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Audit - 2004 SW Report KANSAS DEPARTMENT OF HEALTH AND ENVIRONMENT BUREAU OF WASTE MANAGEMENT Solid Waste Form 1290 CHIEF FINANCIAL OFFICER'S LETTER FROM LOCAL GOVERNMENT COpy ~ ( e-\~c.E> To: Kansas Department of Health and Environment Attn: Bureau of Waste Management I am the Chief Financial Officer of _City of Salina a local government organized and existing under the laws of the state of Kansas. This letter is in support of this local government's use of the local government financial test to provide financial assurance for the closure, post-closure care, corrective action costs, or any combination of these, at the municipal solid waste landfill identified in the following numbered paragraphs. 1. This local government is the owner or operator of the following municipal solid waste landfill for which financial assurance for closure, post-closure care, corrective action costs, or any combination of these, is demonstrated according to the provisions in K.A.R 28-29-2110: City of Salina Municipal Solid Waste Landfill 492 Burma Road Salina, KS 67401 Permit No. 144_ Closure $_2,341,989 Post-Closure $_3,599,610_Corrective Action $_N/A [List additional sites and estimates on a separate sheet identified as "Attachment A"] 2. This local government also provides financial assurance for environmental obligations, or provides environmental guarantees, to another local government entity through a financial test procedure at the following site and jurisdiction (if none, enter "None"): Permit No. Corrective Action $_N/A Closure $_N/A_Post-Closure $_N/A Jurisdiction [List additional sites, estimates and jurisdictions on a separate sheet identified as "Attachment B"] Page 1 of 4 - Chief Financial Officer's Letter - Form SW1290 - August 9, 1999 This local government financial test is based upon the financial conditions existing as of the close of the latest completed fiscal year ending on 12/31/2004 The accounting books and records of this local government are maintained according to the requirements of generally accepted accounting principals (GAAP) for governments, or on a prescribed basis of accounting that demonstrates compliance with the cash basis and budget laws of the state of Kansas, which is a comprehensive basis of accounting other than GAAP for governments. In support of this local government's use of financial test, I enclose the following documents: (a) Comprehensive Annual Financial Report (CAFR), or other audited Annual Financial Statements for the latest completed fiscal year; (b) Auditor's Special Report; and (c) Calculation and accumulation details supporting financial test amounts derived from the CAFR or other audited annual financial statements. I certify that this local government: (a) Has no general obligation bonds outstanding which are rated lower than Moody's Baa or Standard & Poor's BBB; (b) Is not currently in default on payments of interest or principal on any general obligation bonds; (c) Has not operated at a deficit exceeding 5% in each of the two latest completed fiscal years; (d) Has passed the financial ratio test or the bond rating test specified for the use of local governments according to the provisions in K.A.R. 28-29-2110; and (e) Has not used the local government financial test to provide financial assurance for closure, postclosure, corrective action costs, or any combination of these, in excess of 43% of revenues as defined in KAR. 28-29-2110. ISI Name Title Date Page 2 of 4 - Chief Financial Officer's Letter - Form SW1290 - August 9, 1999 KANSAS DEPARTMENT OF HEALTH AND ENVIRONMENT BUREAU OF WASTE MANAGEMENT LOCAL GOVERNMENT FINANCIAL RATIO TEST Sum of the Environmental Obligations Assured by the Test 1. Total from the Chief Financial Officer's Letter $_5,941,599 Ratio Test Factors from the CAFR or Annual Financial Statements [Attach details of calculation or accumulation of amounts from CAFR or AFS] 2. 3. 4. 5. 6. 7. Total Annual Revenues Total Annual Expenditures Cash plus Marketable Securities Annual Debt Service Long-Term Debt (Issued in the Current Year) Non-Routine Capital Expenditures $_57,447,491 $_47,809,614 $_25,854,537 $_4,317,075 $ $ [Omit Lines 6 and 7 if GAAP for Governments accounting and reporting method is used] Financial Ratio Test Calculations 8. Environmental Obligations / Total Annual Revenues .1034 (Line 1 divided by Line 2 = < 0.43) 9. Total Annual Revenues / Total Annual Expenditures 1.2016 (Line 2 divided by Line 3 = > 0.95) 10. Cash and Marketable Securities / Total Annual Expenditures _.5408 (Line 4 divided by Line 3 = > 0.05) 11. Annual Debt Service / Total Annual Expenditures _.0903 (Line 5 Divided by Line 3 = < 0.20) 12. Long-Term Debt / Non-Routine Capital Expenditures (Line 6 divided by Line 7 = < 2.00) [Omit Line 12 if GAAP for Governments accounting and reporting method is used] Page 3 of 4 - Chief Financial Officer's Letter - Form SW1290 - August 9, 1999 KANSAS DEPARTMENT OF HEALTH AND ENVIRONMENT BUREAU OF WASTE MANAGEMENT LOCAL GOVERNMENT BOND RATING TEST Sum of the Environmental Obligations Assured by the Test 1. Total from the Chief Financial Officer's Letter $_5,941,599 Ratio Test Factors from the CAFR or Annual Financial Statements [Attach details of calculation or accumulation of amounts from the CAFR or AFS] 2. 3. Total Annual Revenues Total Annual Expenditures $_57,447,491 $_47,809,614 Bond Rating Test Calculations 4. Environmental Obligations / Total Annual Revenues (Line 1 divided by Line 2 = < 0.43) .1043 5. Total Annual Revenues / Total Annual Expenditures (Line 2 divided by Line 3 = > 0.95) 1.2016 Bond Rating 6. Amount, Description, Issue Date and Due Date of Rated General Obligation Bonds_ _$4,210,000 in General Obligation Internal Improvement Bonds _Series 2005-A, Issued 8/01/05, Final Due Date 10/1/2020 7. Currently Assigned Bond Rating Aa3 8. Rating Agency [Attach written evidence of the current bond rating] _Moody's Page 4 of 4 - Chief Financial Officer's Letter - Form SW1290 - August 9, 1999 LOWENTHAL SINGLETON WEBB & WILSON PROFESSIONAL ASSOCIATION David A. Lowenthal, CPA Thomas E. Singleton, CPA Patricia L. Webb, CPA Thomas G. Wilson, CPA Audrey M. Odermann, CPA CERTIFIED PUBLIC ACCOUNTANTS 900 Massachusetts, Suite 301 Lawrence, Kansas 66044-2868 Phone: (785) 749-5050 Fax: (785) 749-5061 E-mail: Iswwcpa@lswwcpa.colll Abram M. Chrislip, CPA Leanne E. Miller, CPA Members of American Institute and Kansas Society of Certified Public Accountants Independent Accountant's Report on ApplyinQ AQreed Upon Procedures Mayor and City Commission City of Salina, Kansas We have performed the procedures enumerate below, which were agreed to by the City of Salina, Kansas, solely to assist you in meeting the requirements of the Kansas Department of Health and Environment (KDHE), as specified in KAR. 28-29-2110, for the year ended December 31, 2004. This agreed upon procedures engagement was performed in accordance with standards established by the American Institute of Certified Public Accountants. The sufficiency of these procedures is the responsibility of the specified users of the report. Consequently, we make no representation regarding the sufficiency of the procedures described below either for the purpose for which this report has been requested or for any other purpose. The procedures that we performed were as follows: 1. We compared amounts and tested the computations to determine that the amounts for total annual revenues, total annual expenditures, cash plus marketable securities, annual debt service, long-term debt issued in the current year, and non-routine capital expenditures, as stated in the Financial Ratio Test section of the chief financial officer's letter dated September 30, 2005, were derived from the audited annual financial report of the City of Salina, Kansas, for the year ended December 31,2004, and were adjusted according to the definitions in KAR. 28-29-211 O(b). 2. We tested the computation of the ratios stated for liquidity and debt service and the use of funds in the Financial Ratio Test section of the chief financial officer's letter dated September 30, 2005, and found them to equal or exceed the requirements of K.A.R. 28-29-2110(c)(2). 3. We tested the computation of the ratio of total operating revenues to total operating expenditures, and the ratio of the sum of closure and post-closure costs to total operating revenues, and found them to equal or exceed the requirements in KAR. 28-29-211 0(c)(5)(C) and KAR. 28-29-211 0(f)(1 )(A) or (8). 4. We noted compliance with K.A.R. 28-29-211 0(c)(3) in the preparation of the annual financial statements of the City of Salina, Kansas, for the year ended December 31, 2004, in conformity with generally accepted accounting principles for local governments. 5. We noted compliance with K.A.R. 28-29-211 0(c)(5)(D) in that the report of independent certified public accountants dated May 11, 2005, included a statement to the effect that the basic financial statements for the year ended December 31, 2004, "present fairly, in all material respects," the transactions and balances of the City of Salina, Kansas, on the basis of accounting described. We were not engaged to, and did not, perform an audit, the objective of which would be the expression of an opinion on the City of Salina Chief Financial Officer's letter to KDHE dated September 30, 2005. Accordingly, we do not express such an opinion. Had we performed additional procedures, other matters might have come to our attention that would have been reported to you. This report is solely for the use of the City of Salina, Kansas, and KDHE, and should not be used by those who have not agreed to the procedures and taken responsibility for the sufficiency of the procedures for their purposes. d~/..L~J ~~~ Professional Association September 30, 2005 Expenditures Total Expenditures from the Combined Statement of Revenues, Expenditures, and Changes in Fund Balances (Statement 2) Less Specifically Identifiable Capital Outlays Net Governmental Funds ExpendItures 2004 2004 C.pll'l S....I.. Project. General Fund Revenue Fund. Debt .ervl.e Fund fund 23,075,970 715,269 22,360,701 From the Combined statement of Revenues, Expenses and changes in Retained Earnings Enterprise (Slatement 4) Funds Total Operating Expenses of Enterprise Funds before depreciation Total Non-operating revenues (net) of Enterprise funds (If negative) Total Non-operating revenues (net) of Internal Service funds (if negative) 9,582,793 1,801,425 7,781,368 781,019 13,578,407 _ Internal Service funds Total Expenditures Net Proprietary Funds Expenditures/Expenses $ 14,359.426 $ Revenues From the Combined Statement of Revenues, Expenditures, and Changes In Fund balance (Statement 2) Total Revenues, Governmental Funds 23,648,957 23,648,957 From the Combined statement of Revenues. Expenses and changes in Retained Earnings Enterprise (Statement 4) Funds Tota! Operating Revenues of Enterprise Funds Total Non-operating revenues (net) of Enterprise funds (if positive) Total Non-operating revenues (net) of Internal Service funds (if positive) Total Proprietary Fund Revenue Total Revenue all funds Current Operating Balance Cash and Current Investments General Fund Special Revenue Funds Debt Service Funds Enterprise Funds Internal Service Funds Total Cash and Investments: Ratios and Misc. information for 2000 1(a) Sum of closure costs assured by financial $ 1.(b) Sum of post-closure costs assured by fine $ 1 c Sum of closure and post-closure costs as~ $ 2 Total Revenues 3 Total Expenditures 4 Cash and Current Investments 5 Debt Service on Long Term Debt (From Sta 6 Capital Expenditures 7 Long term Debt issued Closure/Post Closure as a percent of revenue (line 1c/Line 2) (Must be less than 43%) Revenues diVIded by expenditures greater than.95 Cash divided by Expenditures greater than 5% Debt Service divided by total expenditures less than 20% Is long term debt divided by CapItal less than 2.0 10,210,252 10,210,252 $ 17,549,048_ Internal Service funds 28,113 17,577,161 2004 6,179,729 4,696,037 1,309,321 11,537,771 2,131,679 25,854,537 IA 2,341,989 3,599,610 5,941,599 $ 57,447,491 $ 47,809,614 $ 25,854,537 $ 4,317,075 $ 15,424,936 $ 13,563,047 1034% 120.16% 5408% 903% - Alternative IB 2,341,989 3,599,610 5,941,599 57,447,491 $ 47,809,614 $ 25,854,537 $ 4,317,075 $ 15,424,936 $ 13,563,047 $ 1034% 3,308,119 o 3,308,119 3,040,040 $ 2,971,081 T.t.ls $ 35,966,882 $ 2,516,694 $ 33,450,188 $ 13,578,407 781,019 $ 14,359,426 $ 47,809,614 3,040,040 $ 2,971,081 $ 39,870,330 II Selected Anemative $ 2,341,989 $ 3,599,610 $ 5,941,599 57,447,491 47,809,614 25,854,537 4,317,075 15,424,936 13,563,047 120.16% 120.16% 54.08%_ 9.03% 088 10.34% $ 17,577,161 $ 57,447,491 $ 9,637,877 solid waste financial assurances breakeven.xls 10/13/2005 CDIVI 125 South Wacker Drive. S"ite 600 Chicago. Illinois 60606 tel: 312 346-5000 fax: 312346-5228 April 19, 2005 Mr. Michael Fraser General Services Director Director of Public Works City of Salina 412 East Ash Street Salina, KS 67401 Subject: 2005 Closure and Post-closure Cost Estimates Dear Mr. Fraser: Attached is Camp Dresser & McKee Inc.'s (COM) estimate of 2005 Closure and Post-closure costs for the City of Salina Municipal Solid Waste Landfill (MSWLF), KOHE Permit #144. The attached forms were provided by KOHE and are required in all submittals related to financial assurance plan updates and operating permit renewals. Specifically, these should be submitted to KDHE by June 1, 2005. Please call me at (312) 251-8705 if you have any questions regarding these costs. Very truly yours, ~~.. Christopher M. Martel, P.E. Senior Project Manager Camp Dresser & McKee Inc. cc: Bob Helm (City of Salina) P:\8558salina\2005 Annual\closure casts\04130S cl lJ-c:I est doc consulting. engineering. construction. operations OWNER: Citv of Salina. KS CLOSURE COST ESTIMATE WORKSHEET FOR MSW LANDFILL FORM 1 144 CURRENT PERMIT RENEWAL YEAR: TOTAL PERMITTED AREA: 280 PERMIT NO. 2005 Total Volume of Site: 24.144.000 CU. YDS. AREA CURRENTLY OPEN: 29 LARGEST AREA TO EVER BE OPEN AT ANY TIME: ACRES CONVERSION FACTOR: 4840.02 SQ. YDSJACRE ACRES CONVERSION FACTOR: 0.3333 YDSJFT. 29 ACRES (use this area for estimating closure costs) ITEM QUANTITY UNITS UNIT COST COST SUBTOTALS Low Permeability Soil Laver Preoaration of landfill to receive cover (final grading) 29 ACRE $53.75 $1,559 General fill to reach surrounding grades 112,933 CU. YD. $ 1.77 $ 199,89 I Clay-compacted, off-site N/A CU. YD. $10.63 $ N/A Clay-comoacted, on-site 70,180 CU. YD. $5.67 $397,921 Low Permeability Soil Layer Subtotal $599,371 Geomembrane and Drainaee Laver Drainage material - sand 46,787 CU. YD. $11.00 $514,657 Drainage material - geogrid N/A SQ. YD $4.18 $ N/A Geomembrane 140,360 SQ. YD. $3.90 $547,404 Geomembrane and Draina2e Laver Subtotal $1,062,061 Protective Soil (Veeetative) Laver Soil - off-site N/A CU. YD. $5.20 $ N/A Soil - on-site 70,180 CU. YD. $ 1.77 $124,219 Seeding and mulching 29 ACRE $1,500.00 $43,500 Protective Soil (Vegetative) Layer Subtotal $167,719 Erosion Control Terraces 7,600 Lin. FT. $0.55 $4,180 Grass ditching/channels 3,000 Lin. FT $9.00 $27,000 Riorao ditching/channels N/A Lin. FT $13.00 $ N/A Erosion Control Subtotal $31,180 Gas System Gas vents, 29 # of vents, 50 average depth 1,450 Lin. FT. $65 $94,250 Passive System Passive well head flare I 29 I EACH $500 $14,500 I Active System Flare, BTUlhour N/A EACH N/A $ N/A Ancillary gas equipment N/A I Lumo Sum N/A $ N/A Gas System Subtotal $108,750 Professional Services Engineering (Bid Documents) 1 Lumo Sum $75,000 $75,000 Topographic and Boundary Survey I Lump Sum $10,000 $10,000 Engineering (Construction Oversight) I Lumo Sum $75,000 $75,000 Professional Services Subtotal $ 160,000 Total Closure Cost Subtotal $2.129,081 Miscellaneous 10% Administration and Contin!:!encv (Total Closure Cost Subtotal x 10%) $212,908 $ $ Misc. Subtotal $212,908 TOTAL CURRENT CLOSURE COST $2,341,989 (Instructions and explanations of bid items and sources of unit costs are provided on the back of this page.) Contact Person/Cost Estimate Prepared By: Phone Number: 312-251-8705 ChristopheU1. Martel, P.E., Camp Dresser & McKee [nc. _ Last edit date: April 19, 2005 cmm Note: Pages GA, 6B and 6C must be submitted at the time of renewal. Page 6A POST-CLOSCRE COST ESTlMA TE WORKSHEET FOR MSW LANDFILL FORM 2 OWNER: Citv of Salina. KS PERMIT NO. 0144 CURRENT PERMIT RENEWAL YEAR: 2005 TOTAL PERMITTED DISPOSAL AREA: 280 (use this area for estimating post-closure cost) ACRES TOTAL VOLUME OF SITE: 24.144.000 CU. YDS. CONVERSION FACTOR: 4840.02 SQ. YDSJACRE CONVERSION FACTOR: 0.3333 YDSJFT. ITEM T QUANTITY UNITS UNIT COST COST I SUBTOTALS Cover Repair for 5 % of the Landfill Area 5% of the landfill area, 14 Acres Soil - off-site N/A CU. YD. $5.20 $ N/A Soil - on-site (12") 22,587 CU. YD. $1.77 $39,979 Cover Revair Subtotal $39,979 Seeding (Reseed 5 % of the Landfill Area) 5% of the landfill area, 14 acres Seeding and mulching 14 ACRE $1,500.00 I $21,000 Seeding Subtotal $21,000 Leachate Collection generation rate 12,800 gal./aclyr. (588,800 gal/yr)1 Operation and maintenance of leachate collection system N/A yr. N/A $5,000 Leachate hauling distance 2 miles, 196 # trips/year ' 196 trip $IOO([rip $19,600 Leachate treatment 588,800 gal. $.0024 $1,413 Leachate management and treatment on site N/A Lump Sum N/A $N/A Leachate sampling I trip $200 $200 Leachate analvsis I event $500 $500 Leachate Collection Subtotal $26,713 Landfill Gas Monitoring Quarterly methane monitoring at site boundary 4 I event $1,250 $5,000 I Landfill Gas Monitoring I $5,000 Landfill Gas Extraction System Reinstallation of methane vents (replacement of system once during post- closure, 1.450 totallin. ft. of all groundwater wells) 48 Lin. Fr. $65 $3,120 Operation and maintenance of gas extraction system N/A Million CU. Fr. N/A $ N/A Landfill Gas Extraction System Subtotal $3,120 Groundwater Monitoring 19 # wells in the approved system Sampling personncllabor (2 events/year min.) 80 hr. $35.00 $2,800 Sample event mobilization (2 events/year min.) 100 mile $0.40 $40 Analytical costs (2 events/year min.) 38 sample $220.00 $8,360 Monitoring well maintenance 19 well $13.00 $247 Monitoring well replacement ( 662 totallin. ft. of all groundwater wells) 22 Lin. FT. $60 $1,320 Groundwater Monitoring Subtotal $12,767 Inspections and Recordkeeping Inspections and recordkeeping I I Lump Sum I $500 $500 Inspections and Recordkeeping Subtotal $500 Remedial Svstem Operations Remedial system operations N/A Lump Sum I N/A $ N/A I Remedial System Operations Subtotal T $ N/A Estimated Annual Post-Closure Cost (sum of all subtotals above) $109,079 Administration and Contingency Administration and Contingency (Total Estimated Post-Closure Cost x 10% I $10,908 Administration and Contingency Subtotal $10,908 TOT AL ESTIMATED ANNUAL POST -CLOSURE COST $119,987 ESTIMA TED 30 YEAR POST -CLOSURE COST Annual x 30 $3,599,610 1. No leachate collection system in original landfill; annual leachate collection calculated for Cells 1 through 4, approximately 46 acres. 2. Leachate hauled in quantities of 3,000 gal/trip. (Instructions and explanations of bid items and sources of unit costs are provided Oil the back of this page.) Contact Person/Cost Estimate Prepared By: Phone Number: 312-251-8705 Christopher M. Martel, P.E., Camp Dresser & McKee Inc. Last edit date: April 19. 2005 cmm Note: Pages 6A, 6B and 6C must be submitted at the time of renewal. Page 6B ESTIMATED LIFE WORKSHEET FOR MSW LANDFILL FORM 3 OWNER: City of Salina, KS PERMIT NO. 144 CURRENT PERMIT RENEWAL YEAR: 2005 CONVERSION FACTOR: 4840.02 SQ. YDS.lACRE CONVERSION FACTOR: 0.3333 YDS./FT. Landfill Site Data QUANTITY UNITS Total Site Area 640 ACRES Total Area Permitted to Receive Waste 280 ACRES Total Area Currently Open 29 ACRES Total Area That Received Final Cover 83 ACRES Identify Cells That Received Final Cover by Name or Phase AREA UNITS 1. Name or Phase: Original (Non-Subtitle D) Area 66 ACRES 2. Name or Phase: Cell I and a portion of Cell 2 17 ACRES 3. Name or Phase ACRES 4. Name or Phase ACRES Life of Celli Landfill Data QUANTITY UNITS Annual A verage Tonnage Received (A) L 90,159 Tons A verage Compacted Density of Waste (B) 944.5 lbs/CU. YD. , SoIl-to-Waste Ratio (C) 1:6 (16.7%) Calculation for Annual Volume QUANTITY UNITS Annual Volume (CU. YDS.) = [(A x 2000)/8] x [1 + C] 222,796 CU. YDS. Total Volume Capacity of Original Site 24,144,000 CU. YDS. Total Remainim! Volume Capacity of Site 18,151,661 CU. YDS. Remaining Life of Landfill 81 YEARS 1 Soil used for daily and intermedIate cover occupIes landfill aIrspace. The sOlI-to-waste ratIo accounts for the landfill space occupied by soil. Most soil-to-waste ratio estimates range from 1:3 (33%) to 1:10 (10%). KDHE recommends 1:6 (16.7%). 2 Based on actual 2004 quantity received Contact Person/Cost Estimate Prepared By: Phone Number: 312-251-8705 Christopher M. Martel. P.E., Camp Dresser & McKee Inc. Last edit date: April 19. 2005 cmm Page 6C Note: Pages 6A, 6B and 6C must be submitted at the time of renewal. ~ -.-- -.-.- -.-.- -- .. - --'.- ---- Moody's Investors Service 723 N Wacker Dnve SUite 1350 Ct1/cago. IL 60606 July 1 L 2005 Mr. Rodney Franz Finance Director City of Salina City Hall ]00 West Ash Salina, KS 67402 Jonathan North Vice President/Analyst Tel. 372-706-9973 Fax. 312-706-9999 E-mail.jonathan.north@moocJvs.com Dear Mr. Franz: We wish to infcllln you that on July 7,2005, Moody's Rating Committee reviewed and assigned a rating of MIG 1 to Salina (City of) KS's General Obligation Temporary Notes, Series 2005-1 and a Aa3 rating to it's General Obligation internal Improvement Bonds. In order for us to maintain the currency of our ratings, we request that you provide ongoing disclosure, including annual financial and statistical infc.1n11ation. Moody's will monitor this rating and reserves the right at its sole discretion, to revise or withdraw this rating at any time in the future. The rating, as well as any revisions or withdrawals thereoC will be publicly disseminated by Moody's through normal print and electronic media and in response to verbal requests to Moody's ratings desk. Should you have any questions regarding the above, please do not hesitate to contact me or the analyst assigned to this transaction, John Humphrey, at 312-706-9962. ~ t:c: !'vb. David Arteherry George K. Ballin & Co. ... -;-;.. ih,jf~ ~~,. Moody'. In__tors s.rvtc. Global Credit Research New Issue 7 JUL 2005 New Issue: Salina (City of) KS MOODY'S UPGRADES TO Aa3 FROM A 1, THE CITY OF SALINA'S (KS) UNDERLYING GENERAL OBLIGATION RATING, AFFECTING $27.1 MILLION OF DEBT Aa3 RATING ASSIGNED TO SALINA'S $4.21 MILLION GO INTERNAL IMPROVEMENT BONDS, SERIES 2005-A, AND A MIG 1 RATING TO ITS $500,000 GO TEMPORARY NOTES, SERIES 2005-1 Municipality KS Moody's Rating ISSUE General Obligation Internal Improvement Bonds Sale Amount $4,210,000 Expected Sale Date 07/11/05 Rating Description General Obligation RATING Aa3 General Obligation Temporary Notes, Series 2005-1 Sale Amount $500,000 Expected Sale Date 07/11/05 Rating Description Bond Anticipation Notes MIG 1 Opinion NEW YORK, Jul 7, 2005 - Moody's Investor's Service has assigned a Aa3 rating to the City of Salina's (KS) $4.21 million General Obligation Internal Improvement Bonds, Series 2005-A, and a MIG 1 rating to its $500,000 General Obligation Temporary Notes, Series 2005-1. Concurrently, Moody's has upgraded to Aa3 from A 1, $27.1 million of the city's outstanding general obligation debt, including the current issue. All of the proceeds of the bonds, and a portion of the notes, will retire several outstanding temporary obligations, originally issued for street, utility, bridge, storm water, and HVAC improvements. The remaining portion of the notes will be used for road improvements. Assignment of the Aa3 rating and upgrade reflect the city's sizeable tax base which acts as a regional economic hub, strong city management, and an average amount of rapidly retired debt. Assignment of the MIG 1 rating reflect these factors as well as our expectation of continued market access. COUNTY SEAT ACTS AS REGIONAL ECONOMIC HUB Located 95 miles north of Wichita (GO rated Aa2), and 175 miles west of Kansas City (GO rated Aa3), the city of Salina encompasses 20 square miles, and acts as the county seat for Saline County. Its sizeable $2.4 billion tax base has grown at a 4.4% five year average annual rate, somewhat slower than in previous years. While the region is largely agricultural, the city serves as a retail, commercial, and medical hub for north- central Kansas, benefiting from its location at the intersection of 1-70 and 1-135. In addition to its retail/commercial segment, Salina exhibits a notable manufacturing presence. The Salina Industrial Center, located adjacent to the city's municipal airport, has successfully attracted 70 businesses, representing various industries, (aerospace, metal fabrication, high tech equipment etc.), with an employment of 4,600, and has room for further development. Most CIP related projects are part of a multi-year comprehensive transportation plan designed to encourage and manage growth (see below). Operations at major employers and tax payers are reportedly stable. Moody's believes the city's tax base will continue to grow at a somewhat slow, but steady pace. City wealth levels are slightly below state medians, while Saline County's May unemployment rate of 4.1 % was below both the state and national averages of 5.0% and 4.9% respectively. HISTORICALLY STABLE RESERVE LEVELS; WELL MANAGED OPERATIONS Historically, the city has maintained stable General Fund reserve levels near 30% of revenues. In fiscal 2003 however, the city posted a $242,000 operating deficit due to a loss of state aid and lower than budgeted sales tax revenues, which in response, the city enacted a series of hiring freezes, and looked to alternate revenue sources, (increasing Franchise Fees etc.) as an offset. Un-audited fiscal 2004 results are expected to show essentially balanced operations. The city maintains a formal General Fund balance policy of retaining an unreserved General Fund balance of 15-20% of revenues, and as such, the city expects a $1 million drawdown in 2005, and a smaller, $300,000 draw in 2006. Based on fiscal 2003 revenues, this would yield a 20% total General Fund balance on a cash basis (somewhat higher on a GAAP basis). Several different sales taxes are collected, and collectively represent a significant source of revenue for the city. Established in 1982, the city receives a portion of a 1 % county wide sales tax, all of which flows into the General Fund for general operations. The proportional distribution received is dependant on the city's levy relative to surrounding municipalities, which currently gives the city 65% of the total- though officials expect its proportional share to decline slightly. On top of the county tax, voters approved in 1992, a 0.5% Local Option Sales Tax- also flowing into the General Fund for general operations. Replacing an expiring 0.25% Local Option Sales Tax originally dedicated to USD 305, voters approved an extension of this tax through June 2010, to be used for capital projects. Neither the county wide sales tax, nor the 0.5% Local Option Sales Tax have sunset dates, nor is there a difference between items subject to the 0.25%, 0.5% and 1.0% sales tax. A significant portion of city revenues are derived from sales tax (52% of fiscal 2003's General Fund revenues, and 34% of total operating revenues). Such a dependence on sales tax does expose the city to some volatility as greater economic conditions fluctuate. Historical collection rates however, have been relatively sound. While collections have generally grown at a slow pace, only twice since 1996 has there been an actual decline, and in both cases, it did not exceed 3%, and was offset by larger gains the following year. Moody's believes that, despite expected General Fund draw-downs, given historically sound sales collections, and the city's draw as a retail/ commercial hub (it enjoys one of the state's highest trade pull factors- a measure of county sales tax per capita vs. average sales tax per capita statewide), it will retain sufficient liquidity to respond to unforeseen budgetary events. STRONG DEBT MANAGEMENT; DEBT PROFILE EXPECT TO REMAIN MANAGEABLE At 5.0%, the city's debt burden is above average, driven in large part by sizeable issuance of Saline County USD 305 (GO rated A 1). The city's direct debt level however, is an average, 1.2% and has remained relatively stable over time, as has its current direct debt per capita of $625. Typically, the city issues twice per year, a combination of short term and long term debt for CIP related projects, and has established an informal policy of keeping its debt service levy at 4 mills. To help meet this goal, and to continue funding future projects, the city expects to use most of its 0.25% Local Option Sales Tax for capital improvements. Besides $1 million for sewer improvements expected to be issued later this year, the city has several major upcoming infrastructure projects. Using a combination of notes and bonds over the next three to four years, the city expects to finance its $6 million share of a $20 million railroad overpass construction ($12 million to be paid by the state, $2 million by the railroad) project, expected to be finalized in 2007. To remain below their 4 mill rate target, the city has established a Special Sales Tax Stabilization Fund, funded from the 0.25% sales tax. City officials expect to be able to maintain this fund until 2011, when its debt service obligations begin to fall off. The city has also identified major arterial street upgrades to continue through 2009. Given the city's strong debt management practices, average existing direct debt burden, and rapid principal amortization (89.2% retired in ten years), Moody's believes the city debt profile will remain manageable. KEY STATISTICS 2005 Population (Estimate): 47,533 2004 Full Valuation: $2.42 Billion 2004 Full Value Per Capita (Estimate): $52,745 Direct Debt: 1.2% Overlapping Debt: 5.0% Payout (10 Years): 89.2% Fiscal 2003 General Fund Balance: $6.8 million (29.7% of revenues) Saline County's Unemployment Rate (5-2005): 4.1 % 2000 Per Capita Income as a % of State: 90.7% 2000 Median Family Income as a % of State: 91.6% Analysts John Humphrey . ' Analyst Public Finance Group Moody's Investors Service Paul Nolan Backup Analyst Public Finance Group Moody's Investors Service Edward Damutz Senior Credit Officer Public Finance Group Moody's Investors Service Contacts Journalists: (212) 553-0376 Research Clients: (212) 553-1653 @ Copyright 2005, Moody's Investors Service, Inc. and/or its licensors including Moody's Assurance Company, Inc. (together, "MOODY'S"). All rights reserved.