Jones Hall Draft: October 13, 2026
PRELIMINARY OFFICIAL STATEMENT DATED OCTOBER ___, 2026
NEW ISSUE - FULL BOOK-ENTRY S&P RATING: “___”
See “RATING”
In the opinion of Jones Hall LLP, as Bond Counsel, subject, however to certain qualifications described herein, under existing law, the interest on the Bonds is excluded from gross income for federal income tax purposes and such interest is not an item of tax preference for purposes of the federal alternative minimum tax. Interest on the Bonds may be subject to the corporate alternative minimum tax. In the further opinion of Bond Counsel, such interest is exempt from California personal income taxes. See “TAX MATTERS.”
$_____________*
COSTA MESA FINANCING AUTHORITY
2026 Lease Revenue Bonds
Dated: Date of Delivery Due: October 1, as shown on inside cover Authority for Issuance. The bonds captioned above (the “Bonds”) are being issued by the Costa Mesa Financing Authority (the “Authority”) pursuant to an Indenture of Trust dated as of November 1, 2026 (the “Indenture”) by and between the Authority and U.S. Bank Trust Company, National Association, as trustee (the “Trustee”), which was authorized by a resolution adopted by the Board of Directors of the Authority as described herein. See “THE BONDS – Authority for Issuance.” Use of Proceeds. The Bonds are being issued to finance capital improvements to the City’s Fire Station No. 2, and to pay costs of issuance. See “FINANCING PLAN.”
Security for the Bonds. The Bonds are payable from and secured by a first pledge of and lien on “Revenues” (as defined in this Official Statement) received by the Authority under the Lease Agreement dated as of November 1, 2026, by and between the Authority, as lessor, and the City, as lessee (the “Lease”), consisting primarily of semi-annual lease payments (the “Lease Payments”) made by the City under the Lease with respect to the lease of certain real property, as further described herein.
See “SECURITY FOR THE BONDS.”
Bond Terms; Book-Entry Only. The Bonds will bear interest at the rates shown on the inside cover page, payable semiannually on April 1 and October 1 of each year, commencing on April 1, 2027, and will be issued in fully registered form without coupons in the denomination of $5,000 or any integral multiple of $5,000. The Bonds will be issued in book-entry only form, initially registered in the name of Cede & Co., as nominee of The Depository Trust Company (“DTC”). Purchasers of the Bonds will not receive certificates representing their interests in the Bonds. Payments of the principal of and interest on the Bonds will be made to DTC, which is obligated in turn to remit such principal and interest to its DTC Participants for subsequent disbursement to the beneficial owners of the Bonds. See “THE BONDS – General Provisions.” Redemption. The Bonds are subject to redemption prior to maturity. See “THE BONDS – Redemption.” No Reserve Fund. Neither the Authority nor the City is funding a debt service reserve fund for the Bonds.
Abatement. The Lease Payments are subject to complete or partial abatement in the event and to the extent that there is substantial interference with the City’s use and possession of the Leased Property or any portion thereof. If the Lease Payments are abated under the Lease, the Bond Owners may receive less than the full amount of principal of and interest on the Bonds.
See “SECURITY FOR THE BONDS – Abatement” and “BOND OWNERS’ RISKS.”
NEITHER THE BONDS, NOR THE OBLIGATION OF THE AUTHORITY TO PAY PRINCIPAL OF OR INTEREST
THEREON, NOR THE OBLIGATION OF THE CITY TO MAKE THE LEASE PAYMENTS, CONSTITUTE A DEBT OR A
LIABILITY OF THE AUTHORITY, THE CITY, THE STATE OF CALIFORNIA OR ANY OF ITS POLITICAL SUBDIVISIONS
WITHIN THE MEANING OF ANY CONSTITUTIONAL LIMITATION ON INDEBTEDNESS, OR A PLEDGE OF THE FULL FAITH AND CREDIT OF THE CITY. THE BONDS ARE SECURED SOLELY BY THE PLEDGE OF REVENUES AND CERTAIN FUNDS HELD UNDER THE INDENTURE. THE BONDS ARE NOT SECURED BY A PLEDGE OF THE TAXING POWER OF THE CITY.
MATURITY SCHEDULE
(see inside cover)
THIS COVER PAGE CONTAINS CERTAIN INFORMATION FOR GENERAL REFERENCE ONLY. IT IS NOT A SUMMARY OF THIS ISSUE OF BONDS. INVESTORS MUST READ THE ENTIRE OFFICIAL STATEMENT TO OBTAIN INFORMATION
ESSENTIAL TO THE MAKING OF AN INFORMED INVESTMENT DECISION WITH RESPECT TO THE PURCHASE OF THE BONDS.
The Bonds are offered when, as, and if issued and received by the Underwriter and subject to the approval as to their legality by Jones Hall LLP, as Bond Counsel. Certain legal matters will also be passed upon for the Authority and the City by Jones Hall LLP, as Disclosure Counsel. Certain legal matters will be passed upon for the City by the City Attorney. Certain legal matters will be passed upon for the Underwriter by its counsel, Anzel Galvan LLP. It is anticipated that the Bonds will be delivered in book-entry form through the facilities of DTC on or about November __, 2026*. [Stifel logo]
* Preliminary; subject to change.
This Preliminary Official Statement and the information contained herein are subject to completion or amendment. These securities may not be sold nor may offers to buy be accepted prior to the time the Official Statement is delivered in final form. Under no circumstances will this Preliminary Official Statement constitute an offer to sell or a solicitation of an offer to buy nor will there be any sale of these securities in any jurisdiction in which such offer solicitation or sale would be unlawful.
Attachment 6
The date of this Official Statement is: ______, 2026.
MATURITY SCHEDULE*
COSTA MESA FINANCING AUTHORITY
2026 Lease Revenue Bonds
$_________ Serial Bonds
Maturity Principal Interest
(October 1) Amount Rate Yield Price CUSIP†
$___________ ____% Term Bonds due October 1, 20___; Price: _____%; Yield: ______; CUSIP†: _______
* Preliminary, subject to change.
† CUSIP® is a registered trademark of the American Bankers Association. CUSIP Global Services (CGS) is managed on behalf of the American Bankers Association by FactSet Research Systems Inc. Copyright© CUSIP Global Services. All rights reserved. CUSIP® data herein is provided by CUSIP Global Services. This data is not intended to create a database and does not serve in any way as a substitute for the CGS database.
CUSIP® numbers are provided for convenience of reference only. None of the City, the Authority nor the Underwriter takes any responsibility for the accuracy of such numbers.
COSTA MESA FINANCING AUTHORITY
(Orange County, California)
_______________________
AUTHORITY BOARD / CITY COUNCIL
John Stephens, Chair/Mayor
Manuel Chavez, Boardmember/Mayor Pro Tem (District 4)
Mike Buley, Boardmember/Councilmember (District 1)
Loren Gameros, Boardmember/Councilmember (District 2)
Andrea Marr, Boardmember/Councilmember (District 3)
Arlis Reynolds, Boardmember/Councilmember (District 5)
Jeff Pettis, Boardmember/Councilmember (District 6)
CITY / AUTHORITY STAFF
Cecilia Gallardo-Daly, City Manager/Executive Director
Alma Reyes, Assistant City Manager
_____________*, Finance Director/Treasurer
Brenda Green, City Clerk/Secretary
Kimberly Hall Barlow of Jones Mayer, City Attorney/General Counsel
PROFESSIONAL SERVICES
Municipal Advisor
Fieldman, Rolapp & Associates, Inc.
Irvine, California
Bond Counsel and Disclosure Counsel
Jones Hall LLP
San Mateo, California
Trustee
U.S. Bank Trust Company, National Association
Los Angeles, California
* The Finance Director position is currently vacant, and the City is undertaking a recruitment.
GENERAL INFORMATION ABOUT THIS OFFICIAL STATEMENT
No dealer, broker, salesperson or other person has been authorized to give any information or to make any representations with respect to the Bonds other than as contained in this Official Statement, and if given or made, such other information or representation must not be relied upon as having been authorized.
This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy in any state in which such offer or solicitation is not authorized or in which the person making such offer or solicitation is not qualified to do so or to any person to whom it is unlawful to make such offer or solicitation.
This Official Statement speaks only as of its date, and the information and expressions of opinion contained in this Official Statement are subject to change without notice. Neither the delivery of this Official Statement nor any sale of the Bonds will, under any circumstances, create any implication that there has been no change in the affairs of the City or any other parties described in this Official Statement, or in the condition of the security for the Bonds since the date of this Official Statement.
This Official Statement is submitted in connection with the sale of the Bonds referred to in this Official Statement and may not be reproduced or used, in whole or in part, for any other purpose. This Official Statement is not a contract with the purchasers of the Bonds. Prospective investors should not construe the contents of this Official Statement as legal, tax or investment advice.
The information contained in this Official Statement has been obtained from sources that are believed to be reliable, but this information is not guaranteed as to accuracy or completeness.
The Underwriter has submitted the following statement for inclusion in this Official Statement: The Underwriter has reviewed the information in this Official Statement in accordance with, and as a part of, its responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriter does not guarantee the accuracy or completeness of such information.
All references to and summaries of the Indenture or other documents contained in this Official Statement are subject to the provisions of those documents and do not purport to be complete statements of those documents.
The Bonds have not been registered under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, in reliance upon exemptions for the issuance and sale of municipal securities provided under Section 3(a)(2) of the Securities Act of 1933 and Section 3(a)(12) of the Securities Exchange Act of 1934.
Certain statements included or incorporated by reference in this Official Statement constitute forward-looking statements. Such statements are generally identifiable by the terminology used such as “plan,” “expect,” “estimate,” “project,” “budget” or other similar words. The achievement of certain results or other expectations contained in such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements described to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. No assurance is given that actual results will meet the forecasts of the City in any way, regardless of the level of optimism communicated in the information. The City is not obligated to issue any updates or revisions to the forward-looking statements if or when its expectations, or events, conditions or circumstances on which such statements are based occur.
The references to internet websites in this Official Statement are shown for reference and convenience only; unless explicitly stated to the contrary, the information contained within the websites and any links contained within those websites are not incorporated herein by reference and do not constitute part of this Official Statement. i
INTRODUCTION ........................................... 1 FINANCING PLAN......................................... 4 General ...................................................... 4 Estimated Sources and Uses..................... 4
THE LEASED PROPERTY............................ 5
Leased Property......................................... 5 Substitution and Release ........................... 5
DEBT SERVICE SCHEDULE........................ 7
THE BONDS.................................................. 8 Authority for Issuance ................................ 8 General Provisions..................................... 8 Transfer, Registration and Exchange......... 9
Redemption................................................ 9 Book-Entry Only System .......................... 12
SECURITY FOR THE BONDS .................... 13
Revenues; Pledge of Revenues............... 13
Assignment to Trustee ............................. 13
Allocation of Funds by Trustee................. 14
No Reserve Fund ..................................... 15 Lease Payments ...................................... 15 Limited Obligation .................................... 16 Additional Obligations .............................. 16 Source of Lease Payments; Covenant to
Budget and Appropriate ....................... 17
Abatement................................................ 17 Remedies on Default................................ 18
Property Insurance................................... 19 THE AUTHORITY........................................ 21 THE CITY..................................................... 21 General .................................................... 21 Largest Employers ................................... 21 Government and Administration............... 22
Risk Management .................................... 23 Labor Relations ........................................ 23 CITY FINANCIAL INFORMATION............... 24
Accounting and Financial Reporting ........ 24
Financial Policies and Procedures ........... 24
Budget Procedure, Current Budget and
Historical Budget Information ............... 26
Change in Fund Balance of the City
General Fund ....................................... 26 General Fund Balance Sheets of the
City ....................................................... 27 Sales Taxes ............................................. 28 Property Taxes ......................................... 29 Transient Occupancy Taxes..................... 33
Franchise Taxes....................................... 33 Other Taxes, Fees and Services.............. 33
Other Indebtedness ................................. 33 Capital Improvement Plan and Future
Indebtedness ....................................... 34 Pension Plans and OPEB........................ 35
CONSTITUTIONAL AND STATUTORY
LIMITATIONS ON TAXES AND
APPROPRIATIONS................................. 38
Article XIIIA of the State Constitution....... 38
Article XIIIB of the State Constitution....... 39
Articles XIIIC and XIIID of the State
Constitution.......................................... 39 Proposition 1A; Proposition 22 ................ 40
Unitary Property....................................... 41 Possible Future Initiatives........................ 41
BOND OWNERS’ RISKS ............................ 42
No Pledge of Taxes ................................. 42 No Debt Service Reserve Fund ............... 42
Abatement ............................................... 42 Limited Recourse on Default; No Right
to Foreclose or Sell; No Acceleration
of Lease Payments .............................. 43
Additional Obligations of the City............. 44
Sales Taxes ............................................. 44 Concentration of Sales Tax Revenues;
South Coast Plaza ............................... 45
Property Taxes ........................................ 45 Natural Calamities ................................... 46 Hazardous Substances............................ 47
Possible Insufficiency of Insurance
Proceeds.............................................. 47 Pandemic Diseases ................................. 48
Proximity to John Wayne Airport ............. 48
Cyber Security ......................................... 49 Limitations on Remedies Available to
Bond Owners ....................................... 49
Secondary Market for Bonds ................... 50
TAX MATTERS ........................................... 50 CERTAIN LEGAL MATTERS...................... 51
LITIGATION................................................. 52 RATING....................................................... 52 CONTINUING DISCLOSURE ..................... 52
MUNICIPAL ADVISOR................................ 53
UNDERWRITING ........................................ 53 CONTINGENT FEES .................................. 54
EXECUTION................................................ 54 APPENDIX A: AUDITED FINANCIAL STATEMENTS FOR FISCAL YEAR ENDED JUNE 30, 2025 APPENDIX B: GENERAL INFORMATION ABOUT THE CITY OF COSTA MESA AND ORANGE COUNTY APPENDIX C: SUMMARY OF CERTAIN PROVISIONS OF PRINCIPAL LEGAL DOCUMENTS APPENDIX D: FORM OF CONTINUING DISCLOSURE CERTIFICATE
APPENDIX E: FORM OF OPINION OF BOND COUNSEL
APPENDIX F: DTC AND THE BOOK-ENTRY ONLY SYSTEM
ii
[REGIONAL LOCATION MAP]
1 __________________________________
OFFICIAL STATEMENT
__________________________________
$____________*
COSTA MESA FINANCING AUTHORITY
2026 Lease Revenue Bonds
INTRODUCTION
This introduction is not a summary of this Official Statement. It is only a brief description of and guide to, and is qualified by, more complete and detailed information contained in the entire Official Statement, including the cover page and appendices hereto, and the documents summarized or described herein. A full review should be made of the entire Official Statement.
The offering of the Bonds to potential investors is made only by means of the entire Official Statement. Capitalized terms used but not defined in this Official Statement have the meanings set forth in the Indenture (as defined below). See “APPENDIX C – SUMMARY OF CERTAIN PROVISIONS OF PRINCIPAL LEGAL DOCUMENTS.”
Authority for Issuance. The Costa Mesa Financing Authority (the “Authority”) is issuing the bonds captioned above (the “Bonds”) under the Marks-Roos Local Bond Pooling Act of 1985, constituting Article 4 (commencing with Section 6584) of Chapter 5, Division 7, Title 1 of the California Government Code (the “Bond Law”), a resolution adopted by the Board of Directors (the “Board”) of the Authority on [October 20], 2026 (the “Authority Resolution”), a resolution adopted by the City Council (the “City Council”) of the City of Costa Mesa (the “City”) on [October 20], 2026 (the “City Resolution”), and an Indenture of Trust (the “Indenture”) dated as of November 1, 2026, by and between the Authority and U.S. Bank Trust Company, National Association, as trustee (the “Trustee”).
Purpose of the Bonds. The Bonds are being issued to finance capital improvements to the City’s Fire Station No. 2, and to pay costs of issuance of the Bonds. See “FINANCING PLAN.” The Authority and the City. The Authority is a joint powers authority established pursuant to a Joint Exercise of Powers Agreement dated as of August 1, 2017, by and between the City and the Costa Mesa Housing Authority. The Authority is governed by a seven-member Board of Directors (the “Board”), which consists of the members of the City Council of the City. The Authority was created for the purpose of assisting the financing or refinancing of public capital facilities of benefit to its members. Under the Bond Law, the Authority has the power to lease real property in furtherance of the acquisition of public improvements necessary or convenient for the operation of the City, or to purchase bonds issued by any local agency at public or negotiated sale and may sell such bonds to public or private purchasers at public or negotiated sale. See “THE AUTHORITY.”
The City is located in Orange County (the “County”), approximately 35 miles southeast of Los Angeles and 85 miles northwest of San Diego, California. The City covers approximately 16.8 square miles. The California Department of Finance estimates that the City has a population of approximately 109,436 as of January 1, 2026. The City’s population has remained relatively stable * Preliminary; subject to change.
2 for the past ten years, with the population declining slightly since 2017. The City was incorporated on June 29, 1953 and is a general law city operating under a council/manager form of government.
For additional background, and certain demographic and economic information regarding the City and the County, see APPENDIX B.
Bond Terms; Book-Entry Only. The Bonds will bear interest at the rates shown on the inside cover page, payable semiannually on April 1 and October 1 of each year, commencing on April 1, 2027. The Bonds will be issued in fully registered form, registered in the name of The Depository Trust Company (“DTC”), or its nominee, which will act as securities depository for the Bonds. Purchasers of the Bonds will not receive certificates representing the Bonds that are purchased. See “THE BONDS – Book-Entry Only System” and “APPENDIX F – DTC AND THE BOOK-ENTRY ONLY SYSTEM.”
Security for the Bonds. The City and the Authority will enter into a Site Lease dated as of November 1, 2026 (the “Site Lease”), under which the City will lease certain real property to the Authority, as described herein (the “Leased Property”). See “THE LEASED PROPERTY.” The net proceeds of the Bonds will be used by the Authority to fund an upfront payment due to the City under the Site Lease.
In order to secure the payments of principal of and interest on the Bonds, the Authority will lease the Leased Property back to the City under a Lease Agreement (the “Lease Agreement”), under which the City is obligated to pay semiannual lease payments (the “Lease Payments”) as rental for the Leased Property, and the Authority will assign substantially all of its rights under the Lease Agreement to the Trustee. The Bonds are payable from and secured by a first pledge of and lien on the Revenues received by the Trustee, as assignee of the Authority, consisting primarily of the Lease Payments.
Under the Lease, the City covenants to take all actions required to include the Lease Payments in each of its budgets during the Term of the Lease and to make the necessary appropriations for all Lease Payments and Additional Rental Payments. This covenant of the City constitutes a duty imposed by law and each and every public official of the City is required to take all actions 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. See “SECURITY FOR THE BONDS.” Redemption. The Bonds are subject to redemption prior to their stated maturity dates.
See “THE BONDS – Redemption.”
Abatement. The Lease Payments are subject to complete or partial abatement in the event and to the extent that there is substantial interference with the City’s use and possession of the Leased Property or any portion thereof. If the Lease Payments are abated under the Lease, the Bond Owners may receive less than the full amount of principal of and interest on the Bonds.
See “SECURITY FOR THE BONDS – Abatement” and “BOND OWNERS’ RISKS.” Additional Obligations. Under the Indenture, the Authority covenants that no additional bonds, notes or other indebtedness shall be issued or incurred by the Authority which are payable out of the Revenues in whole or in part. However, the City is permitted to enter into other obligations which constitute additional charges against its revenues, including pursuant to additional leases involving the Leased Property, without the consent of Owners of the Bonds, subject to the conditions described therein.
3 Risks of Investment. Debt service on the Bonds is payable only from Lease Payments and other amounts payable by the City to the Authority under the Lease. The Lease Payments are payable from revenues available in the City’s general fund, which revenues may be materially adversely affected by numerous factors outside the City’s control. For a discussion of some of the risks associated with the purchase of the Bonds, see “BOND OWNERS’ RISKS.”
NEITHER THE BONDS, THE OBLIGATION OF THE AUTHORITY TO PAY PRINCIPAL
OF OR INTEREST THEREON, NOR THE OBLIGATION OF THE CITY TO MAKE THE LEASE
PAYMENTS, CONSTITUTE A DEBT OR A LIABILITY OF THE AUTHORITY, THE CITY, THE
STATE OR ANY OF ITS POLITICAL SUBDIVISIONS WITHIN THE MEANING OF ANY
CONSTITUTIONAL LIMITATION ON INDEBTEDNESS, OR A PLEDGE OF THE FULL FAITH AND CREDIT OF THE CITY. THE BONDS ARE SECURED SOLELY BY THE PLEDGE OF REVENUES AND CERTAIN FUNDS HELD UNDER THE INDENTURE. THE BONDS ARE NOT SECURED BY A PLEDGE OF THE TAXING POWER OF THE CITY.
[Remainder of page intentionally left blank]
4 FINANCING PLAN
General
The net proceeds of the Bonds will be used to finance to the demolition and reconstruction of the City’s Fire Station No. 2, including temporary trailers, furniture, fixtures and equipment (collectively, the “Project”). Fire Station No. 2 is located at 800 Baker Street in the City. The Project involves a $____ million demolition and complete rebuild of the existing facility to replace the aging facility with a modern, LEED Gold-certified station. The new station will be approximately 9,400 square feet, which is about 40% larger than the existing station, on the same
0.79 acre lot. In addition to $_____ from the net proceeds of the Bonds, the City will utilize $_____ from amounts available in its capital improvement fund to complete the Project.
Construction bids for the Project were received on August 26, 2026, and construction is anticipated to commence in late 2026 and be completed by late 2028 or early 2029.
The land and facilities constituting Fire Station No. 2 constitutes a portion of the initial Leased Property and, upon completion of the Project, is anticipated to constitute the sole Leased Property. See “THE LEASED PROPERTY” herein.
Estimated Sources and Uses
The estimated sources and uses of funds relating to the Bonds are as follows:
Sources:
Principal Amount of Bonds $
Plus/Less [Net] Original Issue Premium/Discount
TOTAL SOURCES $
Uses:
Deposit to Project Fund
Costs of Issuance(1)
TOTAL USES $
(1) Represents funds to be used to pay Costs of Issuance, which include rating agency fees, bond counsel, disclosure counsel, City Attorney fees,Trustee fees, Underwriter’s discount and other costs of issuing the Bonds.
5 THE LEASED PROPERTY
Leased Property
Initial Leased Property. The initial Leased Property consists of the City’s interest in the site and facilities comprising (i) Fire Station No. 1, located at 1570 Adams Avenue in the City and (ii) Fire Station No. 2, located at 800 Baker Street in the City. The City estimates the insured value of Fire Station No. 1, which was rebuilt in 2018, is approximately $7.4 million, which, combined with the land value of both Fire Station No. 1 and Fire Station 2, results in a value that is at least equal to the aggregate principal amount of the Bonds.
Simultaneously with the delivery of the 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. Under the Lease, the City has agreed to maintain the Leased Property in good working condition. The City estimates that the Leased Property has a value of at least the aggregate principal amount of the Bonds. The City and the Authority, based on records they maintain, estimate the current annual fair rental value of the Leased Property to be not less than the amount of the annual Lease Payments, taking into account the complete demolition and reconstruction of Fire Station No. 2.
Bondholders do not have a mortgage on any portion of the Leased Property and no ability to foreclose on the Leased Property or accelerate the Lease Payments in the event of a default.
See “BOND OWNERS’ RISKS – Limited Recourse on Default; No Right to Foreclose or Sell; No Acceleration of Lease Payments” and “SECURITY FOR THE BONDS – Remedies on Default” herein.
Planned Release of Portions of Initial Leased Property. Notwithstanding anything in the Lease or the Indenture to the contrary, upon final completion of the construction of the Project, the City has the right to release all of the Leased Property, other than the land and building comprising the Project. The City shall accomplish this release by (1) filing with the Authority and Trustee a written certificate of the City or other written evidence stating that (i) the estimated value of the Leased Property following such release is at least equal to the aggregate unpaid principal components of the then-remaining Lease Payments, (ii) the estimated fair rental value of the Leased Property following such release is at least equal to the aggregate unpaid principal components of the then-remaining Lease Payments and (iii) the City has use and occupancy of the Leased Property following such release and (2) filing with the Orange County Recorder’s Office a Termination and Release substantially in the form attached as an exhibit to the Lease.
Subsequent to the execution and recordation of such Termination and Release, the Leased Property herein shall be deemed to no longer include the portion of the Leased Property released thereby. The City would not be entitled to any reduction, diminution, extension or other modification of the Lease Payments whatsoever as a result of such release.
Substitution and Release
Substitution of Leased Property. Under the Lease, the City has the option at any time and from time to time, to substitute other real property (the “Substitute Property”) for the Leased Property or any portion thereof (the “Former Property”), upon satisfaction of all of the conditions set forth in the Lease, which consist of the following:
• No Event of Default has occurred and is continuing.
6 • The City has filed with the Authority and the Trustee, and caused to be recorded in the office of the Orange County Recorder’s Office, sufficient memorialization of an amendment of the Lease, the Site Lease and the Assignment Agreement, which adds the legal description of the Substitute Property to the Lease and deletes therefrom the legal description of the Former Property. • The City has obtained a CLTA policy of title insurance insuring the City’s leasehold estate under the Lease in the Substitute Property, subject only to Permitted Encumbrances, in an amount at least equal to the aggregate unpaid principal components of the then-remaining Lease Payments.
• The City has certified in writing to the Authority and the Trustee that the Substitute Property serves the municipal purposes of the City, constitutes property which the City is permitted to lease under the laws of the State of California, and has been determined to be important to the proper, efficient and economic operation of the City.
• The Substitute Property does not cause the City to violate any of its covenants, representations and warranties made in the Lease.
• The City has filed with the Authority and the Trustee a written certificate of the City or other written evidence stating that (i) the estimated value of the Leased Property following such substitution is at least equal to the aggregate unpaid principal components of the then-remaining Lease Payments, (ii) the estimated fair rental value of the Leased Property following such substitution is at least equal to the aggregate unpaid principal components of the then-remaining Lease Payments, (iii) the City has use and occupancy of the Leased Property following such substitution, and (iv) the useful life of the Substitute Property at least extends to the stated termination date of the Lease.
Upon the satisfaction of all such conditions precedent, the Term of the Lease will thereupon end as to the Former Property and commence as to the Substitute Property, and all references to the Former Property will apply with full force and effect to the Substitute Property.
The City is not entitled to any reduction, diminution, extension or other modification of the Lease Payments whatsoever as a result of any substitution of property as set forth above.
Release of Leased Property. Under the Lease, the City has the option at any time and from time to time to release any portion of the Leased Property from the Lease (the “Released Property”) provided that the City has satisfied all of the requirements under the Lease that are conditions precedent to such release, which consist of the following:
• No Event of Default has occurred and is continuing.
• The City has filed with the Authority and the Trustee, and caused to be recorded in the office of the Orange County Recorder’s Office, sufficient memorialization of an amendment of the Lease, the Site Lease and the Assignment Agreement, which removes the Released Property therefrom.
• The City has filed with the Authority and the Trustee a written certificate of the City or other written evidence stating that (i) the estimated value of the Leased Property 7 following such release is at least equal to the aggregate unpaid principal components of the then-remaining Lease Payments, and (ii) the estimated fair rental value of the Leased Property following such release is at least equal to the remaining Lease Payments due under the Lease.
Upon the satisfaction of all the conditions precedent set forth in the Lease, the term of the Lease will end as to the Released Property. The City is not entitled to any reduction, diminution, extension or other modification of the Lease Payments whatsoever as a result of such release.
DEBT SERVICE SCHEDULE
The table below shows annual debt service payments on the Bonds.
Year Ending
October 1 Principal Interest
Total
Debt Service
Total:
8 THE BONDS
This section provides summaries of the Bonds and certain provisions of the Indenture.
See APPENDIX C for a more complete summary of the Indenture. Capitalized terms used but not defined in this section have the meanings given in APPENDIX C.
Authority for Issuance
The Bonds are being issued under the Bond Law and the Indenture, approved pursuant to the Authority Resolution and the City Resolution.
General Provisions
Bond Terms. The Bonds will be dated their date of delivery and issued in fully registered form without coupons in denominations of $5,000 or any integral multiple of $5,000. The Bonds will mature in the amounts and on the dates, and bear interest at the annual rates, set forth on the inside cover page of this Official Statement.
Payments of Principal and Interest. Interest on the Bonds will be payable on April 1 and October 1 in each year, beginning April 1, 2027 (each an “Interest Payment Date”). Interest on the Bonds is payable from the Interest Payment Date next preceding the date of its authentication unless: a Bond is authenticated on or before an Interest Payment Date and after the close of business on the preceding Record Date, in which event it will bear interest from such Interest Payment Date, a Bond is authenticated on or before the first Record Date, in which event interest thereon will be payable from the Closing Date, or interest on any Bond is in default as of the date of authentication thereof, in which event interest thereon will be payable from the date to which interest has been paid in full, payable on each Interest Payment Date.
Interest is computed on the basis of a 360-day year composed of 12 months of 30 days each and payable on each Interest Payment Date to the persons in whose names the ownership of the Bonds is registered on the Registration Books at the close of business on the immediately preceding Record Date, except as provided below. Interest on any Bond which is not punctually paid or duly provided for on any Interest Payment Date is payable to the person in whose name the ownership of such Bond is registered on the Registration Books at the close of business on a special record date for the payment of such defaulted interest to be fixed by the Trustee, notice of which is given to such Owner by first-class mail not less than 10 days prior to such special record date.
The Trustee will pay interest on the Bonds by check of the Trustee mailed by first class mail, postage prepaid, on each Interest Payment Date to the Owners of the Bonds at their respective addresses shown on the Registration Books as of the close of business on the preceding Record Date. At the written request of the Owner of Bonds in an aggregate principal amount of at least $1,000,000, which written request is on file with the Trustee as of any Record Date, the Trustee will pay interest on such Bonds on each succeeding Interest Payment Date by wire transfer in immediately available funds to such account of a financial institution within the United States of America as specified in such written request, which written request will remain in effect until rescinded in writing by the Owner.
While the Bonds are subject to the book-entry system, the principal, interest and any redemption premium with respect to the Bonds will be paid by the Trustee to DTC for subsequent disbursement to beneficial owners of the Bonds. See “– Book-Entry Only System” below. 9 Record Date. Under the Indenture, “Record Date” means, with respect to any Interest Payment Date, the 15th calendar day of the month preceding such Interest Payment Date, whether or not such day is a Business Day.
Transfer, Registration and Exchange
The following provisions regarding the exchange and transfer of the Bonds apply only during any period in which the Bonds are not subject to DTC’s book-entry system. While the Bonds are subject to DTC’s book-entry system, their exchange and transfer will be affected through DTC and the Participants and will be subject to the procedures, rules and requirements established by DTC. See “APPENDIX F – DTC AND THE BOOK-ENTRY ONLY SYSTEM.” Bond Register. The Trustee will keep or cause to be kept, at the Office of the Trustee, sufficient records for the registration and transfer of ownership of the Bonds, which will upon reasonable notice as agreed to by the Trustee, be open to inspection during regular business hours by the Authority; and, upon presentation for such purpose, the Trustee will, under such reasonable regulations as it may prescribe, register or transfer or cause to be registered or transferred, on such records, the ownership of the Bonds as provided in the Indenture.
Transfer and Exchange. Any Bond may, in accordance with its terms, be transferred, upon the Registration Books, by the person in whose name it is registered, in person or by a duly authorized attorney of such person, upon surrender of such Bond to the Trustee at its Office for cancellation, accompanied by delivery of a written instrument of transfer in a form acceptable to the Trustee, duly executed. The Trustee will require the Owner requesting such transfer to pay any tax or other governmental charge required to be paid with respect to such transfer.
Whenever any Bond is or Bonds are surrendered for transfer, the Authority will execute and the Trustee will authenticate and deliver to the transferee a new Bond or Bonds of like series, interest rate, maturity and aggregate principal amount. The Authority will pay the cost of printing Bonds and any services rendered or expenses incurred by the Trustee in connection with any transfer of Bonds.
The Bonds may be exchanged at the Office of the Trustee for a like aggregate principal amount of Bonds of other authorized denominations and of the same series, interest rate and maturity. The Trustee will require the Owner requesting such exchange to pay any tax or other governmental charge required to be paid with respect to such exchange. The Authority will pay the cost of printing Bonds and any services rendered or expenses incurred by the Trustee in connection with any exchange of Bonds.
The Trustee may refuse to transfer or exchange, under the provisions of the Indenture described above, any Bonds selected by the Trustee for redemption under the Indenture, or any Bonds during the period established by the Trustee for the selection of Bonds for redemption.
Redemption
Optional Redemption. The Bonds maturing on or before October 1, ____, are not subject to optional redemption prior to their respective stated maturities. The Bonds maturing on or after October 1, _____ , are subject to optional redemption in whole, or in part at the election of the Authority among maturities on such basis as designated by the Authority and by lot within a maturity, at the option of the Authority, on any date on or after October 1, _____, from any 10 available source of funds, at a redemption price equal to 100% of the principal amount thereof to be redeemed together with accrued interest thereon to the redemption date, without premium.
Mandatory Sinking-Fund Redemption. The Bonds maturing October 1, _____, October 1, _____, October 1, _____, and October 1, _____ (the “Term Bonds”) are subject to mandatory redemption in part by lot, at a redemption price equal to 100% of the principal amount thereof to be redeemed, without premium, in the aggregate respective principal amounts and on October 1 in the respective years as set forth in the following tables; provided, however, that if some but not all of the Term Bonds have been redeemed pursuant to an optional redemption or extraordinary mandatory redemption, the total amount of all future sinking fund payments shall be reduced by the aggregate principal amount of the Term Bonds so redeemed, to be allocated among such sinking fund payments on a pro rata basis in integral multiples of $5,000 (as set forth in a schedule provided by the Authority to the Trustee).
Term Bonds Maturing October 1, ______
Sinking Fund
Redemption Date
(October 1)
Principal Amount
To Be Redeemed
Term Bonds Maturing October 1, ______
Sinking Fund
Redemption Date
(October 1)
Principal Amount
To Be Redeemed
Term Bonds Maturing October 1, ______
Sinking Fund
Redemption Date
(October 1)
Principal Amount
To Be Redeemed
Term Bonds Maturing October 1, ______
Sinking Fund
Redemption Date
(October 1)
Principal Amount
To Be Redeemed
Extraordinary Mandatory Redemption. The Bonds are subject to mandatory redemption prior to maturity in whole or in part among maturities as determined by the Authority, on any date, at a redemption price equal to 100% of the principal amount thereof to be redeemed (plus accrued but unpaid interest to the redemption date), without premium, from Net Proceeds received under 11 the Lease Agreement and from amounts deposited in the Insurance and Condemnation Fund pursuant to the Indenture, and any other funds available for such purpose under the Indenture.
Selection of Bonds for Redemption. Whenever provision is made in the Indenture for the redemption of less than all of the Bonds, the Bonds shall be selected for redemption on such basis as shall be designated by the Authority and by lot within a maturity. For purposes of such selection, the Trustee will treat each Bond as consisting of separate $5,000 portions and each such portion will be subject to redemption as if such portion were a separate Bond.
Notice of Redemption. The Trustee will mail notice of redemption of the Bonds by first class mail, postage prepaid, not less than 20 nor more than 60 days before any redemption date, to the respective Owners of any Bonds designated for redemption at their addresses appearing on the Registration Books and to one or more Securities Depositories and to the Information Services.
Neither the failure to receive any notice nor any defect therein will affect the sufficiency of the proceedings for such redemption or the cessation of accrual of interest from and after the redemption date. Notice of redemption of Bonds will be given by the Trustee, at the expense of the Authority, for and on behalf of the Authority.
However, while the Bonds are subject to DTC’s book-entry system, the Trustee will be required to give notice of redemption only to DTC as provided in the letter of representations executed by the Authority and received and accepted by DTC. DTC and the Participants will have sole responsibility for providing any such notice of redemption to the beneficial owners of the Bonds to be redeemed. Any failure of DTC to notify any Participant, or any failure of Participants to notify the Beneficial Owner of any Bonds to be redeemed, of a notice of redemption or its content or effect will not affect the validity of the notice of redemption, or alter the effect of redemption set forth in the Indenture.
Rescission of Redemption Notice. The Authority has the right to rescind any notice of the redemption of Bonds under the Indenture by written notice to the Trustee on or prior to the date fixed for redemption. Any notice of optional redemption will be canceled and annulled if for any reason funds will not be or are not available on the date fixed for redemption for the payment in full of the Bonds then called for redemption, and such cancellation will not constitute an Event of Default. The Authority and the Trustee have no liability to the Bond Owners or any other party related to or arising from such rescission of redemption. The Trustee will mail notice of such rescission of redemption in the same manner as the original notice of redemption was sent under the Indenture.
Effect of Redemption. When notice of redemption has been duly given as set forth in the Indenture, and moneys for payment of the redemption price of, together with interest accrued to the date fixed for redemption on, including any applicable premium, the Bonds (or portions thereof) so called for redemption being held by the Trustee, on the redemption date designated in such notice, the Bonds (or portions thereof) so called for redemption will become due and payable, interest on the Bonds so called for redemption will cease to accrue, said Bonds (or portions thereof) will cease to be entitled to any benefit or security under the Indenture, and the Owners of said Bonds will have no rights in respect thereof except to receive payment of the redemption price thereof.
12 Book-Entry Only System
The Bonds will be issued as fully registered bonds in book-entry only form, registered in the name of Cede & Co. as nominee of DTC, and will be available to ultimate purchasers in the denomination of $5,000 or any integral multiple of $5,000, under the book-entry system maintained by DTC. While the Bonds are subject to the book-entry system, the principal, interest and any redemption premium with respect to a Bond will be paid by the Trustee to DTC, which in turn is obligated to remit such payment to its DTC Participants for subsequent disbursement to Beneficial Owners of the Bonds. Purchasers of the Bonds will not receive certificates representing their interests therein, which will be held at DTC. See “APPENDIX F – DTC AND THE BOOKENTRY ONLY SYSTEM” for further information regarding DTC and the book-entry system. 13 SECURITY FOR THE BONDS
The principal of and interest on the Bonds are not a debt of the Authority or the City, nor a legal or equitable pledge, charge, lien or encumbrance, upon any of their respective property, or upon any of their income, receipts, or revenues except the Revenues and other amounts pledged under the Indenture.
This section provides summaries of the security for the Bonds and certain provisions of the Indenture, the Lease and the Site Lease. See “APPENDIX C – SUMMARY OF CERTAIN PROVISIONS OF PRINCIPAL LEGAL DOCUMENTS” for a more complete summary of the Indenture, the Lease, the Site Lease and the Assignment Agreement. Capitalized terms used but not defined in this section have the meanings given in APPENDIX C.
Revenues; Pledge of Revenues
Pledge of Revenues and Other Amounts. Under the Indenture, subject only to the provisions of the Indenture permitting the application thereof for the purposes and on the terms and conditions set forth therein, all of the Revenues and all amounts held in any fund or account established under the Indenture (excluding amounts in the Costs of Issuance Fund and the Project Fund) are pledged to secure the payment of the principal of and interest on the Bonds in accordance with their terms and the provisions of the Indenture. This pledge constitutes a lien on and security interest in the Revenues and such amounts and will attach, be perfected and be valid and binding from and after the Closing Date, without the need for any physical delivery thereof or further act.
“Revenues” are defined in the Indenture as (a) all amounts received by the Authority or the Trustee under or with respect to the Lease, including, without limiting the generality of the foregoing, all of the Lease Payments (including both timely and delinquent payments, any late charges, and whether paid from any source), but excluding (i) any amounts the City is obligated to pay under the Lease or under another lease as additional amounts of rental for the use and occupancy of the Leased Property if such additional amounts of rental are pledged or assigned for the payment of any bonds, notes, leases or obligations other than the Bonds, and (ii) any Additional Rental Payments; and (b) all interest, profits or other income derived from the investment of amounts in any fund or account established under the Indenture.
Assignment to Trustee
Under the Assignment Agreement, the Authority will transfer to the Trustee all of the rights of the Authority in the Lease (other than the rights of the Authority under the provisions of the Lease regarding Additional Rental Payments, repayment of advances, indemnification, and the payment of attorneys’ fees). The Trustee is entitled to collect and receive all of the Revenues, and any Revenues collected or received by the Authority will be deemed to be held, and to have been collected or received, by the Authority as the agent of the Trustee and will immediately be paid by the Authority to the Trustee. The Trustee is also entitled to and will, subject to the provisions of the Indenture regarding the duties of the Trustee, take all steps, actions and proceedings which the Trustee determines to be reasonably necessary in its judgment to enforce, either jointly with the Authority or separately, all of the rights of the Authority and all of the obligations of the City under the Lease.
14 Allocation of Funds by Trustee
Deposit of Revenues into Bond Fund. All Revenues shall be promptly deposited by the Trustee upon receipt thereof in a special fund designated as the “Bond Fund” which the Trustee shall establish, maintain and hold in trust; except that all moneys received by the Trustee and required under the Indenture or under the Lease to be deposited in the Redemption Fund or the Insurance and Condemnation Fund shall be promptly deposited in such funds. All Revenues deposited with the Trustee shall be held, disbursed, allocated and applied by the Trustee only as provided in the Indenture. Any surplus remaining in the Bond Fund, after payment in full of (i) the principal of and interest on the Bonds or provision therefore under the Indenture, and (ii) any applicable fees and expenses to the Trustee, shall be withdrawn by the Trustee and remitted to the City.
Transfers from the Bond Fund. On or before each Interest Payment Date, the Trustee will transfer from the Bond Fund and deposit into the following respective accounts (each of which the Trustee will establish and maintain within the Bond Fund), the following amounts in the following order of priority:
Deposit to Interest Account. The Trustee will deposit in the Interest Account an amount required to cause the aggregate amount on deposit in the Interest Account to be at least equal to the amount of interest becoming due and payable on such Interest Payment Date on all Bonds then Outstanding.
Deposit to Principal Account. The Trustee will deposit in the Principal Account an amount required to cause the aggregate amount on deposit in the Principal Account to equal the principal amount of the Bonds coming due and payable on such Interest Payment Date, including the principal amount of Bonds which are subject to mandatory sinking fund redemption on such Interest Payment Date.
Application of Accounts within Bond Fund.
Application of Interest Account. All amounts in the Interest Account will be used and withdrawn by the Trustee solely for the purpose of paying interest on the Bonds as it comes due and payable (including accrued interest on any Bonds purchased or redeemed prior to maturity).
Application of Principal Account. All amounts in the Principal Account will be used and withdrawn by the Trustee solely to pay the principal amount of the Bonds at their respective maturity dates, and the principal amount of Bonds which are subject to mandatory sinking fund redemption on such Interest Payment Date.
Application of Redemption Fund. The Trustee will establish and maintain the Redemption Fund, into which the Trustee shall deposit a portion of the Revenues received, in accordance with a Written Request of the Authority, amounts in which shall be used and withdrawn by the Trustee solely for the purpose of paying the principal and premium (if any) of the Bonds to be redeemed under the Indenture; provided, however, that at any time prior to the selection of Bonds for redemption, the Trustee may apply such amounts to the purchase of Bonds at public or private sale, when and at such prices (including brokerage and other charges, but excluding accrued interest, which is payable from the Interest Account) as shall be directed under a Written Request of the Authority, except that the purchase price (exclusive of accrued interest) may not exceed the redemption price then applicable to the Bonds. The Trustee shall be entitled 15 to conclusively rely on any Written Request of the Authority received under the Indenture, and shall be fully protected in relying thereon.
No Reserve Fund
Neither the Authority nor the City is funding a debt service reserve fund for the Bonds.
Lease Payments
Requirement to Make Lease Payments. Under the Lease, subject to the provisions of the Lease concerning rental abatement (see – “Abatement,” below) and prepayment of Lease Payments, the City agrees to pay to the Authority, its successors and assigns, the Lease Payments in the respective amounts specified in the Lease, to be due and payable in immediately available funds on the Interest Payment Dates immediately following each of the respective Lease Payment Dates specified in the Lease, and to be deposited by the City with the Trustee on each of the Lease Payment Dates specified in the Lease (defined as the 5th Business Day immediately preceding each Interest Payment Date).
Any amount held in the Bond Fund, the Interest Account and the Principal Account on any Lease Payment Date (other than amounts resulting from the prepayment of the Lease Payments in part but not in whole under the Lease, and amounts required for payment of past due principal or interest on any Bonds not presented for payment) will be credited towards the Lease Payment then required to be paid under the Lease.
The City is not required to deposit any Lease Payment with the Trustee on any Lease Payment Date if the amounts then held in the Bond Fund, the Interest Account and the Principal Account are at least equal to the Lease Payment then required to be deposited with the Trustee.
The Lease Payments payable in any Rental Period are for the use of the Leased Property during that Rental Period.
Rate on Overdue Lease Payments. If the City fails to make any of the payments of Lease Payments required in the Lease, the payment in default will continue as an obligation of the City until the amount in default has been fully paid, and the City agrees to pay the same with interest thereon, from the date of default to the date of payment at the highest rate of interest on any Outstanding Bond.
Fair Rental Value. The aggregate amount of the Lease Payments and Additional Rental Payments coming due and payable during each Rental Period constitute the total rental for the Leased Property for such Rental Period, and are payable by the City in each Rental Period for and in consideration of the right of the use and occupancy of, and the continued quiet use and enjoyment of the Leased Property during each Rental Period. The Authority and the City have agreed and determined that the total Lease Payments represent the fair rental value of the Leased Property. In making that determination, consideration has been given to the estimated value of the Leased Property, other obligations of the City and the Authority under the Lease, the uses and purposes which may be served by the Leased Property and the benefits therefrom which will accrue to the City and the general public.
Additional Rental Payments. In addition to the Lease Payments, the City shall pay when due the following amounts of Additional Rental Payments in consideration of the lease of the Leased Property by the City from the Authority:
16 (a) All fees and expenses incurred by the Authority in connection with or by reason of its leasehold estate in the Leased Property, when due;
(b) All reasonable compensation to the Trustee for all services rendered under the Indenture and for all reasonable expenses, charges, costs, liabilities, legal fees and other disbursements incurred in and about the performance of its powers and duties under the Indenture;
(c) The reasonable fees and expenses of such accountants, consultants, attorneys and other experts as may be engaged by the Authority or the Trustee to prepare audits, financial statements, reports, opinions or provide such other services required under the Lease or the Indenture;
(d) Amounts coming due and payable as Excess Investment Earnings in accordance with the Lease; and
(e) The reasonable out-of-pocket expenses of the Authority in connection with the execution and delivery of the Lease or the Indenture, or in connection with the issuance of the Bonds, including but not limited to any and all expenses incurred in connection with the authorization, sale and delivery of the Bonds, or incurred by the Authority in connection with any litigation which may at any time be instituted involving the Lease, the Bonds, the Indenture or any of the other documents contemplated thereby, or otherwise incurred in connection with the administration of the Lease.
Limited Obligation
THE OBLIGATION OF THE CITY TO MAKE THE LEASE PAYMENTS DOES NOT
CONSTITUTE A DEBT OF THE CITY, THE AUTHORITY OR THE STATE OR OF ANY
POLITICAL SUBDIVISION THEREOF WITHIN THE MEANING OF ANY CONSTITUTIONAL OR
STATUTORY DEBT LIMIT OR RESTRICTION, AND DOES NOT CONSTITUTE AN
OBLIGATION 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.
Additional Obligations
Under the Indenture, the Authority covenants that no additional bonds, notes or other indebtedness will be issued or incurred which are payable out of the Revenues in whole or in part.
Notwithstanding the foregoing, additional bonds, notes and obligations may be issued by the Authority that are secured by lease payments payable under the Lease in accordance with the Lease.
The Lease provides that the Lease may be amended without consent by Holders of the Bonds to obligate the City to pay additional amounts of rental for the use and occupancy of the Leased Property, but only if
(a) such additional rent payments are pledged or assigned for the payment of any bonds, notes or other obligations the proceeds of which are applied to finance or refinance the 17 acquisition or construction of any real or personal property for which the City is authorized to expend funds subject to its control, and
(b) the City has filed with the Trustee a written certificate stating that (i) the estimated value of the Leased Property is, or following the completion of the acquisition and construction of any improvements to be financed from the proceeds of such bonds, notes or other obligations will be, at least equal to the aggregate then-outstanding principal amount of the Bonds and all such other bonds, notes or other obligations and (ii) the aggregate amount of the then-existing plus additional amounts of rental payable for the use and occupancy of the Leased Property does not exceed its fair rental value.
Source of Lease Payments; Covenant to Budget and Appropriate The Lease Payments are payable from any source of available funds of the City, subject to the provisions of the Lease regarding abatement. See “– Abatement” herein.
Under the Lease, the City covenants to take all actions required to include the Lease Payments in each of its budgets during the Term of the Lease and to make the necessary appropriations for all Lease Payments and Additional Rental Payments. The foregoing covenant of the City constitutes a duty imposed by law and each and every public official of the City is required to take all actions 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.
Abatement
Termination or Abatement Due to Eminent Domain. Under the Lease, 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 net proceeds shall be used by the City to redeem outstanding Bonds in full and the Lease shall terminate; except that, if such proceeds and other amounts available under the Indenture are not sufficient to redeem outstanding Bonds in full, the Lease shall not terminate and the City is required to rebuild or replace the Leased Property. If less than all of the Leased Property is taken permanently and the remainder is useable for the City’s purposes, or if the Leased Property is taken temporarily, under the power of eminent domain, then:
(a) the Lease will continue in full force and effect with respect thereto and does not terminate by virtue of such taking, and the parties waive the benefit of any law to the contrary; and
(b) the Lease Payments are subject to abatement in an amount determined by the City such that the resulting Lease Payments represent fair consideration for the use and occupancy of the remaining usable portions of the Leased Property.
Abatement Due to Damage or Destruction. The Lease Payments are subject to abatement during any period in which by reason of damage or destruction (other than by eminent domain which is hereinbefore provided for) there is substantial interference with the use and occupancy by the City of the Leased Property or any portion thereof. The Lease Payments are subject to abatement in an amount determined by the City, such that the resulting Lease Payments represent fair consideration for the use and occupancy of the remaining usable portions of the Leased Property not damaged or destroyed. Such abatement will continue for the period commencing with such damage or destruction and ending with the substantial completion of the 18 work of repair or reconstruction. In the event of any such damage or destruction, the Lease continues in full force and effect and the City waives any right to terminate the Lease by virtue of any such damage and destruction.
Notwithstanding the foregoing, in the event rental interruption insurance is available in an amount at least equal to the Lease Payments which would otherwise be abated, proceeds of such insurance, if any and to the extent thereof, shall be applied as a credit towards the payment of the Lease Payments which would have been abated had proceeds of such insurance not been available.
All or a portion of the City’s Fire Station No. 2 is anticipated to be demolished as a necessary component of the Project. There shall be no abatement of Lease Payments due to interference with the use and occupancy by the City of the Fire Station No. 2 when such interference is a result of demolition of all or a portion of the existing facility.
Remedies on Default
Failure by the City to make Lease Payments or failure to pay Additional Rental Payments constitute Events of Default under the Lease. Failure to observe and perform any other terms, covenants or conditions contained in the Lease or in the Indenture for a period of 30 days after written notice of such failure and request that it be remedied has been given to the City by the Authority or the Trustee, also constitute Events of Default under the Lease. Such events permit the Trustee or the Authority to pursue any and all available remedies. During the term of the Site Lease, the Authority has the right to re-enter and re-lease or terminate and re-lease all or any portion of the Leased Property. However, notwithstanding anything in the Lease or in the Indenture to the contrary, neither the Authority nor the Trustee have any right, under the Lease, the Site Lease or otherwise, to foreclose or sell the Leased Property, nor is there any right under any circumstances to accelerate the Lease Payments or otherwise declare any Lease Payments that are not then in default to be immediately due and payable. See “BOND OWNERS’ RISKS – Limited Recourse on Default; No Right to Foreclose or Sell; No Acceleration of Lease Payments” herein.
Following an event of default, the Authority or the Trustee may elect either to terminate the Lease and seek to collect damages from the City or to maintain the Lease in effect and seek to collect the Lease Payments as they become due. Under the Assignment Agreement, the Authority assigns all of its rights with respect to remedies in an Event of Default to the Trustee, so that all such remedies will be exercised by the Trustee and the Bond Owners as provided in the Indenture. See “BOND OWNERS’ RISKS – Limited Recourse on Default; No Right to Foreclose or Sell; No Acceleration of Lease Payments” herein.
The City will be liable only for Lease Payments on an annual basis and, in the Event of Default, the Authority or Trustee would be required to seek a separate judgment each year for that year’s defaulted Lease Payments. Any such suit for money damages would be subject to limitations on legal remedies against municipalities in California, including a limitation on enforcement of judgments against funds of a Fiscal Year other than the Fiscal Year in which the Lease Payments were due and against funds needed to serve the public welfare and interest. 19 Property Insurance
Liability Insurance. Under the Lease, the City is required to maintain or cause to be maintained throughout the Term of the Lease, a standard commercial general liability insurance policy or policies in protection of the Authority, the City, and their respective members, officers, agents, employees and assigns. Such policy or policies must provide for indemnification of said parties against direct or contingent loss or liability for damages for bodily and personal injury, death or property damage occasioned by reason of the operation of the Leased Property. Such policy or policies must provide coverage in such liability limits and be subject to such deductibles as the City deems adequate and prudent. Such insurance may be maintained as part of or in conjunction with any other insurance coverage carried by the City, and may be maintained in whole or in part in the form of self-insurance by the City, subject to the provisions of the Lease regarding self-insurance, or in the form of the participation by the City in a joint powers agency or other program providing pooled insurance. The proceeds of such liability insurance must be applied toward extinguishment or satisfaction of the liability with respect to which paid.
Casualty Insurance. The City is required to procure and maintain, or cause to be procured and maintained, throughout the Term of the Lease, casualty insurance against loss or damage to all buildings situated on the Leased Property, in an amount at least equal to the lesser of (a) 100% of the replacement value of the insured buildings, or (b) 100% of the aggregate principal amount of the then-outstanding Lease Payments. Such insurance must, 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, and must include earthquake insurance if available at reasonable cost from reputable insurers in the judgment of the City. Such insurance may be subject to such deductibles as the City deems adequate and prudent. Such insurance may be maintained as part of or in conjunction with any other insurance coverage carried by the City, and may be maintained in whole or in part in the form of the participation by the City in a joint powers agency or other program providing pooled insurance; provided that such insurance may not be maintained by the City in the form of self-insurance. The Net Proceeds of such insurance must be applied as provided in the Lease.
Rental Interruption Insurance. The City is required to procure and maintain, or cause to be procured and maintained, throughout the Term of the Lease, rental interruption or use and occupancy insurance to cover loss, total or partial, of the use of any portion of the Leased Property constituting buildings or other improvements as a result of any of the hazards covered in the insurance required by the Lease, in an amount at least equal to the maximum such Lease Payments coming due and payable during any consecutive two Fiscal Years. Such insurance may be maintained as part of or in conjunction with any other insurance coverage carried by the City, and may be maintained in whole or in part in the form of the participation by the City in a joint powers agency or other program providing pooled insurance; provided that such insurance may not be maintained by the City in the form of self-insurance. The Net Proceeds of such insurance, if any, must be paid to the Trustee and deposited in the Bond Fund, to be applied as a credit towards the payment of the Lease Payments allocable to the insured improvements as the same become due and payable.
Title Insurance. The City is required to obtain a CLTA title insurance policy insuring the City’s leasehold estate under the Lease in the Leased Property, subject only to Permitted Encumbrances, in an amount at least equal to the aggregate principal amount of the Bonds. All Net Proceeds received under any such title insurance policy must be deposited with the Trustee in the Bond Fund to be credited towards the prepayment of the remaining Lease Payments under the Lease.
20 Insurance Net Proceeds; Form of Policies. Each policy of casualty insurance, rental interruption insurance, and title insurance if any, maintained under the Lease must provide that all proceeds under the Lease are payable to the Trustee. The City shall pay or cause to be paid when due the premiums for all insurance policies required by the Lease. All such policies shall provide that the Trustee is given 30 days’ notice of each expiration, any intended cancellation thereof or reduction of the coverage provided thereby. The Net Proceeds of such insurance must be applied as provided in the Lease.
The City must file with the Trustee annually, within 90 days following the close of each Fiscal Year, a certificate of the City stating that all policies of insurance required under the Lease are then in full force and effect. The Trustee has no responsibility for the sufficiency, adequacy or amount of any insurance or self-insurance herein required and is fully protected in accepting payment on account of such insurance or any adjustment, compromise or settlement of any loss.
If any liability and property damage insurance maintained under the Lease is provided in the form of self-insurance, the City must file with the Trustee annually, within 90 days following the close of each Fiscal Year, a statement of the risk manager of the City or an independent insurance adviser engaged by the City identifying the extent of such self-insurance and stating the determination that the City maintains sufficient reserves with respect thereto. If any such insurance is provided in the form of self-insurance by the City, the City has no obligation to make any payment with respect to any insured event except from those reserves. 21 THE AUTHORITY
The Authority is a joint exercise of powers authority duly organized and existing under and pursuant to a Joint Exercise of Powers Agreement dated as of August 1, 2017, by and between the City and the Costa Mesa Housing Authority, a public body corporate and politic, formed under the California Housing Authorities Law, Division 24, Part 2, Section 34200, et seq, and under the provisions of Articles 1 through 4 (commencing with Section 6500) of Chapter 5 of Division 7 of Title 1 of the California Government Code.
The Authority was formed for the purpose, among others, of assisting its members in the acquisition, construction and financing of public improvements. The Authority has the power to lease real property in furtherance of the acquisition of public improvements necessary or convenient for the operation of the City, or to purchase bonds issued by any local agency at public or negotiated sale and may sell such bonds to public or private purchasers at public or negotiated sale.
The Authority is governed by a seven-member Board of Directors (the “Board”), which consists of the members of the City Council of the City. The Mayor serves as the Chair, the City Manager serves as the Executive Director, the Finance Director serves as the Treasurer, and the City Clerk serves as the Secretary.
THE CITY
General
The City is located in Orange County (the “County”), approximately 35 miles southeast of Los Angeles and 85 miles northwest of San Diego, California. The City covers approximately 16.8 square miles. The California Department of Finance estimates that the City has a population of approximately 109,436 as of January 1, 2026. The City’s population has remained relatively stable for the past ten years, with the population declining slightly since 2017. The City was incorporated on June 29, 1953 and is a general law city operating under a council/manager form of government.
The City provides or contracts for many municipal services for its residents, including libraries, parks maintenance, street sweeping, jail operations and electric utility services. Water service is provided by Mesa Water District and sewer service is provided by the Costa Mesa Sanitary District.
Largest Employers
The largest employer located in the City is Experian Information Solutions, Inc., which currently employs approximately 3,700 employees, and the Coast Community College District, which currently employs approximately 2,900 employees.
The table below sets forth the largest employers within the City as of June 30, 2025, the latest date for which such information is available.
22 CITY OF COSTA MESA
LARGEST EMPLOYERS AS OF JUNE 30, 2025
Rank Name of Business Employees
Percentage of
Total City
Employment
1. Experian Information Solutions, Inc. 3,700 5.73%
2. Coast Community College District 2,900 4.49
3. Anduril Industries 2,500 3.87
4. Orange Coast Community College 1,900 2.94
5. California State Hospital-Fairview Dev. Ctr. 1,215 1.88
6. Automobile Club Enterprises 1,200 1.86
7. Nationsbenefit LLC 740 1.15
8. Monroe Operations LLC 681 1.05
9. International Bus Mechanic Corp. 675 1.05
10. Deloitte & Touche LLP 630 0.98
____________
Source: Annual Comprehensive Financial Report for the fiscal year ending June 30, 2025.
Government and Administration
The City operates under a council-manager form of government. Currently, the City Council consists of seven members, with six Councilmembers elected by their respective districts and the Mayor elected City-wide.
The City Manager, appointed by the City Council, serves as the City’s chief administrative officer and is responsible for overseeing the daily operations of City departments and efficient management of all City business. Functions of the City Manager’s Office include coordination of the implementation of City Council policies and programs; providing overall direction to the departments that administer City programs and services; coordinating intergovernmental relations and legislative advocacy; and administration of the City’s communications, media relations, and public information programs.
Brief biographies of key City personnel follow.
Cecilia Gallardo-Daly, City Manager. Ms. Gallardo-Daly was appointed City Manager in December 2025. Ms. Gallardo-Daly is responsible for the administration of all municipal affairs, including implementation of City Council policy, State laws and City ordinances. Ms. GallardoDaly has 30 years of local government experience. She has worked at the City for over 2 years in a variety of leadership positions, including Assistant City Manager. Ms. Gallardo-Daly obtained a Master of Arts Degree in Urban Planning and a Bachelor of Arts Degree in Political Science from UCLA.
Alma Reyes, Assistant City Manager. Alma Reyes was appointed Assistant City Manager in December 2025. Ms. Reyes oversees budget development and implementation, legislative analyses of state and federal policies, and project management of special capital improvements, among other duties. Ms. Reyes obtained her Master’s Degree in Public Administration and Public Policy from California State University, Long Beach, and a Bachelor’s degree in Criminal Justice and Public Administration from California State University, Fullerton. 23 Risk Management
For the fiscal year ended June 30, 2025, the City participated in the California Municipal Excess Liability (CAMEL) Program. The membership of CAMEL consists of 21 cities with similar interests and needs regarding liability insurance. The Board of Directors sets the premiums for each participant and each participant is represented on the Board. Premiums are based upon the losses incurred by each member and are not affected by losses incurred by other members.
In the Self-Insurance Workers’ Compensation/General Liability/Unemployment Internal Service Fund, the City has recorded liabilities of $16,354,815 for lawsuits and other claims arising in the ordinary course of business as of June 30, 2025. The City is also self-insured for the first $2,000,000 of each claim arising for workers’ compensation and has purchased outside insurance coverage in excess of the $2,000,000 up to an unlimited maximum. The City is self-insured for the first $2,000,000 of each claim arising for general liability, with such amount on deposit in its Self Insurance Fund as of June 30, 2025. The City has purchased outside insurance coverage in excess of the $2,000,000 up to a maximum of $25,000,000 per occurrence. For the past three years, claim payments have not exceeded the amount of applicable insurance coverage.
Labor Relations
The City had approximately 706 full and part-time employees as of June 30, 2026.
The following table sets forth the current status of employment contracts for the City's represented employees. The City has not experienced any labor stoppages during the past ten years and has generally experienced good relations with each employee group. [To come] Bargaining Unit Covered
Employees
Contract
Expiration
1 Costa Mesa City Employees Association
2 Costa Mesa Police Association
3 Costa Mesa Firefighters Association
4 Costa Mesa Division Managers Association
6 Costa Mesa Police Management Association
7 Costa Mesa Fire Management Association
________
Source: City.
24 CITY FINANCIAL INFORMATION
Accounting and Financial Reporting
The City maintains its accounting records in accordance with Generally Accepted Accounting Principles and the standards established by the Governmental Accounting Standards Board (“GASB”). The City’s Finance Department staff review City revenues and expenses on a monthly basis. On a semi-annual basis, a report is prepared for the City Council and City staff which reviews fiscal performance to date against the budget. Combined financial statements of the City and its component units are produced following the close of each Fiscal Year.
The City Council employs an independent certified public accountant who examines at least annually the financial statements of the City in accordance with generally accepted auditing standards, including tests of the accounting records and other auditing procedures as such accountant considers necessary. As soon as practicable, after the end of the Fiscal Year, a final audit and report is submitted by the independent accountant to the City Council.
The accounts of the City are organized on the basis of funds and account groups, each of which is considered a separate accounting entity. The operations of each fund are accounted for with a separate set of self-balancing accounts that comprise its assets, liabilities, fund equity, revenues and expenditures, or expenses, as appropriate. Government resources are allocated to and accounted for in individual funds based upon the purposes for which they are to be spent and the means by which spending activities are controlled.
The General Fund is the general operating fund of the City. It is used to account for all financial resources except those required to be accounted for in another fund. It is expected that the Lease Payments will be paid for from amounts in the General Fund. Tables 1 through 3 below set forth certain historical and current Fiscal Year information for the General Fund. Information on the remaining governmental funds of the City as of June 30, 2025 is set forth in Appendix A.
Financial Policies and Procedures
Financial and budget policies are developed by the Finance Department and City Manager in order to establish the framework for the overall budget planning and financial management for the City. These policies shall periodically be reviewed by the City’s Finance and Pension Advisory Committee (FiPAC) and adopted by the City Council. These policies will help City officials plan fiscal strategy using a consistent approach contributing to the City’s fiscal stability and will provide adequate funding of the services desired by the public.
Reserve Policy. The City targets a total reserve level of $55 million, which was set via a 2020 risk study. As of June 30, 2025, combined reserves stood at $61.0 million. Reserves are broken into committed and assigned categories:
• Established under Ordinance No. 91-20 and Municipal Code Section 2-206, the Declared Disasters/Emergency Reserve ($14.1M, paired with a required minimum monthly General Fund cash balance of $14.1M, usable only by Council resolution provides funding following a Council-declared emergency involving an unanticipated, urgent threat to public health, safety or welfare, • Established under Ordinance No. 96-14 and Municipal Code Section 2-154, the Self-Insurance Reserve ($2M minimum, replenished annually if drawn down) pays • actual losses not covered by insurance policies or insurance pools, and 25 • Established under Ordinance No.___, the Economic Reserves ($9M, for revenue volatility in sales/property/ transient occupancy tax).
Assigned reserves include those for Compensated Absences, Police Retirement Supplemental, Worker's Comp, Facilities Reserve, Strategic Plan Projects, Section 115 Trust and total $13.5 million and are delegated to the Finance Director under Resolution 11-27. A year-end surplus is prioritized first to reserves-below-target, then debt prepayment, then capital facilities.
Debt Service Fund reserves follow bond covenants; the Equipment Replacement Fund maintains reserves for fleet/equipment replacement. The City also has an unassigned fund balance of approximately $19.3 million.
Pension Policy. If pension obligations show an unfunded liability, the City must develop a plan to reduce and eventually eliminate it. Beyond the annual required contribution (including amortization of the unfunded liability), the City commits to allocating a minimum of $500,000 annually toward the unfunded liability, starting with the "FireSide Fund." Prepayment savings, if any, are evaluated by the Finance department for possible additional application to that fund. In practice, the City expects that it will prepay its pension obligation in July of each year.
Investment Policy and Investments.
The City invests its funds in accordance with the City's investment policy (the “Investment Policy”), which was most recently amended on June 6, 2017. In accordance with Section 53600 et seq. of the California Government Code, idle cash management and investment transactions are the responsibility of the City Treasurer. The City's Investment Policy sets forth the policies and procedures applicable to the investment of City funds and designates eligible investments.
The Investment Policy sets forth a stated objective, among others, of insuring the safety of invested funds by limiting credit and market risks. Funds are invested in the following order of priority:
• Safety of Principal and Interest;
• Liquidity;
• Yield; and
• Safekeeping of funds
The following table shows the distribution of the City’s investments by maturity as of June 30, 2025:
Investment Type
12 Months
or Less
13 to 24
Months
2 to 60
Months Total
Federal Agency Securities $3,432,723 $- $5,595,167 $9,027,890 State Investment Pool (LAIF) 75,074,322 - - 75,074,322
U.S. Treasury Securities 1,164,656 4,113,795 28,679,293 33,957,744 Medium-Term Corporate Notes 1,408,471 3,081,573 12,276,552 16,766,596 Asset Backed Securities 20,146 307,332 7,169,063 7,496,541 Money Market Mutual Funds 807,128 - - 807,128
PARS Section 115 Trust:
Pooled Balanced Index Plus 2,092,360 - - 2,092,360
26 Held by Trustee:
Money Market Mutual Funds 1,001 - - 1,001
Total $84,000,805 $7,502,700 $53,720,075 $145,223,580
Budget Procedure, Current Budget and Historical Budget Information The budget includes all funding sources of the City, including the General Fund. At such time as the City Manager determines, each department head must furnish to the City Manager an estimate of revenues and expenditures for the applicable department for the ensuing Fiscal Year, detailed in such manner as may be prescribed by the City Manager. In preparing the proposed budget, the City Manager reviews the estimates, holds conferences regarding the estimates with the respective department heads, and revises the estimates as the City Manager deems advisable.
Prior to June 30, the City Manager submits to the City Council a proposed budget for the Fiscal Year commencing the following July 1. The budget includes proposed expenditures and the means of financing them. Prior to June 30, public hearings are conducted to obtain public comments and the budget is legally enacted through the passage of a resolution. The budget is subject to amendment to reflect actual financial performance. Finance Department staff present a mid-year report regarding the budget to the City Council.
From the effective date of the budget, the amounts stated as proposed expenditures become appropriated to the several departments, offices and agencies for the objects and purposes named. The City Manager is authorized to transfer budgeted amounts between line items within a department or activity, and between departments and programs within the same fund, provided that the total appropriation does not exceed the budgeted amount. All other transfers or amendments require City Council approval. The City Manager and affected department heads are mutually responsible for controlling expenditures within budgeted appropriations. All appropriations lapse at the end of the Fiscal Year to the extent that they have not been expended or lawfully encumbered. At a public meeting after the adoption of the budget the City Council may amend or supplement the budget by motion adopted by the City Council.
The City also provides an online, user-friendly budget information system, called the Open Budget, which provides users with the ability to see City General Fund revenues and expenses in total, by program or department, and compare current actual to budget amounts. In addition, there is a capital project section where the user can obtain information regarding current capital projects, including cost, location and project description.
The Fiscal Year 2026-27 budget was adopted on June 2, 2026. The Fiscal Year 2026-27 budget balances modest revenue growth (sales, property, and transient occupancy tax) against macroeconomic uncertainty arising from geopolitical tensions, supply chains, energy costs, and rising operating expenses, by pairing realistic projections with targeted one-time deferrals rather than cuts to core programs. The total adopted budget for all funds is approximately $245 million, an increase of $19.9 million, or 9 percent compared to the adopted budget for Fiscal Year 2025-
26. The General Fund comprises 81.7 percent of the total operating budget, with a budget of $200.0 million (including transfers out), an increase of approximately $13.1 million, or 7 percent compared to the Fiscal Year 2025-26 adopted budget.
27 Set forth in Table 1 are the General Fund budgets for Fiscal Years 2025-26 and 2026-27 and unaudited results for Fiscal Year 2025-26. During the course of each Fiscal Year, the budget is amended and revised as necessary by the City Council. 25 TABLE 1
CITY OF COSTA MESA
GENERAL FUND BUDGET AND RESULTS
Fiscal Year 2025-26 Final
Budget
Fiscal Year 2025-26
Unaudited Results
Fiscal Year 2026-27
Adopted Budget
Revenues
Sales Taxes $73,654,333 $81,392,602 $81,105,836
Property Taxes 62,972,174 62,657,529 64,010,902
Transient Occupancy Taxes 9,843,276 10,385,629 10,573,611 Franchise Taxes 6,878,578 6,815,763 7,432,746
Cannabis Business Taxes 4,099,667 4,145,931 4,148,753
Business License Taxes 940,807 960,903 980,741
Total Taxes $158,388,835 $166,358,357 $168,252,589
Licenses & Permits 7,527,743 7,943,283 8,072,883
Fines & Forfeitures 1,302,091 1,884,306 1,661,991
Intergovernmental 2,929,793 2,858,564 2,904,850
Charges for Services 11,532,990 12,355,605 12,073,156
Rental 5,019,757 4,828,509 4,991,623
Investment Income 88,493 1,170,772 1,150,000
Miscellaneous 1,156,097 1,940,629 1,343,883
Total Revenues $187,945,799 $199,340,025 $200,450,975
Expenditures
General Government $46,092,915 $43,877,656 $45,288,380
Protection of Persons & Property 107,938,968 116,212,443 113,302,073 Community Programs 16,075,444 16,712,650 17,129,529
Public Services 10,033,355 9,910,502 9,994,074
Debt Service 727,320 536,712 1,828,355
Total Expenditures $180,868,002 $187,249,963 $187,542,411 Excess (Deficiency) of Revenues Over (Under)
Expenditures
$7,077,797 $12,090,062 $12,908,564
Other financing sources (uses)
Transfers In $200,000 $200,000 $-
Transfers Out (8,770,462) (8,772,801) (13,079,867)
Total other financing sources (uses) $(8,570,462) $(8,572,801) $(13,079,867) Net change in fund balances $(1,492,665) $3,517,261 $(171,303) Fund balances, beginning of year $60,961,804 $60,961,804 $64,479,065 Fund balances, end of year $59,469,139 $64,479,065 $64,307,762 _________________________________
Source: City.
26 Change in Fund Balance of the City General Fund
Set forth in Table 2 are the City’s General Fund statements of revenues, expenditures and changes in fund balance for Fiscal Years 2021-22 through 2025-26.
TABLE 2
CITY OF COSTA MESA
GENERAL FUND STATEMENT OF
REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE
Audited
2021-22
Audited
2022-23
Audited
2023-24
Audited
2024-25
Estimated
2025-26
Revenues
Taxes $141,553,034 $151,126,811 $153,461,921 $159,222,229 $166,358,357 Licenses and permits 7,331,252 6,342,557 5,982,422 6,809,704 7,943,283 Charges for services 6,964,934 8,886,692 10,213,746 11,235,537 12,355,605 Fines and forfeitures 1,170,795 1,190,281 1,297,319 1,455,764 1,884,306 Intergovernmental 4,529,091 4,175,205 4,994,270 3,602,022 2,858,564 Investment income (Loss) (1,246,827) 640,980 2,250,512 2,671,680 1,170,772 Rental income 4,042,324 3,995,450 4,512,794 4,811,425 4,828,509 Miscellaneous 1,374,266 1,282,572 1,174,798 1,092,678 1,940,629 Total Revenues $165,718,869 $177,640,548 $183,887,782 $190,901,039 $199,340,025 Expenditures
Current:
General Government $32,980,352 $36,593,171 $41,445,169 $44,123,621 $43,877,656 Protection of persons & property 88,414,231 92,162,287 100,382,093 109,314,995 116,212,443 Community Programs 11,092,336 12,771,313 15,695,975 16,651,172 16,712,650 Public services 7,338,883 7,948,741 8,811,886 9,689,267 9,910,502 Debt Service:
Principal 217,231 342,370 566,391 594,726 442,132
Interest & fiscal charges 27,137 26,564 62,126 116,351 94,580 Total expenditures $140,070,170 $149,844,446 $166,963,640 $180,490,132 $187,249,963 Excess (deficiency) of revenues over
(under) expenditures $25,648,699 $27,796,102 $16,924,142 $10,410,907 $12,090,062 Other financing sources(uses)
Subscription proceeds -- -- -- 1,036,210 -
Transfers in -- -- 888,618 -- 200,000
Transfers (out) (21,365,113) (26,534,995) (16,486,813) (10,848,214) (8,772,801) Total other financing sources $(21,365,113) $(26,534,995) $(15,598,195) $(9,812,004) $(8,572,801) Net Change in fund balances $4,283,586 $1,261,107 $1,325,947 $598,903 $3,517,261 Beginning of year $53,492,261 $57,775,847 $59,036,954 $60,362,901 $60,961,804 End of year $57,775,847 $59,036,954 $60,362,901 $60,961,804 $64,479,065 ____________
Source: City; City of Costa Mesa - Audited Financial Statements for Fiscal Years 2021-22 through 2024-25. 27 General Fund Balance Sheets of the City
Set forth in Table 3 are the City’s General Fund balance sheets for Fiscal Years 2021-22 through 2025-26.
TABLE 3
CITY OF COSTA MESA
GENERAL FUND BALANCE SHEETS
Audited
2021-22
Audited
2022-23
Audited
2023-24
Audited
2024-25
Estimated
2025-26
Assets
Cash and investments $49,277,928 $49,067,828 $53,335,361 $52,436,755 $57,113,718 Due from other governments 15,152,189 16,739,461 15,012,553 19,884,347 21,377,497 Accounts receivable, net 3,958,185 3,961,743 4,133,874 1,833,781 2,476,162 Interest receivable 183,295 737,245 1,004,231 431,840 (1,262) Loans receivable, net -- 257 564 730 81
Leases receivable 2,906,238 2,519,207 2,129,540 1,896,961 1,725,644 Rent receivable 355,664 372,809 395,963 432,851 424,890 Due from other funds 716,536 54,037 65,076 181,028 -
Inventories 99,047 85,157 69,892 73,601 124,283
Prepaid items 504,500 373,530 560,290 809,471 864,974
Total Assets $73,153,582 $73,911,274 $76,707,344 $77,981,365 $84,105,987 Liabilities
Accounts payable $4,756,254 $4,290,768 $4,424,778 $3,257,749 $4,750,444 Accrued liabilities 3,574,209 4,252,010 4,645,732 5,543,579 5,440,353 Deposits payable 2,915,429 3,215,658 4,661,407 5,499,974 6,673,070 Due to other funds 43,770 -- -- -- -
Total Liabilities $11,289,662 $11,758,436 $13,731,917 $14,301,302 $16,863,867 Deferred Inflow of Resources
Deferred right to use lease revenue $2,832,645 $2,396,776 $1,971,991 $1,700,925 $1,529,965 Unavailable revenue 1,255,428 719,108 640,535 1,017,334 1,233,089 Total Deferred Inflows of Resources $4,088,073 $3,115,884 $2,612,526 $2,718,259 $2,763,054 Fund Balances
Nonspendable $603,547 $458,687 $630,182 $883,072 $989,257 Restricted 3,061,154 3,178,229 3,367,408 2,092,360 2,092,360 Committed 25,125,000 25,125,000 25,125,000 25,125,000 25,125,000 Assigned 12,469,067 13,946,622 13,554,327 13,554,327 13,554,327 Unassigned 16,517,079 16,328,416 17,685,984 19,307,045 22,718,121 Total Fund Balance $57,775,847 $59,036,954 $60,362,901 $60,961,804 $64,479,065 Total Liabilities & Fund Balance $73,153,582 $73,911,274 $76,707,344 $77,981,365 $84,105,986 ____________
Source: City; City of Costa Mesa - Audited Financial Statements for Fiscal Years 2021-22 through 2024-25. 28 Set forth in Table 4 below are the City’s taxable revenues for its governmental funds, broken down by source:
TABLE 4
CITY OF COSTA MESA
TAXABLE REVENUES BY SOURCE, GOVERNMENTAL FUNDS
Fiscal
Year Sales Property
Transient
Occupancy Franchise
Business
License Tax
2016-17 $56,556,867 $27,435,427 $8,924,854 $4,593,631 $918,928 2017-18 54,656,183 40,458,402 8,819,617 4,965,515 919,450 2018-19 64,902,009 42,873,901 8,595,417 5,042,551 1,093,154 2019-20 55,866,831 45,548,585 6,587,224 4,822,964 1,663,100 2020-21 63,738,411 47,891,698 4,282,802 4,895,574 1,227,843 2021-22 77,165,533 49,706,079 8,366,278 5,318,541 1,468,199 2022-23 79,851,289 53,442,949 9,830,790 6,094,232 1,907,551 2023-24 76,400,160 56,465,749 10,150,696 6,542,802 3,902,514 2024-25 78,244,492 59,317,656 9,962,421 6,637,150 5,060,510 2025-26 81,392,602 62,657,529 10,385,629 6,815,763 5,106,834 ________
Source: City; City of Costa Mesa - Audited Financial Statement for Fiscal Year 2024-25.
Sales Taxes
Estimated sales tax receipts of $81.3 million provided the largest tax revenue source for the City’s General Fund in Fiscal Year 2025-26, contributing approximately 49% of General Fund tax revenues and approximately 41% of total General Fund revenues during Fiscal Year 2025-
26. This represented an increase of $3.1 million from the prior Fiscal Year, due primarily to price increases on consumer products.
A sales tax is imposed on retail sales or consumption of personal property and collected and distributed by the California Department of Tax and Fee Administration (the “CDTFA”). The basic sales tax rate is established by the State Legislature, and local overrides may be approved by voters. The current sales tax rate in the City is 7.75%. 29 The following table shows taxable sales by category for Fiscal Years 2021-22 through 2024-25.
TABLE 5
CITY OF COSTA MESA
TAXABLE SALES BY CATEGORY
(in thousands of dollars)
Type of Tax 2021-22 2022-23 2023-24 2024-25
Apparel stores $1,167,167 $1,096,912 $1,062,460 $1,101,564 General merchandise 553,045 547,467 468,976 548,438
Food stores 91,789 99,534 116,767 121,278
Eating and drinking establishments 681,847 698,632 728,072 744,607 Building materials 351,411 320,238 315,552 332,084
Auto dealers and supplies 1,402,985 1,476,879 1,378,368 1,392,172 Service stations 315,387 274,997 251,408 234,513
Other retail stores 1,509,430 1,491,955 1,441,191 1,586,620 All other outlets 1,809,139 1,865,556 1,803,763 1,931,995 Totals $7,882,200 $7,872,170 $7,566,557 $7,993,271
____________
Source: City; City of Costa Mesa - Audited Financial Statement for Fiscal Year 2024-25.
The City is home to South Coast Plaza International Shopping Destination, one of the largest retail centers in the United States. At almost 3 million square feet of enclosed space, and covering some 128 acres, it contains over 300 shops, including the anchor department stores Nordstrom, Bloomingdale's, and three distinct Macy's locations (Main, Men's, and Home Store).
South Coast Plaza is regarded as a shopping, dining and entertainment complex, featuring two separate enclosed malls joined by a “Bridge of Gardens” and several distinctive outdoor areas.
The surrounding property includes luxury hotels, dozens of restaurants, banks, fountains, art gardens and theaters.
In addition to the sales tax generated by brick and mortar retail locations, the City receives
8.6% of the sales tax generated by online purchases originating in Orange County, the third largest share among cities in Orange County.
Property Taxes
Estimated property tax receipts of approximately $62.7 million provided the second largest tax revenue source of the City in Fiscal Year 2025-26, contributing approximately 38% of General Fund tax revenues and approximately 32% of total General Fund revenues during Fiscal Year 2025-26. Property in the State which is subject to ad valorem taxes is classified as “secured” or “unsecured.”
The secured classification includes property on which any property tax levied by a county becomes a lien on that property. A tax levied on unsecured property does not become a lien against the taxed unsecured property, but may become a lien on certain other property owned by the taxpayer. Every tax which becomes a lien on secured property has priority over all other liens, arising pursuant to State law, on the secured property, regardless of the time of the creation of other liens. The valuation of property is determined as of January 1 each year, and installments of taxes levied upon secured property become delinquent on the following December 10th and April 10th of the subsequent calendar year. Taxes on unsecured property are due July 1 and become delinquent August 31.
30 Secured and unsecured properties are entered separately on the assessment roll maintained by the county assessor. The method of collecting delinquent taxes is substantially different for the two classifications of property. The exclusive means of forcing the payment of delinquent taxes with respect to property on the secured roll is the sale of the property securing the taxes to the State for the amount of taxes that are delinquent. The taxing authority has four methods of collecting unsecured personal property taxes: (1) filing 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 judgment lien on certain property of the taxpayer; (3) filing a certificate of delinquency for recording in the county 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 taxable to the assessee.
A 10% penalty is added to delinquent taxes which have been levied with respect to property on the secured roll. In addition, beginning on the July 1 following a delinquency, interest begins accruing at the rate of 1.5% per month on the amount delinquent. Such property may thereafter be redeemed by the payment of the delinquent taxes and the 10% penalty, plus interest at the rate of 1.5% per month to the time of redemption. 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. A 10% penalty also applies to the delinquent taxes or property on the unsecured roll, and further, an additional penalty of 1.5% per month accrues with respect to such taxes beginning on the varying dates related to the tax billing date.
Legislation enacted in 1983 (Section 75 et seq. of the California Revenue and Taxation Code), provides for the supplemental assignment and taxation of property as of the occurrence of a change in ownership or completion of new construction. Previously, statutes enabled the assessment of such changes only as of the next tax lien date following the change and thus delayed the realization of increased property taxes from the new assessment for up to 14 months.
Collection of taxes based on supplemental assessments occurs throughout the year. Taxes due are prorated according to the amount of time remaining in the tax year, with the exception of tax bills dated January 1 through May 31, which are calculated on the basis of the remainder of the current Fiscal Year and the full 12 months of the next Fiscal Year.
For a number of years, the State Legislature had shifted property taxes from cities, counties and special districts to the Educational Revenue Augmentation Fund (“ERAF”). In Fiscal Years 1993 and 1994, in response to serious budgetary shortfalls, the State Legislature and administration permanently redirected over $3 billion of property taxes from cities, counties, and special districts to schools and community college districts pursuant to ERAF shifts. The Fiscal Year 2005 State Budget included an additional $1.3 billion shift of property taxes from certain local agencies, including the City, in Fiscal Years 2005 and 2006.
On November 2, 2004, State voters approved Proposition 1A, which amended the State Constitution to significantly reduce the State’s authority over major local government revenue sources. Under Proposition 1A, the State may not: (i) reduce local sales tax rates or alter the method of allocating the revenue generated by such taxes; (ii) shift property taxes from local governments to schools or community colleges; (iii) change how property tax revenues are shared among local governments without two-thirds approval of both houses of the State Legislature; or (iv) decrease Vehicle License Fee revenues without providing local governments with equal replacement funding. Beginning in Fiscal Year 2009, the State may shift to schools and community colleges a limited amount of local government property tax revenue if certain conditions are met, including: (a) a proclamation by the Governor that the shift is needed due to a severe financial hardship of the State; and (b) approval of the shift by the State Legislature with 31 a two-thirds vote of both houses. Under such a shift, the State must repay local governments for their property tax losses, with interest, within three years. Proposition 1A does allow the State to approve voluntary exchanges of local sales tax and property tax revenues among local governments within a county.
On July 27, 2009, the Governor signed a revised Fiscal Year 2010 State budget that included an ERAF shift of approximately 8% of 1% ad valorem property tax revenues from certain local agencies, including the City. The City participated in the State of California Proposition 1A Receivables Program to securitize its receivable from the State, and, as a result, received the shifted funds in the amount of $3,270,152, without interest, in two installments in 2010 from the California Statewide Communities Development Authority.
Set forth in Table 6 are the assessed valuations for property in the City for the Fiscal Years 2016-17 through 2026-27.
TABLE 6
CITY OF COSTA MESA
ASSESSED VALUATION HISTORY
Fiscal
Year Local Secured Utility Unsecured Total
Percent
Change
2016-17 $16,505,184,178 $0 $1,007,966,357 $17,513,150,535 - 2017-18 17,534,257,205 0 986,282,203 18,520,539,408 5.75% 2018-19 18,913,329,165 0 1,040,208,830 19,953,537,995 7.74 2019-20 20,022,976,573 0 1,134,462,497 21,157,439,070 6.03 2020-21 21,058,869,482 0 1,087,190,225 22,146,059,707 4.67 2021-22 21,710,693,312 0 1,020,975,318 22,731,668,630 2.64 2022-23 23,628,597,535 0 1,162,737,705 24,791,335,240 9.06 2023-24 24,810,072,066 0 1,300,790,673 26,110,862,739 5.32 2024-25 26,148,045,133 0 1,382,663,788 27,530,708,921 5.44 2025-26 27,524,251,409 0 1,523,890,251 29,048,141,660 5.51 2026-27 29,069,722,739 39,200 1,566,364,010 30,636,125,949 5.47 Source: California Municipal Statistics Inc.
Set forth in Table 7 are property tax collections in the City as of June 30 for Fiscal Years 2016 through 2026. Certain counties in the State of California operate under a statutory program entitled Alternate Method of Distribution of Tax Levies and Collections and of Tax Sale Proceeds (the “Teeter Plan”). Under the Teeter Plan local taxing entities receive 100% of their tax levies net of delinquencies, but do not receive interest or penalties on delinquent taxes collected by the county. The County has adopted the Teeter Plan, and consequently the City’s receipt of property taxes is not subject to delinquencies. No assurances can be provided that the County will not discontinue the Teeter Plan, the result of which would be to subject the City’s receipt of property taxes to delinquencies in the payment thereof.
32 TABLE 7
CITY OF COSTA MESA
PROPERTY TAX LEVIES AND COLLECTIONS
Collected within the Fiscal Year
of the Levy Total Collections to Date
Fiscal
Year
Ended
June 30,
Taxes Levied
for the Fiscal
Year Amount
Percentage of
Levy
Collected for
Subsequent
Years (2) Amount
Percentage
of Levy (1)
2016 $24,960,369 $24,222,713 97.04% $227,104 $24,449,817 97.95% 2017 26,330,538 25,640,344 97.38 216,963 25,857,308 98.20 2018 27,825,846 27,272,459 98.01 198,624 27,471,083 98.73 2019 29,820,941 29,186,740 97.87 196,710 29,383,450 98.53 2020 31,300,931 30,714,805 98.13 214,204 30,929,009 98.81 2021 32,769,949 32,203,394 98.27 294,030 32,497,424 99.17 2022 33,917,865 33,032,650 97.39 298,304 33,330,954 98.27 2023 37,663,468 36,812,087 97.74 268,998 37,081,085 98.45 2024 38,940,043 38,085,358 97.81 315,831 38,401,189 98.62 2025 40,950,437 40,023,594 97.74 361,547 40,385,141 98.62 2026
____________
(1) The Percentage of Levy may exceed 100% if the amounts collected for subsequent years exceed the delinquency. The Percentage of Levy is a figure independent of and unadjusted for the County’s teeter apportionment, and do not represent amounts actually received by the City from the County.
(2) The County of Orange only makes this data available by collection year. Data by levy year is not available.
Source: City; City of Costa Mesa - Audited Financial Statement for Fiscal Year 2024-25.
The ten largest taxpayers in the City as shown on the Fiscal Year 2026-27 tax roll net assessed valuation of the property held by such taxpayers, primary use of the taxpayer property and the percentage of the City’s total net assessed valuation attributable to each taxpayer are set forth in Table 8.
TABLE 8
CITY OF COSTA MESA
TEN LARGEST TAXPAYERS
FISCAL YEAR 2026-27
Property Owner Primary Land
Use
2026-27
Assessed
Valuation
% of Total(1)
1 The Irvine Company Office Building $542,217,367 1.87% 2 South Coast Plaza Regional Mall 481,343,609 1.66
3 United Dominion Realty LP Apartments 328,105,081 1.13 4 PR II/MCC South Coast Property Owner LLC Office Building 296,370,395 1.02 5 Advanced Costa Mesa 23 LLC Apartments 241,013,332 0.83 6 580 Anton Owner LLC Apartments 185,471,283 0.64
7 The Press Owner LLC Industrial 184,081,688 0.63
8 Interinsurance Exchange of the Automobile Club of Southern California Office Building 182,465,338 0.63 9 LMC Costa Mesa Holdings LP Apartments 175,633,630 0.60 10 Casden Lakes LP Apartments 153,267,133 0.53
____________
(1) 2025-26 Local Secured Assessed Valuation: $29,069,722,739.
Source: California Municipal Statistics, Inc.
33 Transient Occupancy Taxes
Estimated transient occupancy taxes of approximately $10.3 million provided the third largest tax revenue source for the City in Fiscal Year 2025-26, contributing approximately 6% of General Fund tax revenues and approximately 5% of total General Fund revenues during Fiscal Year 2025-26. The transient occupancy tax is imposed upon persons staying 30 days or less in a hotel, inn, motel or other lodging facility at the rate of 8%. The Business Improvement Area, comprised of 11 hotels within the City, imposes an additional 3% which is used by the Costa Mesa Conference and Visitor’s Bureau to promote travel and tourism in the City.
Franchise Taxes
Estimated franchise taxes of approximately $6.8 million provided the fourth largest tax revenue source for the City in Fiscal Year 2025-26, contributing approximately 4% of General Fund tax revenues and approximately 3% of total General Fund revenues during Fiscal Year 2025-26. The franchise tax is imposed on utility companies for use of City streets and rights-ofway. Currently, the City collects electric franchise taxes from Southern California Edison and gas franchise taxes from Southern California Gas Company at the rate of 2% of gross receipts arising from use, operation or possession of the franchise; and, cable franchise fees at the rate of 5% of gross receipts, net of bad debt. The electric and gas franchise fees are paid annually while the cable franchise fees are paid on a quarterly basis. The Public Utility Commission limits the franchise tax for electric and gas to 2% of gross receipts and cable franchise taxes to 5% of gross receipts. The City also collects a quarterly franchise fee of 16% of gross receipts from waste haulers in the City.
Other Taxes, Fees and Services
In Fiscal Year 2025-26 the City collected approximately $33.95 million in other fees, taxes and charges for the issuance of business licenses or building permits, certain police services, public works projects, parks and recreation programs, and other miscellaneous services, activities or permits. Such fees provided approximately 17% of General Fund revenues during Fiscal Year 2025-26. Such amounts reflect the sum of the “Cannabis Business Tax,” “Business License Tax,” “Licenses & Permits,” “Rental,” “Charges for Services,” “Fines & Forfeitures” and “Miscellaneous” line items shown in Table 1 above.
The City Council has placed Measure C (the Costa Mesa Fair Business License Reform, Small Business Protection Measure) on the November 2026 ballot. If passed by voters, the business license tax would be revised to 50 cents per $1,000 gross receipts for business earning at least $500,000 in annual gross receipts, with a cap at $15,000 for business earning $30 million or more. Revenues from Measure C would help fund general City services, including public safety and addressing homelessness.
Other Indebtedness
Obligations Payable from General Fund. On October 18, 2017, the Authority issued its Costa Mesa Financing Authority 2017 Lease Revenue Bonds (the “2017 Bonds”) in the principal amount of $29,735,000, which are secured by lease payments made by the City pursuant to a lease agreement between the City and the Authority dated as of October 1, 2017. Lease payments securing the 2017 Bonds are payable from legally available funds of the City, just like the Lease Payments securing the Bonds.
34 The outstanding principal balance on the 2017 Bonds was $15,230,000 as of August 1, 2026. For additional information regarding long-term obligations of the City payable from the City’s General Fund, see the caption “Pension Plans and OPEB,” herein.
Direct and Overlapping Bonded Debt. The estimated direct and overlapping bonded debt of the City as of September 1, 2026 is set forth in Table 9. The information in Table 9 has been derived from data assembled and reported to the City by California Municipal Statistics, Inc.
None of the City, the Authority or the Underwriter has independently verified the information in Table 9 and the City, the Authority and the Underwriter do not guarantee its accuracy.
TABLE 9
CITY OF COSTA MESA
ESTIMATED DIRECT AND OVERLAPPING BONDED DEBT
AS OF SEPTEMBER 1, 2026
2026-27 Assessed Valuation: $30,636,125,949
OVERLAPPING TAX AND ASSESSMENT DEBT: % Applicable Debt 9/1/26 Metropolitan Water District 0.689% $ 110,550
Coast Community College District 13.466 107,957,021
Rancho Santiago Community College District 1.560 1,250,211 Rancho Santiago Community College District SFID No. 1 2.954 3,697,079 Newport Mesa Unified School District 25.977 48,044,369
Santa Ana Unified School District 3.658 13,912,894
TOTAL DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT $174,972,124 DIRECT AND OVERLAPPING GENERAL FUND DEBT:
Orange County General Fund Obligations 3.433% $14,321,789 Orange County Board of Education Certificates of Participation 3.433 278,760 Coast Community College District General Fund Obligations 13.466 29,625 Santa Ana Unified School District Certificates of Participation 3.658 1,246,819 City of Costa Mesa General Fund Obligations 100.000 15,230,000(1) TOTAL DIRECT AND OVERLAPPING GENERAL FUND DEBT $31,106,993 COMBINED TOTAL DEBT $206,079,117(2)
Ratios to 2026-27 Assessed Valuation:
Direct Debt ($15,230,000) ....................................... 0.05% Total Direct and Overlapping Tax and Assessment Debt 0.57% Combined Total Debt ................................................. 0.67% __________________
(1) Excludes issue to be sold.
(2) Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue and non-bonded capital lease obligations.
Source: California Municipal Statistics, Inc.
Capital Improvement Plan and Future Indebtedness
The Fiscal Year 2026-27 included a Proposed Capital Budget of approximately $23.6 million, an increase of $4.6 million or 24% from the adopted Fiscal Year 2025-26 budget. Most projects are funded by restricted revenue sources or grants. Consequently, there will potentially be significant differences from year to year in both the numbers of projects adopted and the total dollars budgeted. Primary funding sources for capital projects include the Measure M, Gas Tax, Road Maintenance and Rehabilitation Account, Park Development Fees, Traffic Impact Fees, Capital Improvement and Drainage Fees Funds.
Key projects included in the Capital Improvement Budget for Fiscal Year 2026-27 are:
35 • Citywide Alley Improvements
• Police Department Chiller Replacement
• Police Department Emergency Communications Center
• Citywide Tree Maintenance (in Public Right-of-Way)
• Harper Park Playground Improvements
• Costa Mesa Skate Park Expansion
• Adams Avenue Multipurpose Trail
• Newport Blvd. Improvement NB (22nd to Bristol) & SB (Bristol to Mesa) • Mesa Del Mar Multimodal Access
[The City does not anticipate incurring any additional indebtedness other than the Bonds within the next five years.]
Pension Plans and OPEB
The City offers various pension and other post-employment benefit plans to its employees.
This section contains descriptions of the plans along with selected information regarding benefits, contributions, liabilities, and actuarial assumptions. For additional details see Note 14 to the City’s annual comprehensive financial report included as APPENDIX A.
Defined Benefit Pension Plans (CalPERS). Employees of the City are members of the California Public Employees’ Retirement System (CalPERS), the cost of which is paid by the City.
The information below includes the aggregate total pension plan related items:
Plan Descriptions. All qualified permanent and probationary employees are eligible to participate in the City’s separate Miscellaneous and Police Safety Plans, agent multipleemployer defined benefit pension plans and the Fire Safety cost sharing plans. The plans are administered by CalPERS, which acts as a common investment and administrative agent for its participating member employers. Benefit provisions under the Plans are established by State statute and City resolution. CalPERS issues publicly available reports that include a full description of the pension plans regarding benefit provisions, assumptions and membership information that can be found on the CalPERS website.
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 fulltime employment. Members with five years of total service are eligible to retire at age 50 to 62 with statutorily reduced benefits. For employees hired into a plan with the 1.5% at 65 formula, eligibility for service retirement is age 55 with at least five years of service.
Public Employees’ Pension Reform Act of 2013 (PEPRA) miscellaneous members become eligible for service retirement upon attainment of age 52 with at least five years of service.
All members are eligible for nonduty disability benefits after five 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.
Safety members can receive a special death benefit if the member dies while actively employed and the death is job-related. Fire members may receive the alternate death 36 benefit in lieu of the Basic Death Benefit or the 1957 Survivor Benefit if the member dies while actively employed and has at least 20 years of total CalPERS service. The cost of living adjustments for each plan are applied as specified by the Public Employees’ Retirement Law.
The CalPERS Plans’ provisions and benefits in effect at June 30, 2025 are summarized as follows:
Miscellaneous Plan
Hire Date
Prior to
March 11, 2012
On or After
March 11, 2012
On or After
January 1, 2013
Benefit formula 2.5% @ 55 2.0% @ 60 2.0% @ 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 50-55 50-63 52-67
Monthly benefits, as a % of eligible 2.0%-2.5% 1.092%-2.418% 1.0%-2.5% Required employee contribution rates 10.47% 7.5% 8.50%
Required employer contribution rates 7.94% 10.41% 10.41% Police Safety Plan
Hire Date
Prior to
March 11, 2012
On or After
January 1, 2013
Benefit formula 3.0% @ 50 2.0% @ 60
Benefit vesting schedule 5 years’ service 5 years’ service Benefit payments Monthly for life Monthly for life
Retirement age 50 50-63
Monthly benefits, as a % of eligible 3.0% 2.0%-2.7%
Required employee contribution rates 14.0% 14.0%
Required employer contribution rates 17.54% 22.54%
Fire Safety Plan
Hire Date
Prior to
December 30, 2012
On or After
December 30, 2012
On or After
January 1, 2013
Benefit formula 3.0% @ 50 2.0% @ 50 2.7% @ 57
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 50-55 50-57
Monthly benefits, as a % of eligible 3.0% 2.0%-2.7% 2.0%-2.7% Required employee contribution rates 14.0% 9.0% 13.75%
Required employer contribution rates 24.30% 20.09% 13.76% _____________
Source: City of Costa Mesa - Audited Financial Statement for Fiscal Year 2024-25.
Employees Covered. At the June 30, 2024 measurement date, the following employees were covered by each plan’s benefit terms:
Miscellaneous Police Safety Fire Safety
Inactive Employees or Beneficiaries Currently Receiving Benefits 652 225 132 Inactive Employees Entitled to but not yet Receiving Benefits 866 74 34 Active Employees 412 136 82
Total 1,930 435 248
_____________
Source: City of Costa Mesa - Audited Financial Statement for Fiscal Year 2024-25. 37 Contributions. Section 20814(c) of the California Public Employees’ Retirement Law requires that the employer contribution rates for all public employers are 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 the estimated amount necessary to finance the costs of benefits earned by employees during the year, with an additional amount to finance any unfunded accrued liability. The employer is required to contribute the difference between the actuarially determined rate and the contribution rate of employees. Employer contribution rates may change if plan contracts are amended.
Payments made by the employer to satisfy plan member contribution requirements as identified by the pension plan terms are classified as plan member contributions. For the year ended June 30, 2025, the employer contributions for the Miscellaneous, Police Safety and Fire Safety were $14,236,977, $14,905,682 and $10,645,047, respectively, for a combined amount of $39,787,706, which represented roughly 22% of the General Fund expenditures for Fiscal Year 2024-25.
Net Pension Liability. As of June 30, 2024, the net pension liability for Miscellaneous plan was $108,315,359, the net pension liability for the Police Safety plan was $138,218,500 and the net pension liability for the Fire Safety plan was $89,256,235.
Police 1% Supplemental Retirement Plan. The City also offers a 1% supplemental retirement plan for certain eligible employees of the Police Department.
Plan Description. The plan was effective on July 1, 1993 for sworn members of the City of Costa Mesa Police Department. The plan was originally a 1% supplemental plan to the City’s 2%@50 benefit. Under the Retirement Plan for Safety Employees of the City of Costa Mesa, the City joined CalPERS with 3%@50 Safety benefit as of December 31, 2000 and transferred active members to CalPERS. Employees who retired prior to July 1, 1999 were not transferred to CalPERS.
The Police 1% Supplemental Retirement Plan is a single employer defined benefit plan. This Plan currently has only retired participants as all active employees were transferred to the CalPERS 3%@ 50 benefit plan. The number of participants at June 30, 2025 was 17. The average monthly benefit being paid is $931.33. The retirement benefit is 1% of the highest 12-month earnings for credited services up to 25 years. Maximum benefit is 75% of the highest 12-month earnings for service retirement including all public plan pension benefits but not including Social Security. The 75% is proportionately reduced for less than 25 years of Costa Mesa Police Department service.
Net Pension Liability. As of June 30, 2025, the net pension liability for the Police 1% Supplemental Retirement Plan was $1,385,976.
Defined Contribution Plan. On January 1, 2000, the City adopted a Defined Contribution Plan (Plan) for part-time employees that work under 1,000 hours during the fiscal year and do not meet the eligibility requirements to be enrolled in CalPERS. The Plan is administered by the Public Agency Retirement Services (PARS). As of June 30, 2025, there were 186 active participants in the Plan. Both the City and employees are required to each contribute 3.75% of gross wages.
The City’s contribution to the defined contribution plan for the year ended June 30, 2025 was $75,182.
38 Other Post-Employment Benefits Plan (OPEB). The City also offers a medical plan, referred to as an “other post-employment benefit plan (OPEB)” for eligible employees.
Plan Description. The City administers a single-employer defined benefit plan, which provides medical insurance benefits to eligible retirees and their spouses in accordance with various labor agreements. The plan covers employees hired before January 1, 2004 who retire directly from the City with 10 years or more of City service.
The City provides a contribution up to a percentage of the lesser of $500 per month or the premium for the most popular medical plan elected by the employees. The percentage varies by retirement date and years of City service. For employees hired on or after January 1, 2004, the City will only pay for the PEMHCA subsidy once they meet the definition of a retiree under CalPERS. The City provides retiree life insurance of $1,000 for the retiree and $500 for the retiree’s spouse.
Employees Covered. As of the June 30, 2025 measurement date, the following current and former employees were covered by the benefit terms under the plan:
Active Employees 641
Inactive Employees or Beneficiaries Currently Receiving Benefits 409 Inactive Employees Entitled to but not yet Receiving Benefits -- Total 1,050
Contributions. Contributions are made in accordance with applicable labor agreements and approved by City Council. The City Council establishes and may amend the contribution requirements for plan members and the City. The City has designated a reserve of $2.0 million to help fund its Other Post-Employment Benefits (OPEB) obligations, including retiree healthcare benefits. The reserve balance is reviewed periodically and is recommended to be maintained at a level sufficient to support the City's long-term OPEB obligations. For the fiscal year ended on June 30, 2025, the City budgeted approximately $2.9 million in the General Fund Non-Departmental for OPEBrelated costs. Actual contributions totaled $2,900,880, consisting of $1,945,254 in retiree health insurance premiums and $955,626 attributable to the implicit rate subsidy associated with retiree healthcare coverage.
Net OPEB Liability. As of June 30, 2025, the net OPEB liability was $46,426,170. 38 CONSTITUTIONAL AND STATUTORY
LIMITATIONS ON TAXES AND APPROPRIATIONS
The constitutional and statutory provisions discussed in this section have the potential to affect the ability of the City to levy taxes and spend tax proceeds for operating and other purposes.
Article XIIIA of the State Constitution
Section 1(a) of Article XIIIA of the State Constitution limits the maximum ad valorem tax on real property to 1% of full cash value (as defined in Section 2 of Article XIIIA), to be collected by counties and apportioned according to law. Section 1(b) of Article XIIIA provides that the 1% limitation does not apply to ad valorem taxes to pay interest or redemption charges on (1) indebtedness approved by the voters prior to June 1, 1978 or (2) any bonded indebtedness for the acquisition or improvement of real property approved on or after June 1, 1978, by two thirds of the votes cast by the voters voting on the Proposition. Section 2 of Article XIIIA defines “full cash value” to mean “the county assessor’s valuation of real property as shown on the 1975–76 tax bill under ‘full cash value’ or, thereafter, the appraised value of real property when purchased, newly constructed, or a change in ownership has occurred after the 1975 assessment.” The full cash value may be adjusted annually to reflect inflation at a rate not to exceed 2% per year, or to reflect a reduction in the consumer price index or comparable data for the area under taxing jurisdiction or reduced in the event of declining property value caused by substantial damage, destruction or other factors. Legislation enacted by the State Legislature to implement Article XIIIA provides that notwithstanding any other law, local agencies may not levy any ad valorem property tax except to pay debt service on indebtedness approved by the voters as described above.
The voters of the State subsequently approved various measures that further amended Article XIIIA. On November 3, 2020, State voters approved a constitutional amendment entitled Property Tax Transfers, Exemptions and Revenue for Wildfire Agencies and Counties Amendment (“Proposition 19”), which: (i) expands special rules that give property tax savings to homeowners that are over the age of 55, severely disabled, or whose property has been impacted by a natural disaster or contamination, when they buy a different home; (ii) narrows existing special rules for inherited properties; and (iii) broadens the scope of legal entity ownership changes that trigger reassessment of properties. The City cannot make any assurance as to what effect the implementation of Proposition 19 will have on assessed valuation of real property in the City. Other amendments, as modified by Proposition 19, permit persons over 55, severely disabled homeowners, and victims of a wildfire or other natural disaster to transfer the assessed value of their existing residence to a replacement residence of any value located anywhere in the State, up to three times, with an upward adjustment to the transferred value if the replacement residence has a greater full cash value than the original.
In the November 1990 election, the voters approved the amendment of Article XIIIA to permit the State Legislature to exclude from the definition of “newly constructed” the construction or installation of seismic retrofitting improvements or improvements utilizing earthquake hazard mitigation technologies constructed or installed in existing buildings after November 6, 1990.
Article XIIIA has also been amended to permit reduction of the “full cash value” base in the event of declining property values caused by damage, destruction or other factors, provided that there would be no increase in the “full cash value” base in the event of reconstruction of property damaged or destroyed in a disaster.
39 Article XIIIB of the State Constitution
Article XIIIB of the State Constitution limits the annual appropriations of the State and of any city, county, school district, special district, authority or other political subdivision of the State to the appropriations limit for the prior Fiscal Year, as adjusted for changes in the cost of living, population and services for which the fiscal responsibility is shifted to or from the governmental entity. The “base year” for establishing this appropriations limit is the 1978–79 Fiscal Year. The appropriations limit may also be adjusted in emergency circumstances, subject to limitations.
Appropriations of an entity of local government subject to Article XIIIB generally include authorizations to expend during a Fiscal Year the “proceeds of taxes” levied by or for the entity, exclusive of certain State subventions, refunds of taxes, and benefit payments from retirement, unemployment insurance and disability insurance funds. “Proceeds of taxes” include but are not limited to, all tax revenues, certain State subventions received by the local governmental entity and the proceeds to the local governmental entity from (1) regulatory licenses, user charges, and user fees (to the extent that such proceeds exceed the cost of providing the service or regulation) and (2) the investment of tax revenues. Article XIIIB provides that if a governmental entity’s revenues in any year exceed the amounts permitted to be spent, the excess must be returned by revising tax rates or fee schedules over the subsequent two fiscal years.
Article XIIIB does not limit the appropriation of moneys to pay debt service on indebtedness existing or authorized as of January 1, 1979, or for bonded indebtedness approved thereafter by a vote of the electors of the issuing entity at an election held for that purpose, or appropriations for certain other limited purposes. Furthermore, Article XIIIB was amended in 1990 to exclude from the appropriations limit “all qualified capital outlay projects, as defined by the Legislature” from proceeds of taxes. The Legislature has defined “qualified capital outlay project” to mean a fixed asset (including land and construction) with a useful life of 10 or more years and a value which equals or exceeds $100,000. As a result of this amendment, the appropriations to pay the lease payments on the City’s long term General Fund lease obligations are generally excluded from the City’s appropriations limit. The City has never exceeded its appropriations limit.
Articles XIIIC and XIIID of the State Constitution
General. On November 5, 1996, the voters of the State approved Proposition 218, known as the “Right to Vote on Taxes Act.” Proposition 218 adds Articles XIIIC and XIIID to the California Constitution and contains a number of interrelated provisions affecting the ability of the City to levy and collect both existing and future taxes, assessments, fees and charges.
On November 2, 2010, California voters approved Proposition 26, entitled the “Supermajority Vote to Pass New Taxes and Fees Act.” Section 1 of Proposition 26 declares that Proposition 26 is intended to limit the ability of the State Legislature and local government to circumvent existing restrictions on increasing taxes by defining the new or expanded taxes as “fees.” Proposition 26 amended Articles XIIIA and XIIIC of the State Constitution. The amendments to Article XIIIA limit the ability of the State Legislature to impose higher taxes (as defined in Proposition 26) without a two-thirds vote of the Legislature. The amendments to Article XIIIC define “taxes” that are subject to voter approval as “any levy, charge, or exaction of any kind imposed by a local government,” with certain exceptions.
Taxes. Article XIIIC requires that all new local taxes be submitted to the electorate before they become effective. Taxes for general governmental purposes of the City (“general taxes”) 40 require a majority vote; taxes for specific purposes (“special taxes”), even if deposited in the City’s General Fund, require a two-thirds vote.
Property-Related Fees and Charges. Article XIIID also adds several provisions making it generally more difficult for local agencies to levy and maintain property-related fees, charges, and assessments for municipal services and programs. These provisions include, among other things, (i) a prohibition against assessments which exceed the reasonable cost of the proportional special benefit conferred on a parcel, (ii) a requirement that assessments must confer a “special benefit,” as defined in Article XIIID, over and above any general benefits conferred, (iii) a majority protest procedure for assessments which involves the mailing of notice and a ballot to the record owner of each affected parcel, a public hearing and the tabulation of ballots weighted according to the proportional financial obligation of the affected party, and (iv) a prohibition against fees and charges which are used for general governmental services, including police, fire or library services, where the service is available to the public at large in substantially the same manner as it is to property owners.
Reduction or Repeal of Taxes, Assessments, Fees and Charges. Article XIIIC also removes limitations on the initiative power in matters of reducing or repealing local taxes, assessments, fees or charges. No assurance can be given that the voters of the City will not, in the future, approve an initiative or initiatives which reduce or repeal local taxes, assessments, fees or charges currently comprising a substantial part of the City’s General Fund. If such repeal or reduction occurs, the City’s ability to pay debt service on the Bonds could be adversely affected.
Burden of Proof. Article XIIIC provides that local government “bears the burden of proving by a preponderance of the evidence that a levy, charge, or other exaction is not a tax, that the amount is no more than necessary to cover the reasonable costs of the governmental activity, and that the manner in which those costs are allocated to a payor bear a fair or reasonable relationship to the payor’s burdens on, or benefits received from, the governmental activity.” Similarly, Article XIIID provides that in “any legal action contesting the validity of a fee or charge, the burden shall be on the agency to demonstrate compliance” with Article XIIID.
Judicial Interpretation of Proposition 218. The interpretation and application of Articles XIIIC and XIIID will ultimately be determined by the courts, and it is not possible at this time to predict with certainty the outcome of such determination.
Impact on City’s General Fund. The City does not believe that any material source of General Fund revenue is subject to challenge under Proposition 218 or Proposition 26.
The approval requirements of Articles XIIIC and XIIID reduce the flexibility of the City to raise revenues for the General Fund, and no assurance can be given that the City will be able to impose, extend or increase the taxes, fees, charges or taxes in the future that it may need to meet increased expenditure needs.
Proposition 1A; Proposition 22
Proposition 1A. Proposition 1A, proposed by the Legislature in connection with the State’s Fiscal Year 2004-05 Budget, approved by the voters in November 2004 and generally effective in Fiscal Year 2006-07, provided that the State may not reduce any local sales tax rate, limit existing local government authority to levy a sales tax rate or change the allocation of local sales tax revenues, subject to certain exceptions. Proposition 1A generally prohibited the State from shifting to schools or community colleges any share of property tax revenues allocated to 41 local governments for any Fiscal Year, as set forth under the laws in effect as of November 3, 2004. Any change in the allocation of property tax revenues among local governments within a county had to be approved by two-thirds of both houses of the Legislature.
Proposition 22. Proposition 22, entitled “The Local Taxpayer, Public Safety and Transportation Protection Act,” was approved by the voters of the State in November 2010.
Proposition 22 eliminates or reduces the State’s authority to (i) temporarily shift property taxes from cities, counties and special districts to schools, (ii) use vehicle license fee revenues to reimburse local governments for State-mandated costs (the State will have to use other revenues to reimburse local governments), (iii) redirect property tax increment from redevelopment agencies to any other local government, (iv) use State fuel tax revenues to pay debt service on State transportation bonds, or (v) borrow or change the distribution of State fuel tax revenues.
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, are 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.
Possible Future Initiatives
Article XIIIA, Article XIIIB and Propositions 218, 26, 1A and 22 were each adopted as measures that qualified for the ballot pursuant to the State’s initiative process. From time to time, other initiative measures could be adopted, further affecting the City’s revenues or its ability to expend revenues.
42 BOND OWNERS’ RISKS
The following describes certain special considerations and risk factors affecting the payment of and security for the Bonds. The following discussion is not meant to be an exhaustive list of the risks associated with the purchase of any Bonds and does not necessarily reflect the relative importance of the various risks. Potential investors in the Bonds are advised to consider the following special factors along with all other information in this Official Statement in evaluating the Bonds. There can be no assurance that other considerations will not materialize in the future.
No Pledge of Taxes
General. The obligation of the City to pay the Lease 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. The obligation of the City to pay Lease Payments does not constitute a debt or indebtedness of the City, the State of California or any of its political subdivisions within the meaning of any constitutional or statutory debt limitation or restriction. The City is currently liable on other obligations payable from general revenues, which are described above under “CITY FINANCIAL INFORMATION – Other Indebtedness.” Limitations on Taxes and Fees. Certain taxes, assessments, fees and charges presently imposed by the City could be subject to the voter approval requirements of Article XIIIC and Article XIIID of the State Constitution. Based upon the outcome of an election by the voters, such fees, charges, assessments and taxes might no longer be permitted to be imposed, or may be reduced or eliminated and new taxes, assessments fees, and charges may not be approved.
The City has assessed the potential impact on its financial condition of the provisions of Article XIIIC and Article XIIID of the State Constitution respecting the imposition and increase of taxes, fees, charges and assessments and does not believe that an election by the voters to reduce or eliminate the imposition of certain existing fees, charges, assessments and taxes would substantially affect its financial condition. However, the City believes that if the initiative power was exercised so that all local taxes, assessments, fees and charges that may be subject to Article XIIIC and Article XIIID of the State Constitution are eliminated or substantially reduced, the financial condition of the City, including its General Fund, could be materially adversely affected.
Although the City does not currently anticipate that the provisions of Article XIIIC and Article XIIID of the State Constitution would adversely affect its ability to pay Lease Payments and its other obligations payable from the General Fund, no assurance can be given regarding the ultimate interpretation or effect of Article XIIIC and Article XIIID of the State Constitution on the City’s finances. See “CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS.”
No Debt Service Reserve Fund
The Authority will not fund a debt service reserve fund for the Bonds. If Revenues are insufficient for the Authority to pay debt service on the Bonds when due, no debt service reserve will be available under the Indenture for the Authority to make such payments.
Abatement
In the event of loss or substantial interference in the use and possession by the City of all or any portion of the Leased Property caused by material damage, title defect, destruction to or condemnation of the Leased Property, Lease Payments will be subject to abatement. See 43 “SECURITY FOR THE BONDS – Abatement” herein. In the event that such component of the Leased Property, if damaged or destroyed by an insured casualty, could not be replaced during the period in which proceeds of rental interruption insurance, if any, will be available in lieu of Lease Payments, or in the event that casualty insurance proceeds or condemnation proceeds are insufficient to provide for complete repair or replacement of such component of the Leased Property or prepayment of the Bonds, there could be insufficient funds to make payments to Owners in full. It is not always possible to predict the circumstances under which abatement of rental may occur. In addition, there is no statute, case or other law specifying how such an abatement of rental should be measured. For example, it is not clear whether fair rental value is established as of commencement of the lease or at the time of the abatement. If the latter, it may be that the value of the Leased Property is substantially higher or lower than its value at the time of issuance of the Bonds. Abatement, therefore, could have an uncertain and material adverse effect on the security for and payment of the Bonds.
If damage, destruction, title defect or eminent domain proceedings with respect to the Leased Property results in abatement of the Lease Payments related to such Leased Property and if such abated Lease Payments, if any, together with moneys from rental interruption or use and occupancy insurance, if any, (in the event of any insured loss due to damage or destruction), and eminent domain proceeds, if any, are insufficient to make all payments of principal and interest with respect to the Bonds during the period that the Leased Property is being replaced, repaired or reconstructed, then all or a portion of such payments of principal and interest may not be made. Reduction in Lease Payments due to abatement as provided in the Lease does not constitute a default under the Lease, and no remedy is available to the Bond Owners under the Lease or the Indenture for nonpayment under such circumstances.
Limited Recourse on Default; No Right to Foreclose or Sell; No Acceleration of Lease Payments
Failure by the City to make Lease Payments or failure to pay Additional Rental Payments constitute Events of Default under the Lease. Failure to observe and perform any other terms, covenants or conditions contained in the Lease or in the Indenture for a period of 30 days after written notice of such failure and request that it be remedied has been given to the City by the Authority or the Trustee, also constitute Events of Default under the Lease. Such events permit the Trustee or the Authority to pursue any and all remedies available. During the term of the Site Lease, the Authority has the right to re-enter and re-lease or terminate and re-lease all or any portion of the Leased Property. However, notwithstanding anything in the Lease or in the Indenture to the contrary, there is no right under any circumstances to accelerate the Lease Payments or otherwise declare any Lease Payments that are not then in default to be immediately due and payable.
Following an event of default, the Authority or the Trustee may elect either to terminate the Lease and seek to collect damages from the City or to maintain the Lease in effect and seek to collect the Lease Payments as they become due.
In the event of a default, there is no remedy of acceleration of the total Lease Payments due over the term of the Lease and neither the Authority nor the Trustee are empowered to sell the Leased Property. The City will be liable only for Lease Payments on an annual basis and, in the event of a default, the Authority or Trustee would be required to seek a separate judgment each year for that year’s defaulted Lease Payments. Any such suit for money damages would be subject to limitations on legal remedies against municipalities in California, including a limitation 44 on enforcement of judgments against funds of a Fiscal Year other than the Fiscal Year in which the Lease Payments were due and against funds needed to serve the public welfare and interest.
Additional Obligations of the City
General. The City is permitted to enter into other obligations which constitute additional charges against its revenues without the consent of Owners of the Bonds, and may in the future be subject to liabilities payable from the general fund (some of which are described below). To the extent that additional obligations are incurred by (or imposed upon) the City, the funds available to pay Lease Payments may be decreased.
The Lease Payments and other payments due under the Lease (including payment of costs of repair and maintenance of the Leased Property, taxes and other governmental charges levied against the Leased Property) are payable from funds lawfully available to the City. If the amounts that the City is obligated to pay in a fiscal year exceed the City’s revenues for such year, the City may choose to make some payments rather than making other payments, including Lease Payments and Additional 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.
Litigation. The City is subject to litigation arising in the normal course of business, and no assurance can be provided regarding the financial impact of any future litigation against the City. See “LITIGATION.”
CalPERS Obligations. Many cities and other local agencies in the State have been faced with increased payments due to CalPERS in recent years. The City, like many other cities and local agencies in the State, is responsible for payments to CalPERS for its share of employee pension costs. Amounts owed to CalPERS for pension costs have increased in recent years and are expected to continue to increase, as CalPERS implements changes to its discount rate and other methodologies for calculating pension costs. See “CITY FINANCIAL INFORMATION – Pension Plans and OPEB” for additional information on CalPERS and other retirement benefits offered by the City.
Sales Taxes
Sales tax revenues are typically the biggest source of revenue to the City. Sales tax revenues are based upon the gross receipts of retail sales of tangible goods and products by retailers with taxable transactions in the City, which could be impacted by a variety of factors.
For example, before final maturity of the Bonds, the City may enter into an economic recession. In times of economic recession, the gross receipts of retailers often decline, and such a decline would cause the sales tax revenues received by the City to also decline.
In addition, changes or amendments in the laws applicable to the City’s receipt of sales tax revenues, whether implemented by State legislative action or voter initiative, could have an adverse effect on sales tax revenues received by the City. For example, many categories of transactions are exempt from the statewide sales tax, and additional categories could be added in the future. Currently, most sales of food products for human consumption are exempt; this exemption, however, does not apply to liquor or to restaurant meals. The rate of sales tax levied 45 on taxable transactions in the City or the fee charged by the CDTFA for administering the City’s sales tax could also be changed.
Concentration of Sales Tax Revenues; South Coast Plaza
A significant portion of the City's sales tax revenues is generated by retail, dining, and commercial activity at South Coast Plaza, a large regional shopping center located within the City.
For the fiscal year ended June 30, 2026, taxable sales generated at or attributable to South Coast Plaza and its surrounding commercial district represented approximately ___% of the City's total sales tax revenues, which in turn constitute a material component of the City's General Fund revenues. Because a substantial share of this revenue is concentrated in a single commercial property, the City's General Fund is more exposed to risks affecting that property than would be the case if taxable sales activity were more broadly diversified across the City.
Property Taxes
Property taxes are a significant source of General Fund revenue to the City. Certain risks associated with property tax revenues follow.
Levy and Collection. The City does not have any independent power to levy and collect property taxes. Any reduction in the tax rate or the implementation of any constitutional or legislative property tax decrease could reduce the City’s property tax revenues, and accordingly, could have an adverse impact on the ability of the City to make Lease Payments. Likewise, delinquencies in the payment of property taxes could have an adverse effect on the City’s ability to pay principal of and interest on the Bonds when due.
Reduction in Inflationary Rate. Article XIIIA of the California Constitution provides that the full cash value base of real property used in determining assessed value may be adjusted from year to year to reflect the inflationary rate, not to exceed a 2% increase for any given year, or may be reduced to reflect a reduction in the consumer price index or comparable local data.
See “CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS.” Such measure is computed on a calendar year basis. Because Article XIIIA limits inflationary assessed value adjustments to the lesser of the actual inflationary rate or 2%, there have been years in which the assessed values were adjusted by actual inflationary rates, which were less than 2%. Since Article XIIIA was approved, the annual adjustment for inflation has fallen below the 2% limitation a limited number of times.
The City is unable to predict if any adjustments to the full cash value base of real property within the City, whether an increase or a reduction, will be realized in the future.
Appeals of Assessed Values. There are two types of appeals of assessed values that could adversely impact property tax revenues:
Proposition 8 Appeals. Most of the appeals that might be filed in the City would be based on Section 51 of the Revenue and Taxation Code, which requires that for each lien date the value of real property must be the lesser of its base year value annually adjusted by the inflation factor pursuant to Article XIIIA of the State Constitution or its full cash value, taking into account reductions in value due to damage, destruction, depreciation, obsolescence, removal of property or other factors causing a decline in value. 46 Under California law, property owners may apply for a reduction of their property tax assessment by filing a written application with the appropriate county board of equalization or assessment appeals board. In most cases, the appeal is filed because the applicant believes that present market conditions (such as residential home prices) cause the property to be worth less than its current assessed value. These market-driven appeals are known as Proposition 8 appeals.
Any reduction in the assessment ultimately granted as a Proposition 8 appeal applies to the year for which application is made and during which the written application was filed. These reductions are often temporary and are adjusted back to their original values when market conditions improve. Once the property has regained its prior value, adjusted for inflation, it once again is subject to the annual inflationary factor growth rate allowed under Article XIIIA.
Base Year Appeals. A second type of assessment appeal is called a base year appeal, where the property owners challenge the original (basis) value of their property.
Appeals for reduction in the “base year” value of an assessment, if successful, reduce the assessment for the year in which the appeal is taken and prospectively thereafter. The base year is determined by the completion date of new construction or the date of change of ownership. Any base year appeal must be made within four years of the change of ownership or new construction date.
No assurance can be given that property tax appeals in the future will not significantly reduce the City’s property tax revenues.
Natural Calamities
General. Natural disasters, such as seismic events, flooding, landslides or wildfires, could affect economic activity in the City, and could have a negative impact on City finances. There can be no assurance that the occurrence of any natural calamity would not cause substantial interference to and costs for the City or impact the Leased Property.
Seismic. Like much of the State, the City is located in a seismically active area of California. If there were to be an occurrence of severe seismic activity in the area of the City, such an occurrence may adversely affect economic activity in the City, and could have a negative impact on City finances. The City could be at risk from strong ground motion and secondary effects related to a seismic event, including ground failure and seismically induced flooding caused by dam failures.
Droughts. California is subject to droughts from time-to-time. Although California is not currently in a drought, drought may reoccur in the future, and have a material adverse impact on the economic activity in the City, which in turn could have a material adverse impact on the City’s General Fund finances.
Wildfires and Fire Insurance. In the past, drought conditions in the State (see “– Natural Calamities – Droughts” above) have led to increased risk of wildfire. In particular, certain electrical operators in the State have seen their distribution/transmission lines cause billions of dollars in property damage and the loss of lives. In 2023, as in several prior years, for example, devastating wildfires burned in various communities in California, causing wide-spread damage. In 2025, communities in Los Angeles County, including Pacific Palisades, Malibu and Altadena, experienced widespread devastation from wildfires causing losses of life, thousands of burned 47 homes, and billions of dollars in property damage. Although not located in a very high fire hazard severity zone, no assurance can be given that wildfires will not erupt in the City and negatively impact development of property in the City or willingness and ability to pay property taxes in the future.
On January 16, 2025, Governor Gavin Newsom issued Executive Order N-10-25 (the “Governor’s Order”) which canceled penalties, costs and interest on overdue property taxes within certain zip codes affected by the Palisades Fire and the Altadena Fire during calendar year 2025. This will likely cause a delay in the payment of taxes by certain property owners in any areas affected by the Governor’s Order.
Climate Change. City finances may be negatively impacted by climate change. Local impacts of climate change are not definitive, but parcels in the City could experience changes to local and regional weather patterns; increased risk of flooding from severe weather events including heavy rain, hail and thunderstorms; and water restrictions resulting from future drought conditions. See, for example, the discussions above regarding wildfires and droughts.
Hazardous Substances
An additional environmental condition that may result in the reduction in the assessed value of property, and therefore property tax revenue available to make Lease Payments, would be the discovery of a hazardous substance that would limit the beneficial use of taxable property within the City. In general, the owners and operators of a property may be required by law to remedy conditions of the property relating to releases or threatened releases of hazardous substances. The Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980, sometimes referred to as "CERCLA" or the "Superfund Act," is the most well-known and widely applicable of these laws, but State laws with regard to hazardous substances are also stringent and similar in effect. Under many of these laws, the owner or operator may be required to remedy a hazardous substance condition of property whether or not the owner or operator has anything to do with creating or handling the hazardous substance. The effect, therefore, should any of the property within the City be affected by a hazardous substance, could be to reduce the marketability and value of such property by the costs of remedying the condition, because the purchaser, upon becoming owner, will become obligated to remedy the condition just as is the seller.
Hazardous substance liabilities may arise in the future with respect to any of the property in the City resulting from the existence, currently, of a substance presently classified as hazardous but which has not been released or the release of which is not presently threatened, or may arise in the future resulting from the existence, currently, on the parcel of a substance not presently classified as hazardous but which may in the future be so classified. Additionally, such liabilities may arise from the method of handling such substance.
These possibilities could significantly affect the value of a parcel and could result in substantial delays in completing planned development on parcels that are currently undeveloped.
Possible Insufficiency of Insurance Proceeds
The Lease obligates the City to keep in force various forms of insurance, subject to deductibles, for repair or replacement of the Leased Property in the event of damage, destruction or title defects, subject to certain exceptions. The Authority and the City make no representation as to the ability of any insurer to fulfill its obligations under any insurance policy obtained pursuant 48 to the Lease and no assurance can be given as to the adequacy of any such insurance to fund necessary repair or replacement or to pay principal of and interest on the Bonds when due.
In addition, certain risks, such as earthquakes and floods, are not required to be covered under the Lease Agreement. See the captions "SECURITY FOR THE BONDS--Property Insurance" and "THE CITY--Risk Management.”
Pandemic Diseases
In recent years, the COVID-19 pandemic impacted governments, businesses and people in a manner having negative effects on global and local economies. In response to the pandemic, the City took actions to activate its emergency operations center, temporarily close all nonessential City services, introduced teleworking as and where appropriate, implemented daily screening of all employees, and abided by all state and federal guidelines and orders.
Although the federal public health emergency declaration with respect to COVID-19 ended in May 2023, the City cannot predict the impact that COVID-19 or another future pandemic or other health event may have on the City’s General Fund. There can be no assurances that the spread of future pandemics or other health events, such as declining business and travel activity, will not materially adversely impact the financial condition of the City and the City’s General Fund.
In addition, the City may experience increased personnel costs and/or reduced revenues due to any such situation and the related impact on economic and other activity in and around the City.
Proximity to John Wayne Airport
The City of Costa Mesa is located in close proximity to John Wayne Airport ("JWA"), a commercial airport serving Orange County. Properties within the City may be located within JWA's flight paths or noise impact areas, and may be subject to the Airport Environs Land Use Plan ("AELUP") adopted by the Orange County Airport Land Use Commission. Land uses within these areas may be subject to height restrictions, noise easements, avigation easements, or other development limitations that could affect property values, the pace of development, or the intensity of permitted uses within affected areas of the City.
In addition, aircraft operations at JWA are subject to a Settlement Agreement and related noise and operational restrictions (including curfews and flight caps) that have historically been the subject of litigation and renegotiation among the County of Orange, the City of Newport Beach, and other stakeholders. Changes to these restrictions, whether through expiration, renegotiation, litigation, or airport expansion, could alter aircraft noise, traffic patterns, or operational levels affecting properties in the City, with resulting effects on property values, assessed valuations, or economic activity within the City that are difficult to predict and could be material.
No assurance can be given that future changes in JWA operations, FAA regulations, litigation outcomes, or land use restrictions arising from JWA's proximity will not have a material adverse effect on property values, development, or economic conditions within the City, and consequently on General Fund revenues available to pay debt service on the Bonds. 49 Cyber Security
The City, like many other public and private entities, relies on computer and other digital networks and systems to conduct its operations. As a recipient and provider of personal, private or other sensitive electronic information, the City is potentially subject to multiple cyber threats, including without limitation hacking, viruses, ransomware, malware and other attacks. The City has cyber safety protocols in place and maintains insurance coverage for loss resulting from cyber security incidents, however no assurance can be given that the City’s efforts to manage cyber threats and attacks will be successful in all cases, or that any such attack will not materially impact the operations or finances of the City, or the administration of the Bonds.
The City is also reliant on other entities and service providers in connection with the administration of the Bonds, including without limitation the County tax collector for the levy and collection of property taxes, the Trustee, and the dissemination agent. No assurance can be given that the City and/or the other entities will not be affected by cyber threats and attacks in a manner that may affect the Bond owners.
Limitations on Remedies Available to Bond Owners
The ability of the City to comply with its covenants under the Lease may be adversely affected by actions and events outside of the control of the City, and may be adversely affected by actions taken (or not taken) by voters, property owners, taxpayers or payers of assessments, fees and charges. See “CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS” above. Furthermore, any remedies available to the owners of the Bonds upon the occurrence of an event of default under the Lease or the Indenture are in many respects dependent upon judicial actions, which are often subject to discretion and delay and could prove both expensive and time consuming to obtain.
In addition to the limitations on Bondowner remedies contained in the Lease and the Indenture, the rights and obligations under the Bonds, the Lease and the Indenture may be subject to the following: the United States Bankruptcy Code and applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws relating to or affecting the enforcement of creditors’ rights generally, now or hereafter in effect; usual equity principles which may limit the specific enforcement under State law of certain remedies; the exercise by the United States of America of the powers delegated to it by the Federal Constitution; and the reasonable and necessary exercise, in certain exceptional situations, of the police power inherent in the sovereignty of the State 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 Bonds to judicial discretion and interpretation of their rights in bankruptcy or otherwise, and consequently may entail risks of delay, limitation or modification of their rights.
The opinion to be delivered by Bond Counsel, concurrently with the issuance of the Bonds, will include a qualification that the rights of the owners of the Bonds and the enforceability of the Bonds and the Indenture, the Lease and the Site Lease may be subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors’ rights heretofore or hereafter enacted and may also be subject to the exercise of judicial discretion in accordance with principles of equity or otherwise in appropriate cases. See “APPENDIX E — FORM OF OPINION OF BOND COUNSEL.”
50 Secondary Market for Bonds
There can be no guarantee that there will be a secondary market for the Bonds or, if a secondary market exists, that any Bonds can be sold for any particular price. Occasionally, because of general market conditions or because of adverse history or economic prospects connected with a particular issue, secondary marketing practices in connection with a particular issue are suspended or terminated. Additionally, prices of issues for which a market is being made will depend upon then-prevailing circumstances. Such prices could be substantially different from the original purchase price.
TAX MATTERS
Federal Tax Status. In the opinion of Jones Hall LLP, as Bond Counsel, subject, however to the qualifications set forth below, under existing law, the interest on the Bonds is excluded from gross income for federal income tax purposes and such interest is not an item of tax preference for purposes of the federal alternative minimum tax. Interest on the Bonds may be subject to the corporate alternative minimum tax.
The opinions set forth in the preceding paragraph are subject to the condition that the City comply with all requirements of the Internal Revenue Code of 1986, as amended (the “Tax Code”) that must be satisfied subsequent to the issuance of the Bonds in order that the interest thereon be, and continue to be, excludable from gross income for federal income tax purposes. The City has made certain representations and covenants in order to comply with each such requirement.
Inaccuracy of those representations, or failure to comply with certain of those covenants, may cause the inclusion of such interest in gross income for federal income tax purposes, which may be retroactive to the date of issuance of the Bonds.
Tax Treatment of Original Issue Discount and Premium. If the initial offering price to the public at which a Bond is sold is less than the amount payable at maturity thereof, then such difference constitutes “original issue discount” for purposes of federal income taxes and State of California personal income taxes. If the initial offering price to the public at which a Bond is sold is greater than the amount payable at maturity thereof, then such difference constitutes “bond premium” for purposes of federal income taxes and State of California personal income taxes.
Under the Tax Code, original issue discount is treated as interest excluded from federal gross income and exempt from State of California personal income taxes to the extent properly allocable to each owner thereof subject to the limitations described in the first paragraph of this section. The original issue discount accrues over the term to maturity of the Bond on the basis of a constant interest rate compounded on each interest or principal payment date (with straight-line interpolations between compounding dates). The amount of original issue discount accruing during each period is added to the adjusted basis of such Bonds to determine taxable gain upon disposition (including sale, redemption, or payment on maturity) of such Bond. The Tax Code contains certain provisions relating to the accrual of original issue discount in the case of purchasers of the Bonds who purchase the Bonds after the initial offering of a substantial amount of such maturity. Owners of such Bonds should consult their own tax advisors with respect to the tax consequences of ownership of Bonds with original issue discount, including the treatment of purchasers who do not purchase in the original offering to the public at the first price at which a substantial amount of such Bonds is sold to the public. 51 Under the Tax Code, bond premium is amortized on an annual basis over the term of the Bond (said term being the shorter of the Bond’s maturity date or its call date). The amount of bond premium amortized each year reduces the adjusted basis of the owner of the Bond for purposes of determining taxable gain or loss upon disposition. The amount of bond premium on a Bond is amortized each year over the term to maturity of the Bond on the basis of a constant interest rate compounded on each interest or principal payment date (with straight-line interpolations between compounding dates). Amortized Bond premium is not deductible for federal income tax purposes. Owners of premium Bonds, including purchasers who do not purchase in the original offering, should consult their own tax advisors with respect to State of California personal income tax and federal income tax consequences of owning such Bonds.
California Tax Status. In the further opinion of Bond Counsel, interest on the Bonds is exempt from California personal income taxes.
Other Tax Considerations. Current and future legislative proposals, if enacted into law, clarification of the Tax Code or court decisions may cause interest on the Bonds to be subject, directly or indirectly, to federal income taxation or to be subject to or exempted from state income taxation, or otherwise prevent beneficial owners from realizing the full current benefit of the tax status of such interest. The introduction or enactment of any such legislative proposals, clarification of the Tax Code or court decisions may also affect the market price for, or marketability of, the Bonds. It cannot be predicted whether or in what form any such proposal might be enacted or whether, if enacted, such legislation would apply to bonds issued prior to enactment.
The opinions expressed by Bond Counsel are based upon existing legislation and regulations as interpreted by relevant judicial and regulatory authorities as of the date of such opinion, and Bond Counsel has expressed no opinion with respect to any proposed legislation or as to the tax treatment of interest on the Bonds, or as to the consequences of owning or receiving interest on the Bonds, as of any future date. Prospective purchasers of the Bonds should consult their own tax advisors regarding any pending or proposed federal or state tax legislation, regulations or litigation, as to which Bond Counsel expresses no opinion.
Owners of the Bonds should also be aware that the ownership or disposition of, or the accrual or receipt of interest on, the Bonds may have federal or state tax consequences other than as described above. Other than as expressly described above, Bond Counsel expresses no opinion regarding other federal or state tax consequences arising with respect to the Bonds, the ownership, sale or disposition of the Bonds, or the amount, accrual or receipt of interest on the Bonds.
CERTAIN LEGAL MATTERS
Jones Hall LLP, as Bond Counsel, will render an opinion with respect to the validity of the Bonds, the form of which is set forth in “APPENDIX E – FORM OF OPINION OF BOND COUNSEL.” Certain legal matters will also be passed upon for the City and the Authority by Jones Hall LLP, as Disclosure Counsel. Certain legal matters will be passed upon for the City by the City Attorney, and for the Underwriter by its counsel, Anzel Galvan LLP. 52 LITIGATION
To the best knowledge of the City, there is no action, suit, proceeding, inquiry or investigation before or by any court or federal, state, municipal or other governmental authority pending and notice of which has been served on and received by the City or, to the knowledge of the City, threatened against or affecting the City or the assets, properties or operations of the City which, if determined adversely to the City or its interests, would have a material and adverse effect upon the consummation of the transactions contemplated by or the validity of the Lease, the Site Lease or the Indenture, or upon the financial condition, assets, properties or operations of the City, and the City is not in default with respect to any order or decree of any court or any order, regulation or demand of any federal, state, municipal or other governmental authority, which default might have consequences that would materially adversely affect the consummation of the transactions contemplated by the Lease, the Site Lease or the Indenture, or the financial conditions, assets, properties or operations of the City, including but not limited to the payment and performance of the City’s obligations under the Lease.
RATING
S&P Global Ratings (“S&P”), a division of Standard & Poor’s Financial Services LLC, has assigned its municipal bond rating of “___” to the Bonds.
This rating reflects only the views of S&P, and an explanation of the significance of this rating, and any outlook assigned to or associated with this rating, should be obtained from S&P.
Generally, a rating agency bases its rating on the information and materials furnished to it and on investigations, studies and assumptions of its own. The City has provided certain additional information and materials to the rating agency (some of which does not appear in this Official Statement). There is no assurance that this rating will continue for any given period of time or that this rating 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 or withdrawal of any rating may have an adverse effect on the market price or marketability of the Bonds.
CONTINUING DISCLOSURE
The City will covenant for the benefit of owners of the Bonds to provide certain financial information and operating data by not later than nine months after the end of the City’s fiscal year, or March 31 of each year (based on the City’s current fiscal year-end of June 30), commencing March 31, 2027, with the report for the 2025-26 fiscal year (the “Annual Report”) and to provide notices of the occurrence of certain listed events.
These covenants have been made in order to assist the Underwriter in complying with Securities and Exchange Commission Rule 15c2-12(b)(5), as amended (the “Rule”). The specific nature of the information to be contained in the Annual Report or the notices of listed events by the City is set forth in “APPENDIX D – Form of Continuing Disclosure Certificate.” In the past five years, the City has ___________________ [Underwriter to review] 53 MUNICIPAL ADVISOR
Fieldman, Rolapp & Associates, Inc. has acted as Municipal Advisor (the “Municipal Advisor”) to the City and Authority in conjunction with the issuance of the Bonds. The Municipal Advisor has assisted in matters related to the planning, structuring, execution, and delivery of the Bonds. The Municipal Advisor will receive compensation contingent upon the sale and delivery of the Bonds. The Municipal Advisor has not audited, authenticated, or otherwise independently verified the information set forth in this Official Statement, or any other related information available, with respect to accuracy and completeness of disclosure of such information. Because of this limited participation, the Municipal Advisor makes no guaranty, warranty, or other representation with respect to the accuracy or completeness of this Official Statement, or any other matter related to this Official Statement.
UNDERWRITING
Stifel, Nicolaus & Company, Incorporated, as underwriter (the “Underwriter”), has entered into a Bond Purchase Agreement with the Authority and the City under which it will purchase the Bonds at a purchase price of $________________, which is equal to the par amount of the Bonds, plus/less [net] original issue premium/discount of $__________, less an Underwriter’s discount of $____________.
The Underwriter will be obligated to take and pay for all of the Bonds if any are taken. The Underwriter intends to offer the Bonds to the public at the offering prices set forth on the inside cover page of this Official Statement. After the initial public offering, the public offering price may be varied from time to time by the Underwriter. The Underwriter may offer and sell the Bonds to certain dealers and others at prices lower than the public offering prices set forth on the inside cover page.
The Underwriter and its affiliates comprise a full-service financial institution engaged in activities which may include sales and trading, commercial and investment banking, advisory, investment management, investment research, principal investment, hedging, market making, brokerage and other financial and non-financial activities and services. The Underwriter and its affiliates may have provided, and may in the future provide, a variety of these services to the Authority, the City and to persons and entities with relationships with the Authority or the City, for which they received or will receive customary fees and expenses.
In the ordinary course of these business activities, the Underwriter and its affiliates may purchase, sell or hold a broad array of investments and actively trade securities, derivatives, loans and other financial instruments for their own account and for the accounts of their customers, and such investment and trading activities may involve or relate to assets, securities and/or instruments of the Authority or the City (directly, as collateral securing other obligations or otherwise) and/or persons and entities with relationships with the Authority or the City.
The Underwriter and its affiliates may also communicate independent investment recommendations, market color or trading ideas and/or publish or express independent research views in respect of such assets, securities or instruments and may at any time hold, or recommend to clients that they should acquire such assets, securities and instruments. Such investment and securities activities may involve securities and instruments of the City. 54 CONTINGENT FEES
In connection with the issuance of the Bonds, fees payable to the following professionals involved in the offering are contingent upon the issuance and delivery of the Bonds: Jones Hall LLP, as Bond Counsel and Disclosure Counsel; Fieldman, Rolapp & Associates, Inc., as municipal advisor; Anzel Galvan LLP, as counsel to the Underwriter; and U.S. Bank Trust Company, National Association, as Trustee.
EXECUTION
The execution of this Official Statement and its delivery have been authorized by the Board of the Authority and the City Council of the City.
COSTA MESA FINANCING AUTHORITY
By:
Executive Director
CITY OF COSTA MESA
By:
City Manager
A-1
APPENDIX A
AUDITED FINANCIAL STATEMENTS
FOR FISCAL YEAR ENDED JUNE 30, 2025
APPENDIX B
GENERAL INFORMATION ABOUT THE CITY OF COSTA MESA
AND ORANGE COUNTY
The following information concerning Orange County (the “County”) and the City of Costa Mesa (the “City”) is included only for the purpose of supplying general information regarding the area. The Bonds are not a debt of the County, the City, the State of California (the “State”) or any of its political subdivisions, and neither the County, the City, the State nor any of its political subdivisions is liable therefor. The City and the Underwriter take no responsibility for the accuracy or completeness of such information.
General
The City. The City was incorporated on June 29, 1953 and is a general law city operating under a council/manager form of government. The City is located in the southern portion of the County, approximately 35 miles southeast of Los Angeles and 85 miles northwest of San Diego, California. The City covers approximately 16.8 square miles. The California Department of Finance estimates that the City has a population of approximately 109,436 as of January 1, 2026.
The City’s population has remained stable for the past ten years, with the population declining slightly since 2017.
The County. The County encompasses 798 square miles in Southern California, bordered on the north by Los Angeles and San Bernardino Counties, on the east by Riverside County, on the southeast by San Diego County and on the west and southwest by the Pacific Ocean. There are 34 cities within the County.
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B-2
Population
The historic population estimates of the towns and cities that are in the County as of January 1 of the past five years are shown in the following table.
ORANGE COUNTY
Population
2022 through 2026
Area 2022 2023 2024 2025 2026
Aliso Viejo 51,123 50,606 50,596 50,419 49,945
Anaheim 340,213 338,420 340,629 340,635 340,433
Brea 46,882 48,195 48,231 48,082 47,656
Buena Park 83,288 82,966 83,278 83,219 82,850
Costa Mesa 111,201 110,078 110,009 110,313 109,436
Cypress 49,897 49,578 49,836 49,826 49,495
Dana Point 32,807 32,738 32,665 32,539 32,268
Fountain Valley 56,798 56,490 56,780 56,769 56,596
Fullerton 141,941 141,076 141,194 140,901 140,224
Garden Grove 170,314 169,207 171,479 171,668 171,077
Huntington Beach 195,409 193,405 193,178 192,787 191,498 Irvine 308,949 311,307 315,545 317,652 317,744
Laguna Beach 22,662 22,447 22,555 22,549 22,440
Laguna Hills 30,950 30,645 30,641 30,547 30,275
Laguna Niguel 64,787 64,111 64,743 65,167 64,590
Laguna Woods 17,443 17,249 17,210 17,132 16,970
La Habra 61,926 61,392 61,500 61,524 61,269
Lake Forest 86,807 86,864 87,835 88,017 87,522
La Palma 15,383 15,232 15,235 15,184 15,045
Los Alamitos 11,856 12,029 12,056 12,030 11,951
Mission Viejo 92,116 91,249 91,484 91,219 90,401
Newport Beach 83,922 83,240 83,293 83,041 82,306
Orange 139,652 140,093 140,381 141,825 141,063
Placentia 51,237 52,500 52,761 53,723 53,613
Rancho Santa Margarita 47,311 46,829 46,820 46,657 46,217 San Clemente 63,414 62,888 63,285 63,133 62,636
San Juan Capistrano 34,821 34,857 35,370 35,491 35,331
Santa Ana 306,481 306,994 311,025 312,796 312,808
Seal Beach 25,050 24,778 24,787 24,696 24,496
Stanton 39,133 39,027 40,580 40,600 41,415
Tustin 79,569 79,019 79,683 79,650 79,175
Villa Park 5,782 5,751 5,764 5,757 5,741
Westminster 90,588 89,952 90,413 90,625 90,490
Yorba Linda 67,277 66,708 66,801 66,566 66,190
Balance Of County 131,995 130,686 132,173 132,770 132,530 County Total 3,158,984 3,148,606 3,169,815 3,175,509 3,163,696 Source: State Department of Finance estimates (as of January 1).
B-3
Industry and Employment
The unemployment rate in the County was 4.1 percent in June 2026, up from a revised
3.5 percent in May 2026, and below the year-ago estimate of 4.3 percent. This compares with an unadjusted unemployment rate of 5.2 percent for California and 4.4 percent for the nation during the same period.
The table below provides information about employment by industry type for the County for calendar years 2021 through 2025.
ANAHEIM-SANTA ANA-IRVINE MD
(ORANGE COUNTY)
Annual Averages of Civilian Labor Force, Employment and Unemployment and Employment by Industry
Calendar Years 2021 through 2025
(March 2025 Benchmark)
2021 2022 2023 2024 2025
Civilian Labor Force (1) 1,572,800 1,596,300 1,612,200 1,627,500 1,637,100 Employment 1,479,100 1,545,200 1,556,000 1,563,900 1,569,300 Unemployment 93,700 51,200 56,100 63,600 67,800
Unemployment Rate 6.0% 3.2% 3.5% 3.9% 4.1%
Wage and Salary Employment: (2)
Agriculture 2,000 1,700 1,700 1,700 1,700
Mining and Logging 400 300 300 400 300
Construction 102,200 105,300 104,500 105,600 104,000
Manufacturing 149,800 155,400 156,600 154,900 149,800
Wholesale Trade 77,500 79,000 81,100 80,500 78,000
Retail Trade 143,400 145,500 145,800 144,700 143,600
Trans., Warehousing, Utilities 31,100 33,800 35,700 35,600 35,100 Information 24,000 24,300 22,700 22,200 22,500
Financial and Insurance 78,100 72,200 63,200 62,600 63,300 Professional and Business Services 321,700 331,500 320,100 316,900 317,200 Educational and Health Services 237,300 249,200 262,200 272,600 284,100 Leisure and Hospitality 180,400 217,900 229,800 234,200 236,000 Other Services 47,500 53,100 55,200 56,100 55,600
Federal Government 11,000 10,800 10,700 10,900 10,700
State Government 34,200 33,400 33,500 35,500 35,300
Local Government 110,500 114,000 115,600 116,300 113,100 Total All Industries (3) 1,589,800 1,667,700 1,679,200 1,691,900 1,690,300 (1) Labor force data is by place of residence; includes self-employed individuals, unpaid family workers, household domestic workers, and workers on strike.
(2) Industry employment is by place of work; excludes self-employed individuals, unpaid family workers, household domestic workers, and workers on strike.
(3) Columns may not sum to totals due to rounding.
Source: State of California Employment Development Department.
B-4
Largest Employers
The following tables show the major employers in the County, in alphabetical order without regard to the number of employees. The top employers in the City are set forth in the main body of this Official Statement.
ORANGE COUNTY
Major Employers
(Listed Alphabetically)
Employer Name Location Industry
Abbvie Irvine Pharmaceutical Research Laboratories
American Funds Irvine Services NEC
Anaheim City Hall Anaheim City Hall
B Braun Medical Inc Irvine Physicians & Surgeons Equip & Supls-Mfrs Boeing Co Coml Airlines Spprt Seal Beach Call Centers
Broadcom Corp Irvine Semiconductors & Related Devices (mfrs) California State Univ Fllrtn Fullerton Schools-Universities & Colleges Academic CHOC Children's Orange Hospitals
Coast Community College Dist Costa Mesa Junior-Community College-Tech Institutes Edwards Lifesciences Corp Irvine Orthopedic Prosthetic/Srgcl Appl (mfrs) Emplicity Irvine Business Services NEC
Fairview Developmental Ctr Costa Mesa Hospitals
James R Glidewell Dental Crmcs Irvine Dentists
Jefferson School of Philosophy Laguna Hills Books School & Textbooks Largo Concrete Tustin Concrete Contractors
Menzies Aviation Costa Mesa Airline Support Services
Orange County Register Anaheim Newspapers (publishers/Mfrs) Pacifi Care Health Systems LLC Cypress Insurance
Providence Mission Hosp Msn Vj Mission Viejo Hospitals
Providence St Joseph Hosp Orng Orange Hospitals
Pylusd Schools Placentia Schools
Quest Diagnostics San Juan
Cpstrno
Laboratories-Medical
Universal Protection Svc Santa Ana Armored Car Service
University of Ca-Irvine Irvine Schools-Universities & Colleges Academic University-Ca Irvine Anteater Irvine Stadiums Arenas & Athletic Fields Source: State of California Employment Development Department, extracted from The America's Labor Market Information System (ALMIS) Employer Database, 2026 2nd Edition.
B-5
Effective Buying Income
“Effective Buying Income” is defined as personal income less personal tax and nontax payments, a number often referred to as “disposable” or “after-tax” income. Personal income is the aggregate of wages and salaries, other labor-related income (such as employer contributions to private pension funds), proprietor’s income, rental income (which includes imputed rental income of owner-occupants of non-farm dwellings), dividends paid by corporations, interest income from all sources, and transfer payments (such as pensions and welfare assistance).
Deducted from this total are personal taxes (federal, state and local), nontax payments (fines, fees, penalties, etc.) and personal contributions to social insurance. According to U.S. government definitions, the resultant figure is commonly known as “disposable personal income.” The following table summarizes the total effective buying income for the City, the County, the State, and the United States for the period 2022 through 2026.
CITY OF COSTA MESA, ORANGE COUNTY,
STATE OF CALIFORNIA AND UNITED STATES
EFFECTIVE BUYING INCOME
As of January 1, 2022 through 2026
Year Area
Total Effective
Buying Income
(000’s Omitted)
Median Household
Effective
Buying Income
2022 City of Costa Mesa $4,611,648 $83,794
Orange County 126,634,581 87,821
California 1,452,426,153 77,058
United States 11,208,582,541 64,448
2023 City of Costa Mesa $4,835,855 $85,509
Orange County 130,684,331 88,523
California 1,461,799,662 77,175
United States 11,454,846,397 65,326
2024 City of Costa Mesa $4,991,243 $89,710
Orange County 135,368,782 91,981
California 1,510,708,521 80,973
United States 11,987,185,826 67,876
2025 City of Costa Mesa $5,254,077 $92,450
Orange County 141,127,397 94,638
California 1,557,429,767 82,725
United States 12,525,577,707 69,687
2026 City of Costa Mesa $5,835,348 $100,926
Orange County 154,312,664 101,975
California 1,730,654,738 90,403
United States 13,932,177,817 75,433
Source: Claritas, LLC.
B-6
Commercial Activity
A summary of historic taxable sales within the City and the County during the past five years in which data is available is shown in the following tables.
Total taxable sales during calendar year 2025 in the City were reported to be $6,534,909,045, a 2.19% increase over the total taxable sales of $6,395,035,128 reported during calendar year 2024.
CITY OF COSTA MESA
Taxable Retail Sales
Number of Permits and Valuation of Taxable Transactions Calendar Years 2021 through 2025 (Dollars in Thousands) Retail Stores Total All Outlets
Number
of Permits
Taxable
Transactions
Number
of Permits
Taxable
Transactions
2021 6,496 $5,075,537 10,205 $5,963,454
2022 6,510 5,607,844 10,161 6,656,445
2023 6,162 5,588,037 9,741 6,663,120
2024 6,116 5,363,271 9,699 6,395,035
2025 6,018 5,459,683 9,689 6,534,909
Source: State Department of Tax and Fee Administration.
Total taxable sales during calendar year 2025 in the County were reported to be $87,002,787,988, a 0.77% increase over the total taxable sales of $86,337,412,602 that was reported during calendar year 2024.
ORANGE COUNTY
Taxable Retail Sales
Number of Permits and Valuation of Taxable Transactions Calendar Years 2021 through 2025 (Dollars in Thousands) Retail Stores Total All Outlets
Numbers
of Permits
Taxable
Transactions
Number
of Permits
Taxable
Transactions
2021 67,060 $53,650,590 118,779 $78,253,936
2022 67,272 58,099,122 119,697 88,027,071
2023 65,013 57,322,394 116,309 87,298,417
2024 65,391 56,820,318 117,426 86,337,413
2025 65,211 57,366,280 118,278 87,002,788
Source: State Department of Tax and Fee Administration.
APPENDIX C
SUMMARY OF CERTAIN PROVISIONS OF
PRINCIPAL LEGAL DOCUMENTS
APPENDIX D
FORM OF CONTINUING DISCLOSURE CERTIFICATE
$__________________
COSTA MESA FINANCING AUTHORITY
2026 Lease Revenue Bonds
This Continuing Disclosure Certificate (this “Disclosure Certificate”) is executed and delivered by the City of Costa Mesa (the “City”) in connection with the issuance by the Authority of the bonds captioned above (the “Bonds”). The Bonds are being issued under an Indenture of Trust dated as of November 1, 2026 (the “Indenture”), by and between the Authority and U.S.
Bank Trust Company, National Association, as trustee (the “Trustee”). The City hereby covenants and agrees as follows:
Section 1. Purpose of the Disclosure Certificate. This Disclosure Certificate is being executed and delivered by the City for the benefit of the holders and beneficial owners of the Bonds and in order to assist the Participating Underwriter in complying with S.E.C. Rule 15c2- 12(b)(5), as amended.
Section 2. Definitions. In addition to the definitions set forth above and in the Indenture, which apply to any capitalized term used in this Disclosure Certificate unless otherwise defined in this Section, the following capitalized terms shall have the following meanings:
“Annual Report” means any Annual Report provided by the City pursuant to, and as described in, Sections 3 and 4 of this Disclosure Certificate. “Annual Report Date” means nine months after the end of the City’s fiscal year, which is March 31 based on the City’s current fiscal year-end of June 30. “Dissemination Agent” means Fieldman, Rolapp & Associates, Inc., or any successor Dissemination Agent designated in writing by the City and which has filed with the City a written acceptance of such designation.
“Listed Events” means any of the events listed in Section 5(a) of this Disclosure Certificate. “MSRB” means the Municipal Securities Rulemaking Board, which has been designated by the Securities and Exchange Commission as the sole repository of disclosure information for purposes of the Rule, or any other repository of disclosure information that may be designated by the Securities and Exchange Commission as such for purposes of the Rule in the future. “Official Statement” means the final official statement, executed by the City and the Authority in connection with the issuance of the Bonds. “Participating Underwriter” means Stifel, Nicolaus & Company, Incorporated, the original underwriter of the Bonds required to comply with the Rule in connection with offering of the Bonds. “Rule” means Rule 15c2-12 adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time.
D-2
Section 3. Provision of Annual Reports.
(a) The City shall, or shall cause the Dissemination Agent to, not later than the Annual Report Date, commencing March 31, 2027, with the report for Fiscal Year 2025-26, provide to the MSRB, in an electronic format as prescribed by the MSRB, an Annual Report that is consistent with the requirements of Section 4 of this Disclosure Certificate. Not later than 15 Business Days prior to the Annual Report Date, the City shall provide the Annual Report to the Dissemination Agent (if other than the City). If by 15 Business Days prior to the Annual Report Date the Dissemination Agent (if other than the City) has not received a copy of the Annual Report, the Dissemination Agent shall contact the City to determine if the City is in compliance with the previous sentence. The Annual Report may be submitted as a single document or as separate documents comprising a package, and may include by reference other information as provided in Section 4 of this Disclosure Certificate; provided that the audited financial statements of the City may be submitted separately from the balance of the Annual Report, and later than the Annual Report Date, if not available by that date. If the City’s Fiscal Year changes, it shall give notice of such change in the same manner as for a Listed Event under Section 5(b). The City shall provide a written certificate with each Annual Report furnished to the Dissemination Agent to the effect that such Annual Report constitutes the Annual Report required to be furnished by the City hereunder.
(b) If the City does not provide (or cause the Dissemination Agent to provide) an Annual Report by the Annual Report Date, the City shall provide (or cause the Dissemination Agent to provide) in a timely manner to the MSRB, in an electronic format as prescribed by the MSRB, a notice to such effect.
(c) With respect to each Annual Report, the Dissemination Agent shall:
(i) determine each year prior to the Annual Report Date the then-applicable rules and electronic format prescribed by the MSRB for the filing of annual continuing disclosure reports; and
(ii) if the Dissemination Agent is other than the City, file a report with the City certifying that the Annual Report has been provided pursuant to this Disclosure Certificate, and stating the date it was provided.
Section 4. Content of Annual Reports. The City’s Annual Report shall contain or incorporate by reference the following:
(a) Audited Financial Statements of the City prepared in accordance with Generally Accepted Accounting Principles as promulgated to apply to governmental entities from time to time by the Governmental Accounting Standards Board. If the City’s audited financial statements are not available by the Annual Report Date, the Annual Report shall contain unaudited financial statements in a format similar to the financial statements contained in the final Official Statement, and the audited financial statements shall be filed in the same manner as the Annual Report when they become available. (b) To the extent not contained in the audited financial statements filed pursuant to the preceding clause (a), the Annual Report shall contain information showing:
(i) the principal amount of Bonds outstanding and the balance in each fund under the Indenture, as of June 30 preceding the Annual Report; and D-3
(ii) Information of the type contained in the following tables of the Official Statement, updated for the most recently completed fiscal year: :
(1) Table 2 – General Fund Statement of Revenues,
Expenditures and Changes in Fund Balance;
(2) Table 3 – General Fund Balance Sheets;
(3) Table 4 City of Costa Mesa Taxable Revenues By Source, Governmental Funds;
(4) Table 6 – Assessed Valuation History; and
(5) Table 8 – Ten Largest Taxpayers
(c) In addition to any of the information expressly required to be provided under this Disclosure Certificate, the City shall provide such further material information, if any, as may be necessary to make the specifically required statements, in the light of the circumstances under which they are made, not misleading.
(d) Any or all of the items listed above may be included by specific reference to other documents, including official statements of debt issues of the City or related public entities, which are available to the public on the MSRB’s Internet web site or filed with the Securities and Exchange Commission. The City shall clearly identify each such other document so included by reference.
Section 5. Reporting of Significant Events.
(a) The City shall give, or cause to be given, notice of the occurrence of any of the following Listed Events with respect to the Bonds:
(1) Principal and interest payment delinquencies.
(2) Non-payment related defaults, if material.
(3) Unscheduled draws on debt service reserves reflecting financial difficulties. (4) Unscheduled draws on credit enhancements reflecting financial difficulties. (5) Substitution of credit or liquidity providers, or their failure to perform. (6) Adverse tax opinions, the issuance by the Internal Revenue Service of proposed or final determinations of taxability, Notices of Proposed Issue (IRS Form 5701- TEB) or other material notices or determinations with respect to the tax status of the security, or other material events affecting the tax status of the security. (7) Modifications to rights of security holders, if material. (8) Bond calls, if material, and tender offers.
(9) Defeasances.
(10) Release, substitution, or sale of property securing repayment of the securities, if material.
(11) Rating changes.
(12) Bankruptcy, insolvency, receivership or similar event of the City or other obligated person.
(13) The consummation of a merger, consolidation, or acquisition involving the City or an obligated person, or the sale of all or substantially all of the assets of the City D-4
or an obligated person (other than in the ordinary course of business), the entry into a definitive agreement to undertake such an action, or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms, if material.
(14) Appointment of a successor or additional trustee or the change of name of a trustee, if material.
(15) Incurrence of a financial obligation of the City or other obligated person, if material, or agreement to covenants, events of default, remedies, priority rights, or other similar terms of a financial obligation of the City or other obligated person, any of which affect security holders, if material (for definition of “financial obligation,” see clause (e)).
(16) Default, event of acceleration, termination event, modification of terms, or other similar events under the terms of a financial obligation of the City or other obligated person, any of which reflect financial difficulties (for the definition of “financial obligation,” see subsection (e) of this Section 5 below). (b) The City shall, or shall cause the Dissemination Agent (if not the City) to, file a notice of such occurrence with the MSRB, in an electronic format as prescribed by the MSRB, in a timely manner not in excess of 10 business days after the occurrence of the Listed Event.
Notwithstanding the foregoing, notice of Listed Events described in subsection (a)(8) above need not be given under this subsection any earlier than the notice (if any) of the underlying event is given to holders of affected Bonds under the Indenture. (c) The City acknowledges that the events described in subparagraphs (a)(2), (a)(7), (a)(8) (if the event is a bond call), (a)(10), (a)(13), (a)(14), and (a)(15) of this Section 5 contain the qualifier “if material” and that subparagraph (a)(6) also contains the qualifier “material” with respect to certain notices, determinations or other events affecting the tax status of the Bonds.
The City shall cause a notice to be filed as set forth in paragraph (b) above with respect to any such event only to the extent that it determines the event’s occurrence is material for purposes of U.S. federal securities law. Upon the occurrence of any of these Listed Events, the City will as soon as possible determine if such event would be material under applicable federal securities law. If such event is determined to be material, the City will cause a notice to be filed as set forth in paragraph (b) above.
(d) For purposes of this Disclosure Certificate, any event described in paragraph (a)(12) above is considered to occur when any of the following occur: the appointment of a receiver, fiscal agent, or similar officer for the City or other obligated person in a proceeding under the United States Bankruptcy Code or in any other proceeding under state or federal law in which a court or governmental authority has assumed jurisdiction over substantially all of the assets or business of the City or other obligated person, or if such jurisdiction has been assumed by leaving the existing governing body and officials or officers in possession but subject to the supervision and orders of a court or governmental authority, or the entry of an order confirming a plan of reorganization, arrangement, or liquidation by a court or governmental authority having supervision or jurisdiction over substantially all of the assets or business of the City or other obligated person.
(e) For purposes of Section 5(a)(15) and (16), “financial obligation” means (i) a debt obligation; (ii) a derivative instrument entered into in connection with, or pledged as security or a source of payment for, an existing or planned debt obligation; or (iii) a guarantee of an obligation described in clause (i) or (ii). The term financial obligation shall not include municipal securities D-5
as to which a final official statement has been provided to the Municipal Securities Rulemaking Board consistent with the Rule.
Section 6. Identifying Information for Filings with the MSRB. All documents provided to the MSRB under the Disclosure Certificate shall be accompanied by identifying information as prescribed by the MSRB.
Section 7. Termination of Reporting Obligation. The City’s obligations under this Disclosure Certificate shall terminate upon the legal defeasance, prior redemption or payment in full of all of the Bonds. If such termination occurs prior to the final maturity of the Bonds, the City shall give notice of such termination in the same manner as for a Listed Event under Section 5(b).
Section 8. Dissemination Agent. The City may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Certificate, and may discharge any such Agent, with or without appointing a successor Dissemination Agent.
Any Dissemination Agent may resign by providing 30 days’ written notice to the City.
Section 9. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Certificate, the City may amend this Disclosure Certificate, and any provision of this Disclosure Certificate may be waived, provided that the following conditions are satisfied:
(a) if the amendment or waiver relates to the provisions of Sections 3(a), 4 or 5(a), it may only be made in connection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, nature, or status of an obligated person with respect to the Bonds, or type of business conducted; (b) the undertakings herein, as proposed to be amended or waived, would, in the opinion of nationally recognized bond counsel, have complied with the requirements of the Rule at the time of the primary offering of the Bonds, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and (c) the proposed amendment or waiver either (i) is approved by holders of the Bonds in the manner provided in the Indenture for amendments to the Indenture with the consent of holders, or (ii) does not, in the opinion of nationally recognized bond counsel, materially impair the interests of the holders or beneficial owners of the Bonds.
If the annual financial information or operating data to be provided in the Annual Report is amended pursuant to the provisions hereof, the first annual financial information filed pursuant hereto containing the amended operating data or financial information shall explain, in narrative form, the reasons for the amendment and the impact of the change in the type of operating data or financial information being provided.
If an amendment is made to the undertaking specifying the accounting principles to be followed in preparing financial statements, the annual financial information for the year in which the change is made shall present a comparison between the financial statements or information prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles. The comparison shall include a qualitative discussion of the differences in the accounting principles and the impact of the change in the accounting principles on the presentation of the financial information, in order to provide information to investors to enable them to evaluate the ability of the City to meet its obligations. To the extent reasonably feasible, the comparison shall be quantitative.
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A notice of any amendment made pursuant to this Section 9 shall be filed in the same manner as for a Listed Event under Section 5(b).
Section 10. Additional Information. Nothing in this Disclosure Certificate shall be deemed to prevent the City from disseminating any other information, using the means of dissemination set forth in this Disclosure Certificate or any other means of communication, or including any other information in any Annual Report or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Certificate. If the City chooses to include any information in any Annual Report or notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Certificate, the City shall have no obligation under this Disclosure Certificate to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event.
Section 11. Default. In the event of a failure of the City to comply with any provision of this Disclosure Certificate, the Participating Underwriter or any holder or beneficial owner of the Bonds may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the City to comply with its obligations under this Disclosure Certificate. A default under this Disclosure Certificate shall not be deemed an Event of Default under the Indenture, and the sole remedy under this Disclosure Certificate in the event of any failure of the City to comply with this Disclosure Certificate shall be an action to compel performance.
Section 12. Duties, Immunities and Liabilities of Dissemination Agent. (a) The Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Certificate, and the City agrees to indemnify and save the Dissemination Agent, its officers, directors, employees and agents, harmless against any loss, expense and liabilities which it may incur arising out of or in the exercise or performance of its powers and duties hereunder, including the costs and expenses (including attorneys’ fees) of defending against any claim of liability, but excluding liabilities due to the Dissemination Agent’s negligence or willful misconduct. The Dissemination Agent shall have no duty or obligation to review any information provided to it hereunder and shall not be deemed to be acting in any fiduciary capacity for the City, the Bond owners or any other party. The obligations of the City under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Bonds. (b) The Dissemination Agent shall be paid compensation by the City for its services provided hereunder in accordance with its schedule of fees as amended from time to time, and shall be reimbursed for all expenses, legal fees and advances made or incurred by the Dissemination Agent in the performance of its duties hereunder.
Section 13. Beneficiaries. This Disclosure Certificate shall inure solely to the benefit of the City, the Dissemination Agent, the Participating Underwriter and holders and beneficial owners from time to time of the Bonds, and shall create no rights in any other person or entity.
Section 14. Counterparts. This Disclosure Certificate may be executed in several counterparts, each of which shall be regarded as an original, and all of which shall constitute one and the same instrument.
Section 15. Governing Law. This Disclosure Certificate shall be governed by the laws of the state of California.
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Date: ________________, 2026
CITY OF COSTA MESA
By
Name:_____________
Title:_____________
ACCEPTED AND AGREED:
Fieldman Rolapp & Associates, Inc.,
As Dissemination Agent
By
Authorized Representative
APPENDIX E
FORM OF OPINION OF BOND COUNSEL
[Closing Date]
Board of Directors
Costa Mesa Financing Authority
77 Fair Drive
Costa Mesa, California 92626
OPINION: $____________Costa Mesa Financing Authority
2026 Lease Revenue Bonds
Ladies and Gentlemen:
We have acted as bond counsel to the Costa Mesa Financing Authority (the “Authority”) in connection with the issuance by the Authority of the above-referenced bonds (the “Bonds”). In such capacity, we have examined such law and such certified proceedings, certifications, and other documents as we have deemed necessary to render this opinion.
The Bonds are issued pursuant to (i) Article 4 of Chapter 5, Division 7, Title 1 of the Government Code of the State of California, commencing with Section 6584 of said Code (the “Bond Law”), and (ii) the Indenture of Trust (the “Indenture”), dated as of November 1, 2026, by and between the Authority and U.S. Bank Trust Company, National Association, as trustee (the “Trustee”), which were approved by a resolution adopted by the Board of Directors of the Authority on October 20, 2026 (the “Authority Resolution”). Under the Indenture, the Authority has pledged certain revenues (the “Revenues”) for the payment of principal and interest on the Bonds when due, including primarily lease payments to be made by the City of Costa Mesa (the “City”) pursuant to the Lease Agreement, dated as of November 1, 2026, between the City and the Authority (the “Lease”), which was approved by a resolution adopted by the City Council of the City on October 20, 2026 (the “City Resolution”).
Regarding questions of fact material to our opinion, we have relied on representations of the Authority contained in the Indenture and the City contained in the Lease, and in the certified proceedings and other certifications of public officials furnished to us, without undertaking to verify the same by independent investigation.
Based on the foregoing, we are of the opinion that, under existing law:
1. The Authority is a duly created and validly existing joint exercise of powers authority with the power to adopt the Authority Resolution, to enter into the Indenture, and to perform the agreements on its part contained therein, and to issue the Bonds.
2. The City is a general law city and municipal corporation duly organized and existing under the Constitution and laws of the State of California, with the power to adopt the City Resolution, to enter into the Lease, and to perform the agreements on its part contained therein.
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3. The Indenture has been duly authorized, executed and delivered by the Authority, and constitutes a valid and binding obligation of the Authority, enforceable against the Authority.
4. The Lease has been duly authorized, executed and delivered by the Authority and the City, and constitutes a valid and binding obligation of the Authority and the City, enforceable against the Authority and the City.
5. The Indenture creates a valid lien on the Revenues and other funds pledged by the Indenture for the security of the Bonds.
6. The Bonds have been duly authorized and executed by the Authority, and are valid and binding limited obligations of the Authority, payable solely from the Revenues and other funds provided therefor in the Indenture.
7. The interest on the Bonds is excluded from gross income for federal income tax purposes and is not an item of tax preference for purposes of the federal alternative minimum tax.
The opinions set forth in the preceding sentence are subject to the condition that the Authority and the City comply with all requirements of the Internal Revenue Code of 1986, as amended, relating to the exclusion from gross income for federal income tax purposes of interest on obligations such as the Bonds. The Authority and the City have made certain representations and covenants in order to comply with each such requirement. Inaccuracy of those representations, or failure to comply with certain of those covenants, may cause the inclusion of such interest in gross income for federal income tax purposes, which may be retroactive to the date of issuance of the Bonds.
8. Interest on the Bonds is exempt from personal income taxation imposed by the State of California.
We express no opinion regarding any other tax consequences arising with respect to the ownership, sale or disposition of, or the amount, accrual or receipt of interest on, the Bonds.
The rights of the owners of the Bonds and the enforceability of the Bonds, the Indenture, the Lease and the Site Lease are limited by bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors' rights generally, and by equitable principles, whether considered at law or in equity.
This opinion is given as of the date hereof, and we assume no obligation to revise or supplement this opinion to reflect any facts or circumstances that may hereafter come to our attention, or any changes in law that may hereafter occur. Moreover, our opinions are not a guarantee of a particular result, and are not binding on the Internal Revenue Service or any court; rather, our opinions represent our legal judgment based upon our review of existing law that we deem relevant to such opinions, and any assumptions expressed herein, and in reliance upon the representations, and covenants referenced above. Our engagement with respect to this matter has terminated as of the date hereof.
Respectfully submitted,
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APPENDIX F
DTC AND THE BOOK-ENTRY ONLY SYSTEM
The following description of the Depository Trust Company (“DTC”), the procedures and record keeping with respect to beneficial ownership interests in the Bonds, payment of principal, interest and other payments on the Bonds to DTC Participants or Beneficial Owners, confirmation and transfer of beneficial ownership interest in the Bonds and other related transactions by and between DTC, the DTC Participants and the Beneficial Owners is based solely on information provided by DTC. Accordingly, no representations can be made concerning these matters and neither the DTC Participants nor the Beneficial Owners should rely on the foregoing information with respect to such matters, but should instead confirm the same with DTC or the DTC Participants, as the case may be.
Neither the issuer of the Bonds (the “Issuer”) nor the trustee appointed with respect to the Bonds (the “Agent”) take any responsibility for the information contained in this Appendix.
No assurances can be given that DTC, DTC Participants or Indirect Participants will distribute to the Beneficial Owners (a) payments of interest, principal or premium, if any, with respect to the Bonds, (b) certificates representing ownership interest in or other confirmation or ownership interest in the Bonds, or (c) redemption or other notices sent to DTC or Cede & Co., its nominee, as the registered owner of the Bonds, or that they will so do on a timely basis, or that DTC, DTC Participants or DTC Indirect Participants will act in the manner described in this Appendix. The current “Rules” applicable to DTC are on file with the Securities and Exchange Commission and the current “Procedures” of DTC to be followed in dealing with DTC Participants are on file with DTC.
1. The Depository Trust Company (“DTC”) will act as securities depository for the Bonds.
The Bonds will be issued as fully-registered securities registered in the name of Cede & Co. (DTC’s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered Security certificate will be issued for each issue of the Bonds, each in the aggregate principal amount of such issue, and will be deposited with DTC. If, however, the aggregate principal amount of any issue exceeds $500 million, one certificate will be issued with respect to each $500 million of principal amount, and an additional certificate will be issued with respect to any remaining principal amount of such issue.
2. DTC, the world’s largest securities depository, is a limited-purpose trust company organized under the New York Banking Law, a “banking organization” within the meaning of the New York Banking Law, a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code, and a “clearing agency” registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC’s participants (“Direct Participants”) deposit with DTC. DTC also facilitates the 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 F-2
Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly (“Indirect Participants”). DTC has a Standard & Poor’s 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 contained on this Internet site is not incorporated herein by reference.
3. Purchases of Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Bonds on DTC’s records. The ownership interest of each actual purchaser of each Security (“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 Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners.
Beneficial Owners will not receive certificates representing their ownership interests in Bonds, except in the event that use of the book-entry system for the Bonds is discontinued.
4. To facilitate subsequent transfers, all Bonds deposited by Direct Participants with DTC are registered in the name of DTC’s partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Bonds; DTC’s records reflect only the identity of the Direct Participants to whose accounts such Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers.
5. 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 Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Bonds, such as redemptions, tenders, defaults, and proposed amendments to the Security documents. For example, Beneficial Owners of Bonds may wish to ascertain that the nominee holding the 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.
6. Redemption notices shall be sent to DTC. If less than all of the Bonds within an issue are being redeemed, DTC’s practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed.
7. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to Bonds unless authorized by a Direct Participant in accordance with DTC’s Procedures.
Under its usual procedures, DTC mails an Omnibus Proxy to Issuer as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.’s consenting or voting rights to those Direct Participants to whose accounts Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy).
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8. Redemption proceeds, distributions, and dividend payments on the Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC’s practice is to credit Direct Participants’ accounts upon DTC’s receipt of funds and corresponding detail information from Issuer or Agent, 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, Agent, or Issuer, 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 Issuer or Agent, 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.
9. DTC may discontinue providing its services as depository with respect to the Bonds at any time by giving reasonable notice to Issuer or Agent. Under such circumstances, in the event that a successor depository is not obtained, Security certificates are required to be printed and delivered.
10. Issuer may decide to discontinue use of the system of book-entry-only transfers through DTC (or a successor securities depository). In that event, Security certificates will be printed and delivered to DTC.
11. The information in this section concerning DTC and DTC’s book-entry system has been obtained from sources that Issuer believes to be reliable, but Issuer takes no responsibility for the accuracy thereof.