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Tab 22 Opinion of Bond Counsel470 U.S. Bank Plaza 200 South Sixth Street Minneapolis, MN 55402 (612) 337-9300 telephone -93 10 fax I Graven (612)337 C H A R T E R E D http://www.kennedy-graven.com $4�520�000 City of Kalispell, Montana Special Improvement District No. 344 Bonds Series 2006 We have acted as Bond Counsel to the City of Kalispell, Montana (the "City") in connection with the authorization, issuance and sale by the City of the above -referenced obligations (the "Bonds"), dated as of June 15, 2006. In that capacity, we have examined certified copies of certain proceedings taken, and certificates and affidavits furnished, by the City in the authorization, sale and issuance of the Bonds, including a resolution (the "Resolution") adopted by the City Council of the City on June 19, 2006, prescribing the form of and security for the Bonds. As to questions of fact material to our opinion, we have assumed the authenticity of and relied upon the proceedings and certificates furnished to us without undertaking to verify the same by independent investigation. From our examination of such proceedings and other documents, assuming the genuineness of the signatures thereon and the accuracy of the facts stated therein, and based upon federal and State of Montana laws,, regulations, rulings, and decisions in effect on the date hereof, it is Our opinion that: 1. The City has validly created Special Improvement District No. 344 (the "District"), provided for the construction of various improvement projects of special benefit to the District (collectively, the "Improvements"). The City has covenanted. to levy special assessments against such benefited lots or parcels in an amount not less than the costs of the Improvements financed with proceeds of the Bonds, estimated at $4,520,000. The special assessments are to be payable in installments, with interest on the balance of the special assessments remaining unpaid, and collections thereof are to be deposited in the Special Improvement District No. 344 Fund of the City (the "District Fund"). The Bonds are payable solely fTom funds on deposit in the District Fund. 2. The City has agreed, to the extent permitted by and in accordance with the Resolution and to th e extent necessary for the payment of the Bonds (as described in the Resolution), to further secure the payment of the principal of and interest due on the Bonds with tax increment revenues deposited in the District Fund (the "Tax Increments") that are derived from certain tax increment districts established in the City. The City has validly pledged Tax Increments (to the extent such funds are on deposit in the District Fund) to the payment of debt service on the Bonds 'in accordance with the Resolution; provided, however, we express no opinion as to the priority of such pledge or its effect against third parties. 3. The City has validly established its Special Improvement District Revolving Fund (the "Revolving Fund") to further secure the payment of certain of its special improvement district bonds, including the Bonds. Pursuant to the Resolution, the City has agreed, to the extent permitted by Montana Code Annotated, Title 7, Chapter 12, Parts 41 and 42, as amended (the "SID Act"), to issue orders annually authorizing loans or advances from the Revolving Fund to the District Fund, in amounts sufficient to make good any deficiency in the District Fund, to the extent that funds are available therefor in the Revolving Fund. The City has also agreed to the extent necessary to provide funds for the Revolving Fund by annually making a tax levy or loan from the general fund of the City in an amount sufficient for that purpose, subject to the limitation that no such tax levy or loan may in any year cause the balance in the Revolving Fund to exceed five percent (5%) of the principal amount of the City's then outstanding special improvement district bonds secured by the Revolving Fund. The pledge of the Revolving Fund to the payment of debt service on the Bonds is subject to the durational limit set forth in the SID Act and any property tax levy to be made by the City to provide funds for the Revolving Fund is subject to levy limits under current Montana law. The City has agreed in the Resolution to levy property taxes to provide funds for the Revolving Fund to the extent required to replenish the Revolving Fund and to the extent described in the immediately preceding paragraph and; if necessary, the City has also agreed to reduce other property tax levies correspondingly to meet applicable levy limits. The Bonds are not general obligations of the City and, except to the limited extent described in this paragraph (3), the taxing power of the City is not pledged to the Bonds. 4. The Bonds are valid and binding special, limited obligations of the City enforceable in accordance with their ten-ns and the provisions of the Constitution and laws of the State of Montana now in force, including the SID Act, and the Resolution. 5. Interest on the Bonds is excludable from gross income for federal income tax purposes and is not an item of tax preference includable in alternative minimum taxable income for purposes of the federal alternative minimum tax applicable to all taxpayers. Interest on the Bonds is includable in the computation of "adjusted current earnings" used in the calculation of determining alternative minimum taxable income for purposes of the federal alternative minimum tax imposed on corporations. Interest on the Bonds is excludable from gross income for State of Montana individual income tax purposes, but is includable in the computation of income for purposes of the Montana corporate income tax and the Montana corporate license tax. The opinions expressed in the immediately preceding paragraph with respect to federal tax matters are subject to the condition of the City's compliance with all requirements of the Internal Revenue Code of 1986, as amended (the "Code"), that must be satisfied subsequent to the issuance of the Bonds in order that interest may be, and continue to be, excluded from gross income for federal income tax purposes. The City has covenanted to comply with these continuing requirements. The City's failure to do so could result in the inclusion of interest in gross income for federal income tax purposes, retroactive to the date of issuance of the Bonds. Except as stated in this opinion, we express no opinion regarding federal, state or other tax consequences to the owners of the Bonds. 6. The Bonds have been designated by the City as "qualified tax exempt obligations" for purposes of Section 265(b)(3) of the Code. The rights of the owners of the Bonds and the enforceability of the Bonds may be limited by bankruptcy, insolvency, reorganization, moratorium, and other similar laws affecting creditor's rights generally and by equitable principles, whether considered at law or in equity. We have not been engaged and have not undertaken to review the Official Statement or any other offering materials relating to the Bonds and, accordingly, we express no opinion with respect to the accuracy, completeness or sufficiency thereof. Dated at Minneapolis, Minnesota, June 29, 2006. ik Ott '0017c;;2 .000f KA225-1 (BWJ) 2 290078v.2