2. Assuming due authorization, execution and delivery by the Underwriter of the Bond Purchase Agreement, the Bond Purchase Agreement is the legal, valid, and binding agreement of the City Packet Pg. 226 Attachment: Bond Purchase Agreement (2968 : Resolution No. 2024-12 & Resolution No. FA-2024-01 Public Fin. Auth Lease Revenue Bonds 30539.00015\42160527.2
and the Authority, enforceable in accordance with its terms, except that the rights and obligations under the Bond Purchase Agreement are subject to bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and other similar laws affecting creditors’ rights, to the application of equitable principles if equitable remedies are sought, to the exercise of judicial discretion in appropriate cases and to limitations on legal remedies against public agencies in the State, and provided that no opinion is expressed with respect to any indemnification or contribution provisions contained therein.
3. The Bonds are not required to be registered under the Securities Act of 1933, as amended, and the Indenture is exempt from qualification pursuant to the Trust Indenture Act of 1939, as amended.
This letter is furnished by us as Bond Counsel to the Authority. No attorney-client relationship has existed or exists between our firm and you in connection with the Bonds or by virtue of this letter. Our engagement with respect to the Bonds has terminated as of the date hereof, and we disclaim any obligation to update this letter. This letter is delivered to the addressees indicated above, is solely for the benefit of the addressees for the financing described herein and is not to be used, quoted or otherwise referred to or relied upon for any other purpose or by any other person or entity. This letter is not intended to, and may not, be relied upon by owners of the Bonds.
Respectfully submitted,
Packet Pg. 227 Attachment: Bond Purchase Agreement (2968 : Resolution No. 2024-12 & Resolution No. FA-2024-01 Public Fin. Auth Lease Revenue Bonds 30539.00015\42160527.2
EXHIBIT C
FORM OF OPINION OF DISCLOSURE COUNSEL
__________, 2024
Hilltop Securities Inc.
Solana Beach, California
Gonzales Public Financing Authority
Gonzales, California
City of Gonzales
Gonzales, California
$__________
Gonzales Public Financing Authority
Lease Revenue Bonds, Series 2024A
Ladies and Gentlemen:
We have acted as Disclosure Counsel to the Gonzales Public Financing Authority (the “Authority”) with respect to the above-captioned bonds (the “Bonds”). This letter is rendered pursuant to the Bond Purchase Agreement, dated ___________, 2024 (the “Purchase Agreement”), by and among the Authority, the City of Gonzales (the “City”) and Hilltop Securities Inc., as the underwriter (the “Underwriter”). All capitalized terms used and not otherwise defined herein have the meanings ascribed to them in the Purchase Agreement, and if not in the Purchase Agreement, in the Official Statement, dated May ___, 2024, relating to the Bonds (the “Official Statement”).
In rendering this letter, we have reviewed such records, documents, certificates and opinions, and made such other investigations of law and fact as we have deemed necessary or appropriate. This letter is limited to matters governed by the federal securities law of the United States, and we assume no responsibility with respect to the applicability or effect of the laws of any other jurisdiction. We do not assume any responsibility for any electronic version of the Preliminary Official Statement, dated May ___, 2024 (the “Preliminary Official Statement”), relating to the Bonds, or the Official Statement, and we assume that any such version is identical in all respects to the printed version. Our services did not include financial or other non-legal advice.
In our capacity as Disclosure Counsel, we have participated in the preparation of the Preliminary Official Statement and the Official Statement. Such participation included, among other things, discussions and inquiries concerning various legal matters, review of certain documents and proceedings, and participation in conferences with, among others, representatives of the Authority and of the City, the Underwriter, Best Best & Krieger LLP, as Underwriter’s counsel, NHA Advisors, LLC, as municipal advisor, U.S. Bank Trust Company, National Association, as the trustee, and Dorsey & Whitney LLP, as trustee’s counsel, at which conferences the contents of the Preliminary Official Statement and the Official Statement and related matters were discussed. On the basis of the information made available to us in the course of the foregoing (but without having undertaken to determine or verify independently, or assuming any responsibility for, the accuracy, completeness or fairness of any of the statements contained in the Official Statement), no facts have come to the attention of the personnel in our firm directly involved in rendering legal advice and assistance in connection with the preparation of the Preliminary Official Statement and the Official Statement which cause us to believe that the Preliminary Official Statement as Packet Pg. 228 Attachment: Bond Purchase Agreement (2968 : Resolution No. 2024-12 & Resolution No. FA-2024-01 Public Fin. Auth Lease Revenue Bonds 30539.00015\42160527.2
of its date or the Official Statement as of its date or as of the date hereof (excluding therefrom CUSIP numbers, financial, accounting and statistical, economic, engineering and demographic data; forecasts, projections, estimates, assumptions and expressions of opinions; any determinations regarding feasibility, valuation, appraisals, fair rental value, absorption, real estate, and environmental matters, or any basis therefor; statements as to compliance by the Authority, the City, or any related entity with respect to their respective obligations undertaken in furtherance of Rule 15c2-12, promulgated under the Securities Exchange Act of 1934, to provide notices or reports; information about the book-entry only system and DTC; statements relating to the treatment of the Bonds or the interest, discount or premium related thereto for tax purposes under the law of any jurisdiction; and the statements contained in the Official Statement under the caption “THE 2024 BONDS – Book-Entry Only System,” “TAX MATTERS,” and Appendices B, C, D and F, as to all of which we express no view herein) contained or contains any untrue statement of a material fact or omitted or omits to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. No responsibility is undertaken or view expressed with respect to any other disclosure document, materials, or activity, or as to any information from another document or source referred to by, or incorporated by reference in, the Preliminary Official Statement or the Official Statement.
During the period from the date of the Official Statement to the date of this letter, except for our review of the certificates and opinions regarding the Official Statement delivered on the date hereof, we have not undertaken any procedures or taken any actions which were intended or likely to elicit information concerning the accuracy, completeness or fairness of any of the statements contained in the Official Statement.
By acceptance of this letter, the Authority and the City acknowledge that (i) the scope of those activities performed by us was inherently limited and does not purport to encompass all activities the Authority and the City are responsible to undertake; (ii) those activities performed by us rely on third party representations, warranties, certifications, and opinions made by representatives of the Authority and the City and others, and are otherwise subject to the qualifications set forth herein; and (iii) this letter is not to be relied upon by the Authority or the City in connection with their delivery of certificates and opinions pursuant to the Purchase Agreement.
This letter is furnished by us as Disclosure Counsel to the Authority. No attorney-client relationship has existed or exists between our firm and the Underwriter in connection with the Bonds or by virtue of this letter. This letter is rendered in connection with the transaction described herein, and may not be relied upon by you for any other purpose. This letter shall not extend to, and may not be used, circulated, quoted, referred to, or relied upon by any other person, firm, corporation or other entity without our prior written consent; provided, however, a copy may be included in the transcript of the proceedings for the Bonds. Our engagement with respect to this matter terminates upon the delivery of this letter to you at the time of the closing relating to the Bonds, and we have no obligation to update this letter.
Respectfully submitted,
Packet Pg. 229 Attachment: Bond Purchase Agreement (2968 : Resolution No. 2024-12 & Resolution No. FA-2024-01 Public Fin. Auth Lease Revenue Bonds 30539.00015\42160527.2
EXHIBIT D
FORM OF OPINION OF CITY ATTORNEY
May ___, 2024
Gonzales Public Financing Authority
Gonzales, California
Hilltop Securities Inc.
Solana Beach, California
$___________
Gonzales Public Financing Authority
Lease Revenue Bonds, Series 2024A
Ladies and Gentlemen:
We serve as City Attorney to the City of Gonzales (the “City”). In connection with the issuance of the above-referenced bonds (the “Series 2024 Bonds”) by the Gonzales Public Financing Authority (the “Authority”), we have examined the original, certified copies, or copies otherwise identified to us, as being true copies of such documents, certificates, and records as we have deemed relevant and necessary as the basis for the opinion set forth herein. Relying on such examination and subject to the limitations and qualifications hereinafter set forth, we are of the opinion that:
1. The City is a municipal corporation duly formed and validly existing under the laws of the State of California.
2. Resolution No. ___ of the City Council of the City (the “City Resolution”) was duly adopted at a meeting of the City Council which was called and held on May ___, 2024, pursuant to law and with all public notice required by law and at which a quorum was present and acting throughout, and the City Resolution is in full force and effect and has not been modified, amended or rescinded.
3. To the best of our knowledge, the authorization, execution and delivery of the City Documents by the City and compliance with the provisions thereof by the City of its obligations thereunder, will not conflict with, or constitute a breach or default under, in any material respect, any law, administrative regulation, court decree, resolution, ordinance or other agreement to which the City is subject or by which it is bound.
4. To the best of our knowledge, there is no action, suit, proceeding, inquiry or investigation, at law or in equity before or by any court, government agency, public board or body, pending and notice of which has been served on the City, or threatened against the City, affecting the existence of the City or the titles of its officers to their respective officers, or contesting or affecting as to the City the validity or enforceability of the City Documents, or contesting the powers of the City for the execution and delivery by the City of the City Documents, or in any way contesting or challenging the consummation of the transactions contemplated thereby.
This opinion is based on such examination of the laws of the State of California as we deemed relevant for the purposes of this opinion. We have not considered the effect, if any, of the laws of any other jurisdiction upon matters covered by this opinion. We express no opinion as to the status of the Series 2024 Bonds or the interest thereon, or the City Documents under any federal securities laws or any state securities Packet Pg. 230 Attachment: Bond Purchase Agreement (2968 : Resolution No. 2024-12 & Resolution No. FA-2024-01 Public Fin. Auth Lease Revenue Bonds 30539.00015\42160527.2
or “Blue Sky” law or any federal, state or local tax law. Further, we express no opinion with respect to any indemnification, contribution, choice of law, choice of forum or waiver provisions contained in the City Documents. Without limiting any of the foregoing, we express no opinion as to any matter other than as expressly set forth above.
Whenever a statement herein is qualified by “to the best of our knowledge,” it shall be deemed to indicate that, during the course of our representation of the City in connection with the financing described herein, no information that would give us current, actual knowledge of the inaccuracy of such statement has come to our attention. We have not, however, undertaken any independent investigation to determine the accuracy of such statements, and any limited inquiry undertaken by us during the preparation of this opinion letter should not be regarded as such investigation. No inference as to our knowledge of any matters bearing upon the accuracy of any such statement should be drawn from the fact of our representation of the City.
This opinion is furnished by us as City Attorney to the City. Except for the City, no attorney-client relationship has existed or exists between our firm and the addressees hereof in connection with the Series 2024 Bonds or by virtue of this opinion. This opinion is rendered solely in connection with the financing described herein, and may not be relied upon by you for any other purpose. We disclaim any obligation to update this opinion. This opinion shall not extend to, and may not be used, quoted, referred to, or relied upon by any other person, firm, corporation or other entity without our prior written consent.
Respectfully Submitted,
Packet Pg. 231 Attachment: Bond Purchase Agreement (2968 : Resolution No. 2024-12 & Resolution No. FA-2024-01 Public Fin. Auth Lease Revenue Bonds 4891-8536-2866.7
PRELIMINARY OFFICIAL STATEMENT DATED MAY __, 2024 (DRAFT) NEW ISSUE – BOOK-ENTRY ONLY Rating: See the caption “RATING.” In the opinion of Kutak Rock LLP, Bond Counsel, under existing laws, regulations, rulings and judicial decisions and assuming the accuracy of certain representations and continuing compliance with certain covenants, interest on the 2024 Bonds (including any original issue discount properly allocable to the owner of a 2024 Bond) is excludable from gross income for federal income tax purposes and is not a specific preference item for purposes of the federal alternative minimum tax imposed on individuals. Interest on the 2024 Bonds may affect the federal alternative minimum tax imposed on certain corporations.
Bond Counsel is also of the opinion that interest on the 2024 Bonds is exempt from State of California personal income taxes. For a more detailed description of such opinions of Bond Counsel, see the caption “TAX MATTERS” herein. $9,825,000*
GONZALES PUBLIC FINANCING AUTHORITY
LEASE REVENUE BONDS, SERIES 2024A
Dated: Date of Delivery Due: May 1, as shown on inside front cover The 2024 Bonds will be issued pursuant to an Indenture, dated as of June 1, 2024, by and among the City, the Authority and U.S. Bank Trust Company, National Association, as trustee. The 2024 Bonds are payable from Base Rental Payments to be made by the City for the right to the use of certain real property pursuant to a Lease Agreement, dated as of June 1, 2024, by and between the City, as lessee, and the Authority, as lessor.
The 2024 Bonds are being issued in order to provide funds, together with moneys contributed by the City: (i) to finance the construction of a community center; (ii) to pay capitalized interest on the 2024 Bonds through May 1, 2026; and (iii) to pay the costs of issuing the 2024 Bonds.
The City has covenanted under the Lease Agreement to take such action as may be necessary to include all Rental Payments due thereunder as a separate line item in its annual budgets and to make necessary annual appropriations for all such Rental Payments. The City’s obligation to make Base Rental Payments under the Lease Agreement is subject to abatement during any period in which, by reason of material damage to, or destruction or condemnation of, the Property, or any defects in title to the Property, there is substantial interference with the City’s right to use and occupy any portion of the Property.
The 2024 Bonds are being issued in fully registered book-entry only form, initially registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York. Interest on the 2024 Bonds is payable semiannually on November 1, 2024 and each May 1 and November 1 thereafter. Purchasers will not receive certificates representing their interest in the 2024 Bonds. Individual purchases will be in principal amounts of integral multiples of $5,000. Principal of and interest and premium, if any, on the 2024 Bonds will be paid by the Trustee to DTC for subsequent disbursement to DTC Participants who are obligated to remit such payments to the beneficial owners of the 2024 Bonds.
The Authority may issue Additional Bonds payable from Base Rental Payments. The 2024 Bonds and any Additional Bonds are collectively referred to as the “Bonds.”
The 2024 Bonds are subject to optional, mandatory and extraordinary redemption prior to maturity as described in this Official Statement, including a mandatory redemption at par on May 1, 2026. See the caption “THE 2024 BONDS—Redemption—Mandatory Redemption.” The 2024 Bonds are special obligations of the Authority, payable solely from the Base Rental Payments and the other assets pledged therefor under the Indenture. Neither the faith and credit nor the taxing power of the Authority, the City or the State of California, or any political subdivision thereof, is pledged to the payment of the 2024 Bonds. The Authority has no taxing power.
The obligation of the City to make Base Rental Payments does not constitute a debt of the City or the State of California or any political subdivision thereof within the meaning of any constitutional or statutory debt limit or restriction, and does not constitute an obligation for which the City or the State of California is obligated to levy or pledge any form of taxation or for which the City or the State of California has levied or pledged any form of taxation.
The 2024 Bonds are not subject to acceleration in the event of a payment default.
No debt service reserve fund or account has been established by the Authority or the City in connection with the issuance of the 2024 Bonds.
THIS COVER PAGE CONTAINS CERTAIN INFORMATION FOR QUICK REFERENCE ONLY. IT IS NOT A SUMMARY OF THIS ISSUE. INVESTORS MUST READ THE ENTIRE OFFICIAL STATEMENT TO OBTAIN INFORMATION ESSENTIAL TO THE MAKING OF AN INFORMED INVESTMENT DECISION.
The 2024 Bonds will be offered when, as and if issued and received by the Underwriter, subject to the approval as to their validity by Kutak Rock LLP, Irvine, California, Bond Counsel. Certain legal matters will be passed upon for the City and the Authority by the City Attorney, and by Kutak Rock LLP, Irvine, California, as Disclosure Counsel, by Best Best & Krieger LLP, Los Angeles, California, as Underwriter’s Counsel, and for the Trustee by its counsel. It is anticipated that the 2024 Bonds in definitive form will be available for delivery to DTC on or about June __, 2024.
Dated: May __, 2024
* Preliminary; subject to change.
Packet Pg. 232 Attachment: Preliminary Official Statement (2968 : Resolution No. 2024-12 & Resolution No. FA-2024-01 Public Fin. Auth Lease Revenue Bonds 4891-8536-2866.7
MATURITY SCHEDULE
$9,825,000*
GONZALES PUBLIC FINANCING AUTHORITY
LEASE REVENUE BONDS, SERIES 2024A
BASE CUSIP†: ___
Principal
Payment Date
(May 1)
* Principal
Interest
Rate Yield Price CUSIP†
2027 $ % %
2028
2029
2030
2031
2032
2033
2034
2035
2036
2037
2038
2039
2040
2041
2042
2043
2044
* 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 © 2024 CUSIP Global Services. All rights reserved. CUSIP® data herein is provided by CUSIP Global Services. This data is not intended to create a database and does not serve in any way as a substitute for the CGS database. CUSIP® numbers are provided for convenience of reference only. None of the City, the Authority, the Underwriter or their agents or counsel assume responsibility for the accuracy of such numbers.
Packet Pg. 233 Attachment: Preliminary Official Statement (2968 : Resolution No. 2024-12 & Resolution No. FA-2024-01 Public Fin. Auth Lease Revenue Bonds 4891-8536-2866.7
No dealer, broker, salesperson or other person has been authorized by the City or the Authority to give any information or to make any representations in connection with the offer or sale of the 2024 Bonds other than those contained in this Official Statement and, if given or made, such other information or representations must not be relied upon as having been authorized by the City or the Authority. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy, nor will there be any sale of the 2024 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 2024 Bonds. Statements contained in this Official Statement which involve estimates, forecasts or matters of opinion, whether or not expressly so described in this Official Statement, are intended solely as such and are not to be construed as representations of fact.
The Underwriter has provided the following sentence for inclusion in this Official Statement: The Underwriter has reviewed the information in this Official Statement in accordance with, and as a part of, its responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriter does not guarantee the accuracy or completeness of such information.
This Official Statement and the information contained in this Official Statement are subject to completion or amendment without notice and neither delivery of this Official Statement nor any sale made hereunder will, under any circumstances, create any implication that there has been no change in the affairs of the City or the Authority or any other parties described in this Official Statement since the date hereof. These securities may not be sold, nor may an offer to buy be accepted, prior to the time that the Official Statement is delivered in final form. This Official Statement is being submitted in connection with the sale of the 2024 Bonds referred to in this Official Statement and may not be reproduced or used, in whole or in part, for any other purpose, unless authorized in writing by the City. All summaries of documents and laws are made subject to the provisions thereof and do not purport to be complete statements of any or all such provisions.
Certain statements included or incorporated by reference in this Official Statement constitute “forward-looking statements” within the meaning of the United States Private Securities Litigation Reform Act of 1995, Section 21E of the United States Securities Exchange Act of 1934, as amended, and Section 27A of the United States Securities Act of 1933, as amended. Such statements are generally identifiable by the terminology used such as “plan,” “expect,” “estimate,” “project,” “budget,” “intend” or similar words. Such forward-looking statements include, but are not limited to, certain statements contained under the captions “THE CITY” and “CITY FINANCIAL INFORMATION.”
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 THAT COULD CAUSE ACTUAL EVENTS OR RESULTS TO DIFFER MATERIALLY FROM THOSE INDICATED BY SUCH FORWARD-LOOKING STATEMENTS.
IN CONNECTION WITH THE OFFERING OF THE 2024 BONDS, THE UNDERWRITER
MAY OVERALLOT OR EFFECT TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF THE 2024 BONDS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. THE UNDERWRITER MAY OFFER AND SELL THE 2024 Packet Pg. 234 Attachment: Preliminary Official Statement (2968 : Resolution No. 2024-12 & Resolution No. FA-2024-01 Public Fin. Auth Lease Revenue Bonds 4891-8536-2866.7
BONDS TO CERTAIN DEALERS AND DEALER BANKS AND BANKS ACTING AS AGENT AND
OTHERS AT PRICES LOWER THAN THE PUBLIC OFFERING PRICE STATED ON THE COVER
PAGE HEREOF AND SAID PUBLIC OFFERING PRICE MAY BE CHANGED FROM TIME TO TIME BY THE UNDERWRITER.
THE 2024 BONDS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, IN RELIANCE UPON AN EXEMPTION CONTAINED IN SUCH ACT AND
HAVE NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES LAWS OF ANY STATE.
The City maintains a website and certain social media accounts; however, information presented there is not a part of this Official Statement and should not be relied upon in making an investment decision with respect to the 2024 Bonds.
Packet Pg. 235 Attachment: Preliminary Official Statement (2968 : Resolution No. 2024-12 & Resolution No. FA-2024-01 Public Fin. Auth Lease Revenue Bonds 4891
-8536-2866.7
CITY OF GONZALES, CALIFORNIA
CITY COUNCIL
Jose L. Rios, Mayor
Scott Funk, Mayor Pro Tem
Liz Silva, Council Member
Lorraine Worthy, Council Member
Maria Orozco, Council Member
GONZALES PUBLIC FINANCING AUTHORITY
Jose L. Rios, President
Scott Funk, Vice-President
Liz Silva, Director
Lorraine Worthy, Director
Maria Orozco, Director
CITY/AUTHORITY STAFF
Carmen Gil, City Manager/Authority Executive Director
Patrick Dobbins, Public Works Director/City Engineer
Mike Howard, Finance Director
Mary Villegas, Deputy City Clerk/Authority Secretary
SPECIAL SERVICES
City Attorney
Jarvis Fay LLP
Oakland, California
Bond Counsel and Disclosure Counsel
Kutak Rock LLP
Irvine, California
Municipal Advisor
NHA Advisors, LLC
San Rafael, California
Trustee
U.S. Bank Trust Company, National Association
Los Angeles, California
Packet Pg. 236 Attachment: Preliminary Official Statement (2968 : Resolution No. 2024-12 & Resolution No. FA-2024-01 Public Fin. Auth Lease Revenue Bonds i
4891-8536-2866.7
TABLE OF CONTENTS
INTRODUCTION ................................................ 1 General ................................................... 1 Security for the 2024 Bonds;
Base Rental Payments ............... 2
Limited Obligation.................................. 2
No Reserve Fund..................................... 3
Additional Bonds .................................... 3 The City................................................... 3 Continuing Disclosure............................. 3
Risk Factors............................................. 3 Summaries Not Definitive....................... 3
ESTIMATED SOURCES AND USES OF
FUNDS.................................................... 4
THE LEASED PROPERTY AND THE
2024 PROJECT....................................... 4
BASE RENTAL PAYMENT
SCHEDULE............................................ 4
THE 2024 BONDS............................................... 6 General ................................................... 6 Registration, Transfers and
Exchanges.................................. 6
Redemption ............................................. 6 Book-Entry Only System ........................ 8
SECURITY AND SOURCES OF
PAYMENT FOR THE 2024
BONDS ................................................... 8 Pledge of Base Rental Payments............. 8
Additional Bonds .................................... 9 Base Rental Payments........................... 10
Additional Rental Payments.................. 11
Abatement ............................................. 11 Substitution or Release of the
Property ................................... 12
Action on Default.................................. 12
No Reserve Fund................................... 13
Insurance ............................................... 13 Covenant to Obtain Take-Out
Financing................................. 14
THE CITY .......................................................... 15 General ................................................. 15 Government and Administration........... 15
Risk Management.................................. 16
COVID-19 Outbreak............................. 17
CITY FINANCIAL INFORMATION................ 17
Accounting and Financial
Reporting..................................17
General Economic Condition and
Outlook of the City ..................18
Budget Procedure, Current
Budget and Historical
Budget Information ..................19
Change in Fund Balance of the
City General Fund....................22
General Fund Balance Sheets of
the City.....................................23
Tax Revenues of the City.......................23
Sales Taxes............................................24 Property Taxes.......................................25 Other Taxes............................................27 Charges for Services..............................27
State of California Motor Vehicle
In-Lieu Payments.....................27
Other Indebtedness................................28
City Investment Policy ..........................29
City Reserve Policies.............................30
Retirement Contributions.......................31
No Other Post-Employment
Benefits....................................35
City Financial Statements......................35
THE AUTHORITY.............................................36
STATE OF CALIFORNIA BUDGET
INFORMATION ...................................36
General ..................................................36 Budget for State Fiscal Year
2023-24 ....................................36
Proposed Budget for State Fiscal
Year 2024-25............................37
Potential Impact of State
Financial Condition on
the City.....................................39
Redevelopment Dissolution...................39
Future State Budgets..............................39
CONSTITUTIONAL AND
STATUTORY LIMITATIONS
ON TAXES AND
APPROPRIATIONS..............................39
Article XIIIA of the State
Constitution..............................40
Article XIIIB of the State
Constitution..............................40
Proposition 62........................................41 Proposition 218......................................41 Packet Pg. 237 Attachment: Preliminary Official Statement (2968 : Resolution No. 2024-12 & Resolution No. FA-2024-01 Public Fin. Auth Lease Revenue Bonds ii
4891-8536-2866.7
Unitary Property.................................... 42 Proposition 22 ....................................... 42 Proposition 26 ....................................... 42 Future Initiatives ................................... 43 RISK FACTORS ................................................ 43 General Considerations –
Security for the 2024
Bonds....................................... 43
Abatement ............................................. 44 Initiative and Referendum..................... 44
Insurance on the Property...................... 44
Condemnation of the Property .............. 45
Value of Property .................................. 45 No Acceleration of Base Rental
Payments.................................. 45
Certain Risks Associated with
Sales Tax and Other
Local Tax Revenues................ 45
Assessed Value of Taxable
Property ................................... 46
Increasing Retirement-Related
Costs........................................ 46
Dependence on State for Certain
Revenues.................................. 47
Litigation............................................... 47 Natural Disasters................................... 47 Climate Change..................................... 48
Cybersecurity ........................................ 48 Hazardous Substances........................... 49
Economy of City and State.................... 49
Split Roll Initiative................................ 49 Additional City Obligations.................. 50
Tax-Related Issues................................ 50
Possible Consequence of Tax
Compliance Audit.................... 50
Remedies............................................... 50 Limitation on Trustee’s
Obligations under the
Indentures................................ 51
Release of Property; Additional
Bonds....................................... 51
Permanent Financing and TakeOut Financings Risk.................51 Limitations on Enforceability ................52
Secondary Market..................................54
Initiative Measure Relating to
City Revenues..........................54
TAX MATTERS.................................................55 General Matters .....................................55 Original Issue Discount .........................56
Original Issue Premium.........................57
Backup Withholding..............................57
Changes in Federal and State Tax
Law ..........................................57
CERTAIN LEGAL MATTERS..........................57
MUNICIPAL ADVISOR....................................58 LITIGATION......................................................58 UNDERWRITING..............................................58 RATING..............................................................58 CONTINUING DISCLOSURE ..........................59
MISCELLANEOUS............................................60
APPENDIX A DEMOGRAPHIC AND
ECONOMIC INFORMATION ...............1
APPENDIX B SUMMARY OF
PRINCIPAL LEGAL
DOCUMENTS ........................................1
APPENDIX C AUDITED FINANCIAL
STATEMENTS .......................................1
APPENDIX D FORM OF BOND
COUNSEL OPINION .............................1
APPENDIX E FORM OF CONTINUING
DISCLOSURE CERTIFICATE ..............1
APPENDIX F BOOK-ENTRY ONLY
SYSTEM .................................................1 Packet Pg. 238 Attachment: Preliminary Official Statement (2968 : Resolution No. 2024-12 & Resolution No. FA-2024-01 Public Fin. Auth Lease Revenue Bonds 1 4891-8536-2866.7
$9,825,000*
GONZALES PUBLIC FINANCING AUTHORITY
LEASE REVENUE BONDS, SERIES 2024A
INTRODUCTION
General
This Official Statement, which includes the cover page and appendices (the “Official Statement”), provides certain information concerning the above-captioned bonds (the “2024 Bonds”). The 2024 Bonds are being issued by the Gonzales Public Financing Authority (the “Authority”), a joint exercise of powers agency the members of which are the City of Gonzales, California (the “City”) and the Successor Agency to the Redevelopment Agency of the City of Gonzales (the “Successor Agency”).
The 2024 Bonds will be issued pursuant to Articles 9 through 11 of Chapter 3 of Part 1 of Division 2 of Title 5 (commencing with Section 53550) of the California Government Code (the “Refunding Law”), and an Indenture, dated as of June 1, 2024 (the “Indenture”), by and among the Authority, the City and U.S. Bank Trust Company, National Association, as trustee (the “Trustee”).
The 2024 Bonds are being issued in fully registered book-entry only form, initially registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York (“DTC”).
Purchasers will not receive certificates representing their interest in the 2024 Bonds. Individual purchases will be in integral multiples of $5,000. Principal of and interest on the 2024 Bonds will be paid by the Trustee to DTC for subsequent disbursement to DTC Participants who are obligated to remit such payments to the beneficial owners of the 2024 Bonds. See the caption “THE 2024 BONDS—Book-Entry Only System.” The 2024 Bonds are being issued to provide funds, together with moneys contributed by the City: (i) to finance a community center (the “2024 Project”); (ii) to pay capitalized interest on the 2024 Bonds through May 1, 2026, reflecting the period of construction of the 2024 Project; and (iii) to pay the costs of issuing the 2024 Bonds. See the caption “THE 2024 PROJECT.”
The City expects to redeem the 2024 Bonds in full upon completion of the 2024 Project from proceeds of a bond or certificate of participation to be purchased with by the United States Department of Agriculture, acting through the United States Department of Agriculture – Rural Development (the “USDA-RD”), in the aggregate principal amount of $9,825,000 (the “USDA Direct Loan”). The City currently expects to enter into the USDA Direct Loan within approximately two years of the issuance of the 2024 Bonds, and the City has covenanted to use its best efforts to enter into the USDA Direct Loan or a similar instrument within two years of the date of issuance of the 2024 Bonds. See the caption “SECURITY AND SOURCES OF PAYMENT FOR THE 2024 BONDS—Covenant to Obtain Take-Out Financing.” Accordingly, the 2024 Bonds will be subject to mandatory redemption in whole to the extent that proceeds of the USDA Direct Loan become available to the City.
The USDA-RD has obligated funds to make the USDA Direct Loan to the City and has committed to make the USDA Direct Loan, upon compliance by the City with the provisions of a Letter of Conditions, dated September 20, 2023 (the “Letter of Conditions”), including, but not limited to, final completion of the 2024 Project in accordance with USDA-RD requirements. The City has issued a letter of intent to meet the conditions that are set forth in the Letter of Conditions. However, even after the issuance of the USDA Direct Commitment, the USDA-RD is not unconditionally bound to fund the USDA Direct Loan. A breach by the City of its covenants under the Letter of Conditions could result in a decision by the USDA-RD to not fund the USDA Direct Loan.
* Preliminary; subject to change.
Packet Pg. 239 Attachment: Preliminary Official Statement (2968 : Resolution No. 2024-12 & Resolution No. FA-2024-01 Public Fin. Auth Lease Revenue Bonds 2 4891-8536-2866.7
There can be no assurance that the USDA Direct Loan will be entered into, or that the proceeds thereof will be sufficient to redeem the 2024 Bonds in full. The 2024 Bonds are also subject to optional and extraordinary redemption prior to maturity as described in this Official Statement. See the caption “THE 2024 BONDS—Redemption.”
The 2024 Bonds are subject to optional, mandatory and extraordinary redemption prior to maturity as described in this Official Statement, including a mandatory redemption at par on May 1, 2026. See the caption “THE 2024 BONDS—Redemption—Mandatory Redemption.” Security for the 2024 Bonds; Base Rental Payments
Pursuant to a Ground Lease, dated as of June 1, 2024 (the “Ground Lease”), by and between the City, as lessor, and the Authority, as lessee, the City has leased certain real property of the City and the improvements thereon, consisting of the land upon which the 2024 Project will be situated, and the 2024 Project itself when constructed (collectively, the “Property”), to the Authority in consideration for the Authority’s assistance in issuing the 2024 Bonds.
Pursuant to a Lease Agreement, dated as of June 1, 2024 (the “Lease Agreement”), by and between the Authority, as sublessor, and the City, as sublessee, the Authority has subleased the Property back to the City. The 2024 Bonds are payable from base rental payments (the “Base Rental Payments”) to be made by the City for the right to use the Property pursuant to the Lease Agreement.
The Trustee and the Authority have entered into an Assignment Agreement, dated as of June 1, 2024 (the “Assignment Agreement”), pursuant to which the Authority has assigned to the Trustee for the benefit of the 2024 Bond Owners substantially all of the Authority’s right, title and interest in and to the Ground Lease and the Lease Agreement, including its right to receive the Base Rental Payments due under the Lease Agreement and to enforce any remedies in the event of a default by the City.
The City has covenanted under the Lease Agreement to take such action as may be necessary to include all Rental Payments (including the Base Rental Payments and certain Additional Rental Payments described under the caption “SECURITY AND SOURCES OF PAYMENT FOR THE 2024 BONDS— Additional Rental Payments”) due thereunder as a separate line item in its annual budgets and to make necessary annual appropriations for all such Rental Payments. The City has also covenanted to deliver to the Authority and the Trustee each year a Written Certificate of the City stating that its final annual budget includes all Base Rental Payments due in such Fiscal Year.
Base Rental Payments payable under the Lease Agreement are subject to complete or partial abatement in the event and to the extent that there is substantial interference with the City’s right to use and occupy the Property or any portion thereof. See the captions “SECURITY AND SOURCES OF PAYMENT FOR THE 2024 BONDS—Abatement” and “RISK FACTORS—Abatement.” Abatement of Base Rental Payments under the Lease Agreement, to the extent that payment is not made from alternative sources as set forth in the following sentence, would result in all Owners of the 2024 Bonds receiving less than the full amount of principal of and interest on the 2024 Bonds. To the extent that moneys in any of the funds and accounts established under the Indenture or proceeds of insurance are available, Base Rental Payments (or a portion thereof) may be made during periods of abatement.
Limited Obligation
THE 2024 BONDS ARE SPECIAL OBLIGATIONS OF THE AUTHORITY, PAYABLE SOLELY
FROM THE BASE RENTAL PAYMENTS AND THE OTHER ASSETS PLEDGED THEREFOR UNDER THE INDENTURE. NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE AUTHORITY, THE CITY OR THE STATE OF CALIFORNIA (THE “STATE”), OR ANY POLITICAL Packet Pg. 240 Attachment: Preliminary Official Statement (2968 : Resolution No. 2024-12 & Resolution No. FA-2024-01 Public Fin. Auth Lease Revenue Bonds 3 4891-8536-2866.7
SUBDIVISION THEREOF, IS PLEDGED TO THE PAYMENT OF THE 2024 BONDS. THE AUTHORITY HAS NO TAXING POWER.
THE OBLIGATION OF THE CITY TO MAKE BASE RENTAL PAYMENTS DOES NOT
CONSTITUTE A DEBT OF THE CITY OR THE STATE OR ANY POLITICAL SUBDIVISION THEREOF
WITHIN THE MEANING OF ANY CONSTITUTIONAL OR STATUTORY DEBT LIMIT OR
RESTRICTION, AND DOES NOT CONSTITUTE AN OBLIGATION FOR WHICH THE CITY OR THE
STATE IS OBLIGATED TO LEVY OR PLEDGE ANY FORM OF TAXATION OR FOR WHICH THE CITY OR THE STATE HAS LEVIED OR PLEDGED ANY FORM OF TAXATION.
No Reserve Fund
No debt service reserve fund or account has been established by the Authority or the City in connection with the issuance of the 2024 Bonds.
Additional Bonds
Under the Lease Agreement, the Authority may issue additional bonds (the “Additional Bonds”) payable from Base Rental Payments on a parity basis with the 2024 Bonds. The 2024 Bonds and any Additional Bonds are collectively referred to in this Official Statement as the “Bonds.” See the caption “SECURITY AND SOURCES OF PAYMENT FOR THE 2024 BONDS—Additional Bonds.” The City
See the captions “THE CITY” and “CITY FINANCIAL INFORMATION,” as well as Appendices A and C for information with respect to the City and the General Fund, including other obligations which are payable from general revenues of the City.
Continuing Disclosure
The City has agreed to provide, or to cause to be provided, to the Municipal Securities Rulemaking Board’s Electronic Municipal Market Access System for purposes of Securities and Exchange Commission Rule 15c2-12 (the “Rule”) certain annual financial information and operating data and, in a timely manner, notice of certain listed events. See the caption “CONTINUING DISCLOSURE.” Risk Factors
Certain events could affect the ability of the City to make the Base Rental Payments when due. See the caption “RISK FACTORS” for a discussion of certain factors that should be considered, in addition to other matters that are set forth in this Official Statement, in evaluating an investment in the 2024 Bonds.
Summaries Not Definitive
The summaries of and references to documents, statutes, reports and other instruments in this Official Statement do not purport to be complete, comprehensive or definitive, and each such summary and reference is qualified in its entirety by the complete document, statute, report or instrument. The capitalization of any word that is not conventionally capitalized, or otherwise defined in this Official Statement, indicates that such word is defined in a particular agreement or other document and, as has the meaning that is given to such word in Appendix B. Copies of the documents described in this Official Statement will be available at the Finance Director’s office, City of Gonzales, 147 Fourth Street, Gonzales, California 93926.
Packet Pg. 241 Attachment: Preliminary Official Statement (2968 : Resolution No. 2024-12 & Resolution No. FA-2024-01 Public Fin. Auth Lease Revenue Bonds 4 4891-8536-2866.7
ESTIMATED SOURCES AND USES OF FUNDS
The following table sets forth the estimated sources and uses of funds relating to the 2024 Bonds and certain other moneys:
Sources(1)
Principal Amount $
Plus/Less Net Original Issue Premium/Discount
Other Moneys(2)
Total Sources $
Uses(1)
Deposit in Project Fund $
Deposit in Interest Fund(3)
Costs of Issuance(4)
Total Uses $
(1) Rounded to the nearest dollar. Totals may not add due to rounding. (2) Reflects City contribution to costs of 2024 Project. (3) To be applied to pay capitalized interest on the 2024 Bonds through May 1, 2026. (4) Includes Underwriter’s discount and certain legal, municipal advisory, rating agency, printing, title insurance and other financing-related costs.
Source: Underwriter.
THE LEASED PROPERTY AND THE 2024 PROJECT
The Property is currently owned by the City and leased to the Authority pursuant to the Ground Lease and subleased back to the City pursuant to the Lease Agreement. The Property is located in the City at 620- 630 Fifth Street, Gonzales, California 93926 and currently consists of a 3.5 acre site that is undeveloped. The City intends to apply proceeds of the 2024 Bonds to finance the construction of the 2024 Project, which will include a 10,209 square foot community center which will be named the Dennis & Janice Caprara Community Center Complex. The 2024 Project will include a teen innovation center, community meeting rooms, a relocated branch of the County library, performing arts space, a community hall, offices, a commercial kitchen, parking, electric vehicle charging stations and outdoor amenities. Groundbreaking on the 2024 Project occurred on May 1, 2024, with completion expected by the end of 2025. The insured value of the Property, including land, is currently $300,000. Upon completion of the 2024 Project, the insured value of the Property is expected to be at least $18,869,395.
The City has certified in the Lease Agreement that the annual fair rental value of the Property is at least equal to the annual Base Rental Payments. For a discussion of the insurance required to be maintained on the Property, see the caption “SECURITY AND SOURCES OF PAYMENT FOR THE 2024 BONDS— Insurance.”
The City has the right to substitute or release all or portion of the Property subject to certain conditions precedent. See the caption “SECURITY AND SOURCES OF PAYMENT FOR THE 2024 BONDS⎯Substitution or Release of the Property.”
BASE RENTAL PAYMENT SCHEDULE
Set forth below is a schedule of Base Rental Payments, which secure the 2024 Bonds, assuming no optional, mandatory or extraordinary redemptions. As discussed under the caption “THE 2024 BONDS— Redemption—Mandatory Redemption,” the City currently expects to redeem the 2024 Bonds in full from proceeds of the USDA Direct Loan upon execution and delivery of the USDA Direct Loan in or about midPacket Pg. 242 Attachment: Preliminary Official Statement (2968 : Resolution No. 2024-12 & Resolution No. FA-2024-01 Public Fin. Auth Lease Revenue Bonds 5 4891-8536-2866.7
2026. See the caption “SECURITY AND SOURCES OF PAYMENT FOR THE 2024 BONDS—Covenant to Obtain Take-Out Financing.”
Base Rental
Payment
Date(1) Principal Interest
Total Base Rental
Payments
11/1/2024 $ $ $
5/1/2025
11/1/2025
5/1/2026
11/1/2026
5/1/2027
11/1/2027
5/1/2028
11/1/2028
5/1/2029
11/1/2029
5/1/2030
11/1/2030
5/1/2031
11/1/2031
5/1/2032
11/1/2032
5/1/2033
11/1/2033
5/1/2034
11/1/2034
5/1/2035
11/1/2035
5/1/2036
11/1/2036
5/1/2037
11/1/2037
5/1/2038
11/1/2038
5/1/2039
11/1/2039
5/1/2040
11/1/2040
5/1/2041
11/1/2041
5/1/2042
11/1/2042
5/1/2043
11/1/2043
5/1/2044
Total: $ $ $
(1) The Base Rental Payment Date is the fifteenth day of the month prior to the corresponding Interest Payment Date for the 2024 Bonds.
Packet Pg. 243 Attachment: Preliminary Official Statement (2968 : Resolution No. 2024-12 & Resolution No. FA-2024-01 Public Fin. Auth Lease Revenue Bonds 6 4891-8536-2866.7
THE 2024 BONDS
General
The 2024 Bonds will be issued in fully registered form without coupons in denominations of integral multiples of $5,000. The 2024 Bonds will be dated as of and bear interest (calculated on the basis of a 360-day year comprised of twelve 30-day months) from the dated date thereof at the rates set forth on the inside cover page. Interest on the 2024 Bonds will be paid semiannually on November 1, 2024 and each May 1 and November 1 thereafter (each, an “Interest Payment Date”).
Interest on the 2024 Bonds will be payable from the Interest Payment Date next preceding the date of authentication thereof unless: (i) a 2024 Bond is authenticated on or before an Interest Payment Date and after the close of business on the preceding Record Date, in which event it will bear interest from such Interest Payment Date; (ii) a 2024 Bond is authenticated on or before the first Record Date, in which event interest thereon will be payable from the dated date thereof; or (iii) interest on any 2024 Bond is in default as of the date of authentication thereof, in which event interest thereon will be payable from the date to which interest has been paid in full, payable on each Interest Payment Date. Interest will be paid in lawful money of the United States on each Interest Payment Date to the Persons in whose names the ownership of the 2024 Bonds is registered on the Registration Books at the close of business on the immediately preceding Record Date, except as provided below. Except when the 2024 Bonds are held in book-entry form, interest will be paid by check of the Trustee mailed by first class mail, postage prepaid, on each Interest Payment Date to the 2024 Bond Owners at their respective addresses shown on the Registration Books as of the close of business on the preceding Record Date.
The principal and premium, if any, of the 2024 Bonds will be payable in lawful money of the United States upon presentation and surrender thereof upon maturity or earlier redemption at the Office of the Trustee.
The 2024 Bonds will be subject to optional and extraordinary redemption as set forth in this Official Statement.
Registration, Transfers and Exchanges
The 2024 Bonds will be issued as fully registered bonds, registered in the name of Cede & Co. as nominee of DTC, and will be available to actual purchasers of the 2024 Bonds (the “Beneficial Owners”) in the denominations set forth above, under the book-entry system maintained by DTC, only through brokers and dealers who are or act through DTC Participants (as defined in Appendix F) as described in this Official Statement. Beneficial Owners will not be entitled to receive physical delivery of the 2024 Bonds. See the caption “—Book-Entry Only System.”
Redemption
Extraordinary Redemption from Condemnation Award or Insurance Proceeds. The 2024 Bonds of a series are subject to redemption, in whole or in part, on any date as directed by the City in a Written Request of the City provided to the Trustee not less than 30 days (or such lesser number of days acceptable to the Trustee, in the sole discretion of the Trustee) prior to such date, in Authorized Denominations, from and to the extent of any Net Insurance Proceeds received with respect to all or a portion of the Property, deposited by the Trustee in the Redemption Fund pursuant to the Indenture, at a Redemption Price equal to the principal amount of the 2024 Bonds of such series to be redeemed, plus accrued interest thereon to the date of redemption, without premium.
Mandatory Redemption. The 2024 Bonds shall be subject to mandatory redemption in whole on May 1, 2026, at a Redemption Price equal to the principal amount of the 2024 Bonds to be redeemed, plus accrued interest thereon to the date of redemption, without premium.
Packet Pg. 244 Attachment: Preliminary Official Statement (2968 : Resolution No. 2024-12 & Resolution No. FA-2024-01 Public Fin. Auth Lease Revenue Bonds 7 4891-8536-2866.7
Optional Redemption. The 2024 Bonds shall also be subject to optional redemption, in whole, on any Business Day on or after November 1, 2025, as directed by the City in a Written Request of the City provided to the Trustee not less than 30 days (or such lesser number of days acceptable to the Trustee, in the sole discretion of the Trustee) prior to such date, in Authorized Denominations, at a Redemption Price equal to the principal amount of the 2024 Bonds to be redeemed, plus accrued interest thereon to the date of redemption, without premium.
Selection of Bonds for Redemption. Whenever provision is made in the Indenture for the redemption of less than all of the 2024 Bonds, the Trustee will select the 2024 Bonds to be redeemed from all Bonds of such series not previously called for redemption: (a) with respect to any optional redemption of 2024 Bonds, among maturities of 2024 Bonds of such series as directed in a Written Request of the Authority; (b) with respect to any redemption from and to the extent of any Net Insurance Proceeds, among maturities of all 2024 Bonds of such series on a pro rata basis as nearly as practicable, and (c) with respect to any other redemption of Additional Bonds of such series, among maturities as provided in the Supplemental Indenture pursuant to which such Additional Bonds of such series are issued, and by lot among Bonds of the same series with the same maturity in any manner which the Trustee in its sole discretion will deem appropriate and fair. For purposes of such selection, all Bonds will be deemed to be comprised of separate $5,000 denominations, and such separate denominations will be treated as separate Bonds that may be separately redeemed.
Notice of Redemption. So long as the 2024 Bonds are held in book-entry form, notices of redemption will be mailed by the Trustee only to DTC and not to any Beneficial Owners. The Trustee on behalf and at the expense of the Authority will mail (by first class mail) notice of any redemption to the Owners of any Bonds designated for redemption at their respective addresses appearing on the Registration Books, to the Securities Depositories and to one or more Information Services, at least 20 but not more than 60 days prior to the date fixed for redemption. Such notice will state the date of the notice, the redemption date, the redemption place and the Redemption Price and will designate the CUSIP numbers and the maturity or portion of the maturity of the 2024 Bonds to be redeemed, and will require that such 2024 Bonds be then surrendered at the principal corporate trust office of the Trustee for redemption at the Redemption Price, giving notice also that further interest on such 2024 Bonds will not accrue from and after the date fixed for redemption. Such notice of redemption may also state that no representation is made as to the accuracy or correctness of the CUSIP numbers printed therein or on the 2024 Bonds. Neither the failure to receive any notice so mailed, nor any defect in such notice, will affect the validity of the proceedings for the redemption of the 2024 Bonds or the cessation of accrual of interest thereon from and after the date fixed for redemption.
With respect to any notice of optional redemption of 2024 Bonds, such notice may state that such redemption shall be conditional upon the receipt by the Trustee 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 2024 Bonds to be redeemed and that, if such moneys shall not have been so received, said notice shall be of no force and effect and the Trustee shall not be required to redeem such 2024 Bonds. In the event that such notice of redemption contains such a condition and such moneys are not so received, the redemption will not be made, and the Trustee 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.
Partial Redemption of Bonds. Upon surrender of any Bonds redeemed in part only, the Authority will execute and the Trustee will authenticate and deliver to the Owner thereof, at the expense of the Authority, a new 2024 Bond or Bonds of such series in Authorized Denominations equal in aggregate principal amount representing the unredeemed portion of the 2024 Bonds surrendered.
Effect of Notice of Redemption. If a redemption notice has been mailed, and moneys for the Redemption Price, and the interest to the date fixed for redemption, have been set aside in the Redemption Fund, the 2024 Bonds will become due and payable on the redemption date, and, upon presentation and surrender of a Bond at the principal corporate trust office of the Trustee, the Authority will pay the Redemption Price of the Bond, together with interest accrued and unpaid to said date.
Packet Pg. 245 Attachment: Preliminary Official Statement (2968 : Resolution No. 2024-12 & Resolution No. FA-2024-01 Public Fin. Auth Lease Revenue Bonds 8 4891-8536-2866.7
If, on the redemption date, moneys for the Redemption Price of all the 2024 Bonds to be redeemed, together with interest to said date, is held by the Trustee so as to be available therefor on such date, and, if a notice of redemption has been mailed and not canceled, then, from and after said date, interest on the 2024 Bonds to be redeemed will cease to accrue and become payable. All moneys held by or on behalf of the Trustee for the redemption of Bonds will be held in trust for the account of the Owners of the 2024 Bonds so to be redeemed without liability to such Owners for interest thereon. All Bonds paid at maturity or redeemed prior to maturity pursuant to the provisions of the Indenture will be canceled upon surrender thereof and destroyed.
Moneys in the Interest Fund will not be applied to pay the Redemption Price of the 2024 Bonds.
Upon redemption of the 2024 Bonds in full, moneys in the Interest Fund will be delivered to an account designated by the City in a Written Request of the City.
Book-Entry Only System
The 2024 Bonds are registered in the name of Cede & Co., as nominee of DTC. DTC will act as securities depository for the 2024 Bonds. Ownership interests in the 2024 Bonds may be purchased in bookentry form only. So long as DTC, or Cede & Co. as its nominee, is the registered owner of all 2024 Bonds, all payments on the 2024 Bonds will be made directly to DTC, and disbursement of such payments to the DTC Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of the Participants, as more fully described in Appendix F.
As long as Cede & Co. is the registered owner of the 2024 Bonds, references herein to the Owners of the 2024 Bonds will refer to Cede & Co. and not to the Beneficial Owners. Neither the Authority nor the City gives any assurance that DTC, DTC Participants nor others will distribute payments with respect to the 2024 Bonds nor notices concerning the 2024 Bonds to the Beneficial Owners or that DTC will otherwise serve and act in the manner described in this Official Statement. See Appendix F for a further description of DTC and its book-entry system. The information presented therein is based solely on information provided by DTC.
SECURITY AND SOURCES OF PAYMENT FOR THE 2024 BONDS
Pledge of Base Rental Payments
The 2024 Bonds are payable from and secured by the Base Rental Payments and certain amounts on deposit in the funds and accounts established under the Indenture. Base Rental Payments will be paid by the City from any and all legally available funds.
The Authority, pursuant to the Assignment Agreement, has assigned to the Trustee for the benefit of the 2024 Bond Owners all of the Authority’s right, title and interest in and to the Ground Lease and the Lease Agreement, including, without limitation, its right to receive the Base Rental Payments to be paid by the City under and pursuant to the Lease Agreement; provided that the Authority will retain the rights to indemnification and to payment of reimbursement of its reasonable costs and expenses under the Lease Agreement. The City will pay Base Rental Payments directly to the Trustee, as assignee of the Authority. See the caption “—Base Rental Payments.”
Pursuant to the Indenture, the Authority may issue Additional Bonds payable from the Base Rental Payments on parity with the 2024 Bonds. See the caption “—Additional Bonds.” Subject only to the provisions of the Indenture permitting the application thereof for the purposes and on the terms and conditions set forth in the Indenture, all of the Base Rental Payments and any other amounts (including proceeds of the sale of the 2024 Bonds) held in the Base Rental Payment Fund, Interest Fund, Principal Fund and Redemption Fund are pledged by the Authority pursuant to the Indenture to secure the Packet Pg. 246 Attachment: Preliminary Official Statement (2968 : Resolution No. 2024-12 & Resolution No. FA-2024-01 Public Fin. Auth Lease Revenue Bonds 9 4891-8536-2866.7
payment of the principal of, premium, if any, and interest on the 2024 Bonds in accordance with their terms and the provisions of the Indenture. Subject to the Indenture, said pledge constitutes a first lien on such assets.
THE 2024 BONDS ARE SPECIAL OBLIGATIONS OF THE AUTHORITY, PAYABLE SOLELY
FROM THE BASE RENTAL PAYMENTS AND THE OTHER ASSETS PLEDGED THEREFOR UNDER THE INDENTURE. NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE
AUTHORITY, THE CITY OR THE STATE OR ANY POLITICAL SUBDIVISION THEREOF, IS PLEDGED TO THE PAYMENT OF THE 2024 BONDS. THE AUTHORITY HAS NO TAXING POWER.
THE 2024 BONDS ARE NOT OBLIGATIONS, DIRECT OR CONTINGENT, OF THE USDA-RD
AND INCLUSION OF INFORMATION CONCERNING THE USDA-RD IN THIS OFFICIAL
STATEMENT SHOULD NOT BE CONSTRUED TO MEAN THAT THE USDA-RD IS LIABLE OR IN
ANY WAY RESPONSIBLE FOR THE PAYMENT OF THE PRINCIPAL OF AND INTEREST ON THE 2024 BONDS OR ANY OTHER OBLIGATIONS OF THE CITY OR THE AUTHORITY.
Additional Bonds
The Authority may at any time issue one or more Series of Additional Bonds under the Indenture (in addition to the 2024 Bonds issued thereunder) payable from Base Rental Payments as provided in the Indenture on a parity with all other Bonds theretofore issued under the Indenture, but only subject to the following conditions, which are conditions precedent to the issuance of such Additional Bonds:
(a) The issuance of such Additional Bonds has been authorized under and pursuant to the Indenture and has been provided for by a Supplemental Indenture which specifies the following: (1) the application of the proceeds of the sale of such Additional Bonds; (2) the principal amount and designation of such Series of Additional Bonds and the denomination or denominations of the Additional Bonds; (3) the date, the maturity date or dates, the interest payment dates and the dates on which mandatory sinking fund redemptions, if any, are to be made for such Additional Bonds; provided, however, that: (i) the serial Bonds of such Series of Additional Bonds will be payable as to principal annually on May 1 of each year in which principal falls due, and the term Bonds of such Series of Additional Bonds will have annual mandatory sinking fund redemptions on May 1; (ii) the Additional Bonds will be payable as to interest semiannually on May 1 and November 1 of each year, except that the first installment of interest may be payable on either May 1 or November 1 and will be for a period of not longer than twelve months and the interest will be payable thereafter semiannually on May 1 and November 1; (iii) all Additional Bonds of like maturity will be identical in all respects, except as to number or denomination; and (iv) serial maturities of serial Bonds or mandatory sinking fund redemptions for term Bonds, or any combination thereof, will be established to provide for the redemption or payment of such Additional Bonds on or before their respective maturity dates; (4) the redemption premiums and terms, if any, for such Additional Bonds; (5) the form of such Additional Bonds; and (6) such other provisions that are appropriate or necessary and are not inconsistent with the provisions of the Indenture;
(b) the Authority is in compliance with all agreements, conditions, covenants and terms contained in the Indenture, Lease Agreement and Ground Lease required to be observed or performed by it; (c) the City is in compliance with all agreements, conditions, covenants and terms contained in the Indenture, Lease Agreement and Ground Lease required to be observed or performed by it; and (d) the Ground Lease has been amended, to the extent necessary, and the Lease Agreement has been amended so as to increase the Base Rental Payments payable by the City thereunder by an aggregate amount equal to the principal of and interest on such Additional Bonds, payable at such times and in such manner as may be necessary to provide for the payment of the principal of and interest on such Additional Bonds; provided, however, that no such amendment will be made such that the sum of such Base Rental Payments, including any increase in the Base Rental Payments as a result of such amendment, plus Additional Packet Pg. 247 Attachment: Preliminary Official Statement (2968 : Resolution No. 2024-12 & Resolution No. FA-2024-01 Public Fin. Auth Lease Revenue Bonds 10 4891-8536-2866.7
Rental Payments, in any Rental Period is in excess of the annual fair rental value of the Property after taking into account the use of the proceeds of any Additional Bonds issued in connection therewith (evidence of the satisfaction of such condition will be made by a Written Certificate of the City).
Nothing contained in the Indenture limits the issuance of any bonds or other obligations payable from Base Rental Payments if, after the issuance and delivery of such bonds or other obligations, none of the Bonds theretofore issued under the Indenture will be Outstanding.
Notwithstanding satisfaction of the other conditions to the issuance of Additional Bonds set forth in the Indenture, Additional Bonds may not be issued if an Event of Default (or any event which, once all notice or grace periods have passed, would constitute an Event of Default) exists, unless such default will be cured upon such issuance.
Base Rental Payments
General. Rental Payments, including Base Rental Payments, will be paid by the City to the Authority for and in consideration of the right to use and occupy the Property and in consideration of the continued right to the quiet use and enjoyment thereof during each Rental Period for which such Rental Payments are to be paid. Each Base Rental Payment will be deposited with the Trustee no later than fifteenth day of the month preceding each Interest Payment Date (the “Base Rental Deposit Date”). All Base Rental Payments will be paid directly by the City to the Trustee, and if received by the Authority at any time will be transferred by the Authority to the Trustee within one Business Day after the receipt thereof. All Base Rental Payments received by the Trustee will be deposited by the Trustee in the Base Rental Payment Fund.
Pursuant to the Indenture, on the Business Day immediately preceding each Interest Payment Date, the Trustee will transfer amounts in the Base Rental Payment Fund to the Interest Fund and the Principal Fund as necessary to provide for the payment of the interest on and principal of the 2024 Bonds.
Fair Rental Value. The City and the Authority have agreed and determined that the annual fair rental value of the Property is not less than the maximum annual Rental Payments due in any year for the Property.
In making such determination of fair rental value, consideration has been given to the uses and purposes that may be served by the Property and the benefits therefrom which will accrue to the City and the general public.
Payments of the Rental Payments for the Property during each Rental Period constitute the total rental for said Rental Period.
Covenant to Budget and Appropriate. The City covenants in the Lease Agreement to take such action as may be necessary to include all Rental Payments due under the Lease Agreement as a separate line item in its annual budgets and to make necessary annual appropriations for all such Rental Payments. The City covenants to deliver to the Authority and the Trustee a Written Certificate of the City stating that its final annual budget includes all Base Rental Payments due in such Fiscal Year within 10 days after the filing or adoption of the final annual budget. The Lease Agreement declares that these covenants are and will be construed to be duties imposed by law and that it is the duty of each and every public official of the City to take such action and do such things as are required by law in the performance of the official duty of such officials to enable the City to carry out and perform the City’s covenants and agreements under the Lease Agreement. See, however, the caption “—Abatement.”
Limited Obligation. THE OBLIGATION OF THE CITY TO MAKE BASE RENTAL PAYMENTS
DOES NOT CONSTITUTE A DEBT OF THE CITY, THE STATE OR ANY POLITICAL SUBDIVISION
THEREOF WITHIN THE MEANING OF ANY CONSTITUTIONAL OR STATUTORY DEBT LIMIT OR
RESTRICTION, AND DOES NOT CONSTITUTE AN OBLIGATION FOR WHICH THE CITY OR THE
STATE IS OBLIGATED TO LEVY OR PLEDGE ANY FORM OF TAXATION OR FOR WHICH THE CITY OR THE STATE HAS LEVIED OR PLEDGED ANY FORM OF TAXATION.
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Additional Rental Payments
For the right to use and occupy the Property, the Lease Agreement requires the City to pay, as Additional Rental Payments, such amounts as will be required for the payment of the following:
(i) All taxes and assessments of any type or nature charged to the Authority or the City or affecting the Property or the respective interests or estates of the Authority or the City therein. (ii) All reasonable administrative costs of the Authority relating to the Property including, but without limiting the generality of the foregoing, salaries, wages, fees and expenses, compensation and indemnification of the Trustee payable by the Authority under the Indenture, fees of auditors, accountants, attorneys or engineers, and all other necessary and reasonable administrative costs of the Authority or charges required to be paid by it in order to maintain its existence or to comply with the terms of the Indenture or Lease Agreement or to defend the Authority and its members, officers, agents and employees. (iii) Insurance premiums for all insurance required pursuant to the Lease Agreement. (iv) Any amounts with respect to the Lease Agreement or the 2024 Bonds required to be rebated to the federal government in accordance with Section 148(f) of the Internal Revenue Code of 1986, as amended.
(v) All other payments required to be paid by the City under the provisions of the Lease Agreement or Indenture.
Amounts constituting Additional Rental Payments payable under the Lease Agreement will be paid by the City directly to the person or persons to whom such amounts will be payable. The City will pay all such amounts when due or at such later time as such amounts may be paid without penalty or, in any other case, within 60 days after notice in writing from the Trustee to the City stating the amount of Additional Rental Payments then due and payable and the purpose thereof.
Abatement
Base Rental Payments and Additional Rental Payments are paid by the City in each Rental Period for and in consideration of the right to use and occupy the Property. Except as otherwise specifically provided in the Lease Agreement, during any period in which, by reason of material damage to, or destruction or condemnation of, the Property, or any defect in title to the Property, there is substantial interference with the City’s right to use and occupy any portion of the Property, Rental Payments will be subject to abatement proportionately, and the City waives the benefits of State Civil Code Sections 1932(1), 1932(2) and 1933(4) and any and all other rights to terminate the Lease Agreement by virtue of any such interference, and the Lease Agreement will continue in full force and effect. The amount of such abatement will be agreed upon by the City and the Authority; provided, however, that the Rental Payments due for any Rental Period will not exceed the annual fair rental value of that portion of the Property available for use and occupancy by the City during such Rental Period. Any such abatement will continue for the period commencing with the date of interference resulting from such damage, destruction, condemnation or title defect and, with respect to damage to or destruction of the Property, ending with the substantial completion of the work of repair or replacement of such Property, or the portion thereof so damaged or destroyed; and the term of the Lease Agreement will be extended as provided in the Lease Agreement, except that the term will in no event be extended ten years beyond the stated termination date of the Lease Agreement. The Trustee cannot terminate the Lease Agreement in the event of such substantial interference. Abatement of Base Rental Payments and Additional Rental Payments is not an event of default under the Lease Agreements and does not permit the Trustee to take any action or avail itself of any remedy against the City.
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Notwithstanding the foregoing, to the extent that moneys are available for the payment of Rental Payments due under the Lease Agreement in any of the funds and accounts established under the Indenture (including as a result of the availability of insurance proceeds), such Rental Payments will not be abated as provided above but, rather, will be payable by the City as a special obligation payable solely from said funds and accounts. The City is permitted to apply Net Insurance Proceeds: (a) together with other legally available funds that the City elects to appropriate, to the repair, reconstruction or replacement of the damaged or destroyed portions of the Property; (b) to redeem 2024 Bonds; and/or (c) if the annual fair rental value of the Property is at least equal to 100% of the Base Rental Payments, to any other lawful purpose, including Base Rental Payments. See the captions “THE 2024 BONDS—Redemption—Extraordinary Redemption from Condemnation Award or Insurance Proceeds,” “RISK FACTORS—Abatement” and Appendix B under the caption “INDENTURE—SECURITY FOR BONDS; FLOW OF FUNDS; INVESTMENTS—Application of Net Insurance Proceeds.”
Substitution or Release of the Property
The Authority and the City may amend the Lease Agreement to substitute alternate real property for any portion of the Property or to release a portion of the Property from the Lease Agreement, upon compliance with all of the conditions set forth in the Lease Agreement and described below. After a substitution or release, the portion of the Property for which the substitution or release has been effected will be released from the leasehold encumbrance of the Lease Agreement.
The Lease Agreement provides that there will be no reduction in or abatement of the Base Rental Payments due from the City as a result of such substitution or release. Any such substitution or release will be subject to the following specific conditions precedent:
(a) The City will deliver a Written Certificate to the Trustee setting forth its findings that the Property, as constituted after such substitution or release: (i) has an annual fair rental value at least equal to the maximum Base Rental Payments payable by the City in any Rental Period; and (ii) has a useful life in excess of the final maturity of any Outstanding Bonds.
(b) The City will obtain or cause to be obtained a CLTA or ALTA title insurance policy or policies with respect to any substituted property in an amount at least equal to the aggregate principal amount of any Outstanding Bonds, of the type and with the endorsements described in the Lease Agreement. (c) The City will provide the Trustee with an opinion of counsel to the effect that such substitution or release will not, in and of itself, cause the interest on the 2024 Bonds to be included in gross income for federal income tax purposes.
(d) The City, the Authority and the Trustee will execute, and the City will cause to be recorded with the Monterey County Recorder, any document necessary to reconvey to the City the portion of the Property being released and to include any substituted real property in the description of the Property contained in the Lease Agreement and Ground Lease.
(e) The City will provide notice of such substitution to each rating agency then rating the 2024 Bonds.
Action on Default
Should the City default under the Lease Agreement, the Trustee, as assignee of the Authority under the Lease Agreement, may terminate the Lease Agreement and recover certain damages from the City, or may retain the Lease Agreement and hold the City liable for all Base Rental Payments thereunder on an annual basis, and will have the right to re-enter and re-let the Property.
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Base Rental Payments may not be accelerated upon a default under the Lease Agreement. See the caption “RISK FACTORS—No Acceleration of Base Rental.”
For purposes of certain actions of 2024 Bond Owners of a series under the Indenture and Lease Agreement, such as certain consents and amendments and the direction of remedies following default, such 2024 Bond Owners do not act alone and may not control such matters to the extent that such matters are not supported by the requisite number of the Owners of all Bonds and Additional Bonds, if any, of such series.
For a description of the events of default and permitted remedies of the Trustee (as assignee of the Authority) contained in the Lease Agreement and the Indenture, see Appendix B.
No Reserve Fund
No debt service reserve fund or account has been established by the Authority or the City in connection with the issuance of the 2024 Bonds.
Insurance
The Lease Agreement requires the City to maintain or cause to be maintained, throughout the term of the Lease Agreement:
(1) A standard commercial general liability insurance policy or policies in protection of the City, the Authority and their respective members, officers, agents and employees. Said policy or policies will provide for indemnification of said parties against direct or contingent loss or liability for damages for bodily and personal injury, death or property damage occasioned by reason of the use or ownership of the Property.
Said policy or policies must provide coverage in the minimum liability limits of $1,000,000 for personal injury or death of each person and $3,000,000 for personal injury or deaths of two or more persons in a single accident or event, and in a minimum amount of $500,000 for damage to property resulting from a single accident or event. Such commercial general liability and property damage insurance may, however, be in the form of a single limit policy in the amount of $3,000,000 covering all such risks. Such liability insurance may be maintained as part of or in conjunction with any other liability insurance coverage carried or required to be carried by the City, and may be maintained in whole or in part in the form of self-insurance by the City, provided that such self-insurance complies with the provisions of the Lease Agreement. The Net Insurance Proceeds of such liability insurance will be applied toward extinguishment or satisfaction of the liability with respect to which the Net Insurance Proceeds of such insurance have been paid. (2) Workers’ compensation insurance issued by a responsible carrier authorized under the laws of the State to insure employers against liability for compensation under the California Labor Code, or any act enacted as an amendment or supplement thereto or in lieu thereof, such workers’ compensation insurance to cover all persons employed by the City in connection with the Property and to cover full liability for compensation under any such act, that the City’s obligations to carry workers’ compensation insurance may be satisfied by self-insurance, provided that such self-insurance complies with the provisions of the Lease Agreement.
(3) The City will maintain or cause to be maintained, fire, lightning and special extended coverage insurance (which includes coverage for vandalism and malicious mischief, but need not include coverage for earthquake damage) on all improvements constituting any part of the Property in an amount equal to the greater of 100% of the replacement cost of such improvements or 100% of the outstanding principal amount of the Bonds. The City has an insurance policy which provides replacement cost coverage. All of the foregoing insurance may be subject to a deductible in an amount not to exceed $500,000. The foregoing obligations may be satisfied by self-insurance, provided that such self-insurance complies with the provisions of the Lease Agreement.
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(4) The City will maintain rental interruption insurance to cover the Authority’s loss, total or partial, of Base Rental Payments under the Lease Agreement resulting from the loss, total or partial, of the use of any part of the Property as a result of any of the hazards required to be covered pursuant to clause (3) above in an amount sufficient at all times to pay an amount not less than the product of two times the maximum amount of the Base Rental Payments scheduled to be paid during any Rental Period. The City is not permitted to self-insure its obligation to maintain rental interruption insurance.
The insurance required to be maintained by the Lease Agreement must be provided by reputable insurance companies with claims-paying abilities determined, in the reasonable opinion of a professionally certified risk manager or an independent insurance consultant, to be adequate for the purposes hereof.
The City will provide, at its own expense, one or more CLTA or ALTA title insurance policies for the Property, in the aggregate amount of not less than the aggregate principal amount of the Bonds. Such policy or policies will insure: (a) the fee interest of the City in the Property; (b) the Authority’s ground leasehold estate in the Property under the Ground Lease; and (c) the City’s leasehold estate under the Lease Agreement in the Property, subject only to Permitted Encumbrances. All Net Insurance Proceeds received under said policy or policies will be deposited with the Trustee and applied as provided in the Indenture. So long as any of the Bonds remain Outstanding, each policy of title insurance obtained pursuant to the Indenture or Lease Agreement or required thereby must provide that all proceeds thereunder shall be payable to the Trustee for the benefit of the Bond Owners.
Covenant to Obtain Take-Out Financing
Upon completion of the 2024 Project, the City plans to incur the USDA Direct Loan from the USDA-RD, in the aggregate principal amount of $9,825,000, in the form of a bond or certificate of participation. The USDA Direct Loan will not be secured under the Indenture, but the proceeds of the USDA Direct Loan will provide funds to pay for the redemption of the Series 2024 Bonds. See the caption “THE 2024 BONDS—Redemption.”
The City has covenanted in the Lease Agreement to take all actions required to obtain financing from the USDA-RD and/or the State, or any other available financing source (“Take-Out Financings”), to provide funds to prepay or pay all of the principal balance of the Base Rental Payments, plus accrued interest, due and payable, on or before the two year anniversary of the Closing Date, to the extent not otherwise paid by the City. Immediately upon receipt of the proceeds of a Take-Out Financing, the City covenants to apply all proceeds thereof to prepay or pay all of the principal balance of the Base Rental Payments prior to maturity and such proceeds of any such financing may not be used for any other purpose.
Currently, the City expects to fulfill its obligations under the foregoing covenant by entering into the USDA Direct Loan.
The USDA-RD is not unconditionally bound to fund the USDA Direct Loan. The breach by the City of its covenants under the Letter of Conditions could result in a decision by the USDA-RD not to fund the USDA Direct Loan. If the USDA-RD does not fund the USDA Direct Loan, the City would have to refinance or restructure the 2024 Bonds on or before May 1, 2026, which is the mandatory redemption date with respect to the 2024 Bonds. There is no assurance that the City could secure a Take-Out Financing on or before the May 1, 2026 date, and the failure to enter into a Take-Out Financing could result in nonpayment of the 2024 Bonds. See the caption “RISK FACTORS – Permanent Financing and Take-Out Financings Risk.” Packet Pg. 252 Attachment: Preliminary Official Statement (2968 : Resolution No. 2024-12 & Resolution No. FA-2024-01 Public Fin. Auth Lease Revenue Bonds 15 4891-8536-2866.7
THE CITY
General
The City is located in the heart of California’s Salinas Valley, in the northeastern portion of the County of Monterey (the “County”), approximately 17 miles southeast of the County seat of Salinas and 35 miles east of the popular tourist destinations of Monterey and Carmel-by-the-Sea. U.S. Highway 101, a major north-south artery through coastal California, runs through the City before continuing north to Silicon Valley (approximately 75 miles away) and San Francisco. The City, which was founded in 1836 and incorporated in 1947 under the general laws of the State, and has an area of approximately 2 square miles. The population of the City is estimated to be approximately 8,300 as of calendar year 2023.
The City operates under a Council/Manager form of government. Although previously elected at large, commencing in 2024, Council Members will be elected on a by-district basis from four single-member Council districts (commencing with District 2 in the November 2024 election), with the Mayor continuing to be elected at large. Council Members serve four-year alternating terms, while the Mayor’s term is for two years. The City Council selects a City Manager to administer the affairs of the City. The City Manager is responsible for implementing the policies, ordinances and directives of the City Council and for overseeing the daily operations of the City.
The City provides a wide range of municipal services, including parks and recreation, community development, building regulations, public works (water and sewer) and public safety (police and fire). The City also contracts for library and other services from the County.
The City’s central location in the fertile Salinas Valley and proximity to the surrounding farmlands, contribute to its prominence as an agricultural business center. Head and leaf lettuce, broccoli, cauliflower, celery, strawberries, asparagus and wine grapes are grown in and around the City, and the City is located at the base of the Santa Lucia Appellation, which is home to several prominent wineries. The City’s Gonzales Agricultural Industrial Business Park (the “GAIBP”), which is oriented toward agricultural businesses, is a major contributor to sales tax generation within the City. The GAIBP provides commercial space for growers, irrigators, farm labor contractors, farm suppliers, packing sheds, agricultural equipment design and servicing firms and food processing/manufacturing and vegetable cooling firms. Comprised of approximately 70 acres, the GAIBP includes fully improved lots, streets and infrastructure.
Government and Administration
The City had approximately 41 full-time and 20 full-time equivalent part-time employees as of June 30, 2023. Approximately 27 City employees are represented by four labor unions (two of which pertain to the City’s Police Department) pursuant to memoranda of understanding which expire on December 31, 2024. The City expects to begin negotiations with respect to new memoranda of understanding in or about September 2024. The City has never experienced a strike, slowdown or work stoppage.
The City operates under a Council/Manager form of government. The City Council members and the expiration dates of their respective terms are as follows:
Name Office Term Expires
Jose L. Rios Mayor November 2024
Scott Funk Mayor Pro Tem November 2024
Liz Silva Council Member November 2026
Lorraine Worthy Council Member November 2026
Maria Orozco Council Member November 2026
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The City Manager, who is appointed by the City Council, serves as the City’s chief administrative officer and is responsible for overseeing the daily operations of City departments and efficient management of all City business. Carmen Gil serves as the City Manager. Ms. Gil has over 15 years of experience working for and with local governments and was appointed City Manager in June 2023. Prior to her appointment as City Manager, Ms. Gil served as the Interim City Manager and Director of Community Engagement and Strategic Partnerships for the City. Prior to coming to the City, Ms. Gil worked for the Monterey County Health Department. Ms. Gil has a Bachelor’s degree in Social Work from San Jose State University and a Master’s degree in Public Administration from the University of San Francisco.
Other key personnel responsible for management of the City include the Public Works Director/City Engineer and the Finance Director.
Patrick Dobbins has served as the Public Works Director/City Engineer of the City since 2019. Prior to coming to the City, Mr. Dobbins served as a Senior Director for Harris and Associates, where he provided program management, engineering and development review/management services for municipal agencies. Mr.
Dobbins has a Bachelor’s degree in Civil Engineering from the California Polytechnic State University, San Luis Obispo and is a licensed professional engineer in California.
Mike Howard serves as the contract Finance Director of the City. Mr. Howard has 20 years of experience in government finance. Prior to his tenure at the City, he worked in various finance roles in the oil and agriculture industries. In addition, Mr. Howard has over 10 years of experience in senior human resources roles in the private sector. Mike has previously served as a school board member and currently serves as the Chair of the Mee Memorial Healthcare System Board of Trustees.
Risk Management
The City is exposed to various risks of loss related to torts, theft of, damage to and destruction of assets, errors and omissions, injuries to employees and natural disasters. The City is a member of the Monterey Bay Area Self Insurance Authority (the “MBASIA”), a joint exercise of powers agency with 10 public agency members that arranges and administers programs for the pooling of self-insured losses, arranges for group-purchased insurance and purchases excess insurance cover on behalf of its members.
Through the MBASIA, the City maintains the following coverages as of June 30, 2023:
• Workers compensation insurance up to statutory limits. • General liability insurance up to $20 million, with a $10,000 deductible. • All-risk property insurance for covered City properties (including the Property) in the amount of $500,000,000 (sublimits apply) with a $25,000 deductible. This policy does not include earthquake or flood coverage for City properties.
• Crime insurance up to $3,000,000.
Claims have not exceeded the City’s insurance coverage in any of the last three years.
No assurance can be given as to the adequacy of the insurance maintained now or in the future by the City to fund necessary repairs or replacement of any portion of the Property, and the City does not have any obligation under the Lease Agreement to maintain earthquake or other coverage in the current coverage amounts. See the caption “SECURITY AND SOURCES OF PAYMENT FOR THE 2024 BONDS— Insurance” for a description of the insurance requirements with respect to the Property. Significant damage to any of the Property could cause Base Rental Payments to be abated. See the captions “SECURITY AND SOURCES OF PAYMENT FOR THE 2024 BONDS—Abatement” and “RISK FACTORS—Natural Disasters.”
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COVID-19 Outbreak
The spread of the novel strains of coronavirus collectively called SARS-CoV-2, which cause the disease known as COVID-19 (“COVID-19”), and local, State and federal actions in response thereto, impacted the City and the County and their operations and finances beginning in early 2020. The World Health Organization declared the COVID-19 outbreak to be a pandemic and, on March 4, 2020, as part of the State’s response to address the outbreak, the Governor declared a state of emergency. On March 13, 2020, the President declared a national emergency, freeing up federal assistance to state and local governments.
The City received pandemic relief funding and reimbursement from a variety of State and federal resources, which it applied to address everything from basic needs, to housing stability, vaccine access, small business support and restoring government services that were reduced in response to pandemic-related revenue losses and make certain necessary infrastructure improvements. As of January 1, 2024, all pandemic relief funds received by the City to support the community during the COVID-19 crisis have been expended.
The City continues to actively monitor public health indicators, tax collections, payment delinquencies, revenues and expenditures so that any further impacts of the COVID-19 pandemic can be anticipated. The pandemic, or future pandemics, could impact the City and its residents in one or more of the following ways, among others: (i) fluctuations in financial markets and contraction in available liquidity; (ii) job losses and declines in business activity, which could affect homeowners’ employment and ability to pay for utility services; (iii) declines in business and consumer confidence that negatively impact economic conditions or cause an economic recession; (iv) the failure of governmental measures to stabilize the financial sector or introduce fiscal stimulus to counteract negative economic impacts; (v) cancellations of public events; and (vi) disruption of the local economy and potential declines in property values, which could affect homeowners’ disposable income. The City does not expect that the COVID-19 outbreak will have a material adverse effect on the City’s ability to pay the Base Rental Payments.
CITY FINANCIAL INFORMATION
Accounting and Financial Reporting
The City maintains its accounting records in accordance with Generally Accepted Accounting Principles (“GAAP”) and the standards established by the Governmental Accounting Standards Board (“GASB”), with the exception of the following: Given staffing limitations, the City has elected not to prepare a Management Discussion and Analysis (the “MDA”) in connection with the preparation of its annual comprehensive financial report. Although GAAP calls for an MDA to be presented to supplement basic financial statements and GASB considers an MDA to be an essential part of financial reporting in order to place basic financial statements in an appropriate operational, economic, or historical context, an MDA is not a part of the basic financial statements and the opinion of the City’s auditors on the City’s basic financial statements is not affected by the omission of an MDA.
The City Council and City staff review fiscal performance against the budget continually throughout each fiscal year of the City ended June 30, with quarterly reports provided by the City’s Finance Department to each other department. Combined financial statements of the City and its component units (including the Authority) are produced following the close of each Fiscal Year.
The City Council employs an independent certified public accountant who examines at least annually the financial statements of the City in accordance with GAAP, including tests of the accounting records and other auditing procedures as such accountant considers necessary. As soon as practicable, after the end of the Fiscal Year, a final audit and report is submitted by the independent accountant to the City Council.
See the caption “—City Financial Statements” for a discussion of the current status of the City’s audited financial statements for Fiscal Year 2023.
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The accounts of the City are organized on the basis of funds, each of which is considered a separate accounting entity. The operations of each fund are accounted for with a separate set of self-balancing accounts that comprise its assets, liabilities, fund equity, revenues and expenditures or expenses, as appropriate.
Government resources are allocated to and accounted for in individual funds based upon the purposes for which they are to be spent and the means by which spending activities are controlled. The budget is adopted in accordance with GAAP. Revenues are recognized on the accrual basis (i.e., when they are earned).
Expenditures are recorded when the related fund liability is incurred, regardless of which the related cash flows take place.
Governmental funds are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Under this method, revenues are recognized when measurable and available. The City considers all revenues reported in the governmental funds to be available if the revenues are collected within sixty days after Fiscal Year-end. Expenditures are recorded when the related fund liability is incurred, except for principal and interest on general long-term debt, claims and judgments, and compensated absences, which are recognized as expenditures to the extent that they have matured. Capital asset acquisitions are reported as expenditures in governmental funds. Proceeds of long-term debt and acquisitions under capital leases are reported as other financing sources.
The General Fund is the general operating fund of the City. It is used to account for all financial resources except those that are required to be accounted for in another fund. It is expected that Base Rental Payments will be paid for from amounts in the General Fund. Tables 1 through 3 below set forth certain historical and current Fiscal Year budget information for the General Fund. Information on the remaining governmental funds of the City as of June 30, 2022, is set forth in Appendix C.
General Economic Condition and Outlook of the City
As of June 30, 2023, the General Fund had a year-end surplus of approximately $1.64 million prior to transfers in and out, reflecting revenues of approximately $9.57 million and expenditures of approximately $7.93 million. The adopted Fiscal Year 2023 budget had anticipated a year-end General Fund deficit of approximately $628,000, with revenues expected to total approximately $6.84 million and expenditures expected to total approximately $7.47 million prior to transfers in and out. Variances from the original budget for Fiscal Year 2023 consisted primarily of Intergovernmental revenues coming in over $2 million higher than budgeted, including the receipt of $1.8 million in grant funding from the County for the relocation of a branch of the County library to the 2024 Project and certain other grants related to the 2024 Project. See the caption “THE LEASED PROPERTY AND THE 2024 PROJECT.” Taxes and Assessments also ended the year approximately $400,000 higher than budgeted. Actual General Fund expenditures were slightly higher than budgeted in Fiscal Year 2023 primarily as a result of an unbudgeted Capital Outlay of approximately $486,000 for [___].
For Fiscal Year 2024, the adopted General Fund operating budget projects revenues of approximately $7.18 million prior to transfers in, which is approximately $2.43 million (25.2%) below Fiscal Year 2023 revenues. In addition, the adopted Fiscal Year 2024 General Fund operating budget projects expenditures of approximately $6.66 million prior to transfers out, which is approximately $1.27 million (16.0%) below Fiscal Year 2023 audited expenditures.
Based on operating results to date, the City currently expects both Fiscal Year 2024 General Fund revenues and Fiscal Year 2024 General Fund expenditures to come in slightly [less than budgeted, resulting in a minor improvement to the City’s net position of approximately $____ after accounting for transfers in and out as a result of the City’s conservative budgeting practices]. Only [__] revenues are expected to vary significantly from the adopted budget at this time, with the mid-year budget report to the City Council anticipating receipt of approximately $[___] [more/less] in [__] revenues than was originally projected in the adopted Fiscal Year 2024 budget. For the City’s various departmental budgets within the General Fund, only Packet Pg. 256 Attachment: Preliminary Official Statement (2968 : Resolution No. 2024-12 & Resolution No. FA-2024-01 Public Fin. Auth Lease Revenue Bonds 19 4891-8536-2866.7
the [___] Department anticipates a material variance from the original budget estimate, with the mid-year budget report to the City Council anticipating [___] as a result of [___]. See the caption “—Budget Procedure, Current Budget and Historical Budget Information—Fiscal Year 2024 Budget” for detailed information relating to the Fiscal Year 2024 budget.
Budgeted Fiscal Year 2024 expenditures reflected scheduled increases in employee compensation.
Personnel costs (including salaries, benefits and contract payments for fire and police services) make up over [__]% of General Fund expenditures. [The City does not currently anticipate the need to lay off or furlough any employees as a result of budget shortfalls].
The City is projecting increased General Fund expenditures in Fiscal Year 2025 and future Fiscal Years in order to address significantly higher required pension contributions resulting from the lowering of the discount rate attributable to pension investments. Based on information from the California Public Employees Retirement System (“CalPERS”), during the seven-year phase-in period relating to the reduction in the discount rate (Fiscal Years 2019 through 2025), the City expects to contribute a cumulative additional amount of approximately $[__] million above what would otherwise have been its required contribution toward its unfunded liability. See the caption “—Retirement Contributions” for a detailed discussion of the City’s pension obligations.
The City also expects that CalPERS’ failure to achieve its investment targets in Fiscal Year 2023 will increase future contribution rates for plan participants, including the City, beginning in Fiscal Year 2026, although the City is unable to quantify the magnitude of any resultant increases in future contribution rates at this time. [The City currently expects to be able to make all such increased contributions without a material effect on the General Fund.]
Budget Procedure, Current Budget and Historical Budget Information Budget Procedure. The City Council adopts the City’s annual operating budget, which is prepared under the supervision of the City Manager, by no later than June 30 of each Fiscal Year. The budget process approves operating appropriations at the department and fund level and allows the City to make resource allocation decisions, including choices about staffing, technology and equipment, as well as determining which program priorities will be addressed in the coming Fiscal Year.
The City’s budget process starts each spring with each City department submitting proposed budgets to the City Manager. The City Manager then meets with all departments about their budget proposals and prepares a balanced budget for the City Council in May or June. The City Council provides input and the budget is adopted before July 1 of each year at a public meeting.
Once adopted, the City’s Finance Department provides quarterly budget progress reports to each department and the City Manager provides the regular updates to the City Council, usually at the midyear and third quarter points. The City Manager monitors actual revenues and expenses with the assistance of the Finance Department throughout the Fiscal Year and, if necessary, the budget may be amended in the middle of the Fiscal Year.
The City Manager may transfer (or increase, if undesignated funds are available) budget appropriations between departments within a fund, but only with City Council approval may appropriations be transferred between funds.
Upon final adoption, the budget becomes the legal authorization for the various departments to expend revenues, subject to any controls established by the City Manager, City Council and internal audit requirements. The budget is also published and distributed to interested parties.
Packet Pg. 257 Attachment: Preliminary Official Statement (2968 : Resolution No. 2024-12 & Resolution No. FA-2024-01 Public Fin. Auth Lease Revenue Bonds 20 4891-8536-2866.7
Expenditures may not legally exceed budgeted appropriations at the department level within a fund.
Appropriations lapse at Fiscal Year end to the extent that they have not been expended and new budget appropriations are approved for the coming year.
A summary of the actions taken during the budgetary process is set forth below:
CITY OF GONZALES
BUDGET PROCESS
Source: City.
Fiscal Year 2024 Budget. The City Council adopted a balanced budget for Fiscal Year 2024 on June 20, 2023. Budgeted revenues for the General Fund totaled approximately $7.18 million for Fiscal Year 2024, excluding transfers in. The City’s Fiscal Year 2024 budgeted expenditures for the General Fund totaled approximately $6.66 million, excluding transfers out. Based on Fiscal Year 2024 results to date, the City currently projects that actual revenues for the General Fund (before transfers out) will total approximately $[__] million, or approximately $[___] ([__]%) [less than] the adopted Fiscal Year 2024 budgeted revenues, primarily as a result of [____], and that actual revenues for the General Fund (before transfers out) will total approximately $[__] million, or approximately $[___] ([__]%) [less than] the adopted Fiscal Year 2024 budgeted expenditures.
The Fiscal Year 2024 budget reflects the City’s expectation that Taxes and Assessments, which include property tax, sales tax and other tax and assessment revenues, will increase by 2% from the Fiscal Year 2023 amount.
Future Budgets. Looking forward, the City currently anticipates that it will be able to achieve balanced budgets in the future. The City believes that controlling the main cost drivers of wages, pension, health insurance and workers compensation is key to managing future budgets. See the caption “—General Economic Condition and Outlook of the City.”
Kick-Off
Departments submit
proposed Department
budgets to City
Manager
Meetings
City Manager meets
with Departments
Compilation
City Manager Compiles
Balanced Budget
Presentation
Budget Presented to
City Council
City Council Review
City Council Reviews
Proposed Budget and
Suggests Changes
Approval
City Council Approves
Budget at Public
Meeting
Implementation
Budget Implemented;
Copies Distributed to
Interested Parties
Monitoring
City Manager and
Finance Department
Monitor Actual Results
to Budgeted Projections
Spring Spring Spring May/June
May/June May/June July July-June
Packet Pg. 258 Attachment: Preliminary Official Statement (2968 : Resolution No. 2024-12 & Resolution No. FA-2024-01 Public Fin. Auth Lease Revenue Bonds 21 4891-8536-2866.7
Set forth in the table below are the General Fund budgets for Fiscal Years 2020 through 2024 and the audited General Fund results for Fiscal Years 2020 through 2023. During the course of each Fiscal Year, the budget may be amended and revised as necessary by the City Council; budgeted amounts shown below do not reflect such amendments and revisions.
TABLE 1
CITY OF GONZALES
GENERAL FUND BUDGETS AND RESULTS
Adopted
Fiscal Year
2020 Budget
Audited
Fiscal Year
2020 Results(1)
Adopted
Fiscal Year
2021 Budget
Audited
Fiscal Year
2021 Results(1)
Adopted
Fiscal Year
2022 Budget
Audited
Fiscal Year
2022 Results
Adopted
Fiscal Year
2023 Budget
Audited
Fiscal Year
2023 Results
Adopted
Fiscal Year
2024 Budget
Revenues
Taxes and Assessments $ 3,978,600 $ 4,281,393 $ 3,920,800 $ 4,610,804 $ 1,907,000 $ 5,508,108 $ 5,513,500 $ 5,905,340 $ 6,036,191 Licenses, Permits, Impact Fees 481,100 284,196 292,100 162,984 331,950 164,720 335,500 237,477 266,750 Intergovernmental(2) 240,500 336,011 248,500 991,759 279,800 946,960 490,800 2,806,620 280,800 Charges for Services 70,000 46,868 42,000 69,306 43,000 124,514 85,000 107,066 103,000 Fines and Forfeitures 42,500 64,773 53,000 72,274 20,000 41,398 56,000 43,455 69,000 Use of Money and Property 55,000 50,702 55,000 53,634 - 54,867 68,000 97,844 85,000 Other 301,650 413,747 405,450 339,567 152,000 206,909 294,229 416,467 336,800 Total Revenues $ 5,169,350 $ 5,477,690 $ 5,016,850 $ 6,300,328 $ 2,733,750(4) $ 7,047,476 $ 6,843,029 $ 9,614,269 $ 7,177,541 Expenditures
Current:
General Government $ 609,108 $ 988,162 $ 633,928 $ 1,152,041 $ 1,423,824 $ 1,518,774 $ 1,172,083 $ 1,165,626 $ 636,332 Public Safety(3) 3,394,688 3,614,800 3,643,050 3,841,344 3,846,656 3,976,568 4,469,820 4,632,307 4,527,721 Public Works 267,312 327,304 183,950 382,327 340,286 343,452 385,320 267,260 213,950 Parks and Recreation 806,874 793,528 649,295 785,255 1,093,461 1,034,814 1,035,693 866,713 1,229,137 Community Development 311,396 326,444 335,183 444,644 198,078 830,751 278,778 383,063 293,830 Capital Outlay 30,000 66,932 - 8,491 - - - 485,815 -
Debt Service 129,651 129,617 129,650 129,636 129,650 163,980 129,651 129,643 129,651 Sale of Assets - - - (4,672) (4,540) (5,000) (17,451) (10,000) Transfers Out/(In) (175,590) (288,425) (87,200) (315,726) 147,802 (280,441) (623,316) (729,296) 156,920 Total Expenditures $ 5,373,439 $ 5,958,362 $ 5,487,856 $ 6,423,340 $ 7,179,757 $ 7,583,358 $ 6,843,029 $ 7,183,680 $ 7,177,541 Excess (Deficiency) of Revenues
Over (Under) Expenditures
$ (204,089) $ (480,672) $ (471,006) $ (123,012) $ (4,446,007) $ (535,882) $ - $ 2,430,589 $ - (1)
Increase in expenditures compared to budget reflects effects of the COVID-19 pandemic. See the caption “THE CITY—COVID-19 Outbreak.” (2) Fiscal Year 2023 amount includes $1.8 million received from County for re-location of branch of County library to the site of the 2024 Project, as well as certain other grants related to the 2024 Project. See the caption “THE LEASED PROPERTY AND THE 2024 PROJECT.”
(3)
Increase beginning in Fiscal Year 2023 reflects transition from volunteer fire program to funding of fire personnel. (4) The low budgeted total reflects conservative budgeting and the City’s expectation of reduced business activity during the COVID-19 pandemic. See the caption “THE CITY—COVID-19 Outbreak.” Sources: Adopted budgets of the City for Fiscal Years 2020 through 2024; audited financial statements of the City for Fiscal Years 2020 through 2023.
Packet Pg. 259 Attachment: Preliminary Official Statement (2968 : Resolution No. 2024-12 & Resolution No. FA-2024-01 22 4891-8536-2866.7
Change in Fund Balance of the City General Fund
Set forth in the table below are the City’s audited General Fund statements of revenues, expenditures and changes in fund balance for Fiscal Years 2019 through 2023.
TABLE 2
CITY OF GONZALES
GENERAL FUND STATEMENT OF
REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE
(LAST FIVE FISCAL YEARS)
Fiscal Year Ended June 30,
2019 2020 2021 2022 2023
Revenues
Taxes and Assessments $ 3,869,143 $ 4,281,393 $ 4,610,804 $ 5,508,108 $ 5,905,340 Licenses, Permits, Impact Fees 393,320 284,196 162,984 164,720 237,477 Intergovernmental 244,136 336,011 991,759 946,960 2,806,620 Charges for Services 76,033 46,868 69,306 124,514 107,066 Fines and Forfeitures 61,958 64,773 72,274 41,398 43,455 Use of Money and Property 60,019 50,702 53,634 54,867 97,844 Other 374,381 413,747 339,567 206,909 416,467
Total Revenues $ 5,078,990 $ 5,477,690 $ 6,300,328 $ 7,047,476 $ 9,614,269 Expenditures
Current:
General Government $ 707,839 $ 988,162 $ 1,152,041 $ 1,518,774 $ 1,165,626 Public Safety 3,412,335 3,614,800 3,841,344 3,976,568 4,632,307 Public Works 355,475 327,304 382,327 343,452 267,260
Parks and Recreation 1,021,624 793,528 785,255 1,034,814 866,713 Community Development 138,854 326,444 444,644 830,751 383,063 Capital Outlay 17,532 66,932 8,491 - 485,815
Debt Service 129,569 129,617 129,636 163,980 129,643
Total Expenditures $ 5,783,228 $ 6,246,787 $ 6,743,738 $ 7,868,339 $ 7,930,427 Excess (Deficiency) of Revenues
Over (Under) Expenditures $ (704,238) $ (769,097) $ (443,410) $ (820,863) $ 1,683,842 Other Financing Sources (Uses)
Sale of Assets $ - $ - $ 4,672 $ 4,540 $ 17,451
Transfers In/(Out) 386,180 288,425 315,726 280,441 729,296 Total Other Financing Sources
(Uses) $ 386,180 $ 288,425 $ 320,398 $ 284,981 $ 746,747 Net Change in Fund Balance $ (318,058) $ (480,672) $ (123,012) $ (535,882) $ 2,430,589 Fund Balance, Beginning of Year 2,424,823 2,106,765 1,626,093 1,503,081 967,199 Fund Balance, End of Year $ 2,106,765 $ 1,626,093 $ 1,503,081 $ 967,199 $ 3,397,788 Source: Audited financial statements of the City for Fiscal Years 2019 through 2023.
Packet Pg. 260 Attachment: Preliminary Official Statement (2968 : Resolution No. 2024-12 & Resolution No. FA-2024-01 Public Fin. Auth Lease Revenue Bonds 23 4891-8536-2866.7
General Fund Balance Sheets of the City
Set forth in the table below are the City’s audited General Fund balance sheets for Fiscal Years 2019 through 2023.
TABLE 3
CITY OF GONZALES
GENERAL FUND BALANCE SHEET SUMMARY
(LAST FIVE FISCAL YEARS)
Fiscal Year Ended June 30,
2019 2020 2021 2022 2023
Assets
Cash and Investments $ 2,049,406 $ 1,460,917 $ 988,556 $ 277,782 $ 2,269,597 Due from Other Governments 652,069 617,107 771,881 849,827 765,026 Interest Receivable 806 3 - 1 -
Due from Other Funds 640,920 757,957 785,619 856,187 1,314,722 Other Assets – Deposits 15,746 16,690 15,746 80,564 23,936 Total Assets $ 3,358,947 $ 2,852,674 $ 2,561,802 $ 2,064,361 $ 4,373,281 Liabilities
Accounts Payable & Accrued Expense $ 347,292 $ 302,449 $ 192,319 $ 346,127 $ 381,493 Deposits and Other Liabilities 198,824 239,959 214,223 79,570 - Unearned Revenues 112,066 90,173 58,179 77,465 -
Advances from Other Funds(1) 594,000 594,000 594,000 594,000 594,000 Total Liabilities $ 1,252,182 $ 1,226,581 $ 1,058,721 $ 1,097,612 $ 975,493 Deferred Inflows of Resources - - - - -
Fund Balances
Restricted $ - $ - $ - $ - $ 2,419,548
Committed for Contingency Reserve(2) 1,000,000 1,000,000 1,000,000 1,000,000 978,240 Unassigned 1,106,765 626,093 503,081 (32,801) -
Total Fund Balances $ 2,106,765 $ 1,626,093 $ 1,503,081 $ 967,199 $ 3,397,788 Total Liabilities, Deferred Inflows of
Resources and Fund Balances $ 3,358,947 $ 2,852,674 $ 2,561,802 $ 2,064,361 $ 4,373,281 (1) Reflects interfund loan from the City’s water fund to the General Fund which was entered into in Fiscal Year 2010. The amount is being repaid by the General Fund to the City’s water fund over a 20-year period (ending in Fiscal Year 2030) at an interest rate of 1% in annual payments of $33,057. In certain years, the General Fund has not made such payments. (2) See the caption “—City Reserve Policies.”
Source: Audited financial statements of the City for Fiscal Years 2019 through 2023.
Tax Revenues of the City
A summary of taxes received by the City in the last five Fiscal Years is set forth below. Certain general taxes currently imposed by the City are affected by various State Constitutional provisions. See the caption “CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS.”
Packet Pg. 261 Attachment: Preliminary Official Statement (2968 : Resolution No. 2024-12 & Resolution No. FA-2024-01 Public Fin. Auth Lease Revenue Bonds 24 4891-8536-2866.7
TABLE 4
CITY OF GONZALES
GENERAL GOVERNMENT MAJOR TAX REVENUES BY SOURCE
(LAST FIVE FISCAL YEARS)
Fiscal Year Ended June 30,
% of Total
General Fund
Revenues(1)
2019 2020 2021 2022 2023
Property Tax(2) $2,425,696 $2,929,361 $2,822,675 $2,953,368 $3,356,836 34.9% Sales Tax 1,906,393 1,906,625 2,399,408 3,246,109 3,326,727 34.6 Franchise/Other Taxes 82,356 93,020 106,921 115,611 125,617 1.3 Utility Users Tax 248,659 239,228 233,913 292,267 352,377 3.7 Business Licenses 74,882 73,680 61,119 58,858 55,253 0.6 TOTAL $4,737,986 $5,241,914 $5,624,036 $6,666,213 $7,216,810 75.1% (1) Reflects percentage of total Fiscal Year 2023 General Fund revenues of $9,614,269. (2)
[A portion] of the property tax receipts are derived from special assessments which are devoted to public improvements in the associated assessment districts and are not available to the General Fund.
Source: Audited financial statements of the City for Fiscal Years 2019 through 2023.
Sales Taxes
Receipts of sales taxes totaled $3,326,727 in Fiscal Year 2023. Such sales taxes provided the second largest tax revenue source for the City in Fiscal Year 2023, contributing approximately 56.3% of General Fund tax revenues and approximately 34.6% of total General Fund revenues.
A sales tax is imposed on retail sales or consumption of personal property and collected and distributed by the California Department of Tax and Fee Administration (the “CDTFA”). The basic sales tax rate is established by the State Legislature, and local overrides may be approved by voters. The current sales tax rate in the City is 8.25%.
The table below presents taxable sales information for the last eight Fiscal Years for the City.
CITY OF GONZALES
TAXABLE TRANSACTIONS HISTORICAL SUMMARY(1)
Fiscal Year
2016 2017 2018 2019 2020 2021 2022 2023
Motor Vehicle/Parts Dealers $ 6,196,027 $ 6,618,397 $ 6,523,122 $ 6,459,043 $ 4,891,650 $ 4,806,754 $ 6,755,876 $ 7,676,430 Home Furnishings/ Appliance
Stores 0 0 0 0 0 0 0 0
Building Material/Garden
Equipment/Supplies Dealers 2,306,597 1,053,324 2,864,122 3,264,939 4,208,511 2,282,199 5,091,376 5,695,261 Food and Beverage Stores 4,577,489 3,149,494 2,762,886 2,975,318 4,084,267 4,120,442 4,054,978 4,261,659 Gasoline Stations 1,375,333 5,760,772 8,466,732 8,510,943 3,638,056 4,627,998 11,148,814 11,209,261 Clothing and Clothing
Accessories Stores 165,003 0 25,812 0 102,854 213,789 294,876 208,618 General Merchandise Stores 0 0 209,588 494,799 639,632 697,918 826,060 614,982 Food Service/Drinking Places 9,106,559 9,769,696 10,098,274 11,257,716 10,899,472 11,940,914 14,978,256 13,136,202 Other Retail Group 5,853,183 5,409,124 1,864,920 2,041,546 3,642,650 5,602,325 676,585 674,874 All Other Outlets 51,506,029 56,361,982 50,747,064 57,885,354 55,468,635 62,861,485 72,054,691 72,297,937 Total All Outlets $81,086,220 $88,122,789 $83,562,520 $92,889,658 $87,575,727 $97,153,824 $115,881,512 $115,775,224 (1) The values listed above do not reflect transactions reported in the State- and County-wide pools. Taxable transaction values are not adjusted for administrative fees charged by the CDTFA.
Source: CDTFA.
Packet Pg. 262 Attachment: Preliminary Official Statement (2968 : Resolution No. 2024-12 & Resolution No. FA-2024-01 Public Fin. Auth Lease Revenue Bonds 25 4891-8536-2866.7
The GAIBP, a business park that is focused on agricultural businesses, is a major contributor to the City’s sales tax revenues. See the caption “THE CITY—General.” A portion of the City’s sales tax revenue derived from a $0.375 Countywide transaction and use tax known as Measure X is applied on a first priority basis to the payment of the 2017 Street Agreement. See the caption “—Other Indebtedness—Other Long-Term Debt.”
Property Taxes
Property tax receipts of $3,356,836 (including property taxes in lieu of vehicle license fees, as discussed under the caption “—State of California Motor Vehicle In-Lieu Payments”), provided the largest tax revenue source of the City in Fiscal Year 2023, contributing approximately 56.8% of total tax revenues of the City (with [a portion] of the property tax receipts derived from special assessments which are devoted to public improvements in the associated assessment districts and not available to the General Fund). Property in the State which is subject to ad valorem taxes is classified as “secured” or “unsecured.” The secured classification includes property on which any property tax levied by a county becomes a lien on that property. A tax levied on unsecured property may become a lien on certain other property owned by the taxpayer. Every tax which becomes a lien on secured property has priority over all other liens, arising pursuant to State law, on the secured property, regardless of the time of the creation of other liens.
The exclusive means of forcing the payment of delinquent taxes with respect to secured property is the sale of the property securing the taxes of the State for the amount of taxes that are delinquent. The taxing authority has three methods of collecting unsecured personal property taxes: (1) filing a civil action against the taxpayer; (2) obtaining a judgment lien on certain property of the taxpayer from the county clerk or county recorder; and (3) seizing and selling personal property, improvements or possessory interests belonging or taxable to the assessee.
A 10% penalty is added to delinquent taxes which have been levied with respect to property on the secured roll. In addition, beginning on the July 1 following a delinquency, interest begins accruing at the rate of 1.5% per month on the amount delinquent. If taxes are unpaid for a period of five years or more, the property is deeded to the State and then is subject to sale by the county tax collector. A 10% penalty also applies to the delinquent taxes or property on the unsecured roll, and further, an additional penalty of 1.5% per month accrues with respect to such taxes beginning on the varying dates related to the tax billing date.
In an attempt to mitigate the effects of the COVID-19 pandemic on State property taxpayers, on May 6, 2020, the Governor signed Executive Order N-61-20 (“Order N-61-20”). Under Order N-61-20, certain provisions of the State Revenue and Taxation Code were suspended until May 6, 2021 to the extent that they required a tax collector to impose penalties, costs or interest for the failure to pay secured or unsecured property taxes, or to pay a supplemental bill, before the date that such taxes become delinquent. Such penalties, costs and interest were cancelled under the conditions provided for in Order N-61-20, including if the property is residential real property occupied by the taxpayer or the real property qualifies as a small business under certain State laws, the taxes were not delinquent prior to March 4, 2020, the taxpayer files a claim for relief with the tax collector and the taxpayer demonstrates economic hardship or other circumstances that have arisen due to the COVID-19 pandemic or due to a local, state, or federal governmental response thereto. See the caption “THE CITY—COVID-19 Outbreak.” The implementation of Order N-61-20 delayed the receipt of certain property tax revenues by the City is Fiscal Year 2021.
As discussed in detail below, the City participates in the “Teeter Plan” and is therefore not exposed to the risk of delinquencies in the payment of property taxes.
State law also provides for the supplemental assignment and taxation of property as of the occurrence of a change in ownership or completion of new construction. Collection of taxes based on supplemental Packet Pg. 263 Attachment: Preliminary Official Statement (2968 : Resolution No. 2024-12 & Resolution No. FA-2024-01 Public Fin. Auth Lease Revenue Bonds 26 4891-8536-2866.7
assessments occurs throughout the year. Taxes due are prorated according to the amount of time remaining in the tax year.
See the caption “RISK FACTORS—Split Roll Initiative” for a discussion of an initiative that appeared on the November 2020 Statewide ballot which sought to amend provisions of State law relating to property taxes, including the provisions that are discussed above.
For a number of years, the State Legislature shifted property taxes from cities, counties and special districts to the Educational Revenue Augmentation Fund (“ERAF”). In Fiscal Years 1993 and 1994, in response to serious budgetary shortfalls, the State Legislature and administration permanently redirected over $3 billion of property taxes from cities, counties, and special districts to schools and community college districts pursuant to ERAF shifts. The Fiscal Year 2005 State Budget included an additional $1.3 billion shift of property taxes from certain local agencies, including the City, in Fiscal Years 2005 and 2006.
On July 27, 2009, the Governor signed a revised Fiscal Year 2010 State budget that included an ERAF shift of approximately 8% of 1% ad valorem property tax revenues from certain local agencies, including the City.
On November 2, 2010, State voters approved Proposition 22, which: (i) prohibits the State from shifting or delaying the distribution of funds from special districts to schools and community colleges; (ii) eliminates the authority to shift property taxes temporarily during a severe financial hardship of the State; and (iii) restricts the State’s authority to use fuel tax revenues to pay debt service on transportation bonds, to borrow or change the distribution of fuel tax revenues or to use vehicle license fee revenues to reimburse local governments for state-mandated costs.
Despite the passage of Proposition 22, there can be no assurance that 1% ad valorem property tax revenues which the City currently expects to receive will not be temporarily shifted from the City or reduced pursuant to State legislation enacted in the future, including in response to State budget deficits in the wake of the COVID-19 pandemic. See the caption “STATE OF CALIFORNIA BUDGET INFORMATION.” If the property tax formula is permanently changed in the future, it could have a material adverse effect on the receipt of its share of 1% property tax revenues by the City.
Set forth in the table below are the secured and unsecured assessed valuations for property in the City for the last five Fiscal Years.
CITY OF GONZALES
ASSESSED VALUATION HISTORY
Fiscal Year Secured Value
Unsecured
Value
Total Taxable
Assessed Value
%
Increase/Decrease
2019 586,774,673 122,741,720 709,516,393 N/A
2020 616,363,136 161,717,760 778,080,896 9.66%
2021 648,046,791 106,043,406 754,090,197 (3.08)
2022 675,380,649 109,043,916 784,424,565 4.02
2023 729,230,006 142,733,153 871,963,159 11.16
Sources: Monterey County Auditor-Controller.
The County participates in the Alternative Method of Distribution of Tax Levies and Collections and of Tax Sale Proceeds (known as the “Teeter Plan”), as provided for in Section 4701 et seq. of the Revenue and Taxation Code of the State, pursuant to which the City receives 100% of its property tax entitlement without regard to delinquencies, and the City is therefore not exposed to the risk of delinquencies in the payment of Packet Pg. 264 Attachment: Preliminary Official Statement (2968 : Resolution No. 2024-12 & Resolution No. FA-2024-01 Public Fin. Auth Lease Revenue Bonds 27 4891-8536-2866.7
property taxes. As a consequence, the City does not receive penalties and interest when property taxes are paid late. The City also receives supplemental taxes throughout the year.
The ten largest secured and unsecured taxpayers in the City as shown on the Fiscal Year 2024 tax roll, the assessed valuation and the percentage of the City’s total property tax revenues attributable to each are set forth in the table below.
TABLE 5
CITY OF GONZALES
TEN LARGEST SECURED AND UNSECURED TAXPAYERS
Rank Property Owner Type of Business
Fiscal Year 2024
Assessed Valuation % of Total(1)
1. Taylor Farms Retail Inc. Industrial $123,915,635 13.55%
2. Pacific Wine Partners LLC Industrial 94,228,777 10.30
3. Mann Packing Company Inc. Industrial 93,758,053 10.25
4. D’Arrigo Bros Company Vacant Land 9,090,462 0.99
5. RCCM Lands Industrial 8,884,174 0.97
6. RJ Braga LLC Industrial 8,724,928 0.95
7. J and R Family Properties LLC Industrial 8,435,779 0.92
8. De Lage Landen Financial Services Industrial 8,309,490 0.91
9. Gonzales Shopping Center LLC Commercial 6,131,665 0.67
10. CH Braga LLC Vacant Land _5,476,446 _0.60
TOTAL $366,955,409 40.11%
(1) Fiscal Year 2024 Taxable Assessed Value: $914,795,633 (including Outer Tax Rate Areas).
Sources: Monterey County Assessor’s Office; City Finance Department.
Other Taxes
Utility users taxes, franchise taxes and other taxes cumulatively provided approximately 8.1% of General Fund tax revenues and 5.0% of total General Fund revenues during Fiscal Year 2023.
The City charges residential users of gas, electric and telephone services a utility users tax of 4% of total charges. Non-residential users of telephone services also pay a utility users tax of 4% of total charges, while non-residential users of gas and electric services pay a utility users tax of 2% of total charges. The utility users tax may not exceed $1,000 per month for any user, and non-payment is subject to a 10% penalty.
Charges for Services
The City provides various services which generate revenue for the General Fund. Services provided by the City include building construction and planning fees, police fees such as fingerprinting, police reports and towing, as well as a number of recreation programs. In Fiscal Year 2023, charges for services accounted for approximately 1.11% of General Fund revenues.
State of California Motor Vehicle In-Lieu Payments
The State imposes a Vehicle License Fee (the “VLF”), which is the portion of the fees paid in lieu of personal property taxes on a vehicle. The VLF is based on vehicle value and declines as the vehicle ages.
Prior to the adoption of the Fiscal Year 2005 State Budget, the VLF was 2% of the value of a vehicle.
Through legislation in prior Fiscal Years, the State enacted VLF reductions under which the State was required to “backfill” local governments for their revenue losses resulting from the lowered fee. The Fiscal Year 2005 State Budget permanently reduced the VLF from 2% to 0.65% of the value of a vehicle and deleted the Packet Pg. 265 Attachment: Preliminary Official Statement (2968 : Resolution No. 2024-12 & Resolution No. FA-2024-01 Public Fin. Auth Lease Revenue Bonds 28 4891-8536-2866.7
requirement for backfill payments, providing instead that the amount of the backfill requirement will be met by an increase in the property tax allocation to cities and counties. See the caption “STATE OF CALIFORNIA BUDGET INFORMATION.”
The City’s VLF receipts totaled $1,167,357 in Fiscal Year 2023. This amount is included in the total property tax revenues of $3,356,836 described throughout this Official Statement.
The table below shows the total VLF revenues received by the City in the last five Fiscal Years, all of which was distributed from property tax receipts.
TABLE 6
CITY OF GONZALES
STATE OF CALIFORNIA MOTOR VEHICLE IN-LIEU PAYMENTS
Fiscal Year Amount Collected Percentage Change
2019 $ 938,103 N/A
2020 1,074,223 14.5%
2021 1,009,552 (6.0)
2022 1,050,163 4.0
2023 __1,167,357 11.2
Source: City.
Other Indebtedness
General Fund-Supported Obligations. The following obligations are payable from available City revenues, including but not limited to the General Fund:
In 2012, the City entered into an agreement (the “2012 Solar Agreement”) to finance the purchase of solar panels to be installed on City property. As of June 30, 2023, the 2012 Solar Agreement was outstanding in the principal amount of $846,543 and bears interest at the rate of 4.25% per annum, payable in monthly installments through 2026.
In 2012, the City entered into an agreement (the “2012 Winery Agreement”) to lease rooftop space at a local winery in connection with a solar installation. Under the 2012 Winery Agreement, the City pays $5,000 annually through 2027, $10,000 in 2028, with the City’s payment after 2028 subject to a 3% annual escalator applied to each subsequent year through the maturity of the 2012 Winery Agreement in 2042.
In 2016, the City entered into an agreement (the “2016 Solar Agreement”) to finance the purchase of solar panels to be installed on City property. As of June 30, 2023, the 2016 Solar Agreement was outstanding in the principal amount of $956,627 and bears interest at the rate of 2.88% per annum, payable in monthly installments through 2031.
In 2016, the City entered into an agreement (the “2016 Pool Agreement”) to finance a municipal swimming pool. As of June 30, 2023, the 2016 Pool Agreement was outstanding in the principal amount of $920,511 and bears interest at the rate of 2.88% per annum, payable in semi-annual installments through 2031.
The City has also entered into several 5-year lease agreements for the acquisition and use of vehicles.
As of June 30, 2023, such obligations were collectively outstanding in the principal amount of $207,060 and bear interest at a rate of 0.9% per annum.
Packet Pg. 266 Attachment: Preliminary Official Statement (2968 : Resolution No. 2024-12 & Resolution No. FA-2024-01 Public Fin. Auth Lease Revenue Bonds 29 4891-8536-2866.7
Although there are no current plans to do so, the City may issue obligations payable from its general revenues at any time. See the caption “RISK FACTORS—General Considerations – Security for the 2024 Bonds.”
Other Long-Term Debt. In 2012, the City entered into an agreement (the “2012 Sewer Agreement”) to refinance certain improvements to its municipal sewer system. As of June 30, 2023, the 2012 Sewer Agreement was outstanding in the principal amount of $440,231 and bears interest at the rate of 3.35% per annum, payable in semi-annual installments through 2025. The 2012 Sewer Agreement is payable solely from revenues of the City’s municipal sewer system.
In 2017, the City entered into an agreement (the “2017 Street Agreement”) to finance street rehabilitations. As of June 30, 2023, the 2017 Street Agreement was outstanding in the principal amount of $1,203,910 and bears interest at the rate of 2.50% per annum, payable in monthly installments until paid in full. The 2017 Street Agreement is payable solely from the City’s share of the proceeds of a Countywide $0.375 transaction and use tax known as Measure X. See the caption “—Sales Taxes.” No Short-Term Debt. The City currently has no short-term debt outstanding.
Estimated Direct and Overlapping Bonded Debt. The estimated direct and overlapping bonded debt of the City as of April 1, 2024, is set forth in the table below. The information in the table below has been derived from data assembled and reported to the City by California Municipal Statistics, Inc. None of the City, the Authority or the Underwriter have independently verified the information in the table below and the City, the Authority and the Underwriter do not guarantee its accuracy.
TABLE 8
CITY OF GONZALES
ESTIMATED DIRECT AND OVERLAPPING BONDED DEBT
Fiscal Year 2024 Assessed Valuation: $__
OVERLAPPING TAX AND ASSESSMENT DEBT: % Applicable Debt 4/1/24
TOTAL OVERLAPPING TAX AND ASSESSMENT DEBT $
DIRECT AND OVERLAPPING GENERAL FUND DEBT:
City of Gonzales General Fund Obligations(1) 100.000
TOTAL DIRECT AND OVERLAPPING GENERAL FUND DEBT $
COMBINED TOTAL DEBT $
(2)
Ratios to Fiscal Year 2024 Assessed Valuation:
Total Direct and Overlapping Tax and Assessment Debt ............... % Combined Direct Debt ($____) ....................................................% Combined Total Debt...................................................................... % (1) Reflects the obligations that are described under the subcaption “—General Fund-Supported Obligations.” (2) Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue and non-bonded capital lease obligations.
Source: California Municipal Statistics, Inc.
City Investment Policy
The City invests its funds in accordance with the City’s investment policy (the “Investment Policy”), which is reviewed (and, if necessary, updated) by the City Council annually. In accordance with Section 53600 et seq. of the California Government Code, idle cash management and investment transactions are the responsibility of the City Finance Director. The City’s Investment Policy sets forth the policies and procedures applicable to the investment of City funds and designates eligible investments. The Investment Packet Pg. 267 Attachment: Preliminary Official Statement (2968 : Resolution No. 2024-12 & Resolution No. FA-2024-01 Public Fin. Auth Lease Revenue Bonds 30 4891-8536-2866.7
Policy sets forth a stated objective, among others, of insuring the safety of invested funds by limiting credit and market risks.
Eligible investments are generally limited to the County Investment Pool, the Local Agency Investment Fund which is operated by the California State Treasurer, United States Treasury bills and notes and obligations issued by United States Government agencies with maximum maturities of five years, negotiable certificates of deposit (limited to 30% of the portfolio and maximum maturities of 3 years), repurchase agreements with maximum maturities of one year (limited to 20% of the portfolio), banker’s acceptances (limited to 40% of the portfolio and maximum maturities of 270 days), commercial paper (limited to 15% of the portfolio and maximum maturities of 180 days), medium-term corporate notes (limited to 30% of the portfolio and maximum maturities of five years) and money market mutual funds (limited to 15% of the portfolio and maximum maturities of five years). Funds are invested in the following order of priority:
• Safety of Principal;
• Liquidity; and
• Return on Investment.
The City has never invested in derivatives or reverse repurchase agreements and such investments and instruments are not allowed by the Investment Policy.
A summary of the City’s cash and investments as of June 30, 2023 is set forth in the below table.
Approximately $2,269,597 (14.8%) of the City’s total investment portfolio of $15,379,497 as of June 30, 2023 was attributed to the General Fund.
CITY OF GONZALES
SUMMARY OF CASH AND INVESTMENTS AS OF JUNE 30, 2023(1)
Cash
Cash/Cash Equivalents $ 1,121
Deposits with Financial Institutions/Fiscal Agent 1,452,839 Subtotal $ 1,453,960
Investments
Local Agency Investment Fund $ 4,450,973
Certificates of Deposit 10,954
Money Market Accounts 9,463,610
Subtotal $ 13,925,537
Total cash and investments $ 15,379,497
Investment Maturities
0-12 months 1-3 years 3-5 years Total
Certificates of Deposit $ 10,954 $ - $ - $ 10,954
Local Agency Investment Fund 4,450,973 - - 4,450,973
Total $ 4,461,927 $ $ $ 4,461,927
(1) Totals may not add due to rounding.
Source: City.
See Note 3 in Appendix C for further information with respect to City investments.
City Reserve Policies
The City has established a Contingency Reserve Fund in a target amount equal to $1,000,000 (the “Reserve Target”). The purpose of the Contingency Reserve Fund is to provide a source of liquid funds in Packet Pg. 268 Attachment: Preliminary Official Statement (2968 : Resolution No. 2024-12 & Resolution No. FA-2024-01 Public Fin. Auth Lease Revenue Bonds 31 4891-8536-2866.7
the event of local emergencies, economic uncertainty and other financial hardships or downturns in the local, State or national economies.
In an effort to continue budgeting conservatively, the City’s annual budget reflects the budgeting of the Reserve Target each year as a Committed fund. Committed fund balances reflect resources that are constrained to specific purposes by a formal action of the City Council, such as an ordinance or resolution.
The constraint remains binding unless removed in the same formal manner by the City Council. Council action to commit fund balance must occur within the fiscal reporting period while the amount committed may be determined subsequently.
See the caption “—General Fund Balance Sheets of the City” for further information with respect to reserve amounts held by the City.
Retirement Contributions
Accounting and financial reporting by state and local government employers for defined benefit pension plans is governed by GASB Statement No. 68 (“GASB 68”), which includes the following elements:
(i) unfunded pension liabilities are included on the employer’s balance sheet; (ii) pension expense incorporates rapid recognition of actuarial experience and investment returns and is not based on the employer’s actual contribution amounts; and (iii) the difference between expected and actual investment returns will be recognized over a closed five-year smoothing period. GASB 68 affects the City’s accounting and reporting requirements, but it does not change the City’s pension plan funding obligations.
The City participates in a Miscellaneous Plan to fund pension benefits for non-public safety employees and a Safety Plan to fund pension benefits for police and fire employees. The City’s pension plans are part of a multi-agency pool and are administered by CalPERS, which administers agent multiple-employer public employee defined benefit pension plans for municipal employees Statewide. CalPERS provides retirement, disability and death benefits to plan members and beneficiaries and acts as a common investment and administrative agent for participating public entities within the State, including the City. CalPERS plan benefit provisions and all other requirements are established by State statute and the Board.
City employees are subject to different benefit levels based on their hire date. Benefit provisions as of July 1, 2023 for City employees are set forth below.
Packet Pg. 269 Attachment: Preliminary Official Statement (2968 : Resolution No. 2024-12 & Resolution No. FA-2024-01 Public Fin. Auth Lease Revenue Bonds 32 4891-8536-2866.7
CITY OF GONZALES
CALPERS PENSION PLAN – SUMMARY OF BENEFIT PROVISIONS
Miscellaneous Plan
Employees Hired Before
January 1, 2013
Employees Hired On or After January 1,
2013 (Not Prior CalPERS Members)
Benefit Formula 2.0% @ age 60 2.0% @ age 62
Benefit Vesting 5 years of service 5 years of service
Benefit Payments Monthly for life Monthly for life
Minimum Retirement Age 60 62
Monthly Benefits as % of
Eligible Compensation
2.0% 2.0%
Employee Normal Cost 7.0%(1) 6.25%(2)
Employer Normal Cost Rate(3) 8.63% 7.47%
Safety Plan
Employees Hired Before
January 1, 2013
Employees Hired On or After January 1,
2013 (Not Prior CalPERS Members)
Benefit Formula 2.0% @ age 55 2.0% @ age 57
Benefit Vesting 5 years of service 5 years of service
Benefit Payments Monthly for life Monthly for life
Minimum Retirement Age 55 57
Monthly Benefits as % of
Eligible Compensation
2.0% 2.0%
Employee Normal Cost 7.0%(1) 9.50%(2)
Employer Normal Cost Rate(3) 14.74% 10.80%
(1) The City makes half of the employees’ required share (3.5%). (2) The City does not make any portion of the employee contribution for employees hired on or after January 1, 2013. (3) Changes annually based on CalPERS actuarial valuation.
Source: City.
Contributions to the City’s pensions plan consist of: (a) contributions from plan participants (i.e., employees); and (b) contributions by the City.
City employees who were hired on or after January 1, 2013 are subject to the California Public Employees’ Pension Reform Act of 2013 (“AB 340”), which was signed into law in 2012. Benefits for participants who are subject to AB 340 are calculated on the highest average annual compensation over a consecutive 36-month period. Employees must pay at least 50% of the total normal cost rate and pensionable income is capped as noted below. In addition, retroactive benefits increases are prohibited, as are contribution holidays and purchases of additional non-qualified service credit.
Packet Pg. 270 Attachment: Preliminary Official Statement (2968 : Resolution No. 2024-12 & Resolution No. FA-2024-01 Public Fin. Auth Lease Revenue Bonds 33 4891-8536-2866.7
CITY OF GONZALES
PENSIONABLE INCOME CAPS FOR CALENDAR YEAR 2024
(AB 340 AND NON-AB 340 EMPLOYEES)
Employees Hired Before
January 1, 2013
(Non-AB 340 Employees)
Employees Hired On or After
January 1, 2013
(AB 340 Employees)
Maximum Pensionable Income $345,000 $181,734
Maximum Pensionable Income if
also Participating in Social Security N/A 151,446
Source: City.
Additional employee contributions, limits on pensionable compensation and higher retirement ages for new members as a result of the passage of AB 340 are expected to reduce the City’s unfunded pension lability and potentially reduce City contribution levels in the long term.
The City is also required to contribute the actuarially determined remaining amounts necessary to fund benefits for its members. Employer contribution rates for all public employers are determined on an annual basis by the CalPERS actuary and are effective on the July 1 following notice of a change in the rate. The total minimum required employer contribution is the sum of: (i) the plan’s employer normal cost rate, which funds pension benefits for current employees for the upcoming Fiscal Year (expressed as a percentage of payroll); plus (ii) the employer unfunded accrued liability contribution amount, which funds pension benefits that were previously earned by current and former employees (billed monthly).
For Fiscal Year 2023, the required employer normal cost rates as a percentage of payroll were 8.63% for non-AB 340 Miscellaneous Plan employees and 7.47% for AB 340 Miscellaneous Plan employees. For Fiscal Year 2024, the required employer normal cost rates as a percentage of payroll are 10.10% for non-AB 340 Miscellaneous Plan employees and 7.68% for AB 340 Miscellaneous Plan employees.
For Fiscal Year 2023, the required employer normal cost rates as a percentage of payroll were 14.74% for non-AB 340 Safety Plan employees and 10.80% for AB 340 Safety Plan employees. For Fiscal Year 2024, the required employer normal cost rates as a percentage of payroll are 16.45% for non-AB 340 Safety Plan employees and 10.85% for AB 340 Safety Plan employees.
For Fiscal Years 2022 and 2023, the total required employer payment of the unfunded accrued liability for the City’s pension plans was $272,942 and $322,412, respectively, of which $194,290 and $220,858, respectively, was allocable to the General Fund. For Fiscal Year 2024, the total required employer payment of the unfunded accrued liability for the City’s pension plans is $304,312, of which $218,518 is allocable to the General Fund.
The City’s required contributions to CalPERS fluctuate each year and, as noted, include a normal cost component and a component that is equal to an amortized amount of the unfunded liability. Many assumptions are used to estimate the ultimate liability of pensions and the contributions that will be required to meet those obligations. The CalPERS Board of Administration has adjusted and may in the future further adjust certain assumptions used in the CalPERS actuarial valuations, which adjustments may increase the City’s required contributions to CalPERS in future years. Accordingly, the City cannot provide any assurances that the City’s required contributions to CalPERS in future years will not significantly increase (or otherwise vary) from any past or current projected levels of contributions. CalPERS earnings reports for Fiscal Years 2013 through 2023 report investment gains (and losses) of approximately 13.2%, 18.4%, 2.4%, 0.6%, 11.2%, 8.6%, 6.7%,
4.7%, 21.3%, (6.1%), and 6.1%, respectively. Future earnings performance may increase or decrease future contribution rates for plan participants, including the City.
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CalPERS’ discount rate was lowered from 7.00% to 6.80% in fall 2021. Lowering the discount rate means that employers that contract with CalPERS to administer their pension plans will see increases in their normal costs and unfunded actuarial liabilities. Active members hired after January 1, 2013 who were not previously CalPERS members will also see their contribution rates rise under AB 340.
Portions of the above disclosures are primarily derived from information that has been produced by CalPERS, its independent accountants and its actuaries. The City has not independently verified such information and neither makes any representations nor expresses any opinion as to the accuracy of the information that has been provided by CalPERS.
The annual comprehensive financial reports of CalPERS are available on CalPERS’ Internet website at www.calpers.ca.gov. The CalPERS website also contains CalPERS’ most recent actuarial valuation reports and other information that concerns benefits and other matters. The textual reference to such Internet website is provided for convenience only. None of the information on such Internet website is incorporated by reference herein. The City, the Municipal Advisor and the Underwriter cannot guarantee the accuracy of such information. Actuarial assessments are “forward-looking” statements that reflect the judgment of the fiduciaries of the pension plans, and are based upon a variety of assumptions, one or more of which may not materialize or be changed in the future.
The City’s pension plans had a total net pension liability of $4,241,611 ($2,209,444 for the Miscellaneous Plan and $2,032,167 for the Safety Plan) for Fiscal Year 2023 (as of the measurement date of June 30, 2022). The net pension liability is the difference between the total pension liability and the fair market value of pension assets. The City’s total pension assets include funds that are held by CalPERS, and its net pension asset or liability is based on such amounts. For Fiscal Years 2022 and 2023, the City incurred pension plan pension expenses of $(364,055) and $1,417,463, respectively.
A summary of principal assumptions and methods used to determine the total pension liability for the City’s pension plan for Fiscal Year 2023 (as of the measurement date of June 30, 2022) is shown below.
CITY OF GONZALES
ACTUARIAL ASSUMPTIONS FOR CALPERS PENSION PLANS
Actuarial Cost Method Entry Age Normal in accordance with the requirements of GASB 68 Asset Valuation Method Market Value of Assets
Actuarial Assumptions:
Discount Rate 7.15%
Inflation 2.30%
Salary Increases Varies by entry age and service
Investment Rate of Return 7.15% net of pension plan investment and administrative expenses; includes projected inflation rate of 2.30%
Mortality Rate Table(1) Derived using CalPERS’ membership data for all funds (1) The mortality table used was developed based on CalPERS-specific data from a 2017 actuarial experience study for the period from 1997-2015.
Source: City.
Packet Pg. 272 Attachment: Preliminary Official Statement (2968 : Resolution No. 2024-12 & Resolution No. FA-2024-01 Public Fin. Auth Lease Revenue Bonds 35 4891-8536-2866.7
The recent funding history of the City’s pension plans (including summary totals for the Miscellaneous Plan and Safety Plan) is as follows:
CITY OF GONZALES
CALPERS PENSION PLAN FUNDING HISTORY
Valuation
Date
Accrued
Liability
Market Value
of Assets(1)
Unfunded Accrued
Liability(2)
Funded
Ratio(3)
Annual Covered
Payroll
06/30/2018 $15,288,041 $12,117,014 $3,171,027 79.3% $2,663,908 06/30/2019 16,745,513 13,312,399 3,433,114 79.5 3,073,486 06/30/2020 17,918,975 14,022,353 3,896,622 78.3 3,329,812 06/30/2021 19,755,213 17,611,614 2,143,599 89.1 3,496,851 06/30/2022 20,872,569 15,975,363 4,897,206 76.5 3,368,011 (1) Reflects City’s share of market value of assets in multi-agency pools in which City participates. (2) Calculated by subtracting the Market Value of Assets from the Accrued Liability. (3) Calculated by dividing the Market Value of Assets by the Accrued Liability.
Source: City.
The table below presents the unfunded accrued liability of the City’s pension plans, calculated using the discount rate applicable to Fiscal Year 2024 (6.90%), as well as what the net pension liability would be if it were calculated using a discount rate that is 1 percentage point lower (5.90%) or 1 percentage point higher (7.90%) than the Fiscal Year 2024 rate:
CITY OF GONZALES
SENSITIVITY OF CALPERS PENSION PLANS UNFUNDED ACCRUED LIABILITY TO
CHANGES IN THE DISCOUNT RATE
Discount Rate – 1%
(5.90%)
Applicable Discount
Rate (6.90%)
Discount Rate + 1%
(7.90%)
Miscellaneous Plan $3,617,354 $2,209,444 $1,051,084
Safety Plan 3,410,920 2,032,167 905,346
Source: City.
For additional information relating to the City’s pension plan, see Note 13 to the City’s audited financial statements set forth in Appendix C.
No Other Post-Employment Benefits
The City does not provide post-employment benefits other than pensions.
City Financial Statements
General. A copy of the most recent audited financial statements of the City (the “Financial Statements”) for the Fiscal Year ended June 30, 2023, prepared by Bryant L. Jolley, Certified Public Accountants, Firebaugh, California (the “Auditor”), are included as Appendix C to this Official Statement.
The Auditor’s letter dated April 19, 2024 is set forth therein. The Financial Statements are public documents and are included within this Official Statement without the prior approval of the Auditor. Accordingly, the Auditor has not performed any post-audit analysis of the financial condition of the City, nor has the Auditor reviewed or audited this Official Statement.
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Certain financial information that is set forth in this Official Statement is derived from the Financial Statements and the City’s audited financial statements for prior years (excluding certain non-cash items and after certain other adjustments) and is qualified in their entirety by reference to such statements, including the notes thereto. The Auditor has not reviewed or audited such financial information or any other portion of this Official Statement.
In the Financial Statements, data relating to governmental funds such as the General Fund focus on current financial resources, which emphasize near-term inflows and outflows of expendable resources as well as balances of expendable resources at the end of each Fiscal Year.
THE AUTHORITY
The Authority was organized pursuant to the provisions of Articles 1 through 4 of Chapter 5 of Division 7 of Title 1 of the State Government Code and a Joint Exercise of Powers Agreement, dated as of March 20, 1995, by and between the City and the Successor Agency. The members of the City Council serve as the members of the Board of Directors of the Authority. The Authority has no financial liability to the Owners of the 2024 Bonds with respect to the payment of Base Rental Payments by the City or with respect to the performance by the City of the other agreements and covenants that the City is required to perform.
STATE OF CALIFORNIA BUDGET INFORMATION
Although the State is not a significant source of City revenues, there can be no assurance that the State’s annual budget or other legislation will not materially adversely affect the financial condition of the City, in particular given that the City receives certain revenues such as sales tax proceeds and VLF from the State. The following information describes the State budget process and the current and upcoming State budgets.
General
Information about the State budget is regularly available at various State-maintained websites. Text of proposed and adopted budgets may be found at the website of the State Department of Finance (the “DOF”), http://www.dof.ca.gov, under the heading “California Budget.” An impartial analysis of the budget is posted by the Legislative Analyst’s Office (the “LAO”) at http://www.lao.ca.gov. In addition, various State Official Statements, many of which contain a summary of the current and past State budgets and the impact of those budgets on cities in the State, may be found at the website of the State Treasurer, http://www.treasurer.ca.gov.
The information referred to is prepared by the respective State agency maintaining each website and not by the City or the Authority, and the City and the Authority take no responsibility for the continued accuracy of these Internet addresses or for the accuracy, completeness or timeliness of information posted there, and such information is not incorporated herein by these references.
Budget for State Fiscal Year 2023-24
On June 27, 2023, Governor Gavin Newsom signed into law the Fiscal Year 2023-24 State Budget (the “2023-24 Budget”). The 2023-24 Budget totals approximately $310.8 billion while closing a shortfall of more than $30 billion. The 2023-24 Budget does not draw from the reserves to close the shortfall, but rather includes an increase of $600 million to the reserve account compared to the amount expected to be set aside in May 2023. The 2023-24 Budget includes $37.8 billion in budgetary reserves, which include: $22.3 billion in the Budget Stabilization Account (the “Rainy Day Fund”) for fiscal emergencies; $10.8 billion in the Public School System Stabilization Account (the “PSSSA”) (the “rainy-day” fund used to lessen the impact of State revenue volatility on K-12 schools and community colleges); $900 million in the Safety Net Reserve (used to maintain benefits and services for CalWORKs and Medi-Cal participants during economic downturns); and $3.8 billion in the State’s operating reserve. The Rainy Day Fund is now at its constitutional maximum (10% of General Fund revenues).
Packet Pg. 274 Attachment: Preliminary Official Statement (2968 : Resolution No. 2024-12 & Resolution No. FA-2024-01 Public Fin. Auth Lease Revenue Bonds 37 4891-8536-2866.7
The 2022-23 winter atmospheric river storms caused a tax filing delay by the Internal Revenue Service (and a conforming State delay) affecting over 99% of the State’s tax filers in 55 of the State’s 58 counties. As a result, the 2023-24 Budget projects a delay of $42 billion in tax receipts into October 2023 – $28.4 billion from personal income tax and $13.3 billion from corporation tax – representing nearly one-fourth of the 2022-23 State fiscal year’s total projected personal income tax, and nearly one-third of the 2022-23 State fiscal year’s corporation tax. The 2023-24 Budget closes the $31.7 billion shortfall through fund shifts ($9.3 billion), reductions and pullbacks ($8.1 billion), funding delays ($7.9 billion), revenue and internal borrowing ($6.1 billion) and trigger reductions ($340 million).
The 2023-24 Budget includes total funding of $129.2 billion ($79.5 billion General Fund and $49.7 billion other funds) for all K-12 education programs. The 2023-24 Budget reflects significant Proposition 98 funding that enables increased support for core programs such as the Local Control Funding Formula (“LCFF”), special education, transitional kindergarten, nutrition, and preschool. Proposition 98 funding for Fiscal Year 2023-24 is approximately $108.3 billion for K-12 public schools and community college districts.
The 2023-24 Budget includes payments of approximately $4.8 billion, $1.8 billion and $902 million into the PSSSA for State fiscal years 2021-22, 2022-23 and 2023-24, respectively, for a balance of more than $10.8 billion at the end of State fiscal year 2023-24. Under current law, there is a cap of 10% on school district reserves in fiscal years immediately succeeding those in which the balance in the PSSSA is equal to or greater than 3% of the total K-12 share of the Proposition 98 Guarantee. The balance of $9.9 billion in State fiscal year 2022-23 triggers school district reserve caps beginning in State fiscal year 2023-24.
The 2023-24 Budget provides an LCFF cost-of-living adjustment of 8.22%, which when combined with declining enrollment adjustments, increases year-over-year discretionary funds available to local educational agencies (“LEAs”) by approximately $3.4 billion. The 2023-24 Budget also reflects the utilization of approximately $1.6 billion one-time Proposition 98 General Fund moneys to support the overall costs of the LCFF in State fiscal year 2023-24, and provides an increase of $80 million ongoing Proposition 98 General Fund moneys to support county offices of education serving students in juvenile court and other alternative school settings. Also, to address and improve student group and school site equity gaps within an LEA, the 2023-24 Budget provides $300 million ongoing Proposition 98 General Fund moneys to establish an Equity Multiplier as an add-on to the LCFF to accelerate gains in closing opportunity and outcome gaps, and $2 million ongoing Proposition 98 General Fund moneys to support the critical work of the new equity leads within the statewide system of support.
For additional information regarding the 2023-24 Budget, see the DOF and LAO websites. The information presented on such websites is not incorporated herein by reference.
None of the websites or webpages that are referenced above is in any way incorporated into this Official Statement. They are cited for informational purposes only. The City, the Authority and the Underwriter make no representation whatsoever as to the accuracy or completeness of any of the information on such websites.
There can be no assurance that additional legislation will not be enacted in the future to implement provisions relating to the State budget or otherwise that may affect the City or its General Fund revenues.
Proposed Budget for State Fiscal Year 2024-25
On January 10, 2024, the Governor released his proposed budget for State fiscal year 2024-25 (the “Proposed 2024-25 Budget”). The Proposed 2024-25 Budget indicates that, since the adoption of the 2023-24 Budget, the administration’s economic forecast and revenue projections have significantly declined, and reflects the State’s expectation of a significant budget deficit in Fiscal Year 2024-25.
Packet Pg. 275 Attachment: Preliminary Official Statement (2968 : Resolution No. 2024-12 & Resolution No. FA-2024-01 Public Fin. Auth Lease Revenue Bonds 38 4891-8536-2866.7
The Proposed 2024-25 Budget spending plan totals $291.5 billion, with an estimated shortfall of $37.9 billion, nearly $30 billion less than previously estimated by the State’s nonpartisan Legislative Analyst’s Office. The shortfall is largely the result of substantial declines in the stock market that drove down revenues in State fiscal year 2023-24 and delays in income tax collections. The Proposed 2024-25 State Budget maintains the State’s fiscal stability using a portion of money saved in the budget reserves.
State Revenues showed strength in the two State fiscal years following the brief recession in the wake of the outbreak of COVID-19, as stock market growth outpaced the slower overall economic recovery.
Fueling this growth were capital gains realizations, which had a sizable impact on State revenues. State revenues saw similar increases. Over two State fiscal years, from 2019-20 to 2021-22, three of the State’s revenue sources—personal income, sales, and corporation taxes—grew by 55%. These revenue sources are projected to revert to levels consistent with a normal revenue growth trajectory, absent the COVID-19 surge and subsequent correction. The Proposed 2024-25 Budget details a withdrawal from the Rainy Day Fund to address the State budget shortfall. Even after the proposed withdrawals, total budget reserves in State fiscal year 2024-25 will remain at $18.4 billion. This includes $11.1 billion in the Rainy Day Fund, $3.9 million in the PSSSA and $3.4 billion in the Special Fund for Economic Uncertainties.
Highlights of the Proposed 2024-25 Budget include:
Housing and Homelessness: Advancing a multi-year $15.3 billion plan to address homelessness. The proposal maintains billions of dollars for an all-of-the-above approach, including $400 million for encampment resolution grants and $1 billion for Homeless Housing, Assistance and Prevention program grants.
Public Education: Maintaining investments for public education, including funding for community schools, universal school meals, expanded learning opportunities, education workforce and continued implementation of universal transitional kindergarten. Proposition 98 funding for K-12 schools and community colleges is estimated to be $109.1 billion in State fiscal year 2024-25 and per-pupil funding totals $23,519 per pupil when accounting for all funding sources.
Safety and Security: Investing $1.1 billion over four years to increase the safety and security of the State, including $373.5 million to combat organized retail theft; over $230 million for opioid and fentanyl interdiction and enforcement, naloxone distribution, recovery and support services; $302 million to enhance community public safety through nonprofit security grants, officer training; and $197 million towards gun violence prevention.
Health Care: Funding to make wellness coaches available to support children and youth behavioral health and maintains $7.6 billion from various funds to implement the Behavioral Health Community-Based Organized Networks of Equitable Care and Treatment (BH-CONNECT) demonstration.
Climate Change: Advancing a $48.3 billion multi-year commitment, alongside over $10 billion from the Biden-Harris Administration in federal climate funding, to implement initiatives to slash pollution and achieve carbon neutrality by 2045, protect communities from harmful climate impacts and deliver 90% clean electricity by 2035.
Proposition 98 funding for K-12 schools and community colleges is estimated to be $98.3 billion in State fiscal year 2022-23, State fiscal year $105.6 billion in 2023-24 and $109.1 billion in State fiscal year 2024-25. These revised Proposition 98 levels represent a decrease of approximately $11.3 billion over the three-year period relative to the 2023-24 Budget. The Proposed 2024-25 Budget includes funding of $126.8 billion ($76.4 billion General Fund and $50.4 billion other funds) for all K-12 education programs. [ADDITIONAL DISCLOSURE TO COME FROM KUTAK ROCK AFTER PUBLICATION OF MAY REVISE]
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Potential Impact of State Financial Condition on the City The State has experienced significant financial stress in recent years, with budget shortfalls in the several billions of dollars. The waning of the COVID-19 crisis has been followed by increases in unfunded liabilities of the two main retirement systems managed by State entities, CalPERS and CalSTRS. The State also has a significant unfunded liability with respect to other post-employment benefits.
Current and future State budgets will be significantly affected by the State, national and global economy and other factors over which the City has no control. The City cannot determine what actions will be taken in the future by the State Legislature and the Governor to deal with the current budget deficit, recessions and resulting changing State revenues and expenditures. There can be no assurance that the State will not significantly reduce revenues to local governments (including the City) or shift financial responsibility for programs to local governments as part of its efforts to address State financial conditions. See the caption “CITY FINANCIAL INFORMATION—Property Taxes.” Although the State is not a significant source of City revenues, there can be no assurance that State actions will not materially adversely affect the financial condition of the City. The State’s ability to undertake such revenue reductions or shifting has been limited by provisions of the State Constitution. See the caption “CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS—Proposition 22.” Redevelopment Dissolution
On December 29, 2011, the State Supreme Court upheld Assembly Bill 1x26 (“AB 1x26”), which dissolved redevelopment agencies in the State. The effect of AB 1x26 upon the City was the termination of the redevelopment functions of the Redevelopment Agency of the City of Gonzales (the “Former Agency”) and the transfer of such functions to a successor agency (the City, referred to in the capacity of a successor agency, and being referred to in this context as the “Successor Agency”) tasked with winding down the Former Agency’s redevelopment activities. Under AB 1x26, the Successor Agency cannot enter into new redevelopment projects or obligations and its assets can be used only to pay enforceable obligations, which enforceable obligations are generally limited to obligations in existence in mid-2011, when AB 1x26 was signed by the Governor. The Successor Agency’s activities are subject to review by an oversight board established under AB 1x26. Under AB 1x26, liabilities of the Successor Agency are not liabilities of the City.
The City does not believe that it has received material amounts from the Former Agency or the Successor Agency which may be asserted to be in violation of AB 1x26. In addition, the Successor Agency is not currently engaged in any disputes with the State or the County with respect to its receipt of tax increment or its enforceable obligations.
Future State Budgets
No prediction can be made by the City as to whether the State will continue to encounter budgetary problems in future years, and if it were to do so, it is not clear what measures would be taken by the State to balance its budget, as required by law. In addition, the City cannot predict the final outcome of future State budget negotiations, the impact that such budgets will have on City finances and operations or what actions will be taken in the future by the State Legislature and the Governor to deal with changing State revenues and expenditures. There can be no assurance that actions taken by the State to address its financial condition will not materially adversely affect the financial condition of the City. Current and future State budgets will be affected by national and State economic conditions and other factors, including the current economic downturn, over which the City has no control.
CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS There are a number of provisions of the State Constitution that limit the ability of the City to raise and expend tax revenues.
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Article XIIIA of the State Constitution
On June 6, 1978, State voters approved an amendment (commonly known as both Proposition 13 and the Jarvis-Gann Initiative) to the State Constitution. The amendment, which added Article XIIIA to the State Constitution, among other things affects the valuation of real property for the purpose of taxation in that it defines the full cash property value to mean “the county assessor’s valuation of real property as shown on the 1975/76 tax bill under ‘full cash value’, or thereafter, the appraised value of real property newly constructed, or when a change in ownership has occurred after the 1975 assessment.” The full cash value may be adjusted annually to reflect inflation at a rate not to exceed 2% per year, or a reduction in the consumer price index or comparable local data at a rate not to exceed 2% per year, or reduced in the event of declining property value caused by damage, destruction or other factors including a general economic downturn. The amendment further limits the amount of any ad valorem tax on real property to 1% of the full cash value, except that additional taxes may be levied to pay debt service on indebtedness approved by the voters prior to December 1, 1978, and bonded indebtedness for the acquisition or improvement of real property approved on or after December 1, 1978 by two-thirds of the votes cast by the voters voting on the proposition (55% in the case of certain school facilities). Property taxes that are subject to Proposition 13 are a significant source of the City’s General Fund revenues. See the caption “CITY FINANCIAL INFORMATION.” Legislation enacted by the State Legislature to implement Article XIIIA provides that all taxable property is shown at full assessed value as described above. Tax rates for voter approved bonded indebtedness are also applied to 100% of assessed value.
Future assessed valuation growth allowed under Article XIIIA (for new construction, change of ownership or 2% annual value growth) is allocated on the basis of “situs” among the jurisdictions that serve the tax rate area within which the growth occurs. Local agencies and school districts share the growth of “base” revenue from the tax rate area. Each year’s growth allocation becomes part of each agency’s allocation the following year. Article XIIIA effectively prohibits the levying of any other ad valorem property tax above the 1% limit except for taxes to support indebtedness approved by the voters as described above.
Article XIIIA has subsequently been amended to permit reduction of the “full cash value” base in the event of declining property values caused by damage, destruction or other factors, and to provide that there would be no increase in the “full cash value” base in the event of reconstruction of property damaged or destroyed in a disaster and in certain other limited circumstances.
Article XIIIB of the State Constitution
At the Statewide special election on November 6, 1979, the voters approved an initiative entitled “Limitation on Government Appropriations,” which added Article XIIIB to the State Constitution. Under Article XIIIB, State and local government entities have an annual “appropriations limit” which limits the ability to spend certain money which are called “appropriations subject to limitation” (consisting of tax revenues and investment proceeds thereof, certain State subventions and regulatory license fees, user charges and user fees to the extent that the proceeds thereof exceed the costs of providing such services, together called “proceeds of taxes,” and certain other funds) in an amount higher than the “appropriations limit.” Article XIIIB does not affect the appropriation of moneys which are excluded from the definition of “appropriations limit,” including debt service on indebtedness existing or authorized as of October 1, 1979, or bonded indebtedness subsequently approved by the voters. In general terms, the “appropriations limit” is to be based on certain 1978-79 expenditures and is to be adjusted annually to reflect changes in the consumer price index, population and services provided by these entities. Among other provisions of Article XIIIB, if those entities’ revenues in any year exceed the amounts permitted to be spent, the excess would have to be returned by revising tax rates or fee schedules over the subsequent two years.
To the best of the City’s knowledge, the City’s appropriations have never exceeded the limitation on appropriations under Article XIIIB of the State Constitution.
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Proposition 62
A statutory initiative (“Proposition 62”) was adopted by the voters of the State at the November 4, 1986 general election which: (a) requires that any tax for general governmental purposes imposed by local governmental entities be approved by resolution or ordinance adopted by two-thirds vote of the governmental agency’s legislative body and by a majority of the electorate of the governmental entity; (b) requires that any special tax (defined as taxes levied for other than general governmental purposes) imposed by a local governmental entity be approved by a two-thirds vote of the voters within the jurisdiction; (c) restricts the use of revenues from a special tax to the purposes or for the service for which the special tax is imposed; (d) prohibits the imposition of ad valorem taxes on real property by local governmental entities except as permitted by Article XIIIA; (e) prohibits the imposition of transaction taxes and sales taxes on the sale of real property by local governmental entities; and (f) requires that any tax that is imposed by a local governmental entity on or after August 1, 1985 be ratified by a majority vote of the electorate within two years of the adoption of the initiative or be terminated by November 15, 1988. The requirements imposed by Proposition 62 were upheld by the State Supreme Court in Santa Clara County Local Transportation Authority v.
Guardino, 11 Cal.4th 220 (1995).
Proposition 62 applies to the imposition of any taxes or the implementation of any tax increases after its enactment in 1986, but the requirements of Proposition 62 are largely subsumed by the requirements of Proposition 218 for the imposition of any taxes or the effecting of any tax increases after November 5, 1996.
See the caption “—Proposition 218” below.
Proposition 218
On November 5, 1996, State voters approved Proposition 218, an initiative measure entitled the “Right to Vote on Taxes Act.” Proposition 218 added Articles XIIIC and XIIID to the State Constitution, imposing certain vote requirements and other limitations on the imposition of new or increased taxes, assessments and property-related fees and charges. Proposition 218 states that all taxes imposed by local governments are deemed to be either general taxes or special taxes. Special purpose districts, including school districts, have no power to levy general taxes. No local government may impose, extend or increase any general tax unless and until such tax is submitted to the electorate and approved by a majority vote. No local government may impose, extend or increase any special tax unless and until such tax is submitted to the electorate and approved by a two-thirds vote.
Proposition 218 also provides that no tax, assessment, fee or charge may be assessed by any agency upon any parcel of property or upon any person as an incident of property ownership except: (a) the ad valorem property tax imposed pursuant to Articles XIII and XIIIA of the State Constitution; (b) any special tax receiving a two-thirds vote pursuant to the State Constitution; and (c) assessments, fees and charges for property-related services as provided in Proposition 218. Proposition 218 then goes on to add voter requirements for assessments and fees and charges imposed as an incident of property ownership, other than fees and charges for sewer, water, and refuse collection services. In addition, all assessments and fees and charges imposed as an incident of property ownership, including sewer, water and refuse collection services, are subjected to various additional procedures, such as hearings and stricter and more individualized benefit requirements and findings.
Proposition 218 also extended the initiative power to reducing or repealing any local taxes, assessments, fees and charges. This extension of the initiative power is not limited to taxes imposed on or after November 6, 1996, the effective date of Proposition 218, and could result in retroactive repeal or reduction in any existing taxes, assessments, fees and charges, subject to overriding federal constitutional principles relating to the impairments of contracts. Legislation implementing Proposition 218 provides that the initiative power provided for in Proposition 218 “shall not be construed to mean that any owner or beneficial owner of a municipal security, purchased before or after (the effective date of Proposition 218) assumes the risk of, or in any way consents to, any action by initiative measure that constitutes an impairment of Packet Pg. 279 Attachment: Preliminary Official Statement (2968 : Resolution No. 2024-12 & Resolution No. FA-2024-01 Public Fin. Auth Lease Revenue Bonds 42 4891-8536-2866.7
contractual rights” protected by the United States Constitution. However, no assurance can be given that the voters of the City will not, in the future, approve an initiative which reduces or repeals local taxes, assessments, fees or charges that currently are deposited into the City’s General Fund.
Although a portion of the City’s General Fund revenues are derived from general taxes purported to be governed by Proposition 218, as discussed under the caption “CITY FINANCIAL INFORMATION — Other Taxes,” all of such taxes were imposed in accordance with the requirements of Proposition 218.
Unitary Property
Some amount of property tax revenue of the City is derived from utility property which is considered part of a utility system with components located in many taxing jurisdictions (“unitary property”). Under the State Constitution, such property is assessed by the CDTFA as part of a “going concern” rather than as individual pieces of real or personal property. State-assessed unitary and certain other property is allocated to the counties by the CDTFA, taxed at special county-wide rates, and the tax revenues distributed to taxing jurisdictions (including the City) according to a statutory formula that is generally based on the distribution of taxes in the prior year.
Proposition 22
On November 2, 2010, State voters approved Proposition 22, which eliminates the State’s ability to borrow or shift local revenues and certain State revenues that fund transportation programs. It restricts the State’s authority over a broad range of tax revenues, including property taxes allocated to cities (including the City), counties and special districts, the VLF, State excise taxes on gasoline and diesel fuel, the State sales tax on diesel fuel, and the former State sales tax on gasoline. It also makes a number of significant other changes, including restricting the State’s ability to use motor vehicle fuel tax revenues to pay debt service on voterapproved transportation bonds.
Proposition 26
On November 2, 2010, State voters approved Proposition 26. Proposition 26 amends Article XIIIC of the State Constitution to expand the definition of “tax” to include “any levy, charge, or exaction of any kind imposed by a local government” except the following: (a) a charge imposed for a specific benefit conferred or privilege granted directly to the payor that is not provided to those not charged, and which does not exceed the reasonable costs to the local government of conferring the benefit or granting the privilege; (b) a charge imposed for a specific government service or product provided directly to the payor that is not provided to those not charged, and which does not exceed the reasonable costs to the local government of providing the service or product; (c) a charge imposed for the reasonable regulatory costs of a local government for issuing licenses and permits, performing investigations, inspections and audits, enforcing agricultural marketing orders and the administrative enforcement and adjudication thereof; (d) a charge imposed for entrance to or use of local government property, or the purchase, rental or lease of local government property; (e) a fine, penalty or other monetary charge imposed by the judicial branch of government or a local government as a result of a violation of law; (f) a charge imposed as a condition of property development; and (g) assessments and property-related fees imposed in accordance with the provisions of Article XIIID. Proposition 26 provides that the local government bears the burden of proving by a preponderance of the evidence that a levy, charge, or other exaction is not a tax, that the amount is no more than necessary to cover the reasonable costs of the governmental activity, and that the manner in which those costs are allocated to a payor bear a fair or reasonable relationship to the payor’s burdens on, or benefits received from, the governmental activity. The City does not believe that Proposition 26 will adversely affect its General Fund revenues.
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Future Initiatives
Articles XIIIA and XIIIB and Propositions 62, 218, 22 and 26 were each adopted as measures that qualified for the ballot pursuant to the State’s initiative process. From time to time other initiative measures could be adopted, further affecting the City’s current revenues or its ability to raise and expend revenues.
RISK FACTORS
Prospective purchasers of the 2024 Bonds should consider carefully all possible factors that may affect the ability of the City to pay Base Rental Payments under the Lease Agreement. The 2024 Bonds may not be a suitable investment for all prospective purchasers.
The following factors, along with the other information in this Official Statement, should be considered by potential investors in evaluating the purchase of the 2024 Bonds. However, the following does not purport to be an exhaustive listing of risks and other considerations which may be relevant to an investment in the 2024 Bonds and there can be no assurance that other risk factors will not become material in the future. In addition, the order in which the following factors are presented is not intended to reflect the relative importance of any such risks.
General Considerations – Security for the 2024 Bonds
The 2024 Bonds are special obligations of the Authority, payable solely from Base Rental Payments.
Neither the faith and credit nor the taxing power of the Authority, the City, the State or any political subdivision thereof is pledged to the payment of the 2024 Bonds. The Authority has no taxing power.
The obligation of the City to make the Base Rental Payments does not constitute a debt of the City, the County, the State or any political subdivision thereof within the meaning of any constitutional or statutory debt limit or restriction, and does not constitute an obligation for which the City, the County or the State is obligated to levy or pledge any form of taxation or for which the City, the County or the State has levied or pledged any form of taxation.
Although the Lease Agreement does not create a pledge, lien or encumbrance upon the funds of the City, the City is obligated under the Lease Agreement to pay the Base Rental Payments and Additional Rental Payments from any source of legally available funds, and the City has covenanted in the Lease Agreement to take such action as may be necessary to include all such Base Rental Payments and Additional Rental Payments due thereunder in its annual budgets, and to make necessary annual appropriations for all such Base Rental Payments and Additional Rental Payments, subject to abatement. The City is currently liable and may become liable on other obligations payable from general revenues. See the caption “CITY FINANCIAL INFORMATION—Other Indebtedness—General Fund-Supported Debt.” The City has the capacity to enter into other obligations which may constitute additional charges against its revenues, including pension obligations and essential services. To the extent that additional obligations are incurred by the City, the funds available to make Base Rental Payments may be decreased. In the event that the City’s revenue sources are less than its total obligations, the City could choose to fund other activities before making Base Rental Payments. The same result could occur if, because of State Constitutional limits on expenditures, the City is not permitted to appropriate and spend all of its available revenues. However, to the best of the City’s knowledge, the City’s appropriations have never exceeded the limitation on appropriations under Article XIIIB of the State Constitution. See the caption “CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS— Article XIIIB of the State Constitution.”
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Abatement
In the event of substantial interference with the City’s right to use and occupy any portion of the Property by reason of damage to or destruction or condemnation of the Property, or any defects in title to the Property, the Base Rental Payments will be subject to abatement. See the caption “SECURITY AND SOURCES OF PAYMENT FOR THE 2024 BONDS—Abatement.” The amount of abatement will be such that the resulting payments of Base Rental Payments and Additional Rental Payments do not exceed the fair rental value for the use and possession of the remaining portions of the Property as to which the City has beneficial use and occupancy and as to which such damage or destruction or defect in title do not substantially interfere.
In the event that such portion of the Property, if damaged or destroyed by an insured casualty, could not be replaced during the period of time in which proceeds of the City’s rental interruption insurance will be available in lieu of the Base Rental Payments, plus the period in which funds are available from the funds and accounts established under the Indenture, or in the event that casualty insurance proceeds are insufficient to provide for complete repair or replacement of such portion of the Property or redemption of the 2024 Bonds, there could be insufficient funds to make payments to Owners in full.
It is not always possible to predict the circumstances under which abatement of rental may occur. In addition, there is no statute, case or other law specifying how such an abatement of rental should be measured.
For example, it is not clear whether fair rental value is established as of commencement of the lease or at the time of the abatement. If the latter, the value of the Property could be substantially higher or lower than its value at the time of the issuance of the 2024 Bonds. Abatement, therefore, could have an uncertain and material adverse effect on the security for and payment of the 2024 Bonds.
If damage, destruction, title defect or eminent domain proceedings with respect to the Property results in abatement of the Base Rental Payments and if such abated Base Rental Payments, if any, together with moneys from rental interruption or use and occupancy insurance (in the event of any insured loss due to damage or destruction), and eminent domain proceeds, if any, are insufficient to make all payments of principal and interest with respect to the 2024 Bonds during the period that the Property is being replaced, repaired or reconstructed, then all or a portion of such payments of principal and interest may not be made.
Under the Lease Agreement and the Indenture, no remedy is available to the 2024 Bond Owners for nonpayment under such circumstances.
Initiative and Referendum
The ability of the City to comply with its covenants under the Lease Agreement and to generate revenues that are sufficient to pay Base Rental Payments may be adversely affected by actions and events outside the control of the City, including without limitation actions taken (or not taken) by voters. Under the State Constitution, voters of the State have the ability to initiate legislation and require a public vote on legislation passed by the State Legislature through the powers of initiative and referendum, respectively. The Authority and the City are unable to predict whether any such initiatives might be submitted to or approved by the voters, the nature of such initiatives, or their potential impact on the City and its operations. See the caption “CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS—Future Initiatives.”
Insurance on the Property
Under the Lease Agreement, the City is required to maintain through the term of the Lease Agreement policies of insurance covering loss or damage to the Property up to replacement costs and covering title defects. If the Property is damaged or destroyed, there can be no assurance that the insurance proceeds will be sufficient to repair or restore the Property, or to redeem or defease all of the then-Outstanding 2024 Bonds. In addition, neither the Authority nor the City can provide any assurance as to whether the provider of an Packet Pg. 282 Attachment: Preliminary Official Statement (2968 : Resolution No. 2024-12 & Resolution No. FA-2024-01 Public Fin. Auth Lease Revenue Bonds 45 4891-8536-2866.7
insurance policy will pay under such policy. See the caption “SECURITY AND SOURCES OF PAYMENT FOR THE 2024 BONDS—Insurance” for a description of the insurance coverages that are required by the Lease Agreement. See the caption “THE CITY—Risk Management” for a description of the City’s current insurance coverages. Certain risks, such as earthquakes and floods, are not required to be covered under the Lease Agreement and the City does not currently maintain earthquake and flood coverage for the Property.
Condemnation of the Property
If all or a portion of the Property were condemned, there can be no assurance that any such award or payment will be sufficient at the time to prepay or defease all of the then-Outstanding 2024 Bonds. If the award is less than the amounts remaining on such Outstanding 2024 Bonds, then the Owners will be paid less than the amounts remaining on such Outstanding 2024 Bonds.
Value of Property
In the event that the Trustee re-enters or re-lets the Property upon the occurrence of an Event of Default, there can be no assurance such actions will provide funds in an amount that is sufficient to pay the principal of and interest on the 2024 Bonds. The security under the Lease Agreement extends only to the Authority’s leasehold interest in the Property granted under the Ground Lease and is subject to the restrictions of the Ground Lease and all other use restrictions applicable to the site. The Property has not been appraised in connection with the issuance of the 2024 Bonds.
No Acceleration of Base Rental Payments
Nothing in the Lease Agreement permits the Authority or the Trustee to accelerate Base Rental Payments. Although the Trustee is entitled to pursue all available remedies under the Indenture, there can be no assurance that sufficient funds will be available at the time to redeem or defease all of the then-Outstanding 2024 Bonds.
Certain Risks Associated with Sales Tax and Other Local Tax Revenues For the past several Fiscal Years, sales and use tax revenues have been among the largest source of General Fund revenues to the City. See the caption “CITY FINANCIAL INFORMATION.” Sales and use tax revenues are based upon the gross receipts of retail sales of tangible goods and products by retailers with taxable transactions in the City, which could be impacted by a variety of factors. For example, in times of economic recession, the gross receipts of retailers often decline, and such a decline would cause the sales tax revenues received by the City to decline. See the caption “CITY FINANCIAL INFORMATION.”
In addition, changes or amendments in the laws applicable to the City’s receipt of sales tax revenues or other local taxes, whether implemented by State legislative action or voter initiative, could have an adverse effect on sales tax revenues received by the City. See the caption “CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS.”
Many categories of transactions are exempt from the Statewide sales tax, and additional categories could be added in the future. Currently, most sales of food products for human consumption are exempt; this exemption, however, does not apply to liquor or to restaurant meals. The rate of sales tax levied on taxable transactions in the City or the fee charged by the CDTFA for administering the City’s sales tax could also be changed.
In the wake of the COVID-19 outbreak, the Governor extended the deadline to file and pay first quarter 2020 sales and use tax returns by 90 days for all but the very largest taxpayers, and up to 361,000 Packet Pg. 283 Attachment: Preliminary Official Statement (2968 : Resolution No. 2024-12 & Resolution No. FA-2024-01 Public Fin. Auth Lease Revenue Bonds 46 4891-8536-2866.7
California businesses with less than $5 million in taxable annual sales were allowed to defer up to $50,000 in sales tax and enter into 12-month payment plans at zero interest. The extension resulted in a delay in the receipt by the City of its portion of sales tax payments for 2020. There can be no assurance that additional extensions of payment deadlines will not be ordered should another pandemic occur or economic recessions occur in the future.
Assessed Value of Taxable Property
Property taxes are currently among the largest sources of the City’s General Fund revenues. Natural and economic forces can affect the assessed value of taxable property within the City. The City is located in a seismically active region, and is within a few miles of the San Andreas and Rinconada Faults, and damage from an earthquake in or near the area could cause extensive damage to taxable property. Other natural or manmade disasters, such as floods (which areas in and around the City experienced in 2023), fire, wildfire, ongoing drought, toxic dumping, erosion, civil unrest or acts of terrorism, could cause a reduction in the assessed value of taxable property within the City. See the captions “—Natural Disasters” and “—Hazardous Substances.”
In addition, economic and market forces, such as a downturn in the regional economy, could affect assessed values, particularly as these forces might reverberate in the residential housing and commercial property markets as has been experienced in the past. Total assessed values could also be reduced through the reclassification of taxable property to a class exempt from taxation, whether by ownership or use (such as exemptions for property owned by State and local agencies and property used for qualified educational, hospital, charitable or religious purposes).
Reductions in the market values of taxable property may cause property owners to appeal assessed values and may also be associated with an increase in delinquency rates for property taxes. Section 2(b) of Article XIIIA of the State Constitution and Section 51 of the State Revenue and Taxation Code, which were adopted pursuant to Proposition 8 in 1978, require the County assessor to annually enroll either a property’s adjusted base year value (the “Proposition 13 Value”) or its current market value, whichever is less. When the current market value replaces the higher Proposition 13 Value on the assessor’s roll, such lower value is referred to as the “Proposition 8 Value.”
Although the annual increase for a Proposition 13 Value is limited to no more than 2%, the same restriction does not apply to a Proposition 8 Value. The Proposition 8 Value of a property is reviewed annually as of January 1; the current market value must be enrolled as long as the Proposition 8 Value falls below the Proposition 13 Value. Thus, any subsequent increase or decrease in market value is enrolled regardless of any percentage increase or decrease. Only when a current Proposition 8 Value exceeds the Proposition 13 Value attributable to a piece of property (adjusted for inflation) does a county assessor reinstate the Proposition 13 Value.
Decreases in the assessed value of taxable property within the City resulting from a natural disaster or other calamity, economic recession, reclassification by ownership or use or as a result of the implementation of Proposition 8 all may have an adverse impact on property tax collections by the City, and consequently, the General Fund revenues that are available to make Base Rental Payments.
Increasing Retirement-Related Costs
The City is required to make contributions to CalPERS for City employees and retirees. Such obligations are a significant financial obligation of the City and could increase in the future. Actual contribution rates will depend on a variety of factors, including but not limited to CalPERS’ actual investment returns and future changes to benefits or actuarial assumptions. The City notes that pension contributions in future years may increase as a result of investment losses in CalPERS’ portfolio. There can be no assurances Packet Pg. 284 Attachment: Preliminary Official Statement (2968 : Resolution No. 2024-12 & Resolution No. FA-2024-01 Public Fin. Auth Lease Revenue Bonds 47 4891-8536-2866.7
that actual increases in required contributions will not be higher than the amounts which are currently projected by the City. See the caption “CITY FINANCIAL INFORMATION—Retirement Contributions.” Dependence on State for Certain Revenues
A number of the City’s revenues are collected and dispersed by the State (such as sales taxes and the VLF) or allocated in accordance with State law (most importantly, property taxes). Therefore, State budget decisions can have an impact on City finances. In the event of a material economic downturn in the State, there can be no assurance that any resulting revenue shortfalls to the State will not reduce revenues to local governments (including the City) or shift financial responsibility for programs to local governments as part of the State’s efforts to address any such related State financial difficulties. See the caption “STATE OF CALIFORNIA BUDGET INFORMATION.” The State’s ability to undertake such revenue reductions or shifting has been limited by provisions of the State Constitution. See the caption “CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS—Proposition 22.” Litigation
The City may be or become a party to litigation that has an impact on the General Fund. Although the City maintains certain insurance policies that provide liability coverage under certain circumstances and with respect to certain types of incidents (as discussed under the caption “THE CITY—Risk Management”), the City cannot predict what types of liabilities may arise in the future. See the caption “LITIGATION.” Natural Disasters
The occurrence of any natural disaster in the City, including, without limitation, fire, windstorm, drought, earthquake, landslide, mudslide or flood, could have an adverse material impact on the economy within the City, its General Fund and the revenues available for the payment of Base Rental Payments. The Although the City currently maintains earthquake insurance for the Property, it is not required to do so by the Lease Agreement and may elect to discontinue such insurance coverage in the future. See the captions “SECURITY AND SOURCES OF PAYMENT FOR THE 2024 BONDS—Insurance” and “THE CITY—Risk Management.”
In early 2023, significant rainfall resulted in flooding in and around the City, including major damage to a bridge over the Salinas River just southwest of City limits and the issuance of evacuation orders by the County to avert the risk of loss of life from flooding. There can be no assurance that flooding will not affect the City in the future.
Earthquakes are considered a threat to the City due to the highly active seismic region and the proximity of fault zones, which could influence the entire coastal portion of the State. There are also likely to be unmapped faults in or near the City. The City is located near the San Andreas and Rinconada Faults and seismically induced ground shaking has affected the City in the past and is expected to affect the City in the future.
An earthquake along one of the faults in the vicinity of the City, either known or unknown, could cause a number of casualties and extensive property damage. The effects of an earthquake could be aggravated by aftershocks and secondary effects such as fires, landslides, dam failure, liquefaction, floods and other threats to public health, safety and welfare. Portions of the City are located within floodways as defined by the Federal Emergency Management Agency. The potential direct and indirect consequences of a major earthquake could easily exceed the resources of the City and would require a high level of self-help, coordination and cooperation.
The State, including the City, is periodically subject to wildfires, which can result in destruction of property directly. In addition, when wildfires scorch land, they destroy all vegetation on mountains and Packet Pg. 285 Attachment: Preliminary Official Statement (2968 : Resolution No. 2024-12 & Resolution No. FA-2024-01 Public Fin. Auth Lease Revenue Bonds 48 4891-8536-2866.7
hillsides. As a result, when heavy rain falls in the winter, there is nothing to stop the rain from penetrating directly into the soil. In addition, waxy compounds in plants and soil that are released during fires create a natural barrier in the soil that prevents rain water from seeping deep into the ground. The result is erosion, mudslides and excess water running off the hillsides often causing flash flooding.
The occurrence of natural disasters in the City could result in substantial damage to the City and the Property which, in turn, could substantially reduce General Fund revenues and affect the ability of the City to make Base Rental Payments or cause an abatement in Base Rental Payments if the City is unable to use and occupy the Property. The City maintains liability insurance, rental interruption insurance and property casualty insurance for the Property. See the caption “THE CITY—Risk Management.” However, there can be no assurance that specific losses will be covered by insurance or, if covered, that claims will be paid in full by the applicable insurers.
Climate Change
The State has historically been susceptible to wildfires and hydrologic variability. As greenhouse gas emissions continue to accumulate in the atmosphere as a result of economic activity, climate change is expected to intensify, increasing the frequency, severity and timing of extreme weather events such as coastal storm surges, drought, wildfires, floods and heat waves, and raising sea levels. The future fiscal impact of climate change on the City is difficult to predict, but it could be significant and it could have a material adverse effect on the General Fund by requiring greater expenditures to counteract the effects of climate change or by changing the operations and activities of City residents and business establishments.
The Gonzales Climate Action Plan (the “CAP”) is designed to reinforce the City’s commitment to reducing greenhouse gas (“GHG”) emissions and demonstrate how the City will comply with near-term State GHG emission reduction standards and plan to comply with long-term targets, all while insuring its economic vitality and reinforcing social equity.
The CAP identifies sources of GHG emission from within the City’s jurisdictional/political boundary and estimates how these emissions may change over time, discusses reduction efforts and how these reduction efforts can be implemented, provides energy use, transportation, land use, water use, and solid waste strategies to reduce the City’s GHG emissions levels and consistent with State law, establishes a plan for the reduction of GHG emissions that may be used by the City as a basis to determine that a project’s incremental contribution to a cumulative GHG emission effect is not cumulatively considerable, provided the project complies with the requirements of the CAP. The CAP was initially developed in coordination with the City’s 2010 General Plan and has since been updated.
Cybersecurity
Municipal agencies, like other business entities, face significant risks relating to the use and application of computer software and hardware. Recently, there have been significant cybersecurity incidents affecting municipal agencies, including a freeze affecting computer systems of the City of Atlanta, an attack on the City of Baltimore’s 911 system, an attack on the Colorado Department of Transportation’s computers, an attack on the San Bernardino County Sheriff’s Office and an attack that resulted in the temporary closure of the Port of Los Angeles’ largest terminal.
The City has an information security policy and employs a multi-level cyber protection scheme that includes firewalls, anti-virus software, anti-spam/malware software, intrusion protection and domain name system filtering software. In addition, the City contracts with a third party vendor to monitor and augment external monitoring of the City’s computer systems. The City implements recommended strategies suggested by the vendor and makes internal computer system changes as needed. To date, the City has not experienced a significant attack on its computer operating systems. However, there is no assurance that a future attack or Packet Pg. 286 Attachment: Preliminary Official Statement (2968 : Resolution No. 2024-12 & Resolution No. FA-2024-01 Public Fin. Auth Lease Revenue Bonds 49 4891-8536-2866.7
attempted attack would not result in disruption of City operations. The City expects that any such disruptions would be temporary in nature.
Hazardous Substances
A condition that may result in the reduction in the assessed value of property, and therefore property tax revenue available to pay Base Rental Payments, would be the discovery of a hazardous substance that would limit the beneficial use of taxable property within the City. In general, the owners and operators of a property may be required by law to remedy conditions of the property relating to releases or threatened releases of hazardous substances. The Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980, sometimes referred to as “CERCLA” or the “Superfund Act,” is the most well-known and widely applicable of these laws, but State laws with regard to hazardous substances are also stringent and similar in effect. Under many of these laws, the owner or operator may be required to remedy a hazardous substance condition of property whether or not the owner or operator has anything to do with creating or handling the hazardous substance. The effect, therefore, should any of the property within the City be affected by a hazardous substance, could be to reduce the marketability and value of such property by the costs of remedying the condition, because the purchaser, upon becoming owner, will become obligated to remedy the condition just as is the seller.
The City and the Authority have not independently verified, but are not aware of, the presence of any hazardous substances on the Property. Hazardous substance liabilities may arise in the future with respect to any of the property in the City resulting from the existence, currently, of a substance presently classified as hazardous but which has not been released or the release of which is not presently threatened, or may arise in the future resulting from the existence, currently, on the parcel of a substance not presently classified as hazardous but which may in the future be so classified. Additionally, such liabilities may arise from the method of handling such substance. These possibilities could significantly affect the value of a parcel.
Economy of City and State
A deterioration in the level of economic activity in the City, the County, the State or the United States, could have a material adverse effect on the City’s general revenues or on the ability of the City to pay principal of and interest on the 2024 Bonds. See the caption “CITY FINANCIAL INFORMATION—General Economic Condition and Outlook of the City.” See the caption “STATE OF CALIFORNIA BUDGET INFORMATION” for information about the State economy and State budget.
Split Roll Initiative
An initiative measure (the “Split Roll Initiative”) to amend Article XIIIA of the State Constitution qualified for the State’s November 2020 ballot. See the caption “CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS—Article XIIIA of the State Constitution.” Although it was not adopted by State voters, the Split Roll Initiative would have based property taxes for commercial and industrial properties on periodic analyses of market values beginning in tax year 2020-21. Such market values would have been reassessed by the applicable county assessor’s office at least once every three years. The Split Roll Initiative included exceptions for businesses with a total market value of less than $2 million (adjusted for inflation), which would have continued to be subject to property taxes based on purchase price, and exempted from property tax assessments up to $500,000 of the value of personal property, or all personal property for businesses with fewer than 50 employees. Although the Split Roll Initiative was not adopted, there can be no assurance that a similar initiative will not be brought before voters in the future. The City is unable to predict how the adoption of such a future initiative would affect the level of commercial building activity within the City and the relationship between the assessed value of different land use types (i.e. residential versus commercial) in the City, or what other impacts such an initiative might have on the local economy or the City’s financial condition, including the receipt of property tax revenues.
Packet Pg. 287 Attachment: Preliminary Official Statement (2968 : Resolution No. 2024-12 & Resolution No. FA-2024-01 Public Fin. Auth Lease Revenue Bonds 50 4891-8536-2866.7
Additional City Obligations
The Base Rental Payments under the Lease Agreement are payable from funds that are lawfully available to the City. The City is currently liable for other obligations payable from general revenues of the City. The City has the authority to enter into other obligations that constitute additional claims on such general revenues, including Additional Bonds payable from a lease of the Property. To the extent that the City incurs additional obligations, the funds available to make Base Rental Payments may be decreased. See the captions “CITY FINANCIAL INFORMATION—Other Indebtedness—General Fund-Supported Obligations” and “SECURITY AND SOURCES OF PAYMENT FOR THE 2024 BONDS—Additional Bonds.” Tax-Related Issues
The Internal Revenue Code of 1986, as amended (the “Code”) imposes a number of requirements that must be satisfied in order for interest on state and local obligations, such as the 2024 Bonds, to be excludable from gross income for federal income tax purposes. These requirements include limitations on the use of 2024 Bond proceeds, limitations on the investment earnings of 2024 Bond proceeds, a requirement that certain investment earnings on 2024 Bond proceeds be paid periodically to the United States and a requirement that issuers file an information report with the Internal Revenue Service (the “IRS”). See the caption “TAX MATTERS.” The City and the Authority have covenanted in certain of the documents that are referred to in this Official Statement to comply with such requirements. Failure by any of the foregoing to comply with the requirements stated in the Code and related regulations, rulings and policies may result in the treatment of interest on the 2024 Bonds as taxable retroactively to the date of initial issuance of the 2024 Bonds. The 2024 Bonds would not be subject to higher rates of interest or acceleration if such an event were to occur.
Possible Consequence of Tax Compliance Audit
The IRS has established a general audit program to determine whether issuers of tax-exempt obligations, such as the 2024 Bonds, are in compliance with requirements of the Code that must be satisfied in order for the interest on those obligations to be, and continue to be, excluded from gross income for federal income tax purposes. As a result, organizations such as the City are subject to possible scrutiny. The primary penalty available to the IRS under the Code with respect to a tax-exempt entity engaged in improper use of taxexempt proceeds is the revocation of tax-exempt status for the applicable obligations. Although the IRS has not frequently revoked the tax-exempt status of municipal bonds, it could do so in the future. See the caption “—Tax-Related Issues.”
The City and the Authority cannot predict whether the IRS will commence an audit of the 2024 Bonds. Depending on the facts and circumstances and the type of audit involved, it is possible that an audit of the 2024 Bonds or obligations similar to the 2024 Bonds, even if the tax exemption of the 2024 Bonds is not implicated, could adversely affect the market value and liquidity of the 2024 Bonds until the audit is concluded, regardless of its ultimate outcome.
Remedies
Upon an Event of Default under the Indenture, the Trustee may exercise certain remedies under the Indenture and the Lease Agreement. In the event of a monetary default under the Indenture, the Trustee has the right to enter and take possession of the Property, and the Trustee may hold, operate and manage the Property and apply revenues therefrom toward payment of the 2024 Bonds. There can be no assurance that the Trustee will be able to realize from such actions an amount that is sufficient to pay the principal of and interest on the 2024 Bonds. In addition, the Trustee may incur significant operating costs in connection with the Property.
Packet Pg. 288 Attachment: Preliminary Official Statement (2968 : Resolution No. 2024-12 & Resolution No. FA-2024-01 Public Fin. Auth Lease Revenue Bonds 51 4891-8536-2866.7
Limitation on Trustee’s Obligations under the Indentures The Trustee has no obligation to advance its own funds to pursue any remedies. As a consequence, the Trustee’s willingness and ability to pursue any of the remedies provided in the Indenture, Lease Agreement or Assignment Agreement may be dependent upon the availability of funds from an interested party.
Additionally, the Trustee is not required to acquire possession of the Property if doing so subjects it to potential liability. There can be no assurance that the Trustee will be willing and able to perform its duties under the Indenture.
Release of Property; Additional Bonds
The Authority and the City may amend the Lease Agreement to substitute or release a portion of the Property upon compliance with all of the conditions set forth in the Lease Agreement. After a substitution or release, the portion of the Property for which the substitution or release has been effected will be released from the leasehold encumbrance of the Lease Agreement. Moreover, the City may issue Additional Bonds secured by Base Rental Payments which are increased above current levels. See the captions “SECURITY AND SOURCES OF PAYMENT FOR THE 2024 BONDS―Substitution or Release of the Property” and “SECURITY AND SOURCES OF PAYMENT FOR THE 2024 BONDS—Additional Bonds.” Although the Lease Agreement requires, among other things, that the Property, as constituted after such substitution or release, have an annual fair rental value at least equal to the maximum Base Rental Payments for the Property coming due in the then-current Fiscal Year or in any subsequent Fiscal Year, it does not require that the Property have an annual fair rental value equal to the annual fair rental value of the Property prior to the substitution release of any portion thereof. Thus, a portion of the Property could be replaced with less valuable real property, or could be released altogether. Such a substitution or release could have an adverse impact on the security for the 2024 Bonds, particularly if an event requiring abatement of the Base Rental Payments were to occur subsequent to such substitution or release.
The Indenture requires, among other things, that upon the issuance of Additional Bonds, the Lease Agreement will be amended, to the extent necessary, so as to increase the Base Rental Payments payable by the City thereunder by an aggregate amount that is sufficient to pay the principal of and interest on such Additional Bonds; provided, however, that no such amendment may be made such that the sum of such Base Rental Payments, including any increase in Base Rental Payments as a result of such amendment, plus Additional Rental Payments, in any Fiscal Year is in excess of the annual fair rental value of the applicable Property after taking into account the use of the proceeds of any Additional Bonds issued in connection therewith. See the caption “SECURITY AND SOURCES OF PAYMENT FOR THE 2024 BONDS— Additional Bonds” for a full description of the requirements that must be met in order for the City to deliver Additional Bonds.
Permanent Financing and Take-Out Financings Risk
On September 20, 2023, the USDA-RD issued a commitment and a Letter of Conditions relating to the USDA Direct Loan in order to provide permanent financing of the 2024 Project. Even after the issuance of such commitment, the USDA-RD is not unconditionally bound to purchase, or to accept delivery of, the USDA Direct Loan.
Because the principal amount the 2024 Bonds is expected to be paid from proceeds of the USDA Direct Loan, the failure by the USDA-RD to fund the USDA Direct Loan could result in a default on the 2024 Bonds. If USDA-RD does not make the USDA Direct Loan, the City has covenanted in the Lease Agreement to take all actions required to obtain a Take-Out Financing to provide funds to prepay or pay all of the principal balance of the Base Rental Payments, plus accrued interest, due and payable, on or before the two year anniversary of the date of issuance of the 2024 Bonds, to the extent not otherwise paid by the City.
Immediately upon receipt of the proceeds of a Take-Out Financing, the City covenants to apply all proceeds Packet Pg. 289 Attachment: Preliminary Official Statement (2968 : Resolution No. 2024-12 & Resolution No. FA-2024-01 Public Fin. Auth Lease Revenue Bonds 52 4891-8536-2866.7
thereof to prepay or pay all of the principal balance of the Base Rental Payments prior to maturity and such proceeds of any such financing may not be used for any other purpose. See the captions “SECURITY AND SOURCES OF PAYMENT FOR THE 2024 BONDS―Covenant to Obtain Take-Out Financing.” The breach by the City of its covenants under the Letter of Conditions or failure to meet other conditions for funding of the USDA Direct Loan could result in a decision by the USDA-RD not to provide the USDA Direct Loan. Additionally, pursuant to the Letter of Conditions, any changes in the cost of the 2024 Project, source of funds, scope of services or any other significant change (including significant changes in the City’s financial condition, operation, organizational structure or executive management) in the 2024 Project or the City must be reported to and approved by the USDA-RD, and any changes not approved by the USDA-RD could constitute cause for not funding the USDA Direct Loan.
Limitations on Enforceability
General. The enforcement of any remedies that are provided for in the Lease Agreement and the Indenture could prove both expensive and time consuming. The rights and remedies provided in the Lease Agreement and the Indenture may be limited by and are subject to: (i) the limitations on legal remedies against cities in the State, including State constitutional limits on expenditures and limitations on the enforcement of judgments against funds that are needed to serve the public welfare and interest; (ii) federal bankruptcy laws, as now or later enacted, as discussed in detail under the subcaption “—Bankruptcy” below; (iii) applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws relating to or affecting the enforcement of creditors’ rights generally, now or later in effect; (iv) equity principles which may limit the specific enforcement under State law of certain remedies; (v) the exercise by the United States of America of the powers delegated to it by the federal Constitution; and (vi) the reasonable and necessary exercise, in certain exceptional situations, of the police powers that are inherent in the sovereignty of the State and its governmental bodies in the interest of serving a significant and legitimate public purpose. Bankruptcy proceedings, or the exercise of powers by the federal or State government, if initiated, could subject the Owners of the 2024 Bonds to judicial discretion and interpretation of their rights in bankruptcy or otherwise, and consequently may entail risks of delay, limitation or modification of their rights.
The legal opinions that will be delivered concurrently with the issuance of the 2024 Bonds will be qualified, as to the enforceability of the 2024 Bonds, the Indenture, the Lease Agreement and other related documents, by bankruptcy, insolvency, reorganization, moratorium, arrangement, fraudulent conveyance and other laws relating to or affecting creditors’ rights, to the application of equitable principles, to the exercise of judicial discretion in appropriate cases, and to the limitations on legal remedies against counties in the State.
Failure by the City to pay Base Rental Payments or failure to observe and perform any other terms, covenants or conditions of the Lease Agreement for a period of 30 days after written notice of such failure and request that it be remedied has been given to the City by the Trustee, constitute Events of Default under the Indenture and permit the Trustee or the Authority to pursue the remedies that are described in the Lease Agreement and Indenture. Upon an Event of Default, there is no right under any circumstances to accelerate Base Rental Payments or otherwise declare any Base Rental Payment that is not then in default to be immediately due and payable, nor do the Authority or the Trustee have any right to re-enter or re-let the affected Property, except to the limited extent that is described in the Lease Agreement, and only to the extent of the Authority’s leasehold interest under the Ground Lease. Rather, if the City defaults on its obligation to pay Base Rental Payments with respect to such Property, the Trustee must sue to recover Base Rental Payments on an annual basis.
Alternatively, the Authority or the Trustee may terminate the Lease Agreement, retake possession of the Property and proceed against the City to recover damages pursuant to the Lease Agreement. Due to the specialized and limited nature of the Property, existing encumbrances on the Property and restrictions on the use of the Property (all as discussed under the caption “THE LEASED PROPERTY”), it is unlikely that 2024 Bond Owners would be able to generate rental income that is sufficient to make all payments of principal of Packet Pg. 290 Attachment: Preliminary Official Statement (2968 : Resolution No. 2024-12 & Resolution No. FA-2024-01 Public Fin. Auth Lease Revenue Bonds 53 4891-8536-2866.7
and interest on the 2024 Bonds when due. Moreover, the Trustee is not empowered to sell the fee interest in the Property (which is owned by the City) for the benefit of the Owners of the 2024 Bonds. Any suit for money damages against the City would be subject to limitations on legal remedies against cities in the State, including a limitation on enforcement of judgments against funds needed to serve the public welfare and interest.
Bankruptcy. Enforceability of the rights and remedies of the Owners of the 2024 Bonds, and the obligations incurred by the City, may become subject to the provisions of Title 11 of the United States Code (the “Bankruptcy Code”) and applicable bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or affecting the enforcement of creditors’ rights generally, now or later in effect, equity principles which may limit the specific enforcement under State law of certain remedies, the exercise by the United States of America of the powers delegated to it by the federal Constitution, the reasonable and necessary exercise, in certain exceptional situations, of the police powers inherent in the sovereignty of the State and its governmental bodies in the interest of serving a significant and legitimate public purpose and the limitations on remedies against cities in the State. Bankruptcy proceedings, or the exercise of powers by the federal or State government, if initiated, could subject the Owners of the 2024 Bonds to judicial discretion and interpretation of their rights in bankruptcy or otherwise, and consequently may entail risks of delay, limitation or modification of their rights. Under Chapter 9 of the Bankruptcy Code, which governs the bankruptcy proceedings of public agencies such as the City, involuntary petitions are not permitted. If the City were to file a petition under Chapter 9 of the Bankruptcy Code, the Owners of the 2024 Bonds, the Trustee and the Authority could be prohibited from taking any steps to enforce their rights under the Lease Agreement or from taking any steps to collect amounts due from the City under the Lease Agreement.
In particular, if the City were to become a debtor under the Bankruptcy Code, the City would be entitled to all of the protective provisions of the Bankruptcy Code as applicable in a Chapter 9 case. Among the adverse effects of such a bankruptcy might be: (i) the application of the automatic stay provisions of the Bankruptcy Code, which, until relief is granted, would prevent collection of payments from the City or the commencement of any judicial or other action for the purpose of recovering or collecting a claim against the City, and which could prevent the Trustee from making payments from funds in its possession; (ii) the avoidance of preferential transfers occurring during the relevant period prior to the filing of a bankruptcy petition; (iii) the existence of unsecured or secured debt which may have a priority of payment that is superior to that of Owners of the 2024 Bonds; and (iv) the possibility of the adoption of a plan (an “Adjustment Plan”) for the adjustment of the City’s various obligations over the objections of the Trustee or all of the Owners of the 2024 Bonds and without their consent, which Adjustment Plan may restructure, delay, compromise or reduce the amount of any claim of the Owners if the Bankruptcy Court finds that such Adjustment Plan is “fair and equitable” and in the best interests of creditors. The Adjustment Plans approved by the Bankruptcy Courts in connection with the bankruptcies of the cities of Vallejo and Stockton resulted in significant reductions in the amounts payable by the cities under lease revenue obligations that were substantially identical or similar to the 2024 Bonds. The City can provide no assurances about the outcome of the bankruptcy cases of other California municipalities or the nature of any Adjustment Plan if it were to file for bankruptcy.
In addition, the City could either reject one or both of the Ground Lease or the Lease Agreement or assume one or both of the Ground Lease or the Lease Agreement despite any provision of such documents that makes the bankruptcy or insolvency of the City an event of default thereunder. If the City rejects the Lease Agreement, the Trustee, on behalf of the Owners of the 2024 Bonds, would have a pre-petition unsecured claim that may be substantially limited in amount, and this claim would be treated in a manner under an Adjustment Plan over the objections of the Trustee or Owners of the 2024 Bonds. Moreover, such rejection would terminate the Lease Agreement and the City’s obligations to make payments thereunder. The City may also be permitted to assign the Ground Lease or the Lease Agreement to a third party, regardless of the terms of the transaction documents.
Packet Pg. 291 Attachment: Preliminary Official Statement (2968 : Resolution No. 2024-12 & Resolution No. FA-2024-01 Public Fin. Auth Lease Revenue Bonds 54 4891-8536-2866.7
Secondary Market
There can be no guarantee that there will be a secondary market for the 2024 Bonds, or, if a secondary market exists, that the 2024 Bonds can be sold for any particular price. Occasionally, because of general market conditions or because of adverse history or economic prospects connected with a particular issue, secondary marketing in connection with a particular issue is suspended or terminated. Additionally, prices of issues for which a market is being made will depend upon the then prevailing circumstances. Such prices could be substantially different from the original purchase price.
In addition, the City has entered into a continuing disclosure undertaking in connection with the 2024 Bonds. Any material failure to comply with such undertaking in the future may adversely affect the liquidity of the affected 2024 Bonds and their market price in the secondary market.
Initiative Measure Relating to City Revenues
On February 1, 2023, the California Secretary of State announced that a ballot initiative, designated as Initiative 1935 and known as the “Taxpayer Protection and Government Accountability Act,” had received the required number of signatures to appear on the November 5, 2024 ballot.
If approved by the voters casting a ballot at the November 5, 2024 Statewide election, Initiative 1935 would make numerous significant changes to Articles XIII, XIIIA, XIIIC and XIIID of the California Constitution to further limit the authority of local governments, and electors via the initiative process, to adopt and impose taxes and fees. See the caption “CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS.” The full text of Initiative 1935 may be viewed at the website of the California Attorney General.
Among other things:
• Initiative 1935 would amend Article XIIIC to state that every levy, charge or exaction of any kind imposed by local law is either a “tax” or an “exempt charge,” and would amend the definition of “tax” added to Article XIIIC by Proposition 26 to state that “every levy, charge, or exaction of any kind imposed by a local law that is not an “exempt charge” constitutes a tax. Initiative 1935 narrows the definition of “exempt charge” to mean a “reasonable charge for a specific local government service or product provided directly to the payor that is not provided to those not charged, and which does not exceed the actual costs [as opposed to the reasonable costs] to the local government of providing the service or product to the payor.” “Exempt charges” also encompass existing exceptions from the definition of “tax” added to Article XIIIC by Proposition 26. “Actual costs” is defined in Initiative 1935 to mean “the minimum amount necessary to reimburse the government for the cost of providing the service or product to the payor … where the amount charged is not used by the government for any purpose other than reimbursing that cost. In computing “actual cost” the maximum amount that may be imposed is the actual cost less all other sources of revenue including, but not limited to taxes, other exempt charges, grants, and state or federal funds received to provide such service or product.” Initiative 1935 would retain an exemption from the definition of “tax” for assessments, fees or charges which are subject to Article XIIID.
• Initiative 1935 would amend Article XIIIC to state that only the governing body of a local government, or an elector acting pursuant to the initiative power, has the authority to impose an exempt charge, and that exempt charges must be imposed by an ordinance specifying the type of exempt charge and the amount or rate of the exempt charge to be imposed, and passed by the governing body, other than for certain exempt charges imposed for a specific health care service. In addition, Initiative 1935 would amend Article XIIIC to prohibit any amendment to a municipal charter which provides for the imposition, extension or increase of a tax or exempt charge from being submitted to or approved by the electors.
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• Initiative 1935 would amend Article XIIIC to require the title, summary and ballot label or questions for a measure providing for the imposition of a tax to include: (a) the type and amount or rate of the tax; (b) the duration of the tax; and (c) the use of the revenue derived from the tax; and (d) if the proposed tax is a general tax, the phrase “for general government use.” In addition, no advisory measure may appear on the same ballot that would indicate that the revenue from the general tax will, could or should be used for specific purposes.
• Initiative 1935 would amend Article XIIIC to require that any special tax, whether proposed by the governing body or by an elector, be approved by a two-thirds vote of the electorate. • Initiative 1935 would amend Article XIIIC to state that the local government bears the burden of proving by clear and convincing evidence (as opposed to a preponderance of the evidence) that: (a) a levy, charge or exaction is an exempt charge and not a tax; and (b) the amount of the exempt charge is reasonable and that the amount charged does not exceed the actual cost of providing the service or product to the payor. • Initiative 1935 would amend Article XIIIC to state that any tax or exempt charge adopted after January 1, 2022, but prior to the effective date of Initiative 1935, which was not adopted in compliance with the requirements thereof is void 12 months after the effective date of Initiative 1935, if adopted, unless the tax or exempt charge is reenacted in compliance with the provisions of Initiative 1935.
The City and the Authority cannot predict whether Initiative 1935 will be approved by the voters casting a ballot at the November 5, 2024 Statewide election. If Initiative 1935 is approved, the City cannot provide any assurances as to the effect of the implementation or judicial interpretations of Initiative 1935 on the finances of the State or the City.
In September 2023, California Governor Gavin Newsom filed an Emergency Petition For Writ Of Mandate with the California Supreme Court arguing that Initiative 1935 is an unlawful attempt to revise the California Constitution and would impede the government’s ability to provide the essential functions of government. The Writ seeks the removal of Initiative 1935 from the November 2024 Statewide general election. There can be no assurance as to the timing of any California Supreme Court decision with respect to the Writ.
TAX MATTERS
General Matters
In the opinion of Kutak Rock LLP, Bond Counsel, under existing laws, regulations, rulings and judicial decisions, interest on the 2024 Bonds (including any original issue discount properly allocable to the owner of a 2024 Bond) is excludable from gross income for federal income tax purposes and is not a specific preference item for purposes of the federal alternative minimum tax imposed on individuals. The opinion described above assumes the accuracy of certain representations and compliance by the City and the Authority with covenants designed to satisfy the requirements of the Code that must be met subsequent to the issuance of the 2024 Bonds. Failure to comply with such requirements could cause interest on the 2024 Bonds to be included in gross income for federal income tax purposes retroactive to the date of issuance of the 2024 Bonds.
The City and the Authority have covenanted to comply with such requirements. Bond Counsel has expressed no opinion regarding other federal tax consequences arising with respect to the 2024 Bonds. Interest on the 2024 Bonds may affect the federal alternative minimum tax imposed on certain corporations.
The accrual or receipt of interest on the 2024 Bonds may otherwise affect the federal income tax liability of the owners of the 2024 Bonds. The extent of these other tax consequences will depend on such owners’ particular tax status and other items of income or deduction. Bond Counsel has expressed no opinion regarding any such consequences.
Packet Pg. 293 Attachment: Preliminary Official Statement (2968 : Resolution No. 2024-12 & Resolution No. FA-2024-01 Public Fin. Auth Lease Revenue Bonds 56 4891-8536-2866.7
Purchasers of the 2024 Bonds, particularly purchasers that are corporations (including S corporations, foreign corporations operating branches in the United States of America, and certain corporations subject to the alternative minimum tax imposed on corporations), property or casualty insurance companies, banks, thrifts or other financial institutions, certain recipients of social security or railroad retirement benefits, taxpayers entitled to claim the earned income credit, taxpayers entitled to claim the refundable credit in Section 36B of the Code for coverage under a qualified health plan or taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry tax-exempt obligations, should consult their tax advisors as to the tax consequences of purchasing or owning the 2024 Bonds.
Bond Counsel is also of the opinion that interest on the 2024 Bonds is exempt from State of California personal income taxes. Bond Counsel has expressed no opinion regarding other tax consequences arising with respect to the 2024 Bonds under the laws of the State of California or any other state or jurisdiction.
A copy of the form of opinion of Bond Counsel is attached hereto as Appendix D.
Original Issue Discount
The 2024 Bonds that have an original yield above their respective interest rates, as shown on the inside front cover of this Official Statement (collectively, the “Discount Bonds”), are being sold at an original issue discount. The difference between the initial public offering prices of such Discount Bonds and their stated amounts to be paid at maturity (excluding “qualified stated interest” within the meaning of Section
1.1273-1 of the Treasury Regulations) constitutes original issue discount treated in the same manner for federal income tax purposes as interest, as described above.
The amount of original issue discount that is treated as having accrued with respect to a Discount Bond is added to the cost basis of the owner of the bond in determining, for federal income tax purposes, gain or loss upon disposition of such Discount Bond (including its sale, redemption or payment at maturity).
Amounts received on disposition of such Discount Bond that are attributable to accrued original issue discount will be treated as tax-exempt interest, rather than as taxable gain, for federal income tax purposes.
Original issue discount is treated as compounding semiannually, at a rate determined by reference to the yield to maturity of each individual Discount Bond, on days that are determined by reference to the maturity date of such Discount Bond. The amount treated as original issue discount on such Discount Bond for a particular semiannual accrual period is equal to (a) the product of (i) the yield to maturity for such Discount Bond (determined by compounding at the close of each accrual period) and (ii) the amount that would have been the tax basis of such Discount Bond at the beginning of the particular accrual period if held by the original purchaser, less (b) the amount of any interest payable for such Discount Bond during the accrual period. The tax basis for purposes of the preceding sentence is determined by adding to the initial public offering price on such Discount Bond the sum of the amounts that have been treated as original issue discount for such purposes during all prior periods. If such Discount Bond is sold between semiannual compounding dates, original issue discount that would have been accrued for that semiannual compounding period for federal income tax purposes is to be apportioned in equal amounts among the days in such compounding period.
Owners of Discount Bonds should consult their tax advisors with respect to the determination and treatment of original issue discount accrued as of any date and with respect to the state and local tax consequences of owning a Discount Bond. Subsequent purchasers of Discount Bonds that purchase such bonds for a price that is higher or lower than the “adjusted issue price” of the bonds at the time of purchase should consult their tax advisors as to the effect on the accrual of original issue discount.
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Original Issue Premium
The 2024 Bonds that have an original yield below their respective interest rates, as shown on the inside front cover of this Official Statement (collectively, the “Premium Bonds”), are being sold at a premium. An amount equal to the excess of the issue price of a Premium Bond over its stated redemption price at maturity constitutes premium on such Premium Bond. A purchaser of a Premium Bond must amortize any premium over such Premium Bond’s term using constant yield principles, based on the purchaser’s yield to maturity (or, in the case of Premium Bonds callable prior to their maturity, generally by amortizing the premium to the call date, based on the purchaser’s yield to the call date and giving effect to any call premium).
As premium is amortized, the amount of the amortization offsets a corresponding amount of interest for the period, and the purchaser’s basis in such Premium Bond is reduced by a corresponding amount resulting in an increase in the gain (or decrease in the loss) to be recognized for federal income tax purposes upon a sale or disposition of such Premium Bond prior to its maturity. Even though the purchaser’s basis may be reduced, no federal income tax deduction is allowed. Purchasers of the Premium Bonds should consult their tax advisors with respect to the determination and treatment of premium for federal income tax purposes and with respect to the state and local tax consequences of owning a Premium Bond.
Backup Withholding
An owner of a 2024 Bond may be subject to backup withholding at the applicable rate determined by statute with respect to interest paid with respect to the 2024 Bonds if such owner fails to provide to any person required to collect such information pursuant to Section 6049 of the Code with such owner’s taxpayer identification number, furnishes an incorrect taxpayer identification number, fails to report interest, dividends or other “reportable payments” (as defined in the Code) properly, or, under certain circumstances, fails to provide such persons with a certified statement, under penalty of perjury, that such owner is not subject to backup withholding.
Changes in Federal and State Tax Law
From time to time, there are legislative proposals in the Congress and in the states that, if enacted, could alter or amend the federal and state tax matters referred to under this caption “TAX MATTERS” or adversely affect the market value of the 2024 Bonds. It cannot be predicted whether or in what form any such proposal might be enacted or whether if enacted it would apply to bonds issued prior to enactment. In addition, regulatory actions are from time to time announced or proposed and litigation is threatened or commenced which, if implemented or concluded in a particular manner, could adversely affect the market value of the 2024 Bonds. It cannot be predicted whether any such regulatory action will be implemented, how any particular litigation or judicial action will be resolved, or whether the 2024 Bonds or the market value thereof would be impacted thereby. Purchasers of the 2024 Bonds should consult their tax advisors regarding any pending or proposed legislation, regulatory initiatives or litigation. The opinions expressed by Bond Counsel are based on existing legislation and regulations as interpreted by relevant judicial and regulatory authorities as of the date of issuance and delivery of the 2024 Bonds, and Bond Counsel has expressed no opinion as of any date subsequent thereto or with respect to any pending legislation, regulatory initiatives or litigation.
PROSPECTIVE PURCHASERS OF THE 2024 BONDS ARE ADVISED TO CONSULT THEIR OWN TAX ADVISORS PRIOR TO ANY PURCHASE OF THE 2024 BONDS AS TO THE IMPACT OF THE CODE UPON THEIR ACQUISITION, HOLDING OR DISPOSITION OF THE 2024 BONDS.
CERTAIN LEGAL MATTERS
The validity of the 2024 Bonds and certain other legal matters are subject to the approving opinions of Kutak Rock LLP, Bond Counsel and Disclosure Counsel. A complete copy of the proposed form of Bond Packet Pg. 295 Attachment: Preliminary Official Statement (2968 : Resolution No. 2024-12 & Resolution No. FA-2024-01 Public Fin. Auth Lease Revenue Bonds 58 4891-8536-2866.7
Counsel opinion is contained in Appendix D. Bond Counsel and Disclosure Counsel will receive compensation from the City contingent upon the sale and delivery of the 2024 Bonds.
Certain legal matters will be passed upon for the City and the Authority by the City Attorney, for the Underwriter by Best Best & Krieger LLP, Los Angeles, California (“Underwriter’s Counsel”), and for the Trustee by its counsel. The fee payable to Underwriter’s Counsel is contingent upon the sale and delivery of the 2024 Bonds.
From time to time Bond Counsel serves as counsel to the Underwriter with respect to transactions other than the issuance of the 2024 Bonds.
MUNICIPAL ADVISOR
The Authority has retained NHA Advisors, LLC, San Rafael, California (the “Municipal Advisor”) as municipal advisor in connection with the sale of the 2024 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 herein.
The Municipal Advisor is an independent advisory firm and is not engaged in the business of underwriting, trading or distributing municipal or other public securities.
LITIGATION
At the time of issuance of the 2024 Bonds, the Authority and the City will deliver certificates substantially to the effect that there is no litigation then pending or threatened to restrain or enjoin the issuance of the 2024 Bonds or in any way contesting or affecting the validity of the 2024 Bonds, the Ground Lease or the Lease Agreement, any proceedings of the Authority or the City taken with respect to the delivery or sale of the 2024 Bonds, the pledge or application of any money or security provided for the payment of the 2024 Bonds, the existence or powers of the Authority or the City or the title of any officers of the Authority or the City to their respective positions, or the outcome of which could materially adversely affect the ability of the City to make the Base Rental Payments.
UNDERWRITING
Hilltop Securities Inc. (the “Underwriter”), will purchase the 2024 Bonds from the Authority at an aggregate purchase price of $_____ (representing the principal amount of the 2024 Bonds ($_____), plus/less an original issue premium/discount of $_____ and less an Underwriter’s discount of $_____).
The 2024 Bonds are offered for sale at the initial prices stated on the inside cover page of this Official Statement, which may be changed from time to time by the Underwriter. The 2024 Bonds may be offered and sold to certain dealers at prices lower than the public offering prices.
RATING
S&P Global Ratings, a Standard & Poor’s Financial Services LLC business (“S&P”), has assigned the rating of “[__]” to the 2024 Bonds.
A rating is not a recommendation to buy, sell or hold securities. Future events could have an adverse impact on the rating of the 2024 Bonds, and there is no assurance that any credit rating that is given to the 2024 Bonds will be maintained for any period of time or that a rating may not be qualified, downgraded, lowered or withdrawn entirely by S&P if, in the judgment of S&P, circumstances so warrant, nor can there be any assurance that the criteria required to achieve the rating on the 2024 Bonds will not change during the period that the 2024 Bonds remain outstanding.
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Any qualification, downward revision, lowering or withdrawal of the rating on the 2024 Bonds may have an adverse effect on the market price of the 2024 Bonds. Such rating reflects only the current views of S&P (which could change at any time), and an explanation of the significance of such rating may be obtained from S&P. Generally, rating agencies base their ratings on information and materials furnished to them (which may include information and material from the City that is not included in this Official Statement) and on investigations, studies and assumptions by the rating agencies.
The City has covenanted in its continuing disclosure undertakings to file notices of any rating changes on the 2024 Bonds with EMMA. See the caption “CONTINUING DISCLOSURE” and Appendix E.
Notwithstanding such covenant, information relating to rating changes on the 2024 Bonds may be publicly available from S&P prior to such information being provided to the City and prior to the date by which the City is obligated to file a notice of rating change. Purchasers of the 2024 Bonds are directed to S&P and its websites and official media outlets for the most current ratings with respect to the 2024 Bonds after the issuance of the 2024 Bonds.
CONTINUING DISCLOSURE
The City has agreed in a continuing disclosure undertaking for the 2024 Bonds: (1) to provide certain financial information and operating data (each, an “Annual Report”) relating to the City by not later than April 1 after the end of the City’s Fiscal Year; and (2) to provide notices of the occurrence of certain enumerated events. The Annual Reports will be filed by the City with the Municipal Securities Rulemaking Board’s Electronic Municipal Market Access System for municipal securities disclosures, which is maintained on the Internet at http://emma.msrb.org/ (“EMMA”). The notices of enumerated events will also be filed by the City with EMMA. The specific nature of the information to be contained in the Annual Reports and the notices of enumerated events is set forth in the continuing disclosure undertakings of the City. The form of the continuing disclosure undertaking for the 2024 Bonds is set forth in Appendix E.
In order to assure compliance with its continuing disclosure obligations in the future, the City has adopted a debt management policy which includes procedures governing continuing disclosure [and engaged ___ to assist with its continuing disclosure reports].
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MISCELLANEOUS
The Authority and the City have approved and authorized the preparation, execution and distribution of this Official Statement. Any statements in this Official Statement involving matters of opinion, whether or not expressly so stated, are intended as such, and are not representations of fact. This Official Statement is not to be construed as an agreement or contract among any of the City, the Authority and the purchasers or holders of any 2024 Bonds.
GONZALES PUBLIC FINANCING AUTHORITY
By:
President
CITY OF GONZALES
By:
Mayor
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APPENDIX A
DEMOGRAPHIC AND ECONOMIC INFORMATION
The following information is presented as general background data. The 2024 Bonds are payable solely from moneys of the City as described in the Official Statement. The taxing power of the City, the County, the State of California or any political subdivision thereof is not pledged to the payment of the 2024 Bonds.
The City also notes that the below information is the latest available but does not in certain instances reflect the impact of the COVID-19 pandemic. See the Official Statement under the caption “THE CITY— COVID-19 Outbreak.” Accordingly, the historical information below does not necessarily reflect present economic conditions and future information could be significantly different from the historical information below.
Introduction
City of Gonzales. The City is located in the heart of California’s Salinas Valley, in the northeastern portion of the County, approximately 17 miles southeast of the County seat of Salinas and 35 miles east of the popular tourist destinations of Monterey and Carmel-by-the-Sea. U.S. Highway 101, a major north-south artery through coastal California, runs through the City before continuing north to Silicon Valley (approximately 75 miles away) and San Francisco. The City, which was founded in 1836 and incorporated in 1947 under the general laws of the State, and has an area of approximately 2 square miles. The population of the City is estimated to be approximately 8,300 as of calendar year 2023.
The City operates under a Council/Manager form of government. Although previously elected at large, commencing in 2024, Council Members will be elected on a by-district basis from four single-member Council districts (commencing with District 2 in the November 2024 election), with the Mayor continuing to be elected at large. Council Members serve four-year alternating terms, while the Mayor’s term is for two years. The City Council selects a City Manager to administer the affairs of the City. The City Manager is responsible for implementing the policies, ordinances and directives of the City Council and for overseeing the daily operations of the City.
The City provides a wide range of municipal services, including parks and recreation, community development, building regulations, public works (water and sewer) and public safety (police and fire). The City also contracts for library and other services from the County.
Monterey County. The County was established by an act of the State Legislature on February 18, 1850 as one of California’s original 27 counties. Located in the central portion of the State, the County covers 3,771 square miles. The County has a population of approximately 430,000 and a County seat in the City of Salinas. The County is a major agricultural center, particularly with respect to lettuce, artichokes and other vegetables, as well as a major tourism destination as the home of coastal cities such as Monterey and Carmelby-the-Sea.
Population
The table below summarizes population of the City, the County, and the State of California for the last five calendar years.
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CITY OF GONZALES, MONTEREY COUNTY AND CALIFORNIA
Population
Year City of Gonzales Monterey County State of California 2019 8,574 440,199 39,605,361
2020 8,528 440,393 39,648,938
2021 8,491 435,397 39,288,510
2022 8,351 433,964 39,078,674
2023 8,300 430,368 38,940,231
Source: California Department of Finance, E-4 Population Estimate for Cities, Counties, and the State, 2013-23, with 2010 Census Benchmark.
Employment
The following table summarizes historical employment and unemployment for the County, the State of California and the United States for the last five calendar years.
MONTEREY COUNTY, CALIFORNIA AND UNITED STATES
Civilian Labor Force, Employment, and Unemployment
(Annual Averages)
Year Area Labor Force Employment Unemployment
Unemployment
Rate(1)
2019 Monterey County 221,200 207,200 14,000 6.3
California 19,353,700 18,550,500 803,200 4.2
United States 163,539,000 157,538,000 6,001,000 3.7
2020 Monterey County 214,200 190,300 23,900 11.1
California 18,821,200 16,913,100 1,908,100 10.1
United States 160,742,000 147,795,000 12,947,000 8.1
2021 Monterey County 211,800 194,200 17,500 8.3
California 19,263,900 18,442,400 821,500 4.3
United States 162,075,000 155,761,000 6,314,000 3.9
2022 Monterey County 217,200 203,900 13,200 6.1
California 19,353,700 18,550,500 803,200 4.2
United States 163,539,000 157,538,000 6,001,000 3.7
2023 Monterey County 217,700 202,400 15,300 7.0
California 18,821,200 16,913,100 1,908,100 10.1
United States 160,742,000 147,795,000 12,947,000 8.1
(1) The unemployment rate is computed from unrounded data; therefore, it may differ from rates computed from rounded figures available in this table.
Source: California Employment Development Department, Monthly Labor Force Data for Counties, Annual Average 2013-23, March 2023 Benchmark, and US Department of Labor.
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Major Industries in the County
The table below sets forth the ten largest industries by employment in Monterey County in 2022, the latest date for which such information is available.
MONTEREY COUNTY
Major Industries – 2022
Industry Number of Employees
Agriculture 76,629
Retail Trade 7,461
Construction and Mining 7,314
Manufacturing 5,183
Wholesale Trade 5,565
Finance and Insurance 2,229
Real Estate, Rental and Leasing 2,042
Services 65,967
Source: Monterey County Fiscal Year 2023 audited financial statements.
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APPENDIX B
SUMMARY OF PRINCIPAL LEGAL DOCUMENTS
The following is a summary of certain definitions and provisions of the Lease Agreement and the Indenture which are not described elsewhere in the Official Statement. This summary does not purport to be comprehensive and reference should be made to the Lease Agreement and the Indenture for a full and complete statement of their provisions.
[TO COME FROM KUTAK ROCK]
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APPENDIXC
AUDITED FINANCIAL STATEMENTS
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APPENDIX D
FORM OF BOND COUNSEL OPINION
Upon the issuance of the 2024 Bonds, Kutak Rock LLP, Bond Counsel, proposes to render its final approving opinion in substantially the following form:
June __, 2024
Gonzales Public Financing Authority
c/o City of Gonzales
147 Fourth Street
Gonzales, California 93926
Re: $_____ Gonzales Public Financing Authority Lease Revenue Bonds, Series 2024A Members of the Board of Directors:
We have acted as Bond Counsel to the Gonzales Public Financing Authority (the “Authority”) in connection with the issuance by the Authority of its Lease Revenue Bonds, Series 2024A in the aggregate principal amount of $_____ (the “2024 Bonds”). In connection therewith, we have reviewed: (i) the Indenture, dated as of June 1, 2024 (the “Indenture”), by and among U.S. Bank Trust Company, National Association, as trustee (the “Trustee”), the Authority and the City of Gonzales (the “City”); (ii) the Lease Agreement, dated as of June 1, 2024 (the “Lease Agreement”), by and between the City and the Authority; (iii) the Ground Lease, dated as of June 1, 2024 (the “Ground Lease”), by and between the City and the Authority; (iv) the Assignment Agreement, dated as of June 1, 2024 (the “Assignment Agreement”), by and between the Authority and the Trustee; (v) the Tax Certificate of the Authority and the City, dated as of the date hereof (the “Tax Certificate”); and (vi) opinions of counsel to the Authority, the City and the Trustee, certificates of the Authority, the City and the Trustee and others and such other documents, opinions and matters to the extent that we deemed necessary to render the opinions set forth herein.
Capitalized terms that are not otherwise defined herein have the meanings ascribed thereto in the Indenture.
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 obligation of the City to pay Base Rental Payments in accordance with the terms of the Lease Agreement is a valid and binding obligation payable from the funds of the City lawfully available therefor. The obligation of the City to make Base Rental Payments under the Lease Agreement does not constitute a debt of the City, the State of California (the “State”) or any political subdivision thereof within the meaning of any statutory or constitutional debt limitation or restriction and does not constitute an obligation for which the City is obligated to levy or pledge any form of taxation or for which the City has levied or pledged any form of taxation.
2. The Lease Agreement and the Indenture have been duly authorized, executed and delivered by the City and the Authority and constitute valid and legally binding agreements of the City and the Authority enforceable against the City and the Authority in accordance with their terms, except that we express no opinion as to any provisions in the Lease Agreement or the Indenture with respect to indemnification, penalty, contribution, choice of law, choice of forum or waiver.
3. Interest received by the owners of the 2024 Bonds is excludable from gross income for federal income tax purposes and is not a specific preference item for purposes of the federal alternative minimum tax imposed on individuals. The opinions set forth in the preceding sentence assume the accuracy of certain representations of the Authority and the City with respect to certain covenants designed to satisfy the requirements of the Internal Revenue Code of 1986, as amended (the “Code”), that must be met subsequent to the issuance of the 2024 Bonds. Failure to comply with such requirements could cause such interest to be included in gross income for Packet Pg. 304 Attachment: Preliminary Official Statement (2968 : Resolution No. 2024-12 & Resolution No. FA-2024-01 Public Fin. Auth Lease Revenue Bonds D-2
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federal income tax purposes or could otherwise adversely affect such opinions retroactive to the date of issuance of the 2024 Bonds. The Authority and the City have covenanted to comply with such requirements. We express no opinion regarding other federal tax consequences arising with respect to the 2024 Bonds. Bond Counsel is further of the opinion that, under the existing laws of the State, interest on the 2024 Bonds is exempt from personal income taxes of the State under present State law. Interest on the 2024 Bonds may affect the federal alternative minimum tax imposed on certain corporations.
In rendering the opinions expressed in paragraph 4 above, we are relying upon representations and covenants of the Authority and the City in the Indenture and in the Tax Certificate concerning the use of the facilities financed with 2024 Bond proceeds, the investment and use of 2024 Bond proceeds and the rebate, if any, to the federal government of certain earnings thereon. In addition, we have assumed that all such representations are true and correct and that the Authority and the City will comply with such covenants. We express no opinion with respect to the exclusions of the interest from gross income under Section 103(a) of the Code in the event that any such representations are untrue or the Authority or the City fail to comply with such covenants. Except as stated above, we express no opinion as to any federal tax consequences of the receipt of interest on, or the ownership or disposition of, the 2024 Bonds.
Certain agreements, requirements and procedures contained or referred to in the Indenture, the Tax Certificate and other relevant documents may be changed, and certain actions (including, without limitation, defeasance of the 2024 Bonds) may be taken or omitted under the circumstances and subject to the terms and conditions set forth in such documents. No opinion is expressed herein as to any payment of interest on the 2024 Bonds if any such change occurs or action is taken or omitted to be taken upon the advice or approval of counsel other than ourselves.
Further, we note that the rights of the owners of the 2024 Bonds and the enforceability of the 2024 Bonds or the Indenture and the Lease Agreement may be subject to bankruptcy, insolvency, reorganization, arrangement, fraudulent conveyance, moratorium and other similar laws affecting creditors’ rights, to the application of equitable principles, to the exercise of judicial discretion in appropriate cases and to the limitations on legal remedies against governmental entities in the State. We express no opinion with respect to any indemnification, contribution, choice of law, choice of forum or waiver provisions contained in the foregoing documents. Finally, we undertake no responsibility herein for the accuracy, completeness or fairness of the Official Statement or other offering material relating to the 2024 Bonds and express no opinion with respect thereto.
The opinions that are expressed herein 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 any such actions or events are taken or do occur. Our engagement with respect to the 2024 Bonds terminates on the date of their issuance.
We have not made or undertaken to make an investigation of the state of title to any of the real property described in the Lease Agreement, the Ground Lease and the Assignment Agreement or of the accuracy or sufficiency of the description of such property contained therein, and we express no opinion with respect to such matters.
Our opinion is limited to matters governed by the laws of the State and federal law. We assume no responsibility with respect to the applicability or the effect of the laws of any other jurisdiction.
Respectfully submitted,
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APPENDIX E
FORM OF CONTINUING DISCLOSURE CERTIFICATE
Upon issuance of the 2024 Bonds, the City proposes to enter into a Continuing Disclosure Certificate in substantially the following form:
This Continuing Disclosure Certificate (the “Disclosure Certificate”) is executed and delivered by the City of Gonzales (the “City”) in connection with the issuance by the Gonzales Public Financing Authority (the “Authority”) of its $_____ Lease Revenue Bonds, Series 2024A (the “Bonds”). The Bonds are being issued pursuant to an Indenture, dated as of June 1, 2024 (the “Indenture”), by and among the City, the Authority and U.S.
Bank Trust Company, National Association, as trustee (the “Trustee”). The City covenants and agrees as follows:
1. Purpose of this Disclosure Certificate. This Disclosure Certificate is being executed and delivered by the City for the benefit of the Holders and Beneficial Owners of the Bonds and in order to assist the Participating Underwriter in complying with the Rule.
2. Definitions. In addition to the definitions that are set forth in the Indenture, which apply to any capitalized term that is used in this Disclosure Certificate unless otherwise defined in this Section, the following capitalized terms shall have the following meanings:
Annual Report. The term “Annual Report” means any Annual Report provided by the City pursuant to, and as described in, Sections 3 and 4 of this Disclosure Certificate.
Beneficial Owner. The term “Beneficial Owner” means any person which: (a) has the power, directly or indirectly, to vote or consent with respect to, or to dispose of ownership of, any Bonds (including persons holding Bonds through nominees, depositories or other intermediaries); or (b) is treated as the owner of any Bonds for federal income tax purposes.
EMMA. The term “EMMA” means the Municipal Securities Rulemaking Board’s Electronic Municipal Market Access System for municipal securities disclosures, maintained on the Internet at http://emma.msrb.org/.
Financial Obligation. The term “Financial Obligation” means a: (A) debt obligation; (B) derivative instrument entered into in connection with, or pledged as security or a source of payment for, an existing or planned debt obligation; or (C) guarantee of (A) or (B). The term “Financial Obligation” does not include municipal securities as to which a final official statement has been provided to the Municipal Securities Rulemaking Board consistent with the Rule.
Fiscal Year. The term “Fiscal Year” means the one-year period ending on the last day of June of each year.
Holder. The term “Holder” means a registered owner of the Bonds.
Listed Events. The term “Listed Events” means any of the events listed in Sections 5(a) and (b) of this Disclosure Certificate.
Official Statement. The term “Official Statement” means the Official Statement dated May __, 2024 relating to the Bonds.
Participating Underwriter. The term “Participating Underwriter” means any of the original underwriters of the Bonds required to comply with the Rule in connection with offering of the Bonds.
Rule. The term “Rule” means Rule 15c2-12 adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time.
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3. Provision of Annual Reports.
(a) The City shall provide not later than each April 1 following the end of its Fiscal Year (commencing April 1, 2025 with the Fiscal Year 2024 Annual Report) to EMMA an Annual Report relating to the immediately preceding Fiscal Year which is consistent with the requirements of Section 4 of this Disclosure Certificate, which Annual Report may be submitted as a single document or as separate documents comprising a package, and may cross-reference other information as provided in Section 4 of this Disclosure Certificate. (b) If the City is unable to provide to EMMA an Annual Report by the date required in subsection (a), the City shall send in a timely manner to EMMA a notice in the manner prescribed by the Municipal Securities Rulemaking Board.
4. Content of Annual Reports. The Annual Report shall contain or incorporate by reference the following:
(a) Audited financial statements of the City 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 are not available by the time the Annual Report is required to be filed pursuant to Section 3(a), the Annual Report shall contain unaudited financial statements in a format similar to the financial statements contained in the final Official Statement, and the audited financial statements shall be filed in the same manner as the Annual Report when they come available. (b) To the extent not included in the audited financial statements provided pursuant to the foregoing Section 4(a), the Annual Report shall contain the following information as of the end of the prior Fiscal Year:
(i) The principal amount of the Bonds outstanding;
(ii) An update for the most recent completed Fiscal Year only of the information in Tables 1, 2, 3 and 4 under the caption “CITY FINANCIAL INFORMATION” in the Official Statement.
The items described 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; provided, that if any document included by reference is a final official statement, it must be available from the Municipal Securities Rulemaking Board; and provided further, that the City shall clearly identify each such document so included by reference.
5. Reporting of Significant Events.
(a) Pursuant to the provisions of this Section 5, the City shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Bonds in a timely manner not more than ten (10) Business Days after the event:
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, the issuance by the Internal Revenue Service of proposed or final determinations of taxability or Notices of Proposed Issue (IRS Form 5701 TEB);
6. tender offers;
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7. defeasances;
8. ratings changes;
9. bankruptcy, insolvency, receivership or similar proceedings. Note: For the purposes of the event identified in subparagraph (9), the event is considered to occur when any of the following occur: the appointment of a receiver, fiscal agent or similar officer for an obligated person in a proceeding under the U.S. Bankruptcy Code or in any other proceeding under state or federal law in which a court or governmental authority has assumed jurisdiction over substantially all of the assets or business of the obligated person, or if such jurisdiction has been assumed by leaving the existing governmental body and officials or officers in possession but subject to the supervision and orders of a court or governmental authority, or the entry of an order confirming a plan of reorganization, arrangement or liquidation by a court or governmental authority having supervision or jurisdiction over substantially all of the assets or business of the obligated person; and
10. default, event of acceleration, termination event, modification of terms or other similar events under the terms of a Financial Obligation of the City, any of which reflect financial difficulties. (b) Pursuant to the provisions of this Section 5, the City shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Bonds, if material, in a timely manner not more than ten (10) Business Days after occurrence:
1. unless described in Section 5(a)(5), other notices or determinations by the Internal Revenue Service with respect to the tax status of the Bonds or other events affecting the tax status of the Bonds;
2. modifications to the rights of Bond holders;
3. Bond calls;
4. release, substitution or sale of property securing repayment of the Bonds;
5. non-payment related defaults;
6. the consummation of a merger, consolidation, or acquisition involving the City or the sale of all or substantially all of the assets of the City, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms;
7. appointment of a successor or additional trustee or the change of the name of a trustee; and
8. incurrence of a Financial Obligation of the City, if material, or agreement to covenants, events of default, remedies, priority rights, or other similar terms of a Financial Obligation of the City, any of which affect security holders, if material.
(c) If the City determines that knowledge of the occurrence of a Listed Event under Section 5(b) would be material under applicable federal securities laws, the City shall file a notice of such occurrence with EMMA in a timely manner not more than ten (10) Business Days after the event.
6. [Reserved].
7. Termination of Obligation. The City’s obligations under this Disclosure Certificate with respect to the Bonds shall terminate upon the legal defeasance, prior redemption or payment in full of all of the Bonds. If any 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(a).
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8. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Certificate, the City may amend this Disclosure Certificate, and any provision of this Disclosure Certificate may be waived, provided that, in the opinion of nationally recognized bond counsel, such amendment or waiver is permitted by the Rule.
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 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 notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Certificate, the City shall not thereby have any obligation under this Disclosure Certificate to update such information or include it in any future notice of occurrence of a Listed Event.
10. Default. In the event of a failure of the City to comply with any provision of this Disclosure Certificate or any Holders or Beneficial Owner of the Bonds may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the City to comply with its obligations under this Disclosure Certificate. A default under this Disclosure Certificate shall not be deemed an Event of Default under the Indenture or the Lease Agreement, and the sole remedy under this Disclosure Certificate in the event of any failure of the City to comply with this Disclosure Certificate shall be an action to compel performance.
No Holder or Beneficial Owner of the Bonds may institute such action, suit or proceeding to compel performance unless they shall have first delivered to the City satisfactory written evidence of their status as such, and a written notice of and request to cure such failure, and the City shall have refused to comply therewith within a reasonable time.
11. Beneficiaries. This Disclosure Certificate shall inure solely to the benefit of the City, the Participating Underwriter and Holders and Beneficial Owners from time to time of the Bonds, and shall create no rights in any other person or entity.
Dated: May __, 2024 CITY OF GONZALES
By:
Its: City Manager
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4891-8536-2866.7
APPENDIX F
BOOK-ENTRY ONLY SYSTEM
The information in this section concerning DTC and DTC’s book-entry only system has been obtained from sources that the City and the Authority believe to be reliable, but the City and the Authority take no responsibility for the completeness or accuracy thereof. The following description of the procedures and record keeping with respect to beneficial ownership interests in the 2024 Bonds, payment of principal, premium, if any, accreted value and interest on the 2024 Bonds to DTC Participants or Beneficial Owners, confirmation and transfers of beneficial ownership interests in the 2024 Bonds and other related transactions by and between DTC, the DTC Participants and the Beneficial Owners is based solely on information provided by DTC.
1. The Depository Trust Company (“DTC”), New York, NY, will act as securities depository for the 2024 Bonds (the “Securities”). The Securities 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 2024 Bond will be issued for each maturity of the Securities in the aggregate principal amount of such maturity, and will be deposited with DTC. If, however, the aggregate principal amount of any issue exceeds $500 million, one certificate will be issued with respect to each $500 million of principal amount, and an additional certificate will be issued with respect to any remaining principal amount of such issue.
2. DTC, the world’s largest securities depository, is a limited-purpose trust company organized under the New York Banking Law, a “banking organization” within the meaning of the New York Banking Law, a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code, and a “clearing agency” registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC’s participants (“Direct Participants”) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants’ accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation (“DTCC”). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing 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 is rated “AA+” by Standard & Poor’s. 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.
3. Purchases of Securities under the DTC system must be made by or through Direct Participants, which will receive a credit for the Securities on DTC’s records. The ownership interest of each actual purchaser of each Security (“Beneficial Owner”) is in turn to be recorded on the Direct and Indirect Participants’ records. Beneficial Owners will not receive written confirmation from DTC of their purchase.
Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Securities 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 Securities, except in the event that use of the book-entry system for the Securities is discontinued.
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4. To facilitate subsequent transfers, all Securities 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 Securities with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Securities; DTC’s records reflect only the identity of the Direct Participants to whose accounts such Securities are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers.
5. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of Securities may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Securities, such as redemptions, tenders, defaults, and proposed amendments to the Security documents. For example, Beneficial Owners of Securities may wish to ascertain that the nominee holding the Securities for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of notices be provided directly to them.
6. Redemption notices will be sent to DTC. If less than all of the Securities within a maturity are being redeemed, DTC’s practice is to determine by lot the amount of the interest of each Direct Participant in such maturity to be redeemed.
7. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to Securities unless authorized by a Direct Participant in accordance with DTC’s MMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the Authority as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.’s consenting or voting rights to those Direct Participants to whose accounts Securities are credited on the record date (identified in a listing attached to the Omnibus Proxy).
8. Principal, redemption price and interest payments on the Securities will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC’s practice is to credit Direct Participants’ accounts upon DTC’s receipt of funds and corresponding detail information from the Authority or the Paying Agent, on payable date in accordance with their respective holdings shown on DTC’s records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in “street name,” and will be the responsibility of such Participant and not of DTC, the Paying Agent, or the Authority, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal, redemption price and interest payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the Authority or the Paying Agent, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants.
9. If applicable, a Beneficial Owner will give notice to elect to have its Securities purchased or tendered, through its Participant, to tender/remarketing agent, and will effect delivery of such Securities by causing the Direct Participant to transfer the Participant’s interest in the Securities, on DTC’s records, to tender/remarketing agent. The requirement for physical delivery of Securities in connection with an optional tender or a mandatory purchase will be deemed satisfied when the ownership rights in the Securities are transferred by Direct Participants on DTC’s records and followed by a book-entry credit of tendered Securities to tender/remarketing agent’s DTC account.
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10. DTC may discontinue providing its services as depository with respect to the Securities at any time by giving reasonable notice to the Authority or the Paying Agent. Under such circumstances, in the event that a successor depository is not obtained, 2024 Bonds are required to be printed and delivered.
11. The Authority may decide to discontinue use of the system of book-entry-only transfers through DTC (or a successor securities depository). In that event, 2024 Bonds will be printed and delivered to DTC.
Packet Pg. 312 Attachment: Preliminary Official Statement (2968 : Resolution No. 2024-12 & Resolution No. FA-2024-01 Public Fin. Auth Lease Revenue Bonds 1 4888-3877-2410.1
CONTINUING DISCLOSURE CERTIFICATE
This Continuing Disclosure Certificate (the “Disclosure Certificate”) is executed and delivered by the City of Gonzales (the “City”) in connection with the issuance by the Gonzales Public Financing Authority (the “Authority”) of its $_____ Lease Revenue Bonds, Series 2024A (the “Bonds”). The Bonds are being issued pursuant to an Indenture, dated as of May 1, 2024 (the “Indenture”), by and among the City, the Authority and U.S. Bank Trust Company, National Association, as trustee (the “Trustee”). The City covenants and agrees as follows:
1. Purpose of this Disclosure Certificate. This Disclosure Certificate is being executed and delivered by the City for the benefit of the Holders and Beneficial Owners of the Bonds and in order to assist the Participating Underwriter in complying with the Rule.
2. Definitions. In addition to the definitions that are set forth in the Indenture, which apply to any capitalized term that is used in this Disclosure Certificate unless otherwise defined in this Section, the following capitalized terms shall have the following meanings:
Annual Report. The term “Annual Report” means any Annual Report provided by the City pursuant to, and as described in, Sections 3 and 4 of this Disclosure Certificate.
Beneficial Owner. The term “Beneficial Owner” means any person which: (a) has the power, directly or indirectly, to vote or consent with respect to, or to dispose of ownership of, any Bonds (including persons holding Bonds through nominees, depositories or other intermediaries); or (b) is treated as the owner of any Bonds for federal income tax purposes.
EMMA. The term “EMMA” means the Municipal Securities Rulemaking Board’s Electronic Municipal Market Access System for municipal securities disclosures, maintained on the Internet at http://emma.msrb.org/.
Financial Obligation. The term “Financial Obligation” means a: (A) debt obligation; (B) derivative instrument entered into in connection with, or pledged as security or a source of payment for, an existing or planned debt obligation; or (C) guarantee of (A) or (B). The term “Financial Obligation” does not include municipal securities as to which a final official statement has been provided to the Municipal Securities Rulemaking Board consistent with the Rule.
Fiscal Year. The term “Fiscal Year” means the one-year period ending on the last day of June of each year.
Holder. The term “Holder” means a registered owner of the Bonds.
Listed Events. The term “Listed Events” means any of the events listed in Sections 5(a) and (b) of this Disclosure Certificate.
Official Statement. The term “Official Statement” means the Official Statement dated May __, 2024 relating to the Bonds.
Participating Underwriter. The term “Participating Underwriter” means any of the original underwriters of the Bonds required to comply with the Rule in connection with offering of the Bonds.
Packet Pg. 313 Attachment: Continuing Disclosure Certificate (2968 : Resolution No. 2024-12 & Resolution No. FA-2024-01 Public Fin. Auth Lease Revenue 2 4888-3877-2410.1
Rule. The term “Rule” means Rule 15c2-12 adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time.
3. Provision of Annual Reports.
(a) The City shall provide not later than each April 1 following the end of its Fiscal Year (commencing April 1, 2025 with the Fiscal Year 2024 Annual Report) to EMMA an Annual Report relating to the immediately preceding Fiscal Year which is consistent with the requirements of Section 4 of this Disclosure Certificate, which Annual Report may be submitted as a single document or as separate documents comprising a package, and may cross-reference other information as provided in Section 4 of this Disclosure Certificate.
(b) If the City is unable to provide to EMMA an Annual Report by the date required in subsection (a), the City shall send in a timely manner to EMMA a notice in the manner prescribed by the Municipal Securities Rulemaking Board.
4. Content of Annual Reports. The Annual Report shall contain or incorporate by reference the following:
(a) Audited financial statements of the City 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 are not available by the time the Annual Report is required to be filed pursuant to Section 3(a), the Annual Report shall contain unaudited financial statements in a format similar to the financial statements contained in the final Official Statement, and the audited financial statements shall be filed in the same manner as the Annual Report when they come available. (b) To the extent not included in the audited financial statements provided pursuant to the foregoing Section 4(a), the Annual Report shall contain the following information as of the end of the prior Fiscal Year:
(i) The principal amount of the Bonds outstanding;
(ii) An update for the most recent completed Fiscal Year only of the information in Tables 1, 2, 3 and 4 under the caption “CITY FINANCIAL INFORMATION” in the Official Statement.
The items described 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; provided, that if any document included by reference is a final official statement, it must be available from the Municipal Securities Rulemaking Board; and provided further, that the City shall clearly identify each such document so included by reference.
5. Reporting of Significant Events.
(a) Pursuant to the provisions of this Section 5, the City shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Bonds in a timely manner not more than ten (10) Business Days after the event:
Packet Pg. 314 Attachment: Continuing Disclosure Certificate (2968 : Resolution No. 2024-12 & Resolution No. FA-2024-01 Public Fin. Auth Lease Revenue 3 4888-3877-2410.1
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, the issuance by the Internal Revenue Service of proposed or final determinations of taxability or Notices of Proposed Issue (IRS Form 5701 TEB);
6. tender offers;
7. defeasances;
8. ratings changes;
9. bankruptcy, insolvency, receivership or similar proceedings. Note:
For the purposes of the event identified in subparagraph (9), the event is considered to occur when any of the following occur: the appointment of a receiver, fiscal agent or similar officer for an obligated person in a proceeding under the U.S. Bankruptcy Code or in any other proceeding under state or federal law in which a court or governmental authority has assumed jurisdiction over substantially all of the assets or business of the obligated person, or if such jurisdiction has been assumed by leaving the existing governmental body and officials or officers in possession but subject to the supervision and orders of a court or governmental authority, or the entry of an order confirming a plan of reorganization, arrangement or liquidation by a court or governmental authority having supervision or jurisdiction over substantially all of the assets or business of the obligated person; and
10. default, event of acceleration, termination event, modification of terms or other similar events under the terms of a Financial Obligation of the City, any of which reflect financial difficulties.
(b) Pursuant to the provisions of this Section 5, the City shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Bonds, if material, in a timely manner not more than ten (10) Business Days after occurrence:
1. unless described in Section 5(a)(5), other notices or determinations by the Internal Revenue Service with respect to the tax status of the Bonds or other events affecting the tax status of the Bonds;
2. modifications to the rights of Bond holders;
3. Bond calls;
4. release, substitution or sale of property securing repayment of the Bonds;
5. non-payment related defaults;
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6. the consummation of a merger, consolidation, or acquisition involving the City or the sale of all or substantially all of the assets of the City, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms;
7. appointment of a successor or additional trustee or the change of the name of a trustee; and
8. incurrence of a Financial Obligation of the City, if material, or agreement to covenants, events of default, remedies, priority rights, or other similar terms of a Financial Obligation of the City, any of which affect security holders, if material. (c) If the City determines that knowledge of the occurrence of a Listed Event under Section 5(b) would be material under applicable federal securities laws, the City shall file a notice of such occurrence with EMMA in a timely manner not more than ten (10) Business Days after the event.
6. [Reserved].
7. Termination of Obligation. The City’s obligations under this Disclosure Certificate with respect to the Bonds shall terminate upon the legal defeasance, prior redemption or payment in full of all of the Bonds. If any 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(a).
8. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Certificate, the City may amend this Disclosure Certificate, and any provision of this Disclosure Certificate may be waived, provided that, in the opinion of nationally recognized bond counsel, such amendment or waiver is permitted by the Rule.
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 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 notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Certificate, the City shall not thereby have any obligation under this Disclosure Certificate to update such information or include it in any future notice of occurrence of a Listed Event.
10. Default. In the event of a failure of the City to comply with any provision of this Disclosure Certificate or any Holders or Beneficial Owner of the Bonds may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the City to comply with its obligations under this Disclosure Certificate. A default under this Disclosure Certificate shall not be deemed an Event of Default under the Indenture or the Lease Agreement, and the sole remedy under this Disclosure Certificate in the event of any failure of the City to comply with this Disclosure Certificate shall be an action to compel performance.
No Holder or Beneficial Owner of the Bonds may institute such action, suit or proceeding to compel performance unless they shall have first delivered to the City satisfactory written evidence of their status as such, and a written notice of and request to cure such failure, and the City shall have refused to comply therewith within a reasonable time.
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11. Beneficiaries. This Disclosure Certificate shall inure solely to the benefit of the City, the Participating Underwriter and Holders and Beneficial Owners from time to time of the Bonds, and shall create no rights in any other person or entity.
Dated: May __, 2024 CITY OF GONZALES
By:
Its: City Manager
Packet Pg. 317 Attachment: Continuing Disclosure Certificate (2968 : Resolution No. 2024-12 & Resolution No. FA-2024-01 Public Fin. Auth Lease Revenue Packet Pg. 318 Attachment: Legal Notice of Public Hearing (2968 : Resolution No. 2024-12 & Resolution No. FA-2024-01 Public Fin. Auth Lease Revenue Bonds City of Gonzales
FINANCE DEPARTMENT
STAFF REPORT
TO: Honorable Mayor Rios and City Council
DATE: May 6, 2024
FROM: Mike Howard, Finance Director
THROUGH: Carmen Gil, City Manager
SUBJECT: Fiscal Year 2022-2023 Audited Financial Statements & Management Report
RECOMMENDATION
It is recommended that the City Council and Agency Board accept the City and Successor Agency’s Audited Financial Statements and Management Report for Fiscal Year Ending June 30, 2023.
BACKGROUND
The State of California Government code (sections 25250 & 25253) require all general-purpose local government to issue an annual report on the financial position and activities of that government. The report must be presented in conformance with generally accepted accounting principles (GAAP) and must be audited by an independent firm of certified public accountants (CPA) in conformance with generally accepted auditing standards (GAGAS). The goal of the audit by an independent firm is to provide reasonable assurance that the accounting transactions, practices, and procedures result in fair presentation of the financial position of the organization. In addition, the audit provides the same type of assurance about management’s assertions about the adequacy of internal accounting controls to safeguard the assets of the entities.
REVIEW AND ANALYSIS
The independent auditor has rendered an unqualified audit opinion indicating that the City and Successor Agency are materially in compliance and has accounting records that properly reflect the financial position of those entities.
In addition to the audited financial statements, the auditors were required to perform what is called a Single Audit. This audit is required when the City has Federal Grant expenditures greater than $750,000.
AGENDA
ITEM
12 Packet Pg. 319
Explain Recommendation and How it Supports the Vision
Gonzales will continue to be a safe, clean, family-friendly community, diverse in its heritage, and committed to working collaboratively to preserve and retain its small town charm.
Explain: The annual audit is important to make sure that the financial structure of the City is sound, and to identify any issues that might need correction. This is important because it is necessary to keep a close watch on the resources needed to carry out the Mission.
Explain how the Recommendation Directly Implements the Mission The City Council and Staff of the City of Gonzales will realize our Vision by providing the leadership, commitment and resources necessary to provide excellent services that enhance the quality of life of our diverse community. X Yes _____No _____ NA
Explain: Please see explanation above for the Vision.
Strong fiscal policies allow us to provide appropriate infrastructure for:
• Public Safety X Yes ____ No ____NA
• Housing X Yes ____ No ____NA
• Recreation X Yes ____ No ____NA
• Environment X Yes ____ No ____NA
• Education X Yes ____ No ____NA
Explain: Please see explanation above.
ALTERNATIVES
There are no alternatives to the annual audit; they are required per State law.
BUDGET IMPACT
Please see attached audit.
CONCLUSION
It is recommended that the City Council and Agency Board accept the City and Successor Agency’s Audited Financial Statements and Management Report for Fiscal Year Ending June 30, 2023.
Attachments:
1. 2023 Gonzales Financial Statements
2. 2023 Gonzales Management Letter
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CITY OF GONZALES
INDEPENDENT AUDITOR’S REPORT
AND
FINANCIAL
STATEMENTS
JUNE 30, 2023
Packet Pg. 321 Attachment: 2023 Gonzales Financial Statements (2965 : Fiscal Year 2022-2023 Audited Financial Statements & Management Report)
TABLE OF CONTENTS
Page
INDEPENDENT AUDITOR’S REPORT 1 – 3
BASIC FINANCIAL STATEMENTS:
Government-Wide Financial Statements
Statement of Net Position 4
Statement of Activities 5
Fund Financial Statements
Balance Sheet – Governmental Funds 6
Reconciliation of Total Governmental Fund Balance to
Net Position of Governmental Activities 7
Statement of Revenue, Expenditures and Changes in
Fund Balance – Governmental Funds 8
Reconciliation of Statement of Revenue, Expenditures
and Changes in Fund Balance of Governmental Funds
to the Statement of Activities 9
Statement of Net Position – Proprietary Funds 10
Statement of Revenue, Expenses and Changes in Fund Net
Position - Proprietary Funds 11
Statement of Cash Flows – Proprietary Funds 12 – 13
Statement of Fiduciary Net Position – Private Purpose Trust Fund 14 Statement of Changes in Fiduciary Net Position – Private Purpose Trust Fund 15 Notes to Basic Financial Statements 16 – 46
Packet Pg. 322 Attachment: 2023 Gonzales Financial Statements (2965 : Fiscal Year 2022-2023 Audited Financial Statements & Management Report) TABLE OF CONTENTS (Continued)
Page
Required Supplementary Information
Budgetary Comparison Schedule – General Fund 47
Budgetary Comparison Schedule – Community Development Block Grant 48 Budgetary Comparison Schedule – Measure X 49
Schedule of the City’s Proportionate Share of Net Pension Liability 50 Schedule of Contributions 51
Supplemental Only Information
Combining Balance Sheet – Nonmajor Governmental Funds 52 – 54 Combining Statement of Revenue, Expenditures and
Changes in Fund Balance – Nonmajor Governmental Funds 55 – 57 INDEPENDENT AUDITOR’S REPORT ON INTERNAL CONTROL
OVER FINANCIAL REPORTING AND ON COMPLIANCE AND
OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS 58 – 59 INDEPENDENT AUDITOR’S REPORT ON COMPLIANCE FOR
EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE REQUIRED BY THE UNIFORM GUIDANCE 60 – 62
Schedule of Expenditures of Federal Awards 63
Notes to Schedule of Expenditures of Federal Awards 64
Schedule of Findings and Questioned Costs 65
Summary Schedule of Prior Audit Findings 66
Packet Pg. 323 Attachment: 2023 Gonzales Financial Statements (2965 : Fiscal Year 2022-2023 Audited Financial Statements & Management Report) BRYANT L. JOLLEY
CERTIFIED PUBLIC ACCOUNTANTS Bryant L. Jolley C.P.A.
Ryan P. Jolley C.P.A.
Darryl L. Smith C.P.A.
Luis A. Perez C.P.A.
Lan T. Kimoto
INDEPENDENT AUDITOR’S REPORT
To the Honorable Mayor and City Council
City of Gonzales, California
Report on the Audit of the Financial Statements
Opinions
We have audited the accompanying financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Gonzales (the “City”), California, as of and for the year ended June 30, 2023, and the related notes to the financial statements, which collectively comprise the City’s basic financial statements as listed in the table of contents.
In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City, as of June 30, 2023, and the respective changes in financial position, and, where applicable, cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America.
Basis for Opinions
We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report.
We are required to be independent of the City and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audit. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions.
Responsibilities of Management for the Financial Statements Management is responsible for the preparation and fair presentation of the financial statements in accordance with accounting principles generally accepted in the United States of America, and for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the City’s ability to continue as a going concern for twelve months beyond the financial statement date, including any currently known information that may raise substantial doubt shortly thereafter.
Packet Pg. 324 Attachment: 2023 Gonzales Financial Statements (2965 : Fiscal Year 2022-2023 Audited Financial Statements & Management Report) 2 Auditor’s Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinions. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with generally accepted auditing standards and Government Auditing Standards will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the financial statements.
In performing an audit in accordance with generally accepted auditing standards and Government Auditing Standards, we:
Exercise professional judgment and maintain professional skepticism throughout the audit. Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the City’s internal control. Accordingly, no such opinion is expressed. Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the financial statements.
Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about the City’s ability to continue as a going concern for a reasonable period of time.
We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control-related matters that we identified during the audit.
Required Supplementary Information
Management has omitted the management’s discussion and analysis that accounting principles generally accepted in the United States of America require to be presented to supplement the basic financial statements.
Such missing information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. Our opinion on the basic financial statements is not affected by this missing information.
Accounting principles generally accepted in the United States of America require that the budgetary comparison information on pages 47–51, the schedule of the City’s proportionate share of net pension liability on page 52, and the schedule of contributions on page 53, be presented to supplement the basic financial statements. Such information is the responsibility of management and, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and Packet Pg. 325 Attachment: 2023 Gonzales Financial Statements (2965 : Fiscal Year 2022-2023 Audited Financial Statements & Management Report) 3 comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance.
Supplementary Information
Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City’s basic financial statements. The accompanying combining and individual nonmajor fund financial statements and schedule of expenditures of federal awards, as required by Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, are presented for purposes of additional analysis and are not a required part of the basic financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the basic financial statements. The information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the combining and individual nonmajor fund financial statements and the schedule of expenditures of federal awards are fairly stated, in all material respects, in relation to the basic financial statements as a whole.
Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated April 19, 2024, on our consideration of the City’s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is solely to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the City’s internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the City’s internal control over financial reporting and compliance.
April 19, 2024
Packet Pg. 326 Attachment: 2023 Gonzales Financial Statements (2965 : Fiscal Year 2022-2023 Audited Financial Statements & Management Report) See accompanying notes. 4
CITY OF GONZALES
STATEMENT OF NET POSITION
JUNE 30, 2023
Governmental Business-Type
Activities Activities Total
ASSETS
Cash and investments 6,926,727 $ 8,425,288 $ 15,352,015 $ Accounts receivable, net - 1,031,798 1,031,798
Due from other governments 1,408,319 - 1,408,319
Interest receivable 12,744 70,290 83,034
Notes and loans receivable 1,841,543 - 1,841,543
Other assets - deposits 23,936 - 23,936
Internal balances (594,000) 594,000 -
Capital assets, net of allowance
for depreciation 19,361,459 26,558,451 45,919,910
Total assets 29,482,835 36,177,720 65,660,555
DEFERRED OUTFLOWS OF RESOURCES 426,251 2,192,199 2,618,450
LIABILITIES
Accounts payable and accrued expense 482,294 639,654 1,121,948 Deposits payable - 87,408 87,408
Interest payable - 2,292 2,292
Long-term liabilities
Due within one year 304,699 592,217 896,916
Due in more than one year 1,819,722 1,811,751 3,631,473 Lease liability 141,147 198,072 339,219
Net pension liability 3,452,243 789,368 4,241,611
Compensated absences - 359,145 359,145
Total liabilities 4,120,762 6,559,250 10,680,012
DEFERRED INFLOWS OF RESOURCES 62,787 347,376 410,163
NET POSITION
Net investment in capital assets 24,434,030 15,829,515 40,263,545 Restricted for specific projects and programs 4,650,240 - 4,650,240 Restricted for capital improvements 2,419,548 3,876,308 6,295,856 Unrestricted 6,019,714 (40,525) 5,979,189
Total net position $ 25,725,537 31,463,293 $ 57,188,830 $ Packet Pg. 327 Attachment: 2023 Gonzales Financial Statements (2965 : Fiscal Year 2022-2023 Audited Financial Statements & Management Report) See accompanying notes. 5
CITY OF GONZALESSTATEMENT OF ACTIVITIES YEAR ENDED JUNE 30, 2023 Operating Capital
Charges for Grants and Grants and Governmental Business-Type Expense Services Contributions Contributions Activities Activities Total Primary Government
Governmental activities
General government 2,026,123 $ 39,870 $ 1,001,636 $ - $ (984,617) $ - $ (984,617) $ Public safety 5,347,774 48,169 783,119 - (4,516,486) - (4,516,486)Public works 1,526,384 - 460,167 5,826 (1,060,391) - (1,060,391)Parks and recreation 1,764,605 159,317 85,410 - (1,519,878) - (1,519,878)Community development 756,630 100,231 438,314 2,511,667 2,293,582 - 2,293,582 Debt Service
Interest and fiscal charges - 66,109 - - (66,109) - (66,109) Total governmental activities 347,587 11,487,625 2,768,646 2,517,493 (5,853,899) - (5,853,899) Business-type activities
Water 2,069,922 2,159,858 - - - 89,936 89,936
Sewer 1,667,456 1,895,779 - 3,868 - 232,191 232,191
Garbage 1,312,538 1,611,878 - - - 299,340 299,340
Solar Energy 170,912 - - - - (170,912) (170,912)
Electric Power Authority - 51,732 - - - (51,732) (51,732) Total business-type activities 5,667,515 5,272,560 - 3,868 - 398,823 398,823 Total primary government 6,015,102 16,760,185 2,768,646 2,521,361 (5,853,899) 398,823 (5,455,076) General Revenue
Property taxes - 3,356,836 3,356,836Sales taxes - 3,326,727 3,326,727Franchise and other taxes - 125,617 125,617Utility users tax - 352,377 352,377Business licenses - 55,253 55,253 Investment income 184,079 204,310 388,389Other - 331,057 331,057 Gain/(loss) on disposal of property - 17,451 17,451
Transfers (334,004) 334,004 -
Total general revenue and transfers (149,925) 8,103,632 7,953,707 Change in Net Position 248,898 2,249,733 2,498,631Net Position Beginning of year, as restated 25,476,639 29,213,560 54,690,199 End of year $ 25,725,537 31,463,293 $ 57,188,830 $
Functions/Programs
Net Revenue/(Expense) and
Program Revenue Changes in Net Position
Packet Pg. 328
Attachment: 2023 Gonzales Financial Statements (2965 : Fiscal Year 2022-2023 Audited Financial See accompanying notes. 6
CITY OF GONZALES
BALANCE SHEET – GOVERNMENTAL FUNDS
JUNE 30, 2023
Community TAMC Other Total
Development Measure Governmental Governmental
General Block Grant X Funds Funds
ASSETS
Cash and investments 2,269,597 $ 348,302 $ - $ 4,308,828 $ 6,926,727 $ Due from other governments 765,026 - 24,734 618,559 1,408,319 Interest receivable - 1,741 - 11,003 12,744
Due from other funds 1,314,722 - - - 1,314,722
Notes and loans receivable - 1,549,134 - 292,409 1,841,543 Other assets - deposits - 23,936 - - 23,936
Total assets $ 1,899,177 4,373,281 $ 24,734 $ 5,230,799 $ 11,527,991 $
LIABILITIES
Accounts payable and accrued expense 381,493 $ - $ - $ 100,801 $ 482,294 $ Due to other funds - - - 1,314,722 1,314,722
Advances from other funds - 594,000 - - 594,000
Total liabilities - 975,493 - 1,415,523 2,391,016
DEFERRED INFLOWS OF RESOURCES
Deferred loans 1,549,134 - - 292,409 1,841,543
Total deferred inflows of resources 1,549,134 - - 292,409 1,841,543
FUND BALANCE
Restricted
Lighting, landscape & park maintenance - - - 2,905,164 2,905,164 Low-income housing activities - - - 24,418 24,418
Community development - 350,043 - 864,502 1,214,545
Street improvements - - 24,734 255,180 279,914
Public safety - - - 226,199 226,199
Community center 2,419,548 - - - 2,419,548
Committed for contingency reserve 978,240 - - - 978,240 Unassigned - - - (752,596) (752,596)
Total fund balance 3,397,788 350,043 24,734 3,522,867 7,295,432 Total liabilities, deferred inflows of resources,
and fund balance 4,373,281 $ 1,899,177 $ 24,734 $ 5,230,799 $ 11,527,991 $ Packet Pg. 329 Attachment: 2023 Gonzales Financial Statements (2965 : Fiscal Year 2022-2023 Audited Financial Statements & Management Report) See accompanying notes. 7
CITY OF GONZALES
RECONCILIATION OF TOTAL GOVERNMENTAL FUND BALANCE TO NET POSITION
OF GOVERNMENTAL ACTIVITIES
JUNE 30, 2023
Total governmental fund balance 7,295,432 $
Amounts reported for governmental activities in the Statement of Net Position are different because:
Capital assets used in governmental activities are not financial resources and, therefore, are not reported in the governmental funds 26,558,451 Governmental long-term liabilities are not due and payable in the current period and, therefore, are not reported in the governmental funds (2,265,568) Compensated absences are not due and payable in the current period and therefore are not reported in the governmental funds (359,145) Deferred outflows of resources related to net pension liability, represent an consumptiom of net position or fund balance that applies to future period(s) and so will not be recognized as an outflow of resources (expense) until that time 2,192,199 Net pension liability applicable to governmental activities is not due and payable in the current period and accordingly is not reported in the governmental funds (3,452,243) Deferred inflows of resources related to net pension liability, represent an acquisition of net position or fund balance that applies to future period(s) and so will not be recognized as an inflow of resources (revenue) until that time (347,376) In governmental funds, receivables which are not considered available are deferred. Such items are not deferred in the Statement of Net Position 1,841,543 Net position of governmental activities $ 31,463,293
Packet Pg. 330 Attachment: 2023 Gonzales Financial Statements (2965 : Fiscal Year 2022-2023 Audited Financial Statements & Management Report) See accompanying notes. 8
CITY OF GONZALES
STATEMENT OF REVENUE, EXPENDITURES AND CHANGES IN FUND BALANCE –
GOVERNMENTAL FUNDS
YEAR ENDED JUNE 30, 2023
Community TAMC Other Total
Development Measure Governmental Governmental
General Block Grant X Funds Funds
Revenue
Taxes and assessments 5,905,340 $ - $ - $ 975,805 $ 6,881,145 $ Licenses, permits and impact fees 237,477 - - 8,870 246,347 Intergovernmental 2,806,620 85,000 335,667 2,259,828 5,487,115 Charges for services 107,066 - - - 107,066
Fines and forfeitures 43,455 - - - 43,455
Loan repayments - 17,845 - 3,972 21,817
Use of money and property 97,844 15,372 - 91,093 204,309 Other - 416,467 - 8,312 424,779
Total revenue 118,217 9,614,269 335,667 3,347,880 13,416,033 Expenditures
Current
General government 1,165,626 - - 703,481 1,869,107
Public safety 4,632,307 - - 215,563 4,847,870
Public works 267,260 27,314 - 577,248 871,822
Parks and recreation 866,713 - - 509,621 1,376,334
Community development 383,063 172,509 - 29,458 585,030
Capital outlay 485,815 - - 239,796 725,611
Debt Service
Principal 99,541 - 301,129 56,589 457,259
Interest and fiscal charges - 30,102 37,420 343 67,865
Total expenditures 199,823 7,930,427 338,549 2,332,099 10,800,898 Revenue over/(under) expenditures 1,683,842 (81,606) (2,882) 1,015,781 2,615,135 Other Financing Sources/(Uses)
Sale of assets 17,451 - - - 17,451
Transfers in/(out) - net - 729,296 - (372,340) 356,956
- 746,747 - (372,340) 374,407
Change in Fund Balance (81,606) 2,430,589 (2,882) 643,441 2,989,542 Fund Balance
Beginning of year 431,649 967,199 27,616 2,879,426 4,305,890 End of year $ 350,043 3,397,788 $ 24,734 $ 3,522,867 $ 7,295,432 $ Packet Pg. 331 Attachment: 2023 Gonzales Financial Statements (2965 : Fiscal Year 2022-2023 Audited Financial Statements & Management Report) See accompanying notes. 9
CITY OF GONZALES
RECONCILIATION OF STATEMENT OF REVENUE, EXPENDITURES, AND CHANGES IN
FUND BALANCE OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITES YEAR ENDED JUNE 30, 2023
Net change in fund balance - total governmental funds 2,989,542 $ Amounts reported for governmental activities in the Statement of Activities are different because:
Governmental funds report capital outlays as expenditures. However, in the Statement of Activities the cost of those assets is capitalized and allocated over their estimated lives and reported as depreciation expense Capital outlay expenditures are therefore added back to fund balances 725,611 Depreciation and amortization expense not reported in governmental funds (1,253,739) (528,128)
Repayment of long-term debt and lease liability is an expenditure in governmental funds, but the repayment reduces long-term liabilities in the statement of net position 402,019
Issuance of new debt and lease liability is reported as an other financing source in governmental funds, however in the Statement of Activities it is accrued as a long-term debt 155,000 Pension expenses reported in the Statement of Activities do not require the use of current financial resources and, therefore, are not reported as expenditures in the Governmental Funds (616,183)
Repayment of long-term loans receivable is revenue in governmental funds, but the repayment reduces long-term assets in the statement of net position. Issuance of long-term loans receivable produces the opposite effect (91,817)
Compensated absence costs in the Statement of Activities does not require the use of current financial resources and, therefore, is not reported as expenditures in Governmental Funds (60,700) Change in net position of governmental activities 2,249,733 $ Packet Pg. 332 Attachment: 2023 Gonzales Financial Statements (2965 : Fiscal Year 2022-2023 Audited Financial Statements & Management Report) See accompanying notes. 10
CITY OF GONZALES STATEMENT OF NET POSITION – PROPRIETARY FUNDS JUNE 30, 2023 Nomajor
Electric Total
Solar Power Proprietary
Water Sewer Garbage Energy Authority Funds
ASSETSCurrent assets
Cash and investments 4,473,949 $ 3,717,998 $ 160,012 $ 59,130 $ 14,199 $ 8,425,288 $ Accounts receivable, net 252,217 440,525 339,056 - - 1,031,798 Interest receivable 32,213 28,723 8,788 - 566 70,290
Due from other funds - 107,070 - - - 107,070
Total current assets 4,187,246 4,865,449 507,856 59,130 14,765 9,634,446 Non-current assets
Advances to other funds 486,930 - - - - 486,930
Property, plant and equipment,
net of allowance for depreciation 8,665,544 7,709,764 - 2,986,151 - 19,361,459 Total non-current assets 8,665,544 8,196,694 - 2,986,151 - 19,848,389 Total assets 12,852,790 13,062,143 507,856 3,045,281 14,765 29,482,835 DEFERRED OUTFLOWS OF RESOURCES 183,580 186,118 56,553 - - 426,251 LIABILITIESCurrent liabilities
Accounts payable and accrued expenses 54,661 113,488 452,598 4,142 14,765 639,654 Deposits 87,408 - - - - 87,408
Interest payable - - - 2,292 - 2,292
Current portion of long-term debt - 212,893 - 379,324 - 592,217 Total current liabilities 113,488 354,962 452,598 385,758 14,765 1,321,571 Non-current liabilities
Long-term debt 332,900 - - 1,478,851 - 1,811,751
Lease liability 65,913 - - 132,159 - 198,072
Net pension liability 339,969 344,668 104,731 - - 789,368 Total noncurrent liabilities 339,969 743,481 104,731 1,611,010 - 2,799,191 Total liabilities 453,457 1,098,443 557,329 1,996,768 14,765 4,120,762 DEFERRED INFLOWS OF RESOURCES 27,042 27,415 8,330 - - 62,787
NET POSITION
Net investment in capital assets 7,163,971 8,665,544 - - - 15,829,515 Restricted for capital improvements 1,104,528 2,771,780 - - - 3,876,308 Unrestricted/(deficit) 1,118,547 3,853,904 (1,250) 1,048,513 - 6,019,714 Total net position $ 12,555,871 12,122,403 $ (1,250) $ 1,048,513 $ - $ 25,725,537 $ Business-Type Activities - Enterprise Funds
Packet Pg. 333
Attachment: 2023 Gonzales Financial Statements (2965 : Fiscal Year 2022-2023 Audited Financial See accompanying notes. 11
CITY OF GONZALES STATEMENT OF REVENUE, EXPENSE, AND CHANGES IN FUND NET POSITION – PROPRIETARY FUNDS YEAR ENDED JUNE 30, 2023 Nonmajor
Electric Total
Solar Power Proprietary
Water Sewer Garbage Energy Authority Funds
Operating Revenue
Charges for services $ 1,895,779 2,159,858 $ 1,611,878 $ - $ - $ 5,667,515 $ Total operating income 1,895,779 2,159,858 1,611,878 - - 5,667,515 Operating Expense
Contractual services and utilities 1,112,318 654,201 1,170,458 44,850 51,732 3,033,559 Personnel 549,114 545,991 127,925 - - 1,223,030
Supplies and materials 120,035 304,542 14,155 - - 438,732 Depreciation 162,722 275,811 - 52,152 - 490,685
Total operating expense 1,667,456 2,057,278 1,312,538 97,002 51,732 5,186,006 Operating income/(loss) 228,323 102,580 299,340 (97,002) (51,732) 481,509 Nonoperating Revenue/(Expense)
Development impact fees - 3,868 - - - 3,868
Interest income 103,455 74,476 2,467 2,018 1,663 184,079 Interest expense - (12,644) - (73,910) - (86,554)
Total nonoperating revenue/(expense) 78,344 90,811 2,467 (71,892) 1,663 101,393 Net income/(loss) before transfers 193,391 306,667 301,807 (168,894) (50,069) 582,902 Operating Transfers In/(Out) (159,883) (256,774) (323,834) 406,280 207 (334,004) Change in Net Position 146,784 (63,383) (22,027) 237,386 (49,862) 248,898 Net Position
Beginning of year 12,409,087 12,185,786 20,777 811,127 49,862 25,476,639 End of year $ 12,555,871 12,122,403 $ (1,250) $ 1,048,513 $ - $ 25,725,537 $ Business-Type Activities - Enterprise Funds
Packet Pg. 334
Attachment: 2023 Gonzales Financial Statements (2965 : Fiscal Year 2022-2023 Audited Financial See accompanying notes. 12
CITY OF GONZALES STATEMENT OF CASH FLOW - PROPRIETARY FUNDS YEAR ENDED JUNE 30, 2023 Nonmajor
Electric Total
Solar Power Business-Type
Water Sewer Garbage Energy Authority Funds
Operating Activities
Receipts from customers and users 2,060,049 $ 1,567,309 $ 1,539,498 $ - $ - $ 5,166,856 $ Payments for contractual services and utilities (1,240,934) (623,159) (820,225) (47,362) (59,617) (2,791,297) Payments to employees (500,566) (498,105) (113,174) - - (1,111,845) Payment to suppliers (304,542) (120,035) (14,155) - - (438,732) Net cash provided by (used in) operating activities 141,503 198,514 591,944 (47,362) (59,617) 824,982 Non-capital Financial Activities
Cash overdraft loan to Successor Agency 499,343 - - - - 499,343 Payments (to)/from developers - 3,868 - - - 3,868
Transfers (to)/from other funds (159,883) (149,704) (430,904) 406,280 207 (334,004) Net cash provided by (used in)
noncapital financing activities (156,015) 349,639 (430,904) 406,280 207 169,207 Capital and Related Financing Activities
Principal paid on long-term debt and lease liability (224,423) - - (353,993) - (578,416) Interest paid on long-term debt - (12,644) - (71,618) - (84,262) Net cash provided by (used in) capital
and related financing activities (66,154) (257,317) - (425,611) - (749,082) Investing Activities
Interest received 80,278 - (1,028) 2,018 1,286 82,554
Payments received on notes 49,148 - - - - 49,148
Net cash provided by (used in)
investing activities 49,148 80,278 (1,028) 2,018 1,286 131,702 Net Increase (Decrease) in Cash (31,518) 371,114 160,012 (64,675) (58,124) 376,809 Cash
Beginning of year 3,749,516 4,102,835 - 123,805 72,323 8,048,479 End of year $ 3,717,998 4,473,949 $ 160,012 $ 59,130 $ 14,199 $ 8,425,288 $ Business-Type Activities - Enterprise Funds
Packet Pg. 335
Attachment: 2023 Gonzales Financial Statements (2965 : Fiscal Year 2022-2023 Audited Financial See accompanying notes. 13
CITY OF GONZALES STATEMENT OF CASH FLOW - PROPRIETARY FUNDS (CONTINUED) YEAR ENDED JUNE 30, 2023 Nonmajor
Electric Total
Solar Power Business-Type
Water Sewer Garbage Energy Authority Funds
Cash Flows from Operating Activities
Operating income (loss) 102,580 $ 228,323 $ 299,340 $ (97,002) $ (51,732) $ 481,509 $ Adjustments to reconcile operating income (loss)
to net cash provided (used) by operating activities:
Depreciation 275,811 162,722 - 52,152 - 490,685
(Increase) Decrease in Accounts Receivable (104,954) (328,470) (72,380) - - (505,804) (Increase) Decrease in Deferred Outflows of Resources (86,396) (85,218) (26,252) - - (197,866) Increase (Decrease) in Accounts Payable
and Accrued Liabilities (128,616) 31,042 350,233 (2,512) (7,885) 242,262 Increase (Decrease) in Deposits 5,145 - - - - 5,145
Increase (Decrease) in Net Pension Liability 227,224 224,126 69,043 - - 520,393 Increase (Decrease) in Deferred Inflows of Resources (91,022) (92,280) (28,040) - - (211,342) Net Cash Provided by (Used in) Operating Activities $ 141,503 198,514 $ 591,944 $ (47,362) $ (59,617) $ 824,982 $ Business-Type Activities - Enterprise Funds
Packet Pg. 336
Attachment: 2023 Gonzales Financial Statements (2965 : Fiscal Year 2022-2023 Audited Financial See accompanying notes. 14
CITY OF GONZALES
STATEMENT OF FIDUCIARY NET POSITION
PRIVATE-PURPOSE TRUST FUNDS
JUNE 30, 2023
Redevelopment
Successor
Agency
Assets
Current assets
Cash and investments 21,674 $
Restricted cash and investments 5,808
Total current assets 27,482
Noncurrent assets
Notes receivable 341,550
Property, plant and equipment,
net of allowance for depreciation 461,051
Total noncurrent assets 802,601
Total assets 830,083
Liabilities
Current liabilities
Accounts payable and accrued liabilities 1,001
Interest payable 86,163
Bonds - current portion 779,677
Total current liabilities 866,841
Noncurrent liabilities
Bonds - long term portion 7,880,304
Total noncurrent liabilities 7,880,304
Total liabilities 8,747,145
Net Position
Held in trust for other governments (7,917,062) $
Packet Pg. 337 Attachment: 2023 Gonzales Financial Statements (2965 : Fiscal Year 2022-2023 Audited Financial Statements & Management Report) See accompanying notes. 15
CITY OF GONZALES
STATEMENT OF CHANGES IN FIDUCIARY NET POSITION
PRIVATE-PURPOSE TRUST FUND
JUNE 30, 2023
Redevelopment
Successor
Agency
Additions
Property taxes 1,200,649 $
Investment earnings 4,171
Total additions 1,204,820
Deductions
Administrative expenses 155,022
Interest and fiscal expenses 274,562
Total deductions 429,584
Change In Net Position 775,236
Net Position
Beginning of year (8,692,298)
End of year $ (7,917,062)
Packet Pg. 338 Attachment: 2023 Gonzales Financial Statements (2965 : Fiscal Year 2022-2023 Audited Financial Statements & Management Report) 16 CITY OF GONZALES
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED JUNE 30, 2023
Note 1 – Summary of Significant Accounting Policies
Reporting Entity
The City of Gonzales (the City) is a municipal corporation, operating as a general law city, and governed by a city council of five members. As required by accounting principles generally accepted in the United States of America, as prescribed by the Governmental Accounting Standards Board (GASB), these financial statements present the City of Gonzales (the primary government) and its component units. The component units discussed below are included in the City's reporting entity because of the significance of their operational or financial relationship with the City.
The Gonzales Public Financing Authority (the Authority) is governed by the City Council of the City of Gonzales.
Although, it is legally separate from the City, the Authority is reported as if it were part of the primary government because the City Council is the governing board and is able to impose its will on the Authority and management has the same operational responsibility for the Authority as it does for the rest of the City. The activity of the Authority is included as separate funds in the special revenue fund and debt service fund types. Separate financial statements are not issued by the Authority.
Basis of Presentation
The City has conformed to the pronouncements of the GASB, which are the primary authoritative statements of accounting principles generally accepted in the United States of America applicable to state and local governments.
Government-Wide Financial Statements
The Government-Wide Financial Statements (the Statement of Net Position and the Statement of Activities) report information of all of the nonfiduciary activities of the primary government and its component units. Eliminations have been made to minimize the double counting of internal activities. These statements distinguish between the governmental and business-type activities of the City. Governmental activities, which normally are supported by taxes and intergovernmental revenues, are reported separately from business-type activities, which rely significantly on fees charged to external parties.
The Statement of Activities presents a comparison between direct expenses and program revenues for each segment of the business-type activities of the City and for each function of the City’s governmental activities. Direct expenses are those that are specifically associated with a program or function and are clearly identifiable to a particular function. Program revenues include 1) charges paid by the recipients of goods or services offered by the programs and 2) grants and contributions that are restricted to meeting the operational or capital requirements of a particular program. Revenues that are not classified as program revenues, including all taxes, are presented as general revenues.
Fund Financial Statements
The accounts of the City are organized on the basis of funds each of which is considered a separate accounting entity.
The operations of each fund are accounted for with a separate set of self-balancing accounts that comprise its assets, liabilities, fund equity, revenues, and expenditures or expenses, as appropriate. Government resources are allocated to, and accounted for, in individual funds based upon the purposes for which they are to be spent and the means by which spending activities are controlled.
Packet Pg. 339 Attachment: 2023 Gonzales Financial Statements (2965 : Fiscal Year 2022-2023 Audited Financial Statements & Management Report) 17 CITY OF GONZALES
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED JUNE 30, 2023
Note 1 – Summary of Significant Accounting Policies (Continued) The fund financial statements provide information about the City's funds, including fiduciary funds and blended component units. Separate statements for each fund category - governmental, proprietary, and fiduciary – are presented. The emphasis of fund financial statements is on major individual funds, each of which is displayed in a separate column. All remaining funds are aggregated and reported as non-major funds.
Governmental Fund Financial Statements Funds
Major funds are defined as funds that have assets, liabilities, revenues, or expenditures/expenses equal to ten percent of their fund-type (governmental and enterprise funds, respectively) total and five percent of the grand total. The General Fund is always a major fund. The City may also select other funds it believes should be presented as major funds.
The following types of governmental funds are used:
General Fund
The General fund is the general operating fund of the City. It is used to account for all financial resources except those required to be accounted for in another fund.
Special Revenue Funds
Special revenue funds are used to account for and report the proceeds of specific revenue sources (other than debt service and capital projects) that are restricted or committed to expenditures for specified purposes.
Debt Service Funds
Debt service funds are used to account for and report the financial resources that are restricted, committed or assigned for the payment of long-term debt principal, interest, and related costs.
The City reported the following major governmental funds in the accompanying financial statements:
General Fund – This fund accounts for all financial resources except those to be accounted for in another fund. It is the general operating fund of the City.
Community Development Block Grant Fund – This fund accounts for Federal Grant monies restricted for specific community programs, which includes the activity related to loans provided to homeowners and businesses and the repayment of these loans.
Measure X Fund – The fund is used to account for the City’s Transportation Safety and Investment Plan activities.
Packet Pg. 340 Attachment: 2023 Gonzales Financial Statements (2965 : Fiscal Year 2022-2023 Audited Financial Statements & Management Report) 18 CITY OF GONZALES
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED JUNE 30, 2023
Note 1 – Summary of Significant Accounting Policies (Continued) Fund Balance Classifications
The City’s fund balance policy establishes the procedures for reporting unrestricted fund balance (comprised of Committed, Assigned, and Unassigned categories) within the City’s governmental funds: General Fund, Special Revenue Funds, Debt Service Fund, and Capital Projects Funds.
Definitions
Fund balance is the difference between the assets and liabilities reported in the City’s governmental funds. There are generally limitations on the purpose for which all or a portion of the resources of a governmental fund may be used.
The force behind these limitations can vary significantly, depending upon their source. Consequently, the fund balance reported in the annual financial statements is categorized into five components whereby each component identifies the extent to which the City is bound to honor constraints on the specific purposes for which amounts in the fund can be spent. The five components of fund balance are as follows:
Nonspendable: Resources that are 1) not in spendable form, such as inventories, prepaids, long-term receivables, or non-financial assets held for resale, or 2) required to be maintained intact such as an endowment.
Restricted: Resources that are subject to externally enforceable legal restrictions; these restrictions would be either 1) externally imposed by creditors (such as through debt covenants), grantors, contributors, or laws or regulations of other governments or 2) imposed by law through constitutional provisions or enabling legislation.
Committed: Resources that are constrained to specific purposes by a formal action of the City Council such as an ordinance or resolution. The constraint remains binding unless removed in the same formal manner by the City Council. Council action to commit fund balance must occur within the fiscal reporting period while the amount committed may be determined subsequently.
Assigned: Resources that are constrained by the City’s intent to be used for specific purposes, but that are neither restricted nor committed. Intent is expressed by the City Council or to an official which the City Council has delegated this authority.
Unassigned: Within the General Fund, the residual resources, either positive or negative, in excess of what can be properly classified in one of the other four fund balance categories. Within all other governmental funds, the negative residual resources in excess of what can be properly classified as nonspendable, restricted, or committed.
Policy
1. Unless necessary by other requirements and circumstances, when expenditures are incurred for purposes for which both restricted and unrestricted (committed, assigned, or unassigned) fund balances are available, the City’s policy is to first apply restricted fund balance. When expenditures are incurred for purposes for which committed, assigned, or unassigned fund balances are available, the City’s policy is to first apply committed fund balance, then assigned fund balance, and finally unassigned fund balance.
2. The City’s Fund Balance policy delegates to the Finance Director the authority to assign unrestricted fund balance amounts where the City’s intent is for those amounts to be used for specific purposes. This delegation of authority is for the sole purpose of reporting these amounts in the annual financial statements.
Packet Pg. 341 Attachment: 2023 Gonzales Financial Statements (2965 : Fiscal Year 2022-2023 Audited Financial Statements & Management Report) 19 CITY OF GONZALES
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED JUNE 30, 2023
Note 1 – Summary of Significant Accounting Policies (Continued) Proprietary Fund Financial Statements
Proprietary fund financial statements include a Statement of Net Position, a Statement of Revenues, Expenses, and Change in Net Position, and a Statement of Cash Flows.
Proprietary fund types are accounted for using the “economic resources” measurement focus and accrual basis of accounting. This means that all assets and liabilities (whether current or non-current) associated with the activity are included on the Statement of Net Position. Their reported fund equity presents total net position. The operating statement of the proprietary funds presents increases (revenues) and decreases (expenses) in total net position.
Revenues are recognized when they are earned and expenses are recognized when the liability is incurred.
Proprietary funds distinguish operating revenues and expenses from non-operating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with a proprietary fund’s principal ongoing operations. The principal operating revenues of the City’s enterprise funds are charges to customers for sales and services. Operating expenses for the enterprise funds include the costs of sales and services, the costs of employee benefits, maintenance of capital assets, and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as non-operating revenues and expenses.
The City reported the following major proprietary (enterprise) funds:
Water Fund - This fund accounts for the activities for providing water service to the residents of the City. Sewer Fund - This fund accounts for the activities of providing sewer service to the residents of the City. Garbage Fund - This fund accounts for the activities of providing garbage service to the residents of the City. Solar Energy Fund – This fund accounts for the activities, the debt and the resources generated from the installation of solar energy panels.
Fiduciary Fund Financial Statements
Fiduciary funds are used to account for assets held by the City in a trustee capacity or as an agent for individuals, private organizations, and other governmental units. The City maintains the Private Purpose Trust Fund for the Successor Agency of the former Redevelopment Agency.
Basis of Accounting
The government-wide, proprietary funds and fiduciary fund financial statements are reported using the economic resources measurement focus and the full accrual basis of accounting. Revenues are recorded when earned and expenses are recorded at the time liabilities are incurred, regardless of when the related cash flows take place.
Governmental funds are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Under this method, revenues are recognized when measurable and available. The City considers all revenues reported in the governmental funds to be available if the revenues are collected within sixty days after fiscal year-end. Expenditures are recorded when the related fund liability is incurred, except for principal and interest on general long-term debt, claims and judgments, and compensated absences, which are recognized as expenditures to the extent that they have matured. Capital asset acquisitions are reported as expenditures in governmental funds.
Proceeds of long-term debt and acquisitions under capital leases are reported as other financing sources.
Packet Pg. 342 Attachment: 2023 Gonzales Financial Statements (2965 : Fiscal Year 2022-2023 Audited Financial Statements & Management Report) 20 CITY OF GONZALES
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED JUNE 30, 2023
Note 1 – Summary of Significant Accounting Policies (Continued) Non-exchange transactions, in which the City gives or receives value without directly receiving or giving equal value in exchange, include property taxes, grants, entitlements, and donations. On an accrual basis, revenue from property taxes is recognized in the fiscal year for which the taxes are levied. Revenue from grants, entitlements, and donations is recognized in the fiscal year in which all eligibility requirements have been satisfied.
Other revenues susceptible to accrual include other taxes, intergovernmental revenues, interest, and charges for services.
Grant revenues are recognized in the fiscal year in which all eligibility requirements are met. Under the terms of grant agreements, the City may fund certain programs with a combination of cost-reimbursement grants, categorical block grants, and general revenues. Thus, both restricted and unrestricted net position may be available to finance program expenditures/expenses. The City's policy is to first apply restricted net position to such programs, followed by unrestricted net position.
Financial Statement Amounts
Cash and Cash Equivalents – The City maintains a pooled cash and investment program. Therefore, for purposes of the statement of cash flows, the City considers the entire pooled cash and investment balance to be cash and cash equivalents.
Investments of the pool include only those investments authorized by the California Government Code such as, United States Treasury securities, agencies guaranteed by the United States Government, registered state warrants, and other investments. Investments primarily consist of deposits in the State of California Local Agency Investment Fund and certificates of deposit. Investments are recorded at amortized cost or fair value.
Fair value is based upon quoted market prices.
Changes in fair value that occur during a fiscal year are recognized as investment income reported for that fiscal year.
Investment income includes interest earnings, changes in fair value, and any gains or losses realized upon the liquidation, maturity, or sale of investments.
The City pools its cash and investments of all funds with the City’s pool, except for assets held by fiscal agents.
Investment income earned by the pooled investments is allocated to the various funds based on each fund’s average cash and investment balance.
Accounts Receivable – Billed, but unpaid, services provided to individuals or non-governmental entities are recorded as accounts receivable. The Proprietary Funds include a year end accrual for services through the end of the fiscal year which have not yet been billed. Accounts receivable are reported net of an allowance for uncollectibles.
Property taxes in the State of California are administered for all local agencies at the county level, and consist of secured, unsecured, and utility tax rolls. The following is a summary of major policies and practices relating to property taxes:
Packet Pg. 343 Attachment: 2023 Gonzales Financial Statements (2965 : Fiscal Year 2022-2023 Audited Financial Statements & Management Report) 21 CITY OF GONZALES
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED JUNE 30, 2023
Note 1 – Summary of Significant Accounting Policies (Continued) Property Valuations - are established by the Assessor of the County of Monterey for the secured and unsecured property tax rolls; the utility property tax roll is valued by the State Board of Equalization. Under the provisions of Article XIIIA of the State Constitution (Proposition 13 adopted by the voters on June 6, 1978), properties are assessed at 100 percent of full value. From this base of assessment, subsequent annual increases in valuation are limited to a maximum of 2 percent. However, increases to full value are allowed for property improvements or upon change in ownership. Personal property is excluded from these limitations, and is subject to annual reappraisal.
Tax Levies - are limited to 1 percent of assessed value which results in a tax rate of $1 per $100 assessed valuation, under the provisions of Proposition 13. Tax rates for voter-approved indebtedness are excluded from this limitation.
Tax Levy Dates - are attached annually on January 1st, proceeding the fiscal year for which the taxes are levied. The fiscal year begins July 1st and ends June 30th of the following year. Taxes are levied on both real and unsecured personal property as it exists at that time. Liens against real estate, as well as the tax on personal property, are not relieved by subsequent renewal or change in ownership.
Tax Collections – are the responsibility of the county tax collector. Taxes and assessments on secured and utility rolls which constitute a lien against the property, may be paid in two installments: The first installment is due on November 1st of the fiscal year and is delinquent, if not paid, by December 10th; and the second installment is due on March 1st of the fiscal year and is delinquent, if not paid, by April 10th. Unsecured personal property taxes do not constitute a lien against real property unless the taxes become delinquent. Payment must be made in one installment, which is delinquent, if not paid, by August 31st of the fiscal year. Significant penalties are imposed by the County for late payments.
Advances To/From Other Funds – This classification represents non-current portions of any long-term lending/borrowing transactions between funds. This amount will be equally offset by a reserve of fund balance which indicates that it does not represent available financial resources and therefore, is not available for appropriation. The current portion of any interfund long-term loan (advance) is included as an interfund receivable/payable.
Capital Assets – Capital outlays are recorded as expenditures of the General, Special Revenue, and Capital Projects Funds and as assets in the Government-Wide Financial Statements to the extent the City’s capitalization threshold are met.
Capital assets, which include property, plant, equipment, and infrastructure assets (e.g., roads, bridges, sidewalks, and similar items), are reported in the applicable governmental or business-type activities column in the GovernmentWide Financial Statements. Capital assets are defined by the government as assets with an initial individual cost of more than $5,000 and with an estimated useful life of at least two years. Such assets are recorded at historical cost or estimated historical cost if purchased or constructed. Donated capital assets are recorded at estimated fair market value at the date of donation.
The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend assets lives are not capitalized. Betterments and major improvements which significantly increase values, change capacities or extend useful lives are capitalized. Upon sale or retirement of fixed assets, the cost and related accumulated depreciation are removed from the respective accounts and any resulting gain or loss is included in the results of operations.
Packet Pg. 344 Attachment: 2023 Gonzales Financial Statements (2965 : Fiscal Year 2022-2023 Audited Financial Statements & Management Report) 22 CITY OF GONZALES
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED JUNE 30, 2023
Note 1 – Summary of Significant Accounting Policies (Continued) Major outlays for capital assets and improvements are capitalized as projects are constructed. Interest incurred during the construction phase of capital assets of business-type activities is included as part of the capitalized value of the assets constructed.
Property, plant, and equipment of the primary government, as well as the component units, are depreciated using the straight line method over the following estimated useful lives:
Years
Buildings 40
Improvements 20 - 40
Equipment 5 - 15
Infrastructure 20 - 70
Compensated Absences – The City has adopted policies on sick leave and vacation leave. Sick leave is accrued at the rate of eight hours per month by all employees. A portion of the accumulated sick leave will be paid to retiring or resigning employees with a minimum of fifteen years of service. All other employees who terminate employment will receive no compensation for accumulated sick leave.
Employees are only allowed to carry forward one year worth of vacation hours as of January 1 of each year. Vacation is accrued for employees as follows:
Years of Service Monthly Accrual Annually
0 to 2 6-2/3 hours Two weeks
3 to 9 10 hours Three weeks
10 to 15 11-2/3 hours Three weeks and 2-1/2 days
15+ 13-1/3 hours Four weeks
Upon termination of employment and, after completion of at least six months of service with the City, the accrued vacation leave shall be paid to the terminated employee.
Unearned Revenue – Unearned revenue is that for which asset recognition criteria have been met, but for which revenue recognition criteria have not been met. The City typically records unearned revenue related to uncollected outstanding performing loans and intergovernmental revenues received but not earned (qualifying expenditures not yet incurred).
Deferred Compensation Plan – City employees may defer a portion of their compensation under a City sponsored deferred compensation plan created in accordance with Internal Revenue Code Section 457. Under this Plan, participants are not taxed on the deferred portion of their compensation until distributed to them; distributions may be made only upon termination, retirement, death, or in an emergency as defined by the Plan. The assets of the Plan are not included within the City's financial statements.
Packet Pg. 345 Attachment: 2023 Gonzales Financial Statements (2965 : Fiscal Year 2022-2023 Audited Financial Statements & Management Report) 23 CITY OF GONZALES
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED JUNE 30, 2023
Note 1 – Summary of Significant Accounting Policies (Continued) Pension Plan – All full-time City employees are members of the State of California Public Employees’ Retirement System. The City’s policy is to fund all pension costs accrued; such costs to be funded are determined annually as of July 1 by the System’s actuary.
For purposes of measuring the net pension liability, deferred outflows of resources and deferred inflows of resources related to pensions, and pension expense, information about the fiduciary net position of the City’s Pension Plan and additions to/deductions from the City’s Pension Plan’s fiduciary net position have been determined on the same basis as they are reported by the City’s Pension Plan. For this purpose, benefit payments (including refunds of employee contributions) are recognized when due and payable in accordance with the benefit terms. Investments are reported at fair value.
Leases – The City is a lessee for a noncancellable lease of equipment. The City recognizes a lease liability and an intangible right-to-use lease asset (lease asset) in the government-wide and enterprise fund financial statements. The City recognizes lease liabilities with an initial, individual value of $5,000 or more.
At the commencement of a lease, the City initially measures the lease liability at the present value of payments expected to be made during the lease term. Subsequently, the lease liability is reduced by the principal portion of lease payments made. The lease asset is initially measured as the initial amount of the lease liability, adjusted for lease payments made at or before the lease commencement date, plus certain initial direct costs.
Subsequently, the lease asset is amortized on a straight-line basis over its useful life.
Key estimates and judgments related to leases include how the City determines (1) the discount rate it uses to discount the expected lease payments to present value, (2) lease term, and (3) lease payments. The City uses the interest rate charged by the lessor as the discount rate. When the interest rate charged by the lessor is not provided, the City generally uses its estimated incremental borrowing rate as the discount rate for leases.
The lease term includes the noncancellable period of the lease. Lease payments included in the measurement of the lease liability are composed of fixed payments and purchase option price that the City is reasonably certain to exercise.
The City monitors changes in circumstances that would require a remeasurement of its lease and will remeasure the lease asset and liability if certain changes occur that are expected to significantly affect the amount of the lease liability.
Long-Term Obligations – In the Government-Wide Financial Statements and in the Proprietary Fund types in the fund financial statements, long-term debt and other long-term obligations are reported as liabilities in the applicable governmental activities, business-type activities, or Proprietary Fund Type Statement of Net Position. Debt principal payments of both government and business-type activities are reported as decreases in the balance of the liability on the Statement of Net Position. Bond premiums and discounts are deferred and amortized over the life of the bonds using the effective interest method. Bonds payable are reported net of the applicable bond premium or discount.
In the fund financial statements, however, debt principal payments of Governmental Funds are recognized as expenditures when paid. Governmental Fund types recognize bond premiums and discounts during the current period.
The face amount of debt issued is reported as other financing sources. Premiums received on debt issuances are reported as other financing sources while discounts on debt issuances are reported as other financing uses. Issuance costs, whether or not withheld from the actual debt proceeds received, are reported as debt service expenditures.
Packet Pg. 346 Attachment: 2023 Gonzales Financial Statements (2965 : Fiscal Year 2022-2023 Audited Financial Statements & Management Report) 24 CITY OF GONZALES
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED JUNE 30, 2023
Note 1 – Summary of Significant Accounting Policies (Continued) Net Position – The government-wide and business-type activities financial statements utilize a net position presentation. Net position are categorized as net investment in capital assets, restricted and unrestricted. Net Investment in Capital Assets – This category groups all capital assets, including infrastructure, into one component of net position. Accumulated depreciation and the outstanding balances of debt that are attributable to the acquisition, construction or improvement of these assets reduce the balance in this category. Restricted Net Position – This category presents external restrictions on net position imposed by creditors, grantors, contributors, laws or regulations of other governments and restrictions imposed by law through constitutional provisions or enabling legislation.
Unrestricted Net Position – This category represents net position of the City not restricted for any project or other purpose.
When expenditures are incurred for purposes for which both restricted and unrestricted (committed, assigned, or unassigned) fund balances are available, the City’s policy is to apply restricted first. When expenditures are incurred for purposes for which committed, assigned, or unassigned fund balances are available, the City’s policy is to apply committed fund balance first, then assigned fund balance, and finally unassigned fund balance.
Use of Estimates – The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenditures/expenses during the reporting period. Actual results could differ from those estimates.
Note 2 – Stewardship, Compliance and Accountability
California law authorizes the City to invest in obligations of the United States Treasury, agencies and instrumentalities, certificates of deposit or time deposits in banks and savings and loan associations which are insured by the Federal Deposit Insurance Corporation.
In accordance with applicable sections of the California Government Code and the Gonzales Municipal Code, the City prepares and legally adopts an annual balanced budget on a basis consistent with accounting principles generally accepted in the United States of America. Annual appropriated budgets are adopted for the General Fund, specific Special Revenue Funds, and specific Capital Projects Funds. Budget plans are adopted for Proprietary Funds. A proposed budget is presented to the City Council during June of each year for review. The Council holds public hearings and may add to, subtract from, or change appropriations within the revenues and reserves estimated as available. Expenditures may not legally exceed budgeted appropriations at the fund level. Supplementary appropriations which alter the total expenditures of any fund, or expenditures in excess of total budgeted fund appropriations, must be approved by the City Council.
All annual appropriations lapse at fiscal year end to the extent they have not been expended or encumbered.
Packet Pg. 347 Attachment: 2023 Gonzales Financial Statements (2965 : Fiscal Year 2022-2023 Audited Financial Statements & Management Report) 25 CITY OF GONZALES
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED JUNE 30, 2023
Note 3 – Cash and Investments
The City pools all of its cash and investments except those funds required to be held by outside fiscal agents under the provisions of bond indentures. Interest income earned on pooled cash is allocated to the various funds on average cash balances. Interest income from cash investments held with fiscal agents is credited directly to the related funds.
Cash and investments as of June 30, 2023 are classified in the accompanying financial statements as follows:
Statement of Net Position:
Cash and Investments 15,352,015 $
Private Purpose Trust:
Cash and Investments 21,674
Restricted cash and investments 5,808
Total Cash and Investments $ 15,379,497
Cash and investments as of June 30, 2023 consist of the following:
Cash on hand 1,121 $
Deposits with Financial Institutions 1,447,031
Local Agency Investment Fund 4,450,973
Certificates of Deposit 10,954
Money Market Accounts 9,463,610
Cash Held by Fiscal Agent 5,808
Total Cash and Investments $ 15,379,497
Fair Value Measurements
The framework for measuring fair value provides a fair value hierarchy that categorizes the inputs to valuation techniques used to measure fair value into three levels. The fair value hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described as follows:
Level 1: Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets that a government can access at the measurement date.
Level 2: Inputs to valuation methodology include inputs – other than quoted prices included within Level 1 – that are observable for an asset or liability, either directly or indirectly.
Level 3: Inputs to the valuation methodology are unobservable and significant to the fair value measurement.
The asset’s or liability’s fair value measurement level within a fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.
Packet Pg. 348 Attachment: 2023 Gonzales Financial Statements (2965 : Fiscal Year 2022-2023 Audited Financial Statements & Management Report) 26 CITY OF GONZALES
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED JUNE 30, 2023
Note 3 – Cash and Investments (Continued)
Following is a description of the valuation methodologies used for assets measured at fair value.
LAIF is valued based on the City’s pro-rata share of the fair value provided by LAIF for the entire LAIF portfolio (Level 2 input).
The City had the following recurring fair value measurements as of June 30, 2023:
Level 1 Level 2 Level 3
June 30, 2023
Balance
Investments by fair value level:
Equity Securities:
CDS 10,954 $ - $ - $ 10,954 $
LAIF - 4,450,973 - 4,450,973
Total Equity Securities 10,954 4,450,973 - 4,461,927
Cash equivalents carried at amortized cost:
Deposits 1,448,152
Money Market Mutual Funds 9,463,610
Cash Held by Fiscal Agent 5,808
Total cash and equivalents amortized at cost 10,917,570 Total Cash Equivalents & Investments 15,379,497 $
Packet Pg. 349 Attachment: 2023 Gonzales Financial Statements (2965 : Fiscal Year 2022-2023 Audited Financial Statements & Management Report) 27 CITY OF GONZALES
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED JUNE 30, 2023
Note 3 – Cash and Investments (Continued)
Investments Authorized by the California Government Code and the City’s Investment Policy The table below identifies the investment types that are authorized for the City by the California Government Code (or the City’s investment policy, where more restrictive). The table also identifies certain provisions of the California Government Code (or the City’s investment policy, where more restrictive) that address interest rate risk, credit risk, and concentration of credit risk. This table does not address investments of debt proceeds held by bond trustee that are governed by the provisions of debt agreements of the City, rather than the general provisions of the California Government Code or the City’s investment policy.
Maximum Maximum
Maximum Percentage Investment
Maturity of Portfolio In One Issuer
U.S. Treasury Obligations 5 years None None
U.S. Agency Securities 5 years None None
Banker's Acceptances 270 days 40% 30%
Commercial Paper 180 days 15% 10%
Time Certificates of Deposit 3 years 25% None
Negotiable Certificates of Deposit 3 years 30% None
Repurchase Agreements 1 year 20% None
Medium-Term Notes 5 years 30% 15%
Mutual Funds 5 years 20% 10%
Money Market Mutual Funds 5 years 15% 10%
Local Agency Investment Fund (LAIF) N/A None None
County Investment Pool N/A None None
Authorized Investment Type
Packet Pg. 350 Attachment: 2023 Gonzales Financial Statements (2965 : Fiscal Year 2022-2023 Audited Financial Statements & Management Report) 28 CITY OF GONZALES
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED JUNE 30, 2023
Note 3 – Cash and Investments (Continued)
Investments Authorized by Debt Agreements
Investments of debt proceeds held by bond trustee are governed by provisions of the debt agreements, rather than the general provisions of the California Government Code or the City’s investment policy. The table below identifies the investment types that are authorized for investments held by the bond trustee. The table also identifies certain provisions of these debt agreements that address interest rate risk, credit risk, and concentration of credit risk.
Maximum Maximum
Maximum Percentage Investment
Maturity of Portfolio In One Issuer
U.S. Treasury Obligations None None None
U.S. Agency Securities None None None
Banker's Acceptances 180 days None None
Commercial Paper 270 days None None
Money Market Mutual Funds N/A None None
Investment Contracts None None None
Certificates of Deposits 1 year None None
Repurchase Agreements 30 days None None
Local Agency Investment Fund (LAIF) N/A None None
Municipal Bonds None None None
Authorized Investment Type
Disclosures Relating to Interest Rate Risk
Interest rate risk is the risk that changes in market interest rates will adversely affect the fair value of an investment.
Generally, the longer the maturity of an investment, the greater the sensitivity of its fair value to changes in market interest rates.
Information about the sensitivity of the fair values of the City’s investments (including investments held by bond trustee) to market interest rate fluctuations is provided by the following table that shows the distribution of the City’s investments by maturity:
12 Months 13 to 24 25 to 60 More than
Fair Value or Less Months Months 60 Months
Local Agency Investment Fund 4,450,973 $ 4,450,973 $ - $ - $ - $ Certificates of deposit 10,954 10,954 - - -
Total $ 4,461,927 4,461,927 $ - $ - $ - $
Investment Type
Remaining Maturity (in months)
Packet Pg. 351 Attachment: 2023 Gonzales Financial Statements (2965 : Fiscal Year 2022-2023 Audited Financial Statements & Management Report) 29 CITY OF GONZALES
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED JUNE 30, 2023
Note 3 – Cash and Investments (Continued)
Disclosures Relating to Credit Risk
Generally, credit risk is the risk that an issuer of an investment will not fulfill its obligation to the holder of the investment. This is measured by the assignment of a rating by a nationally recognized statistical rating organization.
Presented below is the minimum rating required by (where applicable) the California Government Code, the City’s investment policy, or debt agreements, and the actual rating as of year-end for each investment type:
Minimum
Rating Unrated Aaa
Local Agency Investment Fund $ N/A 4,450,973 4,450,973 $ - $ Certificates of deposit 10,954 N/A - 10,954
Total $ 4,461,927 4,461,927 $ - $
Investment Type
Concentration of Credit Risk
The investment policy of the City contains no limitations on the amount that can be invested in any one issuer beyond that stipulated by the California Government Code. There were no investments in any one issuer, other than U.S.
Treasury securities, mutual funds, and external investment pools, that represent 5% or more of total City-wide investments as of June 30, 2023.
Custodial Credit Risk
Custodial credit risk for deposits is the risk that, in the event of the failure of a depository financial institution, a government will not be able to recover its deposits or will not be able to recover collateral securities that are in the possession of an outside party. The California Government Code and the City’s investment policy do not contain legal or policy requirements that would limit the exposure to custodial credit risk for deposits, other than the following provision for deposits: The California Government Code requires that a financial institution secure deposits made by state or local governmental units by pledging securities in an undivided collateral pool held by a depository regulated under state law (unless so waived by the governmental unit). The market value of the pledged securities in the collateral pool must equal at least 110% of the total amount deposited by the public agencies. California law also allows financial institutions to secure City deposits by pledging first trust deed mortgage notes having a value of 150% of the secured public deposits.
At June 30, 2023, the balances held in bank accounts were (comprised of deposits, CD’s and money market accounts) collateralized by the pledging financial institution, but not in the City’s name. At June 30, 2023, total cash held in bank was $8,279,968 of which $8,029,968 was in excess of federal depository insurance limits.
Packet Pg. 352 Attachment: 2023 Gonzales Financial Statements (2965 : Fiscal Year 2022-2023 Audited Financial Statements & Management Report) 30 CITY OF GONZALES
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED JUNE 30, 2023
Note 3 – Cash and Investments (Continued)
Investment in State Investment Pool
The City is a voluntary participant in the Local Agency Investment Fund (LAIF) that is regulated by California Government Code Section 16429 under the oversight of the Treasurer of the State of California. The fair value of the City’s investment in this pool is reported in the accompanying financial statements at amounts based upon the City’s pro-rata share of the fair value provided by LAIF for the entire LAIF portfolio (in relation to the amortized cost of that portfolio). The balance available for withdrawal is based on the accounting records maintained by LAIF, which are recorded on an amortized cost basis.
LAIF is a governmental investment pool managed and directed by the California State Treasurer and is not registered with the Securities and Exchange Commission. An oversight committee comprised of California State officials and various participants provide oversight to the management of the fund. The daily operations and responsibilities of LAIF fall under the auspices of the State Treasurer's office. The City is a voluntary participant in the investment pool.
Note 4 – Notes Receivable and Deferred Loans Receivable Loans as of fiscal year ended June 30, 2023 were as follows:
Balance Balance
June 30, 2022 Additions Deletions June 30, 2023
Governmental Funds
Developer Loans 110,046 $ - $ - $ 110,046 $
Rehabilitation Loans 1,668,314 155,000 (91,817) 1,731,497 $ 155,000 1,778,360 $ (91,817) $ 1,841,543 $
Packet Pg. 353 Attachment: 2023 Gonzales Financial Statements (2965 : Fiscal Year 2022-2023 Audited Financial Statements & Management Report) 31 CITY OF GONZALES
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED JUNE 30, 2023
Note 4 – Notes Receivable and Deferred Loans Receivable (Continued) Developer Loans
Original Balance as of
Date of Note Principal Interest Rate Maturity Date Collateral June 30, 2023 February 19, 2008 836,120 $ 4% January 1, 2028 Deed of Trust $ 110,046 Rehabilitation Loans
Original Balance as of
Date of Note Principal Interest Rate Maturity Date Collateral June 30, 2023 May 24, 2006 132,400 $ 2% May 24, 2036 Deed of Trust 132,400 $ May 24, 2006 50,000 2% May 24, 2036 Deed of Trust 50,000 May 24, 2006 17,500 2% May 24, 2036 Deed of Trust 17,500 May 24, 2006 50,000 2% May 24, 2036 Deed of Trust 50,000 May 24, 2006 50,000 2% May 24, 2036 Deed of Trust 50,000 May 24, 2006 50,000 2% May 24, 2036 Deed of Trust 50,000 May 24, 2006 50,000 2% May 24, 2036 Deed of Trust 50,000 May 24, 2006 50,000 2% May 24, 2036 Deed of Trust 50,000 May 24, 2006 50,000 2% May 24, 2036 Deed of Trust 50,000 November 18, 2008 111,184 3% November 18, 2038 Deed of Trust 124,173 December 23, 2008 97,346 3% December 23, 2038 Deed of Trust 97,346 April 18, 2014 59,486 0% April 18, 2044 Deed of Trust 60,089 August 25, 2014 38,531 0% August 25, 2044 Deed of Trust 38,531 October 21, 2014 89,715 0% October 21, 2044 Deed of Trust 89,715 May 1, 2012 105,000 3% May 1, 2022 Security Agreement 26,237 April 11, 2014 91,511 3% April 11, 2024 Security Agreement 75,884 September 30, 2015 175,000 2% September 30, 2030 Security Agreement 121,578 June 8, 2017 104,777 3% June 8, 2027 Security Agreement 77,253 July 24, 2019 70,000 2% July 24, 2031 Security Agreement 68,427 December 21, 2021 115,000 1% December 21, 2023 Security Agreement 115,000 June 10, 2022 55,000 1% June 10, 2038 Security Agreement 55,000 August 24, 2022 100,000 1% December 21, 2038 Security Agreement 100,000 May 12, 2004 43,500 3% March 12, 2024 Deed of Trust 19,690 July 22, 2008 48,643 0% July 22, 2023 Deed of Trust 36,943 April 8, 2008 23,802 0% April 8, 2023 Deed of Trust 14,514 July 8, 2008 57,440 0% July 8, 2023 Deed of Trust 7,500 March 5, 2009 16,000 0% March 5, 2024 Deed of Trust 13,226 February 19, 2008 170,000 4% February 19, 2028 Deed of Trust 90,491 $ 1,731,497
Packet Pg. 354 Attachment: 2023 Gonzales Financial Statements (2965 : Fiscal Year 2022-2023 Audited Financial Statements & Management Report) 32 CITY OF GONZALES
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED JUNE 30, 2023
Note 5 – Capital Assets – Capital asset activities for the year ended June 30, 2023 were as follows:
Balance Balance
July 1, 2022 Additions Retirements June 30, 2023
Governmental Activities
Capital assets, not being depreciated
Land 8,342,583 $ - $ - $ 8,342,583 $
Construction in progress 595,151 - - 595,151
Total capital assets, not being depreciated 595,151 8,342,583 - 8,937,734 Capital assets, being depreciated
Buildings and improvements 10,563,825 - - 10,563,825
Infrastructure 36,520,519 - - 36,520,519
Machinery and equipment 130,460 2,810,139 - 2,940,599
Total capital assets, being depreciated 130,460 49,894,483 - 50,024,943 Less accumulated depreciation for
Buildings and improvements (3,275,449) (198,004) - (3,473,453) Infrastructure (25,359,631) (941,428) - (26,301,059)
Machinery and equipment (2,656,238) (114,307) - (2,770,545) Total accumulated depreciation (1,253,739) (31,291,318) - (32,545,057) Total capital assets, being depreciated, net (1,123,279) 18,603,165 - 17,479,886 Right of use assets, being amortized
Vehicles 283,268 - - 283,268
Less: amortization (56,653) (85,784) - (142,437)
Total right of use assets, being amortized, net (56,653) 197,484 - 140,831 Governmental activities capital assets, net $ (584,781) 27,143,232 $ - $ 26,558,451 $ Business-Type Activities
Capital assets, not being depreciated
Land 604,807 $ - $ - $ 604,807 $
Construction in progress - 2,268,124 - 2,268,124
Total capital assets, not being depreciated - 2,872,931 - 2,872,931 Capital assets, being depreciated
Buildings and improvements 46,939 - - 46,939
Infrastructure 24,422,183 - - 24,422,183
Machinery and equipment 86,404 2,117,305 - 2,203,709
Total capital assets, being depreciated 86,404 26,586,427 - 26,672,831 Less: accumulated depreciation (456,418) (9,882,291) - (10,338,709) Total capital assets, being depreciated, net (370,014) 16,704,136 - 16,334,122 Right of use assets, being amortized
Improvements 143,525 - - 143,525
Vehicles 147,483 - - 147,483
Less: amortization (34,267) (102,335) - (136,602)
Total right of use assets, being amortized, net (34,267) 188,673 - 154,406 Business-type activities capital assets, net $ (404,281) 19,765,740 $ - $ 19,361,459 $ Packet Pg. 355 Attachment: 2023 Gonzales Financial Statements (2965 : Fiscal Year 2022-2023 Audited Financial Statements & Management Report) 33 CITY OF GONZALES
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED JUNE 30, 2023
Note 5 – Capital Assets (Continued)
Depreciation expense was charged to the following functions in the Statement of Activities:
Government Activities:
General Government 40,074 $
Public Safety 83,332
Public Works 523,148
Parks and Recreation 358,091
Community Development 249,094
$ 1,253,739
Business-Type Functions:
Water 275,811 $
Sewer 162,722
Solar 52,152
$ 490,685
Note 6 – Interfund Receivables, Payables and Transfers
Due From/To Other Funds
Current interfund balances and other short-term borrowings between funds were attributed to negative cash balances and are expected to be repaid shortly after the end of the fiscal year. The following is a summary of interfund balances as of June 30, 2023.
Due From Due To
Major Governmental Funds:
General Fund 1,314,722 $ - $
Nonmajor Governmental Funds:
Infrastructure Improvement Fund - 493,608
Supplemental Local Law Enforcement - 36,315
Housing Successor - 190,218
California Breeze Maintenance District - 65,353
Park Impact Fees - 176,802
CDBG Urban County Grant Fund - 352,426
$ 1,314,722 1,314,722 $
Advances
During fiscal year 2009-2010 the City of Gonzales formalized an advance agreement between the City’s General Fund and the Water Fund for the amount of $594,000. The amount is payable by the General Fund to the Water Fund over a period of 20 years at an interest rate of 1 percent payable in annual payments of $33,057. During the fiscal year 2022- 2023, the General Fund did not make any payments.
Packet Pg. 356 Attachment: 2023 Gonzales Financial Statements (2965 : Fiscal Year 2022-2023 Audited Financial Statements & Management Report) 34 CITY OF GONZALES
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED JUNE 30, 2023
Note 6 – Interfund Receivables, Payables and Transfers (Continued) Interfund Transfers
In general, the City uses interfund transfers to (1) move revenues from the funds that collect them to the funds’ that statute or budget requires to expend them, (2) use unrestricted revenues collected in the General Fund to help finance various programs and capital projects accounted for in other funds in accordance with budgetary authorization, and (3) move cash to debt service funds from the funds responsible for payment as debt service payments become due. In general, the effect of the interfund activity has been eliminated from the government-wide financial statements.
Transfers In Transfers Out
Major Governmental Funds:
General Fund 706,344 $ - $
CDBG Block Grant - -
Proprietary Funds:
Water - (256,774)
Sewer - (159,883)
Garbage - (323,834)
Solar Energy 406,280 -
Electric 207 -
Nonmajor Governmental Funds:
Supplemental Local Law Enforcement Fund - (304,945)
Public Safety Fund 215,096 -
California Breeze Maintenance District Fund - (19,000)
Canyon Creek Park Maintenance District Fund - (15,000)
Cipriani Estates Park & Maintenance District Fund - (10,000) Gonzales Industrial Park Landscape & Maintenance Fund - (10,000) CDBG Urban County Grant Fund - (228,491)
$ (1,327,927) 1,327,927 $
The following describe the significant transfers made during the year:
The Supplemental Local Law Enforcement Fund transferred $215,096 to the Public Safety Fund in order to finance various programs.
Various nonmajor funds transferred $746,149 to the General Fund, principally as reimbursements to the General Fund for various costs including administrative costs.
Packet Pg. 357 Attachment: 2023 Gonzales Financial Statements (2965 : Fiscal Year 2022-2023 Audited Financial Statements & Management Report) 35 CITY OF GONZALES
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED JUNE 30, 2023
Note 7 – Long-Term Debt
The City generally incurs long-term debt to finance projects or purchase assets which will have useful lives equal to or greater than the related debt.
Long-term debt payable at June 30, 2023 was comprised of the following individual issues:
Restated
Balance Balance Current
July 1, 2022 Additions Retirements June 30, 2023 Portion Governmental Activities Long Term Debt
Direct Borrowings:
Pool Site Financed Purchase 1,021,465 $ - $ (100,954) $ 920,511 $ 103,883 $ TAMC Measure X Note Payable - 1,505,039 (301,129) 1,203,910 200,816 Total Governmental Activities Debt $ 2,526,504 - $ (402,083) $ 2,124,421 $ 304,699 $ Business-Type Activities Long Term Debt
Direct Borrowings:
Note Payable
2005 Water Tank & Sewer Expansion Refinance 740,738 $ - $ (194,945) $ 545,793 $ 212,893 $ Solar Panel Energy Financed Purchase 1,089,591 - (77,959) 1,011,632 265,159 Solar Panel Energy Financed Purchase 1,122,577 - (276,034) 846,543 114,166 Total Business-Type Activities Debt $ 2,952,906 - $ (548,938) $ 2,403,968 $ 592,217 $ Compensated Absences
Governmental Activities $ - 298,445 $ 60,700 $ 359,145 $ Net Pension Liability
Governmental Activities $ 936,193 1,080,472 $ - $ 3,452,243 $ Business-type Activities $ 268,975 520,393 $ - $ 789,368 $ Packet Pg. 358 Attachment: 2023 Gonzales Financial Statements (2965 : Fiscal Year 2022-2023 Audited Financial Statements & Management Report) 36 CITY OF GONZALES
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED JUNE 30, 2023
Note 7 – Long-Term Debt (Continued)
Pool Site Financed Purchase – On March 1, 2016, the City entered into an agreement with the Gonzales Public Financing Authority to purchase the pool site for $1,575,000 at 2.88% interest rate. Purchase agreement terminates on February 1, 2031.
TAMC Measure X Loan – On August 23, 2017, the City entered into a project loan agreement for the street rehabilitation. The amount financed was $2,500,000 at 2.5% and monthly payments are determined by the lender. 2005 Water Tank & Sewer Expansion Refinance – On November 1, 2005 the Gonzales Public Financing Authority entered into a funding agreement with a financial institution to provide $3,131,500 for the Sewer Expansion and Water Tank Projects (the Project). The Note accrues interest at a rate of 4.55 percent. Principal and interest payments are due semi-annually on June 30th and December 30th.
The Financing Authority simultaneously entered into an installment sale agreement with the City of Gonzales where the Authority sells the Project to the City and the City purchases the Project from the Authority. The installment sale agreement accrues interest at the rate of 4.55 percent (the same rate as the Note) and the City is required to make semi-annual installment payments to the Authority in the same amounts due under the Note. The Authority has assigned the right to receive these installment payments to the Note holder.
In June of 2012, the above note was refinanced. The amount financed was $2,475,000 at the interest rate of 3.35 percent and payable in semi-annual installments on December 29th and June 29th of each year beginning on December 29, 2012.
Solar Panel Energy Financed Purchase – In February of 2012, the City entered into a purchase agreement for the purchase of Solar Panels. The amount financed was $2,697,589 and is payable over a 14 year term with payments commencing in October of 2012.
Solar Panel Energy Financed Purchase – In March of 2016, the City entered into a lease purchase agreement for the purchase of Solar Panels. The amount financed was $1,679,189 and is payable over a 15 year term with payments commencing in August of 2016.
The annual requirement to amortize the principal and interest on all long-term debt at June 30, 2023 were as follows:
Years ending June 30, Principal Interest Principal Interest 2023 - $ - $ - $ - $
2024 304,699 $ 60,873 $ 592,217 $ 75,727 $
2025 312,733 52,839 628,283 53,462
2026 320,979 44,592 524,364 29,738
2027 329,444 36,127 124,392 18,093
2028 338,135 27,437 128,000 14,485
2029-2031 518,431 30,625 406,713 20,742
$ 252,493 2,124,421 $ 2,403,968 $ 212,246 $
Governmental Activities Business-Type Activities
Packet Pg. 359 Attachment: 2023 Gonzales Financial Statements (2965 : Fiscal Year 2022-2023 Audited Financial Statements & Management Report) 37 CITY OF GONZALES
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED JUNE 30, 2023
Note 8 – Lease Liability
Balance Balance Current
July 1, 2022 Additions Retirements June 30, 2023 Portion Lease Liability
Governmental Activities
Vehicles $ 197,736 - $ (56,589) $ 141,147 $ 56,702 $
Total Governmental Activities Lease Liability $ 197,736 - $ (56,589) $ 141,147 $ 56,702 $ Business-type Activities
Improvements 132,169 $ - $ - $ 132,169 $ 10,920 $
Vehicles 95,391 - (29,478) 65,913 29,537
Total Business-type Activities Lease Liability $ 227,560 - $ (29,478) $ 198,082 $ 40,457 $ The City entered into several sixty (60) month lease agreements as lessee for the acquisition and use of vehicles.
An initial lease liability was recorded in the amount of $430,751 during the year the lease was entered. As of June 30, 2023, the value of the lease liability was $207,060. The City is required to make monthly principal and interest payments of $411 to $6,873. The lease has an interest rate of 0.9%. The equipment has a five-year estimated useful life. The value of the right-to-use asset as of the end of the current fiscal year was $151,712 and had accumulated amortization of $279,039.
On March 2012, the City entered into a lease agreement with a Winery, for the rental of their rooftops in connection with the solar panels purchased by the City. The lease rental payments are equal to $5,000 annually for the first ten years and $10,000 for the sixteenth year at 3% interest, with a three percent annual escalator applied to each subsequent year of the agreement which terminates on December 31, 2042.
The future principal and interest lease payments as of June 30, 2023, were as follows:
Years ending June 30, Principal Interest Principal Interest 2024 56,702 $ 230 $ 40,457 $ 4,184 $
2025 56,815 117 27,070 3,911
2026 27,630 29 11,594 3,835
2027 - - 6,259 3,731
2028 - - 6,450 3,550
2029-2033 - - 35,314 14,686
2034-2038 - - 41,021 8,979
2039-2043 - - 29,917 2,453
$ 376 141,147 $ 198,082 $ 11,930 $
Governmental Activities Business-Type Activities
Packet Pg. 360 Attachment: 2023 Gonzales Financial Statements (2965 : Fiscal Year 2022-2023 Audited Financial Statements & Management Report) 38 CITY OF GONZALES
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED JUNE 30, 2023
Note 9 – Fund Balance
The following is a summary of deficit fund balances as of June 30, 2023:
Major Enterprise Funds:
Garbage Fund (1,250) $
Nonmajor Funds:
Infrastructure Improvements Fund (493,608)
Housing Successor (190,218)
California Breeze Maintenance District (68,770)
This deficit is expected to be relieved from future revenues or transfers from other funds.
Note 10 – Deferred Outflows/Inflows of Resources
GASB No. 65 establishes accounting and financial reporting standards that reclassify, as deferred outflows of resources or deferred inflows of resources, certain items that were previously reported as assets and liabilities and recognizes, as outflows of resources or inflows or resources, certain items that were previously reported as assets and liabilities.
In addition to assets, the statement of financial position will sometimes report a separate section for deferred outflows or resources. This separate financial statement element, deferred outflows of resources, represents a consumption of net position or fund balance that applies to a future period(s) and thus, will not be recognized as an outflow of resources (expense/expenditure) until then. The City has one item to report in this category:
The City has $2,618,450 in pension related items that qualify to be reported in deferred outflows of resources.
The pension related deferred outflows of resources are described in Note 13.
In addition to liabilities, the statement of financial position will sometimes report a separate section for deferred inflows of resources. This separate financial statement element, deferred inflows of resources, represent an acquisition of net position or fund balance that applies to a future period(s) and so will not be recognized as an inflow of resources (revenue) until that time. The City has two items to report in this category:
The City has $410,163 in pension related items that qualify to be reported in deferred inflows of resources. The pension related deferred inflows of resources are described in Note 13.
Unavailable revenues arise only under a modified accrual basis of accounting and is reported only in the governmental funds balance sheet. The City has $1,841,543 in notes and loans receivable reported as deferred inflows of resources reported for unavailable revenues. Of this amount $1,549,134, $110,046, and $182,363 is reported in the Community Block Grant Fund, Infrastructure Improvements Fund, and Housing Successor Fund, respectively See Note 4 for details.
Packet Pg. 361 Attachment: 2023 Gonzales Financial Statements (2965 : Fiscal Year 2022-2023 Audited Financial Statements & Management Report) 39 CITY OF GONZALES
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED JUNE 30, 2023
Note 11 – Commitments and Contingencies
General
The City participates in a number of Federal and State assisted grant programs which are subject to financial and compliance audits. Audits for these programs and the respective findings are to be determined at a future date, and the City expects the amount, if any, of the expenditures which may be disallowed by the granting agency to be immaterial.
The City is a defendant in various lawsuits and claims. The City attorney anticipates that actual or potential claims against the City, not covered by insurance, would not materially affect the financial position of the City.
Note 12 – Risk Management
The City provides for workers' compensation and liability through a self-funded joint powers agency, Monterey Bay Area Self Insurance Authorities. Joint Powers Agreement (JPA) accounts are not separately maintained for each participant.
Description of Self-Insurance Pool Pursuant to Joint Powers Agreement The City is a member of the Monterey Bay Area Self Insurance Authority (MBASIA). MBASIA is composed of 10 California public entities and is organized under a joint powers agreement pursuant to California Government Code 6500 et seq. The purpose of MBASIA is to arrange and administer programs for the pooling of self-insured losses, to purchase excess insurance or reinsurance, and to arrange for group-purchased insurance for property and other coverage.
General Liability: The City is self-insured for the first $10,000 of each liability claims. Claims above $10,000 up to $499,000 are paid by MBASIA. Claims above $499,000 up to $20 million are covered by insurance purchased by MBASIA.
Workers’ Compensation: The City does not retain a self-insured portion of workers’ compensation claims. Annual premiums for coverage up to statutory levels are paid to MBASIA based on the level of claims activity. A third party claims administrator is contracted by MBASIA to manage claims activity.
Adequacy of Protection
During the past three fiscal (claims) years none of the above programs of protection have had settlements or judgments that exceeded insured coverage. There have been no significant reductions in insured liability coverage from coverage in the prior year. Audited financial statements for MBASIA can be obtained from their management at 100 Pine Street, 11th Floor, San Francisco, CA 94111.
Packet Pg. 362 Attachment: 2023 Gonzales Financial Statements (2965 : Fiscal Year 2022-2023 Audited Financial Statements & Management Report) 40 CITY OF GONZALES
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED JUNE 30, 2023
Note 13 – Pension Plan
Plan Description – The City contributes to the California Public Employees' Retirement System (PERS), an agent multiple-employer public employee defined benefit pension plan. PERS provides retirement and disability benefits, annual cost-of-living adjustments and death benefits to plan members and beneficiaries. PERS acts as a common investment and administrative agent for participating public entities within the State of California. Benefit provisions and all other requirements are established by state statute and city ordinance. Copies of PERS' annual financial report may be obtained from their Executive Office - 400 P Street - Sacramento, CA 95814.
Funding Policy – Active plan members in the Plan are required to contribute 7% of their covered salary for both miscellaneous and public safety members. The City contributes 3.5% of the employees required share of 7%. The City is required to contribute the actuarially determined remaining amounts necessary to fund the benefits for its members. The actuarial methods and assumptions used are those adopted by the CalPERS Board of Administration. The required employer contribution rate for the fiscal year ended June 30, 2023 was 8.630%, 14.740%,
7.470%, and 10.800% for the miscellaneous, safety, PEPRA miscellaneous, and PEPRA safety, respectively. The contribution requirements of plan members are established by State statute and the employer contribution is established and may be amended by PERS.
The Plans’ provisions and benefits in effect at June 30, 2023, are summarized as follows:
Miscellaneous Safety
Hire Date
Prior to
January 1, 2013
Prior to
January 1, 2013
Benefit Formula 2.0% at 60;
maximum 2%
COLA
2.0% at 55;
maximum 2%
COLA
Benefit Vesting Schedule 5 years service 5 years service Benefit Payments monthly for life monthly for life
Retirement Age 60 55
Monthly Benefits, as a % of Eligible Compensation 2.00% 2.00% Required Employee Contribution Rates 7.00% 7.00%
Required Employer Contribution Rates 8.630% 14.740%
PEPRA
Miscellaneous
PEPRA Safety
Police and Fire
Hire Date
On or after
January 1, 2013
On or after
January 1, 2013
Benefit Formula 2.0% at 62;
maximum 2%
COLA
2.0% at 57;
maximum 2%
COLA
Benefit Vesting Schedule 5 years service 5 years service Benefit Payments monthly for life monthly for life
Retirement Age 62 57
Monthly Benefits, as a % of Eligible Compensation 2.00% 2.00% Required Employee Contribution Rates 6.25% 9.50%
Required Employer Contribution Rates 7.470% 10.800%
Packet Pg. 363 Attachment: 2023 Gonzales Financial Statements (2965 : Fiscal Year 2022-2023 Audited Financial Statements & Management Report) 41 CITY OF GONZALES
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED JUNE 30, 2023
Note 13 – Pension Plan (Continued)
Contributions – Section 20814(c) of the California Public Employees’ Retirement Law requires that the employer contribution rates for all employers be determined on an annual basis by the actuary and shall be effective on July 1 following the notice of change in the rate. Funding contributions for the Plan are determined annually on an actuarial basis as of June 30 by CalPERS. The actuarially determined rate is the estimated amount necessary to finance the costs of benefits earned by employees during the year, with an additional amount to finance any unfunded accrued liability. The City is required to contribute the difference between the actuarially determined rate and the contribution rate of employees.
For the year ended June 30, 2023, $642,112 in contributions was recognized as part of the pension expense.
Pension Liabilities, Pension Expenses, and Deferred Outflows/Inflows of Resources Related to Pensions As of June 30, 2023, the City reported net pension liabilities for its proportionate shares of the net pension liability as follows:
Proportionate Share of
Net Pension Liability
Total Net Pension Liability – Miscellaneous $ 2,209,444 Total Net Pension Liability – Safety $ 2,032,167
General Information about the Pension Plan
The City’s net pension liability is measured as the proportionate share of the net pension liability. The net pension liability of each Plan is measured as of June 30, 2022, and the total pension liability for each Plan used to calculate the net pension liability was determined by an actuarial valuation as of June 30, 2021 rolled forward to June 30, 2022 using standard update procedures. The City’s proportion of the net pension liability was based on a projection of the City’s long-term share of contributions to the pension plans relative to the projected contributions of all participating employers, actuarially determined. The City’s proportionate share of the net pension liability for the Plan as of June 30, 2022 and 2023 was as follows:
Miscellaneous Safety
Proportion – June 30, 2022 0.03965% .01700%
Proportion – June 30, 2023 0.04722% .02957%
Change – Increase/(Decrease) 0.00757% .01257%
Packet Pg. 364 Attachment: 2023 Gonzales Financial Statements (2965 : Fiscal Year 2022-2023 Audited Financial Statements & Management Report) 42 CITY OF GONZALES
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED JUNE 30, 2023
Note 13 – Pension Plan (Continued)
For the year ended June 30, 2023, the City recognized pension expense of $1,417,463. At June 30, 2023, the City reported deferred outflows of resources and deferred inflows of resources related to pension from the following sources:
Deferred Outflows
of Resources
Deferred Inflows
of Resources
Pension contributions subsequent to
measurement date 690,096 $ - $
Change in employer's proportion 642,954 -
Changes of assumptions 431,308 -
Difference between employer's contributions and
proportionate share of contributions - (358,378)
Differences between projected and actual investment
earnings - 725,618
Differences between expected and actual
experience (51,785) 128,474
Total 2,618,450 $ (410,163) $
The $690,096 reported as deferred outflows of resources related to contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability in the year ended June 30, 2024. Other amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized as pension expense as follows:
Year Ended
June 30
2024 468,480 $
2025 391,885
2026 214,532
2027 443,294
Total 1,518,191 $
Packet Pg. 365 Attachment: 2023 Gonzales Financial Statements (2965 : Fiscal Year 2022-2023 Audited Financial Statements & Management Report) 43 CITY OF GONZALES
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED JUNE 30, 2023
Note 13 – Pension Plan (Continued)
Actuarial Methods and Assumptions – The collective total pension liability for the June 30, 2022 measurement period was determined by an actuarial valuation as of June 30, 2021, with update procedures used to roll forward the total pension liability to June 30, 2022. The collective total pension liability was based on the following assumptions:
Valuation Date June 30, 2021
Measurement Date June 30, 2022
Actuarial Cost Method Entry-Age Normal Cost Method in
accordance with the requirements of
GASB Statement No. 68
Actuarial Assumptions:
Discount Rate 7.15%
Inflation 2.30%
Payroll Growth 2.30%
Salary Increases Varies by Entry Age and Service
Mortality Rate Table Derived using CalPERS' Membership
Date for all Funds
1 Post Retirement Benefit
Increase
Contract COLA up to 2.30% until
Purchasing Power Protection
Allowance Floor on Purchasing Power
applies
1 The mortality table was developed based on CalPERS-specific data. The rates incorporate Generational Mortality to capture ongoing mortality improvement using 80% of Scale MP 2020 published by the Society of Actuaries. For more details, please refer to the 2021 experience study report that can be found on the CalPERS website.
All other actuarial assumptions used in the June 30, 2018 valuation was based on the results of an December 2017 experience study report (based on CalPERS demographic data from 1997 to 2015), including updates to salary increase, mortality and retirement rates. The Experience Study can be obtained at CalPERS’ website.
Change of assumptions – None.
Packet Pg. 366 Attachment: 2023 Gonzales Financial Statements (2965 : Fiscal Year 2022-2023 Audited Financial Statements & Management Report) 44 CITY OF GONZALES
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED JUNE 30, 2023
Note 13 – Pension Plan (Continued)
Discount rate – The discount rate used to measure the total pension liability for PERF C was 6.90%. The projection of cash flows used to determine the discount rate assumed that contributions from plan members will be made at the current member contribution rates and that contributions from employers will be made at statutorily required rates, actuarially determined. Based on those assumptions, the Plan’s fiduciary net position was projected to be available to make all projected future benefit payments of current plan members. Therefore, the long-term expected rate of return on plan investments was applied to all periods of projected benefit payments to determine the total pension liability.
In determining the long-term expected rate of return, CalPERS took into account long-term market return expectations as well as the expected pension fund cash flows. Projected returns for all asset classes are estimated and, combined with risk estimates, are used to project compound (geometric) returns over the long term. The discount rate used to discount liabilities was informed by the longterm projected portfolio return. The long-term expected real rates of return by asset class can be found in CalPERS’ Comprehensive Annual Financial Report for the fiscal year ended June 30, 2022.
The table below reflects long-term expected real rates of return by asset class. The rate of return was calculated using the capital market assumptions applied to determine the discount rate and asset allocation. The geometric rates of return are net of administrative expenses.
Asset Class
New Strategic
Allocation
Real Return
Years 1-101,2
Global Equity - cap-weighted 30% 4.45%
Global Equity - noncap-weighted 12% 3.84%
Private Equity 13% 7.28%
Treasury 5% 0.27%
Mortgage-backed Securities 5% 0.50%
Investment Grade Corporates 10% 1.56%
High Yield 5% 2.27%
Emerging Market Debt 5% 2.48%
Private Debt 5% 3.57%
Real Assets 15% 3.21%
Leverage. -5% -0.59%
Total 100%
1 An expected inflation of 2.30% used for this period.
2 Figures are based on the 2021-22 Asset Liability Management study.
Packet Pg. 367 Attachment: 2023 Gonzales Financial Statements (2965 : Fiscal Year 2022-2023 Audited Financial Statements & Management Report) 45 CITY OF GONZALES
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED JUNE 30, 2023
Note 13 – Pension Plan (Continued)
Sensitivity of the Proportionate Share of the Net Pension Liability to Changes in the Discount Rate The following presents the City’s proportionate share of the net pension liability for each Plan, calculating using the discount rate of each Plan, as well as what the City’s proportionate share of the net pension liability would be if it were calculated using a discount rate that is 1-percentage point lower (5.90%) or 1-percentage point higher (7.90%) than the current rate:
1% Decrease
(5.90%)
Current Discount
Rate
(6.90%)
1% Increase
(7.90%)
Miscellaneous 3,617,354 $ 2,209,444 $ 1,051,084 $
Safety 3,410,920 $ 2,032,167 $ 905,346 $
Pension Plan Fiduciary Net Position – Detailed information about each pension plan’s fiduciary net position is available in the separately issue CalPERS financial reports.
Note 16 – Excess of Expenditures over Appropriations
The excess of expenditures over appropriations are as follows:
General Fund:
Current:
Public safety $ 162,487
Community development $ 104,285
Capital outlay $ 485,815
Debt service:
Interest $ 1,405
Measure X:
Debt service:
Principal $ 35,759
The excess of expenditures over appropriations are covered by excess revenues over appropriations and available fund balance in the corresponding funds.
Note 14 – Subsequent Events
The City evaluated subsequent events for recognition and disclosure through April 19, 2024, the date which these financial statements were available to be issued. Management concluded that no material subsequent events have occurred since June 30, 2023 that required recognition or disclosure in such financial statements.
Packet Pg. 368 Attachment: 2023 Gonzales Financial Statements (2965 : Fiscal Year 2022-2023 Audited Financial Statements & Management Report) 46 CITY OF GONZALES
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED JUNE 30, 2023
Note 15 – Prior Period Adjustments
During the year, the City had a prior period adjustment of $95,061 for the overstatement of Measure X Loan Payable, the net effect increased net position by $95,061 in the Governmental Activities.
Government-Wide
Governmental Activities
Net Position, June 30, 2022, as previously reported 29,118,499 $ Overstatement of Measure X Loan Payable 95,061
Net Position, July 1, 2022, as restated 29,213,560 $
Packet Pg. 369 Attachment: 2023 Gonzales Financial Statements (2965 : Fiscal Year 2022-2023 Audited Financial Statements & Management Report)
REQUIRED SUPPLEMENTARY INFORMATION
Packet Pg. 370 Attachment: 2023 Gonzales Financial Statements (2965 : Fiscal Year 2022-2023 Audited Financial Statements & Management Report) 47 CITY OF GONZALES
BUDGETARY COMPARISON SCHEDULE
GENERAL FUND
YEAR ENDED JUNE 30, 2023
Variance with
Final Budget
Budgeted Amounts Actual Positive/
Original Final Amounts (Negative)
Revenue
Taxes and assessments 5,513,500 $ 5,513,500 $ 5,905,340 $ 391,840 $ Licenses, permits and impact fees 335,500 335,500 237,477 (98,023) Intergovernmental 490,800 490,800 2,806,620 2,315,820
Charges for services 85,000 85,000 107,066 22,066
Fines and forfeitures 56,000 56,000 43,455 (12,545)
Use of money and property 68,000 68,000 97,844 29,844
Other 294,229 294,229 416,467 122,238
Total revenue 6,843,029 6,843,029 9,614,269 2,771,240
Expenditures
Current
General government 1,172,083 1,172,083 1,165,626 6,457
Public safety 4,469,820 4,469,820 4,632,307 (162,487)
Public works 385,320 385,320 267,260 118,060
Parks and recreation 1,035,693 1,035,693 866,713 168,980 Community development 278,778 278,778 383,063 (104,285) Capital outlay - - 485,815 (485,815)
Debt service
Principal 100,954 100,954 99,541 1,413
Interest and fiscal charges 28,697 28,697 30,102 (1,405) Total expenditures 7,471,345 7,471,345 7,930,427 (459,082) Revenue over (under) expenditures (628,316) (628,316) 1,683,842 2,312,158 Other Financing Sources
Sale of assets 5,000 5,000 17,451 12,451
Transfers in (out) - net 623,316 623,316 729,296 105,980 Net Change in Fund Balance $ - - $ 2,430,589 $ 2,430,589 Fund Balance
Beginning of year 967,199
End of year $ 3,397,788
Packet Pg. 371 Attachment: 2023 Gonzales Financial Statements (2965 : Fiscal Year 2022-2023 Audited Financial Statements & Management Report) 48 CITY OF GONZALES
BUDGETARY COMPARISON SCHEDULE
COMMUNITY DEVELOPMENT BLOCK GRANT
YEAR ENDED JUNE 30, 2023
Variance with
Final Budget
Budgeted Amounts Actual Positive/
Original Final Amounts (Negative)
Revenue
Intergovernmental - $ - $ 85,000 $ 85,000 $
Loan repayments 85,000 85,000 17,845 (67,155)
Use of money and property 10,000 10,000 15,372 5,372
Total revenue 95,000 95,000 118,217 23,217
Expenditures
Public works 113,107 113,107 27,314 85,793
Community development 175,250 175,250 172,509 2,741
Total expenditures 288,357 288,357 199,823 88,534
Revenue over expenditures (193,357) (193,357) (81,606) 111,751 Other Financing Sources/(Uses)
Transfers in/(out) - net 15,195 15,195 - (15,195)
Change in Fund Balance $ (178,162) (178,162) $ (81,606) $ 96,556 Fund Balance
Beginning of year 431,649
End of year $ 350,043
Packet Pg. 372 Attachment: 2023 Gonzales Financial Statements (2965 : Fiscal Year 2022-2023 Audited Financial Statements & Management Report) 49 CITY OF GONZALES
BUDGETARY COMPARISON SCHEDULE
MEASURE X FUND
YEAR ENDED JUNE 30, 2023
Variance with
Final Budget
Budgeted Amounts Actual Positive/
Original Final Amounts (Negative)
Revenue
Taxes and assessments $ 312,000 312,000 $ 335,667 $ 23,667 $ Total revenue 312,000 312,000 335,667 23,667
Expenditures
Debt service
Principal 265,370 265,370 301,129 (35,759)
Interest 46,630 46,630 37,420 9,210
Total expenditures 312,000 312,000 338,549 (26,549)
Change in Fund Balance $ - - $ (2,882) $ (2,882)
Fund Balance
Beginning of year 27,616
End of year $ 24,734
Packet Pg. 373 Attachment: 2023 Gonzales Financial Statements (2965 : Fiscal Year 2022-2023 Audited Financial Statements & Management Report) 50 CITY OF GONZALES SCHEDULE OF THE CITY’S NET PROPORTIONATE SHARE OF NET PENSION LIABILITY LAST 10 YEARS* YEAR ENDED JUNE 30, 2023 Proportion of the net pension
liability
Proportionate share of the net
pension liability
Covered -
employee
payroll
Proportionate share of the net pension
liability as a percentage of
covered-employee payroll
Plan's fiduciary net
position
Plan's fiduciary net
position as a percentage of
the Total Pension Liability
2015 0.05204% 1,286,053 $ 1,112,163 $ 115.64% 4,587,216 $ 78.100% 2016 0.03955% 1,084,895 $ 982,675 $ 110.40% 5,044,102 $ 82.298% 2017 0.03916% 1,360,265 $ 947,145 $ 143.62% 4,725,496 $ 77.648% 2018 0.03895% 1,535,641 $ 1,378,772 $ 111.38% 5,518,046 $ 78.229% 2019 0.01890% 712,326 $ 1,366,906 $ 52.11% 4,468,191 $ 86.250%2020 0.03936% 1,576,056 $ 1,678,041 $ 93.92% 6,694,872 $ 80.945% 2021 0.04195% 1,769,575 $ 1,820,163 $ 97.22% 6,952,747 $ 79.712% 2022 0.03965% 752,859 $ 1,917,739 $ 39.26% 8,606,543 $ 91.956%2023 0.04722% 2,209,444 $ 1,561,819 $ 141.47% 8,118,682 $ 78.608% 2015 0.02316% 868,678 $ 992,049 $ 87.56% 3,422,038 $ 79.750%2016 0.01684% 693,833 $ 1,039,081 $ 66.77% 3,797,755 $ 84.550%2017 0.02010% 1,040,872 $ 1,098,540 $ 94.75% 4,298,623 $ 84.550% 2018 0.02090% 1,248,529 $ 1,181,291 $ 105.69% 4,968,043 $ 79.916% 2019 0.02135% 1,252,487 $ 1,297,002 $ 96.57% 5,511,384 $ 81.483% 2020 0.02256% 1,408,172 $ 1,395,445 $ 100.91% 6,011,305 $ 81.021% 2021 0.02444% 1,628,411 $ 1,509,649 $ 107.87% 6,814,985 $ 80.714% 2022 0.01700% 596,588 $ 1,579,112 $ 37.78% 8,385,699 $ 93.358%2023 0.02957% 2,032,166 $ 1,806,192 $ 112.51% 7,951,687 $ 79.645% Miscellaneous
Safety
*Fiscal year 2014-15 was the first year of implementation, therefore only nine years are shown.
Packet Pg. 374
Attachment: 2023 Gonzales Financial Statements (2965 : Fiscal Year 2022-2023 Audited Financial 51 CITY OF GONZALES SCHEDULE OF CONTRIBUTIONS LAST 10 YEARS* YEAR ENDED JUNE 30, 2023 Contractually required
contribution (actuarially
determined)
Contributions in relation to the
actuarially determined
contributions
Contributions
deficiency
(excess) Covered-employee payroll
Contributions as a
percentage of coveredemployee payroll
2015 160,656 $ (160,656) $ - $ 1,112,163 $ 14.45%2016 137,778 $ (137,778) $ - $ 982,675 $ 14.02%2017 185,525 $ (185,525) $ - $ 947,145 $ 19.59%2018 231,233 $ (231,233) $ - $ 1,378,772 $ 16.77%2019 149,308 $ (149,308) $ - $ 1,366,906 $ 10.92%2020 189,303 $ (189,303) $ - $ 1,678,041 $ 11.28%2021 232,321 $ (232,321) $ - $ 1,820,163 $ 12.76%2022 263,908 $ (263,908) $ - $ 1,917,739 $ 13.76%2023 290,579 $ (290,579) $ - $ 1,561,819 $ 18.61%2015 161,844 $ (161,844) $ - $ 992,049 $ 16.31%2016 152,643 $ (152,643) $ - $ 1,039,081 $ 14.69%2017 159,930 $ (159,930) $ - $ 1,098,540 $ 14.56%2018 185,473 $ (185,473) $ - $ 1,181,291 $ 15.70%2019 193,362 $ (193,362) $ - $ 1,297,002 $ 14.91%2020 235,139 $ (235,139) $ - $ 1,395,445 $ 16.85%2021 274,368 $ (274,368) $ - $ 1,509,649 $ 18.17%2022 305,992 $ (305,992) $ - $ 1,579,112 $ 19.38%2023 351,533 $ (351,533) $ - $ 1,806,192 $ 19.46% Miscellaneous
Safety
*Fiscal year 2014-15 was the first year of implementation, therefore only nine years are shown.
Packet Pg. 375
Attachment: 2023 Gonzales Financial Statements (2965 : Fiscal Year 2022-2023 Audited Financial
SUPPLEMENTAL ONLY INFORMATION
Packet Pg. 376 Attachment: 2023 Gonzales Financial Statements (2965 : Fiscal Year 2022-2023 Audited Financial Statements & Management Report) See accompanying notes. 52
CITY OF GONZALES COMBINING BALANCE SHEET NON-MAJOR GOVERNMENTAL FUNDS JUNE 30, 2023 California Canyon Creek
Supplemental Ag Industrial Breeze Park &
Infrastructure Gas Local Law Public Park Federal Housing Maintenance Maintenance Improvements Tax Enforcement Safety Grant AQMD Successor District District ASSETS
Cash and investments - $ 5,920 $ - $ 2,011 $ 4,971 $ 24,418 $ - $ - $ 1,720,606 $ Due from other governments - 18,484 36,315 - - - - - -
Interest receivable - - - - - - - 1,094 4,362
Notes and loans receivable - 110,046 - - - - 182,363 - - Total assets $ 24,404 110,046 $ 36,315 $ 2,011 $ 4,971 $ 24,418 $ 182,363 $ 1,094 $ 1,724,968 $
LIABILITIES
Accounts payable and accrued expense - 20,904 - 2,011 - - - 4,511 3,051 Due to other funds - 493,608 36,315 - - - 190,218 65,353 - Total liabilities 20,904 493,608 36,315 2,011 - - 190,218 69,864 3,051
DEFERRED INFLOWS OF RESOURCES
Unavailable revenues - 110,046 - - - - 182,363 - -
Total deferred inflows of resources - 110,046 - - - - 182,363 - -
FUND BALANCE
Restricted
Lighting, landscape & park maintenance - - - - - - - - 1,721,917 Low-income housing activities - - - - - 24,418 - - -
Community development - - - - 4,971 - - - -
Street improvements - 3,500 - - - - - - -
Public safety - - - - - - - - -
Unassigned - (493,608) - - - - (190,218) (68,770) -
Total fund balance (493,608) 3,500 - - 4,971 24,418 (190,218) (68,770) 1,721,917 Total liabilities, deferred inflows
of resources and fund balance 110,046 $ 24,404 $ 36,315 $ 2,011 $ 4,971 $ 24,418 $ 182,363 $ 1,094 $ 1,724,968 $ Special Revenue
Packet Pg. 377
Attachment: 2023 Gonzales Financial Statements (2965 : Fiscal Year 2022-2023 Audited Financial See accompanying notes. 53
CITY OF GONZALES COMBINING BALANCE SHEET NON-MAJOR GOVERNMENTAL FUNDS (CONTINUED) JUNE 30, 2023 Cipriani Gonzales
Estates Park & Industrial Park Intersection Circulation American Maintenance Landscape & Improvements Police Park Fire System Rescue District Maintenance Impact Fees Impact Fees Impact Fees Impact Fees Impact Fees Plan ASSETS
Cash and investments 739,665 $ 450,749 $ - $ 33,501 $ - $ 8,950 $ 251,677 $ 320,345 $ Due from other governments - - - - 177,952 - - -Interest receivable 2,816 1,463 - - - - 3 -Notes and loans receivable - - - - - - - - Total assets $ 452,212 742,481 $ - $ 33,501 $ 177,952 $ 8,950 $ 251,680 $ 320,345 $
LIABILITIES
Accounts payable and accrued expense 9,014 2,432 - - - - - 40,335Due to other funds - - - - 176,802 - - - Total liabilities 2,432 9,014 - - 176,802 - - 40,335
DEFERRED INFLOWS OF RESOURCES
Unavailable revenues - - - - - - - -
Total deferred inflows of resources - - - - - - - -
FUND BALANCE
Restricted
Lighting, landscape & park maintenance 733,467 449,780 - - - - - -Low-income housing activities - - - - - - - -Community development - - - - 1,150 - - 280,010Street improvements - - - - - - 251,680 -Public safety - - - 33,501 - 8,950 - - Unassigned - - - - - - - -
Total fund balance 733,467 449,780 - 33,501 1,150 8,950 251,680 280,010 Total liabilities, deferred inflows
of resources and fund balance 742,481 $ 452,212 $ - $ 33,501 $ 177,952 $ 8,950 $ 251,680 $ 320,345 $ Special Revenue
Packet Pg. 378
Attachment: 2023 Gonzales Financial Statements (2965 : Fiscal Year 2022-2023 Audited Financial See accompanying notes. 54
CITY OF GONZALES COMBINING BALANCE SHEET NON-MAJOR GOVERNMENTAL FUNDS (CONTINUED) JUNE 30, 2023 Storm Enhanced Total
Drainage Public Public Uses Sphere of CDBG Infrastructure Non-major Facility Facilities Mitigation Influence General Plan SB1 Urban Fiancing Government Impact Fees Impact Fees Fees Impact Fees Impact Fees Road County Grant District Funds ASSETS
Cash and investments 34,269 $ 63,996 $ 3,729 $ 284,511 $ 82,989 $ 150,366 $ - $ 126,155 $ 4,308, $ 8 Due from other governments - - - - - 33,382 352,426 - 618,5Interest receivable - 412 - 842 11 - - - 11,0Notes and loans receivable - - - - - - - - 292,4 Total assets $ 64,408 34,269 $ 3,729 $ 285,353 $ 83,000 $ 183,748 $ 352,426 $ 126,155 $ 5,230,7
LIABILITIES
Accounts payable and accrued expense - $ 17,258 $ - $ 1,285 $ - $ - $ - $ - $ 100, $ 8 Due to other funds - - - - - - 352,426 - 1,314,7
Total liabilities 17,258 - - 1,285 - - 352,426 - 1,415,5
DEFERRED INFLOWS OF RESOURCES
Unavailable revenues - - - - - - - - 292,4
Total deferred inflows of resources - - - - - - - - 292,4
FUND BALANCE
Restricted
Lighting, landscape & park maintenance - - - - - - - - 2,905,1 Low-income housing activities - - - - - - - - 24,4Community development 34,269 47,150 3,729 284,068 83,000 - - 126,155 864,5Street improvements - - - - - - - - 255,1Public safety - - - - - 183,748 - - 226,1 Unassigned - - - - - - - - (752,5
Total fund balance 34,269 47,150 3,729 284,068 83,000 183,748 - 126,155 3,522,8 Total liabilities, deferred inflows
of resources and fund balance 34,269 $ 64,408 $ 3,729 $ 285,353 $ 83,000 $ 183,748 $ 352,426 $ 126,155 $ 5,230, $ 7 Special Revenue
Packet Pg. 379
Attachment: 2023 Gonzales Financial Statements (2965 : Fiscal Year 2022-2023 Audited Financial See accompanying notes. 55
CITY OF GONZALES COMBINING STATEMENT OF REVENUE, EXPENDITURES AND CHANGES IN FUND BALANCE NON-MAJOR GOVERNMENTAL FUNDS YEAR ENDED JUNE 30, 2023 California Canyon Creek
Supplemental Ag Industrial Breeze Park &
Infrastructure Gas Local Law Public Park Federal Housing Maintenance Maintenance Improvements Tax Enforcement Safety Grant AQMD Successor District District Revenue
Taxes and assessments - $ - $ - $ - $ - $ - $ - $ 143,413 $ 292,971 $ Licenses, permits and impact fees - - - 1,044 - - - - - Intergovernmental - 460,167 275,718 - - - - - -
Use of money and property - - 1,612 20 71 558 1,282 3,336 31,705 Loan repayments - - - - - - 3,972 - -
Total revenue 460,167 - 277,330 1,064 71 558 5,254 146,749 324,676 Expenditures
General government - - - - - - - - -
Public safety - - - 214,455 - - - - -
Public works 5,000 456,667 - - - - - - -
Parks and recreation - - - - - - - 260,894 229,426
Community development - - - - - - - - -
Capital outlay - - - - - - - 3,000 3,000
Debt service
Principal - - - - - 56,589 - - -
Interest and fiscal charges - - - - - 343 - - -
Total expenditures 456,667 5,000 - 214,455 - 56,932 - 263,894 232,426 Revenue over (under) expenditures (5,000) 3,500 277,330 (213,391) 71 (56,374) 5,254 (117,145) 92,250 Other financing sources/(uses)
Operating transfers in/(out) - net - - (304,945) 215,096 - - - (19,000) (15,000) - - (304,945) 215,096 - - - (19,000) (15,000)
Change in Fund Balance 3,500 (5,000) (27,615) 1,705 71 (56,374) 5,254 (136,145) 77,250 Fund Balance
Beginning of year (488,608) - 27,615 (1,705) 4,900 80,792 (195,472) 67,375 1,644,667 End of year (493,608) $ 3,500 $ - $ - $ 4,971 $ 24,418 $ (190,218) $ (68,770) $ 1,721,917 $ Special Revenue
Packet Pg. 380
Attachment: 2023 Gonzales Financial Statements (2965 : Fiscal Year 2022-2023 Audited Financial See accompanying notes. 56
CITY OF GONZALES COMBINING STATEMENT OF REVENUE, EXPENDITURES AND CHANGES IN FUND BALANCE NON-MAJOR GOVERNMENTAL FUNDS YEAR ENDED JUNE 30, 2023 Cipriani Gonzales
Estates Park & Industrial Park Intersection Circulation American Maintenance Landscape & Improvements Police Park Fire System Rescue District Maintenance Impact Fees Impact Fees Impact Fees Impact Fees Impact Fees Plan Revenue
Taxes and assessments 98,428 $ 124,336 $ - $ - $ - $ - $ - $ - $ Licenses, permits and impact fees - - - - - 2,000 5,826 - Intergovernmental - - - - 177,952 - - 993,486
Use of money and property 14,944 8,604 1,997 477 - 104 4,484 10,494 Other revenue - - 8,312 - - - - -
Total revenue 132,940 113,372 10,309 477 177,952 2,104 10,310 1,003,980 Expenditures
General government - - - - - - - 703,481Public safety - - - - - 1,108 - -Public works 69,290 37,980 - - - - - -Parks and recreation 19,301 - - - - - - -Community development - - - - - - 5,640 -Capital outlay 3,000 3,000 - - 178,801 - - -Debt service Principal - - - - - - - -Interest and fiscal charges - - - - - - - - Total expenditures 91,591 40,980 - - 178,801 1,108 5,640 703,481 Revenue over (under) expenditures 21,781 91,960 10,309 477 (849) 996 4,670 300,499 Other financing sources/(uses)
Operating transfers in/(out) - net (10,000) (10,000) - - - - - - (10,000) (10,000) - - - - - -
Change in Fund Balance 81,960 11,781 10,309 477 (849) 996 4,670 300,499 Fund Balance
Beginning of year 721,686 367,820 (10,309) 33,024 1,999 7,954 247,010 (20,489) End of year 733,467 $ 449,780 $ - $ 33,501 $ 1,150 $ 8,950 $ 251,680 $ 280,010 $ Special Revenue
Packet Pg. 381
Attachment: 2023 Gonzales Financial Statements (2965 : Fiscal Year 2022-2023 Audited Financial See accompanying notes. 57
CITY OF GONZALES COMBINING STATEMENT OF REVENUE, EXPENDITURES AND CHANGES IN FUND BALANCE NON-MAJOR GOVERNMENTAL FUNDS (CONTINUED) YEAR ENDED JUNE 30, 2023 Storm Enhanced Total
Drainage Public Public Uses Sphere of CDBG Infrastructure Non-major Facility Facilities Mitigation Influence General Plan SB1 Urban Fiancing Governmental Impact Fees Impact Fees Fees Impact Fees Impact Fees Road County Grant District Funds Revenue
Taxes and assessments - $ - $ - $ - $ - $ 190,502 $ - $ 126,155.00 975,805 $ Licenses, permits and impact fees - - - - - - - - 8,870 Intergovernmental - - - - 79 - 352,426 - 2,259,828
Use of money and property 487 1,485 53 6,311 1,512 1,557 - - 91,093 Loan repayments - - - - - - - - 3,972
Other revenue - - - - - - - - 8,312
Total revenue 1,485 487 53 6,311 1,591 192,059 352,426 126,155 2,343,900 Expenditures
General governement - - - - - - - - 703,481
Public safety - - - - - - - - 215,563
Public works - - - - - 8,311 - - 577,248
Parks and recreation - - - - - - - - 509,621
Community development - 1,999 - 21,819 - - - - 29,458
Capital outlay - 48,995 - - - - - - 239,796
Debt service
Principal - - - - - - - - 56,589
Interest and fiscal charges - - - - - - - - 343
Total expenditures 50,994 - - 21,819 - 8,311 - - 2,332,099 Revenue over (under) expenditures 487 (49,509) 53 (15,508) 1,591 183,748 352,426 126,155 11,801 Other financing sources/(uses)
Operating transfers in/(out) - net - - - - - - (228,491) - (372,340) - - - - - - (228,491) - (372,340)
Change in Fund Balance (49,509) 487 53 (15,508) 1,591 183,748 123,935 126,155 (360,539) Fund Balance
Beginning of year 96,659 33,782 3,676 299,576 81,409 - (123,935) - 2,879,426 End of year 34,269 $ 47,150 $ 3,729 $ 284,068 $ 83,000 $ 183,748 $ - $ 126,155 $ 3,522,867 $ Special Revenue
Packet Pg. 382
Attachment: 2023 Gonzales Financial Statements (2965 : Fiscal Year 2022-2023 Audited Financial BRYANT L. JOLLEY
CERTIFIED PUBLIC ACCOUNTANTS Bryant L. Jolley C.P.A.
Ryan P. Jolley C.P.A.
Darryl L. Smith C.P.A.
Luis A. Perez C.P.A.
Lan T. Kimoto
INDEPENDENT AUDITOR’S REPORT ON INTERNAL CONTROL
OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER
MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS
PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS To the Honorable Mayor and City Council
City of Gonzales, California
We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the financial statements of the governmental activities, the businesstype activities, each major fund, and the aggregate remaining fund information of City of Gonzales (the “City”), California, as of and for the year ended June 30, 2023, and the related notes to the financial statements, which collectively comprise City’s basic financial statements, and have issued our report thereon dated April 19, 2024.
Report on Internal Control over Financial Reporting
In planning and performing our audit of the financial statements, we considered the City’s internal control over financial reporting (internal control) as a basis for designing audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the City’s internal control. Accordingly, we do not express an opinion on the effectiveness of the City’s internal control.
A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements, on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented, or detected and corrected, on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance.
Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or, significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses or significant deficiencies may exist that were not identified.
Report on Compliance and Other Matters
As part of obtaining reasonable assurance about whether the City’s financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the financial statements.
However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards.
Packet Pg. 383 Attachment: 2023 Gonzales Financial Statements (2965 : Fiscal Year 2022-2023 Audited Financial Statements & Management Report) 59 Purpose of This Report
The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the entity’s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the entity’s internal control and compliance. Accordingly, this communication is not suitable for any other purpose.
April 19, 2024
Packet Pg. 384 Attachment: 2023 Gonzales Financial Statements (2965 : Fiscal Year 2022-2023 Audited Financial Statements & Management Report) BRYANT L. JOLLEY
CERTIFIED PUBLIC ACCOUNTANTS Bryant L. Jolley C.P.A.
Ryan P. Jolley C.P.A.
Darryl L. Smith C.P.A.
Luis A. Perez C.P.A.
Lan T. Kimoto
INDEPENDENT AUDITOR’S REPORT ON COMPLIANCE FOR EACH MAJOR PROGRAM
AND ON INTERNAL CONTROL OVER COMPLIANCE
REQUIRED BY THE UNIFORM GUIDANCE
To the Honorable Mayor and City Council
City of Gonzales, California
Report on Compliance for Each Major Federal Program
Opinion on Each Major Federal Program
We have audited City of Gonzales (the “City”), California’s compliance with the types of compliance requirements identified as subject to audit in the OMB Compliance Supplement that could have a direct and material effect on each of the City’s major federal programs for the year ended June 30, 2023. The City’s major federal programs are identified in the summary of auditor’s results section of the accompanying schedule of findings and questioned costs.
In our opinion, the City complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on each of its major federal programs for the year ended June 30, 2023.
Basis for Opinion on Each Major Federal Program
We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and the audit requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Our responsibilities under those standards and the Uniform Guidance are further described in the Auditor’s Responsibilities for the Audit of Compliance section of our report.
We are required to be independent of the City and to meet our other ethical responsibilities, in accordance with relevant ethical requirements relating to our audit. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion on compliance for each major federal program.
Our audit does not provide a legal determination of the City’s compliance with the compliance requirements referred to above.
Responsibilities of Management for Compliance
Management is responsible for compliance with the requirements referred to above and for the design, implementation, and maintenance of effective internal control over compliance with the requirements of laws, statutes, regulations, rules, and provisions of contracts or grant agreements applicable to the City’s federal programs.
Packet Pg. 385 Attachment: 2023 Gonzales Financial Statements (2965 : Fiscal Year 2022-2023 Audited Financial Statements & Management Report) 61 Auditor’s Responsibilities for the Audit of Compliance Our objectives are to obtain reasonable assurance about whether material noncompliance with the compliance requirements referred to above occurred, whether due to fraud or error, and express an opinion on the City’s compliance based on our audit. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with generally accepted auditing standards, Government Auditing Standards, and the Uniform Guidance will always detect material noncompliance when it exists. The risk of not detecting material noncompliance resulting from fraud is higher than for that resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Noncompliance with the compliance requirements referred to above is considered material if there is a substantial likelihood that, individually or in the aggregate, it would influence the judgment made by a reasonable user of the report on compliance about City’s compliance with the requirements of each major federal program as a whole.
In performing an audit in accordance with generally accepted auditing standards, Government Auditing Standards, and the Uniform Guidance, we:
Exercise professional judgment and maintain professional skepticism throughout the audit. Identify and assess the risks of material noncompliance, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the City’s compliance with the compliance requirements referred to above and performing such other procedures as we considered necessary in the circumstances. Obtain an understanding of the City’s internal control over compliance relevant to the audit in order to design audit procedures that are appropriate in the circumstances and to test and report on internal control over compliance in accordance with the Uniform Guidance, but not for the purpose of expressing an opinion on the effectiveness of the City’s internal control over compliance. Accordingly, no such opinion is expressed.
We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and any significant deficiencies and material weaknesses in internal control over compliance that we identified during the audit.
Report on Internal Control over Compliance
A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance.
Our consideration of internal control over compliance was for the limited purpose described in the Auditor’s Responsibilities for the Audit of Compliance section above and was not designed to identify all deficiencies in internal control over compliance that might be material weaknesses or significant deficiencies in internal control over compliance. Given these limitations, during our audit we did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses, as defined above. However, material weaknesses or significant deficiencies in internal control over compliance may exist that were not identified.
Packet Pg. 386 Attachment: 2023 Gonzales Financial Statements (2965 : Fiscal Year 2022-2023 Audited Financial Statements & Management Report) 62 Our audit was not designed for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, no such opinion is expressed.
The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirements of the Uniform Guidance. Accordingly, this report is not suitable for any other purpose.
April 19, 2024
Packet Pg. 387 Attachment: 2023 Gonzales Financial Statements (2965 : Fiscal Year 2022-2023 Audited Financial Statements & Management Report) 63 CITY OF GONZALES
SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS
YEAR ENDED JUNE 30, 2023
Assistance Agency or
Federal Grantor/Pass-through Listing Pass-through Federal Grantor/Program Title Number Number Expenditures
U.S. Department of Housing and Urban Development
Passed through State Department of Housing and Community Development HOME Investment Partnership Program 14.239 N/A 27,314 $ Passed through County of Monterey
Community Development Block Grant 14.218 N/A 172,509
Total U.S. Department of Housing and Urban Development 199,823 Passed through California Department of Finance
Coronavirus State and Local Fiscal Recovery Funds
American Rescue Plan Act 21.027 N/A 703,482
Total U.S. Department of the Treasury 703,482
Total Federal Expenditures $ 903,305
*N/A – not applicable
Packet Pg. 388 Attachment: 2023 Gonzales Financial Statements (2965 : Fiscal Year 2022-2023 Audited Financial Statements & Management Report) 64 CITY OF GONZALES
NOTES TO SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS
YEAR ENDED JUNE 30, 2023
Note 1 – Significant Accounting Policies
The accompanying Schedule of Expenditures of Federal Awards (SEFA) presents the activity of all federal award programs of the City of Gonzales, California (the City). Federal awards received directly from federal agencies as well as federal awards passed through other nonfederal agencies, primarily the State of California, are included in the SEFA. The City’s reporting entity is defined in Note 1 to the City’s basic financial statements.
Note 2 – Basis of Accounting
The accompanying SEFA is presented using the modified accrual basis of accounting for grants accounted for in the governmental fund types and the accrual basis of accounting for grants accounted for in the proprietary fund types, as described in Note 1 to the City’s basic financial statements. The information in the SEFA is presented in accordance with the requirements of Title 2 U.S. Code of Federal Regulations (CFR) part 200 Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance).
Therefore, some amounts presented in, or used in the preparation of, the SEFA may differ from amounts presented in the basic financial statements.
Note 4 – Relationship to the Financial Statements
Expenditures of federal awards are reported in the City’s basic financial statements as expenditures/expenses in the General Fund, nonmajor special revenue funds, nonmajor capital project funds, and the enterprise funds.
Note 5 – Indirect Cost Rate
The City did not elect to use the 10% de minimus cost rate as covered in 2 CFR §200.414.
Packet Pg. 389 Attachment: 2023 Gonzales Financial Statements (2965 : Fiscal Year 2022-2023 Audited Financial Statements & Management Report) 65 CITY OF GONZALES
SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2023
A. Summary of Auditor’s Results
Financial Statements
Type of auditor’s report issued: Unmodified
Internal control over financial reporting:
Material weaknesses identified? Yes No
Significant deficiency(ies) identified that
are not considered to be material
weaknesses? Yes None reported
Non-compliance material to financial
statements noted? Yes No
Federal Awards
Internal control over major programs:
Material weaknesses identified? Yes No
Significant deficiency(ies) identified that
are not considered to be material
weaknesses? Yes None reported
Type of auditor’s report issued on compliance for
major programs: Unmodified
Any audit findings disclosed that are required to
be reported in accordance with 2CFR section
200.516? Yes No
Identification of Major Programs
ALN Number Name of Federal Program or Cluster
21.027 Coronavirus State and Local Fiscal Recovery
Funds
Dollar threshold used to distinguish between
Type A and Type B programs: $750,000
Auditee qualified as low-risk auditee? Yes No
B. Findings – Financial Statements Audit
None noted.
C. Findings and Questioned Costs – Major Federal Award Programs Audit None noted.
Packet Pg. 390 Attachment: 2023 Gonzales Financial Statements (2965 : Fiscal Year 2022-2023 Audited Financial Statements & Management Report) 66 CITY OF GONZALES
SUMMARY SCHEDULE OF PRIOR AUDIT FINDINGS
YEAR ENDED JUNE 30, 2023
Summary Schedule of Prior Audit Findings
There were no prior year audit findings
Packet Pg. 391 Attachment: 2023 Gonzales Financial Statements (2965 : Fiscal Year 2022-2023 Audited Financial Statements & Management Report)
CITY OF
GONZALES
MANAGEMENT
REPORT
FOR THE YEAR ENDED JUNE 30, 2023
Packet Pg. 392 Attachment: 2023 Gonzales Management Letter (2965 : Fiscal Year 2022-2023 Audited Financial Statements & Management Report)
TABLE OF
CONTENTS
Page
Required Communications 1 – 3
Packet Pg. 393 Attachment: 2023 Gonzales Management Letter (2965 : Fiscal Year 2022-2023 Audited Financial Statements & Management Report) BRYANT L. JOLLEY
CERTIFIED PUBLIC ACCOUNTANTS Bryant L. Jolley C.P.A.
Ryan P. Jolley C.P.A.
Darryl L. Smith C.P.A.
Luis A. Perez C.P.A.
Lan T. Kimoto
901 “N” STREET, SUITE 104 FIREBAUGH, CALIFORNIA 93622 PHONE 559.659.3045 FAX 559.659.0615 To the Honorable Mayor and City Council
City of Gonzales, California
We have audited the financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Gonzales for the year ended June 30, 2023. Professional standards require that we provide you with information about our responsibilities under generally accepted auditing standards and, if applicable, Government Auditing Standards, as well as certain information related to the planned scope and timing of our audit. We have communicated such information in our letter to you dated July 1, 2020. Professional standards also require that we communicate to you the following information related to our audit.
Significant Audit Matters
Qualitative Aspects of Accounting Practices
Management is responsible for the selection and use of appropriate accounting policies. The significant accounting policies used by City of Gonzales are described in Note 1 to the financial statements. No new accounting policies were adopted and the application of existing policies was not changed during 2023. We noted no transactions entered into by the City during the year that were both significant and unusual, and of which, under professional standards, we are required to inform you, or transactions for which there is a lack of authoritative guidance and consensus. All significant transactions have been recognized in the financial statements in the proper period.
We noted no transactions entered into by City of Gonzales during the year for which there is a lack of authoritative guidance or consensus. All significant transactions have been recognized in the financial statements in the proper period.
Accounting estimates are an integral part of the financial statements prepared by management and are based on management’s knowledge and experience about past and current events and assumptions about future events. Certain accounting estimates are particularly sensitive because of their significance to the financial statements and because of the possibility that future events affecting them may differ significantly from those expected. The most sensitive estimates affecting the City’s financial statements were:
Management has determined the economic useful lives of fixed assets based on past history of similar types of assets, future plans as to their use, and other factors that impact their economic value to the City. We evaluated the key factors and assumptions used by management in computing depreciation expense and believe that it is reasonable in relation to the financial statements taken as a whole.
Packet Pg. 394 Attachment: 2023 Gonzales Management Letter (2965 : Fiscal Year 2022-2023 Audited Financial Statements & Management Report) 2 Management’s estimate of the net pension liability and related deferrals is based on actuarial valuations which include significant assumptions regarding discount rate, inflation, payroll growth, projected salary increases and investment rate of return. We evaluated the key factors and assumptions used to develop the liability and related deferrals in determining that it is reasonable in relation to the financial statements taken as a whole.
The financial statement disclosures are neutral, consistent, and clear.
Difficulties Encountered in Performing the Audit
We encountered no significant difficulties in dealing with management in performing and completing our audit.
Corrected and Uncorrected Misstatements
Professional standards require us to accumulate all known and likely misstatements identified during the audit, other than those that are clearly trivial, and communicate them to the appropriate level of management. Management has corrected all such misstatements. In addition, none of the misstatements detected as a result of audit procedures and corrected by management were material, either individually or in the aggregate, to each opinion unit’s financial statements taken as a whole.
Disagreements with Management
For purposes of this letter, a disagreement with management is a financial accounting, reporting, or auditing matter, whether or not resolved to our satisfaction, that could be significant to the financial statements or the auditor’s report. We are pleased to report that no such disagreements arose during the course of our audit.
Management Representations
We have requested certain representations from management that are included in the management representation letter dated April 19, 2024.
Management Consultations with Other Independent Accountants In some cases, management may decide to consult with other accountants about auditing and accounting matters, similar to obtaining a “second opinion” on certain situations. If a consultation involves application of an accounting principle to City of Gonzales’s financial statements or a determination of the type of auditor’s opinion that may be expressed on those statements, our professional standards require the consulting accountant to check with us to determine that the consultant has all the relevant facts. To our knowledge, there were no such consultations with other accountants.
Packet Pg. 395 Attachment: 2023 Gonzales Management Letter (2965 : Fiscal Year 2022-2023 Audited Financial Statements & Management Report) 3 Other Audit Findings or Issues
We generally discuss a variety of matters, including the application of accounting principles and auditing standards, with management each year prior to retention as City of Gonzales’s auditors.
However, these discussions occurred in the normal course of our professional relationship and our responses were not a condition to our retention.
Other Matters
We applied certain limited procedures to the Budgetary Comparison Schedules, Proportionate Share of Net Pension Liability, and Schedule of Contributions which are required supplementary information (RSI) that supplements the basic financial statements. Our procedures consisted of inquiries of management regarding the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We did not audit the RSI and do not express an opinion or provide any assurance on the RSI.
We were engaged to report on supplementary information, as listed in the table of contents, which accompany the financial statements but are not RSI. With respect to this supplementary information, we made certain inquiries of management and evaluated the form, content, and methods of preparing the information to determine that the information complies with accounting principles generally accepted in the United States of America, the method of preparing it has not changed from the prior period, and the information is appropriate and complete in relation to our audit of the financial statements. We compared and reconciled the supplementary information to the underlying accounting records used to prepare the financial statements or to the financial statements themselves.
Restriction on Use
This information is intended solely for the information and use of the City Council and management of City of Gonzales and is not intended to be, and should not be, used by anyone other than these specified parties.
Very truly yours,
April 19, 2024
Packet Pg. 396 Attachment: 2023 Gonzales Management Letter (2965 : Fiscal Year 2022-2023 Audited Financial Statements & Management Report) City of Gonzales
COMMUNITY DEVELOPMENT DEPARTMENT
STAFF REPORT
TO: Honorable Mayor Rios and City Council
DATE: May 6, 2024
FROM: Taven Kinison Brown, Community Development Director THROUGH: Carmen Gil, City Manager
SUBJECT: Introduction of Ordinance No. 2024-143 Amending Chapter 12.116 Signs of Title 12 - Part 5 Regulations Applying in All Districts of the Gonzales City Code.
RECOMMENDATION
It is recommended the City Council introduce, read by title only, open the hearing, allow for public testimony, close the hearing, consider staff’s housekeeping adjustments to the revised sign ordinance (to be presented further in this staff report), waive first reading Ordinance No. 2024-143, An Ordinance of the City Council of the City of Gonzales, Amending Chapter 12.116 Signs of Title 12 - Part 5 Regulations Applying In All Districts of the Gonzales City Code.
BACKGROUND
The City has an opportunity to generate revenue if we enable free-standing off-site advertising billboard signs to be permitted in the City in a limited manner. Additionally, staff believes that public safety and information distribution will be enhanced with such a sign.
Staff has approached the City Council on previous occasions to determine their interest in allowing such a sign on a city-owned property, where the community would benefit from the lease revenue and rental agreement that would accompany such a sign. The City Council acknowledged the potential public benefits and gave their support to staff advancing such a proposal.
The next order of business would be to revise the City of Gonzales Sign Code to enable the consideration of free-standing off-site advertising billboard signs, and the second order would be to later entertain a specific development proposal from a sign company to construct and establish such a sign.
AGENDA
ITEM
13 Packet Pg. 397
Following staff’s update to the City Council, February 5, 2024, staff prepared revisions to the City of Gonzales Sign Ordinance (Zoning Code Section 12.116) to enable Freeway Oriented Reader Board signs.
On Monday, April 8, 2024, the Planning Commission considered revisions to the Sign Ordinance to enable such signs. The Planning Commission adopted PC Resolution 2024-01 recommending that the City Council support the revisions to the sign code and Adopt a revised ordinance as attached to that resolution. (See Attachments 1 and 2).
REVIEW AND ANALYSIS
Since the April 8, 2024, recommended action by the Planning Commission to adopt the sign ordinance revisions as attached to Resolution PC 2024-01, staff has become aware of several clarifications that would enhance and improve a revised sign ordinance. Staff considers these minor housekeeping-type adjustments and believes there would be no value-added returning the item to the Planning Commission.
The particular adjustments and the staff reasoning follows:
• In Section 12.116.03 PROHIBITED SIGNS. The following signs are prohibited. o Part C. “Streamers, banners, balloons, flares, flags, pennants, twirlers and similar attention getting devices, with the exception of the following:
1. National, state and local governmental flags properly displayed upon flagpoles.
2. Holiday decorations, in season.
3. One corporate flag displayed upon a single flagpole.
4. Grand opening and special event displays which comply with the regulations of this section.
5. One decorative flag per residence.
Staff does not consider holiday decorations as “signs,” and even as an “exception” item here, Number 2 is non-contributory and out of place to the intent of the sign ordinance to provide regulation for signs for advertising and identification purposes. • In Section 12.116.040 GENERAL REGULATIONS REGARDING SIGNS:
o No portion of the surface of any illuminated sign or any visible lamp illuminating a sign shall have a brightness exceeding one hundred fifty (150) foot-lamberts. Off-site digital advertising billboards shall be at a maximum of 0.3 foot-candles over ambient light levels.
o F. Illumination Generally: Light produced by an off-site advertising sign should not exceed 0.3 footcandles over ambient light levels. Measurement should be taken utilizing a footcandle meter from 250 feet perpendicular to the face of the digital sign.
This housekeeping measure provides clarity on what distance from the sign the brightness shall be measured and keeps the “light-units” consistent with other city code references to light measurements in footcandles, dispensing with the less familiar “foot-lamberts.” • 12.116.125 OFF-SITE ADVERTISING BILLBOARD SIGNS:
o A. No new outdoor advertising sign may be less than 2,500 feet from an existing outdoor advertising sign.
o A. No new permitted off-site advertising sign may be less than 3,000 feet from an existing permitted off-site advertising sign.
The Intent of new section 12.116.125 A. is to reduce the potential of an additional off-site advertising sign being proposed in another part of the City, potentially distracting and cluttering the visual landscape of the City and drivers’ experiences passing through on the freeway. As we Packet Pg. 398
don’t have an exact location of where such a sign could be placed in the industrial zoned landscape, staff realized (a little late) that potential existed that two signs could be placed more than 2,500 feet apart in the Industrial Designation on the west side of Hwy 101. This was always the intent of staff to write the new code sections narrow enough that we can allow such a sign, but not open the code to more than one. This housekeeping measure, bumping the distance to 3,000 feet should allow flexibility on the placement of the City’s first eventual sign of this nature, and close the door on a second sign.
For the reasons discussed above, staff recommends that the City Council consider and incorporate staff’s housekeeping changes and adjustments to PC 2024-01 as described in the staff report and adopt the revised Sign Ordinance 12.116 as attached to the staff report.
Renderings of potential signs the revised sign ordinance hopes to enable Potential location in the city landscape where a free-standing off-site advertising billboard sign could be permitted with a revised sign code
Explain the Recommendation and How it Supports the Vision Gonzales will continue to be a safe, clean, family-friendly community, diverse in its heritage, and committed to working collaboratively to preserve and retain its small-town charm.
Explanation: While such a sign may be modern and new, the technology and architectural opportunities of such a sign can enhance the economic prosperity of local businesses and Packet Pg. 399
complement the local landscape. Being able to display community alerts and immediate emergency information will enhance public safety.
Explain how the Recommendation Directly Implements the Mission The City Council and Staff of the City of Gonzales will realize our Vision by providing the leadership, commitment, and resources necessary to provide excellent services that enhance the quality of life of our diverse community.
Explanation: To realize this revenue opportunity for the City, Community Development Department staff committed to revise the sign ordinance on regular staff time and present the opportunity to the Planning Commission and City Council. Should such a free-standing off-site advertising billboard sign eventually be erected in the City, the revenue opportunity for the City, and the advertising opportunity for local businesses and the public safety aspect of immediate informative directions and messages to the community may be realized; each in turn, enhancing the quality of life for our diverse community.
City services will be delivered in a cost-effective, respectful, and friendly manner to ensure the safety and well-being of the residents and the promotion of business, recreational, housing and employment opportunities in an environmentally sustainable manner.
Explanation: See above explanations.
Strong fiscal policies allow us to provide appropriate infrastructure for:
• Public Safety X Yes No N/A
• Housing Yes No X N/A
• Recreation Yes No X N/A
• Environment Yes No X N/A
• Education Yes No X N/A
Explanation: Please see the Vision above.
ALTERNATIVES
The following alternatives are presented for City Council consideration:
• Do not introduce the revised ordinance, and maintain the current sign ordinance; or • The City Council may consider Planning Commission Resolution PC2024-01 and the draft Sign Ordinance from April 8, 2024; or
• The City Council may consider staff’s housekeeping changes and adjustments to PC 2024-01 as described in the staff report, and adopt the revised sign ordinance as attached to the May 6, 2024, City Council staff report; or
• The City Council may ask for additional work or study of the matter and send the draft ordinance back to staff and the Planning Commission; or
• The City Council may table the matter.
FISCAL IMPACT
There is no direct cost from the proposed action, but a revenue opportunity could result. Staff time applied to the matter to date, has been in the context of the daily and regular activities of the Director.
Packet Pg. 400
Should a free-standing off-site advertising billboard sign be permitted in a limited manner, the City of Gonzales could realize rent or lease revenue if placed on City property. Indemnification and potential revenue sharing conventions would be negotiated per the new code Section 12.116.125.
It is also the intent of the City Manager and Economic Development Division to facilitate advertising and awareness of our local city businesses, who will likely be offered sign time at a reduced “local business” rate (a standard industry practice). Increased business activity in Gonzales would have a positive secondary impact on municipal revenues, as increased retail sales tax revenues would return to the city.
A future use permit application for an actual sign structural proposal will be subject to a $1,200 deposit and staff time will be compensated on a time and materials basis, at no cost to the city.
ENVIRONMENTAL REVIEW
The proposed ordinance is exempt from the California Environmental Quality Act (CEQA) pursuant to State CEQA Guidelines Section 15061(b)(3) on grounds that it can be seen with certainty that the proposed ordinance will not have a significant, adverse effect on the environment as written as only one sign can be allowed and would be placed on a highway-adjacent location without the opportunity for significant impact to the community.
Drawing upon the allowances of the revised sign ordinance, any off-site advertising billboard sign proposal will be subject to individual and specific environmental review under CEQA.
CONCLUSION
It is recommended the City Council introduce, read by title only, open the hearing, allow for public testimony, close the hearing, consider staff’s housekeeping adjustments to the revised sign ordinance (to be presented further in this staff report), waive first reading Ordinance No. 2024-143, An Ordinance of the City Council of the City of Gonzales, Amending Chapter 12.116 Signs of Title 12 - Part 5 Regulations Applying In All Districts of the Gonzales City Code.
Attachments:
1. Planning Commission April 8, 2024, staff report
2. Resolution No. PC 2024-01 w/ Exhibit A
3. Ordinance No. 2024-143 w/ Exhibit A
4. Proof of Publication
Packet Pg. 401
City of Gonzales
PLANNING COMMISSION
COMMUNITY DEVELOPMENT DEPARTMENT
STAFF REPORT
DATE:
TO:
FROM:
April 8, 2024
Honorable and Planning Commission
Taven Kinison Brown, Community Development Director
THROUGH: Carmen Gil, City Manager
SUBJECT: Resolution No. PC 2024-01 Recommending the City Council to Adopt an Ordinance Amending Chapter 12.116 Signs of Title 12 - Part 5 Regulations Applying in All Districts of the Gonzales City Code.
RECOMMENDATION
Staff recommends that the Planning Commission consider Approval of Resolution No. PC 2024-01, A Resolution Of The Planning Commission Of The City Of Gonzales Recommending The City Council To Adopt An Ordinance Amending Chapter 12.116 Signs Of Title 12 - Part 5 Regulations Applying In All Districts Of The Gonzales City Code.
BACKGROUND
The City has an opportunity to generate revenue if we enable free-standing off-site advertising billboard signs to be permitted in the City in a limited manner. Additionally, staff believes that public safety and information distribution in cases of emergency or urgency will be enhanced with such a sign.
Staff has approached the City Council previously to determine their interest in potentially allowing such a sign on a city-owned property, where the community would also benefit financially from the lease and rental agreement that would accompany such a sign. The City Council acknowledged the potential public benefits and gave their support to staff advancing such a proposal. Advancing such a proposal comes with two basic steps, the first being to revise the City of Gonzales Sign Code to allow such signs, and the second would be to entertain a development proposal from a sign company that would want to construct and establish such a sign within the City.
AGENDA
ITEM
5 Packet Pg. 402 Attachment: Planning Commission April 8, 2024, staff report (2966 : Ordinance No. 2024-143 Amending Chapter 12.116 Signs - First Reading) recommendation to the City Council. The revisions to the sign code also include minor amendments for housekeeping, cleanup, and modernization to the sign code originally adopted 52 years ago in 1972. Staff has included a line-in, strike-out version of the ordinance changes. See Attachment 1.
ANALYSIS
Presently, the aging City of Gonzales Sign Code has provisions restricting billboards (offpremises business identification signs) and also includes prohibitions against internal - technology, bright lights and spill-over to housing areas, and fears of distracting drivers, drove the cautions and prohibitions into the sign codes. Additionally, we have learned how to write sign codes in such a specific manner now that such new signs will not have a chance to proliferate everywhere and clutter up the city landscapes and be distracting from the character of the town that we have come to love.
Renderings of potential signs the City Council hopes to enable:
A new definition will be added to the sign code: DIGITAL DISPLAY: An electronic message display with either fixed or changeable display which may be changed by electronic processes or remote control, which may include words and/or pictures and composed of a series of lights, light emitting diodes (LEDS) or liquid crystal displays (LCDs) or functionally similar signs.
As such signs are adjacent to freeway traffic, the State Department of Transportation, (Caltrans) also has regulations that must be considered. The primary new introductions to the sign code include the definition of Digital Display, above, and development parameters, regarding height, placement, location, and functionality as written in new Section 12.116.125.
12.116.125 OFF-SITE ADVERTISING BILLBOARD SIGNS
A. No new outdoor advertising sign may be less than 2,500 feet from an existing outdoor advertising sign.
B. New off-site advertising signs will only be allowed on property zoned industrial.
Packet Pg. 403 Attachment: Planning Commission April 8, 2024, staff report (2966 : Ordinance No. 2024-143 Amending Chapter 12.116 Signs - First Reading) C. No new outdoor advertising structure shall be less than 500 feet from any existing church, park, or school.
D. Only highway facing signs will be allowed.
E. Digital or static display is allowed.
F.
G. The display sign area may be no more than 672 square feet, per face side.
H. Digital displays shall not rotate copy more frequently than every 6 seconds.
I. Sign structure and final architectural design must be approved by the City Planning Department and be consistent with the recommendations of a design review process.
J. Development agreement, lease agreement or other agreement with the City of Gonzales. a. The operations and City conditions for the use and utility of the advertising display shall be included as part of a development agreement, lease agreement or other agreement with the City of Gonzales, City Council. b. The agreement must include revenue provisions to the City that allow the City to undertake projects, programs or other activities funded by the City.
The other nuts and bolts of the sign code changes are in revised section 12.116.040 General Regulations Regarding Signs. (See Attachment 1)
How to proceed.
To enable the City to proceed the Planning Commission will need to review the draft Ordinance with the changes to the Sign Code included to adopt a resolution with their recommendation to the City Council. Staff has attached the full draft Ordinance and has prepared and attached a Planning Commission resolution for consideration.
CONCLUSION
The City has both an opportunity to be pioneering in allowing such a modern well-designed sign type in the City of Gonzales, as well as boldly embracing an opportunity for revenue generation through a later negotiated lease for the use of such a sign on city property. Updating and modernizing our sign code will allow the City to entertain a future development proposal for such a sign type and to realize a good rent that will be negotiated. The new code sections have provisions for design review that will assure that any new sign of such stature and prominence will be complementary to the City of Gonzales and its businesses and citizens.
Through the attached Planning Commission Resolution (Attachment 2), Staff recommends that the Planning Commission consider Approval of Resolution No. PC 2024-01, A Resolution Of The Planning Commission Of The City Of Gonzales Recommending The City Council To Adopt An Ordinance Amending Chapter 12.116 Signs Of Title 12 - Part 5 Regulations Applying In All Districts Of The Gonzales City Code.
Packet Pg. 404 Attachment: Planning Commission April 8, 2024, staff report (2966 : Ordinance No. 2024-143 Amending Chapter 12.116 Signs - First Reading) Attachments:
1. Revised Ordinance Amending Chapter 12.116 Signs
2. Resolution No. PC 2024-01
Packet Pg. 405 Attachment: Planning Commission April 8, 2024, staff report (2966 : Ordinance No. 2024-143 Amending Chapter 12.116 Signs - First Reading) RESOLUTION NO. PC 2024-01
A RESOLUTION OF THE PLANNING COMMISSION OF THE CITY OF GONZALES
RECOMMENDING THAT THE CITY COUNCIL ADOPT AN ORDINANCE
AMENDING CHAPTER 12.116 SIGNS OF TITLE 12 - PART 5 REGULATIONS
APPLYING IN ALL DISTRICTS OF THE GONZALES CITY CODE
WHEREAS, the City of Gonzales last updated provisions of the Sign Code, Chapter 12.116 in 2010, (fourteen years ago) and has a foundation dating back to 1972 (52 years ago); and WHEREAS, the City of Gonzales staff realized that its old and dated sign code would disallow newer technology and matured modern marketing structures, including well-designed architecturally pleasing, publicly informative, revenue generating electronic display signs; and WHEREAS, the City of Gonzales staff approached the City Council with a presentation to introduce the subject of allowing electronic display sign types, and to discuss potential liabilities and revenue opportunities for the City; and
WHEREAS, after consideration, the City Council directed that they would be open to allowing such signs through revisions to the Sign Code; and WHEREAS, staff then took the initiative to update and expeditiously modernize the City Sign Code to enable such electronic display sign proposals; and WHEREAS, staff has presented a revised sign code that also includes that such signs (when and if proposed) would be subject to a Planning Commission Use Permit, design review, and a City Council negotiated lease; and
WHEREAS, following a duly noticed public hearing and taking public testimony on April 8, 2024, the City of Gonzales Planning Commission recommends that the City Council adopt an ordinance amending Chapter 12.116 Signs, of Title 12 - Part 5 Regulations Applying In All Districts of the Gonzales City Code.
NOW THEREFORE, the Planning Commission of the City of Gonzales recommends that the City Council of the City of Gonzales ordain as follows:
SECTION 1. Recitals. The above recitals are hereby incorporated herein by reference, SECTION 2. CEOA. The City Council finds and determines that the proposed Ordinance is exempt from the California Environmental Quality Act (CEQA) pursuant to State CEQA Guidelines Section 15061 (b )(3) on the grounds that it can be seen with certainty that the proposed Ordinance revisions will not have a significant, adverse effect on the environment.
SECTION 3. Enactment. Revised Chapter 12.116 Signs, of Title 12 - Part 5 Regulations Applying In All Districts of the Gonzales City Code is hereby removed and replaced with the revised Chapter 12 .116 Signs, of Title 12 - Part 5 Regulations Applying In All Districts (Attachment 1).
Packet Pg. 406 Attachment: Resolution No. PC 2024-01 w/ Exhibit A (2966 : Ordinance No. 2024-143 Amending Chapter 12.116 Signs - First Reading) SECTION 4. Severability. If any provision(s) of the Ordinance or the application thereof to any person or circumstances is held invalid or unconstitutional by any court of competent jurisdiction, such invalidity or unconstitutionality shall not affect any other provision or application, and to this end the provisions of this ordinance are declared to be severable. The City Council hereby declares that they would have adopted the ordinance and each section, subsection, sentence, clause, phrase, part or portion thereof, irrespective of the fact that any one or more sections, subsections, clauses, phrases, parts or portions thereof be declared invalid or unconstitutional.
SECTION 5. Posting. The City Clerk shall certify to the passage and adoption of this Ordinance by the City Council and shall cause this ordinance to be published or posted in accordance with Government Code section 36933 as required by law.
SECTION 6. Effective Date. This ordinance shall be effective thirty (30) days following its adoption.
PASSED AND ADOPTED by the Planning Commission of the City of Gonzales at a meeting held on this 8th day of April 2024 by the following vote:
AYES:
NOES:
ABSTAIN:
ABSENT:
ATTEST:
COMMISSIONERS: Gloria Velasquez, Tencia Vargas, Alejandro Ramirez COMMISSIONERS:
COMMISSIONERS:
COMMISSIONERS: Ernesto Mancera, Adrian Paco
u~
o ia Velasquez, Chairperson
~~ Mary Villegas, Deputy City Clerk
Packet Pg. 407 Attachment: Resolution No. PC 2024-01 w/ Exhibit A (2966 : Ordinance No. 2024-143 Amending Chapter 12.116 Signs - First Reading) CHAPTER 12.116
SIGNS
SECTION:
12.116.010 Intent
12.116.020 Definitions
12.116.030 Prohibited Signs
12.116.040 General Regulations Regarding Signs
12.116.050 Requirement For Permit; Exemptions
12.116.060 Application For Permit
12.116.070 Criteria For Review Of Application
12.116.080 Signs In Agricultural And Residential Districts
12.116.090 Signs In Industrial Districts
12.116.100 Signs In Neighborhood And Highway Commercial Districts
12.116.110 Signs In Downtown Mixed Use District
12.116.120 Freestanding Freeway Signs
12.116.125 Off-site Advertising Billboard Signs
12.116.130 Off Site Directional Signs
12.116.140 Temporary Subdivision Signs
12.116.150 Temporary Construction Signs
12.116.160 Public Interest Signs
12.116.170 Open House Signs In Residential Districts
12.116.180 Temporary Political Signs
12.116.190 Gasoline Price Signs
12.116.200 Comprehensive Signage Program
12.116.210 Special Permits
12.116.220 Nonconforming Signs
12.116.230 Violations; Removal Of Illegal Signs
12.116.010 INTENT:
In order to preserve the natural beauty of the city, to maintain the orderliness of the community’s appearance, to conserve its residential character, and to protect the public safety, the location, size, illumination, and design of signs are regulated. (Ord. 2000-03, 8-7-2000)
12.116.020 DEFINITIONS:
In addition to the definitions set forth in chapter 12.08 of this title, all of which are applicable herein, for the purposes of this chapter, the following words and phrases shall have the meanings respectively ascribed to them in this section, unless the context or the provision clearly requires otherwise:
BILLBOARD: An on-site or off-site freestanding sign that exceeds the size limitations of a freestanding or wall sign.
COMPREHENSIVE SIGN
PROGRAM:
A general plan for signage, as approved by the city, pertaining to all or any portion of a site and the buildings thereon, which may include, but is not limited to, the area, dimension, color, material, design, size, and illumination of all signs to be erected or installed pursuant to the sign program.
DIGITAL DISPLAY An electronic message display with either fixed or changeable display which may be changed by electronic processes or remote control, which may include words and/or pictures and composed of a series of lights, light emitting diodes (LEDS) or liquid crystal displays (LCDs) or functionally similar signs.
DIRECTIONAL SIGN, OFF
SITE:
A sign, located on one parcel, advertising and/or directing traffic to a business located on a different parcel within the city.
EXHIBIT A
Packet Pg. 408 Attachment: Resolution No. PC 2024-01 w/ Exhibit A (2966 : Ordinance No. 2024-143 Amending Chapter 12.116 Signs - First Reading) DIRECTIONAL SIGN, ON SITE: A sign, the sole purpose of which is to direct the flow of traffic, indicate entrances or exits, transmit parking information or convey similar information.
HEIGHT: The vertical distance measured from the lowest ground level directly beneath the sign to the highest point at the top of the sign. The ground level shall be either the natural grade or finished grade, whichever is lowest.
SIGN: Any lettering, symbol or other thing of visual appearance primarily used for, or having the effect of attracting attention from the street, sidewalk or other outside public arena for advertising or identification purposes. A "sign" shall not mean displays of merchandise or products for sale on the premises, or ornamentation, designs, pictures, paintings or other such art forms unless the attraction, because of location, size, use or nature thereof, has the substantial effect of attracting attention for advertising or identification purposes when viewed from an outside area.
SIGN AREA: The area of the smallest rectangle drawn to include all letters, designs, frame, and structural components which are part of the sign, but excluding any supports, uprights, posts or structures by which any sign is supported unless such supports, uprights, posts or structures are designed in such a manner as to form an integral background of the sign. In computing the area of a double face sign, only one face of the sign shall be included, provided that the two (2) faces shall be approximately the same size and approximately parallel to each other and not more than two feet (2’) apart at any point.
SIGN, FREESTANDING: A sign supported by one or more upright poles, columns, or braces placed in or on the ground and not attached to any building or structure.
SIGN, IDENTIFICATION: A sign, the sole purpose of which is to identify the site or the building, use or persons occupying the site on which the sign is located.
SIGN, ILLUMINATED: A sign having its own immediate source of internal or external lighting.
Externally Illuminated Sign: A sign with an immediate source of illumination that is not completely enclosed by any portion of the sign.
Internally Illuminated Sign: A sign with an immediate source of illumination that is completely enclosed by the surface of the sign structure or the characters of the sign.
SIGN, OPEN HOUSE: An off site portable sign directing prospective purchasers to the location of a singlefamily dwelling being offered for sale and open for visitation by the public at the time the sign is displayed.
SIGN, POLE: A sign that is mounted on a freestanding pole or other support so that the bottom edge of the sign face is six feet (6’) or more above grade.
SIGN, POLITICAL: A temporary sign that directly relates to a candidate for public office or to a ballot issue, in an election conducted by a governmental entity.
SIGN, PORTABLE: Any sign which is intended to be moved or capable of being moved, whether or not on wheels or other special supports, including, but not limited to, "A-frame" type signs, placards and banners.
SIGN, REAL ESTATE: A temporary sign advertising the sale, lease or rental of the real property, or any portion thereof, upon which the sign is located and the identification of the person handling such sale, lease or rental.
EXHIBIT A
Packet Pg. 409 Attachment: Resolution No. PC 2024-01 w/ Exhibit A (2966 : Ordinance No. 2024-143 Amending Chapter 12.116 Signs - First Reading) SIGN, SPECIAL EVENT: A temporary sign pertaining to events of civic, community, philanthropic, educational or religious organizations, which are not conducted in connection with the operation of a commercial enterprise.
SIGN, SUBDIVISION: A temporary sign advertising a subdivision and providing travel directions to singlefamily dwellings therein offered for sale or lease for the first time. The term "subdivision sign" also includes a model home sign on the site of a single-family dwelling within the subdivision.
SIGN, WALL: A sign fastened to or painted on the wall of a building or structure in such a manner that the wall becomes the supporting structure for, or forms the background surface of, the sign and which does not project more than twelve inches (12") from such a building or structure.
SIGN, WINDOW: A sign that is applied or attached to the exterior or interior of a window or located in such a manner within a building that it can be seen from the exterior of the structure through a window. (Ord. 2000-03, 8-7-2000)
12.116.030 PROHIBITED SIGNS:
The following signs are prohibited:
A. Reflective, flashing or moving signs, except for signs subject to Section 12.116.125 or public service time and temperature signs which shall not be flashing, animated or revolving in nature.
B. Portable signs, except for open house signs, political signs, and special event signs that comply with the regulations of this section.
C. Streamers, banners, balloons, flares, flags, pennants, twirlers and similar attention getting devices, with the exception of the following:
1. National, state and local governmental flags properly displayed upon flagpoles.
2. Holiday decorations, in season.
3. One corporate flag displayed upon a single flagpole.
4. Grand opening and special event displays which comply with the regulations of this section.
5. One decorative flag per residence.
D. Any sign affixed or attached to any vehicle or trailer, unless the vehicle or trailer is intended to be used in its normal business capacity and not for the primary purpose of advertising a use or event or attracting persons to a place of business.
E. Signs or sign structures which by color, wording or location resemble or conflict with traffic control signs or devices.
F. Signs that create a safety hazard by obstructing the clear view or safe movement of vehicular or pedestrian traffic.
G. Signs that obstruct any door, window, fire escape or other emergency exit of any building.
H. Posters, placards, announcements, advertising and similar signs that are erected on any fence, pole, tree, pavement, wall, bus stop, bench, or any other object in or upon a public highway, public street or public right of way, excepting notices posted by a public officer in the performance of a public duty, or by any person for the purpose of giving legal notice, and warning or informational signs required or authorized by governmental regulations.
EXHIBIT A
Packet Pg. 410 Attachment: Resolution No. PC 2024-01 w/ Exhibit A (2966 : Ordinance No. 2024-143 Amending Chapter 12.116 Signs - First Reading) I. Billboards, excepting those that may be approved subject to Sections 12.116.120 and 12.116.125 J. Window signs, except as provided in subsection 12.116.050B11 of this chapter, or approved as part of a sign permit pursuant to section 12.116.060 of this chapter. (Ord. 2005-32, 4-18-2005)
12.116.040 GENERAL REGULATIONS REGARDING SIGNS:
A. Compliance With Section: No sign shall be erected, installed, altered, or maintained in any zoning district in the city, including public and private streets therein, except in conformity with provisions of this section.
B. Compliance With District Regulations: All signs shall comply with the particular regulations of the district in which they are located. Additional sign height may be allowed subject to review and approval of a Conditional Use Permit.
C. Compatibility With Surroundings: The design, color, and location of each sign shall be compatible with the architecture of the buildings on the premises, and in harmony with the structures and other improvements on the property or in the vicinity or neighborhood where sign compatibility is a policy decision.
D. Site Restriction: All signs shall be located on the same site as the use they identify or advertise, except off site directional signs as described in section 12.116.130 temporary subdivision signs as described in section 12.116.140, public interest signs as described in section 12.116.160 open house signs as described in section 12.116.170, temporary political signs as described in section 12.116.180 , and off-site advertising billboard signs in Section
12.116.125
E. Sign Projection: No sign shall extend above the ridgeline of a building, nor project more than thirty inches (30") from the outside wall of a building, nor more than twelve inches (12") over any street or alley. The projection is measured on a line perpendicular to the wall. All projecting signs that project over a walkway or public right of way shall have a clearance of nine feet (9’) above grade. Off-site advertising billboard signs as described in Section
12.116.125, not attached to a building, shall be exempt to this provision.
F. Illumination Generally: No portion of the surface of any illuminated sign or any visible lamp illuminating a sign shall have a brightness exceeding one hundred fifty (150) foot-lamberts. Off site digital advertising billboards shall be at a maximum of 0.3 foot-candles over ambient light levels.
G. Illumination Near Residential Districts: Illuminated signs with a brightness more than thirty (30) footlamberts shall not be erected nearer than fifty feet (50’) from any point in a residential district unless the face of the sign is not visible from the residential district.
H. Size Of Letters: Unless otherwise prescribed in this chapter, no sign shall have letters greater in size than eighteen inches (18") in any dimension, except that in the I district, letters of sixty inches (60") may be permitted.
Off-site advertising billboard signs are exempt from this provision.
I. Backs And Supports: The backs and supports of all signs shall be subdued.
J. Construction Standards: All signs shall be constructed in such a manner as to protect the public safety.
Construction standards shall be as set forth in the latest edition of the uniform building code as adopted by the city.
K. Freestanding Signs: Except as otherwise expressly provided in this section, all signs shall be affixed to the building or structure, the use of which is being advertised or identified, and shall not be freestanding. Where freestanding signs are allowed, freestanding signs shall not exceed ten feet (10’) in height except for off-site advertising billboards and as otherwise provided in this chapter.
L. Roof Signs: Roof signs must:
1. Be erected only on a roof whose pitch is at least one vertical to four (4) horizontal.
2. Have a face no more than two feet (2’) measured vertically.
3. Be located so the face is parallel to the eaves in front of the sign.
EXHIBIT A
Packet Pg. 411 Attachment: Resolution No. PC 2024-01 w/ Exhibit A (2966 : Ordinance No. 2024-143 Amending Chapter 12.116 Signs - First Reading)
4. Be set no more than eight inches (8") above the roof.
5. Be designed and erected so that no part of its face is higher than either the peak or an elevation five feet (5’) above the eaves in front of the sign.
6. Have architecture and site approval by the planning director.
M. Signs Suspended From Marquee: All signs suspended from a single marquee shall be uniform in size, shape, placement, and background color. Such signs shall have a clearance of at least eight feet (8’) above grade.
N. Multiple Uses On Same Site: Where more than one use is lawfully being conducted upon the same site, the total signage for each separate use shall not exceed the sign area for such use as prescribed in this chapter. No sign area may be increased by reason of there being no signage or reduced signage for another use upon the same site.
O. Reduction Of Sign Area: The regulations concerning sign area, as set forth in this chapter, represent the maximum size that may be permitted but do not confer upon any person the right to erect, install, or maintain a sign or signs having such maximum area. As a condition for the granting of any sign permit hereunder, the approving authority may require that the size of the sign be reduced below the maximum sign area set forth herein, based upon a finding that such reduction is necessary to satisfy the criteria set forth in section 12.116.070 of this chapter. (Ord. 2001-13, 11-19-2001)
12.116.050 REQUIREMENT FOR PERMIT; EXEMPTIONS:
A. Permit Required: No person shall place, erect, install, or maintain any sign in the city without first obtaining a sign permit pursuant to this chapter, unless such sign is exempted under the provisions listed in subsection B of this section.
B. Exemptions: Except in the case of illuminated signs or any signs that are subject to approval by the city under the terms of any sign program or as a condition of any building site approval, use permit, variance or other approval granted by the city, the following signs shall be exempted from the requirement of a permit:
1. One identification sign, not exceeding ten (10) square feet in area, which is not freestanding.
2. Not more than two (2) on site directional signs upon a single site, each sign not exceeding three (3) square feet in area and five feet (5’) in height. Such signs may be freestanding.
3. One national, state and local governmental flag properly displayed upon a single flagpole.
4. Holiday decorations, in season.
5. Open house signs that comply with the requirements of section 12.116.170 of this chapter.
6. Political signs that comply with the requirements of section 12.116.180 of this chapter.
7. One real estate sign, not exceeding six (6) square feet in area if located in an R-1 or R-2 district, and not exceeding twelve (12) square feet in area if located in an HC, NC, MU or I district. The sign may be freestanding, but in such an event it shall not exceed four feet (4’) in height.
8. One bulletin board, not exceeding twenty (20) square feet in area and not more than ten feet (10’) in height, on the site of a school or religious institution.
9. Official traffic, fire, and police related signs, temporary traffic control signs used during construction, utility location and identification signs and markers required to protect such facilities, and any signs required by the city or any other public authority to be erected, installed or maintained.
10. Notices required to be posted by law.
EXHIBIT A
Packet Pg. 412 Attachment: Resolution No. PC 2024-01 w/ Exhibit A (2966 : Ordinance No. 2024-143 Amending Chapter 12.116 Signs - First Reading)
11. Window signs of a temporary character presenting promotional materials such as price specials, specific merchandise or food items for sale, brand names and logos and other product information, that do not exceed twenty five percent (25%) of the visible area of a window and which conform to the following standards:
a. Window signs shall be grouped in a portion of the window so as to maintain a rectangular area of the window equal to seventy five percent (75%) of the total window area free of any such signs. b. Window signs shall be maintained in a clean, attractive manner. Faded, outdated, or obsolete advertising material, and unnecessary tape or adhesives should be promptly removed. c. Window signs shall not obstruct visibility into the store or office from the public street or sidewalk and shall be arranged so as to provide for reasonable public safety.
12. Informational signs placed upon an entrance door or window adjacent to an entrance, of not more than two hundred eighty eight (288) square inches of decal application lettering, not to exceed four inches (4") in height, indicating hours of business, emergency telephone and other necessary information. (Ord. 2005-32, 4- 18-2005)
12.116.060 APPLICATION FOR PERMIT:
A. Action By City: Application for a sign permit hereunder shall be made to the planning director on such form as he/she may prescribe.
1. Approval of Sign Permits By Planning Commission: The Planning Commission shall consider and approve the following sign permits:
a. Freestanding freeway signs per section 12.116.120 and 12.116.125 of this chapter. b. Off-site directional and advertising signs per sections 12.116.125 and 12.116.130 of this chapter. c. Comprehensive signage programs per section 12.116.200 of this chapter. d. Special permits per section 12.116.210 of this chapter when referred by the planning director. e. Any other sign applications determined by the planning director to be appropriate for planning commission consideration.
2. Approval Of Sign Permit By Planning Director: The planning director shall consider and approve the following sign permits:
a. Signs for a single business or several businesses in a single building. b. Replacement of an existing sign with a new sign or new sign copy in an existing frame or signboard. c. Signs or sign changes that are consistent with a comprehensive sign program previously approved by the city.
d. Temporary real estate, construction, subdivision, special event or grand opening sign or a directional sign.
e. Other sign approvals not reserved for the planning commission. (Ord. 2010-64, 6-7-2010) B. Information Required: The application shall contain the following information:
1. The location and size of any existing or proposed buildings and structures on the site.
2. The location of off street parking and loading spaces, including major points of entry and exit for motor vehicles, where on site directional signs are proposed.
3. The location of the proposed sign and its relationship on the site.
EXHIBIT A
Packet Pg. 413 Attachment: Resolution No. PC 2024-01 w/ Exhibit A (2966 : Ordinance No. 2024-143 Amending Chapter 12.116 Signs - First Reading)
4. A scale drawing showing the size, height, dimensions and content of the proposed sign or sign structure and also indicating the colors and materials thereof.
5. The location and size of all other existing signs on the site.
6. If the sign is to be illuminated, the method, source and intensity of illumination.
7. Such other information as the planning director or the planning commission may require in order to determine whether the proposed sign will comply with the regulations and standards contained in this chapter. (Ord. 2000-03, 8-7-2000)
12.116.070 CRITERIA FOR REVIEW OF APPLICATION:
The following criteria shall be applied in reviewing applications for sign permits hereunder:
A. That the sign complies with the regulations of this chapter and the regulations of the district in which it will be located;
B. That the size, shape, color, illumination, placement and material of the sign is compatible with the building it identifies and with the visual characteristics of the neighborhood and other lawful signs in the area; C. That the location and design of the sign does not obscure from view or unduly detract from existing adjacent signs; and
D. That the location and design of a sign in close proximity to any residential district will not adversely affect the quality or character of such residential area. (Ord. 2000-03, 8-7-2000)
12.116.080 SIGNS IN AGRICULTURAL AND RESIDENTIAL DISTRICTS:
No sign of any character shall be permitted in an A, R-1, or R-2 district except the following:
A. An identification sign, not exceeding twenty four (24) square feet in area, on the site of a public building or grounds, a community facility, an institutional facility or a religious institution. Such signs may be freestanding.
B. A bulletin board, not exceeding twenty (20) square feet in area and ten feet (10’) in height, on the site of a school or religious institution. Such bulletin board may be freestanding.
C. An identification sign, not exceeding sixteen (16) square feet in area, on the site of a multi-family dwelling.
Such sign may be freestanding.
D. A nameplate, not exceeding one square foot in area, pertaining to a home occupation.
E. A nonilluminated real estate sign, not exceeding six (6) square feet in area. The sign may be freestanding, but in such event shall not exceed four feet (4’) in height.
F. A permanent sign, not exceeding twenty four (24) square feet in area, identifying a subdivision, located adjoining each entrance to a subdivision.
G. Temporary subdivision signs, subject to the regulations prescribed in section 12.116.140 of this chapter.
H. Temporary construction signs, subject to the regulations prescribed in section 12.116.150 of this chapter.
I. Public interest signs, subject to the regulations prescribed in section 12.116.160 of this chapter.
J. Open house signs, subject to the regulations prescribed in section 12.116.170 of this chapter.
K. Temporary political signs, subject to the regulations prescribed in section 12.116.180 of this chapter. (Ord. 2001-13, 11-19-2001)
12.116.090 SIGNS IN INDUSTRIAL DISTRICTS:
No sign of any character shall be permitted in an I district, except the following:
EXHIBIT A
Packet Pg. 414 Attachment: Resolution No. PC 2024-01 w/ Exhibit A (2966 : Ordinance No. 2024-143 Amending Chapter 12.116 Signs - First Reading) A. Identification Signs Placed Upon Or Attached To Buildings: Identification signs that comply with any one of the following standards:
1. Allowed sign area shall be computed at one square foot of sign area for each linear foot of building frontage on a public street subject to the additional limitations below. Buildings on corner lots may count the building frontage on the street upon which the building faces and the building frontage on one side street.
Maximum sign area of any signs on the principal frontage of the building and/or on a side street frontage shall not exceed one square foot of sign area per each linear foot of building frontage, or two hundred (200) square feet, whichever is less.
2. Any building, regardless of the length of frontage may have a sign of fifty (50) square feet in order to ensure effective identification.
3. Where more than one business occupies a building, the maximum available sign area shall be distributed between the several tenants based upon their proportion of the building frontage, subject to the limitations on overall signage area stated above.
4. No sign placed upon any building frontage may exceed seventy five percent (75%) of the width of the elevation, nor be placed closer than two feet (2’) to the top of a parapet, or lowest portion of a roof structure.
B. On Site Directional Signs: On site directional signs, each not exceeding three (3) square feet in area and five feet (5’) in height. Such signs may be freestanding. If more than two (2) directional signs are proposed, the number and location of such signs shall be subject to approval by the planning director.
C. Identification Signs On The Site Of Public Building: An identification sign, not exceeding twenty four (24) square feet in area, on the site of a public building or grounds, a community facility, an institutional facility, or a religious institution. Such sign may be freestanding.
D. Multiple Buildings On A Single Site: Where multiple buildings are located upon a single site which is three (3) acres or greater in size, either or both of the following signs may be allowed in addition to all other signs permitted under this section:
1. A freestanding site identification sign, not exceeding thirty (30) square feet in area and four feet (4’) in height.
2. An identification sign for each building on the site, indicating the location of a building and/or identifying the occupants or use thereof, each sign not exceeding six (6) square feet in area. The signs may be freestanding, but in such event shall not exceed five feet (5’) in height. The planning commission shall have authority to modify the regulations contained in this subsection with respect to the number, size, and height of identification signs, through the granting of a use permit pursuant to chapter 12.28 of this title.
E. Unlighted Real Estate Sign: An unlighted real estate sign, not exceeding twenty four (24) square feet in area.
The sign may be freestanding, but in such event shall not exceed eight feet (8’) in height, as measured from the top of the curb line, or the pavement surface where no curb exists, of the nearest street adjacent to the sign.
F. Temporary Construction Signs: Temporary construction signs, subject to the regulations prescribed in section
12.116.150 of this chapter.
G. Public Interest Signs: Public interest signs, subject to the regulations prescribed in section 12.116.160 of this chapter.
H. Temporary Political Signs: Temporary political signs, subject to the regulations prescribed in section
12.116.180 of this chapter.
I. Gasoline Price Signs: Gasoline price signs, subject to the regulations prescribed in section 12.116.190 of this chapter.
EXHIBIT A
Packet Pg. 415 Attachment: Resolution No. PC 2024-01 w/ Exhibit A (2966 : Ordinance No. 2024-143 Amending Chapter 12.116 Signs - First Reading) J. Off Site Directional Signs: Off site directional signs, subject to the regulations prescribed above. (Ord. 2010- 64, 6-7-2010)
K. On-Site Advertising Signs: On-site advertising signs, subject to the regulations in 12.116.125.
12.116.100 SIGNS IN NEIGHBORHOOD AND HIGHWAY COMMERCIAL DISTRICTS:
No sign of any character shall be permitted in an NC or HC district except the following:
A. Identification Signs: Identification signs that comply with any one of the following standards:
1. For corner lots, one-half (1/2) square foot of area for each foot of width of the front elevation of the building and side elevation of the street side of a corner lot; or
2. One-fourth (1/4) square foot of area for each foot of street frontage of the site; or
3. One-half (1/2) square foot of area for each foot of store frontage. The term "store frontage," as used herein, means that side, or those sides of the building where the main entrance to each business establishment conducted therein is located. For the purposes of computing sign area hereunder, no single business establishment may have a main entrance on more than one side of the same building. In no event shall the aggregate area of all identification signs upon a site exceed forty (40) square feet for each use upon such site.
B. On Site Directional Signs: On site directional signs, each not exceeding three (3) square feet in area and five feet (5’) in height. Such signs may be freestanding. If more than two (2) directional signs are proposed, the number and location of such signs shall be subject to approval by the planning director.
C. Freestanding Identification Signs: A freestanding identification sign for a site containing five (5) or more separate uses, not exceeding forty (40) square feet in area. Such sign may be in addition to all other signs permitted under this section.
D. Bulletin Boards: A bulletin board, not exceeding twenty (20) square feet in area and ten feet (10’) in height, on the site of a religious institution. Such bulletin boards may be freestanding.
E. Identification Signs For Multi-Family Dwellings, Motels: An identification sign, not exceeding sixteen (16) square feet in area, under the following circumstances:
1. On the site of a multi-family dwelling, motel, or hotel, such sign may be freestanding. Signage for the uses referred to herein shall be regulated by this subsection and not subsection A of this section.
2. On the site of a building that is set back from the street and whose building frontage is so blocked by surrounding physical features as determined by the planning director that building signs would not be visible in the same manner as other buildings in the two (2) districts. Such sign may be freestanding but shall not be any taller than seven feet (7’) high, and shall be regulated by this subsection as to all other standards. (Ord. 2001- 13, 11-19-2001)
F. Real Estate Signs: An unlighted real estate sign, not exceeding twenty four (24) square feet in area. The sign may be freestanding, but in such event shall not exceed four feet (4’) in height.
G. Temporary Construction Signs: Temporary construction signs, subject to the regulations prescribed in section
12.116.150 of this chapter.
H. Public Interest Signs: Public interest signs, subject to the regulations prescribed in section 12.116.160 of this chapter.
I. Temporary Political Signs: Temporary political signs, subject to the regulations prescribed in section
12.116.180 of this chapter.
J. Gasoline Price Signs: Gasoline price signs, subject to the regulations prescribed in section 12.116.190 of this chapter.
EXHIBIT A
Packet Pg. 416 Attachment: Resolution No. PC 2024-01 w/ Exhibit A (2966 : Ordinance No. 2024-143 Amending Chapter 12.116 Signs - First Reading) K. Special Event Signs: Special event signs, not exceeding ten (10) square feet in area, may be permitted, provided such signs are posted for not more than thirty (30) days prior to the event and are removed within two (2) days after such event.
L. Temporary Grand Opening Signs, Banners: Temporary grand opening signs or banners, not exceeding twenty (20) square feet in area, may be permitted to announce the commencement of a new business establishment. Such signs shall not be displayed more than thirty (30) days.
M. Temporary Signs Advertising Special Promotions: Temporary signs or banners advertising special promotions or sales may be permitted, subject to approval by the planning director, as follows:
1. Size: The maximum size of a temporary sign or banner is forty (40) square feet.
2. Location: Temporary signs or banners shall be affixed to a principal building and shall not project above the roofline of the building.
3. Duration: Temporary signs or banners may be displayed for a maximum of forty two (42) days within a six (6) month period.
4. Permit Required: An administrative permit (and accompanying fee) shall be required prior to the installation and/or display of a temporary sign or banner. (Ord. 2000-03, 8-7-2000)
12.116.110 SIGNS IN DOWNTOWN MIXED USE DISTRICT:
No sign of any character shall be permitted in the MU district except the following. In addition, such signs shall conform to standards in the Gonzales downtown revitalization plan.
A. Identification Signs Placed Upon Or Attached To Buildings: Identification signs that comply with any one of the following standards:
1. Allowed sign area shall be computed at one square foot of sign area for each linear foot of building frontage on a public street or alley subject to the additional limitations below. Buildings on corner lots or abutting a public alley may count the building frontage on the street upon which the building faces and the building frontage on one side street or upon the alley.
2. Maximum combined area of all signs on a building shall not exceed one hundred (100) square feet, regardless of the length of combined frontages.
Maximum sign area of all signs on the principal frontage of the building shall not exceed one square foot of sign area per each linear foot of building frontage, or fifty (50) square feet whichever is less. Any unused available sign area may be applied to the side street or alley frontage, or rear entry of the building subject to the limitations above.
3. Any building, regardless of the length of frontage may have a sign of twenty (20) square feet in order to ensure effective identification.
4. Where more than one tenant store or office occupies a building, maximum available sign area shall be distributed between the several tenants based upon their proportion of the building frontage, subject to the limitations on overall signage area stated above.
5. No sign placed upon any building frontage may exceed seventy five percent (75%) of the width of the elevation, nor be placed closer than two feet (2’) to the top of a parapet, or lowest portion of a roof structure.
B. On Site Directional Signs: On site directional signs, each not exceeding three (3) square feet in area and five feet (5’) in height. Such signs may be freestanding. If more than two (2) directional signs are proposed, the number and location of such signs shall be subject to approval by the planning director.
EXHIBIT A
Packet Pg. 417 Attachment: Resolution No. PC 2024-01 w/ Exhibit A (2966 : Ordinance No. 2024-143 Amending Chapter 12.116 Signs - First Reading) C. Freestanding Identification Signs: A freestanding identification sign for a site containing five (5) or more separate uses, not exceeding forty (40) square feet in area. Such sign may be in addition to all other signs permitted under this section.
D. Bulletin Boards: A bulletin board, not exceeding twenty (20) square feet in area and ten feet (10’) in height, on the site of a religious institution. Such bulletin boards may be freestanding.
E. Identification Signs For Multi-Family Dwellings, Motels: An identification sign, not exceeding sixteen (16) square feet in area, under the following circumstances:
1. On the site of a multi-family dwelling, motel, or hotel, such sign may be freestanding. Signage for the uses referred to herein shall be regulated by this subsection and not subsection A of this section.
2. On the site of a building that is set back from the street and whose building frontage is so blocked by surrounding physical features as determined by the planning director that building signs would not be visible in the same manner as other buildings in this district. Such a sign may be freestanding but shall not be any taller than seven feet (7’) high and shall be regulated by this subsection as to all other standards.
F. Real Estate Signs: An unlighted real estate sign, not exceeding twenty four (24) square feet in area. The sign may be freestanding, but in such an event it shall not exceed four feet (4’) in height.
G. Temporary Construction Signs: Temporary construction signs, subject to the regulations prescribed in section
12.116.150 of this chapter.
H. Public Interest Signs: Public interest signs, subject to the regulations prescribed in section 12.116.160 of this chapter.
I. Temporary Political Signs: Temporary political signs, subject to the regulations prescribed in section
12.116.180 of this chapter.
J. Gasoline Price Signs: Gasoline price signs, subject to the regulations prescribed in section 12.116.190 of this chapter.
K. Special Event Signs: Special event signs, not exceeding ten (10) square feet in area, may be permitted, provided such signs are posted for not more than thirty (30) days prior to the event and are removed within two (2) days after such an event.
L. Temporary Grand Opening Signs, Banners: Temporary grand opening signs or banners, not exceeding twenty (20) square feet in area, may be permitted to announce the commencement of a new business establishment. Such signs shall not be displayed for more than thirty (30) days.
M. Temporary Signs Advertising Special Promotions: Temporary signs or banners advertising special promotions or sales may be permitted, subject to approval by the planning director, as follows:
1. Size: The maximum size of a temporary sign or banner is forty (40) square feet.
2. Location: Temporary signs or banners shall be affixed to a principal building and shall not project above the roofline of the building.
3. Duration: Temporary signs or banners may be displayed for a maximum of forty two (42) days within a six (6) month period.
4. Permit Required: An administrative permit (and accompanying fee) shall be required prior to the installation and/or display of a temporary sign or banner. (Ord. 2010-64, 6-7-2010)
12.116.120 FREESTANDING FREEWAY SIGNS:
Within any nonresidential district, the following freestanding freeway signs are permitted and associated standards shall apply:
EXHIBIT A
Packet Pg. 418 Attachment: Resolution No. PC 2024-01 w/ Exhibit A (2966 : Ordinance No. 2024-143 Amending Chapter 12.116 Signs - First Reading) A. Single Use Signs: Single use signs that do not exceed seventy two (72) square feet in area and thirty five feet (35’) in height.
B. Shared Use Signs: Unless an off-site advertising sign subject to Section 12.116.125, and under lease agreement with the City of Gonzales, shared use signs that advertise more than one business and that are within one hundred feet (100’) of Highway 101 may have the following dimensions in order to be more visible from the freeway:
1. Height: Fifty feet (50’) for a sign of two (2) or more businesses.
2. Area: A maximum of seventy two (72) square feet per business. All businesses advertising on one sign, combined together, may have up to two hundred eighty (280) square feet of business message sign area. No more than six (6) businesses may advertise or be identified on a single sign. In addition, up to ninety (90) square feet of sign area may be allowed for a shopping center to identify the name of the center as a whole.
3. Eligibility: Such sign poles or pylons may only advertise businesses which are either freeway dependent such as restaurants and motels and that are on properties that are located within two hundred feet (200’) of Highway 101 right of way; or businesses which contain at least fifteen thousand (15,000) square feet under one roof and are located on properties zoned HC or I.
4. Location:
a. On Site Signs: One pole or pylon sign per two hundred (200) square feet of property frontage for a project or development that is located in an HC district, adjacent to Highway 101. b. Off Site Signs: Are not allowed except as outlined in Section 12.116.125 of this Chapter.
6. Use of existing off site pole or pylon shared use signs. A new pole or pylon sign shall only be approved when the planning director determines that no pole or pylon sign exists that could reasonably advertise the uses in that new project. The determination of reasonableness shall include the following factors:
a. No sign exists on the same side of Highway 101 and in the vicinity of the new project that could advertise all eligible uses within the new project in addition to the existing message(s) on the sign and still adhere to the provisions of this section; and
b. If a project or development has an off site pole or pylon sign, businesses within that project or development may only advertise on that off site sign.
c. The only existing sign or signs suffer from age and economic obsolescence so that the sign or signs do not offer an equal advertising opportunity for new sign messages.
7. All new pole or pylon signs approved pursuant to the provisions of this section shall provide for the identification of future eligible off site businesses unless it is determined by the planning director that:
a. There is no future need for pole or pylon signage in the vicinity; b. The capacity of the new sign for identification of future uses would be inadequate for any projected future off site businesses in the vicinity; or
c. Future businesses would not be compatible with the businesses to be advertised on the new sign.
8. The owner of new signs that provide for identification of future businesses shall covenant with the city to develop and to offer additional panels on the sign to other eligible businesses pursuant to this section, for the purpose of establishing a shared use sign. The owner of a new pole or pylon sign may charge a proportional share of the cost of installing and maintaining the sign to any business that subsequently shares the sign. (Ord. 2000-3, 8-7-2000)
EXHIBIT A
Packet Pg. 419 Attachment: Resolution No. PC 2024-01 w/ Exhibit A (2966 : Ordinance No. 2024-143 Amending Chapter 12.116 Signs - First Reading)
12.116.125 OFF-SITE ADVERTISING BILLBOARD SIGNS
A. No new outdoor advertising sign may be less than 2,500 feet from an existing outdoor advertising sign.
B. New off-site advertising signs will only be allowed on property zoned industrial.
C. No new outdoor advertising structure shall be less than 500 feet from any existing church, park or school.
D. Only highway facing signs will be allowed.
E. Digital or static display is allowed.
F. Overall height from grade must be 70’or less.
G. Display sign area may be no more than 672 square feet, per face side.
H. Digital displays shall not rotate copy more frequently than every 6 seconds.
I. Sign structure and final architectural design must be approved by the City Planning Department, and consistent with the recommendations of a design review process.
J. Development agreement, lease agreement or other agreement with the City of Gonzales. a. The operations and City conditions for the use and utility of the advertising display shall be included as part of a development agreement, lease agreement or other agreement with the City of Gonzales, City Council.
b. The agreement must include revenue provisions to the City that allow the City to undertake projects, programs or other activities funded by the City.
12.116.130 OFF SITE DIRECTIONAL SIGNS:
A conditional use permit is required for all off-ite directional signs. Such signs may not exceed seventy two (72) square feet in area or eight feet (8’) in height. Off-site directional signs shall be architecturally designed to complement there surroundings and reduce any potential negative visual impact that may result from erection of the sign to the greatest extent feasible. (Ord. 2000-03, 8-7-2000)
12.116.140 TEMPORARY SUBDIVISION SIGNS:
In an A, R-1 and R-2 district, temporary freestanding subdivision signs shall be permitted, provided they conform to the following regulations:
A. On Tract Signs: One sign, not exceeding twenty four (24) square feet in area, advertising a subdivision, may be erected or displayed adjoining each street on which the subdivision abuts and adjoining each entrance to the subdivision.
B. Model Home Signs: One sign, not exceeding six (6) square feet in area, advertising a model home, may be erected or displayed on the site of each model home in a subdivision.
C. Off Tract Directional Signs: Not more than two (2) directional signs, each facing a different direction and each not exceeding eighteen inches by thirty inches (18" x 30") in size, may be erected or displayed adjoining the intersections of streets leading to a subdivision.
D. Issuance, Duration And Renewal Of Sign Permit: A sign permit for temporary subdivision signs may be issued at any time after recordation of the final subdivision map, and shall be for a term not exceeding one year. The signs shall then be removed unless, prior to the expiration of one year, renewal of the permit for a period of not more than one additional year may be approved by the planning director. (Ord. 2000-03, 8-7-2000)
EXHIBIT A
Packet Pg. 420 Attachment: Resolution No. PC 2024-01 w/ Exhibit A (2966 : Ordinance No. 2024-143 Amending Chapter 12.116 Signs - First Reading)
12.116.150 TEMPORARY CONSTRUCTION SIGNS:
A temporary construction sign may be permitted in any district so long as it conforms to the following regulations:
A. The sign shall be located on the same site as the construction project. A freestanding sign may be permitted.
B. No more than one sign having an area not exceeding fifteen (15) square feet may be erected or displayed on the site. Where the development consists of a residential subdivision where a temporary construction sign is permitted, then no temporary construction sign shall be permitted.
C. The sign permit may be issued at any time on or after issuance of the building permit for the building or structure in question. The sign permit shall expire six (6) months following the date on which such permit was issued or upon the sooner completion of construction. The sign shall be removed on expiration of the permit unless prior to expiration the sign permit is renewed on approval of the planning director, which renewal shall in no event be for a period in excess of an additional six (6) months. The sign permit shall not thereafter be further renewed. (Ord. 2000-03, 8-7-2000)
12.116.160 PUBLIC INTEREST SIGNS:
A. Both on site and off site directional and identification signs shall be permitted in any zoning district to advertise, identify or direct persons to public and quasi-public areas, centers and institutions, and such other areas, whether natural or artificial, which, in the opinion of the planning commission, are points of general public interest.
B. This section shall apply to multiple signs on a single structure advertising service clubs and the chamber of commerce, but the same shall be limited to one such sign structure adjacent to an arterial street at each entrance to the city, and the total area of the sign structure shall not exceed fifty (50) square feet. (Ord. 2000-03, 8-7-2000)
12.116.170 OPEN HOUSE SIGNS IN RESIDENTIAL DISTRICTS:
A. Restrictions: Unlighted open house signs are permitted in any zoning district, subject to the following restrictions:
1. There shall be no more than one open house sign oriented in the same direction at any intersection. (Ord. 2000-03, 8-7-2000)
2. The open house sign shall not exceed four (4) square feet of area and four feet (4’) in height, and shall be fixed to a single pole of wood or metal material, or shall be an "A" frame, freestanding sign. (Ord. 2001-13, 11- 19-2001)
3. No open house signs shall be located in medians.
4. No open house sign shall be placed upon any public property; provided however, where the public right of way extends into a parkway strip or the planted area adjacent to the curb, between the street or curb and adjacent private property, an open house sign may be placed within such parkway strip upon obtaining permission from the owner of the adjacent private property. To the extent authorized by this subsection, open house signs are an exception to the prohibition set forth in section 12.116.030 of this chapter.
5. No open house sign shall include balloons, ribbons, streamers, or other accessories.
6. No open house sign shall be placed upon any private property without first obtaining permission from the owner of such property.
7. Information shall be printed upon or affixed to every open house sign indicating the name, real estate company affiliation, address, and telephone number of the sign owner.
8. Each real estate company shall apply and receive approval for an annual encroachment permit from the department of public works. The encroachment permit shall be valid for one year and shall be renewed annually. The encroachment permit shall be valid only for employees, independents, or affiliate members of the real estate company. (Ord. 2000-03, 8-7-2000)
EXHIBIT A
Packet Pg. 421 Attachment: Resolution No. PC 2024-01 w/ Exhibit A (2966 : Ordinance No. 2024-143 Amending Chapter 12.116 Signs - First Reading)
9. The open house sign shall be removed each day after the closing of the open house for that day, and no later than six o’clock (6:00) P.M., November 1 through March 31; and eight o’clock (8:00) P.M., April 1 through October 31. Open house signs shall not be placed earlier than six o’clock (6:00) A.M. (Ord. 2001-13, 11-19-2001)
B. Violation; Penalty; Removal Of Signs: If any open house sign is found to violate any of the restrictions contained in this section, then notwithstanding the provisions of section 12.116.230 of this chapter, such sign may be summarily removed by the public works director or his representative, or any city employee authorized by the city manager to remove such sign. The sign owner shall be responsible for payment of a fine in the amount of fifty dollars ($50.00) for each sign so removed. A written notice of the removal shall be given to the sign owner stating that the sign may be reclaimed within ten (10) days and will be returned to the owner upon payment of the fine specified herein, except that no such notice shall be required if the owner is not identified on the sign. In the event the sign is not reclaimed within the time allowed to do so, the sign may be destroyed or otherwise disposed of by the maintenance director. Unclaimed signs may be sold to real estate companies, their employees, independents, or affiliates, at a price determined by the planning director. (Ord. 2000-03, 8-7-2000)
12.116.180 TEMPORARY POLITICAL SIGNS:
A. Sign Restrictions: A temporary political sign may be erected only in accordance with the following restrictions:
1. No temporary political sign may be illuminated in any manner other than by previously existing lighting sources normally used for illumination of the area where the sign is erected.
2. No temporary political sign may be affixed to any pole or wire appurtenance thereof on which is attached any traffic sign, traffic signal, street sign, parking sign or other traffic control device installed by any public agency for public information purposes, nor may any temporary political sign be erected in a manner or place that will obstruct normal visibility of such traffic signs, traffic signals, street signs, parking signs or other traffic control devices.
3. No temporary political sign may be erected upon or affixed to any sidewalk, crosswalk, police or fire alarm system, hydrant, or any public building or other public structure.
4. No temporary political sign may be erected within or upon the right of way of any public highway or public street. (Ord. 2000-03, 8-7-2000)
5. No temporary political sign may exceed an area of sixteen (16) square feet.
6. No temporary political sign may be erected having bracing or backing material thicker than three-fourths of an inch (3/4"), except for support for posts firmly planted in the ground. (Ord. 2005-38, 11-7-2005) B. Removal: A temporary political sign shall be completely removed not later than five (5) days after the date of the election to which it relates. (Ord. 2000-03, 8-7-2000)
12.116.190 GASOLINE PRICE SIGNS:
A single gasoline price sign, as required under California Business and Professions Code section 13531(a), shall be permitted on the site of a gasoline service station. Such sign may be freestanding, if necessary to comply with the requirements of said section 13531(a) concerning visibility from the street adjacent to the site. The gasoline price sign shall comply with the following requirements:
A. The sign shall advertise not more than the four (4) major grades of motor vehicle fuel offered for sale.
B. The numerals designating the price of motor fuel shall not exceed six inches (6") in height. Fractions shall be considered one numeral. All other letters, figures or numerals on the sign shall not exceed two inches (2") in height, unless otherwise approved by the planning commission.
C. The area of the sign shall not exceed ten (10) square feet unless the applicant demonstrates, to the satisfaction of the planning commission, that a greater size is needed to contain all of the numerals, words and figures required
EXHIBIT A
Packet Pg. 422 Attachment: Resolution No. PC 2024-01 w/ Exhibit A (2966 : Ordinance No. 2024-143 Amending Chapter 12.116 Signs - First Reading) to be shown on the sign under the applicable provisions of California Business and Professions Code section 13532. (Ord. 2000-03, 8-7-2000)
12.116.200 COMPREHENSIVE SIGNAGE PROGRAM:
A. Submittal Of Program: A comprehensive signage program shall be prepared and submitted in conjunction with each use permit or site plan application for a shopping center, business park, or other similar collection of related structures on a single site. The program submitted shall address all signs to be used, including, but not limited to, signs identified in sections 12.116.090 and 12.116.100 of this chapter. The comprehensive signage program shall conform to all provisions of this section. For all signs, the size, placements, materials, colors, illumination, and other design characteristics not specified in this section shall be determined at time of approval of the comprehensive signage program by the planning director. The comprehensive signage program shall contain the following:
1. A site plan and building elevations identifying the location of all signs.
2. Design drawings for each sign or type of sign, specifying the dimensions, materials, type of construction, illumination, size of sign copy, and details necessary to determine the appropriateness of the signage.
B. Conformance Required: Once a comprehensive signage program is approved, all signs in that center, complex, or project shall conform to the program.
C. Waiver Of Limitations: Specific dimensional limitations specified in this chapter may be waived upon determination by the planning director that the submitted sign(s) meet the intent of the standards and guidelines and result in both a functionally and aesthetically superior design. (Ord. 2000-03, 8-7-2000)
12.116.210 SPECIAL PERMITS:
Nothing contained in this chapter shall prohibit the planning commission or planning director from granting a temporary special permit or otherwise permitting, on such terms as it deems proper, signs, banners or other advertising pertaining to any civic, patriotic or special event of general public interest. (Ord. 2001-13, 11-19-2001)
12.116.220 NONCONFORMING SIGNS:
A. Intent: The intent of this section is to regulate the use and removal of nonconforming, unlawful, and abandoned signs.
B. Modifications: The following modifications to nonconforming signs are allowed:
1. Changes in sign copy.
2. Modifications that reduce the extent to which the sign does not comply with this chapter.
3. No modification of a nonconforming sign shall have any effect on the length of the amortization period for the sign.
C. Record Of Nonconforming Signs: The planning director shall prepare a list of all signs in the city, which are nonconforming signs.
D. Mailing Of Notices: The planning director shall mail a notice by certified return receipt mail to the occupant business, if known, and to the owner (as shown on the last equalized assessment roll) of the land where each nonconforming sign is located. The notice shall contain:
1. A description of the land where the sign is located and a description of the sign, both in terms reasonably sufficient for the owner to identify the sign.
2. A statement that the sign is a nonconforming sign.
3. The applicable date for removal of the sign under the provisions of subsection F of this section.
EXHIBIT A
Packet Pg. 423 Attachment: Resolution No. PC 2024-01 w/ Exhibit A (2966 : Ordinance No. 2024-143 Amending Chapter 12.116 Signs - First Reading) Information concerning more than one sign, and information concerning separate amortization dates for different characteristics of one or more single signs, separately stated, may be included in a single notice. If the planning director subsequently learns that for any reason notice has not been given in a timely manner, or that notice given is defective in any way, the planning director shall promptly mail a proper notice to the occupant and owner, even if the regular time for notification has expired. Notice mailed after the time required by this subsection meets the requirements of subsection E of this section and is effective to start the time period provided in subsection F of this section.
E. Effect Of Mailing Of Notices: Notice mailed as provided in subsection D of this section is deemed to be notice to the owners of nonconforming signs and to all persons having any right, title, or interest therein. The mailing of notices is intended as a convenience to sign owners. However, no failure to give notice shall invalidate any proceeding to enforce this chapter, to abate any sign, or to punish any sign violation.
F. Duration Of Nonconforming Signs: A sign that becomes nonconforming shall be a nonconforming sign for five (5) years and then must be removed. Billboards that become nonconforming shall be nonconforming for fifteen (15) years and then must be removed. Off Site Advertising Billboard Signs subject to an adopted lease agreement with the City, shall be governed by the provisions for removal and non-conformity contained therein.
G. Procedures Concerning Subsequent Nonconforming Signs: Within six (6) months of the date when a sign becomes a nonconforming sign, the planning director shall add the sign to the list of nonconforming signs and mail notices in the manner specified in subsection D of this section and such notices shall have the same effect as the notices provided for other nonconforming signs.
H. Removal Of Unlawful Signs: Any sign erected or maintained contrary to the provisions of this chapter or any other ordinance of the city, including unlawfully erected signs, and formerly nonconforming signs whose nonconforming status has terminated, is in its entirety an unlawful sign and shall be removed.
I. Abandoned Signs: The owner must have all copy removed from an abandoned sign and the sign shall remain blank until a new entity has occupied the premises. Further, if any sign has been abandoned for a period of one year, the owner shall remove the sign and any appurtenant structures.
J. Maintenance: All signs shall be maintained and kept in repair and shall be painted and repainted at reasonable intervals. If the owner fails to comply, after ten (10) days’ written notice by the planning director, or duly appointed deputy, to so maintain such signs, the planning director shall have the sign removed at the owner’s expense. (Ord. 2000-03, 8-7-2000)
12.116.230 VIOLATIONS; REMOVAL OF ILLEGAL SIGNS:
A. Each Sign A Separate Violation: Each sign found to be in violation of any provision of this chapter shall constitute a separate violation of this code.
B. Sign Removal Authorized: The planning director or his/her representative may remove any sign located upon or affixed to any public property in violation of the provisions of this chapter.
C. Notice To Owner: The planning director shall promptly thereafter give notice of the removal to the sign owner, if such owner can be ascertained or found, stating the location of the sign and the procedure for retrieval thereof by the sign owner.
D. Retrieving Sign; Payment Of Fees; Request Hearing: Any unlawful sign removed by the planning director pursuant to this chapter shall be retained by him/her for a period of at least ten (10) days, during which the sign owner may retrieve the sign upon payment of all removal costs or an administrative fine in the amount of fifty dollars ($50.00), whichever is greater. Any person desiring to contest such payment may request a hearing before the city manager, who is authorized to waive the payment if he/she determines that the sign did not violate any provisions of this chapter. The decision of the city manager shall be final.
E. Destruction Of Abandoned Sign: Any sign not retrieved within the ten (10) day period specified in subsection D of this section shall conclusively be deemed to have been abandoned by the owner thereof and may be destroyed
EXHIBIT A
Packet Pg. 424 Attachment: Resolution No. PC 2024-01 w/ Exhibit A (2966 : Ordinance No. 2024-143 Amending Chapter 12.116 Signs - First Reading) or otherwise disposed of by the planning director. The city shall have the right to recover from the owner of such sign all removal and destruction costs.
F. Enforcement: The enforcement of sign regulations pursuant to this chapter shall be in addition to any other rights and remedies available to the city under chapter 5.20, "Public Nuisances", of this code by reason of the same violation. (Ord. 2001-13, 11-19-2001)
EXHIBIT A
Packet Pg. 425 Attachment: Resolution No. PC 2024-01 w/ Exhibit A (2966 : Ordinance No. 2024-143 Amending Chapter 12.116 Signs - First Reading) ORDINANCE NO. 2024-143
AN ORDINANCE OF THE CITY COUNCIL OF THE CITY OF
GONZALES, CALIFORNIA, AMENDING CHAPTER 12.116 SIGNS OF
TITLE 12 - PART 5 REGULATIONS APPLYING IN ALL DISTRICTS OF THE GONZALES CITY CODE.
WHEREAS, the City of Gonzales (“City”) is authorized by the California Constitution, Article XI, Section 7 to make and enforce within its limits all local, police, sanitary, and other ordinances and regulations not in conflict with general laws; and WHEREAS, in order to preserve the natural beauty of the city, to maintain the orderliness of the community’s appearance, to conserve its residential character, and to protect the public safety, the location, size and design of signs are regulated; and WHEREAS, the City has an opportunity to generate revenue if the City enables freestanding off-site advertising billboard signs to be permitted in the City in a limited manner; and WHEREAS, public safety and information distribution can be enhanced with such a sign type; and
WHEREAS, Staff has approached the City Council on previous occasions to determine their interest in allowing such a sign on a city-owned property, where the community would benefit from the lease revenue and rental agreement that would accompany such a sign; and WHEREAS, the City Council acknowledged the potential public benefits and gave their support to staff advancing such a proposal; and
WHEREAS, staff prepared revisions to the City of Gonzales Sign Ordinance (Zoning Code Section 12.116) to enable Freeway Oriented Reader Board signs; and WHEREAS, on Monday, April 8, 2024, the Planning Commission considered revisions to the sign ordinance to enable such signs; and
WHEREAS, the Planning Commission adopted PC Resolution 2024-01 recommending that the City Council support the revisions to the sign code and adopt a revised ordinance as attached to that resolution; and
WHEREAS, since the April 8, 2024, recommended action by the Planning Commission to adopt the sign ordinance revisions, staff became aware of several clarifications that would enhance and improve a revised sign ordinance; and
WHEREAS, the City Council concurs with staff that these clarifications are of a minor housekeeping-type nature and believes there would be no value-added returning the item to the Planning Commission.
Packet Pg. 426 Attachment: Ordinance No. 2024-143 w/ Exhibit A (2966 : Ordinance No. 2024-143 Amending Chapter 12.116 Signs - First Reading) -2-
NOW THEREFORE, THE CITY COUNCIL OF THE CITY OF GONZALES FINDS AND ORDAINS AS FOLLOWS:
SECTION 1. The above recitals are all true and correct and are hereby adopted as findings.
SECTION 2. The Ordinance is exempt from the California Environmental Quality Act (“CEQA”) because it can be seen with certainty that there is no possibility that it will have a significant effect on the environment. (CEQA Guidelines § 15061(b)(3).) on grounds that it can be seen with certainty that the proposed ordinance will not have a significant, adverse effect on the environment as written as only one sign can be allowed and would be placed on a highway-adjacent location without the opportunity for significant impact to the community.
Any potential off-site advertising billboard sign proposal will be subject to individual and specific environmental review under CEQA.
SECTION 3. Chapter 12.116 Signs of Title 12 - Part 5 Regulations Applying In All Districts of the Gonzales City Code is hereby deleted in its entirety and replaced with revised/amended Chapter 12.116 as attached to this Ordinance (EXHIBIT A).
SECTION 4: EFFECTIVE DATE. This Ordinance shall take effect and be in full force and effect from and after thirty (30) calendar days after its final passage and adoption. Within fifteen (15) calendar days after its adoption, the Ordinance, or a summary of the Ordinance, shall be published once in a newspaper of general circulation.
I HEREBY CERTIFY that the foregoing Ordinance was introduced by the City Council after waiving reading, except by Title, at a regular meeting thereof held on the 6th day of May, 2024, and adopted the Ordinance after the second reading at a regular meeting held on the ____ day of _______________ 2024, by the following roll call vote:
AYES: COUNCIL MEMBERS:
NOES: COUNCIL MEMBERS:
ABSTAIN: COUNCIL MEMBERS:
ABSENT: COUNCIL MEMBERS:
Jose L. Rios, The Honorable Mayor
ATTEST:
Mary Villegas, Deputy City Clerk
Packet Pg. 427 Attachment: Ordinance No. 2024-143 w/ Exhibit A (2966 : Ordinance No. 2024-143 Amending Chapter 12.116 Signs - First Reading) -3-
APPROVED AS TO FORM:
By:
Michael Rodriquez, City Attorney
Jarvis Faye, LLP
I, ______________________________, City Clerk of the City of Gonzales, California, DO HEREBY CERTIFY that the foregoing is a true and accurate copy of the Ordinance passed and adopted by the City Council of the City of Gonzales on the date and by the vote indicated herein.
Packet Pg. 428 Attachment: Ordinance No. 2024-143 w/ Exhibit A (2966 : Ordinance No. 2024-143 Amending Chapter 12.116 Signs - First Reading) Gonzales City Code
CHAPTER 12.116 SIGNS