Desert Hot Springs City Council
December 5, 2023

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Redemption Dates Redemption Prices
%
The Term Bonds maturing on September 1, 20__, shall be called before maturity and redeemed from the sinking fund payments on September 1, 20__, and on each September 1 thereafter prior to maturity, in accordance with the schedule of sinking fund payments set forth in the First Supplement. The Term Bonds so called for redemption shall be selected by the Fiscal Agent by lot and shall be redeemed at a redemption price for each redeemed Term Bond equal to the principal amount thereof, plus accrued interest to the redemption date, without premium.

The 2023 Bonds are subject to redemption as a whole, or in part on a pro rata basis among maturities, on any Interest Payment Date on and after March 1, 2024 from the proceeds of the prepayment of the Special Taxes deposited in the Prepayment Account pursuant to the Fiscal Agent Agreement and amounts transferred from the 2023 Reserve Account in connection with such Prepayment. Such extraordinary mandatory redemption of the 2023 Bonds shall be at the following redemption prices (expressed as percentages of the principal amount of the 2023 Bonds to be redeemed), together with accrued interest thereon to the date of redemption:

Redemption Dates Redemption Prices
%
Notice of redemption with respect to the 2023 Bonds to be redeemed shall be mailed to the registered owners thereof not less than 30 nor more than 45 days prior to the redemption date by first class mail, postage prepaid, to the addresses set forth in the registration books. Neither a failure of the Registered Owner hereof to receive such notice nor any defect therein will affect the validity of the proceedings for redemption. All 2023 Bonds or portions thereof so called for redemption will cease to accrue interest on the specified redemption date; provided that funds for the redemption are on deposit with the Fiscal Agent on the redemption date. Thereafter, the registered owners of such 2023 Bonds shall have no rights except to receive payment of the redemption price upon the surrender of the 2023 Bonds.

This Bond shall be registered in the name of the Registered Owner hereof, as to both principal and interest, and the City and the Fiscal Agent may treat the Registered Owner hereof as the absolute owner for all purposes and shall not be affected by any notice to the contrary.

The 2023 Bonds are issuable only in fully registered form in the denomination of $5,000 or any integral multiple thereof and may be exchanged for a like aggregate principal amount of 2023 Bonds of other authorized denominations of the same issue and maturity, all as more fully set forth in the Fiscal Agent Agreement. This Bond is transferable by the Registered Owner hereof, in person or by his attorney duly authorized in writing, at the Principal Office of the Fiscal Agent, but only in the manner, subject to the limitations and upon payment of the charges provided in the Fiscal Agent Agreement, upon surrender and cancellation of this Bond. Upon such transfer, a new registered Item Number: 5.

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Bond of authorized denomination or denominations for the same aggregate principal amount of the same issue and maturity will be issued to the transferee in exchange therefor.

The Fiscal Agent shall not be required to register transfers or make exchanges of (i) any 2023 Bonds for a period of 15 days next preceding any selection of the 2023 Bonds to be redeemed, or (ii) any 2023 Bonds chosen for redemption.

The rights and obligations of the City and of the registered owners of the 2023 Bonds may be amended at any time, and in certain cases without notice to or the consent of the registered owners, to the extent and upon the terms provided in the Fiscal Agent Agreement.

THE 2023 BONDS DO NOT CONSTITUTE OBLIGATIONS OF CITY OF DESERT HOT

SPRINGS OR OF THE DISTRICT FOR WHICH CITY OF DESERT HOT SPRINGS OR THE

DISTRICT IS OBLIGATED TO LEVY OR PLEDGE, OR HAS LEVIED OR PLEDGED, GENERAL OR NET TAXES, OTHER THAN THE NET TAXES REFERENCED HEREIN. THE 2023 BONDS ARE LIMITED OBLIGATIONS OF THE CITY PAYABLE FROM THE PORTION

OF THE SPECIAL TAXES AND OTHER AMOUNTS PLEDGED UNDER THE FISCAL AGENT

AGREEMENT BUT ARE NOT A DEBT OF CITY OF DESERT HOT SPRINGS, THE STATE OF

CALIFORNIA OR ANY OF ITS POLITICAL SUBDIVISIONS WITHIN THE MEANING OF ANY CONSTITUTIONAL OR STATUTORY LIMITATION OR RESTRICTION.

This Bond shall not become valid or obligatory for any purpose until the certificate of authentication and registration hereon endorsed shall have been dated and signed by the Fiscal Agent.

IT IS HEREBY CERTIFIED, RECITED AND DECLARED that all acts, conditions and things required by law to exist, happen and be performed precedent to and in the issuance of this Bond do exist, have happened and have been performed in due time, form and manner as required by law, and that the amount of this Bond, together with all other indebtedness of the City of the District, does not exceed any debt limit prescribed by the laws or Constitution of the State of California.

Item Number: 5.

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IN WITNESS WHEREOF, the City of Desert Hot Springs has caused this Bond to be dated as of December __, 2023, to be signed on behalf of the District by the Mayor of the City of Desert Hot Springs by his facsimile signature and attested by the facsimile signature of the City Clerk of the City of Desert Hot Springs hereon.

Mayor of the City of Desert Hot Springs
ATTEST:

City Clerk of the City of Desert Hot Springs
[FORM OF FISCAL AGENT’S CERTIFICATE
OF AUTHENTICATION AND REGISTRATION]
This is one of the Bonds described in the within-defined Fiscal Agent Agreement.

Dated: December __, 2023

WILMINGTON TRUST, NATIONAL
ASSOCIATION, as Fiscal Agent
By:

Authorized Officer
Item Number: 5.

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[FORM OF LEGAL OPINION]
The following is a true copy of the opinion rendered by Stradling Yocca Carlson & Rauth, a Professional Corporation, in connection with the issuance of, and dated as of the date of the original delivery of, the Bonds. A signed copy is on file in my office.

City Clerk of the City of Desert Hot Springs
[FORM OF ASSIGNMENT]
For value received the undersigned do(es) hereby sell, assign and transfer unto whose tax identification number is ,
the within-mentioned registered Bond and hereby irrevocably constitute(s) and appoint(s) attorney to transfer the same on the books of the Fiscal Agent with full power of substitution in the premises.

Dated:

Signature guaranteed:

NOTE: Signature(s) must be guaranteed by an
eligible guarantor institution.

NOTE: The signatures(s) on this Assignment
must correspond with the name(s) as written on
the face of the within Bond in every particular
without alteration or enlargement or any change
whatsoever.

Item Number: 5.

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4855-6427-4306v2/200812-0002
EXHIBIT B-1

FORM OF REQUISITION FOR DISBURSEMENT OF PROJECT COSTS
$__________

CITY OF DESERT HOT SPRINGS
COMMUNITY FACILITIES DISTRICT NO. 2006-1
IMPROVEMENT AREA 1 SPECIAL TAX BONDS, SERIES 2023
Wilmington Trust, National Association (the “Fiscal Agent”), is hereby requested to pay from the City of Desert Hot Springs Community Facilities District No. 2006-1 Improvement Area 1 Improvement Fund, established by the Fiscal Agent Agreement dated as of February 1, 2020 (the “Original Fiscal Agent Agreement”), as supplemented by the First Supplement to Fiscal Agent Agreement dated as of December 1, 2023 (the “First Supplement” and together with the Original Fiscal Agent Agreement, the “Fiscal Agent Agreement”), each by and between the City and the Fiscal Agent, the amount specified to the payee named below for payment of the Project costs set forth in Attachment No. 1 hereto.

Payee:

Address:

Purpose:

Amount: $
The amount is due and payable under purchase order, contract or other authorization and has not formed the basis of any prior request for payment. The conditions for the release of this amount from the Improvement Fund, including those conditions in Section 3.2 of the First Supplement have been satisfied.

There has not been filed with nor served upon the City notice of any lien, right to lien or attachment upon, or stop notice or claim affecting the right to receive payment of the amount specified above which has not been released or will not be released simultaneously with the payment of such amount, other than materialmen’s or mechanic’s liens accruing by mere operation of law.

Dated: CITY OF DESERT HOT SPRINGS
By:

Name:

Title: _____________________________________
Item Number: 5.

Stradling Yocca Carlson & Rauth
Draft of 11/28/23
1 4860-2062-8101/200812-0002

CONTINUING DISCLOSURE CERTIFICATE
THIS CONTINUING DISCLOSURE CERTIFICATE (this “Disclosure Certificate”), dated as of August 1, 2023, is executed and delivered by City of Desert Hot Springs Community Facilities District No. 2006-1 (the “District”) in connection with the issuance of the City of Desert Hot Springs Community Facilities District No. 2006-1 Improvement Area 1 Special Tax Bonds, Series 2023 (the “Bonds”). The Bonds are being issued pursuant to a Resolution of Issuance adopted by the City Council of the City of Desert Hot Springs (the “City”), acting as the legislative body of the District on November 7, 2023 and a Fiscal Agent Agreement dated as of February 1, 2020 (the “Original Fiscal Agent Agreement”), as supplemented and amended by the First Supplement to Fiscal Agent Agreement, dated as of December 1, 2023 (the “First Supplement” and together with the Original Fiscal Agent Agreement, the “Fiscal Agent Agreement”), each by and between the City and Wilmington Trust, National Association, as fiscal agent.

The District covenants as follows:

SECTION 1. Purpose of the Disclosure Certificate. This Disclosure Certificate is being executed and delivered, for the benefit of the Owners and Beneficial Owners of the Bonds and in order to assist the Participating Underwriter in complying with the Rule.

SECTION 2. Definitions. In addition to the definitions set forth in the Fiscal Agent Agreement and the Rate and Method of Apportionment, 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” shall mean any Annual Report provided by the District pursuant to, and as described in, Sections 3 and 4 of this Disclosure Certificate. “Beneficial Owner” shall mean any person who (a) has the power, directly or indirectly, to vote or consent with respect to, or to dispose of ownership of, any Bond (including a person holding Bond through a nominee, depository or other intermediary), or (b) is treated as the owner of any Bond for federal income purposes.
“Disclosure Representative” shall mean the Administrative Services Director of the City, or such other officer or employee as the District shall designate in writing to the Dissemination Agent from time to time.
“Dissemination Agent” shall mean, initially, Webb Municipal Finance, LLC, or any successor Dissemination Agent designed in writing by the District. “EMMA” shall mean the Electronic Municipal Market Access System of the Municipal Securities Rulemaking Board, which can be found at www.emma.msrb.org, or any other repository of disclosure information that may be designated by the Securities and Exchange Commission in the future.
“Financial Obligation” means a (i) debt obligation; (ii) derivative instrument entered into in connection with, or pledged as security or a source of payment for, an existing or planned debt Item Number: 5.

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obligation; or (iii) guarantee of (i) or (ii). The term financial obligation shall not include municipal securities as to which a final official statement has been provided to the MSRB consistent with the Rule.
“Improvement Area” means Improvement Area 1 of the District. “Listed Events” shall mean any of the events listed in Section 5 of this Disclosure Certificate. “MSRB” shall mean the Municipal Securities Rulemaking Board or any other entity designated or authorized by the Securities and Exchange Commission to receive reports pursuant to the Rule. Until otherwise designated by the MSRB or the Securities and Exchange Commission, filings with the MSRB are to be made through the Electronic Municipal Market Access (EMMA) website of the MSRB, currently located at http://emma.msrb.org. “Official Statement” shall mean the District’s official statement with respect to the Bonds. “Participating Underwriter” shall mean Stifel, Nicolaus & Company, Incorporated. “Rate and Method of Apportionment” means that certain Rate and Method of Apportionment of Special Tax for the Improvement Area approved pursuant to the Resolution of Formation. “Resolution of Formation” means the resolutions adopted by the City Council pursuant to which the City Council formed the District with respect to the District. “Rule” shall mean Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time.

SECTION 3. Provision of Annual Reports.
(a) Not later than March 31 of each year commencing March 31, 2024, the District shall, or shall cause the Dissemination Agent to, provide to EMMA and the Participating Underwriter an Annual Report which is consistent with the requirements of Section 4 of this Disclosure Certificate.

If the Dissemination Agent is other than the District, then not later than 15 business days prior to the date referred to in the prior sentence hereof, the District shall provide the Annual Report (in a form suitable for filing with EMMA) to the Dissemination Agent. 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 District may be submitted separately from and later than the balance of the Annual Report if they are not available by the date required above for the filing of the Annual Report.
(b) In the event that the Dissemination Agent is an entity other than the District, then the provisions of this Section 3(b) shall apply. Not later than fifteen (15) Business Days prior to the date specified in subsection (a) for providing the Annual Report, the District shall provide the Annual Report to the Dissemination Agent. If by fifteen (15) Business Days prior to the due date for an Annual Report the Dissemination Agent has not received a copy of the Annual Report, the Dissemination Agent shall contact the District to determine if the District will be filing the Annual Report in compliance with subsection (a). The District shall provide a written certification with each Annual Report furnished to the Dissemination Agent to the effect that such Annual Report Item Number: 5.

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constitutes the Annual Report required to be furnished by it hereunder. The Dissemination Agent may conclusively rely upon such certification of the District and shall have no duty or obligation to review such Annual Report.
(c) If the Dissemination Agent is other than the District and if the Dissemination Agent is unable to verify that an Annual Report has been provided to EMMA by the date required in subsection (a), the Dissemination Agent shall send a notice in a timely manner to EMMA, in the form required by EMMA. If the District acts as its own Dissemination Agent, it shall file a notice with EMMA no later than the date specified in subsection (a) for filing an Annual Report if the District fails to file the Annual Report by that date.
(d) If the Dissemination Agent is other than the District, the Dissemination Agent shall:
(i) determine each year prior to the date for providing the Annual Report the name and address of the repository if other than the MSRB through EMMA; and (ii) promptly after receipt of the Annual Report, file a report with the District certifying that the Annual Report has been provided to EMMA and the date it was provided. (e) Notwithstanding any other provision of this Disclosure Certificate, all filings shall be made in accordance with the MSRB’s EMMA system or in another manner approved under the Rule.

SECTION 4. Content of Annual Reports. The District’s Annual Report shall contain or include by reference:
(a) Financial Statements. The audited financial statements of the District, if any, for the prior fiscal year, 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 District’s audited financial statements, if any are prepared, are not available by the time the Annual Report is required to be filed pursuant to Section 3, the Annual Report shall contain unaudited financial statements, and the audited financial statements shall be filed in the same manner as the Annual Report when they come available.
(b) Financial and Operating Data. The Annual Report shall contain or incorporate by reference the following information:
(i) the principal amount of Bonds outstanding as of the September 2 preceding the filing of the Annual Report;
(ii) the balance in each fund under the Fiscal Agent Agreement as of the September 2 preceding the filing of the Annual Report;
(iii) the aggregate assessed valuation of the Taxable Property within the Improvement Area;
(iv) any changes to the Rate and Method of Apportionment of the Special Tax approved or submitted to the qualified electors for approval prior to the filing of the Annual Report; Item Number: 5.

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(v) a table setting forth the annual Special Tax delinquency rate within the Improvement Area at June 30 for each fiscal year on which a delinquency exists, listing for each fiscal year the total Special Tax levy, the amount delinquent and the percent delinquent; (vi) the status of any foreclosure actions being pursued by the City with respect to delinquent Special Taxes within the Improvement Area; and (vii) an update of the value-to-lien of the property within the Improvement Area based on the assessed value and the Special Tax levy for then current fiscal year, which update may be provided in a form similar to Table [2] in the Official Statement; provided that such update need not include overlapping special tax, assessment or general obligation indebtedness. (c) Any or all of the items listed in (a) or (b) above may be included by specific reference to other documents, including official statements of debt issues of the District or related public entities, which have been submitted to EMMA or the Securities and Exchange Commission. If the document included by reference is a final official statement, it must be available from the MSRB through EMMA. The District shall clearly identify each such other document so included by reference.

SECTION 5. Reporting of Significant Events.
(a) Pursuant to the provisions of this Section 5, the District shall give, or cause the Dissemination Agent to give, notice to EMMA in a timely manner not in excess of ten (10) business days after the occurrence of any of the following events with respect to the Bonds:

1. principal and interest payment delinquencies;

2. unscheduled draws on debt service reserves reflecting financial difficulties;

3. unscheduled draws on credit enhancements reflecting financial difficulties;

4. substitution of credit or liquidity providers, or their failure to perform;

5. adverse tax opinions or 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 Bonds;

6. defeasances;

7. tender offers;

8. bankruptcy, insolvency, receivership or similar proceedings;

9. ratings changes; and

10. default, event of acceleration, termination event, modification of terms, or other similar events under the terms of a Financial Obligation of the obligated person, any of which reflect financial difficulties.

Item Number: 5.

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(b) Additionally, the District shall give or cause the Dissemination Agent to give notice to EMMA in a timely manner not in excess of ten (10) business days after the occurrence of any of the following events with respect to the Bonds, if material:

1. mergers, consolidations, acquisitions, the sale of all or substantially all of the assets of the obligated persons or their termination;

2. appointment of a successor or additional fiscal agent or the change of the name of a fiscal agent;

3. nonpayment related defaults;

4. modifications to the rights of Bondholders;

5. bond calls;

6. release, substitution or sale of property securing repayment of the Bonds; and

7. incurrence of a Financial Obligation of the obligated person, or agreement to covenants, events of default, remedies, priority rights, or other similar terms of a Financial Obligation of the obligated person, any of which affect security holders.
(c) In the event that the District’s fiscal year changes, the District shall report or shall instruct the Dissemination Agent to report such change in the same manner and to the same parties as Listed Events would be reported pursuant to this Section. (d) The District hereby agrees that the undertaking set forth in this Disclosure Certificate is the responsibility of the District, and the Dissemination Agent, if other than the District, shall not be responsible for determining whether the District’s instructions to the Dissemination Agent under this Section comply with the requirements of the Rule.

SECTION 6. Termination of Reporting Obligation. The obligations of the District and the Dissemination Agent 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 District shall give notice of such termination in the same manner as for a Listed Event under Section 5.

SECTION 7. Dissemination Agent. The District may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under the Disclosure Certificate, and may discharge any such Dissemination Agent, with or without appointing a successor Dissemination Agent. The initial Dissemination Agent shall be Spicer Consulting Group, LLC. The Dissemination Agent may resign by providing (i) thirty days written notice to the District, and (ii) upon appointment of a new Dissemination Agent hereunder.

SECTION 8. Amendment.
(a) This Disclosure Certificate may be amended, by written agreement of the parties, without the consent of the Owners, and any provision of this Disclosure Certificate may be waived, if Item Number: 5.

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all of the following conditions are satisfied: (1) such amendment or waiver is made in connection with a change in circumstances that arises from a change in legal (including regulatory) requirements, a change in law, or a change in the identity, nature or status of the District or the type of business conducted thereby, (2) the undertakings in this Disclosure Certificate as so amended or waived would, in the opinion of a nationally recognized bond counsel, have complied with the requirements of the Rule as of the date of this Disclosure Certificate, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances, and (3) the amendment or waiver either (i) is approved by the Owners of the Bonds in the same manner as provided in the Fiscal Agent Agreement for amendments to the Fiscal Agent Agreement with the consent of Owners or (ii) does not, in the determination of the District, materially impair the interests of the Owners or Beneficial Owners of the Bonds.
(b) To the extent any amendment to this Disclosure Certificate results in a change in the type of financial information or operating data provided pursuant to this Disclosure Certificate, the first Annual Report provided thereafter shall include a narrative explanation of the reasons for the amendment and the impact of the change in the type of operating data or financial information being provided.
(c) If an amendment is made to the basis on which financial statements are prepared, the Annual Report 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. Such comparison shall include a quantitative and, to the extent reasonably feasible, 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.

SECTION 9. Additional Information. Nothing in this Disclosure Certificate shall be deemed to prevent the District 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 District 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 District shall have no obligation under this Agreement to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event.

SECTION 10. Default. In the event of a failure of the District or the Dissemination Agent to comply with any provision of this Disclosure Certificate, any Owner 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 District and/or the Dissemination Agent to comply with their respective obligations under this Disclosure Certificate. A default under this Disclosure Certificate shall not be deemed an Event of Default under the Fiscal Agent Agreement, and the sole remedy under this Disclosure Certificate in the event of any failure of the District or the Dissemination Agent to comply with this Disclosure Certificate shall be an action to compel performance.

SECTION 11. Duties, Immunities and Liabilities of Dissemination Agent. Where an entity other than the District is acting as the Dissemination Agent, the Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Certificate, and the District agrees to Item Number: 5.

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indemnify and save the Dissemination Agent and its officers, directors, employees and agents, harmless against any loss, expense and liabilities which they may incur arising out of or in the exercise or performance of their powers and duties hereunder, including the costs and expenses (including attorney’s fees) of defending against any claim of liability, but excluding liabilities due to the Dissemination Agent’s negligence or willful misconduct. Any Dissemination Agent shall be paid (i) compensation by the District for its services provided hereunder in accordance with a schedule of fees to be mutually agreed to; and (ii) all expenses, legal fees and advances made or incurred by the Dissemination Agent in the performance of its duties hereunder. The Dissemination Agent shall have no duty or obligation to review any information provided to it by the District pursuant to this Disclosure Certificate. The obligations of the District under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Bonds. No person shall have any right to commence any action against the Dissemination Agent seeking any remedy other than to compel specific performance of this Disclosure Certificate. The Dissemination Agent shall not be liable under any circumstances for monetary damages to any person for any breach under this Disclosure Certificate.

SECTION 12. Beneficiaries. This Disclosure Certificate shall inure solely to the benefit of the District, the Dissemination Agent, the Participating Underwriter and Owners and Beneficial Owners from time to time of the Bonds; and it shall create no rights in any other person or entity.

SECTION 13. Merger. Any person succeeding to all or substantially all of the Dissemination Agent’s corporate trust business shall be the successor Dissemination Agent without the filing of any paper or any further act.

This Disclosure Certificate is executed as of the date and year first set forth above.

CITY OF DESERT HOT SPRINGS COMMUNITY
FACILITIES DISTRICT NO. 2006-1
By:

Geoffrey Buchheim
Disclosure Representative
Item Number: 5.

Stradling Yocca Carlson & Rauth
Draft of 11/28/23
4870-1603-0597v5/200812-0002
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 them be accepted, prior to the time the Official Statement is delivered in final form. Under no circumstances shall this Preliminary Official Statement constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of, these securities in any jurisdiction in which such offer, solicitation or sale would be unlawful.

PRELIMINARY OFFICIAL STATEMENT DATED DECEMBER __, 2023
NEW ISSUE—BOOK-ENTRY ONLY NO RATING
In the opinion of Stradling Yocca Carlson & Rauth, a Professional Corporation, Bond Counsel, under existing statutes, regulations, rulings and judicial decisions, and assuming the accuracy of certain representations and compliance with certain covenants and requirements described herein, interest (and original issue discount) on the Bonds described herein is excluded from gross income for federal income tax purposes and is not an item of tax preference for purposes of calculating the federal alternative minimum tax imposed on individuals. In the further opinion of Bond Counsel, interest (and original issue discount) on the Bonds is exempt from State of California personal income tax. See the caption “TAX EXEMPTION” with respect to tax consequences relating to the Bonds, including with respect to the alternative minimum tax imposed on certain large corporations for tax years beginning after December 31, 2022.

Item Number: 5.

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$1,965,000*

CITY OF DESERT HOT SPRINGS
COMMUNITY FACILITIES DISTRICT NO. 2006-1
IMPROVEMENT AREA 1 SPECIAL TAX BONDS, SERIES 2023
Dated: Delivery Date Due: September 1, as shown on inside cover page The City of Desert Hot Springs Community Facilities District No. 2006-1 Improvement Area 1 Special Tax Bonds, Series 2023 (the “Bonds”) are being issued by the City of Desert Hot Springs (the “City”) with respect to Improvement Area 1 (“Improvement Area 1”) of the City of Desert Hot Springs Community Facilities District No. 2006-1 (the “District”) to: (i) finance certain public improvements to be owned by the City; (ii) fund a reserve account for the Bonds; and (iii) pay costs of issuance for the Bonds. Improvement Area 1 is located within the District. The Bonds are authorized to be issued pursuant to the Mello-Roos Community Facilities Act of 1982, as amended (Section 53311 et seq. of the Government Code of the State of California) (the “Act”), and pursuant to that certain Fiscal Agent Agreement dated as of February 1, 2020 (the “Original Fiscal Agent Agreement”), as supplemented and amended by the First Supplement to Fiscal Agent Agreement, dated as of December 1, 2023 (the “First Supplement” and together with the Original Fiscal Agent Agreement, the “Fiscal Agent Agreement”), each by and between the City and Wilmington Trust, National Association, as fiscal agent.

The Bonds are secured by Special Tax Revenues (as defined herein) consisting primarily of a certain annual Special Tax (as defined herein) to be levied on taxable parcels within Improvement Area 1 of the District and from certain other funds pledged under the Fiscal Agent Agreement, all as further described herein. The Special Tax is to be levied according to a rate and method of apportionment approved by the City Council of the City and the qualified electors within Improvement Area 1 of the District. The Bonds are secured by the Special Tax Revenues on a parity with the City of Desert Hot Springs Community Facilities District No. 2006-1 Improvement Area 1 Special Tax Refunding Bonds, Series 2020 (the “2020 Bonds”) outstanding in the principal amount of $1,687,857, which were issued on a private placement basis. Special taxes levied in any other improvement area of the District are not available to pay debt service on the Bonds. See the caption “SOURCES OF PAYMENT FOR THE BONDS — Special Taxes” and Appendix A — “RATE AND METHOD OF APPORTIONMENT.”
The Bonds will be issued in fully registered form and when issued will be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York (“DTC”). Individual purchases of the Bonds may be made in principal amounts of $5,000 and integral multiples thereof and will be in book-entry form only. Purchasers of the Bonds will not receive certificates representing their beneficial ownership of the Bonds but will receive credit balances on the books of their respective nominees. The Bonds will not be transferable or exchangeable except for transfer to another nominee of DTC or as otherwise described herein. Interest on the Bonds will be payable on each March 1 and September 1, commencing March 1, 2024. Principal of and interest on the Bonds will be paid by the Fiscal Agent to DTC for subsequent disbursement to DTC Participants, who will remit such payments to the Beneficial Owners of the Bonds.

NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE CITY, THE COUNTY OF RIVERSIDE, THE STATE OF CALIFORNIA OR ANY POLITICAL SUBDIVISION THEREOF IS PLEDGED TO THE PAYMENT OF THE BONDS.

EXCEPT FOR THE SPECIAL TAX REVENUES, NO OTHER REVENUES OR TAXES ARE PLEDGED TO THE PAYMENT OF THE BONDS. THE BONDS ARE NOT GENERAL OR SPECIAL OBLIGATIONS OF THE CITY OR GENERAL OBLIGATIONS OF THE

CITY BUT ARE LIMITED OBLIGATIONS OF THE CITY PAYABLE SOLELY FROM SPECIAL TAX REVENUES AND OTHER AMOUNTS HELD UNDER THE FISCAL AGENT AGREEMENT AS MORE FULLY DESCRIBED HEREIN.

The Bonds are subject to optional redemption, special mandatory redemption and mandatory sinking fund redemption prior to maturity as set forth herein. See the caption “THE BONDS — Redemption.” Investment in the Bonds involves risks that are not appropriate for certain investors. Certain events could affect the ability of the City to pay the principal of and interest on the Bonds when due. See the caption “SPECIAL RISK FACTORS” for a discussion of certain risk factors that should be considered, in addition to the other matters set forth herein, in evaluating the investment quality of the Bonds.

THIS COVER PAGE CONTAINS CERTAIN INFORMATION FOR GENERAL REFERENCE ONLY. IT IS NOT INTENDED TO BE A SUMMARY OF THE SECURITY OR TERMS OF THIS ISSUE. INVESTORS ARE ADVISED TO READ THE ENTIRE

OFFICIAL STATEMENT TO OBTAIN INFORMATION ESSENTIAL TO THE MAKING OF AN INFORMED INVESTMENT DECISION.

MATURITY SCHEDULE
(See Inside Cover Page)
The Bonds are offered when, as and if issued and accepted by the Underwriter, subject to approval as to their legality by Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California, Bond Counsel, and subject to certain other conditions.

Certain legal matters will be passed on for the City by Stream Kim Hicks Wrage & Alfaro, PC, Riverside, California, City Attorney, and for the City by Stradling Yocca Carlson & Rauth, a Professional Corporation, Disclosure Counsel, for the Underwriter by Kutak Rock LLP, Irvine, California, and for the Fiscal Agent by its counsel. It is anticipated that the Bonds in book-entry form will be available for delivery on or about December 21, 2023.
[STIFEL LOGO]
Dated: December __, 2023.
*
Preliminary, subject to change.

Item Number: 5.

4870-1603-0597v5/200812-0002
$1,965,000*

CITY OF DESERT HOT SPRINGS
COMMUNITY FACILITIES DISTRICT NO. 2006-1
IMPROVEMENT AREA 1 SPECIAL TAX BONDS, SERIES 2023

MATURITY SCHEDULE
BASE CUSIP®† _________
$__________ Serial Bonds
Maturity Date
(September 1)
Principal
Amount Interest Rate Yield Price CUSIP No.†
$_______ ___% Term Bonds due September 1, 20__ Yield: ___% Price: _____ CUSIP No.† ___ $_______ ___% Term Bonds due September 1, 20__ Yield: ___% Price: _____ CUSIP No.† ___ *
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© 2023 CUSIP Global Services. All rights reserved. CUSIP® data herein is provided by CUSIP Global Services. This data is not intended to create a database and does not serve in any way as a substitute for the CGS database. CUSIP® numbers are provided for convenience of reference only.

None of the City, the Underwriter or their agents or counsel assume responsibility for the accuracy of such numbers.

Item Number: 5.

4870-1603-0597v5/200812-0002

CITY OF DESERT HOT SPRINGS

COUNTY OF RIVERSIDE, CALIFORNIA

CITY COUNCIL
Scott Matas, Mayor
Roger Nuñez, Mayor Pro Tem
Russell Betts, Councilmember
Gary Gardner, Councilmember
Jan Pye, Councilmember

CITY ADMINISTRATORS
Frank Luckino, City Manager
Doria Wilms, Deputy City Manager
Daniel Porras, Assistant City Manager
Geoffrey Buchheim, Administrative Services Director
Jerryl Soriano, CMC, City Clerk
Jennifer Mizrahi, City Attorney

BOND AND DISCLOSURE COUNSEL
Stradling Yocca Carlson & Rauth, a Professional Corporation Newport Beach, California

MUNICIPAL ADVISOR
Urban Futures, Inc.

Walnut Creek, California

SPECIAL TAX CONSULTANT
Webb Municipal Finance, LLC
Riverside, California

APPRAISER
Integra Realty Resources
Rocklin, California

TRUSTEE
Wilmington Trust, National Association
Costa Mesa, California
Item Number: 5.

4870-1603-0597v5/200812-0002
Except where otherwise indicated, all information contained in this Official Statement has been provided by the City. No dealer, broker, salesperson or other person has been authorized by the City the Fiscal Agent or the Underwriter to give any information or to make any representations in connection with the offer or sale of the Bonds other than those contained herein and, if given or made, such other information or representations must not be relied upon as having been authorized by the City, the Fiscal Agent or the Underwriter. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of the Bonds by a person in any jurisdiction in which it is unlawful for such person to make such an offer, solicitation or sale.

This Official Statement is not to be construed as a contract with the purchasers or Owners of the Bonds.

Statements contained in this Official Statement which involve estimates, forecasts or matters of opinion, whether or not expressly so described herein, are intended solely as such and are not to be construed as representations of fact.

The Underwriter has provided the following sentence for inclusion in this Official Statement:

The Underwriter has reviewed the information in this Official Statement in accordance with, and as a part of, its responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriter does not guarantee the accuracy or completeness of such information.

The information and expressions of opinion herein are subject to change without notice and neither the delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the City or any other parties described herein since the date hereof. All summaries of the Fiscal Agent Agreement or other documents are made subject to the provisions of such documents respectively and do not purport to be complete statements of any or all of such provisions. Reference is hereby made to such documents on file with the City for further information in connection therewith.

IN CONNECTION WITH THE OFFERING OF THE BONDS, THE UNDERWRITER MAY

OVERALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE

OF SUCH BONDS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

THE BONDS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, IN RELIANCE UPON AN EXEMPTION CONTAINED IN SUCH ACT. THE BONDS HAVE NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES LAWS OF ANY STATE.

Certain statements included or incorporated by reference in this Official Statement constitute “forward-looking statements” within the meaning of the United States Private Securities Litigation Reform Act of 1995, Section 21E of the United States Securities Exchange Act of 1934, as amended, and Section 27A of the United States Securities Act of 1933, as amended. Such statements are generally identifiable by the terminology used such as a “plan,” “expect,” “estimate,” “project,” “budget,” or similar words. Such forward-looking statements include, but are not limited to certain statements contained in the information under the captions “IMPROVEMENT AREA 1” and “PROPERTY OWNERSHIP AND THE DEVELOPMENT.”

THE ACHIEVEMENT OF CERTAIN RESULTS OR OTHER EXPECTATIONS CONTAINED IN

SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS,

UNCERTAINTIES AND OTHER FACTORS WHICH MAY CAUSE ACTUAL RESULTS, PERFORMANCE OR

ACHIEVEMENTS DESCRIBED TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS,

PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. THE CITY DOES NOT PLAN TO ISSUE ANY UPDATES OR REVISIONS TO THE FORWARD-LOOKING STATEMENTS SET FORTH IN THIS OFFICIAL STATEMENT. IN EVALUATING

SUCH STATEMENTS, POTENTIAL INVESTORS SHOULD SPECIFICALLY CONSIDER THE VARIOUS

FACTORS WHICH COULD CAUSE ACTUAL EVENTS OR RESULTS TO DIFFER MATERIALLY FROM THOSE INDICATED BY SUCH FORWARD-LOOKING STATEMENTS.

The City maintains a website. However, the information presented on such website is not part of this Official Statement and should not be relied upon in making an investment decision with respect to the Bonds.

Item Number: 5.

TABLE OF CONTENTS
Page
i
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INTRODUCTION .................................................................................................................................................1 The City, District and Improvement Area 1 ......................................................................................................1 Sources of Payment for the Bonds.....................................................................................................................3 Appraisal Report ................................................................................................................................................4 Description of the Bonds ...................................................................................................................................4 Tax Exemption...................................................................................................................................................5 Professionals Involved in the Offering ..............................................................................................................5 Continuing Disclosure .......................................................................................................................................5 Additional Bonds for Refunding Purposes Only ...............................................................................................6 Bond Owners’ Risks ..........................................................................................................................................6 Other Information ..............................................................................................................................................6 FINANCING PLAN ..............................................................................................................................................7 Estimated Sources and Uses of Funds ...............................................................................................................7 THE BONDS .........................................................................................................................................................7 General Provisions .............................................................................................................................................7 Debt Service Schedule .......................................................................................................................................8 Redemption ........................................................................................................................................................8 Registration, Transfer and Exchange...............................................................................................................12 SOURCES OF PAYMENT FOR THE BONDS .................................................................................................12 Limited Obligations .........................................................................................................................................12 Special Taxes ...................................................................................................................................................12 2023 Reserve Account .....................................................................................................................................19 No Teeter Plan .................................................................................................................................................19 Additional Bonds for Refunding Purposes Only .............................................................................................20 IMPROVEMENT AREA 1 .................................................................................................................................20 General Description of the District and Improvement Area 1.........................................................................20 Authorized Uses of Bond Proceeds .................................................................................................................21 Property Values and the Appraisal ..................................................................................................................21 Estimated Value-to-Lien Ratios.......................................................................................................................23 Direct and Overlapping Debt ...........................................................................................................................26 Delinquency History ........................................................................................................................................30 PROPERTY OWNERSHIP AND THE DEVELOPMENT................................................................................31 The District and Improvement Area 1 .............................................................................................................31 Lennar Development and Financing Plan........................................................................................................32 SPECIAL RISK FACTORS ................................................................................................................................34 Risks of Real Estate Secured Investments Generally ......................................................................................34 Increasing Mortgage Interest Rates..................................................................................................................34 Insufficiency of Special Tax Revenues............................................................................................................34 Property Values................................................................................................................................................36 Natural Disasters..............................................................................................................................................37 Hazardous Substances......................................................................................................................................37 Enforcement Delays – Bankruptcy ..................................................................................................................38 FDIC/Federal Government Interests in Parcels ...............................................................................................38 Direct and Overlapping Indebtedness..............................................................................................................39 Payment of Special Taxes is not a Personal Obligation of the Property Owners ............................................39 No Acceleration Provision...............................................................................................................................39 Limited Obligations .........................................................................................................................................40 Ballot Initiatives...............................................................................................................................................40 Proposition 218 ................................................................................................................................................40 Litigation with Respect to Community Facilities Districts..............................................................................41 Loss of Tax Exemption....................................................................................................................................42 No Ratings – Limited Secondary Market ........................................................................................................42 Limitations on Remedies .................................................................................................................................42 Item Number: 5.

TABLE OF CONTENTS
(continued)
Page
ii
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Potential Early Redemption of Bonds from Prepayments or Community Facilities District Bond Proceeds.43 Cyber Security .................................................................................................................................................43 CONTINUING DISCLOSURE...........................................................................................................................43 TAX EXEMPTION .............................................................................................................................................43 LEGAL OPINION ...............................................................................................................................................45 ABSENCE OF LITIGATION .............................................................................................................................45 NO RATING........................................................................................................................................................45 UNDERWRITING ..............................................................................................................................................46 FINANCIAL INTERESTS..................................................................................................................................46 MUNICIPAL ADVISOR.....................................................................................................................................46 MISCELLANEOUS ............................................................................................................................................46 APPENDIX A RATE AND METHOD OF APPORTIONMENT ..........................................................A-1 APPENDIX B CERTAIN ECONOMIC AND DEMOGRAPHIC INFORMATION.............................B-1 APPENDIX C FORM OF OPINION OF BOND COUNSEL.................................................................C-1 APPENDIX D APPRAISAL REPORT ...................................................................................................D-1 APPENDIX E SUMMARY OF THE FISCAL AGENT AGREEMENT ...............................................E-1 APPENDIX F FORM OF CONTINUING DISCLOSURE CERTIFICATE ..........................................F-1 APPENDIX G BOOK-ENTRY ONLY SYSTEM ..................................................................................G-1 Item Number: 5.

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[INSERT VICINITY MAP]
Item Number: 5.

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[INSERT AERIAL PHOTOGRAPH]
Item Number: 5.

1 4870-1603-0597v5/200812-0002
$1,965,000*

CITY OF DESERT HOT SPRINGS
COMMUNITY FACILITIES DISTRICT NO. 2006-1
IMPROVEMENT AREA 1 SPECIAL TAX BONDS, SERIES 2023

INTRODUCTION
The purpose of this Official Statement, which includes the cover page, the table of contents and the attached appendices (collectively, the “Official Statement”), is to provide certain information concerning the issuance by the City of Desert Hot Springs (the “City”) of the City of Desert Hot Springs Community Facilities District No. 2006-1 Improvement Area 1 Special Tax Bonds, Series 2023 in the aggregate principal amount of $1,965,000* (the “Bonds”). The City of Desert Hot Springs Community Facilities District No. 2006-1 (the “District”) and Improvement Area 1 (“Improvement Area 1”) therein have been formed by the City pursuant to the Mello-Roos Community Facilities Act of 1982, as amended (Section 53311 et seq. of the Government Code of the State of California) (the “Act”). The proceeds of the Bonds will be used to: (i) finance certain public improvements to be owned by the City; (ii) fund a reserve account for the Bonds; and (iii) pay costs of issuance for the Bonds.

The Bonds are authorized to be issued pursuant to the Act and a Fiscal Agent Agreement dated as of February 1, 2020 (the “Original Fiscal Agent Agreement”), as supplemented and amended by the First Supplement to Fiscal Agent Agreement, dated as of December 1, 2023 (the “First Supplement” and together with the Original Fiscal Agent Agreement, the “Fiscal Agent Agreement”), each by and between the City and Wilmington Trust, National Association, as fiscal agent (the “Fiscal Agent”). The Bonds are secured under the Fiscal Agent Agreement by a pledge of and lien upon Special Tax Revenues (as such term is defined herein) and all moneys in the Bond Fund and the Special Tax Fund as described in the Fiscal Agent Agreement. The Bonds are secured by the Special Tax Revenues on a parity with the City of Desert Hot Springs Community Facilities District No. 2006-1 Improvement Area 1 Special Tax Refunding Bonds, Series 2020 (the “2020 Bonds”) outstanding in the principal amount of $1,687,857, which were issued on a private placement basis.

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 and the documents summarized or described herein. A full review should be made of the entire Official Statement. The sale and delivery of Bonds to potential investors is made only by means of the entire Official Statement. All capitalized terms used in this Official Statement and not defined have the meanings set forth in Appendix E.

The City, District and Improvement Area 1
General. The City is located in the County of Riverside (the “County”), California (the “State”), approximately 110 miles east of the City of Los Angeles. The District comprises a portion of a master-planned community that has been marketed as “Skyborne at Desert Hot Springs” (“Skyborne”). Skyborne is located to the southeast of Mission Lakes Boulevard and Worsley Road.

The District includes five Improvement Areas in two non-contiguous areas in the City. Improvement Areas 1 through 4 are located in the eastern portion of the City, to the southeast of Mission Lakes Boulevard and Worsley Road, and consists of approximately 608 acres. Improvement Areas 1 through 4 are included in Skyborne. Skyborne is planned to include 10 villages with approximately 2,000 homes at buildout.

Improvement Area 5 is unrelated to the Skyborne project. The Bonds will only be secured by property in Improvement Area 1.
*
Preliminary, subject to change.

Item Number: 5.

2 4870-1603-0597v5/200812-0002
Development of Skyborne commenced in 2006 and the original developer of Skyborne was Western Pacific Housing, Inc. (dba D.R. Horton America’s Builder) (“D.R. Horton”). Development of Skyborne was delayed due to the severe economic recession in the late 2000’s. In 2008, D.R. Horton sold substantially all of its interest in the Skyborne development to Skyborne Ventures, LLC, a Delaware limited liability corporation (“Skyborne Ventures”), who is the current master developer of Skyborne.

Improvement Area 1. Villages I and II of Skyborne are included within Improvement Area 1 and are planned to include 394 single family homes at buildout. Improvement Area 1 is located to the northwest of Karen Avenue and Pierson Boulevard. As of the September 15, 2023, date of value of the Appraisal Report (as defined below), 351 of the 394 homes planned within Improvement Area 1 had been conveyed to individual homeowners. As of such date, the property for the remaining 43 homes was owned by Lennar Homes of California, LLC (“Lennar”) and consisted of eight completed homes (including three model homes), 20 homes under construction and 15 finished lots. Development has progressed since the date of value of the Appraisal Report. As of November 27, 2023, a total of 362 homes within Improvement Area No. 1 had been completed and conveyed to individual homeowners. As of such date, Lennar owned three completed model homes, one completed production home (in escrow), 21 homes under construction (four in escrow), and 7 finished lots (none in escrow).

The backbone infrastructure necessary to complete development in Improvement Area 1 is complete.

Remaining infrastructure to be completed consists of final finishing of certain in-tract streets and landscaping.

See the captions “IMPROVEMENT AREA 1” and “PROPERTY OWNERSHIP AND THE DEVELOPMENT” for further information with respect to the development within Improvement Area 1 and Lennar.

Formation Proceedings. The District was formed on January 16, 2007 pursuant to the Act. The Act was enacted to provide an alternative method of financing certain public capital facilities and services, especially in developing areas of the State. Any local agency (as defined in the Act) may establish a community facilities district to provide for and finance the cost of eligible public facilities and services.

Generally, the legislative body of the local agency which forms a community facilities district acts on behalf of such district as its legislative body. Subject to approval by two-thirds of the votes cast at an election and compliance with the other provisions of the Act, a legislative body of a local agency may issue bonds for a community facilities district or improvement area therein and may levy and collect a special tax within such district or improvement area to repay such indebtedness.

Pursuant to the Act, on November 21, 2006, the City Council adopted Resolution No. 2006-107, stating its intention to form the District, designate five improvement areas therein, and authorize the levy of special taxes on the taxable property within the District. Subsequent to a noticed public hearing on January 16, 2007, the City Council adopted Resolution Nos. 2007-13, 2007-14 and 2007-15 on January 16, 2007, which established the District and designated five improvement areas therein.

At a special election held on January 16, 2007, within Improvement Area 1, the qualified electors within Improvement Area 1 (i) authorized the City to incur bonded indebtedness in an amount not to exceed $8,000,000 for Improvement Area 1 of the District, (ii) approved the levy of a Special Tax (as defined below) within Improvement Area 1 pursuant to the Rate and Method of Apportionment of Special Taxes for Improvement Area 1 attached hereto as Appendix A (the “Rate and Method”), and (iii) approved an appropriations limit for the District.

A Notice of Special Tax Lien for Improvement Area 1 of the District was recorded in the office of the County Recorder on January 31, 2007 as Document No. 2007-0073276. On August 7, 2007, the City Council adopted Ordinance No. 2007-13 (the “Ordinance”) which authorizes the levy of the Special Tax pursuant to the Rate and Method approved at the January 16, 2007 election, a copy of which is attached hereto as Appendix A.

Item Number: 5.

3 4870-1603-0597v5/200812-0002
Prior Bonds Issued for Improvement Area No. 1 of the District. The City has previously issued bonds for Improvement Area 1 of the District to finance certain public facilities and to refund such prior bonds.

Currently, the only remaining bonds previously issued outstanding are the 2020 Bonds. The Bonds will be secured by Special Tax Revenues on a parity with the outstanding 2020 Bonds and any Additional Bonds (as defined herein), which may only be issued to refund outstanding 2020 Bonds, Bonds and any Additional Bonds.

Sources of Payment for the Bonds
Special Taxes. As used in this Official Statement, the term “Special Tax” means the annual Special Tax which has been authorized pursuant to the Act to be levied in accordance with the Rate and Method upon taxable property within Improvement Area 1 of the District. See the caption “SOURCES OF PAYMENT FOR THE BONDS — Special Taxes” and Appendix A — “RATE AND METHOD OF APPORTIONMENT.” See the caption “IMPROVEMENT AREA 1.”
Under the Fiscal Agent Agreement, the City has pledged to repay the Bonds and any Additional Bonds from the “Special Tax Revenues” and from other amounts in the Bond Fund, the Special Tax Fund and the 2023 Reserve Account established under the Fiscal Agent Agreement. The term “Special Tax Revenues” is defined in the Fiscal Agent Agreement to mean the proceeds of the Special Taxes received by the City, including all scheduled payments and delinquent payments thereof, interest and penalties thereon and proceeds of the redemption or sale of property sold as a result of foreclosure of the lien of the Special Taxes, net of the administration charge of the County (currently 1%).

The Special Taxes are the primary source of security for the repayment of the Bonds, the 2020 Bonds and any Additional Bonds. In the event that the Special Taxes are not paid when due, the only sources of funds available to pay the debt service on the Bonds are amounts held by the Fiscal Agent in the Bond Fund, the Special Tax Fund and the 2023 Reserve Account, to the limited extent described in the Fiscal Agent Agreement. See the caption “SOURCES OF PAYMENT FOR THE BONDS — Reserve Account of the Special Tax Fund.”
Foreclosure Proceeds. The City has covenanted in the Fiscal Agent Agreement that it will annually on or before September 1 of each year review the public records of the County relating to the collection of the Special Tax in order to determine the amount of the Special Tax collected in the prior Fiscal Year, and if the City determines on the basis of such review that the amount so collected is deficient by more than five percent (5%) of the total amount of the Special Tax levied in such Fiscal Year, it will within thirty (30) days thereafter institute foreclosure proceedings as authorized by the Act in order to enforce the lien of the delinquent installment of the Special Tax against each separate lot or parcel of land in Improvement Area 1 for which such installment of the Special Tax is delinquent, and will diligently prosecute and pursue such foreclosure proceedings to judgment and sale; provided, that if the City determines on the basis of such review that (a) the amount so collected is deficient by less than 5% of the total amount of the Special Tax levied in the Improvement Area 1 in such Fiscal Year, but that property owned by any single property owner in the Improvement Area 1 is delinquent by more than $5,000 with respect to the Special Tax due and payable by such property owner in such Fiscal Year, or (b) that property owned by any single property owner in the Improvement Area 1 (i) is delinquent cumulatively by more than $3,000 with respect to the current and past Special Tax due (irrespective of the total delinquencies in the Improvement Area 1) or (ii) delinquent for 3 years or more, then the City will institute, prosecute and pursue such foreclosure proceedings in the time and manner provided herein against each such property owner. The Finance Director shall notify the City Attorney of any such delinquency of which it is aware, and the City Attorney shall commence, or cause to be commenced, such proceedings.

See the caption “SOURCES OF PAYMENT FOR THE BONDS — Special Taxes — Proceeds of Foreclosure Sales.” There is no assurance that the property within Improvement Area 1 can be sold for the appraised or assessed values described herein, or for a price sufficient to pay the principal of and interest on Item Number: 5.

4 4870-1603-0597v5/200812-0002
the Bonds in the event of a default in payment of Special Taxes by the current or future landowners within Improvement Area 1. See the caption “SPECIAL RISK FACTORS — Property Values.”

EXCEPT FOR THE SPECIAL TAX REVENUES, NO OTHER TAXES ARE PLEDGED TO THE PAYMENT OF THE BONDS. THE BONDS ARE NOT GENERAL OR SPECIAL

OBLIGATIONS OF THE CITY OR GENERAL OBLIGATIONS OF THE CITY, BUT ARE LIMITED

OBLIGATIONS OF THE CITY PAYABLE SOLELY FROM SPECIAL TAX REVENUES AND

AMOUNTS HELD UNDER THE FISCAL AGENT AGREEMENT, AS MORE FULLY DESCRIBED HEREIN.

Appraisal Report
Integra Realty Resources (the “Appraiser”) has conducted an appraisal (the “Appraisal Report”) with a date of value of September 15, 2023 (the “Date of Value”) of the Taxable Property within Improvement Area 1 to provide an estimate of the market value of the such Taxable Property. The Appraisal Report provides an estimate of the approximate market value of the Taxable Property in Improvement Area 1 in its current condition, assuming that development of the property as currently planned will consist of 394 single-family detached residential units.

To arrive at the estimated value of the Taxable Property within Improvement Area 1, the Appraiser applied the following methodology: (i) for 297 completed single family homes owned by individual homeowners as shown on the County Assessor’s as of January 1, 2023, the Appraiser used the Fiscal Year 2023-24 assessed values assigned by the County (totaling $94,248,523); and (ii) for the property relating to the remaining 97 planned homes in Improvement Area 1, the Appraiser appraised such property using the methodology as described under “IMPROVEMENT AREA 1 — Appraisal Report.” The property described in part (ii) of the foregoing sentence is referred to in this Official Statement as the “Appraised Property.” Based on the assumptions and limiting conditions in the Appraisal Report, the Appraiser concluded that the minimum market value of the Appraised Property was $27,240,770 as of the Date of Value. The total estimated value of the property based on the foregoing assessed and appraised values is $121,489,293.

The Appraisal Report is based upon a variety of assumptions and limiting conditions that are described in Appendix D. The City makes no representation as to the accuracy of the Appraisal Report. See “IMPROVEMENT AREA 1 — Appraisal Report” and “— Estimated Appraised Value-to-Lien Ratios.” There is no assurance that property within Improvement Area 1 can be sold for the prices set forth in the Appraisal Report or that any parcel can be sold for a price sufficient to pay the Special Tax for that parcel in the event of a default in payment of Special Taxes by the property owner. See “IMPROVEMENT AREA 1,” “SPECIAL RISK FACTORS — Property Values” herein and Appendix D.

Description of the Bonds
The Bonds will be issued and delivered as fully registered Bonds, registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York (“DTC”), and will be available to actual purchasers of the Bonds (the “Beneficial Owners”) in the denominations of $5,000 or any integral multiple thereof, under the book-entry system maintained by DTC, only through brokers and dealers who are or act through DTC Participants as described herein. Beneficial Owners will not be entitled to receive physical delivery of the Bonds. In the event that the book-entry only system described herein is no longer used with respect to the Bonds, the Bonds will be registered and transferred in accordance with the Fiscal Agent Agreement. See Appendix G — “BOOK-ENTRY ONLY SYSTEM.”
Principal of, premium, if any, and interest on the Bonds is payable by the Fiscal Agent to DTC.

Disbursement of such payments to DTC Participants is the responsibility of DTC and disbursement of such payments to the Beneficial Owners is the responsibility of DTC Participants. See Appendix G — “BOOK-ENTRY ONLY SYSTEM.”
Item Number: 5.

5 4870-1603-0597v5/200812-0002
The Bonds are subject to optional redemption, special mandatory redemption and mandatory sinking fund redemption prior to maturity as described herein. See the caption “THE BONDS — Redemption.” For a more complete description of the Bonds and the basic documentation pursuant to which they are being sold and delivered, see the caption “THE BONDS” and Appendix E — “SUMMARY OF THE FISCAL AGENT AGREEMENT.”
Tax Exemption
In the opinion of Stradling Yocca Carlson & Rauth, a Professional Corporation, Bond Counsel, under existing statutes, regulations, rulings and judicial decisions, and assuming the accuracy of certain representations and compliance with certain covenants and requirements described herein, interest (and original issue discount) on the Bonds described herein is excluded from gross income for federal income tax purposes and is not an item of tax preference for purposes of calculating the federal alternative minimum tax imposed on individuals. In the further opinion of Bond Counsel, interest (and original issue discount) on the Bonds is exempt from State of California personal income tax. See the caption “TAX EXEMPTION” with respect to tax consequences relating to the Bonds, including with respect to the alternative minimum tax imposed on certain large corporations for tax years beginning after December 31, 2022.

Set forth in Appendix C is the form of opinion of Bond Counsel expected to be delivered in connection with the issuance of the Bonds. For a more complete discussion of such opinion and certain tax consequences incident to the ownership of the Bonds, see the caption “TAX EXEMPTION.” Professionals Involved in the Offering
Wilmington Trust, National Association, Costa Mesa, California, will act as Fiscal Agent under the Fiscal Agent Agreement. Stifel, Nicolaus & Company, Incorporated (the “Underwriter”) is the Underwriter of the Bonds. Certain proceedings in connection with the issuance and delivery of the Bonds are subject to the approval of Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California, Bond Counsel and Disclosure Counsel to the City in connection with the issuance of the Bonds. Certain legal matters will be passed on for the City by Stream Kim Hicks Wrage & Alfaro, PC, Riverside, California, City Attorney, for the Underwriter by Kutak Rock LLP, Irvine, California, and for the Fiscal Agent by its counsel.

Other professional services have been performed by Webb Municipal Finance, LLC, Temecula, California, as Special Tax Consultant (the “Special Tax Consultant”), Urban Futures, Inc., Walnut Creek, California, as Municipal Advisor and by Integra Realty Resources, Rocklin, California, as Appraiser.

For information concerning circumstances in which certain of the above-mentioned professionals, advisors, counsel and consultants may have a financial or other interest in the offering of the Bonds, see the caption “FINANCIAL INTERESTS.”
Continuing Disclosure
Pursuant to a Continuing Disclosure Certificate to be executed by the City (the “Continuing Disclosure Certificate”), the City will agree to provide, or cause to be provided, to the Municipal Securities Rulemaking Board’s Electronic Municipal Market Access system (“EMMA”), maintained on the Internet at http://emma.msrb.org, certain annual financial information and operating data and notices of certain enumerated events. These covenants are being made in order to assist the Underwriter in complying with subsection (b)(5) of Rule 15c2-12 adopted by the Securities and Exchange Commission (“Rule 15c2-12”).

See “CONTINUING DISCLOSURE,” Appendix F — “FORM OF CONTINUING DISCLOSURE CERTIFICATE.”
Item Number: 5.

6 4870-1603-0597v5/200812-0002
Additional Bonds for Refunding Purposes Only
The City will covenant in the Fiscal Agent Agreement not to issue additional indebtedness secured by the Special Tax Revenues on a parity with the Bonds and the 2020 Bonds (“Additional Bonds”) other than for refunding all or a portion of the Bonds, the 2020 Bonds or Additional Bonds. See the caption “SOURCES OF PAYMENT FOR THE BONDS — Additional Bonds for Refunding Purposes Only.” Other taxes and/or special assessments with liens equal in priority to the continuing lien of the Special Taxes may also be levied in the future on the property within Improvement Area 1 of the District, which could adversely affect the willingness of the property owners to pay the Special Taxes when due. See the captions “IMPROVEMENT AREA 1 — Direct and Overlapping Debt” and “SPECIAL RISK FACTORS — Direct and Overlapping Indebtedness.”
Bond Owners’ Risks
Certain events could affect the ability of the City to pay the principal of and interest on the Bonds when due. See the caption “SPECIAL RISK FACTORS” for a discussion of certain factors which should be considered, in addition to other matters set forth herein, in evaluating an investment in the Bonds. The purchase of the Bonds involves risks, and the Bonds may not be appropriate investments for some types of investors.

Other Information
This Official Statement speaks only as of its date, and the information contained herein is subject to change.

Brief descriptions of the Bonds and the Fiscal Agent Agreement are included in this Official Statement. Such descriptions and information do not purport to be comprehensive or definitive. All references herein to the Fiscal Agent Agreement, the Bonds and the Constitution and laws of the State, as well as the proceedings of the City Council, acting as the legislative body of the District, are qualified in their entirety by references to such documents, laws and proceedings, and with respect to the Bonds, by reference to the Fiscal Agent Agreement. Capitalized terms not otherwise defined in this Official Statement have the meanings set forth in Appendix E.

Copies of the Fiscal Agent Agreement and other documents and information are available for inspection and copies may be obtained from the City, 11999 Palm Drive, Desert Hot Springs, CA 92240, Attention: City Clerk.

Item Number: 5.

7 4870-1603-0597v5/200812-0002

FINANCING PLAN
Estimated Sources and Uses of Funds
The following table sets forth the expected sources and uses of Bond proceeds.

Sources of Funds
Principal Amount of Bonds $
Plus Original Issue Premium
Total Sources $
Uses of Funds:

Improvement Fund
Costs of Issuance(1)
2023 Reserve Account(2)
Total Uses $
(1) To pay costs of issuance of the Bonds, including legal fees, Underwriter’s discount, printing costs, and fees of the Appraiser, Special Tax Consultant and the Fiscal Agent.
(2) Equal to the Reserve Requirement for the Bonds. The reserve account established in connection with the 2020 Bonds only secures the 2020 Bonds and does not secure the Bonds.

THE BONDS
General Provisions
The Bonds will be dated their date of delivery and will bear interest at the rates per annum set forth on the inside cover page hereof, payable semiannually on each March 1 and September 1, commencing March 1, 2024 (each, an “Interest Payment Date”), and will mature in the amounts and on the dates set forth on the inside cover page of this Official Statement. The Bonds will be issued in fully registered form in denominations of $5,000 or any integral multiple thereof.

Interest will be calculated on the basis of a 360-day year comprised of twelve 30-day months. Interest on any Bond will be payable from the Interest Payment Date next preceding the date of authentication of that Bond, unless: (i) such date of authentication is an Interest Payment Date, in which event interest will be payable from such date of authentication; (ii) the date of authentication is after the fifteenth day of the month preceding an Interest Payment Date, regardless of whether such day is a Business Day (each, a “Record Date”) but prior to the immediately succeeding Interest Payment Date, in which event interest will be payable from the Interest Payment Date immediately succeeding the date of authentication; or (iii) the date of authentication is prior to the close of business on the first Record Date, in which event interest will be payable from the dated date of the Bonds; provided, however, that if at the time of authentication of a Bond, interest is in default, interest on such Bond will be payable from the last Interest Payment Date to which the interest has been paid or made available for payment, or, if no interest has been paid or made available for payment on such Bond, interest on such Bond will be payable from its dated date.

Interest on any Bond will be paid to the person whose name appears as its owner in the registration books held by the Fiscal Agent on the close of business on the Record Date. Principal of, premium, if any, due upon redemption is payable upon presentation and surrender of the Bonds at the principal corporate trust office of the Fiscal Agent in Costa Mesa, California.

The Bonds will be issued as fully registered bonds and will be registered in the name of Cede & Co., as nominee of DTC. DTC will act as securities depository of the Bonds. Ownership interests in the Bonds Item Number: 5.

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may be purchased in book-entry form only in denominations of $5,000 and any integral multiple thereof. So long as DTC is the securities depository all payments of principal and interest on the Bonds will be made to DTC and will be paid to the Beneficial Owners in accordance with DTC’s procedures and the procedures of DTC’s Participants. See Appendix G — “BOOK-ENTRY-ONLY SYSTEM.” In the event the Bonds are not held in book-entry form, interest will be paid by check of the Fiscal Agent mailed by first class mail, postage prepaid, to the Bondowner at its address on the registration books kept by the Fiscal Agent. Pursuant to a written request prior to the Record Date of a Bondowner of at least $1,000,000 in aggregate principal amount of Bonds, payment will be made by wire transfer in immediately available funds to a designated account in the United States.

Debt Service Schedule
The following table presents the annual debt service on the Bonds and the 2020 Bonds (including sinking fund redemptions), assuming that there are no optional or special mandatory redemptions. See the caption “—Redemption” below.

Bond Year
Ending
September 1
2020 Bonds
Debt Service
2023 Bonds
Principal
2023 Bonds
Interest
Total 2023
Bonds Debt
Service
Total Debt
Service
2024 $145,300
2025 145,300
2026 145,300
2027 145,300
2028 145,300
2029 145,300
2030 145,300
2031 145,300
2032 145,300
2033 145,300
2034 145,300
2035 145,300
2036 145,300
2037 145,300
2038 145,300
Totals $2,179,506
Source: Underwriter.

Redemption
Optional Redemption. The Bonds may be redeemed, at the option of the City, from any source of funds, other than Special Tax Prepayments, on any Interest Payment Date on or after September 1, 20__, in whole, or in part (in such amounts and maturities as may be designated by the City, with the particular Bonds of such maturities to be selected by the Fiscal Agent by lot), at the following redemption prices expressed as a percentage of the principal amount to be redeemed, together with accrued interest to the date of redemption:

Redemption Date Redemption Price
%
Item Number: 5.

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Mandatory Sinking Fund Redemption. The Bonds maturing on September 1, 20__ (the “20__ Term Bonds”) shall be called before maturity and redeemed from sinking fund payments on September 1, 20__, and on each September 1 thereafter prior to maturity, in accordance with the schedule of sinking fund payments set forth below. The 20__ Term Bonds so called for redemption shall be selected by the Fiscal Agent by lot and shall be redeemed at a redemption price for each redeemed 20__ Term Bond equal to the principal amount thereof, plus accrued interest to the redemption date, without premium, as follows:

Term Bonds Maturing September 1, 20__
Sinking Fund Redemption Date
(September 1) Sinking Payments
$
†
† Maturity.

The Bonds maturing on September 1, 20__ (the “20__ Term Bonds”) shall be called before maturity and redeemed from sinking fund payments on September 1, 20__, and on each September 1 thereafter prior to maturity, in accordance with the schedule of sinking fund payments set forth below. The 20__ Term Bonds so called for redemption shall be selected by the Fiscal Agent by lot and shall be redeemed at a redemption price for each redeemed 20__ Term Bond equal to the principal amount thereof, plus accrued interest to the redemption date, without premium, as follows:

Term Bonds Maturing September 1, 20__
Sinking Fund Redemption Date
(September 1) Sinking Payments
$
†
† Maturity.

If the City purchases Term Bonds during the Fiscal Year immediately preceding one of the sinking fund redemption dates specified above, the City will notify the Fiscal Agent at least 45 days prior to the redemption date as to the principal amount purchased, and the amount purchased will be credited at the time of purchase to the next Sinking Fund Payment for the Term Bond so purchased, to the extent of the full principal amount of the purchase. All Term Bonds purchased will be cancelled pursuant to the Fiscal Agent Agreement.

In the event of a partial optional redemption or special mandatory redemption of the Term Bonds, each of the remaining Sinking Fund Payments for such Term Bonds will be reduced, as nearly as practicable, on a pro rata basis.

Special Mandatory Redemption from Special Tax Prepayments. The Bonds are subject to redemption as a whole, or in part on a pro rata basis among maturities, on any Interest Payment Date on and Item Number: 5.

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after March 1, 2024 from the proceeds of the Prepayment of the Special Taxes deposited in the Prepayment Account pursuant to the Fiscal Agent Agreement and amounts transferred from the 2023 Reserve Account in connection with such Prepayment. Such extraordinary mandatory redemption of the Bonds shall be at the following redemption prices (expressed as percentages of the principal amount of the Bonds to be redeemed), together with accrued interest thereon to the date of redemption:

Redemption Date Redemption Price
%
Prepayments of the Special Tax by property owners will be allocated to the payment at maturity and redemption of Bonds, 2020 Bonds and any Additional Bonds as nearly as practicable on a proportionate basis based on the outstanding principal amount of the bonds of each Series and such amounts shall be applied to redeem bonds as nearly as practicable on a pro rata basis among maturities in increments of $5,000; provided, however, that, for Prepayments of less than $50,000, the City may specify in an Officer’s Certificate that Prepayments be applied to one or more maturities of the bonds of each Series so long as there is delivered to the Fiscal Agent a certificate of the Independent Financial Consultant that, following such application of the Prepayments, the maximum Special Taxes that may be levied in each Fiscal Year on taxable property in Improvement Area 1 is not less than 110% of Annual Debt Service in the Bond Year that begins in such Fiscal Year.

See the caption “SPECIAL RISK FACTORS—Potential Early Redemption of Bonds from Prepayments or Community Facilities District Bond Proceeds” for a discussion of the potential for a lower than expected yield on the Bonds as a result of a special mandatory redemption from prepayment of Special Taxes or from bond proceeds of other community facilities districts.

Notice of Redemption. So long as the Bonds are held in book-entry form, notice of redemption will be sent by the Fiscal Agent to DTC under the DTC book-entry only system and not to the Beneficial Owners of the Bonds. Neither the City nor the Fiscal Agent is responsible for notifying the Beneficial Owners, who are to be notified in accordance with the procedures in effect for the DTC book-entry system. See Appendix G — “BOOK-ENTRY ONLY SYSTEM.”
The Fiscal Agent will give notice, in the name of the City, of the redemption of Bonds. Such notice of redemption will: (i) specify the CUSIP numbers (if any), the bond numbers and the maturity date or dates of the Bonds selected for redemption, except that where all of the Bonds are subject to redemption, or all of the Bonds of one maturity are to be redeemed, the bond numbers of such issue need not be specified; (ii) state the date fixed for redemption and surrender of the Bonds to be redeemed; (iii) state the redemption price; (iv) state the place or places where the Bonds are to be redeemed; (v) in the case of Bonds to be redeemed only in part, state the portion of such Bond which is to be redeemed; (vi) state the date of issue of the Bonds as originally issued; (vii) state the rate of interest borne by each Bond being redeemed; and (viii) state any other descriptive information needed to identify accurately the Bonds being redeemed as specified by the Fiscal Agent. Such notice will further state that on the date fixed for redemption, there will become due and payable on each Bond, or portion thereof called for redemption, the principal thereof, together with any premium, and interest accrued to the redemption date, and that from and after such date, interest thereon will cease to accrue and be payable. At least 30 days but no more than 45 days prior to the redemption date, the Fiscal Agent will mail a copy of such notice of redemption, by first class mail, postage prepaid, to the respective Owners thereof at their addresses appearing on the Bond Register, and to the original purchaser of any Bonds; provided, however, so long as the Bonds are registered in the name of the Nominee, such notice shall be given in such manner as complies with the requirements of the Depository. The actual receipt by the Owner of any Bond of notice of such redemption is not a condition precedent to redemption, and neither the failure to receive nor any defect in such notice will affect the validity of the proceedings for the redemption of such Bonds, or the Item Number: 5.

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cessation of interest on the redemption date. A certificate by the Fiscal Agent that notice of such redemption has been given as provided in the Fiscal Agent Agreement will be conclusive as against all parties and the Owner is not entitled to show that he or she failed to receive notice of such redemption.

In addition to the foregoing notice, further notice will be given by the Fiscal Agent as set out below, but no defect in said further notice nor any failure to give all or any portion of such further notice will in any manner defeat the effectiveness of a call for redemption if notice thereof is given as above prescribed.

Each further notice of redemption will be sent not later than the date that notice of redemption is given to the Owners pursuant to the Fiscal Agent Agreement by first class mail or facsimile to the Depository and to any other registered securities depositories then in the business of holding substantial amounts of obligations of types comprising the Bonds as determined by the Fiscal Agent and to one or more of the national information services that the Fiscal Agent determines are in the business of disseminating notice of redemption of obligations such as the Bonds.

Upon the payment of the redemption price of any Bonds being redeemed, each check or other transfer of funds issued for such purpose will to the extent practicable bear the CUSIP number identifying, by issue and maturity, the Bonds being redeemed with the proceeds of such check or other transfer.

With respect to any notice of optional redemption of Bonds, such notice may state that such redemption is conditional upon the receipt by the Fiscal Agent on or prior to the date fixed for such redemption of moneys sufficient to pay the principal of, premium, if any, and interest on such Bonds to be redeemed and that, if the City determines that such moneys will not be received on the redemption date, said notice will be of no force and effect and the Fiscal Agent will not be required to redeem such Bonds. In the event that such notice of redemption contains such a condition and the City determines that such moneys will not be received, the redemption will not be made, and the Fiscal Agent will within a reasonable time thereafter give notice, in the manner in which the notice of redemption was given, that such moneys were not so received.

Selection of Bonds for Redemption. If less than all of the Bonds Outstanding are to be redeemed, the portion of any Bond of a denomination of more than $5,000 to be redeemed will be in the principal amount of $5,000 or an integral multiple thereof. In selecting portions of such Bonds for redemption, the Fiscal Agent will treat such Bonds, as applicable, as representing that number of Bonds of $5,000 denominations which is obtained by dividing the principal amount of such Bonds to be redeemed in part by $5,000. The Fiscal Agent will promptly notify the City in writing of the Bonds, or portions thereof, selected for redemption.

Partial Redemption of Bonds. Upon surrender of any Bond to be redeemed in part only, the City will execute and the Fiscal Agent will authenticate and deliver to the Owner, at the expense of the City, a new Bond or Bonds of authorized denominations equal in aggregate principal amount to the unredeemed portion of the Bonds surrendered, with the same interest rate and the same maturity.

Effect of Notice and Availability of Redemption Money. Notice of redemption having been duly given, as provided in the Fiscal Agent Agreement, and the amount necessary for the redemption having been made available for that purpose and being available therefor on the date fixed for such redemption: (i) the Bonds, or portions thereof, designated for redemption will, on the date fixed for redemption, become due and payable at the redemption price thereof as provided in the Fiscal Agent Agreement, anything in the Fiscal Agent Agreement or in the Bonds to the contrary notwithstanding; (ii) upon presentation and surrender thereof at the office of the Fiscal Agent, the redemption price of such Bonds will be paid to the Owners thereof; (iii) as of the redemption date the Bonds, or portions thereof so designated for redemption will be deemed to be no longer Outstanding and such Bonds, or portions thereof, will cease to bear further interest; and (iv) as of the date fixed for redemption no Owner of any of the Bonds, or portions thereof so designated for redemption will be entitled to any of the benefits of the Fiscal Agent Agreement, or to any other rights, except with respect to payment of the redemption price and interest accrued to the redemption date from the amounts so made available.

Item Number: 5.

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Registration, Transfer and Exchange
Registration. The Fiscal Agent will keep sufficient books for the registration and transfer of the Bonds. The ownership of the Bonds will be established by the Bond registration books held by the Fiscal Agent.

Transfer or Exchange. Subject to the limitations set forth in the following paragraph, the registration of any Bond may, in accordance with its terms, be transferred upon the Bond Register by the person in whose name it is registered, in person or by his or her duly authorized attorney, upon surrender of such Bond for cancellation at the office of the Fiscal Agent, accompanied by delivery of written instrument of transfer in a form acceptable to the Fiscal Agent and duly executed by the Owner or his or her duly authorized attorney.

Bonds may be exchanged at the office of the Fiscal Agent for a like aggregate principal amount of Bonds for other authorized denominations of the same maturity and issue. The Fiscal Agent may not collect from the Owner any charge for any new Bond issued upon any exchange or transfer, but will require the Owner requesting such exchange or transfer to pay any tax or other governmental charge required to be paid with respect to such exchange or transfer. Whenever any Bonds are surrendered for registration of transfer or exchange, the City will execute and the Fiscal Agent will authenticate and deliver a new Bond or Bonds, as applicable, of the same issue and maturity, for a like aggregate principal amount; provided that the Fiscal Agent is not required to register transfers or make exchanges of: (i) Bonds for a period of 15 days next preceding any selection of the Bonds to be redeemed; or (ii) any Bonds chosen for redemption.

SOURCES OF PAYMENT FOR THE BONDS
Limited Obligations
The Bonds are special, limited obligations of the City payable only from amounts pledged under the Fiscal Agent Agreement and from no other sources.

The Special Taxes are the primary source of security for the repayment of the Bonds. Under the Fiscal Agent Agreement, the City has pledged to repay the Bonds from the Special Tax Revenues and from amounts held in the Bond Fund, the Special Tax Fund and the 2023 Reserve Account. The term “Special Tax Revenues” is defined in the Fiscal Agent Agreement to mean the proceeds of the Special Taxes received by the City, including all scheduled payments and delinquent payments thereof, interest and penalties thereon and proceeds of the redemption or sale of property sold as a result of foreclosure of the lien of the Special Taxes, net of the administration charge of the County (currently 1%).

In the event that the Special Taxes are not received when due, the only sources of funds available to pay the debt service on the Bonds are amounts held by the Fiscal Agent in the Bond Fund, the Special Tax Fund and the 2023 Reserve Account.

NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE CITY, THE

COUNTY, THE STATE OR ANY POLITICAL SUBDIVISION THEREOF IS PLEDGED TO THE PAYMENT OF THE BONDS. EXCEPT FOR THE SPECIAL TAX REVENUES, NO OTHER TAXES ARE PLEDGED TO THE PAYMENT OF THE BONDS. THE BONDS ARE NOT GENERAL OR SPECIAL

OBLIGATIONS OF THE CITY BUT ARE LIMITED OBLIGATIONS OF THE CITY PAYABLE SOLELY

FROM THE SPECIAL TAX REVENUES AND OTHER AMOUNTS PLEDGED UNDER THE FISCAL AGENT AGREEMENT AS MORE FULLY DESCRIBED HEREIN.

Special Taxes
Authorization and Pledge. In accordance with the provisions of the Act, the City established the District on January 16, 2007 for the purpose of financing of various public improvements required in Item Number: 5.

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connection with the proposed development within the District. On January 16, 2007, the City designated Improvement Area 1 in the District. At a special election held on January 16, 2007 the qualified electors within Improvement Area 1 at the time of such election, authorized the City to incur indebtedness in an amount not to exceed $8,000,000 for Improvement Area 1 of the District, and to levy of the Special Taxes on property within Improvement Area 1, as applicable, to repay such bonds and to finance the Facilities (as defined below).

The Bonds will be repaid only from annual Special Taxes derived from the levy and collection of Special Taxes pursuant to the Rate and Method. The Rate and Method permits the prepayment of Special Taxes for an Assessor’s Parcel, and any such Prepayments will be applied to redeem Bonds, 2020 Bonds and Additional Bonds, if any. The annual Special Tax levy and the proceeds of any Prepayment have been pledged under the Fiscal Agent Agreement to the repayment of the Bonds, the 2020 Bonds and Additional Bonds.

The Special Taxes levied in any Fiscal Year may not exceed the maximum rates authorized pursuant to the Rate and Method. See “— Rate and Method of Apportionment of Special Tax” and Appendix A— “RATE AND METHOD OF APPORTIONMENT.” There is no assurance that the Special Tax Revenues will, in all circumstances, be adequate to pay the principal of and interest on the Bonds when due. See the caption “SPECIAL RISK FACTORS — Insufficiency of Special Tax Revenues.” Rate and Method of Apportionment of Special Tax. The Rate and Method applicable to Improvement Area 1 is contained in Appendix A — “RATE AND METHOD OF APPORTIONMENT.” The meaning of the defined terms used in this section are as set forth in Appendix A.

In general, the Rate and Method imposes a different Maximum Special Tax on Taxable Property within Improvement Area 1 depending upon whether such Taxable Property is classified as: (i) “Developed Property” (in general, Taxable Property, exclusive of Association Property and Public Property, upon which completed Dwelling Units or non-residential buildings have been constructed or for which building permits have been issued as of March 1 of the Fiscal Year preceding the Fiscal Year for which Special Taxes are being levied), (ii) “Approved Property” (in general, parcels of Taxable Property included in a final map recorded prior to the January 1 preceding the Fiscal Year in which the Special Tax is being levied but for which no building permit was issued before March 1 preceding such Fiscal Year), (iii) “Taxable Association Property” (in general, parcels of Association Property which are not Exempt Property), (iv) “Taxable Public Property” (in general, parcels of Public Property which are not Exempt Property), or (v) “Undeveloped Property” (in general, all Taxable Property not classified as Developed Property or Approved Property, exclusive of Taxable Association Property or Taxable Public Property).

Pursuant to the Rate and Method, the City is required to determine the “Special Tax Requirement” for each Fiscal Year. The Special Tax Requirement for Improvement Area 1 of the District is the amount required in any Fiscal Year to: (i) pay debt service on all Outstanding Bonds, 2020 Bonds and Additional Bonds due in the calendar year commencing in such Fiscal Year, (ii) pay period costs on the Bonds, the 2020 Bonds and Additional Bonds, including but not limited to, credit enhancement and rebate payments on the Bonds, the 2020 Bonds and Additional Bonds due in the calendar year commencing in such Fiscal Year, (iii) pay Administrative Expenses, (iv) pay for reasonably anticipated delinquencies in the collection of Special Taxes, (v) pay any amounts required to establish or replenish any reserve funds for all Outstanding Bonds, 2020 Bonds and Additional Bonds, less (vi) a credit for funds available pursuant to the Fiscal Agent Agreement to pay debt service on outstanding Bonds, 2020 Bonds and any Additional Bonds.

The Special Tax Requirement for Improvement Area 1 of the District is to be satisfied first by levying the Special Tax on each Assessor’s Parcel of Developed Property in an amount equal to 100% of the applicable Assigned Special Tax. If additional moneys are needed to satisfy the Special Tax Requirement, the Special Tax shall be levied Proportionately on each Assessor’s Parcel of Approved Property at up to 100% of the Maximum Special Tax for Approved Property. If additional moneys are still needed to satisfy the Special Tax Requirement, the Special Tax shall be levied Proportionately on each Assessor’s Parcel of Undeveloped Property at up to 100% of the Maximum Special Tax for Undeveloped Property. If additional moneys are Item Number: 5.

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needed to satisfy the Special Tax Requirement, the Special Tax shall be levied on each Assessor’s Parcel of Developed Property whose Maximum Special Tax is derived by the application of the Backup Special Tax shall be increased in equal percentages from the Assigned Special Tax up to the Maximum Special Tax. If additional moneys are needed to satisfy the Special Tax Requirement, the Special Tax shall be levied Proportionately on each Assessor’s Parcel of Taxable Association Property at up to 100% of the Maximum Special Tax for Taxable Association Property. Finally, if additional moneys are needed to satisfy the Special Tax Requirement, the Special Tax shall be levied Proportionately on each Assessor’s Parcel of Taxable Public Property at up to 100% of the Maximum Special Tax for Taxable Public Property. Notwithstanding the above, under no circumstances will the Special Tax levied against any Assessor’s Parcel of Residential Property be increased by more than 10% per Fiscal Year as a consequence of delinquency or default by the owner of any other Assessor’s Parcel within Improvement Area 1 of the District.

In Fiscal Year 2023-24, the City levied Special Taxes on 283 parcels of Developed Property within Improvement Area 1 in the amount of $262,022.98. As of December 1, 2023, building permits for all 394 planned homes within Improvement Area 1 have been issued and such parcels will be classified as Developed Property for the Fiscal Year 2024-25 Special Tax levy in accordance with the Rate and Method.

The Assigned Special Tax rates for Developed Property within Improvement Area 1 that is classified as Residential Property under the Rate and Method range from $1,086 per taxable unit with a Residential Floor Area less than 1,549 square feet to $1,562 per taxable unit with a Residential Floor Area greater than 2,550 square feet. In connection with the issuance of the 2020 Bonds, the City covenanted in the Original Fiscal Agent Agreement that the increase in the Special Tax Requirement as a result of the issuance of any Additional Bonds (e.g. the Bonds), shall not result in the Special Tax levy on any Developed Property exceeding the percentage of the Assigned Special Tax rate then being levied for any Land Use Category. Therefore, the Bonds have been sized based on the percentage of the Assigned Special Tax rate levied in Fiscal Year 2023-24 (which was 75.9% of the Assigned Special Tax rates) for each Land Use Category. The foregoing restriction is only applicable for purposes of issuing the Bonds and does not affect or limit the City’s ability to increase the Special Tax levy in the future in accordance with the Rate and Method and the Act for any other purpose (including as a result of Special Tax delinquencies).

Annual Debt Service for the Bonds has been structured so that Developed Property, based on building permits issued for all 394 planned homes within Improvement Area No. 1 as of December 1, 2023, levied at the Fiscal Year 2024-25 amounts shown in Table 1 below, assuming no delinquencies, will generate in each Fiscal Year not less than 110% of debt service payable with respect to the Bonds and the 2020 Bonds in the calendar year that begins in that Fiscal Year, assuming that Special Taxes are levied and collected on such Developed Property pursuant to the Rate and Method.

Table 1 below sets forth the Assigned Special Tax for Developed Property, the Maximum Special Tax for Approved Property, the projected Fiscal Year 2024-25 Special Tax levy and the percent of such levy based on land use type.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
Item Number: 5.

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TABLE 1

CITY OF DESERT HOT SPRINGS
COMMUNITY FACILITIES DISTRICT NO. 2006-1
(IMPROVEMENT AREA 1)
MAXIMUM/ASSIGNED SPECIAL TAX RATES FOR FISCAL YEAR 2024-25 Tax
Class Land Use Residential Floor Area
No. of
Units
Assigned Special
Tax Per
Unit/Maximum
Special Tax Per
Acre
Projected
Fiscal Year
2024-25
Special Tax
Per Parcel(1)
Total
Projected
Fiscal Year
2024-25
Special Tax
Levy(1)
Percent of
Total
D1 Residential Less than 1,549 sq. ft. 22 $1,086 $824 $ 18,132 4.96% D2 Residential 1,550 sq. ft. to 1,799 sq. ft. 147 1,104 838 123,164 33.72 D3 Residential 1,800 sq. ft. to 2,049 sq. ft. 140 1,246 946 132,387 36.24 D4 Residential 2,050 sq. ft. to 2,299 sq. ft. 75 1,411 1,071 80,313 21.99 D5 Residential 2,300 sq. ft. to 2,549 sq. ft. 6 1,441 1,094 6,562 1.80 D6 Residential Greater than 2,550 sq. ft. 4 1,562 1,185 4,742 1.30 Total 394 $ 365,300 100.00%
(1) Reflects 75.9% of the Assigned Special Tax rates for Developed Property. Includes Administrative Expenses of $30,000.

Source: Webb Municipal Finance, LLC.

Backup Special Tax Rates. The Backup Special Tax attributable to a Final Subdivision will equal $9,103, multiplied by the Acreage of all Taxable Property, exclusive of any Taxable Association Property and Taxable Public Property. The Backup Special Tax for each Assessor’s Parcel of Residential Property shall be computed by dividing the Backup Special Tax attributable to the applicable Final Subdivision by the number of Dwelling Units within such Final Subdivision and multiplying the result by the number of Dwelling Units on such Assessor’s Parcel. The Backup Special Tax for each Assessor’s Parcel of Non-Residential Property shall equal $9,103 multiplied by the Acreage of such Assessor’s Parcel.

If a Final Subdivision includes Assessor’s Parcels of Residential Property and Non-Residential Property, the total amount of the Backup Special Tax for such Assessor’s Parcel of Residential Property shall be based only on the Acreage of those Assessor’s Parcels.

Notwithstanding the foregoing, if Assessor’s Parcels of Residential Property are subsequently changed or modified by recordation of a lot line adjustment or similar instrument, the total amount of the Backup Special Tax shall be recalculated so that the total amount of the Backup Special Tax for such Assessor’s Parcels after such change will be equal to the aggregate amount of the Backup Special Tax for such Assessor’s Parcels before such change occurred.

Prepayment of Special Taxes. The Maximum Special Tax obligation for an Assessor’s Parcel of Developed Property, Approved Property and/or Undeveloped Property for which a building permit has been issued, and Public Property and/or Association Property that is not Exempt Property may be prepaid in full, provided that the terms set forth under the Rate and Method are satisfied. The Maximum Special Tax obligation of Developed Property, Approved Property and/or Undeveloped Property for which a building permit has been issued may also be prepaid in part.

The Prepayment amount is calculated based on the sum of the Bond Redemption Amount, the Redemption Premium, the Future Facilities Amount, the Defeasance Amount, Administrative Fees and Expenses and less a credit for the resulting reduction in the Reserve Requirement for the any outstanding bonds issued for Improvement Area 1 (if any), all as specified in Section H of the Rate and Method attached as Appendix A. Prepayments of Special Taxes will be applied to effect an extraordinary redemption of Bonds, 2020 Bonds and Additional Bonds. See “THE BONDS — Redemption — Special Mandatory Redemption from Special Tax Prepayments” and “SPECIAL RISK FACTORS— Potential Early Redemption of Bonds from Prepayments or Community Facilities District Bond Proceeds.” Item Number: 5.

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Estimated Debt Service Coverage. In connection with the issuance of the 2020 Bonds, the City covenanted in the Original Fiscal Agent Agreement that the increase in the Special Tax Requirement as a result of the issuance of any Additional Bonds (e.g. the Bonds), shall not result in the Special Tax levy on any Developed Property exceeding the percentage of the Assigned Special Tax rate then being levied for any Land Use Category. As such, annual debt service on the Bonds has been sized based on the percentage of the Assigned Special Tax rate levied in Fiscal Year 2023-24 (75.9% of the Assigned Special Tax rates) for each Land Use Category as shown in Table 1. The foregoing restriction is only applicable for purposes of issuing the Bonds and does not affect or limit the City’s ability to increase the Special Tax levy in the future in accordance with the Rate and Method and the Act for any other purpose (including as a result of Special Tax delinquencies). Neither the Assigned Special Tax nor the Administrative Expense escalate over time In connection with the issuance of the Bonds, the Special Tax Consultant will certify that the Maximum Special Tax that may be levied in each Fiscal Year on Assessor’s Parcels within Improvement Area 1 classified as Taxable Property will be at least equal to the sum of: (i) 110% of Maximum Annual Debt Service on the Bonds and the 2020 Bonds; plus (ii) the Administrative Expenses. Actual collections of the Special Tax will depend on the amount of Special Tax delinquencies.

Limitation on Special Tax Levy and Potential Impact on Coverage. Pursuant to Section 53321(d) of the Government Code, the special tax levied against any Assessor’s parcel for which an occupancy permit for private residential use has been issued shall not be increased as a consequence of delinquency or default by the owner of any other Assessor’s parcel within Improvement Area 1 by more than 10% above the amount that would have been levied in that fiscal year had there never been any such delinquencies or defaults. As a result, it is possible that the City may not be able to increase the tax levy to the Maximum Special Tax rates in all years.

Levy, Collection and Application of Special Taxes. The Special Taxes are levied and collected by the Treasurer-Tax Collector of the County in the same manner and at the same time as ad valorem property taxes, although it is possible that the City could elect to provide handbills to property owners within Improvement Area 1.

The City has covenanted in the Fiscal Agent Agreement to fix and levy the amount of Special Taxes within Improvement Area 1 required for the payment of principal of and interest on the outstanding 2020 Bonds, the Bonds and any Additional Bonds becoming due and payable during the ensuing Bond Year, including any necessary replenishment or expenditure of the Reserve Fund and an amount estimated to be sufficient to pay the Administrative Expenses during such year, all in accordance with the Rate and Method.

See Appendix E under the caption “COVENANTS AND WARRANTY.” Although the Special Taxes constitute liens on taxed parcels within Improvement Area 1, they do not constitute a personal indebtedness of the owners of property within Improvement Area 1. Moreover, other liens for taxes and assessments already exist on the property located within Improvement Area 1 and others could come into existence in the future in certain situations without the consent or knowledge of the City or the landowners in Improvement Area 1. See the captions “IMPROVEMENT AREA 1 — Direct and Overlapping Debt” and “SPECIAL RISK FACTORS — Direct and Overlapping Indebtedness.” There is no assurance that property owners will be financially able to pay the annual Special Taxes or that they will pay such taxes even if financially able to do so, all as more fully described under the caption “SPECIAL RISK FACTORS.” Proceeds of Foreclosure Sales. The net proceeds received following a judicial foreclosure sale of property within Improvement Area 1 resulting from a property owner’s failure to pay the Special Taxes when due are included within the Special Tax Revenues pledged to the payment of principal of and interest on the Bonds, the 2020 Bonds and any Additional Bonds under the Fiscal Agent Agreement.

Pursuant to Section 53356.1 of the Act, in the event of any delinquency in the payment of any Special Tax or receipt by the City of Special Taxes in an amount which is less than the Special Taxes levied, the City Item Number: 5.

17 4870-1603-0597v5/200812-0002
Council, as the legislative body of the District, may order that Special Taxes be collected by a Superior Court action to foreclose the lien within specified time limits. In such an action, the real property subject to the unpaid amount may be sold at a judicial foreclosure sale. Under the Act, the commencement of judicial foreclosure following the nonpayment of a Special Tax is not mandatory. However, the City has covenanted in the Fiscal Agent Agreement that it will annually on or before September 1 of each year review the public records of the County relating to the collection of the Special Tax in order to determine the amount of the Special Tax collected in the prior Fiscal Year, and if the City determines on the basis of such review that the amount so collected is deficient by more than five percent (5%) of the total amount of the Special Tax levied in such Fiscal Year, it will within thirty (30) days thereafter institute foreclosure proceedings as authorized by the Act in order to enforce the lien of the delinquent installment of the Special Tax against each separate lot or parcel of land in Improvement Area 1 for which such installment of the Special Tax is delinquent, and will diligently prosecute and pursue such foreclosure proceedings to judgment and sale; provided, that if the City determines on the basis of such review that (a) the amount so collected is deficient by less than 5% of the total amount of the Special Tax levied in the Improvement Area 1 in such Fiscal Year, but that property owned by any single property owner in the Improvement Area 1 is delinquent by more than $5,000 with respect to the Special Tax due and payable by such property owner in such Fiscal Year, or (b) that property owned by any single property owner in the Improvement Area 1 (i) is delinquent cumulatively by more than $3,000 with respect to the current and past Special Tax due (irrespective of the total delinquencies in the Improvement Area 1) or (ii) delinquent for 3 years or more, then the City will institute, prosecute and pursue such foreclosure proceedings in the time and manner provided herein against each such property owner. The Finance Director shall notify the City Attorney of any such delinquency of which it is aware, and the City Attorney shall commence, or cause to be commenced, such proceedings.

The City has covenanted in the Fiscal Agent Agreement that it will deposit the net proceeds of any foreclosure in the Special Tax Fund and will apply such proceeds to make current payments of principal and interest on the Bonds, the 2020 Bonds and any Additional Bonds, to bring the amount on deposit in the accounts of the Reserve Fund up to the applicable Reserve Requirement and to pay any delinquent installments of principal or interest due on the Bonds, the 2020 Bonds and any Additional Bonds.

If foreclosure is necessary and other funds (including amounts in the 2023 Reserve Account) have been exhausted, debt service payments on the Bonds could be delayed unless the foreclosure proceedings produce sufficient net foreclosure sale proceeds. Judicial foreclosure actions are subject to the normal delays associated with court cases and may be further slowed by bankruptcy actions, involvement by agencies of the federal government and other factors beyond the control of the City. See the caption “SPECIAL RISK FACTORS — Enforcement Delays – Bankruptcy.” Moreover, no assurances can be given that the real property subject to foreclosure and sale at a judicial foreclosure sale will be sold or, if sold, that the net proceeds of such sale will be sufficient to pay any delinquent Special Tax installment. See the caption “SPECIAL RISK FACTORS — Property Values.” Although the Act authorizes the City to cause such an action to be commenced and diligently pursued to completion, the Act does not impose on the City any obligation to purchase or acquire any lot or parcel of property sold at a foreclosure sale if there is no other purchaser at such sale. The Act provides that, in the case of a delinquency, the Special Tax will have the same lien priority as is provided for ad valorem taxes.

Collection of Special Taxes and Flow of Funds. The Special Taxes will be levied and collected by the Treasurer-Tax Collector of the County in the same manner and at the same time as ad valorem property taxes, although it is possible that the City could elect to provide handbills to property owners within Improvement Area 1. The City shall deposit, immediately upon receipt, all Special Tax Revenues received by the City (other than as a result of Prepayments) into the Special Tax Fund held by the City, and into the Surplus Account, surplus Special Tax Revenues described below. Moneys in the Special Tax Fund shall be held in trust by the City for the benefit of the City and the Owners of the Bonds, the 2020 Bonds and any Additional Bonds, shall be disbursed as provided below and, pending any disbursement, shall be subject to a lien in favor of the Owners of the Bonds, the 2020 Bonds and any Additional Bonds.

Item Number: 5.

18 4870-1603-0597v5/200812-0002
As soon as practicable after the receipt by the City of any Special Tax Revenues, other than as a result of Prepayments, or the transfer of amounts to the Special Tax Fund pursuant to the terms hereof, but no later than ten (10) Business Days after such receipt or transfer, the Finance Director shall withdraw from the Special Tax Fund and transfer to the Fiscal Agent for deposit:
(i) in the Bond Fund, an amount, taking into account any amounts then on deposit in the Bond Fund, such that the amount in the Bond Fund equals the principal, premium, if any, and interest due on the Bonds, the 2020 Bonds and any Additional Bonds during the then-current Bond Year; (ii) in the Reserve Fund, an amount, taking into account amounts then on deposit in each reserve account within the Reserve Fund, so that the amount in the reserve accounts of the Reserve Fund equals the Reserve Requirement with respect to the Bonds, the 2020 Bonds and any Additional Bonds.

In the event of any shortfall in disbursement amounts needed for the Bonds, the 2020 Bonds and any Additional Bonds, allocations of available moneys shall be made to each Series on a pro rata basis according to principal amounts outstanding. After the transfers described under (i) and (ii) above have been made, the City may, on or after September 2nd of each year transfer to the Surplus Account the amount remaining in the Special Tax Fund, whereupon such moneys transferred shall be free of the pledge for payment of the Bonds, the 2020 Bonds and any Additional Bonds.

The Fiscal Agent Agreement has established the Bond Fund as a separate fund held by the Fiscal Agent, to the credit of which deposits shall be made as required as described above. Moneys in the Bond Fund shall be held in trust by the Fiscal Agent for the benefit of the Owners of the Bonds, the 2020 Bonds and any Additional Bonds, shall be disbursed for the payment of the principal of, and interest and any premium on, the Bonds, the 2020 Bonds and any Additional Bonds as provided below, and, pending such disbursement, shall be subject to a lien in favor of the Owners of the Bonds, the 2020 Bonds and any Additional Bonds.

On each Interest Payment Date, the Fiscal Agent shall withdraw from the Bond Fund and pay to the Owners of the Bonds, the 2020 Bonds and any Additional Bonds the principal of, and interest and any premium, then due and payable on the Bonds, the 2020 Bonds and any Additional Bonds, including any amounts due as a result of an optional redemption.

In the event that amounts in the Bond Fund are insufficient to pay regularly scheduled payments of principal of and interest on the Bonds, the Fiscal Agent shall withdraw from the 2023 Reserve Account within the Reserve Fund established for the Bonds, to the extent of any funds therein, the amount of such insufficiency. Amounts so withdrawn from the Reserve Fund shall be deposited in the Bond Fund.

If, after the foregoing transfer, there are insufficient funds in the Bond Fund to make the payments provided for to pay regularly scheduled payments of principal of and interest on the Bonds, the 2020 Bonds and any Additional Bonds, the Fiscal Agent shall apply the available funds first to the payment of interest on the Bonds, the 2020 Bonds and any Additional Bonds, then to the payment of principal due on the Bonds, the 2020 Bonds and any Additional Bonds, other than by reason of sinking payments, and then to payment of principal due on the Bonds, the 2020 Bonds and any Additional Bonds by reason of sinking payments. Any sinking payment not made as scheduled shall be added to the sinking payment to be made on the next sinking payment date.

Within the Bond Fund there is established the Prepayment Account, which shall be used exclusively for the administration of any prepayments of Special Taxes to assure the timely redemption of the Bonds, the 2020 Bonds and any Additional Bonds. Monies in the Prepayment Account shall be used to redeem Bonds, 2020 Bonds and any Additional Bonds on the redemption date specified in the notice to the Fiscal Agent given pursuant to the Fiscal Agent Agreement.

Item Number: 5.

19 4870-1603-0597v5/200812-0002
2023 Reserve Account
The Fiscal Agent Agreement established as a separate fund to be held by the Fiscal Agent, the Reserve Fund, and within the Reserve Fund there is established a “2023 Reserve Account.” Except as otherwise provided in the Fiscal Agent Agreement, all amounts deposited in the 2023 Reserve Account shall be used and withdrawn by the Fiscal Agent solely for the purpose of making transfers to the Bond Fund in the event of any deficiency within five days prior to any Interest Payment Date in the Bond Fund of the amount required for payment of the principal of, and interest on, the Bonds on such Interest Payment Date.

Whenever, on the Business Day prior to any Interest Payment Date, the amount in the 2023 Reserve Account within the Reserve Fund exceeds the Reserve Requirement for the Bonds, the Fiscal Agent shall provide written notice to the Finance Director of the City of the amount of the excess. The Finance Director shall advise the Fiscal Agent in writing of the amount, if any, of any required transfer to the federal government to comply with the rebate requirements under the Code, and otherwise direct the Fiscal Agent to transfer an amount equal of the excess to the Bond Fund to be used for the payment of the principal of and interest on the Outstanding Bonds; provided, however, that to the extent that such excess results from the prepayment of Special Taxes and redemption of Bonds, such amount shall be transferred to the Prepayment Account and applied to the corresponding redemption of Bonds.

The Reserve Requirement with respect to the 2023 Reserve Account is defined in the Fiscal Agent Agreement, as of any date of calculation, a sum that is equal to of the least of (i) 10% of the initial principal amount of the Bonds, (ii) Maximum Annual Debt Service on the then Outstanding Bonds, or (iii) 125% of average Annual Debt Service on the then Outstanding Bonds; provided, however, that the Reserve Requirement shall not exceed $________, the Reserve Requirement calculated at the time of delivery of the Bonds. On the date of delivery of the Bonds, $_______ from proceeds of the Bonds will be deposited into the 2023 Reserve Account to satisfy the Reserve Requirement.

Whenever the balance in the 2023 Reserve Account exceeds the amount required to redeem or pay the Outstanding Bonds, including interest accrued to the date of payment or redemption and premium, if any, due upon redemption, and after making any required transfers to the federal government to comply with the rebate requirements under the Code, and upon receipt of an Officer’s Certificate directing it to do so, the Fiscal Agent shall transfer the amount in the 2023 Reserve Account to the Bond Fund to be applied, on the next succeeding Interest Payment Date to the payment or redemption, as applicable, of all the Outstanding Bonds. In the event that the amount so transferred to the Bond Fund exceeds the amount required to pay and redeem the Outstanding Bonds, the balance in such reserve account shall be transferred to the City, after payment of any amounts due the Fiscal Agent under the Fiscal Agent Agreement, to be used for any lawful purpose of the City.

In connection with the issuance of the 2020 Bonds, the 2020 Reserve Account of the Reserve Fund was established for the 2020 Bonds. For each Series of Additional Bonds, if any, the Fiscal Agent shall establish a separate reserve account for each such Series. Moneys in each reserve account shall be held in trust by the Fiscal Agent for the benefit of the Owners of the respective Series of bonds as a reserve for the payment of principal of, and interest on, the respective Series of bonds and shall be subject to a lien in favor of the Owners of such Series. That is, no amounts in any reserve account of the Reserve Fund, other than the 2023 Reserve Account, secures the Bonds.

See Appendix E under the caption “CREATION OF FUNDS AND APPLICATION OF PROCEEDS — Reserve Account of the Special Tax Fund.”
No Teeter Plan
Although the Riverside County Board of Supervisors has adopted the Alternative Method of Distribution of Tax Levies and Collections and of Tax Sale Proceeds (the “Teeter Plan”) which allows each Item Number: 5.

20 4870-1603-0597v5/200812-0002
entity levying secured property taxes in the County to draw on the amount of property taxes levied rather than the amount actually collected, as provided for in Section 4701 et seq. of the California Revenue and Taxation Code, the District and Improvement Area 1 are not included in the County Teeter Plan. Consequently, the City may not draw on the County Tax Loss Reserve Fund in the event of delinquencies in Special Tax payments within Improvement Area 1.

Additional Bonds for Refunding Purposes Only
The City will covenant in the Fiscal Agent Agreement not to issue Additional Bonds except as provided in the Fiscal Agent Agreement and only for the purposes of refunding all or a portion of the Bonds, the 2020 Bonds and any Additional Bonds. See Appendix E under the caption “DEFEASANCE AND ADDITIONAL BONDS.”
IMPROVEMENT AREA 1
General Description of the District and Improvement Area 1 The District includes five Improvement Areas in two non-contiguous areas in the City. Improvement Areas 1 through 4 are located in the eastern portion of the City, to the southeast of Mission Lakes Boulevard and Worsley Road, and consists of approximately 608 acres. Improvement Areas 1 through 4 are included in Skyborne, a planned residential community planned to include 10 villages with approximately 2,000 homes at buildout. Improvement Area 5 is unrelated to the Skyborne project.

Improvement Area 1 includes Villages I and II which are the first phases of the Skyborne development. Improvement Area 1 is located to the northwest of Karen Avenue and Pierson Boulevard.

Improvement Area 1 is planned to include 394 single family homes at buildout. As of the September 15, 2023, Date of Value of the Appraisal Report, 351 of the 394 homes planned within Improvement Area 1 had been conveyed to individual homeowners. As of such date, the property for the remaining 43 homes was owned by Lennar and consisted of eight completed homes (including three model homes), 20 homes under construction and 15 finished lots. Development has progressed since the Date of Value of the Appraisal Report. As of November 27, 2023, a total of 362 homes within Improvement Area No. 1 had been completed and conveyed to individual homeowners. As of such date, Lennar owned three completed model homes, one completed production home (in escrow), 21 homes under construction (four in escrow), and 7 finished lots (none in escrow). Building permits have been issued for all 394 planned homes in Improvement Area No. 1.

The backbone infrastructure necessary to complete development in Improvement Area 1 is complete.

Remaining infrastructure to be completed consists of final finishing of certain in-tract streets and landscaping.

Lennar expects to complete construction of the in-tract improvements associated with the remaining lots that it owns within Improvement Area 1 as home construction on such lots is completed.

Certain backbone infrastructure remains to be completed by Skyborne Ventures to achieve full buildout of Skyborne, however, completion of such infrastructure is not a condition to complete the development in Improvement Area 1.

See the caption “PROPERTY OWNERSHIP AND THE DEVELOPMENT” for further information with respect to the development within Improvement Area 1 and Lennar.

Water and sewer service to the property within Improvement Area 1 is currently supplied by the Mission Springs Water District. Electricity is currently supplied by Southern California Edison and gas by Southern California Gas Company. Public education instruction is provided by the Palm Springs Unified School District.

Item Number: 5.

21 4870-1603-0597v5/200812-0002
The property within Improvement Area 1 of the District is not located in an Alquist-Priolo Earthquake Study Zone and is not located within one-half mile of an active earthquake fault. Additionally, Improvement Area 1 is not located in a flood plain area or in an area which the Department of Forestry and Fire Protection of the State of California has designated as a high fire hazard severity zone. Notwithstanding the foregoing, the property in Improvement Area 1 may be subject to unpredictable seismic activity, fires, flood, or other natural disasters. See “SPECIAL RISK FACTORS — Natural Disasters.” A map showing the location of the District and Improvement Area 1, and an aerial photograph thereof appear following the Table of Contents.

Authorized Uses of Bond Proceeds
Proceeds of the Bonds are authorized to be used to pay for the costs of construction of City facilities, including but not limited to streets, streetscape, park and recreation facilities, storm drain, other City facilities, and related costs including designs, inspections, professional fees, annexation fees, connection fees and acquisition costs (collectively, the “Facilities”).

Property Values and the Appraisal
General. The extent to which the Special Tax provides security for the Bonds is, at least in part, a function of the value of each parcel of land within Improvement Area 1 that is subject to the Special Tax because, in the event that a property owner defaults in the payment of the applicable Special Tax, such property owner will not have any personal liability for the payment of the Special Tax, and the principal remedy available to the County will be to take foreclosure proceedings with respect to the subject property.

Assessed Value. The assessed value of the property within Improvement Area 1 represents the secured assessed valuation established by the County Assessor. Assessed values do not necessarily represent market values. Article XIIIA of the California Constitution (Proposition 13) defines “full cash value” to mean “the County assessor’s valuation of real property as shown on the 1975/76 roll under ‘full cash value’, or, thereafter, the appraised value of real property when purchased or newly constructed or when a change in ownership has occurred after the 1975 assessment,” subject to exemptions in certain circumstances of property transfer or reconstruction. The “full cash value” is subject to annual adjustment to reflect increases, not to exceed 2% for any year, or decreases in the consumer price index or comparable local data, or to reflect reductions in property value caused by damage, destruction or other factors. Because of the general limitation to 2% per year in increases in full cash value of properties which remain in the same ownership, the County tax roll does not reflect values uniformly proportional to actual market values. There can be no assurance that the assessed valuations of the properties within Improvement Area 1 accurately reflect their respective market values, and the future fair market values of those properties may be lower than their current assessed valuations.

The table below sets forth historic secured assessed values of the parcels of Taxable Property within Improvement Area 1from Fiscal Years 2019-20 through 2023-24. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
Item Number: 5.

22 4870-1603-0597v5/200812-0002
TABLE 2

CITY OF DESERT HOT SPRINGS
COMMUNITY FACILITIES DISTRICT NO. 2006-1
(IMPROVEMENT AREA 1)

ASSESSED VALUATION HISTORY
FISCAL YEARS 2019-20 THROUGH 2023-24
Fiscal Year Total Parcels
Parcels with
Structure
Value
Land Assessed
Value
Improvement
Assessed Value
Total Assessed
Valuation(1)
2019-20 394 178 $9,897,821 $29,652,836 $ 39,550,657
2020-21 394 178 10,996,839 30,859,071 41,855,910
2021-22 394 179 16,161,912 36,226,033 52,387,945
2022-23 394 198 19,303,456 39,229,907 58,533,363
2023-24 394 326 27,358,865 82,235,342 109,594,207
(1) As of January 1 of each year as shown on the County Assessor’s Rolls. Total Assessed Value is calculated as the sum of Land Assessed Value and Improvement Assessed Value.

Source: Webb Municipal Finance, LLC.

Appraised Value. A property’s assessed value is not necessarily indicative of its market value. In order to provide information with respect to the value of the taxable property within Improvement Area 1, the City engaged the Appraiser to prepare the Appraisal Report. The Appraiser has an “MAI” designation from the Appraisal Institute and has prepared numerous appraisals for the sale of land-secured municipal bonds.

The Appraiser was selected by the City and has no material relationships with the City or the owners of the land within Improvement Area 1 other than the relationship represented by the engagement to prepare the Appraisal Report. The City instructed the Appraiser to prepare its analysis and report in conformity with Cityapproved guidelines and the Appraisal Standards for Land Secured Financings published in 1994 and revised in 2004 by the California Debt and Investment Advisory Commission. A copy of the Appraisal Report is included as Appendix D — “APPRAISAL REPORT” to this Official Statement.

The purpose of the Appraisal Report was to estimate the market value of the property within Improvement Area 1 subject to the lien of the Special Taxes. With respect to 297 completed single family homes owned by individual homeowners as shown on the County Assessor’s as of January 1, 2023, the Appraiser used the Fiscal Year 2023-24 assessed values assigned by the County (totaling $94,248,523). In valuing the Appraised Property relating to the remaining 97 planned homes in Improvement Area 1, the Appraiser used a sales comparison approach and an extraction analysis that takes into account home prices, direct and indirect construction costs, accrued depreciation and developer’s incentive in order to arrive at an estimate of improved lot value.

Subject to the assumptions and limiting conditions set forth in the Appraisal Report, the Appraiser concluded that, as of the Date of Value (September 15, 2023), the estimated market value of the Taxable Property within Improvement Area 1 was $121,489,293, consisting of $94,248,523 of the 297 homes with improvement value shown on the Fiscal Year 2023-24 County Assessor’s roll, and $27,240,770 of the appraised value of the Appraised Property relating to the remaining 97 homes.

The Appraisal Report is based upon a variety of assumptions and limiting conditions that are described in Appendix D. The City and the Underwriter make no representation as to the accuracy of the Appraisal Report. There is no assurance that the property within Improvement Area 1 of the District can be sold for the prices set forth in the Appraisal Report or that any parcel can be sold for a price sufficient to pay the Special Tax for that parcel in the event of a default in payment of Special Taxes by the landowner. See “SPECIAL RISK FACTORS — Property Values” and Appendix D — “APPRAISAL REPORT.” Item Number: 5.

23 4870-1603-0597v5/200812-0002
Estimated Value-to-Lien Ratios
The aggregate appraised value of property within Improvement Area 1 is $121,489,293. Dividing the aggregate estimate of value by the principal amount of the Bonds and the 2020 Bonds results in value to lien ratio of 33.3-to-1* for Improvement Area 1. There is currently no overlapping land-secured debt on the property in Improvement Area 1. See Table 5 below and “SPECIAL RISK FACTORS — Direct and Overlapping Indebtedness.”
Based on ownership status as of September 15, 2023, individual homeowners and Lennar are expected to be responsible for approximately 88.15% and 11.15%, respectively, of the projected Fiscal Year 2024-25 Special Tax levy.

Table 3 below sets forth the appraised value-to-lien ratio of the Taxable Property within Improvement Area 1 based on the appraised values set forth in the Appraisal Report and the principal amount of the Bonds and the 2020 Bonds. Table 4 below sets forth the estimated appraised value-to-lien ratios for Developed Property within Improvement Area 1 by various ranges based upon the principal amount of the Bonds and the 2020 Bonds. The allocation of the principal amount of the Bonds and the 2020 Bonds in Tables 3 and 4 is based on the estimated Fiscal Year 2024-25 Special Tax levy. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
*
Preliminary, subject to change.

Item Number: 5.

24 4870-1603-0597v5/200812-0002
TABLE 3

CITY OF DESERT HOT SPRINGS
COMMUNITY FACILITIES DISTRICT NO. 2006-1
(IMPROVEMENT AREA 1)

ESTIMATED VALUE-TO-LIEN RATIOS

ALLOCATED BY PROPERTY OWNER
Property Owner(1)
No. of
Parcels
Projected
Fiscal Year
2024-25
Special Tax
Levy(2)
Percent of
Projected
Fiscal
Year
2024-25
Levy
Projected
Fiscal Year
2024-25
Maximum
Special Tax
Percent of
Projected
Total
Maximum
Special
Tax
Assessed/Appraised
Value(3)
Percent
of
Appraised
Value
Allocation
of Bonds(4)*
Aggregate
Value-toLien
Ratio(5)*
Developed Property
Individual 351 $ 324,574 88.85% $ 493,741 89.25% $ 115,888,523 95.39% $3,245,611 35.71:1 Lennar 43 40,726 11.15 59,466 10.75 5,600,770 4.61 407,246 13.75:1 Subtotal Developed 394 $ 365,300 100.00% $ 553,206 100.00% $ 121,489,293 100.00% $3,652,857 33.26:1 * Preliminary, subject to change.
(1) Ownership status is based on information from Appraisal as of September 15, 2023. Development has progressed since the Date of Value of the Appraisal Report. See “PROPERTY OWNERSHIP AND THE DEVELOPMENT.”
(2) Reflects 75.9% of the Assigned Special Tax rates for Developed Property. Includes Administrative Expenses of $30,000. (3) Based on the aggregate assessed/appraised value set forth in the Appraisal Report as of September 15, 2023, the Date of Value. (4) Includes the outstanding 2020 Bonds and the Bonds. Allocated based on the estimated Fiscal Year 2024-25 Special Tax levy. (5) Excludes direct and overlapping debt shown in Table 5.

Source: Webb Municipal Finance, LLC.

Item Number: 5.
25 4870-1603-0597v5/200812-0002
TABLE 4

CITY OF DESERT HOT SPRINGS
COMMUNITY FACILITIES DISTRICT NO. 2006-1
(IMPROVEMENT AREA 1)
VALUE-TO-LIEN STRATA FOR DEVELOPED PROPERTY*
Appraised
Value-to-Lien
No. of
Parcels
Percent
of Total
Parcels
Projected
Fiscal Year
2024-25
Special Tax
Levy(1)
Percent
of Fiscal
Year
2024-25
Levy
Projected
Fiscal Year
2024-25
Maximum
Special Tax
Percent of
Projected
Total
Maximum
Special
Tax
Assessed/Appraised
Value(2)
Percent of
Appraised
Value
Allocation of
Bonds(3)
Aggregate
Value-to-Lien
Less than 20.00:1(4) 69 17.51% $ 64,166 17.57% $ 96,463 17.44% $ 7,465,652 5.91% $ 641,638 11.64:1

20.00: to 29.99:1 78 19.80 72,207 19.77 110,976 20.06 18,587,673 15.34 722,043 25.74:1

30.00:1 to 39.99:1 90 22.84 86,630 23.71 127,703 23.08 31,993,735 26.42 866,263 36.93:1

39.99:1 to 49.99:1 148 37.56 134,770 36.89 205,728 37.19 59,528,192 49.10 1,347,645 44.17:1 Greater than 49.99:1(5) 9 2.28 7,527 2.06 12,337 2.23 3,914,041 3.23 75,267 52.00:1 Total 394 100.00% $ 365,300 100.00% $ 553,206 100.00% $ 121,489,293 100.00% $3,652,857 33.26:1 * Preliminary, subject to change.
(1) Reflects 75.9% of the Assigned Special Tax rates for Developed Property. Includes Administrative Expenses of $30,000. (2) Based on the aggregate assessed/appraised value set forth in the Appraisal Report as of September 15, 2023, the Date of Value. (3) Includes the outstanding 2020 Bonds and the Bonds.
(4) Minimum estimated assessed/appraised value-to-lien is 6.54:1* .
(5) Highest estimated assessed/appraised value-to-lien is 53.95:1* .

Source: Webb Municipal Finance, LLC.

Item Number: 5.
26 4870-1603-0597v5/200812-0002
Direct and Overlapping Debt
Improvement Area 1 is included within the boundaries of overlapping local agencies providing governmental services. Some of these local agencies have outstanding bonds, and/or the authority to issue bonds, payable from taxes or assessments. The existing and authorized indebtedness payable from taxes and assessments that may be levied upon the property within Improvement Area 1 is shown in Table 5 below. In addition to current debt, new community facilities districts and/or special assessment districts could be formed in the future encompassing all or a portion of the property within Improvement Area 1; and such districts or the agencies that formed them could issue more bonds and levy additional special taxes or assessments. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
Item Number: 5.

27 4870-1603-0597v5/200812-0002
TABLE 5

CITY OF DESERT HOT SPRINGS
COMMUNITY FACILITIES DISTRICT NO. 2006-1
(IMPROVEMENT AREA 1)

DIRECT AND OVERLAPPING DEBT
I. Assessed/Appraisal Value
Assessed/Appraised Valuation(1) $121,489,293
II. Land Secured Bond Indebtedness
Outstanding Direct and
Overlapping Bonded Debt Type Issued Outstanding
%
Applicable
Total
Parcels
Levied
Amount
Applicable
City of Desert Hot Springs CFD No. 2006-1 IA No. 1 CFD $4,185,000 $3,652,857(2) 100.00% 394 $ 3,652,857* TOTAL OUTSTANDING LAND SECURED BONDED DEBT(2) $ 3,652,857* Authorized and Unissued Direct and
Overlapping Bonded Debt Type Authorized Unissued
%
Applicable
Total
Parcels
Levied
Amount
Applicable
City of Desert Hot Springs CFD No. 2006-1 IA No. 1 CFD $8,000,000 $3,815,000 100.00% 394 $ 3,815,000* TOTAL UNISSUED LAND SECURED INDEBTEDNESS(2) $ 3,815,000* TOTAL OUTSTANDING AND UNISSUED LAND SECURED INDEBTEDNESS $ 7,467,857* III. General Obligation Bond Indebtedness
Outstanding Direct and
Overlapping Bonded Debt Type Issued Outstanding
%
Applicable
Total
Parcels
Levied
Amount
Applicable
Palm Springs Unified School District GO Bonds (0.14493%) GO $662,500,000 $382,765,000 0.260612% 394 $ 997,533 Desert Community College GO Bonds (0.03950%) GO 566,498,444 466,562,129 0.100590 394 469,314 TOTAL OUTSTANDING GENERAL OBLIGATION BONDED DEBT(3) $ 1,466,847 Authorized and Unissued Direct and
Overlapping Indebtedness Type Authorized Unissued
%
Applicable
Total
Parcels
Levied
Amount
Applicable
Palm Springs Unified School District GO Bonds (0.0100%) GO $996,960,000 $334,460,000 0.260612% 394 $ 871,644 Desert Community College GO Bonds (0.0785%) GO 924,360,000 357,861,556 0.100590 394 359,973 TOTAL UNISSUED GENERAL OBLIGATION INDEBTEDNESS(3) $ 1,231,617 TOTAL OUTSTANDING AND UNISSUED GENERAL OBLIGATION INDEBTEDNESS $ 2,698,464 TOTAL OF ALL OUTSTANDING DIRECT AND OVERLAPPING BONDED DEBT $ 5,119,704* TOTAL OF ALL OUTSTANDING AND UNISSUED DIRECT AND OVERLAPPING INDEBTEDNESS $ 10,166,321* IV. Ratios to Appraised Valuation
Outstanding Land Secured Bonded Debt 33.26:1*
Outstanding Direct and Overlapping Bonded Debt 23.73:1* * Preliminary, subject to change.
(1) Based on the aggregate assessed/appraised value set forth in the Appraisal Report as of September 15, 2023, the Date of Value. (2) Outstanding amount is based on the outstanding par amount of the 2020 Bonds and the Bonds. Additional Bonds may be issued for refunding purposes only.
(3) Percentage applicable determined by Fiscal Year 2023-24 Assessed Value information.

Source: County of Riverside Assessor’s Office; Webb Municipal Finance, LLC.

Item Number: 5.

28 4870-1603-0597v5/200812-0002
Table 6 below describes the estimated Fiscal Year 2024-25 effective tax burden for an individually owned home in Improvement Area 1 based on the average appraised value of homes as of the Date of Value, the estimated average Fiscal Year 2024-25 Special Tax levy and Fiscal Year 2023-24 actual levies for all other overlapping taxing jurisdictions. Based on the foregoing, the City expects that, in Fiscal Year 2024-25, the projected effective tax rate to be levied on an individually owned home in Improvement Area 1 will be approximately 2.10%.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
Item Number: 5.

29 4870-1603-0597v5/200812-0002
TABLE 6

CITY OF DESERT HOT SPRINGS
COMMUNITY FACILITIES DISTRICT NO. 2006-1
(IMPROVEMENT AREA 1)
ESTIMATED FISCAL YEAR 2024-25 TAX OBLIGATION
Average Home Value (2) $ 330,167
Ad Valorem Property Taxes:

Basic Levy (1.0000%) $ 3,301.67
Palm Springs Unified School District GO Bonds (0.14493%) 478.51 Desert Community College GO Bonds (0.03950%) 130.42
Desert Water AG (0.08000%) 264.13
Total General Property Taxes $ 4,174.73
Assessment, Special Taxes & Parcel Charges:

CFD 2006-1 Desert Hot Springs(3) $ 924.71
Fld Cntl Stormwater/Cleanwater 3.04
CSA 152-DHSprings Stormwater 10.00
DHS Public Safety Measure Tax 120.30
DHS Pub Safety Srv Parcel Tax 341.12
City of DHS DAD No. 1 Zn 12 93.98
City of DHS LMD No. 2 Zn 13 76.52
Desert Valley Disposal Collect 494.06
MSWD Sewer Charges & UUT 644.04
Coachella Valley Mosquito & RIFA 14.38
City of Desert Hot Springs LMD 40.56
Total Assessment Charges $ 2,762.71
Average Total Property Tax $ 6,937.44
Average Effective Tax Rate 2.10%
(1) Average Home Value is based upon average Value for parcels of Developed Property indicated as being closed and conveyed to Individuals per the Appraisal.
(2) Average tax rates based upon Fiscal Year 2023-24 Overlapping Taxes and Assessments. (3) Reflects average projected Fiscal Year 2024-25 Special Tax levy for parcels of Developed Property indicated as being individually owned per the Appraisal Report.

Source: Webb Municipal Finance, LLC.

Item Number: 5.

30 4870-1603-0597v5/200812-0002
Delinquency History
Table 7 below summarizes the Special Tax delinquencies for property within the boundaries of Improvement Area 1 for Fiscal Year 2018-19 through Fiscal Year 2022-23. Currently, there are no foreclosure actions in process for parcels within Improvement Area 1.

TABLE 7

CITY OF DESERT HOT SPRINGS
COMMUNITY FACILITIES DISTRICT NO. 2006-1
(IMPROVEMENT AREA 1)

SPECIAL TAX LEVIES, DELINQUENCIES, AND DELINQUENCY RATES FISCAL YEARS 2018-19 THROUGH 2022-23
Delinquencies at Fiscal Year End Delinquencies as of November 20, 2023 Fiscal
Year
Amount
Levied
Parcels
Levied
Parcels
Delinquent
Amount
Delinquent
Percent
Delinquent
Parcels
Delinquent
Amount
Delinquent
Percent
Delinquent
2018-19 $222,401.84 216 11 $ 9,763.86 4.39% 0 $ 0.00 0.00% 2019-20 222,401.84 216 29 20,553.25 9.24 0 0.00 0.00
2020-21 199,253.06 216 6 3,508.90 1.76 0 0.00 0.00
2021-22 199,253.06 216 4 2,343.35 1.18 0 0.00 0.00
2022-23 262,022.98 283 2 849.84 0.32 2 849.84 0.32
Source: Webb Municipal Finance, LLC.

Item Number: 5.
31 4870-1603-0597v5/200812-0002

PROPERTY OWNERSHIP AND THE DEVELOPMENT
The information about the property in Improvement Area 1 contained in this Official Statement has been provided by representatives of Skyborne Ventures, Lennar and others, and has not been independently confirmed or verified by the Underwriter or the City. The Underwriter and the City make no representation as to the accuracy or adequacy of the information contained in this caption. There may be material adverse changes in this information after the date of this Official Statement. Neither the Bonds nor the Special Taxes from which the Bonds are payable are personal obligations of Skyborne Ventures, Lennar, individual homeowners or any affiliate thereof or any other property owner and, in the event that any property owner defaults in the payment of its Special Taxes, the City may proceed with judicial foreclosure but has no direct recourse to the assets of any property owner or any affiliate thereof. See the caption “SPECIAL RISK FACTORS.”
Notwithstanding the belief of Lennar that it will have sufficient funds to complete its planned development in Improvement Area 1, no assurance can be given that amounts necessary to fund the remaining planned development by Lennar in Improvement Area 1 will be available when needed. None of Lennar or any other entity or person is under any legal obligation of any kind to expend funds for the development of the property as planned by Lennar in Improvement Area 1. Any contributions by Lennar or any other entity or person to fund the costs of such developments are entirely voluntary. If and to the extent the aforementioned sources are inadequate to pay the costs to complete the planned development by Lennar within Improvement Area 1, the remaining portions of such development may not be completed. Lennar does not have any legal obligation to Bondholders to make any such funds available for construction or development, or the payment of ad valorem property taxes or the Special Taxes.

The District and Improvement Area 1
The District includes five Improvement Areas in two non-contiguous areas in the City. Improvement Areas 1 through 4 are located in the eastern portion of the City, to the southeast of Mission Lakes Boulevard and Worsley Road, and consists of approximately 608 acres. Improvement Areas 1 through 4 are included in Skyborne, a planned residential community planned to include 10 villages with approximately 2,000 homes at buildout. Improvement Area 5 is unrelated to the Skyborne project.

Development of Skyborne commenced in 2006 and the original developer of Skyborne was D.R.

Horton. Development was delayed due to the severe economic recession in the late 2000’s. In 2008, D.R.

Horton sold substantially all of its interest in the Skyborne development to Skyborne Ventures. Skyborne Ventures is the current master developer of Skyborne.

Improvement Area 1 includes Villages I and II which are the first phases of the Skyborne development. Improvement Area 1 is located to the northwest of Karen Avenue and Pierson Boulevard.

Improvement Area 1 is planned to include 394 single family homes at buildout. Prior to conveying its interests in the Skyborne project to Skyborne Ventures, D.R. Horton had completed and conveyed 178 homes within Improvement Area 1 to individual homeowners. In 2020 and 2021, Skyborne Ventures conveyed 29 lots in Improvement Area 1 to Gallery Homes and the remaining 187 lots to Lennar. Since that time, Gallery Homes has completed and conveyed 29 homes to individual homeowners. As of November 27, 2023, Lennar has completed and conveyed 155 homes to individual homeowners, for a total of 362 homes closed to individual homeowners within Improvement Area 1. Building permits have been issued for all 394 planned homes in Improvement Area 1.

The backbone infrastructure necessary to complete development in Improvement Area 1 is complete.

Certain backbone infrastructure remains to be completed by Skyborne Ventures to achieve full buildout of Skyborne, however, completion of such infrastructure is not a condition to complete the development in Improvement Area 1.

Item Number: 5.

32 4870-1603-0597v5/200812-0002
Lennar Development and Financing Plan
General. As previously defined in this Official Statement, “Lennar” refers to Lennar Homes of California, LLC, a California limited liability company. Lennar is based in Irvine, California, and has been in the business of developing residential real estate communities in California since 1996. Lennar is whollyowned by U.S. Home, LLC, a Delaware limited liability company (“U.S. Home”). U.S. Home is whollyowned by Lennar Corporation, which is based in Miami, Florida (“Lennar Corporation”). Founded in 1954, Lennar Corporation completed its initial public offering in 1971 and listed its common stock on the New York Stock Exchange in 1972. Lennar Corporation’s Class A and Class B common stock are listed on the New York Stock Exchange under the symbols “LEN” and “LEN.B.” respectively. Lennar Corporation is one of the largest homebuilders in the United States based on home sales revenues and net earnings, and operates under a number of brand names, including Lennar and U.S. Home. Lennar Corporation primarily develops residential communities both within the Lennar Corporation family of builders and through consolidated and unconsolidated partnerships in which Lennar Corporation maintains an interest.

Lennar Corporation is subject to the informational requirements of the Securities Exchange Act of 1934, as amended, and, in accordance therewith, files reports, proxy statements, and other information, including financial statements, with the Securities and Exchange Commission (the “SEC”). Such filings, particularly Lennar Corporation’s annual report on Form 10-K and its most recent quarterly report on Form 10- Q, may be inspected and copied at the public reference facilities maintained by the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. Such filings can also be accessed over the internet at the SEC’s website at www.sec.gov.

Copies of Lennar Corporation’s Annual Report and related financial statements, prepared in accordance with generally accepted accounting standards, are available from Lennar Corporation’s website at www.lennar.com.

Development Plan. In 2021, Lennar purchased 187 lots from Skyborne Ventures in Improvement Area 1 which Lennar has been developing into a project with 187 single family homes being marketed as “Vega.” The lots for the 187 homes were originally conveyed to AG Essential Housing CA 2, LP in a landbank arrangement, but as of November 15, 2023, Lennar had acquired all 187 lots from the landbank, and AG Essential Housing CA 2, LP no longer owns any of the 187 lots. Of the 187 homes that Lennar plans to build in Improvement Area No. 1, as of November 27, 2023, Lennar had completed and conveyed 155 homes to individual homeowners. As of such date, Lennar owned three completed model homes, one completed production home (in escrow), 21 homes under construction (four in escrow), and 7 finished lots (none in escrow). However, homes under contract may not result in closed escrows as sales contracts are subject to cancellation. Lennar expects to complete and convey all remaining homes within its project in Improvement Area 1 to individual homeowners by April 2024.

All approvals and permits required for development of property within Lennar’s project within Improvement Area 1 have been secured for residential construction except for approvals required in the normal course of development. Remaining infrastructure to be completed by Lennar consists of final finishing of certain in-tract streets and landscaping. Lennar expects to complete construction of the in-tract improvements associated with the remaining lots that it owns within Improvement Area 1 as home construction on such lots is completed.

The table below summarizes, as of November 27, 2023, the product mix and development status of Lennar’s project within Improvement Area 1.

Item Number: 5.

33 4870-1603-0597v5/200812-0002
COMMUNITY FACILITIES DISTRICT NO. 2006-1
(IMPROVEMENT AREA 1)
VEGA
(As of November 27, 2023)
Owned by Lennar
Plan
Total
Units
Planned
Estimated
Home
Square
Footage
Closings as of
November 27,
2023
Completed
Homes/Homes
Under
Construction(1)
Finished
Lots
Base Home
Prices(2)
1 18 1,547 15 2 1 $404,055
2 43 1,792 37 5 1 411,355
3 62 1,950 51 9 2 417,715
4 64 2,091 52 9 3 427,970
Total 187 155 25 7
(1) Includes three model homes, one completed production home, and 21 homes under construction. (2) Base home prices shown exclude lot premiums, options and extras and any incentives or price reductions. Base sales prices are subject to change.

Source: Lennar.

No assurance can be given that home construction and sales will be carried out on the schedule and according to the plans outlined herein, or that the home construction and sale plans or base prices set forth above will not change after the date of this Official Statement. Additionally, homes sold may not result in closed escrows as sales contracts are subject to cancellation. In changing market conditions, builders will often revise the product lines and prices and the rate of sales can fluctuate. Lennar continuously evaluates its product lines and prices in light of the then current market conditions. See “SPECIAL RISK FACTORS” herein for a discussion of risk factors.

Financing Plan. Through November 1, 2023, Lennar had spent approximately $7,016,658 in acquiring its land in Improvement Area 1 and approximately $10,038,251 in site development costs, permits and impact fees, home construction costs, and other development, marketing and sales costs (exclusive of internal financing repayment, corporate overhead and other carry costs) related to its development within Improvement Area 1. Lennar expects to spend approximately $1,993,251 in additional site development costs, permit and impact fees, home construction costs, and other development, marketing and sales costs (exclusive of corporate overhead and other carry costs) between November 1, 2023 and full build-out of the homes that it plans to build in Improvement Area 1. Lennar currently expects to finance remaining the costs of the Vega project from home sales revenues and internal funding.

Notwithstanding the belief of Lennar that it will have sufficient funds to complete its planned development in Improvement Area 1, no assurance can be given that amounts necessary to fund the remaining planned development by Lennar in Improvement Area 1 will be available when needed. Neither Lennar nor any other entity or person is under any legal obligation of any kind to expend funds for the proposed development of the property owned by Lennar in Improvement Area 1. Any contributions by Lennar or any other entity or person to fund the costs of such development are entirely voluntary. If and to the extent the aforementioned sources are inadequate to pay the costs to complete the planned development by Lennar within Improvement Area 1, the remaining portions of such development may not be completed. There is no legal obligation to Bondholders to make any such funds available for construction or development, or the payment of ad valorem property taxes or the Special Taxes. See “SPECIAL RISK FACTORS” herein for a discussion of risk factors.

Item Number: 5.

34 4870-1603-0597v5/200812-0002

SPECIAL RISK FACTORS
The Bonds have not been rated by any rating agency, and the purchase of the Bonds involves significant risks that are not appropriate for certain investors. The following is a discussion of certain risk factors which should be considered, in addition to other matters set forth herein, in evaluating the investment quality of the Bonds. This discussion does not purport to be comprehensive or definitive and does not purport to be a complete statement of all factors which may be considered as risks in evaluating the credit quality of the Bonds. The occurrence of one or more of the events discussed herein could adversely affect the ability or willingness of property owners in Improvement Area 1 to pay their Special Taxes when due. Such failures to pay Special Taxes could result in the inability of the City to make full and punctual payments of debt service on the Bonds. In addition, the occurrence of one or more of the events discussed herein could adversely affect the value of the property in Improvement Area 1. See “— Property Values” below.

Risks of Real Estate Secured Investments Generally
The Bond Owners will be subject to the risks generally incident to an investment secured by real estate, including, without limitation: (i) adverse changes in local market conditions, such as changes in the market value of real property in the vicinity of the District, the supply of or demand for competitive properties in such area, and the market value of residential property or buildings and/or sites in the event of sale or foreclosure; (ii) changes in real estate tax rates and other operating expenses, governmental rules (including, without limitation, zoning laws and laws relating to endangered species and hazardous materials) and fiscal policies; (iii) natural disasters (including, without limitation, earthquakes, wildfires and floods), which may result in uninsured losses; (iv) adverse changes in local market conditions; and (v) increased delinquencies due to rising mortgage costs and other factors.

No assurance can be given that the property owners within Improvement Area 1 will pay Special Taxes in the future or that they will be able to pay such Special Taxes on a timely basis. See the caption “— Enforcement Delays — Bankruptcy” for a discussion of certain limitations on the City’s ability to pursue judicial proceedings with respect to delinquent parcels.

Increasing Mortgage Interest Rates
Since approximately November 2021, interest rates for mortgage loans have increased significantly.

Increases in mortgage interest rates could have a negative impact on the estimated absorption rates of the remaining planned for-sale residential units in Improvement Area 1 described herein. With respect to entrylevel households, increased mortgage interest rates may adversely impact the affordability of homes and may increase mortgage payment levels for owning a lower-priced home relative to renting a residence, thereby making purchasing less attractive. With respect to move-up households, higher mortgage interest rates may impact the desire of current homeowners to move from their present home due to the fact that their present home likely has a relatively low mortgage interest rate. In addition, in such instances, a new home would likely have a higher interest rate on a new mortgage loan as well as a higher purchase price and property taxes.

Such considerations may decrease the desire for move-up households to purchase a new home. The foregoing factors could reduce demand for and/or the ability to achieve the sales prices of the planned homes within Improvement Area 1 as described herein.

Insufficiency of Special Tax Revenues
As discussed below, the Special Taxes may not produce revenues sufficient to pay the debt service on the Bonds either due to nonpayment of the amounts levied or because acreage within Improvement Area 1 becomes exempt from taxation due to the transfer of title to a public agency.

In order to pay debt service on the Bonds, it is generally necessary that the Special Taxes be paid in a timely manner. Should the Special Taxes not be paid on time, the City has established the 2023 Reserve Item Number: 5.

35 4870-1603-0597v5/200812-0002
Account under the Fiscal Agent Agreement to be maintained in an amount equal to the Reserve Requirement to pay debt service on the Bonds to the extent other funds are not available. See “SOURCES OF PAYMENT FOR THE BONDS — Reserve Account of the Special Tax Fund.” The City will covenant in the Fiscal Agent Agreement to maintain in the 2023 Reserve Account an amount equal to the Reserve Requirement, subject, however, to the availability of Special Tax Revenues in amounts sufficient to do so and to the limitation that the City may not levy the Special Tax in any Fiscal Year at a rate in excess of the maximum amounts permitted under the Rate and Method. See Appendix A and Appendix E hereto. As a result, if a significant number of Special Tax delinquencies occurs within Improvement Area 1, the City could be unable to replenish the 2023 Reserve Account to the Reserve Requirement due to the limitations on the amount of the Special Tax that may be levied. If such defaults were to continue in successive years, the 2023 Reserve Account could be depleted and a default on the Bonds could occur.

The Act provides that, if any property within Improvement Area 1 not otherwise exempt from the Special Tax is acquired by a public entity through a negotiated transaction, or by gift or devise, the Special Tax will continue to be levied on and enforceable against the public entity that acquired the property. In addition, the Act provides that, if property subject to the Special Tax is acquired by a public entity through eminent domain proceedings, the obligation to pay the Special Tax with respect to that property is to be treated as if it were a special assessment and be paid from the eminent domain award. The constitutionality and operation of these provisions of the Act have not been tested in the courts, but it is doubtful that they would be upheld as to, for example, property owned by the federal government. If for any reason property within Improvement Area 1 becomes exempt from taxation by reason of ownership by a non-taxable entity such as the federal government or another public agency, subject to the limitation of the Maximum Special Tax, the Special Tax will be reallocated to the remaining taxable parcels within Improvement Area 1. This would result in the owners of such property paying a greater amount of the Special Tax and could have an adverse impact upon their willingness and/or ability to pay the Special Tax. Moreover, if a substantial portion of additional land within Improvement Area 1 became exempt from the Special Tax because of public ownership, or otherwise, the Maximum Special Tax which could be levied upon the remaining acreage might not be sufficient to pay principal of and interest on the Bonds when due and a default will occur with respect to the payment of such principal and interest.

The City will covenant in the Fiscal Agent Agreement that, under certain circumstances, it will institute foreclosure proceedings to sell any property with delinquent Special Taxes in order to obtain funds to pay debt service on the Bonds. If foreclosure proceedings were ever instituted, any mortgage or deed of trust holder could, but would not be required to, advance the amount of the delinquent Special Tax to protect its security interest. See “SOURCES OF PAYMENT FOR THE BONDS — Special Taxes — Proceeds of Foreclosure Sales” for provisions which apply in the event of such foreclosure and which the City is required to follow in the event of delinquencies in the payment of the Special Tax.

In the event that sales or foreclosures of property are necessary, there could be a delay in payments to Owners of the Bonds (if the 2023 Reserve Account has been depleted) pending such sales or the prosecution of such foreclosure proceedings and receipt by the City of the proceeds of sale. The City may adjust the future Special Tax levied on taxable parcels in Improvement Area 1, subject to limitations described above under the caption “IMPROVEMENT AREA 1—Rate and Method of Apportionment,” to provide an amount required to pay interest on and principal of the Bonds, and the amount, if any, necessary to replenish the 2023 Reserve Account to an amount equal to the Reserve Requirement, and to pay all current expenses. There is, however, no assurance that the total amount of the Special Tax that could be levied and collected against taxable parcels in Improvement Area 1 will be at all times sufficient to pay the amounts required to be paid by the Fiscal Agent Agreement, even if the Special Tax is levied at the Maximum Special Tax rates. See “— Enforcement Delays – Bankruptcy.”
No assurance can be given that the real property subject to sale or foreclosure will be sold, or if sold, that the proceeds of sale will be sufficient to pay any delinquent installments of the Special Tax. The Act does not require the City to purchase or otherwise acquire any lot or parcel of property to be sold at foreclosure if Item Number: 5.

36 4870-1603-0597v5/200812-0002
there is no other purchaser at such sale. The Act and the Fiscal Agent Agreement do specify that the Special Tax will have the same lien priority as for ad valorem property taxes in the case of delinquency.

Section 53356.6 of the Act requires that property sold pursuant to foreclosure under the Act be sold for not less than the amount of judgment in the foreclosure action, plus post judgment interest and authorized costs, unless the consent of the owners of 75% of the Outstanding Bonds, the 2020 Bonds and any Additional Bonds is obtained.

Prior to July 1, 1983, the right of redemption from foreclosure sales was limited to a period of one year from the date of sale. Under legislation effective July 1, 1983, the statutory right of redemption from such foreclosure sales has been repealed. However, a period of 20 days must elapse after the date on which the notice of levy of the interest in real property was served on the judgment debtor before the sale of such lot or parcel can be made. Furthermore, if the purchaser at the sale is the judgment creditor (e.g., the City), an action may be commenced by the delinquent property owner within 90 days after the date of sale to set aside such sale. The constitutionality of the aforementioned legislation, which repeals the one year redemption period, has not been tested and there can be no assurance that, if tested, such legislation will be upheld. (Section 701.680 of the Code of Civil Procedure of the State.) Property Values
The value of the property within Improvement Area 1 is a critical factor in determining the investment quality of the Bonds. If a property owner is delinquent in the payment of Special Taxes, the City’s only remedy is to commence foreclosure proceedings against the delinquent parcel in an attempt to obtain funds to pay the Special Taxes. Reductions in property values due to a downturn in the economy, physical events such as earthquakes, fires or floods, stricter land use regulations, delays in development or other events will adversely impact the security underlying the Special Taxes. See “IMPROVEMENT AREA 1— Appraisal Report” and Appendix D — “APPRAISAL REPORT.”
The Appraiser has estimated, on the basis of certain assumptions and limiting conditions contained in the Appraisal Report, that as of the Date of Value, the market value of the land and improvements within Improvement Area 1 was approximately $121,489,293. See “IMPROVEMENT AREA 1 — Appraisal Report.” The Appraisal Report indicates the Appraiser’s opinion as to the market value of the properties referred to therein as of the date and under the conditions specified therein. The Appraiser’s opinion reflects conditions prevailing in the applicable market as of the Date of Value. The Appraiser’s opinion does not predict the future value of the subject property, and there can be no assurance that market conditions will not change adversely in the future.

Prospective purchasers of the Bonds should not assume that the taxable land within Improvement Area 1 could be sold for the appraised amount or for the assessed values at a foreclosure sale for delinquent Special Taxes. In arriving at the estimate of market value of the property in Improvement Area 1, the Appraiser assumes that any sale will be unaffected by undue stimulus and will occur following a reasonable marketing period, which is not always present in a foreclosure sale. See Appendix D for a description of other assumptions made by the Appraiser and for the definitions and limiting conditions used by the Appraiser. Any event which causes one of the Appraiser’s assumptions to be untrue could result in a reduction of the value of the taxable land and improvements within Improvement Area 1 from the market value estimated by the Appraiser.

No assurance can be given that any bid will be received for a parcel with delinquent Special Taxes offered for sale at foreclosure or, if a bid is received, that such bid will be sufficient to pay all delinquent Special Taxes. See “SOURCES OF PAYMENT FOR THE BONDS — Special Taxes — Proceeds of Foreclosure Sales.”
Item Number: 5.

37 4870-1603-0597v5/200812-0002
Natural Disasters
The District, like all California communities, may be subject to unpredictable seismic activity, fires, flood, or other natural disasters. Southern California is a seismically active area. Seismic activity represents a potential risk for damage to buildings, roads, bridges and property within Improvement Area 1. In addition, land susceptible to seismic activity may be subject to liquefaction during the occurrence of such event. The property within Improvement Area 1 is not located in an Alquist Priolo Earthquake Study Zone and is not located within one-half mile of an active earthquake fault. Additionally, the District is not located in a flood plain area.

In recent years, wildfires have caused extensive damage throughout the State, including within the County. Certain of these fires have burned thousands of acres and destroyed hundreds and in some cases thousands of homes. In some instances entire neighborhoods have been destroyed. Several fires in recent years damaged or destroyed property in areas that were not previously considered to be at risk from such events.

Improvement Area 1 is not located in an area which the Department of Forestry and Fire Protection of the State of California has designated as a high fire hazard severity zone. However, there is a risk of residential property within Improvement Area 1 being destroyed by wildfires and no assurance can be given as to the severity or frequency of wildfires within the vicinity of the District. Additionally, property located adjacent to burn areas can be subject to mudslides and flooding, which can cause significant damage and destruction to property.

In the event of a severe earthquake, fire, flood or other natural disaster, there may be significant damage to both property and infrastructure in Improvement Area 1. As a result, a substantial portion of the property owners may be unable or unwilling to pay the Special Taxes when due. In addition, the value of land in Improvement Area 1 could be diminished in the aftermath of such a natural disaster, reducing the resulting proceeds of foreclosure sales in the event of delinquencies in the payment of the Special Taxes.

Hazardous Substances
While government taxes, assessments and charges are a common claim against the value of a parcel, other less common claims may also be relevant. One of the most serious in terms of the potential reduction in the value of a parcel is a claim with regard to a hazardous substance. In general, the owners and operators of a parcel may be required by law to remedy conditions 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 “Super Fund Act,” is the most well-known and widely applicable of these laws, but California laws with regard to hazardous substances are also stringent and similar in effect.

Under many of these laws, the owner (or operator) is obligated to remedy a hazardous substance condition of a parcel whether or not the owner (or operator) had anything to do with creating or handling the hazardous substance. The effect, therefore, should any of the parcels within Improvement Area 1 be affected by a hazardous substance, is to reduce the marketability and value by the costs of remedying the condition.

The City is not aware of the presence of any federally or state classified hazardous substances in violation of any environmental laws, located on the property within Improvement Area 1. However, it is possible that such materials do currently exist and that the City is not aware of them.

It is possible that property in Improvement Area 1 may be liable for hazardous substances in the future as a result of 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 the existence, currently, on the property of a substance not presently classified as hazardous but which may in the future be so classified. Additionally, such liabilities may arise not simply from the existence of a hazardous substance but from the method of Item Number: 5.

38 4870-1603-0597v5/200812-0002
handling such substance. All of these possibilities could have the effect of reducing the value of the applicable property.

Enforcement Delays – Bankruptcy
In the event of a delinquency in the payment of the Special Taxes, the City is required to commence enforcement proceedings under the circumstances described under the heading “SECURITY FOR THE BONDS — Covenant for Superior Court Foreclosure.” However, prosecution of such proceedings could be delayed due to crowded local court calendars or by bankruptcy, insolvency and other laws generally affecting creditors’ rights (such as the Soldiers’ and Sailors’ Relief Act of 1940) and by the laws of the State relating to judicial and non-judicial foreclosure. Although bankruptcy proceedings would not cause the liens of the Special Taxes to become extinguished, bankruptcy of a person or entity with an interest in the applicable property could result in a delay in the enforcement proceedings because federal bankruptcy laws provide for an automatic stay of foreclosure and tax sale proceedings. Any such delay could increase the likelihood of delay or default in payment of the principal of and interest on the applicable Bonds. The various legal opinions to be delivered in connection with the issuance of the Bonds, including Bond Counsel’s approving legal opinion, are qualified as to the enforceability of the Bonds and the Fiscal Agent Agreement by reference to bankruptcy, reorganization, moratorium, insolvency and other laws affecting the rights of creditors generally or against public entities such as the City.

FDIC/Federal Government Interests in Parcels
The ability of the City to collect interest and penalties specified by the Act and to foreclose the lien of delinquent Special Taxes may be limited in certain respects with regard to parcels in which the Federal Deposit Insurance Corporation (the “FDIC”), or other federal government entities such as Fannie Mae or Freddie Mac, has or obtains an interest.

In the case of FDIC, in the event that any financial institution making a loan which is secured by parcels is taken over by the FDIC and the applicable Special Tax is not paid, the remedies available to the City may be constrained. The FDIC’s policy statement regarding the payment of state and local real property taxes (the “Policy Statement”) provides that taxes other than ad valorem taxes which are secured by a valid lien in effect before the FDIC acquired an interest in a property will be paid unless the FDIC determines that abandonment of its interests is appropriate. The Policy Statement provides that the FDIC generally will not pay installments of non-ad valorem taxes which are levied after the time the FDIC acquires its fee interest, nor will the FDIC recognize the validity of any lien to secure payment except in certain cases where the Resolution Trust Corporation had an interest in property on or prior to December 31, 1995. Moreover, the Policy Statement provides that, with respect to parcels on which the FDIC holds a mortgage lien, the FDIC will not permit its lien to be foreclosed out by a taxing authority without its specific consent, nor will the FDIC pay or recognize liens for any penalties, fines or similar claims imposed for the non payment of taxes.

The FDIC has taken a position similar to that expressed in the Policy Statement in legal proceedings brought against Orange County in United States Bankruptcy Court and in Federal District Court. The Bankruptcy Court issued a ruling in favor of the FDIC on certain of such claims. Orange County appealed that ruling, and the FDIC cross-appealed. On August 28, 2001, the Ninth Circuit Court of Appeals issued a ruling favorable to the FDIC except with respect to the payment of pre-receivership liens based upon delinquent property tax.

The City is unable to predict what effect the application of the Policy Statement would have in the event of a delinquency with respect to parcels in which the FDIC has or obtains an interest, although prohibiting the lien of the FDIC to be foreclosed out at a judicial foreclosure sale would prevent or delay the foreclosure sale.

Item Number: 5.

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In the case of Fannie Mae and Freddie Mac, in the event a parcel of taxable property is owned by a federal government entity or federal government sponsored entity, such as Fannie Mae or Freddie Mac, or a private deed of trust secured by a parcel of taxable property is owned by a federal government entity or federal government sponsored entity, such as Fannie Mae or Freddie Mac, the ability to foreclose on the parcel or to collect delinquent Special Taxes may be limited. Federal courts have held that, based on the supremacy clause of the United States Constitution “this Constitution, and the Laws of the United States which shall be made in Pursuance thereof; and all Treaties made, or which shall be made, under the Authority of the United States, shall be the supreme Law of the Land; and the Judges in every State shall be bound thereby, anything in the Constitution or Laws of any State to the contrary notwithstanding.” In the absence of Congressional intent to the contrary, a state or local agency cannot foreclose to collect delinquent taxes or assessments if foreclosure would impair the federal government interest. This means that, unless Congress has otherwise provided, if a federal government entity owns a parcel of taxable property but does not pay taxes and assessments levied on the parcel (including Special Taxes), the applicable state and local governments cannot foreclose on the parcel to collect the delinquent taxes and assessments.

Moreover, unless Congress has otherwise provided, if the federal government has a mortgage interest in the parcel and the City wishes to foreclose on the parcel as a result of delinquent Special Taxes, the property cannot be sold at a foreclosure sale unless it can be sold for an amount sufficient to pay delinquent taxes and assessments on a parity with the Special Taxes and preserve the federal government’s mortgage interest. For a discussion of risks associated with taxable parcels within Improvement Area 1 becoming owned by the federal government, federal government entities or federal government sponsored entities, see “— Insufficiency of Special Tax Revenues.”
The City’s remedies may also be limited in the case of delinquent Special Taxes with respect to parcels in which other federal agencies (such as the Internal Revenue Service and the Drug Enforcement Administration) have or obtain an interest.

Direct and Overlapping Indebtedness
The ability of an owner of property within Improvement Area 1 to pay the applicable Special Taxes could be affected by the existence of other taxes and assessments imposed upon taxable parcels. See “IMPROVEMENT AREA 1 — Direct and Overlapping Debt” herein. The City and other public agencies whose boundaries overlap those of Improvement Area 1 could impose additional taxes or assessment liens on the property within Improvement Area 1 in order to finance public improvements or services to be located or provided inside of or outside of such area. The lien created on the property within Improvement Area 1 through the levy of such additional taxes may be on a parity with the lien of the Special Taxes applicable to the property within Improvement Area 1.

The imposition of additional liens on a parity with the Special Taxes may reduce the ability or willingness of property owners to pay the Special Taxes and increase the possibility that foreclosure proceeds will not be adequate to pay delinquent Special Taxes.

Payment of Special Taxes is not a Personal Obligation of the Property Owners An owner of a taxable parcel is not personally obligated to pay Special Taxes. Rather, Special Taxes are an obligation which is secured only by a lien against the taxable parcel. If the value of a taxable parcel is not sufficient, taking into account other liens imposed by public agencies, to secure fully Special Taxes, the City has no recourse against the property owner.

No Acceleration Provision
The Bonds do not contain a provision allowing for the acceleration of the Bonds in the event of a payment default or other default under the terms of the Bonds or the Fiscal Agent Agreement.

Item Number: 5.

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Limited Obligations
The Bonds and interest thereon are not payable from the general funds of the City. Except with respect to the Special Tax Revenues, neither the credit nor the taxing power of the City is pledged for the payment of the Bonds or the interest thereon, and, except as provided in the Fiscal Agent Agreement, no Owner of the Bonds may compel the exercise of any taxing power by the City or force the forfeiture of any City or District property. The principal of, premium, if any, and interest on the Bonds are not a debt of the City or a legal or equitable pledge, charge, lien or encumbrance upon any of the City’s property or upon any of the City’s income, receipts or revenues, except the Special Tax Revenues and other amounts pledged under the Fiscal Agent Agreement.

The City’s legal obligations with respect to any delinquent Special Taxes are limited to: (i) payments from the 2023 Reserve Account to the extent of funds on deposit therein; and (ii) the institution of judicial foreclosure proceedings under certain circumstances with respect to any parcels for which Special Taxes are delinquent. See the caption “SOURCES OF PAYMENT FOR THE BONDS—Special Taxes—Proceeds of Foreclosure Sales.” The Bonds cannot be accelerated in the event of any default.

The obligation to pay Special Taxes does not constitute a personal obligation of the current or subsequent owners of the respective parcels which are subject to such liens. See the caption “—Payment of the Special Tax is Not a Personal Obligation of the Property Owners.” Enforcement of Special Tax payment obligations by the City is limited to judicial foreclosure in the Superior Court of California, County of Riverside. There is no assurance that any current or subsequent owner of a parcel subject to a Special Tax lien will be able to pay the amounts due or that such owner will choose to pay such amounts even though financially able to do so.

Failure by owners of the parcels to pay Special Tax installments when due, delay in foreclosure proceedings, or the inability of the City to sell parcels that have been subject to foreclosure proceedings for amounts sufficient to cover the delinquent installments of Special Taxes levied against such parcels may result in the inability of the City to make full or timely payments of debt service on the Bonds, which may in turn result in the depletion of the 2023 Reserve Account. See the caption “—Enforcement Delays – Bankruptcy.” Ballot Initiatives
Articles XIII A, XIII B, XIII C, and XIII D of the California Constitution were adopted pursuant to measures qualified for the ballot pursuant to the State’s constitutional initiative process. From time to time, other initiative measures could be adopted by California voters. The adoption of any such initiative might place limitations on the ability of the State, the City, or other local agencies to increase revenues or to increase appropriations.

Proposition 218
An initiative measure entitled “The Right to Vote on Taxes Act” (“Proposition 218”) was approved by the voters at the November 5, 1996 statewide general election. Among other things, Proposition 218 added a new Article XIII C to the California Constitution which states that “. . . the initiative power shall not be prohibited or otherwise limited in matters of reducing or repealing any local tax, assessment, fee or charge.” The Act provides for a procedure which includes notice, hearing, protest and voting requirements to alter the rate and method of apportionment of an existing special tax. However, the Act prohibits a legislative body from adopting any resolution to reduce the rate of any special tax or terminate the levy of any special tax pledged to repay any debt incurred pursuant to the Act unless such legislative body determines that the reduction or termination of the special tax would not interfere with the timely retirement of that debt. While the application of Proposition 218 in this context has not yet been interpreted by the courts and the matter is not completely free from doubt, it is not likely that Proposition 218 has conferred on the voters the power to effect a repeal or reduction of the Special Tax if the result thereof would be to impair the security of the Bonds.

Item Number: 5.

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It may be possible, however, for voters or the City Council, acting as the legislative body of the City, to reduce the Special Taxes in a manner which does not interfere with the timely repayment of the Bonds, but which does reduce the maximum amount of Special Taxes that may be levied in any year below the existing levels. Therefore, no assurance can be given with respect to the future levy of Special Taxes in amounts greater than the amount necessary for the timely retirement of the Bonds.

Litigation with Respect to Community Facilities Districts Shapiro. The California Court of Appeal, Fourth Appellate District, Division One, issued its opinion in City of San Diego v. Melvin Shapiro (2014) 228 Cal.App.4th 756 (the “San Diego Decision”). The case involved a Convention Center Facilities District (the “CCFD”) established by the City of San Diego (“San Diego”). The CCFD is a financing district much like a community facilities district established under the provisions of the Act. The CCFD is comprised of all of the real property in San Diego. However, the special tax to be levied within the CCFD was to be levied only on hotel properties located within the CCFD.

The election authorizing the special tax was limited to owners of hotel properties and lessees of real property owned by a governmental entity on which a hotel is located. Thus, the election was not a registered voter election. Such approach to determining who would constitute the qualified electors of the CCFD was modeled after Section 53326(c) of the Act, which generally provides that, if a special tax will not be apportioned in any tax year on residential property, the legislative body may provide that the vote shall be by the landowners of the proposed district whose property would be subject to the special tax. The Court held that the CCFD special tax election was invalid under the California Constitution because Article XIIIA, Section 4 thereof and Article XIIIC, Section 2 thereof require that the electors in such an election be the registered voters within the district.

Horizon. The Sacramento County Superior Court had issued a ruling in Horizon Capital Investments, LLC v. City of Sacramento et al. (Case No. 34-2017-80002661). As described below, this case involved an election to approve the levy of a special tax within a community facilities district (“CFD”) formed under the Act..

In 2017, the City of Sacramento initiated proceedings to form a CFD to finance certain costs to operate and maintain a streetcar line. As permitted by the Act, the proposed district included non-contiguous parcels of non-residential property. Because there were fewer than 12 registered voters residing within the territory of the proposed CFD, the City Council submitted the special tax proposed to be levied within the proposed CFD to the owners of land within the proposed CFD, as required by the Act. The proposed special tax received the requisite two-thirds vote in the landowner election.

Petitioners Horizon Capital Investments, LLC et al. filed a writ of mandate and complaint for reverse validation and declaratory relief. Petitioners argued, and the superior court agreed in its final ruling, that under section 4(a) of article XIII A of the California Constitution (which provides that “Cities, Counties and special districts, by a two-thirds vote of the qualified electors of such district [sic], may impose special taxes on such district…”) the phrase “qualified electors” means the registered voters of the entire City of Sacramento and not just the owners of the property within the boundaries of the proposed CFD. Citing the San Diego Decision, the ruling states that the phrase “qualified electors of the district” refers to the registered voters of the entity imposing the special tax, which in this case was the City of Sacramento. Because the vote within the proposed CFD was by landowners only and not by all registered voters in the City of Sacramento, the final ruling states that the special tax is invalid.

The superior court’s final ruling is not binding upon other courts within the State and does not directly apply to the District and Improvement Area 1, the Special Taxes, or the Bonds. The City of Sacramento did not appeal the superior court’s ruling.

Item Number: 5.

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The Special Tax Election in the District and Improvement Area 1. With respect to the San Diego Decision, the facts of such case show that there were thousands of registered voters within the CCFD (viz., all of the registered voters in San Diego). The elections held in the District, including Improvement Area 1 had less than 12 registered voters at the time of the election to authorize the Special Taxes. In the San Diego Decision, the court expressly stated that it was not addressing the validity of landowner voting to impose special taxes pursuant to the Act in situations where there are fewer than 12 registered voters. Thus, by its terms, the court’s holding in the San Diego Decision does not apply to the Special Tax election in the District and Improvement Area 1. Moreover, Section 53341 of the Act provides that any “action or proceeding to attack, review, set aside, void or annul the levy of a special tax…shall be commenced within 30 days after the special tax is approved by the voters.” Similarly, Section 53359 of the Act provides that any action to determine the validity of bonds issued pursuant to the Act be brought within 30 days of the voters approving the issuance of such bonds. The petitioners in Horizon filed the writ of mandate within 30 days of the landowner election. Landowners in Improvement Area 1 approved the issuance of bonds and the Special Tax levy in accordance with the Rate and Method on January 16, 2007. Based on Sections 53341 and 53359 of the Act and analysis of existing laws, regulations, rulings, and court decisions, the City believes that no successful challenge to the Special Taxes being levied in accordance with the Rate and Method may now be brought. In connection with the issuance of the Bonds, Bond Counsel expects to deliver its opinion in the proposed form attached hereto as Appendix C.

Loss of Tax Exemption
As discussed under the heading “TAX MATTERS,” interest on the Bonds could cease to be excluded from gross income for purposes of federal income taxation, retroactive to the date the Bonds were issued, as a result of future acts or omissions of the City. In addition, it is possible that future changes in applicable federal tax laws could cause interest on the Bonds to be included in gross income for federal income taxation or could otherwise reduce the equivalent taxable yield of such interest and thereby reduce the value of the Bonds.

No Ratings – Limited Secondary Market
The City has not applied to have the Bonds rated by any nationally recognized bond rating company, and it does not expect to do so in the future.

There can be no guarantee that there will be a secondary market for the Bonds or, if a secondary market exists, that such Bonds can be sold for any particular price. Although the City has committed to provide certain financial and operating information, there can be no assurance that such information will be available to Bond owners on a timely basis. The failure to provide the required annual financial information does not give rise to monetary damages but merely an action for specific performance. Occasionally, because of general market conditions, lack of current information, the absence of a credit rating for the Bonds 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.

Limitations on Remedies
Remedies available to the Owners of the Bonds may be limited by a variety of factors and may be inadequate to assure the timely payment of principal of and interest on the Bonds or to preserve the tax-exempt status of interest on the Bonds.

Bond Counsel has limited its opinion as to the enforceability of the Bonds and of the Fiscal Agent Agreement to the extent that enforceability may be limited by bankruptcy, insolvency, reorganization, fraudulent conveyance or transfer, moratorium or other similar laws affecting generally the enforcement of creditor’s rights, by equitable principles and by the exercise of judicial discretion and by limitations on Item Number: 5.

43 4870-1603-0597v5/200812-0002
remedies against public agencies in the State of California. The lack of availability of certain remedies or the limitation of remedies may entail risks of delay, limitation or modification of the rights of the Owners.

Potential Early Redemption of Bonds from Prepayments or Community Facilities District Bond Proceeds
Property owners within Improvement Area 1, including Lennar and any individual property owner, are permitted to prepay their Special Taxes at any time. Such prepayments could also be made from the proceeds of bonds issued by or on behalf of an overlapping community facilities district. Such prepayments will result in a redemption of the Bonds on the Interest Payment Date for which timely notice may be given under the Fiscal Agent Agreement following the receipt of the prepayment. The resulting redemption of Bonds that were purchased at a price greater than par could reduce the otherwise expected yield on such Bonds. See the caption “THE BONDS—Redemption—Special Mandatory Redemption from Special Tax Prepayments.” Cyber Security
The City, like many other public and private entities, rely on computer and other digital networks and systems to conduct their operations. The City is potentially subject to multiple cyber threats, including without limitation hacking, viruses, ransomware, malware and other attacks. No assurance can be given that the efforts of the City 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 Special Taxes and the Fiscal Agent.

No assurance can be given that the City and these other entities will not be affected by cyber threats and attacks in a manner that may affect the Bond owners.

CONTINUING DISCLOSURE
Pursuant to a Continuing Disclosure Certificate, dated as of December 1, 2023 (the “Disclosure Agreement”), to be executed and delivered by the City at the time of issuance of the Bonds, the City will covenant for the benefit of the holders and Beneficial Owners of the Bonds to provide certain financial information and operating data relating to the District and Improvement Area 1 by March 31 following the end of the City’s Fiscal Year (currently its Fiscal Year ends on June 30) (the “Annual Report”), commencing with the report for the Fiscal Year ending June 30, 2023, and to provide notices of the occurrence of certain enumerated events. The Annual Report and the notices of enumerated events will be filed by the City with EMMA. The specific nature of the information to be contained in the Annual Report and the notice of enumerated events is set forth in Appendix F—”FORM OF CONTINUING DISCLOSURE CERTIFICATE.” These covenants have been made in order to assist the Underwriter in complying with subsection (b)(5) of Rule 15c2-12.

The City has retained Webb Municipal Finance, LLC to serve as Dissemination Agent for the continuing disclosure undertaking related to the Bonds, and has adopted policies and procedures with respect to its continuing disclosure practices.

TAX EXEMPTION
In the opinion of Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California, Bond Counsel, under existing statutes, regulations, rulings and judicial decisions, and assuming the accuracy of certain representations and compliance with certain covenants and requirements described herein, interest (and original issue discount) on the Bonds is excluded from gross income for federal income tax purposes and is not an item of tax preference for purposes of calculating the federal alternative minimum tax imposed on individuals. However, it should be noted that for tax years beginning after December 31, 2022, with respect to applicable corporations as defined in Section 59(k) of the Internal Revenue Code of 1986, as Item Number: 5.

44 4870-1603-0597v5/200812-0002
amended (the “Code”), generally certain corporations with more than $1,000,000,000 of average annual adjusted financial statement income, interest (and original issue discount) with respect to the Bonds might be taken into account in determining adjusted financial statement income for purposes of computing the alternative minimum tax imposed by Section 55 of the Code on such corporations. In the further opinion of Bond Counsel, interest (and original issue discount) on the Bonds is exempt from State of California personal income tax.

The excess of the stated redemption price at maturity of a Bond over the issue price of a Bond (the first price at which a substantial amount of the Bonds of a maturity is to be sold to the public) constitutes original issue discount. Original issue discount accrues under a constant yield method, and original issue discount will accrue to a Beneficial Owner before receipt of cash attributable to such excludable income. The amount of original issue discount deemed received by the Beneficial Owner will increase the Beneficial Owner’s basis in the applicable Bond.

Bond Counsel’s opinion as to the exclusion from gross income of interest (and original issue discount) on the Bonds is based upon certain representations of fact and certifications made by the City and others and is subject to the condition that the City and others making such representations comply with all requirements of the Code that must be satisfied subsequent to the issuance of the Bonds to assure that interest (and original issue discount) on the Bonds will not become includable in gross income for federal income tax purposes.

Failure to comply with such requirements of the Code might cause the interest (and original issue discount) on the Bonds to be included in gross income for federal income tax purposes retroactive to the date of issuance of the Bonds. The City will covenant to comply with all such requirements.

The amount by which a Beneficial Owner’s original basis for determining loss on sale or exchange in the applicable Bond (generally, the purchase price) exceeds the amount payable on maturity (or on an earlier call date) constitutes amortizable Bond premium, which must be amortized under Section 171 of the Code; such amortizable Bond premium reduces the Beneficial Owner’s basis in the applicable Bond (and the amount of tax-exempt interest received), and is not deductible for federal income tax purposes. The basis reduction as a result of the amortization of Bond premium may result in a Beneficial Owner realizing a taxable gain when a Bond is sold by the Beneficial Owner for an amount equal to or less (under certain circumstances) than the original cost of the Bond to the Beneficial Owner. Purchasers of the Bonds should consult their own tax advisors as to the treatment, computation and collateral consequences of amortizable Bond premium.

The Internal Revenue Service (the “IRS”) has initiated an expanded program for the auditing of taxexempt bond issues, including both random and targeted audits. It is possible that the Bonds will be selected for audit by the IRS. It is also possible that the market value of the Bonds might be affected as a result of such an audit of the Bonds (or by an audit of other similar bonds). No assurance can be given that in the course of an audit, as a result of an audit, or otherwise, Congress or the IRS might not change the Code (or interpretation thereof) subsequent to the issuance of the Bonds to the extent that it adversely affects the exclusion from gross income of interest (and original issue discount) on the Bonds or their market value.

SUBSEQUENT TO THE ISSUANCE OF THE BONDS THERE MIGHT BE FEDERAL, STATE,

OR LOCAL STATUTORY CHANGES (OR JUDICIAL OR REGULATORY CHANGES TO OR

INTERPRETATIONS OF FEDERAL, STATE, OR LOCAL LAW) THAT AFFECT THE FEDERAL,

STATE, OR LOCAL TAX TREATMENT OF THE BONDS INCLUDING THE IMPOSITION OF ADDITIONAL FEDERAL INCOME OR STATE TAXES BEING IMPOSED ON OWNERS OF TAXEXEMPT STATE OR LOCAL OBLIGATIONS, SUCH AS THE BONDS. THESE CHANGES COULD ADVERSELY AFFECT THE MARKET VALUE OR LIQUIDITY OF THE BONDS. NO ASSURANCE

CAN BE GIVEN THAT SUBSEQUENT TO THE ISSUANCE OF THE BONDS STATUTORY CHANGES

WILL NOT BE INTRODUCED OR ENACTED OR JUDICIAL OR REGULATORY INTERPRETATIONS WILL NOT OCCUR HAVING THE EFFECTS DESCRIBED ABOVE. BEFORE PURCHASING ANY OF

THE BONDS, ALL POTENTIAL PURCHASERS SHOULD CONSULT THEIR TAX ADVISORS

REGARDING POSSIBLE STATUTORY CHANGES OR JUDICIAL OR REGULATORY CHANGES OR Item Number: 5.

45 4870-1603-0597v5/200812-0002

INTERPRETATIONS, AND THEIR COLLATERAL TAX CONSEQUENCES RELATING TO THE BONDS.

Bond Counsel’s opinions may be affected by actions taken (or not taken) or events occurring (or not occurring) after the date of issuance of the Bonds. Bond Counsel has not undertaken to determine, or to inform any person, whether any such actions or events are taken or do occur. The Fiscal Agent Agreement and the Tax Certificate relating to the Bonds permit certain actions to be taken or to be omitted if a favorable opinion of Bond Counsel is provided with respect thereto. Bond Counsel expresses no opinion as to the effect on the exclusion from gross income of interest (and original issue discount) on the Bonds for federal income tax purposes with respect to any Bond if any such action is taken or omitted based upon the advice of counsel other than Stradling Yocca Carlson & Rauth, a Professional Corporation.

Although Bond Counsel will render an opinion that interest (and original issue discount) on the Bonds is excluded from gross income for federal income tax purposes provided that the City continue to comply with certain requirements of the Code, the ownership of the Bonds and the accrual or receipt of interest (and original issue discount) with respect to the Bonds may otherwise affect the tax liability of certain persons.

Bond Counsel expresses no opinion regarding any such tax consequences. Accordingly, before purchasing any of the Bonds, all potential purchasers should consult their tax advisors with respect to collateral tax consequences relating to the Bonds.

Should interest on the Bonds (including any original issue discount) become includable in gross income for federal income tax purposes, the Bonds are not subject to early redemption and will remain outstanding until maturity or until redeemed in accordance with the Fiscal Agent Agreement.

A copy of the proposed form of opinion of Bond Counsel is attached hereto as Appendix C.

LEGAL OPINION
The legal opinion of Bond Counsel approving the validity of the Bonds, in substantially the form set forth as Appendix C hereto, will be made available to purchasers of the Bonds at the time of original delivery of the Bonds. Certain legal matters will be passed upon for the City by Stream Kim Hicks Wrage & Alfaro, PC, Riverside, California, City Attorney, and for the City by Stradling Yocca Carlson & Rauth, a Professional Corporation, Disclosure Counsel, for the Underwriter by Kutak Rock LLP, Irvine, California, and for the Fiscal Agent by its counsel. Bond Counsel undertakes no responsibility to the purchasers of the Bonds for the accuracy, completeness or fairness of this Official Statement.

ABSENCE OF LITIGATION
In connection with the issuance of the Bonds, the City Attorney will deliver an opinion to the effect that, to their actual knowledge, after due inquiry and investigation, there is no action, suit, proceeding or investigation at law or in equity before or by any court, public board or body, pending or threatened, or any unfavorable decision, ruling or finding, against or affecting the City, which would adversely impact the City’s ability to complete the transactions described in, or contemplated by, the Fiscal Agent Agreement or this Official Statement, restrain or enjoin the collection of the Special Taxes, or in any way contest or affect the validity of the Bonds, the Fiscal Agent Agreement, the Special Taxes, or the transactions described herein.

NO RATING
The City has not made, and does not contemplate making, an application to any rating organization for the assignment of a rating on the Bonds.

Item Number: 5.

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UNDERWRITING
The Bonds are being purchased by Stifel, Nicolaus & Company, Incorporated (the “Underwriter”).

The Underwriter has agreed to purchase the Bonds at a price of $__________ (being the $_________ aggregate principal amount of the Bonds, less an Underwriter’s discount of $_________ and plus original issue premium of $_________). The Bond Purchase Agreement relating to the Bonds provides that the Underwriter will purchase all of the Bonds if any are purchased, the obligation to make such purchase being subject to certain terms and conditions set forth in the Bond Purchase Agreement, the approval of certain legal matters by counsel and certain other conditions. The Underwriter’s compensation is contingent upon the successful issuance of the Bonds.

Under certain circumstances, the Underwriter may offer and sell the Bonds to certain dealers and others at prices lower or yields higher than those stated on the page immediately following the cover page of this Official Statement. The offering prices may be changed from time to time by the Underwriter.

FINANCIAL INTERESTS
The fees being paid to the Underwriter and its counsel, Bond Counsel, Disclosure Counsel and the Fiscal Agent are contingent upon the issuance and delivery of the Bonds. From time to time, Stradling Yocca Carlson & Rauth, a Professional Corporation, represents the Underwriter on matters unrelated to the Bonds.

MUNICIPAL ADVISOR
The City has retained Urban Futures, Inc., Walnut Creek, California, as Municipal Advisor for the sale of the Bonds. The Municipal Advisor is not obligated to undertake, and has not undertaken to make, an independent verification or to assume any responsibility for the accuracy, completeness or fairness of the information contained in this Official Statement.

Urban Futures, Inc., is an independent advisory firm and is not engaged in the business of underwriting, trading or distributing municipal or other public securities.

MISCELLANEOUS
So far as any statements made in this Official Statement involve matters of opinion, assumptions, projections, anticipated events or estimates, whether or not expressly stated, they are set forth as such and not as presentations of fact, and actual results may differ substantially from those set forth therein. Neither this Official Statement nor any statement that may have been made verbally or in writing is to be construed as a contract with the Owners of the Bonds.

The summaries of certain provisions of the Bonds, statutes and other documents or agreements referred to in this Official Statement do not purport to be complete, and reference is made to each of them for a complete statement of their provisions. Copies are available for review by making requests to the City.

The execution and delivery of this Official Statement by the City Manager of the City has been duly authorized by the City Council of the City acting in its capacity as the legislative body of the District.

CITY OF DESERT HOT SPRINGS COMMUNITY
FACILITIES DISTRICT NO. 2006-1
By:

City Manager of the City of Desert Hot Springs
Item Number: 5.

A-1
4870-1603-0597v5/200812-0002

APPENDIX A

RATE AND METHOD OF APPORTIONMENT
COMMUNITY FACILITIES DISTRICT NO. 2006-1

OF THE CITY OF DESERT HOT SPRINGS
(IMPROVEMENT AREA NO. 1)
A Special Tax (as hereinafter defined) shall be levied on all Assessor’s Parcels of Taxable Property in Improvement Area No. 1 (“IA No. 1”) of Community Facilities District No. 2006-1 of the City of Desert Hot Springs (the “District”) in each Fiscal Year, in an amount determined by the City Council of the City of Desert Hot Springs (the “Council” or the “City”) through the application of the appropriate Special Tax for “Developed Property,” “Approved Property,” “Undeveloped Property,” “Taxable Association Property,” or “Taxable Public Property” as provided below. All Assessor’s Parcels in IA No. 1, unless exempted by law or by the provisions hereof, shall be taxed for the purposes, to the extent and in the manner herein provided.

A. DEFINITIONS
The terms hereinafter set forth have the following meanings:
“Acre or Acreage” means the land area of an Assessor’s Parcel as shown on the Assessor’s Parcel Map, or if the land area is not shown on an Assessor’s Parcel Map, the land area shown on the applicable final map, lot line adjustment, condominium plan, or other recorded parcel map. “Act” means the Mello Roos Community Facilities Act of 1982, as amended, being Chapter 2.5 (commencing with Section 53311) of Part 1 of Division 2 of Title 5 of the California Government Code.
“Administrative Expenses” means the following actual or reasonably estimated costs directly related to the administration of IA No. 1: the costs of computing the Special Taxes and preparing the annual Special Tax levy schedules (whether by the City, the District, or an agent thereof); the costs of collecting the Special Taxes (whether by the City or otherwise); the costs of remitting the Special Taxes to the fiscal agent or trustee; the costs of the fiscal agent or trustee (including its legal counsel) in the discharge of the duties required of it under the Indenture; the costs to the City, IA No. 1 or any agent thereof in complying with arbitrage rebate requirements; the costs to the City, IA No. 1 or any agent thereof to provide continuing disclosure information; the costs associated with preparing Special Tait disclosure statements and responding to public inquiries regarding the Special Taxes; the costs of the City, IA No. 1 or any agent thereof related to an appeal of the Special Tax. Administrative Expenses shall also include amounts advanced by the City or IA No. 1 for any other administrative purposes of IA No. 1, including attorney’s fees and other costs related to commencing and pursuing to completion any foreclosure proceedings for the collection of delinquent Special Taxes. “Approved Property” means all Assessor’s Parcels of Taxable Property that are included in a final map that was recorded prior to the January 1st preceding the Fiscal Year in which the Special Tax is being levied, and that have not been issued a building permit on or before March 1 of the Fiscal Year preceding the Fiscal Year in which Special Taxes are being levied. “Assessor’s Parcel” means a lot or parcel shown on an Assessor’s Parcel Map with an assigned Assessor’s Parcel number in IA No. 1.
“Assessor’s Parcel Map” means an official map of the Assessor of the County of Riverside designating parcels by Assessor’s Parcel number.

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“Association Property” means any property owned by or irrevocably offered or dedicated to or for which an easement for purposes of right of way has been granted to a property owners’ association, including any master or sub association.
“Assigned Special Tax” means the Special Tax for each Land Use Category of Developed Property, as determined in accordance with Section C.1.a below.
“Backup Special Tax” means the Special Tax amount determined for an Assessor’s Parcel pursuant to Section C.1.b.
“Backup Special Tax Per Acre” means $9,103 per Acre.
“Bonds” means any bonds or other indebtedness (as defined in the Act), whether issued in one or more series, secured only by the levy of Special Taxes on Assessor’s Parcels in IA No. 1. “CFD No. 2006-1” means the City of Desert Hot Springs Community Facilities District No. 2006-1. “City” means the City of Desert Hot Springs.
“Council” means the City of Desert Hot Springs City Council. “Developed Property” means all Assessor’s Parcels, exclusive of Association Property and Public Property, upon which completed Dwelling Units or non-residential buildings have been constructed or for which building permits have been issued as of March 1 of the Fiscal Year preceding the Fiscal Year for which Special Taxes are being levied.
“District Administrator” means an official of the City, or an agent thereof responsible for determining the Special Tax Requirement and providing for the levy and collection of the Special Taxes.
“Dwelling Unit” or “DU” means a single family home or condominium unit. “Exempt Property” means all Assessor’s Parcels within IA No. 1 designated as being exempt from the Special Tax as determined in Section E.
“Final Subdivision” means a subdivision of property by recordation of a final map, parcel map, or lot line adjustment, pursuant to the Subdivision Map Act (California Government Code Section 66410 et seq.) or recordation of a condominium plan pursuant to California Civil Code Section 1352 that creates individual lots for which building permits may be issued without further subdivision, as determined by the District Administrator.
“Fiscal Year” means the period starting on July 1 and ending on the following June 30. “IA No. 1” means Improvement Area No. 1 of CFD No. 2006-1 as identified on the Boundary Maps for the District attached hereto as Exhibit A. Further details concerning the Legal Description of the Improvement Area are attached hereto as Exhibit B.
“Indenture” means the indenture, fiscal agent agreement, trust agreement, or resolution, pursuant to which Bonds are issued, as modified, amended and/or supplemented from time to time. “Land Use Category” means for Assessor’s Parcels of Developed Property, the categories of Residential Property and Non-Residential Property identified in Table 1.

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“Maximum Special Tax” means the Maximum Special Tax, determined as provided in Section C, which can be levied in any Fiscal Year on any Assessor’s Parcel of Taxable Property in IA No. 1. “Non-Residential Property” means all Assessor’s Parcels of Developed Property upon which completed non-residential buildings have been constructed or for which building permits have been or may be issued for construction of such buildings, as determined by the District Administrator. “Proportionately” means for Developed Property that the ratio of the amount of Special Tax levied to the Assigned Special Tax is the same for all Assessor’s Parcels of Developed Property within each Land Use Category identified in Table 1. For Approved Property, Undeveloped Property, Taxable Public Property and Taxable Association Property, “Proportionately” means that the ratio of the amount of Special Tax levied per Acre to the Maximum Special Tax per Acre is the same for all Assessor’s Parcels of Approved Property, Undeveloped Property, Taxable Public Property or Taxable Association Property.
“Public Property” means property owned by or irrevocably offered or dedicated to or for which an easement for purposes of public right of way has been granted to the federal government, the State of California, the County of Riverside, the City or any other local governmental or public agency; provided, however, that any property leased by a public agency to a private entity and subject to taxation under Section 53340.1 of the Act shall be classified and taxed according to its use. “Residential Floor Area” for any Assessor’s Parcel of Residential Property means all of the square footage of living area within the perimeter of a residential structure, not including any carport, walkway, garage, overhang, patio, enclosed patio, or similar area. The determination of Residential Floor Area shall be made by reference to the most recent building permit(s) issued for each Assessor’s Parcel.
“Residential Property” means all Assessor’s Parcels of Developed Property upon which completed Dwelling Units have been constructed or for which building permits have been or may be issued for purposes of constructing one or more Dwelling Units, as determined by the District Administrator. “Special Tax” means the special tax to be levied in each Fiscal Year on each Assessor’s Parcel of Taxable Property in IA No. 1to fund the Special Tax Requirement. “Special Tax Requirement” means the amount required in any Fiscal Year for IA No. 1 to: (i) pay debt service on all outstanding Bonds due in the calendar year which commences in such Fiscal Year; (ii) pay periodic costs for the Bonds, including but not limited to, costs related to credit enhancement and rebate payments; (iii) pay Administrative Expenses; (iv) pay an amount equal to reasonably anticipated delinquencies in the collection of Special Taxes; and (v) pay any amounts required to establish or replenish the reserve fund for the outstanding Bonds; less (vi) a credit for funds which are available pursuant to the Indenture to pay debt service on the outstanding Bonds. “Taxable Property” means all of the Assessor’s Parcels which are not Exempt Property. “Taxable Association Property” means all Association Property which are not Exempt Property. “Taxable Public Property” means all Public Property which are not Exempt Property. “Undeveloped Property” means all Taxable Property not classified as Developed Property or Approved Property, exclusive of Taxable Association Property or Taxable Public Property, Item Number: 5.

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B. CLASSIFICATION AND LAND USE CATE9ORIZATION
For each Fiscal Year, all Assessor’s Parcels of Taxable Property within IA No. 1 shall be classified as Developed Property, Approved Property, Undeveloped Property, Taxable Association Property, or Taxable Public Property and shall be subject to the levy of Special Taxes as determined pursuant to Sections C and D below. Assessor’s Parcels of Developed Property shall be classified as either Residential Property or NonResidential Property.

For purposes of determining the applicable Assigned Special Tax for Assessor’s Parcels of Developed Property which are classified as Residential Property, all such Assessor’s Parcels shall be assigned to a Land Use Category based upon the square footage of the Residential Floor Area of the Dwelling Unit(s) constructed or to be constructed thereon as specified in or shown on the building permit(s) issued therefor.

C. ASSIGNED AND MAXIMUM SPECIAL TAXES

1. Developed Property
The Maximum Special Tax for each Assessor’s Parcel classified as Developed Property shall be the greater of (i) the applicable Assigned Special Tax or (ii) the amount of the Backup Special Tax therefor.
a. Assigned Special Tax
The Assigned Special Tax amounts for all Land Use Categories of Developed Property are specified in Table 1 below.

TABLE 1
Assigned Special Taxes for Land Use Categories
of Developed Property
Land Use Category
Taxable
Unit
Residential Floor
Area (Square Feet of
Dwelling Unit)
Assigned Special
Tax per DU or
Acre

1. Residential Property DU 1,549 sq. ft. or less $1,086 per DU

2. Residential Property DU 1,550-1,799 sq. ft. $1,104 per DU

3. Residential Property DU 1,800-4049 sq. ft. $1,246 per DU

4. Residential Property DU 2,050-2,299 sq. ft. $1,411 per DU

5. Residential Property DU 2,300-2,549 sq. ft. $1,441 per DU

6. Residential Property DU 2,550 sq. ft, or greater $1,562 per DU

7. Non Residential Property Acre N/A $9,103 per Acre
b. Backup Special Tax
The total amount of the Backup Special Tax for a Final Subdivision of property shall be determined by multiplying the Acreage of all Assessor’s Parcels of Taxable Property, exclusive of the Acreage of any Taxable Association Property and/or Taxable Public Property, in the Final Subdivision by the Backup Special Tax per Acre. If a Final Subdivision includes both Assessor’s Parcels of Residential Property and Assessor’s Parcels of Non-Residential Property, the total amount of the Backup Special Tax for such Assessor’s Parcels of Residential Property shall be based only on the Acreage of those Assessor’s Parcels.

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The Backup Special Tax for each Assessor’s Parcel of Residential Property in a Final Subdivision shall be determined by dividing the total amount of the Backup Special Tax for all of the Assessor’s Parcels of Residential Property in the Final Subdivision, as determined pursuant to the preceding paragraph, by the number of Dwelling Units within such Final Subdivision and multiplying the result by the number of Dwelling Units on such Assessor’s Parcel.

The Backup Special Tax for each Assessor’s Parcel of Non-Residential Property in a Final Subdivision shall be determined by multiplying the Acreage of the Assessor’s Parcel by the Backup Special Tax per Acre.

Notwithstanding the foregoing, if Assessor’s Parcels of Residential Property are subsequently changed or modified by recordation of a lot line adjustment or similar instrument, the total amount of the Backup Special Tax shall be recalculated so that the total amount of the Backup Special Tax for such Assessor’s Parcels after such change will be equal to the aggregate amount of the Backup Special Tax for such Assessor’s Parcels before such change occurred.

2. Approved Property, Undeveloped Property, Taxable Association Property and Taxable Public Property
The Maximum Special Tax for Assessor’s Parcels of Approved Property, Undeveloped Property, Taxable Association Property and Taxable Public Property shall he $9,103 per Acre.

D. METHOD OF APPORTIONMENT OF THE SPECIAL TAX
Commencing with Fiscal Year 2007-08 and for each following Fiscal Year, the Council shall determine the Special Tax Requirement and shall levy the Special Tax on all Assessor’s Parcels of Taxable Property until the aggregate amount of the Special Taxes equals the Special Tax Requirement. The Special Tax shall be levied for each Fiscal Year as follows:

First: The Special Tax shall be levied Proportionately on all Assessor’s Parcels of Developed Property up to 100% of the applicable Assigned Special Tax as needed to satisfy the Special Tax Requirement; Second: If additional moneys are needed to satisfy the Special Tax Requirement after the first step has been completed, the Special Tax shall be levied Proportionately on all Assessor’s Parcels of Approved Property up to 100% of the Maximum Special Tax for Approved Property; Third: If additional moneys are needed to satisfy the Special Tax Requirement after the first two steps have been completed, the Special Tax shall be levied Proportionately on all Assessor’s Parcels of Undeveloped Property up to 100% of the Maximum Special Tax for Undeveloped Property; Fourth: If additional moneys are needed to satisfy the Special Tax Requirement after the first three steps have been completed, the Special Tax to be levied on all Assessor’s Parcels of Developed Property whose Maximum Special Tax is its Backup Special Tax shall be increased in equal percentages from the Assigned Special Tax up to the Maximum Special Tax for each such Assessor’s Parcel; Fifth: If additional moneys are needed to satisfy the Special Tax Requirement after the first four steps have been completed, the Special Tax shall be levied Proportionately on all Assessor’s Parcels of Taxable Association Property up to 100% of its Maximum Special Tax; Item Number: 5.

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Sixth: If additional moneys are needed to satisfy the Special Tax Requirement after the first five steps have been completed, the Special Tax shall be levied Proportionately on all Assessor’s Parcels of Taxable Public Property up to 100% of its Maximum Special Tax.

Notwithstanding the above, under no circumstances will the Special Taxes levied on any Assessor’s Parcel of Residential Property for which an occupancy permit for private residential use has been issued be increased by more Than ten percent (10%) in any Fiscal Year as a consequence of delinquency or default in the payment of Special Taxes by the owner of any other Assessor’s Parcel.

E. EXEMPTIONS
The District Administrator shall classify as Exempt Property Assessor’s Parcels of (i) Public Property or (ii) Association Property; provided that such classification shall not reduce the Acreage of all Taxable Property to less than 54.10 Acres. The District Administrator shall not classify an Assessor’s Parcel of Public Property or Association Property as Exempt Property if such classification would reduce the sum Acreage of all Taxable Property to less than 54.10 Acres. Such Assessor’s Parcels that cannot be classified as Exempt Property because such classification would reduce the Acreage of all Taxable Property to less than 54.10 Acres will be classified as Taxable Association Property or Taxable Public Property, and will continue to be subject to the Special Tax. The District Administrator shall classify such Assessor’s Parcels as Exempt Property in the chronological order in which property becomes Public Property or Association Property.

F. MANNER OF COLLECTION
The Special Tax shall be collected in the same manner and at the same time as ordinary ad valorem property taxes; provided, however, that IA No. 1 may directly bill the Special Tax, may collect Special Taxes at a different time or in a different rummer if necessary to meet its financial obligations, and may covenant to foreclose and may foreclose on Assessor’s Parcels having delinquent Special Taxes as permitted by the Act.

G. TERM OF THE SPECIAL TAX
For each Fiscal Year that any Bonds are outstanding, the Special Tax shall be levied on all Assessor’s Parcels of Taxable Property. If any delinquent Special Taxes remain uncollected prior to or after all outstanding Bonds are retired, the Special Tax may be levied to the extent necessary, up to the applicable Maximum Special Tax, to make up the deficiency resulting from such delinquent Special Taxes, but not later than the 2047-48 Fiscal Year.

H. PREPAYMENT OF SPECIAL TAX
The following definitions apply to this Section H:
“CFD Public Facilities” means $4,700,000 or such lower number as (i) shall be determined by the Administrator as sufficient to provide the public facilities under the authorized bonding program of the CFD, or (ii) shall be determined by the Administrator concurrently with a covenant that it will not issue any more Bonds to be supported by Special Taxes within Improvement Area No. 1 as levied under this Rate and Method of Apportionment.
“Construction Fund” means an account specifically identified in the Indenture to hold funds which are currently available for expenditure to acquire or construct public facilities eligible under the Act. “Future Facilities Costs” means the CFD Public Facilities minus public facility costs available to be funded through existing construction or escrow accounts or funded by the Outstanding Bonds, and minus public facility costs funded by interest earnings on the Construction Fund actually earned prior to the date of prepayment.

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“Outstanding Bonds” means all previously issued bonds issued by and secured by the levy of Special Taxes within the CFD, which will remain outstanding after the first interest and/or principal payment date following the current Fiscal Year, excluding bonds to be redeemed at a later date with the proceeds of prior prepayments of Maximum Special Taxes.

1. Prepayment in Full
The Maximum Special Tax obligation within any Tax Zone may only be prepaid and permanently satisfied by a Parcel of Developed Property, Approved Property and/or Undeveloped Property for which a building permit has been issued, and Public Property and/or Property Owner’s Association Property that is not Exempt Property pursuant to Section E. The Maximum Special Tax obligation applicable to such Parcel may be fully prepaid and the obligation of the Parcel to pay the Special Tax permanently satisfied as described herein; provided that a prepayment may be made only if there are no delinquent Special Taxes with respect to such the Parcel at the time of prepayment. An owner of a Parcel intending to prepay the Maximum Special Tax obligation shall provide the Administrator with written notice of intent to prepay, and within 5 business days of receipt of such notice, the Administrator shall notify such owner of the amount of the non-refundable deposit determined to cover the cost to be incurred by the CFD in calculating the proper amount of a prepayment. Within 15 days of receipt of such non-refundable deposit, the Administrator shall notify such owner of the prepayment amount of such Parcel. Prepayment must be made not less than 60 days prior to any redemption date for any Bonds to be redeemed with the proceeds of such prepaid Special Taxes.

The Prepayment Amount (defined below) shall be calculated as summarized below (capitalized terms as defined below):

Bond Redemption Amount
plus Redemption Premium
plus Future Facilities Amount
plus Defeasance Amount
plus Administrative Fees and Expenses
less Reserve Fund Credit
Total: equals Prepayment Amount
As of the proposed date of prepayment, the Prepayment Amount (defined below) shall be calculated as follows:

1. Confirm that no Special Tax delinquencies apply to such Parcel.

2. For Parcels of Developed Properly, compute the Maximum Special Tax for the Parcel to be Prepaid. For Parcels of Approved Property or Undeveloped Property to be prepaid, compute the Maximum Special Tax for that Parcel as though it was already designated as Developed Property, based upon the building permit which has already been issued for that Parcel. For Parcels of Public Property and/or Property Owner’s Association Property to be prepaid, compute the Maximum Special Tax for that Parcel.

3. Divide the Maximum Special Tax computed pursuant to paragraph 2 by the total estimated Maximum Special Taxes based on the projected Developed Property Special Tax, or if at buildout the actual Developed Property Special Tax which could be charged, less any Parcels which have been prepaid.

4. Multiply the quotient computed pursuant to paragraph 3 by the Outstanding Bonds to compute the amount of Outstanding Bonds to be retired and prepaid (the “Bond Redemption Amount”).

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5. Multiply the Bond Redemption Amount computed pursuant to paragraph 4 by the applicable redemption premium, if any, on the Outstanding Bonds to be redeemed (the “Redemption Premium”).

6. Compute the Future Facilities Costs.

7. Multiply the quotient computed pursuant to paragraph 3 by the amount determined pursuant to paragraph 6 to compute the amount of Future Facilities Costs to be prepaid (the “Future Facilities Amount”).

8. Compute the amount needed to pay interest on the Bond Redemption Amount from the first bond interest and/or principal payment date following the current Fiscal Year until the earliest redemption date for the Outstanding Bonds.

9. Determine the Special Taxes levied on the Parcel in the current Fiscal Year which have not yet been paid.

10. Compute the amount the Administrator reasonably expects to derive from the reinvestment of the Prepayment Amount less the Future Facilities Amount and the Administrative Fees and Expenses from the date of prepayment until the redemption date for the Outstanding Bonds to be redeemed with the prepayment.

11. Add the amounts computed pursuant to paragraphs 8 and 9 and subtract the amount computed pursuant to paragraph 10 (the “Defeasance Amount”).

12. Verify the administrative fees and expenses, including the costs of computation of the prepayment, the costs to invest the prepayment proceeds, the costs of redeeming the Outstanding Bonds, and the costs of recording any notices to evidence the prepayment and the redemption (the “Administrative Fees and Expenses”).

13. The reserve fund credit (the “Reserve Fund Credit”) shall equal the lesser of: (a) the expected reduction in the reserve requirement (as defined in the Indenture), if any, associated with the redemption of Outstanding Bonds as a result of the prepayment, or (b) the amount derived by subtracting the new reserve requirement (as defined in the Indenture) in effect after the redemption of Outstanding Bonds as a result of the prepayment from the balance in the reserve fund on the prepayment date, but in no event shall such amount be less than zero.

14. The Maximum Special Tax prepayment is equal to the sum of the amounts computed pursuant to paragraphs 4, 5, 7, 11 and 12, less the amount computed pursuant to paragraph 13 (the “Prepayment Amount”).

15. From the Prepayment Amount, the amounts computed pursuant to paragraphs 4, 5, 11, and 13 shall be deposited into the appropriate fund as established under the Indenture and be used to retire Outstanding Bonds or make debt service payments. The amount computed pursuant to paragraph 7 shall be deposited into the Construction Fund. The amount computed pursuant to paragraph 12 shall be retained by the CFD.

The Prepayment Amount may be sufficient to redeem other than a $5,000 increment of Bonds. In such cases, the increment above $5,000 or integral multiple thereof will be retained in the appropriate fund established under the Indenture to be used with the next prepayment of bonds or to make debt service payments.

As a result of the payment of the current Fiscal Year’s Special Tax levy as determined under paragraph 9 (above), the Administrator shall remove the current Fiscal Year’s Special Tax levy for Item Number: 5.

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such Parcel from the County tax rolls. With respect to any Parcel that is prepaid, the Board shall cause a suitable notice to be recorded in compliance with the Act, to indicate the prepayment of Special Taxes and the release of the Special Tax lien on such Parcel, and the obligation of such Parcel to pay the Special Tax shall cease.

Notwithstanding the foregoing, no Special Tax prepayment shall be allowed unless the amount of Maximum Special Taxes that may be levied on Taxable Property both prior to and after the proposed prepayment is at least 1.1 times the maximum principal and interest due in any Fiscal Year of all Outstanding Bonds plus the anticipated Administrative Expenses.

Tenders of Bonds in prepayment of Maximum Special Taxes may be accepted upon the terms and conditions established by the Board pursuant to the Act. However, the use of Bond tenders shall only be allowed on a case-by-case basis as specifically approved by the Board.

2. Prepayment in Part
The Maximum Special Tax on a Parcel of Developed Property or a Parcel of Approved Property or Undeveloped Property for which a building permit has been issued may be partially prepaid in increments of $5,000. The amount of the prepayment shall be calculated as in Section H.1; except that a partial prepayment shall be calculated according to the following formula:

PP = ((PE–A)x F)+A
These terms have the following meaning:

PP = the partial prepayment
PE = the Prepayment Amount calculated according to Section H.1 F = the percent by which the owner of the Parcel(s) is partially prepaying the Maximum Special Tax.

A = the Administrative Fees and Expenses calculated according to Section H.1 The owner of a Parcel who desires to partially prepay the Maximum Special Tax shall notify the Administrator of (i) such owner’s intent to partially prepay the Maximum Special Tax, (ii) the amount of partial prepayment expressed in increments of $5,000, and (iii) the company or agency that will be acting as the escrow agent, if applicable and within 5 days of receipt of such notice, the Administrator shall notify such property owner of the amount of the non-refundable deposit determined to cover the cost to be incurred by the CFD in calculating the proper amount of a partial prepayment. Within 15 business days of receipt of such non-refundable deposit, the Administrator shall notify such owner of the partial prepayment amount of such Parcel. Partial prepayment must be made not less than 60 days prior to any redemption date for any Bonds to be redeemed with the proceeds of such prepaid Special Taxes.

With respect to any Parcel that is partially prepaid, the Administrator shall (i) distribute the funds remitted to it according to Paragraph 15 of Section H.1, and (ii) indicate in the records of the CFD that there has been a partial prepayment of the Maximum Special Tax and that a portion of the Maximum Special Tax equal to the outstanding percentage (1.00 - F) of the remaining Maximum Special Tax shall continue to be authorized to be levied on such Parcel pursuant to Section D.

Item Number: 5.

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APPENDIX B

CERTAIN ECONOMIC AND DEMOGRAPHIC INFORMATION REGARDING
The following information relating to the City of Desert Hot Springs (the “City”) and the County of Riverside, California (the “County”), California (the “State”) is supplied solely for purposes of information.

Neither the City nor the County is obligated in any manner to pay principal of or interest on the Bonds or to cure any delinquency or default on the Bonds. The Bonds are payable solely from the sources described in the Official Statement.

General
The City encompasses approximately 23 square miles and is located in Riverside County, California, approximately 110 miles east of the City of Los Angeles. The City was incorporated in 1963 and operates as a charter city with a council-manager form of government.

Population
The following table shows population figures for the City, the County and the State for 2019 through 2023.

Area 2019 2020 2021 2022 2023
City of Desert Hot Springs 30,019 30,036 32,351 32,389 32,608 County of Riverside 2,422,146 2,442,304 2,454,453 2,430,976 2,439,234 State of California 39,695,376 39,782,870 39,466,855 39,078,674 38,940,231 Source: California State Department of Finance, Demographic Research Unit. 2010 Census Benchmark. Population and Housing Estimates for Cities, Counties, and the State — January 1, 2022 and 2023.

Building Activity
The following tables provide summaries of the building permit valuations and the number of new dwelling units authorized in the City and County from 2018 through 2022.

BUILDING PERMIT VALUATIONS
City of Desert Hot Springs
2018-2022
(Dollars in Thousands)
2018 2019 2020 2021 2022
Valuation ($000):

Residential $ 9,848 $ 6,469 $ 30,802 $ 32,078 $41,814
Non-residential 26,563 27,815 8,258 11,681 7,293
Total* $36,411 $34,284 $ 39,060 $ 43,759 $49,107
Residential Units:

Single family 44 21 98 114 146
Multiple family 0 0 0 6 14
Total 44 21 98 120 160
* Totals may not add to sums because of rounding.

Source: Construction Industry Research Board.

Item Number: 5.

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BUILDING PERMIT VALUATIONS
County of Riverside
2018-2022
(Dollars in Thousands)
2018 2019 2020 2021 2022
Valuation ($000):

Residential $ 2,558,081 $ 2,275,405 $ 2,519,303 $ 2,262,642 $ 2,921,113 Non-residential 1,959,681 1,285,856 1,153,778 1,543,998 1,701,617 Total* $ 4,517,762 $ 3,561,261 $ 3,673,081 $ 3,806,640 $ 4,622,730 Residential Units:

Single family 7,540 6,563 8,443 7,360 8,863
Multiple family 1,628 1,798 723 1,126 2,861
Total 9,168 8,361 9,166 8,486 11,724
* Totals may not add to sums because of rounding.

Source: Construction Industry Research Board.

Employment
The following table shows the largest employers located in the County as of June 30, 2022.

LARGEST EMPLOYERS
County of Riverside
(as of June 30, 2022)
Rank Name of Business Employees Type of Business

1. County of Riverside 25,366 County Government

2. Amazon 14,317 E-Commerce

3. March Air Reserve Base 9,600 Military Reserve Base

4. Nestle UA 8,874 Grocery Wholesalers

5. University of California-Riverside 8,623 University

6. State of California 8,383 State Government

7. Walmart 7,494 Retail Company

8. Moreno Valley Unified School District 6,020 School District

9. Kaiser Permanente Riverside Medical Center 5,817 Medical Center

10. Corona-Norco Unified School District 5,478 School District Source: County of Riverside Comprehensive Annual Financial Report for the year ending June 30, 2022.

Employment and Industry
Employment data by industry is not separately reported on an annual basis for the City but is compiled for the Riverside-San Bernardino-Ontario Metropolitan Statistical Area (the “MSA”), which includes all of Riverside and San Bernardino Counties. In addition to varied manufacturing employment, the MSA has large and growing commercial and service sector employment, as reflected in the table below.

The following table represents the Annual Average Labor Force and Industry Employment for the County for the period from 2018 through 2022.

Item Number: 5.

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RIVERSIDE-SAN BERNARDINO-ONTARIO MSA

INDUSTRY EMPLOYMENT & LABOR FORCE - BY ANNUAL AVERAGE
2018 2019 2020 2021 2022
Civilian Labor Force(1) 2,045,200 2,075,200 2,095,800 2,125,300 2,160,600 Employment 1,957,500 1,991,200 1,888,900 1,968,700 2,071,200 Unemployment 87,700 84,000 206,900 156,600 89,400
Unemployment Rate 4.3% 4.0% 9.9% 7.4% 4.1%
Wage and Salary Employment:(2)
Agriculture 14,500 15,400 14,100 13,700 13,900
Mining and Logging 1,200 1,200 1,300 1,400 1,600
Construction 105,200 107,200 104,900 110,100 115,200
Manufacturing 100,400 101,300 96,000 96,100 99,600
Wholesale Trade 66,100 67,700 65,600 67,400 69,700
Retail Trade 181,200 180,700 168,800 177,000 180,600
Transportation, Warehousing and
Utilities
132,100 146,600 172,500 198,800 214,200
Information 11,400 11,500 9,600 9,700 10,200
Finance and Insurance 25,300 24,800 24,600 24,400 24,600 Real Estate and Rental and Leasing 19,300 20,200 19,500 20,700 22,200 Professional and Business Services 151,400 157,900 154,800 169,400 179,100 Educational and Health Services 239,500 250,300 248,800 254,300 266,400 Leisure and Hospitality 170,600 175,900 141,300 160,200 179,600 Other Services 45,800 46,200 40,200 43,600 47,900
Federal Government 20,700 21,100 22,100 21,100 20,900
State Government 30,600 31,100 31,300 30,400 28,300
Local Government 205,900 209,000 194,600 190,500 200,300 Total All Industries 1,521,100 1,568,100 1,509,900 1,588,800 1,674,200 Civilian Labor Force(1) 2,045,200 2,075,200 2,095,800 2,125,300 2,160,600 Employment 1,957,500 1,991,200 1,888,900 1,968,700 2,071,200 (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.

Source: State of California, Employment Development Department.

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The following table summarizes the labor force, employment and unemployment figures for the period from 2018 through 2022 for the City, the County, the State and the nation as a whole.

CITY OF DESERT HOT SPRINGS,

COUNTY OF RIVERSIDE,

STATE OF CALIFORNIA AND UNITED STATES
Average Annual Civilian Labor Force, Employment and Unemployment(1) Year and Area Labor Force Employment(2) Unemployment(3) Unemployment
Rate (%)
2018
City of Desert Hot Springs 11,500 10,800 700 5.7%
County of Riverside 1,090,100 1,041,700 47,800 4.4
State of California 19,289,500 18,469,900 819,600 4.2
United States 162,075,000 155,761,000 6,314,000 3.9
2019
City of Desert Hot Springs 11,600 10,900 700 5.7%
County of Riverside 1,108,100 1,061,500 46,600 4.2
State of California 19,413,200 18,617,900 795,300 4.1
United States 163,539,000 157,538,000 6,001,000 3.7
2020
City of Desert Hot Springs 12,500 10,600 2,000 15.6%
County of Riverside 1,121,100 1,008,000 113,000 10.1
State of California 18,971,600 17,047,600 1,924,000 10.1 United States 160,472,000 147,795,000 12,947,000 8.1
2021
City of Desert Hot Springs 12,300 11,000 1,300 10.4%
County of Riverside 1,133,000 1,050,000 83,000 7.3
State of California 18,973,400 17,586,300 1,387,100 7.3 United States 161,204,000 152,581,000 8,623,000 5.3
2022
City of Desert Hot Springs 12,300 11,600 700 5.5%
County of Riverside 1,152,100 1,104,100 48,000 4.2
State of California 19,252,000 18,440,900 811,100 4.2
United States 164,287,000 158,291,000 5,916,000 3.6
Note: Data is not seasonally adjusted.
(1) Annual averages, unless otherwise specified.
(2) Includes persons involved in labor-management trade disputes. (3) The unemployment rate is computed from unrounded data; therefore, it may differ from rates computed from rounded figures in this table.

Source: U.S. Department of Labor – Bureau of Labor Statistics, California Employment Development Department. 2021 Benchmark.

Personal Income
Personal Income is the income that is received by all persons from all sources. It is calculated as the sum of wage and salary disbursements, supplements to wages and salaries, proprietors’ income with inventory valuation and capital consumption adjustments, rental income of persons with capital consumption adjustment, personal dividend income, personal interest income, and personal current transfer receipts, less contributions for government social insurance.

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The personal income of an area is the income that is received by, or on behalf of, all the individuals who live in the area; therefore, the estimates of personal income are presented by the place of residence of the income recipients.

Total personal income in Riverside County increased by 35.23% between 2017 and 2021. The following tables summarize personal income for Riverside County for 2012 through 2021.

PERSONAL INCOME
Riverside County
2012-2021
(Dollars in Thousands)
Year Riverside County
Annual
Percent Change
2012 $74,050,799 2.9%
2013 76,519,738 3.3
2014 80,776,153 5.6
2015 86,196,663 6.7
2016 90,713,807 5.2
2017 93,043,247 4.2
2018 97,949,023 4.8
2019 104,149,463 6.8
2020 115,570,337 11.0
2021 125,820,553 8.9
Source: U.S. Department of Commerce, Bureau of Economic Analysis.

The following table summarizes per capita personal income for Riverside County, California and the United States for 2012-2022. This measure of income is calculated as the personal income of the residents of the area divided by the resident population of the area.

PER CAPITA PERSONAL INCOME
Riverside County, State of California and the United States 2012-2022
Year Riverside County California United States
2012 $32,748 $48,813 $44,605
2013 33,462 49,303 44,860
2014 34,875 52,363 47,071
2015 36,745 55,833 49,019
2016 38,114 58,048 50,015
2017 39,148 60,549 52,118
2018 40,587 63,720 54,606
2019 43,295 64,919 52,250
2020 47,702 70,647 59,765
2021 51,180 76,614 64,143
2022 --
(1) 77,339 65,423
(1) Per Capita income not available for the County as of October 2023.

Source: U.S. Department of Commerce, Bureau of Economic Analysis.

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Taxable Sales
The table below presents taxable sales for the years 2018 through 2022 for the City.

TAXABLE SALES
City of Desert Hot Springs
2018-2022
(Dollars in Thousands)
Year Permits Taxable Transactions
2018 420 $153,456,382
2019 470 162,986,977
2020 535 165,668,580
2021 489 254,520,896
2022 548 206,004,322
Source: Taxable Sales in California, California Department of Tax and Fee Administration for 2018-2022 The table below presents taxable sales for the years 2018 through 2022 for the County.

TAXABLE SALES
County of Riverside
2018-2022
(Dollars in Thousands)
Year Permits Taxable Transactions
2018 61,433 $38,919,497
2019 64,063 40,557,844
2020 69,284 42,313,474
2021 64,335 43,414,533
2022 66,738 46,908,344
Source: Taxable Sales in California, California Department of Tax and Fee Administration for 2018-2022.

Item Number: 5.

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APPENDIX C

FORM OF OPINION OF BOND COUNSEL
Upon issuance of the Bonds, Stradling Yocca Carlson & Rauth, a Professional Corporation, Bond Counsel, proposes to render its final approving opinion in substantially the following form:
[Closing Date]
City of Desert Hot Springs
Community Facilities District No. 2006-1
Desert Hot Springs, California
Re: $____________ City of Desert Hot Springs Community Facilities District No. 2006-1 Improvement Area 1 Special Tax Bonds, Series 2023
Ladies and Gentlemen:

We have examined the Constitution and the laws of the State of California, a certified record of the proceedings of the City of Desert Hot Springs (the “City”) taken in connection with the formation of City of Desert Hot Springs Community Facilities District No. 2006-1 (the “District”) and the authorization and issuance of the City of Desert Hot Springs Community Facilities District No. 2006-1 Improvement Area 1 Special Tax Bonds, Series 2023 in the aggregate principal amount of $______________ (the “Bonds”) and such other information and documents as we consider necessary to render this opinion. In rendering this opinion, we have relied upon certain representations of fact and certifications made by the City, the initial purchasers of the Bonds and others. We have not undertaken to verify through independent investigation the accuracy of the representations and certifications relied upon by us.

The Bonds have been issued pursuant to the Mello-Roos Community Facilities Act of 1982, as amended (comprising Chapter 2.5 of Part 1 of Division 2 of Title 5 of the Government Code of the State of California), a resolution adopted by the City Council of the City, acting in its capacity as the legislative body of the District (the “City Council”) on November 7, 2023 (the “Resolution”), and a Fiscal Agent Agreement dated as of February 1, 2020 (the “Original Fiscal Agent Agreement”), as supplemented and amended by the First Supplement to Fiscal Agent Agreement, dated as of December 1, 2023 (the “First Supplement” and together with the Original Fiscal Agent Agreement, the “Fiscal Agent Agreement”), each by and between the City and Wilmington Trust, National Association, as fiscal agent (the “Fiscal Agent”). All capitalized terms not defined herein shall have the meaning set forth in the Fiscal Agent Agreement.

Based upon our examination of the foregoing, and in reliance thereon and on all matters of fact as we deem relevant under the circumstances, and upon consideration of applicable laws, we are of the opinion that:
(1) The Bonds have been duly and validly authorized by the City and are legal, valid and binding limited obligations of the City, enforceable in accordance with their terms and the terms of the Fiscal Agent Agreement. The Bonds are limited obligations of the City but are not a debt of the City, the State of California or any other political subdivision thereof within the meaning of any constitutional or statutory limitation, and, except for the Special Tax Revenues, neither the faith and credit nor the taxing power of the City, the State of California, or any of its political subdivisions is pledged for the payment thereof. (2) The Fiscal Agent Agreement has been duly executed and delivered by the City. The Fiscal Agent Agreement creates a valid pledge of, and the Bonds are secured by, the Special Tax Revenues and the amounts on deposit in certain funds and accounts established under the Fiscal Agent Agreement, as and to the extent provided in the Fiscal Agent Agreement. The Fiscal Agent Agreement is enforceable in accordance Item Number: 5.

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with its terms; provided, however, we express no opinion as to the enforceability of the covenant of the City contained in the Fiscal Agent Agreement to levy Special Taxes for the payment of Administrative Expenses or as to indemnification, penalty, contribution, choice of law, choice of forum or waiver provisions contained therein.
(3) Under existing statutes, regulations, rulings and judicial decisions, interest (and original issue discount) on the Bonds is excluded from gross income for federal income tax purposes and is not an item of tax preference for purposes of calculating the federal alternative minimum tax imposed on individuals; however, it should be noted that for tax years beginning after December 31, 2022, with respect to applicable corporations as defined in Section 59(k) of the Internal Revenue Code of 1986, as amended (the “Code”), interest (and original issue discount) with respect to the Bonds might be taken into account in determining adjusted financial statement income for purposes of computing the alternative minimum tax imposed on such corporations.
(4) Interest (and original issue discount) on the Bonds is exempt from State of California personal income tax.
(5) The difference between the issue price of a Bond (the first price at which a substantial amount of the Bonds of a maturity are to be sold to the public) and the stated redemption price at maturity with respect to such Bond constitutes original issue discount. Original issue discount accrues under a constant yield method, and original issue discount will accrue to a Bond Owner before receipt of cash attributable to such excludable income. The amount of original issue discount deemed received by a Bond Owner will increase the Bond Owner’s basis in the applicable Bond.
(6) The amount by which a Bond Owner’s original basis for determining loss on sale or exchange in the applicable Bond (generally the purchase price) exceeds the amount payable on maturity (or on an earlier call date) constitutes amortizable Bond premium which must be amortized under Section 171 of the Code; such amortizable Bond premium reduces the Bond Owner’s basis in the applicable Bond (and the amount of tax-exempt interest received), and is not deductible for federal income tax purposes. The basis reduction as a result of the amortization of Bond premium may result in a Bond Owner realizing a taxable gain when a Bond is sold by the Owner for an amount equal to or less (under certain circumstances) than the original cost of the Bond to the Owner.

The opinions expressed in paragraphs (3) and (5) above as to the exclusion from gross income for federal income tax purposes of interest (and original issue discount) on the Bonds is subject to the condition that the City comply with all requirements of the Code, that must be satisfied subsequent to the issuance of the Bonds to assure that such interest (and original issue discount) will not become includable in gross income for federal income tax purposes. Failure to comply with such requirements of the Code might cause interest (and original issue discount) on the Bonds to be included in gross income for federal income tax purposes retroactive to the date of issuance of the Bonds. The City has covenanted to comply with all such requirements. Except as set forth in paragraphs (3), (4), (5) and (6) above, we express no opinion as to any tax consequences related to the Bonds.

Certain agreements, requirements and procedures contained or referred to in the Fiscal Agent Agreement, the Tax Certificate executed by the City and other documents related to the Bonds may be changed and certain actions may be taken or omitted, under the circumstances and subject to the terms and conditions set forth in such documents. We express no opinion as to the effect on the exclusion from gross income for federal income tax purposes of interest (and original issue discount) on any Bond if any such change occurs or action is taken or omitted upon advice or approval of bond counsel other than Stradling Yocca Carlson & Rauth, a Professional Corporation.

Our opinion is limited to matters governed by the laws of the State of California and federal law. We assume no responsibility with respect to the applicability or the effect of the laws of any other jurisdiction. We Item Number: 5.

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call attention to the fact that the rights and obligations under the Bonds, the Fiscal Agent Agreement and the Tax Certificate may be limited by bankruptcy, insolvency, reorganization, arrangement, fraudulent conveyance, moratorium and other laws relating to or affecting creditors’ rights, by the application of equitable principles and the exercise of judicial discretion in appropriate cases and by the limitations on legal remedies against public agencies in the State of California.

We express no opinion herein as to the accuracy, completeness or sufficiency of the Official Statement or other offering material relating to the Bonds and expressly disclaim any duty to advise the Owners of the Bonds with respect to matters contained in the Official Statement or other offering material.

The opinions expressed herein are based upon an analysis of existing statutes, regulations, rulings and judicial decisions and cover certain matters not directly addressed by such authorities. Such opinions may be affected by actions taken (or not taken) or events occurring (or not occurring) after the date hereof. We have not undertaken to determine, or to inform any person, whether such actions or events are taken (or not taken) or do occur (or do not occur).

Respectfully submitted,
Item Number: 5.

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APPENDIX D

APPRAISAL REPORT
Item Number: 5.

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APPENDIX E

SUMMARY OF THE FISCAL AGENT AGREEMENT
Item Number: 5.

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APPENDIX F

FORM OF CONTINUING DISCLOSURE CERTIFICATE
THIS CONTINUING DISCLOSURE CERTIFICATE (this “Disclosure Certificate”), dated as of December 1, 2023, is executed and delivered by the City of Desert Hot Springs (the “City”) in connection with the issuance of the City of Desert Hot Springs Community Facilities District No. 2006-1 Improvement Area 1 Special Tax Bonds, Series 2023 (the “Bonds”). The Bonds are being issued pursuant to a Resolution of Issuance adopted by the City Council of the City, acting as the legislative body of City of Desert Hot Springs Community Facilities District No. 2006-1 Improvement (the “District”) on November 7, 2023 and a Fiscal Agent Agreement dated as of February 1, 2020 (the “Original Fiscal Agent Agreement”), as supplemented and amended by the First Supplement to Fiscal Agent Agreement, dated as of December 1, 2023 (the “First Supplement” and together with the Original Fiscal Agent Agreement, the “Fiscal Agent Agreement”), each by and between the City and Wilmington Trust, National Association, as fiscal agent.

The City covenants as follows:

SECTION 1. Purpose of the Disclosure Certificate. This Disclosure Certificate is being executed and delivered, for the benefit of the Owners and Beneficial Owners of the Bonds and in order to assist the Participating Underwriter in complying with the Rule.

SECTION 2. Definitions. In addition to the definitions set forth in the Fiscal Agent Agreement and the Rate and Method of Apportionment, 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” shall mean any Annual Report provided by the City pursuant to, and as described in, Sections 3 and 4 of this Disclosure Certificate.
“Beneficial Owner” shall mean any person who (a) has the power, directly or indirectly, to vote or consent with respect to, or to dispose of ownership of, any Bond (including a person holding Bond through a nominee, depository or other intermediary), or (b) is treated as the owner of any Bond for federal income purposes.
“Disclosure Representative” shall mean the Administrative Services Director of the City, or such other officer or employee as the City shall designate in writing to the Dissemination Agent from time to time. “Dissemination Agent” shall mean, initially, Webb Municipal Finance, LLC, or any successor Dissemination Agent designed in writing by the City.
“EMMA” shall mean the Electronic Municipal Market Access System of the Municipal Securities Rulemaking Board, which can be found at www.emma.msrb.org, or any other repository of disclosure information that may be designated by the Securities and Exchange Commission in the future. “Financial Obligation” means a (i) debt obligation; (ii) derivative instrument entered into in connection with, or pledged as security or a source of payment for, an existing or planned debt obligation; or (iii) guarantee of (i) or (ii). The term financial obligation shall not include municipal securities as to which a final official statement has been provided to the MSRB consistent with the Rule. “Improvement Area” means Improvement Area 1 of the District.

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“Listed Events” shall mean any of the events listed in Section 5 of this Disclosure Certificate. “MSRB” shall mean the Municipal Securities Rulemaking Board or any other entity designated or authorized by the Securities and Exchange Commission to receive reports pursuant to the Rule. Until otherwise designated by the MSRB or the Securities and Exchange Commission, filings with the MSRB are to be made through the Electronic Municipal Market Access (EMMA) website of the MSRB, currently located at http://emma.msrb.org.
“Official Statement” shall mean the City’s official statement with respect to the Bonds. “Participating Underwriter” shall mean Stifel, Nicolaus & Company, Incorporated. “Rate and Method of Apportionment” means that certain Rate and Method of Apportionment of Special Tax for the Improvement Area approved pursuant to the Resolution of Formation. “Resolution of Formation” means the resolutions adopted by the City Council pursuant to which the City Council formed the District.
“Rule” shall mean Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time.

SECTION 3. Provision of Annual Reports.
(a) Not later than March 31 of each year commencing March 31, 2024, the City shall, or shall cause the Dissemination Agent to, provide to EMMA and the Participating Underwriter an Annual Report which is consistent with the requirements of Section 4 of this Disclosure Certificate. If the Dissemination Agent is other than the City, then not later than 15 business days prior to the date referred to in the prior sentence hereof, the City shall provide the Annual Report (in a form suitable for filing with EMMA) to the Dissemination Agent. 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 and later than the balance of the Annual Report if they are not available by the date required above for the filing of the Annual Report.
(b) In the event that the Dissemination Agent is an entity other than the City, then the provisions of this Section 3(b) shall apply. Not later than fifteen (15) Business Days prior to the date specified in subsection (a) for providing the Annual Report, the City shall provide the Annual Report to the Dissemination Agent. If by fifteen (15) Business Days prior to the due date for an Annual Report the Dissemination Agent has not received a copy of the Annual Report, the Dissemination Agent shall contact the City to determine if the City will be filing the Annual Report in compliance with subsection (a). The City shall provide a written certification with each Annual Report furnished to the Dissemination Agent to the effect that such Annual Report constitutes the Annual Report required to be furnished by it hereunder. The Dissemination Agent may conclusively rely upon such certification of the City and shall have no duty or obligation to review such Annual Report.
(c) If the Dissemination Agent is other than the City and if the Dissemination Agent is unable to verify that an Annual Report has been provided to EMMA by the date required in subsection (a), the Dissemination Agent shall send a notice in a timely manner to EMMA, in the form required by EMMA. If the City acts as its own Dissemination Agent, it shall file a notice with EMMA no later than the date specified in subsection (a) for filing an Annual Report if the City fails to file the Annual Report by that date. (d) If the Dissemination Agent is other than the City, the Dissemination Agent shall:

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(i) determine each year prior to the date for providing the Annual Report the name and address of the repository if other than the MSRB through EMMA; and (ii) promptly after receipt of the Annual Report, file a report with the City certifying that the Annual Report has been provided to EMMA and the date it was provided. (e) Notwithstanding any other provision of this Disclosure Certificate, all filings shall be made in accordance with the MSRB’s EMMA system or in another manner approved under the Rule.

SECTION 4. Content of Annual Reports. The City’s Annual Report shall contain or include by reference:
(a) Financial Statements. The audited financial statements of the City, if any, for the prior fiscal year, 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, if any are prepared, are not available by the time the Annual Report is required to be filed pursuant to Section 3, the Annual Report shall contain unaudited financial statements, and the audited financial statements shall be filed in the same manner as the Annual Report when they come available. (b) Financial and Operating Data. The Annual Report shall contain or incorporate by reference the following information:
(i) the principal amount of Bonds outstanding as of the September 2 preceding the filing of the Annual Report;
(ii) the balance in each fund under the Fiscal Agent Agreement as of the September 2 preceding the filing of the Annual Report;
(iii) the aggregate assessed valuation of the Taxable Property within the Improvement Area;
(iv) any changes to the Rate and Method of Apportionment of the Special Tax approved or submitted to the qualified electors for approval prior to the filing of the Annual Report; (v) a table setting forth the annual Special Tax delinquency rate within the Improvement Area at June 30 for each fiscal year on which a delinquency exists, listing for each fiscal year the total Special Tax levy, the amount delinquent and the percent delinquent; (vi) the status of any foreclosure actions being pursued by the City with respect to delinquent Special Taxes within the Improvement Area; and (vii) an update of the value-to-lien of the property within the Improvement Area based on the assessed value and the Special Tax levy for then current fiscal year, which update may be provided in a form similar to Table 3 in the Official Statement; provided that such update need not include overlapping special tax, assessment or general obligation indebtedness. (c) Any or all of the items listed in (a) or (b) above may be included by specific reference to other documents, including official statements of debt issues of the City or related public entities, which have been submitted to EMMA or the Securities and Exchange Commission. If the document included by reference is a final official statement, it must be available from the MSRB through EMMA. The City shall clearly identify each such other document so included by reference.

Item Number: 5.

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SECTION 5. Reporting of Significant Events.
(a) Pursuant to the provisions of this Section 5, the City shall give, or cause the Dissemination Agent to give, notice to EMMA in a timely manner not in excess of ten (10) business days after the occurrence of any of the following events with respect to the Bonds:

1. principal and interest payment delinquencies;

2. unscheduled draws on debt service reserves reflecting financial difficulties;

3. unscheduled draws on credit enhancements reflecting financial difficulties;

4. substitution of credit or liquidity providers, or their failure to perform;

5. adverse tax opinions or 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 Bonds;

6. defeasances;

7. tender offers;

8. bankruptcy, insolvency, receivership or similar proceedings;

9. ratings changes; and

10. default, event of acceleration, termination event, modification of terms, or other similar events under the terms of a Financial Obligation of the obligated person, any of which reflect financial difficulties.
(b) Additionally, the City shall give or cause the Dissemination Agent to give notice to EMMA in a timely manner not in excess of ten (10) business days after the occurrence of any of the following events with respect to the Bonds, if material:

1. mergers, consolidations, acquisitions, the sale of all or substantially all of the assets of the obligated persons or their termination;

2. appointment of a successor or additional fiscal agent or the change of the name of a fiscal agent;

3. nonpayment related defaults;

4. modifications to the rights of Bondholders;

5. bond calls;

6. release, substitution or sale of property securing repayment of the Bonds; and

7. incurrence of a Financial Obligation of the obligated person, or agreement to covenants, events of default, remedies, priority rights, or other similar terms of a Financial Obligation of the obligated person, any of which affect security holders.

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(c) In the event that the City’s fiscal year changes, the City shall report or shall instruct the Dissemination Agent to report such change in the same manner and to the same parties as Listed Events would be reported pursuant to this Section.
(d) The City hereby agrees that the undertaking set forth in this Disclosure Certificate is the responsibility of the City, and the Dissemination Agent, if other than the City, shall not be responsible for determining whether the City’s instructions to the Dissemination Agent under this Section comply with the requirements of the Rule.

SECTION 6. Termination of Reporting Obligation. The obligations of the City and the Dissemination Agent 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.

SECTION 7. Dissemination Agent. The City may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under the Disclosure Certificate, and may discharge any such Dissemination Agent, with or without appointing a successor Dissemination Agent. The initial Dissemination Agent shall be Webb Municipal Finance, LLC. The Dissemination Agent may resign by providing (i) thirty days written notice to the City, and (ii) upon appointment of a new Dissemination Agent hereunder.

SECTION 8. Amendment.
(a) This Disclosure Certificate may be amended, by written agreement of the parties, without the consent of the Owners, and any provision of this Disclosure Certificate may be waived, if all of the following conditions are satisfied: (1) such amendment or waiver is made in connection with a change in circumstances that arises from a change in legal (including regulatory) requirements, a change in law, or a change in the identity, nature or status of the City or the type of business conducted thereby, (2) the undertakings in this Disclosure Certificate as so amended or waived would, in the opinion of a nationally recognized bond counsel, have complied with the requirements of the Rule as of the date of this Disclosure Certificate, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances, and (3) the amendment or waiver either (i) is approved by the Owners of the Bonds in the same manner as provided in the Fiscal Agent Agreement for amendments to the Fiscal Agent Agreement with the consent of Owners or (ii) does not, in the determination of the City, materially impair the interests of the Owners or Beneficial Owners of the Bonds.
(b) To the extent any amendment to this Disclosure Certificate results in a change in the type of financial information or operating data provided pursuant to this Disclosure Certificate, the first Annual Report provided thereafter shall include a narrative explanation of the reasons for the amendment and the impact of the change in the type of operating data or financial information being provided. (c) If an amendment is made to the basis on which financial statements are prepared, the Annual Report 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. Such comparison shall include a quantitative and, to the extent reasonably feasible, 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.

SECTION 9. 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 Item Number: 5.

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Listed Event in addition to that which is specifically required by this Disclosure Certificate, the City shall have no obligation under this Agreement to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event.

SECTION 10. Default. In the event of a failure of the City or the Dissemination Agent to comply with any provision of this Disclosure Certificate, any Owner 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 and/or the Dissemination Agent to comply with their respective obligations under this Disclosure Certificate. A default under this Disclosure Certificate shall not be deemed an Event of Default under the Fiscal Agent Agreement, and the sole remedy under this Disclosure Certificate in the event of any failure of the City or the Dissemination Agent to comply with this Disclosure Certificate shall be an action to compel performance.

SECTION 11. Duties, Immunities and Liabilities of Dissemination Agent. Where an entity other than the City is acting as the Dissemination Agent, 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 and its officers, directors, employees and agents, harmless against any loss, expense and liabilities which they may incur arising out of or in the exercise or performance of their powers and duties hereunder, including the costs and expenses (including attorney’s fees) of defending against any claim of liability, but excluding liabilities due to the Dissemination Agent’s negligence or willful misconduct. Any Dissemination Agent shall be paid (i) compensation by the City for its services provided hereunder in accordance with a schedule of fees to be mutually agreed to; and (ii) all expenses, legal fees and advances made or incurred by the Dissemination Agent in the performance of its duties hereunder. The Dissemination Agent shall have no duty or obligation to review any information provided to it by the City pursuant to this Disclosure Certificate. The obligations of the City under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Bonds. No person shall have any right to commence any action against the Dissemination Agent seeking any remedy other than to compel specific performance of this Disclosure Certificate. The Dissemination Agent shall not be liable under any circumstances for monetary damages to any person for any breach under this Disclosure Certificate.

SECTION 12. Beneficiaries. This Disclosure Certificate shall inure solely to the benefit of the City, the Dissemination Agent, the Participating Underwriter and Owners and Beneficial Owners from time to time of the Bonds; and it shall create no rights in any other person or entity.

SECTION 13. Merger. Any person succeeding to all or substantially all of the Dissemination Agent’s corporate trust business shall be the successor Dissemination Agent without the filing of any paper or any further act.

This Disclosure Certificate is executed as of the date and year first set forth above.

CITY OF DESERT HOT SPRINGS COMMUNITY
FACILITIES DISTRICT NO. 2006-1
By:

Disclosure Representative
Item Number: 5.

G-1
4870-1603-0597v5/200812-0002

APPENDIX G

BOOK-ENTRY ONLY SYSTEM
The information in this Appendix concerning DTC and DTC’s book-entry only system has been obtained from sources that the City and the Underwriter believe to be reliable, but neither the City nor the Underwriter takes any responsibility for the completeness or accuracy thereof. The following description of the procedures and record keeping with respect to beneficial ownership interests in the Bonds, payment of principal, premium, if any, accreted value and interest on the Bonds to DTC Participants or Beneficial Owners, confirmation and transfers of beneficial ownership interests 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.

The Depository Trust Company (“DTC”), New York, NY, will act as securities depository for the Bonds. The Bonds will be issued as fully-registered securities registered in the name of Cede & Co. (DTC’s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully registered bond will be issued for each annual maturity of the Bonds, each in the aggregate principal amount of such annual maturity, and will be deposited with DTC.

DTC, the world’s largest securities depository, is a limited-purpose trust company organized under the New York Banking Law, a “banking organization” within the meaning of the New York Banking Law, a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code, and a “clearing agency” registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC’s participants (“Direct Participants”) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants’ accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation (“DTCC”). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly (“Indirect Participants”).

DTC has 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.

Purchases of Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Bonds on DTC’s records. The ownership interest of each actual purchaser of each Bond (“Beneficial Owner”) is in turn to be recorded on the Direct and Indirect Participants’ records.

Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations 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 the Bonds, except in the event that use of the book-entry system for the Bonds is discontinued.

To facilitate subsequent transfers, all Bonds deposited by Direct Participants with DTC are registered in the name of DTC’s partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of Bonds with DTC and their registration in the name of Cede Item Number: 5.