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HomeMy WebLinkAboutMemo-Additional Back-upCITY OF MIAMI, FLORIDA INTER -OFFICE MEMORANDUM TO: Honorable Mayor and Members of the City Commission FROM: Johnny Martinez, City Manager DATE: November 13, 2012 SUBJECT: Port of Miami Tunnel Project — Updated Preliminary Limited Offering Memorandum The tunnel loan refinancing team has revised e Preliminary Limited Offering Memorandum prepared as of the evening of November 12, 2012,The Preliminary Limited Offering Memorandum is part of the documents associated with the refinancing .f the runnel loan which have been previously distributed and placed in the legislative process. Changes such as these are a normal course of business for any refinancing,. For those officials that prefer a hard copy, please find attached such a hard copy, for those officials that gibe an electronic copy, we wall be sending via an email with all changes in black line,. For additional information and detail, please see contact bond disclosure counsel at 305-374-7349 or jherning@bmolaw.com. cc: Julie i ru, City Attorney Janice Lamed, Assistant City Manager/Chief Financial Officer rrt I2:-00(AC Adcv-,Dna o,V9 BMO Draft #8 11/12/2012 PRELIMINARY LIMITED OFFERING MEMORANDUM. DATED NOV:EM.BER 19, 2012 NEW ISSUE — BOOK -ENTRY ONLY Moody's: Fitch: " " (See "RATINGS" herein) In the opinion of Squire Sanders (US) LLP, Bond Counsel, under existing law (i) assuming continuing compliance with certain covenants and the accuracy of certain representations, interest on the Series 2012 Bonds is excluded from gross income for federal income tax purposes and is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations, and (ii) the Series 2012 Bonds and the income thereon are exempt from taxation under the laws of the State of Florida, except estate taxes imposed by Chapter 198, Florida Statutes, as amended, and net income and franchise taxes imposed by Chapter 220, Florida Statutes, as amended. Interest on the Series 2012 Bonds may be subject to certain federal taxes imposed only on certain corporations, including the corporate alternative minimum tax on a portion of that interest. For a more complete discussion of the tax aspects, see "TAX MATTERS" herein. THE CITY OF MIAMI, FLORIDA SPECIAL OBLIGATION NON -AD VALOREM REVENUE REFUNDING BONDS SERIES 2012 (PORT OF MIAMI TUNNEL PROJECT) Dated: Date of Delivery Due: March 1, as shown on inside cover The Special Obligation Non -Ad Valorem Revenue Refunding Bonds, Series 2012 (Port of Miami Tunnel Project) (the "Series 2012 Bonds") are being issued by the City of Miami, Florida (the "City") pursuant to the Constitution and laws of the State of Florida, including Chapter 166, Part II, Florida Statutes and the Charter of the City (collectively, the "Act") and pursuant to Resolution No. adopted by the City Commission of the City on November 15, 2012 (the "Resolution"). The Series 2012 Bonds, are being issued :for thepurpose of, together with any other available moneys, (i) refinancing the City's Revenue Note, Series 2010 (Port of Miami Tunnel and Access Improvement Project) outstanding in the aggregate principal amount of $45,000,000, including the payment of accrued interest; (ii) funding a deposit to the Debt Service Reserve Account or paying the premium for a Reserve Account Insurance Policy for the Series 2012 Bonds and (iii) paying certain costs of issuance of the Series 2012 Bonds, including if necessary, the premium for a Bond Insurance Policy. The Series 2012 Bonds are being issued by the City as fully registered bonds, which initially will be registered in the name of Cede & Co., as nominee of The Depositoiy Trust Company, New York, New York ("DTC"). Interest on the Series 2012 Bonds will be payable semi-annually on March 1 and September 1, commencing March 1, 2013. Individual purchases will be made in book -entry form only through participants in authorized denominations in the amounts of $100,000 and integral multiples of $5,000 in excess of $100,000. Purchasers of the Series 2012 Bonds (the "Beneficial Owners") will not receive physical delivery of certificates. Transfers of ownership interests in the Series 2012 Bonds will be effected through the DTC book -entry system as described herein. As long as Cede & Co. is the registered owner as nominee of DTC, principal and interest payments will be made directly to such registered owner which will in turn remit such payments to the participants for subsequent disbursement to the Beneficial Owners. Principal of and interest on the Series 2012 Bonds will be payable by U.S. Bank, National Association, Miami, Florida, as Bond Registrar. Certain maturities of the Series 2012 Bonds are subject to optional redemption prior to their respective maturities, as described herein under "DESCRIPTION OF THE SERIES 2012 BONDS - Optional Redemption:' The Series 2012 Bonds are payable from and secured by a lien upon and pledge of the Pledged Funds, which includes a covenant to budget and appropriate from Non -Ad Valorem Revenues. See "SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2012 BONDS" and "INVESTMENT RISK FACTORS" herein. THE CITY IS NOT OBLIGATED TO PAY THE SERIES 2012 BONDS OR THE INTEREST THEREON EXCEPT FROM THE PLEDGED FUNDS, AS HEREAFTER DEFINED. THE ISSUANCE OF THE SERIES 2012 BONDS SHALL NOT DIRECTLY, INDIRECTLY OR CONTINGENTLY OBLIGAI't THE CITY TO LEVY OR TO PLEDGE ANY TAXES WHATEVER THEREFOR OR TO MAKE ANY APPROPRIATION FOR THEIR PAYMENT EXCEPT FROM THE PLEDGED FUNDS. NEITHER THE FULL FAITH AND CREDIT NOR THE TAXING POWER OF THE CITY, MIAMI-DADE COUNTY, FLORIDA, THE STATE OF FLORIDA OR ANY OTHER POLITICAL SUBDIVISION THEREOF IS PLEDGED TO PAYMENT OF THE SERIES 2012 BONDS. THE SERIES 2012 BONDS INVOLVE A DEGREE OF RISK (SEE "INVESTMENT RISK FACTORS" HEREIN) AND ARE NOT SUITABLE FOR ALL INVESTORS (SEE "LIMITED OFFERING," "INVESTMENT RISK FACTORS" AND "RATINGS" HEREIN). THE Ct'1'Y AND THE UNDERWRITER ARE OFFERING THE SERIES 2012 BONDS ONLY TO QUALIFIED INSTITUTIONAL BUYERS WITHIN THE MEANING OF SECURITIES AND EXCHANGE COMMISSION RULE 144A. ADDITIONALLY, THE UNDERWRITER INTENDS TO FURTHER LIMIT THE OFFERING OF THE SERIES 2012 BONDS TO LESS THAN THIRTY- FIVE INVESTORS, ALL OF WHICH SHALL BE SOPHISTICATED MUNICIPAL MARKET PROFESSIONALS WITHIN THE MEANING OF THE MUNICIPAL SECURITIES RULEMAKING BOARD NOTICE 2012-27, DATED MAY 29, 2012. SEE "DESCRIPTION OF THE SERIES 2012 BONDS — TRANSFER RESTRICTIONS" HEREIN. This cover page contains certain information for quick reference only. It is not a summary of the issue. Investors must read the entire Limited Offering Memorandum, including all appendices attached hereto, to obtain information essential to making an informed investment decision. See "INVESTMENT RISK FACTORS" herein. The City has applied to Assured Guaranty Municipal Corp. (the "insurer") for a bond insurance policy to guarantee the scheduled payment of principal of and interest on the Series 2012 Bonds. The City may choose to insure all, some or none of the Series 2012 Bonds. Such determination will be made by the City at the time the Series 2012 Bonds are marketed. In the event the City elects to provide for such insurance, the scheduled payment of principal of and interest on the Series 2012 Bonds will be guaranteed under a financial guaranty insurance policy to be issued concurrently with the delivery of the Series 2012 Bonds by Assured Guaranty Municipal Corp. See "INSURANCE RISK FACTORS" herein. The Series 2012 Bonds are offered when, as, and if issued and received by the Underwriter, subject to the opinion on certain legal matters relating to their issuance by Squire Sanders (US) LLP, Miami, Florida, Bond Counsel. Certain legal matters will be passed upon for the City by Julie O. Bru, Esq., City Attorney and by Bryant Miller Olive P.A., Miami, Florida, Disclosure Counsel to the City. Public Financial Management, Inc.., Coral Gables, Florida is serving as Financial Advisor to the City. Broad and Cassel, Miami, Florida is serving as Underwriter's Counsel. It is expected that the Series 2012 Bonds in definitive form will be available for delivery to the Underwriter in New York, New York at the facilities of DTC on or about December , 2012. WELLS FARGO SECURITIES Dated: , 2012 *Preliminary, subject to change. SERIES 2012 BONDS $ Serial Bonds MATURITIES, PRINCIPAL AMOUNTS, INTEREST RATES, YIELDS, PRICES AND INITIAL CUSIP NUMBERS Maturity Principal Initial CUSIP (March 1) Amount Interest Rate Yield Price Number* Term Bond Due March 1, at % Yield % Price Initial CUSIP No. *Neither the City nor the Underwriter are responsible for the use of the CUSIP numbers, nor is a representation made as to their correctness. The CUSIP numbers are included solely for the convenience of the readers of the Limited Offering Memorandum and may be changed after the issuance of the Series 2012 Bonds. THE CITY OF MIAMI, FLORIDA MAYOR Tomas A. Regalado CITY COMMISSIONERS Francis X. Suarez, Chairman Marc D. Sarnoff, Vice Chairman Wifredo Gort Frank X. Carollo Michelle Spence -Jones CITY MANAGER Johnny Martinez ASSISTANT CITY MANAGER CHIEF FINANCIAL OFFICER Janice Larned DIRECTOR OF MANAGEMENT AND BUDGET Daniel Alfonso CITY ATTORNEY Julie O. Bru, Esq. BOND COUNSEL Squire Sanders (US) LLP Miami, Florida DISCLOSURE COUNSEL Bryant Miller Olive P.A. Miami, Florida FINANCIAL ADVISOR Public Financial Management, Inc. Coral Gables, Florida REGARDING USE OF THIS LIMITED OFFERING MEMORANDUM Prospective investors are invited to request from the City documents, instruments and information which may not necessarily be referred to, summarized or described herein. Additional information will be made available to each prospective investor as such prospective investor deems necessary in order to make an infor tined decision with respect to the Series 2012 Bonds. This Limited Offering Memorandum does not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of the Series 2012 Bonds by any person in any jurisdiction in which it is unlawful for such person to make such offer, solicitation or sale. The information set forth herein has been obtained from the City, DTC and other sources that are believed to be reliable, but is not guaranteed as to accuracy or completeness by and is not to be construed as a representation by the Underwriter. The Underwriter listed on the cover page hereof has reviewed the information in this Limited Offering Memorandum 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. The information and expressions of opinion stated herein are subject to change. [THE INFORMATION RELATING TO THE INSURER CONTAINED HEREIN HAS BEEN FURNISHED BY THE INSURER. NO REPRESENTATION IS MADE BY THE CITY OR THE UNDERWRITER AS TO THE ACCURACY OR ADEQUACY OF SUCH INFORMATION OR THAT THERE HAS NOT BEEN ANY MATERIAL ADVERSE CHANGE IN SUCH INFORMATION SUBSEQUENT TO THE DATE OF SUCH INFORMATION. NEITHER THE CITY NOR THE UNDERWRITER HAS MADE ANY INVESTIGATION INTO THE FINANCIAL CONDITION OF THE INSURER, AND NO REPRESENTATION IS MADE AS TO THE ABILITY OF THE INSURER TO MEET ITS OBLIGATIONS UNDER THE MUNICIPAL BOND INSURANCE POLICY.] [The Insurer makes no representation regarding the Series 2012 Bonds or the advisability of investing in the Series 2012 Bonds. In addition, the Insurer has not independently verified, makes no representation regarding, and does not accept any responsibility for the accuracy or completeness of this Limited Offering Memorandum or any information or disclosure contained herein, or omitted herefrom, other than with respect to the accuracy of the information regarding the Insurer, supplied by the Insurer, and presented under the heading "MUNICIPAL BOND INSURANCE" and in "APPENDIX F - SPECIMEN MUNICIPAL BOND INSURANCE POLICY" attached hereto.] IN CONNECTION WITH THE OFFERING, THE UNDERWRITER MAY OVER ALLOT OR EFFECT TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SERIES 2012 BONDS AT LEVELS ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING ACTIVITY, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. All summaries herein of documents and agreements are qualified in their entirety by reference to such documents and agreements, and all summaries herein of the Series 2012 Bonds are qualified in their entirety by reference to the form thereof included in the aforesaid documents and agreements. NO REGISTRATION STATEMENT RELATING TO THE SERIES 2012 BONDS HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMLSSION (THE "SEC") OR WITH ANY STATE SECURITIES COMMISSION. IN MAKING ANY INVESTMENT DECISION, INVESTORS MUST RELY ON THEIR OWN EXAMINATIONS OF THE CITY AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND RISKS INVOLVED. THE SERIES 2012 BONDS HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SEC OR ANY STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY. THE FOREGOING AUTHORITIES HAVE NOT PASSED UPON THE ACCURACY OR ADEQUACY OF THIS LIMITED OFFERING MEMORANDUM. ANY REPRESENTATION TO THE CONTRARY MAY BE A CRIMINAL OFFENSE. RED HERRING LANGUAGE.: . This Limited Offering Memorandum and the information Contained herein are subject to completion or amendment. The Series 2012 Bonds may not be sold, nor may any offer to buy be accepted prior to the - time the Limited Offering Memorandum is delivered in final form. Under .no circumstances shall this Limited Offering Memorandum constitute an 'offer to sell or the solicitation of an offer to buy, nor shall there be •any sale, of the Series 2012 Bonds in any jurisdiction in which such offer, solicitation or sale would be -unlawful prior to registration, qualification or exemption under the securities laws of any such jurisdiction. TABLE OF CONTENTS Contents Page INTRODUCTION 1 LIMITED OFFERING 2 INVESTMENT RISK FACTORS 3 THE REFUNDING PLAN 5 ESTIMATED SOURCES AND USES OF FUNDS 5 DEBT SERVICE SCHEDULE 6 DESCRIPTION OF THE SERIES 2012 BONDS 7 General 7 Book -Entry Only System 7 Optional Redemption 9 Mandatory Redemption 10 Notice of Redemption 10 Replacement of Bonds Mutilated, Destroyed, Stolen or Lost 11 Negotiability, Registration and Cancellation 11 Transfer Restrictions 12 SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2012 BONDS 13 General 13 Flow of Funds 14 Debt Service Reserve Account 16 DESCRIPTION OF NON -AD VALOREM REVENUES 17 Franchise Fees 17 Public Service Tax 17 Local Communications Services Tax 18 Licenses and Permits 20 Intergovernmental 21 Charges for Services 23 Other Revenue and Financing Sources 24 General Fund 29 Special Investment Considerations 31 Additional Debt Payable from Non -Ad Valorem Revenues 31 Pledge of Non -Ad Valorem Revenues 31 MANAGEMENT DISCUSSION OF BUDGET AND FINANCES 32 Fiscal Year 2012 Results 32 Fiscal Year 2013 Operations and Projections 34 OTHER DEBT CONSIDERATIONS 36 [MUNICIPAL BOND INSURANCE] 36 GENERAL INFORMATION REGARDING THE CITY OF MIAMI 36 Background 36 City Government 36 Adoption of Investment Policy and Debt Management Policy 38 Financial Integrity Ordinance 39 Fiscal and Accounting Procedures 40 Internal Auditor 40 i LIABILITIES OF THE CITY 41 Insurance Considerations Affecting the City 41 Workers' Compensation 41 Health Insurance 42 Ability to be Sued, Judgments Enforceable 42 Direct Debt 43 Pension Plans 44 Accrued Compensated Absences. 44 Other Post -Employment Benefits 44 Financial Urgency 45 THE OMNI COMMUNITY REDEVELOPMENT AGENCY 46 LEGAL MATTERS 46 LITIGATION 47 SECURITIES AND EXCHANGE COMMISSION INVESTIGATIONS 47 INTERNAL REVENUE SERVICE EXAMINATION 48 DISCLOSURE REQUIRED BY FLORIDA BLUE SKY REGULATIONS 49 TAX MATTERS 49 Original Issue Discount and Original Issue Premium 51 RATINGS 52 FINANCIAL ADVISOR 52 AUDITED FINANCIAL STATEMENTS 52 UNDERWRITING 52 ENFORCEABILITY OF REMEDIES 53 CONTINUING DISCLOSURE 53 ACCURACY AND COMPLETENESS OF LIMITED OFFERING MEMORANDUM 54 FORWARD -LOOKING STATEMENTS 54 MISCELLANEOUS 55 AUTHORIZATION OF LIMITED OFFERING MEMORANDUM 55 APPENDICES APPENDIX A: APPENDIX B: APPENDIX C: APPENDIX D: APPENDIX E: APPENDIX F: [APPENDIX G: APPENDIX H: APPENDIX I: GENERAL INFORMATION REGARDING THE CITY OF MIAMI AND MIAMI-DADE COUNTY PENSION PLANS AND OTHER POST -EMPLOYMENT BENEFITS FORM OF THE RESOLUTION COMPREHENSIVE ANNUAL FINANCIAL REPORT OF THE CITY OF MIAMI FOR FISCAL YEAR ENDED SEPTEMBER 30, 2011 FORM OF BOND COUNSEL OPINION FORM OF CONTINUING DISCLOSURE AGREEMENT SPECIMEN MUNICIPAL BOND INSURANCE POLICY] FORM OF INVESTOR LETTER LITIGATION PRELIMINARY LIMITED OFFERINGG MEMORANDUM RELATING TO THE CITY OF MIAMI, FLORIDA SPECIAL OBLIGATION NON -AD VALOREM REVENUE REFUNDING BONDS SERIES 2012 (PORT OF MIAMI TUNNEL PROJECT) INTRODUCTION The purpose of this Limited Offering Memorandum, including the cover page and appendices hereto, is to set forth information concerning the Special Obligation Non -Ad Valorem Revenue Refunding Bonds, Series 2012 (Port of Miami Tunnel Project) (the "Series 2012 Bonds"). The City of Miami, Florida (the "City") is situated at the mouth of the Miami River on the western shores of Biscayne Bay. It is the county seat of Miami -Dade County, Florida. The City comprises 35.87 square miles of land and 19.5 square miles of water. The City's diversified economic base is comprised of, among other things, light manufacturing, commerce, wholesale and retail trade and tourism. For more information about the City, see "APPENDIX A - GENERAL INFORMATION REGARDING THE CITY OF MIAMI AND MIAMI-DADE COUNTY, FLORIDA" attached hereto. The Series 2012 Bonds are being issued pursuant to the Constitution and laws of the State of Florida, including Chapter 166, Part II, Florida Statutes and the Charter of the City (collectively, the "Act") and pursuant to Resolution No. of the City adopted by the City Commission of the City on November 15, 2012 (the "Resolution"). The Series 2012 Bonds are being issued for the purpose of, together with any other available moneys, (i) refinancing the principal amount of the City's Revenue Note, Series 2010 (Port of Miami Tunnel and Access Improvement Project) outstanding in the aggregate principal amount of $45,000,000, plus the accrued but unpaid interest to the date of repayment (the "Note"); (ii) funding a deposit to the Debt Service Reserve Account or paying the premium for a Reserve Account Insurance Policy for the Series 2012 Bonds and (iii) paying certain costs of issuance of the Series 2012 Bonds, including, if necessary, the premium for a Bond Insurance Policy. See "THE REFUNDING PLAN" herein. The Series 2012 Bonds will be payable from the Pledged Funds, which primarily consists of moneys received from the City's covenant to budget and appropriate from Non -Ad Valorem Revenues. See "SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2012 BONDS" herein. The Series 2012 Bonds and any redemption premium with respect thereto and the interest thereon shall not be or constitute a general debt, liability or obligation of the City or the State of Florida or any political subdivision thereof, or a pledge of the faith and credit of the City or of the State of Florida or any political subdivision thereof, but shall be payable solely from and secured by a lien upon and a pledge of the Pledged Funds and the City is not obligated to pay the Series 2012 Bonds, the redemption premium, if any, related thereto or the interest thereon except from the Pledged Funds as provided in the Resolution. Neither the faith and credit nor the taxing power of the City or of the State of Florida or any political subdivision thereof is pledged to the payment of the Series 2012 Bonds. No Bondholder shall ever have the right to compel the exercise of the ad valorem taxing power of the City or taxation in any form on any property to pay such Series 2012 Bonds or the interest thereon, nor shall such Bondholder be entitled to payment of such principal and interest or premium thereon from any other funds of the City except the Pledged Funds as provided in the Resolution. * Preliminary, subject to change. For discussion of various risks related to the purchase of the Series 2012 Bonds, see "INVESTMENT RISK FACTORS" herein. The summaries of and references to all documents, statutes, reports and other instruments referred to herein do not purport to be complete, comprehensive or definitive, and each such summary and reference is qualified in its entirety by reference to each such document, statute, report or instrument. All capitalized terms used in this Limited Offering Memorandum and not otherwise defined herein have the meanings set forth in the Resolution, unless the context would clearly indicate otherwise. A copy of the Resolution is attached hereto as "APPENDIX C - FORM OF THE RESOLUTION". LIMITED OFFERING Investment in the Series 2012 Bonds poses certain economic risks. Prospective investors in the Series 2012 Bonds are invited to request from the City documents, instruments and information which may not necessarily be referred to, summarized or described herein. Therefore, prospective investors should rely upon the information appearing in this Limited Offering Memorandum, including all appendices attached hereto, within the context of the availability of such additional information and the sources thereof. Prospective investors in the Series 2012 Bonds should have such knowledge and experience in financial and business matters to be capable of evaluating the merits and risks of an investment in the Series 2012 Bonds and should have the ability to bear the economic risks of such prospective investment, including a complete loss of such investment. Additional information will be made available to each prospective investor as such prospective investor deems necessary in order to snake an informed decision with respect to the purchase of the Series 2012 Bonds. Such requests should be made in writing and directed to both: John Generalli, Managing Director Wells Fargo Bank, N.A. 2363 Gulf to Bay Boulevard Clearwater, Florida 33765 Email: john.generalli@wellsfargo.com With a copy to: Janice Larned, Chief Financial Officer 444 S.W. 2nd Avenue, 10th Floor Miami, Florida 33130 Email: jlarned@miamigov.com While the Series 2012 Bonds are not subject to registration under the Securities Act of 1933, as amended (the "Securities Act"), the Issuer and the Underwriter have determined to restrict the sale of the Series 2012 Bonds to "qualified institutional buyers," as defined in Rule 144A of the Securities Act ("Qualified Institutional Buyers"), and will offer the Series 2012 Bonds only to such Qualified Institutional Buyers. Additionally, the Underwriter intends to further limit the offering of the Series 2012 Bonds to less than thirty- five investors, all of which shall be "sophisticated municipal market professionals" as defined in Municipal Securities Rulemaking Board Notice 2012-27, dated May 29, 2012 ("SMMPs"). See `DESCRIPTION OF THE SERIES 2012 BONDS — Transfer Restrictions", "APPENDIX H — FORM OF INVESTOR LETTER" and "INVESTMENT RISK FACTORS." 2 INVESTMENT RISK FACTORS THE PURCHASE OF THE SERIES 2012 BONDS INVOLVES A DEGREE OF RISK, AS IS THE CASE WITH ALL INVESTMENTS. EXCEPT AS SPECIFICALLY DESCRIBED BELOW, FACTORS THAT COULD AFFECT THE CITY'S ABILITY TO PERFORM ITS OBLIGATIONS UNDER THE RESOLUTION, INCLUDING WITHOUT LIMITATION THE TIMELY PAYMENT OF PRINCIPAL OF AND IN I'EREST ON THE SERIES 2012 BONDS, INCLUDE, BUT ARE NOT LIMITED TO, THE FOLLOWING: 1. There is no assurance that any rating assigned to the Series 2012 Bonds by the rating agencies will continue for any given period of time or that such rating will not be lowered or withdrawn entirely by such rating agency, if in its judgment, circumstances warrant. A downgrade, change in or withdrawal of any rating may have an adverse effect on the market price of the Series 2012 Bonds. See "RATINGS" herein. 2. The City's covenant to budget and appropriate from Non -Ad Valorem Revenues for the payment of the Series 2012 Bonds is limited by a number of factors. As indicated under the caption "SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2012 BONDS — General" herein, the City is required to operate with a balanced budget. In addition, the City is not required and does not covenant to maintain any services or programs which generate Non -Ad Valorem Revenues. Cancellation of any services or programs which are not essential services and that generate Non -Ad Valorem Revenues could have an adverse affect on the City fulfilling its covenant obligations under the Resolution. Certain Non -Ad Valorem Revenues, such as State revenue sharing, may be subject to modification or repeal by the Legislature. Certain matching Non -Ad Valorem Revenues, such as governmental, foundation or corporate grants to the City, also may be subject to modification or may be discontinued. See "NON -AD VALOREM REVENUES - Special Investment Considerations" herein. 3. The City has three separate, single employer defined benefit plans, in which its current and former employees may participate. The City of Miami Fire Fighters' and Police Officers' Retirement Trust ("FIPO") and the City of Miami General Employees' and Sanitation Employees' Retirement Trust ("GESE") are contributory plans that cover substantially all of the City's employees. The third plan is a non- contributory defined benefits plan, the City of Miami Elected Officers' Retirement Trust ("EORT"), in which all elected officials with seven or more years of elected service to. the City may participate. The City annually funds its FIPO, the GESE and the EORT pension obligations. The estimated aggregate budgeted pension costs for the FIPO, GESE and EORT is $66,287,700 for Fiscal Year 2013 and the City has allocated such expenditure in its Fiscal Year 2013 Budget. See "APPENDIX B- PENSION FUNDS AND OTHER POST -EMPLOYMENT BENEFITS" herein and also "APPENDIX D — COMPREHENSIVE ANNUAL FINANCIAL REPORT OF THE CITY OF MIAMI FOR FISCAL YEAR ENDED SEPTEMBER 30, 2011— Note 10- Pensions." 4. The City has four separate collective bargaining units, the American Federation of State, County and Municipal Employees ("AFSCME") Local 1907 for general City employees, AFSCME Local 871 for the City's solid waste employees, the Fraternal Order of Police ("FOP") Lodge No. 20 for police and detention officers, and the International Association of Fire Fighters ("IAFF") Local 587 for the City's firefighters. In connection with the City's need to adopt a balanced budget in Fiscal Year 2011, the City declared a financial urgency under Section 447.4095, Florida Statutes, seeking modification of the collective bargaining agreements in 2010. Such declaration of financial urgency has been challenged and if such litigation is determined adverse to the City, such determination may have a material financial impact on the City's ability to meet its obligations under the Resolution. See "LIABILITIES OF THE CITY -Financial Urgency" and "APPENDIX I — LITIGATION-B. CIVIL LITIGATION -Labor Litigation related to "Financial Urgency" herein. 3 5. The City has also experienced significant increases in its obligations for contributions for healthcare benefits for employees and retirees, and their dependents, and other post -employment benefit ("OPEB") obligations. The City has two separate OPEB plans, one for police officers and the other for all other employees. These obligations are projected to increase significantly if plan changes are not made to the current plans. In attempt to address this situation, the City has made major changes to its health care plan in the 2011 plan year and increased retiree contributions significantly beginning in the 2012 plan year. See "LIABILITIES OF THE CITY - Other Postemployment Benefits", "APPENDIX B - PENSION PLANS AND OTHER POST -EMPLOYMENT BENEFITS" and "APPENDIX D - COMPREHENSIVE ANNUAL FINANCIAL REPORT OF THE CITY OF MIAMI FOR FISCAL YEAR ENDED SEPTEMBER 30, 2011- Note 11- Post -Employment Healthcare Benefits." 6. After informal requests for documents in December 2009, in February 2010 the SEC instituted a formal investigation of the City in connection with various bond offerings by the City in 2007 and 2009 to determine whether the City violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder and Section 17(a) of the Securities Act of 1933, On July 26, 2012, the SEC staff notified the City of its intent to recommend that the SEC file civil fraud charges against the City based on transactions that occurred with respect to the City's fiscal years ending September 30, 2007 and September 30, 2008. Additionally, the SEC has requested documents in connection with the City's Special Obligation Parking Revenue Bonds, Series 2010A and Series 2010B (Marlins Stadium Project). These investigations have temporarily diverted the attention of City officials and employees from the conduct of City operations, have caused the City to incur significant defense expenses, and could have a material effect on the City's financial condition and operations. See "SECURITIES AND EXCHANGE COMMISSION INVESTIGATIONS" herein, 7. In November 2011, the City received an examination request letter from the Department of Treasury, Internal Revenue Service, informing the City that its $153,060,000 City of Miami, Florida Limited Ad Valorem Tax Refunding Bonds, Series 2007A (Homeland Defense/Neighborhood Capital Improvement Projects) and City of Miami, Florida Limited Ad Valorem Tax Bonds, Series 2007E (Homeland Defense/Neighborhood Capital Improvement Projects) dated July 10, 2007 have been selected for a routine examination to determine compliance with federal tax requirements. This investigation has temporarily diverted theattention of the City employees from the conduct of City operations and has caused the City incur expenses. See "INTERNAL REVENUE SERVICE EXAMINATION" herein. 8. In the event of a default in the payment of principal of and interest on the Series 2012 Bonds, the remedies of the owners of the Series 2012 Bonds are limited under the Resolution. See "APPENDIX C - FORM OF THE RESOLUTION" herein. 9. The City has multiple litigation suits that it is defending at this time. The City carutot predict the outcome of such suits nor the economic effect on the City. Bee "APPENDIX I - LITIGATION" herein for a description of certain pending litigation. 10. Although the July 1, 2012 release of the office of the property appraiser of the County's estimated taxable value of the properties located in the City for Fiscal Year 2013 to be $31,333,834,037 which is an increase of 3.23% from Fiscal Year 2012, the City cannot accurately predict that increases will continue in the future. Past publicized economic factors which created crises in many geographic areas also affected the City, as property values, property tax revenues, and sales tax revenues declined. In Fiscal Year 2011, the total net assessed value of property in the City declined 17.85% as compared to Fiscal Year 2010 and the estimated actual value of assessed property in the City declined 18.75% in Fiscal Year 2011 as compared to Fiscal Year 2010. See "APPENDIX A - GENERAL INFORMATION REGARDING THE CITY OF MIAMI AND MIAMI- DADE COUNTY - Assessed Valuations." Periodic adverse economic conditions have historically contributed significantly to the City's financial distress and there may be future declines in City property tax values, property tax revenues and other revenues of the City. Additionally, the City's property tax revenues have been affected by various property tax reform measures. See "APPENDIX A - GENERAL INFORMATION REGARDING THE CITY OF MIAMI AND MIAMI-DADE COUNTY -Property Tax Reform." The City cannot accurately predict when, how or to what extent these conditions will change, and there is no assurance that they will improve in the foreseeable future. See "MANAGEMENT DISCUSSION OF BUDGET AND FINANCES" herein for the City's current and projected financial condition. THE REFUNDING PLAN The City expects to refinance the Note, proceeds of which were used to fund the City's required financial contribution to the acquisition and construction by the Florida Department of Transportation of the Port of Miami Tunnel and Access Improvement Project, located within the Omni Community Redevelopment Area (the "Redevelopment Area"), as provided in the Omni Community Redevelopment Agency's Community Redevelopment Plan. The refinancing of the Note will be accomplished through the issuance of the Series 2012 Bonds and the use of a portion of the proceeds thereof to prepay the full principal of and accrued interest on the Note. Upon delivery of the Series 2012 Bonds, the principal of and accrued interest on the Note, which matures on January 5, 2013, will be immediately paid to Wells Fargo Bank, National Association, the Lender. ESTIMATED SOURCES AND USES OF FUNDS The table that follows summarizes the estimated sources and uses of funds to be derived from the sale of the Series 2012 Bonds: SOURCES: Principal Amount of Series 2012 Bonds [Plus/Minus Original Net Premium/Discount] $ TOTAL SOURCES USES: Payment of principal and accrued interest on Note $ Deposit to Debt Service Reserve Account $ Costs of Issuance) $ TOTAL USES (1) Includes underwriter's discount, financial advisory and legal fees and expenses, rating agencies' fees, [bond insurance and Reserve Account Insurance Policy premiums] and miscellaneous other costs of issuance. 5 DEBT SERVICE SCHEDULE The following table sets forth the debt service schedule for the Series 2012 Bonds. Bond Year Principal Interest Total 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029. 2030 Total [Remainder of page intentionally left blank] 6 DESCRIPTION OF THE SERIES 2012 BONDS General The Series 2012 Bonds will only be offered and sold to less than thirty-five Qualified Institutional Buyers, which are also SMMPs, as described under "LIMITED OFFERING" herein and may only be transferred in the secondary market to Qualified Institutional Buyers as described under the heading "- Transfer Restrictions". The Series 2012 Bonds shall be issued as fully registered, book -entry only bonds in the denomination of $100,000 and integral multiples of $5,000 in excess of $100,000 ("Authorized Denominations") through the book -entry only system maintained by The Depository Trust Company, New York, New York. The Series 2012 Bonds shall be numbered consecutively from 1 upward preceded by the letter "R" prefixed to the number. The principal and redemption premium, if any, on the Series 2012 Bonds shall be payable upon presentation and surrender at the designated corporate trust office of U.S. Bank, National Association, Miami, Florida (the "Bond Registrar"). Interest on the Series 2012 Bonds (calculated on the basis of a 360 day year twelve 30-day months) is payable semi-annually on March 1 and September 1 of each year (each, an "Interest Payment Date"), commencing March 1, 2013 and shall be paid by check or draft drawn upon the Bond Registrar and mailed to the Holders of the Series 2012 Bonds at the addresses as they appear on the registration books maintained by the Bond Registrar at the close of business on the 15th day (whether or not a business day) of the month next preceding the Interest Payment Date (the "Regular Record Date"); provided, however, that (i) if ownership of Series 2012 Bonds is maintained in a book -entry only system by a securities depository, such payment may be made by automatic funds transfer (wire) to such securities depository or its nominee or (ii) if such Series 2012 Bonds are not maintained in a book -entry only system by a securities depository, upon written request of the holder of $1,000,000 or more in principal amount of Series 2012 Bonds, such payments may be made by wire transfer to the bank and bank account specified in writing by such Holder (such bank being a bank within the continental United States), if such Holder has advanced to the Bond Registrar the amount necessary to pay the cost of such wire transfer or authorized the Bond Registrar to deduct the cost of such wire transfer from the payment due such Holder. Notwithstanding anything in this paragraph to the contrary, any interest not punctually paid on a Regular Record Date shall forthwith cease to be payable to the Holder on such Regular Record Date and may be paid at the close of business on a special record date for the payment of such defaulted interest to be fixed by the Bond Registrar, notice of which shall be given not less than 10 days prior to such special record date to such Holder. Book -Entry Only System THE FOLLOWING INFORMATION CONCERNING DTC AND DTC'S BOOK -ENTRY ONLY SYSTEM HAS BEEN OBTAINED FROM SOURCES THAT THE CITY BELIEVES TO BE RELIABLE, BUT NEITHER THE CITY NOR THE UNDERWRITER TAKES ANY RESPONSIBILITY FOR THE ACCURACY OR COMPLETENESS THEREOF. The Depository Trust Company ("DTC"), New York, New York, will act as securities depository for the Series 2012 Bonds. The Series 2012 Bonds will be issued as fully -registered securities registered in the name of Cede & Co. (DTC's partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully -registered certificate will be issued for each maturity of the Series 2012 Bonds, each in the aggregate principal amount of such maturity, and will be deposited with DTC. DTC, the world's largest securities depository, is a limited -purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a 7 member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments from over 100 countries that DTC's participants ("Direct Participants") deposit with DTC. DTC also facilitates the post -trade settlement among Direct Participants of sales and other securities transactions in deposited securities through electronic computerized book -entry transfers and pledges between Direct Participants' accounts. This eliminates the need for physical movement of securities certificates, Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly -owned subsidiary of The Depository Trust & Clearing Corporation ("DTCC"). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ("Indirect Participants"). DTC has a Standard & Poor's rating: "AA+". The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com. Purchases of Series 2012 Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Series 2012 Bonds on DTC's records. The ownership interest of each actual purchaser of each Series 2012 Bond ("Beneficial Owner") is in turn to be recorded on the Direct and Indirect Participants' records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Series 2012 Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial. Owners. Beneficial Owners will not receive certificates representing their ownership interests in Series 2012 Bonds, except in the event that use of the book -entry system for the Series 2012 Bonds is discontinued. To facilitate subsequent transfers, all Series 2012 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 Series 2012 Bonds with DTC and their registration in the name of Cede & Co. or such other nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Series 2012 Bonds; DTC's records reflect only the identity of the Direct Participants to whose accounts such Series 2012 Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of Series 2012 Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Series 2012 Bonds, such as redemptions and proposed amendments to the Series 2012 Bond documents. For example, Beneficial Owners of Series 2012 Bonds may wish to ascertain that the nominee holding the Series 2012 Bonds for their benefit has agreed to obtain and 8 transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the Bond Registrar and request that copies of notices be provided directly to them. Redemption notices shall be sent to DTC. If less than all of the Series 2012 Bonds 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 Series 2012 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 Series 2012 Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). Principal and interest payments on the Series 2012 Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC's practice is to credit Direct Participants' accounts, upon DTC's receipt of funds and corresponding detail information from the City or Bond Registrar on the payable date in accordance with their respective holdings shown on DTC's records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with Series 2012 Bonds held for the accounts of customers in bearer form or registered in "street name," and will be the responsibility of such Participant and not of DTC, the Bond Registrar or the City, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal and interest payments 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 Bond Registrar, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants. DTC may discontinue providing its services as depository with respect to the Series 2012 Bonds at any time by giving reasonable notice to the City or Bond Registrar. Under such circumstances, in the event that a successor depository is not obtained, Series 2012 Bond certificates are required to be printed and delivered. The City may decide to discontinue use of the system of book -entry only transfers through DTC (or a successor securities depository). In that event, Series 2012 Bond certificates will be printed and delivered to DTC. Thereafter, Series 2012 Bond certificates may be transferred and exchanged as described in the Resolution. See "-Negotiability, Registration and Cancellation" herein. THE Cl'1'Y AND THE BOND REGISTRAR WILL HAVE NO RESPONSIBILITY OR OBLIGATION TO THE BENEFICIAL OWNERS, DTC PARTICIPANTS OR THE PERSONS FOR WHOM DTC PARTICIPANTS ACT AS NOMINEES WITH RESPECT TO THE SERIES 2012 BONDS, FOR THE ACCURACY OF RECORDS OF DTC, CEDE & CO. OR ANY DTC PARTICIPANT WITH RESPECT TO THE SERIES 2012 BONDS OR THE PROVIDING OF NOTICE OR PAYMENT OF PRINCIPAL OR INTEREST ON THE SERIES 2012 BONDS, TO DTC PARTICIPANTS OR BENEFICIAL OWNERS, OR THE SELECTION OF SERIES 2012 BONDS FOR REDEMPTION. Optional Redemption The Series 2012 Bonds maturing on or prior to March 1, are not redeemable prior to their respective dates of maturity. The Series 2012 Bonds maturing on and after March 1, , are subject to redemption at the option of the City on or after March 1, , in whole or in part at any time, in such 9 manner as shall be determined by the Bond Registrar, at a redemption price equal to the par amount thereof plus accrued interest to the date fixed for redemption. Mandatory Redemption The Series 2012 Bonds maturing on March 1, will be subject to mandatory redemption prior to maturity, by lot, in such manner as the Bond Registrar may deem appropriate, at a redemption price equal to par plus accrued interest to the redemption date, on March 1, and on each March 1 thereafter, from moneys deposited in the Debt Service Account, in the following Amortization Requirements in the years specified: Year Amortization Requirements *Maturity Notice of Redemption Notice of redemptionfor Series 2012 Bonds being redeemed shall be given by deposit in the U.S. mail of a copy of a redemption notice, postage prepaid, at least thirty (30) days before the redemption date, to all registered owners of the Series 2012 Bonds or portions of the Series 2012 Bonds to be redeemed at their addresses as they appear on the registration books to be maintained in accordance with the provisions of the Resolution. Failure to mail any such notice to a registered owner of a Series 2012 Bond, or any defect therein, shall not affect the validity of the proceedings for redemption of any Series 2012 Bond or portion thereof with respect to which no failure or defect occurred. Such notice shall set forth the date fixed for redemption, the rate of interest borne by each Series 2012 Bond being redeemed, the name and address of the Bond Registrar, the redemption price to be paid and, if less than all of the Series 2012 Bonds then Outstanding shall be called for redemption, the distinctive numbers and letters, including CUSIP numbers, if any, of such Series 2012 Bonds to be redeemed and, in the case of Series 2012 Bonds to be redeemed in part only, the portion of the principal amount thereof to be redeemed. If any Series 2012 Bond is to be redeemed in part only, the notice of redemption which relates to such Series 2012 Bond shall also state that on or after the redemption date, upon surrender of such Series 2012 Bond, a new Series 2012 Bond or Series 2012 Bonds in a principal amount equal to the unredeemed portion of such Series 2012 Bond and in an Authorized Denomination will be issued. The optional redemption of the Series 2012 Bonds, if any, may be conditioned upon the receipt by the Bond Registrar of sufficient moneys to pay the redemption price of the Series 2012 Bonds to be redeemed. If the optional redemption of any of the Series 2012 Bonds is conditioned upon the receipt of sufficient moneys as described above, the notice of redemption which relates to such Series 2012 Bonds shall also state that the redemption is so conditioned. Any notice mailed as provided in the Resolution shall be conclusively presumed to have been duly given, whether or not the owner of such Series 2012 Bond receives such notice. • Notice having been given in the manner and under the conditions provided in the Resolution, the Series 2012 Bonds or portions of Series 2012 Bonds so called for redemption shall, on the redemption date designated in such notice, become and be due and payable at the redemption price provided for redemption for such Series 2012 Bonds or portions of Series 2012 Bonds on such date; provided, however, that Series 2012 Bonds or portion of Series 2012 Bonds called for optional redemption and which redemption is conditioned 10 upon the receipt of sufficient moneys as described above, shall not become due and payable on the redemption date if sufficient moneys to pay the redemption price of such Series 2012 Bonds or portions of Series 2012 Bonds have not been received by the Bond Registrar on or prior to the redemption date. On the date so designated for redemption, moneys for payment of the redemption price being held in separate accounts by the Bond Registrar in trust for the registered owners of the Series 2012 Bonds or portions thereof to be redeemed., all as provided in the Resolution, interest on the Series 2012 Bonds or portions of Series 2012 Bonds so called for redemption shall cease to accrue, such Series 2012 Bonds and portions of Series 2012 Bonds shall cease to be entitled to any lien, benefit or security under the Resolution and shall be deemed paid hereunder, and the registered owners of such Series 2012 Bonds or portions of Series 2012 Bonds shall have no right in respect thereof except to receive payment of the redemption price thereof and, to the extent provided below, to receive Series 2012 Bonds in Authorized Denominations for any unredeemed portions of the Series 2012 Bonds. In case part but not all of a Series 2012 Bond shall be selected for redemption, the registered owners thereof shall present and surrender such Series 2012 Bond to the Bond Registrar for payment of the principal amount thereof so called for redemption, and the City shall execute and deliver to or upon the order of such registered owner, without charge therefor, for the unredeemed balance of the principal amount of the Series 2012 Bonds so surrendered, a Series 2012 Bond or Series 2012 Bonds in Authorized Denominations fully registered as to principal and interest. Replacement of Bonds Mutilated, Destroyed, Stolen or Lost In case any Series 2012 Bond shall become mutilated, destroyed, stolen or lost, the City may execute and the Bond Registrar shall authenticate and deliver a new Series 2012 Bond, with such maturity, Authorized Denomination and interest rate as the Series 2012 Bond so mutilated, destroyed, stolen or lost; provided that, in the case of any mutilated Series 2012 Bond, such mutilated Series 2012 Bond shall first be surrendered to the City and, in the case of any lost, stolen or destroyed Series 2012 Bond, there shall first be furnished to the City and the Bond Registrar evidence of such loss, theft, or destruction satisfactory to the City and the Bond Registrar, together with indemnity satisfactory to them. In the event any such Series 2012 Bond shall be about to mature or has matured or has been called for redemption, instead of issuing a duplicate Series 2012 Bond, the City may direct the Bond Registrar to pay the same withoutsurrender thereof. The City and Bond Registrar may charge the Holder of such Series 2012 Bonds their reasonable fees and expenses in connection with this transaction. Any Series 2012 Bond surrendered for replacement shall be canceled in the same manner as provided in the Resolution. Any such duplicate Series 2012 Bonds issued pursuant to the Resolution shall constitute additional contractual obligations on the part of the City, whether or not the lost, stolen or destroyed Series 2012 Bonds be at any time found by anyone, and such duplicate Series 2012 Bonds shall be entitled to equal and proportionate benefits and rights as to lien on and source and security for payment from the Pledged Funds, with all other Series 2012 Bonds issued under the Resolution. Negotiability, Registration and Cancellation At the option of the Holder thereof and upon surrender thereof at the designated corporate trust office of the Bond Registrar with a written instrument of transfer satisfactory to the Bond Registrar duly executed by the Holder or his duly authorized attorney and upon payment by such Holder of any charges which the Bond Registrar or the City may make as provided in the Resolution, the Series 2012 Bonds may be exchanged for Series 2012 Bonds of the same series, aggregate principal amount of the same maturity of any other Authorized Denominations, 11 The Bond Registrar shall keep books for the registration of Series 2012 Bonds and for the registration of transfers of Series 2012 Bonds. The Series 2012 Bonds shall be transferable by the Holder thereof in person or by his attorney duly authorized in writing only to a Qualified Institutional Buyer upon the books of the City kept by the Bond Registrar and only upon surrender thereof together with a written instrument of transfer satisfactory to the Bond Registrar duly executed by the Holder or his duly authorized attorney. Upon the transfer of any such Series 2012 Bond, the City shall cause to be issued in the name of the transferee (which must be a Qualified Institutional Buyer) a new Series 2012 Bond or Series 2012 Bonds. The City, the Bond Registrar and any other fiduciaries may deem and treat the person in whose name any Series 2012 Bond shall be registered upon the books kept by the Bond Registrar as the absolute Holder of such Series 2012 Bond, whether such Series 2012 Bond shall be overdue or not, for the purpose of receiving payment of, or on account of, the principal of, redemption premium, if any, and interest on such Series 2012 Bond as the same becomes due and for all other purposes. All such payments so made to any such Holder or upon his order shall be valid and effectual to satisfy and discharge the liability upon such Series 2012 Bond to the extent of the sum or sums so paid, and neither the City, the Bond Registrar nor any other fiduciary shall be affected by any notice to the contrary, In all cases in which the privilege of exchanging Series 2012 Bonds or transferring Series 2012 Bonds is exercised, the City shall execute and the Bond Registrar shall authenticate and deliver Series 2012 Bonds in accordance with the provisions of the Resolution. All Series 2012 Bonds surrendered in any such exchanges or transfers shall forthwith be delivered to the Bond Registrar and canceled by the Bond Registrar in the manner provided in the Resolution. There shall be no charge for any such exchange or transfer of Series 2012 Bonds, but the City or the Bond Registrar may require the payment of a sum sufficient to pay any tax, fee or other governmental charge required to be paid with respect to such exchange or transfer. Neither the City nor the Bond Registrar shall be required (a) to transfer or exchange Series 2012 Bonds for a period of 15 days next preceding any selection of Series 2012 Bonds to be redeemed or thereafter until after the mailing of any notice of redemption; or (b) to transfer or exchange any Series 2012 Bonds called for redemption. All Series 2012 Bonds paid or redeemed, either at or before maturity shall be delivered to the Bond Registrar when such payment or redemption is made, and such Series 2012 Bonds, together with all Series 2012 Bonds purchased by the City,shall thereupon be promptly canceled. Series 2012 Bonds so canceled may at any time be destroyed by the Bond Registrar, who shall execute a certification of destruction in duplicate by the signature of one of its authorized officers describing the Series 2012 Bonds so destroyed, and one executed certificate shall be filed with the City and the other executed certificate shall be retained by the Bond Registrar. Transfer Restrictions Every Series 2012 Bond authenticated and delivered under the Resolution, including any issued upon transfer, exchange or replacement of such Series 2012 Bond, shall be issued and delivered only to Qualified Institutional Buyers, and each Series 2012 Bond shall bear on its face a legend stating such restriction in substantially the following form: THIS BOND IS SUBJECT TO TRANSFER RESTRICTIONS. THE INITIAL PURCHASER HEREOF AND ANY SUBSEQUENT TRANSFEREE, BY PURCHASING THIS BOND, AGREES FOR THE BENEFIT OF THE CITY OF MIAMI, FLORIDA, THAT THIS BOND MAY BE TRANSFERRED, RESOLD OR ASSIGNED ONLY TO ANOTHER QUALIFIED INSTITUTIONAL BUYER. NOTWITHSTANDING ANYTHING IN THE RESOLUTION OR THIS BOND TO THE CONTRARY, NO TRANSFER, RESALE OR ASSIGNMENT OF THIS BOND SHALL BE EFFECTIVE UNLESS THE TRANSFER, RESALE 12 OR ASSIGNMENT OF THIS BOND IS TO ANY PURCHASER, TRANSFEREE, ASSIGNEE OR PARTICIPANT THAT IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS BOND HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. ANY TRANSFER, RESALE, ASSIGNMENT OR OTHER DISPOSITION OF THIS BOND, OR ANY PARTICIPATION HEREIN, SHALL BE IN EACH CASE ONLY IN A MANNER THAT DOES NOT VIOLATE THE SECURITIES ACT OF 1933, AS AMENDED, AND THE RULES AND REGULATIONS PROMULGATED THEREUNDER, OF ANY APPLICABLE STATE SECURITIES LAWS. THIS BOND SHALL BE ISSUED AND SOLD, AND MAY ONLY BE TRANSFERRED, IN DENOMINATIONS OF $100,000 OR ANY INTEGRAL MULTIPLE OF $5,000 IN EXCESS OF $100,000. SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2012 BONDS General Payment of the principal of, premium, if any, and interest on the Series 2012 Bonds shall be secured by a lien upon and pledge of the Pledged Funds. The "Pledged Funds" are defined in the Resolution to mean collectively, all moneys, securities and instruments held in the Bond Fund and the Accounts (and subaccounts) therein created and established under the Resolution for the Series 2012 Bonds, except the Rebate Account. As more particularly described in the following paragraph, the City has covenanted in the Resolution to budget and appropriate in its annual budget, by amendment, if necessary, and to deposit into the Accounts (and subaccounts) established within the Bond Fund under the Resolution, Non -Ad Valorem Revenues lawfully available in each Fiscal Year, in amounts sufficient to satisfy the (i) Annual Debt Service Requirement for such Fiscal Year, (ii) any deposits required to be made into the Debt Service Reserve Account during such Fiscal Year, (iii) any other amounts due the Providers of any Bond Insurance Policy or Reserve Account Insurance Policy and the Bond Registrar during such Fiscal Year and (iv) any Rebate Amount due during such Fiscal Year as provided in the Resolution. "Non -Ad Valorem Revenues" are defined in the Resolution to mean all revenues of the City derived from any source whatsoever, other than ad valorem taxation on real or personal property, which are legally available to make the payments required under the Resolution. Such covenant to budget and appropriate does not create any lien upon or pledge of such Non -Ad Valorem Revenues, nor does it preclude the City from pledging in the future its Non -Ad Valorem Revenues, nor does it require the City to levy and collect any particular Non -Ad Valorem Revenues, nor does it give the Bondholders, the Providers of any Bond Insurance Policy or Reserve Account Insurance Policy or the Bond Registrar a prior claim on the Non -Ad Valorem Revenues as opposed to claims of general creditors of the City. Such covenant to budget and appropriate Non -Ad Valorem Revenues is subject in all respects to the payment of obligations secured by a pledge of such Non -Ad Valorem Revenues heretofore or hereinafter entered into (including the payment of debt service on bonds and other debt instruments). However, the covenant to budget and appropriate in its general annual budget for the purposes and in the manner stated in the Resolution shall have the effect of making available in the manner described in the Resolution Non -Ad Valorem Revenues and placing on the City a positive duty to budget and appropriate, by amendment, if necessary, amounts sufficient to meet its obligations under the Resolution; subject, however, in all respects to the restrictions of Section 166.241(2), Florida Statutes, which provides, in part, that the governing body of each municipality make appropriations for each Fiscal Year which, in any one year, shall not exceed the amount to be received from taxation or other revenue sources; and subject further, to the payment of services 13 and programs which are for essential public purposes affecting the health, welfare and safety of the inhabitants of the City or which are legally mandated by applicable law. Flow of Funds The Resolution establishes a Bond Fund, and within the Bond Fund, the following separate accounts and subaccounts: (i) Debt Service Account which shall include three separate subaccounts therein designated as the Interest Subaccount, the Principal Subaccount, and the Bond Redemption Subaccount; (ii) the Debt Service Reserve Account; (iii) the Cost of Issuance Account; and (iv) the Rebate Account. Non -Ad Valorem Revenues appropriated in each Fiscal Year for the payment of the principal of, redemption premium, if any, and interest on the Series 2012 Bonds, shall be applied in the following manner: 1. To the full extent necessary, for deposit into the Interest Subaccount in the Debt Service Account, by no later than the fifth (5th) day preceding each Interest Payment Date, such sums as shall be sufficient to pay the interest becoming due on the Series 2012 Bonds on each such Interest Payment Date; provided, however, that such deposits for interest shall not be required to be made into the Interest Subaccount to the extent that money on deposit therein is sufficient for such purpose. The City shall, on each Interest Payment Date, transfer to the Bond Registrar moneys in an amount equal to the interest due on such Interest Payment Date or shall, prior to such Interest Payment Date, advise the Bond Registrar of the amount of any deficiency in the amount so to be transferred so that the Bond Registrar may give the appropriate notice required to provide for the payment of such deficiency on such Interest Payment Date from any Reserve Account Insurance Policy, if any, on deposit in the Debt Service Reserve Account or from the Bond Insurance Policy, as applicable. 2. (a) To the full extent necessary, for deposit into the Principal Subaccount in the Debt Service Account, by no later than the fifth (5th) day preceding each principal maturity date, the principal amount of Serial Bonds which will mature and become due on such maturity date; provided, however, that such deposits for principal shall not be required to be made into the Principal Subaccount to the extent that money on deposit therein is sufficient for such purpose, The City shall, on each principal payment date, transfer to the Bond Registrar moneys in an amount equal to the principal due on such principal payment date or shall, prior to such principal payment date, advise the Bond Registrar of the amount of any deficiency in the amount so to be transferred so that the Bond Registrar may give the appropriate notice required to provide for the payment of such deficiency on such principal payment date from any Reserve Account Insurance Policy, if any, on deposit in the Debt Service Reserve Account or from the Bond Insurance Policy, if any, as applicable. (b) To the full extent necessary, for deposit into the Bond Redemption Subaccount, if applicable, in the Debt Service Account, by no later than the fifth (5th) day preceding each redemption or maturity date, the Amortization Requirements as may be necessary for the payment of any Term Bonds payable from the Bond Redemption Subaccount on such redemption or maturity date; provided, however, that such deposits for Amortization Installments shall not be required to be made into the Bond Redemption Subaccount to the extent that money on deposit therein is sufficient for such purpose. The moneys in the Bond Redemption Subaccount shall be used solely for the purchase or redemption of Term Bonds payable therefrom. The City may at any time purchase any of said Term Bonds or portions thereof at prices not greater than the then redemption price of said Term Bonds. If the Term Bonds are not then redeemable, the City may purchase said Term Bonds at prices not greater than the redemption price of such Term Bonds on the next ensuing redemption date. The City is mandatorily obligated to use any moneys 14 in the Bond Redemption Subaccount for the redemption prior to maturity of such Term Bonds in such manner and at such times as the same are subject to mandatory redemption. If, by the application of moneys in the Bond Redemption Subaccount, the City shall purchase or call for redemption in any year Term Bonds in excess of the Amortization Requirements for such year, such excess of Term Bonds so purchased or redeemed shall be credited in such manner and at such times as the Director of Finance, upon consultation with the City Manager, shall determine over the remaining payment dates, The City shall, on each redemption or maturity date, transfer to the Bond Registrar moneys in an amount equal to the payments due on the Term Bonds on such redemption or maturity date or shall, prior to such redemption or maturity date, advise the Bond Registrar of the amount of any deficiency in the amount so to be transferred so that the Bond Registrar may give the appropriate notice required to provide for the payment of such deficiency on such redemption or maturity date from any Reserve Account Insurance Policy on deposit in the Debt Service Reserve Account or from the Bond Insurance Policy, if any, as applicable. 3. To the full extent necessary, for deposit into the Debt Service Reserve Account by no later than the fifteenth (15th) day of each month in each year, beginning with the fifteenth (15th) day of the first full calendar month following the date on which there is a deficiency in the amount required to be on deposit in the Debt Service Reserve Account, such sums as shall be at least sufficient to pay an amount equal to one - twelfth (1/12) of the difference between the amount on deposit in the Debt Service Reserve Account (including any Reserve Account Insurance Policy) and the Reserve Account Requirement; provided, however, that no payments shall be required to be made into the Debt Service Reserve Account whenever and as long as the amount on deposit therein (including any Reserve Account Insurance Policy) shall be equal to the Reserve Account Requirement for the Series 2012 Bonds. Moneys in the Debt Service Reserve Account shall be used only for the purpose of making payments of principal of and interest on the Series 2012 Bonds when the moneys in any Account held pursuant to the Resolution and available for such purpose are insufficient therefor. Any moneys in the Debt Service Reserve Account in excess of the Reserve Account Requirement for the Series 2012 Bonds may, in the discretion of the City, be transferred to and deposited into the Interest Subaccount, the Principal Subaccount or the Bond Redemption Subaccount as the City at its option may determine. 4. To the Providers, if any, and the Bond Registrar, as applicable, in payment of amounts payable to such parties during such Fiscal Year not paid pursuant to the above provisions. The Series 2012 Bonds shall not be and shall not constitute an indebtedness of the City, within the meaning of any constitutional, statutory or charter provisions or limitations, but shall be secured solely by and payable from, the Pledged Funds as provided in the Resolution. No holder or holders of any Series 2012 Bonds shall ever have the right to compel the exercise of the ad valorem taxing power of the City, the State, or any other political subdivision thereof or taxation in any form on any real or personal property therein or the application of any moneys of the City, except the Pledged Funds, and solely to the extent provided in the Resolution, the Non -Ad Valorem Revenues that have been budgeted and appropriated and deposited into the bond Fund to pay the Series 2012 Bonds or the interest thereon or the making of any debt service, reserve or other payments provided for in the Resolution. Enforcement of the City's obligation to budget and appropriate legally available Non -Ad Valorem Revenues shall be through appropriate judicial proceedings. The City has issued and may issue other bonds or debt obligations secured by a similar covenant. See "The City of Miami, Florida Schedule of Principal and 15 Interest for Non -Ad Valorem Revenue Bonds" herein. In addition, various contracts of the City which do not constitute debt may be secured in a similar manner. The City has not covenanted to maintain any programs or other activities which generate Non -Ad Valorem Revenues. Furthermore, the obligation of the City to budget and appropriate Non -Ad Valorem Revenues is subject to a variety of factors, including the payment of essential governmental services of the City and the obligation of the City to have a balanced budget. For a description of additional limitations see "Special Investment Considerations" herein. Debt Service Reserve Account The Resolution requires the City to maintain on deposit in the Debt Service Reserve Account an amount equal to the Reserve Account Requirement for the Series 2012 Bonds. "Reserve Account Requirement" shall mean an amount up to the lesser of (i) the Maximum Annual Debt Service on all Series 2012 Bonds Outstanding, (ii) 125% of the average Annual Debt Service Requirement on all Series 2012 Bonds Outstanding, or (iii) 10% of the proceeds of the Series 2012 Bonds within the meaning of the Code. The Reserve Account Requirement for the Series 2012 Bonds is equal to $ [The Debt Service Reserve Account shall be funded in the amount of Reserve Account Requirement from a portion of the proceeds of the Series 2012 Bonds simultaneously with the delivery of the Series 2012 Bonds.] See "ESTIMATED SOURCES AND USES OF FUNDS" herein. In lieu of or in substitute for the required deposits (including existing deposits therein) into the Debt Service Reserve Account, the City may cause to be deposited into the Debt Service Reserve Account a Reserve Account Insurance Policy for the benefit of the Holders of the Series 2012 Bonds Outstanding, which Reserve Account Insurance Policy shall be payable or available to be drawn upon, as the case may be (upon the giving of notice as required thereunder), on any Interest Payment Date or principal payment date or mandatory redemption date on which a deficiency exists which cannot be cured by moneys in any other Account held pursuant to the Resolution and available for such purpose. If a disbursement is made under the Reserve Account Insurance Policy, the City shall be obligated to either (i) reinstate the maximum limits of such Reserve Account Insurance Policy within twelve months by increasing the amount payable or available to be drawn thereunder in equal monthly amounts over such twelve month period, or (ii) deposit, on a monthly basis in accordance with the Resolution, into the Debt Service Reserve Account from the Non -Ad Valorem Revenues appropriated in accordance with the Resolution, moneys in the amount of the disbursements made under such Reserve Account Insurance Policy, or a combination of such alternatives as shall cause the amount then on deposit to the credit of the Debt Service Reserve Account to equal the Reserve Account Requirement for the Series 2012 Bonds Outstanding. In the event that upon the occurrence of any deficiency in the Interest Subaccount, the Principal Subaccount or the Bond Redemption Subaccount, the Debt Service Reserve Account is then funded with a Reserve Account Insurance Policy, the City or the Bond Registrar, as applicable, shall, on an interest or principal payment date or mandatory redemption date to which such deficiency relates, draw upon or cause to be paid under such facilities, on a pro-rata basis thereunder, an amount sufficient to remedy such deficiency, in accordance with the terms and provisions of such facilities and any corresponding reimbursement or other agreement governing such facilities; provided however, that if at the time of such deficiency the Debt Service Reserve Account is only partially funded with a Reserve Account Insurance Policy, prior to drawing on such facilities or causing payments to be made thereunder, the City shall first apply any cash and securities on deposit in the Debt Service Reserve Account to remedy the deficiency and, if after such application a deficiency still exists, the City or the Bond Registrar, as applicable, shall make up the balance of the deficiency by drawing on such facilities or causing payments to be made thereunder, as 16 provided in this paragraph. Amounts drawn or paid under a Reserve Account Insurance Policy shall be applied as set forth in the Resolution. Any amounts drawn or paid under a Reserve Account Insurance Policy shall be reimbursed to the Provider thereof in accordance with the terms and provisions of the reimbursement or other agreement governing such facility. DESCRIPTION OF NON -AD VALOREM REVENUES The following describes the major sources of the City's Non -Ad Valorem Revenues: Franchise Fees Franchise fees are levied annually on utility companies by the City in return for granting a privilege, sanctioning a monopoly or permitting the use of public property. Such fees are currently levied against Florida Power and Light Co. Additionally, the. City has granted non-exclusive commercial solid waste franchises and levies certain fees thereunder against commercial solid waste service providers. There is no guarantee that the services described above will continue to be provided by such franchisees in the future rather than by governmental entities, including the City, in which case no franchise fees would be received. Additionally, continued receipt of the franchise fees is dependent upon the continued financial viability of such franchise and the continued need by the City's citizens for the services provided. Public Service Tax The Public Service Tax is imposed, levied and collected by the City pursuant to Section 166.231, Florida Statutes; and other applicable provisions of law, on the purchase of electricity, fuel oil, metered or bottled gas (natural liquefied petroleum gas or manufactured), water service, and other services on which a tax may be imposed by law. Florida law authorizes any municipality in the State of Florida (the "State" ) to levy a Public Service Tax on the purchase within such municipality of electricity, metered natural gas, liquefied petroleum gas either metered or bottled, manufactured gas either metered or bottled, water service and fuel oil as well as any services competitive with those specifically enumerated. This tax may not exceed 10% of the payments received by the sellers of such services from purchasers (except in the case of fuel oil, for which the maximum tax is four cents per gallon). The purchase of natural gas or fuel oil by a public or private utility either for resale or for use as fuel in the generation of electricity, or the purchase of fuel oil or kerosene for use as an aircraft engine fuel or propellant or for use in internal combustion engines, is exempt from the levy of such tax. Pursuant to the Constitution of the State, Florida Statutes and a resolution of the City, the City levies a Public Service Tax, within the incorporated area of the City at the rate of 10% on sales of all services for which it is allowed to tax, and with the restriction that the tax on fuel oil cannot exceed four cents per gallon. Pursuant to the Section 166.231, Florida Statutes, a municipality is permitted to grant to any qualified business located within an enterprise zone an exemption equal to fifty percent (50%) of the Public Service Tax imposed, or one hundred percent (100%) in the case of the purchase of electricity, if no less than twenty percent (20%) of the employees of such business are residents of an enterprise zone, excluding temporary and part-time employees. The ability to authorize this exemption expires on December 31, 2015 pursuant to Chapter 290, Florida Statutes. A municipality is also permitted to exempt from the Public Service Tax up to and including the first 500 kilowatt hours of electricity purchased per month for residential use and to 17 exempt all or a portion of the purchase of electricity, metered natural gas, liquefied petroleum gas either metered or bottled, or manufactured gas either metered or bottled, or reduce the rate of taxation thereon, when purchased by an industrial consumer which uses the electricity or gas directly in industrial manufacturing, processing, compounding or a production process of items of personal property for sale, The City has not provided any of the foregoing exemptions. Additionally, a municipality may provide an exemption to the public service tax for any public body as defined in Section 1,01, Florida Statutes, and any non-profit corporation or cooperative association organized under Chapter 617, Florida Statutes, which provides water utility services to no more than 13,500 equivalent residential units, ownership of which will revert to a political subdivision upon retirement of all outstanding indebtedness. In addition to the other exemptions and exclusions described herein, a municipality may exempt from the Public Service Tax the purchase of metered or bottled gas (natural liquefied petroleum gas or manufactured) or fuel oil for agricultural purposes. "Agricultural purposes" means bona fide farming, pasture, grove or forestry operations including horticulture, floricultural, viticulture, dairy, livestock, poultry, bee and aquaculture. The City does exempt purchases by the United States Federal Government, the State, the county, the school district, and any public bodies exempted by law or court order. The Public Service Tax must be collected by the seller from purchasers at the time of sale and remitted to the City. Such tax will appear on a periodic bill rendered to consumers for electricity, metered and bottled gas, water service and fuel oil. A failure by a consumer to pay that portion of the bill attributable to the Public Service Tax may result in a suspension of the service involved in the same fashion as the failure to pay that portion of the bill attributable to the particular utility service. The amount of Public Service Tax received by the City is subject to increase or decrease due to legislative changes. The amount of the Public Service Tax collected within the City may be adversely affected by changes in population within the City. Such changes in population could decrease the number of purchasers of electricity, water, metered natural gas, bottled natural gas and fuel oil within the City. Local Communications Services Tax The Communications Services Tax Simplification Act, enacted by Chapter 2000-260, Laws of Florida, as amended by Chapter 2001-140, Laws of Florida, and now codified in part as Chapter 202, Florida Statutes (the "Communications Services Tax Act") established, effective October 1, 2001, a communications services tax on the sale of communications services as defined in Section 202.11, Florida Statutes, and as of the same date repealed Section 166.231(9), Florida Statutes, which previously granted municipalities the authority to levy a utility services tax on the purchase of telecommunication services. Florida Statutes, Section 202.19, as amended, provides that counties and municipalities may levy, by ordinance, a discretionary communications services tax (the "Local Communications Services Tax") on communications services, the revenues from which may be pledged for the repayment of current or future bonded indebtedness. The City set the rates for its Local Communications Services' Tax pursuant to Ordinance No. 12078 enacted on June 14, 2001. Communication services are defined as the transmission, conveyance, or routingof voice, data, audio, video, or any other information or signals, including video services, to a point, or between or among points, by or through any electronic, radio, satellite, cable, optical, microwave, or other medium or method now in existence or hereafter devised, regardless of the protocol used for such transmission or conveyance. The term does not include: (a) Information services; 18 (b) Installation or maintenance of wiring or equipment on a customer's premises; (c) The sale or rental of tangible personal property; (d) The sale of advertising, including, but not limited to, directory advertising; (e) Bad check charges; (f) Late payment charges; (g) Billing and collection services; or (h) Internet access service, electronic mail service, electronic bulletin board service, or similar on-line services. Any sale of communications services charged to a service address in the City is subject to the City's local communications services tax at a rate of 5.62%. The Communications Services Tax Act further provides that, to the extent that a provider of communications services is required to pay' to a local taxing jurisdiction a tax, charge, or other fee under any franchise agreement or ordinance with respect to the services or revenues that are also subject to the tax, such provider is entitled to a credit against the amount of such tax payable to the State in the amount of such tax, charge, or fee with respect to such service or revenues. The amount of such credit shall be deducted from the amount that the local taxing jurisdiction is entitled to receive. The Local Communications Services Tax must be collected by the provider from purchasers and remitted to the Florida Department of Revenue ("FDOR"). The proceeds of said Local Communications Services Tax less the FDOR's cost of administration is deposited in the Local Communications Services Tax clearing trust fund and distributed monthly to the appropriate jurisdictions and may be pledged for the repayment of current or future bonded indebtedness. The sale of communications services to (i) the federal government, or any instrumentality or agency thereof, or any entity that is exempt from state taxes under federal law, (ii) the state or any county, municipality or political subdivision of the state when payment is made directly to the dealer by, the governmental entity, and (iii) any home for the aged, educational institution (which includes state tax - supported and nonprofit private schools, colleges and universities and nonprofit libraries, art galleries and museums, among others) or religious institutions (which includes, but is not limited to, organizations having an established physical place for worship at which nonprofit religious services and activities are regularly conducted) that is exempt from federal income tax under Section 501(c)(3) of the Code are exempt from the Local Communications Services Tax. Under the Communication Service Tax Act, local governments must work with the FDOR to properly identify service addresses to each municipality and county. If a jurisdiction fails to provide the FDOR with accurate service address information, the local government risks losing tax proceeds that it should properly receive. The City believes it has provided the FDOR with all information that the FDOR has requested as of the date hereof and that such information is accurate. The federal Internet Tax Freedom Act ("ITFA") imposes a moratorium on taxation of Internet access by states and political subdivisions. As amended by the Internet Tax Nondiscrimination Act ("ITNA"), the ITFA may have a material adverse effect upon future collections of the Local Communications Services Tax Revenues. Signed into law on December 3, 2004, the ITNA extended the ITFA until November 1, 2007. Federal legislation was enacted on October 31, 2007, to extend the moratorium, which was set to expire on November 1, 2007, on certain state and local government taxation on Internet access, to November 1, 2014. This legislation prohibits a state from reimposing a tax on Internet access which the state repealed more than twenty-four (24) months prior to this legislation's enactment. Additionally, a specific exemption was created 19 for certain state business taxes enacted between June 20, 2005 and before November 1, 2007 which do not discriminate against providers of communication services, Internet access or telecommunications. Effective November 1, 2003, "Internet access" was amended to include telecommunications services purchased, used or sold by a provider of Internet access to provide Internet access. "Internet access" now also includes related communication services, such as email and instant messaging. The definition of "Internet access" was revised, in part, to eliminate existing language which could be read to allow providers of communication services to exclude from taxation charges for Internet access services which are bundled for a single price with taxable communication services. "Telecommunications," as amended, includes un-regulated non -utility telecommunications, such as cable services. Application of the amended definition of "Internet access" was delayed until June 30, 2008 for state or local tax on Internet access that was: (1) generally imposed and actually enforced on telecommunication services, or (2) the subject of litigation instituted in a state court prior to July 1, 2007. Prior to December 3, 2004, under the Communication Services Tax Act, according to FDOR, when charges for Internet access services are not separately stated on a customer's bill, the entire charge is taxed, regardless of whether the charge includes Internet access or :telecommunications services used to provide Internet access. The negative impact on future collections of Local Communications Services Tax because of the ITNA cannot be determined at this time. The amount of Local Communications Services Tax revenues received by the City is subject to increase or decrease due to (i) increases or decreases in the dollar volume of taxable sales within the City, (ii) legislative changes, and/or (iii) technological advances which could affect consumer preferences, such as Voice over Internet Protocol ("VoIP"). VoIP is a less expensive technology that allows telephone calls to be made in digital form using a broadband Internet connection, rather than an analog phone line, and has the potential to supplant traditional telephone service. It is possible that VoIP could either reduce the dollar volume of taxable sales within the City or will be a non-taxable service altogether. In 2012, the Florida Legislature passed House Bill 809 ("FIB 809"), which updates and modifies a number of provisions in which the communications services tax is levied. HB 809 revises the definition of "sales price" to expand the existing provisions relating to what charges a communications services dealer may exclude from the taxable sales price of communications services. HB 809 also modifies the requirements of section 202.22, Florida Statutes, relating to a dealer that does notuse one of the three approved local tax situsing methods. The liability of a communications services tax dealer in the cases of underpayment of the tax resulting from that dealer assigning a service address to the incorrect local taxing jurisdiction is limited to only those situation where the dealer did not use an approved situsing method and the FDOR has determined the amount underpaid by that dealer between all jurisdictions. HB 809 makes these revised definitions and liability provisions retroactive and remedial. The 2012 Revenue Estimating Conference estimates that the changes to dealer liability for incorrectly assigned service addresses will have a negative impact on local governments of $4.3 million in Fiscal Year 2013 and a recurring negative impact of $4.7 million. Other changes made by the bill will have a negative indeterminate effect on local government revenues; however, the Revenue Estimating Conference agreed that the provisions related to the taxation of items not separately stated would have a negative recurring impact of at least $21.3 million for local communications services tax, and the remedial and retroactive provisions will have at least a $2.2 million negative impact on local communications services tax. Although a negative impact on the City's local communication services tax is expected, at this time, the extent of HB 809 on the City's finances cannot be accurately ascertained. Licenses and Permits These are revenues derived from the issuance of local licenses and permits, including professional and occupational licenses required for the privilege of engaging in certain trades, occupations and other activities. 20 Intergovernmental This category includes federal, State and other local units' grants, and revenues shared by the State and other local units. The largest component is the half -cent sales tax. Half Cent Sales Tax. The State levies and collects a sales tax on, among other things, the sales price of each item or article of tangible personal property sold at retail in the State, subject to certain exceptions and dealer allowances. In 1982, the Florida legislature created the Local Government Half -Cent Sales Tax Program (the "Local Government Half -Cent Sales Tax Program") which distributes a portion of the sales tax revenue and money from the State's General Revenue Fund to counties and municipalities that meet strict eligibility requirements. In 1982, when the Local Government Half -Cent Sales Tax Program was created, the general rate of sales tax in the State was increased from 4% to 5%, and one-half of the fifth cent was devoted to the Local Government Half -Cent Sales Tax Program, thus giving rise to the name "Half -Cent Sales Tax." Although the amount of sales tax revenue deposited into the Local Government Half -Cent Sales Tax Program is no longer one-half of the fifth cent of every dollar of the sales price of an item subject to sales tax, the name "Half -Cent Sales Tax" has continued to be utilized. Section 212.20, Florida Statutes, provides for the distribution of sales tax revenues collected by the State and further provides for the distribution of a portion of sales tax revenues to the Local Government Half -Cent Sales Tax Clearing Trust Fund (the "Trust Fund"), after providing for transfers to the General Fund. The entire sales tax remitted to the State by each sales tax dealer located within a particular county (the "Local Government Half -Cent Sales Tax Revenues") is deposited in the Trust Fund and earmarked for distribution to the governing body of such county and each participating municipality within that county pursuant to a distribution formula. The percentage of Local Government Half -Cent Sales Tax Revenues deposited in the Trust Fund is 8.814%. The general rate of sales tax in the State is currently 6.00%. After taking into account the distributions to the General Fund (historically 5% of taxes collected), for every dollar of taxable sales price of an item, approximately [0.501] cents is deposited into the Trust Fund. As of October 1, 2001, the Trust Fund began receiving a portion of certain taxes imposed by the State on the sales of communication services (the "CST Revenues") pursuant to Chapter 202, Florida Statutes. Accordingly, moneys distributed from the Trust Fund now consist of funds derived from both general sales tax proceeds and CST Revenues required to be deposited into the Trust Fund. The Half -Cent Sales Tax collected within a county and distributed to local government units is distributed among the county and the municipalities therein in accordance with the following formula: 21 County Share (percentage of total Half -Cent = unincorporated + 2/3 incorporated Sales Tax receipts) area population area population Municipality Share (percentage of total Half -Cent Sales Tax receipts) total county • + 2/3 incorporated population area population municipality population total county + 2/3 incorporated population area population For purposes of the foregoing formula, "population" is based upon the latest official State estimate of population certified prior to the beginning of the local government fiscal year. Should any unincorporated area of Miami -Dade County become incorporated as a municipality, the share of the Half -Cent Sales Tax received by Miami -Dade County and the City would be reduced. The Half -Cent Sales Tax is distributed from the Trust Fund on a monthly basis to participating units of local government in accordance with Part VI, Chapter 218, Florida Statutes (the "Sales Tax Act"). The Sales Tax Act permits the City to pledge its share of the Half -Cent Sales Tax for the payment of principal of and interest on any capital project. To be eligible to participate in the Half -Cent Sales Tax Program, each municipality and county is required to have: (i) reported its finances for its most recently completed fiscal year to the State Department of Financial Services as required by Florida law; (ii) made provisions for annual post audits of financial accounts in accordance with provisions of law; (iii) levied, as shown on its most recent financial report, ad valorem taxes, exclusive of taxes levied for debt service or other special rnillages authorized by the voters, to produce the revenue equivalent to a millage rate of three (3) mills on the dollar based upon 1973 taxable values or, in order to produce revenue equivalent to that which would otherwise be produced by such three (3) mill ad valorem tax, to have received a remittance from the county pursuant to a municipal services benefit emit, collected, an occupational license tax, utility tax, or ad valorem tax, or have received revenue from any combination of those four sources; (iv) certified that persons in its employ as law enforcement officers meet certain qualifications for employment, and receive certain compensation; (v) certified that persons in its employ as firefighters meet certain employment qualifications and are eligible for certain compensation; (vi) certified that each dependent special district that is budgeted separately from the general budget of such county or municipality has met the provisions for annual post audit of its financial accounts in accordance with law; and (vii) certified to the Florida Department of Revenue ("FDOR") that it has complied with 22 certain procedures regarding the establishment .of the ad valorem tax millage of the county or municipality as required by law. Although the Sales Tax Act does not impose any limitation on the number of years during which the City can receive distributions of the Half -Cent Sales Tax from the Trust Fund, there may be future amendments to the Sales Tax Act in subsequent years imposing additional requirements of eligibility for counties and municipalities participating in the Half -Cent Sales Tax, or the distribution formulas in Sections 212.20(6)(d) or 218.62, Florida Statutes, may be revised. To be eligible to participate in the Trust Fund in future years, the City must comply with the financial reporting and other requirements of the Sales Tax Act. Otherwise, the City would lose its Trust Fund distributions for twelve (12) months following a "determination of noncompliance" by FDOR. The City has always maintained eligibility to receive the Half - Cent Sales Tax. State Revenue Sharing. A portion of the taxes levied and collected by the State is shared with local governments under the provisions of Chapter 218, Part II, Florida Statutes. The amount deposited by FDOR into the State Revenue Sharing Trust Fund for Municipalities is 1.3409% of available sales and use tax collections after certain required distributions, 12.5% of the Florida alternative fuel user decal fee collections, and the net collections from the one -cent municipal fuel tax. To be eligible for State Revenue Sharing funds, a local government must be audited, with certain exceptions; must have filed its annual financial report with the Florida Department of Financial Services; must certify certain requirements pertaining to the employment and compensation of law enforcement officers and the employment of firefighters; must levy an ad valorem tax of at least three (3) mills or collected equivalent alternative revenues from a combination of the following sources available to municipalities: a remittance from the county pursuant to Section 125.01(6)(a), Florida Statutes, occupational license taxes, utility taxes, and ad valorem taxes. Eligibility is retained if the local government has met eligibility requirements for the previous three years, even if the local government reduces its millage or utility taxes because of the receipt of the Half -Cent Sales Tax. The amount of the State Revenue Sharing Trust Fund for Municipalities distributed to any one municipality is the average of three factors: an adjusted population factor; a sales tax collection factor, which is the proportion of the local municipality's ordinary sales tax collected within the municipality to the total sales tax collected within all eligible municipalities in the State; and a relative revenue -raising ability factor, which measures the municipality's ability to raise revenue relative to other qualifying municipalities in the State. Each municipality is entitled to receive a minimum amount of State Revenue Sharing funds known as the "guaranteed entitlement" as defined in Section 218.21(6), Florida Statutes. A municipality is also eligible to receive distributions under Section 212.20(6)(d)5., Florida Statutes and Section 218.245(3), Florida Statutes. To be eligible to participate in State Revenue Sharing in future years, the City must comply with certain eligibility and reporting requirements, otherwise, the City will not be entitled to distributions for a period of time. Fines and Forfeitures. These are revenues derived from fines and forfeitures imposed by local courts. Charges for Services Charges for various services provided by the City to residents, property owners, and grants received from other governments, including the following: 23 (a) General Government: all money resulting from charges for current services; i.e., photographs, reports and ordinances; (b) Public Safety: fees for police services, fire protection services and emergency services; (c) Physical Environment: charges include cemetery fees; (d) Building and Zoning Inspections: fees for inspections such as plumbing, electrical, elevator and mechanical inspections; (e) (f) Marina Fees: all fees associated with operations of the various City marinas; Recreational and Special Events: fees for parks and recreation activities and events; and (g) Other: fees for services not specifically mentioned above, i.e., engineering services, public hearing fees. Other Revenue and Financing Sources This category includes a variety of revenues and transfers from other funds, including the interest earnings on invested funds. [Remainder of page intentionally left blank] 24 As described herein, the obligation and the ability of the City to budget and appropriate Non -Ad Valorem Revenues is subject to a variety of factors, including the obligation of the City to provide essential governmental services and the obligation of the City to have a balanced budget. Essential governmental services provided by the City are generally considered to include police and fire services and governmental services which the City is obligated to provide for the health, welfare and safety of the people. However, the scope of essential governmental services is not precisely defined by State law. To the extent other City functions and programs are considered essential governmental services, a corresponding portion of the City's budget may be funded from Non -Ad Valorem Revenues prior to such Non -Ad Valorem Revenues being available for the City to budget and appropriate for the purpose of making payments on the Series 2012 Bonds. In the calculation of the Non -Ad Valorem Revenues available to make payments on the Series 2012 Bonds set forth herein, the City has treated the costs of police and fire services and general governmental services related to health, welfare and safety of the people as the costs of essential governmental services (other than pension costs, which are a separate line item). While these are the largest budget categories constituting essential governmental services, other specific functions and programs may constitute essential governmental services. The following table represents the City's audited determination of legally available Non -Ad Valorem Revenues for the Fiscal Years Ended September 30, 2007 through September 30, 2011, unaudited determination of legally available Non -Ad Valorem Revenues for Fiscal Year Ended September 30, 2012 and the budgeted and projected determination of legally available Non -Ad Valorem Revenues for Fiscal Year Ending September 30, 2013. The reader should note that the dollar amounts indicated in the line item captioned Net Non -Ad Valorem Revenues Available to be budgeted for Debt Service after the Payment of Essential Governmental Services does not represent an amount of available funds that are currently available for such purpose. As indicated under the caption "SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2012 BONDS — General" herein, the City is required to operate with a balanced budget. The City generally budgets all of its Non -Ad Valorem Revenue for its essential and other services, including, without limitation, the payment of debt service on indebtedness payable from such Non -Ad Valorem Revenue. The City has not currently included the debt service payment for the Series 2012 Bonds in its Fiscal Year 2013 budget. Pursuant to the Resolution, the City will amend its Fiscal Year 2013 budget in order to include such debt service in the Fiscal Year 2013 budget. See "GENERAL INFORMATION REGARDING THE CITY OF MIAMI — General Fund" herein. Currently the City intends to use funds allocated and received pursuant to an Interlocal and Grant Agreement between the City and the OMNI Community Redevelopment Agency to pay debt service on the Series 2012 Bonds. See "THE OMNI COMMUNITY REDEVELOPMENT AGENCY" HEREIN. [Remainder of page intentionally left blank] 25 Total Sources of Legally Available Non -Ad Valorem Revenues Essential Expenses Not Paid with Ad Valorem Taxes(3) Non -Ad Valorem Revenues Available to be budgeted after Payment of Essential Governmental Services(4) Debt Service Ratio of Net Non -Ad Valorem Revenues to Debt Service THE CITY OF MIAMI, FLORIDA LEGALLY AVAILABLE NON -AD VALOREM REVENUES FISCAL YEAR ENDED SEP'EMBER 30TH Revenues: Franchise and Utility Taxes Licenses and Permits: Business Licenses and Permits Construction Permits Total Licenses and Permits Intergovernmental: State and Revenue Sharing Half -Cent Sales Tax Fine and Forfeitures Other Total Intergovernmental Charges for Services: Engineering Services Public Safety Recreation Other Total Charges for Services Interest Income Other Unaudited As of Sept. 30, 2007 2008 2009 2010 2011 2012 $ 42,257,282 $ 35,319,051 $ 36,228,332 $ 36,448,254 5104,277,344Wi) $ 92,868,890)') 7,064,358 7,769,633 7,508,453 7,680,315 7,501,746 7,987,435 25,766,010 22,019,185 18,524,028 17,469,460 26,463,331 27,805,289 $ 32,830,368 $ 29,788,818 $ 26,032,481 $ 25,149,775 $ 33,965,077 $ 35 792,724 $ 13,073,886 $ 12,187,197 $ 10,791,455 $ 10,516,183 $11,429,920 12,009,612 25,505,412 24,719,050 22,566,791 22,665,743 25,987,633 25,803,387 5,283,695 6,031,799 6,396,471 4,298,283 4,673,993 4,808,276 15,517,110 14,414,695 13,875,682 18,122,138 17,122,559 18,363,710 $ 59,380,103 $ 57,352,741 $ 53,630,399 $ 55,602,347 $ 59,214,105 $ 60,984,985 $ 46,587,956 $ 47,079,358 $ 47,715,500 $ 51,784,383 $ 51,004,353 46,247,906 22,952,364 22,596,110 25,009,184 21,763,551 27,509,243 31,238,075 3,488,492 3,144,370 2,541,056 3,085,270 3,213,671 3,669,433 4,145,343 2,178,334 1,242,353 1,496,625 3,449,087 9,386,145 $ 77,174,155 $ 74,998,172 $ 76,508,093 $ 78,129,829 $ 85,226,353 $ 90,541,559 16,248,307 10,086,415 4,064,924 2,733,028 1,915,415 2,418,809 4,950,826 6,594,312 8,196,844 6,332,053 7,247,510 20,895,487 Operating: Transfers In(2) 61,411,040 76,817,851 47,785,001 53 493,902 12,817,357 5,206,967 $ 294,252,081 $ 290,957,360 $ 252,446,074 $ 257,889,188 $ 304,663,161 $ 308,709,421 (52,246,548) (49,012,560) (39,317,193) (37,980,623) (52,086,638) (29,653,741) $ 242,005,533 $15,334,423 Source: City of Miami, Financing Department $ 241,944,800 $ 213 128,881 $ 219,908,565 $ 252,576,523 $37,323,086 $37,968,012 $39,992,035 $75,660,882(6) Budget 2013 $ 88,363,625 7,825,000 32,469,100 $ 40,294,100 11,211,200 26,121,200 4,400,200 7,652,200 $ 49,384,800 46,402,300 29,006,300 4,344,900 8,243,500 $ 87,997,000 800,000 9,201,200 69,900 $ 276,110,625 (91,299,700V $ 279,055,680 $ 184,810,925) $75,660,882(6) $75,660,800(6) 15.58x 6.48x 5.61x 5.50x 3.34x 3.69x Note: Explanatory footnotes appear on next page 2.44x 26 Footnotes to table titled "THE CITY OF MIAMI, FLORIDA LEGALLY AVAILABLE NON -AD VALOREM REVENUES FISCAL YEAR ENDED SEPTEMBER 30TH" follow: (1) Amounts comprised primarily of Public Service Taxes, Local Option Gas Taxes and amounts from Public Works special revenue funds. Both Public Service Taxes and Local Option Gas Taxes are recurring each year although the amounts may differ from year to year. These amounts have been reclassed to Franchise and Utility Taxes in 2011 to comply with GASB 54. (2) Transfers In are net of debt service on other bond obligations. (3) Tutal act -valorem taxes minus General Amend government and public safety expenses. (4) This amount does not include a pro rata share of the pension costs associated with the General Fund and Public Safety expenses which maybe payable from A.d Valorem or Non -Ad Valorem Revenues. Such pension costs for Fiscal Year ended September 30, 2011, unaudited for Fiscal Year Ended September 30, 2012 and budgeted amounts for Fiscal Year ending September. 30, 2013 are equal to $72,194,979, S72,956,094 and S66,287,700, respectively. (5) Retirement contribution, life and health and workers' compensation allocations are removed from the budget amount. (6) Assumes full repayment of Note being refinanced with the Series 2012 Bonds. The following table represents the City's debt service as of October 31, 2012, prior to refinancing the Note, on obligations payable from legally available Non -Ad Valorem Revenues. For a detailed listing of the City's outstanding debt see "LIABILITIES OF THE CITY — Direct Debt" herein. THE CITY OF MIAMI, FLORIDA SCHEDULE OF PRINCIPAL AND INTEREST FOR NON -AD VALOREM REVENUE BONDS Fiscal Year Principal Interest(2) , Total Total 2013(1) $53,666,229 $21,994,653 $75,660,882 2014 10,201,160 19,511,110 29,712,270 2015 6,519,407 18,802,683 25,322,090 2016 6,540,000 13,944,890 20,484,890 2017 16,245,000 13,292,548 29,537,548 2018 16,730,000 12,321,760 29,051,760 2019 15,520,000 11,283,477 26,803,477 2020 15,105,000 10,319,882 25,424,882 2021 11,050,000 9,546,699 20,596,699 2022 7,575,000 9,003,674 16,578,674 2023 7,985,000 8,569,026 16,554,026 2024 8,430,000 8,104,362 16,534,362 2025 8,920,000 7,593,545 16,513,545 2026 12,015,000 6,919,125 18,934,125 2027 9,140,000 6,238,438 15,378,438 2028 9,715,000 5,663,513 15,378,513 2029 10,265,000 5,110,463 15,375,463 2030 10,850,000 4,525,813 15,375,813 2031 13,465,000 3,907,463 - 17,372,463 2032 7,350,000 3,353,438 10,703,438 2033 7,735,000 2,967,563 10,702,563 2034 8,140,000 2,561,475 10,701,475 2035 8,565,000 2,134,125 10,699,125 2036 9,015,000 1,684,463 10,699,463 2037 9,830,000 1,211,175 11,041,175 2038 "1.0,350,000 695,100 11,045,100 2039 2,890,000 151,725 3,041,725 $313,811,796 $211,412,484 $525,224,280 Source: City of Miami Finance Department (1) The interest rate on the Note which is being refinanced with the Series 2012 Bonds is assumed at 4.50%. If not refunded with the Series 2012 Bonds, such Note would come due in Fiscal Year 2013, (2) Netof capitalized interest on the Series 2010A Bonds and Series 2010B Bonds. 28 General Fund The General Fund is the general operating fund of the City. It accounts for all financial resources except for those required to be accounted for in another fund. The largest source of revenue in this fund is generated from ad valorem taxation. See "GENERAL INFORMATION REGARDING THE CITY OF MIAMI - Financial Integrity Ordinance" herein for a discussion of the general fund reserves. 29 The following chart shows audited information regarding the General Fund for the Fiscal Years Ended September 30, 2007 through September 30, 2011 and unaudited information for Fiscal ended September 20, 2012. Summary Schedule of Revenues, Expenditures and Net Changes in Fund Balance for the General Fund Revenues Property Taxes Franchise Fees/Other Taxes Licenses and Permits Fines and Forfeitures Intergovernmental Charges for Services Interest Other Total Revenues Expenditures General Government Planning & Development Public Works Public Safety Public Facilities Parks and Recreation Risk Management Pensions Organizational Support/Group Benefits Non -departmental Debt Service: Principal Interest and Other Charges Capital Outlay Total Expenditures $529,763,183 $525,244,521 $526,591,932 $518,572,679 Excess (Deficiency) of Revenues Over (Under) Expenditures Other Financing Sources and (Uses): Operating Transfers In Operating Transfers Out Total Other Financing Sources(Uses) Net Change in Fund Balance Fund Balance - Beginning of Year Fund Balance - End of Year Unaudited as of 2007 2008 2009 2010 2011 Sept.30,2012 $258,756,957 $258,294,391 $266,860,263 $247,646,519 42,257,282 35,319,051 36,228,332 36,448,254 32,830,368 29,788,818 26,032,481 25,149,775 5,283,695 6,031,799 6,396,471 4,298,283 54,096,408 51,320,942 47,233,928 51,304,064 78,676,199 74,998,172 76,508,093 78,129,829 16,248,307 10,086,415 4,064,924 2,733,028 3,448,782 6,594,312 8,196,844 6,332,053 $491,597,998 $472,433,900 $471,521,336 $452,041,805 $210,697,277 $209,126,414 104,277,344 102,373,290 33,965,077 35,792,724 4,673,959 4,808,276 54,540,146 56,176,709 85,226,353 90,541,558 1,915,415 2,418,809 7,247,510 11,307,598(2) $502,543,081 $512,545,379 47,015,325 57,525,471 56,699,386 54,913,599 57,590,383 10,814,727 10,788,224 10,843,924 8,974,853 8,309,065 56,376,608 54,858,769 54,938,534 51,276,106 46,634,027 235,497,950 249,881,480 249,478,070 230,713,543 205,193,532 7,419,797 6,248,557 5,003,138 4,389,912 4,334,995 20,201,873 24,276,993 28,300,738 23,755,930 23,403,186 18,115,929 28,796,859 13,107,068 22,354,729 26,546,382 70,708,285 65,116,477 66,906,558 89,975,265 72,194,979 35,122,459 27,751,691 41,314,516 32,218,742 30,523,550 28,490,230 - - 48,376,621 7,703,911 48,749,615 190,403,534 4,144,955 21,730,648 21,997,003 72,956,094 26,544,574(2) 166,365 $474,896,464 $442,606,955 (38,165,185) (52,810,621) (55,070,596) (66,530,874) 27,646,617 69,938,423 61,411,040 76,817,851 (49,052,224) (30,879,926) 12,358,816 $(25,806,369) $126,256,513 $100,450,144 45,937,925 $(6,872,696) $100,450,144 $ 93 577,448 47,785,001 (46,319,266) 53, 493, 902 12, 817, 357 (13,493,245) (38,293,085) 1,465 735 40,000,657 $(53,604,861) $(26,530,217) $ 93,577,448 $ 39,972,587 $ 39 972 587 $ 13,442,370 (25,475,728) $ 2,170,889 $ 17,473,285a) $ 19,644,174 5,206,967 (29,432,022) (24,225,055) $ 45,713,368(3) $ 19,644,174 $ 65,357,542 Source: The City of Miami, Florida. (1) The beginning Fund Balance for Fiscal Year 2011 has been adjusted and restated due to GASB Statement No. 54 changes in reporting of classifications. (2) The number (revenue and expense) is net ofamounts reimbursed by retirees for health costs. (3) This is an estimated number which does not include amounts that may be identified for 13th month adjustments of approximately $8 million, such adjustments could reduce the Net Change in Fund Balance to $37 million. 30 Special Investment Considerations As described above, the City's covenant to budget and appropriate Non -Ad Valorem Revenues does not constitute a lien, either legal or equitable, on any of the City's revenues. The amount of such revenues available to make payments on the Series 2012 Bonds may be effectively limited by (i) the requirement for a balanced budget, (ii) funding requirements for essential governmental services of the City, (iii) a decrease in one or more of the sources of Non -Ad Valorem Revenues, for example, a fluctuation in the Half -Cent Sales Tax collections due to changes in economic activity and a decrease in the dollar volume of purchases in Miami -Dade County, (iv) legislative action and (v) the inability of the City to expend revenues not appropriated or in excess of funds actually available after the use of such funds to satisfy obligations having an express lien or pledge on such funds. Furthermore, except as provided in the Resolution (and described herein under the caption "SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2012 BONDS — Additional Debt Payable From Non -Ad Valorem Revenues"), the City is not restricted in its ability (i) to pledge such revenues for other purposes or to issue additional debt specifically secured by such revenues or by a covenant similar to that securing the Series 2012 Bonds or (ii) to reduce or discontinue services that generate Non -Ad Valorem Revenues. All of these factors may limit the availability of Non -Ad Valorem Revenues to pay a portion of the debt service on the Series 2012 Bonds. In addition, there can be no certainty as to the outcome of any judicial proceedings to enforce the City's obligation to appropriate such funds. Additional Debt Payable from Non -Ad Valorem Revenues Pursuant to the Resolution, the City may incur additional debt (other than the Series 2012 Bonds) that is payable from all or a portion of the legally available Non -Ad Valorem Revenues only if the total amount of the Non -Ad Valorem Revenues for the prior Fiscal Year were (a) at least 2.00 times the aggregate Maximum Annual Debt Service of all debt (including all long-term financial obligations appearing on the City's most recent audited financial statements and the debt proposed to be incurred) to be paid from Non - Ad Valorem Revenues and not other moneys of the City (collectively, "Debt"), including any Debt payable from one or several specific sources of Non -Ad Valorem Revenue, but only to the extent such Non -Ad Valorem Revenues are legally available to pay debt service on the Series 2012 Bonds, and (b) so long as the Series 2012 Bonds are outstanding and if a Reserve Account Insurance Policy is in effect, at least 1.00 times the obligation of the City to repay any costs then due and owing to the Provider of a Reserve Account Insurance Policy. Pledge of Non -Ad Valorem Revenues No specific source of Non -Ad Valorem Revenues (which includes, without limitation, Public Service Tax revenues, franchise revenues, occupational license tax revenues, the guaranteed entitlement portion of the State Revenue Sharing funds and fines and forfeitures) are pledged to the payment of the Series 2012 Bonds. Certain specific sources of Non -Ad Valorem Revenues are pledged for the payment of other indebtedness of the City. See "LIABILITIES OF THE CITY -Direct Debt" herein. Future issues of other indebtedness of the City may be secured by a pledge of Non -Ad Valorem Revenues as described above. See "OTHER DEBT CONSIDERATIONS" herein. 31 MANAGEMENT DISCUSSION OF BUDGET AND FINANCES The following discusses the City's current financial position and projected finances for Fiscal Years 2012 through 2013. Fiscal Year 2012 Results The City's Fiscal Year ended September 30, 2012 is expected to have a surplus of $45.71 million greater than the original budget based on the unaudited results as of September 30, 2012. Such surplus amount is estimated based on the most accurate information available at this time, it is possible that the surplus may decrease by $8.0 million after the City's year end close which is expected to be completed in February, 2013 because of additional year end adjustments. This budget surplus is attributable to the following revenues collected in excess of the budgeted amounts: Intergovernmental Revenues, Charges for Services and Franchise Fees and other Taxes. Revenues are expected to be $10.9 million greater than budgeted. Intergovernmental Revenues are expected to be $3.8 million greater than budgeted due to Charges for Services are expected to be $8.6 million greater than budgeted due to . Interest income is expected to be $.7 million greater than budgeted. Franchise Fees and other Taxes are expected to be $1.6 million greater than budgeted, however due to the merging of the local option gas tax and public service tax special revenue funds into the general fund in order to comply with GASB Statement No. 54 such amount presents as $65 million greater. Although the consolidation of those funds increases the revenue for Franchise Fees and Other Taxes, the Transfers -in are reduced because the money being transferred from the Special Revenue Funds and Non -Departmental transfers -out decrease significantly also. It is anticipated that the following expenditures will be below the budgeted amounts which will contribute to the anticipated surplus: General Government, Public Works, Planning and Development and Risk. Management. However, the Solid Waste department is expected to exceed its budget because trash collections are averaging 750 tons more per month than in the previous year which increases the tipping fees due to the county. Also, the single stream recycling program did not begin operating as scheduled, therefore the tonnage reduction which was taken into account when developing the budget did not materialize. The Public Facilities and Parks and Recreations departments are also expected to exceed their budgets due to an increase in utilities in the City's public facilities and the costs of summer program. See "Actual vs. Budgeted Revenues, Expenditures and Changes in Fund Balance for the General Fund through September 30, 2012" below. [Remainder of page intentionally left blank] 32 The following table provides the original Fiscal Year ended September 30, 2012 adopted budget, the mid -year amended Fiscal Year ended September 30, 2012 budget and unaudited actual revenues and expenditures through September 30, 2012 to the original Fiscal Year ended September 30, 2012 adopted budget: Budgeted Revenues, Expenditures and Net Changes in Fund Balance for the General Fund for Fiscal Year ended September 30, 2012 and Actual Revenues and Expenditures Year to Date through September 30, 2012 Revenues: Property Taxes Franchise and Other Taxes LOGT and PST Revenues Occupational Licenses and Permits Fines and Forfeitures Intergovernmental Charges for Services Interest Other Total Revenues Expenditures: General Government Planning and Development Public Works Public Safety Pensions Public Facilities Parks and Recreation Risk Management Risk - Group Benefits Total Expenditures Excess (Deficiency) of Revenues Over (Under) Expenditures Operating transfers in Operating transfers out Total Other Financing Sources/(Uses) Net Change in Fund Balance Fund Balance Beginning FY Fund Balance as of September 30, 2012 Unaudited Year to Date Budgeted Amounts Actual %of Actual to Original Amended as of 09/30/2012 Original Budget $ 215,449,900 $ 215,449,900 36,350,000 36,350,000 64,422,922 36,177,500 36,616,500 5,000,000 5,000,000 42,477,500 42,477,500 82,645,800 81,897,400 1,500,000 1,500,000 13,575,100 17,845,600 $ 209,126,414 37,775,438 64,597,852 35,792,724 4,808,276 56,176,709 90,541,558 2,418,809 11,307,598 433,175,800 501,559,822 512,545,379 67,360,600 69,184,100 48,376,621 8,152,600 8,317,600 7,703,911 49,766,100 49,766,100 48,749,615 185,660,600 185,710,600 190,403,534 76,808,800 76,808,800 72,956,094 4,244,300 4,244,300 4,144,955 21,562,300 21,894,700 21,730,648 58,413,200 58,413,200 21,997,003 - - 26,544,574 471,968,500 474,339,400 442,606,955 (38,792,700) 27,220,422 69,938,423 46,110,500 5,317,500 (7,317,800) (32,537,922) 38,792,700 (27,220,422) Source: City of Miami Finance Department 5,206,967 (29,432,022) 97.06% 103,92%(1) n/a 98.94% 96.17% 132.25% 109.55% 161.25% 83.30% 118.32% 71.82% 94.50% 97.96% 102.55% 94.98% 97.66% 100.78% 37.66% n/a 93.78% -180.29% 11.29%11) 402.20%11) (24,225,055) -62.45% 45,713,368 19,644,174 65,357,542 (1) Amounts include Public Service Taxes, Local Option Gas Taxes and amounts from Public Works Special Revenue Funds. Both Public Service Taxes and Local Option Gas Taxes are recurring each year although the amounts may differ from year to year. These amounts have been reclassed from Operating Transfers in to Franchise and Utility Taxes in 2011 to comply with GASB Statement No. 54. Transfers In and net of debt service, on other bonds obligations. 33 Fiscal Year 2013 Operations and Projections The City's original Fiscal Year 2013 budget was adopted on September 27, 2012. The original Fiscal Year 2013 general fund budget was approximately $503.25 million which reflected an overall increase of 4.14% ($20 million) from the original Fiscal Year 2012 general fund budget, including Transfers in as revenue and Transfers out as expenditures. Property tax revenue is budgeted at an increase of $2 million over the Fiscal Year 2012 budget. Franchise Fees increased by $61.09 million over the Fiscal Year 2012 budget due to the implementation of GASB Statement No. 54. The revenue from Public Service Taxes and Local Option Gas Tax were reported under the Special Revenue Fund, but are now reported under the General Fund. The City is experiencing an increase in property values and turn around in the economy. Intergovernmental Revenue is budgeted at an increase of $7.5 million over the Fiscal Year 2012 based on the estimated increase in State Revenue Sharing and Half -Cent Sales Tax from the State. Fines and Forfeitures is reduced by $465,400 over the Fiscal Year 2012 budget due to a revised estimate from the City's Estimating Conference Committee based on current year collections. The City anticipates that the collections from Licenses and Permits will increase by $3.68 million or 10.02%over the Fiscal Year 2012 budget primarily due to increases in other licenses, mural fees and permits from planning and zoning and building. Charges for Services is budgeted at an increase of $5,5 million over the Fiscal Year 2012 budget. Other Revenues is reduced by $8.64 million over Fiscal Year 2012 budget primarily due to retirees contributions for life and health insurance now being recorded under the Internal Service Fund and the elimination of $1.1 million from Other Non -Operating Revenue -Take Home Cars. On the expenditure side, the following expenditure categories, general government, planning and development, public safety, public facilities, parks and recreation, increased by an average of 37% mainly due to the cost allocation of pension, life, health insurance and worker's compensation included those categories. Conversely, Risk Management decreased by $44.84 or 76.78% and Pension decreased by $76.15 million or 99.14% because the previous costs were centrally budgeted in the Risk Management department and pension category, respectively, and are now being allocated in the individual departments. Further, this budget avoids service reductions and layoffs. [Remainder of page intentionally left blank] 34 Budgeted and Projected Revenues, Expenditures for the General Fund for Fiscal Year ending September 30, 2013 Revenues Adopted Budget Property Taxes 217,631,200 Franchise Fees and Other Taxes 97,870,700 Interest 800,000 Transfers -IN 69,900 Fines and Forfeitures 4,400,200 Intergovernmental Revenues 44,984,600 Licenses and Permits 40,294,100 Other Revenues (Inflows) 9,201,200 Charges for Services 87,997,000 Total Revenues $503,248,900 Expenditures General Government 53,568,100 Planning & Development 12,316,500 Public Works 64,280,100 Public Safety 255,362,800 Public Facilities 5,873,600 Parks & Recreation 29,002,100 Risk Management 13,565,500 Pensions 657,600 Non -Departmental 32,594,100 Transfers Out 36,028,500 Total Expenditures $503,248,900 City's Operations Despite the financial stress that the City has experienced in the past, the City seems to be stabilizing again. The City Commission requested the City Manger find new revenue sources and the City Manager responded by taking an assessment of all of the revenues and expenditures of the City and he has charged each member of the executive team to find new revenue sources and increase the existing revenue sources along with finding ways to further reduce expenditures. In reviewing the leases, the City was able to be more aggressive in collections and the delinquency rate on leases has decreased to 2%. In an effort to reduce expenditures, the City has been able to negotiate with the unions and achieve reductions in the approximate range of $75-$100 million over the last three years and kept costs from rising leaving expenditures relatively stable. Such reduction is primarily attributable to the decrease in contributions to health care and pension costs. See "LIABILITIES OF THE CITY -Financial Urgency" herein. It is not the intent of the City to declare financial urgency in preparation of the Fiscal Year 2014 budget. 35 However, there is still work to be done. The City has experienced a number of resignations recently. The Finance Director resigned on October 30, 2012. Prior to that, the interim Treasurer and the Director of Capital Improvements resigned. Over the last six months, there have been 12 resignations and there exists 5vacancies in key positions. The City is recruiting for those positions and expects to have them filled in the next 90-120 days. As part of the City's focus on finances, they have noted the comments in the Single Audit reports, as noted in the Single Audit Reports in accordance with OMB Circulate A-133 and the Florida Single Audit Act for Fiscal Year ended September 30, 2011. For example, (i) the financial statement close process was noted to be a material weakness due to quantity and dollar amount of the audit adjustments at year end, timeliness of preparation of the financial statements, internal controls, process for review of timeliness of required arbitrage calculations and all debt agreement for debt covenants requirements; (ii) the recording of capital assets, the timely close out of projects; and (iii) timeliness of grant reimbursements. In response, the City is working on a business plan for the finance department which would include the review of the finance department's organizational structure for operations and structural improvements, as well as increasing the communication between departments to received timely information for the other departments to complete its financial processes. Such business plan has been approved and supported by the City Manager and the Mayor. Although it has not been formally approved by the City Commission, $900,00 has been approved in the Fiscal Year 2013 budget which will allow the finance department to move forward with the business plan. OTHER DEBT CONSIDERATIONS The City expects to issue additional debt in the future which may include the refunding of its Special Revenue Refunding Bonds, Series 2002A and Special Revenue Refunding Bonds, Series 2002C in 2013. The Southeast Overtown Park West District Community Redevelopment Agency expects to issue debt in the amount of not to exeed $50 million, payable from the increment revenue of such community redevelopment area. However, such debt isnot a debt of the City. MUNICIPAL BOND INSURANCE [To Come] GENERAL INFORMATION REGARDING THE CITY OF MIAMI Background Now 116 years old, the City is part of the nation's seventh largest metropolitan area. Incorporated in 1896, the City is the only municipality conceived and founded by a woman - Julia Tuttle. According to the U.S. Census Bureau, the City's population in 1900 was 1,700 people. Today it is a city rich in cultural and ethnic diversity of approximately 399,457 residents according to the 2010 U.S. Census, 58.9% of them foreign born. In physical size, the City is not large, encompassing only 35.87 square miles. In population, the City is the largest of the 35 municipalities that make up Miami -Dade County and is the county seat, For additional information concerning the City, see "APPENDIX A - GENERAL INFORMATION REGARDING THE al OF MIAMI, FLORIDA AND MIAMI-DADE COUNTY". City Government Since 1997, the City has been governed by a form of government known as the "Mayor -Commissioner plan." The City Commission is the legislative body of the City. There are five Commissioners elected every 36 four years from designated districts within the City. The Mayor is elected at large every four years. As official head of the City, the Mayor has veto authority over actions of the City Commission, however, the City Commission can override such veto with a 4/5 vote. The Mayor appoints the City Manager who functions as chief administrative officer. The Mayor of the City is Tomas P. Regalado whose term expires November 2013. The members of the City Commission and expiration of their current terms of office are: Commission Members Wifredo Gort Marc D. Sarnoff Francis X. Suarez Frank X. Carollo Michelle Spence -Jones Date Term Expires November 2015 November 2015 November 2014 November 2013 November 2013 The City Manager, Johnny Martinez, is a full-time employee and is the chief administrative officer of the City. He was appointed as City Manager by the Mayor on June 21, 2011. The City Manager is responsible for directing the administrative and operational aspects of the City in compliance with the policies set by the City Commission and the Mayor. He is responsible for an organization that has more than 4,309 employees and administers a budget of more than $503 million. Prior to his current position, he served as Deputy City Manager. Prior to being promoted to Deputy City Manager, he served as Assistant City Manager and Chief of Infrastructure. Mr. Martinez has a 30 year professional history which includes key private sector engineering positions in various consulting firms including the Florida Department of Transportation (FDOT) where he served from 1985 to 2003. He holds a Bachelor of Science in Civil Engineering from the University of Miami and is a registered State of Florida Professional Engineer (P.E.). The City's Assistant City Manager and Chief Financial Officer is Janice Larned. She is responsible for internal support functions of Finance, Procurement, Risk Management, and union negotiations on behalf of the City Manager. Ms. Larned was appointed as the Assistant City Manager and Chief Financial Officer on December 5, 2011. Ms. Larned had been the Vice President of Finance for District Offices/Moyer Group/Severn Trent -Moyer where she directed the financial management of local governments. Prior to that, she was an executive on loan serving in various executive financial roles with Sarasota County, Florida, and the City of Arlington, Texas. She was employed by a private company in Kansas City, Missouri in the capacity of financial services. Ms. Larned received a Bachelor of Arts degree in Economics from Wichita State University and an Executive Master of Business Administration degree from the University of Missouri Kansas City. She has achieved certification as a Certified Cash Manager and is registered as a municipal advisor for both the Securities Exchange Commission and the Municipal Securities'Rulemaking Board. She has completed continuing education from the University of Pennsylvania - Wharton Business School and Harvard University - Harvard Business School. The City's Director of Finance position is vacant. The City's Director of Management and Budget and Special Assistant to the City Manager is Daniel J. Alfonso. He reports directly to the City Manager. He is responsible for planning, organizing, directing and controlling the budgetary and related financial processes, developing, coordinating and publishing the City's budget document in accordance with legal and regulatory requirements, advising on financial matters, developing policies and procedures concerning budget activities, and other matters related to budgetary and financial issues. Mr. Alfonso was appointed as Director of Management and Budget and Special Assistant to the City Manager on August 8, 2011. Prior to that Mr. Alfonso served as the Assistant Director for Miami - Dade County, Florida's General Services Administration Department after working as Miami -Dade County's 37 Operating Budget Coordinator in the Office of Management and Budget. Mr. Alfonso received a Bachelor of Arts degree in Business Administration and a Master of Science degree in Finance both from Florida International University. Adoption of Investment Policy and Debt Management Policy The City adopted a detailed written investment policy on May 10, 2001, that applies to all cash and investments held or controlled by the City and identified as "general operating funds" of the City with the exception of the City's Pension Funds, Deferred Compensation & Section 401(a) Plans, and such funds related to the issuance of debt where there are other existing policies or indentures in effect for such funds. Additionally, any future revenues, which have statutory investment requirements conflicting with the City's Investment Policy and funds held by State agencies (e.g. Department of Revenue), are not subject to the provisions of the policy. The primary objective of the investment program is the safety of the principal of those funds within the portfolios. Investment transactions shall seek to keep capital losses at a minimum, whether they are from securities defaults or erosion of market value. To attain this objective, diversification is required in order that potential losses on individual securities do not exceed the income generated from the remainder of the portfolio. The portfolios are required to be managed in such a manner that funds are available to meet reasonably anticipated cash flow requirements in an orderly manner. Return on investment is of least importance compared to the safety and liquidity objectives described in the policy. In accordance with the City's Administrative Policies, the responsibility for providing oversight and direction in regard to the management of the investment program resides with the City's Director of Finance. The Director of Finance has established written procedures for the operation of the investment portfolio and a system of internal accounting and administrative controls. The City's investment policy may be modified from time to time by the City Commission.. Subject to the exceptions in the City's investment policy, the City may invest in the following types of securities: (a) The Florida Local Government Surplus Funds Trust Fund, (b) United States Government Securities, (c) United States Government Agencies, (d) Federal Instrumentalities, (e) Interest Bearing Time Deposit or Savings Accounts, (f) Repurchase Agreements, (g) Commercial Paper, (h) Corporate Notes, (i) Bankers' Acceptances, (j) State and/or Local Government Taxable and/or Tax -Exempt Debt, (k) Registered Investment Companies (Money Market Mutual Funds) and (1) Intergovernmental Investment Pool. Also, the City may invest in investment products that include the use of derivatives. The City does not own any derivative products. As of October 1, 2012, approximately 68.2% of the City's investment portfolio was invested in United States Treasury Obligations and obligations of agencies of the United States Government and approximately 31.8% of the City's investment portfolio was invested in commercial paper. The City adopted a Debt Management Policy on July 21, 1998 to provide guidance governing the issuance, management, continuing evaluation of and reporting on all debt obligations issued by the City and to provide for the preparation and implementation necessary to assure compliance and conformity with the policy. It is the responsibility of the City's finance committee to review and make recommendations regarding the issuance of debt obligations and the management of outstanding debt. The finance committee approved the Series 2012 Bonds and their negotiated sale to the Underwriter on October 24, 2012. The following policies concerning the issuance and management of debt were established in the Debt Management Policy: (a) the City will not issue debt obligations or use debt proceeds to finance current operations; (b) the City will utilize debt obligations only for acquisition, construction or remodeling of capital improvement projects that cannot be funded from current revenue sources or in such cases wherein it is more 38 equitable to the users of the projects to finance the project over its useful life; and (c) the City will measure the impact of debt service requirements of outstanding and proposed debt obligations on single year, five, ten and twenty year periods. Pursuant to the Debt Management Policy, the City's debt issuance is subject to the following constraints: (i) the Net Debt Per Capita and the Net Debt to Taxable Assessed Value percentages, which shall be determined by the finance committee by bench marking the City to current industry standards, and (ii) the maximum maturity shall be the earlier of (a) the estimated useful life of the capital improvements being financed or (b) thirty years or (c) in the event debt was issued to refinance outstanding debt obligations the final maturity of the debt obligations being refinanced, unless a longer term is recommended by the finance committee. The City is currently in compliance with its Investment Policy and Debt Management Policy. Financial Integrity Ordinance On February 10, 2000, the City enacted Ordinance No. 11890, as amended and supplemented (the "Financial Integrity Ordinance") establishing thirteen financial integrity principles. The Financial Integrity Ordinance was enacted as a preventative measure setting forth financial practices that would prevent the recurrence of a financial emergency. It also includes a self-governing provision whereby the City's Independent Auditor General is required to prepare an annual report on the City's adherence to these principles by July 1 of each year. The Financial Integrity Ordinance addresses the following integrity principles: (i) Structurally Balanced Budget, (ii) Estimating Conference Process, (iii) Interfund Borrowing, (iv) Budget Surpluses, (v) Reserve Policies, (vi) Proprietary Funds, (vii) Multi -year Financial Plan, (viii) Multi - Year Capital Improvement Plan, (ix) Debt Management, (x) Financial Oversight and Reporting, (xi) Basic Financial Policies, (xii) Evaluation Committees and (xiii) Full Cost of Service. The Financial Integrity Ordinance requires the City to establish three reserves: (1) a "contingency" reserve of $5,000,000 to fund unanticipated budget issues which arise or potential expenditure overruns which cannot be offset through other sources or actions; (2) an "unassigned" fund balance reserve equal to ten percent (10%) of the prior three years average of general revenues (excluding transfers and including the contingency reserves in (1) above) to fund unexpected mid -year revenue shortfalls or for an emergency such as a natural or man-made disaster, which threatens the health, safety and welfare of the City's residents, businesses or visitors; and (3) an "assigned" reserve equal to ten percent (10%) of the prior three years average of general revenues (excluding transfers) to fund long-term liabilities and commitments of the City, such as compensated absences, self-insurance plan deficits and anticipated adjustments in pension plan payment resulting from market losses. One of the principles established certain parameters for the reserve fund for the general operating fund of the City, including having general fund reserves equal to twenty percent (20%) of the prior three years average of general revenues, excluding transfers. Although, the City's general fund reserves increased at the end of September 30, 2011, the prior three years general fund reserves have been declining. See the table entitled "Summary Schedule of Revenues, Expenditures and Net Changes in Fund Balance for the General Fund" herein. The City is not in compliance with the Financial Integrity Ordinance. As of September 30, 2011, the City had approximately $16,494,676 in its reserves. Pursuant to the Financial Integrity Ordinance, the amount should have been $93,066,470. Failure to comply with the Financial Integrity Ordinance is not an event of default under the Resolution. The City will strive to come into compliance with the Ordinance. However, there can be no assurance that the general fund reserves will reach or be maintained at the level required by the Financial Integrity Ordinance. 39 In addition to the reserve fund principle, the City is also not in compliance with principles (i), (ii), (iii), (v), (vi), (viii), (x) and (xiii) above for Fiscal Year 2011. Please see Independent Auditor General's Report No. 13-005 dated October 30, 2012. However, in Fiscal Year 2012, the City expects to be in compliance with all principles, except the reserve fund principle. The full text of the Independent Auditor General's report may be reviewed at http://egov.ci.miami.fl.us/Office of Auditor General/index.aspx. Fiscal and Accounting Procedures The accounts of the City are organized on the basis of funds or account groups, each of which is considered a separate accounting entity in accordance with generally accepted accounting principles, as defined by the Governmental Accounting Standards Board ("GASB"). The operation of each fund is accounted for in a separate, self -balancing set of accounts which comprise its assets and other debits, liabilities, fund equities and other credits, revenues and expenditures. Individual funds that have similar characteristics are combined into fund types. There are two new GASB pronouncements that will affect the City over the next two years. GASB Statement No. 67 dealing with pension funds and GASB Statement No. 68 dealing with financial statements, effective in 2014 and 2015, respectively. These changes will effect the recording of unrecorded liabilities on the City's balance sheet. It is not expected that these changes will impact the City's cash expenditures. The City is assessing the impact on its accounting procedures. For the Fiscal Year 2013 Budget, the City created Internal Service Funds primarily to provide a mechanism that allows for both a cost allocation of pension, health insurance and worker's compensation benefits in the operating departments and a centralized account from which payments are made. The Internal Service Funds area financing mechanism and self-insurance reserve for those payments. Such funds are in accordance with general accepted accounting principles and are allowed by GASB. For the past two years the City has received the Certificate of Achievement for Excellence in Financial Reporting from the Government Finance Officers Association of the United States and Canada. For a complete description of the fund types and account groups, see "Notes to General Purpose Financial Statements of the City" in the City of Miami Comprehensive Annual Financial Report for Fiscal Year Ended September 30, 2011. Internal Auditor Pursuant to Section 48 of the City Charter, the Office of the Independent Auditor General performs internal audit functions including financial, operational, compliance, single audit, investigative, and performance audits of the City, its officials, and independent agencies; and examines accounting systems and provides legislative analysis. Its mission is to provide objective oversight through audits of all of the City's departments, agencies and programs. The City's Independent Auditor General is Theodore Guba who began his service with the City on May 7, 2012. The full text of the Independent Auditor General's reports may be reviewed at http://egov.ci..mi.ami.fl.us/Office of Auditor General/index.aspx. 40 LIABILITIES OF THE CITY Insurance Considerations Affecting the City Section 768.28, Florida Statutes, provides for waiver of sovereign immunity in tort actions or claims against the state and its agencies and subdivisions. The present limit of recovery in the absence of special relief granted by the Florida legislature is $200,000 per person per claim or judgment. The limit of recovery for all claims or judgments arising out of the same incident or occurrence is $300,000. See "Ability to be Sued, Judgments Enforceable" below. Under the protection of this sovereign immunity limit, Florida Statutes 768.28 and Chapter 440, Florida Statutes covering Workers' Compensation, the City has established a self - insured program to provide coverage for almost all areas of liability including Workers' Compensation, General Liability, Automotive Liability, Police Professional Liability, Public Officials' Liability, and Employment Practices Liability. In addition, the City also purchases excess insurance coverage to limit catastrophic losses associated with its liability exposures. The excess liability insurance program provides for $20 million in combined limits. The excess insurance program currently has a self -insured retention of $750,000 per occurrence for Workers' Compensation, and $500,000 for all other liability coverages. The City also purchases dedicated commercial general liability policies for the Grapeland Waterpark, Bayfront Park, and the various various marinas that it operates. These policies typically carry a $1 million limit per occurrence and on an aggregate basis, with a $1,000 deductible. The City's master property insurance program provides for a total of $100 million in insurance limits for the City's $444 million property values. Included in this amount is $25 million for named windstorm and flood coverage. With the exception of earthquake, flood and named windstorm, the All -Other -Perils' deductible is $50,000 per occurrence. In regard to the named windstorm, flood, and earthquake exposures, the deductible is 5% of the location's value at the time of loss with a minimum of $250,000. The City also maintains separate property insurance programs for the James L. Knight Center and the Marlins Stadium parking garages. The James L. Knight Center property program provides $46,442,539 in limits for all perils including windstorm and flood. The James L. Knight Center property program has a $50,000 all other perils deductible, and a deductible of 5% of total insured values at time of loss, with a $1,000,000 minimum for named windstorm and flood perils. The Marlins Stadium parking garage program provides for $25 million in total limits for windstorm and flood, and for $81,200,000 for all other perils. The Marlins Stadium parking garage program has a $25,000 all other perils deductible, and a deductible of 5% of total insured values at time of loss, with a $100,000 minimum per location for named windstorm and flood perils. The funds to account for liability losses within the self -insured retention level are derived from the General Fund. Claims are being predominantly adjusted by an independent third party administrator. Claims expenditures and liabilities are reported when it is probable that a loss has occurred and the amount of that loss can be reasonably estimated based on an independent actuarial valuation. The budgeting process utilizes information developed in the previous year's actuarial report in addition to historical information and present/specific knowledge on the status of claims and litigations. Workers' Compensation The City has been working diligently with its third party claims administrator and the City's Attorney's Office to effectively mitigate indemnity and medical expenses resulting from Workers' Compensation related losses. The City has been successful in significantly reducing its Experience Modification Rate.(EMR) from 1.89 to 1.33 in 2010 and up to 1.38 in 2011. As of October 1, 2012, open Worker's Compensation claims total about 1,180 claims. In 2012, the City paid approximately $12,525,176 in Worker's Compensation related claims compared to $13,460,891 in 2011. 41 Health Insurance The City provides group health benefits for its active employees, retirees, and their dependents through a fully self -funded health insurance program. The City is currently contributing approximately 87% while the employees are contributing 13% to the cost of the group health insurance program. For the most part, retirees are almost fully funding their premium costs, and when compared to the total premium cost of the active employees, the non -Medicare retirees are paying WO% of the premium cost. To limit catastrophic losses, the City is currently purchasing specific stop loss coverage for claimsin excess of $200,000. For the loss corridor between $200,000 to $300,000, the City and stop loss insurance carrier quota share the cost on a quota share basis. Loss expenses exceeding $300,000 are fully covered by the stop loss carrier. Ability to be Sued, Judgments Enforceable Notwithstanding the liability limits described below, the laws of the State provide that each city has waived sovereign immunity for liability in tort to the extent provided in Section 768.28, Florida Statutes. Therefore, the City is liable for tort claims in the same manner and, subject to limits stated below, to the same extent as a private individual under like circumstances, except that the City is not liable for punitive damages or interest for the period prior to judgment. Such statute also limits the liability of a city to pay a judgment in excess of $200,000 to any one person or in excess of $300,000 because of any single incident or occurrence. Judgments in excess of $200,000 per person and $300,000 per claim may be rendered, but may be paid from City funds only pursuant to further action of. the Florida Legislature. See "LIABILITIES OF THE CITY- Insurance Considerations Affecting the City" herein. Notwithstanding the foregoing, the City may agree, within the limits of insurance coverage provided, to settle a claim made or a judgment rendered against it without further action by the Legislature, but the City shall not be deemed to have waived any defense or sovereign immunity or to have increased the limits of its liability as a result of its obtaining insurance coverage for tortious acts in excess of the $200,000 per person or $300,000 per claim waiver, as provided by Florida Statutes. See "LITIGATION" herein. [Remainder of page intentionally left blank] 42 Direct Debt The City has met certain of its financial needs through debt financing. The table which follows is a schedule of the outstanding debt of the City as of October 31, 2012, including that which is payable from sources other than ad valorem taxes. DESCRIPTION General Obligations Bonds: Homeland Defense/Neighborhood CIP, Series 2002 General Obligation Refunding Bonds, Series 2002A General Obligation Refunding Bonds, Series 2003 General Obligation Refunding Bonds, Series 2003B General Obligation Refunding Bonds, Series 2007A General Obligation Refunding Bonds, Series 2007B General Obligation Refunding Bonds, Series 2009 Total General Obligation Bonds Special Obligation and Revenue Bonds: Special Revenue Refunding Bonds, Series 1987 Community Entitlement Revenue Bonds, Series 1990 Special Obligation Non -Ad Valorem Revenue, Series 1995 Special Revenue Refunding Bonds, Series 2002A Special Revenue Refunding Bonds, Series 2002C Special Revenue Bonds, Series 2007 Special Revenue Bonds, Series 2009 Non -Ad Valorem Refunding Bonds, Series 2009 Special Revenue Bonds, Marlins Garage, Series 2010A Special Revenue Bonds, Marlins Retail, Series 2010B Revenue Note, Series 2010 (Port of Miami Tunnel) Special Obligation Refunding Bonds, Series 2011A Loans: SEOPW - Section 108 HUD Loan Wagner Square -Section 108 HUD Loan Gran Central Corporation Loan(1) Total Special Obligation and Revenue Bonds Total Debt Amount Issued $ 153,186,406 32,510,000 18,680,000 4,180,000 103,060,000. 50,000,000 51,055,000 $ 412,671,406 65,271,325 11,500,000 72,000,000 27,895,000 28,390,000 80,000,000 65,000,000 37,435,000 84,540,000 16,830,000 50,000,000 70,645,000 5,100,000 4,000,000 1,708,863 $ 620,315,188 $ 1,032,986,594 Outstanding Balance $ 22,063,415 16,715,000 2,740,000 102,500,000 50,000,000 45,970,000 $ 239,988,415 2,161,796 26,885,000 18,330,000 14,025,000 74,225,000 63,160,000 35,395,000 84,540,000 16,830,000 45,000,000 70,645,000 1,250,000 1,708,863 $ 454,155,659 $ 694,144,074 Source: City of Miami, Finance Department (1) Prepayment of loan is based on revenue generated from the completed project. As of October 31, 2012, there has been no revenue generated by the project in the designated portion of the Southeast Overtown Park West CRA to repay any portion of the loan. [Remainder of page intentionally left blank.] 43 Pension Plans The City's employees participate in two separate, single employer defined benefit contributory pension plans under the administration and management of separate Boards of Trustees: The City of Miami Fire Fighters' and Police Officers' Retirement Trust ("FIPO") and the City of Miami General Employees and Sanitation Employees' Retirement Trust ("GESE"). The plans cover substantially all City employees who contribute a percentage of their base salary or wage on a bi-weekly basis with the exception of executive level employees hired after October 2009. Those executive employees are required to participate in a defined contribution plan (4010). The Board of Trustees of GESE administers three defined pension plans: (i) City of Miami General Employees and Sanitation Employees Retirement Trust ("GESE Retirement Trust"), (ii) an Excess Benefit Plan for the City of Miami and (iii) City of Miami General Employees and Sanitation Employees Retirement Trust Staff Pension Plan ("GESE Staff Trust"). Each plan's assets may be used only for the payment of benefits to the members of that plan, in accordance with the term of the plan. The City's elected officials participate in a single employer defined benefit non-contributory pension plan under the administration and management of a separate Board of Trustees, the City of Miami Elected Officers' Retirement Trust ("EORT"). This plan covers all elected officials with 7 or more years of elected service. The EORT is a non-contributory plan. Due to an ordinance change in 2009, the plan has been closed to any new participants. The total pension costs budgeted for Fiscal Year 2013 were $66,287,700. See "APPENDIX B - PENSION PLANS AND OTHER POST -EMPLOYMENT BENEFITS" herein for a full discussion of the City's pension plans. This discussion has been prepared as an appendix due to the length of the information being presented. Accrued Compensated Absences Under terms of Civil Service regulations, labor contracts and administrative policy, City employees are granted vacation and sick leave in varying amounts. Additionally, certain overtime hours can be accrued and carried forward as earned time off. Unused vacation and sick time is payable upon separation from service, subject to various: limitations depending upon the employee's seniority and civil service classification. The amount accrued as of September 30, 2012 is $68.0 million of which $9.0 million is the current portion. Such amount only includes the primary government employees and does not include employees of component units. The amount for component units as of September 30, 2012 was $727,758, which is funded by other funding sources of such component units. Other Post -Employment Benefits Pursuant to Section 112.0801, Florida Statutes, the City is required to permit participation to the health insurance program by retirees and their eligible dependents at a cost to the retiree that is no greater than the cost at which coverage is available for active employees. Retired police officers are offered coverage at a discounted premium under the FOP Health Trust that is administered separately from the City's health care plan. For non -police retirees (fire fighters, general employees, sanitation employees and elected officials) and their dependents, the City has a stated policy of subsidizing health care coverage and life insurance at a discounted premium equal to 87% of the blended group rate. The total other post -employment benefits ("OPEB") costs budgeted for Fiscal Year 2013 were $9.6 million. See "APPENDIX B PENSION PLANS AND OTHER POST -EMPLOYMENT BENEFI lb" herein for 44 a full discussion of OPEB. This discussion has been prepared as an appendix due. to the length of the information being presented. Financial Urgency Pursuant to Section 447.4095 of the Florida Statutes, the City may declare a financial urgency. That statute, which requires declaration each year, provides that, in the event of a financial urgency requiring modification of a collective bargaining agreement, the City and the representative of the bargaining unit are required to meet as soon as possible to negotiate the impact of the financial urgency. If after a reasonable period which may not exceed 14 days the parties are in disagreement, then they must proceed under Section 447.403 of the Florida Statutes, which provides for the appointment of a mediator. The City Manager declared a financial urgency in 2010, 2011 and 2012. Pursuant to the statute and under the City's authority, in 2010 it imposed the following changes on the unions: • There was a tiered reduction in wages ranging from 0% for salaries less than $39,999.99 to 12% for salaries greater than $120,000 that applied to members of the International Association of Firefighters, AFL-CIO, Local 587, Fraternal Order of Police, Walter E. Headley, Jr., Miami, Miami Lodge No. 20 and Miami General Employees, American Federation of State, County and Municipal Employees, Local 1907, AFL-CIO. • There was also a freezing of step and longevity pay. • Modification to supplemental pay items, which included elimination of education pay supplements, among other things. • Changes to the healthcare plan, such as increasing the co -pays for primary and specialist care physician visits, adding a deductible for the healthcare plan, adding an out-of-pocket maximum, lowering the coinsurance, increasing co -pays for prescriptions, increasing emergency room co -pays and adding a co -pay for urgent care facilities. • Modifying the pension benefits by increasing the normal retirement date, changing the benefit formula, changing the maximum benefit, changing the average final compensation. Additionally, for the members of the Florida Public Employees' Council 79, AFSCME, AFL-CIO, Local 871, effective on October 1, 2010, member contributions shall be made at the rate of 13%. The impact of these changes on the General Fund was $76,943,905 for Fiscal Year 2011 in savings. The financial urgency was challenged in 2010. See "APPENDIX I - LITIGATION-B. CIVIL LITIGATION - Labor Litigation related to "Financial Urgency" herein regarding certain legal actions brought in connection therewith. Although Financial Urgency was declared in 2011 and 2012, the City was able to negotiate a one-year contract in 2011(no modifications were imposed) and a two-year contract in 2012 with the unions. In 2012, the City was able to reach agreements with the unions which included, among other things, changesto the pension plans. There may be a legal requirement that certain terms in the pension agreements which were modified in 2012 be approved by the Circuit Court. However, the City does not expect this to be an issue because all parties have jointly agreed to petition the Court for those terms, if legally necessary. See "APPENDIX B - PENSION PLANS AND OTHER POST -EMPLOYMENT BENEFITS" herein. 45 The City anticipates that the 2012 changes will reduce the City's pension costs by $17,391,300 and healthcare costs by $1,135,000 for the Fiscal Year 2013 General Fund budget. THE OMNI COMMUNITY REDEVELOPMENT AGENCY The Omni Community Redevelopment Agency (the "Omni CRA") was created in 1986 and is responsible for implementing the redevelopment plan as adopted (the "Redevelopment Plan"). The Board of Directors for the Omni CRA is comprised of the members of the City Commission and is separate, distinct and independent from the governing body of the City. The current members of the Board of Directors are: Marc D. Sarnoff, Board Chair Francis X. Suarez, Vice Chair Wifredo Gort Frank X. Carollo Michelle Spence -Jones The mission of the Omni CRA is to improve the quality of life for residents and stakeholders within the Redevelopment Area through activities and programs that create new job opportunities, substantially improve the quality of housing stock and improve the physical appearance of the Redevelopment Area. The current boundaries of the Redevelopment Area are N.E. 5th Street, Biscayne Boulevard, 1-95 and I- 395, N.E. 20th Street, then north to NW 22nd Street, with a section bounded by NW 23rd Street, I-95, NW 22nd Street and NW 15t Court. The Redevelopment Area is immediately north of the central business district in the City of Miami. Such boundaries may be expanded from time -to -time. Although the City intends to budget the Omni CRA revenues pursuant to the Interlocal and Grant Agreement between the City and the Omni CRA to pay the Series 2012 Bonds, tax increment revenues of the Omni CRA are not pledged to the Series 2012 Bonds. Under certain circumstances they will become Non -Ad Valorem Revenues of the City. However, a Bondholder cannot compel the use of tax increment revenues by the City to pay the Series 2012 Bonds. LEGAL MATTERS Certain legal matters incident to the validity of the Series2012 Bonds are subject to the approval of Squire Sanders (US) LLP, Bond Counsel, Miami, Florida whose approving opinion in the form attached hereto as "APPENDIX D - FORM OF BOND COUNSEL OPINION" will be furnished without charge to the purchasers of the Series 2012 Bonds at the time of their delivery. The actual legal opinion to be delivered may vary from that text if necessary to reflect facts and law on the date of delivery. The proposed legal opinion is set forth in APPENDIX E attached hereto. The actual legal opinion to be delivered may vary from that text as necessary to reflect facts and law on the date of delivery. The opinion will speak only as of its date and subsequent distribution thereof by recirculation of the Limited Offering Memorandum or otherwise shall create no implication that Bond Counsel has reviewed or expresses any opinion concerning any of the matters referenced in the opinion subsequent to its date. While Bond Counsel has participated in the preparation of certain portions of this Limited Offering Memorandum, it has not been engaged by the City to confirm or verify, and except as may be set forth in an opinion of Bond Counsel delivered to the Underwriter, Bond Counsel will express no opinion as to the accuracy, completeness or fairness of any statements in this Limited Offering Memorandum, or in any other 46 reports, financial information, offering ordisclosure documents or other information pertaining to the City or the Series 2012 Bonds that may be prepared or made available by the City, the Underwriter or others to the holders of the Series 2012 Bonds or other parties. Certain legal matters will be passed upon for the City by Julie O. Bru, Esq., City Attorney, and by Bryant Miller Olive P.A., Miami, Florida, Disclosure Counsel to the City. LITIGATION There is no pending or, to the knowledge of the City, any threatened litigation against the City of any nature whatsoever which in any way questions or affects the validity of the Series 2012 Bonds, or any proceedings or transactions relating to their issuance, sale, execution, or delivery, or the adoption of the Resolution, or the levy or collection of the Non -Ad Valorem Revenues. Neither the creation, organization or existence, nor the title of the present members of the City Commission or other officers of the City is being contested. See "APPENDIX I - LITIGATION" for material litigation involving the City. SECURITIES AND EXCHANGE COMMISSION INVESTIGATIONS On December 10, 2009, the City of Miami was notified by the Miami Regional Office of the SEC that the staff of the SEC was conducting a non-public inquiry concerning certain City of Miami bond offerings to determine whether there had been any violations of federal securities laws. In letters dated December 10, 2009 and December 23, 2009, the SEC staff requested that the City voluntarily provide the SEC staff with documents concerning (a) City bond offerings in 2007 and 2009, (b) the transfer of approximately $13.1 million from the Capital Projects Fund to the General Fund in Fiscal Year 2007, (c) the transfer of approximately $13.3 million from the Capital Projects Fund to the General Fund in Fiscal Year 2008, and (d) Audit Report No. 010-005, Audit of Compliance with the Financial Integrity Principles, issued by the City of Miami Office of Independent Auditor General in November, 2009. In .February 2010, the SEC . issued .a formal order directing a non-public investigation ("Formal Order"), stating that it had information tending to show possible violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder and Section 17(a) of the Securities Act of 1933. According to the Formal Order, the SEC is investigating whether, since at least 2005, the City and others may have violated these provisions by, -among -other things, employing devices, schemes or artifices to defraud, engaging in transactions which operated or would operate as a fraud or deceit, or making false statements of material fact or failing to disclose material facts concerning, among other things, the state of the City's financial condition. The SEC has requested documents from the City, both voluntarily and by subpoena, and has also issued subpoenas for documents from and the testimony of current and former City officials and employees, and has taken the testimony of some individuals. The City has received multiple subpoenas from the SEC asking for additional documents concerning primarily the Auditor General's report referenced above, the fund transfers referenced above, City bond issues in 2007 and 2009, bond document disclosures, reports to bondholders, City pension plans and -obligations under such plans, any policies, procedures and guidelines related to inter -fund transfers, any adverse conditions concerning the City's finances, any internal investigation, review or analysis conducted by the City and related to matters that have been identified as subjects of the SEC investigation and documents related to the use of certain revenue sources as recently mentioned in the Internal Auditor General Report No. 11-001. Documents requested include communications with and among City management and elected officials. 47 On July 23, 2012, the SEC notified the City that the SEC's enforcement staff intends to recommend that the SEC file civil fraud charges against the City based on transactions that occurred with respect to the City's fiscal years ending September 30, 2007 and September 30, 2008. This notification from the SEC staff is commonly referred to as a "Wells Notice," and it contains the SEC staff's recommendations based upon its investigation. On August 6, 2012, the City filed its response to the Wells Notice which respectfully disagrees with the SEC staff's position and states the City's intent to present information to the SEC's Commissioners demonstrating that such charges are not warranted. The SEC investigation has temporarily diverted the attention of City officials and employees from the conduct of City operations, has caused the City to incur significant expenses, and could have a material effect on the City's financial condition and operations. The City cannot predict at this time the duration or the outcome of the final conclusion of this investigation. Additionally, the SEC has requested documents in connection with the City's Special Obligation Parking Revenue Bonds, Series 2010A and Series 2010B (Marlins Stadium Project). The City is cooperating fully with the SEC investigation and is providing information in response to the SEC's requests. The SEC has not advised the City when the investigation is expected to be concluded or of any potential outcome of the investigation, and the City cannot predict either the duration of the investigation or its outcome. The SEC investigation may temporarily divert the attention of City officials and employees from the conduct of City operations, could cause the City to incur significant expenses, and could have a material effect on the City's financial condition and operations. The City cannot predict the outcome of this investigation or the ultimate consequences resulting from any action on the part of the SEC. See also "LITIGATION - Certain Legal Proceedings" discussed below and "INVESTMENT RISK FACTORS" discussed herein. In a prior action, the SEC ordered the City to cease and desist from committing or causing any further violations or future violations of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10(b)(5) thereunder on March 21, 2003. This action was taken in connection with three bond offerings, all of which occurred in 1995 for failure to disclose that the City's cash position had materially declined since the close of Fiscal Year 1994. INTERNAL. REVENUE SERVICE EXAMINATION On November 18, 2011, the City was notified by an examination request letter from the Department of Treasury, Internal Revenue Service ("IRS"), informing the City that its $153,060,000 City of Miami, Florida Limited Ad Valorem Tax Refunding Bonds, Series 2007A (Homeland Defense/Neighborhood Capital Improvement Projects) and City of Miami, Florida Limited Ad Valorem Tax Bonds, Series 2007B (Homeland Defense/Neighborhood Capital Improvement Projects) dated July 10, 2007 (collectively, the "2007 Homeland Defense/Neighborhood Capital Improvement Bonds) have been selected for a routine examination to determine compliance with federal tax requirements regarding arbitrage under sections 148 and 149 of the Internal Revenue Code. The City is cooperating fully with the IRS examination and is providing information in response to the IRS's requests. The IRS has not advised the City when the examination is expected to be concluded or of any potential outcome of the examination. The IRS examination has temporarily diverted the attention of City officials and employees from the conduct of City operations, could cause the City to incur significant expense, and could have a material effect on the City's future financial condition and operations. The City cannot predict the duration or the outcome of this examination or the ultimate consequences resulting from any action on the part of the IRS. 48 DISCLOSURE REQUIRED BY FLORIDA BLUE SKY REGULATIONS Rule 69W-400.003, Rules of Government Securities, promulgated by the Office of Financial Regulation of the Financial Services Commission, under Section 517.051(1), Florida Statutes ("Rule 69W- 400.003"), requires the City to disclose each and every default as to the payment of principal and interest with respect to obligations issued by the City after December 31, 1975. Rule 69W-400.003 further provides, however, that if the City in good faith believes that such disclosures would not be considered material by a reasonable investor, such disclosures may be omitted. The City has not defaulted on the payment of principal or interest with respect to obligations issued by the City after December 31, 1975. TAX MATTERS In the opinion of Squire Sanders (US) LLP, Bond Counsel, under existing law: (i) interest on the Series 2012 Bonds is excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986, as amended (the "Code"), and is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations; and (ii) the Series 2012 Bonds and the income thereon are exempt from taxation under the laws of the State of Florida, except estate taxes imposed by Chapter 198, Florida Statutes, as amended, and net income and franchise taxes imposed, by Chapter 220, Florida Statutes, as amended. Bond Counsel expresses no opinion as to any other tax consequences regarding the Series 2012 Bonds. The opinion on tax matters will be based on and will assume the accuracy of certain representations and certifications, and continuing compliance with certain covenants, of the City contained in the transcript of proceedings and that are intended to evidence and assure the foregoing, including that the Series 2012 Bonds are and will remain obligations the interest on which is excluded from gross income for federal income tax purposes. Bond Counsel will not independently verify the accuracy of the City's certifications and representations or the continuing compliance with the City's covenants. The opinion of Bond Counsel is based on current legal authority and covers certain matters not directly addressed by such authority. It represents Bond Counsel's legal judgment as to exclusion of interest on the Series 2012 Bonds from gross income for federal income tax purposes but is not a guaranty of that conclusion. The opinion is not binding on the Internal Revenue Service ("IRS") or any court. Bond Counsel expresses no opinion about (i) the effect of future changes in the Code and the applicable regulations under the Code or (ii) the interpretation and the enforcement of the Code or those regulations by the IRS. The Code prescribes a number of qualifications and conditions for the interest on state and local government obligations to be and to remain excluded from gross income for federal income tax purposes, some of which require future or continued compliance after issuance of the obligations. Noncompliance with these requirements by the City may cause loss of such status and result in the interest on the Series 2012 Bonds being included in gross income for federal income tax purposes retroactively to the date of issuance of the Series 2012 Bonds. The City has covenanted to take the actions required of it for the interest on the Series 2012 Bonds to be and to remain excluded from gross income for federal income tax purposes, and not to take any actions that would adversely affect that exclusion. After the date of issuance of the Series 2012 Bonds, Bond Counsel will not undertake to determine (or to so inform any person) whether any actions taken or not taken, or any events occurring or not occurring, or any other matters coming to Bond Counsel's attention, may adversely affect the exclusion from gross income for federal income tax purposes of interest on the Series 2012 Bonds or the market value of the Series 2012 Bonds. 49 A portion of the interest on the Series 2012 Bonds earned by certain corporations may be subject to a federal corporate alternative minimum tax. In addition, interest on the Series 2012 Bonds may be subject to a federal branch profits tax imposed on certain foreign corporations doing business in the United States and to a federal tax imposed on excess net passive income of certain S corporations. Under the Code, the exclusion of interest from gross income for federal income tax purposes may have certain adverse federal income tax consequences on items of income, deduction or credit for certain taxpayers, including financial institutions, certain insurance companies, recipients of Social Security and Railroad Retirement benefits, those that are deemed to incur or continue indebtedness to acquire or carry tax-exempt obligations, and individuals otherwise eligible for the earned income tax credit. The applicability and extent of these and other tax consequences will depend upon the particular tax status or other tax items of the owner of the Series 2012 Bonds. Bond Counsel will express no opinion regarding those consequences. Payments of interest on tax-exempt obligations, including the Series 2012 Bonds, are generally subject to IRS Form 1099-INT information reporting requirements. If a Series 2012 Bond owner is subject to backup withholding under those requirements, then payments of interest will also be subject to backup withholding. Those requirements do not affect the exclusion of such interest from gross income for federal income tax purposes. Legislation affecting tax-exempt obligations is regularly considered by the United States Congress and may also be considered by the State legislature. Court proceedings may also be filed, the outcome of which could modify the tax treatment of obligations such as the Series 2012 Bonds. There can be no assurance that legislation enacted or proposed, or actions by a court, after the date of issuance of the Series 2012 Bonds will not have an adverse effect on the tax status of interest on the Series 2012 Bonds or the market value or marketability of the Series 2012 Bonds. These adverse effects could result, for example, from changes to federal or state income tax rates, changes in the structure of federal or state income taxes (including replacement with another type of tax), or repeal (or reduction in the benefit) of the exclusion of interest on the Series 2012 Bonds from gross income for federal or state income tax purposes for all or certain taxpayers. For example, both the American Jobs Act of 2011 proposed by President Obama on September 12, 2011, and introduced into the Senate on September 13, 2011, and the federal budget for fiscal year 2013 as proposed by President Obama on February 13, 2012,.contain provisions. that could, among other things, result in additional federal income tax for tax years beginning after 2012 on taxpayers that own tax-exempt obligations, including the Series 2012 Bonds, if they have incomes above certain thresholds. Prospective purchasers of the Series 2012 Bonds should consult their own tax advisers regarding pending or proposed federal and state tax legislation and court proceedings, and prospective purchasers of the Series 2012 Bonds at other than their original issuance at the respective prices indicated on the inside cover of this Limited Offering Memorandum should also consult their own tax advisers regarding other tax considerations such as the consequences of market discount, as to all of which Bond Counsel expresses no opinion. Bond Counsel's engagement with respect to the Series 2012 Bonds ends with the issuance of the Series 2012 Bonds, and, unless separately engaged, Bond Counsel is not obligated to defend the City or the owners of the Series 2012 Bonds regarding the tax status of interest thereon iti the event of an audit examination by the IRS. The IRS has a program to audit tax-exempt obligations to determine whether the interest thereon is includible in gross income for federal income tax purposes. If the IRS does audit the Series 2012 Bonds, under current IRS procedures, the IRS will treat the City as the taxpayer and the beneficial owners of the Series 2012 Bonds will have only limited rights, if any, to obtain and participate in judicial review of such audit. Any action of the IRS, including but not limited to selection of the Series 2012 Bonds for audit, or the course or 50 result of such audit, or an audit of other obligations presenting similar tax issues, may affect the market value of the Series 2012 Bonds. Original Issue Discount and Original Issue Premium Certain of the Series 2012 Bonds ("Discount Series 2012 Bonds") as indicated on the inside cover of this Limited Offering Memorandum were offered and sold to the public at an original issue discount ("OID"). OID is the excess of the stated redemption price at maturity (the principal amount) over the "issue price" of a Discount Series 2012 Bond. The issue price of a Discount Series 2012 Bond is the initial offering price to the public (other than to bond houses, brokers or similar persons acting in the capacity of underwriters or wholesalers) at which a substantial amount of the Discount Series 2012 Bonds of the same maturity is sold pursuant to that offering. For federal income tax purposes, OID accrues to the owner of a Discount Series 2012 Bond over the period to maturity based on the constant yield method, compounded semiannually (or over a shorter permitted compounding interval selected by the owner). The portion of OID that accrues during the period of ownership of a Discount Series 2012 Bond (i) is interest excluded from the owner's gross income for federal income tax purposes to the same extent, and subject to the same considerations discussed above, as other interest on the Series 2012 Bonds, and (ii) is added to the owner's tax basis for purposes of determining gain or loss on the maturity, redemption, prior sale or other disposition of that Discount Series 2012 Bond. The amount of OID that accrues each year to a corporate owner of a Discount Series 2012 Bond is taken into account in computing the corporation's liability for federal alternative minimum tax. A purchaser of a Discount Series 2012 Bond in the initial public offering at the price for that Discount Series 2012 Bond stated on the inside cover of this Limited Offering Memorandum who holds that Discount Series 2012 Bond to maturity will realize no gain or loss upon the retirement of that Discount Series 2012 Bond. Certain of the Series 2012 Bonds ("Premium Series 2012 Bonds") as indicated on the inside cover of this Limited Offering Memorandum were offered and sold to the public at a price in excess of their stated redemption price at maturity (the principal amount). That excess constitutes bond premium. For federal income tax purposes, bond premium is amortized over the period to maturity of a Premium Series 2012 Bond, based on the yield to maturity of that Premium Series 2012 Bond (or, in the case of a Premium Series 2012 Bond callable prior to its stated maturity, the amortization period and yield may be required to be determined on the basis of an .earlier call date that results in the lowest yield on that Premium Series 2012 Bond), compounded semiannually. No portion of that bond premium is deductible by the owner of a Premium Series 2012 Bond. For purposes of determining the owner's gain or loss on the sale, redemption (including redemption at maturity) or other disposition of a Premium Series 2012 Bond, the owner's tax basis in the Premium Series 2012 Bond is reduced by the amount of bond premium that is amortized during the period of ownership. As a result, an owner may realize taxable gain for federal income tax purposes from the sale or other disposition of a Premium Series 2012 Bond for an amount equal to or less than the amount paid by the owner for that Premium Series 2012 Bond. A purchaser of a Premium Series 2012 Bond in the initial public offering at the price for that Premium Series 2012 Bond stated on the inside cover of this Limited Offering Memorandum who holds that Premium Series 2012 Bond to maturity (or, in the case of a callable Premium Series 2012 Bond, to its earlier call date that results in the lowest yield on that Premium Series 2012 Bond) will realize no gain or loss upon the retirement of that Premium Series 2012 Bond. Owners of Discount Series 2012 Bonds and Premium Series 2012 Bonds should consult their own tax advisers as to the determination for federal income tax purposes of the amount of OID or bond premium properly accruable or amortizable in any period with respect to the Discount Series 2012 Bonds or Premium Series 2012 Bonds and as to other federal tax consequences and the treatment of OID and bond premium for purposes of state and local taxes on, or based on, income. 51 RATINGS Moody's Investor's Service ("Moody's") and Fitch Ratings ("Fitch") have assigned underlying ratings of " " and" ", respectively, to the Series 2012 Bonds[, without any regard to the Policy]. The ratings reflect only the views of said rating agencies and an explanation of the ratings may be obtained only from said rating agencies. There is no assurance that such ratings will continue for any given period of time or that they will not be lowered or withdrawn entirely by the rating agencies, or any of them, if in their judgment, circumstances so warrant. A downward change in or withdrawal of any of such ratings, may have an adverse effect on the market price of the Series 2012 Bonds. An explanation of the significance of the ratings can be received from the rating agencies, at the following addresses: Fitch Ratings, One State Street Plaza, New York, New York 10004, and Moody's Investor Service, 250 Greenwich Street, New York, New York 10007, FINANCIAL ADVISOR The City has retained Public Financial Management, Inc., Coral Gables, Florida, as Financial Advisor in connection with the authorization and issuance of the Series 2012 Bonds. The Financial Advisor has assisted the City in the preparation of this Limited Offering Memorandum and has advised the City as to other matters relating to the planning, structuring and issuance of the Series 2012 Bonds. The Financial Advisor is not obligated to undertake and has not undertaken to make an independent verification or to assume responsibility for the accuracy, completeness or fairness of the information contained in this Limited Offering Memorandum. Public Financial Management, Inc. is an independent advisory firm and is not engaged in the business of underwriting, trading or distributing municipal or other public securities. Prior to the retention of Public Financial Management, Inc., First Southwest Company, Aventura, Florida ("First Southwest") had been the financial advisor in connection with the proposed issuance of Series 2012 Bonds. AUDITED FINANCIAL STATEMENTS The Comprehensive Annual Financial Report of the City for the Fiscal Year ended September 30, 2011 (the "Audited Financial Statements"), report thereon of Ernst .& Young LLP, as independent certified public accountants, and the Supplement to the Comprehensive Annual Financial Report for the Fiscal Year ended September 30, 2011 are attached hereto as "APPENDIX D-COMPREHENSIVE ANNUAL FINANCIAL REPORT OF THE CITY OF MIAMI FOR FISCAL YEAR ENDED SEPTEMBER 30, 2011" as a part of this Limited Offering Memorandum. The Audited Financial Statements have been included as a public document and no consent was requested or received from Ernst & Young, LLP. UNDERWRITING The Series 2012 Bonds are being purchased by Wells Fargo Bank, National Association (the "Underwriter") at an aggregate purchase price of $ (the par amount of the Series 2012 Bonds, less Underwriter's discount of $ [plus/minus net original issue premium/discount of $ ). The 52 Underwriter's obligations are subject to certain conditions precedent described in the Bond Purchase Agreement entered into between the City and the Underwriter, and they will be obligated to purchase all of the Series 2012 Bonds if any Series 2012 Bonds are purchased. The Series 2012 Bonds may be offered and sold to certain dealers (including dealers depositing such Series 2012 Bonds into investment trusts) at prices lower than such public offering prices, and such public offering prices may be changed, from time to time, by the Underwriter. Wells Fargo Securities is the trade name for certain capital markets and investment banking services of Wells Fargo & Company and its subsidiaries, including Wells Fargo Bank, National Association, the lender on the Note to be repaid with the proceeds of the Series 2012 Bonds. The Underwriter and its respective affiliates are full service financial institutions engaged in various activities, which may include securities trading, commercial and investment banking, financial advisory, investment management, principal investment, hedging, financing and brokerage activities. Certain of the Underwriter and their respective affiliates have, from time to time, performed, and may in the future perform, various investment banking services for the City, for which they receive or will receive customary fees and expenses. In the ordinary course of their various business activities, the Underwriter and their respective affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (which may include bank loans and/or credit default swaps) for their own account and for the accounts of their customers and may at any time hold long and short positions in such securities and instruments. Such investment and securities activities may involve securities and instruments of the City. Prior to the retention of Wells Fargo Bank, National Association, RBC Capital Markets, LLC, Miami, Florida ("RBC") had been the underwriter in connection with the proposed issuance of Series 2012 Bonds. ENFORCEABILITY OF REMEDIES The remedies available to the owners of the Series 2012 Bonds upon an event of default under the Resolution are in many respects dependent upon judicial actions which are often subject to discretion and delay. Under existing constitutional and statutory law and judicial decisions, including specifically the federal bankruptcy code, the remedies specified by the Resolution and the Series 2012 Bonds may not be readily available or may be limited. The various legal opinions to be delivered concurrently with the delivery of the Series 2012 Bonds, including Bond Counsel's approving opinion, will be qualified, as to the enforceability of the remedies provided in the various legal instruments, by limitations imposed by bankruptcy, reorganization, insolvency or other similar laws affecting the rights of creditors enacted before or after such delivery. CONTINUING DISCLOSURE While not subject to Rule 15c2-12(b)(5) promulgated by the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended (the "Rule"), the City has covenanted for the benefit of the holders of the Series 2012 Bonds to provide certain financial information and operating data relating to the City and the Series 2012 Bonds in each year (the "Annual Report"), and to provide notices of the occurrence of certain enumerated material events. Such covenant will only apply so long as the Series 2012 Bonds remain outstanding. The Annual Report and any notices of material events will be filed by the 53 City with the Municipal Securities Rulemaking Board's Electronic Municipal Market Access ("EMMA") system for municipal securities disclosures as described in the proposed form of Continuing Disclosure Agreement attached hereto as APPENDIX F. The specific nature of the information to be contained in the Annual Report and the notices of material events are described in "APPENDIX F - FORM OF CONTINUING DISCLOSURE AGREEMENT" attached hereto, which will be executed by the City at the time of issuance of the Series 2012 Bonds. Failure of the City to comply with the provisions of the Continuing Disclosure Agreement will not constitute an event of default under the Resolution. It is the position of the City that the sole and exclusive remedy of any holder of a Series 2012 Bond for enforcement of the provisions of the Continuing Disclosure Agreement will be an action of mandamus or specific performance to cause the City to comply with its obligations thereunder. The City's dissemination agent for such undertakings is Digital Assurance Certification, L.L.C. With respect to the Series 2012 Bonds, no party other than the City is obligated to provide, nor is expected to provide, any continuing disclosure information with respect to the Rule. The City has undertaken certain continuing disclosure obligations in prior continuing disclosure certificates in connection with its outstanding debt and its outstanding bonds to provide certain financial and operating information and notices to EMMA. Due to a change in auditors and financial management system (which was changed to an Enterprise Resource Planning System), the City did not timely file its 2007 annual report. Such report has been filed, and as of the date hereof, the City is compliance with all of its continuing disclosure obligations, in all material respects, and has implemented procedures to assure future compliance with all of its continuing disclosure obligations. On August 30, 2012, the City filed a supplement to its annual report which included supplementing its Comprehensive Annual Financial Report for Fiscal Year ended September 30, 2011 and its Supplemental Report to Bondholders as of September 30, 2011. Such supplements provide additional and/or clarifying detail to the information previously provided. ACCURACY AND COMPLETENESS OF LIMITED OFFERING MEMORANDUM The references, excerpts, and summaries of all documents, statutes, and information concerning the City and certain reports and statistical data referred to herein do not purport to be complete, comprehensive and definitive and each such summary and reference is qualified in its entirety by reference to each such document for full and complete statements of all matters of fact relating to the Series 2012 Bonds, the security for the payment of the Series 2012 Bonds and the rights and obligations of the owners thereof and to each such statute, report or instrument. The appendices attached hereto are integral parts of this Limited Offering Memorandum and must be read in their entirety together with all foregoing statements. The information and expressions of opinions herein are subject to change without notice and neither the delivery of this Limited Offering Memorandum nor any sale made hereunder is to create, under any circumstances, any implication that there has been no change in the affairs of the City from the date hereof. FORWARD -LOOKING STATEMENTS This Limited Offering Memorandum contains certain "forward -looking statements" concerning the City's operations, performance and financial condition, including its future economic performance, plans and objectives. These statements are based upon a number of assumptions and estimates which are subject to significant uncertainties, many of which are beyond the control of the City. The words "may," "would," "could," "will," "expect," "anticipate," "believe," "intend," "plan," "estimate" and similar expressions are 54 meant to identify these forward -looking statements. Actual results may differ materially from those expressed or implied by these forward -looking statements. MISCELLANEOUS Any statements made in this Limited Offering Memorandum involving matters of opinion or of estimates, whether or not so expressly stated are set forth as such and not as representations of fact, and no representation is made that any of the estimates will be realized. Neither this Limited Offering Memorandum nor any statement that may have been made verbally or in writing is to be construed as a contract with the owners of the Series 2012 Bonds. AUTHORIZATION OF LIMITED OFFERING MEMORANDUM The execution and delivery of this Limited Offering Memorandum has been duly authorized and approved by the City. At the time of delivery of the Series 2012 Bonds, the City will furnish a certificate to the effect that nothing has come to their attention which would lead it to believe that the Limited Offering Memorandum (other than information herein related to DTC, the book -entry only system of registration, information relating to the Bond Insurer or provider of a Reserve account Insurance Policy, and the information contained under the captions ["MUNICIPAL BOND INSURANCE"], "TAX MAIlERS" and "UNDERWRITING" as to which no opinion shall be expressed), as of its date and as of the date of delivery of the Series 2012 Bonds, contains an untrue statement of a material fact or omits to state a material fact which should be included therein for the purposes for which the Limited Offering Memorandum is intended to be used, or which is necessary to make the statements contained therein, in the light of the circumstances under which they were made, not misleading. THE CITY OF MIAMI, FLORIDA By: City Manager By: Chief Financial Officer 55 APPENDIX A GENERAL INFORMATION REGARDING THE CITY OF MIAMI AND MIAMI-DADE COUNTY General Now 116 years old, the City of Miami, Florida (the "City") is part of the nation's seventh largest metropolitan area. Incorporated in 1896, the City is the only major municipality conceived and founded by a woman, Julia Tuttle, According to the U.S. Census Bureau, the City's population in 1900 was 1,700 people,. Today it is a City rich in cultural and ethnic diversity with 399,457 residents according to the 2010 U.S. Census, 58.9% of them foreign born. In physical size the City is not large, encompassing only 35.87 square miles. The City is situated at the mouth ofthe Miami River on the western shore of Biscayne Bay, the main port entry in Florida. The City is the southernmost major city and seaport in the continental United States. The nearest foreign territory is the Bahamian Island of Bimini, 50 miles from the City's coast. In population, the City is the largest of the 35 municipalities that make up Miami -Dade County (the "County" or "Miami - Dade County") and is the County seat. Population City of Percent Miami -Dade Percent State of Percent Year Miami Change County Change Florida Change 1960 291,688 935,047 4,951,560 1970 331,553 13.6% 1,267,792 35.6% 6,791,418 37.2% 1980 346,865 4.6 1,625,509 28.2 9,746,961 43.5 1990 358,648 3.4 1,937,194 19.2 12,938,071 32.7 2000 362,470 1.0 2,253,362 16,3 15,982,378 23.5 2010 399,457 10.2 2,563,885 13.7 18,801,310 17.6 Source: Bureau of Economic and Business Research, University of Florida, US Census Bureau, Miami -Dade County, Annual Report to Bondholders 2010 Government Since 1997, the City has been governed by a form of government known as the "Mayor -City Commissioner plan." There are five Commissioners elected from designated districts within the City. The Mayor is elected at large every four years. As official head of the City, the Mayor has veto authority over actions of the Commission. The Mayor appoints the City Manager who functions as chief administrative officer. City elections are held in November every two years on a non -partisan basis. Candidates for Mayor must run as such and not for the. Commission in general. At each election, two or three members of the Commission are elected for four-year terms. Thus, the terms are staggered so that there are always at least two experienced members of the Commission. The City Manager serves as the administrative head of the municipal government, charged with the responsibility of managing the City's financial operations and organizing and directing the administrative infrastructure. The City Manager also retains full authority in the appointment and supervision of department directors, preparation of the City's annual budget and initiation of the investigative procedures. In addition, the City Manager takes appropriate action on all administrative matters. A-1 Climate The City's climate is sub -tropical -marine, characterized by long summers with abundant rain fall and mild, dry winters. The average temperature in the summer is 81.4 degrees Fahrenheit and 69.1 degrees Fahrenheit in the winter, with an average annual temperature of 75.4 degrees. Parks and,Recreation Outdoor recreational activities like golf, tennis, running, bicycling, rollerblading, boating and fishing can be enjoyed year-round. Altogether, Miami -Dade County has over 300 parks and recreational areas totaling over one million acres, including Everglades and Biscayne National Parks. Eighteen public golf courses and 504 public tennis courts are available throughout the County. Miami -Dade County's 22 miles of public beach comprise 1,400 acres, which are freely accessible and are enjoyed year round by residents and tourists. Athletics for spectator sports fans are held at the American Airlines Arena. Land Shark Stadium, which is used by the Miami Dolphins and the Miami Hurricanes, is located in North Central Miami -Dade County. The City and County jointly constructed a new stadium and parking garage for the Florida Marlins baseball franchise. Sports competition includes professional and college football, basketball, baseball, tennis, golf, sailing and championship boat races. Other athletic events include amateur football, basketball, soccer, baseball, motorcycle speedway racing and rowing events. Education Miami -Dade County's public school system is the fourth largest in the United States, as measured by student enrollment. The countywide school district offers a wide variety of programs to meet the needs of its 398,000-plus students. For example, The School Board of Miami -Dade County's magnet schools provide intensive levels of instruction in subjects like science and technology, foreign languages, health care, architecture, the performing arts and marine sciences. Other public school programs serve students with different academic, physical or emotional needs, including gifted, advanced and remedial courses. Miami -Dade County is also noted for its high quality private schools, which include Gulliver Academy, Miami Country Day School and Ransom Everglades, as well as numerous schools affiliated with religious organizations. Overall, 80% of graduating seniors continue their education in a post -secondary institution. Miami - Dade County is also home to Miami -Dade College, the largest comprehensive community college in the United States. Florida International University is one of the 25 largest universities in the nation and offers more than 200 bachelor's, master's and doctoral programs in 21 colleges. The University of Miami, a private undergraduate and graduate institution, includes diversified research facilities and exceptional schools of law, music, medicine, and marine sciences. Barry University, St. Thomas University and Florida Memorial University offer degrees in a variety of subjects and programs. Medical Miami -Dade County has the largest concentration of medical facilities in Florida, with 32 hospitals and more than 32,000 licensed health care professionals. Nursing homes, adult congregate living facilities and home health care services also serve the region. A-2 The University of Miami Jackson Memorial Medical Center, the second-largest public hospital in the nation, forms the hub of the region's medical centers, which includes world-renowned specialized facilities like Bascom Palmer Eye Institute, the Mailman Center for Child Development and the Sylvester Comprehensive Cancer Center. Miami -Dade County has an extensive network of community hospitals, such as Mount Sinai Medical Center, Cedars Medical Center, Baptist Hospital, Mercy Hospital and Miami Children's Hospital. Nine area hospitals have formed the Miami Medical Alliance, a cooperative effort to serve patients from Latin America and the Caribbean Transportation Miami -Dade County has a comprehensive transportation network designed to meet the needs of residents, travelers and area businesses. The County's internal .transportation system includes Metrorail, a 22.6 mile above -ground system connecting South Miami -Dade and the City of Hialeah with the Downtown and Civic Center areas providing 18.1 million passenger trips annually. Metromover, a 4.4 mile automated loop, carries approximately 9.2 million passenger trips annually around downtown Miami, Brickell Avenue and the Omni shopping center areas. Miami -Dade County's Metrobus operates over 29.8 million miles per year and over 75.7 million passenger trips annually. The County also provides para-transit services to qualified riders in the amount of 1.59 million passenger trips annually. Cargo rail service is available from both Miami International Airport and the Port of Miami, and Amtrak has a passenger station in the City. Tri- Rail, a 72-mile train system, links West Palm Beach, Boca Raton, Fort Lauderdale, Hollywood and Miami International Airport. Miami International Airport. Miami International Airport is one of the busiest airports in the world for both passengers and cargo traffic. It ranks twelfth in the nation and twenty-eighth in the world in passenger traffic through the airport. The airport ranks third in the nation and eleventh in the world in tonnage of domestic and international cargo movement. In Fiscal Year 2011, over 37.63 million air travelers were serviced by Miami International Airport, and approximately 2.0 million tons of domestic and international cargo was handled. As of April 2011, 93 airlines serve Miami International Airport, flying passengers to more than 130 destinations around the globe. Port of Miami. The Port of Miami, known as the "cruise capital of the world," is operated by the Seaport Department of Miami -Dade County. In Fiscal Year 2011, more than 4.0 million passengers sailed from the Port of Miami aboard one of the eight cruise companies who operate out of Miami. The Port of Miami is also.a hub for Caribbean and Latin American commerce. These countries account for over half of the 8.2 million tons of cargo transferred through the Port of Miami in Fiscal Year 2011. The Port of Miami is also reaching out to the global community where trade with the Far East, Asia and the Pacific accounted for almost 32% of the total cargo handled at the Port of Miami. The Port of Miami is also important to the U.S. economy, contributing in excess of $17 billion annually, which should increase after the completion of the Port of Miami's five year, $346 million capital improvement program. Economy The economic base of the City has diversified in recent years, shifting from reliance on the tourism industry to a combination of motion picture production, manufacturing, service industries and international trade. The area's advantages in terms of climate, geography, low taxes and skilled labor have combined to make the Miami area a prime relocation area for major manufacturing firms and international corporate headquarters. A-3 The following major companies have their Latin American headquarters located in the City: The Gap, Inc. Federal Express Corporation ABN AMR() Bank Sony Broadcast Export Corporation Olympus America ExxonMobil Inter -America Black & Decker Latin America Group Hewlett Packard Co. Latin America Eastman Chemical Latin America Telefonica International USA, Inc. Source: Beacon Council Caterpillar Americas Co. Ericsson, Inc. Terra Networks USA IBM Corporation Canon Latin America Acer Latin America Komatsu Latin America Tech Data Chevron -Texaco Johnson & Johnson Lucent Technologies Barclays Bank PLC Oracle Latin America Cisco Systems AT&T Latin America Olympus Latin America Clorox Latin America American Express Stanley Latin America Distribution of Major Employment Classifications for Miami -Dade County September 2011 Occupational Title Construction Manufacturing Mining and Natural Resources Transportation, Warehousing, and Utilities Wholesale Trade Retail Trade Information Finance Activities Professional and Business Education and Health Services Leisure and Hospitality Other Services Government Total Employed Employees 31,100 33,900 300 58,800 68,900 125,100 16,700 61,400 134,900 165,200 107,200 39,000 151,600 994,100 Percentage of Totals 3.2% 3.4 0.0 5.9 6.9 12.6 1.7 6.2 13.6 16.6 10.8 3.9 15.2 100.0% Source: Miami -Dade County Department of Planning/Zoning Research Section, February 2012 Year 2007 2008 2009 2010 2011* Labor Force and Employment Statistics Greater Miami Metropolitan Area Employment 1,143,548 1,142,665 1,093,000 1,117,000 1,046,110 Civilian Labor Force 1,196,086 1,212,446 1,232,500 1,281,900 1,103,895 Source: City of Miami, Florida *Source: US Department of Labor, Bureau Labor Statistics A-4 Unemployment Rate 4.1 6.1 11.3 12.8 8.9 Florida Unemployment Rate 4.1 6.2 10.8 11.7 10.5 Top Ten Major Employers in Mimi -Dade County 2011 Public Employers: Name Miami -Dade County Public Schools Miami -Dade County U.S. Federal Government Florida State Government Jackson Health System Florida International University Miami -Dade College City of Miami Homestead Airforce Base VA Healthcare System Number of Employees 44,132 26,351 19,400 17,600 10,809 8,000 6,200 4,309 2,700 2,487 Source: The Beacon Council/ Miami -Dade County, Florida- Miami Business Profile & Relocation Guide 2012 Private Employers: Name Baptist Health Systems of South Florida University of Miami Publix Supermarkets American Airlines Precision Response Corp Florida Power & Light Carnival Cruise Lines Winn Dixie Stores Mount Sinai Medical Center AT&T Number of Employees 14,865 13,233 10,800 9,000 5,000 3,840 3,500 3,400 3,400 3,100 Source: The Beacon Council/ Miami -Dade County, Florida -Miami Business Profile &Relocation Guide 2012 A-5 Record of Building Permits, 2005 through 2011 City of Miami, Florida New Commercial Fiscal Building Year Permits Estimated Cost 2005-2006 125 2006-2007 98 2007-2008 80 2008-2009 264 2009-2010 236 2010-2011 217 $ 2,573,453,643 1,266,199,562 1,615,039,791 128,192,793 592,111,103 $ 421,757,347 Source: City of Miami, Florida Building Department Year 2006 2007 2008 2009 2010 2011 Other New Commercial Residential Building Building Permits Permits 2,582 450 2,816 349 3,218 178 3,640 259 5,277 220 6,458 194 Per Capita Personal Income Miami 33,712 36,701 35,887 36,357 N/A N/A Source: (1) City of Miami, Florida (2) Bureau of Economic and Business Research, University of Florida The City of Miami, Florida Property Tax Rates Other Residential Building Estimated Cost Permits Fiscal Year Tax Roll Year General Operations Debt Service 2002 2001 8.99500 1.2180 2003 2002 8.85000 1.2180 2004 2003 8.76250 1.0800 2005 2004 8.71625 0.9500 2006 2005 8.49950 0.7650 2007 2006 8.37450 0.6210 2008 2007 7.29990 0.5776 2009 2008 7.67400 0.6595 2010 2009 7.67400 0.9701 2011 2010 7.57100 0.9300 $ 119,113,620 5,208 110,732,621 5,285 60,467,105 3,759 12,484,788 3,346 16,477,268 2,794 $ 50,244,764 2,555 Florida 37,992 39,078 39,572 38,572 39,230 39,563 Total City 10.2130 10.0680 9.8425 9.6663 9.2645 8.9955 7.8775 8.3335 8.6441 8.5010 Source: City of Miami Comprehensive Annual Financial Report Fiscal Year 2011 and Miami -Dade County Property Appraiser's Office. Note: All millage rates are based on $1 for every $1,000 of assessed value. A-6 Property Tax Reform During recent years, various legislative proposals and constitutional amendments relating to ad valorem taxation and revenue limitation have been introduced in Florida. Many of these proposals sought to provide for new or increased exemptions to ad valorem taxation, limit the amount of revenues that local governments could generate or otherwise restrict the ability of local governments in Florida to levy ad valorem taxes at recent, historical levels. There can be no assurance that similar or additional legislative or other proposals will not be introduced or enacted in the future that would, or might apply to, or have a material adverse effect upon the City or its finances. Several constitutional and legislative amendments affecting ad valorem taxes have been approved by voters in the past including the following: Save Our Homes Amendment. By voter referendum held on November 3,1992, Article VII, Section 4 of the State Constitution was amended by adding thereto a subsection which, in effect, limits the increases in assessed just value of homestead property to the lesser of (1) three percent of the assessment for the prior year or (2) the percentage change in the Consumer Price Index for all urban consumers, U.S. City Average, all items 1967=100, or successor reports for the preceding calendar year as initially reported by the United States Department of Labor, Bureau of Labor Statistics. Further, the amendment provides that (1) no assessment shall exceed just value, (2) after any change of ownership of homestead property or upon termination of homestead status, such property shall be reassessed at just value as of January 1 of the year following the year of sale or change of status, (3) new homestead property shall be assessed at just value as of January 1 of the year following the establishment of the homestead, and (4) changes, additions, reductions or improvements to homestead shall initially be assessed as provided for by general law, and thereafter as provided in the amendment. This amendment is known as the "Save Our Homes Amendment." The effective date of the amendment was January 5, 1993 and, pursuant to a ruling by the Florida Supreme Court, it began to affect homestead property valuations commencing January 1,1995, with 1994 assessed values being the base year for determining compliance. Limitations on State Revenue Amendment. In the 1994 general election, Florida voters approved an amendment to the State Constitution which is commonly referred to as the "Limitation On State Revenues Amendment." This amendment provides that state revenues collected for any fiscal year shall be limited to state revenues allowed under the amendment for the prior fiscal year plus an adjustment for growth. Growth is defined as an amount equal to the average annual rate of growth in state personal income over the most recent twenty quarters times the state revenues allowed under the amendment for the prior fiscal year. State revenues collected for any fiscal year in excess of this limitation are required to be transferred to a budget stabilization fund until the fund reaches the maximum balance specified in the amendment to the State Constitution, and thereafter is required to be refunded to taxpayers as provided by general law. The limitation on state revenues imposed by the amendment may be increased by the State Legislature, by a two- thirds vote in each house. The term "state revenues," as used in the amendment, means taxes, fees, licenses, and charges for services imposed by the State Legislature on individuals, businesses, or agencies outside state government. However, the term "state revenues" does not include: (1) revenues that are necessary to meet the requirements set forth in documents authorizing the issuance of bonds by the State; (2) revenues that are used to provide matching funds for the federal Medicaid program with the exception of the revenues used to support the Public Medical Assistance Trust Fund or its successor program and with the exception of State matching funds used to fund elective expansions made after July 1, 1994; (3) proceeds from the State lottery returned as prizes; (4) receipts of the Florida Hurricane Catastrophe Fund; (5) balances carried forward from prior fiscal A-7 years;.;(6) taxes, licenses, fees and charges for services imposed by local, regional, or school district governing bodies, or (7) revenue from taxes, licenses, fees and charges for services required to be imposed by any amendment or revision to the State Constitution after July 1,1994. This amendment took effect on January 1, 1995, and was first applicable to Florida's fiscal year 1995-1996. In its 2011 Regular Session, the Florida Legislature enacted SJR 958 which amends Article VII, Section 1 of the Florida Constitution (which is the Limitation on State Revenues Amendment) and creates Article VII, Section 19 and Article XII, Section 32 of the Florida Constitution. SJR 958 (1) replaces the existing state revenue limitation based on Florida personal income growth (as described above) with a new state revenue limitation based on changes in population and inflation; (2) requires excess revenues to be deposited into the Budget Stabilization Fund to support public education or returned to taxpayers; (3) adds fines and revenues used to pay debt service on bonds issued after July 1, 2012 to the state revenues subject to the limitation; (4) authorizes the Florida Legislature to increase the revenue limitation by a supermajority vote; and (5) authorizes the Florida Legislature to place a proposed increase before the voters, which would require approval of 60% of the voters. SJR 958 will be on the ballot in the 2012 general election or at an earlier election authorized by law. If approved by 60% of the voters, the new state revenue limitation will be phased in starting in Florida fiscal year 2014-2015. Over time, the new state revenue limitation is more likely to constrain state revenues than the current state revenue limitation; however, the potential impact on the City or its finances cannot be ascertained at this time. Millage Rollback Legislation. In 2007, the Florida Legislature adopted Chapter 2007-321, Laws of Florida, a property tax plan which significantly impacted ad valorem tax collections for State local governments. One component of the adopted legislation required counties, cities and special districts to rollback their millage rates for the 2007-2008 fiscal year to a level that, with certain adjustments and exceptions, would generate the same level of ad valorem tax revenue as in fiscal year 2006-2007; provided, however, depending upon the relative growth of each local government's own ad valorem tax revenues from 2001 to 2006, such rolled back millage rates were determined after first reducing 2006-2007 ad valorem tax revenues by zero to nine percent (0% to 9%). In addition, the legislation limits how much the aggregate amount of ad valorem tax revenues may increase in future fiscal years. A local government may override certain portions of these requirements by a supermajority, and for certain requirements, a unanimous vote of its governing body. The City fell under the 7% ad valorem tax revenue reduction category. As a result, the City's general millage rate was reduced from 4.4253 mills in fiscal year 2006-07 to 4.0934 mills in fiscal year 2007-08. The millage rate was decreased further in the fiscal year 2008-09 to 3.5597 mills, where the millage rate has remained through fiscal year 2011-12. Constitutional Amendments Related to Ad Valorem Exemptions. On January 29, 2008, in a.special election held in conjunction with the State's presidential primary, the requisite number of voters approved amendments to the Florida Constitution exempting certain portions of a property's assessed value from taxation. The following is a brief summary of certain important provisions contained in such amendments: 1. Provides for an additional exemption for the assessed value of homestead property between $50,000 and $75,000, thus doubling the existing homestead exemption for property with an assessed value equal to or greater than $75,000. 2. Permits owners of homestead property to transfer their "Save Our Homes Amendment" benefit (up to $500,000) to a new homestead property purchased within two years of the sale of their previous homestead property to which such benefit applied if the just value of the new homestead is greater than or is equal to the just value of the prior homestead. If the just value of the new homestead is less than the just A-8 value of the prior homestead, then owners of homestead property may transfer.a proportional amount of their Save Our Homes Amendment benefit, such proportional amount equaling the just value of the new homestead divided by the just value of the prior homestead multipliedby the assessed value of the prior homestead. As discussed above, the Save Our Homes Amendment generally limits annual increases in ad valorem tax assessments for those properties with homestead exemptions to the lesser of three percent (3%) or the annual rate of inflation. 3. Exempts from ad valorem taxation $25,000 of the assessed value of property subject to tangible personal property tax. 4. Limits increases in the assessed value of non -homestead property to 10% per year, subject to certain adjustments. The cap on increases would be in effect for a 10 year period, subject to extension by an affirmative vote of electors. The amendments were effective for the 2008 tax year (fiscal year 2008-2009 for local governments). Over the last few years, the Save Our Homes Amendment assessment cap and portability provisions described above have been subject to legal challenge. The plaintiffs in such cases have argued that the Save Our Homes Amendment assessment cap constitutes an unlawful residency requirement for tax benefits on substantially similar property in violation of the equal protection provisions of the Florida Constitution and the Privileges and Immunities Clause of the Fourteenth Amendment to the United States Constitution. The plaintiffs also argued that the portability provision simply extends the unconstitutionality of the tax shelters granted to long-term homeowners by Save Our Homes Amendment. The courts in each case have rejected such constitutional arguments and upheld the constitutionality of such provisions; however, there is no assurance that any future challenges to such provisions will not be successful. In addition to the legislative activity described above, the constitutionally mandated Florida Taxation and Budget Reform Commission (required to be convened every 20 years) (the "'1'I3RC") completed its meetings on April 25, 2008 and placed several constitutional amendments on the November 4, 2008 General Election ballot. Three of such amendments were approved by the voters of Florida, which, among other things, do the following: (a) allow the Florida Legislature, by general law, to exempt from assessed value of residential homes, improvements made to protect property from wind damage and installation of a new renewable energy source device; (b) assess specified working waterfront properties based on current use rather than highest and best use; (c) provide property tax exemption for real property that is perpetually used for conservation (began in 2010); and, for land not perpetually encumbered, require the Florida Legislature to provide classification and assessment of land use for conservation purposes solely on the basis of character or use. Recently Approved Constitutional Amendments Relating to Ad Valorem Taxation. 1. Additionally, during its 2009 session, the Florida Legislature passed House Bill 833, which provides an additional homestead exemption for deployed military personnel. The exemption equals the percentage of days during the prior calendar year that the military homeowner was deployed outside of the United States in support of military operations designated by the Legislature. The measure was approved by the voters at the November 2010 General election and took effect January 1, 2011. 2. Senate Joint Resolution 592, proposed an amendment to Article VII, Section 6 of the Florida Constitution and the creation of Article VII, Section 32 of the Florida Constitution which would allow the Florida Legislature by general law, to allow counties and municipalities to grant a homestead property tax discount for veterans who became disabled as the result of a combat injury. A-9 3.) House Joint Resolution 93, proposed an amendment to Article VII, Section 6 of the Florida Constitution, which would authorize the Florida Legislature, by general law, to allow counties and municipalities to grant an additional homestead tax exemption for surviving spouses of first responders who die in the line of duty and for surviving spouses of a veteran who died from service -connected causes while on active duty as a member of the United States Armed Forces. 4. House Joint Resolution 169, proposed an amendment to Article VII, Section 6 of the Florida Constitution which would authorize the Florida Legislature, by general law, to allow counties and municipalities to grant an additional homestead tax exemption equal to the assessed value of the property, if the property has a just value below a certain amount, to an owner who has maintained residency for at least 25 years and who is at least 65 years of age. Amendments 2. though 4. were approved by a vote of the electors on November 6, 2012. The impact of these amendments on the City's finances cannot be accurately ascertained. There can be no assurance that similar or additional legislative or other proposals will not be introduced or enacted in the future that would, or might apply to, or have a material adverse effect upon, the City or its finances. [Remainder of page intentionally left blank] A-10 Assessed Valuations Fiscal Year Ended September30, 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 CITY OF MIAMI, FLORIDA NET ASSESSED VALUE AND ESTIMATED ACTUAL VALUE OF TAXABLE PROPERTY LAST TEN FISCAL YEARS Real Property Residential Property $6,612,151,524 7,679,048,886 8,789,474,779 10,364,157,774 12,959,276,770 20,320,801,612 24,279,025,389 23,572,178,928 23,341,894,079 18,536,983,090 Commercial Property $6,730,517,606 7,380,571,799 8,369,950,851 9,870,433,741 12,341,927,389 11,038,460,135 11,727,240,945 11,890,691,413 11,921,087,043 10,078,997,005 Personal Property $1,770,392,311 1,878,266,085 1,711,697,688 1,695,110,542 1,676,173,129 1,673,647,599 1,749,572,760 1,686,320,651 1,686,540,244 1,736,766,113 Total Net Dt Assessed Tax Value Rate $15,113,061,441 10,21 16,937,886,770 10,07 18,871,123,318 9.84 21,929,702,057 9.67 26,977,377,288 9.26 33,032,909,346 9.00 37,755,839,094 7.88 37,149,190,992 8.33 36,949,521,366 8.64 30,352,746,208 8.50 Estimated Actual Value $22,035,829,555 24,759,964,620 27,717,908,682 32,133,104,422 39,120,899,711 47,925,276,742 55,249,891,635 52,185,972,858 52,146,883,603 42,365,151,484 Net Assessed Value as a Percentage of Estimated Actual 68,58% 68.41% 68.08% 68.25% 68.96% 68.93% 68.34% 71.19% 70.86% 71.65% Source Miami -Dade County Property Appraiser's Office. Note: Property in the City is reassessed each year. State law requires the Property Appraiser to appraise property at 100% of market value. The Florida Constitution was amended, effective January 1,1995, to limit annual increases in assessed value of property with homestead exemption to 3 percent per year or the amount of the Consumer Price Index, whichever is lower. The increase is not automatic since no assessed value shall exceed market value. Tax rates are per $1,000 of assessed value. (1) Includes tax-exempt property. Property Tax Levies and Collections CITY OF MIAMI, FLORIDA PROPERTY TAX LEVIES AND COLLECTIONS LAST TEN FISCAL YEARS Collected within the Fiscal Year of the Levy Fiscal Year Total Taxes Collections in Ended . Levied for Percent Subsequent September 30 Fiscal Year Amount of Levy Years 2002 154,349,696 145,506,737 94.27% 4,079,641 2003 170,530,644 161,197,051 94.53% 7,735,274 2004 185,739,031 ' 178,766,680 96.25% 1,640,252 2005 211,977,983 206,451,562 97.39% 2,379,977 2006 249,931,912 243,957,356 96.82% 3,801,414 2007 297,147,536 290,449,738 97.76% 7,111,337 2008 297,421,622 284,001,962 95.49% 8,489,434 2009 309,582,783 296,404,297 95.74% 9,200,940 2010 319,395,358 278,010,020 87.04% --- 2011 258,028,695 263,361,953 102.07%(1) Source: City of Miami, Finance Department and Miami -Dade County Tax Collector's Office (i) A-11 Total Collections to Date Amount 149,586,378 168,932,325 180,406,932 208,831,539 247,758,770 297,561,075 292,491,396 305,605,237 278,010,020 263,361,953 Percent of Levy 96.91% 99.06% 97.13% 98.52% 99.13% 100.14% 98.34% 98.72% 87.04% 102.07% Ten Largest Tax Assessments Taxpayer Florida Power & Light 200 S Biscayne TIC 1 LLC Crescent Miami Center T C 701 Brickell LLC Bellsouth Communications 1111 Brickell Office LLC Trustees of L&B Opera Tower LLC Estoril Incorporated Teachers Insurance Total Net Assessed Value Source: City of Miami, Florida Overlapping Debt CITY OF MIAMI, FLORIDA PRINCIPAL PROPERTY TAXPAYERS 2011 Net Assessed Value $437,878,458 270,000,000 178,400,000 172,000,000 158,961,503 138,500,000 124,100,000 112,499,679 107,436,953 91,260,906 $ 1,791,037,481 $ 30,352,746,208 Percent of Total Rank City Net Assessed Value 1 1.44% 2 0.89% 3 0.59% 4 0.57% 5 0.52% 6 0.46% 7 0.41% 8 0.37% 9 0.35% 10 0.30% 5.90% CITY OF MIAMI, FLORIDA DIRECT AND OVERLAPPING GOVERNMENTAL ACTIVITIES DEBT AS OF SEPTEMBER 30, 2011 Government Unit Debt Repaid With Property Taxes Miami -Dade County Miami -Dade County School Board Subtotal, Overlapping Debt City of Miami, Florida Direct Debt (excludes special obligation, revenue bonds, loans and capital leases) Total Direct and Overlapping Debt Net Debt Outstanding $1,000,133,355 290,998,000 Percentage Applicable to the City of Miami(') 19.00% 19.00% 100% Amount Applicable to the City of Miami $190,025,337 55,289,620 245,314,957 265,804,455 $ 511,119,412 Sources: Data provided by the Miami -Dade County Finance Department and the Miami -Dade County School Board. Note: Overlapping governments are those that coincide, at least in part, with the geographic boundaries of the City. This schedule estimates the portion of the outstanding debt of those overlapping governments that is borne by the residents and businesses of the City of Miami. This process recognizes that, when considering the City's ability to issue and repay long-term debt, the entire debt burden borne by the residents and businesses should be taken into account. However, this does not imply that every taxpayer is a resident, and therefore responsible for repaying the debt, of each overlapping government. A - 12 (1) For debt repaid with property taxes, the percentage of overlapping debt applicable is estimated using taxable assessed property values. Value that is within the City's boundaries and dividing it by the County's and School Board's total taxable assessed value. This approach was also used for the other debt. CITY OF MIAMI, FLORIDA FOR FISCAL YEAR ENDED SEPTEMBER 30, 2011 SUMMARY OF DEBT RATIOS, MEASUREMENTS AND DEBT CONSTRAINTS CRITERIA Debt Ratios General Obligation & Limited Ad Valorem Debt Per Capita 628.93 General Obligation & Limited Ad Valorem Debt as a Percentage of Taxable value 0.83% Non -Self Supporting Revenue Debt Per Capita 1,108.28 Non -Self Supporting Revenue Debt as a Percentage of Taxable Assessed value 1.46% General Governmental Debt Service (non -self-supporting) as a Percentage of Non -Ad Valorem General Fund Expenditures 8.08% General Government Debt Service as a Percentage of Non -Ad Valorem General Fund Revenues 8.02% Source: City of Miami Finance Department A-13 APPENDIX B. PENSION PLANS AND OTHER POST -EMPLOYMENT BENEFITS PENSION PLANS The information relating to the Plans (defined herein) relies on information produced by the Plans and their independent accountants and actuaries. The actuarial assessments are forward -looking information that reflects the judgment of the fiduciaries of the Plans. Actuarial assessments are based upon a variety of assumption, one or more of which may prove to be inaccurate or be changed in the future, and will change with future experience of the Plans. General The City sponsors separate single -employer, defined benefit pension plans under the administration and management of separate Boards of Trustees: the City of Miami Fire Fighters and Police Officers Retirement Trust ("FIPO"), the City of Miami General Employees and Sanitation Employees Retirement Trust ("GESE") and Other Managed Trusts, and the City of Miami Elected Officers Retirement Trust ("EORT" and, together with FIPO and GESE, the "Plans"). Basis of Accounting. The financial statements for the Plans are prepared using the accrual basis of accounting. All Plans are reported as pension trust funds in the City's financial statements, Plan member contributions are recognized in the period which the contributions are due. Employer contributions are recognized when due and the employer has made a formal commitment to provide the contributions. Benefits and refunds are recognized when due and payable in accordance with the terms of the Plans. Method Used to Value Investments. Investments of the Plans are recorded at fair market value. Securities traded on a national exchange are valued at the last reported sales price on the last business day of the fiscal year. Securities traded in the over-the-counter market and listed securities for which no sale was reported on that date are valued at the last reported bid price. Commercial paper, time deposits, and short- term investment pools are valued at fair market value and mortgages are valued based on current market yield which approximate fair value. Net appreciation (depreciation) in fair value of investments includes realized and unrealized gains and losses. Interest and dividends are reported as investment earnings. Realized gains and losses on the sale of investments are based on average cost. FIPO Plan Description. FIPO is a single -employer, defined benefit plan established by the City pursuant to the provisions and requirements of Ordinance No. 10002 as amended. Participants are contributing police officers and fire fighters with full-time employment status in the Police or Fire Department of the City. As of October 1, 2011, the date of the most recent actuarial valuation, membership in the FIPO consisted of 2,089 retired members and beneficiaries and 178 disabled members currently receiving benefits and 18 terminated vested members entitled to benefits but not yet receiving them; current active employees equaled 1,196 as of that date. Pension Benefits. Members may elect to retire after attaining 50 years of age and ten or more years of creditable service or, under certain circumstances, Rule of 64 Retirement, Rule of 68 Retirement or Rule of 70 Retirement (each as defined herein). B-1 "Rule of 64 Retirement" means service retirement on the basis of combined age and creditable service equaling 64 or more. Rule of 64 Retirement applies to fire fighters who had obtained 64 points by September 30, 2010, and police officers who had 64 points by September 30, 2011. Rule of 64 Retirement also applies to the accrued benefit as of September 30, 2011, of police officers who were active members as of September 29, 2011. "Rule of 68 Retirement" means service retirement on the basis of combined age and creditable service equaling 68 or more. Rule of 68 Retirement applies to fire fighters who had not attained 64 points by September 30, 2010 and had attained 68 points by September 30, 2011. Rule of 68 Retirement also applies to the accrued benefit as of September 30, 2011, of fire fighters who were active members as of September 29, 2011. "Rule of 70 Retirement" means service retirement on the basis of combined age and creditable service equaling 70 or more. Rule of 70 applies to all new members hired on or after October 1, 2011, as well as to all benefits accrued after September 30, 2011 by fire fighters who had not attained 68 points on September 30, 2011 and police officers who had not attained 64 points on September 30, 2011. Police officers who have reached Rule of 64 Retirement by September 30, 2011, fire fighters who had reached Rule of 64 Retirement by September 30, 2010, and fire fighters who have reached Rule of 68 Retirement by September 30, 2011, are entitled to a normal retirement benefit equal to 3% of average final compensation' for each of the first 15 years of creditable service plus 3.5% of average final compensation for each year of creditable service after the 15th year. The maximum benefit for these members is 100% of average final compensation. All other police officers and firefighters, for service prior to October 1, 2011, are entitled to a normal retirement benefit equal to 3% of average final compensation for each of the first 15 years of creditable service plus 3.5% of average final compensation for each creditable service after the 15th year, and for service after September 30, 2011, are entitled to a normal retirement benefit equal to 3% of average final compensation for each year of creditable service. The combined percentage for service before October 1, 2011 and service after September 30, 2011 may not exceed 100% of average final compensation. Early retirement, disability, death and other benefits are also provided as follows: Early Service Retirement. Members are entitled to early service retirement after 20 years of creditable service. Benefits are based on average final compensation and creditable service at the retirement date. Average Final Compensation means for members who retire or terminate employment with ten or more years of creditable service prior to October 1, 2010, the annual earnable compensation of a member during either the last one year or the highestyear of membership service, whichever is greater. Effective September 30, 2010, for members who retire on or after October 1, 2011, average final compensation shall mean the average of the highest five years of service, to be phased in over the next four years as follows: for members who retire on or after October 1, 2011, and on or before September 30, 2012, the average of the highest two years of membership service; for members who retire on or after October 1, 2011, and on or before September 30, 2012, the average of the highest three years of membership service; for members who retire on or after October 1, 2012, and on or before September 30, 2013, the average of the highest four years of membership service; and for members who retire on or after October 1, 2013, the average of the highest five years of membership service. Provided, in no event shall the average final compensation of any member who was employed as a police officer or fire fighter on. September 30, 2011, and retires on or after October 1, 2011, be less than the highest year of membership service prior to September 30, 2011. B-2 Disability. Members not eligible for service retirement are entitled to ordinary disability benefits after 10 or more years of creditable service. For accidents not incurred in the performance of duties eligible members are entitled to 90% of benefit rate times average final compensation times creditable service, with a minimum benefit of 30% of average final compensation. The ordinary disability benefits are payable for life, except that in the event the member dies before such allowance has been received for a period of ten years, the member's beneficiary or beneficiaries shall be paid the same allowance for the remainder of the 10-year period. For accidents incurred in performance of duties, members are entitled to accidental disability benefits equal to 66 2/3% of average final compensation, or 66 2/3% of final compensation, whichever is great. Upon the death of any member who has received accidental disability benefits, the spouse of the member who has been designated as the member's beneficiary may receive the payment of an amount equal to 40% of the member's monthly retirement allowance during the spouse's lifetime, with a minimum of 10 years. Death. A member with three to 10 years of creditable service, and whose death is not accidentally incurred in the performance of their duties is entitled to the ordinary death benefits of a lump sum payment equal to 50% of compensation received in the year preceding death. After 10 years of creditable service and before eligibility for early service retirement or Rule of 64 Retirement, a member whose death is not accidentally incurred in the performance of their duties is entitled to an accrued ordinary death benefit deferred to the earlier of the member's 50th birthday or Rule of 64 Retirement eligibility, paying for 10 years. If the member is eligible for service retirement, early service retirement or Rule of 64 Retirement, the member is considered to have retired on the date of their death. The surviving spouse is entitled to receive 40% of the member's monthly retirement allowance. An accidental death incurred in the performance of a members duties is entitled to accidental death benefits equal to: (i) pension of 50% of average final compensation to spouse until death or remarriage, or if there is no spouse, or if spouse dies or remarries before youngest child is 18, then payable until attainment of age 18, or if no spouse or no children under 18, payable to dependent parents; (ii) after 10 years of creditable service and before eligibility for early service retirement or Rule of 64 Retirement, accrued benefit deferred to earlier of member's 50th birthday or Rule of 64 Retirement eligibility, payable for 10 years. The beneficiary does not have to survive deferral period or 10 years' certain period. Cost of Living Adjustment. Effective January 1, 1994, the FIPO Trust entered into an agreement with the City with regards to the funding methods, employee benefits, employee contributions and retiree cost of living adjustment ("COLA"). Pursuant to the agreement, members no longer contribute to the original COLA account ("COLA I") and a new COLA account ("COLA II") was established. The agreement included the following: (a) the funding method was changed to an aggregate cost method; (b) all accounts were combined for investment purposes (membership and benefits, COLA I, and COLA II); (c) retirees receive additional COLA benefits; and (d) active members no longer contribute 2% if pretax earnings to fund the original retiree COLA I account. The COLA II account is funded annually by a percentage of the excess investment return from the COLA I account assets (75% of first 2.5%, 50% of next 2,5%, and 25% of next 2.5%). The excess earnings contributed to the COLA II account are used to fund a minimum annual payment of $2.5 million, increasing by 4% compounded annually. To the extent necessary, the City will fund the portion of the minimum annual payment not funded by the annual excess earnings no later than January 1 of the following year. There will not be a COLA transfer as of January 1, 2012; however, there could be a transfer on January 1, 2013 of $5,683,400, but only if there is a favorable cumulative experience position as of September 30, 2012. The City's minimum COLA contributions without the transfer will be $5,064,541 on January 1, 2012 and $5,267,123 on January 1, 2013. B-3 Historical Funding Progress COLA Fund (in $ millions) (1) (2) (3) (4) (5) Unfunded PBO as Pension Percentage Net Assets Benefit Unfunded Annual of Covered Available for Obligation Percent PBO Covered Payroll Fiscal Year Benefits(1) (TDB Op) Funded (2)-(1) Payroll (4)/(5) 2001 $195.0 $158.4 123% $(36.6) $89.7 (41)% 2002 174.1 164.5 106 (9.6) 96.9 (10) 2003 194.8 165.1 118 (29.7) 98.9 (30) 2004 210.3 185.7 113 (24.7) 89.2 (28) 2005 231.6 195.0 119 (36.6) 91.5 (40) 2006 249.0 216.8 115 (32.2) 90.4 (36) 2007 300.2 242.9 124 (57.3) 103.6 (55) 2008 305.8 279.4 109 (26.4) 129.4 (20) 2009 296.3 290.0 102 (6.3) 122.2 (5) 2010 311.8 315.6 99 3.8 80.2 5 2011 310.0 303.6 102 (6.4) 82.2 (8) Source: City of Miami Fire Fighters' and Police Officers' Retirement Trust October 1, 2011 Actuarial Report prepared by The Nyhart Company, Inc. (1) Excluding future City minimum contributions. (2) Excluding new increment, contingency reserves and reserves for future actives. Benefits payable from the COLA accounts are computed in accordance with an actuarially based formula as defined in Section 40.204 of the City Code, with $1,312 monthly benefit for 25 years of creditable service and 22 completed years of retirement (after age 46). The $1,312 amount is reduced by5% for each year of retirement less than 22 and each year of creditable service less than 25 and increase similarly for years of retirement greater than 22 and years of creditable service greater than 25. Benefits are subject to review and modification in accordance with Section 40.204 of the City Code, which provides that all other matters regarding the COLA accounts shall be determined by negotiations between the City, the Board of Trustees and the bargaining representatives of the International Association of Firefighters and the Fraternal order of Police. Deferred Retirement Option Plan. Members who are eligible for service retirement or Rule of 64 Retirement after September 1998 may elect to enter the deferred retirement option plan (the "DROP"). Upon election of participation, a member's creditable service, accrued benefits, and compensation calculation are frozen and the DROP payment is based on the member's average final compensation. The member's contribution and the City contribution to the retirement plan for that member ceases as no further service credit is earned. The member does not acquire additional pension credit for the purposes of the pension plan, but may continue City employment for a maximum of 36 months prior to October 1, 2001. Effective October 1, 2001, maximum participation in the DROP for firefighters shall be 48 full months and for police officers who elect the DROP on October 1, 2003, or thereafter, maximum participation in the DROP shall be 48 full months. Effective July 24, 2008, firefighter DROP participants may also continue City employment for up to 54 full months (48 full months prior to July 24, 2008 and 36 full months prior to October 1, 2001). Police B-4 officers who elect the DROP on or after May 8, 2008, may continue City employment for up to 84 full months (48 full months prior to May 8, 2008 and 36 full months prior to October 1, 2003). Once the maximum participation has been achieved, the participant must terminate. employment. There are two DROP programs: the Forward DROP and the Benefit Actuarially Calculated DROP ("BACDROP"). A member can participate in both programs simultaneously. The Forward DROP is a DROP benefit equal to the regular retirement benefit the member would have received had the member separated from service and commenced the receipt of benefits from the plan. The BACDROP is a DROP benefit actuarially calculated. A member may elect to BACDROP to a date, no further back than the date of the member's requirement eligibility date. The BACDROP period must be in 12 month increments, beginning at the start of a pay period, not to exceed 48 full months for firefighters (36 months prior to October 1, 2001) and for police officers who elected BACDROP on October 1, 2003 (36 months prior to October 1, 2003). The benefits of the BACDROP will then be actuarially calculated to be the equivalent to the benefit earned at the date of retirement. An individual account is created for each participant. A series of investment vehicles, as established by FIPO's Board of Trustees, are made available to DROP participants to choose from. Any losses incurred on account of the option selected by the participant will not be made up by the City or the FIPO Trust, and will be borne by the participant only. All interest will be credited to the member's account. Upon termination of employment, a participant may receive payment from the DROP account in a lump sum distribution; or periodic payments. A participant may elect to rollover the balance to another qualified retirement plan, individual retirement account, an Internal Revenue Code Section 457 Plan, or an annuity. A participant may defer payment until the latest date authorized by Section 401(a)(9) of the Internal Revenue Code. DROP participation will not affect any other death or disability benefit provided under law or applicable collective bargaining agreement. If a participant dies before the account balances are paid out in full, the beneficiary will receive the remaining balance. Participants in the DROP are not entitled to receive an ordinary or service disability retirement and in the event of death of a DROP participant, there is no accidental death benefit for pension purposes. Participation in the DROP does not affect any other death or disability benefit provided to a member under federal law, state law, City ordinance, or anyrights or benefits under any applicable collective bargaining agreement. Contributions and Funding Policies. Police officer members of FIPO are required to contribute 10% of their salary on a bi-weekly basis (7% prior to October 1, 2011). Firefighter members are also required to contribute 10% (9% prior to October 1, 2010) of their salary on a bi-weekly basis. The City is required to contribute such amounts annually as necessary to maintain the actuarial soundness of FIPO and to provide FIPO with assets sufficient to meet the benefits to be paid to participants. Contributions to FIPO are authorized pursuant to Sections 40.196(a) and (b) of the City Code. Contributions to the FIPO COLA accounts are authorized pursuant to Section 40.204 of the City Code. The City's contributions to FIPO provide for non -investment expenses and normal costs. The yield on investments on FIPO serves to reduce future contributions that would otherwise be required to provide for the defined level of benefits under the FIPO Trust. The payroll for employees covered by FIPO for the year ended September 30, 2011 was approximately $73.7 million the City's total payroll was approximately $268.2 million. Annual Pension Cost. The City's current year contribution was determined through an actuarial valuation performed as of October 1, 2010. Significant actuarial assumptions used to compute the annual requirement are as follows: B-5 Valuation date: Actuarial cost method: Amortization method: Amortization method: Asset valuation method: Investment rate of return: Projected salary increases due to inflation: Seniority/merit: Promotion/other Mortality table: Mortality, disability, retirement and turnover: October 1, 2010 Aggregate Cost Method Not Applicable Not Applicable 20% Write -Up Method: expected value is based on the interest discount/investment return rate applied to the actuarial asset value as of previous valuation date and cash flow during the year. 20% of the difference between expected value and the market value (net of pending transfers to the COLA accounts) is added to the expected value. The result cannot be greater than 120% of market value or less than 80% of market value (net of pending COLA transfers). 7.50%, compounded annually 3.25% 5.00% to 0% reducing by attained age 1.50% RP 2000 Mortality Table Projected to 2020 RP 2000 Disabled Mortality Table Projected to 2020 Source: City of Miami Fire Fighters' and Police Officers' Retirement Trust October 1, 2011 Actuarial Report prepared by The Nyhart Company, Inc. FIPO contributions are determined using the aggregate cost method. The aggregate cost method does not identify and separately amortize the unfunded actuarial liabilities. The annual pension cost is equal to the annual required contribution each year. Annual Employer Contributions Excluding COLA Fund Fiscal Year 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Annual Pension Cost $ 1,051,629 18,163,588 36,341,515 45,545,130 50,635213 40,542,078 36,040,251 36,993,395 55,095,791 42,287,046' 42,353,775 45,516,941 Percentage Contributed 100% 100 100 100 100 100 100 100 99 95 Net Pension Obligation $ 752,865 3,037,485 * After September 30, 2010 impact statement changes. Source: City of Miami Fire Fighters' and Police Officers' Retirement Trust October 1, 2011 Actuarial Report prepared by The Nyhart Company, Inc. The funding policy provides for periodic employer contributions at actuarially determined rates that are sufficient to pay benefits when due. Contributions for normal costs are determined using the aggregate actuarial cost method. This cost method does not provide for an unfunded actuarial accrued liability. Since B-6 the FIPO uses the aggregate cost rnethod, technically no schedule of funding progress is required. However, such schedule may be prepared using another acceptable cost method. The schedule of funding progress for the FIPO is prepared using the Entry Age Normal Actuarial Accrued Liability. Contributions totaling $47,196,715 ($40,058,891 employer contribution and $7,137,824 employee contribution) were made for the year ending September 30, 2011. These contributions consisted of $47,196,175 normal cost, (b) $0 amortization of unfunded actuarial accrued liability and (c) $0 noninvestment expenses. As of October 1, 2011, the entry age reserve ("EAR") is $1,590.5 million. This compares to assets of $1,150.3 million for a funded ratio of 72%. Last year the funded ratio was 75%. Historical Funding Progress Excluding COLA Fund (in $ millions) (1) (2) (3) (4) (5) Unfunded EAR as Percentage Unfunded Annual of Covered Actuarial Percent EAR Covered Payroll Fiscal Year Asset Value EAR Funded (2)-(1) Payroll (4)/(5) 2001 $ 941.8 $ 932.7 101% $ (9.1) $ 89.7 (10)% 2002 865.5 999.8 87 134.3 96.9 139 2003 865.8 1,067.9 81 202.1 98.9 204 2004 894.6 1,152.8 78 258.2 89.2 289 2005 1,064.9 1,221.6 87 156.7 91.5 171 2006 1,133.0 1,260.5 90 127.5 90.4 141 2007 1,208.8 1,318.4 92 109.6 103.6 106 2008 1,219.6 1,452.5 85 222.9 129.4 172 2009 1,165.0 1,539.3 76 374.4 122.2 306 2010 1,180.6. 1,568.3 75 387.7 80.2 483 2011 1,150.3 1,590.5 72 440.2 82.2 536 Source: City of Miami Fire Fighters' and Police Officers' Retirement Trust October 1, 2011 Actuarial Report prepared by The.Nyhart Company, Inc. The rate of return on the mean market value for the period ending September 30, 2011 was 3.6%, as compared to the 7.75% assumption. The asset valuation method results in an actuarial asset value of $1.150 billion as of October 1, 2011, as compared to the market value of $987 million. The market value of assets on October 1, 2011 is $987,110,729, as compared to the value of accrued benefits of $1,568,323,110 for a ratio of 62.9%. The ratio as of October 1, 2010 was 66.5%. The following is a table of revenues and expenses of the FIPO (excluding COLA Fund): B-7 Fiscal Employee Employer Year Contributions Contributions 2001 $ 6,336,918 $ 5,481,599 2002 6,721,236 5,400,784 2003 7,193,936 15,024,366 2004 24,415,150 32,959,003 2005 18, 607,681 45,545,130 2006 7,698,594 50,635,213 2007 14,702,629 40,542,078 2008 9,719,896 36,040,251 2009 9,769,139 36,993,395 2010 10,436,367 54,342,926 2011 7,137,824 40,058,891 Investment Income $ 17,717,791 (27,704,711) 30,466,098 53,963,150 71,904,910 71,669,124 82,937,630 62,728,078 (58,111,291) 62,459,916 83,951,919 Total $ 29,536,308 (15,582,691) 52,684,400 111,337,303 136,057,721 130,002,931 138,182,337 108,488,225 (11,348,757) 127,239,209 131,148,634 Source: City of Miami Fire Fighters' and Police Officers' Retirement Trust October 1, 2011 Actuarial Report prepared by The Nyhart Company, Inc. The following changes were made to FIPO pursuant to the negotiations with the union in 2012. Member contributions. Effective the first full pay period following October 1, 2012, the member contribution for police officers hired prior to October 1, 2012 shall be 10% of earnable compensation; and effective September 30, 2014, the member contribution for police officers hired prior to October 1, 2012 shall be 7% of earnable compensation. The member contribution for police officers hired on or after October 1, 2012 shall be 3% of earnable compensation greater than the member contribution for police officer members hired prior to October 1, 2012. Effective the first full pay period following October 1, 2012, the member contribution for firefighters shall be 10% of earnable- compensation; and effective September 30, 2014, the member contribution for firefighters hired prior to October 1, 2014 shall be 7% of earnable compensation, The member contribution for firefighters hired on or after October 1, 2014 shall be 10% of earnable compensation, Actuarial funding method. The City's contribution to the retirement system shall be determined by applying the individual entry age actuarial funding method (changed from the aggregate actuarial cost method), as such method is defined by the American Academy of Actuaries, to the projected liabilities of the system as of October 1, 2011, using an assumed system payroll growth rate of 3% and using an unfunded liability amortization period of 25 years, or such other reasonable payroll growth rate and amortization period as agreed by the retirement system's actuary and the City's actuary. Backdrop option. A Backdrop benefit option shall be implemented on January 1, 2013, and shall replace the existing deferred retirement option program ("DROP"). Employees who have not attained normal retirement eligibility as of January 1, 2013, and all employees hired on or after that date, will be eligible for the Backdrop option, but will not be eligible for the DROP. Employees who have attained normal retirement eligibility as of January 1, 2013 and are thus eligible to elect the forward DROP as of January 1, 2013, shall remain eligible to elect the forward DROP as it presently exists, and employees who are eligible to elect the forward DROP as of January 1, 2013 who choose not to enter the forward DROP shall also remain B-8 eligible for the Backdrop.. Any employee with accrued pension benefits vested prior to October 1., 2010 will remain eligible to exercise the existing DROP program option for those accrued benefits. GESE The Board of Trustees of the GESE administers three defined benefit pension plans: (a) the GESE; (b) an Excess Benefit Plan for the City of Miami (the "EBP"); and (c) General Employees and Sanitation Employees Retirement Trust Staff Pension Plan (the "Staff Trust"). Each plan's assets may be used only for the payment of benefits to the members of that plan, in accordance with the terms of the plan. GESE. Plan Description. The GESE is a single -employer defined benefit plan. The GESE was established pursuant to the City Ordinance No. 10002 and subsequently revised under City Ordinance No. 12111. The GESE covers all City general and sanitation employees except certain employees eligible to decline membership. Participation in the GESE is a mandatory condition of employment for all regular and permanent employees other than fire fighters, police officers and executive level employees hired after October 1, 2009. Those executive employees are required to participate in a defined contribution plan (401(a)) At October 1, 2011, the date of the most recent actuarial report, membership in the GESE consisted of 1,727 retired members, 381 beneficiaries and 54 disabled members currently receiving benefits and 155 terminated vested and inactive members entitled to benefits but not yet receiving them; current active employees equaled 1,241 as of that date. Pension Benefits. The minimum normal retirement age is 55. Any member in service who has 10 or more years of continuous creditable service may elect to retire upon attainment of normal retirement age. A member who has completed a combination of at least 10 or more years of creditable service plus attained an age equaling 70 points may elect a Rule of 70 Retirement. For members not eligible to retire as of September 30, 2010, the retirement age and service will be age 55 and 30 years of creditable service or age 60 and 10 years of continuous creditable service or a combination of at least 10 years of creditable service plus attained age equaling 80 points (the "Rule of 80 Retirement"). Retirement benefits are generally based on 3% of the average final compensation multiplied by years of creditable service, which is paid annually in monthly installments. For service after September 30, 2010, for members not eligible to retire as of that date, benefits are based on 2.25% of average final compensation multiplied by creditable service up to 15 years, 2.5% of average final compensation for 15 to 20 years of service and.2.75% for service over 20 years. Effective September 30, 2010, for members not eligible to retire on 2 For members eligible for retirement as of September 30, 2010, Average Final Compensation means the average annual compensation during the highest two years of membership service. For members employed before May 24, 1984, Average Final Compensation is the average annual compensation during the highest year of membership. For all other members, Average Final Compensation means the average annual compensation during the highest five years of the last 10 years of service. Members retiring between October 1, 2010 and on or before September 30, 2011, will be based on the average of the highest three years of membership service; for members who retire on or after October 1, 2011, and or before September 20, 2012, it will be based on the average highest four years of membership service; and for members who retire on or after October 1, 2012, the average of the highest five years of the last 10 years of service. In no event shall the Average Final Compensation of any member who is employed on September 20, 2010, and retires on or after October 1, 2010 be less than the member's final average compensation as of September 30, 2010. B-9 that date, member retirement allowances shall not exceed the lesser of 100% of the member's average final compensation or an annual retirement allowance of $100,000. Members eligible to receive accumulated sick and vacation leave from the City are able to transfer the amount to an eligible retirement plan. The GESE facilitates the transfer of accumulated sick and vacation leave to any eligible retirement plan and is pursuant to Section 40-266 of the City Code. Early retirement, disability, death and other benefits are also provided as follows: Early Service Retirement. Members are entitled to early service retirement after 20 years of creditable service. Benefits are based on the actuarial equivalent of the basic service retirement benefit that otherwise would have commenced at age 55. For members not eligible for retirement on October 1, 2010, the amount is the actuarial equivalent of the basic service retirement benefit payable at the earliest of the retirement eligibility dates for normal retirement. Disability. For an ordinary disability, a member with 10 or more years of creditable service will receive 90% of their benefit rate times their average final compensation times creditable service, with a minimum benefit of 30% of their average final compensation. For an accidental service incurred disability, a member is entitled to 66 2/3% of their average final compensation or final compensation, whichever is greater. For a service incurred disability, a member is entitled to thegreater of 90% of the product of the benefit multiplier in effect at the time the service is earned multiplied by the number of years of credited service or 40% of the member's final average compensation. Death. For an ordinary death a member is entitled to a lump sum payment of accumulated contributions plus 50% of compensation during the year immediately preceding death, if the member has completed three years of creditable service. For an accidental death while in the performance of his or her duties a member is entitled to 50% of average final compensation plus a lump sum payment equal to accumulated contributions. Any member who is eligible for normal, early or Rule of 70 Retirement who dies prior to actual retirement and whose spouse elects not to receive a payment of the member's accumulate contributions, if the memberis eligible for retirement on September 30, 2010, the spouse will receive 40% of the sum of the member's basic retirement benefit calculated as if the member had attained age 55 and retired on the date of death. Additionally, the spouse will receive 50% of the member's compensation during the year immediately preceding death. If the member is not eligible for retirement on September 30, 2010, the spousal benefit will be based on the optional form of payment elected by the member. If the member has not elected an optional allowance, the spouse will receive the 40% survivor benefit actuarially reduced. A retired memberwho dies prior to having received 12 monthly retirement payments and prior to having an optional allowance becoming effective will have a lump sum equal to the excess, if any, of 12 times the monthly payments over the actual payments received paid to his designated beneficiary. Cost of Living Adjustment. Effective October 1, 1998, the GESE was amended to provide for an increase in the COLA paid to retirees to 4% with a $400 annual maximum increase, provided the retiree's first anniversary of retirement has been reached. The amendment also provided for retirees electing the return of their contribution option to receive a minimum COLA benefit of $27 per year and a maximum COLA benefit of $200 added to the previous COLA benefit, provided the retiree's first anniversary of retirement has been reached. Deferred Retirement Option Plan. The GESE made the DROP available to all GESE members effective May 1, 2002. Any employee who is eligible for regular retirement or Rule of 70 Retirement is eligible to participate in the DROP. Upon election of participation, a member's creditable service, accrued benefits, and compensation calculations are frozen and the DROP payment is based on the member's average final B-10 compensation. The member's contribution and the City contribution to the retirement plan for that member ceases as no further service credit is earned. The member does not acquire additional pension credit for the purposes of the pension plan, but may continue City employment for a maximum of 48 months. Once the maximum participation has been achieved, the participant must terminate employment. There are two DROP programs: the Forward DROP and the BACDROP. A member can participate in both programs simultaneously. The Forward DROP is a DROP benefit equal to the regular retirement benefit the member would have received had the member separated from service and commenced the receipt of benefits from the plan. The BACDROP is a DROP benefit actuarially calculated. A member may elect to BACDROP to a date, no further back than the date of the member's requirement eligibility date. The BACDROP period must be in 12 month increments, beginning at the start of a pay period, not to exceed 48 months. The benefits for the BACDROP will then be actuarially calculated to be the equivalent to the benefit earned at the date of retirement. An individual account is created for each participant. A series of investment vehicles, as established by GESE's Board of Trustees, are made available to DROP participants to choose from. Any losses incurred on account of the option selected by the participant will not be made up by the City or the GESE, and will be borne by the participant only. All interest will be credited to the member's account. Upon termination of employment, a participant may receive payment from the DROP account in a lump sum distribution; or periodic payments. A participant may elect to rollover the balance to another qualified retirement plan, individual retirement account, an Internal Revenue Code Section 457 Plan, or an annuity. A participant may defer payment until the latest date authorized by Section 401(a)(9) of the Internal Revenue Code. DROP participation will not affect any other death or disability benefit provided under law or applicable collective bargaining agreement. If a participant dies before the account balances are paid out in full, the beneficiary will receive the remaining balance. Contributions and Funding Policies. Members of the GESE are required to contribute 13% of their salary on a bi-weekly basis. The GESE's funding policies provide for periodic contributions at actuarially determined rates that, expressed as percentages of annual covered payroll, are sufficient to maintain the actuarial soundness of the GESE and to accumulate sufficient assets to pay benefits when due. The City is required to contribute . an actuarially determined amount that, when combined with participants' contributions, will fully provide all benefits as they become payable. Contributions to the GESE are authorized pursuant to Sections 40-241(a) and (b) of the City Code. Contributions from the City are designed to fund the GESE's non -investment expenses and normal costs and to fund the unfunded actuarial accrued liability. The yield (interest, dividends and net realized and unrealized gains and losses) on investment of the GESE serves to reduce or increase future contributions that would otherwise be required to provide for the defined level of benefits under the GESE. The payroll for employees covered by the GESE for the year ended September 30, 2011 was approximately $68.4 million; the City's total payroll was approximately $268.2 million. After taking into account expected member contributions, the total required minimum contribution from the City is $27,504,507 or 41.99% of covered payroll, for Fiscal Year 2012-2013 payable on October 1, 2012. In comparison, the required minimum contribution for the Fiscal Year 2011-2012 was $25,724,977, or 36.32% of covered payroll. There was a large investment loss during the year and an actuarial loss due to the actuarial experience being less favorable compared to the assumed experience for the Trust. All fiscal year contributions made by the City to the GESE will be made quarterly, in equal payments on the first day of each quarter. On this basis, the total recommended City contribution for Fiscal Year 2012-2013 is $28,303,314, and the City is required to make minimum quarterly contributions of $7,075,829 beginning on October 1, 2012. B-11 Annual Pension Cost. The City's current year contribution was determined through an actuarial valuation performed as of October 1, 2011, Significant actuarial assumptions used to compute the annual contribution requirement are as follows: Valuation date: October 1, 2010 Actuarial cost method: Modified Entry Age Normal Amortization method: Level percent, closed Amortization method: 7 to 18 years Asset valuation method: 5-Year Smooth Market Investment rate of return: 8.10% Projected salary increases: 5.25% Payroll Growth: 3.00% Includes inflation at 3.50% Cost of living adjustments: 4% per year, with $54 per year minimum and $400 per year maximum Source: City of Miami General Employees' and Sanitation Employees' Retirement Trust Actuarial Valuation Report as of October 1, 2011 prepared by Cavanaugh Macdonald Consulting, LLC. GESE contributions are determined using the entry age normal cost method with frozen actuarial accrued liability.. The annual pension cost is equal to the annual required contribution each year. B-12 .Annual Employer Contributions Fiscal Year Annual Pension Cost Percentage Contributed Net Pension Obligation 2004 $10,669,846 100% 2005 19,003,415 100 2006 22,018,443 100 2007 24,229,028 100 2008 22,762,902 100 2009 23,191,828 100 2010 24,037,093 100 2011 20,232,513 100 2012 25,724,977 Source: City of Miami General Employees' and Sanitation Employees' Retirement Trust Actuarial Valuation Report as of October 1, 2011 prepared by Cavanaugh Macdonald Consulting, LLC. The GESE's unfunded liability was projected to be $177,363,801 as of October 1, 2011, taking into account expected contributions from the City of $25,724,977 based on the October 1, 2010 valuation. The actual unfunded liability is $243,102,598. The increase of $65,738,797 in the unfunded liability is primarily due to an actuarial asset return of (1.11%) compared to the expected 8.10%return, compounded by losses due to more retirements than expected. The total increase in City contribution to amortize the unfunded liability is $1,779,530 per year. Historical Funding Progress (in $ millions) (a) (b) (b) - (a) (a)/(b) (c) [(b) - (a)]/(c) Actuarial Actuarial UAAL as Valuation Actuarial Accrued Unfunded Percent of Date Value of Liability AAL Funded Annual Annual (October 1) Assets (AAL) (UAAL) Ratio Payroll Payroll 2003 $ 555.5 $ 682.4 $ 126.9 81.41% $ 70.7 179.42% 2004 564.6 709.9 145.4 79.53 72.5 200.43 2005 588.5 746.3 157.8 78.85 71.5 220.79 2006 618.5 732.0 113.5 84.49 75.6 150.16 2007 664.1 . 770.2 106.1 86.23 82.1 129.28 2008 691,8 808.6 116.8 85.55 91.0 128.42 2009 645.6 780.6 135.0 82.70 90.0 149.94 2010 653.0 840.9 187.9 77.66 68.8 273.22 2011 600.7 843.8 243.1 71.19 63.6 382.23 Source: City of Miami General Employees' and Sanitation Employees' Retirement Trust Actuarial Valuation Report as of October 1, 2011 prepared by Cavanaugh Macdonald Consulting, LLC. B-13 Fiscal Year 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011(2) Present Value of Accrued Benefits and Market Value of Assets Interest Rate Assumption 8.10% 8.10 8.10 8.10 8.10 8.10 8.10 8.10 8.10 8.10 8.00 Present Value of Accrued Benefits(1) $ 496,990,860 516,434,721 578,712,725 605,934,834 647,824,031 650,607,217 683,690,757 714,893,783 742,076,105 800,285,084 804,294,009 Market Value of Assets $ 551,197,253 467,725,075 516,813,945 546,454,226 586,943,151 623,992,356 694,302,333 576,492,500 538,012,201 553,797,518 517,904,877 Funded Ratio 110.90% 90,60 89.30 90.20 90.60 95.90 101.60 80.64 72.50 69.20 64.39 Source: City of Miami General Employees' and Sanitation Employees' Retirement Trust Actuarial Valuation Report as of October 1, 2011 prepared by Cavanaugh Macdonald Consulting, LLC, (1) The cost method used for determining the present value of accrued benefits is unit credit. Calculations are based on current service and current salaries as of the valuation date. The present value of accrued benefits is defined by participants' accumulated plan benefits as those future benefit payments that are attributable under the plan's provisions to employees' service rendered to the benefit information date. Their measurement is primarily based on employees' history of pay and service and other appropriate factors as of that date. Future salary changes are not considered. Future years of service are considered only in determining employees' expected eligibility for particular types of benefits, for example, early retirement, death and disability benefits. To measure their actuarial present value, assumptions are used to adjust those accumulated plan benefits to reflect the time value of money (through discounts for interest) and the probability of payment (by means of decrements such as for death, disability, withdrawal or retirement) between the benefit information date and the expected date of payment. An assumption of an ongoing plan underlies those assumptions. (2) The calculations were performed by using the plan's discount rate of 8.0% which was adopted in May 2012 and first used in the October 1, 2011 valuation. B-14 The rate of return on the market value for the period ending September 30, 2011 was 1.78%, as compared to the 8.10% assumption. The asset valuation method results in an actuarial asset value of $653.0 million as of September 30, 2011, as compared to the market value of $553.8 million. The following is a table of the GESE revenues for the past ten years: Fiscal City Member Year Contributions Contributions Investment Income Total 2002 $ 2,090,701 $ 7,147,651 $ (53,892,226) $ (44,653,874) 2003 3,602,457 7,605,397 79,765,973 90,973,827 2004 10,669,846 7,937,387 55,410,170 74,017,403 2005 19,003,415 7,858,302 63,303,292 90,165,009 2006 22,018,443 8,021,488 59,921,495 88,961,426 2007 24,229,028 8,819,536 91,851,585 124,900,149 2008 22,762,902 9,517,052 (94,751,747) (62,471,793) 2009 23,191,828 11,791,902 (16,473,559) 18,510,171 2010 24,037,093 12,728,711 45,195,934 81,961,738 2011 20,232,513 9,183,073 11,660,396 41,075,982 Source: City of Miami General Employees' and Sanitation Employees' Retirement Trust Actuarial Valuation Report as of October 1, 2011 prepared by Cavanaugh Macdonald Consulting, LLC. Recent Benefit and Member Contribution Changes. Below is a summary of the benefit and member contribution changes adopted by the City effective September 30, 2010 and reflect in the prior and current valuation. (a) Benefit multiplier: 3% for current service plus service graded for future service — 2.25% first 15 years; 2.5% for years 16-20; 2.75% for service over 20 years. Current members enter graded formula at current service level. The revised benefit multiplier schedule is used in the calculation of the normal, early, deferred and disability retirement benefits, where applicable. (b) Average final compensation: Five year average pay for all years of service. Phase in from two to five year average pay over the next 3 years. The average final compensation shall not be less than the average final compensation as of the date of the plan change. (c) Normal retirement date: Unreduced retirement at earlier of age 55 and 30 years of service, age 60 and 10 years of service, or Rule of 80. (d) No benefit changes for current members who are eligible to retire (that is, meet the Rule of 70 or age 55 and 10 years of service) as of the effective date of the plan changes. (e) Maximum benefit: maximum annual benefit at retirement is lesser of average final compensation and $100,000. Cost -of -living increases are applied to the benefit after retirement. Normal benefit form: life annuity as normal form of payment. Other actuarial equivalent options will be available. In no event will the revised benefits be less than the member's accrued benefit as of the effective date of the plan changes, that is, September 30, 2010. In addition to the member contributions to the GESE will increase from the current 10% of pay to 13% of pay. B-15 The following changes were made to GESE in 2012 pursuant to negotiations with the union. ,Member contributions. Effective the first full pay period following October 1, 2012,.regular contributions of each member of the plan shall be made each pay period at the rate of 10% (instead of 13%) of each member's earnable compensation. Amortization period of unfunded actuarial accrued liability. As of October 1, 2011, the unfunded actuarial accrued liability shall be amortized as a level percentage of the projected payroll of active plan members. The unfunded actuarial accrued liability as of October 1, 2011 shall be amortized by adding 5 years to the remaining years (instead of over the remaining years) of each unfunded actuarial accrued liability base. As of October 1, 2011, benefit improvements for actives shall be amortized over 20 years (instead of 15 years). Benefit improvements for retirees shall be amortized over 15 years. Actuarial gains and losses shall be amortized over 20 years (instead of 15 years). Changes in actuarial assumptions and methods shall be amortized over 20 years (instead of 15 years). Backdrop option. A Backdrop benefit option shall be implemented on January 1, 2013. The Backdrop option shall replace the existing DROP program. Employees who have not attained normal retirement eligibility as of January 1, 2013 or were not vested by October 1, 2010, and all employees hired on or after January 1, 2013, will be eligible for the Backdrop option, but will not be eligible for the DROP. Anyone eligible for the forward DROP as of January 1, 2013, remains eligible for the forward DROP as it presently exists and anyone eligible for the forward DROP as of January 1, 2013 or vested prior to October 1, 2010, who chooses not to enter the forward DROP remains eligible for the Backdrop. Limitation on benefits. Effective September 30, 2012, member retirement allowances shall not exceed an annual retirement allowance of $80,000 as of retirement or DROP entry based on the normal form of benefit in effect on the date of retirement; provided, any employee who has an accrued benefit in excess of $80,000 annually on the effective date shall retain that benefit, but shall not accrue any additional benefits after that date. GESE EBP Plan Description. In July 2000, the City, pursuant to applicable Internal Revenue Code provisions, established a qualified governmental excess benefit plan to continue to cover the difference between the allowable pension to be paid and the amount of the defined benefit so the benefits for eligible members are not diminished by changes in the Internal Revenue Code. The GESE Board of Trustees administers the excess benefit plan. GESE members are not required to contribute to the EBP. Members of the GESE participate in this plan. At October 1, 2010, the date of the most recent actuarial report, membership in the EBP consisted of 35 retirees and beneficiaries currently receiving benefits and terminated employees entitled to benefits but not yet receiving them. There are no current employees in the plan. Contributions and Funding Policies. The payment of the City's contribution of excess retirement benefits for eligible members of the GESE above the limits permitted by the Internal Revenue Code is: (a) funded from the City's General Fund; (b) paid annually concurrently with the City's annual contribution to normal pension costs which causes the City to realize a reduction in normal pension costs in the same amount; and (c) deposited in a separate account established specifically for the GESE to receive the City's excess retirement benefit contributions. This account is separate and apart from the accounts established to receive the City's normal pension contributions for the GESE. The City is required to contribute as benefits become payable. B-16 The payroll for employees covered by the EBP for the year ended September 30, 2011 was approximately $68.4 million; the City's payroll was approximately $268.2 million. Annual Pension Cost and Net Pension Obligation. The EBP is an unfunded plan; however if the City were to fund the EBP on the same actuarial basis as the GESE, the annual contribution for October 1, 2011 is $585,357. This contribution represents 0.85% of the active members' payroll of $68,762,827 as of October 1, 2010. The unfunded actuarial accrued liability of 5,704,602 as of October 1, 2010 is amortized over 20 years from that date. Note that the illustrative annual contribution determined as of October 1, 2009 is $625,539 or 0.69% of payroll. The City's current year contribution was determined through an actuarial valuation performed as of October 1, 2010. Significant actuarial assumptions used to compute the annual contribution requirement are as follows: Valuation date: Actuarial cost method: Amortization method: Remaining amortization period: Asset valuation method: Investment rate of return: Projected salary increases: Payroll Growth: Includes inflation at October 1, 2010 Modified Entry Age Normal Level dollar, closed 20 years Not applicable 8.10% 5.25% 3.00% 3.50% Source: City of Miami General Employees' and Sanitation Employees' Excess Benefit Plan Actuarial Valuation Report as of October 1, 2010 prepared by Cavanaugh Macdonald Consulting, LLC. EBP contributions are determined using the entry age normal cost method with frozen actuarial accrued liability. Fiscal Year 2005 2006 2007 2008 2009 2010 2011 Annual Required Contribution $818,446 824,766 823,371 898,149 566,046 625,539 585,357 Annual Employer Contributions Contribution Made $475,076 463,126 476,252 446,916 464,325 339,602 403,896 Percentage. Contributed 58.05% 56.15 57.84 49.76 82.03 54.29 69.00 (Excess)/Deficiency $343,370 361,640 347,119 451,233 101,721 285,937 181,461 Source: City of Miami General Employees' and Sanitation Employees' Excess Benefit Plan Actuarial Valuation Report as of October 1, 2010 prepared by Cavanaugh Macdonald Consulting, LLC. Fiscal Year 2011 numbers based on City of Miami, Comprehensive. Annual Financial Report for Fiscal Year Ended September 30, 2011. Actuarial (a) Historical Funding Progress (in $ millions) (b) (b) - (a) (a)/(b) (c) [(b) - (a)}/(c) B-17 Valuation Actuarial UAAL as Date Actuarial Accrued Unfunded Percent of (October 1) Value of Liability AAL Funded Annual Annual Assets (AAL) (UAAL) Ratio Payroll Payroll 2001 $ 0.0 $ 9.3 $ 9.3 0.00% $ 66.7 13.93% 2002 0.0 8.6 8.6 0.00 70.4 12.28 2003 0.0 9.9 9.9 0.00 70.7 14.04 2004 0.0 8.4 8.4 0.00 72.5 11.63 2005 0.0 8.4 8.4 0.00 71.5 11.75 2006 0.0 8.0 8.0 0.00 75.6 10.58 2007 0.0 8.6 8.6 0.00 82.1 10.48 2008 0.0 5.2 5.2 0.00 91.0 5.66 2009 0.0 5.8 5.8 0.00 90.0 6.48 2010 0.0 5.7 5.7 0.00 68.8 8.30 Source: For valuation dates 2001-2003, City of Miami, Comprehensive Annual Financial Report for Fiscal Year Ended September 30, 2007. For valuation dates 2004-2010, City of Miami General Employees' and Sanitation Employees' Retirement Trust Actuarial Valuation Report as of October 1, 2010 prepared by Cavanaugh Macdonald Consulting, LLC. B-18 The City's annual pension cost and net pension obligation to the EBP is as follows: Annual required contribution (ARC) Interest on net pension obligation (NPO) Adjustment to ARC Annual Pension Cost Contributions made Increase in NPO NPO, beginning of year NPO, end of year Fiscal Year 2010 $ 625,539 347,600 1431,711) $ 541,428 (339,602) $ 201,826 4,291,360 $ 4,493,186 Fiscal Year 2011 $ 585,357 363,948 (461,052) $ 488,253 (406,243) $82,010 4,493,186 $ 4,575,196 Source: City of Miami General Employees' and Sanitation Employees' Excess Benefit Plan Actuarial Valuation Report as of October 1, 2010 prepared by Cavanaugh Macdonald Consulting, LLC. Staff Trust Plan Description. The Staff Trust is a single -employer, defined benefit plan. The Staff Trust was established by the rule -making authority of the GESE, pursuant to Chapter 40 of the City Code. The Staff Trust covers all administrative full-time employees and other positions as may be named by the Board of Trustees. Participation in the Staff Trust is a mandatory condition of employment for all full-time employees, other than those eligible to decline membership. At October 1, 2010, the date of the most recent actuarial report, membership in the Staff Trust had no retirees and beneficiaries currently receiving benefits; one terminated employee entitled to benefits, but not yet receiving them and 11 current employees. Pension Benefits. The minimum normal retirement age is 55. Any member in service who has 10 or more years of continuous creditable service may elect to retire upon attainment of normal retirement age. A member who has completed a combination of at least 10 or more years of creditable service plus attained an age equaling 70 points may elect a Rule of 70 Retirement. However, a member is entitled to early retirement at any age with at least 10 years of creditable service. Retirement benefits are generally based on 3% of the average final compensation during the highest two years of membership service multiplied by years of creditable service, which is paid annually in monthly installments. A retired member who dies prior to having received 12 monthly retirement payments and prior to having an optional allowance becoming effective will have a lump sum equal to the excess, if any, of 12 times the monthly payments over the actual payments received paid to his designated beneficiary. Deferred Retirement Option Plan. The Staff Trust implemented a DROP for employees eligible for Rule of 70 Retirement on March 26, 2010. Any employee who is eligible for a Rule of 70 Retirement is eligible to participate in the DROP. Upon election of participation, a member's creditable service, accrued benefits, and compensation calculation are frozen and the DROP payment is based on the member's average final compensation. The member's contribution and the City contribution to the retirement plan for that member ceases as no further service credit is earned. The member does not acquire additional pension credit for the purposes of the pension plan, but may continue City employment for up to a maximum of 48 months. Once the maximum participation has been achieved, the participant must terminate employment. Upon termination of employment, a participant may receive payment from the DROP account in a lump sum distribution; or periodic payments. A participant may elect to rollover the balance to another B-19 qualified retirement plan, individual retirement account, an Internal Revenue Code. Section 457 Plan, or an annuity. A participant may defer payment until the latest date authorized by Section 401(a)(9) of the Internal Revenue Code. DROP participation will not affect any other death or disability benefit provided under law or applicable collective bargaining agreement. If a participant dies before the account balances are paid out in full, the beneficiary will receive the remaining balance. Contributions and Funding Policies. Members of the Staff Trust are required to contribute 10% of their salary on a bi-weekly basis. The funding policies of the Staff Trust provide for periodic contributions at actuarially determined rates that, expressed as percentages of annual covered payroll, are sufficient to maintain the actuarial soundness of the Staff Trust and to accumulate sufficient assets to pay benefits when due. The City is required to contribute an actuarially determined amount that, when combined with member contributions, will fully provide all benefits as they become payable. The yield (interest, dividends and net realized and unrealized gains and losses) on investments of the Staff Trust serves to reduce or increase future contributions that would otherwise be required to provide for the defined level of benefits under the Staff Trust. The payroll for employees covered by the Staff Trust for the year ended September 30, 2011 was approximately $843,000; the City's total payroll was approximately $268.2 million. Annual Pension Cost. The City's current year contribution was determined through an actuarial valuation performed as of October 1, 2010. Significant actuarial assumptions used to compute the contribution requires are as follows: Valuation date: October 1, 2009 Actuarial cost method: Modified Entry Age Normal Amortization method: Level dollar amounts, closed Amortization method: 6 to 20 years Asset valuation method: 3-Year Smooth Market Investment rate of return*: 8.10% Projected salary increases*: 6.00% *Includes inflation at 3.50% Cost of living adjustments: None Source: City of Miami General Employees' and Sanitation Employees' Retirement Trust. Staff Pension Plan Actuarial Valuation Report as of October 1, 2010 prepared by Cavanaugh Macdonald Consulting, LLC. The Staff Trust contributions are determined using the entry age normal cost method with frozen actuarial accrued liability. The annual pension cost is equal to the annual required contribution each year. Annual Employer Contributions Fiscal Year Annual Pension Cost Percentage Contributed Net Pension Obligation 2004 $ 98,044 100.00 % 2005 99,779 100.00 2006 72,380 100.00 2007 57,995 100.00 2008 109,163 100.00 2009 159,837 100.00 2010 132,542 100.71 $(945) 2011 164,490 100.00 Source: City of Miami General Employees' and Sanitation Employees' Retirement Trust Staff Pension Plan Actuarial Valuation Report as of October 1, 2010 prepared by Cavanaugh Macdonald Consulting, LLC. For fiscal year 2011, City of Miami, Comprehensive Annual Financial Report for Fiscal Year Ended September 30, 2011. After taking into account expected member contributions, the total required contribution from the City is $226,793, or 26.90% of covered payroll for the 2012 fiscal year payable on October 1, 2011. IN comparison, the required contribution for the 2011 fiscal year was $164,490, or 22.26% of cover payroll. There was an experience loss during the year. The implementation of 4-Year DROP provision increased the required contribution by $2,483 for fiscal year 2012. The Staff Trust's unfunded liability was projected to be $539,335 as of October 1, 2010, taking into account expected contributions from the City of $164,490 based on the October 1, 2009 valuation. The actual unfunded liability is $992,369. The increase of $453,034 in the unfunded liability is mainly due to the return on the actuarial value of assets of 1.37% compared to the expected retune of 8.10% and greater than expected pay increases. The total increase in City contribution to amortize the unfunded liability is $53,070 per year. Historical Funding Progress (a) (b) (b) (a) (a)/(b) (c) [(b) - (a)]/(c) Actuarial Actuarial UAAL as Valuation Market Actuarial Accrued Percent of Date Value of Value of Liability Unfunded Funded Covered Annual (October 1) Assets Assets (AAL) AAL (UAAL) Ratio Payroll Payroll 2001 $ 206,578 $ 714,036 $ 507,458 28.93% $ 363,176 139.73% 2002 303,728 900,721 596,993 33.72 411,278 145.16 2003 $ 267,34c 446,666 1,057,295 610,629 42.25 448,45.7 136.16 2004 437,30E 615,132 1,005,846 390,714 61.16 487,639 80.12 2005 587,692 768,336 1,084,275 215,939 70.86 455,220 69.40 2006 746,102 939,698 1,129,276 189,578 83.21 643,770 29.45 2007 913,764 1,138,655 1,622,719 484,064 70.17 734,116 65.94 2008 1,141,279 1,313,407 1,748,147 434,740 75.13 632,259 68.76 2009 1,140,033 1,556,718 2,121,806 565,088 73.37 738,898 76.48 i 2010 1,413,563 1,834,613 2,826,982 992,369 64.90 842,955 117.72 1 i I Source: For valuation dates 2001-2002, City of Miami, Comprehensive Annual Financial Report for Fiscal Year Ended September 30, 2007. For valuation dates 2003-2010, City of Miami General Employees' and Sanitation Employees' Retirement Trust Staff Pension Plan Actuarial Valuation Report as of October 1, 2010 prepared by Cavanaugh Macdonald Consulting, LLC. B-21 The City's annual pension cost and net pension obligation to the Staff Trust is as follows: Annual required contribution (ARC) Interest on net pension obligation (NPO) Adjustment to ARC Annual Pension Cost Contributions made Decrease in NPO NPO, beginning of year NPO, end of year Fiscal Year 2010 $ 132,542 0 0 $ 132,542 133,487 $ (945) 0 0 Fiscal Year 2011 $ 164,490 0 0 $ 164,490 164,490 $ 0 0 0 Source: City of Miami General Employees' and Sanitation Employees' Retirement Trust Staff Pension Plan Actuarial Valuation Report as of October 1, 2010 prepared by Cavanaugh Macdonald Consulting, LLC: The rate of return on the market value for the period ending September 30, 2010 was 9.67, as compared to the 8.10% assumption. The asset valuation method results in an actuarial asset value of $1.6 million as of September 30, 2010, as compared to the market value of $1.4 million. Recent Benefit and Member Contribution Changes. Effective October 1, 2010 the retirement rates were updated to reflect: the adoption of the DROP. Rates were changed from 50% to 65% for the pension administrator upon reaching Rule of 70 eligibility; 20% was added to the current rates upon reaching Rule of 70 eligibility for other members. The marriage assumption was also changed from 80% for all members to 0% for the pension administrator and 40% for all other members. EORT Plan Description. Prior to October 22, 2009, the City's elected officials participated in a single - employer, non-contributory defined benefit pension plan under the administration and management of a separate Board of Trustees. Under the FORT, eligibility requires 7 years of total service if elected between October 1, 2001 and October 22, 2009, or 10 years of total service if elected prior to October 1, 2001as an elected official of the City to be vested without requiring that such service be continuous. Any official elected after 10/22/2009 is not eligible to participate in the plan. The City, pursuant to applicable Internal Revenue Code provisions, also established qualified governmental excess benefit plans to continue to cover the difference between the allowable pension to be paid, and the amount of the defined benefit, so that the benefits for eligible members are not diminished by changes in the Internal Revenue Code. At the most recent preliminary actuarial valuation dated November 5, 2012, membership in the EORT consisted of 7 retirees and beneficiaries currently receiving benefits and terminated employees entitled to benefits but not yet receiving them. and 4 active officers with the future range of service from 2 to 4 years. Pension Benefits. Benefits accrue for City Commissioners at the rate of 50% of the highest annual W-2 wages in the last three years of employment after 7 years of service as an elected official of the City plus 5% for each additional year up to 100% at 17 or more years of service. Benefits are payable on the later of age 55 or on the first day of the month following an officer's termination. An active participant will be fully vested upon death and a single sum death benefit is payable. The EORT was frozen to new entrants effective October 22, 2009. Only participants who were accruing benefits and had not yet become vested in their B-22 benefits as of that date continue to accrue benefits under the BORT. Benefit accruals for all other participants were frozen. Contributions and Funding Policies. The funding methodology recently changed from the individual aggregate cost method to the Projected Unit Credit (PUC) method. Assets are allocated first to the non -active participants, then to the active participants based on their accrued liability. The unfunded present value of future benefits is determined for each individual and spread over their expected future working lifetime with the City. As EORT is a non-contributory defined benefit plan, all funding is provided by the City. The payroll for employees covered by the EORT for the year ended September 30, 2011 was approximately $336,000; the City's total payroll was approximately $268.2 million. Annual Pension Costs. The City's current year contribution was determined through an actuarial valuation determined as of December 31, 2010. Significant actuarial assumptions used to computer the annual contribution requirement are as follows: Valuation date: December 31, 2011 Actuarial cost method: Projected Unit Credit Amortization method: Not Applicable Amortization method: Not Applicable Asset valuation method: December 31 market values Investment rate of return: 3.75% Projected salary increases: Not Applicable Inflation: Not Applicable Merit, longevity, etc.: Not Applicable Mortality table: RP-2000 White Collar Active/Retiree, Healthy Mortality table without setback Disability, turnover and retirements: No disability or turnover assumed. Retirement is assumed at end of the current term of 100% vested. Source: City of Miami Elected Officers' Retirement Trust Preliminary Actuarial Valuation Report as of December 1, 2011 prepared by Cowden Associates, Inc.. EORT contributions are determined using the Projected Unit Credit funding method. This method separates and develops funding components for annual contributions into 1) normal costs and 2) an amortization payment toward the unfunded liability for past service benefits. Revising the actuarial funding method allows the City to fund the payment liability over a longer period of time. While the 2011 EORT cost and necessary contribution amounted to $545,785 as of December 31, 2010, the City's annual required contribution for the 2012 plan year, if paid on December 31, 2012, will be $488,713. This amount includes interest at an annual rate of 3.75% from December 31, 2011 to the actual contribution date. The following contributions were made to EORT in accordance with actuarially determined contribution requirements, based on the actuarial valuation performed for each respective year. The annual pension cost is equal to the annual required contribution each year. B-23 Annual Employer Contributions Fiscal Year Annual Pension Cost Percentage Contributed Net Pension Obligation. 2006 $1,043,209 100% 2007 285,408 100 2008 711,209 100 2009 412,588 100 2010 1,275,242 100 2011 432,170 100 2012 545,785 100 Tr - Source: For valuation dates 2011-2009, City of Miami, Comprehensive Annual Financial Report for Fiscal Year Ended September 30, 2011. For valuation dates 2006-2008, City of Miami, Comprehensive Annual Financial Report for Fiscal Year Ended September 30, 2008. For FY 2012, City of Miami Preliminary 2012 Valuation Results for EORT by Cowden Associates, Inc. dated November 5, 2012. Special Benefit Plans Certain executive employees of the City are allowed to join the ICMA Retirement Trust's 401(a) plan (the "SBP"). This defined contribution deferred compensation plan, which covers governmental employees throughout the country, is governed by a Board of Directors responsible for carrying out the overall management of the organization, including investment administration and regulatory compliance. Membership for the City employees is limited by the City Code to specific members of the City Clerk, City Manager, City Attorney's offices, Department Directors, Assistant Directors, and other executives. To participate in the plan,a written trust agreement must be executed, which requires the City to contribute 8% of the individual's earnable compensation, and the employee to contribute 10% of their salary. Participants may withdraw funds at retirement or upon separation based on a variety of payout options. The City does not have any fiduciary responsibility relating to the plan, consequently the amount accrued for benefits are not recorded in the fiduciary funds. The following information relates to the City participation in the SBP: Total current year's payroll for all employees $268,215,510 Current year's payroll for participating employees 3,427,824 Current year employer contributions 289,634 Source: City of Miami, Florida. Comprehensive Annual Financial Report for Fiscal Year Ended September 30, 2011. In addition to coverage under the FIPO, the firefighters and police officers are members of two separate non-contributory money purchase benefit plans established under the provisions of Chapters 175 and 185, Florida Statutes, respectively. These two plans are funded solely from proceeds of certain excise taxes levied by the City and imposed upon property and casualty insurance coverage within the City limits. This tax, which is collected from insurers by the State of Florida, is remitted directly to the plans' Boards of Trustees. The City is entitled to levy such excise taxes solely for the use of the money purchase benefit plans as long as the minimum benefit provisions of Chapter 175 and 185, Florida Statutes, are met by the FIPO. The City does not have any fiduciary responsibility relating to the SBP, consequently amount accrued benefits are not recorded in the fiduciary funds. The total of such excise taxes received from the state of Florida and remitted to the plans was $9,375,374 for the year ended September 30, 2011. Accordingly, these monies are B-24 recorded as pass through funds in the City's financial statements. Benefits are allocated to the participants based upon their service during the year and the level of funding received during said year. Participants are fully vested after nine years of service. Upon termination of service, a participant may elect to receive one of the three options (1) a lump sum payment; (2) five substantially equal payments, or (3) 10% or more in the first year and the remainder in any way over the next four years. The total must be paid out within five years. Legislative Proposals Affecting Pension Plans Senate Bill 1128 ("SB 1128"), which impacts government pension systems, including police and firefighter systems, became effective on July 1, 2011. SB 1128 provides that up to 300 hours of overtime may be included as compensation for pension purposes, but excludes payments for accrued unused sick or annual leave. The use of an actuarial or cash surplus in a local government's pension plan for any expenses outside the plan is also prohibited under SB 1128. SB 1128 also prevents a local government's contributions to be reduced below the normal cost of its pension plan. Specifically to police and firefighter pensions, SB 1128 eliminates the requirement to increase pension benefits whenever member contributions are increased. SB 1127 also allows cities with a local law plan in existence on or before June 30,1986, to change the representation of their pension boards, if such change does not reduce the percentage of police and firefighter members on such boards. SB 1128 also provides for the Department of Management Services ("DMS") to provide certain disclosures defined benefit pension plans of cities, including information on the plan's actuarial data, minimum funding requirements, and five year history of funded ratios. Under SB 1128, DMS is responsible for developing a standardized rating system for local government defined benefit pension plans. Finally, SB 1128 creates a Task Force on Public Employee Disability Presumptions. The task force will study and make recommendations concerning the inclusion of certain disabilities to be job related. The task force's report and recommendations must be submitted to the Florida Legislature by January 1, 2012. At present, it is uncertain how SB 1128 will impact the City's finances. OTHER POST -EMPLOYMENT BENEFITS Pursuant to Section 112.0801, Florida Statutes, the City is required to permit participation to the health insurance program by retirees and their eligible dependents at a cost to the retiree that is no greater than the cost at which coverage is available for active employees. Retired police officers are offered coverage at a discounted premium under the FOP Health Trust that is administered separately from the City's health care plan. For non -police retirees (fire fighters, general employees, sanitation employees and elected officials) and their dependents, the City has a stated policy of subsidizing health care coverage and life insurance at a discounted premium equal to 87% of the blended group rate. GASB Statement No. 45 allows flexibility to governmental employers in the use of various actuarial cost methods. Several such acceptable actuarial cost methods were evaluated, including the entry age normal cost method, the frozen entry age normal cost method, the aggregate cost method, and the projected unit credit normal cost method. The goal was for the City to adopt an actuarial cost method which is acceptable, appropriate, and commonly used. The City's annual Other Post Employment Benefit ("OPEB") liability was calculated using the entry age normal cost method. Plan Description. The City has two separate single -employer OPEB plans for its retirees. One plan is for retiring police officers and the other plan is for all other retiring employees (the "Non -Police Retirees"). The benefits afforded to all retirees include lifetime medical, prescription, vision, dental and certain life B-25 insurance coverage for retiree and dependents. Non -Police Retirees receive the same benefits as similarly situated active employees of the City, while retired police officers receive the same benefits as provided through the Fraternal Order of Police (the "FOP") Health Trust. The City offers to its retirees comprehensive medical coverage and life insurance benefits through its self-insurance plan. This plan was established in accordance with Section 112.0801, Florida Statutes. Substantially all of the City's general employees, sanitation employees and firefighters may become eligible for these benefits when they reach normal retirement age while working for the City. There are approximately 6,483 covered participants (including spouses and dependents), of which approximately 2,164 are active employees and 870 are retirees. Funding Policy. The City is authorized to establish benefit levels and approve the actuarial assumptions used in the determination of contributions levels. Beginning with the 2012 plan year, the retirees are contributing the majority of their premium costs each month. Spouses and other dependents are also eligible for coverage, although the retiree pays the premium cost. The FOP sponsors a Health Insurance Trust (the "HIT") that is partially self -insured, which provides life, heath, and accidental death and dismemberment insurance to substantially all full-time sworn members of the City's Police department, eligible retirees, their families and beneficiaries. The HIT receives a significant source of its funding from the City, pursuant to the terms of a collective bargaining agreement. The agreement requires the City to reimburse the HIT an amount that is required to bring the HIT's minimum fund balance to $2.35 million annually. Currently, the City's subsidy to OPEB benefits is unfunded. There are no separate trust funds or equivalent arrangements into which the City makes contributions to advance -fund the OPEB obligations, as it does for its retiree pension plans. The City's cost of the OPEB benefits is funded on a pay-as-you-go basis.' The City contributed $14,114,241 for the fiscal year ended September 30, 2011. The ultimate implicit subsidies which are provided over time are financed directly by general assets of the City, which are invested in short-term fixed income instruments according to its current investment policy. The City selected an interest discount rate of 4.25%, which is the long-range expected return on such short-term fixed income instruments, to calculate the present values and costs of the OPEB. Actuarial Methods. Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Actuarially determined amounts are subject to continual revision as actual results are compared to past expectations and new estimates are made about the future. Although the valuation results are based on values the actuarial consultant believes are reasonable assumptions, the valuation result is only an estimate of what future costs may actually be and reflect a long-term perspective. Deviations in any of the several factors, such as future interest rates, discounts, medical cost inflation, Medicare coverage risk and changes in marital status could result in actual costs being greater or less than estimated. Projection of benefits for financial reporting purposes are based on the substantive OPEB plan (the OPEB plan as understood by the employer and the members) and include the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between the employer and plan members. The actuarial methods and assumptions used include techniques that are designed to reduce the effects of short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of calculations. B-26 Significant. actuarial assumptions and methods Valuation date: Actuarial cost method: Amortization method: Amortization Period: Assumed rate of return on investments: Assumed health care cost trend rates: used to estimate the OPEB liability are as follows: October 1, 2008 Entry Age Normal Cost Method Level Percent of Payroll 28 years 4.25% 2009 —10.0% 2010— 6.8% 2011 — 8.5% 2012 8.0%p 2013 — 7.5% 2014 - Thereafter — 7.0% - 5.0% Source: City of Miami Comprehensive Annual Financial Report for Fiscal Year Ended September 30, 2011. Annual OPEB Cost and Net OPEB Obligation. The City's annual OPEB cost is calculated based on the annual required contribution of the employer, an amount actuarially determined in accordance with the parameters of GASB Statement No. 45. The annual required contribution represents a level of funding that, if paid on an ongoing basis, is projected to cover normal cost each year and amortize the actuarial liabilities over a period not to exceed 30 years. The City's annual OPEB cost for the fiscal year ended September 30, 2011 was $36,016,664 for police retirees and $12,543,951 for non -police retirees. The City's annual OPEB cost and net OPEB obligation for the fiscal year ended September 30, 2011 for both non -police and police retirees are as follows: Annual required contribution (ARC) Interest on Net OPEB Obligation (NOO) Adjustment to ARC Annual OPEB Cost Contributions made Increase in Net OPEB Obligation (NOO) NOO, beginning of year NOO, end of year Non -Police Police Total $ 12,464,535 $ 35,732,002 $ 48,196,537 785,767 2,816,540 3,602,307 (706,351) (2,531,878) (3,238,229) 12,543,951 36,016,664 48,560,615 (4,931,874) (9,182,367) (14,114,241) 7,612,077 26,834,297 34,446,374 18,488,637 66,271,536 84,760,173 $ 26,100,714 $ 93 105 833 $ 119,206,547 Source: City of Miami Comprehensive Annual Financial Report for Fiscal Year Ended September 30, 2011. B-27 The City's percentage of annual OPEB cost contributed to the plans, and the net OPEB obligations for the fiscal year ended September 30, 2011 are as follows: Non -Police OPEB Employer Percentage of Annual OPEB Fiscal Year Annual OPEB Cost Contribution Cost Contributed Net OPEB Obligation 2008 $10,786,386 $5,261,988 48.78% $5,524,398 2009 10,926,498 5,220,141 47.78 11,230,755 2010 12,540,416 5,282,534 42.12 18,488,637 2011 12,543,951 4,931,874 39.32 26,100,714 Source: City of Miami Other Post -Employment Benefits for City Employees Other Than Police Officers GASB Statement No. 45 Impact Study prepared by Gabriel Roeder Smith & Company on March 9, 2012. Police OPEB Annual Employer Percentage of Annual Net Fiscal Year OPEB Cost Contribution OPEB Cost Contributed OPEB Obligation 2008 $26,578,385 $4,910,046 18.47% $21,668,339 2009 26,959,115 6,314,600 23.42 42,312,854 2010 31,572,155 7,613,473 24.11 66,271,536 2011 36,016,664 9,182,367 25.49 93,105,833 Source:: City of Miami Other Post -Employment Benefits for Police Officers GASB Statement No. 45 Impact Study prepared by Gabriel Roeder Smith & Company on March 9, 2012. The 2011 contributions for Police and Non -Police Retiree plans represented 25.49% and 39.32%, respectively, of the annual required contributions. B-28 The following table illustrates how the Net OPEB Obligation and the Annual OPEB Cost are expected to grow over the next 10 years assuming no advance -funding. The projections in the table are made in a manner so as to simulate an open group forecast, that is, they approximate what forecast would produce if it included the effect of new hires after the valuation date. Non -Police OPEB (in millions) Current Net Annual Net Net OPEB Fiscal. Year Annual OPEB Cost Employer Subsidy OPEB Shortfall Obligation 2011 $ 13.2 $ 5.0 $ 8.2 $ 26.7 2012 14.1 5.2 8.8 35.5 2013 14.7 5.9 8.8 44.4 2014 15.9 6.4 9.5 55.9 2015 16.6 6.9 9.7 63.6 2016 17.9 7.3 10.6 74.2 2017 18.6 7.7 10.9 85.1 2018 20.2 8.1 12.1 97.2 2019 20.8 8.5 12.3 109.4 2020 22.6 8.9 13.7 123.2 Source: City of Miami Other Post -Employment Benefits for City Employees Other Than Police Officers Actuarial Valuation Report for Year Ending September 30, 2010 prepared by Gabriel Roeder Smith & Company. Police OPEB (in millions) Annual Current Net Annual Net Net Fiscal Year OPEB Cost Employer Subsidy OPEB Shortfall OPEB Obligation 2011 $ 33.1 $ 8.8 $ 24.3 $ 90.6 2012 35.8 10.0 25.8 116.4 2013 37.4 11.3 26.1 142.5 2014 40.8 12.5 28.3 170.7 2015 42.4 13.7 28.6 199.4 2016 46.1 15.0 31.2 230.6 2017 47.7 16.2 31.6 262.1 2018 52.1 17.6 34.5 296.6 2019 53.5 19.0 34.5 331.1 2020 58.6 20.5 38.1 . 369.3 Source: City of Miami Other Post -Employment Benefits for Police Officers Actuarial Valuation Report for Year Ending September 30, 2010 prepared by Gabriel Roeder Smith & Company. B-29 The following tables are the OPEB funding progress. Non -Police OPEB (in millions) Actuarial UAAL as Actual Actuarial Accrued Unfunded Percent of Valuation Value of Liability AAL Covered Annual Date Assets (AAL) (UAAL) Funded. Ratio Payroll Payroll (October 1) (a) (b) (b) — (a) (a)/(b) (c) [(b) - (a))/(c)1 2006 $ 0 $ 146.8 $ 146.8 0.00% $ 129.9 113.02% 2008(2) 0 148.7 148.7 0.00 170.8 87.08 2008(1) 0 146.6 146.6 0.00 185.1 79.19 Source: City of Miami Other Post -Employment Benefits for City Employees Other Than Police Officers GASB Statement No. 45 Impact Study prepared by Gabriel Roeder Smith & Company on March 9, 2012. (1) After reflecting changes in assumptions and retirement eligibility provisions. (2) Before reflecting changes. Police OPEB (in millions) Actuarial UAAL as Actual Actuarial Accrued Unfunded Percent of Valuation Value of Liability AAL Funded Covered Annual Date Assets (AAL) (UAAL) Ration Payroll Payroll (October 1) (a) (b) (b) - (a) (a)/(b) (c) [(b) - (a)j/(c)a 2006 $ 0 $ 333.5 $333.5 0.00$ $57.6 579.06% 2008(2) 0 373.1 373.1 0.00 71.8 519.76 2008(1) 0 394.1 394.1 0.00 72.7 542.03 Source: City of Miami Other Post -Employment Benefits for Police Officers GASB Statement No. 45 Impact Study prepared by Gabriel Roeder Smith & Company on March 9, 2012. (1) After reflecting changes in assumptions and retirement eligibility provisions. (2) Before reflecting changes. B-30 APPENDIX C FORM OF THE RESOLUTION APPENDIX D COMPREHENSIVE ANNUAL FINANCIAL REPORT OF THE CITY OF MIAMI FOR FISCAL YEAR ENDED SEPTEMBER 30, 2011 APPENDIX E FORM OF BOND COUNSEL OPINION [APPENDIX F FORM OF CONTINUING DISCLOSURE AGREEMENT] [APPENDIX G SPECIMEN MUNICIPAL BOND INSURANCE POLICY] APPENDIX H FORM OF INVESTOR LETTER APPENDIX I LITIGATION There is no pending or, to the knowledge of the City, any threatened litigation against the City of any nature whatsoever which in any way questions or affects the validity of the Series 2012 Bonds, or any proceedings or transactions relating to their issuance, sale, execution, or delivery, or the adoption of the Resolution, or the levy or collection of the non -Ad Valorem Revenues. Neither the creation, organization or existence, nor the title of the present members of the City Commission or other officers of the City is being contested. Certain Legal Proceedings and Asserted Claims The following are summaries of pending litigation or asserted claims, of which the City is aware, having an exposure either (a) not capped by the limitations of s. 768.28(5), F.S. (2012), i.e., $200,000 per person/$300,000 per incident; and (b) not covered by the availability of excess insurance purchased by the City to cover certain liabilities in excess of a $500,000 self -insured retention. A. CIVIL LITIGATION - General 1. Jose Acuna v. City of Miami; Miami -Dade County Circuit Court, Case No.: 07-6321 CA 06. Plaintiff is a police officer who alleges that he was forced to either resign or face termination as a result of his involvement in a shooting in Coconut Grove where a gun was allegedly planted on the scene to substantiate the shooting. Although the Plaintiff was indicted, he was not convicted. The Plaintiff was acquitted on some charges and drew a hung jury on others. The federal prosecutors declined to continue their prosecution of the Plaintiff, but the Miami Police found just cause to terminate. Plaintiff seeks reinstatement, back pay and emoluments under the Whistle Blower statute. The City prevailed on summary judgment, and the Plaintiff has appealed. At this time, the City cannot predict with certainty the final outcome of this lawsuit. 2. Armando Aguilar, on behalf of all Bargaining Unit Members; Fraternal Order of Police, Class Action Grievance No.: 12-08. This is a class action grievance filed by the Fraternal Order of Police ("FOP") alleging that the Collective Bargaining Agreement ("CBA") ending September 30, 2012, provides that if, during the term of the contract the IAFF Local 587 receives an increase in wages or benefits higher than the FOP, the FOP would automatically be entitled to the same additional wages and benefits, and that the IAFF received a retroactive increase in wages and benefits higher than the FOP, including but not limited to anniversary and longevity payments that had been frozen in 2010 and 2011. Specifically, the FOP claims that the failure to give the FOP the same compensation is a violation of past practice, and Articles 1, 4, 23 & 45 of the CBA. The FOP is seeking to be make whole by being provided with the compensation to all bargaining unit members, retroactive to October 1, 2010, equal to the higher wages and benefits provided to IAFF Local 587, including, but not limited to step and longevity raises from October 1, 2010 with interest, in excess of one million dollars. At this time, the City cannot predict with certainty the final outcome of this lawsuit. 3. MAC Group, Inc. v. City of Miami; Miami -Dade County Circuit Court, Case No.: 12-35085 CA 04. Plaintiff alleges that on May 23, 2005, it entered into a Horizontal Construction A contract with the City to perform work on several projects over the course of several years, including the US-1 Wall Replacement Project and the Belle Meade Storm Sewer Project Phase II. Plaintiff further alleges that it fully performed its contractual obligations, but the City failed, despite prior demand, to pay the Plaintiff $351,965.58 for its work on the US-1 Wall Replacement Project and $2,215,080.33 for its work on the Belle Meade Storm Sewer Project, for a total of $2,567,045.91. This lawsuit is relatively new and is in the pleadings stage. At this time, the City cannot predict with certainty the final outcome of this lawsuit. I-1 4. Chalks Airlines, Inc. v. Miami Sports and Exhibition Authority and the City of Miami Miami -Dade County Circuit Court, Case No.: 07-30071 CA 25. Plaintiff, a MSEA sub -tenant on Watson Island (the City owns the property and leases it to MSEA), claims that MSEA and the City have improperly terminated its sub -lease, and is requesting a declaratory judgment to that effect. MSEA was granted summary judgment by Judge Adrian on the issue of a breach of the sub -lease based on unpaid federal tax liens, and later, in December 2010, Final Judgment. Judge Adrian was replaced in the Division by Judge Butchko, who reconsidered the "finality" of the order and set the Final Judgment aside. MSEA appealed the successor judge's reconsideration, but the 3rd DCA affirmed. A second successor judge has now been assigned to the Division (Judge Cueto), and, accordingly, MSEA will again be moving for entry of Final Judgment, based on the earlier summary judgment on the issue of the non-payment of federal tax liens, which order remains in place. The case is set for trial in February, 2013. The City has an exposure for attorney's fees. At this time, the City cannot predict with certainty the final outcome of this lawsuit. 5. Jorge Fernandez v. City of Miami; Miami -Dade County Circuit Court, Case No. 08-17486 CA 13. The former City Attorney brought suit in State Court alleging breach of contract, seeking payment of severance benefits and accumulated leave balances (sick and vacation), which were denied upon his forced resignation as part of a plea deal. The City asserted a counterclaim requesting damages for excessive travel and reimbursements for meals unrelated to City business. The City's potential exposure exceeded $200,000. This case was assigned to outside conflict counsel. The case was tried to the Court which resulted in a finding against the former City Attorney, and in favor of the City on its counterclaim, in the amount of not less than $3,000, which may entitle the City to an award of its attorney's fees. The Plaintiff has appealed. At this time, the City cannot predict with certainty the final outcome of this lawsuit. 6. Fraternal Order of Police, Miami Lodge No. 20 and Alfredo Vega v. City of Miami, et al.; Miami -Dade County Circuit Court, Case No.: 98-7760 CA 27. This lawsuit, brought by the police union, seeks promotions to the rank of sergeant for certain of its membership retroactive to 1994, with back pay and emoluments. The testing company, who administered the promotional examination, has been joined as a party but severed from the present proceedings, so the court could first address only liability. A prior action (Manning, et al. v. City of Miami), involving the same examination, but a different group of Plaintiffs, resulted in a judgment being entered against the City. The Manning jury determined that the exam did not comply with the requirements of the Civil Service Rules. This case was tried to the Court in 2007, with the same result. The parties are now in the damages phase. The Court has ruled in the City's favor regarding the identity of the Plaintiffs and found that FOP did not have standing to seek relief for back pay, thereby leaving seven (7) individuals as Plaintiffs. However, another individual has now been allowed to intervene creating the potential for other FOP members to intervene. The Court has ordered the parties back to mediation. The City's exposure exceeds $1 million. At this time, the City cannot predict with certainty the final outcome of this lawsuit. 7. Fraternal Order of Police (FOP) v. City of Miami; Federal Mediation and Conciliation Service, Case No.: 090902-60467-3 Claim No.: NDA. This is a labor arbitration, filed as a grievance, by the Fraternal Order of Police ("FOP"). The Union alleges the City failed to pay police officers wage increases due under collective bargaining agreement ("CBA"). The City faces potential exposure for back wages. At this time, the City cannot predict with certainty the final outcome of this lawsuit. 8. In re The Fraternal Order of Police v. The City of Miami FMCS; Arbitration Case No.: 12- 50509-3. On March 5, 2010, the FOP brought a class action grievance on behalf of five (5) police officers who were involved in off -duty injuries or illnesses and were denied light duty work after July 17, 2007. These officers had previously been included in a grievance filed by Officer Andrew Markowitz, but were denied any remedies by the Circuit Court who ruled that a class action had not been properly certified and they were I - 2 not parties to the Markowitz. grievance. The Judge's ruling was affirmed by the Third District Court of Appeals. The officers are seeking the remedies that were previously denied by the Court. One of the officers in this grievance resigned from the City over three (3) years ago; if she were to be reinstated as a result of this arbitration, the City faces a potential exposure for back wages. At this time, the City cannot predict with certainty the final outcome of this lawsuit. 9. Barbara Gomez v. City of Miami; Miami -Dade County Circuit Court, Case No.: 08-24348 CA 27. This is a breach of contract claim filed by the former Director of Community Development. She is seeking reinstatement and back pay for the remaining time she needs to qualify for her pension. The City has exposure for back wages. At this time, the City cannot predict with certainty the final outcome of this lawsuit. 10. Cheryl K. Haigley v. City of Miami; Miami -Dade County Circuit Court, Case No.: 11-01364 CA 05. Plaintiff, on behalf of herself and the class of all others similarly situated, challenges the constitutionality of City of Miami Ordinance No. 11007, which, since January 1,1993, imposes a $100.00 "non- resident surcharge" upon all non -City of Miami residents who receive emergency medical services. Plaintiff seeks a refund of all amounts collected from 2008 forward, and the entry of an order requiring the City to cease the collection of the surcharge, costs and attorney's fees. The City's motion to dismiss was denied. The case is currently in discovery. The City's exposure currently approximates $120,000, and increases by approximately another $30,000 per year. At this time, the City cannot predict with certainty the final outcome of this lawsuit. 11. In the matter of Miguel A. Hervis v. City of Miami; United States District Court -Southern District of Florida, Case No.: 12-22418 CV Scola/Bandstra (12-1564). Miguel Hervis, a former police lieutenant, has filed a Complaint for Damages before the Southern District Court of Florida alleging the City has violated the Americans with Disabilities Act (ADA) and the Florida Civil Rights Act. Mr. Hervis claims the City and former Chief of Police, John Timoney failed to protect him based on his disability (Parkinson's disease). Specifically, Mr. Hervis argues constructive discharge based on the City's failure to promote him to the position of Police Commander. Mr. Hervis seeks compensatory, declaratory, injunctive relief, back pay, front pay, punitive damages, costs and attorney's fees. 12. Victor Igwe vs. City of Miami; Miami -Dade County Circuit Court, Case No.: 11-35238 CA 05. Plaintiff, the former Independent Auditor of the City, claims that he suffered "adverse employment action", i.e., that his four (4) year contract was not renewed, as a result of his "protected behavior" under s. 112.3187(7), F.S., to wit: issuing audit reports critical of the City financial decisions, his cooperation with an SEC in an investigation of the City, and in other respects, resulting in lost wages, employee benefits and other damages. The Plaintiff seeks a judgment for back wages and compensatory damages, an injunction requiring the City to reinstate him, and his attorney's fees and costs. The City answered the Complaint with discovery ongoing. At this time, the City cannot predict with certainty the final outcome of this lawsuit. 13. Bernard Johnson v. City of Miami; Miami -Dade County Circuit Court, Case No.: 12-21565 CA 25. Plaintiff, a fourteen (14) year veteran of the Miami Police Department alleges that in November of 2009, when Miguel Exposito became the Chief of Police, and who was the final decision -maker regarding any employment decision within the MPD, he was demoted from a Commander position to a Lieutenant position, and was not considered for reassignment because of his race, i.e., Black. Plaintiff further alleges retaliation, and an unlawful pattern and practice of discrimination by refusing to consider Black officers for so-called "White" Positions. Plaintiff is proceeding under the Florida Civil Rights Act, s. 760.01. et seq., F.S. At this time, the City cannot predict with certainty the final outcome of this lawsuit. I - 3 14. '.Kwaku Designs International, Inc„ Harlan Woodard and Nathaniel Styles v. Michelle Spence -Jones, Leroy Jones, and Lillian Blondet; Miami -Dade County Circuit Court, Case No.:11-34073 CA 05. Plaintiffs allege that they created a project called Osun's Village, which was a part of a -larger initiative called the African Caribbean Cultural Arts Corridor. Plaintiffs further allege that they were able to obtain an allocation of funding in excess of $500,000 from the City of Miami for the project. In addition, Plaintiffs allege that Michelle Spence -Jones, Leroy Jones and Lillian Biondet, interfered with the plaintiffs' contractual arrangements thereby committing a tortuous interference with Plaintiffs' rights. Plaintiffs seek damages of in excess of $100,000. The case is in the pleading stage. At this time, the City cannot predict with certainty the final outcome of this lawsuit. 15. City of Miami v. Little River Club; Miami -Dade County Circuit Court, Case No.: 11-24889 CA 15. The City filed suit seeking injunctive relief based on two Code Enforcement Board orders finding the Little River Club ("LRC") guilty of using two properties as a parking lot in violation of the City's Zoning Ordinance, Miami 21. The LRC asserted a counterclaim against the City for inverse condemnation, alleging that Miami 21 has denied the LRC of all beneficial and productive use of its properties and the prohibited use of the properties has caused a loss of income to the LRC's business. As part of its counterclaim, the LRC also seeks attorney's fees. The alleged loss of value and income, as well as the claim of attorney's fees, presents an exposure to the City. At this time, the City cannot predict with certainty the final outcome of this lawsuit. At this time, the City cannot predict with certainty the final outcome of this lawsuit. 16. Jeffrey Locke, et al. v. City of Miami; Miami -Dade County Circuit Court, Case No.: 00-10487 CA 09. This is an action initially brought by numerous Plaintiffs challenging the City's decision to declare the Plaintiffs ineligible to sit for a promotional examination. Since then, the Court struck the claims of most of the Plaintiffs, now leaving only four (4). The Judge has denied the City's Motion for Summary Judgment argument; however the only remaining count is for breach of Civil Service Rules. The potential exposure in this case exceeds $200,000, for back wages and benefits. At this time, the City cannot predict with certainty the final outcome of this lawsuit. 17. In the matter of Glenn Marcos; Civil Service Board, Case No.: 10-21G. Mr. Marcos was terminated from his position as Purchasing Manager for the City on August 5, 2010. He alleges that he was terminated because he voiced oral and written complaints regarding unlawful financial practices by the Finance Department, specifically the distribution and/or allocation of funds from restricted accounts to the General Fund. Mr. Marcos amended his complaint on May 15, 2012, to include a variety of other allegations. Mr. Marcos requested a hearing under Section 40-128(b) of the City Code, and the hearing was conducted on October 30, 2012. The Board found that facts did not warrant a whistleblower remedy. Mr. Marcos can now proceed to federal court. 18. Milan Investment Group, Inc. v. City of Miami, et al. (Milan I); Miami -Dade County Circuit Court, Case No.: 08-77800 CA 08. This is a putative class action lawsuit to invalidate the Downtown Development Authority and obtain refunds of all ad valorem taxes paid to the DDA on behalf of the named Plaintiff and the putative class dating back to 1965. The City filed a Motion to Dismiss and/or Strike. The Motion challenged, inter alia, the Plaintiff's ability to bring this case as a class action given the state's jurisdictional requirements for ad valorem tax suits which were not followed by the putative class members. The other Defendants joined in the City's Motion. The trial court granted the Motions to Dismiss, and the case was appealed. The Court of Appeal affirmed in part and reserved in part. The appellate court ruled that the all Plaintiff's claims were barred except to the extent that they present a challenge to the current years' tax assessment. The Plaintiff filed an amended Complaint seeking a refund of the tax assessments for 2009 & 2010. The City filed another Motion to Dismiss, challenging the merits of the amended Complaint and the Plaintiff's ability to bring this case as a class action given the state's jurisdictional requirements for ad valorem I - 4 tax suits where were not followed by the putative class members. The Court denied the City's Motion Dismiss the amended Complaint. The City has filed an Answer to the Amended Complaint and Affirmative Defenses. At this time, the City cannot predict with certainty the final outcome of this lawsuit. 19. Milan 'Investment Group, Inc. v, City of Miami, et al. (Milan II); Miami -Dade County Circuit Court, Case No.: 11-40596 CA 25. Milan filed this second suit as a putative class action lawsuit to obtain refunds of ad valorem taxes paid to the DDA on behalf of itself as the named Plaintiff and the putative class for the tax year 2011. The City filed a Motion to Dismiss. The lawsuit is also directed against the City, the .DDA, the tax collector, and the property appraiser, seeking declaratory judgment, challenging the authority to levy and collect a half -mill ad valorem tax on property within the DDA, seeking refunds, and claiming damages under 42 U.S.C. s. 1983 for violations of equal protection, deprivations of due process, and unconstitutional takings. The Motion challenged, inter alia, the merits and Plaintiff's ability to bring this case as a class action given the state's jurisdictional requirements for ad valorem tax suits which were not followed by the putative class members. The other Defendants joined in the City's Motion. Due to the denial of the City's Motion to Dismiss the Amended Complaint in Milan 1, the City abandoned the Motion to Dismiss in this case, and filed its Answer and Affirmative Defenses. At this time, the City cannot predict with certainty the final outcome of this lawsuit. 20. Scotty's Landing, LLC., and Grove Key Marina, LLC vs. Fernando; Casamayor, as Tax Collector of Miami -Dade County vs. City of Miami; Miami -Dade County Circuit Court, Case No.: 12-37171 CA 10. This is a dispute between Grove Key Marina, LLC (a tenant of the City and the operator of a marina on City -owned land), its manager, Scotty's Landing LLC (a restaurant operator)(collectively the "Plaintiffs"), and the County Tax Collector concerning the alleged wrongful attempt by the Tax Collector to collect ad valorem real property taxes, assessed against the property since 1995, but to date unpaid and delinquent, by threatening to revoke their occupational licenses and corporate charters. Plaintiffs contend that since the property is not owned by the them, ad valorem real property taxes have never been assessed against them, the property is not on the tax rolls in either of their names, and the tax notice has never been sent to them, the Tax Collector does not have the legal authority to collect the delinquent ad valorem real property taxes from the Plaintiffs. They further allege that the Grove Key Marina's lease with the City does not contain a "pass - through" with respect to ad valorem taxes, and thus, as between Grove Key Marina and the City, Grove Key Marina does not have the contractual obligation to paythe ad valorem taxes assessed against the property. The alleged amount of ad valorem taxes in dispute is $3,041,214.51. Plaintiffs are seeking a declaratory judgment that the Tax Collector has no authority to collect the ad valorem taxes from them, and that the taxpayer who actually owes the delinquent taxes is the City. They further seek injunctive relief to prohibit the Tax Collector from taking the actions threatened. In turn, the Tax Collector has sued the City via a Third Party Complaint, seeking a determination as to which party, the City, the Lessee or both, is/are responsible for payment of the ad valorem taxes for tax years 1995 through 2011, and an order requiring such party or parties to pay the taxes due and owing. If the Court were to find the City responsible, approximately 1/3 of the tax due (or $1 million) would be returned to the City as the municipal portion. At this time, the City cannot predict with certainty the final outcome of this lawsuit. 21. Marie Severe v. City of Miami; Miami -Dade County Circuit Court, Case No.: 10-49932 CA 10. Plaintiff was an employee of the City, assigned to the Auditor General's Office, with the position of Senior Staff Auditor, under the supervision of Victor Igwe, Auditor General. Plaintiff allegedly filed a workers' compensation claim on November 2, 2006, and then advised her supervisor of her anxiety and depression diagnosis. Shortly thereafter, she alleges that her employment was terminated by her supervisor. Thereafter, Plaintiff filed a charge of discrimination with the FCHR and the EEOC, and was not hired for a position in the Budget Department as an Accountant/Budget Analyst. Plaintiff alleges violations of the FORA because of an alleged disability discrimination termination, perceived disability discrimination, retaliation, failure to hire, I - 5 and violation of the Workers Compensation Law. At this time, the City cannot predict with certainty the final outcome of this lawsuit. 22. The Sieger Suarez Architectural Partnership, Inc. v. Flagstone Island Gardens, LLC, and the City of Miami; Miami -Dade County Circuit Court, Case No.: 10-17467 CA 08. The Sieger -Suarez Architectural Partnership, Inc. ("Sieger Suarez") alleges that it was hired by developer Flagstone Island Gardens, LLC ("Flagstone") to render architectural services for the Island Gardens Project on City -owned property on Watson Island. Plaintiff further alleges that it has not been paid $1,777,990.79 for services provided. Plaintiff is requesting declaratory relief that the "Agreement to Enter Into Ground Lease" between the City and Flagstone, without conditions precedent having been met for a ground lease but with an unexecuted "form of Ground lease" attached thereto, nonetheless constitutes a valid ground lease and interest in real property upon which it's claim can be enforced, that Flagstone is an "owner" as that term is defined in s. 713.01(23), F.S., and that its claim of lien does not apply to the City's fee simple interest in the Property, and is therefore not invalid. Plaintiff also asserts claims for breach of contract and foreclosure of construction lien against Flagstone; unjust enrichment against both Flagstone and the City; and an equitable lien against both Flagstone and the City. The parties have selected a mediator, but no mediation date has been scheduled yet. At this time, the City cannot predict with certainty the final outcome of this lawsuit. 23. Robert Suarez, et al. v. City of Miami; Miami -Dade County Circuit Court, Case No.: 06- 06973 CA 20. Four Police employees assigned as detectives to the Economic Crimes Unit have brought suit in State Court alleging violation of the Florida Public Sector Whistleblower Act, s. 112.3187. The detectives allege that they were requested to investigate an alleged identity theft outside the City. The detectives allege that they voiced an objection to conducting the investigation, and then closed the case approximately 10 months later. They were subsequently transferred out of the unit, and they claim the transfer was retaliatory due to their asserted objection. The detectives are .seeking to be reinstated to their previous position, reimbursement of fringe benefits and lost wages, and seniority rights, compensatory damages for non- economic damages, and attorney's fees. The case is in the discovery phase. The City's potential exposure could exceed $500,000. At this time, the City cannot predict with certainty the final outcome of this lawsuit. B. CIVIL LITIGATION Labor Litigation related to "Financial Urgency" The legal challenges listed below relate to modifications made to the various union contracts by the City Commission's invocation of the "financial urgency" provisions of State law. Such modifications resulted in budgetary reductions for wages, pensions, and health care costs in a total aggregate amount of approximately $76,943,905. The FOP and IAF are requesting the return of their respective budgetary reduction amounts resulting from the modifications. The City cannot with certainty the outcome of these legal challenges. See "LIABILITIES OF THE CITY -Financial Urgency" herein. 1. In the matter of Armando Aguilar on behalf of himself and all Bargaining Unit Members; Fraternal Order of Police, Class Action, Grievance No. 10-012. This is a labor arbitration filed as a grievance filed by Police Union, Fraternal Order of Police, claiming that the City violated the Collective Bargaining Agreement ("CBA") and past practice. Armando Aguilar claims the City breached the CBA by reducing wages, suspending benefits, altering supplemental pays, freezing step and longevity raises, and altering pension benefits. The Union seeks reinstatement of modifications to pension, wages, and health benefits pursuant to the City's financial urgency under s. 447.4095. An arbitration hearing date is pending. At this time, the City cannot predict with certainty the final outcome of this matter. 2. Fraternal Order of Police, Walter E. Headley, Jr., Miami Lodge No. 20 v. City of Miami, Florida; Miami -Dade County Circuit Court, Case No.: 10-48397 CA 02. This is an action for declaratory judgment and injunctive relief claiming that an executive session held on August 31, 2010, was conducted in I - 6 violation of the Sunshine law, s. 286.011, F,S„ and seeking to declare as void ab initio any decisions made or predicted on the shade meeting, including modifications to the collective bargaining agreement. The fiscal impact to the City is in the millions of dollars. The case is set for trial beginning November 5, 2012. At this time, the City cannot predict with certainty the final outcome of this lawsuit. 3. Fraternal Order of Police (FOP) v. City of Miami and State of Florida; Miami -Dade County Circuit Court, Case No.: 10-47918 CA 01. The Union sued the City based on the City's invocation of the Financial Urgency Statute, section 447.4095, F.S. The Second Amended Complaint challenges the facial constitutionality of s. 447.4095, F.S., by claiming that the statute unconstitutionally impairs the right to collectively bargain; that the statute is unconstitutionally vague; that the statute unconstitutionally impairs the obligation of contract; that the statute violates due process; and that the statute denied equal protection. The City has answered the Second Amended Complaint. At this time, the City cannot predict with certainty the final outcome of this lawsuit. 4. Fraternal Order of Police, Walter E. Headley, Jr., Miami Lodge No. 20 v. City of Miami; Florida District Court of Appeal, 1st District, Case No.: 1D12-2116. This is an appeal from a decision of the Public Employees Relations Commission ("PERC") by the FOP Miami Lodge 20 (hereinafter "FOP" or the "Union") claiming that the City committed an unfair labor practice as a result of its invocation of a financial urgency pursuant to s. 447.4095, F.S. The Union alleged that it has a Collective Bargaining Agreement ("CBA") with the City, effective through September 30, 2010, that the parties exchanged initial proposals for a successor agreement, and that the parties held several bargaining sessions. The Union further alleged that during the several bargaining sessions, the City never advised it that there was a need to reach settlement on economic items expeditiously, or that the City intended to declare a "financial urgency" and invoke the process set forth in s. 447.4095, F.S. The Union contends that s. 447.4095, F.S., may only be invoked to modify the terms of an existing agreement. The Union further alleged that although the parties continued to bargain for a successor collective bargaining agreement, on August 9 and 12, 2010, the parties never discussed wages or pensions, but on August 16, 2010, the City advised the PERC that it had engaged in negotiations on the impact of the financial urgency, and any action necessitated by the financial urgency, and that a dispute existed. The Union then alleged that on August 31, 2010, the City unilaterally took action to alter the terms and conditions of employment before reaching impasse, in violation of ss. 447,501(1)(a) and (1)(c), F.S. Further, the Union alleged that, although the changes were not discussed with them, they were discussed in a closed door unnoticed "shade" meeting conducted in violation of s. 447.605, F.S. The Union contended that the failure of the City to have any discussions with the Union on these matters constituted bad faith or surface bargaining in violation of s. 447.501(1)(a), F.S. It also asserted that by unilaterally altering terms and conditions of employment before completion of the impasse procedure set forth in s. 447.403, F.S., and by not responding to a request for records, the City violated ss. 447.501(1)(a) and (1)(c), F.S. The Hearing Officer below submitted a recommended order on July 1, 2011, finding that the City was in compliance with s. 447.4095, F.S., and that the City did not commit an unfair labor practice. The Commission issued its Final Order affirming the Recommended Order and finding that a financial urgency actually existed and that the City correctly invoked s. 447.4095, demonstrating a compelling government interest requiring immediate modification of the agreement with the FOP. The Union has appealed to the First District Court of Appeals. At this time, the City cannot predict with certainty the final outcome of this lawsuit. 5. International Association of Firefighters, Local 587 v. City of Miami; Florida District Court of Appeal, 3rd Dist., Case No.: 3D12-1256.. This is an appeal of a decision of the Public Employees Relations Commission ("PERC")(Case No.: CA-2010-119), by the IAF Local 587 (hereinafter "Union") claiming the City committed an unfair labor practice. Specifically, the union asserts that it had a Collective Bargaining Agreement ("CBA") with the City, effective through October 1, 2010, that in 2010, in exchange for concessions by the Union, the CBA was extended through September 30, 2011, and that the City expressly waived its right I - 7 not to fund any year of the CBA except in the case of "true fiscal emergency", defined in the CBA (Article 18) as, "the City must demonstrate that there is no other reasonable alternative means of appropriating monies to fund the agreement for that year or years". The Union further alleged that less than six (6) months after agreeing to the extension, on April 30, 2010, the City invoked the process under s. 447.4095, F.S., claiming "financial urgency," and on August 31, 2010, unilaterally took action to modify wages, insurance and pension benefits. The Union asserts that the invocation of s. 447.4095, F.S., was improper and was waived by the City in the CBA. Further, the Union alleges that, prior to their enactment, the modifications to the CBA were discussed in a closed door; unnoticed shade meeting in violation of s. 447.605, F.S. Finally, the Union asserted that the City failed to bargain collectively and in good faith by enacting the changes of August 31, 2010, by not providing the Union with notice in advance, and by failing to discuss, bargain over, impact bargain, or complete the process set forth in ss. 447.403 and/or 447.4095, F.S. The Union seeks reinstatement of all benefits (pension and wages) modified by the City Commission. A Recommended Order was received on July 7, 2011 and the City was found in compliance with s. 447.4095, F.S. The Hearing Officer found that the City did not commit an unfair labor practice. On April 20, 2012, PERC affirmed the Recommended Order and entered its Final Order in favor of the City. PERC found that a financial urgency actually existed and that the City correctly invoked s. 447,4095, F.S., demonstrating a compelling governmental interest requiring immediate modification of the agreement with the Union. The Union has filed an appeal with the Third District Court of Appeal. At this time, the City cannot predict with certainty the final outcome of this lawsuit. 6. Miami Association of Firefighters Local 587 of the International Association of Firefighters, of Miami, Florida v. City of Miami; Miami -Dade County Circuit Court, Case No.: 11-28302 CA 06. The Firefighters Union alleges that it is a signatory to a Collective Bargaining Agreement ("CBA") with the City, effective October 1, 2009, through June 30, 2012, which contains a provision for final and binding arbitration. A grievance concerning the City's alleged failure to abide by the terms of the "true fiscal emergency" funding provision of the CBA, found in Section 18.18, was submitted to arbitration (American. Arbitration Association, Case No.: 32-390-00428-10), resulting in an award on June 6, 2011, in favor of the City. The Union alleges that the arbitrator exceeded his power defined and limited by the CBA, by amending and modifying the CBA by nullifying a provision of the contract in violation of Section 15.7 of the CBA, which provides, "The Arbitrator shall have no authority to change, amend, add to, subtract from or otherwise alter or supplement this Agreement or any part thereof or any amendment thereto." Accordingly, the Union seeks to vacate the arbitration award and seeks to have the contract enforced as written. At this time, the City cannot predict with certainty the final outcome of this lawsuit. C. WORKERS' COMPENSATION Only those Workers' Compensation claims which are not covered by the availability of excess insurance purchased by the City to cover certain liabilities in excess of a $500,000 self -insured retention are included herein: 1. Claimant: Randall Cason, v. City of Miami OJCC Case No.: 83-0001666AMK Claim No.: 000757-001087-WC-01 Claimant is a former City police officer who was involved in on -the job accidents on May 2,1982 and May 18,1983. He is receiving permanent total disability benefits and has filed a recent petition for benefits seeking medical benefits. Those benefits will be provided but there is a claim for attorney's fees and costs. The potential exposure for both the benefits and the attorney's fees and costs may exceed be substantial if the City does not prevail. At this time, the City cannot predict with certainty the final outcome of this lawsuit. I - 8 2. Claimant: Calvin Cleare v. City of Miami OJCC Case No.: 07-017368HHH & 11-019913HHH Claim No.: 000757-055151-WC-01 The claimant is a solid waste collector for the City of Miami since November 24,1999, who alleged he was injured on on-the-job on July 18, 2002, March 31, 2005, June 14, 2006, May 31, 2007, July 7, 2008, June 1, 2009, and November 9, 2010, inter alia, as a consequence of multiple accidents of various kinds. The accidents have been accepted as compensable and benefits have been provided. In the past numerous petitions for benefits have been filed for numerous accidents and all have been resolved. Recently, a petition for benefits had been filed on the accident of November 9, 2010, and this office filed a motion to dismiss which was granted but the claimant, through his attorney, has filed a motion to re -address the petition for benefits under the May 31, 2007 date of accident. The PFB seeks authorization of additional medical care for injuries sustained to similar body parts under both dates of accident. The combination all the various accidents constitute a significant possible future exposure for the City of Miami. This is a complex claim and the City may have significant exposure. At this time, the City cannot predict with certainty the final outcome of this lawsuit 3. Claimant: Alma Cortes v. City of Miami OJCC Case No.: 07-029688GCC Claim No.: 000757-001421-WC-01 Claimant is a 63 year old former police officer who alleged she was injured on or about August 18, 1984, when she was arresting a subject, and a resulting scuffle led to on-the-job injuries that were accepted as compensable. Presently, all petitions for benefits have been dismissed but the claim remains open because the parties are considering global settlement. The claimant is receiving permanent total disability and, with very recent medical developments, the future exposure could be substantial. At this time, the City cannot predict with certainty the final outcome of this lawsuit. 4. Claimant: Leonard Linardos v. City of Miami OJCC Case No.: 11-029646SMS Claim No.: 000757-059576-WC-01 Claimant is a City police officer who suffered an occupational disease under s. 112.18(1), F.S., on or about May 26, 2010. The claim was accepted as compensable and the claimant did receive workers' compensation benefits. Recently, the claimant filed a petition for benefits seeking medical and indemnity benefits. The potential exposure may be substantial regardless of whether the City prevails on the instant litigation. At this time, the City cannot predict with certainty the final outcome of this lawsuit 5. Claimant: Alberto Pena v. City of Miami OJCC Case No.: 03-014420SMS Claim No.: 000757-043237-WC-01 Claimant is a former City police officer who suffered a condition covered under F.S. Section 112.18(1) on or about November 1, 2000. The occupational disease involved hypertension at the time of the initial report of claim. The claim was accepted as compensable and the claimant did receive workers' compensation benefits. Recently, the claimant filed a claim for permanent total disability benefits, among other things, and the City has accepted the claimant's entitlement to said benefits; however, there are still issues concerning attorneys' fees and costs, as well as a possible contribution claim against the State of Florida under s. 440.42, F.S. The potential exposure may be substantial if the City does not prevail. At this time, the City cannot predict with certainty the final outcome of this lawsuit. I - 9 ASSERTED CLAIMS - General Except as noted herein, claims not yet in litigation, and currently being investigated by the Risk Management Department, are not included herein. 1. In re Petroleum Products Corporation; Claim No.: 001721-EO-01. An environmental claim is presently being asserted by the United States of America involving an alleged disposal by the City of Miami Fire Department's service garage of 83,055 gallons of waste oil to Petroleum Products Corporation ("PPC') on November 25, 1972. PPC allegedly operated as a processor and broker of waste oil at a site located in Hollywood, Florida, and, during its period of operation, disposed of sludges generated from the oil refining process in unlined pits on the site. Contamination assessment and initial remedial activities undertaken by the United States Environmental Protection Agency ("EPA) and the State Department of Environmental Regulation ("DER") during the past ten (10) years indicate that the soils and groundwater at the site are significantly contaminated by waste oil and other hazardous wastes. Based on an invoice, allegedly documenting the City's involvement in this matter, the EPA has advised that it considers the City a generator of hazardous wastes at the site and, therefore, jointly and severally liable for the cleanup and recovery costs at the site. EPA's preliminary estimate for the collective costs of remedial activities at the site is approximately $26 million dollars. It should be noted that in April, 1999, the EPA offered the City a de minimus settlement offer of $344,109, however, the City rejected the offer. Outside counsel has re-evaluated this matter for the City and estimated the City's potential exposure for soil cleanup activities to be $154,960. This sum was calculated by multiplying the City's allocated share of liability within the Cooperating Parties Group ("CPG") - 0.596% against what counsel for the CPG ("Common Counsel") has advised is one possible worst case cost scenario to the CPG - $20 million. The City has joined the group of Potentially Responsible Parties ("PRP"s), and has entered into a Consent Decree with EPA on the first phase of a three -phased approach to the cleanup of the site, generally known as Operable Unit 1, 2 and 3. Following the execution of the Consent Decree by all settling PRPs, and completion of the remedial design at the site, and after further negotiations with EPA, the group of settling PRPs has taken a very aggressive technical posture at the site. The remedial design addresses not only free product recovery (OU-3), but also aims to achieve significant flushing of impacted soils (OU-2). At this time, the City cannot predict with certainty the final outcome of this matter. E. ASSERTED CLAIMS - Burt J. Harris Act Claims Except as noted herein, all claims listed below were presented under the Burt J. Harris Act, ss. 70.001, et seq., F.S. The Burt J. Harris Act has been interpreted to have both a pre -suit notice requirement, and a four (4) year statute of limitation. See Russo Assoc., Inc. v. City of Dania Beach Code Enf. Bd., 920 So.2d 716 (Fla. 4th DCA 2006). Except for those claims listed below not involving the adoption and implementation of Miami 21, at the earliest, all claims arguably accrued for statute of limitations purposes on October 22, 2009, upon the date of adoption of Ordinance 13114, also known as Miami 21, the Miami Zoning Ordinance; and, at the latest, arguably accrued on January 28, 2010, the date of adoption of Ordinance 13138, which extended date of implementation of Miami 21. Whether involving Miami 21 or not, the City has investigated each of these claims, and formally denied each. 1. In re. The Most Reverend Thomas G. Wenski, Archbishop of the Archdiocese of Miami, Inc. The claimant is the legal title holder of the property located Folio #01-4114-005-0061, commonly known as the "Genesis Parcel", located at.3675 South Miami Avenue, Miami, Florida. The claimant presents a claim under Section 70.001, F.S. (the "Bert J. Harris Act"), alleging that it has suffered a loss in fair market value of I-10 the property due to the City's enacting of Miami 21 Zoning Code, which, because it is allegedly so confusing and ambiguous, purportedly directly restricts or limits the use of the property such that the owner is unable to attain the reasonable investment -backed expectation for the existing use of the property. The claimant seeks compensation for the actual loss to fair market value of the real property caused by the government action, which it claims is a loss appraised at $6,600,000.00. At this time, the City cannot predict with certainty either the final outcome of this claim, or whether it will ripen into litigation. 2. In re The Most Reverend Thomas G. Wenski, Archbishop of the Archdiocese of Miami, Inc. The claimant is the legal title holder of the property located Folio #01- 4114-005-0051, commonly known as the "LaSalle Parcel", located at 3601 South Miami Avenue, Miami, Florida. The claimant presents a claim under Section 70.001, F.S. (the "Bert J. Harris Act"), alleging that it has suffered a loss in fair market value of the property due to the City's enacting of Miami 21 Zoning Code, which, because it is allegedly so confusing and ambiguous, purportedly directly restricts or limits the use of the property such that the owner is unable to attain the reasonable investment -backed expectation for the existing use of the property. The claimant seeks compensation for the actual loss to fair market value of the real property caused by the government action, which it claims is a loss appraised at $63,300,000.00. At this time, the City cannot predict with certainty either the final outcome of this claim, or whether it will ripen into litigation. 3. In re The Most Reverend Thomas G. Wenski, Archbishop of the Archdiocese of Miami, Inc. The claimant is the legal title holder of the property located Folio #01- 4114-005- 0050, commonly known as the "Youth Center Parcel", located at 3333 South Miami Avenue, Miami, Florida. The claimant presents a claim under Section 70.001, F.S. (the "Bert J. Harris Act"), alleging that it has suffered a loss in fair market value of the property due to the City's enacting of Miami 21 Zoning Code, which, because it is allegedly so confusing and ambiguous, purportedly directly restricts or limits the use of the property such that the owner is unable to attain the reasonable investment -backed expectation for the existing use of the property. The claimant seeks compensation for the actual loss to fair market value of the real property caused by the government action, which it claims is a loss appraised at $45,900,000.00. At this time, the City cannot predict with certainty either the final outcome of this claim, or whether it will ripen into litigation. 4. In re The Most Reverend Thomas G. Wenski, Archbishop of the Archdiocese of Miami, Inc. The claimant is the legal title holder of the property located Folio #01-4114-005-0063, commonly known as the "Carroll Manor Parcel", located at 3667 South Miami Avenue, Miami, Florida. The claimant presents a claim under Section 70.001, F.S. (the "Bert J. Harris Act"), alleging that it has suffered a loss in fair market value of the property due to the City's enacting of Miami 21 Zoning Code, which, because it is allegedly so confusing and ambiguous, purportedly directly restricts or limits the use of the property such that the owner is unable to attain the reasonable investment -backed expectation for the existing use of the property. The claimant seeks compensation for the actual loss to fair market value of the real property caused by the government action, which it claims is a loss appraised at $22,500,000.00. At this time, the City cannot predict with certainty either the final outcome of this claim, or whether it will ripen into litigation. 5. In re Aqua -Vista Holding, Inc. The claimant is the legal title holder of the property located at 7610 Biscayne Boulevard, Miami, Florida. The claimant presents a claim under Section 70.001, F.S. (the "Bert J. Harris Act"), .alleging that it has suffered a loss in fair market value of the property due to the City's enacting of Ordinance 13116, Section 2, which purportedly imposed a height limitation on the property by establishing a 35 foot height limitation, and thus inordinately burdening the property. The claimant seeks compensation for the actual loss to fair market value of the real property caused by the government action, which it claims is a loss appraised at $828,000.00. At this time, the City cannot predict with certainty either the final outcome of this claim, or whether it will ripen into litigation. b. In re Charles N. Alien and Susan D. Alien, The claimants are the legal title holder of the property located at 7111 Biscayne Boulevard, Miami, Florida. The claimants present a claim under Section 70.001, F.S. (the "Bert J. Harris Act"), alleging that they have suffered a loss in fair .market value of the property due to the City's enacting of Ordinance 13116, Section 2, which purportedly imposed a height limitation on the property by establishing a 35 foot height limitation, and thus inordinately burdening the property. The claimants seek compensation for the actual loss to fair market value of the real property caused by the government action, which they claim is a loss appraised at $660,000.00. At this time, the City cannot predict with certainty either the final outcome of this claim, or whether it will ripen into litigation. 7. In re Biscayne Inn and Apartments, LLC. The claimant is the legal title holder of the property located at 6730 Biscayne Boulevard, Miami, Florida. The claimant presents a claim under Section 70.001, F.S. (the "Bert J. Harris Act"), alleging that it has suffered a loss in fair market value of the property due to the City's enacting of Ordinance 13116, Section 2, which purportedly imposed a height limitation on the property by establishing a 35 foot height limitation, and thus inordinately burdening the property. The claimant seeks compensation for the actual loss to fair market value of the .real property caused by the government action, which it claims is a loss appraised at $1,122,000, At this time, the City cannot predict with certainty either the final outcome of this claim, or whether it will ripen into litigation. 8. In re Brickell Village Land Company. The claimant is the legal title holder of the property located at 302 SW 7th Street, 327 SW 8th Street, 324 SW 7th Street, 330 SW 7th Street, 337 SW 8th Street, 319 SW 8th Street, 311 SW 8th Street, and 301 SW 8th Street, Miami, .Florida, The claimant presents a claim under Section 70.001, F.S. (the "Bert J. Harris Act"), .alleging that it has suffered a loss in fair market value of the property due to the City's enacting of Ordinance 13114 also known as Miami 21, which purportedly imposed height and developable square footage limitations on the property The claimant seeks compensation for the actual loss to fair market value of the real property caused by thegovernment action, which they claim is a loss appraised at $6,660,000. No appraisal of value was submitted with the claim; however, theclaimant subsequently submitted its appraisal.. At this time, the City cannot predict with certainty either the final outcome of this claim, or whether it will ripen into litigation. 9. In re Charles Tavares/Brickell Commerce Plaza, Inc. The claimant is the legal title holder of the property at 1995 NW 11th Street, 1142 NW 21st Street, 2000.N.W..11th Street,1975 NW 11t'' Street, and 2051 NW 11th Street, Miami, Florida. The claimant presents a claim under Section 70.001, F.S. (the "Burt J. Harris Act"), alleging that it has suffered a loss in fair market value of the property due to the City's enacting of Ordinance 13114, also known as Miami 21. The claimant seeks compensation for the actual loss to fair market value of the real property caused by the government action. No appraisal of value was submitted with the claim. At this time, the City cannot predict with certainty either the final outcome of this claim, or whether it will ripen into litigation. 10. In re Chirav Corporation. The claimant is the legal title holder of the property at 6150 Biscayne Boulevard, Miami, Florida. The claimant presents a claim under Section 70.001, F.S. (the "Bert J. Harris Act"), alleging that it has suffered a loss in fair market value of the property due to the City's enacting of Ordinance 13116, Section 2, which purportedly imposed a height limitation on the property by establishing a 35 foot height limitation, and thus inordinately burdened the property. The claimant seeks compensation for the actual loss to fair market value of the real property caused by the government action, which it claims is a loss appraised at $888,420.00. At this time, the City cannot predict with certainty either the final outcome of this claim, or whether it will ripen into litigation. 11. In re Chocron, LLC. The claimant is the legal title holder of the property located at 5445 & 5501 Biscayne Boulevard, Miami, Florida. The claimant presents a claim under Section 70.001, F.S. (the "Bert I-12 J. Harris Act"), alleging that it has suffered a loss in fair market value of the property due to the City's enacting of Ordinance 13116, Section 2, which purportedly imposed a height limitation on the property by establishing a 35 foot height limitation, and thus inordinately burdening the property. The claimant seeks compensation for the actual loss to fair market value of the real property caused by the government action, which it claims is a loss appraised at $2,328,000.00. At this time, the City cannot predict with certainty either the final outcome of this claim, or whether it will ripen into litigation. 12. In re Elisa Diaz, Victor A. Diaz and Shirley Diaz. The claimants are the legal title holders of the properties located at 6500 Biscayne Boulevard, 6580 Biscayne Boulevard, 570 N.E. 66th Street, and 589 N.E. 65th Street, Miami, Florida. The claimants present a claim under Section 70.001, F.S. (the "Burt J. Harris Act"), alleging that they have suffered a loss in fair market value of the properties due to the City's enacting of Ordinance 13116, Section 2, which purportedly imposed a height limitation on the properties by establishing a 35 foot height limitation, and thus inordinately burdening the properties. The claimants seek compensation for the actual loss to fair market value of the real properties caused by the government action, which they assert is a loss appraised at $2,212,140.00. At this time, the City cannot predict with certainty either the final outcome of this claim, or whether it will ripen into litigation. 13. In re Empire Plaza, LLC. The claimant is the legal title holder of the property located at Lots 1, 2 & 3, Block 2, Aqua Marine, Miami, Florida. The claimant presents a claim under Section 70.001, F.S. (the "Bert J. Harris Act"), alleging that it has suffered a loss in fair market value of the property due to the City's enacting of Ordinance 13116, Section 2, which purportedly imposed a height limitation on the property by establishing a 35 foot height limitation, and thus inordinately burdening the property. The claimant seeks compensation for the actual loss to fair market value of the real property caused by the government action, which it claims is a loss appraised at $576,000.00. At this time, the City cannot predict with certainty either the final outcome of this claim, or whether it will ripen into litigation. 14. In re Fiftystreet Investment, LLC. The claimant is the legal title holder of the properties located at Lot 1, Block 6, Bayshore Plaza Unit No. 4, and Lot 19, Block 6, Bayshore Plaza Unit No. 5, Miami, Florida. The claimant presents a claim under Section 70.001, F.S. (the "Bert J. Harris Act"), alleging that it has suffered a loss in fair market value of the properties due to the City's enacting of Ordinance 13116, Section 2, which purportedly imposed a height limitation on the properties by establishing a 35 foot height limitation, and thus inordinately burdens the properties. The claimant seeks compensation for the actual loss to fair market value of the real properties caused by the government action, which it claims is a loss appraised at $1,723,680. At this time, the City cannot predict with certainty either the final outcome of this claim, or whether it will ripen into litigation. 15. In re God Bless Investment and Enterprises, Inc. The claimant is the legal title holder of the property located at 7150 Biscayne Boulevard, Miami, Florida. The claimant presents a claim under Section 70.001, F.S. (the "Bert J. Harris Act"), alleging that it has suffered a loss in fair market value of the property due to the City's enacting of Ordinance 13116, Section 2, which purportedly imposed a height limitation on the property by establishing a 35 foot height limitation, and thus inordinately burdening the property. The claimant seeks compensation for the actual loss to fair market value of the real property caused by the government action, which it claims is a loss appraised at $855,000.00. At this time, the City cannot predict with certainty either the final outcome of this claim, or whether it will ripen into litigation. 16. In re Infinite Race, Inc. The claimant is the legal title holder of the property located 5201 and 5212 Biscayne Boulevard, Miami, Florida. The claimant presents a claim under Section 70.001, F.S. (the "Bert J. Harris Act"), alleging that it has suffered a loss in fair market value of the property due to the City's enacting of Ordinance 13116, Section 2, which purportedly imposed a height limitation on the property by I - 13 establishing a 35 foot height limitation, and thus inordinately burdening the property. The claimant seeks compensation for the actual loss to fair market value of the real property caused by the government action, which it claims is a loss appraised at $1,676,400.00. At this time, the City cannot predict with certainty either the final outcome of this claim, or whether it will ripen into litigation. 17. In re Milano, Inc. The claimant is the legal title holder of the property located at 7500 Biscayne Boulevard, Miami, Florida. The claimant presents a claim under Section 70.001, F.S. (the "Bert J. Harris Act"), alleging that it has suffered a loss in fair market value of the property due to the City's enacting of Ordinance 13116, Section 2, which purportedly imposed a height limitation on the property by establishing a 35 foot height limitation, and thus inordinately burdening the property. The claimant seeks compensation for the actual loss to fair market value of the real property caused by the government action, which it claims is a loss appraised at $2,801,700.00. At this time, the City cannot predict with certainty either the final outcome of this claim, or whether it will ripen into litigation. 18. In re Morningside Development LLC. Morningside Development LLC has filed a claim in regard to the property located at 5301-5501 Biscayne Blvd., Miami, Florida. The claim arises from a height reduction by the City for an approved land development permit that was granted but with a reduced height from what was requested for the structure. The Applicant did not prevail in appellate litigation contesting the height decision. The appraisal letter served with the claim alleges a fair market value reduction of the property by 80% or $6,380,000. At this time, the City cannot predict with certainty either the final outcome of this claim, or whether it will ripen into litigation. 19. In re Morningside Properties, a Florida general partnership. The claimant is the legal title holder of the property located at Lots 3 & 4, Block 12, Bayshore Unit Two, Miami, Florida. The claimant presents a claim under Section 70.001, F.S. (the "Bert J. Harris Act''), alleging that it has suffered a loss in fair market value of the property due to the City's enacting of Ordinance 13116, Section 2, which purportedly imposed a height limitation on the property by establishing a 35 foot height limitation, and thus inordinately burdening the property. The claimant seeks compensation for the actual loss to fair market value of the real property caused by the government action, which it claims is a loss appraised at $920,280.00. At this time, the City cannot predict with certainty either the final outcome of this claim, or whether it will ripen into litigation. 20. In re Shim V., Ltd. The claimant is the legal title holder of the property located at Lots 1 & 2, Acadia, Miami, Florida. The claimant presents a claim under Section 70.001, F.S. (the "Bert J. Harris Act"), alleging that it has suffered a loss in fair market value of the property due to the City's enacting of Ordinance 13116, Section 2, which purportedly imposed a height limitation on the property by establishing a 35 foot height limitation, and thus inordinately burdening the property. The claimant seeks compensation for the actual loss to fair market value of the real property caused by the government action, which it claims is a loss appraised at $547,140.00. At this time, the City cannot predict with certainty either the final outcome of this claim, or whether it will ripen into litigation. I-14