Modesto City Council
June 10, 2025

the residents of Modesto. The agency's mission is empowering people of all ages and identities to live their best life through the delivery of quality behavioral health and social services, striving to set standards that include housing stability.

DISCUSSION:

The program will operate through a collaboration between TPCP and Community Health and Assistance Team (CHAT). The CHAT program has been successful in engaging individuals experiencing unsheltered homelessness within the city and provides immediate support, intervention, and connections to mainstream social services, shelters, and housing programs.

TPCP will partner with local motels to provide motel vouchers that cover the cost of their temporary stay at a not to exceed cost of $85 per night for a single individual.

The motel voucher will provide a maximum stay of up to five (5) nights for individuals that have a place to go following their motel stay. During this process, individuals will be assisted with stabilization, while they wait to be reunited with family, or relate to a shelter or permanent housing situation. By setting a limit on the number of nights available, individuals are encouraged to actively participate with resources and services that will help them transition to more stable shelter and housing options.

The following program eligibility criteria will assist in maximizing program effectiveness, manage program capacity, and promote accountability and transparency.  Homelessness: Participants must currently be experiencing unsheltered homelessness, this may include, living on the street, a vehicle, or any other place not meant for human habitation.
 Income: Participants will need to self-certify income status, financial hardship, and lack sufficient resources and support networks necessary to pay for a motel on their own.  Residency: Eligible participants will be experiencing homelessness within the City of Modesto.
 Engagement: Turning Point will work with each client to engage in activities that create paths to shelter, housing, and stabilization.
 Exit Plan: TPCP will be coordinating with CHAT to help ensure that individuals have an exit plan following their stay in the motel.
 Length of Stay: Participants may be eligible for a motel voucher for a maximum of up to five (5) nights, based on need.
 Homeless Management Information System (HMIS) Participation: The program will utilize the Homeless Management Information System (HMIS) to track key performance indicators such as numbers served and participant outcomes to measure the program’s effectiveness and impact.

Program Budget:

City staff recommends an allocation to TPCP not to exceed $200,000 in Measure H funds on a cost reimbursement basis, as shown below. Measure H funding is more flexible than traditional housing and homelessness funds which will help ensure that we are creatively identifying solutions for individuals supported through this program.

Activity Costs
Short-term emergency shelter (up to five (5) nights at Eighty-Five $85,000 #6..
- 152 -
City Council, June 10, 2025
Motel Voucher Agreement with Turning Point Community Programs

Dollars ($85) per night) via motel voucher for approximately 200 individuals
Case Management $63,000
Motel Contingency- Room Repairs/Damages $20,000
Reunification and Barrier Removal $19,000
Total Direct Assistance Costs $187,000
Administration and Operations
(Office Space, Supplies, Professional Fees) $13,000
Total Administration Costs $13,000
Total Project Budget $200,000
Modesto Municipal Code Section 8-3.203 generally requires all purchases, which meet or exceed $100,000 for material, equipment, or contractual services to follow formal bid procedures. However, exceptions to the formal bidding process are granted in MMC 8-3.204(d) “Where the Purchasing Manager, in his or her discretion, determines that a process other than the formal bid procedure set for in Section 8-3.203 will result in procurement for the City at the lowest possible cost commensurate with the desired quality.” This project is exempt from the formal bidding procedures in accordance with Modesto Municipal Code 8-3.204(d) since Turning Point Community Programs, Rancho Cordova, California has the administrative experience and the negotiated motel contracts to manage this program. Turning Point Community Programs has an established relationship with the hotel/motels with negotiated rates that adhere to rates established by the State of California for identical programs. These rates will apply to this motel voucher program. Therefore, staff recommends the administration of the motel voucher program to assist individuals experiencing homelessness the of this Agreement to Turning Point Community Programs, Rancho Cordova, California.

FISCAL IMPACT:

On June 4, 2024, by Resolution 2024-190, Council approved the adoption of the Fiscal Year 2024-25 annual and multi-year non-capital operating budgets which included the Fiscal Year 2024-25 Measure H Spending plan allocating $200,000 in Measure H revenue for the implementation of the motel voucher program. The cost of the motel voucher program will be absorbed within the Fiscal Year 2024-25 operating budget in the CED-Measure HAdministration Cost Center 14112.

COMMITTEE RECOMMENDATION:

This item was presented to the Citizens’ Housing and Community Development Committee on May 8, 2025, and was recommended to forward to Council for approval.

RECOMMENDED COUNCIL ACTION:

Staff Recommendations:

Resolution approving an Agreement with Turning Point Community Programs, Rancho Cordova, California to administer a Motel Voucher Program to assist individuals experiencing homelessness in an amount not to exceed $200,000, and authorizing the City Manager, or his designee, to execute the Agreement.
#6..
- 153 -
City Council, June 10, 2025
Motel Voucher Agreement with Turning Point Community Programs

Approved by:

Jessica Hill, Director of Community
and Economic Development
Joseph P. Lopez, City Manager
Attachments:

1. Resolution

2. Agreement – Motel Voucher Agreement – TPCP

3. Levine Act Form
#6..
- 154 -
06/10/2025/CED/EGarcia/Item X 1 2025-XX

MODESTO CITY COUNCIL
RESOLUTION NO. 2025-

RESOLUTION APPROVING AN AGREEMENT WITH TURNING POINT

COMMUNITY PROGRAMS, RANCHO CORDOVA, CALIFORNIA TO

ADMINISTER A MOTEL VOUCHER PROGRAM TO ASSIST INDIVIDUALS

EXPERIENCING HOMELESSNESS IN AN AMOUNT NOT TO EXCEED
$200,000, AND AUTHORIZING THE CITY MANAGER, OR HIS DESIGNEE, TO

EXECUTE THE AGREEMENT
WHEREAS, on November 8, 2022, Modesto voters approved Measure H, a one-cent sales tax for general City services; and
WHEREAS, the community identified a desire for an increased level of service such as addressing quality of life issues; and
WHEREAS, the measure identified expenditures that will allow the City to improve City services, including funding to address homelessness; and WHEREAS, on June 4, 2024, by Resolution 2024-190 Council approved the adoption of the Fiscal Year 2024-25 Measure H spending plan allocating Two Hundred Thousand Dollars ($200,000) in Measure H revenue towards the implementation of a motel voucher program; and
WHEREAS, with the adoption of the budget for the implementation of a motel voucher program City staff began the development of the program and engaged Turning Point Community Programs (TPCP) to administer and provide oversight for the program; and
WHEREAS, TPCP has experience implementing this type of program and has the capacity and knowledge to successfully operate and administer a motel voucher program; and
#6..
- 155 -
06/10/2025/CED/EGarcia/Item X 2 2025-XX
WHEREAS, evidenced by its management over the past 40 years, TPCP provides essential and supportive services aiding the unhoused community on a path to recovery and stability through outreach, housing programs, and housing stabilization services to the residents of Modesto; and
WHEREAS, the program will operate through a collaboration between TPCP and Community Health and Assistance Team (CHAT); and
WHEREAS, CHAT program has been successful in engaging individuals experiencing homelessness within the city and provides immediate support, intervention, and connections to mainstream social services, shelters, and housing programs; and WHEREAS, TPCP will partner with local motels to provide the eligible participants motel vouchers that cover the cost of their temporary stay at a not to exceed cost of $85 per night for a single individual; and WHEREAS, the motel voucher will provide individuals with a maximum stay of up to five (5) nights for individuals that have a place to go following their motel stay; and WHEREAS, during this process, individuals will be assisted with stabilization, while they wait to be reunited with family, or are connected with a shelter or permanent housing situation; and
WHEREAS, Modesto Municipal Code Section 8-3.203 generally requires all purchases, which meet or exceed $100,000 for material, equipment, or contractual services to follow formal bid procedures. However, exceptions to the formal bidding process are granted in MMC 8-3.204(d) “Where the Purchasing Manager, in his or her discretion, determines that a process other than the formal bid procedure set for in #6..
- 156 -
06/10/2025/CED/EGarcia/Item X 3 2025-XX
Section 8-3.203 will result in procurement for the City at the lowest possible cost commensurate with the desired quality;” and
WHEREAS, this project is exempt from the formal bidding procedures in accordance with Modesto Municipal Code 8-3.204(d) since Turning Point Community Programs, Rancho Cordova, California has the administrative experience and the negotiated motel contracts to manage this program; and
WHEREAS, Turning Point Community Programs has an established relationship with the hotel/motels with negotiated rates that adhere to rates established by the State of California for identical programs and these rates will apply to this motel voucher program; and
WHEREAS, therefore, staff recommends the administration of the motel voucher program to assist individuals experiencing homelessness the of this Agreement to Turning Point Community Programs, Rancho Cordova, California; and WHEREAS, City Staff recommends an allocation to TPCP not to exceed Two Hundred Thousand Dollars ($200,000) in Measure H funds on a cost reimbursement basis; and
WHEREAS, the cost of the motel voucher program will be absorbed within the Fiscal Year 2024-25 operating budget in the CED-Measure H-Administration Cost Center 14112.

NOW, THEREFORE, BE IT RESOLVED by the Council of the City of Modesto that it hereby approves an Agreement with Turning Point Community Programs, Rancho Cordova, California to administer a motel voucher program to assist individuals experiencing homelessness in an amount not to exceed $200,000. #6..
- 157 -
06/10/2025/CED/EGarcia/Item X 4 2025-XX
BE IT FURTHER RESOLVED, that the City Manager, or his designee, is hereby authorized to execute the Agreement.

The foregoing resolution was introduced at a regular meeting of the Council of the City of Modesto held on the ____ day of , 2025 by Councilmember ?, who moved its adoption, which motion being duly seconded by Councilmember ?, was upon roll call carried and the resolution adopted by the following vote:

AYES: Councilmembers: ?
NOES: Councilmembers: ?
ABSENT: Councilmembers: ?
ATTEST: ____________________________

DIANE NAYARES-PEREZ, CMC,
City Clerk
(SEAL)
APPROVED AS TO FORM:

BY: ____________________________________
JOSE M. SANCHEZ, City Attorney

#6..
- 158 -
Funding Contribution Agreement – Turning Point Community Programs

AGREEMENT
Turning Point Community Programs – Motel Voucher Program This Agreement (“Agreement”) is entered into in the City of Modesto, State of California, this ____ day of ____________ 20__ (“Effective Date”) by and between the City of Modesto, a California municipal corporation (“City”), and Turning Point Community Program, a California nonprofit corporation (“Recipient”). The City and Turning Point Community Program shall be collectively referred to hereinafter as the “Parties”.

This Agreement is made with regard to the following recitals:

WHEREAS, on November 8, 2022, the Modesto voters approved Measure H, a one-cent tax for general City services; and
WHEREAS, On November 29, 2022, the City Council adopted Resolution No. 2022-453, certified the election results; and
WHEREAS, through the passage of Measure H, the community identified a desire for an increased level of service addressing quality of life issues that allowed the City to proactively develop a plan to improve City services and the quality of life for the citizens of Modesto including funding to address homelessness; and
WHEREAS, the City desires to engage the Recipient to render certain services, programs, or assistance in connection with such undertaking of the program as described in Exhibit A, and B.

NOW THEREFORE, the City and Recipient agree as follows:

1. Term
A. The term of this Agreement (the “Term”) shall commence on the Effective Date and shall expire upon full expenditure of the funds.

2. Grant Award
A. The City shall provide the Recipient with a grant of Two Hundred Thousand Dollars ($200,000) (the “Grant”) for the purposes and activities further specified in Exhibit A, attached here to and incorporated by reference (the “Activities”). Disbursement shall be on a reimbursement basis of approved invoices and is dependent upon Recipient providing all records and documentation reasonably required by the City.

B. Recipient shall expend the Grant solely on the Activities, as specified in Exhibit A, and within the approved budget. The Recipient shall not use the Grant for any other purpose or activity without the prior written consent of the City. #6..
- 159 -
Funding Contribution Agreement – Turning Point Community Programs C. The Recipient shall operate within the territorial limits of the City of Modesto and the beneficiaries, if any, of the Activities shall be the residents of the City of Modesto.

3. Recipient’s Obligations
A. Throughout the Term of this Agreement, the Recipient shall obtain and maintain all licenses, permits, qualifications and approvals legally required to conduct business.

The Recipient warrants that it has all of the necessary professional capabilities and experience, as well as all tools, instrumentalities, facilities and other resources necessary to perform the Activities specified by this Agreement. Recipient shall perform the Activities required pursuant to this Agreement according to the standards observed by a competent practitioner of the profession in which Recipient is engaged.

B. The Recipient shall provide appropriate acknowledgement of the Grant by using the City’s logo or making a written acknowledgement in its publicity, promotional materials, information materials, press materials, at public occasions relating to the Activities, and on any website maintained by the Recipient.

4. Reporting Requirements
The Recipient shall submit monthly reporting, in accordance with the requirements set forth in Exhibit A, attached hereto and incorporated herein, to the City within thirty (30) days of the end of each invoice period. The annual report shall be in addition to the reporting required by Section 4, and shall include:

A. Summary of activities and accomplishments, mandate and/or mission of the organization;
B. List of Board Directors with title, contact information and mandate term of each Director;
C. Organizational Chart;
D. Project/Program Expenditures-to-date (including receipts); E. Any other information reasonably requested by the City.

5. Audit Requirements
A. In addition to all other reports and records required by this Agreement, the Recipient shall keep and make available proper books of account and records of the financial management of the Grant provided under this agreement, in accordance with generally accepted business and accounting practices. Such records shall include, but not be limited to, records providing a full description and accounting of each activity undertaken.

B. Recipient agrees to keep all necessary books and records required by this Agreement for five (5) years following the end of this Agreement and shall document all transactions so that all expenditures may be properly audited.

C. The Recipient agrees that City or any authorized representative has access to and the right to examine all records, books, papers, or documents related to the #6..
- 160 -
Funding Contribution Agreement – Turning Point Community Programs project. The Recipient shall allow the City or any authorized representative access to all records, books, papers, or documents related to the project within forty-eight (48) hours of a request to examine.

6. Preservation of Assets
Any assets purchased with the Grant, the cost of which exceed $5,000, shall be preserved by the Recipient, and shall not be sold, leased, given away or otherwise disposed of prior to the end of the useful life of the asset without prior written consent of the City.

7. Termination, Suspension and/or Repayment of Grant
The City may terminate, suspend and/or require repayment of the Grant in the event of any of the following circumstances, after notice from the City and a reasonable opportunity to cure:

A. The Recipient fails to provide the Activities, or any portion of the Activities, described in Exhibit A of this Agreement or substandard performance of the Activities;
B. The Recipient suspends or fails to carry on and continuously conduct its operations, or there is a disruption on the performance of the Activities; C. The Recipient has a partisan political affiliation and/or participates in partisan political activities.

D. The Recipient uses the Grant for a purpose or activity other than those specified in Exhibit A.

E. The Recipient becomes bankrupt or insolvent, goes into receivership or becomes subject to the provisions of any bankruptcy, insolvency, or any other Act for the benefit of creditors, or makes a general assignment for the benefit of its creditors or otherwise acknowledges its insolvency;
F. The Recipient fails to provide to the City with any report, record, or documentation required by this Agreement, or fails to provide any documentation requested by the City in accordance with the terms of this agreement;
G. The Recipient has made any material misrepresentation to the City or its representatives with respect to any of the matters contained herein and/or in the Recipient’s funding submission/proposal/application for the Grant, or which have been made or may be made in the future surrounding these matters; H. The Recipient breaches any term of this Agreement, after notice from the City and a reasonable opportunity to cure the breach;

8. Compliance with Applicable Laws
Recipient shall carry out, and cause its contractors, consultants, employees and agents to carry out, the Activities, in compliance all applicable federal, state and local laws, rules, ordinances, orders, and regulations, including without limitation and to the extent applicable, the prevailing wage provisions of the federal Davis-Bacon Act and #6..
- 161 -
Funding Contribution Agreement – Turning Point Community Programs implementing rules and regulations and state prevailing wages pursuant to Labor Code Section 1770 et seq.

9. Non-Assignment
The Recipient shall not assign this Agreement, the Grant, or any part thereof, without the Prior written consent of the City. Any assignment in violation of this section shall require an immediate repayment of the Grant to City by the Recipient.

10. Indemnity and Liability
A. The Recipient shall indemnify , defend with counsel acceptable to City, and hold harmless the City, its officials, officers, employees, and agents (“Indemnitees”) from and against all liability, loss, cost, expense (including without limitation attorneys’ fees and costs of litigation), claim, demand, action, suit, judicial or administrative proceeding, penalty, deficiency, fine, order, and damage (all of the foregoing collectively “Claims”) which, directly or indirectly, arises out of or relates to this Agreement or the performance of the Activities, except to the extent the Claims arise from the gross negligence or willful misconduct of City.

B. The City shall not be liable to the Recipient or any other party in relation to the Grant and/or the services provided by the Recipient pursuant to the terms of this agreement. The Recipient shall be solely responsible for the payment of any individuals employed, engaged or retained by the Recipient for the purpose of assisting it in the fulfilment of its obligations under this agreement.

11. Insurance
The Recipient shall provide at its own expense and maintain at all times the following insurance with insurance companies licensed in the State of California and shall provide evidence of such insurance to the City as may be required by the Risk Manager of the City. The policies or certificates thereof shall provide that, thirty (30) days prior to cancellation or material change in the policy, notices of same shall be given to the Risk Manager of the City by certified mail, return receipt requested, for all of the following stated insurance policies.

In the event the certificates of insurance required hereunder do not provide for notice of cancellation to the certificate holder and/or additional insureds, the Recipient shall provide, and shall require its subcontractors to provide, as an express condition precedent to payment hereunder, an endorsement from their insurers providing that the additional insureds identified herein shall be provided 30 days’ notice of the cancellation on the policies of insurance required hereunder (10 days’ notice if the policies are cancelled for non-payment of premium). In addition, the named insured on all such policies shall provide to the additional insureds identified herein any notices of cancellation of said insurance policies within 5 business days of receipt of such notice.

The Recipient shall, as a further express condition precedent to payment for work #6..
- 162 -
Funding Contribution Agreement – Turning Point Community Programs performed, affirm under penalty of perjury that the required insurance on the project remains in place and said insurance has not been cancelled. (a) Worker's Compensation - in compliance with the statutes of the State of California, plus employer's liability with a minimum limit of liability of $1,000,000.
(b) General Liability insurance with a minimum limit of liability per occurrence of $1,000,000 for bodily injury and property damage. If Commercial General Liability Insurance or other form with a general aggregate limit is used, either the general aggregate limit shall apply separately to this project/location or the general aggregate limit shall be twice the required occurrence limit. This insurance shall indicate on the certificate of insurance the following coverages and indicate the policy aggregate limit applying to: premises and operations; broad form contractual; independent The Recipients and subcontractors; products and completed operations as applicable.
(c) Automobile Liability insurance with a minimum limit of liability per occurrence of $1,000,000 for bodily injury and property damage. This insurance shall cover any automobile for bodily injury and property damage.
(d) Professional Liability insurance with a minimum limit of $1,000,000 per claim and policy aggregate. If coverage is on a claims made basis it shall be maintained for at least three (3) years following completion of the work.

If at any time any of said policies shall be unsatisfactory to the City, as to form or substance, or if a company issuing such policy shall be unsatisfactory to the City, the Recipient shall promptly obtain a new policy, submit the same to the Risk Manager for approval and submit a certificate thereof as hereinabove provided. Upon failure of the Recipient to furnish, deliver or maintain such insurance and certificates as above provided, this Agreement, at the election of the City, may be forthwith declared suspended or terminated. Failure of the Recipient to obtain and/or maintain any required insurance shall not relieve the Recipient from any liability under this Agreement, nor shall the insurance requirements be construed to conflict with or otherwise limit the obligations of the Recipient concerning indemnification. The City, its agents, officers, employees, and volunteers shall be named as an additional insured on all insurance policies required herein, except Workers' Compensation and Professional Liability. The Workers' Compensation insurer shall agree to waive all rights of subrogation against the City, its agents, officers, employees, and volunteers for losses arising from work performed by The Recipient for the City. The Recipient's insurance policy(ies) shall include a provision that the coverage is primary as respects the City; shall include no special limitations to coverage provided to additional insured; and, shall be placed with insurer(s) with acceptable Best's rating of A:VII or with approval of the Risk Manager. The Recipient must deliver certificates evidencing existence of the insurance listed above to the City prior to the time the contract is signed. #6..
- 163 -
Funding Contribution Agreement – Turning Point Community Programs The Recipient shall provide City with separate endorsements evidencing proof of the CITY’s additional insured status as to both the general liability and automobile liability insurance policies. In addition, the Recipient shall provide City with a Workers Compensation subrogation waiver by way of a separate endorsement. All endorsements referenced above must include the applicable policy number.

For any claims related to this project, the Recipient’s insurance coverage shall be primary insurance as respects the Entity, its officers, officials, employees, and volunteers. Any insurance or self-insurance maintained by the Entity, its officers, officials, employees, or volunteers shall be excess of Recipient ‘s insurance and shall not contribute with it.

12. Non-Discrimination
Recipient shall not discriminate, on the basis of a person’s race, religion, color, national origin, age, physical or mental handicap or disability, medical condition, marital status, sex, or sexual orientation, against any employee, applicant for employment, subcontractor, bidder for a subcontract, or participant in, Recipient of, or applicant for any services or programs provided by Recipient under this Agreement. Recipient shall comply with all applicable federal, state, and local laws, policies, rules, and requirements related to equal opportunity and nondiscrimination in employment, contracting, and the provision of any services that are the subject of this Recipient, including but not limited to the satisfaction of any positive obligations required of Recipient thereby.

13. NOTIFICATION
Any notice, communication, amendment, addition or deletion to this Agreement, including change of address of either Party during the term of this Agreement, which Recipient or City shall be required or may desire to make shall be in writing and may be personally served or, alternately, sent by prepaid first-class mail to the respective Parties as follows:

To City:

City of Modesto
Attn: Edgar R. Garcia, Community Development Manger
1010 10th Street
Modesto, CA 95353
To Recipient:

Turning Point Community Program
10850 Gold Center Drive, Suite 325
Rancho Cordova, CA 95670

14. SEVERABILITY
#6..
- 164 -
Funding Contribution Agreement – Turning Point Community Programs If any portion of this Agreement or application thereof to any person or circumstance shall be declared invalid by a court of competent jurisdiction or if it is found in contravention of any federal, state or City statute, ordinance or regulation; the remaining provisions of this Agreement or the application thereof shall not be invalidated thereby and shall remain in full force and effect to the extent that the provisions of this Agreement are severable.

15. DISPUTE RESOLUTION
All claims, controversies, or disputes arising out of, or relating to the formation of this Agreement, or the breach, termination execution, enforcement, interpretation, or validity of this Agreement, including the determination of the scope or applicability of this contract provision shall be determined by binding arbitration in Modesto, California by one arbitrator, except as otherwise specified in this Agreement. The American Arbitration Association shall administer the arbitration under its Arbitration Rules then in effect, subject to the modifications of those rules contained in this paragraph. This agreement to arbitrate shall be specifically enforceable under the prevailing law of any court having jurisdiction, and the award rendered by the arbitrator may be entered in any court having jurisdiction. The appropriate venue for any arbitration or court proceeding relating to or arising out of this provision shall be in Stanislaus County, California.

This paragraph is not intended to and does not waive the claim filing requirements found in California Government Code section 900 et seq. In the event that a timely and legally sufficient, arbitrable claim is filed by the Recipient with City, and the claim is rejected in whole or in part by City, this paragraph shall result in the conclusive, final, and binding resolution of all the issues presented in the claim by The Recipient so long as any issues presented by the claim are arbitrable. Claims rejected by City or by operation of law, shall be submitted by the Recipient to arbitration pursuant to the Arbitration Rules of the American Arbitration Association within ninety (90) days after mailing of the written rejection by City to the Recipient. Otherwise, the claim or claims shall be deemed waived in their entirety.

The “fast track’ rules of the American Arbitration Association shall apply to any claim or counterclaim less than ONE HUNDRED FIFTY THOUSAND AND 00/100 ($150,000.00) DOLLARS. In arbitration not proceeding under the “fast track” rules, the arbitrator shall have the power to order that depositions be taken and other discovery be made. Both City and the Recipient shall have the right, upon written notice, to take no more than three (3) depositions of the other as a matter of right in an arbitration proceeding under the “fast track” rules.

Whether or not City and the Recipient may be engaged in interstate commerce, any controversy or dispute mentioned above shall be determined by, and the parties shall be bound by, the substantive law of the State of California, and not the Federal Arbitration Act at 9 USC Section 1 et seq.
#6..
- 165 -
Funding Contribution Agreement – Turning Point Community Programs The arbitrator may grant any remedy or relief deemed by the arbitrator just and equitable under the circumstances, whether or not such relief could be awarded in a court of law. The arbitrator shall be empowered to award monetary sanctions against a party for failure of cooperation in the arbitration. The arbitrator shall, in written award, allocate all the costs of the arbitration, including the fees of the arbitrator and the reasonable attorney fees of the prevailing party, against the party who did not prevail.

The prevailing party shall be the party in whose favor the majority of the central issues in the case are resolved.

Notwithstanding anything in this provision to the contrary, the arbitrator shall have no power to award punitive damages or other damages not measured by the party’s actual damages (excluding litigation costs and fees) against any party. This limitation of the arbitrator’s powers under this Agreement shall not operate as an exclusion of the issue of punitive damages from this Agreement to Arbitrate sufficient to vest jurisdiction in a court with respect to that issue.

The Recipient shall include in all subcontracts a specification whereby the subcontractor consents to being joined in an arbitration between City and The Recipient involving the work of the subcontractor to be joined. The Recipient’s failure to do so shall be a breach of this Agreement.

The parties hereby waive any rights provided by Title 9.2 of the California Code of Civil Procedure, Section 1296. The arbitrator’s award shall be deemed final, conclusive and binding to the fullest extent allowed by California law.

16. INDEPENDENT PARTIES
Nothing in this Agreement is intended to or shall establish the Parties as partners, coventurers, or principal and agent with one another. At all times during the term of this Agreement, Recipient and City shall be independent parties, and Recipient shall not be an employee of the City. Except as the Recipient may specify in writing, Recipient shall have no authority, express or implied, to act on behalf of City in any capacity whatsoever as an agent. Recipient shall have no authority, express or implied, pursuant to this Agreement to bind City to any obligation whatsoever. At all times during the term of this Agreement, Recipient and

17. ENTIRE AGREEMENT
This Agreement, including the exhibits attached hereto, represents the entire and integrated agreement between City and Recipient ant and supersedes all prior negotiations, representations, or agreements, either written or oral. No amendment of any of the terms or provisions of the Agreement shall be deemed valid unless it is in writing and signed by both Parties.

18. GENERAL PROVISIONS
#6..
- 166 -
Funding Contribution Agreement – Turning Point Community Programs A. Binding Agreement. This agreement shall be binding on and inure to the benefit of the City, the Recipient and their respective successors and assigns. Nothing contained in this Agreement is intended to or shall be deemed to confer upon any person, other than the Parties and their respective successors and assigns, any rights or remedies hereunder.

B. Severability. Any provision of this agreement, which is or becomes prohibited or unenforceable in any jurisdiction, shall not invalidate or impair the remaining provisions of this agreement which shall be deemed severable from the prohibited or unenforceable provision and any prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable that provision in any other jurisdiction.

C. Waiver. The fact that the City refrains from exercising a remedy it is entitled to exercise under this agreement shall not be considered to be a waiver of such right and, furthermore, partial or limited exercise of a right conferred upon the City shall not prevent the City in any way from later exercising any other right or remedy under this agreement or other applicable law. No waiver of any breach of any covenant or provision of this Agreement shall be deemed a waiver of any other covenant or provision hereof, and no waiver shall be valid unless in writing and executed by the waiving Party
D. Business License. The Recipient will have a valid City of Modesto Business License.

E. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of California, excluding chose of law rules.

F. Construction of Agreement. The section headings and captions used herein are solely for convenience and shall not be used to interpret this Agreement. The Parties acknowledge that this Agreement is the product of negotiation and compromise on the part of both Parties, and the Parties agree, that since all of the Parties have participated in the negotiation and drafting of this Agreement, this Agreement shall not be construed as if prepared by one of the Parties, but rather according to its fair meaning as a whole, as if all Parties had prepared it.

G. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be an original and all of which taken together shall constitute one instrument. The persons executing this Agreement on behalf of Parties have been duly authorized to do so.

IN WITNESS WHEREOF, the Parties have executed this Agreement as of the effective date set forth above.
#6..
- 167 -
Funding Contribution Agreement – Turning Point Community Programs Exhibit A
Scope of Work
The emergency shelter motel voucher program will provide individuals experiencing unsheltered homelessness an opportunity to rest, clean up, regroup, and a sense of stability and support during a challenging time. By offering a combination of supportive services and financial assistance, the program may assist participants in addressing their immediate crisis while working towards stability.
1) Numerical Goal: Activity will serve approximately 200 individuals experiencing unsheltered homelessness in the City of Modesto through the motel voucher program. 2) Budget Term: To begin service upon full execution of Agreement through the full expenditure of the funds.
3) Total Grant Award: Two Hundred Thousand Dollars ($200,000) 4) Approved Assistance Type(s): Motel Voucher Program
5) TPCP has established Policies and Procedures for the program and will adhere to the terms of the Agreement in addition to the requirements below.

Eligibility:
1) The vouchers are intended to be short term with a maximum stay of up to five (5) nights via motel vouchers.
2) By setting a limit on the number of nights available through the program, it encourages individuals to more actively seek out resources and services that will help them transition to more stable shelter and housing options. This also ensures that the vouchers are utilized effectively and efficiently to assist as many individuals as possible with the available funding. 3) The program will prioritize vulnerable populations and provide vouchers to individuals motivated and willing to actively seek stable shelter and/or housing opportunities.

Community Health and Assessment Team (CHAT) outreach workers will serve as the referral party for all clients for this program. The following program eligibility criteria will assist in maximizing program effectiveness, manage program capacity, and promote accountability and transparency.
a) Homelessness: Participants must currently be experiencing unsheltered homelessness, this may include living on the street, a vehicle, or any other place not meant for human habitation.
b) Income: Participants will need to self-certify income status, financial hardship, and lack sufficient resources and support networks necessary to pay for a motel on their own.
#6..
- 168 -
Funding Contribution Agreement – Turning Point Community Programs c) Residency: Eligible participants will be experiencing homelessness within the City of Modesto.
d) Vulnerability: Vulnerable populations including families with minor children, survivors of domestic violence, individuals with disabilities, individuals with medical or mental health barriers, and individuals sixty (60) years of age or older will be prioritized.
e) Engagement: Participants will be encouraged to engage and actively participate in activities that create paths to shelter, housing, and stabilization that are offered through community resources.
f) Exit Plan: TPCP will assess all available resources for the household to develop a predetermined exit plan. The exit plan should promote access to shelter, connections to support services, reunification, and other resources that create paths to stable shelter and housing opportunities. Exit plans may include but are not limited to enrollment in shelter programs, participation in support services, reunification with family/support members, and other plans that create paths to housing and stabilization. Only households that have a pre-determined exit plan that secures a shelter bed/housing option at the end of the five (5) days are eligible for emergency shelter motel services.
g) Length of Stay: Participants may be eligible for a motel voucher for a maximum of up to five (5) days based on need.

Intake and Assessment
1) The intake and assessment process will ensure individuals receive appropriate support and assistance. By incorporating the following components, outreach workers will identify the steps necessary to assist each program participant move towards stable shelter and housing. 2) TPCP will complete a needs assessment with applicants that may include the following:
a) Eligibility Assessment: Determine the individual’s eligibility for the program based on the program criteria. This may include verifying necessary information to confirm the individual’s identity, homelessness, available resources, and documentation that may help support the individual’s program exit plan.
b) Homeless Verification: Determine an individual’s current housing status and assess the level of homelessness. This may include requesting documentation, or third-party verification, as necessary.
c) Needs Assessment: Identify the individual’s immediate needs, including clothing, medical care, and other support services necessary to assist the individual obtain shelter and housing.
d) Safety Assessment: Evaluate whether the individual is in a situation that may pose immediate safety risks, such as domestic violence, substance abuse, mental health concerns, or any other issues that may require additional services and supports to ensure safety and well-being.
e) Data Collection: CHAT will collect essential data such as identifying information, including demographics, housing history, and service utilization, and needs from each #6..
- 169 -
Funding Contribution Agreement – Turning Point Community Programs program participant through the ArcGIS Survey123 (ESRI) database. TPCP will collect essential data from program participants and will enter required information into HMIS.
f) Referrals: Offer to connect individuals to additional support services including case management, housing navigation, health/mental health services, substance use services, and other support services as needed.
g) Partners and Pets: Pets will be considered based on motel/hotel policy and must be considered in the program participant’s predetermined exit plan. h) Exit Planning: TPCP will assess all available resources for the household to develop pre-determined exit plan. The exit plan should promote access to shelter, connections to support services, reunification, and other resources that create paths to stable shelter and housing opportunities. Exit plans may include but are not limited to enrollment in shelter programs, participation in support services, reunification with family/support members, and other plans that create paths to housing and stabilization. Only households that have a pre-determined exit plan that secures a shelter bed/housing option at the end of the five (5) days are eligible for the motel voucher program.

Services Provided by CHAT
1) CHAT will be responsible for verifying information provided by the individual experiencing homelessness is accurate and reliable, to the best of their knowledge. Having an impartial third party confirm details such as identity, living situation, service needs, eligibility, and exit destinations, service providers can make more informed decisions and avoid potential errors or inconsistencies that may impact the individual’s ability to obtain stable shelter or housing. 2) Several types of confirmation may be requested to facilitate service provision including the following:
a) Identification Documents: Confirmation of the individual’s identity through vital records or verbal acknowledgement of an unimpaired individual. b) Social Service Agency Confirmation: Verification may be required from shelters, service organizations, and other service providers to confirm program access and eligibility.
c) Phone/Video Call: A phone or video call between outreach workers and service providers, family or individuals involved in the individual’s exit plan may be used to confirm access and eligibility for services and exit destinations.

Shelter placement services provided by Turning Point:
1) TPCP will consider several factors in selecting motel partners that will participate in the program to ensure the success of the program and well-being of participants. Some of the characteristics to be considered include but are not limited to the following:
a) Affordability: Partnering with motels that offer reasonable rates will help maximize the impact of the vouchers and allow meeting more individuals’ needs. #6..
- 170 -
Funding Contribution Agreement – Turning Point Community Programs b) Safety: Selected motels will maintain security and safety standards. c) Accessibility: Motels will be easily accessible by public transportation and located in areas with access to essential services.
d) Flexibility: Willing to work with outreach workers to accommodate the needs of program participants including partners.
e) Community Partnerships: Motels with existing relationships with community organizations will be considered.
f) Motel Contracts: The City will enter into written contracts with motels located within the City of Modesto and ensure the billing rate of not to exceed Eighty-Five Dollars ($85) for an individual per night is included.
i) Motel Placement: When an individual(s) is deemed eligible for program, TPCP will complete the necessary referral form(s) and motel rules for the motel placement. i. During business hours, CHAT will contact TPCP office from 8:00am to 4:00pm Monday through Friday, to make arrangements to submit the referral. If unable to submit the referral form, CHAT will call TPCP at (209) 544-1913 and provide the following: Outreach staff name of who is placing the client, client’s name and if applicable, the name of the spouse/significant other, and/or number of children.
ii. TPCP will make motel room reservation arrangements that includes motel payment.
iii. Once TPCP has made room reservations, transport the individual(s) to the motel and assist with the check-in process as needed.
j) Shelter Placement (After Hours or Weekends): CHAT will call TPCP at (209) 544-1913 and leave a message at the voicemail for the TPCP office; the information to be provided by CHAT shall include the referring CHAT staff member name, client names, and number of children (if applicable) and the number of authorized motel nights.

CHAT will also contact a TPCP contracted motel to confirm availability with the motel.

CHAT will secure placement for a client at the motel and give the motel staff the required information such as the client’s name (if applicable, the name of the spouse/significant other, and/or number of children) and the number of authorized shelter night(s) (maximum of five (5) nights).
i. TPCP will complete all required Intake and Assessment forms on the next business day with client.
k) Upon shelter placement exit, complete HMIS exit form. i. Coordinate check-out should the individual(s) refuse to check out. ii. Notify CHAT should individual(s) not check out according to check out schedule.
l) Up to date record keeping of all placements.
#6..
- 171 -
Funding Contribution Agreement – Turning Point Community Programs Outcomes Reported by Turning Point:
1) The program goals are to provide temporary housing stability, connections to case management services and support services that will provide paths to stable shelter and housing opportunities. Key outcome indicators will be:
a) Temporary Housing Stability: The program will provide temporary housing and crisis intervention to program participants while they access more stable shelter and housing options.
b) Access to Supportive Services: Participants will have access to case management supportive services, and referrals to community resources that will work to address underlying issues contributing to an individual’s homelessness and create a safety net during their housing crisis.
c) Housing Navigation: Through the program participants will gain access to a range of shelter and housing options and support services that will expand shelter and housing opportunities that they may not have previously.
d) Community Impact: Positive impacts on the community by reducing homelessness, promotion of housing stability, support services through community partnerships that provide access and services to promote housing stability and well-being. e) Meetings: Be available to attend meetings as scheduled by the City. f) HMIS Exit Forms: TPCP to enter all forms into HMIS within seventy-two (72) business hours of entry to motel.
g) Reporting: TPCP will provide monthly reports that detail outcomes, served individuals, demographics, and exit destinations.

Fund Management administered by Turning Point:
1) TPCP will administer and distribute funds for the Emergency Shelter Motel Voucher Program for a total amount not to exceed Two Hundred Thousand Dollars ($200,000). 2) Reimbursement administered by TPCP.
3) TPCP will submit monthly reimbursement requests for the expenditures related to this project expended on shelter services, personnel, and non-personnel expenditures. 4) Monthly reporting conducted by TPCP to include number of individuals served, demographic information, and exit destination locations.
5) Complete and submit the HMIS program set-up, attend the monthly HMIS Committee meetings and submit monthly/quarterly reporting as necessary.

Program Budget
TPCP will adhere to budget outlined within scope of work. Program budget is not to exceed Two Hundred Thousand Dollars ($200,000), that will expire upon full expenditure of the funds. The program proposes to serve approximately two hundred (200) households during the Agreement period.
#6..
- 172 -
Funding Contribution Agreement – Turning Point Community Programs Budget Line Item Costs
Direct Services
Case Management $63,000
Short-term emergency shelter (up to 5 nights at $85 per night) via motel voucher for approximately 200 households
$85,000
Reunification and Barrier Removal for Shelter Entry $19,000 Motel Contingency* Room Repairs/Damages $ 20,000
Total Direct Assistance Costs $187,000
Administration
Administration and Operations
(Office Space, Supplies, Professional Fees)
$13,000
Total Administration Costs $13,000
Total Estimated Project Budget $200,000
#6..
- 173 -
Funding Contribution Agreement – Turning Point Community Programs

EXHIBIT B

INVOICE AND REIMBURSEMENT PROCESSESS
The Recipient must use the City of Modesto’s Neighborly invoicing system for submitting invoices and all supporting documentation.

1. Invoices and supporting documentation must be submitted for reimbursement at least once per quarter unless prior agreement was made for monthly invoicing. a. For monthly invoicing, a draw request through Neighborly must be submitted no later than 10 days after the end of the reporting period. b. Failure to comply with this requirement may default to a quarterly invoice if decided by City staff

2. The Recipient can continue to use their own “in-house” invoicing form which will be considered part of the invoice supporting documentation.

3. Invoice supporting documentation must include, at a minimum:
a. Must be neatly organized and bundled by approved budget line-item categories (i.e., salaries, operations).
b. Each bundle must clearly identify which budget line item the documentation applies to by placing an itemized summary sheet/cover page on each bundle listing each invoice with subtotals and/or totals.

4. Timesheets for each staff member charging time to the funding source must be submitted for each pay period. The City of Modesto will only reimburse time/salary for job positions/personnel identified and approved within the application for funding. a. If at any time during the contract period there is a change in program personnel within the approved job position, the Recipient must notify the City of Modesto of the change and request City approval to fund new personnel. b. Allowable time charged to the grant for each City approved position will be limited to the number of hours allocated to the project as listed in the application.
c. Time sheets must be signed by both staff and their manager. d. Timesheets must reflect the total time worked each day with the amount of grant hours specific to this agreement time being charged to this grant clearly identified. Only specific to this agreement grant hours worked will be paid, based on the hourly rate approved at the time of application. e. Supporting documentation of pay increases during the program year for staff covered by the grant must be submitted (e.g., Human Resources pay rate increase documentation and/or other equivalent documentation that demonstrates a pay rate increase was processed and approved). f. If the employee is hourly pay exempt, salary will be allocated based on the hours #6..
- 174 -
Funding Contribution Agreement – Turning Point Community Programs worked. If the total number of hours worked is not listed, then hourly rate will be based on an average 40-hour work week.
g. The cost of fringe benefits in the form of employer contributions or expenses for social security; employee life, health, unemployment, and worker's compensation insurance (except as indicated in §200.447); pension plan costs; and other similar benefits are allowable, provided such benefits are granted under established written policies.
h. Such benefits must be allocated to Federal awards and all other activities in a manner consistent with the pattern of benefits attributable to the individuals or group(s) of employees whose salaries and wages are chargeable to such Federal awards and other activities and charged as direct or indirect costs in accordance with the non-Federal entity’s accounting practices.
i. The cost of fringe benefits in the form of regular compensation paid to employees during periods of authorized absences from the job, such as for annual leave, family-related leave, sick leave, holidays, court leave, military leave, administrative leave, and other similar
benefits, are allowable if all the following criteria are met:
j. They are provided under established written leave policies; k. The costs are equitably allocated to all related activities, including Federal awards; and
l. The accounting basis (cash or accrual) selected for costing each type of leave is consistently followed by the non-Federal entity or specified grouping of employees.
m. Bonuses are not allowable expenses.
n. Overtime, extra-pay shifts, and multi-shift work may be allowable only with prior approval from the City of Modesto, except as follows:
o. When necessary to cope with emergencies, such as those resulting from accidents, natural disasters, breakdowns of equipment, or occasional operational bottlenecks of a sporadic nature;
p. When employees are performing indirect functions, such as administration, maintenance, or account;
q. In the performance of tests, laboratory procedures, or other similar operations which are continuous in nature and cannot reasonably be interrupted or otherwise completed; or
r. When lower overall cost to the federal Government will result. s. If there are more than 6 timesheets, timesheets must be summarized indicating calculation of time to the reimbursement amount requested. t. Proof of payment, such as a payroll register, or copies of paychecks must also be included.

5. Reimbursement Eligibility
a. In order for costs to be reimbursable, costs must be reasonable, allowable, documented, and allocable. Only an executed Subrecipient funding agreement authorizes these costs to be reimbursed for costs incurred during the term of the #6..
- 175 -
Funding Contribution Agreement – Turning Point Community Programs agreement. Any expenditure accrued or costs incurred prior to or after the term of the agreement will be ineligible for reimbursement.
b. The City reserves the right to hold or return reimbursement requests and disallow incurred expenses based on compliance with agreement. All financial transactions must be supported by complete and verifiable source documents.

These records must provide a clear audit trail and must be maintained as specified by federal guidelines.
#6..
- 176 -
#6..
- 177 -
#6..
- 178 -

CITY OF MODESTO

COUNCIL AGENDA REPORT
DATE OF MEETING:

June 10, 2025
Date: May 2, 2025
TO: Mayor and City Council
THROUGH: Joseph P. Lopez, City Manager
FROM: Jessica Hill, Director of Community and Economic Development SUBJECT: Formation of City of Modesto Community Facilities District No. 2025-2 (Village One Triangle)
CONTACT: Edgar Garcia, Community Development Manager
[email protected], 209-577-5211
DESCRIPTION:

Consider approving a Resolution of Intention to form the City of Modesto Community Facilities District (CFD) No. 2025-2 (Village One Triangle), an area bounded by Claus Road, East Briggsmore Avenue, and the railroad along North Santa Fe Avenue, and to designate certain parcels as future annexation areas for the CFD No. 2025-2. (Funding Source: Developer Deposit)
STRATEGIC PLAN ELEMENT:

The recommended action supports the City Council’s 2025-2026 Strategic Plan, Goal D:

Provide Safe, Efficient, and Reliable Infrastructure through proactive community investment, maintenance and sustainability efforts.

BACKGROUND:

In 1982, the Mello-Roos Community Facilities Act of 19821 (Act) was adopted by the State of California as a method for financing infrastructure improvements and services associated with new developments. The Act allows infrastructure improvements and services to be funded through a special tax paid by property owners.

The Village One Specific Plan Area adopted on October 16, 1990, and approved by Resolution No. 90-828A, encompasses approximately 1,784 net acres and is bounded by Oakdale Road, Sylvan Ave, Floyd Avenue, Roselle Avenue, East Briggsmore Avenue, Claus Road, and the railroad crossing along North Santa Fe Avenue.
1 Mello Roos Act of 1982 5533-55368
#7..
- 179 -
City Council, June 10, 2025
Formation of City of Modesto Community Facilities District No. 2025-2 (Village One Triangle)

The Village One Specific Plan includes two additional Community Facilities Districts: Village One CFD No. 1996-1 and Village One #2 CFD No. 2004-1, with the proposed Village One Triangle CFD No. 2025-2 completing the development within the Village One Specific Plan area.

On July 14, 2022, the City received an application from residential developer DR Horton Bay Inc. to develop 527 single-family homes on 84 acres ("The Crossings"). In order to do so, the application included an amendment to the Land Use Element of the General Plan from Business Commercial- Residential (BCR) to Residential (R) and the Land Use Diagram of the Village One Specific Plan from Business Park (BP) to Village Residential (VR). The application included a Final Development Plan and Vesting Tentative Subdivision Map (“VTSM”) to divide the area into single-family residential lots of 3,400 square feet to 7,000 square feet, resulting in an overall project density of 6.2 dwelling units per acre.

In August 2022, DR Horton Bay Inc submitted an application and formation deposit to form a Community Facilities District (CFD). On January 23, 2024, by Resolution No. 2024-025 the City Council approved the Final Development Plan for The Crossings which consisted of 527 singlefamily residential lots, five landscaped lots and one park on the property located east of Claus Road and north of Briggsmore Ave. Additional improvements proposed include: installation of two-lane roundabouts at the intersections of Claus Road/Merle Avenue and at the intersection of E. Briggsmore Avenue/Held Drive, two internal roundabouts within the subdivision, new sidewalks, bicycle infrastructure, and a High-Intensity Activated Crosswalk (HAWK) pedestrian crossing signal at the intersection of Claus Road /Merle Avenue.

DISCUSSION:

The Mello-Roos Community Facilities Act requires that within 90 days after receiving a petition, the legislative body shall adopt a Resolution of Intention (ROI). The ROI is the first step in establishing a CFD.

While the boundaries of CFD No. 2025-2 will ultimately encompass the entire Village One Triangle are, the initial boundaries will consist of APN 014-026-017 and 014-026-034 (Initial Parcels) totaling approximately 84.01 acres. Additional properties will annex to CFD No. 2025-2 as they are ready to develop. The proposed boundary map also identifies the future annexation area and is provided as Attachment 4.

The facilities and services to be provided by CFD No. 2025-2, which include but are not limited to bike trail improvements, Claus Road Improvements, roundabout intersections, canal crossing improvements, and rail crossing improvements. The services will encompass maintenance for landscaped lots, tree pruning, masonry wall maintenance, neighborhood park maintenance, storm drain basin maintenance and other services described further in Attachment 2.

Prior to the July 22, 2025, Public Hearing, City Council meeting, the project proponents will have submitted the appropriate executed forms to the City, which include the Request, Consent and Waiver and the Landowner-Voter Ballot. The Request, Consent and Waiver form waives certain noticing and voting requirements, and requests the City execute and record a notice of special tax lien pertaining to the properties and record such notice within the official records of the County Recorder. CFD No. 2025-2 will not include any bonding authority. The Rate and Method of Apportionment (RMA) that identifies the maximum special tax rates for the parcel types within #7..
- 180 -
City Council, June 10, 2025
Formation of City of Modesto Community Facilities District No. 2025-2 (Village One Triangle)

CFD No. 2025-2, as well as a description of how the special taxes are calculated and collected, is attached as Attachment 3.

Only two parcels are requesting to be part of the initial CFD No. 2025-2 boundaries and only those two parcels will be subject to levy and collection of the special taxes until additional properties annex to CFD No. 2025-2 in the future. The annual maintenance tax is only levied on a parcel after a building permit has been issued for that property (except for single family detached which commences after a final map is recorded). The One-Time Facilities Special Tax is levied prior to issuance of a building permit. The maximum special tax rates for CFD No. 2025-2 are as follows:

Maximum Special Tax Rates Fiscal Year 2025-26
Special Tax
Category
Maximum One-Time
Facilities Special Tax
Fiscal Year 2025-26
Maximum Annual
Maintenance
Special Tax
Fiscal Year 2025-26
Single Family
Detached Property
$22,713 per
Residential Unit
$1,604 per Residential
Unit
Single Family
Attached Property
$22,713 per
Residential Unit
$1,604 per Residential
Unit
Other Property $145,418 per Acre $10,266 per Acre
On July 1, 2026, and on each July thereafter, all figures shown in the table above shall be increased by the annual Escalation Factor, the greater of (i) the percentage increase, if any, in the construction cost index for the prior twelve (12) month period as published in the Engineering News Record or (ii) four percent (4.0%).

At least thirty (30) days, and no more than sixty (60) days, following the date of the adoption of the ROI, the City Council will hold a public hearing and consider a Resolution of Formation. The public hearing is currently scheduled for July 22, 2025. The special tax may only be levied if approved by a two-thirds vote of the property owners within the boundaries.

The Owner is not seeking bonding authorization for CFD No. 2025-2, just for the authority for the One-Time Facilities Special Tax and an Annual Maintenance Special Tax. Concurrently, with the proceedings to form CFD No. 2025-2, the Owner is pursuing proceedings under the state-wide BOLD Program for the formation of a second community facilities district over the property to finance fees and additional facilities with the levy of an annual facilities special tax which will secure bonded indebtedness through the State.

The California Municipal Finance Authority2 (CMFA) is a joint powers agency, of which the City is a member. CFMA administers the BOLD Program3.Under the BOLD Program, bonds are issued by a community facilities district formed by CMFA (BOLD CFD) under the Mello-Roos Act. The City Council previously approved participation in the BOLD program, and this prior action is sufficient to approve participation in the BOLD program in partnership with CMFA.

CMFA works in partnership with City staff to ensure the program is meeting the City’s 2 California Municipal Finance Authority
3 CMFA Bold Financing
#7..
- 181 -
City Council, June 10, 2025
Formation of City of Modesto Community Facilities District No. 2025-2 (Village One Triangle)

objectives. CMFA and its consultant team will form and approve the BOLD CFD CMFA will issue bonds on behalf of the BOLD CFD and levy and collect the special taxes each year. Using the BOLD Program for bonds alleviates local agency staff time constraints.

FISCAL IMPACT:

The formation of CFD No. 2025-2 is paid through a developer deposit. There is no General Fund impact.

COMMITTEE RECOMMENDATION:

This item was presented to the Economic Development Committee on May 5, 2025, and was recommended to forward to the City Council for approval.

RECOMMENDED COUNCIL ACTION:

Staff Recommendations:

Resolution of Intention to form City of Modesto Community Facilities District (CFD) No. 2025-2 (Village One Triangle), an area bounded by Claus Road, East Briggsmore Avenue, and the railroad along North Santa Fe Avenue, and to designate certain parcels as future annexation areas for the CFD No. 2025-2 and authorize the Levy of Special Tax within CFD. No. 2025-2.

Approved by:

Jessica Hill, Director of Community and
Economic Development
Joseph P. Lopez, City Manager
Attachments:

1. Resolution

2. List of Facilities and Services

3. Rate and Method of Appointment

4. Proposed Boundary Map for CFD 2025-2 Formation
#7..
- 182 -
6/10/2025/CEDD/EGarcia/Item # 1 2025-xxx

MODESTO CITY COUNCIL
RESOLUTION NO. 2025-XXX

RESOLUTION OF INTENTION TO FORM CITY OF MODESTO COMMUNITY FACILITIES DISTRICT (CFD) NO. 2025-2 (VILLAGE ONE TRIANGLE), AN

AREA BOUNDED BY CLAUS ROAD, EAST BRIGGSMORE AVE AND THE

RAILROAD ALONG NORTH SANTA FE AVENUE AND TO DESIGNATE
CERTAIN PARCELS AS FUTURE ANNEXATION AREA FOR THE CFD NO. 2025- 2 AND AUTHORIZE THE LEVY OF SPECIAL TAX WITHIN CFD NO. 2025-2 WHEREAS, pursuant to the Mello-Roos Community Facilities Act of 1982, as amended, commencing with Section 53311 of the Government Code of the State of California (the “Act”), the City Council of the City of Modesto (the “City”) is authorized to establish a community facilities district and to act as the legislative body for a community facilities district; and
WHEREAS, the owner (collectively, the “Owner”) of not less than 10 percent of the area of land depicted on the map of the proposed community facilities district referred establish to below on file with the City Clerk (the “Property”), has filed a written petition with the City to establish the City of Modesto Community Facilities No. 2025-2 (Village One Triangle) (the “Community Facilities District”), in order to finance the cost of the facilities and services listed in Appendix A hereto (the “Facilities” and “Services”), as well as all costs associated with the creation of the Community Facilities District and administering the Community Facilities District (collectively, the “Incidental Expenses”); and
WHEREAS, the Owner has submitted to the City an application to form the Community Facilities District pursuant to the City’s Policies and Procedures for the Formation, Annexation and Administration of Community Facilities Districts Created #7..
- 183 -
6/10/2025/CEDD/EGarcia/Item # 2 2025-xxx
Pursuant to the Provisions of the Mello Roos Community Facilities Act of 1982 (the “City’s CFD Policies and Procedures”); and
WHEREAS, the Owner has submitted deposits required by the City for payment of City fees and costs incurred in conducting proceedings to create the Community Facilities District; and
WHEREAS, the petition submitted by the Owner complies with the requirements of 53319 of the Act and the City’s CFD Policies and Procedures; and WHEREAS, subject to the satisfaction of all applicable requirements of law, it is the intention of this City Council to finance the Incidental Expenses and to pay for the Facilities and Services through the formation of the Community Facilities District and the levy of annual facilities and maintenance special taxes and one-time facilities special tax, provided that the levy of the special taxes is approved at an election to be held within the initial boundaries of the Community Facilities District; and WHEREAS, the City Council also desires to institute proceedings to designate certain property within the Village One Specific Plan, as future annexation to the Community Facilities District (the “Future Annexation Area”) under and pursuant to the terms of the Act for the purpose of financing facilities and services authorized pursuant to the Act, including the Facilities and Services; and
WHEREAS, the City Council has determined that public convenience and necessity require that pursuant to Sections 53328.1 and/or 53339.3 of the Act, the Future Annexation Area be designated for annexation to the Community Facilities District with the condition that parcels within that territory may be annexed only with the unanimous #7..
- 184 -
6/10/2025/CEDD/EGarcia/Item # 3 2025-xxx
approval of the owner or owners of each parcel or parcels at the time that parcel or those parcels are annexed.

NOW, THEREFORE, BE IT RESOLVED that the Council of the City of Modesto hereby finds and determines as follows:

SECTION 1. The above recitals are true and correct and are incorporated herein by reference.

SECTION 2. The Community Facilities District is proposed to be established, with the initial parcels, and other property is proposed to be designated as future annexation area, under the terms of the Act. It is further proposed that the boundaries of the Community Facilities District and the boundaries of the future annexation area, shall be as depicted on the map of the proposed Community Facilities District which is on file with the City Clerk entitled “Map of Proposed Boundaries and Future Annexation Area of the City of Modesto Community Facilities District No. 2025-2 (Village One Triangle).” The City Clerk is hereby directed to sign the original map of the Community Facilities District and record it with all proper endorsements thereon with the County Recorder of the County of Stanislaus within fifteen days after the adoption of this resolution, all as required by Section 3111 of the Streets and Highways Code of the State of California.

SECTION 3. The name of the proposed community facilities district shall be “City of Modesto Community Facilities District No. 2025-2 (Village One Triangle).” SECTION 4. The Facilities and Services proposed to be provided within the Community Facilities District are services or facilities, as the case may be, which the City is authorized by law to construct, acquire, own and operate, or to provide. This City Council hereby finds and determines that the descriptions of the Facilities and Services #7..
- 185 -
6/10/2025/CEDD/EGarcia/Item # 4 2025-xxx
contained herein is sufficiently informative to allow taxpayers within the proposed improvement areas within Community Facilities District to understand what the funds of the Community Facilities District may be used to pay for. The Incidental Expenses expected to be incurred include the cost of forming the Community Facilities District and levying and collecting a special tax within the Community Facilities District.

The description of the Facilities and Services may be modified upon the annexation of property into the Community Facilities District, provided such modified description shall only apply to such annexed areas. Improvement areas may be designated when property is annexed into the Community Facilities District.

SECTION 6. Except where funds are otherwise available, it is the intention of the City Council to levy in accordance with procedures contained in the Act within the Community Facilities District (i) a one-time special tax sufficient to pay for the costs of financing the purchase, construction, expansion, modification, rehabilitation or improvement of a portion of the Facilities (the “One-Time Facilities Special Tax”), and (ii) an annual special tax sufficient to pay for the costs of financing the Services (the “Annual Maintenance Special Tax,” and, together with the Annual Facilities Special Tax and the One-Time Facilities Special Tax, the “Special Taxes”), and to pay for Incidental Expenses.

Upon recordation of a notice of special tax lien pursuant to Section 3114.5 of the Streets and Highways Code of the State of California, a continuing lien to secure each levy of the Special Taxes shall attach to all nonexempt real property in the Community Facilities District, and when annexed, the Future Annexation Area, and that lien shall continue in force and effect until collection of the Special Taxes ceases. #7..
- 186 -
6/10/2025/CEDD/EGarcia/Item # 5 2025-xxx
The rate, method of apportionment and manner of collection of the special tax are described in detail in Appendix B attached hereto and incorporated herein as though set forth at length (the “Rate and Method”). Appendix B allows each landowner within the Community Facilities District to estimate the maximum amount that may be levied against each parcel.

If special taxes within the Community Facilities District are levied against any parcel used for private residential purposes to pay for public facilities, under no circumstances will such special tax be increased as a consequence of delinquency or default by the owner of any other parcel or parcels within the Community Facilities District, and for each annexed area or future improvement area from the Future Annexation Area, when annexed, by more than ten percent (10%) within the Community Facilities District or same improvement area, as applicable.

This City Council hereby determines the Rate and Method to be reasonable. The special tax is apportioned to each parcel on the basis of its land use and area pursuant to Section 53325.3 of the Act; and such special tax is not on or based upon the value or ownership of real property. In the event that a portion of the property within the Community Facilities District shall become for any reason exempt, wholly or partially, from the levy of the special tax, this City Council shall, on behalf of the Community Facilities District, cause the levy to be increased, subject to the limitation of the maximum special tax for a parcel as set forth in the Rate and Method, to the extent necessary upon the remaining property within the Community Facilities District, and for each annexed area or future improvement area from the Future Annexation Area, when annexed, which is not delinquent or exempt in order to yield the special tax revenues required for the purposes #7..
- 187 -
6/10/2025/CEDD/EGarcia/Item # 6 2025-xxx
described in this Section 5. The Annual Maintenance Special Tax shall be levied and collected in perpetuity. The One-Time Facilities Special Tax shall be levied and collected as provided in the Rate and Method.

SECTION 6. A public hearing (the “Hearing”) on the establishment of the Community Facilities District, the designation of the Future Annexation Area and the proposed Rate and Method shall be held on July 22, 2025, at 5:30 p.m., or as soon thereafter as practicable, at the Modesto City Council Chamber, 1010 Tenth Street, Modesto, CA 95353. Should this City Council determine to form the Community Facilities District, a special election will be held to authorize the levy of the special tax within the Community Facilities District in accordance with the procedures contained in Government Code Section 53326. If held, the proposed voting procedure at the election is expected to be a landowner vote with each landowner of record as of the close of the Hearing within the Community Facilities District having one vote for each acre of land or portion thereof owned within the Community Facilities District. Ballots for the special election may be distributed by mail or by personal service.

SECTION 7. At the time and place set forth above for the Hearing, any interested person, including all persons owning lands or registered to vote within the proposed Community Facilities District or the Future Annexation Area, may appear and be heard.

SECTION 8. Each officer of the City who is or will be responsible for providing the Facilities and Services within the proposed Community Facilities District, if it is established, and within the Future Annexation Area, when annexed, is hereby directed to study the proposed Community Facilities District and, at or before the time of the Hearing, file a report with this City Council containing a brief description of the Facilities and #7..
- 188 -
6/10/2025/CEDD/EGarcia/Item # 7 2025-xxx
Services, as the case may be, which will in his or her opinion be required to meet adequately the needs of the proposed Community Facilities District and an estimate of the cost of providing those Facilities and Services and an estimate of the fair and reasonable cost of any Incidental Expenses to be incurred.

SECTION 9. The City may accept advances of funds or work-in-kind from any source, including, but not limited to, private persons or private entities, for any authorized purpose, including, but not limited to, paying any cost incurred by the City in creating the Community Facilities District. The City may enter into an agreement with the person or entity advancing the funds or work-in-kind, to repay all or a portion of the funds advanced, or to reimburse the person or entity for the value, or cost, whichever is less, of the workin-kind, as determined by this City Council, with or without interest.

SECTION 10. Pursuant to Section 53340 of the Act, and except as provided in Section 53317.3 of the Act or in the Rate and Method, properties of entities of the state, federal, and local governments shall be exempt from the levy of the Special Taxes.

SECTION 11. The City Council hereby finds that the proposed Facilities and Services are necessary to meet increased demands put upon the City as a result of the new development within the proposed Community Facilities District, and when annexed, the Future Annexation Area.

SECTION 12. The City Clerk is hereby directed to publish a notice (the “Notice”) of the Hearing pursuant to Section 6061 of the Government Code in a newspaper of general circulation published in the area of the Community Facilities District. Such publication shall be completed at least seven days prior to the date of the Hearing. The City Clerk is further directed to mail a copy of the Notice to each of the landowners and registered voters, #7..
- 189 -
6/10/2025/CEDD/EGarcia/Item # 8 2025-xxx
if any, within the boundaries of the Community Facilities District at least 15 days prior to the Hearing. The Notice shall contain the text or a summary of this Resolution, the time and place of the Hearing, a statement that the testimony of all interested persons or taxpayers will be heard, a description of the protest rights of the registered voters and landowners in the proposed Community Facilities District and a description of the proposed voting procedure for the election required by the Act.

SECTION 13. The Future Annexation Area will be annexed into the Community Facilities District only at such time as the Community Facilities District receives unanimous written approval to be annexed from the owner or owners of each parcel or parcels of the portion of the Future Annexation Area proposed to be annexed at that time.

Annexations to the Community Facilities District may include separate and distinct improvement areas, modified descriptions of facilities and services and/or modified special tax rates as set forth in a modified or separate Rate and Method at the time of annexation. #7..
- 190 -
6/10/2025/CEDD/EGarcia/Item # 9 2025-xxx
The foregoing resolution was introduced at a regular meeting of the Council of the City of Modesto held on the 10th day of June, 2025, by Councilmember ____________, who moved its adoption, which motion being duly seconded by Councilmember ___________, was upon roll call carried and the resolution adopted by the following vote:

AYES: Councilmembers:

NOES: Councilmembers:

ABSTAIN: Councilmembers:

ABSENT: Councilmembers:

ATTEST:

DIANE NAYARES-PEREZ, City
Clerk
APPROVED AS TO FORM:

By:

JOSE M. SANCHEZ, City Attorney
#7..
- 191 -

APPENDIX A

CITY OF MODESTO
COMMUNITY FACILITIES DISTRICT NO. 2025-2
(VILLAGE ONE TRIANGLE)

LIST OF FACILITIES
The types of Facilities and Services proposed to be financed by Community Facilities District No. 2025-2 (CFD) are as follows:

Authorized Facilities:

The CFD shall be authorized to finance all or any part of the costs of acquisition, construction and improvement of the following facilities (the “Facilities”):
 Bike Trail
 Road Improvements
 Roundabout Intersections
 MID Crossing Improvements
 Rail Crossing Improvements
The Facilities shall include all hard and soft costs associated with the improvements, including the costs of acquisition of land and rights-of-way, the costs of design, engineering and planning, the costs of environmental or traffic studies, surveys or other reports, costs related to landscaping and irrigation, soils testing, permits, plan check, and inspection fees, insurance, legal and related overhead costs, coordination and supervision and any other costs or appurtenances related to any of the foregoing. The CFD may also fund, and the special taxes may also be used to directly pay for, the purchase, construction, expansion, improvement or rehabilitation of any of the Facilities, and to reimburse the City or any third parties for advances made to purchase, construct, expand, improve or rehabilitate any of the Facilities. #7..
- 192 -

LIST OF SERVICES
Maintenance of the Neighborhood Park(s), arterial road parkway, median and roundabout landscaping, tree pruning, connector street parkway, median landscaping, bike trails, masonry walls, central basin and storm drain facilities.

The services to be provided include, but are not limited to, litter and debris removal, pruning, staking, fertilizing, plant replacement and restoration, fire and weed control, erosion control, trimming of vegetation, and storm drain system maintenance. Authorized services shall also include the following: (i) related reserves for the replacement of plants and materials, replacement of storm water treatment filters and other storm drainage facilities, and (ii) a sinking fund for services that could not otherwise be funded in a given fiscal year.

The services to be financed by the CFD are in addition to those provided in the territory of the CFD before the date of creation of the CFD and will not supplant services already available within that territory when the CFD was created.

Administrative Expenses
The administrative expenses to be funded by the CFD include the direct and indirect expenses incurred by the City in carrying out its duties with respect to the CFD including, but not limited to, the levy and collection of special taxes, fees and expenses of attorneys, any fees of the County of Stanislaus related to the CFD or the collection of special taxes, an allocable share of the salaries of the City staff related thereto, and expenses incurred by the City in undertaking action to foreclose on properties for which the payment of special taxes is delinquent, and all other costs and expenses of the City in any way related to the CFD.
#7..
- 193 -

APPENDIX B

PROPOSED RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAX

ADD UPDATED RMA
#7..
- 194 -

CITY OF MODESTO
COMMUNITY FACILITIES DISTRICT NO. 2025-2
(VILLAGE ONE TRIANGLE)

LIST OF FACILITIES
The types of Facilities and Services proposed to be financed by Community Facilities District No. 2025-2 (CFD) are as follows:

Authorized Facilities:

The CFD shall be authorized to finance all or any part of the costs of acquisition, construction and improvement of the following facilities (the “Facilities”):
 Bike Trail
 Road Improvements
 Roundabout Intersections
 MID Crossing Improvements
 Rail Crossing Improvements
The Facilities shall include all hard and soft costs associated with the improvements, including the costs of acquisition of land and rights-of-way, the costs of design, engineering and planning, the costs of environmental or traffic studies, surveys or other reports, costs related to landscaping and irrigation, soils testing, permits, plan check, and inspection fees, insurance, legal and related overhead costs, coordination and supervision and any other costs or appurtenances related to any of the foregoing. The CFD may also fund, and the special taxes may also be used to directly pay for, the purchase, construction, expansion, improvement or rehabilitation of any of the Facilities, and to reimburse the City or any third parties for advances made to purchase, construct, expand, improve or rehabilitate any of the Facilities. #7..
- 195 -

LIST OF SERVICES
Maintenance of the Neighborhood Park(s), arterial road parkway, median and roundabout landscaping, tree pruning, connector street parkway, median landscaping, bike trails, masonry walls, central basin and storm drain facilities.

The services to be provided include, but are not limited to, litter and debris removal, pruning, staking, fertilizing, plant replacement and restoration, fire and weed control, erosion control, trimming of vegetation, and storm drain system maintenance. Authorized services shall also include the following: (i) related reserves for the replacement of plants and materials, replacement of storm water treatment filters and other storm drainage facilities, and (ii) a sinking fund for services that could not otherwise be funded in a given fiscal year.

The services to be financed by the CFD are in addition to those provided in the territory of the CFD before the date of creation of the CFD and will not supplant services already available within that territory when the CFD was created.

Administrative Expenses
The administrative expenses to be funded by the CFD include the direct and indirect expenses incurred by the City in carrying out its duties with respect to the CFD including, but not limited to, the levy and collection of special taxes, fees and expenses of attorneys, any fees of the County of Stanislaus related to the CFD or the collection of special taxes, an allocable share of the salaries of the City staff related thereto, and expenses incurred by the City in undertaking action to foreclose on properties for which the payment of special taxes is delinquent, and all other costs and expenses of the City in any way related to the CFD.
#7..
- 196 -

CFD No. 2025-2 (Village One Triangle) 1 May 22, 2025

CITY OF MODESTO
COMMUNITY FACILITIES DISTRICT NO. 2025-2
(VILLAGE ONE TRIANGLE)

RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAXES
Special Taxes applicable to each Assessor’s Parcel in the City of Modesto Community Facilities District No. 2025-2 (Village One Triangle) shall be levied and collected according to the tax liability determined by the City or its designee, through the application of the appropriate amount or rate for Taxable Property, as described below. All of the property in the CFD, unless exempted by law or by the provisions of Section H below, shall be taxed for the purposes, to the extent, and in the manner herein provided, including property subsequently annexed to the CFD.

A. DEFINITIONS
The terms hereinafter set forth have the following meanings:
“Acre” or “Acreage” means the land area of an Assessor’s Parcel as shown on an Assessor’s Parcel Map, or if the land area is not shown on an Assessor’s Parcel Map, the land area shown on the applicable Final Map or other Development Plan.
“Act” means the Mello-Roos Community Facilities Act of 1982, as amended, being Chapter 2.5, (commencing with Section 53311), Part 1, Division 2 of Title 5 of the California Government Code.
“Administrative Expenses” means any or all of the following: the expenses of the City in carrying out its duties with respect to the CFD, including, but not limited to, the levy and collection of Special Taxes, the fees and expenses of its counsel, charges levied by the County in connection with the levy and collection of Special Taxes, costs related to property owner inquiries regarding the Special Taxes, costs associated with appeals or requests for interpretation associated with the Special Taxes and this RMA, costs associated with foreclosure and collection of delinquent Special Taxes, and all other costs and expenses of the City in any way related to the establishment or administration of the CFD.
“Administrator” means the person or firm designated by the City to administer the Special Taxes according to this RMA.
“Annual Maintenance Special Tax” means a special tax levied in any Fiscal Year to pay the Maintenance Special Tax Requirement, as defined below.
“Assessor’s Parcel” or “Parcel” means a lot or parcel shown on an Assessor’s Parcel Map with an assigned Assessor’s Parcel number.
“Assessor’s Parcel Map” means an official map of the County Assessor designating parcels by Assessor’s Parcel Number.
#7..
- 197 -

CFD No. 2025-2 (Village One Triangle) 2 May 22, 2025
“Assessor’s Parcel Number” means a unique number assigned to an Assessor’s Parcel by the County Assessor for purposes of identifying a property. “Authorized Facilities” means the public facilities authorized to be funded by the CFD as set forth in the documents adopted by the City Council when the CFD was formed. “Authorized Services” means the public services authorized to be funded by the CFD as set forth in the documents adopted by the City Council when the CFD was formed. “Base Annual Maintenance Special Tax” means the applicable Annual Maintenance Special Tax initially identified in Table 1 of Section C, as may be adjusted pursuant to Section D herein. “Base One-Time Facilities Special Tax” means the applicable One-Time Facilities Special Tax initially identified in Table 1 of Section C, as may be adjusted pursuant to Section D herein. “Base Special Taxes” means, collectively, the Base Annual Maintenance Special Tax and the Base One-Time Facilities Special Tax.
“Building Permit” means a permit that allows for vertical construction of a building or buildings, which shall not include a separate permit issued for construction of the foundation thereof. “CFD” means the City of Modesto Community Facilities District No. 2025-2 (Village One Triangle).
“CFD Formation” means the date on which the Resolution of Formation to form the CFD was adopted by the City Council.
“City” means the City of Modesto.
“City Council” means the City Council of the City of Modesto, acting as the legislative body of the CFD.
“County” means the County of Stanislaus.
“Developed Property” means, in any Fiscal Year, the following:

For purposes of levying the Annual Maintenance Special Tax:
• for Single Family Detached Property, all Parcels for which a Final Map was recorded prior to June 30 of the preceding Fiscal Year but not prior to June 30, 2024; • for Single Family Attached Property, all Parcels for which a Building Permit was issued prior to June 30 of the preceding Fiscal Year but not prior to June 30, 2024; • for Other Property, all parcels for which a Building Permit was issued prior to June 30 of the preceding Fiscal Year but not prior to June 30, 2024. #7..
- 198 -

CFD No. 2025-2 (Village One Triangle) 3 May 22, 2025
For purposes of levying the One-Time Facilities Special Tax: all Parcels for which a Building Permit was issued prior to June 30 of the preceding Fiscal Year but not prior to June 30, 2024.
“Development Class” means, individually, Developed Property and Undeveloped Property. “Development Plan” means a condominium plan, apartment plan, site plan or other development plan that identifies such information as the type of structure, the acreage, the square footage, and/or the number of Units that will be developed on Single Family Attached Property or Other Property. “Escalation Factor” means, in any Fiscal Year, the greater of (i) the percentage increase, if any, in the construction cost index for the San Francisco region for the prior twelve (12) month period as published in the Engineering News Record or other comparable source if the Engineering News Record is discontinued or otherwise not available, or (ii) four percent (4.0%). “Expected Maximum Annual Maintenance Special Tax Revenues” means the aggregate Annual Maintenance Special Tax that can be levied based on application of the Base Annual Maintenance Special Tax to the Expected Land Uses. The Expected Maximum Annual Maintenance Special Tax Revenues at CFD Formation are shown in Attachment 1 and may be revised pursuant to Sections D and E below. Updates to Attachment 1 shall be maintained internally by the Administrator and shall not require recordation of an amended RMA. “Expected Maximum One-Time Facilities Special Tax Revenues” means the aggregate OneTime Facilities Special Tax that can be levied based on application of the Base One-Time Facilities Special Tax to the Expected Land Uses. The Expected Maximum One-Time Facilities Special Tax Revenues at CFD Formation are shown in Attachment 1 and may be revised pursuant to Sections D and E below. Updates to Attachment 1 shall be maintained internally by the Administrator and shall not require recordation of an amended RMA. “Final Map” means a final map, or portion thereof, approved by the City pursuant to the Subdivision Map Act (California Government Code Section 66410 et seq) that creates Single Family Detached Lots. The term “Final Map” shall not include any large-lot subdivision map, Assessor’s Parcel Map, or subdivision map or portion thereof, that does not create Single Family Detached Lots, including Assessor’s Parcels that are designated as remainder parcels. “Fiscal Year” means the period starting July 1 and ending on the following June 30. “Future Annexation Area” means that geographic area that, at the time of CFD Formation, was considered potential annexation area for the CFD and which was, therefore, identified as “future annexation area” on the recorded CFD boundary map. Such designation does not mean that any or all of the Future Annexation Area will annex into the CFD, but should property designated as Future Annexation Area choose to annex, the annexation may be processed pursuant to the streamlined annexation procedures provided in the Act.
“Land Use Category” means the categories of land use identified in Table 1 in Section C below. “Maintenance Special Tax Requirement” means the amount of revenue needed in any Fiscal Year to pay for: (i) Authorized Services, (ii) establishment of reserves, (iii) Administrative #7..
- 199 -

CFD No. 2025-2 (Village One Triangle) 4 May 22, 2025
Expenses, and (iv) amounts needed to cure any delinquencies in the payment of Annual Maintenance Special Taxes which have occurred in prior Fiscal Years. “Maximum Annual Maintenance Special Tax” means the greatest amount of Annual Maintenance Special Tax that can be levied on an Assessor’s Parcel in any Fiscal Year determined in accordance with Sections C and D below.
“Maximum Annual Maintenance Special Tax Revenues” means, for a particular Tax Zone in any Fiscal Year, the aggregate revenues that can be generated if the Maximum Annual Maintenance Special Tax is levied on all Parcels of Taxable Property in that Tax Zone. “Maximum One-Time Facilities Special Tax” means the greatest amount of One-Time Facilities Special Tax that can be levied on an Assessor’s Parcel in any Fiscal Year determined in accordance with Sections C and D below.
“Maximum Special Taxes” means, collectively, the Maximum One-Time Facilities Special Tax and Maximum Annual Maintenance Special Tax.
“One-Time Facilities Special Tax” means a special tax levied on Taxable Property to pay the One-Time Facilities Special Tax Requirement.
“One-Time Facilities Special Tax Requirement” means, for a Parcel of Taxable Property in the CFD, the amount needed to pay the Parcel’s share of the cost of Authorized Facilities as determined by the City, which amount shall not exceed the Maximum One-Time Facilities Special Tax assigned to the Parcel pursuant to this RMA.

“Other Property” means any Parcel of Developed Property in the CFD that is not Single Family Attached Property, Single Family Detached Property, Owners Association Property, or Public Property.
“Owners Association” means a homeowners association or property owners association that provides services to, and collects assessments, fees, dues, or charges from, property within the CFD.
“Owners Association Property” means any property within the boundaries of the CFD that is owned in fee or through easement by the Owners Association, not including any such property that is located directly under a residential structure.
“Proportionately” means, for each Development Class, that the ratio of the actual Annual Maintenance Special Tax levied in any Fiscal Year to the Maximum Annual Maintenance Special Tax authorized to be levied in that Fiscal Year is equal for all parcels assigned to the Development Class.
“Public Property” means any property within the boundaries of the CFD that is owned by the federal government, State of California, County, City, or other public agency. “Required Annual Maintenance Special Tax Revenues” means the lowest amount of Maximum Annual Maintenance Special Tax Revenues in a Tax Zone that must be available to #7..
- 200 -

CFD No. 2025-2 (Village One Triangle) 5 May 22, 2025
the City in any Fiscal Year, although the actual amount levied in any Fiscal Year may be less that then Maximum Annual Maintenance Special Tax Revenues. The Required Annual Maintenance Services Revenues for Tax Zone 1 for Fiscal Year 2025-26 is $850,120, which amount shall be adjusted on July 1, 2026 and each July 1 thereafter by the Escalation Factor. The Required Annual Maintenance Revenues will also be adjusted, as needed, based on Section E below. “Required One-Time Facilities Special Tax Revenues” means the minimum amount of aggregate One-Time Facilities Special Tax Revenues to be generated from Taxable Property within a particular Tax Zone. The Required One-Time Special Revenues for Tax Zone 1 for Fiscal Year 2025-26 is $12,037,890, which amount shall be adjusted on July 1, 2026 and each July 1 thereafter by the Escalation Factor. The Required One-Time Facilities Special Tax Revenues will also be adjusted, as needed, based on Section E below.
“RMA” means this Rate and Method of Apportionment of Special Taxes. “SFD Unit” means a residential dwelling unit that does not share a common wall with another residential dwelling unit.
“Single Family Attached Property” means, in any Fiscal Year, all Parcels of Developed Property for which a Building Permit was issued for construction of a residential structure consisting of two or more Units that share common walls and are offered as for-sale Units, including such residential structures that meet the statutory definition of a condominium contained in Civil Code Section 1351.
“Single Family Detached Lot” means an individual residential lot, identified and numbered on a recorded Final Map, on which a Building Permit has been or is permitted to be issued for construction of an SFD Unit without further subdivision of the lot and for which no further subdivision of the lot is anticipated pursuant to an approved Tentative Map. “Single Family Detached Property” means, in any Fiscal Year, all Parcels of Developed Property for which a Building Permit was issued or will be issued for construction of an SFD Unit. “Special Taxes” means, collectively, the One-Time Facilities Special Tax and the Annual Maintenance Special Tax.

“Tax Zone” means a mutually exclusive geographic area within which Special Taxes may be levied pursuant to this RMA. All property in the CFD at CFD Formation is within Tax Zone 1.

Additional Tax Zones may be created when property is annexed into the CFD, and the amount of each Special Tax will be identified for property within the new Tax Zone at the time of such annexation. The Assessor’s Parcels included within a new Tax Zone established when such Parcels are annexed to the CFD shall be identified by Assessor’s Parcel number in the Unanimous Approval Form that is signed by the owner(s) of the Parcels at the time of annexation. “Tax Zone 1” means the property included in the CFD at CFD Formation and any property that is subsequently annexed into Tax Zone 1.
“Taxable Property” means all Assessor’s Parcels within the boundaries of the CFD that are not exempt from the Special Tax pursuant to law or Section H below. #7..
- 201 -

CFD No. 2025-2 (Village One Triangle) 6 May 22, 2025
“Tentative Map” means a tentative map or substantial conformance exhibit for property in the CFD, including any adjustments or amendments thereto.
“Unanimous Approval Form” means the form executed by the record owner of fee title to the Parcel or Parcels included within the Future Annexation Area and annexed into the CFD that constitutes the property owner’s approval and unanimous vote in favor of annexing the property into the CFD and authorizes the levy of Special Taxes against his/her Parcel or Parcels pursuant to this RMA.
“Undeveloped Property” means, in any Fiscal Year, all Parcels of Taxable Property within the CFD that are not Developed Property.
“Unit” means (i) for Single Family Detached Property, an SFD Unit and (ii) for Single Family Attached Property, an individual residential unit within a duplex, triplex, fourplex, townhome, or condominium structure.

B. DATA FOR ADMINISTRATION OF THE SPECIAL TAXES
Each Fiscal Year, the Administrator shall: (i) determine the Tax Zone within which each Parcel of Taxable Property is located; (ii) categorize each Parcel of Taxable Property according to its Development Class; (iii) for Developed Property, categorize each Parcel as Single Family Detached Property, Single Family Attached Property, or Other Property; (iv) for Parcels of Single Family Attached Property, determine the number of Units on each Parcel; (v) for Other Property, determine the Acreage of each Parcel; and (vi) determine the Maintenance Special Tax Requirement for the Fiscal Year.

In any Fiscal Year, if it is determined that: (i) a parcel map for property in the CFD was recorded after January 1 of the prior Fiscal Year (or any other date after which the Assessor will not incorporate the newly-created Parcels into the then current tax roll), (ii) because of the date the parcel map was recorded, the Assessor does not yet recognize the new Parcels created by the parcel map, and (iii) one or more of the newly-created Parcels is in a different Development Class than other Parcels created by the subdivision, the Administrator shall calculate the Special Taxes for the property affected by recordation of the parcel map by determining the Special Taxes that apply separately to the property within each Development Class, then applying the sum of the individual Special Taxes to the Parcel that was subdivided by recordation of the parcel map.

C. MAXIMUM SPECIAL TAXES

1. Developed Property
The Maximum Special Taxes for Parcels of Developed Property in Tax Zone 1 shall be the greater of (i) the Base Special Taxes set forth in Table 1 below, or (ii) the Maximum Special Taxes determined pursuant to Section D below. For property that annexes into the CFD, different maximum special tax rates may be established by creating a separate Tax Zone for such annexed property. Alternatively, property may be annexed into Tax Zone 1 or another Tax Zone that was established prior to the annexation, and such property shall be subject to the Maximum Special Taxes applicable to that Tax Zone.
#7..
- 202 -

CFD No. 2025-2 (Village One Triangle) 7 May 22, 2025
Table 1
Base Special Taxes for Developed Property
Tax Zone 1
Land Use
Category
Base One-Time Facilities
Special Tax
(Fiscal Year 2025-26)*
Base Annual Maintenance
Special Tax
(Fiscal Year 2025-26)*
Single Family
Detached Property
$22,713 per
Residential Unit
$1,604 per
Residential Unit
Single Family
Attached Property
$22,713 per
Residential Unit
$1,604 per
Residential Unit
Other Property $145,418 per Acre $10,266 per Acre
* Beginning July 1, 2026 and each July 1 thereafter, the Maximum Special Taxes shall be adjusted by the Escalation Factor.

2. Undeveloped Property
The Maximum Annual Maintenance Special Tax for Undeveloped Property in all Land Use Categories in Tax Zone 1 is $10,266 per Acre for Fiscal Year 2025-26, which amount shall be increased on July 1, 2026 and each July 1 thereafter by an amount equal to the Escalation Factor.

D. CHANGES TO THE MAXIMUM SPECIAL TAXES

1. Land Use Changes
The Expected Maximum Annual Maintenance Special Tax Revenues and Expected Maximum One-Time Facilities Special Tax Revenues shown in Attachment 1 were originally calculated based on the Expected Land Uses in Tax Zone 1 at the time of CFD Formation. Attachment 1 is subject to modification upon annexation of property into the CFD and the occurrence of Land Use Changes, as described below. The Administrator shall review all Land Use Changes and compare the revised land uses to the Expected Land Uses within the affected Tax Zone to evaluate the impact on the Expected Maximum Annual Maintenance Special Tax Revenues and Expected One-Time Facilities Special Tax Revenues in the Tax Zone.

If a Land Use Change is proposed or identified that will result in a change in the Expected Maximum Annual Maintenance Special Tax Revenues and Expected Maximum One-Time Facilities Special Tax Revenues within a Tax Zone, Steps 1 through 3 below must be applied:

Step 1: By reference to Attachment 1 (which shall be updated by the Administrator each time property is annexed into the CFD and each time a Land Use Change has been processed according to this Section D), the Administrator shall identify the Expected Maximum Annual Maintenance Special Tax Revenues and Expected Maximum One-Time Facilities Special Tax Revenues for the affected Tax Zone prior to the Land Use Change.

Step 2: The Administrator shall calculate the Expected Maximum Annual Maintenance Special Tax Revenues and Expected Maximum One-Time Facilities Special #7..
- 203 -

CFD No. 2025-2 (Village One Triangle) 8 May 22, 2025
Tax Revenues that could be collected from Taxable Property in the affected Tax Zone after the Land Use Change.

Step 3: If the revenues calculated in Step 2 are higher than that determined in Step 1, no further action is needed, and the Administrator shall update Attachment 1 to show the revised Expected Maximum Annual Maintenance Special Tax Revenues and Expected Maximum One-Time Facilities Special Tax Revenues for the affected Tax Zone and for the CFD as a whole.

If the revenues calculated in Step 2 are less than those calculated in Step 1, and the Administrator determines that the Expected Maximum Annual Maintenance Special Tax Revenues and Expected Maximum One-Time Facilities Special Tax Revenues for the affected Tax Zone are less than the Required Annual Maintenance Special Tax Revenues and Required One-Time Facilities Special Tax Revenues for that Tax Zone, then the Administrator shall:

i. Identify all remaining Parcels of Undeveloped Property in the affected Tax Zone (the “Adjustment Property”);
ii. Determine the number of Residential Units and Acres of Other Property, if applicable, that are expected on the Adjustment Property after the Land Use Change;
iii. Increase the Base Annual Maintenance Special Tax and Base One-Time Facilities Special Tax proportionately for each Land Use Category expected on the Adjustment Property until, when applied to the Expected Land Uses on the Adjustment Property, the Maximum Annual Maintenance Special Tax Revenues and Maximum One-Time Facilities Special Tax Revenues that can be collected within the Tax Zone are equal to the Required Annual Maintenance Special Tax Revenues and Required One-Time Special Tax Revenues for that Tax Zone. The amounts calculated shall thereafter be the Maximum Annual Maintenance Special Tax and Maximum One-Time Facilities Special Tax for each Unit and/or Acre of Other Property, if applicable, when the Adjustment Property becomes Developed Property, which amount shall be increased by the Escalation Factor. The Administrator shall update Attachment 1 to reflect the Expected Land Uses, Maximum Special Taxes, Expected Maximum Annual Maintenance Special Tax Revenues, and Expected Maximum One-Time Facilities Special Tax Revenues for the Adjustment Property.

For purposes of this Step 3.b, a landowner may make a request to the City and the Administrator that the Adjustment Property include only particular Parcels that are under his/her ownership. If such a request is made, the Administrator will calculate the Maximum Special Taxes that would apply to the identified Parcels, and the City shall review the Maximum Special Taxes to determine if the request should be approved based on existing City policies and special tax rates on comparable land uses within the CFD.
#7..
- 204 -

CFD No. 2025-2 (Village One Triangle) 9 May 22, 2025
The duties imposed on the Administrator to review Land Use Changes and to make the calculations set forth above, are intended only to facilitate administration of the Special Taxes and to better assure the sufficiency of tax capacity to pay for Authorized Facilities and Authorized Services.

Such duties are not intended to give any developer, subdivider, or owner of property any right to receive notice of the potential impact of Land Use Changes on the Special Taxes applicable to a Parcel; and each developer, subdivider, or owner of property in the CFD shall be responsible for understanding the impact thereof on the Special Taxes applicable to such property.

Pursuant to this Section D, the Administrator may from time to time update Attachment 1 to reflect revised Expected Maximum Annual Maintenance Special Tax Revenues and Expected Maximum One-Time Facilities Special Tax Revenues. Such update shall be maintained internally by the Administrator and shall not require recordation of an amended RMA.

2. Conversion of a Parcel to a Taxable Land Use
If, in any Fiscal Year, a Parcel of Public Property or Owners Association Property that had been exempt from the Special Taxes is converted to a Land Use Category, such Parcel shall be subject to the levy of the Special Taxes. The Maximum Special Taxes for each such Parcel shall be determined based on the applicable Land Use Category and Tax Zone for the Parcel, as determined by the City and the Administrator.

E. ANNEXATIONS
If, in any Fiscal Year, a property owner within the Future Annexation Area wants to annex property into the CFD, the Administrator shall apply the following steps as part of the annexation:

Step 1: Working with City staff, the Administrator shall determine the following for the area being annexed: (i) the Expected Land Uses and (ii) the Tax Zone into which the property is to be annexed.

Step 2: The Administrator shall prepare an updated Attachment 1 to reflect the annexed property and identify the revised Expected Land Uses, Tax Zones, and Expected Maximum Annual Maintenance Special Tax Revenues and Maximum OneTime Facilities Special Tax Revenues. After the annexation is complete, the application of this RMA shall be based on the adjusted Expected Land Uses, Expected Maximum Annual Maintenance Special Tax Revenues, and Expected Maximum One-Time Facilities Special Tax Revenues, as applicable, including the newly annexed property.

Step 3: The Administrator shall ensure that a Notice of Special Tax Lien is recorded against all Parcels that are annexed to the CFD.

F. METHOD OF LEVY OF THE SPECIAL TAXES

1. One-Time Facilities Special Tax
Prior to issuance of a Building Permit for a Parcel of Taxable Property, the One-Time Facilities Special Tax shall be levied on the Parcel in the amount of the One-Time Facilities Special Tax Requirement for the Parcel, as determined by the City.
#7..
- 205 -

CFD No. 2025-2 (Village One Triangle) 10 May 22, 2025

2. Annual Maintenance Special Tax
Each Fiscal Year, the Administrator shall determine the Maintenance Special Tax Requirement for that Fiscal Year. The Annual Maintenance Special Tax shall then be levied on all Parcels of Taxable Property as follows:

Step 1: The Annual Maintenance Special Tax shall be levied Proportionately on each Parcel of Developed Property within the CFD up to 100% of the Maximum Annual Maintenance Special Tax for each Parcel for such Fiscal Year.

Step 2: If additional revenue is needed after Step 1, the Annual Maintenance Special Tax shall be levied Proportionately on each Assessor’s Parcel of Undeveloped Property within the CFD, up to 100% of the Maximum Annual Maintenance Special Tax for each Parcel of Undeveloped Property for such Fiscal Year.

G. COLLECTION OF SPECIAL TAXES
The One-Time Facilities Special Tax shall be collected prior to a Building Permit being issued for any residential or non-residential structure on Taxable Property and shall be immediately delinquent if not so paid.

The Annual Maintenance Special Tax shall be collected in the same manner and at the same time as ordinary ad valorem property taxes, provided, however, that the City may directly bill, collect at a different time or in a different manner, and/or collect delinquent Annual Maintenance Special Taxes through foreclosure or other available methods. The Annual Maintenance Special Tax will continue to be levied and collected unless and until the City determines that Annual Maintenance Special Tax revenues are no longer needed to pay for Authorized Services.

H. EXEMPTIONS
No Special Taxes shall be levied on Public Property or Owners Association Property, as defined herein. Notwithstanding the foregoing, if in any Fiscal Year, a Parcel of Public Property is converted to private use, such Parcel may be subject to the levy of Special Taxes. In such case, the City shall determine the appropriate Maximum Special Taxes for the Parcel based on the land uses to be constructed on the Parcel.

I. INTERPRETATION OF SPECIAL TAX FORMULA
The City reserves the right to make minor administrative and technical changes to this document that do not materially affect the rate and method of apportioning Special Taxes. In addition, the interpretation and application of any section of this document shall be left to the City’s discretion.

Interpretations may be made by the City by ordinance or resolution for purposes of clarifying any vagueness or ambiguity in this RMA.
#7..
- 206 -
ATTACHMENT 1
City of Modesto
Community Facilities District No. 2025-2
(Village One Triangle)
Expected Maximum Special Tax Revenues
Tax Zone 1
One-Time Facilities Special Tax Annual Maintenance Special Tax Land Use
Category
Expected
Land Uses
Base One-Time
Facilities
Special Tax
(FY 2025-26) *
Expected Maximum
One-Time
Facilities Special
Tax Revenues
(FY 2025-26) *
Base Annual
Maintenance
Special Tax
(FY 2025-26) *
Expected Maximum
Annual Maintenance
Special
Tax Revenues
(FY 2025-26) *
Single Family
Detached Property
530
Residential Units
$22,713 per
Residential Unit $12,037,890
$1,604 per
Residential Unit $850,120
Single Family
Attached Property
0 Residential Units
$22,713 per
Residential Unit $0
$1,604 per
Residential Unit $0
Other Property 0 Acres $145,418 per Acre $0 $10,266 per Acre $0 $12,037,890 $850,120
* Beginning July 1, 2026 and each July 1 thereafter, all dollar figures shown above shall be adjusted by the Escalation Factor. #7..
- 207 -
200' 400' SCALE: 1"=400' 0' 800'

VILLAGE ONE TRIANGLE
APN 014-026-017
APN 014-026-034
APN 014-026-025
APN 014-026-032
APN 014-026-033
APN 014-026-003
(NOT A PART OF CFD OR

FUTURE ANNEXATION AREA)
APN
014-026-035
FUTURE

ANNEXATION AREA

FUTURE ANNEXATION AREA CLAUS ROAD

BRIGGSMORE AVENUE
M.I.D. LATERAL NO. 3
B.N.S.F. RAILROAD SANTA FE AVENUE

MILNES ROAD NOT TO SCALE VICINITY MAP PROJECT SITE E BRIGGSMORE AVE MERLE AVE FLOYD AVE SANTA FE AVE DEWITT RD PARKER RD HELD DR 3 4 2 8 B r o o k s i d e R o a d , S t o c k t o n , C a l i f o r n i a 9 5 2 1 9 2 0 9 - 9 4 3 - 2 0 2 1 w w w . s i e g f r i e d e n g . c o m F x : 2 0 9 - 9 4 2 - 0 2 1 4 CIVIL ENGINEERING STRUCTURAL ENGINEERING SURVEYING PLANNING PROPOSED BOUNDARIES AND FUTURE ANNEXATION AREA OF CITY OF MODESTO COMMUNITY FACILITIES DISTRICT NO. 2025-2 (VILLAGE ONE TRIANGLE) CITY OF MODESTO, COUNTY OF STANISLAUS, STATE OF CALIFORNIA COUNTY RECORDER'S STATEMENT: FILED THIS _________ DAY OF _______________, 2025, AT THE HOUR OF ____________ O'CLOCK ___. M IN BOOK ____________ OF MAPS OF ASSESSMENT AND COMMUNITY FACILITIES DISTRICTS AT PAGE(S) __________ IN THE OFFICE OF THE COUNTY RECORDER OF THE COUNTY OF STANISLAUS, STATE OF CALIFORNIA. _______________________, COUNTY RECORDER OF THE COUNTY OF STANISLAUS, STATE OF CALIFORNIA BY: _______________________________, DEPUTY____________________________________ PRINT NAME CITY CLERK'S STATEMENTS: FILED IN THE OFFICE OF THE CITY CLERK OF THE CITY OF MODESTO SHOWING THIS ______ DAY OF ___________________, 2025. DIANE NAYARES-PEREZ, CITY CLERK BY: __________________________ __________________________ PRINT NAME I HEREBY CERTIFY THAT THIS MAP SHOWING THE PROPOSED BOUNDARIES AND FUTURE ANNEXATION AREA OF CITY OF MODESTO COMMUNITY FACILITIES DISTRICT NO. 2025-2 (VILLAGE ONE TRIANGLE), CITY OF MODESTO, COUNTY OF STANISLAUS, STATE OF CALIFORNIA, WAS APPROVED BY THE CITY COUNCIL OF THE CITY OF MODESTO AT A REGULAR MEETING THEREOF, HELD ON THE _________ DAY OF _________________, 2025, BY ITS RESOLUTION NO. _____________. DIANE NAYARES-PEREZ, CITY CLERK BY: __________________________ __________________________ PRINT NAME LEGEND:BOUNDARY OF COMMUNITY FACILITIES DISTRICT NO. 2025-2 FUTURE ANNEXATION AREA OF COMMUNITY FACILITIES DISTRICT NO. 2025-2 MILNES RD M.I.D. LATERAL NO. 3

CLAUS RD

FLOYD AVENUE

MERLE AVENUE
APN
014-026-018
APN 014-025-002
APN 014-025-015
APN 014-025-019
B.N.S.F. RAILROAD

SANTA FE AVENUE
FUTURE

ANNEXATION AREA
APN 014-014-005
APN 014-013-002
APN 014-014-015
APN 014-014-002
APN 014-014-004
APN 014-014-012

SANTA FE AVE
APN 014-025-018
FUTURE

ANNEXATION AREA
APNS
014-026-030
014-026-031
#7..
- 208 -

CITY OF MODESTO

COUNCIL AGENDA REPORT
DATE OF MEETING:

June 10, 2025
Date: May 21, 2025
TO: Mayor and City Council
THROUGH: Joseph P. Lopez, City Manager
FROM: Toby Wells, Director of Engineering Services Department / City Engineer SUBJECT: Amending Section 8-10.102 of the Modesto Municipal Code and Bylaws for the Citizens’ Transportation Sales Tax Commission Regarding Membership Requirements
CONTACT: Toby Wells, Director of Engineering Services / City Engineer [email protected], 209-571-5542
DESCRIPTION:

Consider approving an Ordinance amending Section 8-10.102 “Membership of Commission” of Title 8, Chapter 10, “Citizens’ Transportation Sales Tax Commission” and a Resolution amending the bylaws relating to membership requirements. (Funding Source: Not Applicable) STRATEGIC PLAN ELEMENT:

The recommend action supports the City Council’s 2025-2026 Strategic Plan Goal I to promote trust and engagement between the community and the City by enhancing responsiveness, communicating broadly about City opportunities and challenges, and increasing public participation in municipal affairs.

BACKGROUND:

In November of 2016, Stanislaus County voters approved a county-wide, 25-year, half-cent sales tax increase known as Measure L. The tax increase went into effect on April 1, 2017, and the City began receiving quarterly payments commencing July, 2017. On October 4, 2016, Council approved Ordinance No. 3656-C.S. adding Chapter 10 to Title 8 of the Modesto Municipal Code to establish a Citizens’ Transportation Sales Tax Commission (Commission). The Commission consists of eleven (11) members appointed by Council.

The purpose of the City’s Citizens’ Transportation Sales Tax Commission is to:
 Ensure all transportation revenue collected by the City from Measure L is spent in accordance with the Measure L Ordinance and Expenditure Plan.  Hold public meetings as necessary regarding the expenditure and status of funds generated by Measure L.
 Review independent audits of the expenditure of tax funds and implementation of the programs and projects in the Expenditure Plan; and
#8..
- 209 -
City Council, June 10, 2025
Amending Section 8-10.102 of the Modesto Municipal Code and Bylaws for the Citizens’ Transportation Sales Tax Commission Regarding Membership Requirements

 Issue an annual report on its findings regarding compliance with the requirements of the Expenditure Plan and the Ordinance to Council.

On August 2, 2017, by Resolution 2017-291, Council appointed the initial nine members to the Commission. On September 5, 2017, by Resolution 2017-331, Council appointed the remaining two members to constitute the full Commission pursuant to Ordinance No. 3656-C.S.

On April 11, 2023, by Resolution 2023-169, Council approved the bylaws for the Citizens’ Transportation Sales Tax Commission.

In recent years, the staff has noted challenges in filling the Commission seats. The current criteria for membership are too restrictive for many potential applicants and has resulted in difficulties in attracting and appointing suitable candidates to serve on the Commission.

DISCUSSION:

The Engineering Services Department is staff to the Citizens' Transportation Sales Tax Commission which meets on a quarterly basis. During the past two meetings, the Commission has discussed the membership and the difficulty of filling vacant positions. After consideration, the Commission has recommended the City Council consider changes to the Ordinance and bylaws related to the membership of the Commission.

After review of other City committees and commissions, the Commission and staff recommend aligning the membership requirements with the recently adopted Measure H membership structure while still maintaining the original membership intent. This proposed ordinance amendment will revise Section 8-10.102 of the Municipal Code to include changes to the number of representatives, ensuring that each of the City’s Council Districts is adequately represented in the decision-making process for transportation-related matters. This adjustment is intended to ensure that each Council District is fairly represented on the Commission, thereby maintaining a balance that reflects the diverse interests and transportation needs of the community.

The proposed changes to the ordinance would change the Commission from eleven members to nine members ensuring at least one member from each Council district and three at-large members.

With the proposed changes to Section 8-10.102, the Commission’s Bylaws are also required to be amended to reflect the municipal code changes. The proposed changes to the bylaws include extending the number of consecutive four-year terms to three (3) from two under the Terms of Office section and updating the parliamentary procedures to Rosenberg’s Rules of Order to align with all citywide boards and commission parliamentary procedures.

FISCAL IMPACT:

There is no fiscal impact with the recommendation of this item.

COMMITTEE RECOMMENDATION:

On May 5, 2025, this ordinance was presented to the Economic Development Committee for consideration and was forwarded to the Council for approval. #8..
- 210 -
City Council, June 10, 2025
Amending Section 8-10.102 of the Modesto Municipal Code and Bylaws for the Citizens’ Transportation Sales Tax Commission Regarding Membership Requirements

RECOMMENDED COUNCIL ACTION:

Staff Recommendations:

Motion introducing and waiving the first reading of an Ordinance amending Section 8-10.102 “Membership of Commission” of Title 8, Chapter 10, “Citizens’ Transportation Sales Tax Commission”.

Resolution amending the Citizens’ Transportation Sales Tax Commission bylaws relating to membership requirements.

Approved by:
_________________________________________
Toby Wells, Director of Engineering Services/
City Engineer
_________________________________________
Joseph P. Lopez, City Manager
Attachments:

1. Ordinance amending Section 8-10.102

2. Resolution

3. Redlined version for Section 8-10.102

4. Proposed amended Bylaws-Clean Version

5. Bylaws Redlined Version
#8..
- 211 -
-1- ORDINANCE NO. XXXX-C.S.

EFFECTIVE DATE: Month, dd, 2025
ORDINANCE NO. XXXX-C.S.

ORDINANCE AMENDING SECTION 8-10.102 “MEMBERSHIP OF
COMMISSION” OF TITLE 8 CHAPTER 10, “CITIZENS’
TRANSPORTATION SALES TAX COMMISSION”
WHEREAS, on October 4, 2016, Ordinance 3656-C.S. was approved by the City Council, adding Chapter 10 to Title 8 of the Modesto Municipal Code to establishing the Citizens’ Transportation Sales Tax Commission; and
WHEREAS, on August 2, 2017, by Resolution 2017-291, Council appointed the initial nine members to the Commission. On September 5, 2017, by Resolution 2017-331, Council appointed the remaining two members to constitute the full Commission pursuant to Ordinance No. 3656-C.S.; and
WHEREAS, on April 11, 2023, by Resolution 2023-169, Council approved the bylaws for the Citizens’ Transportation Sales Tax Commission; and WHEREAS, in recent years, the staff has noted challenges in filling the Commission seats. The current criteria for membership are too restrictive for many potential applicants and has resulted in difficulties in attracting and appointing suitable candidates to serve on the Commission; and
WHEREAS, the proposed changes to the ordinance would change the Commission from eleven members to nine members ensuring at least one member from each Council district and three at-large members.

NOW, THEREFORE, the Council of the City of Modesto does ordain as follows:

SECTION 1. Amendment. Section 8-10.102 is hereby amended to read as follows:
8-10.102 – Membership of Commission.

The Commission shall consist of nine (9) qualified electors residing within the City and shall be appointed by the City Council by resolution pursuant to the provisions below:
(a) Be a citizen of Modesto
#8..
- 212 -
-2- ORDINANCE NO. XXXX-C.S.

EFFECTIVE DATE: Month, dd, 2025
(i) one (1) citizen from each City Council District
(ii) three (3) at large citizens from anywhere within the city limits (b) Strong consideration shall be given to composing the Commission of:
(i) a bona fide local taxpayer's association with tax-exempt status under the relevant provisions of the Internal Revenue Code; (ii) a bona fide local nonpartisan political organization, with taxexempt status under Section 501(c)(3) of the Internal Revenue Code, dedicated to encouraging informed and active participation in government; (iii) a bona fide Modesto Neighborhood Associations or
organizations with similar purposes with tax-exempt status under Section 501(c)(3) of the Internal Revenue Code;
(iv) a bona fide association representing business such as a chamber of commerce;
(v) a member from a large business located in the City; (vi) a member from a small business located in the City; and (vii) a member from a bona fide labor union with members residing in the City.
(c) No member of the Commission shall be a relative by blood or marriage within the second degree of the Mayor, a member of the Council, any Charter officer, or any department head or deputy department head. (d) No member of the Commission shall be an employee of the City nor any bargaining unit for employees of the City, nor be a person who receives compensation from the City or from bargaining units of the City in any manner, except retirement benefits.
(e) No member of the Commission shall be a lobbyist or other person with business before the City that represents an economic interest in excess of the limit for material financial effect as established by state law. (f) Members of the Commission shall serve without compensation. (g) Each Commissioner shall be appointed to a four-year term unless the appointment is to fill a vacancy.

SECTION 2. Severability. If any section, subsection, sentence, clause or phrase of this Chapter is for any reason held to be invalid or unconstitutional by a decision of any court of competent jurisdiction, such decision shall not affect the validity of the remaining portions of this Chapter. The City Council hereby declares that it would have passed the #8..
- 213 -
-3- ORDINANCE NO. XXXX-C.S.

EFFECTIVE DATE: Month, dd, 2025
ordinance codified in this Chapter, and each and every section, subsection, sentence, clause or phrase not declared invalid or unconstitutional without regard to whether any portion of this Chapter would be subsequently declared invalid or unconstitutional.

SECTION 3. Effective Date. This ordinance shall go into effect and be in full force and operation from and after thirty (30) days after its final passage and adoption.

SECTION 4. Publication. At least two (2) days prior to its final adoption, copies of this ordinance shall be posted in at least three (3) prominent and distinct locations in the City; and a notice shall be published once in The Modesto Bee, the official newspaper of the City of Modesto, setting forth the title of this ordinance, the date of its introduction and the places where this ordinance is posted.
#8..
- 214 -
-4- ORDINANCE NO. XXXX-C.S.

EFFECTIVE DATE: Month, dd, 2025
The foregoing ordinance was introduced at a regular meeting of the Council of the City of Modesto held on the June 10, 2025, by Councilmember, who moved its introduction and passage to print, which motion being duly seconded by Councilmember, was upon roll call carried and ordered printed and published by the following vote:

AYES: Councilmembers:

NOES: Councilmembers:

ABSENT: Councilmembers:

APPROVED:

SUE ZWAHLEN, Mayor
ATTEST:

By
DIANE NAYERES-PEREZ, City Clerk
(SEAL)
APPROVED AS TO FORM:

By
JOSE M. SANCHEZ, City Attorney
#8..
- 215 -
-5- ORDINANCE NO. XXXX-C.S.

EFFECTIVE DATE: Month, dd, 2025

FINAL ADOPTION CLAUSE
The foregoing ordinance, having been published as required by the Charter of the City of Modesto, and coming on for final consideration at the regular meeting of the Council of the City of Modesto held on the ____ day of _______, 2025, _____________ moved its final adoption, which motion being duly seconded by Councilmember ____________, was upon roll call carried and the ordinance adopted by the following vote:

AYES: Councilmembers: Name, Name, Name, Name, Name, Name, Mayor Name
NOES: Councilmembers: None
ABSENT: Councilmembers: None
APPROVED:_________________________
SUE ZWAHLEN, Mayor
ATTEST: _____________________________
DIANE NAYARES-PEREZ, City Clerk
#8..
- 216 -
06/10//2025/ESD/TWells 1 2025-??

MODESTO CITY COUNCIL
RESOLUTION NO. 2025-XX
RESOLUTION AMENDING THE CITIZENS’ TRANSPORTATION SALES TAX

COMMISSION BYLAWS RELATING TO MEMBERSHIP REQUIREMENTS
WHEREAS, on October 4, 2016, Council approved Ordinance No. 3656-C.S. adding Chapter 10 to Title 8 of the Modesto Municipal Code to establish a Citizens’ Transportation Sales Tax Commission; and
WHEREAS, in November of 2016, Stanislaus County voters approved a countywide, 25-year, half-cent sales tax increase known as Measure L; and WHEREAS, on April 11, 2023, by Resolution 2023-169, Council approved the bylaws for the Citizens’ Transportation Sales Tax Commission; and WHEREAS, in recent years, the staff has noted challenges in filling the Commission seats; and
WHEREAS, the current criteria for membership are too restrictive for many potential applicants and has resulted in difficulties in attracting and appointing suitable candidates to serve on the Commission; and
WHEREAS, the proposed changes to the bylaws include extending the number of consecutive four-year terms to three (3) from two under the Terms of Office section and updating the parliamentary procedures to Rosenberg’s Rules of Order to align with all citywide boards and commission parliamentary procedures.

NOW, THEREFORE, BE IT RESOLVED by the Council of the City of Modesto that it hereby approves amending the Citizens’ Transportation Sales Tax Commission bylaws relating to membership requirements.
#8..
- 217 -
06/10//2025/ESD/TWells 2 2025-??
The foregoing resolution was introduced at a regular meeting of the Council of the City of Modesto held on the 10th day of June, 2025, by Councilmember ________, who moved its adoption, which motion being duly seconded by Councilmember ______, was upon roll call carried and the resolution adopted by the following vote:

AYES: Councilmembers: ?
NOES: Councilmembers: ?
ABSENT: Councilmembers: ?
ATTEST: _____________________________

DIANE NAYARES-PEREZ, CMC,
City Clerk
(SEAL)
APPROVED AS TO FORM:

BY: ________________________________
JOSE M. SANCHEZ, City Attorney
#8..
- 218 -
#8..
- 219 -

Exhibit A

CITIZENS' TRANSPORTATION SALES TAX COMMISSION
BYLAWS
(Approved by City Council: April 11, 2023, Resolution No. 2023-169) (Amended by City Council: mm dd, 2025, Resolution No. 2025-xxx) #8..
- 220 -

Article I. Definitions
Section 1.01 The City Council established a Commission known and designed as the Citizens’ Transportation Sales Tax Commission.

Section 1.02 As used in these Bylaws, unless a different meaning clearly appears from the context:
(a) “Member” shall mean a member of the Citizens’ Transportation Sales Tax Commission.
(b) “Commission” shall mean the Citizens’ Transportation Sales Tax Commission.

Article II. Duties
Section 2.01 Pursuant to MMC 8-10.101(a):
“A Citizen’s Transportation Sales Tax Commission, hereinafter “Commission,” is hereby established for the purpose of providing oversight of the collection and spending of tax revenue from any local transportation sales tax. For purposes of this chapter, a “local transportation sales tax” is defined as a sales tax imposed on City residents for purposes of generating funds to specifically fund the City’s transportation plan; any local tax used to fund general services in the City is not a “local transportation sales tax.” The first such Commission shall be appointed by the Council no later than ninety (90) days from the effective date of the passage of any local dedicated tax imposed for transportation purposes. The Commission shall regularly meet and make recommendations to the Council to provide oversight of any transportation tax then in effect.” Section 2.02 Pursuant to MMC 8-10.101 (b):
“The duties of the Commission shall include, but not be limited to, the following:
(1) Reviewing the annual work plan and priorities for revenue derived from any transportation sales tax then in effect; #8..
- 221 -

(2) Analyzing and commenting on any proposed items in the City budget that would lessen the City’s its commitment to road and street funding from sources of revenue other than any transportation sales tax then in effect;
(3) Reviewing any policies, standards or similar measures that the City uses to set priorities for where revenues from any transportation sales tax then in effect are to be spent; (4) Reviewing any proposals for the City to use bond or similar financing secured by revenues from any transportation sales tax then in effect;
(5) Reviewing any policies, standards or similar measures that the City uses to determine whether work funded by the tax shall be done “in-house” or through outside contracts; and,
(6) Reviewing any other matter the Council deems appropriate related to any local transportation sales tax. The Council shall appropriate adequate funds for the work of the Commission.” Article III. Membership of Commission
Section 3.01 Pursuant to MMC 8-10.102:
“The Commission shall consist of nine (9) qualified electors residing within the City and shall be appointed by the City Council by resolution pursuant to the provisions below:
(a) Be a citizen of Modesto
(1) one (1) citizen from each City Council District;
(2) three (3) at large citizens from anywhere within the city limits.
(b) Strong consideration shall be given to composing the Commission of representation from:
#8..
- 222 -

(1) a bona fide local taxpayer’s association with taxexempt status under the relevant provisions of the Internal Revenue Code;
(2) a bona fide local nonpartisan political organization, with tax-exempt status under Section 501(c)(3) of the
Internal Revenue Code, dedicated to encouraging
informed and active participation in government;
(3) a bona fide Modesto Neighborhood Associations or
organizations with similar purposes with tax-exempt
status under Section 501(c)(3) of the Internal Revenue
Code;
(4) a bona fide association representing business such as a chamber of commerce;
(5) a member from a large business located in the City; (6) a member from a small business located in the City; (7) a bona fide labor union with members residing in the City; and,
(c) No member of the Commission shall be a relative by blood or marriage within the second degree of the Mayor, a member of the Council, any Charter officer, or any department head or deputy department head.
(d) No member of the Commission shall be an employee of the City nor any bargaining unit for employees of the City, nor be a person who receives compensation from the City or from bargaining units of the City in any manner, except retirement benefits.
(e) No member of the Commission shall be a lobbyist or other person with business before the City that represents an economic interest in excess of the limit for material financial effect as established by state law.
#8..
- 223 -

(f) Members of the Commission shall serve without
compensation.
(g) Each Commissioner shall be appointed to a four-year term unless the appointment is to fill a vacancy.

Section 3.02 All Members must complete a Statement of Economic Interest (Form 700) and AB 1234 ethics training by April 1 of each year and when assuming or leaving Commission membership.

Article IV. Terms of Office
No Commissioner shall serve more than three consecutive four year terms on the Commission.

Article V. Attendance at Meetings
Section 5.01 Timely attendance at meetings is expected and necessary to carry out the mission of the Commission. It shall be the responsibility of each Member to know the dates and times of all Commission meetings. If a Member knows he or she will not be able to attend a regularly scheduled meeting, it shall be his or her responsibility to notice the Commission Secretary at least forty-eight (48) hours in advance of the meeting, in order for the absence to be recorded as an excused absence.

Section 5.02 The minutes of each meeting will list those Members in attendance, those who are excused and those who are unexcused.

Article VI. Officers and Their Duties
Section 6.01 The Commission shall elect from among its membership a Chairperson, and a Vice Chairperson. The term of office shall be one year.

Section 6.02 All officers shall exercise all privileges of membership, including the making of motions, seconding and debate.

Section 6.03 The Chairperson shall preside at all meetings, shall appoint, with the consent of the Commission, all ad-hoc Commissions, and shall ensure that the bylaws, rules and regulations as adopted by the Commission are properly enforced. #8..
- 224 -

Section 6.04 The Vice Chairperson shall assist the Chairperson in his/her duties and in the absence of the Chairperson shall perform all duties usually performed by the Chairperson.

Section 6.05 The Commission Secretary shall be a City staff member, appointed by the Community & Economic Development Department, to serve as secretary to the Commission. The Commission Secretary shall keep a record of the minutes of all Commission meetings and such other duties as are usually performed by a secretary. An audio recording shall be made at all meetings, retained pursuant to the City’s record retention policies, and shall be made available to all Commissioners by request.

Article VII. Meetings
Section 7.01 Regular meetings of the Commission shall be held not less than at least quarterly, at Tenth Street Place, 1010 Tenth Street Modesto, California.

Section 7.02 Special meetings shall be called by the Chairperson as necessary, in consultation and coordination with the Commission Secretary.

Section 7.03 Meetings may be cancelled by agreement of the Chairperson and Vice Chairperson in coordination with the Commission Secretary.

Section 7.04 Notices of all meetings, including agendas, shall be given to all Members of the Commission, to the City Clerk, to the City Manager, and to all others as provided by law.

Section 7.05 All meeting agendas will be posted at Tenth Street Place.

Section 7.06 All meetings shall comply with the requirements of the Ralph M. Brown Act.

Section 7.07 A quorum is necessary for the Commission to transact any business. A quorum is a majority plus one of appointed members.

Section 7.08 All meetings of the Commission shall be open to the public and shall be held at a public facility, which is accessible in accordance with the regulations of the Americans with Disabilities Act.

Article VIII. Order of Proceedings
#8..
- 225 -

Section 8.01 Rosenberg’s Rules of Order shall be the guide for the parliamentary procedures in the conduct of Commission meetings.

Section 8.02 The order of proceedings of all meetings shall be as follows, subject to majority vote of the members present:
(a) Roll Call
(b) Declaration of Conflict of Interest
(c) Public Comment Period
(d) Consent Items
(e) Unfinished Business
(f) New Business
(g) Commission Comments & Reports
(h) Matters Too Late For the Agenda
(i) Adjournment
Article IX. Amendments
Section 9.01 The Bylaws and any future amendments shall be subject to the approval of the City Council and shall not and are not intended to go beyond any of the powers and duties given to the Commission by the City Council nor contradict MMC 8-10. 2981909.4
#8..
- 226 -

Exhibit A

CITIZENS' TRANSPORTATION SALES TAX COMMISSION
BYLAWS
(Approved by City Council: April 11, 2023, Resolution No. 2023-169) (Amended by City Council: mm dd, 2025, Resolution No. 2025-xxx) #8..
- 227 -

Article I. Definitions
Section 1.01 The City Council established a Commission known and designed as the Citizens’ Transportation Sales Tax Commission.

Section 1.02 As used in these Bylaws, unless a different meaning clearly appears from the context:
(a) “Member” shall mean a member of the Citizens’ Transportation Sales Tax Commission.
(b) “Commission” shall mean the Citizens’ Transportation Sales Tax Commission.

Article II. Duties
Section 2.01 Pursuant to MMC 8-10.101(a):
“A Citizen’s Transportation Sales Tax Commission, hereinafter “Commission,” is hereby established for the purpose of providing oversight of the collection and spending of tax revenue from any local transportation sales tax. For purposes of this chapter, a “local transportation sales tax” is defined as a sales tax imposed on City residents for purposes of generating funds to specifically fund the City’s transportation plan; any local tax used to fund general services in the City is not a “local transportation sales tax.” The first such Commission shall be appointed by the Council no later than ninety (90) days from the effective date of the passage of any local dedicated tax imposed for transportation purposes. The Commission shall regularly meet and make recommendations to the Council to provide oversight of any transportation tax then in effect.” Section 2.02 Pursuant to MMC 8-10.101 (b):
“The duties of the Commission shall include, but not be limited to, the following:
(1) Reviewing the annual work plan and priorities for revenue derived from any transportation sales tax then in effect; #8..
- 228 -

(2) Analyzing and commenting on any proposed items in the City budget that would lessen the City’s its commitment to road and street funding from sources of revenue other than any transportation sales tax then in effect;
(3) Reviewing any policies, standards or similar measures that the City uses to set priorities for where revenues from any transportation sales tax then in effect are to be spent; (4) Reviewing any proposals for the City to use bond or similar financing secured by revenues from any transportation sales tax then in effect;
(5) Reviewing any policies, standards or similar measures that the City uses to determine whether work funded by the tax shall be done “in-house” or through outside contracts; and,
(6) Reviewing any other matter the Council deems appropriate related to any local transportation sales tax. The Council shall appropriate adequate funds for the work of the Commission.” Article III. Membership of Commission
Section 3.01 Pursuant to MMC 8-10.102:
“The Commission shall consist of eleven nine (119) qualified electors residing within the City and shall be appointed by the City Council by resolution pursuant to the provisions below:
(a) Be a citizen of Modesto
(1) one (1) citizen from each City Council District;
(2) three (3) at large citizens from anywhere within the city limits. (b) Strong consideration shall be given to composing the Commission of representation from:
#8..
- 229 -

(1) Two (2) members from anya bona fide local taxpayer’s association with tax-exempt status under the relevant
provisions of the Internal Revenue Code;
(2) One (1) member from anya bona fide local nonpartisan political organization, with tax-exempt status under
Section 501(c)(3) of the Internal Revenue Code,
dedicated to encouraging informed and active
participation in government;
(3) Two (2) members froma bona fide Modesto
Neighborhood Associations or organizations with
similar purposes with tax-exempt status under Section
501(c)(3) of the Internal Revenue Code;
(4) One (1) member from anya bona fide association
representing business such as a chamber of commerce;
(5) One (1)A member from a large business located in the City;
(6) One (1)A member from a small business located in the City;
(7) Two (2)A members from a bona fide labor union with
members residing in the City; and,
(8) One (1) member from a former Stanislaus County Civil Grand Jury who has served in that role within the
previous five (5) years of his or her appointment.”
(bc) No member of the Commission shall be a relative by blood or marriage within the second degree of the Mayor, a member of the Council, any Charter officer, or any department head or deputy department head.
#8..
- 230 -

(cd) No member of the Commission shall be an employee of the City nor any bargaining unit for employees of the City, nor be a person who receives compensation from the City or from bargaining units of the City in any manner, including except retirement benefits.
(de) No member of the Commission shall be a lobbyist or other person with business before the City that represents an economic interest in excess of the limit for material financial effect as established by state law.
(ef) Members of the Commission shall serve without
compensation.
(fg) One-half of the Commissioners for the Commission in 2017 shall be appointed to two year terms and one-half shall be appointed to four year terms. Thereafter, eachEach
Commissioner shall be appointed to a four year term unless the appointment is to fill a vacancy.

Section 3.02 All Members must complete a Statement of Economic Interest (Form 700) and AB 1234 ethics training by April 1 of each year and when assuming or leaving Commission membership.

Article IV. Terms of Office
No Commissioner shall serve more than two three consecutive four year terms on the Commission.

Article V. Attendance at Meetings
Section 5.01 Timely attendance at meetings is expected and necessary to carry out the mission of the Commission. It shall be the responsibility of each Member to know the dates and times of all Commission meetings. If a Member knows he or she will not be able to attend a regularly scheduled meeting, it shall be his or her responsibility to notice the Commission Secretary at least forty-eight (48) hours in advance of the meeting, in order for the absence to be recorded as an excused absence. #8..
- 231 -

Section 5.02 The minutes of each meeting will list those Members in attendance, those who are excused and those who are unexcused.

Article VI. Officers and Their Duties
Section 6.01 The Commission shall elect from among its membership a Chairperson, and a Vice Chairperson. The term of office shall be one year.

Section 6.02 All officers shall exercise all privileges of membership, including the making of motions, seconding and debate.

Section 6.03 The Chairperson shall preside at all meetings, shall appoint, with the consent of the Commission, all ad-hoc Commissions, and shall ensure that the bylaws, rules and regulations as adopted by the Commission are properly enforced.

Section 6.04 The Vice Chairperson shall assist the Chairperson in his/her duties and in the absence of the Chairperson shall perform all duties usually performed by the Chairperson.

Section 6.05 The Commission Secretary shall be a City staff member, appointed by the Community & Economic Development Department, to serve as secretary to the Commission. The Commission Secretary shall keep a record of the minutes of all Commission meetings and such other duties as are usually performed by a secretary. An audio recording shall be made at all meetings, retained pursuant to the City’s record retention policies, and shall be made available to all Commissioners by request.

Article VII. Meetings
Section 7.01 Regular meetings of the Commission shall be held not less than at least quarterly, at Tenth Street Place, 1010 Tenth Street Modesto, California.

Section 7.02 Special meetings shall be called by the Chairperson as necessary, in consultation and coordination with the Commission Secretary.

Section 7.03 Meetings may be cancelled by agreement of the Chairperson and Vice Chairperson in coordination with the Commission Secretary. #8..
- 232 -

Section 7.04 Notices of all meetings, including agendas, shall be given to all Members of the Commission, to the City Clerk, to the City Manager, and to all others as provided by law.

Section 7.05 All meeting agendas will be posted at Tenth Street Place.

Section 7.06 All meetings shall comply with the requirements of the Ralph M. Brown Act.

Section 7.07 A quorum is necessary for the Commission to transact any business. A quorum is six (6) membersa majority plus one of appointed members.

Section 7.08 All meetings of the Commission shall be open to the public and shall be held at a public facility, which is accessible in accordance with the regulations of the Americans with Disabilities Act.

Article VIII. Order of Proceedings
Section 8.01 The Standard Code of Parliamentary Procedure Rosenberg’s Rules of Order shall be the guide for the parliamentary procedures in the conduct of Commission meetings.

Section 8.02 The order of proceedings of all meetings shall be as follows, subject to majority vote of the members present:
(a) Roll Call
(b) Declaration of Conflict of Interest
(c) Public Comment Period
(d) Consent Items
(e) UnfinishedOld Business
(f) New Business
(g) Commission Comments & Reports
(h) Matters Too Late For the Agenda
#8..
- 233 -

(i) Adjournment
Article IX. Amendments
Section 9.01 The Bylaws and any future amendments shall be subject to the approval of the City Council and shall not and are not intended to go beyond any of the powers and duties given to the Commission by the City Council nor contradict MMC 8-10. 2981909.4
#8..
- 234 -

CITY OF MODESTO

COUNCIL AGENDA REPORT
DATE OF MEETING:

June 10, 2025
Date: May 21, 2025
TO: Mayor and City Council
THROUGH: Joseph P. Lopez, City Manager
FROM: Toby Wells, Director of Engineering Services Department / City Engineer SUBJECT: Accept the State Route 99/Pelandale Interchange Reconstruction Phase II Project CONTACT: Peter Kambel, Senior Civil Engineer, [email protected], 209-577-5444 DESCRIPTION:

Consider accepting the State Route 99/Pelandale Interchange Reconstruction Phase II – Pelandale Avenue and Sisk Road, CML 5059(258) Project as complete, releasing securities, releasing payments totaling $1,798,161 to United Pavement Maintenance, Inc., of Hughson, CA, and authorizing the City Clerk to file a Notice of Completion. (Funding Source: Congestion Mitigation and Air Quality (CMAQ) and Streets Capital Facilities Fees (CFF)) STRATEGIC PLAN ELEMENT:

The recommended action supports the City’s 2025-2026 Strategic Plan Initiatives, Goal D:

Provide safe, efficient, and reliable infrastructure through proactive community investment, maintenance and sustainability efforts.

BACKGROUND:

The State Route 99/Pelandale Interchange Reconstruction Phase II – Pelandale Avenue and Sisk Road Project continued improvements to intersection geometrics by adding a second turn lane and modifying the traffic signal at the Pelandale-Sisk intersection. This was the final phase in the State Route 99/Pelandale Interchange Reconstruction Project.

DISCUSSION:

The project was advertised for bids on September 19, 2023. Bids were publicly opened on October 24, 2023, and United Pavement Maintenance, Inc., of Hughson, CA, was the lowest responsible bidder at 28.40% above the engineers estimate.

On December 12, 2023, by Resolution 2023-547, Council awarded a contract to United Pavement Maintenance, Inc., in the amount of $1,669,217. The Contractor received the Notice to Proceed with a start date of February 12, 2024. All contract work was completed on November 5, 2024.

By accepting this project as complete, the City officially accepts the improvements made and authorizes the Notice of Completion to be filed. The City Clerk is authorized to complete all the #9..
- 235 -
City Council, June 10, 2025
Accept the State Route 99/Pelandale Interchange Reconstruction Phase II Project

necessary steps to file Notice of Completion with the County Recorder, release securities, and authorize payments totaling $1,798,161. The work is covered by a one-year warranty for any issues that may arise.

Due to delays in final quantity and As-built approval, change order processing, and monument preservation, the administrative closure of this project was delayed. As such, the Construction Administration and the City Manager’s Office authorized the release of retention on February 28, 2025.

Staff recommends the project for acceptance as the contractor has complied with all contract requirements for the project.

FISCAL IMPACT:

The total project costs were $2,299,799, which included design, design Support (Dokken Engineers), construction, and construction administration costs. The total project amount originally budgeted was $2,445,021 which included $1,836,139 for the construction contract and contingency with United Pavement Maintenance, Inc.

The City’s “Change Order Approval Policy” enacted by Council Resolution No. 94-443 on July 19, 1994, updated by Resolution No. 2019-326 on July 9, 2019, and revised a second time September 12, 2023 by Resolution 2023-405 established a contract change order authority of 10% ($166,922) for construction contracts of this dollar value.

There were fourteen change orders resulting in an overall increase of $128,944 for change order work as listed on the attached change order log. A summary of the expenditures for the overall project is listed below.
101063– Capital Grants – Streets CIP Projects – 3160 “Pelandale Ave. Int. – Phase 2” PROJECT EXPENDITURES:

Construction Contract (United Pavement Maintenance) $1,669,217 Construction Contingency (Change Orders) 7.7% $128,944
Construction Administration – City Staff Support 8.6% $143,232 Engineering Design/Admin. – City Staff Support/Misc. 8.0% $133,863 City Construction Forces 0.4% $6,263
Design Support – Dokken Engineers 13.1% $218,280
TOTAL CONSTRUCTION EXPENDITURES: $2,299,799
COMMITTEE RECOMMENDATION:

The State Route 99/Pelandale Interchange Reconstruction Phase II – Pelandale Ave and Sisk Road, CML 5059(258) was presented to the Finance Committee on September 26, 2022, which recommended it to be forwarded to Council for approval. #9..
- 236 -
City Council, June 10, 2025
Accept the State Route 99/Pelandale Interchange Reconstruction Phase II Project

CEQA/NEPA REQUIREMENTS:

An initial study with Mitigated Negative Declaration was prepared by the City’s consultant for the entire Pelandale project and submitted to Caltrans for approval. This document (SCH# 2009072012) was approved by Caltrans on March 30, 2022.

RECOMMENDED COUNCIL ACTION:

Staff Recommendations:

Resolution accepting the State Route 99/Pelandale Interchange Reconstruction Phase II – Pelandale Avenue and Sisk Road, CML 5059(258) Project, releasing securities, releasing payments totaling $1,798,161 to United Pavement Maintenance, Inc., of Hughson, CA, and authorizing the City Clerk to file a Notice of Completion.

Approved by:
_________________________________________
Toby Wells, Director of Engineering Services/
City Engineer
_________________________________________
Joseph P. Lopez, City Manager
Attachments:

1. Resolution

2. Contract Change Order Log

3. Project Suspension Form

4. Notice of Completion

5. Retention Release Memorandum
#9..
- 237 -
06/10/2025/ESD/PKambel 1 2025-

MODESTO CITY COUNCIL
RESOLUTION NO. 2025-XX
RESOLUTION ACCEPTING THE STATE ROUTE 99/PELANDALE
INTERCHANGE RECONSTRUCTION PHASE II – PELANDALE AVENUE
AND SISK ROAD CML 5059(258) PROJECT AS COMPLETE, RELEASING SECURITIES, RELEASING PAYMENTS TOTALING $1,798,161 TO UNITED PAVEMENT MAINTENANCE, INC., OF HUGHSON CA, AND AUTHORIZING

THE CITY CLERK TO FILE A NOTICE OF COMPLETION
WHEREAS, the State Route 99/Pelandale Interchange Reconstruction Phase II – Pelandale Avenue and Sisk Road Project continued improvements to intersection geometrics by adding a second turn lane and modifying the traffic signal at the PelandaleSisk intersection; and WHEREAS, this was the final phase in the State Route 99/Pelandale Interchange Reconstruction Project; and
WHEREAS, the project was advertised for bids on September 19, 2023; and WHEREAS, bids were publicly opened on October 24, 2023, and United Pavement Maintenance, Inc., of Hughson, CA, was the lowest responsible bidder at

28.40% above the engineers estimate; and
WHEREAS, on December 12, 2023, by Resolution 2023-547, Council awarded a contract to United Pavement Maintenance, Inc., in the amount of $1,669,217; and WHEREAS,. the Contractor received the Notice to Proceed with a start date of February 12, 2024. All contract work was completed on November 5, 2024; and WHEREAS, the total project costs were $2,299,799, which included design, design Support (Dokken Engineers), construction, and construction administration costs.

The total project amount originally budgeted was $2,445,021 which included $1,836,139 #9..
- 238 -
06/10/2025/ESD/PKambel 2 2025-
for the construction contract and contingency with United Pavement Maintenance, Inc; and
WHEREAS, due to delays in final quantity and As-built approval, change order processing, and monument preservation the administrative closure of this project was delayed. As such, the Construction Administration and the City Manager’s Office authorized the release of retention on February 28, 2025; and WHEREAS, the City’s “Change Order Approval Policy” enacted by Council Resolution No. 94-443 on July 19, 1994, updated by Resolution No. 2019-326 on July 9, 2019, and revised a second time September 12, 2023 by Resolution 2023-405 established a contract change order authority of 10% ($166,922) for construction contracts of this dollar value; and
WHEREAS, there are fourteen change orders resulting in an overall increase of $128,944 for change order work as listed on the attached change order log; and WHEREAS, by accepting this project as complete, the City officially accepts the improvements made and authorizes the Notice of Completion to be filed.

NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Modesto that the State Route 99/Pelandale Interchange Reconstruction Phase II – Pelandale Avenue and Sisk Road, CML 5059(258) Project, releasing securities, releasing payments totaling $1,798,161 to United Pavement Maintenance, Inc., of Hughson, CA, and authorizing the City Clerk to file a Notice of Completion. #9..
- 239 -
06/10/2025/ESD/PKambel 3 2025-
The foregoing resolution was introduced at a regular meeting of the Council of the City of Modesto held on the 10th day of June, 2025, by Councilmember ?, who moved its adoption, which motion being duly seconded by Councilmember ?, was upon roll call carried and the resolution adopted by the following vote:

AYES: Councilmembers:

NOES: Councilmembers:

ABSENT: Councilmembers:

ATTEST: ____________________________

DIANE NAYARES-PEREZ, CMC,
City Clerk
(SEAL)
APPROVED AS TO FORM:

BY: ______________________________________
JOSE M. SANCHEZ, City Attorney
#9..
- 240 -
CHANGE
ORDER
NO. DESCRIPTION EXECUTED AMOUNT
CAUSE

UNFORSEEN

CONDITIONS
DESIGN
ISSUE
ADDED
SCOPE

CONTRACT CHANGE ORDER LOG
Date: May 13, 2025
TIME
EXT. Approved
2024/01 - State Route 99/Pelandale Interchange Reconstruction Phase II-Pelandale Avenue and Sisk Road, CML 5059(258) (101063) KRAZAN
PROJECT NUMBER AND NAME:
01 Cal Trans Lighting Circuit 09/24/24 $14,343.00 0 W.D. No Yes No Yes 02 Additional Concrete Cost for Island D 09/24/24 $32,010.00 0 W.D. Yes Yes No Yes 03 Median A Removal and 2 Additional Days 09/24/24 $30,581.95 2 W.D. Yes Yes No Yes 04 Force Account Work to remove and replace the Carl's Jr. sewer laterl wye and clean out riser.
10/23/24 $2,417.02 0 W.D. No Yes No Yes
05 Abandon Rockwell increae by 1 Each and 1 Addiitonal
Working Day
10/23/24 $2,750.00 1 W.D. No Yes No Yes
06 Deductive Change Order for Bid Line #5. Traffic Control for MID Utility Pole Relocation
10/23/24 -$23,000.00 0 W.D. No No Yes Yes
07 New Center Median Design on Sisk Rd, Traffic Control and 2 Additional Working Days.
10/23/24 $10,430.00 2 W.D. No No Yes Yes
08 30 Day Time of Completion Adjustment 10/23/24 $0.00 30 W.D. No Yes No Yes 09 Added Microsurfing loimits and Striping Revisions and 2 Additional Working Days
12/17/24 $37,445.81 2 W.D. No No Yes Yes
10 Additional AB used under the sidewalk on the overpass. 12/17/24 $12,585.65 0 W.D. No Yes No Yes 11 Additional Left Turn Signal Indicator 12/17/24 $1,413.50 0 W.D. No Yes No Yes 12 Bid Line #3 and #43 Deductive Change Order 03/19/25 -$13,860.00 0 W.D. No Yes No Yes 13 Final Quantity Increase Adjustments 03/19/25 $22,328.85 0 W.D. No Yes No Yes 14 Adjust Quantities Consistent With Fiedl Conditions - Bid Line 25 Hot Mis Asphalt
-$501.80 0 W.D. No Yes No No
#9..
- 241 -
CHANGE
ORDER
NO. DESCRIPTION EXECUTED AMOUNT
CAUSE

UNFORSEEN

CONDITIONS
DESIGN
ISSUE
ADDED
SCOPE

CONTRACT CHANGE ORDER LOG
Date: May 13, 2025
TIME
EXT. Approved
Total Change Orders Processed To Date: $128,943.98
Original Contract Amount: $1,699,216.00
IDA To:

Total Working Days Time Extension: 37
Original Director's CCO Authority: $0.00
IDA Date:

Total Executed Change Orders To Date: $129,445.78
#9..
- 242 -
CHANGE
ORDER
NO. DESCRIPTION EXECUTED AMOUNT
CAUSE

UNFORSEEN

CONDITIONS
DESIGN
ISSUE
ADDED
SCOPE

CONTRACT CHANGE ORDER LOG
Date: May 13, 2025
TIME
EXT. Approved
#9..
- 243 -

MODESTO
Capital Project In Beneficial Use/Substantial Completion Notice ThisnoticemustbesubmittedtotheFinanceDepartmentwhen a capitalprojecthasreachedsubstantialcompletion,is in beneficial use or has entered the warranty period to meet financial reporting guidelines of depreciation.

Project #: 101063 Fund: 3160 Cost Center: CED.Engineering Design Contact: Pete Kambel Ext: 7544
When the Project was Created was it Non-Capital or Capital: Non-Capital X Capital Project Name in Oracle: Pelandale Ave. Int. – Phase 2
Project Description:
(What new infrastructure
was built/created)
Project In Use/Completion Date or Council Acceptance Date: Accepted June10, 2025 Warranty Period X Yes No
Project expenses include (Check one):

If yes, Project Warranty End Date: June 10, 2026
Non-Capital X Capital Capital and Non-Capital*
If expenses are mixed - Amount of total expenses to be recorded as Capital, either dollar amount or percentage:
* IQproject expenses include Capital and Non-Capital, an Itemized list o/New Assets and Costs which make up the amount/percentage listed above must be provided with this form Authorization Signatures to Begin Depreciation of Project Expense Project Manager:

Financial Analyst(Budget): Directorof Finance: Financial Analyst (Assets):

Latest Revision
Date:

Date:

Date:
01-FEB-2025
This project was created as a Capital project, but all
assets will be turned over to Stanislaus County and
CalTrans and will not be City owned.
#9..
- 244 -
#9..
- 245 -
#9..
- 246 -
Requested by
City of Modesto/City Clerk’s Office
Return to City of Modesto/City Clerk’s Office:

PO Box 642
Modesto CA 95353

NOTICE OF COMPLETION
NOTICE IS HEREBY GIVEN that on December 12, 2023, the City of Modesto, PO Box 642, Modesto, California 95353, a Municipal Corporation in the County of Stanislaus, State of California, awarded the contract to United Pavement Maintenance, Inc., of Hughson, CA for the project titled “State Route 99/Pelandale Interchange Reconstruction Phase II – Pelandale Avenue and Sisk Road, CML 5059(258)” located at the intersection of Pelandale Avenue and Sisk Road. On November 5, 2024, said contract, as a whole, was completed by United Pavement Maintenance, and accepted by the Council of the City of Modesto at a regular meeting of the Council held on June 10, 2025.

CITY OF MODESTO
By
Diane Nayares-Perez, City Clerk
I certify under penalty of perjury that the foregoing is true and correct.

Date: By
Modesto, CA Diane Nayares-Perez, City Clerk
#9..
- 247 -

CITY OF MODESTO

CONSTRUCTION ADMINISTRATION OFFICE

MEMORANDUM
Date: February 28, 2025
To: Joseph Lopez, City Manager
From: Peter Kambel, Senior Civil Engineer
RE: 2024-01 State Route 99/Pelandale Interchange Reconstruction Phase II – Pelandale and Sisk Road, CML 5059(258) (101063)
Subject: Construction Contract Retention
Recommended Action
Authorize releasing the amount of construction contract retention from five percent (5%) to zero percent (0%).

Background
United Pavement Maintenance, Inc. started the project in February of 2024 and were issued a beneficial use letter effective November 6, 2024. Due to delays in final quantity and As-built approval, change order processing, and monument preservation, the administrative closure of this project has been delayed. The Construction Administration Office is currently preparing the necessary documents for City Council acceptance.

Reason for Recommendation
When the City Council awards a construction contract on a capital improvement project, the specifications require the City to make monthly progress payments at no more than ninety-five percent (95%) of the amount due and payable until thirty-five (35) days after recording the Notice of Completion. This results in the City retaining five percent (5%) of the contract amount until thirty-five (35) days after the Council accepts the project as complete.

Staff believes releasing the retention on this construction project is warranted. Public Contract Code section 7107 requires the City to release the retention within 60 days of certain events occurring. One of those events is work on the project ceasing for more than 100 days for reasons outside the contractor’s control.

Reviewed By: ________________________________________
Peter Kambel, Senior Civil Engineer
Reviewed By: ________________________________________
Toby Wells, Director of Engineering Services/City Engineer Reviewed By: ________________________________________
Joseph Lopez, City Manager
#9..
- 248 -

CITY OF MODESTO

COUNCIL AGENDA REPORT
DATE OF MEETING:

June 10, 2025
Date: May 21, 2025
TO: Mayor and City Council
THROUGH: Joseph P. Lopez, City Manager
FROM: Toby Wells, Director of Engineering Services Department / City Engineer SUBJECT: Accept the Grayson Well 69 (Replacing Well 274) Project CONTACT: Peter Kambel, Senior Civil Engineer, [email protected], 209-577-5444 DESCRIPTION:

Consider accepting the Grayson Well 69 (Replacing Well 274) Project as complete, releasing securities, releasing payments totaling $3,059,859 to W.M. Lyles Co., of Fresno CA, and authorizing the City Clerk to file a Notice of Completion. (Funding Source: Water Fund) STRATEGIC PLAN ELEMENT:

The recommended action supports the City’s 2025-2026 Strategic Plan Initiatives, Goal D:

Provide safe, efficient, and reliable infrastructure through proactive community investment, maintenance, and sustainability efforts.

BACKGROUND:

The City operates and maintains two wells and storage tank No. 9 in the outlying service area of Grayson. On July 14, 2020, by Resolution No. 2020-312, Council accepted a 4,137 square foot site from Stanislaus County, expanding the Well Site in order to accommodate a future tank, booster pump and treatment system for the new well. A feasibility study completed in January 2015, addressed nitrate concentrations in Well 274 and recommended a replacement well. This portion of the project constructed the above-ground section of Grayson Well 69.

DISCUSSION:

The Grayson Well 69 (Replacing Well 274) Project was advertised for bids on August 24, 2021.

Bids were publicly opened on September 14, 2021, pursuant to City Charter Section 1307, and W.M. Lyles Co., Fresno, CA, was the responsible bidder with the lowest responsive bid at 9.59% above engineers estimate.

On December 12, 2021, by Resolution 2021-473, Council awarded a contract to W.M. Lyles Co., of Fresno, CA, in the amount of $2,683,800. The Contractor received the Notice to Proceed with a start date of March 28, 2022. All contract work was completed on April 11, 2025. #10..
- 249 -
City Council, June 10, 2025
Accept the Grayson Well 69 (Replacing Well 274) Project

By accepting this project as complete, the City officially accepts the improvements made and authorizes the Notice of Completion to be filed. The City Clerk is authorized to complete all the necessary steps to file Notice of Completion with the County Recorder, release securities, and authorize payments totaling $3,059,859. The work is covered by a one-year warranty for any issues that may arise.

Due to a large number of change orders the administrative closure of this project was delayed.

As such, the Construction Administration and the City Manager’s Office authorized the release of half of the retention (2.5%) on January 22, 2025.

Staff recommends the project for acceptance as the contractor has complied with all contract requirements for the project.

FISCAL IMPACT:

The total project costs were $4,156,989, which included design, design support (Hazen and Sawyer), construction, construction support services (Brown & Caldwell), and construction administration costs. The total project amount originally budgeted was $3,352,912 which included $2,952,180 for the construction contract and contingency with W.M. Lyles Co.

The City’s “Change Order Approval Policy” enacted by Council Resolution No. 94-443 on July 19, 1994, and updated by Resolution No. 2019-326 on July 9, 2019, established a contract change order authority of 8% ($214,704) for construction contracts of this dollar value. However, given the nature of well construction and materials used, additional work was needed to address unexpected conditions that require changes in project scope that exceeded the Director’s Authority of 8%. Therefore, staff requested an increase in the Director’s Authority to 10% ($268,380). By Resolution 2023-257 on June 6, 2023 Council approved an additional increase to issue change orders to 15%, not to exceed $402,570.

There are twenty-two change orders resulting in an overall increase of $376,059 for change order work as listed on the attached change order log. A summary of the expenditures for the overall project is listed below.
101080 – Well 69 (Replacing Well 274)
PROJECT EXPENDITURES:

Construction Contract (WM Lyles) $2,683,800
Construction Contingency (Change Orders) 14.0% $376,059 Construction Administration – City Staff Support 12.6% $337,822 Engineering Design/Admin. – City Staff Support/Misc. 5.8% $156,678 Construction Support – Brown & Caldwell 10.3% $277,420
Design Support – Hazen and Sawyer 12.1% $325,210
TOTAL CONSTRUCTION EXPENDITURES: $4,156,989
COMMITTEE RECOMMENDATION:

The Grayson Well 69 (Replacing Well 274) Project was presented to the Economic Development Committee on November 6, 2019, as part of the Upcoming Capital Improvement Construction #10..
- 250 -
City Council, June 10, 2025
Accept the Grayson Well 69 (Replacing Well 274) Project

Projects. The Committee report stated that as bids are received, staff will present projects directly to Council for award of construction.

CEQA/NEPA REQUIREMENTS:

A CEQA Section 15302 Class 2(c) Statement of Exemption is on file with the Stanislaus County Recorder’s Office. The exemption covers the construction or replacement of utility systems or facilities with negligible or no expansion of service capacity.

RECOMMENDED COUNCIL ACTION:

Staff Recommendations:

Resolution accepting the Grayson Well 69 (Replacing Well 274) Project as complete, releasing securities, releasing payments totaling $3,059,859 to W.M. Lyles Co., of Fresno CA, and authorizing the City Clerk to file a Notice of Completion.

Approved by:
_________________________________________
Toby Wells, Director of Engineering Services/
City Engineer
_________________________________________
Joseph P. Lopez, City Manager
Attachments:

1. Resolution

2. Contract Change Order Log

3. Project Suspension Form

4. Notice of Completion

5. Memorandum Construction Contract Retention
#10..
- 251 -
06/10/2025/ESD/PKambel 1 2025-

MODESTO CITY COUNCIL
RESOLUTION NO. 2025-XX
RESOLUTION ACCEPTING THE GRAYSON WELL 69 (REPLACING WELL 274) PROJECT AS COMPLETE, RELEASING SECURITIES, RELEASING PAYMENTS TOTALING $3,059,859 TO W M LYLES CO., OF FRESNO CA,

AND AUTHORIZING THE CITY CLERK TO FILE A NOTICE OF

COMPLETION
WHEREAS, a feasibility study completed in January 2015, addressed nitrate concentrations in Well 274 and recommended a replacement well; and WHEREAS, this portion of the project constructed the above-ground section of Grayson Well 69; and
WHEREAS, the project was advertised for bids on August 24, 2021; and WHEREAS, bids were publicly opened on September 14, 2021, pursuant to City Charter Section 1307, and W.M. Lyles Co., Fresno, CA, was the responsible bidder with the lowest responsive bid at 9.59% above engineers estimate; and WHEREAS, on December 12, 2021, by Resolution 2021-473, Council awarded a contract to W.M. Lyles Co., of Fresno, CA, in the amount of $2,683,800; and WHEREAS, the Contractor received the Notice to Proceed with a start date of March 28, 2022. All contract work was completed on April 11, 2025; and WHEREAS, the total project costs were $4,156,989, which included design, design support (Hazen and Sawyer), construction, construction support services (Brown & Caldwell), and construction administration costs. The total project amount originally budgeted was $3,352,912 which included $2,952,180 for the construction contract and contingency with W.M. Lyles Co; and
WHEREAS, the City’s “Change Order Approval Policy” enacted by Council Resolution No. 94-443 on July 19, 1994, updated by Resolution No. 2019-326 on July 9, #10..
- 252 -
06/10/2025/ESD/PKambel 2 2025-
2019, established a contract change order authority of 8% ($214,704) for construction contracts of this dollar value. Given the nature of this project and the high likelihood of changes to the scope of the project, staff requested and received an increase to the contract change order budget to 10% ($268,380). By Resolution 2023-257 on June 6, 2023 Council approved an additional increase to issue change orders to 15%, not to exceed $402,570; and
WHEREAS, there are twenty-two change orders resulting in an overall increase of $376,059 for change order work as listed on the attached change order log; and WHEREAS, due to a large number of change orders the administrative closure of this project was delayed. As such, the Construction Administration and the City Manager’s Office authorized the release of half of the retention (2.5%) on January 22, 2025; and
WHEREAS, by accepting this project as complete, the City officially accepts the improvements made and authorizes the Notice of Completion to be filed.

NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Modesto that the Grayson Well 69 (Replacing Well 274) Project as complete, releasing securities, releasing payments totaling $3,059,859 to W.M. Lyes Co., of Fresno CA, and authorizing the City Clerk to file a Notice of Completion. #10..
- 253 -
06/10/2025/ESD/PKambel 3 2025-
The foregoing resolution was introduced at a regular meeting of the Council of the City of Modesto held on the 10th day of June, 2025, by Councilmember ?, who moved its adoption, which motion being duly seconded by Councilmember ?, was upon roll call carried and the resolution adopted by the following vote:

AYES: Councilmembers:

NOES: Councilmembers:

ABSENT: Councilmembers:

ATTEST: ____________________________

DIANE NAYARES-PEREZ, CMC,
City Clerk
(SEAL)
APPROVED AS TO FORM:

BY: ______________________________________
JOSE M. SANCHEZ, City Attorney
#10..
- 254 -
CHANGE
ORDER
NO. DESCRIPTION EXECUTED AMOUNT
CAUSE

UNFORSEEN

CONDITIONS
DESIGN
ISSUE
ADDED
SCOPE

CONTRACT CHANGE ORDER LOG
Date: March 05, 2025
TIME
EXT. Approved
2022/02 - Grayson Well 69 (Replacing Well 274) (101080) PROJECT NUMBER AND NAME:
01 Increase Electricdal Cabinet Size 12/16/22 $56,790.00 0 W.D. No Yes No Yes 02 FUNRISH GATE VALVES W/STAINLEESS STEEL

STEMS IN ACCORDANCE W/ CITY STANDARD -
UPSIZE WELL PUMP VFD FROM 20 HP RATING
12/16/22 $6,901.00 0 W.D. No No Yes Yes
03 REMOVE EXISTING WELL SWAB AND REMNANT
SUPPORT PIPE. PERFORM A SECOND CCTV
INSPECTION. PERFORM ADDITIONAL WELL

DISINFECTION
11/28/22 $18,814.00 0 W.D. No No Yes Yes
04 SUPERCEDES AND AMENDS LANGUAGE IN CCO 1 &
2 REGARDING RECOGNITION OF POSSIBLE TIME
EXTENSION. REASONABLE TIME ADJUST MADE
12/16/22 $0.00 0 W.D. No No Yes Yes
05 Delete Inflatable Well Packer 12/16/22 -$10,252.00 0 W.D. No Yes No Yes 06 MAINTAIN OPERATION OF EXISTING WELL 274 02/21/23 -$14,710.00 0 W.D. No No Yes Yes 07 ADDITIONAL OPTIONS FOR MAGNETIC FLOWMETER 02/21/23 $4,428.00 0 W.D. No No Yes Yes 08 TIME DETERMINATION FOR CCO 01 - 04 / TIMERELATED OVERHEAD CAUSED BY DELAY BASED

ON FORCE ACCOUT
04/27/23 $11,286.00 40 W.D. No No Yes Yes
09 CONSTRUCT CONCRETE FLATWORK AROUND

GENERATOR AND ADD AND MODIFY BOLLARDS
06/20/23 $10,487.00 0 W.D. No No Yes Yes
10 FURNISH, INSTALL TIER 4 FINAL CERTIFIED

STANDBY DIESAL GENERATOR
06/20/23 $160,621.00 0 W.D. No Yes No Yes
11 TIME ADJUSTMENT FOR LOW VOLTAGE

SWITCHBOARD DELAY
07/12/23 $0.00 137 W.D. No Yes Yes Yes
12 ANTI-GRAFFITI COATING 07/12/23 $3,840.00 0 W.D. No No Yes Yes 13 CCTV CAMERA NO. 2 07/12/23 $2,066.00 0 W.D. No No Yes Yes 14 FASCIA AND SOFFIT CHANGES 07/12/23 $3,879.00 0 W.D. Yes No No Yes 15 Extra Work at Agreed Lump Sum Switch Board Pad,
Antenna Pole Hight & Area Light
02/27/24 $31,170.00 0 W.D. No No Yes Yes
#10..
- 255 -
CHANGE
ORDER
NO. DESCRIPTION EXECUTED AMOUNT
CAUSE

UNFORSEEN

CONDITIONS
DESIGN
ISSUE
ADDED
SCOPE

CONTRACT CHANGE ORDER LOG
Date: March 05, 2025
TIME
EXT. Approved
16 Time Impact Analysis -122 Additional Non Compensatry Working Days.
02/27/24 $0.00 122 W.D. No Yes No Yes
17 RUT Changes - Additional Crush Rock - Asphalt - Adjust Fence
06/21/24 $30,280.00 0 W.D. No No Yes Yes
18 Antenna Cable 10/01/24 $12,682.00 68 W.D. No Yes No Yes 19 VTP Motor Thermistors 10/14/24 $5,520.00 0 W.D. No No Yes Yes 20 Door Switches on Generator 10/14/24 $5,063.00 0 W.D. No No Yes Yes 21 Smoke Detector Installed 10/14/24 $3,864.00 0 W.D. No No Yes Yes 22 Extra work PCO 27,28 & 20 at Agreed Lump Sum Price 03/05/25 $33,330.00 0 W.D. No No Yes Yes Total Change Orders Processed To Date: $376,059.00
Original Contract Amount: $2,683,800.00
IDA To: $402,570.00
Total Working Days Time Extension: 367
Original Director's CCO Authority: $214,704.00
IDA Date: 6/6/2023
Total Executed Change Orders To Date: $376,059.00
#10..
- 256 -
CHANGE
ORDER
NO. DESCRIPTION EXECUTED AMOUNT
CAUSE

UNFORSEEN

CONDITIONS
DESIGN
ISSUE
ADDED
SCOPE

CONTRACT CHANGE ORDER LOG
Date: March 05, 2025
TIME
EXT. Approved
#10..
- 257 -

MODESTO
Capital Project In Beneficial Use/Substantial Completion Notice ThisnoticemustbesubmittedtotheFinanceDepartmentwhen a capitalprojecthasreachedsubstantialcompletion,is in beneficial use or has entered the warranty period to meet financial reporting guidelines of depreciation.

Project #: 101080 Fund: 4180 Cost Center: UTL.Wastewater Eng. Design Contact: Pete Kambel Ext: 7544
When the Project was Created was it Non-Capital or Capital: Non-Capital X Capital Project Name in Oracle: Grayson Well 274 (surface)
Project Description:
(What new infrastructure
was built/created)
Project In Use/Completion Date or Council Acceptance Date: Accepted June 10, 2025 Warranty Period X Yes No
Project expenses include (Check one):

If yes, Project Warranty End Date: June 10, 2026
Non-Capital X Capital Capital and Non-Capital*
If expenses are mixed - Amount of total expenses to be recorded as Capital, either dollar amount or percentage:
* IQproject expenses include Capital and Non-Capital, an Itemized list o/New Assets and Costs which make up the amount/percentage listed above must be provided with this form Authorization Signatures to Begin Depreciation of Project Expense Project Manager:

Financial Analyst(Budget): Directorof Finance: Financial Analyst (Assets):

Latest Revision
Date:

Date:

Date:
01-FEB-2025
Above ground portion of Well 69.
#10..
- 258 -
#10..
- 259 -
#10..
- 260 -
#10..
- 261 -
Requested by
City of Modesto/City Clerk’s Office
Return to City of Modesto/City Clerk’s Office:

PO Box 642
Modesto CA 95353

NOTICE OF COMPLETION
NOTICE IS HEREBY GIVEN that on December 7, 2021 the City of Modesto, PO Box 642, Modesto, California 95353, a Municipal Corporation in the County of Stanislaus, State of California, awarded the contract to W. M. Lyles Co., of Fresno, CA for the project titled “Grayson Well 69 (Replacing Well 274)” located at the corner of Charles Street and Mary Street with West Grayson Road to the south-east. On April 4, 2025, said contract, as a whole, was completed by W. M. Lyles Co., and accepted by the Council of the City of Modesto at a regular meeting of the Council held on June 10, 2025.

CITY OF MODESTO
By
Diane Nayares-Perez, City Clerk
I certify under penalty of perjury that the foregoing is true and correct.

Date: By
Modesto, CA Diane Nayares-Perez, City Clerk
#10..
- 262 -

CITY OF MODESTO

CONSTRUCTION ADMINISTRATION OFFICE

MEMORANDUM
Date: January 22, 2025
To: Joseph Lopez, City Manager
From: Peter Kambel, Senior Civil Engineer
RE: 2022-02 Grayson Well 69 (Replacing Well 274) (101080) Subject: Construction Contract Retention
Recommended Action
Authorize reducing the amount of construction contract retention from five percent (5%) to two and one-half percent (2.5%).

Background
W.M. Lyles Co. started the project in March 2022 and completed their contractual work on November 7, 2024. The project closure has been delayed due to a significant number of change orders. There are 5 working days left, along with a few minor punch-list items and one outstanding change order that still needs to be paid. The Construction Administration Office is awaiting completion of these items before preparing the necessary documents for City Council acceptance.

Reason for Recommendation
When the City Council awards a construction contract on a capital improvement project, the specifications require the City to make monthly progress payments at no more than ninety-five percent (95%) of the amount due and payable until thirty-five (35) days after recording the Notice of Completion. This results in the City retaining five percent (5%) of the contract amount until thirty-five (35) days after the Council accepts the project as complete.

Staff believes releasing half the retention on this construction project is warranted. Public Contract Code section 7107 requires the City to release the retention within 60 days of certain events occurring. One of those events is work on the project ceasing for more than 100 days for reasons outside the contractor’s control.

Reviewed By: ________________________________________
Peter Kambel, Senior Civil Engineer
Reviewed By: ________________________________________
Toby Wells, Director of Engineering Services/City Engineer Reviewed By: ________________________________________
Joseph Lopez, City Manager
#10..
- 263 -

CITY OF MODESTO

COUNCIL AGENDA REPORT
DATE OF MEETING:

June 10, 2025
Date: May 20, 2025
TO: Mayor and City Council
THROUGH: Joseph P. Lopez, City Manager
FROM: DeAnna Christensen, Director of Finance
SUBJECT: Debt Management Policy Updates
CONTACT: Calogero Maniscalco, Senior Financial Analyst
[email protected] 209-577-5219
DESCRIPTION:

Consider approving the updates to the City’s Debt Management Policy. (Funding Source: Not Applicable)
STRATEGIC PLAN ELEMENT:

This recommended action supports the City’s 2025-2026 Strategic Plan Goal H: Achieve LongTerm Financial Sustainability BACKGROUND:

On August 2, 2006, the City Council adopted Resolution 2006-487 approving a Debt Management Policy (“Policy”) for the City of Modesto. The purpose of this Policy is to organize and formalize debt issuance-related policies and procedures for the City. The primary objectives of the City’s debt and financing-related activities are to maintain cost-effective access to the capital markets through prudent yet flexible policies; moderate debt principal and debt service payments through effective planning and project cash management; achieve the lowest cost of borrowing; and achieve the highest practical credit ratings.

DISCUSSION:

This Policy is to be reviewed and updated annually as required. Public Financial Management, Inc. (PFM), the City’s municipal advisor, and Norton Rose Fulbright, the City’s bond counsel, have reviewed and proposed updates and changes to the Debt Management Policy. The recommended changes are discussed below, and incorporated in the attached Policy documents:
 In the Debt Policy Objective section, language was added to clarify the objectives of issuing debt.
 In the Debt Financing section, language was added to include Interim Financing as a purpose of issuing debt.
#11..
- 264 -
City Council, June 10, 2025
Debt Management Policy Updates

 In the Terms and Conditions of Bonds section, language was added to clarify that different lien levels would be used for different types of debt, and to allow for extra consideration in evaluation the coupon structure; language was removed to clarify that the City only issues debt with a call feature that is under 10 years.
 In the Credit Enhancements section, language was added to clarify that bond insurance can be purchased for specific maturities and doesn’t need to be issued on an entire debt.  In the Refinancing Outstanding Debt section, language was added to require Council be made aware of any debt restructures.
 In the Methods of Issuance section, clarifications were made to which considerations are used to determine the most advantageous methods of sale  In the Market Relationships section, language was added to reflect the current practice of complying with requests from rating agencies.
 In the Underwriter Selection section, language was added to clarify the City’s objective when agreeing to fees associated with a bond issuance.
 Other changes are minor and are mostly formatting and grammatical in nature A copy of the proposed Debt Management Policy is attached (Attachment 2), with revisions indicated/underlined. An additional copy is attached (Attachment 3), with the same revisions accepted and integrated in the body of the text (a “clean” copy of the updated Policy).

Changes to the Debt Management Policy are subject to approval by the City Council at a legally noticed public meeting.

FISCAL IMPACT:

There is no immediate fiscal impact associated with this particular action.

COMMITTEE RECOMMENDATION:

The Finance Committee approved the Debt Management Policy updates at their May 19, 2025 meeting, and the Committee recommended forwarding the item to Council for approval.

RECOMMENDED COUNCIL ACTION:

Staff Recommendations:

Resolution approving the updates to the City’s Debt Management Policy.

Approved by:

DeAnna Christensen, Director of Finance
#11..
- 265 -
City Council, June 10, 2025
Debt Management Policy Updates

Joseph P. Lopez, City Manager
Attachments:

1. Resolution

2. Debt Management Policy (FY26 With Edits)

3. Debt Management Policy (FY26 Clean Copy)

4. Debt Management Policy Finance Committee Presentation FY26 #11..
- 266 -
06/10/2025/Finance/DChristensen/Item X 1 2025-XX

MODESTO CITY COUNCIL
RESOLUTION NO. 2025-XX
RESOLUTION APPROVING THE UPDATES TO THE CITY’S DEBT

MANAGEMENT POLICY
WHEREAS, pursuant to the City of Modesto Debt Management Policy, last adopted on June 25, 2024 the City of Modesto is required to periodically review and update its Debt Management Policy to address changes to the primary objectives related to the City’s debt and financing related activities, and WHEREAS, staff has identified the need to update the City’s Debt Management Policy in order to continue to maintain cost-effective access to the capital markets through prudent yet flexible policies; moderate principal and debt service payments through effective planning and project cash management; achieve the lowest cost of borrowing; and achieve the highest practical credit ratings.

NOW, THEREFORE, BE IT RESOLVED by the Council of the City of Modesto, that it hereby adopts the revised Debt Management Policy.

BE IT FURTHER RESOLVED that City staff is hereby authorized and directed to proceed with any and all actions deemed necessary or advisable, following the adopted policy guidelines pursuant to this Resolution, in connection with the future issuances of the City Debt, for future consideration by this City Council. #11..
- 267 -
06/10/2025/Finance/DChristensen/Item X 2 2025-XX
The foregoing resolution was introduced at a regular meeting of the Council of the City of Modesto held on the 10th day of June, 2025 by Councilmember ?, who moved its adoption, which motion being duly seconded by Councilmember ?, was upon roll call carried and the resolution adopted by the following vote:

AYES: Councilmembers:

NOES: Councilmembers:

ABSENT: Councilmembers:

ATTEST: ______________________________

DIANE NAYARES-PEREZ, CMC,
City Clerk
(SEAL)
APPROVED AS TO FORM:

BY:

JOSE M. SANCHEZ, City Attorney
#11..
- 268 -
1 I. INTRODUCTION
The purpose of this Policy is to organize and formalize debt issuance-related policies and procedures for the City of Modesto (the “City”) and to establish a systematic debt policy (the “Debt Policy” or the “Policy”). The debt policies and practices of the City are, in every case, subject to and limited by applicable provisions of state and federal law and prudent debt management principles.

II. DEBT POLICY OBJECTIVE
The primary objectives of the City’s debt and financing related activities are to maintain cost-effective access to the capital markets and other financing venues through prudent yet flexible policies.

Financial objectives include:
• Moderate principal and debt service payments through effective planning and projected cash management;
• Achieve the lowest cost of borrowing; and
• Achieve the highest practical credit ratings.

Other objectives include:
• Establishing clear criteria for decision making with regards to debt issuance, debt structuring and debt management
• Foster consistency in debt management practices over time with staff and Council turnover • Ensure industry best practices are adopted and maintained III. SCOPE AND DELEGATION OF CITY
This Debt Policy shall govern, except as otherwise covered by the City of Modesto Investment Policy and the City of Modesto Interest Rate Swap Policy, the issuance and management of all debt funded through the capital markets and private placements, including the selection and management of related financial and advisory services and products, and the investment of bond proceeds.

This Policy shall be reviewed and updated periodically as required. Any changes to the Policy are subject to approval by the City Council at a legally noticed and conducted public meeting.

Overall policy direction of this Debt Policy shall be provided by the City Council.

CITY OF MODESTO

CITY COUNCIL POLICY
LATEST REVISION DATE: May 20, 2024
POLICY NUMBER: 1.036
CITY DEPARTMENT: Finance
SUBJECT: Debt Management Policy
#11..
- 269 -
2 Responsibility for implementation of the Debt Policy, and day-to-day responsibility for structuring, implementing, and managing the City’s debt and finance program, shall lie with the Director of Finance. The City Council’s adoption of the City Annual Budget does not, in and of itself, constitute authorization for debt issuance for any reason. This Debt Policy requires that the City Council specifically authorize each debt financing. Each financing shall be presented to the City Council, subject to City Council agenda review and approval (debt financings cannot be approved on a consent calendar).

While adherence to this Policy is required in applicable circumstances, the City recognizes that changes in the capital markets, agency programs and other unforeseen circumstances may from time to time produce situations that are not covered by the Policy and will require modifications or exceptions to achieve policy goals. In these cases, management flexibility is appropriate, provided specific authorization from the City Council is obtained.

IV. ETHICS AND CONFLICTS OF INTEREST
Officers and employees of the City involved in the execution and management of the Debt Policy will not engage in any personal business activities that could conflict with proper and lawful execution and management of the Debt Policy, or which could impair their ability to make impartial decisions.

V. CAPITAL IMPROVEMENT PROGRAM INTEGRATION
The City’s multi-year Capital Improvement Program (“CIP”), which identifies the projects and the appropriate funding mechanisms to pay for them, shall be used in combination with the CIP Financial and Budget Policies and this Debt Policy to ensure the proper allocation and financing of eligible projects. The CIP and its related policies set priorities and strategies for allocating and tracking funding, while the Debt Policy provides policy direction and limitations for proposed financings. Debt issuance for capital projects shall not be recommended for City Council approval unless such issuance has been incorporated into the CIP.

VI. STANDARDS FOR USE OF DEBT FINANCING
The City’s Debt Policy will promote debt issuance only in those cases where public policy, equity and economic efficiency favor debt over cash (pay-as-you-go) financing. Long-term debt financing shall not be used to fund operating costs.

A. Credit Quality
Credit quality is an overriding consideration. All City debt management activities for new debt issuances will be conducted in a manner conducive to receiving the highest credit ratings possible consistent with the City’s debt management objectives, and to maintaining or improving the current credit ratings assigned to the City's outstanding debt by the major credit rating agencies.
#11..
- 270 -
3 B. Term of Financing
Debt can be used to provide funding for long-term capital projects. The debt repayment period should relate to the expected useful life for the facilities or equipment being financed, and should, as a general matter, be concurrent with the stream of benefits from these facilities. When the City finances capital projects by issuing bonds, the debt repayment period generally should not exceed the average useful life of the equipment, software and/or facilities being acquired or constructed, but in no case will the financing exceed 120% of the useful life of the project being financed. Inherent in its long-term debt policies, the City recognizes that future taxpayers and/or ratepayers will benefit from the capital investment and that it is appropriate that they pay a share of the asset cost.

C. Debt Financing Mechanism
The City will evaluate the use of all financial alternatives available, including, but not limited to: long-term debt, short-term debt, commercial paper, tax revenue and grant anticipation notes, private placement and inter-fund borrowing. The City will utilize the most cost advantageous financing alternative available while limiting the City’s risk exposure.

D. Ongoing Debt Administration and Internal Controls
The City shall maintain all debt-related records for as long as the associated debt is outstanding plus a term of three years. At a minimum, this repository will include all official statements, bid documents, ordinances, indentures, records relating to the expenditure of proceeds and the use of the project, records related to the investment of the proceeds of the bonds and the sources of payment, all returns filed with the IRS, trustee reports, etc. for all City debt. To the extent that official transcripts incorporate these documents, possession of a transcript will suffice (transcripts may be hard copy, stored on CD-ROM or other forms of electronic record). The City will collect all available documentation for outstanding debt and will develop a standard procedure for archiving transcripts for any new debt. The City will establish internal controls to ensure compliance with the Debt Policy, all debt covenants and any applicable requirements of the State and Federal Government Codes.

E. Rebate Policy and System
The City will accurately account for all interest earnings in debt-related funds. These records will be designed to ensure that the City is in compliance with all debt covenants, and with State and Federal laws. The City will maximize the interest earnings on all funds within the investment parameters set forth in each respective indenture, and as permitted by the City Investment Policy, subject to applicable limitations. The City will develop a system of reporting interest earnings that relates to and complies with Internal Revenue Code rebate requirements, yield limits and arbitrage.

F. Minimum Reserve Requirements for Water and Wastewater Funds The Water and Wastewater Funds are to maintain a working capital reserve equal to not less than 25% of their operating expenses plus one annual debt service payment on any State Revolving Fund (“SRF”) loans. This reserve is meant to ensure that adequate cash is on hand to meet current obligations of the funds as well as respond to unanticipated #11..
- 271 -
4 demands, such as unplanned repairs or renovations of the systems. This reserve is consistent with reserves established by other utilities for similar purposes.

G. Minimum Debt Service Coverage Ratio for Water and Wastewater Funds The City will seek to maintain debt service coverage on its senior lien Water and Wastewater revenue bonds at a level not less than one and a half times (1.5x) the maximum annual debt service for the aggregate outstanding senior lien bonds of the respective system, including the debt service for any new issuance, unless a different debt service coverage amount is allowed by existing bond covenants.

VII. DEBT FINANCING
A. Purpose of Debt
When the City determines that the use of debt is appropriate, the following criteria will be utilized to evaluate the type of debt to be issued:

1. New Money Financing
New money issues are financings that generate funding for capital projects, equipment or enterprise software systems. Eligible capital projects for allocation of City funds include the land and building acquisition, construction, capital improvements or major rehabilitation of capital assets.

2. Refunding Financing
Refunding bonds are issued to retire all or a portion of an outstanding debt issue.

Refunding issuances can be used to achieve present-value savings on debt service or to restructure the payment schedule, type of debt instrument used, or covenants of existing debt. The City must analyze the refunding issue on a present-value basis to identify economic effects before approval, as is further described in Section X.

Refinancing Outstanding Debt below.

3. Interim Financing
Interim financing in the form of commercial paper, revolving line of credit, or short-term debt may be issued to bridge cashflow needs. It is used to defer the issuance of more expensive long-term debt or provide interim funds while waiting for reimbursement from other sources such as grants.

B. Type of Debt
When the City determines that the use of debt is appropriate, the following criteria will be utilized to evaluate the type of debt to be issued:

1. Long-Term Debt
The City may issue long-term debt when equipment, project, or software costs cannot be financed from current revenues. The proceeds derived from long-term borrowing will not be used to finance current operations or normal/current #11..
- 272 -
5 maintenance. Long-term debt will be structured such that the obligations generally do not exceed the average useful life of that which is being financed or the sunset date of any current, pledged revenues. And at no time will the financing exceed 120% of the expected average useful life of the asset being financed. • Current Interest Bonds are bonds that pay interest periodically and principal at maturity. They may be used for both new money and refunding transactions. Bond features may be adjusted to accommodate the market conditions at the time of sale, including changing dollar amounts for principal maturities, offering discount and premium bond pricing, modifying call provisions, utilizing bond insurance, as well as determining whether and how to fund a debt service reserve fund.
• Zero Coupon and Capital Appreciation Bonds pay interest only when principal matures. Interest continues to accrue on the unpaid interest, therefore representing a more expensive funding option. In the case of zerocoupon bonds, principal and interest, at one coupon rate, is repaid at maturity. In the case of Capital Appreciation Bonds, the value of the bond accretes until maturity. These types of bonds should be used only when no other bond structure is available to address a certain structuring problem. If used, these bonds should mature no later than 20 years from issuance and should be callable.
• Taxable Debt is debt whose interest payments are taxable for federal income tax purposes to bondholders. The City will consider the issuance of taxable debt when it is necessary for federal tax reasons or if these bonds would lower the overall cost of the financing or help the City achieve refunding savings that could not otherwise be achieved with the issuance of tax-exempt debt (e.g., advance refundings).

2. Short-Term Debt
Short-term borrowing may be utilized for the temporary funding of operational cash flow deficits or anticipated revenues, where anticipated revenues are defined as an assured revenue source with the anticipated amount based on conservative estimates, or until the structure of the take-out financing is finalized. The City will determine and utilize the least costly method for short-term borrowing. The City may issue short-term debt when there is a defined repayment source or amortization of principal, subject to the following policies:
• Commercial Paper Notes may be issued as an alternative to fixed rate debt, particularly when the timing of funding requirements is uncertain. The City maymaintain an ongoing commercial paper program to ensure flexibility and immediate access to capital funding when needed. The retirement of commercial paper notes is most commonly a result of the issuance of longterm bonds but they may also be retired with available cash. • Grant Anticipation Notes (“GAN”) are short-term notes that are repaid with the proceeds of State or Federal grants of any type. The City shall generally issue GANs only when there is no other viable source of funding for the #11..
- 273 -
6 project.
• Bond Anticipation Notes (“BAN”) are short-term notes issued prior to the issuance of long-term debt. BANs are most commonly retired, or taken-out, with long-term debt. BANs will be issued only when there is no better alternative to reduce the overall cost of a financing program. • Tax and Revenue Anticipation Notes (“TRAN”) shall be issued only to address a timing mismatch between operating revenues and operating expenditures and the sizing of the issue shall fully conform to Internal Revenue Code requirements and limitations.
• Lines of Credit shall be considered as an alternative to other short-term borrowing options. The lines of credit shall be structured to limit concerns as to Internal Revenue Code compliance.
• Other short-term debt may also be considered and utilized when appropriate such as a Direct Purchase Loan from a bank or Floating Rate Notes.

3. Variable Rate Debt
To maintain a predictable debt service burden, the City may give preference to debt that carries a fixed interest rate. An alternative to the use of fixed rate debt is floating or variable rate debt. It may be appropriate to issue short-term or long-term variable rate debt to diversify the City’s debt portfolio, reduce interest costs, provide interim funding for capital projects and improve the match of assets to liabilities. Variable rate debt typically has a lower cost of borrowing than fixed rate financing and shorter interest rate reset periods in the range of 1 to 35 days. Under no circumstances will the City issue variable rate debt solely for the purpose of earning arbitrage. The City, however, may consider variable rate debt in certain instances.

A) Variable Rate Debt Capacity. The City will maintain a conservative level of outstanding variable rate debt in consideration of general rating agency guidelines recommending a maximum of 20% variable rate exposure, in addition to maintaining adequate safeguards against risk and managing the variable revenue stream, both as described below:
(1) Adequate Safeguards Against Risk. Financing structure and budgetary safeguards are in place to prevent adverse impacts from interest rate shifts; such structures could include, but are not limited to, interest rate swaps, interest rate caps and the matching of assets and liabilities. See Section VII. B. 4. Financial Derivative Products below. See also the Interest Rate Swap Policy addendum. (2) Variable Revenue Stream. The revenue stream for repayment is variable, and is anticipated to move in the same direction as market-generated variable interest rates, or the dedication of revenues allows capacity for variability. (3) As a Component to Synthetic Fixed Rate Debt. Variable rate bonds may be used in conjunction with a financial strategy which results in synthetic fixed rate debt. Prior to using synthetic fixed rate debt, the City shall certify that the expected interest cost is at least 10 basis points (0.10%) lower than traditional fixed rate debt (including any ongoing fees in such calculation) as well as giving due consideration to other risks associated with such a structure that may raise #11..
- 274 -
7 the ultimate costs of a synthetic fixed rate structure. See Section VII. B. 4.

Financial Derivative Products below. See also the Interest Rate Swap Policy addendum.

4. Financial Derivative Products
Financial Derivative Products will be considered appropriate in the issuance or management of debt only in instances where it has been demonstrated that the derivative product will either provide a hedge that is expected to reduce the risk of fluctuations in expense or revenue, or alternatively where the derivative product is expected to reduce total project cost. The City shall maintain an Interest Rate Swap Policy (see attached) governing the use of derivative products. For derivatives other than interest rate swaps, the City will undertake an analysis of early termination costs and other conditional terms given certain financing and marketing assumptions. Such analysis will document the risks and benefits associated with the use of a particular derivative product. Derivative products will only be utilized with prior approval from the City Council.

VIII. TERMS AND CONDITIONS OF BONDS
The City shall establish all terms and conditions relating to the issuance of bonds, and will control, manage, and invest all bond proceeds. Unless otherwise authorized by the City, the following shall serve as bond requirements.

A. Term
All capital improvements financed through the issuance of debt will be financed for a period generally not to exceed the average useful life of that which is being financed. At no time will the financing exceed 120% of the expected average useful life of the assets being financed, and in no event should the final maturity exceed the lesser of thirty (30) years or when the revenue source is projected to sunset.

B. Capitalized Interest
The nature of the City’s revenue stream is such that funds are generally continuously available and the use of capitalized interest should not normally be necessary. However, certain types of financings may require the use of capitalized interest from the issuance date until the City has constructive use/benefit of the financed project. Unless otherwise required, the City will avoid the use of capitalized interest to obviate unnecessarily increasing the bond size. Interest shall not be funded (capitalized) beyond three (3) years or a shorter period when based upon project needs or if further restricted by statute.

Interest earnings may, at the City's discretion, be applied to extend the term of capitalized interest but in no event beyond 3 years, or less, if restricted by law.

C. Lien Levels
Senior and Junior Liens for each revenue source will be utilized in a manner that will maximize the most critical constraint, typically either cost or capacity, thus allowing for the most beneficial use of the revenue source securing the bond. Projects chosen for #11..
- 275 -
8 priority financing, based on funding availability and proposed timing, will generally be financed on the most senior lien of the relevant credit. The City may use lower liens for specific needs such as interim financing or commercial paper.

D. Debt Service Coverage
For any new debt issuance secured by Water or Wastewater revenues, the City will seek to maintain pledged net revenues at a level no less than one and a half times (1.50x) the Maximum Annual Debt Service for the aggregate outstanding senior lien bonds, including the debt service for the new issuance, unless a different debt service coverage amount is allowed by existing bond covenants. For other types of debt incurred by the City, the City will determine the appropriate minimum debt service coverage levels based upon the nature of the pledged revenues, rating considerations, and other relevant factors.

E. Debt Service Structure
Debt issuance shall be planned to achieve relatively rapid repayment of debt while still matching debt service to the useful life of facilities. The City will amortize its debt within each lien to achieve overall level debt service or may utilize more accelerated repayment schedules after giving consideration to bonding capacity constraints. The City shall avoid the use of bullet or balloon maturities except in those instances where these maturities achieve one of the City’s stated goals, such as minimizing annual debt service or leveling annual existing debt service, among others.

F. Call Provisions
In general, the City’s securities, including taxable debt, will include a call feature, which is no later than ten (10) years from the date of delivery of the bonds. In addition to par call, the City may also consider including a make-whole-call option. The City will avoid the sale of non-callable bonds absent careful evaluation by the City with respect to the value of the call option. If the City were to issue taxable bonds, the City will carefully consider the financial impacts of a 10-year call, a make-whole call, or non-callable debt.

G. Original Issue Discount & Deep Discount Bonds
An original issue discount and deep discount bonds will be permitted only if the City determines that such discount results in a lower true interest cost on the bonds and that the use of an original issue discount or deep discount bonds will not materially reduce the value of the bonds’ call provisions nor adversely affect the project identified by the bond documents. When evaluating the coupon structure for a bond issuance, the City should factor in investor preference, the yield-to-call, the yield-to-maturity and the potential to refund the bonds for debt service savings in the future.

H. Maximum Repayment Ratio
The maximum repayment ratio, defined as total future debt service payments divided by the principal amount of the bonds issued, shall be no more than three to one (3:1) for each series of bonds.

IX. CREDIT ENHANCEMENTS
#11..
- 276 -
9 The City will consider the use of credit enhancement on a case-by-case basis, evaluating the economic benefit versus cost for each case. Only when a clearly demonstrable savings can be shown shall enhancement be considered. The City will consider each of the following enhancements as alternatives by evaluating the cost and benefit of such enhancement. As noted below, the use of credit enhancements may result in additional continuing disclosure requirements described below (see Section XV. F. Continuing Disclosure below).

A. Bond Insurance
The City may purchase bond insurance when such purchase is deemed prudent and advantageous. The predominant determination shall be based on such insurance being less costly than the present value of the difference in the interest on insured bonds versus uninsured bonds. Bond insurance may be purchased for the entire amount of an issue or for specific maturities based on a recommendation from the financial advisor or senior underwriter.

B. Debt Service Reserves
When required, a reserve fund equal to the lesser of 10% of the original principal amount of the bonds, maximum annual debt service, or 125% of average annual debt service, and if permitted, 10% of par value of bonds outstanding, (the “Reserve Requirement”) shall be funded from the proceeds of each series of bonds, subject to federal tax regulations and in accordance with the requirements of credit enhancement providers and/or rating agencies.

The City may purchase a reserve equivalent (e.g., a reserve fund surety policy) when such purchase is deemed prudent and advantageous. Such equivalents shall be evaluated in comparison to cash funding of reserves on a net present value basis, while also taking into account the creditworthiness of the surety provider and market acceptance.

C. Letters of Credit
The City may enter into a letter of credit agreement when such an agreement is required by the market (e.g., in the case of variable rate demand bonds) or is deemed prudent and advantageous. Only those financial institutions with long-term ratings greater than or equal to that of the City, and minimum short-term ratings of P-1, A-1, F1, by Moody’s Investors Service, S&P Global Ratings and Fitch Ratings, respectively, may participate in City letter of credit agreements unless there are no other practicable options for the City.

X. REFINANCING OUTSTANDING DEBT
The City shall have the responsibility to analyze outstanding bond issues for refunding opportunities that may be presented by underwriting and/or municipal advisory firms. The City will consider the following issues when analyzing possible refunding opportunities:

A. Debt Service Savings
The City has established a minimum net present value savings threshold goal of 3% of the refunded bond principal, unless there are other compelling reasons for defeasance. The present value savings will be net of all costs related to the refinancing. If the debt to be refinanced is not currently callable (i.e., in the case of forward delivery refundings, #11..
- 277 -
10 advance refundings, etc.) the City will make a comparison to the projected savings it could achieve if it waited until the debt becomes eligible for a current refunding. The decision to defease debt that is not currently callable or to take savings on an upfront or deferred basis must be expressly described in the staff report presented to the City Councilexplicitly approved by the City Council.

B. Restructuring
The City will refund debt when in its best interest to do so. Refundings will include restructuring to meet unanticipated revenue expectations, terminate swaps, achieve cost savings, mitigate irregular debt service payments, release reserve funds or remove unduly restrictive bond covenants. The decision to restructure debt must be expressly described in the staff report presented to the City Councilexplicitly approved by the City Council.

C. Term of Refunding Issues
The City will refund bonds within the term of the originally issued debt. However, the City may consider maturity extension, when necessary to achieve a desired outcome, provided that such extension is legally permissible. The City may also consider shortening the term of the originally issued debt to realize greater savings. The remaining useful life of the financed facility and the concept of intergenerational equity should guide this decision.

D. Escrow Structuring
The City shall utilize the least costly permitted securities available in structuring refunding escrows. The City will examine the viability of an economic versus legal defeasance on a net present value basis. Generally, the City should look to purchase State and Local Government Series (“SLGS”) securities from the federal treasury when structuring refunding escrows. The City may review the purchase of Open Market Securities (“OMS”) to fund a refunding escrow. In such a case, a certificate from a thirdparty agent, who is not a broker-dealer, is required stating that the securities were procured through an arms-length, competitive bid process (in the case of OMS), that such securities were more cost effective than SLGS, and that the price paid for the securities was reasonable within federal guidelines. Under no circumstances shall an underwriter, agent, municipal advisor or financial advisor sell escrow securities to the City from its own account.

E. Arbitrage
The City shall take all necessary steps to optimize refunding escrows and to avoid negative arbitrage. Any resulting positive arbitrage will be rebated as necessary according to federal guidelines.

XI. METHODS OF ISSUANCE
The City will determine, on a case-by-case basis, whether to sell its bonds competitively or through negotiation. The City shall evaluate the comparative costs of each method of issuance on a net present value basis, using the City’s investment rate as the appropriate measure of the #11..
- 278 -
11 discount rate. It should be noted, however, that cost may be only one of a number of factors considered in determining the most advantageous method of sale.

A. Competitive Sale
In a competitive sale, the City’s bonds shall be awarded to the bidder providing the lowest true interest cost as long as the bid adheres to the requirements set forth in the official notice of sale. Conditions under which a competitive sale would be preferred are as follows:
• Bond prices are stable and/or demand is strong.
• Market timing and interest rate sensitivity are not critical to the pricing. There are no complex explanations required during marketing regarding issuer’s projects, media coverage, political structure, political support, and funding or credit quality. • The bond type and structure are conventional.
• Bond insurance is not needed, is included or pre-qualified (available). • Significant tTransaction size is modest, generally larger than $10 million but lower than $100 million.
• The City (or the issuing City enterprise) has strong credit ratings. • The City (or the issuing City enterprise) is well known to investors.

B. Negotiated Sale
The City recognizes that some securities are best sold through negotiation. Conditions under which a negotiated sale would be preferred are as follows:
• Interest rates are volatile.
• Demand is weak or supply of competing bonds is high.
• Market timing is important, such as for refundings.
• The City (or the issuing City enterprise) has lower or weakening credit rating. • The issuing City enterprise is not well known to investors. • Sale and marketing of the bonds will require complex explanations about the issuer’s projects, media coverage, political structure, political support, funding, or credit quality.
• The bond type and/or structural features are non-standard, such as for a forward delivery bond sale, issuance of taxable or variable rate bonds, or where there is the use of derivative products.
• Bond insurance is not available or not offered.
• Early structuring, investor outreach and other market participation by underwriters are desired.
• The par amount for the transaction is small (generally under $10 million) or significantly larger than normal (generally over $100 million). • Demand for the bonds by retail investors is expected to be high. • Participation from Disadvantaged Business Enterprise (“DBE”) firms is required or desired.
#11..
- 279 -
12 C. Private Placement
From time to time the City may elect to privately place its debt. Such placement shall be considered if this method is demonstrated to result in a cost savings to the City or other benefits relative to other methods of debt issuance. Private placements may be well-suited for weaker credits where a rating cannot be obtained. As noted below, private placements may require compliance with disclosure requirements (see Section XV. F. Continuing Disclosure below).

D. Feasibility Analysis
Issuance of revenue bonds may be accompanied by a finding that demonstrates the projected revenue stream’s ability to meet future debt service payments and bond covenants.

XII. MARKET RELATIONSHIPS
A. Rating Agencies and Investors
The Director of Finance shall be responsible for maintaining the City’s relationships with Moody’s Investors Service, S&P Global Ratings, Fitch Ratings and any other major rating agency. The City may, from time to time, choose to seek ratings from only one or two of these agencies as circumstances dictate. In addition to general communication, the Director of Finance shall meet with credit analysts prior to each rated competitive or negotiated sale and/or offer conference calls with agency analysts in connection with the planned sale as needed. The Director of Finance shall monitor and comply with periodic data requests from rating analysts for their rating surveillance process.

B. Other Jurisdictions/Conduit Financing
From time to time, the City may issue bonds on behalf of other public entities. While the City will make every effort to facilitate the desires of these entities, the Director of Finance will ensure that the highest quality financings are done and that the City is insulated from all manageable risks. The City may issue bonds through another issuing entity such as a Joint Powers Authority (“JPA”). The City may issue debt in this manner if it would result in the least costly method to issue debt (e.g. reduced costs of issuance).

The City will evaluate the timing of such issuance.

C. Fees
When appropriate, the City will charge an administrative fee equal to direct costs to reimburse itsadministrative costs incurred in debt issuance and ongoing reporting costs.

XIII. CONSULTANTS
Periodically, the City may create an approved pool of qualified financing team members, such as municipal advisors or underwriters.

A. Selection of Financing Team Members
#11..
- 280 -
13 The Director of Finance will make recommendations to the City Manager for all financing team members, with the City Council providing final approval.

B. Municipal Advisor
The City shall utilize a municipal advisor to assist in its debt issuance and debt administration processes as prudent. The municipal advisor must be registered as a Municipal Advisor with the Securities and Exchange Commission (“SEC”) and Municipal Securities Rulemaking Board (“MSRB”). Selection of the City’s municipal advisor(s) shall be based on, but not limited to, the following criteria:
• Prior knowledge and experience with the City.
• Experience in providing consulting services to complex issuers. • Knowledge and experience in structuring and analyzing complex issues. • Experience and reputation of assigned personnel.
• Fees and expenses.

Municipal advisory services provided to the City shall include, but shall not be limited to the following:
• Evaluation of risks and opportunities associated with debt issuance. • Monitoring market conditions and opportunities.
• Evaluation of proposals submitted to the City by investment banking firms. • Structuring and pricing of debt and related negotiations. • Preparation of request for proposals for other financial services such as trustee and paying agent services, printing, credit facilities, remarketing agent services, and related negations etc.
• Advice, assistance and preparation for presentations with rating agencies, credit providers and investors.
• Assisting in preparation of official statements and other financing documents. • Be available for other projects whenever needed.

The City also expects that its municipal advisor will provide the City with objective advice and analysis, maintain the confidentiality of City financial plans, and be free from any conflicts of interest.

C. Bond Counsel
City debt will include a written opinion by legal counsel affirming that the City is authorized to issue the proposed debt, that the City has met all constitutional and statutory requirements necessary for issuance, and a determination of the proposed debt’s federal income tax status. The approving opinion and other documents relating to the issuance of debt will be prepared by counsel with extensive experience in public finance and tax issues. The counsel will be selected by the City Attorney and subject to City Council approval.

The services of bond counsel may include, but are not limited to:
#11..
- 281 -
14 • Rendering a legal opinion with respect to authorization and valid issuance of debt obligations including whether the interest paid on the debt is tax exempt under federal and State of California law;
• Preparing all necessary legal documents in connection with authorization, sale, issuance and delivery of bonds and other obligations;
• Unless this task is assigned to disclosure counsel, as selected by the City separately from bond counsel, preparing the preliminary and final official statements and commercial paper memoranda;
• Participating in discussions with potential investors, insurers and credit rating agencies, if requested;
• Providing continuing advice, as requested, on the proper use and administration of bond proceeds under applicable laws and the indenture, particularly arbitrage tracking and rebate requirements;
D. Disclosure Counsel
The City may utilize a separate firm to serve as disclosure counsel as it deems necessary.

If cost effective, bond counsel may also serve as disclosure counsel.

XIV. UNDERWRITER SELECTION
A. Senior Manager Selection
The City shall have the right to select a senior manager for a proposed negotiated sale.

The criteria shall include but not be limited to the following:
• The firm’s ability and experience in managing similar and/or complex transactions.
• Demonstrated ability to structure debt issues efficiently and effectively. • Prior knowledge and experience with the City.
• The firm’s willingness to risk capital and demonstration of such. • The firm’s ability to reach a wide network of investors. • The firm’s ability to sell bonds at the lowest market interest rates. • Quality and experience of personnel assigned to the City’s engagement. • Financing and marketing plans presented.

B. Co-Manager Selection
Co-managers may be selected on the same basis as the senior manager. In addition to their qualifications, co-managers appointed to specific transactions will be a function of transaction size and the necessity to ensure maximum distribution of the City’s bonds.

C. Selling Groups
The City may establish selling groups in certain transactions. To the extent that selling groups are used, the City may make appointments to selling groups from within an existing pre-qualified pool of underwriters or through another process, as the transaction #11..
- 282 -
15 dictates.

D. Underwriter’s Counsel
In any negotiated sale of City debt in which legal counsel is required to represent the underwriter, the lead underwriter will make the appointment subject to the City’s right to object to any such appointment.

E. Underwriter’s Discount
The City will evaluate the proposed underwriter’s discount against comparable issues in the market with input from the municipal advisor or pricing advisor. The City will strive to reasonably minimize the underwriter’s takedown by means of a competitive selection process like an RFP. The goal of low takedowns should be balanced with adequately incentivizing the banks to market/sell the bonds or underwrite without rate adjustments, if required. If there are multiple underwriters in the transaction, the City will determine the allocation of fees with respect to the takedown and management fee (if any). The determination of the size and allocation of the management fee will be based upon participation in the structuring phase of the transaction. Generally, the City will not pay for risk in its underwriter’s discount. All fees and allocation of the management fee will be determined prior to the sale date; a cap on management fee, expenses and underwriter’s counsel will be established and communicated to all parties by the City.

The senior manager shall submit an itemized list of expenses charged to members of the underwriting group. Any additional expenses must be substantiated.

F. Evaluation of Financing Team Performance
The City will evaluate each bond sale after its completion to assess the following: costs of issuance including underwriters’ compensation, pricing of the bonds in terms of the overall interest cost and on a maturity-by-maturity basis, and the distribution of bonds and sales credits. Following each sale, the municipal advisor shall provide a post-sale evaluation on the results of the sale to the City Council.

G. Syndicate Policies
For each negotiated transaction, the Director of Finance will review and approve syndicate policies that will describe the designation policies governing the upcoming sale.

The Director of Finance shall ensure receipt of each member’s acknowledgement of the syndicate policies for the upcoming sale prior to the sale date.

H. Designation Policies
To encourage the pre-marketing efforts of each member of the underwriting team, orders for the City’s bonds will be net designated, unless otherwise expressly stated. The City shall require the senior manager to:
• Equitably allocate bonds to other managers and the selling group. • Comply with MSRB regulations governing the priority of orders, compliance with retail order requirements and allocations.
• Within 10 working days after the sale date, submit to the Director of Finance a #11..
- 283 -
16 detail of orders, allocations and other relevant information pertaining to the City’s sale.

I. Disclosure by Financing Team Members
All financing team members will be required to provide full and complete disclosure relative to agreements with other financing team members and outside parties. The extent of disclosure may vary depending on the nature of the transaction and for underwriters and municipal advisors shall, at a minimum, comply with applicable SEC and MSRB requirements. For firms acting as the City’s bond counsel, disclosure counsel, or municipal advisor, no agreements shall be permitted which could compromise the firm’s ability to provide independent advice which is solely in the City’s best interests or which could reasonably be perceived as a prohibited conflict of interest. All other conflicts must be disclosed to the City in accordance with applicable regulatory requirements. For legal counsel such conflicts disclosure shall, at a minimum, comply with applicable conflicts disclosure requirements for attorneys in the state.

XV. POST-ISSUANCE COMPLIANCE
A. General
In conjunction with the issuance of a tax-advantaged obligation, bond counsel issues an opinion that is in part based on the reasonable expectation that the issuer will comply with federal tax law requirements to preserve the tax-advantaged status of the obligation. The issuer agrees to comply with these requirements through representations it makes in the tax compliance certificate. The purpose of this Post-Issuance Compliance section is to establish policies and procedures in connection with the issuance of obligations, so as to (a) maximize the likelihood that the City satisfies all applicable post-issuance requirements of federal income tax law needed to preserve the tax exempt status of bonds, (b) ensure that the City will take any appropriate remedial actions on a timely basis if a future event occurs that could affect the tax-exempt status of bonds, and (c) maximize the likelihood that the City complies with applicable federal securities laws, including any contractual obligations arising thereunder. The City reserves the right to use its discretion as necessary and appropriate to make exceptions or request additional provisions as circumstances warrant. The City also reserves the right to change these policies and procedures from time to time.

Issuers and borrowers are also required to disclose, on a periodic basis, financial information and certain other information that may impact their ability to service their debt. This ongoing reporting requirement is known as continuing disclosure. The requirements of continuing disclosures are directly applicable to underwriters and are set forth in Securities and Exchange Commission (“SEC”) Rule 15c2-12. The issuer makes representations in its official statements and other bond documents regarding its intent to comply as a matter of contract with the requirements of Rule 15c2-12.

B. Designation of Post-Issuance Compliance Officer
The City has established a Disclosure Working Group (“DWG”) consisting of the City’s #11..
- 284 -
17 Manager and Director of Finance. The DWG will establish appropriate written policies and procedures, which this document provides, and periodic training regarding continuing disclosure obligations to effect compliance with the federal securities laws. In connection with each primary offering subject to Rule 15c2-12, as well as annually and periodically when necessary in connection with its continuing disclosure filings required by contractual undertakings delivered in accordance with Rule 15c2-12, the DWG will notify its dissemination agent and others, as and when appropriate when developments and events affect the City that may give rise to a contractual obligation to provide additional disclosure or that may provide an opportunity for voluntary disclosure.

The Director of Finance, or his or her designee, shall be the Post-Issuance Compliance Officer (the “Compliance Officer”) for the City’s debt issuances (the “Bonds”). The Compliance Officer, if City staff, may designate such other personnel as may be necessary to assist in determining continuing compliance with all relevant law and regulations applicable to the continued favorable tax treatment of such indebtedness, and to comply with the record-keeping responsibilities outlined herein. At such time as the initial Compliance Officer is replaced or a new Compliance Officer is designated, the departing Compliance Officer will ensure that such successor is fully briefed as to the status of the City’s outstanding indebtedness and the location of records relating to such indebtedness, and that such successor receives training and consultation(s) with bond or disclosure counsel as to his or her duties as Compliance Officer under this Debt Policy.

C. External Advisors
The City shall consult with bond counsel and other legal counsel and advisors, as needed, so long as any Bonds remain outstanding, to identify requirements and to establish procedures necessary or appropriate so that tax-exempt interest on the Bonds will continue to be excludable from gross income for federal income tax purposes. Those requirements and procedures shall include future compliance with applicable private activity bond tests, arbitrage rebate requirements and all other applicable post-issuance requirements of federal tax law throughout (and in some cases beyond) the term of bonds.

The Compliance Officer shall conduct periodic reviews, at least annually, or more often as may be necessary, to determine that the City remains in compliance with all laws and regulations, including, without limitation, the matters set forth herein. The Compliance Officer annual review shall include matters that relate to the tax status of the Bonds, continuing compliance with covenants that relate to the tax status of the Bonds, and any new matters or public finance developments that relate to the tax status of the Bonds or continuing compliance with such requirements. The City may consult with bond counsel in conducting its review and may engage expert advisors (each a “Rebate Analyst”) to assist in the calculation of arbitrage rebate payable in respect of the investment of Bond proceeds in the manner more fully set forth in the Tax Certificate.

D. Uses and Investments of Funds and Accounts
Various funds and accounts are established as security for the Bonds. The Compliance Officer shall prepare regular, periodic statements regarding the investments and transactions involving bond proceeds, which shall comprise part of the records required to be kept. The Compliance Officer will also review the disbursement of bond proceeds #11..
- 285 -
18 from Trustee records or City records, as applicable, to ensure that bond proceeds are expended in accordance with their intended purpose. The Compliance Officer shall report to the Finance Director (if the officer is a designee of the Finance Director) and the City Manager any expenditure which violates the provisions of any ballot measure, authorizing resolution, or trust document. If any Debt Service Fund ever contains any balance after the principal payment of the Bonds is made each year, except for a reasonable carryover amount which is less than the greater of the earnings on the Debt Service Fund for the immediately preceding year ending on such principal payment date (a “Bond Year”), or 1/12 of the principal and interest payments on the Bonds for the immediately preceding Bond Year, then the Compliance Officer will contact bond counsel to ensure that such facts will not cause the Bonds to become arbitrage bonds, to formulate a plan to remediate such condition, if necessary, and to determine an allowable use for such excess moneys and/or to determine if any yield restrictions apply. If any Debt Service Reserve Fund is ever funded (i) in an amount more or less than the required balance but declining in future years as detailed in the Tax Certificate, or (ii) is invested at a yield that is higher than the yield of the Bonds, then the Compliance Officer will contact bond counsel to ensure that such facts will not cause the Bonds to become arbitrage bonds, to formulate a plan to remediate such condition and/or to determine if any yield restrictions apply. Generally, if the Debt Service Reserve Fund ever contains a higher balance than required (either through the accrual of interest, investment gains, maturity of securities, or reduction in the Reserve Requirement) then the excess moneys should be dealt with as directed by the documents and approved by bond counsel. If any Construction Fund ever is invested at a yield higher than the yield of the Bonds or if moneys in the Construction Fund are not fully expended by three years after the original delivery date of the Bonds, then the Compliance Officer will contact bond counsel to ensure that such facts will not cause the Bonds to become arbitrage bonds, to formulate a plan for the investment and application of the remaining unexpended Bond Proceeds, which plan may include the redemption or defeasance of Bonds, and/or to determine if any yield restrictions apply.

E. Rebate Reporting
The use of bond proceeds and their investments must be monitored to ensure compliance with arbitrage restrictions. The City will cause arbitrage rebate calculations to be completed, or cause to be completed by an experienced firm the City has retained for this purpose related to any bond issues, with any positive rebate paid every five years and as otherwise required by applicable provisions of the Internal Revenue Code and regulations.

Therefore, the Director of Finance shall ensure that proceeds and investments are tracked in a manner that facilitates accurate, complete calculation, and timely rebates, if necessary.

F. Continuing Disclosure
Appointment. Unless otherwise provided in any Continuing Disclosure Agreement executed in connection with Bonds pursuant to SEC Rule 15c2-12 (the “Continuing Disclosure Agreement”), the Compliance Officer shall also be the Dissemination Agent under such Continuing Disclosure Agreement. The Compliance Officer shall be responsible for and take all reasonable steps to ensure compliance with said Continuing Disclosure Agreement and shall monitor the operations of the Issuer for occurrence of any #11..
- 286 -
19 listed event (as set forth therein). For any Bonds for which it is designated to serve in such capacity, should the Compliance Officer no longer serve as Dissemination Agent, the City shall select an internal or external Dissemination Agent.

Responsibilities. The Dissemination Agent is responsible for the following (the “Continuing Disclosure Policies”):
• Serving as a “point person” for personnel to communicate issues or information that should be or may need to be included in any Continuing Disclosure Agreement;
• Identifying the officers and employees of the City who are most likely to first obtain knowledge of the occurrence of events that would require event filings; • Monitoring compliance by the City with the Continuing Disclosure Policies, including timely dissemination of the annual report and event filings as described below;
• Recommending changes to the Continuing Disclosure Policies to the City as necessary or appropriate;
• Following up with others to make sure that assigned tasks have been completed on a timely basis and making sure that the continuing disclosure annual report is filed on a timely basis; and
• Maintaining records documenting the City’s compliance with the Continuing Disclosure Policies and the Continuing Disclosure Agreement.

Filing Requirements. The City is required to file an annual report with the MSRB’s Electronic Municipal Market Access (“EMMA”) system each year. Such annual reports are required to include certain updated financial and operating information and audited financial statements. The Dissemination Agent will establish or cause to be established a calendar reminder of the city’s continuing disclosure obligations on July 1 each year. The City is also required to file notices of certain events with the MSRB’s EMMA system.

Upon the identification of the occurrence of a material event, the Dissemination Agent shall, in consultation with bond counsel, prepare, or cause to be prepared, a draft of the necessary notice (including compiling any materials or documents to be included with such notice) and shall notify such parties of the date by which such notice is to be filed. If it is not clear if the occurrence of an event constitutes an event that requires notification, then the Dissemination Agent shall consult with bond counsel to determine whether the City is required to file a notice concerning such event.

For any public debt issues (subject to contractual obligations under SEC Rule 15c2-12) issued on or after February 27, 2019, the City is required to commit to make additional disclosure with respect to private loans or financing leases (not sold through an official statement) or derivatives or credit support agreements (collectively “financial obligations”). The additional events will need to be provided to the City’s Dissemination Agent, for further filing with EMMA, within ten (10) business days of their occurrence:
#11..
- 287 -
20 • Incurrence of a financial obligation of the City (and any obligated person, where applicable), if material, or agreement to covenants, events of default, remedies, priority rights, or other similar terms of a financial obligation of the City (and any obligated person, where applicable), any of which affect security holders, if material;
• Default, event of acceleration, termination event, modification of terms, or other similar events under the terms of a financial obligation of the City (and any obligated person, where applicable), any of which reflect financial difficulties.

In addition, the Dissemination Agent will be responsible for providing notice, in a timely manner, of a failure to provide any of the City’s required annual financial information by the date specified in the continuing disclosure undertaking. The inability to make timely filings must be disclosed and is a negative reflection. While there is reliance on timely audit and preparation of the City’s annual report, the Director of Finance will ensure the City’s timely filing of its annual report on EMMA as soon as it is available.

G. Voluntary Disclosure Requirements
In addition to preparing annual reports and event notices, the City may wish to keep investors informed by providing information that is not required to be provided under Rule 15c2-12 or its continuing disclosure undertakings. Examples of such types of information are investments, interim financial information, capital improvement plans, fund balance policies, etc. and financial forecasts. Because providing this information is voluntary, the Compliance Officer will monitor for events which may materially affect the financial condition or operations of the City, so that a determination can be made if the event should be disclosed. The below list is comprised of events and financial disclosure which the MSRB has suggested issuers may wish to voluntarily disclose. Some of these are not applicable to the City’s public debt issues and financial obligations, but the City may wish to consider providing some of these to the City’s Dissemination Agent for further filing with EMMA:
• Amendment to continuing disclosure undertaking;
• Change in obligated person (i.e., a person guaranteeing or supporting City debt); • Notice to investors pursuant to bond documents;
• Certain communications from the Internal Revenue Service; • Secondary market purchases;
• Capital or other financing plan;
• Litigation/enforcement action;
• Change of tender agent, remarketing agent, or other ongoing party; • Change in fiscal year/timing of annual disclosure or accounting standard; • Interim/additional financial information/operating data, budget; • Investment/debt/financial policy changes;
• Information provided to rating agency, credit/liquidity provider or other third party; and
• Consultant reports.
#11..
- 288 -
21 Also, if the City maintains an Investor Relations website, or routinely posts City information packages, including interim financial information, capital improvement plans, etc. on its website, the City’s Compliance Officer should review and, in some cases, the Compliance Officer should reissue the posted material with an explanatory note (e.g., the interim financial information is presented on a cash, as opposed to accrual basis).

Currently, the City is not required to file interim financial information. In the future, if such filings are required in continuing disclosure undertakings, the City’s Compliance Officer will notify the Dissemination Agent for assistance when these filings become necessary.

H. Coordinating Continuing Disclosure with Primary Disclosure It is expected that the DWG will be responsible for collecting and reviewing information set forth in official statements prepared in connection with new bond offerings. Any Management’s Discussion and Analysis (“MD&A”) from the prior year’s audited financial statements will be reviewed to ensure that the unaudited information which was provided in that portion of the financial statements is updated to include added public debt and material financial obligations. Coordination with the City’s auditors will be essential, as well as careful review of the long-term debt notes in the financial statements and the checking of all bond ratings before each EMMA filing is made. Measures should be taken to assure information publicly available to investors is accurate. Further coordination between the DWG and the City’s website manager is essential before posting any financial information.

I. Website Disclosure
It is expected that the Compliance Officer will be responsible for monitoring website content and reviewing the information set forth on such website. Appropriate disclaimer language on the website will be considered in order to educate the viewer that specific information intended for investors can be found on the City’s EMMA page as well as the investor’s acknowledgement of the limitations of such reliance. Coordination between the DWG and City officials will occur before the release of any public statements about any financial condition of the City.

J. Training for Employees and Issuer Officials
For City officials, compliance with federal securities law should be considered as important as compliance with local public meetings and records laws. To further this goal, the Compliance Officer shall call a meeting for an annual review or, if necessary, an interim review, of the continuing disclosure policies of the City, which all members of the DWG and additional invited officials and employees are expected to attend. The Compliance Officer shall be responsible for keeping a record of attendance. Furthermore, the members of the DWG and such invited officials and employees are expected to attend training sessions, at least annually, called by the Compliance Officer. Applicable policies and procedures will be updated by the City to reflect required changes on an as-needed basis.
#11..
- 289 -
22 #11..
- 290 -
23 GLOSSARY
Arbitrage- The difference between the interest paid on the tax-exempt securities and the interest earned by investing the security proceeds in higher-yielding securities.

IRS regulations govern arbitrage on the proceeds from issuance of municipal securities.

Balloon Maturity- A later maturity within an issue of bonds that contains a disproportionately large percentage of the principal amount of the original issue.

Bond Allocation Policies- Outline as to how an investor’s order is filled when a maturity in an underwriting syndicate is oversubscribed. The senior managing underwriter and issuer decide how the bonds will be allocated among the syndicate.

There are three primary classifications of orders, which form the designation policy.

The highest priority is given to Net Designated orders; the next priority is given to Group Net orders and Member orders are given the lowest priority (unless the Member orders are retail orders in which case it would be given the highest priority).

Bullet Maturity- Maturity for which there are no sinking fund payments prior to the stated maturity date.

Call Provisions- The terms of the bond contract giving the issuer the right to redeem all or a portion of an outstanding issue of bonds prior to their stated dates of maturity at a specific price, usually at or above par.

Capitalized Interest- A portion of the proceeds of an issue that is set aside to pay interest on the securities for a specific period of time. Interest is commonly capitalized for the construction period of the project.

Commercial Paper- Very short-term, unsecured promissory notes issued in either registered or bearer form, and usually backed by a line of credit with a bank.

Competitive Sale- A sale of securities by an issuer in which underwriters or syndicates of underwriters submit sealed bids to purchase the securities in contrast to a negotiated sale.

Continuing Disclosure- The principle that accurate and complete information material to the transaction which potential investors would be likely to consider material in making investment decisions with respect to the securities be made available on an ongoing basis.

Credit Enhancement- Credit support purchased by the issuer to raise the credit rating of the issue. The most common credit enhancements consist of bond insurance, direct or standby letters of credit, and lines of credit.

Debt Service Reserve Fund- The fund in which moneys are placed which may be #11..
- 291 -
24 used to pay debt service if pledged revenues are insufficient to satisfy the debt service requirements.

Deep Discount Bonds- Bonds that are priced for sale at a substantial discount from their face or par value.

Derivatives- A financial product whose value is derived from some underlying asset value.

Designation Policies- Concerning a negotiated sale of bonds, the rules regarding how the takedown (sales commission) is allocated among the underwriters for each order put in for the bonds.

Direct Purchase Loan- A source of financing where the loan is purchased by a financial institution instead of being offered to the general public for purchase. The loan can bear interest at a fixed rate or on a variable rate tied to market index (i.e. the Secured Overnight Financing Rate (“SOFR”) or Securities Industry and Financial Markets Association (“SIFMA”) Index). This form of financing does not require a remarketing agent to set the variable rate. As such, a Direct Purchase Loan can be used to replace traditional forms of variable-rate debt.

Escrow- A fund established to hold moneys pledged and to be used to pay debt service on an outstanding issue.

Expenses- Compensates senior managers for out-of-pocket expenses including:
underwriters counsel, DTC charges, travel, syndicate expenses, dealer fees, overtime expenses, communication expenses, computer time and postage.

Floating Rate Notes (“FRN”)- A note with a variable interest rate sold either in the public market or directly to financial institutions. The adjustments to the interest rate are typically tied to a certain index like SOFR or SIFMA and are made periodically.

The rate would continue to reset in the same manner through maturity. The SOFRbased floating rate note market typically does not require bank support and as a result, offers issuers an alternative to traditional floating rate debt.

Grant Anticipation Notes (“GAN”)- Short term notes issued by the government unit, usually for capital projects, which are paid from the proceeds of State or Federal grants of any type.

Letters of Credit- A bank credit facility wherein the bank agrees to lend a specified amount of funds for a limited term.

Management Fee- The fixed percentage of the gross underwriter’s spread which is usually only paid to the managing underwriter for the structuring phase of a transaction.
#11..
- 292 -
25 Members- Underwriters in a syndicate other than the senior underwriter.

Moody’s Median- Key financial, debt, economic and tax base statistics with median values for each statistic presented. Moody’s uses audits for both rated and unrated agencies to ensure that the medians presented are representative of all agencies.

Negotiated Sale- A method of sale in which the issuer chooses one underwriter to negotiate terms pursuant to which such underwriter will purchase and market the bonds.

Original Issue Discount- The amount by which the original par amount of an issue exceeds its public offering price at the time it is originally offered to an investor.

Pay-As-You-Go- An issuer elects to finance a project with existing cash flow as opposed to issuing debt obligations.

Present Value- The current value of a future cash flow when discounted to the present at a specific annual rate.

Private Placement- The original placement of an issue with one or more investors or financial institutions as opposed to being publicly offered or sold.

Rebate- A requirement imposed by the Tax Reform Act of 1986 whereby the issuer of the bonds must pay the IRS an amount equal to its profit earned from investment of bond proceeds at a yield above the bond yield calculated pursuant to the IRS code together with all income earned on the accumulated profit pending payment.

Tax and Revenue Anticipation Notes (“TRAN”)- Short-term notes issued by a government unit, usually for capital projects, which are paid from the proceeds of sales tax or other revenue sources.

Selling Groups- The group of securities dealers who participate in an offering not as underwriters but rather as those who receive securities less the selling concession from the managing underwriter for distribution at the public offering price.

Syndicate Policies- The contractual obligations placed on the underwriting group relating to distribution, price limitations and market transactions.

Underwriter- A dealer that purchases new issues of municipal securities from the Issuer and resells them to investors.

Underwriter’s Discount- The difference between the price at which the Underwriter buys bonds from the Issuer and the price at which they are reoffered to investors.

Variable Rate Debt- An interest rate on a security which changes at intervals according to an index or a formula or other standard of measurement as stated in the bond contract.
#11..
- 293 -
26 1. City of Modesto Philosophy Regarding Use of Interest Rate Swaps A. Introduction
Interest rate exchange agreements or interest rate swaps (“Swaps”) and related financial instruments and derivatives may be appropriate interest rate management tools in certain circumstances. Properly used, Swaps can increase the City of Modesto’s (the “City”) financial flexibility and provide opportunities for interest rate savings. This policy (“Swap Policy”) shall be followed in conjunction with the City’s related debt issuance-related policies and procedures (the “Debt Policy”).

Swaps are appropriate to use when they achieve a specific financial objective consistent with the City’s overall Swap Policy and Debt Policy. Swaps may be used, for example, to lock-in a current market fixed rate or create additional variable rate exposure. Swaps may be used to produce interest rate savings or alter the pattern of debt service payments.

Swaps may be used to cap, limit or hedge variable rate payments. Options granting the right to commence or cancel an underlying Swap are permitted to the extent the Swap itself is otherwise consistent with this Swap Policy.

The authorized Swaps contemplated in this Swap Policy are intended to reduce the amount or duration of interest rate risk, or produce a lower cost of borrowing when used in combination with the issuance of bonds.

B. Rationales for Utilizing Interest Rate Swaps
The use of Swaps and related financial instruments should balance the City’s primary objectives of reducing the cost of capital, minimizing the City’s exposure to interest rate volatility, and gaining flexibility in structuring and managing its debt portfolio over time with the risks associated with these tools and instruments. Examples of how the City’s debt management objectives can be achieved through the use of Swaps and other financial instruments are described below:
• Reduce borrowing costs at the time of issuance
Create synthetic fixed rate debt through a floating-to-fixed Swap. • Actively manage interest rate risk
Lock-in current market rates through (forward starting) floating-to-fixed Swap. • Balance financial risk
Purchase of an interest rate cap.

CITY OF MODESTO

CITY COUNCIL POLICY
Latest Revision Date: April 2023
ADDENDUM: Interest Rate Swap Policy
#11..
- 294 -
27 • Achieve appropriate asset/liability match
Create variable rate exposure through fixed-to-floating Swap.

Under no circumstances will Swaps be used for speculative purposes, e.g., to realize trading gains.

2. Authority for Entering into Swap Agreements
The purpose of this Swap Policy is to integrate the use of Swaps into the City’s overall Debt Policy, and other funds of the City where particular debt strategies, both long-term and shortterm, factor into these decisions. Swaps will not be used for speculation. The City Manager, in conjunction with the Director of Finance, shall be responsible for determining if and when it is in the City’s overall best financial interests to enter into a Swap or related financial instruments covered by this Swap Policy.

The City shall comply with all applicable laws. The City must receive an opinion acceptable to the financial market from a nationally recognized law firm that the swap contract is a legal, valid, and binding obligation of the City and that entering into such a contract complies with applicable provisions of the City Charter and State statutes.

3. Permitted Instruments
The City may utilize financial instruments that (i) lower its interest expense, (ii) manage its financial risk or (iii) improve its financial condition.

The City shall not use financial instruments that (i) create substantial leverage or financial risk, (ii) lack adequate liquidity to terminate at market, (iii) provide insufficient price transparency to allow reasonable valuation on an ongoing basis, or (iv) are primarily speculative in nature.

The use of Swaps and other hedging products should produce a result not otherwise available in the cash market (i.e., lack of advance refunding, non-callable debt), or provide a higher level of net savings compared to conventional financing methods.

The City may expressly utilize the following financial instruments, after identifying the financial objective(s) to be realized and assessing the attendant risks:
• Current or forward starting floating-to-fixed rate swaps Designed to reduce a fixed interest rate below that which would otherwise be available through the use of traditional fixed rate debt. • Current or forward starting fixed-to-floating rate swaps Designed to create additional variable interest rate exposure. • Rate Locks
Cash-settled forward contracts based on indices such as the MMD™ 1“AAA”

1. MMD™ is a trademark of Municipal Market Data, a Thompson Financial company. #11..
- 295 -
28 scale or the Bloomberg Valuation Service (“BVAL”) AAA Muni Callable Curve. • Interest Rate Caps, Floors or Collars
Financial contracts that limit exposure to interest rate volatility. • Options on Variable Rate Indices
Indices could include the Securities Industry and Financial Markets Association (“SIFMA”) Index2, Secured Overnight Financing Rate (“SOFR”)3, etc. • Options on Swaps (“Swaptions”)
Methods used to control the commencement or cancellation of interest rate swaps. • Basis Swaps
Floating-to-floating rate swaps using different variable-rate indices, such as a swap from the SIFMA Index to a percentage of SOFR.

4. Swap Risk Analysis
The City shall require for each proposed financing an evaluation of all financial products with respect to the unique risks that they bear. A specific determination must be made that the proposed or expected benefits exceed the identified risks by an adequate margin over those available in the traditional cash market. At a minimum, the City shall perform an evaluation of the risks and what steps have been taken to mitigate any risks. The City shall retain a municipal/swap advisor to assist in assessing these risks. Questions that may arise include the following:
• Market or Interest Rate Risk
Does the transaction hedge (i.e., decrease or eliminate) or increase interest rate volatility?
• Tax Risk
How is the transaction or its benefits affected by a future change in federal income tax policy?
• Termination Risk
Under what circumstances might the transaction be terminated? At what value? • Risk of Uncommitted Funding (Put Risk)
Does the transaction create additional financing dependent upon third-party participation (such as requiring a letter of credit, grant or other anticipation funding, etc.)?
• Rollover Risk
Is the term of the Swap shorter than the term of the underlying hedged debt or financial instrument? Does the City anticipate entering into another Swap when the first Swap terminates?
• Legal Risk
Is the transaction expressly legally authorized?
• Counterparty Risk
What is the creditworthiness of the counterparty?

2. The SIFMA Index is an index of more than 500 high-grade, tax-exempt, weekly reset Variable Rate Demand Obligation issues.

3. SOFR is a taxable rate which is a broad measure of the cost of borrowing cash overnight collateralized by Treasury securities, published daily by the Federal Reserve Bank.
#11..
- 296 -
29 • Rating Agency Risk
Is the proposed transaction consistent with the City’s current ratings and ratings objectives?
• Basis Risk
Is it anticipated that the projected Swap payments the City will receive closely match the debt service payments it will make?
• Index Risk
Does the transaction include provisions acceptable to the City regarding any change in indices used to calculate payments or obligations? • Subsequent Business Conditions
Does the transaction or its benefits depend upon the continuation, or realization, of specific industry business conditions (e.g., unusual demand for state-specific variable rate debt)?
• Operational Risk
Does the City have adequate systems, policies, and practices in place to monitor and manage the transaction over its term?

5. Swap Procurement and Execution
A. Procurement
The City will not have a fixed policy with respect to the procurement of Swaps and other financial instruments authorized by this Swap Policy. On a product-by-product basis, the City will have the authority to negotiate or competitively bid the procurement of financial instruments that have customized or specific attributes designed on its behalf. The Director of Finance will be responsible for determining the method of procurement for Swaps and related financial instruments. A municipal/swap advisor shall be retained to assist the Director of Finance in evaluating the proposed pricing of Swaps or related financial instruments.

B. Swap Execution
The Director of Finance may recommend the use of financial derivative products if they:

1. Provide a specific benefit not otherwise available;

2. Produce greater expected interest rate savings than cash market alternatives;

3. Do not create substantial leverage or financial risk;

4. Result in an improved capital structure or better asset/liability match; and

5. Reasonably pass the Swap Risk Analysis required by Section 4. Swap Risk Analysis of this Swap Policy.

C. Credit Rating Designations
For purposes of this Swap Policy, references to credit ratings will be based on those ratings issued by Moody’s Investors Service, and/or S&P Global Ratings, and/or Fitch Ratings. The credit ratings will reflect the designations assigned by each of these rating agencies utilized for comparable credit and will be listed for each rating agency utilized in the order shown in the preceding sentence.
#11..
- 297 -
30 6. Swap Documentation
The City will use a standard International Swap and Derivatives Association, Inc. (“ISDA”) Master Agreement, including the Counterparty Schedule to the Master Agreement and a Credit Support Annex (utilizing such versions thereof as the Director of Finance shall determine), as supplemented and amended in accordance with the recommendations of the City’s financial/swap advisor and legal counsel. Each Swap entered into by the City shall include payment, term, security, collateral, default, remedy, termination and other terms, conditions and provisions as the Director of Finance may deem necessary or desirable.

A. Terms and Notional Amount of Swap Agreement
The City shall determine the appropriate term for Swaps on a case-by-case basis. The slope of the swap curve, the marginal change in swap rates from time to time along the swap curve, and the impact that the term of the Swap will have on the City’s overall financial (e.g., interest rate, market value, counterparty, etc.) exposure shall be considered in determining the appropriate term of any Swap agreement. In connection with the issuance or carrying of bonds, the term of the Swap agreement between the City and qualified swap counterparty shall not extend beyond the final maturity date of existing City debt, or in the case of a refunding transaction, beyond the final maturity of the refunding bonds. At no time shall the total net notional amount of all Swaps, excluding any offsetting Swaps, exceed the total amount of outstanding applicable bonds. Variable rate debt exposure created through the use of Swaps will be consistent with the limitations set forth in the City’s adopted Debt Policy. Terms and conditions of any Swap shall be negotiated by the Director of Finance in the best interests of the City subject to the applicable legal provisions and this Swap Policy. The Swap agreements entered into between the City and each counterparty shall include payment, term, security collateral, default, remedy, termination, and other terms, conditions and provisions as the Director of Finance, in consultation with City legal counsel and its swap advisor, deems necessary or desirable.

Subject to the provisions contained herein, the City’s swap documentation and terms should include the following:
• The City will be able to terminate the swap without cause subject to market termination costs.
• The swap counterparty will only be able to terminate the swap if the City’s credit ratings fall below a certain pre-determined threshold and/or the City fails to perform, as required by the swap contract.
• Governing law for Swaps will be New York, but should reflect California authorization provisions.
• The specified indebtedness related to credit events in the Master Agreement should be narrowly drafted and refer only to specific debt of the issuing fund. • Eligible collateral should be limited to Treasuries, Federal Agencies and any other securities which, in the City’s sole discretion, shall be deemed reasonable and creditworthy.
• Collateral thresholds should be set on a sliding scale reflective of credit ratings. #11..
- 298 -
31 • Termination value should be set by “market quotation” methodology. • Whenever possible use a Credit Support Annex to document swap termination value collateralization procedures.
• Ratings downgrade triggers.

7. Policy on Swap Counterparties
The City shall only do business with highly rated counterparties, and will structure swap agreements to protect itself from credit deterioration. All Swap transactions shall contain provisions granting the City the right to optionally terminate a swap agreement at-market at any time over the term of the agreement.

A. Qualified Swap Counterparties
The City should not have an immutable credit standard. However, the City shall attempt to do business with highly rated counterparties the long-term ratings of which at the date of execution are at least “Aa” or “AA” by one or more Nationally Recognized Statistical Ratings Organizations (“NRSRO”) and no less than “A2” or “A” by one or more NRSRO.

For lower rated counterparties, the City should seek credit enhancement in the form of:

1. Contingent swap counterparty providing support;

2. Collateral;

3. Ratings downgrade triggers; and,

4. Minimum rating threshold of “Baa3/BBB-/BBB-,” below which provisions will allow an assignment or trigger an additional termination event, with the counterparty as the affected party (i.e., the counterparty would pay market-based transaction costs).

In addition, the counterparty must have a demonstrated record of successfully executing swap transactions as well as creating and implementing innovative ideas in the swap market. The City shall be authorized to enter into interest rate swap transactions only with qualified swap counterparties.

8. Limitations on Counterparty Exposure
In order to diversify the City’s counterparty credit risk, and to limit the City’s credit exposure to any one counterparty, limits will be established for each counterparty based upon both the credit rating of the counterparty as well as the relative level of risk associated with each existing and proposed swap transaction. The guidelines shown in the following table provide general termination exposure guidelines with respect to whether the City should enter into an additional transaction with an existing counterparty. The City may make exceptions to the guidelines at any time to the extent that the execution of a swap achieves one or more of the goals outlined in these guidelines or provides other benefits to the City. In general, the maximum net termination exposure to any single counterparty should be set so that it does not exceed a prudent level as measured against the gross revenues, available assets or other financial resources of the City.
#11..
- 299 -
32 For example, if the City has two Swaps with one counterparty, and if the first Swap’s market value is positive $10 million and the second Swap’s market value is negative $20 million, then the City’s total net exposure to the counterparty is negative $10 million.

Such guidelines will also not mandate or otherwise force automatic termination by the City or the counterparty. Maximum net termination exposure is not intended to impose retroactively any terms and conditions on existing transactions. Such provisions will only act as guidelines in making a determination as to whether or not a proposed transaction should be executed given certain levels of existing and projected net termination exposure to a specific counterparty. Collateral posting guidelines are described in the collateral section below. The calculation of net termination exposure per counterparty will take into consideration multiple transactions, some of which may offset the overall exposure to the City.

Under this approach, the City will set limits on individual counterparty exposure based on existing as well as new or proposed transactions. The sum of the current market value and the projected exposure shall constitute the maximum net termination exposure. For outstanding transactions, current exposure will be based on the market value as of a recently completed swap valuation report provided by the City’s swap advisor. Projected exposure shall be calculated based on the swap’s potential termination value taking into account possible adverse changes in interest rates as implied by historical or projected measures of potential rate changes applied over the remaining term of the swap. For purposes of this calculation, the City shall include all existing and projected transactions of an individual counterparty and all transactions will be analyzed in aggregate such that the maximum exposure will be additive.

The exposure thresholds, which will be reviewed periodically by the City to ensure that they remain appropriate, will also be tied to long-term credit ratings of the counterparties and whether or not collateral has been posted as shown in the table below. If a counterparty has more than one rating, the lowest rating will govern for purposes of the calculating the level of exposure. If contingent swap counterparty or swap insurance is used to provide financial support for the primary counterparty, the rating of the support entity shall be used. A summary table is provided below:

Credit Ratings
Maximum
Collateralized Net
Termination Value
Maximum
Uncollateralized
Net Termination Value
Maximum Net
Termination
Exposure
AAA N/A $30.0 million N/A
AA Category $30.0 million $20.0 million $30.0 million
A Category $20.0 million $10.0 million $20.0 million
Below A Category $10.0 million $5.0 million $15.0 million If the exposure limit is exceeded by counterparty, the City shall conduct a review of the exposure limit per counterparty. The City, in consultation with its bond counsel and swap advisor, shall explore remedial strategies to mitigate this exposure. #11..
- 300 -
33 9. Benefit Expectation
Financial transactions, using Swaps or other derivative products, intended to produce the effect of a synthetic advance refunding, must generate at least 25% greater savings than the benefit threshold then in effect for fixed-rate bonds as determined by the City’s Director of Finance. (See Debt Management Policy Section X.A. Debt Service Savings). The higher savings target reflects the greater complexity and higher risk of derivative financial instruments.

In calculating the prospective savings against the target for implementing a fixed-to-variable swap, the cost of remarketing, in addition to the cost of credit and liquidity fees must be added to the variable rate representing the ten-year average of comparable variable rate securities.

10. Termination Provisions
All swap transactions shall contain provisions granting the City the right to optionally terminate a swap agreement at market at any time over the term of the agreement, but shall NOT grant this right to the counterparty. In general, exercising the right to terminate an agreement produces a benefit to the City, either through the receipt of a payment from a termination, or if the termination payment is made by the City, in conjunction with a conversion to a more beneficial (desirable) City debt obligation, as determined by the City.

11. Collateral
As part of any swap agreement, the City shall require collateralization or other credit enhancements to secure any or all swap payment obligations. As appropriate, the City, in consultation with its bond counsel and swap advisor, may require collateral or other credit enhancements to be posted by each swap counterparty under the following circumstances:
• Each counterparty to the City may be required to post collateral if the highest credit rating of the counterparty or parent falls below the “Aa/AA” category. Additional collateral for further decreases in credit ratings of each counterparty shall be posted by each counterparty in accordance with the provisions contained in the collateral support agreement to each counterparty with the City.
• Collateral shall be deposited with a third-party trustee, or as mutually agreed upon between the City and the counterparty.
• A list of acceptable securities that may be posted as collateral and the valuation of such collateral will be determined and mutually agreed upon during negotiation of the swap agreement with each swap counterparty.
• The market value of the collateral shall be determined on at least a weekly basis. • The City shall determine the reasonable threshold limits for the initial deposit and for increments of collateral posting thereafter.
• The City shall determine on a case-by-case basis whether other forms of credit enhancement, such as swap insurance, are more beneficial in lieu of the posting of additional collateral.
#11..
- 301 -
34 • The City shall evaluate the performance of the swap relative to the rate on the bonds. • The City shall compute the effective cost of borrowing inclusive of all fees and costs associated with the underlying financing.

12. Conformance with Dodd-Frank
It is the intent of the City to conform this Swap Policy to the requirements relating to legislation and regulations for over-the-counter derivatives transactions under Title VII of the Wall Street Transparency and Accountability Act of 2010, as supplemented and amended from time to time (herein collectively referred to as “Dodd-Frank”). Pursuant to such intent, it is the policy of the City that: (i) each swap advisor engaged or to be engaged by the City will function as the designated Qualified Investment Representative of the City, sometimes referred to as the “Designated QIR”; (ii) each swap advisor agrees to meet and meets the requirements specified in Commodity Futures Trading Commission Regulation 23.450(b)(1) or any successor regulation thereto (herein referred to as the “Representative Regulation”) (iii) each swap advisor provides a written certification to the City to the effect that such swap advisor agrees to meet and meets the requirements specified in the Representative Regulation; and (iv) the City relies on the advice of its swap advisor with respect to transactions authorized pursuant to this Swap Policy and not rely on recommendations, if any, presented by any counterparty with respect to transactions authorized pursuant to this Swap Policy.

13. Monitoring and Reporting
At least once per year, normally as part of the City’s Annual Comprehensive Financial Report (“Annual Report”), or as requested by the City Council, the Director of Finance shall prepare information describing the various Swaps and financial arrangements entered into by the City pursuant to this Swap Policy that are in effect as of the date of the report’s publication. The report shall include the following information:

1. A summary of key terms of the agreements, including notional amounts, interest rates, maturity and method of procurement.

2. The mark-to-market value of each agreement.

3. The full name, description, and credit ratings of each counterparty or the applicable guarantor.

4. The amounts that were required to be paid and received and any amounts that were actually paid and received.

5. A listing of any credit enhancement, liquidity facility, or reserves and an accounting of all costs and expenses associated with the credit enhancement, liquidity facility, or reserves.

6. The aggregate mark-to-market value and potential termination value for each swap by counterparty.

7. A discussion of other risks associated with each transaction.

At the end of each fiscal year, the Director of Finance shall provide to the City Council all information required for financial reporting under Government Accounting Standards Board #11..
- 302 -
35 (“GASB”) requirements as well as any other reporting or disclosure requirements. The City shall adhere to California Government Code Section 5922 and applicable GASB guidelines for reporting and disclosure guidelines for derivative products. #11..
- 303 -
1 I. INTRODUCTION
The purpose of this Policy is to organize and formalize debt issuance-related policies and procedures for the City of Modesto (the “City”) and to establish a systematic debt policy (the “Debt Policy” or the “Policy”). The debt policies and practices of the City are, in every case, subject to and limited by applicable provisions of state and federal law and prudent debt management principles.

II. DEBT POLICY OBJECTIVE
The primary objectives of the City’s debt and financing related activities are to maintain cost-effective access to the capital markets and other financing venues through prudent yet flexible policies.

Financial objectives include:
• Moderate principal and debt service payments through effective planning and projected cash management;
• Achieve the lowest cost of borrowing; and
• Achieve the highest practical credit ratings.

Other objectives include:
• Establishing clear criteria for decision making with regards to debt issuance, debt structuring and debt management
• Foster consistency in debt management practices over time with staff and Council turnover • Ensure industry best practices are adopted and maintained III. SCOPE AND DELEGATION OF CITY
This Debt Policy shall govern, except as otherwise covered by the City of Modesto Investment Policy and the City of Modesto Interest Rate Swap Policy, the issuance and management of all debt funded through the capital markets and private placements, including the selection and management of related financial and advisory services and products, and the investment of bond proceeds.

This Policy shall be reviewed and updated periodically as required. Any changes to the Policy are subject to approval by the City Council at a legally noticed and conducted public meeting. Overall policy direction of this Debt Policy shall be provided by the City Council.

Responsibility for implementation of the Debt Policy, and day-to-day responsibility for structuring, implementing, and managing the City’s debt and finance program, shall lie with the Director of Finance.

CITY OF MODESTO

CITY COUNCIL POLICY
LATEST REVISION DATE: May 20, 2024
POLICY NUMBER: 1.036
CITY DEPARTMENT: Finance
SUBJECT: Debt Management Policy
#11..
- 304 -
2 The City Council’s adoption of the City Annual Budget does not, in and of itself, constitute authorization for debt issuance for any reason. This Debt Policy requires that the City Council specifically authorize each debt financing. Each financing shall be presented to the City Council, subject to City Council agenda review and approval (debt financings cannot be approved on a consent calendar).

While adherence to this Policy is required in applicable circumstances, the City recognizes that changes in the capital markets, agency programs and other unforeseen circumstances may from time to time produce situations that are not covered by the Policy and will require modifications or exceptions to achieve policy goals. In these cases, management flexibility is appropriate, provided specific authorization from the City Council is obtained.

IV. ETHICS AND CONFLICTS OF INTEREST
Officers and employees of the City involved in the execution and management of the Debt Policy will not engage in any personal business activities that could conflict with proper and lawful execution and management of the Debt Policy, or which could impair their ability to make impartial decisions.

V. CAPITAL IMPROVEMENT PROGRAM INTEGRATION
The City’s multi-year Capital Improvement Program (“CIP”), which identifies the projects and the appropriate funding mechanisms to pay for them, shall be used in combination with the CIP Financial and Budget Policies and this Debt Policy to ensure the proper allocation and financing of eligible projects. The CIP and its related policies set priorities and strategies for allocating and tracking funding, while the Debt Policy provides policy direction and limitations for proposed financings. Debt issuance for capital projects shall not be recommended for City Council approval unless such issuance has been incorporated into the CIP.

VI. STANDARDS FOR USE OF DEBT FINANCING
The City’s Debt Policy will promote debt issuance only in those cases where public policy, equity and economic efficiency favor debt over cash (pay-as-you-go) financing. Long-term debt financing shall not be used to fund operating costs.

A. Credit Quality
Credit quality is an overriding consideration. All City debt management activities for new debt issuances will be conducted in a manner conducive to receiving the highest credit ratings possible consistent with the City’s debt management objectives, and to maintaining or improving the current credit ratings assigned to the City's outstanding debt by the major credit rating agencies.

B. Term of Financing
Debt can be used to provide funding for long-term capital projects. The debt repayment period should relate to the expected useful life for the facilities or equipment being financed, and should, as a general matter, be concurrent with the stream of benefits from these facilities. When the City finances capital projects by issuing bonds, the debt repayment period generally should not exceed the average useful life of the equipment, software and/or facilities being acquired or constructed, #11..
- 305 -
3 but in no case will the financing exceed 120% of the useful life of the project being financed.

Inherent in its long-term debt policies, the City recognizes that future taxpayers and/or ratepayers will benefit from the capital investment and that it is appropriate that they pay a share of the asset cost.

C. Debt Financing Mechanism
The City will evaluate the use of all financial alternatives available, including, but not limited to:
long-term debt, short-term debt, commercial paper, tax revenue and grant anticipation notes, private placement and inter-fund borrowing. The City will utilize the most cost advantageous financing alternative available while limiting the City’s risk exposure.

D. Ongoing Debt Administration and Internal Controls
The City shall maintain all debt-related records for as long as the associated debt is outstanding plus a term of three years. At a minimum, this repository will include all official statements, bid documents, ordinances, indentures, records relating to the expenditure of proceeds and the use of the project, records related to the investment of the proceeds of the bonds and the sources of payment, all returns filed with the IRS, trustee reports, etc. for all City debt. To the extent that official transcripts incorporate these documents, possession of a transcript will suffice (transcripts may be hard copy, stored on CD-ROM or other forms of electronic record). The City will collect all available documentation for outstanding debt and will develop a standard procedure for archiving transcripts for any new debt. The City will establish internal controls to ensure compliance with the Debt Policy, all debt covenants and any applicable requirements of the State and Federal Government Codes.

E. Rebate Policy and System
The City will accurately account for all interest earnings in debt-related funds. These records will be designed to ensure that the City is in compliance with all debt covenants, and with State and Federal laws. The City will maximize the interest earnings on all funds within the investment parameters set forth in each respective indenture, and as permitted by the City Investment Policy, subject to applicable limitations. The City will develop a system of reporting interest earnings that relates to and complies with Internal Revenue Code rebate requirements, yield limits and arbitrage.

F. Minimum Reserve Requirements for Water and Wastewater Funds The Water and Wastewater Funds are to maintain a working capital reserve equal to not less than 25% of their operating expenses plus one annual debt service payment on any State Revolving Fund (“SRF”) loans. This reserve is meant to ensure that adequate cash is on hand to meet current obligations of the funds as well as respond to unanticipated demands, such as unplanned repairs or renovations of the systems. This reserve is consistent with reserves established by other utilities for similar purposes.

G. Minimum Debt Service Coverage Ratio for Water and Wastewater Funds The City will seek to maintain debt service coverage on its senior lien Water and Wastewater revenue bonds at a level not less than one and a half times (1.5x) the maximum annual debt service for the aggregate outstanding senior lien bonds of the respective system, including the debt service #11..
- 306 -
4 for any new issuance, unless a different debt service coverage amount is allowed by existing bond covenants.

VII. DEBT FINANCING
A. Purpose of Debt
When the City determines that the use of debt is appropriate, the following criteria will be utilized to evaluate the type of debt to be issued:

1. New Money Financing
New money issues are financings that generate funding for capital projects, equipment or enterprise software systems. Eligible capital projects for allocation of City funds include land and building acquisition, construction, capital improvements or major rehabilitation of capital assets.

2. Refunding Financing
Refunding bonds are issued to retire all or a portion of an outstanding debt issue. Refunding issuances can be used to achieve present-value savings on debt service or to restructure the payment schedule, type of debt instrument used, or covenants of existing debt. The City must analyze the refunding issue on a present-value basis to identify economic effects before approval, as is further described in Section X. Refinancing Outstanding Debt below.

3. Interim Financing
Interim financing in the form of commercial paper, revolving line of credit, or short-term debt may be issued to bridge cashflow needs. It is used to defer the issuance of more expensive long-term debt or provide interim funds while waiting for reimbursement from other sources such as grants.

B. Type of Debt
When the City determines that the use of debt is appropriate, the following criteria will be utilized to evaluate the type of debt to be issued:

1. Long-Term Debt
The City may issue long-term debt when equipment, project, or software costs cannot be financed from current revenues. The proceeds derived from long-term borrowing will not be used to finance current operations or normal/current maintenance. Long-term debt will be structured such that the obligations generally do not exceed the average useful life of that which is being financed or the sunset date of any current, pledged revenues. And at no time will the financing exceed 120% of the expected average useful life of the asset being financed.
• Current Interest Bonds are bonds that pay interest periodically and principal at maturity. They may be used for both new money and refunding transactions. Bond features may be adjusted to accommodate the market conditions at the time of sale, including changing dollar amounts for principal maturities, offering discount and #11..
- 307 -
5 premium bond pricing, modifying call provisions, utilizing bond insurance, as well as determining whether and how to fund a debt service reserve fund. • Zero Coupon and Capital Appreciation Bonds pay interest only when principal matures. Interest continues to accrue on the unpaid interest, therefore representing a more expensive funding option. In the case of zero-coupon bonds, principal and interest, at one coupon rate, is repaid at maturity. In the case of Capital Appreciation Bonds, the value of the bond accretes until maturity. These types of bonds should be used only when no other bond structure is available to address a certain structuring problem. If used, these bonds should mature no later than 20 years from issuance and should be callable.
• Taxable Debt is debt whose interest payments are taxable for federal income tax purposes to bondholders. The City will consider the issuance of taxable debt when it is necessary for federal tax reasons or if these bonds would lower the overall cost of the financing or help the City achieve refunding savings that could not otherwise be achieved with the issuance of tax-exempt debt (e.g., advance refundings).

2. Short-Term Debt
Short-term borrowing may be utilized for the temporary funding of operational cash flow deficits or anticipated revenues, where anticipated revenues are defined as an assured revenue source with the anticipated amount based on conservative estimates, or until the structure of the take-out financing is finalized. The City will determine and utilize the least costly method for short-term borrowing. The City may issue short-term debt when there is a defined repayment source or amortization of principal, subject to the following policies:
• Commercial Paper Notes may be issued as an alternative to fixed rate debt, particularly when the timing of funding requirements is uncertain. The City may maintain an ongoing commercial paper program to ensure flexibility and immediate access to capital funding when needed. The retirement of commercial paper notes is most commonly a result of the issuance of long-term bonds but they may also be retired with available cash.
• Grant Anticipation Notes (“GAN”) are short-term notes that are repaid with the proceeds of State or Federal grants of any type. The City shall generally issue GANs only when there is no other viable source of funding for the project. • Bond Anticipation Notes (“BAN”) are short-term notes issued prior to the issuance of long-term debt. BANs are most commonly retired, or taken-out, with long-term debt.

BANs will be issued only when there is no better alternative to reduce the overall cost of a financing program.
• Tax and Revenue Anticipation Notes (“TRAN”) shall be issued only to address a timing mismatch between operating revenues and operating expenditures and the sizing of the issue shall fully conform to Internal Revenue Code requirements and limitations.
• Lines of Credit shall be considered as an alternative to other short-term borrowing options. The lines of credit shall be structured to limit concerns as to Internal Revenue Code compliance.
• Other short-term debt may also be considered and utilized when appropriate such as a Direct Purchase Loan from a bank or Floating Rate Notes. #11..
- 308 -
6 3. Variable Rate Debt
To maintain a predictable debt service burden, the City may give preference to debt that carries a fixed interest rate. An alternative to the use of fixed rate debt is floating or variable rate debt. It may be appropriate to issue short-term or long-term variable rate debt to diversify the City’s debt portfolio, reduce interest costs, provide interim funding for capital projects and improve the match of assets to liabilities. Variable rate debt typically has a lower cost of borrowing than fixed rate financing and shorter interest rate reset periods in the range of 1 to 35 days. Under no circumstances will the City issue variable rate debt solely for the purpose of earning arbitrage. The City, however, may consider variable rate debt in certain instances.

A) Variable Rate Debt Capacity. The City will maintain a conservative level of outstanding variable rate debt in consideration of general rating agency guidelines recommending a maximum of 20% variable rate exposure, in addition to maintaining adequate safeguards against risk and managing the variable revenue stream, both as described below:
(1) Adequate Safeguards Against Risk. Financing structure and budgetary safeguards are in place to prevent adverse impacts from interest rate shifts; such structurescould include, but are not limited to, interest rate swaps, interest rate caps and the matching of assets and liabilities. See Section VII. B. 4. Financial Derivative Products below. See also the Interest Rate Swap Policy addendum.
(2) Variable Revenue Stream. The revenue stream for repayment is variable, and is anticipated to move in the same direction as market-generated variable interest rates, or the dedication of revenues allows capacity for variability. (3) As a Component to Synthetic Fixed Rate Debt. Variable rate bonds may be used in conjunction with a financial strategy which results in synthetic fixed rate debt. Prior to using synthetic fixed rate debt, the City shall certify that the expected interest cost is at least 10 basis points (0.10%) lower than traditional fixed rate debt (including any ongoing fees in such calculation) as well as giving due consideration to other risks associated with such a structure that may raise the ultimate costs of a synthetic fixed rate structure. See Section VII. B. 4. Financial Derivative Products below. See also the Interest Rate Swap Policy addendum.

4. Financial Derivative Products
Financial Derivative Products will be considered appropriate in the issuance or management of debt only in instances where it has been demonstrated that the derivative product will either provide a hedge that is expected to reduce the risk of fluctuations in expense or revenue, or alternatively where the derivative product is expected to reduce total project cost.

The City shall maintain an Interest Rate Swap Policy (see attached) governing the use of derivative products. For derivatives other than interest rate swaps, the City will undertake an analysis of early termination costs and other conditional terms given certain financing and marketing assumptions. Such analysis will document the risks and benefits associated with the use of a particular derivative product. Derivative products will only be utilized with prior approval from the City Council.
#11..
- 309 -
7 VIII. TERMS AND CONDITIONS OF BONDS
The City shall establish all terms and conditions relating to the issuance of bonds, and will control, manage, and invest all bond proceeds. Unless otherwise authorized by the City, the following shall serve as bond requirements.

A. Term
All capital improvements financed through the issuance of debt will be financed for a period generally not to exceed the average useful life of that which is being financed. At no time will the financing exceed 120% of the expected average useful life of the assets being financed, and in no event should the final maturity exceed the lesser of thirty (30) years or when the revenue source is projected to sunset.

B. Capitalized Interest
The nature of the City’s revenue stream is such that funds are generally continuously available and the use of capitalized interest should not normally be necessary. However, certain types of financings may require the use of capitalized interest from the issuance date until the City has constructive use/benefit of the financed project. Unless otherwise required, the City will avoid the use of capitalized interest to obviate unnecessarily increasing the bond size. Interest shall not be funded (capitalized) beyond three (3) years or a shorter period when based upon project needs or if further restricted by statute. Interest earnings may, at the City's discretion, be applied to extend the term of capitalized interest but in no event beyond 3 years, or less, if restricted by law.

C. Lien Levels
Senior and Junior Liens for each revenue source will be utilized in a manner that will maximize the most critical constraint, typically either cost or capacity, thus allowing for the most beneficial use of the revenue source securing the bond. Projects chosen for priority financing, based on funding availability and proposed timing, will generally be financed on the most senior lien of the relevant credit. The City may use lower liens for specific needs such as interim financing or commercial paper.

D. Debt Service Coverage
For any new debt issuance secured by Water or Wastewater revenues, the City will seek to maintain pledged net revenues at a level no less than one and a half times (1.50x) the Maximum Annual Debt Service for the aggregate outstanding senior lien bonds, including the debt service for the new issuance, unless a different debt service coverage amount is allowed by existing bond covenants. For other types of debt incurred by the City, the City will determine the appropriate minimum debt service coverage levels based upon the nature of the pledged revenues, rating considerations, and other relevant factors.

E. Debt Service Structure
Debt issuance shall be planned to achieve relatively rapid repayment of debt while still matching debt service to the useful life of facilities. The City will amortize its debt within each lien to achieve overall level debt service or may utilize more accelerated repayment schedules after giving consideration to bonding capacity constraints. The City shall avoid the use of bullet or balloon maturities except in those instances where these maturities achieve one of the City’s stated goals, #11..
- 310 -
8 such as minimizing annual debt service or leveling annual existing debt service, among others.

F. Call Provisions
In general, the City’s securities, including taxable debt, will include a call feature, which is no later than ten (10) years from the date of delivery of the bonds. In addition to par call, the City may also consider including a make-whole-call option. The City will avoid the sale of non-callable bonds absent careful evaluation by the City with respect to the value of the call option.

G. Original Issue Discount & Deep Discount Bonds
An original issue discount and deep discount bonds will be permitted only if the City determines that such discount results in a lower true interest cost on the bonds and that the use of an original issue discount or deep discount bonds will not materially reduce the value of the bonds’ call provisions nor adversely affect the project identified by the bond documents. When evaluating the coupon structure for a bond issuance, the City should factor in investor preference, the yield-tocall, the yield-to-maturity and the potential to refund the bonds for debt service savings in the future.

H. Maximum Repayment Ratio
The maximum repayment ratio, defined as total future debt service payments divided by the principal amount of the bonds issued, shall be no more than three to one (3:1) for each series of bonds.

IX. CREDIT ENHANCEMENTS
The City will consider the use of credit enhancement on a case-by-case basis, evaluating the economic benefit versus cost for each case. Only when a clearly demonstrable savings can be shown shall enhancement be considered. The City will consider each of the following enhancements as alternatives by evaluating the cost and benefit of such enhancement. As noted below, the use of credit enhancements may result in additional continuing disclosure requirements described below (see Section XV. F.

Continuing Disclosure below).

A. Bond Insurance
The City may purchase bond insurance when such purchase is deemed prudent and advantageous.

The predominant determination shall be based on such insurance being less costly than the present value of the difference in the interest on insured bonds versus uninsured bonds. Bond insurance may be purchased for the entire amount of an issue or for specific maturities based on a recommendation from the financial advisor or senior underwriter.

B. Debt Service Reserves
When required, a reserve fund equal to the lesser of 10% of the original principal amount of the bonds, maximum annual debt service, or 125% of average annual debt service, and if permitted, 10% of par value of bonds outstanding, (the “Reserve Requirement”) shall be funded from the proceeds of each series of bonds, subject to federal tax regulations and in accordance with the requirements of credit enhancement providers and/or rating agencies. The City may purchase a reserve equivalent (e.g., a reserve fund surety policy) when such purchase is deemed prudent and #11..
- 311 -
9 advantageous. Such equivalents shall be evaluated in comparison to cash funding of reserves on a net present value basis, while also taking into account the creditworthiness of the surety provider and market acceptance.

C. Letters of Credit
The City may enter into a letter of credit agreement when such an agreement is required by the market (e.g., in the case of variable rate demand bonds) or is deemed prudent and advantageous.

Only those financial institutions with long-term ratings greater than or equal to that of the City, and minimum short-term ratings of P-1, A-1, F1, by Moody’s Investors Service, S&P Global Ratings and Fitch Ratings, respectively, may participate in City letter of credit agreements unless there are no other practicable options for the City.

X. REFINANCING OUTSTANDING DEBT
The City shall have the responsibility to analyze outstanding bond issues for refunding opportunities that may be presented by underwriting and/or municipal advisory firms. The City will consider the following issues when analyzing possible refunding opportunities:

A. Debt Service Savings
The City has established a minimum net present value savings threshold goal of 3% of the refunded bond principal, unless there are other compelling reasons for defeasance. The present value savings will be net of all costs related to the refinancing. If the debt to be refinanced is not currently callable (i.e., in the case of forward delivery refundings, advance refundings, etc.) the City will make a comparison to the projected savings it could achieve if it waited until the debt becomes eligible for a current refunding. The decision to defease debt that is not currently callable or to take savings on an upfront or deferred basis must be expressly described in the staff report presented to the City Council
B. Restructuring
The City will refund debt when in its best interest to do so. Refundings will include restructuring to meet unanticipated revenue expectations, terminate swaps, achieve cost savings, mitigate irregular debt service payments, release reserve funds or remove unduly restrictive bond covenants. The decision to restructure debt must be expressly described in the staff report presented to the City Council
C. Term of Refunding Issues
The City will refund bonds within the term of the originally issued debt. However, the City may consider maturity extension, when necessary to achieve a desired outcome, provided that such extension is legally permissible. The City may also consider shortening the term of the originally issued debt to realize greater savings. The remaining useful life of the financed facility and the concept of intergenerational equity should guide this decision.

D. Escrow Structuring
The City shall utilize the least costly permitted securities available in structuring refunding escrows. The City will examine the viability of an economic versus legal defeasance on a net #11..
- 312 -
10 present value basis. Generally, the City should look to purchase State and Local Government Series (“SLGS”) securities from the federal treasury when structuring refunding escrows. The City may review the purchase of Open Market Securities (“OMS”) to fund a refunding escrow. In such a case, a certificate from a third-party agent, who is not a broker-dealer, is required stating that the securities were procured through an arms-length, competitive bid process (in the case of OMS), that such securities were more cost effective than SLGS, and that the price paid for the securities was reasonable within federal guidelines. Under no circumstances shall an underwriter, agent, municipal advisor or financial advisor sell escrow securities to the City from its own account.

E. Arbitrage
The City shall take all necessary steps to optimize refunding escrows and to avoid negative arbitrage. Any resulting positive arbitrage will be rebated as necessary according to federal guidelines.

XI. METHODS OF ISSUANCE
The City will determine, on a case-by-case basis, whether to sell its bonds competitively or through negotiation. The City shall evaluate the comparative costs of each method of issuance on a net present value basis, using the City’s investment rate as the appropriate measure of the discount rate. It should be noted, however, that cost may be only one of a number of factors considered in determining the most advantageous method of sale.

A. Competitive Sale
In a competitive sale, the City’s bonds shall be awarded to the bidder providing the lowest true interest cost as long as the bid adheres to the requirements set forth in the official notice of sale.

Conditions under which a competitive sale would be preferred are as follows:
• Bond prices are stable and/or demand is strong.
• Market timing and interest rate sensitivity are not critical to the pricing. There are no complex explanations required during marketing regarding issuer’s projects, media coverage, political structure, political support, and funding or credit quality. • The bond type and structure are conventional.
• Bond insurance is not needed, is included or pre-qualified (available). • Transaction size is modest, generally larger than $10 million but lower than $100 million. • The City (or the issuing City enterprise) has strong credit ratings. • The City (or the issuing City enterprise) is well known to investors.

B. Negotiated Sale
The City recognizes that some securities are best sold through negotiation. Conditions under which a negotiated sale would be preferred are as follows:
• Interest rates are volatile.
• Demand is weak or supply of competing bonds is high.
#11..
- 313 -
11 • Market timing is important, such as for refundings. • The City (or the issuing City enterprise) has lower or weakening credit rating. • The issuing City enterprise is not well known to investors. • Sale and marketing of the bonds will require complex explanations about the issuer’s projects, media coverage, political structure, political support, funding, or credit quality. • The bond type and/or structural features are non-standard, such as for a forward delivery bond sale, issuance of taxable or variable rate bonds, or where there is the use of derivative products.
• Bond insurance is not available or not offered.
• Early structuring, investor outreach and other market participation by underwriters are desired.
• The par amount for the transaction is significantly larger than normal (generally over $100 million).
• Demand for the bonds by retail investors is expected to be high. • Participation from Disadvantaged Business Enterprise (“DBE”) firms is required or desired.

C. Private Placement
From time to time the City may elect to privately place its debt. Such placement shall be considered if this method is demonstrated to result in cost savings to the City or other benefits relative to other methods of debt issuance. Private placements may be well-suited for weaker credits where a rating cannot be obtained. As noted below, private placements may require compliance with disclosure requirements (see Section XV. F. Continuing Disclosure below).

D. Feasibility Analysis
Issuance of revenue bonds may be accompanied by a finding that demonstrates the projected revenue stream’s ability to meet future debt service payments and bond covenants.

XII. MARKET RELATIONSHIPS
A. Rating Agencies and Investors
The Director of Finance shall be responsible for maintaining the City’s relationships with Moody’s Investors Service, S&P Global Ratings, Fitch Ratings and any other major rating agency. The City may, from time to time, choose to seek ratings from only one or two of these agencies as circumstances dictate. In addition to general communication, the Director of Finance shall meet with credit analysts prior to each rated competitive or negotiated sale and/or offer conference calls with agency analysts in connection with the planned sale as needed. The Director of Finance shall monitor and comply with periodic data requests from rating analysts for their rating surveillance process.

B. Other Jurisdictions/Conduit Financing
From time to time, the City may issue bonds on behalf of other public entities. While the City will make every effort to facilitate the desires of these entities, the Director of Finance will ensure that #11..
- 314 -
12 the highest quality financings are done and that the City is insulated from all manageable risks.

The City may issue bonds through another issuing entity such as a Joint Powers Authority (“JPA”).

The City may issue debt in this manner if it would result in the least costly method to issue debt (e.g. reduced costs of issuance). The City will evaluate the timing of such issuance.

C. Fees
When appropriate, the City will charge an administrative fee equal to direct costs to reimburse its administrative costs incurred in debt issuance and ongoing reporting costs.

XIII. CONSULTANTS
Periodically, the City may create an approved pool of qualified financing team members, such as municipal advisors or underwriters.

A. Selection of Financing Team Members
The Director of Finance will make recommendations to the City Manager for all financing team members, with the City Council providing final approval.

B. Municipal Advisor
The City shall utilize a municipal advisor to assist in its debt issuance and debt administration processes as prudent. The municipal advisor must be registered as a Municipal Advisor with the Securities and Exchange Commission (“SEC”) and Municipal Securities Rulemaking Board (“MSRB”). Selection of the City’s municipal advisor(s) shall be based on, but not limited to, the following criteria:
• Prior knowledge and experience with the City.
• Experience in providing consulting services to complex issuers. • Knowledge and experience in structuring and analyzing complex issues. • Experience and reputation of assigned personnel.
• Fees and expenses.

Municipal advisory services provided to the City shall include, but shall not be limited to the following:
• Evaluation of risks and opportunities associated with debt issuance. • Monitoring market conditions and opportunities.
• Evaluation of proposals submitted to the City by investment banking firms. • Structuring and pricing of debt and related negotiations. • Preparation of request for proposals for other financial services such as trustee and paying agent services, printing, credit facilities, remarketing agent services, and related negations etc.
• Advice, assistance and preparation for presentations with rating agencies, credit providers and investors.
• Assisting in preparation of official statements and other financing documents. • Be available for other projects whenever needed.
#11..
- 315 -
13 The City also expects that its municipal advisor will provide the City with objective advice and analysis, maintain the confidentiality of City financial plans, and be free from any conflicts of interest.

C. Bond Counsel
City debt will include a written opinion by legal counsel affirming that the City is authorized to issue the proposed debt, that the City has met all constitutional and statutory requirements necessary for issuance, and a determination of the proposed debt’s federal income tax status. The approving opinion and other documents relating to the issuance of debt will be prepared by counsel with extensive experience in public finance and tax issues. The counsel will be selected by the City Attorney and subject to City Council approval.

The services of bond counsel may include, but are not limited to:
• Rendering a legal opinion with respect to authorization and valid issuance of debt obligations including whether the interest paid on the debt is tax exempt under federal and State of California law;
• Preparing all necessary legal documents in connection with authorization, sale, issuance and delivery of bonds and other obligations;
• Unless this task is assigned to disclosure counsel, as selected by the City separately from bond counsel, preparing the preliminary and final official statements and commercial paper memoranda;
• Participating in discussions with potential investors, insurers and credit rating agencies, if requested;
• Providing continuing advice, as requested, on the proper use and administration of bond proceeds under applicable laws and the indenture, particularly arbitrage tracking and rebate requirements;
D. Disclosure Counsel
The City may utilize a separate firm to serve as disclosure counsel as it deems necessary. If cost effective, bond counsel may also serve as disclosure counsel.

XIV. UNDERWRITER SELECTION
A. Senior Manager Selection
The City shall have the right to select a senior manager for a proposed negotiated sale. The criteria shall include but not be limited to the following:
• The firm’s ability and experience in managing similar and/or complex transactions. • Demonstrated ability to structure debt issues efficiently and effectively. • Prior knowledge and experience with the City.
• The firm’s willingness to risk capital and demonstration of such. #11..
- 316 -
14 • The firm’s ability to reach a wide network of investors. • The firm’s ability to sell bonds at the lowest market interest rates. • Quality and experience of personnel assigned to the City’s engagement. • Financing and marketing plans presented.

B. Co-Manager Selection
Co-managers may be selected on the same basis as the senior manager. In addition to their qualifications, co-managers appointed to specific transactions will be a function of transaction size and the necessity to ensure maximum distribution of the City’s bonds.

C. Selling Groups
The City may establish selling groups in certain transactions. To the extent that selling groups are used, the City may make appointments to selling groups from within an existing pre-qualified pool of underwriters or through another process, as the transaction dictates.

D. Underwriter’s Counsel
In any negotiated sale of City debt in which legal counsel is required to represent the underwriter, the lead underwriter will make the appointment subject to the City’s right to object to any such appointment.

E. Underwriter’s Discount
The City will evaluate the proposed underwriter’s discount against comparable issues in the market with input from the municipal advisor or pricing advisor. The City will strive to reasonably minimize the underwriter’s takedown by means of a competitive selection process like an RFP.

The goal of low takedowns should be balanced with adequately incentivizing the banks to market/sell the bonds or underwrite without rate adjustments, if required. If there are multiple underwriters in the transaction, the City will determine the allocation of fees with respect to the takedown and management fee (if any). The determination of the size and allocation of the management fee will be based upon participation in the structuring phase of the transaction.

Generally, the City will not pay for risk in its underwriter’s discount. All fees and allocation of the management fee will be determined prior to the sale date; a cap on management fee, expenses and underwriter’s counsel will be established and communicated to all parties by the City. The senior manager shall submit an itemized list of expenses charged to members of the underwriting group.

Any additional expenses must be substantiated.

F. Evaluation of Financing Team Performance
The City will evaluate each bond sale after its completion to assess the following: costs of issuance including underwriters’ compensation, pricing of the bonds in terms of the overall interest cost and on a maturity-by-maturity basis, and the distribution of bonds and sales credits. Following each sale, the municipal advisor shall provide a post-sale evaluation on the results of the sale to the City Council.

G. Syndicate Policies
For each negotiated transaction, the Director of Finance will review and approve syndicate policies that will describe the designation policies governing the upcoming sale. The Director of Finance #11..
- 317 -
15 shall ensure receipt of each member’s acknowledgement of the syndicate policies for the upcoming sale prior to the sale date.

H. Designation Policies
To encourage the pre-marketing efforts of each member of the underwriting team, orders for the City’s bonds will be net designated, unless otherwise expressly stated. The City shall require the senior manager to:
• Equitably allocate bonds to other managers and the selling group. • Comply with MSRB regulations governing the priority of orders, compliance with retail order requirements and allocations.
• Within 10 working days after the sale date, submit to the Director of Finance a detail of orders, allocations and other relevant information pertaining to the City’s sale.

I. Disclosure by Financing Team Members
All financing team members will be required to provide full and complete disclosure relative to agreements with other financing team members and outside parties. The extent of disclosure may vary depending on the nature of the transaction and for underwriters and municipal advisors shall, at a minimum, comply with applicable SEC and MSRB requirements. For firms acting as the City’s bond counsel, disclosure counsel, or municipal advisor, no agreements shall be permitted which could compromise the firm’s ability to provide independent advice which is solely in the City’s best interests or which could reasonably be perceived as a prohibited conflict of interest. All other conflicts must be disclosed to the City in accordance with applicable regulatory requirements. For legal counsel such conflicts disclosure shall, at a minimum, comply with applicable conflicts disclosure requirements for attorneys in the state.

XV. POST-ISSUANCE COMPLIANCE
A. General
In conjunction with the issuance of a tax-advantaged obligation, bond counsel issues an opinion that is in part based on the reasonable expectation that the issuer will comply with federal tax law requirements to preserve the tax-advantaged status of the obligation. The issuer agrees to comply with these requirements through representations it makes in the tax compliance certificate. The purpose of this Post-Issuance Compliance section is to establish policies and procedures in connection with the issuance of obligations, so as to (a) maximize the likelihood that the City satisfies all applicable post-issuance requirements of federal income tax law needed to preserve the tax exempt status of bonds, (b) ensure that the City will take any appropriate remedial actions on a timely basis if a future event occurs that could affect the tax-exempt status of bonds, and (c) maximize the likelihood that the City complies with applicable federal securities laws, including any contractual obligations arising thereunder. The City reserves the right to use its discretion as necessary and appropriate to make exceptions or request additional provisions as circumstances warrant. The City also reserves the right to change these policies and procedures from time to time.

Issuers and borrowers are also required to disclose, on a periodic basis, financial information and certain other information that may impact their ability to service their debt. This ongoing reporting #11..
- 318 -
16 requirement is known as continuing disclosure. The requirements of continuing disclosures are directly applicable to underwriters and are set forth in Securities and Exchange Commission (“SEC”) Rule 15c2-12. The issuer makes representations in its official statements and other bond documents regarding its intent to comply as a matter of contract with the requirements of Rule 15c2-12.

B. Designation of Post-Issuance Compliance Officer
The City has established a Disclosure Working Group (“DWG”) consisting of the City’s Manager and Director of Finance. The DWG will establish appropriate written policies and procedures, which this document provides, and periodic training regarding continuing disclosure obligations to effect compliance with the federal securities laws. In connection with each primary offering subject to Rule 15c2-12, as well as annually and periodically when necessary in connection with its continuing disclosure filings required by contractual undertakings delivered in accordance with Rule 15c2-12, the DWG will notify its dissemination agent and others, as and when appropriate when developments and events affect the City that may give rise to a contractual obligation to provide additional disclosure or that may provide an opportunity for voluntary disclosure.

The Director of Finance, or his or her designee, shall be the Post-Issuance Compliance Officer (the “Compliance Officer”) for the City’s debt issuances (the “Bonds”). The Compliance Officer, if City staff, may designate such other personnel as may be necessary to assist in determining continuing compliance with all relevant law and regulations applicable to the continued favorable tax treatment of such indebtedness, and to comply with the record-keeping responsibilities outlined herein. At such time as the initial Compliance Officer is replaced or a new Compliance Officer is designated, the departing Compliance Officer will ensure that such successor is fully briefed as to the status of the City’s outstanding indebtedness and the location of records relating to such indebtedness, and that such successor receives training and consultation(s) with bond or disclosure counsel as to his or her duties as Compliance Officer under this Debt Policy.

C. External Advisors
The City shall consult with bond counsel and other legal counsel and advisors, as needed, so long as any Bonds remain outstanding, to identify requirements and to establish procedures necessary or appropriate so that tax-exempt interest on the Bonds will continue to be excludable from gross income for federal income tax purposes. Those requirements and procedures shall include future compliance with applicable private activity bond tests, arbitrage rebate requirements and all other applicable post-issuance requirements of federal tax law throughout (and in some cases beyond) the term of bonds. The Compliance Officer shall conduct periodic reviews, at least annually, or more often as may be necessary, to determine that the City remains in compliance with all laws and regulations, including, without limitation, the matters set forth herein. The Compliance Officer annual review shall include matters that relate to the tax status of the Bonds, continuing compliance with covenants that relate to the tax status of the Bonds, and any new matters or public finance developments that relate to the tax status of the Bonds or continuing compliance with such requirements. The City may consult with bond counsel in conducting its review and may engage expert advisors (each a “Rebate Analyst”) to assist in the calculation of arbitrage rebate payable in respect of the investment of Bond proceeds in the manner more fully set forth in the Tax Certificate.
#11..
- 319 -
17 D. Uses and Investments of Funds and Accounts
Various funds and accounts are established as security for the Bonds. The Compliance Officer shall prepare regular, periodic statements regarding the investments and transactions involving bond proceeds, which shall comprise part of the records required to be kept. The Compliance Officer will also review the disbursement of bond proceeds from Trustee records or City records, as applicable, to ensure that bond proceeds are expended in accordance with their intended purpose. The Compliance Officer shall report to the Finance Director (if the officer is a designee of the Finance Director) and the City Manager any expenditure which violates the provisions of any ballot measure, authorizing resolution, or trust document. If any Debt Service Fund ever contains any balance after the principal payment of the Bonds is made each year, except for a reasonable carryover amount which is less than the greater of the earnings on the Debt Service Fund for the immediately preceding year ending on such principal payment date (a “Bond Year”), or 1/12 of the principal and interest payments on the Bonds for the immediately preceding Bond Year, then the Compliance Officer will contact bond counsel to ensure that such facts will not cause the Bonds to become arbitrage bonds, to formulate a plan to remediate such condition, if necessary, and to determine an allowable use for such excess moneys and/or to determine if any yield restrictions apply. If any Debt Service Reserve Fund is ever funded (i) in an amount more or less than the required balance but declining in future years as detailed in the Tax Certificate, or (ii) is invested at a yield that is higher than the yield of the Bonds, then the Compliance Officer will contact bond counsel to ensure that such facts will not cause the Bonds to become arbitrage bonds, to formulate a plan to remediate such condition and/or to determine if any yield restrictions apply. Generally, if the Debt Service Reserve Fund ever contains a higher balance than required (either through the accrual of interest, investment gains, maturity of securities, or reduction in the Reserve Requirement) then the excess moneys should be dealt with as directed by the documents and approved by bond counsel. If any Construction Fund ever is invested at a yield higher than the yield of the Bonds or if moneys in the Construction Fund are not fully expended by three years after the original delivery date of the Bonds, then the Compliance Officer will contact bond counsel to ensure that such facts will not cause the Bonds to become arbitrage bonds, to formulate a plan for the investment and application of the remaining unexpended Bond Proceeds, which plan may include the redemption or defeasance of Bonds, and/or to determine if any yield restrictions apply.

E. Rebate Reporting
The use of bond proceeds and their investments must be monitored to ensure compliance with arbitrage restrictions. The City will cause arbitrage rebate calculations to be completed, or cause to be completed by an experienced firm the City has retained for this purpose related to any bond issues, with any positive rebate paid every five years and as otherwise required by applicable provisions of the Internal Revenue Code and regulations. Therefore, the Director of Finance shall ensure that proceeds and investments are tracked in a manner that facilitates accurate, complete calculation, and timely rebates, if necessary.

F. Continuing Disclosure
Appointment. Unless otherwise provided in any Continuing Disclosure Agreement executed in connection with Bonds pursuant to SEC Rule 15c2-12 (the “Continuing Disclosure Agreement”), the Compliance Officer shall also be the Dissemination Agent under such Continuing Disclosure Agreement. The Compliance Officer shall be responsible for and take all reasonable steps to #11..
- 320 -
18 ensure compliance with said Continuing Disclosure Agreement and shall monitor the operations of the Issuer for occurrence of any listed event (as set forth therein). For any Bonds for which it is designated to serve in such capacity, should the Compliance Officer no longer serve as Dissemination Agent, the City shall select an internal or external Dissemination Agent.

Responsibilities. The Dissemination Agent is responsible for the following (the “Continuing Disclosure Policies”):
• Serving as a “point person” for personnel to communicate issues or information that should be or may need to be included in any Continuing Disclosure Agreement; • Identifying the officers and employees of the City who are most likely to first obtain knowledge of the occurrence of events that would require event filings; • Monitoring compliance by the City with the Continuing Disclosure Policies, including timely dissemination of the annual report and event filings as described below; • Recommending changes to the Continuing Disclosure Policies to the City as necessary or appropriate;
• Following up with others to make sure that assigned tasks have been completed on a timely basis and making sure that the continuing disclosure annual report is filed on a timely basis; and
• Maintaining records documenting the City’s compliance with the Continuing Disclosure Policies and the Continuing Disclosure Agreement.

Filing Requirements. The City is required to file an annual report with the MSRB’s Electronic Municipal Market Access (“EMMA”) system each year. Such annual reports are required to include certain updated financial and operating information and audited financial statements. The Dissemination Agent will establish or cause to be established a calendar reminder of the city’s continuing disclosure obligations on July 1 each year. The City is also required to file notices of certain events with the MSRB’s EMMA system. Upon the identification of the occurrence of a material event, the Dissemination Agent shall, in consultation with bond counsel, prepare, or cause to be prepared, a draft of the necessary notice (including compiling any materials or documents to be included with such notice) and shall notify such parties of the date by which such notice is to be filed. If it is not clear if the occurrence of an event constitutes an event that requires notification, then the Dissemination Agent shall consult with bond counsel to determine whether the City is required to file a notice concerning such event.

For any public debt issues (subject to contractual obligations under SEC Rule 15c2-12) issued on or after February 27, 2019, the City is required to commit to make additional disclosure with respect to private loans or financing leases (not sold through an official statement) or derivatives or credit support agreements (collectively “financial obligations”). The additional events will need to be provided to the City’s Dissemination Agent, for further filing with EMMA, within ten (10) business days of their occurrence:
• Incurrence of a financial obligation of the City (and any obligated person, where applicable), if material, or agreement to covenants, events of default, remedies, priority #11..
- 321 -
19 rights, or other similar terms of a financial obligation of the City (and any obligated person, where applicable), any of which affect security holders, if material; • Default, event of acceleration, termination event, modification of terms, or other similar events under the terms of a financial obligation of the City (and any obligated person, where applicable), any of which reflect financial difficulties.

In addition, the Dissemination Agent will be responsible for providing notice, in a timely manner, of a failure to provide any of the City’s required annual financial information by the date specified in the continuing disclosure undertaking. The inability to make timely filings must be disclosed and is a negative reflection. While there is reliance on timely audit and preparation of the City’s annual report, the Director of Finance will ensure the City’s timely filing of its annual report on EMMA as soon as it is available.

G. Voluntary Disclosure Requirements
In addition to preparing annual reports and event notices, the City may wish to keep investors informed by providing information that is not required to be provided under Rule 15c2-12 or its continuing disclosure undertakings. Examples of such types of information are investments, interim financial information, capital improvement plans, fund balance policies, etc. and financial forecasts. Because providing this information is voluntary, the Compliance Officer will monitor for events which may materially affect the financial condition or operations of the City, so that a determination can be made if the event should be disclosed. The below list is comprised of events and financial disclosure which the MSRB has suggested issuers may wish to voluntarily disclose.

Some of these are not applicable to the City’s public debt issues and financial obligations, but the City may wish to consider providing some of these to the City’s Dissemination Agent for further filing with EMMA:
• Amendment to continuing disclosure undertaking;
• Change in obligated person (i.e., a person guaranteeing or supporting City debt); • Notice to investors pursuant to bond documents;
• Certain communications from the Internal Revenue Service; • Secondary market purchases;
• Capital or other financing plan;
• Litigation/enforcement action;
• Change of tender agent, remarketing agent, or other ongoing party; • Change in fiscal year/timing of annual disclosure or accounting standard; • Interim/additional financial information/operating data, budget; • Investment/debt/financial policy changes;
• Information provided to rating agency, credit/liquidity provider or other third party; and • Consultant reports.

Also, if the City maintains an Investor Relations website, or routinely posts City information packages, including interim financial information, capital improvement plans, etc. on its website, the City’s Compliance Officer should review and, in some cases, the Compliance Officer should reissue the posted material with an explanatory note (e.g., the interim financial information is #11..
- 322 -
20 presented on a cash, as opposed to accrual basis).

Currently, the City is not required to file interim financial information. In the future, if such filings are required in continuing disclosure undertakings, the City’s Compliance Officer will notify the Dissemination Agent for assistance when these filings become necessary.

H. Coordinating Continuing Disclosure with Primary Disclosure It is expected that the DWG will be responsible for collecting and reviewing information set forth in official statements prepared in connection with new bond offerings. Any Management’s Discussion and Analysis (“MD&A”) from the prior year’s audited financial statements will be reviewed to ensure that the unaudited information which was provided in that portion of the financial statements is updated to include added public debt and material financial obligations.

Coordination with the City’s auditors will be essential, as well as careful review of the long-term debt notes in the financial statements and the checking of all bond ratings before each EMMA filing is made. Measures should be taken to assure information publicly available to investors is accurate. Further coordination between the DWG and the City’s website manager is essential before posting any financial information.

I. Website Disclosure
It is expected that the Compliance Officer will be responsible for monitoring website content and reviewing the information set forth on such website. Appropriate disclaimer language on the website will be considered in order to educate the viewer that specific information intended for investors can be found on the City’s EMMA page as well as the investor’s acknowledgement of the limitations of such reliance. Coordination between the DWG and City officials will occur before the release of any public statements about any financial condition of the City.

J. Training for Employees and Issuer Officials
For City officials, compliance with federal securities law should be considered as important as compliance with local public meetings and records laws. To further this goal, the Compliance Officer shall call a meeting for an annual review or, if necessary, an interim review, of the continuing disclosure policies of the City, which all members of the DWG and additional invited officials and employees are expected to attend. The Compliance Officer shall be responsible for keeping a record of attendance. Furthermore, the members of the DWG and such invited officials and employees are expected to attend training sessions, at least annually, called by the Compliance Officer. Applicable policies and procedures will be updated by the City to reflect required changes on an as-needed basis.
#11..
- 323 -
21 GLOSSARY
Arbitrage- The difference between the interest paid on the tax-exempt securities and the interest earned by investing the security proceeds in higher-yielding securities. IRS regulations govern arbitrage on the proceeds from issuance of municipal securities.

Balloon Maturity- A later maturity within an issue of bonds that contains a disproportionately large percentage of the principal amount of the original issue.

Bond Allocation Policies- Outline as to how an investor’s order is filled when a maturity in an underwriting syndicate is oversubscribed. The senior managing underwriter and issuer decide how the bonds will be allocated among the syndicate. There are three primary classifications of orders, which form the designation policy. The highest priority is given to Net Designated orders; the next priority is given to Group Net orders and Member orders are given the lowest priority (unless the Member orders are retail orders in which case it would be given the highest priority).

Bullet Maturity- Maturity for which there are no sinking fund payments prior to the stated maturity date.

Call Provisions- The terms of the bond contract giving the issuer the right to redeem all or a portion of an outstanding issue of bonds prior to their stated dates of maturity at a specific price, usually at or above par.

Capitalized Interest- A portion of the proceeds of an issue that is set aside to pay interest on the securities for a specific period of time. Interest is commonly capitalized for the construction period of the project.

Commercial Paper- Very short-term, unsecured promissory notes issued in either registered or bearer form, and usually backed by a line of credit with a bank.

Competitive Sale- A sale of securities by an issuer in which underwriters or syndicates of underwriters submit sealed bids to purchase the securities in contrast to a negotiated sale.

Continuing Disclosure- The principle that accurate and complete information material to the transaction which potential investors would be likely to consider material in making investment decisions with respect to the securities be made available on an ongoing basis.

Credit Enhancement- Credit support purchased by the issuer to raise the credit rating of the issue. The most common credit enhancements consist of bond insurance, direct or standby letters of credit, and lines of credit.

Debt Service Reserve Fund- The fund in which moneys are placed which may be used to pay debt service if pledged revenues are insufficient to satisfy the debt service requirements.

Deep Discount Bonds- Bonds that are priced for sale at a substantial discount from their face or par #11..
- 324 -
22 value.

Derivatives- A financial product whose value is derived from some underlying asset value.

Designation Policies- Concerning a negotiated sale of bonds, the rules regarding how the takedown (sales commission) is allocated among the underwriters for each order put in for the bonds.

Direct Purchase Loan- A source of financing where the loan is purchased by a financial institution instead of being offered to the general public for purchase. The loan can bear interest at a fixed rate or on a variable rate tied to market index (i.e. the Secured Overnight Financing Rate (“SOFR”) or Securities Industry and Financial Markets Association (“SIFMA”) Index). This form of financing does not require a remarketing agent to set the variable rate. As such, a Direct Purchase Loan can be used to replace traditional forms of variable-rate debt.

Escrow- A fund established to hold moneys pledged and to be used to pay debt service on an outstanding issue.

Expenses- Compensates senior managers for out-of-pocket expenses including: underwriters counsel, DTC charges, travel, syndicate expenses, dealer fees, overtime expenses, communication expenses, computer time and postage.

Floating Rate Notes (“FRN”)- A note with a variable interest rate sold either in the public market or directly to financial institutions. The adjustments to the interest rate are typically tied to a certain index like SOFR or SIFMA and are made periodically. The rate would continue to reset in the same manner through maturity. The SOFR-based floating rate note market typically does not require bank support and as a result, offers issuers an alternative to traditional floating rate debt.

Grant Anticipation Notes (“GAN”)- Short term notes issued by the government unit, usually for capital projects, which are paid from the proceeds of State or Federal grants of any type.

Letters of Credit- A bank credit facility wherein the bank agrees to lend a specified amount of funds for a limited term.

Management Fee- The fixed percentage of the gross underwriter’s spread which is usually only paid to the managing underwriter for the structuring phase of a transaction.

Members- Underwriters in a syndicate other than the senior underwriter.

Moody’s Median- Key financial, debt, economic and tax base statistics with median values for each statistic presented. Moody’s uses audits for both rated and unrated agencies to ensure that the medians presented are representative of all agencies.

Negotiated Sale- A method of sale in which the issuer chooses one underwriter to negotiate terms pursuant to which such underwriter will purchase and market the bonds.

Original Issue Discount- The amount by which the original par amount of an issue exceeds its public #11..
- 325 -
23 offering price at the time it is originally offered to an investor.

Pay-As-You-Go- An issuer elects to finance a project with existing cash flow as opposed to issuing debt obligations.

Present Value- The current value of a future cash flow when discounted to the present at a specific annual rate.

Private Placement- The original placement of an issue with one or more investors or financial institutions as opposed to being publicly offered or sold.

Rebate- A requirement imposed by the Tax Reform Act of 1986 whereby the issuer of the bonds must pay the IRS an amount equal to its profit earned from investment of bond proceeds at a yield above the bond yield calculated pursuant to the IRS code together with all income earned on the accumulated profit pending payment.

Tax and Revenue Anticipation Notes (“TRAN”)- Short-term notes issued by a government unit, usually for capital projects, which are paid from the proceeds of sales tax or other revenue sources.

Selling Groups- The group of securities dealers who participate in an offering not as underwriters but rather as those who receive securities less the selling concession from the managing underwriter for distribution at the public offering price.

Syndicate Policies- The contractual obligations placed on the underwriting group relating to distribution, price limitations and market transactions.

Underwriter- A dealer that purchases new issues of municipal securities from the Issuer and resells them to investors.

Underwriter’s Discount- The difference between the price at which the Underwriter buys bonds from the Issuer and the price at which they are reoffered to investors.

Variable Rate Debt- An interest rate on a security which changes at intervals according to an index or a formula or other standard of measurement as stated in the bond contract. #11..
- 326 -
24 1. City of Modesto Philosophy Regarding Use of Interest Rate Swaps A. Introduction
Interest rate exchange agreements or interest rate swaps (“Swaps”) and related financial instruments and derivatives may be appropriate interest rate management tools in certain circumstances. Properly used, Swaps can increase the City of Modesto’s (the “City”) financial flexibility and provide opportunities for interest rate savings. This policy (“Swap Policy”) shall be followed in conjunction with the City’s related debt issuance-related policies and procedures (the “Debt Policy”).

Swaps are appropriate to use when they achieve a specific financial objective consistent with the City’s overall Swap Policy and Debt Policy. Swaps may be used, for example, to lock-in a current market fixed rate or create additional variable rate exposure. Swaps may be used to produce interest rate savings or alter the pattern of debt service payments.

Swaps may be used to cap, limit or hedge variable rate payments. Options granting the right to commence or cancel an underlying Swap are permitted to the extent the Swap itself is otherwise consistent with this Swap Policy.

The authorized Swaps contemplated in this Swap Policy are intended to reduce the amount or duration of interest rate risk, or produce a lower cost of borrowing when used in combination with the issuance of bonds.

B. Rationales for Utilizing Interest Rate Swaps
The use of Swaps and related financial instruments should balance the City’s primary objectives of reducing the cost of capital, minimizing the City’s exposure to interest rate volatility, and gaining flexibility in structuring and managing its debt portfolio over time with the risks associated with these tools and instruments. Examples of how the City’s debt management objectives can be achieved through the use of Swaps and other financial instruments are described below:
• Reduce borrowing costs at the time of issuance
Create synthetic fixed rate debt through a floating-to-fixed Swap. • Actively manage interest rate risk
Lock-in current market rates through (forward starting) floating-to-fixed Swap. • Balance financial risk
Purchase of an interest rate cap.

CITY OF MODESTO

CITY COUNCIL POLICY
Latest Revision Date: April 2023
ADDENDUM: Interest Rate Swap Policy
#11..
- 327 -
25 • Achieve appropriate asset/liability match
Create variable rate exposure through fixed-to-floating Swap.

Under no circumstances will Swaps be used for speculative purposes, e.g., to realize trading gains.

2. Authority for Entering into Swap Agreements
The purpose of this Swap Policy is to integrate the use of Swaps into the City’s overall Debt Policy, and other funds of the City where particular debt strategies, both long-term and shortterm, factor into these decisions. Swaps will not be used for speculation. The City Manager, in conjunction with the Director of Finance, shall be responsible for determining if and when it is in the City’s overall best financial interests to enter into a Swap or related financial instruments covered by this Swap Policy.

The City shall comply with all applicable laws. The City must receive an opinion acceptable to the financial market from a nationally recognized law firm that the swap contract is a legal, valid, and binding obligation of the City and that entering into such a contract complies with applicable provisions of the City Charter and State statutes.

3. Permitted Instruments
The City may utilize financial instruments that (i) lower its interest expense, (ii) manage its financial risk or (iii) improve its financial condition.

The City shall not use financial instruments that (i) create substantial leverage or financial risk, (ii) lack adequate liquidity to terminate at market, (iii) provide insufficient price transparency to allow reasonable valuation on an ongoing basis, or (iv) are primarily speculative in nature.

The use of Swaps and other hedging products should produce a result not otherwise available in the cash market (i.e., lack of advance refunding, non-callable debt), or provide a higher level of net savings compared to conventional financing methods.

The City may expressly utilize the following financial instruments, after identifying the financial objective(s) to be realized and assessing the attendant risks:
• Current or forward starting floating-to-fixed rate swaps Designed to reduce a fixed interest rate below that which would otherwise be available through the use of traditional fixed rate debt. • Current or forward starting fixed-to-floating rate swaps Designed to create additional variable interest rate exposure. • Rate Locks
Cash-settled forward contracts based on indices such as the MMD™ 1“AAA”

1. MMD™ is a trademark of Municipal Market Data, a Thompson Financial company. #11..
- 328 -
26 scale or the Bloomberg Valuation Service (“BVAL”) AAA Muni Callable Curve. • Interest Rate Caps, Floors or Collars
Financial contracts that limit exposure to interest rate volatility. • Options on Variable Rate Indices
Indices could include the Securities Industry and Financial Markets Association (“SIFMA”) Index2, Secured Overnight Financing Rate (“SOFR”)3, etc. • Options on Swaps (“Swaptions”)
Methods used to control the commencement or cancellation of interest rate swaps. • Basis Swaps
Floating-to-floating rate swaps using different variable-rate indices, such as a swap from the SIFMA Index to a percentage of SOFR.

4. Swap Risk Analysis
The City shall require for each proposed financing an evaluation of all financial products with respect to the unique risks that they bear. A specific determination must be made that the proposed or expected benefits exceed the identified risks by an adequate margin over those available in the traditional cash market. At a minimum, the City shall perform an evaluation of the risks and what steps have been taken to mitigate any risks. The City shall retain a municipal/swap advisor to assist in assessing these risks. Questions that may arise include the following:
• Market or Interest Rate Risk
Does the transaction hedge (i.e., decrease or eliminate) or increase interest rate volatility?
• Tax Risk
How is the transaction or its benefits affected by a future change in federal income tax policy?
• Termination Risk
Under what circumstances might the transaction be terminated? At what value? • Risk of Uncommitted Funding (Put Risk)
Does the transaction create additional financing dependent upon third-party participation (such as requiring a letter of credit, grant or other anticipation funding, etc.)?
• Rollover Risk
Is the term of the Swap shorter than the term of the underlying hedged debt or financial instrument? Does the City anticipate entering into another Swap when the first Swap terminates?
• Legal Risk
Is the transaction expressly legally authorized?
• Counterparty Risk
What is the creditworthiness of the counterparty?

2. The SIFMA Index is an index of more than 500 high-grade, tax-exempt, weekly reset Variable Rate Demand Obligation issues.

3. SOFR is a taxable rate which is a broad measure of the cost of borrowing cash overnight collateralized by Treasury securities, published daily by the Federal Reserve Bank.
#11..
- 329 -
27 • Rating Agency Risk
Is the proposed transaction consistent with the City’s current ratings and ratings objectives?
• Basis Risk
Is it anticipated that the projected Swap payments the City will receive closely match the debt service payments it will make?
• Index Risk
Does the transaction include provisions acceptable to the City regarding any change in indices used to calculate payments or obligations? • Subsequent Business Conditions
Does the transaction or its benefits depend upon the continuation, or realization, of specific industry business conditions (e.g., unusual demand for state-specific variable rate debt)?
• Operational Risk
Does the City have adequate systems, policies, and practices in place to monitor and manage the transaction over its term?

5. Swap Procurement and Execution
A. Procurement
The City will not have a fixed policy with respect to the procurement of Swaps and other financial instruments authorized by this Swap Policy. On a product-by-product basis, the City will have the authority to negotiate or competitively bid the procurement of financial instruments that have customized or specific attributes designed on its behalf. The Director of Finance will be responsible for determining the method of procurement for Swaps and related financial instruments. A municipal/swap advisor shall be retained to assist the Director of Finance in evaluating the proposed pricing of Swaps or related financial instruments.

B. Swap Execution
The Director of Finance may recommend the use of financial derivative products if they:

1. Provide a specific benefit not otherwise available;

2. Produce greater expected interest rate savings than cash market alternatives;

3. Do not create substantial leverage or financial risk;

4. Result in an improved capital structure or better asset/liability match; and

5. Reasonably pass the Swap Risk Analysis required by Section 4. Swap Risk Analysis of this Swap Policy.

C. Credit Rating Designations
For purposes of this Swap Policy, references to credit ratings will be based on those ratings issued by Moody’s Investors Service, and/or S&P Global Ratings, and/or Fitch Ratings. The credit ratings will reflect the designations assigned by each of these rating agencies utilized for comparable credit and will be listed for each rating agency utilized in the order shown in the preceding sentence.
#11..
- 330 -
28 6. Swap Documentation
The City will use a standard International Swap and Derivatives Association, Inc. (“ISDA”) Master Agreement, including the Counterparty Schedule to the Master Agreement and a Credit Support Annex (utilizing such versions thereof as the Director of Finance shall determine), as supplemented and amended in accordance with the recommendations of the City’s financial/swap advisor and legal counsel. Each Swap entered into by the City shall include payment, term, security, collateral, default, remedy, termination and other terms, conditions and provisions as the Director of Finance may deem necessary or desirable.

A. Terms and Notional Amount of Swap Agreement
The City shall determine the appropriate term for Swaps on a case-by-case basis. The slope of the swap curve, the marginal change in swap rates from time to time along the swap curve, and the impact that the term of the Swap will have on the City’s overall financial (e.g., interest rate, market value, counterparty, etc.) exposure shall be considered in determining the appropriate term of any Swap agreement. In connection with the issuance or carrying of bonds, the term of the Swap agreement between the City and qualified swap counterparty shall not extend beyond the final maturity date of existing City debt, or in the case of a refunding transaction, beyond the final maturity of the refunding bonds. At no time shall the total net notional amount of all Swaps, excluding any offsetting Swaps, exceed the total amount of outstanding applicable bonds. Variable rate debt exposure created through the use of Swaps will be consistent with the limitations set forth in the City’s adopted Debt Policy. Terms and conditions of any Swap shall be negotiated by the Director of Finance in the best interests of the City subject to the applicable legal provisions and this Swap Policy. The Swap agreements entered into between the City and each counterparty shall include payment, term, security collateral, default, remedy, termination, and other terms, conditions and provisions as the Director of Finance, in consultation with City legal counsel and its swap advisor, deems necessary or desirable.

Subject to the provisions contained herein, the City’s swap documentation and terms should include the following:
• The City will be able to terminate the swap without cause subject to market termination costs.
• The swap counterparty will only be able to terminate the swap if the City’s credit ratings fall below a certain pre-determined threshold and/or the City fails to perform, as required by the swap contract.
• Governing law for Swaps will be New York, but should reflect California authorization provisions.
• The specified indebtedness related to credit events in the Master Agreement should be narrowly drafted and refer only to specific debt of the issuing fund. • Eligible collateral should be limited to Treasuries, Federal Agencies and any other securities which, in the City’s sole discretion, shall be deemed reasonable and creditworthy.
• Collateral thresholds should be set on a sliding scale reflective of credit ratings. #11..
- 331 -
29 • Termination value should be set by “market quotation” methodology. • Whenever possible use a Credit Support Annex to document swap termination value collateralization procedures.
• Ratings downgrade triggers.

7. Policy on Swap Counterparties
The City shall only do business with highly rated counterparties, and will structure swap agreements to protect itself from credit deterioration. All Swap transactions shall contain provisions granting the City the right to optionally terminate a swap agreement at-market at any time over the term of the agreement.

A. Qualified Swap Counterparties
The City should not have an immutable credit standard. However, the City shall attempt to do business with highly rated counterparties the long-term ratings of which at the date of execution are at least “Aa” or “AA” by one or more Nationally Recognized Statistical Ratings Organizations (“NRSRO”) and no less than “A2” or “A” by one or more NRSRO.

For lower rated counterparties, the City should seek credit enhancement in the form of:

1. Contingent swap counterparty providing support;

2. Collateral;

3. Ratings downgrade triggers; and,

4. Minimum rating threshold of “Baa3/BBB-/BBB-,” below which provisions will allow an assignment or trigger an additional termination event, with the counterparty as the affected party (i.e., the counterparty would pay market-based transaction costs).

In addition, the counterparty must have a demonstrated record of successfully executing swap transactions as well as creating and implementing innovative ideas in the swap market. The City shall be authorized to enter into interest rate swap transactions only with qualified swap counterparties.

8. Limitations on Counterparty Exposure
In order to diversify the City’s counterparty credit risk, and to limit the City’s credit exposure to any one counterparty, limits will be established for each counterparty based upon both the credit rating of the counterparty as well as the relative level of risk associated with each existing and proposed swap transaction. The guidelines shown in the following table provide general termination exposure guidelines with respect to whether the City should enter into an additional transaction with an existing counterparty. The City may make exceptions to the guidelines at any time to the extent that the execution of a swap achieves one or more of the goals outlined in these guidelines or provides other benefits to the City. In general, the maximum net termination exposure to any single counterparty should be set so that it does not exceed a prudent level as measured against the gross revenues, available assets or other financial resources of the City.
#11..
- 332 -
30 For example, if the City has two Swaps with one counterparty, and if the first Swap’s market value is positive $10 million and the second Swap’s market value is negative $20 million, then the City’s total net exposure to the counterparty is negative $10 million.

Such guidelines will also not mandate or otherwise force automatic termination by the City or the counterparty. Maximum net termination exposure is not intended to impose retroactively any terms and conditions on existing transactions. Such provisions will only act as guidelines in making a determination as to whether or not a proposed transaction should be executed given certain levels of existing and projected net termination exposure to a specific counterparty. Collateral posting guidelines are described in the collateral section below. The calculation of net termination exposure per counterparty will take into consideration multiple transactions, some of which may offset the overall exposure to the City.

Under this approach, the City will set limits on individual counterparty exposure based on existing as well as new or proposed transactions. The sum of the current market value and the projected exposure shall constitute the maximum net termination exposure. For outstanding transactions, current exposure will be based on the market value as of a recently completed swap valuation report provided by the City’s swap advisor. Projected exposure shall be calculated based on the swap’s potential termination value taking into account possible adverse changes in interest rates as implied by historical or projected measures of potential rate changes applied over the remaining term of the swap. For purposes of this calculation, the City shall include all existing and projected transactions of an individual counterparty and all transactions will be analyzed in aggregate such that the maximum exposure will be additive.

The exposure thresholds, which will be reviewed periodically by the City to ensure that they remain appropriate, will also be tied to long-term credit ratings of the counterparties and whether or not collateral has been posted as shown in the table below. If a counterparty has more than one rating, the lowest rating will govern for purposes of the calculating the level of exposure. If contingent swap counterparty or swap insurance is used to provide financial support for the primary counterparty, the rating of the support entity shall be used. A summary table is provided below:

Credit Ratings
Maximum
Collateralized Net
Termination Value
Maximum
Uncollateralized
Net Termination Value
Maximum Net
Termination
Exposure
AAA N/A $30.0 million N/A
AA Category $30.0 million $20.0 million $30.0 million
A Category $20.0 million $10.0 million $20.0 million
Below A Category $10.0 million $5.0 million $15.0 million If the exposure limit is exceeded by counterparty, the City shall conduct a review of the exposure limit per counterparty. The City, in consultation with its bond counsel and swap advisor, shall explore remedial strategies to mitigate this exposure. #11..
- 333 -
31 9. Benefit Expectation
Financial transactions, using Swaps or other derivative products, intended to produce the effect of a synthetic advance refunding, must generate at least 25% greater savings than the benefit threshold then in effect for fixed-rate bonds as determined by the City’s Director of Finance. (See Debt Management Policy Section X.A. Debt Service Savings). The higher savings target reflects the greater complexity and higher risk of derivative financial instruments.

In calculating the prospective savings against the target for implementing a fixed-to-variable swap, the cost of remarketing, in addition to the cost of credit and liquidity fees must be added to the variable rate representing the ten-year average of comparable variable rate securities.

10. Termination Provisions
All swap transactions shall contain provisions granting the City the right to optionally terminate a swap agreement at market at any time over the term of the agreement, but shall NOT grant this right to the counterparty. In general, exercising the right to terminate an agreement produces a benefit to the City, either through the receipt of a payment from a termination, or if the termination payment is made by the City, in conjunction with a conversion to a more beneficial (desirable) City debt obligation, as determined by the City.

11. Collateral
As part of any swap agreement, the City shall require collateralization or other credit enhancements to secure any or all swap payment obligations. As appropriate, the City, in consultation with its bond counsel and swap advisor, may require collateral or other credit enhancements to be posted by each swap counterparty under the following circumstances:
• Each counterparty to the City may be required to post collateral if the highest credit rating of the counterparty or parent falls below the “Aa/AA” category. Additional collateral for further decreases in credit ratings of each counterparty shall be posted by each counterparty in accordance with the provisions contained in the collateral support agreement to each counterparty with the City.
• Collateral shall be deposited with a third-party trustee, or as mutually agreed upon between the City and the counterparty.
• A list of acceptable securities that may be posted as collateral and the valuation of such collateral will be determined and mutually agreed upon during negotiation of the swap agreement with each swap counterparty.
• The market value of the collateral shall be determined on at least a weekly basis. • The City shall determine the reasonable threshold limits for the initial deposit and for increments of collateral posting thereafter.
• The City shall determine on a case-by-case basis whether other forms of credit enhancement, such as swap insurance, are more beneficial in lieu of the posting of additional collateral.
#11..
- 334 -
32 • The City shall evaluate the performance of the swap relative to the rate on the bonds. • The City shall compute the effective cost of borrowing inclusive of all fees and costs associated with the underlying financing.

12. Conformance with Dodd-Frank
It is the intent of the City to conform this Swap Policy to the requirements relating to legislation and regulations for over-the-counter derivatives transactions under Title VII of the Wall Street Transparency and Accountability Act of 2010, as supplemented and amended from time to time (herein collectively referred to as “Dodd-Frank”). Pursuant to such intent, it is the policy of the City that: (i) each swap advisor engaged or to be engaged by the City will function as the designated Qualified Investment Representative of the City, sometimes referred to as the “Designated QIR”; (ii) each swap advisor agrees to meet and meets the requirements specified in Commodity Futures Trading Commission Regulation 23.450(b)(1) or any successor regulation thereto (herein referred to as the “Representative Regulation”) (iii) each swap advisor provides a written certification to the City to the effect that such swap advisor agrees to meet and meets the requirements specified in the Representative Regulation; and (iv) the City relies on the advice of its swap advisor with respect to transactions authorized pursuant to this Swap Policy and not rely on recommendations, if any, presented by any counterparty with respect to transactions authorized pursuant to this Swap Policy.

13. Monitoring and Reporting
At least once per year, normally as part of the City’s Annual Comprehensive Financial Report (“Annual Report”), or as requested by the City Council, the Director of Finance shall prepare information describing the various Swaps and financial arrangements entered into by the City pursuant to this Swap Policy that are in effect as of the date of the report’s publication. The report shall include the following information:

1. A summary of key terms of the agreements, including notional amounts, interest rates, maturity and method of procurement.

2. The mark-to-market value of each agreement.

3. The full name, description, and credit ratings of each counterparty or the applicable guarantor.

4. The amounts that were required to be paid and received and any amounts that were actually paid and received.

5. A listing of any credit enhancement, liquidity facility, or reserves and an accounting of all costs and expenses associated with the credit enhancement, liquidity facility, or reserves.

6. The aggregate mark-to-market value and potential termination value for each swap by counterparty.

7. A discussion of other risks associated with each transaction.

At the end of each fiscal year, the Director of Finance shall provide to the City Council all information required for financial reporting under Government Accounting Standards Board #11..
- 335 -
33 (“GASB”) requirements as well as any other reporting or disclosure requirements. The City shall adhere to California Government Code Section 5922 and applicable GASB guidelines for reporting and disclosure guidelines for derivative products. #11..
- 336 -

DEBT MANAGEMENT

POLICY UPDATES
Finance Committee, May 19, 2025
DeAnna Christensen, Director of Finance
Mudra Patel, PFM Financial Advisors
#11..
- 337 -
● The purpose of this Policy is to organize and formalize debt issuancerelated policies and procedures for the City. ● The primary objectives of the City’s debt and financing-related activities are to maintain cost-effective access to the capital markets through the following:
○ Prudent yet flexible policies.
○ Moderate debt principal and debt service payments through effective planning and project cash management.
○ Achieve the lowest cost of borrowing.
○ Achieve the highest practical credit ratings.

BACKGROUND
2 #11..
- 338 -
● Edits made to Section II. DEBT POLICY OBJECTIVE
○ Language was added to expand the objectives of the debt policy. ■ Establishing clear criteria for decision making with regards to debt issuance, debt structuring and debt management
■ Foster consistency in debt management practices over time with staff and Council turnover
■ Ensure industry best practices are adopted and maintained

DEBT POLICY
3 #11..
- 339 -
● Edits made to Section VII. A. PURPOSE OF DEBT
○ Language was added to include Interim Financing as a purpose of issuing debt.
■ Interim financing in the form of commercial paper, revolving line of credit, or short-term debt may be issued to bridge cashflow needs. It is used to defer the issuance of more expensive long-term debt or provide interim funds while waiting for reimbursement from other sources such as grants.

DEBT FINANCING
4 #11..
- 340 -
● Edits made to Section VIII. C. Lien Levels
○ Language was added to describe potential uses of a lower lien ■ The City may use lower liens for specific needs such as interim financing or commercial paper.

TERMS AND CONDITIONS OF BONDS
5 #11..
- 341 -
● Edits made to Section VIII. F. Call Provisions, and G. Original Issue Discount and Deep Discount Bonds
○ Language was added to enhance discussion on bonds terms that impact future optionality and ability to refund for savings
■ Removed - If the City were to issue taxable bonds, the City will carefully consider the financial impacts of a 10-year call, a make-whole call, or noncallable debt. ■ When evaluating the coupon structure for a bond issuance, the City should factor in investor preference, the yield-to-call, the yield-to-maturity and the potential to refund the bonds for debt service savings in the future.

TERMS AND CONDITIONS OF BONDS
6 #11..
- 342 -
● Edits made to X. A. Debt Service Savings, and B. Restructuring ○ Language was added to clarify the internal process for debt restructuring ■ The decision to defease debt that is not currently callable or to take savings on an upfront or deferred basis must be expressly described in the staff report presented to the City Council.
■ The decision to restructure debt must be expressly described in the staff report presented to the City Council.

REFINANCING OUTSTANDING DEBT
7 #11..
- 343 -
● Edits made to XI. A. Bond Insurance
○ Language was added to clarify that bonds can be partially insured. ■ Bond insurance may be purchased for the entire amount of an issue or for specific maturities based on a recommendation from the financial advisor or senior underwriter.

CREDIT ENHANCEMENTS
8 #11..
- 344 -
● Edits made to XIV. E. Underwriter’s Discount
○ Language was added to clarify the City’s objective when agreeing to fees associated with a bond issuance
■ The City will strive to reasonably minimize the underwriter’s takedown by means of a competitive selection process like an RFP. The goal of low takedowns should be balanced with adequately incentivizing the banks to market/sell the bonds or underwrite without rate adjustments, if required.

UNDERWRITER SELECTION
9 #11..
- 345 -
● Competitive Sale should be used when “Transaction size is modest, generally larger than $10 million but lower than $100 million”.
● Private placements may be well-suited for weaker credits where a rating cannot be obtained.
● The Director of Finance shall monitor and comply with periodic data requests from rating analysts for their rating surveillance process.
● Municipal Advisor services will include assisting with debt related negotiations

OTHER CHANGES
10 #11..
- 346 -
● Motion accepting the updates to the City’s Debt Management Policy and forwarding to Council for approval.

STAFF RECOMMENDATION
11 #11..
- 347 -
QUESTIONS?
12 #11..
- 348 -

CITY OF MODESTO

COUNCIL AGENDA REPORT
DATE OF MEETING:

June 10, 2025
Date: May 20, 2025
TO: Mayor and City Council
THROUGH: Joseph P. Lopez, City Manager
FROM: DeAnna Christensen, Director of Finance
SUBJECT: Investment Policy Updates
CONTACT: Calogero Maniscalco, Senior Financial Analyst
[email protected], 209-577-5219
DESCRIPTION:

Consider approving the updates to the City’s Investment Policy. (Funding Source: Not Applicable) STRATEGIC PLAN ELEMENT:

This recommended action supports the City’s 2025-2026 Strategic Plan Goal H: Achieve LongTerm Financial Sustainability.

BACKGROUND:

The Finance Department deposits and invests funds in accordance with the principles of sound treasury management and applicable laws. Local agencies are no longer required to submit a quarterly investment report or Investment Policy to their legislative body for review and approval on an annual basis. City staff believes it is important to keep the City Council informed on all of the City’s investment activity and therefore will continue to present monthly investment reports to Council. The Finance Department will also continue to present the City’s Investment Policy to Council for review and approval on a yearly basis.

DISCUSSION:

PFM Asset Management LLC (“PFMAM”), the City’s investment advisor, provides investment management, research and supervision of the City’s Managed Funds. PFMAM completed their annual review of the City’s Investment Policy and is recommending changes to the Policy to be consistent with changes in the sections of the California Government Code 53560 et seq. (the “Code”) that govern the investment of public funds, and to better align Policy language with Code language. PFMAM’s recommended changes are discussed below, and incorporated in the attached Policy documents:
 Updated “Standard & Poor’s” to “S&P Global” to reflect their updated name. #12..
- 349 -
City Council, June 10, 2025
Investment Policy Updates