25 the date on which there is substantial interference with the use and occupancy by the City of the Leased Property and ending with the substantial completion of the work of repair or replacement of the Leased Property so damaged or destroyed; and the term o f the Property Lease shall be extended by the period during which the rental is abated under the Property Lease, except that the term shall in no event be extended beyond for the period commencing with the date on which the Leased Property is not available for use and occupancy and ending with the date on which the Leased Property is available for use and occupancy; and the term of the Property Lease shall be extended by the period during which the rental is abated, except that the term may in no event be extended beyond the date specified in the Property Lease.
The Property Lease provides that notwithstanding the foregoing, the City shall still be obligated to apply amounts legally available to the City for payments due under the Property Lease, despite the interference with the use and occupancy, including without limitation:
amounts available that have been deposited in and transferred from the Revenue Fund under the Indenture, amounts available from any capitalized interest account, any debt service reserve fund maintained under the Indenture and the Surplus Revenue Fund proceeds of rental interruption insurance; proceeds of any condemnation proceedings; and proceeds of hazard insurance, other property insurance, and title insurance.
Insurance
General Liability Insurance. Under the Property Lease, the City is required to maintain or cause to be maintained, throughout the term of the Property Lease, general liability insurance naming the Authority, its members, officers , agents and employees, the Trustee and the City and its officers, agents and employees as insured parties. Said policy or policies shall insure said parties against liability for damages for bodily and personal injury, death or property damage occasioned by reason of the operation of the Leased Property. Such policy or policies shall provide coverage in such liability limits and be subject to such deductibles as the City deems adequate and prudent.
Property Insurance . Under the Property Lease, t hroughout the term of th e Property Lease, the City is required to maintain or cause to be maintained fire and lightning (i.e., property) insurance (with an extended coverage endorsement and with a vandalism and malicious mischief endorsement) on all struct ures constituting any part of the Leased Property in an amount equal to the lesser of (i) one hundred percent of the replacement cost of such structures or (ii) an amount equal to the then principal amount of the Outstanding Bonds. Such insurance may be su bject to such deductibles as the City deems adequate and prudent . Said extended coverage endorsement shall, as nearly as possible, cover loss or damage by such events as explosion, windstorm, hail, riot, civil commotion, aircraft, vehicle damage, smoke and such other hazards as are normally covered by such endorsement , and shall include earthquake coverage if available at reasonable cost from reputable insurers in the judgment of the City.
Rental Interruption Insurance . Under the Property Lease, t he City is required to maintain or cause to be maintained, throughout the term of th e Property Lease, rental income interruption insurance in an amount not less than the maximum total Base Rental payable by the City pursuant to th e Property Lease during any consecu tive 24 month period, plus the Additional Rental expected to be payable pursuant to the Property Lease for such period, to insure against loss of rental income from the Leased Property caused by perils covered by the property insurance required by the Property Lease as described in the subcaption “– Property Insurance” above.
26 Title Insurance. Under the Indenture, t he Authority is required to provide , or cause the City to provide, upon the delivery of the Bonds, a title insurance policy or policies with endorsement so as to be payable to the Trustee for the use and benefit of the Bondowners.
Such policy or policies shall be in the amount of the aggregate principal amount of the Bonds initially issued pursuant to the Indenture , and shall insure the Authority ’s leasehold interest in the Leased Property, and the City’s leasehold therein, subject only to Permitted Encumbrances.
The lease agreement between the City and the San Bernardino County Library system relating to the Hesperia Library Branch will constitute a Permitted Encumbrance.
Alternative Insurance Programs . All insurance required to be maintained pursuant to the Property Lease may be maintained either separately or as a part of or in conjunctio n with any other insurance coverage carried by the City, and may be maintained in whole or in part in the form of participation by the City in a joint powers agency or other program providing pooled issuance.
Application of Net Proceeds . The Trustee, as assignee of the Authority under the Indenture, has the right to receive the net proceeds resulting from any insurance claim or eminent domain proceedings and payable to the Trustee . As provided in the Indenture, the Trustee will deposit all such proceeds in the Insurance and Eminent Domain Proceeds Fund and any such proceeds which are not applied to repair, rebuild or replace the Leased Property will be applied to the redemption of 2023 Bonds under certain circumstances set forth in the Indenture. See also “THE 2023 BONDS – Redemption – Mandatory Redemption from Insurance or Condemnation Proceeds.”
See “APPENDIX B - SUMMARY OF PRINCIPAL LEGAL DOCUMENTS ” for further provisions regarding required insurance coverage for the Leased Property and the application of proceeds resulting from any insurance claim or eminent domain proceedings payable to the Trustee.
Default; Remedies
Under the Property Lease, t he City shall be deemed to be in default thereunder (i) if it shall (A) fail to pay any rental payable thereunder when the same becomes due and payable, time being expressly agreed to be of the essence in the Property Lease, or (B) fail to keep, observe or perform any other term, covenant or condition contain ed therein to be kept or performed by the City; or (ii) upon the happening of any of the events described in the following paragraph.
If (1) the City ’s interest in th e Property Lease or any part thereof be assigned or transferred, either voluntarily or by operation of law or otherwise, without the written consent of the Authority as provided for in the Property Lease; or (2) the City or any assignee shall file any petition or institute any proceeding under any act or acts, state or federal, dealing with or relating to the subject or subjects of bankruptcy or insolvency, or under any amendment of such acts or acts, either as a bankrupt or as an insolvent, or as a debtor, or in any similar capacity, wherein or whereby the City asks or seeks or prays to be adj udicated a bankrupt, or is to be discharged from any or all of the City ’s debts or obligations, or offers to the City ’s creditors to effect a composition or extension of time to pay the City ’s debts or asks, seeks or prays for reorganization or to effect a plan of reorganization, or for a readjustment of the City ’s debts, or for any other similar relief, or if any such petition or any such proceedings of the same or similar kind or character be filed or be instituted or taken against the City, or if a recei ver of the business or of the property or assets of the City shall be appointed by any court, except a
27 receiver appointed at the instance or request of the Authority, or if the City shall make a general or any assignment for the benefit of the City ’s creditors; or (3) the City shall abandon or vacate any portion or portions of the Leased Property, then the City shall be deemed to be in default under the Property Lease with respect to that portion or portions of the Leased Property to which the default relates.
Under the Property Lease, t he Authority may exercise any and all remedies available pursuant to law (other than those specifically waived therein) or granted pursuant to th e Property Lease upon the occurrence of any default. The Property Lease furthe r provides that the City shall not be in default in the observance or performance of any covenant, condition or agreement in the Property Lease on its part to be observed or performed, other than as referred to in clauses (i)(A), or (ii) of the first paragraph of this section, unless the City shall have failed, for a period of 30 days or such additional time as is reasonably required, to correct any such default after notice by the Authority to the City properly specifying wherein the City has failed t o perform any such covenant, condition or agreement.
Neither the Authority nor the Trustee may accelerate the Base Rental payments or otherwise declare any Base Rental payments not then in default to be immediately due and payable.
Upon any such default , the Authority shall have the right to collect each installment of rent as it becomes due and enforce any other terms or provision hereof to be kept or performed by the City; notwithstanding the foregoing, the Authority waives the right to re -enter or re-let the Leased Property . See “BOND OWNERS ’ RISKS – Limitations on Remedies ” and See “APPENDIX B − SUMMARY OF PRINCIPAL LEGAL DOCUMENTS.”
THE AUTHORITY
The City and the Water District formed the Authority pursuant to the provisions of the Act and the Joint Powers Agreement to assist them from time to time in connection with their respective financing programs, including the acquisition, construction and improvement of public capital improvements and other programs of such member.
The members of the City Council serve as the governing board of the Authority, the City Manager serves as Executive Director of the Authority, the Director of Government Services serves as Secretary of the Authority , the Director of Administrative Services serves as the Treasurer and the City Attorney serves as counsel to the Authority. The Authority is a separate entity constituting a public instrumentality of the State.
THE CITY
For information a bout the City, including general demographic information and financial information relating to the General Fund, see “APPENDIX A – CITY OF HESPERIA GENERAL DEMOGRAPHIC AND FINANCIAL INFORMATION.”
28 BOND INSURANCE
The following information has been furnished by [INSURER] for use in this Official Statement. No representation is made as to the accuracy or completeness of this information, or the absence of material adverse changes therein at any time subsequent to th e date hereof.
Reference is made to Appendix G for a specimen of the Insurance Policy.
[To come from bond insurer]
29 CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS
The constitutional and statutory provisions discussed in this section have the potential to affect the ability of the City to levy taxes and spend tax proceeds for operating and other purposes.
Limitations on Revenues
Article XIIIA of the California Constitution . Article XIIIA of the State Constitution, adopted and known as Proposition 13, was approved by the voters in June 1978 and has been amended on occasions, including most recently on N ovember 7, 2000 to reduce the voting percentage required for the passage of school bonds. Section 1(a) of Article XIIIA limits the maximum ad valorem tax on real property to one percent of “full cash value,” and provides that such tax shall be collected by the counties and apportioned according to State statutes. Section 1(b) of Article XIIIA provides that the one -percent limitation does not apply to ad valorem taxes levied to pay interest and redemption charges on (i) indebtedness approved by the voters prior to July 1, 1978, or (ii) bonded indebtedness for the acquisition or improvement of real property approved on or after July 1, 1978, by two -thirds of the votes cast by the voters voting on the proposition, or (iii) bonded indebtedness incurred by a sc hool district or community college district or county office of education for the construction, reconstruction, rehabilitation or replacement of school facilities, including the furnishing and equipping of school facilities or the acquisition or lease of real property for school facilities, approved by 55% of the voters voting on the proposition.
Section 2 of Article XIIIA defines “full cash value ” to mean the county assessor ’s valuation of real property as shown on the 1975 -76 fiscal year tax bill, or t hereafter, the appraised value of real property when purchased, newly constructed, or a change in ownership has occurred. The full cash value may be adjusted annually to reflect inflation at a rate not to exceed two percent per year, or to reflect a reduc tion in the consumer price index or comparable data for the area under taxing jurisdiction, or may be reduced in the event of declining property value caused by substantial damage, destruction or other factors. Legislation implementing Article XIIIA provides that, notwithstanding any other law, local agencies may not levy any ad valorem property tax except the 1% base tax levied by each county and taxes to pay debt service on indebtedness approved by the voters as described above. Such legislation further provides that each county will levy the maximum tax permitted by Article XIIIA, which is $1.00 per $100 of assessed market value.
Since its adoption, Article XIIIA has been amended a number of times. These amendments have created a number of exceptions t o the requirement that property be reassessed when it is purchased, newly constructed or undergoes a change in ownership has occurred. These exceptions include certain transfers of real property between family members, certain purchases of replacement dwe llings for persons over age 55 and by property owners whose original property has been destroyed in a declared disaster, and certain improvements to accommodate disabled persons and for seismic upgrades to property. These amendments have resulted in marginal reductions in the property tax revenues of the City.
Both the California State Supreme Court and the United States Supreme Court have upheld the validity of Article XIIIA.
30 Articles XIIIC and XIIID of the California Constitution.
General. On November 5, 1996, the voters of the State approved Proposition 218, known as the “Right to Vote on Taxes Act.” Proposition 218 adds Articles XIIIC and XIIID to the California Constitution and contains a number of interrelated provisions affecting the ability of the City to levy and collect both existing and future taxes, assessments, fees and charges.
On November 2, 2010, California voters approved Proposition 26, entitled the “Supermajority Vote to Pass New Taxes and Fees Act. ” Section 1 of Propos ition 26 declares that Proposition 26 is intended to limit the ability of the State Legislature and local government to circumvent existing restrictions on increasing taxes by defining the new or expanded taxes as “fees.” Proposition 26 amended Articles XI IIA and XIIIC of the State Constitution. The amendments to Article XIIIA limit the ability of the State Legislature to impose higher taxes (as defined in Proposition 26) without a two -thirds vote of the Legislature. The amendments to Article XIIIC define “taxes” that are subject to voter approval as “any levy, charge, or exaction of any kind imposed by a local government,” with certain exceptions.
Taxes. Article XIIIC requires that all new local taxes be submitted to the electorate before they become effec tive. Taxes for general governmental purposes of the City (“general taxes”) require a majority vote; taxes for specific purposes ( “special taxes”), even if deposited into the City ’s General Fund, require a two -thirds vote. The voter approval requirements of Article XIIIC reduce the flexibility of the City to raise revenues for the General Fund, and no assurance can be given that the City will be able to impose, extend or increase such taxes in the future to meet increased expenditure needs.
Property-Related Fees, Charges and Assessments . Article XIIID also adds several provisions making it generally more difficult for local agencies to levy and maintain property - related fees, charges, and assessments for municipal services and programs. These provisions include, among other things, (i) a prohibition against assessments which exceed the reasonable cost of the proportional special benefit conferred on a parcel, (ii) a requirement that assessments must confer a “special benefit,” as defined in Article XIIID, over and above any general benefits conferred, (iii) a majority protest procedure for assessments which involves the mailing of notice and a ballot to the record owner of each affected parcel, a public hearing and the tabulation of ballots weighted accordi ng to the proportional financial obligation of the affected party, and (iv) a prohibition against fees and charges which are used for general governmental services, including police, fire or library services, where the service is available to the public at large in substantially the same manner as it is to property owners.
Reduction or Repeal of Taxes, Fees and Charges. Article XIIIC also removes limitations on the initiative power in matters of reducing or repealing local taxes, assessments, fees or charges. No assurance can be given that the voters of the City will not, in the future, approve an initiative or initia tives which reduce or repeal local taxes, assessments, fees or charges currently comprising a substantial part of the City’s General Fund. If such repeal or reduction occurs, the City’s ability to pay debt service on the 2023 Bonds could be adversely affected.
Burden of Proof . Article XIIIC provides that local government “bears the burden of proving by a preponderance of the evidence that a levy, charge, or other exaction is not a tax, that the amount is no more than necessary to cover the reasonable cos ts 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
31 activity.” Similarly, Article XIIID provides th at in “any legal action contesting the validity of a fee or charge, the burden shall be on the agency to demonstrate compliance” with Article XIIID.
Impact on City’s General Fund . The approval requirements of Articles XIIIC and XIIID reduce the flexibility of the City to raise revenues for the General Fund, and no assurance can be given that the City will be able to impose, extend or increase the taxes, fees, charges or taxes in the future that it may need to meet increased expenditure needs.
The City does not believe that any material source of General Fund revenue is subject to challenge under Proposition 218 or Proposition 26.
Judicial Interpretation. The interpretation and application of Articles XIIIC and XIIID will ultimately be determined by the courts with respect to a number of the matters discussed below, and it is not possible at this time to predict with certainty the outcome of such determination.
Expenditures and Appropriations. In addition to the limits Article XIIIA imposes on property taxes that may be collected by local governments, certain other revenues of the State and local governments are subject to an annual “appropriations limit” or “Gann Limit” imposed by Article XIIIB of the State Constitution, which effectively limits the amount of such revenues that government entities are permitted to spend. Article XIIIB, approved by the voters in June 1979, was modified substantially by Proposition 111 in 1990. T he appropriations limit of each government entity applies to “proceeds of taxes, ” which consist of tax revenues, state subventions and certain other funds, including proceeds from regulatory licenses, user charges or other fees to the extent that such proc eeds exceed “the cost reasonably borne by such entity in providing the regulation, product or service. ” “Proceeds of taxes ” exclude tax refunds and some benefit payments such as unemployment insurance. No limit is imposed on the appropriation of funds wh ich are not “proceeds of taxes, ” such as reasonable user charges or fees, and certain other non-tax funds.
Article XIIIB also does not limit appropriation of local revenues to pay debt service on bonds existing or authorized by January 1, 1979, or subsequ ently authorized by the voters, appropriations required to comply with mandates of courts or the federal government, appropriations for qualified capital outlay projects, and appropriation by the State of revenues derived from any increase in gasoline taxe s and motor vehicle weight fees above January 1, 1990, levels. The appropriations limit may also be exceeded in cases of emergency; however, the appropriations limit for the three years following such emergency appropriation must be reduced to the extent by which it was exceeded, unless the emergency arises from civil disturbance or natural disaster declared by the Governor, and the expenditure is approved by two-thirds of the legislative body of the local government.
The State and each local government entity has its own appropriations limit. Each year, the limit is adjusted to allow for changes, if any, in the cost of living, the population of the jurisdiction, and any transfer to or from another government entity of financial responsibility for providing services.
Proposition 111 requires that each agency ’s actual appropriations be tested against its limit every two years. If the aggregate “proceeds of taxes ” for the preceding two -year period exceed the aggregate limit, the excess must be returned t o the local government’s taxpayers through tax rate or fee reductions over the following two years.
32 Statutory Revenue Limitations - Proposition 62
Proposition 62 was adopted by the voters at the November 4, 1986, general election and (a) requires that any new or higher taxes for general governmental purposes imposed by local governmental entities such as the City be approved by a two -thirds vote of t he governmental entity’s legislative body and by a majority vote of the voters of the governmental entity voting in an election on the tax, (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 of the governmental entity voting in an election on the tax, (c) restricts the use of revenues from a special tax to the purposes or for the service for which the special tax was im posed, (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 government al entities, and (f) requires that any tax imposed by a local governmental entity on or after August 1, 1985, be ratified by a majority vote of the voters voting in an election on the tax within two years of the adoption of the initiative or be terminated by November 15, 1988.
Following its adoption by the voters, various provisions of Proposition 62 were declared unconstitutional at the appellate court level. On September 28, 1995, however, the California Supreme Court, in Santa Clara County Local Transportation Authority v. Guardino , upheld the constitutionality of the portion of Proposition 62 requiring a two –thirds vote in order for a local government or district to impose a special tax and, by implication, upheld a parallel provision requiring a majori ty vote in order for a local government or district to impose any general tax.
The Guardino decision did not address whether it should be applied retroactively. In response to Guardino, the California Legislature adopted Assembly Bill 1362, which provided that Guardino should apply only prospectively to any tax that was imposed or increased by an ordinance or resolution adopted after December 14, 1995. Assembly Bill 1362 was vetoed by the Governor; hence the application of the Guardino decision on a retroactive basis remains unclear.
Proposition 62, as an initiative statute, does not have the same level of authority as a constitutional initiative. It is analogous to legislation adopted by the State Legislature, except that it may be amended only by a vote of the State’s electorate. However, Proposition 218, as a constitutional amendment, is applicable to charter cities and supersedes many of the provisions of Proposition 62.
Proposition 1A
Proposition 1A, proposed by the Legislature in connection with the State ’s fiscal year 2004-2005 Budget, approved by the voters in November 2004 and generally effective in fiscal year 2006-2007, provides that the State may not reduce any local sales tax rate, limit existing local government authority to levy a sales tax rate or change the allocation of local sales tax revenues, subject to certain exceptions. Proposition 1A generally prohibits the State from shifting to schools or community colleges any share of property tax revenues allo cated to local governments for any fiscal year, as set forth under the laws in effect as of November 3, 2004.
Any change in the allocation of property tax revenues among local governments within a county must be approved by two -thirds of both houses of th e Legislature. Proposition 1A provides, however, that beginning in fiscal year 2008-2009, the State may shift to schools and community colleges up to 8% of local government property tax revenues, which amount must be repaid, with interest, within three ye ars, if the Governor proclaims that the shift is needed due to a severe state financial hardship, the shift is approved by two -thirds of both houses and certain other conditions are met. The State may also approve voluntary exchanges of local sales tax
33 and property tax revenues among local governments within a county. Proposition 1A also provides that if the State reduces the motor vehicle license fee rate currently in effect, the State must provide local governments with equal replacement revenues. Furt her, Proposition 1A requires the State, beginning July 1, 2005, to suspend State mandates affecting cities, counties and special districts, excepting mandates relating to employee rights, schools or community colleges, in any year that the State does not f ully reimburse local governments for their costs to comply with such mandates.
Proposition 1A may result in increased and more stable City revenues. The magnitude of such increase and stability is unknown and would depend on future actions by the State .
However, Proposition 1A could also result in decreased resources being available for State programs. This reduction, in turn, could affect actions taken by the State to resolve budget difficulties. Such actions could include increasing State taxes, de creasing spending on other State programs or other action, some of which could be adverse to the City.
Proposition 22
Proposition 22, entitled “The Local Taxpayer, Public Safety and Transportation Protection Act, ” was approved by the voters of the State in November 2010. Proposition 22 amended the state Constitution to eliminate or reduce the State’s authority to (i) temporarily shift property taxes from cities, counties and special districts to schools, (ii) use vehicle licen se fee revenues to reimburse local governments for State -mandated costs (the State will have to use other revenues to reimburse local governments), (iii) redirect property tax increment from redevelopment agencies to any other local government, (iv) use St ate fuel tax revenues to pay debt service on State transportation bonds, or (v) borrow or change the distribution of State fuel tax revenues. This Proposition was intended to, among other things, stabilize local government revenue sources by restricting the State’s control over local property taxes.
Unitary Property
AB 454 (Chapter 921, Statutes of 1986) provides that revenues derived from most utility property assessed by the State Board of Equalization ( “Unitary Property”), commencing with fiscal year 1988 -89, are allocated as follows: (i) each jurisdiction will receive up to 102% of its prior year State –assessed revenue; and (ii) if county –wide revenues generated from Unitary Property are less than the previous year’s revenues or greater than 102% of the previous year’s revenues, each jurisdiction will share the burden of the shortfall or benefit of the excess revenues by a specified formula. This provision applies to all Unitary Property except railroads, whose valuation will continue to be allocated to individual tax rate areas.
The provisions of AB 454 constitute neither an elimination of the assessment of any State–assessed properties nor a revision of the methods of assessing utilities by the State Board of Equalization. Generally, AB 454 allows valuation growth or decline of Unitary Property to be shared by all jurisdictions in a county.
Possible Future Initiatives
Articles XIIIA, XIIIB, XIIIC and XIIID and Propositions 62, 111, 218 and 1A 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 revenues of the City or the City ’s ability to expend rev enues. There is no assurance that the California electorate or Legislature will not at some future time approve additional limitations.
34 BOND OWNERS’ RISKS
The following describes certain special considerations and risk factors affecting the payment of and security for the 2023 Bonds. The following discussion is not meant to be an exhaustive list of the risks associated with the purchase of any 2023 Bonds and does not necessarily reflect the relative importance of the various risks. Potential investors in the 2023 Bonds are advised to consider the following special factors along with all other information in this Official Statement in evaluating the 2023 Bonds . There can be no assurance that other considerations will not materialize in the future.
Limited Obligations
The 2023 Bonds are limited obligations of the Authority payable solely from and secured solely by the Revenues pledged therefor under the Indenture, together with amounts on deposit from time to time in certain funds and accounts held by the Trustee. Revenues consist primarily of Base Rental payments. If for any of the reasons described below, or for any other reason, the Authority does not receive sufficient Base Rental payments to pay debt service on the 2023 Bonds, the Authority will not be obligated to utilize any other of its funds, other than amounts on deposit in certain funds and accounts established under the Indenture, to pay debt service on the 2023 Bonds.
The Base Rental payments are not secured by any pledge of or lien on taxes or other revenue of the City, but are payable from all funds lawfully available to the City . Under the Indenture, the Authority may issue Additional Bonds secured by and payable from Revenues on a parity with the 2023 Bonds in the future if certain conditions are satisfied . See “SECURITY FOR THE 2023 BONDS – Additional Bonds.” In addition, the City has the capacity to enter into other obligations that may constitute additional obligations against its revenues. In the event the City’s revenue sources are less than its total obligations, the City could choose to fund other obligations before making Base Rental payments ; in that case, the failure to pay Base Rental payments in full would constitute a default under the Property Lease (see “– Additional Obligations of the City” below). 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; in that case, the failure to pay Base Rental payments in full would constitute a default under the Property Lease. The City must adopt a balanced Budget each year, and has covenanted in the Property Lease to budget for, appropriate and make the Base Rental payments in each year that it has possession and use of the Leased Property.
Abatement
Under California law, the obligation of the City to make Base Rental payments is contingent upon the availability of the Leased Property for use and occupancy by the City. The Base Rental payments are subject to abatement in an amount determined by the City such that the resulting Base Rental payments represent fair consideration for the use and occupancy of the remaining usable portions of the Leased Property not damaged or destroyed. The Base Rental payments will be abated proportionately during any period in which by reason of material damage or destruction, there is substantial interference with the use and occupancy of any portion of the Leased Property by the City, and such abatement will continue until substantial completion of the work of repair or replacement of the portion of the Leased Property damaged or destroyed. Any abatement of Base Rental payments could affect the Authority’s ability to pay debt service on the 2023 Bonds . However, there will be no abatement of Base Rental payments under the Property Lease to the extent that the proceeds of property insurance, rental
35 interruption insurance or condemnation proceeds are available to pay Base Rental payments that would otherwise be abated.
In the event Base Rental payments are abated, no assurances can be given that the proceeds of property insurance (which is not required to be available to cover earthquake damage) or rental interruption insurance will be sufficient to pay the debt service on the 2023 Bonds during the period of such abatement. See “SECURITY FOR THE 2023 BONDS − Abatement” and “APPENDIX B − SUMMARY OF PRINCIPAL LEGAL DOCUMENTS.”
Notwithstanding the provisions of the Property Lease specifying the extent of abatement in the event of the City’s failure to have full use and occupancy of the Leased Property , such provisions may be superseded by operation of law, and, in such event, the resulting Base Rental payments of the City may not be sufficient to pay all of the remaining principal and interest with respect to the 2023 Bonds.
Limitation on Remedies
The enforcement of any remedies provided for in the Property Lease and in the Indenture could prove to be both expensive and time -consuming. In addition, in the Property Lease the Authority waives the right to re -enter or re-let the Leased Property. Accordingly, re- entry or re -letting of the Leased Property is not an available remedy under the Property Lease and the only remedy against the City with respect to the Leased Property would be to recover the Base Rental payments and other monetary charges as they become due .
In addition, the Trustee may not terminate the City’s right to possession of the Leased Property, regardless of whether the City has abandoned it. Because of this, in the event of a bankruptcy by the City, the Trustee will have limited ability to compel the payment of Base Rental payments with respect to the Leased Property . See “APPENDIX B – SUMMARY OF PRINCIPAL LEGAL DOCUMENTS” for a description of the remedies contained in the Property Lease and the Indenture.
In addition to the limitations on remedies contained in the Property Lease and the Indenture, the rights and remedies provided in those documents may be limited by and are subject to provisions of federal bankruptcy laws, as now or hereafter enacted, and to other laws or equitable principles that may affect creditors ’ rights generally. The various legal opinions to be delivered concurrently with the issuance of the 2023 Bonds will be qualified as to the enforceability of the various legal instrumen ts by limitations imposed by State and federal laws, rulings and decisions affecting remedies, and by bankruptcy, reorganization or other laws of general application affecting the enforcement of creditors ’ rights, including equitable principles.
See “– Bankruptcy Risks” below.
Limitation on Trustee’s Obligations under the Indenture
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 or Property Lease may be dependent upon the availability of funds from an interested party. There can be no assurance that the Trustee will be willing and able to pe rform its duties under the Indenture.
36 Release of Property; Additional Bonds
The Authority and the City may amend the Property Lease to substitute or release a portion of the Leased Property upon complia nce with all of the conditions set forth in the Property Lease. After a substitution or release, the portion of the Leased Property for which the substitution or release has been effected will be released from the leasehold encumbrance of the Property Lease.
Although the Property Lease requires, among other things, that the annual fair rental value of the property which remains subject to the Property Lease following such release is no less than the maximum annual Base Rental and Additional Rental remaining unpaid under the Property Lease at the time of such release, it does not require that the Leased Property have an annual fair rental value equal to the annual fair rental value of the Leased Property prior to the substitution or release of any portion thereof . Thus, a portion of the Leased Property could be replaced with less valuable real property, or could be released altogether. Such a substitution or release could have an a dverse impact on the security for the 2023 Bonds, particularly if an event requiring abatement of the Base Rental payments were to occur subsequent to such substitution or release. See “THE LEASED PROPERTY – Substitution of Leased Property” and “– Release of Lease Property.”
Moreover, the Authority and the City are permitted to amend the terms of the Property Lease, without the Trustee’s consent, for certain purposes that include obligating the City to pay additional amounts of Base Rental in connection wi th the issuance of Additional Bonds in accordance with the Indenture. See “SECURITY FOR THE 2023 BONDS – Additional Bonds.”
As previously described, on the date the 2023 Bonds are issued, the Hesperia Branch Library will not be part of the Leased Property subject to the leasehold interest under the Property Lease. However, the City currently intends to substitute the Hesperia Branch Library for City Hall, if and when, it receives a written subordination from the County subordinating the County’s interests under the County Library Lease Agreement to the Property Lease and the Site Lease, and subject to the satisfaction of certain other conditions precedent in the Property Lease. See “THE LEASED PROPERTY – Description and Location” and “– Substitution of Leased Property.”
Insurance on the Leased Property
Under the Property Lease, the City is required to maintain through the term of the Property Lease policies of insurance covering loss or damage to the Leased Property at least equal to the lesser of (a) 100% of the replacement value of the insured buildings, or (b) an amount equal to the then principal amount of the Outstanding Bonds . If the Leased Property is damaged or destroyed, there can be no assurance that the insurance proceeds will be sufficient to repair or restore the Leased Property , or to redeem or defease all of the then -Outstanding 2023 Bonds. In addition, neither the Authority nor the City can provide any assurance as to whether the provider of an insurance policy will pay under such policy. See the caption “SECURITY FOR THE 2023 BONDS – Insurance” for a description of the insurance coverages that are required by the Property Lease. See “APPENDIX A – CITY OF HESPERIA GENERAL DEMOGRAPHIC AND FINANCIAL INFORMATION – FINANCIAL INFORMATION RELATING TO THE CITY’S GENERAL FUND – Risk Management” for a description of the City’s current insurance coverages. Certain risks, such as earthquakes, are not required to be covered under the Property Lease and the City is not required to maintain such coverage during the term of the Property Lease.
37 Condemnation of the Leased Property
If all or a portion of the Leased 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 2023 Bonds. If the award in a condemnation of the entire Leased Property is less than the amounts remaining on such Outstanding 2023 Bonds, then the Owners will be paid less than the amounts remaining on such Outstanding 2023 Bonds. See “– Abatement” above.
Value of Leased Property
The security under the Property Lease extends only to the Authority’s leasehold interest in the Leased Property granted under the Site Lease and is subject to the restrictions of the Site Lease. The Leased Property has not been appraised in connection with th e issuance of the 2023 Bonds.
No Acceleration Upon Default
In the event of a default, there is no remedy of acceleration of the total Base Rental payments for the term of the Property Lease. Any suit for money d amages would be subject to the legal limitations on remedies against cities and counties in the State, including a limitation on enforcement of judgments against funds needed to serve the public welfare and interest. See “APPENDIX B – SUMMARY OF THE PRINCIPAL LEGAL DOCUMENTS.”
Early Prepayment Risk
Early payment of the Base Rental payments and early redemption of the 2023 Bonds may occur in whole or in part, without premium, from insurance or condemnation proceeds, on any date, if the Leased Property , or a portion thereof, is lost, destroyed or damaged beyond repair or taken by eminent domain and if the City exercises its right to prepay the Base Rental payments in whole or in part pursuant to the provisions of the Property Lease and the Indenture.
Bankruptcy Risks
The rights of the owners of the 2023 Bonds and the enforceability of the Authority ’s obligation to make payments on the 2023 Bonds may be subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors ’ rights under currently existing law or laws enacted in the future, and may also be subject to the exercise of judicial discretion under certain circumstances.
Under existing law, the City is eligible to file for bankruptcy. Should the City file for bankruptcy, there could be adverse effects on the holders of the 2023 Bonds. In a bankruptcy of the City, the Authority or the Trustee as its assignee and the owners of the 2023 Bonds may be prohibited from taking any action against the City, any official of the City, or any property of the City (including the Leased Property ) to enforce the terms of the Property Lease, unless the consent of the bankruptcy court is first obtained. The bankruptcy court is not required to give its consent. This prohibition on ac tion may even prohibit the Trustee from using funds in its possession to make payments on the 2023 Bonds . As a result, Owners may experience temporary delays or reductions in the payment of the 2023 Bonds.
In a bankruptcy case, a plan of adjustment for the City could be confirmed that would allow for enforcement of the Property Lease, but the priority, interest rate, payment terms,
38 collateral, maturity dates, payment sources, covenants and other terms or provisions of the Property Lease and the 2023 Bonds may be altered by the bankruptcy court. Such a plan could be confirmed even over the objections of the Authority or the Trustee as its assignee and the owners of the 2023 Bonds , and without their consent. Additionally, the resulting plan could adjust some or all of the City ’s financial obligations, which include the City ’s lease payment obligations under the Property Lease to and the City ’s obligation to fund certain retirement benefits.
The adjustment plans approved by the Bankruptcy Courts in connectio n with the bankruptcies of the cities of Vallejo, San Bernardino and Stockton resulted in significant reductions in the amounts payable by the cities under lease revenue obligations substantially identical or similar to the 2023 Bonds. The City can provide no assurance about the outcome of the bankruptcy cases of other California municipalities of the nature of any adjustment plan it if were to file for bankruptcy.
In addition, if the Property Lease is determined to constitute a “true lease ” by the bankruptcy court (rather than a financing lease providing for the extension of credit), the City could choose not to perform under the Property Lease and the claim of the owners of the 2023 Bonds could be substantially limited. An allowable claim could be substan tially less than the amount of the 2023 Bonds outstanding, resulting in the owners of the 2023 Bonds suffering a substantial loss.
The opinions of counsel, including Bond Counsel, delivered in connection with the issuance and delivery of the 2023 Bonds will be so qualified. Bankruptcy proceedings, or the exercising of powers by the federal or state government, if initiated, could subject the owners of the 2023 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.
In addition, as previously described, in the event of a bankruptcy by the City, the Trustee will have limited ability to compel the payment of Base Rental payments with respect to the Leased Property. See “– Limitation on Remedies.”
State Law Limitations on Appropriations
Article XIIIB of the California Constitution limits the amount that local governments can appropriate annually. The ability of the City to make Base Rental payments may be affected if the City should exceed its appropriations limit. The State may increase the appropriation limit of cities in the State by decreasing the State’s own appropriation limit. The City does not anticipate exceeding its appropriations limit in the foreseeable future. See “CONSTITUTIONAL AND STATUTORY LIMITATION ON TAXES AND APPROPRIATIONS – Limitations on Revenues – Expenditures and Appropriations.”
Limitations on Taxes and Fees
Certain taxes, assessments, fees and charges presently imposed by the City could be subject to the voter approval requirements of Article XIIIC and Article XIIID of the State Constitution. Based upon the o utcome of an election by the voters, such fees, charges, assessments and taxes might no longer be permitted to be imposed, or may be reduced or eliminated and new taxes, assessments fees and charges may not be approved. The City has assessed the potential impact on its financial condition of the provisions of Article XIIIC and Article XIIID of the State Constitution respecting the imposition and increase of taxes, fees,
39 charges and assessments and does not believe that an election by the voters to reduce o r eliminate the imposition of certain existing fees, charges, assessments and taxes would substantially affect its financial condition. However, the City believes that if the initiative power was exercised so that all local taxes, assessments, fees and cha rges that may be subject to Article XIIIC and Article XIIID of the State Constitution are eliminated or substantially reduced, the financial condition of the City , including its General Fund, could be materially adversely affected.
Although the City does not currently anticipate that the provisions of Article XIIIC and Article XIIID of the State Constitution would adversely affect its ability to pay Base Rental payments and its other obligations payable from the General Fund, no assurance can be given regarding the ultimate interpretation or effect of Article XIIIC and Article XIIID of the State Constitution on the City’s finances. See “CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS.”
Additional Obligations of the City
The City has existing obligations payable from its General Fund. The City is permitted to enter into other obligations which constitute additional charges against its revenues , including additional rental payable from a lease of the Leased Property, without the consent of Owners of the 2023 Bonds. To the extent that additional obligations are incurred by the City, the funds available to pay Base Rental payments to the Owners of the 2023 Bonds may decline. See “SECURITY FOR THE 2023 BONDS – Additional Bonds” and “APPENDIX A – CITY OF HESPERIA GENERAL DEMOGRAPHIC AND FINANCIAL INFORMATION – FINANCIAL INFORMATION RELATING TO THE CITY ’S GENERAL FUND – Outstanding Debt of the General Fund.”
The Base Rental payments and other payments due under the Property Lease (including payment of costs of repair and maintenance of the Leased Property , taxes and other governmental charges levied against the Leased Property ) are payable from funds lawfully available to the City. If the amounts that the City is obligated to pay in a fiscal year exceed the City’s revenues for such year, the City may choose to make some payments rather than making other payments, including Base Rental payments , based on the perceived needs of the City.
The same result could occur if, because of California Constitutional limits on expenditures, the City is not permitted to appropriate and spend all of its available revenues or is required to expend available revenues to preserve the public health, safety and welfare.
Property Taxes
Levy and Collection . Any reduction in the tax rate or the implementation of any constitutional or legislative property tax decrease could reduce the City’s property tax revenues, and accordingly, could have an adverse impact on the ability of the City to make Base Rental payments. Likewise, delinquencies in the payment of property taxes could have an adverse effect on the City’s ability to pay Base Rental payments when due.
Reduction in Inflationary Rate. Article XIIIA of the California Constitution provides that the full cash value base of real property used in determining assessed value may be adjusted from year to year to reflect the inflationary rate, not to exceed a 2% increase for any given year, or may be reduced to reflect a reduction in the consumer price index or comparable local data.
See “CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS.” Such measure is computed on a calendar year basis. Because Article
40 XIIIA limits inflationary assessed value adjustments to the lesser of the actual inflationary rate or 2%, there have been years in which the assessed values were adjusted by actual inflationary rates, which were less than 2%. Since Article XIIIA was approved , the annual adjustment for inflation has fallen below the 2% limitation a limited number of times.
The City is unable to predict if any adjustments to the full cash value base of real property within the City, whether an increase or a reduction, will be realized in the future.
Appeals of Assessed Values. There are two types of appeals of assessed values that could adversely impact property tax revenues:
Proposition 8 Appeals. Most of the appeals that might be filed in the City would be based on Section 51 of the Revenue and Taxation Code, which requires that for each lien date the value of real property must be the lesser of its base year value annually adjusted by the inflation factor pursuant to Article XIIIA of the State Constitution or its full cash value, taking into account reductions in value due to damage, destruction, depreciation, obsolescence, removal of property or other factors causing a decline in value.
Under California law, property owners may apply for a reduction of their prop erty tax assessment by filing a written application, in form prescribed by the State Board of Equalization, with the appropriate county board of equalization or assessment appeals board. In most cases, the appeal is filed because the applicant believes th at present market conditions (such as residential home prices) cause the property to be worth less than its current assessed value. These market -driven appeals are known as “Proposition 8” appeals.
Any reduction in the assessment ultimately granted as a Proposition 8 appeal applies to the year for which application is made and during which the written application was filed. These reductions are often temporary and are adjusted back to their original values when market conditions improve. Once the prope rty has regained its prior value, adjusted for inflation, it once again is subject to the annual inflationary factor growth rate allowed under Article XIIIA.
Base Year Appeals . A second type of assessment appeal is called a base year appeal, where the property owners challenge the original (basis) value of their property.
Appeals for reduction in the “base year” value of an assessment, if successful, reduce the assessment for the year in which the appeal is taken and prospectively thereafter.
The base year is determined by the completion date of new construction or the date of change of ownership. Any base year appeal must be made within four years of the change of ownership or new construction date.
No assurance can be given that property tax appeals in the future will not significantly reduce the City’s property tax revenues.
Public Health Emergencies
In recent years, public health authorities have warned of threats posed by outbreaks of disease and other public health threats. On February 11, 2020 , the World Health Organization (“WHO”) announced the official name for the outbreak of the disease known as COVID -19 (“COVID-19”), an upper respiratory tract illness. COVID-19 has since spread across the globe.
41 To date, the City’s General Fund revenues have not been adversely affected by the COVID-19 pandemic. In addition, as of the date of this Official Statement, the City does not anticipate that the COVID -19 pandemic will materially adversely affect its abi lity to make Base Rental payments under the Property Lease in the foreseeable future. However, because the COVID-19 pandemic is ongoing, there can be no assurance that absences of employees or City leadership due to COVID-19 will not adversely impact City operations. Furthermore, the ultimate impact of COVID-19 on the City’s operations and finances and the economy, real estate market and development within the City is not fully known, and it may be some time before the full adverse impact of the COVID-19 outbreak is known.
There could be future COVID -19 outbreaks or other public health emergencies that could have material adverse effects on the City’s operations and finances. See “APPENDIX A – CITY OF HESPERIA GENERAL DEMOGRAPHIC AND FINANCIAL INFORMATION.”
Certain Risks Associated with Sales Tax and Other Local Tax Revenues
For Fiscal Year 2021-22, sales tax revenues were the largest source of General Fund revenue of the City (representing approximately 31% of the total General Fund revenues for such Fiscal Year. See “APPENDIX A – CITY OF HESPERIA GENERAL DEMOGRAPHIC AND FINANCIAL INFORMATION – FINANCIAL INFORMATION RELATING TO THE CITY ’S GENERAL FUND – Sales an d Use Taxes .” Sales tax revenues are based upon the gross receipts of retail sales of tangible goods and products by retailers with taxable transactions in the City, which could be impacted by a variety of factors. For example, in times of economic recession, the gross receipts of retailers often decline, and such a decline would cause the sales tax revenues received by the City to also decline. To date, the City’s sales tax revenues have not been significantly impacted by the COVID-19 pandemic.
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 “CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS – Limitations on Revenues – Article XIIIC and Article XIIID of the California Constitution.”
For example, many categories of transactions are exempt from the statewide s ales 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 t ransactions in the City or the fee charged by the California Department of Tax and Fee Administration for administering the City’s sales tax could also be changed. See “APPENDIX A – CITY OF HESPERIA GENERAL DEMOGRAPHIC AND FINANCIAL INFORMATION – FINANCIAL INFORMATION RELATING TO THE CITY’S GENERAL FUND – Sales and Use Taxes.”
Increasing Retirement Related Costs
The City is required to make contributions to the California Public Employees ’ Retirement System (“CalPERS”) for employees and retirees of the City and retirees of the Hesperia Fire Protection District . Such obligations are a significant financial obligation of the City and could increase in the future. Actual contribution rates w ill depend on a variety of factors, including but not limited to 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 that actual
42 increases in required contributions will not be higher than the amounts which are currently projected. See “APPENDIX A – CITY OF HESPERIA GENERAL DEMOGRAPHIC AND FINANCIAL INFORMATION – FINANCIAL INFORMATION RELATING TO THE CITY ’S GENERAL FUND – Employee Retirement System.”
Hazardous Substances
Owners and operators of real 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 California laws with regard to hazardous substances area also stringent and similar. Under many of these laws, the owner (or operato r) is obligated 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. Further, such liabilities may arise not simply from the existence of a hazard ous substance but from the method of handling it. All of these possibilities could significantly and adversely affect assessed values of property in the City and the operations and finances of the City.
Natural Hazards
The value of the Leased Property, and the financial stability of the City, can be adversely affected by a variety of factors, particularly those which may affect infrastructure and other public improvements and private improvements and the continued habitabilit y and enjoyment of such improvements. Such additional factors include, without limitation, geologic conditions such as earthquakes, topographic conditions such as earth movements, landslides and floods and climatic conditions such as droughts. In the eve nt that one or more of such conditions occur, such occurrence could cause damages of varying seriousness to the land and improvements and the value of property in the City could be diminished in the aftermath of such events. A substantial reduction of the value of such properties could affect the ability or willingness of the property owners to pay their property taxes. See “– Abatement” above.
Seismic. Like most regions in the State, the City is in an area of significant seismic activity. There are numerous earthquake faults near the City, including the San Andreas, Garlock, North Frontal, Cleghorn, Cucamonga, Helendale and San Jacinto earthquake faults.
All of these have the potential to generate moderate to large earthquakes that will cause ground shaking within the City. The North Frontal fault, given its location relative to the City, has the potential to cause the most severe shaking in the City. Loss estimation modeling indicates that a maximum magnitude 7.2 earthquake on this fault would be a worst-case scenario for the City.
In addition to ground shaking, earthquakes may generate surface fault rupture, ground failure in the form of liquefaction or slope failure, and secondary effects such as catastrophic dam failures, fires, and hazardous materials releases.
If there were to be an occurrence of severe seismic activity in the City, there could be an abatement or adverse impact on the City ’s ability to pay the Base Rental payments. The Property Lease does not require that the City maintain earthquake insurance with respect to the Leased Property. See “SECURITY FOR THE 2023 BOND S – Insurance.” Also see “THE LEASED PROPERTY” for information about the structural design of the Leased Property.
Flood. Like most of southern California, the Cit y is subject to unpredictable seasonal rainfall, with periods of intense and sustained precipitation occurring every few years. The
43 extent of possible flooding in the Mojave River, Antelope Wash, Oro Grande Wash and Summit Valley areas has been analyzed t hrough flood insurance studies. Inundation due to a 100 -year flood (a flood that has a one percent probability of being equaled or exceeded in any given year) can occur in these areas of the City. However, the entire Hesperia area has not been studied and the flood zones are incomplete. None of the Leased Property is located in the 100 -year floodplain.
There are three dams and numerous water storage tanks in or near the City the failure of which in an earthquake or other calamity could cause inundation of portions of the City. The three dams are the Mojave Forks Dam, Cedar Springs Dam and Lake Arrowhead Dam.
Wildfires. In recent years, wildfires have caused extensive damage throughout the State. In some instances, entire neighborhoods have been destro yed. Several of the fires that occurred in recent years damaged or destroyed property in areas that were not previously considered to be at risk from such events. The Leased Property is not in an area classified as a Very High Fire Hazard Severity Zone b y California Department of Forestry and Fire Protection, also known as CalFire.
Some commentators believe that climate change will lead to even more frequent and more damaging wildfires in the future. Property damage due to wildfire could result in a significant decrease in the market value of property in City and in the ability or willingness of property owners to pay property taxes.
Drought. As with much of the State, the City experiences recurring drought as a result of its climate conditions. Droughts impact public health and safety related to both water supply and wildfire risk. On October 19, 2021, the Governor declared a Statewide drought state of emergency and requested th at all water users voluntarily reduce water use by 15% . On March 24, 2023, the Governor eased the emergency drought restrictions imposed as a result of the Governor’s 2021 declaration. There can be no assurance that subsequent declarations will not impose mandatory water use restrictions should dry conditions persist in future years.
Climate Change
The State has historically been susceptible to wildfires and hydrologic variability. As greenhouse gas emissions continue to accu mulate 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.
Cyber Security
The City , like many other public and private entities, relies on a large and complex technology environment to conduct its operations. As a recipient and provider of personal, private, or sensitive information, the City is subject to multiple cyber threats includ ing, but not limited to, hacking, viruses, malware and other attacks on computer and other sensitive digital networks and systems. Entities or individuals may attempt to gain unauthorized access to the City’s digital systems for the purposes of misappropri ating assets or information or causing operational disruption and damage.
44 The City is also reliant on other entities and service providers in connection with the administration of the 2023 Bonds, including without limitation the California Department of Tax and Fee Administration for the collection and distribution of sales taxes, the County for the levy and collection of property taxes, and the Trustee.
On November 28, 2021 the City detected a cybersecurity incident that impacted its network. Upon becoming aware of the incident, the City notified law enforcement and conducted an internal investigation to assess the nature and scope of the compromise. The investigation concluded on January 7, 2022, and confirmed that certain data had been accessed and acquired by an unauthorized third-party. The investigation further concluded that such data may have contained personal information of certain persons. As of the date of this Official Statement, the City has not experienced a material financial impact as a result of such incident.
In an effort to reduce the likelihood of additional cyber incidents in the future, the City has implemented additional security features to its network, conducted employee trainings and hired third-party consultants to monitor the network and notify the City of any suspicious activity.
However, no assurance can be given that the City’s efforts to manage cyber threats and attacks will be successful in all cases, or that any such attack will not materially impact the operations or finances of the City, or the administration of the 2023 Bonds. Nor can any assurance be given that the other entities the City relies on will not be affected by cyber threats and attacks in a manner that may affect the Bond owners.
Litigation
The City is and may become a party to litigation that has the potential to have an impact on the City’s General Fund. Although the City maintains certain insurance policies that provide coverage under certain circumstances and with respect to certain types of incidents, the City cannot predict what types of liabilities may arise in the future and whether these may adversely affect the ability of the City to pay Base Rental payments under the Property Lease when due.
Changes in Law; Voter Initiatives
The State Legislature may in the future enact legislation that will amend or create laws resulting in a reduction of moneys securing or available to pay the 2023 Bonds. Similarly, the State electorate could adopt initiatives or the State Legislature could adopt legislation with the approval of the electorate amending the State Constitution . Subject to overriding federal constitutional principles, such initiatives or legislation could have the effect of reducing revenues of the City available to make Base Rental payments and therefore the Authority’s ability make debt service payments on the 2023 Bonds when due.
The Taxpayer Protection and Government Accountability Act (the “Taxpayer Protection Act”) is an initiative measure that has gathered sufficient signatures and may appear on a statewide ballot in the future . The ballot measure proposes amendments to the California Constitution that impose significant restrictions on state and local governm ents with respect to their abilities to raise revenues . The proposal includes expanding the legal definition of “taxes” to include some charges that state and local governments currently treat as fees and other charges, and requires that local special taxe s be approved by two -thirds of the electorate. In a recent analysis, the California Legislative Analyst’s Office predicted the measure would result in “[l]ower annual state and local revenues, potentially substantially lower, depending on the future actions of the Legislature, local governing bodies, voters, and the courts. ” If the Taxpayer
45 Protection Act is approved by the electorate, there can be no assurance that the City’s revenues will not be significantly affected.
Loss of Tax-Exemption
As discussed under the caption “TAX MATTERS, ” interest on the 2023 Bonds could become includable in gross income for purposes of federal income taxation retroactive to the date the 2023 Bonds were issued, as a result of future act s or omissions of the Authority or the City in violation of their respective covenants in the Property Lease and the Indenture. Should such an event of taxability occur, the 2023 Bonds are not subject to special redemption and will remain Outstanding unti l maturity or until redeemed under other provisions set forth in the Indenture.
Bond Insurance
In the event of default of the payment of the scheduled principal of or interest on the Insured 2023 Bonds when all or some becomes due, the Trustee on behalf of any owner of the Insured 2023 Bonds will have a claim under the Insurance Policy for such payments. [INSURER] may direct and must consent to any remedies with respect to the Insured 2023 Bonds a nd [INSURER]’s consent may be required in connection with amendments to any applicable documents relating to the 2023 Bonds. See “APPENDIX B – SUMMARY OF PRINCIPAL LEGAL DOCUMENTS.”
The long-term ratings on the Insured 2023 Bonds are dependent in part o n the financial strength of [INSURER] and its claims paying ability. [INSURER]’s financial strength and claims paying ability are predicated upon a number of factors which could change over time. No assurance is given that the long-term ratings of [INSURER] and the ratings on the Insured 2023 Bonds will not be subject to downgrade and such event could adversely affect the market price of the Insured 2023 Bonds or the marketability (liquidity) for the Insured 2023 Bonds. See the caption “RATINGS” herein.
The obligations of [INSURER] are unsecured contractual obligations and in an event of default by [INSURER], the remedies available may be limited by applicable bankruptcy law or state law related to insolvency of insurance companies.
None of the City, the Authority or the Underwriter has made independent investigation into the claims paying ability of [INSURER] and no assurance or representation regarding the financial strength or projected financial strength of [INSURER] is given. Thus, when making an investment decision, potential investors should carefully consider the ability of the City to make the payments on the Insured 2023 Bonds and the claims paying ability of [INSURER], particularly over the life of the investment. See “BOND INSURANCE” herein for further information regarding [INSURER] and the Insurance Policy, which includes further instructions for obtaining current financial information concerning [INSURER].
Secondary Market for 2023 Bonds
There can be no guarantee that there will be a secondary market for the 2023 Bonds or, if a secondary market exists, that any 2023 Bonds can be sold for any particular price.
Occasionally, because of general market conditions or because of adverse history or economic prospects connected with a particular issue, secondary marketing practices in connection with a particular issue are suspended or terminated. Additionally, prices of issues for which a market
46 is being made will depend upon then -prevailing circ umstances. Such prices could be substantially different from the original purchase price.
TAX MATTERS
Federal Tax Status
In the opinion of Jones Hall, A Professional Law Corporation, San Francisco, California, Bond Counsel, subject, however to the qualifications set forth below, under existing law, the interest on the 2023 Bonds is excluded from gross income for federal income tax purposes and such interest is not an item of tax preference for purposes of the federal alternative minimum tax. Interest on the 2023 Bonds may be subject to the corporate alternative minimum tax.
The opinions set forth in the preceding paragraph are subject to the condition that the Authority and the City comply with all requirements of the Internal Revenue Code of 1986, as amended (the “Code”) that must be satisfied subsequent to the issuance of the 2023 Bonds in order that the interest thereon be, and continue to be, excludable from gross income for federal income tax purposes . The Authority and the City have made certain representations and covenants in order to comply with each such requirement. Inaccuracy of those representations, or failure to comply with certain of those covenants, may cause the inclusion of such interest in gross income for federal income tax purposes, which may be retroactive to the date of issuance of the 2023 Bonds.
Tax Treatment of Original Issue Discount and Premium
If the initial offering price to the public at which a 2023 Bond is sold is less than the amount payable at maturity thereof, then such difference constitutes “original issue discount” for purposes of federal income taxes and State of California personal income taxes. If the initial offering price to the public at which a 2023 Bond is sold is greater than the amount payable at maturity there of, then such difference constitutes “bond premium ” for purposes of federal income taxes and State of California personal income taxes.
Under the Code, original issue discount is treated as interest excluded from federal gross income and exempt from Sta te of California personal income taxes to the extent properly allocable to each owner thereof subject to the limitations described in the first paragraph of this section. The original issue discount accrues over the term to maturity of the 2023 Bond on the basis of a constant interest rate compounded on each interest or principal payment date (with straight-line interpolations between compounding dates). The amount of original issue discount accruing during each period is added to the adjusted basis of su ch 2023 Bonds to determine taxable gain upon disposition (including sale, redemption, or payment on maturity) of such 2023 Bond. The Code contains certain provisions relating to the accrual of original issue discount in the case of purchasers of the 2023 Bonds who purchase the 2023 Bonds after the initial offering of a substantial amount of such maturity. Owners of such 2023 Bonds should consult their own tax advisors with respect to the tax consequences of ownership of 2023 Bonds with original issue disc ount, including the treatment of purchasers who do not purchase in the original offering to the public at the first price at which a substantial amount of such 2023 Bonds is sold to the public.
Under the Code, bond premium is amortized on an annual basis over the term of the 2023 Bond (said term being the shorter of the 2023 Bond’s maturity date or its call date). The
47 amount of bond premium amortized each year reduces the adjusted basis of the owner of the 2023 Bond for purposes of determining taxable ga in or loss upon disposition. The amount of bond premium on a 2023 Bond is amortized each year over the term to maturity of the 2023 Bond on the basis of a constant interest rate compounded on each interest or principal payment date (with straight-line interpolations between compounding dates). Amortized bond premium is not deductible for federal income tax purposes. Owners of premium 2023 Bonds , including purchasers who do not purchase in the original offering, should consult their own tax advisors with respect to State of California personal income tax and federal income tax consequences of owning such 2023 Bonds.
California Tax Status
In the further opinion of Bond Counsel, interest on the 2023 Bonds is exempt from California personal income taxes.
Other Tax Considerations
Current and future legislative proposals, if enacted into law, clarification of the Code or court decisions may cause interest on the 2023 Bonds to be subje ct, directly or indirectly, to federal income taxation or to be subject to or exempted from state income taxation, or otherwise prevent beneficial owners from realizing the full current benefit of the tax status of such interest.
The introduction or enact ment of any such legislative proposals, clarification of the Code or court decisions may also affect the market price for, or marketability of, the 2023 Bonds . It cannot be predicted whether or in what form any such proposal might be enacted or whether, i f enacted, such legislation would apply to bonds issued prior to enactment.
The opinions expressed by Bond Counsel are based upon existing legislation and regulations as interpreted by relevant judicial and regulatory authorities as of the date of such opinion, and Bond Counsel has expressed no opinion with respect to any proposed legislation or as to the tax treatment of interest on the 2023 Bonds, or as to the consequences of owning or receiving interest on the 2023 Bonds, as of any future date. Prospective purchasers of the 2023 Bonds should consult their own tax advisors regarding any pending or proposed federal or state tax legislation, regulations or litigation, as to which Bond Counsel expresses no opinion.
Owners of the 2023 Bonds should also be aware that the ownership or disposition of, or the accrual or receipt of interest on, the 2023 Bonds may have federal or state tax consequences other than as described above. Other than as expressly described above, Bond Counsel expresses n o opinion regarding other federal or state tax consequences arising with respect to the 2023 Bonds, the ownership, sale or disposition of the 2023 Bonds, or the amount, accrual or receipt of interest on the 2023 Bonds.
The proposed form of opinion of Bond Counsel with respect to the 2023 Bonds to be delivered on the date of issuance of the 2023 Bonds is set forth in “APPENDIX E – FORM OF OPINION OF BOND COUNSEL.”
CERTAIN LEGAL MATTERS
Jones Hall, A Professional Law Cor poration, San Francisco, California, Bond Counsel, will render an opinion with respect to the validity of the 2023 Bonds, the form of which is set forth in “APPENDIX E – FORM OF OPINION OF BOND COUNSEL. ” Jones Hall, A
48 Professional Law Corporation , takes no responsibility for the accuracy or completeness of the data provided by the City or others and has not undertaken to make an independent verification or does not assume responsibility for the accuracy, completeness, or fairness of the information contained in this Official Statement. Bond Counsel will receive compensation from the Authority and the City contingent upon the sale and delivery of the 2023 Bonds.
Certain legal matters will also be passed upon for the City and the Authority by Jones Hall, A Professional Law Corporation, as Disclosure Counsel. Certain legal matters will be passed upon for the City and the Authority by Aleshire & Wynder LLP, as City Attorney . In addition, certain legal matters will be passed on for the Underwriter by Stradling Yocca Carlson & Rauth, a Professional Corporatio n, as Underwriter’s Counsel. The fees payable to Jones Hall and counsel to the Underwriter are contingent upon the sale and delivery of the 2023 Bonds.
Furthermore, from time to time , Jones Hall, A Professional Law Corporation , serves as counsel to the Underwriter with respect to transa ctions other t han the issuance of the 2023 Bonds.
ABSENCE OF MATERIAL LITIGATION
To the best knowledge of the City , there is no action, suit, proceeding, inquiry or investigation before or by any court or federal, state, municipal or other governmental authority pending and notice of which has been served on and received by the City or, to the knowledge of the City, threatened against or affecting the City or the assets, properties or operations of the City which, if determined adversely to the City or its interests, would have a material and adverse effect upon the consummation of the transactions contemplated by or the validity of the Property Lease, the Site Lease or the Indenture, or upon the financial condition, assets, properties or operations of the City.
Neither the City nor the Authority is in default with respect to any order or decree of any court or any or der, regulation or demand of any federal, state, municipal or other governmental authority, which default might have consequences that would materially adversely affect the consummation of the transactions contemplated by the Property Lease , the Site Lease or the Indenture, or the financial conditions, assets, properties or operations of the City, including but not limited to the payment and performance of the City’s obligations under the Property Lease.
There are a number of lawsuits and claims pending a gainst the City for which the City is either self -insured or insured in varying degrees by commercial insurance, or which in the aggregate, if determined adversely to the City , could have a material adverse impact on the City’s finances in the future. However, the City does not expect any such suits or claims to have a material adverse effect on the City’s ability to make payments under the Property Lease. Such lawsuits include a case filed by the County in San Bernardino County Superior Court against the City seeking indemnification for damages relating to a housing discrimination case filed in federal court by the United States against the City, the San Bernardino Sherriff’s Department and the County relating to the City’s prior Crime-Free ordinance . The housing discrimination case was settled by agreement in December 2022. A settlement conference is scheduled in the County’s indemnification action against the City for June 13, 2023. The County made an initial demand for indemnification against the City in the amount of $900,000.
49 FINANCIAL STATEMENTS
CliftonLarsonAllen, LLP, Irvine, California (the “Auditor”), audited the financial statements of the City for the Fiscal Year ended June 30, 2022. The audit was conducted in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States. See “APPENDIX C – ANNUAL
COMPREHENSIVE FINANCIAL REPORT OF THE CITY FOR THE FISCAL YEAR ENDED JUNE 30, 2022.”
The City has not requested nor did the City obtain permission from the Auditor to include the audited financial statements as an appendix to this Official Statem ent. Accordingly, the Auditor has not performed any post -audit review of the financial condition or operations of the City.
RATINGS
S&P Global Ratings (“S&P”) has assigned a rating of “__” to the 2023 Bonds. S&P has also assigned a rating of “ __” to the Insured 2023 Bonds based upon the delivery of the Insurance Policy by [INSURER] at the time the Insured 2023 Bonds are issued. See the caption “BOND INSURANCE” herein.
A rating is not a recommendation to buy, sell or hold securit ies. Future events could have an adverse impact on the rating of the 2023 Bonds, and there is no assurance that any credit rating that is given to the 2023 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 2023 Bonds will not change during the period that the 2023 Bonds remain outstanding.
Any qualification, downward revision, lowering or withdrawal of the rating on the 2023 Bonds may have an adverse effect on the market price of the 2023 Bonds. Such rating reflects only the current view of S&P (which could change at any time), and a n explanation of the significance of such rating may be obtained from S&P. Generally, S&P bases its ratings on information and materials furnished to them (which may include information and material from the City that is not included in this Official Stat ement) and on investigations, studies and assumptions by S&P.
The City has covenanted in the Continuing Disclosure Certificate to file notices of any rating changes on the 2023 Bonds with the Municipal Securities Rulemaking Board ’s Electronic Municipal Market Access System. See the caption “CONTINUING DISCLOSURE ” and Appendix D. Notwithstanding such covenant, information relating to rating changes on the 2023 Bonds may be publicly available from S&P prior to such information bein g 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 2023 Bonds are directed to S&P and its website and official media outlets for the most current ratings with respect to the 2023 Bonds after the initial issuance of the 2023 Bonds.
50 CONTINUING DISCLOSURE
The City (on behalf of the Authority and itself) will covenant for the benefit of owners of the 2023 Bonds to provide certain financial information and operating data relating to the City (the “Annual Report”), by not later than the date that is nine months after the end of the City’s fiscal year (currently March 31 based on the City’s fiscal year end of June 30), commencing March 31, 2024 with the report for the fiscal year ending June 30, 202 3, and to provide notices of the occurrence of certain listed events. The Annual Report and the notices of enumerated events will be filed by the City with the Municipal Securities Rulemaking Board through Electronic Municipal Access System (“EMMA”). The specific nature of the information to be contained in the Annual Report or the notices of enumerated events is summarized below under the caption “APPENDIX D – FORM OF C ONTINUING DISCLOSURE CERTIFICATE. ” These covenants have been made to assist the Underwriter in complying with Securities Exchange Commission Rule 15c2-12(b)(5) (the “Rule”).
The City and certain related entities previously entered into certain disclosure undertakings under the Rule in connection with the issuance of long -term obligations. During the past five years, the City complied with such undertakings in all material respect , except that the City failed to include the annual information required to be filed by the City with the California Debt and Investment Advisory Commission for the City of Hesperia Community Facilities District No. 2005 -1 (Belgate Development Restructuring) Special Tax Refunding Bonds, Series 2014 in the annual reports for such b onds for Fiscal Years 2017 -18 through 2019-20. [The City has filed supplemental annual reports on EMMA to correct such failures.]
In order to ensure compliance with its disclosure undertakings for its outstanding bonds and the 2013 Bonds, the City has established processes that it believes will be sufficient to ensure compliance in the future with respect to its each of its disclosure undertakings, including the Continuing Disclosure Certificate to be executed in connection with the 2023 Bonds.
UNDERWRITING
The 2023 Bonds are being purchased pursuant a bond purchase agreement by and among the Authority, the City, and the Underwriter. The Underwriter has agreed to purchase the 2023 Bonds at a purchase price of $ _______ (which is equal to the par amount of the 2023 Bonds, plus original issue premium of $_______, and less an underwriter ’s discount of $_______).
The Underwriter may offer the 2023 Bonds to the public at the offering prices set forth on the cover page of this O fficial Statement. The Underwriter may offer and sell to certain dealers and others at a price lower than the offering prices stated on the cover page hereof. The offering price may be changed from time to time by the Underwriter.
PROFESSIONAL FEES
In connection with the issuance of the 2023 Bonds, fees or compensation payable to certain professionals are contingent upon the issuance and delivery of the 2023 Bonds. Those professionals include Jones Hall, A Professio nal Law Corporation, the Underwriter, Stradling Yocca Carlson & Rauth, a Professional Corporation, as Underwriter ’s Counsel, and the Municipal Advisor.
51 MUNICIPAL ADVISOR
The City has retained the Municipal Advisor in connection with the offering of the 2023 Bonds. All financial and other information presented in this Official Statement has been provided by the City and others from their records. Unless otherwise footnoted, the Municipal Advisor takes no responsibi lity for the accuracy or completeness of the data provided by the City or others and has not undertaken to make an independent verification or does not assume responsibility for the accuracy, completeness, or fairness of the information contained in this Official Statement. The Municipal Advisor has assisted the City with the structure, timing and terms for the sale of the 2023 Bonds . The Municipal Advisor provides municipal advisory services only and does not engage in the underwriting, marketing, or tra ding of municipal securities or other negotiable instruments. The fee of the Municipal Advisor is contingent upon the successful closing of the 2023 Bonds.
EXECUTION
The execution of this Official Statement and its delivery have been authorized by the Board of Directors of the Authority and the City Council of the City.
HESPERIA JOINT PUBLIC FINANCE
AUTHORITY
By:
Executive Director
CITY OF HESPERIA
By:
City Manager
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APPENDIX A
CITY OF HESPERIA GENERAL DEMOGRAPHIC AND FINANCIAL INFORMATION
The 2023 Bonds are payable solely from moneys of the City of Hesperia (the “City”) as described in this Official Statement. The taxing power of the City, the County of San Bernardino (the “County”), the State of California (the “State”) or any political subdivision thereof is not pledged to the payment of the 2023 Bonds.
DEMOGRAPHIC INFORMATION
Location
The City is situated in the County. The City encompasses approximately 7 5 square miles, and is located 35 miles north of the City of San Bernardino and 90 miles northeast of the City of Los Angeles. The City is bisected by California State Highway 395 and Interstate 15.
The City is bordered to the north by the City of Victorville and on the east by the Town of Apple Valley and to the south by the San Bernardino mountains.
Population
The following table shows population es timates for the City and the County as of January 1 for the five most-recently completed calendar years.
CITY OF HESPERIA AND COUNTY OF SAN BERNARDINO
POPULATION
As of January 1 of 2019 through 2023
Year
City of
Hesperia
Percent
Change
San
Bernardino
County
Percent
Change
2019 95,085 --% 2,165,876 --%
2020 99,877 5.0 2,181,654 0.7
2021 99,949 0.1 2,179,007 (0.1)
2022 99,855 (0.1) 2,180,777 0.1
2023 100,041 0.2 2,182,056 0.1
Source: California State Department of Finance, Demographic Research Unit.
Personal Income
Effective buying income (“EBI”) is designated as personal income less personal tax and non-tax payments. Personal income is the aggregate of wages and salaries, other labor income (such as employer contributions to private pension funds), proprietor ’s income, rental income (which includes imputed rental income of Owner -occupants of non -farm dwellings), dividends paid by corporations, personal interest income from all sources, and transfer payments (such as pensions and welfare assistance). Deducted from this total are personal taxes (federal, state and local, non -tax payments (such as fines, fees, penalties), and personal contributions for social insurance. Effective buying income is a bulk measure of market potential. It indicates the general ability to buy and is essential in comparing, selecting and grouping markets on that basis.
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The following table summarizes the total effective buying income for the City, the County, the State and the United States for the period 2019 through 2023.
CITY, COUNTY, STATE AND UNITED STATES
PERSONAL INCOME
For Calendar Years 2019 through 2023
Year
Area
Total Effective
Buying Income
(000s’ Omitted)
Median
Household
Effective Buying
Income
2019 City of Hesperia $1,643,893 $46,464
San Bernardino County 42,984,313 52,631
California 1,183,264,399 62,637
United States 9,017,967,563 52,841
2020 City of Hesperia $1,783,352 $50,422
San Bernardino County 46,025,841 56,502
California 1,243,564,816 65,870
United States 9,487,165,436 55,303
2021 City of Hesperia $1,861,008 $53,854
San Bernardino County 48,859,973 59,285
California 1,290,894,604 67,956
United States 9,809,944,764 56,790
2022 City of Hesperia $2,007,122 $58,778
San Bernardino County 54,797,008 66,785
California 1,452,426,153 77,058
United States 11,208,582,541 64,448
2023 City of Hesperia $2,096,711 $58,670
San Bernardino County 57,619,256 67,680
California 1,461,799,662 77,175
United States 11,454,846,397 65,326
Source: Claritas, LLC.
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Employment
The Riverside San Bernardino Ontario Metropolitan Statistical Area (the “MSA”) is comprised of San Bernardino and Riverside Counties. The unemployment rate in the Riverside- San Bernardino-Ontario MSA was 4.5 percent in March 2023, unchanged from a revised 4.5 percent in February 2023, and above the year -ago estimate of 4.2 percent. This compares with an unadjusted unemployment rate of 4.8 percent for California and 3.6 percent for the nation during the same period. The unemployment rate was 4.6 percent in Riverside County, and 4.5 percent in San Bernardino County.
The following table presents the annual average distribution of persons in various wage and salary employment categories for the MSA for calendar years 2018 through 2022 (the most recent year for which annual data is available).
RIVERSIDE SAN BERNARDINO ONTARIO MSA
CIVILIAN LABOR FORCE, EMPLOYMENT AND UNEMPLOYMENT
(ANNUAL AVERAGES)
2018 2019 2020 2021 2022
Civilian Labor Force (1) 2,045,000 2,074,500 2,088,600 2,118,200 2,045,000 Employment 1,956,800 1,989,700 1,880,500 1,961,800 1,956,800 Unemployment 88,200 84,800 208,100 156,400 88,200
Unemployment Rate 4.3% 4.1% 10.0% 7.4% 4.3%
Wage and Salary Employment: (2)
Agriculture 14,500 15,400 14,100 13,900 14,500
Mining and Logging 1,200 1,200 1,300 1,400 1,200
Construction 105,200 107,200 104,900 109,200 105,200
Manufacturing 99,800 100,600 95,100 94,800 99,800
Wholesale Trade 66,100 67,700 65,600 67,000 66,100
Retail Trade 181,200 180,700 168,800 177,600 181,200
Trans., Warehousing, Utilities 132,100 146,600 172,500 198,600 132,100 Information 11,400 11,500 9,400 9,600 11,400
Finance and Insurance 25,300 24,800 24,600 24,400 25,300 Real Estate and Rental and Leasing 19,300 20,200 19,500 20,500 19,300 Professional/Business Services 152,000 158,700 155,400 167,300 152,000 Educational and Health Services 239,500 250,300 248,700 253,300 239,500 Leisure and Hospitality 170,600 175,900 141,300 158,900 170,600 Other Services 45,800 46,200 40,200 43,000 45,800
Federal Government 20,700 21,100 22,100 21,100 20,700
State Government 30,600 31,100 31,300 31,500 30,600
Local Government 205,900 209,000 194,600 191,000 205,900 Total, All Industries (3) 1,521,100 1,568,100 1,509,300 1,583,000 1,521,100
(1) Labor force data is by place of residence; includes self -employed individuals, unpaid family workers, household domestic workers, and workers on strike.
(2) Industry employment is by place of work; excludes self -employed individuals, unpaid family workers, household domestic workers, and workers on strike.
(3) Totals may not add due to rounding.
Source: State of California Employment Development Department.
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The table below shows the largest employers in the City as of June 30, 2022.
CITY OF HESPERIA
LARGEST EMPLOYERS
(As of June 30, 2022)
Employer
Number of
Employees
% of Total City-wide
Employment
Hesperia Unified School District 2,910 7.70%
County of San Bernardino 547 1.45
Wal-Mart Supercenter 425 1.12
Slater Brothers Markets (3 locations) 331 0.88
Super Target 275 0.73
Arizona Pipeline Company 226 0.60
City of Hesperia 166 0.44
In-N-Out 161 0.43
Robar Enterprises 135 0.36
Hesperia Recreation & Park District 130 0.34
Source: City of Hesperia Fiscal Year 2021-22 Annual Comprehensive Financial Report.
The 25 largest employers in the County as of May 1, 2023, are shown (in alphabetical order) below.
COUNTY OF SAN BERNARDINO
LARGEST EMPLOYERS
(As of May 1, 2023)
Employer Name Location Industry
Amazon Fulfillment Ctr Redlands Mail Order Fulfillment Service Amazon Fulfillment Ctr San Bernardino Mail Order Fulfillment Service Arrowhead Regional Medical Ctr Colton Hospitals
Bear Mountain Big Bear Lake Skiing Centers & Resorts
Big Bear Mountain Resorts Big Bear Lake Resorts
Burlington Distribution Ctr San Bernardino Distribution Centers (whls) California State Univ Sn San Bernardino Schools-Universities & Colleges Academic Dignity Health Cmnty Hosp-Sn San Bernardino Hospitals
Environmental Systems Research Redlands Geographics Information Systems Fedex Ground Bloomington Delivery Service
Inland Empire Health Plan Rancho Cucamonga Health Plans Loma Linda Univ Health Board Loma Linda Univ/Clg-Governing Body/Regent/Trustee Loma Linda University Med Ctr Loma Linda Hospitals
Mountain High Ski Resort Wrightwood Skiing Centers & Resorts Ontario International Airport Ontario Airports
Ontario-Montclair School Dist Ontario School Districts
Patton State Hospital Patton Hospitals
Redlands Community Hospital Redlands Hospitals
San Antonio Regional Hospital Upland Hospitals
San Bernardino County Sch Supt San Bernardino Schools & Educational Services NEC San Bernardino County Sheriff San Bernardino County Government-General Offices St Bernardine Medical Ctr San Bernardino Hospitals
St Mary’s Medical Ctr Apple Valley Hospitals
Transportation Department San Bernardino State Government-Regulation & Administration- YRC Freight Bloomington Trucking-Motor Freight
Source: California Employment Development Dept., America’s Labor Market Information System (ALMIS) Employer Database, 2023 2nd edition.
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Construction Activity
The following table provides a summary of residential building permit valuations and nonresidential building permit valuations, and the total number of all building permit valuations in the City during the past five fiscal years for which information is available.
CITY OF HESPERIA BUILDING PERMIT ACTIVITY
For Calendar Years 2018 Through 2022
(Valuation in Thousands of Dollars)
2018 2019 2020 2021 2022
Permit Valuation
New Single-family $91,350.1 $43,234.1 $33,881.9 $50,092.3 $69,344.5 New Multi-family 13,910.1 21,356.1 31,393.7 20,752.3 209.3 Res. Alterations/Additions 4,253.3 3,944.3 2,499.3 2,728.4 4,862.1 Total Residential 109,513.5 68,534.5 67,774.5 73,573.0 74,415.9 New Commercial
New Industrial 3,857.3 10,975.6 2,821.1 2,368.6 74,207.0 New Other 1,925.0 0.0 3,299.6 0.0 0.0
Com. Alterations/Additions 4,808.9 5,624.5 8,817.9 9,005.6 15,413.3 Total Nonresidential 9,709.6 13,498.6 4,467.3 4,842.6 7,956.6 20,300.8 30,098.7 19,405.9 16,216.8 97,576.9
New Dwelling Units
Single Family 219 206 165 255 326
Multiple Family 124 225 278 226 2
TOTAL 343 431 443 481 328
Source: Construction Industry Research Board, Building Permit Summary.
See the letter of transmittal accompanying the City’s financial statements for the fiscal year ended June 30, 2022, for a discussion of building permit activity for family homes within the City for fiscal years 2012 -13 through 2022-23 in “APPENDIX C – ANNUAL COMPREHENSIVE FINANCIAL REPORT OF THE CITY FOR FISCAL YEAR ENDED JUNE 30, 2022.”
CITY GOVERNMENT AND ADMINISTRATION
Municipal Government
The City was incorporated on July 1, 1988, under the laws of the State and enjoys all the rights and privileges afforded to a general law city. The City is governed by a five -member City Council under the Council-Manager form of government. Policy-making and legislative authority are vested in the governing council, consisting of the mayor and four other members. All Council Members are elected to a four -year term and the Cit y does not have term limits.
Regular elections are conducted in November of even numbered years and, beginning with the general municipal election held in November 2018, the City implemented a by-district system of elections, whereby each Council Member r epresents one district or area within the City. Most recently, in 2022, the general municipal election for Districts 2, 3, and 4 was cancelled due to insufficient nominees. In accordance with the State of California Elections Code, on August 24, 2022, the City Council conducted a special meeting to appoint members to the open seats in Districts 2, 3, and 4.
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The Mayor is appointed annually by and among the members of the City Council. The City Council is responsible for, among other things, passing ordinances and resolutions, adopting the budget, appointing committees, and hiring both the City Manager and City Attorney. The City Manager is responsible for carrying out the policies and resolutions of the governing council and for overseeing the day-to-day operations of the government.
The current members of the City Council and their respective term expiration dates are as follows:
Name and Office Term Expires
Rebekah Swanson, Council Member, District 1 January 2024 Allison Lee, Council Member, District 2 January 2026
Cameron Gregg, Council Member, District 3 January 2026
Brigit Bennington, Mayor, District 4 January 2026
Larry Bird, Mayor Pro Tem, District 5 January 2024
Key Personnel
Brief biographies of the City Manager , Assistant City Manager and the Director of Administrative Services follow below.
Nils Bentsen, City Manager. Nils Bentsen is the City Manager of the City, having been appointed by the City Council in 2015. Mr. Bentsen is committed to pursuing organizational efficiency while placing a special emphasis on customer service. To accomplish this, Mr.
Bentsen reorganized City divisions and departments to better meet the needs of the organization and its citizenry and customer s. Prior to his appointment by the City Council, Mr.
Bentsen served with the San Bernardino County Sheriff’s Department for over 25 years, retiring as Captain. His life-long commitment to public safety is driven by his passion for public service.
Mr. Bentsen has announced that he will retire as City Manager effective June 18, 2023.
Rachel Molina, Assistant City Manager . Rachel Molina is the Assistant City Manager of the City overseeing Development Services Department, and the Economic Development and Community Relation Divisions. Ms. Molina began her career at the City as a Senior Office Assistant in 2007 and was promoted up through the organization serving in many capacities including, Public Information Officer , Assistant to the City Manager , and Deputy City Manager.
Ms. Molina holds a master’s degree in Public Administration from California Baptist University and a bachelor’s degree in Organizational Leadership from Chapman University. Ms. Molina is also a proud graduate of Hesperia High Scho ol. The City Council has appointed Ms. Molina as City Manager effective June 19, 2023.
Casey Brooksher, Director of Administrative Services. Casey Brooksher is the Administrative Services Director of the City and oversees the areas of Finance, Information Technology, and Human Resources. Mr. Brooksher was appointed to serve as the Director of Finance of the City in February 2018 and assumed the Administrative Services Director position in July 2021. Mr. Brooksher first started with the City as an intern during August 2003 and has held various positions within the Finance Division. Mr. Brooksher holds a master’s degree in Business Administration, as well as a bachelor’s degree in Business Administration from California State University, San Bernardino, California.
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Services and Facilities
The City, including its component districts, employs approximately 181 full -time employees (not including contract police services). Services provided include the construction and maintenance of streets and other infrastructure; community services, including building and safety, code compliance, and animal control; as well as water, wastewater, and recycled water services. In addition to general government activities, the City Council also serves as the Board of Directors for the Hesperia Water District, Hesperia Housing Authority, Hesperia Community Development Commission, Hesperia Public Financing Authority, Hesperia Public Facilities Corporation, the Hesperia Joint Public Finance Authority, and the Hesperia Fire Protect ion District (the “Fire District”). Therefore, these activities have been included as an integral part of the City’s financial statements where appropriate. Additional information on these entities can be found in Note 1 in the notes to the financial statements.
In 2018, the boundaries of the Fire District were annexed into t he San Bernardino County Fire Protection District. As a result of the annexation, the Fire District’s functions were transferred to the San Bernardino County Fire Protection District , which assumed all of the rights duties, responsibilities, liabilities and other matters of the Fire District, except the retirement liabilities associated with the former employees of the Fire District which were assumed by the City, and approximately 1.5% of the property tax revenues generated within the former boundaries of the Fire District are remitted to the City . A portion of such property tax revenues are remitted to the City pursuant to a revenue sharing agreement entered into by the City, the Fire District and the San Bernardino County Fire Protection District in connection with the annexation. See “FINANCIAL INFORMATION RELATING TO THE CITY’S GENERAL FUND – Property Taxes – Pass-Through Revenue Sharing Agreement.”
The City contracts with the San Bernardino County Sheriff ’s Department for its police services. The law enforcement and public safety services provided through the contract include, patrol operations, traffic enforcement, detective services, problem-oriented policing and community outreach programs. Fire protection for the City is provided by the San Bernardino County Fire Department. The County Fire Department is a full service department, providing to the community fire suppression, fire prevention and planning, disaster preparedness, hazardous materials management and emergency medical services.
Public Health Emergency – COVID-19
In recent years, public health authorities have warned of threats posed by outbreaks of disease and other public health threats. The COVID -19 outbreak is ongoing. However, to date, the City’s General Fund revenues have not been materially adversely affected by the COVID-19 pandemic. In addition, as of the date of this Official Statement, the City does not anticipate that the COVID -19 pandemic will mate rially adversely affect its ability to make Base Rental payments under the Property Lease in the foreseeable future.
On March 11, 2021, the President signed the American Rescue Plan Act of 2021 (the “ARP Act ”), a $1.9 trillion economic stimulus package d esigned to help the United States’ economy recover from the adverse impacts of the COVID -19 pandemic. The City received approximately $24.4 million in funding under the ARP Act. The City intends to utilize all such funding to finance the construction of w astewater pipes and other improvements to the wastewater system of the Hesperia Water District (the “ Water District”). The pipes and other improvements are intended to permit the Water District to connect to a planned wastewater treatment plant intended to accommodate projected population growth in the City and local
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community. See “BOND OWNERS’ RISKS – Public Health Emergencies” in the forepart of this Official Statement.
FINANCIAL INFORMATION RELATING TO THE CITY’S GENERAL FUND
Accounting Policies 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”). The accounts of the City are organized into separate funds to account for different activities. 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 resourc es 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 the spending activities are controlled. The City’s general fund and other governmental fund types use the modified accr ual basis of accounting. All of the City ’s other funds, including proprietary fund types and fiduciary fund types, use the accrual basis of accounting. Combined financial statements of the City and its component units are produced following the close of each fiscal year of the City ended June 30 (each, a “Fiscal Year”). The basis of accounting for all funds is more fully explained in the “Notes to the Basic Financial Statements” contained in “APPENDIX C – ANNUAL COMPREHENSIVE FINANCIAL REPORT OF THE CITY FOR FISCAL YEAR ENDED JUNE 30, 2022.”
The City Council employs an independent certified public accountant who audits 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 auditor to the City Council. The accounts of the City are organized on the basis of funds and account groups, each of which is considered a separate accounting entity. The operations of each fund are accounted for with a separate set of self -balancing accounts that comprise its assets, liabilities, fund balance, 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. See “APPENDIX C – Annual Comprehensive Financial Report of the City for the Year Ended June 30, 2022 – Note 1” for a description of the significant accounting policies of the City. See the caption “– Financial Statements” for a discussion of the City’s audited financial statements for Fiscal Year 2021-22.
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 because there are legal restrictions on their use.
The Genera l Fund is the largest c itywide fund and is a major governmental fund . It underwrites most citywide operations either directly as the “net c ity cost” of General Fund budgets, or indirectly through contributions to other funds . The City maintains 37 individu al governmental funds. Other major governmental funds include the American Rescue Plan Act Special Revenue Fund which is used to account for funds received from ARP Act due to the COVID-19 pandemic , City Projects Capital Projects Fund is used to account for funds
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designated for various capital projects, including the acquisition and construction of major capital facilities, throughout the City, and Debt Service Funds which are used to account for the accumulation of resources and the payment of bond principal and interest from governmental resources.
It is expected that debt service on the 2023 Bonds will be paid from amounts in, or transferred from, the General Fund. Information on the remaining gov ernmental funds of the City as of June 30, 2022, is set forth in Appendix C.
Fiscal Policies
Reserve Policy. The City Council has adopted a cash reserve polic y for the General Fund that requires that a minimum of two months of the annual expenditures be held in cash to provide funding to meet operational appropriation requirements in the event that the City experiences shortfalls in the level of anticipated revenues or unanticipated expenses. Cash reserves are calculated as the ratio of cash and cash equi valents to the total individual annual expenditures. Under the reserve policy, i t is the responsibility of the City Council to maintain a sufficient level of reserve funds to provide for the orderly provision of services to the citizens of the City. The City Council has the authority to decide the circumstances under which the reserves can be used. The City Manager may, from time to time, make recommendations as to the level of reserve funds necessary for prudent fiscal management. Reserve levels are required to be reviewed at least annually during the budget process to ensure that they are consistent with the conditions faced by the City. All uses of reserves require a resolution of the City Council or will be incorporated in the annual adopted budget. The City ’s reserve policy provides that, if the rare situation arises where a portion of the City ’s reserves are to be utilized to fund operations, the equivalent amount will be returned as reserves in the next available budget.
As of June 30, 2022, th e reserve balance in the General Fund was approximately $22.1 million, or 8.8 months of the General Fund expenditures for Fiscal Year 2022 -2023. The City anticipates using approximately $4 million of such balance , together with other funds on hand, to esta blish two tax qualified irrevocable trust organized under Section 115 of the Internal Revenue Code by June 30, 2023. See “– Unfunded Liability Policy” below.
Revenue Policy. The City Council has adopted a policy that r ecurring expenditures will be funded by recurring revenue. It provides that r ecurring expenditure increases that exceed recurring revenue growth should not be approved. Any new or expanded programs should be required to identify new funding sources and/or offsetting reductions in expenditures.
Capital Improvement Policy . The City Council has adopted a capital improvement policy pursuant to which the City will identify the estimated costs and potential funding sources for each capital project having a long life expectancy and costing $5,000 or more prior to its submittal to the City Council for approval. Prior to a capital project being included in the annual budget, a determination must be made that the project is an appropriate use of the funds and that there is sufficient funding available.
Budgeting Policy – Police Services. To ensure adequate funding for law enforcement services, the City Council has adopted a policy that the annual Police Department budget will equal or exceed 53% of average General Fund audited operating expenditures in the three most recent audited fiscal years . The General Fund operating budget is comprised of all expenditures less transfers out, debt service, and capital outlay. Should the Police Department
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budget exceed 53% of the General Fund operating budget and the City is unable to balance the budget without the use of reserves , the City Manager is authorized by the City Council to negotiate with the County of San Bernardino Sheriff ’s Department to identify cost savin gs to maintain the City Council approved percentage. In addition, should the annual Police Department budget be less than 53% of the General Fund operating budget, the City Manager is authorized to add additional level of services, be that personnel, programs, or equipment. The City’s operating budget for Fiscal Years 2022-23 and 2023-24 complies with said policy.
Unfunded Liability Policy. The City anticipates establishing the following by June 30, 2023: (1) a tax qualified irrevocable trust organized under Section 115 of the Internal Revenue Code (the “City Miscellaneous Plan 115 Trust”) held by Alta Trust Company , as trustee, for the purpose of funding the City’s retirement obligations to the California Public Employees’ Retirement System (“CalPERS”) with respect to the City’s Miscellaneous Employee Pension Plan; (2) a tax qualified irrevocable trust organized under Section 115 of the Internal Revenue Code (the “Fire District Safety Plan 115 Trust”) held by Alta Trust Company , as trustee, for the purpose of funding the City’s retirement liabilities associated with the former employees of the Fire District under the safety plan maintained by the Fire District (which liabilities were assumed by the City in connection with the annexation of the boundaries of the Fire District into the San Bernardino County Fire Protection District in 2018) ; and (3) a tax qualified irrevocable trust organized under Section 115 of the Internal Revenue Code (the “OPEB 115 Trust”) held by Alta Trust Company, as trustee, for the purpose of funding the City’s postemployment benefit obligations (“OPEB”) under a single-employer defined benefit health -care plan (the “ OPEB Plan”).
The City Council has adopted an unfunded liability policy pursuant to which the City will annually contribute a minimum of 5% of the amount determined by CalPERS’ actuaries that is required to finance any unfunded accrued liability (the “ UAL”). Under the policy, the City will review the annual CalPERS actuarial valuations and include a minimum of 5% of said amount in its annual budget for transfer to each of the City Miscellaneous Plan 115 Trust and Fire District Safety Plan 115 Trust. In addition, under the unfunded liability policy, each fiscal year, the City will deposit into the OPEB 115 Trust a minimum of 15% of the total required City contributions to the OPEB plan for the previous fiscal year.
See “ – Employee Retirement System” and “ – Other Post -Employment Retirement Benefits” for additional information regarding the City Miscellaneous Plan 115 Trust and Fire District Safety Plan 115 Trust, and OPEB 115 Trust, respectively.
Budgetary Process and Administration
General Fund revenue is for the normal operations of and services provided by the City that are not specifically accounted for in other funds. The annual budget serves as the foundation for the City ’s financial planning and control. Each year the budget development guidelines, for use in preparing the next year ’s budget, are reviewed and updated. These guidelines are structured to reflect the City Council ’s goals and objectives and to provide the framework in which the City’s budget is prepared. Annually, the proposed budget is submitted to the City Council and a public hearing is conducted to obtain citizen comment s. Prior to the beginning of the new fiscal year, the City Council adopts the annual budget at a public meeting.
A first quarter and mid-year budget review is conducted for the City Council to determine the status of projected revenues, expenditures, and other financial situations, along with
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consideration of needed budget amendments. A fourth quarter appropriation review is conducted and budget amendments are presented to the City Council as needed.
The City’s budget policy is that all appropriations lapse at fiscal year -end. Outstanding encumbrance balances at fiscal year -end require re -approval by the City Council. The City Council may amend the budget at any time during the fiscal year. The City Manager may authorize budget transfers between line items and programs within a fund, as long as the total budget for each fund has not exceeded the amount approved by the City Council. The level of budgetary control is set at the fund level to ensure compliance with the budget as approved by the City Coun cil; therefore, any budgetary changes at the fund level require City Council approval.
Budgets for Fiscal Years 2022-23 and 2023-24
Adopted Fiscal Year 2022 -23 Budget. The City Council adopted the City’s operating budget for Fiscal Year 2022-23 (the “Fiscal Year 2022-23 Budget”) on June 22, 2022 . The Fiscal Year 2022-23 Budget reflects a balanced General Fund budget. The Fiscal Year 2022-23 Budget includes 101.22 positions budgeted to be funded by the General Fund, an increase of
13.6% from the City ’s adopted operating budget for Fiscal Year 2021 -22 (the “Fiscal Year 2021-22 Budget”).
The Fiscal Year 2022 -23 Budget projects General Fund revenues to increase by $5.1 million to $44.3 million compared to the Fiscal Year 2021 -22 Budget of $39.2 million. In the Fiscal Year 2022-23 Budget, approximately $40 million (or 90%) of the City’s budgeted General Fund revenues for Fiscal Year 2022 -23 are projected to be derived from sales and use taxes, franchise taxes, transient occupancy taxes, property taxes, special assessments, property transfer taxes, commercial cannabis taxes, intergovernmental revenues and charges for services. As of the date of this Official Statement, the City estimates that such revenues will total approximately $ 43.8 million (compared to $40 million set forth in the Fiscal Year 2022 -23 Budget). See Table 1 for the Fiscal Year 2022 -23 Budget. See also Tables 4a and 4b for a summary of the major sources of General Fund revenues of the City for the last five Fiscal Years an d the amounts the City estimates it will receive in Fiscal Year 2022 -23 from such sources as of the date of this Official Statement.
The Fiscal Year 2022-23 Budget projected an increase in General Fund expenditures of $5.5 million to $41.7 million compared to the Fiscal Year 2021-22 Budget of $36.2 million. The increase in General Fund expenditures projected in the Fiscal Year 2022 -23 Budget is primarily due to an increase in budgeted General Fund expenditures for salaries and benefits (which increased by approximately $2.1 million or 20% compared to the Fiscal Year 2021-22 Budget), contractual expenditures (which increased by approximately $1.4 million or 33% co mpared to the Fiscal Year 2021-22 Budget), and police expenses (which increased by approximately $1.4 million or 7% compared to the Fiscal Year 2021 -22 Budget). As of the date of this Official Statement, the City estimates that its General Fund expenditure s for Fiscal Year 2022 -23 will total approximately $41.8 million, in line with the budgeted expenditures for such fiscal year.
Proposed Fiscal Year 2023-24 Budget. The City Council is anticipated to adopt the City’s operating budget for Fiscal Year 2023-24 on June 20, 2023. The City’s operating budget for Fiscal Year 2023-24 as currently anticipated to be adopted by the City on such date is hereinafter referred to as the “Fiscal Year 2023-24 Proposed Budget” and is anticipated to reflect a balanced General Fund budget. The City’s operating budget for Fiscal Year 2023-24 as adopted by the City Council on June 20, 2023, may differ from the Fiscal Year 2023 -24
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Proposed Budget described in this Official Statement. The Fiscal Year 2023-24 Pro posed Budget includes 102.60 positions budgeted to be funded by the General Fund, an increase of
1.36% from the Fiscal Year 2022-23 Budget.
The Fiscal Year 2023-24 Proposed Budget projects General Fund revenues to increase by approximately $2.2 million t o $47.5 million compared to the Fiscal Year 2022-23 Budget of $44.3 million. In the Fiscal Year 2023 -24 Proposed Budget , approximately $43.2 million (or 91%) of the City’s budgeted General Fund revenues for Fiscal Year 2023-24 are projected to be derived from sales and use taxes, franchise taxes, transient occupancy taxes, property taxes, special assessments, property transfer taxes, commercial cannabis taxes, intergovernmental revenues and charges for services. See Table 1 for the Fiscal Year 2023-24 Proposed Budget.
See also Table 4b for a summary of the major sources of General Fund revenues of the City that are included in the Fiscal Year 2023-24 Proposed Budget.
The Fiscal Year 2023 -24 Proposed Budget projects an increase in General Fund expenditures of $3.4 million to $45.1 million compared to the Fiscal Year 2021 -22 Budget of $41.7 million. The increase in General Fund expenditures projected in the Fiscal Year 2022 -23 Proposed Budget is due primarily to a net increase in the City manager and manageme nt services departments (resulting in a net increase of $1.4 million), police (resulting in an increase of $1.3 million) and development services ( resulting in an increase of $1 million), offset by a reduction in expenditures for equipment and vehicles (resulting in a decrease of $298,000).
Comparison of Budget to Actual Performance
Set forth in Table 1a are the General Fund budgets for Fiscal Years 2020-21 through 2022-23 (as originally adopted and not reflecting any mid -Fiscal Year budget adjustments) and the Fiscal Year 2023 -24 Proposed Budget , as well as the audited General Fund results for Fiscal Years 2020-21 through 2021-22 and estimated unaudited General Fund results for Fiscal Year 2022-23.
Table 1b shows actual General Fund expenditures by type for Fiscal Years 2019-20 and 2020-21 and budgeted General Fund expenditures by type for Fiscal Years 2021 -22 and 2022-
23.
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Table 1a
CITY OF HESPERIA
Summary of General Fund Budgets and Actual Results
For Fiscal Years 2020-21 through 2023-24
Adopted Budget
2020-21
Audited
2020-21
Adopted Budget
2021-22
Audited
2021-22
Adopted Budget
2022-23
Estimated
2022-23 Actuals(1)
Proposed
Budget 2023-24(2)
Revenues:
Taxes $16,187,858 $21,464,989 $19,349,341 $23,814,083 $22,642,204 $23,820,412 $23,580,859 Licenses and permits 225,084 262,816 289,140 289,932 242,660 247,410 237,650 Fines and forfeits 862,200 1,146,202 911,800 1,488,889 908,600 1,297,724 1,025,040 Use of money and property 94,688 72,862 54,555 (152,077) 19,600 311,819 338,600 Intergovernmental 12,271,611 12,588,659 12,885,437 13,165,905 13,831,969 14,573,437 15,629,905 Charges for services 2,268,983 4,592,541 3,127,193 5,979,828 4,168,441 5,732,252 3,985,627 Grants 44,856 2,479,850 62,102 102,336 81,369 104,502 131,086 Other revenue 2,534,226 2,562,197 2,562,862 2,554,671 2,401,064 2,456,075 2,538,024 Total Revenues $34,489,506 $45,170,116 $39,242,430 $47,243,567 $44,295,907 $48,543,631 $47,466,791 Expenditures:
Current:
General Government
City council $698,407 1,366,912 $796,307 1,102,159 798,121 792,086 819,204 City manager 3,848,857 3,314,042 3,151,071 3,059,619 3,705,173 3,657308 1,686,530(3) Management services 4,953,056 4,271,621 5,221,969 6,012,945 6,856,131 6,736,326 10,241,069 (3) Public safety- police 17,716,736 18,080,456 19,125,786 18,682,407 20,588,911 20,601,680 21,949,108 Development services 6,291,176 6,507,481 7,631,163 8,080,695 9,224,512 9,559,300 10,243,023 Debt Service:
Interest -- -- -- 622 -- -- --
Principal -- -- -- 84,719 -- -- --
Capital outlay:
Land Improvements -- -- -- -- 200,000 -- --
Buildings and improvements -- -- -- 71,592 30,000 22,705 145,000 Equipment and vehicles 177,756 177,290 271,542 423,740 345,590 469,569 47,730 Leases -- -- -- 178,588 -- -- --
Total Expenditures $33,685,988 $33,717,802 $36,197,838 $37,697,086 $41,748,438 $41,838,974 $45,131,664 Revenues over expenditures $803,518 $11,452,314 $3,044,592 $9,546,481 $2,547,469 $6,704,657 $2,335,127 Other Financing Sources (Uses):
Transfers In $252,000 $252,000 $200,000 $200,000 $200,000 $200,000 $-- Transfers Out (7,154,068) (7,116,453) (3,462,224) (2,592,224) (2,572,890) (2,572,890) (2,385,133) Sale of capital assets -- -- -- -- -- -- --
Insurance proceeds -- -- -- 30,636 -- -- --
Issuance of lease -- -- -- 178,588 -- -- --
Total Other Sources (Uses) $(6,902,068) $(6,864,453) $(3,262,224) $(2,183,000) $(2,372,890) $(2,372,890) $(2,385,133) Net change in fund balances (6,098,550) 4,587,861 (217,632) 7,363,481 174,579 4,331,767 (50,006) Fund balances, July 1 $15,892,307 $22,083,076(4) $29,446,557 Fund balances, June 30 $20,480,168(4) $29,446,557 $33,778,324
(1) Represents unaudited estimated results; subject to change. (2) Represents Fiscal Year 2023-24 Proposed Budget as anticipated to be adopted by the City Council on June 20, 2023; subject to change. (3) Commencing in Fiscal Year 2023 -24, the City’s Information Technology Division will be under the supervision of the Director of Administrative Services instead of the City Manager . As a result, expenditures for such division will be recognized as part of management services, instead of City manager expenditures resulting in corresponding changes in budgeted expenditures for such Fiscal Year.
(4) In Fiscal Year 2021-22, the City restated the fund balance of the General Fund at July 1, 2021 record the deposit of self -insurance in the fund financial statements instead of an adjustment for the government-wide financial statements.
Source: City of Hesperia.
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Table 1b
CITY OF HESPERIA
General Fund Expenditures By Type
Fiscal Years 2019-20 through 2021-22
Audited
2019-20
Audited
2020-21
Adopted
Budget
2021-22
Revised
Adopted
Budget
2021-22
Adopted
Budget
2022-23
% of
Adopted
Budget
2022-23
% Change
From
Adopted
Budget
2021-22
Salaries and Benefits
Salaries $6,134,423 $5,788,303 $6,773,777 $7,272,620 $ 8,030,305 19% 19% Benefits 3,073,140 3,178,984 3,569,267 3,640,763 4,425,725 11% 24% Total Salaries and Benefits $9,207,563 $8,967,287 $10,343,044 $10,913,383 $12,456,030 30% 20% Materials & Operations 1,203,759 1,209,463 1,769,999 1,556,861 2,068,897 5% 17% Contractual 3,330,144 4,495,205 4,262,242 4,678,587 5,670,892 14% 33% Police Contractual 16,856,131 17,513,021 18,775,634 18,775,634 20,176,408 48% 7% Other Operating 1,340,579 1,384,591 775,377 915,971 1,025,496 2% 32% Capital Outlay 37,987 154,034 271,542 446,760 350,715 1% 29%
Total General Fund Expenditures $31,976,163 $33,723,602 $36,197,838 $37,287,196 $41,748,438 100% 15%
Source: City of Hesperia.
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Financial Statements
A copy of the most recent audited financial statements of the City (the “Financial Statements”) for the Fiscal Year ended June 30, 2022, audited by CliftonLarsonAllen, LLP, Irvine, California (the “Auditor”), is included as Appendix C to this Official Stat ement. The Auditor’s letter dated December 12, 2022 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.
Certain financial information that is set forth in this Official Statement is derived from the Financial Statements and the Ci ty’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 City’s accounting and budgeting records for general governmental operations are maintained on a modified accrual basis. The City’s governmental fund financial statements are reported using the current financial resources measurement focus and modified accrual basis of accounting. All governmental funds utilize a “current financial resources ” measurement focus.
Only current financial assets and liabilities are generally included on their balance sheets. Their operating statements present sources and uses of available spendable financial resources during a given period. These funds use fund balance as their measure of available spendable financial resources at the end of the period. Revenues are recognized as soon as they are both measurable and available. Revenues considered available when they are collectible within the current period or soon enough thereafter to pay liabilities of the c urrent period. The City considers revenues to be available if they are collected within 60 days of the end of the current fiscal period. Expenditures generally are recorded when liabilities are incurred, as under accrual accounting; however, debt service p ayments (principal and interest), unpaid vacation, compensatory time, and claims and judgments are recorded only when payment is due.
The following table shows the City’s audited General Fund balance sheets at June 30 of the years 2018 through 2022.
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Table 2
CITY OF HESPERIA
General Fund Balance Sheets
June 30 of the years 2018 through 2022
At June 30
2018 2019 2020 2021 2022
Assets:
Cash and cash equivalents $4,173,461 $7,668,879 $7,350,053 $15,281,489 $16,940,718 Restricted investments -- -- -- -- 4,000,000
Accounts receivable 1,473,790 1,866,822 2,039,717 2,384,914 2,532,469 Allowance for accounts receivable -- -- -- -- (187,359) Prepaid items 141,775 -- -- -- --
Accrued interest 11,659 25,600 22,141 10,254 32,709
Due from other governmental agencies 1,562,376 1,949,048 4,618,476 2,868,871 3,004,420 Deposits for self-insurance -- -- -- -- 542,901
Leases receivable -- -- -- -- 57,138
Inventory 13,318 15,966 14,709 17,553 18,080
Due from other funds(1) 1,032,705 1,125,696 1,199,234 1,140,018 3,415,592 Advance to other funds(2) 2,000,324 2,650,324 3,146,324 3,703,324 4,173,324 Total Assets $10,409,408 $15,302,335 $18,390,654 $25,406,423 $34,529,992
Liabilities:
Accounts payable and other current
liabilities $1,152,874 $1,268,218 $1,357,989 $1,735,625 $1,777,523 Deposits 6,000 6,000 6,000 1,653,653 1,735,289
Due to other governments 192,155 -- -- 107,460 4,370
Due to other funds 98,124 28,252 23,540 6,722 135,801
Total Liabilities $1,449,153 $1,302,470 $1,387,529 $3,503,460 $3,652,983
Total Deferred Inflows of Resources $732,898 $919,478 $1,110,818 $1,422,795 $1,430,452
Fund Balance:
Nonspendable
Deposits to self-insurance $ -- $ -- $ -- $ -- $542,901 Prepaid items 141,775 -- -- -- --
Inventory 13,318 15,966 14,709 17,553 18,080
Advances to other funds 2,000,324 2,650,324 3,146,324 3,703,324 4,173,324 Assigned
Self-insurance 150,000 150,000 150,000 - --
Unassigned(3) 5,921,940 10,264,097 12,581,274 16,759,291 24,712,252 Total fund balances $8,227,357 $13,080,387 $15,892,307 $20,480,168 $29,446,557
Total Liabilities and Fund Balances $10,409,408 $15,302,335 $18,390,654 $25,406,423 $34,529,992
(1) The balance at June 30, 2022 consists primarily of receivables from the California Department of Tax and Fee Administration for sales and use taxes totaling approximately $2.7 million.
(2) Represent interfund loans from the General Fund to other funds to cover negative cash balances in such other funds. (3) Unassigned fund balance at June 30, 2022, includes approximately $22.1 million set aside pursuant to the City’s cash reserve policy for the General Fund , of which approximately $4 million is anticipated to be us ed to establish the City Miscellaneous Plan 115 Trust and Fire District Safety Plan 115 Trust. See “– Fiscal Policies – Reserve Policy” above.
Source: City of Hesperia audited financial statements for Fiscal Years ended June 30, 2018 through June 30, 2022.
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The following table shows the operational results of the General Fund for Fiscal Years 2017-18 through 2021-22 and estimated unaudited results for Fiscal Year 2022-23.
Table 3
CITY OF HESPERIA
Statement of General Fund Revenues, Expenditures and Changes in Fund Balance For Fiscal Years 2017-18 through 2022-23 (Estimated)
Audited
2017-18
Audited
2018-19
Audited
2019-20
Audited
2020-21
Audited
2021-22
Estimated
Unaudited
2022-23(1)
Revenues:
Taxes $15,304,690 $17,751,449 $17,721,574 $21,464,989 $23,814,083 $23,820,412 Licenses and permits 232,351 255,400 284,948 262,816 289,932 247,410 Fines and forfeits 909,468 915,427 1,366,432 1,146,202 1,488,889 1,297,724 Use of money and property 55,620 128,133 184,491 72,862 (152,077) 311,819 Intergovernmental 11,271,037 11,168,527 11,883,595 12,588,659 13,165,905 14,573,437 Charges for services 2,718,676 2,759,290 3,026,004 4,592,541 5,979,828 5,732,252 Grants 19,931 18,419 22,760 2,479,850 102,336 104,502
Other revenue(2) 2,488,513 2,675,013 2,908,466 2,562,197 2,554,671 2,456,075 Total Revenues $33,000,286 $35,671,658 $37,398,270 $45,170,116 $47,243,567 $48,543,631
Expenditures
Current:
General Government
City council $850,228 $748,294 $942,381 $1,366,912 $1,102,159 $792,086 City manager 2,447,474 2,471,756 2,627,151 3,314,042 3,059,619 3,657,308 Management services 5,003,353 4,174,275 4,364,749 4,271,621 6,012,945 6,636,726 Public safety- police 15,903,077 16,508,781 17,319,612 18,080,456 18,682,407 20,601,680 Development services 6,220,369 6,375,474 6,660,916 6,507,481 8,080,695 9,658,900 Debt Service:
Interest -- -- -- -- 622 --
Principal --
-- -- -- 84,719 --
Capital outlay:
Buildings and improvements 108,323
76,
-- -- -- 71,592 22,705
Equipment and vehicles 76,024 31,505 67,656 177,290 423,740 469,569 Leases -- -- -- -- 178,588 --
Total Expenditures $30,608,848 $30,310,065 $31,982,465 $33,717,802 $37,697,086 $41,838,974
Revenues over expenditures $2,391,438 $5,361,593 $5,415,805 $11,452,314 $9,546,481 $6,704,657
Other Financing Sources (Uses)
Transfers in $240,000 $140,000 $644,400 $252,000 $200,000 $200,000 Transfers out (2,585,893) (2,220,068) (3,372,385)(3) (7,116,453)(4) (2,592,224) (2,572,890) Sale of capital assets -- 7,988 124,100 -- -- --
Insurance proceeds -- 1,563,517 -- -- 30,636 --
Proceeds from sale of land 210,707 -- -- -- -- --
Issuance of lease -- -- -- -- 178,588 --
Total other financing sources
(uses)
(2,135,186) (508,563) (2,603,885) (6,864,453) (2,183,000) (2,372,890) Net change in fund balances $256,252 $4,853,030 $2,811,920 $4,587,861 $7,363,481 $4,331,767
Fund balances, July 1(5) $7,971,105 $8,227,357 $13,080,387 $15,892,307 $22,083,076 $29,446,557 Fund balances, June 30 $8,227,357 $13,080,387 $15,892,307 $20,480,168 $29,446,557 $33,778,324
(1) Represent unaudited estimated results; subject to change.
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Footnotes to Table 3 Continued:
(2) The City leases certain water rights for their fair rental value to the Water District to serve its retail service territory (which coincides with the City’s boundaries). See “– Outstanding Debt of the General Fund – 2012 Lease Revenue Bonds.” Other revenue shown above consists predominantly of such lease payments, which in Fiscal Year 2021-22 totaled approximately $1.8 million. (3) In Fiscal Year 2019-20, the City began making contributions to CalPERS in connection with retirement liabilities associated with former employees of the Fire District, which liabilities were assumed by the City in connection with the annexation of the Fir e District. The increase in transfers out in Fiscal Year 2019-20 is due to a transfer out of $1.1 million to make required contributions to CalPERS with respect to such liabilities. See “– Property Taxes – Pass-Through Revenue Sharing Agreement ” and “– Employee Retirement System.”
(4) The increase in transfers out in Fiscal Year 2020 -21 was due primarily to set asides totaling approximately $3.5 million for the payment of debt service on the 2012 Bonds and the 2013 Bonds (as defined herein) in future years. See “– Outstanding Debt of the General Fund.”
(5) In Fiscal Year 2021 -22, the City re stated the fund balance of the General Fund at July 1, 2021 to record the deposit of self - insurance in the fund financial statements instead of an adjustment for the government-wide financial statements.
Source: City of Hesperia audited financial statements for Fiscal Years ended June 30, 2018 through June 30, 2022; City of Hesperia.
Major General Fund Revenues By Source
The following table provides a summary of major sources of General Fund revenues of the City for Fiscal Years 2017-18 through 2021-22.
Table 4a
CITY OF HESPERIA
Major General Fund Revenues By Source
Fiscal Years 2017-18 through 2021-22
(Dollars in Thousands)
Audited
2017-18
Audited
2018-19
Audited
2019-20
Audited
2020-21
Audited
2021-22
% of
Total(1)
Taxes
Sales and Use Taxes $9,284 $10,305 $10,162 $12,837 $14,560 30.8% Franchises 3,360 3,501 3,566 3,655 3,935 8.3
Transient Occupancy Tax 1,295 1,400 1,389 1,799 2,013 4.3 Property Taxes(2) 786 1,939 1,735 1,779 1,877 4.0
Special Assessments 278 288 297 306 315 0.7
Property Transfer Tax 302 281 284 387 568 1.2
Commercial Cannabis Tax -- 38 290 703 544 1.1
Total Taxes $15,305 $17,751 $17,722 $21,465 $23,814 50.4
Intergovernmental $11,271 $11,169 $11,884 12,589 $13,165 27.9 Charges for services 2,719 2,759 3,026 4,593 5,978 12.7 Total Major Revenues $29,295 $31,679 $32,632 $38,647 $42,957 91.1%
(1) Reflects percentage of total Fiscal Year 2021-22 General Fund revenues of $47.2 million. (2) In 2018, the boundaries of the Fire District were annexed into the San Bernardino County Fire Protection District. As a resul t of the annexation, commencing Fiscal Year 2018-19, the City receives approximately 1.5% of the property tax revenues that were previously allocated to the Fire District. A portion of such property tax revenues are remitted to the City pursuant to a revenue sharing agreement entered into by the City, the Fire District and the San Bernardino County Fire Protection District in connection with the annexation. See “– Property Taxes – Pass-Through Revenue Sharing Agreement.” Source: City of Hesperia.
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The following table shows the City’s estimated revenues from the major sources of General Fund for Fiscal Years 2022 -23 and 2022-23 and the Fiscal Year 2023 -24 Proposed Budget (with a comparison against the Fiscal Year 2022 -23 Budget (as originally adopted and not reflecting any mid -Fiscal Year budget adjustments) and the Fiscal Year 2023 -23 Proposed Budget).
Table 4b
CITY OF HESPERIA
Major General Fund Revenues By Source
Budgeted Fiscal Year 2022-23 and 2023-24 and Estimated Fiscal Year 2022-23 (Dollars in Thousands)
Adopted
Budget
2022-23
Estimated
Unaudited
2022-23(1)
Proposed
Budget
2023-24(2)
Taxes
Sales and Use Taxes $13,900 $14,608 $14,440
Franchises 4,090 4,298 4,308
Transient Occupancy Tax 1,500 1,800 1,700
Property Taxes 1,946 2,063 2,103
Special Assessments 325 361 379
Property Transfer Tax 400 332 300
Commercial Cannabis Tax 481 358 350
Total Taxes $22,642 $23,820 $23,580
Intergovernmental 13,832 $14,573 15,630
Charges for services 4,168 5,732 3,986
Total Major Revenues $40,642 $44,125 $43,196
(1) Represent unaudited estimated actuals; subject to change. (2) Represents Fiscal Year 2023 -24 Proposed Budget as anticipated to be adopted by the City Council on June 20, 2023; subject to change.
Source: City of Hesperia.
Certain General Fund taxes currently imposed by the City are affected by Proposition 218. See “CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS – Limitations on Revenues – Article XIIIC and Article XIIID of the California Constitution” in the forepart of this Official Statement.
Sales and Use Taxes
General. A sales and use tax is imposed on retail sales or consumption of personal property in the City. As shown in Table 4 a, sales and use tax revenues represented the largest or the second largest source of revenues for the City’s General Fund in each of Fiscal Years 2017-18 through 202 1-22, comprising approximately 31% of the City’s total General Fund revenues for Fiscal Year 2021-22. In Fiscal Year 2021-22, the City’s sales tax revenues totaled approximately $14.6 million, an increase of approximately 13% compared to sales tax revenues of approximately $12.8 million in Fiscal Year 2020-21. For Fiscal Year 2022-23, the City’s sales tax revenues are projected at approximately $14.6 million.
Sales Tax Rates. The City’s sales tax revenue represents the City ’s share of the sales and use tax imposed on taxable transactions occurring within the City ’s boundaries. The sales
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tax is governed by the Bradley -Burns Uniform Local Sales and Use Tax Law, set forth in California Revenue and Taxation Code Section 7200 et seq. The local sales tax rate in the City is 7.75%, of which the City’s General Fund is allocated 1.00%.
The State collects and administers the tax, and makes distributions on taxes collected within the City as follows:
Table 5
CITY OF HESPERIA
Sales Tax Rates
Rate
State - General Fund 3.9375%
State - Local Revenue Fund 1.5625
Public Safety Fund (Proposition 172) 0.5000
County 0.2500
City 1.0000
San Bernardino County Transportation Authority 0.5000
Total 7.7500%
Source: California Department of Tax and Fee Administration.
At the November 1993 election, Proposition 172 was approved by voters in the State, allowing for the permanent extension of the half -cent sales tax that was originally imposed on July 15, 1991, which was scheduled to sunset on June 30, 1993. (On July 1, 1993, a six-month extension of the tax was granted by the State in order to provide a source of one -time funding for cities and counties to partially offset 1993 -1994 ongoing property tax reductions.) The passage of the Proposition 172 legislation, effective January 1, 1994, required that the proceeds from the half-cent tax be diverted from the State to counties and cities on an ongoing basis for funding public safety programs.
Sales and use taxes are complementary taxes; when one applies, the other does not. In general, the statewide sales tax applies to gross receipts of retailers from the sale of tangible personal property in the State. The use tax is imposed on the purchase, for storage, use or other consumption in the State of ta ngible personal property from any retailer. The use tax generally applies to purchases of personal property from a retailer outside the State where the use will occur within the State. The State ’s actual administrative costs with respect to the portion of sales taxes allocable to the City are deducted before distribution and are determined on a quarterly basis. Sales tax revenue collected by the State is directly deposited monthly to the City. For a summary of historical taxable transactions in the City, see “– Historical Taxable Transactions.”
Certain transactions are exempt from the State sales and use tax. These include sales of the following products:
• food products for home consumption;
• prescription medicine;
• newspapers and periodicals;
• edible livestock and their feed;
• seed and fertilizer used in raising food for human consumption; and • gas, electricity and water when delivered to consumers through mains, lines and pipes.
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This is not an exhaustive list of exempt transactions. A comprehensive list can be found in the March 2018 publication of the California Department of Tax and Fee Administration (the “CDTFA”) entitled “Sales and Use Taxes: Exemptions and Exclusions, ” which can be found on the CDTFA’s website at http://www.cdtfa.ca.gov. The reference to this Internet website is shown for reference and convenience only; the information contained within the website may not be current and has not been reviewed by the City and is not incorporated in this Official Statement by reference.
In June 2018, the United States Supreme Court published its decision in South Dakota v. Wayfair (the “Wayfair Decision”), in which the Supreme Court held that sales to a customer in a particular state alone are sufficient to create a nexus for purposes of determining whether a seller is required to collect sales taxes of the applicable state. Prior to the Wayfair Decision, courts had interpreted the dormant Commerce Clause of the United Sta tes Constitution to require that a company have physical nexus in a state in order for the seller to be liable for the collection of that state’s sales tax. Physical nexus is defined as having either property or payroll in the state, including a resident employee working from home or inventory stored in that state.
The State has issued guidance in response to the Wayfair Decision. Under such guidance, beginning April 1, 2019, retailers located outside of the State are required to register with the CDTFA, collect the California use tax, and pay the tax to the CDTFA based on the amount of their sales into California, even if they do not have a physical presence in the state. The new collection requirements apply to retailers if during the preceding or current calendar year certain sales thresholds are met. The new collection requirements apply to taxable sales of tangible personal property to California consumers on and after April 1, 2019, and are not retroactive.
Additionally, the State ’s passage of Asse mbly Bill 147, signed by the Governor on April 25, 2019, provides the implementation rules for the Wayfair Decision in California.
Sales Tax Collection Procedures. Collection of the sales and use tax is administered by the CDTFA. This process was former ly administered by the State Board of Equalization.
The Taxpayer Transparency and Fairness Act of 2017, which took effect July 1, 2017, restructured the State Board of Equalization and separated its functions among three separate entities: the State Board of Equalization, the CDTFA, and the Office of Tax Appeals. The State Board of Equalization will continue to perform the duties assigned to it by the state Constitution, while all other duties will be transferred to the newly established CDTFA and the Off ice of Tax Appeals. CDTFA will handle most of the taxes and fees previously collected by the State Board of Equalization, including sales and use tax.
Under the Sales and Use Tax Law, all sales and use taxes collected by the CDTFA under a contract with any city, city and county, or county are required to be transmitted by the CDTFA to such city, city and county, or county periodically as promptly as feas ible. These transmittals are required to be made at least twice in each calendar quarter. Under its procedures, the CDTFA projects receipts of the sales and use tax on a quarterly basis and remits an advance of the receipts of the sales and use tax to th e City on a monthly basis. The amount of each monthly advance is based upon the CDTFA ’s quarterly projection. During the last month of each quarter, the CDTFA adjusts the amount remitted to reflect the actual receipts of the sales and use tax for the previous quarter.
According to the CDTFA, it distributes quarterly tax revenues to cities, counties, and special districts using the following method . Using the prior year ’s quarterly tax allocation as a starting point, the CDTFA first eliminates nonrecurring transactions such as fund transfers, audit payments, and refunds, and then adjusts for growth, to establish the estimated base amount.
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The CDTFA disburses 90% to each local jurisdiction in three monthly installments (advances) prior to the final compu tation of the quarter ’s actual receipts. Ten percent is withheld as a reserve against unexpected occurrences that can affect tax collections (such as earthquakes, fire, or other natural disaster) or distributions of revenue such as unusually large refunds or negative fund transfers. The first and second advances each represent 30% of the 90% distribution, while the third advance represents 40%. One advance payment is made each month, and the quarterly reconciliation payment (clean -up) is distributed in c onjunction with the first advance for the subsequent quarter. Statements showing total collections, administrative costs, prior advances, and the current advance are provided with each quarterly clean -up payment.
History of Taxable Transactions . A summary of historic taxable sales within the City for calendar years 2017 through 2021 is shown in the following table.
Table 6
CITY OF HESPERIA
TAXABLE TRANSACTIONS
For Calendar Years 2017 Through 2021
(Dollars in thousands)
2017 2018 2019 2020 2021
Retail and Food Services:
Motor Vehicle and Parts Dealers $61,427 $61,340 $64,316 $74,348 $95,997 Home Furnishing and Appliance Stores 16,631 18,246 18,545 19,903 23,032 Bldg. Mat’ls., Garden Equip., Supplies 37,754 39,389 32,878 33,284 33,568 Food and Beverage Stores 51,701 51,438 53,423 61,011 64,073 Gasoline Stations 205,577 248,914 235,044 201,082 310,467 Clothing and Accessories Stores 26,466 29,992 31,647 31,362 52,474 General Merchandise Stores 107,491 105,418 110,133 133,929 148,721 Food Services and Drinking Places 118,367 124,208 137,378 137,652 175,399 Other Retail Group 48,177 48,967 54,561 68,834 82,230
Total Retail and Food Services 673,591 727,971 737,925 761,407 985,962 All other outlets 126,090 137,368 152,262 148,870 174,374 Total all outlets $799,681 $865,339 $890,186 $910,277 $1,160,336
Source: California Department of Tax and Fee Administration.
Total taxable sales reported during the first three quarters of c alendar year 2022 in the City were reported to be $ 950.5 million, a 10.87% increase from the total taxable sales of $857.4 million reported during the first three quarters of calendar year 2021.
Intergovernmental Revenues
As shown in Table 4 a, intergovernmental revenues represented the largest or second largest source of revenues for the City’s General Fund in each of Fiscal Years 2017-18 through 2021-22, comprising approximately 28% of the City’s total General Fund revenues for Fiscal Year 2021-22. In Fiscal Year 2021-22, the City’s intergovernmental revenues totaled approximately $13.2 million, an increase of approximately 5% compared to intergovernmental tax revenues of approximately $12.6 million in Fiscal Year 2020-21. For Fiscal Year 2022 -23, the City’s intergovernmental revenues are projected at approximately $14.6 million.
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Historically, the majority of the City’s intergovernmental revenues have consisted of t he City’s share of the Vehicle License Fee (the “VLF”) that is imposed by the State. The VLF 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 State Budget for Fiscal Year 20 04-05, 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 with property taxes in- lieu of the VLF . The State Budget for Fiscal Year 2004-05 permanently reduced the VLF from 2% to 0.65% of the value of a vehicle and removed the requirement for backfill payments, providing instead that the amount of the backfill requirement w ill be met by an increase in the property tax allocation to cities and counties. 100% of the VLF revenues and property taxes in- lieu of the VLF the City receives from the State can be used for City general purposes.
In Fiscal Year 2022 -23, the City’s VL F revenues and property taxes in -lieu of the VLF totaled approximately $10.2 million with the remaining $3 million of intergovernmental revenues consisting primarily of contributions from other City funds for general and administrative expenses. The following table shows the City’s total VLF revenues and property taxes in-lieu of the VLF for Fiscal Years 2017 -18 through 2021 -22, and projected total VLF revenues and property taxes in-lieu of the VLF for Fiscal Year 2022-23.
Table 7
CITY OF HESPERIA
VLF Revenues and In-Lieu Property Tax Revenues
Fiscal Years 2017-18 through 2021-22
Fiscal Year Total
2017-18 $ 7,913,637
2018-19 8,360,412
2019-20 9,019,413
2020-21 9,594,289
2021-22 10,220,844
2022-23 (1) 11,279,915
(1) Represent unaudited estimated actuals; subject to change.
Source: City of Hesperia.
Charges for Services
The City provides various services which generate revenue for the General Fund. Some services provided by the City include business licensing , building construction and planning reviews and inspections, recording of documents , health inspections, and engineering encroachment inspections.
As shown in Table 4a, charges for services were the third largest revenue source for the City’s General Fund in each of Fiscal Years 2017-18 through 2021-22, comprising approximately 13% of the City’s total General Fund revenues for Fiscal Year 2021-22. In Fiscal Year 2021-22, charges for services totaled approximately $ 6 million , a n increase of approximately 30% compare d to charges for services of approximately $ 4.6 million in Fiscal Year 2020-21. For Fiscal Year 2022 -23, the City’s charges for services are projected at approximately $5.8 million.
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Franchise Taxes
The City imposes fees on refuse hauling; gas and electric utilities; and cable television companies operating in the City for the use, and wear and tear of the City right-of-way. The fees range from 2% to 10% of their gross receipts.
As shown in Table 4a, franchise tax revenues represented the fourth largest source of revenues for the City’s General Fund in each of Fiscal Years 2017-18 through 202 1-22, comprising approximately 8% of the City’s total General Fund revenues for Fiscal Year 2021-22.
In Fiscal Year 2021-22, the City’s franchise tax revenues totaled approximately $3.9 million, an increase of approximately 8% compared to franchise tax revenues of approximately $3.7 million in Fiscal Year 2020-21. For Fiscal Year 2022 -23, the City ’s franchise tax revenues are projected at approximately $4.3 million, with approximately $4 million derived from franchise fees relating cable television (projected to total approximately $675,000), refuse hauling (projected to total $1.8 million) and utilities (projected to total approximately $1.5 million).
Transient Occupancy Taxes
The City’s municipal code authorizes the application of a 10% tax to the cost of hotel rooms within the City. This is intended to offset the cost of governmental services (stre ets and public safety) that the visitors use while temporarily staying in the City. Growth is driven by a combination of occupancy, rates, and lodging supply.
As shown in Table 4a , transient occupancy tax revenues represented the fifth largest source of revenues for the City’s General Fund in each of Fiscal Years 2017-18 through 2021- 22, comprising approximately 4% of the City’s total General Fund revenues for Fiscal Year 2021-22. In Fiscal Year 2021-22, the City’s transient occupancy tax revenues totaled approximately $2 million, an increase of approximately 12% compared to transient occupancy tax revenues of approximately $1.8 million in Fiscal Year 2020-21. For Fiscal Year 2022-23, the City’s transient occupancy tax revenues are projected at approximately $1.8 million.
Property Taxes
General. Property taxes represent the City’s sixth largest source of General Fund revenues for Fiscal Year 2021 -22. This section describes property tax levy and collection procedures in the County and provides certain information regarding the City’s historical assessed values and major property taxpayers. Property taxes have been the primary revenue source affected by voter initiatives and legislative actions. With approva l of Proposition 13, property tax revenues were first curtailed over 35 years ago when they were reduced by two - thirds and thereafter limited to 2% annual increases or the consumer price index, whichever was less. In addition, if unemployment and reduced economic activity generally is a sustained consequence of the COVID -19 pandemic through multiple fiscal years, a combination of property tax payment delinquencies and property tax assessment appeals could depress property tax revenue growth over time.
Levy and Collection. Property taxes are levied for each fiscal year on taxable real and personal property as of the preceding January 1. For assessment and collection purposes, property is classified either as “secured” or “unsecured” and is listed accordingly on separate parts of the assessment roll. The “secured roll” is that part of the assessment roll containing State-assessed public utilities property and real property the taxes on which are a lien sufficient,
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in the opinion of the County Assessor, to secure payment of the taxes. Other property is assessed on the “unsecured roll.”
Property taxes on the secured roll are due in two installments, on November 1 and February 1 of each fiscal year, and become delinq uent on December 10 and April 10, respectively. A penalty of 10% attaches immediately to all delinquent payments. Property on the secured roll with respect to which taxes are delinquent become tax defaulted on or about June 30 of the fiscal year. Such p roperty may thereafter be redeemed by payment of a penalty of 1% per month to the time of redemption, plus costs and a redemption fee. If taxes are unpaid for a period of five years or more, the property is deeded to the State and may be sold at public auction.
Property taxes on the unsecured roll are due as of the January 1 lien dates and become delinquent on August 31. A 10% penalty attaches to delinquent unsecured taxes. If unsecured taxes are unpaid at 5:00 p.m. on October 31, an additional penalty of 1% attaches to them on the first day of each month until paid.
The County has four ways of collecting delinquent unsecured personal property taxes:
(1) a civil action against the taxpayer; (2) filing a judgment in the office of the County Clerk specifying certain facts in order to obtain a lien on certain property of the taxpayer; (3) filing a certificate of delinquency for record in the County Recorder ’s office in order to obtain a lien on certain property of the taxpayer; and (4) seizure and sale of personal property, improvements or possessory interests belonging or assessed to the assessee. Beginning in 1978-79, Proposition 13 and its implementing legislation shifted the function of property tax allocation to the counties, except for levies to sup port prior voted debt, and prescribed how levies on countywide property values are to be shared with local taxing entities within each county.
ERAF Shift Legislation . Certain property taxes have been shifted from local government agencies to schools by the State Legislature for deposit in the Education Revenue Augmentation Fund (“ERAF”), a shift that has resulted in diversion of City property taxes since Fiscal Year 19 92-93. See “CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS – Proposition 1A” and “– Proposition 22” in the forepart of this Official Statement. There can be no assurance that the State will not undertake future ERAF shifts.
Assessed Valuation. All property is assessed using its full cash value as defined by Article XIIIA of the State Constitution. State law provides exemptions from ad valorem property taxation for certain classes of property such as churches, colleges, non -profit h ospitals, and charitable institutions. See “CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS” in the forepart of this Official Statement. Future assessed valuation growth allowed under Article XIIIA (new construction, certain changes of ownership, and 2% inflation) will be allocated on the basis of situs among the jurisdictions that serve the tax rate area within which the growth occurs. Local agencies and schools will share the growth of “base” revenues from the tax rate area. Each year ’s growth allocation becomes part of each agency ’s allocation in the following year.
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Assessed Valuation History. The following table shows the City’s assessed valuation for Fiscal Years 2013-14 through 2022-23.
Table 8
CITY OF HESPERIA
Assessed Valuations of All Taxable Property
Fiscal
Year Secured Unsecured
Less:
Exemptions Total
2013-14 $4,323,310,389 $153,406,415 $80,382,872 $4,396,333,932 2014-15 4,568,876,732 153,173,691 78,496,915 4,643,553,508 2015-16 4,927,736,958 163,458,347 77,065,237 5,014,130,068 2016-17 5,180,716,557 149,700,012 81,294,703 5,249,121,866 2017-18 5,534,189,488 144,454,034 80,114,454 5,598,529,068 2018-19 5,868,554,993 141,232,000 78,228,784 5,931,558,209 2019-20 6,316,580,296 147,332,716 77,352,516 6,386,560,496 2020-21 6,687,029,419 195,487,371 76,124,850 6,806,391,940 2021-22 7,107,306,637 199,301,311 75,184,120 7,231,423,828 2022-23 7,898,838,177 178,265,562 71,025,529 8,006,821,210
Source: San Bernardino County Auditor-Controller; City of Hesperia.
Proposition 13 and Proposition 8 Property Value Adjustments . Proposition 13, passed in 1978, established the base year value concept for property tax assessments. Under Proposition 13, the 1975-76 fiscal year serves as the original base year used in determining the assessment for real property. Thereafter, annual increases to the base year value are limited to the inflation rate, as measured by the Cali fornia Consumer Price Index, or 2%, whichever is less. A new base year value, however, is established whenever a property, or portion thereof, has had a change in ownership or has been newly constructed.
Proposition 8, enacted in 1978, allows for a temporary reduction in assessed value when a property suffers a “decline-in-value.” As of the January 1st (lien date) each year, the Assessor must enroll either a property ’s Proposition 13 value (adjusted annually for inflation by no more than 2%) or its current market value, whichever is less. When the current market value replaces the higher Proposition 13 value, the lower value is commonly referred to as a “Proposition 8 Value.” “Proposition 8 values” are temporary and, once enrolled, must be reviewed annual ly by the assessor until the Proposition 13 adjusted base year value is enrolled.
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Largest Taxpayers. The top twenty property taxpayers, based on secured assessed values of taxable property in the City, as shown on the 2022-23 tax roll, are set forth in the following table.
Table 9
CITY OF HESPERIA
Largest 2022-23 Secured Taxpayers
Property Owner
Primary
Land Use
Assessed
Valuation Total(1)
1. Exeter 8300 Caliente Land LLC Industrial $72,910,000 0.92%
2. West Main Villas LLC Apartments 42,268,718 0.54
3. Carl E. Ross Living Trust Undeveloped 39,778,902 0.50
4. Kaiser Foundation Health Plan Inc. Medical Offices 38,862,997 0.49
5. Exeter Hesperia Parcel 3 Land LLC Undeveloped 33,500,570 0.42
6. WLPX Hesperia LLC Commercial 32,579,824 0.41
7. Rim Properties Apartments 32,236,615 0.41
8. Amargosa LLC Industrial 30,871,646 0.39
9. Hesperia Apartments LLC Apartments 30,562,272 0.39
10. Best Way Disposal Co. Inc. Industrial 28,897,736 0.37
11. Olivetree Apartments LP Apartments 28,056,411 0.36
12. Wal-Mart Stores Inc. Commercial 26,069,678 0.33
13. Target Corporation Commercial 25,044,718 0.32
14. Randolph S. and Sandra P. Davis Apartments 21,742,416 0.28
15. Sparky’s Storage 18 CA LP Industrial 16,336,757 0.21
16. Hesperia Marketplace Cap Partners
LP
Commercial 15,577,589 0.20
17. Villas 154 LP Apartments 14,652,177 0.19
18. Associated Global Partners LLC Undeveloped 14,212,139 0.18
19. MPNR Properties LLC Commercial 13,849,760 0.18
20. Crossings at Hesperia LP Apartments 13,634,316 0.17 $571,645,241 7.24%
(1) 2022-23 Local Secured Assessed Valuation: $7,898,838,177.
Source: California Municipal Statistics, Inc.
No Teeter Plan for the City . Section 4701 through Section 4717 of the California Revenue and Taxation Code permit counties to use a method of apportioning taxes (commonly referred to as the “Teeter Plan”) whereby local agencies receive from the County 100% of their respective shares of the amount of secured ad valorem taxes levied, without regard to actual collections of taxes. Due to this allocation method, the cities in the County receive no adjustments for redemption payments on delinquent collections. The unsecured taxes are allocated based on actual unsecured tax collections. The County adopted this m ethod of distributing taxes; however, the City has elected not to participate in the Teeter Plan .
Consequently, property tax collections allocated to the City , as set forth in this Official Statement, reflect actual collections.
Pass-Through Revenue Sharing Agreement . In 2018, the boundaries of the Fire District were annexed into the San Bernardino County Fire Protection District. As a result of the annexation, the Fire District’s functions were transferred to the San Bernardino County Fire Protection District, which assumed all of the rights duties, responsibilities, liabilities and other matters of the Fire District, except the retirement liabilities to CalPERS associated with the
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former employees of the Fire District which liabilities were assumed by the City . . The Fire District has no active employees. See “ – Employee Retirement System ” for a discussion regarding the City’s contributions to CalPERS, including contributions that are required to be made by the City to CalPERS with respect to former employees of the Fire District.
As a result of the annexation, commencing in Fiscal Year 2018 -19, the City receives approximately 1.5% of the property tax revenues generated within the former boundaries of the Fire District. The portion of such property tax revenues that represent tax increment generated within the former boundaries of the Fire District are remitted to the City pursuant to a pass - through revenue sharing agreement (the “Pass-Through Revenue Sharing Agreement ”) entered into by the City, the Fire District and the San Bernardino County Fire Protection District in connection with the annexation . Prior to the annexation, the Fire District and the former City of Hesperia Community Redevelopment Agency (the “ Former Agency ”) entered into two negotiated pass-through agreements (the “ Negotiated Pass-Through Agreements”) pursuant to which property tax revenues representing tax increment were required to be remitted by the Former Agency to the Fire District . Because the Negotiated Pass-Through Agreements did not include language allowing for a transfer of tax increment revenues to the San Bernardino County Fire Protection District and the City, as required as part of the annexation , the City, the Fire District and the San Bernardino County Fire Protection District subsequently entered into the Pass-Through Revenue Sharing Agreement to provide for such transfer.
The Pass-Through Revenue Sharing Agreement terminates when the Negotiated Pass- Through Agreements expire. The City currently anticipates that the Negotiated Pass -Through Agreements will expire on or about 2037, the estimated year on which all enforceable obligations of the Former Agency and its successor agency are projected to be paid and retired.
On and after the expiration of the Pass-Through Revenue Sharing Agreement , the City will receive the entire 1.5% of the property tax revenues generated within the former boundaries of the Fire District directly from the County. See “– Redevelopment Dissolution Act” below.
Property Tax Levies and Collections. The following table shows secured property tax levies and tax collections for Fiscal Years 2017-18 through 2021-22.
Table 10
CITY OF HESPERIA
Secured Property Tax Levies and Collections
Fiscal Years 2017-18 through 2021-22(1)
Fiscal Taxes Levied
Collected within the
Fiscal Year of Levy
Collections
in
Total Collections
as June 30, 2022
Year Ended
June 30
for the
Fiscal Year Amount
Percent
of Levy
Subsequent
Years Amount
Percent
of Levy
2018(2) $4,429,662 $4,183,822 94% $18,121 $4,201,943 95% 2019 500,280 486,238 97 16,076 500,280 100
2020 919,877 896,493 -- 15,763 912,256 99
2021 938,839 933,597 99 -- 933,597 99
2022 961,018 956,899 100 -- 956,899 100
(1) The amounts presented include tax increment generated within former redevelopment project areas, including amounts deposited into the trust fund maintained by the County Auditor-Controller for the Successor Agency to the Hesperia Community Redevelopment Agency that were passed through to other agencies.
(2) Beginning with Fiscal Year 2018-19, the taxes levied and collected shown exclude the Fire District.
Source: City of Hesperia, and the County of San Bernardino Auditor Controller’s Office.
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Redevelopment Dissolution Act . The State ’s Community Redevelopment Law (codified in Part 1 of Division 24 of the California Health and Safety Code) authorized the redevelopment agency of any city or county to receive an allocation of tax revenues resulting from increases in assessed values of pro perties within designated redevelopment project areas (the “incremental value”) occurring after the year the project area is formed. In effect, local taxing agencies, such as the City, realize tax revenues only in the assessed value of such property at the time the redevelopment project is created for the duration of such redevelopment project. Although Assembly Bill No. 26 (“AB X1 26”), enacted on June 29, 2011 as Chapter 5 of Statutes of 2011, statutorily dissolved redevelopment agencies as of February 1, 2012, the enforceable obligations of dissolved redevelopment agencies, continue to be paid from property taxes derived from such incremental value until the enforceable obligations are paid in full in accordance with Part 1.85 (commencing with Section 3 4170) of Division 24 of the Health and Safety Code of the State, as amended on June 27, 2012 by Assembly Bill No. 1484 (“AB 1484”), enacted as Chapter 26, Statutes of 2012, and as such statutory provisions have and may further be amended from time to time (as amended, the “Dissolution Act”). Pursuant to the Dissolution Act, the Former Agency was dissolved and succeeded by the Successor Agency to the Hesperia Community Redevelopment Agency.
Under the Dissolution Act, taxing entities, such as the City, are to receive distributions (in proportion to such taxing entity ’s share of property tax revenues in the tax rate area for the applicable fiscal year) of residual amounts of property taxes attributable to incremental value on each June 1 and January 2, commen cing June 1, 2012, after payment of (i) tax sharing obligations established previously pursuant to the Community Redevelopment Law, (ii) enforceable obligations of the successor agency to the former redevelopment agency, and (iii) an administrative cost al lowance to such successor agency. As enforceable obligations of the Former Agency and its successor agency are paid and retired, residual amounts of property tax revenues attributable to redevelopment project area incremental value are expected to increas e over time.
Outstanding Debt of the General Fund
Outstanding Debt. The City makes scheduled periodic payments pursuant to certain other outstanding long -term agreements. Below are descriptions of certain of the City ’s outstanding long-term agreements in connection with which General Fund appropriations are made annually. This excludes information regarding certain equipment leases and obligations payable by the City or its related entities from special revenues. See “APPENDIX C – ANNUAL
COMPREHENSIVE FINANCIAL REPORT OF THE C ITY FOR FISCAL YEAR ENDED JUNE 30, 2022 – Note 6.”
2012 Lease Revenue Bonds . In 2 012, the Authority issued its 2012 Lease Revenue Bonds (Water Rights Acquisition) (the “2012 Bonds ”), in the ori ginal principal amount of $26,735,000. The net proceeds of the 2012 Bonds were used by the City to finance a portion of the purchase price of permanent rights to 5,971 acre-feet of water annually (the “Water Rights”) from a private landowner. The City leases the Water Rights for their fair rental value t o the Water District to serve its retail service territory (which coincides with the City ’s boundaries).
The Water District’s rental payments to the City are intended to approximate the avoided cost of leasing the water from the current owner or acquiring replacement water on the open market.
As of the date of this Official Statement, the 2012 Bonds are outstanding in the aggregate principal amount of $20,620,000.
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2013 Lease Revenue Bonds . In 2013, the Authority issued its 2013 Refunding Lease Revenue Bonds (Refinancing of 2005 Civic Plaza Financing) (the “2013 Bonds”), in the original principal amount of $12,445,000. The net proceeds of the 201 3 Bonds were used to prepay certain lease obligations of the City and related certificates of participation delivered in 2005. As of the date of this Official Statement, the 201 3 Bonds are outstanding in the aggregate principal amount of $ 8,945,000, and are anticipated to be refunded in full with the net proceeds of the 2023 Bonds. See “REFUNDING PLAN” in the forepart of this Official Statement.
No Anticipated Future Debt . Other than the 2023 Bonds, the City does not currently anticipate incurring any long -term obligations payable from its General Fund in the next five years.
Direct and Overlapping Bonded Debt
The ability of land owners within the City to pay property tax installments as th ey come due could be affected by the existence of other taxes and assessments imposed upon the land.
The statement of direct and overlapping debt (the “Debt Report”) set forth on the following page was prepared by California Municipal Statistics, Inc . as o f April 1 , 2023. The Debt Report includes only such information as has been reported to California Municipal Statistics, Inc. by the issuers of the debt described therein and by others. The Debt Report is included for general information purposes only. The City takes no responsibility for its completeness or accuracy.
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Direct and Overlapping Bonded Debt
2022-23 Assessed Valuation: $8,075,905,550
OVERLAPPING TAX AND ASSESSMENT DEBT: % Applicable Debt 4/1/23 Victor Valley Joint Community College District 20.23% $30,477,348 California Statewide Community Development Authority Assessment Districts
100.00 9,373,000
City of Hesperia Community Facilities District No. 2005-1 100.00 14,245,000 TOTAL OVERLAPPING TAX AND ASSESSMENT DEBT $54,095,348
DIRECT AND OVERLAPPING GENERAL FUND DEBT: San Bernardino County General Fund Obligations 2.78% $4,471,908 San Bernardino County Pension Obligation Bonds 2.78 1,750,288 San Bernardino County Flood Control District General Fund Obligations 2.78 1,141,607 Hesperia Unified School District General Fund Obligations 84.607 99,083,258 Snowline Joint Unified School District General Fund Obligations 4.278 2,547,763 City of Hesperia Lease Revenue Bonds 100.00 30,230,000(1) TOTAL DIRECT AND OVERLAPPING GENERAL FUND DEBT $139,224,824 OVERLAPPING TAX INCREMENT DEBT (Successor Agencies): 3.340 - 100.% $99,183,454 COMBINED TOTAL DEBT $292,503,626(2)
Ratios to 2022-23 Assessed Valuation: Total Overlapping Tax and Assessment Debt 0.67% Total Direct Debt ($30,230,000) 0.37% Combined Total Debt 3.62% Ratios to Redevelopment Successor Agencies Incremental Valuation ($5,160,692,028): Total Overlapping Tax Increment Debt 1.92% (1) Excludes 2023 Bonds to be sold, and refunding of 2013 Bonds. (2) Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue and non-bonded capital lease obligations.
Source: California Municipal Statistics, Inc.
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Employee Retirement System
This section contains certain information relating to CalPERS. The information is primarily derived from information produced by CalPERS, its independent accountants and actuaries. The City has not in dependently verified the information provided by CalPERS and makes no representations and expresses no opinion as to the accuracy of the information provided by CalPERS.
The financial reports of CalPERS are available on its Internet website at www.calpers.ca.gov. The CalPERS website also contains CalPERS ’ most recent actuarial valuation reports and other information concerning benefits and other matters. Such information is not incorporated by reference in this Official Statement. Neither the City nor the Underwriter can 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 may be changed in the future. Actuarial assessments will change with the future experience of the pension plans.
Description of Plans . The City participates in CalPERS, a defined benefit public employee retirement system, under which CalPERS acts as a common investment and administrative agent for local and state governmental agencies within the State. All qualified permanent and probationary employees of the City are eligible to participate in the City ’s Miscellaneous Employee Pension Plan (the “City Miscellaneous Plan”), cost-sharing multiple employer defined benefit pension plans administered by the CalPERS. The City Miscellaneous Plan consists of two -tiers: (1) a tier for employees hired before January 1, 2013 (the “ Classic Tier”); and (2) a tier for employees hired on or after January 1, 2013 (the “ PEPRA Tier”). The benefits for the public agencies are established by contract with CalPERS in accordance with the provisions of the California Public Employees Retirement Law (the “Retirement Law”).
The Fire District maintains a miscellaneous plan (the “ Fire District Miscellaneous Plan”) and a safety plan (the “ Fire District Safety Plan ”). As previously described, in connection with the annexation of the boundaries of the Fire District into the San Bernardino County Fire Protection District, the Fire District’s functions were transferred the San Bernardino County Fire Protection District. As part of the annexation, the San Bernardino County Fire Protection District assumed all of the rights duties, responsibilities, liabilities and other matters of the Fire District, except the retirement liabilities to CalPERS associated with the former employees of the Fire District. Such retirement liabilities were a ssumed by the City in consideration of the property revenues generated within the former boundaries of the Fire District to be remitted to the City. See “ – Property Taxes – Pass-Through Revenue Sharing Agreement.” Accordingly, this section also includes ce rtain information regarding the Fire District Miscellaneous Plan and the Fire District Safety Plan. The Fire District has no active employees.
The City Miscellaneous Plan, the Fire District Miscellaneous Plan and the Fire District Safety Plan are hereinafter referred to collectively as the “Plans.”
The Water District maintains retirement plans for its employees and retirees. Certain information regarding such plans and associated liabilities are included in the financial statements of the City because t he Water District is a component district of the City. see “APPENDIX C – ANNUAL COMPREHENSIVE FINANCIAL REPORT OF THE C ITY FOR FISCAL YEAR ENDED JUNE 30, 2022 – Note 8” for additional information regarding such plans.
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Benefits Provided. CalPERS provides service retirement and disability benefits, annual cost of living adjustments and death benefits to plan members, who must be public employees and beneficiaries. Benefits are based on years of credited service, equal to one year of full time employment. Members with five years of total service are eligible to retire at age 50 to 62 with statutorily reduced benefits. For employees hired into a plan with the 2.7% at 55 formula, eligibility for service retirement is age 55 with at least five years of services. California Public Employees’ Pension Reform Act ( “PEPRA”) miscellaneous members become eligible for service retirement upon attainment of age 52 with at least five years of service.
All members are eligible for nonduty disability benefits after five yea rs of service. The death benefit is one of the following: the Basic Death Benefit, the 1957 Survivor Benefit, or the Optional Settlement 2W Death Benefit. Safety members can receive a special death benefit if the member dies while actively employed and the death is job -related. Fire District members may receive the alternate death benefit in lieu of the Basic Death Benefit or the 1957 Survivor Benefit if the member dies while actively employed and has at least 20 years of total CalPERS service. The cost of living adjustments are applied as specified by the Retirement Law.
The benefits provided under the Plans are summarized in the following tables.
Miscellaneous Plans
Hire Date
City
Miscellaneous Plan
Prior to January 1, 2013
Fire District
Miscellaneous Plan
Prior to January 1, 2013
City and Fire District
Miscellaneous Plans
On or after
Jan. 1 , 2013
Benefit formula 2.7% @ 55 2.0% @ 55 2.0% @ 62
Benefit vesting schedule 5 years’ service 5 years’ service 5 years’ service Benefit payments Monthly for life Monthly for life Monthly for life Retirement age 50 – 55+ 52 – 63+ 52 - 67+
Monthly benefits, as a % of eligible 2.0% to 2.7% 1.4% to 2.4% 1.0% to 2.5% Required Employer Contribution Rates:
Normal Cost Rate(1) 14.020% 0.000% 7.590%
(1) Employees hired prior to January 1, 2013 are required by contract to contribute 1% of the City’s employer normal cost contributions.
Source: City of Hesperia Annual Comprehensive Financial Report for the Fiscal Year Ended June 30, 2022.
Fire District Safety Plan
Benefit formula 2.0% @ 50
Benefit vesting schedule 5 years’ service
Benefit payments Monthly for life
Retirement age 50-55+
Monthly benefits, as a % of eligible 2.0% to 2.7%
Required Employer Contribution Rates:
Normal Cost Rate --
Payment of Unfunded Liability $983,846
Source: City of Hesperia Annual Comprehensive Financial Report for the Fiscal Year Ended June 30, 2022.
California Public Employees’ Pension Reform Act of 2013. Employees hired prior to January 1, 2013 and have remained under continuous employment with a CalPERS agency are considered “Classic” employees. California Public Employees ’ Pension Reform Act of 2013 (“PEPRA”), which was signed by the State Governor on September 12, 2012, established a new
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pension benefit tier for employees who were hired on and after January 1, 2013, who were not previously CalPERS members or have left employment with a CalPERS agency for more than 6 months.
PEPRA adjusted the benefit formulas, required employee contribution, calculation of benefits and maximum pay, as well as other benefits. PEPRA miscellaneous employees receive benefits based on a 2.0% at age 62 formula. Employees are required to pay at least 50% of the total (annual) normal cost rate, and are required to make the full amount of required employee contributions themselves under PEPRA. Retirement benefits for such employees are calculated on the highest average annual compensation over a consecutive 36 -month period.
Accordingly, retirement benefits for PEPRA miscellaneous employees are calculated as 2% of the average final 36 months compensation. Retirement benefits for Classic miscellaneous employees are calculated as 2% of the average final 12 months of compensation. Retroactive benefits increases are also prohibited, as are contribution holidays, and purchases of additional non-qualified service credit, as are contribution holidays, and purchases of additional non - qualified service credit.
PEPRA also capped pensio nable income as noted below. Maximum amounts are set annually, subject to adjustment in accord with the Consumer Price Index. Additional employee contributions, limits on pensionable compensation and higher retirement ages for new members as a result of the passage of PEPRA are expected to reduce the City’s unfunded pension lability and potentially reduce City contribution levels in the long term.
CalPERS Pension Compensation Limits for
Calendar Year 2023 (Classic and PEPRA members)
Classic PEPRA
Maximum Pensionable Income $330,000 $175,250 (1)
(1) The Maximum Pensionable income for PEPRA members employed at agencies that participate in Social Security is $146,042.
Source: CalPERS Payroll Circular Letter dated January 3, 2023.
Contributions. Section 20814(c) of the Retirement Law requires that the employer contribution rates for all public employers are determined on an annual basis by the actuary and shall be effective on the July 1 following notice of a change in the rate. The total plan contributions are determined through CalPERS’s annual actuarial valuation process. The actuarially determined rate is the estimated amount necessary to finance the costs of benefits earned by employees during the year, with an additional amount to finance any UAL.
The City is required to contribute the difference between the actuarially determined rate and the contribution rate of employees. City contribution rates may change if plan contracts are amended. Payments made by the employer to satisfy contributi on requirements that are identified by the pension plan terms as plan member contributions requirements are classified as plan member contributions. During the fiscal year, the City contributed a total of $3,222,939 to the City Miscellaneous Plan and Fire District Miscellaneous Plan and $983,846 to the Fire District Safety Plan.
Beginning in Fiscal Year 2017 -18, CalPERS collects employer contributions for the Plans as a percentage of payroll for the normal cost portion and as a dollar amount for contributions toward the UAL. The dollar amounts are billed on an annual basis.
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The actuarially determined normal cost rates and UAL contribution amounts for the Plans for the Fiscal Years ended June 30, 2022, through June 30, 2 024, are as shown in the following table.
Fiscal Year 2021-22 Fiscal Year 2022-23 Fiscal Year 2023-24
Employer
Normal
Cost
Rate(1)
Employer
Amortization
of UAL
Employer
Normal
Cost
Rate(1)
Employer
Amortization
of UAL
Employer
Normal
Cost
Rate(1)
Employer
Amortization
of UAL
City Miscellaneous Plan
Classic Tier 14.02% $1,516,908 14.03% $1,710,427 15.95% $1,657,465 PEPRA Tier 7.59 20,989 7.47 25,258 7.68 0
Fire District Miscellaneous Plan 0.00 24,722 0.00 26,505 0.00 20,479 Fire District Safety Plan 0.00 1,017,698 0.00 1,104,310 0.00 917,179
(1) Employees hired prior to January 1, 2013 are required by contract to contribute 1% of the City’s employer normal cost contributions. Percentages shown are inclusive of employee contributions.
Source: CalPERS Actuarial Reports dated July 2020, July 2021, and July 2022.
The City’s estimated total contribution amounts (including the required normal cost (if any) and UAL contributions) for the Plans in Fiscal Years 2021-22, 2022-23 and 2023-24 are shown in the following table.
Fiscal Year 2021-22 Fiscal Year 2022-23 Fiscal Year 2023-24 Total Employer
Contribution(1)
Total Employer
Contribution(1)
Total Employer
Contribution(1)
City Miscellaneous Plan
Classic Tier $2,258,347 $2,401,733 $2,288,589
PEPRA Tier 246,102 289,828 290,422
Fire District Miscellaneous Plan 24,722 26,505 20,479
Fire District Safety Plan 1,017,698 1,104,310 917,179
(1) Employees hired prior to January 1, 2013 are required by contract to contribute 1% of the City’s employer normal cost contributions.
Contributions shown are inclusive of employee contributions.
Source: CalPERS Actuarial Reports dated July, 2020, July 2021, and July 2022.
Pension Section 115 Trust . As previously described, the City anticipates establishing the City Miscellaneous Plan 115 Trust, a tax qualified irrevocable trust organized under Section 115 of the Internal Revenue Code , with Alta Trust Company, as trustee, to fund the City’s retirement obligations to the CalPERS with respect to the City Miscellaneous Plan, and the Fire District Safety Plan 115 Trust , a tax qualified irrevocable trust organized under Section 115 of the Internal Revenue Code , with Alta Trust Company, as trustee, to fund the City’s retirement obligations to the CalPERS with respect to the Fire District Safety Plan. When established, the City anticipates making initial deposit s of $3.6 million and $1.2 million into the City Miscellaneous Plan 115 Trust and the Fire District Safety Plan 115 Trust, respectively.
Projected Employer Contributions. The following table show s the City’s actuarially- determined required employer contribution for Fiscal Year 2023 -24 and projected employer contributions (before cost sharing) for Fiscal Years 2024 -25 through 2028 -29 for the Plans by normal cost (expressed as a percentage of total active payroll) and amortization of the unfunded accrued liability (expressed as a dollar amount).
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The projections assume a 6.80% annual rate of return for Fiscal Year 2021-22 but do not include any reductions in t he normal cost that will occur over time as new employees are hired into PEPRA or other lower cost benefit tiers.
Required
Contribution
Projected Future Employer Contributions
(Assumes 6.80% Return for Fiscal Year 2021-22 and Beyond) City Miscellaneous Plan (Classic Tier)
Fiscal Year 2023-24 2024-25 2025-26 2026-27 2027-28 2028-29 Normal Cost % 15.95% 16.0% 16.0% 16.0% 16.0% 16.0% UAL Payment $1,657,465 $1,642,000 $1,181,000 $1,109,000 $1,011,000 $1,053,000 City Miscellaneous Plan (PEPRA Tier)
Fiscal Year 2023-24 2024-25 2025-26 2026-27 2027-28 2028-29 Normal Cost % 7.68% 7.7% 7.7% 7.7% 7.7% 7.7%
UAL Payment $0 $0 $0 $0 $0 $0
Fire District Miscellaneous Plan
Fiscal Year 2023-24 2024-25 2025-26 2026-27 2027-28 2028-29 Normal Cost % 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% UAL Payment $20,479 $20,000 $20,000 $20,000 $20,000 $20,000 Fire District Safety Plan
Fiscal Year 2023-24 2024-25 2025-26 2026-27 2027-28 2028-29 Normal Cost % 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% UAL Payment $917,000 $917,000 $917,000 $917,000 $917,000 $917,000
Source: CalPERS Actuarial Reports dated July 2022.
Funded Status. The following table sets forth the schedule of funding for the Plans for the valuation dates of June 30, 2019, 2020, and 2021.
Valuation Date
Ended June 30
Accrued
Liability
Market Value of
Assets UAL
Funded
Ratio
Annual
Covered Payroll
City Miscellaneous Plan (Classic Tier)
2019 $62,367,208 $45,424,992 $16,942,216 72.8% $4,875,081 2020 65,091,834 46,842,306 18,249,528 72.0 4,542,208
2021 69,308,361 56,963,556 12,344,805 82.2 3,642,289
City Miscellaneous Plan (PEPRA Tier)
2019 $1,624,956 $1,484,483 $140,473 91.4% $2,734,090 2020 2,204,787 1,995,200 209,587 90.5 3,264,935
2021 2,921,457 3,401,713 (120,256) 104.1 3,480,878
Fire District Miscellaneous Plan
2019 $31,661,390 $22,231,763 $9,429,627 70.2% $0
2020 32,052,705 22,255,783 9,796,922 69.4 0
2021 32,681,193 25,695,089 6,986,104 78.6 0
Fire District Safety Plan
2019 $596,113 $396,468 $199,645 66.5% $0
2020 570,006 368,396 201,610 64.6 0
2021 573,270 424,638 148,632 74.1 0
Source: CalPERS Actuarial Reports dated July 2022.
There is a two -year lag between the valuation date and the start of the contribution Fiscal Year . The UAL was determined in the June 30, 20 21 actuarial valuation, but the corresponding UAL payments commence two years after the valuation date in Fiscal Year 2023-
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24. This two -year lag is necessary due to the amount of time needed to extract and test the membership and financial data, and the need to provide public agencies with their required employer contribution well in advance of the start of the Fiscal Year.
Net Pension Liability. As of June 30, 2022, the City reported a net pension liability of $9.7 million for the City Miscellaneous Plan, $136,931 for the Fire District Miscellaneous Plan and $5.8 million for the Fire District Safety Plan . Net pension liability is measured as the total pension liability, less the pension plan’s fiduciary net position. The net pension liability of each of the Plans is measured as of June 30, 202 1, using an annual actuarial valuation as of June 30, 2020 rolled forward to June 30, 2021.
Potential Impacts on Future Required Contributions . 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.
Change in Assumptions/Discount Rate. On December 21, 2016, the CalPERS Board of Administration voted to lower its discount rate from the rate of 7.50% to 7.00% over a three-year period. The change was reflected in the June 30, 2016 actuarial report, which lowered the discount rate from 7.50% to 7.375%; in the June 30, 2017 actuarial report, which lowered the discount rate from 7.375% to 7.25%; and in the June 30, 2018 actuarial report, which lowered the discount rate from 7.25% to 7.00 . On November 15, 2021, the CalPERS Board of Administration voted to lower its discount rate from 7.00% to 6.80% for the June 30, 2021 actuarial report.
Investment Performance. CalPERS earnings reports for Fiscal Years 20 11-12 through 2021-22 report investment gains (and losses) of approximately 0.1%, 13.2%, 18.4%, 2.4%,
0.6%, 11.2%, 8.6%, 6.7%, 4.7%, 21.3% and (6.1%), respectively. Future earnings performance may increase or decrease future contribution rates for plan participants, including the City.
Other Post-Employment Retirement Benefits
The City provides OPEB through the OPEB Plan, a single -employer defined benefit health-care plan. The OPEB Plan, which is administered by the City, provides certain health - care benefits. Specifically, the City provides health insurance for its retired employees according to the personnel rules and regulations. The authority to do so is included annually in the Memorandum of Understanding between the City and each of its employee groups and ultimately passed by Council action. No assets are accumulated in a trust that meets the criteria in paragraph 4 of GASB Statement No. 75. The OPEB Plan does not issue a separate report.
As of the June 30, 2021, measurement date, the following current and former employees of the City were covered by the benefit terms of the OPEB Plan:
Inactive employees or beneficiaries currently receiving benefits 49 Inactive employees entitled to but not yet receiving benefits 65 Active employees 154
Total 267
Source: City of Hesperia Annual Comprehensive Financial Report for the Fiscal Year Ended June 30, 2022.
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As previously described , the City anticipates establishing the OPEB 115 Trust , a tax qualified irrevocable trust organized under Section 115 of the Internal Revenue Code with Alta Trust Company, as trustee, to prefund OPEB by June 30, 2023 , with an initial deposit of approximately $600,000.
Benefit Payments . Benefit payment requirements are established by City policy and may be amended by the City Council. For the year ended June 30, 2022, the City made $79,891 in contributions in the form of premium payments, $86,091 in implicit subsidy benefit payments and administrative expense of $821 for a total benefits paid of $166,803.
Total OPEB Liability. The City’s OPEB liability of $6,982,356 was measured as of June 30, 2021, and was determined by an actuarial valuation as of June 30, 2020, rolled forward to June 30, 2021, using standard update procedures.
See “APPENDIX C – ANNUAL COMPREHENSIVE FINANCIAL REPORT OF THE CITY FOR FISCAL YEAR ENDED JUNE 30, 2022 – Note 9” for additional information regarding the OPEB Plan, including a description of the actuarial methods and assumptions used to measure the City’s OPEB liability as of the June 30, 2021 measurement date.
Employee Relations and Collective Bargaining
The City had approximately 166 full-time and part -time equivalent employees at the beginning of Fiscal Year 2021-22. The City has no fire or police personnel. The City contracts with the San Bernardino County Sheriff ’s Department for its police services. Fire protection for the City is provided by the San Bernardino County Fire Department.
City employee s are represented by one labor union association , the San Bernardino Public Employees Association. Currently approximately 51% all City employees, including part- time employees, are covered by the union ’s collective bargaining agreement A table summarizing certain information about the bargaining unit is provided below. In the previous five years, there have not been any work stoppages by City employees.
Table 12
CITY OF HESPERIA
City Employee Bargaining Units
Bargaining Unit
Contract
Expiration Date
Number of
Budgeted
Employees
Teamsters Local 1942 – City of Hesperia January 31, 2024 84
Source: City of Hesperia.
Risk Management
General. The City is a member of the Public Entity Risk Management Authority (“PERMA”), a joint powers authority of 32 California cities and districts, for the purpose of pooling the City ’s risk for workers ’ compensation insurance with those of other member cities and districts. The Governing Board of PERMA is comprised of directors nominated and selected by each member city and district. Each governing board member has one vote regarding all financial and management issues coming before the board.
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Each member is billed annually, and Workers ’ Compensation premiums are paid quarterly. Estimated premiums for claims to be paid and a reserve are advanced upon joining PERMA. Each year PERMA adjusts its premiums based on City payroll figures, claims paid, and claims incurred but not reported. PERMA is allowed to make additional assessments to its members based on a retrospecti ve premium adjustment process. The City receives audited financial statements of PERMA each year that have been audited by other auditors.
There have been no significant reductions in insurance coverage from the prior year.
Settlements have not exceeded insurance coverage for each of the past three fiscal years.
Workers’ Compensation and Employers ’ Liability. The City is self -insured for the first $250,000 of each workers ’ compensation and employers liability claim, and PERMA will assume each claim ’s liability between $250,000 and $500,000. Excess liability insurance coverage is obtained from the Local Agency Workers ’ Compensation Excess Joint Powers Authority (“LAWCX”) by PERMA on behalf of the City. LAWCX will assume each claims liability between $50 0,000 and $5,000,000 for employer ’s liability and Statutory for each workers ’ compensation claim.
General Liability . The City is self -insured for general liability including errors and omissions and auto liability up to the first $50,000 for each occurr ence, and the difference between the City ’s $50,000 self -insurance retention and $1,000,000 is covered by PERMA.
Excess liability insurance coverage is obtained from CSAC Excess Insurance Authority (“CSAC- EIA”) by PERMA on behalf of the City. CSAC -EIA will assume each claim liability between $1,000,000 and $50,000,000.
Employment Practices. The City is self-insured for employment practices up to the first $50,000 for each occurrence, and the difference between the City ’s $50,000 self -insurance retention and $1,000,000 is covered by Employment Risk Management Authority. Excess insurance coverage is obtained from CSAC Excess Insurance Authority ( “CSAC-EIA”) by PERMA on behalf of the City.
Property. The City is self -insured for the first $5,000 for each o ccurrence (with the exception of $100,000 flood), and the difference between the City’s self-insurance retention and the lesser of $100,000,000 ($2,500,000 Flood) or the insurable value is covered by Alliant Property Insurance Programs.
Auto Physical Damage. The City is self-insured for the first $2,500 for each occurrence for all vehicles and the difference between the City ’s $2,500 self -insurance retention and the lesser of $100,000 or the insurable value is covered by Hanover Insurance Co.
Special Events. The City is insured up to $500,000 for each occurrence covered by Alliant Insurance Services.
Other. The City is self -insured for employee dishonesty, forgery and alteration, theft, disappearance, destruction, robbery & safe burglary, money order s and counterfeit paper currency up to the first $2,500 for each occurrence, and the difference between the City ’s self- insurance retention and $1,000,000 is covered by Alliant Insurance Services, Inc..
See “APPENDIX C – ANNUAL COMPREHENSIVE FINANCIAL REPORT OF THE CITY FOR FISCAL YEAR ENDED JUNE 30, 2022 – Note 11” for additional information regarding the
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City’s insurance, including self -insurance limits and changes in the balances of claims liabilities for the years ended June 30, 2022 and June 30, 2021.
City Investment Policy and Portfolio
The City administers a pooled investment program, except for those funds that are managed separately by trustees appointed under bond indentures. This program enables the City to combine available cash from all funds and to invest cash that exceeds current needs.
The most recently revised Investment Policy for the City was adopted on November 15, 2022 by the City Council.
In accordance with the Government Code, the City requires certain collateralizati on for public deposits in banks and savings and loans, and has long -established safekeeping and custody procedures. The City Treasurer submits a monthly report to the City Council that contains a statement that the City ’s portfolio is invested in conforman ce with state law and the Investment Policy, and that there is sufficient liquidity to meet estimated expenditures.
The City ’s pooled investment portfolio as of March 31, 2023, had a market value of approximately $136 million, and is described in the fol lowing table. As of March 31, 2023, the average life of the City’s investment portfolio was 0.75 years.
Table 13
CITY OF HESPERIA
Investment Portfolio as of March 31, 2023
Type
Market
Value
Cost
Basis
% of
Portfolio(1)
(1) $
1 3
6 ,
4 0
2 ,
7 4
0 (2) 1
0 0
%
Local Agency Investment Fund $136,402,740 $138,267,929 100%
(1) Calculated using cost basis.
Source: City of Hesperia.
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APPENDIX B
SUMMARY OF PRINCIPAL LEGAL DOCUMENTS
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APPENDIX C
ANNUAL COMPREHENSIVE FINANCIAL REPORT OF THE CITY
FOR THE FISCAL YEAR ENDED JUNE 30, 2022
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APPENDIX D
FORM OF CONTINUING DISCLOSURE CERTIFICATE
$[PAR]
HESPERIA JOINT PUBLIC FINANCE AUTHORITY
2023 Refunding Lease Revenue Bonds
This CONTINUING DISCLOSURE CERTIFICATE (this “Disclosure Certificate”) is executed and delivered by the City of Hesperia (the “City”), for and on behalf of itself and the Hesperia Joint Public Finance Authority (the “Authority”), in connection with the issuance by the Authority of the bonds captioned above (the “2023 Bonds”). The 2023 Bonds are being issued pursuant to an Indenture, dated as of July 1, 2023 (the “Indenture”), between U.S. Bank Trust Company, National Association, as trustee, and the Authority.
The City covenants and agrees as follows:
Section 1. Purpose of the Disclosure Certificate . This Disclosure Certificate is being executed and delivered by the City for the benefit of the holders and beneficial owners of the 2023 Bonds and in order to assist the Participating Underwriter in complyi ng with S.E.C. Rule 15c2-12(b)(5).
Section 2. Definitions. In addition to the definitions set forth above and in the Indenture, which apply to any capitalized term used in this Disclosure Certificate unless otherwise defined in this Section 2, the following capitalized terms shall have the following meanings:
“Annual Report ” means any Annual Report provided by the City pursuant to, and as described in, Sections 3 and 4 of this Disclosure Certificate.
“Annual Report Date” means the date that is nine months after the end of the City’s fiscal year (currently March 31 based on the City’s fiscal year end of June 30).
“Dissemination Agent ” means Urban Futures, Inc. , or any successor Dissemination Agent, designated in writing by the City and which has filed with the City a written acceptance of such designation.
“Listed Events ” means any of the events listed in Section 5(a) of this Disclosure Certificate.
“MSRB” means the Municipal Securities Rulemaking Board, which has been designated by the Securities and Exchange Commission as the sole repository of disclosure information for purposes of the Rule, or any other repository of disclosure information that may be designated by the Securities and Exchange Commission as such for purposes of the Rule in the future.
“Official Statement ” means the final official statement dated __________, 202 3, executed by the City and the Authority in connection with the issuance of the 2023 Bonds.
“Participating Underwriter” means Stifel, Nicolaus & Company, Incorporated, the original purchaser of the 2023 Bonds required to comply with the Rule in connection with offering of the 2023 Bonds.
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“Rule” means Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as it may be amended from time to time.
Section 3. Provision of Annual Reports.
(a) The City shall, or shall cause the Dissemination Agent to, not later than the Annual Report Date, commencing March 31, 20 24, with the report for fiscal year 2022-23, provide to the MSRB, in an electronic format as prescribed by the MSRB, an Annual Report that is consistent with the requirements of Section 4 of this Disclosure Certificate. Not later than 15 Business Days prior to the Annual Report Date, the City shall provide the Annual Report to the Dissemination Agent (if other than the City). If by 15 Business Days prior to the Annual Report Date the Dissemination Agent (if other than the City) has not received a copy of the Annual Report, the Dissemination Agent sh all contact the City to determine if the City is in compliance with the previous sentence. The Annual Report may be submitted as a single document or as separate documents comprising a package, and may include by reference other information as provided in Section 4 of this Disclosure Certificate; provided that the audited financial statements of the City may be submitted separately from the balance of the Annual Report, and later than the Annual Report Date, if not available by that date. If the City’s fiscal year changes, it shall give notice of such change in the same manner as for a Listed Event under Section 5(b).
The City shall provide a written certification with each Annual Report furnished to the Dissemination Agent to the effect that such Annual Report constitutes the Annual Report required to be furnished by the City hereunder.
(b) If the City does not provide (or ca use the Dissemination Agent to provide) an Annual Report by the Annual Report Date, the City shall provide (or cause the Dissemination Agent to provide) a notice to the MSRB in a timely manner, in an electronic format as prescribed by the MSRB.
(c) With respect to each Annual Report, the Dissemination Agent shall:
(i) determine each year prior to the Annual Report Date the then -applicable rules and electronic format prescribed by the MSRB for the filing of annual continuing disclosure reports; and
(ii) if the Dissemination Agent is other than the City, file a report with the City certifying that the Annual Report has been provided pursuant to this Disclosure Certificate, and stating the date it was provided.
Section 4. Content of Annual Reports . The C ity’s Annual Report shall contain or incorporate by reference the following:
(a) The City’s audited financial statements for the preceding 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 Annual Report Date, the Annual Report shall contain unaudited financial statements in a format similar to t he financial statements contained in the final Official Statement, and the audited financial statements shall be filed in the same manner as the Annual Report when they become available.
(b) Unless otherwise provided in the audited financial statements fi led on or before the Annual Report Date, financial information and operating data with respect to the City for the
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preceding fiscal year, substantially similar to that provided in the corresponding tables in the Official Statement, as follows:
(i) Principal amount of Bonds outstanding.
(ii) General fund budget summaries for the then -current fiscal year and the preceding fiscal year in substantially the form of Table 1 in Appendix A of the Official Statement.
(iii) General fund balance sheet in substantially the form of Table 2 in Appendix A of the Official Statement.
(iv) Statement of General fund revenues, expenditures and changes in fund balance in substantially the form of Table 3 in Appendix A of the Official Statement.
(v) Major general fund revenues by source in substantially the form of Table 4a in Appendix A of the Official Statement.
(vi) Assessed valuation of property in the City in substantially the form of Table 8 in Appendix A of the Official Statement, and the current property tax levy and collections in substantially the form of Table 10 in Appendix A of the Official Statement.
(vii) Updated descriptions of outstanding general fund debt and lease obligations.
(c) In addition to any of the information expressly required to be provided under this Disclosure Certificate, the City shall provide such further material information, if any, as may be necessary to make the specifically required statements, in the ligh t of the circumstances under which they are made, not misleading.
(d) Any or all of the items listed above may be included by specific reference to other documents, including official statements of debt issues of the City or related public entities, which are available to the public through the MSRB . The City shall clearly identify each such other document so included by reference. If the document included by reference is a final official statement, it must be available from the MSRB.
Section 5. Reporting of Listed Events.
(a) The City shall give, or cause to be given, notice of the occurrence of any of the following Listed Events with respect to the 2023 Bonds:
(1) Principal and interest payment delinquencies.
(2) Non-payment related defaults, if material.
(3) Unscheduled draws on debt service reserves reflecting financial difficulties.
(4) Unscheduled draws on credit enhancements reflecting financial difficulties.
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(5) Substitution of credit or liquidity providers, or their failure to perform.
(6) Adverse tax opinions, the issuance by the Internal Revenue Service of proposed or final determinations of taxability, Notices of Proposed Issue (IRS Form 5701 -TEB) or other material notices or determinations with respect to the tax status of the 2023 B onds, or other material events affecting the tax status of the 2023 Bonds.
(7) Modifications to rights of security holders, if material.
(8) Bond calls, if material, and tender offers.
(9) Defeasances.
(10) Release, substitution, or sale of property se curing repayment of the securities, if material.
(11) Rating changes.
(12) Bankruptcy, insolvency, receivership or similar event of the City or other obligated person.
(13) The consummation of a merger, consolidation, or acquisition involving the City or an obligated person, or the sale of all or substantially all of the assets of the City or an obligated person (other than in the ordinary course of business), the entry into a definitive agreement to undertake such an action, or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms, if material.
(14) Appointment of a successor or additional trustee or the change of name of a trustee, if material.
(15) Incurrence of a financial obligation of the City, 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.
(16) 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) Upon the occurrence of a Listed Event , the City shall, or shall cause the Dissemination Agent (if not the City) to, file a notice of such occurrence with the MSRB, in an electronic format as prescribed by the MSRB, i n a timely manner not in excess of 10 business days after the occurrence of the Listed Event. Notwithstanding the foregoing, notice of Listed Events described in subsections (a)(8) and (9) above need not be given under this subsection any earlier than the notice (if any) of the underlying event is given to holders of affected 2023 Bonds under the Indenture.
(c) The City acknowledges that the events described in subparagraphs (a)(2), (a)(7), (a)(8) (if the event is a bond call), (a)(10), (a)(13), (a)(14) and (a)(15) of this Section 5 contain
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the qualifier “if material” and that subparagraph (a)(6) also contains the quali fier “material” with respect to certain notices, determinations or other events affecting the tax status of the 2023 Bonds. The City shall cause a notice to be filed as set forth in paragraph (b) above with respect to any such event only to the extent tha t it determines the event’s occurrence is material for purposes of U.S. federal securities law. Upon the occurrence of any of these Listed Events, the City will as soon as possible determine if such event would be material under applicable federal securities law. If such event is determined to be material, the City will cause a notice to be filed as set forth in paragraph (b) above.
(d) For purposes of this Disclosure Certificate, any event described in paragraph (a)(12) above is considered to occur when any of the following occur: the appointment of a receiver, fiscal agent, or similar officer for the City in a proceeding under the United States Bankruptcy Code or in any other proceeding under state or federal law in which a court or governmental authority has assumed jurisdiction over substantially all of the assets or business of the City, or if such jurisdiction has been assumed by leaving the existing governing body and officials or officers in possession but subject to the supervision and orders of a court or governmental authority, or the entry of an order confirming a plan of reorganization, arrangement, or liquidation by a court or governmental authority having supervision or jurisdiction over substantially all of the assets or business of the City.
(e) For purposes of Section 5(a)(15) and (16), “financial obligation” means a (i) debt obligation; (ii) derivative instrument entered into in connection with, or pledged as security or a source of payment for, an existing or planned debt obligation; or (iii) guarantee of (i) or (ii). The term financial obligation shall not include municipal securities as to which a final official statement has been provided to the MSRB consistent with the Rule.
Section 6. Identifying Information for Filings with the MSRB . All documents provided to the MSRB under the Disclosure Certificate shall be accompanied by identifying information as prescribed by the MSRB.
Section 7. Termination of Reporting Obligation . The City ’s obligations under this Disclosure Certificate shall terminate upon the legal defeasance, prior redemption or payment in full of all of the 2023 Bonds. If such termination occurs prior to the final maturity of the 2023 Bonds, the City shall give notice of such termination in the same manner as for a Listed Event under Section 5(b).
Section 8. Dissemination Agent. The City may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Certificate, and may discharge any Dissemination Agent, with or without appointing a successor Dissemination Agent. The initia l Dissemination Agent shall be Urban Futures, Inc . Any Dissemination Agent may resign by providing 30 days’ written notice to the City.
Section 9. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Certificate, the City may amend this Disclosure Certificate, and any provision of this Disclosure Certificate may be waived, provided that the following conditions are satisfied:
(a) if the amendment or waiver relates to the provisions of Sections 3(a), 4 or 5(a), it may only be made in c onnection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, nature, or status of an obligated person with respect to the 2023 Bonds , or type of business conducted;
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(b) the undertakings herein, as proposed to be amended or waived, would, in the opinion of nationally recognized bond counsel, have complied with the requirements of the Rule at the time of the primary offering of the 2023 Bonds , after taking into account any amendments or in terpretations of the Rule, as well as any change in circumstances; and
(c) the proposed amendment or waiver either (i) is approved by holders of the 2023 Bonds in the manner provided in the Indenture for amendments to the Indenture with the consent of hol ders, or (ii) does not, in the opinion of nationally recognized bond counsel, materially impair the interests of the holders or beneficial owners of the 2023 Bonds.
If the annual financial information or operating data to be provided in the Annual Report is amended pursuant to the provisions hereof, the first Annual Report filed pursuant hereto containing the amended operating data or financial information shall explain, in narrative form, the reasons for the amendment and the impact of the change in the t ype of operating data or financial information being provided.
If an amendment is made to this Disclosure Certificate modifying the accounting principles to be followed in preparing financial statements, the Annual Report for the year in which the change is made shall present a comparison between the financial statements or information prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles. The comparison shall include a qualitative discus sion of the differences in the accounting principles and the impact of the change in the accounting principles on the presentation of the financial information, in order to provide information to investors to enable them to evaluate the ability of the City to meet its obligations. To the extent reasonably feasible, the comparison shall be quantitative.
A notice of any amendment made pursuant to this Section 9 shall be filed in the same manner as for a Listed Event under Section 5(b).
Section 10. Additional Information. Nothing in this Disclosure Certificate shall be deemed to prevent the City from disseminating any other information, using the means of dissemination set forth in this Disclosure Certificate or any other means of communication, or i ncluding any other information in any Annual Report or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Certificate. If the City chooses to include any information in any Annual Report or notice of occurrenc e of a Listed Event in addition to that which is specifically required by this Disclosure Certificate, the City shall have no obligation under this Disclosure Certificate to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event.
Section 11. Default. If the City fails to comply with any provision of this Disclosure Certificate, the Participating Underwriter or any holder or beneficial owner of the 2023 Bonds may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the City to comply with its obligations under this Disclosure Certificate. A default under this Disclosure Certificate shall not be deemed an Event of Default under the Indenture, and the sole remedy under this Disclosure Certificate in the event of any failure of the City to comply with this Disclosure Certificate shall be an action to compel performance.
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Section 12. Duties, Immunities and Liabilities of Dissemination Agent . (a) The Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Certificate, and the City agrees to indemnify and save the Dissemination Agent, its officers, directors, employees and agents, harmless against any loss, expense and liabilities which they may incur arising out of or in the exercise or performance of its powers and duties hereunder, including the costs and expenses (including attorneys fees) of defen ding against any claim of liability, but excluding liabilities due to the Dissemination Agent ’s negligence or willful misconduct. The Dissemination Agent shall have no duty or obligation to review any information provided to it by the City hereunder, and shall not be deemed to be acting in any fiduciary capacity for the City, the Bond holders or any other party. The obligations of the City under this Section shall survive resignation or removal of the Dissemination Agent and payment of the 2023 Bonds.
(b) The Dissemination Agent shall be paid compensation by the City for its services provided hereunder in accordance with its schedule of fees as amended from time to time, and shall be reimbursed for all expenses, legal fees and advances made or incurred by the Dissemination Agent in the performance of its duties hereunder.
Section 13. Beneficiaries. This Disclosure Certificate shall inure solely to the benefit of the City, the Dissemination Agent, the Participating Underwriter and the holders and beneficial owners from time to time of the 2023 Bonds, and shall create no rights in any other person or entity.
Section 14. Counterparts. This Disclosure Certificate may be exe cuted in several counterparts, each of which shall be regarded as an original, and all of which shall constitute one and the same instrument.
Section 15. Governing Law . This Disclosure Certificate shall be governed by and construed in accordance with the laws of the State of California.
Date: _________, 2023
CITY OF HESPERIA
By:
Name:
Title:
AGREED AND ACCEPTED:
Urban Futures, Inc.,
as Dissemination Agent
By:
Name:
Title:
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APPENDIX E
FORM OF OPINION OF BOND COUNSEL
[Closing Date]
Hesperia Joint Public Finance Authority
9700 Seventh Avenue
Hesperia, CA 92345
OPINION: $_______ Hesperia Joint Public Finance Authority 2023 Refunding Lease Revenue Bonds
Members of the Board of Directors of the Authority:
We have acted as bond counsel to the Hesperia Joint Public Finance Authority (the “Authority”) in connection with the issuance by the Authority of the captioned bonds dated the date hereof (the “Bonds”). In such capacity, we h ave examined such law and such certified proceedings, certifications, opinions and other documents as we have deemed necessary to render this opinion.
The Bonds are issued pursuant to Articles 10 and 11 of Chapter 3 of Part 1 of Division 2 of Title 5 of t he Government Code of the State of California (the “Bond Law”), the Indenture, dated as of ________ 1, 2023 (the “Indenture”), by and between the Authority and U.S. Bank Trust Company, National Association, as trustee (the “Trustee”), and a resolution (the ”Resolution”) of the Board of Directors of the Authority adopted ______, 2023. Under the Indenture, the Authority has pledged certain revenues (the “Revenues”) for the payment of principal, premium (if any), and interest on the Bonds when due, includ ing rental payments made by the City of Hesperia (the “City”) under a Property Lease dated as of ________ 1, 2023 (the “Lease Agreement”) between the Authority and the City.
Regarding questions of fact material to our opinion, we have relied on representations of the Authority contained in the Indenture and the City contained in the Lease Agreement, and in the certified proceedings and other certifications of public officials furnished to us, without undertaking to verify the same by independent investigation. Regarding certain questions of law material to our opinion, we have assumed the correctness of certain legal conclusions contained in the written opinions of the City Attorney, and others, without undertaking to verify the same by independent investigation.
Based on the foregoing, we are of the opinion that, under existing law:
1. The Authority is a duly created and validly existing joint exercise of powers authority with the power to adopt the Resolution, enter into the Indenture and the Lease Agreement and perform the agreements on its part contained therein, and issue the Bonds.
2. The City is a duly created and validly existing municipal corporation and general law city with the power to enter into the Lease Agreement and perform the agreements on its part contained therein.
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3. The Indenture has been duly authorized, executed and delivered by the Authority, and constitutes a valid and binding obligation of the Authority, enforceable against the Authority.
4. The Lease Agreement has been duly au thorized, executed and delivered by the Authority and the City, and constitutes a valid and binding obligation of the Authority and the City, enforceable against the Authority and the City.
5. The Indenture creates a valid lien on the Revenues and other f unds pledged by the Indenture for the security of the Bonds, on a parity with other bonds (if any) issued or to be issued under the Indenture.
6. The Bonds have been duly authorized and executed by the Authority, and are valid and binding limited obligati ons of the Authority, payable solely from the Revenues and other funds provided therefor in the Indenture.
7. The interest on the Bonds is excluded from gross income for federal income tax purposes and is not an item of tax preference for purposes of the federal alternative minimum tax. For tax years beginning after December 31, 2022, interest on the Bonds may be subject to the corporate alternative minimum tax. The opinions set forth in the preceding sentences are subject to the condition that the Autho rity and the City comply with all requirements of the Internal Revenue Code of 1986, as amended, that must be satisfied subsequent to the issuance of the Bonds in order that the interest thereon be, and continue to be, excludable from gross income for fede ral income tax purposes. The Authority and the City have made certain representations and covenants in order to comply with each such requirement. Inaccuracy of those representations, or failure to comply with certain of those covenants, may cause the inclusion of such interest in gross income for federal income tax purposes, which may be retroactive to the date of issuance of the Bonds.
8. Interest on the Bonds is exempt from personal income taxation imposed by the State of California.
The rights of the owners of the Bonds and the enforceability of the Bonds and the Indenture are limited by bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors' rights generally, and by equitable principles, whether considered at la w or in equity.
This opinion is given as of the date hereof, and we assume no obligation to revise or supplement this opinion to reflect any facts or circumstances that may hereafter come to our attention, or any changes in law that may hereafter occur. Moreover, our opinions are not a guarantee of a particular result, and are not binding on the Internal Revenue Service or any court; rather, our opinions represent our legal judgment based upon our review of existing law that we deem relevant to such opini ons and in reliance upon the representations, opinions, and covenants referenced above. Our engagement with respect to this matter has terminated as of the date hereof.
Respectfully submitted,
A Professional Law Corporation
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APPENDIX F
DTC AND THE BOOK-ENTRY ONLY SYSTEM
The following description of the Depository Trust Company ( “DTC”), the procedures and record keeping with respect to beneficial ownership interests in the 2023 Bonds, payment of principal, interest and other payments on the 2023 Bonds to DTC Participants or Beneficial Owners, confirmation and transfer of beneficial ownership interest in the 2023 Bonds and other related transactions by and between DTC, the DTC Participants and the Beneficial Owners is based solely on information provided by DTC. Accordingly, no representations can be made concerning these matters and neither the DTC Participants nor th e Beneficial Owners should rely on the foregoing information with respect to such matters, but should instead confirm the same with DTC or the DTC Participants, as the case may be.
Neither the issuer of the 2023 Bonds (the “Issuer”) nor the trustee, fiscal agent or paying agent appointed with respect to the 2023 Bonds (the “Agent”) take any responsibility for the information contained in this Appendix.
No assurances can be given that DTC, DTC Participants or Indirect Participants will distribute to the Beneficial Owners (a) payments of interest, principal or premium, if any, with respect to the 2023 Bonds , (b) certificates representing ownership interest in or other confirmation or ownership interest in the 2023 Bonds, or (c) redemption or other notices sent to DTC or Cede & Co., its nominee, as the registered owner of the 2023 Bonds, or that they will so do on a timely basis, or that DTC, DTC Participants or DTC Indirect Participants will act in the manner described in this Appendix. The current “Rules” applicable to DTC are on file with the Securities and Exchange Commission and the current “Procedures” of DTC to be followed in dealing with DTC Participants are on file with DTC.
1. The Depository Trust Company ( “DTC”), New York, NY, will act as securi ties depository for the 2023 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 Security certificate 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 mi llion, 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 Co mmercial 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 munici pal 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 i n 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
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a wholly-owned subsidiary of The Depository Trust & Clearing Corporation ( “DTCC”). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ( “Indirect Participants”). DTC has an S&P Global Ratin gs rating of AA+. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com . The information contained on this Internet site is not incorporated herein by reference.
3. Purchases of 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.
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 authori zed 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 Securit ies; 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 shall 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.
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7. Neither DTC nor Cede & Co. (nor any o ther 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 d etail 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 shall give notice to elect to have its Securities purchased or tendered, through its Participant, to tender/remarketing agent, and shall 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.
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, Security certificates are required to be printed and delivered.
11. The Authority may decide to d iscontinue use of the system of book -entry-only transfers through DTC (or a successor securities depository). In that event, Security certificates will be printed and delivered to DTC.
12. The information in this section concerning DTC and DTC ’s book-entry system has been obtained from sources that Issuer believes to be reliable, but Issuer takes no responsibility for the accuracy thereof.
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APPENDIX G
SPECIMEN MUNICIPAL BOND INSURANCE POLICY
TO BE RECORDED AND WHEN RECORDED
RETURN TO:
Jones Hall
A Professional Law Corporation
475 Sansome Street, Suite 1700
San Francisco, California 94111
Attention: Christopher K. Lynch, Esq.
Leasehold Less Than 35 Years
THIS TRANSACTION IS EXEMPT FROM CALIFORNIA DOCUMENTARY TRANSFER TAX PURSUANT TO SECTION 11922 OF THE CALIFORNIA REVENUE AND TAXATION CODE.
THIS DOCUMENT IS EXEMPT FROM RECORDING FEES PURSUANT TO SECTION 27383 OF THE CALIFORNIA GOVERNMENT CODE.
SITE AND FACILITIES LEASE
by and between
CITY OF HESPERIA,
as Lessor
and the
HESPERIA JOINT PUBLIC FINANCE AUTHORITY,
as Lessee
Dated as of [Month of Closing Date] 1, 2023
Relating to
$[Principal Amount]
HESPERIA JOINT PUBLIC FINANCE AUTHORITY
2023 Refunding Lease Revenue Bonds
Attachment 4
i
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS AND RULES OF CONSTRUCTION
Section 1.01. Definitions. ................................ ................................ ................................ ..... 3 Section 1.02. Article and Section Headings. ................................ ................................ ......... 3 Section 1.03. References to Agreement. ................................ ................................ .............. 3 Section 1.04. Number and Gender. ................................ ................................ ...................... 3
ARTICLE II
REPRESENTATIONS, COVENANTS AND WARRANTIES
Section 2.01. Representations, Covenants and Warranties of the City. ................................ 4 Section 2.02. Representations, Covenants and Warranties of Authority. .............................. 4
ARTICLE III
AGREEMENT TO LEASE; TERM OF SITE LEASE; SITE LEASE
PAYMENT
Section 3.01. Lease. ................................ ................................ ................................ ............ 5 Section 3.02. Term. ................................ ................................ ................................ .............. 5 Section 3.03. Site Lease Payment. ................................ ................................ ...................... 5 Section 3.04. Title. ................................ ................................ ................................ ............... 5 Section 3.05. No Merger. ................................ ................................ ................................ ..... 5 Section 3.06. Substitution, Addition or Removal of Leased Property. ................................ ... 5
ARTICLE IV
EMINENT DOMAIN; NET PROCEEDS
Section 4.01. Eminent Domain. ................................ ................................ ............................ 6 Section 4.02. Application of Net Proceeds. ................................ ................................ .......... 6
ARTICLE V
MISCELLANEOUS
Section 5.01. Liens. ................................ ................................ ................................ ............. 7 Section 5.02. Assignment and Subleasing by the Authority. ................................ ................. 7 Section 5.03. Amendment. ................................ ................................ ................................ ... 7 Section 5.04. Notices. ................................ ................................ ................................ .......... 7 Section 5.05. Binding Effect. ................................ ................................ ................................ 7 Section 5.06. Severability. ................................ ................................ ................................ .... 7 Section 5.07. Further Assurances and Corrective Instruments. ................................ ............ 7 Section 5.08. Execution in Counterparts. ................................ ................................ ............. 8 Section 5.09. Applicable Law. ................................ ................................ .............................. 8 Section 5.10. Captions. ................................ ................................ ................................ ........ 8
EXHIBIT A DESCRIPTION OF THE SITE
SITE AND FACILITY LEASE
THIS SITE AND FACILITIES LEASE (the “Site Lease”), dated as of [Month of Closing Date] 1, 2023, by and between the CITY OF HESPERIA, a municipal corporation duly organized and existing under the Constitution and laws of the State of California, as lessor (the “City”), and the HESPERIA JOINT PUBLIC FINANCE AUTHORITY , a joint powers agency duly organized and existing under the laws of the State of California (the “Authority”), as lessee; and
W I T N E S S E T H:
WHEREAS, the Authority is a joint exercise of powers authority duly organized and existing under the provisions of Articles 1 through 4 (commencing with Section 6500) of Chapter 5 of Division 7 of Title 1 of the Government Code of the State of California (the “Act”), and is authorized pursuant to Article 4 of the Act (the “Bond Law”) to borrow money for the purpose, among other things, of financing and refinancing public capital projects for the City;
WHEREAS, in order to finance acquisition and construction of a new Civic Plaza and related on -site improvements, the City previously caused execution and deliv ery of its 2005 Variable Rate Demand Certificates of Participation (Civic Plaza Financing) (the “2005 Certificates”) pursuant to a Trust Agreement, dated as of May 1, 2005, among the City, the Hesperia Public Financing Authority (the “Financing Authority”) and a corporate trustee; the 2005 Certificates represented interests in lease payments made by the City to the Financing Authority pursuant to a Lease Agreement, dated as of May 1, 2005; and
WHEREAS, for the purpose of refinancing the 2005 Certificates, the City subsequently caused the Authority to issue its 2013 Lease Revenue Bonds (Refinancing of 2005 Civic Plaza Financing) in the aggregate principal amount of $ 12,445,000 (the “ 2013 Bonds ”), under an Indenture dated as of October 1, 2013; the 2013 Bonds are payable from lease payments made by the City under a Property Lease dated as of October 1, 2013 (the “2013 Lease Agreement”), between the Authority as lessor and the City as lessee; and
WHEREAS, the 2013 Bonds maturing on or after October 1, 2024 are subject to optional redemption, without premium, prior to maturity on any date on or after October 1, 2023, at the option of the Authority; and
WHEREAS, in order to achieve cash flow savings, the City wishes to prepay the lease payments payable by th e City under the 2013 Lease Agreement and to cause the Authority to defease and redeem the 2013 Bonds; and
WHEREAS, in order to accomplish the proposed prepayment and refinancing transaction, the City wishes to lease to the Authority certain real property (the “Site”) and the improvements thereon (the “Facilities” and together with the Site, the “Leased Property”), which Site is described in Exhibit A and incorporated herein by reference; and
WHEREAS, in order to obtain the necessary funds to lease the Leased Property from the City pursuant to this Site Lease and, thereby provide to the City funds to prepay the lease payments under the 2013 Lease Agreement, the Authority will issue its Hesperia Joint Public Finance Authority 2023 Refunding Lease Revenue Bonds (the “2023 Bonds”), pursuant to an Indenture, dated as of [Month of Closing Date] 1, 2023 (the “Indenture”), by and between the Authority and U.S. Bank Trust Company, National Association , as trustee, which Indenture is
2 evidenced by a Memorandum of Indenture recorded concurrently herewith and the provisions of Articles 10 and 11 of Chapter 3 of Part 1 of Division 2 of Title 5 of the Government Code of the State of California (the “Law”); and
WHEREAS, the City will lease back the Leased Property from the Authority pursuant to a Property Lease dated as of [Month of Closing Date] 1, 2023 , by and between the Authority, as lessor, and the City, as lessee (the “Property Lease”), which Property Lease is evidenced by a Memorandum of Property Lease which is being recorded concurrently herewith, and will pay to the Authority base rental payments and additional rental pursuant to the Property Lease sufficient to pay principal of and premium and intere st, if any, on the 2023 Bonds and certain related expenses, all as provided in the Property Lease and the Indenture;
WHEREAS, the Authority and the City have duly authorized the execution and delivery of this Site Lease;
NOW, THEREFORE, in consideration of the above premises and of the mutual covenants hereinafter contained and for other good and valuable consideration, the parties hereto agree as follows:
3 ARTICLE I
DEFINITIONS AND RULES OF CONSTRUCTION
Section 1.01. Definitions . All terms specifically defined in the Indenture and in the Property Lease shall have the same respective meanings when used herein.
Section 1.02. Article and Section Headings. Unless otherwise specified, references to Articles, Sections, and other subdivisions of this Site Lease are to be designated Articles, Sections, and other subdivisions of this Site Lease as originally executed. The headings or titles of the several articles and sections, and the table of contents appended to copies hereof, shall be solely for convenience of reference and shall not affect the meaning, construction or effect of the provisions hereof.
Section 1.03. References to Agreement . The words “hereof”, “herein”, “hereunder”, and words of similar import refer to this Site Lease as a whole.
Section 1.04. Num ber and Gender . The singular form of any word used herein, including terms defined as provided in Section 1.01, shall include the plural, and vice versa. The use of a word of any gender shall include all genders.
4 ARTICLE II
REPRESENTATIONS, COVENANTS AND WARRANTIES
Section 2.01. Representations, Covenants and Warranties of the City . The City represents, covenants and warrants to the Authority and the Trustee as follows:
(a) Due Organization and Existence . The City is a general law city and municipal corporation duly organized and existing under the Constitution and laws of the State.
(b) Authorization. The laws of the State authorize the City to enter into this Site Lease and to enter into the transactions contem plated by and to carry out its obligations under this Site Lease, and the City has duly authorized and executed this Site Lease.
(c) No Violations. Neither the execution and delivery of this Site Lease nor the fulfillment of or compliance with the terms and conditions hereof nor the consummation of the transactions contemplated hereby, conflicts with or results in a breach of the terms, conditions or provisions of any restriction or any agreement or instrument to which the City is now a party or by which the City is bound, or constitutes a default under any of the foregoing, or results in the creation or imposition of any lien, charge or encumbrances whatsoever upon any of the property or assets of the City, or upon the Leased Property, except Permitted Encumbrances.
(d) Title to Leased Property . The City has fee simple title to the Leased Property, subject only to Permitted Encumbrances.
Section 2.02. Representations, Covenants and Warranties of Authority . The Authority represents, covenants and warrants to the City and the Trustee as follows:
(a) Due Organization and Existence . The Authority is a joint exercise of powers authority duly formed, operating and existin g under the laws of the State; has power to enter into the Site Lease; is possessed of full power to sublease real and personal property; and has duly authorized the execution and delivery of this Site Lease.
(b) Authorization. The laws of the State auth orize the Authority to enter into this Site Lease and to enter into the transactions contemplated by and to carry out its obligations under this Site Lease, and the Authority has duly authorized and executed this Site Lease.
(c) No Violations. Neither the execution and delivery of this Site Lease nor the fulfillment of or compliance with the terms and conditions hereof, nor the consummation of the transactions contemplated hereby, conflicts with or results in a breach of the terms, conditions or provision s of any restriction or any agreement or instrument to which the Authority is now a party or by which the Authority is bound, or constitutes a default under any of the foregoing, or results in the creation or imposition of any lien, charge or encumbrance whatsoever upon any of the property or assets of the Authority, or upon the Leased Property, except Permitted Encumbrances.
5 ARTICLE III
AGREEMENT TO LEASE; TERM OF
SITE LEASE; SITE LEASE PAYMENT
Section 3.01. Lease. The City hereby leases the Leased Property to the Authority, and the Authority hereby leases the Leased Property from the City, upon the terms and conditions set forth in this Site Lease , subject in each case to the Permitted Encumbrances, as defined in the Property Lease.
Section 3.02. Term. The term hereof shall commence on the date of recordation hereof, and shall end on November 1 , _____, or, if Additional Bonds have been issued under the Indenture, the last day that precedes the final maturity of Additional Bonds (if later than November 1, _____). If on November 1, _____, or on such later date determined pursuant to the preceding sentence, the Indenture shall not be discharged by its terms, then the term of the Site Lease shall be extended until the Indenture shall be discharged by its terms, except that the term of the Property Lease shall in no event be extended beyond November 1, _______ or the date that is ten (10) years after such later date determined pursuant to the preceding sentence. If prior to November 1, _____ or such later date the Indenture shall be discharged by its terms, then the term of the Site Lease shall automatically terminate ten (10) days at the same time as the Indenture is discharged.
Section 3.03. Site Lease Payment . The Authority hereby agrees to pay to the City, as rental for Leased Property during the Term, the amount of $___________, which amount is the remaining proceeds of the 2023 Bonds (after providing for the payment of certain amounts, as provided in Section 3.02 of the Indenture), and which amount shall be due and payable and shall, pursuant to Section 3.02 of the Indenture, be deposited in the Refunding Fund on the date of delivery of the 2023 Bonds.
Section 3.04. Title. The City hereby covenants that it has insurable fee title in the Leased Property, and during the Term, the City shall hold title to the Leased Property , subject to the Permitted Encumbrances.
Section 3.05. No Merger . It is the express intention of the parties hereto that this Site Lease and the obligations of the parties hereunder shall be and remain separate and distinct from the Property Lease and the obligations of the parties thereunder, and that during the term of the Property Lease no merger of title or interest occur or be deemed to occur as a result of the position of the City as fee owner of the Leased Property, as lessee under the Property Lease and as lessor under this Site Lease, or the position of the Authority as lessee under this Site Lease and Lessor under the Property Lease.
Section 3.06. Substitution, Addition or Release of Leased Property. The Leased Property may be substituted, added to or removed in part in implementation of the provisions of Section 12.01, Section 12.02 or Section 12.03, as applicable, of the Property Lease, and in such event, Exhibit A hereto shall be revised accordingly.
6 ARTICLE IV
EMINENT DOMAIN; NET PROCEEDS
Section 4.01. Eminent Domain. If all of the Leased Property shall be taken permanently under the power of eminent domain or sold to a government threatening to exercise the power of eminent domain, the Term shall cease as of the day possession shall be so taken. If less than all of the Leased Property shall be taken permanently, or if al l of the Leased Property or any part thereof shall be taken temporarily, under the power of eminent domain, this Site Lease shall continue in full force and effect and shall not be terminated by virtue of such taking and the parties waive the benefit of any law to the contrary.
Section 4.02. Application of Net Proceeds. The net proceeds of any insurance award resulting from any damage to or destruction of the Leased Property by fire or other casualty, and the net proceeds of any eminent domain award resulting from any event described in Section 4.01 hereof, shall be applied as set forth in the Property Lease and the Indenture. All such net proceeds shall be paid to the City or the Trustee as their interests may appear under the Property Lease, and the Authority hereby waives any and all right, title and interest which it may have in and to any such net proceeds by virtue of its estate in the Leased Property under this Site Lease.
7 ARTICLE V
MISCELLANEOUS
Section 5.01. Liens . The Authority shall not, directly or indirectly, create, assume or suffer to exist any mortgage, pledge, lien, charge, encumbrance or claim on or with respect to the Leased Property, other than the respective rights of the Authority and the City as herein provided and Permitted Encumbrances.
Section 5.02. Assignment and Subleasing by the Authority . For the purpose of providing funds to enable the Authority to aid the City in refinancing certain lease payment obligations of the City, the Authority has leased the Leased Property to the City pursuant to the Property Lease. The Authority shall not have the right to further sublease or to assign any of its interests under this Site Lease in and to the Leased Property or any portion thereof other than as set forth in the Indenture.
Section 5.03. Amendment. Without the prior written consent of the Trustee, the Authority and the City will not alter, modify or cancel, or agree or consent to alter, modify or cancel this Site Lease, except as is required in connection with the amendment of the Property Lease.
Section 5.04. Notices. All notices, certificates or other communications hereunder shall be sufficiently given and shall be deemed to have been received 48 hours after deposit in the United States mail in registered or certified form with postage fully prepaid:
If to the City or the Authority: 9700 Seventh Ave.
Hesperia, CA 92345
Attn: City Manager
If to the Trustee: U.S. Bank Trust Company, National Association 633 West Fifth Street, 24th Floor
Los Angeles, CA 90071
Attention: Global Corporate Trust
Email: [email protected]
The Authority, the Trustee a nd the City, by notice given hereunder, may designate different addresses to which subsequent notices, certificates or other communications will be sent.
Section 5.05. Binding Effect. This Site Lease shall inure to the benefit of and shall be binding upon the Authority and the City and their respective successors and assigns.
Section 5.06. Severability. In the event any provision of this S ite Lease shall be held invalid or unenforceable by any court of competent jurisdiction, such holding shall not invalidate or render unenforceable any other provision hereof.
Section 5.07. Further Assurances and Corrective Instruments. The Authority and the City agree that they will, from time to time, execute, acknowledge and deliver, or cause to be executed, acknowledged and delivered, such supplements hereto and such further i nstruments as may reasonably be required for correcting any inadequate or incorrect description of the
8 Leased Property hereby leased or intended so to be or for carrying out the expressed intention of this Site Lease.
Section 5.08. Execution in Counterparts. This Site Lease may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument.
Section 5.09. Applicable Law. This Site Lease shall be governed by and construed in accordance with the laws of the State.
Section 5.10. Captions. The captions or headings in this Site Lease are for convenience only and in no way define, limit or describe the scope or intent of any provisions or Section of this Site Lease.
* * * * *
[Signature Page - Site and Facilities Lease dated as of [Month of Closing Date] 1, 2023] IN WITNESS WHEREOF, the Authority has caused this Site Lease to be executed in its name by its duly authorized officer; and the City has caused this Site Lease to be executed in its name by its duly authorized officer, all as of the date first above written.
CITY OF HESPERIA, as Lessor
Attest
By: By:
City Clerk City Manager
HESPERIA JOINT PUBLIC FINANCE
AUTHORITY, as Lessee
Attest
By: By:
Secretary Executive Director
[attach Notary acknowledgment]
A-1
EXHIBIT A
DESCRIPTION OF THE SITE
The land described herein is situated in the State of California, County of San Bernardino, City of Hesperia, and is described as follows:
Civic Plaza Park
Parcel 4 of Parcel Map No. 19153, in the City of Hesperia, County of San Bernardino, State of California, as per Map filed in Book 238 Pages 42 and 43 of Parcel Maps, in the office of the County Recorder of said County.
Hesperia City Hall
Parcel 5 of Parcel Map No. 19153, in the C ity of Hesperia, County of San Bernardino, State of California, as per Map filed in Book 238 Pages 42 and 43 of Parcel Maps, in the Office of the County Recorder of said County.
PROPERTY LEASE
By and Between the
HESPERIA JOINT PUBLIC FINANCE AUTHORITY,
as Lessor
and the
CITY OF HESPERIA,
as Lessee
Dated as of [Month of Closing Date] 1, 2023
Relating to
$[Principal Amount]
HESPERIA JOINT PUBLIC FINANCE AUTHORITY
2023 Refunding Lease Revenue Bonds
Attachment 5
i
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS
Section 1.01. Definitions .............................................................................................................................. 3
ARTICLE II
LEASE OF LEASED PROPERTY; TERM
Section 2.01. Lease of Leased Property ...................................................................................................... 6 Section 2.02. Term ....................................................................................................................................... 6 Section 2.03. No Merger .............................................................................................................................. 6
ARTICLE III
RENTAL PAYMENTS
Section 3.01. Base Rental............................................................................................................................ 7 Section 3.02. Additional Rental. ................................................................................................................... 7 Section 3.03. Fair Rental Value. .................................................................................................................. 8 Section 3.04. Payment Provisions. .............................................................................................................. 8 Section 3.05. Appropriations Covenant. ...................................................................................................... 8 Section 3.06. Rental Abatement. ................................................................................................................. 9 Section 3.07. Application of Rental Payments. ............................................................................................ 9 Section 3.08. Prepayment of Rental Payments. .......................................................................................... 9 Section 3.09. Governmental Relief. ........................................................................................................... 10 Section 3.10. No Obligation to Pay Rent for Future Years. ....................................................................... 10
ARTICLE IV
TITLE TO THE LEASED PROPERTY; PREPAYMENT OF THE
2013 LEASE PAYMENTS AND THE 2013 BONDS
Section 4.01. Title to the Leased Property. ................................................................................................ 11 Section 4.02. Refinancing of the 2013 Lease Payments; Redemption of the 2013 Bonds. ...................... 11
ARTICLE V
MAINTENANCE OF THE LEASED PROPERTY; ALTERATIONS
AND ADDITIONS
Section 5.01. Maintenance and Utilities. .................................................................................................... 12 Section 5.02. Changes to the Leased Property. ........................................................................................ 12
ARTICLE VI
INSURANCE
Section 6.01. General Liability and Automobile Liability Insurance. .......................................................... 13 Section 6.02. Property Insurance. .............................................................................................................. 13 Section 6.03. Rental Income Interruption Insurance. ................................................................................. 13 Section 6.04. Insurance Proceeds; Forms of Policies. .............................................................................. 13 Section 6.05. Additional Provisions Relating to Insurance. ....................................................................... 14 Section 6.06. Alternative Risk Management Programs; Additional Insurance. ......................................... 14
ARTICLE VII
DEFAULTS AND REMEDIES
Section 7.01. Defaults and Remedies. ....................................................................................................... 15 Section 7.02. Waiver .................................................................................................................................. 16
ARTICLE VIII
EMINENT DOMAIN
Section 8.01. Eminent Domain .................................................................................................................. 17
ARTICLE IX
COVENANTS
Section 9.01. Right of Entry ....................................................................................................................... 18 Section 9.02. Liens ..................................................................................................................................... 18 Section 9.03. Quiet Enjoyment .................................................................................................................. 18 Section 9.04. Authority Not Liable .............................................................................................................. 18 Section 9.05. Prohibition Against Encumbrance or Sale ........................................................................... 18
ii
Section 9.06. Assignment .......................................................................................................................... 18 Section 9.07. Tax Covenants ..................................................................................................................... 19 Section 9.08. Nondiscrimination ................................................................................................................ 19 Section 9.09. Continuing Disclosure .......................................................................................................... 20
ARTICLE X
DISCLAIMER OF WARRANTIES; USE OF THE LEASED
PROPERTY
Section 10.01. Disclaimer of Warranties .................................................................................................... 22 Section 10.02. Use of the Leased Property ............................................................................................... 22
ARTICLE XI
ASSIGNMENT AND INDEMNIFICATION
Section 11.01. Assignment by Authority .................................................................................................... 23 Section 11.02. Indemnification ................................................................................................................... 23
ARTICLE XII
SUBSTITUTION, RELEASE AND ADDITION OF LEASED
PROPERTY
Section 12.01. Substitution of Leased Property ......................................................................................... 24 Section 12.02. Release of Leased Property .............................................................................................. 25 Section 12.03. Addition of Leased Property............................................................................................... 25 Section 12.04. Amendment of Site Lease .................................................................................................. 26
ARTICLE XIII
DISCHARGE OF OBLIGATIONS
Section 13.01. Discharge of Obligations .................................................................................................... 27
ARTICLE XIV
MISCELLANEOUS
Section 14.01. Law Governing ................................................................................................................... 28 Section 14.02. Notices ............................................................................................................................... 28 Section 14.03. Validity and Severability ..................................................................................................... 28 Section 14.04. Net Lease ........................................................................................................................... 28 Section 14.05. Taxes ................................................................................................................................. 28 Section 14.06. Article and Section Headings ............................................................................................. 28 Section 14.07. Execution ........................................................................................................................... 29 Section 14.08. Third Party Beneficiary ....................................................................................................... 29 Section 14.09. Amendment ........................................................................................................................ 29
Exhibit A - Description of the Site
Exhibit B - Base Rental Payment Schedule
PROPERTY LEASE
THIS PROPERTY LEASE (this “Property Lease”), made and entered into as of [Month of Closing Date] 1, 2023, by and between the HESPERIA JOINT PUBLIC FINANCE AUTHORITY, a joint powers agency, duly organized and existing under and by virtue of the laws of the State of California (the “Authority”), and the CITY OF HESPERIA, a municipal corporation, duly organized and existing under and by virtue of the laws of the State of California (the “City”).
RECITALS
WHEREAS, in order to finance acquisition and construction of a new Civic Plaza and related on -site improvements, the City previously caused execution and delivery of its 2005 Variable Rate Demand Certificates of Participation (Civic Plaza Financing) (the “2005 Certificates”) pursuant to a Trust Agreement, dated as of May 1, 2005, among the City, the Hesperia Public Financing Authority (the “Financing Authority”) and a corporate trustee; the 2005 Certificates represented interests in lease payments made by the City to the Financing Authority pursuant to a Lease Agreement, dated as of May 1, 2005; and
WHEREAS, for the purpose of refinancing the 2005 Certificates, the City subsequently caused the Authority to issue its 2013 Lease Revenue Bonds (Refinancing of 2005 Civic Plaza Financing) in the aggregate principal amount of $ 12,445,000 (the “ 2013 Bonds ”), under an Indenture dated as of October 1, 2013; the 2013 Bonds are payable from lease payments made by the City under a Property Lease dated as of October 1, 2013 (the “2013 Lease Agreement”), between the Authority as lessor and the City as lessee; and
WHEREAS, the 2013 Bonds maturing on or after October 1, 2024 are subject to optional redemption, without premium, prior to maturity on any date on or after October 1, 2023, at the option of the Authority; and
WHEREAS, in order to achieve cash flow savings, the City wishes to prepay the lease payments payable by the City under the 2013 Lease Agreement and to cause the Authority to defease and redeem the 2013 Bonds; and
WHEREAS, in order to accomplish the proposed prepayment and refinancing transaction, the City wishes to lease to the Authority certain real property (the “Site”) and the improvements thereon (the “Facilities” and together with the Site, the “Leased Property”), which Site is described in Exhibit A hereto and incorporated herein by reference, pursuant to the Site and Facilities Lease dated as of [Month of Closing Date] 1, 2023 (the “Site Lease ”), which is being recorded concurrently herewith, between the City, as lessor, and the Authority, as lessee; and
WHEREAS, the Leased Property initially is comprised of the Hesperia City Hall and Civic Plaza Park, but the City intends to substitute the Hesperia Branch Library for the Hesperia City Hall upon receipt of a written subordination from the County of San Bernardino (the “County”) of a written subordination of its interests under the County Library Lease Agreement (as defined herein) to this Property Lease and the Site Lease; and
WHEREAS, in order to obtain the necessary funds to lease the Leased Property from the City pursuant to the Site Lease and, thereby provide to the City funds to prepay the lease payments under the 2013 Lease Agreement, the Authority will issue its Hesperia Joint Public Finance Authority 2023 Refunding Lease Revenue Bonds (the “2023 Bonds”), pursuant to an Indenture, dated as of [Month of Closing Date] 1, 2023 (the “Indenture”), by and between the
2 Authority and U.S. Bank Trust Company, National Association , as trustee, which Indenture is evidenced by a Memorandum of Indenture recorded concurrently herewith and the provisions of Articles 10 and 11 of Chapter 3 of Part 1 of Division 2 of Title 5 of the Government Code of the State of California (the “Law”); and
WHEREAS, pursuant to this Property Lease, the Authority will lease the Leased Property back to the City; and
WHEREAS, the Authority will use Base Rental (as defined in this Property Lease) payments received from the City to pay debt service on the 2023 Bonds and, if applicable, Additional Bonds; and
WHEREAS, the City has found and determined that the issuance of the 2023 Bonds and the execution of this Property Lease will result in significant public benefits to the City within the contemplation of Section 6586 of the California Government Code; and
WHEREAS, all acts, conditions and things required by law to exist, to have happened and to have been performed precedent to and in connection with the execution and entering into of the Property Lease do exist, have happened and have bee n performed in regular and due time, form and manner as required by law, and the parties hereto are now duly authorized to execute and enter into this Property Lease;
NOW, THEREFORE, in consideration of the mutual covenants and agreements hereinafter contained, the parties hereto agree as follows:
3 ARTICLE I
DEFINITIONS
Section 1.01. Definitions . Unless the context otherwise requires, the terms defined in this Section 1.01 shall have the meanings herein specified for all purposes of this Property Lease, which meanings shall be equally applicable to both the singular and plural forms of any of the terms herein defined. Capitalized terms not otherwise define d herein shall have the meanings assigned to such terms in the Indenture.
“Addition” shall have the meaning assigned to such term in Section 12.03 hereof.
“Additional Bonds” means Additional Bonds issued in accordance with Sections 2.14 and
2.15 of the Indenture.
“Additional Rental” means all amounts payable to the Authority from the City as Additional Rental pursuant to Section 3.02 hereof.
“Agreement” shall mean the Joint Exercise of Powers Agreement, dated as of October 2, 2012, by and between the City and the Hesperia Water District, together with any amendments thereof and supplements thereto.
“Base Rental” means all amounts payable to the Authority by the City as Base Rental pursuant to Section 3.01 hereof.
“Base Rental Payment Date” means any date on which Base Rental is scheduled to be paid hereunder, being April 15 and October 15 of each year, commencing on October 15, 2023 (subject to the provisions of Section 3.06 hereof).
“Base Rental Payment Schedule” means the schedule of Base Rental payments payable to the Authority from the City pursuant to Section 3.01 hereof, as set forth in Exhibit B.
“Bonds” means the 2023 Bonds and any Additional Bonds.
“Business Day” means any day other than (i) a Saturday or a Sunday or (ii) a day on which commercial banks located in the city in which the Corporate Trust Office s located are authorized or required by law to close.
“City” means the City of Hesperia, a municipal corporation duly organized and existing under and the laws and the Constitution of the State of California.
“Code” means the Internal Revenue Code of 1986 as in effect on the date of issuance of the Bonds or (except as otherwise referenced herein) as it may be amended to apply to obligations issued on the date of issuance of the Bonds, together with applicable tempora ry and final regulations promulgated, and applicable official public guidance published, under the Code.
“County” means the County of San Bernardino.
“County Library Lease Agreement” means an unrecorded Lease Agreement by and between the City and the County related to the Hesperia Branch Library , the term of which commenced on October 1, 2006.
4 “Facilities” means the improvements located on the Site.
“Indenture” means the Indenture dated as of [Month of Closing Date] 1 , 2023, by and between the Authority and the Trustee authorizing the issuance of the 2023 Bonds, as it may from time to time be amended or supplemented by any supplemental trust agreement adopted or entered into pursuant to the provisions thereof.
“Interest Payment Date ” means May 1 and November 1 of each year, commencing on November 1, 2023.
“Lease Year” means the period from the date of the issuance and delivery of the 2023 Bonds to November 1, 2023, and, thereafter, the period from each November 2 to and including November 1 of the next succeeding calendar year during the term of this Property Lease.
“Leased Property” means the Site and the Facilities.
“Opinion of Bond Counsel” means a written opinion of an attorney-at-law, or a firm of such attorneys, of nationally recognized standing in matters pertaining to the exclusion from gross income for federal income tax purposes of interest on obligations issued by states and their political subdivisions, duly admitted to the practice of law before the highest court of any state of the United States of America.
“Owner” means the registered owner of any of the Bonds.
“Permitted Encumbrances ” means, as of any particular time: (i) liens for general ad valorem taxes and assessments, if any, not then delinquent; (ii) the Site Lease and the Property Lease; (iii) any right or claim of any mechanic, laborer, materialman, supplier or vendor not filed or perfected in the manner prescribed by law; (iv) easements, rights of way, mineral rights, drilling rights and other rights, reservations, covenants, conditions or restrictions which exist of record as of the date of initial delivery of the Bonds and which the City certifies in writing will not materially impair the use of the Leased Property by the City; (v) easements, rights of way, mineral rights, drilling rights and other rights, reservations, covenants, conditions or restrictions established following the date of recordation of the Leased Property and to which the Authority and the City consent in writing and which do not materially impair the use or the value of the Leased Property; (vi) the Joint Use Agreement Between the City of Hesperia and the Hesperia Recreation and Park District to Hesperia Civic Plaza Park, dated June 21, 2011, between the Hesperia Recreation and Park District and the City; and (vii) the exceptions listed in title insurance policies issued by Stewart Title Company with respect to the Leased Property on the date of issuance of the 2023 Bonds.
“Principal Payment Date” means each November 1 on which the principal of the Bonds is scheduled to be paid, commencing November 1, 2023.
“Property Lease” means this lease, as it may be amended in accordance with the terms hereof.
“Risk Manager ” means such person or firm of favorable reputation, qualified and experienced in the field of insurance and risk management consultation with respect to structures of the same nature as the Facilities, as may from time to time be designated by the City, and who may be employed by the City.
5 “Site” means the real properties described in Exhibit A attached hereto and made a part hereof, and, as appropriate, any site relating to Substitute Leased Property.
“Site Lease” means the Site and Facilities Lease date d as of [Month of Closing Date] 1, 2023, between the City, as lessor, and the Authority, as lessee, as it may be amended in accordance with the terms thereof.
“Substitute Leased Property ” means any and all real property and the improvements thereon in the City and all additions and extensions or improvements thereto that are hereafter described as Substitute Leased Property by an amendment to this Property Lease as provided herein, including any property constituting Leased Property prior to such amendment that will remain subject to this Property Lease after the Substitution.
“Substitution” means the release of the Leased Property or any portion thereof from the leasehold hereof and the lease of a Substitute Leased Property hereunder as provided in Article XII.
“Trustee” means U.S. Bank Trust Company, National Association , as trustee under the Indenture.
“2013 Bonds” has the meaning given that term in the recitals
“2013 Indenture” has the meaning given that term in the recitals.
“2013 Lease Agreement” has the meaning given that term in the recitals.
“2013 Trustee” means U.S. Bank Trust Company, National Association , as successor trustee under the 2013 Indenture.
“2023 Bonds” means the Hesperia Joint Public Finance Authority 2023 Refunding Lease Revenue Bonds.
6 ARTICLE II
LEASE OF LEASED PROPERTY; TERM
Section 2.01. Lease of Leased Property. The Authority hereby leases to the City, and the City hereby leases from the Authority, the Leased Property on the terms and conditions set forth in this Property Lease. The City hereby agrees and covenants that during the term hereof, except as hereinafter provided, it will use the Leased Property for public purposes, subject to and consistent with all agreements and leases with respect thereto theretofore entered into it, so as to afford the public the benefits contemplated hereby and so as to permit t he Authority to carry out its agreements and covenants contained herein and therein and in the Indenture, and the City hereby further agrees and covenants that during the term hereof that it will not abandon or vacate the Leased Property. The Authority and the City are entering into this Property Lease in order to prepay the 2013 Lease Payments and to defease and redeem the 2013 Bonds.
Section 2.02. Term. The term hereof shall commence on the date of recordation hereof, and shall end on November 1 , _____ or, if Additional Bonds have been issued under the Indenture, the last day that precedes the final maturity of Additional Bonds (if later than November 1, ______). If on November 1 , ______, or on such later date determined pursuant to the preceding sentence, the Indenture shall not be discharged by its terms, then the term of the Property Lease shall be extended until the Indenture shall be discharged by its terms, except that the term of the Property Lease shall in no event be extended beyond the date that is ten (10) years after such later date determined pursuant to the preceding sentence. If prior to November 1, ______, or such later date the Indenture shall be discharged by its terms, then the term of the Property Lease shall automatically terminate at the same time as the Indenture is discharged.
Section 2.03. No Merger. It is the express intention of the Authority and the City that this Property Lease and the obligations of the parties hereunder are separate and distinct from the Site Lease and the obligations of the parties thereunder, and that during the term of the Site Lease and this Property Lease no merger of title or interest may occur or be deemed to occur as a result of the respective positions of the Authority and the City thereunder and hereunder.