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City of Hastings, Minnesota September 26, 2005 Proiect Portion The proceeds of the Project Portion of the Series 2005A Bonds along with contributions from City funds and other sources will be used to finance various improvement projects within the City. Annual principal and interest payments on the Project Portion will be paid with a combination of ad valorem property taxes and special assessments filed against benefited properties. Assessments in the principal amount of approximately $1,708,813 will be filed on or about December 1,2006. Assessments will be amortized with equal annual payments of principal over a term of ten years. Interest will be charged on the outstanding balance at a rate equal to 1.50% over the rate on the Bonds (rounded to the nearest 0.50%). For the purposes of these recommendations we have used an estimated assessment interest rate of 5.50%. The projected assessment income is shown on page 14. The Project Portion of the Bonds has been structured around the projected assessment income to provide for a relatively even annual tax levy requirement over a term of ten years. The City will make its first levy for the Project Portion in 2006 for first collection in 2007. Each year's first-half collection of assessment and taxes will be used to pay the interest payment due August 1 in the year of collection. Second-half collections of assessments and taxes, plus surplus first-half collections, will be used to pay the February 1 principal and interest payment due in the following year. Since assessment income and tax levy collections will not be available to pay the August 1, 2006 and February 1, 2007 interest payments on the Project Portion, capitalized interest has been included in the par amount of the Series 2005A Bonds. Our recommended principal structure for the Project Portion is shown on page 15 with the following information: . Columns 1 through 4 show the principal payment dates, annual principal amounts, estimated interest rates, projected interest payments and the projected total principal and interest payments, given the current market environment. . Column 5 shows the capitalized interest included in the principal amount of the Project Portion to make the interest payments due through February 1, 2007. . Column 6 shows the net debt service. . Column 7 shows the 5% overlevy which is required by State statute and serves as a protection to bondholders and the City in the event of delinquencies in the collection of assessments and/or taxes. . Column 8 shows the projected assessment income develOped on page 14. . Column 9 shows the difference between columns 7 and 8, and represents the City's annual levy requirement related to the Project Portion of the Series 2005A Bonds. Based on projected assessment income, it is expected that the City will be required to levy ad valorem property taxes averaging approximately $148,000 annually beginning in levy year 2006 for taxes collected in 2007 for the Project Portion. Page 7