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R2677R E S O L U T I O N NO. 2677 A RESOLUTION DECLARING THE INTENT OF THE METROPOLITAN ST. LOUIS SEWER DISTRICT TO ISSUE ITS WASTEWATER SYSTEM REVENUE BONDS IN THE AMOUNT IN THE MAXIMUM PRINCIPAL AMOUNT OF APPROXIMATELYNOT TO EXCEED $60,000,000 FOR THE PURPOSE OF CONSTRUCTING, IMPROVING, RENOVATING, REPAIRING, REPLACING AND EQUIPPING NEW AND EXISTING MSD DISTRICT SEWER FACILITIES AND SYSTEM, INCLUDING SEWER DISPOSAL AND TREATMENT PLANTS AND SANITARY INTERCEPTOR SEWERS. WHEREAS, Tthe Metropolitan St. Louis Sewer District (the "“District"”), a body corporate, a municipal corporation and a political subdivision duly organized and existing under the Constitution and laws of the State of Missouri and the District'’s Charter (Plan), as amended, approved by the voters for its government (the "“Charter"”), owns and operates a revenue producing sanitary sewer system (the "“System"”). WHEREAS, the District desires to make certain additions, extensions and improvements to the System and is authorized under the provisions of the Charter to issue and sell revenue bonds for the purpose of providing funds for such purpose, upon obtaining the required voter approval and provided that the principal of and interest on such revenue bonds shall be payable solely from the revenues derived from the operation of the System. WHEREAS, at a special bond election duly held in the District on February 3, 2004 (the “Election”), voters authorized the District to issue its sewer system revenue bonds in the amount of Ffive Hhundred Mmillion Ddollars ($500,000,000) for the purpose of constructing, improving, renovating, repairing, replacing and equipping new and existing MSD District sewer facilities and system, including sewer disposal and treatment plants, sanitary interceptor sewers and acquisition of easements and real property related thereto, the cost of operation and maintenance of said sewer system and the principal of and interest on said revenue bonds to be payable solely from the revenues derived by MSD the District from the operation of its sewerthe Ssystem, including all future extensions and improvements thereto. WHEREAS, the District has previously issued, or is in the process of issuing, wastewater system revenues bonds in the aggregate principal amount of $400,000,000 in four five different series which were authorized pursuant to the 2004 voter authorizationElection. WHEREAS, the District has determined that it is necessary and desirable and in the best interests of the citizens of the area served by the System for the District to make the additions, extensions and improvements to the System (the ““Project””), and to finance the costs of the Project by issuing its Wastewater System Revenue Bonds, Series 2006C in the an aggregate principal amount of of approximatelynot to exceed $60,000,000 (the “Bonds”). Formatted: Centered, Don't adjust space between Latin and Asian text Formatted: Underline Formatted: Centered -2- WHEREAS, in connection with the marketing and sale of the Bonds, the District desires to authorize the preparation and distribution of a Preliminary Official Statement regarding the Bonds (the “Preliminary Official Statement”). BE IT RESOLVED BY THE METROPOLITAN ST. LOUIS SEWER DISTRICT, AS FOLLOWS: Section 1. Declaration of Intent. The District hereby determines and declares its intent to issue wastewater system revenue bonds of the Districtthe Bonds in a principal amount not to exceed $60,000,000 to be determined by subsequent ordinance of the District, to provide funds to finance the costs of the Project, including reimbursement of expenditures, such bsuch Bonds to be limited and special revenue obligations payable solely out of System revenues. Section 2. Reimbursement of Expenditures. The District expects to incur capital expenditures on and after the date of adoption of this Resolution (the ““Expenditures””), and the District intends to reimburse itself for such Expenditures solely from the proceeds of the bBonds in an amount which, depending on the date of issuance of such the bBonds, may aggregate a maximum of $60,000,000. The District hereby declares that the funds to be advanced to pay Expenditures are or will be available only for a temporary period and it is necessary to reimburse the District for Expenditures made on and after the date hereof. This Resolution constitutes a declaration of official intent under Treasury Regulation Section 1.150-2 issued under the Internal Revenue Code of 1986, as amended. Section 3. Sale of the Bonds. The District shall sell the Bonds pursuant to a Bond Purchase Contract (the ““Purchase Contract””), between the District and A.G. Edwards & Sons, Inc.; Edward D. Jones & Co. L.P.; Stifel Nicolaus & Company, Incorporated; Backstrom, McCarley Berry & Co., LLC and Siebert Brandford Shank and Co., LLC the underwriters designated by the District (collectively, the ““Underwriters””), under which the District agrees to sell the bBonds to the Underwriters upon the terms and conditions as set forth in the Purchase Contract. Section 4. Further Authorization and Direction. The District hereby authorizes and directs the Gilmore & Bell, P.C. and the Hardwick Law Firm LLC, Co-Bond Counsel, the Underwriters and their counsel, the District’’s Executive Director, Secretary-Treasurer and Gthe District’s genneral Ccounsel, financial advisors and other officers and representatives of the District, to prepare, for submission to and final action by the District, all appropriate legal and financing documents necessary to effect the authorization, issuance and sale of the bBonds and any other actions contemplated hereunder in connection with the issuance and sale thereof. Section 5. The Preliminary Official Statement is hereby approved in substantially the form attached hereto as Exhibit A, with such changes and additions thereto as the Chairman of the Board of Trustees of the District or the Executive Director of the District shall deem necessary or appropriate, and the appropriate officers and representatives of the District are hereby authorized to use such document in connection with the marketing and public sale of the Bonds. -3- Section 6. For the purpose of enabling the Underwriters to comply with the requirements of Rule 15c2-12(b)(1) of the Securities and Exchange Commission, the appropriate officers of the District are hereby authorized, if requested, to provide the Underwriters a letter or certification to the effect that the District deems the information regarding the District contained in the Preliminary Official Statement to be “final” as of its date, except for the omission of such information as is permitted by Rule 15c2-12(b)(1), and to take such other actions or execute such other documents as such officers in their reasonable judgment deem necessary to enable the Underwriters to comply with the requirement of such Rule. Section 7. The District agrees to provide to the Underwriters within seven business days of the date of sale of the Bonds or within sufficient time to accompany any confirmation that requests payment from any customer of the Underwriters, whichever is earlier, sufficient copies of the final Official Statement to enable the Underwriters to comply with the requirements of Rule 15c2-12(b)(4) of the Securities and Exchange Commission and with the requirements of Rule G-32 of the Municipal Securities Rulemaking Board. Section 58. Further Authority. The District shall, and the officers, agents and employees of the District are hereby authorized and directed to, take such further action, and execute such other documents, certificates and instruments, including, without limitation, any credit enhancement or security documents, arbitrage certificate, closing certificates and tax forms, as may be necessary or desirable to carry out and comply with the intent of this Resolution, and to carry out, comply with and perform the duties of the District with respect to the bBonds and the documents to be executed by the District in connection therewith. Section 69. Effective Date. That this Resolution shall be in full force and effect from and after its passage and approval. ADOPTED by the Board of Trustees this 12th day of October, 2006. _________________________________ PresidentChair of the Board of Trustees of tThe Metropolitan St. Louis Sewer District (Seal) ATTEST: _________________________________ Secretary-Treasurer of the Board of Trustees EXHIBIT A PRELIMINARY OFFICIAL STATEMENT This Preliminary Official Statement and the information contained herein are subject to completion and amendment without notice. These securities may not be sold nor may offers to buy be accepted prior to the time the Official Statement is delivered in final form. Under no circumstances shall this Preliminary Official Statement constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of these securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. PRELIMINARY OFFICIAL STATEMENT DATED _________________, 2006 NEW ISSUE Ratings: Underlying: Book-Entry Only Insured : ____ See “RATINGS” herein In the opinion of Gilmore & Bell, P.C., St. Louis, Missouri, and the Hardwick Law Firm, LLC, Kansas City, Missouri, Co-Bond Counsel, under existing law and assuming continued compliance with certain requirements of the Internal Revenue Code of 1986, as amended, the interest on the Series 2006C Bonds (including any original issue discount properly allocable to an owner thereof) is excluded from gross income for federal and Missouri income tax purposes and is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations. The Series 2006C Bonds have not been designated as “qualified tax-exempt obligations” within the meaning of Section 265(b)(3) of the Internal Revenue Code of 1986, as amended. See the section herein captioned “TAX MATTERS” and the form of opinion of Co-Bond Counsel attached hereto as Appendix E. $60,000,000 The Metropolitan St. Louis Sewer District Wastewater System Revenue Bonds Series 2006C Dated: Date of Delivery Due: May 1, as shown on the inside cover The Wastewater System Revenue Bonds, Series 2006C (the “Series 2006C Bonds”) will be issued by The Metropolitan St. Louis Sewer District (the “District”) pursuant to the herein defined Bond Ordinance to provide funds to (i) finance a portion of the costs of a program of capital improvements to the District’s wastewater facilities and system, (ii) fund a debt service reserve account for the Series 2006C Bonds (defined herein), and (iii) pay the costs of issuance of the Series 2006C Bonds. The Series 2006C Bonds will be secured by a pledge of certain revenues of the District as further described herein under the section captioned “SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2006C BONDS.” The Series 2006C Bonds are issuable only as fully registered bonds and when issued will be registered in the name of Cede & Co., as registered owner and nominee for The Depository Trust Company (“DTC”), New York, New York. See the section herein captioned “THE SERIES 2006C BONDS – Book-Entry Only System.” Principal of the Series 2006C Bonds is payable to the registered owners of the Series 2006C Bonds on May 1 in the years shown on the inside cover hereof. Interest on the Series 2006C Bonds is payable semiannually on May 1 and November 1 of each year, beginning on May 1, 2007. The Series 2006C Bonds and the interest thereon are limited obligations of the District payable solely from the Pledged Revenues, as defined herein. The Series 2006C Bonds and the interest thereon shall not constitute a general or moral obligation of the District nor a debt, indebtedness, or obligation of, or a pledge of the faith and credit of, the District or the State of Missouri (the “State”) or any political subdivision thereof, within the meaning of any constitutional, statutory or charter provision whatsoever. Neither the faith and credit nor the taxing power of the District, the State, or any political subdivision thereof is pledged to the payment of the principal of, premium, if any, or interest on the Series 2006C Bonds or other costs incident thereto. The District has no authority to levy any taxes to pay the Series 2006C Bonds. Neither the members of the Board of Trustees of the District nor any person executing the Series 2006C Bonds shall be liable personally on the Series 2006C Bonds by reason of the issuance thereof. The Series 2006C Bonds are subject to optional and mandatory sinking fund redemption as described herein. See the section herein captioned “THE SERIES 2006C BONDS - Optional and Mandatory Redemption.” [The District is considering having all or a portion of the Series 2006C Bonds insured by a municipal bond insurer. There is no assurance that the District can or will obtain bond insurance on all or any portion of the Series 2006C Bonds. See the section herein captioned “SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2006C BONDS – Possible Series 2006C Credit Facility.”] See inside cover for maturities, principal amounts, interest rates, prices and CUSIP numbers. This cover page contains information for quick reference only. Investors must read the entire Official Statement to obtain information essential to the making of an informed investment decision. The Series 2006C Bonds are offered when, as and if issued by the District and accepted by the Underwriters, subject to prior placement, withdrawal or modification of the offer without notice and subject to the approval of their validity by Gilmore & Bell, P.C., St. Louis, Missouri, and the Hardwick Law Firm, LLC, Kansas City, Missouri, Co-Bond Counsel, and subject to certain other conditions. Certain legal matters will be passed upon for the District by its General Counsel, and for the Underwriters by their co-counsel, Armstrong Teasdale LLP, St. Louis, Missouri, and White Coleman & Associates, LLC, St. Louis, Missouri. It is expected that the Series 2006C Bonds will be available for delivery through the facilities of DTC in New York, New York on or about November [__], 2006. Siebert Brandford Shank & Co., L.L.C. Backstrom McCarley Berry & Co. The date of this Official Statement is November __, 2006. $60,000,000 The Metropolitan St. Louis Sewer District Wastewater System Revenue Bonds Series 2006C MATURITY SCHEDULE * Base CUSIP: 592481 1 $______________* Serial Bonds Maturity (May 1) Principal Amount Interest Rate Price CUSIP1 2027 $ % % 2028 2029 2030 2031 2032 2033 2034 2035 2036 $ __________*____% Term Bonds due May 1, 20__*, Price _____, CUSIP1 _____ $___________*____% Term Bonds due May 1, 20__*, Price _____, CUSIP1 _____ * Preliminary, subject to change. 1 CUSIP numbers shown above have been assigned by an organization not affiliated with the District. The District was not responsible for the selection of CUSIP numbers nor does it make any representation as to the correctness of such numbers on the Series 2006C Bonds or as indicated herein. THE METROPOLITAN ST. LOUIS SEWER DISTRICT BOARD OF TRUSTEES Dee Joyce-Hayes, Chair Charles Karam, Vice Chair James H. Buford, Member John Goffstein, Member Ellen Harshman, Member David B. Rosenberg, Member ADMINISTRATION Jeffrey L. Theerman, P.E., Executive Director Karl J. Tyminski, CPA, Secretary-Treasurer Randy E. Hayman, Esq., General Counsel Janice M. Zimmerman, Director of Finance Brian Hoelscher, P.E., Director of Engineering Dave St. Pierre, P.E., Director of Operations ADVISORS AND CONSULTANTS Co-Bond Counsel Gilmore & Bell, P.C. Hardwick Law Firm, LLC St. Louis, Missouri Kansas City, Missouri Financial Advisors to the District Public Financial Management Valdés & Moreno, Inc. Des Moines, Iowa and St. Louis, Missouri Kansas City, Missouri Co-Counsel to the Underwriters Armstrong Teasdale LLP White Coleman & Associates, LLC St. Louis, Missouri St. Louis, Missouri Feasibility Consultant Black & Veatch Corporation Overland Park, Kansas and St. Louis, Missouri Independent Auditor Hochschild Bloom & Company LLP Chesterfield, Missouri REGARDING USE OF THIS OFFICIAL STATEMENT ____________________________________ THE SERIES 2006C BONDS HAVE NOT BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, NOR HAS ANY DOCUMENT BEEN QUALIFIED UNDER THE TRUST INDENTURE ACT OF 1939, AS AMENDED, IN RELIANCE UPON EXEMPTIONS CONTAINED IN SUCH ACTS. IN MAKING AN INVESTMENT DECISION, INVESTORS MUST RELY ON THEIR OWN EXAMINATIONS OF THE DISTRICT AND THE TERMS OF THE OFFERING. THE SERIES 2006C BONDS HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE, THE FOREGOING AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY OF THIS OFFICIAL STATEMENT. ANY REPRESENTATION TO THE CONTRARY MAY BE A CRIMINAL OFFENSE. IN CONNECTION WITH THE OFFERING OF THE SERIES 2006C BONDS, THE UNDERWRITERS MAY OVER ALLOT OR EFFECT TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SERIES 2006C BONDS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. The Underwriters have provided the following sentence for inclusion in this Official Statement: The Underwriters have reviewed the information in this Official Statement in accordance with, and as part of, their respective responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriters do not guarantee the accuracy or completeness of such information. No dealer, broker, salesman or other person has been authorized by the District, the Underwriters or the Financial Advisors to give any information or to make any representations with respect to the Series 2006C Bonds other than those contained in this Official Statement, and, if given or made, such other information or representations must not be relied upon as having been authorized by any of the foregoing. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of the Series 2006C 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 furnished by the District and other sources which are believed to be reliable, but such information is not guaranteed as to accuracy or completeness and is not to be construed as a representation by the Financial Advisors or the Underwriters. Statements contained in this Official Statement which involve estimates, forecasts or matters of opinion, whether or not expressly so described herein, are intended solely as such and are not to be construed as a representation of fact. The information and expressions of opinion herein are subject to change without notice and neither the delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that the information herein is correct as of any time subsequent to its date. ______________________________ CAUTIONARY STATEMENTS REGARDING FORWARD- LOOKING STATEMENTS IN THIS OFFICIAL STATEMENT ______________________________ Certain statements included or incorporated by reference in this Official Statement constitute “forward-looking statements” within the meaning of the United States Private Securities Litigation Reform Act of 1995, Section 21E of the United States Securities Exchange Act of 1934, as amended, and Section 27A of the United States Securities Act of 1933, as amended. Such statements are generally identifiable by the terminology used such as “plan,” “expect,” “estimate,” “anticipate,” “project,” “budget” or other similar words. THE ACHIEVEMENT OF CERTAIN RESULTS OR OTHER EXPECTATIONS CONTAINED IN SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH MAY CAUSE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS DESCRIBED TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. NEITHER THE DISTRICT NOR ANY OTHER PARTY PLANS TO ISSUE ANY UPDATES OR REVISIONS TO THOSE FORWARD-LOOKING STATEMENTS IF OR WHEN THEIR EXPECTATIONS, OR EVENTS, CONDITIONS OR CIRCUMSTANCES UPON WHICH SUCH STATEMENTS ARE BASED OCCUR. TABLE OF CONTENTS INTRODUCTION .......................................................................... 1 Purpose of the Official Statement ......................................... 1 The District ............................................................................. 1 Purpose of and Authority for the Series 2006C Bonds .................................................................. 1 Security and Sources of Payment for the Series 2006C Bonds ...................................................... 2 Continuing Disclosure Information ...................................... 4 Additional Information .......................................................... 4 THE SERIES 2006C BONDS ....................................................... 4 General .................................................................................... 4 Optional and Mandatory Redemption .................................. 5 Effect of Notice of Redemption ............................................ 7 Book-Entry Only System ...................................................... 7 Registration, Transfer and Exchange of Bonds Upon Discontinuance of Book- Entry Only System ....................................................... 10 SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2006C BONDS ...................................................... 10 General .................................................................................. 10 Pledged Revenues ................................................................ 11 Flow of Funds....................................................................... 12 Deposits to and Uses of Moneys in the Debt Service Reserve Account ............................................ 14 Rate Covenant ...................................................................... 15 Senior and Subordinate Bonds ............................................ 16 Possible Series 2006C Credit Facility ................................ 16 PLAN OF FINANCE ................................................................... 16 Purpose of and Authority for the Series 2006C Bonds ................................................................ 16 Capital Finance Plans of the District .................................. 17 Estimated Sources and Uses of Funds ................................ 18 THE DISTRICT ........................................................................... 18 General .................................................................................. 18 Organization and Management ........................................... 19 Board of Trustees ................................................................. 20 Administration ...................................................................... 21 The System ........................................................................... 22 Employees and Employee Relations................................... 23 Economic Conditions in the District ................................... 23 Security ................................................................................. 23 Insurance ............................................................................... 24 THE CIRP AND THE PHASE I PROJECTS ............................ 24 General .................................................................................. 24 The Phase I Projects [UPDATE FROM DISTRICT TO COME] ............................................... 25 Historic Capital Improvement Expenditures ...................... 27 Financing Plans for Phase I of the CIRP ............................ 27 FINANCIAL OPERATIONS OF THE DISTRICT .................. 28 General .................................................................................. 28 Budget and Appropriation Process ..................................... 28 Finance Department ............................................................. 29 Fund Structure ...................................................................... 29 Basis of Accounting ............................................................. 29 Financial Statements ............................................................ 30 Selected Financial Data of the District ............................... 30 Management’s Discussion and Analysis ............................ 32 Sewer Rates and Revenues .................................................. 35 Rate Commission and Rate Setting Process ....................... 35 Billing and Collections......................................................... 37 Rate Increases ....................................................................... 37 Historical and Projected Sewer Rates and Charges ......................................................................... 38 Customer Accounts .............................................................. 39 Largest User Charge Customers .......................................... 39 User Charge Revenues ......................................................... 39 Outstanding Indebtedness .................................................... 40 Pro Forma Statement of Pledged Revenues, Expenses and Debt Service Coverage ........................ 41 Employee Benefits ............................................................... 42 Other Post Employment Benefits ........................................ 42 Tax Limitation Amendment – Hancock Amendment .................................................................. 42 REGULATORY REQUIREMENTS .......................................... 43 General .................................................................................. 43 TAX MATTERS .......................................................................... 44 Opinion of Bond Counsel .................................................... 44 Collateral Tax Consequences .............................................. 45 LITIGATION ................................................................................ 46 LEGAL MATTERS ..................................................................... 46 RATINGS ..................................................................................... 46 CONTINUING DISCLOSURE ................................................... 47 UNDERWRITING ....................................................................... 48 CERTAIN RELATIONSHIPS .................................................... 48 ENGINEERING AND FEASIBILITY CONSULTANT .......... 48 FINANCIAL ADVISORS ........................................................... 48 INDEPENDENT AUDITORS .................................................... 48 MISCELLANEOUS ..................................................................... 49 APPENDIX A: Independent Auditor’s Report, Management Discussion and Analysis and Basic Financial Statements of the District for the fiscal years ended June 30, 2006 and 2005 APPENDIX B: Information Regarding the District’s Service Area APPENDIX C: Definitions and Summaries of Certain Provisions of the Bond Ordinance and the Continuing Disclosure Agreement APPENDIX D: Engineering and Financial Feasibility Report APPENDIX E: Form of Opinion of Co-Bond Counsel OFFICIAL STATEMENT $60,000,000∗ The Metropolitan St. Louis Sewer District Wastewater System Revenue Bonds Series 2006C INTRODUCTION The following introductory information is not a summary of this Official Statement. It is only a brief description of, and qualified by and subject in all respects to more complete and detailed information contained elsewhere in, this Official Statement, including the cover page and appendices hereto and the documents described herein. The order and placement of materials in this Official Statement, including the Appendices hereto, are not to be deemed to be a determination of relevance, materiality or relative importance. This Official Statement, including the cover page and Appendices, should be considered in its entirety. The offering of the Series 2006C Bonds to potential investors is made only by means of the entire Official Statement. All capitalized terms used in this Official Statement and not otherwise defined herein have the meanings set forth in the Bond Ordinance, as defined below. Purpose of the Official Statement The purpose of this Official Statement is to set forth certain information concerning The Metropolitan St. Louis Sewer District (the “District”), a body corporate, municipal corporation and political subdivision organized and existing under the laws of the State of Missouri (the “State”), and the District’s Charter (Plan), approved by the voters of the City of St. Louis, Missouri (the “City”) and St. Louis County, Missouri (the “County”) at a special election on February 9, 1954, as amended and approved by the voters of the City and the County at a special election on November 7, 2000 (collectively and as amended, the “Charter”) and the $60,000,000 principal amount of Wastewater System Revenue Bonds, Series 2006C (the “Series 2006C Bonds”) to be issued by the District. See the sections herein captioned “THE DISTRICT” and “THE SERIES 2006C BONDS.” The District The District was created in 1954 to provide a metropolitan-wide system of wastewater treatment and sanitary sewerage facilities for the collection, treatment and disposal of sewage to serve the City and most of the more heavily populated areas of the County. When the District began operations, it took over the publicly owned wastewater and stormwater drainage facilities within its jurisdiction and began the construction of an extensive system of collector and interceptor sewers and treatment facilities. The District’s service area now encompasses 524 square miles, including all 62 square miles of the City and 462 square miles (approximately 90%) of the County. The current population served by the District is approximately 1.4 million. A map of the District’s service area is included on the back cover hereof. See the sections herein captioned “THE DISTRICT,” “THE CIRP AND THE PHASE I PROJECTS,” “FINANCIAL OPERATIONS OF THE DISTRICT,” and “REGULATORY REQUIREMENTS.” Purpose of and Authority for the Series 2006C Bonds At a special election held on February 3, 2004, voters within the District approved the issuance by the District of $500,000,000 in sewer system revenue bonds to enable the District to comply with federal and state clean water requirements. The District may use the proceeds of such revenue bonds for the ∗ Preliminary, subject to change. Formatted: Bullets and Numbering Formatted: Bullets and Numbering Formatted: Bullets and Numbering Formatted: Bullets and Numbering - 2 - purpose of constructing, repairing, replacing and equipping new and existing District wastewater facilities. The District plans to use the proceeds of the Series 2006C Bonds to finance a portion of the costs of “Phase I” of the District’s capital improvement and replacement program (the “CIRP”). See the section herein captioned “THE CIRP AND THE PHASE I PROJECTS.” The District will issue the Series 2006C Bonds pursuant to such voter authorization, a Master Bond Ordinance (the “Master Bond Ordinance”) that was approved by the Board of Trustees (the “Board”) of the District on April 22, 2004, and an Ordinance (the “2006 Ordinance,” which together with the Master Bond Ordinance is referred to herein as the “Bond Ordinance”) expected to be approved by the Board on November 9, 2006, to provide funds to (i) finance a portion of the costs of Phase I of its CIRP (collectively, the “Projects”), (ii) fund a debt service reserve account (the “Debt Service Reserve Account”) for the Series 2006C Bonds, and (iii) pay the costs of issuance of the Series 2006C Bonds. See the sections herein captioned “PLAN OF FINANCE” and “THE CIRP AND THE PHASE I PROJECTS.” On May 6, 2004, the District issued $175,000,000 principal amount of its Wastewater System Revenue Bonds, Series 2004A (the “Series 2004A Bonds”). Under the Master Bond Ordinance, the Series 2006C Bonds are on a parity with the Series 2004A Bonds. In addition to the Series 2004A Bonds and the Series 2006C Bonds, the District has issued four additional series of bonds payable from wastewater system revenues (“SRF Bonds”) that were purchased by the State Environmental Improvement and Energy Resources Authority of the State of Missouri (the “Authority”) through the Missouri State Revolving Fund Program (the “SRF Program”) of the Authority and the Missouri Department of Natural Resources (“DNR”). See the section herein captioned “PLAN OF FINANCE.” The SRF Bonds were issued as Subordinate Bonds (as defined herein) under the Master Bond Ordinance. With the issuance of the Series 2006C Bonds and the expected issuance of additional SRF Bonds in the principal amount of $14,205,000 in November 2006, the District will have $40,000,000 of its voter authorization remaining. See the section herein captioned “PLAN OF FINANCE—Capital Finance Plans of the District.” A description of the Series 2006C Bonds is contained in this Official Statement under the caption “THE SERIES 2006C BONDS.” All references to the Series 2006C Bonds are qualified in their entirety by the definitive form thereof and the provisions with respect thereto in the Bond Ordinance. See Appendix C – DEFINITIONS AND SUMMARIES OF CERTAIN PROVISIONS OF THE BOND ORDINANCE AND THE CONTINUING DISCLOSURE AGREEMENT for the definitions of all capitalized words used herein and not otherwise defined herein. Security and Sources of Payment for the Series 2006C Bonds General. The Series 2006C Bonds are revenue bonds secured by and payable from certain revenues of the District received from operation of its wastewater System (as defined herein). The Series 2006C Bonds are also secured by amounts in the Renewal and Extension Fund (as defined herein) and in the Debt Service Reserve Account, which will be funded in part with a portion of the proceeds of the Series 2006C Bonds at the time of issuance of the Series 2006C Bonds, and by the Series 2006C Credit Facility (as defined herein), if any. See the section herein captioned “SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2006C BONDS.” The Series 2006C Bonds and the interest thereon are limited obligations of the District as provided therein payable solely from the Pledged Revenues, as defined herein. The Series 2006C Bonds and the interest thereon shall not constitute a general or moral obligation of the District nor a debt, indebtedness, or obligation of, or a pledge of the faith and credit of, the District or the State or any political subdivision thereof, within the meaning of any constitutional, statutory or charter provision Formatted: Bullets and Numbering - 3 - whatsoever. Neither the faith and credit nor the taxing power of the District, the State, or any political subdivision thereof is pledged to the payment of the principal of, premium, if any, or interest on the Series 2006C Bonds or other costs incident thereto. The District has no authority to levy any taxes to pay the Series 2006C Bonds. Neither the members of the Board nor any person executing the Series 2006C Bonds shall be liable personally on the Series 2006C Bonds by reason of the issuance thereof. Pledged Revenues. The Series 2006C Bonds are voter-approved revenue bonds secured by a pledge of certain revenues of the System, referred to herein as “Pledged Revenues.” Pledged Revenues means (a) Net Operating Revenues (as defined herein), (b) Investment Earnings (as defined herein), (c) Hedge Receipts and (d) all moneys paid or required to be paid into, and all moneys and securities on deposit from time to time in, the funds and accounts specified in the Bond Ordinance, but excluding any amounts required in the Bond Ordinance to be set aside pending, or used for, rebate to the United States government pursuant to Section 148(f) of the Code, including, but not limited to, amounts in the Rebate Fund created in the Bond Ordinance. See the section herein captioned “SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2006C BONDS – Pledged Revenues” and “ – Flow of Funds” and “FINANCIAL OPERATIONS OF THE DISTRICT – Selected Financial Data of the District” for further discussion of the specific District revenues constituting Pledged Revenues under the Bond Ordinance. Renewal and Extension Fund and Debt Service Reserve Account. The Bond Ordinance establishes a Renewal and Extension Fund into which the District may deposit a portion of the Pledged Revenues. The Bond Ordinance also establishes a Debt Service Reserve Account for the Series 2004A Bonds, the Series 2006C Bonds, and other Senior Bonds (as defined herein), if any. The Debt Service Reserve Account will be funded in part from proceeds of the Series 2006C Bonds in the amount of $____________, which together with funds already on deposit in the Debt Service Reserve Account will equal the Debt Service Reserve Requirement for the Senior Bonds. Whenever for any reason the amount in the Payments Account established under the Bond Ordinance is insufficient to pay all interest or Principal falling due on the Senior Bonds (as defined below), including the Series 2006C Bonds, within the next seven days (or, in the case of Senior Bonds bearing interest at a Variable Rate, the next Business Day) the District will make up any deficiency by transfers first from the Renewal and Extension Fund and second from the funds and accounts of the District relating to Subordinate Bonds (as defined below) which are not Subordinate SRF Bonds (as defined below). Whenever, on the date such interest or Principal is due, there are insufficient moneys in the Payments Account available to make such payment, the District shall, without further instructions, apply so much as may be needed of the moneys in the Debt Service Reserve Account to prevent default in the payment of such interest or Principal, with priority to interest payments. See the section herein captioned “SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2006C BONDS – Debt Service Reserve Account.” The Bond Ordinance authorizes the District to issue additional Bonds thereunder which may be either “Senior Bonds” or “Subordinate Bonds,” subject to certain requirements of the Bond Ordinance. The Bond Ordinance defines “Senior Bonds” as Bonds, which may have a right to payment and to be secured by a lien on a parity with the Series 2004A Bonds and the Series 2006C Bonds (except with respect to any Credit Facility which may be available only to one or more series of Senior Bonds) with respect to the Pledged Revenues. The Bond Ordinance defines “Subordinate Bonds” as Bonds, including Subordinate SRF Bonds (defined in the Bond Ordinance as SRF Bonds which are Subordinate Bonds) which may have a right to payment from the Pledged Revenues and be secured by a lien on the Pledged Revenues expressly junior and subordinate to the Senior Bonds. The Series 2006C Bonds and any other Senior Bonds or Subordinate Bonds issued by the District previously or in the future under the Master Bond Ordinance are referred to herein collectively as the “Bonds.” See “DEFINITIONS AND SUMMARIES OF CERTAIN PROVISIONS OF THE BOND ORDINANCE AND THE CONTINUING DISCLOSURE AGREEMENT” in Appendix C hereto for a discussion of the - 4 - requirements that must be satisfied under the Bond Ordinance prior to the issuance of additional Bonds thereunder. [Possible Series 2006C Credit Facility. The District is considering having all or a portion of the Series 2006C Bonds insured by a municipal bond insurer. There is no assurance that the District can or will obtain bond insurance on all or any portion of the Series 2006C Bonds. See the section herein captioned “SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2006C BONDS – Possible Series 2006C Credit Facility.”] Continuing Disclosure Information At the time of issuance of the Series 2006C Bonds, the District will enter into a Disclosure Dissemination Agent Agreement dated as of November 1, 2006 (the “Continuing Disclosure Agreement”) with Digital Assurance Certification, L.L.C. (“DAC”), under which the District will designate DAC as Dissemination Agent. Pursuant to the Continuing Disclosure Agreement, the District will covenant to provide certain financial and operating information with respect to the District on an on- going basis and notice of certain events to the state repository, if any, and to each nationally recognized municipal securities information repository in accordance with Rule 15c2-12 promulgated by the United States Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time (“Rule 15c2-12”). These covenants have been made in order to assist the Underwriters in complying with Rule 15c2-12. See “DEFINITIONS AND SUMMARIES OF CERTAIN PROVISIONS OF THE BOND ORDINANCE AND THE CONTINUING DISCLOSURE AGREEMENT” in Appendix C hereto. Additional Information Appendix A to this Official Statement contains the Independent Auditor’s Report, Management Discussion and Analysis and Basic Financial Statements of the District for the fiscal years ended June 30, 2006 and 2005. Appendix B to this Official Statement contains certain information regarding the service area of the District. Appendix C to this Official Statement includes definitions of certain capitalized terms used in this Official Statement and summaries of certain provisions of the Bond Ordinance and the Continuing Disclosure Agreement. Appendix D to this Official Statement contains an engineering and financial feasibility report prepared by Black & Veatch Corporation, the District’s feasibility consultant. Appendix E to this Official Statement contains the proposed form of the opinion which is anticipated to be rendered by Co-Bond Counsel at the time of delivery of the Series 2006C Bonds. Brief descriptions of the Series 2006C Bonds, the Bond Ordinance, and the District are included in this Official Statement. Such descriptions, information and summaries provided herein do not purport to be comprehensive or definitive. All references herein to any documents are qualified by the terms of such documents in their entirety. Until the issuance and delivery of the Series 2006C Bonds, copies of the documents described herein may be obtained from A.G. Edwards, as representative of the underwriters of the Series 2006C Bonds. After delivery of the Series 2006C Bonds, copies of such documents will be available for inspection at the corporate trust office of The Bank of New York Trust Company, N.A., in St. Louis, Missouri, as the Paying Agent under the Bond Ordinance (the “Paying Agent”). THE SERIES 2006C BONDS General The Bond Ordinance authorizes the issuance of Bonds thereunder from time to time in one or more series. The Bond Ordinance further authorizes the execution, issuance and delivery of a series of Formatted: Bullets and Numbering Formatted: Bullets and Numbering Formatted: Bullets and Numbering - 5 - Bonds thereunder to be designated as “The Metropolitan St. Louis Sewer District Wastewater System Revenue Bonds, Series 2006C” (the “Series 2006C Bonds”) in the aggregate principal amount of $60,000,000, which series of Bonds shall be executed, issued and delivered under, and secured by, the Bond Ordinance. Senior Bonds (in addition to the Series 2006C Bonds) and Subordinate Bonds may also be issued from time to time as provided in, and subject to the limitations set forth in, the Bond Ordinance. See “DEFINITIONS AND SUMMARIES OF CERTAIN PROVISIONS OF THE BOND ORDINANCE AND THE CONTINUING DISCLOSURE AGREEMENT” in Appendix C hereto. The Series 2006C Bonds shall be issued in fully registered form in the denomination of $5,000 each or integral multiples thereof and shall be dated the date of delivery thereof. Each Series 2006C Bond shall be numbered in a convenient manner, established by The Bank of New York Trust Company, N.A., in St. Louis, Missouri (the “Bond Registrar”) and shown by the Bond Register. The Series 2006C Bonds shall bear interest at the rates per annum set forth on the inside cover hereof, computed on the basis of a 360-day year consisting of twelve 30-day months, payable on May 1, 2007 and semiannually thereafter on each May 1 and November 1 of each year and shall mature on May 1 in the years and in the principal amounts as set forth on the inside cover hereof, unless earlier called for redemption. So long as any of the Series 2006C Bonds are in book-entry form, the principal, redemption premium, if any, and interest on such Series 2006C Bonds are payable by check or draft mailed, or wire transfer, to Cede & Co. as Registered Owner thereof and will be redistributed by DTC and the Participants as described below under “Book-Entry Only System.” Optional and Mandatory Redemption Optional Redemption of Series 2006C Bonds by District. The Series 2006C Bonds maturing on or after May 1, 20___ are subject to redemption prior to maturity at the option of the District on or after May 1, 20___, in whole or in part at any time, at the redemption prices (expressed as percentages of Principal) set forth in the table below plus accrued interest on such redemption date: Redemption Dates (dates inclusive) Redemption Prices Mandatory Redemption of Series 2006C Bonds. The Series 2006C Bonds maturing in the years 20__* and 20__* are Term Bonds and are subject to mandatory redemption prior to maturity on May 1 of the years, in the amounts, and at the prices provided below. As and for a sinking fund for the retirement prior to maturity of the Series 2006C Bonds that are Term Bonds, there shall be deposited in the Payments Account from the Revenue Fund an amount sufficient to redeem the following principal amounts of the Series 2006C Bonds on May 1 of each year specified below (each such date being referred to as a “mandatory redemption date”): Formatted: Bullets and Numbering - 6 - Series 2006C Bonds Maturing May 1, 20__* Year* Principal Amount* +Final Maturity * Preliminary, subject to change. - 7 - Series 2006C Bonds Maturing May 1, 20__* Year* Principal Amount* +Final Maturity The District shall redeem such an aggregate Principal amount of the Series 2006C Bonds at a redemption price equal to the Principal amount thereof plus the interest due thereon to the mandatory redemption date. Selection of Bonds to be Redeemed; Redemption Among Series. If less than all of the Bonds of like maturity of any series shall be called for redemption, the particular Bonds, or portions of Bonds, to be redeemed shall be selected by the Paying Agent in such equitable manner as the Paying Agent may determine. The portion of any Bond of a denomination of more than $5,000 to be redeemed shall be in the Principal amount of $5,000 or an integral multiple thereof, and, in selecting portions of such Bonds for redemption, the District shall treat each such Bond as representing that number of Bonds which is obtained by dividing the Principal of such Bond to be redeemed in part by $5,000. Subject to the redemption provisions of any Series Ordinance, the District in its discretion may redeem the Bonds of any series, or a portion of the Bonds of any such series, before it redeems the Bonds of any other series. Within any particular series, any redemption of Bonds shall be effected in the manner provided in the Master Bond Ordinance and in any Series Ordinance. Notice of Redemption. Unless waived by any registered owner of Bonds to be redeemed and except as may be otherwise provided in a Series Ordinance, official notice of any such redemption shall be given by the Bond Registrar on behalf of the District by mailing a copy of an official redemption notice by first class mail, at least 30 days and not more than 60 days prior to the date fixed for redemption to the registered owner of the Bond or Bonds to be redeemed at the address shown on the Bond Register or at such other address as is furnished in writing by such registered owner to the Bond Registrar. All official notices of redemption shall be dated, shall contain the complete official name of the Bond issue, and shall state: (1) the redemption date; (2) the redemption price; (3) the interest rate and maturity date of the Bonds being redeemed; (4) if less than all the Outstanding Bonds are to be redeemed, the Bond numbers, and, where part of the Bonds evidenced by one Bond certificate are being redeemed, the respective Principal amounts of such Bonds to be redeemed; (5) that on the redemption date the redemption price will become due and payable upon each such Bond or portion thereof called for redemption and that interest thereon shall cease to accrue from and after such date; and (6) the place where such Bonds are to be surrendered for payment of the redemption price (which place of payment shall be the principal payment office of the Paying Agent or at such other office designated by the Paying Agent for such purpose) and the name, address, and telephone number of a person or persons at the Paying Agent who may be contacted with respect to the redemption. Any notice of redemption of any Bonds may specify that the redemption is contingent upon the deposit of moneys with the Paying Agent in an amount sufficient to pay the redemption price (which price shall include the redemption premium, if any) of all the Bonds or portions of Bonds which are to be redeemed on that date. Prior to any redemption date, the District shall deposit with the Paying Agent an amount of money sufficient to pay the redemption price of all the Bonds or portions of Bonds which are to be redeemed on that date. - 8 - For so long as DTC is effecting book–entry transfers of the Bonds, the Bond Registrar shall provide the notices specified in the Bond Ordinance to DTC. It is expected that DTC shall, in turn, notify its participants and that the participants, in turn, will notify or cause to be notified the Beneficial Owners. Any failure on the part of DTC or a participant, or failure on the part of a nominee of a Beneficial Owner of a Bond (having been mailed notice from the Bond Registrar, a participant or otherwise) to notify the Beneficial Owner of the Bond so affected, shall not affect the validity of the redemption of such Bond. Any defect in any notice of redemption shall not affect the validity of proceedings for redemption of the Bonds. Effect of Notice of Redemption Official notice of redemption having been given in the manner and under the conditions provided in the Bond Ordinance and moneys for payment of the redemption price being held by the Paying Agent as provided in the Bond Ordinance, the Bonds or portions of Bonds 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 of such Bonds or portions of Bonds on such date, and from and after such date interest on the Bonds or portions of Bonds called for redemption shall cease to accrue, such Bonds or portions of Bonds shall cease to be entitled to any lien, benefit, or security under the Bond Ordinance, and the owners of such Bonds or portions of Bonds shall have no rights in respect thereof except to receive payment of the redemption price thereof. Upon surrender for partial redemption of any Bond, there shall be prepared for and delivered to the registered owner a new Bond or Bonds of the same series, maturity, and interest rate in the amount of the unpaid Principal. Book-Entry Only System General. When the Series 2006C Bonds are issued, ownership interests will be available to purchasers only through a book-entry only system (the “Book-Entry Only System”) maintained by The Depository Trust Company (“DTC”), New York, New York. DTC will act as securities depository for the Series 2006C Bonds. Initially, the Series 2006C 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 Series 2006C Bond certificate will be issued for each maturity of the Series 2006C Bonds listed on the inside cover hereof, in the aggregate principal amount of such maturity, and will be deposited with DTC or the Paying Agent, as DTC’s agent. So long as Cede & Co., as nominee of DTC, is the registered owner of the Series 2006C Bonds, the Beneficial Owners of the Series 2006C Bonds will not receive or have the right to receive physical delivery of the Series 2006C Bonds and will not be or be considered to be owners thereof under the Bond Ordinance, and references herein to the Bondowners or registered owners of the Series 2006C Bonds shall mean Cede & Co. and shall not mean the Beneficial Owners of the Series 2006C Bonds. The following discussion will not apply to any Series 2006C Bonds issued in certificate form due to the discontinuance of the DTC Book-Entry Only System, as described below. DTC and its Participants. DTC, the world’s largest depository, is a limited-purpose trust company organized under the New York Banking Law, a “banking organization” within the meaning of the New York Banking Law, a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code and a “clearing agency” registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934, as amended. DTC holds and provides asset servicing for over 2.2 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 Formatted: Bullets and Numbering Formatted: Bullets and Numbering - 9 - (“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, in turn, is owned by a number of Direct Participants of DTC and members of the National Securities Clearing Corporation, Fixed Income Clearing Corporation and Emerging Markets Clearing Corporation (“NSCC,” “FICC” and “EMCC,” also subsidiaries of DTCC), as well as by the New York Stock Exchange, Inc., the American Stock Exchange LLC and the National Association of Securities Dealers, Inc. Access to the DTC system is also available to others, such as both U.S. and non- U.S. securities brokers and dealers, banks, trust companies and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly (the “Indirect Participants” and collectively with the Direct Participants, the “Participants”). DTC has Standard & Poor’s highest rating: AAA. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com and www.dtc.org. Purchase of Ownership Interests. Purchases of the Series 2006C Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Series 2006C Bonds on DTC’s records. The ownership interest of each actual purchaser of each Series 2006C Bond (the “Beneficial Owner”) is, in turn, to be recorded on the Direct and Indirect Participants’ records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Series 2006C 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 interest in the Series 2006C Bonds, except in the event that use of the book-entry system for the Series 2006C Bonds is discontinued. Transfers. To facilitate subsequent transfers, all Series 2006C Bonds deposited by Direct Participants with DTC are registered in the name of DTC’s partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of the Series 2006C Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Series 2006C Bonds. DTC’s records reflect only the identity of the Direct Participants to whose accounts such Series 2006C 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. Notices. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Redemption notices shall be sent to DTC. If less than all of the Series 2006C 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. Beneficial Owners of Series 2006C Bonds may wish to take certain steps to augment transmission to them of notices of significant events with respect to the Series 2006C Bonds, such as redemptions, defaults, and proposed amendments to the Bond documents. For example, Beneficial Owners of Series 2006C Bonds may wish to ascertain that the nominee holding the Series 2006C Bonds for their benefit has agreed to obtain and transmit - 10 - notices to Beneficial Owners, in the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of the notices be provided directly to them. Voting. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to the Series 2006C Bonds unless authorized by a Direct Participant in accordance with DTC’s Procedures. Under its usual procedures, DTC mails an omnibus proxy (“Omnibus Proxy”) to the District 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 2006C Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). Payments of Principal and Interest. So long as any Series 2006C Bond is registered in the name of DTC’s nominee, all payments of principal of, premium, if any, and interest on such Series 2006C Bond 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 District or the Paying Agent, on payable date in accordance with their respective holdings shown on DTC’s records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in “street name,” and will be the responsibility of such Participant and not of DTC nor its nominee, the District or the Paying Agent, subject to any statutory and regulatory requirements as may be in effect from time to time. Payment of principal of, premium, if any, and interest on the Series 2006C Bonds to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the District or the Paying Agent, disbursement of such payments to Direct Participants is the responsibility of DTC, and disbursement of such payments to the Beneficial Owners is the responsibility of Direct and Indirect Participants. Discontinuation of Book-Entry Only System. DTC may discontinue providing its services as depository with respect to the Series 2006C Bonds at any time by giving reasonable notice to the District or the Paying Agent. Under such circumstances, in the event that a successor depository is not obtained, the Series 2006C Bonds are required to be printed and delivered as described in the Bond Ordinance. The use of the system of book-entry only transfers through DTC (or a successor securities depository) may be discontinued as described in the Bond Ordinance. In that event, the Series 2006C Bond certificates will be printed and delivered as described in the Bond Ordinance. None of the Underwriters, the District nor the Paying Agent will have any responsibility or obligations to any Direct Participants or Indirect Participants or the persons for whom they act with respect to (i) the accuracy of any records maintained by DTC or any such Direct Participant or Indirect Participant; (ii) the payment by any Participant of any amount due to any Beneficial Owner in respect of the principal of, premium, if any, or interest on the Series 2006C Bonds; (iii) the delivery by any such Direct Participant or Indirect Participant of any notice to any Beneficial Owner that is required or permitted under the terms of the Bond Ordinance to be given to owners of the Series 2006C Bonds; (iv) the selection of the Beneficial Owners to receive payment in the event of any partial redemption of the Series 2006C Bonds; or (v) any consent given or other action taken by DTC as Bondholder. The information above concerning DTC and DTC’s book-entry system has been obtained from sources 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 District, the Paying Agent or the Underwriters. The District, the Paying Agent and the Underwriters make no assurances that DTC, Direct Participants, Indirect Participants or other nominees of the Beneficial Owners will act in accordance with the procedures described above or in a timely manner. - 11 - Registration, Transfer and Exchange of Bonds Upon Discontinuance of Book-Entry Only System The District shall cause the Bond Register for the registration and for the transfer of the Bonds as provided in the Bond Ordinance to be kept by the Bond Registrar. The Bonds shall be registered as to Principal and interest on the Bond Register upon presentation thereof to the Bond Registrar which shall make notation of such registration thereon; provided that the District reserves the right to issue coupon Bonds payable to bearer whenever to do so would not result in any adverse federal tax consequences. Bonds may be transferred by surrender for transfer at the principal corporate trust office of the Bond Registrar or at such other office designated by the Bond Registrar for such purpose, duly endorsed for transfer or accompanied by an assignment duly executed by the registered owner or the registered owner’s attorney duly authorized in writing. The District shall cause to be executed and the Bond Registrar shall authenticate and deliver in the name of the transferee or transferees a new Bond or Bonds of the same series, maturity, interest rate, aggregate Principal amount, and tenor, of any authorized denomination or denominations, and bearing numbers not then outstanding. Bonds may be exchanged at the principal corporate trust office of the Bond Registrar or at such other office designated by the Bond Registrar for such purpose, for a like aggregate Principal amount of Bonds of other authorized denominations of the same series, maturity, and interest rate, and bearing numbers not then outstanding. The District shall cause to be executed and the Bond Registrar shall authenticate and deliver Bonds which the Bondholder making the exchange is entitled to receive. The Bond Registrar shall not be required to transfer or exchange any Bond after notice calling such Bond for redemption has been given or during the period of 15 days (whether or not a Business Day for the Bond Registrar, but excluding the date of giving such notice of redemption and including such 15th day) immediately preceding the giving of such notice of redemption. In any exchange or registration of transfer of any Bond, the owner of the Bond shall not be required to pay any charge or fee; provided, however, if and to whatever extent any tax or governmental charge is at any time imposed on any such exchange or transfer, the District or the Bond Registrar may require payment of a sum sufficient for such tax or charge. In the event any Bondholder fails to provide a correct taxpayer identification number to the Bond Registrar, the Bond Registrar may impose a charge against such Bondholder sufficient to pay any governmental charge required to be paid as a result of such failure. In compliance with Section 3406 of the Internal Revenue Code, such amount may be deducted by the Paying Agent from amounts otherwise payable to such Bondholder hereunder or under the Bonds. SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2006C BONDS General The Series 2006C Bonds are revenue bonds secured by and payable from Pledged Revenues. The Series 2006C Bonds are also secured by amounts on deposit in the Renewal and Extension Fund and the Debt Service Reserve Account and by the Series 2006C Credit Facility, if any. The Series 2006C Bonds and the interest thereon are limited obligations of the District as provided therein payable solely from the Pledged Revenues. The Series 2006C Bonds and the interest thereon shall not constitute a general or moral obligation of the District nor a debt, indebtedness, or obligation of, or a pledge of the faith and credit of, the District or the State or any political subdivision thereof, within the meaning of any constitutional, statutory or charter provision whatsoever. Neither the Formatted: Bullets and Numbering Formatted: Bullets and Numbering - 12 - faith and credit nor the taxing power of the District, the State, or any political subdivision thereof is pledged to the payment of the principal of, premium, if any, or interest on the Series 2006C Bonds or other costs incident thereto. The District has no authority to levy any taxes to pay the Series 2006C Bonds. Neither the members of the Board nor any person executing the Series 2006C Bonds shall be liable personally on the Series 2006C Bonds by reason of the issuance thereof. Pledged Revenues Pursuant to the Bond Ordinance, the District has pledged all Pledged Revenues to the payment of the Principal of, premium, if any, and interest on all Bonds issued thereunder. Such pledge is for the equal and proportionate benefit and security of the Series 2006C Bonds and any other Senior Bonds issued under the terms of the Bond Ordinance regardless of the time or times of their issuance or maturity. In the Bond Ordinance, the District covenants that it will not issue obligations of any kind or nature payable from, or with a lien on, the Pledged Revenues or any part thereof having a prior lien over or, except as permitted in the Bond Ordinance for the issuance of Senior Bonds, on a parity with the Series 2006C Bonds. Notwithstanding the foregoing, the Bond Ordinance permits the issuance of Subordinate Bonds secured by the Pledged Revenues on a subordinate basis to the Series 2004A Bonds, the Series 2006C Bonds, and any other Senior Bonds issued in the future. “Pledged Revenues” means (a) Net Operating Revenues of the System, (b) Investment Earnings (defined in the Bond Ordinance as all interest received on and profits derived from investments of moneys in all funds and accounts of the District other than investments derived from or with respect to (i) stormwater revenues, as described below, (ii) all funds and accounts established in connection with SRF Bonds and (iii) obligations issued by the District on behalf of its subdistricts), (c) Hedge Receipts and (d) all moneys paid or required to be paid into, and all moneys and securities on deposit from time to time in, the funds and accounts specified in the Bond Ordinance, but excluding any amounts required in the Bond Ordinance to be set aside pending, or used for, rebate to the United States government pursuant to Section 148(f) of the Code, including, but not limited to, amounts in the Rebate Fund created in the Bond Ordinance. The Bond Ordinance defines the “System” as the sanitary sewer system of the District, as it now exists and as it may be added to, extended, improved and equipped, either from the proceeds of the Bonds or from any other sources at any time, including, without limitation, (a) all sanitary sewers, all combined sewers, all sanitary and combined sewer pumping stations, all wastewater treatment plants, and all equipment used in connection therewith, all facilities for the collection, treatment and disposal of sewage and wastewater, including industrial wastes, and (b) all other facilities or property of any nature or description, real or personal, tangible or intangible, owned or used by the District in the collection, treatment and disposal of wastewater. The Bond Ordinance defines “Net Operating Revenues” as all Operating Revenues (as defined in the Bond Ordinance), after provision for payment of all Expenses of Operation and Maintenance (as defined in the Bond Ordinance). The Bond Ordinance broadly defines “Operating Revenues” as all income and revenue of any nature derived from the operation of the System, including periodic wastewater billings, service charges, other charges for wastewater service and the availability thereof (other than any special assessment proceeds), connection or tap fees (whether accounted for as revenues or as contributed capital), net proceeds from business interruption insurance, the principal of gifts, bequests, contributions, grants and donations available to pay debt service of Bonds, and any amounts deposited in escrow in connection with the acquisition, construction, remodeling, renovation and equipping of facilities to be applied during the period of determination to pay interest on Bonds. Formatted: Bullets and Numbering - 13 - The Bond Ordinance expressly excludes the following from the definition of Operating Revenues: (1) any profits or losses on the early extinguishment of debt or on the sale or other disposition, not in the ordinary course of business, of investments or fixed or capital assets, and local, state or federal grants or other moneys received for the payment of Expenses of Operation and Maintenance, (2) local, state, or federal grants, loans (including Government Loans), capital improvement contract payments, or other moneys received for capital improvements to the System, (3) Investment Earnings, (4) any stormwater charges (referred to herein as the “Stormwater Service Charges”) and (5) any property tax revenues. The Stormwater Service Charge consists of a charge for stormwater collection and treatment currently imposed by the District in the amount of $0.24 per month per account, which totaled approximately $1,248,563 for the District’s fiscal year ending June 30, 2006. Although revenues from the Stormwater Service Charge are not included in Operating Revenues and thus not available for payment of debt service on any Bonds issued under the Bond Ordinance, including the Series 2006C Bonds, such revenues are accounted for and included in the amount of “Operating Revenues” identified in the Independent Auditor’s Report and Basic Financial Statements included as Appendix A to this Official Statement. See the section below captioned “FINANCIAL OPERATIONS OF THE DISTRICT – Selected Financial Data of the District,” for information regarding revenues, expenses and changes in net assets for the District’s last five fiscal years and an Agreed-Upon Procedures Report provided by the District’s independent accountants regarding the revenues and expenses of the District net of certain revenue and expense items not included in Pledged Revenues. Flow of Funds Bond Ordinance Funds and Accounts. The Bond Ordinance establishes or ratifies the establishment of the following funds and accounts and provides that the moneys deposited in such funds and accounts shall be held by Bank of America, N.A., St. Louis, Missouri, as the depository (the “Depository”) for the account of the District, in trust for the purposes set forth in the Bond Ordinance: (1) Wastewater Revenue Fund (the “Revenue Fund”), (2) Wastewater Sinking Fund (the “Sinking Fund”), and within such Sinking Fund, a Payments Account and a Debt Service Reserve Account, (3) Wastewater Renewal and Extension Fund (the “Renewal and Extension Fund”), (4) Wastewater Rebate Fund (the “Rebate Fund”), and within such Rebate Fund a Series 2006C Rebate Account, and (5) Wastewater Project Fund (the “Project Fund”), and within such Project Fund a Series 2006C Project Account and a Series 2006C Costs of Issuance Account. Deposits to and Uses of Moneys in the Revenue Fund. The Bond Ordinance requires that the District deposit all Operating Revenues into the Revenue Fund from time to time as and when received. The Bond Ordinance also requires that the District apply moneys in the Revenue Fund, prior to the occurrence and continuation of an Event of Default under the Bond Ordinance, in the following order of priority: Formatted: Bullets and Numbering Formatted: Bullets and Numbering - 14 - (1) to pay Expenses of Operation and Maintenance, (2) to deposit into the Sinking Fund the amounts required by the Bond Ordinance, as described below under the heading captioned “Deposits to and Uses of Money in the Sinking Fund,” (3) to deposit into the Rebate Fund the amounts required by Bond Ordinance, (4) to make Replenishment Payments (as defined in the Bond Ordinance) to the Debt Service Reserve Account and to pay to any Credit Facility Provider any amounts due under a Credit Facility Agreement, including Additional Interest, (5) to pay any amounts due any Reserve Account Credit Facility Provider pursuant to a Reserve Account Credit Facility Agreement, (6) to deposit the amounts required to be deposited into the funds and accounts created by any Series Ordinance authorizing the issuance of Subordinate Bonds, for the purpose of paying Principal of (whether at maturity, upon mandatory redemption or as otherwise required by a Series Ordinance relating to Subordinate SRF Bonds) and interest on Subordinate Bonds, making Hedge Payments under Subordinate Hedge Agreements, and accumulating reserves for such payments, (7) to make Accumulation Payments (as defined in the Bond Ordinance) to the Debt Service Reserve Account in accordance with the Bond Ordinance, and (8) to pay any amounts required to be paid with respect to any Other System Obligations. In addition to, and after, the deposits described above, the District may from time to time deposit into the Renewal and Extension Fund any moneys and securities held in the Revenue Fund in excess of 45 days’ estimated Expenses of Operation and Maintenance. If at any time the amounts in any account of the Sinking Fund are less than the amounts required by the Bond Ordinance, and there are not on deposit in the Renewal and Extension Fund available moneys sufficient to cure any such deficiency, as described herein under the subsection captioned “Deposits to and Uses of Moneys in the Renewal and Extension Fund,” then the District shall withdraw from the funds and accounts of the District relating to Subordinate Bonds which are not Subordinate SRF Bonds and deposit in such account of the Sinking Fund, as the case may be, the amount necessary (or all the moneys in such funds and accounts, if less than the amount required) to make up such deficiency. Formatted: Bullets and Numbering - 15 - Deposits to and Uses of Moneys in the Sinking Fund. After the District deposits all Operating Revenues into the Revenue Fund and applies such moneys to pay Expenses of Operation and Maintenance, then the Bond Ordinance provides for deposits to and uses of moneys in the accounts and subaccounts in the Sinking Fund as follows: Payments Account – General. Sufficient moneys shall be paid in periodic installments from the Revenue Fund into the Payments Account for the purpose of paying the Principal of and interest (excluding Additional Interest) on the Senior Bonds as they become due and payable and for the purpose of making Hedge Payments under Senior Hedge Agreements. Amounts held in the Payments Account shall be used solely to pay interest (excluding Additional Interest) and Principal of the Senior Bonds as the same become due and payable (whether at maturity or upon redemption) and to pay Hedge Payments under Senior Hedge Agreements when due. As of the date of this Official Statement, there are no Senior Hedge Agreements in effect. Interest. Except as otherwise provided in any Series Ordinance authorizing Senior SRF Bonds, on or before the 30th day preceding each Interest Payment Date for Senior Bonds (or, in the case of Senior Bonds bearing interest at a Variable Rate, on or before the Business Day preceding each Interest Payment Date), the District shall deposit in the Payments Account an amount which, together with any other moneys already on deposit therein and available to make such payment and, in the case of Senior SRF Bonds, anticipated investment earnings on reserve funds held by a bond trustee relating to such Senior SRF Bonds, is not less than the interest (excluding Additional Interest) coming due on such Senior Bonds on such Interest Payment Date. The District shall also deposit and continue to deposit all Hedge Receipts under Senior Hedge Agreements in the Payments Account from time to time as and when received. Principal. Except as otherwise provided in any Series Ordinance authorizing Senior SRF Bonds, on or before the 30th day preceding each Principal Maturity Date for Senior Bonds, the District shall deposit in the Payments Account an amount which, together with any other moneys already on deposit therein and available to make such payment, is not less than the Principal coming due on such Senior Bonds on such Principal Maturity Date. Hedge Payments. On or before the 30th day preceding each payment date for Hedge Payments under Senior Hedge Agreements, the District shall deposit in the Payments Account an amount which, together with any other moneys already on deposit therein and available to make such payment, is not less than such Hedge Payments coming due on such payment date. Application of Moneys in Payments Account. No further payments need be made into the Payments Account whenever the amount available in the Payments Account, if added to the amount then in the Debt Service Reserve Account (without taking into account any amount available to be drawn on any Reserve Account Credit Facility), is sufficient to retire all Senior Bonds then Outstanding and to pay all unpaid interest accrued and to accrue prior to such retirement. No moneys in the Payments Account shall be used or applied to the optional purchase or redemption of Senior Bonds prior to maturity unless: (i) provision shall have been made for the payment of all the Senior Bonds; or (ii) such moneys are applied to the purchase and cancellation of Senior Bonds which are subject to mandatory redemption on the next mandatory redemption date, which falls due within 12 months, such Senior Bonds are purchased at a price not more than would be required for mandatory redemption, and such Senior Bonds are cancelled upon purchase; or (iii) such moneys are applied to the purchase and cancellation of Senior Bonds at a price less than the amount of Principal which would be payable on such Senior Bonds, together with interest accrued through the date of purchase, and such Senior Bonds are cancelled upon purchase; or (iv) such moneys are in excess of the then required balance of the Payments Account and are - 16 - applied to redeem a part of the Senior Bonds Outstanding on the next succeeding redemption date for which the required notice of redemption may be given. Deposits to and Uses of Moneys in the Debt Service Reserve Account Upon the issuance of the Series 2006C Bonds, the District shall deposit into the Debt Service Reserve Account from the proceeds of the Series 2006C Bonds the amount of $___________. The Bond Ordinance requires that the District deposit into the Debt Service Reserve Account the amounts specified in Series Ordinances with respect to Senior Bonds. Notwithstanding the foregoing, there shall be no deposit into the Debt Service Reserve Account with respect to any SRF Bonds nor shall the Debt Service Reserve Account secure any SRF Bonds. Whenever for any reason the amount in the Payments Account is insufficient to pay all interest or Principal becoming due on the Senior Bonds within the next seven days (or, in the case of Senior Bonds bearing interest at a Variable Rate, on the next Business Day), the District shall make up any deficiency by transfers first from the Renewal and Extension Fund and second from the funds and accounts of the District relating to Subordinate Bonds which are not Subordinate SRF Bonds. Whenever, on the date that such interest or Principal is due, there are insufficient moneys in the Payments Account available to make such payment, the District shall, without further instructions, apply so much as may be needed of the moneys in the Debt Service Reserve Account to prevent default in the payment of such interest or Principal, with priority to interest payments. Whenever by reason of any such application or otherwise (other than required Accumulation Payments, as required in the Bond Ordinance) the amount remaining to the credit of the Debt Service Reserve Account is less than the amount then required to be in the Debt Service Reserve Account, such deficiency shall be remedied by monthly deposits (“Replenishment Payments”) from the Revenue Fund, to the extent funds are available in the Revenue Fund for such purpose after all required transfers set forth above have been made. The District may elect to satisfy in whole or in part the Debt Service Reserve Requirement by means of a Reserve Account Credit Facility, subject to certain requirements as set forth in the Bond Ordinance. See “DEFINITIONS AND SUMMARIES OF CERTAIN PROVISIONS OF THE BOND ORDINANCE AND THE CONTINUING DISCLOSURE AGREEMENT” in Appendix C hereto. Deposits to and Uses of Moneys in the Renewal and Extension Fund. All sums accumulated and retained in the Renewal and Extension Fund shall be used first to prevent default in the payment of interest on or Principal of the Senior Bonds when due and then shall be applied by the District from time to time, as and when the District shall determine, to the following purposes and, prior to the occurrence and continuation of an Event of Default, in the order of priority determined by the District in its sole discretion: (a) for the purposes for which moneys held in the Revenue Fund may be applied pursuant to the Bond Ordinance and as described above, (b) to pay any amounts which may then be due and owing under any Hedge Agreement (including termination payments, fees, expenses, and indemnity payments), (c) to pay any governmental charges and assessments against the System or any part thereof which may then be due and owing, (d) to make acquisitions, betterments, extensions, repairs, or replacements or other capital improvements (including the purchase of equipment) to the System deemed necessary by the District (including payments under contracts with vendors, suppliers, and contractors for the foregoing purposes), (e) to acquire Senior Bonds by redemption or by purchase in the open market at a price not exceeding the callable price as provided and in accordance with the terms and conditions of the Bond Ordinance, which Senior Bonds may be any of the Senior Bonds, prior to their respective maturities, and when so used for such purposes the moneys shall be withdrawn from the Renewal and Extension Fund and deposited into the Payments Account for the Senior Bonds to be so redeemed or purchased, and (f) for any other purpose of the District. Formatted: Bullets and Numbering - 17 - Rate Covenant The Bond Ordinance provides that the District shall continuously own, control, operate, and maintain the System in an efficient and economical manner and on a revenue producing basis and shall at all times prescribe, fix, maintain, and collect rates, fees, and other charges for the services, facilities, and commodities furnished by the System fully sufficient at all times to: (1) provide for 100% of the Expenses of Operation and Maintenance and for the accumulation in the Revenue Fund of a reasonable reserve therefor; and (2) produce Net Operating Revenues in each Fiscal Year which, together with Investment Earnings: (a) will equal at least 125% of the Debt Service Requirement on all Senior Bonds then Outstanding for the year of computation and 115% of the Debt Service Requirement on all Bonds then Outstanding for the year of computation; (b) will enable the District to make all required payments, if any, into the Debt Service Reserve Account and the Rebate Fund and to any Credit Facility Provider, any Reserve Account Credit Facility Provider, and any Qualified Hedge Provider; (c) will enable the District to accumulate an amount to be held in the Renewal and Extension Fund which, in the judgment of the District, is adequate to meet the costs of major renewals, replacements, repairs, additions, betterments, and improvements to the System, necessary to keep the same in good operating condition or as is required by any governmental agency having jurisdiction over the System; and (d) will remedy all deficiencies in required payments into any of the funds and accounts established under the Bond Ordinance from prior Fiscal Years. If the District fails to prescribe, fix, maintain, and collect rates, fees, and other charges, or to revise such rates, fees, and other charges, in accordance with these provisions of the Bond Ordinance, the owners of not less than 25% in aggregate Principal amount of the Bonds then Outstanding, without regard to whether any Event of Default shall have occurred, may institute and prosecute in any court of competent jurisdiction an appropriate action to compel the District to prescribe, fix, maintain, or collect such rates, fees, and other charges, or to revise such rates, fees, and other charges, in accordance with the requirements of the Bond Ordinance. Senior and Subordinate Bonds Upon satisfaction of certain conditions, the Bond Ordinance permits the District, for specified purposes, to issue additional Senior Bonds without express limit as to principal amount, which will be equally and ratably secured on a parity basis with the Series 2004A Bonds and the Series 2006C Bonds under the Bond Ordinance. The District may issue additional Senior Bonds in the future to finance part of the cost of capital improvements identified in the CIRP. See the section herein captioned “PLAN OF Formatted: Bullets and Numbering Formatted: Bullets and Numbering Formatted: Bullets and Numbering - 18 - FINANCE – Capital Finance Plans of the District.” The issuance of additional Senior Bonds may, for a period of time, dilute the security for the Series 2006C Bonds. The Bond Ordinance also permits the District to issue Subordinate Bonds which would be secured by a lien on the Pledged Revenues that would be junior and subordinate to the Series 2006C Bonds and any other Senior Bonds. See “DEFINITIONS AND SUMMARIES OF CERTAIN PROVISIONS OF THE BOND ORDINANCE AND THE CONTINUING DISCLOSURE AGREEMENT” in Appendix C hereto. Possible Series 2006C Credit Facility The District is considering having all or a portion of the Series 2006C Bonds insured by a municipal bond insurer. There is no assurance that the District can or will obtain bond insurance on all or any portion of the Series 2006C Bonds. If the District does obtain bond insurance on any portion of the Series 2006C Bonds, information with respect to the bond insurer will be provided in the final Official Statement. PLAN OF FINANCE Purpose of and Authority for the Series 2006C Bonds At a special election held on February 3, 2004, voters within the District approved the issuance by the District of $500,000,000 in sewer system revenue bonds to enable the District to comply with federal and state clean water requirements. The District may use the proceeds of such revenue bonds for the purpose of constructing, repairing, replacing and equipping new and existing District wastewater facilities. The District plans to use the proceeds of the Series 2006C Bonds to finance a portion of the cost of “Phase I” of the District’s capital improvement and replacement program (the “CIRP”) as discussed below. The District will issue the Series 2006C Bonds pursuant to such voter authorization and the Bond Ordinance to provide funds to (i) finance a portion of the costs of Phase I of its CIRP (collectively, the “Projects”), (ii) provide additional funds for the Debt Service Reserve Account, and (iii) pay the costs of issuance of the Series 2006C Bonds. See the section herein captioned “THE CIRP AND THE PHASE I PROJECTS.” Capital Finance Plans of the District The District’s CIRP identifies an estimated $3.7 billion in capital improvement needs for wastewater system improvements which are to be financed over the next 16 years. In May 2003, the Board approved a resolution that identified proposed expenditures by the District for capital improvements through the District’s fiscal year ending June 30, 2006 on a portion of the projects that are included in the CIRP (referred to herein as “Phase I” of the CIRP). The District estimates that the cost of the projects identified in Phase I of the CIRP will be approximately $647 million. For a detailed discussion of Phase I of the CIRP, including those Projects to be financed with the proceeds of the Series 2006C Bonds, the other projects that the District anticipates will be financed with proceeds of future financings under the Bond Ordinance, and projects to be financed in Phase I by the District with current revenues on a “pay-as-you-go” basis, see the section herein captioned “THE CIRP AND THE PHASE I PROJECTS.” The Series 2006C Bonds constitute a portion of the $500,000,000 principal amount of sewer system revenue bonds approved by the voters of the District at the February 3, 2004 special election. The District has previously issued four series of bonds from this authorization which are payable from the revenues of its wastewater system: (1) its Wastewater System Revenue Bonds, Series 2004A (the “Series 2004A Bonds”) currently outstanding in the aggregate principal amount of $173,500,000; (2) its Formatted: Bullets and Numbering Formatted: Bullets and Numbering Formatted: Bullets and Numbering - 19 - Subordinate Wastewater System Revenue Bonds (State Revolving Fund Program), Series 2004B (the “Series 2004B SRF Bonds”) currently outstanding in the aggregate principal amount of $159,025,000; (3) its Subordinate Wastewater System Revenue Bonds (State Revolving Fund Program), Series 2005A (the “Series 2005A SRF Bonds”) currently outstanding in the aggregate principal amount of $6,800,000; and (4) its Subordinate Wastewater System Revenue Bonds (State Revolving Fund Program), Series 2006A (the “Series 2006A SRF Bonds”) currently outstanding in the aggregate principal amount of $42,715,000. The District plans to issue $14,205,000 in bonds (the “Series 2006B SRF Bonds”) payable from wastewater system revenues to be purchased by the State Environmental Improvement and Energy Resources Authority of the State of Missouri through the Missouri State Revolving Fund Program (the “SRF Program”) in November 2006. The District also anticipates issuing the balance of its voter authorization, $40,000,000, in one or more future financings. During fiscal year 2005, the Missouri Department of Natural Resources (“DNR”) made a direct loan to the District in the amount of $535,600 (the “West Watson and Nanell Loan”) for the purpose of paying a portion of the cost of construction and extension of the existing West Watson and Nanell regional subdistrict, discussed below under the section captioned “THE DISTRICT – The System.” The West Watson and Nanell Loan is payable through November 1, 2014; however, because the District has classified the loan as special assessment debt, principal and interest thereon will be repaid from additional tax assessments on property within the subdistrict, not from System revenues. During fiscal year 2004, the District closed on a direct loan to the District in the amount of $374,680 (the “Ozark and Table Rock Loan”) to finance a portion of the cost of constructing and expanding the sewer system within Ozark and Table Rock subdistrict, as discussed further in the section captioned “THE DISTRICT – The System.” The Ozark and Table Rock Loan is payable through November 1, 2013; however, because the District has classified the loan as special assessment debt, principal and interest thereon will be repaid from additional tax assessments on property within the subdistrict, not from System revenues. Estimated Sources and Uses of Funds The following table summarizes the anticipated sources and uses of funds in connection with the issuance of the Series 2006C Bonds: Sources of Funds Par amount of Series 2006C Bonds $ Plus original issue premium Less original issue discount ( ) Total $ Uses of Funds Deposit to Series 2006C Project Account $ Deposit to Debt Service Reserve Account Deposit to the Series 2006C Costs of Issuance Account (to pay costs of issuance of the Series 2006C Bonds, including Underwriters’ fee and premium for Series 2006C Credit Facility, if any) Total $ THE DISTRICT General The District is organized pursuant to Article VI, Section 30 of the Missouri Constitution which empowers the people of St. Louis County, Missouri (the “County”) and the City of St. Louis, Missouri (the “City”) “to establish a metropolitan district for functional administration of services common to the area included therein.” The District is the only special district in the State established pursuant to that section of the Missouri Constitution. The Charter (Plan) of The Metropolitan St. Louis District, approved Formatted: Bullets and Numbering Formatted: Bullets and Numbering - 20 - in 1954 by voters in the City and that portion of the County included in the District at that time (as subsequently amended by the voters of the City and County at a special election on November 7, 2000, the “Charter”), established the District. The District was created to provide a metropolitan-wide system of wastewater treatment and sanitary sewerage facilities for the collection, treatment and disposal of sewage to serve the City and most of the more heavily populated areas of the County. Before the District’s creation, the City, various municipalities in the County and private sewer companies provided sewer service that primarily included only collecting and transporting sewage from small geographic areas to nearby rivers and streams with little or no treatment. Most of the municipalities or private sewer companies serving the area did not have the jurisdictional authority or financial resources needed to eliminate health hazards from untreated sewage. When the District began operations in 1956 it took over the publicly owned wastewater and stormwater drainage facilities within its jurisdiction and began the construction of an extensive system of collector and interceptor sewers and treatment facilities. In 1977, voters approved the District’s annexation of a 270 square mile area of the lower Missouri River and lower Meramec River watersheds in the County. The District purchased the Fee Fee Trunk Sewer Company and the Missouri Bottoms Sewer Company in 1978. The District has since acquired other investor-owned or municipally operated systems. The District’s service area now encompasses 524 square miles including all 62 square miles of the City of St. Louis and 462 square miles (approximately 90%) of St. Louis County, including 92 municipalities. Only the extreme western parts of the County are not served by the District. The District provides sanitary sewer collection and treatment and stormwater management to a population of approximately 1.4 million. As of July 1, 2006, the District served approximately 433,000 accounts, including approximately 362,000 single-family residencies, approximately 45,000 multi-family apartments and condos and approximately 26,000 commercial/industrial businesses. For further description of the District’s service area, see the service area map located on the back cover of this Official Statement. For certain economic and demographic information regarding the City and the County, see Appendix B to this Official Statement. The Charter describes the District as “a body corporate, a municipal corporation and a political subdivision of the state.” Following a detailed planning process, in November 2000 a number of proposed amendments to the Charter encompassing a variety of subjects were placed on the ballot by the District’s Board. The amendments were proposed by a number of groups in order to update the District’s procedures and improve its operations. Voters approved all four amendments by wide margins. The amendments provided additional flexibility and structure to several aspects of District operations, including (1) establishment of an independent 15-member Rate Commission to review adjustments to the District’s wastewater and stormwater charges before the Board acts on them; (2) authorization for the District to issue revenue bonds on a District-wide basis and lowering the margin required for passage of both revenue and general obligation bonds to be consistent with the Missouri Constitution; (3) requiring a mandatory rotation of outside auditors every five years and the appointment of an internal auditor; (4) requiring a periodic independent management audit; and (5) permitting the investment of District funds in the same manner as authorized by the Missouri Constitution for the investment of State funds. Other amendments to the Charter include (1) limiting the term on Trustee and a three-member civil service commission (the “Civil Service Commission”) appointments to two terms (eight years), (2) requiring the publication of Board vacancies, and (3) requiring the Board to make a written report to the Mayor and Board of Alderman of the City and to the County Executive and County Council on an annual basis. The District’s Charter requires it to adopt a continuing five-year strategic and operating plan on an annual basis. The strategic and operating plan states the District’s objectives for the succeeding five years and includes objective targets by which to measure the District’s performance in meeting these - 21 - objectives. See Appendix D – “Engineering and Financial Feasibility Report” for further discussion of the history and process by which the District develops its strategic and operating plan. The District is subject to the provisions of the Federal Water Pollution Control Act, as amended, 33 U.S.C. 1251 et seq., commonly referred to as the Clean Water Act, the stated objective of which is to restore and maintain the chemical, physical, and biological integrity of the nation’s waters. The District is also subject to the Missouri Clean Water Law, Sections 644.006 through 644.141, Revised Statutes of Missouri, as amended, among other laws and regulations. The regulatory requirements are administered by the United States Environmental Protection Agency through the Missouri Department of Natural Resources. See the section herein captioned “REGULATORY REQUIREMENTS.” Organization and Management General. The Charter established the Board as the governing body of the District. The Board is composed of six-members, with three members appointed by the Mayor of St. Louis and three members appointed by the St. Louis County Executive. No more than two trustees from each area can be of the same political affiliation. According to the Charter, the Board enacts District ordinances, determines policies, and appoints the Executive Director, the Secretary-Treasurer and the Internal Auditor. See Appendix D – “Engineering and Financial Feasibility Report” for a discussion of the roles and responsibilities of these administrative personnel. The Executive Director appoints all other District officials. Among its duties, the Board makes all appropriations, approves contracts for improvements, and engages an accounting firm to perform the annual independent audit of the District. Each member of the Board chairs one of the Board’s standing committees: Audit, Customer Relations, Finance, Intergovernmental Relations, Personnel and MBE/WBE and Program Management. Administration of district-wide operations is by the executive staff under the direct supervision of the Executive Director. The Civil Service Commission serves in an advisory position regarding personnel administration and civil service matters, and hears appeals of disciplinary actions. The 15-member Rate Commission (defined herein), an advisory body established pursuant to the amendments to the District’s Charter adopted on November 7, 2000, makes recommendations to the Board regarding all proposed changes in wastewater rates, stormwater rates and tax rates or regarding changes in structure to the foregoing. See the section herein captioned “FINANCIAL OPERATIONS OF THE DISTRICT – Rate Commission and Rate Setting Process.” Recent Board Initiatives. In response to certain events that were perceived to have resulted in a loss of public confidence in the District’s management and governance, in March 2003 the Mayor and the County Executive appointed five new trustees in an effort to regain public confidence and trust. The new trustees’ mandate was to restore ratepayer confidence in the District’s leadership and fiscal accountability. In pursuit of that objective, the Board instigated an in-depth review of the District’s policies and practices. The Board made a number of policy decisions based on that review and implemented a process of measuring the District’s effectiveness in several key areas. Expert consultants have, and are currently conducting, procedural reviews in areas such as finance, information technology, engineering, organizational structure and strategic planning. As a result of these Board initiatives, the District has implemented enhancements to strategic planning, budgetary review and financial reporting processes. See the section herein captioned “FINANCIAL OPERATIONS OF THE DISTRICT – The Finance Department” for a discussion of certain of the practices being implemented in the Finance Department as a result of one of these procedural reviews. [UPDATE FROM DISTRICT TO COME] Among the initiatives implemented by the Board is a revised code of ethics for Board members and District employees concerning conflicts of interest. The new policy strictly prohibits any activities that could be construed as a conflict between personnel and District needs, and makes individuals Formatted: Bullets and Numbering - 22 - responsible for reporting any potential conflicts. The Board also examined the initial 2004 operating budget and challenged management to review every expense item, which resulted in a revised 2004 operating budget with expenses of $8.3 million less than the original proposed budget and expenses $2.2 million below the 2003 budget. See the section herein captioned “FINANCIAL OPERATIONS OF THE DISTRICT – Management’s Discussion and Analysis.” The Board also implemented a series of organizational changes to the District’s management at the end of fiscal year 2003 designed to reduce costs, streamline operations and eliminate dual reporting relationships. The District flattened its management structure by reducing the number of departments from 12 to 7 and the number of director-level positions from 14 to 9. These actions are consistent with the Board’s effort to streamline the District and provide for a more efficient span of control. [UPDATE FROM DISTRICT TO COME] Board of Trustees The current members of the Board are the following: Current Name Principal Occupation Term Expires Dee Joyce-Hayes – Chair March 15, 2008 Charles Karam - Vice Chair March 14, 2008 James H. Buford March 15, 2010 John Goffstein March 15, 2009 Ellen Harshman March 14, 2009 David B. Rosenberg March 14, 2010 _______________ Set forth below is certain biographical information on the members of the Board. [MSD TO PROVIDE] Dee Joyce-Hayes, Chair (St. Louis City). Charles Karam, Vice Chair (St. Louis County). James H. Buford (St. Louis City). John Goffstein (St. Louis City). Ellen Harshman (St. Louis County). David B. Rosenberg (St. Louis County). Administration Management of the District is provided by a management team that reports to the Board, including an Executive Director, Assistant Executive Director, Secretary-Treasurer, Internal Auditor, General Counsel, and Directors of Finance, Engineering, Human Relations, Operations and Information Systems. Set forth below is certain biographical information regarding selected members of the executive management staff of the District: Jeffrey L. Theerman, P.E., Executive Director. Mr. Theerman has been employed by the District for over 19 years, and has served as Executive Director since ____________. Mr. Theerman previously served as Acting Executive Director beginning in October 2003. During his tenure with the District, he has also served in various senior level management capacities within wastewater operations. Prior to Formatted: Bullets and Numbering Formatted: Bullets and Numbering - 23 - joining the District, Mr. Theerman served for four years as an environmental protection engineer with the Illinois Environmental Protection Agency. Mr. Theerman earned a B.S. in Civil Engineering from the University of Missouri-Rolla and a M.S. in Civil Engineering from Southern Illinois University- Edwardsville. Karl J. Tyminski, CPA, Secretary-Treasurer. Mr. Tyminski serves as the Secretary-Treasurer of the District, and has served in such position for over 17 years. Prior to becoming Secretary-Treasurer, he served as the Director of Internal Audit of the District. Prior to joining the District, Mr. Tyminski held various financial and accounting related positions with Anheuser-Busch Companies, Chase-Lincoln Bank and Deloitte & Touche. Mr. Tyminski earned a B.S. in Accounting from the State University of New York at Albany and an M.S. in Management Science from the Stevens Institute of Technology. Randy E. Hayman, Esq., General Counsel. Mr. Hayman has served as General Counsel to the District for over five years. Prior to joining the District, Mr. Hayman was in private practice with various law firms and also served as an Assistant Attorney General with the Missouri Attorney General’s office. Mr. Hayman earned a Bachelor of Arts degree from the University of Michigan and a Juris Doctorate from the Georgetown University Law Center. Janice M. Zimmerman, Director of Finance. Ms. Zimmerman has served as the Director of Finance of the District for over five years. Prior to joining the District, Ms. Zimmerman spent 12 years in the banking and savings and loan industries and nine years in public education finance. Ms. Zimmerman has a B.S. in Business from Eastern Illinois University and a Masters of Finance degree from St. Louis University. Brian Hoelscher, P.E., Director of Engineering. [INFORMATION TO COME]. Dave St. Pierre, P.E., Director of Operations. [INFORMATION TO COME]. The System The District owns and operates a system of sanitary, stormwater and combined collection sewers, pumping stations, and wastewater treatment facilities in its service area. The District provides sewer collection, pumping and treatment services within three watersheds located within the District’s service area – the Mississippi River watershed, the Missouri River watershed and the Meramec River watershed. In addition, the District provides a variety of other services, including sanitary sewer maintenance, stormwater sewer maintenance, floodwater control, monitoring of industrial waste, issuance of pretreatment discharge permits, engineering design and specification, construction of sewer lines, plan review and approvals, issuance of connection permits, public education and customer service. Collection and Trunk Sewers. The District owns and maintains approximately 9,630 miles of collection and trunk sewers, ranging in size from six inches to 29 feet in diameter. They are classified as one of three types: sanitary, storm or combined. Sanitary sewers accommodate household and industrial waste. Storm sewers carry rainwater and surface water runoff. Combined sewers carry both types of waste. The District’s system currently includes approximately 4,731 miles of sanitary sewers, approximately 2,961 miles of stormwater sewers and approximately 1,428 miles of combined sewers that handle both wastewater and stormwater flows. Maintenance of the system is controlled and conducted out of three regional facilities. Pumping Stations. The District owns and maintains 267 sanitary and stormwater pumping stations which move the flow of wastewater through the System. In addition, the District is responsible Formatted: Bullets and Numbering - 24 - for the operation and maintenance of __ large flood wall pump stations built by the U.S. Corps of Engineers as well as __ other stormwater pumping stations that it owns. Wastewater Treatment Facilities. The District currently owns and operates eight wastewater treatment facilities. These facilities treated an average flow of 291 million gallons of wastewater per day (“MGD”) in fiscal year 2006. The Bissell Point and Lemay wastewater treatment plants are the District’s two largest plants. Both of these plants serve the Mississippi River watershed. The two plants have a combined average design capacity of 317 MGD with average daily flow in fiscal year 2005 of 218.49 MGD. This represents about 75.0% of the total design capacity of all of the District’s treatment plants. The Coldwater Creek and Missouri River wastewater treatment plants serve the Missouri River watershed. These two plants have a combined average design capacity of 68 MGD with average daily flow for fiscal year 2005 of 46.90 MGD. The remaining wastewater treatment plants serve the Meramec River Basin. These facilities have a combined average design capacity of 128 MGD with average daily flow of 25.95 MGD in fiscal year 2005. [UPDATE]As part of Phase I of the CIRP, the District is currently constructing a new wastewater treatment plant, a collection system to support the new treatment plant, including a tunnel system and pump stations, and an educational visitors center, referred to herein as the “Lower Meramec Project,” to serve the wastewater treatment requirements of portions of its service area. The Lower Meramec Project, estimated to cost more than $231 million, is the largest project currently under construction by the District. The Lower Meramec Project will replace the District’s existing Meramec and Baumgartner Lagoon treatment plants. With an ultimate maximum capacity of 56 MGD, the plant initially will be capable of receiving and treating an average daily wastewater flow rate of 15 MGD. The new facility will convey treated water into the Mississippi River instead of the more environmentally sensitive Meramec River. Construction of the treatment plant portion of the Lower Meramec Project is anticipated to be complete in late 2006. See the sections herein captioned “THE CIRP AND THE PHASE I PROJECTS – The Phase I Projects” and “ – Financing Plans for Phase I of the CIRP.” [UPDATE]Pre-construction work on the treatment plant portion of the Lower Meramec Project began in early 2001, construction of the new treatment plant began in late 2003, and final completion of the treatment plant is projected for late 2006. The treatment plant portion of the Lower Meramec Project is the largest element of an estimated $231 million program in and around the new plant. Future components of the program include a four-mile-long tunnel and major pump station to carry wastewater to the new facility and a wetlands educational and recreational facility at the plant site. Eventually, this new facility will enable the District to eliminate a total of four wastewater treatment facilities over the next 13 years. For more information regarding the regulatory requirements that necessitated the construction of the Lower Meramec Project, see the section herein captioned “REGULATORY REQUIREMENTS.” Employees and Employee Relations The District currently employees approximately 763 employees, 546 of which are represented by one of six unions: American Federation of State, County and Municipal Employees; the Bricklayers; the International Association of Machinists; International Brotherhood of Electrical Workers; the Operating Engineers; and the Service Employees International Union. The District had one labor dispute in 1977. For the past 25 years, the District has had no record of any labor dispute or work stoppage and considers its employee relations to be excellent. The District also retains private companies and consultants, from time to time, to supplement and expand its existing staffing resources. Formatted: Bullets and Numbering - 25 - Economic Conditions in the District Generally, the District’s major revenue sources do not fluctuate with the local and national economy as much as local governments that depend on sales or income taxes for their major sources of revenue. The District has its own internal barometers for measuring economic development within the District. Such factors are listed below for fiscal years 2006 and 2005: 2006 2005 Sewer Plan Reviews: Number of Plans Approved 865 875 Number of Miles of Sewers 60 65 Sewer Construction Permits: Number of Permits Issued 2,146 1,494 Number of Miles of Sewers 61 71 Customer Connections: Number of Connection Permits Issued 1,086 1,594 Connection Fee Revenue $2,100,000 $3,700,000 Value of Sewers Dedicated to the District by Developers $51,500,000 $14,800,000 Over the years, the St. Louis economy has undergone a transformation from reliance on traditional manufacturing industries to those industries based on advanced technology and service. The St. Louis area is a center for health care, banking, finance, transportation, tourism, and education and has a strong and diverse manufacturing economy. For more information on economic and demographic trends in the City and the County, see Appendix B hereto. Security The System is subject to safety and security inspections on a continuing basis by the District. All treatment plants are maintained as secure facilities with fences, locked gates and electronic surveillance equipment. The District does not represent that any existing or additional safety or security measures will be adequate in the event that terrorist activities are directed at the System. Further, damage to components to the System could have a material adverse impact on the District’s expenditures for repairs to the System. Insurance The District maintains third-party commercial insurance coverage for various risks while self- insuring for other risks and liabilities. Present commercial insurance coverage is maintained for property, boiler and machinery, excess flood, combined liability, excess liability, excess workers’ compensation, public official performance bond, public entity fiduciary liability, crime, major facility pollution liability and sewer backup (main truck line and overcharged line). Such policies contain liability limits, deductions and retentions that management of the District believes to be customary for similar enterprises. Total premiums for third-party insurance cover for fiscal year 2006 equaled $_________, an approximately __% increase over fiscal year 2005. In addition, the District has established a risk management program and self-insures a portion of the risk related to officers’, directors’, and general liability; its obligation to provide workers’ compensation and medical and hospitalization benefits to its employees; and water backup claims to its customers. The District purchases re-insurance to cover the remaining risk on such items. The estimated liabilities for payment of incurred (both reported and unreported) but unpaid claims relating to these matters are included in the District’s financial statements as a component of current deposits and accrued Formatted: Bullets and Numbering Formatted: Bullets and Numbering Formatted: Bullets and Numbering - 26 - expenses. At June 30, 2006 and 2005, these liabilities amounted to $2,733,584 and $3,050,225, respectively. The District obtains periodic funding valuations from the third-party administrators managing the self-insurance programs and adjusts the charges as required to maintain the appropriate level of estimated claims liability. For more information regarding the District’s self-insurance program, see Note 10 to the audited financial statements of the District contained in Appendix A to this Official Statement. THE CIRP AND THE PHASE I PROJECTS General The District developed the CIRP which identifies proposed expenditures by the District for capital improvements to the District’s sewer facilities through 2018, with an estimated cost of $3.7 billion. The general objectives of the CIRP are to meet federal and state requirements and District policy regarding water pollution control, to provide a satisfactory level of service to users of the District’s sewer and stormwater system, including alleviation of basement back-up, and to rebuild part of the District’s decaying infrastructure system. The CIRP addresses the District’s infrastructure capital improvement projects involving the repair, replacement and upgrade of sanitary and combined (sanitary and stormwater) sewers. The following table summarizes the projects identified in the CIRP between 2007 and 2012: Fiscal Year Ending June 30, Description 2007 2008 2009 2010 2011 2012 Total ($000) ($000) ($000) ($000) ($000) ($000) ($000) Sewer System Overflow SSO Control Plan and Planning 12,325 16,600 16,200 15,700 15,300 14,800 90,925 Early Action Plan 98,095 148,000 43,000 57,000 85,000 33,000 464,095 Combined System Overflow LTCP & Planning 12,325 12,700 12,410 12,200 12,300 12,300 74,235 Early Action Project 8,828 14,886 13,438 5,705 3,000 0 46,857 Capital Projects 25,432 0 10,000 20,000 40,000 5,000 100,432 Other Wastewater Treatment Projects 130,230 16,000 83,000 30,000 50,000 160,000 469,230 City Shed -- Condition 0 5,000 5,000 5,000 5,000 5,000 25,000 City Shed -- Capacity 4,000 0 0 0 0 0 4,000 CMOM 7,500 10,000 11,000 11,000 11,000 12,000 62,500 Total 298,735 224,186 194,048 156,605 221,600 242,100 1,337,274 The Projects to be financed with the proceeds of the Series 2006C Bonds constitute a portion of the infrastructure projects identified in the CIRP and generally consist of constructing, improving, renovating, repairing, replacing and equipping new and existing wastewater facilities and systems, including construction of one new wastewater treatment plant and improvements to five of the District’s existing eight sewer disposal and treatment plants, sanitary interceptor sewers and acquisition of easements and real property related thereto. For further discussion of the Projects to be financed with the proceeds of bonds issued pursuant to the $500 million of bonds authorized by the February 2004 election and on a “pay-as-you-go” basis for the Phase I of the CIRP, see the subsection below captioned “The Phase I Projects” and Appendix D – “Engineering and Feasibility Report.” The District will use the proceeds of previously issued Bonds, the Series 2006C Bonds, and any Bonds issued by the District in the future under the Bond Ordinance to finance the majority of the infrastructure projects identified in Phase I of the CIRP. The District will also finance a portion of the capital improvement projects identified in Phase I of the CIRP with available revenues on a “pay-as-you-go” basis. Formatted: Bullets and Numbering - 27 - The Phase I Projects [UPDATE FROM DISTRICT TO COME] A summary of the actual and proposed expenditures for Phase I of the CIRP, including the Phase I Projects to be financed with the proceeds of the Series 2006C Bonds and the capital improvement projects anticipated to be financed with Bonds issued and to be issued by the District under the Bond Ordinance, is set forth in the table below. SUMMARY OF ACTUAL AND ANTICIPATED PHASE I CIRP EXPENDITURES(1) Fiscal Years 2004 through 2007 Fiscal Year Ending June 30 Sanitary Replacement Lower Meramec Project Total 2004 Actual 2005 Actual 2006 Actual 2007 Anticipated Total _______________________ Source: The District. (1) Estimated. The District anticipates that it will finance the wastewater improvement capital projects that will not be funded with the proceeds of bonds issued pursuant to the February 2004 election on a “pay-as-you- go” basis using available revenues. In addition, the District has identified $___________ in additional wastewater system improvements through the District’s fiscal year ending June 30, 20[__]. See Appendix D – “Engineering and Feasibility Report.” [DISCUSSION OF PHASE I PROJECTS COMPLETED AND REMAINING; UPDATE TABLES] The District has completed the following Projects of the Phase I portion of the CIRP: Project Cost Coldwater Treatment Plant upgrade Missouri River Treatment Plant upgrade Grand Glaize Treatment Plant upgrade Lower Meramec Project – visitor’s center and and electrical supply and Baumgartner Treatment Plant Lagoon closing Design work for infrastructure collection and improvements Lemay Overflow Regulation System Total: The District has completed the following capital improvement projects identified in Phase I of the CIRP: Formatted: Bullets and Numbering - 28 - Project Estimated Cost Lower Meramec Project – new treatment plant Baumgartner Tunnel construction Baumgartner Pump Station construction Total: The District anticipates that the following Projects of the Phase I portion of the CIRP will be financed with the proceeds of the Series 2006C Bonds and future financings under the Bond Ordinance: Project Estimated Cost Coldwater Treatment Plant upgrade Missouri River Treatment Plant upgrade Grand Glaize Treatment Plant upgrade Lower Meramec Project – visitor’s center and and electrical supply and Baumgartner Treatment Plant Lagoon closing Design work for infrastructure collection and improvements Lemay Overflow Regulation System Total: The District anticipates that the following capital improvement projects identified in Phase I of the CIRP will be financed with the proceeds of the Series 2006C Bonds and future financings under the Bond Ordinance: Project Estimated Cost Lower Meramec Project – new treatment plant Baumgartner Tunnel construction Baumgartner Pump Station construction Total: Historic Capital Improvement Expenditures Prior to issuance of the Series 2004A Bonds, the District financed substantially all of the capital improvements to its facilities from available revenues on a “pay-as-you-go” basis. Since 1993, the District has financed in excess of $800 million in capital improvements in this manner. Some of the more significant capital improvements financed in this manner include: • Construction of a new secondary treatment operation at the Bissell Point Treatment Plant at a cost of approximately $150 million • Rehabilitation of sewers adjacent to the Mississippi River at a cost of approximately $153 million • Rehabilitation of sewers along the River Des Peres at a cost of approximately $175 million • Construction of deep tunnels in various sections of the St. Louis area at a cost of approximately $70 million • [UPDATE FROM DISTRICT TO COME] Formatted: Bullets and Numbering Formatted: Bullets and Numbering - 29 - The following sets forth the District’s historic capital improvement expenditures for improvements to its wastewater system facilities for fiscal years 1997 through 2006. Fiscal Year Ending June 30 Capital Improvement Expenditures 1997 $85,308,899 1998 80,204,292 1999 72,882,901 2000 67,024,301 2001 50,653,501 2002 70,687,845 2003 91,124,792 2004 88,923,498* 2005 140,402,733* 2006 133,592,404* Total $961,009,457 ___________________ Source: The District. * Includes expenditures funded both by Bond proceeds and on a “pay-as-you-go” basis from available revenues. Financing Plans for Phase I of the CIRP There are two primary funding sources for financing the capital improvements identified in Phase I of the CIRP: (1) debt, including Bonds issued under the Bond Ordinance, and (2) available Operating Revenues. The following table sets forth the existing and anticipated major funding sources for Phase I of the CIRP for fiscal years 2004 through 2007. In addition, the District has had and anticipates that it will have certain grant proceeds and interest earnings available to finance the costs of Phase I of the CIRP. See “Appendix D – Engineering and Feasibility Report” for additional discussion of the District’s anticipated sources and uses of funds for financing Phase I projects and additional capital improvements to its wastewater system through its fiscal year ending June 30, 2006. PROJECTED MAJOR FUNDING SOURCES FOR PHASE I OF THE CIRP Fiscal Year Ending June 30 Description 2004 2005 2006 2007 Debt Financing(1) Series 2004A Bonds 175,000,000 Series 2004B Bonds 161,281,000 Series 2005A Bonds 6,800,000 Series 2006A Bonds 42,715,000 Series 2006B Bonds(2) 14,205,000 Series 2006C Bonds 60,000,000 Future Bonds 40,000,000 System Revenues(3) 2,398,227 5,370,512 13,937,211 125,394,050 Total 338,678,227 12,170,512 56,652,211 239,599,050 _____________________ Source: The District. (1) This category includes proceeds the District expects to receive in connection with issuance of the Bonds and future additional Bonds under the Bond Ordinance. (2) Expected to be issued in November 2006. (3) Does not include revenues from the District’s Stormwater Service Charge. Formatted: Bullets and Numbering - 30 - FINANCIAL OPERATIONS OF THE DISTRICT General The District is supported by various taxes and user charges imposed on taxpayers and users of its facilities within its boundaries. The District has the power, subject to voter approval, to issue general obligation bonds, District-wide revenue bonds, sub-district revenue bonds, or special assessment bonds. The Executive Director is responsible for preparing the annual budget of the District and is responsible for drawing warrants to meet the financial obligations of the District. The Executive Director appoints the Director of Finance, who is responsible for assisting the Executive Director in preparing the annual budget, maintaining the accounting records of the District, and certifying that all warrants are proper and valid under the District’s Charter. The Secretary-Treasurer is appointed by the Board and is responsible for custody of the funds of the District and investing the funds of the District pursuant to the Charter of the District and State law. Budget and Appropriation Process The Executive Director of the District is responsible for preparing the District’s annual budget. Not later than the fifteenth day of March in each year, the Executive Director must submit to the Board a budget for the ensuing year. The Charter requires that the Board adopt the budget no later than June 30. In the event that the Board does not pass a new budget by June 30, the prior year’s budget continues in force until the Board adopts a new budget. The proposed budget is available for public inspection and the District conducts public hearings on the proposed budget prior to its adoption. On or before the thirtieth day of June in each fiscal year the Board shall determine the amount of taxes that will be required during the next succeeding fiscal year to pay the principal of and interest on general obligation bonds issued and certain costs of operations, maintenance, construction and improvements. The budget provides a complete financial plan for the budget year for all District funds. In no event can the total amount of expenditures for the budget year from any fund exceed the estimated revenues to be actually received plus any unencumbered balance or less any deficit estimated for the beginning of the budget year. Finance Department As a result of initiatives implemented by the Board in 2003, a procedural review by retired executives serving as independent management consultants of the District’s financial processes and information technology operations was completed in __________ 2004. The Finance Department is enhancing its efforts to substantially reduce its portfolio of accounts receivable, using a combination of internal collection efforts, liens and service shut-off. In addition, a portion of the District’s billing and past-due collections has been outsourced to several outside vendors. These agencies will focus on collecting overdue sewer bills from ratepayers. This outsourcing initiative will also bring new information systems technology to the District. The 2003 follow-up audit by the Missouri State Auditor praised the significant steps taken to rectify weaknesses in billing and collection policies, procedures and record keeping. [UPDATE FROM DISTRICT TO COME] In 2005, the Government Finance Officers Association of the United States and Canada honored the District for excellence in budgeting, financial accounting and full disclosure. For the 18th consecutive year, the District earned the Distinguished Budget Presentation Award, the highest form of recognition in government budgeting. For the 17th consecutive year, the District also received the Certificate of Achievement for Excellence in Financial Reporting, the highest recognition in governmental accounting and financial reporting. Formatted: Bullets and Numbering Formatted: Bullets and Numbering Formatted: Bullets and Numbering - 31 - Fund Structure General Fund. The General Fund was established to provide for the ordinary operations of the District. Since 1978, all operation and maintenance has been funded out of the General Fund. The General Fund receives revenues from ad valorem property taxes levied on all property, real and personal, within the District’s boundaries based on assessed valuations established by the City and County assessors. Tax rates vary by subdistrict and purpose, and are levied in accordance with the Charter of the District. Currently, a main source of income for the General Fund is a wastewater user charge. The General Fund also receives miscellaneous income from a number of sources, and reimbursement of engineering services provides other non-operating funds. Revenues from the operation of the City of Arnold wastewater treatment plant and other contract wastewater treatment plants are also deposited in the General Fund. The District’s Operating Funds consist of the Wastewater Revenue Fund and the Stormwater Revenue Fund. Wastewater user charge revenues are deposited into the Wastewater Revenue Fund and revenues from the District’s Stormwater Service Charge are deposited into the Stormwater Revenue Fund. The District also maintains an Emergency Fund. This fund is intended to be used for emergency repairs and replacements in the event that no other funds are readily available. District policy requires that a minimum balance of $4 million be maintained in the Emergency Fund. As of June 30, 2006, the Emergency Fund had a balance of $4,527,488. Basis of Accounting The accounts of the District are maintained on the full accrual basis and are reported as a single enterprise. Separate accounting records are maintained for certain subdistricts and to account for restricted resources; however, interorganizational transactions and balances are eliminated for reporting purposes. Financial Statements The accounts of the District are audited annually by an independent firm of certified public accountants. The accounting firm of Rubin, Brown, Gornstein & Co. LLP has served as auditor for the District continuously since 2001. The District’s audited financial statements for the fiscal years ended June 30, 2006 and 2005 are attached hereto as Appendix A. Selected Financial Data of the District The District follows Governmental Accounting Standards Board Statement No. 33, “Accounting Reporting for Non-Exchange Transactions,” which establishes accounting and financial standards for non-exchange transactions involving financial or capital resources. On July 1, 2001, the District adopted the provisions of the Governmental Accounting Standards Board Statement No. 34, “Basic Financial Statements – and Management’s Discussion and Analysis – for State and Local Governments,” Statement No. 37, “Basic Financial Statements – and Management’s Discussion and Analysis – for State and Local Governments: “Omnibus,” and Statement No. 38, “Certain Financial Statement Note Disclosures” as of and for the year ended June 30, 2002. This resulted in a change in the format and content of the basic financial statements and accompanying notes to the financial statements. The financial statements for the year ended June 30, 2001 were restated to reflect the adoption of Statement No. 34. As a result of the adoption of such statement, historical financial data not restated will not be comparable to the data presented under the new format. During 2005, the District adopted Governmental Accounting Standards Board Statement No. 40, “Deposit and Investment Risk Disclosures, an Amendment of GASB Statement No. 3,” the adoption of which modified certain financial statement disclosure requirements. The new standard enhances the deposit and investment risk disclosures by updating the previous custodial credit Formatted: Bullets and Numbering Formatted: Bullets and Numbering Formatted: Bullets and Numbering Formatted: Bullets and Numbering - 32 - risk disclosure requirements and addressing other common risks, including concentrations of credit risk, interest rate risk, and foreign currency risk. The implementation of Statement No. 40 had no effect on financial statement amounts. Governmental Accounting Standards Board Statement No. 43, “Financial Reporting for Post- employment Benefit Plans Other Than Pension Plans” and Governmental Accounting Standards Board Statement No. 45, “Accounting and Financial Reporting by Employers for Post-employment Benefits Other Than Pension Plans” establish accounting and financial reporting standards for post-employment benefits other than pensions. As part of a total compensation package, many governments offer post- employment benefit plans other than pensions such as health care, life insurance and so forth. Statement No. 43 establishes uniform financial reporting standards for other post-employment benefit (“OPEB”) plans and applies to OPEB trust funds included in the financial reports of plan sponsors or employers, as well as in stand-alone financial reports. Statement No. 45 establishes standards for the measurement, recognition and display of OPEB expenses and expenditures and related liabilities and assets, note disclosure, and, if applicable, required supplementary information in the financial reports of state and local government employers. Statement No. 43 will be effective for the District for the fiscal year ending June 30, 2007, and Statement No. 45 will be effective for the District for the fiscal year ending June 30, 2008. Management of the District has not yet completed its assessment of the statements. See “FINANCIAL OPERATIONS OF THE DISTRICT – Other Post Employment Benefits” for additional discussion of the District’s OPEB liabilities. The following table illustrates the financial result of operations of the District for the fiscal years ended June 30, 2006 and 2005. The Stormwater Service Charge is included in “Operating Revenues” in the following chart. Revenues from the Stormwater Service Charge are not included in Pledged Revenues and, therefore, are not available to pay debt service on the Bonds issued under the Bond Ordinance, including the Series 2006C Bonds. The following financial information is intended to provide historical information on the financial health of the District. THE METROPOLITAN ST. LOUIS SEWER DISTRICT STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS ($000) - 33 - 2006 2005 Operating revenues: Sewer service charges, net $ 203,880 $ 183,513 Provision doubtful service charge accounts (3,161) (1,546) Licenses, permits and other fees 5,210 6,549 Other 873 78 Total Operating Revenues $ 206,802 $ 188,994 Nonoperating revenues: Property taxes levied by District $ 23,211 $ 22,016 Investment income 7,610 5,502 Grant revenue 1,425 1,553 Other 1,027 1,038 Total Nonoperating Revenues $ 33,273 $ 30,109 Total Pledged Revenues $ 240,075 $ 219,103 Operating expenses: Pumping and treatment $ 38,316 $ 35,514 Collection system maintenance 27,792 25,225 Engineering 8,737 6,851 General and administrative 37,055 37,047 Depreciation 43,980 44,443 Other 20,009 13,294 Total Operating Expenses $ 175,889 $ 162,374 Nonoperating Expenses: Total Nonoperating Expenses $ 3,565 $ 3,098 Total Expenses $ 179,454 $ 175,472 Net Pledged Revenues $ 60,621 $ 43,631 Annual Debt Service 12,744,598 Debt Service Coverage 5.04x The District engaged its independent accountants to perform certain agreed-upon procedures in connection with the schedule of Pledged Revenues, as shown below, and prepare an Agreed-Upon Procedures Report, dated ____________, 2006. The schedule of Pledged Revenues was prepared by the District to show what Pledged Revenues would have been available historically to pay debt service on the Bonds. The District’s independent accountants performed certain procedures to compare and agree (1) the District’s total operating revenues, nonoperating revenues and operating expenses and (2) revenues, not included in Pledged Revenues, such as Stormwater Revenues, property tax revenues, capital grant revenues and certain interest income, all as reported in the District’s audited financial statements for the years ended June 30, 2006 and 2005, as shown on the table above, with the Pledged Revenues schedule provided by the District to the independent accountants. The independent auditor’s report concluded that all amounts presented on the schedule provided by the District were agreed to either audited financial statements of the District or other financial information provided by the District. The schedule below was attached to the Agreed-Upon Procedures Report. SCHEDULE OF PLEDGED REVENUES FOR THE YEARS ENDED JUNE 30, 2006 AND 2005 - 34 - 2006 2005 ____________________ Management’s Discussion and Analysis The following Management’s Discussion and Analysis is excerpted from the financial statements of the District for the Fiscal Years ended June 30, 2006 and 2005. For the full discussion (which discussion is unaudited as noted therein), see the financial statements of the District for the Fiscal Years ended June 30, 2006 and 2005 included in Appendix A to this Official Statement. General. The management of the District has provided this discussion and analysis to be used in combination with the District’s financial statements for the Fiscal Years ended June 30, 2006 and 2005, which are included in Appendix A to this Official Statement. This narrative is intended to provide the reader with more insight into management’s knowledge of the transactions, events and conditions reflected in the accompanying financial statements and the fiscal policies that govern the District’s operations. Financial Highlights. • Net capital assets increased by $143.8 million due to increased levels of spending for CIRP. ♦ Collection and pumping plant $92.1 million ♦ Depreciation $42.3 million ♦ Construction in Progress $90.0 million ♦ Land $0.1 million ♦ General Plant and equipment $1.0 million ♦ Treatment and disposal plant and equipment $2.9 million • Cash and cash equivalents balances increased by $36.5 million, while investment balances decreased by $41.1 million, from fiscal year 2005 to fiscal year 2006. The shift from longer-term investments to cash and cash equivalents occurred as a result of the current interest rate environment in which an inverted yield curve makes short-term investments more attractive than long-term investments. • Bonds and notes payable balances increased by $37.6 million in most part due to the issuance of the Series 2006A Bonds in the amount of $42.7 million. Retirements of $5.5 million, and changes in the unamortized premium balance and the balance of bond issuance costs netting to $0.4 million combine for the remaining $5.1 million in change. Formatted: Bullets and Numbering Formatted: Bullets and Numbering - 35 - • Capital contributions increased by $36.7 million due to the gifting of assets related to 293 developments in fiscal year 2006 versus 194 in fiscal year 2005. • Operating revenues increased by $17.8 million as a result of the rate increase that took affect in July 2005. Financial Analysis. The overall financial condition of the District is strong as indicated by the increase in net assets over the past year. The District had income before contributions of $60.6 million in fiscal year 2006, compared to $43.6 million in 2005 and $35.3 million in 2004. Plans for maintaining the District’s ability to meet future spending needs are discussed in greater detail in the section of the MD&A entitled “Decisions Impacting the Future.” Total net assets increased $112.1 million, or 6.0% over prior year. This change is the result of an increase in total assets of $144.0 million and an increase in liabilities of $31.9 million. Net capital assets increased by $143.8 million in fiscal year 2006 from fiscal year 2005 accounting for the overwhelming majority of the change in total assets. Current, restricted and other assets account for the other $0.2 million of the $144.0 million dollar increase. The change in net capital assets can be attributed to an increase in collection and pumping plant of $92.1 million and an increase in construction in progress of $90.0 million with an offsetting increase in accumulated depreciation of $42.3 million. The remaining increase of $4.0 million is a combination of treatment and disposal plant and equipment, general plant and equipment, and land. The change in total liabilities of $31.9 million is representative of an increase in non-current liabilities of $36.3 million and a decrease of current liabilities of $4.4 million. Non-current liabilities increased by $36.3 million almost exclusively due to the issuance of the Series 2006A Bonds through the SRF Program in the amount of $42.7 million. The retirement of bonds totaling $5.5 million, less a net change in unamortized premium and accretion of bond issuance costs of $0.4 million, and a $1.7 million change in the current portion of bonds payable combine to offset the $42.7 million and account for the change in non-current bonds and notes payable. An increase in deposits and accrued expenses of $0.4 million rounds out the variance in non-current liabilities from fiscal year 2005 to fiscal year 2006. Net assets increased $112.1 million, which was $53.7 million over 2005. The largest contributing factor in the increase in net assets is the increased level of capital contributions. In fiscal year 2006, capital contributions totaled $51.5 million while in fiscal year 2005 they were $14.8 million. This change accounts for $36.7 million of the total change in net assets, and is a result of a larger number of developments being gifted to the District. Another significant factor in the $53.7 million increase in net assets was the increase in sewer service charge revenues totaling $20.4 million as a result of the rate increase that took effect in July of 2005. Operating expenses increased by $13.5 million over the prior year. The largest increase in operating expenses occurred in other operating expenses in the amount of $6.7 million. This increase is a result of greater spending on infrastructure repair and data collection projects. Additionally, pumping and treatment, collection system maintenance, and engineering expenses increased by $2.8 million, $2.6 million, and $1.9 million respectively, while depreciation expenses decreased by $0.5 million. Non-operating expenses decreased by $9.5 million over the prior year. The decrease can be attributed to the capital improvement surcharge refund. $5.7 million of the refund was expensed in fiscal year 2005, while only $0.1 million was charged in fiscal year 2006. The other major contributing factor - 36 - to the $9.5 million decrease is a drop in the net loss on the disposal and sale of a utility plant in the amount of $3.0 million. In fiscal year 2005, land valued at over $3.0 million was gifted to the City of Maplewood. The net increase in cash and cash equivalents experienced a $194.5 million increase in relation to fiscal year 2005. The most significant reason for that increase is the cash flow from investment activities. In fiscal year 2006, cash flow from investment activities was a positive $49.4 million while in fiscal year 2005 the District had a negative cash flow from investment activities of $105.9 million. Bond proceeds originally converted to long-term investments have been converted to cash to cover CIRP expenses and to take advantage of better interest rates on short-term investments. Cash outflows from capital and related financing activities increased by $40.5 million in fiscal year 2006. In fiscal year 2006, the District’s proceeds from the issuance of debt increased by $35.6 million. Payments for capital improvements decreased by $14.8 million, principal and interest and fees paid on debt declined by a combined $3.7 million, cash refunded for the clean water capital improvement surcharge increased by $5.8 million, and proceeds from capital grants declined by $0.4 million. Total capital assets net of depreciation increased $143.8 million over the prior year. The most significant increase was to construction in progress, which rose by $90.0 million. Collection and pumping plant also increased by a significant amount of $66.3 million in large part due to the increase in contributed assets. Treatment and disposal plant and equipment decreased by $12.1 million as depreciation outpaced additions in this asset category. Finally, general plant and equipment decreased by $0.5 million in relation to the prior year, and land increased by less than $0.1 million. The District ended fiscal year 2006 with $379.9 million in long-term debt outstanding, consisting mainly of revenue bonds. The increase of $37.2 million is a result of new issues in the amount of $42.7 million. For additional information related to the District’s long-term debt, see Note 5 to the financial statements. During fiscal year 2007, the District plans to issue the Series 2006C Bonds and an additional $40 million in bonds previously approved by the voters in February 2004. These bonds will continue to fund the first of four phases of a 20-year wastewater capital improvement program projected to total $3.7 billion in expenditures. The remaining phases are expected to be funded through a combination of additional bonds, if approved by the voters, and additional rate increases. The District also plans to address the current lack of funding to adequately support the operation and maintenance of the St. Louis Region’s existing stormwater infrastructure. The District intends to recommend a change in stormwater funding by modifying the current monthly 24¢ per customer fixed charge to a variable charge based on impervious area. A combined rate proposal addressing both the wastewater and stormwater funding issues will be subject to review by the District’s Board of Trustees and Rate Commission (defined below). The District anticipates submitting a formal funding proposal for consideration by the third quarter of fiscal year 2007. In addition to these major funding initiatives, the District will also be embarking on the implementation of the first year of a multi-year strategic technology plan. This comprehensive plan is based on a year long review of all District technology systems and business processes during the past fiscal year and is designed to dramatically improve connectivity and interaction between District Departments, increase overall District efficiency and enhance customer service for all District ratepayers. - 37 - Sewer Rates and Revenues The primary source of funding for the operation and maintenance of the District’s sewerage and drainage system is a user charge that averaged $271.44 per year for a single-family residence in fiscal year 2006. The District’s charges for residential wastewater service are tied to the amount of measured water usage during a winter quarter. For residential properties without water meters, the charges are based on housing attributes (such as the number of rooms, baths, and toilets) that correlate to water usage. That methodology is the same billing methodology used by the City of St. Louis Water Division for its non-metered properties. Multi-family residential and commercial and industrial rates are proportionate to the single-family charge and are based on water consumption and the strength of the discharge. The District has other sources of revenue. Real and personal property taxes were levied by the District in an amount of almost $23.2 million in fiscal year 2006 to service subdistrict indebtedness, fund subdistrict construction and/or to fund part of the District’s stormwater operating expenses. The District also receives some federal, state, and local grants to help defray the cost of constructing sewage treatment and drainage facilities and improvements. The District also charges fees for plan review, permits, construction inspection of new system development, and special discharges. The District charges a uniform connection fee in all service areas. The District may issue general obligation bonds and revenue bonds to finance the cost of improvements and extensions to the sewer system. The District also may issue, on behalf of each of its subdistricts, general obligation bonds or revenue bonds. The issuance of general obligation bonds, payable from a general tax levy on all taxable property within the District or a subdistrict, requires the approval of either a four-sevenths or two-thirds majority of the voters voting at an election held in the District or subdistrict, as the case may be. General obligation bonds outstanding cannot exceed five percent of the assessed valuation of the area benefited. Subdistricts may also issue revenue bonds, payable from user charges after a similar procedure, but require only a simple majority vote. Rate Commission and Rate Setting Process General. Pursuant to the amendments to the District’s Charter adopted on November 7, 2000, the District established a rate commission (“Rate Commission”) to review and make recommendations to the Board regarding all proposed changes in wastewater rates, stormwater rates and tax rates or change in the structure of any of the foregoing. Upon receipt of a rate change notice from the District pursuant to the Charter, the Rate Commission recommends changes in rates to the Board that will be necessary to pay interest and principal falling due on bonds issued to finance assets of the District, the costs of operation and maintenance and such amounts as may be required to cover emergencies and anticipated delinquencies. Membership. The Rate Commission consists of one representative from each of fifteen (15) organizations within the District, each of which have been identified and designated by the Board as a “Rate Commission Representative Organization.” The organizations selected by the Board are diverse and represent residential customers, commercial and industrial customers, environmental interests, labor interests, community and neighborhood organizations and nonprofit organizations. The current Rate Commission Representative Organizations are as follows: Formatted: Bullets and Numbering Formatted: Bullets and Numbering - 38 - Building & Construction Trades Council FOCUS St. Louis Missouri Industrial Energy Consumers Home Builders Association of Greater St. Louis St. Louis County Municipal League Engineers Club of St. Louis League of Women Voters of St. Louis Human Development Corporation of Metro St. Louis Missouri Botanical Garden St. Louis Association of Realtors Associated General Contractors of St. Louis International Institute Regional Chamber & Growth Association Sierra Club St. Louis Council of Construction Consumers These organizations reviewed and recommended the rate increase that was approved by the Board and became effective in August 2003 and the additional rate increases approved by the Board on March 11, 2003, which became effective on July 1, 2004 and July 1, 2005. [Discussion of new rate increases to come.] Rate Setting Process. Pursuant to the Charter, whenever the District proposes or recommends a change in rates, it shall give written notice (“Rate Change Notice”) to the Board and the Rate Commission. Upon receipt of a Rate Change Notice and after review of same, the Rate Commission shall cause at least one public hearing to be held on the record regarding the proposed rate change. The Rate Commission shall issue its rate recommendation report (“Rate Commission Report”) to the Board and to the public no later than one hundred twenty (120) days after receipt of a Rate Change Notice. If the Board accepts the Rate Commission Report or if the Board is deemed to have accepted a Rate Commission Report as set forth in the Charter, the Board enacts an ordinance consistent with the Rate Commission Report. The Board may reject, or fail to accept, the Rate Commission Report only upon a finding that such report does not conform to the requirements of the Charter. No ordinance to effect a change in rates shall be introduced for adoption under the Charter prior to the earlier of forty-five (45) days after receipt of the Rate Commission Report or forty-five (45) days after the date on which the Rate Commission Report is due. For further discussion of the Rate Commission and the rate setting process, see Appendix D – “Engineering and Financial Feasibility Report.” Pursuant to the Charter, any change in a rate recommended to the Board by the Rate Commission must be accompanied by a statement of the Rate Commission that the proposed rate change, and all portions thereof: (1) is consistent with constitutional, statutory or common law as amended from time to time; (2) enhances the District’s ability to provide adequate sewer and drainage systems and facilities, or related services; (3) is consistent with and not in violation of any covenant or provision relating to any outstanding bonds or indebtedness of the District; (4) does not impair the ability of the District to comply with applicable Federal or State laws or regulations as amended from time to time; and Formatted: Bullets and Numbering - 39 - (5) imposes a fair and reasonable burden on all classes of ratepayers. Billing and Collections The District bills residential and commercial customers monthly for sewer service charges. As described below, sewer bills are calculated upon several different bases, including the amount of water used each quarter, the winter-quarter usage only or, when water meters are not in use, the structure of the building. For customers whose bills are based upon water usage, the District purchases data from the three water agencies serving the metropolitan area: the St. Louis City Water Division, Missouri American Water Company and Kirkwood Water. In the City of St. Louis, most single-family homes and smaller multi-unit buildings are not equipped with water meters. There are also a small number of properties in the County that use well water. When no water meter reading is available, the District calculates the bill based on the attributes of the structure, including the number of rooms, toilets, baths and separate showers. Single-family residential properties that have water meters are billed based on the winter quarter water usage. The winter quarter is defined as the 3-month water meter reading taken in February, March or April. With each July sewer bill the service charges are calculated on a 91-day prorated amount using the previous winter quarter water meter reading. The monthly usage remains the same until the following July, when the process is repeated. For single-family customers who have limited income, the District offers a Low-Income Assistance program. For eligible customers, the monthly sewer bill is reduced by 50% each month. Commercial and multi-unit properties are billed based on the amount of water used each quarter or, in a few cases, each month. The District’s bill is based on one-third of the prior quarter’s reading and remains the same amount for three months. The process is repeated for the next 3 months. In the case of commercial properties, there is an additional compliance charge on each month’s bill and the bill may include a surcharge for difficult to treat industrial waste or there may be a reduction factor, based on water used in processing and not entering the sewer system. Multi-unit property owners also have the option of being billed on the winter quarter reading or on each quarter reading. The District currently has approximately 431,500 accounts that are billed monthly, including approximately 361,000 residential accounts, 44,500 multi-unit accounts, and 26,000 commercial accounts. These accounts are divided between 3 billing cycles each month.] The District is currently implementing a new billing system, using the same billing parameters described above, but billing on a more frequent basis. The District anticipates that under the new policy, it will bill a portion of its accounts on a daily basis. The District believes that this change in billing frequency will further improve cash flows and accounts receivable. Rate Increases Pursuant to the rate review and setting procedures discussed under the caption “Rate Commission and Rate Setting Process” above, the District submitted to the Rate Commission a request to increase wastewater user charge rates in May 2002. Following its review of the District’s request, the Rate Commission issued a Rate Commission Report in October 2002 recommending a three-step increase in wastewater user charges, which report was accepted by the Board in December 2002. In early 2003, the District decided to postpone a planned ballot issue regarding the District’s issuance of sewer revenue bonds. As a result, the District subsequently submitted a proposed amendment to the proposed schedule of wastewater user charge increases, which amendments were recommended by the Rate Commission in May 2003 and accepted by the Board on June 12, 2003. Formatted: Bullets and Numbering - 40 - The amended schedule of wastewater rate increases provides for an estimated initial increase in the average monthly single family residential sewer bill of $2.90 per month, which is an approximately 21% increase, and is expected to generate approximately $30 million in additional wastewater user charge revenues in 2004. The Rate Commission recommended subsequent wastewater rate increases of $3.71 per month effective July 1, 2004 and $1.80 per month effective July 1, 2005. The Board approved the recommended rate increase of $2.90 per month on July 24, 2003, which increase became effective August 1, 2003 and has been implemented by the District since such time. On March 11, 2004, the Board approved the recommended additional rate increases to become effective on July 1, 2004 and July 1, 2005. [UPDATE FROM DISTRICT TO COME] Historical and Projected Sewer Rates and Charges The following table sets forth the wastewater sewer user charge rates in effect on June 30, 2003, the rate increase approved by the Board and which became effective August 1, 2003, and the July 1, 2004 and July 1, 2005 rate increases approved by the Board at its March 11, 2004 meeting. The rates in effect as of July 1, 2005 remain in effect as of the date of this Official Statement. Prior to the August 1, 2003 increase, such rates had remained unchanged since October 1, 1997. As of Effective Effective Effective Type of Monthly Charge June 30, 2003 August 1, 2003 July 1, 2004 July 1, 2005 Base Charge - $/Bill Billing & Collection Charge $ 0.74 $ 0.85 $ 0.85 $ 0.85 System Availability Charge 4.83 5.30 6.45 7.05 Total Base (Residential) Service Charge $ 5.57 $ 6.15 $ 7.30 $ 7.90 Compliance Charge - $/Bill (a) $ 8.56 $ 11.80 $ 12.15 $ 12.55 Total Nonresidential Service Charge $ 14.13 $ 17.95 $ 19.45 $ 20.45 Volume Charge Metered - $/Ccf $ 1.05 $ 1.34 $ 1.66 $ 1.81 Unmetered - $/Bill Each Room $ 0.69 $ 0.88 $ 1.08 $ 1.18 Each Water Closet 2.58 3.28 4.04 4.42 Each Bath 2.15 2.74 3.37 3.69 Each Separate Shower 2.15 2.74 3.37 3.69 Extra Strength Surcharges - $/ton (a) Suspended Solids over 350 mg/l $ 87.20 Suspended Solids over 300 mg/l (b) $ 162.88 $ 200.15 $ 218.90 Biological Oxygen Demand: (BOD’s) over 300 mg/l 217.90 319.24 412.58 461.44 Chemical Oxygen Demand: (COD’s) over 600 mg/l 108.95 159.62 206.29 230.72 _________________________ (a) Applicable only to nonresidential customers. (b) Reflects reduction in suspended solid normal strength threshold from 350 mg/l to 300 mg/l. Key: Ccf – Hundred Cubic Feet. mg/l – milligram per liter. Source: The District. In addition to the foregoing wastewater rates and charges, the District imposes a monthly Stormwater Service Charge, currently $0.24 per account per month. The revenues derived from such Stormwater Service Charge are not included in the Pledged Revenues under the Bond Ordinance and are not available for the payment of debt service on any Bonds issued under the Bond Ordinance, including the Series 2006C Bonds. Formatted: Bullets and Numbering - 41 - Customer Accounts The District imposes a user charge on all customers that use its system of sewers, treatment plants and other facilities. The number of customers per category of accounts is as follows: THE METROPOLITAN ST. LOUIS SEWER DISTRICT NUMBER OF CUSTOMERS BY TYPE LAST TEN FISCAL YEARS Fiscal Year Ending June 30 Single-Family Residential Multi-Family Residential Commercial/ Industrial Total Accounts 1997 351,983 47,265 26,289 425,537 1998 348,605 46,154 26,030 420,789 1999 349,759 45,787 25,939 421,485 2000 351,367 45,348 25,918 422,633 2001 352,656 45,074 25,779 423,509 2002 356,988 45,209 25,831 428,027 2003 357,226 44,947 25,670 427,843 2004 358,541 45,264 25,839 429,645 2005 359,748 44,802 25,200 429,750 2006 361,132 44,582 25,712 431,426 _________________ Source: The District. Largest User Charge Customers The following table lists the District’s ten largest wastewater user charge customers for the fiscal year ended June 30, 2006. Percent Customer User Charges of Total Anheuser-Busch Companies, Inc.1 $8,192,292 4.08% Mallinckrodt, Inc. 1,488,243 0.74% Saint Louis Zoo 694,355 0.35% Chrysler Corporation 661,330 0.33% Sigma Aldrich 609,368 0.30% ABC Dairy, Inc. 546,200 0.27% Rockwood Pigments NA, Inc. 545,495 0.27% St. Louis Coca-Cola Bottling Co. 545,079 0.27% City of St. Louis 542,146 0.27% Sensient Colors Inc. 499,146 0.25% Total: $14,324,188 7.14% ___________________________________ 1 Anheuser-Busch has had a significant reduction in contributed wastewater over the past few years due to several successful water conservation and reduction projects. Although further conservation measures are expected in the future, compensating increases in production levels are also expected that should result in projected wastewater volumes at about the same level contributed in 2006. Source: The District. User Charge Revenues The following table shows the amount of wastewater user charge revenues which were billed and collected by the District for the fiscal years ended June 30, 2002 through June 30, 2006. Formatted: Bullets and Numbering Formatted: Bullets and Numbering Formatted: Bullets and Numbering - 42 - Collections as a Wastewater Wastewater % of Wastewater Year Charges Billed Charges Collected Charges Billed 2002 $122,121,537 $120,584,791 98.74% 2003 120,536,983 120,661,072 100.10 2004 143,460,747 134,703,455 93.90 2005 176,372,150 172,569,955 97.84 2006 195,728,732 189,709,994 96.92 __________________________ Source: The District. Outstanding Indebtedness Direct Bonded Indebtedness. As of the date of this Official Statement, the District has no outstanding general obligation indebtedness on either a District-wide or subdistrict basis. Other Outstanding Debt. The District obtained a short-term direct loan from DNR in January 2004. The proceeds of the direct loan, in the approximate amount of $69,500,000, are being used by the District to finance a portion of the cost of the Lower Meramec Project. The District anticipates that it will make the monthly payments due on the DNR loan through January 15, 2005 with available System revenues. See the section herein captioned “PLAN OF FINANCE – Finance Plans of the District.” The District ended Fiscal Year 2006 with $378.9 million in long-term debt outstanding. The increase of $36.2 million is a result of new issues in the amount of $42.7 million, retirements of $5.5 million, and changes in unamortized premium and bond issue costs of $1.0 million. The following table summarizes the outstanding long-term debt for the District at the end of Fiscal Year 2006 and Fiscal Year 2005: Total Long-Term Debt Outstanding (000s) 2006 2005 Revenue Bonds: Series 2004A $173,500 $175,000 Series 2004B 156,245 160,152 Series 2005A 6,800 6,800 Series 2006A 42,715 0 West Watson and Nanell Loan Agreement 486 536 Ozark and Tablerock Loan Agreement 116 147 Energy Loan Program 79 89 $379,941 $342,724 Source: The District Formatted: Bullets and Numbering Formatted: Bullets and Numbering - 43 - Pro Forma Statement of Pledged Revenues, Expenses and Debt Service Coverage The following table shows a five year projection of Pledged Revenues, expenses and debt service coverage, as well as other system revenues available for paying the costs of Phase I Projects and additional CIRP projects. 2007 2008 2009 2010 2011 Revenue Under Existing Rates (a) 195,211,100 194,853,000 194,717,200 194,632,300 194,546,600 Additional Revenue Required: 2007 (increase of 0.0%) 0 0 0 0 0 2008 (increase of 15.0%) 28,293,000 29,208,000 29,195,000 29,182,000 2009 (increase of 13.0%) 28,645,000 29,098,000 29,085,000 2010 (increase of 12.0%) 30,351,000 30,338,000 2011 (increase of 12.0%) 33,978,000 Total Additional Revenue 0 28,293,000 57,853,000 88,644,000 122,583,000 Total Service Charge 195,211,100 223,146,000 252,570,000 283,276,300 317,129,600 Other Operating Revenue 4,600,800 4,810,900 5,130,100 5,139,100 5,148,000 Connection Fee Revenue 4,600,000 4,646,000 4,692,000 4,739,000 4,786,000 Interest Income-Reserve Fund 2,947,400 3,696,500 4,234,400 4,307,300 4,314,100 Interest Income-Operations 235,400 42,300 0 0 0 Interest Income-Arnold 1,305,000 1,283,100 1,260,200 1,236,300 1,211,300 Total Revenue 208,899,700 237,624,800 267,866,900 298,698,000 332,589,000 Operation and Maintenance Expense 106,651,700 108,692,600 111,842,700 115,978,100 119,579,000 Pledged Revenue 76,142,500 116,341,800 156,044,200 182,719,900 213,010,000 Non-Pledged Revenue 18,052,700 6,295,200 0 0 0 Total Net Revenue 84,195,200 122,637,000 156,044,200 182,719,900 213,010,000 Debt Service Existing Revenue Bonds 9,636,600 9,611,000 9,593,400 9,643,900 9,778,600 Proposed Revenue Bonds 1,726,000 10,174,100 15,652,300 16,495,100 16,495,100 Existing SRF Loans 10,953,700 12,129,800 13,951,400 13,731,400 13,956,800 Proposed SRF Loans 0 2,272,232 5,083,270 5,752,886 5,749,550 Commercial Paper 1,333,300 2,000,000 666,700 0 0 Total Projected Debt Service 23,649,600 36,187,132 44,947,070 45,623,286 45,980,050 Net Revenue After Debt 60,545,600 86,449,868 111,097,130 137,096,614 167,029,950 Routine Annual Improvements 6,209,600 6,457,300 6,542,100 2,636,400 2,715,400 Additions to Operating Reserve 1,451,300 1,737,900 0 0 0 Net Revenues Available for CIRP and Other Purposes Debt Coverage (c) 769.9% 744.2% 66.8% 699.6% 811.4% Source: The District. (a) Existing Wastewater rates effective July 1, 2005. (b) Does not include funds set aside for a minimum operating reserve equal to 60 days of operating expenses. (c) Total Net Revenue/Total Projected Debt Service. - 44 - Employee Benefits The District currently maintains a noncontributory single employer defined benefit plan (the “Pension Plan”) providing retirement benefits as well as death and disability benefits to all full-time District employees. A Pension Committee consisting of two members of the District’s Board of Trustees, two elected employee members and four members of the District’s management staff administer the Pension Plan. The Pension Plan is exempt from the requirements of the Employee Retirement Income Security Act of 1974 (“ERISA”) and, as such, is not subject to ERISA’s reporting requirements. As a noncontributory plan, the District’s employees do not contribute to the Pension Plan. Ordinances establishing the Pension Plan provide for actuarially determined annual contributions, paid solely by the District, that are sufficient to pay benefits when due. Contributions of $7,184,531 and $6,775,520, excluding certain professional fees paid by the District, were made to the Pension Plan during the Pension Plan’s fiscal years ended December 31, 2005 and 2004, respectively. These contributions were made in accordance with actuarially determined contribution requirements based on actuarial valuations performed at January 1, 2005 and 2004, respectively, and for 2005 consisted of (a) $4,576,505 normal cost plus (b) $2,106,780 amortization of the actuarial accrued assets in excess of the actuarial accrued liability and prior changes (c) multiplied by an inflation factor of 1.075. The District provides certain professional fees, office space, utilities, and other services to the Pension Plan at no cost. Other costs of administering the Pension Plan are financed from plan net assets. For more information regarding the District’s Pension Plan, see Note 7 to the audited financial statements of the District contained in Appendix A to this Official Statement. The District also offers its employees a deferred compensation plan (the “Deferred Compensation Plan”) created in accordance with Internal Revenue Code Section 457. The Deferred Compensation Plan, available to all District employees, permits them to defer a portion of their salary until future years. The deferred compensation is not available to employees until separation from service, or in special approved circumstances due to financial hardship as defined by the Pension Plan. Plan assets are held in trust for the exclusive benefit of participants and their beneficiaries. As a result, the assets and liabilities of the Deferred Compensation Plan are not included in the District’s financial statements. For more information regarding the District’s Deferred Compensation Plan, see Note 8 to the audited financial statements of the District contained in Appendix A to this Official Statement. Other Post Employment Benefits In addition to providing the Pension Plan and the Deferred Compensation Plan, the District provides post-employment health care benefits, in accordance with District policy, to employees who elect early retirement from the District or who retire from the District on or after attaining age 62. As of June 30, 2006 and 2005, 109 and 105 retirees, respectively, met the eligibility requirements. The District pays the monthly group health insurance premium for the individual until the retiree becomes eligible or Medicare at age 65. During fiscal year 2006 and 2005, expenses of $444,648 and $363,249, respectively, were recognized for post-retirement health care premiums as those premiums were paid. For more information regarding the District’s Other Post Employment Benefits, see Note 9 to the audited financial statements of the District contained in Appendix A to this Official Statement. Also see the section herein captioned “FINANCIAL OPERATIONS OF THE DISTRICT – Selected Financial Data of the District.” Tax Limitation Amendment – Hancock Amendment An amendment to the Missouri Constitution limiting taxation and governmental spending was approved by Missouri voters on November 4, 1980. The amendment (popularly known as the Hancock Amendment) limits the rate of increase and the total amount of taxes on property which may be imposed in any year, and the limit may not be exceeded without voter approval. Provisions are included in the Formatted: Bullets and Numbering Formatted: Bullets and Numbering Formatted: Bullets and Numbering - 45 - amendment for rolling back tax rates to produce an amount of revenues equal to that of the previous year if the definition of the tax base is changed or if property is reassessed. The tax levy on the assessed valuation of new construction is exempt from this limitation. The Hancock Amendment also requires a political subdivision of the State to seek voter approval in order to increase any “tax, license or fee” over existing rates. A Missouri court has held that the District’s current wastewater user charge structure does not constitute a “tax, license or fee” for purposes of the Hancock Amendment’s voter approval requirements. The Hancock Amendment does not prohibit an increase in the District’s wastewater user charges to pay debt service on the Bonds because voters in the District approved the issuance of the Bonds at the February 2004 election, including increases in the District’s wastewater user charges sufficient to pay debt service on the Bonds. REGULATORY REQUIREMENTS General The District is subject to the provisions of the Federal Water Pollution Control Act, as amended, 33 U.S.C. 1251 et seq., commonly referred to as the “Clean Water Act,” the stated objective of which is to restore and maintain the chemical, physical, and biological integrity of the nation’s waters. The District is also subject to the Missouri Clean Water Law, Sections 644.006 through 644.141, Revised Statutes of Missouri, as amended, among other laws and regulations. The regulatory requirements are administered by the United States Environmental Protection Agency (“EPA”) through the Missouri Department of Natural Resources (“DNR”). The Clean Water Act imposes several permit and regulatory requirements on wastewater treatment systems. Public sewage treatment plant owners and operators such as the District are required to provide secondary treatment as established by federal regulation for all wastewater discharge from treatment plants into waters of the United States. Under the Clean Water Act, states also establish water quality standards, classifying water body uses, and pollutant control criteria to protect those uses. All sewage system discharges require National Pollutant Discharge Elimination System (“NPDES”) permits specifying the permissible pollutant levels in wastewater effluent discharged from the plants. In addition to secondary treatment requirements for publicly-owned treatment plants, all discharges from plants and combined sewer overflows (“CSO”) may be subject to additional stringent controls (which are then incorporated into NPDES permits) if such discharges are required to achieve the water quality standards established by the state pursuant to federal regulations. Under state law, the State also requires treatment plants to obtain state surface water discharge permits, which, in the discretion of EPA and DNR, may be issued jointly with the NPDES permit. Major wastewater treatment systems also must adopt and enforce pretreatment regulations for industries and other non-domestic sources discharging into sewers. Treatment plants are also subject to Clean Water Act and state regulations governing sludge use and disposal. The Clean Water Act is enforced by EPA through administrative orders and procedures. Violations may be the basis for federal lawsuits brought on EPA’s behalf by the U.S. Department of Justice or by private citizens. In an action titled State of Missouri ex rel. William L. Webster, et al. v. The Metropolitan St. Louis Sewer District, the State sought to enforce compliance by the District with respect to certain alleged past and continuing violations of the Clean Water Act, the Missouri Clean Water Law §§ 644.006, et seq., RSMo, and Missouri State Operating Permits issued to various sewage treatment facilities and other facilities owned and operated by the District. An Amended Consent Judgment was entered by the circuit court on January 20, 1989. A Satisfaction of Judgment and Termination of Continuing Jurisdiction Formatted: Bullets and Numbering - 46 - Over Modified Consent Judgment was filed by the Missouri Attorney General on December 13, 2002. In addition, on or about July 29, 2002, the District entered into a Settlement Agreement with DNR, the Missouri Clean Water Commission (the “Commission”), and the Missouri Attorney General regarding the District’s Baumgartner Sewage Treatment Facility. The purpose of the Settlement Agreement was for the District to achieve and then continue to achieve compliance with its Missouri State Operating Permit effluent limitations at Baumgartner. Ultimately, the District anticipates taking the Baumgartner lagoon offline on or before December 31, 2006. This is expected to be accomplished by connecting the current sewage flow going to Baumgartner to the new Lower Meramec treatment facility. Furthermore, the parties agreed that the District will complete closure of the Baumgartner lagoon pursuant to Federal regulations within 24 months of taking the Baumgartner lagoon offline. Should the District fail to meet any of the deadlines set out in the Settlement Agreement or violate any of the terms contained therein, the penalties for each missed deadline could be imposed on a graduated basis, with a maximum of $10,000 per day, per violation. No enforcement action has been initiated or threatened by DNR. Nonetheless, the District is in voluntary discussions with the regulatory agencies regarding environmental compliance issues. The discussions involve alleged, unpermitted discharges of untreated wastewater from CSO and sanitary sewer overflows (“SSO”) that constitute violations of the Clean Water Act 33 U.S.C. § 1311. At this time the District’s senior staff and General Counsel are in preliminary discussions with EPA and DNR and have presented the CIRP to both organizations for their review and consideration. By statute, each day of an unlawful discharge represents a day of violation, and the Missouri Clean Water Law provides for a civil penalty with a maximum of $20,000 per day, per violation. As of the date of this Official Statement, no lawsuits have been filed in this matter. Since July 22, 2003, the District has met a number of times with EPA, DNR, the United States Department of Justice (“DOJ”), and DOJ’s technical consultant. On August 20, 2004, the District received from EPA Region VII a Section 308 letter, which is an official request for information and documentation. On January 19, 2005 the District provided an initial response to the Section 308 letter. Another Section 308 letter from EPA Region VII, dated September 22, 2006, is being reviewed by the District, and the District is in the process of responding to the letter. No substantive further action has taken place to date. TAX MATTERS Opinion of Bond Counsel Federal and Missouri Tax Exemption. In the opinion of Gilmore & Bell, P.C. and the Hardwick Law Firm, LLC, Co-Bond Counsel, under existing law, the interest on the Series 2006C Bonds (including any original issue discount properly allocable to an owner thereof) is excludable from gross income for federal and Missouri income tax purposes and is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations. It should be noted, however, that for the purpose of computing the alternative minimum tax on corporations (as defined for federal income tax purposes), such interest is taken into account in determining adjusted current earnings. The opinions set forth in the preceding sentence are subject to the condition that the District comply with all requirements of the Internal Revenue Code of 1986, as amended (the “Code”), that must be satisfied subsequent to the issuance of the Series 2006C Bonds in order that interest thereon be, or continue to be, excludable from gross income for federal and Missouri income tax purposes. The District has covenanted to comply with each such requirement. Failure to comply with certain of such requirements could cause the interest on the Series 2006C Bonds to be so includible in gross income retroactive to the date of issuance of the Series 2006C Bonds. The Series 2006C Bonds are not “qualified tax-exempt obligations” for purposes of Section 265(b) of the Code. Formatted: Bullets and Numbering - 47 - Original Issue Discount. In the opinion of Co-Bond Counsel, subject to the conditions set forth above, the original issue discount in the selling price of each Series 2006C Bond sold in the initial offering at a price less than the principal amount thereof (hereinafter referred to as the “OID Bonds”), to the extent properly allocable to each owner of such OID Bond, is excludable from gross income for federal income tax purposes with respect to such owner. Original issue discount is the excess of the stated redemption price at maturity of an OID Bond over the initial offering price to the public (excluding underwriters and intermediaries) at which price a substantial amount of the OID Bonds were sold. Under Sections 1272 and 1288 of the Code, original issue discount on tax-exempt bonds accrues on a compound basis. The amount of original issue discount that accrues to an owner of an OID Bond during any accrual period generally equals (i) the issue price of such OID Bond plus the amount of original issue discount accrued in all prior accrual periods, multiplied by (ii) the yield to maturity of such OID Bond (determined on the basis of compounding at the close of each accrual period and properly adjusted for the length of the accrual period), less (iii) any interest payable on such OID Bond during such accrual period. The amount of original issue discount so accrued in a particular accrual period will be considered to be received ratably on each day of the accrual period, will be excluded from gross income for federal income tax purposes, and will increase the owner’s tax basis in such OID Bond. Any gain realized by an owner from a sale, exchange, payment or redemption of an OID Bond will be treated as gain from the sale or exchange of such OID Bond. Purchasers of OID Bonds should consult with their individual tax advisors to determine the treatment of original issue discount for federal income tax purposes and State and local income tax consequences of owning such OID Bonds Series 2006C Bonds Purchased at a Premium. Certain Series 2006C Bonds have an initial offering price which exceeds the stated redemption price of such Bonds at maturity. The excess of the purchase price of a Series 2006C Bond over its stated redemption price at maturity constitutes premium on such Bond. A purchaser of a Series 2006C Bond must amortize any premium over such Bond’s term using constant yield principles, based on the purchaser’s yield to maturity. As premium is amortized, the amount of tax-exempt interest deemed received by the purchaser and the purchaser’s basis in such Bond each are reduced by a corresponding amount. The adjustment to a purchaser’s tax basis will result in an increase in the gain (or decrease in the loss) to be recognized for federal income tax purposes upon a sale or disposition of such Bond prior to its maturity. Even though the purchaser’s basis is reduced, no federal income tax deduction is allowed. Purchasers of any Series 2006C Bonds at a premium, whether at the time of initial issuance or afterward, should consult with their own tax advisors as to the determination and treatment of premium for federal income tax purposes and state and local tax consequences of owning such Bonds. Co-Bond Counsel expresses no opinion regarding other federal tax consequences arising with respect to the Series 2006C Bonds. Collateral Tax Consequences Prospective purchasers of the Series 2006C Bonds should be aware that there may be tax consequences of purchasing the Series 2006C Bonds other than those discussed under the caption “Opinion of Bond Counsel,” including the following: (i) Section 265 of the Code denies a deduction for interest on indebtedness incurred or continued to purchase or carry the Series 2006C Bonds or, in the case of a financial institution, that portion of such institution’s interest expense allocable to interest on the Series 2006C Bonds; (ii) with respect to insurance companies subject to the tax imposed by Section 831 of the Code, Section 832(b)(5)(B)(i) reduces the deduction for loss reserves by 15 percent of the sum of certain items, including interest on the Series 2006C Bonds; (iii) interest on the Series 2006C Bonds earned by certain foreign corporations doing business in the United States could be subject to a branch profits tax imposed by Section 884 of the Code; (iv) passive investment income, including interest on the Series 2006C Bonds, may be subject to federal income taxation under Section 1375 of the Code for Formatted: Bullets and Numbering - 48 - Subchapter S corporations that have Subchapter C earnings and profits at the close of the taxable year, if greater than 25% of the gross receipts of such Subchapter S corporation is passive investment income; and (v) Section 86 of the Code requires recipients of certain Social Security and certain Railroad Retirement benefits to take into account, in determining gross income, receipts or accruals of interest on the Series 2006C Bonds. Co-Bond Counsel express no opinion regarding these tax consequences. Purchasers of the Series 2006C Bonds should consult their own tax advisors as to the applicability of these consequences. LITIGATION To the knowledge of the District there is no legal action, suit, proceeding, inquiry or investigation at law or in equity before or by any court, public board or body for which the District has been served with process or official notice or threatened against or affecting the District or any reasonable basis therefor, wherein an unfavorable decision, ruling or finding would adversely affect the transaction contemplated by this Official Statement or the validity of the Series 2006C Bonds, the Bond Ordinance, or any agreement or instrument to which the District is a party and which is used or contemplated for use in the transactions contemplated by this Official Statement, and no member, employee or agent of the District has been served with any legal process regarding such litigation or other proceeding. The District is a defendant in a number of suits arising out of its operations and activities. To the best knowledge of the District’s General Counsel, no litigation is pending or threatened which, in the opinion of the District’s General Counsel, if decided adversely to the District, would be likely to result, either individually or in the aggregate, in final judgments against the District which would materially adversely affect its ability to meet debt service payments on the Series 2006C Bonds when due, or its obligations under the Bond Ordinance, or materially adversely affect its financial condition. See the section herein captioned “REGULATORY REQUIREMENTS” for a discussion of certain federal and state matters regarding the System. LEGAL MATTERS Certain legal matters incident to the authorization, issuance, sale and delivery of the Series 2006C Bonds are subject to the approval of Gilmore & Bell, P.C., St. Louis, Missouri, and the Hardwick Law Firm, LLC, Kansas City, Missouri, Co-Bond Counsel, whose approving legal opinion will be delivered with the Series 2006C Bonds in substantially the form of Appendix E hereto. Certain other legal matters will be passed on for the District by its General Counsel, and for the Underwriters by their co-counsel, Armstrong Teasdale LLP, St. Louis, Missouri, and White Coleman & Associates, LLC, St. Louis, Missouri. The various legal opinions to be delivered concurrently with the delivery of the Series 2006C Bonds express the professional judgment of the attorneys rendering the opinions as to the legal issues explicitly addressed therein. By rendering a legal opinion, the opinion giver does not become an insurer or guarantor of that expression of professional judgment, of the transaction opined upon, or of the future performance of parties to such transaction, nor does the rendering of an opinion guarantee the outcome of any legal dispute that may arise out of the transaction. RATINGS Moody’s Investor’s Service, Standard & Poor’s, and Fitch Ratings have assigned their respective municipal bond ratings to the Series 2006C Bonds as shown on the cover page based upon the credit of the District. Such ratings reflect only the views of such organizations at the time such ratings are given, Formatted: Bullets and Numbering Formatted: Bullets and Numbering Formatted: Bullets and Numbering - 49 - and Underwriters and the District make no representation as to the appropriateness of such ratings. An explanation of the significance of such ratings may be obtained only from such rating agencies. The District has furnished the rating agencies with certain information and materials relating to the Series 2006C Bonds and the District that have not been included in this Official Statement. Generally, rating agencies base their ratings on the information and materials so furnished and on investigations, studies and assumptions by the rating agencies. There is no assurance that a particular rating will be maintained for any given period of time or that it will not be lowered or withdrawn entirely if, in the judgment of the agency originally establishing such rating, circumstances so warrant. Neither the District nor the Underwriters have undertaken any responsibility to bring to the attention of the holders of the Series 2006C Bonds any proposed revision or withdrawal of a rating of the Series 2006C Bonds or to oppose any such proposed revision or withdrawal. Any revision or withdrawal of a rating could have an adverse effect on the market price and marketability of the Series 2006C Bonds. [If the District obtains a municipal bond insurance policy on all or a portion of the Series 2006C Bonds, it is expected that a rating agency or rating agencies will assign an additional rating or additional ratings to the Series 2006C Bonds, based upon the assumption that a particular bond insurer will issue a municipal bond insurance policy upon issuance of the Series 2006C Bonds. There is no assurance that the District can or will obtain bond insurance on all or any portion of the Series 2006C Bonds.] CONTINUING DISCLOSURE Pursuant to a Disclosure Dissemination Agent Agreement dated as of November 1, 2006 (the ”Continuing Disclosure Agreement”) between the District and Digital Assurance Certification, L.L.C. (“DAC”), under which the District has designated DAC as Dissemination Agent, the District has covenanted for the benefit of the holders and beneficial owners of the Series 2006C Bonds to provide, or cause to be provided, certain financial information and operating data relating to the District to certain parties by not later than 180 days following the end of the District’s fiscal year (the “Annual Report”), commencing with the report for the Fiscal Year ending June 30, 2006, and to provide notices of the occurrence of certain enumerated events, if material. The Annual Report will be filed by the Dissemination Agent on behalf of the District with each Nationally Recognized Municipal Securities Information Repository and with any information depository designated by the State of Missouri (the “SID”) as such for purposes of Rule 15c2-12 of the United States Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time (“Rule 15c2- 12”). The notices of material events will be filed by the Dissemination Agent on behalf of the District with the Municipal Securities Rulemaking Board (and with the SID, if any). These covenants have been made in order to assist the Underwriters in complying with Rule 15c2-12. The specific nature of the information to be contained in the Annual Report and in the notices of material events is summarized in “DEFINITIONS AND SUMMARIES OF CERTAIN PROVISIONS OF THE BOND ORDINANCE AND THE CONTINUING DISCLOSURE AGREEMENT” in Appendix C hereto. The District has never defaulted on any of its continuing disclosure obligations under Rule 15c2- 12. The Dissemination Agent has only the duties specifically set forth in the Continuing Disclosure Agreement. The Dissemination Agent’s obligation to deliver the information at the times and with the contents described in the Continuing Disclosure Agreement is limited to the extent that the District has provided such information to the Dissemination Agent as required by the Continuing Disclosure Agreement. The Dissemination Agent has no duty with respect to the content of any disclosures or notice made pursuant to the terms of the Continuing Disclosure Agreement. The Dissemination Agent has no duty or obligation to review or verify any information in the Annual Report, the District’s audited Formatted: Bullets and Numbering - 50 - financial statements, a Notice Event (as defined in the Continuing Disclosure Agreement), or any other information, disclosures or notices provided to it by the District and shall not be deemed to be acting in any fiduciary capacity for the District, the holders of the Series 2006C Bonds or any other party. The Dissemination Agent has no responsibility for the District’s failure to report to the Dissemination Agent a Notice Event or a duty to determine the materiality thereof. The Dissemination Agent shall have no duty to determine, or liability for failing to determine, whether the District has complied with the Continuing Disclosure Agreement. The Dissemination Agent may conclusively rely upon certifications of the District at all times. UNDERWRITING The Series 2006C Bonds are being purchased for reoffering by the group of underwriters shown on the cover page hereof (collectively, the “Underwriters”), for whom A.G. Edwards acts as representative, pursuant to a Purchase Contract between the District and the Underwriters. The Purchase Contract provides that the Underwriters shall purchase all, but not less than all, of the Series 2006C Bonds at a price of $______________ (which is equal to the aggregate principal amount of the Series 2006C Bonds, plus original issue premium in the amount of $______________, less original issue discount in the amount of $____________, and less an underwriting discount in the amount of $_____________). The Underwriters may offer and sell the Series 2006C Bonds to certain dealers (including dealers depositing the Series 2006C Bonds into investment trusts) and others at prices lower than the public offering prices stated on the inside cover page hereof. The initial public offering prices may be changed from time to time by the Underwriters. CERTAIN RELATIONSHIPS Gilmore & Bell, P.C., Co-Bond Counsel, has represented certain of the Underwriters in transactions unrelated to the issuance of the Series 2006C Bonds, but is not representing any of the Underwriters in connection with the issuance of the Series 2006C Bonds. [TEXT TO COME] ENGINEERING AND FEASIBILITY CONSULTANT The District has retained Black & Veatch Corporation to serve as the Engineering and Feasibility Consultant to the District in connection with the issuance of the Series 2006C Bonds. See Appendix D – “Engineering and Financial Feasibility Report.” FINANCIAL ADVISORS Public Financial Management, Des Moines, Iowa, and Valdés & Moreno, Inc., Kansas City, Missouri, have served as Co-Financial Advisors to the District in connection with the Series 2006C Bonds, relative to a plan of financing and relative to drafting certain portions of this Official Statement for the sale of the Series 2006C Bonds. The Co-Financial Advisors have participated in the compilation and editing of this Official Statement. The Co-Financial Advisors have not, however, independently verified the factual information contained in this Official Statement nor have they conducted an investigation of the affairs of the District for the purpose of determining the accuracy or completeness of any of the information contained herein. The Co-Financial Advisors have relied on the diligence and accuracy of the District which has certified that this Official Statement contains no material misstatement or omission of information. Formatted: Bullets and Numbering Formatted: Bullets and Numbering Formatted: Bullets and Numbering Formatted: Bullets and Numbering - 51 - INDEPENDENT AUDITORS The Independent Auditor’s Report, Management Discussion and Analysis and Basic Financial Statements of the District for the fiscal years ended June 30, 2006 and 2005, included in Appendix A of this Official Statement, have been audited by Hochschild Bloom & Company, LLP, independent auditors, as stated in their report also appearing in Appendix A. MISCELLANEOUS The references, excerpts and summaries of all documents referred to herein do not purport to be complete statements of the provisions of such documents, and reference is made to all such documents for full and complete statements of all matters of fact relating to the Series 2006C Bonds, the security for the payment of the Series 2006C Bonds and the rights of the owners thereof. During the period of the offering, copies of drafts of such documents may be examined at the offices of the Underwriters; following delivery of the Series 2006C Bonds, copies of such documents may be examined at the corporate trust office of the Paying Agent in St. Louis, Missouri. The information contained in this Official Statement has been compiled from official and other sources deemed to be reliable, and while not guaranteed as to completeness or accuracy, is believed to be correct as of this date. It is anticipated that CUSIP identification numbers will be printed on the Series 2006C Bonds, but neither the failure to print such numbers on any Series 2006C Bonds nor any error in printing of such numbers will constitute cause for a failure or refusal by the purchaser thereof to accept delivery of and pay for any Series 2006C Bonds. The attached appendices are integral parts of this Official Statement and must be read together with all of the foregoing statements. The closing documents will include a certificate by the proper official of the District that, to the best of his knowledge and belief at the time of the acceptance of the delivery of the Series 2006C Bonds, this Official Statement and any information furnished by the District supplementary thereto did not and do not contain any untrue statement of material fact or omit to state a material fact necessary in order to make the statements made in light of the circumstances under which they were made, not misleading in any material respect. Any statement made in this Official Statement involving matters of opinion or of estimates, whether or not expressly so 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. The information and expressions of opinion herein are subject to change without notice and neither the delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the information presented herein since the date hereof. This Official Statement is not to be construed as a contract or agreement between the District, the Paying Agent, or the Underwriters and the purchasers or Owners of any Series 2006C Bonds. This Official Statement has been authorized and approved by the District, deemed final pursuant to a separate certificate, and duly executed and delivered on its behalf by the officials signing below. THE METROPOLITAN ST. LOUIS SEWER DISTRICT By: Chair of the Board of Trustees Formatted: Bullets and Numbering Formatted: Bullets and Numbering - 52 - By: Executive Director By: Secretary-Treasurer APPENDIX A INDEPENDENT AUDITOR’S REPORT, MANAGEMENT DISCUSSION AND ANALYSIS AND BASIC FINANCIAL STATEMENTS OF THE METROPOLITAN ST. LOUIS SEWER DISTRICT FOR THE FISCAL YEARS ENDED JUNE 30, 2006 AND 2005 APPENDIX B INFORMATION REGARDING THE DISTRICT’S SERVICE AREA B-1 INFORMATION REGARDING THE DISTRICT’S SERVICE AREA The Series 2006C Bonds are special, limited obligations of the District and are not an obligation of the City of St. Louis, Missouri (the “City”), St. Louis County, Missouri (the “County”), the State of Missouri (the “State”), or any political subdivision of the City, the County or the State. The Series 2006C Bonds are payable solely from the revenues described in this Official Statement. As described elsewhere in this Official Statement, the service area of the District consists of the City and most of the County. The following information regarding the City and the County has been obtained from sources that the District believes to be reliable, but should not be construed as an indication that the Series 2006C Bonds are payable from any source other than the revenues of the District described in this Official Statement. See “SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2006C BONDS,” “THE DISTRICT,” and “THE CIRP AND THE PHASE I PROJECTS” in this Official Statement. Such information is not guaranteed as to accuracy or completeness by the Underwriters and is not to be construed as a representation by the Underwriters. The Underwriters have not verified this information. No representation is made by the Underwriters as to the accuracy or adequacy of such information or as to the absence of material adverse changes in such information subsequent to the date as to which such information is provided. THE SERVICE AREA As more fully described in this Official Statement under the caption “THE DISTRICT - General”, the District was organized in 1954 to provide a metropolitan-wide system of wastewater treatment and sanitary sewerage facilities for the collection, treatment and disposal of sewage within the City and most of the more heavily populated areas of the County. When the District began operations, it took over the publicly owned wastewater and stormwater drainage facilities within its then-existing jurisdiction and began the construction of an extensive system of collector and interceptor sewers and treatment facilities. In subsequent years, voters have approved the District’s annexation of a 270 square mile area of the lower Missouri River and lower Meramec River watersheds, and the District has purchased various investor-owned or municipally operated systems serving areas of the County. The District’s service area now encompasses 524 square miles, including all 62 square miles of the City and 462 square miles of the County. A map showing the District’s current service area appears on the back cover of this Official Statement. The City of St. Louis, Missouri The history of the City of St. Louis dates to 1764 when Pierre Laclede and Auguste Chouteau selected the site as a fur trading post due in large part to its proximity to the confluence of the Mississippi and Missouri Rivers. The City was incorporated in 1823, and its current boundaries were established in 1876, when voters approved separation from St. Louis County and establishment of a home rule charter. The City remains a constitutional charter city not a part of any county, and exists under and pursuant to its Charter and the laws of the State of Missouri. The eastern boundary of the City is formed by the Mississippi River, and the City is bordered on the north, west and south by the County. The City occupies approximately 62 square miles of land, all of which lie within the service area of the District. St. Louis County, Missouri St. Louis County, Missouri was formed by a proclamation of Governor William Clark on October 1, 1812, nine years before Missouri attained statehood. In 1876, by vote of the entire county, the City of St. Louis separated itself from the County. The City of Clayton is the County seat and located in the east central part of the County. Sixty-six percent of the land area of the County is contained within the jurisdictional boundaries of 91 self-governing municipalities, containing over two-thirds of the Formatted: Bullets and Numbering Formatted: Bullets and Numbering B-2 County population. The remaining unincorporated area comes under the direct jurisdiction of the County government. The County is a constitutional charter county operating and existing under its Charter and the laws of the State of Missouri. The County covers an area of approximately 524 square miles, 462 square miles of which lie within the service area of the District. ECONOMIC AND DEMOGRAPHIC DATA Population The City and the County are a part of the St. Louis Standard Metropolitan Statistical Area (the “St. Louis MSA”), comprised of the City, the County, the Counties of Franklin, Jefferson, Lincoln, St. Charles, Warren, Washington and the City of Sullivan in Missouri and the Counties of Bond, Calhoun, Clinton, Jersey, Macoupin, Madison, Monroe in Illinois. According to the U.S. Census Bureau, the population patterns for the City, the County, and the St. Louis MSA have been as follows: City of St. Louis St. Louis County St. Louis MSA Percentage Percentage Percentage Year Population Change Population Change Population Change 1960 750,026 N/A 703,532 N/A 2,161,228 N/A 1970 622,236 -17.04% 951,353 35.23% 2,428,655 12.37% 1980 453,085 -27.18% 973,896 2.37% 2,376,998 2.13% 1990 396,685 -12.48% 993,529 2.00% 2,444,097 2.82% 2000 348,189 -12.23% 1,016,315 2.30% 2,603,607 6.53% 2005 344,362 -1.10% 1,004,666 -1.15% 2,778,518 6.72% _____________________ Source: U.S. Census Bureau Population for the years 1960-2000. 2005-2006 represent unofficial estimates of the U.S. Department of Commerce, Bureau of the Census. The largest municipalities within the District’s service area are as follows: Population Population Population Municipality 2000 1990 1980 St. Louis (City) 348,189 396,685 453,085 Florissant 50,497 51,206 55,721 Chesterfield 46,802 37,991 -- University City 37,428 40,087 42,690 Ballwin 31,283 21,816 12,656 Kirkwood 27,324 27,291 27,73 Hazelwood 26,206 15,512 12,935 Maryland Heights 25,756 25,407 -- Webster Groves 23,230 23,097 22,987 Ferguson 22,406 22,286 24,549 ______________ Source: Missouri Census Data Center. Employment The following table sets forth information relating to the average composition of non-farm employment in the City and the County for the years 1990 and 2000: Formatted: Bullets and Numbering Formatted: Bullets and Numbering B-3 City of St. Louis St. Louis County Employment Employment Private Employment: 1990 2000 1990 2000 Manufacturing 48,675 35,503 118,736 87,687 Agriculture 631 -- 5,072 6,931 Mining 234 -- 1,241 1,227 Construction 9,977 10,067 34,149 45,746 Transportation, Communication and Utilities 27,154 25,951 38,254 51,152 Wholesale Trade 19,399 15,224 42,228 46,961 Retail Trade 36,083 29,934 121,977 134,854 Finance, Insurance and Real Estate 28,422 25,436 62,176 77,300 Services 99,547 109,830 215,147 279,413 Total Private Employment 270,122 252,951 638,980 731,271 Governmental Employment 51,100 47,092 53,783 59,826 Total 321,222 300,043 692,763 791,097 ___________________ Source: U.S. Department of Commerce, Bureau of Economic Analysis; Missouri State Census Data Center. The following table sets forth the total labor force, number of employed and unemployed workers in the City and the County for 2001 through 2005: City of St. Louis(1) St. Louis County(1) Labor Force Labor Force Year Employed Unemployed Total Employed Unemployed Total 2001 154,097 11,032 165,129 541,822 22,110 563,932 2002 152,364 13,038 165,402 535,847 26,716 562,563 2003 150,435 14,102 164,537 526,627 29,108 555,735 2004 146,935 14,619 161,554 519,824 30,521 550,345 2005 147,825 13,095 160,920 522,972 28,449 551,421 _________________________________________ (1) Figures are based on unofficial results. Source: Missouri Department of Employment Security, Missouri Department of Economic Development and U.S. Department of Labor, Bureau of Labor Statistics. The following table sets forth unemployment rates for the City, County, State of Missouri and the United States for 2001 through 2005: Unemployment Rates(1) Year City of St. Louis St. Louis County State of Missouri United States 2001 6.7% 3.9% 4.5% 4.7% 2002 7.9 4.7 5.2 5.8 2003 8.6 5.2 5.6 6.0 2004 9.0 5.5 5.8 5.5 2005 8.1 5.2 5.4 5.1 _______________________________________ (1) Figures are based on unofficial results. Source: Missouri Department of Employment Security, Missouri Department of Economic Development and U.S. Department of Labor, Bureau of Labor Statistics. Major Employers The following list sets forth the names and approximate number of employees of major employers within the City and the County, respectively as of December 31, 2004: Formatted: Bullets and Numbering B-4 City of St. Louis Major Employers Company Nature of Business Approximate Number of Employees BJC HealthCare Health Care 21,814 Schnucks Markets Grocery 10,700 SBC Communications, Inc. Telecommunications 9,920 United States Postal Service Government 7,916 City of St. Louis Government 7,632 St. Louis University Education 7,108 St. Louis Public Schools Education 6,236 The May Department Stores Co. Retail 6,000 Anheuser-Busch Cos. Inc. Brewer 5,500 A.G. Edwards and Sons, Inc. Financial 4,551 ________________________ Source: City of St. Louis – 2005 Comprehensive Annual Financial Report and St. Louis Business Journal Book of Lists 2006. St. Louis County Major Employers Company Nature of Business Approximate Number of Employees Boeing Integrated Defense Systems Space and Air Defense 16,259 Washington University in St. Louis Education 12,505 SM Health Care Health Care 11,905 St. John’s Mercy Health Care Health Care 8,699 Daimler Chrysler Corp. Automotive 6,100 Special School District of St. Louis County Education 5,411 Maritz, Inc. Travel and Incentives 5,197 Dierbergs Markets Grocery 5,000 Citigroup Financial 4,600 Edward Jones Financial 4,219 St. Louis County Government Government 4,063 ________________________ (1) On January 11, 2002, Ford Motor Company announced its intention to close its assembly plant in the County by mid- decade. Despite efforts by Missouri officials to encourage Ford to maintain operations in the area and statements by Ford officials that it would continue to operate its area facility based upon available state and local incentives, on January 23, 2006, Ford unveiled its “The Way Forward” restructuring plan and announced that it would close five of its United States manufacturing facilities, including the St. Louis Assembly plant in Hazelwood, Missouri. The plant, which once employed 1,445 workers, has been idle since March 2006. Production is not anticipated to resume and the plant is expected to close in 2008 in accord with the restructuring plan. Source: St. Louis County -- St. Louis County Department of Planning, compiled from St. Louis Business Journal’s Book of Lists 2006. Per Capita Personal Income The following table presents per capita personal income for the City, the County, the State of Missouri and the United States for the years 2001 through 2004, the latest date for which such information is available: Formatted: Bullets and Numbering B-5 City of St. Louis (1) St. Louis County(1) State of Missouri(1) United States(1) Year Per Capita Personal Income Per Capita Personal Income Per Capita Personal Income Per Capita Personal Income 2001 $31,532 $39,999 $27,809 $30,574 2002 32,577 41,698 28,358 30,810 2003 33,667 43,392 29,210 31,484 2004 34,735 45,101 30,475 33,050 _______________________________________ (1) Per Capita Personal Income is the annual total personal income of residents divided by resident population as of July 1. “Personal Income” is the sum of net earnings by place of residence, rental income of persons, personal dividend income, personal interest income, and transfer payments. “Net Earnings” is earnings by place of work — the sum of wage and salary disbursements (payrolls), other labor income, and proprietors’ income — less personal contributions for social insurance, plus an adjustment to convert earnings by place of work to a place-of-residence basis. Personal Income is measured before the deduction of personal income taxes and other personal taxes and is reported in current dollars (no adjustment is made for price changes). Source: U.S. Department of Commerce, Bureau of Economic Analysis. APPENDIX C DEFINITIONS AND SUMMARIES OF CERTAIN PROVISIONS OF THE BOND ORDINANCE AND THE CONTINUING DISCLOSURE AGREEMENT C-1 APPENDIX D ENGINEERING AND FINANCIAL FEASIBILITY REPORT APPENDIX E FORM OF OPINION OF CO-BOND COUNSEL S:\CLIENTS\21235\00010\S2021492.DOC 3 PLEASE KEEP COVER PAGE FOR FUTURE REVISIONS REVISION DATE: October 11, 2006 PATH AND FILENAME: S:\CLIENTS\21235\00010\S2021492.DOC AUTHOR: GRISE Revise Compare Copy to New Doc and Revise To Version New Version To File: Draft Final (Bond/Ltrhead) Other Instructions: Submitted By: Extension: Date/Time Due: LOG # Formatted: Left