This Preliminary Official Statement and the information contained herein are subject to completion or amendment. Under no circumstances shall this Preliminary Official Statement constitute an offer to sell or a solicitation of an offer to buy nor shall there be any sale of these securities in any jurisdiction in which such offer solicitation or sale would be unlawful prior to registration or qualification under the securities laws of such jurisdiction.
Jones Hall Draft 2-28-2022
PRELIMINARY OFFICIAL STATEMENT DATED ___________, 2022
NEW ISSUE–BOOK-ENTRY ONLY S&P: “___”
See “RATING.”
In the opinion of Jones Hall, A Professional Law Corporation, San Francisco, California, Bond Counsel, interest on the Bonds is exempt from State of California personal income taxes. Bond Counsel observes that interest on the Bonds is not excluded from gross income for federal income tax purposes. Bond Counsel expresses no opinion regarding any other tax consequences caused by the ownership or disposition of, or the accrual or receipt of interest on, the Bonds. See “TAX MATTERS.”
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CITY OF BARSTOW
2022 TAXABLE PENSION OBLIGATION BONDS
Dated: Date of Delivery Due: June 1, as shown on inside cover The City of Barstow (the “City”) is issuing the bonds captioned above (the “Bonds”) under an Indenture of Trust, dated as of [April 1, 2022] (the “Indenture”), by and between the City and U.S. Bank Trust Company, National Association, as trustee. The net proceeds of the Bonds will be used to refund a portion of the City’s obligations to the California Public Employee’s Retirement System (“CalPERS”) under the CalPERS Contracts, evidencing all of the City’s obligation to pay the City’s unfunded accrued actuarial liability to CalPERS.
The Bonds will bear interest at the rates shown on the inside cover page, payable semiannually on June 1 and December 1 of each year, commencing on December 1, 2022, and 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”) in the United States. DTC will act as Securities Depository for the Bonds. Individual purchases of Bonds will be made in book-entry form only in integral multiples of $5,000. Purchasers will not receive certificates representing their beneficial ownership interest in the Bonds purchased. See “THE BONDS.” The Bonds are subject to redemption prior to maturity as described herein. See “THE BONDS – Redemption Provisions.”
The obligations of the City under the Bonds, including the obligation to make all payments of the principal and interest on are obligations of the City imposed by law and are absolute and unconditional, without any right of set-off or counterclaim. The Bonds will be payable from any source of legally available funds of the City, including amounts on deposit in the General Fund. See “SECURITY AND SOURCES OF PAYMENT FOR THE BONDS” herein.
THE BONDS DO NOT CONSTITUTE AN OBLIGATION OF THE CITY FOR WHICH THE CITY IS OBLIGATED TO LEVY OR PLEDGE ANY FORM OF TAXATION. NEITHER THE BONDS NOR THE
OBLIGATION OF THE CITY TO MAKE PAYMENTS ON THE BONDS CONSTITUTE AN INDEBTEDNESS OF
THE CITY, THE STATE OF CALIFORNIA OR ANY OF ITS POLITICAL SUBDIVISIONS WITHIN THE MEANING OF ANY CONSTITUTIONAL OR STATUTORY DEBT LIMITATION OR RESTRICTION.
This cover page contains information for general reference only. It is not intended to be a summary of the security or terms of this issue. Investors are advised to read the entire Official Statement to obtain information essential to the making of an informed investment decision. Capitalized terms used on this cover page not otherwise defined will have the meanings set forth herein.
The Bonds will be offered when, as and if issued and received by the Underwriter, subject to the approval as to their legality by Jones Hall, A Professional Law Corporation, San Francisco, California, Bond Counsel, and certain other conditions. Certain matters will be passed upon for the City by Colantuono, Highsmith & Whatley, PC, Pasadena, California, as City Attorney, and by Jones Hall, A Professional Law Corporation, as Disclosure Counsel. Certain legal matters will be passed upon for the Underwriter by its counsel, Law Offices of Rossi A.
Russel, Los Angeles, California. It is anticipated that the Bonds in definitive form will be available for delivery to DTC in New York, New York on or about _______, 2022.
[HILLTOP SECURITIES LOGO]
Dated: _______, 2022.
* Preliminary; subject to change.
MATURITY SCHEDULE
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CITY OF BARSTOW
2022 TAXABLE PENSION OBLIGATION BONDS
Base CUSIP†: ______
Maturity
(June 1)
Principal
Amount
Interest
Rate Yield CUSIP†
$_________ _____% Term Bonds due June 1, 20__ Yield _____% CUSIP† _______
† CUSIP is a registered trademark of the American Bankers Association. CUSIP Global Services (CGS) is managed on behalf of the American Bankers Association by S&P Global Market Intelligence. Copyright© CUSIP Global Services. All rights reserved.
CUSIP® data herein is provided by CUSIP Global Services. This data is not intended to create a database and does not serve in any way as a substitute for the CGS database. CUSIP® numbers are provided for convenience of reference only. None of the City, the Underwriter or their agents or counsel take any responsibility for the accuracy of such numbers. * Preliminary; subject to change.
CITY OF BARSTOW
CITY COUNCIL
Dr. Paul Anthony Courtney, Mayor
James Noble, Mayor Pro Tem
Marilyn Dyer-Kruse, Council Member
Barbara M. Rose, Council Member
Tim Silva, Council Member
CITY OFFICIALS
Willie A. Hopkins, Jr., City Manager
Marc Puckett, Interim Finance Director
Andrea Flores, City Clerk
Colantuono, Highsmith & Whatley, PC, City Attorney
BOND COUNSEL AND DISCLOSURE COUNSEL
Jones Hall, A Professional Law Corporation
San Francisco, California
MUNICIPAL ADVISOR
Fieldman, Rolapp & Associates, Inc.
Irvine, California
TRUSTEE
U.S. Bank Trust Company, National Association
Los Angeles, California
No dealer, broker, salesperson or other person has been authorized by the City to give any information or to make any representations in connection with the offer or sale of the Bonds other than those contained herein and, if given or made, such other information or representations must not be relied upon as having been authorized by the City. 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 a person in any jurisdiction in which it is unlawful for such person to make such an offer, solicitation or sale.
This Official Statement is not to be construed as a contract with the purchasers or Owners of the Bonds.
Statements contained in this Official Statement which involve estimates, forecasts or matters of opinion, whether or not expressly so described herein, are intended solely as such and are not to be construed as representations of fact.
The Underwriter has provided the following sentence for inclusion in this Official Statement:
The Underwriter has reviewed the information in this Official Statement in accordance with, and as a part of, its responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriter does not guarantee the accuracy or completeness of such information.
This Official Statement and the information that is contained herein are subject to completion or amendment without notice, and neither delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the City or any other parties that are described herein since the date hereof. These securities may not be sold, nor may an offer to buy them be accepted, prior to the time that the Official Statement is delivered in final form. This Official Statement is being submitted in connection with the sale of the Bonds referred to herein and may not be reproduced or used, in whole or in part, for any other purpose, unless authorized in writing by the City. All summaries of documents and laws are made subject to the provisions thereof and do not purport to be complete statements of any or all such provisions.
Certain statements which are included or incorporated by reference in this Official Statement constitute “forward-looking statements” within the meaning of the United States Private Securities Litigation Reform Act of 1995, Section 21E of the United States Securities Exchange Act of 1934, as amended, and Section 27A of the United States Securities Act of 1933, as amended. Such statements are generally identifiable by the terminology used, such as “plan,” “expect,” “estimate,” “project,” “budget,” “intend” or similar words. Such forward-looking statements include, but are not limited to, certain statements contained under the captions “THE CITY” and “CITY FINANCIAL INFORMATION.” As described under this Official Statement, the COVID-19 pandemic is expected to materially adversely impact the City’s financial condition. Historical information set forth in the Official Statement is not intended to be predictive of future results.
THE ACHIEVEMENT OF CERTAIN RESULTS OR OTHER EXPECTATIONS CONTAINED IN SUCH
FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER
FACTORS WHICH MAY CAUSE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS DESCRIBED TO BE
MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. THE CITY DOES NOT PLAN TO ISSUE ANY
UPDATES OR REVISIONS TO THE FORWARD-LOOKING STATEMENTS SET FORTH IN THIS OFFICIAL STATEMENT. IN EVALUATING SUCH STATEMENTS, POTENTIAL INVESTORS SHOULD SPECIFICALLY
CONSIDER THE VARIOUS FACTORS WHICH COULD CAUSE ACTUAL EVENTS OR RESULTS TO DIFFER MATERIALLY FROM THOSE INDICATED BY SUCH FORWARD-LOOKING STATEMENTS.
IN CONNECTION WITH THE OFFERING OF THE BONDS, THE UNDERWRITER MAY OVERALLOT OR
EFFECT TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF THE BONDS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. THE UNDERWRITER MAY OFFER AND SELL THE
BONDS TO CERTAIN DEALERS, DEALER BANKS, BANKS ACTING AS AGENT AND OTHERS AT PRICES
LOWER THAN THE PUBLIC OFFERING PRICE STATED ON THE COVER PAGE HEREOF, AND SAID PUBLIC OFFERING PRICES MAY BE CHANGED FROM TIME TO TIME BY THE UNDERWRITER.
THE BONDS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
IN RELIANCE UPON AN EXEMPTION CONTAINED IN SUCH ACT, AND HAVE NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES LAWS OF ANY STATE.
The City maintains a website; however, information presented there is not a part of this Official Statement and should not be relied upon in making an investment decision with respect to the Bonds. -iTABLE OF CONTENTS
Page Page
INTRODUCTION................................................1 Authority for the 2021 Bonds..........................1 Purpose ..........................................................1 Security and Sources of Payment for the 2021
Bonds .........................................................2 No Debt Service Reserve Fund......................2
The City ..........................................................2 Validation........................................................2 Redemption ....................................................2 Professionals Involved in the Offering............2
Forward-Looking Statements .........................3
Risk Factors Associated with Purchasing the
Bonds .........................................................3 Summaries Not Definitive...............................3 REFINANCING PLAN ........................................3 Refinancing of CalPERS Contracts................3
Estimated Sources and Uses of Funds ..........4
THE BONDS.......................................................4 Redemption Provisions...................................5 Book-Entry System.........................................7 Transfer and Exchange of Bonds...................7
SECURITY AND SOURCES OF PAYMENT FOR
THE BONDS...................................................8 Sources of Payment .......................................8 Debt Service Fund; Transfer of Amounts to
Trustee .......................................................8 No Debt Service Reserve Fund......................9
DEBT SERVICE SCHEDULE ............................9
THE CITY .........................................................10 General.........................................................10 City Government and Administration............10
Public Health Emergency – COVID-19 ........11
CITY FINANCIAL INFORMATION ...................14
Accounting Policies and Financial Reporting14
Fiscal Policies...............................................14 General Economic Condition and Outlook of the
City ...........................................................15 Budget Procedure, Current Budget and Historical
Budget Information ...................................17 City Financial Statements.............................20 General Fund Major Tax Revenues By Source23
Sales and Use Taxes ...................................23 Property Taxes .............................................27 Transient Occupancy Tax ............................31
Franchise Taxes ...........................................31 Charges for Services ....................................32 Long-Term General Fund Obligations..........32
Overlapping Debt Statement ........................33
Employee Retirement System......................34
Other Post-Employment Benefits (OPEB)....40
Employee Relations ..................................... 41 Risk Management ........................................ 42 Investment Policies and Procedures ........... 42
State Budget ................................................ 43
CONSTITUTIONAL AND STATUTORY
LIMITATIONS ON TAXES AND
APPROPRIATIONS ..................................... 44 Article XIIIA of the State Constitution........... 44
Legislation Implementing Article XIIIA ......... 45
Article XIIIB of the State Constitution........... 45
Articles XIIIC and XIIID of the State Constitution
................................................................. 46 Statutory Revenue Limitations - Proposition 62
................................................................. 47 Proposition 1A; Proposition 22..................... 48
Proposition 19 .............................................. 48 Possible Future Initiatives ............................ 49 RISK FACTORS .............................................. 49 Limitations on Remedies Available; Bankruptcy
................................................................. 49 Certain Risks Associated with Sales Tax and
Other Local Tax Revenues ...................... 50
Increasing Retirement Related Costs .......... 50
City Obligations ............................................ 51 Dependence on State for Certain Revenues51
No Reserve Fund......................................... 51 Public Health Emergencies.......................... 51
Natural Calamities........................................ 53 Potential Impact of Climate Change ............ 54
Hazardous Substances................................ 54 State Law Limitations on Appropriations ..... 54
Limitations on Taxes and Fees .................... 54
Assessed Value of Taxable Property........... 55
Concentration of Property Ownership.......... 56
Cybersecurity ............................................... 56 Changes in Law ........................................... 56 Litigation....................................................... 56 Limitation on Trustee’s Obligations.............. 57
Secondary Market for Bonds ....................... 57
VALIDATION.................................................... 57 TAX MATTERS................................................ 57 CERTAIN LEGAL MATTERS .......................... 58
CONTINUING DISCLOSURE.......................... 58
MUNICIPAL ADVISOR .................................... 58 FINANCIAL STATEMENTS OF THE CITY ..... 59
ABSENCE OF LITIGATION............................. 59
RATING............................................................ 59 UNDERWRITING............................................. 60 MISCELLANEOUS .......................................... 60 -iiTABLE OF CONTENTS
(Continued)
APPENDIX A DEMOGRAPHIC AND ECONOMIC INFORMATION FOR THE CITY OF BARSTOW
APPENDIX B THE CITY OF BARSTOW AUDITED FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2021
APPENDIX C BOOK-ENTRY ONLY SYSTEM
APPENDIX D SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE
APPENDIX E PROPOSED FORM OF OPINION OF BOND COUNSEL
APPENDIX F FORM OF CONTINUING DISCLOSURE CERTIFICATE
1 OFFICIAL STATEMENT
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CITY OF BARSTOW
2022 TAXABLE PENSION OBLIGATION BONDS
The purpose of this Official Statement, which includes the cover page and appendices hereto, is to set forth certain information concerning the issuance and sale by the City of Barstow (the “City”) of its 2022 Taxable Pension Obligation Bonds (the “Bonds”)
INTRODUCTION
This Introduction is subject in all respects to the more complete information contained elsewhere in this Official Statement, and the offering of the Bonds to potential investors is made only by means of the entire Official Statement. Terms used in this Introduction and not otherwise defined will have the respective meanings assigned to them elsewhere in the Indenture.
Authority for the Bonds
The Bonds are being issued pursuant to Articles 10 and 11 (commencing with Sections 53570 and 53580) of Chapter 3 of Division 2 of Title 5 of the Government Code (the “Bond Law”) of the State of California (the “State”) and an Indenture of Trust, dated as of [April 1, 2022] (the “Indenture”), by and between the City and U.S. Bank Trust Company, National Association, as trustee (the “Trustee”), and a resolution adopted by the City Council of the City on October 4, 2021.
Purpose
The City is obligated to make payments to the Board of Administration of the California Public Employee’s Retirement System (“CalPERS”) arising as a result of retirement benefits accruing to members of CalPERS pursuant to one or more contracts (as amended to date, and as may further be amended from time to time, the “CalPERS Contracts”) with CalPERS and the Public Employees’ Retirement Law, constituting Part 3 of Division 5 of Title 2 of the California Government Code (the “Retirement Law”). The City’s obligations under the Retirement Law include, among others, the requirement to amortize the unfunded accrued actuarial liability (the “UAL”) with respect to such retirement benefits.
The City is issuing the Bonds to (i) refund a portion] of the City’s obligations to CalPERS under the CalPERS Contracts evidencing the City’s UAL, and (ii) to pay the costs of issuance related to the Bonds. See also “REFINANCING PLAN” and “ESTIMATED SOURCES AND USES OF FUNDS” herein.
* Preliminary, subject to change.
2 Security and Sources of Payment for the Bonds
The obligations of the City under the Bonds, including the obligation to make all payments of principal of and premium, if any, and interest on the Bonds when due and the obligation of the City to make the deposits required under the Indenture for the payment of the Bonds, are obligations of the City imposed by law and are absolute and unconditional, without any right of set-off or counterclaim. The Bonds will be payable from any source of legally available funds of the City, including amounts on deposit in the General Fund. See “SECURITY AND SOURCES OF PAYMENT FOR THE BONDS” herein.
THE BONDS DO NOT CONSTITUTE AN OBLIGATION OF THE CITY FOR WHICH THE CITY IS OBLIGATED TO LEVY OR PLEDGE ANY FORM OF TAXATION. NEITHER THE
BONDS NOR THE OBLIGATION OF THE CITY TO MAKE PAYMENTS ON THE BONDS
CONSTITUTE AN INDEBTEDNESS OF THE CITY, THE STATE OR ANY OF ITS POLITICAL
SUBDIVISIONS WITHIN THE MEANING OF ANY CONSTITUTIONAL OR STATUTORY DEBT LIMITATION OR RESTRICTION.
No Debt Service Reserve Fund
The City has not and will not establish a debt service reserve fund for the Bonds.
The City
See the captions “THE CITY” and “CITY FINANCIAL INFORMATION,” as well as Appendices A and B for information with respect to the City and the General Fund, respectively, including other obligations which are payable from general revenues of the City.
Validation
The authorization by the City of the issuance of the Bonds under the Indenture as obligations of the City imposed by law, and as to the validity and conformity of the Bonds with all applicable provisions of law, were validated by a judgment of the Superior Court of the State of California in and for the City entered on February 9, 2022. The time period for the filing of appeals with respect to the judgment has expired. No appeals were filed and therefore, the judgment is final. See “VALIDATION” herein.
Redemption
The Bonds are subject to redemption as described herein. See “THE BONDS – Redemption Provisions” herein.
Professionals Involved in the Offering
Fieldman, Rolapp & Associates, Inc., Irvine, California, has acted as municipal advisor to the City (the “Municipal Advisor”). U.S. Bank Trust Company, National Association, Los Angeles, California, will act as Trustee with respect to the Bonds. Hilltop Securities, Inc. (the “Underwriter”), is underwriting the Bonds.
All proceedings in connection with the issuance of the Bonds are subject to the approval of Jones Hall, A Professional Law Corporation, San Francisco, California, Bond Counsel to the City. A copy of the proposed form of Bond Counsel’s final approving opinion with respect to the 3 Bonds is attached hereto as Appendix E. Certain legal matters will be passed upon for the City by Colantuono, Highsmith & Whatley, PC, as City Attorney, and by Jones Hall, A Professional Law Corporation, as Disclosure Counsel. Certain legal matters will be passed upon for the Underwriter by Law Offices of Rossi A. Russell, Los Angeles, California, as Underwriter’s Counsel. Payment of the fees and expenses of Bond Counsel, Disclosure Counsel, the Municipal Advisor and Underwriter’s Counsel is contingent upon the sale and delivery of the Bonds.
Forward-Looking Statements
Certain statements included or incorporated by reference in this Official Statement constitute “forward-looking statements.” Such statements are generally identifiable by the terminology used such as “plan,” “expect,” “estimate,” “budget” or other similar words. The achievement of certain results or other expectations contained in such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements described to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements.
Although such expectations reflected in such forward-looking statements are reasonable, there can be no assurance that such expectations will prove to be correct. The City is not obligated to issue any updates or revisions to the forward-looking statements if, or when, its expectations, or events, conditions or circumstances on which such statements are based change.
Risk Factors Associated with Purchasing the Bonds
Investment in the Bonds involves risks that may not be appropriate for some investors.
See “RISK FACTORS” for a discussion of certain risk factors which should be considered, including the potential impact of the COVID-19 pandemic, in addition to the other matters set forth in this Official Statement, in considering the investment quality of the Bonds.
Summaries Not Definitive
Brief descriptions of the Bonds, the City and the Indenture are included in this Official Statement and appendices related thereto. Such descriptions do not purport to be comprehensive or definitive. All references herein to the Bonds and the Indenture are qualified in their entirety by reference to the actual documents, or with respect to the Bonds, the forms thereof included in the Indenture, copies of all of which are available for inspection by written request mailed to the City of Barstow, 220 East Mountain View Street, Suite A, Barstow, California, 92311, Attention:
City Manager, and will be available upon request and payment of duplication costs from the Trustee.
REFINANCING PLAN
Refinancing of CalPERS Contracts
The City is obligated to make payments to CalPERS arising as a result of retirement benefits accruing to members of CalPERS pursuant the CalPERS Contracts and the Retirement Law. The City’s obligations under the Retirement Law include, among others, the requirement to amortize the UAL with respect to such retirement benefits.
According to the most recent actuarial valuations performed by CalPERS for the City’s pension plans dated as of June 30, 2020, the City’s UAL with respect to its pension plans totaled 4 approximately $33.3 million. CalPERS has provided the City with a pay-off amount with respect to the City’s pension plans of $_______ as of _________, 2022 (the “Payoff Date”). Such amount is based on the most recent actuarial valuations performed by CalPERS with respect to the City’s pension plans dated as of June 30, 2020 rolled forward to June 30, 2022 and discounted back to the Payoff Date. Upon issuance of the Bonds, the City will apply proceeds thereof in the approximate amount of $_____ to refund a portion of its current obligations under the CalPERS Contracts. The City projects that immediately after the refunding of the CalPERS Contract with such proceeds, the funding level of the City’s pension plans will be approximately ___%.
It is possible that CalPERS will determine at a future date that additional UAL exists attributable to the City, including in part with respect to the UAL being refunded, if actual plan experience differs from the current actuarial estimates, including any variance from projections.
See “CITY FINANCIAL INFORMATION – Employee Retirement System” for additional information regarding the City’s pension plans.
Estimated Sources and Uses of Funds
The estimated sources and uses of funds with respect to the Bonds are set forth below:
Sources Amount
Principal Amount $
Less: Underwriter’s Discount
Total Sources $
Uses
Refund CalPERS Contracts
(1) $
Costs of Issuance (2)
Total Uses $
____________________
(1) See “REFINANCING PLAN – Refinancing of CalPERS Contracts.” (2) Includes, among other things, the fees and expenses of Bond Counsel, Disclosure Counsel, the Trustee, the Municipal Advisor, rating agency fees, and printing the preliminary and final Official Statements.
THE BONDS
Description of the Bonds
The Bonds shall be issued in fully registered form without coupons in denominations of $5,000 or any integral multiple thereof. The Bonds shall be dated as of the Closing Date and mature on June 1 in the years and in the respective principal amounts and bear interest (calculated on the basis of a 360-day year comprised of twelve 30-day months) at the respective rates per annum, set forth on the inside front cover of this Official Statement.
Interest on the Bonds will be payable semiannually on June 1 and December 1 of each year, commencing December 1, 2022 (each, an “Interest Payment Date”). The Bonds will bear interest from the Interest Payment Date immediately preceding the date of authentication, unless:
(a) Bond is authenticated on or before an Interest Payment Date and after the close of business on the preceding Record Date, in which event it will bear interest from such Interest Payment Date, (b) a Bond is authenticated on or before the first Record Date, in which event interest thereon will be payable from the Closing Date, or (c) interest on a Bond is in default as of the date 5 of authentication thereof, in which event interest thereon will be payable from the date to which interest has been paid in full, payable on each Interest Payment Date. “Record Date” is defined in the Indenture to mean, with respect to any Interest Payment Date, the close of business on the 15th calendar day of the month preceding such Interest Payment Date, whether or not such 15th calendar day is a Business Day.
Interest is payable on each Interest Payment Date to the persons in whose names the ownership of the Bonds is registered on the Registration Books at the close of business on the immediately preceding Record Date, except as provided below. Interest on a Bond which is not punctually paid or duly provided for on any Interest Payment Date is payable to the person in whose name the ownership of such Bond is registered on the Registration Books at the close of business on a special record date for the payment of such defaulted interest to be fixed by the Trustee, notice of which is given to such Owner by first-class mail not less than ten days prior to such special record date.
The Trustee will pay interest on the Bonds by check of the Trustee mailed by first class mail, postage prepaid, on each Interest Payment Date to the Owners of the Bonds at their respective addresses shown on the Registration Books as of the close of business on the preceding Record Date. At the written request of the Owner of Bonds in an aggregate principal amount of at least $1,000,000, which written request is on file with the Trustee as of any Record Date, the Trustee will pay interest on such Bonds on each succeeding Interest Payment Date by wire transfer in immediately available funds to such account of a financial institution within the United States of America as specified in such written request, which written request will remain in effect until rescinded in writing by the Owner. The Trustee will pay principal of the Bonds in lawful money of the United States of America by check of the Trustee upon presentation and surrender thereof at the Office of the Trustee.
The Bonds, when issued, will be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York (“DTC”). DTC will act as securities depository of the Bonds. Ownership interests in the Bonds may be purchased in book-entry form only.
Purchasers will not receive securities certificates representing their interests in the Bonds purchased. Payments of principal and interest on the Bonds will be paid by the Trustee to DTC, which is obligated in turn to remit such principal and interest to its DTC Participants for subsequent disbursement to the beneficial owners of the Bonds. So long as the Bonds are held in the bookentry system of DTC, payments of principal of and interest on the Bonds will be governed by the rules and procedures which are applicable to such book-entry system. See “APPENDIX C – BOOK-ENTRY ONLY SYSTEM.”
Redemption*
Optional Redemption. The Bonds maturing on or before June 1, 20__, are not subject to redemption prior to their respective stated maturities. The Bonds maturing on or after June 1, 20__, are subject to redemption in whole, or in part among maturities on such basis as set forth in a Request of the City, and within a maturity on a pro rata basis among the Beneficial Owners of the Bonds of such maturity, at the option of the City, on any date on or after June 1, 20__, from any available source of funds, at a redemption price equal to the principal amount thereof to be redeemed together with accrued interest thereon to the redemption date, without premium.
* Preliminary; subject to change.
6 Mandatory Sinking Fund Redemption. The Bonds maturing on June 1, 20__ (the “Term Bonds”) are subject to mandatory redemption, within a maturity on a pro rata basis among the Beneficial Owners of the Term Bonds, at a redemption price equal to 100% of the principal amount thereof to be redeemed, without premium, in the aggregate respective principal amounts and on June 1 in the respective years as set forth in the following table.
Sinking Fund
Redemption Date
(June 1)
Principal Amount
To Be Redeemed
(Maturity)
If some but not all of the Term Bonds have been optionally redeemed ad described above, the total amount of all future sinking fund payments will be reduced by the aggregate principal amount of the Term Bonds so redeemed, to be allocated among such sinking fund payments on a pro rata basis in integral multiples of $5,000 (as set forth in a schedule provided by the City to the Trustee).
Manner of Redemption. Whenever provision is made in the Indenture for the redemption of less than all of the Bonds of a maturity, the Trustee shall select the Bonds of such maturity to be redeemed on a pro rata basis among the Beneficial Owners of the Bonds of such maturity.
For purpose of such selection, all Bonds will be deemed to be comprised of separate $5,000 denominations and such separate denominations will be treated as separate Bonds which may be separately redeemed.
So long as the Bonds are registered in book-entry-only form and so long as the Depository or a successor securities depository is the sole registered Owner of the Bonds, partial redemptions will be done in accordance with procedures of the Depository. It is the City’s intent that redemption allocations made by the Depository be made in accordance with the proportional provisions described herein. However, neither the City nor the Trustee has a duty to assure, and can provide no assurance, that DTC will allocate redemptions among Beneficial Owners on such a proportional basis, and neither the City nor the Trustee shall have any liability whatsoever to Beneficial Owners in the event redemptions are not done on a proportionate basis for any reason.
The portion of any registered Bonds of a denomination of more than $5,000 to be redeemed will be in the principal amount of $5,000 or any integral multiple thereof.
Notice of Redemption. The Trustee on behalf and at the expense of the City will mail (by first class mail) notice of any redemption to the respective Owners of Bonds designated for redemption at their respective addresses appearing on the Registration Books, to the Securities Depositories and the Municipal Securities Rulemaking Board, at least 20 but not more than 60 days prior to the date fixed for redemption; provided, however, that neither failure to receive any such notice so mailed nor any defect therein will affect the validity of the proceedings for the redemption of such Bonds or the cessation of the accrual of interest thereon. Such notice must state the date of the notice, the redemption date, the redemption place and the redemption price and must designate the CUSIP numbers, the Bond numbers and the maturity or maturities (in the event of redemption of all of the Bonds of such maturity or maturities in whole) of the Bonds to be redeemed, and must require that such Bonds be then surrendered at the Office of the Trustee identified in such notice for redemption at the redemption price, giving notice also that further interest on such Bonds will not accrue from and after the redemption date. DTC, the procedures 7 for giving notice of redemption of the Bonds will be governed by the rules and procedures which are applicable to such book-entry system. See “APPENDIX C – BOOK-ENTRY ONLY SYSTEM.” Right to Rescind Notice of Optional Redemption. The City may send a conditional notice of an optional redemption of Bonds under the Indenture. The City may rescind any notice of the optional redemption of Bonds by written notice to the Trustee on or prior to the dated fixed for redemption. Any notice of optional redemption will be cancelled and annulled if for any reason funds will not be or are not available on the date fixed for redemption for the payment in full of the Bonds then called for redemption, and such cancellation will not constitute an Event of Default.
The City and the Trustee have no liability to the Owners or any other party related to or arising from such rescission of redemption. The Trustee will give notice of such rescission of redemption in the same manner as the original notice of redemption was given.
Effect of Redemption. From and after the date fixed for redemption, if notice of redemption has been duly mailed and funds available for the payment of the principal of and interest (and premium, if any) on the Bonds so called for redemption have been duly provided, such Bonds so called shall cease to be entitled to any benefit under the Indenture other than the right to receive payment of the redemption price, and no interest shall accrue thereon from and after the redemption date specified in such notice. Unless otherwise directed in writing by the City, the Trustee shall cancel and destroy all Bonds which have been redeemed.
Book-Entry System
DTC will act as securities depository for the Bonds. The Bonds will be issued as fully registered bonds registered in the name of Cede & Co. (DTC’s partnership nominee). One fully registered Bond will be issued for each maturity of the Bonds. See “APPENDIX C – BOOKENTRY ONLY SYSTEM.” The City and the Trustee cannot and do not give any assurances that DTC, DTC Participants or others will distribute payments of principal of and interest on the Bonds paid to DTC or its nominee as the registered owner, or will distribute any redemption notices or other notices, to the beneficial owners, or that they will do so on a timely basis or will serve and act in the manner described in this Official Statement. The City and the Trustee are not responsible or liable for the failure of DTC or any DTC Participant to make any payment or give any notice to beneficial owner with respect to the Bonds or an error of delay relating thereto.
Transfer and Exchange of Bonds
Transfer. A Bond may, in accordance with its terms, be transferred, upon the Registration Books, by the person in whose name it is registered, in person or by a duly authorized attorney of such person, upon surrender of that Bond to the Trustee at its Office for cancellation, accompanied by delivery of a written instrument of transfer in a form acceptable to the Trustee, duly executed. The Trustee shall collect any tax or other governmental charge on the transfer of any Bonds under the Indenture. Whenever any Bond or Bonds are surrendered for transfer, the City will execute and the Trustee shall authenticate and deliver to the transferee a new Bond or Bonds of like series, interest rate, maturity and aggregate principal amount. The City will pay the cost of printing Bonds and any services rendered or expenses incurred by the Trustee in connection with any transfer of Bonds.
Exchange of Bonds. The Bonds may be exchanged at the Office of the Trustee for a like aggregate principal amount of Bonds of other authorized denominations and of the same series, interest rate and maturity. The Trustee shall collect any tax or other governmental charge 8 on the exchange of Bonds. The City will pay the cost of printing Bonds and any services rendered or expenses incurred by the Trustee in connection with any exchange of Bonds.
Limitations. The Trustee may refuse to transfer or exchange, under the Indenture, any Bonds selected by the Trustee for redemption under the Indenture, or any Bonds during the period established by the Trustee for the selection of Bonds for redemption.
SECURITY AND SOURCES OF PAYMENT FOR THE BONDS
Sources of Payment
The obligations of the City under the Bonds, including the obligation to make all payments of principal of and interest on the Bonds when due and the obligation of the City to make the deposits required under the Indenture for the security of the Bonds, are obligations of the City imposed by law and are absolute and unconditional, without any right of set-off or counterclaim.
The City agrees to pay from any legally available source of revenues of the City, including amounts on deposit in the General Fund of the City, all amounts due and owing with respect to Bonds issued under the Indenture, including principal and interest thereon and the redemption price thereof. The Bonds do not constitute an obligation of the City for which the City is obligated to levy or pledge any form of taxation. Neither the Bonds nor the obligations of the City to make payments on the Bonds constitute an indebtedness of the City, the State of California, or any of its political subdivisions within the meaning of any constitutional or statutory debt limitation or restriction.
In consideration of the acceptance of the Bonds by those who hold the same from time to time, the Indenture constitutes a contract between the City and the Owners from time to time of the Bonds, and the covenants and agreements therein set forth to be performed on behalf of the City are for the equal and proportionate benefit, security and protection of all Owners of the Bonds without preference, priority or distinction as to security or otherwise of any of the Bonds over any of the others by reason of the number or date thereof or the time of sale, execution and delivery thereof, or otherwise for any cause whatsoever, except as expressly provided therein or in the Indenture.
Debt Service Fund; Transfer of Amounts to Trustee
Under the Indenture, a separate fund is established to be known as the “Debt Service Fund” which shall be held by the Trustee in trust for the benefit of the Bond Owners. The Trustee will hold the Debt Service Fund for the uses and purposes set forth in the Indenture, so long as any of the Bonds remain Outstanding. The City will transfer an amount of legally available funds to the Trustee in the following amounts at the following times, for deposit by the Trustee in the following respective special accounts within the Debt Service Fund, which accounts are established with the Trustee under the Indenture with respect to the Bonds, in the following order of priority:
(a) Interest Account. On or before the 5
th Business Day preceding each date on which
interest on the Bonds is due and payable, the City will transfer to the Trustee for deposit in the Interest Account an amount which, when added to the amount then on deposit in the Interest Account, equals the aggregate amount of the interest coming due and payable on the Outstanding Bonds on that date. The Trustee will 9 apply amounts in the Interest Account solely for the purpose of paying the interest on the Bonds when due and payable.
(b) Principal Account. On or before the 5
th Business Day preceding each date on which
principal of the Bonds is due and payable at maturity or upon mandatory sinking fund redemption, the City will transfer to the Trustee for deposit in the Principal Account an amount which, when added to the amount then on deposit in the Principal Account, equals the amount of principal coming due and payable on that date on the Outstanding Bonds, including the principal amount of the Term Bonds which are subject to mandatory sinking fund redemption on that date under the Indenture. The Trustee will apply amounts in the Principal Account solely for the purpose of paying the principal of the Bonds at the maturity thereof and the principal of the Term Bonds upon the mandatory sinking fund redemption thereof.
No Debt Service Reserve Fund
The City has not and will not establish a debt service reserve fund for the Bonds.
DEBT SERVICE SCHEDULE
The following table shows the debt service schedule with respect to the Bonds, assuming no optional redemptions.
Fiscal Year
Ending June 30
Bonds
Principal
Bonds
Interest
Total Debt
Service
Total
Source: Hilltop Securities, Inc.
10 THE CITY
General
The City encompasses approximately forty square miles and is located in the northern part of San Bernardino County (the “County”). The City is a major transportation hub for the Inland Empire with several major highways, including Interstate 15, Interstate 40, and California State Route 58, converging in the City. As of January 1, 2021, the population of the City was estimated to be 24,205.
The City provides a full range of services, including police and fire protection services, economic development, construction and maintenance of roadways, parks, streets, and other infrastructure, recreational and cultural activities, utility services of sewer and solid waste collection, and general administrative services.
City Government and Administration
General. The City was incorporated in 1947 as a general law city. The City operates under a council-manager form of government. The City Council consists of five representatives, which includes the Mayor. The council is elected on a non-partisan basis. Council members serve fouryear terms and elections are staggered every two years. The Mayor is elected to serve a fouryear term. The Mayor is elected at large while the council members are elected by districts.
The current City Council members and their respective term expiration dates are as follows:
Name and Office Term Expires
Dr. Paul Anthony Courtney, Mayor November, 2024
James Noble, Mayor Pro Tem November, 2022
Tim Silva, Council Member November, 2022
Barbara M. Rose, Council Member November, 2024
Marilyn Dyer-Kruse, Council Member November, 2024
The City Council sets policy, enacts legislation, and adopts the budget under which the City operates. The City Manager is responsible for carrying out the policies and ordinances of the governing council, for overseeing the day-to-day operations of the City government, and working with the directors and managers of City departments.
Key Personnel. Brief biographies of the City Manager and Interim Finance Director follow below.
Willie A. Hopkins, Jr., City Manager. Prior to coming to Barstow, Mr. Hopkins served as the director of Alameda County’s General Services Agency. With extensive experience in the United States Army, private sector and local government, he is a seasoned senior manager with a successful track record in managing large capital projects, procurement and other support services. He also served as the Director of the Support Services Agency for Cobb County, Georgia, the Assistant City Manager of Pompano Beach, Florida, and, prior to that, as Director of General Services in Fulton County, Atlanta, Georgia. Mr. Hopkins has been providing executive management services to local governments for over 18 years, building on previous management service in the military and corporate worlds. Mr. Hopkins is a graduate of Alcorn State University 11 where he obtained a degree in business administration and was a member of the Reserve Officer Training Corps. He also served in the U.S. Army from September 1985 until April of 1996.
Marc Puckett, Interim Finance Director. Mr. Puckett has extensive experience as a Finance Director. His public service spans over 34 years as a Finance Director serving cities in both Michigan and California. Prior to coming to Barstow, Mr. Puckett served as the Assistant Town Manager in charge of Fiscal and Administrative Services for the Town of Apple Valley. He has also served the City of Costa Mesa, California, as Director of Finance/City Treasurer and, prior to that, served as the Director of Finance for the City of Flint, Michigan. Mr. Puckett is a graduate of Ferris State University where he obtained a degree in accounting.
Public Health Emergency – COVID-19
The spread of the novel strains of coronavirus collectively called SARS-CoV-2, which cause the disease known as COVID-19 (“COVID-19”), and local, State and federal actions in response to COVID-19, have impacted the City’s operations and finances. In response to the increasing number of COVID-19 infections and fatalities, health officials and experts recommended, and some governments mandated, a variety of responses ranging from travel bans and social distancing practices to complete shutdowns of certain services and facilities. The World Health Organization has declared the COVID-19 outbreak to be a pandemic and, on March 4, 2020, as part of the State’s response to address the outbreak, the Governor declared a state of emergency. On March 13, 2020, the President declared a national emergency, freeing up funding for federal assistance to state and local governments. The City also declared a local emergency on March 16, 2020 in response to the COVID-19 outbreak. The City closed municipal facilities to the public through June 2020. Since that time, City facilities have reopened with health and safety precautions in place in compliance with State and federal guidelines. Many school districts across the State temporarily closed some or all school campuses (including schools within the City) in response to local and State directives or guidance.
On March 19, 2020, the Governor issued Executive Order N-33-20, a mandatory Statewide shelter-in-place order applicable to all non-essential services. Certain aspects of the shelter-in-place directives were extended indefinitely until indicators for modifying the stay-athome order were met. The County also declared a state of emergency in response to the COVID19 outbreak. On May 4, 2020, the Governor issued an executive order informing local health jurisdictions and industry sectors that they could gradually re-open under new modifications and guidance provided by the State. A phased re-opening of various sectors was underway since mid-2020 in accordance with a four-stage re-opening plan that ended with a full reopening of the economy on June 15, 2021. Although pursuant to the re-opening plan certain restrictions on activities were eased, restrictions were also re-imposed in various jurisdictions (including Los Angeles County to the southwest of the City) as local conditions warranted, and such restrictions may be renewed as the pandemic continues.
In addition, the Governor extended the deadline to file and pay spring 2020 property taxes for residential and certain commercial property owners and first quarter 2020 sales and use tax returns by 90 days for all but the very largest taxpayers. As a result of the extended deadline to file sales and use tax returns, it is estimated that up to 361,000 California businesses with less than $5 million in taxable annual sales were permitted to defer up to $50,000 in sales tax and enter into 12-month payment plans at zero interest. These actions resulted in delays in the receipt by the City of some sales tax revenues. Sales tax revenues declined by $1.2 million in Fiscal Year 2019-20 due to the combined impact of the extended filing deadline and the shelter in place order.
12 On March 27, 2020, the President signed the $2.2 trillion Coronavirus Aid, Relief, and Economic Stabilization Act (the “CARES Act”) which provides, among other measures, $150 billion in financial aid to states, tribal governments and local governments to provide emergency assistance to those most significantly impacted by COVID-19. Under the CARES Act, local governments are eligible for reimbursement of certain costs which were expended to address the impacts of the pandemic. The City has received a total reimbursement of approximately $899,000 under the CARES Act, of which $881,000 has been received by the City to date. The City anticipates receiving an additional approximate $18,000 in CARES Act funding in Fiscal Year 2021-22. The funds received by the City under the CARES Act are not available for payment of the Bonds and cannot be used to backfill any City revenue losses related to COVID-19.
On December 27, 2020, the President signed the $900 billion Coronavirus Response and Relief Supplemental Appropriations Act. Although the act did not provide additional financial assistance to state and local governments, it did extend the deadline (to October 2021) for them to use unspent funds that were previously approved under the CARES Act.
On March 11, 2021, the President signed the American Rescue Plan Act of 2021 (the “ARP Act”), a $1.9 trillion economic stimulus package designed to help the United States’ economy recover from the adverse impacts of the COVID-19 pandemic. The ARP Act includes approximately $350 billion in aid to state and local governments such as the City, consisting of both direct funding from the United States Department of Treasury and program moneys that will flow from other federal agencies. Half of the aid to state and local governments was distributed in spring 2021, with the other half following in 2022. The City was awarded a total of $5,720,976 under the ARP Act, $2,860,488 (or 50%) of which was received in July 2021. The City anticipates receiving the remaining $2,860,488 in July 2022. This funding is available for a broad range of uses, including responding directly to the health emergency, addressing its negative economic impacts with assistance to households and small businesses, restoring government services that were reduced in response to pandemic-related revenue losses and making certain necessary infrastructure improvements. Under the Department of Treasury’s “Final Rule” for utilization of the Coronavirus State and Local Fiscal Recovery Funds, the City may elect a “standard allowance” of $10 million to determine the amount of the City’s revenue loss. The City has elected to utilize this approach to calculate the City’s amount of revenue loss. Therefore, the total amount of the City’s award, $5.7 million, is considered revenue loss and may be used for revenue replacement.
The effects of the COVID-19 outbreak and governmental actions responsive to it have altered the behavior of businesses and people in a manner that has had significant negative impacts on global and local economies. In addition, financial markets in the United States and globally have experienced significant volatility attributed to COVID-19 concerns. Volatility in the financial markets caused CalPERS’ earnings to fall below its investment targets in Fiscal Year 2019-20, which will result in increases in the City’s unfunded pension liability and future pension costs commencing in Fiscal Year 2022-23. See the caption “CITY FINANCIAL INFORMATION – Employee Retirement System.” The outbreak resulted in increased pressure on State finances as budgetary resources were directed towards containing the pandemic and tax revenues sharply declined in early 2020. Identified cases of COVID-19 and deaths attributable to the COVID-19 outbreak continue to occur throughout the United States, including the County.
Potential impacts to the City associated with the COVID-19 outbreak include, but are not limited to, increasing costs and challenges to the public health system in and around the City, cancellations of public events and disruption of the regional and local economy with corresponding decreases in General Fund revenues, including as a result of reduced sales which are subject to sales taxes, reduced hotel occupancy, which is subject to transient occupancy 13 taxes, fewer business license applications and potential declines in property values. See the captions “CITY FINANCIAL INFORMATION – Sales and Use Taxes,” “– Property Taxes” and “– Transient Occupancy Tax.”
In response to the COVID-19 outbreak, the City proclaimed a local state of emergency on March 16, 2020, modified its operations to implement remote work opportunities for employees and provide City services online, closed many City facilities to the public, cancelled many programs, rentals and community events and deferred several non-essential capital improvement projects. In order to transition City employees to working from home, the City procured additional hardware, established secure access to City computer systems and remote access to City telephone systems and deployed tele-conferencing applications. With improvements in local case rates, the City has phased in the resumption of normal operations and activities while complying with public health orders and California Occupational Safety and Health Administration COVID19 Prevention Plan mandates.
The City has not experienced and does not at this time foresee a future negative impact on the execution of City services as a result of the COVID 19 outbreak. The City has worked diligently to provide its employees with personal protective equipment and voluntary access to screening and vaccinations. However, there can be no assurance that absences of employees or City leadership due to COVID-19 will not adversely impact City operations.
The City Council adopted a balanced budget for Fiscal Year 2020-21 and 2021-22 on June 15, 2020. The budget included reductions in revenue projections of $2.8 million and reductions in appropriations of $2.3 million for Fiscal Years 2020-21 and 2021-22. Budgetary actions included a freeze in wages and certain benefits for two years, a reduction in workforce of
7.5 full-time equivalent employees, the elimination of 4 vacant funded positions, temporary elimination of recreation programs, and closure of recreation facilities.
As the shelter-in-place orders and other travel restrictions due to the epidemic eased, increased transient travel had an unanticipated positive impact on the City’s key revenue sources.
The City’s sales tax revenues were $2.8 million higher than projected for Fiscal Year 2020-21 and Transient Occupancy Taxes were $635,000 higher than projected for Fiscal Year 2020-21. In aggregate, the City’s actual revenues for Fiscal Year 2020-21 were $5 million greater than what was projected in the amended budget for such Fiscal Year. Expenditures for Fiscal Year 2020- 21 were $542,000 lower than the amended budget for such Fiscal Year.
The improvement in the City’s financial condition has been further supported by the diversity of the City’s tax base. In particular, between the Outlets at Barstow, the number of hotels in the Lenwood area of the City, surrounding restaurants and four truck stops representing all four major chains, 38% of the City’s revenues for Fiscal Year 2020-21 were derived from transient travelers through the community. Barstow is located at the juncture of the I-40 and I-15 freeways.
As such, freeway traffic through the community has been a significant source of revenue for the City.
The COVID-19 pandemic is ongoing, and its dynamic nature leads to uncertainties. There are many variables that will continue to contribute to the economic impact of the COVID-19 pandemic and the recovery therefrom, including the length of time social distancing measures are in place, the effectiveness of State and Federal governments’ relief programs and the timing for the containment and treatment of COVID-19. Certain of the information in this Official Statement is dated prior to the onset of the COVID-19 pandemic, which has had a significant adverse impact on the nation, State and local economy, including, but not limited to, a dramatic increase in 14 unemployment levels. Accordingly, such information is not necessarily indicative of the current financial condition or future prospects of the City and the region. The ultimate impact of COVID19 on the City’s operations and finances is not fully known, and it may be some time before the full impact of the COVID-19 pandemic is known. See “RISK FACTORS – Public Health Emergencies.”
CITY FINANCIAL INFORMATION
Accounting Policies and Financial Reporting
The City maintains its accounting records in accordance with Generally Accepted Accounting Principles (“GAAP”) and the standards established by the Governmental Accounting Standards Board (“GASB”). The City Council and City staff review fiscal performance against the budget at the mid-point of each Fiscal Year. Combined financial statements of the City and its component units are produced following the close of each fiscal year of the City ended June 30 (each, a “Fiscal Year”).
The City Council employs an independent certified public accountant who examines at least annually the financial statements of the City in accordance with GAAP, including tests of the accounting records and other auditing procedures as such accountant considers necessary. As soon as practicable, after the end of the Fiscal Year, a final audit and report is submitted by the independent accountant to the City Council. The accounts of the City are organized on the basis of funds and account groups, each of which is considered a separate accounting entity. The operations of each fund are accounted for with a separate set of self-balancing accounts that comprise its assets, liabilities, fund equity, revenues and expenditures or expenses, as appropriate.
Government resources are allocated to and accounted for in individual funds based upon the purposes for which they are to be spent and the means by which spending activities are controlled. The budget is adopted in accordance with GAAP. Revenues are recognized on the accrual basis (i.e., when they are earned). Expenditures are recorded when the related fund liability is incurred. See “APPENDIX B – Comprehensive Annual Financial Report of the City for the Year Ended June 30, 2021 – Note (1)” for a description of the significant accounting policies of the City. See the caption “— City Financial Statements” for a discussion of the City’s audited financial statements for Fiscal Year 2020-21.
The General Fund is the general operating fund of the City. It is used to account for all financial resources except those that are required to be accounted for in another fund because there are legal restrictions on their use. It is expected that debt service on the Bonds will be paid from amounts in the General Fund. Information on the remaining governmental funds of the City as of June 30, 2021, is set forth in Appendix B.
Fiscal Policies
Fund Balance Policy. In June, 2010, the City Council adopted Resolution No. 4548-2010 approving Policy Memorandum No. 2010-15 – Fund Balance Policy (the “Fund Balance Policy”).
The Fund Balance Policy aims to help reduce the negative impact on the City in times of economic uncertainty and potential loses of funding from other governmental agencies. Under the Fund Balance Policy, City reserves are restricted for one-time purposes. The Fund Balance Policy establishes minimum requirements for General Fund non-department reserves and provides 15 guidelines for the use of these funds. Appropriation for contingencies is maintained at 20 percent of total General Fund net appropriations for one-time emergencies and economic uncertainties.
Excess fund balance at year-end must first be used to replenish the reserve amount at the 20 percent level.
At June 30, 2021 the City had an assigned fund balance of $887,681 for emergency contingency and $3,550,723 for working capital reserve. Such fund balances are maintained by the City as part of the assigned fund balance of the General Fund Balance Sheet. The Fund Balance Policy can be changed only by a resolution of the City Council. The City cannot provide any assurance that the City Council will not in the future amend its Fund Balance Policy so as to reduce or eliminate the reserves thereunder.
Pension Funding Policy. In February 2022, the City Council adopted Resolution No. 5077-2022 approving Policy Memorandum No. 2022-01 – Pension Funding Policy (the “Pension Funding Policy”). The Pension Funding Policy is intended to immediately address any new pension liabilities, or amortization bases, that arise in the future. Under the Pension Funding Policy, any new pension liabilities will be paid off over specific designated timeframes based on the amount of the UAL. Also, 50% of the cash flow savings arising from the issuance of a pension obligation bond are to be budgeted on an annual basis for deposit into a separate Pension Trust Fund. The City is also considering creation of a Section 115 Trust to further stabilize pension funding. The City cannot provide any assurance that the City Council will not in the future amend its Pension Funding Policy to reduce or eliminate the policy objectives or targets.
General Economic Condition and Outlook of the City
Financial Condition. As of June 30, 2021, the General Fund had a year-end surplus of approximately $6.1 million prior to transfers in and out, reflecting revenues of approximately $28.7 million and expenditures of approximately $22.6 million. The budget for Fiscal Year 2020-21, which was adopted after the COVID-19 outbreak in June 2020, had anticipated a year-end General Fund deficit of approximately $1.5 million, with revenues expected to total approximately $22.8 million and expenditures expected to total $24.3 million prior to transfers in and out.
Variances from the original budget for Fiscal Year 2020-21 consisted primarily of higher tax revenues in the amount of approximately $6 million. Actual General Fund expenditures were lower than budgeted in Fiscal Year 2020-21 primarily due to a decrease in public safety expenditures of approximately $3 million, offset by an increase in general governmental expenditures of approximately $1.2 million. See “– Budget Procedure, Current Budget and Historical Budget Information – Adopted Budget for Fiscal Year 2021-22” and “– Comparison of Budget to Actual Performance.”
For Fiscal Year 2021-22, the mid-year General Fund operating budget projects revenues of approximately $28.3 million prior to transfers in. In addition, the mid-year Fiscal Year 2021 General Fund operating budget projects expenditures of approximately $27.1 million prior to transfers out, which results in a projected excess of revenues over expenditures of approximately $1.2 million prior to transfers in of $3.4 million. The projected increase in General Fund fund balance is $4.6 million for Fiscal Year 2021-22. The City believes that the projections in the midyear General Fund for Fiscal Year 2021-22 are conservative.
Potential Future Revenues. The City is in the process of, or has competed, certain projects that are currently projected by the City to increase revenues in future fiscal years. Below is a summary of such projects. There can be no assurance that actual revenues to the City from 16 the projects described below, if any, will prove to be correct, and such actual revenues may materially different than current projections.
Marriott Hotels. The City Council has approved the construction of two hotels branded Fairfield Inn by Marriott and Towne Place Suites by Marriott, respectively. Together, the hotels are anticipated to add 181 hotel rooms within the City. The hotels are under construction and are expected to open in July 2022. These hotels are anticipated to be located in the vicinity of the Outlets at Barstow, with more than 35 retail shops, an official California State Welcome Center and dining options. Under an agreement with the developer of the hotels, the City would remit to the developer $40,000 per month for 60 months. In exchange, the developer has agreed to remit all transient occupancy taxes from the hotels to the City. If transient occupancy tax collections fall below $40,000 in any month during the 60-month period, the amount remitted by the City to the developer will be reduced to an amount equal to actual transient occupancy tax collections for that month. The City estimates that it will receive approximately $1 million in additional revenues annually commencing after the completion of the hotels in the form of additional property taxes, transient occupancy taxes and sales taxes. Fort Irwin Service Agreements. The City has entered into two service agreements with United States Army for services to be provided by the City relating to the sampling of water and wastewater and the sale by the City of liquified petroleum gas at Fort Irwin.
Fort Irwin is located approximately 37 miles northeast of the City, midway between the City of Los Angeles, California, and Las Vegas, Nevada. The City is also in the process of completing negotiations on three additional agreements with the U.S. Army relating to services to be provided by the City. Such agreements are pending final approvals from the U.S. Army, which the City expects to receive by June 30, 2022. The City projects that collectively these agreements will generate approximately $800,000 annually in additional revenues to the City in the future. Green Zone. On October 4, 2021, the City Council of the City adopted comprehensive regulations for commercial cannabis businesses. These regulations establish permit requirements, operational standards, and separation and zoning criteria, for any commercial cannabis business operating in the City. All commercial cannabis businesses (including dispensary, manufacturing, cultivation, delivery, distribution, and testing and research) are required to obtain approval of a conditional use permit from the City’s Planning Commission, a cannabis license issued by the City's Community Development Department, and obtain a State issued license from the Bureau of Cannabis Control prior to operating in the City. The application fee is approximately $18,645 per use and is non-refundable, with an annual renewal fee of approximately $14,108. Before applying, applicants must secure property within the City in one of the approved “green” zones.
Based upon a cannabis fee study completed for the City by HdL Coren & Cone, the City expects to receive over $250,000 in new revenues in Fiscal Year 2020-21.
Thereafter, the City projects receiving over $70,000 annually in regulatory fees plus 3% of gross sales (above the City’s existing 2%) per approved development agreements commencing in Fiscal Year 2022-23. Annual revenues received pursuant to approved development agreements is expected to be approximately $250,000 annually commencing in Fiscal Year 2022-23. To date, the City has received 6 applications for cannabis retail operations, of which two have been approved by the City and received all necessary approvals to operate in the City as of the date of this 17 Official Statement. At two of the proposed retail locations, there are a total of 22 buildings totaling 30,000 square feet of usable space each that are anticipated to be used for cannabis cultivation and manufacturing. In total, the City currently projects that such cannabis operations will generate more than $3 million in additional revenue to the City after such facilities are fully built-out, in the form of additional property taxes, development agreement fees, application fees and other fees. The City cannot currently predict if or when any such facilities will be fully built-out and operational, nor any assurance that such facilities will receive all necessary approvals from the City and the State to operate in the future.
In addition to the anticipated development described above, other residential and commercial developments are expected to occur in the future. The city is currently working on two residential tracts, one a 147 lot subdivision, and another 57 lot subdivision that is underway.
The first 21 homes of the 147 lot subdivision are under construction. Grading of the remaining lots is underway. The City anticipates that this development will be built out in 18 months. Final approvals of the 57 lot subdivision is expected within the next two months. Once final approvals have been received, the developer anticipates that the 57 homes will be built out within 18 months There are also numerous residential in-fill projects throughout the City. In addition, Starbucks, Burger King, Panda Express, Wienerschnitzel, Freddy's Steak Burgers branded stores are under construction or have recently opened in the City. The City cannot provide any assurance that such pending development will be completed as currently anticipated.
See “RISK FACTORS,” including “– Assed Value of Taxable Property” and “– Certain Risks Associated with Sales Tax and Other Local Revenues.” Budget Procedure, Current Budget and Historical Budget Information General. The annual budget serves as the foundation for the City’s financial planning and policy making. The budget is prepared according to fund, function (e.g., public safety), and department (e.g., police). The City adopts two separate annual budgets for each respective Fiscal Year. The items for consideration for the second Fiscal Year are limited to an exception basis.
Prior to the beginning of the first Fiscal Year of the two year budget cycle, the City Manager communicates the priorities, goals, and outlook for the upcoming two Fiscal Years to all the Department Directors and their managers. Based on these objectives, the Departments prepare revenue estimates and expenditure requests. These requests are reviewed by the City Manager and the Director of Finance. Meetings are conducted with the City Manager, the Director of Finance, and each individual Department to analyze and revise, as necessary, all budget requests. The City Manager’s recommendations are compiled into a Preliminary Budget document and submitted to the City Council in May. The City Council then holds one or more Study Session workshops to study and approve any revisions to the City Manager’s recommendations. A public hearing is held in June for budget adoption. In the second year ofthe two year budget cycle, review and analysis is limited to revisions to the adopted budget.
Adopted Budget for Fiscal Year 2021-22. The City Council adopted a balanced budget for Fiscal Year 2020-21 and 2021-22 on June 15, 2020. The portion of the such budget relating to Fiscal Year 2021-22 is sometimes referred to herein as the “2021-22 Adopted Budget.” Budgeted expenditures for the General Fund total approximately $17.5 million for Fiscal Year 2021-22, an increase of approximately $257,000 (or 1%) above Fiscal Year 2020-21 budgeted expenditures.
18 Budgeted revenues for the General Fund total approximately $17.8 million for Fiscal Year 2021-22, an increase of approximately $700,000 (or 4%) above Fiscal Year 2021 budgeted revenues. The City’s Fiscal Year 2021-22 General Fund budget reflects increases in sales tax receipts and other revenues and includes approximately $2.85 million in ARP Act funds.
The original adopted budgeted revenues for the General Fund totaled approximately $24.6 million for Fiscal Year 2021-22, an increase of approximately $1.8 million (or 7%) above Fiscal Year 2021 budgeted revenues. The City’s Fiscal Year 2021-22 General Fund budget as presented in the table below, reflects increases in sales tax receipts and other revenues and includes approximately $2.85 million in ARP Act funds received after budget adoption.
The City adopted a biennial budget as part of its budget strategy to address COVID impacts. Revenues were budgeted to decrease by $2.8 million for Fiscal Year 2020-2021 and by $2.1 million for Fiscal Year 2021-2022. Appropriations were budgeted to decrease by $2.3 million for Fiscal Year 2020-2021 and by $2.2 million for Fiscal Year 2021-2022. The City is currently in the second year of the biennial budget.
Significant assumptions reflected in the Fiscal Year 2021-22 General Fund budget with respect to revenue included the following (resulting in a total reduction in budgeted revenues of $2.1 million for such Fiscal Year):
Property Tax revenues were projected to decrease by 4% Sales & Use Tax revenues were projected to decrease by 20% Transient Occupancy Taxes were projected to decrease by 20% Business License Taxes were projected to decrease by 6% Construction Permits were projected to decrease by 7% Significant assumptions reflected in the Fiscal Year 2021-22 General Fund budget with respect to expenditures included the following (resulting in a total reduction of approximately 10% in total budgeted expenditures for such Fiscal Year):
Wage freeze for all employees for two Fiscal Years
Benefits freeze (elimination) for all benefits resulting in direct cash payments Reduction in workforce of 7.5 full time equivalent positions Elimination of 4 vacant funded positions
Elimination of all part-time staff
Temporary elimination of recreation programs and closure of recreation facilities Hiring freeze for two Fiscal Years
Voluntary furloughs for all employees
No capital purchase appropriations for two Fiscal Years Comparison of Budget to Actual Performance. Set forth in the table below are the General Fund budgets for Fiscal Years 2018-19 through 2020-21 (as originally adopted and not reflecting any mid-Fiscal Year budget adjustments), the General Fund Budget for Fiscal Year 2021-22 (reflecting mid-Fiscal Year budget adjustments as of March 7, 2022) and the audited General Fund results for Fiscal Years 2018-19 through 2020-21. 19 Table 1
CITY OF BARSTOW
General Fund Budgets and Results
Fiscal Years 2018-19 through 2021-22
Adopted
Budget
2018-19
Audited
2018-19
Adopted
Budget
2019-20
Audited
2019-20
Adopted
Budget
2020-21
Audited
2020-21
Adopted
Mid-Year
Budget
2021-22(2)
Revenues:
Taxes $17,067,000 $18,432,758 $22,398,857 $22,401,483 $20,786,874 $26,139,094 $26,268,396 Licenses and permits 477,500 207,183 380,300 381,774 343,975 436,500
455,886 328,775
Intergovernmental 522,400 560,936 504,955 519,075 436,500 487,333 436,500 Charges for services 732,000 1,052,223 544,750 444,041 602,375 312,200
328,465 389,275
Use of money and property 375,200 422,299 426,700 298,331 312,200 604,102 305,000 Fines and forfeitures 144,650 114,564 83,000 132,885 130,000 89,923 100,000 Miscellaneous 93,200 107,557 214,600 351,785 170,200 589,610 508,200 Total Revenues $19,411,950 $20,897,520 $24,553,162 $24,529,374 $22,782,124 $28,694,413 $28,336,146 Expenditures:
Current:
General government $2,464,816 $3,909,039 $3,657,099 $3,271,395 $3,968,878 $5,164,979 $4,521,968 Public safety 9,630,175 10,252,480 13,177,541 11,392,014 13,586,750 10,535,542 15,060,104 Community development 2,314,206 2,512,082 2,268,757 2,203,600 1,378,834 1,497,209 1,778,718 Parks and recreation 2,511,338 2,428,174 2,182,705 2,188,112 969,546 1,006,800 1,244,496 Public works 2,909,594 2,762,468 3,278,228 3,118,227 3,514,341 3,353,690 4,201,103 Capital outlay 112,000 146,096 855,262 979,726 108,500 207,816 -- Debt service:
Principal retirement -- -- - 486,578 - 719,295 --
Interest and fiscal charges -- -- - -- 777,868 101,118 297,859 Total Expenditures $19,942,129 $ 22,010,399 $25,419,592 $23,639,652 $24,304,717 $22,586,449 27,104,248 Excess (Deficiency) of Revenues
Over (Under) Expenditures (530,179) (1,112,819) (866,430) 889,722 (1,522,593) 6,107,964 1,231,898 Other Financing Sources (uses)
Transfers in $ - $ -- $ 1,333,572 $ -- $ 1,540,000 $1,039,760 3,387,000 Transfers out -- (100,000) (2,249,369) (500,000) (3,497,562) -- Proceeds from capital assets -- 720,188 220,000 318,414 - 126,938 -- Total other sources (uses) $ - $ 720,188 $ 1,453,572 $(1,930,955) $ 1,040,000 $(2,330,864) 3,387,000 Net Change in Fund Balance $ (530,179) $ (392,631) $ 587,142 $(1,041,233) $ (482,593) $3,777,100 4,618,898 Fund Balance-beginning of year 14,347,231 14,347,231 13,954,591 14,923,287(1) 13,882,054 13,882,054 $17,659,154 Fund Balance-end of year $13,817,052 13,954,591 $14,541,733 $13,882,054 $13,399,461 $17,659,154 $22,278,052 (1) Reflects restated fund balance as of the beginning of Fiscal Year 2019-20 after restatements resulting an increase thereof of $968,696. (2) As of March 7, 2022.
Source: City of Barstow budgets for Fiscal Years 2018-19 through 2021-22; City of Barstow audited financial statements for Fiscal Years 2019-20 and 2020-21. 20 City Financial Statements
A copy of the most recent audited financial statements of the City (the “Financial Statements”) for the Fiscal Year ended June 30, 2021, prepared by Lance, Soll & Lunghard, LLP, Brea, California (the “Auditor”), is included as Appendix B to this Official Statement. The Auditor’s letter dated December 17, 2021 is set forth therein. The Financial Statements are public documents and are included within this Official Statement without the prior approval of the Auditor.
Accordingly, the Auditor has not performed any post-audit analysis of the financial condition of the City, nor has the Auditor reviewed or audited this Official Statement.
Certain financial information that is set forth in this Official Statement is derived from the Financial Statements and the City’s audited financial statements for prior years (excluding certain non-cash items and after certain other adjustments) and is qualified in their entirety by reference to such statements, including the notes thereto. The Auditor has not reviewed or audited such financial information or any other portion of this Official Statement.
In the Financial Statements, data relating to governmental funds such as the General Fund focus on current financial resources, which emphasize near-term inflows and outflows of expendable resources as well as balances of expendable resources at the end of each Fiscal Year.
The City’s accounting and budgeting records for general governmental operations are maintained on a modified accrual basis. Under the modified accrual basis of accounting, revenues are recognized in the accounting period in which they become both measurable and available to finance expenditures of the current period. Accordingly, revenues are recorded when received in cash, except that revenues subject to accrual (generally received within 90 days after year-end).
The primary revenue sources, which have been treated as susceptible to accrual by the City, are property tax, sales tax, intergovernmental revenues, and other taxes. Expenditures are recorded in the accounting period in which the related fund liability is incurred.
The following table shows the City’s audited General Fund balance sheets for Fiscal Years 2016-17 through 2020-21.
21 Table 2
CITY OF BARSTOW
General Fund Balance Sheets
Fiscal Years 2016-17 through 2020-21
Audited
2016-17
Audited
2017-18
Audited
2018-19
Audited
2019-20
Audited
2020-21
Assets:
Pooled cash and investments(1) $4,922,552 $3,333,483 $581,603 $1,544,186 $5,978,552 Receivables:
Accounts 394,092 282,580 284,640 245,751 251,786
Taxes 809,838 802,459 855,084 -- --
Accrued Interest 11,662 7,157 -- 3,182 1,557
Prepaid costs 51,117 61,446 74,974 845,654 43,240
Deposits 726,154 519,754 932,355 1,066,216 591,564
Due from other governments(2) 1,532,644 1,642,944 3,079,796 2,556,222 4,925,605 Due from other funds 4,160,933 4,812,346 2,968,634 1,545,454 924,442 Advances to other funds 6,169,863 4,467,144 7,066,183 7,991,579 7,301,063 Inventories 97,206 97,709 38,074 51,762 66,692
Total Assets $18,576,061 $16,027,022 $15,881,343 $15,850,006 $20,084,501 Liabilities, Deferred Inflow of Resources
and Fund Balance
Liabilities:
Accounts payable $ -- $ -- $ -- $ 470,763 $ 645,905
Accrued liabilities 1,343,278 1,349,337 1,605,454 1,152,820 1,410,055 Unearned revenues -- 2,531 -- -- --
Deposits payable 53,196 5,560 14,318 3,712 42,625
Due to other governments -- -- -- 45,461 50,575
Retentions payable -- -- -- 3,617 --
Total Liabilities $1,396,474 $1,357,428 $1,619,772 $1,676,373 $2,149,160 Deferred Inflows of Resources
Unavailable Revenue 337,755 322,363 306,971 291,579 276,187 Total Deferred Inflows of Resources 337,755 322,363 306,971 291,579 276,187 Fund Balances
Nonspendable $7,619,282 $5,183,492 $8,111,586 $9,955,211 $8,002,559 Restricted -- -- -- -- --
Assigned -- -- -- 4,406,560 4,438,404
Unassigned 9,222,550 9,163,739 5,843,014 (479,717) 5,218,191 Total Fund Balances $16,841,832 $14,347,231 $13,954,600 $13,882,054 $17,659,154 Total Liabilities, Deferred Inflow of
Resources and Fund Balances $18,576,061 $16,027,022 $15,881,343 $15,850,006 $20,084,501 (1) General Fund revenues exceeded expenditures by $6.1 million which correlated directly to the increase in pooled cash and investments.
(2) Year-end adjustments for accrued revenues from State subventions in the amount of $2.9 million accounted for the increase in due from other governments in Fiscal Year 2020-21.
Source: City of Barstow audited financial statements for Fiscal Years 2016-17 through 2020-21. 22 The following table shows City’s audited General Fund statements of revenues, expenditures and changes in fund balance for Fiscal Years 2016-17 through 2020-21.
Table 3
CITY OF BARSTOW
Statements of Revenues, Expenditures and Changes in General Fund Balance Fiscal Years 2016-17 through 2020-21
Audited
2016-17
Audited
2017-18
Audited
2018-19
Audited
2019-20
Audited
2020-21
Revenues:
Taxes 15,444,964 16,302,262 18,432,758 $22,401,483 $26,139,094 Licenses and permits 292,084 264,997 207,183 381,774 455,886 Intergovernmental 1,070,672 583,084 560,936 519,075 487,333 Charges for services(1) 700,514 655,742 1,052,223 444,041 328,465 Use of money and property 393,451 305,552 422,299 298,331 604,102 Fines and forfeitures 216,117 78,862 114,564 132,885 89,923 Miscellaneous 52,186 136,635 107,557 351,785 589,610
Total Revenues $18,169,988 $18,327,134 $20,897,520 $24,529,374 $28,694,413 Expenditures:
Current:
General government(2) $3,627,594 $3,197,895 $3,909,039 $3,271,395 $5,164,979 Public safety 9,518,993 9,712,654 10,252,480 11,392,014 10,535,542 Community development 2,580,387 2,465,055 2,512,082 2,203,600 1,497,209 Parks and recreation(3) 2,567,524 2,627,928 2,428,174 2,188,112 1,006,800 Public works 2,947,892 2,791,076 2,762,468 3,118,227 3,353,690 Capital outlay 389,095 679,405 146,096 979,726 207,816
Debt service:
Principal retirement -- -- -- 486,578 719,295
Interest and fiscal charges 60 (46) -- -- 101,118
Total Expenditures $21,631,545 $21,473,967 $22,010,339 $23,639,652 $22,586,449 Other Financing Sources (uses)
Transfers in $ -- $ 9,236 $ -- $ -- $1,039,760
Transfers out (564,619) -- -- (2,249,369) (3,497,562)
Proceeds from capital assets 124,130 642,996 720,188 318,414 126,938 Total other sources (uses) $(440,489) $652,232 $720,188 $(1,930,955) $(2,330,864) Revenues Over (Under) Expenditures (3,461,557) (3,146,833) (1,112,819) 889,722 6,107,964 Net Change in Fund Balance $(3,902,046) $(2,494,601) $(392,631) $(1,041,233) $3,777,100 Fund Balance-beginning of year(4) 20,743,878 16,841,832 14,347,231 14,923,287 13,882,054 Fund Balance-end of year $16,841,832 $14,347,231 $13,954,600 $13,882,054 $17,659,154 (1) Reflects increases in Fiscal Yar 2018-19 rental income due to assumption of operation of the Harvey House and increased participation in recreational programs. Decreases in the following Fiscal Years were caused by the shutdown of all recreational facilities and programming as part of the City’s response to managing the COVID-19pandemic. (2) Increase in Fiscal Year 20-2021 General Government expenditures due to an increase in funding for Fire District operations. (3) Decreases in FY 2020-21 Parks and recreation expenditures were due to the closure of Parks and Recreation facilities. Parks and Recreation facilities are expected to resume normal operations in Fiscal Year 2022-23. (4) Reflects restated fund balance as of the beginning of Fiscal Year 2019-20 after restatements resulting an increase thereof of $968,696.
Source: City of Barstow audited financial statements for Fiscal Years 2016-17 through 2020-21. 23 General Fund Major Tax Revenues By Source
A summary of major sources of General Fund taxes received by the City in the last five Fiscal Years is set forth in the following table. Certain general fund taxes currently imposed by the City are affected by Proposition 218. See “CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS – Article XIIIC and Article XIIID.” Table 4
CITY OF BARSTOW
General Fund Major Tax Revenues by Source
Revenue Source
Audited
FY 2016-17
Audited
FY 2017-18
Audited
FY 2018-19
Audited
FY 2019-20
Audited
FY 2020-21
% of
Total(2)
Adopted
Mid-Year
Budget
2021-22 (3)
Sales taxes(1) $7,166,274 $7,382,198 $9,383,362 $13,709,117 $16,580,582 57.8% $16,831,625 Property taxes 3,947,325 4,451,142 4,399,249 4,573,390 4,791,350 16.7 4,720,000 Transient occupancy tax 3,056,078 3,147,207 3,320,952 2,855,796 3,436,464 12.0 3,650,000 Franchise fees 1,011,945 1,050,192 1,023,994 1,077,372 1,175,998 4.1 1,066,771 Charges for services 700,514 655,742 1,052,223 444,041 328,465 1.1 389,275 Totals $15,882,136 $16,686,481 $19,179,780 $22,656,717 $26,312,859 91.7% $26,657,671 (1) Reflects percentage of total Fiscal Year 2020-21 General Fund revenues of $28,694,413. (2) Sales tax figures include sales tax revenues received by the City pursuant to Measure Q commencing in April 2019. Increase in Fiscal Years 2019-20 and 2020-21 were due to the passage, and receipt, of Measure Q. See “– Sales and Use Taxes – Measure Q” below. (3) As of March 7, 2022.
Source: City of Barstow.
Sales and Use Taxes
General. A sales and use tax is imposed on retail sales or consumption of personal property in the City. As shown in Table 4, sales and use tax revenues represented the top source of tax revenues for the City’s General Fund in each of Fiscal Years 2016-17 through 2020-21, comprising approximately 58% of the City’s total General Fund revenues for Fiscal Year 2020-
21. In Fiscal Year 2020-21, the City’s sales tax revenues totaled approximately $16.6 million, an increase of approximately 21% compared to sales tax revenues of approximately $13.7 million in Fiscal Year 2019-20.
For Fiscal Year 2021-22, the City’s sales tax revenues are projected at approximately $16.8 million based on the budget for Fiscal Year 2021-22 (after mid-year adjustments as of March 7, 2022). The phased re-opening under the Blueprint for a Safer Economy ended with a full reopening of the economy on June 15, 2021. Such budgeted revenues take into account the reopening of the economy. See “PUBLIC HEALTH EMERGENCY – COVID-19.” The City’s sales tax revenue represents the City’s share of the sales and use tax imposed on taxable transactions occurring within the City’s boundaries. The sales tax is governed by the Bradley-Burns Uniform Local Sales and Use Tax Law, set forth in California Revenue and Taxation Code Section 7200 et seq. The local sales tax rate in the City is 8.75%, of which the City is allocated 1%. The State collects and administers the tax, and makes distributions on taxes collected within the City as follows:
24 Table 5
CITY OF BARSTOW
Sales Tax Rates
Rate
State 6.00%
City of Barstow – Measure Q 1.00
County of San Bernardino 1.75
Total 8.75%
(1) See “– Measure Q” below.
Source: California Department of Tax and Fee Administration.
The State’s actual administrative costs with respect to the portion of sales taxes allocable to the City are deducted before distribution and are determined on a quarterly basis. Sales tax revenue collected by the State is directly deposited monthly to the City’s General Fund. For a summary of historical taxable transactions in the City, see “– History of Taxable Transactions.” Certain transactions are exempt from the State sales tax, including sales of the following products:
• food products for home consumption;
• prescription medicine;
• newspapers and periodicals;
• edible livestock and their feed;
• seed and fertilizer used in raising food for human consumption; and • gas, electricity and water when delivered to consumers through mains, lines and pipes.
This is not an exhaustive list of exempt transactions. A comprehensive list can be found in the CDTFA’s March 2018 publication entitled “Sales and Use Taxes: Exemptions and Exclusions,” which can be found on the CDTFA’s website at http://www.cdtfa.ca.gov. The reference to this Internet website is shown for reference and convenience only; the information contained within the website may not be current and has not been reviewed by the City and is not incorporated in this Official Statement by reference.
In June 2018, the United States Supreme Court published its decision in South Dakota v.
Wayfair (the “Wayfair Decision”), in which the Supreme Court held that sales to a customer in a particular state alone are sufficient to create a nexus for purposes of determining whether a seller is required to collect sales taxes of the applicable state. Prior to the Wayfair Decision, courts had interpreted the dormant Commerce Clause of the United States Constitution to require that a company have physical nexus in a state in order for the seller to be liable for the collection of that state’s sales tax. Physical nexus is defined as having either property or payroll in the state, including a resident employee working from home or inventory stored in that state. The State of California has issued guidance in response to the Wayfair Decision. Under such guidance, beginning April 1, 2019, retailers located outside of the State are required to register with the California Department of Tax and Fee Administration (the “CDTFA”), collect the California use tax, and pay the tax to the CDTFA based on the amount of their sales into California, even if they do not have a physical presence in the state. The new collection requirements apply to retailers if during the preceding or current calendar year certain sales thresholds are met. The new collection requirements apply to taxable sales of tangible personal property to California consumers on and after April 1, 2019, and are not retroactive. Additionally, the State’s passage 25 of Assembly Bill 147, signed by the Governor on April 25, 2019, provides the implementation rules for the Wayfair Decision in California. The City is unable to predict the impact that the Wayfair Decision will have on its sales tax revenues.
Sales Tax Collection Procedures. Collection of the sales and use tax is administered by the CDTFA. This process was formerly administered by the State Board of Equalization. The Taxpayer Transparency and Fairness Act of 2017, which took effect July 1, 2017, restructured the State Board of Equalization and separated its functions among three separate entities: the State Board of Equalization, the CDTFA, and the Office of Tax Appeals. The State Board of Equalization will continue to perform the duties assigned to it by the state Constitution, while all other duties will be transferred to the newly established CDTFA and the Office of Tax Appeals.
CDTFA will handle most of the taxes and fees previously collected by the State Board of Equalization, including sales and use tax.
Under the Sales and Use Tax Law, all sales and use taxes collected by the CDTFA under a contract with any city, city and county, or county are required to be transmitted by the CDTFA to such city, city and county, or county periodically as promptly as feasible. These transmittals are required to be made at least twice in each calendar quarter.
Under its procedures, the CDTFA projects receipts of the sales and use tax on a quarterly basis and remits an advance of the receipts of the sales and use tax to the City on a monthly basis. The amount of each monthly advance is based upon the CDTFA’s quarterly projection.
During the last month of each quarter, the CDTFA adjusts the amount remitted to reflect the actual receipts of the sales and use tax for the previous quarter.
According to the CDTFA, it distributes quarterly tax revenues to cities, counties, and special districts using the following method. Using the prior year’s quarterly tax allocation as a starting point, the CDTFA first eliminates nonrecurring transactions such as fund transfers, audit payments, and refunds, and then adjusts for growth, to establish the estimated base amount. The CDTFA disburses 90% to each local jurisdiction in three monthly installments (advances) prior to the final computation of the quarter’s actual receipts. Ten percent is withheld as a reserve against unexpected occurrences that can affect tax collections (such as earthquakes, fire, or other natural disaster) or distributions of revenue such as unusually large refunds or negative fund transfers.
The first and second advances each represent 30% of the 90% distribution, while the third advance represents 40%. One advance payment is made each month, and the quarterly reconciliation payment (clean-up) is distributed in conjunction with the first advance for the subsequent quarter. Statements showing total collections, administrative costs, prior advances, and the current advance are provided with each quarterly clean-up payment.
Effective April 2, 2020, pursuant to Executive Order N-40-20, the State is allowing small business taxpayers (i.e., those with less than $5 million in taxable annual sales), to participate in a 12-month, interest-free, payment plan for up to $50,000 of sales and use tax liability. See “RISK FACTORS – Public Health Emergencies– Collection of Taxes” for a discussion of Executive Order N-40-20. However, to date, the City has not experienced any significant delays in the receipt of sales tax revenues resulting from this order.
26 History of Taxable Transactions. A summary of historic taxable sales within the City for calendar years 2016 through 2020 is shown in the following table.
Table 6
CITY OF BARSTOW
Taxable Sales by Category
(in thousands)
Business 2016 2017 2018 2019 2020
Motor Vehicle and Parts Dealers $ --* $35,061 $32,233 $29,086 $32,681 Home Furnishings and Appliance Stores --* 5,800 5,861 4,927 5,212 Building Material, Garden Equip & Supplies --* --* --* --* --* Food and Beverage Stores --* 43,717 47,304 43,353 39,731 Gasoline Stations --* 254,177 251,555 227,102 188,688
Clothing and Clothing Accessories Stores --* 131,902 123,347 107,466 55,776 General Merchandise Stores --* --* --* --* --*
Food Services and Drinking Places 85,926 88,589 89,213 92,965 78,384 Other Retail Group 542,915** 84,898 89,599** 88,996** 114,391** Total Retail and Food Services 628,841 644,144 639,111 593,895 514,867 All Other Outlets 15,534 15,197 18,460 25,855 21,040
Total All Outlets $644,374 $659,341 $657,571 $619,750 $535,907 * Sales omitted because publication would result in disclosure of confidential information. ** Adjusted for disclosures.
Source: California Department of Tax and Fee Administration.
Measure Q. In November 2018, the voters of the City approved Measure Q (“Measure Q”), which established a one-cent sales tax as a general revenue source for public safety and citywide services (“Measure Q Sales Tax”), effective April 1, 2019. Under Measure Q, Measure Q Sales Tax revenues were approved to be used by the City for the following purposes: to maintain local fire protection and paramedic services provide police services, including neighborhood police patrols, crime prevention and investigations; maintain streets and parks, and repair potholes; improve response times to 9-1-1 emergencies; help fund senior and youth programs; and reduce gang activity and drug-related crimes. Under Measure Q, the City is authorized to levy the Measure Q Sales Tax unless local police or fire services are transferred to another agency. Currently, the City has no plans to transfer such services to another agency.
The following table shows Measure Q Sales Tax revenues for Fiscal Year 2018-19 through 2020-21.
Table 7
CITY OF BARSTOW
Measure Q Sales Tax Revenues
Fiscal
Year
Measure Q Sales
Tax Revenues
2018-19 (1) $2,058,112
2019-20 7,427,250
2020-21 8,851,984
Total $18,337,346
(1) The Measure Q Sales Tax became effective April 1, 2019; represents revenues for April 1, 2019 through June 30, 2019.
Source: City of Barstow.
27 Measure Q Sales Tax revenues represent a source of funds that are legally available to the City to pay debt service on the Bonds. The City has budgeted approximately $8.6 million in Measure Q Sales Tax revenues for Fiscal Year 2021-22 (after mid-year adjustments as of March 7, 2022).
Property Taxes
General. As shown in Table 4, property tax revenues represented the second largest source of tax revenues for the City’s General Fund in each of Fiscal Years 2016-17 through 2020- 21, comprising approximately 17% of the City’s total General Fund revenues for Fiscal Year 2020-
21. The figures shown in Table 4 for property tax revenues do not include property tax that the City received in lieu of vehicle license taxes. Based on the 2021-22 Adopted Budget (after midyear adjustments as of March 7, 2022), the City’s property tax revenues are estimated at approximately $4.7 million for Fiscal Year 2021-22, representing approximately 17% of the City’s total budgeted General Fund revenues for such Fiscal Year. Since Fiscal Year 2012-13, assessed values within the City have increased 35%.
Property taxes have been the primary revenue source affected by voter initiatives and legislative actions. With approval of Proposition 13, property tax revenues were first curtailed over 35 years ago when they were reduced by two-thirds and thereafter limited to 2% annual increases or the consumer price index, whichever was less. In addition, if unemployment and reduced economic activity generally is a sustained consequence of the COVID-19 pandemic through multiple fiscal years, a combination of property tax payment delinquencies and property tax assessment appeals could depress property tax revenue growth over time.
Levy and Collection. Property taxes are levied for each fiscal year on taxable real and personal property as of the preceding January 1. For assessment and collection purposes, property is classified either as “secured” or “unsecured” and is listed accordingly on separate parts of the assessment roll. The “secured roll” is that part of the assessment roll containing Stateassessed public utilities property and real property the taxes on which are a lien sufficient, in the opinion of the County Assessor, to secure payment of the taxes. Other property is assessed on the “unsecured roll.”
Property taxes on the secured roll are due in two installments, on November 1 and February 1 of each fiscal year, and become delinquent on December 10 and April 10, respectively.
A penalty of 10% attaches immediately to all delinquent payments. Property on the secured roll with respect to which taxes are delinquent become tax defaulted on or about June 30 of the fiscal year. Such property may thereafter be redeemed by payment of a penalty of 1% per month to the time of redemption, plus costs and a redemption fee. If taxes are unpaid for a period of five years or more, the property is deeded to the State of California and may be sold at public auction.
Property taxes on the unsecured roll are due as of the January 1 lien dates and become delinquent on August 31. A 10% penalty attaches to delinquent unsecured taxes. If unsecured taxes are unpaid at 5:00 p.m. on October 31, an additional penalty of 1% attaches to them on the first day of each month until paid. The County has four ways of collecting delinquent unsecured personal property taxes: (1) a civil action against the taxpayer; (2) filing a judgment in the office of the County Clerk specifying certain facts in order to obtain a lien on certain property of the taxpayer; (3) filing a certificate of delinquency for record in the County Recorder’s office in order to obtain a lien on certain property of the taxpayer; and (4) seizure and sale of personal property, improvements or possessory interests belonging or assessed to the assessee. Beginning in 1978- 79, Proposition 13 and its implementing legislation shifted the function of property tax allocation 28 to the counties, except for levies to support prior voted debt, and prescribed how levies on countywide property values are to be shared with local taxing entities within each county.
In response to the COVID-19 pandemic, Governor Newsom issued Executive Order N61-20 on May 6, 2020. Executive Order N-61-20 waives penalties and interest on taxes on property on the secured or unsecured roll through May 6, 2021 under certain conditions. The waiver of late payment penalties and resulting property tax delinquencies could have an adverse impact on the timely payment of property taxes with respect to property in the City. The City cannot predict whether the COVID-19 pandemic will have an effect on the remittance by the County of the City’s property tax revenues. However, to date, the City has not experienced any significant declines in property tax revenues resulting from the County’s potential waiver of late payment penalties. See “RISK FACTORS – Public Health Emergencies” for a discussion of Executive Order N-61-20.
ERAF Shift Legislation. Certain property taxes have been shifted from local government agencies to schools by the State Legislature for deposit in the Education Revenue Augmentation Fund (“ERAF”), a shift that has resulted in diversion of City property taxes since Fiscal Year 1992-
93. See “CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS – Proposition 1A; Proposition 22.” There can be no assurance that the State will not undertake future ERAF shifts.
Assessed Valuation. All property is assessed using full cash value as defined by Article XIIIA of the State Constitution. State law provides exemptions from ad valorem property taxation for certain classes of property such as churches, colleges, non-profit hospitals, and charitable institutions. See “CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS.” Future assessed valuation growth allowed under Article XIIIA (new construction, certain changes of ownership, 2% inflation) will be allocated on the basis of “situs” among the jurisdictions that serve the tax rate area within which the growth occurs. Local agencies and schools will share the growth of “base” revenues from the tax rate area. Each year’s growth allocation becomes part of each agency’s allocation in the following year.
Assessed Valuation History. The following table shows the City’s assessed valuation for Fiscal Years 2012-13 through 2021-22.
Table 7
CITY OF BARSTOW
Assessed Value of Property
Fiscal Years 2012-13 through 2021-22
Fiscal Year Local Secured Utility Unsecured Total % Change 2012-13 $1,092,408,332 $2,165,193 $104,914,213 $1,199,487,738 --% 2013-14 1,039,983,380 677,094 102,817,129 1,143,477,603 (4.7) 2014-15 1,051,514,240 562,232 103,609,217 1,155,685,689 1.1 2015-16 1,075,574,231 1,091,097 100,176,764 1,176,842,092 1.8 2016-17 1,099,863,617 1,090,047 92,848,517 1,193,802,181 1.4 2017-18 1,199,023,057 1,174,083 87,038,753 1,287,235,893 7.8 2018-19 1,277,320,622 1,100,258 97,633,037 1,376,053,917 6.9 2019-20 1,364,148,974 1,041,131 96,231,522 1,461,421,627 6.2 2020-21 1,406,623,300 986,567 99,619,193 1,507,229,060 3.1 2021-22 1,519,793,070 891,005 97,859,589 1,618,543,664 7.4 Source: California Municipal Statistics, Inc.
29 Proposition 13 and Proposition 8 Property Value Adjustments. Proposition 13, passed in 1978, established the base year value concept for property tax assessments. Under Proposition 13, the 1975-76 fiscal year serves as the original base year used in determining the assessment for real property. Thereafter, annual increases to the base year value are limited to the inflation rate, as measured by the California Consumer Price Index, or 2%, whichever is less.
A new base year value, however, is established whenever a property, or portion thereof, has had a change in ownership or has been newly constructed.
Proposition 8, enacted in 1978, allows for a temporary reduction in assessed value when a property suffers a “decline-in-value.” As of the January 1st (lien date) each year, the Assessor must enroll either a property’s Proposition 13 value (adjusted annually for inflation by no more than 2%) or its current market value, whichever is less. When the current market value replaces the higher Proposition 13 value, the lower value is commonly referred to as a “Proposition 8 Value.” “Proposition 8 values” are temporary and, once enrolled, must be reviewed annually by the assessor until the Proposition 13 adjusted base year value is enrolled.
County Teeter Plan. The County has implemented the Alternative Method of Distribution of Tax Levies and Collections and of Tax Sale Proceeds (the “Teeter Plan”), which applies to property taxes levied for the City. Under the Teeter Plan, the County guarantees that the City will receive 100% of the property taxes levied for it. Any delinquencies are borne by the County, which in return collects and retains all penalties and interest which accrue on the delinquent taxes.
Consequently, the City’s tax receipts do not reflect any delinquencies. If, however, the County Board of Supervisors were to determine to discontinue the Teeter Plan, substantial delinquencies in the payment of property taxes in the City could have an adverse effect on the City’s ability to make timely payments on the Bonds.
30 Major Property Taxpayers. The top 20 property taxpayers, based on assessed values of taxable property in the City, as shown on the 2021-22 tax roll, are set forth in the following table.
See “RISK FACTORS – Concentration of Property Ownership.” Table 8
CITY OF BARSTOW
Top 20 Taxpayers Based on Assessed Value
Fiscal Year 2021-22
Property Owner
Primary
Land Use
Assessed
Valuation
% of
Total(1)
1. FRO2MO Barstow LLC Outlet Stores $116,637,362 5.25%
2. Golden State Water Company Water Company 68,374,850 3.08
3. Hospital of Barstow Inc. Hospital 44,116,553 1.99
4. Walmart Inc. Commercial Store 28,376,666 1.28
5. TVL Properties LLC Supermarket 13,592,402 0.61
6. Hospitality Express II LLC Hotel 12,134,910 0.55
7. Desert Heights LP Apartments 12,000,000 0.54
8. Lee Family Trust Hotel 11,946,835 0.54
9. Fred & Robin Rosenberg LP Commercial
Properties
11,924,523 0.54
10. Ayres Hotel-Barstow LP Hotel 11,336,239 0.51
11. Montara 158 LP Apartments 10,305,671 0.46
12. Home Depot USA Inc. Commercial Store 10,186,773 0.46
13. Pilot Travel Centers LLC Travel Center 9,913,337 0.45
14. TT Group Inc. Shopping Center 9,819,044 0.44
15. Elite Experience Inc. Hotel 9,804,055 0.44
16. Roberts Group II LLC Hotel 9,434,780 0.42
17. HPT TA Properties Trust Travel Center 8,040,000 0.36
18. Loves Country Stores of
California
Travel Center 7,755,829 0.35
19. Bedford Hospitality Group LLC Hotel 7,072,520 0.32
20. Villa Vista Apartments 6,737,769 0.30
$419,510,118 18.88%
(1) 2021-22 Local Secured Assessed Valuation: $1,519,793,070 Source: California Municipal Statistics, Inc.
Redevelopment Dissolution Act. The State’s Community Redevelopment Law (codified in Part 1 of Division 24 of the California Health and Safety Code) authorized the redevelopment agency of any city or county to receive an allocation of tax revenues resulting from increases in assessed values of properties within designated redevelopment project areas (the “incremental value”) occurring after the year the project area is formed. In effect, local taxing agencies, such as the City, realize tax revenues only in the assessed value of such property at the time the redevelopment project is created for the duration of such redevelopment project. Although Assembly Bill No. 26 (“AB X1 26”), enacted on June 29, 2011 as Chapter 5 of Statutes of 2011, statutorily dissolved redevelopment agencies as of February 1, 2012, the enforceable obligations of dissolved redevelopment agencies, continue to be paid from property taxes derived from such incremental value until the enforceable obligations are paid in full in accordance with Parts 1.8 (commencing with Section 34161) and 1.85 (commencing with Section 34170) of Division 24 of the Health and Safety Code of the State, as amended on June 27, 2012 by Assembly Bill No. 31 1484 (“AB 1484”), enacted as Chapter 26, Statutes of 2012, and as such statutory provisions have and may further be amended from time to time (as amended, the “Dissolution Act”).
Under the Dissolution Act, taxing entities, such as the City, are to receive distributions (in proportion to such taxing entity’s share of property tax revenues in the tax rate area for the applicable fiscal year) of residual amounts of property taxes attributable to incremental value on each June 1 and January 2, commencing June 1, 2012, after payment of (i) tax sharing obligations established previously pursuant to the Community Redevelopment Law, (ii) enforceable obligations of the successor agency to the former redevelopment agency, and (iii) an administrative cost allowance to such successor agency. As enforceable obligations of the former redevelopment agency and its successor agency are paid and retired, residual amounts of property tax revenues attributable to redevelopment project area incremental value are expected to increase over time.
Transient Occupancy Tax
The City assesses a transient occupancy tax as a percentage of the rental price for transient lodging charged when the period of occupancy is 30 days or less. The current rate of the transient occupancy tax is 12.5%. The City’s Finance Director serves as the tax administrator, and proprietors of properties subject to the City’s transient occupancy tax remit the tax directly to the tax administrator, together with completed reporting forms, on or before the last day of the month following the close of each calendar quarter. A delinquent penalty of 10% attaches to delinquent transient occupancy taxes on the first day of each month after the tax is due. Interest accrues on delinquent transient occupancy taxes at the rate of 1.5% per month or fraction thereof on the amount of the unpaid tax, exclusive of penalties, until paid.
In Fiscal Year 2020-21, the City received transient occupancy tax revenues totaling approximately $3.4 million, representing approximately 12% percent of the City’s General Fund revenues for Fiscal Year 2020-21. Compared to Fiscal Year 2019-20, the City’s transient occupancy tax revenues for Fiscal Year 2020-21 increased approximately 581,000, or 20%. As of the date hereof, there were 42 hotels in the City. In addition, a 181 room Marriott hotel is currently under construction. The Marriott hotel is expected to open in August, 2022.
Based on the 2021-22 Adopted Budget (after mid-year adjustments as of March 7, 2022), the City’s transient occupancy tax revenues are projected at approximately $3.6 million, representing approximately 13% of the City’s total budgeted General Fund revenues for Fiscal Year 2021-22 and a decrease of approximately 10% when compared to Fiscal Year 2020-21.
However, this revenue estimate was prepared prior to the recent easing of travel restrictions and re-opening of entertainment venues. As a result, the City anticipates a steady rebound in revenues and will update projections during the mid-year budget review.
Franchise Taxes
The City has franchise agreements with a number of companies delivering services to the community. Franchise Fees include revenues from electricity, gas and water utility services, and commercial solid waste.
As shown in Table 4, franchise tax revenues represented the fourth largest single source of tax revenues for the City’s General Fund in each of Fiscal Years 2016-17 through 2020-21, comprising approximately 4.1% of the City’s total General Fund revenues for Fiscal Year 2020-
21. Based on the 2021-22 Adopted Budget (after mid-year adjustments as of March 7, 2022), the 32 City’s franchise tax revenues are projected at approximately $1.1 million, representing approximately 4% of the City’s total budgeted General Fund revenues for Fiscal Year 2021-22 (after mid-year adjustments as of March 7, 2022).
Charges for Services
The City provides various services which generate revenue for the General Fund.
Services provided by the City include building construction and planning fees, engineering encroachment inspections, police fees such as fingerprinting, police reports, and towing, as well ambulance services and the administration of local assessment districts. In Fiscal Year 2020-21, charges for services accounted for approximately 1% of General Fund revenues. Based on the 2021-22 Adopted Budget (after mid-year adjustments as of March 7, 2022), the City’s charges for services are projected at $390,000, representing approximately 1% of the City’s total budgeted General Fund revenues for Fiscal Year 2021-22 (after mid-year adjustments as of March 7, 2022).
Long-Term General Fund Obligations
The City makes scheduled periodic payments pursuant to certain other outstanding long term agreements. Below are descriptions of the City’s outstanding long-term agreements, in connection with which General Fund appropriations are made annually. This excludes obligations payable by the City or its related entities from special revenues. For additional information, see the notes to the City’s 2020-21 audited financial statements included in Appendix B.
Vehicle Replacement Lease. The City entered into a multi-year capital lease program for vehicle replacement. The City makes an annual payment based on the leased vehicles in the fleet. In fiscal year 2020-21, the City leased one new vehicle for governmental activities at a cost of $343,408 and made annual lease payment of $284,602. The City made an annual lease payment of $23,945.
Refurbish Fire Engine. In fiscal year 2020-2021, the City entered into a lease agreement to finance the cost to refurbish a fire engine, and purchase a new fire apparatus, and hydraulic lift to service the fire apparatus. The City is required to make semiannual lease payments of $83,601, including principal and interest at a rate of 2.45% until the year 2030. As of December 31, 2021, the outstanding principal component of the lease payments payable by the City under such lease totaled $1,383,426.
SBCERA Lease Agreement. In November 2021, the City entered into a lease agreement (the “SBCERA Lease Agreement”) between the City and the Barstow Fire Protection District (the “District”) for the purpose of assisting the District to refinance its payment obligations to the San Bernardino County Employees’ Retirement Association (the “SBCERA”) relating retirement benefits provided by SBCERA to District employees. Under the SBCERA Lease Agreement, the City is required to make semiannual lease payments, which payments were assigned by the District to Capital One Public Funding, LLC in consideration of the receipt of funds for such purpose. As of December 31, 2021, the outstanding principal component of the lease payments payable by the City under the SBCERA Lease Agreement totaled $8,245,878.
Employee Leave Benefits. Employee leave benefits are payable to employees upon termination, in accordance with the City’s policies as discussed in the notes to the financial statements set forth in Appendix B. The employee leave benefits liability as of June 30, 2021, in the amount of $1,856,949, is expected to be paid primarily by General Fund transfers to the 33 accrued leave internal service fund in future years. There is no fixed schedule for the employee leave benefits liability.
For additional information regarding the City’s long-term General Fund obligations as of June 30, 2021, see the note 6 to the City’s Fiscal Year 2020-21 audited financial statements included in Appendix B.
Overlapping Debt Statement
Set forth below is a direct and overlapping debt report (the “Debt Report”) prepared by California Municipal Statistics, Inc. and dated February 1, 2022. This Debt Report is included for general information purposes only. The City has not reviewed the Debt Report for completeness or accuracy.
Table 9
CITY OF BARSTOW
Direct and Overlapping Debt
2021-22 Assessed Valuation: $1,618,543,664
OVERLAPPING TAX AND ASSESSMENT DEBT: % Applicable Debt 2/1/22 Barstow Unified School District 66.871% $22,637,410
Mojave Water Agency 3.836 64,637
TOTAL OVERLAPPING TAX AND ASSESSMENT DEBT $22,702,047
DIRECT AND OVERLAPPING GENERAL FUND DEBT:
San Bernardino County General Fund Obligations 0.608% $1,143,253 San Bernardino County Pension Obligation Bonds 0.608 728,597 San Bernardino County Flood Control District General Fund Obligations 0.608 272,262 Barstow Unified School District Certificate of Participation 66.871 9,809,976 City of Barstow SBCERA Lease Agreement 100.000 8,245,878(1) TOTAL DIRECT AND OVERLAPPING GENERAL FUND DEBT $20,199,966 OVERLAPPING TAX INCREMENT DEBT (Successor Agency): 100.000% $815,000 COMBINED TOTAL DEBT $43,717,013(2)
Ratios to 2021-22 Assessed Valuation:
Total Direct and Overlapping Tax and Assessment Debt....... 1.40% Combined Direct Debt ($8,245,878) .................................... 0.51% Combined Total Debt ............................................................. 2.70% Ratios to Redevelopment Successor Agency Incremental Valuation ($700,958,962):
Total Overlapping Tax Increment Debt .................................. 0.12% (1) Excludes the Bonds. See “– Long-Term General Fund Obligations” above. (2) Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue and non-bonded capital lease obligations.
Source: California Municipal Statistics, Inc.
34 Employee Retirement System
This section contains certain information relating to CalPERS. The information is primarily derived from information produced by CalPERS, its independent accountants and actuaries. The City has not independently verified the information provided by CalPERS and makes no representations and expresses no opinion as to the accuracy of the information provided by CalPERS.
The comprehensive annual financial reports of CalPERS are available on its Internet website at www.calpers.ca.gov. The CalPERS website also contains CalPERS’ most recent actuarial valuation reports and other information concerning benefits and other matters. Such information is not incorporated by reference in this Official Statement. Neither the City nor the Underwriter can guarantee the accuracy of such information. Actuarial assessments are “forward-looking” statements that reflect the judgment of the fiduciaries of the pension plans, and are based upon a variety of assumptions, one or more of which may not materialize or may be changed in the future. Actuarial assessments will change with the future experience of the pension plans.
As previously described, the City will use the net proceeds of the Bonds to prepay a portion of the City’s UAL with respect to its pension plans. See “REFINANCING PLAN.” The following information does not reflect the refunding of such obligations. In addition, it is possible that CalPERS will determine at a future date that an additional unfunded liability exists that is attributable to the City if actual plans experience differs from the current actuarial estimates. See “– Funded Status” below for additional information regarding the refunding of the UAL with proceeds of the Bonds.
Description of Plans. All qualified permanent and probationary employees are eligible to participate in in the Public Agency Cost-Sharing Multiple-Employer Defined Benefit Pension Plan (the “CalPERS Plan”) administered by CalPERS. The CalPERS Plan consists of individual rate plans (benefit tiers) within a safety risk pool (police and fire) and a miscellaneous risk pool (all other). Plan assets may be used to pay benefits for any employer rate plan of the safety and miscellaneous risk pools. Accordingly, rate plans within the safety or miscellaneous pools are not separate plans under GASB Statement No. 68. Individual employers may sponsor more than one rate plan in the miscellaneous or safety risk pools. The City sponsors four rate plans (collectively, the “Plans”) consisting of the following: (i) the Miscellaneous Plan (“Classic Miscellaneous”); (ii) the PEPRA Miscellaneous Plan (“PEPRA Miscellaneous”); (iii) the Safety Plan (“Classic Safety”); and (iv) PEPRA Safety Police Plan (“PEPRA Safety”). Benefit provisions under the Plans are established by State statute and City resolution.
Benefits Provided. CalPERS provides service retirement and disability benefits, annual cost of living adjustments and death benefits to plan members, who must be public employees and beneficiaries. Benefits are based on years of credited service, equal to one year of full time employment. Members with five years of total service are eligible to retire at age 50 with statutorily reduced benefits. All members are eligible for non-duty disability benefits after 10 years of service.
The death benefit is one of the following: the Basic Death Benefit, the 1957 Survivor Benefit, or the Optional Settlement 2W Death Benefit. The cost of living adjustments for each plan are applied as specified by the California Public Employees’ Retirement Law. The provisions and benefits of the Plans that were in effect at June 30, 2021, are summarized as follows:
35 Miscellaneous Plans
Classic
Miscellaneous
PEPRA
Miscellaneous
Hire Date
Prior to
January 1, 2013
On or after
January 1, 2013
Benefit Vesting Schedule 5 Years Service 5 Years Service Benefit Payments Monthly For Life Monthly For Life
Retirement Age 55 62
Monthly Benefits, as % of Annual Salary 2.7% 2.00%
Required Employee Contribution Rates 8.000% 6.250%
Required Employer Contributions Rates 13.182% 6.985%
Required Unfunded Liability Payment $827,964 $13,931
Source: City of Barstow audited financial statements for the Fiscal Year Ended June 30, 2021.
Safety Plans
Classic
Safety
PEPRA
Safety
Hire Date
Prior to
January 1, 2013
On or after
January 1, 2013
Benefit Vesting Schedule 5 Years Service 5 Years Service Benefit Payments Monthly For Life Monthly For Life
Retirement Age 50 57
Monthly Benefits, as % of Eligible Compensation 3% 2.70% Required Employee Contribution Rates 9.000% 11.500%
Required Employer Contributions Rates 21.927% 13.034%
Required payment for unfunded liability $813,069 $1,674 Source: City of Barstow audited financial statements for the Fiscal Year Ended June 30, 2021.
Employees Covered. At the June 30, 2020 measurement date, the following employees were covered by the benefit terms for each Plan:
Classic
Miscellaneous
PEPRA
Miscellaneous
Classic
Safety
PEPRA
Safety
Inactive employees or beneficiaries
currently receiving benefits 210 0 70 0
Inactive employees entitled to but
not yet receiving benefits 67 16 20 3
Active employees 53 46 21 24
Total 230 62 111 27
Source: City of Barstow.
California Public Employees’ Pension Reform Act of 2013. Employees hired prior to January 1, 2013 and have remained under continuous employment with a CalPERS agency are considered “Classic” employees. California Public Employees’ Pension Reform Act of 2013 (“PEPRA”), which was signed by the State Governor on September 12, 2012, established a new pension benefit tier for employees who were hired on and after January 1, 2013, who were not previously CalPERS members or have left employment with a CalPERS agency for more than 6 months.
36 PEPRA adjusted the benefit formulas, required employee contribution, calculation of benefits and maximum pay, as well as other benefits. PEPRA employees receive the following benefit formulas: (i) 2.0% at age 62 formula for Miscellaneous employees; and (ii) 2.7% at age 57 for Safety employees. Employees are required to pay at least 50% of the total (annual) normal cost rate, and are required to make the full amount of required employee contributions themselves under PEPRA. Retirement benefits for such employees are calculated on the highest average annual compensation over a consecutive 36-month period. Accordingly, retirement benefits for PEPRA miscellaneous employees are calculated as 2% of the average final 36 months compensation and retirement benefits for PEPRA safety employees are calculated as 2.7% of the average final 36 months of compensation. Retirement benefits for Classic miscellaneous employees are calculated as 2% of the average final 12 months of compensation and retirement benefits for Classic safety employees are calculated as 3% of the average final 12 months compensation. Retroactive benefits increases are also prohibited, as are contribution holidays, and purchases of additional non-qualified service credit.
PEPRA also capped pensionable income as noted below. Maximum amounts are set annually, subject to adjustment in accord with the Consumer Price Index.
CalPERS Pension Compensation Limits for
Calendar Year 2022 (Classic and PEPRA members)
Classic PEPRA
Maximum Pensionable Income $305,000 $161,969(1)
(1) The Maximum Pensionable income for PEPRA members employed at agencies that participate in Social Security is $134,974.
Source: CalPERS Payroll Circular Letter dated January 3, 2022.
Additional employee contributions, limits on pensionable compensation and higher retirement ages for new members as a result of the passage of PEPRA are expected to reduce the City’s unfunded pension lability and potentially reduce City contribution levels in the long term.
Required Contributions. Section 20814(c) of the Retirement Law requires that the employer contribution rates for all public employers be determined on an annual basis by the actuary and shall be effective on the July 1 following notice of a change in the rate. The total plan contributions are determined through the CalPERS annual actuarial valuation process. The actuarially determined rate is the estimated amount necessary to finance the costs of benefits earned by employees during the year, with an additional amount to finance any unfunded accrued liability. The City is required to contribute the difference between the actuarially determined rate and the contribution rate of the employees. The City’s contributions to the Plans for the measurement period ended June 30, 2020, recognized as a reduction to the net pension liability, were $3,124,739.
Beginning in Fiscal Year 2017-18, CalPERS collects employer contributions for each plan as a percentage of payroll for the normal cost portion and as a dollar amount for contributions toward the UAL. The dollar amounts are billed on an annual basis. The actuarially determined normal cost rates and UAL contribution amounts for each Plan for the Fiscal Years ended June 30, 2020, through June 30, 2022, are as follows:
37 Fiscal Year 2019-20 Fiscal Year 2020-21 Fiscal Year 2021-22 Employer
Normal
Cost Rate
Employer
Payment
of UAL
Employer
Normal
Cost Rate
Employer
Payment
of UAL
Employer
Normal
Cost Rate
Employer
Payment
of UAL
Classic Miscellaneous 13.182% $827,964 14.194% $993,616 14.02% $1,236,601 PEPRA Miscellaneous 6.985 13,931 7.732 15,137 7.59 17,010 Safety Classic 21.927 813,069 23.674 933,897 23.71 1,102,174 PEPRA Safety 13.034 1,674 13.044 3,434 13.13 5,847
Source: CalPERS Actuarial Reports dated July 2018, July 2019, and July 2020.
The City’s estimated total contribution amounts (including the required normal cost and UAL contributions) and as a percentage of estimated covered payroll for the Plans in Fiscal Years 2019-20, 2020-21, and 2021-22 are as follows:
Fiscal Year 2019-20 Fiscal Year 2020-21 Fiscal Year 2021-22 Total
Employer
Contribution
% of
Covered
Payroll
Total
Employer
Contribution
% of
Covered
Payroll
Total
Employer
Contribution
% of
Covered
Payroll
Classic Miscellaneous $1,624,887 26.877% $1,791,711 31.865% $1,923,627 39.26% PEPRA Miscellaneous 117,387 7.926 146,655 8.622 162,232 8.48 Safety Classic 1,529,546 46.810 1,604,205 56.657 1,720,289 65.99 PEPRA Safety 98,003 13.261 130,456 13.397 179,166 13.57 Source: CalPERS Actuarial Reports dated, July 2018, July 2019, and July 2020.
Projected Employer Contributions. The following tables show the City’s actuariallydetermined required employer contribution for Fiscal Year 2022-23 and projected employer contributions (before cost sharing) for Fiscal Years 2023-24 through 2027-28 for each Plan by normal cost (expressed as a percentage of total active payroll) and amortization of the unfunded accrued liability (expressed as a dollar amount). The projections assume a 7.00% annual rate of return for Fiscal Year 2020-21 but do not include any reductions in the normal cost that will occur over time as new employees are hired into PEPRA or other lower cost benefit tiers. See “– Potential Impacts on Future Required Contributions” below for discussion regarding recent change in discount rate to 6.8%.
Classic Miscellaneous
Required
Contribution
Projected Future Employer Contributions
(Assumes 7.00% Return for Fiscal Year 2020-21)
Fiscal Year 2022-23 2023-24 2024-25 2025-26 2026-27 2027-28 Normal Cost % 14.03% 14.0% 14.0% 14.0% 14.0% 14.0%
UAL Payment $1,470,741 $1,600,000 $1,740,000 $1,827,000 $1,907,000 $1,952,000 PEPRA Miscellaneous
Required
Contribution
Projected Future Employer Contributions
(Assumes 7.00% Return for Fiscal Year 2020-21)
Fiscal Year 2022-23 2023-24 2024-25 2025-26 2026-27 2027-28 Normal Cost % 7.47% 7.5% 7.5% 7.5% 7.5% 7.5%
UAL Payment $19,715 $22,000 $8,600 $9,600 $10,000 $11,000 38 Classic Safety
Required
Contribution
Projected Future Employer Contributions
(Assumes 7.00% Return for Fiscal Year 2020-21)
Fiscal Year 2022-23 2023-24 2024-25 2025-26 2026-27 2027-28 Normal Cost % 23.75% 23.8% 23.8% 23.8% 23.8% 23.8%
UAL Payment $1,262,233 $1,361,000 $1,460,000 $1,523,000 $1,583,000 $1,622,000 PEPRA Safety
Required
Contribution
Projected Future Employer Contributions
(Assumes 7.00% Return for Fiscal Year 2020-21)
Fiscal Year 2022-23 2023-24 2024-25 2025-26 2026-27 2027-28 Normal Cost % 12.78% 12.8% 12.8% 12.8% 12.8% 12.8%
UAL Payment $8,650 $11,000 $13,000 $14,000 $15,000 $16,000 Source: CalPERS Actuarial Reports dated July 2021.
Funded Status. The following table sets forth the schedule of funding for the Plans for the valuation dates of June 30, 2018, 2019, and 2020.
Valuation Date
Ended June 30
Accrued
Liability
Market Value
of Assets
Unfunded
Accrued
Liability
Funded
Ratio
Annual
Covered
Payroll
Miscellaneous Plan
2018 $75,056,011 $60,885,969 $14,170,042 81.1% $5,183,274 2019 78,029,393 62,904,821 15,124,572 80.6 4,517,308
2020 79,690,563 62,594,448 17,096,115 78.5 4,083,958
PEPRA Miscellaneous
2018 $708,232 $638,410 $69,822 90.1% $1,568,001
2019 989,856 886,391 103,465 89.5 1,763,788
2020 1,365,627 1,223,630 141,997 89.6 2,320,876
Safety (Classic) Plan
2018 $49,005,166 $35,082,543 $13,922,623 71.6% $2,610,102 2019 51,066,063 36,372,014 14,694,049 71.2 2,403,213
2020 53,136,278 37,180,461 15,955,817 70.0 2,568,061
PEPRA Safety Police Plan
2018 $678,942 $626,344 $52,598 92.3% $897,679
2019 969,104 882,825 86,279 91.1 1,216,850
2020 1,369,645 1,233,083 136,562 90.0 1,616,571
(1) Based on the market value of assets.
Source: CalPERS Actuarial Reports Dated July 2021.
There is a two-year lag between the valuation date and the start of the contribution Fiscal Year. The UAL was determined in the June 30, 2019 actuarial valuation, but the corresponding UAL payments commence two years after the valuation date in Fiscal Year 2021-22. This twoyear lag is necessary due to the amount of time needed to extract and test the membership and financial data, and the need to provide public agencies with their required employer contribution well in advance of the start of the Fiscal Year.
39 The City will apply the net proceeds of the Bonds in the amount of $_________ to refund the respective UAL of the Plans as shown in the following table. [Hilltop/FRA to provide] Refunded UAL
Classic Miscellaneous $
PEPRA Miscellaneous
Safety Classic
PEPRA Safety
Total $
Source: City of Barstow.
It is possible that CalPERS will determine at a future date that an additional UAL exists with respect to plans if actual plan experience differs from the current actuarial estimates.
Net Pension Liability. As of June 30, 2021, the City reported a net pension liability for its proportionate share of the net pension liability of the CalPERS Plan of $29,751,671. The City’s net pension liability for the CalPERS Plan is measured as the proportionate share of the total net pension liability of the CalPERS Plans. The net pension liability of the CalPERS Plan is measured as of June 30, 2020, and the total pension liability for the CalPERS Plan used to calculate net pension liability was determined by actuarial valuations as of June 30, 2019 rolled forward to June 30, 2019 using standard update procedures. The City’s proportionate share of the net pension liability was based on the City’s plan liability and asset-related information where available, and proportional allocations of individual plan amounts as of the valuation date where not available.
Sensitivity to Changes in Discount Rate. The discount rate used to measure the total pension liability at June 30, 2020 with respect to the CalPERS Plan was 7.15%. The following tables present the City’s proportionate share of the net pension liability for the CalPERS Plan, calculated using the discount rate for the CalPERS Plan, as well as what the City’s net pension liability would be if it were calculated using a discount rate that is 100 basis points higher or 100 basis points lower than the current rate:
1% Decrease (6.15%) Discount Rate (7.15%) 1% Increase (8.15%) Net Pension Liability $47,786,201 $29,751,671 $14,891,260 Source: City of Barstow Annual Comprehensive Financial Report for the Fiscal Year Ended June 30, 2021.
Potential Impacts on Future Required Contributions. The CalPERS Board of Administration has adjusted and may in the future further adjust certain assumptions used in the CalPERS actuarial valuations, which adjustments may increase the City’s required contributions to CalPERS in future years. Accordingly, the City cannot provide any assurances that the City’s required contributions to CalPERS in future years will not significantly increase (or otherwise vary) from any past or current projected levels of contributions.
Change in Assumptions/Discount Rate. On December 21, 2016, the CalPERS Board of Administration voted to lower its discount rate from the rate of 7.50% to 7.00% over a three-year period. The change was reflected in the June 30, 2016 actuarial report, which lowered the discount rate from 7.50% to 7.375%; in the June 30, 2017 actuarial report, which lowered the discount rate from 7.375% to 7.25%; and in the June 30, 2018 actuarial report, which lowered the discount rate from 7.25% to 7.00 On November 15, 2021, the CalPERS Board of Administration 40 voted to lower its discount rate from 7.00% to 6.80% for the June 30, 2021 actuarial report. On November 15, 2021, the CalPERS Board of Administration voted to lower its discount rate from
7.00% to 6.80% for the June 30, 2021 actuarial report.
Investment Performance. CalPERS earnings reports for Fiscal Years 2010 through 2020 report investment gains of approximately 13.3%, 21.7%, 0.1%, 13.2%, 18.4%, 2.4%, 0.6%,
11.2%, 8.6%, 6.7% and 4.7%, respectively. The CalPERS Fiscal Year 2019-20 investment gain of 4.7% is not included as an amortization base in the most recent CalPERS valuation report and is not reflected in the numbers included herein. Future earnings performance may increase or decrease future contribution rates for plan participants, including the District. CalPERS has reported a 21.3% investment return for Fiscal Year 2020-21.
See “APPENDIX B – COMPREHENSIVE ANNUAL FINANCIAL REPORT OF THE CITY FOR FISCAL YEAR ENDED JUNE 30, 2021 – Note 10” for additional information regarding the Plans, including a description of the actuarial methods and assumptions used to measure the City’s net pension liability as of the June 30, 2020 measurement date.
Other Post-Employment Benefits(OPEB)
Plan Description. The City provides retiree medical benefits under the CalPERS health plan which provides medical insurance benefits to eligible retirees and their spouses in accordance with various labor agreements. The CalPERS health plan is an agent multiple employer defined benefit plan. As of June 30, 2021, there were 114 inactive employees or beneficiaries currently receiving benefits, 32 inactive employees entitled to but noy yet receiving benefits, and 135 active employees.
Contributions. The contribution requirements of plan members and the City are established and may be amended by the City Council. The City must agree to make a defined monthly payment towards the cost of each retiree’s coverage. The required contribution is based on projected prefunding financing requirements. For the measure period 2019-20, the City contributed $851,272 which were in the form of benefit payments during the period. The City did not make additional contributions to the California Employer’s Retiree Benefit Trust Fund (the “CERBT”).
CERBT is a tax qualified irrevocable trust, organized under Section 115 of the Internal Revenue Code, established to prefund OPEB. The CERBT issues a publicly available financial report that included financial statements and required supplementary information for the City, not individualizing, but in aggregate with the other CERBT participants. That report may be obtained by contacting CalPERS.
Net OPEB Liability. As of the June 30, 2020 measurement date, the City’s total OPEB liability and the net OPEB liability was approximately $21.6 million and $20.2 million, respectively.
The following presents the net OPEB liability of the City if it were calculated using a discount rate that is one percentage point lower or one percentage point higher than the current rate, as of the June 30, 2020 measurement date:
Discount Rate – 1%
1.66%
Current Discount Rate
2.66%
Discount Rate + 1%
3.66%
Net OPEB Liability $23,286,197 $20,236,016 $17,735,950
Source: City of Barstow Annual Comprehensive Financial Report for the Fiscal Year Ended June 30, 2021. 41 Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, mortality, and the healthcare cost trend. Amounts determined regarding the funded status of the plan and the annual requires contributions of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future.
OPEB Funded Status. The status of the health plan as of the June 30, 2019 and June 30, 2020 measurement dates is as follows:
June 30, 2019 June 30, 2020
Total OPEB Liability – Beginning $18,448,986 $20,861,858 Total OPEB Liability – Ending (a) $20,861,858 $21,574,407 Plan Fiduciary Net Position – Beginning 1,218,373 1,293,319 Plan Fiduciary Net Position – Ending (b) 1,293,319 1,338,391 Net OPEB Liability (a) – (b) 19,568,539 20,236,016
Plan Fiduciary Net Position as a % of the total OPEB liability 6% 6% Covered employee payroll $12,153,938 $13,389,701
Net OPEB Liability as a percentage of covered‐employee payroll 161.01% 151.13% Source: City of Barstow Annual Comprehensive Financial Report for the Fiscal Year Ended June 30, 2021.
See “APPENDIX B – COMPREHENSIVE ANNUAL FINANCIAL REPORT OF THE CITY FOR FISCAL YEAR ENDED JUNE 30, 2021 – Note 11” for additional information regarding the City’s OPEB liabilities, including a description of the actuarial methods and assumptions used to measure the City’s net OPEB liability as of the June 30, 2020 measurement date.
Employee Relations
The City had 171 authorized positions at the beginning of Fiscal Year 2020-21. The City’s employees are represented by the following labor groups. In the previous five years, there have not been any work stoppages by City employees. City management has initiated collective bargaining discussions with each of its labor groups. It is anticipated that the City will conclude discussions with each labor group and enter into new multi-year contracts prior to June 30, 2022.
Table 10
CITY OF BARSTOW
City Employee Labor Groups
Labor Group
Number of
Budgeted
Employees
Contract
Expiration
Date
Teamsters Local 1932 - Unit #1 34 June 30, 2022
Teamsters Local 1932 - Unit #2 37 June 30, 2022
The Barstow Police Officers' Association 31 June 30, 2022 The Barstow Fire Protection District and Professional
Firefighters Association (BPFA) 25 June 30, 2022
The Barstow Management Employees’ Association 21 June 30, 2022 The Barstow Police Department Management Association 7 June 30, 2022 Source: City of Barstow.
42 Risk Management
The City is a member of the Public Entity Risk Management Authority (“PERMA”), a joint powers insurance authority formed under Section 990 of the California Government Code for the purpose of jointly funding programs for insurance coverage for its members. PERMA is comprised of 31 participating member agencies: 21 cities, four transit agencies, and six special districts.
PERMA is governed by a Board of Directors which consists of one director from each member agency. The City participates in the Liability, Workers’ Compensation, Employment Practices Liability, Property Insurance, Auto Physical Damage, Cyber Liability, and Crime Coverage insurance programs of PERMA.
The Liability program provides coverage up to $50 million per occurrence for personal injury, bodily injury, property damage and public officials' errors and omissions. The City selfinsures up to $125,000 per occurrence and participates in risk sharing pools for losses up to $1 million followed by PERMA's membership in the Public Risk Innovation, Solutions, and Management (“PRISM”) for $49 million excess liability coverage. PERMA administers the City’s liability claims.
The Workers' Compensation program provides statutory limits per accident for workers' compensation and $5 million each accident for employers' liability. The City self-insures up to $250,000 per accident or employee and participates in a risk sharing pool for losses up to $500,000 followed by PERMA's membership in the Local Agency Workers' Compensation Excess Joint Powers Authority for excess coverage. A third-party administrator administers the City’s workers’ compensation claims.
The Employment Practices Liability program provides up to $1 million coverage for employment related lawsuits, such as wrongful termination and discrimination. The City selfinsures up to $25,000 per occurrence and participates in the Employment Risk Management Authority for losses up to $1 million. Coverage above $1 million and up to $50 million is available through PERMA’s membership in PRISM for excess liability coverage.
The Property Insurance program is group purchased under a master property insurance policy with accumulated values from all participants effecting lower rates and broader coverage for members. The program covers real property, business personal property, inland marine coverage for special mobile equipment and business interruption. Commercial property coverage is written on a replacement cost basis and all risk, eliminating the traditional commercial "named peril" policy.
Investment Policies and Procedures
The City’s current investment policy (the “Investment Policy”), rendered annually to the City Council by the City Treasurer pursuant to Section 53646 of the Government Code of the State was approved by the City Council on June 21, 2021. The City amends or update its Investment Policy annually, as permitted by State law.
The purpose of the Investment Policy is to provide the City Council, and those involved in servicing the investment requirements of the City, and any other interested party, an understanding of the regulations and internal guidelines that will be observed in maintaining and investing those pooled funds deemed temporarily excess. The Investment Policy is intended to provide guidelines for the prudent investment of the City's temporary idle cash, and outline the 43 procedures for maximizing the efficiency of the City's cash management system. The ultimate goal is to enhance the economic status of the City while safeguarding its assets.
Under the Investment Policy, the criteria for selecting investments and the order of priority are:
1. Safety: The safety and risk associated with an investment refers to the potential loss of principal, interest, or a combination of these amounts. The City only operates in those investments that are considered very safe.
2. Liquidity: This refers to the ability to "cash in" at any moment in time with a minimal chance of losing some portion of principal or interest.
3. Yield: Yield is the potential dollar earnings an investment can provide, and sometimes is referred to as the rate of return.
4. Safekeeping: Securities purchased shall be held in third party safekeeping in the Trust Department of a financial institution, in the City's name and control. The account established shall be protected from seizure by creditors should the financial institution holding the City's securities file for bankruptcy protection. The basic premise underlying the City's investment philosophy is and continues to be, to insure that surplus funds are always safe and available when needed.
As of December 31, 2021, the City’s investments consisted solely of investments in the Local Agency Investment Fund with a par value, market value and cost value of approximately $7,174,311. In addition, approximately $6.7 million in cash was on deposit with Union Bank of California. See Note 2 in Appendix B for further information with respect to City investments.
State Budget
General. Although the City does not receive a significant portion of its annual revenues directly from the State, the State’s financial condition and budget policies affect communities and local public agencies throughout the State. At various times, the State has experienced significant financial and budgetary stress. The following information describes the State budget process and the current State budget.
Information about the State budget is regularly available at various State-maintained websites. Text of proposed and adopted budgets may be found at the website of the State Department of Finance (the “DOF”), http://www.dof.ca.gov, under the heading “California Budget.” An impartial analysis of the budget is posted by the Legislative Analyst’s Office (the “LAO”) at http://www.lao.ca.gov. In addition, various State Official Statements, many of which contain a summary of the current and past State budgets and the impact of those budgets on cities in the State, may be found at the website of the State Treasurer, http://www.treasurer.ca.gov. The information referred to is prepared by the respective State agency maintaining each website and not by the City, and the City takes no responsibility for the continued accuracy of these Internet addresses or for the accuracy, completeness or timeliness of information posted there, and such information is not incorporated herein by these references.
State 2021-22 Budget. On July 16, 2021, the Governor signed a series of bills representing the State budget for State fiscal year 2021-22 (the “2021-22 Budget”). The Governor’s signing followed negotiations between the Governor and the State Legislature 44 regarding the final provisions of the 2021-22 Budget, including the expenditure of a large projected State general fund surplus. The State Legislature passed temporary budgetary legislation in June 2021 to meet the required State Constitutional budget deadline. The following is drawn from the DOF summary of the 2021-22 Budget.
The 2021-22 Budget indicates that revenues are up significantly from the forecast included in the Governor’s proposed State budget for State fiscal year 2021-22, resulting in a large budgetary surplus. This is a result of strong cash trends, two major federal relief bills since the beginning of 2021 (as discussed under the caption “THE CITY—COVID-19 Outbreak”), continued stock market appreciation and a significantly upgraded economic forecast from the prior State fiscal year. The 2021-22 Budget also reports that the State has received approximately $285 billion in federal COVID-19 stimulus funding for State programs. Although the 2021-22 Budget acknowledges that building reserves and paying down debts are critical, the 2021-22 Budget allocates approximately 85% of discretionary funds to one-time spending. The multi-year forecast reflects a budget roughly in balance, although the 2021-22 Budget assumes that risks remain to the economic forecast, including a stock market decline that could reduce State revenues.
For State fiscal year 2020-21, the 2021-22 Budget projects total general fund revenues and transfers of $188.8 billion and authorizes expenditures of $166.1 billion. The State is projected to end State fiscal year 2020-21 with total available reserves of $39.8 billion, including $25.1 billion in the traditional general fund reserve, $12.3 billion in the State’s basic reserve fund, known as the Budget Stabilization Account (the “BSA”), $1.9 billion in the Public School System Stabilization Account and $450 million in the Safety Net Reserve Fund. For State fiscal year 2021-22, the 2021-22 Budget projects total general fund revenues and transfers of $175.3 billion and authorizes expenditures of $196.4 billion. The State is projected to end State fiscal year 2021-22 with total available reserves of $25.2 billion, including $4 billion in the traditional general fund reserve, $15.8 billion in the BSA, $4.5 billion in the Public School System Stabilization Account and $900 million in the Safety Net Reserve Fund.
For additional information regarding the 2021-22 Budget, see the DOF and LAO websites.
The information presented on such websites is not incorporated herein by reference.
None of the websites or webpages that are referenced above is in any way incorporated into this Official Statement. They are cited for informational purposes only. Neither the City nor the Underwriter make any representation whatsoever as to the accuracy or completeness of any of the information on such websites.
There can be no assurance that additional legislation will not be enacted in the future to implement provisions relating to the State budget, address the COVID-19 outbreak or otherwise that may affect the City or its General Fund revenues.
CONSTITUTIONAL AND STATUTORY
LIMITATIONS ON TAXES AND APPROPRIATIONS
Article XIIIA of the State Constitution
On June 6, 1978, California voters approved Proposition 13, which added Article XIIIA to the State Constitution. Article XIIIA, as amended, limits the amount of any ad valorem tax on real property to one percent of the full cash value thereof, except that additional ad valorem taxes may be levied to pay debt service (i) on indebtedness approved by the voters prior to 45 July 1, 1978, (ii) on bonded indebtedness approved by a two-thirds vote on or after July 1, 1978, for the acquisition or improvement of real property or (iii) bonded indebtedness incurred by a school district, community college district or county office of education for the construction, reconstruction, rehabilitation or replacement of school facilities, including the furnishing and equipping of school facilities or the acquisition or lease of real property for school facilities, approved by 55 percent of the voters voting on the proposition. Article XIIIA defines full cash value to mean “the county assessor’s valuation of real property as shown on the 1975-76 tax bill under “full cash value,” or thereafter, the appraised value of real property when purchased, newly constructed, or a change in ownership has occurred after the 1975 assessment.” This full cash value may be increased at a rate not to exceed two percent per year to account for inflation.
Article XIIIA has subsequently been amended to permit reduction of the “full cash value” base in the event of declining property values caused by damage, destruction or other factors, to provide that there would be no increase in the “full cash value” base in the event of reconstruction of property damaged or destroyed in a disaster, and in other minor or technical ways.
Legislation Implementing Article XIIIA
Legislation has been enacted and amended a number of times since 1978 to implement Article XIIIA. Under current law, local agencies are no longer permitted to levy directly any property tax (except to pay voter-approved indebtedness). The one percent property tax is automatically levied by the County and distributed according to a formula among taxing agencies.
The formula apportions the tax roughly in proportion to the relative shares of taxes levied prior to 1989.
Increases of assessed valuation resulting from reappraisals of property due to new construction, change in ownership or from the two percent annual adjustment are allocated among the various jurisdictions in the “taxing area” based upon their respective “situs.” Any such allocation made to a local agency continues as part of its allocation in future years.
All taxable property is shown at full market value on the tax rolls. Consequently, the tax rate is expressed as $1 per $100 of taxable value. All taxable property value included in this Official Statement is shown at 100 percent of market value (unless noted differently) and all tax rates reflect the $1 per $100 of taxable value.
Article XIIIB of the State Constitution
In addition to the limits Article XIIIA imposes on property taxes that may be collected by local governments, certain other revenues of the State and most local governments are subject to an annual “appropriations limit” imposed by Article XIIIB which effectively limits the amount of such revenues those entities are permitted to spend. Article XIIIB, approved by the voters in June 1979, was modified substantially by Proposition 111 in 1990. The appropriations limit of each government entity applies to “proceeds of taxes,” which consist of tax revenues, State subventions and certain other funds, including proceeds from regulatory licenses, user charges or other fees to the extent that such proceeds exceed “the cost reasonably borne by such entity in providing the regulation, product or service.” “Proceeds of taxes” excludes tax refunds and some benefit payments such as unemployment insurance. No limit is imposed on the appropriation of funds which are not “proceeds of taxes,” such as reasonable user charges or fees, and certain other non-tax funds. Article XIIIB also does not limit appropriation of local revenues to pay debt service on Bonds existing or authorized by January 1, 1979, or subsequently 46 authorized by the voters, appropriations required to comply with mandates of courts or the federal government, appropriations for qualified capital outlay projects, and appropriation by the State of revenues derived from any increase in gasoline taxes and motor vehicle weight fees above January 1, 1990, levels. The appropriations limit may also be exceeded in case of emergency; however, the appropriations limit for the next three years following such emergency appropriation must be reduced to the extent by which it was exceeded, unless the emergency arises from civil disturbance or natural disaster declared by the Governor, and the expenditure is approved by two-thirds of the legislative body of the local government.
The State and each local government entity has its own appropriations limit. Each year, the limit is adjusted to allow for changes, if any, in the cost of living, the population of the jurisdiction, and any transfer to or from another government entity of financial responsibility for providing services. Proposition 111 requires that each agency’s actual appropriations be tested against its limit every two years.
If the aggregate “proceeds of taxes” for the preceding two-year period exceeds the aggregate limit, the excess must be returned to the agency’s taxpayers through tax rate or fee reductions over the following two years.
The City has never exceeded its appropriations limit.
Articles XIIIC and XIIID of the State Constitution
General. On November 5, 1996, the voters of the State approved Proposition 218, known as the “Right to Vote on Taxes Act.” Proposition 218 adds Articles XIIIC and XIIID to the California Constitution and contains a number of interrelated provisions affecting the ability of the City to levy and collect both existing and future taxes, assessments, fees and charges.
On November 2, 2010, California voters approved Proposition 26, entitled the “Supermajority Vote to Pass New Taxes and Fees Act.” Section 1 of Proposition 26 declares that Proposition 26 is intended to limit the ability of the State Legislature and local government to circumvent existing restrictions on increasing taxes by defining the new or expanded taxes as “fees.” Proposition 26 amended Articles XIIIA and XIIIC of the State Constitution. The amendments to Article XIIIA limit the ability of the State Legislature to impose higher taxes (as defined in Proposition 26) without a two-thirds vote of the Legislature. The amendments to Article XIIIC define “taxes” that are subject to voter approval as “any levy, charge, or exaction of any kind imposed by a local government,” with certain exceptions.
Taxes. Article XIIIC requires that all new local taxes be submitted to the electorate before they become effective. Taxes for general governmental purposes of the City (“general taxes”) require a majority vote; taxes for specific purposes (“special taxes”), even if deposited in the City’s General Fund, require a two-thirds vote. The voter approval requirements of Article XIIIC reduce the flexibility of the City to raise revenues for the General Fund, and no assurance can be given that the City will be able to impose, extend or increase such taxes in the future to meet increased expenditure needs.
Property-Related Fees and Charges. Article XIIID also adds several provisions making it generally more difficult for local agencies to levy and maintain property-related fees, charges, and assessments for municipal services and programs. These provisions include, among other things, (i) a prohibition against assessments which exceed the reasonable cost of the proportional special benefit conferred on a parcel, (ii) a requirement that assessments must confer a “special 47 benefit,” as defined in Article XIIID, over and above any general benefits conferred, (iii) a majority protest procedure for assessments which involves the mailing of notice and a ballot to the record owner of each affected parcel, a public hearing and the tabulation of ballots weighted according to the proportional financial obligation of the affected party, and (iv) a prohibition against fees and charges which are used for general governmental services, including police, fire or library services, where the service is available to the public at large in substantially the same manner as it is to property owners.
Reduction or Repeal of Taxes, Assessments, Fees and Charges. Article XIIIC also removes limitations on the initiative power in matters of reducing or repealing local taxes, assessments, fees or charges. No assurance can be given that the voters of the City will not, in the future, approve an initiative or initiatives which reduce or repeal local taxes, assessments, fees or charges currently comprising a substantial part of the City’s General Fund. If such repeal or reduction occurs, the City’s ability to pay debt service on the Bonds could be adversely affected.
Burden of Proof. Article XIIIC provides that local government “bears the burden of proving by a preponderance of the evidence that a levy, charge, or other exaction is not a tax, that the amount is no more than necessary to cover the reasonable costs of the governmental activity, and that the manner in which those costs are allocated to a payor bear a fair or reasonable relationship to the payor’s burdens on, or benefits received from, the governmental activity.” Similarly, Article XIIID provides that in “any legal action contesting the validity of a fee or charge, the burden shall be on the agency to demonstrate compliance” with Article XIIID.
Judicial Interpretation of Proposition 218. The interpretation and application of Articles XIIIC and XIIID will ultimately be determined by the courts, and it is not possible at this time to predict with certainty the outcome of such determination.
Impact on City’s General Fund. The City does not believe that any material source of General Fund revenue is subject to challenge under Proposition 218 or Proposition 26.
The approval requirements of Articles XIIIC and XIIID reduce the flexibility of the City to raise revenues for the General Fund, and no assurance can be given that the City will be able to impose, extend or increase the taxes, fees, charges or taxes in the future that it may need to meet increased expenditure needs.
Statutory Revenue Limitations - Proposition 62
Proposition 62 was adopted by the voters at the November 4, 1986, general election and (a) requires that any new or higher taxes for general governmental purposes imposed by local governmental entities such as the City be approved by a two-thirds vote of the governmental entity’s legislative body and by a majority vote of the voters of the governmental entity voting in an election on the tax, (b) requires that any special tax (defined as taxes levied for other than general governmental purposes) imposed by a local governmental entity be approved by a twothirds vote of the voters of the governmental entity voting in an election on the tax, (c) restricts the use of revenues from a special tax to the purposes or for the service for which the special tax was imposed, (d) prohibits the imposition of ad valorem taxes on real property by local governmental entities except as permitted by Article XIIIA, (e) prohibits the imposition of transaction taxes and sales taxes on the sale of real property by local governmental entities, and (f) requires that any tax imposed by a local governmental entity on or after August 1, 1985, be ratified by a majority vote of the voters voting in an election on the tax within two years of the adoption of the initiative or be terminated by November 15, 1988. 48 Following its adoption by the voters, various provisions of Proposition 62 were declared unconstitutional at the appellate court level. On September 28, 1995, however, the California Supreme Court, in Santa Clara City Local Transportation Authority v. Guardino, upheld the constitutionality of the portion of Proposition 62 requiring a two–thirds vote in order for a local government or district to impose a special tax and, by implication, upheld a parallel provision requiring a majority vote in order for a local government or district to impose any general tax. The Guardino decision did not address whether it should be applied retroactively. In response to Guardino, the California Legislature adopted Assembly Bill 1362, which provided that Guardino should apply only prospectively to any tax that was imposed or increased by an ordinance or resolution adopted after December 14, 1995. Assembly Bill 1362 was vetoed by the Governor; hence the application of the Guardino decision on a retroactive basis remains unclear.
Proposition 62, as an initiative statute, does not have the same level of authority as a constitutional initiative. It is analogous to legislation adopted by the State Legislature, except that it may be amended only by a vote of the State’s electorate. However, Proposition 218, as a constitutional amendment, is applicable to cities and supersedes many of the provisions of Proposition 62.
Proposition 1A; Proposition 22
Proposition 1A. Proposition 1A, proposed by the Legislature in connection with the State’s Fiscal Year 2004-05 Budget, approved by the voters in November 2004 and generally effective in Fiscal Year 2006-07, provided that the State may not reduce any local sales tax rate, limit existing local government authority to levy a sales tax rate or change the allocation of local sales tax revenues, subject to certain exceptions. Proposition 1A generally prohibited the State from shifting to schools or community colleges any share of property tax revenues allocated to local governments for any Fiscal Year, as set forth under the laws in effect as of November 3, 2004. Any change in the allocation of property tax revenues among local governments within a county had to be approved by two-thirds of both houses of the Legislature.
Proposition 22. Proposition 22, entitled “The Local Taxpayer, Public Safety and Transportation Protection Act,” was approved by the voters of the State in November 2010.
Proposition 22 eliminates or reduces the State’s authority to (i) temporarily shift property taxes from cities, counties and special districts to schools, (ii) use vehicle license fee revenues to reimburse local governments for State-mandated costs (the State will have to use other revenues to reimburse local governments), (iii) redirect property tax increment from redevelopment agencies to any other local government, (iv) use State fuel tax revenues to pay debt service on State transportation bonds, or (v) borrow or change the distribution of State fuel tax revenues.
Proposition 19
Proposition 19, entitled “Property Tax Transfers, Exemptions, and Revenue for Wildfire Agencies and Counties Amendment,” was approved by the voters of the State in November 2020.
Proposition 19 amends Article XIIIA to: (i) expand special rules that give property tax savings to homeowners that are over the age of 55, severely disabled, or whose property has been impacted by wildfire or natural disaster, when they buy a different home; (ii) narrow existing special rules for inherited properties; and (iii) dedicate most of the potential new State revenue generated from Proposition 19 toward fire protection.
49 The City cannot predict the impact that Proposition 19 might have on assessed values or property tax revenues in the City, or any other impacts on the local economy or the City’s financial condition.
Possible Future Initiatives
Articles XIIIA, XIIIB, XIIIC and XIIID and Propositions 62, 111, 218 and 1A were each adopted as measures that qualified for the ballot pursuant to the State’s initiative process. From time to time other initiative measures could be adopted, further affecting revenues of the City or the City’s ability to expend revenues. The nature and impact of these measures cannot be anticipated by the City.
RISK FACTORS
The following describes certain special considerations and risk factors affecting the payment of and security for the Bonds. The following discussion is not meant to be an exhaustive list of the risks associated with the purchase of any Bonds and does not necessarily reflect the relative importance of the various risks. Potential investors in the Bonds are advised to consider the following special factors along with all other information in this Official Statement in evaluating the Bonds. There can be no assurance that other considerations will not materialize in the future.
Limitations on Remedies Available; Bankruptcy
The enforceability of the rights and remedies of the Owners and the obligations of the City may become subject to the following: the federal bankruptcy code and applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws relating to or affecting the enforcement of creditors’ rights generally, now or hereafter in effect; usual equitable principles which may limit the specific enforcement under state law of certain remedies; the exercise by the United States of America of the powers delegated to it by the Federal Constitution; and the reasonable and necessary exercise, in certain exceptional situations, of the police power inherent in the sovereignty of the State of California and its governmental bodies in the interest of servicing a significant and legitimate public purpose.
In addition to the limitation on remedies contained in the Indenture, the rights and remedies provided in the Indenture may be limited by and are subject to the provisions of federal bankruptcy laws. The City is a governmental unit and therefore cannot be the subject of an involuntary case under the United States Bankruptcy Code (the “Bankruptcy Code”); however, the City is a municipality and therefore may seek voluntary protection from its creditors pursuant to Chapter 9 of the Bankruptcy Code for purposes of adjusting its debts. If the City were to become a debtor under the Bankruptcy Code, the City would be entitled to all of the protective provisions of the Bankruptcy Code as applicable in a Chapter 9 case. Such a bankruptcy could adversely affect the payments under the Indenture. Among the adverse effects might be: (i) the application of the automatic stay provisions of the Bankruptcy Code, which, until relief is granted, would prevent collection of payments from the City or the commencement of any judicial or other action for the purpose of recovering or collecting a claim against the City and could prevent the Trustee from making payments from funds in its possession; (ii) the avoidance of preferential transfers occurring during the relevant period prior to the filing of a bankruptcy petition; (iii) the existence of unsecured or secured debt which may have priority of payment superior to that of the Owners of the Bonds; and (iv) the possibility of the adoption of a plan (the “Bankruptcy Plan”) for the adjustment of the City's debt without the consent of the Trustee or all of the Owners of the 50 Bonds, which Bankruptcy Plan may restructure, delay, compromise or reduce the amount of any claim of the Owners if the Bankruptcy Court finds that the Bankruptcy Plan is fair and equitable and in the best interests of creditors.
Past bankruptcies in the City of Stockton, the City of San Bernardino and the City of Detroit brought scrutiny to municipal securities. Specifically, in the San Bernardino bankruptcy, the Court held that in the event of a municipal bankruptcy, payments on pension obligation bonds, such as the Bonds, were unsecured obligations and not entitled to the same priority of payments made to the related pension system. A variety of events including, but not limited to, additional rulings adverse to the interests of bond owners in the Stockton, San Bernardino and Detroit bankruptcy cases or additional municipal bankruptcies, could prevent or materially adversely affect the rights of Owners to receive payments on the Bonds in the event the City files for bankruptcy.
Accordingly, in the event of bankruptcy, it is likely that Owners may not recover their principal, as applicable, and interest.
The opinions of counsel, including Bond Counsel, delivered in connection with the issuance and delivery of the Bonds will be so qualified. Bankruptcy proceedings, or the exercising of powers by the federal or state government, if initiated, could subject the Owners to judicial discretion and interpretation of their rights in bankruptcy or otherwise and consequently may entail risks of delay, limitation, or modification of their rights.
Certain Risks Associated with Sales Tax and Other Local Tax Revenues For fiscal year 2020-21, sales tax revenues were the largest source of revenue to the City. See “CITY FINANCIAL INFORMATION – Sales and Use Taxes.” Sales tax revenues are based upon the gross receipts of retail sales of tangible goods and products by retailers with taxable transactions in the City, which could be impacted by a variety of factors. For example, in times of economic recession, the gross receipts of retailers often decline, and such a decline would cause the sales tax revenues received by the City to also decline. Most recently, the City’s sales tax revenues were impacted by the COVID-19 pandemic. See “RISK FACTORS – Public Health Emergencies – Collection of Taxes” below for a discussion of Executive Order N-40-20.
In addition, changes or amendments in the laws applicable to the City’s receipt of sales tax revenues or other local taxes, whether implemented by State legislative action or voter initiative, could have an adverse effect on sales tax revenues received by the City. See “CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS – Article XIIIC and Article XIIID.”
For example, many categories of transactions are exempt from the statewide sales tax, and additional categories could be added in the future. Currently, most sales of food products for human consumption are exempt; this exemption, however, does not apply to liquor or to restaurant meals. The rate of sales tax levied on taxable transactions in the City or the fee charged by the California Department of Tax and Fee Administration for administering the City’s sales tax could also be changed. See “CITY FINANCIAL INFORMATION.” Increasing Retirement Related Costs
The City is required to make contributions to CalPERS and to the OPEB Plan for City employees and retirees. Such obligations are a significant financial obligation of the City and could increase in the future. Many factors influence the amount of the City’s pension benefit liability, including, without limitation, inflationary factors, changes in statutory provisions of the 51 Retirement Law, changes in the levels of benefits provided or in the contribution rates of the City, increases or decreases in the number of covered employees, changes in actuarial assumptions or methods, and differences between actual and anticipated investment performance of CalPERS. Any of these factors could give rise to additional liability of the City to CalPERS as a result of which the City would be obligated to make additional payments to CalPERS over the amortization schedule for full funding of the City’s obligation to CalPERS.
City Obligations
The City has other obligations payable from its General Fund and other lawfully available funds of the City, including but not limited to lease obligations and certain other liabilities. The Indenture does not prohibit the City from incurring debt or additional lease or other obligations payable from the City’s General Fund and other lawfully available funds in the future, which may reduce City moneys available to pay the Bonds.
In addition, although the Bonds are payable from all lawfully available funds of the City, the City has no obligation to levy taxes in order to raise sufficient revenues to pay the Bonds. See the caption “CITY FINANCIAL INFORMATION – Long-Term General Fund Obligations” for a description of the City’s current long-term obligations that are payable from the City’s General Fund.
To the extent that additional obligations are incurred by the City, the funds available to pay the Bonds may be decreased. In the event that the City’s revenue sources are less than its total obligations, the City could choose to fund other activities before paying the Bonds. The same result could occur if, because of State Constitutional limits on expenditures, the City is not permitted to appropriate and spend all of its available revenues. However, to the best of the City’s knowledge, the City’s appropriations have never exceeded the limitation on appropriations under Article XIIIB of the State Constitution. See the caption “CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS—Article XIIIB of the State Constitution.” Dependence on State for Certain Revenues
A number of the City’s revenues are collected and dispersed by the State (such as sales taxes) or allocated in accordance with State law (most importantly, property taxes). Therefore, State budget decisions can have an impact on City finances. In the event of a material economic downturn in the State, including as a result of the COVID-19 outbreak, there can be no assurance that any resulting revenue shortfalls to the State will not reduce revenues to local governments (including the City) or shift financial responsibility for programs to local governments as part of the State’s efforts to address any such related State financial difficulties. See the caption “CITY FINANCIAL INFORMATION – State Budget” and “CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS – Proposition 1A; Proposition 22.” No Reserve Fund
The City has and will not fund a debt service reserve fund in connection with the issuance of the Bonds.
Public Health Emergencies
General. In recent years, public health authorities have warned of threats posed by outbreaks of disease and other public health threats. On February 11, 2020, the WHO announced 52 the official name for the outbreak of COVID-19, an upper respiratory tract illness. COVID-19 has since spread across the globe. The spread of COVID-19 is having significant adverse health and financial impacts throughout the world, including the City. The WHO has declared the COVID-19 outbreak to be a pandemic, and states of emergency have been declared by the Governor of the State and the President of the United States.
The COVID-19 outbreak is ongoing, and its duration and severity and its economic effects are uncertain in many respects. Uncertain too are the additional actions, if any, that may be taken by federal and State governmental authorities to contain or mitigate the effects of the outbreak.
The ultimate impact of COVID-19 on the City’s operations and finances and the economy, real estate market and development within the City is not fully known, and it may be some time before the full adverse impact of the COVID-19 outbreak is known. Certain reports providing preliminary information regarding the impact of the COVID-19 pandemic are described in this Official Statement. Further, there could be future COVID-19 outbreaks or other public health emergencies that could have material adverse effects on the City’s operations and finances.
Collection of Taxes. On March 30, 2020, the Governor issued Executive Order N-40- 20, which delayed the deadline for the filing and payment of sales and use taxes by 90 days for all but the largest taxpayers. Under Executive Order N-40-20 and a subsequent notice form the California Department of Tax and Fee Administration, businesses with less than $5 million in taxable annual sales are authorized to defer up to $50,000 in sales tax and enter into a 12-month, zero interest payment plan. The Governor has also issued an Executive Order for waivers of late penalties on property taxes. Such efforts to relieve the financial impact of the COVID-19 pandemic on taxpayers have not resulted in significant delays in revenue collection by the City.
On May 6, 2020 in response to the COVID-19 pandemic, the Governor issued Executive Order N-61-20 to allow qualified taxpayers to request relief of penalties on property taxes for owner occupied residential real property and real property owned and operated by a taxpayer that qualifies as a small business under the Small Business Administration’s Regulations, Code of Federal Regulations Title 13, section 121.201. To be eligible for penalty relief taxpayers must fall into one of two categories: (i) owner occupied residential real property; or (ii) real property owned and operated by a taxpayer qualified as a small business. For homeowners requesting penalty relief on property taxes for a residential real property that the homeowner occupies, the homeowner may qualify for penalty relief if all of the following are true: (i) taxes on real property were current as of March 4, 2020; (ii) the homeowner was unable to pay on time and that inability was due to a COVID-19 pandemic related impact; (iii) the homeowner was able to submit payment of the original tax amount due with the request for relief; and (iv) the homeowner’s request is received by the Treasurer-Tax Collector within 30 days after the circumstances that prevented payment have concluded. If the homeowner satisfies all of the criteria, they may submit a Request for Penalty Cancellation – COVID-19 Impact Form to request penalty relief and must provide documentation to support the request.
To be eligible for penalty relief for real property owned and operated by a taxpayer as a qualified small business, the taxpayer may qualify for penalty relief if all of the following are true:
(i) taxes on the real property were current as of March 4, 2020; (ii) the business was unable to pay on time and that inability was due to a COVID-19 related impact; (iii) the taxpayer is able to submit payment of the original tax amount due with the request for relief; and (iv) the taxpayer’s request is received by the Treasurer-Tax Collector within 30 days after the circumstances that prevented payment have concluded. If the taxpayer satisfies all of the criteria, they may submit a Request for Penalty Cancellation – COVID-19 Impact Form to request penalty relief and will need to provide documentation to support their request. 53 The negative impacts from the COVID-19 pandemic on the City’s revenues in Fiscal Year 2019-2020 and 2020-2021 are anticipated to continue into Fiscal Year 2021-2022 and potentially several Fiscal Years beyond for some revenue sources depending on the pace of recovery of the local economy to the levels which existed prior to the outbreak of the COVID-19 pandemic.
However, in total, City revenues are projected to exceed pre-pandemic levels in Fiscal Year 2022-
23. See “CITY FINANCIAL INFORMATION” herein.
Natural Calamities
General. From time to time, the City is subject to natural calamities, including, but not limited to, earthquake, flood, drought or wildfire, that may adversely affect economic activity in the City, and which could have a negative impact on City finances.
Seismic. The City, like most regions in the State, is located in an area of seismic activity and, therefore, could be subject to potentially destructive earthquakes. Numerous active and inactive fault lines pass through, or near, the area in which the City is located. The San Andreas Fault Zone is located approximately 50 miles southwest of the City. The City is located in one of the most fault-fractured regions of the State. There are 12 known surface faults within 50 miles of the center of the City. Seismic hazards encompass ground rupture, shaking, lurching, blind thrust faults that lack surface breaks, liquefaction, and ground failure. The occurrence of one or more natural disasters could occur and could result in damage to improvements and property within the City of varying seriousness. The damage may entail significant repair or replacement costs and that repair or replacement may never occur either because of the cost, or because repair or replacement will not facilitate habitability or other use, or because other considerations preclude such repair or replacement.
Flood. The City contains flood plain areas, identified by the Federal Emergency Management Agency (“FEMA”), indicating that several areas of the City are subject to 100-year floods including: the Mojave River Channel, the Lenwood area, and the southeastern section of South Barstow.
Wildfire. In recent years, wildfires have caused extensive damage throughout the State, including within the County. Certain of these fires have burned thousands of acres and destroyed hundreds and in some cases thousands of homes. In some instances entire neighborhoods have been destroyed. Several fires which occurred in recent years damaged or destroyed property in areas that were not previously considered to be at risk from such events. There is a risk of property within the City being destroyed by wildfires and no assurance can be given as to the severity or frequency of wildfires within the City or its vicinity. In addition to their direct impact on health and safety and property damage in California, the smoke from wildfires has impacted the quality of life in Southern California and the City and may have short-term and future impacts on commercial activity in the City. The fires have been driven in large measure by drought conditions and low humidity. Experts expect that California will continue to be subject to wildfire conditions year over year as a result in changing weather patterns due to climate change.
Some commentators believe that climate change will lead to even more frequent and more damaging wildfires in the future. Property damage due to wildfire could result in a significant decrease in the market value of property in City and in the ability or willingness of property owners to pay property taxes.
Drought. On October 19, 2021, the Governor declared a Statewide drought state of emergency and requested that all water users voluntarily reduce water use by 15%. The 54 declaration encouraged water agencies to draw upon supplies other than groundwater and to implement their water shortage contingency plans and authorized the State Water Resources Control Board to adopt regulations that prohibit wasteful water use (such as the use of potable water to wash paved surfaces or to irrigate landscaping during the two days following rainfall).
There can be no assurance that subsequent declarations will not impose mandatory water use restrictions should dry conditions persist in 2021 or future years.
Potential Impact of Climate Change
Climate change caused in part by human activities may have adverse effects on the City.
Climate change can also result in more variable weather patterns throughout the State, which can lead to longer and more severe droughts as well as increased risk of flooding. Projections of the impacts of global climate change on the State are complex and depend on many factors that are outside the City’s control. The various scientific studies that forecast the amount and timing of adverse impacts of climate change are based on assumptions contained in such studies, but actual events may vary materially. Also, the scientific understanding of climate change and its effects continues to evolve. Accordingly, the City is unable to forecast with certainty when adverse impacts of climate change will occur or the extent of such impacts. While the impacts of climate change may be mitigated by the City’s past and future investment in adaptation strategies, the City can give no assurance about the net effects of those strategies and whether the City will be required to take additional adaptive mitigation measures.
Hazardous Substances
The discovery of hazardous substances on parcels of property within the City may limit the beneficial use of taxable property within the City and may result in the reduction in the assessed value of such property. In general, the owners and operators of a property may be required by law to remedy conditions of the property relating to releases or threatened releases of hazardous substances whether or not the owner or operator has anything to do with creating or handling the hazardous substance. The effect, therefore, should any of the property within the City be affected by a hazardous substance, could be to reduce the marketability and value of the property by the costs of remedying the condition. Reduction in the value of property in the City could reduce property tax revenues received by the City and deposited in the General Fund, which could significantly and adversely affect the ability of the City to make payments on the Bonds.
State Law Limitations on Appropriations
Article XIIIB of the California Constitution limits the amount that local governments can appropriate annually. The ability of the City to make debt service payments on the Bonds may be affected if the City should exceed its appropriations limit. The State may increase the appropriation limit of its counties by decreasing its own appropriation limit. The City does not anticipate exceeding its appropriations limit. See “CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS – Article XIIIB of the State Constitution.” Limitations on Taxes and Fees
Certain taxes, assessments, fees and charges presently imposed by the City could be subject to the voter approval requirements of Article XIIIC and Article XIIID of the State Constitution. Based upon the outcome of an election by the voters, such fees, charges, assessments and taxes might no longer be permitted to be imposed, or may be reduced or eliminated and new taxes, assessments fees and charges may not be approved. The City has 55 assessed the potential impact on its financial condition of the provisions of Article XIIIC and Article XIIID of the State Constitution respecting the imposition and increase of taxes, fees, charges and assessments and does not believe that an election by the voters to reduce or eliminate the imposition of certain existing fees, charges, assessments and taxes would substantially affect its financial condition. However, the City believes that if the initiative power was exercised so that all local taxes, assessments, fees and charges that may be subject to Article XIIIC and Article XIIID of the State Constitution are eliminated or substantially reduced, the financial condition of the City, including its General Fund, could be materially adversely affected.
Although the City does not currently anticipate that the provisions of Article XIIIC and Article XIIID of the State Constitution would adversely affect its ability to pay debt service on the Bonds and its other obligations payable from the General Fund, no assurance can be given regarding the ultimate interpretation or effect of Article XIIIC and Article XIIID of the State Constitution on the City’s finances. See “CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS.”
Assessed Value of Taxable Property
Property taxes account for a significant portion of General Fund revenues. Natural and economic forces can affect the assessed value of taxable property within the City. As previously described, the City is located in a seismically active region, and damage from an earthquake in or near the area could cause moderate to extensive damage to taxable property. In addition to seismic, topographic and climatic conditions, other natural or manmade disasters, such as flood, fire, ongoing drought, toxic dumping or acts of terrorism, could cause a reduction in the assessed value of taxable property within the City. Economic and market forces, such as a downturn in the regional economy generally, can also affect assessed values, particularly as these forces might reverberate in the residential housing and commercial property markets. In addition, the total assessed value can be reduced through the reclassification of taxable property to a class exempt from taxation, whether by ownership or use (such as exemptions for property owned by State and local agencies and property used for qualified educational, hospital, charitable or religious purposes).
Reductions in the market values of taxable property may cause property owners to appeal assessed values and may also be associated with an increase in delinquency rates for taxes.
Section 2(b) of Article XIIIA of the California Constitution and Section 51 of the Revenue and Taxation Code, which follow from “Proposition 8,” require the County assessor to annually enroll either a property’s adjusted base year value (its “Proposition 13 Value”) or its current market value, whichever is less. When the current market value replaces the higher Proposition 13 Value on the assessor's roll, that lower value is referred to as its “Proposition 8 Value.” Although the annual increase for a Proposition 13 Value is limited to no more than 2%, the same restriction does not apply to a Proposition 8 Value. The Proposition 8 Value of a property is reviewed annually as of January 1; the current market value must be enrolled as long as the Proposition 8 Value falls below the Proposition 13 Value. Thus, any subsequent increase or decrease in market value is enrolled regardless of any percentage increase or decrease. Only when a current Proposition 8 Value exceeds its Proposition 13 Value attributable to a piece of property (adjusted for inflation), does the County assessor reinstates the Proposition 13 Value.
Decreases in the aggregate value of taxable property within the City resulting from natural disaster or other calamity, reclassification by ownership or use, or as a result of the operation of Proposition 8 all may have an adverse impact on the General Fund revenues available to make debt service payments on the Bonds. In addition, failure by large property owners to pay property 56 taxes when due may also cause a decrease in General Fund revenues available to make debt service payments on the Bonds.
See “RISK FACTORS – Natural Calamities” and “CITY FINANCIAL INFORMATION – Property Taxes.”
Concentration of Property Ownership
The risk of reduction in assessed value of taxable property as a result of factors described herein may generally increase where the assessed value within a city is concentrated among a relatively few property owners.
Within the City, the aggregate Fiscal Year 2021-22 taxable value for the 20 largest taxpayers totals approximately $419.5 million which is approximately 19% of the total assessed value within the City of approximately $1.5 billion for such Fiscal Year. See “CITY FINANCIAL INFORMATION – Property Taxes.”
Significant reduction in the assessed values of the largest taxpayers in the City could, by itself or in combination with other factors, have a material adverse effect on the City’s ability to pay debt service on the Bonds as such payments become due and payable.
Cybersecurity
The City, like many other public and private entities, relies on computer and other digital networks and systems to conduct its operations. As a recipient and provider of personal, private or other sensitive electronic information, the City is potentially subject to multiple cyber threats, including without limitation hacking, viruses, ransomware, malware and other attacks. No assurance can be given that the City’s efforts to manage cyber threats and attacks will be successful in all cases, or that any such attack will not materially impact the operations or finances of the City. The City is also reliant on other entities and service providers in connection with the administration of the Bonds, including without limitation the County tax collector for the levy and collection of property taxes, and the Trustee. No assurance can be given that the City and these other entities will not be affected by cyber threats and attacks in a manner that may affect the Bond owners.
Changes in Law
The State Legislature may in the future enact legislation that will amend or create laws resulting in a reduction of moneys securing or available to pay the Bonds. Similarly, the State electorate could adopt initiatives or the State Legislature could adopt legislation with the approval of the electorate amending the State Constitution which could have the effect of reducing moneys securing or available to pay the Bonds.
Litigation
The City may become a party to litigation that has an impact on the General Fund.
Although the City maintains certain insurance policies that provide liability coverage under certain circumstances and with respect to certain types of incidents (see “CITY FINANCIAL INFORMATION – Risk Management”), the City cannot predict what types of liabilities may arise in the future. See the caption “ABSENCE OF LITIGATION.” 57 Limitation on Trustee’s Obligations
The Trustee has no obligation to advance its own funds to pursue any remedies. As a consequence, the Trustee’s willingness and ability to pursue any of the remedies provided in the Indenture may be dependent upon the availability of funds from an interested party. There can be no assurance that the Trustee will be willing and able to perform its duties under the Indenture.
Secondary Market for Bonds
There can be no guarantee that there will be a secondary market for the Bonds or, if a secondary market exists, that any Bonds can be sold for any particular price. Occasionally, because of general market conditions or because of adverse history or economic prospects connected with a particular issue, secondary marketing practices in connection with a particular issue are suspended or terminated. Additionally, prices of issues for which a market is being made will depend upon then-prevailing circumstances. Such prices could be substantially different from the original purchase price.
VALIDATION
In November 2021, the City, acting pursuant to the provisions of Section 860 et seq. of the California Code of Civil Procedure and Section 53511 et seq. of the California Government Code, filed a complaint in the Superior Court of the State of California for the County of San Bernardino seeking judicial validation of the Bonds. The Bonds have been determined to be valid and enforceable obligations of the City which are exempt from and not subject to the debt limitations set forth in Article XVI, Section 18 of the California Constitution, all pursuant to a judgment rendered on February 9, 2022, by the San Bernardino County Superior Court in Case No. CIVSB2127060 (the “Validation Judgment”).
The time period for the filing of appeals with respect to the judgment has expired. No appeals were filed and therefore, the judgment is final. In issuing its opinion as to the validity of the Bonds, Bond Counsel will rely upon the entry of the Validation Judgment.
TAX MATTERS
In the opinion of Jones Hall, A Professional Law Corporation, San Francisco, California, Bond Counsel, interest on the Bonds is exempt from State of California personal income taxes.
Bond Counsel observes that interest on the Bonds is not excluded from gross income for federal income tax purposes. Bond Counsel expresses no opinion regarding any other tax consequences caused by the ownership or disposition of, or the accrual or receipt of interest on, the Bonds.
The proposed form of opinion of Bond Counsel with respect to the Bonds to be delivered on the date of issuance of the Bonds is set forth in Appendix E.
Owners of the Bonds should also be aware that the ownership or disposition of, or the accrual or receipt of interest on, the Bonds may have federal or state tax consequences other than as described above. Other than as expressly described above, Bond Counsel expresses no opinion regarding other federal or state tax consequences arising with respect to the Bonds, the ownership, sale or disposition of the Bonds, or the amount, accrual or receipt of interest on the Bonds.
58 CERTAIN LEGAL MATTERS
Certain legal matters incident to the authorization, issuance, sale and delivery by the City of the Bonds are subject to the approving opinion of Jones Hall, A Professional Law Corporation, San Francisco, California, as Bond Counsel. A copy of the proposed form of Bond Counsel opinion is set forth in Appendix E hereto. Bond Counsel undertakes no responsibility for the accuracy, completeness or fairness of this Official Statement. Certain legal matters will be passed upon for the City by Colantuono, Highsmith & Whatley, PC, Pasadena, California, as City Attorney, and by Jones Hall, A Professional Law Corporation, San Francisco, California, as Disclosure Counsel. Certain legal matters will be passed upon for the Underwriter by its counsel, Law Offices of Rossi A. Russell, Los Angeles, California. All of the fees of Bond Counsel, Disclosure Counsel and Underwriter’s Counsel with respect to the issuance of the Bonds are contingent upon the issuance and delivery of the Bonds.
CONTINUING DISCLOSURE
The City will covenant for the benefit of owners of the Bonds to provide certain financial information and operating data relating to the City by not later than nine months after the end of each Fiscal Year of the City (currently June 30), commencing not later than March 31, 2023 with the report for the 2021-22 Fiscal Year (the “Annual Report”), and to provide notices of the occurrence of certain listed events. The Annual Report and the notices of enumerated events will be filed by the City with the Municipal Securities Rulemaking Board through the Electronic Municipal Access System (“EMMA”). The specific nature of the information to be contained in the Annual Report or the notices of enumerated events is summarized below under the caption “APPENDIX F – FORM OF CONTINUING DISCLOSURE CERTIFICATE.” These covenants have been made in order to assist the Underwriter in complying with Securities Exchange Commission Rule 15c2-12(b)(5) (the “Rule”).
The City and its related entities previously entered into certain disclosure undertakings under the Rule in connection with the issuance of long-term obligations. In the past five years, the City and its related entities have not failed to comply with their continuing disclosure undertakings. [To be confirmed; Hilltop to share results of compliance review] The City has adopted continuing disclosure policies and procedures to ensure that it will comply with all material provisions of its continuing disclosure undertakings in the future.
A failure by the City to comply with the provisions of the Continuing Disclosure Certificate is not an event of default under the Indenture (although the holders and beneficial owners of the Bonds do have remedies at law and in equity). Nevertheless, such a failure to comply must be reported in accordance with the Rule and must be considered by any broker, dealer or municipal securities dealer before recommending the purchase or sale of the Bonds in the secondary market. Consequently, such a failure may adversely affect the transferability and liquidity of the Bonds.
MUNICIPAL ADVISOR
The City retained Fieldman, Rolapp & Associates, Inc., Irvine, California,, as Municipal Advisor in connection with the preparation of this Official Statement and with respect to the issuance of the Bonds. The Municipal Advisor is not obligated to undertake, and has not 59 undertaken to make, an independent verification or assume responsibility for the accuracy, completeness, or fairness of the information contained in this Official Statement. The Municipal Advisor is an independent registered municipal advisory firm and is not engaged in the business of underwriting, trading or distributing municipal securities or other public securities. The Municipal Advisor’s compensation is contingent upon the delivery of the Bonds.
FINANCIAL STATEMENTS OF THE CITY
The general purpose financial statements of the City, which are included in Appendix B to this Official Statement, have been audited by the Auditor, as stated in their report appearing in Appendix B. The Auditor has not consented to the inclusion of its report as Appendix B and has not undertaken to update its report or to take any action intended or likely to elicit information concerning the accuracy, completeness or fairness of the statements made in this Official Statement, and no opinion is expressed by the Auditor, with respect to any event subsequent to its report dated December 17, 2021.
ABSENCE OF LITIGATION
To the best knowledge of the City, there is no action, suit or proceeding pending or threatened either restraining or enjoining the execution or delivery of the Bonds or the Indenture, or in any way contesting or affecting the validity of the foregoing, or any proceedings of the City taken with respect to any of the foregoing.
There are a number of lawsuits and claims pending against the City. In the opinion of the City, such other lawsuits and claims presently pending will not have a material adverse effect on the ability of the City to pay the principal of and interest on the Bonds.
RATING
S&P Global Ratings (“S&P”) has assigned an underlying rating of “___” to the Bonds.
A rating is not a recommendation to buy, sell or hold securities. Future events, including the impacts of the COVID-19 pandemic on the City, could have an adverse impact on the rating of the Bonds, and there is no assurance that any credit rating that is given to the Bonds will be maintained for any period of time or that a rating may not be qualified, downgraded, lowered or withdrawn entirely by S&P if, in the judgment of S&P circumstances so warrant, nor can there be any assurance that the criteria required to achieve the rating on the Bonds will not change during the period that the Bonds remain outstanding.
Any qualification, downward revision, lowering or withdrawal of the ratings on the Bonds may have an adverse effect on the market price of the Bonds. Such rating reflects only the current view of S&P (which could change at any time), and an explanation of the significance of such ratings may be obtained from S&P. Generally, S&P bases its ratings on information and materials furnished to them (which may include information and material from the City that is not included in this Official Statement) and on investigations, studies and assumptions by S&P.
The City has covenanted in the Continuing Disclosure Certificate to file notices of any rating changes on the Bonds with the Municipal Securities Rulemaking Board’s Electronic 60 Municipal Market Access System. See the caption “CONTINUING DISCLOSURE” and Appendix E. Notwithstanding such covenant, information relating to rating changes on the Bonds may be publicly available from S&P prior to such information being provided to the City and prior to the date by which the City is obligated to file a notice of rating change. Purchasers of the Bonds are directed to S&P and its website and official media outlets for the most current ratings with respect to the Bonds after the initial issuance of the Bonds.
UNDERWRITING
The Bonds are being purchased by the Underwriter. The Underwriter will purchase the Bonds from the City at an aggregate purchase price of $_________ (representing the principal amount of the Bonds, less $________ of Underwriter’s discount). The Underwriter will purchase all of the Bonds if any are purchased.
The initial public offering prices stated on the inside front cover of this Official Statement may be changed from time to time by the Underwriter. The Underwriter may offer and sell the Bonds to certain dealers (including dealers depositing Bonds into investment trusts), dealer banks, banks acting as agents and others at prices lower than said public offering prices.
MISCELLANEOUS
This Official Statement does not constitute a contract with the purchasers of the Bonds.
Any statements made in this Official Statement involving matters of opinion or estimates, whether or not so expressly stated, are set forth as such and not as representations of fact, and no representation is made that any of the estimates will be realized.
The execution and delivery of this Official Statement have been duly authorized by the City.
CITY OF BARSTOW
By:
Willie A. Hopkins, Jr
Interim City Manager
A-61
APPENDIX A
DEMOGRAPHIC AND ECONOMIC INFORMATION FOR THE CITY OF BARSTOW The following information is presented as general background data. The Bonds are payable solely from moneys of the City of Barstow as described in the Official Statement. The taxing power of the City, the County of San Bernardino, the State of California or any political subdivision thereof is not pledged to the payment of the Bonds.
The City also notes that the below information is the latest available but does not in any instance reflect the impact of the COVID-19 pandemic. See the Official Statement under the caption “THE CITY – Public Health Emergency – COVID-19.” Accordingly, the historical information below does not necessarily reflect present economic conditions and future information could be significantly different from the historical information below.
General
The City encompasses approximately forty square miles and is located in the northern part of County. The City is a major transportation hub for the Inland Empire with several major highways, including Interstate 15, Interstate 40, and California State Route 58, converging in the City. The City provides a full range of services, including police and fire protection services, economic development, construction and maintenance of roadways, parks, streets, and other infrastructure, recreational and cultural activities, utility services of sewer and solid waste collection, and general administrative services.
Population
As of January 1, 2021, the population of the City was estimated to be 24,205. The following table presents population data for the last five years for the City, County and State.
CITY OF BARSTOW,
COUNTY OF SAN BERNARDINO, STATE OF CALIFORNIA
Population
Year City County State
2017 24,030 2,139,520 39,398,702
2018 24,158 2,150,017 39,586,646
2019 24,290 2,165,876 39,695,376
2020 24,315 2,175,424 39,782,870
2021 24,205 2,175,909 39,466,855
Source: California State Department of Finance, Demographic Research Unit.
Government Services and Community Facilities
The City provides park and recreation services, public safety protection, highway and street maintenance, public improvements, planning and zoning, and general administrative services. The Barstow Fire Protection District became a component unit of the City on November 17, 2020 and provides fire protection services to the City.
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Cultural facilities include a series of murals along the City’s main street, a library, a drivein theater, a six-screen movie theater at the Hollywood Theatre Barstow Cinema, and a number of museums including the Mojave River Valley Museum, Route 66 Mother Road Museum, the Western America Rail Museum, and the Desert Discovery Center.
Employment and Industry
The Riverside-San Bernardino-Ontario Metropolitan Statistical Area (“MSA”) encompasses the City. The unemployment rate in the Riverside-San Bernardino-Ontario MSA was 7.6% in August 2021, down from a revised 7.9% in July 2021, and below the year-ago estimate of 11.5%. This compares with an unadjusted unemployment rate of 7.5% for the State and 5.3% for the nation during the same period. The following table lists employment by industry group for the Riverside-San Bernardino-Ontario MSA for the years 2016 to 2020.
RIVERSIDE-SAN BERNARDINO-ONTARIO METROPOLITAN STATISTICAL AREA (San Bernardino County)
Annual Averages Civilian Labor Force, Employment and Unemployment, Employment by Industry
(March 2020 Benchmark)
2016 2017 2018 2019 2020
Civilian Labor Force (1) 1,981,900 2,014,300 2,045,200 2,070,700 2,073,900 Employment 1,863,600 1,910,800 1,957,200 1,986,100 1,872,600 Unemployment 118,300 103,500 88,000 84,600 201,300
Unemployment Rate 6.0% 5.1% 4.3% 4.1% 9.7%
Wage and Salary Employment: (2)
Agriculture 14,600 14,500 14,500 15,400 13,900
Mining, Logging and Construction 92,900 98,400 106,400 108,400 106,200 Manufacturing 97,500 98,000 99,800 100,600 94,300
Wholesale Trade 61,600 62,600 65,500 67,100 64,600
Retail Trade 178,300 180,900 181,200 180,700 168,800
Transportation, Warehousing and Utilities 106,400 119,900 132,100 146,600 170,500 Information 11,800 11,600 11,400 11,500 9,400
Finance and Insurance 27,100 26,300 25,300 24,800 24,500 Real Estate and Rental and Leasing 17,900 18,400 19,300 20,200 19,100 Professional and Business Services 145,100 147,300 152,000 158,700 154,000 Educational and Health Services 215,700 226,700 239,500 250,300 248,700 Leisure and Hospitality 160,200 166,300 170,600 175,900 139,200 Other Services 44,600 45,400 45,800 46,200 39,600
Federal Government 20,400 20,600 20,700 21,100 22,200
State Government 29,700 30,400 30,600 31,100 31,100
Local Government 192,200 200,100 205,900 209,000 195,900 Total, All Industries (3) 1,416,000 1,467,300 1,520,500 1,567,500 1,501,800 (1) Labor force data is by place of residence; includes self-employed individuals, unpaid family workers, household domestic workers, and workers on strike.
(2) Industry employment is by place of work; excludes self-employed individuals, unpaid family workers, household domestic workers, and workers on strike.
(3) Totals may not add due to rounding.
Source: Labor Division of the California State Employment Development Department.
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Principal Employers
The following table shows the principal employers in the City, listed from greatest to fewest number of employees.
CITY OF BARSTOW
Principal Employers
As June 30, 2021
Employer
Number of
Employees
Percent of Total
Employment
Ft. Irwin National Training Center(1) 8,900 60.3%
Marine Corps Logistic Base(2) 1,700 11.5
BNSF Railroad 1,000 6.8
Barstow Unified School District 958 6.5
Outlets at Barstow 480 3.3
Raytheon Technical Services Co, LLC(1) 400 2.7
Barstow Community College 377 2.6
Barstow Community Hospital 348 2.4
Wal-Mart 305 2.1
Silver Valley School District(1) 300 2.0
Total Employment Listed 14,768 100%
(1) Employers outside of City Limits.
(2) Total civilian employee headcount includes Marine Corps Logistics Base, Barstow.
Source: City of Barstow.
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Effective Buying Income
“Effective Buying Income” is defined as personal income less personal tax and nontax payments, a number often referred to as “disposable” or “after-tax” income. Personal income is the aggregate of wages and salaries, other labor-related income (such as employer contributions to private pension funds), proprietor’s income, rental income (which includes imputed rental income of owner-occupants of non-farm dwellings), dividends paid by corporations, interest income from all sources, and transfer payments (such as pensions and welfare assistance).
Deducted from this total are personal taxes (federal, state and local), nontax payments (fines, fees, penalties, etc.) and personal contributions to social insurance. According to U.S. government definitions, the resultant figure is commonly known as “disposable personal income.” The following table summarizes the total effective buying income for the City, the County, the State and the United States for the period 2018 through 2022:
CITY OF BARSTOW, COUNTY OF SAN BERNARDINO
STATE OF CALIFORNIA AND THE UNITED STATES
Effective Buying Income
2018 through 2022
Year Area
Total Effective
Buying Income
(000’s Omitted)
Median Household
Effective Buying
Income
2018 City of Barstow $380,977 $38,373
County of San Bernardino 40,600,305 50,226
California 1,113,648,181 59,646
United States 8,640,770,229 50,735
2019 City of Barstow $393,003 $38,342
County of San Bernardino 42,984,313 52,631
California 1,183,264,399 62,637
United States 9,017,967,563 52,841
2020 City of Barstow $394,364 $38,549
County of San Bernardino 46,025,841 56,502
California 1,243,564,816 65,870
United States 9,487,165,436 55,303
2021 City of Barstow $416,809 $40,489
County of San Bernardino 48,859,973 59,285
California 1,290,894,604 67,956
United States 9,809,944,764 56,790
2022 City of Barstow $470,397 $44,351
County of San Bernardino 54,797,008 66,785
California 1,452,426,153 770,58
United States 11,208,582,541 64,448
Source: The Nielsen Company (US), Inc for 2018; Claritas, LLC for 2019 through 2022.
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Commercial Activity
Summaries of the historic taxable sales within the City and the County during the past five years in which data is available are shown in the following tables.
Total taxable sales during the first quarter of calendar year 2021 in the City were reported to be $143,977,153, an 11.21% increase from the total taxable sales of $129,455,437 reported during the first quarter of calendar year 2020.
CITY OF BARSTOW
Taxable Retail Sales
Number of Permits and Valuation of Taxable Transactions (Dollars in Thousands)
Retail Stores Total All Outlets
Number
of Permits
Taxable
Transactions
Number
of Permits
Taxable
Transactions
2016 420 $628,841 592 $644,374
2017 417 644,144 586 659,341
2018 426 639,111 610 657,571
2019 426 593,611 627 619,457
2020 469 514,487 695 535,907
Source: State Department of Tax and Fee Administration.
Total taxable sales during the first quarter calendar year 2021 in the County were reported to be $11,985,501,520, a 23.04% increase from the total taxable sales of $9,741,132,031 reported during the first quarter of calendar year 2020.
COUNTY OF SAN BERNARDINO
Taxable Retail Sales
Number of Permits and Valuation of Taxable Transactions (Dollars in Thousands)
Retail Stores Total All Outlets
Number
of Permits
Taxable
Transactions
Number
of Permits
Taxable
Transactions
2016 38,366 $24,242,145 57,542 $36,981,694
2017 39,067 25,341,773 58,956 38,137,915
2018 39,837 26,905,784 61,838 40,554,024
2019 40,964 27,564,216 64,771 41,770,309
2020 44,330 28,745,277 71,145 43,265,512
Source: State Department of Tax and Fee Administration.
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Construction Activity
The following tables show a five-year summary of the valuation of building permits issued in the City and the County.
CITY OF BARSTOW
Building Permit Valuation
(Valuation in Thousands of Dollars)
2016 2017 2018 2019 2020
Permit Valuation
New Single-family $510.0 $140.0 $150.0 $955.5 $0.0
New Multi-family 0.0 0.0 0.0 0.0 0.0
Res. Alterations/Additions 653.6 381.1 1,213.5 572.1 659.4 Total Residential 1,163.6 521.1 1,363.5 1,527.6 659.4
New Commercial 7,254.0 1,882.8 2,765.0 17,832.9 125.0
New Industrial 1,300.0 0.0 0.0 9,856.5 0.0
New Other 315.5 503.1 321.3 276.8 713.8
Com. Alterations/Additions 7,807.5 4,549.0 2,933.4 5,908.5 4,532.0 Total Nonresidential 16,677.0 6,934.9 6,019.7 33,874.7 5,370.8 New Dwelling Units
Single Family 3 1 1 5 0
Multiple Family 0 0 0 0 0
TOTAL 3 1 1 5 0
Source: Construction Industry Research Board, Building Permit Summary.
COUNTY OF SAN BERNARDINO
Building Permit Valuation
(Valuation in Thousands of Dollars)
2016 2017 2018 2019 2020
Permit Valuation
New Single-family $706,601.8 $1,009,450.8 $1,114,777.8 $1,078,797.7 $934,304.4 New Multi-family 119,497.6 287,760.5 268,564.9 232,079.3 143,366.2 Res. Alterations/Additions 62,042.4 77,811.9 71,937.8 139,761.1 61,788.5 Total Residential 888,141.8 1,375,023.2 1,455,280.5 1,450,638.1 1,139,459.1 New Commercial 189,230.5 324,540.4 230,518.8 449,998.5 274,080.5 New Industrial 426,747.9 543,462.7 387,108.6 476,322.3 330,960.1 New Other 96,402.8 86,981.8 74,356.9 85,651.8 123,121.9 Com. Alterations/Additions 308,269.9 330,612.1 388,145.5 365,127.0 336,533.1 Total Nonresidential 1,020,651.1 1,285,597.0 1,080,129.8 1,377,099.6 1,064,695.6 New Dwelling Units
Single Family 2,896 4,253 3,311 4,096 3,631
Multiple Family 976 2,578 1,775 1,884 910
TOTAL 3,872 6,831 5,086 5,980 4,541
Source: Construction Industry Research Board, Building Permit Summary.
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Education
Public education in the City is provided by the Barstow Unified School District and has eight elementary schools, one intermediate school, one middle school, one junior high school, two high schools, and one adult evening school. There are two private elementary schools within the City as well.
The Barstow Community College offers community college courses for those seeking to go onto a four-year degree program as well as those seeking further education in trade-specific fields.
Transportation
The City is approximately 75 minutes from the second largest international airport in the greater Los Angeles area. The area also includes two major transcontinental railroads, two major interstates, and is within close proximity to the West Coast’s two largest harbors.
Below is a summary of local transportation infrastructure in the County.
Highways: The transportation route in the Inland Empire North includes major portions of Southern California’s transit hub to major markets. Those freeways and interstates intersecting the City include Interstate 15, Interstate 40, Highway 58, and Highway 395.
Rail: Two major transcontinental railroads move through the City, the BNSF and the Union Pacific. In a normal 24-hour period, the railroads move roughly 175,890 tons of freight into and out of, or through the County. The railroads have 1,080 route miles of track and approximately 4,000 rail employees within the County.
Air: The Southern California Logistics Airport, formerly George Air Force Base, is located 30 miles from the City and 100 miles from Los Angeles in the center of an established shipping and distribution hub. Ontario International Airport is currently served by 14 airlines providing 183 flights per day to destinations that include every major city in America. Airlines such as TWA, American, Delta, Southwest and United provide daily non-stop service to every airline.
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APPENDIX B
THE CITY OF BARSTOW AUDITED FINANCIAL STATEMENTS
FOR THE FISCAL YEAR ENDED JUNE 30, 2021
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APPENDIX C
BOOK-ENTRY ONLY SYSTEM
The information in this Appendix concerning DTC and DTC’s book-entry system has been obtained from sources that the City believes to be reliable, but the City takes no responsibility for the accuracy or completeness thereof. The City does not give any assurances that DTC, DTC Participants or Indirect Participants will distribute to the beneficial owners (a) payments of interest, principal, or premium, if any, with respect to the Bonds; (b) certificates representing ownership interest in or other confirmation or ownership interest in the Bonds; or (c) redemption or other notices sent to DTC or Cede & Co., its nominee, as the registered owner of the Bonds, or that they will so do on a timely basis or that DTC, DTC Participants or DTC Indirect Participants will act in the manner described in this Official Statement. The current “Rules” applicable to DTC are on file with the Securities and Exchange Commission and the current “Procedures” of DTC to be followed in dealing with DTC Participants are on file with DTC.
The Depository Trust Company (“DTC”), New York, NY, will act as securities depository for the Bonds. The Bonds will be issued as fully registered securities registered in the name of Cede & Co. (DTC’s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully registered Bond certificate will be issued for each maturity of the Bonds in the aggregate principal amount of such issue, and will be deposited with DTC.
DTC, the world’s largest securities depository, is a limited-purpose trust company organized under the New York Banking Law, a “banking organization” within the meaning of the New York Banking Law, a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code, and a “clearing agency” registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC’s participants (“Direct Participants”) deposit with DTC. DTC also facilitates the posttrade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants’ accounts. This eliminates the need for physical movement of securities certificates.
Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation (“DTCC”). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly (“Indirect Participants”). DTC has a rating from S&P Global Ratings of: “AA+.” The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission.
More information about DTC can be found at www.dtcc.com.
Purchases of Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Bonds on DTC’s records. The ownership interest of 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 C-2
providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in Bonds, except in the event that use of the book-entry system for the Bonds is discontinued.
To facilitate subsequent transfers, all Bonds deposited by Direct Participants with DTC are registered in the name of DTC’s partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of Bonds with DTC 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 may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time.
Redemption notices shall be sent to DTC. If less than all of the Bonds within an issue are being redeemed, DTC’s practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed.
Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to Bonds unless authorized by a Direct Participant in accordance with DTC’s MMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the City as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.’s consenting or voting rights to those Direct Participants to whose accounts Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy).
Principal, premium (if any), and interest payments on the Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC’s practice is to credit Direct Participants’ accounts upon DTC’s receipt of funds and corresponding detail information from the City or the Trustee, on payable date in accordance with their respective holdings shown on DTC’s records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in “street name,” and will be the responsibility of such Participant and not of DTC, the Trustee or the City, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds, distributions, and dividend payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of City or the Trustee, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants.
DTC may discontinue providing its services as depository with respect to the Bonds at any time by giving reasonable notice to the City or the Trustee. Under such circumstances, in the event that a successor depository is not obtained, Bond certificates are required to be printed and delivered.
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The City may decide to discontinue use of the system of book-entry-only transfers through DTC (or a successor securities depository). In that event, Series Bond certificates will be printed and delivered to DTC.
The information in this section concerning DTC and DTC’s book-entry system has been obtained from sources that the City believes to be reliable, but the City takes no responsibility for the accuracy thereof.
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APPENDIX D
SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE
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APPENDIX E
PROPOSED FORM OF OPINION OF BOND COUNSEL
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APPENDIX F
FORM OF CONTINUING DISCLOSURE CERTIFICATE
$[PAR]
CITY OF BARSTOW
2022 TAXABLE PENSION OBLIGATION BONDS
This Continuing Disclosure Certificate (this “Disclosure Certificate”) is executed and delivered by the CITY OF BARSTOW (the “City”), in connection with its issuance of the bonds captioned above (the “Bonds”) pursuant to an Indenture of Trust, dated as of [April 1, 2022] (the “Indenture”), by and between the City and U.S. Bank Trust Company, National Association (the “Trustee”).
The City covenants and agrees as follows:
Section 1. Purpose of the Disclosure Certificate. This Disclosure Certificate is being executed and delivered by the City for the benefit of the holders and beneficial owners of the Bonds and in order to assist the Participating Underwriter in complying with S.E.C. Rule 15c2- 12(b)(5).
Section 2. Definitions. In addition to the definitions set forth above and in the Indenture, which apply to any capitalized term used in this Disclosure Certificate unless otherwise defined in this Section 2, the following capitalized terms shall have the following meanings:
“Annual Report” means any Annual Report provided by the City pursuant to, and as described in, Sections 3 and 4 of this Disclosure Certificate. “Annual Report Date” means the date that is no later than 9 months after the end of the City’s fiscal year (currently March 31 based on the City’s fiscal year end of June 30). “Dissemination Agent” means U.S. Bank Trust Company, National Association, or any successor Dissemination Agent designated in writing by the City and which has filed with the City and the Trustee a written acceptance of such designation. “Listed Events” means any of the events listed in Section 5(a) of this Disclosure Certificate. “MSRB” means the Municipal Securities Rulemaking Board, which has been designated by the Securities and Exchange Commission as the sole repository of disclosure information for purposes of the Rule, or any other repository of disclosure information that may be designated by the Securities and Exchange Commission as such for purposes of the Rule in the future. “Official Statement” means the final official statement executed by the City in connection with the issuance of the Bonds.
“Participating Underwriter” means any of the original purchasers of the Bonds required to comply with the Rule in connection with the offering of the Bonds. “Rule” means Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as it may be amended from time to time.
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Section 3. Provision of Annual Reports.
(a) The City shall, or shall cause the Dissemination Agent to, not later than the Annual Report Date, commencing March 31, 2023, with the report for the 2021-22 fiscal year, provide to the MSRB, in an electronic format as prescribed by the MSRB, an Annual Report that is consistent with the requirements of Section 4 of this Disclosure Certificate. Not later than 5 Business Days prior to the Annual Report Date, the City shall provide the Annual Report to the Dissemination Agent (if other than the City). If by 5 Business Days prior to the Annual Report Date the Dissemination Agent (if other than the City) has not received a copy of the Annual Report, the Dissemination Agent shall contact the City to determine if the City is in compliance with the previous sentence. The Annual Report may be submitted as a single document or as separate documents comprising a package, and may include by reference other information as provided in Section 4 of this Disclosure Certificate; provided that the audited financial statements of the City may be submitted separately from the balance of the Annual Report, and later than the Annual Report Date, if not available by that date. If the City’s fiscal year changes, it shall give notice of such change in the same manner as for a Listed Event under Section 5(b). The City shall provide a written certification with each Annual Report furnished to the Dissemination Agent to the effect that such Annual Report constitutes the Annual Report required to be furnished by the City hereunder. The Dissemination Agent may conclusively rely upon such certification of the Issuer and shall have no duty or obligation to review such Annual Report. (b) If the City does not provide (or cause the Dissemination Agent to provide) an Annual Report by the Annual Report Date, the City shall provide (or cause the Dissemination Agent to provide) in a timely manner to the MSRB, in an electronic format as prescribed by the MSRB, a notice thereof.
(c) With respect to each Annual Report, the Dissemination Agent shall:
(i) determine each year prior to the Annual Report Date the then-applicable rules and electronic format prescribed by the MSRB for the filing of annual continuing disclosure reports; and
(ii) if the Dissemination Agent is other than the City, file a report with the City certifying that the Annual Report has been provided pursuant to this Disclosure Certificate, and stating the date it was provided.
Section 4. Content of Annual Reports. The City’s Annual Report shall contain or incorporate by reference the following:
(a) The City’s audited financial statements prepared in accordance with generally accepted accounting principles as promulgated to apply to governmental entities from time to time by the Governmental Accounting Standards Board. If the City’s audited financial statements are not available by the Annual Report Date, the Annual Report shall contain unaudited financial statements in a format similar to the financial statements contained in the final Official Statement, and the audited financial statements shall be filed in the same manner as the Annual Report when they become available.
(b) Unless otherwise provided in the audited financial statements filed on or before the Annual Report Date, financial information and operating data with respect to the City for the preceding fiscal year, substantially similar to that provided in the corresponding tables in the Official Statement:
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(i) Table 2 (General Fund Balance Sheets);
(ii) Table 3 (Statements of Revenues, Expenditures and Changes in General Fund Balance); and
(iii) Table 4 (General Fund Major Tax Revenues By Source); (c) Information for the most recent year provided by CalPERS for the net pension liability of the City’s Plans, in the format provided by CalPERS (which format may change from time to time).
(d) In addition to any of the information expressly required to be provided under this Disclosure Certificate, the City shall provide such further material information, if any, as may be necessary to make the specifically required statements, in the light of the circumstances under which they are made, not misleading.
(e) Any or all of the items listed above may be included by specific reference to other documents, including official statements of debt issues of the City or related public entities, which are available to the public on the MSRB’s Internet web site or filed with the Securities and Exchange Commission. The City shall clearly identify each such other document so included by reference.
Section 5. Reporting of Significant Events.
(a) The City shall give, or cause to be given, notice of the occurrence of any of the following Listed Events with respect to the Bonds:
(1) Principal and interest payment delinquencies.
(2) Non-payment related defaults, if material.
(3) Unscheduled draws on debt service reserves reflecting financial difficulties. (4) Unscheduled draws on credit enhancements reflecting financial difficulties. (5) Substitution of credit or liquidity providers, or their failure to perform. (6) Adverse tax opinions, the issuance by the Internal Revenue Service of proposed or final determinations of taxability, Notices of Proposed Issue (IRS Form 5701-TEB) or other material notices or determinations with respect to the tax status of the security, or other material events affecting the tax status of the security.
(7) Modifications to rights of security holders, if material. (8) Bond calls, if material, and tender offers.
(9) Defeasances.
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(10) Release, substitution, or sale of property securing repayment of the securities, if material.
(11) Rating changes.
(12) Bankruptcy, insolvency, receivership or similar event of the City. (13) The consummation of a merger, consolidation, or acquisition involving the City or the sale of all or substantially all of the assets of the City, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms, if material. (14) Appointment of a successor or additional trustee or the change of name of a trustee, if material.
(15) Incurrence of a financial obligation of the City, if material, or agreement to covenants, events of default, remedies, priority rights, or other similar terms of a financial obligation of the City, any of which affect security holders, if material.
(16) Default, event of acceleration, termination event, modification of terms, or other similar events under the terms of a financial obligation of the City, any of which reflect financial difficulties.
(b) Upon the occurrence of a Listed Event, the City shall, or shall cause the Dissemination Agent (if not the City) to, file a notice of such occurrence with the MSRB, in an electronic format as prescribed by the MSRB, in a timely manner not in excess of 10 business days after the occurrence of the Listed Event. Notwithstanding the foregoing, notice of Listed Events described in subsection (a)(8) above need not be given under this subsection any earlier than the notice (if any) of the underlying event is given to holders of affected Bonds under the Indenture.
(c) The City acknowledges that the events described in subparagraphs (a)(2), (a)(7), (a)(8) (if the event is a bond call), (a)(10), (a)(13), (a)(14) and (a)(15) of this Section 5 contain the qualifier “if material” and that subparagraph (a)(6) also contains the qualifier “material” with respect to certain notices, determinations or other events affecting the tax status of the Bonds.
The City shall cause a notice to be filed as set forth in paragraph (b) above with respect to any such event only to the extent that it determines the event’s occurrence is material for purposes of U.S. federal securities law. Whenever the City obtains knowledge of the occurrence of any of these Listed Events, the City will as soon as possible determine if such event would be material under applicable federal securities law. If such event is determined to be material, the City will cause a notice to be filed as set forth in paragraph (b) above. (d) For purposes of this Disclosure Certificate, any event described in paragraph (a)(12) above is considered to occur when any of the following occur: the appointment of a receiver, fiscal agent, or similar officer for the City in a proceeding under the United States Bankruptcy Code or in any other proceeding under state or federal law in which a court or governmental authority has assumed jurisdiction over substantially all of the assets or business of the City, or if such jurisdiction has been assumed by leaving the existing governing body and officials or officers in possession but subject to the supervision and orders of a court or F-5
governmental authority, or the entry of an order confirming a plan of reorganization, arrangement, or liquidation by a court or governmental authority having supervision or jurisdiction over substantially all of the assets or business of the City. (e) For purposes of Section 5(a)(15) and (16), “financial obligation” means a (i) debt obligation; (ii) derivative instrument entered into in connection with, or pledged as security or a source of payment for, an existing or planned debt obligation; or (iii) guarantee of (i) or (ii). The term financial obligation shall not include municipal securities as to which a final official statement has been provided to the Municipal Securities Rulemaking Board consistent with the Rule.
Section 6. Identifying Information for Filings with the MSRB. All documents provided to the MSRB under the Disclosure Certificate shall be accompanied by identifying information as prescribed by the MSRB.
Section 7. Termination of Reporting Obligation. The City’s obligations under this Disclosure Certificate shall terminate upon the legal defeasance, prior redemption or payment in full of all of the Bonds.
Section 8. Dissemination Agent. The City may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Certificate, and may discharge any Dissemination Agent, with or without appointing a successor Dissemination Agent. The initial Dissemination Agent shall be U.S. Bank Trust Company, National Association. Any Dissemination Agent may resign by providing 30 days’ written notice to the City.
Section 9. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Certificate, the City may amend this Disclosure Certificate, and any provision of this Disclosure Certificate may be waived, provided that the following conditions are satisfied:
(a) if the amendment or waiver relates to the provisions of Sections 3(a), 4 or 5(a), it may only be made in connection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, nature, or status of an obligated person with respect to the Bonds, or type of business conducted; (b) the undertakings herein, as proposed to be amended or waived, would, in the opinion of nationally recognized bond counsel, have complied with the requirements of the Rule at the time of the primary offering of the Bonds, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and (c) the proposed amendment or waiver either (i) is approved by holders of the Bonds in the manner provided in the Indenture for amendments to the Indenture with the consent of holders, or (ii) does not, in the opinion of nationally recognized bond counsel, materially impair the interests of the holders or beneficial owners of the Bonds.
If the annual financial information or operating data to be provided in the Annual Report is amended pursuant to the provisions hereof, the first Annual Report filed pursuant hereto containing the amended operating data or financial information shall explain, in narrative form, the reasons for the amendment and the impact of the change in the type of operating data or financial information being provided.
If an amendment is made to this Disclosure Certificate modifying the accounting principles to be followed in preparing financial statements, the Annual Report for the year in which the F-6
change is made shall present a comparison between the financial statements or information prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles. The comparison shall include a qualitative discussion of the differences in the accounting principles and the impact of the change in the accounting principles on the presentation of the financial information, in order to provide information to investors to enable them to evaluate the ability of the City to meet its obligations. To the extent reasonably feasible, the comparison shall be quantitative.
A notice of any amendment made pursuant to this Section 9 shall be filed in the same manner as for a Listed Event under Section 5(b).
Section 10. Additional Information. Nothing in this Disclosure Certificate shall be deemed to prevent the City from disseminating any other information, using the means of dissemination set forth in this Disclosure Certificate or any other means of communication, or including any other information in any Annual Report or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Certificate. If the City chooses to include any information in any Annual Report or notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Certificate, the City shall have no obligation under this Disclosure Certificate to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event.
Section 11. Default. If the City fails to comply with any provision of this Disclosure Certificate, the Participating Underwriter or any holder or beneficial owner of the Bonds may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the City to comply with its obligations under this Disclosure Certificate. A default under this Disclosure Certificate shall not be deemed an Event of Default under the Indenture, and the sole remedy under this Disclosure Certificate in the event of any failure of the City to comply with this Disclosure Certificate shall be an action to compel performance.
Section 12. Duties, Immunities and Liabilities of Dissemination Agent. (a) The Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Certificate, and the City agrees to indemnify and save the Dissemination Agent, its officers, directors, employees and agents, harmless against any loss, expense and liabilities which they may incur arising out of or in the exercise or performance of its powers and duties hereunder, including the costs and expenses (including attorneys fees) of defending against any claim of liability, but excluding liabilities due to the Dissemination Agent’s negligence or willful misconduct.
The Dissemination Agent shall have no duty or obligation to review any information provided to it by the City hereunder and shall not be deemed to be acting in any fiduciary capacity for the City, the Bond holders or any other party. The Dissemination Agent shall have the same rights, privileges and immunities hereunder as are afforded to the Trustee under the Indenture. The obligations of the City under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Bonds.
(b) The Dissemination Agent shall be paid compensation by the City for its services provided hereunder in accordance with its schedule of fees as amended from time to time, and shall be reimbursed for all expenses, legal fees and advances made or incurred by the Dissemination Agent in the performance of its duties hereunder.
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Section 13. Beneficiaries. This Disclosure Certificate shall inure solely to the benefit of the City, the Dissemination Agent, the Participating Underwriter and the holders and beneficial owners from time to time of the Bonds, and shall create no rights in any other person or entity.
Section 14. Counterparts. This Disclosure Certificate may be executed in several counterparts, each of which shall be regarded as an original, and all of which shall constitute one and the same instrument.
Section 15. Governing Law. This Disclosure Certificate shall be governed by and construed in accordance with the laws of the State of California.
Date: _______, 2022
CITY OF BARSTOW
By:
Willie A. Hopkins, Jr
Interim City Manager
AGREED AND ACCEPTED:
U.S. BANK TRUST COMPANY,
NATIONAL ASSOCIATION,
as Dissemination Agent
By:
Name:
Title: