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Additional miscellaneous information about the City of South Bend can be found at the end of this transmittal letter. Financial, Bud~etary and Property Tax Controls The City is required to undergo an annual single audit in conformity with the provisions of the Single Audit Act of 1984, the provisions of U.S. Office of Management and Budget Circular A- 128, Audits of State and Local Governments, the provisions of Indiana Cade section 5-11-1-9 and the requirements of the Indiana State Board of Accounts. Far the last fourteen years (years ended December 31, 1990 through 2003) the City has received an unqualified audit opinion. The audit of the City`s financial reports for the year ended December 31, 2004 is currently underway, and it is anticipated that those financial statements will also receive an unqualified audit opinion. In accardance with Indiana statutes, the City maintains budgetary controls integrated within the accounting system. The objective of these budgetary controls is to ensure compliance with legal provisions embodied in the annual appropriated budget which is adapted by the Common Council and then reviewed and approved by the Indiana State Board of Tax Commissioners. Activities of the general fund, certain special revenue and capital project funds and debt service funds are included in the annual budget. The level of budgetary control {that is, the level at which expenditures cannot legally exceed the appropriated amount} is established by major budget classification within funds. The Common Council may transfer appropriations from one major budget classification to another within a department by ordinance as long as the total appropriations for that department are not exceeded. Transfers from one department to another, or additional appropriations in excess of the original budget, must be submitted to and approved by the State Board of Tax Commissioners after an ordinance has been passed by the Common Council. In addition to budgetary and other controls established by Indiana statute, the City must operate within specific and rigid controls governing the amount of property tax it may levy. The property tax control program, which began in 1973, limits the amount of property tax that maybe levied by each unit of government in its legally budgeted funds. The total amount of property tax levied by the unit may increase by the same percentage that the total assessed valuation of the unit increases, with a maximum increase of S% per year. In addition, if the unit finds that it cannot maintain basic governmental services for its residents within the property tax "freeze," it may appeal to the State Local Government Tax Control Board for an "excess levy" in certain specific instances. As a part of the property tax control program, the state transfers an amount generally equal to 20% of the total property tax levy (except for debt service levies as described below} to the County Auditor to be distributed to each taxing unit as a replacement for 20% of the property taxes levied. This "property tax replacement" is funded through the state sales tax. The levy for Debt Service funds is controlled via a review and approval process by the State Local Government Tax Control Board {with a subsequent review and approval by the State Board of Tax Commissioners) for each issuance of general obligation indebtedness (or lease- purchase} entered into by a taxing unit. In addition, any indebtedness incurred after 1983 no longer receives the 20% state property tax replacement funds. A historical view of the City`s tax rate and its net assessed valuation has been included at the end of this letter. vii