104860768.2
This Preliminary Official Statement and the information contained herein are subject to completion or amendment. Under no circumstance 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.
NRF DRAFT
3/7/22
PRELIMINARY OFFICIAL STATEMENT DATED _______, 2022
NEW ISSUE BOOK-ENTRY-ONLY RATING:
S&P “__”
(See “RATING” herein.)
In the opinion of Norton Rose Fulbright US LLP, Los Angeles, California, Bond Counsel to the City (“Bond Counsel”), interest on the 2022A Bonds is exempt from personal income taxes imposed by the State of California. Interest on the 2022A Bonds is includable in the gross income of the owners of the 2022A Bonds for federal income tax purposes. Bond Counsel expresses no opinion regarding any other tax consequences related to the ownership or disposition of, or the accrual or receipt of interest on the 2022A Bonds. See “TAX MATTERS” herein.
$[Par Amount]*
CATHEDRAL CITY PUBLIC FINANCING AUTHORITY
LEASE REVENUE BONDS, 2022 SERIES A
(FEDERALLY TAXABLE)
Dated: Date of Delivery Due: December 1, as shown on the inside cover The Cathedral City Public Financing Authority (the “Authority”) is issuing its $[Par Amount] * Lease Revenue Bonds, 2022 Series A (Federally Taxable) (the “2022A Bonds”), for the purpose of: (i) refinancing all or a portion of its CalPERS Obligation; (ii) refunding all of the outstanding Authority Lease Revenue Refunding Bonds (Capital Facilities Projects), Series 2015A (Taxable) ; (iii) funding a reserve for the 2022A Bonds; and (iv) paying costs of issuing the 2022A Bonds. See “ESTIMATED SOURCES AND USES OF FUNDS” herein.
Interest on the 2022A Bonds is payable on June 1 and December 1 of each year, commencing ________ 1, 2022. The 2022A Bonds are being issued as fully registered bonds and, when executed and delivered, will be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York (“DTC”). The 2022A Bonds, if issued, will be issued in denominations of $5,000 or any integral multiple thereof. DTC will act as securities depository of the 2022A Bonds. Individual purchases of 2022A Bonds will be made in book-entry form only. Payments of principal of and interest on the 2022A Bonds are to be made to purchasers by DTC through DTC Participants. Purchasers will not receive physical delivery of the 2022A Bonds purchased by them. See APPENDIX F – “BOOK-ENTRY SYSTEM.”
The 2022A Bonds are subject to redemption prior to their stated maturities, as described herein. See “DESCRIPTION OF THE 2022A BONDS – Redemption” herein.
The 2022A Bonds are special limited obligations of the Authority secured by and payable from Revenues pledged to the 2022A Bonds under the Indenture, as hereinafter described. Such Revenues primarily consist of 2022A Base Rental Payments to be made by the City to the Authority under the Lease, as hereinafter described. Pursuant to the Lease, the City will lease certain property described herein (the “Leased Property”) from the Authority. The City is required under the Lease to make 2022A Base Rental Payments each year in consideration for the use of the Leased Property, as described herein, from any source of legally available funds, in an amount sufficient to pay the annual principal of and interest on the 2022A Bonds. The City’s obligation to make 2022A Base Rental Payments is subject to abatement in the event of substantial interference with the use and possession of all or a part of the Leased Property supporting the 2022A Bonds, as described herein. See “RISK FACTORS – Abatement” herein. The City has covenanted in the Lease to take such action as may be necessary to include and maintain all 2022A Base Rental Payments in its budget and to make the necessary appropriations therefor, subject to such abatement.
The full faith and credit of the Authority is not pledged for the payment of the principal of or interest or premium (if any) on the 2022A Bonds. The 2022A Bonds are not secured by a legal or equitable pledge of, or charge, lien or encumbrance upon, any of the property of the Authority or any of its income or receipts, except the Revenues and such other moneys and securities as provided in the Indenture. The obligation of the City to make 2022A Base Rental Payments or Additional Rental Payments does not constitute an obligation of the City for which the City is obligated to levy or pledge any form of taxation or for which the City has levied or pledged any form of taxation. Neither the 2022A Bonds nor the obligation of the City to make 2022A Base Rental Payments or Additional Rental Payments constitutes an indebtedness of the City, the State of California or any of its political subdivisions (other than the Authority) within the meaning of any constitutional or statutory debt limitation or restriction.
This cover page contains certain information for general reference only. It is not intended to be a summary of the security or terms of this issue. Investors must read the entire Official Statement to obtain information essential to the making of an informed investment decision.
The 2022A Bonds are offered when, as and if issued and accepted by the Underwriter, subject to the approving opinion of Norton Rose Fulbright US LLP, Los Angeles, California, Bond Counsel to the Authority. Certain legal matters will be passed on for the Underwriter by Stradling Yocca Carlson & Rauth, Newport Beach, California, as Underwriter’s Counsel. Certain legal matters will be passed on for the Authority by Norton Rose Fulbright US LLP, Los Angeles, California, Disclosure Counsel and for the Authority and the City by the City Attorney. It is anticipated that the 2022A Bonds will be available for delivery through the book-entry facilities of DTC on or about ________, 2022.
Raymond James & Associates, Inc.
Dated: __________, 2022
* Preliminary, subject to change.
104860768.2
MATURITY SCHEDULE
$__________*
Cathedral City Public Financing Authority
Lease Revenue Bonds, 2022 Series A
(Federally Taxable)
(Base CUSIP No.† ______)
Maturity Date
(December 1)
Principal
Amount
Interest
Rate Yield Price CUSIP†
$___________ ___% Term Bonds due December 1, 20__, Yield: ___% CUSIP†: __________
* Preliminary, subject to change.
† CUSIP is a registered trademark of the American Bankers Association. CUSIP data herein is provided by CUSIP Global Services, managed by S&P Global Ratings on behalf of The American Bankers Association. This data is not intended to create a database and does not serve in any way as a substitute for the CUSIP Services. CUSIP numbers have been assigned by an independent company not affiliated with the District and are included solely for the convenience of investors. None of the City, the Authority, the Underwriter or the Municipal Advisor is responsible for the selection or uses of these CUSIP numbers, and no representation is made as to their correctness on the 2022A Bonds or as included herein. The CUSIP number for a specific maturity is subject to being changed after the issuance of the 2022A Bonds as a result of various subsequent actions including, but not limited to, refunding in whole or in part or as a result of the procurement of secondary market portfolio insurance or other similar enhancement by investors that is applicable to all or a portion of certain maturities of the 2022A Bonds. 104860768.2
CITY OF CATHEDRAL CITY
CATHEDRAL CITY PUBLIC FINANCING AUTHORITY
CITY COUNCIL/BOARD OF DIRECTORS
Ernesto M. Gutierrez, Mayor/Chairman
Rita Lamb, Mayor Pro Tem/Vice-Chairman
Mark Carnevale, Member
Raymond Gregory, Member
Nancy Ross, Member
____________________
CITY/AUTHORITY OFFICIALS
Charles P. McClendon, City Manager/Executive Director
Tami E. Scott, Administrative Services Director/Chief Financial Officer Tracey R. Hermosillo CMC, City Clerk/Secretary
____________________
SPECIAL SERVICES
Bond Counsel and Disclosure Counsel
Norton Rose Fulbright US LLP
Los Angeles, California
Municipal Advisor
Fieldman, Rolapp & Associates, Inc.
Irvine, California
Trustee
The Bank of New York Mellon Trust Company, N.A.
Los Angeles, California
104860768.2
No dealer, broker, salesperson or other person has been authorized by the Cathedral City Public Financing Authority (the “Authority”), the City of Cathedral City, California (the “City”) or the Underwriter to give any information or to make any representations, other than as contained in this Official Statement, and if given or made, such information or representations must not be relied upon as having been authorized by the Authority, the City or the Underwriter. 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 2022A Bonds by any person in any jurisdiction in which it is unlawful for such person to make such offer, solicitation or sale.
This Official Statement is not to be construed as a contract with the purchasers of the 2022A Bonds.
Statements contained in this Official Statement that involve estimates, forecasts or matters of opinion, whether or not expressly described herein, are intended solely as such and are not to be construed as representations of fact.
The information set forth herein has been furnished by the Authority and the City and includes information from sources that are believed to be reliable. The information and expressions of opinion contained herein are subject to change without notice and neither the delivery of this Official Statement nor any sale made shall, under any circumstances, create any implication that there has been no change in the affairs of the Authority, the City, or other matters described herein since the date hereof.
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 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, including any supplement or amendment hereto, is intended to be deposited with the Municipal Securities Rulemaking Board through the Electronic Municipal Marketplace Access (“EMMA”) website. The City maintains a website. The information presented on such websites is not part of this Official Statement and should not be relied on in making investment decisions with respect to the 2022A Bonds. Unless otherwise expressly stated, references to the websites in this Official Statement are shown for reference and convenience only, and none of their content is incorporated in this Official Statement by reference. The City and the Authority make no representation regarding the accuracy or completeness of the information presented on such websites.
IN CONNECTION WITH THE OFFERING OF THE 2022A BONDS, THE UNDERWRITER
MAY OVER ALLOT OR EFFECT TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF THE 2022A BONDS AT LEVELS ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
104860768.2
___________________________________
CAUTIONARY STATEMENTS REGARDING
FORWARD-LOOKING STATEMENTS IN
THIS OFFICIAL STATEMENT
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,” “project,” “expect,” “anticipate,” “intend,” “believe,” “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 that 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. Except as otherwise noted, neither the City nor the Authority plan to issue any updates or revisions to those forward-looking statements if or when its expectations or events, conditions or circumstances on which such statements are based occur. 104860768.2
INTRODUCTION ........................................................................................................................................1 Purpose of the 2022A Bonds ...........................................................................................................1 City Pension Funding Strategy ........................................................................................................1 Security for the 2022A Bonds .........................................................................................................1 2022A Reserve Fund .......................................................................................................................2 The City ...........................................................................................................................................2 Continuing Disclosure .....................................................................................................................2 DESCRIPTION OF THE 2022A BONDS ...................................................................................................3 Redemption......................................................................................................................................3 Selection of Bonds for Redemption.................................................................................................3 Notice of Redemption......................................................................................................................4 Partial Redemption of Bonds...........................................................................................................4 Effect of Redemption.......................................................................................................................4 SECURITY AND SOURCES OF PAYMENT FOR THE 2022A BONDS................................................4 2022A Bonds ...................................................................................................................................4 Additional Rental Payments ............................................................................................................5 Covenant to Budget and Appropriate ..............................................................................................5 Limited Obligation...........................................................................................................................5 2022A Reserve Fund .......................................................................................................................6 Abatement of Base Rental Payments...............................................................................................6 Maintenance, Utilities, Taxes and Assessments..............................................................................7 Insurance Coverages........................................................................................................................7 Substitution and Release of Property...............................................................................................8 PLAN OF FINANCE ...................................................................................................................................9 LEASED PROPERTY..................................................................................................................................9 ESTIMATED SOURCES AND USES OF FUNDS ..................................................................................10 DEBT SERVICE REQUIREMENTS ........................................................................................................11 THE AUTHORITY ....................................................................................................................................11 THE CITY ..................................................................................................................................................11 General...........................................................................................................................................11 Audited Financial Statements........................................................................................................12 Principal General Fund Tax Revenues ..........................................................................................15 Management Discussion................................................................................................................17 City Budget....................................................................................................................................18 Appropriations Limit .....................................................................................................................20 Economic Development.................................................................................................................20 Assessed Valuation........................................................................................................................20 Redevelopment Agencies ..............................................................................................................22 Direct and Overlapping Debt.........................................................................................................22 General Fund Long-Term Obligations ..........................................................................................24 Labor Contracts..................................................................................................................24 Pension Plans.................................................................................................................................24 STATE OF CALIFORNIA BUDGET INFORMATION ..........................................................................28 State Budget...................................................................................................................................28 2021-22 State Budget ....................................................................................................................28 104860768.2
2022-23 State Budget ....................................................................................................................28 Future State Budgets......................................................................................................................30 RISK FACTORS ........................................................................................................................................30 2022A Base Rental Payments Are Not Debt; 2022A Bonds are Limited Obligations .................31 Abatement......................................................................................................................................31 Risk of Uninsured Loss .................................................................................................................32 Eminent Domain............................................................................................................................32 City General Fund..........................................................................................................................32 Public Health Emergencies............................................................................................................33 Bankruptcy.....................................................................................................................................33 State Finances ................................................................................................................................34 No Liability of Authority to the Owners .......................................................................................35 No Limitation on Incurring Additional Obligations......................................................................35 Natural Disasters............................................................................................................................35 Climate Change .............................................................................................................................36 Hazardous Substances ...................................................................................................................36 Limitations on Remedies ...............................................................................................................37 Limitations on Remedies under the Lease.....................................................................................37 Substitution of Property.................................................................................................................37 Secondary Market Risk..................................................................................................................37 Unitary Property ............................................................................................................................41 MUNICIPAL ADVISOR ...........................................................................................................................41 RATING .....................................................................................................................................................42 UNDERWRITING .....................................................................................................................................42 CONTINUING DISCLOSURE..................................................................................................................42 TAX MATTERS ........................................................................................................................................42 ERISA CONSIDERATIONS .....................................................................................................................45 LITIGATION .............................................................................................................................................47 FINANCIAL STATEMENTS....................................................................................................................47 APPROVAL OF LEGAL PROCEEDINGS ..............................................................................................47 EXECUTION AND DELIVERY...............................................................................................................47 APPENDIX A – SELECTED DEMOGRAPHIC AND FINANCIAL INFORMATION RELATING TO THE CITY OF CATHEDRAL CITY AND RIVERSIDE COUNTY ...............A-1 APPENDIX B – AUDITED FINANCIAL STATEMENTS OF THE CITY OF CATHEDRAL CITY FOR THE FISCAL YEAR ENDED JUNE 30, 2021............B-1 APPENDIX C – SUMMARY OF CERTAIN PROVISIONS OF THE PRINCIPAL LEGAL DOCUMENTS............................................................................................C-1 APPENDIX D – FORM OF CONTINUING DISCLOSURE AGREEMENT....................................D-1 APPENDIX E – FORM OF OPINION OF BOND COUNSEL ..........................................................E-1 APPENDIX F – BOOK-ENTRY SYSTEM.........................................................................................F-1 104860768.2
1 OFFICIAL STATEMENT
$[PAR AMOUNT]*
CATHEDRAL CITY PUBLIC FINANCING AUTHORITY
LEASE REVENUE BONDS, 2022 SERIES A
(FEDERALLY TAXABLE)
INTRODUCTION
This Official Statement, which includes the cover page, the inside cover page and attached appendices, provides certain information in connection with the sale and delivery of the $[Par Amount] * Cathedral City Public Financing Authority Lease Revenue Bonds, 2022 Series A (Federally Taxable) (the “2022A Bonds”). Capitalized terms used and not otherwise defined herein shall have the meanings given in the Indenture or the Lease (each as hereinafter defined) or in APPENDIX C – “SUMMARY OF CERTAIN PROVISIONS OF THE PRINCIPAL LEGAL DOCUMENTS.”
Purpose of the 2022A Bonds
The 2022A Bonds are being issued under the provisions of the Marks-Roos Local Bond Pooling Act of 1985, constituting Article 4 of Chapter 5 of Division 7 of Title 1 (commencing with Section 6584) and Sections 53570 et seq. and 53580 et seq. of the California Government Code (collectively, the “Bond Law”). The 2022A Bonds are also being issued and secured by an Indenture, dated as of April 1, 2022 (the “Indenture”), by and between the Cathedral City Public Financing Authority (the “Authority”) and The Bank of New York Mellon Trust Company, N.A., as trustee (the “Trustee”). The 2022A Bonds were authorized by a resolution of the Authority, adopted on _________, 2022.
The Authority is issuing the 2022A Bonds, for the purpose of: (i) refinancing all or a portion of its CalPERS Obligation; (ii) refunding all of the outstanding Authority Lease Revenue Refunding Bonds (Capital Facilities Projects), Series 2015A (Taxable); (iii) funding a reserve for the 2022A Bonds; and (iv) paying costs of issuing the 2022A Bonds. See “PLAN OF FINANCE” and “ESTIMATED SOURCES AND USES OF FUNDS.”
City Pension Funding Strategy
The issuance of the 2022A Bonds is part of the City’s strategy to address a significant unfunded liability to each of the City’s plans with California Public Employees’ Retirement System’s (“CalPERS”).
In addition to creating a more affordable and sustainable shape for its pension costs, the City has determined that the 2022A Bonds should help create enhanced resiliency for the General Fund of the City to handle adverse economic situations in the future.
Security for the 2022A Bonds
The 2022A Bonds shall be secured by a first lien on and pledge (which shall be effected in the manner and to the extent provided in the Indenture) of all of the Revenues, including all of the moneys in the 2022A Interest Account, the 2022A Principal Account and the 2022A Reserve Fund, including all amounts derived from the investment of such moneys. See “SECURITY AND SOURCES OF PAYMENT FOR THE 2022A BONDS.”
* Preliminary, subject to change.
104860768.2
2 Pursuant to a Site Lease, dated as of April 1, 2022 (the “Site Lease”), by and between the City and the Authority, the Authority will lease from the City Civic Center complex as more particularly described herein (the “Leased Property”). Pursuant to the Lease Agreement, dated as of April 1, 2022 (the “Lease”), by and between the Authority and the City, the Authority has or will sublease the Leased Property to the City. See “LEASED PROPERTY.” Pursuant to the Lease, the City will pay to the Trustee, as the assignee of the Authority, base rental payments (collectively, the “2022A Base Rental Payments”) in amounts equal to scheduled debt service on the 2022A Bonds, as set forth in the base rental payment schedule for the 2022A Bonds (the “2022A Base Rental Payment Schedule”). The obligation of the City to make 2022A Base Rental Payments or Additional Rental Payments does not constitute an obligation of the City for which the City is obligated to levy or pledge any form of taxation or for which the City has levied or pledged any form of taxation.
Neither the 2022A Bonds nor the obligation of the City to make 2022A Base Rental Payments or Additional Rental Payments constitutes 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. Pursuant to the Lease, the City has covenanted to take such action as may be necessary to include all Base Rental Payments and Additional Rental Payments due hereunder in its annual budget and to make the necessary annual appropriations for all such Base Rental Payments and Additional Rental Payments required to be made under the Lease, subject only to abatement as provided therein. 2022A Reserve Fund
Pursuant to the Indenture, a 2022A Reserve Fund will be established for the 2022A Bonds and funded at the 2022A Reserve Requirement. “2022A Reserve Requirement” means, as of any calculation date in a Bond Year, an amount equal to Maximum Annual Debt Service. See “SECURITY AND SOURCES OF PAYMENT FOR THE 2022A BONDS – 2022A Reserve Fund.” The City
The City of Cathedral City (the “City”) is located in Riverside County (the “County”) located in the Coachella Valley, which is 115 miles southeast of downtown Los Angeles. The City was incorporated in 1981 and covers approximately 22 square miles and had an estimated population of more than 54,000.
The City is bordered by the City of Palm Springs to the west, the City of Rancho Mirage to the south and east, and an unincorporated area of the County to the north and northeast. See “THE CITY.” Continuing Disclosure
The Authority has determined that no financial or operating data concerning the Authority is material to any decision to purchase, hold or sell the 2022A Bonds and as such, the Authority will not provide any such information.
The City has agreed to provide, with respect to the 2022A Bonds, or cause to be provided, to the Municipal Securities Rulemaking Board’s Electronic Municipal Market Access system (the “EMMA System”), certain annual financial information and operating data relating to the City and, in a timely manner, notice of certain events. These covenants have been made in order to assist the Underwriter in complying with Rule 15c2-12, as amended (the “Rule 15c2-12”) adopted by the U.S. Securities and Exchange Commission (the “SEC”) under the Securities Exchange Act of 1934, as amended. See “CONTINUING DISCLOSURE” herein and APPENDIX D – “FORM OF CONTINUING DISCLOSURE AGREEMENT” for a description of the annual reports and notices of enumerated events to be provided by the City.
104860768.2
3 DESCRIPTION OF THE 2022A BONDS
The 2022A Bonds will be dated their date of delivery and issued in the aggregate principal amount and bear interest at the rates and mature on the dates set forth on the inside cover page of this Official Statement. Interest on the 2022A Bonds will be payable semiannually on June 1 and December 1 of each year, commencing _______ 1, 2022 (each an “Interest Payment Date”). Each 2022A Bond will bear interest from the Interest Payment Date next preceding the date of authentication thereof unless (i) it is executed after the fifteenth calendar day of the month immediately preceding an Interest Payment Date, in which case interest will bear from such Interest Payment Date, or (ii) it is authenticated on or before July 15, 2022, in which event interest will accrue from the date of initial delivery of the 2022A Bonds. If, at the date of authentication of any 2022A Bond, interest thereon is in default, such 2022A Bond will bear interest from the Interest Payment Date to which interest has previously been paid or made available for payment on such outstanding 2022A Bond, or if no interest has been paid, from the date of initial delivery of the 2022A Bonds. Interest on the 2022A Bonds will be computed on the basis of a 360-day year of twelve 30-day months.
The 2022A Bonds are being issued as fully registered bonds and, when executed and delivered, will be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York (“DTC”). The 2022A Bonds will be issued in denominations of $5,000 or any integral multiple thereof. Individual purchases of 2022A Bonds will be made in book-entry form only. Payments of principal of and interest on the 2022A Bonds are to be made to purchasers by DTC through DTC Participants.
Purchasers will not receive physical delivery of the 2022A Bonds purchased by them. See APPENDIX F – “BOOK –ENTRY SYSTEM.”
Redemption*
Optional Redemption of Bonds. The 2022A Bonds maturing on or after _______ 1, 2033 shall be subject to redemption prior to their respective maturity dates as a whole or in part on any date on or after ________ 1, 2032, in any order deemed reasonable by the Authority, and by lot within a maturity, from prepayments of 2022A Base Rental Payments made at the option of the City pursuant to the Lease, at a redemption price equal to the principal amount of the 2022A Bonds to be redeemed, plus accrued but unpaid interest to the date fixed for redemption, without premium.
Mandatory Sinking Account Redemption of 2022A Bonds. The 2022A Term Bond maturing on December 1, 20__ is subject to mandatory redemption, in part by lot, from sinking account payments set forth in the following schedule commencing December 1, 20__, and on December 1 in each year thereafter to and including December 1, 20__ at a redemption price equal to the principal amount thereof to be redeemed (without premium), together with interest accrued thereon to the date fixed for redemption.
Redemption Date
(December 1)
Principal Amount
To be Redeemed
*
_________________
* Maturity.
Selection of Bonds for Redemption
Whenever provision is made in the Indenture for the redemption of less than all of the 2022A Bonds, the Trustee shall select the 2022A Bonds to be redeemed from all 2022A Bonds not previously called for redemption, in such maturities as the Authority shall designate (and by lot within any maturity). * Preliminary, subject to change.
104860768.2
4 For purposes of such selection, all Bonds shall be deemed to be comprised of separate $5,000 portions and such portions shall be treated as separate 2022A Bonds, which may be separately redeemed.
Notice of Redemption
The Trustee on behalf and at the expense of the Authority shall send (by first class mail or other means acceptable to the recipient thereof) notice of any redemption to the respective Owners of any Bonds designated for redemption at their respective addresses appearing on the Registration Books, to the Securities Depositories and to one or more Information Services, at least twenty (20) but not more than sixty (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 shall affect the validity of the proceedings for the redemption of such Bonds or the cessation of the accrual of interest thereon. Such notice shall state the date of the notice, the redemption date, the redemption place and the redemption price and shall designate the CUSIP numbers, the 2022A Bond numbers and the maturity or maturities (except in the event of redemption of all of the 2022A Bonds) of the 2022A Bonds to be redeemed, and shall require that such Bonds be then surrendered at the Trust Office of the Trustee for redemption at the redemption price, giving notice also that further interest on such Bonds will not accrue from and after the redemption date. Neither the Authority nor the Trustee shall have any responsibility for any defect in the CUSIP number that appears on any Bond or in any redemption notice with respect thereto, and any such redemption notice may contain a statement to the effect that CUSIP numbers have been assigned by an independent service for convenience of reference and that neither the Authority nor the Trustee shall be liable for any inaccuracy in such numbers.
Any notice given pursuant to the Indenture may be conditional and/or rescinded by written notice given to the Trustee by the Authority and the Trustee shall provide notice of such rescission as soon thereafter as practicable in the same manner, and to the same recipients, as notice of such redemption was given pursuant to the Indenture.
Partial Redemption of Bonds
If only a portion of any Bond is called for redemption, then upon surrender of such Bond the Authority shall execute and the Trustee shall authenticate and deliver to the Owner thereof, at the expense of the Authority, a new 2022A Bond or Bonds, interest rate and maturity date, in aggregate principal amount equal to the unredeemed portion of the 2022A Bond being redeemed.
Effect of Redemption
From and after the date fixed for redemption, if funds available for the payment of the principal of, premium, if any, and interest on the 2022A Bonds so called for redemption shall 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. All 2022A Bonds redeemed pursuant to the Indenture shall be canceled by the Trustee. All moneys held by or on behalf of the Trustee for the payment of principal of or interest or premium on Bonds, whether at redemption or maturity, shall be held in trust for the account of the Owners thereof and the Trustee shall not be required to pay Owners any interest on, or be liable to Owners for any interest earned on, moneys so held.
SECURITY AND SOURCES OF PAYMENT FOR THE 2022A BONDS
2022A Bonds
General. The 2022A Bonds will be secured by a first lien on and pledge of the Revenues. “Revenues” means (i) all 2022A Base Rental Payments payable by the City pursuant to the Lease (including prepayments), (ii) any proceeds of Bonds deposited with the Trustee and all moneys on deposit in the funds and accounts established under the Indenture, (iii) investment income with respect to such moneys held by 104860768.2
5 the Trustee and (iv) any insurance proceeds or condemnation awards received by or payable to the Trustee relating to the 2022A Base Rental Payments.
The 2022A Base Rental Payments will be paid by the City in an amount sufficient to pay the principal of and interest on the 2022A Bonds on each Interest Payment Date. On or before the fifteenth (15) Business Day preceding each Interest Payment Date, the City is required to pay to the Trustee the 2022A Base Rental Payments coming due on the next succeeding Interest Payment Date, respectively, from any legally available sources.
Pursuant to an Assignment Agreement, dated as of April 1, 2022 (the “Assignment Agreement”), by and between the Authority and the Trustee, relating to the 2022A Bonds, the Authority has and will assign, as further security for its obligations to make timely payment of principal of and interest on the 2022A Bonds to the Trustee for the benefit of the Owners certain of the Authority’s rights under the Lease and Site Lease, including the right to receive all 2022A Base Rental Payments.
Additional Rental Payments
Under the Lease, in addition to 2022A Base Rental Payments, the City has agreed to pay Additional Rental Payments in such amounts in each year as shall be required for the payment of all costs and expenses (not otherwise paid for or provided for out of the proceeds of sale of the 2022A Bonds) incurred by the Authority or the Trustee in connection with the execution, performance or enforcement of the Lease or the assignment thereof, the Indenture, or the Authority’s or the Trustee’s interest in the Leased Property, including, but not limited to, all fees, costs and expenses, all administrative costs of the Authority relating to the Leased Property (including, without limiting the generality of the foregoing, salaries and wages of employees, overhead, insurance premiums, taxes and assessments (if any), expenses, compensation and indemnification of the Trustee payable by the Authority under the Indenture), fees of auditors, accountants, attorneys or engineers, and all other reasonable and necessary administrative costs of the Authority or charges required to be paid by it to comply with the terms of the 2022A Bonds or of the Indenture. Such Additional Rental Payments shall be billed to the City by the Authority or the Trustee from time to time.
Amounts so billed shall be paid by the City within sixty (60) days after receipt of the bill by the City.
Covenant to Budget and Appropriate
The City has covenanted in the Lease to take such action as may be necessary to include all 2022A Base Rental Payments and Additional Rental Payments due under the Lease in its budget and to make the necessary annual appropriations for all such 2022A Base Rental Payments and Additional Rental Payments, subject only to abatement as provided in the Lease. The covenants on the part of the City contained in the Lease shall be deemed to be and shall be construed to be duties imposed by law and it shall be the duty of each and every public official of the City to take such action and do such things as are required by law in the performance of the official duty of such officials to enable the City to carry out and perform the covenants and agreements in the Lease agreed to be carried out and performed by the City.
Limited Obligation
The full faith and credit of the Authority is not pledged for the payment of the principal of or interest or premium (if any) on the 2022A Bonds. The 2022A Bonds are not secured by a legal or equitable pledge of, or charge, lien or encumbrance upon, any of the property of the Authority or any of its income or receipts, except the Revenues and such other moneys and securities as provided in the Indenture.
The obligation of the City to make 2022A Base Rental Payments or Additional Rental Payments does not constitute an obligation of the City for which the City is obligated to levy or pledge any form of taxation or for which the City has levied or pledged any form of taxation. Neither the 2022A Bonds nor the obligation of the City to make Base Rental Payments or Additional Rental Payments constitutes an 104860768.2
6 indebtedness of the City, the State or any of its political subdivisions within the meaning of any constitutional or statutory debt limitation or restriction. 2022A Reserve Fund
Under the Indenture, a 2022A Reserve Fund is established for the 2022A Bonds that will be funded at the 2022A Reserve Requirement, and any deficiency therein shall be replenished from the first available Revenues pursuant to the Indenture. Moneys in the 2022A Reserve Fund shall be used solely for the purpose of paying the principal of and interest on the 2022A Bonds, including the redemption price of the 2022A Bonds coming due and payable by operation of mandatory sinking fund redemption pursuant to the Indenture, if the Revenues are insufficient therefor.
If the amount on deposit in the Lease Revenue Fund on any date is insufficient to enable the Trustee to pay in full the aggregate amount of principal of and interest on the Bonds coming due and payable, including the redemption price of the 2022A Bonds coming due and payable by operation of mandatory sinking fund redemption pursuant to the Indenture, the Trustee shall withdraw the amount of such insufficiency from the 2022A Reserve Fund and transfer such amount to the Lease Revenue Fund. If the amount on deposit in the 2022A Reserve Fund exceeds the 2022A Reserve Requirement on the fifteenth (15th) calendar day of the month preceding any Interest Payment Date, the amount of such excess shall be withdrawn therefrom by the Trustee and transferred to the Lease Revenue Fund and credited against the Base Rental Payments next due from the City.
The Authority may fund all or a portion of the 2022A Reserve Requirement with one or more Qualified Reserve Fund Credit Instruments. A “Qualified Reserve Fund Credit Instrument” means an irrevocable standby or direct-pay letter of credit or surety bond issued by a commercial bank, national banking association or insurance company and deposited with the Trustee pursuant to the Indenture provided that all of the following requirements are met: (i) the long-term credit rating of such bank or insurance company at the time of delivery of such letter of credit or surety bond is rated in one of the two highest rating categories by Moody’s or S&P and, if rated by A.M. Best & Company, a minimum rating of “A”; (ii) such letter of credit or surety bond or policy has a term which ends no earlier than the last Interest Payment Date of the 2022A Bonds; (iii) such letter of credit or surety bond has a stated amount at least equal to the portion of the 2022A Reserve Requirement with respect to which funds are proposed to be released pursuant the Indenture; and (iv) the Trustee is authorized pursuant to the terms of such letter of credit or surety bond to draw thereunder an amount equal to any deficiencies which may exist from time to time in the amounts available to repay the principal of and interest on the 2022A Bonds. See APPENDIX C – “SUMMARY OF CERTAIN PROVISIONS OF THE PRINCIPAL LEGAL DOCUMENTS – THE INDENTURE.”
Abatement of Base Rental Payments
The obligation of the City to pay 2022A Base Rental Payments and Additional Rental Payments is subject to abatement during any period in which by reason of any damage, destruction, condemnation or title defect there is substantial interference with the use by the City of the Leased Property or any portion thereof. See “RISK FACTORS – Abatement.” Such abatement shall be in an amount such that the resulting Base Rental Payments in any year during which such interference continues does not exceed the fair rental value of the portions of the Leased Property as to which such damage, destruction, taking or title defect does not substantially interfere with the City’s use and right of possession, as evidenced by a Certificate of the City. Such abatement shall continue for the period commencing with the date of interference resulting from such damage, destruction, condemnation, taking or title defect and, with respect to damage to or destruction of the Leased Property, ending with the substantial completion of the work of repair or replacement of the Leased Property, or the portion thereof so damaged or destroyed. 104860768.2
7 An abatement will continue for the period commencing with the date on which the Leased Property is not available for use and occupancy and ending with the date on which the Leased Property is available for use and occupancy by the City. The term of the Lease will be extended by the period during which 2022A Base Rental Payments or Additional Rental Payments is abated, except that the term may in no event be extended beyond ten years following the stated term thereof.
The spread of COVID-19 in the past few years has resulted in the imposition from time to time of restrictions on gatherings, widespread temporary closings of businesses and schools (including within the City) and implementation of safer-at-home orders for citizens to remain at home, except for certain essential purposes. These restrictions limited public access to certain City-owned facilities but would not have caused 2022A Base Rental Payments or Additional Rental Payments to be abated under the Lease.
Maintenance, Utilities, Taxes and Assessments
During such time as the City or any assignee or sublessee thereof is in possession of the Leased Property, all maintenance and repair, ordinary or extraordinary, of the Leased Property shall be the responsibility of the City, and the City shall pay for or otherwise arrange for the payment of (a) all utility services supplied to the Leased Property, (b) the cost of operation of the Leased Property, and (c) the costs of maintenance of and repair to the Leased Property resulting from ordinary wear and tear or want of care on the part of the City. The City shall at the City’s sole cost and expense keep and maintain the Leased Property clean and in a safe and good condition and repair. The Authority shall have no obligation to alter, remodel, improve, repair, decorate, or paint the Leased Property or any part thereof, and the parties hereto affirm that the Authority has made no representations or warranties to the City respecting the condition of the Leased Property. The City shall comply with all statutes, ordinances, regulations, and other requirements of all governmental entities that pertain to the occupancy or use of the Leased Property. The Authority has no responsibility or obligation whatsoever to construct any improvements, modifications or alterations to the Leased Property. The City waives the right to make repairs at the Authority’s expense under Subsection 1 of Section 1932 and Section 1942 of the California Civil Code, or any other such law, statute, or ordinance now or hereafter in effect.
The Leased Property will be used for public purposes by the City and, therefore, the Leased Property will be exempt from all taxes presently assessed and levied with respect to real and personal property, respectively. If the use, possession or acquisition by the Authority or the City of the Leased Property is found to be subject to taxation in any form, the City will pay during the term hereof, as the same respectively become due, all taxes and governmental charges of any kind whatsoever that may at any time be lawfully assessed or levied against or with respect to the Leased Property and any other property acquired by the City in substitution for, as a renewal or replacement of, or a modification, improvement or addition to the Leased Property; provided, that with respect to any governmental charges or taxes that may lawfully be paid in installments over a period of years, the City shall be obligated to pay only such installments as are accrued during such time as the Lease is in effect.
Insurance Coverages
Pursuant to the Lease, the City shall secure and maintain or cause to be secured and maintained at all times with insurers of recognized responsibility or through a program of self-insurance to the extent specifically permitted in the Lease, all coverage on the Leased Property required by the Lease. Such insurance shall consist of comprehensive general liability coverage against claims for damages including death, personal injury, bodily injury or property damage arising from operations involving the Leased Property. Such insurance shall afford protection with a combined single limit of not less than $1,000,000 per occurrence with respect to bodily injury, death or property damage liability, or such greater amount as may from time to time be recommended by the City’s risk management officer or an independent insurance consultant retained by the City for that purpose, subject to a deductible clause of not to exceed $500,000.
The City’s comprehensive general liability coverage may be satisfied by self-insurance. Insurance also 104860768.2
8 includes casualty insurance, throughout the term of the Lease, against loss or damage to any or all of the Leased Property by fire and lightning, with extended coverage and vandalism and malicious mischief insurance, and against loss of Leased Property by theft. Such extended coverage insurance shall, as nearly as practicable, cover loss or damage by explosion, windstorm, riot, aircraft, vehicle damage, smoke and such other hazards as are normally covered by such insurance. The casualty insurance required by the Lease shall be in an amount not less than the principal amount of the Outstanding Bonds, if the Leased Property is other than streets in the City. The City’s casualty insurance coverage may be satisfied by self-insurance.
The Lease also requires workers’ compensation insurance to be issued by a responsible carrier authorized under the laws of the State to insure employers against liability for compensation under the Labor Code of the State, or any act enacted as an amendment or supplement thereto or in lieu thereof, such workers’ compensation insurance to cover all persons employed by the City in connection with the Leased Property and to cover full liability for compensation under any such act; provided, however, that the City’s obligations under such worker’ compensation insurance may be satisfied by self-insurance.
All policies or certificates issued by the respective insurers for insurance, with the exception of workers’ compensation insurance, shall provide that such policies or certificates shall not be canceled or materially changed without at least 30 days’ prior written notice to the Authority and the Trustee.
Certificates of comprehensive general liability and workers’ compensation insurance shall be furnished by applicable insurers to the City, and, at least ten days prior to the expiration dates of such policies, if any, evidence of renewals shall be deposited with the Trustee. If the City elects to provide self-insurance, the City shall annually cause to be delivered to the Trustee, upon request, a certificate of an Insurance Consultant certifying to the adequacy of the City’s reserves for such insurance. All policies or certificates of insurance provided for in the Lease shall name the City as a named insured and the Trustee as an additional insured. Notwithstanding the generality of the foregoing, the City shall not be required to maintain or cause to be maintained more insurance than is specifically referred to above or any policies of insurance other than standard policies of insurance with standard deductibles offered by reputable insurers at a reasonable cost on the open market.
See APPENDIX C – “SUMMARY OF CERTAIN PROVISIONS OF THE PRINCIPAL LEGAL DOCUMENTS – THE LEASE.”
Substitution and Release of Property
Pursuant to the Lease, the City and the Authority specifically acknowledge that the annual fair rental value of the Leased Property is in excess of the maximum annual 2022A Base Rental Payments. The City shall have, so long as the Lease is in effect, and is granted under the Lease, the option at any time and from time to time, to substitute other real property (the “Substitute Property”) for any portion of the Leased Property (the “Former Property”) or release any identifiable real property and/or improvements currently constituting the Leased Property (in such case, Substitute Property shall mean the Former Property less any portion released pursuant to the Lease); provided, that the City must satisfy all of the following requirements, which are conditions precedent to such substitution:
(a) No default under the Lease or Event of Default shall have occurred and be continuing; (b) The City shall file with the Authority and the Trustee, and cause to be recorded in the office of the County Recorder, if necessary, sufficient memorialization of amendments to the Lease and the Site Lease which replaces Exhibit A to the Lease and Exhibit A to the Site Lease with a description of such Substitute Property which deletes therefrom the description of the Former Property; (c) The City shall obtain an extended California Land Title Association (“CLTA”) policy of title insurance insuring the City’s fee or leasehold estate in such Substitute Property, if the Substitute Property are not streets of the City, the City’s leasehold estate hereunder, and the Authority’s leasehold 104860768.2
9 estate under the Site Lease in such Substitute Property, subject only to Permitted Encumbrances, in an amount not less than the aggregate principal amount of the Outstanding Bonds; provided, however, that this requirement shall not apply to Substitute Property that consists only of Former Property less any released portion;
(d) The City shall provide a Certificate of the City to the Authority and to the Trustee that such Substitute Property constitutes property which the City is permitted to lease under the laws of the State of California;
(e) The substitution of the Substitute Property shall not cause the City to violate any of its covenants, representations and warranties made herein;
(f) The City shall file with the Authority and the Trustee a Certificate of the City or other evidence which establishes that the annual fair rental value of the Substitute Property after substitution or release will be at least equal to 100% of the maximum amount of the Base Rental Payments becoming due in the then current fiscal year or in any subsequent fiscal year and the useful economic life of the Substitute Property shall be at least equal to the maximum remaining term of the Lease; and (g) The City shall furnish to the Trustee an opinion of Bond Counsel addressed to the Trustee, the City and the Authority to the effect that the substitution or release is permitted under the Lease.
Upon the satisfaction of all such conditions precedent, and upon the City delivering to the Authority and the Trustee a Certificate of the City certifying that the conditions set forth in subsections (a), (c) and (e) outlined above have been satisfied, the Term of the Lease shall thereupon end as to the Leased Property and shall thereupon commence as to the Substitute Property, and all references to the Leased Property shall apply with full force and effect to the Substitute Property. The City shall not be entitled to any reduction, diminution, extension or other modification of the Base Rental Payments whatsoever as a result of any substitution or removal under the Lease.
PLAN OF FINANCE
The Authority is issuing the 2022A Bonds for the purpose of: (i) refinancing all or a portion of its CalPERS Obligation; (ii) refunding all of the outstanding Authority Lease Revenue Refunding Bonds (Capital Facilities Projects), Series 2015A (Taxable) (the “2015A Bonds”); (iii) funding a reserve for the 2022A Bonds; and (iv) paying costs of issuing the 2022A Bonds. See “ESTIMATED SOURCES AND USES OF FUNDS.”
LEASED PROPERTY
Leased Property. The Leased Property consists of the City’s Civic Center, a 3-story, steel frame, 55,343 square feet building. The Civic Center was constructed in 1998 and houses all of the main municipal functions of the City: administration, economic and community development, public works, fire and police.
Simultaneously with the delivery of the 2022A Bonds, the Authority will acquire a leasehold interest in the Leased Property from the City. The Authority will sublease the Leased Property to the City pursuant to the Lease. While the City is in possession of the Leased Property, all maintenance and repair of the Leased Property is the responsibility of the City. The City has determined that the annual fair rental value of the Leased Property is in excess of the annual Base Rental Payments.
Substitution and Release of Property. Pursuant to the Lease, the City may substitute other real property for any portion of the Leased Property described above, or release any identifiable real property and/or improvements currently constituting the Leased Property, provided the City satisfies the provisions of the Lease. See “SECURITY AND SOURCES OF PAYMENT OF THE 2022A BONDS – Substitution and Release of Property.”
104860768.2
10 Limited Remedies. The City has not granted any security interest in the Leased Property for the benefit of the owners of the 2022A Bonds, and there is no remedy of foreclosure on the Leased Property upon the occurrence of an Event of Default under the Indenture or the Lease.
ESTIMATED SOURCES AND USES OF FUNDS
The following table shows the estimated sources and uses of the proceeds from the sale of the 2022A Bonds:
Sources:
Par amount of the 2022A Bonds
Total Sources
Uses:
Transfer to CalPERS
Refunding of 2015A Bonds
2022A Reserve Fund
2022A Costs of Issuance Fund(1)
Total Uses
_____________
(1) Costs of issuance include fees and expenses for Bond Counsel, Disclosure Counsel, Municipal Advisor, Trustee, printing expenses, rating fee, underwriter’s discount and other miscellaneous costs. 104860768.2
11 DEBT SERVICE REQUIREMENTS
The following table sets forth the debt service requirements for the 2022A Bonds.
Fiscal Year
Ending June 30, Principal Interest Total
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
2037
Totals
THE AUTHORITY
The Authority was established pursuant to the Joint Exercise of Powers Agreement dated as of December 1, 1993 (the “Joint Powers Agreement”) by and between the City and the Successor Agency of the Cathedral City Redevelopment Agency, in accordance with the provisions of Article 1 of Chapter 5 of Division 7 of Title 1 (commencing with Section 6500) of the California Government Code, as amended (the “Act”) for the purpose of assisting the City by issuing bonds and other obligations for authorized purposes. The Authority is administered by a Board of Directors comprised of members of the City Council of the City (the “City Council”). The Authority has no separate staff, but operates using City staff members.
THE CITY
General
The City is located in Riverside County, located in the Coachella Valley, which is 115 miles southeast of downtown Los Angeles. The City was incorporated in 1981 and covers approximately 22 square miles and had an estimated population of more than 54,000. The City is bordered by the City of Palm Springs to the west, the City of Rancho Mirage to the south and east, and an unincorporated area of the County to the north and northeast. See APPENDIX A – “SELECTED DEMOGRAPHIC AND
FINANCIAL INFORMATION RELATING TO THE CITY OF CATHEDRAL CITY AND RIVERSIDE COUNTY.”
104860768.2
12 At the November 8, 2016 Election, the voters of the City voted to become a Charter City, effective January 1, 2017. Under the Charter, the City operates under the council-manager form of government and has full power and authority to adopt, make, exercise and enforce all legislation, laws, and regulations and to take all actions relating to municipal affairs, without limitation, which may be lawfully adopted, made, exercised, taken or enforced under the Constitution of the State of California.
Policymaking and legislative authority are vested in a City Council comprised of a Mayor and four other Council members. The City Council is responsible, among other things, for passing ordinances, adopting minute orders and resolutions (such as the budget), appointing committees, and hiring both the City Manager and City Attorney. In addition to sitting as the governing board of the City, the City Council also acts as the Board of Directors of the Cathedral City Public Financing Authority.
The City Council is elected on a nonpartisan basis. Council members serve four-year staggered terms, with two council members representing districts one and two elected in November 2020, and three Council members elected in November 2022 representing districts three through five. The Mayor is appointed by the City Council to serve a one-year rotating term.
The City Manager is responsible for carrying out the policies and ordinances of the City Council, overseeing day-to-day operations of the City, and appointing the senior management positions (Assistant City Manager and the various department heads).
Audited Financial Statements
The following table sets forth the City’s General Fund assets, liabilities and fund balances based upon audited financial statements for Fiscal Years ended June 30, 2017 through June 30, 2021. City management’s discussion of financial performance for the fiscal year ended June 30, 2021 is presented in the City’s audited financial statements for the fiscal year ended June 30, 2021 attached hereto as APPENDIX B. Significant developments relating to the operations and finances of the City since June 30, 2021 are described herein. See, in particular the tables set forth herein, “– Management Discussion” below and “RISK FACTORS.”
[Remainder of page intentionally left blank.]
104860768.2
13 TABLE 1
CITY OF CATHEDRAL CITY
GENERAL FUND BALANCE SHEET
FOR FISCAL YEARS ENDED JUNE 30, 2017 THROUGH JUNE 30, 2021 2017 2018 2019 2020 2021
Assets
Cash and investments $20,711,523 $18,956,233 $21,801,266 $19,186,204 $35,026,012 Receivables:
Interest 107,642 146,424 330,632 381,826 142,951
Accounts Taxes 4,069,187 4,445,005 5,040,812 5,222,728 7,079,825 Loans 2,948,544 6,156,308 5,943,772 5,887,851 4,154,966 Intergovernmental receivable 26,123 - 582,376 795,623 495,382 Prepaid assets 10,267 16,298 6,105 63,634 76,940
Total assets 27,873,286 29,720,268 33,704,963 31,537,866 46,976,076 Liabilities
Accounts payable 1,732,185 2,198,043 2,259,031 2,004,320 2,423,998 Intergovernmental payable - 5,775 - - -
Deposits from others 554,532 526,912 653,077 726,321 762,511 Unearned revenue 318,810 258,681 218,521 228,489 8,940,356 Total liabilities 2,605,527 2,989,411 3,130,629 2,959,130 12,126,865 Deferred Inflows of Resources:
Unavailable revenue 266,545 1,010,526 1,236,378 1,023,917 994,124 Total Deferred Inflows of Resources 266,545 1,010,526 1,236,378 1,023,917 994,124 Fund Balances:
Nonspendable 10,267 16,298 6,105 63,634 1,979,849
Restricted 2,994,001 2,797,674 2,632,034 2,587,047 2,587,045 Assigned 4,340,569 2,829,904 833,351 503,353 1,133,390
Unassigned 17,656,377 20,076,455 25,866,466 24,400,785 28,154,803 Total fund balances 25,001,214 25,720,331 29,337,956 27,554,819 33,855,087 Total Liabilities, Deferred Inflows of
Resources, and Fund Balances $27,873,286 $29,720,268 $33,704,963 $31,537,866 $46,976,076 ____________________
Source: City of Cathedral City.
104860768.2
14 The following table summarizes the audited financial statements for the City’s General Fund for the Fiscal Years ended June 30, 2017 through June 30, 2021. This information has been derived from the audited financial statements of the City for the fiscal years shown. This information should be read in conjunction with APPENDIX B – “AUDITED FINANCIAL STATEMENTS OF THE CITY OF CATHEDRAL CITY FOR FISCAL YEAR ENDED JUNE 30, 2021.”
TABLE 2
CITY OF CATHEDRAL CITY
GENERAL FUND
STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE FOR FISCAL YEARS ENDED JUNE 30, 2017 THROUGH JUNE 30, 2021 2017 2018 2019 2020 2021
REVENUES
Taxes $30,566,036 $34,319,181 $40,590,244 $38,588,503 $44,459,614 Intergovernmental 67,757 117,919 27,284 146,366 276,709 Licenses and permits 1,349,341 1,876,558 2,498,178 2,860,841 2,956,610 Fines and forfeitures 213,764 138,542 108,317 276,786 348,714 Charges for services 4,693,930 5,802,638 5,575,676 5,863,531 5,713,802 Special assessments 88,095 116,728 148,401 192,983 1,059,225 Use of money and property 499,539 507,632 1,145,369 852,542 573,659 Contributions from other governments 492,643 533,216 423,959 177,196 249,989 Other revenues 79,588 218,606 34,058 35,113 19,732
Total Revenues 38,050,693 43,631,020 50,551,486 48,993,861 55,658,054
EXPENDITURES
Current:
General government 9,577,907 10,795,178 11,064,804 13,164,100 12,455,162 Community development 2,799,125 3,445,211 4,039,515 4,196,620 4,350,509 Culture and recreation 434,440 458,128 854,274 588,508 409,996 Public safety 23,041,043 26,520,138 28,515,551 30,508,947 30,620,998 Public works 698,728 743,523 1,189,164 960,287 734,179
Capital outlay 28,904 - 54,366 1,273,641 585,678
Debt Service
Principal 245,318 255,897 261,934 - -
Interest 32,420 21,842 10,814 - -
Total expenditures 36,857,885 42,239,917 45,990,422 50,692,103 49,156,522 Excess (Deficiency) of Revenues Over
(Under) Expenditures 1,192,808 1,391,103 4,561,064 (1,698,242) 6,501,532 Other Financing Sources (Uses)
Transfers in - - - 1,034,343 750,248
Transfers out (507,559) (798,834) (943,432) (1,969,919) (951,512) Proceeds from sale of capital assets 1,075,348 126,848 - 850,681 - Total Other Financing Sources (Uses) 567,789 (671,986) (943,432) (84,895) (201,264) Net Change in Fund Balances 1,760,597 719,117 3,617,632 (1,783,137) 6,300,268 Fund balances – July 1 23,240,617 25,001,214 25,720,324 29,337,956 27,554,819 Fund Balances – June 30 $25,001,214 $25,720,331 $29,337,956 $27,554,819 $33,855,087 _________________________
Source: City of Cathedral City.
104860768.2
15 Principal General Fund Tax Revenues
The table below provides the amount of General Fund tax revenues that each source represents for the fiscal years shown. The City cannot predict the ultimate impacts on such revenues for the Fiscal Year ending June 30, 2022 as a result of the COVID-19 pandemic and potential related economic consequences.
See “RISK FACTORS – COVID-19 Pandemic.”
Table 3
City of Cathedral City
Principal General Fund Tax Revenues
(In Thousands)
Revenue Source
Actual
FY 2017
Actual
FY 2018
Actual
FY 2019
Actual
FY 2020
Actual
FY 2021
Sales taxes
Transactions and use
Cannabis
Property
In-lieu VLF
Transient occupancy
Other taxes
Totals
_____________________
Source: City of Cathedral City.
Sales Taxes. A sales tax is imposed on the privilege of consuming personal property in California.
California does not tax services. The tax rate is established by the State Legislature, and is presently 7.25%, statewide (of which 1% is paid to the City). The State’s actual administrative costs with respect to the portion of sales taxes allocable to the City are deducted before distribution. In addition, many of California’s cities, counties, and communities have special taxing jurisdiction to impose a transaction (sales) or use tax.
These so-called district taxes increase the tax rate in a particular area by adding the local option tax to the statewide tax. These district taxes can vary up to 1%, and more than one district tax may be in effect for a particular location.
Transactions and Use Taxes. In June 2014, voters approved Measure B, extending the existing 1% transactions and use tax on all retailers doing business in the City indefinitely. The transactions and use tax is a general tax, the proceeds of which are deposited in the City’s General Fund to be used for general governmental purposes, such as City operations, police and fire services, street sweeping and repair, paramedics, parks and recreation, emergency response services, capital projects and other essential services.
Cannabis Taxes. The City of Cathedral City has a young and burgeoning new business cluster with the cannabis industry, including dispensary, cultivation, manufacturing, distribution, transportation and laboratory testing. As of June 30, 2021, the City had 96 cannabis businesses with 176 licenses, operating 56 sites comprised of 45 generating tax revenues, including 14 dispensaries, 27 cultivators, and 7 manufacturers resulting in almost $5.1 million in tax revenue versus the more than $4.3 million in tax revenue in Fiscal Year ended June 30, 2020. No assurance can be provided by the City regarding the impact of federal or State law on cannabis cultivation, manufacturing, or distribution in the future or whether any or all of the cannabis dispensaries in the City will continue to operate. Loss of cannabis tax revenue in the future may have an adverse impact on the City’s finances and such impact may be material.
Property Taxes. Taxes are levied by the County for each Fiscal Year on taxable real and personal property which is situated in the City as of the preceding January 1. Effective July 1, 1983, real property which changes ownership or is newly constructed is reassessed at the time the change in ownership occurs or the new construction is completed. The current year property tax rate will be applied to the reassessment, 104860768.2
16 and the taxes will then be adjusted by a proration factor to reflect the portion of the remaining tax year for which taxes are due.
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 State assessed public utilities property and real property having a tax lien which is sufficient, in the opinion of the County Assessor, to secure payment of the taxes. Other property is assessed on the “unsecured roll.” Unsecured property comprises all property not attached to land, such as personal property or business property. Boats and airplanes are examples of unsecured property.
Property taxes on the secured roll are due in two installments, on November 1 and February 1 of each Fiscal Year, and if unpaid become delinquent on December 10 and April 10, respectively, subject to a penalty of ten percent. Property on the secured roll with respect to which taxes are delinquent becomes tax defaulted on or about June 30 of the Fiscal Year. Such property may thereafter be redeemed by payment of a penalty of 1.5 percent 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 and then is subject to sale by the County Tax Collector.
Property taxes on the unsecured roll are due as of the January 1 lien date and, in general, become delinquent on August 31, subject to a ten percent penalty. If unsecured taxes are unpaid on October 31, an additional penalty of 1.5 percent attaches to them on the first day of each month until paid. The City has four ways of collecting delinquent unsecured personal property taxes: (1) bringing a civil action against the taxpayer; (2) filing a certificate 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 Clerk and Recorder’s office in order to obtain a lien on certain property of the taxpayer, and (4) seizing and selling personal property, improvements or possessory interests belonging or assessed to the assessee.
Economic and other factors beyond the City’s control, such as economic recession, deflation of land values, or the complete or partial destruction of taxable property caused by, among other things, earthquake, flood or other natural disaster could cause a reduction in the assessed value of taxable property in the City. See also “LIMITATIONS ON REVENUES AND APPROPRIATIONS – Property Tax Limitations – Article XIIIA, XIIIB, XIIIC (Proposition 218)” and “– Article XIIIA Implementing Legislation.”
Recently, State legislations have been introduced in order to assist various affected people and companies as a result of the COVID-19 outbreak. For example, Senate Bill 939 would allow under certain circumstances a commercial tenant that is a small business or is an eating or drinking establishment, place of entertainment, or performance venue that meets specified financial criteria, including experiencing a specified decline in revenue after a shelter-in-place order took effect, to terminate a lease without any liability for future rent, fees, or costs that otherwise may have been due under the lease. Also, Senate Bill 1431 would expand the provisions allowing for reassessment of property. Under existing law, property may be reassessed for damage or destruction caused by one of 3 specified occurrences, including a major misfortune or calamity in an area or region subsequently proclaimed by the Governor to be in a state of disaster if the property was damaged or destroyed by the misfortune or calamity that caused the Governor to proclaim the region to be in a state of disaster. Senate Bill 1431 would specify that “damage” includes diminution in the value of property as a result of any law, order, rule, or regulation of the state or any city, county, or other political subdivisions providing tenant protections in response to the COVID-19 outbreak and would also specify that the term “major misfortune or calamity” includes the COVID-19 outbreak. It is unknown what net impact, if any, these legislative efforts or other future similar bills, if enacted, would have on the assessed values of real property within the City.
Teeter Plan. The County adopted the Teeter Plan in 1993 with respect to collection of property taxes. The Teeter Plan is an alternate procedure authorized in Chapter 3, Part 8, Division 1 of the Revenue 104860768.2
17 and Taxation Code of the State of California (comprising Sections 4701 through 4717, inclusive), commonly referred to as the “Teeter Plan” for distribution of certain property tax and assessment levies on the secured roll. The City participates in the County’s Teeter Plan, and therefore, the amount of the levy of property tax revenue that can be allocated to the City does not depend upon the actual collections of taxes within the City.
Generally, the Teeter Plan provides for a tax distribution procedure by which secured roll taxes are distributed to taxing agencies, such as the City, within the County included in the Teeter Plan (the “Revenue Districts”) on the basis of the tax levy, rather than on the basis of actual tax collections. The County then receives all future delinquent tax payments, penalties and interest. In connection with its adoption of the Teeter Plan, the County advanced to the participating taxing agencies an amount equal to 95% of the total then-prior years’ delinquent secured property taxes and 100% of the then-current year’s secured roll levy.
Supplemental taxes are currently excluded from the Teeter Plan.
To implement a Teeter Plan, the board of supervisors of a county generally must elect to do so by July 15 of the fiscal year in which it is to apply. As a separate election, a county may elect to have the Teeter Plan procedures also apply to assessments on the secured roll. Once adopted, a county’s Teeter Plan will remain in effect in perpetuity unless the board of supervisors orders its discontinuance or unless prior to the commencement of a fiscal year a petition for discontinuance is received and joined in by resolutions of the governing bodies of not less than two thirds of the participating districts in the county. An electing county may, however, determine to discontinue the Teeter Plan with respect to any levying agency in the county if the board of supervisors, by action taken not later than July 15 of a fiscal year, elects to discontinue the procedure with respect to such levying agency and the rate of secured tax delinquencies in that agency in any year exceeds 3% of the total of all taxes and assessments levied on the secured roll by that agency.
In-lieu VLF. The City receives a portion of the Department of Motor Vehicles fees collected Statewide and other payments in-lieu of taxes. Payment of State assistance depends on the adoption of the State of its budget, including the appropriations therein providing for local assistance. [expand] Transient Occupancy Taxes (“TOT”). The City levies a transient occupancy tax is imposed on guest stays of thirty days (29 nights) or less. The City’s TOT increased almost $300,000 to just under $3.7 million in Fiscal Year 2020-21. The continued growth in TOT from Short-Term Vacation Rentals (“STVRs”) revenue increased to almost $1.25 million in Fiscal Year 2020-21 from $750,000 in Fiscal Year 2019-20. However, with the commencement of a phasing out of some of the STVR properties over the next two years, there could be an adverse financial impact to TOT.
Management Discussion
Good Governance Policies. The City Council has adopted a number of important policies designed for good fiscal management within the City.
Debt Management Policy On September 23, 2020, the City Council adopted a Debt Management Policy (the “Debt Policy”) consistent with Section 8855 of the Government Code of the State of California.
The Debt Policy applies to the City, the Successor Agency to the Former Redevelopment Agency and the Authority. The City is committed to long-term financial planning, maintaining appropriate reserves levels and employing prudent practices in governance, management and budget administration. The primary objectives under the Debt Policy of the City’s debt and financing related activities are to:
•Maintain cost-effective access to the capital markets through prudent fiscal management policies and practices;
•Ensure that judicious debt service commitments are made through effective planning and cash management;
•Ensure compliance with all applicable federal and state securities laws; 104860768.2
18 •Achieve the highest practical credit ratings within the context of the City's financing needs and financing capabilities;
•Ensure that all debt is structured in order to protect both current and future taxpayers, ratepayers and constituents of the City; and
•Ensure that the City's debt is consistent with the City's planning goals and objectives and capital improvement program or budget, as applicable.
Investment Policy In accordance with California Government Code, Sections 53600 et seq., the City maintains an Investment Policy, which was adopted by City Council on May 12, 2021 (the “Investment Policy”). The Investment Policy contains elements and guidelines on investing public funds, such as authorized and suitable investments, liquidity, authorized financial institutions and dealers, safekeeping and custody, diversification, internal controls and performance standards, and ethical and fiduciary responsibilities.
Under the Investment Policy, the standard to be used by the investment officials of the City will be that of a “prudent investor” and shall be applied in the context of managing all aspects of the overall portfolio. Government Code Section 53600.3 provides that those persons to whom investment decisions have been delegated are trustees with a fiduciary duty to act as a prudent investor. This standard of care directs that a trustee shall act with care, skill, prudence, and diligence under the circumstances then prevailing, that a prudent person acting in like capacity and familiarity with those matters would use in the conduct of funds of a like character and with like aims, to safeguard the principal and maintain the liquidity needs of the agency.
Fund Balance Policy The Fund Balance Policy of the City was adopted by City Council on September 10, 2014, as a key element of financial stability of the City. The City Council may assign fund balance to a specific purpose in relation to the Fund Balance Policy. By resolution, the City Council has also authorized the City Manager and/or Administrative Services Director to assign fund balance. Such assignments of fund balance do not require formal action by the City Council; however, each assignment must be approved by either of the authorized officials before the item can be presented in the City’s financial statements. To the extent the unassigned fund balance is positive, the City may draw upon the fund balance to provide cash financing for capital projects or other one-time purchases. Should economic projections and prudent measures warrant, City Council may also approve the systematic reduction of any excess fund balance as a tactic to prevent tax increases.
Of the available fund balance, the City strives to assign a minimum of 33% of budgeted expenditures and transfers out, for the following purposes: (1) cash flow reserves (50%); (2) economic uncertainties (40%); and (3) budget-related reserves (10%). These assignments are designed to alleviate significant unanticipated budget shortfalls and to ensure the orderly provisions of services to citizens.
Information Technology Security Policy The City has a comprehensive Information Technology Security Policy, dated January 2018. Among other matters, the Information Technology Security Policy addresses remote access, anti-virus, system security, information confidentiality, data retention, system backup and other important cyber security matters.
City Budget
The budget serves as a policy document and the foundation for the City’s financial planning and control. The objective of the City’s budgetary controls is to ensure compliance with legal provisions embodied in the budget approved by the City Council. To achieve time and cost efficiencies over a traditional annual budget, the City prepares and adopts a biennial budget for two separate fiscal years. Under this cycle, the second year is adopted by the City Council at the same time the first year is adopted. Each year is separate and distinct. For the General Fund, unencumbered funds from the first year do not carry over into the second year. On June 9, 2021, City Council adopted the biennial budget for Fiscal Years 2021- 22 and 2022-23.
104860768.2
19 The City Manager and the Administrative Services Director prepare and submit the budget to the City Council and administer it after adoption. The City Manager or the Administrative Services Director is authorized to adjust appropriations within each department or activity, while ensuring those adjustments do not exceed the amounts approved in the budget or any amending orders or resolutions approved by the governing body.
Management can make transfers between departments provided expenditures do not exceed appropriations at the fund level. Transfers of cash or unappropriated fund balance from one fund to another can only be made with City Council’s approval. For each fund, total expenditures may not legally exceed total appropriations. Any overall amendments/adjustments to these two budgets are made as a result of City Council actions/approval
Table 4
City of Cathedral City
General Fund
Comparison of Adopted Budget to Actual Results
FY 2019-20
Actual
FY 2020-21
Actual
FY 2021-22
Adopted
FY 2022-23
Adopted
BEGINNING BALANCE $25,763,355 $25,441,153 $21,654,527
Revenues and Other Sources 50,837,501 54,861,720 54,823,566 Expenditures and Other Uses 52,258,262 58,648,346 59,955,600 Net increase (decrease) (1,420,761) (3,786,626) (5,132,034) ENDING BALANCE 24,342,594 21,654,527 16,522,493
33% Fund Balance Reserve Policy 17,245,227 19,353,954 19,785,348 Available General Fund Balance $ 7,097,367 $ 2,300,573 (3,262,855) _______________________
Source: City of Cathedral City.
104860768.2
20 Appropriations Limit
Section 7910 of the Government Code of the State requires the City to adopt a formal appropriations limit for each fiscal year. The City’s appropriations limit for Fiscal Year 2022-23 is $_________. The appropriations limit is not expected to have any impact on the ability of the City to budget and appropriate the 2022A Base Rental Payments and Additional Rental Payments as required by the Lease.
Economic Development
There is active economic development within the City. The following projects are examples of recently completed/underway projects. The City makes no assurance whether or when any of the below- listed projects will be completed.
[to come]
Assessed Valuation
The City’s largest revenue source, property tax, is imposed on real property (land and permanently attached improvements, such as buildings) and tangible personal property (moveable property) located within the City. The assessed valuation of property in the City is established by the County Assessor, except for public utility property which is assessed by the California State Board of Equalization (the “Board of Equalization”). Assessed valuations are reported at 100% of the full cash value of the property, as defined in Article XIII A of the California Constitution. See “ – Limitations on Taxes and Appropriations” below.
Certain classes of property such as churches, colleges, not-for-profit hospitals and charitable institutions are exempt from property taxation and do not appear on the tax rolls.
Property tax revenue is recognized in the fiscal year for which the taxes have been levied providing they become available. Available means then due or past due and receivable within the current period and collected within the current period or expected to be collected soon enough thereafter (not to exceed 60 days) to be used to pay liabilities of the current period. The County collects property taxes for the City.
Tax liens attach annually as of 12:01 A.M. on the first day in January proceeding the fiscal year for which the taxes are levied. Taxes are levied on both real and personal property as it exists on that date. The tax levy covers the fiscal period July 1 to June 30. All secured personal property taxes and one-half of the taxes on real property are due November 1; the second installment is due February 1. All taxes are delinquent, if unpaid, on December 10 and April 10, respectively. Unsecured personal property taxes become due on the first of March each year and are delinquent, if unpaid, on August 31.
Economic and other factors beyond the City’s control, such as economic recession, deflation of land values, or the complete or partial destruction of taxable property caused by, among other things, earthquake, flood or other natural disaster could cause a reduction in the assessed value of taxable property in the City. See “RISK FACTORS.”
104860768.2
21 The following table sets forth the historical assessed valuations for secured and unsecured property within the City for the fiscal years shown.
Table 5
City of Cathedral City
Gross Assessed Value of All Taxable Property
(Fiscal Year ended June 30)
(in Thousands)
Fiscal
Year Secured Unsecured Total
Percentage
Change
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
_____________________
Source: ___________.
The following table sets forth property tax levies and collections for the City for the fiscal years show.
Table 6
City of Cathedral City
Tax Levies and Collections
(Fiscal Year ended June 30)
Collections within the
Fiscal Year of the Levy Total Collections to Date
Fiscal
Year
Total Tax
Levy for
Fiscal Year Amount
Percentage
of Levy
Collections
in
Subsequent
Years Amount
Percentage of
Levy
_______________________
Source: _________________.
104860768.2
22 Principal Property Taxpayers
The following table sets forth the ten principal taxpayers in the City by taxable assessed value as of June 30, 2021.
Table 7
CITY OF CATHEDRAL CITY
Top Ten Taxpayers
(In Thousands)
Taxpayer
Taxable
Assessed Value
Percent of
Total Taxable
Assessed Value
1. MHC Date Palm LLC $ 35,465 0.68%
2. Welk Park North 33,408 0.64
3. M2 Palm Springs 21,307 0.41
4. CC RP LLC 21,053 0.40
5. Frome Development Omega 19,487 0.37
6. Robertas LP 18,750 0.36
7. T Alliance One Palm Springs LLC 18,552 0.36
8. Ocotillo Place Apartments LLC 18,101 0.35
9. Eddie R Fischer 17,891 0.34
10. Bobs LLC 17,374 0.33
Top Ten Total $221,388 4.24%
__________________________
Source: City of Cathedral City.
Redevelopment Agencies
Until February 1, 2012, the California Redevelopment Law (Part 1 of Division 24 of the Health & Safety Code of the State) 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 was formed. In effect, local taxing authorities, such as the City, realized tax revenues only on the assessed value of such property at the time the redevelopment project was created for the duration of such redevelopment project.
The State Legislature approved two bills, AB X1 26 and AB X1 27, during the 2011-12 State budget process. AB X1 26 contemplated the elimination of redevelopment agencies State-wide, and AB X1 27 proposed to authorize the continued existence of redevelopment agencies that agreed to remit a percentage of their “tax increment” to the State’s taxing entities. The California Redevelopment Association and the League of California Cities filed a petition with the California Supreme Court (the “Court”), requesting the Court to review the constitutionality of AB X1 26 and AB X1 27. On December 29, 2011, the Court issued its opinion and upheld AB X1 26, but invalidated AB X1 27. As a result of the decision, all California redevelopment agencies, including the Former Redevelopment Agency, were dissolved as of February 1, 2012. Certain tax revenues allocable to the Former Redevelopment Agency will continue to be allocated to the Successor Agency to the Former Redevelopment Agency, to pay certain financial obligations approved by the Successor Agency’s Oversight Board and State Department of Finance (“DOF”), and some of those revenues may be redirected to other taxing agencies, such as the County, school districts and the City. 104860768.2
23 Direct and Overlapping Debt
Set forth on the following table is a direct and overlapping debt report (the “Debt Report”) for the City prepared by California Municipal Statistics, Inc., dated as of _________, 2022. The Debt Report is included for general information purposes only. The City has not reviewed the Debt Report for completeness or accuracy and makes no representations in connection therewith.
The Debt Report generally includes long term obligations sold in the public credit markets by public agencies whose boundaries overlap the boundaries of the City in whole or in part. Such long-term obligations generally are not payable from revenues of the City (except as indicated) nor are they necessarily obligations secured by land within the City. In many cases long-term obligations issued by a public agency are payable from the general fund or other revenues of such public agency.
TABLE 8
CITY OF CATHEDRAL CITY
Statement of Direct and Overlapping Debt
(________, 2022)
______________
Source: California Municipal Statistics, Inc.
104860768.2
24 General Fund Long-Term Obligations
The following obligations payable from the City’s General Fund are identified in the City’s audited financial statements for the Fiscal Year ended June 30, 2021. [confirm other long-term are all payable from the General Fund and are not attributable to other governmental activities] Long-Term Debt
Balance at
July 1, 2020 Additions Deletions
Balance
June 30, 2021
Due within
One Year
2015A Bonds: $ 2,561,000 - ($277,000) $ 2,284,000 $ 287,000 Other Long-Term Liabilities:
Compensated absences 4,398,440 $ 2,961,059 (2,658,791) 4,700,708 2,350,000 Net Pension Liability 37,556,227 8,121,563 (4,773,538) 40,904,252 - Other post-employment benefits 73,734,143 24,342,257 (1,995,022) 96,081,378 - Claims and judgments payable 4,185,119 591,572 (1,180,974) 3,595,717 1,000,000 Total $122,434,929 $36,016,451 $147,566,055
_______________
Source: City of Cathedral City and APPENDIX B – “AUDITED FINANCIAL STATEMENTS OF THE CITY OF CATHEDRAL CITY FOR THE FISCAL YEAR ENDING JUNE 30, 2021 – Note 8 Long-Term Debt.” (1) Lease payments made from tax increment.
Labor Contracts
The following table sets forth the City’s employee groups. [Terms of existing contracts roll forward upon expiration until each group and the City agrees to a new contract.] Group
Budgeted
Number of
Employees
Date of Contract
Expiration
Total
_______________
Source: City of Cathedral City.
Pension Plans
Plan Description. All qualified permanent and probationary employees are eligible to participate in the Public Agency Cost-Sharing Multiple-Employer Defined Benefit Pension Plan (collectively, the “Plan”) administered by the California Public Employees’ Retirement System (“CalPERS”). The CalPERS Plan operates under the provisions of the California Public Employees’ Retirement Law (“PERL”), the California Public Employees’ Pension Reform Act of 2013 (“PEPRA”), and the regulations, procedures and policies adopted by the CalPERS Board of Administration. The Plan’s authority to establish and amend the benefit terms are set by the PERL and PEPRA, and may be amended by the California state legislature and in some cases require approval by the CalPERS Board.
The 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 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 104860768.2
25 plan in the miscellaneous or safety risk pools. The City sponsors eight rate plans (three miscellaneous and five safety). Benefit provisions under the Plan are established by State statute and Local Government resolution. CalPERS issues publicly available reports with a full description of the pension plan regarding benefit provisions, assumptions and membership information that can be found on the CalPERS website, wwww.calpers.ca.gov.
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 the plan are applied as specified by the Public Employees’ Retirement Law.
The CalPERS Plan’s provisions and benefits in effect at June 30, 2021, are summarized as follows:
Safety (Police)
Tier 1 PEPRA
Hire date Prior to
January 1, 2013
On or After
January 1, 2013
Benefit formula 3% @ 55 2.7% @ 55
Benefit vesting schedule 5 Years’ service 5 years’ service Benefit payments Monthly for life Monthly for life
Retirement age 50 minimum 50 minimum
Monthly benefits, as a % of
eligible compensation
2.4%-3.0%
50 yrs – 55+ yrs
2.0%-2.7%
50 yrs – 57+ yrs
Required employee contribution rates 9.00% 12%
Required employer contribution rates 21.75% 13.04%
Required Employer UAL rate 22.14% 1.00%
Total Required Employer Contribution Rate 43.88% 14.04% Safety (Fire)
Tier 1 Tier 2 PEPRA
Hire date
Prior to
November 25, 2012
On or After
November 25, 2012
and Prior to
January 1, 2013
On or After
January 1, 2013
Benefit formula 3% @ 55 2% @ 55 2.7% @ 55
Benefit vesting schedule 5 Years’ service 5 Years’ service 5 years’ service Benefit payments Monthly for life Monthly for life Monthly for life Retirement age 50 minimum 50 minimum 50 minimum
Monthly benefits, as a % of
eligible compensation
2.4%-3.0%
50 yrs – 55+ yrs
1.426%-2.0%
50 yrs – 55+ yrs
1.426%-2.0%
50 yrs – 57+ yrs
Required employee contribution rates 9.00% 7.00% 10%
Required employer contribution rates 21.75% 14.81% 11.11% Required Employer UAL rate 18.54% 0.71% 0.84%
Total Required Employer Contribution Rate 40.29% 15.52% 11.95% Miscellaneous
Tier 1 Tier 2 PEPRA
Hire date
Prior to
November 25, 2012
On or After
November 25, 2012
and Prior to
January 1, 2013
On or After
January 1, 2013
Benefit formula 2% @ 55 2% @ 60 2% @ 62
Benefit vesting schedule 5 Years’ service 5 Years’ service 5 years’ service Benefit payments Monthly for life Monthly for life Monthly for life Retirement age 50 minimum 50 minimum 52 minimum
104860768.2
26 Contributions. Section 20814(c) of the California Public Employees’ Retirement Law requires 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 CalPERS’ annual actuarial valuation process. The actuarially determined rate is based on the estimated amount necessary to pay the Plan’s allocated share of the risk pool’s costs of benefits earned by employees during the year, and any unfunded accrued liability. The City is required to contribute the difference between the actuarially determined rate and the contribution rate of employees. The City’s contributions to the Plan for the year ended June 30, 2021 were $7,127,388.
Net Pension Liability. The City’s net pension liability for the CalPERS Plan is measured as the total pension liability, less the pension plan’s fiduciary net position. As of June 30, 2020, the City reported a net pension liability for its proportionate share of the net pension liability of the Plan of $40,904,252. See APPENDIX B – “AUDITED FINANCIAL STATEMENTS OF THE CITY OF CATHEDRAL CITY FOR FISCAL YEAR ENDED JUNE 30, 2021” changes in Net Pension Liability and Proportionate Share of Net Pension Liability and asset allocation and return information.
A summary of principal assumptions and methods used to determine the net pension liability is as follows:
Actuarial Cost Method Entry Age Normal
Actuarial Assumptions:
Discount Rate 7.15%
Inflation 2.50%
Salary Increases Varies by Entry Age and Service
Mortality Rate Table Derived using CalPERS’ Membership Data for all Funds Post-Retirement Benefit Increase Contract COLA up to 2.75% until Purchasing Power Protection Allowance Floor on Purchasing Power applies
____________________
Source: APPENDIX B – “AUDITED FINANCIAL STATEMENTS OF THE CITY OF CATHEDRAL CITY FOR FISCAL YEAR ENDED JUNE 30, 2021.”
Other Post-Employment Benefits. The City provides certain health care benefits for employees who retire directly from the City. As of June 30, 2021, there were 177 active employees covered and 122 retirees receiving such benefits.
Employees taking a qualified retirement under the CalPERS system within 120 days of separation from the City may elect to participate in such group health insurance policies as provided by the City under the following conditions: (a) the unit member must be age 50 and have worked for the City at least 5 years prior to retiring; and (b) all retired unit members shall be eligible for a City-paid contribution up to the applicable maximum (caps) for single, single plus one, and family coverage. Eligible retired employees (annuitants) under the Public Employees’ Medical and Hospital Care Act (“PEMHCA”), Government Code Section 22750, et seq. are subject to PEMHCA laws.
Monthly benefits, as a % of
eligible compensation
1.426%-2.418%
50 yrs – 63+ yrs
1.092%-2.418%
50 yrs – 63+ yrs
1.0%-2.5%
52 yrs – 67+ yrs
Required employee contribution rates 7.00% 7.00% 6.75%
Required employer contribution rates 11.03% 8.79% 7.73% Required Employer UAL rate 16.54% 0.41% 0.44%
Total Required Employer Contribution Rate 27.58% 9.20% 8.17% 104860768.2
27 Under PEMHCA’s “equal contribution rule” (Government Code Section 22892), the City is required to contribute the same premium amount for both active employees and annuitants, but not less than “the PEMHCA minimum,” which is an amount adjusted annually by CalPERS to reflect any change in the medical care component of the Consumer Price Index. The “PEMHCA” minimum for 2021 is $143 per month. Under the “equal contribution rule,” reducing the City’s contribution for future hires’ retiree benefits require the same contribution reduction for active employees’ benefits. To avoid decreasing the City’s contribution towards the cost of medical premiums for active employees, the City can pay directly to CalPERS the “PEMHCA minimum” amount for active employees and then make the remainder of the City’s premium contribution for active employees under the premium cost-share formula. For CalPERS’ purposes, the City pays only the “PEMHCA minimum” for active employees. The employees continue to receive the City contribution to medical premiums required by the City’s cost-share formula. In addition to group health insurance, the City will continue to pay the full premiums for both dental and vision insurance, as applicable to each of the respective labor unit agreements as long as the total premiums are under the respective caps. The plan is a single- employer defined benefit plan. Since no assets are legally segregated for the sole purpose of paying benefits under the Plan, the plan does not issue a separate financial report.
For additional detail, see APPENDIX B – “AUDITED FINANCIAL STATEMENTS OF THE CITY OF CATHEDRAL CITY FOR FISCAL YEAR ENDED JUNE 30, 2021.”
The plan is funded on a pay-as-you-go basis. There is no requirement imposed by CalPERS to contribute any amount beyond the pay-as-you-go contributions. No additional contributions have been made to date. The annual contribution is based on the actuarially determined contribution. For the measurement date ended June 30, 2020, the City’s cash contributions were $1,995,022 in total payments, which were recognized as a reduction to the OPEB liability.
The City’s Total OPEB measured liability as of June 30, 2020 was determined by an actuarial valuation dated January 1, 2019 that was rolled forward to determine the June 30, 2020 total OPEB liability.
As of June 30, 2020, the City reported a total OPEB liability of $96,081,378.
A summary of principal assumptions and methods used to determine the total OPEB liability is as follows:
Actuarial valuation date January 1, 2019
Contribution Policy No pre-funding
Discount Rate 2.21% at June 30, 2020 (Bond Buyer 20-bond Index)
3.50% at June 30, 2019 (Bond Buyer 20-bond Index)
Actuarial cost method Entry age normal cost
Amortization method Level percentage of payroll, closed Actuarial assumptions:
Inflation 2.75%
Projected salary increases 3.00%
Healthcare cost trend 7.5% (non-Medicare) and 6.5% (Medicare) for 2020, reduced each year thereafter until an ultimate rate of 4.0% is reached in 2076 and later years
Retirement age Based on CalPERS 1997-2015 Experience Study ____________________
Source: APPENDIX B – “AUDITED FINANCIAL STATEMENTS OF THE CITY OF CATHEDRAL CITY FOR FISCAL YEAR ENDED JUNE 30, 2021.”
104860768.2
28 STATE OF CALIFORNIA BUDGET INFORMATION
State Budget
General. 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 Department of Finance, www.dof.ca.gov, under the heading “California Budget.” An impartial analysis of the budget is posted by the Office of the Legislative Analyst at 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, www.treasurer.ca.gov. The information referred to is prepared by the respective State agency maintaining each website and not by the City or the Authority, and the City and the Authority can take 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. 2021-22 State Budget
On July 16, 2021, Governor Newsom signed into law the Fiscal Year 2021-22 State Budget (the “2021-22 State Budget”). The 2021-22 State Budget totals about $262.6 billion. General Fund spending would increase over Fiscal Year 2020-21 by about $30.4 billion (18.3%) to $196.4 billion. The State is projected to end the Fiscal Year 2020-21 with available general fund reserves that include: $15.8 billion in the Budget Stabilization Account (the General Fund’s “rainy-day” fund) for fiscal emergencies; $900 million in the Safety Net Reserve (used to maintain benefits and services for CalWORKs and Medi-Cal participants during economic downturns) and $4.5 billion in the Public School System Stabilization Account (the Proposition 98 “rainy-day” fund used to lessen the impact of State revenue volatility on K-14 schools). The multi-year forecast reflects a budget roughly in balance; however, risks to the economic forecast remain, including a stock market decline that would significantly reduce State revenues. 2022-23 State Budget
Governor’s Proposed Fiscal Year 2022-23 Budget. On January 10, 2022, Governor Gavin Newsom presented his proposed Fiscal Year 2022-23 State Budget (the “Proposed Budget”) to the California Legislature. The Proposed Budget totals approximately $286.4 billion. The Proposed Budget projects that the State will maintain a surplus of $45.7 billion, which includes $20.6 billion in the State’s General Fund for discretionary purposes, $16.1 billion in additional Proposition 98 funding for K-14 education, and $9 billion in reserve deposits and supplemental pension payments. The Proposed Budget allocates 86 percent of the discretionary surplus to one-time investments.
The Proposed Budget also reflects $34.6 billion in budgeted reserves, including $20.9 billion in the Proposition 2 Budget Stabilization Account (Rainy Day Fund) for fiscal emergencies, $9.7 billion in the Public School System Stabilization Account, $900 million in the Safety Net Reserve, and $3.1 billion in the State’s operating reserve. Under the Proposed Budget, the Rainy Day Fund would reach its constitutional maximum limit of 10 percent of General Fund revenues, requiring $2.4 billion to be dedicated for infrastructure investments in 2022-23. The Proposed Budget accelerates the pay-down of State retirement liabilities as required by Proposition 2, with $3.9 billion in additional payments in 2022-23 and nearly $8.4 billion projected to be paid over the subsequent three years.
Significant features of the Proposed Budget affecting public agencies in California include:
•COVID-19 Pandemic Response – $1.4 billion in early action monies for efforts to increase vaccination rates and expansion of testing.
104860768.2
29 •Education and Parents Agenda – $119 billion in total funding for K-12 education; K-12 per-pupil funding totals $15,261 in Proposition 98 General Fund monies and $20,855 per pupil from all funding sources; $1 billion in Proposition 98 General Fund monies to begin universal transitional kindergarten to all four-year-olds; $3.4 billion Proposition 98 General Fund ongoing to support access to expanded-day, full-year instruction for all elementary school students; $937 million Proposition 98 General Fund to support integrating arts and music into school enrichment programs; expansion of the Young Child Tax Credit to families that file returns without income and proposes to index the credit to inflation.
•Transportation – $9.1 billion ($4.9 billion General Fund and $4.2 billion Proposition 1A bond funds) to support the development of high-speed rail in California, regional transit and rail projects, bicycle and pedestrian projects, and climate adaptation projects; $1.3 billion General Fund for improvements to the State’s goods movement infrastructure, including improving date interconnectivity to reduce congestion and increase supply chain efficiency; $6.1 billion over five years to support zero-emission vehicles and charging infrastructure in low-income communities across the State.
•Energy – $2 billion in General Fund appropriations over two years to provide incentives for long- duration-storage projects, renewable hydrogen, and industrial decarbonization including the food processing sector.
•CalWORKs Grant Increase – 7.1 percent increase to CalWORKs Maximum Aid Payment levels, with an estimated cost of $200.7 million in 2022-23. These costs are funded via the Child Poverty and Family Supplemental Support Subaccount of the 1991 Local Revenue Fund. •Homelessness – $2 billion over two years, in addition to last fiscal year’s three-year $12 billion allocation, to continue the State’s efforts to address homelessness by investing in behavioral health housing and encampment cleanup grants.
•Crime – $285 million General Fund allocation over three years for grants to bolster local law enforcement response to organized retail theft crime; $25 million to provide matching grants for local government firearm buy-back programs; $20 million to support small businesses affected by retail theft; $20 million for a drug interdiction program at the California-Mexico border. •Wildfires – $1.5 billion to significantly increase the State’s ability to prevent wildfires by proposing $1.2 billion over two years for investments in forest health and fire prevention, including reforestation efforts; $400 million to support CAL FIRE firefighters in addressing the effects of the recent prolonged wildfire seasons.
•Drought – $750 million General Fund appropriation to address immediate drought response needs, including $250 million set aside as contingency. This funds are in addition to last fiscal year’s budget appropriation of $5.2 billion over three years to support drought response and long-term water sustainability.
•Workforce Training and Opportunity – $1.5 billion Proposition 98 General Fund appropriation to support development of college and career pathways focused on education, health care, technology, and climate-related fields; $1.7 billion to expand the State’s health and human services workforce.
LAO Overview of Proposed 2022-2023 State Budget. The Legislative Analyst’s Office (the “LAO”) is a nonpartisan State office which provides fiscal and policy information and advice to the State Legislature. On January 13, 2022, the LAO released its report on Governor Newsom’s Proposed 2022-23 State Budget entitled “The 2022-23 Budget: Overview of the Governor’s Budget.” 104860768.2
30 In its report, the LAO states that the Governor’s new spending proposals exceed the administration’s estimates of the Budget’s capacity in future years. The LAO also advises that the State Legislature provide greater appropriations to the State budget reserves, as the reserves – aside from the Proposition 98 reserves which have increased from zero in fiscal year 2019-20 to nearly $10 billion in the Proposed Budget – have not increased as a share of other General Fund spending and are currently below their pre-pandemic share.
The LAO finds that the Proposed Budget is projected to end fiscal year 2022-23 with approximately $24.8 billion in total general purpose reserves, representing an increase of $4.3 billion from the budgeted reserves level of $20.7 billion in fiscal year 2021-22 as set forth in the 2021-22 State Budget. The increase in the reserves is the result of three factors: (1) a $1.6 billion deposit in the State’s Budget Stabilization Account, (2) a $3.5 billion “true-up” deposit in the Budget Stabilization Account for 2020-21 and 2021-22 primarily due to higher estimates of capital gains revenues from those fiscal years, and (3) a decrease in the discretionary Special Fund for Economic Uncertainties of nearly $1 billion.
Future State Budgets
No prediction can be made by the City as to whether the State will encounter budgetary problems in future fiscal years, and if it were to do so, it is not clear what measures would be taken by the State to balance its budget, as required by law. In addition, the City cannot predict the final outcome of future State budget negotiations, the impact that such budgets will have on City finances and operations or what actions will be taken in the future by the State Legislature and the Governor to deal with changing State revenues and expenditures. There can be no assurance that actions taken by the State to address its financial condition will not materially adversely affect the financial condition of the City. Current and future State budgets will be affected by national and State economic conditions and other factors, including the current economic downturn, over which the City has no control.
RISK FACTORS
Purchase of the 2022A Bonds will constitute an investment subject to certain risks, including the risk of nonpayment of principal and interest. Before purchasing any of the 2022A Bonds, prospective investors should carefully consider, among other things, the risk factors described below. However, the following is not meant to be an exhaustive listing of all the risks associated with the purchase of the 2022A Bonds. Moreover, the order of presentation of the risk factors does not necessarily reflect the order of their importance.
2022A Base Rental Payments Are Not Debt; 2022A Bonds are Limited Obligations The obligation of the City to make the 2022A Base Rental Payments under the Lease does not constitute an obligation of the City for which the City is obligated to levy or pledge any form of taxation or for which the City has levied or pledged any form of taxation. Neither the 2022A Bonds nor the obligation of the City to make 2022A Base Rental Payments constitutes a debt of the City, the State or any political subdivision thereof (other than the Authority) within the meaning of any constitutional or statutory debt limitation or restriction.
The 2022A Bonds are not general obligations of the Authority, but are limited obligations payable solely from and secured by a pledge of Revenues and amounts held in the funds and accounts created under the Indenture, consisting primarily of applicable 2022A Base Rental Payments. The Authority has no taxing power.
The 2022A Bonds are being issued by the Authority pursuant to the Act. The Supreme Court of the State in its 1998 decision of Rider v. City of San Diego, 18 Cal. 4 th 1035, upheld the validity of a joint powers agency financing and found that bonds issued pursuant to the Act and payable from lease payments 104860768.2
31 made pursuant to a lease with the City of San Diego were not subject to the State constitutional provisions that require two-thirds voter approval of indebtedness incurred by a city, county or school district. No voter approval of the 2022A Bonds or the Lease has been sought.
Although the Lease does not create a pledge, lien or encumbrance upon the funds of the City, the City is obligated under the Lease to pay the 2022A Base Rental Payments from any source of legally available funds and the City has covenanted in the Lease that, for so long as the Leased Property is available for its use, it will make the necessary annual appropriations within its budget for the 2022A Base Rental Payments. The City is currently liable and may become liable on other obligations payable from general revenues, some of which may have a priority over the 2022A Base Rental Payments, or which the City, in its discretion, may determine to pay prior to the 2022A Base Rental Payments.
The City has the capacity to enter into other obligations payable from the City’s General Fund, without the consent of or prior notice to the Owners of the 2022A Bonds. To the extent that additional obligations are incurred by the City, the funds available to make 2022A Base Rental Payments may be decreased. If the City’s revenue sources are less than its total obligations, the City could choose to fund other activities before making 2022A Base Rental Payments and other payments due under the Lease. The same result could occur if State constitutional expenditure limitations were to prohibit the City from appropriating and spending all of its otherwise available revenues.
Abatement
The obligation of the City to pay 2022A Base Rental Payments and Additional Rental Payments shall be abated during any period in which by reason of any damage, destruction, condemnation or title defect there is substantial interference with the use by the City of the Leased Property or any portion thereof.
Such abatement shall be in an amount such that the resulting 2022A Base Rental Payments in any year during which such interference continues does not exceed the fair rental value of the portions of the Leased Property as to which such damage, destruction, taking or title defect does not substantially interfere with the City’s use and right of possession, as evidenced by a Certificate of the City. Such abatement shall continue for the period commencing with the date of interference resulting from such damage, destruction, condemnation, taking or title defect and, with respect to damage to or destruction of the Leased Property, ending with the substantial completion of the work of repair or replacement of the Leased Property, or the portion thereof so damaged or destroyed, and the term of the Lease shall be extended as provided in the Lease. Notwithstanding the foregoing, to the extent that moneys are available for the payment of base rental payments in any of the funds and accounts established under the Indenture, such base rental payments shall not be abated but shall be payable by the City as a special obligation payable solely from such funds and accounts. See APPENDIX C – “SUMMARY OF CERTAIN PROVISIONS OF THE PRINCIPAL LEGAL DOCUMENTS – The Lease – Abatement of Rental.”
Risk of Uninsured Loss
The City covenants under the Lease to maintain certain insurance policies on the Leased Property.
These insurance policies do not cover all types of risk. The Leased Property could be damaged or destroyed due to earthquake or other casualty for which the Leased Property is uninsured. The Lease does not require earthquake insurance. Additionally, the Leased Property could be the subject of an eminent domain proceeding. Under these circumstances an abatement of 2022A Base Rental Payments could occur and could continue indefinitely. There can be no assurance that the providers of the City’s liability will in all events be able or willing to make payments under the respective policies for such loss should a claim be made under such policies. Further, there can be no assurances that amounts received as proceeds from insurance or from condemnation of the Leased Property will be sufficient to repair the Leased Property or to redeem the 2022A Bonds secured by 2022A Base Rental Payments. 104860768.2
32 Certain of the City’s insurance policies provide for deductibles up to $500,000. Should the City be required to meet such deductible expenses, the availability of General Fund revenues to make 2022A Base Rental Payments may be correspondingly affected.
Eminent Domain
If the Leased Property is taken permanently under the power of eminent domain or sold to a government threatening to exercise the power of eminent domain, the term of the Lease will cease as of the day possession is taken. If less than all of the Leased Property is taken permanently, or if the Leased Property or any part thereof is taken temporarily, under the power of eminent domain, (a) the Lease will continue in full force and effect and will not be terminated by virtue of such taking, and (b) there will be a partial abatement of base rental payments as a result of the application of net proceeds of any eminent domain award to the prepayment of the base rental payments, in an amount to be agreed upon by the City and the Authority such that the resulting base rental payments represent fair consideration for the use and occupancy of the remaining usable portion of the Leased Property. The City covenants in the Lease to contest any eminent domain award which is insufficient to either: (i) prepay the base rental payments in whole, if all the Leased Property is condemned; or (ii) prepay a pro rata share of base rental payments, in the event that less than all of the Leased Property is condemned.
City General Fund
In General. The 2022A Base Rental Payments and other payments due under the Lease are payable from funds lawfully available to the City. If the amounts which the City is obligated to pay in a fiscal year exceed the revenues for such year, the City may choose to make some payments rather than making other payments, including 2022A Base Rental Payments, based on the perceived needs of the City. The same result could occur if, because of California Constitutional limits on expenditures, the City is not permitted to appropriate and spend all of its available revenues or is required to expend available revenues to preserve the public health, safety and welfare. For more information regarding California Constitutional limits on expenditures see “LIMITATIONS ON REVENUES AND APPROPRIATIONS – Property Tax Limitations – Article XIIIA, XIIIB, XIIIC (Proposition 218).” Risk of Increased Expenditures. Under the Lease, provided the City is not currently in default thereunder, the City is permitted to expend for any municipal purpose or otherwise incur other evidences of indebtedness or other obligations payable from the City’s General Fund without the consent of Owners of the 2022A Bonds. To the extent that additional obligations are incurred by the City, the funds available to pay 2022A Base Rental Payments could decrease.
Risk of Decreased Revenues. A variety of national, state or regional factors, which are beyond the control of the City’s fiscal policies, as well as the City’s fiscal policies could reduce the amount of the City’s General Fund revenues. To the extent that City revenues decrease, the funds available to pay 2022A Base Rental Payments could decrease. See “THE CITY.”
Public Health Emergencies
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 World Health Organization (“WHO”) declared the COVID-19 outbreak to be a pandemic, and states of emergency have been declared from time to time by the City, the Governor of the State and the President of the United States. Beginning in early 2020, to mitigate the public health impacts from COVID-19, all counties in the Bay Area implemented and revised, from time to time, shelter-in-place (“Shelter-in-Place”) emergency orders, which directed individuals to stay home, except for limited travel for the conduct of essential services. The outbreak resulted in the imposition of restrictions on mass gatherings, universities and schools. Many retail establishments (including restaurants, bars and nightclubs, entertainment venues and gyms) were closed or restricted in 104860768.2
33 response to the Shelter-in-Place orders. The spread of COVID-19 and the public health responses by government authorities contributed to negative economic impacts throughout the world, including the City.
Variants of the coronavirus responsible for COVID-19 could lead to greater disease rates. The longer-term effectiveness of vaccines is yet unproven, and future vaccination rates and any necessary booster vaccinations cannot be predicted with certainty. There can be no assurances against a resurgence of the disease and re-imposition of Shelter-in-Place or similar or more restrictive public health restrictions in response. Thus, the duration, severity and economic effects of the pandemic remain uncertain in many respects. The ultimate impact of COVID-19 on the operations and finances of the City is not predictable, bus such impacts could be material and adverse.
Bankruptcy
A bankruptcy petition may be filed by the City. In particular, the City may file a petition under Chapter 9 (“Chapter 9”) of Title 11 of the United States Code (the “Bankruptcy Code”), provided that it complies with requirements of Section 53760 et seq. of the Government Code of the State. Under the Government Code, a local public entity, including the City, is prohibited from filing under the Bankruptcy Code unless it has participated in a specified neutral evaluation process with interested parties, as defined, or it has declared a fiscal emergency and has adopted a resolution by a majority vote of the governing board at a noticed public hearing that includes findings that the financial state of the local public entity jeopardizes the health, safety, or well-being of the residents of the local public entity’s jurisdiction or service area absent bankruptcy protections.
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 proceeding. Among the adverse effects of such a bankruptcy 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; (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 court-approved secured debt which may have a priority of payment superior to that of the 2022A Base Rental Payments under the Lease as they relate to Revenues due to Owners of 2022A Bonds; and (iv) the possibility of the adoption of a plan for the adjustment of the City’s debt (a “Plan”) without the consent of the Trustee or all of the Owners of 2022A Bonds, which Plan may restructure, delay, compromise or reduce the amount of any claim of the Owners if the Bankruptcy Court finds that the Plan is fair and equitable.
In addition, the City could either reject the Lease or assume the Lease despite any provision of the Lease which makes the bankruptcy or insolvency of the City an event of default thereunder. If the City rejects the Lease, the Trustee, on behalf of the Owners of the 2022A Bonds, would have a pre-petition claim that may be limited under the Bankruptcy Code and treated in a manner under a Plan over the objections of the Trustee or Owners of the 2022A Bonds. Moreover, such rejection would terminate the Lease and the City’s obligations to make payments thereunder.
Further, the Authority is a public agency and, like the City, is not subject to the involuntary procedures of the Bankruptcy Code. The Authority may also seek voluntary protection under Chapter 9 of the Bankruptcy Code. In the event the Authority were to become a debtor under the Bankruptcy Code, the Authority would be entitled to all of the protective provisions of the Bankruptcy Code as applicable in a Chapter 9 proceeding. 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 Authority or the commencement of any judicial or other action for the purpose of recovering or collecting a claim against the Authority; (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 court-approved secured debt which may 104860768.2
34 have priority of payment superior to that of the Owners of the 2022A Bonds; and (iv) the possibility of the adoption of a plan for the adjustment of the Authority’s debt without the consent of the Trustee or all of the Owners of the 2022A Bonds, which plan may restructure, delay, compromise or reduce the amount of any claim of the Owners if the Bankruptcy Court finds that the Plan is fair and equitable. However, the bankruptcy of the Authority, and not the City, should not affect the Trustee’s rights under the Lease. The Authority could still challenge the assignment, and the Trustee and/or the Owners of the 2022A Bonds could be required to litigate these issues in order to protect their interests.
The adjustment plans approved by the Bankruptcy Courts in connection with the bankruptcies of the cities of Vallejo, San Bernardino and Stockton resulted in significant reductions in the amounts payable by the cities under lease revenue obligations substantially identical or similar to the 2022A Bonds. The City can provide no assurances about the outcome of the bankruptcy cases of other California municipalities or the nature of any adjustment plan if it were to file for bankruptcy.
The various legal opinions to be delivered concurrently with the 2022A Bonds (including Bond Counsel’s approving opinion) will be qualified as to the enforceability of the various agreements relating to the 2022A Bonds by limitations imposed by bankruptcy, reorganization, insolvency or other similar laws affecting the rights of creditors generally and by general principles of equity applied in the exercise of judicial discretion.
State Finances
According to the State Constitution, the Governor is required to propose a budget to the State Legislature by no later than January 10 of each year, and a final budget must be adopted by the vote of each house of the Legislature no later than June 15, although this deadline has been breached in the past. In November 2010, the voters of the State passed Proposition 25, which reduced the vote required to adopt a budget to a majority vote of each house and which provided that there would be no appropriation from the current budget or future budget to pay any salary or reimbursement for travel or living expenses for members of the Legislature for the period during which the budget was presented late to the Governor. The State budget becomes law upon the signature of the Governor, who may veto specific items of expenditure.
The State’s financial condition and budget policies affect communities and local public agencies throughout California. State budgets are affected by regional, national or even international economic conditions and a multitude of other factors over which the City has no control. The City cannot give any assurances regarding the financial conditions of the State during any period of time. The City also cannot predict what measures the State will adopt to respond to any future financial difficulties. The City can provide no guarantees regarding the outcome of future State budget negotiations, the actions that will be taken in the future by the State Legislature and Governor to deal with changing State revenues and expenditures, or the impact that such budgets or actions will have on the City’s finances and operations.
Some of the State’s budget solutions have caused in the past, and may cause in the future, increased financial stress to cities, counties and other local governments by: (i) decreasing local revenues (for example, the property tax, road improvement funding, public safety or other categorical funded initiatives), or (ii) increasing directly or indirectly demand for local programs (such as public safety or indigent health programs).
Information about the State budget and State spending is available at various State-maintained websites. Text of proposed and adopted budgets may be found at the website of the State Department of Finance, www.dof.ca.gov. An analysis of the budget is posted by the Office of the Legislative Analyst at www.lao.ca.gov. In addition, various official statements for State-issued bonds, many of which contain a summary of the current and past State budgets may be found at the website of the State Treasurer, www.treasurer.ca.gov. None of the websites referenced above is in any way incorporated into this Official Statement. They are cited for informational purposes only. The City makes no representation concerning, 104860768.2
35 and does not take any responsibility for, the accuracy or timeliness of information posted on such websites or the continued maintenance of such websites by the respective entities.
No Liability of Authority to the Owners
Except as expressly provided in the Indenture, the Authority will not have any obligation or liability to the Owners of the 2022A Bonds with respect to the payment when due of the Base Rental Payments by the City, or with respect to the performance by the City of other agreements and covenants required to be performed by it contained in the Lease or the Indenture, or with respect to the performance by the Trustee of any right or obligation required to be performed by it contained in the Indenture.
No Limitation on Incurring Additional Obligations
Neither the Lease nor the Indenture contains any limitations on the ability of the City to enter into other obligations that may constitute additional claims against its General Fund revenues. To the extent that the City incurs additional obligations, the funds available to make 2022A Base Rental Payments may be decreased. The City is currently liable on other obligations payable from General Fund revenues and expects to enter into other such obligations in the future. Such obligations may impose significant additional burdens on the City’s General Fund.
Natural Disasters
General. From time to time, the City is subject to natural calamities which could result in the substantial interference with the use and occupancy of the Leased Property, which could result in 2022A Base Rental Payments being subject to abatement or an adverse impact on the City’s General Fund. Under such circumstances, no assurance can be given that the City would have insurance or other resources available to make repairs to the Leased Property or to make 2022A Base Rental Payments under the Lease.
Geological and Seismic. The San Andreas Fault System runs through the northeastern portion of the Valley from along the east shore of the Salton Sea to the San Bernardino Mountains at Mission Creek.
The San Jacinto Fault System runs along western portion of the San Jacinto Mountains but is very active and capable of generating strong ground shaking in the Coachella Valley. Both fault systems have complex structural characteristics and slip rates.
A major earthquake could cause widespread destruction and significant loss of life in a populated area such as the City. If an earthquake were to substantially damage or destroy taxable property within the City, a reduction in taxable values of property in the City and a reduction in revenues available to the General Fund to make 2022A Base Rental Payments would be likely to occur and therefore, Revenues available to pay debt service on the Bonds could be materially adversely affected. Seismic activity may also reduce or eliminate the use and occupancy of the Leased Property by the City. There is no assurance that, in the event of a natural disaster, sufficient City reserves or Federal Emergency Management Agency assistance would be available for the repair or replacement of any Leased Property.
Flooding. The City is susceptible to flooding primarily from rainstorm flooding. The City most recently experienced damage resulting from the rainstorms and flooding that occurred throughout Southern California from February 10 - 15, 1992. The City is bisected by the Walnut Creek Wash, a flood control project. Prior to the flood control system being built, Walnut Creek, which flows across the central section of the City from east to west, would overflow its banks.
Wildfires. In recent years, portions of California have experienced wildfires that have burned thousands of acres and destroyed thousands of homes and structures, even in areas not previously thought to be prone to wildfires. Such areas affected by wildfires are more prone to flooding and mudslides that can further lead to the destruction of homes. Fires may cause damage to the Leased Property, which could result 104860768.2
36 in 2022A Base Rental Payments being subject to abatement or an adverse impact on the City’s General Fund.
The City’s emergency response to such an events may add unanticipated expenditures to the General Fund budget, some or all of which may not be reimbursed by federal or state disaster funding, and, if reimbursed, may not be received by the City in a timely manner. This could lead to reduced ability by the City to make 2022A Base Rental Payments and therefore, Revenues available to pay debt service on the 2022A Bonds could be materially adversely affected. Such event could also result in substantial damage to properties in the City, which, in turn, could substantially reduce the value of such properties and could affect the ability or willingness of the property owners to pay their property taxes or of businesses to operate and generate sales tax.
Other Force Majeure Events. The Leased Property may also be at risk from other events of force majeure, such as damaging storms, explosions, strikes, sabotage, riots and spills of hazardous substances, among other events. The City cannot predict what force majeure events may occur in the future.
Climate Change
Numerous scientific studies on global climate change show that, among other effects on the global ecosystem, sea levels will rise, extreme temperatures will become more common, wildfires will become more common and intense, and extreme weather events will become more frequent as a result of increasing global temperatures attributable to atmospheric pollution. For example, the Fourth National Climate Assessment, published by the U.S. Global Change Research Program, in November 2018 (NCA4) finds that more frequent and intense extreme weather and climate-related events, as well as changes in average climate conditions, are expected to continue to damage infrastructure, ecosystems and social systems over the next 25 to 100 years.
On November 13, 2013, the City adopted a Climate Action Plan for the development and implementation of policies and programs to reduce greenhouse gas emissions within the City. The Plan identifies 77 specific action items or measures to achieve such reductions.
Hazardous Substances
The public works activities of the City may, from time to time, result in the use of hazardous substances on the facilities owned and operated by the City, including, but not limited, to the Leased Property. Accordingly, it is possible that spills, discharges or other adverse environmental consequences of such use in the future could cause an adverse effect on the fair rental value of the Leased Property and lead, in an extreme case, to abatement, in whole or in part, of all or a portion of the 2022A Base Rental Payments. See “RISK FACTORS – Abatement” above.
Cybersecurity
The City, like many other public and private entities, relies on computer and other digital networks and systems to conduct its operations and finances. As a recipient and provider of personal, private or other electronic sensitive information, the City is potentially subject to multiple cyber threats including, but not limited to, hacking, viruses, malware, ransomware and other attacks on computer and other sensitive digital networks and systems. Entities or individuals may attempt to gain unauthorized access to the City’s systems for the purposes of misappropriating assets or information or causing operational disruption or damage.
The City provides training to its staff on phishing and safe browsing and how to avoid potential cyber threats. However, no assurances can be given that the security and operational control measures of the City will be successful in guarding against any and each cyber threat or breach. 104860768.2
37 Limitations on Remedies
The enforceability of the rights and remedies of the owners of the 2022A Bonds and the Trustee, and the obligations incurred by the Authority and the City, respectively, may be subject to the following, among others: the limitations on legal remedies against joint powers authorities and cities in California; 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; principles of equity that 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 U.S. Constitution; and the reasonable and necessary exercise, in certain exceptional situations, of the police power inherent in the sovereignty of the State and its governmental bodies in the interest of serving a significant and legitimate public purpose.
Bankruptcy proceedings, or the exercise of powers by the federal or State government, if initiated, could subject the owners of the 2022A Bonds to judicial discretion and interpretation of their rights in bankruptcy or otherwise, and consequently may entail risks of delay, limitations or modification of their rights. See also, “Bankruptcy” above.
Limitations on Remedies under the Lease
If an event of default occurs and in continuing under the Lease, there is no remedy of acceleration of any Base Rental Payments which have not come due, and no right for the Authority, the Trustee or any Owner to terminate the Lease and re-let the Leased Property. The remedy provided under the Lease is to exercise any action at law or in equity necessary or desirable to collect the amounts then due and owing under the Lease. See APPENDIX C – “SUMMARY OF CERTAIN PROVISIONS OF THE PRINCIPAL LEGAL DOCUMENTS.”
Substitution of Property
Pursuant to the Lease, the City will have, so long as the Lease is in effect, the option at any time and from time to time, to substitute other real property for any portion of the Leased Property or release any identifiable real property and/or improvements constituting the Leased Property, provided that the City shall satisfy all of the requirements set forth in the Lease. See APPENDIX C – “SUMMARY OF CERTAIN PROVISIONS OF THE PRINCIPAL LEGAL DOCUMENTS – The Lease – Substitution and Release of Property.”
Secondary Market Risk
There can be no assurance that there will be a secondary market for purchase or sale of the 2022A Bonds, and from time to time there may be no market for them, depending upon prevailing market conditions, the financial condition or market position of firms who may make the secondary market and the financial condition of the City.
LIMITATIONS ON REVENUES AND APPROPRIATIONS
There are a number of provisions in the State of California Constitution that limit the ability of the City to raise and expend revenues. Contained below is a description of some of these limitations. In addition to the ones discussed in this section below, other initiative measures could be adopted from time to time further affecting the City’s revenues and finances.
Property Tax Limitations – Article XIIIA, XIIIB, XIIIC (Proposition 218) Article XIIIA of the California Constitution limits the amounts of ad valorem tax on real property to 1% of “full cash value” as determined by the county assessor. Article XIIIA defines “full cash value” to mean “the City 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 104860768.2
38 in ownership has occurred after the 1975 assessment period.” Furthermore, all real property valuation may be increased to reflect the inflation rate, as shown by the consumer price index, not to exceed 2% per year, or may be reduced in the event of declining property values caused by damage, destruction or other factors.
Article XIIIA exempts from the 1% tax limitation any taxes to repay indebtedness approved by the voters prior to July 1, 1978, and any bonded indebtedness for the acquisition or improvement of real property approved on or after July 1, 1978 by two-thirds of the voters voting on the proposition approving such bonds, and requires a vote of two-thirds of the qualified electorate to impose special taxes, while totally precluding the imposition of any additional ad valorem, sales or transaction tax on real property. In addition, Article XIIIA requires the approval of two-thirds of all members of the State legislature to change any State tax law resulting in increased tax revenues.
Article XIIIB of the California Constitution limits the annual appropriations from the proceeds of taxes of the State and any city, county, school district, authority or other political subdivision of the State to the level of appropriations for the prior fiscal year, as adjusted for changes in the cost of living, population and services rendered by the governmental entity. Article XIIIB includes a requirement that if an entity’s revenues in any year exceed the amount permitted to be spent, the excess would have to be returned by revising tax or fee schedules over the subsequent two years.
On November 5, 1996, California voters approved an initiative to amend the California Constitution known as the Right to Vote on Taxes Act (“Proposition 218”), which added Article XIIIC and XIIID to the California Constitution. Among other provisions, Proposition 218 requires majority voter approval for the imposition, extension or increase of general taxes and two-thirds voter approval for the imposition, extension or increase of special taxes by a local government, which is defined in Proposition 218 to include cities. Proposition 218 also provides that any general tax imposed, extended or increased without voter approval by any local government on or after January 1, 1995 and prior to November 6, 1996 will continue to be imposed only if approved by a majority vote in an election held within two years of November 6, 1996. Proposition 218 also provides that the initiative power shall not be prohibited or otherwise limited in matters of reducing or repealing any local tax, assessment, fee or charge. This extension of the initiative power is not limited by the terms of Proposition 218 to impositions after November 6, 1996 and absent other legal authority, could result in retroactive reduction in any existing taxes, assessments, fees and charges. In addition, Proposition 218 limits the application of assessments, fees and charges and requires certain existing, new and increased assessments, fees and charges to be submitted to property owners for approval or rejection, after notice and public hearing. Neither the City nor the Authority expects the provisions of Proposition 218 to have any immediate material effect on the revenues from which Base Rental Payments are expected to be appropriated.
Article XIIIA Implementing Legislation
Legislation enacted by the California Legislature to implement Article XIIIA (Statutes of 1978, Chapter 292, as amended) provides that, notwithstanding any other law, local agencies may not levy any property tax, except to pay debt service on indebtedness approved by the voters prior to July 1, 1978, and that each county will levy the maximum tax permitted by Article XIIIA of $4.00 per $100 assessed valuation (based on the traditional practice of using 25% of full cash value as the assessed value for tax purposes).
The legislation further provided that, for Fiscal Year 1978-79 only, the tax levied by each county was to be appropriated among all taxing agencies within the county in proportion to their average share of taxes levied in certain previous years.
Future assessed valuation growth allowed under Article XIIIA (i.e., new construction, change of ownership, and 2% annual value growth) 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” revenue from the tax rate area. Each year’s growth allocation becomes part of each agency’s allocation in the following year. The Authority is unable to predict the nature or magnitude of 104860768.2
39 future revenue sources that may be provided by the State to replace lost property tax revenues. Article XIIIA effectively prohibits the levying of any other ad valorem property tax above those described above, even with the approval of the affected voters.
Challenges to Article XIIIA
There have been many challenges to Article XIIIA of the California Constitution. The United States Supreme Court heard the appeal in Nordlinger v. Hahn, a challenge relating to residential property.
Based upon the facts presented in Nordlinger, the United States Supreme Court held that the method of property tax assessment under Article XIIIA did not violate the federal Constitution. Neither the Authority nor the City can predict whether there will be any future challenges to California’s present system of property tax assessment and cannot evaluate the ultimate effect on the Agency’s receipt of tax increment revenues should a future decision hold unconstitutional the method of assessing property.
Statutory Revenue Limitations – Proposition 62
Proposition 62 is a statewide statutory initiative adopted by the voters at the November 4, 1986 general election. It added Sections 53720 to 53730 to the Government Code to require that all new local taxes be approved by the voters. The statute provides that all local taxes are either general taxes or special taxes. General taxes are imposed for general governmental purposes. Special taxes are imposed for specific purposes only. General taxes may not be imposed by local government unless approved by a two-thirds vote of the entire legislative body and a majority of the voters voting on the proposed general tax. Special taxes may not be imposed by local government unless approved by a majority of the entire legislative body and by two-thirds of the voters voting on the special tax. Soon after Proposition 62 was adopted by the voters, legal challenges to taxes adopted contrary to its provisions were filed. In 1991, in the most significant case, City of Woodlake v. Logan, the California Court of Appeal held that the statutory voter approval requirement for general taxes was unconstitutional. The California Supreme Court refused to review Woodlake.
On September 28, 1995, the California Supreme Court, on a 5-2 vote, in a decision entitled Santa Clara County Local Transportation Authority v. Guardino (Case No. S036269), “disapproved” Woodlake and held that the voter approval requirements of Proposition 62 are valid. On December 14, 1995, the Supreme Court made minor nonsubstantive changes to its written opinion and denied the petition for rehearing. The decision provides that the voter approval requirements of Proposition 62 for both general and special taxes are valid. The Guardino case fails to say (1) whether the decision is retroactively applicable to general taxes adopted prior to the decision; (2) whether taxpayers have any remedies for refund of taxes paid under a tax ordinance that was not voter approved; (3) what statute of limitations applies to taxes adopted without voter approval prior to Guardino; (4) whether Proposition 62 applies only to new taxes or to tax increases as well.
The Court of Appeals in a December 15, 1997 decision entitled McBearty v. City of Brawley (Case No. D027877) addressed some of these issues. In Brawley, a taxpayer challenged the city’s utility tax that was passed by the city council in 1991 without a vote of the electorate. The Court of Appeals held that (i) a three year statute of limitations applies to challenges to a tax ordinance subject to Proposition 62; and (ii) the statute of limitations did not begin to run until September 1995 when the Guardino case determined that Proposition 62 was constitutional. The effect of the holding in Brawley is that any tax ordinances passed between November 1986 and December 1995 that were not approved by the electorate would be subject to a challenge until December 1998. The court ordered the city to either cease collecting the tax or seek voter approval to continue levying the tax. However, in Howard Jarvis Taxpayers Association v. City of La Habra, decided on June 4, 2001, the California Supreme Court overruled part of McBearty, finding that the three year statute of limitations applicable to such taxes does not run from the date of the Guardino decision, but rather the continued imposition and collection of such tax is an ongoing violation, upon which the limitations period begins with each new collection. 104860768.2
40 Several questions raised by the Guardino decision remain unresolved. Proposition 62 provides that if a jurisdiction imposes a tax in violation of Proposition 62, the portion of the one percent general ad valorem tax levy allocated to that jurisdiction is reduced by $1 for every $1 in revenue attributable to the improperly imposed tax for each year that such tax is collected. The practical applicability of this provision has not been fully determined. Potential future litigation and legislation may resolve some or all of the issues raised by the Guardino decision.
Neither the Authority nor the City can predict the outcome of any pending or future litigation concerning the validity of Proposition 62, nor can either predict the scope of the Guardino or McBearty decisions discussed above. Proposition 62 could affect the ability of the City to continue the imposition of, or to retain, certain taxes, and restrict the City’s ability to raise revenue.
Proposition 1A
Proposition 1A (“Proposition 1A”), proposed by the Legislature in connection with the 2004-05 Budget Act and approved by the voters in November 2004, restricts State authority to reduce major local tax revenues such as the tax shifts permitted to take place in Fiscal Years 2004/05 and 2005-06. Proposition 1A provides 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 prohibits 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 must be approved by two-thirds of both houses of the Legislature. Proposition 1A provides, however, that beginning in Fiscal Year 2008-09, the State may shift to schools and community colleges up to 8% of local government property tax revenues, which amount must be repaid, with interest, within three years, if the Governor proclaims that the shift is needed due to a severe state financial hardship, the shift is approved by two-thirds of both houses and certain other conditions are met. Such a shift may not occur more than twice in any ten-year period. The State may also approve voluntary exchanges of local sales tax and property tax revenues among local governments within a county.
Proposition 1A provides that if the State reduces the vehicle license fee (“VLF”) rate below 0.65% of vehicle value, the State must provide local governments with equal replacement revenues. Further, Proposition 1A requires the State to suspend State mandates affecting cities, counties and special districts, excepting mandates relating to employee rights, schools or community colleges, in any year that the State does not fully reimburse local governments for their costs to comply with such mandates.
Proposition 22
On November 2, 2010, voters in the State approved Proposition 22. Proposition 22, known as the “Local Taxpayer, Public Safety, and Transportation Protection Act of 2010,” 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 26
On November 2, 2010, voters in the State also approved Proposition 26. Proposition 26 amends Article XIIIC of the State Constitution to expand the definition of “tax” to include “any levy, charge, or exaction of any kind imposed by a local government” except the following: (1) a charge imposed for a specific benefit conferred or privilege granted directly to the payor that is not provided to those not charged, and which does not exceed the reasonable costs to the local government of conferring the benefit or granting 104860768.2
41 the privilege; (2) a charge imposed for a specific government service or product provided directly to the payor that is not provided to those not charged, and which does not exceed the reasonable costs to the local government of providing the service or product; (3) a charge imposed for the reasonable regulatory costs to a local government for issuing licenses and permits, performing investigations, inspections, and audits, enforcing agricultural marketing orders, and the administrative enforcement and adjudication thereof; (4) a charge imposed for entrance to or use of local government property, or the purchase, rental, or lease of local government property; (5) a fine, penalty, or other monetary charge imposed by the judicial branch of government or a local government, as a result of a violation of law; (6) a charge imposed as a condition of property development; and (7) assessments and property-related fees imposed in accordance with the provisions of Article XIIID. Proposition 26 provides that the 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. Neither the City nor the Authority expects provisions of Proposition 26 to materially impede the City’s ability to pay Base Rental Payments when due.
Unitary Property
AB 454 (Chapter 921, Statutes of 1986) provides that revenues derived from most utility property assessed by the State Board of Equalization (“Unitary Property”), commencing with the 1988-89 fiscal year, will be allocated as follows: (i) each jurisdiction will receive up to 102% of its prior year State- assessed revenue; and (ii) if county-wide revenues generated from Unitary Property are less than the previous year’s revenues or greater than 102% of the previous year’s revenues, each jurisdiction will share the burden of the shortfall or benefit of the excess revenues by a specified formula. This provision applies to all Unitary Property except railroads, whose valuation will continue to be allocated to individual tax rate areas.
The provisions of AB 454 do not constitute an elimination of the assessment of any State-assessed properties nor a revision of the methods of assessing utilities by the State Board of Equalization. Generally, AB 454 allows valuation growth or decline of Unitary Property to be shared by all jurisdictions in a county.
MUNICIPAL ADVISOR
The City has retained Fieldman, Rolapp & Associates, Inc., as Municipal Advisor in connection with the authorization and delivery of the 2022A Bonds. The Municipal Advisor is not obligated to undertake, and have not 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 municipal advisory firm and are not engaged in the business of underwriting, trading or distributing municipal securities or other public securities.
RATING
S&P Global Ratings (“S&P”) has assigned its rating of “___” to all of the 2022A Bonds. Such rating reflects only the view of S&P. Any explanation of the significance of such rating may only be obtained from S&P. The information set forth on such website is not incorporated by reference herein.
Generally, a rating agency bases its rating on the information and materials furnished to it and on investigations, studies and assumptions of its own. There is no assurance that such rating will continue for any given period of time or that any of them will not be revised downward or withdrawn entirely by the rating agency, if in the judgment of the rating agency circumstances so warrant. Any such downward revision, suspension or withdrawal of such rating may have an adverse effect on the market price of the 2022A Bonds.
104860768.2
42 UNDERWRITING
Raymond James & Associates, Inc. (the “Underwriter”) has agreed, subject to certain customary conditions precedent to closing, to purchase the 2022A Bonds from the Authority at a price equal to $__________ (which equals the principal amount of the 2022A Bonds, less an underwriting discount of $__________).
The Underwriter intends to offer the 2022A Bonds to the public initially at the prices set forth on the inside cover page of this Official Statement, plus accrued interest from the dated date of the 2022A Bonds to their date of delivery, which prices may subsequently change without any requirement of prior notice. The Underwriter reserves the right to join with dealers and other underwriters in offering the 2022A Bonds to the public. In connection with the offering of the 2022A Bonds, the Underwriter may over allot or effect transactions that stabilize or maintain the market price of the 2022A Bonds at levels above that which might otherwise prevail in the open market. Such stabilizing, if commenced, may be discontinued at any time.
CONTINUING DISCLOSURE
The Authority has determined that no financial or operating data concerning the Authority is material to any decision to purchase, hold or sell the 2022A Bonds and the Authority will not provide any such information.
The City has covenanted for the benefit of the holders and beneficial owners of the 2022A Bonds pursuant to a Continuing Disclosure Agreement, dated the date of issuance of the 2022A Bonds (the “Continuing Disclosure Agreement”), by and between the City and ____________, as dissemination agent, to provide certain financial information and operating data relating to the City (the “Annual Report”) no later than March 31 following the end of each fiscal year, commencing with the report for Fiscal Year 2021- 22, and to provide notices of the occurrence of certain enumerated events through the EMMA System. The specific nature of the information to be contained in the Annual Report and the enumerated events is set forth in APPENDIX D – “FORM OF CONTINUING DISCLOSURE AGREEMENT.”
TAX MATTERS
State Income Tax
In the opinion of Bond Counsel, under existing law interest on the 2022A Bonds is exempt from personal income taxes of the State. Except as stated in the immediately preceding sentence, Bond Counsel will express no opinion as to any federal or state tax consequence of the receipt of interest on, or the ownership or disposition of, the 2022A Bonds. A copy of the form of opinion of Bond Counsel relating to the 2022A Bonds is included in Appendix E.
Federal Income Tax Considerations
The following is a general summary of certain United States federal income tax consequences of the purchase and ownership of the 2022A Bonds. The discussion is based upon the laws, Treasury Regulations, rulings and decisions now in effect, all of which are subject to change (possibly, with retroactive effect) or possibly differing interpretations. No assurances can be given that future changes in the law will not alter the conclusions reached herein.
The discussion below does not purport to deal with United States federal income tax consequences applicable to all categories of investors. Further, the discussion below does not discuss all aspects of federal income taxation that may be relevant to a particular investor in the 2022A Bonds in light of the investor’s particular circumstances or to certain types of investors subject to special treatment under federal income tax laws (including insurance companies, tax exempt organizations, financial institutions, broker-dealers, 104860768.2
43 and persons who have hedged the risk of owning the 2022A Bonds). The discussion below is limited to certain issues relating to initial investors who will hold the 2022A Bonds as “capital assets” within the meaning of section 1221 of the Internal Revenue Code of 1986, as amended (the “Code”), and acquire such 2022A Bonds for investment and not as a dealer or for resale. The discussion below addresses certain federal income tax consequences applicable to beneficial owners of the 2022A Bonds who are United States persons within the meaning of section 7701(a)(30) of the Code (“United States persons”) and, except as discussed below, does not address any consequence to persons other than United States persons.
Prospective investors should note that no rulings have been or will be sought from the Internal Revenue Service (the “IRS”) with respect to any of the United States federal income tax consequences discussed below, and no assurance can be given that the IRS will not take contrary positions.
ALL PROSPECTIVE INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISORS IN
DETERMINING THE FEDERAL, STATE, LOCAL, FOREIGN AND ANY OTHER TAX
CONSEQUENCES TO THEM FROM THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE 2022A BONDS.
Stated Interest on the 2022A Bonds. The stated interest on the 2022A Bonds will be included in the gross income, as defined in section 61 of the Code, of the beneficial owners thereof and will be subject to United States federal income taxation when received or accrued, depending on the tax accounting method applicable to the beneficial owners thereof.
Medicare Contribution Tax. Pursuant to Section 1411 of the Code, as enacted by the Health Care and Education Reconciliation Act of 2010, an additional tax is imposed on individuals beginning January 1, 2013. The additional tax is 3.8% of the lesser of (i) net investment income (defined as gross income from interest, dividends, net gain from disposition of property not used in a trade or business, and certain other listed items of gross income), or (ii) the excess of “modified adjusted gross income” of the individual over $200,000 for unmarried individuals ($250,000 for married couples filing a joint return and a surviving spouse). Holders of the 2022A Bonds should consult with their own tax advisors concerning this additional tax, as it may apply to interest earned on the 2022A Bonds as well as gain on the sale of a 2022A Bond.
Disposition of 2022A Bonds and Treatment of Market Discount. A beneficial owner of 2022A Bonds will generally recognize gain or loss on the redemption, sale or exchange of 2022A Bonds equal to the difference between the redemption or sales price (exclusive of the amount paid for accrued interest) and the beneficial owner’s adjusted tax basis in the 2022A Bonds. Generally, the beneficial owner’s adjusted tax basis in the 2022A Bonds will be the beneficial owner’s initial cost, increased by the original issue discount (if any) previously included in the beneficial owner’s income to the date of disposition. Any gain or loss generally will be capital gain or loss and will be long-term or short-term, depending on the beneficial owner’s holding period for the 2022A Bonds.
Under current law, a purchaser of a 2022A Bond who did not purchase that 2022A Bond in the initial public offering (a “subsequent purchaser”) generally will be required, on the disposition (or earlier partial principal payment) of such 2022A Bond, to recognize as ordinary income a portion of the gain (or partial principal payment), if any, to the extent of the accrued “market discount.” In general, market discount is the amount by which the price paid for such 2022A Bond by a subsequent purchaser is less than the sum of the Issue Price and the amount of original issue discount previously accrued on the 2022A Bonds. The Code also limits the deductibility of interest incurred by a subsequent purchaser on funds borrowed to acquire 2022A Bonds with market discount. As an alternative to the inclusion of market discount in income upon disposition, a subsequent purchaser may elect to include market discount in income currently as it accrues on all market discount instruments acquired by the subsequent purchaser in that taxable year or thereafter, in which case the interest deferral rule will not apply. The recharacterization of gain as ordinary income on a subsequent disposition of such 2022A Bonds could have a material effect on the market value of such 2022A Bonds.
104860768.2
44 Legal Defeasance. If the Authority elects to defease the 2022A Bonds by depositing in escrow sufficient cash and/or obligations to pay when due outstanding 2022A Bonds (a “legal defeasance”), under current tax law, a beneficial owner of 2022A Bonds may be deemed to have sold or exchanged its 2022A Bonds. In the event of such a legal defeasance, a beneficial owner of 2022A Bonds generally would recognize gain or loss in the manner described above. Ownership of the 2022A Bonds after a deemed sale or exchange as a result of a legal defeasance may have tax consequences different from those described above, and each beneficial owner should consult its own tax advisor regarding the consequences to such beneficial owner of a legal defeasance of the 2022A Bonds.
Backup Withholding. Under section 3406 of the Code, a beneficial owner of the 2022A Bonds who is a United States person may, under certain circumstances, be subject to “backup withholding” on payments of current or accrued interest on the 2022A Bonds or with respect to proceeds received from a disposition of the 2022A Bonds. This withholding applies if such beneficial owner of 2022A Bonds: (i) fails to furnish to the payor such beneficial owner’s social security number or other taxpayer identification number (“TIN”); (ii) furnishes the payor an incorrect TIN; (iii) fails to properly report interest, dividends, or other “reportable payments” as defined in the Code; or (iv) under certain circumstances, fails to provide the payor with a certified statement, signed under penalty of perjury, that the TIN provided to the payor is correct and that such beneficial owner is not subject to backup withholding.
Backup withholding will not apply, however, with respect to payments made to certain beneficial owners of the 2022A Bonds. Beneficial owners of the 2022A Bonds should consult their own tax advisors regarding their qualification for exemption from backup withholding and the procedures for obtaining such exemption.
Withholding on Payments to Nonresident Alien Individuals and Foreign Corporations. Under sections 1441 and 1442 of the Code, nonresident alien individuals and foreign corporations are generally subject to withholding at the rate of 30% on periodic income items arising from sources within the United States, provided such income is not effectively connected with the conduct of a United States trade or business. Assuming the interest received by the beneficial owners of the 2022A Bonds is not treated as effectively connected income within the meaning of section 864 of the Code, such interest will be subject to 30% withholding, or any lower rate specified in an income tax treaty, unless such income is treated as “portfolio interest.” Interest will be treated as portfolio interest if: (i) the beneficial owner provides a statement to the payor certifying, under penalties of perjury, that such beneficial owner is not a United States person and providing the name and address of such beneficial owner; (ii) such interest is treated as not effectively connected with the beneficial owner’s United States trade or business; (iii) interest payments are not made to a person within a foreign country that the IRS has included on a list of countries having provisions inadequate to prevent United States tax evasion; (iv) interest payable with respect to the 2022A Bonds is not deemed contingent interest within the meaning of the portfolio debt provision; (v) such beneficial owner is not a controlled foreign corporation, within the meaning of section 957 of the Code; and (vi) such beneficial owner is not a bank receiving interest on the 2022A Bonds pursuant to a loan agreement entered into in the ordinary course of the bank’s trade or business.
Assuming payments on the 2022A Bonds are treated as portfolio interest within the meaning of sections 871 and 881 of the Code, then no withholding under section 1441 and 1442 of the Code and no backup withholding under section 3406 of the Code is required with respect to beneficial owners or intermediaries who have furnished Form W-8BEN, Form W-8BEN-E, Form W-8EXP or Form W-8IMY, as applicable, provided the payor does not have actual knowledge or reason to know that such person is a United States person.
Foreign Account Tax Compliance Act. Sections 1471 through 1474 of the Code impose a 30% withholding tax on certain types of payments made to a foreign financial institution, unless the foreign financial institution enters into an agreement with the U.S. Treasury to, among other things, undertake to identify accounts held by certain United States persons or U.S.-owned entities, annually report certain 104860768.2
45 information about such accounts, and withhold 30% on payments to account holders whose actions prevent it from complying with these and other reporting requirements, or unless the foreign financial institution is otherwise exempt from those requirements. In addition, the Foreign Account Tax Compliance Act (“FATCA”) imposes a 30% withholding tax on the same types of payments to a non-financial foreign entity unless the entity certifies that it does not have any substantial U.S. owners or the entity furnishes identifying information regarding each substantial United States owner. Failure to comply with the additional certification, information reporting and other specified requirements imposed under FATCA could result in the 30% withholding tax being imposed on payments of interest and principal under the 2022A Bonds and sales proceeds of 2022A Bonds held by or through a foreign entity. Prospective investors should consult their own tax advisors regarding FATCA and its effect on them.
Reporting of Interest Payments. Subject to certain exceptions, the stated interest on the 2022A Bonds will be reported to the IRS. Such information will be filed each year with the IRS on Form 1099- INT (or other appropriate reporting form) which will reflect the name, address, and taxpayer identification number of the owner. A copy of such Form 1099-INT will be sent to each beneficial owner of a 2022A Bond for federal income tax purposes.
The preceding discussion of certain United States federal income tax consequences is for general information only and is not tax advice. Accordingly, each investor should consult its own tax advisor as to particular tax consequences to it of purchasing, owning, and disposing of the 2022A Bonds, including the applicability and effect of any state, local, or foreign tax law, and of any proposed change of applicable law.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended (“ERISA”), imposes certain restrictions on employee pension and welfare benefit plans subject to ERISA (“ERISA Plans”) regarding prohibited transactions, and also imposes certain obligations on those persons who are fiduciaries with respect to ERISA Plans. Section 4975 of the Code imposes similar prohibited transaction restrictions on (i) tax-qualified retirement plans described in Section 401(a) and 403(a) of the Code, which are exempt from tax under section 501(a) of the Code and which are not governmental and church plans as defined herein (“Qualified Retirement Plans”), and (ii) Individual Retirement Accounts described in Section 408(b) of the Code (“Tax-Favored Plans”). Certain employee benefit plans, such as governmental plans (as defined in Section 3(32) of ERISA), and, if no election has been made under Section 410(d) of the Code, church plans (as defined in Section 3(33) of ERISA), are not subject to ERISA requirements. Additionally, such governmental and non-electing church plans are not subject to the requirements of Section 4975 of the Code. Although assets of such governmental or non-electing church plans may be invested in the 2022A Bonds without regard to the ERISA and Code considerations described below, any such investment may be subject to provisions of applicable federal and state law that are, to a material extent, similar to the requirements of ERISA and Section 4975 of the Code (“Similar Law”).
In addition to the imposition of general fiduciary obligations, including those of investment prudence and diversification and the requirement that a plan’s investment be made in accordance with the documents governing the plan, Section 406 of ERISA and Section 4975 of the Code prohibit a broad range of transactions involving assets of ERISA Plans and Tax-Favored Plans and entities whose underlying assets include plan assets by reason of ERISA Plans or Tax-Favored Plans investing in such entities (collectively, “Benefit Plans”) and persons who have certain specified relationships to the Benefit Plans (such persons are referred to as “Parties in Interest” or “Disqualified Persons”), unless a statutory or administrative exemption is available. Certain Parties in Interest (or Disqualified Persons) that participate in a prohibited transaction may be subject to a penalty (or an excise tax) imposed pursuant to Section 502(i) of ERISA (or Section 4975 of the Code) unless a statutory or administrative class exemption is available. 104860768.2
46 Certain transactions involving the purchase, holding or transfer of the 2022A Bonds might be deemed to constitute prohibited transactions under ERISA and the Code if assets of the City were deemed to be assets of a Benefit Plan. Under final regulations issued by the United States Department of Labor (the “Plan Assets Regulation”), the assets of the City would be treated as plan assets of a Benefit Plan for the purposes of ERISA and the Code if the Benefit Plan acquires an “equity interest” in the City and none of the exceptions contained in the Plan Assets Regulation is applicable. An equity interest is defined under the Plan Assets Regulation as an interest in an entity other than an instrument which is treated as indebtedness under applicable local law and which has no substantial equity features. Although there can be no assurances in this regard, it appears that the 2022A Bonds should be treated as debt without substantial equity features for purposes of the Plan Assets Regulation. However, without regard to whether the 2022A Bonds are treated as an equity interest for such purposes, the acquisition or holding of the 2022A Bonds by or on behalf of a Benefit Plan could be considered to give rise to a prohibited transaction if the City, any Underwriter, or any of their respective affiliates, is or becomes a Party in Interest or a Disqualified Person with respect to such Benefit Plan. The fiduciary of a Benefit Plan that proposes to purchase and hold any 2022A Bonds should consider, among other things, whether such purchase and holding may involve (i) the direct or indirect extension of credit to a Party in Interest, (ii) the sale or exchange of any property between a Benefit Plan and a Party in Interest, and (iii) the transfer to, or use by or for the benefit of, a Party in Interest, of any Benefit Plan assets.
Certain exemptions from the prohibited transaction rules could be applicable depending on the type and circumstances of the plan fiduciary making the decision to acquire a 2022A Bond. Included among these exemptions are: Prohibited Transaction Class Exemption (“PTCE”) 75-1, relating to certain broker- dealer transactions, PTCE 96-23, regarding transactions effected by “in-house asset managers;” PTCE 90- 1, regarding investments by insurance company pooled separate accounts; PTCE 95-60, regarding transactions effected by “insurance company general accounts;” PTCE 91-38, regarding investments by bank collective investment funds; and PTCE 84-14, regarding transactions effected by “qualified professional asset managers.” In addition, Section 408(b)(17) of ERISA and Section 4975(d)(20) of the Code generally provide for a statutory exemption from the prohibitions of Section 406(a) of ERISA and Section 4975 of the Code for certain transactions between Benefit Plans and persons who are Parties in Interest solely by reason of providing services to such Benefit Plans or who are persons affiliated with such service providers, provided generally that such persons are not fiduciaries with respect to “plan assets” of any Benefit Plan involved in the transaction and that certain other conditions are satisfied.
By its acceptance of a 2022A Bond, each purchaser will be deemed to have represented and warranted that either (i) the purchase and holding of such 2022A Bond does not constitute a prohibited transaction under ERISA, Section 4975 of the Code or Similar Law, or (ii) the purchase and holding of such 2022A Bonds is exempt from the prohibited transaction restrictions of ERISA, Section 4975 of the Code or Similar Law pursuant to a statutory or administrative class exemption.
Any Benefit Plan fiduciary considering whether to purchase 2022A Bonds on behalf of an ERISA Plan should consult with its counsel regarding the applicability of the fiduciary responsibility and prohibited transaction provisions of ERISA and the Code to such investment and the availability of any of the exemptions referred to above. In addition, persons responsible for considering the purchase of the 2022A Bonds by a governmental plan or non-electing church plan should consult with its counsel regarding the applicability of any Similar Law to such an investment.
LITIGATION
There is no controversy of any nature now pending against the City or the Authority or, to the knowledge of their respective officers threatened, seeking to restrain or enjoin the sale, execution, issuance or delivery of the 2022A Bonds or in any way contesting or affecting the validity of the 2022A Bonds or any proceedings of the City or the Authority taken with respect to the sale, execution, issuance or delivery thereof or the pledge or application of any moneys or security provided for the payment of the 2022A Bonds 104860768.2
47 or the use of the 2022A Bond proceeds or contesting the corporate existence of the City or the Authority, or the title of the officers thereof to their respective offices. [There are a number of lawsuits and claims pending against the City for which the City is either self-insured or insured in varying degrees by commercial insurance, or which in the aggregate, if determined adversely to the City, could have a material adverse impact on the City’s finances in the future. However, the City does not expect any such suits or claims to have a material adverse effect on the City’s ability to make 2022A Base Rental Payments under the Lease.]
FINANCIAL STATEMENTS
The City’s financial statements for the Fiscal Year ended June 30, 2021, included in APPENDIX B hereto, have been audited by Lance, Soll & Lunghard, LLP (the “Auditor”). The Auditor was not requested to consent to the inclusion of its report in APPENDIX B and it 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 the Official Statement, and no opinion is expressed by the Auditor with respect to any event subsequent to the date of its report.
APPROVAL OF LEGAL PROCEEDINGS
The issuance of the 2022A Bonds is subject to the approving opinion of Norton Rose Fulbright US LLP, Los Angeles, California, Bond Counsel to the Authority, to be delivered in substantially the form set forth in APPENDIX E. Norton Rose Fulbright US LLP in its role as Bond Counsel has undertaken no responsibility to the owners of the 2022A Bonds or any other party for the accuracy, completeness or fairness of this Official Statement or any other offering material related to the 2022A Bonds, and expresses no opinion to the Owners with respect thereto. Certain legal matters also will be passed upon for the City and the Authority by the City Attorney and for the Underwriter by its counsel Stradling Yocca Carlson & Rauth, Newport Beach, California.
EXECUTION AND DELIVERY
The execution and delivery of this Official Statement has been authorized by the Authority and the City.
CITY OF CATHEDRAL CITY PUBLIC
FINANCING AUTHORITY
By:
Chief Financial Officer
CITY OF CATHEDRAL CITY, CALIFORNIA
By:
Administrative Services Director
104860768.2 A-1
APPENDIX A
SELECTED DEMOGRAPHIC AND FINANCIAL INFORMATION RELATING TO THE CITY
OF CATHEDRAL CITY AND RIVERSIDE COUNTY
The following information relating to the City of Cathedral City, California (the “City”) is provided for informational purposes only. The 2022A Bonds (as defined in the front part of this Official Statement) are payable solely as described in this Official Statement and are not payable or secured by a pledge of the faith and credit or taxing power of the City.
COVID 19 Pandemic
The economic and demographic data contained in this appendix are the latest available, but are as of dates and for periods before the economic impact of the COVID 19 pandemic and measures instituted to slow it. Accordingly, they are not indicative of the current financial condition or future prospects of the City, the County or the region or of expected revenues to the General Fund. See “RISK FACTORS – COVID 19 Pandemic” in the forepart of this Official Statement.
General
The City. The City is located in Riverside County (the “County”) in the Coachella Valley 115 miles southeast of downtown Los Angeles. The City was incorporated in 1981 and covers approximately 22 square miles and had an estimated population of 53,580 as of January 2020. The City is bordered by the City of Palm Springs to the west, the City of Rancho Mirage to the south and east, and an unincorporated area of the County to the north and northeast.
The County. The County was organized in 1893 from territory in San Bernardino and San Diego Counties and encompasses 7,177 square miles. The County is bordered on the north by San Bernardino County, on the east by the State of Arizona, on the south by San Diego and Imperial Counties and on the west by Orange and San Bernardino Counties. The County is the fourth largest county (by area) in the state and stretches 185 miles from the Arizona border to within 20 miles of the Pacific Ocean. There are 28 incorporated cities in the County.
Population
The following table shows population estimates for the City, the County and the State of California for the past five years.
CITY OF CATHEDRAL CITY, RIVERSIDE COUNTY
POPULATION ESTIMATES
Year
(January 1)
City of
Cathedral City
Riverside
County
State of
California
2016 52,576 2,343,785 39,131,307
2017 52,868 2,376,580 39,398,702
2018 53,104 2,400,762 39,586,646
2019 53,320 2,422,146 39,695,376
2020 53,580 2,442,304 39,782,870
2021
____________________
Source: State of California Department of Finance, Demographic Research Unit. 104860768.2 A-2
Principal Employers
The table below lists the principal employers for the City for 2021.
CITY OF CATHEDRAL CITY
PRINCIPAL EMPLOYERS
Employer Employee Range(1)
Percentage of Total City
Employment
1. Desert Princess Homeowners 250 - 499 1.08% - 2.15%
2. Doubletree-Golf Resort 250 - 499 1.08% - 2.15
3. Target 250 - 499 1.08% - 2.15
4. Cathedral City High School 100 - 249 0.43% - 1.07
5. City of Cathedral City 100 - 249 0.43% - 1.07
6. CA Developmental Services 100 - 249 0.43% - 1.07
7. Honda of the Desert 100 - 249 0.43% - 1.07
8. Jessup Auto Plaza 100 - 249 0.43% - 1.07
9. Nellie N. Coffman Middle School 100 - 249 0.43% - 1.07
10. Stater Bros. Markets (Ramon) 100 - 249 0.43% - 1.07
11. Stater Bros. Markets (Vista Chino) 100 - 249 0.43% - 1.07
12. Toyota of the Desert 100 - 249 0.43% - 1.07
Totals 1,650 - 5,988 6.73% - 15.26%
____________________
(1) Total employees by employer are presented as a range as specific employer totals are not available. In addition, the percentage of total city employment is also presented as a range.
Source: U.S. Department of Labor, Bureau of Labor Statistics; State of California, Employment Development Department, Labor Market Info (information provided by Infogroup).
Commercial Activity
A summary of the significant categories of historic taxable sales within the City during the past five available years is shown in the following table. 2021 taxable transaction figures for the City are not yet available.
CITY OF CATHEDRAL CITY
Taxable Transactions
(dollars in thousands)
Category 2016 2017 2018 2019 2020
Motor Vehicle and Parts Dealers $411,220 $419,757 $431,381 $438,361 Home Furnishings and Appliance Stores 12,580 11,680 9,489 6,504 Bldg. Materials and Gardening Equipment 13,608 13,158 13,372 11,670 Food and Beverage Stores 36,793 38,275 38,864 40,359
Gasoline Stations 70,616 70,486 81,609 81,826
Clothing and Accessories Stores 10,404 8,519 4,090 2,192 General Merchandise Stores 29,300 31,240 33,103 31,795
Food Services and Drinking Places 70,015 75,103 79,833 86,679 Other Retail 27,973 32,873 42,596 43,610
All Other Outlets 107,692 108,481 114,593 124,519
Total(1) $790,202 $809,572 $848,930 $867,514
____________________
Source: State of California, Board of Equalization.
(1) Totals may not add-up due to rounding.
104860768.2 A-3
Construction Trends
Provided below are the building permits and valuations for the County for calendar years 2016 through 2020. 2021 figures not yet available.
COUNTY OF RIVERSIDE
New Construction
(dollars in thousands) (1) (2)
2016 2017 2018 2019 2020
Permit Valuation
New Single-family $1,526,768 $1,670,541 $2,200,021 $1,834,822 New Multi-family 106,292 109,309 232,707 282,465
Res. Alternations/Additions 126,475 123,567 125,354 158,118 Total Residential $1,759,535 $1,903,417 $2,558,081 $2,275,405 New Commercial $ 540,447 $ 522,769 $ 703,977 $ 312,035 New Industrial 59,439 410,275 529,326 493,872
New Other 374,917 136,935 410,606 179,861
Com. Alterations/Additions 371,216 363,711 315,771 300,087 Total Nonresidential $1,346,020 $1,433,691 $1,959,680 $1,285,856 TOTAL $3,105,554 $3,337,108 $4,517,761 $3,561,261
New Dwelling Units
Single Family 5,662 6,265 7,540 6,563
Multiple Family 1,039 1,070 1,628 1,798
TOTAL 6,701 7,335 9,168 8,361
____________________
(1) Includes churches and religious buildings, hospitals and institutional buildings, schools and educational buildings, residential garages, public works and utilities buildings and other non-residential buildings and structures. (2) Totals may not add-up due to rounding.
Source: Construction Industry Research Board.
Transportation
The City is located along Interstate 10 and parallels State Route 111. Interstate 10 is the principal transportation artery for the County. Local public transit within the City and the County of Riverside is provided by Sunline Transit. Greyhound service is available from Palm Springs. Air passenger and cargo service is available at Palm Springs Regional Airport which is two miles west of the City. This airport affords travelers the services of all major airlines. Bermuda Dunes, a private airport, is located eight miles northeast of the City.
Rail service is available on the Union Pacific main line and Amtrak passenger rail service is available in Indio and Palm Springs, California. There is truck transportation and shipping services from the City to Los Angeles, San Francisco, San Diego and Phoenix. Other transportation services include rail and truck shipping services and passenger rail service to Indio and Palm Springs.
Utilities
Natural gas, electricity and telephone service in the City are provided by Southern California Gas Company, Southern California Edison and Verizon Incorporated. Coachella Valley Water District and Desert Water Agency provide water and sewer service to the City. 104860768.2 A-4
Community Information
Public Safety. The City provides police services to its residents through its Police Department.
The Cathedral City Fire Department provides residents and visitors with emergency response, disaster preparedness, fire prevention, code enforcement and paramedic ambulance services as well as public education on relevant safety topics.
Education. The City currently has seven primary/middle schools (six public and one private) and two high schools (one public and one private). Secondary education is available to students at seven colleges and universities offering bachelors, masters and doctoral programs, including the University of California-Riverside and the University of California-San Diego, and their branch campuses located within a 10 mile radius of the City. The closest college, the College of the Desert, is a fully accredited community college bestowing various associate degrees. The college works with local business providing contract education and a comprehensive array of training and management programs for students.
Healthcare. The Coachella Valley offers a variety of health centers and services ranging from pediatric to geriatric medicine. Health care is available through the Eisenhower Medical Center located five miles away in Rancho Mirage, the Desert Regional Medical Center, a 393-bed acute care facility and trauma center, located 6 miles away in Palm Springs and the John F. Kennedy Memorial Hospital located approximately 18 miles away in Indio, California. The Desert Regional Medical Center offers an array of specialty services to residents, including the International Heart Institute of Palm Springs, the Comprehensive Cancer Centers of the Desert, Women and Infant Center, home health and hospice services, the Arthritis Institute, the Health Key Plus senior program and others programs. Also available is the Betty Ford Center for the treatment of chemical dependency, the Barbara Sinatra Children's Center and the Annenberg Center for Health Sciences.
Library. The City’s 20,000 square foot library opened in 1996. The library serves the community as a reference center providing basic business, legal and medical information as well as general reference materials. The library provides a Spanish language collection and a host of exhibits, historical collections, art, and computer services (including free access to the Internet and word processing). In addition to these resources, the library provides study rooms, a community room, an adult literacy program and a story room.
Recreation. The City, through its Community Partnerships, assists in offering a variety of programs to adults and children. There are over 22 acres of parks for leisure and recreational use. The City has several golf courses, including the Cimarron Golf Resort, the Cathedral Canyon Golf and Tennis Club, The Desert Princess Country Club and Date Palm Country Club. The City’s Town Square is the venue for numerous outdoor festivals, concerts and arts and crafts show. Other entertainment activities are available at the old Hollywood style Mary Pickford Theater, host of the annual Festival of Festivals, the Civic Center and the six-story IMAX Theater complex.
104860768.2
APPENDIX B
AUDITED FINANCIAL STATEMENTS OF THE CITY OF CATHEDRAL CITY FOR THE FISCAL YEAR ENDED JUNE 30, 2021
104860768.2 C-1
[insert Appendix C]
104860768.2
[insert Appendix D]
104860768.2 E-1
APPENDIX E
FORM OF OPINION OF BOND COUNSEL
___________, 2022
Cathedral City Pubic Financing Authority
Cathedral City, California
City of Cathedral City
Cathedral City, California
$[Par Amount]
Cathedral City Public Financing Authority
Lease Revenue Bonds, 2022 Series A
(Federally Taxable)
Ladies and Gentlemen:
We have acted as Bond Counsel to the Cathedral City Public Financing Authority (the “Authority”) in connection with the issuance by the Authority of its $[Par Amount] Lease Revenue Bonds, 2022 Series A (Federally Taxable) (the “Bonds”). The Bonds are being issued under the provisions of the Marks-Roos Local Bond Pooling Act of 1985, constituting Article 4 of Chapter 5 of Division 7 of Title 1 (commencing with Section 6584) and Sections 53570 et seq. and 53580 et seq. of the California Government Code (collectively, the “Bond Law”), and pursuant to an Indenture, dated as of April 1, 2022 (the “Indenture”), by and between the Authority and The Bank of New York Mellon Trust Company, N.A., as trustee (the “Trustee”).
The Bonds are limited obligations of the Authority secured under the Indenture by a pledge of Revenues and certain other moneys held under the Indenture. The Revenues consist of (i) all 2022A Base Rental Payments payable by the City pursuant to the Lease Agreement, dated as of April 1, 2022 (the “Lease”), by and between the Authority, as lessor, and the City, as lessee (including prepayments), (ii) any proceeds of Bonds deposited with the Trustee and all moneys on deposit in the funds and accounts established under the Indenture, (iii) investment income with respect to such moneys held by the Trustee and (iv) any insurance proceeds or condemnation awards received by or payable to the Trustee relating to the 2022A Base Rental Payments.
The City has leased certain real property and improvements (the “Leased Property”) to the Authority pursuant to the Site Lease, dated as of April 1, 2022 (the “Site Lease”), by and between the City and the Authority. Pursuant to the Assignment Agreement, dated as of April 1, 2022 (the “Assignment Agreement”), by and between the Authority and the Trustee, the Authority has assigned to the Trustee, for the benefit of the Owners, certain of the Authority’s rights under the Site Lease and the Lease, including the right to receive 2022A Base Rental Payments under the Lease.
As Bond Counsel, we have reviewed relevant portions of the Bond Law, the Indenture, the Site Lease, the Lease, the Assignment Agreement and certifications of the Authority, the City, the Trustee and others, opinions of counsel to the Authority, the City and the Trustee, and such other documents, opinions and 104860768.2 E-2
instruments as we deemed necessary to render the opinions set forth herein. Capitalized terms used and not otherwise defined herein shall have the meanings ascribed thereto in the Indenture.
Based upon the foregoing, we are of the opinion that:
1. The Bonds constitute valid and binding limited obligations of the Authority as provided in the Indenture, and are entitled to the benefits of the Indenture.
2. The Indenture has been duly and validly authorized, executed and delivered by the Authority and, assuming the enforceability thereof against the Trustee, constitutes the legally valid and binding obligation of the Authority, enforceable against the Authority in accordance with its terms. The Indenture creates a valid pledge, to secure the payment of principal of and interest on the Bonds, of the Revenues and certain other amounts held by the Trustee in certain funds and accounts established pursuant to the Indenture, subject to the provisions of the Indenture permitting the application thereof for other purposes and on the terms and conditions set forth therein.
3. The Lease and Site Lease have been duly and validly authorized, executed and delivered by the Authority and the City and constitute the legally valid and binding obligations of the Authority and the City, enforceable against the Authority and the City in accordance with their terms.
4. The Assignment Agreement has been duly and validly authorized, executed and delivered by the Authority and, assuming the enforceability thereof against the Trustee, constitutes the legally valid and binding obligation of the Authority, enforceable against the Authority in accordance with its terms.
5. Interest on the Bonds is exempt from personal income taxes of the State of California under present state law.
The opinions expressed in paragraphs 1, 2, 3 and 4 above are qualified to the extent the enforceability of the Bonds, the Indenture, the Lease, the Site Lease and the Assignment Agreement may be limited by applicable bankruptcy, insolvency, debt adjustment, reorganization, moratorium or similar laws or equitable principles relating to or limiting creditors’ rights generally or as to the availability of any particular remedy. The enforceability of the Bonds, the Indenture, the Lease, the Site Lease and the Assignment Agreement is subject to the effect of general principles of equity, including, without limitation, concepts of materiality, reasonableness, good faith and fair dealing, to the possible unavailability of specific performance or injunctive relief, regardless of whether considered in a proceeding in equity or at law, and to the limitations on legal remedies against governmental entities in the State of California.
No opinion is expressed herein on the accuracy, completeness or fairness of the Official Statement or other offering material relating to the Bonds.
Our opinions are based on existing law of the State of California, which is subject to change. Such opinions are further based on our knowledge of facts as of the date hereof. We assume no duty to update or supplement our opinions to reflect any facts or circumstances that may thereafter come to our attention or to reflect any changes in any law that may thereafter occur or become effective. Moreover, our opinions are not a guarantee of result and are not binding on the State of California; rather, such opinions represent our legal judgment based upon our review of existing law that we deem relevant to such opinions and in reliance upon the representations and covenants referenced above.
Respectfully submitted,
F-1
APPENDIX F
BOOK-ENTRY SYSTEM
The information in this section concerning DTC and DTC’s book-entry only system has been obtained from sources that each of the Authority and the City believes to be reliable, but the Authority and the City take no responsibility for the completeness or accuracy thereof. The following description of the procedures and record keeping with respect to beneficial ownership interests in the 2022A Bonds, payment of principal, premium, if any, and interest on the 2022A Bonds to DTC Participants or Beneficial Owners, confirmation and transfers of beneficial ownership interests in the 2022A Bonds and other related transactions by and between DTC, the DTC Participants and the Beneficial Owners is based solely on information provided by DTC.
The Depository Trust Company (“DTC”), New York, New York, will act as securities depository for the 2022A Bonds. The 2022A 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 2022A Bond will be issued for each annual maturity of the 2022A Bonds, each in the aggregate principal amount of such maturity, and will be deposited through the facilities of 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 3.6 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 post trade 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 an S&P Global Ratings rating 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. The information set forth on such website is not incorporated herein by reference.
Purchases of 2022A Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the 2022A Bonds on DTC’s records. The ownership interest of each actual purchaser of each 2022A Bond (“Beneficial Owner”) is in turn to be recorded on the Direct and Indirect Participants’ records. Beneficial Owners will not receive written confirmation from DTC of their purchase.
Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the 2022A 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 2022A Bonds representing their F-2
ownership interests in 2022A Bonds, except in the event that use of the book-entry system for the 2022A Bonds is discontinued.
To facilitate subsequent transfers, all 2022A 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 2022A Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not affect any change in beneficial ownership.
DTC has no knowledge of the actual Beneficial Owners of the 2022A Bonds; DTC’s records reflect only the identity of the Direct Participants to whose accounts such 2022A 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. Beneficial Owners of 2022A Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the 2022A Bonds, such as prepayments, tenders, defaults, and proposed amendments to the 2022A Bond documents. For example, Beneficial Owners of 2022A Bonds may wish to ascertain that the nominee holding the 2022A Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of notices be provided directly to them.
Redemption notices shall be sent to DTC. If less than all of the 2022A Bonds within a maturity are being prepaid, DTC’s practice is to determine by lot the amount of the interest of each Direct Participant in such maturity to be redeemed.
Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to 2022A 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 Authority 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 2022A Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy).
Redemption proceeds, distributions, and dividend payments on the 2022A 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 Authority, 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, the Authority 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 the Authority 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.
F-3
A 2022A Bond Owner shall give notice to elect to have its 2022A Bonds purchased or tendered, through its Participant, to the Trustee, and shall effect delivery of such 2022A Bonds by causing the Direct Participant to transfer the Participant’s interest in the 2022A Bonds, on DTC’s records, to the Trustee. The requirement for physical delivery of 2022A Bonds in connection with an optional tender or a mandatory purchase will be deemed satisfied when the ownership rights in the 2022A Bonds are transferred by Direct Participants on DTC’s records and followed by a book-entry credit of tendered 2022A Bonds to the Trustee’s DTC account.
DTC may discontinue providing its services as depository with respect to the 2022A Bonds at any time by giving reasonable notice to the Authority or the Trustee. Under such circumstances, in the event that a successor depository is not obtained, physical certificates are required to be printed and delivered.
The Authority may decide to discontinue use of the system of book-entry only transfers through DTC (or a successor securities depository). In that event, 2022A Bonds will be printed and delivered to DTC.
THE TRUSTEE, AS LONG AS A BOOK-ENTRY ONLY SYSTEM IS USED FOR THE 2022A
BONDS, WILL SEND ANY NOTICE OF REDEMPTION OR OTHER NOTICES TO OWNERS ONLY TO DTC. ANY FAILURE OF DTC TO ADVISE ANY DTC PARTICIPANT, OR OF ANY DTC
PARTICIPANT TO NOTIFY ANY BENEFICIAL OWNER, OF ANY NOTICE AND ITS CONTENT
OR EFFECT WILL NOT AFFECT THE VALIDITY OF SUFFICIENCY OF THE PROCEEDINGS RELATING TO THE REDEMPTION OF THE 2022A BONDS CALLED FOR REDEMPTION OR OF ANY OTHER ACTION PREMISED ON SUCH NOTICE.