new issue rating: moody’s: “a1” book-entry only insured ... · city of fernley, nevada...

NEW ISSUE RATING: Moody’s: “A1” BOOK-ENTRY ONLY INSURED RATING: S&P – “AA-” BANK QUALIFIED See “RATINGS”

INSURANCE: National Public Finance Guarantee Corporation

In the opinion of Sherman & Howard L.L.C., Bond Counsel, assuming continuous compliance with certain covenants described herein, interest on the Bonds is excluded from gross income under federal income tax laws pursuant to Section 103 of the Internal Revenue Code of 1986, as amended to the date of delivery of the Bonds (the “Tax Code”), and interest on the Bonds is excluded from alternative minimum taxable income as defined in Section 55(b)(2) of the Tax Code, except that such interest is required to be included in calculating the “adjusted current earnings” adjustment applicable to corporations for purposes of computing the alternative minimum taxable income of corporations. See “TAX MATTERS—Federal Tax Matters.” The City has designated the Bonds as “qualified tax-exempt obligations” for purposes of Section 265(b)(3) of the Tax Code. See “FINANCIAL INSTITUTION INTEREST DEDUCTION.”

$4,425,000 CITY OF FERNLEY, NEVADA

GENERAL OBLIGATION (LIMITED TAX) WATER AND SEWER REFUNDING BONDS

(ADDITIONALLY SECURED BY PLEDGED REVENUES) SERIES 2017

Dated: Date of Delivery Due: February 1, as shown on the inside cover

The Bonds (defined herein) are issued as fully registered bonds in denominations of $5,000, or any integral multiple thereof. The Bonds initially will be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York (“DTC”), securities depository for the Bonds. Purchases of the Bonds are to be made in book-entry form only. Purchasers will not receive certificates representing their beneficial ownership interest in the Bonds. See “THE BONDS--Book-Entry Only System.” The Bonds bear interest at the rates set forth below, payable semiannually February 1 and August 1 of each year, commencing August 1, 2017, to and including the maturity dates shown herein (unless the Bonds are redeemed earlier), to the registered owners of the Bonds (initially Cede & Co.). The principal of the Bonds will be payable upon presentation and surrender at the offices of U.S. Bank National Association, Phoenix, Arizona, or its successor as the paying agent for the Bonds. See “THE BONDS.”

The Bonds are subject to optional redemption prior to maturity as described in “THE BONDS--Redemption Provisions.”

Proceeds of the Bonds will be used to: (i) refund a portion the City’s outstanding General Obligation (Limited Tax) Water and Sewer Bonds (Additionally Secured by Pledged Revenues), Series 2007; (ii) refund a portion the City’s outstanding General Obligation (Limited Tax) Water and Sewer Bonds (Additionally Secured by Pledged Revenues), Series 2008; and (iii) pay the costs of issuing the Bonds. See “SOURCES AND USES OF FUNDS.”

The Bonds constitute direct and general obligations of the City and the full faith and credit of the City is pledged for the payment of the principal and interest thereon, subject to the limitations imposed by the constitution and laws of the State of Nevada. The Bonds are additionally secured by a lien on the Net Revenues (defined herein) on a parity with the lien thereon of certain outstanding bonds of the City and any parity bonds issued in the future. See “SECURITY FOR THE BONDS.”

Payment of the principal and interest on the Bonds when due will be insured by a financial guaranty insurance policy to be issued concurrently with the delivery of the Bonds by NATIONAL PUBLIC FINANCE GUARANTEE CORPORATION. See “SECURITY FOR THE BONDS—Bond Insurance.”

This cover page contains certain information for quick reference only. It is not a summary of the issue. Investors must read the entire Official Statement to obtain information essential to making an informed investment decision.

The Bonds are offered when, as, and if issued by the City, subject to the approval of legality of the Bonds by Sherman & Howard L.L.C., Reno, Nevada, Bond Counsel, and the satisfaction of certain other conditions. Sherman & Howard L.L.C. has also acted as special counsel to the City in connection with the preparation of this Official Statement. Certain legal matters will be passed upon for the City by the City Attorney. JNA Consulting Group, LLC, Boulder City, Nevada, is acting as Financial Advisor to the City. It is expected that the Bonds will be available for delivery through the facilities of DTC on or about January 26, 2017.

This Official Statement is dated January 10, 2016.




MATURITY SCHEDULE

Maturing (February 1)

Principal Amount

Interest Rate

Yield

CUSIP© Number

2019 $900,000 3.000% 1.650% 315221 EG2 2020 100,000 3.000 1.800 315221 EH0 2021 100,000 3.000 1.900 315221 EJ6 2033 615,000 3.250 2.900* 315221 EK3 2034 640,000 3.375 3.050* 315221 EL1 2035 665,000 3.500 3.200* 315221 EM9 2036 690,000 3.500 3.300* 315221 EN7 2037 715,000 3.750 3.350* 315221 EP2

_____________________ *Priced to the first optional redemption date of February 1, 2027. © Copyright 2017, American Bankers Association. CUSIP herein is provided by Standard & Poor’s, CUSIP Service Bureau, a division of The McGraw-Hill Companies, Inc.

USE OF INFORMATION IN THIS OFFICIAL STATEMENT

This Official Statement, which includes the cover page and the appendices, does not constitute an offer to sell or the solicitation of an offer to buy any of the Bonds in any jurisdiction in which it is unlawful to make such offer, solicitation, or sale. No dealer, salesperson, or other person has been authorized to give any information or to make any representations other than those contained in this Official Statement in connection with the offering of the Bonds, and if given or made, such information or representations must not be relied upon as having been authorized by the City. The City maintains a website; however, the information presented there is not a part of this Official Statement and should not be relied upon in making an investment decision with respect to the Bonds.

The information set forth in this Official Statement has been obtained from the City and from the sources referenced throughout this Official Statement, which the City believes to be reliable. No representation is made by the City, however, as to the accuracy or completeness of information provided from sources other than the City. This Official Statement contains, in part, estimates and matters of opinion which are not intended as statements of fact, and no representation or warranty is made as to the correctness of such estimates and opinions, or that they will be realized.

The information, estimates, and expressions of opinion contained in this Official Statement are subject to change without notice, and neither the delivery of this Official Statement nor any sale of the Bonds shall, under any circumstances, create any implication that there has been no change in the affairs of the City, or in the information, estimates, or opinions set forth herein, since the date of this Official Statement.

This Official Statement has been prepared only in connection with the original offering of the Bonds, and not in connection with any subsequent sale or transfer of the Bonds, and may not be reproduced or used in whole or in part for any other purpose.

The Bonds have not been registered with the Securities and Exchange Commission due to certain exemptions contained in the Securities Act of 1933, as amended. The Bonds have not been recommended by any federal or state securities commission or regulatory authority, and the foregoing authorities have neither reviewed nor confirmed the accuracy of this document.

THE PRICES AT WHICH THE BONDS ARE OFFERED TO THE PUBLIC BY THE INITIAL PURCHASER (AND THE YIELDS RESULTING THEREFROM) MAY VARY FROM THE INITIAL PUBLIC OFFERING PRICES OR YIELDS APPEARING ON THE INSIDE COVER PAGE HEREOF. IN ADDITION, THE INITIAL PURCHASER MAY ALLOW CONCESSIONS OR DISCOUNTS FROM SUCH INITIAL PUBLIC OFFERING PRICES TO DEALERS AND OTHERS. IN ORDER TO FACILITATE DISTRIBUTION OF THE BONDS, THE INITIAL PURCHASER MAY ENGAGE IN TRANSACTIONS INTENDED TO STABILIZE THE PRICE OF THE BONDS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

CITY OF FERNLEY, NEVADA

Mayor and City Council Roy Edgington, Jr., Mayor

Stan Lau Dan McCassie Fran McKay Susan Seidl

Shari Whalen

City Officials Daphne Hooper, City Manager Kimberly Swanson, City Clerk Brandi Jensen, City Attorney

Denise Lewis, City Treasurer/Finance Director Dave Whalen, Public Works Director

FINANCIAL ADVISOR JNA Consulting Group

410 Nevada Way, Suite 200 Boulder City, NV 89005

BOND AND SPECIAL COUNSEL Sherman & Howard L.L.C.

Reno, Nevada

REGISTRAR AND PAYING AGENT U.S. Bank National Association

Phoenix, Arizona

ESCROW BANK U.S. Bank National Association

Phoenix, Arizona

-i-

TABLE OF CONTENTS

Page

INTRODUCTION .......................................................................................................................... 1 General ........................................................................................................................................ 1 Changes from Preliminary Official Statement ............................................................................ 1 The City ...................................................................................................................................... 1 The Bonds; Prior Redemption .................................................................................................... 2 Authority for Issuance ................................................................................................................ 2 Purposes ...................................................................................................................................... 2 Security ....................................................................................................................................... 2 Bond Insurance ........................................................................................................................... 3 Professionals ............................................................................................................................... 3 Tax Matters ................................................................................................................................. 4 Continuing Disclosure Undertaking ........................................................................................... 4 Certain Bondholder Risks ........................................................................................................... 5 Forward-Looking Statements ..................................................................................................... 5 Additional Information ............................................................................................................... 5

SOURCES AND USES OF FUNDS .............................................................................................. 6 Sources and Uses of Funds ......................................................................................................... 6 The Refunding Project ................................................................................................................ 6

THE BONDS .................................................................................................................................. 8 General ........................................................................................................................................ 8 Payment Provisions ..................................................................................................................... 8 Redemption Provisions ............................................................................................................... 9 Tax Covenant .............................................................................................................................. 9 Defeasance ................................................................................................................................ 10 Book-Entry Only System .......................................................................................................... 10

DEBT SERVICE REQUIREMENTS........................................................................................... 11

CERTAIN RISK FACTORS ........................................................................................................ 12 Certain Risks Associated With Property Taxes ........................................................................ 12 Certain Risks Associated With the Net Revenues .................................................................... 12 Limitation of Remedies ............................................................................................................ 13 Future Changes in Laws ........................................................................................................... 14 Secondary Market ..................................................................................................................... 14

SECURITY FOR THE BONDS ................................................................................................... 15 General Obligation .................................................................................................................... 15 Net Revenues ............................................................................................................................ 15 Parity Securities ........................................................................................................................ 15 Historical and Estimated Net Revenues .................................................................................... 17 No Pledge of Property ............................................................................................................... 19 Bond Insurance ......................................................................................................................... 19

UTILITY SYSTEM ...................................................................................................................... 23 General Description .................................................................................................................. 23 Sewer System Facilities ............................................................................................................ 23

-ii-

Water System Facilities and Sources ........................................................................................ 24 Water Supply - Local ................................................................................................................ 25 Water Supply - Regional ........................................................................................................... 25 Capital Improvement Program .................................................................................................. 25 Customer Usage Rates and Charges ......................................................................................... 26 Connection Charges .................................................................................................................. 28 Water Ancillary Fee .................................................................................................................. 28 Customer Information ............................................................................................................... 29 Billing and Collection ............................................................................................................... 31 Other Sources of System Revenue ............................................................................................ 32 Combined History of Water Fund and Sewer Fund Revenues and Expenses .......................... 32 Water and Sewer Budget Trends .............................................................................................. 35

PROPERTY TAX INFORMATION ............................................................................................ 36 Property Tax Base and Tax Roll ............................................................................................... 36 History of Assessed Value ........................................................................................................ 36 Property Tax Collections .......................................................................................................... 37 Largest Taxpayers - City of Fernley ......................................................................................... 38 Property Tax Limitations .......................................................................................................... 39 Required Property Tax Abatements .......................................................................................... 41 Overlapping Tax Rates and General Obligation Indebtedness ................................................. 42 Selected Debt Ratios ................................................................................................................. 44

THE CITY .................................................................................................................................... 45 General ...................................................................................................................................... 45 Governing Body ........................................................................................................................ 45 Administration .......................................................................................................................... 46 Employee Relations and Pension Benefits ............................................................................... 47

CITY FINANCIAL INFORMATION .......................................................................................... 51 Annual Reports ......................................................................................................................... 51 Budgeting .................................................................................................................................. 51 Accounting ................................................................................................................................ 51 General Fund ............................................................................................................................. 52 History of City Revenues and Expenditures ............................................................................. 52 Investment Policy ..................................................................................................................... 55 Risk Management ..................................................................................................................... 55

DEBT STRUCTURE .................................................................................................................... 56 Debt Limitation ......................................................................................................................... 56 Outstanding Debt and Other Obligations .................................................................................. 57 Additional Contemplated Indebtedness .................................................................................... 57 Annual Debt Service Requirements .......................................................................................... 58

TAX MATTERS ........................................................................................................................... 59 Federal Tax Matters .................................................................................................................. 59 State Tax Exemption ................................................................................................................. 60

FINANCIAL INSTITUTION INTEREST DEDUCTION ........................................................... 61

LEGAL MATTERS ...................................................................................................................... 61 Litigation ................................................................................................................................... 61

-iii-

Approval of Certain Legal Proceedings .................................................................................... 61 Police Power ............................................................................................................................. 62 Sovereign Immunity ................................................................................................................. 62

RATINGS ..................................................................................................................................... 62

INDEPENDENT AUDITORS...................................................................................................... 62

FINANCIAL ADVISOR .............................................................................................................. 63

UNDERWRITING ....................................................................................................................... 63

OFFICIAL STATEMENT CERTIFICATION............................................................................. 63 APPENDIX A - Comprehensive Annual Financial Report for the Fiscal Year Ended June 30, 2016 ...................................................... A-1 APPENDIX B - Summary of Certain Provisions of the Bond Ordinance ...............................B-1 APPENDIX C - Book-Entry Only System ...............................................................................C-1 APPENDIX D - Form of Continuing Disclosure Certificate ................................................... D-1 APPENDIX E - Form of Approving Opinion of Bond Counsel .............................................. E-1 APPENDIX F - Economic and Demographic Information ...................................................... F-1 APPENDIX G - Specimen Financial Guaranty Insurance Policy ........................................... G-1

-iv-

INDEX OF TABLES

NOTE: Tables marked with (*) indicate Annual Financial Information to be updated by the City pursuant to SEC Rule 15c2-12, as amended. See “INTRODUCTION--Continuing Disclosure Undertaking.”

Page Sources and Uses of Funds ............................................................................................................. 6 *Outstanding Parity Securities ...................................................................................................... 16 *Outstanding Parity Securities Debt Service Requirements ......................................................... 17 *Historical and Estimated Net Revenues and Debt Service Coverage ......................................... 18 Capital Improvement Program 2017-2021 ................................................................................... 26 *Monthly Residential Water Service Charges – Metered Customers(1) ....................................... 26 *Monthly Commercial Water Service Charges(1) ......................................................................... 27 *Monthly Residential Sewer System Charges – Metered Customers(1) ....................................... 27 *Monthly Commercial Sewer System Charges – Metered Customers(1) ...................................... 27 *Water Ancillary Fee Rates – Metered Customers(2) ................................................................... 29 *History of Water System Users and Water Usage by Customer Type ....................................... 30 *Water System User Fee Revenues by Customer Class ............................................................... 30 *Sewer System User Fee Revenues by Customer Class ............................................................... 30 *Ten Largest Water System Customers – 2016 ............................................................................ 31 Ten Largest Sewer System Customers – 2016 ............................................................................. 31 *Water Fund Summary of Revenues, Expenses and Changes in Net Position(3) ......................... 33 *Sewer Fund Summary of Revenues, Expenses and Changes in Net Position(3) ......................... 34 *History of Assessed Value – City of Fernley .............................................................................. 37 *Lyon County - Property Tax Levies, Collections and Delinquencies ........................................ 38 *Principal Property Owning Taxpayers in the City ...................................................................... 39 *History of Statewide Average and Sample Overlapping Property Tax Rates ............................ 42 Estimated Overlapping Net General Obligation Indebtedness ..................................................... 43 Net Direct & Overlapping General Obligation Indebtedness ....................................................... 44 Selected Direct General Obligation Debt Ratios .......................................................................... 44 *General Fund Summary of Revenues, Expenditures and Changes in Fund Balance(3) .............. 54 *Statutory Debt Limitation ........................................................................................................... 56 *Outstanding General Obligation Debt and Other Obligations .................................................... 57 *Annual Debt Service Requirements - General Obligation Bonds .............................................. 58 _______________________ (1) Only information relating to the reported fiscal year is required to be updated. Rates for future years may

be subject to change. (2) This table to be updated for so long as such fees continue to be collected. Only information relating to the

reported fiscal year is required to be updated. Rates for future years may be subject to change. (3) Only historical information (and not estimated information) in this table is required to be updated.

1

OFFICIAL STATEMENT




INTRODUCTION

General

This Official Statement, including the cover page and the appendices, is furnished by the City of Fernley, Nevada (the “City”), to provide information about the City’s $4,425,000 General Obligation (Limited Tax) Water and Sewer Refunding Bonds (Additionally Secured by Pledged Revenues), Series 2017 (the “Bonds”). The Bonds will be issued pursuant to an ordinance (the “Bond Ordinance”) adopted by the City Council on December 21, 2016. Capitalized terms used herein that are otherwise not defined have the meanings ascribed to them in Appendix B--Summary of Certain Provisions of the Bond Ordinance.

The offering of the Bonds is made only by way of this Official Statement, which supersedes any other information or materials used in connection with the offer or sale of the Bonds. The following introductory material is only a brief description of and is qualified by the more complete information contained throughout this Official Statement. A full review should be made of the entire Official Statement and the documents summarized or described herein. Detachment or other use of this “INTRODUCTION” without the entire Official Statement, including the cover page and the appendices, is unauthorized.

Changes from Preliminary Official Statement

This Official Statement includes certain information which was not available for inclusion in the Preliminary Official Statement dated December 22, 2016, including the final sources and uses of the proceeds of the Bonds and the maturity dates, interest rates, yields, redemption provisions, and other terms of the Bonds. In addition, information from the PERS fiscal year 2016 actuarial report has been added to page 48 under the subheading “PERS “Actuarial Report.” Finally, the 2017 Sewer Bond (defined on page 16) that was expected to close prior to the issuance of the Bonds did close on January 11, 2017 as expected so references to the proposed issuance of the 2017 Sewer Bond have been updated in this Official Statement to reflect its actual issuance.

The City

The City was incorporated in 2001 under the provisions of Nevada Revised Statutes (NRS) Chapter 266. The City is located on Interstate 80, 39 miles east of Reno in the northern part of Lyon County, Nevada (the “County”) and occupies a land area of approximately 164 square miles. The City serves a population of approximately 18,936 according to the Nevada State Demographer’s Office’s 2015 estimates. See “THE CITY.” As more fully described in

2

“PROPERTY TAX INFORMATION--Property Tax Base and Tax Roll,” the City’s assessed valuation for fiscal year 2016-17 is $585,627,293.

The Bonds; Prior Redemption

The Bonds are issued solely as fully registered certificates in denominations of $5,000, or any integral multiple thereof. The Bonds initially will be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York (“DTC”), the securities depository for the Bonds. Purchases of the Bonds are to be made in book-entry form only. Purchasers will not receive certificates representing their beneficial ownership interest in the Bonds. See “THE BONDS--Book-Entry Only System.” The Bonds are dated as of the date of their delivery and mature and bear interest (calculated based on a 360-day year consisting of twelve 30-day months) as set forth on the inside cover page hereof. The payment of principal and interest on the Bonds is described in “THE BONDS--Payment Provisions.”

The Bonds are subject to optional redemption prior to maturity. See “THE BONDS--Redemption Provisions.”

Authority for Issuance

The Bonds are being issued pursuant to: Nevada Revised Statutes (“NRS”) 350.500 through 350.720, designated as the “Local Government Securities Law;” Chapter 348 of NRS; NRS 360.600 to 360.740, as amended from time to time; and the Bond Ordinance.

Purposes

Proceeds of the Bonds will be used to: (i) refund $3,550,000 outstanding aggregate principal amount of the City’s General Obligation (Limited Tax) Water and Sewer Bonds (Additionally Secured by Pledged Revenues), Series 2007, maturing February 1, 2037 (the “2007 Refunded Bonds”); (ii) refund $785,000 outstanding aggregate principal amount of the City’s General Obligation (Limited Tax) Water and Sewer Bonds (Additionally Secured by Pledged Revenues), Series 2008, maturing February 1, 2019 (the “2008 Refunded Bonds,” and together with the 2007 Refunded Bonds, the “Refunded Bonds”); and (iii) pay the costs of issuing the Bonds. See “SOURCES AND USES OF FUNDS.” The refunding of the Refunded Bonds is referred to herein as the “Refunding Project.”

Security

General Obligations. The Bonds are direct and general obligations of the City, payable as to principal and interest from general (ad valorem) taxes (sometimes referred to herein as “General Taxes”) levied against all taxable property within the City (except to the extent any other monies are made available therefor), subject to State constitutional and statutory limitations on the aggregate amount of ad valorem taxes. See “PROPERTY TAX INFORMATION.”

Net Revenues Additionally Secure the Bonds. The Bonds are additionally secured by an irrevocable pledge of and by a lien (but not necessarily an exclusive lien) on the Net Revenues, which are defined as the Gross Revenues remaining after the deduction of the Operation and Maintenance Expenses of the Utility System, on a parity with the Outstanding Parity Securities (defined below) and any other parity securities hereafter issued. For a further description of Gross

3

Revenues, Net Revenues, the Utility System and Operation and Maintenance Expenses, see “SECURITY FOR THE BONDS--Net Revenues,” “UTILITY SYSTEM,” and Appendix B--Summary of Certain Provisions of the Bond Ordinance.

Parity Securities and Additional Bonds. The City currently has outstanding additional bonds payable from the Net Revenues on a parity with the Bonds (the “Outstanding Parity Securities” and, together with the Bonds, the “Parity Securities”). Upon the issuance of the Bonds and the defeasance of the Refunded Bonds, the Parity Securities will be outstanding in the amount of $73,903,092 (assuming the issuance of the 2017 Sewer Bond (defined herein)). In addition, the City may issue additional bonds or securities with a lien on the Net Revenues that is on a parity with the lien thereon of the Bonds. See “SECURITY FOR THE BONDS--Parity Securities” and Appendix B--Summary of Certain Provisions of the Bond Ordinance - Additional Parity Securities. The City may issue additional bonds or securities payable from the Net Revenues and having a lien thereon prior and superior to the lien thereon of the Bonds upon the satisfaction of certain conditions set forth in the Bond Ordinance, including that any such superior bonds or securities must be issued as special obligations. See “Appendix B--Summary of Certain Provisions of the Bond Ordinance - Superior Securities.

Bond Insurance

Payment of the principal and interest on the Bonds when due will be guaranteed under a municipal bond insurance policy (the “Financial Guaranty Insurance Policy” or the “Policy”) to be issued concurrently with the delivery of the Bonds by National Public Finance Guarantee Corporation (the “Insurer” or “National”). A specimen Policy is attached hereto as Appendix G.

The information in “SECURITY FOR THE BONDS—Bond Insurance” has been furnished by the Insurer for use in this Official Statement as has the specimen Policy attached hereto as Appendix G. Such information has not been independently confirmed or verified by the City. No representation is made as to the accuracy, completeness or adequacy of such information or as to the absence of material adverse changes in such information subsequent to the date hereof, or that the information contained and incorporated herein by reference is correct, and the City assumes no responsibility therefor. Purchasers of the Bonds should be aware that issuance of the Financial Guaranty Insurance Policy gives the Insurer certain rights, including the right (subject to certain exceptions) to consent to amendments to the Bond Ordinance. See Appendix B – “Summary of Certain Provisions of the Bond Ordinance.” No assurance can be given by the City that the Insurer will be able to meet its obligations under the Policy.

Professionals

Sherman & Howard L.L.C., Reno, Nevada, has acted as Bond Counsel and has also acted as Special Counsel to the City in connection with the preparation of this Official Statement. The City’s financial advisor in connection with the issuance of the Bonds is JNA Consulting Group, LLC, Boulder City, Nevada (the “Financial Advisor”). See “FINANCIAL ADVISOR.” The fees of the Financial Advisor will be paid only from Bond proceeds at closing. The audited basic financial statements of the City (contained in Appendix A to this Official Statement) include the report of HintonBurdick, PLLC, certified public accountants, St. George, Utah. See “INDEPENDENT AUDITORS.” U.S. Bank National Association, Phoenix, Arizona, will act as the registrar and paying agent for the Bonds (the “Registrar” and “Paying Agent”) and as the

4

escrow bank in connection with the Refunding Project (the “Escrow Bank”). Certain mathematical computations regarding the Escrow Account (defined below) will be verified by Causey Demgen & Moore, Inc., certified public accountants, Denver, Colorado. See “SOURCES AND USES OF FUNDS--The Refunding Project - Verification of Mathematical Computations.”

Tax Matters

In the opinion of Sherman & Howard L.L.C., Bond Counsel, assuming continuous compliance with certain covenants described herein, interest on the Bonds is excluded from gross income under federal income tax laws pursuant to Section 103 of the Internal Revenue Code of 1986, as amended to the date of delivery of the Bonds (the “Tax Code”), and interest on the Bonds is excluded from alternative minimum taxable income as defined in Section 55(b)(2) of the Tax Code, except that such interest is required to be included in calculating the “adjusted current earnings” adjustment applicable to corporations for purposes of computing the alternative minimum taxable income of corporations. See “TAX MATTERS--Federal Tax Matters.”

The City has designated the Bonds as “qualified tax-exempt obligations” for purposes of Section 265(b)(3) of the Tax Code. See “FINANCIAL INSTITUTION INTEREST DEDUCTION.”

The Bonds, their transfer, and the income therefrom are free and exempt from taxation by the State or any subdivision thereof, except for the tax on estates imposed pursuant to Chapter 375A of NRS and the tax on generation-skipping transfers imposed pursuant to Chapter 375B of NRS. See “TAX MATTERS--State Tax Exemption.”

Continuing Disclosure Undertaking

The City will execute a continuing disclosure certificate (the “Disclosure Certificate”) at the time of the closing for the Bonds. The Disclosure Certificate will be executed for the benefit of the beneficial owners of the Bonds and the City will covenant in the Bond Ordinance to comply with the terms of the Disclosure Certificate. The Disclosure Certificate will provide that so long as the Bonds remain outstanding, the City will annually provide the following information to the Municipal Securities Rulemaking Board, through the Electronic Municipal Market Access (“EMMA”) system: (i) certain financial information and operating data; and (ii) notice of certain material events, as specified in the Disclosure Certificate. The form of the Disclosure Certificate is attached hereto as Appendix D.

The City has entered into similar continuing disclosure undertakings with respect to certain of its outstanding bonds (the “Prior Undertakings”). The Prior Undertakings require the City to provide notice “in a timely manner” of certain enumerated events. On November 4, 2015, the City defeased certain of its outstanding bonds. The City’s third-party paying agent for such bonds agreed to file a defeasance notice with respect to such defeasance on November 4, 2015 but such notice was not filed until August 10, 2016.

The Prior Undertakings also required the City to file its annual reports within 9 months of each fiscal year end. The City’s annual reports for 2013 and 2014 were initially timely filed but were later revised after the filing deadline to amend certain mathematical errors contained in the initial filings.

5

Certain Bondholder Risks

The purchase of the Bonds involves certain investment risks that are discussed throughout this Official Statement. Each prospective investor should read this Official Statement in its entirety and give particular attention to the risks described in “CERTAIN RISK FACTORS,” which could affect the payment of the Bonds and could affect the market price of the Bonds to an extent that cannot be determined at this time.

Forward-Looking Statements

This Official Statement, particularly (but not limited to) any statements referring to unaudited, interim, budgeted, or estimated information for fiscal year 2017, and estimated or budgeted information for future years, contains statements relating to future results that are “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995. When used in this Official Statement, the words “estimate,” “forecast,” “intend,” “expect” and similar expressions identify forward-looking statements. Any forward-looking statement is subject to uncertainty. Accordingly, such statements are subject to risks that could cause actual results to differ, possibly materially, from those contemplated in such forward-looking statements. Inevitably, some assumptions used to develop forward-looking statements will not occur as assumed or unanticipated events and circumstances may occur. Therefore, investors should be aware that there are likely to be differences between forward-looking statements and actual results. Those differences could be materially adverse to the owners of the Bonds and could impact the availability of revenues to pay debt service on the Bonds.

Additional Information

This introduction is only a brief summary of the provisions of the Bonds and the Bond Ordinance; a full review of the entire Official Statement should be made by potential investors. Brief descriptions of the Bonds, the Bond Ordinance, the City, the General Taxes, the Net Revenues and the Refunding Project are included in this Official Statement. All references herein to the Bonds, the Bond Ordinance and other documents are qualified in their entirety by reference to such documents. This Official Statement speaks only as of its date and the information contained herein is subject to change.

Additional information and copies of the documents referred to herein are available from the City and the Financial Advisor at the addresses set forth below:

City of Fernley, Nevada Attn: City Treasurer / Finance Director 595 Silver Lace Boulevard, Suite 117 Fernley, Nevada 89408 Telephone: (775) 784-9843 JNA Consulting Group, LLC 410 Nevada Way, Suite 200 Boulder City, Nevada 89005 Telephone: (702) 294-5100

6

SOURCES AND USES OF FUNDS

Sources and Uses of Funds

The proceeds of the Bonds are expected to be applied in the manner set forth in the following table.

Sources and Uses of Funds

SOURCES: Principal amount ................................................................. $4,425,000.00 Plus original issue premium ............................................... 120,922.90 Debt service fund for the Refunded Bonds ........................ 91,137.50 Total ............................................................................... $4,637,060.40 USES: The Refunding Project ........................................................ $4,450,937.50 Costs of issuance (including underwriting discount) ......... 186,122.90 Total ............................................................................... $4,637,060.40

Source: The Financial Advisor.

The Refunding Project

General. The City is undertaking the Refunding Project for net present value savings. To accomplish the Refunding Project, the City will deposit the net proceeds of the Bonds and certain other legally available funds into the Escrow Account created pursuant to the Bond Ordinance (the “Escrow Account”). Pursuant to an Escrow Agreement between the City and the Escrow Bank, the amounts deposited into the Escrow Account will be invested in Federal Securities (defined herein) maturing at such times and in such amounts as are required to pay (i) the interest on the 2007 Refunded Bonds as it becomes due through February 1, 2017; (ii) the interest on the 2008 Refunded Bonds as it becomes due through February 1, 2018; (iii) the principal of the 2007 Refunded Bonds as it becomes due upon prior redemption on February 1, 2017; (iv) the principal of the 2008 Refunded Bonds as it becomes due upon prior redemption on February 1, 2018.

Verification of Mathematical Computations. Causey Demgen & Moore P.C. (“Causey”), a firm of independent public accountants, will deliver to the City, on or before the settlement date of the Bonds, its verification report indicating that it has verified, in accordance with standards established by the American Institute of Certified Public Accountants, the accuracy of the mathematical computations of the adequacy of the maturing principal of and interest on the federal securities and cash deposited in the Escrow Account to provide for the payment of the principal of and interest on the Refunded Bonds upon maturity or prior redemption, which computations support the conclusion of Bond Counsel that the Bonds are not “arbitrage bonds” under Section 148 of the Tax Code.

The verification performed by Causey will be solely based upon data, information and documents provided to Causey by the City and its representatives. Causey has restricted its

7

procedures to recalculating the computations provided by the City and its representatives and has not evaluated or examined the assumptions or information used in the computations.

8

THE BONDS

General

The Bonds will be issued as fully registered bonds in denominations of $5,000 and any integral multiple thereof. The Bonds will be dated as of their date of delivery and will bear interest (calculated on the basis of a 360-day year of twelve 30-day months) and mature as set forth on the inside cover page of this Official Statement. The Bonds initially will be registered in the name of “Cede & Co.,” as nominee for DTC, the securities depository for the Bonds. Purchases of the Bonds are to be made in book-entry only form. Purchasers will not receive certificates evidencing their beneficial ownership interest in the Bonds. See “Book-Entry Only System” below.

Payment Provisions

Interest on the Bonds is payable on each February 1 and August 1, commencing August 1, 2017, by check or draft mailed by the Paying Agent, on each interest payment date (or, if such interest payment date is not a business day, on the next succeeding business day), to the owner thereof, at his or her address as shown on the registration records kept by the Registrar as of the close of business on the fifteenth day of the calendar month next preceding each interest payment date (other than a special interest payment date hereafter fixed for payment of defaulted interest) (the “Regular Record Date”); but any such interest not so timely paid or duly provided for shall cease to be payable to the owner thereof as shown on the registration records of the Registrar as of the close of business on the Regular Record Date and shall be payable to the owner thereof, at his or her address, as shown on the registration records of the Registrar as of the close of business on a date fixed to determine the names and addresses of owners for the purpose of paying defaulted interest (the “Special Record Date”). Such Special Record Date and the date for payment of defaulted interest shall be fixed by the Registrar whenever moneys become available for payment of the defaulted interest, and notice of the Special Record Date and the date for payment of defaulted interest shall be given to the owners of the Bonds not less than ten days prior thereto by first-class mail to each such owner as shown on the Registrar’s registration records as of a date selected by the Registrar, stating the date of the Special Record Date and the date fixed for the payment of such defaulted interest. The Paying Agent may make payments of interest on any Bond by such alternative means as may be mutually agreed to between the owner of such Bond and the Paying Agent. The principal on any Bond shall be payable to the owner thereof as shown on the registration records kept by the Registrar, upon maturity and upon presentation and surrender at the office designated by the Paying Agent or at such other office as designated by the Paying Agent. If any Bond shall not be paid upon such presentation and surrender at or after maturity, it shall continue to draw interest at the interest rate borne by the Bond until the principal thereof is paid in full. All such payments shall be made in lawful money of the United States of America without deduction for any service charges of the Paying Agent or Registrar.

Notwithstanding the foregoing, payments of the principal of and interest on the Bonds will be made directly to DTC or its nominee, Cede & Co., by the Paying Agent, so long as DTC or Cede & Co. is the registered owner of the Bonds. Disbursement of such payments to DTC’s Participants (defined in Appendix C) is the responsibility of DTC, and disbursements of such payments to the Beneficial Owners (defined in Appendix C) is the responsibility of DTC’s Participants and the Indirect Participants (defined in Appendix C), as more fully described herein. See “Book-Entry Only System” below.

9

Redemption Provisions

Optional Prior Redemption. The Bonds or portions thereof ($5,000 or any integral multiple thereof) maturing on and after February 1, 2028, are subject to redemption prior to their respective maturities, at the option of the City, on February 1, 2027, and on any date thereafter, in whole or in part, at any time, from any maturities selected by the City and by lot or in such manner in which the Registrar deems fair within a maturity (giving proportionate weight to Bonds in denominations larger than $5,000), at a price equal to the principal amount of each Bond, or portion thereof, so redeemed, and accrued interest thereof to the redemption date.

Notice of Redemption. Unless waived by any registered owner of a Bond to be redeemed, notice of prior redemption shall be given electronically by the Registrar, as long as Cede & Co., or a nominee of a successor depository is registered owner of the Bonds and otherwise by first-class mail, at least 30 days but not more than 60 days prior to the redemption date to the Municipal Securities Rulemaking Board via its Electronic Municipal Market Access (“MSRB”), the insurer, if any, and to the registered owner of any Bond (initially Cede & Co.) all or a part of which is called for prior redemption at his or her address as it last appears on the registration records kept by the Registrar.

The notice shall identify the Bonds and state that on such date the principal amount thereof, and premium, if any, thereon will become due and payable at the office designated by the Paying Agent (accrued interest to the redemption date being payable by mail or as otherwise provided in the Bond Ordinance), and that after such redemption date interest will cease to accrue. After such notice and presentation of the Bonds, the Bonds called for redemption will be paid.

Actual receipt of notice by the MSRB, the insurer, if any, and any registered owner of Bonds shall not be a condition precedent to redemption of such Bonds. Failure to give such notice to the registered owner of any Bond designated for redemption, or any defect therein, shall not affect the validity of the proceedings for the redemption of any other Bond. A certificate by the Registrar that notice of call and redemption has been given as provided in this Section shall be conclusive as against all parties; and no owner whose Bond is called for redemption or any other owner of any Bond may object thereto or may object to the cessation of interest on the redemption date on the ground that he failed actually to receive such notice of redemption.

Notwithstanding the provisions set forth above, any notice of redemption may contain a statement that the redemption is conditioned upon the receipt by the Paying Agent of funds on or before the date fixed for redemption sufficient to pay the redemption price of the Bonds so called for redemption, and that if such funds are not available, such redemption shall be cancelled by written notice to the owners of the Bonds called for redemption in the same manner as the original redemption notice was given.

Tax Covenant

In the Bond Ordinance, the City covenants for the benefit of the owners of the Bonds that it will not take any action or omit to take any action with respect to the Bonds, the proceeds thereof, any other funds of the City or any facilities refinanced with the proceeds of the Bonds if such action or omission (i) would cause the interest on the Bonds to lose its exclusion from gross income for federal income tax purposes under Section 103 of the Tax Code, or (ii) would cause interest on the Bonds to lose its exclusion from alternative minimum taxable income

10

as defined in Section 55(b)(2) of the Tax Code, except to the extent such interest is required to be included in the adjusted current earnings adjustment applicable to corporations under Section 56 of the Tax Code in calculating corporate alternative minimum taxable income. The foregoing covenants shall remain in full force and effect notwithstanding the payment in full or defeasance of the Bonds until the date on which all obligations of the City in fulfilling the above-described covenant under the Tax Code have been met.

Defeasance

When all Bond Requirements of any Bond have been duly paid, the pledge, the lien, and all obligations hereunder as to that Bond shall thereby be discharged and the Bond shall no longer be deemed to be Outstanding within the meaning of the Bond Ordinance. There shall be deemed to be such due payment when the City has placed in escrow or in trust with a Trust Bank located within or without the State, an amount sufficient (including the known minimum yield available for such purpose from the Federal Securities in which such amount may be initially invested wholly or in part) to meet all Bond Requirements of the Bond, as the same become due to the final maturity of the Bond, or upon any redemption date as of which the City shall have exercised or shall have obligated itself to exercise its prior redemption option by a call of the Bond for payment then. The Federal Securities shall become due before the respective times on which the proceeds thereof shall be needed, in accordance with a schedule established and agreed upon between the City and the Trust Bank at the time of the creation of the escrow or trust, or the Federal Securities shall be subject to redemption at the option of the holders thereof to assure availability as needed to meet the schedule. For the purpose of this Section “Federal Securities” shall include only Federal Securities which are not callable for redemption prior to their maturities except at the option of the owner thereof. When such defeasance is accomplished the Paying Agent shall mail written notice of the defeasance to the registered owner of the Bonds at the addresses last shown on the registration records for the Bond maintained by the Registrar.

Book-Entry Only System

The Bonds will be available only in book-entry form in the principal amount of $5,000 or any integral multiples thereof. DTC will act as the initial securities depository for the Bonds. The ownership of one fully registered Bond for each maturity of the Bonds, as set forth on the cover page of this Official Statement, each in the aggregate principal amount of such maturity, will be registered in the name of Cede & Co., as nominee for DTC. See Appendix C - Book-Entry Only System.

SO LONG AS CEDE & CO., AS NOMINEE OF DTC, IS THE REGISTERED OWNER OF THE BONDS, REFERENCES IN THIS OFFICIAL STATEMENT TO THE REGISTERED OWNERS OF THE BONDS WILL MEAN CEDE & CO. AND WILL NOT MEAN THE BENEFICIAL OWNERS.

None of the City, the Registrar or the Paying Agent will have any responsibility or obligation to DTC’s Participants or Indirect Participants (defined in Appendix C), or the persons for whom they act as nominees, with respect to the payments to or the providing of notice for the Direct Participants, the Indirect Participants or the beneficial owners of the Bonds as further described in Appendix C to this Official Statement.

11

DEBT SERVICE REQUIREMENTS

The following table sets forth the annual debt service requirements for the Bonds. For an illustration of the debt service requirements on all of the City’s outstanding general obligation bonds, see “DEBT STRUCTURE--Annual Debt Service Requirements.”

Fiscal Total Year Principal Interest Debt Service 2017 -- -- -- 2018 -- $150,892.02 $ 150,892.02 2019 $900,000 148,825.00 1,048,825.00 2020 100,000 121,825.00 221,825.00 2021 100,000 118,825.00 218,825.00 2022 -- 115,825.00 115,825.00 2023 -- 115,825.00 115,825.00 2024 -- 115,825.00 115,825.00 2025 -- 115,825.00 115,825.00 2026 -- 115,825.00 115,825.00 2027 -- 115,825.00 115,825.00 2028 -- 115,825.00 115,825.00 2029 -- 115,825.00 115,825.00 2030 -- 115,825.00 115,825.00 2031 -- 115,825.00 115,825.00 2032 -- 115,825.00 115,825.00 2033 615,000 115,825.00 730,825.00 2034 640,000 95,837.50 735,837.50 2035 665,000 74,237.50 739,237.50 2036 690,000 50,962.50 740,962.50 2037 715,000 26,812.50 741,812.50 Total $4,425,000 $2,178,117 $6,603,117.02

Source: The Financial Advisor.

12

CERTAIN RISK FACTORS

Certain Risks Associated With Property Taxes

Delays in Property Tax Collections Could Occur. Although the Bonds are general obligations of the City, the City may only levy property taxes to pay debt service on the Bonds in accordance with State law. For a description of the State laws regulating the collection of property taxes, see “PROPERTY TAX INFORMATION--Property Tax Collections.” Due to the statutory process required for the levy of taxes, in any year in which the City is required to levy property taxes, there may be a delay in the availability of property tax revenues to pay debt service on the Bonds. Accordingly, although other City revenues may be available to pay debt service on the Bonds, if Net Revenues are insufficient for the Bonds, time may elapse before the City receives property taxes levied to cover any insufficiency of such pledged revenues.

Certain Risks Related to Property Taxes. Numerous other factors over which the City has no control may impact the timely receipt of ad valorem property tax revenues in the future. These include the valuation of property within the City, the number of homes which are in foreclosure, bankruptcy proceedings of property taxpayers or their lenders, and the ability or willingness of property owners to pay taxes in a timely manner.

The City’s ability to retire the indebtedness created by the issuance of the Bonds is dependent, in part, upon the maintenance of an adequate tax base against which the City may levy and collect property tax revenues. The amount of ad valorem property taxes (sometimes referred to herein as “General Taxes”) collected will be dependent upon the assessed valuation of land within the City. As illustrated in “PROPERTY TAX INFORMATION,” the assessed valuation of the property in the City increased 30.3% and 13.2%, respectively, in fiscal years 2015 and 2016. In fiscal year 2017, the assessed value of property in the City decreased 10.6% from the fiscal year 2016 figure, attributable in part to a reapportionment of taxes relating to the Gradient Resources geothermal energy utility facility. See “PROPERTY TAX INFORMATION—History of Assessed Value.” While a similar reduction in assessed value is not expected in coming years, it is possible that the assessed valuation of the City could decline in future years.

Certain Risks Associated With the Net Revenues

General. The generation of sufficient Net Revenues by the City’s Utility System (the “Utility System”) is important to the timely payment on the Bonds. If the Utility System becomes inoperable due to damage, destruction, environmental restriction or for any other reason, or if the City should lack adequate water supply to serve existing customers because of drought or for any other reason, or if the City is unable to increase rates and charges for any reason or if the City incurs unanticipated expenses or reduced revenues due to power rate increases or for any other reason, the City may be unable to generate adequate revenues from the Utility System to pay debt service on the Outstanding Parity Securities and the Bonds.

Wastewater Quality and Environmental Requirements. The Utility System operates a wastewater program which is subject to numerous federal and State regulatory requirements. Those regulations are subject to change at any time. Wastewater treatment systems like a portion of the Utility System are regulated by the U.S. Environmental Protection Agency (the “EPA”), and the Nevada Division of Environmental Protection (“NDEP”) has the authority to issue permits and enforce discharge standards. The City has obtained the necessary effluent discharge permits from

13

the State to operate its facilities. The City’s discharge permits are currently valid through August 30, 2018. The permits limit the quantities of certain chemicals and other substances that may be discharged. Implementation of more stringent effluent standards in the future could result in increased Operation and Maintenance Expenses or could require substantial capital improvements to the wastewater portion of the Utility System. Should that occur, the Utility System’s costs would increase; such increased costs could reduce the amount of Net Revenues available to pay debt service on the Bonds. In addition, failure to comply with regulatory changes, or the inability to comply with them in a timely manner could cause portions of the Utility System to become unavailable. Any disruption of service could negatively impact Net Revenues.

In operating the Utility System, the City also may be subject to various environmental regulations which could subject the City to increased operating costs or capital expenditures. Such increased costs could reduce the amount of Net Revenues available to pay debt service on the Outstanding Parity Securities and the Bonds.

Water Quality and Environmental Requirements. The Utility System operates a public drinking water program which is subject to numerous federal and State statutory and regulatory requirements. Those laws are subject to change at any time. The City works with all regulatory agencies and personnel to stay abreast of future regulatory requirements as failure to comply with regulatory changes, or the inability to comply with them in a timely manner, could cause portions of the Utility System to be unavailable. Any disruption of service could negatively impact the Net Revenues.

The most significant law governing public drinking water systems is the federal Safe Drinking Water Act. Primary enforcement authority for this act in Nevada has been delegated by the EPA to the NDEP. The EPA sets standards for ensuring safe drinking water and administers programs to protect drinking water sources. The NDEP’s Bureau of Safe Drinking Water works together with the City to assure that all drinking water standards have been and will continue to be met. The City is in full compliance with all current regulatory requirements and currently is not aware of any forthcoming regulatory requirements that would significantly impact compliance costs.

Limitation of Remedies

Judicial Remedies. Upon the occurrence of an Event of Default under the Bond Ordinance, each owner of the Bonds is entitled to enforce the covenants and agreements of the City by mandamus, suit or other proceeding at law or in equity. Any judgment will, however, only be enforceable against the Net Revenues and other moneys held pursuant to the Bond Ordinance (including General Taxes, if any) and not against any other fund or properties of the City.

The enforceability of the Bond Ordinance is also subject to equitable principles affecting the enforcement of creditors’ rights generally and liens securing such rights, the police powers of the State and the exercise of judicial authority by State or federal courts.

Due to the delays in obtaining judicial remedies, it should not be assumed that these remedies could be accomplished rapidly. Any delays in obtaining judicial remedies to enforce the covenants and agreements of the City under the Bond Ordinance, to the extent enforceable, could result in delays in any payment of principal of and interest on the Bonds.

14

Bankruptcy, Federal Lien Power and Police Power. The enforceability of the rights and remedies of the owners of the Bonds and the obligations incurred by the City in issuing the Bonds are subject to the federal bankruptcy code and applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws relating to or affecting the enforcement of creditors’ rights generally, now or hereafter in effect; usual equity principles which may limit the specific enforcement under State law of certain remedies; the exercise by the United States of America of the powers delegated to it by the federal Constitution; the power of the federal government to impose liens in certain situations; and the reasonable and necessary exercise, in certain exceptional situations, of the police power inherent in the sovereignty of the State and its governmental bodies in the interest of serving a significant and legitimate public purpose. Bankruptcy proceedings or the exercise of powers by the federal or State government, if initiated, could subject the owners of the Bonds to judicial discretion and interpretation of their rights in bankruptcy or otherwise, and consequently may entail risks of delay, limitation or modification of their rights.

No Acceleration. There is no provision for acceleration of maturity of the principal of the Bonds in the event of a default in the payment of principal of or interest on the Bonds. Consequently, remedies available to the owners of the Bonds may have to be enforced from year to year.

No Pledge of Property. The payment of the Bonds is not secured by an

encumbrance, mortgage or other pledge of property of the City, except the proceeds of General Taxes, the Net Revenues, and any other moneys pledged for the payment of the Bonds. No property of the City, subject to such exceptions, shall be liable to be forfeited or taken in payment of the Bonds.

Future Changes in Laws

Various State laws apply to the imposition, collection, and expenditure of General Taxes, the Net Revenues and to other City revenues as well as to the operation and finances of the City. There is no assurance that there will not be any change in, interpretation of, or addition to the applicable laws, provisions, and regulations which would have a material effect, directly or indirectly, on the affairs of the City and the imposition, collection, and expenditure of revenues, including General Taxes and Net Revenues. For example, property tax laws have changed in recent years. See “PROPERTY TAX INFORMATION--Property Tax Limitations” and –Required Property Tax Abatement.”

Secondary Market

No guarantee can be made that a secondary market for the Bonds will develop or be maintained by the initial purchaser of the Bonds (the “Initial Purchaser”) or others. Thus, prospective investors should be prepared to hold their Bonds to maturity.

15

SECURITY FOR THE BONDS

General Obligation

General. The Bonds are direct and general obligations of the City, and the full faith and credit of the City is pledged for the payment of principal and interest, subject to State constitutional and statutory limitations on the aggregate amount of ad valorem taxes. See “PROPERTY TAX INFORMATION--Property Tax Limitations.” The Bonds are payable by the City from any source legally available therefor at the times such payments are due, including the General Fund of the City. In the event, however, that such legally available sources of funds are insufficient, the City is obligated to levy a general (ad valorem) tax on all taxable property within the City for payment of the Bonds, subject to the limitations provided in the constitution and statutes of the State.

Limitations on Property Tax Revenues. The constitution and laws of the State limit the total ad valorem property taxes that may be levied by all overlapping taxing units within each county (including the State, the County, the City and Lyon County School District) in each year. Those limitations are described in “PROPERTY TAX INFORMATION--Property Tax Limitations.” In any year in which the total property taxes levied within the City by all applicable taxing units exceed such property tax limitations, the reduction to be made by those units must be in taxes levied for purposes other than the payment of their bonded indebtedness (including the Bonds, if a tax levy is necessary to pay them), including interest on such indebtedness. See “PROPERTY TAX INFORMATION--Property Tax Limitations.”

No Repealer. State statutes provide that no act concerning the Bonds or their security may be repealed, amended, or modified in such a manner as to impair adversely the Bonds or their security until all of the Bonds have been discharged in full or provision for their payment and redemption has been fully made.

Net Revenues

The Bonds are additionally secured by an irrevocable pledge of and by a lien (but not necessarily an exclusive lien) on the Net Revenues received by the City in connection with the ownership and operation of Utility System. See “Appendix B--Summary of Certain Provisions of the Bond Ordinance - Additional Parity Securities” for a discussion of the conditions permitting the issuance of additional bonds on a parity with the Bonds. “Net Revenues” with respect to the Utility System means the Gross Revenues of the Utility System after the payment of Operation and Maintenance Expenses. The lien of the Bonds on the Net Revenues is on a parity with the lien of the Outstanding Parity Securities. See “Parity Securities” and “Historical and Estimated Net Revenues” below.

Parity Securities

The pledge of and lien on the Net Revenues securing the Bonds is on a parity with the lien thereon of the Outstanding Parity Securities. Upon the issuance of the Bonds and the defeasance of the Refunded Bonds, the Parity Securities will be outstanding in the amount of $73,903,092 (assuming the issuance of the 2017 Sewer Bond (defined below)). Additional bonds and securities having a parity lien on the Net Revenues with the Bonds may be issued pursuant to the terms of the Bond Ordinance under certain conditions described in “Appendix B--Summary of

16

Certain Provisions of the Bond Ordinance - Additional Parity Securities.” The City may also issue additional bonds or securities payable from the Net Revenues and having a lien thereon prior and superior to the lien thereon of the Bonds upon the satisfaction of certain conditions set forth in the Bond Ordinance, including that any such superior bonds or securities must be issued as special obligations. See “Appendix B – Summary of Certain Provisions of the Bond Ordinance - Additional Parity Securities.”

The following table shows the outstanding amounts of the Parity Securities.

Parity Securities(1) As of December 1, 2016

Date

Issued Final

Maturity

Original

Amount Outstanding

GENERAL OBLIGATION REVENUE BONDS

Water & Sewer Bonds, Series 2007 03/01/07 02/01/37 $50,000,000 $ 1,190,000Water & Sewer Bonds, Series 2008 04/01/08 02/01/38 32,600,000 1,610,000Water and Sewer Refunding Bonds, Series 2014 10/23/14 02/01/26 12,865,000 12,655,000Sewer Refunding Bonds, Series 2015A 08/06/15 02/01/38 5,807,691 5,773,092Water Refunding Bonds, Series 2015B 11/04/15 02/01/38 37,665,000 37,665,000Water and Sewer Refunding Bonds, Series 2016 11/03/16 02/01/37 9,085,000 9,085,000Sewer Bonds, Series 2017(3) 01/11/17 01/01/37 1,500,000 1,500,000 Water and Sewer Refunding Bonds, Series 2017 (this issue) 01/26/17 02/01/37 4,425,000 4,425,000

TOTAL OUTSTANDING PARITY SECURITIES $73,903,092

(1) Upon the issuance of the Bonds and the defeasance of the Refunded Bonds. (2) The City’s Sewer Bond, Series 2017 (the “2017 Sewer Bond”) was issued on January 11, 2017 and has thus been

included in the chart above. The 2017 Sewer Bond was structured as a draw-down loan with a maximum draw amount of $1,500,000. For purposes of the above table, the full amount of the loan is assumed to have been drawn and be outstanding.

Source: Compiled by the Financial Advisor.

The following table presents the annual debt service requirements for the City’s Parity Securities (upon the issuance of the Bonds and the defeasance of the Refunded Bonds). The table excludes any pro forma debt service for the City’s 2017 Sewer Bond but payments on the 2017 Sewer Bond are expected to begin amortizing in fiscal year 2019 or 2020 in the approximate annual amount of $100,000.

17

Parity Securities Debt Service Requirements

As of December 1, 2016(1)(2)(3)

Fiscal Year

Ended June

30

Total Debt Service on

Outstanding Parity Securities

Bonds

Grand Total Principal Interest Total

2017(3) $3,352,149 -- $0 -- $3,352,149 2018 4,724,320 -- $150,892 $ 150,892 4,875,212 2019 3,818,245 $900,000 $148,825 1,048,825 4,867,070 2020 4,641,297 100,000 $121,825 221,825 4,863,122 2021 4,634,394 100,000 $118,825 218,825 4,853,219 2022 4,626,736 -- $115,825 115,825 4,742,561 2023 4,626,294 -- $115,825 115,825 4,742,119 2024 4,627,135 -- $115,825 115,825 4,742,960 2025 4,633,117 -- $115,825 115,825 4,748,942 2026 4,652,115 -- $115,825 115,825 4,767,940 2027 4,655,331 -- $115,825 115,825 4,771,156 2028 4,671,444 -- $115,825 115,825 4,787,269 2029 4,679,530 -- $115,825 115,825 4,795,355 2030 4,675,612 -- $115,825 115,825 4,791,437 2031 4,664,169 -- $115,825 115,825 4,779,994 2032 4,659,963 -- $115,825 115,825 4,775,788 2033 4,042,361 615,000 $115,825 730,825 4,773,186 2034 4,035,112 640,000 $95,838 735,838 4,770,950 2035 4,044,012 665,000 $74,238 739,238 4,783,249 2036 4,043,837 690,000 $50,963 740,963 4,784,800 2037 4,046,324 715,000 $26,813 741,813 4,788,136 2038 1,714,375 -- -- -- 1,714,375TOTAL $94,267,872 $4,425,000 $2,178,117 $6,603,117 $100,870,989 (1) Upon the issuance of the Bonds and the defeasance of the Refunded Bonds. For fiscal year 2017, $25,995 in

principal payments and $1,329,183 in interest payments have already been made on the Outstanding Parity Securities.

(2) Totals may not add due to rounding. (3) The above table excludes any pro forma debt service on the City’s 2017 Sewer Bond but payments on the 2017

Sewer Bond are expected to begin amortizing in fiscal year 2019 or 2020 in the approximate annual amount of $100,000.

Source: City of Fernley, Compiled by the Financial Advisor. Historical and Estimated Net Revenues

The following table sets forth: (i) a history of the Pledged Revenues for fiscal years 2012 to 2016 (ii) the debt service payable on the then-Outstanding Parity Securities in each year; and (iii) the associated debt service coverage, calculated by dividing the Pledged Revenues by the debt service paid in each year. There is no assurance that the Pledged Revenues will continue to be realized in the amounts illustrated below. See “Certain Risks Associated with Pledged Revenues” and other factors described throughout this Official Statement.

18

The debt service coverage ratio shown in this table for fiscal year 2012 is less than 1.0x debt service. The shortfall was attributed to the financial impacts of a catastrophic regional flood and to an oversizing of the Utility System. In response, in fiscal year 2012, the City implemented and began collecting a Bond Debt Fee allocated to all users of the water system based on meter size.

Historical and Estimated Net Revenues and Debt Service Coverage Utility System

City of Fernley, Nevada

___________________________

(1) Budgeted figures based upon City’s 2017 Budget. See “INTRODUCTION--Forward-Looking Statements.” (2) A Water Ancillary Fee was implemented in fiscal year 2012 as water revenues were not sufficient to cover debt service for

water bonds issued to cover the cost of a new water treatment plant. Fees are allocated to all users of the water system including will serves, and are based on meter size. Prior to November 14, 2016, the Water Ancillary Fee was called the “Bond Debt Fee.” See “UTILITY SYSTEM --Water Ancillary Fee.”

(3) Operating expenses excludes depreciation. (4) Other pledged revenues consist of service fees, disconnect fees, return check fees, late fees, lease fees, interest income and in

lieu of fees. (5) Reflects the actual debt service on Outstanding Parity Securities in the years 2012-2016, and the scheduled debt service on

Outstanding Parity Securities in 2017 before the issuance of the Bonds and without giving effect to the refunding. (6) The negative coverage ratio in fiscal year 2012 is discussed in the text preceding this table. Source: Derived from the City’s audited financial statements for the fiscal years 2012-16 and the City’s fiscal year 2017 budget.

Fiscal Year Ending June 30

2012 (Actual)

2013 (Actual)

2014 (Actual)

2015 (Actual)

2016 (Actual)

2017 (Budgeted)(1)

PLEDGED REVENUES Water Fund User Fees $ 4,876,403 $ 4,925,752 $ 4,940,786 $ 4,822,461 $ 4,776,323 $ 4,810,000 Water Ancillary Fee Revenue (2) 1,449,260 3,345,781 3,323,659 3,378,183 3,384,561 2,987,847 Operating Expenses(3) (2,828,629) (2,818,466) (2,992,416) (3,248,559) (3,045,922) (3,570,817) Connection Charges 5,297 6,995 59,052 446,296 228,457 200,000 Other Pledged Revenues(4) 256,726 359,093 246,396 421,761 454,223 210,000

Total Water Net Revenues 3,759,057 5,819,155 5,577,467 5,820,142 5,797,642 4,637,030 Sewer Fund User Fees $ 1,904,073 $ 1,929,793 $ 1,981,631 $ 2,012,025 $ 2,023,135 $ 2,012,000 Operating Expenses(3) (972,831) (1,022,868) (1,164,682) (1,180,434) (1,333,043) (1,552,470) Connection Charges 669 3,474 79,365 547,852 181,253 250,000 Other Pledged Revenues

12,716 26,602 20,003 12,081 39,378 5,200

Total Sewer Net Revenues 944,627 937,001 916,317 1,391,524 910,723 714,730

NET REVENUES $4,703,684 $6,756,0565 $6,493,784 $7,211,666 $6,708,365 $5,351,760

EXISTING DEBT SERVICE(5) $5,375,656 $5,297,668 $5,225,694 $5,141,609 $5,156,693 $4,798,464

Coverage (times)(6) 0.875 1.28 1.24 1.40 1.30 1.12

19

No Pledge of Property

The payment of the Bonds is not secured by an encumbrance, mortgage or other pledge of property of the City, except the proceeds of General Taxes, the Net Revenues, and any other moneys pledged for the payment of the Bonds. No property of the City, subject to such exceptions, shall be liable to be forfeited or taken in payment of the Bonds.

Bond Insurance

The following information has been furnished by National Public Finance Guarantee Corporation (“National”) for use in this Official Statement. National does not accept any responsibility for the accuracy or completeness of any information or disclosure contained herein, or omitted herefrom, other than with respect to the accuracy of the information regarding National and the Financial Guaranty Insurance Policy issued by National (the “Policy”). Additionally, National makes no representation regarding the Bonds or the advisability of investing in the Bonds. A specimen of the Policy is attached hereto as Appendix G.

The Policy unconditionally and irrevocably guarantees the full and complete

payment required to be made by or on behalf of the City to the Paying Agent or its successor of an amount equal to (i) the principal of (either at the stated maturity or by an advancement of maturity pursuant to a mandatory sinking fund payment) and interest on, the Bonds as such payments shall become due but shall not be so paid (except that in the event of any acceleration of the due date of such principal by reason of mandatory or optional redemption or acceleration resulting from default or otherwise, other than any advancement of maturity pursuant to a mandatory sinking fund payment, the payments guaranteed by the Policy shall be made in such amounts and at such times as such payments of principal would have been due had there not been any such acceleration, unless National elects in its sole discretion, to pay in whole or in part any principal due by reason of such acceleration); and (ii) the reimbursement of any such payment which is subsequently recovered from any Owner of the Bonds pursuant to a final judgment by a court of competent jurisdiction that such payment constitutes an avoidable preference to such Owner within the meaning of any applicable bankruptcy law (a “Preference”).

The Policy does not insure against loss of any prepayment premium which may at any time be payable with respect to any Bonds. The Policy does not, under any circumstance, insure against loss relating to: (i) optional or mandatory redemptions (other than mandatory sinking fund redemptions); (ii) any payments to be made on an accelerated basis; (iii) payments of the purchase price of Bonds upon tender by an owner thereof; or (iv) any Preference relating to (i) through (iii) above. The Policy also does not insure against nonpayment of principal of or interest on the Bonds resulting from the insolvency, negligence or any other act or omission of the Paying Agent or any other paying agent for the Bonds.

National Public Finance Guarantee Corporation. National is an operating

subsidiary of MBIA Inc., a New York Stock Exchange listed company. MBIA Inc. is not obligated to pay the debts of or claims against National. National is domiciled in the State of New York and is licensed to do business in and subject to regulation under the laws of all 50 states, the District of Columbia, the Commonwealth of Puerto Rico, the Territory of Guam, and the U.S. Virgin Islands.

20

The principal executive offices of National are located at 1 Manhattanville Road, Suite 301, Purchase, New York 10577 and the main telephone number at that address is (914) 765-3333.

Regulation. As a financial guaranty insurance company licensed to do business in

the State of New York, National is also subject to the New York Insurance Law which, among other things, prescribes minimum capital requirements and contingency reserves against liabilities for National, limits the classes and concentrations of investments that are made by National and requires the approval of policy rates and forms that are employed by National. State law also regulates the amount of both the aggregate and individual risks that may be insured by National, the payment of dividends by National, changes in control with respect to National and transactions among National and its affiliates.

The Financial Guaranty Insurance Policy is not covered by the Property/Casualty

Insurance Security Fund specified in Article 76 of the New York Insurance Law.

Financial Strength Ratings of National.

National’s current financial strength ratings from the major rating agencies are summarized below:

Agency Ratings Outlook

S&P AA- Stable

Moody’s A3 Negative

KBRA AA+ Stable

Each rating of National should be evaluated independently. The ratings reflect the respective rating agency’s current assessment of the creditworthiness of National and its ability to pay claims on its policies of insurance. Any further explanation as to the significance of the above ratings may be obtained only from the applicable rating agency.

The above ratings are not recommendations to buy, sell or hold the Bonds, and such

ratings may be subject to revision or withdrawal at any time by the rating agencies. Any downward revision or withdrawal of any of the above ratings may have an adverse effect on the market price of the Bonds. National does not guaranty the market price of the Bonds nor does it guaranty that the ratings on the Bonds will not be revised or withdrawn.

Recent Litigation. In the normal course of operating its business, National may be

involved in various legal proceedings. Additionally, MBIA Inc. may be involved in various legal proceedings that directly or indirectly impact National. For additional information concerning material litigation involving National and MBIA Inc., see MBIA Inc.’s Annual Report on Form 10-K for the year ended December 31, 2015 and Quarterly Report on Form 10-Q for the quarter ended September 30, 2016, which is hereby incorporated by reference into this Official Statement and shall be deemed to be a part hereof, as well as the information posted on MBIA Inc.’s web site at http://www.mbia.com.

21

MBIA Inc. and National are defending against/pursuing the aforementioned actions

and expect ultimately to prevail on the merits. There is no assurance, however, that they will prevail in these actions. Adverse rulings in these actions could have a material adverse effect on National's ability to implement its strategy and on its business, results of operations and financial condition.

Other than as described above and referenced herein, there are no other material

lawsuits pending or, to the knowledge of National, threatened, to which National is a party.

National Financial Information. Based upon statutory financials, as of September 30, 2016, National had total net admitted assets of $4.5 billion (unaudited), total liabilities of $1.8 billion (unaudited), and total surplus of $2.7 billion (unaudited) determined in accordance with statutory accounting practices prescribed or permitted by insurance regulatory authorities.

For further information concerning National, see the financial statements of MBIA

Inc. and its subsidiaries as of December 31, 2015, prepared in accordance with generally accepted accounting principles, included in the Annual Report on Form 10-K of MBIA Inc. for the year ended December 31, 2015, which are hereby incorporated by reference into this Official Statement and shall be deemed to be a part hereof.

Incorporation of Certain Documents by Reference. The following documents filed by MBIA Inc. with the Securities and Exchange Commission (the “SEC”) are incorporated by reference into this Official Statement:

MBIA Inc.’s Annual Report on Form 10-K for the year ended December 31, 2015; MBIA Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30,

2016. Any documents, including any financial statements of National that are included

therein or attached as exhibits thereto, or any Form 8-K, filed by MBIA Inc. pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of MBIA Inc.'s most recent Quarterly Report on Form 10-Q or Annual Report on Form 10-K, and prior to the termination of the offering of the Bonds offered hereby shall be deemed to be incorporated by reference in this Official Statement and to be a part hereof from the respective dates of filing such documents.

Any statement contained in a document incorporated or deemed to be incorporated

by reference herein, or contained in this Official Statement, shall be deemed to be modified or superseded for purposes of this Official Statement to the extent that a statement contained herein or in any other subsequently filed document which also is or is deemed to be incorporated by reference herein modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Official Statement.

MBIA Inc., files annual, quarterly and special reports, information statements and

other information with the SEC under File No. 1-9583. Copies of MBIA Inc.’s SEC filings (MBIA Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2016 and

22

MBIA Inc.’s Annual Report on Form 10-K for the year ended December 31, 2015) are available (i) over the Internet at the SEC's web site at http://www.sec.gov; (ii) at the SEC's public reference room in Washington D.C.; (iii) over the Internet at MBIA Inc.’s web site at http://www.mbia.com; and (iv) at no cost, upon request to National at its principal executive offices.

23

UTILITY SYSTEM

General Description

General. The City operates a municipal water system (the “Water System”) and a municipal wastewater system (the “Sewer System” and together with the Water System, the “Utility System”), described internally as the “Water” and “Wastewater” departments. The departments are run through two associated enterprise funds. The Water and Wastewater departments provide treatment and delivery of drinking water, collection and reclamation of wastewater, laboratory testing services, utility infrastructure management, customer and billing services, as well as conservation programs. The mission of the Water and Wastewater departments is to provide water and wastewater services to the City’s citizens while protecting the environment, health and prosperity of the community. Approximately 22 City employees are directly associated with the operation of the Utility System.

Service Area. The service area of the Utility System is within the City’s boundaries, with essentially all services located within the City proper. Within the City boundaries there are some residents that are on well and septic systems, as well as a minority that are served with only water or wastewater. These customers collectively comprise less than 1% of the Utility System’s total customers. As of December 1, 2016, the Water System served 6,741 residential accounts and 410 commercial accounts, and the Sewer System served 6,269 residential accounts and 317 commercial accounts. The estimated population of the service area is approximately 19,368 people (according to 2010 census data) and includes both residential and surrounding agricultural areas. Fernley’s boundary encompasses approximately 164 square miles.

Regional Cooperation. The City is party to various interlocal agreements with federal, state and local governments, which may periodically affect the resources available to the Utility System, including the recently implemented Truckee River Operating Agreement implemented by the Federal Bureau of Reclamation which aims to resolve water disputes over the operation of Truckee River reservoirs and effect interstate water allocations. The City also cooperates with the Bureau of Reclamation and the Truckee-Carson Irrigation District on management of surface water rights.

Sewer System Facilities

The Sewer System consists of the East Wastewater Treatment Plant (the “WWTP”) located in northeastern Fernley in Lyon County, Nevada. Facilities at the WWTP include influent pumping, screening and grit removal, an influent splitter box, a facultative pond treatment system, a storage pond, chlorine disinfection, and influent/effluent flow measurement. The WWTP operates under Permit No. NS0080011 (formerly NEV80011) with a permitted capacity of 3.05 million gallons per day (mgd). The WWTP currently discharges treated effluent to the Fernley Wildlife Management Area (FWMA), but historically discharged to on-site rapid infiltration basins (RIBs) for evaporation and percolation. Reuse of the treated effluent at FWMA is managed through Permit No. NS0098008 (formerly NEV98008) issued to the Nevada Department of Wildlife (NDOW) for groundwater discharge.

Unit treatment processes at the WWTP consist of the following: (i) influent pumping with mechanical bar screening and grit removal; (ii) pond treatment and storage; and (iii) chlorination and outfall metering. The WWTP is permitted to discharge secondary disinfected

24

effluent to the Fernley Wildlife Management Area (FWMA) for beneficial use by discharging to groundwater for the purpose of enhancing waterfowl habitat and wetland preservation. There are also isolated areas south of the Truckee Canal which do not contribute to the flow but are on private septic systems. Septic systems in operation within the main areas of population are anomalous.

The sanitary sewer collection system consists of 106 miles of sewer lines, 9 lift stations, 240 e-ones (individual residential lift stations).

Water System Facilities and Sources

The Water System consists of approximately 243 miles of water pipelines (ranging from 6 inches to 48 inches in diameter), 7 storage tanks, 2 pump stations, 6 municipal wells and one water treatment plant. The Water System has the capacity to produce approximately 13.7 million gallons of potable water daily. Maximum average daily demand in the summer is approximately 7 MGD, and average daily demand on an annual basis is approximately 3.25 MGD.

The City’s water treatment plant (the “Treatment Plant”) was constructed and put into operation in 2009. The Treatment Plant has a maximum capacity of 20 MGD, with an average daily flow of 1 to 7 MGD depending upon the season. The City currently supplies all of its potable water needs using groundwater. The groundwater is pumped from a combination of municipal wells and transported via pipelines to the Treatment Plant where it is treated and distributed to above ground storage tanks and delivered to residential and commercial customers. A relatively small number of city residences are not connected to the municipal water supply system and obtain their domestic water supplies through privately owned domestic wells. Nevada regulations prohibit the drilling of a new domestic well if the property can be served by a municipal water system. In addition, NRS 534.180 allows the State Engineer, in certain circumstances, to require the plugging of domestic wells within 1 year after the date that municipal water service is made available. The City has met all federal and state water quality regulations and standards since it began operating the Treatment Plant.

The City obtains water for the Water System from six municipal wells. The City municipal water supply is pumped from the groundwater wells through pipelines to the City of Fernley WTP. The water is treated at the WTP to remove any potential contaminants (specifically arsenic for EPA compliance ruling). After treatment the water is transferred via potable water distribution pipes to five above ground storage tanks and then distributed to Fernley customers.

The City’s water storage tanks “float” for the Water System. This means that during low demand periods, the water tanks fill, and during peak demand periods, the water tanks drain. The tanks are thus able to gravity-feed water to the Water System for most of the City except in locations where booster stations are required. In general, there are no dedicated transmission mains connecting the wells and storage tanks, with the exception of Well 9 and 9A that pump directly to the Blend Tank near the Northeast Tank. The distribution system contains pipes ranging in size from 4 inches to 48 inches, with large (18 inch) piping connecting the storage tanks to the system.

25

Water Supply - Local

The City currently supplies all of its potable water needs using groundwater. Presently, the City utilizes groundwater wells as its primary source of water supply. The City utilizes 6 production wells: Well 4, Well 9, Well 9A, Well 11, Well 13 and Well 14. The total production capacity of the wells is approximately 9,500 GPM (13.7 MGD) on a continuous pumping schedule. This capacity assumes well pumps are operating 24 hours per day and the groundwater system can maintain this level of pumping.

Water Supply - Regional

The City also holds rights to the Newlands Project Claim 3 surface water. Currently none of the water associated with these rights is used in the Water System. However, the City is currently exploring various options to allow for the use of this water. It is anticipated that surface water will be either directly conveyed from the Truckee Canal to the WTP and/or that it will be transported through existing canal laterals to one or more Aquifer Storage and Recovery (“ASR”) basins. Permits and an authorization request for an ASR project have been filed with the State Engineer and USBR and are awaiting approval.

The Truckee Carson Irrigation District (the “TCID”) is responsible for agricultural deliveries of Claim 3 Truckee River surface water within the City. The Orr Ditch Decree includes numerous limitations for the delivery of surface water. The Orr Ditch Decree divides surface water rights into claims. All of the City’s surface water rights are Claim 3 rights under the Orr Ditch Decree. Claim 3 rights serve the entire Newlands Project, including the City, and may be used for, among other things, irrigation of the Newlands Project and supplying inhabitants of cities and towns on the project. For irrigation use, the Orr Ditch Decree limits the water that can be diverted in any one month to 25% of the total acre-feet allowed for the land for the season.

According to the Orr Ditch Decree, water for irrigation is allowed to be used at any time, provided that the amount applied to the land during any calendar year does not exceed the quantity in acre feet allowed to the land. However, the Decree also restricts use by providing that no diversion of water into any ditch or canal shall be permitted except in such amount as shall be actually, reasonably necessary for the economical and beneficial use for which the right of diversion is determined and established by the decree. Through permit terms, the NDWR authorizes use of Claim 3 water rights during the portion of the irrigation season that Truckee River Claim 3 would be in priority to receive water. The irrigation season is set by the Truckee Carson Irrigation District and is typically March 15th to November 15th in a normal water year.

Additionally, the City shares proportionally in reduction of deliveries during drought situations but may augment the reduced deliveries using water stored in upstream reservoirs pursuant to the terms of the Truckee River Operating Agreement (“TROA”).

Capital Improvement Program

The City maintains a 5-year capital improvement program (the “CIP”) for the Utility System. As of December 1, 2016, total projected expenditures for the current fiscal year and the following five fiscal years are as follows:

26

Capital Improvement Program 2017-2021

2017 2018 2019 2020 2021 Water $1,271,000 $858,000 $1,205,000 $1,515,000 $1,090,000 Sewer 2,851,115 1,645,000 525,000 250,000 250,000 Total $4,122,115 $2,503,000 $1,730,000 $1,765,000 $1,340,000

The CIP includes water meter replacement, water storage tank recoating, well equipment replacements, tank demolition, pipe bride replacement, water line replacement, as well as micro filtration filter replacement.

Customer Usage Rates and Charges

Pursuant to NRS 266, the City Council is obligated and empowered to fix rates and charges for water and wastewater services. On November 14, 2016, the City Council approved an increase to Water System residential base rates and Sewer System residential base rates and an increase to the Water Ancillary Fee; the first such rate increases since 2012. The 2016 rate increases were approved in an effort to ensure coverage of operating costs and debt service, to maintain a reasonable operating capital balance, and begin saving for certain capital replacement and maintenance activities that have been delayed and other capital costs that will be necessary in the future.

The City Council will review Water System and Sewer System commercial rates and connection fees once a business impact study has been performed.

Current Water System Rates and Charges. The Water System service charges currently in effect, and the changes to those fees that will be in effect on and after January 1, 2017, are set forth in the following tables.

Monthly Residential Water Service Charges – Metered Customers

2016 2017 2018 2019 2020 2021

Effective Date

Through 12/31/16

1/1/2017

7/1/2017

7/1/2018

7/1/2016

7/1/2020

Service Charge Monthly Charges per Meter 3/4" $ 19.47 $42.85 $44.03 $46.80 $49.29 $51.441" 32.32 $71.05 $73.00 $77.61 $81.74 $85.311.5" 53.50 $168.92 $173.54 $184.55 $194.43 $202.932" 79.44 $266.50 $273.79 $291.20 $306.80 $320.233" 230.34 $609.58 $626.24 $666.09 $701.80 $732.524" 44.60 $847.64 $870.83 $926.01 $975.47 $1,018.086" $ 19.47 $1,891.22 $1,942.91 $2,066.56 $2,177.36 $2,272.70 Treated Water Use Charges

Rate per 1,000 Gallons See footnote (1) $3.03 $3.10 $3.28 $3.45 $3.60 (1) For 2016 rates, volume charge rates for individually metered residential customers are $2.15 for 0-8 kgal, $3.11 for ≥8-30

kgal, and $4.08 for ≥30 kgal, and volume charge rate for master metered residential customers is $2.75 per kgal.

27

Monthly Commercial Water Service Charges

Commercial(1)(2) ¾” $ 22.60 1” 40.14

1 ½” 69.17 2” 104.49 4” 308.64 6” 601.27 8” 952.07

(1) The volume charge rate for all usage for commercial customers is $2.79 per kgal. (2) A business impact study is required prior to increasing commercial rates. Any changes to commercial rates will not be

approved until March 2017 and will not go in to effect until 7/1/17.

Current Sewer System Rates and Charges. The City imposes service charges and

connection charges, along with other miscellaneous charges. Commercial and residential users of the City’s Sewer System are charged a monthly service fee.

The following tables set forth the schedule of monthly service fees currently in effect and those that will take effect on and after January 1, 2017.

Monthly Residential Sewer System Charges – Metered Customers

2016 2017 2018 2019 2020 2021 Effective Date

Through 12/31/16

1/1/2017

7/1/2017

7/1/2018

7/1/2019

7/1/2020 Residential Flat $22.02 $29.51 $34.67 $36.60 $37.85 $39.25

Monthly Commercial Sewer System Charges – Metered Customers

Commercial(1)

¾” $ 18.39 1” 22.66

1 ½” 36.45 2” 67.95 4” 175.64 6” 283.32 8” 453.04

10” 724.87 (1) A business impact study is required prior to increasing commercial rates. Any changes to commercial rates will not be

approved until March 2017 and will not go in to effect until 7/1/17.

28

Connection Charges

Connection Fees. The City charges a one-time system connection fee which is assessed and collected at the time that services are connected to the Water/Wastewater System. The Residential Water Connection Fee is $5,165.00 for each single family residential unit or for each unit in individually metered multifamily residential development. The Residential Wastewater Connection Fee is $3,474.00 for each single family residential unit or for each unit in individually metered multifamily residential development.

Water Ancillary Fee

The City implemented a Bond Debt Fee in fiscal year 2012 in response to a shortfall in water revenues available to cover debt service on water bonds issued to finance a water treatment plant. The Bond Debt Fee is imposed on all users of the water system (including will serves) based on meter size. At the end of each fiscal year, the City provides the County with a list of the water system users subject to the Bond Debt Fee and the total annual amounts to be billed against each user. The County bills the fee annually on behalf of the City and collects it quarterly. The County remits the collected amounts to the City on a monthly basis along with certain other revenues collected by the County on behalf of the City. Effective November 14, 2016, the Bond Debt Fee was renamed the Water Ancillary Fee. The following tables set forth the current Water Ancillary Fee schedule and the approximate Water Ancillary Fee schedule to take effect as of July 1, 2017:

29

Water Ancillary Fee Rates – Metered Customers Effective through 06/31/17

Meter Size Multiplier Monthly Bond

Debt Fee

¾” 1.00 $ 27.98 1” 1.67 46.73

1 ½” 3.33 93.18 2” 5.33 149.14 3” 10.00 279.81 4” 16.67 466.44 6” 16.67 466.44

Will Serve .60 16.79

Water Ancillary Fee Rates – Metered Customers Effective as of 07/01/17(1)

Meter Size Multiplier Monthly Bond

Debt Fee

¾” 1.00 $ 40.24 1” 1.67 67.20

1 ½” 4.00 160.97 2” 6.33 254.73 3” 14.50 583.50 4” 20.00 804.83 6” 45.00 1,810.86

Will Serve .60 24.14 (1) Beginning July 1, 2017, the Water Ancillary Fee for each meter size/multiplier category will be re-calculated

on an annual basis based on total annual debt service payments resulting from the issuance of bonds for the building of the City’s water treatment plant in 2007. Water Ancillary Fees will be allocated using the number of will serves and the number of customers connected to the Water System at the end of each fiscal year. Payments may fluctuate from year to year as additional customers connect to the Water System and as additional will serves are processed. Therefore, the more customers that are connected to the Water System, the lower the Water Ancillary Fees will be per customer. The Water Ancillary Fees shown above do not take into account any refundings or changes to debt service payments that may occur after December 1, 2017.

Customer Information

User Information and Water Usage by Customer Type. The following table sets forth a history of the Water System users by customer type (by number of bills) and a history of water usage by customer type.

30

History of Water System Users and Water Usage by Customer Type (1)

Fiscal Year Ended June 30, 2013 2014 2015 2016

Residential Accounts Billed (2) 6,070 6,101 6,338 6,378Commercial Accounts Billed (2)

307 306 294 293 Total Billed (2) 6,377 6,407 6,632 6,671

Residential Water Usage (3) 699 795 745 738Commercial Water Usage (3) 329 399 388 358 Total Water Usage (3) 1,028 1,194 1,133 1,096

(1) For fiscal years 2013 to 2016, representing the years for which data is available. (2) Billing as of June 30 of each year. (3) Millions of gallons.

Water System User Fee Revenues by Customer Class. The following table sets

forth Water System revenues generated by customer class for the fiscal year ended June 30, 2016.

Water System User Fee Revenues by Customer Class

Customer Class Revenues Percent of Total Revenues Residential $3,604,818 76% Commercial 1,171,505 24 Total $4,776,323 100%

Sewer System User Fee Revenues by Customer Class. The following table sets forth Sewer System revenues generated by customer class for the fiscal year ended June 30, 2016.

Sewer System User Fee Revenues by Customer Class

Customer Class Revenues Percent of Total Revenues Residential $1,675,033 83% Commercial 348,102 17 Total $2,023,135 100%

Largest Users of the Utility System. The following tables set forth the ten largest customers of the Water System and the Sewer System in fiscal year 2016. No independent investigation has been made of, and consequently there can be no representation as to, the financial condition of the largest System, customers, or their continued usage of the Utility System at significant levels. The City expects that the largest customers for fiscal year 2017 will not be materially different than fiscal year 2016.

31

Ten Largest Water System Customers – 2016

Customer

Total Revenue

% of Total Revenues (1)

City of Fernley $152,283 3.19% Lyon County School District 123,045 2.58 Trex Manufacturing Company 100,435 2.10 Pilot Travel Centers, LLC 68,642 1.44 Veterans Cemetery 52,777 1.10 World Color Fernley 46,767 0.98 Sherwin Williams 45,899 0.96 Hollywood Investments 28,987 0.61 Blue Beacon 24,447 0.51 Essential Industries Inc. 21,307 0.45 TOTAL $664,589 13.91

(1) Based on total Water user fee revenues of $4,776,323 in fiscal year 2016.

Ten Largest Sewer System Customers – 2016

Customer

Total Revenue

% of Total Revenues (1)

Trex Manufacturing Company $22,129 1.1% Lyon County School District 21,472 1.1 Blue Beacon 10,073 0.5 Essential Industries, Inc. 8,207 0.4 Fernley Swimming Pool District 6,731 0.3 Trails End RV & Mobile Home Park 6,024 0.3 Pilot Travel Centers 5,281 0.3 Desert Rose RV Park 5,017 0.2 Fernley RV Park, LLC 3,723 0.2 Silverado Casino Restaurant 3,540 0.2 TOTAL $92,197 4.6%

(1) Based on total Sewer user fee revenues of $2,023,135 in fiscal year 2016. Billing and Collection

Billing Procedure. Property owners are liable for all water and wastewater services provided by the City. Failure to pay the entire amount shown on the monthly bill when due results in a late penalty charge of $10. In addition, the City is entitled to discontinue service to the customer until all delinquent bills, fees and charges have been paid. The City charges a $25 disconnect fee (or $60 for reconnection after hours). All fees due constitute a lien upon the property to which the service is rendered, as well as a debt to the City from the record owner of the property and from the person occupying the premises. This lien is enforced in compliance with the City Code and NRS Chapter 266.

Collections. The collection staff consists of the same customer service specialists that take payments at the counter. Each has been trained in all collection procedures; the specialists have been assigned tasks according to the specific procedures that must be completed daily by the unit, including payment uploads, delinquency lock-offs, payment issues and liens.

32

Other Sources of System Revenue

The City collects several other sources of revenue related to the Utility System, including service fees, disconnect fees, return check fees, late fees, lease fees and “in lieu of” fees. These revenues are deposited into the respective enterprise funds described below.

Combined History of Water Fund and Sewer Fund Revenues and Expenses

The City accounts for water and sewer system revenues in the City’s water and sewer enterprise funds. The following tables present a history of the revenues, expenses and changes in net position for the City’s water and sewer funds for the fiscal years ended June 30, 2012 through 2016. Also included are the City’s budgeted figures for fiscal year 2017 based on final budgets approved by the City Council on May 18, 2016. The information in this table should be read together with the City’s CAFR for the year ended June 30, 2016, and the accompanying notes, which are included as Appendix A hereto. Financial statements for prior years can be obtained from the sources listed in “INTRODUCTION--Additional Information.”

33

Water Fund Summary of Revenues, Expenses and Changes in Net Position

Fiscal Year Ended June 30,

2012 (Audited)

2013 (Audited)

2014 (Audited)

2015 (Audited)

2016 (Audited)

2017 (Budgeted)(2)

Operating Revenues Service fees $6,325,663 $4,925,752 $4,940,786 $4,822,461 $4,776,323 $4,800,000Other revenues 97,966 -- 198,689 207,929 209,528 200,000Bond debt fee revenue (1) -- 3,345,781 -- -- -- -- Total operating revenues 6,423,629 8,271,533 5,139,475 5,030,390 4,985,851 5,000,000 Operating Expenses Salaries and wages 858,238 803,456 859,999 936,082 998,699 922,375Employee benefits 373,844 311,139 368,850 390,932 403,814 476,740Service, supplies and other 1,596,547 1,703,871 1,763,567 1,921,545 1,643,409 2,171,703Depreciation expense 3,246,418 3,230,816 3,192,486 3,167,944 3,174,278 3,256,000 Total operating expenses 6,075,047 6,049,282 6,284,902 6,416,503 6,220,200 6,826,818 Operating Income (Loss) 348,582 2,222,251 (1,045,427) (1,386,113) (1,234,349) (1,826,818) Nonoperating Revenues (Expenses)

Bond debt fee revenue (1) -- -- 3,323,649 3,378,183 3,384,561 2,987,847Connection fee revenue -- -- 59,052 446,296 228,457 200,000Interest income 6,631 12,910 12,631 8,541 30,960 5,000Miscellaneous revenue 250,095 346,183 -- -- -- --Miscellaneous expense (16,810) (4,384) -- -- -- --Other income -- -- 35,076 205,291 202,098 15,000Gain/(loss) on disposals of capital assets -- -- 1,764 -- 11,637 --Interest expense (3,242,454) (3,231,326) (3,138,372) (2,903,107) (2,802,583) (2,490,477) Total nonoperating revenues (expenses) (3,002,538) (2,876,617) 293,800 1,135,204 1,055,130 464,918 Income (loss) before Capital Contributions (2,653,956) (654,366) (751,627) (250,909) (179,219) (1,361,900)Grant Revenue -- -- -- -- 141,494 --Capital Contributions 7,457 29,570 363,126 1,544,753 1,409,193 -- Changes in net position (2,646,499) (624,796) (388,501) 1,293,844 1,371,468 (1,361,900)Net Position, July 1(3) 73,805,706 71,159,207 70,534,411 69,998,868 69,797,211 67,216,007Prior Period Adjustment(4) (147,042) (1,495,501) -- --Net Position, June 30 $71,159,207 $70,534,411 $69,998,868 $69,797,211 $71,168,679 $65,854,107

(1) A Bond Debt Fee was implemented in fiscal year 2012 as water revenues were not sufficient to cover debt service for water

bonds issued to cover the cost of a new water treatment plant. Fees are allocated to all users of the water system including will serves, and are based on meter size. The City reported receipts from the Bond Debt Fee in its operating revenues in its 2013 CAFR. In subsequent years, Bond Debt Fee revenue was reported as a nonoperating revenue. Effective November 14, 2016, the Bond Debt Fee was renamed the Water Ancillary Fee.

(2) Represents fiscal year 2017 budgeted amounts contained in the City’s fiscal year 2017 final budget. See “INTRODUCTION—Forward Looking Statements.”

(3) Budgeted beginning fund balance; does not correlate to the ending fund balance for fiscal year 2016. (4) In 2017, an inadvertent prior period adjustment of $1,495,501 was reflected in the City’s approved budget. Such budget item

related to the prior year’s cumulative effect of implementing GASB 68. Such item has been removed from the table above because it does not relate to any budgeted item for fiscal year 2017.

Source: Derived from the City’s audited financial statements for the fiscal years 2012-16 and the City’s fiscal year 2017

budget.

34

Sewer Fund Summary of Revenues, Expenses and Changes in Net Position


2012 (Audited)

2013 (Audited)

2014 (Audited)

2015 (Audited)

2016 (Audited)

2017 (Budgeted)(1)

Operating Revenues Service fees $1,904,073 $1,929,793 $1,981,631 $2,012,025 $2,023,135 $2,012,000Other revenues -- -- -- 261 65 200 Total operating revenues 1,904,073 1,929,793 1,981,631 2,012,286 2,023,200 2,012,200 Operating Expenses Salaries and wages 313,760 340,917 367,975 438,744 509,073 489,235Employee benefits 165,018 131,470 161,012 179,594 254,414 244,453Service, supplies and other 494,053 550,481 635,695 562,096 569,556 818,782Depreciation expense 1,062,758 1,018,396 995,063 984,995 990,411 1,060,000 Total operating expenses 2,035,589 2,041,264 2,159,745 2,165,429 2,323,454 2,612,470 Operating Income (Loss) (131,516) (111,471) (178,114) (153,143) (300,254) 600,270 Nonoperating Revenues (Expenses) Connection fee revenue -- -- 79,365 547,852 181,523 250,000Interest income 12,695 26,362 20,003 11,820 38,622 250,000Miscellaneous revenue 21 240 -- -- -- --Gain/(loss) on disposals of capital assets -- -- 978 -- 691 --Interest expense (353,802) (355,539) (333,002) (307,369) (256,383) (290,934) Total nonoperating revenues (expenses) (341,086) (328,937) (232,656 252,303 (35,817) (35,934) Income (loss) before Capital Contributions (472,602) (440,408) (410,770) 99,160 (336,071) (636,204)Grant income -- -- -- 10,974 -- --Capital Contributions(3) 669 3,474 -- -- 82,526 -- Changes in net position (471,933) (436,934) (410,770) 110,134 (253,545) (636,204)Net Position, July 1(3) 29,922,310 29,450,377 29,013,443 28,590,458 27,974,044 26,666,079Prior Period Adjustment(4) (12,215) (726,548) -- --)Net Position, June 30 $29,450,377 $29,013,443 $28,590,458 $27,974,044 $27,720,499 $26,029,875

(1) Represents fiscal year 2017 budgeted amounts contained in the City’s fiscal year 2017 final budget. See

“INTRODUCTION—Forward Looking Statements.” (2) Includes System Development Charges. (3) Budgeted beginning fund balance; does not correlate to the ending fund balance for fiscal year 2016. (4) In 2017, an inadvertent prior period adjustment of $726,548 was reflected in the City’s approved budget. Such budget item

related to the prior year’s cumulative effect of implementing GASB 68. Such item has been removed from the table above because it does not relate to any budgeted item for fiscal year 2017.

Source: Derived from the City’s audited financial statements for the fiscal years 2012-16 and the City’s fiscal year 2017

budget.

35

Water and Sewer Budget Trends

Water and sewer budgets are prepared based on projected annual revenues and expenses. Budget versus actual reports are reviewed by staff on a monthly basis and any variances are investigated. Financial reports are presented to the City Council on a quarterly basis. As of November 30, 2016 (42% into the year) water operating revenues reported are at 52% of the fiscal year 2017 budget. Operating expenses (excluding depreciation) are at 36% of the fiscal year 2017 budget. Sewer operating revenues reported are at 43% of the fiscal year 2017 budget and operating expenses (excluding depreciation) are at 38% of the fiscal year 2017 budget. It is important to note that the 2017 water and sewer budgets do not include the approved increases in rates as it was not possible to estimate increases at the time the budgets were adopted.

36

PROPERTY TAX INFORMATION

Property Tax Base and Tax Roll

The State Department of Taxation (“Taxation”) reported the assessed valuation of property within the City for the fiscal year ending June 30, 2017 to be $585,627,293 which represents a 10.59% decrease from the assessed valuation reported for the prior fiscal year.

State law requires that the County assessor reappraise, at least once every five years, all real and secured personal property (other than certain utility owned property which is centrally appraised and assessed by the Nevada Tax Commission). While the law provides that in years in which the property is not reappraised, the County assessor is to apply a factor representing typical changes in value in the area since the preceding year, it is the current policy of the County Assessor to reappraise all real and secured personal property in the County each year. State law requires that property be assessed at 35% of taxable value; that percentage may be adjusted upward or downward by the Legislature. Based on the assessed valuation for fiscal year 2017, the taxable value of all taxable property within the City is $1,673,220,837.

“Taxable value” is defined in the statutes as the full cash value in the case of land and as the replacement cost less straight-line depreciation in the case of improvements to land and in the case of taxable personal property, less depreciation in accordance with the regulations of the Nevada Tax Commission but in no case an amount in excess of the full cash value. Depreciation of improvements to real property must be calculated at 1.5% of the cost of replacement for each year of adjusted actual age up to a maximum of 50 years. Adjusted actual age is actual age adjusted for any addition or replacement. The maximum depreciation allowed is 75% of the cost of replacement. When a substantial addition or replacement is made to depreciable property, its “actual age” is adjusted i.e., reduced to reflect the increased useful term of the structure. The adjusted actual age has been used on appraisals for taxes since 1986-87.

In Nevada, county assessors are responsible for assessments in the counties except for certain properties centrally assessed by the State, which include property owned by railroads, airlines, and utility companies.

History of Assessed Value

The following table illustrates a history of the assessed valuation in the City. However, due to property tax abatement laws enacted in 2005 (described in “Required Property Tax Abatements” below) the taxes collected by taxing entities within the State are capped and there is no longer a direct correlation between tax collections and assessed value.

In fiscal year 2017, after several years of growth, the total assessed valuation of the City declined by 10.6%. The decline is attributable in part to a sizable decrease in centrally-assessed valuation stemming from a reapportionment of taxes related to the Gradient Resources geothermal energy facility. The reapportionment became necessary after taxes in prior years were incorrectly apportioned based on wire miles rather than on asset location within each County as required by NRS 361.320(4). Despite the reduction in centrally-assessed value, the total assessed valuation for residential and commercial property increased for fiscal year 2017.

37

History of Assessed Value – City of Fernley

Fiscal Year

Ended June 30 Total

Assessed Valuation Percent Change

2013 $440,455,995 -- 2014 444,251,962 0.9% 2015 578,659,270 30.3 2016 654,969,102 13.2 2017 585,627,293 (10.6)

Source: Property Tax Rates for Nevada Local Governments - State of Nevada Department of Taxation, Fiscal Years

2012-13 through 2016-17.

Property Tax Collections

General. In Nevada, county treasurers are responsible for the collection of property taxes, and forwarding the allocable portions thereof to the overlapping taxing units within the counties.

Taxes on real property are due on the third Monday in August unless the taxpayer elects to pay in installments on or before the third Monday in August and the first Mondays in October, January, and March of each fiscal year. Penalties are assessed if any taxes are not paid within 10 days of the due date as follows: 4% of the delinquent amount if one installment is delinquent, 5% of the delinquent amount plus accumulated penalties if two installments are delinquent, 6% of the delinquent amount plus accumulated penalties if three installments are delinquent and 7% of the delinquent amount plus accumulated penalties if 4 installments are delinquent. In the event of nonpayment, the county treasurer is authorized to hold the property for two years, subject to redemption upon payment of taxes, penalties and costs, together with interest at the rate of 10% per year from the date the taxes were due until paid. If delinquent taxes are not paid within the two-year redemption period, the county treasurer obtains a deed to the property free of all encumbrances. Upon receipt of a deed, the county treasurer may sell the property to satisfy the tax lien and assessments by local governments for improvements to the property.

Property Tax Collection Information. A history of the County’s tax roll collection record appears in the following table. The County Assessor’s Office does not maintain property tax collection and delinquency figures specific to the City. This table reflects all amounts collected by the County and provides information with respect to the historic collection rates for the County. There is no assurance that collection rates will be similar to the historic collection rates depicted below.

38

Lyon County - Property Tax Levies, Collections and Delinquencies (1)

Fiscal Year Ending June 30

Net Secured

Roll Tax Levy

Current Tax Collections

% of Net Levy

Collected

Collections inSubsequent

Years

Total Tax

Collections

Total Tax Collections as % of Current Levy(2)

2011 $34,129,356 $32,971,201 96.61% $1,098,598 $34,069,798 99.83% 2012 33,956,440 33,111,928 97.51 838,366 33,950,295 99.98 2013 32,011,119 31,337,407 97.90 633,527 31,970,935 99.87 2014 31,491,714 30,791,695 97.78 641,727 31,433,422 99.81 2015 32,516,862 31,980,541 98.35 378,537 32,359,078 99.51 2016 33,617,196 33,083,492 98.41 220,024 33,303,517 99.07

(1) Represents the real and personal property tax roll levies and collections; levy does not include centrally assessed

property. (2) Figured on collections to net levy (actual levy less stricken taxes). Source: Lyon County Treasurer’s Office.

Largest Taxpayers - City of Fernley

The following table represents the ten largest property-owning taxpayers in the City based on fiscal year 2015-16 assessed valuations (most recent data available). The assessed valuations in this table represent both the secured tax roll (real property) and the unsecured tax roll (defined generally as taxable property which does not attach to the real estate, such as business equipment and fixtures, mobile/manufactured homes and airplanes). No independent investigation has been made of, and consequently there can be no representation as to, the financial conditions of the taxpayers listed, or that any such taxpayer will continue to maintain its status as a major taxpayer based on the assessed valuation of its property in the City.

39

Principal Property Owning Taxpayers in the City Fiscal Year 2016-17

Taxpayer

Type of Business

FY 2016-17 Assessed Value

% of Total Assessed Value(1)

Gradient Resources (Patua Project LLC)(2) Utility $11,300,305 1.93% NV Energy Utility 9,596,598 1.64 McCabe Way Irving LLC Et Al Developer 8,402,098 1.43 QG Printing LLC Manufacturer 6,789,848 1.16 Sonterra Development Co. Inc. Developer 6,778,460 1.16 Cole ID Fernley NV LLC General Industrial 5,534,754 0.94 MSC Industrial Direct Co Inc. General Industrial 5,459,257 0.93 Wal-Mart Stores Retail 4,071,251 0.70 Sherwin-Williams Acceptance Corp. Manufacturer 3,813,641 0.65 Lowe’s Retail 3,746,465 0.64 Total $65,492,677 11.18%

(1) Based on the City’s fiscal year 2016-17 assessed valuation of $585,627,293. (2) Gradient Resources Inc. (“Gradient”) protested its assessed value for 2015-2016, and as a result, Gradient’s

assessed value for 2016-2017 is substantially less. Additionally, Gradient’s property is located in both Lyon County and Churchill County. Due to a calculation error with respect to amounts owed to Churchill County, Lyon County will receive no tax revenue from Gradient during fiscal years 2016 through 2018. Due to that same calculation error, the City’s portion due back to Churchill County was $86,593.21. The entire amount was paid in fiscal year 2016. Furthermore, due to certain property tax abatements applicable to Gradient pursuant to NRS 701A.300 through 701A.450,Gradient’s property tax payments will be partially abated through fiscal year 2031. For example, for fiscal year 2017, of the $187,221 in property taxes imposed on Gradient by the City, only $48,777 are required to be paid and the balance have been abated.

Source: State of Nevada Department of Taxation (utilities), and Lyon County Assessment List 2016/17. Property Tax Limitations

Overlapping Property Tax Caps. Article X, Section 2, of the State constitution limits the total ad valorem property taxes levied by all overlapping governmental units within the boundaries of any county (i.e., the State, and any county, city, town, school district or special district) to an amount not to exceed five cents per dollar of assessed valuation ($5 per $100 of assessed valuation) of the property being taxed. Further, the combined overlapping tax rate is limited by statute to $3.64 per $100 of assessed valuation in all counties of the State with certain exceptions that (a) permit a combined overlapping tax rate of up to $4.50 per $100 of assessed valuation in the case of certain entities that are in financial difficulties (or require a combined overlapping tax rate of $5.00 per $100 of assessed valuation in certain circumstances of severe financial emergency); and (b) require that $0.02 of the statewide property tax rate of $0.17 per $100 of assessed valuation is not included in computing compliance with this $3.64 cap. (This $0.02 is, however, counted against the $5.00 cap). State statutes provide a priority for taxes levied for the payment of general obligation bonded indebtedness in any year in which the proposed tax rate to be levied by overlapping units within a county exceeds any rate limitation, and further provide that a reduction must be made by those units for purposes other than the payment of general obligation bonded indebtedness, including interest thereon.

40

Local Government Property Tax Revenue Limitation. State statutes limit the revenues local governments, other than school districts, may receive from ad valorem property taxes for purposes other than paying certain general obligation indebtedness which is exempt from such ad valorem revenue limits. These revenue limitations do not apply to ad valorem taxes levied to repay the Bonds, which are exempt from such ad valorem revenue limits. This rate is generally limited by certain factors. First, the assessed value of property is differentiated between that for property existing on the assessment rolls in the prior year (old property) and new property. Second, the property tax revenue derived in the prior year is increased by no more than 6% and the tax rate to generate the increase is determined against the current assessed value of the old property. Finally, this tax rate is applied against all taxable property to produce the allowable property tax revenues. This cap operates to limit property tax revenue dependent upon changes in the value of old property and the growth and value of new property.

A local government, other than a school district, may exceed the property tax revenue limitation if the proposal is approved by its electorate at a general or special election. In addition, the Executive Director of Taxation will add, to the allowed revenue from ad valorem taxes, the amount approved by the Legislature for the costs to a local government of any substantial programs or expenses required by legislative enactment. In the event sales tax estimates from the Nevada Department of Taxation exceed actual revenues available to local governments, Nevada local governments receiving such sales tax may levy a property tax to make up the revenue shortfall.

The City, the County and the other cities within the County levy various tax overrides as allowed or required by State statutes.

State statutes limit the revenues school districts may receive from ad valorem property taxes for operating purposes. Pursuant to NRS 387.195, each board of county commissioners shall levy a tax of $0.75 per $100 of assessed valuation for the support of the public schools within the County school district. School districts are also allowed additional levies for voter-approved debt service and voter-approved tax overrides for capital projects.

The Nevada Tax Commission monitors the impact of tax legislation on local government services.

Constitutional Amendment - Abatement of Taxes for Severe Economic Hardship. At the November 5, 2002 election, the State’s voters approved an amendment to the State constitution authorizing the Legislature to enact a law providing for an abatement of the tax upon or an exemption of part of the assessed value of an owner-occupied single-family residence to the extent necessary to avoid severe economic hardship to the owner of that residence.

The legislation implementing that amendment provides that the owner of a single-family residence may file a claim with the county treasurer to postpone the payment of all or part of the property tax due against the residence if (among other requirements): the residence has an assessed value of not more than $175,000; the property owner does not own any other real property in the State with an assessed value of more than $30,000; the residence has been occupied by the owner for at least 6 months; the owner is not in bankruptcy; the owner owes no delinquent property taxes on the residence; the owner has suffered severe economic hardship caused by circumstances beyond his control (such as illness or disability expected to last for at least 12 continuous months); and the total annual income of the owner’s household is at or below the

41

federally designated poverty level. The amount of tax that may be postponed may not exceed the amount of property tax that will accrue against the residence in the succeeding three fiscal years. Any postponed property tax (and any penalties and the interest that accrue as provided in the statue) constitutes a perpetual lien against the residence until paid. The postponed tax becomes due and payable if: the residence ceases to be occupied by the claimant or is sold; any non-postponed property tax becomes delinquent; if the claimant dies; or on the date upon which the postponement expires, as determined by the county treasurer. To date, the County Treasurer has not received material requests to postpone the payment of the property tax as described above.

Potential Constitutional Amendment - Senate Joint Resolution 13. Senate Joint Resolution 13 (“SJR 13”), adopted by the 2015 session of the Legislature, proposes to amend the Nevada Constitution. Under Nevada law, constitutional amendments require majority approval by each house of the Legislature in two separate legislative sessions and then majority approval by the general electorate. SJR 13, therefore, will be considered again in the 2017 Legislature. If it is approved again, it is expected that it will be placed on the ballot for the November 2018 general election.

SJR 13 would impose certain additional limitations on property taxes on real property. SJR 13 would, among other things, limit taxes on real property to 1.25% of the “base” value of the property; require a new “uniform and just” valuation of property for taxation; generally limit increases in the property base values to the lesser of 3% per year or the rate of inflation; and require updates to the “base” value of real property upon certain transfers of the property. Many of the provisions of SJR 13 are unclear, however; the amendment will require additional legislation not yet introduced in order to implement. It is not possible to predict at this time whether it will become law, or what its impact will be on the City’s property tax revenue if it does become law, except that by its terms it will not impact the City’s property tax imposed for debt repayment purposes.

Required Property Tax Abatements

General. In 2005, the Legislature approved the Abatement Act (NRS 361.471 to 361.4735), which established formulas to determine whether tax abatements are required for property owners in each year. The general impact of the Abatement Act is to limit increases in ad valorem property tax revenues owed by taxpayers to a maximum of 3% per year for owner-occupied residential properties (and low-income housing properties) and to 8% (or a lesser amount equal to the average annual change in taxable values over the last ten years, as determined by a formula) per year for all other properties. The Abatement Act limits do not apply to new construction. The Abatement Act formulas are applied on a parcel-by-parcel basis each year.

Generally, reductions in the amount of ad valorem property tax revenues levied in the County are required to be allocated among all of the taxing entities in the County in the same proportion as the rate of ad valorem taxes levied for that taxing entity bears to the total combined rate of all ad valorem taxes levied for that fiscal year. However, abatements caused by tax rate increases are to be allocated against the entity that would benefit from the tax increase rather than among all entities uniformly. Revenues realized from new or increased ad valorem taxes that are required by any legislative act that was effective after April 6, 2005, generally are exempt from the abatement formulas. The Abatement Act provides for the recapture of previously abated property tax revenues in certain limited situations.

42

Levies for Debt Service. Revenues resulting from increases in the rate of ad valorem taxes for the payment of tax-secured obligations are exempt from the Abatement Act formulas if increased rates are necessary to pay debt service on the related obligation in any fiscal year if (1) the tax-secured obligations were issued before July 1, 2005; or (2) the governing body of the taxing entity and the County Debt Management Commission make findings that no increase in the rate of an ad valorem tax is anticipated to be necessary for payment of the obligations during their term. Any levy of property taxes needed to repay the Bonds is not exempt from partial abatement.

General Effects of Abatement. Limitations on property tax revenues could negatively impact the finances and operations of the taxing entities in the State, including the City, to an extent that cannot be determined at this time.

Overlapping Tax Rates and General Obligation Indebtedness

Overlapping Tax Rates. The following table presents a history of statewide average tax rates and a representative overlapping tax rate for City. The highest overlapping tax rate in the City currently is $3.6071 in the City of Yerington.

History of Statewide Average and Sample Overlapping Property Tax Rates(1)

Fiscal Year Ended June 30, 2013 2014 2015 2016 2017 Average Statewide rate $3.1304 $3.1212 $3.1232 $3.1360 $3.1500 City of Fernley $0.5469 $0.6169 $0.6169 $0.6695 $0.6705 Lyon County 0.8644 0.9287 0.9287 0.9287 0.9287 Lyon County School District 1.3367 1.3367 1.3367 1.3367 1.3367 Combined Special Districts(2) 0.4803 0.4974 0.4994 0.5001 0.5012 State of Nevada(3) 0.1700 0.1700 0.1700 0.1700 0.1700 Total $3.3983 $3.5497 $3.5517 $3.6050 $3.6071

(1) Per $100 of assessed valuation. (2) Includes levies for the Fernley Swimming Pool District and the North Lyon Fire Maintenance District. (3) $0.0200 of the State rate is exempt from the $3.64 cap. See “Property Tax Limitations” above. Source: Property Tax Rates for Nevada Local Governments - State of Nevada, Department of Taxation, 2011-12

through 2016-17.

Estimated Overlapping General Obligation Indebtedness. In addition to the general obligation indebtedness of the City, other taxing entities are authorized to incur general obligation debt within boundaries that overlap or partially overlap the boundaries of the City. In addition to the entities listed below, other governmental entities may overlap the City but have no general obligation debt outstanding. The following chart sets forth the estimated overlapping general obligation debt (including general obligation medium-term bonds) chargeable to property owners within the City as of December 1, 2016.

43

Estimated Overlapping Net General Obligation Indebtedness

Entity(1)

Total

General Obligation

Indebtedness

Presently Self-Supporting

General Obligation

Indebtedness

Net Direct

General Obligation

Indebtedness

Percent Applicable(2)

Overlapping Net General Obligation

Indebtedness(3) Lyon County $12,033,674 $11,658,776 $ 374,898 37.53% 140,699 Lyon County School District 70,110,000 -- 70,110,000 37.53 26,312,283 State of Nevada $1,468,255,000 $297,845,000 $1,170,410,000 0.55 6,437,255 Total $1,550,398,674 $309,503,776 $1,240,894,898 $32,890,237 (1) Other taxing entities overlap the City and may issue general obligation debt in the future. (2) Based on fiscal year 2017 assessed valuation in the respective jurisdiction. The percent applicable is derived by

dividing the assessed valuation of the City into the assessed valuation of the governmental entity (excluding redevelopment agencies).

(3) Overlapping Net General Obligation Indebtedness equals total existing general obligation indebtedness less presently self-supporting general obligation indebtedness times the percent applicable.

Source: Debt information compiled by the Financial Advisor; percentages calculated using information from

Property Tax Rates for Nevada Local Governments - State of Nevada - Department of Taxation, 2016-17.

44

The following table sets forth the total net direct debt of the City as of December 1, 2016, and assuming the issuance of the Bonds and the defeasance of the Refunded Bonds.

Net Direct & Overlapping General Obligation Indebtedness

Total General Obligation Indebtedness $73,903,092 Less: Self-supporting General Obligation Indebtedness 73,903,092

Net Direct General Obligation Indebtedness $0 Plus: Overlapping Net General Obligation Indebtedness 32,890,237

Net Direct & Overlapping Net General Obligation Indebtedness $32,890,237 Selected Debt Ratios

The following table illustrates selected ratios relating to the City’s outstanding general obligation debt.

Selected Direct General Obligation Debt Ratios

Population(1) ........................................................................................................... 18,936 Net Direct Debt(2)................................................................................................... $0 Overlapping Debt(2)(3) ............................................................................................ 32,890,237 Total Direct Debt & Overlapping Debt ................................................................. $32,890,237 Per Capita Net Direct Debt .................................................................................... $0 Per Capita Net Total Direct Debt & Overlapping Debt ......................................... $1,736.92 2017 Assessed Valuation(4) .................................................................................... $585,627,293 % Net Direct Debt to Assessed Valuation ............................................................. 0% % Net Total Direct Debt & Overlapping Debt to Assessed Valuation .................. 5.62% 2017 Taxable Value(4) ............................................................................................ $1,673,220,837 % Net Direct Debt to Taxable Value ..................................................................... 0% % Net Total Direct Debt & Overlapping Debt to Taxable Value .......................... 1.97%

(1) Nevada State Demographer estimate as of July 1, 2015. (2) As of December 1, 2016. Takes into account the issuance of the Bonds and the Refunding Project. See “DEBT

STRUCTURE—Outstanding Debt and Other Obligations.” Also see the table entitled “Net Direct & Overlapping General Obligation Indebtedness” above.

(3) Figure is estimated based on information supplied by other taxing authorities and does not include self-supporting general obligation debt. See the table “Estimated Overlapping General Obligation Debt.”

(4) See “Property Tax Base and Tax Roll Collection” for an explanation of the Assessed Value and Taxable Value. Sources: Nevada State Demographer website and Nevada Department of Taxation, Property Tax Rates for Nevada

Local Governments, Fiscal Year 2016-17; and the City.

45

THE CITY

General

The City was incorporated in 2001 under the provisions of Nevada Revised Statutes (NRS) Chapter 266. The City is located on Interstate 80, 39 miles east of Reno in the northern part of Lyon County, Nevada (the “County”) and occupies a land area of approximately 164 square miles. The City serves a population of approximately 18,936 according to the Nevada State Demographer’s Office’s 2015 estimates.

The City provides a wide range of services, including construction and maintenance of streets, storm drains and infrastructure; water and sewer services; recreational activities and events; vector and animal control; building and planning services; municipal court services; cemetery services; and general administrative and accounting services.

Governing Body

The City operates under the Council/Manager form of government. Policy-making and legislative authority are vested in a governing council consisting of the Mayor and five City Council members. The City Council is responsible for establishing policy, passing ordinances, adopting the budget, appointing committees and establishing the organizational structure of the City. Pursuant to NRS, the Mayor is the Chief Executive Officer of the City. The City Manager is the Chief Administrative Officer of the City. The City Manager is responsible for carrying out the policies and ordinances of the City Council, for overseeing day-to-day operations of the City and for supervising the heads of various departments. The City Council members are elected by Ward to serve four-year staggered terms. The Mayor is elected citywide to serve a four-year term.

The current mayor and members of the City Council and their terms of office are as follows:

Name and Title Ward Principal Occupation

First Elected/

Appointed

Current Term

ExpiresRoy Edgington, Jr. At large Retired/Firefighter 11/2014 12/2018Shari Whalen I School Teacher 11/2014 12/2018Dan McCassie II Small Business Owner 11/2012 12/2020Stan Lau III Engineering Technician 11/2014 12/2018Susan Seidl IV Retired/Customs Director 11/2012 12/2020Fran McKay V Semi Retired/Real Estate Broker 11/2016 12/2020

46

Administration

The City Manager is appointed by the City Council and is charged with performing such administrative duties as the City Council may designate and may appoint such clerical and administrative assistants as he may deem necessary, subject to the approval of the City Council. The City Manager is responsible for the City’s policy direction and strategic planning and also oversees the day-to-day operations of the City. Other administrative positions in City government appointed by the City Council are the City Treasurer, the City Attorney and the City Clerk.

Brief biographies of selected City administrators follow.

Daphne Emm-Hooper, City Manager. Daphne Hooper was appointed Fernley City Manager on March 4, 2015. She joined the City as the Human Resources Director and Risk Manager in 2011. She served as Interim City Manager from May 2012 to February 2013 during which time she planned, directed, managed, and oversaw the activities and operations of the City under the policy direction of the Mayor and the City Council. She was subsequently appointed Assistant City Manager overseeing Human Resources, Risk Management and Water Policy. Ms. Hooper holds a Master of Science in Community Economic Development from Southern New Hampshire University, a Master of Arts in Organizational Management from the University of Phoenix-Reno, and a Bachelor of Arts in Political Science from the University of California, Davis. She also holds an Associate’s Degree from Shasta College.

Denise Lewis, City Treasurer. Denise Lewis was appointed Fernley City Treasurer on September 5, 2012. She joined the City as the Chief Financial Officer and Director of Finance in addition to City Treasurer under the direction of the Mayor and City Council. During her time at the City, she has managed the finance department and all functions and managed the utility billing department until June 2015. Ms. Lewis holds a Master of Business Administration/Accounting from the University of Phoenix, a Bachelor of Arts in Criminal Justice Administration from the University of Nevada, Reno and an Associate Degree from Modesto Junior College. She worked in public accounting for five and a half years and was the Controller of another local government for almost six years. She has over 15 years of government accounting experience and over ten years of experience in business operations and management.

Kim Swanson, City Clerk. Kim Swanson joined the City of Fernley as a part time Recording Secretary in December 2001, shortly after the City’s incorporation. In July of 2004 she became the City’s first Deputy City Clerk. In April 2011 Ms. Swanson was appointed Acting City Clerk and in September 2012 she was appointed Fernley City Clerk under the direction of the Mayor and City Council. Ms. Swanson earned her Certified Municipal Clerk designation in 2010 through the University of Nevada Reno and the International Institute of Municipal Clerks.

Brandi Jensen, City Attorney. Brandi Jensen was appointed Fernley City Attorney on March 10, 2011. She serves the City by managing the prosecution of criminal cases and by serving as the legal advisor to the City regarding all contracts, human resources matters, financial legal issues, and public works and planning matters under the policy direction of the Mayor and the City Council. Ms. Jensen holds a Bachelor of Arts in Criminal Justice as well as a Juris Doctorate, both from the University of Nevada, Las Vegas. Ms. Jensen has served as a governmental attorney since 2003.

47

Employee Relations and Pension Benefits

Employee Relations. As of December 1, 2016, the City had 57 full time employees and 5 part-time employees. The City is an equal-opportunity/affirmative action employer with one employee bargaining unit that covers 45 full time employees. The City has an active labor contract with IBEW Local 1245, which expires on June 30, 2017.

The state of employee relations continues to be positive; the labor group has continued to work collaboratively to help maintain a balanced approach to the City’s benefits and compensation structure.

Benefits. The City provides certain benefits to its employees, including health, dental and vision insurance, through Anthem Blue Cross and Blue Shield, a health insurance company. The City also provides life, accidental death, workers’ compensation, a 457b deferred compensation plan and PERS retirement plan contributions (described below) as required by State law.

Pension Matters. The State Public Employees’ Retirement System (“PERS”) covers substantially all public employees of the State, its agencies and its political subdivisions, including the City. PERS, established by the Legislature effective July 1, 1948, is governed by the Public Employees’ Retirement Board whose seven members are appointed by the Governor. Retirement Board members serve for a term of four years. Except for certain City specific information set forth below, the information in this section has been obtained from publicly-available documents provided by PERS. The City has not independently verified the information obtained from the publicly available documents provided by PERS and is not responsible for its accuracy.

All public employees who meet certain eligibility requirements participate in PERS, which is a cost sharing multiple-employer defined benefit plan. Benefits, as required by statute, are determined by the number of years of accredited service at the time of retirement and the member’s highest average compensation. Benefit payments to which participants may be entitled under PERS include pension benefits, disability benefits, and death benefits. PERS has several tiers based on legislative changes effective with membership dates. The following table illustrates the PERS service credit multiplier.

PERS Benefit Multiplier

Membership Date

Service Credit Multiplier Before

07/01/01 After 07/01/01 After 01/01/10 After 07/01/15Highest Contiguous

Average Over

Before July 1, 2001 2.50% 2.67% 2.67% 2.67% 36 months

After July 1, 2001, before January 1, 2010

-- 2.67% 2.67% 2.67% 36 months

After January 1, 2010, before

July 1, 2015 -- -- 2.50% 2.50% 36 months

After July 1, 2015

Regular Police/Fire

-- -- --

2.25% 2.50%

36 months

48

Similarly, legislative changes have created several tiers of retirement eligibility thresholds. The following table illustrates the PERS retirement eligibility thresholds:

Nevada PERS Retirement Eligibility

Membership Date Regular Police/Fire Age Years of Service Age Years of Service

Before January 1, 2010 65 60

Any

5 10 30

65 55 50

Any

5 10 20 25

After January 1, 2010,

before July 1, 2015 65 62

Any

5 10 30

65 60 50

Any

5 10 20 30

After July 1, 2015 65

62 55

Any

5 10 30

33 1/3

65 60 50

Any

5 10 20

33 1/3

Nevada law requires PERS to conduct a biennial actuarial valuation showing

unfunded actuarial accrued liability (“UAAL”) and the contribution rates required to fund PERS on an actuarial reserve basis. The actual employer and employee contribution rates are established in cycle with the State’s biennium budget on the first full pay period of the even numbered fiscal years. By PERS policy, the system actually performs an annual actuary study. The most recent independent actuarial valuation report of PERS was completed as of June 30, 2016. The following table reflects some of the key valuation results from the last three PERS’ actuary studies:

PERS Actuarial Report

Key Valuation Results June 30, 2016 June 30, 2015 June 30, 2014 June 30, 2013 UAAL $12.56 billion $12.35 billion $12.53 billion $12.88 billion Market Value Funding Ratio 72.2% 75.1% 76.3% 68.7% Actuarial Value Funding Ratio 74.1% 73.2% 71.5% 69.3% Assets Market Value $35.00 billion $34.61 billion $33.58 billion $28.83 billion Assets Actuarial Value $35.90 billion $33.72 billion $31.47 billion $29.11 billion

For the purpose of calculating the actuarially determined contribution rate, the UAAL is amortized as a level percent of payroll over a year-by-year closed amortization period where each amortization period is set at 20 years. The amortization period prior to fiscal year 2012 was 30 years. Effective starting fiscal year 2012, the PERS Board adopted a shorter amortization period to be used to amortize new UAAL resulting from actuarial gains or losses and changes in actuarial assumptions. Any new UAAL is amortized over a period equal to the truncated average remaining amortization period of all prior UAAL layers, until the average remaining amortization period is less than 20 years; after that time, 20-year amortization periods will be used. The current combined, effective average amortization period for regular members and police/fire members is 20.7 years. The PERS Board also adopted a five-year asset smoothing policy for net deferred gains/losses. As of June 30, 2015, PERS has unrecognized investment gains of $893 million. Unless offset by future investment losses or other unfavorable experience,

49

the recognition of the $893 million in market gains is expected to increase the future actuarial funded ratio and decrease the future contribution rate.

For the year ended June 30, 2014, PERS adopted Governmental Accounting Standards Board Statement (“GASB”) No. 67, Financial Reporting for Pension Plans-an amendment of GASB Statement No. 25 (“GASB 67”). GASB 67 replaces the requirements of GASB Statement Nos. 25 and 50 as they relate to pension plans that are administered through trusts or equivalent arrangements that meet certain criteria. The objective of GASB 67 is to improve financial reporting by state and local governmental pension plans. It requires enhancement to footnote disclosure and required supplementary information for pension plans.

Prior to these new standards, the accounting and reporting requirements of the

pension related liabilities followed a long-term funding policy perspective. The new standards separate the accounting and reporting requirements from the funding decisions and require the unfunded portion of the pension liability to be apportioned among the participating employers. These standards apply for financial reporting purposes only and do not apply to contribution amounts for pension funding purposes.

With the implementation of GASB 67, PERS reported its total pension liability, fiduciary net position, and net pension liability in its Comprehensive Annual Financial Report for the fiscal year ended June 30, 2014. The total pension liability for financial reporting was determined on the same basis as the Actuarial Accrued Liability measure for funding. The fiduciary net position is equal to the market value of assets.

Effective with fiscal year 2015, the City was required to apply the GASB Statement No. 68, Accounting and Financial Reporting for Pensions-an amendment of GASB Statement No. 27 (“GASB 68”), to its audited financial statements. Among other requirements, the City was required to report its proportionate share of the total PERS net pension liability in its financial statements.

The following presents the net pension liability of PERS as of June 30, 2015, and the City’s proportionate share of the net pension liability of PERS as of June 30, 2015, calculated using the discount rate of 8.00%, as well as what the PERS net pension liability would be if it were calculated using a discount rate that is one percentage point lower (7.00%) or one percentage point higher (9.00%) than the current discount rate.

Net Pension Liability as of June 30, 2015

1% Decrease in

Discount Rate (7%) Discount Rate (8%) 1% Increase in

Discount Rate (9%)

PERS Net Pension Liability $17,461,886,995 $11,459,436,845 $6,467,980,371 City Share of PERS Net

Pension Liability $8,833,008

$5,796,699

$3,2371,796

Contribution rates to PERS are established in accordance with State statute. The statute allows for biennial increases or decreases of the actuarially determined rate. The State Legislature can increase the contribution rate for members by any amount it determines necessary. Pursuant to statute, there is no obligation on the part of the employers to pay for their proportionate

50

share of the unfunded liability. The City is obligated to contribute all amounts due under the PERS. A history of contribution rates is shown below.

Fiscal Years 2008 and 2009





Regular members Employer-pay plan 20.50% 21.50% 23.75% 25.75% 28.00%

The City’s contributions to PERS for the last five fiscal years are as follows:

Fiscal Year 2012

Fiscal Year 2013

Fiscal Year 2014

Fiscal Year 2015

Fiscal Year 2016

$628,641 $665,231 $715,473 $780,795 $912,020

The City has budgeted $893,874 in PERS contributions for the fiscal year ended June 30, 2017, which is equal to the required contribution for that year.

See Note 10 in the audited financial statements attached hereto as Appendix A for additional information on PERS. In addition, copies of PERS’ most recent annual financial report, including audited financial statements and required supplemental information, are available from the Public Employees Retirement System of Nevada, 693 West Nye Lane, Carson City, Nevada 89703-1599, telephone: (775) 687-4200.

Other Postemployment Benefits. The City also makes available certain post-retirement health insurance and other non-pension benefits (“OPEB”) to employees who retire under PERS and elect to receive and pay for these benefits. Effective July 1, 2007, the City was required to implement Governmental Accounting Standards Board Statement No. 45 - Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions (“GASB 45”). GASB 45 addresses how the City should account for and report its costs related to OPEB. GASB 45 requires the City to accrue the cost of the OPEB subsidy during the period of active employment (while the benefits are being earned) and disclose the unfunded actuarial accrued liability (the “UAAL”) in order to accurately account for the total future costs of OPEB and the financial impact on the City. See Note 8 of Appendix A for a detailed description of the City’s OPEB plan, its funding policy, annual costs, and associated UAAL (including significant methods and assumptions of the actuarial valuation). Also see the Required Supplementary Information in Appendix A for a history of the City’s UAAL and other statistical information.

51

CITY FINANCIAL INFORMATION

Annual Reports

General. The City prepares a comprehensive annual financial report (“CAFR”) setting forth the financial condition of the City as of June 30 of each fiscal year. The CAFR is the official financial report of the City. It was prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) as applied to governmental units. The Governmental Accounting Standards Board (“GASB”) is the standard setting body for governmental accounting and financial reporting. See Note 1 in the audited financial statements attached hereto as Appendix A for a description of the City’s significant accounting policies. Audited financial statements for prior years (and the City’s CAFRs) may be obtained from the sources listed in “INTRODUCTION--Additional Information.” The latest completed CAFR report is for the year ended June 30, 2016, which is attached hereto as Appendix A.

Awards. The Government Finance Officers Association (“GFOA”) of the United States and Canada awarded a Certificate of Achievement for Excellence in Financial Reporting to the City for its comprehensive annual financial report for the fiscal year ended June 30, 2015. This was the eleventh consecutive year that the City has received this recognition. A Certificate of Achievement is valid for a period of one year only. The City intends to submit its 2016 CAFR for award consideration.

In order to be awarded a Certificate of Achievement, a governmental unit must publish an easily readable and efficiently organized comprehensive annual financial report with contents conforming to program standards. Such reports must satisfy both generally accepted accounting principles and applicable legal requirements.

Budgeting

General. The annual budget serves as the foundation for the City of Fernley’s financial planning and control. All departments of the City of Fernley are required to submit requests for appropriation to the City Manager and Treasurer in January of each year. The two use those requests as the starting point for developing a proposed budget. A series of City Council workshops are held to discuss the budget and during those workshops, the City Manager, the City Treasurer and department heads present their proposed budgets to the City Council for review. The City Council is required to hold a public hearing on the proposed budget and then adopt a final budget by no later than June 1 of each year. The appropriated budget is a policy document prepared by fund, function, and department. Department heads may make transfers of appropriations and depending on the department, function and fund, the City Treasurer or the City Council may authorize the transfer of appropriations.

Accounting

The City’s government-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Property taxes are recognized as revenues in the year for which they are levies. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met.

52

The City’s governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenues are recognized as soon as they are both measureable and available. Revenues are considered to be available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. Accounting records for the City’s utilities and other enterprises are maintained on the accrual basis.

General Fund

The purpose of the general fund is to finance the ordinary operations of the City (including debt service to the extent that the ad valorem tax levy is not sufficient to service general obligation debt) and to finance those operations not provided for in other funds. Included are all transactions related to the approved current operating budget, its accompanying revenue, expenditures and encumbrances, and its related asset, liability, and fund equity accounts.

As shown in Appendix A, the City has numerous other funds, the largest of which are the Capital Projects Funds and the Enterprise Funds. Moneys on deposit in the Capital Projects Funds are used for the acquisition or construction of major capital facilities. Moneys on deposit in the Enterprise Funds are used for operations that are financed and operated in a manner similar to private business enterprises - where the intent of the City is that the costs (expenses, including depreciation) of providing goods and services to the general public on a continuing basis be financed or recovered primarily through user charges; or where the governing body has decided that periodic determination of revenues earned, expenses incurred, and/or net income is appropriate for capital maintenance, public policy, management control, accountability, or other purposes.

GASB 54. Effective for fiscal year 2011, the City adopted the provisions of Governmental Accounting Standards Board Statement No. 54, Fund Balance Reporting and Governmental Fund Type Definitions (“GASB 54”). GASB 54 changed the way the City reports fund balance classifications and restrictions. As prescribed by GASB 54, the governmental funds report fund balance in classifications based primarily on the extent to which the City is bound to honor constraints on the specific purposes for which amounts in the funds can be spent.

For fiscal years 2011 and later, the City’s General Fund balance is categorized as “Nonspendable” and “Assigned” and “Unassigned.” GASB 54 also allows fund balance to be categorized as “Restricted” and “Committed.” Generally, “Nonspendable” fund balance includes amounts that are (a) not in spendable form, or (b) legally or contractually required to be maintained intact. The “not in spendable form” criterion includes items that are not expected to be converted to cash, for example: inventories, prepaid amounts, and long-term notes receivable. “Assigned” fund balance includes amounts intended to be used by the City for specific purposes that are neither restricted nor committed. The City Manager or the Finance Director has the authority to assign fund balance for specific purposes. See Note No. 1 in the audited financial statements attached hereto as Appendix A for further details regarding each of these fund balance categories.

History of City Revenues and Expenditures

General. The following table presents a history of the City’s General Fund revenues, expenditures and changes in fund balance for the fiscal years ended June 30, 2012 through 2016. The table also provides the City’s budgeted amounts for fiscal year 2017.

53

The information in this table is provided for informational purposes only and does not imply that all of the revenues shown below are legally available to pay debt service on the Bonds. The information in this table should be read together with the City’s CAFR for the year ended June 30, 2016, and the accompanying notes, which are included as Appendix A hereto. Financial statements for prior years can be obtained from the sources listed in “INTRODUCTION--Additional Information.”

54

General Fund Summary of Revenues, Expenditures and Changes in Fund Balance


2012 (Audited)

2013 (Audited)

2014 (Audited)

2015 (Audited)

2016 (Audited)

2017 Budgeted

Revenues Taxes $1,868,511 $1,909,538 $2,143,338 $2,231,326 $2,500,455 $2,332,108Licenses and permits 1,483,489 1,578,429 1,867,564 1,798,242 1,973,548 1,936,000Intergovernmental revenue 869,209 488,569 848,212 1,059,067 1,944,459 3,147,808Fines & forfeitures 147,010 85,638 124,395 217,404 223,166 216,733Other revenues 91,422 112,574 170,331 220,218 100,135 72,680 Total Revenues 4,459,641 4,174,748 5,153,840 5,526,257 6,741,763 7,705,329 Expenditures General government 1,629,090 2,276,007 1,933,656 1,974,369 1,894,419 2,127,046Public works 0 0 1,013,580 1,053,634 2,607,595 4,848,839Judicial 200,220 201,618 216,305 244,702 301,785 325,886Health 200,427 176,523 154,897 191,041 212,740 215,266Culture & Recreation 617,960 651,391 600,093 642,673 623,578 843,350Community development 434,379 397,563 414,701 471,438 444,875 523,416Debt service 4,390,129 171,015 178,415 368,060 367,325 367,435Cost Sharing (Water/Sewer) -- -- -- -- (101,525) (83,862)Capital outlay 800,340 56,529 -- -- -- -- Total Expenditures 8,272,545 3,930,646 4,511,647 4,945,917 6,350,792 9,167,376 Excess (deficiency) of revenues over expenditures (3,812,904) 244,103 642,193 580,340 (390,971) (1,462,047)

Other Financing (Uses) Operating Transfers In/Out 205 -- 105,507 11,051 -- --Contingency -- -- -- -- -- (275,021)Proceeds Sale of Capital Assets -- -- -- -- -- --Proceeds from insurance -- 40,624 -- -- -- --Proceeds from bond issuance 4,010,000 -- -- -- -- --Capital projects fund -- -- -- -- -- -- Total 4,010,205 40,624 105,507 11,051 -- (275,021)

Excess (Def.) of Rev. over Expend. & Other Financing Uses 197,301 284,727 747,700 591,391 390,971 (1,737,068) Fund Balance, July 1(1) 1,594,029 1,791,330 2,408,436 3,156,136 3,808,619 3,804,324Prior Period Adjustment -- 332,379 -- 61,092 19,656 --Fund Balance, June 30 $1,791,330 $2,408,436 $3,156,136 $3,808,619 $4,219,246 $2,067,256 Committed(2) -- -- 1,541,178 2,982,946 3,174,349 1,442,851 Restricted(2) 342,123 342,125 342,572 370,168 419,398 160,614 Assigned(2) 1,449,207 1,449,207 405,310 47,349 166,089 -- Nonspendable(2) -- -- 25,250 10,812 29,922 30,000 Unassigned(2) -- 617,104 841,826 397,344 429,488 433,791

(1) The implementation of GASB 54 has changed the categories for restriction of fund balance. (2) Budgeted beginning fund balance for fiscal year 2017; does not correlate to the ending fund balance for fiscal year 2016.

Source: Derived from the City’s audited financial statements for the fiscal years 2012-16 and the City’s fiscal year 2017 budget.

55

Investment Policy

Cash temporarily idle during the year is invested in the Local Government Pooled Long-Term Investment Account (NVEST) and the Nevada Local Government Investment Pool (LGIP). In investing public monies, the City follows NRS investment guidelines. The City’s investment policy is to minimize credit and market risks while maintaining a competitive yield on its portfolio. The City’s bank deposits are covered by FDIC insurance and are collateralized. LGIP and NVEST deposits are collateralized by the Office of the State Treasurer/Nevada Collateral Pool.

Risk Management

State and local governments are subject to many types of claims such as workers’ compensation, contractual actions, personal injuries, property damage and employee benefits. The City has joined together with similar public agencies (cities, counties and special districts) throughout the State of Nevada to create a pool under the Nevada Interlocal Cooperation Act. The Nevada Public Agency Insurance Pool (Pool) is a public entity risk pool currently operating as a common risk management and insurance program for its members. The City pays an annual premium and specific deductibles, as necessary, to the Pool for its general insurance coverage. The Pool is considered a self-sustaining risk pool that will provide coverage for its members for up to $10,000,000 per event and a $13,000,000 general aggregate per member.

The City has also joined together with similar public agencies, under the Nevada Interlocal Cooperation Act, to create an intergovernmental self-insured association for worker’s compensation insurance, the Public Agency Compensation Trust (PACT). The City pays premiums based on payroll costs to the PACT. The PACT is considered a self-sustaining pool that will provide coverage based on established statutory limits.

The City continues to carry commercial insurance for other risks of loss, including specific risks of loss not covered by the Pool, including bonding and employee health and accident insurance. Settled claims resulting from these risks have not exceeded commercial coverage for the past three years.

56

DEBT STRUCTURE

Debt Limitation

State statutes limit the aggregate principal amount of the City’s general obligation debt to 30% of the City’s total assessed valuation. The following table presents a record of the City’s outstanding general obligation indebtedness with respect to its statutory debt limitation.

Statutory Debt Limitation

Fiscal Year Ended

June 30

Assessed Valuation(1)

Debt Limit

Outstanding General Obligation Debt (1)

Additional Statutory Debt

Capacity 2011 $448,105,998 $134,431,799 $78,951,241 $55,480,558 2012 458,273,479 137,482,044 77,186,912 60,295,132 2013 440,455,995 132,136,799 75,435,000 56,701,799 2014 444,251,962 133,275,589 73,690,000 59,585,589 2015 578,659,270 173,597,781 73,005,000 100,592,781 2016 654,969,102 196,490,731 72,249,087 124,241,644 2017 585,627,293 175,688,188 73,813,092(2) 101,875,096

(1) The City’s outstanding general obligation debt consists entirely of general obligation revenue bonds. (2) As of December 1, 2016 and prior to the issuance of the Bonds and the defeasance of the Refunded Bonds. Such

figure also includes the 2017 Sewer Bond. See “Outstanding Indebtedness and Other Obligations” below. Source: The City; compiled by the Financial Advisor.

57

Outstanding Debt and Other Obligations

Outstanding Debt. The following table presents the outstanding indebtedness of the City as of December 1, 2016, upon the issuance of the Bonds and the defeasance of the Refunded Bonds (and also includes the issuance of the 2017 Sewer Bond).

Outstanding General Obligation Debt and Other Obligations(1) As of December 1, 2016

Date

Issued Final

Maturity Original Amount

Amount Outstanding

GENERAL OBLIGATION REVENUE BONDS (2) Water & Sewer Bonds, Series 2007 03/01/07 02/01/37 $50,000,000 $1,190,000 Water & Sewer Bonds, Series 2008 04/01/08 02/01/38 32,600,000 1,610,000 Water and Sewer Refunding Bonds, Series 2014 10/23/14 02/01/26 12,865,000 12,655,000 Sewer Refunding Bonds, Series 2015A 08/06/15 02/01/38 5,807,691 5,773,092 Water Refunding Bonds, Series 2015B 11/04/15 02/01/38 37,665,000 37,665,000 Water and Sewer Refunding Bonds, Series 2016 11/03/16 02/01/37 9,085,000 9,085,000 Sewer Bonds, Series 2017(3) -- -- 1,500,000 1,500,000 Water and Sewer Refunding Bonds, Series 2017 (this issue) 01/26/17 02/01/37 4,425,000 4,425,000 TOTAL $73,903,092

(1) Upon the issuance of the Bonds and the defeasance of the Refunded Bonds. (2) General obligation bonds secured by the full faith, credit and taxing power of the City. The ad valorem tax

available to pay these bonds is limited to the $3.64 statutory and the $5.00 constitutional limit. See “PROPERTY TAX INFORMATION--Property Tax Limitations.” These bonds are additionally secured by specified pledged revenues; if revenues are not sufficient, the City is obligated to pay the difference between such revenues and the debt service requirements of the respective bonds.

(3) The City’s Sewer Bond, Series 2017 (the “2017 Sewer Bond”) was issued on January 11, 2017 and has thus been included in the chart above. The 2017 Sewer Bond is structured as a draw-down loan with a maximum draw amount of $1,500,000. For purposes of the above table, the full amount of the loan is assumed to have been drawn and be outstanding.

Source: The City; compiled by the Financial Advisor.

Other Obligations. In addition to the obligations illustrated in the table above, the City currently has an installment purchase agreement outstanding in the aggregate principal amount of $2,981,000 for a refunding of a City Hall project. The City’s obligation under this agreement is payable from legally available City revenues and is subject to annual appropriation by the City.

The City also records long-term liabilities for compensated absences, OPEB liability, and other claims payable. See Note 7 in the audited financial statements attached hereto as Appendix A for further information.

Additional Contemplated Indebtedness

The City may issue general obligation bonds by means of authority granted to it by its electorate or the State Legislature or, under certain circumstances, without an election as provided in existing statutes. The City reserves the privilege of issuing general obligation bonds or

58

other securities any time legal requirements are satisfied. In addition, the City reserves the ability to issue bonds for refunding purposes at any time.

Annual Debt Service Requirements

Set forth below is a summary of the debt service requirements for the City’s outstanding general obligation bonds, upon the issuance of the Bonds and the defeasance of the Refunded Bonds. The table excludes any pro forma debt service for the City’s 2017 Sewer Bond but payments on the 2017 Sewer Bond are expected to begin amortizing in fiscal year 2019 or 2020 in the approximate annual amount of $100,000.

Annual Debt Service Requirements - General Obligation Bonds(1)(2)(3)

Fiscal Year General Obligation

Ending Revenue Bonds

June 30 Principal Interest Total 2017 2,241,300.00 1,110,848.68 3,352,148.68 2018 2,474,354.00 2,400,857.72 4,875,211.72 2019 2,572,318.00 2,294,752.42 4,867,070.42 2020 2,668,640.00 2,194,482.22 4,863,122.22 2021 2,779,719.00 2,073,499.98 4,853,218.98 2022 2,794,146.00 1,948,415.16 4,742,561.16 2023 2,888,587.00 1,853,532.29 4,742,119.29 2024 2,987,436.00 1,755,523.76 4,742,959.76 2025 3,068,321.00 1,680,620.83 4,748,941.83 2026 3,164,227.00 1,603,712.99 4,767,939.99 2027 3,251,946.00 1,519,209.88 4,771,155.88 2028 3,421,518.00 1,365,750.75 4,787,268.75 2029 3,560,636.00 1,234,719.32 4,795,355.32 2030 3,693,154.00 1,098,282.97 4,791,436.97 2031 3,790,150.00 989,843.78 4,779,993.78 2032 3,901,438.00 874,349.79 4,775,787.79 2033 4,022,173.00 751,013.29 4,773,186.29 2034 4,148,550.00 622,399.97 4,770,949.97 2035 4,294,426.00 488,823.03 4,783,249.03 2036 4,439,668.00 345,131.71 4,784,799.71 2037 4,584,258.00 203,878.49 4,788,136.49 2038 1,656,127.00 58,247.53 1,714,374.53 Total 72,403,092.00 28,467,896.56 100,870,988.56

(1) Upon the issuance of the Bonds and the defeasance of the Refunded Bonds. For fiscal year 2017, $25,995 in

principal payments and $1,329,183 in interest payments have already been made on the Outstanding Parity Securities.

(2) Totals may not add due to rounding. (3) The above table excludes any pro forma debt service on the City’s 2017 Sewer Bond but payments on the 2017

Sewer Bond are expected to begin amortizing in fiscal year 2019 or 2020 in the approximate annual amount of $100,000.

Source: Compiled by the Financial Advisor.

59

TAX MATTERS

Federal Tax Matters

In the opinion of Bond Counsel, assuming continuous compliance with certain covenants described below, interest on the Bonds is excluded from gross income under federal income tax laws pursuant to Section 103 of the Tax Code and interest on the Bonds is excluded from alternative minimum taxable income as defined in Section 55(b)(2) of the Tax Code except that such interest is required to be included in calculating the “adjusted current earnings” adjustment applicable to corporations for purposes of computing the alternative minimum taxable income of corporations as described below.

The Tax Code imposes several requirements which must be met with respect to the Bonds in order for the interest thereon to be excluded from gross income and alternative minimum taxable income (except to the extent of the aforementioned adjustment applicable to corporations). Certain of these requirements must be met on a continuous basis throughout the term of the Bonds. These requirements include: (a) limitations as to the use of proceeds of the Bonds; (b) limitations on the extent to which proceeds of the Bonds may be invested in higher yielding investments; and (c) a provision, subject to certain limited exceptions, that requires all investment earnings on the proceeds of the Bonds above the yield on the Bonds to be paid to the United States Treasury. The City will covenant and represent in the Bond Ordinance that it will take all steps to comply with the requirements of the Tax Code to the extent necessary to maintain the exclusion of interest on the Bonds, respectively, from gross income and alternative minimum taxable income (except to the extent of the aforementioned adjustment applicable to corporations) under such federal income tax laws in effect when the Bonds are delivered. Bond Counsel’s opinion as to the exclusion of interest on the Bonds from gross income and alternative minimum taxable income (to the extent described above) is rendered in reliance on these covenants, and assumes continuous compliance therewith. The failure or inability of the City to comply with these requirements could cause the interest on the Bonds to be included in gross income, alternative minimum taxable income or both from the date of issuance. Bond Counsel’s opinion also is rendered in reliance upon certifications of the City and other certifications furnished to Bond Counsel. Bond Counsel has not undertaken to verify such certifications by independent investigation.

Section 55 of the Tax Code contains a 20% alternative minimum tax on the alternative minimum taxable income of corporations. Under the Tax Code, 75% of the excess of a corporation’s “adjusted current earnings” over the corporation’s alternative minimum taxable income (determined without regard to this adjustment and the alternative minimum tax net operating loss deduction) is included in the corporation’s alternative minimum taxable income for purposes of the alternative minimum tax applicable to the corporation. “Adjusted current earnings” includes interest on the Bonds.

The Tax Code contains numerous provisions which may affect an investor’s decision to purchase the Bonds. Owners of the Bonds should be aware that the ownership of tax-exempt obligations by particular persons and entities, including, without limitation, financial institutions, insurance companies, recipients of Social Security or Railroad Retirement benefits, taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry tax-exempt obligations, foreign corporations doing business in the United States and certain “subchapter S” corporations may result in adverse federal and state tax consequences. Under Section 3406 of the Tax Code, backup withholding may be imposed on payments on the Bonds

60

made to any owner who fails to provide certain required information, including an accurate taxpayer identification number, to certain persons required to collect such information pursuant to the Tax Code. Backup withholding may also be applied if the owner underreports “reportable payments” (including interest and dividends) as defined in Section 3406, or fails to provide a certificate that the owner is not subject to backup withholding in circumstances where such a certificate is required by the Tax Code. All of the Bonds were sold at a premium, representing a difference between the original offering price of those Bonds and the principal amount thereof payable at maturity. Under certain circumstances, an initial owner of such bonds (if any) may realize a taxable gain upon their disposition, even though such bonds are sold or redeemed for an amount equal to the owner’s acquisition cost. Bond Counsel’s opinion relates only to the exclusion of interest on the Bonds from gross income and alternative minimum taxable income as described above and will state that no opinion is expressed regarding other federal tax consequences arising from the receipt or accrual of interest on or ownership of the Bonds. Owners of the Bonds should consult their own tax advisors as to the applicability of these consequences.

The opinions expressed by Bond Counsel are based on existing law as of the delivery date of the Bonds. No opinion is expressed as of any subsequent date nor is any opinion expressed with respect to pending or proposed legislation. Amendments to the federal or state tax laws may be pending now or could be proposed in the future that, if enacted into law, could adversely affect the value of the Bonds, the exclusion of interest on the Bonds from gross income or alternative minimum taxable income or both from the date of issuance of the Bonds or any other date, the tax value of that exclusion for different classes of taxpayers from time to time, or that could result in other adverse tax consequences. In addition, future court actions or regulatory decisions could affect the tax treatment or market value of the Bonds. Owners of the Bonds are advised to consult with their own tax advisors with respect to such matters.

The Internal Revenue Service (the “Service”) has an ongoing program of auditing tax-exempt obligations to determine whether, in the view of the Service, interest on such tax-exempt obligations is includable in the gross income of the owners thereof for federal income tax purposes. No assurances can be given as to whether or not the Service will commence an audit of the Bonds. If an audit is commenced, the market value of the Bonds may be adversely affected. Under current audit procedures the Service will treat the City as the taxpayer and the Bond owners may have no right to participate in such procedures. The City has covenanted in the Bond Ordinance not to take any action that would cause the interest on the Bonds to lose its exclusion from gross income for federal income tax purposes or lose its exclusion from alternative minimum taxable income except to the extent described above for the owners thereof for federal income tax purposes. None of the City, the Financial Advisor, Bond Counsel or Special Counsel is responsible for paying or reimbursing any Bond owner with respect to any audit or litigation costs relating to the Bonds.

State Tax Exemption

The Bonds, their transfer, and the income therefrom are free and exempt from taxation by the State or any subdivision thereof except for the tax on estates imposed pursuant to Chapter 375A of NRS and the tax on generation-skipping transfers imposed pursuant to Chapter 375B of NRS.

61

FINANCIAL INSTITUTION INTEREST DEDUCTION

The Tax Code generally provides that a financial institution may not deduct that portion of its interest expense which is allocable to tax-exempt interest. The interest expense which is allocable to tax-exempt interest is an amount which bears the same ratio to the institution’s interest expense as the institution’s average adjusted basis of tax-exempt obligations acquired after August 7, 1986 bears to the average adjusted basis of all assets of the institution. Tax-exempt obligations may be treated as if issued prior to August 7, 1986 (and therefore are not subject to this rule), if they are “qualified tax-exempt obligations” as defined in the Tax Code and are designated for this purpose by the City.

The City has designated the Bonds for this purpose; however, under provisions of the Tax Code dealing with financial institution preference items, certain financial institutions, including banks, are denied 20% of their otherwise allowable deduction for interest expense with respect to obligations incurred or continued to purchase or carry the Bonds. In general, interest expense with respect to obligations incurred or continued to purchase or carry the Bonds will be in an amount which bears the same ratio as the institution’s average adjusted basis in the Bonds bears to the average adjusted basis of all assets of the institution.

Amendments to the Tax Code could be enacted in the future and there is no assurance that any such future amendments which may be made to the Tax Code will not adversely affect the ability of banks or other financial institutions to deduct any portion of its interest expense allocable to tax-exempt interest.

LEGAL MATTERS

Litigation

In the opinion of the City Attorney, there is no litigation or controversy of any nature now pending, or to the knowledge of the City Attorney threatened: (i) restraining or enjoining the issuance, sale, execution or delivery of the Bonds or (ii) in any way contesting or affecting the validity of the Bonds or any proceedings of the City taken with respect to the issuance or sale thereof or the pledge or application of any moneys or security provided for the payment of the Bonds, including the Net Revenues. Further, the City Attorney states that as of the date hereof, to the best of her knowledge, although the City is subject to certain pending or threatened litigation or administrative proceedings, these matters either are adequately covered by insurance or, to the extent not insured, the final settlement thereof is not expected to materially, adversely affect the financial position of the City.

Approval of Certain Legal Proceedings

The approving opinion of Sherman & Howard L.L.C., as Bond Counsel, will be delivered with the Bonds. The form of the Bond Counsel opinion is attached to this Official Statement as Appendix E. The opinion will include statements that the obligations of the City are subject to the reasonable exercise in the future by the State and its governmental bodies of the police power inherent in the sovereignty of the State and to the exercise by the United States of the powers delegated to it by the federal constitution, including bankruptcy. Sherman & Howard L.L.C. has also acted as Special Counsel to the City in connection with this Official Statement. Certain matters will be passed upon for the City by the City Attorney.

62

Police Power

The obligations of the City are subject to the reasonable exercise in the future by the State and its governmental bodies of the police power and powers of taxation inherent in the sovereignty of the State, and to the exercise by the United States of the powers delegated to it by the federal constitution (including bankruptcy).

Sovereign Immunity

Pursuant to State statute (NRS 41.035), an award for damages in an action sounding in tort against the City may not include any amount as exemplary or punitive damages and is limited to $100,000 per cause of action. The limitation does not apply to federal actions brought under federal law such as civil rights actions under 42 U.S.C. Section 1983 and actions under The Americans with Disabilities Act of 1990 (P.L. 101-336), or to actions in other states.

RATING

Moody’s Investors Service (“Moody’s”) has assigned the Bonds the rating of “A1” based on the underlying rating of the City. Based on the delivery of the Financial Guaranty Insurance Policy, S&P Global Ratings (“S&P”) has assigned the Bonds the insured rating of “AA-”. An explanation of the significance of any rating given by Moody’s may be obtained from Moody’s at 7 World Trade Center at 250 Greenwich Street, New York, New York 10007. An explanation of the significance of any rating given by S&P may be obtained from S&P at 55 Water Street, New York, New York 10041. An explanation of the significance of any rating given by KBRA may be obtained from KBRA at 1 Manhattanville Road, Suite 301, Purchase, New York 10577.

Such ratings, when received, reflect only the views of such rating agencies, and there is no assurance that any rating, once received, will continue for any given period of time or that the rating will not be revised downward or withdrawn entirely by the applicable rating agency if, in its judgment, circumstances so warrant. Any such downward revision or withdrawal of such ratings may have an adverse effect on the market price of the Bonds. Except for its responsibilities under the Disclosure Certificate, the City has not undertaken any responsibility to bring to the attention of the owners of the Bonds any proposed change in or withdrawal of such ratings once received or to oppose any such proposed revision.

INDEPENDENT AUDITORS

The audited basic financial statements of the City as of and for the year ended June 30, 2016, and the reports rendered thereon by HintonBurdick, PLLC, certified public accountants, St. George, Utah, have been included in this Official Statement as Appendix A.

The audited financial statements of the City are public documents and pursuant to State law, no consent from the auditors is required to be obtained prior to inclusion of the audited financial statements in this Official Statement. The City has not requested that the auditor provide consent for inclusion of its audited financial statements in this Official Statement. The auditor has also not participated in any way in the preparation of this Official Statement. Further, since the date of its report, the auditor has not been engaged to perform nor has it performed any procedures

63

on the financial statements addressed in its report, nor has it performed any procedures relating to this Official Statement.

FINANCIAL ADVISOR

JNA Consulting Group, LLC is serving as financial advisor to the City in connection with the Bonds. The Financial Advisor has not audited, authenticated or otherwise verified the information set forth in the Official Statement, or any other related information available to the City, with respect to the accuracy and completeness of disclosure of such information and no guaranty, warranty or other representation is made by JNA Consulting Group, LLC respecting accuracy and completeness of the Official Statement or any other matter related to the Official Statement.

UNDERWRITING

The City sold the Bonds at public sale to Raymond James & Associates, Inc. (the “Initial Purchaser”) at a purchase price equal to $4,486,663.91 (equal to the par amount of the Bonds, plus original issue premium of $120,922.50, and less underwriting discount of $59,258.99).

OFFICIAL STATEMENT CERTIFICATION

The undersigned official of the City hereby confirms that the execution and delivery of this Official Statement and its use in connection with the offering and sale of the Bonds have been duly authorized by the Council.


By: /s/ Denise Lewis Finance Director/Treasurer

APPENDIX A

COMPREHENSIVE ANNUAL FINANCIAL REPORT OF THE CITY AS OF AND FOR THE FISCAL YEAR ENDED JUNE 30, 2016

COMPREHENSIVE ANNUAL FINANCIAL REPORT

FISCAL YEAR ENDED JUNE 30, 2016

City of Fernley Nevada


COMPREHENSIVE ANNUAL FINANCIAL REPORT

FOR THE FISCAL YEAR ENDED

JUNE 30, 2016

Prepared by:

City of Fernley Finance Department

This page intentionally left blank


Table of Contents

Page

INTRODUCTORY SECTION

Letter of Transmittal ................................................................................................................................ i

Organizational Chart ............................................................................................................................ vii

List of Principal Officials .................................................................................................................... viii

GFOA Certificate of Achievement ........................................................................................................ ix

FINANCIAL SECTION

Independent Auditors’ Report ................................................................................................................. 1

Management’s Discussion and Analysis ................................................................................................. 3

Basic Financial Statements:

Government-wide Financial Statements: Statement of Net Position ........................................................................................... 20

Statement of Activities ................................................................................................ 21

Fund Financial Statements: Balance Sheet – Governmental Funds ........................................................................ 22

Reconciliation of the Balance Sheet of Governmental Funds to the Statement of Net Position ...................................................................... 23

Statement of Revenues, Expenditures, and Changes in Fund Balances – Governmental Funds ..................................................................... 24

Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances of Governmental Funds to the Statement of Activities .................................................................................... 25

Statement of Net Position – Proprietary Funds ........................................................... 26

Statement of Revenues, Expenses, and Changes in Net Position – Proprietary Funds .................................................................... 27

Statement of Cash Flows – Proprietary Funds ............................................................ 28

Statement of Net Position – Fiduciary Fund ............................................................... 29

Notes to the Financial Statements ............................................................................... 30

Required Supplementary Information:

Schedule of the Proportionate Share of the Net Pension Liability ........................................... 60

Schedule of Contributions ........................................................................................................ 61

Schedule of Funding Progress – Other Post Employment Plans ............................................. 62

Schedule of Revenues, Expenditures (Expenses), and Changes in Fund Balances – Budget and Actual:

General Fund ................................................................................................... 64

Grants Special Revenue Fund ......................................................................... 68


Table of Contents (Continued)

Supplementary Information:

Combining and Individual Fund Statements and Schedules: Combining Balance Sheet – Non-major Governmental Funds ................................... 71

Combining Statement of Revenues, Expenditures and Changes in Fund Balances – Non-major Governmental Funds ........................................ 72

Schedules of Revenues, Expenditures, and Changes in Fund Balances – Budget and Actual – Non-major Governmental Funds:

Municipal Court Administrative Fees – Special Revenue Fund ................................. 73

Municipal Court Facilities Fees – Special Revenue Fund .......................................... 74

Transient Lodging Tax – Special Revenue Fund ........................................................ 75

Capital Projects Fund .................................................................................................. 76

Capital Improvement – Capital Projects Fund ............................................................ 77

Schedules of Revenues, Expenses, and Changes in Net Position – Budget and Actual – Enterprise Funds:

Water Utility – Enterprise Fund .................................................................................. 79

Sewer Utility – Enterprise Fund ................................................................................. 80

Agency Funds: Municipal Trust Fund Statement of Changes in Assets and Liabilities ........................................................................................................... 82

STATISTICAL SECTION

Financial Trends:

Net Position by Component ..................................................................................................... 85

Change in Net Position ............................................................................................................ 86

Fund Balances of Governmental Funds ................................................................................... 89

Changes in Fund Balances of Governmental Funds ................................................................ 90

Revenue Capacity:

Assessed and Estimated Actual Value of Taxable Property .................................................... 91

Property Tax Rates – Direct and Overlapping Governments................................................... 92

Principal Property Owners ....................................................................................................... 93

Water User Fees ....................................................................................................................... 94

Principal Water Users .............................................................................................................. 95


Table of Contents (Continued)

Debt Capacity:

Ratios of Outstanding Debt by Type ....................................................................................... 96

Ratios of General Bonded Debt Outstanding ........................................................................... 97

Computation of General Obligation Direct and Overlapping Debt ......................................... 98

Computation of Legal Debt Margin ......................................................................................... 99

Water and Sewer Funds Revenue Bond Coverage ................................................................ 100

Demographic and Economic Information:

Demographic Statistics .......................................................................................................... 101

Major Employers ................................................................................................................... 102

Operating Information:

Full-time Equivalent City Government Employees by Function/Program ............................ 103

Operating Indicators by Function/Program ............................................................................ 104

Capital Asset Statistics by Function/Program ........................................................................ 105

COMPLIANCE SECTION: Independent Auditors’ Report on Internal Control over Financial Reporting and

on Compliance and Other Matters ......................................................................................... 109

Independent Auditors’ Report on Compliance Applicable to Each Major Program and on Internal Control over Compliance in Accordance with OMB Circular A-133 ................. 111

Summary of Auditors’ Results ............................................................................................................ 113

Financial Statement Findings .............................................................................................................. 114

Federal Award Findings and Questioned Costs .................................................................................. 114

Summary of Prior Year Findings and Questioned Costs .................................................................... 114

Schedule of Expenditures of Federal Awards ..................................................................................... 115

Notes to the Schedule of Expenditures of Federal Awards ................................................................. 116

Independent Auditors’ Report on Compliance with State Fiscal Laws .............................................. 117

Schedule of Fees Imposed Subject to the Provisions of NRS 354.5989 Limitation of Fees for Business Licenses .............................................................................. 119

FINANCIAL SECTION

1

Independent Auditors’ Report

The Honorable Mayor and City Council City of Fernley, Nevada

Report on the Financial Statements

We have audited the accompanying financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Fernley, Nevada, as of and for the fiscal year ended June 30, 2016, and the related notes to the financial statements, which collectively comprise the City’s basic financial statements as listed in the table of contents.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions.

Opinions

In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Fernley, as of June 30, 2016, and the respective changes in financial position, and where applicable, cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America.

CEDAR CITY ∙ FLAGSTAFF ∙ HURRICANE ∙ MESQUITE ∙ PHOENIX ∙ RICHFIELD ∙ ST. GEORGE

www.hintonburdick.com

MEMBERS: CHAD B. ATKINSON, CPA PHILLIP S. PEINE, CPA KRIS J. BRAUNBERGER, CPA STEVEN D PALMER, CPA

ROBERT S. COX, CPA MICHAEL K. SPILKER, CPA TODD B. FELTNER, CPA KEVIN L. STEPHENS, CPA

K. MARK FROST, CPA MARK E. TICHENOR, CPA MORRIS J PEACOCK, CPA MICHAEL J. TORGERSON, CPA

2

Other Matters

Required Supplementary Information

Accounting principles generally accepted in the United States of America require that the management’s discussion and analysis, the schedule of the proportionate share of the net pension liability, the schedule of contributions, the schedule of funding progress-other postemployment benefit plans, and the budgetary comparison information, as listed in the table of contents, be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance.

Other Information

Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City of Fernley’s basic financial statements. The introductory section, combining statements and individual nonmajor fund and enterprise fund budgetary comparison schedules, statistical section and schedule of fees imposed subject to the provision of NRS 354.5989 are presented for purposes of additional analysis and are not a required part of the basic financial statements. The schedule of expenditures of federal awards is presented for purposes of additional analysis as required by Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements of Federal Awards, and is also not a required part of the financial statements. The combining statements and individual nonmajor fund and enterprise fund budgetary comparison schedules and the schedule of expenditures of federal awards are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the combining statements, individual nonmajor fund and enterprise fund budgetary comparison schedules, and the schedule of expenditures of federal awards are fairly stated in all material respects in relation to the basic financial statements as a whole.

The introductory section, statistical section and schedule of fees imposed subject to the provision of NRS 354.5989 have not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we do not express an opinion or provide any assurance on them.

Other Reporting Required by Government Auditing Standards

In accordance with Government Auditing Standards, we have also issued our report dated October 27, 2016, on our consideration of the City of Fernley’s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the City of Fernley’s internal control over financial reporting and compliance.

HintonBurdick, PLLC St. George, Utah October 27, 2016

3

Management’s Discussion and Analysis As management of the City of Fernley (City), we offer readers of the City’s financial statements this narrative overview and analysis of the City’s financial performance during the fiscal year ended June 30, 2016. This report provides financial information on the City as a whole and by fund. We encourage readers to consider the information presented here in conjunction with the City’s letter of transmittal and the financial statements, which follow this section. Financial Highlights

The City’s total net position was $138,967,810 at June 30, 2016 The City’s total expenses were $18,520,369 at June 30, 2016 Business-Type Activities revenue:

o Water: $9,022,783 o Sewer: $2,579,837

Governmental Activities revenue: $6,917,749 at June 30, 2016 The City’s total general revenue was $6,765,458 at June 30, 2016

Overview of the Financial Statements This discussion and analysis is intended to serve as an introduction to the City’s basic financial statements. The City’s basic financial statements comprise three components: 1) government-wide financial statements, 2) basic fund financial statements, and 3) notes to the financial statements. This report also contains other supplementary information in addition to the basic financial statements themselves. Government-wide financial statements. The government-wide financial statements are designed to provide readers with a broad overview of the City’s finances, in a manner similar to a private-sector business. The Statement of Net Position presents information on all of the City’s assets and liabilities, with the differences between the two reported as net position. Over time, increases or decreases in net assets may serve as a useful indicator of whether the financial position of the City is improving or deteriorating.

The Statement of Activities presents information showing how the government’s net position changed during the most recent fiscal year. All changes in net position are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are reported in this statement for some items that will only result in cash flows in future fiscal periods (e.g., uncollected taxes and earned but unused vacation leave). Each of the government-wide financial statements identify the activities of the City that are principally supported by taxes and intergovernmental revenues (governmental activities) and the activities that are intended to recover all or a significant portion of their costs through user fees and charges (business-type activities). The governmental activities of the City include general government, judicial, public works, culture and recreation, community

4

development and health functions. The business-type activities of the City include water and sewer functions. The government-wide financial statements can be found on pages 20 and 21 of this report. Basic fund financial statements. A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. The City, like other state and local governments, uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. All of the funds of the City can be divided into three categories: governmental funds, proprietary funds, and fiduciary funds. Governmental funds. Governmental funds are used to account for essentially the same functions reported as governmental activities in the government-wide financial statements. However, unlike the government-wide financial statements, governmental fund financial statements focus on near-term inflows and outflows of spendable resources, as well as on balances of spendable resources available at the end of the fiscal year. Such information may be useful in evaluating a government’s near-term financing requirements. Because the focus of governmental funds is narrower than that of the government-wide financial statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the government-wide financial statements. By doing so, readers may better understand the long-term impact of the government’s near-term financing decisions. Both the governmental fund balance sheet and the governmental fund statement of revenues, expenditures, and changes in fund balance provide a reconciliation to facilitate this comparison between governmental funds and governmental activities. The City maintains eight individual governmental funds. Information is presented separately in the governmental fund balance sheet and in the governmental fund statement of revenues, expenditures, and changes in fund balances for the General Fund and the Grants Fund, which are considered major funds. Data for the remaining, non-major governmental funds are combined into a single, aggregated presentation. Individual fund data for each of these nonmajor governmental funds is provided in the form of combining statements elsewhere in this report. The City adopts an annual appropriated budget for its General Fund. A budgetary comparison statement has been provided for the General Fund to demonstrate compliance with this budget. The basic governmental fund financial statements can be found on pages 22 through 25 of this report. Proprietary funds. The City maintains two proprietary funds as enterprise funds to account for its potable water and sewer (wastewater) operations. Enterprise Funds are used to report the same functions presented as business-type activities in the government-wide financial statements.

5

Proprietary funds provide the same type of information as the government-wide financial statements, only in more detail. The Proprietary Fund financial statements provide separate information for the water and sewer operations. The Water Fund and Sewer Fund are considered to be major funds of the City. The basic Enterprise Fund financial statements can be found on pages 26 through 28 of this report. Fiduciary funds. Fiduciary funds are used to account for resources held for the benefit of parties outside the government. Fiduciary funds are not reflected in the government-wide financial statements because the resources of those funds are not available to support the City’s own programs. The accounting used for fiduciary funds is much like that used for proprietary funds. The basic Fiduciary Fund financial statements can be found on page 29 of this report. Notes to the financial statements. The notes provide additional information that is essential to a full understanding of the data provided in the government-wide and fund financial statements. The notes to the financial statements can be found on pages 30 through 56 of this report. Other Information. In addition to the basic financial statements and accompanying notes, this report also presents certain supplementary information. The combining statements referred to earlier in connection with nonmajor governmental funds are presented immediately following the required supplementary information. Combining and individual fund statements and schedules can be found on pages 71 through 77 of this report. Government-wide Financial Analysis One of the most important questions asked about the City’s finances is “Is the City as a whole better off or worse off as a result of this year’s activities?” The statement of activities reports information about the City’s activities in a way that will help answer this question. The statement of net position presents information on all of the City’s assets and liabilities, with the difference between the two reported as net position. Over time, increases or decreases in net position may serve as a useful indicator of whether the financial position of the City is improving or deteriorating. These two statements report the net position of the City and the changes in them. However, considerations should also be given to other non-financial factors such as changes in economic conditions, population growth and new or changed governmental legislation.

6

The following table represents a summary of the City’s statement of net position.

City of Fernley’s Net Position

Total net position $40,078,632 $39,127,885 $98,889,178 $97,771,255 $138,967,810 $136,899,140

Governmental Activities Business-type Activities Totals FY16 FY15 FY16 FY15 FY16 FY15

Current Assets $7,082,011 $5,993,208 $16,803,554 $18,684,313 $23,885,565 $24,677,521 Noncurrent Assets 41,268,508 41,255,679 156,360,479 156,847,546 197,628,987 198,103,225 Total Assets 48,350,519 47,248,887 173,164,033 175,531,859 221,514,552 222,780,746 Deferred outflows related to pensions 775,752 473,943 508,180 306,852 1,283,932 780,795 Deferred charge on refunding

-

-

5,083,753

-

5,083,753

-

Total deferred outflows of resources 775,752 473,943 5,591,933 306,852 6,367,685 780,795 Current Liabilities 1,548,270 749,277 4,502,141 2,245,156 6,050,411 2,994,433 Noncurrent Liabilities 6,938,854 7,020,152 74,997,465 75,287,823 81,936,319 82,307,975 Total liabilities 8,487,124 7,769,429 79,499,606 77,532,979 87,986,730 85,302,408 Deferred inflows related to pensions 560,515 825,516 367,182 534,477 927,697 1,359,993 Total deferred inflows of resources 560,515 825,516 367,182 534,477 927,697 1,359,993 Net position: Net investment in capital assets

37,994,508

37,695,679

86,036,844

83,801,681

124,031,352

121,497,360

Restricted 581,220 495,088 - 589,005 581,220 1,084,093 Unrestricted 1,502,904 937,118 12,852,334 13,380,569 14,355,238 14,317,687

7

The following table summarizes the change in net position for the current fiscal year:

Governmental Activities Business-Type Activities Total FY16 FY15 FY16 FY15 FY16 FY15 Revenues: Program revenues: Charges for services $2,184,194 $2,163,481 $7,620,859 $7,247,967 $9,805,053 $9,411,448 Operating grants and

contributions

1,655,405

933,829

-

-

1,655,405

933,829 Capital grants and

contributions

710,254

404,435

1,633,213

2,549,875

2,343,467

2,954,310 General revenues: Property taxes 2,452,000 2,199,262 - - 2,452,000 2,199,262 Consolidated taxes 148,249 143,389 - - 148,249 143,389 Other shared revenues 571,970 358,360 - - 571,970 358,360 Bond debt fee - - 3,384,561 3,378,183 3,384,561 3,378,183 Miscellaneous revenues 126,768 95,284 81,910 20,361 208,678 115,645 Total revenues 7,848,840 6,298,040 12,720,543 13,196,386 20,569,383 19,494,426 Expenses: General government 2,192,152 2,268,127 - - 2,192,152 2,268,127 Judicial 316,607 276,019 - - 316,607 276,019 Public works 2,786,120 2,001,841 - - 2,786,120 2,001,841 Culture & recreation 570,042 788,020 - - 570,042 788,020 Community development 761,489 937,675 - - 761,489 937,675 Health 210,014 194,301 - - 210,014 194,301 Water - - 9,022,783 9,319,610 9,022,783 9,319,610 Sewer - - 2,579,837 2,472,798 2,579,837 2,472,798 Interest and fiscal charges

81,325

88,060

-

-

81,325

88,060

Total expenses 6,917,749 6,554,043 11,602,620 11,792,408 18,520,369 18,346,451 Increase(decrease) in net position

931,091

(256,003)

1,117,923

1,403,978

2,049,014

1,147,975

Net position, July 1 39,127,885 42,754,815 97,771,255 98,589,326 136,899,140 141,344,141 Prior period adjustment 19,656 61,092 - - 19,656 61,092 Restatement adjustment - (3,432,019) - (2,222,049) - (5,654,068) Net position, June 30 $40,078,632 $39,127,885 $98,889,178 $97,771,255 $138,967,810 $136,899,140

While the statement of net position shows the financial position of the City, the statement of activities provides answers as to the nature and source of these changes. From a government-wide perspective and as reported in the statement of activities, the City’s total net position at June 30 as compared to prior year increased $2,068,670. This is a result of increases in revenues for both governmental and business-type activities as well as the restatements reported for both governmental activities and business-type activities in 2015 as required by GASB Statement No. 68, Accounting and Financial Reporting for Pensions. This Statement established standards for measuring and recognizing net pension assets and liabilities, deferred outflows and inflows of resources and the expenses/expenditures related to pension benefits provided through defined benefit pension plans such as PERS. Statement No. 68 requires disclosure of information related to pension benefits and implementation resulted in a restatement of beginning net position in the City’s government-wide and proprietary fund financial statements.

8

Governmental activities increased the City’s net position by $950,747. Business-type activities increased the City’s net position by $1,117,923. Out of the seven governmental funds, no fund reported a deficiency. The water and sewer funds each reported losses before contributions. Total City revenues increased by $1,074,957. The increase in revenues is mainly due to an increase in operating and capital grants and contributions for governmental activities, but is also attributable to an increase in property tax revenue. At the close of the current fiscal year, the City’s total assets exceeded its total liabilities by $140,841,844. The City has total positive working capital of $18,210,322. The majority of the City’s net position (89% or $124,031,352) reflects its investment in capital assets (e.g., land, buildings, machinery, and equipment); net of any related outstanding debt used to acquire those assets. The City uses these capital assets to provide services to citizens; consequently, these assets are not available for future spending. Although the City’s investment in its capital assets is reported net of related debt, it should be noted that the resources needed to repay this debt must be provided from other sources, since the capital assets themselves cannot be used to liquidate these liabilities. A portion of the City’s net position (.5% or $581,220) represents resources that are subject to external restrictions on how they may be used. The remaining balance of unrestricted net position (10% or $14,355,238) may be used to meet the government’s ongoing obligations to citizens and creditors. At the close of the current fiscal year, the City is able to report positive balances in all three categories of net position, to include net investment in capital assets, restricted and unrestricted. The same situation held true for the prior fiscal year. Fund Financial Analysis Governmental Funds The focus of the City’s governmental funds is to provide information on the near-term inflows, outflows, and balances of available financial resources. Such information is useful in assessing the City’s financing requirements. In particular, fund balance may serve as a useful measure of a government’s net resources available for spending at the end of the fiscal year. From a fund perspective, at of the close of the current fiscal year, the City’s governmental funds reported combined ending fund balances of $5,883,612, an increase of $664,433 in comparison with the prior year. The increase is primarily the result of an increase in current assets. The General Fund is the main operating fund of the City. At the close of the current fiscal year, fund balance for the General Fund was $4,219,246. This ending fund balance represents 66% of General Fund expenditures. General Fund non-spendable fund balance, which represents inventories and prepaids, is $29,922; General Fund restricted fund balance, which includes amounts constrained for a specific purpose by external parties, is $419,398; General Fund committed fund balance, which represents funds constrained by Council for debt service and public works projects, is $3,174,349 for the current year. The

9

General Fund assigned fund balance, which is based on the intended use of the funds, is $166,089; the remaining General Fund fund balance of $429,488 is unassigned. Unassigned fund balance represents 8.8% of total General Fund expenditures less capital outlay. At the close of the current fiscal year, excess of revenues over expenditures for the General Fund was $390,971. In addition, the General Fund had positive working capital of $4,244,543. Other governmental funds include the Grants Fund, which is used to track revenues and expenditures for various grants that the City has applied for and received. Since the Grants Fund is only used to account for federal and state grants, the fund should not accumulate a large fund balance. Therefore, the Grants Fund ended the fiscal year with a fund balance of $10. Governmental funds also include those such as the Municipal Court Administration Fees Fund, the Municipal Court Facilities Fees Fund, the Capital Improvement Fund, the Capital Projects Fund and the Transient Lodging Tax Fund (TLT). The Capital Projects Fund is used to account for funds to be used for the acquisition or construction of capital assets, other than those of Enterprise Funds. Fund balance for the Capital Projects fund at year end is $562,949. The TLT Fund is used to account for taxes collected for transient accommodations. A portion of the tax collected is reserved for future facilities and a portion is provided as grant awards. Fund balance for the TLT Fund at year end is $939,595, with $710,306 committed for future facilities.

10

$2,795 , 37%

$1,974 , 27%

$2,318 , 31%

$275 , 4%

$25 , 0%

$82 , 1%

FY 16 Governmental Funds ‐ Revenues(thousands)

Taxes

Licenses, permits & fees

Intergovernmental

Fines & forfeitures

Investment earnings

Other revenues

The total of governmental fund revenues as of June 30 is $7,469,056. The two main sources of governmental revenues are taxes and intergovernmental revenues. Taxes make up 37% of revenues and include property taxes and transient lodging taxes. Licenses, permits and fees make up 27% of revenues and include business licenses, franchise fees, liquor licenses, gaming licenses, animal licenses, passport fees, permitting fees, planning fees and inspection fees. Intergovernmental revenues make up 31% of revenues and include consolidated tax, motor vehicle fuel tax and County parks and roads contributions. Fines and forfeitures make up 4% of revenues and include municipal court penalties/fines and warrant fees. Investment earnings make up less than 1% of revenues and includes interest income. Other revenues, which make up 1% of revenues, includes cemetery fees, donations, reimbursements and other fees.

11

$1,889 , 28%

$1,252 , 18%

$319 , 5%$213 , 3%

$668 , 10%

760, 11%

266, 4%

1458, 21%

FY 16 Governmental Funds ‐ Expenditures(thousands)

General government

Public works

Judicial

Health

Culture & recreation

Community support

Debt service

Capital outlay

The total of governmental fund expenditures as of June 30 is $6,824,279. Within the governmental funds, there six different functions for which there are outlays of expenditures reported and within the functions there are departments. The general government function, which has 28% of outlays, includes the following departments: Mayor/City Council, City Manager, City Attorney, City Clerk, City Treasurer, Facilities and Information Technology. The public works function, which has 18% of outlays includes the streets/stormdrains department. The judicial function, which has 5% of outlays, includes the municipal court. The health function, which has 3% of outlays, includes the cemetery, animal control and vector control departments. The culture and recreation function, which has 10% of outlays, includes the parks department. The community support function, which has 11% of outlays, includes the building and planning departments. Debt service is reported separately and is 4% of outlays and includes principal and interest payments for the City’s administration building. Finally, capital outlay, which is also reported separately, is 21% of governmental expenditures and includes outlay for large projects only.

12

Proprietary Funds Whereas government funds measure and report available financial resources, proprietary funds measure and report economic resources. Proprietary funds are business-like funds and include the City’s water and sewer Enterprise Funds. At the close of the current fiscal year, the City’s Enterprise Funds reported a combined ending net position of $98,889,178, an increase of $1,117,923 in comparison with the prior year. This is due to the increase in deferred charges on refunding. The Water Fund operating loss at the end of the fiscal year is $1,234,349. The Sewer Fund operating loss at the end of the fiscal year is $300,254. Total net position in the Water Fund at the end of the year is $71,168,679. Of that amount $5,177,977 is unrestricted. Total net position in the Sewer Fund at the end of the year is $27,720,499. Of that amount, $7,674,357 is unrestricted. Unrestricted net position is the portion of the excess of total assets over total liabilities that may be utilized at the discretion of Council. Combined Enterprise Fund revenues decreased $475,843 from the prior year and Combined Enterprise Fund expenses decreased by $189,788 from the prior year. The decrease in revenues is primarily due to a decrease in connection fees. The decrease in expenses is primarily due to a decrease in interest expense. In addition, Enterprise funds have combined positive working capital of $12,301,413. The Water Fund has positive working capital of $4,176,856. The Sewer Fund has positive working capital of $8,124,557.

$4,986 , 39%

$3,858 , 30%

$2,023 , 16%

$292 , 2% $1,409 , 11%

$83 , 1% $141 , 1%

FY 16 Enterprise Fund ‐ Revenues(thousands)

Water operating revenues

Water non‐operating revenues

Sewer operating revenues

Sewer non‐operating revenues

Water capital contributions

Sewer capital contributions

Water grant income

13

The major sources of operating revenues for both water and sewer are user fees for services. These fees represent 53% of total enterprise revenues. Non-operating revenues include bond debt fee revenue for water, connection fees, interest income, grant income and non-cash capital contributions.

$6,220 , 54%

$2,803 , 24%

$2,323 , 20%

$256 , 2%

FY 16 Enterprise Fund ‐ Expenses(thousands)

Water operating expenses

Water non‐operating expenses

Sewer operating expenses

Sewer non‐operating expenses

Operating expenses for both water and sewer include salaries, employee benefits, services, supplies and depreciation. They make up 74% of total enterprise expenses. Non-operating expenses include interest expense on debt and make up 26% of total enterprise expenses. Budgetary Highlights The City Council adopts an annual operating budget and a five-year capital budget following public budget workshops and a public hearing. The operating budget includes proposed appropriations and the means of financing them. The City’s budget remains in effect the entire year, but may be augmented by City Council prior to year end. Budget vs. actual (variance) financial reports are provided to management on a monthly basis and such are presented to City Council on a quarterly basis. Total General Fund revenues indicate a negative budget vs. actual variance of $559,658. The shortfall is a result of the City not spending and then ultimately being reimbursed for $837,687 in Regional Transportation Commission “RTC” funds that were planned to be spent. RTC revenues and expenditures net to zero. General Fund expenditures indicate a positive budget vs. actual variance of $1,802,315. This is a result of not spending $837,687 in RTC funds in addition to the City having savings in every department but two. General

14

Fund excess of revenues over expenditures for the year indicated a positive variance of $1,242,657. The net change in fund balance for the year is $410,627. Total water revenues (excluding capital contributions) indicate a negative variance of $435,947. This is the result of a lesser amount of user fees being collected than anticipated. Total water expenses indicate a positive variance of $665,980. This is attributable to an overall departmental savings. The Water Fund’s change in net position indicates a positive variance of $1,780,720. The actual change in net position is $1,371,468. Total sewer revenues indicate a positive variance of $5,244. Sewer expenses indicate a positive variance of $277,200, which is a result of overall departmental savings. The Sewer Fund’s change in net position indicates a positive variance of $282,744. The actual change in net position is $(253,545). Budgetary schedules can be found on pages 63 through 80 of this report. Capital Asset and Debt Administration

Capital assets. The City’s total capital assets for its governmental and business-type activities as of June 30, 2016, amounts to $197,023,032 (net of accumulated depreciation). Capital assets include land, construction in progress, buildings, improvements, machinery and equipment, infrastructure and other capital assets. The City’s total capital assets decreased by $1,080,194. This decrease is largely due to older assets that are depreciating faster than the City is building new assets.

City of Fernley Capital Assets (net of depreciation)

Governmental activities Business-type activities Totals FY16 FY15 FY16 FY15 FY16 FY15 *Land $3,967,460 $3,967,460 $1,201,609 $1,195,948 $5,169,069 $5,163,408 *Water rights -- -- 41,823,301 40,575,226 41,823,301 40,575,226 *Construction in progress

311,710

223,853

527,874

393,076

839,584

616,929

Buildings 8,667,420 8,667,420 17,530 17,530 8,684,950 8,684,950 Improvements other than buildings

10,684,202

9,615,737

152,159,918

151,037,896

162,844,120

160,653,633

Machinery & Equipment

1,590,210

1,491,198

2,348,696

1,891,177

3,938,906

3,382,375

Other capital assets

33,727,973

33,446,610

1,671,630

1,671,630

35,399,603

35,118,240

TOTAL 58,948,975 57,412,278 199,750,558 196,782,483 258,699,533 254,194,761 Accumulated depreciation

(17,680,467)

(16,156,599)

(43,996,034)

(39,934,937)

(61,676,501)

(56,091,536)

Capital assets, net

$41,268,508

$41,255,679

$155,754,524

$156,847,546

$197,023,032

$198,103,225

*Capital assets, which are not being depreciated Additional information on the City’s capital assets can be found in note 6 of this report.

15

Long-term debt. At the end of the current fiscal year, the City had total bonded debt outstanding of $74,801,432. All of the City’s debt is backed by the full faith and credit of the government. In addition, the City’s long-term liabilities also include estimated compensated absences of $243,543, installment purchase debt of $3,274,000, net pension liability of $5,796,700 and other post employment benefits (OPEB) of $646,788.

Governmental activities Business-type activities Totals FY16 FY15 FY16 FY15 FY16 FY15 General obligation/revenue bonds

-- -- $72,249,087 $73,005,000 $72,249,087 $73,005,000

Installment purchase debt

3,274,000 3,560,000 -- -- 3,274,000 3,560,000

Unamortized bond premium

-- -- 2,552,345 40,865 2,552,345 40,865

Compensated absences

129,208 99,088 114,335 86,777 243,543 185,865

Net pension liability

3,502,366 2,988,244 2,294,334 1,934,729 5,796,700 4,922,973

Other postemployment benefit obligations

408,448 372,820 238,340 216,189 646,788 589,009

TOTAL $7,314,022 $7,020,152 $77,448,441 $75,283,560 $84,762,463 $82,303,712 The City’s total debt increased by $2,458,751 during the current fiscal year due in part to an increase in pension liability and the bond premium related to the 2015B bond refunding. Additional information of the City’s long-term debt can be found in Note 7 on pages 45 and 46 of this report. Economic Factors and Next Year’s Budget and Rates The City submitted the FY 2016/17 budget to the Department of Taxation and received approval. The budget is an all encompassing financial plan, policy document, operations guide and communications device, which incorporates an organization’s mission, vision and strategic plan. Budgets are management tools to help plan for the future. As we move into the next budget year, we address several key priorities established by City Council as follows: General Fund:

Asset Management and Funding Plan Road maintenance and repair Parks Storm water infrastructure Specific projects as follows:

o Depot improvement o Park building o Park metal building

16

o Mission/Truck Inn Way o Road Maintenance project (slurry seal/crack seal) o Comprehensive weed abatement project/plan o High Desert Little League projects

Water Fund:

Fire Hydrants and Valve exercising and Flow testing o Operating and flow test additional staff and maintenance

funding) Asset Management/Funding Plan Water Rights/Water Management

o Include more frequent/public reporting and access to surface water.

Billing options Meters (continued work)

Sewer Fund:

Permit compliance Asset Management/Funding Sewer modeling

These key priorities assist staff in making determinations as to the types of expenses and expenditures to include in their respective budget requests and as to total appropriations, which are ultimately approved by City Council. General fund revenues are budgeted to increase by $963,566 over prior year’s actual. The increase is attributable to RTC revenue, which includes funds allocated to the City for roads projects. General fund expenditures are budgeted to increase over prior year’s actual by $3.1 million. The increase is mainly attributable to a significant amount of roads projects. $2.4 million of which will be an offset to RTC revenues. Contingency funds have been budgeted for $275,021 for 16/17. However, such funds have not been required to be used in the recent past. Water fund revenues, before capital contributions, are budgeted to decrease over prior year’s actual by $636,000 due to a council decision to decrease the water bond debt fee by 10%. Water fund expenses are budgeted to increase by $547,000 due to an increase in employee benefits, an increase in cost allocations for shared costs and an increase in other operating expenses. Sewer fund revenues are budgeted to remain stable with no significant increase or decrease. Sewer fund expenses are budgeted to increase by $324,000 due to an increase in cost allocations for shared costs and an increase in other operating expenses. Net operating losses anticipated for 2017 in both the water and sewer funds are $1,800,000 and $600,000, respectively.

17

The economic outlook for the City of Fernley remains stable. Assessed values of real property continue to increase, the City continues to experience higher volumes of building permit requests and residential vacancies are reported to be minimal. With the opportunities and potential for growth that lie ahead, the City of Fernley will need to be prepared and it is up to management to analyze and plan for such growth. Since growth affects cost, going forward, it will be very important for the City to cover its cost of operations and reserve funds for the future. The current financial position of the City indicates that the City will be able to meet its financial obligations as they become due and it will be able to provide service obligations to its constituencies. Therefore, there is adequate cash to meet current obligations and those expected in the near future. However, to ensure the financial position of the City remains positive, it will be in the best interest of the City for management to continually plan ahead, operate within budget, collect revenue due and continue to analyze water and sewer rates and other fee structures while making recommendations to City Council. The City of Fernley is at a very crucial point in its existence and in order to properly plan for the City’s future, it will be very important that responsible decisions are made at all levels of management. Requests for Information This financial report is designed to provide a general overview of the City’s finances for all those with an interest in the City’s finances. Questions concerning any of the information provided in this report or requests for additional information should be addressed to the City Treasurer/Finance Director, 595 Silver Lace Blvd, Fernley NV 89408.

18


19

BASIC FINANCIAL STATEMENTS

CITY OF FERNLEY, NEVADA Statement of Net Position

June 30, 2016

The accompanying notes are an integral part of the financial statements. 20

Governmental Business-typeActivities Activities Total

Assets

Cash and investments 6,361,389$ 15,455,284$ 21,816,673$ Receivables (net of allowance) 690,700 1,084,932 1,775,632 Inventory 29,922 106,482 136,404 Prepaids - 156,856 156,856 Restricted assets:

Temporarily restricted:Cash and investments - 605,956 605,956

Capital assets (net of accumulateddepreciation):

Land and water rights 3,967,460 43,024,910 46,992,370 Construction in progress 311,710 527,874 839,584 Buildings 5,021,663 - 5,021,663 Improvements and other 6,374,957 111,659,286 118,034,243 Machinery, equipment and vehicles 308,023 542,453 850,476 Infrastructure 25,284,695 - 25,284,695

Total assets 48,350,519 173,164,033 221,514,552

Deferred outflows of resources

Deferred charge on refunding - 5,083,753 5,083,753 Deferred outflows related to pensions 775,752 508,180 1,283,932

Total deferred outflows of resources 775,752 5,591,933 6,367,685

Liabilities

Accounts payable and other current liabilities 1,120,652 326,200 1,446,852 Unearned revenue 52,450 - 52,450 Refundable deposits - 605,956 605,956 Accrued interest - 1,119,009 1,119,009 Noncurrent liabilities:

Due within one year 375,168 2,450,976 2,826,144 Due in more than one year 6,938,854 74,997,465 81,936,319

Total liabilities 8,487,124 79,499,606 87,986,730

Deferred inflows of resources

Deferred inflows related to pensions 560,515 367,182 927,697 Total deferred inflows of resources 560,515 367,182 927,697

Net position

Net investment in capital assets 37,994,508 86,036,844 124,031,352 Restricted for:

Capital projects 138,258 - 138,258 Future development 327,757 - 327,757 Judicial 115,205 - 115,205

Unrestricted 1,502,904 12,852,334 14,355,238

Total net position 40,078,632$ 98,889,178$ 138,967,810$

CITY OF FERNLEY, NEVADA Statement of Activities

For the Fiscal Year Ended June 30, 2016

The accompanying notes are an integral part of the financial statements.

Governmental Business-typeFunctions/Programs Expenses Activities Activities TotalGovernmental activities:

General government 2,192,152$ 1,849,714$ 22,573$ -$ (319,865)$ -$ (319,865)$ Public works 2,786,120 44,247 962,313 710,254 (1,069,306) - (1,069,306) Judicial 316,607 275,179 - - (41,428) - (41,428) Health 210,014 - - - (210,014) - (210,014) Culture and recreation 570,042 15,054 355,409 - (199,579) - (199,579) Community support and development 761,489 - 315,110 - (446,379) - (446,379) Interest on long-term debt 81,325 - - - (81,325) - (81,325)

Total governmental activities 6,917,749 2,184,194 1,655,405 710,254 (2,367,896) - (2,367,896)

Business-type activities:Water 9,022,783 5,416,406 - 1,409,193 - (2,197,184) (2,197,184) Sewer 2,579,837 2,204,453 - 82,526 - (292,858) (292,858)

Total business-type activities 11,602,620 7,620,859 - 1,491,719 - (2,490,042) (2,490,042)

Total primary government 18,520,369$ 9,805,053$ 1,655,405$ 2,201,973$

General revenues:Taxes:

Property taxes 2,452,000 - 2,452,000 Fuel taxes 402,749 - 402,749 Other taxes/bond debt fee revenue 49,000 3,384,561 3,433,561

Unrestricted state consolidation tax 148,249 - 148,249 Unrestricted gaming licenses 120,221 - 120,221 Gain (loss) on disposal of capital assets - 12,328 12,328 Unrestricted investment earnings 25,243 69,582 94,825 Miscellaneous 101,525 - 101,525

Total general revenues 3,298,987 3,466,471 6,765,458 Change in net position 931,091 976,429 1,907,520

Net position - beginning 39,127,885 97,771,255 136,899,140 Prior period adjustment 19,656 - 19,656 Net position - ending 40,078,632$ 98,747,684$ 138,826,316$

Charges forServices

OperatingGrants &

Contributions

CapitalGrants &

Contributions

Program Revenues Net (Expense) Revenue and Changes in Net Position

21

CITY OF FERNLEY, NEVADA Balance Sheet

Governmental Funds June 30, 2016


SpecialRevenue Other TotalGrants Governmental Governmental

General Fund Fund Funds FundsAssetsCash and investments 4,698,084$ -$ 1,663,305$ 6,361,389$ Receivables:

Property taxes 30,849 - - 30,849 Interest receivable 2,479 - 883 3,362 Other 393,528 - 36,351 429,879

Due from other governments 57,628 168,982 - 226,610 Due from other funds 85,895 - - 85,895 Inventories and prepaids 29,922 - - 29,922

Total assets 5,298,385$ 168,982$ 1,700,539$ 7,167,906$

LiabilitiesAccounts payable 773,373$ 83,077$ 36,183$ 892,633$ Accrued liabilities 93,823 - - 93,823 Due to other funds - 85,895 - 85,895 Due to developers 134,196 - - 134,196 Unearned revenue 52,450 - - 52,450

Total liabilities 1,053,842 168,972 36,183 1,258,997

Deferred inflows of resourcesUnavailable revenue -

property taxes 25,297 - - 25,297

Fund balancesNonspendable:

Inventories and prepaids 29,922 - - 29,922 Restricted for:

Judicial - - 115,205 115,205 Capital projects 91,651 - 46,607 138,258 Future development 327,747 10 - 327,757

Committed:Capital projects - - 562,949 562,949 Convention center - - 710,306 710,306 Debt service 575,000 - - 575,000 Public works 2,599,349 - - 2,599,349

Assigned to:Next year's budget appropriation 166,089 - - 166,089 Culture and recreation - - 229,289 229,289

Unassigned 429,488 - - 429,488 Total fund balances 4,219,246 10 1,664,356 5,883,612

Total liabilities, deferred inflowsof resources, and fund balances 5,298,385$ 168,982$ 1,700,539$ 7,167,906$

CITY OF FERNLEY, NEVADA Reconciliation of the Balance Sheet of Governmental Funds

to the Statement of Net Position June 30, 2016


Amounts reported for governmental activities in the statement of net position aredifferent because:

Total fund balances - total governmental funds 5,883,612$

Governmental capital assets 58,948,975$ Accumulated depreciation (17,680,467) 41,268,508

Bonds payable (3,274,000)$ Compensated absences (129,208) Other postemployment benefits liability (408,448)

Net pension liability (3,502,366) (7,314,022)

25,297

Deferred outflows related to pensions 775,752$ Deferred inflows related to pensions (560,515) 215,237

Net position of governmental activities 40,078,632$

Deferred outflows and inflows of resources related to pensions are applicable to future reporting periods and, therefore, are not reported in the funds.

Unavailable revenue associated with property taxes is recognized as revenue in the government-wide statements.

Some liabilities, including bonds payable, capital leases, and interest payable are not due and payable in the current period and therefore are not reported in the funds.

Capital assets used in governmental activities are not financial resources and, therefore, are not reported in the funds.

CITY OF FERNLEY, NEVADA Statement of Revenues, Expenditures, and Changes in Fund Balances

Governmental Funds For the Fiscal Year Ended June 30, 2016


SpecialRevenue Other Total

Grant Governmental Governmental General Fund Funds Funds

RevenuesTaxes 2,500,455$ -$ 294,909$ 2,795,364$ Licenses, permits and fees 1,973,548 - - 1,973,548 Intergovernmental revenue 1,944,459 372,007 1,662 2,318,128 Fines and forfeitures 223,166 - 52,012 275,178 Investment earnings 18,538 - 6,703 25,241 Other revenues 81,597 - - 81,597

Total revenues 6,741,763 372,007 355,286 7,469,056

ExpendituresCurrent:

General government 1,894,419 - - 1,894,419 Public works 2,607,595 56,897 - 2,664,492 Judicial 301,785 - 17,404 319,189 Health 212,740 - - 212,740 Culture and recreation 623,578 - 84,086 707,664 Community support and development 444,875 315,100 - 759,975

Debt service:Principal 286,000 - - 286,000 Interest 81,325 - - 81,325 Cost sharing Water & Sewer funds (101,525) - - (101,525)

Total expenditures 6,350,792 371,997 101,490 6,824,279

Excess (deficiency) of revenuesover (under) expenditures 390,971 10 253,796 644,777

Fund balances, beginning of year 3,808,619 - 1,410,560 5,219,179

Prior period adjustment 19,656 - - 19,656

Fund balances, end of year 4,219,246$ 10$ 1,664,356$ 5,883,612$

CITY OF FERNLEY, NEVADA Reconciliation of the Statement of Revenues,

Expenditures, and Changes in Fund Balances of Governmental Funds to the Statement of Activities



Amounts reported for governmental activities in the statement of activities aredifferent because:

Net change in fund balances - total governmental funds 644,777$

Capital outlay 1,271,329$ Depreciation expense (1,539,863) (268,534)

281,363

286,000

545

Pension contributions 551,042$ Pension expense (498,354) 52,688

(65,748)

Change in net position of governmental activities 931,091$

Governmental funds do not report contributions of capital assets as revenue, unless the assets will be held for sale. However, in the statement of activities, the donation of capital assets is reported as revenue.

Compensated absences and other postemployment benefit obligation expenses reported in the statement of activities do not require the use of current financial resources and therefore are not reported as expenditures in governmental funds. This adjustment reflects the change in compensated absences and other postemployment benefit obligations.

Governmental funds report capital outlays as expenditures. However, in the statement of activities, the costs of those assets is allocated over their estimated useful lives and reported as depreciation expense. This is the difference between depreciation expense and capital outlay in the current period.

Repayment of bond principal is an expenditure in the governmental funds, but the repayment reduces long-term liabilities in the statement of net position.

Because some property taxes will not be collected in time to pay for obligations in the current period, they are not considered available revenues in the governmental funds and are instead reported as deferred revenues. These revenues are accounted for as revenue in the statement of activities.

Pension contributions are reported as expenditures in the governmental funds when made. However, they are reported as deferred outflows of resources in the statement of net position because the net pension liability is measured a year before the government's report date. Pension expense, which is the change in the net pension liability adjusted for changes in deferred outflows and inflows of resources related to pensions, is reported in the statement of activities.


Proprietary Funds June 30, 2016


TotalWater Fund Sewer Fund Enterprise Funds

Assets

Current assets:Cash and investments 7,004,760$ 8,450,524$ 15,455,284$ Receivables, net of allowance 885,440 190,820 1,076,260 Interest receivable 3,835 4,837 8,672 Inventory 94,165 12,317 106,482 Prepaid expense 63,099 93,757 156,856

Total current assets 8,051,299 8,752,255 16,803,554

Noncurrent assets:Restricted cash and investments 304,180 301,776 605,956 Capital assets:

Land and water rights 42,839,200 185,710 43,024,910 Construction-in-progress 238,221 289,653 527,874 Buildings 8,765 8,765 17,530 Improvements and other 115,337,930 38,493,618 153,831,548 Machinery, equipment and vehicles 1,208,155 1,140,541 2,348,696

Less accumulated depreciation (30,470,437) (13,525,598) (43,996,035) Total noncurrent assets 129,466,014 26,894,465 156,360,479

Total assets 137,517,313 35,646,720 173,164,033

Deferred outflows of resourcesDeferred charge on refunding 4,556,593 527,160 5,083,753 Deferred outflows related to pensions 333,308 174,872 508,180

Total deferred outflows of resources 4,889,901 702,032 5,591,933

Liabilities

Current liabilities:Accounts payable 130,459 144,319 274,778 Accrued liabilities 33,272 18,150 51,422 Refundable deposits 304,180 301,776 605,956 Accrued interest 1,037,699 81,310 1,119,009 Compensated absences 55,955 16,754 72,709 Bonds payable - current 2,312,878 65,389 2,378,267

Total current liabilities 3,874,443 627,698 4,502,141

Noncurrent liabilities:Compensated absences 32,034 9,592 41,626 Other postemployment benefits obligation 171,557 66,783 238,340 Bonds payable 65,414,847 7,008,318 72,423,165 Net pension liability 1,504,824 789,510 2,294,334

Total noncurrent liabilities 67,123,262 7,874,203 74,997,465 Total liabilities 70,997,705 8,501,901 79,499,606

Deferred inflows of resources

Deferred inflows related to pensions 240,830 126,352 367,182 Total deferred inflows of resources 240,830 126,352 367,182

Net position

Net investment in capital assets 65,990,702 20,046,142 86,036,844 Unrestricted 5,177,977 7,674,357 12,852,334 Total net position 71,168,679$ 27,720,499$ 98,889,178$

CITY OF FERNLEY, NEVADA Statement of Revenues, Expenses, and Changes in Net Position

Proprietary Funds For the Fiscal Year Ended June 30, 2016


Total

Water Fund Sewer Fund Enterprise FundsOperating revenues

Service fees 4,776,323$ 2,023,135$ 6,799,458$ Other revenues 209,528 65 209,593

Total operating revenues 4,985,851 2,023,200 7,009,051

Operating expenses

Salaries 998,699 509,073 1,507,772 Employee benefits 403,814 254,414 658,228 Service, supplies and other 1,643,409 569,556 2,212,965 Depreciation expense 3,174,278 990,411 4,164,689

Total operating expenses 6,220,200 2,323,454 8,543,654

Operating income (loss) (1,234,349) (300,254) (1,534,603)

Nonoperating revenues (expenses)

Bond debt fee revenue 3,384,561 - 3,384,561 Connection fee revenue 228,457 181,253 409,710 Interest income 30,960 38,622 69,582 Other income 202,098 - 202,098 Gain/(loss) on disposals of capital assets 11,637 691 12,328 Interest expense (2,802,583) (256,383) (3,058,966)

Total nonoperating revenues (expenses) 1,055,130 (35,817) 1,019,313

Income (loss) before contributions (179,219) (336,071) (515,290)

Grant income 141,494 - 141,494 Capital contributions 1,409,193 82,526 1,491,719

Change in net position 1,371,468 (253,545) 1,117,923

Total net position, beginning of year 69,797,211 27,974,044 97,771,255

Total net position, end of year 71,168,679$ 27,720,499$ 98,889,178$

CITY OF FERNLEY, NEVADA Statement of Cash Flows

Proprietary Funds For the Fiscal Year Ended June 30, 2016


Total

Water Fund Sewer Fund Enterprise FundsCash flows from operating activities:

Cash received from customers, service fees 4,567,928$ 2,029,525$ 6,597,453$ Cash received from customers, capacity fees and other 209,528 65 209,593 Cash paid to suppliers (1,506,147) (598,454) (2,104,601) Cash paid to employees (1,504,283) (759,071) (2,263,354)

Net cash flows from operating activities 1,767,026 672,065 2,439,091

Cash flows from capital and relatedfinancing activities:

Water rights and settement income 202,098 - 202,098 Bond debt fee revenue 3,413,801 - 3,413,801 Grant revenue 141,494 - 141,494 Principal paid on capital debt (4,120,330) (351,261) (4,471,591) Interest paid on capital debt (418,738) (314,724) (733,462) Acquisition and construction of capital assets (852,872) (727,075) (1,579,947) Proceeds from capital asset disposals 11,637 691 12,328 Connection fees 228,457 181,253 409,710

Net cash flows from capital and relatedfinancing activities (1,394,453) (1,211,116) (2,605,569)

Cash flows from investing activities:Interest on investments 32,040 40,773 72,813

Net change in cash and investments 404,613 (498,278) (93,665)

Cash and investments, including restricted, beginning of year 6,904,327 9,250,578 16,154,905 Cash and investments, including restricted, end of year 7,308,940$ 8,752,300$ 16,061,240$

Reconciliation of operating income to net cashflows from operating activities:

Operating income (loss) (1,234,349)$ (300,254)$ (1,534,603)$ Adjustments to reconcile operating income (loss) tonet cash flows from operating activities

Depreciation expense 3,174,278 990,411 4,164,689 Pension expense 193,781 158,178 351,959 Pension contributions (333,308) (174,872) (508,180) Changes in operating assets and liabilities:

(Increase) decrease in receivables (218,049) (907) (218,956) (Increase) decrease in inventories (4,413) (7,667) (12,080) (Increase) decrease in prepaid expenses 221,179 (62,344) 158,835 Increase (decrease) in accounts payable (79,504) 41,113 (38,391) Increase (decrease) in accrued liabilities 8,212 946 9,158 Increase (decrease) in customer deposits 9,654 7,297 16,951 Increase (decrease) in other postemployment benefits 15,124 7,027 22,151 Increase (decrease) in compensated absences payable 14,421 13,137 27,558

Net cash flows from operating activities 1,767,026$ 672,065$ 2,439,091$

Noncash investing, capital, and financing activities:Contributions of capital assets from developers 1,409,193$ 82,526$ 1,491,719$ Water Refunding Bonds, Series 2015A and B issued,

refunding a portion of the 2007/2008 bonds 37,665,000$ 5,807,691$ 43,472,691$ Deferred charge on refunding (3,458,691)$ (404,190)$ (3,862,881)$


Fiduciary Fund June 30, 2016


Municipal Trust Fund

Assets

Current assets:Cash and investments 22,768$

Total assets 22,768$

Liabilities

Current liabilities:Bail bond deposits held for others 22,768$

Total liabilities 22,768$

CITY OF FERNLEY, NEVADA Notes to the Financial Statements

June 30, 2016

30

NOTE 1. Summary of Significant Accounting Policies Description of government-wide financial statements The government-wide financial statements (i.e., the statement of net position and the statement of activities) report information on all of the nonfiduciary activities of the primary government and its component units. All fiduciary activities are reported only in the fund financial statements. Governmental activities, which normally are supported by taxes, intergovernmental revenues, and other nonexchange transactions, are reported separately from business-type activities, which rely to a significant extent on fees and charges to external customers for support. Likewise, when applicable, the primary government is reported separately from certain legally separate component units for which the primary government is financially accountable. Reporting entity

The City of Fernley, Nevada (City) was incorporated on July 1, 2001 in accordance with NRS 266. The City operates under a Council-Manager form of government and provides the following services as authorized by law: water and sewer utilities, streets and storm drains, culture and recreation, planning and zoning, animal control, vector control, building and safety, and general and administrative services. Prior to July 1, 2001, the entity was organized as an unincorporated town in accordance with Nevada Revised Statutes 269. The accompanying financial statements present all activities of the City. The City has no separate component units, entities for which the City is considered to be financially accountable that would be combined to form the reporting entity. Basis of presentation – government-wide financial statements

While separate government-wide and fund financial statements are presented, they are interrelated. The governmental activities column incorporates data from governmental funds, while business-type activities incorporate data from the City’s enterprise funds. Separate financial statements are provided for governmental funds, proprietary funds, and fiduciary funds, even though the latter are excluded from the government-wide financial statements. As a general rule, the effect of interfund activity has been eliminated from the government-wide financial statements. Basis of presentation – fund financial statements The fund financial statements provide information about the City’s funds, including its fiduciary funds and blended component units. Separate statements for each fund category—governmental, proprietary, and fiduciary—are presented. The emphasis of fund financial statements is on major governmental and enterprise funds, each displayed in a separate column. All remaining governmental and enterprise funds are aggregated and reported as nonmajor funds. Major individual governmental and enterprise funds are reported as separate columns in the fund financial statements.


June 30, 2016

31

NOTE 1. Summary of Significant Accounting Policies, Continued The City reports the following major governmental funds:

The General Fund is the City’s primary operating fund. It accounts for all financial resources of the general government, except those accounted for in another fund.

The Grants Fund is used to account for federal and state grants that are restricted or committed for a specific use.

The City reports the following major enterprise funds:

The Water Utility Fund is used to account for the provision of water services to the residents of the City and some residents of Lyon County. All activities necessary to provide services are accounted for in this fund, including, but not limited to, administration, operations, maintenance, financing and related debt. The Sewer Utility Fund is used to account for sewer collection and treatment services for the residents of the City and some residents of Lyon County. All activities necessary to provide services are accounted for in this fund, including, but not limited to, administration, operations, maintenance, financing and related debt.

Additionally, the City reports the following fund type:

The Agency Fund is custodial in nature and does not present results of operations or have a measurement focus. The Agency fund is accounted for using the accrual basis of accounting. This fund is used to account for assets that the City holds for others in an agent capacity. Included are bonds posted with the municipal court. This fund is excluded from the government-wide financial statements.

During the course of operations the City has activity between funds for various purposes. Any residual balances outstanding at year end are reported as due from/to other funds and advances to/from other funds. While these balances are reported in fund financial statements, certain eliminations are made in the preparation of the government-wide financial statements. Balances between the funds included in governmental activities (i.e., the governmental funds) are eliminated so that only the net amount is included as internal balances in the governmental activities column. Similarly, balances between the funds included in business-type activities (i.e., the enterprise funds) are eliminated so that only the net amount is included as internal balances in the business-type activities column. Further, certain activity occurs during the year involving transfers of resources between funds. In fund financial statements these amounts are reported at gross amounts as transfers in/out. While reported in fund financial statements, certain eliminations are made in the preparation of the government-wide financial statements. Transfers between the funds included in governmental activities are eliminated so that only the net amount is included as transfers in the governmental activities column. Similarly, balances between the funds included in business-type activities are eliminated so that only the net amount is included as internal balances in the business-type activities column.


June 30, 2016

32

NOTE 1. Summary of Significant Accounting Policies, Continued Measurement focus and basis of accounting The accounting and financial reporting treatment is determined by the applicable measurement focus and basis of accounting. Measurement focus indicates the type of resources being measured such as current financial resources or economic resources. The basis of accounting indicates the timing of transactions or events for recognition in the financial statements. The government-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Property taxes are recognized as revenues in the year for which they are levied. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met. The governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenues are recognized as soon as they are both measurable and available. Revenues are considered to be available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the City considers revenues to be available if they are collected within 60 days of the end of the current fiscal period. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. However, debt service expenditures, as well as expenditures related to compensated absences, and claims and judgments, are recorded only when payment is due. General capital asset acquisitions are reported as expenditures in governmental funds. Issuance of long-term debt and acquisitions under capital leases are reported as other financing sources. Property taxes, consolidated taxes, licenses, and interest associated with the current fiscal period are all considered to be susceptible to accrual and so have been recognized as revenues of the current fiscal period. Entitlements are recorded as revenues when all eligibility requirements are met, including any time requirements, and the amount is received during the period or within the availability period for this revenue source (within 60 days of year-end). Expenditure-driven grants are recognized as revenue when the qualifying expenditures have been incurred and all other eligibility requirements have been met, and the amount is received during the period or within the availability period for this revenue source (within 60 days of year-end). All other revenue items are considered to be measurable and available only when cash is received by the City. The proprietary fund is reported using the economic resources measurement focus and the accrual basis of accounting. The trust and agency fund has no measurement focus but utilizes the accrual basis of accounting for reporting its assets and liabilities. Assets, liabilities, deferred outflows/inflows of resources, and net position/fund balance Cash and Investments Cash resources of the individual funds are combined to form a pool of cash and investments, which is managed by the City Treasurer. The City invests in the State of Nevada Local Government Investment Pool, which is reported at fair value.


June 30, 2016

33

NOTE 1. Summary of Significant Accounting Policies, Continued Interest income earned is distributed to the appropriate funds based on each fund’s equity in the investment. The City also invests in the Nevada Enhanced Savings Term Program (NVEST) and monies are managed by a money manager. The money manager is required to report to the City on a quarterly basis. The City's policy allows for the investment of funds in time certificates of deposit with federally insured depositories, investment in the State Treasurer's Pool, obligations of the U. S. Government and other investments as allowed by Nevada State Statutes (NRS 355 and NRS355.170). Investments for the City are reported at fair value (generally based on quoted market prices) except for the position in the State Treasurer’s Investment Pool (Pool). In accordance with state law, the Pool operates in conformity with all of the requirements of the Security and Exchange Commission’s (SEC) Rule 2a7 as promulgated under the Investment Company Act of 1940, as amended. Accordingly, the Pool qualifies as a 2a7-like pool and is reported at the net asset value per share (which approximates fair value) even though it is calculated using the amortized cost method. Cash equivalents

The City’s cash and cash equivalents are considered to be cash on hand, demand deposits, and short-term investments with original maturities of three months or less from the date of acquisition. Based on the nature of the investment policies, all amounts are available on demand and are, therefore, classified as cash equivalents on the Statement of Cash Flows. Receivables Due to the nature of the accounts receivable in the governmental type activities, management does not consider an allowance for uncollectible accounts receivable necessary or material. Receivables in proprietary fund types have arisen in the ordinary course of business, and are shown net of an allowance for uncollectible accounts, as applicable.

Inventories and prepaid items

Proprietary fund inventories are valued at cost using the first-in/first-out (FIFO) method and consist of supplies and materials. Inventories of governmental funds in the fund financial statements are considered consumable supplies and as such are recorded as expenditures at the time of purchase. Certain payments to vendors reflect costs applicable to future accounting periods and are recorded as prepaid items in both the government-wide and fund financial statements. The cost of prepaid items is recorded as expenditures/expenses when consumed rather than when purchased.

Restricted Assets City policy requires that certain resources be set aside for various purposes such as for refundable deposits in the City’s water and sewer utility funds.


June 30, 2016

34

NOTE 1. Summary of Significant Accounting Policies, Continued Capital assets Capital assets, which include property, plant, equipment, and infrastructure assets (e.g., roads, bridges, sidewalks, and similar items), are reported in the applicable governmental or business-type activities columns in the government-wide financial statements. Capital assets are defined by the City as assets with an individual cost of more than $5,000 for non-infrastructure assets and $100,000 for infrastructure assets and an estimated useful life in excess of two years. Such assets are recorded at historical cost or estimated historical cost if purchased or constructed. Donated capital assets are recorded at estimated acquisition value at the date of donation. The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend assets lives are not capitalized. Interest incurred during the construction phase of capital assets of business-type activities is included as part of the capitalized value of the assets constructed. Water rights are intangible assets. A water right can be conveyed or transferred. Water rights, however, are appurtenant to the land and are conveyed by deed with the land unless the seller specifically reserves the water right in the deed. Water rights are not depreciable or amortizable.

Property, plant and equipment are depreciated using the straight-line method over the following estimated useful lives:

Buildings Treatment facilities and improvements Machinery, equipment and vehicles Other capital assets Infrastructure - Streets and sidewalks

25 to 40 years 10 to 20 years 5 to 10 years

25 to 40 years 20 to 40 years

Deferred outflows/inflows of resources In addition to assets, the statement of net position will sometimes report a separate section for deferred outflows of resources. This separate financial statement element, deferred outflows of resources, represents a consumption of net position that applies to a future period(s) and so will not be recognized as an outflow of resources (expense/expenditure) until then. The City has two items that qualify for reporting in this category. One item is a pension related item reported on the government-wide financial statements. See footnote 10 for more information. The second item is the deferred charge on refunding reported in the government-wide statement of net position. A deferred charge on refunding results from the difference in the carrying value of refunded debt and its reacquisition price. This amount is deferred and amortized over the shorter of the life of the refunded or refunding debt. In addition to liabilities, the statement of net position will sometimes report a separate section for deferred inflows of resources. This separate financial statement element, deferred inflows of resources, represents an acquisition of net position that applies to a future period(s) and so will not be recognized as an inflow of resources (revenue) until that time. The City has two types of these items that qualify for reporting in this category. One type arises only under a modified accrual basis of accounting. Accordingly, the item, unavailable revenue, is reported only in the governmental fund’s balance sheet.


June 30, 2016

35

NOTE 1. Summary of Significant Accounting Policies, Continued The governmental funds report unavailable revenues from one source: property taxes. These amounts are deferred and recognized as an inflow of resources in the period that the amounts become available. The other item is a pension related item reported on the government-wide financial statements. See footnote 10 for more information Pensions For purposes of measuring the net pension liability, deferred outflows of resources and deferred inflows of resources related to pensions, and pension expense, information about the pension plan’s fiduciary net position of the Public Employees’ Retirement System of Nevada (PERS) and additions to/deductions from the plan’s fiduciary net position have been determined on the same basis as they are reported by PERS. For this purpose, benefit payments (including refunds of employee contributions) are recognized when due and payable in accordance with the benefit terms. Investments are reported at fair value. Net position flow assumption Sometimes the City will fund outlays for a particular purpose from both restricted (e.g., restricted bond or grant proceeds) and unrestricted resources. In order to calculate the amounts to report as restricted – net position and unrestricted – net position in the government-wide and proprietary fund financial statements, a flow assumption must be made about the order in which the resources are considered to be applied. It is the City’s policy to consider restricted – net position to have been depleted before unrestricted – net position is applied. Fund balance flow assumptions Sometimes the City will fund outlays for a particular purpose from both restricted and unrestricted resources (the total of committed, assigned, and unassigned fund balance). In order to calculate the amounts to report as restricted, committed, assigned, and unassigned fund balance in the governmental fund financial statements a flow assumption must be made about the order in which the resources are considered to be applied. It is the City’s policy to consider restricted fund balance to have been depleted before using any of the components of unrestricted fund balance. Further, when the components of unrestricted fund balance can be used for the same purpose, committed fund balance is depleted first, followed by assigned fund balance. Unassigned fund balance is applied last. Fund balance policies Fund balance of governmental funds is reported in various categories based on the nature of any limitations requiring the use of resources for specific purposes. The City itself can establish limitations on the use of resources through either a commitment (committed fund balance) or an assignment (assigned fund balance).


June 30, 2016

36

NOTE 1. Summary of Significant Accounting Policies, Continued The committed fund balance classification includes amounts that can be used only for the specific purposes determined by a formal action of the City’s highest level of decision-making authority. The governing council is the highest level of decision-making authority for the City that can, by adoption of a resolution prior to the end of the fiscal year, commit fund balance. Once adopted, the limitation imposed by the resolution remains in place until a similar action is taken (the adoption of another resolution) to remove or revise the limitation. Amounts in the assigned fund balance classification are intended to be used by the City for specific purposes but do not meet the criteria to be classified as committed. The city manager is authorized to assign amounts to specific purposes in accordance with the City’s budget policy. The council may also assign fund balance as it does when appropriating fund balance to cover a gap between estimated revenue and appropriations in the subsequent year’s appropriated budget. Unlike commitments, assignments generally only exist temporarily. In other words, an additional action does not normally have to be taken for the removal of an assignment. Conversely, as discussed above, an additional action is essential to either remove or revise a commitment. Revenues and expenditures/expenses Program revenues Amounts reported as program revenues include 1) charges to customers or applicants who purchase, use, or directly benefit from goods, services, or privileges provided by a given function or segment and 2) grants and contributions (including special assessments) that are restricted to meeting the operational or capital requirements of a particular function or segment. All taxes, including those dedicated for specific purposes, and other internally dedicated resources are reported as general revenues rather than as program revenues. Compensated absences It is the City’s policy to permit employees to accumulate earned but unused vacation and sick pay benefits. For governmental funds, amounts of vested or accumulated vacation and sick leave that are not expected to be liquidated with expendable available financial resources are reported as liabilities in the government-wide statement of net position and as expenses in the government-wide statement of activities. No expenditures are reported for these amounts in the fund financial statements. A liability for compensated absences is reported in the governmental funds, primarily the General Fund, only if they have matured as a result of employee resignations, terminations and retirements. Vested or accumulated vacation and sick leave in the proprietary funds are recorded as an expense and a liability of that fund as the benefits accrue to the employees and are thus recorded in both the government-wide financial statements and the individual fund financial statements.


June 30, 2016

37

NOTE 1. Summary of Significant Accounting Policies, Continued Proprietary funds operating and nonoperating revenues and expenses

Proprietary funds distinguish operating revenues and expenses from nonoperating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with a proprietary fund’s principal ongoing operations. The principal operating revenues of the water and sewer fund are charges to customers for sales and services. Operating expenses for enterprise funds include the cost of sales and services, administrative expenses and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as nonoperating revenues and expenses. Use of estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenditures/expenses during the reporting period. Actual results could differ from those estimates. NOTE 2. Reconciliation of Government-wide and Fund Financial Statements The governmental fund balance sheet includes a reconciliation between total governmental fund balances and net position of governmental activities as reported in the government-wide statement of net position. This difference primarily results from the long-term economic focus of the statement of net position versus the current financial resources focus of the governmental fund balance sheets. The details of these differences are reported in the reconciliation on page 23. The governmental fund statement of revenues, expenditures, and changes in fund balance includes a reconciliation between net changes in fund balances-total governmental funds and changes in net position of governmental activities as reported in the government-wide statement of activities. These differences are the result of converting from the current financial resources measurement focus and modified accrual basis for governmental fund statements to the economic resources measurement focus and full accrual basis used for government-wide statements. The details of these differences are reported in the reconciliation on page 25.


June 30, 2016

38

NOTE 3. Stewardship, Compliance and Accountability Budgets and budgetary accounting The City of Fernley adheres to the Local Government Budget and Finance Act (Act) incorporated within the statutes of the State of Nevada, in which annual budgets are legally adopted for all funds except Agency funds. The Act and City policy include the following procedures to establish the budgetary data, which is reflected in these financial statements:

1. On or before April 15, the City Manager submits to the Fernley City Council a tentative budget for the fiscal year commencing the following July 1, to be filed with the Nevada Department of Taxation.

2. Public hearings on the tentative budget are held no sooner than the third Monday in May and no later than the last day in May, to obtain taxpayer comments.

3. Prior to June 1, at a public hearing, the Council indicates changes, if any, to be made to the tentative budget and adopts a final budget by the favorable vote of a majority of the members of the Council. The final budget must then be forwarded to the Nevada Department of Taxation for final approval.

4. The City may not amend the budget without approval by the City Council. The Finance Director is authorized to transfer appropriations between accounts within any function, with notification to the City Council. Any revisions that alter the total appropriations of a function or fund must be approved in advance by the City Council. Formal budgetary integration in the financial records of all funds is employed to enhance management control during the year.

5. Budgets for all fund types are adopted on a basis consistent with accounting principles generally accepted in the United States of America (GAAP). Appropriations lapse at year end.

6. In accordance with State statute, actual expenditures may not exceed budgeted appropriations of the various governmental functions of the General, Special Revenue, and Capital Project Funds. Per NRS 354.626, expenditures over budgeted appropriations are allowed for bond repayments, medium term obligation repayments, and other long-term contracts expressly authorized by law.

The sum of operating and nonoperating expenses in Proprietary Funds also may not exceed combined total appropriations.

The budget reflected in the financial statements has not been amended from the original budget amounts. There were no amendments for augmentations for prior obligations or supplemental appropriations needed for grants, contingencies, and other uses.

Expenditures over Appropriations The individual Schedule of Revenues, Expenditures/Expenses and Changes in Fund Balances/Net Position – Budget and Actual reports as listed in the table of contents present all of the funds which incurred an excess of expenditures/expenses over appropriations for the year ended June 30, 2016, if any.


June 30, 2016

39

NOTE 3. Stewardship, Compliance and Accountability, Continued

Encumbrances Encumbrance accounting, under which purchase orders, contracts, and other commitments for the expenditure of monies are recorded in order to reserve that portion of the applicable appropriation, is not employed by the City.

Property tax calendar Real property taxes result in a lien on the property and attach on July 1 (the levy date) of the year for which the taxes are levied. Taxes may be paid in four installments payable on the third Monday in August, and the first Mondays in October, January and March to the County Clerk/Treasurer of Lyon County in which the City of Fernley is located. Penalties are assessed if a taxpayer fails to pay an installment within ten days of the installment due date. After a two year waiting period, if taxes remain unpaid, a tax deed is issued conveying the property to Lyon County with a lien for back taxes and accumulated charges. Redemption may be made by the owner and such persons as described by statute by paying all back taxes and accumulated penalties, interest and costs before sale. As such, real property taxes receivable reflect only those taxes receivable from the delinquent roll years, and current taxes collected within 60 days of year end and delinquent taxes from all roll years prior to 2003-2004 have been written off. No provision for uncollectible accounts has been established, as management does not anticipate any material collection losses with respect to the remaining balances. Taxes on personal property are collected currently. Personal property declarations are mailed out annually and the tax is computed using percentages of taxable values established by the Department of Taxation at the tax rates described above Article X, Section 2, of the Constitution of the State of Nevada limits the total taxes levied by all overlapping governmental units within the boundaries of any county (i.e., the county, the county school district, the State, and any other city, town, or special district) to an amount not to exceed $5 per $100 of assessed valuation of the property being taxed. The 1979 Nevada Legislature enacted provisions whereby, commencing July 1, 1979, the combined overlapping tax rate was limited to $3.64 per $100 of assessed valuation (as thereafter annually adjusted). The 1981 Legislature enacted “tax shift” legislation designed to further reduce the level of property taxes collected throughout the State. The additional revenue is being distributed to local governmental units in order to reduce the revenues they would otherwise be required to generate from property taxes for operating purposes.

Delinquent taxes receivable not collected within sixty days after year-end are normally recorded as unavailable revenue as they are not available to pay liabilities of the current period. However, delinquent taxes receivable not collected within sixty days as of year-end were not deemed material and have not been recorded.


June 30, 2016

40

NOTE 4. Cash and Investments A reconciliation of cash deposits and investments to the government-wide statement of net position is as follows:

Cash and investments 21,816,673$ Restricted cash and investments 605,956 Trust and agency fund monies 22,768

22,445,397$

Deposits

Custodial credit risk

For deposits this is the risk that in the event of a bank failure, the City’s deposit may not be returned. The City does not have a formal policy for custodial credit risk. At June 30, 2016 cash on hand was $1,350 and the carrying amount of the City’s deposits was $3,975,805. None of the City’s bank balance of $3,973,415 was exposed to custodial credit risk since it was insured and collateralized.

Investments

The Nevada State Treasurer’s Office operates the Local Government Investment Pool (LGIP). The LGIP is available for investment of funds administered by any Nevada Public Treasurer.

The LGIP is not registered with the SEC as an investment company. Deposits in the LGIP are not insured or otherwise guaranteed by the State of Nevada, and participants share proportionally in any realized gain or losses on investments.

The provisions of State Law (NRS 355.170) govern the investment of public funds. This section intentionally left blank.


June 30, 2016

41

NOTE 4. Cash and Investments, Continued As of June 30, 2016 the City had the following investments, maturities and credit ratings:

Fair Weighted AverageInvestment Type Value S&P Moody's Maturity (2)

Corporate Bonds 4,063,574$ N/A N/A 621

Mortgage-Backed 2,690,612 N/A N/A 1,541

U.S. Agencies 1,232,044 AA+ Aaa 316

U.S. Treasuries 6,062,196 AA+ Aaa 231

Nevada Local GovernmentInvestment Pool 4,419,814 N/A N/A 36

Total Fair Value 18,468,241$

(1) Ratings are provided where applicable to indicate associated credit risk. N/A indicates not applicable.(2) Interest rate risk is estimated using the weighted average days to maturity.

CreditRating (1)

The City categorizes its fair value measurements within the fair value hierarchy established by generally accepted accounting principles. The hierarchy is based on the valuation inputs used to measure the fair value of the asset. Level 1 inputs are quoted prices in active markets for identical assets; Level 2 inputs are significant other observable inputs; Level 3 inputs are significant unobservable inputs. The City has the following recurring fair value measurements as of June 30, 2016:

• Corporate Bonds are valued using a matrix pricing model (Level 2 inputs) • Mortgage-Backed investments are valued using a matrix pricing model (Level 2 inputs) • U.S. Agencies investments are valued using quoted market prices (Level 1 inputs) • U.S. Treasuries bills are valued using quoted market prices (Level 1 inputs) • Nevada Local Government’s Investment Pool: refer to Footnote 1, Cash and Investments.

Interest rate risk Interest rate risk is the risk that changes in interest rates will adversely affect the fair value of an investment. The City’s policy for managing its exposure to fair value loss arising from increasing interest rates is to comply with the provisions of State law (NRS 355.170).

Credit risk Credit risk is the risk that an issuer or other counterparty to an investment will not fulfill its obligations. The City’s policy for reducing its exposure to credit risk is to comply with State law (NRS 355.170).


June 30, 2016

42

NOTE 5. Receivables Receivables, net of allowance A summary of receivables reported in the proprietary funds is as follows:

Water Fund Sewer Fund

Service revenue receivable 581,007$ 191,249$ Allowance for doubtful accounts (6,701) (429)

574,306 190,820 Intergovernmental receivable 189,587 -

Bond debt fees receivable 121,547 -

885,440$ 190,820$

Due from other governments Due from other governments reported in the general fund relate to consolidated tax and motor fuel tax revenue receivable. Due from other governments reported in the grants fund relate to various grant revenue receivable. Other receivables The other receivables reported in the general fund are franchise taxes receivable that were measurable and available per GASB. The other receivables reported in the Non-major governmental funds relate to miscellaneous court revenue receivable and transient lodging tax revenues receivable from various entities. This section intentionally left blank


June 30, 2016

43

NOTE 6. Capital Assets Governmental capital asset activity for the fiscal year ended June 30, 2016 was as follows:

Governmental Activities: Balance Balance6/30/2015 Additions Deletions Transfers 6/30/2016

Capital assets, not being depreciated:Land 3,967,460$ -$ -$ -$ 3,967,460$ Construction in progress 223,853 1,170,372 (1,082,515) - 311,710

Total capital assets, not being depreciated: 4,191,313 1,170,372 (1,082,515) - 4,279,170

Capital assets, being depreciated:Buildings 8,667,420 - - 8,667,420 Improvements 9,615,737 1,082,515 - (14,050) 10,684,202 Machinery and equipment 1,491,198 100,957 (15,995) 14,050 1,590,210 Infrastructure 33,446,610 281,363 - - 33,727,973

Total capital assets, being depreciated: 53,220,965 1,464,835 (15,995) - 54,669,805

Less accumulated depreciation for:Buildings (3,299,860) (345,897) - - (3,645,757) Improvements (4,041,684) (267,561) - - (4,309,245) Machinery and equipment (1,217,864) (80,318) 15,995 - (1,282,187) Infrastructure (7,597,191) (846,087) - - (8,443,278)

Total accumulated depreciation (16,156,599) (1,539,863) 15,995 - (17,680,467)

Total capital assets, being depreciated, net 37,064,366 (75,028) - - 36,989,338

Governmental activities capital assets, net 41,255,679$ 1,095,344$ (1,082,515)$ -$ 41,268,508$

Depreciation expense was charged to the functions/programs of the City as follows:

Governmental Activities:

General government 376,218$ Public works 1,096,485 Judicial 4,724 Culture and recreation 56,733 Health 5,703

Total depreciation expense - governmental activities 1,539,863$


June 30, 2016

44

NOTE 6. Capital Assets, Continued

Business-type capital asset activity for the fiscal year ended June 30, 2016 was as follows:

Business Type Activities: Balance Balance6/30/2015 Additions Deletions Transfers 6/30/2016

Capital assets not being depreciated:Land 1,195,948$ 5,661$ -$ -$ 1,201,609$ Water rights 40,575,226 1,248,075 - - 41,823,301 Construction in progress 393,076 1,113,857 (979,059) - 527,874

Total capital assets, not being depreciated 42,164,250 2,367,593 (979,059) - 43,552,784

Capital assets being depreciated:Buildings 17,530 - - - 17,530 Improvements 151,037,896 1,209,375 - (87,353) 152,159,918 Machinery and equipment 1,891,177 473,757 (103,591) 87,353 2,348,696 Other capital assets 1,671,630 - - - 1,671,630

Total capital assets, being depreciated 154,618,233 1,683,132 (103,591) - 156,197,774

Less accumulated depreciation for:Buildings (17,530) - - - (17,530) Improvements (36,974,559) (3,986,249) - - (40,960,808) Machinery and equipment (1,812,853) (96,981) 103,591 - (1,806,243) Other capital assets (1,129,995) (81,458) - - (1,211,453)

Total accumulated depreciation (39,934,937) (4,164,688) 103,591 - (43,996,034)

Total capital assets, being depreciated, net 114,683,296 (2,481,556) - - 112,201,740

Business-type activities capital assets, net 156,847,546$ (113,963)$ (979,059)$ -$ 155,754,524$

Depreciation expense was charged to the functions/programs of the City as follows:

Business-Type Activities:Water 3,174,277$ Sewer 990,411

Total depreciation expense - business-type activities 4,164,688$


June 30, 2016

45

NOTE 7. Long-Term Liabilities

The following is a summary of changes in long-term liabilities for the fiscal year ended June 30, 2016:

Issue Interest Maturity Authorized Balance Balance Current Date Rate Date and Issued 6/30/2015 Additions Retirements 6/30/2016 Portion

Governmental Activities:

Refunding installmentPurchase agreement 6/29/2012 2.38% 12/1/2025 4,010,000 3,560,000 - (286,000) 3,274,000 293,000

Compensated absences 99,088 117,599 (87,479) 129,208 82,168

Net pension liability 2,988,244 514,122 - 3,502,366 -

Net other postemployment benefit obligations payable 372,820 35,628 - 408,448 -

Total Governmental Activities 4,010,000 7,020,152 667,349 (373,479) 7,314,022 375,168

Business-type Activities:Sewer Fund:2007 Bond Issue 3/28/2007 4% - 5% 2/1/2037 5,500,000 3,849,450 - (3,849,450) - - 2008 Bond Issue 4/1/2008 3.25%-5% 2/1/2038 2,500,000 1,934,816 - (1,934,816) - - 2014 Refunding 10/23/2014 2.48% 2/1/2026 1,295,771 1,287,210 - (12,590) 1,274,620 13,094 2015A Refunding * 8/6/2015 2.35% 2/1/2038 5,807,691 - 5,807,691 (8,604) 5,799,087 52,295

15,103,462 7,071,476 5,807,691 (5,805,460) 7,073,707 65,389

Water Fund:2007 Bond Issue 3/28/2007 4% - 5% 2/1/2037 44,500,000 31,145,550 - (17,410,550) 13,735,000 1,190,000 2008 Bond Issue 4/1/2008 3.25%-5% 2/1/2038 30,100,000 23,295,184 - (20,900,184) 2,395,000 790,000 2014 Refunding 10/23/2014 2.48% 2/1/2026 11,569,229 11,492,790 - (112,410) 11,380,380 116,906 2015B Refunding * 11/4/2015 2%-5% 2/1/2038 37,665,000 - 37,665,000 - 37,665,000 105,000

86,169,229 65,933,524 37,665,000 (38,423,144) 65,175,380 2,201,906

Unamortized bond (discount)/premium 40,865 2,552,345 (40,865) 2,552,345 110,972

Compensated absences 86,777 27,558 - 114,335 72,710

Net pension liability 1,934,729 359,605 - 2,294,334 -

Net other postemployment benefit obligations payable 216,189 22,151 - 238,340 -

Total Business-type Activities 101,272,691 75,283,561 46,434,350 (44,269,470) 77,448,441 2,450,976

Total Long Term Debt 105,282,691 82,303,713 47,101,699 (44,642,949) 84,762,463 2,826,145

Payments on the notes payable that pertain to the City’s governmental activities are made by the general fund. The compensated absence liability is paid from the fund responsible for the employee’s compensation with significant liabilities payable from the general fund. The net pension liability and the net other postemployment benefit obligations are liquidated by the general fund. * See Note 13 regarding the 2015A and 2015 B refunding bond issuance.


June 30, 2016

46

NOTE 7. Long-Term Liabilities, Continued

The purposes of individual bond issues are as follows: Governmental Refunding Purchase Agreement: Refinance debt on City Hall facilities. 2007 Bond Issue: Finance the Construction of the Water Treatment Plant, the Fernley interceptor

upgrade and the East Lift Station. 2008 Bond Issue: Finance the construction of the Water Treatment Plant and the Highway 50

Lift Station 2014 Refunding Bond Issue: Refund a portion of the 2007 and 2008 Bond Issues. 2015A and B Refunding Bond Issue: Refund a portion of the 2007 and 2008 Bond Issues Estimated debt service requirements for bonds payable are as follows:

Fiscal Year Ending June 30, Principal Interest Principal Interest Principal Interest

2017 293,000$ 74,435$ 65,389$ 167,584$ 2,201,906$ 2,490,477$ 2018 301,000 67,366 207,448 165,200 2,151,906 2,386,478 2019 308,000 60,119 275,915 159,911 2,181,403 2,290,029 2020 315,000 52,705 277,741 153,402 2,290,899 2,191,868 2021 323,000 45,113 289,323 146,792 2,390,396 2,080,496

2022-2026 1,734,000 105,125 1,543,846 634,510 13,358,871 8,991,233 2027-2031 - - 1,827,404 424,275 15,890,000 6,567,469 2032-2036 - - 2,051,255 197,743 18,890,000 3,481,113 2037-2038 - - 535,385 11,714 5,820,000 282,750

Total 3,274,000$ 404,863$ 7,073,706$ 2,061,131$ 65,175,381$ 30,761,911$

General Obligation Sewer WaterGovernmental Activities Business-Type Activities

The combined total debt service for both governmental and business-type debt is as follows:

Fiscal Year Ending June 30, Principal Interest

2017 2,560,295$ 2,732,496$ 2018 2,660,354 2,619,044 2019 2,765,318 2,510,059 2020 2,883,640 2,397,975 2021 3,002,719 2,272,401

2022-2026 16,636,717 9,730,868 2027-2031 17,717,404 6,991,744 2032-2036 20,941,255 3,678,855 2037-2038 6,355,385 294,464

Total 75,523,087$ 33,227,905$

Total


June 30, 2016

47

NOTE 8. Postemployment Retirement Health Insurance Benefit Plan Descriptions: The City administers a single-employer defined benefit healthcare plan, City of Fernley Employee Health Benefits Plan (COFEHBP). Additionally, the City contributes to an agent multiple-employer defined benefit postemployment healthcare plan, Public Employees’ Benefits Plan (PEBP). Each plan provides medical, vision, dental, and life insurance benefits to eligible retired City employees and beneficiaries. Benefit provisions for the COFEHBP are established pursuant to NRS 287.023 and amended through negotiations between the City and the respective associations. NRS 288.150 assigns the authority to establish benefit provisions to the Board of Commissioners. The plan provides healthcare insurance for eligible retirees and their beneficiaries through the City’s group health insurance plan, which covers both active and retired members. Under NRS 287.023, eligible retirees are able to participate in the plan with blended rates, thereby benefitting from an implicit subsidy. Retirees are required to pay 100% of their premiums under the plan. As of June 30, 2016, three City retirees were utilizing this benefit. The COFEHBP does not issue a publicly available financial report. Benefit provisions for the PEBP are administered by the State of Nevada. NRS 287.043 assigns the authority to establish and amend benefit provisions to the PEBP nine-member board of trustees. City employees who met the eligibility requirements effective September 1, 2008 for retirement within the Nevada Public Employee Retirement System had the option upon retirement to enroll in coverage under the PEBP. NRS 287.023 sunsetted the option to join PEBP for City employees who retired from the City after November 29, 2008. Local governments are required to pay the same portion of the cost of coverage for their retirees joining PEBP that the State of Nevada pays for state retirees participating in the plan. As of June 30, 2016, four City retirees were utilizing this benefit. Funding Policy: For COFEHBP, contribution requirements of the plan members and the City are established and may be amended through negotiations between the City and the associations. Retirees pay 100% of the pay-as-you-go premiums based on a blended rate that blends active participants and retirees. The City’s contribution requirements for retirees relate to the implicit subsidy that results from using the blended rates and is determined in actuarial studies contracted for by the City. The implicit subsidy as determined by the actuary is $0 for fiscal year 2016. The City did not prefund any future benefits. For the PEBP, NRS 287.046 establishes the subsidies to be contributed toward the premium costs of the eligible retired City employees. The contribution requirements of plan members and the City may be amended by the PEBP board. Premium rates determined by PEBP are the same for all participating members. Plan members receiving benefits have their monthly contribution deducted from their pension checks based on the health plan chosen by the retiree, as reduced by the amount of the subsidy; therefore, their contributions are not available. For the plan year ended June 30, 2016, City retirees qualified for a subsidy of $114 at five years of service and $627 at twenty years of service, with incremental increases for years of service in between. As a participating employer, the City is billed for the subsidy on a monthly basis and is legally required to provide for it. For fiscal year 2016, the City contributed $6,094 to the plan, equal to required contributions. The City did not prefund future benefits.


June 30, 2016

48

NOTE 8. Postemployment Retirement Health Insurance Benefit, Continued Annual OPEB Cost and Net OPEB Obligation: The City’s annual other postemployment benefit (OPEB) cost (expense) for the plans is calculated based on the annual required contribution of the employer (ARC), an amount actuarially determined in accordance with parameters of GASB Statement 45. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover normal cost each year and to amortize any unfunded actuarial liabilities (or funding excess) over a period not to exceed thirty years. The City’s annual OPEB cost, the percentage of annual OPEB cost contributed to the plans, and the net OPEB obligations, by plan, for fiscal years 2015-16, 2014-15, and 2013-14 were as follows:

Annual OPEB Cost Percentage ofFiscal (Entry Age Normal Employer Annual OPEB Net OPEB

Year End Cost Method) Contributions Contributed ObligationCOFEHBP June 30, 2016 76,614$ -$ 0% 629,299$ COFEHBP June 30, 2015 102,395 10,244 10% 570,430 COFEHBP June 30, 2014 95,747 8,015 8% 478,279

PEBP June 30, 2016 5,003 6,094 122% 17,489 PEBP June 30, 2015 9,682 11,732 121% 18,580 PEBP June 30, 2014 9,782 12,661 129% 20,630

Combined Totals June 30, 2016 81,617 6,094 - 646,788 Combined Totals June 30, 2015 112,077 21,976 - 589,010 Combined Totals June 30, 2014 105,529 20,676 - 498,909

The net OPEB obligation (NOPEBO) as of June 30, 3016, was calculated as follows:

COFEHBP PEBP Total

Annual Required Contribution (ARC) 81,359$ 5,479$ 86,838$ Interest on net OPEB obligation 22,817 743 23,560 Adjustment to annual required contribution (27,562) (1,219) (28,781)

Annual OPEB Cost 76,614 5,003 81,617 Less: Contributions made - 6,094 6,094 Less: implicit subsidy 17,745 - 17,745

Increase (decrease) in net OPEB obligation 58,869 (1,091) 57,778

Net OPEB obligation – beginning of the year 570,430 18,580 589,010

Net OPEB obligation – end of year 629,299$ 17,489$ 646,788$


June 30, 2016

49

NOTE 8. Postemployment Retirement Health Insurance Benefit, Continued Funded Status and Funding Progress: The funded status of the plans as the most recent actuarial valuation follows:

COFEHBP PEBP Total

Accrued actuarial liability (a) 442,370$ 85,199$ 527,569$ Actuarial value of plan assets (b) - - -

Unfunded Actuarial Accrued Liability (a) – (b) 442,370$ 85,199$ 527,569$

Funded Ratio (b) / (a) 0% 0% 0%

Covered payroll (c) 3,235,179$ N/A

Unfunded Actuarial Accrued Liability as aPercentage of Covered Payroll ([(a) –(b)] / (c)) 14% N/A

Actuarial valuations involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, mortality, and the healthcare cost trend. Amounts determined regarding the funded status of the plan and the annual required contributions of the employer are subject to continual revision as actual results are compared to past expectations and new estimates are made about the future. The schedule of funding progress, presented as required supplementary information following the notes to the financial statements, presents information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for benefits. Multiyear information will be provided as it becomes available. Actuarial Methods and Assumptions: Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as understood by the employer and plan members) and include the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between the City and plan members to that point. Actuarial calculations reflect long-term perspective and employ methods and assumptions that are designed to reduce short-term volatility in actuarial accrued liabilities and actuarial value of assets.


June 30, 2016

50

NOTE 8. Postemployment Retirement Health Insurance Benefit, Continued Significant methods and assumptions used in the June 30, 2016 actuarial valuation were as follows:

COFEHBP

PEBP

Actuarial valuation date

January 1, 2016 January 1, 2016

Actuarial cost method

Entry Age Normal Cost Entry Age Normal Cost

Amortization method

Level Percentage of Pay Level Dollar

Amortization period (open)

24 years (closed) 24 years (closed)

Asset valuation method

Market Value Market Value

Actuarial Assumptions: Projected general inflation rate

2.75% 2.75%

Investment rate of return

4% 4%

Projected overall salary increase

4% N/A - no payroll

Medical Healthcare inflation rate*

7.5% - 5% 7.5% - 5%

* Actual medical premiums used in 2013, 7.5% decreasing each year by .5% until 5% is reached in 2021.

NOTE 9. Interfund Transactions and Balances As of June 30, 2016, the City had the following internal balances:

Due FromGrants

Due To Fund Total

General Fund 85,895$ 85,895$

Total 85,895$ 85,895$ Interfund balances resulted from the time lag between the dates that (1) interfund goods and services are provided or reimbursable expenditures occur, (2) transactions are recorded in the accounting system, and (3) payments between funds are made. All interfund balances are expected to be repaid within one year.


June 30, 2016

51

NOTE 9. Interfund Transactions and Balances, Continued For the fiscal year ended June 30, 2016, the City did not have any interfund transfers. Transfers are normally used to (1) move revenues from the fund that statute or budget requires to collect them to the fund that statute or budget requires to expend them, (2) move receipts restricted to debt service from the funds collecting the receipts to the debt service fund as debt service payments become due, and (3) use unrestricted revenues collected in the general fund to finance various programs accounted for in other funds in accordance with budgetary authorizations.

NOTE 10. Defined Benefit Pension Plan

Public Employees’ Retirement System of Nevada (PERS) Plan description PERS administers a cost-sharing, multiple-employer, defined benefit public employees’ retirement system which includes both Regular and Police/Fire members. The System was established by the Nevada Legislature in 1947, effective July 1, 1948. The System is administered to provide a reasonable base income to qualified employees who have been employed by a public employer and whose earnings capacities have been removed or substantially impaired by age or disability. Benefits provided Benefits, as required by the Nevada Revised Statutes (NRS or statute), are determined by the number of years of accredited service at time of retirement and the member’s highest average compensation in any 36 consecutive months with special provisions for members entering the System on or after January 1, 2010. Benefit payments to which participants or their beneficiaries may be entitled under the plan include pension benefits, disability benefits, and survivor benefits. Monthly benefit allowances for members are computed as 2.5% of average compensation for each accredited year of service prior to July 1, 2001. For service earned on and after July 1, 2001, this multiplier is 2.67% of average compensation. For members entering the System on or after January 1, 2010, there is a 2.5% multiplier. The System offers several alternatives to the unmodified service retirement allowance which, in general, allow the retired employee to accept a reduced service retirement allowance payable monthly during his or her lifetime and various optional monthly payments to a named beneficiary after his or her death. Post-retirement increases are provided by authority of NRS 286.575 - .579.


June 30, 2016

52

NOTE 10. Defined Benefit Pension Plan, Continued Vesting Regular members are eligible for retirement at age 65 with five years of service, at age 60 with 10 years of service, or at any age with thirty years of service. Regular members entering the System on or after January 1, 2010, are eligible for retirement at age 65 with five years of service, or age 62 with 10 years of service, or any age with thirty years of service. Police/Fire members are eligible for retirement at age 65 with five years of service, at age 55 with ten years of service, at age 50 with twenty years of service, or at any age with twenty-five years of service. Police/Fire members entering the System on or after January 1, 2010, are eligible for retirement at 65 with five years of service, or age 60 with ten years of service, or age 50 with twenty years of service, or at any age with thirty years of service. Only service performed in a position as a police officer or firefighter may be counted towards to eligibility for retirement as Police/Fire accredited service. The normal ceiling limitation on monthly benefits allowances is 75% of average compensation. However, a member who has an effective date of membership before July 1, 1985, is entitled to a benefit of up to 90% of average compensation. Both Regular and Police/Fire members become fully vested as to benefits upon completion of five years of service. Contributions The authority for establishing and amending the obligation to make contributions and member contribution rates is set by stature. New hires, in agencies which did not elect the Employer-Pay Contribution (EPC) plan prior to July 1, 1983, have the option of selecting one of two contribution plans. Contributions are shared equally by employer and employee. Employees can take a reduced salary and have contributions made by the employer (EPC) or can make contributions by a payroll deduction matched by the employer. The System’s basic funding policy provides for periodic contributions at a level pattern of cost as a percentage of salary throughout an employee’s working lifetime in order to accumulate sufficient assets to pay benefits when due. The System receives an actuarial valuation on an annual basis indicating the contribution rates required to fund the System on an actuarial reserve basis. Contributions actually made are in accordance with the required rates established by the Nevada Legislature. These statutory rates are increased/decreased pursuant to NRS 286.421 and 286.450. The actuary funding method used is the Entry Age Normal Cost Method. It is intended to meet the funding objective and result in a relatively level long-term contributions requirement as a percentage of salary.


June 30, 2016

53

NOTE 10. Defined Benefit Pension Plan, Continued For the fiscal years ended June 30, 2015 and June 30, 2016 the Statutory Employer/employee matching rate was 13.25% and 14.50%, respectively, for Regular employees. The Employer-pay contribution (EPC) rate was 25.75% and 28%, respectively, for Regular employees. The City's contributions for the current and two preceding fiscal years, all of which were equal to the required contributions, were as follows:

Year Ended RegularJune 30, Fund

2014 711,581$ 2015 780,795

2016 912,020 Investment policy The System’s policies which determine the investment portfolio target asset allocation are established by the Board. The asset allocation is reviewed annually and is designed to meet the future risk and return needs of the System. The following was the Board adopted policy target asset allocation as of June 30, 2015:

Asset Class Target Allocation

Long-term Geometric Expected Real Rate of Return*

Domestic equity 42% 5.50% International equity 18% 5.75% Domestic fixed income 30% 0.25% Private markets 10% 6.80%

*As of June 30, 2015, PERS’ long-term inflation assumption was 3.50%. Pension liability Net pension liability At June 30, 2016, the City reported a liability of $5,796,699 for its proportionate share of the PERS' net pension liability. The net pension liability was measured as of June 30, 2015, and the total pension liability used to calculate the net pension liability was determined by an actuarial valuation as of that date. The employer allocation percentage of the net pension liability was based on the total contributions due on wages paid during the measurement period. Each employer’s proportion of the net pension liability is based on their combined employer and member contributions relative to the total combined employer and member contributions for all employers for the period ended June 30, 2015. The City's proportion measured as of June 30, 2015, was 0.05058 percent, which was an increase of 0.003340 percent from its proportion measured as of June 30, 2014.


June 30, 2016

54

NOTE 10. Defined Benefit Pension Plan, Continued Pension liability discount rate sensitivity The following presents the net pension liability of the PERS as of June 30, 2015, calculated using the discount rate of 8.00%, as well as what the PERS net pension liability would be if it were calculated using a discount rate that is 1-percentage-point lower (7.00%) or 1-percentage-point higher (9.00%) than the current discount rate:

1% Decrease Discount Rate 1% Increase(7.00%) (8.00%) (9.00%)

Proportionate share of Net pension (asset) / liability 8,833,008$ 5,796,699$ 3,271,796$

Pension plan fiduciary net position Detailed information about the pension plan’s fiduciary net position is available in the PERS Comprehensive Annual Financial Report, available on the PERS website. Actuarial assumptions The City’s net pension liability was measured as of June 30, 2015, and the total pension liability used to calculate the net pension liability was determined by an actuarial valuation as of that date. The total pension liability was determined using the following actuarial assumptions, applied to all periods included in the measurement:

Inflation rate 3.50% Payroll growth 5.00%, including inflation Investment rate of return 8.00% Productivity pay increase 0.75% Projected salary increases Regular: 4.60% to 9.75%, depending on service

Police/Fire: 5.25% to 14.50%, depending on service Rates include inflation and productivity increases

Consumer Price Index 3.50% Other assumptions Same as those used in the June 30, 2015 funding

actuarial valuation Actuarial assumptions used in the June 30, 2015 valuation were based on the results of the experience review completed in 2013. The discount rate used to measure the total pension liability was 8.00% as of June 30, 2015 and June 30, 2014. The projection of cash flows used to determine the discount rate assumed that employee and employer contributions will be made at the rate specified in statute. Based on that assumption, the pension plan’s fiduciary net position at June 30, 2015, was projected to be available to make all projected future benefit payments of current active and inactive employees. Therefore, the long-term expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the total pension liability as of June 30, 2015 and June 30, 2014.


June 30, 2016

55

NOTE 10. Defined Benefit Pension Plan, Continued Pension expense and deferred outflows/inflows of resources related to pensions For the fiscal year ended June 30, 2016, the City recognized pension expense for PERS of $850,313. At June 30, 2016, the City reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources:

Deferred Outflows of Resources

Deferred Inflows of Resources

Differences between expected and actual experience -$ 436,012$

- 313,988 Subtotal - 750,000

371,912 177,697 Contributions subsequent to the measurement date 912,020 -

Total 1,283,932$ 927,697$

Governmental activities 775,752$ 560,515$

Business-type activities 508,180 367,182 1,283,932$ 927,697$

Average expected remaining service lives 6.70 years

Changes in proportion and differences between contributions and proportional share of contributions

Net difference between projected and actual earnings on pension plan investments

The $912,020 reported as deferred outflows of resources related to PERS pensions resulting from City contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability in the subsequent fiscal year. Other amounts reported as deferred outflows of resources and deferred inflows of resources, excluding the changes in proportion and differences between actual contributions and proportionate share of contributions, will be recognized in pension expense as follows:

Year Ending June 30

Deferred Outflows

(Inflows) of Resources

2017 (233,048)$ 2018 (233,048) 2019 (233,048) 2020 43,785 2021 (72,060) 2022 (22,585)

Thereafter - (750,004)$


June 30, 2016

56

NOTE 11. Risk Management

The City, like any governmental entity, is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors and omissions; injuries of employees; and natural disasters. The City has joined together with similar public agencies (cities, counties and special districts) throughout the State of Nevada to create a pool under the Nevada Interlocal Cooperation Act. The Nevada Public Agency Insurance Pool (Pool) is a public entity risk pool currently operating as a common risk management and insurance program for its members. The City pays an annual premium and specific deductibles, as necessary, to the Pool for its general insurance coverage. The Pool is considered a self-sustaining risk pool that will provide coverage for its members for up to $10,000,000 per event and a $13,000,000 general aggregate per member. The City has also joined together with similar public agencies, under the Nevada Interlocal Cooperation Act, to create an intergovernmental self-insured association for workers compensation insurance, the Public Agency Compensation Trust (PACT). The City pays premiums based on payroll costs to the PACT. The PACT is considered a self-sustaining pool that will provide coverage based on established statutory limits. The City continues to carry commercial insurance for other risks of loss, including specific risks of loss not covered by the Pool, including bonding and employee health and accident insurance. Settled claims resulting from these risks have not exceeded commercial coverage for the past three years.

NOTE 12. Commitments and Contingencies The City is involved with several significant construction contracts that will continue from fiscal year 2016 through subsequent fiscal years. Details of the projects are available in the City’s fiscal year 2017 budget. The City is involved in various matters of litigation. Although the outcome of the litigation is not presently determinable, it is the opinion of City officials that none of the cases will have a materially adverse effect on the City's financial condition.

NOTE 13. Refunding Bond Issuance On August 6, 2015, the City issued $5,838,000 of General Obligation (Limited Tax) Sewer Refunding Bonds (Additionally Secured by Pledged Revenues) Series 2015A to refinance a portion of the City’s General Obligation (Limited Tax) Water and Sewer Bonds Series 2007 and Series 2008. $3,600,000 of the Series 2007 Bond and $1,760,000 of the Series 2008 Bond were refunded. As a result, the refunded portion of the bonds are considered to be defeased. The transaction resulted in an economic gain (the


June 30, 2016

57

NOTE 13. Refunding Bond Issuance, Continued present value of future cash flows) of $1,007,520 and a reduction of $1,346,997 in future debt service payments. On November 4, 2015, the City issued $37,665,000 of General Obligation (Limited Tax) Water Refunding Bonds (Additionally Secured by Pledged Revenues) Series 2015B to refinance a portion of the City’s General Obligation (Limited Tax) Water and Sewer Bonds Series 2007 and Series 2008. $16,525,000 of the Series 2007 Bond and $20,310,000 of the Series 2008 Bond were refunded. As a result, the refunded portion of the bonds are considered to be defeased. The transaction resulted in an economic gain (the present value of future cash flows) of $3,237,625 and a reduction of $4,662,688 in future debt service payments. On October 23, 2014, the City issued $12,865,000 of General Obligation (Limited Tax) Water and Sewer Refunding Bonds (Additionally Secured by Pledged Revenues) Series 2014 to refinance a portion of the City’s General Obligation (Limited Tax) Water and Sewer Bonds (Additionally Secured by Pledged Revenues) Series 2007 and Series 2008. $8,400,000 of the Series 2007 Bond and $3,245,000 of the Series 2008 Bond were refunded. As a result, the refunded portion of the bonds are considered to be defeased. NOTE 14. Subsequent Events On November 3, 2016 the City closed on $9,085,000 City of Fernley, Nevada General Obligation (Limited Tax) Water and Sewer Refunding Bonds, Series 2016. Proceeds of the bonds, net of issuance costs will be placed into an escrow account for the purpose of refunding a portion of the 2007 and 2008 General Obligation (Limited Tax) Water and Sewer Bonds. After the June 30, 2016 fiscal year end, the City determined that it will be necessary to make various sewer system improvements estimated at a total cost of $2,306,150. The City anticipates financing the project to remove sludge and reline a sewer pond with a $1.2 million NDEP loan, a $500,000 NDEP grant, a $291,000 EPA grant and the balance with City matching funds. NOTE 15. Prior Period Adjustment In July 2016 the City received franchise revenue of $106,249 from Nevada Energy which resulted from an audit indicating that the County had been paid for certain fees which should have been paid to the City. During fiscal year 2016 the City received notice from the Nevada Department of Transportation (NDOT) that the City had been overpaid $86,593 of their portion of property taxes in prior years. This amount was paid back to NDOT in the current year. The net amount of these two adjustments increased the General fund balance and net position of governmental activities in the statement of net position by $19,656.

58


59

REQUIRED SUPPLEMENTARY INFORMATION

CITY OF FERNLEY, NEVADA Schedule of the Proportionate Share of the Net Pension Liability

June 30, 2016

60

PUBLIC EMPLOYEES’ RETIREMENT SYSTEM OF NEVADA

2016 2015(2015) (2014)

Proportion of the net pension liability (asset) 0.050580% 0.047240%

Proportionate share of the net pension liability (asset) 5,796,699$ 4,922,973$

Covered employee payroll 3,032,214$ 2,763,421$

Proportionate share of the net pension liability (asset) as a percentage of its covered-employee payroll 191.17% 178.15%

Plan fiduciary net position as a percentage of the total pension liability 75.1% 76.3%

(Measurement Date)Reporting Fiscal Year

Note: The District implemented GASB 68 in fiscal year 2015. Prior year information is not available.

CITY OF FERNLEY, NEVADA Schedule of Contributions


61

PUBLIC EMPLOYEES’ RETIREMENT SYSTEM OF NEVADA

2016 2015(2015) (2014)

Contractually required contribution 780,795$ 711,581$

Contributions in relation to the contractually required contribution (780,795)$ (711,581)$

Contribution deficiency (excess) -$ -$

Covered employee payroll 3,032,214$ 2,763,421$

Contributions as a percentage of covered-employee payroll 25.75% 25.75%

Reporting Fiscal Year(Measurement Date)

Note: The entity implemented GASB 68 in fiscal year 2015. Prior year information is not available.

CITY OF FERNLEY, NEVADA Schedule of Funding Progress – Other Post Employment Benefit Plans


62

ActuarialAccruedLiability

Actuarial (AAL) - UAAL as a Value of Entry Age Percentage

Actuarial Plan Normal Unfunded Funded Covered of CoveredValuation Assets Cost AAL (UAAL) Ratio Payroll Payroll

Date (a) (b) (b - a) (a/b) (c) ([b - a]/c)

COFEHBP January 1, 2016 -$ 442,370$ 442,370$ 0% 3,235,179$ 14%PEBP* January 1, 2016 - 85,199 85,199 0% N/A N/A

COFEHBP January 1, 2013 - 652,254 652,254 0% 2,760,034 24%PEBP* January 1, 2013 - 162,201 162,201 0% N/A N/A

COFEHBP June 30, 2010 - 301,357 301,357 0% 2,494,167 12%PEBP* June 30, 2010 - 420,276 420,276 0% N/A N/A

Multi-year data will be provided as it becomes available. * The option to join the State plan was sunsetted for City employees effective November 29, 2008. Significant changes in the UAAL between June 30, 2013 and January 1, 2016 actuarial valuations include:

PEBP – the UAAL for retirees decreased by approximately $91,000 due to updated in members covered and in the amount of their monthly subsidy from the City, projection of future improvements in retiree mortality, and some changes to the trend assumption for future increases in subsidies both before and after eligibility for Medicare.

COFEHBP – the UAAL for retirees decreased by approximately $16,000 due to updates to

employee premium data since the prior valuation was prepared; updated to the assumed rates of retirement, termination and mortality to be more consistent with those used in the most recent retirement plan valuation; and a change in methodology and assumptions used for developing age relative retiree medical claim costs.

CITY OF FERNLEY, NEVADA Major Governmental Funds

Schedules of Revenues, Expenditures, and Changes in Fund Balances Budget and Actual

June 30, 2016

63

The General Fund is the City’s primary operating fund. It accounts for all financial resources of the general government, except for those required to be accounted for in another fund.

Budget and actual comparisons are presented for all funds of the City as required by Nevada Revised Statutes. Such budget comparisons are required to be presented using the budget as adopted, and approved by the State of Nevada Department of Taxation. However, guidance provided in governmental accounting standards specify that three internally reported funds of the City, not meeting the definition of a special revenue fund, do not qualify to be separately presented for external reporting purposes.

The following funds that are reported separately for internal reporting purposes by the City are combined with the General Fund for external financial reporting:

Residential Construction Tax Fund Parks and Facilities Fund Computer Technology Fund

The Grants Fund is used to account for federal and state grants that are restricted or committed for a specific use.

CITY OF FERNLEY, NEVADA General Fund

Schedule of Revenues, Expenditures, and Changes in Fund Balance Budget and Actual


64

Original Final Variance withBudget Budget Actual Final Budget

REVENUES

Taxes:Property tax 2,366,620$ 2,366,620$ 2,451,455$ 84,835$ Residential construction tax 2,000 2,000 49,000 47,000

Total taxes 2,368,620 2,368,620 2,500,455 131,835

Licenses, permits and fees:Business licenses 200,000 200,000 200,321 321 Franchise fee 1,160,250 1,160,250 1,232,804 72,554 Liquor licenses 31,000 31,000 30,750 (250) Gaming licenses 100,000 100,000 120,221 20,221 Building permits 360,000 360,000 330,458 (29,542) Planning and zoning fees 45,000 45,000 31,400 (13,600) Public works and inspection fees 10,000 10,000 12,846 2,846 Other permits and fees 12,250 12,250 14,748 2,498

Total licenses, fees and permits 1,918,500 1,918,500 1,973,548 55,048

Intergovernmental:Motor vehicle fuel tax 364,104 364,104 402,749 38,645 RTC shared revenue 1,800,000 1,800,000 962,313 (837,687) State consolidated tax 144,895 144,895 148,249 3,354 Fernley park agreement 60,000 60,000 60,000 - County roads contribution 370,332 370,332 370,332 - Administration fee - - 816 816

Total intergovernmental 2,739,331 2,739,331 1,944,459 (794,872)

Fines and forfeitures:Community service fee - - 779 779 Municipal court fines and fees 200,000 200,000 222,387 22,387

Total fines and forfeitures 200,000 200,000 223,166 23,166

Investment earnings:Interest earnings 3,025 3,025 18,538 15,513

Total investment earnings 3,025 3,025 18,538 15,513

Other revenues:Cemetery fees 1,200 1,200 3,650 2,450 Donations - - 500 500 Park facility rental fee 20,315 20,315 15,054 (5,261) Miscellaneous 50,430 50,430 62,393 11,963

Total other revenues 71,945 71,945 81,597 9,652

Total revenues 7,301,421 7,301,421 6,741,763 (559,658)

(continued)


Schedule of Revenues, Expenditures, and Changes in Fund Balance Budget and Actual (Continued)


65

Original Final Variance withEXPENDITURES Budget Budget Actual Final Budget

General government:Mayor and city council:

Salaries and wages 74,101$ 74,101$ 55,096$ 19,005$ Employee benefits 16,454 16,454 14,103 2,351 Services, supplies and other 43,226 43,226 33,245 9,981

133,781 133,781 102,444 31,337 City management:

Salaries and wages 267,548 267,548 256,551 10,997 Employee benefits 143,735 143,735 108,619 35,116 Services, supplies and other 240,000 240,000 142,496 97,504

651,283 651,283 507,666 143,617 City clerk:

Salaries and wages 150,937 150,937 151,075 (138) Employee benefits 93,327 93,327 82,014 11,313 Services, supplies and other 23,750 23,750 16,780 6,970

268,014 268,014 249,869 18,145 Finance:

Salaries and wages 65,640 65,640 72,275 (6,635) Employee benefits 26,036 26,036 20,184 5,852 Services, supplies and other 296,057 296,057 80,088 215,969

387,733 387,733 172,547 215,186 City attorney:


442,095 442,095 403,430 38,665 Facilities (City Hall) and general:


423,199 423,199 345,360 77,839 Information technology:


134,686 134,686 113,103 21,583

Total general government 2,440,791 2,440,791 1,894,419 546,372

Public works:Streets and public works:

Salaries and wages 245,918 245,918 327,426 (81,508) Employee benefits 147,805 147,805 156,453 (8,648) Services, supplies and other 896,955 896,955 880,301 16,654 Capital outlay 2,146,203 2,146,203 1,131,603 1,014,600

3,436,881 3,436,881 2,495,783 941,098 (continued)




66


Expenditures (continued)Engineering:

Salaries and wages 79,786$ 79,786$ 80,716$ (930)$ Employee benefits 41,146 41,146 29,161 11,985 Services, supplies and other - - 1,935 (1,935)

120,932 120,932 111,812 9,120

Total public works 3,557,813 3,557,813 2,607,595 950,218

Judicial:Municipal court:

Salaries and wages 185,392 185,392 182,516 2,876 Employee benefits 86,255 86,255 85,357 898 Services, supplies and other 37,300 37,300 33,912 3,388

Total judicial 308,947 308,947 301,785 7,162

Health:Animal control:

Salaries and wages 34,072 34,072 33,841 231 Employee benefits 25,684 25,684 16,744 8,940 Services, supplies and other 11,300 11,300 8,910 2,390

71,056 71,056 59,495 11,561 Vector control:


133,619 133,619 134,892 (1,273) Cemetery

Services, supplies and other 18,700 18,700 18,353 347 18,700 18,700 18,353 347

Total health 223,375 223,375 212,740 10,635

Culture and recreation:Parks:


Total culture and recreation 884,054 884,054 623,578 260,476

(continued)




67


Expenditures (continued)

Community development:Building:

Salaries and wages 170,529$ 170,529$ 167,294$ 3,235$ Employee benefits 79,540 79,540 59,143 20,397 Services, supplies and other 17,100 17,100 12,141 4,959

267,169 267,169 238,578 28,591 Planning:

Salaries and wages 127,156 127,156 116,429 10,727 Employee benefits 61,815 61,815 55,160 6,655 Services, supplies and other 13,300 13,300 34,708 (21,408)

202,271 202,271 206,297 (4,026)

Total community development 469,440 469,440 444,875 24,565

Debt service:Principal 286,000 286,000 286,000 - Interest 81,325 81,325 81,325 - Cost sharing Water & Sewer funds (98,638) (98,638) (101,525) (2,887)

Total debt service 268,687 268,687 265,800 2,887

Total expenditures 8,153,107 8,153,107 6,350,792 1,802,315

Excess of revenues over (under) expenditures (851,686) (851,686) 390,971 1,242,657

Fund balance, beginning of year 3,808,619 3,808,619 3,808,619 -

Prior period adjustment - - 19,656 (19,656)

Fund balance, end of year 2,956,933$ 2,956,933$ 4,219,246$ 1,223,001$

CITY OF FERNLEY, NEVADA Grants Fund



68


Revenues

Intergovernmental revenue:Grant revenue 955,000$ 955,000$ 372,007$ (582,993)$

Total revenues 955,000 955,000 372,007 (582,993)

Expenditures

Current:Public works - - 56,897 (56,897) Community development 955,000 955,000 315,100 639,900

Total expenditures 955,000 955,000 371,997 583,003

Excess (deficiency) of revenuesover (under) expenditures - - 10 10

Fund balance, beginning of year - - - -

Fund balance, end of year -$ -$ 10$ 10$


SUPPLEMENTARY INFORMATION NONMAJOR GOVERNMENTAL FUNDS

COMBINING STATEMENTS

AND BUDGET AND ACTUAL REPORTS

69

Special revenue funds are used to account for specific revenues that are restricted or committed to expenditure for particular purposes.

The Municipal Court Administrative Fees Fund is used to account for the proceeds from Court Administrative Fees set aside per NRS 268.4085 for court administration and graffiti abatement (judicial department expenditures).

The Municipal Court Facilities Fees Fund is used to account for the proceeds from Court Facilities Fees set aside per NRS 176.0611 for the provision of court facilities.

The Transient Lodging Tax Fund accounts for Transient Lodging Tax revenues to be used for economic development activities.

Capital projects funds are used to account for the acquisition and construction of major capital facilities other than those financed by proprietary funds and trust funds.

The Capital Projects Fund is used to account for financial resources used for the acquisition or construction of capital projects for governmental activities. The fund is utilized to set aside funds to provide funding for future projects involving replacement or acquisition of building, improvements and equipment.

The Capital Improvement Fund is used to account for road tax revenues used for the acquisition or construction of capital improvements for governmental activities. These funds are also utilized for the repayment of medium-term obligations used for capital improvements.

70


CITY OF FERNLEY, NEVADA Combining Balance Sheet

Nonmajor Governmental Funds June 30, 2016

71

Municipal Municipal Total

Court Court Transient NonmajorAdministration Facilities Lodging Capital Capital Governmental

Fees Fees Tax Projects Improvement FundsAssets

Cash and investments 36,035$ 79,284$ 938,763$ 562,642$ 46,581$ 1,663,305$ Receivables:

Interest 18 40 492 307 26 883 Other 1,638 - 34,713 - - 36,351

Total assets 37,691$ 79,324$ 973,968$ 562,949$ 46,607$ 1,700,539$

Liabilities and Fund Balances

Liabilities:Accounts payable 1,810$ -$ 34,373$ -$ -$ 36,183$

Total liabilities 1,810 - 34,373 - - 36,183

Fund Balances:Restricted for:

Judicial 35,881 79,324 - - - 115,205 Capital projects - - - - 46,607 46,607

Committed:Capital projects - - - 562,949 - 562,949 Convention Center - - 710,306 - - 710,306

Assigned - - 229,289 - - 229,289 Total fund balances 35,881 79,324 939,595 562,949 46,607 1,664,356

Total liabilities and fund balances 37,691$ 79,324$ 973,968$ 562,949$ 46,607$ 1,700,539$

Special Revenue Capital Projects

CITY OF FERNLEY, NEVADA Combining Statement of Revenues, Expenditures, and Changes in Fund Balances

Nonmajor Governmental Funds For the Fiscal Year Ended June 30, 2016

72

Municipal Municipal Total

Court Court Transient Nonmajor

Administration Facilities Lodging Capital Capital Governmental Fees Fees Tax Projects Improvement Funds

RevenuesTaxes -$ -$ 294,909$ -$ -$ 294,909$ Intergovernmental revenue - - - - 1,662 1,662 Fines and forfeitures 21,747 30,265 - - - 52,012 Investment earnings 132 293 3,667 2,414 197 6,703

Total revenues 21,879 30,558 298,576 2,414 1,859 355,286

ExpendituresCurrent:

Judicial 16,098 1,306 - - - 17,404 Culture and recreation - - 84,086 - - 84,086

Capital outlay - - - - - -

Total expenditures 16,098 1,306 84,086 - - 101,490

Excess (deficiency) of revenues over (under)expenditures 5,781 29,252 214,490 2,414 1,859 253,796

Fund balances, beginning of year 30,100 50,072 725,105 560,535 44,748 1,410,560

Fund balances, end of year 35,881$ 79,324$ 939,595$ 562,949$ 46,607$ 1,664,356$

Capital ProjectsSpecial Revenue

CITY OF FERNLEY, NEVADA Municipal Court Administration Fees Special Revenue Fund



73

Final Variance withBudget Actual Final Budget

Revenues

Fines and forfeitures:Municipal administrative fees 15,000$ 21,747$ 6,747$

Investment earnings 300 132 (168)

Total revenues 15,300 21,879 6,579

Expenditures

Judicial:Service, supplies and other 20,000 16,098 3,902

Total expenditures 20,000 16,098 3,902

Excess (deficiency) of revenuesover (under) expenditures (4,700) 5,781 10,481

Fund balance, beginning of year 30,100 30,100 -

Fund balance, end of year 25,400$ 35,881$ 10,481$

CITY OF FERNLEY, NEVADA Municipal Court Facilities Fees Special Revenue Fund



74


Revenues

Fines and forfeitures:Municipal facilities fees 18,000$ 30,265$ 12,265$

Interest earnings 300 293 (7)

Total revenues 18,300 30,558 12,258

Expenditures

Judicial:Service, supplies and other 25,000 1,306 23,694

Capital outlay - - -





CITY OF FERNLEY, NEVADA Transient Lodging Tax Special Revenue Fund



75


Revenues

Taxes:Transient lodging tax 227,000$ 294,909$ 67,909$

Interest earnings 300 3,667 3,367

Total revenues 227,300 298,576 71,276

Expenditures

Culture and recreation: Services, supplies and other 133,010 84,086 48,924


Excess of revenues over (under) expenditures 94,290 214,490 120,200



CITY OF FERNLEY, NEVADA Capital Projects Fund



76


Revenues

Interest earnings 200$ 2,414$ 2,214$

Total revenues 200 2,414 2,214

Expenditures

Capital outlay 105,047 - 105,047

Total expenditures 105,047 - 105,047




CITY OF FERNLEY, NEVADA Capital Improvements Fund



77

Final Variance with

Budget Actual Final BudgetRevenues

Intergovernmental revenue 1,800$ 1,662$ (138)$ Interest earnings 20 197 177

Total revenues 1,820 1,859 39

Expenditures

Total expenditures - - -

Excess (deficiency) of revenuesover (under) expenditures 1,820 1,859 39


Fund balance, end of year 46,568$ 46,607$ 39$


SUPPLEMENTARY INFORMATION

ENTERPRISE FUND BUDGET AND ACTUAL REPORTS

78

The Water Utility Fund is used to account for the provision of water services to the residents of the City and some residents of Lyon County. All activities necessary to provide services are accounted for in this fund, including, but not limited to, administration, operations, maintenance, financing and related debt.

The Sewer Utility Fund is used to account for sewer collection and treatment services for the residents of the City and some residents of Lyon County. All activities necessary to provide services are accounted for in this fund, including, but not limited to, administration, operations, maintenance, financing and related debt.

CITY OF FERNLEY, NEVADA Water Fund

Schedule of Revenues, Expenses, and Changes in Net Position Budget and Actual


79


Operating revenues

Service fees 5,316,511$ 4,776,323$ (540,188)$ Other revenues 199,000 209,528 10,528

Total operating revenues 5,515,511 4,985,851 (529,660)

Operating expenses

Salaries 964,822 998,699 (33,877) Employee benefits 558,835 403,814 155,021 Service, supplies and other 2,077,565 1,643,409 434,156 Depreciation and amortization 3,256,000 3,174,278 81,722

Total operating expenses 6,857,222 6,220,200 637,022

Operating income (loss) (1,341,711) (1,234,349) 107,362


Bond debt fee revenue 3,379,000 3,384,561 5,561 Connection fee revenue 250,000 228,457 (21,543) Interest income 5,000 30,960 25,960 Other income 130,000 202,098 72,098 Gain/(loss) on disposals of capital assets - 11,637 11,637 Interest expense (2,831,541) (2,802,583) 28,958

Total nonoperating revenues (expenses) 932,459 1,055,130 122,671

Income (loss) before contributions and transfers (409,252) (179,219) 230,033

Grant revenue - 141,494 141,494 Capital contributions - 1,409,193 1,409,193

Change in net position (409,252) 1,371,468 1,780,720

Net position, beginning of year 69,797,211 69,797,211 -

Net position, end of year 69,387,959$ 71,168,679$ 1,780,720$

CITY OF FERNLEY, NEVADA Sewer Fund

Schedule of Revenues, Expenses, and Changes in Net Position Budget and Actual


80


Operating revenues

Service fees 2,016,348$ 2,023,135$ 6,787$ Other revenues 400 65 (335)

Total operating revenues 2,016,748 2,023,200 6,452

Operating expenses

Salaries 484,277 509,073 (24,796) Employee benefits 272,244 254,414 17,830 Service, supplies and other 740,094 569,556 170,538 Depreciation and amortization 1,060,000 990,411 69,589

Total operating expenses 2,556,615 2,323,454 233,161

Operating income (loss) (539,867) (300,254) 239,613


Connection fee revenue 300,000 181,253 (118,747) Interest income 4,000 38,622 34,622 Sales tax revenue - - - Gain/(loss) on disposals of capital assets - 691 691 Interest expense (300,422) (256,383) 44,039

Total nonoperating revenues (expenses) 3,578 (35,817) (39,395)

Income (loss) before contributions and transfers (536,289) (336,071) 200,218

Grant revenue - - - Capital contributions - 82,526 82,526

Change in net position (536,289) (253,545) 282,744

Net position, beginning of year 27,974,044 27,974,044 -

Net position, end of year 27,437,755$ 27,720,499$ 282,744$


SUPPLEMENTARY INFORMATION

AGENCY FUND STATEMENT OF CHANGES IN ASSETS AND LIABILITIES

81

The Agency Funds are custodial in nature and do not present results of operations or have a measurement focus. Agency funds are accounted for using the accrual basis of accounting. These funds are used to account for assets that the City holds for others in an agent capacity. Included are bonds posted with the municipal court. These funds are excluded from the government-wide financial statements.


Agency Fund – Municipal Trust Fund Statement of Changes in Assets and Liabilities


82

Balance Balance6/30/2015 Additions Deletions 6/30/2016

Assets

Current assets:Cash and investments 30,473$ 171,182$ (178,887)$ 22,768$

Total assets 30,473$ 171,182$ (178,887)$ 22,768$

Liabilities

Current liabilities:Bail bond deposits held for others 30,473$ 171,182$ (178,887)$ 22,768$

Total liabilities 30,473$ 171,182$ (178,887)$ 22,768$


STATISTICAL SECTION

83

This part of the City of Fernley’s comprehensive annual financial report presents detailed information as a context for understanding what the information in the financial statements, notes disclosures, and required supplementary information says about the government’s overall financial health.

Contents Schedule #

Financial Trends ......................................................................................... 1 - 4

These schedules contain trend information to help the reader understand how the government’s financial performance and well-being have changed over time.

Revenue Capacity ....................................................................................... 5 - 9

These schedules contain information to help the reader assess the government’s most significant local revenues source, the property tax.

Debt Capacity ............................................................................................. 10 - 14

These schedules present information to help the reader assess the affordability of the government’s current levels of outstanding debt and the government’s ability to issue additional debt in the future.

Demographic and Economic Information ................................................... 15 - 16

These schedules offer demographic and economic indicators to help the reader understand the environment within which the government’s financial activities take place.

Operating Information ................................................................................ 17 - 19

These schedules contain service and infrastructure data to help the reader understand how the information in the government’s financial report relates to the services the government provides and the activities it performs.

Sources: Unless otherwise noted, the information in these schedules is derived from comprehensive annual financial reports of the relevant year.

84


Schedule 1

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016GOVERNMENTAL ACTIVITIES

Net investment in capital assets* 30,721,447$ 35,677,010$ 39,652,258$ 38,680,602$ 38,683,760$ 40,765,626$ 39,585,451$ 38,673,348$ 37,695,679$ 37,994,508$ Restricted - 362,289 391,600 363,602 1,886,533 568,412 579,648 451,356 495,088 581,220 Unrestricted 4,549,063 2,395,580 2,276,380 2,554,609 1,218,963 2,569,131 3,139,551 3,630,111 937,118 1,502,904

Total Governmental Activities Net Position 35,270,510$ 38,434,879$ 42,320,238$ 41,598,813$ 41,789,256$ 43,903,169$ 43,304,650$ 42,754,815$ 39,127,885$ 40,078,632$

BUSINESS-TYPE ACTIVITIESNet investment in capital assets* 35,352,177$ 77,070,390$ 95,281,505$ 92,141,040$ 91,669,313$ 89,367,958$ 87,153,121$ 85,184,784$ 83,801,681$ 86,036,844$ Restricted - - - - - - - 588,478 589,005 - Unrestricted 60,502,722 25,025,399 14,523,972 14,812,790 12,058,703 11,241,626 12,394,733 12,816,064 13,380,569 12,852,334

Total Business-type Activities Net Position 95,854,899$ 102,095,789$ 109,805,477$ 106,953,830$ 103,728,016$ 100,609,584$ 99,547,854$ 98,589,326$ 97,771,255$ 98,889,178$

PRIMARY GOVERNMENTNet investment in capital assets* 66,073,624$ 112,747,400$ 134,933,763$ 130,821,642$ 130,353,073$ 130,133,584$ 126,738,572$ 123,858,132$ 121,497,360$ 124,031,352$ Restricted - 362,289 391,600 363,602 1,886,533 568,412 579,648 1,039,834 1,084,093 581,220 Unrestricted 65,051,785 27,420,979 16,800,352 17,367,399 13,277,666 13,810,757 15,534,284 16,446,175 14,317,687 14,355,238

Total Primary Government Net Position 131,125,409$ 140,530,668$ 152,125,715$ 148,552,643$ 145,517,272$ 144,512,753$ 142,852,504$ 141,344,141$ 136,899,140$ 138,967,810$

*Updated for the implementation of GASB 63 Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position.

FISCAL YEAR ENDED JUNE 30,

CITY OF FERNLEY, NEVADANET POSITION BY COMPONENT

LAST TEN FISCAL YEARS

85

Schedule 2

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016EXPENSES

Governmental Activities:General government 1,173,360$ 1,572,115$ 1,626,115$ 1,762,449$ 1,499,967$ 2,080,220$ 2,422,886$ 1,991,411$ 2,283,841$ 2,192,152$ Judicial 194,353 252,189 243,889 265,515 204,071 213,314 215,504 238,892 276,019 316,607 Culture and recreation 838,674 689,281 685,706 622,998 734,553 743,911 1,126,357 1,384,571 788,165 570,042 Community development 848,010 1,977,586 811,701 1,247,018 2,817,551 2,673,503 1,591,456 849,079 937,675 761,489 Public works 1,326,718 783,565 1,778,649 1,824,412 1,871,798 1,185,973 1,100,290 2,202,499 2,001,841 2,786,120 Health 295,413 280,743 252,320 262,865 193,303 207,672 177,080 192,690 194,156 210,014

Debt Service:Interest and fiscal charges 221,032 214,326 206,092 198,144 189,836 194,402 87,015 92,415 88,060 81,325

Total Governmental Activities Expenses 4,897,560 5,769,805 5,604,472 6,183,401 7,511,079 7,298,995 6,720,588 6,951,557 6,569,757 6,917,749

Business-type Activities:Water 3,058,553 3,152,845 4,127,466 9,420,709 9,271,351 9,334,311 9,284,992 9,323,274 9,319,610 9,022,783 Sewer 1,812,583 2,012,862 2,581,981 2,641,510 2,524,958 2,389,391 2,396,803 2,492,747 2,472,798 2,579,837 Other 9,340 212,652 - - - - - - - -

Total Business-type Activities Expenses 4,880,476 5,378,359 6,709,447 12,062,219 11,796,309 11,723,702 11,681,795 11,816,021 11,792,408 11,602,620 Total Primary Government Expenses 9,778,036$ 11,148,164$ 12,313,919$ 18,245,620$ 19,307,388$ 19,022,697$ 18,402,383$ 18,767,578$ 18,362,165$ 18,520,369$


LAST TEN FISCAL YEARSCHANGE IN NET POSITION


86

Schedule 2

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016PROGRAM REVENUES

Governmental Activities:Charges for Services:

General government 1,137,510$ 1,030,613$ 1,243,230$ 1,267,670$ 1,209,522$ 1,274,989$ 1,355,031$ 1,870,597$ 1,837,966$ 1,849,714$ Judicial 89,248 162,416 161,819 196,886 197,395 169,630 95,834 155,846 268,742 275,179 Culture and recreation 48,355 1,600 200 25 525 105,925 950 14,722 15,410 15,054 Community development 679,608 509,440 258,801 232,719 149,647 - 115,130 - - - Public works 29,754 23,021 65,129 116,619 - 2,968 - 17,019 41,363 44,247 Health 4,318 4,650 3,819 3,296 3,578 466,388 4,157 - - -

Operating Grants and Contributions 60,000 60,000 60,383 61,500 133,460 4,925,916 113,124 616,222 933,829 1,655,405 Capital Grants and Contributions 6,052,749 4,869,410 5,613,270 1,538,400 3,933,102 - 1,385,242 1,008,428 404,435 710,254

Total Governmental Activities Program Revenues 8,101,542 6,661,150 7,406,651 3,417,115 5,627,229 6,945,816 3,069,468 3,682,834 3,501,745 4,549,853

Business-type Activities:Charges for Services

Water 2,306,193 3,273,625 3,833,095 4,774,366 4,580,081 6,325,657 8,277,063 5,174,551 5,681,977 5,416,406 Sewer 1,754,820 1,829,736 1,830,814 1,883,702 1,865,202 1,904,071 1,929,793 1,981,631 2,560,138 2,204,453 Other - 1,055 - - - - - - -

Operating Grants and Contributions - 424,671 562,372 441,742 4,893 97,966 - - - Capital Grants and Contributions 19,015,856 4,579,348 7,146,143 908,392 1,897,368 8,134 33,044 501,543 1,555,727 1,491,719

Total Business-type Activities Revenues 23,076,869 10,108,435 13,372,424 8,008,202 8,347,544 8,335,828 10,239,900 7,657,725 9,797,842 9,112,578 Total Primary Government Revenues 31,178,411$ 16,769,585$ 20,779,075$ 11,425,317$ 13,974,773$ 15,281,644$ 13,309,368$ 11,340,559$ 13,299,587$ 13,662,431$

NET (EXPENSE)/REVENUEGovernmental Activities 3,203,982$ 891,345$ 1,802,179$ (2,766,286)$ (1,883,850)$ (353,179)$ (3,651,120)$ (3,268,723)$ (3,068,012)$ (2,367,896)$ Business-type Activities 18,196,393 4,730,076 6,662,977 (4,054,017) (3,448,765) (3,387,874) (1,441,895) (4,158,296) (1,994,566) (2,490,042)

Total Primary Government Net (Expense)/Revenue 21,400,375$ 5,621,421$ 8,465,156$ (6,820,303)$ (5,332,615)$ (3,741,053)$ (5,093,015)$ (7,427,019)$ (5,062,578)$ (4,857,938)$


CONTINUEDLAST TEN FISCAL YEARS

CHANGE IN NET POSITIONCITY OF FERNLEY, NEVADA

87

Schedule 2

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016GENERAL REVENUES AND OTHERCHANGES IN NET POSITION

Governmental Activities:Taxes:

Property 925,297$ 1,074,726$ 1,381,621$ 1,410,347$ 1,473,876$ 1,850,971$ 1,924,602$ 2,145,992$ 2,199,262$ 2,452,000$ Consolidated 188,128 197,040 202,188 170,186 130,215 131,372 132,962 136,402 143,389 148,249 Fuel 259,603 304,718 309,896 294,645 282,617 271,449 292,483 306,330 344,360 402,749

Unrestricted gaming licenses 98,753 96,021 92,211 96,598 99,439 99,607 104,761 106,132 104,513 120,221 Unrestricted interest income 361,301 175,866 41,085 26,847 13,921 5,066 12,334 10,032 6,485 25,243 Miscellaneous revenue 89,378 424,649 56,179 46,238 74,225 108,617 211,636 14,000 14,000 150,525

Total Governmental Activities 1,922,460 2,273,020 2,083,180 2,044,861 2,074,293 2,467,082 2,678,778 2,718,888 2,812,009 3,298,987

Business-type Activities:Unrestricted interest income 1,511,286 1,126,258 477,258 261,988 68,217 19,326 39,272 32,634 20,361 69,582 Miscellaneous revenue 46,287 384,555 569,452 244,232 154,734 250,116 340,893 3,326,391 3,378,183 3,396,889

Total Business-type Activities Revenues 1,557,573 1,510,813 1,046,710 506,220 222,951 269,442 380,165 3,359,025 3,398,544 3,466,471 Total Primary Government Revenues 3,480,033$ 3,783,833$ 3,129,890$ 2,551,081$ 2,297,244$ 2,736,524$ 3,058,943$ 6,077,913$ 6,210,553$ 6,765,458$

CHANGE IN NET POSITIONGovernmental Activities 5,126,442$ 3,164,365$ 3,885,359$ (721,425)$ 190,443$ 2,113,903$ (972,342)$ (549,835)$ (256,003)$ 931,091$ Business-type Activities 19,753,966 6,240,889 7,709,687 (3,547,797) (3,225,814) (3,118,432) (1,061,730) (799,271) 1,403,978 976,429

Total Primary Government Change in Net Position 24,880,408$ 9,405,254$ 11,595,046$ (4,269,222)$ (3,035,371)$ (1,004,529)$ (2,034,072)$ (1,349,106)$ 1,147,975$ 1,907,520$

CITY OF FERNLEY, NEVADACHANGE IN NET POSITIONLAST TEN FISCAL YEARS

CONTINUED


88

Schedule 3

2007 2008 2009 2010 2011* 2012 2013 2014 2015 2016General fund:

Reserved 6,709$ 366,424$ 394,251$ 332,238$ -$ -$ -$ -$ -$ -$ Unreserved 582,237 279,443 294,617 482,078 - - - - - - Nonspendable - - - - 22,375 - - 25,250 10,812 29,922 Restricted - - - - 342,400 342,123 342,123 342,572 370,168 419,398 Committed - - - - - - - 1,541,178 2,982,946 3,174,349 Assigned - - - - 5,582 1,449,207 1,449,207 405,310 47,349 166,089 Unassigned - - - - 1,223,672 - 617,104 841,826 397,344 429,488

Total general fund 588,946$ 645,867$ 688,868$ 814,316$ 1,594,029$ 1,791,330$ 2,408,434$ 3,156,136$ 3,808,619$ 4,219,246$

All other governmental fundsReserved - Transient Lodging Tax Fund -$ -$ -$ 31,364$ -$ -$ -$ -$ -$ -$ Unreserved:

Special revenue fund 1,568,588 971,544 787,928 1,118,925 - - - - - - Capital projects fund 2,397,510 1,160,893 1,145,372 1,085,417 - - - - - -

Nonspendable - - - - - - 22,177 - - - Restricted - - - - 1,544,133 226,289 237,523 108,784 124,920 161,822 Committed - - - - - 1,200,065 1,210,436 1,073,980 1,123,386 1,273,255 Assigned - - - - 104,988 148,181 164,333 133,690 162,254 229,289

Total all other governmental funds 3,966,098$ 2,132,437$ 1,933,300$ 2,235,706$ 1,649,121$ 1,574,535$ 1,634,469$ 1,316,454$ 1,410,560$ 1,664,366$

* Due to implementation of GASB 54, fund balance classifications changed in fiscal year 2011.


CITY OF FERNLEY, NEVADAFUND BALANCES OF GOVERNMENTAL FUNDS


89

Schedule 4

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016REVENUES

Taxes 988,056$ 1,077,545$ 1,316,879$ 1,599,284$ 1,658,382$ 2,108,576$ 2,164,248$ 2,411,183$ 2,487,401$ 2,795,364$ Licenses and permits 1,949,947 1,663,745 1,663,184 1,643,381 1,455,105 1,483,489 1,578,429 1,867,564 1,798,242 1,973,548 Intergovernmental 2,333,333 2,117,309 1,631,060 1,868,532 2,625,671 5,555,712 1,668,561 1,776,740 1,556,833 2,318,128 Fines and forfeits 234,353 207,465 161,820 222,566 197,397 169,630 95,834 155,845 268,742 275,178 Miscellaneous 581,833 610,883 138,018 88,765 95,752 112,246 127,651 173,738 222,002 106,838 Developer fees - - - - 111,000 - - - - -

Total revenues 6,087,522 5,676,947 4,910,961 5,422,528 6,143,307 9,429,653 5,634,723 6,385,070 6,333,220 7,469,056

EXPENDITURESGeneral government 1,025,295 1,238,982 1,290,272 1,402,434 1,661,818 1,629,090 2,276,007 1,933,656 1,974,369 1,894,419 Judicial 194,518 251,829 244,714 257,983 201,062 213,214 215,296 235,890 278,105 319,189 Culture and recreation 647,542 522,392 546,492 482,871 612,723 617,960 745,405 909,293 756,953 707,664 Community development 834,503 1,226,149 787,056 1,332,123 2,796,292 5,309,789 1,482,004 1,035,564 952,037 759,975 Public works 515,394 428,988 457,243 448,224 - - 1,826 1,156,200 1,053,634 2,664,492 Health 275,905 262,526 232,843 242,279 176,488 200,427 176,523 190,276 181,749 212,740 Debt service:

Principal 158,000 165,000 173,000 181,000 189,000 4,134,000 84,000 86,000 280,000 286,000 Interest 221,032 214,326 206,092 198,144 189,836 194,402 87,015 92,415 88,060 81,325 Cost sharing Water and Sewer funds - - - - - - - - - (101,525) Bond issuance cost - - - - - 61,727 - - - -

Capital outlay 8,097,529 3,143,509 1,129,385 457,600 122,960 956,329 304,055 316,091 82,816 -

Total expenditures 11,969,718 7,453,701 5,067,097 5,002,658 5,950,179 13,316,938 5,372,131 5,955,385 5,647,723 6,824,279

Excess (deficiency) ofrevenues over expenditures (5,882,196) (1,776,754) (156,136) 419,870 193,128 (3,887,285) 262,592 429,685 685,497 644,777

OTHER FINANCING SOURCES (USES)

Transfer out (711,712) (20,000) (26,000) - 60,000 (205) - (105,507) (11,051) - Transfer in 711,712 20,000 26,000 - (60,000) 205 - 105,507 11,051 - General obligation bonds issued - - - - - 4,010,000 - - - - Proceeds from insurance - - - - - - 40,625 - - - Proceeds from disposal of capital assets 61,450 - - 7,984 - - - - - -

Total other financing sources (uses) 61,450 - - 7,984 - 4,010,000 40,625 - - -

Net change in fund balance (5,820,746)$ (1,776,754)$ (156,136)$ 427,854$ 193,128$ 122,715$ 303,217$ 429,685$ 685,497$ 644,777$

Debt service as a percentage of noncapitalexpenditures 10.9% 9.6% 10.7% 9.1% 7.0% 55.1% 3.5% 3.3% 7.1% 5.6%


CITY OF FERNLEY, NEVADACHANGES IN FUND BALANCE OF GOVERNMENTAL FUNDS


90

SCHEDULE 5

Fiscal Year Real Property

Personal Property Total

Estimated Actual Value

2007 - - 377,743,200$ 1,079,266,286$ 35.0

2008 - - 511,154,623 1,460,441,780 35.0

2009 - - 679,959,918 1,942,742,623 35.0

2010 - - 755,529,070 2,158,654,486 35.0

2011 - - 632,953,139 1,808,437,540 35.0

2012 - - 448,105,998 1,280,302,851 35.0

2013 - - 440,455,995 1,258,445,700 35.0

2014* 405,137,703 39,114,259 444,251,962 1,269,291,320 35.0

2015 543,179,007 35,480,263 578,659,270 1,653,312,200 35.0

2016 620,951,224 34,017,878 654,969,102 1,871,340,291 35.0

Source: State of NV Department of Taxation's "Local Government Finance Redbook"

* First year breakdown of assessed value between real and personal property was made available. Personal Property amounts provided by Lyon County Assessor's Office.

Ratio of Total Assessed to Total Estimated Actual

Value

Assessed Value

CITY OF FERNLEY, NEVADAASSESSED AND ESTIAMTED ACTUAL VALUE OF TAXABLE PROPERY


91

SCHEDULE 6

Fiscal Year Taxes Levied

Tax Collections

Collections as a % of Original

Levy

Collections in Subsequent

YearsTotal Tax

Collections

Total Collections as

a % of Original

Levy

2012 1,893,074$ 1,821,171$ 96.20% 36,210$ 1,857,381$ 98.11%

2013 1,945,324 1,873,328 96.30% 278,737 2,152,065 110.63%

2014 2,153,267 2,100,601 97.55% 34,904 2,135,505 99.18%

2015 2,310,492 2,182,422 94.46% 18,827 2,201,249 95.27%

2016 2,368,420 2,432,628 102.71% - 2,432,628 102.71%

Source: State of NV Department of Taxation's "Local Government Finance Redbook"

CITY OF FERNLEY, NEVADAPROPERTY TAX LEVIES AND COLLECTIONS

LAST FIVE FISCAL YEARS

92

SCHEDULE 7

TaxpayerEstimated

Appraised Value (1)Taxable Assessed

Value

Mc Cabe Way Irvine LLC (Amazon.com) Commercial Industrial 68,796,817$ 24,078,886$ 3.68%

Quebecor World Nevada Inc. General Industrial 55,503,060 19,426,071 2.97%

Cole ID Fernely NV LLC General Industrial 44,932,629 15,726,420 2.40%

MSC Industrial Direct Co Inc General Industrial 44,580,711 15,603,249 2.38%

Sherwin-Williams Acceptance Corp Heavy Industrial 31,314,140 10,959,949 1.67%

Lowe's HIW Inc General Commercial 30,512,203 10,679,271 1.63%

Wal-Mart Stores Inc General Commercial 29,981,731 10,493,606 1.60%

Trex Company LLC General Industrial 29,434,237 10,301,983 1.57%

Newlands Fernley LLC General Industrial 27,411,771 9,594,120 1.46%

Paramount-Nevada Asphalt Co LLC Heavy Industrial 23,948,857 8,382,100 1.28%

Totals 386,416,157$ 135,245,655$ 21%

Source: Lyon County Assessor's OfficeNote: (1) Taxable assessed value is 35% of estimated appraised value.

CITY OF FERNLEY, NEVADAPRINCIPAL PROPERTY OWNERS

JUNE 30, 2016

Taxable

Land Use

Approximate Percentage of

Taxable Assessed Valuation

93

Schedule 8

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

WATER UTILITYNumber of Customers 6,816 7,170 7,371 7,061 7,103 6,530 6,466 6,510 6,769 6,774 Annual Average Day Demand per customer 750 747 553 511 456 355 501 509 465 444 Gallons of water used (in thousands) * 1,865,880 1,954,754 1,488,674 1,317,721 1,183,382 846,533 1,186,009 1,209,731 1,148,351 1,097,947 Direct rate per 1,000 gallons 0.95$ 1.11$ 1.50$ 2.02$ 2.02$ 2.08$ 2.08$ 2.15$ 2.15$ 2.15$

Source: City of Fernley* Includes residential and commercial customers.


CITY OF FERNLEY, NEVADAWATER USER FEES


94

SCHEDULE 9

Employer User Fees Rank User Fees Rank

City of Fernley 152,283$ 1 -$ -

Lyon County School District 123,045 2 20,453 5

Trex Manufacturing Company 100,435 3 65,584 1

Pilot Travel Centers, LLC 68,642 4 -

Veteran's Cemetery 52,777 5 16,038 4

World Color Fernley 46,767 6 - -

Sherwin Williams 45,899 7 36,771 2

Hollywood Investments 28,987 8 19,122 3

Blue Beacon 24,447 9 - -

Essential Industries Inc. 21,307 10 - -

Source: City of Fernley

CITY OF FERNLEY, NEVADAPRINCIPLE WATER USERS

2016 2007June 30,

95

SCHEDULE 10

Governmental Activities

Fiscal Year

Intallment Purchase

Agreement Water Bonds Sewer Bonds

Unamortized Bond Premium

(Discount)Total Primary Government

Percentage of Personal Income

(1)Per Capita

(1)

2007 4,842,000$ 45,015,000$ 6,267,780$ 494,527$ 56,619,307$ 12.31% 3,004$

2008 4,677,000 74,954,997 8,640,332 70,652 88,342,981 17.14% 4,511

2009 4,504,000 74,055,200 8,417,529 54,824 87,031,553 16.91% 4,438

2010 4,323,000 72,538,029 8,150,738 38,995 85,050,762 16.11% 4,493

2011 4,134,000 71,107,943 7,843,297 51,314 83,136,554 15.72% 4,292

2012 4,010,000 69,648,107 7,461,893 49,340 81,169,340 15.43% 4,296

2013 3,926,000 68,134,205 7,300,795 45,835 79,406,835 15.15% 4,217

2014 3,840,000 66,557,336 7,132,664 43,350 77,573,350 13.45% 4,086

2015 3,560,000 65,933,524 7,071,476 40,865 76,605,865 12.96% 4,016

2016 3,274,000 65,175,380 7,073,707 2,552,345 78,075,432 13.00% 4,123

Note: Details regarding the City's outstanding debt can be found in the notes to the financial statements. (1) See Schedule 15 of Demographic Statistics on page 101 for personal income and population data.

CITY OF FERNLEY, NEVADARATIOS OF OUTSTANDING DEBT BY TYPE


Business-Type Activities

96

SCHEDULE 11

Fiscal Year

Business-Type General Obligation

Revenue Bonds

Percentage of Actual

Property Value (1)

Percentage of Personal Income

(2) Per Capita (2)

2007 51,282,780$ 4.75% 11.15% 2,721$

2008 83,595,329 5.72% 16.21% 4,268

2009 82,472,729 4.25% 16.02% 4,206

2010 80,688,767 3.74% 15.28% 4,263

2011 78,951,240 4.37% 14.93% 4,076

2012 77,110,000 6.02% 14.66% 4,081

2013 75,435,000 5.99% 14.39% 4,006

2014 73,690,000 5.81% 12.78% 3,881

2015 73,005,000 4.42% 12.35% 3,827

2016 72,249,087 3.86% 12.03% 3,815

Note: (1) See the Schedule of Assessed Value and Estimated Actual Value of TaxableProperty for property value data - Schedule 5.

(2) Population information may be found on Schedule 15 - Demographic Statistics.


LAST TEN FISCAL YEARSRATIOS OF GENERAL OBLIGATION DEBT OUTSTANDING

97

SCHEDULE 12

Debt Outstanding

Presently Self-Supporting

General Obligation Debt

% Applicable

Applicable Net Debt

Direct

City of Fernley 72,249,087$ 72,249,087$ 100.00% -$

Overlapping

Lyon County 11,658,776$ 11,658,776 43% -

Lyon County School District 70,110,000$ 70,110,000 43% -

Total Overlapping Debt -

Total Direct and Overlapping Debt -$

The City is only responsible for its proportional share of the overlapping debt. The proportional share is

calculated as a percentage of assessed valuation multiplied by net outstanding debt of each agency less self-supporting debt. The proportional share plus the City's applicable net debt together make up the City's total direct and overlapping debt.

Self supporting debt is not considered in the overlapping debt calculation.

CITY OF FERNLEY, NEVADAGENERAL OBLIGATION DIRECT AND OVERLAPPING DEBT

JUNE 30, 2016

Note: (1) See the Schedule of Assessed Value and Estimated Actual Value of Taxable Property - Schedule 5

98

SCHEDULE 13

Estimated Assessed Value 654,969,102$

Debt Limit - 30 Percent of Total Assessed Value 196,490,731

General Obligation Revenue Bonds 72,249,087 Total Amount of Debt Applicable to Debt limit 72,249,087

Legal Debt Margin 124,241,644$

Total debt applicable to the limit as a percentage of debt limit 36.77%

General Obligation Debt Limit

The City is limited by NRS 266.600 as to the amount of general obligation debt is can have outstanding.The limit is equal to 30 percent of the City's total assessed valuation. As of June 30, 2016, the City hasno general obligation debt outstanding and none proposed. It has $72,249,087 of general obligationrevenue supported debt outstanding. Based on the fiscal year 2016 assessed value, the City's available general obligation debt limit is approximately $124,241,644.

Other factors also limit the amount of debt the City can issue. These factors include, but are notlimited to, voter approval, overlapping tax rates, available revenues, market conditions and types of projects to be funded.

CITY OF FERNLEY, NEVADACOMPUTATION OF GENERAL OBLIGATION DEBT LIMIT

JUNE 30, 2016

99

SCHEDULE 14

Fiscal Year

Operating Revenue

Operating Expenses (1)

Net Revenue Available for Debt Service Principal Interest Total Coverage

2007 4,061,013$ 2,873,207$ 1,187,806$ 287,451$ 620,879$ 908,330$ 131%

2008 5,528,032 3,420,207 2,107,825 1,122,600 3,531,002 4,653,602 45%

2009 5,975,722 4,168,048 1,807,674 1,122,600 3,773,565 4,896,165 37%

2010 7,099,810 4,836,862 2,262,948 1,822,957 3,738,999 5,561,956 41%

2011 6,450,173 3,823,597 2,626,576 1,698,531 3,674,376 5,372,907 49%

2012 6,878,442 3,801,460 3,076,982 1,764,329 3,611,327 5,375,656 57%

2013 6,855,545 3,841,334 3,014,211 1,751,912 3,545,754 5,297,666 57%

2014 7,121,106 4,157,098 2,964,008 1,745,000 3,501,453 5,246,453 56%

2015 7,042,676 4,428,993 2,613,683 1,905,868 3,330,671 5,236,539 50%

2016 7,009,051 4,378,965 2,630,086 4,309,399 733,462 5,042,861 52%

Note: (1) Total operating expenses exclusive of depreciation

CITY OF FERNLEY, NEVADAWATER AND SEWER FUNDS REVENUE BOND COVERAGE


Debt Service Requirements

100

SCHEDULE 15

Fiscal Year Population (1)

Total Personal Income (2)

Per Capita Personal Income (3)

Unemployment Rate (4)

2007 18,850$ 459,940,000$ 24,400$ 7.30%

2008 19,585 515,555,540 26,324 8.90%

2009 19,609 514,677,423 26,247 15.30%

2010 18,929 527,967,668 27,892 19.20%

2011 19,368 528,746,400 27,300 17.70%

2012 18,896 525,970,160 27,835 15.80%

2013 18,831 524,160,885 27,835 13.60%

2014 18,987 576,597,216 30,368 11.30%

2015 19,077 591,253,461 30,993 9.80%

2016 18,936 600,649,920 31,720 8.10%

Sources:(1) Nevada Demographers' Office(2) Bureau of Economic Analysis(3) Nevada Employment Security Department (4) Lyon County Data

CITY OF FERNLEY, NEVADADEMOGRAPHIC STATISTICS


101

SCHEDULE 16

Employer Employees Rank

Percentage of Total County

Employment (1) Employees Rank

Percentage of Total County

Employment (1)

Lyon County School District 1000-1499 1 8.71% 1000-1499 1 7.47%

Lyon County 400-499 2 3.48% 500-599 3 2.99%

MSC Industrial 300-399 3 2.61% 200-299 6 1.49%

Wal-Mart 200-299 4 1.74% - - -

Production Pattern & Foundry 200-299 5 1.74% - - -

Nevada Automotive Testing Center 100-199 6 0.87% - - -

Manpower Temporary Services 100-199 7 0.87%

South Lyon Medical Center 100-199 8 0.87% 100-199 8 0.99%

QG Printing Corp 100-199 9 0.87% 200-299 4 1.49%

Trex Company, Inc. 100-199 10 0.87% 100-199 9 0.99%

Source: Lyon County

(1) Total employment statistics are for the Lyon County area, as information is not available at the City level.

CITY OF FERNLEY, NEVADALYON COUNTY MAJOR EMPLOYERS

2016 2007

JUNE 30,

102

SCHEDULE 17

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

FUNCTION/PROGRAMGeneral government 18.6 22.3 9.3 13.0 16.0 14.7 13.8 13.1 13.1 15.1 Judicial 1.9 1.9 3.0 2.4 2.4 2.4 3.0 3.0 3.0 3.5 Public works 1.5 1.8 2.5 5.5 10.0 4.3 4.8 4.8 4.8 6.3 Culture and recreation 10.9 11.5 4.8 6.0 4.0 5.3 5.6 4.6 4.6 4.7 Community development 16.0 14.0 8.1 8.0 6.0 5.0 4.9 5.0 5.0 5.0 Health 2.9 2.5 3.0 2.0 2.0 2.0 2.0 1.5 1.5 1.5 Water 6.8 8.1 15.3 16.5 13.0 17.0 16.1 16.4 16.4 17.4 Sewer 6.8 8.1 9.2 4.5 4.0 6.7 6.6 6.6 6.6 7.6

Total 65.4 70.2 55.2 57.9 57.4 57.4 56.8 55.0 55.0 61.0


CITY OF FERNLEY, NEVADAFULL-TIME EQUIVALENT CITY GOVERNMENT EMPOYEES BY FUNCTION/PROGRAM


103

SCHEDULE 18

2007 2008 2009 2010 2011 2012 2013 2014 2015* 2016FUNCTION/PROGRAM

Judicial:Municipal Court Cases Filed:

Drug 35 28 25 39 20 12 5 9 - 75 Driving under influence 81 83 68 79 59 16 12 22 57 58 Domestic violence 5 3 1 3 - - - 9 77 99 Traffic 1,829 1,668 1,260 2,206 2,002 990 524 2,129 3,463 3,008 Other - 3 3 3 - 16 14 262 373 372

Public Safety:Calls for Service:

Criminal 3,866 3,633 2,791 2,679 2,407 3,766 3,891 4,415 845 856 Non-criminal 1,180 1,129 1,889 2,144 2,523 3,332 3,184 3,745 4,165 4,408 Domestic violence 866 889 463 414 352 709 784 776 397 422 Follow-up 1,439 1,624 1,599 1,920 2,497 2,176 2,107 3,384 1,167 880 Traffic-stops 1,450 1,639 2,067 1,999 1,626 1,564 1,224 1,490 1,862 1,804 Civil papers 2,136 2,601 2,359 2,568 2,418 1,895 1,701 1,323 125 102 Animal 156 204 337 377 252 318 392 451 300 237 Death/Coroner 33 45 42 29 41 72 102 88 - - Public service 927 1,191 1,111 1,195 1,337 1,469 2,014 2,807 1,022 1,141 Assist other agencies 625 1,112 1,024 851 791 1,062 932 938 744 713 Alarms 383 377 517 494 492 729 802 934 500 569 Accident 140 103 130 117 104 147 167 176 131 180 Private property accident 73 81 65 52 57 71 123 141 - - Mental health 12 11 4 5 4 1 2 7 120 145Other - - - - - - - 0 639 754

Administrative 2,761 3,113 3,204 4,715 7,911 6,888 9,924 23,029 - - Total Calls for Service 16,187 17,855 17,732 19,676 22,916 24,346 27,516 43,880 12,017 12,211

Total ChargesFelon 123 76 95 122 133 112 114 109 308 292Gross misdemeanor 17 27 44 34 27 40 14 16 72 55Misdemeanor 143 146 121 160 135 113 142 152 742 624Driving under influence 84 90 76 111 57 34 27 30 - - Domestic violence 71 53 73 61 67 45 45 38 - -

Total Arrests 438 392 409 488 419 344 342 345 763 660 Citations:

Traffic 593 464 557 535 409 274 210 314 - - Non-traffic 209 234 328 339 287 239 280 244 - -

Total Citations 802 698 885 874 696 513 490 558 - - Water Utility:

Customer count 6,816 6,896 6,876 6,693 6,736 7,925 7,305 7,341 7,362 7,431 New connections 182 80 15 10 11 2 3 17 285 78

Sewer Utility:Customer count 6,782 6,862 6,312 6,140 6,174 8,188 6,402 6,466 6,539 6,600 New connections 182 80 14 12 7 1 1 13 281 75

Building:Number of permits issued 500 352 221 217 228 201 230 237 256 400 Number of inspection 5,838 3,107 1,894 929 803 863 494 873 1,059 1,996

Planning:Number of applications processed 223 150 93 52 32 32 30 23 25 53


* In 2015 the Lyon Councy Sheriff's Office changed the way they tracked statistical information. Some categories reported in the past are no longer tracked.

CITY OF FERNLEY, NEVADAOPERATING INDICATORS BY FUNCTION/PROGRAM


104

SCHEDULE 19

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016FUNCTION/PROGRAM

Streets:Public Road Mileage 116.96 125.36 126.79 126.79 126.79 126.79 126.79 126.79 126.79 127.09

Parks and Recreation:Parks and Open Space Acreage 155 155 155 155 155 155 155 155 155 155 Developed Parks 11 11 11 11 11 11 11 12 12 12 Tennis Courts 1 1 1 1 1 1 1 1 1 1 Rodeo Arena 2 2 2 2 2 2 2 2 2 2 Playing Fields 19 19 19 19 19 19 19 19 19 19 Pavilions 2 3 3 7 7 7 7 7 7 7 Skate Park 1 1 1 1 1 1 1 1 1 1

Water Utility:Water lines (miles) 115.2 124.7 148.9 152.1 152.1 152.1 152.1 152.1 152.1 152.4 Fire Hydrants 1,033 1,083 1,102 1,102 1,102 1,102 1,127 1,127 1,127 1,129

Sewer Utility:Sanitary Sewer Lines (miles) 93.6 101.3 124.2 124.2 124.2 124.2 124.9 124.2 124.2 124.5 Sanitary Sewer Manhole Count 1,600 2,126 2,227 2,227 2,227 2,227 2,249 2,227 2,227 2,234


CITY OF FERNLEY, NEVADACAPITAL ASSET STATISTICS BY FUNCTION/PROGRAM


105

106


107

COMPLIANCE SECTION

108


109

Independent Auditors’ Report on Internal Control Over Financial Reporting and on Compliance and Other Matters

Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards


We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Fernley, Nevada, as of and for the fiscal year ended June 30, 2016, and the related notes to the financial statements, which collectively comprise the City’s basic financial statements and have issued our report thereon dated October 27, 2016.

Internal Control Over Financial Reporting

In planning and performing our audit of the financial statements, we considered the City’s internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the City’s internal control. Accordingly, we do not express an opinion on the effectiveness of the City’s internal control.

A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance.

Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies and therefore, material weaknesses or significant deficiencies may exist that were not identified. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified.






110

Compliance and Other Matters

As part of obtaining reasonable assurance about whether the City’s financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards.

Purpose of this Report

The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the entity’s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the entity’s internal control and compliance. Accordingly, this communication is not suitable for any other purpose.


111

Independent Auditors’ Report on Compliance for Each Major Program and on Internal Control over

Compliance Required by the Uniform Guidance The Honorable Mayor and City Council City of Fernley, Nevada

Report on Compliance for Each Major Federal Program

We have audited the City of Fernley, Nevada’s (the City) compliance with the types of compliance requirements described in the OMB Compliance Supplement that could have a direct and material effect on each of the City’s major federal programs for the year ended June 30, 2016. The City’s major federal programs are identified in the summary of auditor’s results section of the accompanying schedule of findings and questioned costs.

Management’s Responsibility

Management is responsible for compliance with the requirements of laws, regulations, contracts, and grants applicable to its federal programs.

Auditors’ Responsibility

Our responsibility is to express an opinion on compliance for each of the City’s major federal programs based on our audit of the types of compliance requirements referred to above. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and the audit requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Those standards and the Uniform Guidance require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about the City’s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances.

We believe that our audit provides a reasonable basis for our opinion on compliance for each major federal program. However, our audit does not provide a legal determination of the City’s compliance.

Opinion on Each Major Federal Program

In our opinion, the City, complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on each of its major federal programs for the fiscal year ended June 30, 2016.






112

Report on Internal Control Over Compliance

Management of the City is responsible for establishing and maintaining effective internal control over compliance with the types of compliance requirements referred to above. In planning and performing our audit of compliance, we considered the City’s internal control over compliance with the types of requirements that could have a direct and material effect on each major federal program to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on compliance for each major federal program and to test and report on internal control over compliance in accordance with the Uniform Guidance, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of the City’s internal control over compliance.

A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance.

Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be material weaknesses or significant deficiencies. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified.

The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirements of the Uniform Guidance. Accordingly, this report is not suitable for any other purpose.


CITY OF FERNLEY, NEVADA Schedule of Findings and Questioned Costs

For the Year Ended June 30, 2016

113

Section I - Summary of Auditor’s Results Financial Statements Type of auditor’s report issued: Unmodified Internal control over financial reporting:

Material weaknesses identified? yes X no Significant deficiencies identified? yes X no

Noncompliance material to financial statements noted? yes X no Federal Awards Internal Control over major programs:

Material weaknesses identified? yes X no Significant deficiencies identified? yes X no

Type of auditor’s report issued on compliance for major programs: Unmodified Any audit findings disclosed that are required to be reported in accordance with section 510(a) of Circular A-133? yes X no Identification of major programs. CFDA Number(s) Name of Federal Program or Cluster

66.458 Clean Water State Revolving Loan Fund

Dollar threshold used to distinguish between type A and type B programs: $ 750,000 Auditee qualified as low-risk auditee? X yes no

CITY OF FERNLEY, NEVADA Schedule of Findings and Questioned Costs, Continued


114

Section II - Financial Statement Findings Material Weaknesses: None noted. Significant Deficiencies: None noted.

Section III - Federal Award Findings and Questioned Costs No significant matters were noted.

Section IV - Summary Schedule of Prior Audit Findings No significant matters were noted.

CITY OF FERNLEY, NEVADA Schedule of Expenditures of Federal Awards


115

Federal CFDA #

PROJECT/PASS-THROUGH NUMBER Expenditures

Department of the Interior:Direct Programs:

Bureau of ReclamationProviding Water to At-Risk Natural Desert Terminal Lakes (Legal) 15.508 R12AP20013 173,334$

Passed through NFWF:Fish and Wildlife Grant 15.508 0204.14.043522 132,329

Total Department of the Interior 305,663

Environmental Protection Agency:Passed through Nevada department of Conservation & Natural Resources

Clean Water State Revolving Loan Fund 66.458 CS-32000114 2,058,179

Department of Transportation:Passed through the State of Nevada:

Department of TransportationHighway Planning and Construction (Safe Routes to School) 20.205 P511-13-063 38,154 Highway Planning and Construction (TAP) 20.205 P511-13-063 3,160

Total Department of Transportation 41,313

Department of Housing and Urban Development:Passed through the State of Nevada:

Governor's Office of Economic Development CDBG - State Administered CDBG Cluster:Community Development Block Grants/State's Programs and Non-Entitlement Grants in Hawaii (SBDC Business Counseling) 14.228 13/ED/19 185 Community Development Block Grants/State's Programs and Non-Entitlement Grants in Hawaii (SBDC Business Counseling) 14.228 14/ED/20 32,633 Community Development Block Grants/State's Programs and Non-Entitlement Grants in Hawaii (SBDC Business Counseling) 14.228 15/ED/16 26,578 Community Development Block Grants/State's Programs and Non-Entitlement Grants in Hawaii (WNDD Revolving Loan) 14.228 14/ED/21 44,216 Community Development Block Grants/State's Programs and Non-Entitlement Grants in Hawaii (Downtown Corridor Revitalization) 14.228 15/PF/05 53,738

Total Department of Housing and Urban Development 157,350

Total Expenditures of Federal Awards 2,562,506$

FEDERAL-GRANTOR/PASS-THROUGH GRANTOR/PROGRAM TITLE

CITY OF FERNLEY, NEVADA Notes to the Schedule of Expenditures of Federal Awards


116

Reporting Entity: The accompanying schedule of expenditures of federal awards presents the activity or expenditure of all federal awards programs of the City of Fernley, Nevada for the year ended June 30, 2016. The City’s reporting entity is defined in Note 1 of the basic financial statements. All expenditure of federal awards received directly from federal agencies as well as federal awards passed through other government agencies are included in the schedule. Basis of Accounting: This accompanying schedule of expenditures of federal awards has been prepared on the modified accrual basis of accounting. The information in this schedule is presented in accordance with the requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards.

Relationship to Basic Financial Statements: Expenditures of federal awards have been reported in the Grants fund and other areas as follows:

Governmental-Type Activities:Grants Fund:

Public Works 41,313$ Community Support and Development 330,684

371,997 Business-Type Activities:

Water Enterprise Fund 2,190,509

Total 2,562,506$

Indirect Cost Rate: The City did not elect to use the 10% de Minimis indirect cost rate for fiscal year 2016. Federal Loans and Loan Guarantee Programs Outstanding: The City had the following federal loan outstanding at June 30, 2016 for which federal compliance requirements applied during the fiscal year:

G.O. (Limited Tax) Sewer Refunding Bonds, Series 2015A - balance outstanding 5,799,087$ Federal portion of original loan (66.458 - Clean Water State Revolving Loan Fund) 2,058,179

Subrecipients: Expenditures related to the following grants from the Department of Housing and Urban Development were passed through to Social Entrepreneurs, Inc., a Nevada non-profit corporation:

Community Development Block Grant/State’s Programs and Non-Entitlement Grants in Hawaii (Rural Continuum of Care)

Expenditures related to the following grants from the Department of Housing and Urban Development were passed through to Western Nevada Development District, a Nevada non-profit corporation:

Community Development Block Grant/State’s Programs and Non-Entitlement Grants in Hawaii (WNDD Revolving Loan)

117

Independent Auditors’ Report on State Legal Compliance


We have audited the financial statements of the City of Fernley, Nevada for the fiscal year ended June 30, 2016 and have issued our report thereon dated October 27, 2016. Our audit also included test work on the City’s compliance with selected requirements identified in the State of Nevada Revised Statutes (NRS) including, but not limited to, NRS section 354.624 and section 354.6241.

Management of the City is responsible for the City's compliance with all requirements identified above. Our responsibility is to express an opinion on compliance with those requirements based on our audit and make specific statements regarding funds established and the status of prior year findings and recommendations; accordingly, we make the following statements:

For the fiscal year ended June 30, 2016, the City of Fernley has taken steps to act upon recommendations made in prior years.

The City has established a number of funds in accordance with NRS 354.624 as follows:

Enterprise Funds: Water Utility Fund Sewer Utility Fund

Funds whose balance is required to be used only for a specific purpose or carried forward to the succeeding fiscal year in any designated amount: Special Revenue Funds:

Grants Fund Municipal Court Administration Fund Municipal Court Facilities Fund Transient Lodging Tax Fund Capital Projects Funds: Capital Projects Fund Capital Improvements Fund The City appears to be using the above listed funds expressly for the purposes for which they were created and in accordance with NRS 354.624. The funds are being administered in accordance with Generally Accepted Accounting Principles and the reserves, as applicable, appear reasonable and necessary to carry out the purposes of the funds. Sources of revenues available and fund balances and net position are reflected in the individual fund financial statements.






118

The statutory and regulatory requirements of the funds are as follows:

Water Fund City Resolution Sewer Fund City Resolution Grants Fund City Resolution Municipal Court Administration Fund NRS 268.4085 Municipal Court Facilities Fund NRS 176.0611 Transient Lodging Tax Fund City Ordinance #2009-018 Capital Projects Fund City Resolution Capital Improvements Fund City Resolution

NRS 354.624 requires a schedule of all fees imposed by the City that were subject to the provisions of NRS 354.5989. See the following page for the schedule.

We conducted our audit in accordance with auditing standards generally accepted in the United States of America and Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether material noncompliance with the requirements referred to above occurred. An audit includes examining, on a test basis, evidence about the City's compliance with those requirements. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the City of Fernley complied, in all material respects, with the requirements identified above for the fiscal year ended June 30, 2016.

The purpose of this report is solely to describe the scope of our testing of the applicable compliance requirements identified in the Nevada Revised Statutes (NRS) and the results of that testing based on the state requirements. Accordingly, this report is not suitable for any other purpose.



Schedule of Fees Imposed Subject to the Provisions of NRS 354.5989 – Limitation of Fees for Business Licenses

119

Flat fixed fees:Business license revenue for the year ended June 30, 2015 193,163$

Adjustment to base:Base year:1. Percentage decrease in population of the local

government 1.11%

2. Percentage increase in the Consumer Price Index forthe year ending on December 31, next preceding the year for which the limit is being calculated 0.7%

Adjusted base at June 30, 2015 1.81% 196,659

Actual revenue for the fiscal year ended June 30, 2016 200,321

Actual amount over (under) allowable amount 3,662$

B-1

APPENDIX B

SUMMARY OF CERTAIN PROVISIONS OF THE BOND ORDINANCE

The following is a brief summary of certain provisions of the Bond Ordinance and is qualified in its entirety by the provisions of the Bond Ordinance itself. Definitions

As used in the Bond Ordinance, the following terms shall, for all purposes, have the following meanings, except where the context by clear implication otherwise requires: “2007 Bonds” means the “City of Fernley, Nevada, General Obligation (Limited Tax) Water and Sewer Bonds (Additionally Secured by Pledged Revenues), Series 2007.” “2008 Bonds” means the “City of Fernley, Nevada, General Obligation (Limited Tax) Water and Sewer Bonds (Additionally Secured by Pledged Revenues), Series 2008.” “2014 Bonds” means the “City of Fernley, Nevada, General Obligation (Limited Tax) Water and Sewer Refunding Bonds (Additionally Secured by Pledged Revenues), Series 2014.” “2015A Bond” means the “City of Fernley, Nevada, General Obligation (Limited Tax) Sewer Refunding Bond (Additionally Secured by Pledged Revenues), Series 2015A.” “2015B Bond” means the “City of Fernley, Nevada, General Obligation (Limited Tax) Water Refunding Bond (Additionally Secured by Pledged Revenues), Series 2015B” “2016 Bonds” means the “City of Fernley, Nevada, General Obligation (Limited Tax) Water and Sewer Refunding Bonds (Additionally Secured by Pledged Revenues), Series 2016.” “2017 Sewer Bonds” means the “City of Fernley, Nevada, General Obligation (Limited Tax) Sewer Bonds (Additionally Secured by Pledged Revenues), Series 2017,” if issued.

“Bonds” means the “City of Fernley, Nevada, General Obligation (Limited Tax) Water Refunding Bonds (Additionally Secured by Pledged Revenues), Series 2017” issued pursuant to the Bond Ordinance.

“Bond Fund” means, collectively, the two separate accounts designated as the

“City of Fernley, Nevada, General Obligation (Limited Tax) Water Refunding Bonds (Additionally Secured by Pledged Revenues), Series 2017 Interest Account” (the “Interest Account”) and the “City of Fernley, Nevada, General Obligation (Limited Tax) Water Refunding Bonds (Additionally Secured by Pledged Revenues), Series 2017 Principal Account” (the “Principal Account”) created in the Bond Ordinance

B-2

“Bond Year” means the 12 month period commencing on February 2 of a calendar year and ending on February 1 of the following calendar year.

“City Clerk” or “Clerk” means the de jure or de facto clerk of the City, or his or

her successor in functions, if any. “City Manager” means the de jure or de facto City Manager of the City and chief

administrative officer of the City or his or her successor in functions, if any. “Commercial Bank” means a state or national bank or trust company which is a

member of the Federal Deposit Insurance Corporation, including without limitation any trust bank.

“Escrow Account” means the special account designated as the “City of Fernley,

Nevada, General Obligation (Limited Tax) Water Refunding Bonds (Additionally Secured by Pledged Revenues), Series 2017, Escrow Account,” created in the Bond Ordinance and held by the Escrow Bank.

“Escrow Agreement” means the agreement between the City and the Escrow

Bank concerning the Refunded Bonds. “Escrow Bank” means U.S. Bank National Association, and its successors or

assigns.

“Federal Government” means the United States, or any agency, instrumentality or corporation thereof.

“Federal Securities” means bills, certificates of indebtedness, notes, bonds or

similar securities which are direct obligations of, or the principal and interest of which securities are unconditionally guaranteed by, the United States.

“Finance Director”, “Finance Director/Treasurer” or “Treasurer” means the

de jure or de facto Finance Director/Treasurer of the City and chief financial officer of the City or his or her successor in functions, if any.

“Fiscal Year” means the 12 months commencing on July 1 of any calendar year

and ending on June 30 of the next succeeding calendar year; but if the Nevada Legislature changes the statutory fiscal year relating to the City, the Fiscal Year shall conform to such modified statutory fiscal year from the time of each such notification, if any.

“General Taxes” means general (ad valorem) taxes levied by the City against all

taxable property within the boundaries of the City (unless otherwise qualified). “Gross Revenues” means all income and revenues derived directly or indirectly

by the City from the operation and use and otherwise pertaining to the Utility System or any part thereof, whether resulting from repairs, enlargements, extensions, betterments or other improvements to the Utility System, or otherwise, and includes all revenues received by the City from the Utility System, including, without limitation, all fees, rates, and other charges for the

B-3

use of the Utility System, or for any service rendered by the City in the operation thereof, directly or indirectly, the availability of any such service or the sale or other disposal of any commodity derived therefrom, but excluding any moneys borrowed and used for the acquisition of capital improvements and any moneys received as grants, appropriations or gifts from the United States, the State or other sources, the use of which is limited by the grantor or donor to the construction of capital improvements for the Utility System, except to the extent any such moneys shall be received as payments for the use of the Utility System, services rendered thereby, the availability of any such service or the disposal of any such commodities. “Gross Revenues” shall also include all income or other gain from the investment of such income and revenues and of the proceeds of securities payable from Gross Revenues or Net Revenues.

“Net Revenues” means the Gross Revenues remaining after the deduction of

Operation and Maintenance Expenses of the Utility System. “Operation and Maintenance Expenses” means all reasonable and necessary

current expenses of the City, paid or accrued, of operating, maintaining and repairing the Sewer System, the Water System or the Utility System, as the case may be, including, without limitation:

(a) engineering, auditing, reporting, legal and other

overhead expenses relating to the administration, operation and maintenance of the Utility System;

(b) fidelity bond and property and liability insurance

premiums pertaining to the Utility System or a reasonably allocable share of a premium of any blanket bond or policy pertaining to the Sewer System, the Water System or the Utility System, as the case may be;

(c) payments to pension, retirement, health and

hospitalization funds, and other insurance and to any self-insurance fund as insurance premiums not in excess of such premiums which would otherwise be required for such insurance;

(d) any general taxes, assessments, excise taxes or other

charges which may be lawfully imposed upon the City, the Sewer System, the Water System or the Utility System, as the case may be, revenues therefrom or the City’s income from or operations of any properties under its control and pertaining to the Sewer System, the Water System or the Utility System, as the case may be, or any privilege in connection with the Sewer System, the Water System or the Utility System, as the case may be, or its operations;

(e) the reasonable charges of any Paying Agent or

Registrar and any depository bank pertaining to the Bonds or any other securities payable from Gross Revenues or otherwise

B-4

pertaining to the Sewer System, the Water System or the Utility System, as the case may be ;

(f) contractual services, professional services, salaries,

other administrative expenses and costs of materials, supplies, repairs and labor pertaining to the Sewer System, the Water System or the Utility System, as the case may be, or to the issuance of the Bonds, or any other securities relating to the Sewer System, the Water System or the Utility System, as the case may be, including, without limitation, the expenses and compensation of any receiver or other fiduciary under the Bond Act;

(g) the costs incurred by the Council in the collection and

any refunds of all or any part of Gross Revenues; (h) any costs of utility services furnished to the Sewer

System, the Water System or the Utility System, as the case may be;

(i) any lawful refunds of any Gross Revenues; and (j) all other administrative, general and commercial

expenses pertaining to the Sewer System, the Water System or the Utility System, as the case may be;

but excluding: (i) any allowance for depreciation; (ii) any costs of extensions, enlargements, betterments and

other improvements, or any combination thereof; (iii) any reserves for major capital replacements, other than

normal repairs; (iv) any reserves for operation, maintenance or repair of

the Sewer System, the Water System or the Utility System, as the case may be;

(v) any allowance for the redemption of any Bond or other

security or the payment of any interest thereon or any prior redemption premium due in connection therewith;

(vi) any liabilities incurred in the acquisition or

improvement of any properties comprising any project or any existing facilities, or any combination thereof, pertaining to the Sewer System, the Water System or the Utility System, as the case may be, or otherwise; and

B-5

(vii) any liabilities imposed on the City for any ground of legal liability not based on contract, including, without limitation, negligence in the operation of the Sewer System, the Water System or the Utility System, as the case may be. “Outstanding” when used with reference to the Bonds or any other designated

securities payable from Net Revenues and as of any particular date means all of the Bonds or other securities in any manner theretofore and thereupon being executed and delivered:

(a) Except any Bond or other security canceled by the City,

the Paying Agent or otherwise on the City’s behalf, at or before such date;

(b) Except any Bond or other security for the payment or

the redemption of which moneys at least equal to its Bond Requirements to the date of maturity or to any Redemption Date shall have theretofore been deposited with a trust bank in escrow or in trust for that purpose, as provided in Section 59 of the Bond Ordinance; and

(c) Except any Bond or other security in lieu of or in

substitution for which another Bond or other security shall have been executed and delivered.

“Parity Securities” means securities of the City pertaining to the Utility System

and payable from and secured by Net Revenues on a parity with the Bonds, the 2007 Bonds, the 2008 Bonds, the 2014 Bonds, the 2015A Bond, the 2015B Bond, the 2016 Bonds and any future Parity Securities (including, without limitation, the 2017 Sewer Bonds, if issued), to the extent issued in accordance with the terms, conditions and limitations of the Bond Ordinance.

“Paying Agent” means U.S. Bank National Association or any successor thereto

as paying agent for the Bonds. “Refunded Bonds” means the 2007 Bonds, the 2008 Bonds and the 2014 Bonds,

if any, designated in the Escrow Agreement. “Refunding Project” means the refunding of certain of the 2007 Bonds, certain

of the 2008 Bonds and certain of the 2014 Bonds, if any, with all or a portion of the proceeds of the Bond as specified in the Escrow Agreement.

“Registrar” means U.S. Bank National Association or any successor thereto as

registrar for the Bonds.

“Sewer Gross Revenues” means all income and revenues derived directly or indirectly by the City from the operation and use and otherwise pertaining to the Sewer System or any part thereof, whether resulting from repairs, enlargements, extensions, betterments or other improvements to the Sewer System, or otherwise, and includes all revenues received by the Town from the Sewer System, including, without limitation, all fees, rates, and other charges for

B-6

the use of the Sewer System, or for any service rendered by the City in the operation thereof, directly or indirectly, the availability of any such service or the sale or other disposal of any commodity derived therefrom, but excluding any moneys borrowed and used for the acquisition of capital improvements and any moneys received as grants, appropriations or gifts from the United States, the State or other sources, the use of which is limited by the grantor or donor to the construction of capital improvements for the Sewer System, except to the extent any such moneys shall be received as payments for the use of the Sewer System, services rendered thereby, the availability of any such service or the disposal of any such commodities. “Sewer Gross Revenues” shall also include all income or other gain from the investment of such income and revenues and of the proceeds of securities payable from Sewer Gross Revenues or Sewer Net Revenues.

“Sewer Net Revenues” means the Sewer Gross Revenues remaining after the

payment of the Operation and Maintenance Expenses related to the Sewer System. “Sewer System” means the sewer system of the City, consisting of all properties,

real, personal, mixed or otherwise, now owned or hereafter acquired by the City through purchase, construction or otherwise, and used in connection with such system of the City, and in any way pertaining thereto, whether or not located within or without or both within and without the boundaries of the City, including, without limitation, machinery, apparatus, structures, buildings and related or appurtenant furniture, fixtures and other equipment, as such system is from time to time extended, bettered or otherwise improved, or any combination thereof.

“Subordinate Securities” means securities of the City pertaining to the Utility

System and payable from and secured by Net Revenues subordinate and junior to the pledge thereof to the Bonds, the 2007 Bonds, the 2008 Bonds, the 2014 Bonds, the 2015A Bond, the 2015B Bond, the 2016 Bonds and the 2017 Sewer Bonds, if issued, to the extent issued in accordance with the terms, conditions and limitations of the Bond Ordinance.

“Superior Securities” means special obligation bonds or securities which have a

lien on all or a portion of the Net Revenues that is superior to the lien thereon of the Bonds, the 2007 Bonds, the 2008 Bonds, the 2014 Bonds, the 2015A Bond, 2015B Bond, the 2016 Bonds and the 2017 Sewer Bonds, if issued.

“Tax Code” means the Internal Revenue Code of 1986, as amended to the date of

delivery of the Bonds. “Trust Bank” means a “commercial bank,” as defined herein, which bank is

authorized to exercise and is exercising trust powers, and also means any branch of the Federal Reserve Bank.

“Utility System” means the Water System and the Sewer System of the City,

consisting of all properties, real, personal, mixed or otherwise, now owned or hereafter acquired by the City through purchase, construction or otherwise, and used in connection with such system of the City, and in any way pertaining thereto, whether or not located within or without or both within and without the boundaries of the City, including, without limitation, machinery, apparatus, structures, buildings and related or appurtenant furniture, fixtures and other

B-7

equipment, as such system is from time to time extended, bettered or otherwise improved, or any combination thereof.

“Water Gross Revenues” means all income and revenues derived directly or indirectly by the City from the operation and use and otherwise pertaining to the Water System or any part thereof, whether resulting from repairs, enlargements, extensions, betterments or other improvements to the Water System, or otherwise, and includes all revenues received by the City from the Water System, including, without limitation, all fees, rates and other charges for the use of the Water System, or for any service rendered by the City in the operations thereof, directly or indirectly, the availability of any such service or the sale or other disposal of any commodity derived therefrom, but excluding any moneys borrowed and used for the acquisition of capital improvements and any moneys received as grants, appropriations or gifts from the United States, the State or other sources, the use of which is limited by the grantor or donor to the construction of capital improvements for the Water System, except to the extent any such moneys shall be received as payments for the use of the Water System, services rendered thereby, the availability of any such service or the disposal of any such commodities. “Water Gross Revenues” shall also include all income or other gain from the investment of such income and revenues and of the proceeds of securities payable from Water Gross Revenues or Water Net Revenues to the extent lawfully available for the purposes of the Water System. The Water Gross Revenues also include the “Alternate Water Gross Revenues,” if any, as such term is defined in the ordinances authorizing the Parity Securities.

“Water Net Revenues” means the Water Gross Revenues remaining after the

deduction of Operation and Maintenance Expenses relating to the Water System. “Water System” means the water system of the City, consisting of all properties,

real, personal, mixed or otherwise, now owned or hereafter acquired by the City through purchase, construction or otherwise, and used in connection with such system of the City, and in any way pertaining thereto, whether or not located within or without or both within and without the boundaries of the City, including, without limitation, improvements, machinery, apparatus, structures, buildings and related or appurtenant furniture, fixtures and other equipment, as such system is from time to time extended, bettered or otherwise improved, or any combination thereof. The Water System also includes the “Alternate Water System,” as such term is defined in the ordinances authorizing the Parity Securities. Bonds Equally Secured

The covenants and agreements set forth to be performed in the Bond Ordinance shall be for the equal benefit, protection and security of the owners of any and all of the outstanding Bonds, all of which, regardless of the time or times of their issue or maturity, shall be of equal rank without preference, priority or distinction except as otherwise expressly provided in or pursuant to the Bond Ordinance. General Obligations

All of the Bonds, as to the principal thereof, the interest thereon and any prior redemption premiums due in connection therewith (the “Bond Requirements”), shall constitute general obligations of the City, which pledges its full faith and credit for their payment in the

B-8

Bond Ordinance. So far as possible, Bond Requirements shall be paid from Net Revenues of the Utility System (the “Pledged Revenues”). However, the Bonds as to all Bond Requirements shall also be payable from the General Taxes (except to the extent that other moneys such as Net Revenues are available therefor) as provided in the Bond Ordinance. Pledge Securing Bonds

Subject only to the provisions of the Bond Ordinance permitting the application thereof for or to the purposes and on the terms and conditions set forth in the Bond Ordinance, there are additionally pledged to secure the payment of principal of and interest on the Bonds in accordance with their terms and the provisions of the Bond Ordinance, all of the Gross Revenues of the Utility System, after provision is made for the payment of the Operation and Maintenance Expenses of the Utility System. This pledge shall be valid and binding from and after the date of the delivery of the Bonds; and the Gross Revenues, as received by the City shall immediately be subject to the lien of this pledge without any physical delivery thereof, any filing or further act; and the lien of this pledge shall be valid and binding as against all parties having claims of any kind in tort, contract or otherwise against the City (except as otherwise provided in the Bond Ordinance) irrespective of whether such parties have notice thereof. The lien of this pledge and the obligation to perform the contractual provisions made in the Bond Ordinance shall have priority over any and all other obligations and liabilities of the City payable from the Gross Revenues, after provision is made for the payment of the Operation and Maintenance Expenses, except as otherwise provided in the Bond Ordinance. The lien of this pledge for the Bonds and any Parity Securities shall be equitably and ratably secured by the pledge of Gross Revenues under the Bond Ordinance, after provision is made for the payment of the Operation and Maintenance Expenses; and the Bonds and any Parity Securities are not entitled to any priority one over the other in the application of Gross Revenues. Flow of Funds

So long as any of the Bonds authorized by the Bond Ordinance shall be Outstanding as to any Bond Requirements, the entire Gross Revenues of the Water System upon their receipt from time to time by the City shall be set aside and credited immediately to a special account designated as the “City of Fernley Water System Gross Revenue Fund” (the “Water Revenue Fund”). In addition, and so long as any of the Bonds shall be Outstanding as to any Bond Requirements, the entire Gross Revenues of the Sewer System upon their receipt from time to time by the City shall be set aside and credited immediately to a special designated as the “City of Fernley Sewer System Gross Revenue Fund” (the “Sewer Revenue Fund”); so long as any of the Bonds shall be Outstanding as to any Bond Requirements in each Fiscal Year, the Water Revenue Fund and the Sewer Revenue Fund shall be administered and the moneys on deposit in each account shall be applied in the following order of priority:

First, as a first charge on the Water Revenue Fund so long as any of the Bonds shall be Outstanding as to any Bond Requirements, there shall be set aside in and credited to, from time to time, a separate account heretofore created, continued in the Bond Ordinance and designated as “City of Fernley Water System Operation and Maintenance Fund” (the “Water System Operation and Maintenance Fund”) money sufficient to pay operation and maintenance expenses of the Water System; and so long as any of the Bonds shall be Outstanding as a first charge on the Sewer Revenue Fund there shall be set aside in and credited to, from time to time,

B-9

a separate account heretofore created, continued in the Bond Ordinance, renamed and designated as the “City of Fernley Sewer System Operation and Maintenance Fund” (the “Sewer System Operation and Maintenance Fund”) money sufficient to pay operation and maintenance expenses of the Sewer System Such operation and maintenance expenses of the Water System and of the Sewer System are to be as budgeted and approved in accordance with the Budget Act and as such expenses become due and payable thereupon they shall be promptly paid. Any surplus remaining at the end of the Fiscal Year and not needed for operation and maintenance expenses of the Water System shall be transferred to the Water Revenue Fund and shall be used for the purposes thereof as provided in the Bond Ordinance. Any surplus remaining at the end of the Fiscal Year and not needed for operation and maintenance expenses of the Sewer System shall be transferred to the Sewer Revenue Fund and shall be used for the purposes thereof as provided in the Bond Ordinance.

Second, from any moneys remaining in the Water Revenue Fund and Sewer

Revenue Fund, i.e., from the Net Revenues, and concurrent with transfers to any bond funds, reserve funds and rebate funds created with respect to Superior Securities, there shall be credited to such bond funds reserve funds, and rebate funds such amounts as are required to be deposited by the ordinances authorizing the issuance of the Superior Securities, if any.

Third, and subject to the aforesaid provisions, from any moneys thereafter

remaining in the Water Revenue Fund and Sewer Revenue Fund, i.e., from the Net Revenues, concurrent with transfers to the bond funds created with respect to with respect to the 2007 Bonds, the 2008 Bonds, the 2014 Bonds, the 2015A Bond, the 2015B Bond, the 2016 Bonds and any other Parity Securities (including without limitation, the 2017 Sewer Bonds, if issued), there shall be transferred and credited to the Bond Fund, the following:

(1) Monthly, commencing on the first day of the month immediately succeeding

the delivery date of the Bonds, an amount in equal monthly installments necessary, together with any other moneys from time to time available therefor from whatever source, to pay the next maturing installment of interest on the Outstanding Bonds, and monthly thereafter, commencing on each interest payment date, one-sixth of the amount necessary, together with any other moneys from time to time available therefor and on deposit therein from whatever source, to pay the next maturing installment of interest on the Outstanding Bonds.

(2) Monthly, commencing on the first day of the month immediately succeeding

the delivery date of the Bonds, an amount in equal monthly installments necessary, together with any other moneys from time to time available therefor from whatever source, to pay the next maturing installment of principal on the Outstanding Bonds, and monthly thereafter, commencing on each principal payment date, one twelfth of the amount necessary to pay the next maturing installments of principal of the Outstanding Bonds. The money credited to the Bond Fund shall be used to pay the Bond Requirements of the Bonds as such Bond Requirements become due.

Fourth, after the aforementioned deposits, and from the Net Revenues there shall

be transferred and credited to a special and separate account created in the Bond Ordinance and designated as the “City of Fernley, General Obligation (Limited Tax) Water Refunding Bonds (Additionally Secured by Pledged Revenues), Series 2017, Rebate Account” (the “Rebate Account”) and to any other fund or account established for payment of amounts due the United

B-10

States under Section 148(f) of the Tax Code in connection with any Parity Securities in such amounts as are required to be deposited therein to meet the City’s obligations under the covenant contained in Section 59 of the Bond Ordinance, in accordance with Section 148(f) of the Tax Code. Such deposits shall be made at such times as are required by Section 148(f) of the Tax Code and such covenant and amounts in the Rebate Account shall be used for the purpose of making the payments to the United States required by such covenant and Section 148(f) of the Tax Code. Any amounts in the Rebate Account in excess of those required to be on deposit therein may be withdrawn therefrom and deposited into the Revenue Fund.

Fifth, any moneys thereafter remaining in the Water Revenue Fund and Sewer

Revenue Fund, i.e., from the Net Revenues, may be used by the City for the payment of the principal of and interest on, and payments to the United States required by Section 148(f) of the Tax Code with respect to, Subordinate Securities, and may be used to create reasonable reserves for such securities.

Sixth, any moneys thereafter remaining in the Water Revenue Fund and Sewer

Revenue Fund, i.e., from the Net Revenues, may be used by the City at the end of any Fiscal Year of the City, or whenever there shall have been credited all amounts required to be deposited in the respective foregoing separate accounts for all of that Fiscal Year, for any lawful purposes of the City, as the Council may from time to time determine, including, without limitation, for the creation of operation and maintenance reserves and capital reserves, the payment of capital costs and major maintenance costs of the Utility System, to pay any other obligations pertaining to the Utility System or otherwise.

No payment need be made into the Bond Fund if the amounts in that fund total a

sum at least equal to the entire amount of the Outstanding Bonds as to all Bond Requirements to their respective maturities both accrued and not accrued, in which case moneys in such Fund in an amount, except for any interest or other gain to accrue from any investment of moneys in Federal Securities from the time of any such investment to the time or respective times the proceeds of any such investment or deposit shall be needed for such payment, at least equal to such Bond Requirements, shall be used, together with any such gain from such investments, solely to pay such Bond Requirements as the same become due. Such Bond Requirements shall be paid when due and are not subject to acceleration. Issuance of Parity Securities

Nothing in the Bond Ordinance, except as expressly provided therein, shall prevent the issuance by the City of additional securities payable from Net Revenues and constituting a lien thereon on a parity with the lien thereon of the Bonds, provided, however, that the following are express conditions to the authorization and issuance of any such Parity Securities:

(1) At the time of adoption of the instrument authorizing the issuance of the additional Parity Securities, the City shall not be in default in the payment of principal of or interest on the Bonds.

(2) The Net Revenues (subject to adjustments as provided below) projected by the Treasurer, City Engineer, an

B-11

Independent Accountant or consulting engineer to be derived in the later of (i) the Fiscal Year immediately following the Fiscal Year in which the facilities to be financed with the proceeds of the additional Parity Securities are projected to be completed or (ii) the first Fiscal Year for which no interest has been capitalized for the payment of any Parity Securities, including the Parity Securities proposed to be issued, will be sufficient to pay at least an amount equal to the principal and interest requirements (to be paid during that Fiscal Year) of the Outstanding Bonds, any Outstanding Superior Securities, any Outstanding Parity Securities of the City and the Parity Securities proposed to be issued (excluding any reserves therefor).

In any determination of whether or not additional Parity Securities may be issued

in accordance with the foregoing earnings test, consideration shall be given to any probable estimated increase or reduction in Operation and Maintenance Expenses that will result from the expenditure of the funds proposed to be derived from the issuance and sale of the additional Parity Securities.

In any determination of whether or not additional Parity Securities may be issued

in accordance with the foregoing earnings test, the respective annual principal (or redemption price) and interest requirements shall be reduced to the extent such requirements are scheduled to be paid with moneys held in trust or in escrow for that purpose by any Trust Bank, including the known minimum yield from any investment in Federal Securities. Subordinate Securities

Nothing in the Bond Ordinance, subject to the limitations stated therein, shall prevent the City from issuing additional Subordinate Securities payable from all or a portion of the Net Revenues and constituting a lien thereon subordinate to the lien thereon of the Bonds and any outstanding Parity Securities. Superior Securities

The City may issue Superior Securities payable from the Net Revenues and having a lien thereon prior and superior to the lien thereon of the Bonds, as long as the Superior Securities are issued as special obligations and the requirements in the Bond Ordinance for the issuance of additional Parity Securities are met.

B-12

Refunding Securities

At any time after the Bonds, or any part thereof, are issued and remain Outstanding, if the City shall find it desirable to refund any Outstanding Bonds or other Outstanding Parity Securities, Superior Securities or Subordinate Securities, such Bonds or other securities, or any part thereof, may be refunded only if the Bonds or other securities at the time or times of their required surrender for payment shall then mature or shall be then callable for prior redemption for the purpose of refunding them at the City’s option upon proper call, unless the owner or owners of all such Outstanding securities consent to such surrender and payment, regardless of whether the priority of the lien for the payment of the refunding securities on the Gross Revenues is changed (except as otherwise provided in the Bond Ordinance).

The refunding bonds or other refunding securities so issued shall enjoy complete equality of lien with the portion of any securities of the same issue which is not refunded, if there is any; and the owner or owners of the refunding securities shall be subrogated to all of the rights and privileges enjoyed by the owner or owners of the unrefunded securities of the same issue partially refunded by the refunding securities.

Any refunding bonds or other refunding securities payable from any Gross Revenues shall be issued with such details as the Council may by ordinance provide, subject to the provisions of this section but without any impairment of any contractual obligation imposed upon the City by any proceedings authorizing the issuance of any unrefunded portion of the Outstanding securities of any one or more issues (including, without limitation, the Bonds).

If only a part of the Outstanding Bonds and other Outstanding securities of any

issue or issues payable from the Gross Revenues is refunded, then such securities may not be refunded without the consent of the owner or owners of the unrefunded portion of such securities:

(1) Unless the refunding bonds or other refunding securities do not increase for any Bond Year the aggregate principal and interest requirements evidenced by the refunding securities and by the Outstanding securities not refunded on and before the last maturity date or last Redemption Date, if any, whichever is later, of the unrefunded securities, and unless the lien of any refunding bonds or other refunding securities on the Net Revenues is not raised to a higher priority than the lien thereon of the Bonds or other securities thereby refunded; or

(2) Unless the lien on any Gross Revenues for the

payment of the refunding securities is subordinate to each such lien for the payment of any securities not refunded; or

(3) Unless the refunding bonds or other refunding

securities are issued in compliance with the Bond Ordinance.

B-13

Rate Maintenance Covenant The City shall charge against users or against purchasers of services or

commodities pertaining to the Utility System such fees, rates and other charges as shall be sufficient to produce Gross Revenues annually which, together with any other funds available therefor, will be in each Fiscal Year of the City at least equal to the sum of:

(a) an amount equal to the annual Operation and Maintenance Expenses for such Fiscal Year;

(b) an amount equal to the debt service due in such Fiscal Year on the then Outstanding Bonds, any Outstanding Parity Securities and any Outstanding Superior Securities; and

(c) any other amounts payable from the Net Revenues and pertaining to the Utility System, including, without limitation, debt service on any Subordinate Securities and any other securities pertaining to the Utility System, operation and maintenance reserves, capital reserves and prior deficiencies pertaining to any account relating to Gross Revenues.

The foregoing rate covenant is subject to compliance by the City with any

legislation of the United States of America, the State or other governmental body, or any regulation or other action taken by the United States, the State or any agency or political subdivision of the State pursuant to such legislation, in the exercise of the police power thereof for the public welfare, which legislation, regulation or action limits or otherwise inhibits the amounts of fees, rates and other charges collectible by the City for the use of or otherwise pertaining to, and all services rendered by, the Utility System.

Subject to the foregoing, the City shall cause all fees, rates and other charges pertaining to the Utility System to be collected as soon as reasonable and shall provide methods of collection and penalties to the end that the Gross Revenues shall be adequate to meet the requirements of the Bond Ordinance.

Tax Covenant

The City covenants for the benefit of the owners of the Bonds that it will not take any action or omit to take any action with respect to the Bonds, the proceeds thereof, any other funds of the City or any facilities refinanced with the proceeds of the Bonds if such action or omission (i) would cause the interest on the Bonds to lose its exclusion from gross income for federal income tax purposes under Section 103 of the Tax Code or (ii) would cause interest on the Bonds to lose its exclusion from alternative minimum taxable income as defined in Section 55(b)(2) of the Tax Code except to the extent such interest is required to be included in the adjusted current earnings adjustment applicable to corporations under Section 56 of the Tax Code in calculating corporate alternative minimum taxable income. The foregoing covenant shall remain in full force and effect notwithstanding the payment in full or defeasance of the Bonds until the date on which all obligations of the City in fulfilling the above covenant under the Tax Code have been met.

B-14

Amendment of the Bond Ordinance

The Bond Ordinance may be amended or supplemented by instruments adopted by the City, without receipt by the City of any additional consideration, but with the written consent of the insurer, if any, of the Bonds or in lieu thereof, the owners of 66% in aggregate principal amount of the Bonds outstanding at the time of the adoption of the amendatory or supplemental instrument, excluding Bonds which may then be held or owned for the account of the City, but including such refunding securities as may be issued for the purpose of refunding any of the Bonds if the refunding securities are not owned by the City. No such instrument shall permit:

(a) A change in the maturity or in the terms of redemption of the principal or any installment thereof of any Outstanding Bond or any installment of interest thereon;

(b) A reduction in the principal amount of any Bond, the rate of interest thereon, without the consent of the owner of the Bond; or

(c) A reduction of the principal amount or percentages or otherwise affecting the description of Bonds the consent of the owners of which is required for any modification or amendment; or

(d) The establishment of priorities as between Bonds issued and Outstanding under the provisions of the Bond Ordinance; or

(e) The modification of, or other action which materially and prejudicially affects the rights or privileges of the owners of less than all of the Bonds then Outstanding.

Whenever the City proposes to amend or modify the Bond Ordinance, it shall

cause notice of the proposed amendment to be mailed within 30 days to the insurer of the Bonds, if any, or each registered owner of each registered Bond. The notice shall briefly set forth the nature of the proposed amendment and shall state that a copy of the proposed amendatory instrument is on file in the office of the City Clerk for public inspection.

Whenever the insurer of the Bonds, if any, shall consent, or at any time within one

year from the date of such notice there shall be filed in the office of the City Clerk an instrument or instruments executed by the owners of at least 66% in aggregate principal amount of the Bonds then outstanding, which instrument or instruments shall refer to the proposed amendatory instrument described in the notice and shall specifically consent to and approve the adoption of the instrument; thereupon, but not otherwise, the Council may adopt the amendatory instrument and the instrument shall become effective. If the insurer of the Bonds, if any, or the owners of at least 66% in aggregate principal amount of the Bonds Outstanding, at the time of the adoption of the amendatory instrument, or the predecessors in title of such owners, shall have consented to and approved the adoption thereof as provided in the Bond Ordinance, no owner of any Bond, whether or not the owner shall have consented thereto, shall have any right or interest to object to the adoption of the amendatory instrument or to object to any of the terms or provisions therein contained or to the operation thereof or to enjoin the City from taking any action pursuant to the provisions

B-15

thereof. Any consent given by the insurer of the Bonds or the holder of a Bond pursuant to the provisions of the Bond Ordinance shall be irrevocable.

C-1

APPENDIX C

BOOK-ENTRY ONLY SYSTEM

DTC will act as securities depository for the Bonds. The Bonds will be issued as fully-registered securities registered in the name of Cede & Co. (DTC’s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered certificate will be issued for each maturity of the Bonds, each in the aggregate principal amount of such maturity, and will be deposited with DTC.

DTC, the world’s largest securities depository, is a limited-purpose trust company organized under the New York Banking Law, a “banking organization” within the meaning of the New York Banking Law, a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code, and a “clearing agency” registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC’s participants (“Direct Participants”) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities through electronic computerized book-entry transfers and pledges between Direct Participants’ accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation (“DTCC”). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly (“Indirect Participants”). DTC has a Standard & Poor’s rating of AA+. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com.

Purchases of Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Bonds on DTC’s records. The ownership interest of the purchaser of each Bond (“Beneficial Owner”) is in turn to be recorded on the Direct and Indirect Participants’ records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in Bonds, except in the event that use of the book-entry system for the Bonds is discontinued.

To facilitate subsequent transfers, all Bonds deposited by Direct Participants with DTC are registered in the name of DTC’s partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of Bonds with DTC

C-2

and their registration in the name of Cede & Co. or such other DTC nominee do not affect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Bonds; DTC’s records reflect only the identity of the Direct Participants to whose accounts such Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers.

Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Bonds, such as redemptions, tenders, defaults, and proposed amendments to the Bond documents. For example, Beneficial Owners of Bonds may wish to ascertain that the nominee holding the Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the Registrar and request that copies of notices be provided directly to them.

Redemption notices shall be sent to DTC. If less than all of the Bonds within an issue are being redeemed, DTC’s practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed.

Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to the Bonds unless authorized by a Direct Participant in accordance with DTC’s MMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the City as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.’s consenting or voting rights to those Direct Participants to whose accounts Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy).

Principal, interest and redemption proceeds on the Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC’s practice is to credit Direct Participants’ accounts upon DTC’s receipt of funds and corresponding detail information from the City 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, the Paying Agent or the City, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal, interest or redemption proceeds to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the City or the Paying Agent, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants.

DTC may discontinue providing its services as depository with respect to the Bonds at any time by giving reasonable notice to the City or the Registrar and Paying Agent. Under such circumstances, in the event that a successor depository is not obtained, Bond certificates are required to be printed and delivered.

C-3

The City may decide to discontinue use of the system of book-entry-only transfers through DTC (or a successor securities depository). In that event, Bond certificates will be printed and delivered to DTC.

The information in this section concerning DTC and DTC’s book-entry system has been obtained from sources that the City believes to be reliable, but the City takes no responsibility for the accuracy thereof.

D-1

APPENDIX D

FORM OF CONTINUING DISCLOSURE CERTIFICATE

This Continuing Disclosure Certificate (the “Disclosure Certificate”) is executed and delivered by City of Fernley, Nevada (the “Issuer”) in connection with the issuance of the Issuer’s City of Fernley, Nevada, General Obligation (Limited Tax) Water and Sewer Refunding Bonds (Additionally Secured by Pledged Revenues), Series 2017, in the aggregate principal amount of $4,425,000 (the “Bonds”). The Bonds are being issued pursuant to the bond ordinance of the Issuer adopted December 21, 2016 (the “Ordinance”). The Issuer covenants and agrees as follows:

SECTION 1. Purpose of the Disclosure Certificate. This Disclosure Certificate is being executed and delivered by the Issuer for the benefit of the holders and beneficial owners of the Bonds and in order to assist the Participating Underwriter in complying with Rule 15c2-12(b)(5) of the Securities and Exchange Commission (the “SEC”).

SECTION 2. Definitions. In addition to the definitions set forth in the Ordinance or parenthetically defined herein, which apply to any capitalized terms used in this Disclosure Certificate unless otherwise defined in this Section, the following capitalized terms shall have the following meanings:

“Annual Report” shall mean any Annual Report provided by the Issuer pursuant to, and as described in, Sections 3 and 4 of this Disclosure Certificate.

“Dissemination Agent” shall mean, initially, the Issuer, or any successor Dissemination Agent designated in writing by the Issuer and which has filed with the Issuer a written acceptance of such designation.

“Material Events” shall mean any of the events listed in Section 5 of this Disclosure Certificate. “MSRB” shall mean the Municipal Securities Rulemaking Board. The MSRB’s required method of filing will be electronically via its Electronic Municipal Market Access (EMMA) system available on the Internet at http://emma.msrb.org. “Participating Underwriter” shall mean any of the original underwriters of the Bonds required to comply with the Rule in connection with an offering of the Bonds.

“Rule” shall mean Rule 15c2-12(b)(5) adopted by the SEC under the Securities Exchange Act of 1934, as the same may be amended from time to time.

SECTION 3. Provision of Annual Reports.

(a) The Issuer shall, or shall cause the Dissemination Agent to not later than

March 31 following the end of the Issuer’s fiscal year of each year, commencing March 31 following the end of the Issuer’s fiscal year ending June 30, 2017, provide to the MSRB in an electronic format as prescribed by the MSRB, an Annual Report which is consistent with the requirements of Section 4 of this Disclosure Certificate. Not later than five (5) business days

D-2

prior to said date, the Issuer shall provide the Annual Report to the Dissemination Agent (if other than the Issuer). The Annual Report may be submitted as a single document or as separate documents comprising a package, and may cross-reference other information as provided in Section 4 of this Disclosure Certificate; provided that the audited financial statements of the Issuer may be submitted separately from the balance of the Annual Report.

(b) If the Issuer is unable to provide to the MSRB an Annual Report by the date required in subsection (a), the Issuer shall send or cause to be sent a notice in substantially the form attached as Exhibit “A” to the MSRB.

(c) The Dissemination Agent shall:

(i) determine each year prior to the date for providing the Annual Report the appropriate electronic format prescribed by the MSRB;

(ii) if the Dissemination Agent is other than the Issuer, send written notice to the Issuer at least 45 days prior to the date the Annual Report is due stating that the Annual Report is due as provided in Section 3(a) hereof; and (iii) if the Dissemination Agent is other than the Issuer, file a report with the Issuer certifying that the Annual Report has been provided pursuant to this Disclosure Certificate, stating the date it was provided and listing all the entities to which it was provided.

SECTION 4. Content of Annual Reports. The Issuer’s Annual Report shall

contain or incorporate by reference the following:

(a) A copy of its annual financial statements prepared in accordance with generally accepted accounting principles audited by a firm of certified public accountants. If audited annual financial statements are not available by the time specified in Section 3(a) above, unaudited financial statements will be provided as part of the Annual Report and audited financial statements will be provided when and if available.

(b) An update of the type of information identified in Exhibit “B” hereto, which is contained in the tables in the Official Statement with respect to the Bonds. Any or all of the items listed above may be incorporated by reference from other documents, including official statements of debt issues of the Issuer or related public entities, which are available to the public on the MSRB’s Internet Web Site or filed with the SEC. The Issuer shall clearly identify each such document incorporated by reference.

SECTION 5. Reporting of Material Events. The Issuer shall provide or cause to

be provided, in a timely manner, not in excess of ten business days after the occurrence of the event, notice of any of the following events with respect to the Bonds, to the MSRB:

(a) Principal and interest payment delinquencies; (b) Non-payment related defaults, if material;

D-3

(c) Unscheduled draws on debt service reserves reflecting financial

difficulties;

(d) Unscheduled draws on credit enhancements reflecting financial difficulties;

(e) Substitution of credit or liquidity providers, or their failure to perform;

(f) Adverse tax opinions, the issuance by the Internal Revenue Service of proposed or final determinations of taxability, Notices of Proposed Issue (IRS Form 5701-TEB) or other material notices or determinations with respect to the tax status of the Bonds, or other material events affecting the tax status of the Bonds;

(g) Modifications to rights of bondholders, if material;

(h) Bond calls, if material, and tender offers;

(i) Defeasances;

(j) Release, substitution or sale of property securing repayment of the Bonds, if material;

(k) Rating changes; (l) Bankruptcy, insolvency, receivership or similar event of the obligated

person*; (m) The consummation of a merger, consolidation, or acquisition involving an

obligation person or the sale of all or substantially all of the assets of the obligated person, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms if material; and

(n) Appointment of a successor or additional trustee or the change of name of

a trustee, if material.

SECTION 6. Termination of Reporting Obligation. The Issuer’s obligations under this Disclosure Certificate shall terminate upon the earliest of: (i) the date of legal defeasance, prior redemption or payment in full of all of the Bonds; (ii) the date that the Issuer shall no longer constitute an “obligated person” within the meaning of the Rule; or (iii) the date on which those portions of the Rule which require this written undertaking are held to be invalid * For the purposes of the event identified in subparagraph (b)(5)(i)(C)(12) of the Rule, the event is considered to occur when any of the following occur: the appointment of a receiver, fiscal agent or similar officer for an obligated person in a proceeding under the U.S. Bankruptcy Code or in any other proceeding under state or federal law in which a court or governmental authority has assumed jurisdiction over substantially all of the assets or business of the obligated person, or if such jurisdiction has been assumed by leaving the existing governing body and official or officers in possession but subject to the supervision and orders of a court or governmental authority, or the entry of an order confirming a plan of reorganization, arrangement or liquidation by a court or governmental authority having supervision or jurisdiction over substantially all of the assets or business of the obligated person.

D-4

by a court of competent jurisdiction in a non-appealable action, have been repealed retroactively or otherwise do not apply to the Bonds.

SECTION 7. Dissemination Agent. The Issuer may, from time to time, appoint

or engage a Dissemination Agent to assist the Issuer in carrying out its obligations under this Disclosure Certificate, and may discharge any such Dissemination Agent, with or without appointing a successor Dissemination Agent.

SECTION 8. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Certificate, the Issuer may amend this Disclosure Certificate, and may waive any provision of this Disclosure Certificate, without the consent of the holders and beneficial owners of the Bonds, if such amendment or waiver does not, in and of itself, cause the undertakings herein (or action of any Participating Underwriter in reliance on the undertakings herein) to violate the Rule, but taking into account any subsequent change in or official interpretation of the Rule. The Issuer will provide notice of such amendment or waiver to the MSRB.

SECTION 9. Additional Information. Nothing in this Disclosure Certificate shall be deemed to prevent the Issuer from disseminating any other information, using the means of dissemination set forth in this Disclosure Certificate or any other means of communication, or including any other information in any Annual Report or notice of occurrence of a Material Event, in addition to that which is required by this Disclosure Certificate. If the Issuer chooses to include any information in any Annual Report or notice of occurrence of a Material Event in addition to that which is specifically required by this Disclosure Certificate, the Issuer shall have no obligation under this Disclosure Certificate to update such information or include it in any future Annual Report or notice of occurrence of a Material Event.

SECTION 10. Default. In the event of a failure of the Issuer to comply with any provision of this Disclosure Certificate, any holder or beneficial owner of the Bonds may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the Issuer to comply with its obligations under this Disclosure Certificate. A default under this Disclosure Certificate shall not be deemed an event of default under the Ordinance, and the sole remedy under this Disclosure Certificate in the event of any failure of the Issuer to comply with this Disclosure Certificate shall be an action to compel performance.

SECTION 11. Beneficiaries. This Disclosure Certificate shall inure solely to the

benefit of the Issuer, the Dissemination Agent, the Participating Underwriter, the holders and beneficial owners from time to time of the Bonds, and shall create no rights in any other person or entity.

DATE: January 26, 2017.

CITY OF FERNLEY, NEVADA City Treasurer/Finance Director

D-5

EXHIBIT “A” NOTICE TO MSRB

OF FAILURE TO FILE ANNUAL REPORT Name of Issuer: City of Fernley, Nevada Name of Bond Issue: General Obligation (Limited Tax) Water and Sewer Refunding Bonds

(Additionally Secured by Pledged Revenues), Series 2017

CUSIP: 315221 Date of Issuance: January 26, 2017

NOTICE IS HEREBY GIVEN that the Issuer has not provided an Annual Report with respect to the above-named Bonds as required by the Bond Ordinance adopted on December 21, 2016 and the Continuing Disclosure Certificate executed on January 26, 2017 by the Issuer. The Issuer anticipates that the Annual Report will be filed by ______________________. Dated: _____________________


By: Its:

D-6

EXHIBIT “B”

INDEX OF OFFICIAL STATEMENT TABLES TO BE UPDATED

[See page -iv- of this Official Statement.]

.

E-1

APPENDIX E

FORM OF APPROVING OPINION OF BOND COUNSEL

City of Fernley, Nevada 595 Silver Lace Boulevard Fernley, Nevada 89408 $4,425,000 City of Fernley, Nevada General Obligation (Limited Tax) Water and Sewer Refunding Bonds (Additionally Secured by Pledged Revenues) Series 2017 Ladies and Gentlemen:

We have acted as bond counsel to the City of Fernley, Nevada (the “City”), in connection with its issuance of the above-captioned bonds in the principal amount of $4,425,000 (the “Bonds”), pursuant to an authorizing ordinance adopted and approved by the City Council of the City on December 21, 2016 (the “Bond Ordinance”). In such capacity, we have examined the City’s certified proceedings and such other documents and such law of the State of Nevada (the “State”) and of the United States of America as we have deemed necessary to render this opinion letter. Capitalized terms not otherwise defined herein shall have the meanings ascribed to them in the Bond Ordinance.

Regarding questions of fact material to our opinions, we have relied upon the City’s certified proceedings and other representations and certifications of public officials and others furnished to us without undertaking to verify the same by independent investigation.

Based upon such examination, it is our opinion as bond counsel that:

1. The Bonds constitute valid and binding limited tax general obligations of the City.

2. All of the taxable property in the City is subject to the levy of annual general (ad valorem) taxes to pay the Bonds, subject to the limitations imposed by the Constitution and laws of the State.

3. As provided in the Bond Ordinance and in accordance with the provisions

of NRS 361.463, taxes levied for the payment of the bonded indebtedness (including the Bonds) of all overlapping units within the boundaries of the City (i.e., the State, the City, and any other political subdivision therein) and for the payment of interest on such indebtedness enjoy a priority over taxes levied by each such unit (including, without limitation, the State and the City) for all other purposes (subject to any exception implied by law in the exercise of the police power) where reduction is necessary in order to comply with NRS 361.453.

4. The Bonds are additionally secured by and payable from the Net Revenues. The Bond Ordinance creates a valid lien on the Net Revenues and on the Bond Fund pledged therein for the security of the Bonds on a parity with the lien thereon of any Parity

E-2

Securities currently Outstanding or hereafter issued, and subject to the lien thereon of any Superior Securities currently Outstanding or hereafter issued. Except as described in this paragraph, we express no opinion regarding the priority of the lien on the Net Revenues or on the Bond Fund created by the Bond Ordinance.

5. Interest on the Bonds is excluded from gross income under federal income tax laws pursuant to Section 103 of the Internal Revenue Code of 1986, as amended to the date hereof (the “Tax Code”), and interest on the Bonds is excluded from alternative minimum taxable income as defined in Section 55(b)(2) of the Tax Code, except that such interest is required to be included in calculating the adjusted current earnings adjustment applicable to corporations for purposes of computing the alternative minimum taxable income of corporations. The opinions expressed in this paragraph assume continuous compliance with the covenants and the continued accuracy of the representations contained in the City’s certified proceedings and in certain other documents and certain other certifications furnished to us.

6. Under laws of the State in effect as of the date hereof, the Bonds, their transfer, and the income therefrom are free and exempt from taxation by the State or any subdivision thereof, except for the tax on estates imposed pursuant to Chapter 375A of NRS and the tax on generation skipping transfers imposed pursuant to Chapter 375B of NRS.

The opinions expressed in this opinion letter are subject to the following:

The obligations of the City incurred pursuant to the Bonds and the Bond Ordinance may be limited by bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors’ rights generally, and by equitable principles, whether considered at law or in equity.

In expressing the opinions above, we are relying, in part, on a report of

independent certified public accountants verifying (i) the mathematical computations of the adequacy of the maturing principal amounts of and interest on the investments and moneys included in the Escrow Account to pay all interest when due on the Refunded Bonds and the principal thereof becoming due on the prior redemption thereof or at stated maturity, and (ii) the mathematical calculations of the yield of the Bonds and the yield of certain investments made with the proceeds of the Bonds and other moneys deposited in the Escrow Account. In this opinion letter rendered in our capacity as bond counsel, we are opining only upon those matters set forth herein. We are not passing upon the accuracy, adequacy or completeness of the Official Statement or any other statements made in connection with any offer or sale of the Bonds or upon any federal or state tax consequences arising from the receipt or accrual of interest on or the ownership or disposition of the Bonds, except those specifically addressed herein.

This opinion letter is rendered as of the date hereof and we assume no obligation

to revise or supplement this opinion letter to reflect any facts or circumstances that may hereafter come to our attention or any changes in law that may hereafter occur.

Respectfully submitted,

F-1

APPENDIX F

ECONOMIC AND DEMOGRAPHIC INFORMATION

This portion of the Official Statement contains general information concerning historic economic and demographic conditions in and surrounding the City. It is intended only to provide prospective investors with general information regarding the City’s community. The information was obtained from the sources indicated and is limited to the time periods indicated. The information is historic in nature; it is not possible to predict whether the trends shown will continue in the future. The City makes no representation as to the accuracy or completeness of data obtained from parties other than the City.

Population and Age Distribution

Population. The table below shows the population growth of City of Fernley, Lyon County and the State since 1970. Between 2000 and 2010, the population for City of Fernley increased 119.3%, Lyon County increased 50.7%, and the State increased 35.1%.

Population

Year City of

Fernley(1) Percent Change

Lyon County

PercentChange

Nevada

Percent Change

1980 5,164 -- 13,594 -- 800,493 -- 1990 8,543 65.4% 20,001 47.1% 1,201,833 50.1% 2000 8,830 3.4 34,501 72.5 1,998,257 66.3 2010 19,368 119.3 51,980 50.7 2,700,551 35.1 2011 18,896 (2.4) 52,443 0.9 2,721,794 0.8 2012 18,831 (0.3) 52,245 (0.4) 2,750,217 1.0 2013 18,987 0.8 52,960 1.4 2,800,967 1.8 2014 19,077 0.5 53,344 0.7 2,843,301 1.5 2015 18,936 (0.7) 53,277 (0.1) 2,897,585 1.9

(1) The City of Fernley incorporated in 2001; prior to that it was a census-designated place. Sources: United States Department of Commerce, Bureau of the Census (1970–2010) and Nevada

State Demographer’s Office (2011-2015 estimates).

Age Distribution. The following table sets forth a projected comparative age distribution profile for City of Fernley, Lyon County, the State and the nation as of January 1, 2016.

F-2

Age Distribution

Age City of Fernley Lyon County Nevada United States 0-17 25.6% 22.3% 23.3% 23.0% 18-24 8.1 8.1 9.0 9.8 25-34 11.5 10.4 13.8 13.4 35-44 12.9 11.0 13.5 12.6 45-54 12.8 13.0 13.4 13.3 55-64 13.0 15.0 12.3 12.8 65-74 10.8 13.3 9.1 8.8 75 and Older 5.3 6.9 5.6 6.3

Source: © 2016 The Nielsen Company. Income

The following two tables reflect the Median Household Effective Buying Income (“EBI”), and also the percentage of households by EBI groups. EBI is defined as “money income” (defined below) less personal tax and nontax payments. “Money income” is defined as the aggregate of wages and salaries, net farm and nonfarm self-employment income, interest, dividends, net rental and royalty income, Social Security and railroad retirement income, other retirement and disability income, public assistance income, unemployment compensation, Veterans Administration payments, alimony and child support, military family allotments, net winnings from gambling, and other periodic income. Deductions are made for personal income taxes (federal, state and local), personal contributions to social insurance (Social Security and federal retirement payroll deductions), and taxes on owner-occupied nonbusiness real estate. The resulting figure is known as “disposable” or “after-tax” income.

Median Household Effective Buying Income Estimates(1)

Year City of Fernley Lyon County Nevada United States 2012 $43,087 $40,734 $45,512 $41,253 2013 36,435 34,035 40,617 41,358 2014 44,516 41,673 42,480 43,715 2015 43,303 41,482 44,110 45,448 2016 44,244 41,502 46,230 46,738

(1) The difference between consecutive years is not an estimate of change from one year to the next; combinations

of data are used each year to identify the estimated mean of income from which the median is computed. Source: © The Nielsen Company, SiteReports, 2012-2016.

F-3

Percent of Households by Effective Buying Income Groups – 2016 Estimates

Effective Buying Income Group

City of Fernley Households

Lyon County Households

Nevada Households

United States Households

Under $24,999 19.3% 24.9% 23.8% 24.8% $25,000 - 49,999 39.0 37.6 30.5 28.8 $50,000 - 74,999 20.5 19.3 20.7 19.1 $75,000 - 99,999 14.4 12.2 12.4 12.2 $100,000 - 124,999 4.4 3.8 5.7 5.8 $125,000 - 149,999 1.2 1.1 2.6 3.7 $150,000 or More 1.2 1.1 4.3 5.6 Source: © 2016 The Nielsen Company.

The following table sets forth the annual per capita personal income levels for the residents of the County, the State and the nation. Per capita personal income levels in the County have consistently exceeded state and national levels during the period shown.

Per Capita Personal Income(1)

Year Lyon County Nevada United States 2010 $28,493 $36,918 $40,277 2011 29,650 37,745 42,453 2012 29,679 39,436 44,266 2013 30,210 39,223 44,438 2014 31,720 40,742 46,049 2015 n/a 42,185 47,669

(1) County figures posted November 2015, state and national figures posted March 2016. All figures

are subject to periodic revisions. Source: United States Department of Commerce, Bureau of Economic Analysis. Employment

The Lyon County average annual labor force summary as prepared by the State’s Department of Employment, Training and Rehabilitation (“DETR”) is as follows:

F-4

Average Annual Labor Force Summary Lyon County, Nevada

Calendar Year 2011 2012 2013 2014 2015 2016(1)

TOTAL LABOR FORCE 23,013 22,522 22,863 23,006 21,678 21,441 Unemployment 3,848 3,327 2,843 2,341 2,047 1,740 Unemployment Rate(2) 16.7% 14.8% 12.4% 10.2% 9.4% 8.1% Total Employment(3) 19,165 19,195 20,020 20,665 19,631 19,702

(1) Figures through September 30, 2016. (2) The U.S. unemployment rates for the years 2011-2015 were 8.9%, 8.1%, 7.4%, 6.2%, and 5.3%, respectively. (3) Adjusted by census relationships to reflect number of persons by place of residence. Sources: Research and Analysis Bureau, Nevada Dept. of Employment, Training and Rehabilitation; and U.S.

Bureau of Labor, Bureau of Labor Statistics.

The following table indicates the number of persons employed, by type of employment, in non-agricultural industrial employment in Lyon County.

Establishment Based Industrial Employment Lyon County, Nevada

Calendar Year 2011 2012 2013 2014 2015 2016(1) Agriculture, Forestry, Fishing & Hunting 554 528 534 589 581 563 Mining 159 223 275 357 359 213 Construction 475 450 453 550 614 656 Manufacturing 2,008 2,010 2,015 2,063 2,133 2,141 Trade, Transportation and Utilities 2,654 2,786 3,051 3,219 2,242 2,136 Information 28 27 22 16 31 41 Financial Activities 258 262 320 349 356 274 Professional and Business Services 709 645 657 753 797 799 Education and Health Services 547 516 465 467 472 489 Leisure and Hospitality 1,326 1,349 1,380 1,470 1,455 1,491 Other Services 258 267 258 273 311 315 Unclassified -- -- 5 6 7 6 Government 2,178 2,094 2,061 2,031 2,072 2,162 TOTAL ALL INDUSTRIES(2) 11,157 11,159 11,497 12,142 11,429 11,286 (1) Averaged figures through June 30, 2016. (2) Totals may not add due to rounding. All numbers are subject to periodic revision. Source: Research and Analysis Bureau, Nevada Dept. of Employment, Training and Rehabilitation.

The table below lists the largest fifteen employers in the County. No independent investigation has been made of and consequently no assurances can be given as to the financial condition or stability of the employers listed below or the likelihood that such entities will maintain their status as major employers in the County.

F-5

Largest Employers - Lyon County, Nevada As of 1st Quarter - 2016

Employer Employees Industry Lyon County School District 1,000-1,499 Public education MSC Industrial Supply Co. 300 - 399 General warehousing Lyon County 300 - 399 Local government Wal-Mart Supercenter 200 - 299 Retail supercenter Lowes Home Centers LLC 100 - 199 Home center The Webstaurant Store Inc. 100 - 199 General warehousing Olam Spice and Vegetables 100 - 199 Dried Food Manufacturing Medallic Art 100 - 199 Jewelry manufacturing QG Printing Corp. 100 - 199 Commercial printing David Peri Family Farms LLC 100 - 199 Farming Production Pattern & Foundry 100 - 199 Aluminum foundry Trex Company Inc. 100 - 199 Wood product manufacturing Nevada Cement Company 100 - 199 Cement manufacturing Nevada Automotive Testing Center 100 - 199 Testing laboratory South Lyon Medical Center 100 - 199 Medical hospital

Source: Research and Analysis Bureau, Nevada Dept. of Employment, Training and Rehabilitation.

The following table lists the firm employment size breakdown for the County.

Size Class of Industries(1)

Lyon County, Nevada (Non-Government Worksites)

CALENDAR YEAR 2nd Qtr. 2016

2nd Qtr. 2015

Percent Change 2016-2015

Employment Totals 2nd Qtr. 2016

TOTAL NUMBER OF WORKSITES 979 943 3.8% 9,361 Less Than 10 Employees 754 727 3.7% 2,087 10-19 Employees 120 111 8.1 1,608 20-49 Employees 69 66 4.5 2,032 50-99 Employees 20 25 (20.0) 1,299 100-249 Employees 15 12 25.0 1,998 250-499 Employees 1 2 (50.0) 337 500-999 Employees 0 0 0.0 0 1000+ Employees 0 0 0.0 0 (1) Subject to revisions. Source: Research and Analysis Bureau, Nevada Dept. of Employment, Training and Rehabilitation.

F-6

Retail Sales The following table sets forth a history of taxable sales in the County.

Taxable Sales in the County

Fiscal Year(1)

Lyon County Total(2)

Percent Change State Total(2)

Percent Change

2012 $346,511,052 -- $42,954,750,131 -- 2013 305,525,152 (11.8)% 45,203,408,413 5.2% 2014 356,889,794 16.8 47,440,345,167 4.9 2015 396,524,754 11.1 50,347,535,591 6.1 2016 380,805,051 (4.0) 52,788,295,421 4.8

Jul 15 – Aug 15 $63,430,054 -- $8,509,183,869 -- Jul 16 – Aug 16 72,407,355 14.2% 9,079,845,338 6.7%

(1) Fiscal year runs from July 1st to the following June 30th. (2) Subject to revision. Source: State of Nevada, Department of Taxation. Construction

The following tables set forth a history of the number of building permits issued in the City of Fernley and the County and their valuations. Construction valuation is a value placed on a project in order to determine permit and fees, and has no relationship to assessed valuation.

Building Permits - City of Fernley, Nevada

Fiscal Year

New Single Family

Permits

New Commercial

Permits

All

Permits

Total

Valuations 2011/2012 1 1 201 n/a 2012/2013 7 1 210 n/a 2013/2014 11 4 238 $40,442,138 2014/2015 15 0 275 11,869,678 2015/2016 49 2 359 34,375,421 2016/2017(1) 31 0 151 8,981,752

(1) As of October 31, 2016. Source: City of Fernley, Building Department.

F-7

Building Permits - Lyon County, Nevada(1)

Calendar New Single Family New Commercial All Permits

Year Permits Valuation Permits Valuation Permits Valuation 2011 46 $8,953,166 8 $ 367,685 424 $15,967,250 2012 51 9,634,712 9 5,135,820 479 25,029,980 2013 94 17,798,644 18 2,846,628 523 27,231,750 2014 128 25,639,060 25 8,715,464 581 41,152,517 2015 142 29,909,738 12 4,848,565 653 42,259,642 2016(2) 110 24,337,969 8 1,497,685 496 39,022,492

(1) The County does not issue permits for the Cities of Fernley and Yerington which issue their own. (2) As of October 31, 2016. Source: Lyon County Building Division. Agriculture

Ranching and farming have been a cornerstone of the County’s economy for more than 100 years. Lyon County farms produce most of the onion and garlic crops grown in the State. According to the 2015 publication, An Economic Analysis of the Food and Agriculture Sector – Nevada Counties, prepared by the Nevada Department of Agriculture, Lyon County agricultural production industries had a production level of $189.2 million in 2012, accounting for 6.8 percent of the total output value of all industries of Lyon County. The agricultural production industries hired 761 people, and paid labor income in the amount of $54.85 million. The 2012 total economic impact of the agricultural production sector in Lyon County was $252.5 million. The top 20 exporting industries in Lyon County in 2012 made up approximately 63.6 percent of the county’s total exports. The vegetable and melon industry was in the top 20, with export sales of $45.1 million, and ranked as the 11th largest exporter. The agriculture production sector of Lyon County is a positive economic sector contributing to the favorable balance of trade.

Transportation

Three primary transportation routes transect Lyon County: Interstate 80 parallels the northwest border, and continues west to San Francisco (via Reno/Sparks) and east to Salt Lake City. U.S. Highway 50 crosses east-west through the county, westbound through Carson City and eastbound through Ely. U.S. Highway 95A spurs off I-80 and runs north-south, southbound to Las Vegas passing through Yerington. Approximately sixty regional and national carriers are available for shipments in and out of Lyon County.

Both Yerington and Dayton have airports capable of handling corporate jets. In addition, Yerington has full service fixed base operations (FBO) with fuel, maintenance, avionics, café, lighted runway, beacon, and unicom. Charter air service is available to Yerington. Commercial air service is available in Reno. Rail service is provided to Fernley, Silver Springs, and Wabuska by Union Pacific.

F-8

Development Activity

The Northern Nevada Development Authority (NNDA) serves to promote economic development activity in the Sierra Region which includes Carson City, Douglas, Lyon and Storey counties.

Complementing the area’s emphasis on economic diversification are the numerous business advantages unique to the State. Competitive wage rates, low workers’ compensation costs, an expanding labor force, centralized location and attractive transportation costs to other prominent western markets, and the State’s incentive programs combine to give business and industry an attractive incentive to move to, relocate or expand in the Sierra Region of Nevada.

APPENDIX G

SPECIMEN FINANCIAL GUARANTY INSURANCE POLICY

FINANCIAL GUARANTY INSURANCE POLICY National Public Finance Guarantee Corporation

Purchase, New York 10577 Policy No. [POLICY #] National Public Finance Guarantee Corporation (the "Insurer"), in consideration of the payment of the premium and subject to the terms of this policy, hereby unconditionally and irrevocably guarantees to any owner, as hereinafter defined, of the following described obligations, the full and complete payment required to be made by or on behalf of the Issuer to [PAYING AGENT], [PAYING AGENT CITY & STATE] or its successor (the "Paying Agent") of an amount equal to (i) the principal of (either at the stated maturity or by any advancement of maturity pursuant to a mandatory sinking fund payment) and interest on, the Obligations (as that term is defined below) as such payments shall become due but shall not be so paid (except that in the event of any acceleration of the due date of such principal by reason of mandatory or optional redemption or acceleration resulting from default or otherwise, other than any advancement of maturity pursuant to a mandatory sinking fund payment, the payments guaranteed hereby shall be made in such amounts and at such times as such payments of principal would have been due had there not been any such acceleration); and (ii) the reimbursement of any such payment which is subsequently recovered from any owner pursuant to a final judgment by a court of competent jurisdiction that such payment constitutes an avoidable preference to such owner within the meaning of any applicable bankruptcy law. The amounts referred to in clauses (i) and (ii) of the preceding sentence shall be referred to herein collectively as the "Insured Amounts." "Obligations" shall mean:

[PAR AMOUNT] [FIRST LINE OF LEGAL TITLE]

[SECOND LINE OF LEGAL TITLE] [THIRD LINE OF LEGAL TITLE]

[FOURTH LINE OF LEGAL TITLE]

Upon receipt of telephonic or electronic notice, such notice subsequently confirmed in writing by registered or certified mail, or upon receipt of written notice by registered or certified mail, by the Insurer from the Paying Agent or any owner of an Obligation the payment of an Insured Amount for which is then due, that such required payment has not been made, the Insurer on the due date of such payment or within one business day after receipt of notice of such nonpayment, whichever is later, will make a deposit of funds, in an account with U.S. Bank Trust National Association, in New York, New York, or its successor, sufficient for the payment of any such Insured Amounts which are then due. Upon presentment and surrender of such Obligations or presentment of such other proof of ownership of the Obligations, together with any appropriate instruments of assignment to evidence the assignment of the Insured Amounts due on the Obligations as are paid by the Insurer, and appropriate instruments to effect the appointment of the Insurer as agent for such owners of the Obligations in any legal proceeding related to payment of Insured Amounts on the Obligations, such instruments being in a form satisfactory to U.S. Bank Trust National Association, U.S. Bank Trust National Association shall disburse to such owners, or the Paying Agent payment of the Insured Amounts due on such Obligations, less any amount held by the Paying Agent for the payment of such Insured Amounts and legally available therefor. This policy does not insure against loss of any prepayment premium which may at any time be payable with respect to any Obligation.

As used herein, the term "owner" shall mean the registered owner of any Obligation as indicated in the books maintained by the Paying Agent, the Issuer, or any designee of the Issuer for such purpose. The term owner shall not include the Issuer or any party whose agreement with the Issuer constitutes the underlying security for the Obligations.

Any service of process on the Insurer may be made to the Insurer at its offices located at 1 Manhattanville Road, Suite 301, Purchase, New York 10577 and such service of process shall be valid and binding.

This policy is non-cancellable for any reason. The premium on this policy is not refundable for any reason including the payment prior to maturity of the Obligations.

IN WITNESS WHEREOF, the Insurer has caused this policy to be executed in facsimile on its behalf by its duly authorized officers, this [DAY] day of [MONTH], [YEAR]. COUNTERSIGNED: National Public Finance

Guarantee Corporation

________________________________ ______________________________ Authorized Officer President

Attest: ______________________________ Secretary

STD-NATL-NV-1