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.
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. 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 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.
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
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 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 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.
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 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. 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 mid- 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.
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. 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. 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 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 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. 11 4891-8536-2866.7
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. 12 4891-8536-2866.7
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. 13 4891-8536-2866.7
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.
14 4891-8536-2866.7
(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.” 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 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. 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
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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. 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. 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.”
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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.
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 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 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 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.
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 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 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.
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. 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. 34 4891-8536-2866.7
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.
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).
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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. 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. 41 4891-8536-2866.7
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 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. 43 4891-8536-2866.7
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 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 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 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 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 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. 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.
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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 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 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.
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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. 55 4891-8536-2866.7
• 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.
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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. 57 4891-8536-2866.7
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 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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APPENDIX C
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 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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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.