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Home My WebLink AboutVarious Purposes ::.WMU I ransrer :>tallon NEW ISSUE - SERIAL BONDS -* '2nrds . .In the oninion ofHawki~ Delafield & Wood LLP,.BondCo.uns~l.to the Town under ex/stinl!.statutes and court decis~. ns afJd assuming contmumg compllance with certam tax certificatIOns descrIbed herem1 fi) Interest on the Bonds IS exctuded[rom KrOSS Income or federal income tax purp9ses pursuant to Section 103 of the Internal Revenue Code of 1986, as (lmended (the "Code "), andTii) interest on the anOs is not treated qs p preJf!re1Jce item ~n calculating the al~ernative minimum tax i11JposeJi on individua~ and corporafions under. the (ope; such interest, however . IS mc/uaed In the a4/usted current earmngs of certam corporatlO~Jor purf)oses 0 calculatmg the alternatIVe minimum tax imB.osed on such corporations. In aaditio'l, in the opinion of H07d Counsel to the own, under exiSljl'll! statut~s, interest on the Bonds is exempt'from personal income taxes a/New York State and its pofitica subdivisions, inc uding The City oJ N'ew York. See "Tax Matters" herein. The Bonds will NOT be designated by the Town as "qualified tax-exempt obligations" pursuant to the provision of Section 265 of the Code. ~t{ $14,650,000 TOWN OF SOUTHOLD SUFFOLK COUNTY, NEW YORK (the "Town") PUBLIC IMPROVEMENT SERIAL BONDS - 2007 [BOOK-ENTRY-ONLY BONDS] Dated: April 15, 2007 Principal Due: April 15, 2008-2030, inclusive Interest Due: October 15, 2007 and semi-annually thereafter BOND MATURITY SCHEDULE Amount Maturity Rate Yield Amount Maturity Rate Yield Amount Maturity Rate Yield $700,000 2008 4.00% 3.42% $625,000 2016 4.25% 3.82% $ 725,000 2024 4.25% 4.23% 725,000 2009 4-1/8 3.45 675,000 2017 4.25 3.87 725,000 2025 4.25 4.25 575,000 2010 4-1/8 3.50 675,000 2018 4.25 3.95 550,000 2026 4.25 4.26 575,000 2011 4.25 3.52 675,000 2019 4.25 4.00 550,000 2027 4.25 4.28 600,000 2012 4.25 3.57 675,000 2020 4.25 4.05 550,000 2028 4.25 4.29 625,000 2013 4.25 3.62 675,000 2021 4.25 4.10 550,000 2029 4.25 4.30 625,000 2014 4.25 3.70 . 675,000 2022 4.25 4.15 550,000 2030 4.25 4.31 625,000 2015 4.25 3.77 725,000 2023 4.25 4.20 "The payment of the principal of and interest on the Bonds when due will be insured by a financial guaranty insurance policy to be issued by Ambac Assurance Corporation simultaneously with the delivery of the Bonds. Ambac Security and Sources of Pqyment: The Bonds will constitute general obligations of the Town and will contain a pledge of its faith and credit for the punctual payment of the principal of and interest on the Bonds, and all the taxable real property wIthin the Town will be subject to the levy 01 ad valorem taxes, without limitation as to rate or amount, for such purpose. Prior Redemption: The Bonds maturing on April 15, 2018 and thereafter are subject to redemption, at the option of the Town~rior to matunty in whole or in part, on any date on or after April 15, 2017 in accordance with the tenns described herein. See "uJJtional Redemption" under liThe Bonds," herein. Form and Denomination: The Bonds will be issued as reJ!istered bond~, and, when issued, will be registered in the name of Cede & Co. as nominee of The Depository Trust Company ("DTC") New I ork, New York, which will act as the Securities Depository for the Bonds. Individual purchases of the Bonds may be made only in book-entry fonn in denominations of$5,000 or intelilWI multiples thereof. Bondholders will not receive certificates representing their ownership interest in the Bonds purchased. See Book-Entry-Only System" under "The Bonds," herein. Payment: Payment of the principal of and interest on the Bonds to the Beneficial Owners of the Bonds will be made by DTC Participants and Indirect Participants in accordance with standing instructions and customl!!)' practices, as is now the case with municlp'al securities held for tlie accounts of customers in bearer fonn or registered in "street name." Payment will be the responsibility of the DTC ParticiRant or Indirect Participant and not of DTC or the Town, sul1ject to any' statutory and regulatory requirements as may be in effect from time to time. See "Book-Entry-Only System" under "Ibe Bonds," herein. Hawkins D~lafield & Wood LLP has nQt participated in the preparation of thiS. Official Statement, nor verified the accuracy, completeness or fairness ot'the intormation contained lierein, and, accordingly, expresses no opinion with respect thereto. The Bonds are offeredsuljectto thefinal approvingop'inion of Hawkins Delafield & Wood LLP, New York, New York, Bond Counsel, and certain oiher conditions. It is eXfJected that iielivery of the Bonds In book-entry form will be made through the facilities of DTC on or about April 19, 2007 in New York, New York. This revised cover, dated April! 0,2007, supplements the Official Statement of the Town dated March 27, 2007, relating to the obligl\tions described therein .an~ herein including certain infonnation omitt(!d from such Official State!fient in accord!lnye with Secunttes and Exchal)ge CommIssIon Rule] 5c2-.12l t4e "Rule"), and shall constttute the Town's finl\1 OfficIal Sli!tementwl.tluU the meaninJ! ofthe Rule. other than as set forth on thIS revIsed cover page, the table of conten~ the sectIOn entttled Bond Ratmg and the addition of "Appendix C - The Bond Insurer", there have been no other revisions to the ufficial Statement. For a description of the Town's agreement to provide continuing diSClOsure as described in the Rule, see "Disclosure Undertaking" herein. ROOSEVELT & CROSS, INC. AND ASSOCIATES TOWN OF SOUTHOLD SUFFOLK COUNTY, NEW YORK Town Hall 53095 Main Road Southold, NY 11971 Telephone: (631) 765-4333 Fax: (631) 765-1366 TOWN BOARD Scott A. Russell, Supervisor William P. Edwards Louisa P. Evans Albert J. Krupski, Jr. Daniel C. Ross Thomas H. Wickham Elizabeth A. Neville, Town Clerk Peter W. Harris, Superintendent of Highways John A. Cushman II, Town Comptroller Patricia A. Finnegan, Esq., Town Attorney George Sullivan, Receiver of Taxes . . . BOND COUNSEL Hawkins Delafield & Wood LLP New York, New York . . . FINANCIAL ADVISOR MUNISTAT SERVICES, INC. Municipal Finance Advisory Service 12 Roosevelt Avenue Port Jefferson Station, NY 11776 (631) 331-8888 E-mail: info@munistat.com Website: http://www.munistat.com No dealer, broker, salesman or other person bas been authorized by the Town to give any information or to make any representations, other than those contained in this Official Statement and if given or made, such other information or representations must not be relied upon as having been authorized by the Town. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of the Bonds by any person in any jurisdiction in which it is unlawful for such person to make such offer, solicitation or sale. The information set forth herein has been obtained by the Town from sources which are believed to be reliable but it is not ~aranteed as to accuracy or completeness. The information and expressions of opinion herein are subject to change WIthout notice and neither the delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no cbange in the affalrs of the Town since the date hereof. TABLE OF CONTENTS Page THE BONDS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. I Description of the Bonds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. I Optional Redemption ..................................................................... I Book-entry-only System .................................................................. I Authorization and Purpose. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 3 Security and Source of Payment ............................................................ 3 RemedIes Upon Default. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 3 THE TOWN ............................................................................... 4 General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 4 Government. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 4 Employees ............................................................................. 5 ECONOMIC AND DEMOGRAPHIC INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 5 Population Characteristics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 5 Median Income of Families . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 5 Unemployment Rate Statistics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 6 Selected Listing of Larger Employers ............................... . . . . . . . . . . . . . . . . . . . . . . . .. 6 INDEBTEDNESS OF THE TOWN ............................................................ 6 Constitutional Requirements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 6 Statutory Procedure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 7 Computation of Debt Limit and Calculation of Net Debt Contracting Margin ......................... 8 Trena of Town Indebtedness. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 8 Details of.Short-Te.rm Indebtedness cmtstanding ............................................... 9 Debt ServIce Requrrements - Outstandmg Bonas ............................................... 9 Calculation of Estimated Overlapping and Underlying Indebtedness ................................ 9 Authorized But Unissued Items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 10 Capital Program. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. :8 Landfill Closure and Postclosure Care Costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . FINANCES OF THE TOWN ................................................................ II Financial Statements and Accounting Procedures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. II Fund Structure and Accounts ......................................................... II Basis of Accounting ................................................................ II Investment Policy ...................................................................... II Budgetary Procedures ................................................................... 12 FinancialOperations .................................................................... 12 Revenues................................................................... .......... 12 ~~~~~fJ'ertyT.":,es.:::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::: n ~;~:i~~iW;~:ems . : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : .. n ContributIOns to the Retirement Systems. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 13 Other Post Employment Benefits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 14 REAL PROPERTY TAX INFORMATION .................................................... 14 Real Property Taxes '.' . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 14 Tax Levy llI)a Collection Record . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 15 Tax CollectIon Procedure ................................................................ 15 Tax Rates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 15 Large Taxable Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 15 LITIGATION............................................................................. 16 BONDHOLDER RISKS AND MARKET FACTORS AFFECTING FINANCINGS OF THE STATE AND MUNICIPALITIES OF THE STATE.. .. .. . . . .. .. . . . . . .. .. .. .. .. .. . .. .. ... 16 1 TABLE OF CONTENTS (Continued) Page TAX MATTERS........................................................................... 17 Opinion of Bond Counsel................................................................ 17 Certain Ongoing Federal Tax Requirements and Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 17 Certain Collateral Federal Tax Consequences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 17 Original Issue Discount.................................................................. 17 Bond Premium......................................................................... 18 Backup Withholding .................................................................... 18 Legislation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 18 DOCUMENTS ACCOMPANYING DELIVERY OF THE BONDS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 18 Absence of Litigation .................................................................... 18 Legal Matters.......................................................................... 19 Closing Certificates ................ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 19 DISCLOSURE UNDERTAKING............................................................. 19 BOND RATING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 20 FINANCIAL ADVISOR .................................................................... 20 ADDITIONAL INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 20 APPENDIX A: APPENDIX B: APPENDIX C: Financial Information Audited Financial Statements For the Fiscal Year Ended December 31, 2005 Insurance on the Bonds 11 OFFICIAL STATEMENT $14,650,000 TOWN OF SOUTHOLD SUFFOLK COUNTY, NEW YORK .. PUBLIC IMPROVEMENT SERIAL BONDS - 2007 [BOOK-ENTRY-ONLY BONDS] This Official Statement presents certain information relatin~ to the Town of Southold, in the County of Suffolk, in the State of New York (the "Town," "County" and "State,' respectively) in connection with the safe of $14,650,000 Public Improvement Serial Bonds - 2007 (the "Bonds"). All quotations from and summaries and explanations of provisions of the Constitution and laws of the State and acts and proceedings of the Town contained herein do not purport to be complete and are qualified in their entirety by reference to the official compilations thereof and all references to the Bonds and the proceedings of the Town relating thereto are qualified in their entirety by reference to the definitive form of the Bonds and such proceedings. THE BONDS Description of the Bonds The Bonds will be dated April 15, 2007 and will mature on April 15, in each of the years 2008 to 2030, inclusive, in the principal amounts as set forth on the cover page hereof. The Bonds will be issued in fully registered form and when issued will be registered in the name of Cede & Co. as nominee of The Depository Trust Company ("DTC"), New York, New York. DTC will act as Securities Depository for the Bonds. Ii1dividual purchases of the 'Bonds may be made In book-entry form only, in denominations of $5,000 or integral multiples thereof. Purchasers will not receive certificates representing their interest in the Bonds. Interest on the Bonds will be payable October 15,2007, and semi-annually thereafter on April 15 and October 15, in each year until maturity. Principal and interest will be 'paid by the Town to DTC, which will in turn remit such principal and interest to its Participants, for subsequent dIstribution to the Beneficial Owners of the Bonds, as aescribed herein. The Bonds may be transferred in the manner described on the Bonds and as referenced in certain proceedings of the Town referred to therein. The Record Date of the Bonds will be the last business day of the month preceding each interest payment date. Optional Redemption The Bonds maturing on or before April 15, 2017 will not be subject to redemption prior to maturity. The Bonds maturing on or after April 15, 2018 will be subject to redemption prior to maturity, at the option of the Town, on April 15, 2017 and thereafter on any date, in whole or in part, and if In part, in any order of their maturity and in any am~unt within a maturity (selected by lot within a maturity), at par, plus accrued interest to the date of redemptIOn. The Bonds shall be redeemable prior to maturity upon the giving of notice which identifies the Bonds to be redeemed, by mailing such notice to the registered holders thereof at their respective addresses as shown upon the registration books of the Fiscal Agent at least 30 days prior to the date set for any such redemption. If notice of redemption shall have been given as aforesaid, the Bonds so called for redemption shall become due and payable at the applicable redemption (lrice on the redemption date designated in such notice, and interest on such Bonds shall cease to accrue from and after such redemption date. Book-entry-only System DTC will act as securities depository for the Bonds (the "Bonds"). The Bonds will be issued as fully- registered Bonds registered in the name ofCeae & Co. (DTC's partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered Bond certIficate will be issued for each maturity of the Bonds, each in the aggregate principal amount of such maturity, and will be deposited with DTC. I DTC, the world's largest depository, is a limited-purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning oftbe New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Umform Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section 17 A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 2 million issues of U.S. and non-U.s. equi!r issues, corporate and municipal debt issues, and money market instruments from over 85 countries that DTC s participants ("Direct Participants") deposit with DTC. DTC also facilitates the post-trade settlement among Direct ParticIpants of sales and otlier securities transactions in deposited securities, through electronic computerized book-entrY transfers and pledges between Direct Participants accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation ("DTCC"). DTCC, in turn, is owned by a number of Direct Participants of DTC and Members of the National Securities Clearing Corporation, Government Securities Clearing Corporation, MBS Clearing Corporation, and Emerging Markets Clearing Corporation, (NSCC, GSCC, MBSCC, and EMCC, also subsidiaries ofDTCC), as well as by the New York Stock Exchange, Inc., the American Stock Exchange LLC, and the National Association of Securities Dealers, Inc. Access to the DTC system is also available to others such as both U.S. and non-U .S. securities brokers and dealers, banksl trust companies, and clearing corporations that clearthrou~ or maintain a custodial relationship with a Direct PartIcipant, either directly or indIrectly ("Indirect Participants' ). DTC has Standard & Poor's highest rating: AAA. The DTC Rules applicable to its PartIcipants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com. 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 each actual 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 oftheir 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 subseguent 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 ofDTC. The deposit of Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Bonds; DTC' s records reflect only the identity of the Direct Participants to whose accounts such Bonds are credited, which mayor 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. 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. Payments on the Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative ofDTC. DTC's practice is to credit Direct Participants' accounts upon DTC's receipt of funds and corresponding detail information from the Town, on the payable date in accordance with their respective holdings shown on DTC's records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customarr practices, as is the case with bonds held for the accounts of customers in bearer form or registered in "street name, , and will be the responsibility of such Participant and not ofDTC nor its nominee, or the Town, subject to any statutory or regulatory requirements as may be in effect from time to time. Payments to Cede & Co. (or such other nominee as may be requested by an authonzed representative ofDTC) is the responsibility of the Town, disbursement of such {layments to Direct Participants will be the responsibili!y ofDTC, 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 Town. Under such circumstances, in the event that a successor depository is not obtained, Bond certificates are required to be printed and delivered. The Town may decide to discontinue use of the sy'stem of book-entrY transfers through DTC (or a successor securities depository). In that event, Bond certificates WIll be printed and aelivered. The information in this section concerning DTC and DTC's book-en~ system has been obtained from sources that the Town believes to be reliable, but the Town takes no responsibihty for the accuracy thereof. 2 THE TOWN WILL NOT HAVE ANY RESPONSffiILITY OR OBLIGATION TO PARTICIPANTS, TO INDIRECT PARTICIPANTS OR TO ANY BENEFICIAL OWNER wrrn RESPECT TO (I) THE ACCURACY OF ANY RECORDS MAINTAINED BY DTC, ANY PARTICIPANT, OR ANY INDIRECT PARTICIPANT; (II) THE PAYMENTS BY DTC OR ANY PARTICIPANT OR INDIRECT PARTICIPANT OF ANY AMOUNT WITH RESPECT TO THE PRINCIPAL OF, OR PREMIUM, IF ANY, OR INTEREST ON THE BONDS; (III) ANY NOTICE WHICH IS PERMITTED OR REQUIRED TO BE GNENTO BONDHOLDERS; (N) THE SELECTION BY DTC OR ANY PARTICIPANT OR INDIRECT PARTICIPANT OF ANY PERSON TO RECENE PAYMENT IN THE EVENT OF A PARTIAL REDEMPTION OF THE BONDS; OR (V) ANY CONSENTGNEN OR OTHER ACTION TAKEN BY DTC AS BONDOWNER. Source: The Depository Trust Company Authorization and Purpose The Bonds are being issued pursuant to tbe Constitution and statutes oftbe State of New York, including among otbers, tbe Town Law and tbe Local Finance Law, and various bond resolutions duly adopted by the Town Board on their respective dates, autborizing the issuance of serial bonds for various capital projects of the Town. Such projects, and their respective amounts of Bonds to be issued for each, are as follows: Date of Voter Aooroval Date Authorized 08-26-03 08-28-0 I 08-23-99 09-01-98 03-13-01 & 11-19-02 09-07-04 11-16-04 02-27-07 02-27-07 Amount to Puroose be Issued I 1-04-03 11-06-01 11-02-99 I 1-03-98 N.A. N.A. N.A. N.A. N.A. Open Space Preservation Open Space Preservation Open Space Preservation Open Space Preservation $ 4,000,000 2,000,000 2,000,000 1,987,900 1,200,000 315,000 3,000,000 95,000 52.100 Solid Waste Management District - Land Acquisition .... Payment of Settled Claim .......................... Solid Waste Management District - Transfer Station ..... Acquisition of Excavator . . . . . . . . . . . . . . . . . . . . . . . . . . . Acquisition of Tractor-Mower ....................... Total ................................. $14.650.000 A portion of tbe proceeds of tbe Bonds, togetber with available funds in tbe amount of $ I ,895,000, will be used to redeem outstanding bond anticipation notes in tbe amount of$6,4 I 0,000; the balance of the proceeds oftbe Bonds will provide original funds for the above referenced projects. For further information regarding bond autborizations of the Town for capital purposes and other matters relating thereto see "Indebtedness of the Town". Security and Source of Payment Each Bond when duly issued and paid for will constitute a contract between tbe Town and tbe holder thereof. The Bonds will be general obligations of the Town and will contain a pledge of the faith and credit oftbe Town for the payment of the principal tbereof and tbe interest tbereon. For the payment of such principal and interest, tbe Town has the power and statutory autborization to levy ad valorem taxes on all taxable real property in the Town without limitation as to rate or amount. Under the Constitution oftbe State, tbe Town is re9!:!ired to pledge its faith and credit for the payment oftbe principal of and interest on the Bonds, and the State is speCifically precluded from restricting tbe power oftbe Town to levy taxes on real estate therefor. Remedies Upon Default Under current law, provision is made for contract creditors (including tbe Bondholders) of tbe Town to enforce payments upon such contracts, if necessary, tbrough court action, altbough the present statute limits interest on the amount adjudged due to creditors to nine per centum per annum from the date due to the date of payment. As a general rule, property and funds of a municipal corporation serving the public welfare and interest have not been juaicially subjected to execution or attachment to satisfy a judgment, although judicial mandates to officials to appropriate and pay judgments out of current funds or tbe proceeds of a tax levy have been issued. 3 Remedies for enforcement .of payment are not expressly included in the Tawn's contract with holders of its bonds and notes, althaugh any permanent repeal by statute or canstitUtional amendment .of a Bandhalder's remedial right tojudicial enforcement of.the cantract.shauld, in the .opinian of Band Caunsel, be held unconstitutional. The State has consented that any municipality in the State may file a petition with any United States district court or court of bankruptcy under any I?rovision of the laws .of the United States, naw or hereafter in effect for the composition or adjustment of municipal mdebtedness. Subject to such consent, under the United States Constitution, Congress has jurisdictian aver such matters and has enacted amendments to the existing federal bankruptcy statute, generally to the effect and with the purpose of affording municipal corparations, under certain circumstances, with easier access to judicially approved adjustment .of debts, mcludingjudicial contral over identifiable and unidentifiable creditors. In recent times, certain events and legislation affecting remedies an default have resulted in litigation. While courts of final jurisdiction have upheld and sustained the rights of bondholders, such courts might hold that future events including financial crises as they may occur in the State and in municipalities of the State require the exercise by the State of Its emergency police powers ta assure the continuatian .of essential services. No principal or interest payments on Town indebtedness are past due. The Town has never defaulted in the payment of the pnncipal of and interest on any indebtedness. THE TOWN There follows in this Statement a brief description of the Town, together with certain information concerning its economy and governmental organization, its indebtedness, current ml\ior revenue sources and expenditures and general and specIfic funds. General Information The Town, with a land area of 54.5 square miles, is located in eastern Suffolk County on the north fork of Long Island. Settlementtook place in 1640. The Village of Green port is located wholly within the Town. The Town also mcludes the area of Fishers Island which is located approximately twelve miles east of the mainland. Fishers Island is accessible only by water or air with ferry service operating between the Island and New London, Connecticut. . . . " , The Town is primaJ:i1y a rural resort area with substantial shopping facilities availabl~atGreenport, at various .. - shopping centers within the Town, and at Riverhead just to the west; SomecommerciaheflVices -are available within the Town in the hamlets of Southold, Cutchogue and Mattituck. . ...' Agriculture has been a major industry in the Town since its origins. In recent years, farm crops are gradually evolving from basic production to nursery crops including shrubs, sod, potted plants and other ornamentals. A substanttal portion of these products are shipped by ferry across Long Island Sound far distribution throughout New England. A number of vineyards have been estabhshed and wine-making is an important industry. Fishing and fish processing are now growing industries due to improved transportation facilities. The Town is also a major summer resort area, utilizing bays, mlets and Long Island and Block Island Sounds. The main highways in the Town are New York State Route 25 and North Road. Rail transportatian is provided by the Long Island Rail Road with stations at Mattituck, Sauthold and Greenport. Ferry service is alsa available between Onent Point, east of Green port, and New Londan, Connecticut as well as from Greenport to Shelter Island. Electric service is provided by the Long Island Power Authority; gas service is provided by Keyspan Energy Carparatian. Fire pratection is the respansibihty afvalunteer fire and fire protection districts. The Tawn provides its own palice protectian. In the Village of Green port, electric service and fire protectian are provided by the Village. Government Six independently governed school districts are located wholly orrartially within the Town, which rely on their awn taxing powers granted by the State to raise revenues. The schoo districts use the Tawn's assessment roll as their basis for taxation of property located within the Town. Subject to the provisions of the State Constitution, the Town operates pursuantto the Town Law, the General Municipal Law, the Local Finance Law, other laws generally applicable to the Town, and any special laws generally applicable to the Town. Under such laws, there is no authority for the Town to have a charter, but pursuant ta the Towil Law and other laws generally applicable to home rule, the Town may from time to time adopt local laws which do not conflict with existing laws as enacted by the State. 4 ..._u-o._.....___ The legislative power of the Town is vested in the Town Board, which consists of five members, elected for a term off our years, and the Supervisor, who is the chief executive officer of the Town, elected for a term of two years; effective with the term commencing January I, 2008, the term of office of the Supervisor will be four years. Such terms are staggered such that two or three councilmen are elected every two years. All the Town Board members are elected at large and there is no limitation to the number of terms each may serve. Employees The Town provides services through approximately 217 full-time and 59 part-time employees, some of whom are represented by organized labor. The following table presents the number of employees' represented by organized labor, name of union and contract expiration dates. Name of Union Civil Service Employees Assoc. ....................... Police Benevolent Assoc. . . . . . . . . . . . . . . . . . . . . . . . . . . . Approximate Membershio Date Contract Exoires 163 48 12-31-07 12-31-09 ECONOMIC AND DEMOGRAPHIC INFORMATION Population Characteristics The Town has had a population trend, as compared to the County and the State, as indicated below: Year Town of Suffolk New York Southold County State 16,804 1,127,030 18,241,391 19,172 1,284,231 17,557,288 19,836 1,321,977 17,990,455 20,599 1,419,369 18,976,457 23,344 1,483,396 19,254,630 1970 ..................................... 1980 ..................................... 1990 ..................................... 2000 ..................................... 2005 ..................................... Source: u.s. Bureau of the Census, Long Island Power Authority. Median Income of Families Town County State 1980 $21,013 24,194 20,180 1990 $43,082 53,247 39,741 2000 $61,108 72,112 51,691 Source: U.S. Department of Commerce, Bureau of the Census. Per Caoita Monev Income 1990 2000 Town County State 1980 $8,258 7,576 7,496 $19,037 18,481 16,501 $ 27,619 26,577 23,389 Source: u.S. Department of Commerce, Bureau of the Census. 5 Unemployment Rate Statistics Unemployment statistics are not available fortbe Town as such. The smallest area for which such statistics are available (wliich includes the Town) is the County of Suffolk. The information set fortb below witb respect to such County is included for information purposes onfy. It should not be implied from the inclusion of such data in this Statement that the Town is necessarily representative oftbe County or vice versa. Annual Averages: 2002 2003 2004 2005 2006 Source: Department of Labor, State of New York Suffolk County New York State 4.3% 4.3 4.5 4.2 3.9 5.9% 6.2 5.9 5.0 4.5 Selected Listing of Larger Employers Name East~rn Long Island Hospital. . . . . . . . . . . . . . . . . . . . . . . Mattltuck-Cutchogue UFSD ....................... Plum Island ADC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Town ofSoutbold ............................... Soutbold UFSD ................................. San Simeon by tbe Sound ......................... Peconic Landmg . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Greenport UFSD ................................ ~ Hospital Public School U.S. Gov!. Facility Local Government Public School Nursing Home Life Care Community Public School Approx. No. of Emolovees 376 330 290 276 194 165 160 137 INDEBTEDNESS OF THE TOWN Constitutional Requirements The New York State Constitution limits tbe power oftbe Town (and otbermunicil?alities and school districts of the State) to issue obligations and to contract indebtedness. Such constitutional limitatIOns include the following, in summary form, as generally applicable to the Town and tbe Bonds: Purpose and Pledge. The Town shall not give or loan any money or 'p'roperty to or in aid of any individual, or private corporation or pnvate undertaking or give or loan its credit to or in aId of any of the foregoing or any public corporation. The Town may contract indebtedness only for a Town purpose and shall pledge its faitb and credit for tbe payment of principal of and interest thereon. Payment and Maturity. Except for certain short-term indebtedness contracted in anticipation of taxes or to be paid within three fiscal year periods, indebtedness shall be paid in annual installments commencing no latertban two years after tbe date sucli indebtedness shall have been contracted and ending no later tban the expiration of the period of probable usefulness of tbe object or purpose determined by statute; no installment may be more tban fifty per centum in excess of the smallest pnor installment, unless tbe Town has authorized the issuance of indebtedness having substantially level or declining annual debt service. The Town is required to provide an annual appropriation for the payment of interest due during tbe year on its indebtedness and for tbe amounts required in such year for payment of principal on its serial bonos, bond anticipation notes and capital notes. Debt Limit. The Town has the power to contract indebtedness for any Town purpose so long as tbe principal amount thereof shall not exceed seven per centum oftbe average full valuation of taxable real estate oftbe Town and subject to certain enumerated exclUSIOns and deductions such as water and certain sewer facilities and cash or appropriations for current debt service. The Constitutional metbod for determining full valuation consists of dividing tbe total assessed valuation of taxable real estate for a specified assessment roll by tbe final equalization ratio established for such assessment roll by tbe State Board of Real Property Services (tIie "State Board'?' The State Legislature is required to prescribe tbe manner by which such ratio shan be determmed. Average ful valuation is determined by taking tbe sum of tbe full valuations of such last completed assessment roll and tbe four preceding assessment rolls and dividing such sum by five. 6 There is no constitutional limitation on the amount that may be raised by the Town by tax on real estate in any fiscal year to pay interest and principal on all indebtedness. General. The Town is further subject to constitutional limitation by the general constitutionally imposed duty of the State Legislature to restrict the power of taxation, assessment, borrowing money, contracting indebtedness and loaning the credit of the Town so as to prevent abuses in taxation and assessments and In contracting indebtedness; however, as has been noted under "Security and Source of Payment" the State Legislature is prohibited by a specific constitutional provision from restricting the power of the Town to levy taxes on real estate for the payment of interest on or pnncipal of indebtedness theretofore contracted. Statutory Procedure In general, the State Legislature has authorized the power and procedure for the Town to borrow and incur indebtedness by the enactment of the Local Finance Law sullject, of course, to the constitutional provisions set forth above. The power to spend money, however, generally derives from other law, including the Town Law and General Municipal Law of the State. Pursuant to the Local Finance Law, the Town authorizes the incurrence of indebtedness, including bonds and bond anticipation notes issued in anticipation of such bonds, by the adoption of a resolution, approved by at least two- thirds ofthe members of the Town Board, the fInance board of the Town. Certain of such resolutions may be subject to permissive referendum, or may be submitted to the Town voters at the discretion of the Town Board; In this latter scenario, only a three-fifths vote of the Town Board is required. The Local Finance Law also provides a twenty-day statute of limitations after publication of a bond resolution, which in effect, estops thereafter legal challenges to the validity of obligations authorized by such bond resolution except for alleged constitutional violations. The Town has complied with such procedure with respect to the Bonds. Each bond resolution usually authorizes the construction, acquisition or installation of the object or purpose to be financed, sets forth the plan of financing and specifies the maximum maturity of the bonds subject to the legal (Constitution, Local Finance Law and case law) restrictions relating to the period of probable usefulness with respect thereto. Each bond resolution also authorizes the issuance of bond anticipation notes prior to the sale of serial bonds. Statutory law in New York permits notes to be renewed each year, provided annual principal reductions are made and provided that such renewals generally do not extend five years beyond the original date of borrowing. However, notes issued in anticipation of the sale of serial bonds for assessable unprovements are not subject to such five year limit and may be renewed subject to annual princi{lal reductions for the entire period of probable usefulness of the purpose for which such notes were originally Issued. (See "Payment ana Maturity" under "Constitutional Requirements," and "Details of Short-Term Indebtedness Outstanding.") In general, the Local Finance Law contains similar provisions {lroviding the Town with power to issue general oblIgation revenue and tax anticipation notes and general obligatIOn budget and capital notes. The following tables set forth the computation of debt limit and the calculation of total net indebtedness of the Town in accordance with the constitutional requirements hereinabove described. The following pages set forth certain details with respect to the indebtedness of the Town. 7 Computation of Debt Limit and Calculation of Net Debt Contracting Margin (As of March 27, 2007) F iscal Year Ending December 31: State Equalization Rate Assessed Valuation 2003 2004 2005 2006 2007 $ 98,928,528 10 I ,872,561 104,228,885 105,502,965 106,950,027 1.71% 1.49 1.25 1.13 1.04 Total Five Year Full Valuation. . . . . . . . .. .. . .... . .... . . . .. . . .. '" .. . .. .. .. . .. .. Average Five Year Full Valuation ............................................. Debt Limit -7% of Average Full Valuation ...................................... Inclusions: Ou~:~:~~~i:~s ..................................................... Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sub-Total Bond Anticipation Notes .................................................... Total Inclusions ........................................................ Exclusions: Cash on ~l!Ild for Debt (Grant Proceeds) ..................................... AppropnatlOns ......................................................... Total Exclusions ........................................................ Total Net Indebtedness Before Issuing the Bonds ................................. The Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Less: BANs to be paid from bond proceeds ...................................... Net Effect ofIssuing Bonds .............................................:.... Total Net Indebtedness AfterIssuing the Bonds .................................. Net Debt Contracting Margin After Issuing the Bonds ............................. Percent of Debt Limit Exhausted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Full Valuation $ 5,785,294,035 6,837,084,630 8,338,310,800 9,336,545,575 10.283.656.442 $40,580,891,482 8,116,178,296 568,132,480 $10,775,000 -0- 10.775.000 8.244.000 19.019.000 1,504,689 1.003.311 $ 2.508.000 15.511.000 14,650,000 4.515.000 10.135.000 25.646.000 $542.486.480 4.51% Trend of Town Indebtedness The following table represents the outstanding indebtedness of the Town at the end of the last five preceding fiscal years. Fiscal Year Ending December 31 : 2002 2003 2004 2005 2006 Debt Outstanding End of Year: $7,615,000 $6,950,000 $6,515,000 $12,299,098 $ 11,349,098 Bonds .................. Bond Anticipation Notes ... I 1.020.709 14.768.302 12.625.600 11.720.000 8.244.000 Total Outstanding Debt ........ $18.635.709 $21.718.302 $19.140.600 $24.019.098 $19.593.098 8 Details of Short-Term Indebtedness Outstanding Bond Anticioation Notes. Maturity Puroose 04-20-07 06-08-07 08-24-07 09-07-07 Various Purposes .......................................... Fishers Island Fe!'!)' District . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fishers Island Refuse and Garbage District . . . . . . . . . . . . . . . . Various Purposes .......................................... "."-.....--, Amount $6,619,000' 1 ,625,000 560,000 1.I10.000 Total ................................................ $ 8.244.000 a. To be funded from the proceeds of the Bonds and from available funds of the Town. Debt Service Requirements - Outstanding Bonds Fiscal Year Endin~ Decem er 31: Princioal Interest Total 2007 . . . . . . . . . . . . . . . . . . . . . . . $ 979,098 $376,468 $1,355,566 2008 ....................... 995,000 345,309 1,340,309 2009 ....................... 1,025,000 312,348 1,337,348 2010 ....................... 1,000,000 277,957 1,277,957 2011 ....................... 1,025,000 242,982 1,267,982 2012 ....................... 940,000 209,413 1,149,413 2013 ....................... 800,000 180,382 980,382 2014 ....................... 815,000 153,083 968,083 2015 ....................... 810,000 124,535 934,535 2016 ....................... 735,000 98,164 833,164 2017 . . . . . . . . . . . . . . . . . . . . . . . 745,000 72,318 817,318 2018 ....................... 760,000 45,712 805,712 2019 ....................... 320,000 26,020 346,020 2020 ....................... 200,000 15,600 215,600 2021 . . . . . . . . . . . . . . . . . . . . . . . 200.000 8.000 208.000 Totals ................... $11.349.098 $2.488.291 $13.837.389 a. Does not included refunded bonds. Calculation of Estimated Overlapping and Underlying Indebtedness Applicable Date of Percentage Total Reoort Aoolicable Indebtedness Overlallping Units' County of Suffolk ..................... Village of Green port ................... School Districts: Fishers Island ............. Greenport ................. Mattituck-Cutchogue ....... New Suffolk Common ...... Oy~erPonds .............. Southold ................. Fire Districts: Cutchogue . . . . . . . . . . . . . . . . . East Marion ............... Fishers Island .............. Mattituck ................. Orient................... . Southold .................. a. Does not include refunded bonds. 12-11-06 03-10-06 06-30-06 06-30-06 06-30-06 06-30-06 06-30-06 06-30-06 12-31-05 12-31-03 12-31-05 12-31-05 12-31-05 12-31-05 3.71% 100.00 100.00 100.00 98.49 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 $36,425,459 13,583,997 455,000 270,000 29,113,644 150,000 10,795,000 410,683 25,000 1.600.000 $ 97.693.283 AIlI>licable Net Indebtedness $30,380,486 12,564,797 455,000 270,000 25,328,870 150,000 10,795,000 410,683 25,000 1.600.000 $ 86.204.151 Sources: Annual Financial Reports on file with the Office of the State Comptroller, or more recently published Official Statements. 9 Authorized But Uuissued Items The following Bonds are authorized but unissued: Date Authorized Puroose 09-01-98 08-23-99 08-28-01 02-25-03 08-26-03 08-16-05 11-21-06 02-27-07 02-27-07 02-27-07 02-27-07 Acquisition of Rights in Land-Open Space Preservation. . . . . . . . . . . . . . . Acquisjtion ofRjghts in Land-Open Space Preservatjon .............. AcqUlsllton of Rights In Land-Open Space PreservatIOn .............. Mattituck Inlet Shore Erosion Study .............................. Acquisition of Rights in Land-Open Space Preservation. . . . . . . . . . . . . . . Construction of New Town Animal Snelter . . . . . . . . . . . . . . . . . . . . . . . . . Improvements to Peconic Recreation Center . . . . . . . . . . . . . . . . . . . . . . . . Acquisition of Air Vacuum Drain Cleaner ......................... Acquisition of Rights in Land-Open Space Preservation. . . . . . . . . . . . . . . Acquisition of Excavator ....................................... Acquisition of Tractor-Mower . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total a To be funded in whole or in part from Ihe proceeds of the Bonds. Amount $ 2,000,000' 2,000,000' 2,000,000' 82,750 4,000,000' 2,600,000 200,000 278,000 22,500,000 100,00' 60.000' $35.820.750 Capital Program The Town annually adopts a Capital Budget. Projects may be funded by State and Federal aid, reserves, proceeds of obligations, property taxes or a combination thereof. A summary of the Capital Budget for 2007 is set forth below: Deoartment General Town .................................... Highway Dept. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . SoTid Waste District ............................... Wastewater Disposal District ....................... Total.......................................... . Sources Appropriations ................................... Grants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Town Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total ........................................... 2007 $3,327,428 788,000 465,000 $ 4.580.428 $ 313,261 684,167 3.583.000 $ 4.580.428 Landfill Closure and Postc1osure Care Costs The Town owns a landfill on a site in the unincorporated area of Cutchogue, commonly known as the Cutchogue Landfill. The Town ceased accepting waste at its Cutchogue Landfill as of October 8, 1993. Placement of the final cover, referred to as car.ping, on the landfill was completed in November 2003. In addition to placement of the final cover on the landfil , state and federal regulations presently require the Town to perform certain maintenance and monitoring functions at the site for up to thirty years. The Town has and will continue to comply with said requirements. The ongoing post closure costs are esltmated to be between $20,000 and $25,000 per year from 2007 through 2009. The Town paid $23,920 for such costs in 2006 and will continue to pay these costs in the future. Actual costs associated with the capping totaled $7,681,720. Financing for closure activities has been provided in part through a grant from the New York State Department of Environmental Conservation in the amount of$2,000,000. The balance was provided through a State subsidized loan received in July, 2004 from the New York State Environmental Facilities Corporation. Costs associated with postc10sure care will be covered by charges to future users of the collection facility and site and future tax revenue. 10 FINANCES OF THE TOWN Financial Statements and Accounting Procedures The Town maintains its financial records in accordance with the Uniform System of Accounts for Towns prescribed by the State Comptroller. The financial records ofthe Town are audited by mdependent accountants. The last such audit made available for public inspection covers the fiscal year ended December 3 I, 2005. In addition, the financial affairs of the Town are subject to periodic compliance review by the Office of the State Comptroller to ascertain whether the Town has complied with the requirements of various State and Federal statutes. In June, 1999, the Governmental Accounting Standards Board ("GASB") issued Statement 34, "Basic Financial Statements and Management's Discussions and Analysis for State and Local Governments". This Statement established new finanCIal reporting requirements for state and local governments throughout the United States. It will required new information and restructuring of much of the information that governments have presented in the past. Comparability with reports issued in all prior years will be affected. GASB required the Town to ill!plement thIS standard for the fiscal year ending December 31, 2003 and the Town has complied with such reqUirements. Fund Structure and Accounts The Town utilizes fund accounting to record and report its various service activities. A fund represents both a legal and an accounting entity which segregates the transactions of specific programs in accordance with special regulations, restrictions or limItations. There are three basic fund types: (I) governmental funds that are used to account for basic services and capital projects; (2) proprietary funds that account for operations of a commercial nature; and, (3) fiduciary funds that account for assets held in a trustee capacity. Account groups, which do not represent funds, are used to record fixed assets and long-term obligations that are not accounted for in a specific fund. The Town presently maintains the following governmental funds: General Fund, Highway Fund and Special Districts Funds, and the Capital Projects Fund. Fiduciary funds consist of a Trust and Agency Fund. There are no proprietary funds. Account groups are maintained for fixed assets and long-term debt. Basis of Accounting The Town's ~overnmental funds are accounted for on a modified accrual basis of accounting. Under the modified accrual basIS, revenues are recognized when they become susceptible to accrual- that is, when they become "measurable" and "available" to finance expenditures to the current period. Revenues are susceptible to accrual include real property taxes, intergovernmental revenues (State and Federal aid) and operating transfers. Expenditures are generally recognized under the modified accrual basis of accounting, that is when the related fund liability is incurred. An exception to this general rule is unmatured interest on general long-term debt which is recognized when due. Investment Policy Pursuant to State law, including Sections 10 and 11 of the General Municipal Law (the "GML"), the Town is generally permitted to deposit moneys in banks or trust companies located and authorized to do business in the State. All such deposits, including special time deposit accounts and certificates of deposit, in excess of the amount insured under the Federal Deposit Insurance Act, are required to be secured in accordance with the provisions of and subject to the limitations of Section 10 of the GML. The Town may also temporarily invest moneys in: (I) obligations of the United States of America; (2) obligations guaranteed by agencies of the United States of America where the payment of principal and interest are guaranteed by the United States of America; (3) obligations ofthe State of New York; (4) with the approval of the New York State Comptroller, in tax anticipation notes or revenue anticipation notes issued by any municipality, school district, or district corporation, other than those notes issued by the Town, itself; (5) certificates of participation issued in connection with installment purchase agreements entered into by political subdivisions of the State pursuantto Section 1 09-b(1 0) of the GML; (6) obligations of a New York public benefit corporation which are made lawful investments fo~ municipalities pursuant to the .enabling statute of such public benef).t co~ra~ion; or (7) in the case of moneys held m certam reserve funds establIshed by the Town pursuant to law, m obligatIOns of the Town. All of the foregoing investments are required to be. payable or redeemable at the option of the owner within such times as the proceeds will be needed to meet expendItures for purposes for whIch the moneys were pr~vlded and, in the case of obligations purc~a~ed with the proceeds of bonds or notes, shall b~ payable .or re~ee~able many event, at the option of the owner, wlthm two years of the date of purchase. Unless regIstered or mscnbed m the name 11 of the Town, such instrUments and investments must be purchased through, delivered to and held in custody ofa bank or trust company in the State pursuant to a written custodial agreement as provided by Section 10 of the GML. The Town Board has adopted an investment policy and such policy conforms with applicable laws of the State governing the deposit and investment of public moneys. All deposits and investments of the Town are made in accordance with such policy. Budgetary Procedures The head of each administrative unit of the Town is required to file detailed estimates of revenues (other than real property taxes) and expenditures for the next fiscal year With the budget officer (Supervisor) on or before August IS"'. Estimates for each fire district situated within the Town must also be filed with the budget officer by this date. After reviewing these estimates, the budget officer prepares a tentative budget which includes his recommendations. A budget message explaining the main features of the budget is also prepared at this time. The tentative budget is filed With the Town Clerk not later than the 30th of September. Subsequently, the Town Clerk presents the tentative budget to the Town Board at the regular or special hearing which must be held on or before October 5th. The Town Board reviews the tentative budget and makes such changes as it deems necessary and that are not inconsistent with the provisions of the law. Following this review process, the tentative budget and such modifications, if any, as approved by the Board become the preliminary buClget. A public hearing, notice of which must be duly published in the Town's official newspaper, on the preliminary budget is generally required to be held on the Thursday immediately following the general election. At such hearing, any person may express his opinion concerning the preliminary budget; however, there is no requirement or proVision tliat the prelIminary budget or any portion thereof be voted on by members of the public. After the 'public hearing, the Town Board may further change and revise the preliminary budget. The Town Board, by resolutIOn, adopts the preliminary budget as submitted or amended no later than November 20th, at which time, the preliminary budget becomes the annual budget of the Town for the ensuing fiscal year. Budgetary control during the year is the responsibility of the Supervisor who is assisted in this area by the Town Comptroller. However, any changes or moClifications to the annual budget including the transfer of appropriations among line items must be approved by resolution of the Town Board. Budget Summaries for the 2006 and 2007 fiscal years may be found in Appendix A. Financial Operations The Supervisor functions as the chief fiscal officer as provided in Section 2 of the Local Finance Law; in this role, the SU'pervisor is responsible for the Town's accounting and financial reporting activities. In addition, the SuperviSorlS also the Town!s budget offJOel' and must therefore prepare.the anniJa.!.tentatillebudgetfor submission to the Town Board. Pursuant to S-ection 30 of the Local Finance Law,.the Supervisor bas been authorized to issue . or renew certain specific types of notes. As required by law, the Supervisor must execute an authorizing certificate which than becomes a matter of public record. The Town Board, as a whole, serves as the finance board of the Town and is responsible for authorizing, by resolution, all material financial transactions such as operating and capital budgets and bonded debt. Town finances are operated primarily through the General and Special Revenue Funds. The General Fund receives most of its revenue from real property tax anCl State aid. Current operating expenditures are {'aid from these funds subject to available appropriatIons. The Town also has refuse, sewer and wastewater districts, which are accounted for within separate funds. The primary sources of income for these districts comes from special assessments levied against district pro'perties at the same time real estate taxes are levied. Capital projects and equipment purchases are accounted for In special capital projects funds. The Town observes a calendar year (January I through December 31) for operating and reporting purposes. Revenues The Town receives most of its revenues from a real property tax on all non-exempt property situated within the Town and from State Aid. A summary of such revenues for the five most recently completed fiscal years may be found in Appendix A. Real Property Taxes See "Real Property Tax Information", herein. State Aid The Town is dependent upon financial assistance from the State which comes primarily in the form of a state appropriation for State Aid to municipalities for operating purposes. There is no assurance, however, that the State appropriation for State Aid to municipalities will continue either pursuant to existing formulas or in any form wliatsoever and, in any event, if appropriated and apportioned to the Town, payment can be made only if such monies are available therefore. The State IS not constitutionally obliged to maintain or continue such aid. See Appendix A. 12 .......,,".--- Expenditures The major categories of expenditure for the Town are General Government Support, Public Safety, Transportation, EconomIC Assistance and Opportunity Home and Community Services, Culture and Recreation Employee Benefits and Debt Service. A summary onhe expenditures for the five most recently completed fiscal years may be found in Appendix A. Pension Systems Substantiallx all employees of the Town are members of the New York State and Local Employees' Retirement System ("ERS") or the New York State and Local Police and Fire Retirement System ("PFRS''), (Both Systems are referred to together hereinafter as the "Retirement Systems" where appropriate.) The Retirement Systems are cost-sharing multiple public employer retirement systems. The obligation of employers and employees to contribute and the benefits to employees are governed by the New York State Retirement System and Social Security Law (the "Retirement System Law"). The Retirement Systems offer a wide range of plans and benefits which are related to years of service and fmal average salary vesting of retirement benefits, death and disability benefits and optional methods of benefit paJ.I11ents. All benefits generally vest after five years of credited service. The Retirement System Law generally proVides that all participating employers in each rehrement system are jointly and severally liable for any unfunded investments. Such amounts are collected through annual billings to all participating employers. Generally, all employees, except certain part-time employees, participate in the Retirement Systems. The Retirement Systems are non-contrioutory with respect to memliers hired prior to July 27, 1976. All employees who became members on or after July 27, 1976 must contribute 3% of their gross annual salary towards the cost of their retirement program. Chapter 86 of the Laws of 2000 eliminated the 3% for Tier 3 and Tier 4 members with 10 years of service credit. Due to unfavorable capital market returns over recent years and negative returns in each of the past three years, the State Comptroller lias sent notice to every school district and municipality in New York State that he believes that the retirement contributions will continue to increase in subsequent years. With regard to the Retirement Systems, a pension reform bill was signed by the Governor into Law as Chapter 49 of the Laws of2003. Chapter 49 changed the cycle of billing to match budget cycles of the Town. Under the previous method, the Town was unsure of how much it would have to pay to the system until after its budget was implemented. Under the new system the contribution for a given fiscal year will be based on the value of the pension fund on the prior April I instead of the following April I so that the Town will be able to more accurately include the cost oftlie contribution into its budget. Chapter 49 requires the Town to make a minimum contribution of 4.S% of payrol.1 every year, including years in which the investment performance of the fund would make a lower 'contributIOn possible. On July 20, 2004 the New York State Legislature passed a bill amending the General Municipal Law, Local Finance Law and the Retirement and Social Secunty Law. On July 30, 2004, the Dovernor signed the new retirement system legislation into Law as Chapter 260 of the Laws of2004. The bill gIves the employer the option to move the annual payment date for contributions from December IS"' to February I ", effective December IS, 2004. It increase,s; from five to ten years, the maximum amortization period of the portIOn of employer contributions that exceeds 7% of payroll for the 2004-200S fiscal year of the Retirement System (April I - March 31). It also allows employers to issue bonds to finance their 200S-2006 and 2006-2007 fiscal year contributions in excess of 9.S% and 10.S%, respectively. This amortization may be made with the Retirement System or the Town could issue a maximum of ] O-year general obligation bonds, t1ie interest on which would be set at prevailing bond market rates on the date of sale and would be taxable for feaeral income tax purposes. For the payment due December IS, 2007, it is estimated that the contribution will be approximately II.S% of payroll. The Town paid its retirement obligation in full on December IS, 2006 and has included its total obligation for the 2006 fiscal year in its current budget. The Town does not plan to amortize its retirement system obligations. While the Town is aW!1fe of the potential negative impact on it~ budget l!'ld wil.1 ~ke t~e appropriate ~teps to budget accordingly for the mcrease, there can be no assurance that Its financial poslhon WIll not be negatIvely impacted as a result of the potential increase in such contributions. Contributions to the Retirement Systems Fiscal Year Ending Decem6er 31 : Amount of Contribution 2002 ....................................... 2003 ....................................... 2004 ....................................... 200S ....................................... 2006 ...................................... 2007 (Budget) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 164,287 684,617 1,670, I 02 2,08S,137 1,837,992 1,827,000 13 Other Post Employment Benefits It should also be noted that the Town provides post-retirement healthcare benefits to various categories of former employees. These costs may be expected to rise substantially in the future. There is now an accounting rule that will reqUIre governmental entities, such as the Town, to account for post-retirement healthcare benefits as it accounts for vested pension benefits. GASB Statement No. 45 ("GASB 45") of the Governmental Accounting Standards Board ("GASB"), described below, requires such accounting. Although GASB 45 encourages earlier adoption, implementation is required by the following dates, based on the size of government measured by annual revenue: Annual Revenue Effective for Fiscal Year Ending After: December 15, 2006 December 15, 2007 December 15, 2008 Greater than $100 million Between $10 million and $100 million Less than $10 million School Districts and Boards of Cooperative Education Services, unlike other municipal units of government in the State, have been prohibited from reducing retiree health benefits or increasing. health care contributions received or paid by retirees below the level of benefits or contributions afforded to or reCl.Ulred from active employees since the implementation of Chapter 729 of the Laws of 1994. This protection from umlateral reduction of benefits has been extended annually and continued through May 15, 2006 pursuant to Chapter 16 of the Laws of 2006. Legislative attempts to provide similar protection to retirees of other local units of government in the State have not succeeded as of this date. Nevertheless, many such retirees of all varieties of municipal units in the State do presently receive such benefits. GASB 45 and OPEB. OPEB refers to "other Rost-employment benefits," meaning other than pension benefits, disability benefits and OPEB consist primarily of health care benefits, and may include other benefits such as disability benefits and life insurance. Until now, these benefits have generally been administered on a pay-as-you- go basis and have not been reported as a liability on governmental financial statements. GASB 45 will require municipalities and school districts to account for OPEB liabilities much like they already account for pension liabilities, /lenerally adopting the actuarial methodologies used for pensions, with adjustments for the different characteristics ofOPEB and the fact that most municipahties and school districts have not set aside any funds against this liability. Unlike GASB 27, which covers accounting for pensions, GASB 45 does not require municipalities or school districts to report a net OPEB obligation at the start. Under GASB 45, based on actuarial valuation, an annual required contribution ("ARC") will be determined for each municipality or school district. The ARC is the sum of (a) the normal cost for the year (the "resent value offuture benefits being earned by current employees) plus (b) amortization of the unfunded accrued liability (benefits already earned by current and former emRloyees but not yet provided for), using an amortization period of not more than 30 years. If a municipality or school district contributes an amount less t11an the ARC, a net OPEB obligation will result, which is required to be recorded as a liability on its financial statements. GASB 45 does not require that the unfunded liability actually be amortized nor that it be advance funded, only that the municipality or school district account for its unfunded accrued liability and compliance in meeting its ARC. The Town expects to be in compliance with the requirements ofGASB 45 by or before the applicable effective date. Actuarial valuation will be required every 2 years for OPEB plans with more than 200 members, every 3 years if there are less than 200 members. REAL PROPERTY TAX INFORMATION Real Property Taxes The Town derives a significant portion of its annual revenue through a direct real property tax. The following table presents the total tax levy, by purpose, with adjustments and collection performance for each of the last five fiscal years. 14 Tax Levy and Collection Record Fiscal Year Endin~ December 31 : 2004 200 2006 2003 Total Tax Levy. . . . . . . . . . . . . . . . Amount Collected ............. Returned to County Amount .................... Percentage .................. Uncollected at End of Year of Levy ................... $74,603,829 72,211,402 2,392.427 3.20% $79,909,681 77,595,985 2,313,696 2.90% $89,495,573 83,356,976 2,138,597 2.39% $89,934,663 86,628,595 3, I 06,068 3.45% None None None None a. As of February 6, 2007 .r_.____'"' 2007 $97,216,091 54,175,000" 43,041,091" 44.27%" NA Tax Collection Procedure Property taxes fortbe Town are collected by tbe Town tax receiver. Such taxes are due and payable in equal installments on December I and May 10, but may oe paid witbout penalty by January 10 and May 31, respectively. The penalty added to delinquent taxes is one-twelfth the rate of interest determined by tbe State Commissioner of Taxation and Finance. The rate is determined each year by July 15 based on the one-year constant maturity yield index for United States Treasury securities for the quarter-year ending on tbe immediately preceding June 30. The rate is effective for a twelve month period commencing August I each year and in no event will be less than ten per centum per annum. The Town receives its full levy before tbe end of its fiscal year. Uncollected amounts are not segregated by the Town tax receiver, and any deficiency in tax collection is the County's liability. Tax Rates (Per $100 Assessed Valuation) Fiscal Year Endin~ December 31: 2003 2004 005 2006 2007 General- Townwide ................ General- Outside Village ............ Highway . . . . . . . . . . . . , . . . . . . . . . $133.38 3.10 36,59 $136.65 4.53 31.12 $139.73 5.43 38.37 $140.37 4.90 40.68 Large Taxable Propeljies 2007 Assessment Roll Name Peconic Landingat Soutbold ....................... qLCO, L1PA, Marketspan, Keyspan ................. VIllage of Greenport-Power Plant.. .. ... ... ..... .. .. . Fishers Island Dev. Corp. .................,.,...,.. Robins Island Holding LLC . . . . . . . . . . . . . . . . . . . . . . . . . Alan Cardinale .................................. Damianos, Herodotus. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . New York Telephone ............................. Levin Family LImited Partnership . . . . . . . . , . . . . . . . . . . . Anderson, Bradley & Francesca .........,........... Norris, Susan .................................... Laurel Links & Country Club ....................... Kimogenor Pt Co. ................................ DriftWoodCove ................................. ~ Commercial Utility Utility Residential Development Private Lands S~opping Center V me~ard Utili Mote & Restaurant Farmland & Private Lands Various Properties Country Club Co-Op Co-Op a. Assessment Roll established in 2006 for levy and collection of taxes during 2007 Fiscal Year. b. Represents approximately 5.57% ofthe total taxable assessed valuation of the Town for 2007. 15 $151.02 3.99 39.63 Assessed Valuation $ 1,707,704 1,558,702 585,000 362,000 330,500 285,500 234,000 233,985 148,950 113,800 111,800 96,300 94,600 90.000 $5.952.841 b LITIGATION The Town of South old is subject to a number oflawsuits in the ordinll!Y conduct of its affairs. For the most part, l!'Iy pptential adverse decisions in such suits, either individually or in the aggregate, are not likely to have a matenal adverse effect on the Town. There are certain matters worthy of special mention: Stanton. at al. v. Town of Southold - This is an action in inverse condemnation and nuisance by fo!"tY-two property owners, allegmg property damage in the form of erosion caused by a Town-owned jetty. The Town is engaged in studies to delermme the issues surrounding the alleged erosion, its causes, and possible solutions. Although this case was first filed in 1997, discovery has not been completed. The issues in this case are complex and will require extensive expert testimony. The nature and extent of damages, if any, are unknown at this point. Insurance coverage may be available for potentialliabili!y for alleged compensatory damages. The Town has denied any wrongdoing and intends vigorously to defend any fUrther prosecution of this action. ~uad Enterorises et al. v. Town of Southold - This action arises from the Town Board of the Town of Southol s alleged refusal to approve a change 01 zone app-lication filed by j?laintiffs, which soug!lt substantially to increase the zomng density of a parcel ofland owned by a oeveloper plainttff. Plaintiffs assert claims under the Fair Housing Act, Americans with Disabilities Act, State and Town Law, alleging housing discrimination against senior 1- handicapped and disabled residents who are also named as "Jane Doe" plamtiffs. Plaintiffs seek declaratOlY relier &1:antingtheir desired zoning, as well as compensatory and punitive damages of$5 million eachl respectively, for each of the six federal causes of action. Insurance coverage may be available for potentia liability for alleged c9mpensatory damages. Fact a.nd expert discovery is proceeding. The Town has demed all wrongdoing and intends vigorously to contest these claims. Notices of Claim - Four noteworthy Notices of Claim have been filed against the Town relating to police matters. Three 01 the matters relate back to events in 2003 or 2004/ none of which have yet rip-ened into-litigation. In the flISt claim, claimant, Jason Weber, alleged that he sufferea physical injury, emotional injury, and loss of earnings by virtue of the alfeged excessive force used by Town police officers in dieir arrest of claimant. Claimant has sUDsequently been convicted of driving while intoxicated, an underlying crime leading to the arrest at issue. Claimant demanded $20 million, but has not served the Town with any lawsuit. In the second claim, the same claimant demanded $2 million as a result of a traffic stop whereby claimant was ticketed for driving with a susp-ended license. In that instance, claimant alleged emotional injuries and loss of employment due to allegeo false imprisonment, and violation of his civil riiilits. Claimant has not served the Town with any lawsuit relating to this matter. In the third claim, claimant Mark .8"raziller demanded $5 million for alleged Ilhysical and emotional mjuries and civil rights violations arising out of a traffic stop. Claimant has not served the Town with any lawsuit relating to this matter. Insurance coverage may be available m these matters for QOtentialliability for alleged compensatory . damages. The Town denies any.wrongdoing in these matters, and intends vigorously to contest these claims in the event that lawsuits are instituted arising out of these allegations. The statute of limitations for state law claims has run on each ofthese matters; the Federal statute of limitations has run on the first and third claims; and as of yet the Town has not been served with notice of any filed lawsuit. In the fourth Notice of Claim, Kenneth MacAlpin demands $5 million in damages for p_hysical ,emotional and civil rights iniuries related to an alh:ged incident, 15elieved to be an arrest by Town police officers "on or about February 21,2007 and prior arrests." The Town is not aware of any details of this purported claim, and intends vigorously to contest it both prior to and after the institution of a lawsuit, if any is ever filed and served. BONDHOLDER RISKS AND MARKET FACTORS AFFECTING FINANCINGS OF THE STATE AND MUNICIPALITIES OF THE STATE There are certain potential risks associated with an investroent in the Bonds and investors should be thoroughly familiar with thiS Official Statement, including its appendices, in order to make an informed investroent decision. Investors should consider, in particular, the following factors: The Town's credit rating could be affected by circumstances beyond the Town's control. Economic conditions such as the rate of unemployment and inflation, termination of commercial operations by cO!"QOrate taxpayers and emllloyers, as well as natural catastrophes, could adversely affect the assessed valuation of Town property and its aBility to maintain fund balances ana other statistical indices commensurate with its current credit rating. Accordingly, a decline in the Town's credit rating could adversely affect the market value of the Bonds. In addition, if and when a holder of any of the Bonds should elect to sell a Bond prior to its maturity, there can be no assurance that a market shall have been established, maintained and be in existence for the purchase and sale of any Bonds. The price or principal value of the Bonds is dependent on the prevailing level of mterest rates. If interest rates should increase, tfie price of a bond or note may decline causing the bond or noteholder to potentially incur a capital loss if such bond or note is sold prior to its maturity. The financial condition of the Town as well as the market for the Bonds could be affected by a variety of factors, some of which are beyond the Town's control. There can be no assurance that adverse events in the State, including, for example, the seeking bya municipality of remedies pursuant to the Federal Bankruytcy Act or otherwise, will not occur which migfit affect the market price of and the market for the Bonds. If a signillcant default or other financial crisis should occur in the affairs of the State or any of its agencies or political subdivisions thereby further impairing the acceptability of obligations issued by borrowers withm the State, both the ability of the Town 16 ^....- to arrange for additional borrowings and the market for and market value of outstanding debt obligations, including the Bonos, could be adversely affected. Future amendments to applicable statutes affecting the treatment of interest paid on municipal bonds, including the Bonds, for income taxation purposes could have an adverse effect on the market value ofthe Bonds (see "Tax Matters" herein). TAX MATTERS Opinion of Bond Counsel In the opinion of Hawkins Delafield & Wood LLP, Bond Counsel to the Town, under existing statutes and court decisions and assuming continuinlt compliance with certain tax covenants described herein, (i) interest on the Bonds is excluded from gross income Tor Federal income tax purposespursuant to Section 103 of the Internal Revenue Code of 1986, as amended (the "Code"), and (ii) interest on the Bonds is not treated as a preference item in calculating the alternative minimum tax imposed on milividuals and corporations under the Code; such interest, however, is mcluded in the adjusted current earnings of certain corporations for purposes of calculating the alternative minimum tax imposea on such corporations. In rendering its opinion, Bond Counsel has relied on certain representations, certifications of fact, and statements of reasonable expectations made by the Town in connection WIth the Bonds, and Bond Counsel has assumed compliance by the Town with certain ongoing covenants to comp'ly with applicable requirements of the Code to assure tl1e exclUSIon of interest on the Bonds from gross income unller Section 103 of the Code. In addition./}n the opinion of Bond Counsel to the Town, under existing statutes, interest on the Bonds is exempt from New lork Stafe and New York City personal income taxes. Bond Counsel expresses no opinion regarding any other Federal or state tax consequences with respect to the Bonds. Bond Counsel renders its op.inion under existing statutes and court decisions as of the issue date, and assumes no obligation to update its opinion after the issue date to reflect any future action, fact or circumstance, or chan~ in law or interpretation, or otherwise. Bond Counsel expresses no opinion on the effect of any actIOn hereafter taken or not faken in reliance upon an opinion of other counsel on the exclusion from gross income for Federal income tax purposes of interest on the Bonds, or under state and local tax law. Certain Ongoing Federal Tax Requirements and Covenants The Code establishes certain onltoing requirements that must be met subsequent to the issuance and delivery of the Bonds in order that interest on the 130nils be and remain excluded from gross mcome under Section 103 of the Code. These requirements include, but are not limited to, requirements relating to use and expenditure of gross proceeds of the Bonds, yield and other restrictions on investments of gross proceeds, and the arbitrage rebate requirement that certain excess earnings on gross proceeds be rebated to the Feaeral government. Noncompliance wilh such requirements may cause interest on the Bonds to become included in gross income for Federal income tax (lurposes retroactive to their issue date, irrespective of the date on which such noncompliance occurs or is discovered. The Town has covenanted to comply with certain applicable requirements of the Code to assure the exclusion of interest on the Bonds from gross income under SectIOn 103 of the Code. Certain Collateral Federal Tax Consequences The following is a brief discussion of certain collateral Federal income tax matters with respect to the Bonds. H does not purport to address all aspects of Federal taxation that may be relevant to a particular owner of a Bond. Prospective investors, particularly those who may be subject to speCial rules, are advised to consult their own tax advisors regarding the Federal tax consequences of owning and disposing of the Bonds. Prosp.ective owners of the Bonds should be aware that the ownership of such obligations may result in collateral Feileral income tax consequences to various categories of persons, such as cO!'Porations (including S cOTI'orations and foreign corporations), financial institutions, property and casualty and life insurance companIes indIvidual recip.ients of Social Security and railroad retirement benefits, individuals otherwise eligible for the earned income tax crellit, and taxpayers deemed to have incurred or continued mdebtedness to purchase or carry obligations the interest on which is excluded from gross income for Federal income tax llUrposes. Interest on the Bonds may be taken into account in determining the tax liability of foreign corporations subject to the branch profits tax imposed by Section 884 of the Code. Original Issue Discount "Original issue discount" ("OID") is the excess of the sum of all amounts payable at the stated maturity of a Bond (excluding certain "qualified stated interest" that is unconditionally payable at least annually at prescribed rates) over the issue rrice onhat maturity. In general, the "issue price" of a maturity means the first price at which a substantial amoun of the Bonds of that maturity was sold (excluding sales to bond houses, brokers, or similar persons acting in the capacity as underwriters, placement agents, or wholesalers). In general, the issue fnce for each maturity of Bonds is expected to be the initIal public offering price set fortn on the cover page 0 the Official Statement. Bond Counsel further is of the opinion that, for any Bonds having OID (a "Discount Bond"), OID that 17 has accrued and is properly allocable to the owners of the Discount Bonds under Section 1288 of the Code is excludable from gross Income for Federal income tax purposes to the same extent as other interest on the Bonds. In general, under Section 1288 of the Code, 010 on a Discount Bond accrues under a constant yield method, based on periodic compounding of interest over prescribed accrual periods using a compounding rate determined by reference to the yield on that DIscount Bond. An owner's adjusted basis in a Discount Bond is increased by accrueo OID for purposes of determining gain or loss on sale, exchange, or other disposition of such Bond. Accrued"OlD may be taken into account as an increase in the amount of tax-exempt income received or deemed to have been receiveo for purposes of ~etermining various other tax consequences of owning a Discount Bond even though there will not be a corresponding cash payment. Owners of Discount Bonds should consult their own tax advisors with respect to the treatment of original issue discount for Federal income tax purposes; including various special rules relating thereto, and the state and local tax consequences of acquiring, holding, and oisposing of Discount Bonds. Bond Premium [n general, if an owner acquires a Bond for a purchase price (excluding accrued interest) or otherwise at a tax basis tfiat reflects a .premium over the sum of all amounts payable on the Bond after the acquisition date (excluding certain "qualified stated interest" that is unconditionally payable at least annually at prescribed rates). that premium constitutes "bond premium" on that Bond (a "Premium Bond"). In general, under Section 171 of the Code; an owner of a Premium Bond must amortize the bond premium over the remaining term of the Premium Bond, baseo on the owner's yield over the remaining term of the Premium Bond determined based on constant yield principles (in certain cases involving a Premium Bond callable prior to its stated maturity date, the amortization period and YIeld may be required to be determined on the basis of an earlier call date that results in the lowest yield on such bond). An owner of a Premium Bond must amortize the bond premium by offsetting the qualified stated interest allocable to each interest accrual period under the owner's regular method of accounting against the bond premium allocable to that period. In the case of a tax-exempt Premium Bond, if the bond premium allocable to an accrual period exceeds the qualified stated interest allocable to that accrual period, the excess is a nondeductible loss. Under certain circumstancesj the owner of a Premium Bond may realize a taxable gain upon disposition of the Premium Bond even though it is so d or redeemed for an amount less than or equal to tile owner's onginal acquisition cost. Owners of any Premium Bonds should consult their own tax advisors regarding the treatment of bond premium for Federal income tax pU!'Poses, including various special rules relating thereto, and state and local tax consequences, in connection witli the acquisition, ownership, amortization of bond premIUm on, sale, exchange, or other disposition of Premium Bonds. Backup Withholding Under the Code, interest on tax-exempt obligations paid after March 31, 2007, includinK interest on the Bonds, is subjectto "backup withholding" if the recipient of the interest does not complete a Form W-9 Request for Taxpayer Identification Number and Certification, or otherwise provide to the payor (i.e., the financial institution paying the interest on behalf of the Town a taxpayer identification number). "Backup WIthholding" means that tlie payor is required to deduct and withhold a tax from the interest payment, calculated in the manner set forth in the Cooe. [n general, it is expected that owners purchasing the Bonds through a brokerage account will have executed a Form W-9 in connection with the establishment of such account so that no backup withholding will occur. The backup withholding requirement does not affect the excludability of the interest on tlie Bonds from gross income for federal income tax purposes. Any amounts withheld pursuant to backup withholding would be allowed as a refund or a credit against tile owner's federal income tax once the required information is furnished to the Internal Revenue Service. Legislation Legislation affecting municipal bonds is regularly under consideration by the United States Congress. There can be no assurance that legislation enacted or proposed after the date of issuance of the Bonds will not have an adverse effect on the tax-exempt status or market pnce of the Bonds. DOCUMENTS ACCOMPANYING DELIVERY OF THE BONDS Absence of Litigation Ullon delivery of the Bonds the Town shall furnish a certificate of the Town Attorney, dated the date of delivery orthe Bonds, to the effect that there is no controversy or litigation of any nature pending or threatened to restrain or enjoin the issuanc~ sale, execution or delivery of !he Bonos, or in any way contesting or affecting the validity of the Bonds or any or the proceedings taken witli respect to the Issuance and sale thereof or the application of moneys to the paYIl)ent of the Bonds, and fUrther stating that there is no controversy or litigation of any nature now pending or threatened by or against the Town wherein an adverse judgment or ruling couldl1ave a material adverse Impact on the financial condition of the Town or adversely affect the power of the Town to levy collect and enforce the collection of taxes or other revenues for the payment of the Bonds, which has not been disclosed in this Official Statement. 18 Legal Matters Legal matters incident to the authorization issuance and sale of the Bonds will be subject to the final al>proving opinion of Hawkins Delafield & Wood LtP, Bond Counsel. Such opinion will be available at the time of delivery of the Bonds and will be to the effect that the Bonds are valid and legally binding general obligations of the Town for which the Town has validly pledged its faith and credit and, unless paid from other sources, all the taxable real property within the Town is subject to the levy of ad valorem real estate taxes to pay the Bonds and interest thereon witliout limitation of rate or amount. Said opinion shall also contain further statements to the effect that (a) the enforceability of rights or remedies with respectto such Bonds may be limited by bankrul>.tcy, insolvency, or other laws affecting creditors' rights or remedies heretofore or hereafter enacted, and (b) said law firm has not been requested to examine or review and has not examined or reviewed the accuracy or sufficiency of the Official Statement, or any additional proceedings reports, correspondence, financial statements or other documents, containing financial or other information relative to the Town which have been or may be furnished or disclosed to purchasers ofthe Bonds, and expresses no opinion with respect to such financial or other information, or the accuracy or sufficiency thereof. Closing Certificates Upon the delivery.ofthe Bonds, the Purchaser will be furnished with the following items: (i) a Certificate of the Supervisor to the effect that as of the date of this Official Statement and at all times subsequent thereto, up to and including the time of delivery of the Bonds, this Official Statement did not and does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements herein, in the light of the circumstances under which they were made, not misleading, and further stating that there has been no aaverse material change in the financial condition of the Town since the date of this Official Statement up to and including the time of delivery of the Bonds, and having attached thereto a copy of this Official Statement; (ii) a Certificate signed lJy the Supervisor evidencing payment for the Bonds; (iii) a Signature Certificate evidencing the due execution of the Bonds, including statements iliat (a) no litigation of any nature is pending or threatened, restraining or enjoining the Issuance and delivery of the llonds or the levy and collection oftaxes to pay the principal of and interest thereon, nor in any manner _questIOning the proceedings and authority under which the Bonds were authorized or affecting the validity of the gonds thereunder, (b) neither the corporate existence or boundaries of the Town nor the title of any of the officers thereof to their respective offices is being contested, and (c) no authority or proceedings for the issuance of the Bonds have been repealed I revoked or rescinded; and (IV) an Arbitrage and1Jse of Proceeds Certificate executed by the Supervisor, as descrioed under "Tax Matters". DISCLOSURE UNDERTAKING This Official Statement is in a form "deemed final" by the Town for the purposes of Securities and Exchange Commission Rule 15c2-12. Atthe time of the delivery of the Bonds, the Town will provide an executed copy of Its "Undertaking to Provide Continuing Disclosure" (the "Undertaking"). Said Undertaking will constitute a written agreement or contract of the Town for the benefit of holders of and owners of beneficiar interests in the Bonds, to provide, or cause to be provided: (I) during any succeeding fiscal year of the Town in which the Bonds are outstanding to (a) each nationally recognizea municipal securities information repository ("NRMSIR") and (b) the New York State Information Depository, if created, ("SID"), (i) certain annual financial information, in a form generally consistent with the information contamed or cross-referenced in this Official Statement under the. headings: "The Town"j "Economic and Demogra)?hic Information","Indebtedness of the Town", "Finances ofllie Town", "Rea PropertY Tax InformatIOn, and "Litigation"; and in Appendix A, on or pnor to the I 80th day following the end of each fiscal year, including (ii) the audited financial statement, if any, for the preceeding fiscal year of the Town, unless such audited financial statement, if any, shall not then be available in whIch case the unaudited financial statement shall be provided and an audited financial statement shall be delivered to each NRMSIR and to the SID within 30 days after it becomes available and in no event later than 360 days after the end of each fiscal year; (2) to (a) each NRMSIR, or to the Municipal Securities Rulemaking Board ("MSRB"), and to (b) the SID, timely notice of the occurrence of any of the following events with respect to the Bonds, if material: (i) principal and interest paY!Jlent delinquencies; (ii) non-payment related defaults; (iii) unscheduled draws on deb.t service ~eseryes ref!ecting finan~ial. difficultie.s; (iv) ut:'s~hedule~ draws on ~red!t enhancements reflectmg finanCial difficulties; (V) substitutIOn of credit or liqUidIty prOViders, or their fallur~ to per~orm; (vi) adverse tax o~'nions or events affecting the tax-exempt status ofllie Bonds; (vii) modificatIOns to ngJits of 13ondholders; viii) bond calls; (ix) defeasances; (x) release, substitution, or sale of property secunng repayment of the onds; and (xi) rating changes. The Town may provide notice of the occurrence of certain other events, in addition to those listed above, if it determines that any such other event is material with respect to the Bonds; but the Town doe~ not undertake to commit to provide any such notice of the occurrence of any material event except those events listed above; and (3) to (a) each NRMSIR or to the MSRB, and to (b) the SID, in a timely manner, notice of a failure to provide the annual financial Information by the date specified. 19 The Town's Undertaking shall remain in full force and effect until such time as the principal of. redemption premiums, if any, and interest on the Bonds shall have been paid in full. The sole and exclusive remedy for breach or default under the Undertaking is an action to compel specific performance of the undertakings of the Town, and no person or entity, including a Iiolder of the Bonds, snail be entitled to recover monetary damages thereunder under any circumstances. Any failure by the Town to comply with the Undertaking will not constitute a default with respect to the Bonds. The Town reserves the right to amend or modify the Undertaking under certain circumstances set forth therein provided that any such amendment or modification will be done in a manner consistent with Rule 15c2-12 as then m effect. The Town is in compliance with all previous undertakings made pursuant to Rule 15c2-12. BOND RATING Moody's Investors Service, Inc., will assign their municipal bond rating of "Aaa" respectively, to this issue of Bonds with the understandin~ that up'on delivery of the Bonds, a policy insurinll the payment wfien due of the principal of and interest on the ffonds will be issued by Ambac Assurance CorporatIOn. Such rating reflect only the views of such rating agency and any desired explanatIOn of the sigt!ificance of such rating should 6e obtained from such rating agency. GeneraiIy, a ratmgagency oases its ratings on the information and materials furnished it and on investigatIOn, studies and assumptions~by the rating agency. There is no assurance that a particular ratinll will apply for any given period of time or that it will not be lowered or withdrawn entirely if, in tfie judgment orthe agency originally establishing the rating, circumstances so warrant. The underwriter lias undertaken no responsibility to bring to the attention of the holders of the Bonds any proposed revision or withdrawal. Any downward revision or witharawal of such rating, or either of them, could have an adverse effect on the market pnce of the Bonds. Such rating should not be taken as a recommendation to buy or hold the Bonds. FINANCIAL ADVISOR Munistat Services, Inc. has assisted the Town as financial advisor in certain matters with respect to the sale and issuance of the Bonds. ADDITIONAL INFORMATION Additional information may be obtained upon request from the office of the Town Comptroller, Town of Southold, Town Hall, P.O.B. 1179, Southold, New York 11971, teleJlhone number 631/765-4333, or from the office of Munistat Services, Inc., 12 Roosevelt Avenue, Port Jefferson "Station, New York 11776, telephone number 631/331-8888 and website: http://www.munistat.com. Any statements in this Official Statement involving matters of opinion or estimates> whether or not expressly so stated, are intended as such and not as representations of fact. No representation IS made that any of such statements will be realized. This Official Statement is not to be construed as a contract or agreement between the Town and the original purchasers or holders of any of the Bonds. This Official Statement is submitted only in connection with the sale of the Bonds by the Town and may not be reproduced or used in whole or in part for any other purpose. TOWN OF SOUTHOLD, NEW YORK By: s/s SCOTT A. RUSSELL Town Supervisor and Chief Fiscal Officer March 27, 2007 20 APPENDIX A FINANCIAL INFORMATION Balance Sheet General Fnnd Fiscal Year Ending December 31: 2003 2004 2005 ASSETS Cash and Investments $ 8,436,782 $ 10,081,581 $ 9,292,437 Cash - Restricted 0 0 0 Taxes Receivable 0 0 0 Accounts Receivable 1,168 85,426 24,533 Due From Other Funds 15,107 320,243 176,390 Due From Trust Funds 342,253 73 68 State and Federal Aid Receivables 13,195 56,357 81,849 Due From Other Governments 112,471 1,537,312 1,867,136 Supply Inventory 1,296 1,487 1,204 Prepaid Expenses 69,865 526,857 498,344 Deposit 10,000 2,219 0 Total Assets $ 9,002,137 $ 12,611,555 $ 11,941,961 LIABILITIES AND FUND EQUITY Accounts Payable $ 792,860 $ 1,052,240 $ 627,049 Due to Other Funds 426,211 1,625,700 1,888,241 Due to Other Governments 0 388,944 393,570 Due to Trust Funds 595 4,248 7,044 Due to Compnent Units 0 0 0 Deferred Revenues 2,463,059 2,900,729 3,018,595 Total Liabilities 3,682,725 5,971,861 5,934,499 Fund Balances - Reserved: Insurance claims 1,033,085 1,234,066 I, I 05,879 Encumbrances 71,342 4,009 Supply Inventory 1,296 1,487 1,204 Prepaid Expenses 69,865 526,857 498,344 Fund Balances - Unreserved: Designated - Ensuing Year's Budget 2,008,000 1,978,987 2,657,200 Undesignated 2,207,166 2,826,955 1,740,826 Total Fund Equity 5,319,412 6,639,694 6,007,462 Total Liabilities and Fund Equity $ 9,002,137 $ 12,611,555 $ 11,941,961 Sources: Audited Financial Reports of the Town Table itself NOT audited. A-I -',,^--.,..,...~~.,.,.-,'--"- ,.~.._',"'.~' ",. "r_''''''''''"__. '-" --,--,,~"~~.,.,.,-...""~'.--~ Statement of Revenues, Expenditures and Changes in Fund Balance General Fund Town Wide Fiscal Year Ending December 31 : lQQ1 2002 2QQ1 2illM 2ill11 Revenues: Real Property Taxes $ 10,965,967 $ 12,237,940 $ 13,247,572 $ 13,962,268 $ 14,608,674 Other Real Property Tax Items 55,069 85,244 51,3 I I 65,720 68,807 Non-Properly Tax Items 508,130 401,035 401,035 415,071 415,071 Departmental Income 312,033 431,743 315,289 344,217 345,956 Intergovernmental Charges 261,646 214,738 202,917 296,050 252,558 Use of Money & Property 448,483 246,707 201,702 254,142 489,796 Licenses & Permits 198,949 210,863 188,480 214,461 249,178 Fines & Forfeitures 97,609 102,032 107,084 107,3 I 5 140,192 Sale of Property & Compo for Loss 76,471 135,345 56,893 405,077 93,290 Miscellaneous Local Sources 109,026 115,619 133,346 128,027 432,269 State Aid 1,465,312 1,698,069 2,225,40 I 2,974,027 2,637,870 Federal Aid 239,649 132,527 146,574 160,337 174,348 14,738,344 16,011,862 17,277,604 19,326,712 19,908,009 Expenditures: General Government Support 3,170,906 3,561,142 3,751,469 4,395,571 4,641,568 Public Safety 5,755,775 5,806,827 6,033,207 6,254,365 7,177,145 Public Health 33,288 33,288 32,988 33,288 33,288 Transportation 335,583 341,671 398,358 401,866 . 446,877 Economic Assistance & Opportunity 802,249 730,553 833,501 931,566 901,139 Culture & Recreation 356,570 350,121 317,769 304,071 354,768 Home & Community Services 501,790 315,764 228,578 341,764 315,273 Employee Benefits 2,742,583 3,616,745 2,617,783 4,868,116 5,857,963 Debt Service Principal & Interest 1,402,074 1,550,447 1,007,318 2,104,202 1,560,055 Total Expenditures 15,100,818 16,306,558 15,220,971 19,634,809 21,288,076 Excess (Deficiency) of Revenues Over Expenditures (362,474) (294,696) 2,056,633 ~08,097) (1,380,067) --- Operating Transfers In ] ,650,724 1,780,257 1,392,850 2,932,574 2,642,859 Operating Transfers Out (1,072,732) (1,021,931) (1,910,781) (1,304, I 95) (1,895,023) Total Other Financing Sources (Uses) 577,992 758,326 (517,931) 1,628,379 747,836 -..- Excess (Deficiency) of Revenues and Other Sources Over Expenditures and Other Uses 215,518 463,630 1,538,702 1,320,282 (632,231) Fund Balance Beginning of Year 3,101,561 3,317,080 3,780,710 5,319,412 6,639,694 ---- Fund Balance End of Year $ 3,317,079 $ 3,780,710 $ 5)19,412 $ 6,639,694 $ 6,007,463 -- Sources: Audited Financial Reports of the Town Table itself NOT audited. A-2 Statement of Revenues, Expenditures and Fund Balance Highway Fund Fiscal Year Ended December 31: 2001 2002 2003 2004 2005 Revenues: Real Property Taxes $ 3,165,059 $ 3,428,570 $ 3,513,902 $ 3,520,332 $ 3,805,032 Other Real Property Tax Items 6,028 11,885 6,428 3,679 9,046 Non-Property Tax items 396 3,098 0 0 Intergovernmental Charges 116,821 0 ] 5,573 0 0 Use of Money & Property 79,827 34,626 18,520 23,884 77,817 Licenses & Permits 5,887 10,351 8,231 4,937 11,126 Sale of Property & Compo for Loss 9,593 0 4,033 2,960 2,796 Miscellaneous Local Sources 1,416 25,937 0 16 155,054 Interfund Revenues 8,517 4,852 0 0 0 State Aid 223,305 0 458,686 228,337 188,147 Federal Aid 0 0 67,699 0 0 3,616,849 3,519,319 4,093,072 3,784,145 4,249,018 Expenditures: Transportation 3,076,012 2,550,776 2,733,5] 8 2,638,121 2,913,768 Employee Benefits 281,070 340,172 976,406 415,102 500,343 Debt Service 97,594 88,544 15,128 22,219 178,371 Total Expenditures 3,454,676 2,979,492 3,725,052 3,075,442 3,592,482 Excess (Deficiency) of Revenues Over Expenditures 162,173 539,827 368,020 708,703 656,536 Residual Equity Transfer Operating Transfers In 0 0 0 0 0 Operating Transfers Out (380,965) __~,271) (60,000) ~__ (690,390) (520,085) Total Other Financing Sources (Uses) (380,965) (433,271) (60,000) (690,390) (520,085) Excess (Deficiency) of Revenues and Other Sources Over Expenditures and Other Uses (218,792) 106,556 308,020 18,313 136,451 Fund Balance Beginning of Year 706,300 487,508 594,064 902,084 920,397 -------- Fund Balance End of Year $ 487,508 $ 594,064 $ 902,084 $ 920,397 $ 1,056,848 .- Sources: Audited Financial Reports of the Town Table itself NOT audited. A-3 Statement of Revennes, Expenditures and Changes in Fund Balance Non-Major Governmental Fuuds (1) Fiscal Year Ending December 31 : 2001 2QQ2 2illU 2QM 2005 Revenues: Real Property Taxes $ ],584,26] $ 1,465,060 $ 2,] 97,525 $ 2,506,945 $ 2,381,335 Other Real Property Tax items ],037 1,495 874 3,105 2,5]6 Non-Property Tax items 97,680 110,225 1 ]7,449 336,139 213,786 Departmental Income 2,125,493 2,93] ,896 2,339,227 2,5]7,584 2,504,880 Intergovernmental Charges 18,444 1,400 1,614 1,013 1,013 Use of Money & Property 88,750 35,650 18,147 2],365 64,092 Licenses & Permits 139,615 139,295 139,620 ] 99,849 ]65,965 Fines and Forfeitures 0 0 49,000 0 0 Sale ofproperty & Compo for Loss 76,928 29,772 44,450 76,069 109,137 Miscellaneous Local Sources 13,462 1 ],423 230 5,025 ]53,59] lnterfund Revenues 2,274 0 0 0 0 State Aid 102,353 72,935 ]6],393 72,651 75,374 Federal Aid 210,644 119,380 111,299 ] 66,368 224,136 4,460,941 4,918,53 ] 5,180,828 5,906,] 13 5,895,825 Expenditures: General Government Support 42,052 42,783 134,969 92,5]4 99,895 Public Safety 786,25 ] 875,307 749,904 739,198 807,''174 Public Health 5,924 6,161 6,408 6,664 6,864 Home & Community Services 0 0 3,230,201 3,225,586 3,] 02,639 Culture and Reccreation 2,872,654 2,973,763 0 0 0 Employee Benefits ] 88,543 226,380 874,049 371,038 444,858 Debt Service 314,869 624,315 ] 17,562 88,803 671,720 Total Expenditures 4,210,293 4,748,709 5,113,093 4,523,803 5,133,450 Excess (Deficiency) of Revenues Over Expenditures 250,648 169,822 67,735 1,382,310 762,375 -~_._-~-- Operating Transfers In 0 0 0 0 0 Operating Transfers Out (491,624) (375,055) ~1i!l3,500) (],081,441) (504,720) Total Other Financing Sources (Uses) (491,624) (375,055) (483,500) (1,081,441) _(504,7~1 Excess (Deficiency) of Revenues and Other Sources Over Expenditures and Other Uses (240,976) (205,233) (415,765) 300,869 257,655 Fund Balance Beginning of Year 1,707,548 1,466,572 1,261,339 845,574 1,146,444 Fund Balance End of Year $ 1,466,572 $ _~~~J.]3-'L $ 845,574 $ 1,146,443 $ 1,404,099 ---~- (I) Includes the following funds: General Fund Part Town, Special Grant Fund, East-West Fire Protection Fund, Southold Wastewater District, Fishers Island Sewer District and Solid Waste Management District. Sources: Audited Financial Reports of the Town Table itself NOT audited. A-4 BUDGET SUMMARY Fiscal Year Ending December 31, 2006 Appropriations Less: Less: and Provisions Estimated Unexpended Amount to be Fund for Other I Jses Revenues llil!J!= Raised bv Tax General $ 22,209,199 $ 4,679,263 $ 2,657,200 $ 14,872,736 General-Outside Village 1,795,416 958,174 344,246 492,996 Highway-Townwide 0 100 16,000 (16,100) Highway-Outside Village 4,769,679 318,332 339,900 4,111,447 Community Development 159,000 159,000 0 0 Risk Retention Fund 1,055,000 1,055,000 0 0 Community Preservation Fund 4,606,000 4,606,000 0 0 Employees Health Plan 2,411,400 2,036,400 375,000 0 Total-Town $ 37,005,694 $ 13,812,269 $ 3,732,346 $ 19,461,079 East-West Fire Protection District 464,393 2,000 4,350 458,043 Fishers Island Ferry District 2,389,000 1,989,000 0 400,000 Solid Waste Management District 4,031,733 2,096,200 168,000 1,767,533 Southold Wastewater District 111,790 14,000 75,000 22,790 Fishers Island Sewer District 20,000 17,700 2,300 0 F.I. Refuse & Garbage District 563,500 0 0 563,500 Orient Mosquito District 76,285_ 0 0 76,285 Subtotal-Special Districts $ 7,656,701 $ 4,118,900 $ 249,650 $ 3,288,151 Orient-East Marion Park District 27,655 37 0 27,618 Southold Park District 315,000 0 0 315,000 Cutchogue-New Suffolk Park Dist. 141,000 0 0 141,000 Mattituck Park District 504,910 18,800 60,000 426,110 SubtotalMPark Districts $ 988,565 $ 18,837 $ 60,000 $ 909,728 Fishers Island Fire District 343,300 3,300 0 340,000 Orient Fire District 356,540 2,000 0 354,540 East Marion Fire District 427,342 8,640 0 418,702 Southold Fire District 1,358,392 21,000 0 1,337,392 Cutchogue Fire District 1,413,000 1,400 0 1,411,600 Mattituck Fire District 1,818,135 0 0 1,818,135 Subtotal.Fire Districts $ 5,716,709 $ 36,340 $ 0 $ 5,680,369 TotalMAl1 Districts 14,361,975 4,174,077 309,650 9,878,248 Grand Total $ 51.367,669 $ 17,986,346 $ 4,041 ,996 $ ~39,327 Source: Annual Budget of the Town. A-5 BUDGET SUMMARY Fiscal Year Ending December 31, 2007 Appropriations Less; Less: and Provisions Estimated Unexpended Amount to be Fund for Other Uses Revenues Balance Raised bv T ax General $ 22,951,102 $ 4,810,191 $ 1,935,000 $ 16,205,911 GeneraJ~Outside Village 1,869,139 1,002,600 459,000 407,539 Highway~ Townwide 0 600 16,900 (/7,500) Highway-Outside Village 4,938,330 406,635 486,500 4,045,195 Community Development 136,000 136,000 0 0 Risk Retention Fund 1,015,000 1,015,000 0 0 Community Preservation Fund 10,697,328 5,350,000 5,347,328 0 Employees Health Plan 2,662,000 2,412,000 250,000 0 -~- Total~Town $ 44,268,899 $ 15,133,026 $ 8,494,728 $ 20,641,145 EastM West Fire Protection District 509,828 4,600 6,228 499,000 Fishers Island Ferry District 3,038,000 2,448,000 0 590,000 Solid Waste Management District 4,058,562 2,151,500 0 1,907,062 Southold Wastewater District 128,316 10,020 100,000 18,296 Fishers Island Sewer District 20,000 17,700 2,300 0 f.L Refuse & Garbage District 512,300 0 0 512,300 Orient Mosquito District 82,235 0 0 82,235 Subtotal-Special Districts $ 8,349,241 $ 4,631,820 $ 108,528 $ 3,608,893 Orient-East Marion Park District 30,695 0 0 30,695 Southold Park District 315,000 0 0 315,000 Cutchogue~New Suffolk Park Dist. 145,000 0 0 145,000 Mattituck Park District 540,027 22,500 50,000 467,527 Subtotal-Park Districts $ 1,030,722 $ 22,500 $ 50,000 $ 958,222 Fishers Island Fire District 357,300 3,300 0 354,000 Orient Fire District 401,040 2,000 0 399,040 East Marion Fire District 490,600 12,200 0 478,400 Southold Fire District 1,512,875 33,540 0 1,479,335 Cutchogue Fire District 1,412,500 1,400 0 1,411,100 Mattituck Fire District 1,857,967 0 0 1,857,967 Subtotal-Fire Districts $ 6,032,282 $ 52,440 $ 0 $ 5,979,842 Total-All Districts 15,412,245 4,706,760 158,528 10,546,957 Grand Total $ 59,681,144 $ 19,839,786 $ 8,653,256 $ 31,188,102 Source: Annual Budget of the Town. A-6 TOWN OF SOUmOLD APPENDIX B AUDITED FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED DECEMBER 31,2005 I FINANCiAl SECTION I Independent Auditors' Report.... ...... ............. ..... ..... .... ................ ........... .... ....... ...... .............................. .... . 1-2 I REQUIRED SUPPLEMENTARY INFORMATION I Management's Discussion and Analysis..................... ... .......... 3-11 I BASIC FINANCiAl STATEMENTS I Government-Wide Financial Statements Statement of Net Assets........................................................ .............................. ................................... 12 Statement of Activities........ ............. ....... ......... ......... .............. ........................ ...... ........... ......... ..... ......... 13 Fund Financial Statements Governmental Fund Rnancial Statements Balance Sheet and Reconciliation of the Governmental Funds Balance Sheet to The Statement of Net Assets... ... ......... ......... .................. ...... ...... ............... ....... ............. 14-15 Statement of Revenues, Expenditures, and Changes in Fund Balances and Reconciliation of the Governmental Funds Statement of Revenues, Expendttures, And Changes in Fund Balances to the Statement of Activtties..................... ... ........... ............ 16-17 Fiduciary Fund Financial Statements Statement of Fiduciary Net Assets............ ......... ......... ...... ...... ......... ...... ..........._.............._....... 18 Notes to Financial Statements .._...._......................................................................_...._...._......................... 19-33 REQUIRED SUPPLEMENTARY INFORMATION OTHER THAN MANGEMENT DISCUSSION AND ANAlYSIS Schedule of Revenues, Expendttures and Changes in Fund Balances - Budget and Actual General Fund ... ........................... ... ... .................................. ..................... ............ ...... 34 Highway Fund... ......... ......... ... ............... ...... ... ... ... ......... ... ___... ...... ...... ... ...... ... ... .... ...._. 35 I OTHER SUPPLEMENTARY INFORMATION COMBINING FUND STATEMENTS: Non-rnajor Governmental Funds Combining Balance Sheet... ...... ......... ......... ... ... ............... ... ...... ... ... ......... ...... ...... ... ...... 36 Combining Statement of Revenues, Expendttures, and Changes in Fund Balances......... ......... . 37 DISCRETELY PRESENTED COMPONENT UNITS Discretely Presented Component Units: Combining Statement of Net Assets ...... ............... ....... ........... .............. .............................. ........... ........ 38 Combining Statement of Activities.. .......................... .... ..... ....................... ...... .................... .._...._.. .... ...... 39 OTHER REPORTS Schedule of Expenditures of Federal Awards......................................................................................... 40 Notes to Schedule of Expenditures of Federal Awards.......................................................................... 41 Report on Compliance and on Internal Control Over Financial Reporting Based on an Audit of Financial Statements Performed in Accordance with Government Auditing standards............................................................................................................................ 42 Report on Compliance with Requirements Applicable To Each Major Program and Internal Control oVer Compliance in Accordance with OMB Circular A-133 ...................................................................... 43-44 Schedule of Findings and Questioned Costs.................................................................................... 45-46 CERTIFIED PUBLIC ACCOUNTANTS. BUSINESS ADVISORS AND CONSULTANTS 25 Suffolk Court, Hauppauge, New furk 11788 631.434.9500 . Fax 631.434.9518 wwtv.QVZ.com INDEPENDENT AUDITORS' REPORT Honorable Supervisor and Town Board Town of Southofd Southold, New York We have audited the accompanying financial statements of the governmental activities, the aggregate discretely presented component units, each major fund, and the aggregate remaining fund information of the Town of Southold, New York, as of December 31, 2005, and for the year then ended, which collectively comprise the Town's basic financial statements as listed in the table of contents. These financial statements are the responsibility of the Town's management. Our responsibility Is to express an opinion on these financial statements based on our audn. Except as discussed in the following paragraph, 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. The financial statements of the component units presented discretely in these financial statements with the exception of one, the Fishers Island Ferry District, were not audited in accordance with Government Auditing Standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also Includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. The financial statements supporting the financial activities of the Town of Southold's discretely presented component units with the exception of one, the Fishers Island Ferry District, were not audited as of the report date, nor were we able to satisfy ourselves as to those financial activities by other auditing procedures. Those financial activities represent approximately 34% of the net assets of the discretely presented component units. The financial statements of the Fishers Island Ferry District were audited by other auditors whose report thereon have been furnished to us and In our opinion, insofar as it relates to the amounts included for that one component unit, is based solely on the reports of the other auditors. In our opinion, except for the effects of such adjustments if any as might have been determined to be necessary had the unaudited component units financial statements been audited and based on our audit and the reports of other auditors, the financial statements referred to above present fairly, in all material respects, the financial position of the Town of Southold. New York, as of December 31,2005, and the results of its operations for the year then ended in conformity with accounting principles generally accepted in the United States of America. The Management's Discussion and Analysis and the budgetary information are not a required part of the basic financial statements but are supplementary information required by accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the supplementary information. However, we did not audit the information and express no opinion on it. -1 - ALBRECHT'. VIGGIANO, ZURECK is. CoMFWlY, P.C. .allJJ~..._...1WI1l11'lj. Our audit was conducted for the purpose of forming an opinion on the financial statements that collectively comprise the Town of Southold, New York's basic financial statements. The combining and individual fund financial statements are presented for purposes of additional analysis and are not a required part of the basic financial statements. The combining and individual fund financial statements has been subjected to the auditing procedures applied in the audit of the basic financial statements of the Town of Southold, New York, and, in our opinion, is fairly presented in all material respects in relation to the basic financial statements taken as a whole. In accordance with Government Auditing Standards, we have also issued a report dated June 8, 2006 on our consideration of the Town of Southold, New York internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts and grants. Our audit was performed for the purpose of forming an opinion on the general-purpose financial statements, taken as a whole. The accompanying schedule of expenditures of federal awards is presented for purposes of additional analysis as required by U.S. Office Management and Budget Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations, and is not a required part of the general purpose financial statements of the Town of Soulhold, New York. Such information has been subjected to the auditing procedures applied in the audit of the general purpose financial statements and, in our opinion, is fairly stated, in all material respects, in relation to the general purpose financial statements taken as a whole. ~ '( .ff.;. ~. ? LI' Crr"'?- t? c. Hauppauge, New York June 8, 2006 -2- REQUIRED SUPPLEMENTARY INFORMATION Management's Discussion and Analysis TOWN OF SOUTHOLD MANAGEMENT'S DISCUSSION AND ANALYSIS December 31, 2005 The following is a discussion and analysis of the Town of Southold's financial performance, providing an overview of the Town's financial activities for the year ended December 31,2005. Use this section In conjunction wnh the Town's basic financial statements. USING THIS ANNUAL REPORT This annual report consists of a series of financial statements. The Statement of Net Assets and the Statement of Activities provide information about the activities of the Town as a whole and present a longer- term view of the Town's finances. For governmental activities, these statements tell how these services were financed in the short term as well as what remains for future spending. Fund financial statements also report the Town's operations in more detail than the government-wide statements by providing Information about the Town's most significant funds. The remaining statements provide financial Information about activities for which the Town acts solely as a trustee agent for the benefit of those outside of the government. ReDortlna the Town as a Whole The Statement of Net Assets and the Statement of Activities One of the most important questions asked about the Town's finances is, "Is the Town as a whole better off or worse off as a result of the year's activinles?" The Statement of Net Assets and the Statement of Activities report information about the Town as a whole and about Its activities In a way that helps answer this question. These statements include all assets and liabilities using the a=ual basis of accounting, which is similar to the accounting used by most private-sector companies. The Statement of Activities is significantly different than a typical Statement of Revenues, Expenses, and Changes in Fund Balance. You will notice that expenses are listed In the first column with revenues from that particular program reported to the right. The result Is a net (expense )/revenue. The reason for this kind of format Is to highlight the relative financial burden of each of the functions on the Town's taxpayers. It also identifies how much each function draws from the general revenues or if it Is self-financing through fees and grants. All of the current year's revenues and expenses are taken into account regardless ofwhen cash is received or paid. These two statements report the Town's net assets and their respective changes. You can think of the Town's net assets-the difference between assets and Iiabilities-as one way to measure the Town's financial health, or financial position. Over time, Increases or decreases In the Town's net assets are one Indicator of whether its financial health Is Improving or deteriorating. You will need to consider other non-financial factors, however, such as changes in the Town's properly tax base and the condition of the Town's buildings, roads, drainage and other assets to assess the overall health of the Town. In the Statement of Net Assets and the Statement of Activities, we divide the Town into two kinds of activities: . Governmental activities - The Town's basic services are reported here, Including: general government support; public safety; public health; transportation; economic assistance and opportunity; culture and recreation and home and community services. Properly taxes, sales taxes, franchise fees, fines, and state and federal grants finance these actiwies. The Town also charges fees to customers to help it cover the cost of certain services it provides. . Component units - The Town includes 7 separate legal entities in Its report (one ferry district, one sanitation district, one mosquito district and four park districts). Although legally separate, these "component units" are Important because the Town is financially accountable for them. Complete financial statements of the individual component units can be obtained from their respective administrative offices (Note A). TOWN OF SOUTHOLD MANAGEMENT'S DISCUSSION AND ANALYSIS December 31, 2005 ReDortina the Town's Most Slanlficant Funds Fund Financial Statements The fund financial statements provide detailed Information about the most significant funds-not the Town as a whole. Some funds are required to be established by State law and by bond covenants. However, the Town establishes many other funds to help it control and manage sources of funding and spending related to specific activities. The Town's basic services are reported in governmental funds, which focus on how money flows into and out of those funds and the balances left at year-end that are available for spending. These funds are reported using an acoounting method called modified accrual acoountlng, which measures cash and all other financial assets that can readily be oonverted to cash. The governmental fund statements provide a detailed short-term view of the Town's general govemment operations and the basic services it provides. Govemmental fund infonnation helps you determine whether there are more or fewer financial resources that can be spent In the near future to finance the Town's programs. We describe the relationship (or differences) between govemmental activities (reported in the Statement of Net Assets and the Statement of Activities) and govemmental funds in a reconclllation that follows these fund financiall!tatements. The Town as Trustee ReoorUna the Town's Fiduclary ResDOnsibillties All of the Town's fiduciary activities are reported In a separate Statement of Fiduciary Net Assets. We exclude these activities from the Town's other financial statements because the Town cannot use these assets to finance its operations. The Town Is responsible for ensuring that the assets reported In these funds are used for their intended purposes. FINANCIAL ANALYSIS OF THE TOWN AS A WHOLE Our analysis below focuses on the net assets and changes in net assets of the Town's govemmental activities. Condensed Statement of Net Assets Govemmental Activities as of December 31,2005 and 2004 Assets Current and other assets Capital assets Total assets liabilities Other lIabllnies Long-term liabilities T otalliabilities Net assets Invested in capital assets, net of related debt Unrestricted Total net assets 2005 2004 $ 26,265,665 $ 25,448,645 90,294,079 81,374,480 116,559,744 106,823,125 16,289,370 14,665,546 14,916,051 15,732,844 31,205,421 30,398,390 81,044,981 4,309,342 $ 85,354,323 $ 71,352,951 5,071,784 76,424,735 -4- . '~..~"-_..~.~~...--~.-,-..,.-----.-..-,---.,..~"- ."._._...;-~---- TOWN OF SOUTHOLD MANAGEMENT'S DISCUSSION AND ANALYSIS December 31, 2005 FINANCIAL ANALYSIS OF THE TOWN AS A WHOLE (continued) Total assets In the Towns as of December 31,2005 were $116.5 million, an increase of $9.7 million. Total liabilities as of December 31, 2005 were $31 million, an increase of approximately $1 million. This results in a net asset balance of $85.3 million, an increase of $8.9 million. Of the Town's net asset balance $81 million were invested in capital assets, net of related debt; while $4.3 mllilon was unrestricted. Changes in Net Assets Governmental Activities for the years ended December 31, 2005 and 2004 2005 2004 Program Revenues Charges for services $ 10,723,686 $ 9,556,554 Operating grants and contributions 859,484 790,169 Capital grants and contributions 3,502,247 915,998 Total Program Revenues 15,085,417 11 ,262,721 General Revenues Real property taxes 20,795,041 19,989,545 Other real property tax items 80,369 72,504 Non-property tax items 628,857 751,210 Interest earnings 766,413 264,223 State aid - unrestricted 2,527,110 2,867,169 Other 709,352 228,738 Total General Revenues 25,507,142 24,173,389 Total Revenues 40,592,559 35,436,110 Program Expenses General government support 6,621,408 7,274,110 Public safety 11,342,991 9,899,209 Public health 43,559 42,551 Transportation 6,627,876 6,297,105 Economic assistance and opportunity 1,208,467 1,225,690 Culture and recreation 356,167 447,119 Home and community services 4,961,051 2,052,178 Interest on debt 501,452 460,838 Total Expenses 31,662,971 27,698,800 Increase in Net Assets $ 8,929,588 $ 7,737,310 -5- -~~,.~ TOWN OF SOUTHOLD MANAGEMENT'S DISCUSSION AND ANAL VSIS December 31, 2005 FINANCIAL ANAL VSIS OF THE TOWN AS A WHOLE (continued) Net Cost of Services Governmental Activities for the year ended December 31,2005 General government support Public safety Public heaRh Transportation Economic assistance and opportunity Culture and recreation Home and community services Interest on debt Total Cost of Services $ 6,621,408 11,342,991 43,559 6,627,876 1,208,467 356,167 4,961,051 501,452 $ 31,662,971 Net Cost of Services $ 6,265,526 10,588,154 33,574 6,426,952 833,388 168,136 (8,239,628) 501,452 $ 16,577,554 The cost of all governmental activities this year was $31.6 million. The net cost of these services, however, after subsidized by program revenues including charges for services and program grants, was $16.5 million. The Town's change in net assets after general revenues of $25.5 million was an increase of $8.9 million. Net Cost of Services Governmental Activities for the year ended December 31, 2005 General government support Pu bllc safety Public health Transportation Economic assistance and opportunity CuRure and recreation Home and community services Interest on debt -6- Total Cost of Services $ 6,621,408 11,342,991 43,559 6,627,876 1,208,467 356,167 4,961,051 501,452 $ 31,882,971 Program Revenues $ 355,882 754,837 9,985 200,924 375,079 188,031 13,200,879 $ 15,085,417 TOWN OF SOUTHOLD MANAGEMENT'S DISCUSSION AND ANALYSIS December 31, 2005 FINANCIAL ANALYSIS OF THE TOWN AS A WHOLE (continued) $14,000.000 Expenses and Program Revenues Governmental Activities $12,000,000 . Expenses . Program Revenues $10,000,000 $8.000.000 58.000.000 $4,000.000 $2,000.000 s- Iio<N and .......... -- _on - PubIk: ufIly PUblic heell11 TIBnsporI8IIon EconomIc ..- ... - CUI'" and .......... ....- _m.... ...- Revenue by Source Governmental AclMtles For the year ended December 31. 2005 ~ ...... and ............. 11% """"""" ...... and - 2% $ 20.795,041 2.527,110 10,723,686 2,184,991 859,484 3,502,247 $ 40,592,559 Olher - ........ "" Real property taxes State aid - unrestricted Charges for services Other general revenues Operating grants and contributions Capital grants and contributions SIaIe old - _7_ TOWN OF SOUTHOLD MANAGEMENT'S DISCUSSION AND ANAlYSIS December 31, 2005 FINANCIAL ANALYSIS OF THE TOWN AS A WHOLE (continued) THE TOWN'S FUNDS The general fund balance has decreased by approximately $600,000 due primarily to actual expenditures in excess of revenues. Although there was a decrease in fund balance, this decrease was less than amounts budgeted. The following schedule presents a summary of the governmental fund - (general, special revenue, and capital projects) revenues and expenditures for the year ended December 31, 2005, and the amount of change and percentage of total in relation to the prior year. Increase % 2005 2004 (Decrease) Change KI=.VI=.NUI=.S Real property taxes $ 20,795,041 $ 19,989,545 $ 805,496 3.9% Other real property tax items 80,369 72,504 7,865 9.8% Non-property tax items 628,857 751,210 (122,353) -19.5% Departmental income 2,850,836 2,861,801 (10,965) -0.4% Intergovernmental charges 7,453,845 6,342,748 1,111,097 14.9% Use of money and property 906,664 407,338 499,326 55.1% licenses and permits 426,269 419,247 7,022 1.6% Fines and forfeitures 140,192 107,315 32,8n 23.5% Sale of property and compensation for loss 205,223 484,106 (278,883) -135.9% Miscellaneous local sources 1,292,371 294,522 997,849 n.2% State aid 3,946,391 3,825,015 121,376 3.1% Federal aid 1,909,023 326,705 1,582,318 82.9% Total Governmental Fund Revenues $ 40,635,081 $ 35,882,056 $ 4,753,025 11.7% EXPENDITURES General government support $ 4,741,463 $ 4,488,085 $ 253,378 5.3% Public safety 7,984,619 6,993,563 991,056 12.4% Public health 40,152 39,952 200 0.5% Transportation 3,360,645 3,039,987 320,658 9.5% Economic assistance and opportunity 901,139 931,566 (30,427) -3.4% Culture and recreation 3,457,407 3,567,350 (109,943) -3.2% Home and community services 315,273 304,071 11,202 3.6% Employee benefits 6,803,164 5,654,256 1,148,908 16.9% Capital 12,788,366 8,756,057 4,032,309 31.5% Debt service principal and interest 2,439,675 2,215,224 224,451 9.2% Total Governmental Fund Expenditures $ 42,831,903 $ 35,990,111 $ 6,841,792 16.0% GENERAl FUND BUDGETARY HIGHLIGHTS Over the course of the year the Town Board revises the budget as needed so that expenditures do not exceed appropriations. In all Town funds, various transfers between appropriations were approved for this purpose. TOWN OF SOUTHOLD MANAGEMENT'S DISCUSSION AND ANALYSIS December31,2OO5 CAPITAL ASSET AND DEBT ADMINISTRATION Caoltal Assets As of December 31, 2005 the Town had $90.3 million in net capital assets including land, buildings, improvements, machinery and equipment, and infrastructure. The Town's component units had $8 million in net capital assets including land, buildings, Improvements, machinery and equipment, and sewer mains. Capital Assets at December 31, Primary Clovemment 2005 2004 Land $ 47,772,278 $ 37,795,087 Construction in progress 1,608,081 398,912 Buildings 4,574,513 4,569,296 Improvements other than buildings 13,498,954 13,469,136 Machinery and equipment 9,522,815 8,686,593 Infrastructure 70,038,525 69,334,187 Totalcapilalassets 147,015,166 134,253,211 Less accumulated depreciation 56,721,087 52,878,731 Primary government - Total net capital assets $ 90,294,079 $ 81,374,480 Comoonent units Land $ 2,213,759 $ 2,213,759 Buildings 3,540,111 3,416,944 Improvements other than buildings 2,575,589 2,575,589 Machinery and equipment 3,200,728 3,170,695 Infrastructure 2,138,386 2,121,386 Total capital assets 13,668,573 13,498,373 Less accumulated depreciation 5,639,830 5,236,652 Component units - Total net capital assets $ 8,028,743 $ 8,261,721 -9- TOWN OF SOUTH OLD MANAGEMENT'S DISCUSSION AND ANAl VSIS December 31, 2005 CAPITAL ASSET AND DEBT ADMINISTRATION (continued) CaDital Assets (continued) The capital program is a long range financing guide and not a definitive plan. Each appropriation must be authorized by Town Board resolution before being undertaken. Each may be financed by issuance of general obligation bonds, which, at times, are preceded by issuance of bond anticipation notes for various periods of time depending on the probable usefulness of the purpose of expenditure. The following sets forth a summary of the Town's capital program. (Dollars In thousands): Eauioment General Fund Highway Fund Special Districts Total Equipment $ 2006 345,900 2,500 20.000 368.400 $ ImDrovements T otallmprovements $ 440,130 800.000 $ 1.240.130 S 1 608 530 General Fund Special Districts Total Program Additional information on the Town's capital assets can be found in Note C.3 to the financial statements. Debt Administration The Town of Southold's credit rating from Moody's Investors Services was upgraded to A 1 from A2 in February 2005. Debt Umit - The Town has the power to contract indebtedness for any Town purpose so long as the principal amount thereof, subject to certaIn limited exceptions, shall not exceed seven percent of the average full valuation of taxable real estate of the Town, and subject to certain enumerated exclusions and deductions such as water and certain sewer facilities and cash or appropriations for current debt service. The constitutional method for determining full valuation is calculated by taking the assessed valuation of taxable real estate as shown upon the latest completed assessment roll and dividing the same by the equalization rate as delermined by the State Board of Equalization and Assessment. The State Legislature is required to prescribe the manner by which such ratio shall be determined. Average full valuation is determined by taking the sum of the full valuation of the last completed assessment roll and the four preceding assessment rolls and dMding such sum by five. Percentage of debt contracting power exhausted at December 31, 2005 was 2.16%. Al December 31, 2005, the Town had approximately $9.2 million in long term general obligation bonds outstanding, of which $9 million was for general Town purposes. Also outstanding at year-end were bond anticipation notes in the amount of $8.8 million of which $6 million was for general Town purposes. Additional information on the Town's debt activity can be found in Note C.4 to the financial statements. -10- TOWN OF SOUTHOLD MANAGEMENT'S DISCUSSION AND ANALYSIS December 31,2005 ECONOMIC FACTORS AND NEXT YEAR'S BUDGETS AND RATES ProperlY Tax The Town has adopted a budget for the 2006 fiscal year which factors in inflation and other adjustments to revenues and expenditures as well as prior year positive and negative fund balances. The 2006 budget includes an overall increase in real property tax revenues from the prior year of approximately 3.9% for the general Town governmental activities. State Aid and Local Assistance The Town receives financial assistance from New York Stale and from Suffolk County. During 2005, financial assistance included state aid consisting of mortgage tax of $2.5 mUlion, consolidated highway aid of $188 thousand, and community preservation aid of approximately $1 million. State aid per capita was $75.3 thousc:.nd and County local government assistance was $211.7 thousand. Additionally, if the State should not adopt its budget In a timely manner, municipalities and school districts In the State, InCluding the Town, may be affected by a delay in the payment of state aid. The Stale is not constitutionally obligated to maintain or continue state aid to the Town. The Town's 2006 budget included similar amounts for this financial assistance. Retirement SYStem The New York State Employees Retirement System, having suffered some adverse effects of the weak stock market conditions, was expected to require payments In excess of amounts the State had originally anticipated for the year ended 2005. When establishing the 2005 budget, the Town had anticipated these excess payments. However, due to a change In the billing cycle, the State was able to hold the contribution rates to those the State had originally anticipated. The Town subsequentiy re-appropriated the budgeted but unexpended excess payment In the 2005 budget. The Stale's new billing cycle will require a minimum contribution rate of 4.5%. Employer contribution for subsequent years will be based on the Russell 3000 performance as of April 1 of the preceding two years. In 2003 the Town of Southold adopted the New York State Early Retirement Incentive Program as authorized by Chapter 69 of the Laws of 2002. The option to retire early ran through December 31, 2002. The eligibility . varied based on tier, age and years of service, but all options required that the employees be at least fifty (50) years of age and being vested in the New York State Retirement System. As part of Its contractual agreements with the unions, the Town of Southold also offers fully paid health insurance benefits (but not welfare benefits) for the retiree and their present spouse until death of the retiree. CONTACTING THE TOWN'S FINANCIAL MANAGEMENT This financial report is designed to provide our citizens, taxpayers, customers, and creditors with a general overview of the Town's finances and to show the Town's accountability for the money it receives. If you have questions about this report or need additional financial information, contact the Town of Southold, Office of the Town Comptroller, Southold, New York. BASIC FINANCIAL STATEMENTS TOWN OF SOUTHOLD GOVERNMENT-WIDE FINANCIAL STATEMENTS STATEMENT OF NET ASSETS December 31, 2005 Primary Governmental Component Activities Units ASSETS Current Assets: Cash and investments $ 20,968,117 $ 1,250,827 Accounts receivable, net of allowances 236,215 3,561 Due from fiduciary funds 68 Due from other governments 2,631,939 Due from primary government 949,145 State and federal aid receivables 1,127,523 48,767 Prepaid charges 1,130,599 45,140 Inventory of material and supplies 1,204 Total Current Assets 26,095,665 2,297,440 Non-Current Assets: Defemed charges, net of accumulated amortization 170,000 Non-depreciable capital assets 49,380,359 15,284,596 Depreciable capital assets, net of depreciation 40,913,720 5,918,714 Total Non-Current Assets 90,464,079 21,203,310 Total Assets 116,559,744 23,500,750 LIABILITIES Current Liabilities: Accounts payable and accrued liabilities 1,344,864 442,802 Accrued interest payable 227,617 63,941 Bond anticipation notes payable 8,875,000 2,845,000 Due to other governments 393,570 2,271 Due to fiduciary funds 7,044 Unearned revenue 4,402,014 392,414 Other liabilities Non-<:urrent liabilities due within one year General obligation bonds payable 755,000 195,000 Due to Employees Retirement System 45,189 Claims and judgments payable 220,000 Estimated liability for landfill closure and postclosure care costs 19,072 Total Current Liabilities 16,289,370 3,941,428 Non-Current Liabilities: General obligation bonds payable 8,494,098 2,855,000 Due to Employees Retirement System 48,804 Compensated absences 5,779,826 Estimated liabUity for landfdl closure and postclosure care costs 593,323 Total Non-Current Liabilities 14,916,051 2,855,000 Total Liabilities 31,205,421 6,796,428 NET ASSETS Investment in capital assets, net of related debt 81,044,981 14,093,268 Unrestricted 4,309,342 2,611,054 Total Net Assets $ 85,354,323 $ 16,704,322 See notes to the financial statements -12- TOWN OF SOUTHOLD GOVERNMENT-WIDE FINANClAl.. STATEMENTS STATEMENT OF ACTIVITIES Year ended December 31, 2005 Net Expen&e8 (Revenues) and Program Revenues Change In Net Assets Operating Capltal Charges for Grants and Grants and Primary Component FunctionIProgram Expenses Senrice8 ConbibutJons Contributions Govemment Units PRIMARV GOVERNMENT Government ActIvities.: General govemment support $ 6,621,408 $ 204,757 $ 151,125 $ 6,265,526 Public safety 11.342,991 539,891 214,946 10.588.154 Publlc health 43,659 9,985 33,574 Transportation 6,627,876 12,n7 $ 168,147 6,426,952 Economic assistance and opportunity 1,208,467 174,830 200,249 833,388 Culture and recreation 356,167 188,031 168,136 Home and community services 4,961.051 9,603,400 283,179 3,314,100 (8.239..28) Interest on debt 501,452 501,452 Total Primary Govemment- $ 31,662,971 $ 10,723,686 $ 659.484 $ 3,602.247 $ 16,5n,554 COMPONENT UNITS General goverrment SLqlOrt $ 80,610 $ 80,610 Public health 60,371 60,371 Transportation 2,532,192 $ 1,884,374 $ 1.983,139 (1,335.321) Culture and recreation 814,501 814,501 Home and community services 495,832 47,644 448,188 Interest on debt 1 02,579 102,579 Total Component Units $ 4,086,085 $ 1 ,932,018 $ 1,983,139 $ 170,928 GENERAL REVENUES Real property taxes $ 20,795,041 $ 1,960,880 Other real property tax Items 80,369 586 Non-property tax Items 628,857 18,449 Interesteamlngs 766,413 68.883 State aid 2,527,110 884 Olhe, 709,352 40,296 Total Genecal Revenues 25,507.142 2.089.738 Change In Net Assets 8.929,688 1,918,810 "'t Assets M Beginning of Vear 76,424,735 14,786,512 Net Assets at End of Year $ 85,354,323 $ 16.704.322 See notes k> the financial statements. -13- TOWN OF SOUTHOLD BALANCE SHEET GOVERNMENTAL FUNDS December 31, 2005 MAJOR FUNDS Non-Major Capital Governmental General Highway Projects Funds Totals ASSETS Cash and investments $ 9,292,437 $ 1,022,924 $ 9,406,620 $ 1,246,136 $ 20,968,117 Accounts receivable, net of allowance 24,533 8,190 30,500 172,992 236,215 Due from other funds 176,390 828,984 251,100 733,039 1,989,513 Due from trust funds 68 68 StaIB and federal aid receivable 81,849 43,424 1,002,250 1,127,523 Due from other governments 1,867,136 759,803 5,000 2,631,939 Supply Inventory 1,204 1,204 Prepaids 498,344 56,947 54,024 609,315 Tolal Assets $ 11,941,961 $ 1,960,469 $ 11,450,273 $ 2,211,191 $ 27,563,894 UABIUTIES AND FUND BALANCES LlABlLmES Accounts payable $ 627,049 $ 72,436 $ 337,613 $ 227,184 $ 1,284,282 Retained percentages 80,580 80,580 Bond anticlpation notes payable 8,875,000 8,875,000 Due to other funds 1,888,241 73,598 27,674 1,989,513 Due to trust funds 7,044 7,044 Due to other governments 393,570 393,570 Deferred revenue 3,018,595 831,185 552,234 4,402,014 Tolal Uabilit1es 5,934,499 903,621 9,366,791 807,092 17,012,003 FUND BAlANCE Fund Balances - reserved: Encumbrances 4,009 4,009 Supply inventory 1,204 1,204 Prepaids 498,344 26,686 525,030 Insurance claims 1,105,879 1,105,879 Fund Balance - unreserved: 16,000 16,000 DesignalBd - ensuing yaa~s budget 2,657,200 339,900 348,596 3,345,696 UndesignalBd 1,740,826 700,946 2,083,482 1,028,817 5,554,073 Tolal Fund Equity 6,007,462 1,056,848 2,083,482 1 ,404,099 10,551,891 Total Liabilities and Fund Equity $ 11,941,961 $ 1,960,469 $ 11,450,273 $ 2,211,191 $ 27,563,894 See notes to the financial statements. .. ~~~------"--"~-~'-'---- TOWN OF SOUTHOLD RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET ASSETS December 31,2005 Total Fund Balances - Governmental Funds $ 10,551,891 Amounts reported for governmental activities in the Statement of Net Assets are different because: Capital assets less accumulated depreciation are included In the Statement of Net Assets: Capital assets - non-depreciable $49,380,359 Capital assets - depreciable 97,634,807 Accumulated depreciation (56,721,087) 90.294,079 Other long-term assets are not available to pay for current-period expenditures and, therefore, are deferred in the funds Long-term liabilities applicable to the Town's governmental activities are not due and payable in the current period and accordingly are not reported in the funds. However these liabilities are included in the Statement of Net Assets: General obligation bonds payable (9.249.098) Due to Employees Retirement System (93.993) Compensated absences (5,779,826) Claims and judgments payable (220,000) Estimated liability for landfill closure and postclosure care costs (612,395) (15,955,312) Prepaid items included in the Statement of Net Assets 521,282 Deferred charges included in the Statement of Net Assets 170,000 Interest payable applicable to the Town's governmental activities are not due and payable in the current period and accordingly are not reported in the fu nds. However these liabilities are included in the Statement of Net Assets. (227,617) Net Assets of Governmental Activities $ 85,354,323 See notes to the financial statements. -15- TOWN OF SOUlllOLD STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS For the year ended December 31, 2005 MAJOR GOVERNMENTAL FUNDS Non-Major Capital Governmental General Highway Proiects Funds Totals REVENUES Real property taxes $14,608,674 $3,605,032 $2,381,335 $ 20,795,041 Other real property tax Items 68,807 9,046 2,516 80,369 Non-property tax fiems 415,071 213,786 628,857 Departmental Income 345,956 2,504,880 2,850,636 Intergovernmental charges 252,558 $ 7,200,274 1,013 7,453,845 Use 01 mcney and property 489,796 77,817 274,959 64,092 906,664 Ucenses and permits 249,178 11,126 165,965 426,269 Fines and forfeitures 140,192 140,192 Sale of property and compensation for loss 93,290 2,796 109,137 205,223 Miscellaneous local sources 432,269 155,054 551,457 153,591 1,292,371 State aid 2,637,870 188,147 1,045,000 75,374 3,946,391 Federal aid 174,348 1,510,539 224,136 1,909,023 Total Revenues 19,908,009 4,249,018 10,582,229 5,895,825 40,635,081 EXPENDITURES Cment General government support 4,641,568 99,895 4,741,463 Public salely 7,ln,145 807,474 7,984,619 Public heafih 33,288 6,864 40,152 Transportation 446,8n 2,913,768 3,360,645 Economic assistance and opportunny 901,139 901,139 Home and community services 354,768 3,102,639 3,457,407 Cunure and recreation 315,273 315,273 Employee benefits 5,857,963 500,343 444,858 6,803, 164 Capital outlay 12,788,366 12,788,366 Principal and interest 1,560,055 178,371 29,529 671,720 2,439,675 Bond Issuance costs 70,075 70,075 Advanced refunding escrow 112,758 112,758 Total Expenditures 21,288,076 3,592,482 13,000,728 5.133,450 43,014.736 Excess (Deficiency) 01 Revenues Over Expenditures (1,380,067) 656,536 (2,418,499) 762,375 (2,379,655) Other Financing Sources (Uses) Proceeds 01 refunding bonds 2,380,000 2,380,000 Payments to refunded bond escrow agents (2,210,000) (2,210,000) Premium on special assessment debt 12,833 12,833 BANs redeemed from appropriations 1,065,095 1,065,095 Transfers in 2,642,859 276,969 2,919,828 Transfers out (1,895,023) (520,085) (504,720) (2,919,828) Total Other Financing So..-ces (Uses) 747,836 (520,085) 1,524,897 (504,720) 1,247,928 Excess (Deficiency) of Revenues and Other Sources Over Expenditures and Other Uses (632,231) 136,451 (893,602) 257,655 (1,131,727) Fund Balance at Beginning 01 Year 6,639,693 920,397 2,9n ,084 1,146,444 11,683,618 Fund Balances at End of Year $ 6,007,462 $1,056,848 $ 2,063,482 $1,404,099 $ 10,551,891 See notes to the financial statements. -16- TOWN OF SOUTHOLD RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES For the year ended December 31, 2005 Net Change in Fund Balance $ (1,131,727) Govemmental funds report capital outlays as expenditures. However, in the Statement of Activities the cost of those assets is allocated over their estimated useful lives and reported as depreciation expense. The amount by which capital outlay exceeds depreciation in the current period is: Capital outlay Depreciation expense loss on dispositions $13,205,174 (4,082,748) (202,828) 8,919,598 Some 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: Prepaid charges Deferred charges (53,286) 170,000 The issuance of long-term debt and increase in obligations under capital leases provides current financial resources to governmental funds, while the repayment of the principal of long term debt and capilalleases consumes the current financial resources of governmental funds. Neither transaction has any effect on net assets. Bonds issued Repayment of bond principal Due to Employees Retirement System Compensated absences Claims and judgments payable Estimated liability for landfill closure and postclosure care costs Accrued Interest payable (2,380,000) 3,162,431 41,841 (117,468) 378,630 18,872 (79,303) Change in Net Assets of Govemmental Activities $ 8,929,588 See notes to the financial statements. -17- TOWN OF SOUTHOLD STATEMENT OF FIDUCIARY NET ASSETS December 31, 2005 Fishers Island Town Ferry District Totals ASSETS Cash and investments $ 14,898,809 $ 43,462 $14,942,271 Other receiva bles 17 40,638 40,655 Due from other funds 7,044 7,044 Total Assets $ 14,905,870 $ 84,100 $14,989,970 LIABILITIES Due to other funds $ 68 $ 38,829 $ 38,897 Due to school districts 11,675,920 11,675,920 Due to component units 517,902 517,902 Due to other governments 1,664,259 1,664.259 Other liabilities 8,881 8,881 Deposits held 1,038,840 45,271 1,084,111 Total Liabilities $ 14,905,870 $ 84.100 $14,989,970 See notes to the financial statements. -18- TOWN OF SOUTHOLD NOTES TO FINANCIAL STATEMENTS December 31, 2005 A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Town of Southald (the "Town"), which was established in 1640, is governed by Town Law and other general laws of the State of New York and various local laws. The Town Board is the legislative body responsible for overall operations. The Town Board consists of the Supervisor who is elected for a term of two years and five council members who are elected forlerms of four years. The Town Board appoints the Town Attorney, Comptroller and the Commissioner of Public Works whose terms are fixed by Town Law. The Town Clerk, Receiver of Taxes, Superintendent of Highways, Justices and Town Trustees are all elected and serve for four years, respectively. The Town provides a full range of municipal seNices, including public safety, transportation, home and community services, public works and road maintenance, recreation and parks, and general and administrative services. The financial statements of the Town of Southold have been prepared in conformity with accounting principles generaRy accepted in the United Stales of America (GAAP) as applied to governmental units. The Govemmental Accounting Standards Board (GASB) is the accepted standard setting body for establishing govemmental accounting and financial reporting principles. The more significant of the govemmenfs accounting policies are described below. 1. REPORTING ENTITY The financial reporting entity consists of: (a) the primary govemment, which is the TO'M1 of Southold; (b) organizations for which the primary govemment is financially accountable; and (c) other organizations for which the nature and significance of their relationship with the primary govemment are such that exclusion would cause the reporting entity's financial statements to be misleading or incomplete as set forth in GASB Statement No. 14. The decision to include a potentlaJ component unit in the Town of Southold reporting entity is based on several criteria set forth in GASB Statement No. 14 including legal standing, dependency and financial accountability. Based on the application of these criteria, the following is a summary of certain entities considered In determIning the Town of Southold's reporting entity. Certain special districts of the Town of Southald provide sanitation, ferry, and park services to residents and businesses within the districts. These special districts are organized under New York State Town law and have separately elecled boards. Special dlstricts cannot issue bonded debt without the approval and the backing of the full faith and credit of the Town. Tax levies of the special districts are collected by the Town Receiver of Taxes. As a result of this fiscal dependency, the Town Is financially accountable for these special districts. Accordingly, these special districts have been determined to be component units of the Town and are presented discretely i1 a separate column in the combined financial statements to emphasize that they are legally separate from the primary govemment 2. BASIS OF PRESENTATION The Town's basic financial statements include both govemment-wide (reporting the Town as a whole) and fund financial statements (reporting the Town's major funds). Govemment-wlde FInancial Statements The govemment-wlde financial statements reports Information on the Town as a whole, except fiduciary activities, with separate columns for the primary governmental activities as well as the discretely presented component units. In the govemment-wide Statement of Net Assets, the Town's govemmental activities are presented on a consolidated basis and are reported on a full accrual, economic resource basis, which recognizes all long-term assets and receivables as well as long-term debt and obligatia1s. The Towll's net assets are reported in three parts-investments in capital assets, net of related debt; restricted net assets; and unrestricted net assets. - 19- TOWN OF SOUTHOLD NOTES TO FINANCIAL STATEMENTS December 31, 2005 A. SUMMARY OF SIGNIFICANT ACCOUNTING POUCIES (continued) 2. BASIS OF PRESENTATION (continued) The government-wide Statement of Activities reports both the gross and net cost of each of the Town's functional categories (public safety, transportation, home and community services, etc.), which are otherwise supported by general government revenues (property, sales and use taxes, certain intergovernmental revenues, fines, pennlts and charges, etc.). The Statement of Activities reduces gross expenses (including depreciation), by related program revenues and operating and capital grants, to produce the net cost of each program. Program revenues include (a) charges for services and (b) operating and capital grants and contributions that are directly associated with the function. Operating grants Include operating-specific and discretionary (either operating or capital) grants while the capital grants column reflects capital- specific grants. The net costs (by function) are normally covered by general revenue (property, taxes, intergovernmental revenues, interest Income, ete). As a general rule the effect of interfund activity has been eliminated in general purpose financial statements. This government-wide focus Is more on the sustainability of the Town as an entity and the change in the Town's net assets resu~ing from the current year's activities. Fund Financial Statements The fund financial statements are similar to the financial statements presented in the previous model. The new ernphasis is on the major funds in the fund financial statements. Non-major funds are summarized Into a single column. The accounts of the Town are organized on the basis of funds, each' of which is considered a separate accounting entlty. The operations of each fund are accounted li:lrwlth a separate set of self-balancing accounts that comprise its assets, liabnitles, fund balances, revenues, and expenditures, which are segregated for the purpose of canying on speclftc activities or attaining certain objectives In accordance with special reguiatlons, restrictions or Umitatlons. The various funds are presented by type In the fund financial slatements. Accordingly, the Town maintains the following fund types: Governmental Funds - Governmental funds are those through which most govemmental functions are finanoed. The acquisitlon, use and balances of expendable financial resources and the related liabilities are accounted for through governmental funds. The measurement focus of the governmental funds is upon delennination of financial position and changes In financial position. Governmental funds are further classified as major and non-major funds. The Town reports the following major governmental funds: General Fund - is the principal operating fund of the Town. This fund is used to account for all financial resources except those required to be accounted li:lr In other funds. Hiahwav Funds - to maintain and operate highways. CaDital Projects Fund - used to account for financial resources to be used for the acquisition or constructlon of major capital facilities (other than those financed by special assessment funds and trust funds). -20 - TOWN OF SOUTHOLD NOTES TO FINANCIAL STATEMENTS December 31, 2005 A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 2. BASIS OF PRESENTATION (continued) Fund Financial Statements (continued) Additionally, the Town reports the following non-major funds: Special Revenue Funds - are used to account for the proceeds of speclfic revenue sources (other than major capital projects) that are legally restricted to expendnures for specified purposes. Special Revenue Funds Indude the following: General Fund Part Town - to provide general services outside the Village of Greenport. SDedal Grant Fund - segregate and account for projects funded by Communny Development revenue. SDecial District Funds - to provide special services to areas that encompass less than the whole town. Fiduciary Funds - Fiduciary Funds are used to account for assets held by the Town in a trustee or custodial capadty. Agency Fund - is for money (and/or properly) received and held in the capacity of trustee, custodian or agent Discretely Presented Component Units Certain special districts that have separately elected boards provide transportation, pari<, mosquito control, and sanitation services to residents and businesses wnhin these dislricts, and follow govemment fund accounting ptindples. These districts, which are accounted for as discretely presented component unns, are as follows: The Fishers Island Ferry District, established in 1947 Orient Mosquito District, established in 1916 Fishers Island Garbage and Refuse District, established in 1952 Cutchogue-New Suffolk Pari< District, established in 1953 Orient-East Marion Pari< District, established In 1969 South old Pari< District, established In 1907 Mattlluck Pari< District, established In 1941 Complete financial statements of these component units can be obtained from their respective administrative offices: Orient Mosquito District 145 Platt Road Orient, NY 11957 Cutchogue-New Suffolk Pari< District P.O. Box 311 Cutchogue, NY 11935 Southald Pari< District P.O. Box 959 Southold, NY 11971 Fishers Island Ferry District P.O. Box 1179 Southold. NY 11971 Fishers Island Garbage & Refuse District Fishers Island, NY 06390 Orient-East Marion Pari< District P.O. Box 12 Orient, NY 11957 Mattltuck Park District P.O. Box 1413 Mattituck, NY 11952 - 21 - TOWN OF SOUTH OLD NOTES TO FINANCIAL STATEMENTS December 31,2005 A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 3. BASIS OF ACCOUN11NGIMEASUREMENT FOCUS Measurement focus refers to what is being measured whereas the basis of accounting refers to when revenues and expenditures are recognized In the accounts and reported In the financial statements. Basis of accounting relates to the timing of the measurement made, regardless of the measurement focus applied. In the government-wide statements, governmental activities are presented using the economic resources measurement focus and are presented using the accrual basis of accounting. Under the accrual basis of accounting, revenues are recognized when earned and expenses are recorded when the liability Is incurred or economic asset used. Revenues, expenses, gains, losses, assets, and liabilities resulting from exchange and exchange-like transactions are recognized when the exchange takes place. In the funds statements, governmental funds use a current financial resources measurement foaJs and are accounted for using the modified accrual basis of accounting. Under the modified accrual basis of accounting, revenues are recognized when susceptible to accrual (measurable and available to finance current operations). "Measurable" means the amount of the transaction can be determined and "available" means collectible within the current period or soon enough thereafter to pay liabilities of the current period. The Town considers an revenues available if they are collected within 60 days after the year end. Revenues susceptible to accrual Include SUffolk County local assistance at year end on behalf of the Town, franchise fees, and charges for services, intergovernmental revenues and operating transfers. Permits, fees, and other similar revenues are not suscepbble to accrual because generally they are not measurable until they are received in cash. In those instances where expenditures are the prime factor in determining eligibility for state and federal grants, revenues are recognized when the expenditure Is inaJrred. In the Capital Projects Fund, long-term debt is recognized as revenue upon receipt of the proceeds. Expenditures are recorded on the accrual basis except that (a) expenditures for prepaid expenses are recognized when Incurred; (b) principal and interest on Indebtedness are recognized as expenditures when due; (c) compensated absences, such as vacation and sick leave, which vest or aCaJmulate, are charged as expenditures when paid. EnaJmbrance accounting, under which purchase orders, contracts and other commitments are recorded for budgetary control purposes in. order to reserve that portion of the applicable appropriation, is employed In the govemmental funds. Appropriations for all govemmental funds except the capital projects fund lapse at year-end. However, encumbrances reserved against fund balances are re-appropriated in the ensuing year. EnaJmbrances are reported as reservations of fund balances since they do not constitute expenditures or liabilities. Expenditures for such commitments are recorded in the period in which the liability is inaJrred. 4. ASSETS, lIABILl11ES AND FUND EQUITY RECEIVABLES Receivables include amounts due from Federal, State, and other governments or entities for services provided by the Town. Receivables are recorded and revenues recognized as earned or as specific program expenditures are incurred. INVENTORY. MATERIALS AND SUPPLIES Inventory in the general and special revenue funds is valued at cost Inventory In these funds is accounted for under the consumption method. --'-'-'~"'.~.-'-.""""'-"~-- TOWN OF SOUTH OLD NOTES TO FINANCIAL STATEMENTS December 31, 2005 A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 4. ASSETS, LIABILITIES AND FUND EQUITY (continued) CAPITAL ASSETS Capital assets purchased or acquired with an original cost of $5,000 or more are reported at historical cost or estimated historical cost Contributed assets are reported at fair market value as of the date received. Additions, Improvements and other capital outlays that significantly extend the useful life of an asset are capitalized. Other costs incurred for repairs and maintenance are expensed as incurred. Depreciation on all assets is provided on the straight- line basis over the following estimated useful lives: Buildings Improvements and other Machinery and equipment Infrastructure 10-40 years 20 years 5-10 years 20-30 years Infrastructure assets, consisting of certain improvements other than buildings including roads, curbs, sidewalks, bridges, street lighting are capitalized along with other capital assets. In the fund financial statements, capital assets are recorded as capital outlay expenditures In the governmental fund upon acquisition. DEFERRED REVENUElUNEARNED INCOME Deferred revenues/uneamed income are those where asset recognition criteria have been met, but which revenue recognition criteria have not been mel Such amounts Include coIleclions In advance, unearned income and amounts that have been deemed to be .measurable. but not .available. to finance current expenses pursuant to generally accepted accounting princlples. PREPAlDS Prepaids record payments to venders that benefit future recording periods and are reported on the consumption basis. Prepalds in the General and Special Revenue Funds represent insurance premiums paid for coverage that will benefilthe subsequent period and for retirement benefits that will benefit a future period. LONG-TERM OBLIGATIONS The liabililles for long-term obligations consisting of general obligation bonds, compensated absences, due to employee retirement system, judgments, claims and liabilitY for landfill closure and post closure costs are recognized in 1he govemment-wlde financial statements. In the fund statements, long-term obligations are not reported as liabilities. The debt proceeds are reported as other financing sources and payment of principal and Interest reported as expenditures. 5. REVENUES AND EXPENDITURES REAL PROPERTY TAX ASSESSMENT AND COLLECTION PROCEDURES In Suffolk County, the assessment and lien of real property for taxation Is done by the County Department of Assessment. Real property taxes become a lien on December 1 for both school and general taxes. The Town's assessment rolls are used for the levy of real property taxes by the Town and the School Disbicts, as well as by the County and by Special Disbicts of the County and the Town. -23- TOWN OF SOUTHOLD NOTES TO FINANCIAL STATEMENTS December 31, 2005 A. SUMMARY OF SIGNIFICANT ACCOUNTING POUCIES (continued) 5. REVENUES AND EXPENDITURES (continued) REAL PROPERTY TAX ASSESSMENT AND COLLECTION PROCEDURES (continued) The Town of Southold Receiver of Taxes collecfs all real property taxes for the Town, Suffolk County, Town Special Districts and School Districts. These taxes are levied on December 1, and are due in two Installments, 50% on December 1 and 50% on May 10, payable without penalty III January 10 and May 31, respectively. Penalties are imposed thereafter at the rate of one-tweIflh of the rate of interest determined by the State Commissioner of Taxation and FInance, aller which taxes are payable to the County Treasurer. The Town retains the total amount of Town, Highway and Town Special Districts levies from the amount collected, and fOlWBrds the balance collected to the County which assumes collection responsibility. The Town and Town's Special Districts therefore realize annually the 100% collection of real property taxes. School District property taxes are also levied on December 1, and are also payable In two installments. School property taxes are due in two Installments, 50% on December 1 and 50% on May 10 payable without penalty to January 10 and May 31, respectively. The County is also responsible for uncollected school taxes. INTERFUND TRANSACTIONS Interfund transactions have been eliminated from the govemment-wide financial statements. In the funds statements interfund transactions Include: a) Interfund Revenues Interfund revenues, quasl-external transactions, in the general fund represent amounts charged for services or facillties provided by the general fund. The amounts paid by the fund receiving the benefit of the service or facilities are reflected as an expenditure of that fund. b) Transfers Transfers represent payments to the debt service, general fund and capital projecfs funds from the other funds for their appropriate share of the debt service, general fund or capital project costs. COMPENSATED ABSENCES The liability for vested or accumulated vacation or sick leave (compensated absences) is recorded as current and noncurrent obligations in the govemment-wlde statements. The current portion of thIs debt Is estimated based on historical trends. In the fund financial statements only the compensated absence liability payable from expendable available financial resources is incurred. The amount that is expected III be liquidated with expendable available financial resources is reported as expendttures and a rJability in the funds statement in the respective fund that will pay it 6. EQUITY CLASSIFICATIONS In the govemment-wide statements, equity is classified as net assets and displayed in three components: a) Invested in capital assets, net of related debt - consists of capital assets including restricted capItal assets, net of accumulated depreciation and neduced by the outstanding balances of any bonds, notes, or other borrowings that are attributable to the acquisition, construction, or improvement of those assets. -24 - --......- TOWN OF SOUTHOLD NOTES TO FINANCIAL STATEMENTS December31,2005 A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 6. EQUITY CLASSIFICATIONS (continued) b) Restricted net assets - consists of net assets with constraints placed on the use etther by (1) external groups such as credttors, grantors, contributors, or laws or regUlations of other governments; or (2) law through constitutional provisions or enabling legislallon. c) Unrestricted net assets - all other net assets that do not meet the definition of "restricted" or "invested in capital assets, net of related debt." In the fund statements, governmental fund equity is classified as fund balance. Fund balance is further classified as reserved and unreserved, with unreserved further split between designated and undesignated. Portions of fund equity are segregated for future use and therefore not available for future appropriation or expenditure. Amounts reserved for encumbrances, inventory, insurance claims and debt service represent portions of fund equity, which are required to be segregated In acoordance with stale law or GAAP. Designations of fund balances In governmental funds Indicate the utilization of these resources in the subsequent year's budget or tentative plans for future use. B. STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY 1. BUDGETARY DATA Budgets are adopted annually on a basis consistent with generally accepted accounting principles. Appropriations authorized for the current year are increased by the amounl of encumbrances carried forward from the prior year. Budgetary controls for special revenue funds are established in accordance with the applicable grant agreement, which may cover a period other than the Town's fiscal year. Appropriate budgetary adjustments have been made to reflect these grant agreements during the Town's fiscal year. The Town follows the procedures enumerated below in establishing the budgetary data reflected in the financial statements: a. No later than October 1, the Supervisor submits a tentative budget to the Town Board for the fiscal year commencing the following fiscal year. The tentative budget includes the proposed means of financing for all funds. b. After public hearings are conducted to obtain taxpayer comments, no later than November 20, the Town Board adopts the budget. c. The Town Board must approve all modifications of the budget. However, the Supervisor is authorized to transfer certain budgeted amounts within departments. In order to show the full legal level of budgetary compliance for the general and certain spec/al revenue funds, detailed indMdual statements of revenues, expendttures and changes in fund balances - budget and actual, are presented in a separate budget report. "" TOWN OF SOUTHOLD NOTES TO FINANCIAL STATEMENTS December 31, 2005 B. STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY (continued) 2. FUND BALANCES DESIGNATION OFFUND BALANCE Portions of the unreselVed balances at December 31, 2005 were designated for the subsequent year's operating budgets as follows: Fund Balance Unreserved and Designated Total for Subsequent Fund Balance Fund Balance Year's Unreserved Fund Unreserved Budget Undesignated Non-Major Funds: Town Outside Village $ 845,309 $ 370,932 $ 474,377 East West Fire Protection District 15,112 4,350 10,762 Southold Wastewater District 176,657 176,657 Fishers Island Sewer District 32,546 32,546 Solid Waste Management District 334,475 334,475 Total $ 1,404,099 $ 375,282 $ 1,028,817 C. DETAILED NOTES ON ALL FUNDS AND ACCOUNT GROUPS 1. CASH AND INVESTMENTS Cash consists of funds deposited in demand aocounts, time deposit accounts and certificates of deposit with maturities of less than three months. The Town's Investments are govemed by a fonnallnvestment policy. The Town's monies must be deposited In FDIC-insured commercial banks or trust companies located within the state. The Town is authorized to use demand accounts and certificates of deposit Pennissible investments include obligations of the U.S. Treasury, U.S. Agencies and investments made by the Cooperative Uquid Asset Security System (CLASS). CLASS Is a cooperative Investment plan consisting of U.S. Treasury Obligations and repurchase agreements relating to treasury obligations. Investments are stated at cost, which approximates market value. CLASS was established as a cooperative Investment anangement organized under the CLASS Municipal Cooperation Agreement made pursuant to New York General Municipal Law, Article 3A and 5-G. It is the Town's policy to require collateral held in the name of the Town for demand deposits, money market deposits and certificates of deposit for all deposits not covered by federal deposit insurance. Obligations that may be pledged as collaleral are obligations of the United Stales and its agencies and obligations of the Slate and ils municipalities and school districts. At December 31,2005 the cash in banks was approximately $37,160,000 and collateral held against cash in banks was $60,410,000 consisting of FDIC insurance and/or securities held in the name of the Town of Southold. -26- TOWN OF SOUTH OLD NOTES TO FINANCIAL STATEMENTS December 31,2005 C. DETAILED NOTES ON ALL FUNDS AND ACCOUNT GROUPS (continued) 2. INTERFUND RECEIVABLES AND PAYABLES Interfund receivables and payables for the primary government at December 31, 2005 were as follows: General Fund - Town wide Highway Fund Capital Projects Fund ParlTown East-West Rre District Southold Wastewater District Rshers Island Sewer District Solid Waste Management District Amount Receivable $ 176,390 $ 828,984 251,100 152,519 92,199 4,752 325 483.244 $ 1989513 $ Amount Pavable 1,888,241 73,598 6,974 20.700 1 989513 Interfund receivable and payable balances for the primary government at December 31, 2005 are expected to be paid currently. 3. CAPITAL ASSETS Primary govemment Capital assets not being depreciated Land Construction in progress Total capital assets not being depreciated Depreciable capital assets Buildings Improvements other than buildings Machinery and equipment Infrastructure T alai depreciable capital assets Less accumulated depreciation Buildings Improvements other than buildings Machinery and equipment Infrastructure Tolal accumulated depreciation $ Total net depreciable capital assets T alai net capital assets Balance 1/1/05 Additions $ 37,795,087 $ 398,912 38,193,999 9,977,191 $ 1,362,656 11,339,847 4,569,296 13,469,136 8,686,593 69,334,187 96,059,212 5,217 29,818 1,125,955 704,338 1,865,328 1,933,832 3,020,775 5,567,555 42,356,569 52,878,731 134,698 521,309 714,211 2,712,530 4,082,748 $ $ -27- Deletions -0- $ 153,487 153,487 289,733 289,733 Balance 12/31105 47,772,278 1,608,081 49,380,359 4,574,513 13,498,954 9,522,815 70,038,525 97,634,807 2,068,530 3,542,084 240,392 6,041,374 45,069,099 240,392 56,721,087 40,913,720 $ 90,294,079 TOWN OF SOUTHOLD NOTES TO FINANCIAL STATEMENTS December 31, 2005 C. DETAILED NOTES ON ALL FUNDS AND ACCOUNT GROUPS (continued) 3. CAPITAL ASSETS (continued) Depreciation expense was charged 10 governmental functions as fonews: General govemment support Public safety Transportation Economic assistance and opportunity Culture and recreation Home and community services $ 231,471 179,200 2,923,649 36,230 61,206 650,992 $ 4,062,748 Balance Balance Discretely presented component units 1/1/05 Additions Deletions 12/31105 CapUaI assets not being depreciated Land $ 2,213,759 $ 2,213,759. Construction in progress 10,592,179 $ 2,598,828 $ 16,440 13,174,567 Total capUaI assets not being depreciated 12,805,938 2,598,828 16,440 15,388,326 Depreciable capUal assets Buildings 3,416,944 123,167 3,540,111 Improvements other than buildings 2,575,589 2,575,589 Machine/}' and equipment 3,170,695 30,033 3,200,728 Infrastructure 2,121,388 17,000 2,138,386 Total depreciable capUaI assets 11,284,614 170,200 11,454,814 Less accumulated depreciation Bundlngs 1,186,077 103,656 1,289,733 Improvements other than buildings 973,574 88,000 1,061;574 Machinery and equipment 2,003,454 129,203 2,132,657 Infrastructure 1,073,547 82,319 1,155,866 Total accumulated depreciation $ 5,236,652 $ 403,178 5,639,830 Total net depreciable capUaI assets 5,814,984 Total net capital assets $ 21,203,310 -28- TOWN OF SOUTHOLD NOTES TO FINANCIAL STATEMENTS December 31,2005 C. DETAILED NOTES ON ALL FUNDS AND ACCOUNT GROUPS (continued) 4. INDEBTEDNESS SHORT TERM DEBT Bond Anticipation Notes (BANs) - Bond anticipation notes (BANs) are used as a temporary means of financing capital expenditures in the capital projects fund. State law requires that BANs issued for capital purposes be converted to long-term obligations within live years after the original issue date. The notes or renewal thereof may not extend more than two years beyond the original date of issue unless a portion Is redeemed within two years and within each 12 month period thereafter. Liabilities for BANs are generally accounted for In the capital projects fund. BANs are expected to be paid from the proceeds of future bond issues after renewal of these notes. These BANs bear Interest at various rates from 2.64% to 3.06% and are due at various dates through 2006. When BANs are not redeemed with the proceeds of bond issues, but instead paid from budgetary appropriations, the principal amount paid is recorded as an expenditure in the operating fund and a financing source is recorded in the capital projects fund. These notes are summarized as follows: Descriotion Various Purposes Various Purposes New London Wharf Fishers Island Garbage Total Amount $ 7,175,000 1,700,000 1,725,000 1.120.000 S 11720000 Interest Rate 2.64% 3.05% 2.75% 3.06% Of the $11,720,000 in bond anticipation notes, $8,875,000 relates to the primary government and the remaining $2,845,000 relates to the component units. LONG TERM DEBT Summary of changes In long-term debt transactions for the year ended December 31, 2005 is as follows: Non-currenl Balance Barance IiabDiliesdue NOlH:Ull1lnt 1/1105 Increases Raducllons 12131105 within ona year Uablllties Primary Govornment General obIigalion bonds $ 10,031,529 $ 2,380,000 $ 3,162,431 $ 9,249,098 $ 755,000 $ 8,494,098 Due 10 Employees Retirement Systel 135.834 41,841 93,993 45,189 48,804 Compensated obsences 5,662,358 860,531 743,063 5,779,826 5,779.828 Claims and judgments 598,630 378,630 220,000 220,000 Estimated HablDly for landfill closure and posl-c1osure care costs 831,287 18,872 612,395 19,072 593.323 Componont Units: General obligation bonds 272.569 3.000,000 222,569 3,060,000 195.000 2,855,000 ~~ TOWN OF SOUTH OLD NOTES TO FINANCIAL STATEMENTS December 31, 2005 C. DETAILED NOTES ON ALL FUNDS AND ACCOUNT GROUPS (continued) 4. INDEBTEDNESS (continued) LONG TERM DEBT (continued) General Obligation Bonds - The Town borrows money in order to acquire land or equipment or construct buildings and Improvements. This enables the cost of these capital assets to be bome by the present and future taxpayers receiving the benefit of the capital assets. These long-term liabilities. which are backed by the full faith and credit of the Town, bear interest at various rates from 2.95% to 6.375% and have maturity dates in 2006 through 2021. Future principal and Interest payments to maturity for both the primary government and the component units are as follows: Year Endlna 2006 2007 2008 2009 2010 2011-2015 2016-2021 Totals Princioal 950,000 979,098 995,000 1,025,000 1,000,000 4,390,000 2.960.000 9i 12299098 9i 2 893 908 $ $ Interest 405,624 376,466 345,307 312,347 277,956 910,394 265.814 Other long-term liabilities for claims and judgments, compensated absences, retirement system and the estimated liability for landfill closure and post closure costs are to be paid by the fund that gave rise to the liability. During the year ended 2005, the Town issued $2,380,000 In general obligation bonds with an Interest rate ranging from 2.50% to 3.75% to advance refund $2,210,000 of outstanding 1993 and 1995 Serial bonds with Interest rates between 5.00% and 5.10%. The net proceeds of $2,392,833 include an original issue premium of $12,833 which were used in part to pay insurance, underwriting fees and administrative costs of $70,075 with the balance deposited in an Irrevocable trust with an escrow agent to provide for all future debt service payments on the various general obligation bonds. As a result, these bonds are considered to be defeased and the liability for those bonds has been removed from the Town. The Towns advance refunded the various general obligation bonds in order to reduce its total debt service payments over the next 10 years by $100,505 and to obtain an economic gain of $66,538 (difference between the present values of the debt service payments on the old and new debt). 5. RETIREMENT SYSTEM Plan Descriotion The Town of Southold participates in the New York State and Local Employees' Retirement System (ERS) and Local Police and Fire Retirement System (PFRS). this Is a cost-sharing multiple- employer retirement system. The System provides retirement benefits as well as death and disability benefits. Obligation of employers and employees to contribute and benefits to employees are govemed by the New York State Retirement and Social Security Law (NYSRSSL). As set forth in the NYSRSSL, the Comptroller of the State of New York (Comptroller) serves as sole trustee and administrative head of the System. The Comptroller shall adopt and may amend rules and regulations for the administration and transaction of the business of the System and for the custody and control of their funds. A publicly avaUable amual report containing financlal statements and requIred supplemental information for the Employees' Retirement System may be obtained by writing to the New York State Retirement System, Governor Smith Slate Building, Albany, NY 12244. - 30- TOWN OF SOUTHOLD NOTES TO FINANCIAL STATEMENTS December 31, 2005 C. DETAILED NOTES ON ALL FUNDS AND ACCOUNT GROUPS (continued) 5. RETIREMENT SYSTEM (continued) Fundino PoliCY The System is noncontributory except for employees who joined the New York State and Local Employees' Retirement System after July 27, 1976 and who have less than ten years of membership and less than ten years of credited service with a retirement system under the provisions of article fourteen or fifteen of the NYSRSSL, who contribute 3% of their salary. Prior to October 1, 2000, all employees who joined the System after July 27, 1976 were required to contribute 3% of their salary. Under the authority of the NYSRSSL, the Comptroller shall certify annually the rates expressed as proportions of payroll of members, which shall be used In computing the contributions required to be made by employers to the pension accumulation fund. The Town is required to contribute at an actuarially detennlned rate. The actual contributions were equal to the actuarially required amounts and also Include additional contributions to fund various early retirement Incentives made available to the Town employees. The credits and miscellaneous adjustments represent modification made by the ERS for prior year's contributions. The required contributions, for the Primary govemment, for the current year and two preceding years were: 2005 2004 2003 ERS $ 1 ,068,200 $ 992,023 $ 443,861 $ $ $ PFRS 1,016,937 679.079 240.756 The Town's contribution to the system was 100% of the contributions reqlbd each year. 6. POST EMPLOYMENT BENEFITS In addition to providing pension benefits, the Town provides health Insurance coverage and survivor benefits for retired employees and their survivors. Substantially all of the Town's employees may become eligible for these benefits if they reach nonnal retirement age whle working for the Town. Health care benefits are provided through either a self-funded plan whose premiums are based on the benefits paid during the year or are provided in accordance with New York state Health Insurance Rules and Regulations (administered by the New York Stale Department of Civil Service) through the New York Slate Empire Plan (the "Empire Plan") whose premiums are based on the benefits paid throughout the Slate during the year. The Town recognizes the cost of providing benefits by recording its share of Insurance premiums or the actual benefits paid as expenditure in the year paid. The Town's union contracts and ordinances require that it provide Its eligible enrollees with benefit coverage under enher the self-funded plan or the Empire Plan. Under the provisloos of the Empire Plan, premiums are adjusted on a prospective basis for any fosses experienced by the Empire Plan. The Town has the option to tenninate its participation In the Empire Plan at any time without liability for ns respective share of any previously incurred loss. During the 2005 year, $3,014,128 was paid on behalf of 88 retirees and 207 active employees and is recorded as an expenditure in the General Fund. 7. COMPENSATED ABSENCES Town employees are granted vacation and sick leave and eam compensatory absences in varying amounts. In the event of tennlnatlon or upon retirement, an employee is entnled to payment for accumulated vacation and sick leave and unused compensatory absences at various rates subject to cerlain maximum IImllations. TOWN OF SOUTHOLD NOTES TO FINANCIAL STATEMENTS December 31,2005 C. DETAILED NOTES ON ALL FUNDS AND ACCOUNT GROUPS (continued) 7. COMPENSATED ABSENCES (continued) Estimated vacation, sick leave and compensatory absences accumulated by governmental fund type employees have been recorded in the statements of net assets. Payment of vacation time and sick leave is dependent upon many factors; therefore, timing of future payments Is not readily delennlnable. However, management believes that sulliclent resources will be made available for the payments of vacation, sick leave and compensalay absences when such payments become due. As of December 31, 2005, the value of the accumulated vacation time and sick leave was $5,779,826 for the primary government. D. COMMITMENTS AND CONTINGENCIES Risk Management The Town Is self-Insured for both medical Insurance and general liability insurance. The amount of medical claims outstanding at December 31, 2005 Is $200,131. This amount has been reserved against fund balance in the General Fund. In common with other municipalities, the Town receives numerous notices of claims. Prior to 2005, coverage for bodily injury and property damage was previously written on a primary non-self Insured retention ("SIR") basis. Insurance maricet conditions and availability precluded the Town from obtaining coverage In 2005 without an SIR. As a result, in 2005 the Town self-Insured for bodily Injury and property damage up to a max/mum of $50,000 per claim. The $50,000 limitation was the minimum retention amount available lei the Town. Claims In excess of $50,000 are covered by excess liability policies providing coverage for $10,000,000 per occurrence and in the aggregate. AIlhough the eventual outcome of these 2005 claims cannot presently be detennined, the Town's third party administrator has estimated unselUed claims at December 31, 2005 to be $94 thousand. These amounts have been reserved against fund balance in the General Fund. The Town Is of the opinion that the ultimate selUement of the outstanding claims will not result in a material adverse effect on the Town's financlill position. Since 2005, there have been no significant reductions in insurance coverage as compared to the prior year; In addition there were no selUements on excess of insurance coverage over the last three years. The Town Is also self-Insured for unemployment benefits paid. Landfill Closure and Post-Closure Care Costs Slate and federal laws and regulations require the Town to place a final cover on its landfill sites and to perform certain maintenance and monitoring functions at the sites for thirty years after closure. The Town ceased accepting waste at its Cutchogue landfill as of October 8, 1993. The Town entered into a stipulation of settlement with the New Yoric State Department of Environmental Conservation in October of 1994 in which all charges of operational violations at the Cutchogue landfill were dropped. Under the stipulation, the Town agreed to close and place a final cover over the landfill and. to pay a . civil penalty of $650,000 over seven years. Construction of the final cover commenced in the summer of 2001 and was completed in the fall of 2003. In addition to placement of the final cover on the landfill, state and federal regulations presently require the Town to perform certain maintenance and monitoring functions at the site for up to thirty years. Accordingly, as of December 31, 2005 the Town has recorded a liability of $612,395 which represents the provision to be made In future budgets for posl-closure landfill costs. Actual costs may vary due to inflation or deflation, changes In technology, or changes in regulations or applicable laws. Actual costs associated with the placement of the final cover totaled $7,681,719. Financing for closure activities was provided through a $2,000,000 grant from the New Yoric State Department of Environmental Conservation with the balance provided with a state subsidized loan through the New York State Environmental Facilities Corporation. Costs associated with post closure care will be covered by charges to future landfill users and future lax revenue. - 32- ~... ~ TOWN OF SOUTH OLD NOTES TO FINANCIAL STATEMENTS December 31, 2005 D. COMMITMENTS AND CONTINGENCIES (continued) Lease Commitments and Leased Assets The Town leases property and equipment under operating leases. Total rental expenditures on such leases for the fiscal year ended December 31, 2005 were approximately $205,000. Future obligations over the primary terms of the Town's leases as of December 31,2005 are as follows: 2006 2007 2008 2009 and thereafter Total $ 115,9n 94,997 85,184 684.824 980 982 $ E. CONDENSED FINANCIAL STATEMENTS FOR THE DISCRETELY PRESENTED COMPONENT UNITS The following represents condensed financial statements for the discretely presented component units as of and for the year ended December 31, 2005: Condensed Statement of Net Assets: Due from Capilal Asse" 00- Current Primary Nelot Current Long. Tem Net Dislrid Asse.. Govomment DepreclaUon Uabilllles L1abUllIes Assets Fishers Island Feny $ 333.136 $ 119,344 $ 15,757,994 $ 2,439,520 $ 2,700,000 $ 11,070,_ Fishers Island Refuse and Garbage 640,862 631.328 3,026,171 1,235,336 3,063,025 Cutchogue.New Suffolk Park 125,728 28,382 124,218 28,382 249,946 Southold Park 21,550 63,olO6 648,159 65,677 667,438 Orient-East Marion Park 4,182 5,559 432,985 16,002 426,724 MaUUuck Park 190,451 85,771 1,204,103 141,156 155,000 1,164,169 Orient Mosquilo 32,386 15,355 9,680 15,355 42,066 $ 1,348,295 $ 949,145 $ 21,203,310 $ 3,941,428 $ 2,855,000 $ 16,704,322 Condensed Statement of ActivJties: Program General Revenue Net Assets Properiy District Expenses Revenue NelExpense Tax other Change 1/1105 12/31105 Fishers Island Feny $ 2,714.385 $ 1,864,374 $ 830,011 $ 400,000 $ 2,026,871 $ (1,596,860) $ 9,474,094 $ 11,070,954 Fishers Island Refuse & Garbage 489,606 47,6<< 441,962 599,400 36,698 (194,136) 2,868,889 3,063,025 Cutchogua-New Suffolk Park 138,633 138,633 141,000 2,850 (5,217) 244,729 249,946 SoutholdPark 350,088 350,089 315,000 34,090 998 668,438 667,438 OrIent.East Marion Park 29,000 29,000 24,900 82 4,038 430,782 426,724 _Park 304,002 304,002 405,930 11,025 (112,953) 1.071.216 1,164,169 Orient Mosquito 60,371 60,371 74,650 401 (14,680) 27,388 42,066 $ 4,066,085 $ 1,932,018 $ 2,154,067 $ 1,960,880 $ 2,111,997 $ (1,918,810) $ 14,785,512 $ 18,704,322 ~~ REQUIRED SUPPLEMENTARY INFORMATION OTHER THAN MANAGEMENT DISCUSSION AND ANALYSIS TOWN OF SOUTHOLD GENERAL FUND SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL Year ended December 31, 2005 Original Final Variance Budget Budget Actual PositiveJ(Negative ) REVENUES Real property taxes $14,608,674 $ 14,608,674 $ 14,608,674 Other real property tax items 66,000 66,000 68,807 2,807 Non-property tax items 401 ,035 401,035 415,071 14,036 Departmental income 349,000 349,900 345,956 (3,944) Intergovemmental charges 194,160 269,823 252,558 (17,265) Use of money and property 286,625 286,625 489,796 203,171 Licenses and permits 218,330 218,330 249,178 30,848 Fines and forfeitures 112,000 112,000 140,192 28,192 Sale of property and compensation for loss 45,350 70,025 93,290 23,265 Miscellaneous local sources 86,646 113,654 432,269 318,615 State aid 2,348,264 2,483,083 2,637,870 154,787 Federal aid 270,000 270,000 174,348 (95,652) Total Revenues 18,986,984 19,249,149 19,908,009 658,860 EXPENDITURES General government support 5,545,742 5,764,043 4,641,568 1,122,475 Public safety 6,889,518 7,189,570 7,1n,145 12,425 Public health 33,300 33,300 33,288 12 TlBnsportation 420,500 466,131 446,8n 19,254 Economic assistance and opportunity 993,400 982,510 001,139 81,371 Cullure and recreation 388,870 398,370 354,768 43,602 Home and community services 299,101 316,755 315,273 1,482 Employee benefits 5,811,949 5,868,274 5,857,963 10,311 Debt service - principal and interest 1,773,100 1,5n,799 1,560,055 17,744 Total expenditures 22,155,480 22,596,752 21,288,076 1,308,676 Deficiency of Revenues Over Expenditures (3,168,496) (3,347,603) (1,380,067) 1,967,536 Other Financing Sources (Uses) Transfers in 5,488,341 5,559,682 2,642,859 (2,916,823) Transfers out (2,319,845) (2,212,079) (1,895,023) 317,056 Total Other Financing Sources (Uses) 3,168,496 3,347,603 747,836 (2,599,767) Excess (Deficiency) of Revenues and Other Sources Over Expenditures and Other Uses (632,231 ) $ (632,231) Fund Balance at Beginning of Year 6,639,693 Fund Balance at End of Year $ 6,007,462 See notes to the financial statements. -34- TOWN OF SOUTHOLD HIGHWAY FUND SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL Year ended December 31, 2005 Original Final Variance REVENUES BUdget Budget Actual Positivel(Negative) Real Property Taxes $ 3,805,032 $ 3,805,032 $ 3,805,032 Other Real Property Tax Items 3,600 3,600 8,935 5,335 Non-Property Tax Items 111 111 Use of Money and Property 25,300 25,300 77,817 52,517 Licenses and Permits 5,000 5,000 11,126 6,126 Sale of Property and Compensation for Loss 1,000 1,000 2,796 1,796 Miscellaneous Local Sources 155,054 155,054 State Aid 223,700 223,700 188,147 (35,553) Total Revenues 4,063,632 4,063,632 4,249,018 185,386 EXPENDITURES Transportation 3,228,488 3,228,488 2,913,768 314,720 Employee Benefits 553,741 553,741 500,343 53,398 Debt Service - Principal and Interest 189,932 189,932 178,371 11,561 Total Expenditures 3,972,161 3,972,161 3,592,482 379,679 Excess of Revenues Over Expenditures 91,471 91,471 656,536 565,065 Other Financing Uses (Sources) Operating Transfers In 494,564 494,564 (494,564) Transfers Out (586,035) (586,035) (520,085) 65,950 Total Other Financing Uses (91,471 ) (91,471 ) (520,085) (428,614) Excess of Revenues Over Expenditures and Other Uses 136,451 $ 136,451 Fund Balance at Beginning of Year 920,396 Fund Balance at End of Year $ 1,056,847 See notes to the financial statements. -35- --~~"-'"-'-""-~.""~~,-"",,.,,,,,---- OTHER SUPPLEMENTARY INFORMATION TOWN OF SOUTHOLD COMBINING BALANCE SHEET NON-MAJOR GOVERNMENTAL FUNDS December 31, 2005 East-West Fire Southold Fishers Solid Wasm General Fund Special Protection Wastewater Island Sewer Management Part Town Grant District Dlst~ct District District Totals ASSETS Cash and Investments $ 740,370 $ 27,767 $ 176.492 $ 30,994 $ 270,513 $1,246,136 Accounts receivable, net of allowance 46,769 1,269 124,934 172,992 Due from other funds 152,519 92,199 4,752 325 463,244 733,039 Due from other governments $ 5,000 5,000 State and Federal Receivables Prepaid expenditures 26,666 27,338 54,024 Total Assets $ 966,344 $ 5.000 $ 119,966 $ 181,244 $ 32.608 $ 906,029 $2,211,191 LIABIUTJES AND FUND EQUITY LIABILITIES Accounts payable $ 14,395 $ 6,000 $ 12,656 $ 82 $ 195,071 $ 227,184 Due to other funds 6,974 20,700 27,674 Deferred revenue 99,666 92,198 $ 4,587 355,783 552,234 Total Liabilities 121,035 5,000 104,854 4,587 62 571,564 807M2 FUND EQUITY Fund balance - reserved: Prepaid expenses 26,666 26,686 fund balance - unreservecl: Designated ~ ensuing year's budget 344,246 4,350 346,596 Undesignated 474,3n 10,762 176,657 32,646 334.475 1,028,817 Total Fund Equity 845,309 15,112 176,857 32,548 334.475 1,404,099 Total Uabilities and Fund Equity $ 966,344 $ 5.000 $ 119,966 $ 181,244 $ 32,608 $ 906,029 $ 2,211,191 -36- TOWN OF SOUTHOLD COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BAlANCES. NON-MAJOR GOVERNMENTAL FUNDS , Year ended December 31. 2005 1 I East-West Fire Southold Fishers Solid Waste General Fund Special Protection Wastewater Island Sewer Management Part Town Grant District DIstr1cl District District Totals I REVENUES Real property taxes $ 538,773 $ 413,058 $ 137,450 $ 1,614 $ 1,290,440 $ 2,381,335 I Other real property tax items 1,220 290 97 2 907 2,516 Non property tax items 213,786 213,786 I Departmentallnoome 739,283 28,231 17,423 1,721,943 2,504,880 Intergovernmental charges 1,013 1,013 Use of money and property 28,321 2,689 6,666 1,190 25,226 64,092 1 Licenses and permits 5,200 160,765 165,965 f Sale of property and compensation for loss 8,556 100,581 109,137 Miscellaneous local sources 74,427 4,621 74,543 153,591 State aid 75,374 75,374 Federal aid $ 224,138 224,136 Total Revenues 1,684,940 224,138 418,037 175,065 20,229 3,375,418 5,895,825 EXPENDITURES General government support 99,895 99,895 Public safety 393,192 414,282 807,474 Public health 6,864 6,864 Home and community services 563,269 224,755 1,846 29,598 2,283,171 3,102,639 Employee benefits 210,776 212 233,870 444,858 Debt service - principal and interest 5,385 2,475 663,860 671,720 Total expenditures 1 ,279,381 224,755 414,282 4,533 29,598 3,180,901 5,133,450 Excess (Deficiency) of Revenues OVer Expenditures 405,559 (619) 1,755 170,532 (9,369) 194,517 762,375 Other Financing Uses: Operating transfers out (264,969) (239,751 ) (504,720) Total Other FInancing Uses (264,969) (239,751) (504,720) Excess (Deficiency) of Revenues Over Expenditures and Other Uses 140,590 (619) 1,755 170,532 (9,389) (45,234) 257,655 Fund Balance at Beginning of Year 704,719 619 13,357 6,125 41,915 379,709 1,146,444 Fund Balances at End of Year $ 845,309 $ ..0- $ 15,112 $ 176,657 $ 32,546 $ 334,475 $ 1 ,404,099 -37- ....-..__.~.._"__..'~"...N_.... "'_'.." ~r '__'>'<"__""___'_'.__''"''''.,_,..,~~__~____", DISCRETELY PRESENTED COMPONENT UNITS TOWN OF SOUTHOLD DISCRETELY PRESENTED COMPONENT UNITS COMBINING STATEMENT OF NET ASSETS ~ber31.2005 TOWN OF SQUTHOLD DISCRETELY PRESENTED COMPONENT UNITS COMBINING STATEMENT OF ACTIVmES Year ended Oecember31. 2005 -~ OTHER REPORTS _____~__~""_<<~....~~_,_.. .., __m,'-___. TOWN OF SOUTHOLD SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS December 31. 2005 FEDERALGRANTO~PASS THROUGH GRANTORIPROGRAM TITLE FEDERAL CFDA NUMBER EXPENDITURES U.S. Deoartment of Health & Human Services Passed throuah Suffolk Counlv: Nutrition Services Incentive Program U.S Deoartment of Health & Human Services Passed throuah Suffolk Countv: Nutrition U..S. Deoartment of Homeland Security Passed throuah the State of New Yark Buffer Zone Protection Plan U.S Deoartment of Aariculture Natural Resouce Conservation Service Farm & Ranchland Protection Program U.S Deoartment of Houslna and Urban Develooment Passed throuah Suffolk Counlv: Community Development Block Grant U.S Deoartment of the Interior Fish and Wddlife Service Passed throuah the State of New York Deoartment of Environmental Conservation: Coastal Wetlands Conservation Grant 93.053 $ 21,174 93.045 103,174 97.078 so,ooo 10.913 510,539 14.218 224,136 15.614 1,000,000 $ 1,909,023 -40- -~"""".~"'"",""..^._..- '.""~__''''''''__'''''~~O-.N''<><^"_",, M TOWN OF SOUTHOLD NOTE TO SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS December 31,2005 Note A - Basis of Presentation The accompanying schedule of expenditures of federal awards includes the federal grant activity of the Town of Southold and is presented on the modified accrual basis of accounting. The information In this schedule is presented in accordance with the requirements of OMB Circular A-133. Audits of States, Local Governments, and Non-Profit Organizations. Therefore, some amounts presented in this schedule may differ from amounts presented in, or used In the preparation of, the basic financial statements. -41- CERTIFIED PUBLIC ACCOUNTANTS. BUSINe:SS AOVISORS ANO CONSULTANTS 25 Suffolk Court, Hauppauge, New lbrk 11788 631.434.9500 . Fax 631.434.9518 www.avz.com 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 . Town Board Town of Southold Southold, New York We have audited the financial statements of the governmental activities, each major fund, and the aggregate remaining fund information of the Town of Southold, New York as of and for the year ended Deoember 31, 2005, which collectively comprise the Town of Southald's basic financial statements, and have Issued our report thereon dated June 8, 2006, which was qualified because the Town of Southold's discretely presented component units with the exception of one, the Fishers Island Feny Dlsbict, were not audited as of the report date. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards apprlCable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Intemal Control Over Financial ReoortlnQ In planning and performing our audit, we considered the Town of Soulhold, New York's internal control over financial reporting in order to determine our auditing prooedures for the purpose of expressing our opinions on the financial statements and not to provide assurance on the Internal control over financial reporting. Our consideration of the internal control over financial reporting would not necessarily disclose all matters In the intemal conrol over financial reporting that might be material weaknesses. A material weakness is a condition in which the design or operation of one or more of the internal control components does not reduoe to a relatively low level the risk that misstatements in amounts that would be material in relation to the financial statements being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned funclions. We noted no matters involving the internal control' over financial reporting and its operation that we consider to be material weaknesses. ComDlianoe and Other Matters As part of obtaining reasonable assurance about whether the Town of South old's financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grants, 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 that are required to be reported under Government Auditing . Standards. This report is intended solely for the information of the Town Board, management, others within the organization, and federal awarding agencies and pass-lhrough entities and is not Intended to be and should not be used by anyone other than those specified parties. ~ ~(2., ,L.....~"f?(;. Hauppauge, New York June 8, 2006 - 42 - ALBRECHT, VIGGIANO, ZURECK & COMPANY. P.C. t 11:1111' MDaat Of"1I!IMR IInERMnl:lJW. ".4.'" ~,,~_.... CERTIFIED PUBLIC ACCOUNTANTS. BUSINESS ADVISORS AND CONSULTANTS 25 Suffolk Court, Houppauge, New York 11788 631.434.9500 . Fax 631.434.9518 WWlv. avz.com REPORT ON COMPLIANCE WITH REQUIREMENTS APPLICABLE TO EACH MAJOR PROGRAM AND INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH OMB CIRCULAR A-133 Town Board Town of Southold . Southold, New York Comoliance We have audited the compliance of the Town of Southold, New York with types of compliance requirements described in the U. S. Office of Management and Budget (OMB) Cirr:ular A-133 Compliance Supplement that are applicable to each of its major federal programs for the year ended December 31, 2005. The Town of Southold's major federal programs are identified in the summary of auditor's results section of the accompanying schedule of findings and questioned costs. Compliance with the requirements of laws, regulations, contracts, and grants applicable to each of Its major federal programs is the responsibility of the Town of Southold, New York's management Our responsibility is to express an opinion on the Town of Southold, New York's compliance based on our audit. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financlal audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and OMB Circular A-l33, Audits of states, Local Govemments, and Non-Profit Organizations. Those standards and OMB Circular A-133 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 Town of Southold, New York's compliance with those requirements and performing such other procedures as we considered necessary in the clrcumstances. We believe that our audit provides a reasonable basis for our opinion. Our audit does not provide a legal determination of the Town of Southold, New York's compliance with those requirements. In our opinion, the Town of Southold, New York complied, In all material respects, with the requirements referred to above that are applicable to each of its major federal programs for the year ended December 31, 2005. Internal Control Over Comoliance The management of the Town of Southold is responsible for establishing and maintaining effective internal control over compliance with the requirements of laws, regulations, contracts, and grants applicable to federal programs. In planning and performing our audit, we considered the Town of Southold's internal control over compliance with requirements that could have a direct and material effect on a major federal program In order to determine our auditing procedures for the purpose of expressing our opinion on compliance and to test and report on the Internal control over compliance in accordance with OMB Circular A-133. Our consideration of the internal control over compliance would not necessarily disclose all matters in the internal control that might be a material weakness. A material weakness is a condition in which the design or operation of one or more of the internal control components does not reduce to a relatively lOIN level the risk of noncompliance with applicable requirements of laws, regulations, contracts and grants that would be material in relation to a major federal program being audited may occur and not be detected within a timely period by employees in the normal course of performing the assigned functions. We noted no matters involving the internal control over compliance and its operation that we consider to be material weaknesses. -43- ALBRECHT. VIGGIANO. ZuRECK & CoMI'IIlHY, P.C. 1_ Illllfl"~WBKR.~ This report is intended solely for the information of the Town Board, management, others within the organization, and federal awarding agencies and pass-through entities and is not Intended to be and should not be used by anyone other than those specified parties. ~I \f~1 ~. .A.. J- Crr;, t".Ci Hauppauge, New York June 8, 2006 -44" _._._---~-,,,~ TOWN OF SOUTHOLD SCHEDULE OF FINDINGS AND QUESTIONED COSTS Year ended December 31,2005 SUMMARY OF AUDIT RESULTS 1. The auditor's report expresses a qualified opinion on the financial statements of the Town of Southold due to the fact that six of the seven component units of the Town of Southold that were discretely presented were not audited. The remaining component unit, the Fishers Island Ferry District, was audited by other auditors. 2. No reportable conditions disclosed during the audit of the financial statements are reported in the "REPORT ON COMPLIANCE AND ON INTERNAL CONTROL OVER FINANCIAL REPORTING BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS". None of the conditions are reported as a material weakness. 3. No instances of noncompliance material to the financial statements of the Town of Southold were disclosed during the audit. 4. No reportable conditions disclosed during the audit of the- major federal award programs are reported in the "REPORT ON COMPLIANCE WITH REQUIREMENTS APPLICABLE TO EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH OMB CIRCULAR A- 133". No material weaknesses were noted. 5. The auditor's report on compliance for the U.S. Department of the Interior- Fish and Wildlife Service expresses an unqualified opinion; the report on the remaining programs are unqualified. 6. No audit findings relative to the major federal award programs for the Town of Southold are reported in this schedule. 7. The Town of Southold had two ''Type A" programs for the year ended December 31, 2005. 8. The program tested as a major program includes: CFDA Number Name of Federal Proaram or Cluster 15.614 U.S. Department of the Interior Fish and Wildlife Service 9. The threshold for distinguishing Types A and B programs was $500,000. 10. The Town of Southold was determined to be a low-risk auditee. -45- TOWN OF SOUTH OLD SCHEDULE OF FINDINGS AND QUESTIONED COSTS Year ended December 31,2005 FINDINGS-FINANCIAL STATEMENTS AUDIT REPORTABLE CONDITIONS - FINDINGS AND QUESTIONED COSTS- MAJOR FEDERAL AWARD PROGRAMS AUDIT- Questioned Cost -46- None None $ APPENDIX C INSURANCE ON THE BONDS AMBAC ASSURANCE Payment Pursuant to Financial Guaranty Insurance Policy Ambac Assurance Corporation ("Ambac Assurance") has made a commitment to issue a financial guaranty insurance policy (the "Financial Guaranty Insurance Policy") relating to the Bonds effective as of the date of insurance of the Bonds. Under the terms of the Financial Guaranty insurance Policy, Ambac Assurance will pay to The Bank of New York, in New York, New York or any successor thereto (the "Insurance Trustee"), that portion of the principal of and interest on the Bonds which shall become Due for Payment but shall be unpaid by reason ofNonpa~ent by the Obligor (as such terms are defined in the Financial Guaranty Insurance Policy). Ambac Assurance will make such payments to the Insurance Trustee on the later of the date on which such principal and/or interest becomes Due for Payment or within one business day following the date on which Ambac Assurance shall have received notice of Nonpayment from the TrusteelPaying Agent. The insurance will extend for the term of the Bonds and, once issued, cannot be canceled by Ambac Assurance. The Financial Guaranty Insurance Policy will insure payment only on stated maturity dates and on mandatory sinking fund installment dates, in the case of pnncipal, and on stated dates for payment, in the case of interest. If the Bonds become subject to mandatory redemption and insufficient funds are available for redemption of all outstanding Bonds, Ambac Assurance will remain obligated to pay principal of and interest on outstandin~ Bonds on the originally scheduled interest and principalllayment dates including mandatory sinking fund redemptIOn dates. In the event of any acceleration of the principal of the Bonds, the insured payments will be made at such times and in such amounts as would have been made had there not been an acceleration, except to the extent that Ambac Assurance elects, in its sole discretion, to pay all or a portion of the accelerated principal and interest accrued thereon to the date of acceleration (to the extent unpaid by the Obligor). Upon payment of all such accelerated principal and interest accrued to the acceleration date, Ambac Assurance's obligations under the Financial Guaranty Insurance Policy shall be fully discharged. In the event the TrusteelPaying Agent has notice that any payment of principal of or interest on a Bond that has become Due for Payment and that is made to a Bondholder by or on behalf of the Obligor has been deemed a preferential transfer and theretofore recovered from its registered owner pursuant to the United States Bankruptcy Code in accordance with a final, nonappealable order of a court of competent jurisdiction, such registered owner will be entitled to payment from Ambac Assurance to the extent of such recovery if sufficient funds are not otherwise available. The Financial Guaranty Insurance Policy does not insure any risk other than Nonpayment, (as set fourth in the Financial Guaranty Insurance Policy). Specifically, the Financial Guaranty Insurance Policy does not cover: 1. payment on acceleration, as a result of a call for redemption (other than mandatory sinking fund redemption) or as a result of any other advancement of maturity. 2. payment of any redemption, prepayment or acceleration premium; and 3. nonpayment of principal or interest caused by the insolvency or negligence of any Trustee, Paying Agent or Bond Registrar, if any. Ifit becomes necessary to call upon the Financial Guaranty Insurance Policy, payment of principal requires surrender of Bonds to the Insurance Trustee together with an appropriate instrument of assignment so as to permit ownership of such Bonds to be registered in the name of Ambac Assurance to the extent of the payment under the Financial Guaranty Insurance Policy. Payment of interest pursuant to the Financial Guaranty Insurance Policy requires proof of Bondholder entitlement to interest payments and an appropriate assignment of the Bondholder's right to payment to Ambac Assurance. Upon payment of the insurance benefits, Ambac Assurance will become the owner of the Bond, appurtenant coupon, if any, or right to payment of principal or interest on such Bond and will be fully subrogated to the surrendering Bondholder'S rights to payment. The insurance provided by the Financial Guaranty Insurance Policy is not covered by the property/casualty insurance security fund specified by the insurance laws ofthe State of New York. AMBAC ASSURANCE CORPORATION Ambac Assurance is a Wisconsin-domiciled stock insurance corporation regulated by the Office of the Commissioner of Insurance of the State of Wisconsin, and is licensed to do business in 50 states, the District of Columbia, the Territory of Guam, the Commonwealth of Puerto Rico and the U.S. Virgin Islands, with admitted assets of approximately $10,015,000,000 (unaudited) and statutory capital of approximately $6,371,000,000 (unaudited) as of December 31, 2006. Statutory capital consists of Amoac Assurance's policyholders' surplus and statuto2' contingency reserve. Standard & Poor's Ratings Services, a division of The McGraw-Hill Companies, Inc., Moody s Investor Service and Fitch Ratings have each assigned a triple-A financial strength rating to Ambac Assurance. Ambac Assurance has obtained a ruling from the Internal Revenue Service to the effect that the insuring of an obligation by Ambac Assurance will not affect the treatment for federal income tax purposes of interest on such obligation and that insurance proceeds representing maturing interest paid by Ambac Assurance under policy provisions substantially identical to those contained in its Financial Guaranty Insurance Policy shall be treated for federal income tax purposes in the same manner as if such payments were made by the Obligor of the Bonds. Ambac Assurance makes no representation regarding the Bonds or the advisability of investing in the Bonds and makes no representation regardmg, nor has it participated in the preparation of, the Official Statement other than the information supplied by Ambac Assurance and presented under the heading "Appendix C". AVAaABLEmFORMATION The parent company of Ambac Assurance, Ambac Financial Group, Inc. (the "Comeany"), is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the 'Exchange Act"), and in accordance therewith files reports, proxy statements and other information with the Securities and Exchan~e Commission (the "SEC"). These reports, proxy statements and other information can be read and copied at the SEC s public reference room at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. Please call the SEC at 1-800- SEC-0330 for further information on the public reference room. The SEC maintains an internet site at http://www.sec.gov that contains reports, proxy and information statements and other information regarding companies that file electronically with the SEC, including the Company. These reports, proxy statements and other information can also be read at the offices of the New York Stock Exchange, Inc., at 20 Broad Street, New York, New York 10005. Copies of Ambac Assurance's financial statements prepared in accordance with statutory accounting standards are available from Ambac Assurance. The address of Ambac Assurance's administrative offices and its telephone number are One State Street Plaza, 19th Floor, New York, New York, 10004 and (212) 668-0340. mCORPORATION OF CERTAm DOCUMENTS BY REFERENCE The following document filed by the Company with the SEC (File No. 1-10777) is incorporated by reference in this Official Statement: The Company's Annual Report of Form 10-K for the fiscal year ended December 31, 2006 and filed on March 1,2007. All documents subsequently filed by the Company pursuant to the requirements of the Exchange Act after the date of this Official Statement will be available for inspection in the same manner as described above in "A V AILABLE INFORMATION". Ambac Ambac Assurance Corporation One State Street Plaza, 15th Floor New York, New York 10004 Telephone: (212) 668-0340 Financial Guaranty Insurance Policy Obligor: Policy Number: Obligations: Premium: Ambac Assurance Corporation (Ambac), a Wtsconsin stock insurance corporation. in consideration of the pa ent of the premium and subject to the terms of this Policy, hereby agrees to pay to The Bank of New York. as trustee, or its u essor (the "Insurance Trustee~), for the benefit of the Holders, that portion of the principal of and interest on the above-describe 0 igations (the "Obltgations") which shall become Due for Payment but shall be unpaid by reason of Nonpayment b e Obligo noti that any payment of principal of or interest on an t a Holder by or on behalf of the Obligor has been deemed a ot to the United States Bankruptcy Code In accordance with Holder will be entitled to payment from Ambac to the extent Ambac will make such payments to the Insurance Trustee within one (1) business day following wr1 en t Nonpayment. Upon a Holder's presentation and surrender to the Insurance Trustee of such unpa! gati uncanceled and in bearer fonn and free of any adverse claim, the Insurance Trustee will d to the principal and interest which is then Due for Payment but is unpaid. Upon such disburse bac the surrendered Obligations andlor coupons and shall be fully subrogated to all of th Ho e rig In cases where the Obligations are issued in registered fonn, the Insurance Trustee presentation and surrender to the Insurance Trustee of the unpaid Obligation, un with an instrument of assignment, in form satisfactory to Ambac and nsurance Holder's duly authorized representative, so as to permit ownership of s h ation nominee. The Insurance Trustee shall disburse interest to a er a Insurance Trustee of proof that the claimant is the person entitle 0 he p Insurance Trustee of an instrument of assignment, in form satlsfac 0 Holder or such Holder's duly authortzed representa interest in respect of which the insurance disburs payment on registered Obligations to the extent 0 In the event that a trustee or paying a Obligation which has become Due fa preferential transfer and theretofo r vered f m t a final, nonappealable order of a u of co of such recovery if suffici nds As used herein, the 0 er than (i) the Obligor or (u) any person whose obligations constitute the underlying seeur gattons who, at the ttme of Nonpayment, is the owner of an Obligation or of a coupon relating in, "Due for Payment", when referring to the principal of Obligations, is when the sch tu mandato emption date for the application of a required sinking fund tnstallment has been reach any earlier date on which payment is due by reason of call for redemption (other than by application of r red sinking fu tallments), acceleration or other advancement of maturity; and, when refentng to interest on the Ob g tions uled date for payment of interest has been reached. As used herein, "Nonpayment" means the failure of t i ro sufficient funds to the trustee or paying agent for payment in full of all principal of and interest on the 19ations ch are Due for Payment. . This Po c lable. The premium on this Policy is not refundable for any reason, including payment of the Obligations prior to m . This Policy does not insure against loss of any prepayment or other acceleration payment which at any time may become due in respect of any Obligation. other than at the sole option of Ambac, nor against any risk other than Nonpayment. In witness whereof, Ambac has caused this Policy to be affixed with a facsimile of its corporate seal and to be signed by its duly authorized officers. in facsimile to become effective as its original seal and signatures and binding upon Ambac by virtue of the countersignature of its duly authorized representative. fJ j /-L- President Effective Date: ....,......... .,~~...MC'f ~\ "- ..~.t.Qi.TOi'4';....~--o' /, (. ..- ,. .. "'. .""1 _ \.... ..' \..., ,.1 SEAL '.f .. t 1'2 . I : # t \ ! ~ ,,, - II . \ ' i .. . .,. /. " .....~I.I("Otl\;~...... . .. ......-- . "...... ~~,~ Secretary Authorized Representative THE BANK OF NEW YORK acknowledges that it has agreed to perform the duties of Insurance Trustee under this Policy. Form No.: 2B-0012 (1101) A- Ambac Ambac Assurance Corporation One State Street Plaza, New York, New York 10004 Telephooe: (212) 668-0340 Endorsement Policy for: Attached to and forming part of Policy No.: The insurance provided by this Policy is not covered fund specified by the insurance laws of the State N ter, waive or extend any of tbe terms, conditions, provisions, agreements other than as above stated. , Ambac has caused this Endorsement to be affixed with a facsimile of its corpomte seal and to ized officers in facsimile to become effective as its original seal and signarures and binding 1e countersig.nature of its duly authorized representative. Ambac Auuranc:e Corporatioa fuJ j /?-L- .......,"- ..).."MC'f~\ ,"~~,o;.;oa:;";.~..o' /I c... , ....:fl. ,.rl _ '. '!.. ,:1 SEAL \'Ot , ' :"-. t i ! : ,\ - II . \ .... , ...". ,.. ," " .....""ICO.."..... . , .......-.. - '".......... ~~~ President Secretary Authorized Representative Form No.: llHXJ04 (7/97) UNITED STATES OF AMERlCA STATE OF NEW YORK COUNTY OF SUFFOLK TOWN OF SOUTHOLD BOND ANTICIPATION NOTE FOR VARlOUS PURPOSES-2m*" The Town of Southold, in the County of Suffolk, a municipal corporation of the State 0 ew Yark, hereby acknowledges itself indebted and for value received promises to pay to the bearer of this note, or if it be registered, to the registered holder hereof, the sum of ONE MILLION ONE HUNDRED TEN THOUSAND DOLLARS ($1,110,000) on the 7th day of September, 2007, together with interest thereon from the date hereof at the rate of three and seventy-three hundredths per centum (3.730.10) per annum, payable at maturity. Both principal of and interest on this Note will be paid in lawful money of the United States of America, at Bridgehampton National Bank, Bridgebampton, New York. At the request of the holder, the Deputy Town Clerk shall convert this Note into a registered Note by registering it in the name of the holder in the books of the Town kept in the office of such Deputy Town Clerk and endorsing a certificate of such rzgi:;t::;::;.t:~r. h::::reon, aft~r -;.;tier. beth principal ;:::f 3.;"';.d in!eres~ or. 1l:~ NG~e :::hs,1! be paya!:i!e ~-~ly tf: !~e re~iste!"ed. ~';)!der, tis 1~gE.! representatives, successors or transferees. This - Note shall then be transferable only upon presentation to such Deputy Town Clerk with a written transfer of title and such Deputy Town Clerk shall thereupon register this Note in the name of the transferee in his books and shall endorse a certificate of such registration hereon. Such transfer shall be dated, and signed by the registered holder, or his legal representatives, and it shall be duly acknowledged or proved, or in the alternative the signature thereto shall be certified as to its genuineness by an officer of a bank or trust company located and authorized to do business in this State. This Note is the only Note of an authorized renewal issue, the principal amount of which is $1,110,000. This Note is issued pursuant to the provisions of the Local Finance Law, constituting Chapter 33-a of the Consolidated Laws of the State of New York, various bond resolutions adopted by the Town Board on their respective dates, authorizing the issuance of serial bonds for various purposes, and the Certificate of Determination executed by the Supervisor on September 8, 2006. This Note has been designated by the Town as a qualified tax~exempt obligation pursuant to the provisions of Section 265 of the Internal Revenue Code of 1986, as amended. The faith and credit of such Town of Southold are hereby irrevocably pledged for the punctual payment of the principal of and interest on this Note according to its terms. It is hereby certified and recited that all conditions, acts and things required by the Constitution and statutes of the State of New York to exist, to have happened and to have been perfonned precedent to and in the issuance of this Note, exist, have happened and have been perfonned, and that this Note, together with all other indebtedness of such Town of Southold, is within every debt and other limit prescribed by the Constitution and laws of such State. IN WITNESS WHEREOF, the Town of Southold has caused this Note to be signed by its Supervisor, and its ;;vtporHi.e 5eal (or a facsimile thereof) to be atfixed, impressed, impnnted, or otherwise reproduced hereon and attestec10y its Deputy Town Clerk and this Note to be dated as of the 8th day of September, 2006. :4THOLD ~~A Supervisor By , ~d'u (1 (!,rw9.f1q~ Deputy T;;,J. Clerk REGISTRATION CERTIFICATE It is hereby certified that the within Note has been registered as follows; Date of Registration Name of Registered Holder ~ . , Registered by e''- ;D cO~ ~(J) ~~ rnN I $1,110,000 UNITED STATES OF AMERICA STATE OF NEW YORK COUNTY OF SUFFOLK TOWN OF SOUTHOLD BOND ANTICIPATION NOTE FOR VARIOUS PURPOSES-2006 The Town of Southold, in the County of Suffolk. a municipal corporation of the State of New York, hereby acknowledges itself indebted and for value received promises to pay to the bearer of this note, or if it be registered, to the registered holder hereof, the sum of ONE MILLION ONE HUNDRED TEN THOUSAND DOLLARS ($1,110,000) on the 7th day of September, 2007, together with interest thereon from the date hereof at the rate of three and seventy-three hundredths per centum (3.73%) per annum, payable at maturity. Both principal of and interest on this Note will be paid in lawful money of the United States of America, at Bridgehampton National Ban~ Bridgehampton, New York. At the request of the holder, the Deputy Town Clerk shaH convert this Note into a registered Note by registering it in the name of the holder in the books of the Town kept in the office of such Deputy Town Clerk and endorsing a certificate of such registration hereon, after which both principal of and interest on this Note shall be payable only to the registered holder, his legal representatives, successors or transferees. This Note shall then be transferable only upon presentation to such Deputy Town Clerk with a written transfer oftide and such Deputy Town Clerk shall thereupon register this Note in the name of the transferee in his books and shaH endorse a certificate of such registration hereon. Such transfer shall be dated, and signed by the registered holder, or his legal representatives, and it shall be duly acknowledged or proved, or in the alternative the signature thereto shall be certified as to its genuineness by an officer of a bank or trust company located and authorized to do business in this State. This Note is the only Note ofan authorized renewal issue, the principal amount of which is $1,110,000. This Note is issued pursuant to the provisions of the Local Finance Law, constituting Chapter 33-a of the Consolidated Laws of the State of New York, various bond resolutions adopted by the Town Board on their respective dates, authorizing the issuance of serial bonds for various purposes, and the Certificate of Detennination executed by the Supervisor on September 8, 2006. This Note has been. designated by the Town as a qualified tax-exempt obligation pursuant to the provisions of Section 265 of the Internal Revenue Code of 1986, as amended. The faith and credit of such Town of Southold are hereby irrevocably pledged for the punctual payment of the principal of and interest on this Note according to its terms. It is hereby certified and recited that all conditions, acts and things required by the Constitution and statutes of the State of New York to exist, to have happened and to have been performed precedent to and in the issuance of this Note, exist, have happened and have been performed, and that this Note, together with all other indebtedness of such Town of Southold, is within every debt and other limit prescribed by the Constitution and laws of such State. IN WITNESS WHEREOF, the Town of Southold has caused this Note to be signed by its Supervisor, and its corporate seal (or a facsimile thereof) to be affixed, impressed, imprinted, or otherwise reproduced hereon and attested by its Deputy Town Clerk and this Note to be dated as of the 8th day of September, 2006. :7~uM Supervisor By . ~:v d'..... (1 0w9f1ux.J Deputy To:), Clerk .. I AFFIDAVIT AS TO NO CONFLICT OF INTEREST STATE OF NEW YORK ) :ss: COUNTY OF SUFFOLK ) Linda Cooper, being duly sworn upon her oath deposes and says: I. I am the duly appointed, qualified and acting Deputy Town Clerk of the Town of Southold, in the County of Suffolk, New York (herein and in Schedule A annexed hereto called "Town"); 2. That with respect to the contract ofsa1e of the Note of the Town described in the Certificate of Determination executed by the Supervisor on the 8th day of September, 2006, to the financial institution indicated in such Certificate, I have made a careful inquiry of each officer and employee of the Town having the power or duty to (a) negotiate, prepare, authorize or approve the contract or authorize or approve payment thereunder, (b) audit bills or claims under the contract, or (c) appoint an officer or employee who has any of the powers or duties set forth above, as to whether or not such officer or employee has an interest (as defmed pursuant to Article 18 of the General Municipal Law) in such contract; 3. That upon information and belief, as a result of such inquiry, no such officer or employee has any such interest in said contract unless otherwise noted in Schedule A annexed hereto and by this reference made a part hereof. ~dr_~ &w'1'1'-V eputy Town Clerk Subsc:&.ed and sworn to before me this ~ day 0 September, 2006. L. Notary Public BONNIE J. DOROSKI Notary Public, State Of New York No. 01006095328. Suffolk County Term Expires July 7, 20 ~ 507322.1 026311 CERT , SCHEDULE A 1. , is a stockholder of the Purchaser owning or controlling, directly or indirectly, less than five per centum (5%) of the outstanding stock thereof but no disclosure of such interest by said officer is required pursuant to said Law. 2. , has an interest in the Purchaser solely by reason of employment as an officer or employee thereof, but the remuneration of such employment will not be directly affected as a result of said contract and the duties of such employment do not directly involve the procurement, preparation or performance of any such part of such contract. 3. , has publicly disclosed the nature and extent of such interest in writing to the governing board of the Town. Such written disclosure has been made a part of and set forth in the official record of proceedings of the Town. 507322.1 026311 CERT CERTIFICATE OF DETERMINATION BY THE SUPERVISOR RELATIVE TO THE AUTHORIZATION, SALE, ISSUANCE, FORM AND CONTENTS OF THE $1,110,000 BOND ANTICIPATION NOTE FOR VARIOUS PURPOSES-2006 OF THE TOWN OF SOUTHOLD, NEW YORK I, Scott A. Russell, Supervisor of the Town of South old, New York (herein called the "Town"), HEREBY CERTIFY that pursuant to the powers and duties delegated to me, the chief fiscal officer of the Town, by the Town Board of the Town, pursuant to the bond resolutions duly adopted and amended and as referred to in paragraphs I to 9, inclusive, hereof, and subject to the limitations prescribed in said bond resolutions, I have made the following determinations: 1. A bond anticipation note of the Town in the principal amount of $91 ,000 shall be issued to renew, in part, the $248,000 bond anticipation note dated September 9,2005, maturing September 8, 2006, and heretofore issued in anticipation of the sale of the serial bonds authorized pursuant to the bond resolution entitled "Bond Resolution of the Town of Southold, New York, adopted July 30, 2002 and amended December 17, 2002, authorizing the construction of a new bridge on Peconic Bay Boulevard to cross Brushes Creek, in said Town; stating the estimated maximum cost thereof is $650,000; appropriating the said amount therefor, including the appropriation of a grant of $50,000 and such other moneys expected to be received from the State of New York, to reimburse the Town; authorizing the issuance of $650,000 serial bonds of the Town to finance said appropriation and stating the plan of financing includes the issuance of said serial bonds, the application of said state moneys to reimburse the Town and the levy and collection of taxes to pay principal of and interest on said bonds," duly adopted and amended by the Town Board on the dates therein referred to, and the Certificate of Determination executed by the Supervisor on September 9, 2005, the redemption of said $248,000 bond anticipation note having been heretofore provided to the extent of $157,000 from a source other than the proceeds of serial bonds. 2. A bond anticipation note of the Town in the principal amount of$160,000 shall be issued to renew, in part, the $240,000 bond anticipation note dated September 9, 2005, maturing September 8, 2006, and heretofore issued in anticipation of the sale of the serial bonds authorized pursuant to the bond resolution entitled: "Bond Resolution of the Town of Southold, New York, adopted March 25, 2003, authorizing the acquisition of vehicles and equipment for use by the Town Highway Department as follows: 507322.1026311 CERT (a) trucks with combination dump bodies, at the estimated maximum cost of $300,000 and (b) paving equipment, consisting of a paver, a roller and a trailer, at the estimated maximum cost of $100,000; stating the estimated total cost thereof is $400,000; appropriating said amount therefor and authorizing the issuance of $400,000 serial bonds of said Town to finance said appropriation," duly adopted by the Town Board on the date therein referred to, and the Certificate of Determination executed by the Supervisor on September 9, 2005, the redemption of said $240,000 bond anticipation note having been heretofore provided to the extent of $80,000 from a source other than the proceeds of serial bonds. 3. A bond anticipation note of the Town in the principal amount of $20,000 shall be issued to renew, in part, the $35,000 bond anticipation note dated September 9, 2005, maturing September 8, 2006, and heretofore issued in anticipation of the sale of the serial bonds authorized pursuant to the bond resolution entitled: "Bond Resolution of the Town of Southold, New York, adopted July 8, 2003, authorizing the acquisition and installation of an automated time management system in Town facilities, including personal computer, software, equipment, machinery and appurtenances thereto; stating the estimated maximum cost thereof is $65,000; including preliminary costs and costs incidental thereto and to the financing thereof; appropriating said amount therefor and authorizing the issuance of $65,000 serial bonds of said Town to finance said appropriation," duly adopted by the Town Board on the date therein referred to, and the Certificate of Determination executed by the Supervisor on September 9, 2005, the redemption of said $35,000 bond anticipation note having been heretofore provided to the extent of $15,000 from a source other than the proceeds of serial bonds. 4. A bond anticipation note of the Town in the principal amount of $40,000 shall be issued to renew, in part, the $100,000 bond anticipation note dated September 9, 2005, maturing September 8, 2006, and heretofore issued in anticipation of the sale of the serial bonds authorized pursuant to the bond resolution entitled: "Bond Resolution of the Town of Southold, New York, adopted July 8, 2003, authorizing the construction of improvements to the human resources building located at 750 Pacific Street, in Mattituck; stating the estimated maximum cost thereof is $252,000; appropriating said amount therefor, including the expenditure of approximately $52,000 insurance proceeds and/or other funds to pay a part of said appropriation; and authorizing the issuance of not to exceed $200,000 bonds of said Town to finance the balance of said appropriation," 507322.1 026311 CERT duly adopted by the Town Board on the date therein referred to, and the Certificate of Determination executed by the Supervisor on September 9, 2005, the redemption of said $100,000 bond anticipation note having been heretofore provided to the extent of $60,000 from a source other than the proceeds of serial bonds. 5. A bond anticipation note of the Town in the principal amount of $80,000 shall be issued to renew, in part, the $120,000 bond anticipation note dated September 9, 2005, maturing September 8, 2006, and heretofore issued in anticipation of the sale of the serial bonds authorized pursuant to the bond resolution entitled: "Bond Resolution of the Town of Southold, New York, adopted August 12, 2003, authorizing the construction of various recreational improvements at the Strawberry Fields Fairgrounds, pursuant to the agreement between the Town and the County of Suffolk dated April 29, 2002; stating the estimated maximum cost thereof is $200,000; appropriating said amount therefor, and authorizing the issuance of $200,000 bonds of said Town to finance said appropriation," duly adopted by the Town Board on the date therein referred to, and the Certificate of Determination executed by the Supervisor on September 9, 2005, the redemption of said $120,000 bond anticipation note having been heretofore provided to the extent of $40,000 from a source other than the proceeds of serial bonds. 6. A bond anticipation note of the Town in the principal amount of $379,000 shall be issued to renew, in part, the $590,000 bond anticipation note dated September 9, 2005, maturing September 8, 2006, and heretofore issued in anticipation of the sale of the serial bonds authorized pursuant to the bond resolution entitled: "Bond Resolution of the Town of Southold, New York, adopted April 20, 2004, appropriating $1,051,600 for the increase and improvement of facilities of the Southold Solid Waste Management District, in said Town; authorizing the issuance of $1,051,600 serial bonds of said Town to finance said appropriation; and authorizing any grant funds to be received from the United States of America, the State of New York or any other sources to be expended towards the cost of said object or purpose or redemption of the Town's obligations issued therefor, or to be budgeted as an offset to the taxes for the payment of the principal of and interest on said obligations," duly adopted by the Town Board on the date therein referred to, and the Certificate of Determination executed by the Supervisor on September 9, 2005, the redemption of said $590,000 bond anticipation note having been heretofore provided to the extent of $211 ,000 from a source other than the proceeds of serial bonds. 507322.1 026311 CERT 7. A bond anticipation note of the Town in the principal amount of $80,000 shall be issued to renew, in part, the $110,000 bond anticipation note dated September 9, 2005, maturing September 8, 2006, and heretofore issued in anticipation of the sale of the serial bonds authorized pursuant to the bond resolution entitled: "Bond Resolution of the Town of Southold, New York, adopted October 9, 2001, authorizing (a) the acquisition of (1) the certain piece or parcel of land designated as 700 Boisseau Avenue, in said Town, at the estimated maximum cost of $82,000, and (2) the existing building situate thereon, at the estimated maximum cost of $418,000, and (b) the reconstruction, in part, of said building, at the estimated maximum cost of $100,000; stating the estimated total cost thereof is $600,000; appropriating said amount therefor and authorizing the issuance of not to exceed $600,000 serial bonds of said Town to finance said appropriation," duly adopted by the Town Board on the date therein referred to, and the Certificate of Determination executed by the Supervisor on September 9, 2005, the redemption of said $110,000 bond anticipation note having been heretofore provided to the extent of $30,000 from a source other than the proceeds of serial bonds. 8. A bond anticipation note of the Town in the principal amount of $85,000 shall be issued to renew, in part, the $128,000 bond anticipation note dated September 9,2005, maturing September 8, 2006, and heretofore issued in anticipation of the sale of the serial bonds authorized pursuant to the bond resolution entitled: "Bond Resolution of the Town of Southold, New York, adopted August 10, 2004, authorizing the acquisition and installation of an in-car video system in ten (10) police cars together with a back office solution, including the upgrading of eight (8) cars with new laptops, appurtenances and supporting equipment therefor; stating the estimated maximum cost thereof is $160,000, including preliminary costs and costs incidental thereto and to the financing thereof; appropriating said amount therefor and authorizing the issuance of $160,000 serial bonds of said Town to finance the said appropriation," duly adopted by the Town Board on the date therein referred to, and the Certificate of Determination executed by the Supervisor on September 9, 2005, the redemption of said $128,000 bond anticipation note having been heretofore provided to the extent of $43,000 from a source other than the proceeds of serial bonds. 9. A bond anticipation note of the Town in the principal amount of$175,000 shall be issued in anticipation of the sale of serial bonds authorized pursuant to the resolution entitled: 507322.1026311 CERT "Bond Resolution of the Town of Southold, New York, adopted June 20, 2006, authorizing the acquisition of certain emergency generators for use in and for the Town at the estimated maximum cost of $175,000; appropriating said amount therefor and authorizing the issuance of bonds in the principal amount of $175,000 to finance such appropriation," duly adopted by the Board of Trustees on the date therein referred to. 10. Said $91,000 note, said $160,000 note, said $20,000 note, said $40,000 note, said $80,000 note, said $379,000 note, said $80,000 note, said $85,000 note and said $175,000 note shall be combined for the purpose of sale into a single note issue in the aggregate principal amount of$I,IIO,OOO (hereinafter referred to as the "Note"). II. The terms, form and details of said Note shall be as follows: Amount and Title: $1,110,000 Bond Anticipation Note for Various Purposes-2006 Dated: September 8, 2006 Matures: September 7,2007 Number and Denomination: Number 8R-I, at $1,110,000 Interest Rate per annum: 3.73% Form of Note: Substantially in accordance with form prescribed by Schedule B,2 of the Local Finance Law of the State of New York. 12. The respective amounts of bond anticipation notes originally issued in anticipation of the issuance of the serial bonds authorized pursuant to the bond resolutions referred to in paragraphs I to 9, inclusive, hereof, including the Note, are: (I) $650,000, (2) $400,000, (3) $65,000, (4) $200,000 (5) $120,000, (6) $1,051,600 (7) $150,000 (8) $160,000 and (9) 175,000 and the respective amounts of bond anticipation notes which will be outstanding after the issuance of the Note, including said Note, will be: (I) $91,000, (2) $160,000, (3) $20,000, (4) $40,000, (5) $80,000, (6) $379,000, (7) $80,000 (8) $85,000 and (9) $175,000. 13. The serial bonds authorized pursuant to the resolution referred to in paragraph 6 hereof, are for improvements which are assessable, and the serial bonds authorized pursuant to the resolutions referred to in paragraphs I, 2, 3, 4, 5, 7, 8 and 9 hereof, are for improvements which are non-assessable. 507322.1026311 CERT 14. Pursuant to said powers and duties delegated to me, I DO HEREBY AWARD AND SELL said Note to Bridgehampton National Bank, Bridgehampton, New York, for the purchase price of $1,110,000, plus accrued interest, if any, from the date of said Note to the date of delivery thereof and I FURTHER DETERMINE that said Note shall be payable as to both principal and interest at Bridgehampton National Bank, Bridgehampton, New York, New York, and shall bear interest at the rate of three and seventy-three hundredths per centum (3.73%) per annum, payable at maturity. 15. Said Note shall be executed in the name of the Town by its Supervisor and the corporate seal of the Town (or a facsimile thereof) shall be affixed, impressed imprinted or otherwise reproduced thereon and attested by its Deputy Town Clerk. I HEREBY FURTHER CERTIFY that the powers and duties delegated to me to issue and sell the Note hereinabove referred to are in full force and effect and have not been modified, amended or revoked. IN WITNESS WHEREOF, I have hereunto set my hand this 8th day of September, 2006. ~d/S.~ Supervisor 507322.1 026311 CERT CLERK'S CERTIFICATE I, Linda Cooper, Deputy Town Clerk of the Town of Southold, in the County of Suffolk, New York, HEREBY CERTIFY that I have compared the foregoing copy of the Certificate of Determination executed by the Supervisor and the same is a true and complete copy of the Certificate filed with said Town in my office as Deputy Town Clerk on or before the 8th day of September, 2006; and I FURTHER CERTIFY that no resolution electing to reassume any of the powers or duties mentioned in said Certificate and delegated to the Supervisor by the resolutions cited in said Certificate and exercised by the Supervisor has been adopted by said Town Board. IN WITNESS WHEREOF, I have hereunto set my hand and affixed the corporate seal of said Town this 8th day of September, 2006. (SEAL) ~/->~< R ~b.FJ'/J Deput Town Clerk 507322.1 026311 CERT ARBITRAGE AND USE OF PROCEEDS CERTIFICATE I, Scott A. Russell, Supervisor of the Town of Southold, in the County of Suffolk, New York (the "Issuer"), HEREBY CERTIFY and reasonably expect with respect to the issuance of the Issuer's $1,110,000 Bond Anticipation Note for Various Purposes-2006 (herein referred to as the "Note" or "Notes"), dated September 8, 2006, maturing September 7, 2007, as follows: Unless the context clearly requires otherwise, all capitalized terms used but not otherwise defined herein shall have the meanings set forth in Article II hereof or in the Resolutions, the Code or the Regulations (each as defined below). ARTICLE I General 1.1. Authoritv of Signatorv. I am an officer of the Issuer charged with the responsibility for the execution, delivery, and issuance of the Notes and am acting for and on behalf of the Issuer in signing this Arbitrage and Use of Proceeds Certificate (the "Certificate"). 1.2 Description of Notes. The Issuer represents that the Notes are sold at the aggregate Issue Price and are further described as set forth in the Certificate of Determination of the Issuer and on the cover of the Official Statement. 1.3. Purpose of Certificate. This Certificate is made for the purpose of establishing evidence of the expectations of the Issuer as of the Issue Date as to future events regarding the amount and use of proceeds of the Notes. It is intended and may be relied upon for purposes of Sections 103 and 141 through 150 of the Code, and as a certification described in Section 1.148-2(b)(2) of the Regulations. This Certificate is executed and delivered as part of the record of proceedings in connection with the issuance of the Notes. The provisions of this Certificate constitute a contractual obligation of the Issuer in consideration for the purchase of and payment for the Notes by the purchaser(s) thereof. 1.4. No Hedge Bonds. The Issuer reasonably expects that 85% of the Spendable Proceeds of the Notes will be expended for governmental purposes within 3 years of the Issue Date. In addition, not more than 50% of the Proceeds of the Notes are being invested in investments not acquired to carry out the governmental purposes of the issue at a guaranteed yield for 4 years or more. With respect to the Prior Issue, the Issuer reasonably expected as of the issue date of the Prior Issue that 85% of the spendable proceeds of the Prior Issue would be expended for governmental purposes within 3 years of such issue date, and, in addition, not more than 50% of the proceeds of the Prior Issue were invested in investments not acquired to carry out the governmental purposes of the issue at a guaranteed yield for 4 years or more. 1.5. Reasonable Expectations. This Certificate sets forth the facts, estimates and circumstances now in existence which form the basis for the Issuer's expectation that the proceeds of the Notes will not be used in a manner that would cause the Notes to be Arbitrage Bonds under Section 148 of the Code or Private Activity Bonds under Sections 103 and 141 of the Code. To the best of my knowledge and belief, such expectation is reasonable and there are no other facts, estimates or circumstances that would materially change that expectation. 1.6. No Composite Issue. Except for the $560,000 Bond Anticipation Note for Fishers Island Garbage and Refuse District-2006, no other tax-exempt governmental obligations have been sold fewer than 15 days prior to, or will be sold fewer than 15 days after, the sale date of the Notes, pursuant to the same plan of financing which are expected to be paid from substantially the same source of funds as the Notes. 1.7. Registration. The Notes will be issued in bearer form. 1.8. No Federal Guarantee. The Issuer represents and covenants that, except for the gross proceeds of the Notes which are: (a) invested during the temporary period referred to in Article III, (b) held in any refunding escrow or (c) invested in obligations of the United States Treasury or in obligations issued pursuant to Section 2IB(d)(3) of the Federal Home Loan Bank Act, as amended by Section 511(a) of the Financial Institutions Reform, Recovery and Enforcement Act of 1989, or any successor provision to Section 2IB(d)(3) of the Federal Home Loan Bank Act, as amended: (i) No portion of the payment of principal or interest with respect to the Notes is or will be guaranteed directly or indirectly by the United States or any agency or instrumentality thereof (in this Certificate "federally guaranteed"); and (ii) No portion of the Gross Proceeds of the Notes in excess of five percent of such Gross Proceeds is or will be (A) used in making loans the payment of principal or interest with respect to which is to be federally guaranteed, or (B) invested directly or indirectly in federally insured deposits or accounts. 1.9. Tax Representation. The Issuer expects to be able to and will comply with all the procedures and provisions set forth in this Certificate, and will do and perform all acts and things necessary and desirable within its reasonable control in order to assure that interest paid on the Notes will be excluded from gross income of the owners of the Notes for the purpose of federal income taxation. 1.10. Noncompliance. The Issuer shall perform each of the obligations undertaken by it in this Certificate unless, in the written opinion of Bond Counsel, noncompliance with such obligations will not cause interest on the Notes to be included in gross income for purposes of Federal income taxation. 1.11. Reliance bv Bond Counsel. The representations of the Issuer expressed in this Certificate may be relied upon by Bond Counsel in connection with the rendering of any opinion with respect to the Notes. 1.12. IRS Form 8038-G. The Issuer will file IRS Form 8038-G, included as part of the record of proceedings for the issuance of the Notes, by the 15th day of the second month after the calendar quarter in which the Notes are issued. ARTICLE II Use ofProiect and Proceeds 2.1. Authorization. (a) The Note is authorized to be issued pursuant to applicable provisions of the laws of the State of New York and the bond resolutions adopted by the Town Board on their respective dates (the "Resolutions"), as referred to in the Certificate of Determination executed by the Supervisor on September 8, 2006. (b) For purposes of this Article II, the term "Original Proceeds" means the Sale Proceeds received (or deemed to be received) by the Issuer from the sale of the Notes net of the amount used or to be used for the payment of all costs and expenses associated with issuing the Notes, and excluding accrued interest. 2.2. Purpose of Issue. The Notes are being issued for various purposes (the "Project" or "Projects") in and for the Town, as described in the Resolutions 2.3. Use of Proceeds. The proceeds of sale of the Note in the amount of $935,000 (the "Current Refunding Note") will be used, together with other available Town funds in the amount of $765,000, to redeem a prior issue of bond anticipation notes which matures on September 8, 2006, in the aggregate principal amount of $1,700,000 (the "Prior Issue"), heretofore issued to finance the Projects. The balance of the proceeds of sale of the Note in the aggregate principal amount of $175,000 (the "New Money Note") will be used to provide original financing for the Projects. 2.4. Ownership/Lease/Sale. The Projects will be owned by the Issuer or another state or local goverrunental unit and will not be leased to any person who is not a state or local goverrunental unit. It will not (except to the extent that any of the projects financed involve grants) be sold or otherwise disposed of, in whole or in part, except for incidental sales of surplus items the proceeds of which will not constitute net operating profits or net capital profits to the Issuer, prior to the maturity date of the Note. 2.5. Private Loans. Not more than the lesser of 5 percent or $5,000,000 of the proceeds of the Note will be used directly or indirectly to make loans to persons other than a goverrunental unit. 2.6. Private Use. The aggregate amount of proceeds of the Note used directly or indirectly in a trade or business carried on by a person other than a state or local goverrunental unit ("Private Use"), will not exceed 10% of such proceeds in the event that more than 10% of the principal or 10% of the interest due on the Note during the term thereof is, under the terms of the Note or any underlying arrangement, directly or indirectly, secured by any interest in property used or to be used for a Private Use or in payments in respect of property used or to be used for a Private Use or is to be derived from payments, whether or not to the Issuer, in respect of property or borrowed money used or to be used for a Private Use. 2.7. Unrelated/Related Disproportionate Use. No more than 5% of the proceeds of the Note will be used directly or indirectly in the trade or business of a person other than a governmental unit that is unrelated or related and disproportionate to the governmental use of the property being financed, including any private loan financing described in Section 2.5 which meets this test. For purposes of this Arbitrage and Use of Proceeds Certificate, proceeds of the Note are allocable to an unrelated Private Use if such use is neither directly nor operationally related to a governmental use and proceeds of the Note are allocable to a disproportionate related Private Use to the extent that the proceeds of the Note which are to be used to finance property used by a nongovernmental person in a trade or business which is related to the governmental use of the property referred to in Section 2.6 above, exceeds the proceeds of the Note which are to be used for the governmental use to which such Private Use relates. 2.8. Other Private Uses Defined. For purposes of Section 2.6 and 2.7, a Private Use consists of any contract or other arrangement including, without limitation, leases, management contracts, guarantee contracts, take or pay contracts, or put or pay contracts, which provides for a use of the Projects by a person or persons who are not State or local governments on a basis different than the general public. Any management, or operations contract or agreement which provides for nongovernmental use will provide for reasonable compensation which is in no part based on net profits and will satisfY the provisions of (a), (b) or (c) below: (a) for contracts which provide compensation for each annual period based on a periodic fixed fee, a capitation fee or combination thereof, (i) the contract has a term (including renewal options) not exceeding five years; (ii) the issuer may terminate the contract, without penalty, at the end of any three year period, and (iii) at least 50% of the compensation paid is on a periodic, fixed fee basis; (b) for contracts entered into or materially modified (other than pursuant to a renewal option) after March 15, 1993, which provide compensation based on a per unit fee or a combination per unit and periodic fixed fee, (i) the contract has a term (including renewal options) not exceeding three years; (ii) the issuer may terminate such contract (without penalty) at the end of the second year of the term, and (iii) the amount of the per unit fee is specified in the contract or otherwise limited by the qualified user or a third party; (c) for contracts entered into or materially modified (other than pursuant to a renewal option) after March 15, 1993, which provide compensation based on a percentage of fees charged, (i) the contract has a term (including renewal options) not exceeding two years, (ii) the issuer may terminate the contract (without penalty) at the end of the first year, and (iii) the service provider primarily provides services to third parties or the contract involves a facility during an initial start-up period; (d) For purposes of this Section 2.8: (i) "capitation fee" means a fixed periodic amount paid under a management contract or agreement for each person for whom the service provider assumes the responsibility to provide aU needed services for a specified period, provided the quantity and type of services actuaUy provided vary substantiaUy; (ii) "periodic fixed fee" means a stated doUar amount for services rendered during a specified period of time (i.e. $XX per month) which amount may automaticaUy increase according to a specified, objective, external standard; and (iii) "per unit fee" means a stated doUar amount for each unit of service provided (i.e. $XX per medical procedure). 2.9. Pooled Loan Financings. To the extent the amount of proceeds of the Note to be used to make loans to any borrowers (including loans referred to in Section 2.5 above and loans to state or local governmental units) exceeds $5,000,000, at least 95% of the net proceeds of the issue (as defined in Section 150 of the Code but without including proceeds used to finance costs of issuance or capitalized interest) that are to be used to make loans, will have been used within 3 years of the date hereof to make such loans. The payment of legal and underwriting costs is not contingent and at least 95% of the reasonably expected legal and underwriting costs associated with issuance will be paid within 180 days of the date hereof. 2.10. Output Facilities. No more than 5% of the proceeds of the Note are to be used with respect to any output facility (other than a facility for the furnishing of water). No more than the lesser of $5,000,000 or 5% of the proceeds of the Note are to be used (directly or indirectly) for the acquisition of a nongovernmental output facility. ARTICLE 111 ArbitrageIRebate Exemption 3.1. Temporarv Period-Refunding. With respect to the proceeds of the Note aUocable to the Prior Issue, such proceeds may be invested without restriction as to yield during the three-year temporary period commencing on the date hereof, because: (a) AU of the proceeds of the Prior Issue have been expended, or any such proceeds which have not been expended as of the date hereof, shall become transferred proceeds of this issue. Such transferred proceeds may be invested without restriction as to yield until three years after the date of original issuance of the Prior Issue. If any transferred proceeds remain unexpended after three years after the date of original issuance of the Prior Issue, such proceeds will be invested at a yield not in excess of the yield on the Note. (b) The proceeds of the Note will be used to refund the Prior Issue within 90 days of the date hereof, and may be invested during such time without restriction as to yield. 3.2. Temporarv Period-New Money. With respect to the New Money Note: (a) The Issuer has entered into or will enter into within six months from the date of this certificate, binding commitment(s) for the acquisition, construction or accomplishment of the Projects cited in Section 2.2 hereof, and the amount of such commitment(s) with respect to such Project will or do exceed the amount equal to 5% of $175,000, being the aggregate amount of obligations currently issued for such Project. (b) Such Project has been completed, or, if such Project has not been completed, work on the acquisition, construction or accomplishment of such Project will proceed or is proceeding with due diligence to completion. (c) It is reasonably expected that at least 85 percent of the net sale proceeds of such New Money Note will be expended within three years from the date of this Certificate. No more than 50 percent of the proceeds of the Note will be invested in nonpurpose investments with a term of four years or more. 3.3. Rebate. (a) Neither the Prior Issue nor the New Money Note was or is subject to the rebate requirement imposed by Section 148 of the Code because, with respect to each: (i) the Issuer was or is a governmental unit with general taxing powers; (ii) the Prior IssuelNew Money Note did not or does not constitute a "private activity bond" as that term is defined in Section 141 of the Code; (iii) ninety- five percent or more of the net proceeds of the sale of the Prior IssuelNew Money Note was or is to be used for local governmental activities of the Issuer; and (iv) the Issuer (including all agencIes, instrunJentalities and political subdivisions of the Issuer) reasonably expected or expects that the aggregate face amount of all tax-exempt bonds issued by the Issuer during the calendar year in which the Prior Issue was issued and the current calendar year would not or will not exceed $5,000,000. For purposes of such determination, no tax-exempt obligation was or shall be taken into account if it was or is a current refunding obligation issued in the calendar year in which the Prior IssuelNew Money Note (as applicable) was or is being issued which does not exceed the outstanding (redeemed) principal amount of the obligation to be refunded. (b) The Current Refunding Note is not subject to the rebate requirement imposed by Section 148 of the Code because all of the Gross Proceeds of such Current Refunding Note will be expended to pay the Prior Issue within 90 days of the date hereof and will, therefore, qualify for the six-month expenditure exception to rebate. 3.4. No Excess Proceeds. The total proceeds of sale of all obligations issued to date for the Projects do not exceed the total cost of the Projects. 3.5. Source of Repavrnent Funds. The Note will be paid from taxes and the proceeds of other obligations ofthe Issuer issued to fund the Note. 3.6. Debt Service Fund. The taxes used to pay principal and interest on the Note, whether or not deposited in a debt service fund, will be expended within 13 months of the date of deposit in such fund, or the date of their accumulation, in the payment of debt service on the Note. Any amounts received from the investment of such deposit or accumulation will be expended within one year of receipt. The debt service fund, if any, will be used to achieve a proper matching of revenues and debt service and will be depleted at least annually except for a reasonable carryover amount which will not exceed the greater of the earnings on such fund for the immediately preceding year or one-twelfth of the debt service on the Bonds for the immediately preceding year. 3.7. Sinking Funds. Except for the debt service fund described herein the Issuer has not created or established, and does not expect to create or establish, any sinking fund or other similar fund which the Issuer reasonably expects to use to pay principal or interest on the Note. ARTICLE IV Bank Qualification 4.1. Designation. The Note is hereby designated as a "qualified tax-exempt obligation" pursuant to the provisions of Section 265 of the Code. (a) In making such designation it has been determined with respect to the Current Refunding Note that: (i) the Note currently refunds the Prior Issue; (ii) the Prior Issue was designated as a "qualified tax-exempt obligation"; (iii) the aggregate face amount of the Note does not exceed $10,000,000; (iv) the Prior Issue had a weighted average maturity of3 years or less; (v) the maturity date of the Note, as measured from the original date of issuance of the notes issued pursuant to the Resolutions, in renewal of which such Note is being issued, does not exceed 30 years; and . (vi) not more than $10,000,000 of obligations issued by the Issuer during the calendar year in which the Prior Issue was issued were designated by the Issuer as "qualified tax-exempt obligations." (b) In making such designation it has been determined with respect to the New Money Note that: (i) the Issuer does not reasonably anticipate that the amount of "qualified tax- exempt obligations" to be issued by the Issuer during the current calendar year will exceed $10,000,000; and (ii) the amount of "qualified tax-exempt obligations" issued by the Issuer during the current calendar year does not as of this date, and including this issue, exceed $10,000,000. IN WITNESS WHEREOF, I have hereunto set my hand and affixed the corporate seal of the Town of Southold, as of the 8th day of September, 2006. ~~ Supervisor (SEAL) CERTIFICATES AS TO SIGNATURES, LITIGATION, AND DELNERY AND PAYMENT WE, the undersigned officers of the Town of Southold, in the County of Suffolk, a municipal corporation of the State of New York and herein referred to as the "Town", HEREBY CERTIFY that on or before September 8, 2006, we officially signed and properly executed by manual signatures the $1,110,000 Bond Anticipation Note for Various Purposes- 2006 (the "Note") of the Town, payable to bearer and otherwise described in Schedule A annexed hereto and by this reference made a part hereof, and that at the time of such signing and execution and on the date hereof we were and are the duly chosen, qualified and acting officers of the Town authorized to execute said Note and holding the respective offices indicated by the titles set opposite our signatures hereto for terms expiring on the respective dates set opposite such titles. WE FURTHER CERTIFY that no litigation of any nature is now pending or threatened restraining or enjoining the issuance or delivery of said Note or the levy or collection of any taxes to pay the interest on or principal of said Note, or in any manner questioning the authority or proceedings for the issuance of said Note or for the levy or collection of said taxes, or relating to said Note or affecting the validity thereof or the levy or collection of said taxes, that neither the corporate existence or boundaries of the Town nor the title of any of the present officers thereofto their respective offices is being contested, and that no authority or proceedings for the issuance of said Note has or have been repealed, revoked or rescinded. WE FURTHER CERTIFY that the seal which is impressed upon this certificate has been affixed, impressed, imprinted or otherwise reproduced upon said Note and is the legally adopted, proper and only official corporate seal of the Town. And I, Scott A. Russell, Supervisor, HEREBY FURTHER CERTIFY that on September 8, 2006, I delivered, or caused the delivery of said Note to Bridgehampton National Bank, Bridgehampton, New York, the purchaser thereof, and that at the time of such delivery of said Note, I received from said purchaser the amount hereinbelow stated, in full payment for said Note, computed as follows: Price.................................................................................... $1,110,000.00 Interest on said Note accrued to the date of such delivery.................................................................. -0- Amount Received.................................................................... .$1,110,000.00 507322.1026311 CERT IN WITNESS WHEREOF, we have hereunto set our hands and said corporate seal has hereunto been affixed this 8th day of September, 2006. _J;~ r/it/1-- (j ~ Term of Office Exoires Title December31,200~ December 3 I, 2001 Supervisor Deputy Town Clerk (SEAL) I HEREBY CERTIFY that the signatures of the officers of the above-named Town, which appear above, are true and genuine and that I know said officers and know them to hold th; r~s,ctiv:lffices set opposite their signatures. h~~ --BVP (Signature) (Title) of en'6&~f1/4fP7brli w4!1 ame of Bank) 507322.1 026311 CERT ATTORNEY'S CERTIFICATE I, Kieran Corcoran, HEREBY CERTIFY that I am a licensed attorney at law of the State of New York, having offices at 53095 Main Road, Southold, New York, and am the duly chosen, qualified and acting Deputy Town Attorney of the Town of South old, in the County of Suffolk, a municipal corporation of the State of New York and herein referred to as the "Town", that no litigation of any nature is now pending or threatened restraining or enjoining the issuance or delivery of the Note of the Town, payable to bearer and otherwise described as set forth in Schedule A annexed hereto and by this reference made a part hereof or the levy or collection of any taxes to pay the interest on or principal of said Note, or in any manner questioning the authority or proceedings for the issuance of said Note or for the levy or collection of said taxes, or relating to said Note or affecting the validity thereof or the levy or collection of said taxes, that neither the corporate existence or boundaries of the Town nor the title of any of the present officers thereof to their respective offices is being contested, and that no authority or proceedings for the issuance of said Note has or have been repealed, revoked or rescinded. IN WITNESS WHEREOF, I have hereunto set my hand this 8th day of September, 2006. Uffi ~ Attorney SCHEDULE A Amount and Title: $1,110,000 Bond Anticipation Note for Various Purposes-2006 Dated: September 8, 2006 September 7, 2007 Matures: Number: 8R-I Interest Rate per annum: 3.73% \ , ~ ~efa/leId & fl/0<Jd H[!jJ ONE CHASE MANHATTAN PLAZA NEW YORK, NY 10005 WWW.HAWKINS.COM September 8, 2006 The Town Board ofthe Town of Southold, in the County of Suffolk, New York Ladies and Gentlemen: We have examined a record of proceedings relating to the issuance of the $1,110,000 Bond Anticipation Note for Various Purposes-2006 of the Town of Southold, in the County of Suffolk, a municipal corporation of the State of New York. Said Note is a renewal Note, is dated September 8, 2006, matures September 7,2007, is numbered 8R-1, bears interest at the rate of three and seventy-three hundredths per centum (3.73%) per annum, payable at maturity, is of the denomination of $1,110,000, is payable to bearer without coupons and registrable as to both principal and interest and issued pursuant to the provisions of the Local Finance Law, constituting Chapter 33-a of the Consolidated Laws of the State of New York, various bond resolutions adopted by the Town Board on their respective dates, authorizing the issuance of serial bonds for various purposes, and the Certificate of Determination executed by the Supervisor on September 8, 2006. Said bond anticipation note is a temporary obligation issued in anticipation of the sale of permanent serial bonds. In our opinion, the Note is a valid and legally binding general obligation of the Town for which the Town has validly pledged its faith and credit and, unless paid from other sources, all the taxable real property within the Town is subject to the levy of ad valorem real estate taxes to pay the Note and interest thereon without limitation of rate or amount. The enforceability of rights or remedies with respect to such Note may be limited by bankruptcy, insolvency, or other laws affecting creditors' rights or remedies heretofore or hereafter enacted. The Internal Revenue Code of 1986, as amended (the "Code"), establishes certain requirements that must be met subsequent to the issuance and delivery of the Note in order that interest on the Note be and remain excludable from gross income under Section 103 ofthe Code. The Supervisor of the Town, in executing the Arbitrage and Use of Proceeds Certificate, has certified to the effect that the Town will comply with the provisions and procedures set forth therein and that it will do and perform all acts and things necessary or desirable to assure that interest paid on the Note is excludable from gross income under Section 103 of the Code. We 507322.1026311 CERr , have examined such Arbitrage and Use of Proceeds Certificate of the Town delivered concurrently with the delivery of the Note, and, in our opinion, such certificate contains provisions and procedures under which such requirements can be met. In our opinion, the interest on said Note is excludable under existing statutes and court decisions from the gross income of the recipients thereof for federal income tax purposes pursuant to Section 103 of the Code, and under existing statutes interest on the Note will not be treated as a preference item in calculating the alternative minimum tax that may be imposed under the Code with respect to individuals and corporations. In rendering the foregoing opinion we have assumed the Town's compliance with the Arbitrage and Use of Proceeds Certificate. Further, in our opinion, under existing statutes, interest on the Note is exempt from New York State and New York City personal income taxes. Other than such record of proceedings, we have not been requested to examine or review and have not examined or reviewed the accuracy or sufficiency of any additional proceedings, reports, correspondence, financial statements or other documents, containing financial or other information relative to the Town, which have been or may hereafter be furnished or disclosed to purchasers of said Note and we express no opinion with respect to any such financial or other information or the accuracy or sufficiency thereof. The form of said Note is prescribed by Schedule B,2 of the Local Finance Law of the State of New York, but we have not examined the executed Note. Very truly yours, ~~/j)~tLP 507322.1 026311 CERT _ North Fork Bank September 20, 2005 Mr. Martin Sidor Deputy Supervisor Town of Southold 53095 Main Road P.O. Box 1179 Southold, NY 11971 Dear Mr. Sidor: Enclosed for your files please find matured Bond Anticipation Note for the Town of Southold. This $3,011,600 Bond Anticipation Note was dated September 10, 2004 and matured on September 9, 2005. Should you need any further information, please feel free to contact me at (631) 844-1121. KB:bjk Enclosure 275 BROADHOLLOW ROAD. P.o. Box 8914, MELVILLE, NY 11747, 6318441000, FAX 631 6941536 No.6R-l $3,011,600 UNITED STATES OF AMERICA STATE OF NEW YORK COUNTY OF SUFFOLK TOWN OF SOUTHOLD BOND ANTICIPATION NOTE FOR VARIOUS PURPOSES-2004 The Town of Southold, in the County of Suffolk, a municipal corporation of the 8tate of New York, hereby acknowledges itself indebted and for value received promises to pay to the bearer of this note, or if it be registered, to the registered holder, hereof, the sum of THREE MILLION ELEVEN THOUSAND SIX HUNDRED DOLLARS ($3,011,600) on the 9th day of September, 2005, together with interest thereon from the date hereof at the rate of one and fifty~five hundredths per centum (1.55%) per annum, payable at maturity. Both principal of and interest on this Note will be paid in lawful money of the United States of America, at North Fork Bank, Melville, New York. At the request of the holder, the Tuwn Clerk shall convert this Note into a registered Note by registering it in the name of the holder in the books of the Town kept in the office of such Town Clerk and endorsing a certificate -of such registration hereon, after which both principal of and interest on this Note shall be payable only to the registered holder, his legal representatives, successors or transferees. This Note shall then be transferable only upon presentation to such Town Clerk with a written transfer of title and such Town Clerk shall thereupon register this Note in the name of the transferee in his books and shall endorse a certificate of such registration hereon. Such transfer shall be dated, and signed by the registered holder, or his legal representatives, and it shall be duly acknowledged or proved, or in the alternative the signatw"e thereto shall be certified as to its genuineness by an officer of a bank or trust company located and authorized to do business in this State. This Note is the only Note of an authorized combined renewal issue, the aggregate principal amoWlt of which is $3,011,600. TIlls Note is issued pursuant to the provisions of the Local Finance Law, constituting Chapter 33-a of the Consolidated Laws of the State of New York, various bond resolutions adopted by the Town Board on their respective dates, authorizing the issuance of serial bonds for various pmposes, and the Certificate of Detennination executed by the Supervisor on September 10, 2004. TIlls Note has been designated by the Town as a qualified tax-exempt obligation pursuant to the provisions of Section 265 of the Ioternal Revenue Code of 1986, as amended. The faith and credit of such Town of South old are hereby irrevocably pledged for the punctual payment of the principal of and interest on this Note according to its tenns. It is hereby certified and recited that all conditions, acts and things required by the Constitution and statutes of the State of New York to exist, to have happened and to have been perfonned precedent to and in the issuance of this Note, exist, have happeoed and have been performed, and that this Note, together with all other indebtedness of such Town of Southold, is within every debt and other limit prescribed by the Constitution and laws of such State. IN WITNESS WHEREOF, the Town of Southold has caused this Note to be signed by its Supervisor, and its corporate seal (or a facsimile thereof) to be affixed, impressed, imprinted, or otherwise reproduced hereon and attested by its Town Clerk and this Note to be dated as of the 10th day of September, 2004. (SEAL) . . . ATTEST:~ ~ 'i-Arl-J ~..;-- Town Clerk ... REGISTRATION CERTIFICATE It is hereby certified that the within Note has been registered as follows: Date of Registration Name of Registered Holder Registered by -I--. . . . . ... . . . . . $2,000,000 PJ\IOS; d- O~I/~oj 2n~", , nU"''''''1O . ..'-,\Al I l'U;~H. G...E"MMPTCN ~'J.!!T;~M ~l."~'""~ . tNh",,''<'i unt1JGEHP,HPTON, t;:p BOND ANTICWATION NOTE FOR VARIOUS PURPOSES-2004SY ~ '11Zz/.b. The Town of Southold, in the County of Suffolk, a municipal corporation of the State of New York, hereby acknowledges itself indebted and for value received promises to pay to the bearer of this Note, or if it be registered, to the registered holder, the sum of TWO MILLION DOLLARS ($2,000,000) on the 22"' day of April, 2005, together with interest thereon from the date hereof at the rate of one and eight hundredths per centum (1.080/0) per annum, payable at maturity. Both principal of and interest on this Note will be paid in lawful money of the United States of America, at the Bridgehampton National Bank, Southold, New Yark UNITED STATES OF AMERICA STATE OF NEW YORK COUNTY OF SUFFOLK TOWN OF SOUTHOLD At the request of the holder, the Town Clerk shall convert this Note into a registered Note by registering it in the name of the holder in the books of the Town kept in the office of such To'WIl Clerk and endorsing a certificate of such registration hereon, after which both principal of and interest on this Note shall be payable only to the registered holder, his legal representatives, successors or transferees. This Note shall then be transferable only upon presentation to such To'WIl Clerk with a written transfer of title and such To'WIl Clerk shall thereupon register this Note in the name of the transferee in his books and shall endorse a certificate of such registration hereon. Such transfer shall be dated, and signed by the registered holder, or his legal representatives, and it shall be duly acknowledged or proved, or in the alternative the signature thereto shall be certified as to its genuineness by an officer of a bank or trust company located and authorized to do business in this State. This Note is the one of an authorized combined note issue, the aggregate principal amount of which is $3,719,000, consisting of $3,409,000 principal amount to renew outstanding maturing bond anticipation notes and $310,000 principal amount to fund a new project, the notes of which are of like tenor except as to number, denomination, interest rate and place of payment of principal and interest. This Note is issued pursuant to the provisions of the Local Finance Law, constituting Chapter 33-a of the Consolidated Laws of the State of New York, eight (8) bond resolutions duly adopted by the Town Board on their respective dates, authorizing various purposes in and for the To'WIl and the Certificate of Detennination executed by the Supervisor on April 23, 2004. This Note has been designated by the To'WIl as a qualified tax-exempt obligation pursuant to the provisions of Section 265 of the Internal Revenue Code of 1986, as amended. The faith and credit of such Towo of Southold are hereby irrevocably pledged far the punctual payment of the principal of and interest on this Note according to its terms. It is hereby certified and recited that all conditions, acts and things required by the Constitution and statutes of the State of New York to exist, to have happened and to have been performed precedent to and in the issuance of this Note, exist, have happened and have been performed, and that this Note, together with all other indebtedness of such Town of Southold, is within every debt and other limit prescribed by the Constitution and laws of such State. IN WITNESS WHEREOF, the Town of Southold has caused this Note to be executed by its Supervisor, and its corporate seal (or a facsimile thereof) to be affixed, impressed, imprinted or otherwise reproduced hereon and attested by its TO'VTI Clerk and this Note to be dated as of the 23rd day of April, 2004. TOWN OF SOUTHOLD (SEAL) By drlf~ / Supervisor ATTEST: (!/'J1'-A~'{) 2("'..1'- Towo Cl 449036.1 023580 CERT u l ('J~ H ~rr ~- we 0<2' c:J':: ,Q~ REGISTRATION CERTIFICATE It is hereby certified that the within Note has been registered as follows: Date of Registration Name of Registered Registered by Holder 449036.] 023580 CERT . ~ 9lJeIajUi & 1//004 Hf?7J RECEIVED 67 WALL STREET NEW YORK, NY 10005 WWIN.HDW.COM MAY 7 2004 ~ulhold Town Clerl April 23, 2004 The Town Board of the T own of Southold, in the County of Suffolk, New York Ladies and Gentlemen: We have examined the record of proceedings relating to the issuance of the $3,719,000 Bond Anticipation Notes for Various Purposes-2004 of the Town of Southold, in the County of Suffolk, a municipal corporation of the State of New York. $3,409,000 principal amount of said Notes are renewal notes and $310,000 principal amount of said Notes will provide initial funds for a new public, are dated April 23, 2004, mature April 22, 2005, Note numbered 7R-I is of the denomination of $2,000,000 and bears interest at the rate of one and eight hundredths per centum (1.08%) per annum and Note No. 7R-2 is of the denomination of $1,719,000 and bears interest at the rate of one and nineteen hundredths per centum (1.19%) per annum, each is payable at maturity, each is payable to bearer without coupons and registrable as to both principal and interest, issued pursuant to the provisions of the Local Finance Law, constituting Chapter 33-a of the Consolidated Laws of the State of New York, eight (8) bond resolutions duly adopted by the Town Board on their respective dates, authorizing the issuance of serial bonds for various purposes in and for the Town and the Certificate of Determination executed by the Supervisor on April 23, 2004. Said bond anticipation note is a temporary obligation issued in anticipation of the sale of permanent serial bonds. In our opinion, the Note is a valid and legally binding general obligation of the Town for which the Town has validly pledged its faith and credit and, unless paid from other sources, all the taxable real property within the Town is subject to the levy of ad valorem real estate taxes to pay the Note and interest thereon without limitation of rate or amount. The enforceability of rights or remedies with respect to such Note may be limited by bankruptcy, insolvency, or other laws affecting creditors' rights or remedies heretofore or hereafter enacted. The Internal Revenue Code of 1986, as amended (the "Code"), establishes certain requirements that must be met subsequent to the issuance and delivery of the Note in order that interest on the Note be and remain excludable from gross income under Section 103 of the Code. The Supervisor of the Town, in executing the Arbitrage and Use of Proceeds Certificate, has 449036.1 023580 CERT . certified to the effect that the Town will comply with the provisions and procedures set forth therein and that it will do and perform all acts and things necessary or desirable to assure that interest paid on the Note is excludable from gross income under Section 103 of the Code. We have examined such Arbitrage and Use of Proceeds Certificate of the Town delivered concurrently with the delivery of the Note, and, in our opinion, such certificate contains provisions and procedures under which such requirements can be met. In our opinion, the interest on said Note is excludable under existing statutes and court decisions from the gross income of the reci pients thereof for federal income tax purposes pursuant to Section 103 of the Code, and under existing statutes interest on the Note will not be treated as a preference item in calculating the alternative minimum tax that may be imposed under the Code with respect to individuals and corporations In rendering the foregoing opinion we have assumed the Town's compliance with the Arbitrage and Use of Proceeds Certificate. Further, in our opinion, under existing statutes, interest on the Note is exempt from New York State and New York City personal income taxes. Other than such record of proceedings, we have not been requested to examine or review and have not examined or reviewed the accuracy or sufficiency of any additional proceedings, reports, correspondence, financial statements or other documents, containing financial or other information relative to the Town, which have been or may hereafter be furnished or disclosed to purchasers of said Note and we express no opinion with respect to any such financial or other information or the accuracy or sufficiency thereof The form of said Note is prescribed by Schedule B, 2 of the Local Finance Law of the State of New York, but we have not examined the executed Note. / ~yJjtll~j)J t~1 449036.1 023580 CERT I. . . ~q)~ &1f/~H;?7J 67 WALL STREET NEW YORK, NY 10005 WWW.HDW.CQM September 10, 2004 The Town Board of the Town of South old, in the County of Suffolk, New York Ladies and Gentlemen: We have examined a record of proceedings relating to the issuance of the $3,011,600 Bond Anticipation Note for Various Purposes-2004 of the Town of Southold, in the County of Suffolk, a municipal corporation of the State of New York. Said Note is a combined Note, is dated September 10, 2004, matures September 9, 2005, is numbered 6R-I, bears interest at the rate of one and fifty-five hundredths per centum (1.55%) per annum, payable at maturity, is of the denomination of $3,011,600, is payable to bearer without coupons and registrable as to both principal and interest and issued pursuant to the provisions of the Local Finance Law, constituting Chapter 33-a of the Consolidated Laws of the State of New York, various bond resolutions adopted by the Town Board on their respective dates, authorizing the issuance of serial bonds for various purposes, and the Certificate of Determination executed by the Supervisor on September 10, 2004. Said bond anticipation note is a temporary obligation issued in anticipation of the sale of permanent serial bonds. In our opinion, the Note is a valid and legally binding general obligation of the Town for which the Town has validly pledged its faith and credit and, unless paid from other sources, all the taxable real property within the Town is subject to the levy of ad valorem real estate taxes to pay the Note and interest thereon without limitation of rate or amount. The enforceability of rights or remedies with respect to such Note may be limited by bankruptcy, insolvency, or other laws affecting creditors' rights or remedies heretofore or hereafter enacted. The Internal Revenue Code of 1986, as amended (the "Code"), establishes certain requirements that must be met subsequent to the issuance and delivery of the Note in order that interest on the Note be and remain excludable from gross income under Section 103 of the Code. The Supervisor of the Town, in executing the Arbitrage and Use of Proceeds Certificate, has certified to the effect that the Town will comply with the provisions and procedures set forth therein and that it will do and perform all acts and things necessary or desirable to assure that interest paid on the Note is excludable from gross income under Section 103 of the Code. We have examined such Arbitrage and Use of Proceeds Certificate of the Town delivered concurrently with the delivery of the Note, and, in our opinion, such certificate contains provisions and procedures under which such requirements can be met. 459314.1 026311 CERT , . . In our opinion, the interest on said Note is excludable under existing statutes and court decisions from the gross income of the recipients thereof for federal income tax purposes pursuant to Section 103 of the Code, and under existing statutes interest on the Note will not be treated as a preference item in calculating the alternative minimum tax that may be imposed under the Code with respect to individuals and corporations. In rendering the foregoing opinion we have assumed the Town's compliance with the Arbitrage and Use of Proceeds Certificate. Further, in our opinion, under existing statutes, interest on the Note is exempt from New York State and New York City personal income taxes. Other than such record of proceedings, we have not been requested to examine or review and have not examined or reviewed the accuracy or sufficiency of any additional proceedings, reports, correspondence, financial statements or other documents, containing financial or other information relative to the Town, which have been or may hereafter be furnished or disclosed to purchasers of said Note and we express no opinion with respect to any such financial or other information or the accuracy or sufficiency thereof. The form of said Note is prescribed by Schedule B,2 of the Local Finance Law of the State of New York, but we have not examined the executed Note. Very truly yours, ~~,~WL.LP 459314.1026311 CERT No. 7R-2 $1,719,000 UNITED STATES OF AMERICA STATE OF NEW YORK COUNTY OF SUFFOLK TOWN OF SOUmOLD BOND ANTICIPATION NOTE FOR VARIOUS PURPOSES-2004 The Town of Southold, in the County of Suffolk, a municipal corporation of the State of New Yark, hereby acknowledges itself indebted and for value received promises to pay to the bearer of this Note, or if it be registered, to the registered holder, the sum of ONE MILLION SEVEN HUNDRED NINETEEN mOUSAND DOLLARS ($1,719,000) on the 2200 day of April, 2005, together with interest thereon from the date hereof at the rate of one and nineteen hundredths per centum (1.19%) per annum, payable at maturity. Both principal of and interest on this Note will be paid in lawful money of the United States of America, at the Office of the Town Clerk, Southold, New York. At the request of the holder, the To'Wll Clerk shall convert this Note into a registered Note by registering it in the name of the holder in the books of the Town kept in the office of such Town Clerk and endorsing a certificate of such registration hereon, after which both principal of and interest on this Note shall be payable only to the registered holder, his legal representatives, successors or transferees. lbis Note shall then be transferable only upon presentation to such Town Clerk with a written transfer of title and such Town Clerk shall thereupon register this Note in the name of the transferee in his books and shall endorse a certificate of such registration hereon. Such transfer shall be dated, and signed by the registered holder, or his legal representatives, and it shall be duly acknowledged or proved, or in the alternative the signature thereto shall be certified as to its genuineness by an officer of a bank or trust company located and authorized to do business in this State. TIlls Note is the one of an authorized combined note issue, the aggregate principal amonnt of which is $3,719,000, consisting of $3,409,000 principal amount to renew outstanding maturing bond anticipation notes and $310,000 principal amonnt to fund a new project, the notes of which are of like tenor except as to number, denomination, interest rate and place of payment of principal and interest. This Note is issued pursuant to the provisions of the Local Finance Law, constituting Chapter 33-a of the Consolidated Laws of the State of New York, eight (8) bond resolutions duly adopted by the Town Board on their respective dates, authorizing various purposes in and for the Town and the Certificate of Determination executed by the Supervisor on April 23, 2004. This Note has been designated by the Town as a qualified tax-exempt obligation pursuant to the provisions of Section 265 of the Internal Revenue Code of 1986, as amended. The faith and credit of such Town of South old are hereby irrevocably pledged for the punctual payment of the principal of and interest on this Note according to its terms. It is hereby certified and recited that all conditions, acts and things required by the Constitution and statutes of the State of New York to exist, to have happened and to have been performed precedent to and in the issuance of this Note, exist, have happened and have been perfonned, and that this Note, together with all other indebtedness of such Town of Southold, is within every debt and other limit prescribed by the Constitution and laws of such State. IN WITNESS WHEREOF, the Town of Southold has caused this Note to be executed by its Supervisor, and its corporate seal (or a facsimile thereof) to be affixed, impressed, imprinted or otherwise reproduced hereon and attested by its Town Clerk and this Note to be dated as of the 23" day of Apri~ 2004. TOWN OF SOUmOLD (SEAL) BY~~ / upervisor ATTEST: (!~'hd/ 0 -7j'UJ/1 o lerk . 449036.1 023580 CERT $2,000,000 UNITED STATES OF AMERICA STATE OF NEW YORK COUNTY OF SUFFOLK TOWN OF SOUTHOLD BOND ANTICIPA nON NOTE FOR VARIOUS PURPOSES-2oo4 The Town of Southold, in the Coooty of Suffolk, a municipal corporation of the State of New York, hereby acknowledges itself indebted and for value received promises to pay to the bearer of this Note, or if it be registered, to the registered holder, the sum of TWO MILUON DOLLARS ($2,000,000) on the 22" day of Apri~ 2005, together with interest thereon from the date hereof at the rate of one and eight hundredths per centum (1.080/0) per annum, payable at maturity. Both principal of and interest on this Note will be paid in lawful money of the United States of America, at the Bridgehampton National Bank, Southolel, New York. At the request of the holder, the Town Clerk shall convert this Note into a registered Note by registering it in the name of the holder in the books of the Town kept in the office of such Town Clerk and endorsing a certificate of such registration hereon, after which both principal of and interest on this Note shall be payable only to the registered holder, his legal representatives, successors or transferees. This Note shall then be transferable only upon presentation to such TOml Clerk with a written transfer of title and such Town Clerk shall thereupon register this Note in the name of the transferee in his books and shall endorse a certificate of such registration hereon. Such transfer shall be dated, and signed by the registered holder, or his legal representatives, and it shall be duly acknowledged or proved, or in the alternative the signature thereto shall be certified as to its genuineness by an officer of a bank or trust company located and authorized to do business in this State. This Note is the one of an authorized combined note issue, the aggregate principal amooot of which is $3,719,000, consisting of $3,409,000 principal amooot to renew outstanding maturing bond anticipation notes and $310,000 principal amooot to fimd a new project, the notes of which are of like tenor except as to nwnber, denomination, interest rate and place of payment of principal and interest This Note is issued pursuant to the provisions of the Local Finance Law, constituting Chapter 33-a of the Consolidated Laws of the State of New York, eight (8) bond resolutions duly adopted by the Town Board on their respective dates, authorizing various purposes in and for the Town and the Certificate of Detennination executed by the Supervisor on April 23, 2004. This Note has been designated by the Town as a qualified tax-exempt obligation pursuant to the provisions of Section 265 of the Internal Revenue Code of 1986, as amended. The faith and credit of such Town of Southold are hereby irrevocably pledged for the pooctuaI payment of the principal of and interest on this Note according to its terms. It is hereby certified and recited that all conditions, acts and things required by the Constitution and statutes of the Slate of New York to exist, to have happened and to have been performed precedent to and in the issuance of this Note, exist, have happened and have been performed, and that this Note, together with all other indebtedness of such Town of Southold, is within every debt and other limit preseribed by the Constitution and laws of such State. IN WITNESS WHEREOF, the Town of Southold has caused this Note to be executed by its Supervisor, and its corporate seal (or a facsimile thereof) to be affixed, impressed, imprinted or otherwise reproduced hereon and attested by its Town Clerk and this Note to be dated as of the 23" day of Apri~ 2004. TOWN OF SOUTHOLD (SEAL) By drtf.y:? / Supervisor ATTEST: {!/~~rlf7 '1(4-.-1'- Town CI 449036.1 023580 CERT . . CERTIFICATE OF DETERMINATION BY THE SUPERVISOR RELATIVE TO AUTHORIZATION, SALE, ISSUANCE, FORM AND CONTENTS OF THE $3,719,000 BOND ANTICIPATION NOTES FOR VARIOUS PURPOSES-2004 OF THE TOWN OF SOUTHOLD, NEW YORK. I, Joshua Y. Horton, Supervisor of the Town of Southold, New York (herein called the "Town"), HEREBY CERTIFY that pursuant to the powers and duties delegated to me as the chief fiscal officer of the Town, by the Town Board of the Town, pursuant to the bond resolutions duly adopted and as referred to in paragraphs 1 to 8 inclusive, hereof, and subject to the limitations prescribed in said bond resolutions, I have made the following determinations: 1. A bond anticipation note of the Town in the principal amount of $18,000 shall be issued to renew, in part, the $36,000 bond anticipation note dated April 25, 2003, maturing April 23, 2004 and heretofore issued in anticipation of the sale of the serial bonds authorized pursuant to the bond resolution entitled: "Bond Resolution of the Town of Southold, New York, adopted December 21, 1999, authorizing the construction of a salt storage building in the Highway Yard, in Peconic, in said Town, for use by the Town Highway Department, stating the estimated maximum cost thereof is $90,000, appropriating said amount therefor and authorizing the issuance of $90,000 serial bonds to finance said appropriation," duly adopted by the Town Board on the date therein referred to, and the Certificate of Determination executed by the Supervisor on April 25, 2003, the redemption of said $36,000 bond anticipation note having been heretofore provided to the extent of $18,000 from a source other than the proceeds of serial bonds. 2. A bond anticipation note of the Town in the principal amount of $42,000 shall be issued to renew, in part, the $84,000 bond anticipation note dated April 25, 2003, maturing April 23, 2004, and heretofore issued in anticipation of the sale of the serial bonds authorized pursuant to the bond resolution entitled: "Bond Resolution of the Town of Southold, New York, adopted August 29, 2000, authorizing the construction of improvements at the Down's Farm Preserve Park at Fort Corchaug, in Cutchogue, in said Town, stating the estimated maximum cost thereof is $210,000, appropriating said amount therefor and authorizing the issuance of $210,000 serial bonds to finance said appropriation," duly adopted by the Town Board on the date therein referred to, and the Certificate of Determination executed by the Supervisor on April 25, 2003, the redemption of said $84,000 bond anticipation note having been heretofore provided to the extent of $42,000 from a source other than the proceeds of serial bonds. 1 449036.1 023580 CERT . . 3. A bond anticipation note of the Town in the principal amount of $55,000 shall be issued to renew, in part, the $110,000 bond anticipation note dated April 25, 2003, maturing April 23, 2004, and heretofore issued in anticipation of the sale of the serial bonds authorized pursuant to the bond resolution entitled: "Bond resolution of the Town of Southold, New York, adopted September 28, 1999, authorizing the original improvement and embellishment of a new public park and recreational area on the land containing 13.85 acres, more or less, on the west side ofPeconic Lane, heretofore acquired and now owned by and situate in, said Town; stating the estimated maximum cost thereof is $275,000 including preliminary costs and costs incidental thereto and the financing thereof; appropriating said amount therefor and authorizing the issuance of $275,000 serial bonds of said Town to finance said appropriation, " duly adopted by the Town Board on the date therein referred to, and the Certificate of Determination executed by the Supervisor on April 25, 2003, the redemption of said $110,000 bond anticipation note having been heretofore provided to the extent of $55,000 from a source other than the proceeds of serial bonds. 4. A bond anticipation note of the Town in the principal amount of $81,000 shall be issued to renew, in part, the $130,000 bond anticipation note dated April 25, 2003, maturing April 23 2004, and heretofore issued in anticipation of the sale of the serial bonds authorized pursuant to the bond resolution entitled: "Bond Resolution ofthe Town of South old, New York, adopted March 27, 2001, authorizing the acquisition and installation of a computer system network, including hardware, software and appurtenant equipment, machinery, apparatus and furnishings, in the Town Clerk's office at the estimated maximum cost of $184,000 and the Tax Receiver's Office at the estimated maximum cost of $38,000; stating the estimated total cost thereof, including preliminary costs and costs incidental thereto in the amount of $8,000, is $230,000; appropriating said amount therefor and authorizing the issuance of $230,000 serial bonds of said Town to finance the said appropriation," duly adopted by the Town Board on the date therein referred to, and the Certificate of Determination executed by the Supervisor on April 25, 2003, the redemption of said $130,000 bond anticipation note having been heretofore provided to the extent of $49,000 from a source other than the proceeds of serial bonds. 5. A bond anticipation note of the Town in the principal amount of $2,324,000 shall be issued to renew, in part, the $2,400,000 bond anticipation note dated April 25, 2003, maturing April 25, 2004 and heretofore issued in anticipation of the sale of the serial bonds authorized pursuant to the bond resolution entitled: 2 449036.1 023580 CERT . . "Bond Resolution of the Town of Southold, New York, adopted March 13, 2001, appropriating the amount of $2,600,000 for the increase and improvement of facilities of the Southold Solid Waste Management District, in said Town, and authorizing the issuance of $2,600,000 serial bonds of said Town to finance said appropriation," duly adopted by the Town Board on the date therein referred to and the Certificate of Determination executed by the Supervisor on April 25, 2003, the redemption of said $2,400,000 bond anticipation note having been heretofore provided to the extent of $76,000 from a source other than the sale of serial bonds. 6. A bond anticipation note of the Town in the principal amount of $705,000 shall be issued to renew, in part, the $750,000 bond anticipation note dated April 25, 2003, maturing April 23, 2004 and heretofore issued in anticipation of the sale of the serial bonds authorized pursuant to the bond resolution entitled: "Bond Resolution of the Town of Southold, New York, adopted November 19,2002, appropriating the amount of $750,000 in addition to the amount of $2,600,000 heretofore appropriated for the increase and improvement of facilities of the Southold Solid Waste Management District, in said Town, stating the estimated maximum cost of said increase and improvement of facilities, including said additional appropriation, is $3,350,000 and authorizing the issuance of $750,000 Serial Bonds to finance said additional appropriation, said bond being in addition to the $2,600,000 Serial Bonds of said Town heretofore authorized," duly adopted by the Town Board on the date therein referred to and the Certificate of Determination executed by the Supervisor on April 23, 2003, the redemption of said $750,000 bond anticipation note having been heretofore provided to the extent of $21,000 from the unexpended proceeds of said $750,000 bond anticipation note maturing on April 23, 2004 and to the extent of $24,000 from a source other than the proceeds ofthe serial bonds. 7. A bond anticipation note of the Town in the principal amount of$184,000 shall be issued to renew, in part, the $230,000 bond anticipation note dated April 25, 2003, maturing April 23, 2004 and heretofore issued in anticipation of the sale of the serial bonds authorized pursuant to the bond resolution entitled: "Bond Resolution of the Town of Southold, New York ("Town"), adopted October 22, 2002, authorizing the Town to (a) acquire a leasehold interest, for a term of 20 years, in the certain piece or parcel of land in Cutchoque, situate on Griffing Street, North of Main Road (Route 25), containing 38,250 square feet, more or less, as the site of a public parking area, and (b) construct a public parking area on said site (collectively, the "Project"); appropriating $230,000 for said construction; authorizing the issuance of $230,000 Serial Bonds to 3 449036.1023580 CERT . . finance said appropriation; stating that the Town Board, as lead agency, has determined that the project is an unlisted action having no significant effect on the environment and that a negative declaration has been issued and filed; stating the plan of financing of said construction is the issuance of said serial bonds to finance said appropriation and the levy and collection of taxes to pay the principal of and interest on said bonds", duly adopted by the Town Board on the date therein referred to and the Certificate of Determination executed by the Supervisor on April 25, 2003, the redemption of said $230,000 bond anticipation note having been heretofore provided to the extent of $48,000 from a source other than the sale of serial bonds. 8. A bond anticipation note of the Town in the principal amount of$310,000 shall be issued in anticipation of the sale of serial bonds authorized pursuant to the bond resolution entitled: "Bond Resolution of the Town of South old, New York, adopted March 9, 2004, authorizing the acquisition of equipment for the use by the Town Highway Department as follows: (I) a Street Sweeper, a the estimated maximum costs of $170,000, and (2) a Payloader, at the estimated maximum cost of $140,000 stating the estimated total cost thereto is $310,000; appropriating said amount therefore and authorizing the issuance of $310,000 serial bonds of said town to finance said appropriation," duly adopted by the Town Board on the date therein referred to. 9. Said $18,000 note, said $42,000 note, said $55,000 note, said $81,000 note, said $2,324,000 note, said $705,000 note, said $184,000 note and said $310,000 note, shall be combined for the purpose of sale into a single note issue in the aggregate principal amount of $3,719,000 (hereinafter referred to as the "Note(s)"). 1 O. The terms, form and details of said Notes shall be as follows: Amount and Title: $3,719,000 Bond Anticipation Notes for Various Purposes- 2004 Dated: Apri123 2004 April 22, 2005 Matures: Number and Denomination: (a) No. 7R-1, at $2,000,000 (b) No. 7R-2, at $1,719,000 Interest Rate 4 449036.1023580 CERT . . per annum: (a) 1.08% (b) 1.19% Form of Note: Substantially in accordance with form prescribed by Schedule B, 2 of the Local Finance Law of the State of New York. II. The amount of bond anticipation notes originally issued in anticipation of the issuance of the serial bonds authorized pursuant to the resolutions referred to in paragraphs I to 8, inclusive, hereof, including the Notes, is (1) $90,000, (2) $210,000, (3) $275,000, (4) $230,000, (5) $2,600,000, (6) $750,000, (7) $230,000 and (8) $310,000, respectively, and the amount of bond anticipation notes which will be outstanding after the issuance of the Note, including said Note, will be (I) $18,000, (2) 42,000, (3) $55,000, (4) $81,000, (5) $2,324,000, (6) $705,000 (7) $184,000 and (8) $310,000, respectively. 12. The serial bonds authorized pursuant to the bond resolutions referred to in paragraphs 1,2,3,4,7, and 8 hereof are for improvements which are non-assessable. The serial bonds authorized pursuant to the bond resolutions referred to in paragraphs 5 and 6 hereof are for improvements which are assessable. 13. Pursuant to said powers and duties delegated to me, I DO HEREBY AWARD AND SELL the Notes as follows: (a) $2,000,000 principal amount to Bridgehampton National Bank, Southold, New York, for the purchase price of $2,000,000, to bear interest at the rate of one and eight hundredths per centum (1.08%), per annum, payable at maturity, and (b) $1,719,000 principal amount to Fleet Bank, Southold, New York, to bear interest at the rate of one and nineteen hundredths per centum (1.19%) per annum, payable at maturity, each plus accrued interest, if any, from the date of each Note to the date of delivery thereof, and I FURTHER DETERMINE that said $2,000,000 Note shall be payable as to both principal and interest at Bridgehampton National Bank, Southold, New York, and said $2,000,000 Note shall be payable as to both principal and interest at the Office of the Town Clerk, Southold, New York. 14. Each Note shall be executed in the name of the Town by its Supervisor and the corporate seal of the Town (or a facsimile thereof) shall be affixed, impressed, imprinted or otherwise reproduced thereon and attested by its Town Clerk. I HEREBY FURTHER CERTIFY that the powers and duties delegated to me to issue and sell the Notes hereinabove referred to are in full force and effect and have not been modified, amended or revoked. IN WITNESS WHEREOF, I have hereunto set my hand this 23'd day of April, 2004. /Lr~~~ I Supervisor 5 449036.1 023580 CERT . . CLERK'S CERTIFICATE I, Elizabeth A. Neville, Town Clerk of the Town of Southold, in the County of Suffolk, New York, HEREBY CERTIFY that I have compared the foregoing copy of the Certificate of Determination executed by the Supervisor and the same is a true and complete copy of the Certificate filed with said Town in my office as Town Clerk on the 23rd day of April, 2004; and I FURTHER CERTIFY that no resolution electing to reassume any of the powers or duties mentioned in said Certificate and delegated to the Supervisor by the bond resolutions cited in said Certificate has been adopted by the Town Board of the Town. IN WITNESS WHEREOF, I have hereunto set my hand and affixed the corporate seal of said Town this 23rd day of April, 2004. (SEAL) ~A/'~O ~:/~~, Town erk 449036.1 023580 CERT . . ARBITRAGE AND USE OF PROCEEDS CERTIFICATE I, Joshua Y. Horton, Supervisor of the Town of Southold (the "Issuer"), in the County of Suffolk, State of New York, HEREBY CERTIFY with respect to the Issuer's $3,719,000 Bond Anticipation Notes for Various Purposes-2004 (the "Notes") dated and issued on April 23, 2004, as follows: Unless the context clearly requires otherwise, all capitalized terms not otherwise defined herein shall have the meanings set forth below or in the Resolutions, the Code or the Regulations (each as defined below): ARTICLE I General 1.1. Authoritv of Signatorv. I am an officer of the Issuer charged with the responsibility for the execution, delivery, and issuance of the Note and am acting for and on behalf of the Issuer in signing this certificate. 1.2. Purpose of Certificate. This certificate is made for the purpose of establishing evidence of the expectations of the 'Issuer as of the date hereof as to future events regarding the amount and use of proceeds of the Note. It is intended and may be relied upon for purposes of Sections 103 and 148 of the Internal Revenue Code of 1986, as amended (the "Code"), and as a certification described in Section 1.148-2(b)(2) of the Treasury Regulations (the "Regulations"). This certificate is executed and delivered as part of the record of proceedings in connection with the issuance of the Note. The provisions of this certificate constitute a contractual obligation of the Issuer in consideration for the purchase of and payment for the Note by the purchaser(s) thereof. 1.3. Reasonable Expectations. This certificate sets forth the facts, estimates and circumstances now in existence which form the basis for the Issuer's expectation that the proceeds of the Note will not be used in a manner that would cause the Note to be an arbitrage bond under Section 148 ofthe Code or a private activity bond under Sections 103 and 141 of the Code. To the best of my knowledge and belief, such expectation is reasonable and there are no other facts, estimates or circumstances that would materially change that expectation. 1.4. Composite Issue. No other governmental obligations have been sold fewer than 15 days prior to, or will be sold fewer than 15 days after, the sale date of the Note. 1.5. No Federal Guarantee. The Issuer represents and covenants that, except for the gross proceeds of the Note which are: (a) invested during the temporary period referred to in Article III, (b) held in any refunding escrow or (c) invested in obligations of the United States Treasury or in obligations issued pursuant to Section 21B(d)(3) of the Federal Home Loan Bank Act, as amended by Section 511(a) of the Financial Institutions Reform, Recovery and 449036.1023580 CERT . . Enforcement Act of 1989, or any successor provision to Section 21B(d)(3) of the Federal Home Loan Bank Act, as amended: (i) No portion of the payment of principal or interest with respect to the Note is or will be guaranteed directly or indirectly by the United States or any agency or instrumentality thereof (herein "federally guaranteed"); and (ii) No portion of the gross proceeds of the Note in excess of five percent of such gross proceeds is or will be (A) used in making loans the payment of principal or interest with respect to which is to be federally guaranteed, or (B) invested directly or indirectly in federally insured deposits or accounts. 1.6. Tax Representation. The Issuer expects to be able to and will comply with all the procedures and provisions set forth herein, and will do and perform all acts and things necessary and desirable within its reasonable control in order to assure that interest paid on the Note shall be excluded from gross income of the owners thereof for the purpose of federal income taxation. 1.7. Additional Information. The Issuer will provide such other information as may be required to assure the exclusion from gross income of interest on the Note for federal income taxation purposes. 1.8. Non-Purpose Investments. Not more than 50% of the proceeds of the Note are being invested in investments not acquired to carry out the governmental purposes of the issue at a guaranteed yield and having a term of 4 years or more. 1.9. IRS Information Reporting. The Issuer will make a timely filing of the appropriate IRS Form 8038-G or 8038-GC. 449036.1 023580 CERT . . ARTICLE II Use of Project and Proceeds 2.1. Authorization. (a) The Notes are authorized to be issued pursuant to applicable provisions of the laws of the State of New York and eight (8) bond resolutions adopted by the Town Board on their respective dates (the "Resolutions"), as referred to in the Certificate of Determination executed by the Supervisor on April 23, 2004 (the "Certificate"). (b) For purposes of this Article II the term "proceeds" means the net amount (after payment of all costs and expenses associated with issuing the Note) received by the Issuer from the sale of the Note, excluding accrued interest. 2.2. Purvose of Issue. The Note is being issued to provide funds for various purposes in and for the Town (collectively, "the Project"), as further described in the Resolutions. 2.3. Use of Proceeds. The proceeds of sale of the Notes in the amount of $3,409,000 (the "Current Refunding Note") will be used, together with other available funds in the amount of $391,000, to redeem a prior issue of bond anticipation notes which mature on April 23, 2004, in the principal amount of $3,800,000 (the "Prior Issue"), heretofore issued to finance the Project. The balance of the proceeds of sale of the Notes will be used to provide funds for a new project. 2.4. Ownership/Lease/Sale. The Proj ect will be owned by the Issuer or another state or local governmental unit and will not be leased to any person who is not a state or local governmental unit. It will not (except to the extent that any of the proj ects financed involve grants) be sold or otherwise disposed of, in whole or in part, except for incidental sales of surplus items the proceeds of which will not constitute net operating profits or net capital profits to the Issuer, prior to the maturity date of the Notes. 2.5. Private Loans. Not more than the lesser of 5 percent or $5,000,000 of the proceeds of the Notes will be used directly or indirectly to make loans to persons other than a governmental unit. 2.6. Private Use. The aggregate amount of proceeds of the Notes used directly or indirectly in a trade or business carried on by a person other than a state or local governmental unit ("Private Use"), will not exceed 10% of such proceeds in the event that more than 10% of the principal or 10% of the interest due on the Notes during the term thereof is, under the terms of the Notes or any underlying arrangement, directly or indirectly, secured by any interest in property used or to be used for a Private Use or in payments in respect of property used or to be used for a Private Use or is to be derived from payments, whether or not to the Issuer, in respect of property or borrowed money used or to be used for a Private Use. 2.7. UnrelatedlRelated Disproportionate Use. No more than 5% of the proceeds of the Notes will be used directly or indirectly in the trade or business of a person other 449036.1 023580 CERT . . than a governmental unit that is unrelated or related and disproportionate to the governmental use of the property being financed, including any private loan financing described in Section 2.5 which meets this test. For purposes of this Arbitrage and Use of Proceeds Certificate, proceeds of the Notes are allocable to an unrelated Private Use if such use is neither directly nor operationally related to a governmental use and proceeds of the Notes are allocable to a disproportionate related Private Use to the extent that the proceeds of the Notes which are to be used to finance property used by a nongovernmental person in a trade or business which is related to the governmental use of the property referred to in Section 2.6 above, exceeds the proceeds of the Notes which are to be used for the governmental use to which such Private Use relates. 2.8. Other Private Uses Defined. For purposes of Sections 2.6 and 2.7, a Private Use consists of any contract or other arrangement including, without limitation, leases, management contracts, guarantee contracts, take or pay contracts, or put or pay contracts, which provides for a use of the Proj ect by a person or persons who are not State or local governments on a basis different than the general public. Any management, or operations contract or agreement which provides for nongovernmental use will provide for reasonable compensation which is in no part based on net profits and will satisfy the provisions of (a), (b) or (c) below: (a) for contracts which provide compensation for each armual period based on a periodic fixed fee, a capitation fee or combination thereof, (i) the contract has a term (including renewal options) not exceeding five years; (ii) the issuer may terminate the contract, without penalty, at the end of any three year period, and (iii) at least 50% of the compensation paid is on a periodic, fixed fee basis; (b) for contracts entered into or materially modified (other than pursuant to a renewal option) after March 15, 1993, which provide compensation based on a per unit fee or a combination per unit and periodic fixed fee, (i) the contract has a term (including renewal options) not exceeding three years; (ii) the issuer may terminate such contract (without penalty) at the end of the second year of the term, and (iii) the amount of the per unit fee is specified in the contract or otherwise limited by the qualified user or a third party; (c) for contracts entered into or materially modified (other than pursuant to a renewal option) after March 15, 1993, which provide compensation based on a percentage of fees charged, (i) the contract has a term (including renewal options) not exceeding two years, (ii) the issuer may terminate the contract (without penalty) at the end of the first year, and (iii) the service provider primarily provides services to third parties or the contract involves a facility during an initial start-up period; (d) For purposes of this Section 2.8: (i) "capitation fee" means a fixed periodic amount paid under a management contract or agreement for each person for whom the service provider assumes the responsibility to provide all needed services for a specified 449036.1 023580 CERT . . period, provided the quantity and type of services actually provided vary substantially; (ii) "periodic fixed fee" means a stated dollar amount for services rendered during a specified period of time (i.e. $XX per month) which amount may automatically increase according to a specified, objective, external standard; and (iii) "per unit fee" means a stated dollar amount for each unit of service provided (i.e. $XX per medical procedure). 2.9. Pooled Loan Financings. To the extent the amount of proceeds of the Notes to be used to make loans to any borrowers (including loans referred to in Section 2.5 above and loans to state or local governmental units) exceeds $5,000,000, at least 95% of the net proceeds of the issue (as defined in Section 150 of the Code but without including proceeds used to finance costs of issuance or capitalized interest) that are to be used to make loans, will have been used within 3 years of the date hereof to make such loans. The payment of legal and underwriting costs is not contingent and at least 95% of the reasonably expected legal and underwriting costs associated with issuance will be paid within 180 days of the date hereof. 2.10. Output Facilities. No more than 5% of the proceeds of the Notes are to be used with respect to any output facility (other than a facility for the furnishing of water). No more than the lesser of $5,000,000 or 5% of the proceeds of the Notes are to be used (directly or indirectly) for the acquisition of a nongovernmental output facility. ARTICLE III Arbitrage/Rebate Exemption 3.1. Temporarv Period-Refunding. With respect to the proceeds of the sale of the Current Refunding Note representing proceeds allocable to the Prior Issue: (a) All of the proceeds of the Prior Issue have been expended, or any such proceeds which have not been expended as of the date hereof, shall become transferred proceeds of this issue. Such transferred proceeds may be invested without restriction as to yield until three years after the date of original issuance of the Prior Issue. If any transferred proceeds remain unexpended after three years after the date of original issuance of the Prior Issue, such proceeds will be invested at a yield not in excess of the yield on the Notes. (b) The proceeds of the Notes will be used to refund the Prior Issue within 90 days of the date hereof, and may be invested during such time without restriction as to yield. 3.2. Temporarv Period-New Monev. With respect to the New Money Note: (a) The Issuer has entered into or will enter into within six months from the date of this certificate, binding commitment(s) for the acquisition, construction or 449036.1023580 CERT . . accomplishment of the Project cited in Section 2.2 hereof, and the amount of such commitment(s) with respect to such Project will or do exceed the amount equal to 5% of $398,000, being the aggregate amount of obligations currently issued for such Project. (b) Such Project has been completed, or, if such Project has not been completed, work on the acquisition, construction or accomplishment of such Project will proceed or is proceeding with due diligence to completion. (c) It is reasonably expected that at least 85 percent of the net sale proceeds of such New Money Note will be expended within three years from the date of this Certificate. No more than 50 percent of the proceeds of the Notes will be invested in nonpurpose investments with a term of four years or more. 3.3. Rebate. (a) Neither the Prior Issue nor the New Money Note was or is subject to the rebate requirement imposed by Section 148 of the Code because, with respect to each: (i) the Issuer was or is a governmental unit with general taxing powers; (ii) the Prior Issue/New Money Note did not or does not constitute a "private activity bond" as that term is defined in Section 141 of the Code; (iii) ninety-five percent or more of the net proceeds of the sale of the Prior Issue/New Money Note was or is to be used for local governmental activities of the Issuer; and (iv) the Issuer (including all agencies, instrumentalities and political subdivisions of the Issuer) reasonably expected or expects that the aggregate face amount of all tax-exempt bonds issued by the Issuer during the calendar year in which the Prior Issue was issued and the current calendar year would not or will not exceed $5,000,000. For purposes of such determination, no tax-exempt obligation was or shall be taken into account if it was or is a current refunding obligation issued in the calendar year in which the Prior Issue/New Money Note (as applicable) was or is being issued which does not exceed the outstanding (redeemed) principal amount of the obligation to be refunded. (b) The Current Refunding Note is not subject to the rebate requirement imposed by Section 148 of the Code because all of the Gross Proceeds of such Current Refunding Note will be expended to pay the Prior Issue within 90 days of the date hereof and will, therefore, qualify for the six -month expenditure exception to rebate. 3.4. No Excess Proceeds. The total proceeds of sale of all bond anticipation notes issued to date for the Project do not exceed the total cost of the Project. 449036.1 023580 CERT . . 3.5. Source of Reoavrnent Funds. The Notes will be paid from taxes and the proceeds of other obligations ofthe Issuer issued to fund the Notes. 3.6. Debt Service Fund. The taxes used to pay principal and interest on the Notes, whether or not deposited in a debt service fund, will be expended within 13 months of the date of deposit in such fund, or the date of their accumulation, in the payment of debt service on the Notes. Any amounts received from the investment of such deposit or accumulation will be expended within one year of receipt. The debt service fund, if any, will be used to achieve a proper matching of revenues and debt service and will be depleted at least annually except for a reasonable carryover amount will not exceed the greater of the earnings on such fund for the immediately preceding year or one-twelfth of the debt service on the Notes. 3.7. Sinking Funds. Except for the debt service fund described herein the Issuer has not created or established, and does not expect to create or establish, any sinking fund or other similar fund which the Issuer reasonably expects to use to pay principal or interest on the Notes. ARTICLE IV Bank Qualification 4.1. Designation. The Notes are hereby designated as "qualified tax-exempt obligations" pursuant to the provisions of Section 265 ofthe Code. (a) In making such designation it has been determined with respect to the Current Refunding Note that: (i) the Notes currently refund the Prior Issue; (ii) the Prior Issue was designated as a "qualified tax-exempt obligation"; (iii) the aggregate face amount ofthe Notes does not exceed $10,000,000; (iv) the Prior Issue had a weighted average maturity of 3 years or less; (v) the maturity date of the Notes, as measured from the original date of issuance of the notes issued pursuant to the Ordinance, in renewal of which such Notes are being issued, does not exceed 30 years; and (vi) not more than $10,000,000 of obligations issued by the Issuer during the calendar year in which the Prior Issue was issued were designated by the Issuer as "qualified tax-exempt obligations." (b) In making such designation it has been determined with respect to the New Money Note that: 449036.1 023580 CERT . . (i) the Issuer does not reasonably anticipate that the amount of "qualified tax- exempt obligations" to be issued by the Issuer during the current calendar year will exceed $10,000,000; and (ii) the amount of "qualified tax-exempt obligations" issued by the Issuer during the current calendar year does not as of this date, and including this issue, exceed $10,000,000. IN WITNESS WHEREOF, I have hereunto set my hand and affixed the corporate seal of the Town of Southold this 23rd day of April, 2004. /,.~ Supervisor 449036.1 023580 CERT , . . AFFIDAVIT AS TO NO CONFLICT OF INTEREST STATEOFNEWYORK ) :ss: COUNTY OF SUFFOLK ) Elizabeth A. Neville, being duly sworn upon her oath deposes and says: 1. I am the duly appointed, qualified and acting Town Clerk of the Town of Southold, in the County of Suffolk, New York (herein and in Schedule A annexed hereto called "Town"); 2. That with respect to the contract of sale of the Note of the Town described in the Certificate of Determination executed by the Supervisor on the 23rd day of April, 2004 to the financial institution indicated in such Certificate, I have made a careful inquiry of each officer and employee of the Town having the power or duty to (a) negotiate, prepare, authorize or approve the contract or authorize or approve payment thereunder, (b) audit bills or claims under the contract or (c) appoint an officer or employee who has any of the powers or duties set forth above, as to whether or not such officer or employee has an interest (as defined pursuant to Article 18 of the General Municipal Law) in such contract; 3. That upon information and belief, as a result of such inquiry, no such officer or employee has any such interest in said contract, unless otherwise noted in Schedule A annexed hereto and by this reference made a part hereof. ~/~;;.~.".( /2. 0- ,.,~ Town Cler Subscribed and sworn to before me this 23rd day of April, 2004. UNDA J. COOPER NOTARY PUBUC. 5_ of New York No 4822563. SufIoIk County Te,,,, Expire" ~ 3/ CLotH, 449036.1023580 CERT . . . SCHEDULE A 1. , is a stockholder of the purchaser, owning or controlling, directly or indirectly, less than five per centum (5%) ofthe outstanding stock thereof but no disclosure of such interest by said officer is required pursuant to said Law. 2. , has an interest in the purchaser, solely by reason of employment as an officer or employee thereof, but the remuneration of such employment will not be directly affected as a result of said contract and the duties of such employment do not directly involve the procurement, preparation or performance of any such part of such contract. 3. , has publicly disclosed the nature and extent of such interest in writing to the governing board of the Town. Such written disclosure has been made a part of and set forth in the official record of proceedings of the Town. 449036.1023580 CERT . . CERTIFICATES AS TO SIGNATURES, LITIGATION, AND DELIVERY AND PAYMENT WE, the undersigned officers of the Town of Southold, in the County of Suffolk, a municipal corporation of the State of New York and herein referred to as the "Town", HEREBY CERTIFY that on or before April 23, 2004, we officially signed and properly executed by manual signatures the $1,719,000 Bond Anticipation Note for Various Purposes-2004 (the "Note") of the Town, said Note to be payable to bearer and otherwise described in Schedule A aunexed hereto and by this reference made a part hereof, and that at the time of such signing and execution and on the date hereof we were and are the duly chosen, qualified and acting officers of the Town authorized to execute said Note and holding the offices indicated by the respective titles set opposite our signatures hereto for terms expiring on the dates set opposite such titles. WE FURTHER CERTIFY that no litigation of any nature is now pending or threatened restraining or enjoining the issuance or delivery of said Note or the levy or collection of any taxes to pay the interest on or principal of said Note, or in any mauner questioning the authority or proceedings for the issuance of said Note or for the levy or collection of said taxes, or relating to said Note or affecting the validity thereof or the levy or collection of said taxes, that neither the corporate existence or boundaries of the Town nor the title of any of the present officers thereof to their respective offices is being contested, and that no authority or proceedings for the issuance of said Note has or have been repealed, revoked or rescinded. WE FURTHER CERTIFY that the seal which is impressed upon this certificate has been affixed, impressed, imprinted or otherwise reproduced upon said Note and is the legally adopted, proper and only official corporate seal ofthe Town. And, I, Joshua Y. Horton, Supervisor, HEREBY FURTHER CERTIFY that on April 23 2004, I delivered or caused the delivery of said Note to Fleet Bank, Southold, New York, the purchaser thereof, and that at the time of such delivery of said Note, I received from said purchaser the amount hereinbelow stated, in full payment for said Note, computed as follows: Price..... .... .... ... ...................... ... ..... ........ ... .... ..$1,719,000 Interest on said Note accrued to the date of such delivery...................................... -0- Amount Received.......... ........... .................... ..$1,719,000 449036.1 023580 CERT . . IN WITNESS WHEREOF, we have hereunto set our hands and said corporate seal has hereunto been affixed this 23rd day of April, 2004. Signature Term of Office Expires Title trf~~ - J P~':/.d./l1}~.~ December 31, 2005 Supervisor December 31, 2005 Town Clerk (SEAL) I HEREBY CERTIFY that the signatures of the officers of the above-named Town, which appear above, are e and genuine and that I know said officers and know them to hold t espective offices se qpj:>osite their signatures. '. c<.>tC. SSL (Title) of t L 'tee f (Name of Bank) (Signature) 449036.1023580 CERT . . ATTORNEY'S CERTIFICATE I, Patricia Finnegan, HEREBY CERTIFY that I am a licensed attorney at law of the State of New York having offices at Town Hall, 53095 Main Road, Southold, New York, and am the duly chosen, qualified and acting Town Attorney of the Town of Southold, in the County of Suffolk, a municipal corporation of the State of New York and herein referred to as the "Town", that no litigation of any nature is now pending or threatened restraining or enjoining the issuance or delivery of the Note of the Town, said Note to be payable to bearer and otherwise described as set forth in Schedule A annexed hereto and by this reference made a part hereof or the levy or collection of any taxes to pay the interest on or principal of said Note, or in any manner questioning the authority or proceedings for the issuance of said Note or for the levy or collection of said taxes, or relating to said Note or affecting the validity thereof or the levy or collection of said taxes, that neither the corporate existence or boundaries of the Town nor the title of any of the present officers thereof to their respective offices is being contested, and that no authority or proceedings for the issuance of said Note has or have been repealed, revoked or rescinded. IN WITNESS WHEREOF, I have hereunto set my hand this 23,d day of April, 2004. 449036.1 023580 CERT . . SCHEDULE A Amount and Title: $1,719,000 Bond Anticipation Note for Various Purposes-2003 Dated: April 23, 2004 11ffiure: April 22, 2005 Number and Denomination: No. 7R-2, at $1,719,000, bearing interest at 1.19% per annum 449036.1023580 CERT . . CERTIFICATES AS TO SIGNATURES, LITIGATION, AND DELIVERY AND PAYMENT WE, the undersigned officers of the Town of Southold, in the County of Suffolk, a municipal corporation of the State of New York and herein referred to as the "Town", HEREBY CERTIFY that on or before April 23, 2004, we officially signed and properly executed by manual signatures the $2,000,000 Bond Anticipation Note for Various Purposes-2004(the "Note") of the Town, said Note to be payable to bearer and otherwise described in Schedule A annexed hereto and by this reference made a part hereof, and that at the time of such signing and execution and on the date hereof we were and are the duly chosen, qualified and acting officers of the Town authorized to execute said Note and holding the offices indicated by the respective titles set opposite our signatures hereto for terms expiring on the dates set opposite such titles. WE FURTHER CERTIFY that no litigation of any nature is now pending or threatened restraining or enjoining the issuance or delivery of said Note or the levy or collection of any taxes to pay the interest on or principal of said Note, or in any manner questioning the authority or proceedings for the issuance of said Note or for the levy or collection of said taxes, or relating to said Note or affecting the validity thereof or the levy or collection of said taxes, . that neither the corporate existence or boundaries of the Town nor the title of any of the present officers thereof to their respective offices is being contested, and that no authority or proceedings for the issuance of said Note has or have been repealed, revoked or rescinded. WE FURTHER CERTIFY that the seal which is impressed upon this certificate has been affixed, impressed, imprinted or otherwise reproduced upon said Note and is the legally adopted, proper and only official corporate seal ofthe Town. And, I, Joshua Y. Horton, Supervisor, HEREBY FURTHER CERTIFY that on April 23, 2004, I delivered or caused the delivery of said Note to Bridgehampton National Bank, Southold, New York, the purchaser thereof, and that at the time of such delivery of said Note, I received from said purchaser the amount hereinbelow stated, in full payment for said Note, computed as follows: Price.... .... ....................... ...... ....... ......... ..... .... .$2,000,000 Interest on said Note accrued to the date of such delivery...................................... -0- Amount Received. ....... ... ...... .... ......... ... ..... ... ..$2,000,000 449036.1 023580 CERT . . IN WITNESS WHEREOF, we have hereunto set our hands and said corporate seal has hereunto been affixed this 23'4 day of April, 2004. Signature Term of Office Expires Title /i 'Y(~'"":l - L 7}tr~.tdn ytM/& December 31, 2005 Supervisor December 31, 2005 Town Clerk (SEAL) I HEREBY CERTIFY that the signatures of the officers of the above-named Town, which appear above, are true and genuine and that I know said officers and know them to hold t e respecti~offices set opposite their signatures. v-.A-- ( ~ IlJhfJ1erJ'enJ/fl Signature) (Title) of /frt/JrA77(11L IlihIY;3Jc. ame of Bank) 449036.\ 023580 CERT . . ATTORNEY'S CERTIFICATE I, Patricia Finnegan, HEREBY CERTIFY that I am a licensed attorney at law of the State of New York having offices at Town Hall, 53095 Main Road, Southold, New York, and am the duly chosen, qualified and acting Town Attorney of the Town of Southold, in the County of Suffolk, a municipal corporation of the State of New York and herein referred to as the "Town", that no litigation of any nature is now pending or threatened restraining or enjoining the issuance or delivery of the Note of the Town, said Note to be payable to bearer and otherwise described as set forth in Schedule A annexed hereto and by this reference made a part hereof or the levy or collection of any taxes to pay the interest on or principal of said Note, or in any manner questioning the authority or proceedings for the issuance of said Note or for the levy or collection of said taxes, or relating to said Note or affecting the validity thereof or the levy or collection of said taxes, that neither the corporate existence or boundaries of the Town nor the title of any of the present officers thereof to their respective offices is being contested, and that no authority or proceedings for the issuance of said Note has or have been repealed, revoked or rescinded. IN WITNESS WHEREOF, I have hereunto set my hand this 23,d day of April, 2004. 449036.1023580 CERT . . SCHEDULE A Amount and Title: $2,000,000 Bond Anticipation Note for Various Purposes-2004 Dated: April 23, 2004 Mature: April 22, 2005 Number and Denomination: No. 7R-I, at $2,000,000, bearing interest at 1.08% per annum 449036.1 023580 CERT No.6R-l $3,011,600 UNITED STATES OF AMERICA STATE OF NEW YORK COUNTY OF SUFFOLK TOWN OF SOUlHOLD BOND ANTICIPATION NOTE FOR VARIOUS PURPOSES-2004 The Town of Southold, in the Cowlly of Suffolk, a municipal corporation of the State of New York, hereby acknowledges itself indebted and for value received promises to pay to the bearer of this note, or if it be registered, to the registered holder, hereof, the swn of lHREE MILLION ELEVEN lHOUSAND SIX HUNDRED DOLLARS ($3,011,600) on the 9th day of September, 20OS, together with interest thereon from the date hereof at the rate of one and fifty-five hundredths per centum (1.55%) per annum, payable at maturity. Both principal of and interest on this Note will be paid in lawful money of the United States of America, at North Fork Bank, Melville, New York. At the request of the holder, the Town Clerk shall convert this Note into a registered Note by registering it in the name of the holder in the books of the Town kept in the office of such Town Clerk and endorsing a certificate of such registration hereon, after which both principal of and interest on this Note shall be payable only to the registered holder, his legal representatives, successors or transferees. This Note shall then be transferable only upon presentation to such Town Clerk with a written tnmsfer of title and such Town Clerk shall thereupon register this Note in the name of the transferee in his books and shall endorse a certificate of such registration hereon. Such transfer shall be dated, and signed by the registered holder, or his legal representatives, and it shall be duly acknowledged or proved, or in the alternative the signatrue thereto shall be certilled as to its genuineness by an officer of a bank or trust company located and authorized to do business in this State. This Note is the only Note of an authorized combined renewal issue, the aggregate principal amount of which is $3,011,600. This Note is issued pursuant to the provisions of the Local Finance Law, constituting Chapter 33-a of the Consolidated Laws oftbe State of New York, various bond resolutions adopted by the Town Board on their respective dates, authorizing the issuance of serial bonds for various pwposes, and the Certificate of Determination executed by the Supervisor on September 10, 2004. This Note has been designated by the Town as a qualified tax-exempt obligation pm/imant to the provisions of Section 265 of the Internal Revenue Code of 1986, as amended. The faith and credit of such Town of Southold are hereby irrevocably pledged for the punctual payment of the principal of and interest on this Note according to its terms. It is hereby certified and recited that all conditions, acts and things required by the Constitution and statutes of the State of New York to exis~ to have happened and to have been performed precedent to and in the issuance of this Note, exis~ have happened and have been performed, and that this Note, together with all other indebtedness of such Town of Southold, is within every debt and other limit prescribed by the Constitution and laws of such State. IN WITNESS WHEREOF, the Town of Southold has caused this Note to be signed by its Supervisor, and its corporate seal (or a facsimile thereof) to be affixed, impressed, imprinted, or otherwise reproduced hereon and attested by its Town Clerk and this Note to be dated as of the 10th day of September, 2004. TO N OF SOUlHOLD (SEAL) ATTEST~ ~'..Arf..fO "f't--;liu Town Clerk . . CERTIFICATE OF DETERMINATION BY THE SUPERVISOR RELATIVE TO AUTHORIZATION, SALE, ISSUANCE, FORM AND CONTENTS OF THE $3,011,600 BOND ANTICIPATION NOTE FOR VARIOUS PURPOSES-2004 OF THE TOWN OF SOUTHOLD, NEW YORK I, Joshua Y. Horton, Supervisor of the Town of Southold, New York (herein called the "Town"), HEREBY CERTIFY that pursuant to the powers and duties delegated to me, the chief fiscal officer of the Town, by the Town Board of the Town, pursuant to the bond resolutions duly adopted and amended and as referred to in paragraphs 1 to 13, inclusive, hereof, and subject to the limitations prescribed in said bond resolutions, I have made the following determinations: 1. A bond anticipation note of the Town in the principal amount of $53,000 shall be issued to renew, in part, the $110,000 bond anticipation note dated September 12,2003, maturing September 10, 2004, and heretofore issued in anticipation of the sale of the serial bonds authorized pursuant to the bond resolution entitled: "Bond Resolution of the Town of Southold, New York, adopted April 11, 2000, authorizing the acquisition and installation of a computer system network, including hardware, software and appurtenant equipment, machinery, apparatus and furnishings, in Town offices; stating the estimated maximum cost thereof is $335,000; appropriating said amount therefor, including the appropriation of $50,000 current funds and authorizing the issuance of $285,000 serial bonds of said Town to finance the balance of said appropriation," duly adopted by the Town Board on the date therein referred to, and the Certificate of Determination executed by the Supervisor on September 12, 2003, the redemption of said $110,000 bond anticipation note having been heretofore provided to the extent of $57,000 from a source other than the proceeds of serial bonds. 2. A bond anticipation note of the Town in the principal amount of $38,000 shall be issued to renew, in part, the $77,000 bond anticipation note dated September 12, 2003, maturing September 10, 2004, and heretofore issued in anticipation of the sale of the serial bonds authorized pursuant to the bond resolution entitled: "Bond Resolution of the Town of Southold, New York, adopted February 29, 2000, appropriating the amount of $260,000 for the increase and improvement of facilities of the Southold Solid Waste Management District, in said Town, including the expenditure of $67,500 of available Town funds to pay a part of said appropriation, and authorizing the issuance of $192,500 serial bonds of said Town to finance the balance of said appropriation," 459314.1026311 CERT . . duly adopted by the Town Board on the date therein referred to, and the Certificate of Determination executed by the Supervisor on September 12, 2003, the redemption of said $77,000 bond anticipation note having been heretofore provided to the extent of $39,000 from a source other than the proceeds of serial bonds. 3. A bond anticipation note of the Town in the principal amount of $32,000 shall be issued to renew, in part, the $50,000 bond anticipation note dated September 12, 2003, maturing September 10, 2004, and heretofore issued in anticipation of the sale of the serial bonds authorized pursuant to the bond resolution entitled: "Bond Resolution of the Town of Southold, New York, adopted May 8, 2001, authorizing the purchase of a catamaran patrol vessel to be used by the Marine Division of the Town Police Department, stating the estimated maximum cost thereof is $90,000, appropriating said amount therefor and authorizing the issuance of $90,000 serial bonds of said Town to finance said appropriation," duly adopted by the Town Board on the date therein referred to, and the Certificate of Determination executed by the Supervisor on September 12, 2003, the redemption of said $50,000 bond anticipation note having been heretofore provided to the extent of$18,000 from a source other than the proceeds of serial bonds. 4. A bond anticipation note of the Town in the principal amount of $112,000 shall be issued to renew, in part, the $168,000 bond anticipation note dated September 12, 2003, maturing September 10, 2004, and heretofore issued in anticipation of the sale of the serial bonds authorized pursuant to the bond resolution entitled: "Bond Resolution of the Town of Southold, New York, adopted July 31, 2001, authorizing the second phase of the original improvement and embellishment of the new public park and recreational area on the land containing 13.85 acres, more or less, on the west side of Peconic Lane, heretofore acquired and now owned by and situate in, said Town; stating the estimated maximum cost thereof is $280,000, including preliminary costs and costs incidental thereto and to the financing thereof; appropriating said amount therefor and authorizing the issuance of $280,000 serial bonds of said Town to finance said appropriation," duly adopted by the Town Board on the date therein referred to, and the Certificate of Determination executed by the Supervisor on September 12, 2003, the redemption of said $168,000 bond anticipation note having been heretofore provided to the extent of $56,000 from a source other than the proceeds of serial bonds. 5. A bond anticipation note of the Town in the principal amount of$125,000 shall be issued to renew, in part, the $191,000 bond anticipation note dated September 12,2003, maturing September 10,2004, and heretofore issued in anticipation of the sale of the serial bonds authorized pursuant to the bond resolution entitled: 459314.1026311 CERT . . "Bond Resolution of the Town of Southold, New York, adopted July 31, 2001, appropriating $330,000 to defray costs and expenses of the Suffolk County Water Authority associated with the extension of Authority water mains into a portion of Cutchogue, in the Town, stating the estimated maximum cost thereof is $330,000 and authorizing the issuance of $330,000 serial bonds of said Town to finance said appropriation," duly adopted by the Town Board on the date therein referred to, and the Certificate of Determination executed by the Supervisor on September 12, 2003, the redemption of said $191,000 bond anticipation note having been heretofore provided to the extent of $66,000 from a source other than the proceeds of serial bonds. 6. A bond anticipation note of the Town in the principal amount of $620,000 shall be issued to renew, in part, the $635,000 bond anticipation note dated September 12, 2003, maturing September 10, 2004, and heretofore issued in anticipation of the sale of the serial bonds authorized pursuant to the bond resolution entitled "Bond Resolution of the Town of Southold, New York, adopted July 30, 2002 and amended December 17, 2002, authorizing the construction of a new bridge on Peconic Bay Boulevard to cross Brushes Creek, in said Town; stating the estimated maximum cost thereof is $650,000; appropriating the said amount therefor, including the appropriation of a grant of $50,000 and such other moneys expected to be received from the State of New York, to reimburse the Town; authorizing the issuance of $650,000 serial bonds of the Town to finance said appropriation and stating the plan of financing includes the issuance of said serial bonds, the application of said state moneys to reimburse the Town and the levy and collection of taxes to pay principal of and interest on said bonds," duly adopted and amended by the Town Board on the dates therein referred to, and the Certificate of Determination executed by the Supervisor on September 12, 2003, the redemption of said $635,000 bond anticipation note having been heretofore provided to the extent of$15,000 from a source other than the proceeds of serial bonds. 7. A bond anticipation note of the Town in the principal amount of $320,000 shall be issued to renew, in part, the $400,000 bond anticipation note dated September 12, 2003, maturing September 10, 2004, and heretofore issued in anticipation of the sale of the serial bonds authorized pursuant to the bond resolution entitled: "Bond Resolution of the Town of Southold, New York, adopted March 25, 2003, authorizing the acquisition of vehicles and equipment for use by the Town Highway Department as follows: ( a) trucks with combination dump bodies, at the estimated 459314.1026311 CERT . . maximum cost of $300,000 and (b) paving equipment, consisting of a paver, a roller and a trailer, at the estimated maximum cost of $100,000; stating the estimated total cost thereof is $400,000; appropriating said amount therefor and authorizing the issuance of $400,000 serial bonds of said Town to finance said appropriation," duly adopted and amended by the Town Board on the dates therein referred to, and the Certificate of Determination executed by the Supervisor on September 12, 2003, the redemption of said $400,000 bond anticipation note having been heretofore provided to the extent of $80,000 from a source other than the proceeds of serial bonds. 8. A bond anticipation note of the Town in the principal amount of $50,000 shall be issued to renew, in part, the $65,000 bond anticipation note dated September 12, 2003, maturing September 10, 2004, and heretofore issued in anticipation of the sale of the serial bonds authorized pursuant to the bond resolution entitled: "Bond Resolution of the Town of Southold, New York, adopted July 8, 2003, authorizing the acquisition and installation of an automated time management system in Town facilities, including personal computer, software, equipment, machinery and appurtenances thereto; stating the estimated maximum cost thereof is $65,000; including preliminary costs and costs incidental thereto and to the financing thereof; appropriating said amount therefor and authorizing the issuance of $65,000 serial bonds of said Town to finance said appropriation," duly adopted and amended by the Town Board on the dates therein referred to, and the Certificate of Determination executed by the Supervisor on September 12, 2003, the redemption of said $65,000 bond anticipation note having been heretofore provided to the extent of$15,000 from a source other than the proceeds of serial bonds. 9. A bond anticipation note of the Town in the principal amount of $140,000 shall be issued to renew, in part, the $200,000 bond anticipation note dated September 12, 2003, maturing September 10, 2004, and heretofore issued in anticipation of the sale of the serial bonds authorized pursuant to the bond resolution entitled: "Bond Resolution of the Town of Southold, New York, adopted July 8, 2003, authorizing the construction of improvements to the human resources building located at 750 Pacific Street, in Mattituck; stating the estimated maximum cost thereof is $252,000; appropriating said amount therefor, including the expenditure of approximately $52,000 insurance proceeds and/or other funds to pay a part of said appropriation; and authorizing the issuance of not to exceed $200,000 bonds of said Town to finance the balance of said appropriation," 459314.1026311 CERT . . duly adopted and amended by the Town Board on the dates therein referred to, and the Certificate of Determination executed by the Supervisor on September 12, 2003, the redemption of said $200,000 bond anticipation note having been heretofore provided to the extent of $60,000 from a source other than the proceeds of serial bonds. 10. A bond anticipation note of the Town in the principal amount of$160,000 shall be issued to renew, in part, the $200,000 bond anticipation note dated September 12, 2003, maturing September 10, 2004, and heretofore issued in anticipation of the sale ofthe serial bonds authorized pursuant to the bond resolution entitled: "Bond Resolution of the Town of Southold, New York, adopted August 12, 2003, authorizing the construction of various recreational improvements at the Strawberry Fields Fairgrounds, pursuant to the agreement between the Town and the County of Suffolk dated April 29, 2002; stating the estimated maximum cost thereof is $200,000; appropriating said amount therefor, and authorizing the issuance of $200,000 bonds of said Town to finance said appropriation," duly adopted and amended by the Town Board on the dates therein referred to, and the Certificate of Determination executed by the Supervisor on September 12, 2003, the redemption of said $200,000 bond anticipation note having been heretofore provided to the extent of $40,000 from a source other than the proceeds of serial bonds. 11. A bond anticipation note of the Town in the principal amount of $1,051,600 shall be issued in anticipation of the sale of the serial bonds authorized pursuant to the bond resolution entitled: "Bond Resolution of the Town of Southold, New York, adopted April 20, 2004, appropriating $1,051,600 for the increase and improvement of facilities of the Southold Solid Waste Management District, in said Town; authorizing the issuance of $1,051,600 serial bonds of said Town to finance said appropriation; and authorizing any grant funds to be received from the United States of America, the State of New York or any other sources to be expended towards the cost of said object or purpose or redemption of the Town's obligations issued therefor, or to be budgeted as an offset to the taxes for the payment of the principal of and interest on said obligations," duly adopted by the Town Board on the date therein referred to. 12. A bond anticipation note of the Town in the principal amount of $150,000 shall be issued in anticipation of the sale of the serial bonds authorized pursuant to the bond resolution entitled: 4593]4.1026311 CERT . . "Bond Resolution of the Town of Southold, New York, adopted October 9, 2001, authorizing (a) the acquisition of (I) the certain piece or parcel ofland designated as 700 Boisseau Avenue, in said Town, at the estimated maximum cost of $82,000, and (2) the existing building situate thereon, at the estimated maximum cost of $418,000, and (b) the reconstruction, in part, of said building, at the estimated maximum cost of $100,000; stating the estimated total cost thereof is $600,000; appropriating said amount therefor and authorizing the issuance of not to exceed $600,000 serial bonds of said Town to finance said appropriation," duly adopted by the Town Board on the date therein referred to. 13 A bond anticipation note of the Town in the principal amount of$160,000 shall be issued in anticipation of the sale of the serial bonds authorized pursuant to the bond resolution entitled: "Bond Resolution of the Town of Southold, New York, adopted August 10, 2004, authorizing the acquisition and installation of an in-car video system in ten (10) police cars together with a back office solution, including the upgrading of eight (8) cars with new laptops, appurtenances and supporting equipment therefor; stating the estimated maximum cost thereof is $160,000, including preliminary costs and costs incidental thereto and to the financing thereof; appropriating said amount therefor and authorizing the issuance of $160,000 serial bonds of said Town to finance the said appropriation, " duly adopted by the Town Board on the date therein referred to. 14. Said $53,000 note, said $38,000 note, said $32,000 note, said $112,000 note, said $125,000 note, said $620,000 note, said $320,000 note, said $50,000 note, said $140,000 note, said $160,000 note, said $1,051,600 note, said $150,000 note and said $160,000 note shall be combined for the purpose of sale into a single note issue in the aggregate principal amount of$3,011,600 (hereinafter referred to as the "Note"). 15. The terms, form and details of said Note shall be as follows: Amount and Title: $3,011,600 Bond Anticipation Note for Various Purposes-2004 Dated: September 10, 2004 Matures: September 9, 2005 Number and Denomination: Number 6R-l, at $3,011,600 459314.1 026311 CERT . . Interest Rate per annum: 155% Form of Note: Substantially in accordance with form prescribed by Schedule B, 2 of the Local Finance Law of the State of New York 16. The respective amounts of bond anticipation notes originally issued in anticipation of the issuance of the serial bonds authorized pursuant to the bond resolutions referred to in paragraphs 1 to 13, inclusive, hereof, including the Note, are: (I) $285,000, (2) $192,500, (3) $90,000, (4) $280,000, (5) $330,000, (6) $650,000 (7) $400,000, (8) $65,000, (9) $200,000 (10) $200,000, (11) $1,051,600, (12) $150,000 and (13) $160,000 and the respective amounts of bond anticipation notes which will be outstanding after the issuance of the Note, including said Note, will be: (1) $53,000, (2) $38,000, (3) $32,000, (4) $112,000, (5) $125,000, (6) $620,000, (7) $320,000, (8) $50,000, (9) $140,000 (10) $160,000, (II) $1,051,600, (12) $150,000 and (13) $160,000. 17. The serial bonds authorized pursuant to the resolution referred to in paragraphs 2 and 11 hereof, are for improvements which are assessable, and the serial bonds authorized pursuant to the resolutions referred to in paragraphs 1, 3, 4,5,6,7,8,9, 10, 12 and 13 hereof, are for improvements which are non-assessable. 18. Pursuant to said powers and duties delegated to me, I DO HEREBY AWARD AND SELL said Note to North Fork Bank, Melville, New York, for the purchase price of $3,011,600, plus accrued interest, if any, from the date of said Note to the date of delivery thereof and I FURTHER DETERMINE that said Note shall be payable as to both principal and interest at North Fork Bank, Melville, New York, New York, and shall bear interest at the rate of one and fifty-five hundredths per centum (1.55%) per annum, payable at maturity. 19. Said Note shall be executed in the name of the Town by its Supervisor and the corporate seal of the Town (or a facsimile thereof) shall be affixed, impressed imprinted or otherwise reproduced thereon and attested by its Town Clerk. I HEREBY FURTHER CERTIFY that the powers and duties delegated to me to issue and sell the Note hereinabove referred to are in full force and effect and have not been modified, amended or revoked. IN WITNESS WHEREOF, I have hereunto set my hand this 10th day of September, 2004. Supervisor 459314.1026311 CERT . . CLERK'S CERTIFICATE I, Elizabeth A. Neville, Town Clerk of the Town of Southold, in the County of Suffolk, New York, HEREBY CERTIFY that I have compared the foregoing copy of the Certificate of Determination executed by the Supervisor and the same is a true and complete copy of the Certificate filed with said Town in my office as Town Clerk on or before the 10th day of September, 2004; and I FURTHER CERTIFY that no resolution electing to reassume any of the powers or duties mentioned in said Certificate and delegated to the Supervisor by the resolutions cited in said Certificate and exercised by the Supervisor has been adopted by said Town Board. IN WITNESS WHEREOF, I have hereunto set my hand and affixed the corporate seal of said Town this 10th day of September, 2004. (SEAL) r?~'_hdI!O ?1(o)~- Town lerk 459314.1026311 CERT ,. i . . AFFIDA VII AS TO NO CONFLICT OF INTEREST STATEOFNEWYORK ) :ss: COUNTY OF SUFFOLK ) Elizabeth A. Neville, being duly sworn upon her oath deposes and says: 1. I am the duly appointed, qualified and acting Town Clerk of the Town of Southold, in the County of Suffolk, New York (herein and in Schedule A annexed hereto called "Town"); 2. That with respect to the contract of sale of the Note of the Town described in the Certificate of Determination executed by the Supervisor on the 10th day of September, 2004, to the financial institution indicated in such Certificate, I have made a careful inquiry of each officer and employee of the Town having the power or duty to (a) negotiate, prepare, authorize or approve the contract or authorize or approve payment thereunder, (b) audit bills or claims under the contract, or (c) appoint an officer or employee who has any of the powers or duties set forth above, as to whether or not such officer or employee has an interest (as defined pursuant to Article 18 of the General Municipal Law) in such contract; 3. That upon information and belief, as a result of such inquiry, no such officer or employee has any such interest in said contract unless otherwise noted in Schedule A annexed hereto and by this reference made a part hereof 8i'J6~{) {j"').t, Town CI rk Subscribed and sworn to before me this Oth day of September, 2004. LYNDA M. BOHN NOTARY PUBLIC. State of New York No. 01 B06020932 Qualified in Suffolk Cou!:,~ Term Expires March 8, 20 .Q.L 459314] 026311 CERT . . . SCHEDULE A I. , is a stockholder of the Purchaser owning or controlling, directly or indirectly, less than five per centum (5%) of the outstanding stock thereof but no disclosure of such interest by said officer is required pursuant to said Law. 2. , has an interest in the Purchaser solely by reason of employment as an officer or employee thereof, but the remuneration of such employment will not be directly affected as a result of said contract and the duties of such employment do not directly involve the procurement, preparation or performance of any such part of such contract. 3. , has publicly disclosed the nature and extent of such interest in writing to the governing board of the Town. Such written disclosure has been made a part of and set forth in the official record of proceedings of the Town. 459314.1026311 CERT , . . CERTIFICATES AS TO SIGNATURES, LITIGATION, AND DELIVERY AND PAYMENT WE, the undersigned officers of the Town of Southold, in the County of Suffolk, a municipal corporation of the State of New York and herein referred to as the "Town", HEREBY CERTIFY that on or before September 10, 2004, we officially signed and properly executed by manual signatures the $3,011,600 Bond Anticipation Note for Various Purposes- 2004 (the "Note") of the Town, payable to bearer and otherwise described in Schedule A annexed hereto and by this reference made a part hereof, and that at the time of such signing and execution and on the date hereof we were and are the duly chosen, qualified and acting officers of the Town authorized to execute said Note and holding the respective offices indicated by the titles set opposite our signatures hereto for terms expiring on the respective dates set opposite such titles. WE FURTHER CERTIFY that no litigation of any nature is now pending or threatened restraining or enjoining the issuance or delivery of said Note or the levy or collection of any taxes to pay the interest on or principal of said Note, or in any manner questioning the authority or proceedings for the issuance of said Note or for the levy or collection of said taxes, or relating to said Note or affecting the validity thereof or the levy or collection of said taxes, that neither the corporate existence or boundaries of the Town nor the title of any of the present officers thereof to their respective offices is being contested, and that no authority or proceedings for the issuance of said Note has or have been repealed, revoked or rescinded. WE FURTHER CERTIFY that the seal which is impressed upon this certificate has been affixed, impressed, imprinted or otherwise reproduced upon said Note and is the legally adopted, proper and only official corporate seal of the Town. And, I, Joshua Y. Horton, Supervisor, HEREBY FURTHER CERTIFY that on September 10, 2004, I delivered, or caused the delivery of said Note to North Fork Bank, Melville, New York, the purchaser thereof, and that at the time of such delivery of said Note, I received from said purchaser the amount hereinbelow stated, in full payment for said Note, computed as follows: Price............ ............................................... ... ...... ..... .$3,011,600.00 Interest on said Note accrued to the date of such delivery ......... . . . . . . . . . . . -0- Amount Received............... ............ ....................... .......... .$3,011,600.00 459314.1026311 CERT : . . IN WITNESS WHEREOF, we have hereunto set our hands and said corporate seal has hereunto been affixed this 10th day of September, 2004. '"") Term of Office Expires Title December 31, 2005 Supervisor December 31, 2005 Town Clerk (SEAL) I HEREBY CERTIFY that the signatures of the officers of the above-named Town, which appear above, are true and genuine and that I know said officers and know them to hold the res ctive offices set opposite their signatures. &~ ( tle) of /\.h rlfJ (Dr/Jill/) j( (Name of Bank) 459314.1026311 CERT . . ATTORNEY'S CERTIFICATE I, Patricia A. Finnegan, HEREBY CERTIFY that I am a licensed attorney at law of the State of New York, having offices at 53095 Main Road, Southold, New York, and am the duly chosen, qualified and acting Town Attorney of the Town of Southold, in the County of Suffolk, a municipal corporation of the State of New York and herein referred to as the "Town", that no litigation of any nature is now pending or threatened restraining or enjoining the issuance or delivery of the Note of the Town, payable to bearer and otherwise described as set forth in Schedule A annexed hereto and by this reference made a part hereof or the levy or collection of any taxes to pay the interest on or principal of said Note, or in any manner questioning the authority or proceedings for the issuance of said Note or for the levy or collection of said taxes, or relating to said Note or affecting the validity thereof or the levy or collection of said taxes, that neither the corporate existence or boundaries of the Town nor the title of any of the present officers thereof to their respective offices is being contested, and that no authority or proceedings for the issuance of said Note has or have been repealed, revoked or rescinded. IN WITNESS WHEREOF, I have hereunto set my hand this 10th day of September, 2004. Amount and Title: Dated: Matures: Number: Interest Rate per annum: . . SCHEDULE A $3,011,600 Bond Anticipation Note for Various Purposes-2004 September 10, 2004 September 9, 2005 6R-I 1.55% . . ARBITRAGE AND USE OF PROCEEDS CERTIFICATE I, Joshua Y. Horton, Supervisor of the Town of Southold, in the County of Suffolk, New York (the "Issuer"), HEREBY CERTIFY and reasonably expect with respect to the issuance of the Issuer's $3,011,600 Bond Anticipation Note for Various Purposes-2004, being a combined issue of bond anticipation notes authorized in anticipation of the sale of serial bonds pursuant to various bond resolutions (hereinafter referred to as the "Note" or "Notes"), dated September 10, 2004, and maturing on September 10, 2004, as follows: Unless the context clearly requires otherwise, all capitalized terms used but not otherwise defined herein shall have the meanings set forth herein or in the Resolutions, the Code or the Regulations (each as defined below). ARTICLE I General 1.1. Authority of Signatory. I am an officer of the Issuer, charged with the responsibility for the execution, delivery, and issuance of the Note and am acting for and on behalf of the Issuer in signing this certificate. 1.2. Purpose of Certificate. This certificate is made for the purpose of establishing evidence of the expectations of the Issuer as of the date hereof as to future events regarding the amount and use of proceeds of the Note. It is intended and may be relied upon for purposes of Sections 103 and 148 of the Internal Revenue Code of 1986, as amended (the "Code"), and as a certification described in Section 1.148-2(b )(2) of the Treasury Regulations (the "Regulations"). This certificate is executed and delivered as part of the record of proceedings in connection with the issuance of the Note. The provisions of this certificate constitute a contractual obligation of the Issuer in consideration for the purchase of and payment for the Note by the purchaser(s) thereof 1.3. Reasonable Expectations. This certificate sets forth the facts, estimates and circumstances now in existence which form the basis for the Issuer's expectation that the proceeds of the Note will not be used in a manner that would cause the Note to be an arbitrage bond under Section 148 of the Code or a private activity bond under Sections 103 and 141 of the Code. To the best of my knowledge and belief, such expectation is reasonable and there are no other facts, estimates or circumstances that would materially change that expectation. 1.4. No Composite Issue. Except for the $2,975,000 bond anticipation note for Fishers Island Ferry District-2004, dated September 10, 2004 and the $240,000 Public Improvement Serial Bonds-2004, dated September 15, 2004, no other governmental obligations have been sold fewer than 15 days prior to, or will be sold fewer than 15 days after, the sale date of the Note, pursuant to a common plan of financing which are expected to be paid from substantially the same source of funds as the Note. . . 1.5 No Federal Guarantee. The Issuer represents and covenants that, except for the gross proceeds of the Note which are: (a) invested during the temporary period referred to in Article III, (b) held in any refunding escrow or (c) invested in obligations of the United States Treasury or in obligations issued pursuant to Section 21B( d)(3) of the Federal Home Loan Bank Act, as amended by Section 511 ( a) of the Financial Institutions Reform, Recovery and Enforcement Act of 1989, or any successor provision to Section 2IB(d)(3) of the Federal Home Loan Bank Act, as amended: (i) No portion of the payment of principal or interest with respect to the Note is or will be guaranteed directly or indirectly by the United States or any agency or instrumentality thereof (herein "federally guaranteed"); and (ii) No portion of the gross proceeds of the Note in excess of five percent of such gross proceeds is or will be (A) used in making loans the payment of principal or interest with respect to which is to be federally guaranteed, or (B) invested directly or indirectly in federally insured deposits or accounts. 1.6. Tax Representation. The Issuer expects to be able to and will comply with all the procedures and provisions set forth herein, and will do and perform all acts and things necessary and desirable within its reasonable control in order to assure that interest paid on the Note shall be excluded from gross income of the owners thereof for the purpose of federal income taxation. 1.7. Additional Information. The Issuer will provide such other information as may be required to assure the exclusion from gross income of interest on the Note for federal income taxation purposes. 1.8. Non-Purpose Investments. Not more than 50% of the proceeds of the Note are being invested in investments not acquired to carry out the governmental purposes of the issue at a guaranteed yield and having a term of 4 years or more. 1.9 IRS Information Reporting. The Issuer will make a timely filing of the appropriate IRS Form 8038-G or 8038-GC. ARTICLE II Use ofProiect and Proceeds 2.1. Authorization. (a) The Note is authorized to be issued pursuant to applicable provisions of the laws of the State of New York and various bond resolutions adopted and amended by the Town Board on their respective dates (the "Resolutions"), as referred to in the Certificate of Determination executed by the Supervisor on September 10, 2004. (b) For purposes of this Article II the term "proceeds" means the net amount (after payment of all costs and expenses associated with issuing the Note) received by the Issuer from the sale of the Note, excluding accrued interest. . . 2.2. Purpose of Issue. The Note is being issued to provide funds for various purposes in and for the Town ("the Project"), as further described in the Resolutions. 2.3. Use of Proceeds. The proceeds of sale of the Note in the amount of $1,650,000 (the "Current Refunding Note") will be used, together with other available Village funds in the amount of $446,000, to redeem a prior issue of bond anticipation notes which matures on September 10, 2004, in the aggregate principal amount of $2,096,000 (the "Prior Issue"), heretofore issued to finance the Project. The balance of the proceeds of sale of the Note in the aggregate principal amount of $1,361,600 (the "New Money Note") will be used to provide original financing for the Project. 2.4. Ownership/Lease/Sale. The Project will be owned by the Issuer or another state or local governmental unit and will not be leased to any person who is not a state or local governmental unit. It will not (except to the extent that any of the projects financed involve grants) be sold or otherwise disposed of, in whole or in part, except for incidental sales of surplus items the proceeds of which will not constitute net operating profits or net capital profits to the Issuer, prior to the maturity date of the Note. 2.5. Private Loans. Not more than the lesser of 5 percent or $5,000,000 of the proceeds of the Note will be used directly or indirectly to make loans to persons other than a governmental unit. 2.6. Private Use. The aggregate amount of proceeds of the Note used directly or indirectly in a trade or business carried on by a person other than a state or local governmental unit ("Private Use"), will not exceed 10% of such proceeds in the event that more than 10% of the principal or 10% of the interest due on the Note during the term thereof is, under the terms of the Note or any underlying arrangement, directly or indirectly, secured by any interest in. property used or to be used for a Private Use or in payments in respect of property used or to be used for a Private Use or is to be derived from payments, whether or not to the Issuer, in respect of property or borrowed money used or to be used for a Private Use. 2.7. UnrelatedlRelated Disproportionate Use. No more than 5% of the proceeds of the Note will be used directly or indirectly in the trade or business of a person other than a governmental unit that is unrelated or related and disproportionate to the governmental use of the property being financed, including any private loan financing described in Section 2.5 which meets this test. For purposes of this Arbitrage and Use of Proceeds Certificate, proceeds of the Note are allocable to an unrelated Private Use if such use is neither directly nor operationally related to a governmental use and proceeds of the Note are allocable to a disproportionate related Private Use to the extent that the proceeds of the Note which are to be used to finance property used by a nongovernmental person in a trade or business which is related to the governmental use of the property referred to in Section 2.6 above, exceeds the proceeds of the Note which are to be used for the governmental use to which such Private Use relates. 2.8. Other Private Uses Defined. For purposes of Section 2.6 and 2.7, a Private Use consists of any contract or other arrangement including, without limitation, leases, management contracts, guarantee contracts, take or pay contracts, or put or pay contracts, which . . provides for a use of the Projects by a person or persons who are not State or local governments on a basis different than the general public. Any management, or operations contract or agreement which provides for nongovernmental use will provide for reasonable compensation which is in no part based on net profits and will satisfy the provisions of ( a), (b) or (c) below: (a) for contracts which provide compensation for' each annual period based on a periodic fixed fee, a capitation fee or combination thereof, (i) the contract has a term (including renewal options) not exceeding five years; (ii) the issuer may terminate the contract, without penalty, at the end of any three year period, and (iii) at least 50% of the compensation paid is on a periodic, fixed fee basis; (b) for contracts entered into or materially modified (other than pursuant to a renewal option) after March IS, 1993, which provide compensation based on a per unit fee or a combination per unit and periodic fixed fee, (i) the contract has a term (including renewal options) not exceeding three years; (ii) the issuer may terminate such contract (without penalty) at the end of the second year of the term, and (iii) the amount of the per unit fee is specified in the contract or otherwise limited by the qualified user or a third party; (c) for contracts entered into or materially modified (other than pursuant to a renewal option) after March IS, 1993, which provide compensation based on a percentage of fees charged, (i) the contract has a term (including renewal options) not exceeding two years, (ii) the issuer may terminate the contract (without penalty) at the end of the first year, and (iii) the service provider primarily provides services to third parties or the contract involves a facility during an initial start-up period; (d) For purposes of this Section 2.8: (i) "capitation fee" means a fixed periodic amount paid under a management contract or agreement for each person for whom the service provider assumes the responsibility to provide all needed services for a specified period, provided the quantity and type of services actually provided vary substantially; (ii) "periodic fixed fee" means a stated dollar amount for services rendered during a specified period of time (i.e. $XX per month) which amount may automatically increase according to a specified, objective, external standard; and (iii) "per unit fee" means a stated dollar amount for each unit of service provided (i.e. $XX per medical procedure). 2.9. Pooled Loan Financings To the extent the amount of proceeds of the Note to be used to make loans to any borrowers (including loans referred to in Section 2.5 above and loans to state or local governmental units) exceeds $5,000,000, at least 95% of the net proceeds of the issue (as defined in Section ISO of the Code but without including proceeds used to finance costs of issuance or capitalized interest) that are to be used to make loans, will have been . . used within 3 years of the date hereof to make such loans. The payment of legal and underwriting costs is not contingent and at least 95% of the reasonably expected legal and underwriting costs associated with issuance will be paid within 180 days of the date hereof. 2.10. Output Facilities. No more than 5% of the proceeds of the Note are to be used with respect to any output facility (other than a facility for the furnishing of water). No more than the lesser of $5,000,000 or 5% of the proceeds of the Note are to be used (directly or indirectly) for the acquisition of a nongovernmental output facility. ARTICLE III ArbitrageIRebate Exemption 3.1. Temporary Period-Refunding. With respect to the proceeds of the sale of the Current Refunding Note representing proceeds allocable to the Prior Issue: (a) All of the proceeds of the Prior Issue have been expended, or any such proceeds which have not been expended as of the date hereof, shall become transferred proceeds of this issue. Such transferred proceeds may be invested without restriction as to yield until three years after the date of original issuance of the Prior Issue. If any transferred proceeds remain unexpended after three years after the date of original issuance of the Prior Issue, such proceeds will be invested at a yield not in excess of the yield on the Note. (b) The proceeds of the Note will be used to refund the Prior Issue within 90 days of the date hereof, and may be invested during such time without restriction as to yield. 3.2. Temporal)' Period-New Money. With respect to the New Money Note: (a) The Issuer has entered into or will enter into within six months from the date of this certificate, binding commitment(s) for the acquisition, construction or accomplishment of the Project cited in Section 2.2 hereof, and the amount of such commitment(s) with respect to such Project will or do exceed the amount equal to 5% of $1,361,600, being the aggregate amount of obligations currently issued for such Project. (b) Such Project has been completed, or, if such Project has not been completed, work on the acquisition, construction or accomplishment of such Project will proceed or is proceeding with due diligence to completion. (c) It is reasonably expected that at least 85 percent of the net sale proceeds of such New Money Note will be expended within three years from the date of this Certificate. No more than 50 percent of the proceeds of the Note will be invested in nonpurpose investments with a term of four years or more. . . 3.3. Rebate. (a) Neither the Prior Issue nor the New Money Note was or is subject to the rebate requirement imposed by Section 148 of the Code because, with respect to each: (i) the Issuer was or is a governmental unit with general taxing powers; (ii) the Prior Issue/New Money Note did not or does not constitute a "private activity bond" as that term is defined in Section 141 of the Code; (iii) ninety-five percent or more of the net proceeds of the sale of the Prior Issue/New Money Note was or is to be used for local governmental activities of the Issuer; and (iv) the Issuer (including all agencies, instrumentalities and political subdivisions of the Issuer) reasonably expected or expects that the aggregate face amount of all tax-exempt bonds issued by the Issuer during the calendar year in which the Prior Issue was issued and the current calendar year would not or will not exceed $5,000,000. For purposes of such determination, no tax-exempt obligation was or shall be taken into account if it was or is a current refunding obligation issued in the calendar year in which the Prior Issue/New Money Note (as applicable) was or is being issued which does not exceed the outstanding (redeemed) principal amount of the obligation to be refunded. (b) The Current Refunding Note is not subject to the rebate requirement imposed by Section 148 of the Code because all of the Gross Proceeds of such Current Refunding Note will be expended to pay the Prior Issue within 90 days of the date hereof and will, therefore, qualify for the six-month expenditure exception to rebate. 3.4. No Excess Proceeds. The total proceeds of sale of all bond anticipation notes issued to date for the Project do not exceed the total cost of the Project. 3.5. Source of Reoavment Funds. The Note will be paid from taxes and the proceeds of other obligations of the Issuer issued to fund the Note. 3.6. Debt Service Fund. The taxes used to pay principal and interest on the Note, whether or not deposited in a debt service fund, will be expended within 13 months of the date of deposit in such fund, or the date of their accumulation, in the payment of debt service on the Note. Any amounts received from the investment of such deposit or accumulation will be expended within one year of receipt. The debt service fund, if any, will be used to achieve a proper matching of revenues and debt service and will be depleted at least annually except for a reasonable carryover amount which will not exceed the greater of the earnings on such fund for the immediately preceding year or one-twelfth of the debt service on the Note. 3.7. Sinking Funds. Except for the debt service fund described herein the Issuer has not created or established, and does not expect to create or establish, any sinking fund or . . other similar fund which the Issuer reasonably expects to use to pay principal or interest on the Note. ARTICLE IV Bank Qualification 4.1. Designation. The Note is hereby designated as a "qualified tax-exempt obligation" pursuant to the provisions of Section 265 of the Code. (a) In making such designation it has been determined with respect to the Current Refunding Note that: (i) the Note currently refunds the Prior Issue; (ii) the Prior Issue was designated as a "qualified tax-exempt obligation"; (iii) the aggregate face amount of the Note does not exceed $10,000,000; (iv) the Prior Issue had a weighted average maturity 00 years or less; (v) the maturity date of the Note, as measured from the original date of issuance of the notes issued pursuant to the Resolutions, in renewal of which such Note is being issued, does not exceed 30 years; and (vi) not more than $10,000,000 of obligations issued by the Issuer during the calendar year in which the Prior Issue was issued were designated by the Issuer as "qualified tax-exempt obligations." (b) In making such designation it has been determined with respect to the New Money Note that: (i) the Issuer does not reasonably anticipate that the amount of "qualified tax- exempt obligations" to be issued by the Issuer during the current calendar year will exceed $10,000,000; and (ii) the amount of "qualified tax-exempt obligations" issued by the Issuer during the current calendar year does not as of this date, and including this issue, exceed $10,000,000. IN WITNESS WHEREOF, I have hereunto set my hand and affixed the corporate seal of the Town of Southold this 10th day of September, 2004. Supervisor