ,169, ,036, Finance Department 3,672, ,710, ,006, Information Technology 2,579, ,781, ,273, Police 15,058, ,519, ,972, Fire 8,781, ,868, ,721, Public Works Department * 3,724, ,866, ,616, Parks, Recreation, & Tourism 4,653, ,858, ,674, Community Development 8,936, ,283, ,552, Economic Development 806, , , Transportation Services 525, , , Constitutional Officers 7,583, ,711, ,833, General Assembly 526, , , Transfers Out/Support of Other Funds & Organizations 30,849, ,759, ,778, Non-Departmental 641, , ,644, Total Appropriations $96,396, % $105,734, % $96,233, % Source: Department of Finance, City of Danville. * Fiscal Years Appropriations and matching revenues for Public Works Street Maintenance expenditures in the amount of $9,641,450 funded by Virginia Department of Transportation moved to new Special Revenue Fund. Fiscal Year 2013 Budget Discussion and Projected Year-End Results The Fiscal Year 2013 budget was adopted on May 30, The budget did not include any property tax, fee, or utility rate increases, but did provide increases in the transfers to the General Fund from the Gas and Electric Funds of $250,000 each for a total increase to the General Fund of $500,000. The budget also included a one-time increase in Support of Schools of $2,100,000 to be repaid by reducing Support of Schools in the amount of $525,000 each of the next four years. The total adopted Fiscal Year 2013 General Fund Budget was $96,396,400, an increase of 3.7% over Fiscal Year Also included in the adopted budget was a transfer from the General Fund Balance in the amount of $4,663,370 for economic development and River District projects. Current projections indicate that General Fund revenues for Fiscal Year 2013 will be over the amended budget by approximately $1.6 million (or 1.7%). The revenue increase is attributable primarily to increased personal property assessments and improved collections for both current and delinquent property taxes. An increase in business and occupational licenses also contributed to the projected increase in revenue. The anticipated revenue increases are offset by reductions in state revenue for support of welfare and public assistance. 24

31 Current projections indicate that General Fund expenditures for Fiscal Year 2013 will be under the amended budget by approximately $7.3 million (or 6.9%) as a result of salary savings, a reduction in debt service for schools as a result of bond restructuring, a reduction in social services expenditures for welfare and public assistance as a result of decreases in state funding, a reduction in healthcare costs as a result of plan design changes and reduced claims, and reduced worker compensation claims. The adopted budget for Fiscal Year 2013 initially reflected a decrease of $4,663,370 in the unassigned fund balance of the General Fund. During the fiscal year, the Council approved additional appropriations of $3,074,143, resulting in a larger budgeted decrease in the unassigned fund balance of $7,737,513. As described above, projected increases in revenues and projected decreases in expenditures for Fiscal Year 2013 are expected to reduce the budgeted decrease in the unassigned fund balance of the General Fund from $7,737,513 to approximately $1.7 million. Further, the City anticipates that approximately $820,843 will be reimbursed to the General Fund from project-related bond funds, resulting in a smaller decrease in the unassigned fund balance of the General Fund from $1.7 million to approximately $879,157. Actual end of Fiscal Year 2013 results may vary from the expected results described above and such variances may be material. Fiscal Year 2014 Budget Discussion The adopted General Fund budget for Fiscal Year 2014 does not include tax or fee increases. However, increases to customer meter charges for the Water and Electric Funds have been approved as well as a rate increase in the Water Fund. Also included is the elimination of two vacant positions. During Fiscal Year 2013, the City conducted a classification and compensation study on current positions to ensure they are accurately classified and have a pay range appropriate for the knowledge, skills, and abilities the position requires and one that is competitive in the relative labor markets. Funding for the first step of implementation is provided in the Fiscal Year 2014 budget. Funding support for the School System reflects a return to the Fiscal Year 2012 level less $525,000 to repay the City for the advance of $2,100,000 provided in the Fiscal Year 2013 Budget. The Fiscal Year 2014 General Fund budgeted amount of $96,233,170 represents a 0.1% decrease from the Fiscal Year 2013 General Fund budget. The Fiscal Year 2014 budget includes a transfer from the General Fund unassigned fund balance of $2,060,000 that will be used to fund capital projects. General Fund Revenues and Expenditures The General Fund is the primary operating fund maintained by the City to account for revenue derived from City property taxes, other local taxes, fines, forfeitures, licenses, fees, permits, reimbursement of certain City expenses shared by the Commonwealth, certain Commonwealth-collected revenue, and transfers from the Enterprise Fund. General Fund expenditures include the costs of general City government, transfers to the School Operating Fund to pay the local share of operating the City s public school system, certain capital expenditures, and transfers to the Debt Service Fund to provide for the payment of debt service on the City s general government and school bonds. The following is a discussion of the General Fund revenue structure and major classifications of General Fund expenditures. Revenues General Property Taxes - An annual ad valorem tax is levied by the City Council on the assessed value of real and personal property located within the City as of July 1 and January 1, respectively. Except as referenced in the following paragraph, there are no constitutional or statutory limitations upon the City s ability to levy taxes on real or personal property. The ratio of the assessed value of real property to its fair market value is 100%. Real 25

32 property taxes and personal property taxes are payable in two installments on December 5 and June 5 of the fiscal year in which they are levied. The penalty for late payment is 10% of the amount of taxes due. Interest on delinquent taxes and penalties accrues at a rate of 10% per annum. Property taxes (including penalties for late payment of prior years taxes) represented 27% of total General Fund revenue and other sources for the fiscal year ended June 30, Pursuant to the Personal Property Tax Relief Act of 1998 (Chapter 35.1, Title 58.1 of the Code of Virginia of 1950, as amended), personal property taxes applicable to the first $20,000 in assessed value of certain individually owned motor vehicles were to be eliminated over a period of time. Such legislation provided a formula for the Commonwealth generally to reimburse localities, including the City, for up to 100% of the decrease in revenues attributable to such tax. The timing and the amount of such reimbursements, however, were subject to annual appropriation and further modification by the General Assembly. Implementation of such reimbursements began with fiscal year 1998, with the level of reimbursement reaching 70%. Beginning in 2006, reimbursement by the Commonwealth to localities was capped at $950 million. The City received $3,593,576 in the fiscal year ended June 30, 2012 and estimates that it will receive $3,593,576 in the fiscal year ended June 30, Other Local Taxes - The City levies various other local taxes including a sales and use tax; business, professional, and occupational license taxes; a motor vehicle license tax; a meals tax; a recordation tax; and a tax on consumer telephone bills. Other local taxes represented 23% of total General Fund revenues and other sources for the fiscal year ended June 30, Intergovernmental Revenue - The City received revenue from the Commonwealth of Virginia for a portion of shared categorical expenses including certain expenditures for social services and the operation of constitutional offices. The City also receives a significant amount of aid from the Commonwealth in support of the public school system; however, such revenues are credited directly to the School Operating Fund and are not reflected in the General Fund. Revenues from the Commonwealth of Virginia represented 26% of total General Fund revenues and other sources for the fiscal year ended June 30, Other Revenues - Other sources of revenue of the General Fund represent 24% of total General Fund revenues and other sources for the fiscal year ended June 30, 2012, and include permits, privilege fees and regulatory licenses, fines and forfeitures, interest on General Fund investments, transfers from the Utility Fund, certain charges for services rendered, various recovered costs, and miscellaneous. Expenditures Costs of General City Government - Payments for the costs of the operation of the City government are made from the General Fund. Such costs include expenditures for public safety, general administration, public works, health and welfare, education, community development, and social services. This classification represented 66% of total General Fund expenditures and other uses for the fiscal year ended June 30, Transfer to Special Revenue Funds - The City transfers monies from the General Fund to the Special Revenue Funds, principally the School Operating Fund, to pay the City s share of the costs of operating the public school system. This transfer represented 23% of total expenditures and other uses from the General Fund for the fiscal year ended June 30, No debt service on the City s school bonds is paid from the School Operating Fund. Transfers to Debt Service Fund - Debt service requirements on City general government and school bonds are paid by transfers from the General Fund to the Debt Service Fund. Such transfers represented 7% of total General Fund expenditures and other uses for the fiscal year ended June 30, Transfers to the Capital Fund The City has elected to finance certain capital projects from current revenues and comprises the principal portion of this category. These transfers were 4% of the total expenditures and other uses of the General Fund for the fiscal year ended June 30,

33 Operating Data The tables below represent a summary of real and personal property tax levies and collections for recent fiscal years. Fiscal Year Original Levy Collections and Adjustments Thru End of Month in which 2 nd Half Tax Due (1) REAL ESTATE TAX COLLECTIONS Uncollected at End of Month in which 2 nd Half Tax Due Percentage of Original Levy Uncollected at End of Month in which 2 nd Half Tax Due Collections and Adjustments After End of Month in which 2 nd Half Tax Due Uncollected Balance June 10, 2013 Percentage of Original Levy Uncollected June 10, $14,126,712 $13,185,128 $ 941, % $903,032 $ 38, % ,356,246 13,540, , ,653 45, ,043,445 14,242, , ,862 50, ,922,433 14,964, , ,562 65, ,980,915 15,126, , ,700 89, ,320,733 15,419, , , , ,415,615 15,475, , , , ,156,634 15,134,880 1,021, , , ,321,848 15,319,292 1,002, , , ,165,960 15,025,533 1,140, ,140, Source: Director of Finance, City of Danville. (1) Taxes assessed on fiscal year basis; Due Dates - 1st half due on December 5 of each year - 2nd half due on June 5 of each year. Year Original Levy (1) PERSONAL PROPERTY/MACHINERY AND TOOLS TAX COLLECTIONS Collections and Adjustments Thru End of Month in which 2 nd Half Tax Due Uncollected at End of Month in which 2 nd Half Tax Due Percentage of Original Levy Uncollected at End of Month in which 2 nd Half Tax Due Collections and Adjustments After End of Month in which 2 nd Half Tax Due Uncollected Balance (2) June 10, 2013 Percentage of Original Levy Uncollected June 10, $ 8,897,075 $ 8,259,740 $ 637,335 (3) 7.16% $637, ,112,715 8,826, ,376 (3) , ,581,768 9,238, ,333 (3) , ,722,045 9,391, ,440 (3) , ,114,292 9,837, ,207 (3) ,679 $ 113, % ,360,208 9,123, ,405 (3) , , ,708,729 9,527, ,606 (3) ,500 99, ,516,667 9,315, ,395 (3) , , ,330,962 10,124, ,976 (3) , ,205,859 3,343,203 6,862,655 (4) (4) - 6,862, Source: Department of Finance, City of Danville. (1) Beginning on January 1, 1999, the City has levied taxes on a calendar year basis with 1 st half taxes due June 5 and 2 nd half taxes due December 5. (2) According to state law, uncollected personal property taxes are collectible five years following the year of levy. (3) Uncollected personal property tax reported as of June 30 of subsequent fiscal year. (4) This includes 2 nd half of the tax levy which is not due until December 5 and also the Personal Property Tax Relief Act (PPTRA) funds from the Commonwealth of Virginia. PPTRA funds amounting to $3,593,576 are received in three installments 27

34 The following table provides a listing of the fifteen largest real estate taxpayers in the City for the period ended June 30, Taxpayer FIFTEEN LARGEST REAL ESTATE TAXPAYERS Assessed Value % of Total Assessed Value (1) Danville Regional Medical Center LLC $ 76,317, % Goodyear Tire and Rubber Company 29,268, NAP Coleman Marketplace LLC 24,424, Daniel Group Inc. 18,778, JTI Leaf Services US LLC 16,572, Piedmont Mall LLC 14,477, Sams Real Estate Business Trust 10,573, Industrial Dev. Authority of Danville (2) 10,499, Wal-Mart Real Estate Business Trust 10,420, Nestle USA Inc. (formerly Carnation Co.) 10,087, EBI LLC 9,917, Dan Shopping Center Inc. 7,456, Lorillard Tobacco Company 7,452, Marshall, Robert & Margaret D. (Rev Trust) 7,442, MJRW Inc. 6,811, $260,499, % Source: Department of Finance, City of Danville. (1) Total 2013 Assessed Real Estate Value is $2,232,454,800 for the City of Danville. (2) Industrial Dev. Authority of Danville refers to a building leased by Essel Propak from the IDA. Local tax revenues are derived primarily from real and personal property located within the City. Both real and personal property were assessed at the estimated fair market value for the years shown below. The following table illustrates the trends in value: Fiscal Year Assessed Value of Real Property SCHEDULE OF ASSESSED PROPERTY VALUES (1) Assessed Value of Personal Property Assessed Value of Machinery and Tools Assessed Value of Mobile Homes Assessed Value of Public Service Corp. Assessed Value of Aircraft Total Assessed Value 2004 $1,765,839,000 $246,282,106 $97,002,334 $5,055,627 $54,285,263 $5,165,235 $2,173,629, ,864,447, ,033,492 90,504,892 4,977,283 52,021,885 4,306,540 2,273,291, ,953,694, ,466,101 82,870,885 4,548,776 51,149,212 3,135,840 2,372,864, ,067,848, ,749,737 79,708,821 4,261,308 50,697,018 3,394,102 2,497,659, ,089,774, ,143,014 79,506,859 4,229,328 50,798,716 4,858,771 2,531,311, ,252,885, ,726,836 84,884,957 4,347,353 45,683,587 4,218,048 2,664,746, ,267,080, ,696,657 84,694,634 4,232,127 50,738,735 4,433,349 2,686,875, ,235,675, ,862,350 86,749,356 4,286,745 49,939,634 4,448,493 2,660,962, ,257,904, ,930,560 91,384,107 4,070,257 46,789,855 4,259,000 2,702,338, ,232,454, ,421,189 89,409,088 3,889,155 46,254,322 2,488,700 2,675,917,254 Source: Department of Finance, City of Danville. (1) Real property is assessed on a fiscal year basis; all other property is assessed on calendar year basis. 28

35 PROPERTY TAX RATES For Tax Years Beginning July 1 (Per $100 Assessed Value) Year Real Property Personal Property Machinery and Tools Aircraft 2004 $.80 $3.00 $1.50 $ Source: Department of Finance, City of Danville. Pension Fund Information The City participates in two public employee retirement systems: (1) the Employees Retirement System of the City of Danville ( ERS ), which is a single-employer defined benefit plan that was established in 1946 and placed under the management of a board of trustees for the purpose of providing retirement, disability and death benefits for full-time, permanent employees of the City and (2) the Virginia Retirement System ( VRS ), which is a multi-employer public retirement system that acts as a common investment and administrative agent for political subdivisions in the Commonwealth of Virginia (and is therefore not reflected as a City pension trust fund). The City makes annual contributions to the ERS plan. As of June 30, 2012, the actuarial value of assets for the ERS plan was approximately $174 million and the actuarial accrued liability was approximately $206 million, resulting in an unfunded actuarial accrued liability ( UAAL ) of approximately $32 million. The funded ratio was 84.3% as of such date. With respect to the ERS plan, the City Council adopted a resolution on December 4, 2012, abolishing the practice of granting post-retirement cost of living adjustments ( COLA ) for its retirees. The COLA approach was replaced with a bonus system calling for appropriations by City Council from its annual expense budget based on affordability and sustainability criteria that include the funded status of the ERS plan, the status of the City s budget, and the amount of the City s normal cost contribution to the pension plan. Based on the adoption of this resolution, the City expects, but cannot assure or guarantee, that the City will effectively reduce the UAAL for the ERS plan to a minimal amount. The City contributes to VRS for constitutional officers and their employees. The latest VRS valuation data available to the City is dated June 30, As of that date, with respect to the City s portion of the VRS plan, the actuarial value of assets was approximately $18 million and the actuarial accrued liability was approximately $22 million, resulting in a UAAL of approximately $4 million. The funded ratio for the VRS plan was 82.2% as of such date. In addition to the City s participation in the VRS plan, the Danville Public Schools contribute to VRS for their professional and non-professional employees. See footnote 11 in the City s audited financial statements attached hereto as Appendix A for a more detailed description of the ERS and VRS plans. 29

36 Post-Employment Benefits Other than Pensions (OPEB) In addition to the pension benefits described above, the City provides post-employment health care benefits and prescription drug insurance benefits to retirees and their dependents up to age 65. The City also provides life insurance benefits for active and retired employees. All full-time active employees who retire or are disabled directly from the City and meet the eligibility criteria may participate. Benefit levels, employee contributions and employer contributions are governed by the City and can be amended by the City through its personnel manual. The calculations for the City s liability are based on the OPEB benefits provided under the terms of the substantive plan in effect at the time of each valuation and on the past practice of sharing costs between the City and the employees participating at the valuation date. Effective January 2014, all retirees under age 65 will begin paying the true full cost of their OPEB benefits. Retirees and spouses age 65 and over may also participate in a self-funded post-65 Medicare Carve-Out plan, for which the retirees and their spouses pay the true full cost of benefits, and the City has no liability. The Governmental Accounting Standards Board (GASB) has adopted Statement 45 entitled Accounting and Financial Reporting by Employers for Post-Retirement Benefits other than Pensions, which requires localities to recognize obligations for post-retirement benefits other than pensions (such as healthcare and related costs) that localities have agreed to provide retirees. In April 2009, City Council established a Board of Trustees to set up and manage an irrevocable OPEB Trust Fund. On February 10, 2010, the Board of Trustees approved a Section 115 Trust Agreement. Initial funding of $1,000,000 for the trust was derived from $250,000 appropriated in each of the Fiscal Years 2008, 2009, 2010, and An additional $250,000 and $200,000 was appropriated in Fiscal Years 2012 and 2013, respectively. The City s most recent actuarial valuation of its postemployment healthcare and death benefit program is as of July 1, 2012, which showed an actuarial value of assets of approximately $1.486 million and an actuarial accrued liability of approximately $2,233 million, resulting in an UAAL of $746,531. The funded ratio for the City s OPEB plan was 66.57% as of such date. See footnote 12 in the City s audited financial statements attached hereto as Appendix A for a more detailed description of the City s OPEB plan. 30

37 SECTION SIX: CITY INDEBTEDNESS AND CAPITAL PLANS Debt Administration The Constitution of Virginia authorizes a city in Virginia to issue bonds and notes secured by a pledge of its full faith and credit. The Constitution limits the amount of such indebtedness to 10% of the assessed valuation of real estate subject to taxation by the city. According to the Public Finance Act of 1991, the City can issue bonds only in accordance with its Charter. The City Charter provides that the City shall not issue any bonds without approval by the qualified voters at an election, except that the City Council may authorize bonds or notes for the purposes and in the amounts in any one fiscal year as set out below without an election. Contractual obligations other than bonds and notes are excluded from the election requirement. Purpose Amount Per Fiscal Year Capital expenditures other than capital expenditures relating to the City s water, sewer, gas and/or electric systems $6,000,000 Capital expenditures relating to the City s water, sewer, gas and/or electric systems or other specific undertakings from which the City may derive a revenue $10,000,000 Capital expenditures relating to City s water treatment, wastewater treatment, storm water treatment, solid waste disposal or recycling facilities and any extraordinary maintenance improvements or expansions of transmission and distribution infrastructure for the electric or gas systems $25,000,000 Notes in anticipation of authorized bonds Compensation required by court order in annexation proceedings Refunding bonds The amount of authorized bonds No limit Amount required to refund the refunded bonds Anticipation of collection of revenue for the current fiscal year $500,000 Statement of Legal Debt Margin Debt Limit Per Constitution in Virginia -- 10% Assessed Value of Real Estate at June 30, 2013 ($2,232,454,800) $223,245,480 Deduct: Gross Bonded Debt $89,137,171 Less: Bonds Issued Pursuant to Section 10, Article VII of the Constitution of Virginia Public Utility Revenue Bonds of $ 207,971 Public Utility Revenue Bonds of ,034 Public Utility Revenue Bonds of ,048,940 2,276,945 Net Debt Applicable Against Limit 86,860,226 Legal Debt Margin at June 30, 2013 $136,385,254 31

38 Statement of Bonded Debt The following table sets forth the annual principal and interest payments on the outstanding general obligation long-term bonded indebtedness of the City including literary loans but excluding debt service on selfsupporting utility revenues and debt on installment loans and lease obligations. NET TAX-SUPPORTED BONDED DEBT SERVICE REQUIREMENTS As of June 30, 2013 Fiscal Year Principal Interest Total 2014 $ 4,811,530 $ 3,556,765 $ 8,368, ,256,445 3,380,481 8,636, ,441,879 3,190,925 8,632, ,486,861 2,987,962 9,474, ,735,417 2,746,005 9,481, ,730,576 2,490,307 9,220, ,718,374 2,212,121 8,930, ,001,056 1,908,219 7,909, ,253,088 1,657,274 7,910, ,290,000 1,405,460 5,695, ,440,000 1,246,071 5,686, ,625,000 1,065,552 5,690, ,815, ,727 5,687, ,700, ,492 3,376, ,445, ,301 2,991, ,560, ,422 2,983, ,740, ,305 2,058, , ,442 1,129, , ,063 1,116, , , , , , , ,000 95, , ,000 58, , ,000 19, ,722 Total $86,860,226 $31,620,513 $118,461,017 Source: Department of Finance, City of Danville. The rapidity with which the above-referenced debt will be repaid is as follows: Year Amount Maturing Percentage of Principal Repaid 5 Years $28,732, % 10 Years 58,725, Years 77,750, Years 84,390, Years 86,860,

39 The following table sets forth the annual principal and interest payments on the City s self-supporting utility indebtedness. REVENUE-SUPPORTED BONDED DEBT SERVICE REQUIREMENTS As of June 30, 2013 Fiscal Year Principal Interest Total 2014 $ 593,005 $ 86,932 $ 679, ,000 66, , ,000 52, , ,000 37, , ,000 23, , ,940 8, ,786 Total $2,276,945 $275,336 $2,552,281 Source: Department of Finance, City of Danville. The rapidity with which the above-referenced debt will be repaid is as follows: Year Amount Maturing Percentage of Principal Repaid 5 Years $2,053, % 6 Years 2,276,

40 The following table sets forth the debt service requirements for the moral obligation support agreements of the City that are subject to annual appropriation by City Council. The City currently has no outstanding capital lease obligations. DEBT SERVICE REQUIREMENTS OF MORAL OBLIGATION SUPPORT AGREEMENTS (1) As of June 30, 2013 Fiscal Year Principal Interest Total 2014 $ 522,500 $155,325 $ 677, , , , , , , ,705,000 72,265 2,777, ,500 51, , ,500 31, , ,500 10, ,485 Total $5,660,000 $594,785 $6,254,785 Source: Department of Finance, City of Danville. (1) Included in the figures in this table are contingent payments the City is expected to make under the following arrangements: (a) a Support Agreement dated as of December 1, 2011 with the Danville-Pittsylvania Regional Industrial Facility Authority that pledges the City s moral obligation in support of half of the amount of the debt service payments on the $11,250,000 Danville-Pittsylvania Regional Industrial Facility Authority Revenue Bonds (Berryhill Project), Series 2011 (Taxable) (the 2011 RIFA Bonds ), and (b) a Support Agreement dated August 1, 2013 with the Danville-Pittsylvania Regional Industrial Facility Authority that pledges the City s moral obligation in support of half of the amount of debt service payments on the $5,595,000 Danville-Pittsylvania Regional Industrial Facility Revenue Refunding Bonds (Cane Creek Project), Series 2013 (Taxable) (the 2013 RIFA Bonds ). The 2013 RIFA Bonds have a three-year fixed rate term maturing on August 1, 2016, at which time the City anticipates that the Authority will refinance such bonds. The other half of such debt service on both the 2011 RIFA Bonds and the 2013 RIFA Bonds are supported by similar support agreements entered into between Pittsylvania County, Virginia and the Danville-Pittsylvania Regional Industrial Facility Authority. Payments to be made under the preceding Support Agreements are subject to annual appropriation by the City Council. Not included in the figures in this table are contingent payments that the City may make under the following arrangements (but is not expected to be called upon to make because other revenues are anticipated to be sufficient): (a) a Moral Obligation Agreement dated October 7, 2004 with American National Bank and Trust Company in the maximum amount of $6,905,000; (b) a Moral Obligation Agreement dated January 13, 2011 with American National Bank and Trust Company in the maximum amount of $2,700,000; (c) a Moral Obligation Agreement dated March 29, 2013 with Virginia Community Capital in the maximum amount of $1,500,000; (d) a Moral Obligation Agreement dated March 19, 2013 with Virginia Small Business Financing Authority in the maximum amount of $500,000; (e) a Moral Obligation Agreement dated March 22, 2013 with American National Bank in the maximum amount of $1,100,000; and (f) a Moral Obligation Agreement dated June 24, 2013 with American National Bank in the maximum amount of $1,500,000. Each of these moral obligation undertakings support economic projects financed by the Industrial Development Authority of the City of Danville, Virginia (the Danville IDA ). Payments under all agreements are subject to annual appropriations by the City Council. The City does not currently expect that City payments will be requested under these agreements. The rapidity with which the above-referenced obligations as of June 30, 2013, will be repaid is as follows: Year Amount Maturing Percentage of Principal Repaid 5 Years $4,755, % 10 Years 5,660, The City expects in September 2013 to enter into a new moral obligation support agreement with the Danville IDA to support up to $7,435,000 principal amount of revenue bonds to be issued by the Danville IDA for the purpose of funding certain economic development projects. The City anticipates that the Danville IDA will request City support for at least a portion of the debt service on such bonds. 34

41 Key Debt Ratios Fiscal Year Ended June 30 Set forth below are the City s key debt ratios for the fiscal years indicated. Population Assessed Valuation General Fund Supported Bonded Debt Self- Sustaining Utilities Percent of Bonded Debt to Assessed Value General Fund Supported Self- Sustaining Utilities General Fund Supported Bonded Debt Per Capita Self- Sustaining Utilities ,600 $2,173,629,565 $39,269,396 $42,710, % 1.96% $ $ ,900 2,273,291,592 35,666,775 38,760, ,143 2,372,864,914 32,105,970 43,351, ,586 2,497,659,386 28,488,092 43,782, ,385 2,531,311,088 24,819,277 39,043, ,152 2,664,746,381 22,068,904 45,342, , ,055 2,686,875,502 21,223,853 56,278, , ,918 2,660,962,178 29,882,557 58,776, , ,332 2,702,338,379 31,732,974 55,924, , ,400 (1) 2,675,917,254 31,499,340 57,637, , Source: City Finance Department. Note: The above bonded debt excludes Lease Revenue Bonds and Capital Leases for equipment and other obligations which are subject to annual appropriation of funds by City Council for payment of debt service if the City had any of those types of debt. (1) Weldon Cooper Center, University of Virginia; July 1, 2012 estimate. Fiscal Year Ended June 30 General Fund Expenditures and Transfers (1) General Fund Supported (2) Debt Service Self-Sustaining Utilities (3) Percentage of Debt Service to Total Expenditures and Transfers General Fund Supported Self-Sustaining Utilities 2004 $ 94,034,839 $8,447,724 (4) $5,869, % 6.24% ,105,204 8,315,281 5,813, ,414,186 8,286,401 5,957, ,488,311 8,046,076 6,346, ,485,607 8,201,061 6,635, ,035,753 8,041,347 6,435, ,765,641 4,503,139 3,145, ,934,509 3,960,541 3,945, ,391,295 5,019,639 5,255, Source: Department of Finance, City of Danville. (1) Includes General Fund, Danville School Board, Danville Development Council and Transfers Out. (2) Includes tax supported bonds, school bonds, reimbursables, leases, notes, and long-term debt. (3) Includes utility supported bonds, reimbursables, leases, notes, and long-term debt. (4) Adjusted for grant funds used to pay down funding for Juvenile Detention facility. 35

42 Capital Improvement Plan The City Council approved the Capital Improvement Plan for the fiscal years (the CIP ) on June 21, The CIP is normally reviewed and updated on an annual basis as a part of the budget process to reflect changing priorities, cost estimates, and financing strategies. The City Council appropriates funds for capital project expenditures on a project-by-project basis as the funding sources become available. CITY OF DANVILLE ALL FUNDS ADOPTED CAPITAL PROJECTS FY 2014 COUNCIL APPROVED CAPITAL PROJECTS FY Fund/Department CITY COUNCIL APPROVED 5-Yr. Total Adopted FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 FY Community Development $ 1,750,000 $ 1,350,000 $ 500,000 $ 250,000 $ 250,000 $ 4,100,000 Economic Development 1,750,000 1,750,000 1,750,000 1,750,000 1,750,000 8,750,000 River District Improvement & Projects 3,085,000 3,175,000 2,500,000 2,400,000 2,400,000 13,560,000 Fire Department 1,376, , , , ,500 3,607,500 Information Technology 633, , , , ,000 2,833,000 Parks & Recreation 210, , , ,000 80,000 1,240,000 Police Dept. - Administration 20, ,000 20, ,000 Police Dept. - Adult Detention Facility 260, , , ,000-1,115,000 Police Dept. Juvenile Detention Facility 90, ,000 Public Works -Bldg. Maintenance 570, , , , ,000 1,170,000 Public Works - Engineering/Streets 1,810,000 1,400, , , ,000 5,310,000 Transportation - Airport ,200,000 4,200,000 Total Sewer/Wastewater Fund Projects 2,000,000 2,000,000 2,050,000 2,000,000 1,300,000 9,350,000 Total Water Fund Projects 665,000 1,300,000 1,420,000 5,640,000 6,630,000 15,655,000 Total Gas Fund Projects 1,500,000 5,700,000 1,580,000 3,800,000 3,400,000 15,980,000 Total Electric Fund Projects 5,348,015 4,580,000 4,360,000 2,360,000 2,360,000 19,008,015 Total Telecommunications Fund Projects 575, , , , ,000 2,575,000 Total Projects All Funds $21,642,015 $25,020,000 $17,440,000 $20,680,000 $24,331,500 $109,113,515 SUMMARY OF FUNDING SOURCES ADOPTED CAPITAL PROJECTS FY 2014 COUNCIL APPROVED CAPITAL PROJECTS FY Fund Department CITY COUNCIL APPROVED 5-Yr. Total Adopted FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 FY General Fund Revenues $ 2,937,000 $ 3,880,000 $ 3,950,000 $ 3,625,000 $ 3,341,500 $ 17,733,500 Telvista Loan Repayment State/Federal Grants 805,000 1,300, , , ,000 3,005,000 Utility Revenues 6,713,015 9,880,000 8,160,000 7,760,000 7,060,000 39,573,015 General Obligation Bonds 8,052,000 9,960,000 5,030,000 8,995,000 13,630,000 45,667,000 Contribution-In-Aid 575, ,000 Unreserved Fund Balance 2,560, ,560,000 Funding to be Determined Total Source of Funding $21,642,015 $25,020,000 $17,440,000 $20,680,000 $24,331,500 $109,113,515 36

43 Pending Litigation and Administrative Proceedings SECTION SEVEN: MISCELLANEOUS The City and its employees have been named from time to time as defendants in various claims, which are being defended by the City Attorney and associated counsel. The City s potential liability is protected partially by sovereign immunity and by indemnification agreements. The City Attorney is of the opinion that none of the litigation currently pending against the City reasonably can be expected to have a material adverse effect on the City s financial condition. According to the City Attorney, there is no litigation of any kind now pending or, to the best of his information, knowledge and belief, threatened against the City which would affect the validity of the Bonds or the right of the City to levy or collect an annual ad valorem tax, over and above all other taxes authorizing or limited by law and without limitation as to rate or amount, on all locally taxable property in the City sufficient to pay the principal of and interest on the Bonds as the same became due. Ratings Moody s Investors Service, Inc. ( Moody s ), Standard & Poor s Public Finance Ratings ( S&P ) and Fitch Ratings ( Fitch ) are expected to assign ratings of Aa2/A1, A+ and AA-, respectively, to the Bonds. The Moody s rating of A1 and the ratings from S&P and Fitch are based solely on the creditworthiness of the City. The Moody s rating of Aa2 gives effect to the state-aid intercept program described in Bondholders Remedies in the Event of Default in Section Two. Reference should be made to the rating agencies for a fuller description of the meaning of the respective ratings assigned by such rating agencies. The ratings are not a recommendation to buy, sell or hold the Bonds. The ratings are subject to review and change or withdrawal at any time if, in the judgment of the respective rating agency, circumstances so warrant. There is no assurance that any such ratings will continue for any period of time or that they will not be revised or withdrawn. A downward revision or withdrawal of any rating may have an adverse effect on the market price of the Bonds. Financial Advisor Davenport & Company LLC, Richmond, Virginia, financial advisor to the City, has advised the City in matters relating to the planning, structuring and issuance of the Bonds, assisted the City with the preparation of this Official Statement and provided to the City other advice with respect to the issuance and sale of the Bonds. The financial advisor s fee will be paid from proceeds of the Bonds. Underwriting The Bonds are being purchased by Wells Fargo Bank, National Association, doing business as Wells Fargo Securities (the Underwriter ). The purchase contract for the Bonds (the Bond Purchase Agreement ) sets forth the Underwriter s obligation to purchase the Bonds at an aggregate purchase price of $6,391, (reflecting par plus net original issue premium of $59, and less an Underwriter s discount of $28, (or 0.447% of the aggregate principal amount)), and is subject to certain terms and conditions, including the approval of certain legal matters by counsel. The Bond Purchase Agreement provides that the Underwriter will purchase all of the Bonds if any are purchased. The Underwriter may offer and sell the Bonds to certain dealers (including dealers depositing the Bonds into investment trusts) and others at prices or yields different from the public offering prices and yields stated on the inside cover of this Official Statement. The public offering prices and yields may be changed from time to time at the discretion of the Underwriter. Wells Fargo Securities is the trade name for certain securities-related capital markets and investment banking services of Wells Fargo & Company and its subsidiaries, including Wells Fargo Bank, National Association ( WFBNA ). WFBNA, the underwriter of the Bonds, has entered into an agreement (the Distribution Agreement ) with its affiliate, Wells Fargo Advisors, LLC ( WFA ), for the distribution of certain municipal securities offerings, 37

44 including the Bonds. Pursuant to the Distribution Agreement, WFBNA will share a portion of its underwriting compensation with respect to the Bonds with WFA. WFBNA also utilizes the distribution capabilities of its affiliates, Wells Fargo Securities, LLC ( WFSLLC ) and Wells Fargo Institutional Securities, LLC ( WFIS ), for the distribution of municipal securities offerings, including the Bonds. In connection with utilizing the distribution capabilities of WFSLLC, WFBNA pays a portion of WFSLLC s expenses based on its municipal securities transactions. WFBNA, WFSLLC, WFIS, and WFA are each wholly-owned subsidiaries of Wells Fargo & Company. Continuing Disclosure Current Undertaking. To permit compliance by the Underwriter with the continuing disclosure requirements of the Rule, the City will execute a Continuing Disclosure Agreement (the CDA ) at closing agreeing to provide certain annual financial information and event notices required by the Rule. Such information will be filed through the Electronic Municipal Market Access System ( EMMA ) maintained by the Municipal Securities Rulemaking Board and may be accessed through the Internet at emma.mrsb.org. Prior to July 1, 2009, filings by the City were made through the then existing national recognized municipal securities information repositories ( NRMSIRs ). As described in Appendix C, the CDA requires the City to provide only limited information at specific times, and the information provided may not be all the information necessary to value the Bonds at any particular time. The City may from time to time disclose certain information and data in addition to that required by the CDA. If the City chooses to provide any additional information, the City shall have no obligation to continue to update such information or to include it in any future disclosure filing. Failure by the City to comply with the CDA is not an event of default under the Bonds or the Bond Resolution. The sole remedy for a default under the CDA is to bring an action for specific performance of the City s covenants hereunder, and no assurance can be provided as to the outcome of any such proceeding. Prior Undertakings. Except as described in this paragraph, during the last five years, the City has complied in all material respects with its prior continuing disclosure undertakings under the Rule. The City was approximately three months late in filing its Fiscal Year 2009 annual financial information and submitted such filing to the prior NRMSIRs rather than to EMMA. The City has recently made such filing available on EMMA. With respect to the filing of the City s Fiscal Year 2012 annual financial information, the City made its filing on December 14, 2012, within the time period specified in the prior continuing disclosure undertakings, and received confirmation from EMMA for such timely filing. Because of a malfunction within the EMMA system, EMMA does not show the filing as having been made until April 16, In addition, during the last five years, the City has failed to file from time to time material event notices of certain rating changes affecting its own underlying general obligation bond ratings as well as the insured and enhanced ratings assigned to certain general obligation bonds issued by the City and certain bonds issued by the Danville Redevelopment & Housing Authority on behalf of the City. The City has undertaken to post on EMMA a notice summarizing the instances of noncompliance described above and has instituted procedures to ensure the timely and complete filing of such information in the future. Certain Relationships Hunton & Williams LLP, which is serving as Bond Counsel for the Bonds, represents the Underwriter from time to time in matters unrelated to the Bonds or the City. Approval of Official Statement Any statements in this Official Statement involving matters of opinion or estimates, whether or not expressly so stated, are intended as such and not representations of fact. No representation is made that any of the estimates will be realized. Neither this Official Statement nor any statement which may have been made verbally or in writing is to be construed as a contract with the holder of the Bonds. 38

45 The attached Appendices are an integral part of this Official Statement and must be read together with the balance of this Official Statement. The execution of this Official Statement has been duly authorized by the City Council. The City Council has deemed this Official Statement final as of its date within the meaning of the Rule. CITY OF DANVILLE, VIRGINIA By: /s/ Joseph C. King City Manager 39

46 7KLVSDJHLQWHQWLRQDOO\OHIWEODQN1

47 Appendix A BASIC FINANCIAL STATEMENTS OF THE CITY FOR THE FISCAL YEAR ENDED JUNE 30, 2012

48 7KLVSDJHLQWHQWLRQDOO\OHIWEODQN1

49 A-1

50 A-2

51 CITY OF DANVILLE, VIRGINIA Management s Discussion and Analysis (MD&A) Required Supplementary Information (RSI) For the Year Ended June 30, 2012 A-3

52 Management s Discussion and Analysis The City of Danville, Virginia s (the City ) management presents this discussion and analysis for the purpose of: (a) assisting the reader in understanding significant financial issues, (b) providing an overview of the City s financial activity, and (c) identifying changes in the City s financial position. We encourage readers to read the transmittal letter, the basic financial statements, and the notes to the financial statements along with this discussion and analysis. Financial Highlights Government-wide Financial Statements At the close of the fiscal year, the assets of the City exceeded its liabilities by $420,834,507 (total net assets - government-wide). Of this amount, $104,231,412 (unrestricted net assets) may be used to meet the government s ongoing obligations to citizens and creditors. Net assets of the City s business-type activities as of June 30, 2012 were $301,740,231, an increase of $8,001,303 from net assets of $293,738,928 reported at June 30, Net assets of $50,668,344 are reported as unrestricted, a $1,648,409 increase from unrestricted net assets reported at June 30, As of June 30, 2012, the City s governmental activities for government-wide statements reported net assets of $119,094,276, an increase of $9,570,975 over beginning net assets of $109,523,301. Net assets of $53,563,068 at June 30, 2012, are reported as unrestricted and available to meet the government s obligations to citizens and creditors. Fund Financial Statements As of the close of the current fiscal year, the City s governmental funds reported a combined ending fund balance of $54,166,178, a decrease of $380,805 in comparison to the fund balance reported at June 30, 2010 of $54,546,983. Fiftyseven percent of the total fund balance at June 30, 2012, $30,690,145, is available for spending at the government s discretion (unassigned fund balance). At the end of the current fiscal year, the unassigned fund balance for the General Fund was $30,690,145, or thirty-one percent of total fund expenditures. Fund statements utilize the current financial resource measurement focus and modified accrual basis of accounting, which focuses on transactions and events that affect the financial resources available for current spending during the period and reflect near-term inflows or outflows of cash. Government-wide statements use the economic resource measurement and accrual basis of accounting, which focuses on transactions and events that effect the fund s total economic resources; i.e., increase or decrease in net assets during the period regardless of the timing of the related cash inflows or outflows. Fund statements do not include capital or other long-term assets that are not available to finance current period expenditures nor do they include long-term liabilities that will not use current resources. These items must be added (assets) or deducted (liabilities) to/from the fund balances of governmental funds to obtain the A-4

53 net assets of the governmental activities for government-wide reporting. In addition, the assets and liabilities of internal service funds are included in the governmental activities in the statement of activities, and the combined governmental fund balances from the fund financial statements must be adjusted accordingly. All of these factors add another $63,621,814 to the combined balances of governmental funds when converting to net assets of governmental activities. The reconciliation presented on pages 49 and 51 of this report offer summarized details of the conversion from governmental fund statements to government-wide statements for governmental activities. The combined fund balances of the governmental funds report a total fund balance of $54,166,178 and an unassigned fund balance of $30,690,145. Government-wide net assets for governmental activities report total net assets of $119,094,276 and unrestricted net assets of $53,563,068. The conversion from the unassigned fund balance to unrestricted net assets can be shown as follows: Unassigned fund balance (fund statement) $ 30,690,145 Deferred revenue for fund statements no longer deferred for government-wide 14,755,921 Internal Service Funds noncapital assets merged into governmental activities for government-wide statements 4,796,282 Workers' compensation, accrued interest, and other compensated absences (5,412,051) Encumbrances not restricted externally 4,024,177 Budget stabilization, inventory, OPEB and pension funds, restricted only for fund statements 4,708,594 Unrestricted net assets per governmentwide governmental activities $ 53,563,068 The conversion from fund balance, other than unassigned, to restricted net assets can be shown as follows: Non-spendable, restricted, committed, and assigned fund balance (fund statement) $ 23,476,033 Non-spendable inventory (201,325) Group Health funds, assigned for fund statements (3,357,553) Encumbrances that do not meet GASB Statement 34 definition of restricted (4,024,177) Restricted net assets - governmental activities $ 15,892,978 A-5

54 The Statement of Net Assets - Enterprise Funds does not require a conversion to the Statement of Net Assets Government-wide reporting of Business-type Activities because enterprise funds already use the economic resource measurement focus and the accrual basis of accounting. From a management-reporting viewpoint, there are significant differences in the reporting of fund balance. These differences in reporting the composition of fund balance between the government-wide statements for business-type activities and the fund statements for enterprise funds are discussed in the Business-type Activities section of the Governmentwide financial analysis discussion. Overview of the Financial Statements The following is a narrative overview and analysis of the financial activities of the City for the fiscal year ended June 30, This discussion and analysis is intended to serve as an introduction to the City s basic financial statements, which have the following components: (a) management s discussion and analysis (MD&A), (b) government-wide financial statements, (c) fund financial statements, and (d) notes to the basic financial statements. Managements discussion and analysis Government-wide financial statements Fund financial statements Notes to the financial statements Required supplementary information (other than MD&A) Government-wide Financial Statements The government-wide financial statements are designed to provide readers with a broad overview of the City s finances using the accrual basis of accounting, similar to the accounting found in private sector businesses. Government-wide financial reporting consists of two statements: the Statement of Net Assets and the Statement of Activities. The Statement of Net Assets The Statement of Net Assets presents information on all the City s assets and liabilities. The difference between assets and liabilities is reported as net assets. Net assets are presented in three categories: invested in capital assets net of related debt, restricted, and unrestricted. Over time, the increases or decreases in the City s net assets can be an indicator as to whether the financial position of the City is improving or deteriorating. To accurately use changes in net assets as an indicator of the City s overall health, the underlying factors contributing to the increase or decrease must be analyzed, as well as other nonfinancial factors (such as changes in the property tax base and the condition of infrastructure and other fixed assets). A-6

55 The Statement of Activities The Statement of Activities presents information showing how the net assets changed during the year. As mentioned earlier, government-wide statements use the accrual basis of accounting. Therefore, changes in net assets are recognized when an underlying event occurs regardless of the timing of the related cash flow. As a result, revenues and expenses are reported in this statement for some items that will not impact cash flows until future fiscal periods. In the Statement of Net Assets and the Statement of Activities, the City of Danville is divided into three types of activities: Governmental Activities - Most of the City s basic services are reported here: Police, Fire, Economic Development, Recreation, Social Services, Community Development, and the General Administration. These activities are supported primarily by property taxes, other local taxes, state and federal grants, and contributions from the City s Utility Department (Wastewater, Water, Gas, Electric, and Telecommunications). Business-Type Activities - The City has eight business-type activities: (1) Wastewater, (2) Water, (3) Gas, (4) Electric, (5) Telecommunications, (6) Transportation, (7) Sanitation, and (8) Cemetery Operations. The City charges a fee to customers to cover all or most of the cost associated with providing these services. Component Units - The City of Danville has two component units: (1) the Danville Public School System and (2) the Industrial Development Authority. While these represent legally separate entities, the City of Danville is financially accountable for them. These component units are combined and presented in a separate column on the government-wide statements to emphasize they are legally separate from the primary government. Fund Financial Statements A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. The City of Danville, like other state and local governments, uses fund accounting to ensure and demonstrate compliance with legal requirements. The City of Danville has three types of funds: Governmental Funds The Governmental Funds report essentially the same functions as the governmental activities in the government-wide financial statements. The governmental fund financial statements focus on the near-term cash inflows and outflows and the amount of spendable resources available at the end of the fiscal year. This information is useful when evaluating the City s near-term financing needs. Because the focus of the fund statements is narrower than that of the government-wide statements, it is useful to compare the information presented in both the fund and the government-wide statements. A reconciliation of the fund statements to the government-wide statements is provided to facilitate this comparison. A-7

56 The City of Danville maintains five individual governmental funds. Information is presented separately in the Balance Sheet-Governmental Funds and in the Statement of Revenues, Expenditures, and Changes in Fund Balances-Governmental Funds for the General Fund, the Community Development Fund, and the Capital Projects Fund. These funds are considered major funds. The Special Revenue Fund and the Cemetery Maintenance Fund are considered nonmajor funds. The data for these two funds are combined in a single column for the Balance Sheet-Governmental Fund and the Statement of Revenues, Expenditures, and Changes in Fund Balances Governmental Fund. Proprietary Funds The City of Danville maintains two types of proprietary funds: (a) utility enterprise funds and (b) internal services funds. Utility funds are used to report the same functions as the business-type activities in the government-wide financial statements. Wastewater, Water, Gas, and Electric are presented on the statements individually as major funds. Telecommunications, Transportation, Sanitation, and Cemetery Operations are combined as nonmajor funds. Utility funds are used to account for operations: (1) that are financed and operated in a manner similar to private business enterprises, where the intent of the governing body is the cost of providing goods or services to the general public on a continuing basis to be financed or recovered primarily through user charges or (2) where the governing body has decided that periodic determination of net income is appropriate for accountability purposes. Internal service funds are used to account for the financing of goods or services provided by one department or agency to other departments or agencies of the City, or to other governments on a cost reimbursement basis. The City of Danville has three internal service funds providing services to other City departments as follows: 1. Motorized Equipment acquires and maintains all vehicles used by the various departments of the City. The Fire Department purchases and maintains large equipment independent of motorized equipment. 2. Central Services provides office supplies and printing services for all of the City s departments. 3. Insurance provides general insurance coverage to all City departments, including areas such as workers compensation where the City is completely self-insured, and insurance coverage purchased from outside insurance companies. Fiduciary Funds Fiduciary funds are used to report assets held in a trustee or agency capacity for others and cannot be used to support the government s own programs. The City of Danville maintains three fiduciary funds: a Pension Trust Fund; an Other Postretirement Benefits Fund; and an Agency fund, the Veterans Memorial Fund. A-8

57 The Employees Retirement System of the City of Danville functions as an investment and administrative agent for the City s retirement plan. These activities are excluded from the government-wide financial statements because the City cannot use these assets to finance its operations. Similarly, the Other Postretirement Benefits Fund accounts for investments used to cover the liabilities associated with retiree health insurance benefits. These activities are also excluded from the government-wide financial statements because the City cannot use these assets to finance its operations. The Veterans Memorial Fund accounts for money held in trust to complete a memorial to our local veterans. This activity is also excluded from the government-wide financial statements because the City cannot use these assets to finance its operations. Notes to the financial statements The notes to the financial statements are an integral part of the statements and should be read in conjunction with the basic financial statements, Management s Discussion and Analysis, and the other required supplementary information. Government-wide Financial Analysis City of Danville Summary Statement of Net Assets June 30, 2012 Governmental Activities Business-type Activities Total Current and Other Assets $ 82,521,478 $ 82,170,893 $ 99,337,596 $ 105,301,501 $ 181,859,074 $ 187,472,394 Capital Assets 81,280,466 74,636, ,073, ,622, ,353, ,258,415 Total Assets $ 163,801,944 $ 156,807,069 $ 370,410,712 $ 368,923,740 $ 534,212,656 $ 525,730,809 Long-Term Liabilities Outstanding $ 36,617,528 $ 38,731,579 $ 56,409,075 $ 61,633,020 $ 93,026,603 $ 100,364,599 Other Liabilities 8,090,140 8,552,189 12,261,406 13,551,792 20,351,546 22,103,981 Total Liabilities $ 44,707,668 $ 47,283,768 $ 68,670,481 $ 75,184,812 $ 113,378,149 $ 122,468,580 Net Assets: Invested in Capital Assets, $ 49,638,230 $ 41,235,117 $ 215,409,229 $ 205,342,317 $ 265,047,459 $ 246,577,434 Net of Related Debt Restricted for Cemetery Maintenance 2,682,522 2,642, ,682,522 2,642,347 Restricted for Capital Projects 13,154,663 12,422,706 35,662,658 39,376,676 48,817,321 51,799,382 Restricted for Special Programs 55, , , ,537 Unrestricted 53,563,068 52,958,594 50,668,344 49,019, ,231, ,978,529 Total Net Assets $ 119,094,276 $ 109,523,301 $ 301,740,231 $ 293,738,928 $ 420,834,507 $ 403,262,229 The City s combined net assets at June 30, 2012 of $420,834,507, represents an increase of $17,572,278 from combined net assets at June 30, Twenty-five percent of total net assets ($104,231,412) is unrestricted and available for providing services to the citizens of the City of Danville and satisfying creditors. Sixty-three percent of total net assets is invested in capital assets (land, buildings, machinery, and equipment); less any related outstanding debt used to acquire these assets. These assets are used in providing services to the citizens; consequently, these assets are not available for future spending. Although the City of Danville s investment in capital assets is reported net of related outstanding debt, it should be noted that the resources needed to repay this debt must be provided from other sources. A-9

58 Twelve percent of total net assets is restricted for capital improvement projects. Invested in Capital Assets Net of Related Debt and restricted for Capital Projects combined represent seventy-five percent of total net assets. The remainder, less than one percent of net assets ($2,738,315), is restricted for other special projects (grants), debt service, net pension assets, and the perpetual care of the municipal cemetery. The composition of fund balance at June 30, 2011 was as follows: Unrestricted net assets - 25%, Invested in Capital Assets net of related debt 61%, Restricted for Capital Projects 13% (Invested in Capital Assets and Restricted for Capital Projects combined - 74%), and the remaining 1% was restricted for other purposes. Despite the local economic stresses, the City of Danville reported positive balances in all three categories of net assets for the government as a whole. Unrestricted net assets increased, as well as the net assets restricted for investment in capital assets net of related debt and restricted for capital projects. City of Danville Changes in Net Assets June 30, 2012 Governmental Activities Business-type Activities Total Primary Government Revenues: Program Revenues: Charges for Services $ 9,579,315 $ 7,506,972 $ 145,643,944 $ 155,622,527 $ 155,223,259 $ 163,129,499 Operating Grants and Contributions 41,329,002 39,799,066 2,085,091 2,101,602 43,414,093 41,900,668 Capital Grants and Contributions 8,702,174 4,654, ,283 1,511,920 8,928,457 6,166,182 General Revenues: Real Estate and Personal Property 26,720,274 25,869, ,720,274 25,869,256 Other Taxes (See Exhibit B for detail) 23,110,519 22,481, ,110,519 22,481,496 Interest on Investments 986, ,487 1,954,386 1,373,048 2,940,931 1,964,535 Bond Proceeds and miscellaneous 2,602,443 11,461,568 1,053, ,072 3,655,990 11,907,640 Total Revenues $ 113,030,272 $ 112,364,107 $ 150,963,251 $ 161,055,169 $ 263,993,523 $ 273,419,276 Expenses: General Government $ 21,239,721 $ 11,513,535 $ - $ - $ 21,239,721 $ 11,513,535 Judicial Administration 5,349,323 4,895, ,349,323 4,895,286 Public Safety 27,119,838 27,211, ,119,838 27,211,372 Public Works 12,690,486 10,468, ,690,486 10,468,862 Health and Welfare 11,614,813 12,236, ,614,813 12,236,155 Parks, Recreation, and Culture 5,235,582 6,227, ,235,582 6,227,105 Community Development 1,633,174 3,862, ,633,174 3,862,302 Education (payment to school district) 21,382,291 29,939, ,382,291 29,939,742 Interest on Long Term Debt 13,625,289 12,513, ,625,289 12,513,650 Wastewater - - 6,761,973 6,954,269 6,761,973 6,954,269 Water - - 5,541,327 5,407,252 5,541,327 5,407,252 Gas ,955,882 20,911,099 17,955,882 20,911,099 Electric ,185,930 95,215,780 89,185,930 95,215,780 Transportation - - 1,799,616 1,542,601 1,799,616 1,542,601 Telecommunication , , , ,711 Sanitation - - 3,527,317 3,536,253 3,527,317 3,536,253 Cemetery Operations , , , ,264 Total Expenses $ 119,890,517 $ 118,868,009 $ 126,530,728 $ 135,276,229 $ 246,421,245 $ 254,144,238 Subtotal Revenue over Expenses $ (6,860,245) $ (6,503,902) $ 24,432,523 $ 25,778,940 $ 17,572,278 $ 19,275,038 Transfers 16,431,220 13,411,864 (16,431,220) (13,411,864) - - Increase in Net Assets 9,570,975 6,907,962 8,001,303 12,367,076 17,572,278 19,275,038 Beginning Net Assets 109,523, ,615, ,738, ,371, ,262, ,987,191 Ending Net Assets $ 119,094,276 $ 109,523,301 $ 301,740,231 $ 293,738,928 $ 420,834,507 $ 403,262,229 A-10

59 Governmental Activities Governmental activities increased the City of Danville s net assets by $9,570,975. Revenues (including transfers) from governmental activities totaled $129,461,492, with Property Taxes 21%, Other Taxes 18%, Operating Grants and Contributions 32%, and Transfers 13%, representing 84% of the City s revenues. Expenses for governmental activities totaled $119,890,517, of which 49% was supported from program revenues and the remaining 51% from general revenues. Expenses for Public Safety 23%, Education 18%, Health & Welfare 10%, General Government 18% %, Public Works 11%, and Interest on Long-Term Debt 11% make up 91% of the total governmental expenses for the fiscal year. Expenses & Program Revenue Governmental Activities 40% 20% 0% Expenses Program Revenue Revenue by Source Governmental Activities 2% 7% Charges for Services 13% Operatingg Grants and 1% Contributions Capital Grants and Contributions 18% 32% Property Taxes Other Taxes Interest onn Investments Transfers 20% 7% Bonds/Miscellaneous A-11

60 Business-type Activities Business-type activities increased the City s net assetss by $8,001,303 compared to last year s increase in net assetss of $12,367,076. At June 30, 2012, total net assets were $301, 740,231 of which $35,662,658 was restricted for capital improvement projects and $50,668,344 was unrestricted. GASB Statement 34 requires that restricted assets have external restrictions imposed (grantors, contributions, and debt covenants) ). Revenues for business-type activities were $150, 963,251 of which 96% was from Charges for Services. For further examination of the enterprise funds, please refer to the Enterprise Funds section of the Financial Analysis of the Fund Financial Statements found on page 38. Expenses and Program Revenue Business Type Activities 80.0% 70.0% Program Revenue Expenses 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% Wastewater Water Gas Electric Non Major A-12

61 Financial Analysis of the Fund Financial Statements Governmental Funds Governmental funds reported a combined ending fund balance of $54,166,178, a decrease of $380,805 when compared with the combined fund balance at June 30, 2011 of $54,546,983. The fund balance in the Capital Projects Fund, also know as Construction In Progress (CIP), increased $731,957. Of the $18,914,601 expended in the CIP fund, $13,998,194 was expended in economic development. Funds of $728,407 were expended for streets and parking lot improvement and construction. $3,131,876 was expended for improvements to various public buildings, facilities, and equipment, school expansion, and information technology upgrades, and $1,056,124 was expended for improvements at the municipal airport. Fifty-seven percent ($30,690,145) of the combined governmental funds balance is unassigned fund balance, which is available for spending at the government s discretion. Thirty-eight percent ($20,592,186) of the combined fund balance is not available for new spending, because it has already been restricted, committed, or assigned to specific future expenditures. The remaining five percent ($2,883,847) of fund balance is not spendable as it represents inventories ($201,325) and investments for the perpetual care of the municipal cemetery ($2,682,522). The General Fund, which is the chief operating fund of the City, reports a combined fund balance at June 30, 2012 of $37,163,587. This is a decrease of $908,427 compared to last year s fund balance of $38,072,014. The General Fund reported an unassigned fund balance of $30,690,145, an increase of $339,679 from the June 30, 2011 unassigned fund balance of $30,350,466. The ability of the General Fund to generate cash on demand can be calculated by comparing both the unassigned fund balance and total fund balance to total funds expended. Unassigned fund balance represents 31% of total General Fund expenditures while total fund balance represents 54% of total fund expenditures. When transfers out of $9,015,451 are added to expenditures, then unreserved fund balance is 29% percent of expenditures and transfers out. The following table represents General Fund support shown as transfers out: Support of CIP Projects $4,738,200 Support of Regional Authority 887,400 Support of Economic Development 2,106,575 Support of Grants Support of Cemetery 1,082,496 13,300 Support of Transportation 187,480 $9,015,451 The decrease in fund balance of $908,427 resulted from $5,864,962 unexpended budgeted expenditures, $491,381 in additional revenue, and $3,929,000 proceeds from debt; offset by prior year encumbrance carryforwards of $5,543,195; unrealized transfers in of $1,500,000 and supplemental appropriations from fund balance of $4,150,575. A-13

62 Some key factors of unexpended appropriations are as follows: City Support of Public Schools had an unexpended balance of $1,841,772. Danville City Schools pulls local funding as needed and is allowed to carry unspent funding forward for future years. The unencumbered portion of this amount is reserved as a carryforward for fiscal Savings in salaries and related payroll taxes of just over $2,000,000 were realized through vacancies in the General Fund. Group Health insurance also reported a savings of nearly $2,000,000 which is shown in the City s Non-departmental expenditures. The remaining savings resulted from the conservatism of management in every department as the City attempted to uphold the level of services provided during the continued economic challenges of fiscal Key factors of the unrealized revenue are as follows: General Property Tax collections were $238,873 over budget. The primary components of this variance exist in the following areas: Real Estate $ 167,707 Personal Property $ 21,885 Public Service $ (5,389) Penalties & Interest $ 54,670 Real Estate realized additional revenues in delinquent taxes due to increased efforts in collections. The City s use of a collection agent combined with periodic publication of delinquent taxpayers names has proven effective. This is also demonstrated in the additional penalty and interest collections. Personal property tax revenues performed very close to budget. Collection of delinquent personal property taxes is pursued through utilization of the Virginia Debt Set-off Program, as well as the DMV Stop Program. Other Local Taxes exceeded the budget of $21,925,380 by $1,185,139. Nearly all categories of local tax revenue exceeded budgeted expectations, indicating some improvement in consumer confidence and the local retail economy. The FY 2012 budget had been conservative with respect to consumer taxes such as sales tax, meals tax, and business licenses. Local Sales Taxes were collected at 107% of budget, Business Licenses were collected at 104% of budget, Hotel Taxes were at 104% of budget, and Prepared Meals Tax collections also outperformed estimates at 105% of budget. Areas contributing to the budget variance include: A-14

63 Local Sales Tax Prepared Meals Tax Business Licenses Bank Stock Taxes Hotel & Lodging Tax Others $ $ $ $ $ $ 511, , , ,434 25,764 19,575 Revenue from the use of $906,300. Interest rates the year. money totaled $1,422,237, exceeding the FY 2012 budget of during FY 2012 remained higher than the City s forecast for Revenue from the Commonwealth of Virginia was significantly under budget as the State made changes to the child daycare payment processes. In the past, the locality received funding from the State to pay providers. Providers of this service are now paid directly. This caused a negative budget variance of $1,391,854 in welfare funding, but has a related offset in the City s expenditures. The following graph depicts General Fund revenuee by categories as a percent of total revenues for fiscal year ending June 30, Total revenues are $102,,402,547, ncluding transfers in of $13,632,000. Revenue by Category 13% 2% 27% Property Taxes Local Taxes Charges for Services Recovered Cost 26% Intergovernmental Transfers 23% Other 6% 3% A-15

64 The next graph shows General Fund expenditure es by category as a percent of total expenditures for fiscal year ending June 30, Total expenditures are $107,160,524, including transfers out of $9,015,451. Expenditures by Category 6% 1% 4% 7% 8% 7% 5% 24% General Government Adm. Judicial Administration Public Safety Public Works Health and Welfare Education Parks, Rec., & Tourism Community Development 19% Non Departmental 8% 11% Debt Service Transfers Enterprise Funds Enterprise funds reported combined ending net assets of $301,740,231; an increase of $8,001,303 compared to combined net assets reported at June 30, Each of the following enterprise funds contributed to this increase: Electric Fund, 68% or $5,437,053; Wastewater Fund, 33% or $2,630,921; Gas Fund, 3% or $277,104; Telecommunications Fund, 3% or $240,556; Sanitation Fund, 2% or $130,043; Cemetery Operations Fund, 2% or $156,780; and the Transportation Fund, 4%, or $356,015. A decrease in net assets was reported in the Water Fund, $1,227,169 (15%). FY 2012 revenues from all sources combined, including contributed capital and transfers in, decreased $8,806,281 when compared to the previouss fiscal year ended June 30, The details of this net decrease in revenue result from the following: Charges for Services Gain (Loss) on Fixed Assets Jobbing Income Interest Income Grants Sales/Rental/Transfers/Inkind/ / $ (9,978,583) $ (129,552) $ 459,144 $ 710,890 $ (136,551) $ 268,371 A-16

65 Charges for Services decreased in the Electric Fund $6,718,024, reflecting the milder temperatures experienced during both the cooling and heating seasons in comparison to the prior fiscal year. Likewise, the cost of purchased power fell proportionately. There were no increases in utility rates during FY A decrease of $3,225,073 in gas revenue resulted from the loss of consumption during the milder winter as well. The Water and Wastewater Funds remained fairly constant with a combined decrease of $281,703 related to a decrease in consumption. Non-major Funds (Transportation, Sanitation, Cemetery, and Telecommunication) were fairly stable with a combined increase of $246,217, primarily resulting from increases in Cemetery fees. The increase in interest income resulted from slightly higher interest rates than were experienced during the prior fiscal year. Jobbing income increased because of additional commercial service needs in the Electric Fund. Income before contributions and transfers for all enterprise funds combined compared very consistent with the prior year, decreasing by $60,780. The Utilities contributed $13,632,000 in transfers to the General Fund and $3,000,000 in transfers to the Capital Projects Fund for fiscal year ending June 30, Enterprise Funds net assets of $301,740,231 include $50,668,344 unrestricted, $35,662,658 restricted for incomplete projects, and $215,409,229 invested in capital assets, net of related debt. General Budgetary Highlights City of Danville General Fund Budget Year Ended June 30, 2012 Original Amended Budget Budget Actual Revenues, Transfers, and Other Financial Sources Taxes $ 48,950,480 $ 48,970,640 $ 50,394,652 Intergovernmental 28,287,700 28,344,890 26,780,931 Transfers and Other 25,561,020 26,095,636 29,155,964 Total 102,799, ,411, ,331,547 Expenditures, Transfers, and Other Financial Uses Expenditures 96,701, ,030,499 98,145,073 Transfers and other 6,097,430 9,186,977 9,094,901 Total 102,799, ,217, ,239,974 Change in Fund Balance $ 0 $ (9,806,310) $ (908,427) A-17

66 Differences between the City s original operating budget for expenditures and transfers and the final amended budget resulted from carryforwards and prior year encumbrances of $5,655,735 and additional appropriations totaling $4,762,541. $611,966 of the additional appropriations had matching revenues and the remaining $4,150,575 was appropriated from fund balance, represented as follows: Appropriations with matching revenue: Police Forfeited Funds $ 55,790 Fire/Emergency Grants and Donations $ 10,974 Juvenile Detention Electronic Monitoring $ 63,617 Police Special Duty Pay $ 455,812 Hazardous Material Response $ 1,400 Project Lifesaver $ 4,213 DMV Stop Administrative Fees $ 20,160 Appropriations from fund balance: GSO Aviation, Inc. - Building $ 1,631,575 FY 2012 VDOT Revenue Sharing $ 1,000,000 One-Time Employee Bonus $ 869,000 Repayment of Rail Grant - Swedwood $ 450,000 Electronic Data Storage Equipment $ 200,000 As explained on pages 36 and 37, tax revenues performed slightly better than budget with surplus local tax collections helping to minimize the cuts in funding from the Commonwealth of Virginia. The positive budget variance in expenditures resulted primarily from delayed transfers to the Danville City School System ($1.8 million). The school funds have been encumbered and will be transferred during fiscal 2012 as needed. Budget savings were also realized through personnel vacancies ($2 million), changes in group health insurance ($2 million), and cost cutting measures taken in all City departments. Capital Assets and Debt Administration Capital Assets As of June 30, 2012, the City of Danville s capital assets investment for its governmental and business-type activities amounts to $352,353,582 (net of accumulated depreciation). Capital assets include land, buildings and improvements, machinery and equipment, park facilities, roads, highways, and bridges. For further analysis of capital assets, please refer to note 5 in the notes to the financial statements. A-18

67 Major capital asset events during the current fiscal year included the following: Many of the City s software systems and infrastructure were upgraded in FY 2012, with costs totaling approximately $629,734. The City also invested $1,062,817 of capital improvement funds toward public safety with construction at the Adult Detention Center, Fire Department equipment, and initial costs toward a new headquarters for the Fire Department. Economic development spending totaled nearly $14 million for FY Incentives were granted to Engineered BioPharmaceuticals, Inc., Noblis, Battolli, NextGen, Hybrid Vehicles of Danville, Web Parts, LLC, and RDD, Inc. All of these businesses have recently made Danville their home, which has boosted our local economy and created numerous jobs. Improvements in the amount of $2,382,110 were made to the infrastructure, such as streets, parking lots, and various public buildings, parks, trails, and facilities throughout the City. Of this amount, $1,056,123 was spent to improve Airport facilities. The City also spent $750,947 in its blight eradication efforts and $90,798 toward the planning and development of the River District. City of Danville Capital Assets (net of depreciation) June 30, 2012 Governmental Business-type Activities Activities Total Land $ 19,598,641 $ 1,455,954 $ 21,054,595 Building & Improvements 22,236, ,516, ,753,328 Machinery & Equipment 5,892,354 27,697,821 33,590,175 Infrastructure 8,131,914-8,131,914 Construction in Progress 15,830,534 43,402,975 59,233,509 Subtotal 71,690, ,073, ,763,521 Assets Transferred from School Board 9,590,061-9,590,061 Total $ 81,280,466 $ 271,073,116 $ 352,353,582 Long-term debt At the end of the current fiscal year, the City of Danville had total outstanding general obligation debt of $84,795,333 and revenue bonded debt of $2,862,396 for a total of $87,657,729. City of Danville's Outstanding Debt Bonds and Related Loans Governmental Business-type Activities Activities Total General Obligation Bonds $ 31,732,974 $ 29,882,557 $ 53,062,359 $ 55,336,177 $ 84,795,333 $ 85,218,734 Revenue Bonds - - 2,862,396 3,440,544 2,862,396 3,440,544 Capital Lease Revenue Bonds - 3,681, ,681,077 Total $ 31,732,974 $ 33,563,634 $ 55,924,755 $ 58,776,721 $ 87,657,729 $ 92,340,355 A-19

68 The lease-revenue bonds shown in FY 2011 covered an expansion of the juvenile detention home and were replaced with General Obligation Bonds during FY During fiscal year 2012, the City of Danville issued $3,929,000 General Obligation Refunding Bond, Series 2011 as a tax-exempt private placement to American National Bank. The Series 2011 was issued to refinance the balance of its outstanding lease obligations incurred in connection with the issuance by the Danville Redevelopment and Housing Authority of its Public Facility Lease Revenue Bonds (Danville Juvenile Detention Facility Project), Series The proceeds of this refunding were placed in trust with the escrow agent for all future debt service payments associated with the original lease obligation. This resulted in a debt service savings of $439,654 over the life of the bonds. As a result, the bonds are considered to be defeased. The City of Danville s debt management policy states that debt supported by General Fund tax revenue will not exceed 3.0% of total taxable assessed value of property within City limits. For the purposes of calculating this ratio, assessed value includes real property and personal property. At June 30, 2012, debt to assessed value was 1.17%. Additional information on the City of Danville s long-term debt can be found in note 7 of the notes to the financial statements. Economic Factors and Next Year s Budget and Rates As of September 30, 2012, the average unemployment rate for the City of Danville was 7.9 percent, which is a decrease from a rate of 10.0 percent at September 30, This compares to the Commonwealth s average unemployment rate of 5.6 percent and the national average rate of 7.6 percent. Danville continues to make economic development a priority in its effort to reduce unemployment. From August 2011 to May 2012, the City has announced 560 new jobs and capital investments of $22.5 million. For fiscal year 2013, the City s General Fund budget includes $1,055,000 in economic development incentives. During fiscal year , management continued its goal to stabilize utility rates for electric services charged to its consumers. Utility rates have increased in past years in response to dramatic increases in purchased power costs for gas and electricity and the falling demand for water and wastewater services resulting from loss of industry. There were no tax rate changes passed in the adoption of the FY 2013 budget. Danville has an estimated population of 43,332, based on the 2010 census. The most recent data shows per capita income of $30,587 for Danville and $45,920 for the Commonwealth of Virginia. A-20

69 Danville is located in the southern region of the United States. According to the consumer price index, Danville and the southern region have a lower cost of living compared to other regions in the United States. Primary revenue sources for the City s General Fund are property taxes, sales taxes, business and occupational licenses, meals taxes, state revenues, and contributions from the City s Utility Departments. In establishing the budget, historical and trend data are analyzed. In addition to analyzing historical data, economic indicators and the impact the economy will have on the historical data is taken into consideration. Throughout the year, management monitors revenues and economic indicators to determine if they are on target with the analysis used to develop the budget. Other Financial Indicators Dollars per capita General Fund revenues per capita (excludes transfers) Fiscal Year Dollars per capita General Fund expenditures per capita (excludes transfers) Fiscal Year General Fund revenues and expenditures per capita have both trended upward over the last five years despite the economic downturn over the last 24 months. Although the overall increase in revenue per capita is partially attributable to a declining population, there was a 2% increase in revenues from 2011 to 2012 and a 1% increase in population estimates for FY 2012 as well. Expenditures have increased 6% from 2008 to 2012, demonstrating management s excellent efforts in containing costs despite ever increasing costs of goods and services. Expenditures in FY 2012 increased about $5 million due to debt refinancing and debt service, as well as an increase in support of the public schools. Danville s population has shown decreases up until the current fiscal year. It is anticipated that through the economic development efforts, and downtown revitalization, the City will see the population stabilize and increase in the future. Requests for Information This financial report is designed to provide a general overview of the City of Danville s finances. Questions concerning any of the information provided in this report or requests for additional financial information should be addressed to the City of Danville, Director of Finance, 427 Patton Street, Danville, Virginia A-21

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71 CITY OF DANVILLE, VIRGINIA Financial Statements For the Year Ended June 30, 2012 A-23

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87 CITY OF DANVILLE, VIRGINIA Notes to the Financial Statements For the Year Ended June 30, 2012 A-39

88 CITY OF DANVILLE, VIRGINIA NOTES TO FINANCIAL STATEMENTS June 30, Organization and Nature of Operations Reporting Entity The City of Danville (City), located in southwest Virginia at the North Carolina border, was founded in 1793 and chartered in The City covers an area of approximately 44 square miles and has a population of approximately 43,000. The City is governed under the City Manager-Council form of government. The City engages in a comprehensive range of municipal services, including general government administration, public safety and administration of justice, education, health, welfare, housing and human service programs, transportation and environmental services, planning, community development and recreation, cultural, library, and historic activities. 2. Summary of Significant Accounting Policies The financial statements of the City of Danville, Virginia have been prepared in conformity with the specifications promulgated by the Auditor of Public Accounts (APA) of the Commonwealth of Virginia, and the accounting principles generally accepted in the United States of America as specified by the Governmental Accounting Standards Board (GASB). The more significant of the government s accounting policies are described below. A. Financial Reporting Entity The City follows GASB Statement No. 34 (GASB 34), Basic Financial Statements Management s Discussion and Analysis for State and Local Governments. This statement requires the following financial statement components: 1. Management s Discussion and Analysis A narrative introduction and analytical overview of the government s financial activities. This analysis is similar to the analysis the private sector provides in their annual reports. 2. Government-wide financial statements These include the financial statements prepared using full accrual accounting for all of the government s activities. This approach includes not just current assets and liabilities (such as cash and accounts payable) but also capital assets and long-term liabilities (such as buildings and infrastructure, including bridges and roads, and general obligation debt). Accrual accounting also reports all of the revenues and cost of providing services each year, not just those received or paid in the current year or soon thereafter. The government-wide statements include the Statement of Net Assets and the Statement of Activities. 3. Statement of Net Assets The Statement of Net Assets displays the financial position of the primary government (government and business-type activities) and its discretely presented component units. Governments report all capital assets, including infrastructure, in the government-wide Statement of Net Assets and report depreciation expense - the cost of using up capital assets - in the Statement of Activities. The net assets of a government are broken down into three categories: 1) invested in capital assets, net of related debt; 2) restricted; and 3) unrestricted. Invested in capital assets, net of related debt is comprised of capital assets less long-term debt related to these assets. Compensated absence liabilities are not a part of this calculation. Restricted assets are defined as assets restricted from or by A-40

89 parties outside the City. Unrestricted is defined as the remaining assets available for unrestricted use by the City. 4. Statement of Activities - The Statement of Activities reports expenses and revenues in a format that focuses on the cost of each of the government s functions. The expense of individual functions is compared to the revenues generated directly by the function (for instance, through user charges or intergovernmental grants). 5. Budgetary comparison schedules - Demonstrating compliance with the adopted budget is an important component of a government s accountability to the public. Many citizens participate in the process of establishing the annual operating budgets of the state and local governments, and have a keen interest in following the actual financial progress of their governments over the course of the year. The City and many other governments revise their original budgets over the course of the year for a variety of reasons. As required by accounting principles generally accepted in the United States of America, these financial statements present the primary government and its component units, entities for which the government is considered to be financially accountable. Blended component units, although legally separate entities, are, in substance, part of the government s operations, therefore data from these units would be combined with data of the primary government. The City has no component units that meet the requirements for blending. The discretely presented component units, on the other hand, are reported in a separate column in the government-wide statements to emphasize they are legally separate from the primary government. Each discretely presented component unit has a June 30, fiscal year-end. B. Government-wide and Fund Accounting Financial Statements The basic financial statements include both government-wide (based on the City as a whole) and fund accounting financial statements. While the reporting model before GASB 34, emphasized fund types (the total of all funds of a particular type), in the new reporting model the focus is on either the City as a whole or major individual funds (within the fund financial statements). Both the governmentwide and fund accounting financial statements (within the basic financial statements) categorize primary activities as either governmental or business-type. In the government-wide Statement of Net Assets, both the governmental and business-type activities columns are: (a) presented on a consolidated basis by column, and (b) reflected on a full accrual, economic resource basis, which incorporates long-term assets and receivables as well as long-term debt and obligations. The City generally first uses restricted assets for expenses incurred for which both restricted and unrestricted assets are available. The City may defer the use of restricted assets based on a review of the specific transaction. The government-wide Statement of Activities is reported using the economic resources measurement focus and the accrual basis of accounting which reflects both the gross and net cost per functional category (public safety, public works, health and welfare, etc.), which are otherwise being supported by general government revenues (property, sales and use taxes, certain intergovernmental revenues, fines, permits and charges, etc.). The Statement of Activities reduces gross expenses (including depreciation) by related charges for services, operating and capital grants, and contributions. The charges for services must be directly associated with the function (public safety, public works, health and welfare, etc.) or be a business-type activity. The City does not allocate indirect expenses. The operating grants include operating-specific and discretionary (either operating or capital) grants while the capital grants column reflects capital-specific grants. As a general rule, the effect of interfund activity has been eliminated from the government-wide financial statements. The governmental funds major fund statements in the fund financial statements are presented on a current financial resource measurement focus and modified accrual basis of accounting. This is the manner in which these funds are normally budgeted. Since the governmental fund statements are presented on a different measurement focus and basis of accounting than the government-wide statements governmental column, a reconciliation is presented which briefly explains the adjustments necessary to reconcile the fund based financial statements with the governmental column of the government-wide presentation. A-41

90 The City s fiduciary funds (which have been redefined and narrowed in scope) are presented in the fund financial statements by type (pension, other postemployment benefit, and agency). Since by definition these assets are being held for the benefit of a third-party and cannot be used to address activities or obligations of the government, these funds are not incorporated into the government-wide statements. The focus of the model is on the City as a whole and the fund financial statements, including the major individual funds of the governmental and business-type categories, as well as the fiduciary funds (by category), and the component units. Each presentation provides valuable information that can be analyzed and compared (between years and between governments) to enhance the usefulness of the information. In the fund financial statements, financial transactions and accounts of the City are organized on the basis of funds. The operation of each fund is considered to be an independent fiscal and separate accounting entity, with a self-balancing set of accounts recording cash and/or other financial resources together with all related liabilities and residual equities or balances, and changes therein, which are segregated for the purpose of carrying on specific activities or attaining certain objectives in accordance with special regulations, restrictions, or limitations. 1. Governmental Funds Governmental funds are those through which most governmental functions typically are financed. a. General Fund The General Fund is the primary operating fund of the City. This fund is used to account for all financial transactions and resources except those required to be accounted for in another fund. Revenues are derived primarily from property and other local taxes, state and federal distributions, licenses, permits, charges for services, and investment income. A significant part of the General Fund s revenues is transferred to other funds and component units, principally to finance the operations of the City of Danville s Public Schools. b. Community Development The Community Development Fund accounts for all financial resources used for the growth of the City through state, federal, and local grants and donations. This fund is accounted for as a major governmental fund for reporting purposes by the City. c. Capital Projects Fund The Capital Projects Fund accounts for all financial resources used for the acquisition or construction of major capital facilities not being financed by enterprise or nonexpendable trust funds. The Capital Projects Fund is considered a major governmental fund for reporting purposes. d. Special Revenue Fund The Special Revenue Fund accounts for revenue derived from specific sources (other than major capital projects) that are restricted by legal and regulatory provisions to finance specific activities. The Special Revenue Fund is considered a nonmajor governmental fund for reporting purposes. e. Cemetery Maintenance Fund The Cemetery Maintenance Fund accounts for the financial resources used for the maintenance of the City s cemetery. All funds are generated by the sale of perpetual care contracts, and only the interest is used for the benefit of the primary government. This fund is accounted for as a permanent (nonmajor) fund for governmental reporting purposes. A-42

91 2. Proprietary Funds Proprietary Funds are used to help pay for services that are not considered to be entitled to its customers without using monies set aside for regular operation. a. Enterprise Funds Enterprise Funds are used to account for activities that are similar to those often found in the private sector. All assets, liabilities, equities, revenues, expenses, and transfers relating to the government s business activities are accounted for through enterprise funds. The measurement focus is on determination of net income, financial position, and cash flows. Operating revenues include charges for services. Operating expenses include costs of services as well as materials, contracts, personnel, and depreciation. In accordance with Governmental Accounting Standards Board Statement No. 20, Accounting and Financial Reporting for Enterprise Funds and Other Governmental Entities That Use Enterprise Fund Accounting, the City has elected to follow GASB statements issued after November 30, 1989, rather than the Financial Accounting Standards Board, in accounting for Enterprise funds. Enterprise Funds account for operations that are financed in a manner similar to private business enterprises, where the intent is that costs of providing goods or services to the general public on a continuing basis be financed or recovered primarily through user charges. The City defines operating revenues and expenses as those generated by the principal ongoing operation of the enterprise fund. Nonoperating revenues and expenses are those activities not generated by the ongoing activities of the fund such as interest income and expense, gain or loss on sale of capital assets and miscellaneous recoveries and rebates. The City s major Enterprise Funds are used to account for wastewater, water, gas, and electricity. The City s nonmajor Enterprise Funds are used to account for transportation, sanitation, telecommunications, and cemetery operations. b. Internal Service Fund The Internal Service Fund accounts for the financing of goods or services provided by one department to other departments or agencies of the City on a cost-reimbursement basis. The Internal Service Fund is included in governmental activities for government-wide reporting purposes. The excess revenue or expenses for the fund are allocated to the appropriate functional activity. Major internal service funds are used to account for the activities of the City s motor pool, central printing, and insurance. 3. Fiduciary Funds Fiduciary Funds are used to account for assets held by the City in a trustee capacity or as an agent for individuals, private organizations, and other governments. The two major fiduciary funds of the City are used to account for the City s Employee Retirement System activity and the Other Postemployment Benefits activity. For accounting measurement purposes, the Pension Trust Funds are accounted for in essentially the same manner as enterprise funds. The Pension Trust Funds account for the assets of the City s pension plan and benefit plan. Agency Funds are custodial in nature (assets equal liabilities) and do not involve measurement of results of operation. The only agency fund is the Veteran s Memorial Fund which is managed by the City for the benefit of the local memorial and funded by private donations. Fiduciary funds are not included in the government-wide financial statements. C. Discretely Presented Component Units Danville Public Schools (DPS) are organized as an independently governed school system for operating the public schools of the City. Board members are appointed by City Council by authority of the City Charter. Danville Public Schools are financially dependent on appropriations by the City Council for current operations, and any surplus funds are returned to the City annually. In addition, major capital improvements are financed by long-term debt issued by the City. In accordance with A-43

92 requirements of the Auditor of Public Accounts of the Commonwealth of Virginia, Danville Public Schools are considered to be a major component unit of the City. The Industrial Development Authority (IDA) was created as a political subdivision of the Commonwealth of Virginia by ordinance of the City Council pursuant to provisions of the Industrial Revenue Bond Act of the Code of Virginia (1950) as amended. Seven directors appointed by the City Council of Danville govern the IDA. The City provides the majority of the IDA s funding. The IDA operates as a component unit solely for the purpose of economic development for the City of Danville. It is authorized to acquire, own, lease, and dispose of properties to the end that such activities may promote industry and develop trade by inducing enterprises to locate and remain in Virginia. These financial statements are shown on Exhibits J and K. Complete financial statements for each of the component units may be obtained at the entity s offices: Danville Public Schools P.O. Box 9600 Danville, Virginia Industrial Development Authority of Danville P.O. Box 3300 Danville, Virginia D. Danville s Jointly Governed Organizations City Council, in conjunction with the Board of Supervisors of Pittsylvania County, Virginia (County), established Danville-Pittsylvania Community Services (DPCS) in 1972 to implement the provisions of Chapter 10 of Title 37.1 of the Code of Virginia (1950), as amended. The primary function of DPCS is the establishment and operation of mental health, mental retardation, and substance abuse programs within the jurisdictional limits of the City and County. Seven members of the fifteen-member board of directors are appointed by City Council, and the County s Board of Supervisors appoints the remaining eight members. The Board of Directors approves its own budget and maintains oversight of all programs. Most of the funding for DPCS comes from state and federal grants, as well as from charges for services. The City and County provide some financial assistance, but DPCS is not financially dependent on the City or the County. While not a component unit of the City or the County, DPCS is considered to be a jointly governed organization since neither the City nor the County has determinable ongoing financial interests, in, or responsibilities for, DPCS. During the year ended June 30, 2012, the City provided $170,938 in funding for Danville-Pittsylvania Community Services. In addition, state and federal grants totaling $9,244,629 passed through the City to DPCS. In July 1995, City Council approved an intergovernmental agreement with Pittsylvania County, Virginia, establishing the Danville-Pittsylvania Community Policy and Management Board (Board). This Board was created under the provisions of the Virginia Comprehensive Services Act for at-risk youth and families, establishing a Family Assessment Team to review individual needs and to make recommendations to the Board. Pittsylvania County acts as fiscal agent for the Board and provides office space and personnel. The City of Danville has agreed to reimburse the County for 50% of the operating costs as well as provide legal services. While not a component unit of the City or the County, the Board is considered to be a jointly governed organization, since neither the City nor the County has determinable ongoing financial interests in, or responsibilities for, the Board. During the year ended June 30, 2012, the City provided $68,791 in funding for the Danville-Pittsylvania Community Policy and Management Board. In 2001, the Danville-Pittsylvania Regional Industrial Facility Authority (Facility Authority) was created by ordinance of the Board of Supervisors of Pittsylvania County, Virginia, and the City Council of Danville, Virginia, to promote and further the purposes of the Virginia Regional Industrial Facilities Act, Chapter 64, Title 15.2 of the Code of Virginia (1950), as amended (Facility Act). The Facility Authority is an entity jointly owned by the City of Danville and Pittsylvania and is a political subdivision of the Commonwealth. The Facility Authority is empowered, among other things, to borrow money to pay the costs of real estate and all improvements located in industrial parks intended to be occupied A-44

93 by manufacturing, warehousing, distribution, office or other commercial enterprise. In addition, the Facility Authority is authorized under the Facility Act to issue revenue bonds to finance facilities for such enterprises and to refund such bonds. The Facility Authority has no taxing power. Commitments/Subsequent Events The Facility Authority has the following commitments at June 30: Approximately $1.2 million in outstanding engineering and consulting contracts, of which $166,000 had not been expended. On October 9, 2012, the Authority entered into a $1,781,119 contract for design and engineering of the Berry Hill connector road. A portion of those costs will be reimbursed by the Virginia Tobacco Indemnification and Community Revitalization Commission through a grant agreement between the Authority and the Commission. E. Basis of Accounting The Government-wide Statement of Net Assets and Statement of Activities, all enterprise funds and pension trust funds are accounted for using the economic resources measurement focus and the accrual basis of accounting. With this measurement focus, all assets and all liabilities associated with the operation of these activities are included on the Statement of Net Assets. Proprietary fund-type operating statements present increases; e.g., revenues, and decreases; e.g., expenses as changes in net assets. Long-term assets and long-term liabilities are included in the government-wide statements. In accordance with the principles of consolidation, all internal balances between governmental and business-type activities have been eliminated in the statement of net assets. All internal activity between the governmental and business-type funds has been eliminated in the government-wide statement of activities. The Statement of Net Assets and Statement of Activities of the enterprise funds, all internal service funds and fiduciary funds are presented on the accrual basis of accounting. Under this method of accounting, revenues are recognized when earned and expenses are recorded when liabilities are incurred without regard to receipt or disbursement of cash. The accounting and financial reporting treatment applied to a fund is determined by its measurement focus. All governmental funds are accounted for using the current financial resources measurement focus and the modified accrual basis of accounting. With this measurement focus, only current assets and current liabilities are generally included on the balance sheet in the funds statements. Operating statements of these funds present increases; i.e., revenues and other financing sources and decreases; i.e., expenditures and other financing uses, as changes in fund balances. The fund financial statements of the General, Special Revenue, Capital Projects, and nonmajor governmental funds are maintained and reported on the modified accrual basis of accounting. Under this method of accounting, revenues are recognized in the period in which they become measurable and available. With respect to real and personal property tax revenues and other local taxes, the term available is limited to collection within forty-five days of the fiscal year-end. Levies made prior to the fiscal year-end, but which are not available, are deferred. Investment income is recorded as earned. Federal and state reimbursement-type grants are recorded as revenue when related eligible expenditures are incurred. Expenditures, other than accrued interest on long-term debt, are recorded when the fund liability is incurred. F. Cash and Investments Cash resources of the individual funds, excluding cash held with fiscal agents in the General Fund, Special Revenue Fund, Capital Projects Fund, Enterprise Funds, and Fiduciary Funds, are combined to form a pool of cash and investments to maximize earnings. Investments in the pool consist of obligations of the federal government and are recorded at fair value. Income from pooled investments is allocated only when contractually or legally required. All investment earnings are allocated to the various funds based on their equity in the investment pool. A-45

94 For purposes of the statement of cash flows, the Enterprise Funds consider all highly liquid investments with maturity of three months or less when purchased to be cash equivalents. The fair value of investments is based on quoted market prices; no investments are valued at cost, except for certificates of deposit. All investments in external investment pools are reported at fair value. G. Allowance for Uncollectible Accounts The City calculates its allowance for uncollectible accounts using historical collection data and, in certain cases, specific account analysis. General Fund allowance: Fines and forfeitures receivable $ 3,457,310 Taxes receivable 884,215 Miscellaneous reserves 363,360 $ 4,704,885 Enterprise Fund allowance: Consumer receivables Wastewater $ 4,400 Water 500 Gas 7,200 Electric 56,600 $ 68,700 The component units customer accounts receivable are considered fully collectible, and; therefore, an allowance for uncollectible accounts is not applicable to those receivables. H. Inventories of Supplies, Prepayments and Other Assets 1. Primary Government Inventories in the General Fund consist of expendable supplies held for consumption. The costs are recorded as expenditures under the purchase method. Purchases of noninventory items are recorded as expenditures under the consumption method, resulting in prepaid expenditures. Prepaid expenditures in reimbursable grants are offset by deferred revenue until expenditures are recognized. Inventories in the General Fund are costed on the first-in, first-out basis, and Enterprise Funds are costed by the moving-average cost method. 2. Component Units Inventories for Danville Public Schools are comprised of food, supplies, and textbooks held for consumption. Quantities on hand at year-end are recorded at cost on the balance sheet with an offsetting reservation of fund balance, which indicates they do not constitute expendable available financial resources. The cost of textbooks is determined by current replacement cost adjusted for estimated wear and tear. I. Capital Assets Capital outlays are recorded as expenditures of the General, Special Revenue, and Capital Projects Funds and as assets in the government-wide financial statements to the extent the City s capitalization threshold is met. In accordance with GASB Statement No. 34, infrastructure has been capitalized retroactively to Depreciation is recorded on general capital assets on a government-wide basis. Capital outlays of the Enterprise Funds are recorded as capital assets and depreciated over their estimated useful lives on a straight-line basis on both the funds basis and the government-wide basis. The capitalization threshold for capitalizing capital assets is $5,000, and the infrastructure capitalization threshold is $100,000. All capital assets are valued at historical cost or estimated historical cost if actual cost is not available. Donated capital assets are valued at their A-46

95 estimated fair market value on the date donated. The City does not capitalize historical treasures or works of art. The City maintains many items and buildings of historical significance. The City does not require that the proceeds from the sale of historical treasures or works of art be used to acquire other items for the collection. Maintenance, repairs, and minor equipment are charged to operations when incurred. Expenditures that materially change capacities or extend useful lives of capital assets are capitalized. Upon sale or retirement of land, buildings, and equipment, the cost and related accumulated depreciation, if applicable, are eliminated from the respective accounts, and any resulting gain or loss is included in current year s operations. J. Compensated Absences and Other Employee Benefits Expenditures for compensated absences and self-insured group hospitalization and workers compensation in governmental funds are recorded when the obligations are paid. The current portions are not recorded as liabilities in governmental funds since these will not be liquidated with expendable available financial resources. Compensated absences are reported in governmental funds only if they have matured. The amounts reported are the unused reimbursable compensated absences still outstanding following an employee s resignation or retirement. In enterprise funds, both the expenses and the liabilities are recorded as the benefits are earned. All liabilities, current and long-term, are recorded in the Government-wide Statement of Net Assets. 1. Vacation Pay The City s policy regarding vacation pay allows for the unlimited accumulation of unused benefits. Unused vacation pay is paid upon termination of employment. The Danville Public Schools allows for the accumulation of vacation pay that may be used by employees when retiring early, but is not paid at termination. 2. Sick Pay Accumulated sick leave benefits earned but unpaid at the end of the fiscal year are recorded as a liability at the balance sheet date. Accumulated sick leave is paid to employees upon retirement from employment at a rate of $1.50 per hour up to a maximum of 960 hours ($1,440 per employee). Up to one year of unused sick leave may be applied to total service years upon retirement. 3. Group Hospitalization All permanent employees of the City, including elected officials and their staff, are eligible to participate in the City s group insurance program. The City contributes 70% of the premium for active participating employees. The City is self-insured for group hospitalization with the exception of $125,000 stop loss coverage. 4. Workers Compensation The City is self-insured for all workers compensation claims. There were no significant claims incurred but not reported as of June 30. Liabilities are estimated on a case-by-case review of all outstanding claims by an independent claims agent. 5. Other Postemployment Benefits All permanent employees of the City are eligible to continue their hospitalization and group life insurance into retirement. The City contributes 13% of the premium for retirees who are under 65 years of age and who retired prior to January 1, Retirees under age 65, who retired after January 1, 2009, pay 100% of the premium. Retirees over 65 years of age can continue their hospitalization insurance as a supplement to Medicare, but must pay 100% of the premium. A-47

96 Danville Public Schools allow employees who participate in the Supplemental Retirement Plan to continue coverage under the School Board s health insurance program. The retirees pay the entire premium. Retirees who qualify to receive Virginia Retirement System (VRS) retirement benefits may continue in the VRS group life insurance program. The VRS does not charge a premium for this coverage. K. Deferred Revenue Included in deferred revenue in the Governmental Funds Balance Sheet is $9,719,838 of property taxes not collected within forty-five days of year-end. L. Long-Term Debt For governmental fund types, bond premiums or discounts as well as issuance costs are recognized during the current period. Bond proceeds are reported as another financing source net of the applicable premium or discount. Issuance costs, even if withheld from the actual net proceeds received, are reported as debt service expenditures. For enterprise fund types, bond premiums and discounts are deferred and amortized over the life of the bonds using the straight-line method, which is not materially different from the effective interest method. Bonds payable are reported net of the applicable bond premium or discount. Issuance costs are expensed in the year of issue. M. Fund Balance Beginning July 1, 2010, the City implemented GASB Statement No. 54, Fund Balance Reporting and Governmental Fund Type Definitions which redefined how fund balances of the governmental funds are presented in the financial statements. Fund balance classification: Nonspendable - fund balance category includes amounts associated with inventories, prepaids, long-term loans and notes receivable, and property held for resale (unless the proceeds are restricted, committed, or assigned). Restricted - fund balance category includes amounts that can be spent only for the specific purposes stipulated by constitution, external resource providers, or through enabling legislation. Committed - fund balance category includes amounts that can be used only for the specific purposes determined by a formal action of the government s highest level of decision-making authority. The Danville City Council serves as the highest level of decision-making authority for the local government of Danville, Virginia. Assigned - fund balance category includes amounts intended to be used by the City for specific purposes but which do not meet the criteria to be classified as restricted or committed. In governmental funds other than the General Fund, assigned fund balance represents the remaining amount that is not restricted or committed. Assignments are made with the joint approval of the City Manager and the Director of Finance. Unassigned - fund balance category includes the residual amounts for the City s general fund and includes all spendable amounts not contained in the other classifications. The City has a revenue spending policy that provides guidance for programs with multiple revenue sources. The director of finance will use resources in the following hierarchy: bond proceeds, federal funds, State funds, local non-city funds, City funds. For purposes of fund balance classification expenditures are to be spent from restricted fund balance first, followed in-order by committed fund balance, assigned fund balance and lastly unassigned fund balance. The Director of Finance has the authority to deviate from this policy if it is in the best interest of the City. N. New Accounting Pronouncements Effective for the fiscal year ending June 30, 2012, DPS has adopted the following Statement of the Governmental Accounting Standards Board (GASB): A-48

97 GASB Statement No. 64, Derivative Instruments: Application of Hedge Accounting Termination Provisions an amendment of GASB Statement No. 53. This Statement sets forth criteria that establish when the effective hedging relationship continues and hedge accounting should continue to be applied. Effective for financial statements for periods beginning after December 15, 2011: GASB Statement No. 62, Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements. This Statement incorporates into the GASB s authoritative literature certain accounting and financial reporting guidance that is included in the following pronouncements issued on or before November 30, 1989: 1. Financial Accounting Standards Board (FASB)Statements and Interpretations 2. Accounting Principles Board Opinions 3. Accounting Research Bulletins of the American Institute of Certified Public Accountants (AICPA) Committee on Accounting Procedure. GASB Statement No. 63, Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position. This Statement provides financial reporting guidance for deferred outflows of resources and deferred inflows of resources. Effective for financial statements for periods beginning after June 15, 2012: GASB Statement No. 61, The Financial Reporting Entity: Omnibus. This Statement improves the financial reporting for a governmental financial reporting entity and modifies certain requirements for inclusion of component units in the financial reporting entity. Effective for financial statements for periods beginning after December 15, 2012: GASB Statement No. 65, Items Previously Reported as Assets and Liabilities. This Statement establishes accounting and financial reporting standards that reclassify, as deferred outflows of resources or deferred inflows of resources, certain items that were previously reported as assets and liabilities and recognizes, as outflows of resources or inflows of resources, certain items that were previously reported as assets and liabilities. GASB Statement No. 66, Technical Corrections 2012 an Amendment of GASB Statements No. 10 and 62. This Statement s objective is to improve accounting and financial reporting for a governmental financial reporting entity by resolving conflicting guidance that resulted from the issuance of two pronouncements, Statements No. 54, Fund Balance Reporting and Governmental Fund Type Definitions, and No. 62, Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements. Effective for financial statements for periods beginning after June 15, 2013: GASB Statement No. 67, Financial Reporting for Pension Plans an Amendment of GASB Statement No. 25. This Statement s objective is to improve financial reporting by state and local governmental pension plans. Effective for financial statements for periods beginning after June 15, 2014: GASB Statement No. 68, Accounting and Financial Reporting for Pensions an Amendment of GASB Statement No. 27. This Statement will replace the requirements of Statement No. 27, Accounting for Pensions by State and Local Governmental Employers, as well as the requirements of Statement No. 50, Pension Disclosures, as they relate to pensions that are provided through pension plans administered as trusts or equivalent arrangements that meet certain criteria. A-49

98 O. Subsequent Events In preparing these financial statements, the City has evaluated events and transactions for potential recognition or disclosure through November 29, 2012, the date the financial statements were available to be issued. 3. Deposits and Investments All cash of the City is maintained in accounts collateralized in accordance with the Virginia Security for Public Deposits Act (Act), Section et. seq of the Code of Virginia (1950), as amended, or covered by federal depository insurance. A. Deposits Primary Government At year-end, the carrying value of the City s deposits with banks was $2,720,040, and the bank balances were $3,518,233. The entire bank balance was covered by federal deposit insurance or collateralized in accordance with the Act. Under the Act, banks holding public deposits in excess of the amounts insured by the Federal Deposit Insurance Corporation (FDIC) must pledge collateral in the amount of 50% of excess deposits to a collateral pool in the name of the State Treasury Board. Savings and loan institutions are required to collateralize 100% of deposits in excess of FDIC limits. The State Treasury Board is responsible for monitoring compliance with the collateralization and reporting requirements of the Act and for notifying local governments of compliance by banks and savings and loans. However, all qualified banks public deposits are considered 100% insured because the Act provides for additional assessments to be made. This means that if a qualified bank was to fail, all collateral in the pool would be used to cover the public deposits held at that bank. In addition, if the collateral were inadequate to cover all public deposits, additional amounts would be assessed on a pro-rata basis to each member of the pool. Therefore, the Act ensures that there will be no loss of public funds and that makes the pool similar to depository insurance. Funds deposited in accordance with the requirements of the Act are considered fully secured. Component Units The carrying value of deposits for Danville Public Schools was $241,835 and the bank balance was $2,068,865. The entire bank balance was covered by federal depository insurance or collateralized in accordance with the Act at June 30, Cash held by physical agents of $2,501,583 is comprised of $2,078,902 in the self-insurance fund for health coverage by the carrier and $422,681 in the escrow account of the workman s compensation carrier. At year-end 2012 and 2011, the carrying value of the Authority s deposits was $1,315,656 and $1,086,812 respectively. The entire bank balance was covered by federal deposit insurance or collateralized in accordance with the Act. B. Investments Statutes authorize local governments and other public bodies to invest in obligations of the United States or agencies thereof, obligations of the Commonwealth of Virginia or political subdivisions thereof, obligations of the International Bank for Reconstruction and Development (World Bank), the Asian Development Bank, the African Development Bank, mutual fund shares of the Virginia State Non-Arbitrage Program (SNAP), commercial paper rated A-1 by Standard and Poor s Corporation or P-1 by Moody s Commercial Paper Record, banker s acceptances, repurchase agreements, and the State Treasurer s Local Government Investment Pool (LGIP). The fair value of the investment in the LGIP is equal to the value of the pool shares. The Auditor of Public Accounts is the oversight body for the LGIP. During the fiscal year, the City had investments in obligations of the United States, A-50

99 LGIP, SNAP and certificates of deposit. The Danville School Board s held its investments in LGIP at June 30, A designated portfolio manager managed the investments in U.S. Treasuries during fiscal year The City has a contract with the manager which requires that, at the time funds are invested, the certificates are to be held in the City s name in the trust department of the City s independent thirdparty safekeeping custodian, Wachovia Bank, N.A. The City maintains a pension plan and other postemployment benefit trust fund. The plan and the trust fund investments are handled by independent portfolio managers. Investment restrictions focus on investment mix and limiting the percentage of the total portfolio that may be invested in a given instrument. The City is subject to interest rate, credit and custodial risk as described below: Interest Rate Risk As a means of limiting the City s exposure to fair value losses arising from interest rates the City s investment policy has limited its investments to maturities of no more than 5 years. Credit Risk In accordance with state statutes, the current investment policy of the City authorizes investments in obligations of the United States and agencies thereof, commercial paper, repurchase agreements which are collateralized with securities that are approved for direct investment, the Virginia Local Government Investment Pool (LGIP), and Virginia s State Non-Arbitrage Pool (SNAP). The City s current investment policy limits investments to obligations of the United States and agencies thereof, commercial paper, LGIP and SNAP. During the fiscal year, the City made investments in each of these categories. The investments of the City s pension plan, are handled by The Northern Trust Company, a company with an AA- rating by Standard & Poor s rating agency. The investments for the plan are directed by the board of employees and are invested in various securities and equities in guaranteed investment accounts. The City has directed Northern Trust Company to invest the Plan s funds. The Commonwealth of Virginia manages the investments of the Virginia Retirement System (VRS). The City s rated debt investment as of June 30 was in LGIP. The City s pension fund investments were rated by Standard and Poor s and are included in the chart below. Custodial Risk For an investment, custodial 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. A designated portfolio manager placed the City s pension plan investments. The City has a contract with the portfolio manager which requires that, at the time funds are invested, investments in obligations of the United States or its agencies be held by the Federal Reserve in a custodial account. A-51

100 As of June 30, the City had the following investments and maturities: Investment Maturities Fair Value Less than 1 year 1-5 years Long-term U.S. Treasuries $ 61,199,933 $ 1,515,750 $ 52,606,663 $ 7,077,520 CDs 41,474,680 17,416,823 22,557,857 1,500,000 LGIP 7,036, Total investments 109,711,482 18,932,573 75,164,520 8,577,520 Reconciliation to Total Cash and Investments: Add: Cash on hand and in banks 22,197,712 Cash with fiscal agents 181,004 Total deposits and investments: $ 132,090,198 Component Unit Statutes authorize DPS to invest in obligations of the United States or agencies thereof, obligations of the Commonwealth of Virginia or political subdivisions thereof, obligations of the International Bank for Reconstruction and Development (World Bank), the Asian Development Bank, the African Development Bank, commercial paper rated A-1 by Standard and Poor s Corporation or p-1 by Moody s Commercial Paper Record, bankers acceptances, repurchase agreements and the State Treasurer s Local Government Investment Pool (LGIP). For the current fiscal year, DPS was only invested in the LGIP. Credit Risk - DPS s current investment policy limits investments to the LGIP. Standard & Poor has assigned a rating of AAA to this pool. Investments held by DPS at June 30, 2012 were as follows: Investment Fair Value LGIP $ 824,510 A-52

101 The following is a reconciliation of total deposits and investments to the government-wide financial statements at June 30. Governmental Activities: Governmental Activities Fiduciary Assets Total Cash and investments $ 56,924,278 $ 1,381 $ 56,925,659 Cash and investments with fiscal agents 181, ,847, ,028,274 Total primary government 57,105, ,848, ,953,933 Business-Type Activities Cash and investments 74,996,469-74,996,469 Component Units Cash and investments 2,383,451-2,383,451 Cash held by fiscal agents 2,501,583-2,501,583 Total component units 4,885,034-4,885,034 Total cash and investments $ 136,986,785 $ 190,848,651 $ 327,835,436 Restricted cash and investments. Equity in pooled cash and investments was reserved for the following purposes: Reserved for Incomplete Projects Reserved for Other Purposes Total Reserved Cash General fund: Encumbrances $ - $ 888,193 $ 888,193 Police - 51,266 51,266 Commonwealth Attorney - 39,329 39,329 Fire - 60,287 60,287 Sheriff - 33,717 33,717 Schools - 1,841,772 1,841,772 Budget Stabilization - 3,357,553 3,357,553 $ $ - 6,272,117 $ 6,272,117 Enterprise funds: Wastewater 4,197,050-4,197,050 Water 1,860,458-1,860,458 Gas 3,648,020-3,648,020 Electric 25,537,779-25,537,779 Nonmajor 5,045-5,045 $ 35,248,352 $ - $ 35,248,352 A-53

102 4. Receivables Receivables in the fund financial statements at June 30 consist of the following: Governmental Funds Component Units Property Taxes Community Development Nonmajor Governmental Funds Internal Service Central Services Business-type Activities General Total Receivables: Taxes and Licenses $ 16,108,253 $ - $ - $ - $ 16,108,253 $ - Accounts 1,400, ,660 1,404,277 19,745,653 Accrued Interest 804, ,206 - Loans - 5,014,942 28,187-5,043,129 - Gross receivables 18,313,076 5,014,942 28,187 3,660 23,359,865 19,745,653 Less - Allowances for uncollectible accounts (4,704,885) ,626,793 (68,700) Receivables - net $ 13,608,191 $ 5,014,942 $ 0 $ 3,660 $ 41,986,658 $ 19,676,953 Danville Public Schools Industrial Development Authority Total Receivable Due from other Governments $ 4,819,469 $ - $ 4,819,469 Due from City 2,698,338-2,698,338 Other 131, , ,683 Total receivables $ 7,649,301 $ 739,189 $ 8,388,490 The City levies real estate taxes on all real property on a fiscal year basis, at a rate enacted by the City Council on the assessed value of property (except public utility property) as determined by the Director of Real Estate Assessments of the City of Danville. The Commonwealth assesses public utility property. Neither the City nor the Commonwealth of Virginia imposes a limitation on the tax rate. All property is assessed at 100 percent of fair market value and reassessed each year as of July 1. The Director of Real Estate Assessments, by authority of City ordinance, prorates billings for property incomplete as of July 1, but completed during the year. Any taxes paid after the due date are subject to a 10% penalty. Real estate taxes are billed in equal semi-annual installments due December 5 and June 5. Liens are placed on the property on the date real estate taxes are delinquent, and interest at the rate of 10% per annum is added to the delinquent tax and penalty, and must be satisfied prior to the sale or transfer of the property. Any uncollected amounts from previous years levies are incorporated in the taxes receivable balance. The tax rates during 2012 and 2011 were $0.73 and $0.73, respectively, per $100 of assessed value. Personal property tax assessments on tangible business property and all motor vehicles are based on 100 percent of fair market value of the property as of January 1, of each year. For a vehicle, the tax may be prorated for the length of time the vehicle has situs in the City. Personal property taxes do not create a lien on property. Interest at the rate of 10% per annum is added to the delinquent tax and penalty. The taxes receivable balance at June 30, 2012 includes amounts not yet received from the January 1, 2012 levy due June 5, A-54

103 These taxes are included as deferred revenue in the fund financial statements since these taxes are not considered to be available to liquidate liabilities of the current period. The tax rate during 2008 and 2006 was $3.00 for motor vehicles and tangible property and $1.50 for machinery and tools per $100 of assessed value. In addition, any uncollected amounts from prior year levies are incorporated in the taxes receivable balance. Under the provisions of the Personal Property Tax Relief Act of 1998, the City used to receive 70% percent of most taxpayers assessments. Beginning in fiscal year 2007 the state s share of the local personal property tax payment is an annual amount of $3,593,576 with the remainder collected by the City. 5. Capital Assets The table below is a summary of the changes in capital assets for the fiscal year ended June 30. Governmental Activities Balance June 30, 2011 Increases Decreases Balance June 30, 2012 Capital assets not being depreciated: Land $ 15,340,049 $ 4,258,592 $ $ 19,598,641 Construction in progress 11,034,485 11,147,483 6,351,434 15,830,534 Total capital assets not being depreciated 26,374,534 15,406,075 6,351,434 35,429,175 Other capital assets: Buildings 36,934, ,934,766 Infrastructure 30,308, ,379-31,215,968 Furniture and other equipment 24,346,144 1,921, ,121 25,461,298 Total other capital assets 91,589,499 2,828, ,121 93,612,032 Less- accumulated depreciation for: Buildings (13,694,396) (1,003,408) - (14,697,804) Infrastructure (22,049,080) (1,034,974) - (23,084,054) Furniture and other equipment (19,097,882) (1,225,137) (754,075) (19,568,944) Total accumulated depreciation (54,841,358) (3,263,519) (754,075) (57,350,802) Total City capital assets- depreciated 36,748,141 (434,865) 52,046 36,261,230 Assets transferred from Danville School Board 77,837, ,837,094 Less- accumulated depreciation (66,323,593) (1,923,440) - (68,247,033) 11,513,501 (1,923,440) - 9,590,061 Total capital assets - depreciated 48,261,642 (2,358,305) 52,046 45,851,291 Total capital assets net $ 74,636,176 $ 13,047,770 $ 6,403,480 $ 81,280,466 Depreciation was charged to government functions as follows: General government administration $ 514,076 Judicial administration 25,611 Public safety 1,215,401 Public works 1,245,380 Health and welfare 47,519 Parks, recreation, and cultural 102,687 Community development 112,845 Total $ 3,263,519 A-55

104 In FY2002, the Virginia Assembly passed a general law to respond to GASB Statement No. 34 that establishes the local option of creating, for financial reporting purposes, a tenancy in common with the local school board when a city or county issues bonds for acquisition, construction or improvement of public school property. The sole purpose of the law is to allow cities and counties the ability to record together school assets and related debt liabilities. As a result, certain assets purchased with the City s general obligation bonds are recorded as part of the primary government. According to the law, the tenancy in common ends when the associated obligation is repaid; therefore, the assets will revert to the Danville School Board when the bonds are repaid. Nothing in the law alters the authority or responsibility of the school board or control of the assets. All depreciation on these assets was charged to education. Component Unit - Danville Public Schools Balance July 1, 2011 Increases Decreases Balance June 30, 2012 Capital assets not being depreciated: Land and construction in process: $ 7,218,132 $ 4,319,129 $ (3,164,376) $ 8,372,885 Other capital assets: Buildings 66,854,867 3,184,122-70,038,989 Furniture and equipment 23,827, ,535 (85,202) 23,969,597 Total other capital assets 90,682,131 3,411,657 (85,202) 94,008,586 Less accumulated depreciation Buildings (39,848,955) (536,928) - (40,385,883) Furniture and equipment (12,741,945) (518,354) 85,202 (13,175,097) Total accumulated depreciation (52,590,900) (1,055,282) 85,202 (53,560,980) Depreciable capital assets net 38,091,231 2,356,375-40,447,606 Assets transferred to City of Danville to match long-term debt (28,763,468) - - (28,763,468) Total other capital assets, depreciable 9,327,763 2,356,375-11,684,138 Total Capital Assets $ 16,545,895 $ 6,675,504 $ (3,164,376) $ 20,057,023 Property, plant, and equipment are stated at cost, less an allowance for accumulated depreciation. Depreciation expense is computed using the straight-line method over the estimated lives of the assets as follows: Buildings Equipment Infrastructure 45 years 3 25 years years A-56

105 Component Unit - Industrial Development Authority Balance June 30, 2011 Balance June 30, 2012 Property held for lease: Land $ 1,056,507 $ 2,228,899 Construction in progress 742, ,501 Building 10,903,243 15,551,030 Less accumulated depreciation (1,424,511) (1,734,966) 11,277,464 16,380,464 Property held for sale: Land and building 1,458,348 1,364,539 Total $ 12,735,812 $ 17,745,003 The IDA has a five year operating lease with TelVista, Inc. Monthly payments are based on an amount equal to the IDA s debt service on the building. The lease also has up to four (4) five (5) year renewal periods. Further, TelVista retains an option to purchase their leased property during the term of the lease, including any extensions, thereof, for the remaining principal balance owed by the IDA on its related loan on the property. The IDA also leases buildings in the City s historic district to the Advanced Vehicle Research Center for $1 per year and to LifeBATT, Inc. for $850 per month. Future estimated minimum rental payments due under the leases at June 30 follows: Year Ending June 30, Amount 2013 $ 817, , , , , ,220,100 $ 3,635,966 The IDA has a twenty year sales-type lease with GSO Aviation for $2,950 a month and has a right to purchase the property at any time during the term of the lease for $676,500 minus the principal paid over the term of the lease. The IDA has a twenty-five year sales-type lease with EsselPropack America, LLC (Essel). Terms of the lease stipulate that Essel will make the monthly loan payments directly to the financial institution in the amount of $48,323 beginning August 1, 2011 through July 1, Essel has the right to purchase the property at any time during the term of the lease for the principal balance of the loan. If Essel does not exercise their option to purchase the property on or before July 31, 2018, the lease payments will increase to $96,645 per month throughout the term of the lease. In addition, Essel will pay the Authority a premium amount of $1,000,000 if they choose to not exercise their purchase option on or before July 31, A-57

106 Future estimated minimum sales-type lease payments due under at June 30 follows: Year Ending June 30, Amount 2013 $ 615, , , , ,271 Thereafter 7,526,304 $ 10,602,659 Land Held for Sale Land held for sale is recorded at the lower of cost or market. Cost is determined by the acquisition price, if purchased or at estimated fair value at the date of gift, if donated. Costs of property improvements are capitalized. Enterprise Funds The following is a summary of changes in capital assets for business-type activities for the year ended June 30: Balance June 30, 2011 Increases Decreases Balance June 30, 2012 Business-type activities: Land $ 1,332,428 $ 123,526 $ - $ 1,455,954 Construction in progress 42,630,249 8,620,313 (7,847,587) 43,402,975 Total capital assets not being depreciated 43,962,677 8,743,839 (7,847,587) 44,858,929 Buildings 308,281,353 14,486, ,767,466 Equipment 67,587,106 3,222,920 (933,172) 69,876,854 Less- accumulated depreciation for: Buildings (117,607,326) (7,909,765) - (125,517,091) Equipment (38,601,571) (3,230,750) 919,279 (40,913,042) Total accumulated depreciation (156,208,897) (11,140,515) 919,279 (166,430,133) Other capital assets net 219,659,562 6,568,518 (13,893) 226,214,187 Total capital assets net $ 263,622,239 $ 15,312,357 $ (7,861,480) $ 271,073,116 Governmental Funds Capital outlay Primary government $ 3,281,295 Capital outlay Internal services 301,900 Capital outlay City not capitalized 9,054,641 Depreciation expense - City (3,053,090) Depreciation expense Internal services (210,429) Depreciation expense - Schools (1,923,440) 12,637,836 (5,186,959) $ 7,450,877 A-58

107 6. Commitments and Contingencies A. Litigation The City is contingently liable with respect to lawsuits and other claims, which arise, in the ordinary course of its operations. It is the opinion of City management and the City Attorney that any losses not covered by insurance, which may ultimately be incurred as a result of the suits and claims, will not be material to the financial position of the City. B. Federally Assisted Grant Programs The City and the DPS participate in a number of federally assisted grant programs. Although the City and the DPS have been audited in accordance with the provisions of OMB Circular A-133, these programs remain subject to financial and compliance audits by the grantors or their representatives. Such audits could lead to requests for reimbursements to the grantor agency for expenditures disallowed under terms of the grant. Based on prior experience, City and DPS s management believes such disallowances, if any, will not be significant. C. Contracts The City has several construction and similar contracts in progress at June 30, The incomplete unbilled portion of these contracts represents financial commitments that have not been recorded in the financial statements, since they were not liabilities at June 30, D. Contingent Liabilities Primary Government City of Danville Contracts $ 8,991,749 Less: paid or recorded as liabilities (396,312) $ 8,595,437 The City is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors and omissions; and natural disasters. The City maintains an insurance fund to account for insurance transactions. The City is self-insured for all workers compensation claims, comprehensive and collision for vehicles which cost less than $100,000, property damage up to a deductible of $10,000, and employee liability to the extent that it is not covered by another policy (see the schedule of insurance coverage in the statistical section of this Comprehensive Annual Financial Report). Liabilities are recorded when it is probable that a loss has occurred and the amount of the loss can be reasonably estimated. Current market rates are used to discount claim liabilities. The fleet insurance and commercial general liability insurance is provided under a pooled agreement with the Virginia Municipal Liability Pool (Pool), a public entity risk pool. If the Pool should be in a deficit condition, it may levy an additional pro-rata assessment to members of the Pool, which may not exceed twice the members annual contributions. The pool agreement does not address the question of member liability in case of a deficit condition. Claims have not exceeded coverage in any of the previous three years, and there were no reductions in coverage from the previous year. Component Unit Worker s compensation Danville Public Schools is a member of the School Systems of Virginia Group Self-Insurance Association (Association), a public entity risk pool for workers compensation insurance. All members A-59

108 of the Association have agreed to assume any liability under the Virginia Workers Compensation Act of any and all members. The Association has operated at a profit and has declared dividends on a regular basis since Danville Public Schools entered the pool in Danville Public Schools has elected to have the Association hold the Board s dividends in escrow as a reserve against possible future claims. At June 30, 2012 the cumulative amount held in escrow by the Association for Danville Public Schools amounted to $422,681. The escrow is included on the Statement of Net Assets as cash held by fiscal agents. Self-Insurance Coverage In October 2005, Danville Public Schools entered into an agreement with Anthem Blue Cross Blue Shield (Anthem) to administer a self-insurance plan for employee medical and pharmacy insurance. Danville Public Schools contingent liability is limited to an annual stop loss amount of $100,000 per participant. The escrow balance of $2,078,902 is the balance of premiums paid net of claims received by Anthem of $2,554,707 less the estimated claims incurred but not paid as of for the same period. The estimated claims incurred but not paid as of June 30, 2012 and 2011 were $475,805 and $474,075, respectively. The escrow is included on the Statement of Net Assets as cash held by fiscal agents. E. Reimbursable Agreements At June 30, the City had outstanding agreements representing reimbursements to developers for streets, sewers, and utility facilities. These agreements totaled $1,007,080 with $714,126 having qualified for reimbursement within the terms of the agreements. The remaining balances will be accrued upon qualification. F. Risk Management The City is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors and omissions; injuries to employees; and natural disasters. It is the policy of the City to retain risks of losses in those areas where it believes it is more economical to manage its risks internally and account for any claims settlement in the General Fund. Exceptions to the selfinsurance program are made when insurance coverage is available and when premiums are cost effective. The City is covered by property/casualty insurance policies on real and personal property (except vehicles) and the following liability insurance policies as of June 30, 2012: public entity and public officials excess liability, medical and dental malpractice liability, voting booths, special events, vacant buildings, volunteer liability, nonowned aircraft liability, and commercial crime. The City maintains a blanket surety bond on all City workers who handle funds and excess amounts of insurance on key officials. There were no material reductions in insurance coverage from coverage in the prior fiscal year nor did settlements exceed coverage for any of the past three fiscal years. The following Constitutional Officers and City employees are covered by surety bonds issued by Lumberman s Mutual Casualty Co. in the amounts shown as of June 30: Treasurer $ 500,000 Commissioner of Revenue $ 3,000 Clerk of Circuit Court $ 103,000 Sheriff $ 30,000 G. Self-Insurance As of June 30, 2012, the noncurrent portion of unpaid workers compensation claims amounted to approximately $3,418,796 and the amount expected to be paid within one year amounted to $253,520 and is reflected in the government-wide statements. Liabilities are reported when it is probable that losses have occurred, and the amounts of the losses can be reasonably estimated. Liabilities include an amount for claims that have been incurred but not reported to date. Liabilities are determined using a combination of actual claims experience and actuarially determined amounts and include incremental claims, adjustment expense, and estimated recoveries. An independent contractor processes the public liability claims and the City records a provision and liability in the entity-wide statements and General Fund (current portion only) for an estimate of incurred but not reported claims. A-60

109 Changes in the estimated claims payable for workers compensation are as follows for the years ended June 30: FY 2012 FY 2011 Estimated claims payable at beginning of period $ 4,014,732 $ 3,975,961 Current fiscal year claims, changes in estimates, and payouts 260, ,994 Claim payments (602,950) (823,223) Estimated claims payable at end of period $ 3,672,316 $ 4,014,732 G. Grants The City receives financial assistance from numerous federal, state and local governmental agencies in the form of grants. The disbursement of funds received under these programs generally requires compliance with terms and conditions specified in the grant agreements and is subject to audit by the grantor agencies. Any unallowed disbursements resulting from such audits could become a liability of the City. In the opinion of City management, no material refunds will be required as a result of unallowed disbursements (if any), by the grantor agencies. 7. Long-Term Debt A. Bonds Payable The following schedule represents all bonds payable in the Government and Enterprise funds: Description Original Issue Annual Amount Interest Rate Maturity Outstanding June 30, 2012 General Obligations and Section 10 Bonds School Series 2001B $ 6,512,513 $ 296, , % 7/15/21 $ 3,466,295 School Series 2001B 5,210,006 $ 237, , % 7/15/21 2,773,038 School Series 2001B Loan 2,500,000 $ 125, % 7/15/21 1,250,000 General Improvements ,800,000 $ 290, , % 12/1/25 6,880,000 General Improvements ,000,000 $ 165, , % 3/1/27 4,105,000 General Improvements & Refunding 2009A 11,215,000 $ 450,000 1,300, % 3/1/22 10,495,000 General Improvements & Refunding 2009B Refunding 2009C General Improvements & Refunding 2010A Refunding 2009C 19,195,000 12,005,000 12,925,000 10,410,000 $ $ $ $ 775,000 2,515, , , , , , , % % % % 3/1/22 8/1/29 9/1/25 9/1/36 18,245,000 11,145,000 12,570,000 10,410,000 General Improvements & Refunding ,929,000 $ 442, , % 12/1/19 3,456,000 $ 100,389,779 $ 84,795,333 Revenue Bonds Utility Revenue ,900,000 $ 46, , % 6/1/14 409,047 Utility Revenue ,000 $ 12,829 19, % 6/1/14 39,409 Utility Revenue ,300,000 $ 223, , % 2/1/19 2,413,940 $ 10,500,000 2,862,396 Total Outstanding Bonds $ 87,657,729 A-61

110 Debt service on the preceding Bonds in future years is as follows: General Obligation and Section 10 Bonds: Principal: Interest: Fiscal Year Ending June 30, Governmental Enterprise Total 2013 $ 2,242,635 $ 2,976,472 $ 5,219, ,563,363 3,397,167 5,960, ,787,241 3,619,204 6,406, ,868,549 3,765,330 6,633, ,957,396 3,919,465 6,876, ,436,026 18,052,485 30,488, ,221,567 11,173,433 13,395, ,909,798 4,875,202 6,785, ,746,399 1,283,601 3,030,000 $ 31,732,974 $ 53,062,359 $ 84,795,333 Fiscal Year Ending June 30, Governmental Enterprise Total 2013 $ 1,344,277 $ 2,176,374 $ 3,520, ,266,863 2,089,035 3,355, ,170,335 1,972,666 3,143, ,066,018 1,843,420 2,909, ,875 1,703,839 2,658, ,954,457 6,135,736 9,090, ,336,001 2,888,432 4,224, , ,062 1,575, , , ,619 Revenue Bonds: $ 11,132,978 $ 19,815,933 $ 30,948,911 Fiscal Year Ending June 30, Principal Interest Total 2013 $ 585,452 $ 108,902 $ 694, ,004 86, , ,000 66, , ,000 52, , ,000 37, , ,940 32, ,049 $ 2,862,396 $ 384,240 $ 3,246,636 A-62

111 Reimbursement Agreements do not require interest payments: Principal: Fiscal Year Ending June 30, Governmental Enterprise Total 2013 $ 139,474 $ 96,450 $ 235, ,004 88, , ,004 88, , ,004 11,718 98, ,004 11,717 98,721 $ 487,490 $ 295,925 $ 783,415 The capital lease bonds are a variant of revenue bonds used in the capital outlay program. The revenue stream backing the bond is created from lease payments made by the occupying department to the governmental financing entity which constructs the facility. The financing authority constructs the facility, issues financing bonds, and retains title to the facility until the debt is retired. B. Governmental Obligation The table on the following page is a summary of the changes in long-term liabilities that are recorded in the Statement of Net Assets ended June 30: Compensated absences and workers compensation are typically paid from the General Fund. Balance June 30, 2011 Additions Changes/ Reductions Balance June 30, 2012 Due within 1 year General obligation bonds $ 29,882,557 $ 3,929,000 $ 2,078,583 $ 31,732,974 $ 2,242,635 Reimbursement agreements 626, , , ,474 Capital lease obligations 3,681,077-3,681, Compensated absences 1,584,974 1,759,684 1,770,293 1,574,365 1,416,929 Worker s compensation 3,745, , ,161 3,400, ,872 Other bond related items (789,539) (79,450) (290,761) (578,228) - C. Enterprise Debt $ 38,731,579 $ 5,832,776 $ 7,946,827 $ 36,617,528 $ 4,046,910 Following is a summary of the changes in long-term liabilities that are recorded in the Enterprise Funds for the year ended June 30: Balance June 30, 2011 Additions Changes/ Reductions Balance June 30, 2012 Due within 1 year General obligation bonds $ 55,336,177 $ - $ 2,273,818 $ 53,062,359 $ 2,976,472 Revenue bonds 3,440, ,148 2,862, ,451 Reimbursement agreements 380,117-84, ,925 96,450 Compensated absences 468, , , , ,416 Workers compensation 269,186 36,992 34, ,389 5,648 Bond related items (876,914) (13,001) (333,125) (556,790) - $ 59,017,222 $ 555,271 $ 3,163,418 $ 56,409,075 $ 4,090,437 A-63

112 D. General Obligation Debt Limit The Commonwealth of Virginia imposes a legal limit of 10% of the assessed valuation of taxable real property on the amount of general obligation borrowing which a City may issue. The City of Danville has independently set a lower debt limit of 7.5% of the assessed valuation. The Legal debt margin at June 30 is computed as follows: Legal Debt Margin Assessed value (as of June 30, 2012) taxable real property, including public service corporations $ 2,257,904,600 Legal debt limit: 7.50% of assessed value (authorized by the Commonwealth of Virginia for all cities) $ 169,342,845 Deduct amount of debt applicable to debt limit: Gross general debt* 84,795,333 Legal debt margin $ 84,547,512 *Debt applicable to debt limit excludes Revenue Bonds due to Section 10, Article VII of the Constitution of Virginia E. Component Units Following is a summary of the changes in long-term liabilities that are recorded in the Danville Public Schools for the year ended June 30, 2012: Balance June 30, 2011 Changes/ Reductions Balance June 30, 2012 Due within 1 year Additions Early retirement plan (January 1, 2008) $ 3,933,266 $ 1,628,713 $ (797,618) $ 4,764,361 $ 1,016,785 Early retirement plan (July 1, 1997) 957,771 - (458,755) 499, ,637 Employee benefits 1,433, ,413 (446,694) 1,341, ,400 $ 6,324,799 $ 1,983,126 $ (1,703,067) $ 6,604,858 $ 1,800,822 Debt service on the preceding component unit s early retirement plans and contracts payable for future years are as follows: Early Retirement July 1, 1997 Early Retirement January 1, 2008 Year Ending June 30, Principal Interest Principal Interest 2013 $ 340,637 $ 94,804 $ 1,016,785 77, ,379 49, , , , , , , , , , ,626 $ 499,016 $ 144,230 $ 4,764, ,951 A-64

113 Following is a summary of the changes in the long-term liability that is recorded in the Industrial Development Authority for the year ended June 30: Balance June 30, 2011 Additions Reductions Balance June 30, 2012 Due within 1 year Deeds of trust payable $ 16,338, , ,784 $ 16,800,785 $ 453,479 Debt service on the preceding component unit s deeds of trust payable for future years are as follows: Early Fiscal Year Ending June 30, Retirement Principal 2012 $ 453, , , , ,772, ,828, ,736, ,181, ,295,951 $ 16,800,785 The City of Danville issued $3,929,000 of general obligation refunding bonds to refinance the balance of its outstanding lease obligations incurred in connection with the issuance by the Danville Redevelopment and Housing Authority of its Public Facility Lease Revenue Bonds (Danville Juvenile Detention Facility Project), Series The proceeds of this refunding were placed in trust with the escrow agent for all future debt service payments associated with the original lease obligation. This resulted in an economic gain of $439,654 over the life of the bonds. As a result, the bonds are considered to be defeased and the liability has been removed from the governmental activities column of the statement of net assets. 8. Transfers Funds are transferred each year from the General Fund to the other funds as they operate for the benefit of the City. The chart below details the activities between funds of the City for the year ended June 30. Transfers In Transfers Out Net Transfers Governmental Funds Exhibit D General $ 13,632,000 $ (9,015,451) $ 4,616,549 Capital Projects 10,732,175-10,732,175 Special Revenue 1,082,496-1,082,496 $ 25,446,671 $ (9,015,451) $ 16,431,220 A-65

114 Transfers In Transfers Out Net Transfers Enterprise Funds Exhibit F Wastewater $ - $ (677,760) $ (677,760) Water - (1,933,300) (1,933,300) Gas - (3,656,330) (3,656,330) Electric - (10,062,610) (10,062,610) Transportation 187, ,480 Telecommunication - (302,000) (302,000) Nonmajor 13,300-13,300 Primary transfer activities include: $ 200,780 $ (16,632,000) $ (16,431,220) Transfers from the General Fund to the Capital Projects fund represents the City s budgeted pay-asyou go funding. Transfers from the General Fund to the Special Revenue Fund represent City funds required to match grant program resources. Transfers from the Enterprise Funds represent contributions from these funds to support the City s operations. 9. Due To/From Other Funds Due to other funds are interfund receivables and payables of individual funds result primarily from cash disbursements made by one fund for expenditures of another. The amounts due at June 30 are as follows: Governmental Funds Interfund Receivable Interfund Payable City of Danville: General fund $ 1,195,010 $ - Community Development fund - 1,117,034 Internal Service fund: Central Services fund - 77,976 $ 1,195,010 $ 1,195,010 Enterprise Funds City of Danville: Gas $ 1,010,035 $ - Electric 1,321,895 - Wastewater - 2,331,930 $ 2,331,930 $ 2,331,930 Component Unit Danville Public Schools: General fund $ - $ 2,112,446 Capital projects fund 43,867 - Special grants fund - 430,180 Nonmajor funds: Textbook 1,241,370 - Cafeteria 1,257,389 - $ 2,542,626 $ 2,542,626 A-66

115 The primary reason for interfund receivables and payables of the primary government due at June 30 are as follows: The interfund receivable to the General Fund from the Community Development Fund represents amounts expended, but not yet reimbursed by US Housing and Urban Development. The interfund receivable to the General Fund from the Central Services Funds represents amounts expended for inventoried office and printing supplies, but not yet issued and billed out. The primary reason for interfund receivables and payables of the enterprise funds due at June 30 are as follows: The due to/from other funds represents a loan from the Electric and Gas funds to the Wastewater fund for operating expenses. Maturities of Due To/Due From: Fiscal Year Ending June 30, Principal Interest Total ,223 93, , ,032 81, , ,313 69, , ,086 56, , ,369 43, , ,907 44, ,172 $ 2,331,930 $ 387,742 $ 2,719,672 The primary reason for interfund receivables and payables of the component unit due at June 30 are as follows: Interfund payable from the General Fund to the Special Grants, Capital Projects and Textbook funds represent amounts expended for the localities matching portion of state and federal grants, capital expenditures, textbook purchases, and cafeteria operations due from the General Fund. 10. Due From Other Governments Enterprise Fund Danville Public Schools City of Danville Commonwealth of Virginia - State grants $ 2,865,152 $ 72,193 $ 605,061 Social Services 528, ,393,166 72, ,061 Federal government - Federal grants 1,538, ,366 4,213,808 $ 4,932,034 $ 809,559 $ 4,818, Retirement Plans The City participates in two public employee retirement systems. Part I of this note details the Employees Retirement System of the City of Danville (ERS), and Part II details the Virginia A-67

116 Retirement System (VRS). The VRS is a multi-employer public retirement system that acts as a common investment and administrative agent for political subdivisions in the Commonwealth of Virginia, and is, therefore, not reflected as a City pension trust fund. The ERS is reflected as part of the City s reporting entity and as such are reflected as a pension trust fund. Disclosures concerning the Danville Public School s participation in the Virginia Retirement System is also included in Part II of this note. I. Employees Retirement System of the City of Danville A. Plan Description The Employees Retirement System of the City of Danville, Virginia (ERS), a single-employer defined benefit plan, was established on January 1, 1946, and was placed under the management of the Board of Trustees for the purpose of providing retirement, disability, and death benefits for full-time permanent employees in accordance with Chapter 32 of the Danville City Code. The City makes contributions to the ERS, which acts as administrator of a single-employer defined benefit pension plan. As such, the ERS functions as an investment and administrative agent for the City with respect to the plan. The ERS is a fiduciary fund and is included in the City s Comprehensive Annual Financial Report as a pension trust fund. The ERS issues a publicly available financial report that includes financial statements and required supplementary information. That report may be obtained by writing to Employees Retirement System of the City of Danville, PO Box 3300, Danville, Virginia All full-time employees of the City, excluding School Board employees and elected officials and their employees (who are covered under the Virginia Retirement System), are eligible to participate. Upon becoming a regular, full-time employee of the City, each employee is classified as a general employee or as a public safety employee (uniformed police and fire personnel). The two employee classes have different pension benefits and early service retirement allowances. As of June 30, 2012, employee membership in the ERS was as follows: General Employees Public Safety Employees Total Retirees and beneficiaries currently receiving benefits and terminated employees entitled to benefits but not yet receiving them Active plan participants: Vested Nonvested The pension plan provides retirement, disability, and death benefits. After five years of creditable service, general employees who attain the age of 65, or who accumulate at least 30 years of creditable service and attain the age of 55, may retire with full benefits. Public safety employees who attain age 60, or age 55 with at least 30 years of creditable service are eligible for retirement with full benefits. For a general employee, the retirement allowance consists of an annuity equal to the amount provided by the contributions of the member up to the time of his or her retirement, plus a pension which will total an amount equal to 1.42% of $9,500, plus 1.82% of the part of the three-year average salary in excess of $9,500, multiplied by the number of years of creditable service. A general employee with at least five years of service may retire early after reaching the age of 55 and receive reduced benefits. The retirement allowance for a public safety employee consists of an annuity equal to the amount provided by the contributions of the member up to the time of his or her retirement, plus a pension which will total an amount equal to 1/50th or 2% of the final three-year average salary multiplied by A-68

117 the number of years of creditable service. A public safety employee, with at least five years of service, may retire early after reaching the age of 55 and receive reduced benefits. Pension provisions include disability benefits whereby a member who becomes totally and permanently incapacitated and who has completed five years of creditable service is eligible to receive a disability retirement allowance. The allowance begins at the time of the disability and is based on creditable service to date and a projection of creditable service assuming no disability. The allowance is offset by any workers compensation benefits if the disability is work-related. If, after five years of service, an active member should die at any time prior to retirement, a retirement allowance shall be payable to either the spouse, minor child, or parent of the member. Such retirement allowance will be continued during the lifetime of such person, or in the case of a minor child, until such time as the child dies or attains majority. For members employed prior to October 1, 1991, the beneficiary may elect to receive as a lump sum the member s accumulated contributions, with interest, in lieu of any other benefits under the ERS. Participants should refer to the Plan agreement for a more complete description of the Plan s provisions. Contributions made by the City on behalf of active members are established by the City of Danville, based on actuarial estimates (performed annually on July 1) of future plan benefits to be paid. Since March 1, 1979, employees contributions have been paid by the City. Contributions for employees hired after September 30, 1991 are considered to be 100% City contributions. These contributions, like the City s portion of pre-october 1, 1991 employees, vest after five years of creditable service. The contribution rate made on behalf of active members is currently 5% of compensation for general employees and 6.5% of compensation for public safety employees. The portion of contributions to the plan made by the City on behalf of members vests immediately with the employees. The remainder of the contributions vests after five years of creditable service. For the year ended June 30, 2012, the City s total payroll for all employees was $45,809,615 and the City s total covered payroll amounted to $36,767,568, of which $26,108,966 was for general employees and $10,658,602 was for public safety employees. Covered payroll refers to all compensation paid by the City to active employees covered by the ERS on which contributions to the plan are based. B. Summary of Significant Accounting Policies Basis of Accounting. The financial statements of the ERS are prepared on the accrual basis of accounting in accordance with Governmental Accounting Standards Board (GASB) Statement No. 25 Financial Reporting for Defined Benefit Pension Plans and Note Disclosures for Defined Contribution Plans. Contributions from the City are recognized as revenue when due, pursuant to formal commitments, as well as statutory or contractual requirements. Benefits and refunds are recognized when due and payable in accordance with the terms of the plan. Investment income is recognized as it is earned. The net appreciation or depreciation in the fair value of investments held by the ERS is recorded as an increase or decrease in investment income based on the valuation of investments as of the date of the statement of plan net assets. Investments. Investments are reported at fair value. Temporary cash investments are reported at cost, which approximates fair value. Securities traded on national or international exchanges are valued at quoted market prices as of the date of the statement of plan of net assets. The fair value of the real estate - timberland is based on an independent appraisal. C. Funding Policy The contribution requirement of plan members and the City are established by the ERS Board of Trustees, based on actuarial estimates of future plan benefits to be paid. The contribution rate for general employees is 5% of their annual covered salary and 6.5% for public safety employees. The City has paid the employee s portion of the contributions since Total contributions to the ERS for the year ended June 30 amounted to $4,929,208 of which the City, on behalf of its employees, A-69

118 paid $595,705. The contributed amounts were based on an actuarial valuation. Contributions made by the City represents 5% on behalf of its employees that were employed before October 1991, and contributions made by the City on behalf of its employees represent 7.9% of covered payroll for the year for a total of 12.9%. D. Annual Pension Cost and Net Pension Obligation The annual pension cost at June 30 was $5,394,811, and the contributions made by the City were $4,929,208. At June 30 the Enterprise Funds have recorded a net pension asset of $94,758 and a net pension liability of $122,170. In accordance with GASB 27, the General Fund asset of $209,627 and liability of $366,195 have been recorded in the Statement of Net Assets for the governmental funds. Three-Year Trend Information City Supplemental Actuarial Date 6/30/12 6/30/11 6/30/10 Annual Pension Cost (APC) $ 5,394,811 $ 5,397,687 $ 5,097,536 Percentage of APC Contributed 91.37% 91.72% 90.46% Net Pension Asset (Liability) $ (183,980) $ 281,623 $ 728,728 The annual required contribution for the current year was determined as part of the July 1, 2012 actuarial valuation using the entry age normal actuarial cost method. The actuarial assumptions included (a) 7% investment rate of return and (b) projected salary increases of 4% per year. Both (a) and (b) included an inflation component of 2%. The actuarial value of assets was determined using techniques that smooth the effects of short-term volatility in the market value of investments over a four-year period. The unfunded actuarial accrued liability is being amortized as a level percentage of projected payroll on an open basis. The remaining amortization period at June 30 was 30 years. For the year ended June 30, 2012 the City had contributed more than the annual required amount. In accordance with GASB 27, the following chart below details the components of the net pension asset. June 30, 2012 Net Pension Asset Governmental Enterprise Annual Required Contribution (ARC) $ 1,962,261 $ 321,779 Interest on beginning Net Pension Obligation (NPO) (18,488) (115) Adjustment to ARC 19, Annual Pension Cost 1,963, ,788 Contributions Made (1,897,530) (284,323) Decrease in NPO 66,133 37,465 Net pension asset beginning of year (275,760) (132,223) Net pension asset - end of year $ (209,627) $ (94,758) June 30, 2012 Net Pension Liability Governmental Enterprise Annual Required Contribution (ARC) $ 2,221,202 $ 888,073 Interest on beginning Net Pension Obligation (NPO) (795) (316) Adjustment to ARC Annual Pension Cost 2,221, ,099 Contributions Made (1,962,654) (784,701) Increase in NPO 258, ,398 Net pension liability beginning of year 107,588 18,772 Net pension liability - end of year $ 366,195 $ 122,170 A-70

119 June 30, 2011 Net Pension Asset Governmental Enterprise Annual Required Contribution (ARC) $ 2,037,085 $ 321,487 Interest on beginning Net Pension Obligation (NPO) (31,360) (1,882) Adjustment to ARC 33,741 2,025 Annual Pension Cost 2,039, ,630 Contributions Made (1,855,591) (296,418) Decrease in NPO 183,875 25,212 Net pension asset beginning of year (459,635) (157,435) Net pension asset - end of year $ (275,760) $ (132,223) June 30, 2011 Net Pension Liability Governmental Enterprise Annual Required Contribution (ARC) $ 2,188,751 $ 846,491 Interest on beginning Net Pension Obligation (NPO) (12,815) (4,954) Adjustment to ARC 13,787 5,331 Annual Pension Cost 2,189, ,868 Contributions Made (2,018,085) (780,488) Decrease in NPO 171,638 66,380 Net pension asset beginning of year (64,050) (47,608) Net pension asset - end of year $ 107,588 $ 18,772 E. Schedule of Funding Progress: Actuarial Valuation Date 6/30/12 6/30/11 6/30/10 Actuarial Value of assets (a) $ 174,103,211 $ 179,553,821 $ 178,430,719 Actuarial Accrued Liability (AAL) Entry Age (b) $ 206,452,918 $ 200,232,740 $ 199,018,107 Unfunded (Overfunded) (AAL) (UAAL) (b-a) $ 32,349,707 $ 20,678,919 $ 20,587,388 Funded Ratio (a/b) 84.33% 89.67% 89.77% Covered Payroll (c) $ 38,206,170 $ 37,486,097 $ 39,091,589 UAAL as a Percentage of Covered Payroll ((b-a)/c) 84.67% 55.16% 52.66% II. Virginia Retirement System A. Plan Description The City of Danville contributes to the Virginia Retirement System (VRS), an agent and cost-sharing multiple-employer public employee retirement system that acts as common investment and administrative agent for political subdivisions in the Commonwealth of Virginia. There are three separate groups of employees covered under the plan. The first includes constitutional employees of the City, which are all employees of the offices of the Sheriff, Commonwealth s Attorney, Clerk of Court, Treasurer, and the Commissioner of Revenue. In addition, professional and nonprofessional employees of the Danville Public Schools are covered by the VRS. A-71

120 Professional employees participate in a VRS statewide teacher cost sharing pool, and nonprofessional employees participate as a separate group. All full-time, salaried permanent employees of participating employers must participate in the VRS. Benefits vest after five years of service. Employees are eligible for an unreduced retirement benefit at age 65 with 5 years of service (age 60 for participating local law enforcement officers, firefighters, and sheriffs) or at age 50 with at least 30 years of service if elected by the employer (age 50 with at least 25 years of service for participating local law enforcement officers, firefighters, and sheriffs) payable monthly for life in an amount equal to 1.7 (1.85 for sheriffs) percent of their average final compensation (AFC) for each year of credited service. Benefits are actuarially reduced for retirees who retire prior to becoming eligible for full retirement benefits. In addition, retirees qualify for annual cost-of-living increases limited to 5% per year beginning in their second year of retirement. AFC is defined as the highest consecutive 36 months of reported compensation. Participating local law enforcement officers, firefighters and sheriffs may receive a monthly benefit supplement if they retire prior to age 65. The VRS also provides death and disability benefits. Title 51.1 of the Code of Virginia (1950), as amended, assigns the authority to establish and amend benefit provisions to the General Assembly of Virginia. VRS issues a publicly available comprehensive annual financial report that includes financial statements and required supplemental information for VRS. A copy of that report may be obtained from their website at or writing to the system at P.O. Box 2500, Richmond, Virginia B. Funding Policy Employees are required by Title 51.1 of the Code of Virginia (1950), as amended, to contribute 5% of their annual salary to the VRS. The City and the Danville Public Schools have assumed this 5% member contribution. If an employee leaves covered employment, the accumulated member contributions plus interest earned may be refunded to the employee. The City and the Danville Public Schools are required to contribute the remaining amounts necessary to fund the system using the actuarial basis specified by the VRS Board of Trustees. The Danville Public Schools contribution rate for the fiscal year ended June 30, 2012 was 14.17% (9.17% plus 5% for employees portion) of annual covered payroll for professional employees and 11.33% (6.33% and 5% for employees portion) for nonprofessional employees. The City s contribution rate was 10.29% (5.29% plus 5% for employees portion). C. Annual Required Contribution For June 30, 2012, the Danville Public School s annual contribution of $205,519 for nonprofessional and $3,964,564 for professional employees, and the City s annual contribution of $457,618 were equal to the required and actual contributions. The contribution was determined as part of the June 30, 2012 actuarial valuation using the entry age normal actuarial cost method. The actuarial assumptions included, (a) 7.5% investment rate of return, (b) projected salary increases ranging from 3.50% to 5.60% per year, and (c) 2.50% per year cost-of-living adjustments. Fiscal Year Ended June 30, Annual Pension Cost (APC Percentage of APC Contributed Net Pension Obligation City Employees 2012 $ 457, % $ $ 459, % $ $ 566, % $ - School Board 2012 $ 205, % $ Nonprofessional 2011 $ 197, % $ $ 203, % $ - Both (a) and (b) included an inflation component of 2.5%. The actuarial value of plan assets was determined using techniques that smooth the effects of short-term volatility in the market value of A-72

121 investments over a four-year period. The Danville Public Schools participates in the VRS teacher cost-sharing pool for professional employees. Schedule of Funding Progress The following information is from the most recent actuarial valuation (June 30, 2011). Actuarial Valuation Date 6/30/12 6/30/11 6/30/10 Actuarial Value of assets (a) $ 18,045,088 $ 18,105,217 $ 18,471,983 Actuarial Accrued Liability (AAL) Entry Age (b) $ 21,956,499 $ 21,036,834 $ 18,883,767 Unfunded (Overfunded) (AAL) (UAAL) (b-a) $ 3,911,411 $ 2,931,617 $ 411,784 Funded Ratio (a/b) % Covered Payroll (c) $ 4,550,101 $ 4,219,265 $ 4,739,581 UAAL as a Percentage of Covered Payroll ((b-a)/c) 85.96% 69.48% 8.69% Notes to Schedules of Employer Contributions and Funding Progress School Board City Valuation date June 30, 2011 June 30, 2011 Actuarial cost method Entry Age Normal Entry Age Normal Amortization method Level percent, open Level percent, open Payroll growth method 3.00% 3.00% Remaining amortization period 30 years 30 years Asset valuation method Five-Year Smoothed Market Value Five-Year Smoothed Market Value Actuarial assumptions: Investment of return* 7.00% 7.00% Projected salary increase* 3.50% % 3.50% % Cost of living adjustments % 2.50% *Includes inflation of 2.50% The information presented in the schedules of employer contributions and funding progress was determined as part of the actuarial valuations. Additional information from the June 30, 2011, actuarial valuation is above. Deferred Compensation Plan The City has a deferred compensation plan for all employees who request participation in the International City Managers Association Retirement Corporation (ICMA-RC) deferred compensation plan. The plan was created in accordance with Internal Revenue Code Section (IRC) 457. Amounts deferred under the plan are remitted on a monthly basis directly to the ICMA-RC, which acts as administrator and fiduciary agent of the plan. Prior to fiscal 1998, the assets of the plan, until paid or made available to the participants, remained the property of the City and were considered agency funds. Due to tax legislation, the City has amended the plan to comply with the requirements of subsection (g) of IRC Section 457. As a result of this change, the assets of the plan are no longer considered to be assets of the City. Since a fiduciary relationship no longer exists between the City and the plan, the plan s assets are no longer considered agency funds of the City. A-73

122 12. Postemployment Benefits Other Than Pensions The City adopted GASB Statement No. 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions. The Statement establishes standards for reporting the liability for nonpension postemployment benefits, chiefly the health care premiums for retirees. A separate, audited GAAP-basis postemployment benefit plan report is not available. Disclosures concerning participation are outlined as follows: A. Plan Provisions In addition to providing the pension benefits described above, the City provides postemployment health care and prescription drug insurance to retirees and their dependents up to age 65. Because of the change to contribution levels for employees who retire after January 1, 2009, active employees are not valued for their healthcare or prescription drug benefits. The City also provides life insurance to actives and retirees and all actives and retirees with life insurance are valued. All full time active employees who retire or are disabled directly from the City and meet the eligibility criteria may participate. Benefits levels, employee contributions and employer contributions are governed by the City and can be amended by the City through its personnel manual. The calculations for this liability are based on the OPEB benefits provided under the terms of the substantive plan in effect at the time of each valuation and on the pattern of sharing costs between the City and the employees participating at the valuation date. B. Funding Policy The City does not intend to establish a trust to pre-fund this liability. The exhibit below shows the anticipated growth in the Net OPEB Obligation based on contributions to the benefit plan on a pay-asyou-go basis. We have used the fresh start method of amortization for the unfunded actuarial accrued liability each year for this estimate. The data have been projected into the future based on the current active population remaining constant. Also, the estimated employer contributions are based on estimated pay-as-you-go benefit plan costs (retiree claims minus retiree contributions paid premiums) made during the year on behalf of the retired employees of the City. C. Plan Descriptions Eligibility Currently covered full-time active employees who qualify for retirement after attaining age 55 with at least 5 years service are eligible to receive postretirement health care and death benefits. Employees with 5 years of service who qualify for a disability retirement are also eligible to receive postretirement health care and death benefits. Disabled retirees pay the same contribution rates for medical and life insurance coverage as nondisabled retirees. Spouses are eligible for medical and prescription coverage only. Health Care Benefits Covered: All Retirees Under Age 65: The postemployment health care plan is a self-funded plan administered by Anthem Blue Cross and Blue Shield. Spouses under age 65 are eligible for coverage in this plan. GASB No. 45 does not require governments to fund their OPEB plans. All results shown within this report assume that this plan will be funded. A-74

123 Medicare Eligible Retirees: Retirees and spouses are eligible to participate in a self-funded post-65 Medicare Carve-Out plan. Since retirees pay the true full cost of benefits, the employer has no liability; the post 65 plan is not valued in this report. Postemployment Death Benefits: Retirees can choose either $5,000 or $10,000 as a postretirement death benefit. Retirees contribute towards the cost of this benefit at $2.15 per month or $4.30 per month respectively. This rate reflects 100% of the blended (active & retiree) cost. Retirees may choose or decline medical and death benefits independent of each other. Membership at June 30, 2012, membership consisted of: Number of Costed Employees 1. Active Employees Retirees eligible for benefits Total employees 1354 D. Annual OPEB Costs and Net OPEB Obligation The net OPEB obligation as of June 30, was calculated as follows: Annual Required Contribution $ 82,108 $ 255,892 $ 274,589 Interest on Net OPEB Obligation (97,971) 3,415 6,981 Adjustments to Annual Required Contribution 275,621 (3,587) (7,331) Annual OPEB Cost 259, , ,239 Contributions Made (532,220) (1,335,081) (321,778) Increase in Net OPEB Obligation (272,462) (1,079,361) (47,539) Net OPEB Obligation, Beginning of Year (1,033,822) 45,539 93,078 Net OPEB Obligation, End of Year $ (1,306,284) $ (1,033,822) $ 45,539 *This adjustment is made to avoid overstating the net OPEB obligation at the end of the year by the portion of the Annual Required Contribution which is attributable to previously unpaid Annual Required Contributions. E. Actuarial Methods and Assumptions Valuation Methods The Projected Unit Credit Method is used to calculate all of the expense amounts that are included in this report and the funded status of the Plan. The calculations are performed in accordance with the methodology set forth in GASB No. 45. Generally, the method is intended to match revenues with expenses and attributes an equal amount of an employee s projected benefit to each year from date of plan entry to the date that he is first eligible to retire with full benefits. Actuarial valuations for the plan involve estimates of the value of reported amounts and assumptions about the probability of events far into the future, and actuarially determined amounts are subject to continual revision as results are compared to past expectations and new estimates are made about the future. The actuarial calculations of the plan reflect a long-term perspective. A-75

124 Employees Included In the Calculations All active employees who will meet the plan s eligibility requirements on or before the ultimate assumed retirement age are included in the calculations. Retirees, spouses and spouse survivors who are entitled to a benefit under the provisions of the plan are also included. Although we believe these to be accurate and complete as of the valuation date, employee data supplied to us by the Employer has not been audited by us. Actuarial Assumptions In the July 1, 2010 actuarial valuation, the projected unit credit actuarial cost method was used. The actuarial assumptions included investment rate of return (net of administrative expenses) and an initial annual healthcare cost trend rate of 10% reduced by 1.0% each year to arrive at an ultimate healthcare cost trend rate of 5.0%. Both rates include a 7.5% inflation assumption. The actuarial accrued liability was $2,645,165. The plan s unfunded actuarial accrued liability is being amortized using the fresh start method. The remaining amortization period at June 30, 2011 was 30 years. F. Schedule of Funding Progress Actuarial Valuation Date July 1, (1) Actuarial Value of Assets (2) Actuarial Accrued Liability (AAL) Entry-Age Normal (3) Funded Ratio (1)/(2) (4) Unfunded Actuarial Accrued Liability (UAAL) (2)-(1) (5) Covered Payroll UAAL as a Percentage of Covered Payroll (4)/(5) 2012 $ 1,486,594 $ 2,233, % $ 746,531 $ 39,495, % ,645,165 - % 1,645,165 46,447, % ,790,043 - % 2,790,043 46,658, % G. Schedule of Employee Contributions Year Ended June 30, Employer Contributions Annual Required Contribution (ARC) Percentage Contributed 2012 $ 532,220 $ 82, % ,335, , % , , % 13. Contingency In November 2007, the City entered into a contract with a power supplier to construct and operate a coal-fired, steam and electric generating facility with other municipalities. Following a material increase in the contractor s estimate, the project was abandoned and litigation was initiated against the power supplier s contractor. Because of the potential settlement, the power supplier asserts the minimum potential liability for the participants related to the stranded costs of the project to be $0. For this reason, no liability for the stranded costs has been recorded at this time. * * * * * A-76

125 CITY OF DANVILLE, VIRGINIA Required Supplemental Information Other Than MD&A (RSI) For The Year Ended June 30, 2012 A-77

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137 CITY OF DANVILLE, VIRGINIA NOTES TO REQUIRED SUPPLEMENTARY INFORMATION June 30, 2012 Budgets and Budgetary Accounting Prior to April 1, the City Manager submits to City Council a proposed operating budget for the fiscal year commencing the following July 1. The operating budget includes proposed expenditures and the means to finance them. After a public hearing has been conducted to obtain taxpayer comments, the budget is legally adopted through passage of an ordinance prior to July 1, of each year. The City Manager is authorized to transfer budgeted amounts within each fund. Transfers between funds require City Council approval. An annual operating budget is adopted for only the General Fund. All budgets are presented on the modified accrual basis of accounting. Accordingly, the accompanying Budgetary Comparison Schedule for the General Fund presents actual expenditures in accordance with the accounting principles accepted in the United States of America on a basis consistent with the legally adopted budget as amended. Effective budgetary control is achieved for the Capital Projects Fund and Special Revenues Funds, on a project-byproject or per grant basis when funding sources become available. Budgets are adopted for management control for the Enterprise and Internal Services Funds. The restrictions on transfer of budgeted amounts for governmental funds also apply to the Enterprise and Internal Service Funds, except in the Gas and Electric Funds. Amounts in those funds budgeted for the purchase of natural gas and electric power may be increased to the extent that actual revenues exceed the original budgeted revenue. All appropriations lapse at year end except appropriations within the Capital Projects Fund and Special Revenue Funds, which are continued until completion of the applicable projects or grants, even when such projects or grants extend beyond one fiscal year. A-89

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139 PROPOSED FORM OF BOND COUNSEL OPINION Appendix B

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141 PROPOSED FORM OF BOND COUNSEL OPINION Set forth below is the proposed form of the opinion of Hunton & Williams LLP, Bond Counsel. It is preliminary and subject to change prior to delivery of the Bonds. Mayor and Council City of Danville Danville, Virginia Ladies and Gentlemen: City of Danville, Virginia $6,360,000 General Obligation Public Improvement Bonds, Series 2013A We have examined the applicable law and certified copies of proceedings and documents relating to the issuance and sale by the City of Danville, Virginia (the City ), of its $6,360,000 General Obligation Public Improvement Bonds, Series 2013A (the Bonds ). Reference is made to the form of the Bonds for information concerning their details, including payment and redemption provisions, their purpose and the proceedings pursuant to which they are issued. Without undertaking to verify the same by independent investigation, we have relied on certifications by representatives of the City as to certain facts relevant to both our opinion and requirements of the Internal Revenue Code of 1986, as amended (the Code ). The City has covenanted to comply with the current provisions of the Code regarding, among other matters, the use, expenditure and investment of the proceeds of the Bonds and the timely payment to the United States of any arbitrage rebate amounts with respect to the Bonds, all as set forth in the proceedings and documents relating to the issuance of the Bonds (the Covenants ). Based on the foregoing, in accordance with customary opinion practice, we are of the opinion that: 1. The Bonds have been authorized and issued in accordance with the Constitution and statutes of the Commonwealth of Virginia, including the City Charter and the Public Finance Act of 1991, and constitute valid and binding obligations of the City, and the City Council is authorized and required by law, unless other funds are lawfully available and appropriated for timely payment of the Bonds, to levy and collect an annual ad valorem tax, over and above all other taxes authorized or limited by law and without limitation as to rate or amount, on all locally taxable property in the City sufficient to pay when due the principal of, premium, if any, and interest on the Bonds. 2. The rights of the holders of the Bonds and the enforceability of such rights may be limited or otherwise affected by (a) bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and other laws affecting the rights of creditors generally and (b) principles of equity, whether considered at law or in equity. 3. Under current law, interest, including accrued original issue discount ( OID ), on the Bonds (a) is not included in gross income for Federal income tax purposes and (b) is not an item of tax preference for purpose of the Federal alternative minimum income tax imposed on individuals and corporations; however, with respect to corporations (as defined for Federal income tax purposes) subject to the alternative minimum income tax, such interest, including accrued OID, is taken into account in determining adjusted current earnings for purposes of computing such tax. The opinion in the preceding sentence is subject to the condition that there is compliance subsequent to the issuance of the Bonds with all requirements of the Code that must be satisfied in order that interest thereon not be included in gross income for Federal income tax purposes. Failure by the City to comply with the Covenants, among other things, could cause interest, including accrued OID, on the Bonds to be included in gross B-1

142 income for Federal income tax purposes retroactively to their date of issue. In the case of the Bonds maturing in the years 2018, 2021, 2030 and 2033 (the OID Bonds ), the difference between (i) the stated principal amount of each maturity of the OID Bonds and (ii) the initial offering price to the public (excluding bond houses and brokers) at which a substantial amount of such maturity is sold will constitute OID; OID will accrue for Federal income tax purposes on a constant yield-to-maturity method; and a holder s basis in such a Bond will be increased by the amount of OID treated for Federal income tax purposes as having accrued on the Bond while the holder holds the Bond. Under current law, the Bonds are qualified tax-exempt obligations within the meaning of Section 265(b)(3) of the Code. We express no opinion regarding other Federal tax consequences of the ownership of or receipt or accrual of interest on the Bonds. 4. Under current law, interest, including accrued OID, on the Bonds is exempt from income taxation by the Commonwealth of Virginia. Our services as bond counsel to the City have been limited to delivering the foregoing opinion based on our review of such proceedings and documents as we deem necessary to approve the validity of the Bonds and the tax status of the interest thereon. We express no opinion herein as to the financial resources of the City, its ability to provide for payment of the Bonds or the accuracy or completeness of any information, including the City s Preliminary Official Statement dated August 23, 2013, and as supplemented on August 30, 2013, and its Official Statement dated September 6, 2013, that may have been relied upon by anyone in making the decision to purchase Bonds. Very truly yours, B-2

143 FORM OF CONTINUING DISCLOSURE AGREEMENT Appendix C

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145 FORM OF CONTINUING DISCLOSURE AGREEMENT This CONTINUING DISCLOSURE AGREEMENT dated September 24, 2013 (the Disclosure Agreement ), is executed and delivered by the City of Danville, Virginia (the Issuer ), in connection with the issuance by the Issuer of its General Obligation Public Improvement Bonds, Series 2013A (the Bonds ). The Issuer hereby covenants and agrees as follows: Section 1. Purpose. This Disclosure Agreement is being executed and delivered by the Issuer for the benefit of the holders of the Bonds and in order to assist the original purchasers of the Bonds in complying with the provisions of Section (b)(5)(i) of Rule 15c2-12 (the Rule ) promulgated by the Securities and Exchange Commission (the SEC ) by providing certain annual financial information and material event notices required by the Rule. Section 2. Annual Disclosure. (a) The Issuer shall provide annually financial information and operating data in accordance with the provisions of Section (b)(5)(i) of the Rule as follows: (i) audited financial statements of the Issuer, prepared in accordance with generally accepted accounting principles; and (ii) the operating data with respect to the Issuer of the type described in the section entitled Operating Data of the Issuer s Official Statement dated September 6, 2013, relating to the Bonds. If the financial statements filed pursuant to Section 2(a) are not audited, the Issuer shall file such statements as audited when available. (b) The Issuer shall file annually with the Municipal Securities Rulemaking Board (the MSRB ) the financial information and operating data described in subsection (a) above (collectively, the Annual Disclosure ) within 270 days after the end of the Issuer s fiscal year, commencing with the Issuer s fiscal year ending June 30, (c) Any Annual Disclosure may be included by specific reference to other documents previously provided to the MSRB or filed with the SEC; provided, however, that any final official statement incorporated by reference must be available from the MSRB. (d) The Issuer shall file with the MSRB in a timely manner notice specifying any failure of the Issuer to provide the Annual Disclosure by the date specified. Section 3. Event Disclosure. The Issuer shall file with the MSRB in a timely manner not in excess of ten business days after the occurrence of the event, notice of the occurrence of any of the following events with respect to the Bonds: (a) (b) (c) (d) (e) principal and interest payment delinquencies; non-payment related defaults, if material; unscheduled draws on debt service reserves reflecting financial difficulties; unscheduled draws on any credit enhancement reflecting financial difficulties; substitution of credit or liquidity providers, or their failure to perform; (f) adverse tax opinions, the issuance by the Internal Revenue Service of proposed or final determinations of taxability, Notices of Proposed Issue (IRS Form 5701-TEB) or other material notices, events or determinations with respect to the tax status of the Bonds; C-1

146 (g) (h) (i) (j) (k) (l) modifications to rights of Bondholders, if material; bond calls, if material, and tender offers; defeasance of all or any portion of the Bonds; release, substitution, or sale of property securing repayment of the Bonds, if material; rating changes; bankruptcy, insolvency, receivership or similar event of the Issuer; (m) the consummation of a merger, consolidation or acquisition involving the Issuer or the sale of all or substantially all of the assets of the Issuer, other than in the ordinary course of business, the entry of a definitive agreement to undertake such action or the termination of a definitive agreement relating to any such action, other than pursuant to its terms, if material; and (n) appointment of a successor or additional trustee or the change of name of a trustee, if material. Section 4. Termination. The obligations of the Issuer hereunder will terminate upon the redemption, defeasance (within the meaning of the Rule) or payment in full of all the Bonds. Section 5. Amendment. The Issuer may modify its obligations hereunder without the consent of Bondholders, provided that this Disclosure Agreement as so modified complies with the Rule as it exists at the time of modification. The Issuer shall within a reasonable time thereafter file with the MSRB a description of such modification(s). Section 6. Defaults. (a) If the Issuer fails to comply with any covenant or obligation regarding Continuing Disclosure specified in this Disclosure Agreement, any holder (within the meaning of the Rule) or beneficial holder of Bonds then outstanding may, by notice to the Issuer, proceed to protect and enforce its rights and the rights of the holders by an action for specific performance of the Issuer s covenant to provide the Continuing Disclosure. (b) Notwithstanding anything herein to the contrary, any failure of the Issuer to comply with any obligation regarding Continuing Disclosure specified in this Disclosure Agreement (i) shall not be deemed to constitute an event of default under the Bonds or the resolution providing for the issuance of the Bonds and (ii) shall not give rise to any right or remedy other than that described in Section 6(a) above. Section 7. Filing Method. Any filing required hereunder shall be made by transmitting such disclosure, notice or other information in electronic format to the MSRB through the MSRB s Electronic Municipal Market Access (EMMA) system pursuant to procedures promulgated by the MSRB. Section 8. Additional Disclosure. The Issuer may from time to time disclose certain information and data in addition to the Continuing Disclosure. Notwithstanding anything herein to the contrary, the Issuer shall not incur any obligation to continue to provide, or to update, such additional information or data. Section 9. Counterparts. This Disclosure Agreement may be executed in several counterparts each of which shall be an original and all of which shall constitute but one and the same instrument. C-2

147 Section 10. Governing Law. This Disclosure Agreement shall be construed and enforced in accordance with the laws of the Commonwealth of Virginia. CITY OF DANVILLE, VIRGINIA Mayor, City of Danville, Virginia City Manager, City of Danville, Virginia C-3

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