A-2
4882-8680-6566v5/200907-0002
Police Department Property:
Parcel 2A
LOT 177 OF MONTEBELLO, IN THE CITY OF MONTEBELLO, COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, AS PER MAP RECORDED IN BOOK 78, PAGES 19, ET SEQ., OF
MISCELLANEOUS RECORDS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY.
EXCEPT THEREFROM THE SOUTHERLY 360 FEET OF LOT 177 OF MONTEBELLO, IN THE
CITY OF MONTEBELLO, COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, AS PER MAP RECORDED IN BOOK 78, PAGES 19, ET SEQ., OF MISCELLANEOUS RECORDS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY.
Parcel 2B
LOT 179 OF MONTEBELLO, IN THE CITY OF MONTEBELLO, COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, AS PER MAP RECORDED IN BOOK 78, PAGES 19, ET SEQ., OF
MISCELLANEOUS RECORDS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY.
EXCEPT THEREFROM THE NORTHERLY 270 FEET OF THE EASTERLY 280 FEET OF SAID LOT 179, ALSO EXCEPTING FROM SAID PORTION OF LOT 179, THE SOUTHERLY 15 FEET OF THE WESTERLY 105 FEET THEREOF.
ALSO EXCEPT THEREFROM THE SOUTHERLY 360 FEET OF THE WESTERLY 155 FEET OF LOT 179 OF MONTEBELLO, IN THE CITY OF MONTEBELLO, COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, AS PER MAP RECORDED IN BOOK 78, PAGES 19, ET SEQ., OF MISCELLANEOUS RECORDS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY.
ALSO EXCEPT THEREFROM THE SOUTHERLY 345 FEET OF THE EASTERLY 175 FEET OF LOT 179 OF MONTEBELLO, IN THE CITY OF MONTEBELLO, COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, AS PER MAP RECORDED IN BOOK 78, PAGES 19, ET SEQ., OF MISCELLANEOUS RECORDS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY.
ALSO EXCEPT THEREFROM SUCH INTERESTS IN OIL, GAS AND OTHER
HYDROCARBON SUBSTANCES AND SUCH OTHER RIGHTS IN SAID LAND AS WERE GRANTED TO UNION OIL COMPANY OF CALIFORNIA, BY DEED RECORDED APRIL 12, 1956 AS DOCUMENT NO. 3614 IN BOOK 40872 PAGE 61, OFFICIAL RECORDS. BY DEED DATED JULY 11, 1963 AND RECORDED AUGUST 20, 1963 AS INSTRUMENT NO. 5442, IN BOOK D-2152 PAGE 609, OFFICIAL RECORDS, THE RIGHTS AND INTERESTS ABOVE
GRANTED WERE RELEASED AND QUITCLAIMED AS TO THE SURFACE OF SAID LAND AND THE TOP 500 FEET OF THE SUBSURFACE, MEASURED VERTICALLY DOWNWARD FROM THE SURFACE THEREOF.
A-3
4882-8680-6566v5/200907-0002
ALSO EXCEPT THE REMAINING INTEREST IN: (1) ALL OIL, GAS, AND OTHER
HYDROCARBON SUBSTANCES UNDER AND IN THAT PORTION OF SAID LAND LYING BELOW A DEPTH OF 500 FEET FROM THE SURFACE THEREOF; (2} THE RIGHT TO
INJECT OR INTRODUCE FROM TIME TO TIME, STORE THEREIN AND SUBSEQUENTLY
REMOVE FROM SAID LAND ANY OIL, GAS, PETROLEUM AND OTHER HYDROCARBON
SUBSTANCES UNDER AND IN THAT PORTION OF SAID LAND LYING BELOW A DEPTH OF 500 FEET FROM THE SURFACE THEREOF; (3) THE LANDOWNER'S ROYALTIES
UNDER THE EXISTING OIL AND GAS LEASE COVERING SAID LAND, WITHOUT,
HOWEVER, ANY RIGHT OF ENTRY UPON OR USE OF THE SURFACE OF SAID LAND
WITH RESPECT TO ANY OF THE RIGHTS HEREIN RESERVED, AS RESERVED BY
BENEDICTINE FATHERS OF MONTEBELLO, LOS ANGELES COUNTY, CALIFORNIA, A RELIGIOUS CORPORATION, IN THE DEED RECORDED FEBRUARY 2, 1961 AS INSTRUMENT NO. 1372 IN BOOK D-1111 PAGE 702, OFFICIAL RECORDS.
City Hall Property:
Parcel 3A
THE SOUTHERLY 360 FEET OF LOT 177 OF MONTEBELLO, IN THE CITY OF
MONTEBELLO, COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, AS PER MAP RECORDED IN BOOK 78, PAGES 19, ET SEQ., OF MISCELLANEOUS RECORDS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY.
Parcel 3B
THE SOUTHERLY 360 FEET OF THE WESTERLY 155 FEET OF LOT 179 OF MONTEBELLO,
IN THE CITY OF MONTEBELLO, COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, AS PER MAP RECORDED IN BOOK 78, PAGES 19, ET SEQ., OF MISCELLANEOUS RECORDS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY.
Parcel 3C
THE SOUTHERLY 345 FEET OF THE EASTERLY 175 FEET OF LOT 179 OF MONTEBELLO,
IN THE CITY OF MONTEBELLO, COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, AS PER MAP RECORDED IN BOOK 78, PAGES 19, ET SEQ., OF MISCELLANEOUS RECORDS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY.
EXCEPT THEREFROM SUCH INTERESTS IN OIL, GAS AND OTHER HYDROCARBON
SUBSTANCES AND SUCH OTHER RIGHTS IN SAID LAND AS WERE GRANTED TO UNION OIL COMPANY OF CALIFORNIA, BY DEED RECORDED APRIL 12, 1956 AS DOCUMENT NO. 3614 IN BOOK 40872 PAGE 61, OFFICIAL RECORDS. BY DEED DATED JULY 11, 1963 AND RECORDED AUGUST 20, 1963 AS INSTRUMENT NO. 5442, IN BOOK D- 2152 PAGE 609, OFFICIAL RECORDS, THE RIGHTS AND INTERESTS ABOVE GRANTED
WERE RELEASED AND QUITCLAIMED AS TO THE SURFACE OF SAID LAND AND THE TOP 500 FEET OF THE SUBSURFACE, MEASURED VERTICALLY DOWNWARD FROM THE SURFACE THEREOF.
A-4
4882-8680-6566v5/200907-0002
ALSO EXCEPT THE REMAINING INTEREST IN: (1) ALL OIL, GAS, AND OTHER
HYDROCARBON SUBSTANCES UNDER AND IN THAT PORTION OF SAID LAND LYING BELOW A DEPTH OF 500 FEET FROM THE SURFACE THEREOF; (2} THE RIGHT TO
INJECT OR INTRODUCE FROM TIME TO TIME, STORE THEREIN AND SUBSEQUENTLY
REMOVE FROM SAID LAND ANY OIL, GAS, PETROLEUM AND OTHER HYDROCARBON
SUBSTANCES UNDER AND IN THAT PORTION OF SAID LAND LYING BELOW A DEPTH OF 500 FEET FROM THE SURFACE THEREOF; (3) THE LANDOWNER'S ROYALTIES
UNDER THE EXISTING OIL AND GAS LEASE COVERING SAID LAND, WITHOUT,
HOWEVER, ANY RIGHT OF ENTRY UPON OR USE OF THE SURFACE OF SAID LAND
WITH RESPECT TO ANY OF THE RIGHTS HEREIN RESERVED, AS RESERVED BY
BENEDICTINE FATHERS OF MONTEBELLO, LOS ANGELES COUNTY, CALIFORNIA, A RELIGIOUS CORPORATION, IN THE DEED RECORDED FEBRUARY 2, 1961 AS INSTRUMENT NO. 1372 IN BOOK D-1111 PAGE 702, OFFICIAL RECORDS.
4893-2407-5563.2
$________
MONTEBELLO PUBLIC FINANCING AUTHORITY
LEASE REVENUE BONDS, SERIES 2022A
BOND PURCHASE AGREEMENT
_________, 2022
Montebello Public Financing Authority
1600 W. Beverly Boulevard
Montebello, CA 90640
City of Montebello
1600 W. Beverly Boulevard
Montebello, CA 90640
Ladies and Gentlemen:
The undersigned Cabrera Capital Markets, LLC (the “Underwriter”) offers to enter into this Bond Purchase Agreement (this “Purchase Agreement”) with the Montebello Financing Authority (the “Authority”) and the City of Montebello, California (the “City”), which, upon the acceptance by the Authority and the City, will be binding upon the Authority, the City and the Underwriter. This offer is made subject to acceptance by the Authority and by the City by the execution of this Purchase Agreement and delivery of the same to the Underwriter prior to 11:59 P.M., California time, on the date hereof, and, if not so accepted, will be subject to withdrawal by the Underwriter upon notice delivered to the Authority and the City at any time prior to the acceptance hereof by the Authority and the City. Capitalized terms used herein and not otherwise defined shall have the meanings set forth in the Indenture (defined herein).
Section 1. Purchase and Sale. Upon the terms and conditions and on the basis of the representations, warranties and agreements herein set forth, the Underwriter hereby agrees to purchase from the Authority, and the Authority hereby agrees to issue, sell and deliver to the Underwriter all (but not less than all) of the Montebello Public Financing Authority Lease Revenue Bonds, Series 2022A (the “Bonds”) in the aggregate principal amount of $________. The Bonds shall be dated as of their date of delivery. Interest on the Bonds shall be payable semiannually on May 1 and November 1 in each year, commencing May 1, 2023 (each an “Interest Payment Date”) and will bear interest at the rates and on the dates as set forth in Exhibit A hereto. The purchase price for the Bonds shall be $_________ (which represents the principal amount of the Bonds in the amount of $________, plus original issue premium in the amount of $_________, less an Underwriter’s discount of $________).
The City and Authority acknowledge and agree that: (i) the purchase and sale of the Bonds pursuant to this Purchase Agreement is an arm’s-length commercial transaction among the City, the Authority and the Underwriter; (ii) in connection therewith and with the discussions, undertakings and procedures leading up to the consummation of such transaction, the Underwriter is and has been acting solely as a principal and is not acting as a municipal advisor (as defined in Section 15B of the Securities
4893-2407-5563.2
2 Exchange Act of 1934, as amended), financial advisor or fiduciary; (iii) the Underwriter has not assumed an advisory or fiduciary responsibility in favor of the City or the Authority with respect to the offering contemplated hereby or the discussions, undertakings and procedures leading thereto (irrespective of whether the Underwriter has provided other services or is currently providing other services to the City or the Authority on other matters); and (iv) the City and the Authority have consulted their own legal, financial, municipal and other advisors to the extent they have deemed appropriate.
Section 2. The Bonds. The Bonds shall be secured by Revenues and any other amounts (including proceeds of the sale of the Bonds) held in the applicable Interest Account, the applicable Principal Account and the Reserve Account (all as defined in the Indenture, dated as of September 1, 2014, as amended, including as amended by the Third Supplemental Indenture, dated as of October 1, 2022 (the “Third Supplemental Indenture,” and collectively, the “Indenture”), by and among the Authority, the City and The Bank of New York Mellon Trust Company, N.A., as trustee (the “Trustee”)). Revenues consist primarily of certain base rental payments (the “Base Rental Payments”) to be paid by the City pursuant to the Lease Agreement, dated as of September 1, 2014, as amended, including as amended by the Third Amendment to Lease Agreement, dated as of October 1, 2022 (the “Third Amendment to Lease Agreement,” and collectively, the “Lease Agreement”), by and between the Authority and the City. The Authority’s right to receive the Base Rental Payments due under the Lease Agreement and to exercise remedies upon default under such Lease Agreement shall be assigned to the Trustee for the benefit of the owners of the Bonds pursuant to an Assignment Agreement, dated as of September 1, 2014, as amended by the First Amendment to Assignment Agreement, dated as of October 1, 2022 (the “First Amendment to Assignment Agreement,” and collectively, the “Assignment Agreement”), by and between the Authority and the Trustee.
Section 3. Public Offering and Establishment of Issue Price. The Underwriter agrees to make a bona fide initial public offering of all the Bonds at the public offering prices (or yields) set forth on Exhibit A attached hereto and incorporated herein by reference. Subsequent to the initial public offering, the Underwriter reserves the right to change the public offering prices (or yields) as they deem necessary in connection with the marketing of the Bonds, provided that the Underwriter shall not change the interest rates set forth on Exhibit A. The Bonds may be offered and sold to certain dealers at prices lower than such initial public offering prices.
The Underwriter agrees to assist the Authority in establishing the issue price of the Bonds and shall execute and deliver to the Authority at Closing (as defined below) an “issue price” or similar certificate, together with the supporting pricing wires or equivalent communications, substantially in the form attached hereto as Exhibit B, with such modifications as may be appropriate or necessary, in the reasonable judgment of the Underwriter, the Authority and Bond Counsel (as defined below), to accurately reflect, as applicable, the sales price or prices or the initial offering price or prices to the public of the Bonds.
The Authority will treat the first price at which 10% of each maturity of the Bonds (the “10% test”), identified as “10% Test Used” in Exhibit A, is sold to the public as the issue price of that maturity (if different interest rates apply within a maturity, each separate CUSIP number within that maturity will be subject to the 10% test). At or promptly after the execution of this Purchase Agreement, the Underwriter shall report to the Authority the price or prices at which it has sold to the public each maturity of Bonds.
4893-2407-5563.2
3 The Underwriter shall promptly advise the Authority when it has sold 10% of that maturity of the Bonds to the public at a price that is no higher than the initial offering price to the public, if that occurs prior to the close of the fifth (5th) business day after the sale date.
The Underwriter acknowledges that sales of any Bonds to any person that is a related party to the Underwriter shall not constitute sales to the public for purposes of this section. Further, for purposes of this section:
(i) “public” means any person other than an underwriter or a related party; (ii) “underwriter” means (A) any person that agrees pursuant to a written contract with the Authority (or with the lead underwriter to form an underwriting syndicate) to participate in the initial sale of the Bonds to the public and (B) any person that agrees pursuant to a written contract directly or indirectly with a person described in clause (A) to participate in the initial sale of the Bonds to the public (including a member of a selling group or a party to a retail distribution agreement participating in the initial sale of the Bonds to the public); (iii) a purchaser of any of the Bonds is a “related party” to an underwriter if the underwriter and the purchaser are subject, directly or indirectly, to (i) more than 50% common ownership of the voting power or the total value of their stock, if both entities are corporations (including direct ownership by one corporation of another), (ii) more than 50% common ownership of their capital interests or profits interests, if both entities are partnerships (including direct ownership by one partnership of another), or (iii) more than 50% common ownership of the value of the outstanding stock of the corporation or the capital interests or profit interests of the partnership, as applicable, if one entity is a corporation and the other entity is a partnership (including direct ownership of the applicable stock or interests by one entity of the other); and
(iv) “sale date” means the date of execution of this Purchase Agreement by all parties.
Section 4. The Official Statement. By their acceptance of this Purchase Agreement, the Authority and the City ratify, confirm and approve of the use and distribution by the Underwriter prior to the date hereof of the Preliminary Official Statement relating to the Bonds, dated __________, 2022 (including the cover page, all appendices and all information incorporated therein and any supplements or amendments thereto and as disseminated in its printed physical form or in electronic form in all respects materially consistent with such physical form, the “Preliminary Official Statement”) that authorized officers of the City and the Authority deemed “final” as of its date, for purposes of Rule 15c2-12 promulgated under the Securities Exchange Act of 1934, as amended (“Rule 15c2-12”) except for certain omissions permitted to be omitted therefrom by Rule 15c2-12. The Authority and the City hereby agree to deliver or cause to be delivered to the Underwriter, within seven (7) business days of the date hereof, copies of the final official statement, dated the date hereof, relating to the Bonds (including all information previously permitted to have been omitted by Rule 15c2-12, the cover page, all appendices, all information incorporated therein and any amendments or supplements as have been approved by the Authority, the City and the Underwriter (the “Official Statement”)) in such quantity as the Underwriter shall reasonably request to comply with Rule 15c2-12(b)(4) and the rules of the Municipal Securities Rulemaking Board (the “MSRB”).
4893-2407-5563.2
4 Section 5. Closing. At 8:30 a.m., California time, on ________, 2022, or at such other time or date as the Authority, the City and the Underwriter mutually agree upon, the Authority shall deliver or cause to be delivered to the Trustee, and the Trustee shall deliver or cause to be delivered through the facilities of The Depository Trust Company, New York New York (“DTC”), the Bonds in definitive form, duly executed and authenticated. Concurrently with the delivery of the Bonds, the Authority and the City shall deliver the documents hereinafter mentioned at the offices of Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California (“Bond Counsel”) or another place to be mutually agreed upon by the Authority, the City and the Underwriter. The Underwriter will accept such delivery and pay the purchase price of the Bonds as set forth in Section 1 hereof by wire transfer in immediately available funds. This payment for and delivery of the Bonds, together with the delivery of the aforementioned documents referenced herein, is called the “Closing.” The Bonds shall be registered in the name of Cede & Co., as nominee of DTC in denominations of $5,000 and any integral multiple thereof, and shall be made available to the Underwriter at least one (1) business day before the Closing for purposes of inspection and packaging. The Authority and the City acknowledge that the services of DTC will be used initially by the Underwriter to permit the issuance of the Bonds in book-entry form, and agree to cooperate fully with the Underwriter in employing such services.
Section 6. Representations, Warranties and Covenants of the Authority. The Authority represents, warrants and covenants to the Underwriter and the City that:
(a) The Authority is and will be at the date of Closing a joint exercise of powers authority organized and existing under the laws of the State of California (the “State”), including Section 6500 et seq. of the Government Code of the State of California (the “JPA Act”) with all necessary power and authority to enter into and perform its duties under the Site and Facility Lease, dated as of September 1, 2014, as amended by the First Amendment to Site and Facility Lease, dated as of October 1, 2022 (the “First Amendment to Site Lease,” and collectively, the “Site Lease”), by and between the City and the Authority, the Lease Agreement, the Indenture, the Assignment Agreement, and this Purchase Agreement (collectively, the “Authority Documents”). (b) The Authority has complied with all filing requirements of the JPA Act. (c) By official action of the Authority prior to or concurrently with the acceptance hereof, the Authority has duly approved the distribution of the Preliminary Official Statement and the distribution of the Official Statement (including in electronic form), and has duly authorized and approved the execution and delivery of, and the performance by the Authority of the obligations on its part contained, in the Authority Documents. When executed and delivered, each Authority Document will constitute the legal, valid and binding obligation of the Authority enforceable in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws or equitable principles relating to or affecting creditors’ rights generally. (d) Prior to the date hereof, the Authority has provided to the Underwriter for its review the Preliminary Official Statement that an authorized officer of the Authority has deemed final for purposes of Rule 15c2-12, has approved the distribution of the Preliminary Official Statement and the Official Statement and has duly authorized the execution and delivery of the Official Statement (including in electronic form). The Preliminary Official Statement, at the date thereof, did not contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein (other than the information relating to DTC and its book-entry system, as to which
4893-2407-5563.2
5 no view is expressed), in light of the circumstances under which they were made, not misleading. As of the date hereof and on the Closing, the final Official Statement did not and will not contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein (other than the information relating to DTC and its book-entry system, as to which no view is expressed), in light of the circumstances under which they were made, not misleading. (e) The execution and delivery by the Authority of the Authority Documents and the approval and execution by the Authority of the Official Statement and compliance with the provisions on the Authority’s part contained in the Authority Documents, will not conflict with or constitute a breach of or default under any law, administrative regulation, judgment, decree, loan agreement, indenture, bond, note, resolution, agreement or other instrument to which the Authority is a party or is otherwise subject to, which conflict, breach or default has or may have a material adverse effect on the ability of the Authority to carry out its obligations under the Authority Documents, nor will any such execution, delivery, adoption or compliance result in the creation or imposition of any material lien, charge or other security interest or encumbrance of any nature whatsoever upon any of the properties or assets of the Authority under the terms of any such law, administrative regulation, judgment, decree, loan agreement, indenture, trust agreement, bond, note, resolution, agreement or other instrument, except as provided by the Authority Documents. (f) The Authority will advise the Underwriter promptly of any proposal to amend or supplement the Official Statement and will not effect or consent to any such amendment or supplement without the consent of the Underwriter, which consent will not be unreasonably withheld.
The Authority will advise the Underwriter promptly of the institution of any proceedings known to it by any governmental agency prohibiting or otherwise affecting the use of the Official Statement in connection with the offering, sale or distribution of the Bonds. (g) The Authority is not in breach of or default under any applicable law or administrative regulation of the State or the United States of America or any applicable judgment or decree or any loan agreement, indenture, trust agreement, bond, note, resolution, agreement or other instrument to which the Authority is a party or is otherwise subject, and no event has occurred and is continuing which, with the passage of time or the giving of notice, or both, would constitute a default or an event of default under any such instrument, in each case which breach or default has or may have a material adverse effect on the ability of the Authority to perform its obligations under the Authority Documents.
(h) As of the time of acceptance hereof and as of the date of Closing, no action, suit, proceeding, inquiry or investigation, at law or in equity, before or by any court, government agency, public board or body, is pending with respect to which the Authority has been served or, to the best knowledge of the officers of the Authority, threatened (i) in any way questioning the corporate existence of the Authority or the titles of the officers of the Authority to their respective offices, (ii) affecting, contesting or seeking to prohibit, restrain or enjoin the execution or delivery of any of the Bonds, or in any way contesting or affecting the validity of the Bonds or the Authority Documents or the consummation of the transactions contemplated thereby, or contesting the exclusion of the interest on the Bonds from gross income for federal income tax purposes or contesting the powers of the Authority to enter into the Authority Documents or (iii) contesting the completeness or accuracy of the Preliminary Official Statement or the Official Statement or any supplement or amendment thereto or asserting that the Preliminary Official Statement or the Official Statement contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were
4893-2407-5563.2
6 made, not misleading, and there is no basis for any action, suit, proceeding, inquiry or investigation of the nature described in clause (i) through (iii) of this sentence. (i) Any certificate signed by any officer of the Authority authorized to execute such certificate in connection with the issuance, sale and delivery of the Bonds and delivered to the Underwriter shall be deemed a representation and warranty of the Authority to the Underwriter and the City as to the statements made therein but not of the person signing such certificate. (j) The Authority will apply the proceeds of the Bonds in accordance with the Indenture.
Section 7. Representations, Warranties and Covenants of the City. The City represents, warrants and covenants to the Underwriter and the Authority that:
(a) The City is and will be at the date of Closing a municipal corporation and general law city duly organized and existing pursuant to and under the Constitution and laws of the State and has all necessary power and authority to enter into and perform its duties under the Continuing Disclosure Certificate relating to the Bonds (the “Continuing Disclosure Certificate”), the Site Lease, the Lease Agreement, the Indenture and this Purchase Agreement (collectively, the “City Documents” and, together with the Authority Documents, the “Legal Documents”) and has by official action duly authorized and approved the execution and delivery of, and the performance by the City of the obligations on its part contained in the City Documents. (b) By official action of the City prior to or concurrently with the acceptance hereof, the City has duly approved the distribution of the Preliminary Official Statement and the distribution of the Official Statement (including in electronic form), and has duly authorized and approved the execution and delivery of, and the performance by the City of the obligations on its part contained, in the City Documents. When executed and delivered, each City Document will constitute the legally valid and binding obligation of the City enforceable in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws or equitable principles relating to or affecting creditors’ rights generally. (c) The Preliminary Official Statement heretofore delivered to the Underwriter is hereby deemed final by the City as of its date and as of the date hereof, except for the omission of such information as is permitted to be omitted in accordance with paragraph (b)(i) of Rule 15c2-12. The Preliminary Official Statement, at the date thereof, did not contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein (other than the information relating to DTC and its book-entry system, as to which no view is expressed), in the light of the circumstances under which they were made, not misleading. As of the date hereof and on the Closing, the final Official Statement did not and will not contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein (other than the information relating to DTC and its book-entry system, as to which no view is expressed), in the light of the circumstances under which they were made, not misleading. (d) The execution and delivery by the City of the City Documents and the approval by the City of the Official Statement and compliance with the provisions on the City’s part contained in the City Documents, will not conflict with or constitute a breach of or default under any law, administrative regulation, judgment, decree, loan agreement, indenture, trust agreement, bond, note, resolution, agreement or other instrument to which the City is a party or is otherwise subject to, which
4893-2407-5563.2
7 conflict, breach or default has or may have a material adverse effect on the ability of the City to carry out its obligations under the City Documents, nor will any such execution, delivery, adoption or compliance result in the creation or imposition of any material lien, charge or other security interest or encumbrance of any nature whatsoever upon any of the properties or assets of City under the terms of any such law, administrative regulation, judgment, decree, loan agreement, indenture, trust agreement, bond, note, resolution, agreement or other instrument, except as provided by the City Documents. (e) The City will advise the Underwriter promptly of any proposal to amend or supplement the Official Statement and will not effect or consent to any such amendment or supplement without the consent of the Underwriter, which consent will not be unreasonably withheld. The City will advise the Underwriter promptly of the institution of any proceedings known to it by any governmental authority prohibiting or otherwise affecting the use of the Official Statement in connection with the offering, sale or distribution of the Bonds. (f) The City is not in breach of or default under any applicable law or administrative regulation of the State or the United States of America or any applicable judgment or decree or any loan agreement, indenture, bond, note, resolution, agreement or other instrument to which the City is a party or is otherwise subject, and no event has occurred and is continuing which, with the passage of time or the giving of notice, or both, would constitute a default or an event of default under any such instrument, in each case which breach or default has or may have a material adverse effect on the ability of the City to perform its obligations under the City Documents. (g) The financial statements relating to the receipts, expenditures and cash balances of the City as of June 30, 2021 as set forth in the Official Statement fairly represent the receipts, expenditures and cash balances of the General Fund. Except as disclosed in the Preliminary Official Statement, the Official Statement or otherwise disclosed in writing to the Underwriter, there has not been any materially adverse change in the financial condition of the General Fund or in its operations since June 30, 2021 and, except as disclosed in the Preliminary Official Statement, the Official Statement or otherwise disclosed in writing to the Underwriter, there has been no occurrence, circumstance or combination thereof which is reasonably expected to result in any such materially adverse change.
(h) As of the time of acceptance hereof and as of the date of Closing, no action, suit, proceeding, inquiry or investigation, at law or in equity, before or by any court, government agency, public board or body, is pending or, to the knowledge of the officers of the City, threatened (i) in any way questioning the corporate existence of the City or the titles of the officers of the City to their respective offices; (ii) affecting, contesting or seeking to prohibit, restrain or enjoin the execution or delivery of any of the Bonds, or in any way contesting or affecting the validity of the Bonds or the City Documents or the consummation of the transactions contemplated thereby, or contesting the exclusion of the interest on the Bonds from gross income for federal income tax purposes or contesting the power of the City to enter into the City Documents; (iii) which may result in any material adverse change to the financial condition of the City or to its ability to pay the Base Rental Payments when due; or (iv) contesting the completeness or accuracy of the Preliminary Official Statement or the Official Statement or any supplement or amendment thereto or asserting that the Preliminary Official Statement or the Official Statement contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, and there is no basis for any action, suit, proceeding, inquiry or investigation of the nature described in clause (i) through (iv) of this sentence.
4893-2407-5563.2
8 (i) To the extent required by law, the City will undertake, pursuant to the Continuing Disclosure Certificate, to provide annual reports and notices of certain events. A description of this undertaking is set forth in the Preliminary Official Statement and will also be set forth in the final Official Statement. Except as otherwise disclosed in the Preliminary Official Statement, the City has not failed to comply in all material respects with any previous undertakings with regard to the Rule 15c2-12 to provide annual reports or notices of enumerated events in the past five years.
(j) Any certificate signed by any officer of the City authorized to execute such certificate in connection with the issuance, sale and delivery of the Bonds and delivered to the Underwriter shall be deemed a representation and warranty of the City to the Underwriter and the Authority as to the statements made therein but not of the person signing such certificate. (k) As of the date hereof, the City does not have any material obligations secured by payments from the General Fund of the City, except as disclosed in the Official Statement. (l) The exceptions set forth in the title insurance policy for the Leased Property insuring, subject only to Permitted Encumbrances, the fee interest of the City in the Leased Property, the Authority’s leasehold estate in the Leased Property under the Site Lease, and the City’s leasehold estate in the Leased Property under the Lease Agreement, do not materially impair the use of the Leased Property, the existing facilities and the sites thereof for the purposes for which they are or may reasonably be expected to be held.
Section 8. Conditions to the Obligations of the Underwriter. The Underwriter has entered into this Purchase Agreement in reliance upon the representations and warranties of the Authority and the City contained herein. The obligations of the Underwriter to accept delivery of and pay for the Bonds on the date of the Closing shall be subject, at the option of the Underwriter, to the accuracy in all respects of the statements of the officers and other officials of the Authority and of the City, as well as authorized representatives of Bond Counsel, Disclosure Counsel and the Trustee made in any Bonds or other documents furnished pursuant to the provisions hereof; to the performance by the Authority and the City of their obligations to be performed hereunder at or prior to the date of the Closing; and to the following additional conditions:
(a) The representations, warranties and covenants of the City and the Authority contained herein shall be true, complete and correct at the date hereof and at the time of the Closing, as if made on the date of the Closing;
(b) At the time of Closing, the Legal Documents shall be in full force and effect as valid and binding agreements between or among the various parties thereto, and the Legal Documents and the Official Statement shall not have been amended, modified or supplemented except as may have been agreed to in writing by the Underwriter, and all such reasonable actions as, in the opinion of Bond Counsel, shall reasonably deem necessary in connection with the transactions contemplated hereby; (c) At the time of the Closing, no default shall have occurred or be existing under the Authority Documents, the City Documents, or any other agreement or document pursuant to which any of the City’s financial obligations were executed and delivered, and the City shall not be in default in the payment of principal or interest with respect to any of its financial obligations, which default would adversely impact the ability of the City to make the Base Rental Payments;
4893-2407-5563.2
9 (d) In recognition of the desire of the Authority, the City and the Underwriter to effect a successful public offering of the Bonds, and in view of the potential adverse impact of any of the following events on such a public offering, this Purchase Agreement shall be subject to termination in the absolute discretion of the Underwriter by notification, in writing, to the Authority and the City prior to delivery of and payment for the Bonds, if at any time prior to such time, regardless of whether any of the following statements of fact were in existence or known of on the date of this Purchase Agreement:
(i) any event shall occur which makes untrue any statement or results in an omission to state a material fact necessary to make the statements in the Official Statement, in the light of the circumstances under which they were made, not misleading, which event, in the reasonable opinion of the Underwriter would materially or adversely affect the ability of the Underwriter to market the Bonds; or (ii) the marketability of the Bonds or the market price thereof, in the reasonable opinion of the Underwriter, has been materially adversely affected by an amendment to the Constitution of the United States of America or by any legislation in or by the Congress of the United States of America or by the State, or the amendment of legislation pending as of the date of this Purchase Agreement in the Congress of the United States of America, or the recommendation to Congress or endorsement for passage (by press release, other form of notice or otherwise) of legislation by the President of the United States of America, the Treasury Department of the United States of America, the Internal Revenue Service or the Chairman or ranking minority member of the Committee on Finance of the United States Senate or the Committee on Ways and Means of the United States House of Representatives, or the proposal for consideration of legislation by either such Committee or by any member thereof, or the presentment of legislation for consideration as an option by either such Committee, or by the staff of the Joint Committee on Taxation of the Congress of the United States of America, or the favorable reporting for passage of legislation to either House of the Congress of the United States of America by a Committee of such House to which such legislation has been referred for consideration, or any decision of any federal or state court or any ruling or regulation (final, temporary or proposed) or official statement on behalf of the United States Treasury Department, the Internal Revenue Service or other federal or State authority affecting the federal or State tax status of the Authority or the City, or the interest on or with respect to bonds or notes (including the Bonds); or (iii) any legislation, ordinance, rule or regulation shall be introduced in, or be enacted by any governmental body, department or agency of the State, or a decision by any court of competent jurisdiction within the State shall be rendered which materially adversely affects the market price of the Bonds; or (iv) an order, decree or injunction issued by any court of competent jurisdiction, or order, ruling, regulation (final, temporary or proposed), official statement or other form of notice or communication issued or made by or on behalf of the Securities and Exchange Commission, or any other governmental agency having jurisdiction of the subject matter, to the effect that: (i) obligations of the general character of the Bonds, or the Bonds, including any or all underlying arrangements, are not exempt from registration under the Securities Act of 1933, as amended, or that the Indenture is not exempt from qualification under the Trust Indenture Act of 1939, as
4893-2407-5563.2
10 amended; or (ii) the issuance, offering or sale of obligations of the general character of the Bonds, or the issuance, offering or sale of the Bonds, including any or all underlying obligations, as contemplated hereby or by the Official Statement, is or would be in violation of the federal securities laws as amended and then in effect; or (v) legislation shall be enacted by the Congress of the United States of America, or a decision by a court of the United States of America shall be rendered, to the effect that obligations of the general character of the Bonds, or the Bonds are not exempt from registration under or other requirements of the Securities Act of 1933, as amended and as then in effect, or the Securities Exchange Act of 1934, as amended and as then in effect, or that the Indenture is not exempt from qualification under or other requirements of the Trust Indenture Act of 1939, as amended and as then in effect; or (vi) additional material restrictions not in force as of the date hereof shall have been imposed upon trading in securities generally by any domestic governmental authority or by any domestic national securities exchange, which are material to the marketability of the Bonds; or
(vii) a general banking moratorium shall have been declared by federal, State or New York authorities, or the general suspension of trading on any national securities exchange; or
(viii) there shall have occurred any outbreak or escalation of hostilities, declaration by the United States of America of a national emergency or war or other calamity or crisis the effect of which on financial markets is materially adverse such as to make it, in the sole judgment of the Underwriter, impractical to proceed with the purchase or delivery of the Bonds as contemplated by the final Official Statement (exclusive of any amendment or supplement thereto); or
(ix) any rating of the Bonds or the rating of any obligations of the City secured by the City’s general fund shall have been downgraded or withdrawn by a national rating service, which, in the reasonable opinion of the Underwriter, materially adversely affects the market price of the Bonds; or
(x) the commencement of any action, suit or proceeding described in Section 6(h) or Section 7(h);
(e) at or prior to the Closing, the Underwriter shall receive the following documents, in each case to the reasonable satisfaction in form and substance of the Underwriter:
(i) all resolutions relating to the Bonds adopted by the Authority and certified by an authorized official of the Authority authorizing the execution and delivery of the Bonds, the Authority Documents and the Official Statement; (ii) all resolutions relating to the Bonds adopted by the City and certified by an authorized official of the City authorizing the execution and delivery of the City Documents and the delivery of the Bonds and the Official Statement;
4893-2407-5563.2
11 (iii) the Legal Documents duly executed and delivered by the respective parties thereto, with only such amendments, modifications or supplements as may have been agreed to in writing by the Underwriter;
(iv) the approving opinion of Bond Counsel, dated the date of Closing and addressed to the Authority and the City, in substantially the form attached as Appendix D to the Official Statement, together with a reliance letter thereon addressed to the Underwriter;
(v) a supplemental opinion of Bond Counsel dated the date of Closing and addressed to the Underwriter, to the effect that:
(A) the statements on the cover of the Official Statement and in the Official Statement under the captions “INTRODUCTION,” “THE SERIES 2022A BONDS,” “SECURITY AND SOURCES OF PAYMENT FOR THE
SERIES 2022A BONDS,” and “TAX MATTERS,” and in APPENDIX B – “SUMMARY OF THE PRINCIPAL LEGAL DOCUMENTS” and
APPENDIX D – “PROPOSED FORM OF BOND COUNSEL OPINION,” and excluding any material that may be treated as included under such captions and appendices by any cross-reference, insofar as such statements expressly summarize provisions of the Bonds, the Site Lease, the Lease Agreement, the Assignment Agreement, the Indenture, and Bond Counsel’s final opinion concerning certain federal tax matters relating to the Bonds, are accurate in all material respects as of the date of Closing.
(B) the Purchase Agreement has been duly authorized, executed and delivered by the Authority and the City and is the valid, legal and binding agreement of the Authority and the City enforceable in accordance with its terms, except that the rights and obligations under the Purchase Agreement are subject to bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and other similar laws affecting creditors’ rights, to the application of equitable principles if equitable remedies are sought, to the exercise of judicial discretion in appropriate cases and to limitations on legal remedies against public agencies in the State, and provided that no opinion is expressed with respect to any indemnification or contribution provisions contained therein.
(C) the Bonds are not subject to the registration requirements of the Securities Act of 1933, as amended, and the Indenture is exempt from qualification under the Trust Indenture Act of 1939, as amended. (vi) the Official Statement, executed on behalf of the Authority and the City;
(vii) evidence that the Bonds have received an underlying rating of “___” by S&P Global Ratings;
(viii) a certificate, dated the date of Closing, signed by a duly authorized officer of the Authority satisfactory in form and substance to the Underwriter to the
4893-2407-5563.2
12 effect that: (i) the representations, warranties and covenants of the Authority contained in this Purchase Agreement are true and correct in all material respects on and as of the date of Closing with the same effect as if made on the date of the Closing by the Authority, and the Authority has complied with all of the terms and conditions of this Purchase Agreement required to be complied with by the Authority at or prior to the date of Closing; (ii) to the best of such officer’s knowledge, no event affecting the Authority has occurred since the date of the Official Statement which should be disclosed in the Official Statement for the purposes for which it is to be used or which is necessary to disclose therein in order to make the statements and information therein not misleading in any material respect; (iii) the information and statements contained in the Official Statement (other than information relating to DTC and its book-entry system) did not as of its date and do not as of the Closing contain an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading in any material respect; and (iv) the Authority is not in breach of or default under any applicable law or administrative regulation of the State or the United States of America or any applicable judgment or decree or any loan agreement, indenture, bond, note, resolution, agreement or other instrument to which the Authority is a party or is otherwise subject, which would have a material adverse impact on the Authority’s ability to perform its obligations under the Authority Documents, and no event has occurred and is continuing which, with the passage of time or the giving of notice, or both, would constitute such a default or an event of default under any such instrument; (ix) a certificate, dated the date of Closing, signed by a duly authorized officer of the City satisfactory in form and substance to the Underwriter to the effect that: (i) the representations, warranties and covenants of the City contained in this Purchase Agreement are true and correct in all material respects on and as of the date of Closing with the same effect as if made on the date of the Closing by the City, and the City has complied with all of the terms and conditions of the Purchase Agreement required to be complied with by the City at or prior to the date of Closing; (ii) to the best of such officer’s knowledge, no event affecting the City has occurred since the date of the Official Statement which should be disclosed in the Official Statement for the purposes for which it is to be used or which is necessary to disclose therein in order to make the statements and information therein not misleading in any material respect; (iii) the information and statements contained in the Official Statement (other than information relating to DTC and its book-entry system) did not as of its date and do not as of the Closing contain an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading in any material respect; (iv) the City is not in breach of or default under any applicable law or administrative regulation of the State or the United States of America or any applicable judgment or decree or any loan agreement, indenture, bond, note, resolution, agreement (including but not limited to the Lease Agreement) or other instrument to which the City is a party or is otherwise subject, which would have a material adverse impact on the City’s ability to perform its obligations under the City Documents, and no event has occurred and is continuing which, with the passage of time or the giving of notice, or both, would constitute such a default or an event of default under any such instrument; and (v) no further consent is required for inclusion of its audited financial statements in the Official Statement;
4893-2407-5563.2
13 (x) an opinion dated the date of Closing and addressed to the Underwriter, the Trustee and Bond Counsel, of the Office of the City Attorney of the City, as Counsel to the Authority, to the effect that:
(A) the Authority is a joint exercise of powers authority organized and existing under the laws of the State of California; (B) the resolution of the Authority approving and authorizing the execution and delivery of the Authority Documents, the Bonds and the Official Statement and other actions of the Authority was duly adopted at a meeting of the governing body of the Authority which was called and held pursuant to law and with all public notice required by law and at which a quorum was present and acting throughout, and the resolution is now in full force and effect and has not been amended or superseded in any way;
(C) there is no action, suit, proceeding, inquiry or investigation at law or in equity before or by any court or public body pending with respect to which the Authority has been served or, to the best of such counsel’s knowledge, threatened against or affecting the Authority, except as may be disclosed in the Official Statement, which would materially adversely impact the Authority’s ability to complete the transactions contemplated by the Authority Documents, the Official Statement or any other document or certificate related to such transactions, restrain or enjoin the collection of Base Rental Payments with respect to the Lease Agreement, or in any way contesting or affecting the validity of the Bonds, the Official Statement, the Authority Documents or the transactions described in and contemplated thereby wherein an unfavorable decision, ruling or finding would materially adversely affect the validity and enforceability of the Bonds or the Authority Documents or in which a final adverse decision could materially adversely affect the operations of the Authority;
(D) the execution and delivery of the Authority Documents and the issuance of the Bonds and compliance with the provisions thereof, do not and will not in any material respect conflict with or constitute on the part of the Authority a breach of or default under any agreement or other instrument to which the Authority is a party or by which it is bound or any existing law, regulation, court order or consent decree to which the Authority is subject, which breach or default has or may have a material adverse effect on the ability of the Authority to perform its obligations under the Authority Documents; and (E) no authorization, approval, consent, or other order of the State of California or any other governmental body within the State of California is required for the valid authorization, execution and delivery of the Authority Documents or the Official Statement by the Authority or the consummation by the Authority of the transactions on its part contemplated therein, except such as have been obtained and except such as may be required under state securities or blue sky laws in connection with the purchase and distribution of the Bonds by the Underwriter.
4893-2407-5563.2
14 (xi) an opinion dated the date of Closing and addressed to the Underwriter, the Trustee and the Bond Counsel, of the Office of the City Attorney of the City, to the effect that:
(A) the City is a municipal corporation and a general law city duly organized and validly existing under the Constitution and laws of the State of California;
(B) the resolution of the City approving and authorizing the execution and delivery of the City Documents and approving and authorizing the issuance of the Bonds and the delivery of the Official Statement and other actions of the City was duly adopted at a meeting of the governing body of the City which was called and held pursuant to law and with all public notice required by law and at which a quorum was present and acting throughout, and the resolution is now in full force and effect and has not been amended or superseded in any way;
(C) there is no action, suit, proceeding, inquiry or investigation at law or in equity before or by any court or public body pending with respect to which the City has been served or, to the best of such City Attorney’s knowledge, threatened against or affecting the City, except as may be disclosed in the Official Statement, which would materially adversely impact the City’s ability to complete the transactions contemplated by the City Documents, the Official Statement or any other document or certificate related to such transactions, restrain or enjoin the collection of Base Rental Payments with respect to the Lease Agreement, or in any way contesting or affecting the validity of the Bonds, the Official Statement or the City Documents; (D) the execution and delivery of the City Documents and compliance with the provisions thereof, do not and will not in any material respect conflict with or constitute on the part of the City a breach of or default under any agreement or other instrument to which the City is a party or by which it is bound or any existing law, regulation, court order or consent decree to which the City is subject, which breach or default has or may have a material adverse effect on the ability of the City to perform its obligations under the City Documents; and
(E) no authorization, approval, consent, or other order of the State of California or any other governmental body within the State of California is required for the valid authorization, execution and delivery of the City Documents or the consummation by the City of the transactions on its part contemplated therein, except such as have been obtained and except such as may be required under state securities or blue sky laws in connection with the purchase and distribution of the Bonds by the Underwriter. (xii) an opinion of Quint & Thimmig LLP, Larkspur, California, Disclosure Counsel to the Authority and the City dated the date of Closing and addressed to the Authority, the City, the Underwriter in the form set forth in Exhibit C;
4893-2407-5563.2
15 (xiii) an opinion of counsel to the Trustee, addressed to the Underwriter and the Authority, dated the date of the Closing, to the effect that:
(A) the Trustee is a national banking association duly organized and validly existing under the laws of the United States of America, having full corporate power to undertake the trust created under the Indenture; (B) the Indenture and the Assignment Agreement (together, the “Trustee Documents”) have each been duly authorized, executed and delivered by the Trustee and, assuming due authorization, execution and delivery by the other parties thereto, the Trustee Documents constitute the valid, legal and binding obligations of the Trustee enforceable in accordance with their terms, except as enforcement thereof may be limited by bankruptcy, insolvency or other laws affecting the enforcement of creditors’ rights generally and by the application of equitable principles, if equitable remedies are sought; (C) the Trustee has duly authenticated the Bonds upon the order of Authority;
(D) the Trustee’s actions in executing and delivering the Trustee Documents are in full compliance with, and do not conflict with any applicable law or governmental regulation and, to the best of such counsel’s knowledge, after reasonable inquiry with respect thereto, do not conflict with or violate any contract to which the Trustee is a party or any administrative or judicial decision by which the Trustee is bound;
(E) no consent, approval, authorization or other action by any governmental or regulatory authority having jurisdiction over the banking or trust powers of the Trustee that has not been obtained is or will be required for the execution and delivery of the Bonds or the consummation by the Trustee of its obligations under the Trustee Documents; and
(F) there is no action, suit, proceeding, inquiry or investigation at law or in equity before or by any court or public body pending or, to the best of such counsel’s knowledge, threatened against or affecting the Trustee, which would materially adversely impact the Trustee’s ability to complete the transactions contemplated by the Trustee Documents.
(xiv) a certificate, dated the date of Closing, signed by a duly authorized officer of the Trustee satisfactory in form and substance to the Underwriter, to the effect that:
(A) the Trustee is duly organized and existing as a national banking association under the laws of the United States of America, having the full corporate power and authority to enter into and perform its duties under the Trustee Documents;
(B) the Trustee is duly authorized to enter into the Trustee Documents and has duly executed and delivered the Trustee Documents, and
4893-2407-5563.2
16 assuming due authorization and execution by the other parties thereto, the Trustee Documents are legal, valid and binding upon the Trustee and enforceable against such party in accordance with its terms; (C) the Trustee has duly authenticated the Bonds under the Indenture and delivered the Bonds to or upon the order of the Underwriter; (D) no consent, approval, authorization or other action by any governmental or regulatory authority having jurisdiction over the banking or trust powers of the Trustee that has not been obtained is required for the execution and delivery of the Bonds or the consummation by the Trustee of its obligations under the Trustee Documents; and
(E) there is no action, suit, proceeding, inquiry or investigation at law or in equity before or by any court or public body pending or, to the best of such counsel’s knowledge, threatened against or affecting the Trustee, which would materially adversely impact the Trustee’s ability to complete the transactions contemplated by the Trustee Documents.
(xv) the preliminary and final forms required to be delivered to the California Debt and Investment Advisory Commission pursuant to Section 53583 of the Government Code of the State of California and Section 8855(i) and (j) of the Government Code;
(xvi) a copy of the executed Blanket Issuer Letter of Representations by and between the Authority and DTC relating to the book-entry system; (xvii) the tax and nonarbitrage certificate by the Authority and the City in form and substance to the reasonable satisfaction of Bond Counsel, the Underwriter and Nixon Peabody LLP (“Underwriter’s Counsel”);
(xviii) a title policy in form and substance acceptable to Bond Counsel, the Underwriter and Underwriter’s Counsel;
(xix) an opinion of Underwriter’s Counsel in form and substance acceptable to the Underwriter;
(xx) a Rule 15c2-12 certificate, dated the date of the Preliminary Official Statement, of the City;
(xxi) a Rule 15c2-12 certificate, dated the date of the Preliminary Official Statement, of the Authority;
(xxii) a copy of the municipal bond insurance policy and debt service reserve surety of Assured Guaranty Municipal Corp., together with such certificates and opinions as required by Bond Counsel and the Underwriter, and insured rating letter; (xxiii) a certified copies of the Joint Exercise of Powers Agreement establishing the Authority, and all amendments thereto, and related certificates issued by the Secretary of State of the State; and
4893-2407-5563.2
17 (xxiv) such additional legal opinions, Bonds, proceedings, instruments or other documents as the Underwriter or Underwriter’s Counsel may reasonably request.
Section 9. Changes in Official Statement. Within 90 days after the Closing or within 25 days following the “end of the underwriting period” (as defined in Rule 15c2-12), whichever occurs first, if any event relating to or affecting the Bonds, the Trustee, the City or the Authority shall occur as a result of which it is necessary, in the reasonable opinion of the Underwriter, to amend or supplement the Official Statement in order to make the Official Statement not misleading in any material respect in the light of the circumstances existing at the time it is delivered to a purchaser, the Authority will forthwith prepare and furnish to the Underwriter an amendment or supplement that will amend or supplement the Official Statement so that it will not contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances existing at the time the Official Statement is delivered to purchaser, not misleading. The City and the Authority shall cooperate with the Underwriter in the filing by the Underwriter of such amendment or supplement to the Official Statement with the MSRB. The Underwriter acknowledges that the “end of the underwriting period” will be the date of Closing unless the Underwriter otherwise notifies the City in writing that it still owns some or all of the Bonds.
Section 10. Expenses. (a) Whether or not the Underwriter accepts delivery of and pays for the Bonds as set forth herein, it shall be under no obligation to pay, and the Authority shall pay, or cause the City to pay, out of the proceeds of the Bonds or any other legally available funds of the City or the Authority, all expenses incidental to the performance of the Authority’s obligations hereunder, including but not limited to the cost of printing and delivering the Legal Documents to the Underwriter; the costs of printing and shipping and electronic distribution of the Preliminary Official Statement and the Official Statement in reasonable quantities; the fees and disbursements of the Authority, the Trustee and its counsel, Bond Counsel, Authority Counsel, the City Attorney, accountants, engineers, appraisers, economic consultants and any other experts or consultants retained by the City or the Authority in connection with the issuance and sale of the Bonds; rating agency fees; advertising expenses; and any other expenses not specifically enumerated in paragraph (b) of this Section incurred in connection with the issuance and sale of the Bonds. The Authority shall pay, or cause the City to pay out of the proceeds of the Bonds, for any expenses incurred by the Underwriter on behalf of the City’s or the Authority’s employees and representatives which are incidental to implementing this Purchase Agreement, including, but not limited to, meals, transportation, and lodging of those employees and representatives.
(b) Whether or not the Bonds are delivered to the Underwriter as set for herein, the Authority shall be under no obligation to pay, and the Underwriter shall be responsible for and pay (which may be included as an expense component of the Underwriter’s discount), MSRB, CUSIP Bureau and CDIAC fees and expenses to qualify the Bonds for sale under any “blue sky” laws; and all other expenses incurred by the Underwriter in connection with its public offering and distribution of the Bonds not specifically enumerated in paragraph (a) of this Section, including the cost of preparing this Purchase Contract and other Underwriter documents, travel expenses and the fees and disbursements of Underwriter’s Counsel.
Section 11. Notices. Any notice or other communication to be given to the Underwriter under this Purchase Agreement may be given by delivering the same in writing to Cabrera Capital Markets, LLC 10 S. LaSalle St., #1050, Chicago, IL 60603, Attention: Brian Corley. Any notice or communication to be given the Authority under this Purchase Agreement may be given by delivering the same in writing 44933 Fern Avenue, Montebello, CA 9640, Attention: Executive Director. Any
4893-2407-5563.2
18 notice or communication to be given the City under this Purchase Agreement may be given by delivering the same in writing to the City of Montebello, 1600 W. Beverly Boulevard, Montebello, CA 90640, Attention: City Manager. All notices or communications hereunder by any party shall be given and served upon each other party.
Section 12. Parties in Interest. This Purchase Agreement is made solely for the benefit of the Authority, the City and the Underwriter (including the successors or assigns thereof) and no other person shall acquire or have any right hereunder or by virtue hereof. All representations, warranties and agreements of the Authority and the City in this Purchase Agreement shall remain operative and in full force and effect regardless of any investigation made by or on behalf of the Underwriter and shall survive the delivery of and payment for the Bonds.
Section 13. Counterparts. This Purchase Agreement may be executed by the parties hereto in separate counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute but one and the same instrument. [Remainder of page intentionally left blank.]
4893-2407-5563.2
19 Section 14. Governing Law. This Purchase Agreement shall be governed by and construed in accordance with the laws of the State.
CABRERA CAPITAL MARKETS, LLC
By:
Authorized Signatory
Accepted:
MONTEBELLO PUBLIC FINANCING AUTHORITY
By:
Authorized Signatory
Time of Execution: ____:____
Accepted:
CITY OF MONTEBELLO
By:
Authorized Signatory
Time of Execution: ____:____
4893-2407-5563.2
A-1
EXHIBIT A
MATURITY SCHEDULE
Maturity Date
(November 1)
Principal
Amount
Interest
Rate Yield Price
10% Test
Used
Hold-the-
Offering
Price Rule
Used
* Yield to optional redemption date of ________ at par.
4893-2407-5563.2
B-1
EXHIBIT B
$________
MONTEBELLO PUBLIC FINANCING AUTHORITY
LEASE REVENUE BONDS, SERIES 2022A
ISSUE PRICE CERTIFICATE
The undersigned, on behalf of Cabrera Capital Markets, LLC (the “Underwriter”), hereby certifies as set forth below with respect to the sale and issuance of the above-captioned obligations (the “Bonds”).
1.Sale of the Bonds. As of the date of this Certificate, for each Maturity of the Bonds, the first price at which a Substantial Amount of such Maturity of the Bonds was sold to the Public is the respective price listed in Schedule A.
2.Reserve Fund. With respect to the debt service reserve fund for the Bonds, the funding of the debt service reserve fund at the level it was funded was reasonably required to market the Bonds at the interest rates at which they were marketed, and funding a reserve fund for a lesser amount would have resulted in a sale of the Bonds at materially higher interest rates or for a materially lower purchase price.
3.Defined Terms.
(a)Issuer means Montebello Public Financing Authority.
(b)Maturity means Bonds with the same credit and payment terms. Bonds with different maturity dates, or Bonds with the same maturity date but different stated interest rates, are treated as separate maturities.
(c)Public means any person (including an individual, trust, estate, partnership, association, company, or corporation) other than a Regulatory Underwriter or a related party to a Regulatory Underwriter. The term “related party” for purposes of this Certificate generally means any two or more persons who have greater than 50 percent common ownership, directly or indirectly. (f)Regulatory Underwriter means (i) any person that agrees pursuant to a written contract with the Issuer (or with the lead underwriter to form an underwriting syndicate) to participate in the initial sale of the Bonds to the Public, and (ii) any person that agrees pursuant to a written contract directly or indirectly with a person described in clause (i) of this paragraph to participate in the initial sale of the Bonds to the Public (including a member of a selling group or a party to a retail distribution agreement participating in the initial sale of the Bonds to the Public). (g)Sale Date means the first day on which there is a binding contract in writing for the sale of a Maturity of the Bonds. The Sale Date of the Bonds is ___________, 2022. (h)Substantial Amount means ten percent.
The undersigned understands that the foregoing information will be relied upon by the Issuer with respect to certain of the representations set forth in the Tax and Nonarbitrage Certificate and with respect to compliance with the federal income tax rules affecting the Bonds, and by Stradling Yocca Carlson & Rauth, a Professional Corporation in connection with rendering its opinion that the interest on the Bonds
4893-2407-5563.2
B-2
is excluded from gross income for federal income tax purposes, the preparation of Internal Revenue Service Form 8038-G, and other federal income tax advice it may give to the Issuer from time to time relating to the Bonds.
CABRERA CAPITAL MARKETS, LLC, as Underwriter
By: ____________________________________
Name: _________________________________
Dated: [ISSUE DATE]
4893-2407-5563.2
C-1
EXHIBIT C
FORM OF DISCLOSURE COUNSEL OPINION
_________, 2022
Montebello Financing Authority
Montebello, CA
City of Montebello
Montebello, CA
Cabrera Capital Markets, LLC
Chicago, IL
Re: $________ Montebello Public Financing Authority Lease Revenue Bonds, Series 2022A
Ladies and Gentlemen:
We have acted as disclosure counsel to the Montebello Public Financing Authority (the “Authority”) and the City of Montebello (the “City”) in connection with the issuance by the Authority of $_________ aggregate principal amount of the bonds of the Authority designated the “Montebello Public Financing Authority Lease Revenue Bonds, Series 2022A” (the “Bonds”), pursuant to the provisions of Article 4 (commencing with section 6584) of Chapter 5 of Division 7 of Title 1 of the California Government Code (the “Law”), an Indenture, dated as of September 1, 2014, as supplemented, including as supplemented by the Third Supplemental Indenture, dated as of October 1, 2022 (collectively, the “Indenture”), by and among the Authority, the City of Montebello and The Bank of New York Mellon Trust Company, N.A., as trustee, and a resolution of the governing body of the Authority adopted on ____________, 2022. The Bonds are secured by Revenues being (i) all payments to the Trustee (as assignee of the Authority) pursuant to a Lease Agreement, dated as of September 1, 2014, as amended, including as amended by the Third Amendment to Lease Agreement, dated as of October 1, 2022, by and between the Authority and the City (collectively, the “Lease”), the components of which are described in the Indenture, to be paid by the City; and (ii) all amounts held in certain funds and accounts created under the Indenture, together with earnings thereon.
This letter is being delivered by us in our capacity as disclosure counsel to the Authority and the City and not as counsel to any other addressee hereof. Capitalized terms used in this letter and not otherwise defined herein have the meanings given to them in the Indenture.
In connection with this letter, we have reviewed the Indenture, the Preliminary Official Statement, dated ___________, 2022 (the “Preliminary Official Statement”) and the Official Statement, dated __________, 2022 (the “Official Statement”), which describe the Bonds, the Indenture, the Lease, and such other records, opinions and documents, and we have made such investigations of law, as we have deemed appropriate as a basis for the conclusions hereinafter expressed. In arriving at the conclusions expressed below, we are not expressing any opinion or view on, and with your permission are assuming, the validity, accuracy and sufficiency of the records, documents, certificates and opinions referred to above (including the accuracy of all factual matters represented and legal conclusions contained therein, including (without limitation) representations and legal conclusions regarding the due authorization, issuance, delivery, validity and enforceability of the Bonds and the exclusion of interest with respect thereto from gross income
4893-2407-5563.2
C-2
for federal income tax purposes). We have assumed that all records, documents, certificates and opinions that we have reviewed, and the signatures thereto, are genuine.
Based on and subject to the foregoing, and in reliance thereon, we advise that the Bonds are exempt from registration pursuant to the Securities Act of 1933, as amended, and that the Indenture is exempt from qualification under the Trust Indenture Act of 1939, as amended.
We are not passing upon and do not assume any responsibility for the accuracy, completeness or fairness of the statements contained in the Preliminary Official Statement and the Official Statement and make no representation that we have independently verified the accuracy, completeness or fairness of any such statements. However, in our capacity as disclosure counsel to the Authority and the City, we have reviewed certain documents as described above and have participated in conferences during which the contents of the Preliminary Official Statement and the Official Statement and related matters were discussed. Based on our review of documents and our participation in the above-mentioned conferences, and with the assumptions described in the second preceding paragraph, we advise you that, during the course of our assistance in the preparation of the Preliminary Official Statement and the Official Statement, no facts have come to the attention of the attorneys in our firm rendering legal services in connection with such representation that caused us to believe that the Preliminary Official Statement and the Official Statement, as of their respective dates and as of the date of this letter contained or contains any untrue statement of a material fact or omitted or omits to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading (except that we express no opinion or belief with respect to: (i) the expressions of opinion, the assumptions, the projections, the financial statements or other financial, numerical, economic, demographic or statistical data contained in the Preliminary Official Statement and the Official Statement, (ii) any CUSP numbers or information relating thereto contained in the Preliminary Official Statement and the Official Statement, (iii) any information contained in the appendices to the Preliminary Official Statement and the Official Statement, (iv) any information with respect to the Depository Trust Company and its book entry system for the Bonds contained or incorporated in the Preliminary Official Statement and the Official Statement, (v) any information incorporated by reference into the Preliminary Official Statement and the Official Statement, (vi) information with respect to the rating on the Bonds and the rating agency referenced in the Preliminary Official Statement and the Official Statement, and (vii) compliance by the City with its obligations to provide notices of the events described in Part (b)(5)(i)(C) of Rule 15c2-12 of the United States Securities and Exchange Commission, as amended (the “Rule”) or to file annual reports described in Part (b)(5)(i)(A) of the Rule, which compliance we have not reviewed pursuant to your direction).
During the period from the dates of the Preliminary Official Statement and the Official Statement to the date of this letter, except for our review of the certificates and opinions regarding the Preliminary Official Statement and the Official Statement delivered on the date hereof, we have not undertaken any procedures or taken any actions which were intended or likely to elicit information concerning the accuracy, completeness or fairness of any of the statements contained in the Preliminary Official Statement and the Official Statement. We also advise you that the preceding paragraph is not an opinion but, rather, in the nature of negative observations based on certain limited activities performed by specific lawyers in our firm in our role as disclosure counsel to the Authority and the City. The scope of those activities performed by us for purposes of delivering this letter were inherently limited and do not purport to encompass all activities necessary for compliance with applicable securities laws. In addition, the performance of those activities by us required our reliance upon third-party representations, warranties, certifications and opinions, including and primarily, representations, warranties and certifications made by the Authority and the City, and are otherwise subject to the conditions set forth herein.
4893-2407-5563.2
C-3
This letter is furnished by us solely for your benefit and may not be relied upon by any other person or entity. We disclaim any obligation to supplement this letter to reflect any facts or circumstances that may hereafter come to our attention or any changes in the law that may hereafter occur, and our engagement with respect to this matter has terminated as of the date hereof.
Very truly yours,
This Preliminary Official Statement and the information contained herein are subject to completion or amendment. These securities may not be sold nor may offers to buy be accepted prior to the time the Official Statement is delivered in final form. Under no circumstances shall this Preliminary Official Statement constitute an offer to sell or a solicitation of an offer to buy nor shall there be any sale of these securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of such jurisdiction.
PRELIMINARY OFFICIAL STATEMENT DATED SEPTEMBER 15, 2022 NEW ISSUE—BOOK-ENTRY RATINGS: S&P: “AA” (AGM -Insured) S&P: “A” (Underlying) See “RATINGS” herein. In the opinion of Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California, Bond Counsel, under existing statutes, regulations, rulings and judicial decisions, and assuming certain representations and compliance with certain covenants and requirements described in this Official Statement, interest (and original issue discount) on the Series 2022A Bonds is excluded from gross income for federal income tax purposes and is not an item of tax preference for purposes of calculating the federal alternative minimum tax imposed on individuals; however, for tax years beginning after December 31, 2022, with respect to applicable corporations as defined in Section 59(k) of the Internal Revenue Code of 1986, as amended, interest (and original issue discount) with respect to the Series 2022A Bonds might be taken into account in determining adjusted financial statement income for the purposes of computing the alternative minimum tax imposed on such corporations. In the further opinion of Bond Counsel, interest (and original issue discount) on the Series 2022A Bonds is exempt from State of California personal income taxes. See “TAX MATTERS” herein.
$_________* MONTEBELLO PUBLIC FINANCING AUTHORITY Lease Revenue Bonds, Series 2022A Dated: Delivery Date Due: November 1, as shown on the inside cover The Montebello Public Financing Authority Lease Revenue Bonds, Series 2022A (the “Series 2022A Bonds”) are payable from base rental payments (the “Base Rental Payments”) to be made by the City of Montebello (the “City”) for the right to use certain City-owned property as described herein (the “Property”) pursuant to a Lease Agreement, dated as of September 1, 2014, as amended, as further amended by a Third Amendment to Lease Agreement, dated as of October 1, 2022 (collectively, the “Lease Agreement”), by and between Montebello Public Financing Authority (the “Authority”), as lessor, and the City, as lessee. See “THE SERIES 2022A BONDS” herein. The Series 2022A Bonds are being issued to provide funds to (i) finance the costs of the acquisition, construction and installation of certain golf course improvements, as described herein, (ii) purchase a municipal bond insurance policy to guarantee payment of the principal of and interest on the Series 2022A Bonds when due, (iii) purchase a debt service reserve municipal bond insurance policy for deposit in the Reserve Fund for the Series 2022A Bonds, and (iv) pay the costs incurred in connection with the issuance of the Series 2022A Bonds. See “SOURCES AND USES OF FUNDS” and “THE PROJECT” herein. The City has covenanted under the Lease Agreement to make all Base Rental Payments provided for therein, to include all such payments in its annual budgets, and to make all the necessary annual appropriations for such Base Rental Payments. The City’s obligation to make Base Rental Payments is subject to abatement during any period in which, by reason of material damage to, or destruction or condemnation of, the Property, or any defects in title to the Property, there is substantial interference with the City’s right to use and occupy any portion of the Property. See “RISK FACTORS—Abatement” herein. The Series 2022A Bonds are being issued in fully registered book-entry only form, initially registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York (“DTC”). Interest on the Series 2022A Bonds is payable semiannually on each May 1 and November 1, commencing May 1, 2023. Purchasers will not receive certificates representing their interest in the Series 2022A Bonds. Individual purchases of the Series 2022A Bonds may be made in principal amounts of $5,000 or integral multiples thereof. Principal of and interest on the Series 2022A Bonds will be paid by The Bank of New York Mellon Trust Company, N.A., as trustee (the “Trustee”) to DTC for subsequent disbursement to DTC Participants who are obligated to remit such payments to the Beneficial Owners of the Series 2022A Bonds. See “THE SERIES 2022A BONDS—Book-Entry Only System” herein. The Series 2022A Bonds will be issued pursuant to an Indenture, dated as of September 1, 2014, as supplemented, as further supplemented by a Third Supplemental Indenture, dated as of October 1, 2022, (collectively, the “Indenture”), by and among the City, the Authority and the Trustee. The Series 2022A Bonds and any additional bonds issued pursuant to the Indenture (“Additional Bonds”) are collectively referred to herein as the “Bonds.” See “SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2022A BONDS” herein. The Bonds are payable from Revenues pledged under the Indenture. Such Revenues primarily consist of Base Rental Payments to be made by the City to the Authority under the Lease Agreement. The Series 2022A Bonds are subject to optional, extraordinary and mandatory sinking fund redemption prior to maturity. See “THE SERIES 2022A BONDS—Redemption” herein. The scheduled payment of principal of and interest on the Series 2022A Bonds when due will be guaranteed under a municipal bond insurance policy to be issued concurrently with the delivery of the Series 2022A Bonds by ASSURED GUARANTY MUNICIPAL CORP. (the “Municipal Bond Insurer”).
MATURITIES, PRINCIPAL AMOUNTS, INTEREST RATES, YIELDS AND PRICES SEE THE INSIDE COVER The obligation of the City to make the Base Rental Payments does not constitute a debt of the City or the State of California or of any political subdivision thereof within the meaning of any constitutional or statutory debt limit or restriction and does not constitute an obligation for which the City or the State of California is obligated to levy or pledge any form of taxation or for which the City or the State of California has levied or pledged any form of taxation. The Authority has no power to tax. THIS COVER PAGE CONTAINS CERTAIN INFORMATION FOR QUICK REFERENCE ONLY. IT IS NOT A SUMMARY OF THIS ISSUE. INVESTORS MUST READ THE ENTIRE OFFICIAL STATEMENT TO OBTAIN INFORMATION ESSENTIAL TO THE MAKING OF AN INFORMED INVESTMENT DECISION. The Series 2022A Bonds will be offered when, as and if issued and received by the Underwriter, subject to the approval as to their validity by Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California, Bond Counsel. Quint & Thimmig LLP, Larkspur, California, is acting as Disclosure Counsel to the City. Certain legal matters will be passed upon for the City and the Authority by the City Attorney of the City, for the Underwriter by Nixon Peabody LLP, Los Angeles, California, for the Trustee by its counsel and for the Municipal Bond Insurer by its counsel. It is anticipated that the Series 2022A Bonds will be available in book-entry form through the facilities of DTC in New York, New York on or about October __, 2022.
Dated: September __, 2022 *Preliminary, subject to change.
$_________* MONTEBELLO PUBLIC FINANCING AUTHORITY Lease Revenue Bonds, Series 2022A
$________Serial Bonds CUSIP† Prefix: _____ Maturity Principal Interest CUSIP† (November 1) Amount* Rate Yield Price Suffix $________ ____% Term Bonds Maturing November 1, ____; Price: _____ to Yield ___%—CUSIP†: _____ ___ $________ ____% Term Bonds Maturing November 1, ____; Price: _____ to Yield ___%—CUSIP†: _____ ___ $________ ____% Term Bonds Maturing November 1, ____; Price: _____ to Yield ___%—CUSIP†: _____ ___ *Preliminary, subject to change. † Copyright 2022, American Bankers Association. CUSIP® is a registered trademark of the American Bankers Association. CUSIP data herein is provided by CUSIP Global Services, operated by S&P Capital IQ. This data is not intended to create a database and does not serve in any way as a substitute for CUSIP Global Services. CUSIP numbers have been assigned by an independent company not affiliated with the Authority or the City and are included solely for the convenience of the registered owners of the Series 2022A Bonds. None of the Authority, the City or the Underwriter is responsible for the selection or uses of these CUSIP numbers and no representation is made as to their correctness on the Series 2022A Bonds or as included herein. The CUSIP number for a specific maturity is subject to being changed after the delivery of the Series 2022A Bonds as a result of various subsequent actions including, but not limited to, a refunding in whole or in part or as a result of the procurement of secondary market portfolio insurance or other similar enhancement by investors that is applicable to all or a portion of certain maturities of the Series 2022A Bonds.
For purposes of compliance with Rule 15c2-12 of the United States Securities and Exchange Commission, as amended (“Rule 15c2-12”), this Preliminary Official Statement constitutes an “official statement” of the City with respect to the Bonds that has been deemed “final” by the City as of its date except for the omission of no more than the information permitted by Rule 15c2-12. No dealer, broker, salesperson or other person has been authorized by the City or the Authority to give any information or to make any representations in connection with the offer or sale of the Series 2022A Bonds other than those contained herein and, if given or made, such other information or representations must not be relied upon as having been authorized by the City or the Authority. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of the Series 2022A Bonds by a person in any jurisdiction in which it is unlawful for such person to make such an offer, solicitation or sale. This Official Statement is not to be construed as a contract with the purchasers or Owners of the Series 2022A Bonds. Statements contained in this Official Statement which involve estimates, forecasts or matters of opinion, whether or not expressly so described herein, are intended solely as such and are not to be construed as representations of fact. The Underwriter has provided the following sentence for inclusion in this Official Statement. The Underwriter has reviewed the information in this Official Statement in accordance with, and as a part of, its responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriter does not guarantee the accuracy or completeness of such information. This Official Statement and the information contained herein are subject to completion or amendment without notice and neither delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the City or the Authority or any other parties described herein since the date hereof. The Series 2022A Bonds may not be sold nor may an offer to buy be accepted prior to the time this Official Statement is delivered in final form. This Official Statement is being submitted in connection with the sale of the Series 2022A Bonds referred to herein and may not be reproduced or used, in whole or in part, for any other purpose, unless authorized in writing by the City. All summaries of documents and laws are made subject to the provisions thereof and do not purport to be complete statements of any or all such provisions. Certain statements included or incorporated by reference in this Official Statement constitute “forward-looking statements” within the meaning of the United States Private Securities Litigation Reform Act of 1995, Section 21E of the United States Securities Exchange Act of 1934, as amended, and Section 27A of the United States Securities Act of 1933, as amended. Such statements are generally identifiable by the terminology used such as “plan,” “expect,” “estimate,” “project,” “budget,” “intend” or similar words. Such forward-looking statements include, but are not limited to, certain statements contained in the information under the caption “RISK FACTORS” and in “THE CITY OF MONTEBELLO” herein. THE ACHIEVEMENT OF CERTAIN RESULTS OR OTHER EXPECTATIONS CONTAINED IN SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH MAY CAUSE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS DESCRIBED TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. THE CITY DOES NOT PLAN TO ISSUE ANY UPDATES OR REVISIONS TO THE FORWARD-LOOKING STATEMENTS SET FORTH IN THIS OFFICIAL STATEMENT. IN EVALUATING SUCH STATEMENTS, POTENTIAL INVESTORS SHOULD SPECIFICALLY CONSIDER THE VARIOUS FACTORS WHICH COULD CAUSE ACTUAL EVENTS OR RESULTS TO DIFFER MATERIALLY FROM THOSE INDICATED BY SUCH FORWARD-LOOKING STATEMENTS. IN CONNECTION WITH THE OFFERING OF THE SERIES 2022A BONDS, THE UNDERWRITER MAY OVERALLOT OR EFFECT TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SERIES 2022A BONDS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. THE UNDERWRITER MAY OFFER AND SELL THE SERIES 2022A BONDS TO CERTAIN DEALERS AND DEALER BANKS AND BANKS ACTING AS AGENT AND OTHERS AT PRICES LOWER THAN THE PUBLIC OFFERING PRICES STATED ON THE INSIDE COVER PAGE HEREOF AND SAID PUBLIC OFFERING PRICES MAY BE CHANGED FROM TIME TO TIME BY THE UNDERWRITER. THE SERIES 2022A BONDS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, IN RELIANCE UPON AN EXEMPTION CONTAINED IN SUCH ACT AND HAVE NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES LAWS OF ANY STATE. Assured Guaranty Municipal Corp. (the “Municipal Bond Insurer”) makes no representation regarding the Insured Series 2022A Bonds or the advisability of investing in the Insured Series 2022A Bonds. In addition, the Municipal Bond Insurer has not independently verified, makes no representation regarding, and does not accept any responsibility for the accuracy or completeness of this Official Statement or any information or disclosure contained herein, or omitted herefrom, other than with respect to the accuracy of the information regarding the Municipal Bond Insurer, supplied by the Municipal Bond Insurer and presented under the heading “MUNICIPAL BOND INSURANCE” and “APPENDIX G—SPECIMEN MUNICIPAL BOND INSURANCE POLICY.” A wide variety of other information, including financial information, concerning the City is available from publications and website of City. Any such information that is inconsistent with the information set forth in this Official Statement should be disregarded. No such information is a part of or incorporated into this Official Statement, except as expressly noted.
THIS PAGE INTENTIONALLY LEFT BLANK
TABLE OF CONTENTS INTRODUCTION ........................................................................ 1 General ...................................................................................... 1 Security ..................................................................................... 2 Municipal Bond Insurance; Reserve Policy ............................... 3 The Authority ............................................................................ 3 The City .................................................................................... 3 Continuing Disclosure ............................................................... 4 Professionals .............................................................................. 4 Bondholders’ Risks .................................................................... 5 Other Information in this Official Statement ............................. 5 THE SERIES 2022A BONDS ........................................................ 5 General ...................................................................................... 5 Registration, Transfers and Exchanges ..................................... 6 Redemption ............................................................................... 6 Book-Entry Only System ........................................................... 9 SOURCES AND USES OF FUNDS ............................................. 9 DEBT SERVICE SCHEDULE .................................................... 10 THE PROJECT ............................................................................ 11 THE LEASED PROPERTY ........................................................ 11 SECURITY AND SOURCES OF PAYMENT FOR THE BONDS ........................................................................................ 12 Pledge of Revenues .................................................................. 12 Reserve Accounts .................................................................... 13 Abatement of Base Rental Payments ....................................... 13 Additional Obligations ............................................................. 14 Maintenance, Utilities, Taxes and Assessments ..................... 14 Insurance Coverages ................................................................ 14 Substitution and Release of Property ....................................... 15 Action on Default .................................................................... 15 MUNICIPAL BOND INSURANCE ........................................... 16 Municipal Bond Insurance Policy ............................................ 16 Municipal Bond Insurer ........................................................... 16 THE AUTHORITY ..................................................................... 18 THE CITY ................................................................................... 19 CITY FINANCIAL INFORMATION ........................................ 20 Financial Statements and Budgetary Process .......................... 20 General Fund Balance Sheet ................................................... 22 General Fund Revenues, Expenditures, and Changes in Fund Balances ................................................................................... 23 General Fund Budget to Actuals Comparison ......................... 26 City Financial Management .................................................... 26 State Audit .............................................................................. 28 Primary Sources of General Fund Revenues ........................... 30 Property Taxes ........................................................................ 32 Sales and Use Taxes ................................................................ 39 Other Sources of General Fund Revenues .............................. 41 No Material Reliance on State Revenues ................................. 41 OTHER FINANCIAL INFORMATION ................................... 41 Labor Relations ....................................................................... 41 Risk Management ................................................................... 41 Employee Retirement Plans .................................................... 42 Other Post-Employment Benefits ........................................... 46 Impact of Enterprise Operations on the City’s General Fund 47 Debt Obligations ..................................................................... 50 Overlapping Debt .................................................................... 50 STATE BUDGET INFORMATION ......................................... 53 2022-23 State Budget .............................................................. 54 CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES, REVENUES AND APPROPRIATIONS ..................... 56 Article XIIIA of the California Constitution ........................... 56 Article XIIIB of the California Constitution ............................ 58 Articles XIIIC and XIIID (Proposition 218) of the California Constitution ............................................................................ 58 Proposition 1A of 2004 ........................................................... 61 Proposition 22 ......................................................................... 62 Proposition 26 ......................................................................... 63 Proposition 19 ......................................................................... 64 RISK FACTORS ......................................................................... 64 Bonds are Unsecured General Fund Obligations of the City .. 64 No Limitation on Incurring Additional Obligations ................ 65 Limitation on Remedies; Bankruptcy ...................................... 65 Cash Management .................................................................. 66 COVID-19 Pandemic .............................................................. 66 Concentration of Revenue Sources ......................................... 66 Impact of Enterprise Operations on the City’s General Fund 67 Natural Disasters .................................................................... 67 Endangered Species ................................................................ 68 Hazardous Substances ............................................................ 68 Potential Impact of State Financial Condition on the City ...... 69 Pension Benefit Liability ......................................................... 69 Risks Related to Cyber Security .............................................. 70 Secondary Market Risk ........................................................... 70 Changes in Law ....................................................................... 70 Risks Relating to the Municipal Bond Insurance Policy .......... 70 TAX MATTERS ......................................................................... 71 CERTAIN LEGAL MATTERS .................................................. 73 ABSENCE OF LITIGATION ..................................................... 73 UNDERWRITING ..................................................................... 74 RATINGS .................................................................................... 74 MUNICIPAL ADVISOR ............................................................. 74 CONTINUING DISCLOSURE ................................................. 75 FINANCIAL STATEMENTS OF THE CITY .......................... 75 MISCELLANEOUS .................................................................... 76 APPENDIX A GENERAL INFORMATION REGARDING THE CITY OF MONTEBELLO AND LOS ANGELES COUNTY. ..................................................................................................................................................................... A-1 APPENDIX B SUMMARY OF THE PRINCIPAL LEGAL DOCUMENTS ....................................................................................... B-1 APPENDIX C ANNUAL COMPREHENSIVE FINANCIAL REPORT OF THE CITY FOR THE FISCAL YEAR ENDED JUNE 30, 2021 ................................................................................................................................................ C-1 APPENDIX D PROPOSED FORM OF BOND COUNSEL OPINION ............................................................................................... D-1 APPENDIX E FORM OF CONTINUING DISCLOSURE CERTIFICATE ....................................................................................... E-1 APPENDIX F BOOK-ENTRY ONLY SYSTEM ................................................................................................................................. F-1 APPENDIX G SPECIMEN MUNICIPAL BOND INSURANCE POLICY ......................................................................................... G-1
CITY OF MONTEBELLO MONTEBELLO PUBLIC FINANCING AUTHORITY 1600 West Beverly Boulevard Montebello, CA 90640 (323) 887-1200 CITY COUNCIL/AUTHORITY BOARD Kimberly Ann Cobos-Cawthorne, Mayor/ Chair of the Board Angie M. Jimenez, Mayor Pro Tem/Vice Chair of the Board Salvador Melendez, Councilmember/Director Scarlet Peralta, Councilmember/Director David N. Torres, Councilmember/Director CITY STAFF/AUTHORITY STAFF Rene Bobadilla, City Manager/Executive Director Rafael Gutierrez, City Treasurer/Treasurer Michael Solorza, City Finance Director/ Chief Financial Officer Christopher Jimenez, City Clerk/Secretary Arnold M. Alvarez-Glasman, City Attorney/Authority Counsel PROFESSIONAL SERVICES Municipal Advisor Urban Futures, Inc. Tustin, California Bond Counsel Stradling Yocca Carlson & Rauth, a Professional Corporation Newport Beach, California Disclosure Counsel Quint & Thimmig LLP Larkspur, California Trustee The Bank of New York Mellon Trust Company, N.A. Los Angeles, California
OFFICIAL STATEMENT $__________* MONTEBELLO PUBLIC FINANCING AUTHORITY LEASE REVENUE BONDS, SERIES 2022A INTRODUCTION This introduction does not purport to be complete, and reference is made to the body of this Official Statement, appendices and the documents referred to herein for more complete information with respect to matters concerning the captioned bonds. Potential investors are encouraged to read this entire Official Statement. Capitalized terms used and not defined in this Introduction shall have the meanings assigned to them elsewhere in this Official Statement and in APPENDIX B—SUMMARY OF THE PRINCIPAL LEGAL DOCUMENTS—DEFINITIONS. General This Official Statement (which includes the cover page, inside cover page and the appendices hereto) (the “Official Statement”), provides certain information concerning the sale and delivery of $______* aggregate principal amount of Montebello Public Financing Authority Lease Revenue Bonds, Series 2022A (the “Series 2022A Bonds”). The net proceeds of the sale of the Series 2022A Bonds will be used to (i) finance the costs of the acquisition, construction and installation of certain golf course improvements for the City of Montebello (the “City”), as described herein, (ii) purchase a municipal bond insurance policy to guarantee payment of the principal of and interest on the Series 2022A Bonds when due, as described under the caption “MUNICIPAL BOND INSURANCE,” (iii) purchase a debt service reserve municipal bond insurance policy for deposit in the Reserve Fund for the Series 2022A Bonds, and (iv) pay the costs incurred in connection with the issuance of the Series 2022A Bonds. See “THE PROJECT” and “SOURCES AND USES OF FUNDS.” Pursuant to a Site and Facility Lease, dated as of September 1, 2014, as amended by a First Amendment to Site and Facility Lease, dated as of October 1, 2022 (collectively, the “Site and Facility Lease”), by and between the City, as lessor, and the Montebello Public Financing Authority (the “Authority”), as lessee, the City has leased certain real property (the “Leased Property”) to the Authority. See “LEASED PROPERTY.” Pursuant to a Lease Agreement, dated as of September 1, 2014, as amended, as further amended by a Third Amendment to Lease Agreement, dated as of October 1, 2022 (collectively, the “Lease Agreement”), by and between the Authority, as lessor, and the City, as lessee, the Authority has subleased the Leased Property to the City. Under the Lease Agreement, the City will pay to the Authority certain base rental payments (the “Base Rental Payments”) in amounts equal to the scheduled debt service on the Bonds (hereinafter defined). * Preliminary, subject to change.
-2-
The Series 2022A Bonds will be issued pursuant to an Indenture, dated as of September 1, 2014, as supplemented, as further supplemented by a Third Supplemental Indenture, dated as of October 1, 2022 (collectively, the “Indenture”), by and among the Authority, the City and The Bank of New York Mellon Trust Company, N.A., as trustee (the “Trustee”), on a parity with the Authority’s outstanding Montebello Public Financing Authority Lease Revenue Refunding Bonds, Series 2014A, Montebello Public Financing Authority Lease Revenue Refunding Bonds, Series 2014B, and Montebello Public Financing Authority Lease Revenue Refunding Bonds, Series 2014C (Taxable) (collectively, the “Series 2014 Bonds”). Pursuant to the Indenture, the Authority may issue additional bonds (the “Additional Bonds”) payable from the Base Rental Payments on a parity with the Series 2014 Bonds and the Series 2022A Bonds (the Series 2014 Bonds, Series 2022A Bonds and any such Additional Bonds being collectively referred to as the “Bonds”). The Bonds are special obligations of the Authority secured by and payable from certain revenues specifically pledged to the Bonds under the Indenture (the “Revenues”). The Revenues consist of (i) all Base Rental Payments to be made by the City to the Authority under the Lease Agreement; (ii) any proceeds of Bonds originally deposited with the Trustee and all moneys on deposit in the funds and accounts (other than the Rebate Fund) established under the Indenture; (iii) investment income with respect to such moneys held by the Trustee and (iv) any insurance proceeds or condemnation awards received by or payable to the Trustee relating to the Base Rental Payments, including interest or profits. The Trustee and the Authority have entered into an Assignment Agreement, dated as of September 1, 2014, as amended by a First Amendment to Assignment Agreement, dated as of October 1, 2022 (collectively, the “Assignment Agreement”), pursuant to which the Authority has assigned to the Trustee for the benefit of the Bond Owners substantially all of the Authority’s right, title and interest in and to the Site and Facility Lease and the Lease Agreement, including its rights to receive the Base Rental Payments due under the Lease Agreement and to enforce any remedies in the event of a default under the Lease Agreement by the City. Security The obligation of the City to make Base Rental Payments under the Lease Agreement is an unsecured obligation of the City, payable from legally available funds and are not subject to a priority lien on any City revenues. Under the Lease Agreement, the City has covenanted to budget and appropriate sufficient funds to make all payments required to be made under the Lease Agreement, which are comprised of Base Rental Payments and Additional Rental Payments (which include taxes and assessments affecting the Leased Property, administrative costs of the Authority relating to the Leased Property, fees and expenses of the Trustee, amounts payable to the Municipal Bond Insurer pursuant to the Indenture that are not payable from Base Rental Payments, and other amounts payable under the Lease Agreement), due under the Lease Agreement as a separate line item in its annual budgets and to make the necessary annual appropriations therefor, subject to abatement as described herein. The City has the capacity to enter into other obligations payable from the City’s General Fund without the consent of or prior notice to the Owners of the Bonds and has expressly reserved the right to issue or incur other obligations for any of its corporate purposes. See “RISK FACTORS—Base Rental Payments Are Not Debt; Bonds are Limited Obligations” and “—Abatement.” See “SECURITY AND SOURCES OF PAYMENT FOR THE BONDS.” The City is currently in negotiations with the Topgolf Entertainment Group (“Topgolf”), a subsidiary of Callaway Golf Company, to develop a City-owned driving range entertainment venue to be built and operated by Topgolf (the “Topgolf Project”), to be funded from the proceeds of bonds to be issued by the Authority and secured, nominally, by the City’s General Fund under a lease agreement but payable
-3-
from sublease payments made by Topgolf. See “CITY FINANCIAL INFORMATION— Impact of Enterprise Operations on the City’s General Fund” and “RISK FACTORS—Impact of Enterprise Operations on the City’s General Fund.” Base Rental Payments are subject to complete or partial abatement in the event and to the extent that there is substantial interference with the City’s right to use and occupy the Leased Property or any portion thereof. See “RISK FACTORS—Abatement.” Abatement of Base Rental Payments under the Lease Agreement, to the extent that payment is not made from alternative sources as set forth below, would result in all Bond Owners receiving less than the full amount of principal of and interest on the Series 2022A Bonds. To the extent that proceeds of insurance are available, Base Rental Payments (or a portion thereof) may be made from such proceeds of insurance during periods of abatement. The Series 2022A Bonds are special obligations of the Authority, payable solely from Base Rental Payments and the other assets pledged therefor under the Indenture. Neither the faith and credit nor the taxing power of the Authority, the City or the State of California (the “State”), or any political subdivision thereof, is pledged to the payment of the Series 2022A Bonds. The Authority has no power to tax. The obligation of the City to make the Base Rental Payments does not constitute a debt of the City, the State or of any political subdivision thereof within the meaning of any constitutional or statutory debt limit or restriction and does not constitute an obligation for which the City or the State is obligated to levy or pledge any form of taxation or for which the City or the State has levied or pledged any form of taxation. Certain events could affect the ability of the City to make the Base Rental Payments when due. See “RISK FACTORS” for a discussion of certain factors that should be considered, in addition to other matters set forth herein, in evaluating an investment in the Series 2022A Bonds. Municipal Bond Insurance; Reserve Policy Payment of the principal of and interest on the Series 2022A Bonds will be insured by a municipal bond insurance policy (the “Policy”) to be issued by Assured Guaranty Municipal Corp. (the “Municipal Bond Insurer”) concurrently with the issuance of the Series 2022A Bonds. See the caption “BOND INSURANCE.” A specimen of the Policy is set forth in APPENDIX G—SPECIMEN MUNICIPAL BOND INSUARANCE POLICY. In addition, the Municipal Bond Insurer has made a commitment to issue a municipal bond insurance policy for the Reserve Fund established for the Series 2022A Bonds (the “Reserve Policy”) in an amount equal to the Reserve Requirement. See “SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2022A BONDS —Reserve Fund.” The Authority The Authority is a joint exercise of powers entity organized and existing under and by virtue of the Joint Exercise of Powers Act, constituting Articles 1 through 4 (commencing with Section 6500) of Chapter 5, Division 7, Title 1 of the California Government Code (the “Joint Powers Act”). See “THE AUTHORITY”. The City The City is situated in eastern Los Angeles County (the “County”), in the state of California (the “State”). The City encompasses 8.2 square miles and is located 9 miles east of downtown Los Angeles. The City
-4-
has access to three freeways: the San Gabriel River Freeway (Interstate Highway 605) to the east, the Santa Ana Freeway (Interstate 5) to the south and the Pomona Freeway (State Highway 60) to the north. The City is a balanced community with light industry, residential areas and commercial centers. The City is bordered to the north by the cities of Monterey Park and Rosemead, to the east by the City of Pico Rivera and to the west by the City of Commerce. Other surrounding cities include the cities of Bell Gardens, Whittier, South El Monte and Los Angeles. The City was incorporated as a general law city in 1920. The City operates under the Council-Manager form of government. The five City Council members are elected on alternate slates every two years to four-year terms. The Mayor and the Mayor Pro Tem are selected by the City Council to serve one-year terms. The City Clerk and City Treasurer are also elected to four-year terms. The City Manager and City Attorney are appointed by the City Council. The population of the City was estimated to be 61,622 as of January 1, 2022. City’s Transition to District-Based Elections. The City is in the process of transitioning from at-large elections to district-based elections for its council seats. On November 8, 2022, the voters of the City will elect five new councilmembers by district. The five new councilmembers will join the two existing at-large councilmembers to create a seven-member council. The City will temporarily retain the two at-large council seats until the expiration of their terms in 2024, at which point those seats will be eliminated and the City will have a five-member council elected entirely by district. For additional information about the City, see “THE CITY,” “CITY FINANCIAL INFORMATION,” APPENDIX A—GENERAL, ECONOMIC AND DEMOGRAPHIC INFORMATION RELATING TO THE CITY AND THE COUNTY and APPENDIX C—ANNUAL COMPREHENSIVE FINANCIAL REPORT OF THE CITY FOR THE YEAR ENDED JUNE 30, 2021. Continuing Disclosure The City has agreed to provide, or cause to be provided, to the Municipal Securities Rulemaking Board for purposes of Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission (“SEC Rule 15c2-12(b)(5)”) certain annual financial information and operating data and, in a timely manner, notice of certain listed events. These covenants have been made in order to assist the Underwriter in complying with SEC Rule 15c2-12(b)(5). See “CONTINUING DISCLOSURE” for a description of the City’s compliance over the past five years with its various continuing disclosure obligations. See APPENDIX E—FORM OF CONTINUING DISCLOSURE CERTIFICATES for the form of the City’s continuing disclosure obligations with respect to the Series 2022A Bonds. Professionals The Bank of New York Mellon Trust Company, N.A., Los Angeles, California, will act as Trustee with respect to the Series 2022A Bonds. The Series 2022A Bonds will be issued subject to the approval as to their legality by Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California, Bond Counsel. Certain legal matters will be passed upon for the City and the Authority by the City Attorney of the City and by Quint & Thimmig LLP, Larkspur, California, Disclosure Counsel. Certain legal matters will be passed upon for the Underwriter by Nixon Peabody LLP, Los Angeles, California, California. The City’s financial statements for the fiscal year ended June 30, 2021, have been audited by Vasquez & Company LLP, Glendale, California (the “Auditor”). See APPENDIX C—ANNUAL COMPREHENSIVE FINANCIAL REPORT OF THE CITY FOR THE FISCAL YEAR ENDED JUNE 30, 2021. The Auditor has not undertaken to update the audited financial statements of the City or its report
-5-
or to take any action intended or likely to elicit information concerning the accuracy, completeness or fairness of the statements made in this Official Statement. Bondholders’ Risks Certain events could affect the ability of the City to make the Base Rental Payments when due. See “RISK FACTORS” for a discussion of certain factors that should be considered, in addition to other matters set forth herein, in evaluating an investment in the Series 2022A Bonds. The presentation of information, including tables of receipt of revenues, is intended to show recent historical information and, except for a budget discussion for Fiscal Year 2022-23, is not intended to indicate future or continuing trends in the financial position or other affairs of the City. No representation is made that past experience, as it might be shown by such financial and other information, will necessarily continue or be repeated in the future. See “FINANCIAL INFOR MATION” for financial and operating information related to the City. Other Information in this Official Statement The summaries or references to the Indenture, the Lease Agreement, the Site and Facility Lease, the Assignment Agreement and other documents, agreements and statutes referred to herein, and the description of the Series 2022A Bonds included in this Official Statement, do not purport to be comprehensive or definitive, and such summaries, references and descriptions are qualified in their entireties by reference to each such document or statute. THE SERIES 2022A BONDS General The Series 2022A Bonds will be issued in fully registered form without coupons in denominations of $5,000 or any integral multiple thereof. The Series 2022A Bonds will be dated as of and bear interest (calculated on the basis of a 360-day year comprised of twelve 30-day months) from the dated date thereof at the rates set forth on the inside cover page hereof. Interest on the Series 2022A Bonds will be paid semiannually on May 1 and November 1 (each, an “Interest Payment Date”) of each year, commencing May 1, 2023. Interest on the Series 2022A Bonds will be payable from the Interest Payment Date next preceding the date of authentication thereof unless (i) a Series 2022A Bond is authenticated on or before an Interest Payment Date and after the close of business on the fifteenth day of the month next preceding such Interest Payment Date, whether or not such day is a Business Day (the “Record Date”), in which event it will bear interest from such Interest Payment Date, (ii) a Series 2022A Bond is authenticated on or before the first Record Date, in which event interest thereon will be payable from the dated date thereof, or (iii) interest on any Series 2022A Bond is in default as of the date of authentication thereof, in which event interest thereon will be payable from the date to which interest has been paid in full, payable on each Interest Payment Date. Interest will be paid in lawful money of the United States on each Interest Payment Date to the Persons in whose names the ownership of the Series 2022A Bonds is registered on the Registration Books at the close of business on the immediately preceding Record Date, except as provided below. Interest will be paid by check of the Trustee mailed by first class mail, postage prepaid, on each Interest Payment Date to the Owners at their respective addresses shown on the Registration Books as of the close of business on the
-6-
preceding Record Date or by wire transfer to Owners of more than $1,000,000 in principal amount of Series 2022A Bonds who have provided account information and wiring instructions satisfactory to the Trustee. The principal of the Series 2022A Bonds will be payable in lawful money of the United States of America upon presentation and surrender thereof upon maturity or earlier redemption at the Office of the Trustee. The Series 2022A Bonds will be subject to redemption as set forth herein. Registration, Transfers and Exchanges The Series 2022A Bonds will be issued as fully registered bonds, registered in the name of Cede & Co. as nominee of DTC, and will be available to actual purchasers of the Series 2022A Bonds (the “Beneficial Owners”) in the denominations set forth above, under the book-entry system maintained by DTC, only through brokers and dealers who are or act through DTC Participants (as defined in APPENDIX F—BOOK-ENTRY ONLY SYSTEM) as described herein. Beneficial Owners will not be entitled to receive physical delivery of the Series 2022A Bonds. See “THE SERIES 2022A BONDS—Book-Entry Only System.” Redemption Extraordinary Redemption from Condemnation Award or Insurance Proceeds. The Series 2022A Bonds shall be subject to redemption, in whole or in part, on any date, in denominations of $5,000 or any integral multiple thereof, from and to the extent of: (i) Net Insurance Proceeds received with respect to all or a portion of the Leased Property, deposited by the Trustee in the Redemption Fund pursuant to the Indenture, and (ii) eminent domain proceeds received pursuant to the Lease Agreement, at a Redemption Price equal to the principal amount of the Series 2022A Bonds to be redeemed, plus accrued interest thereon to the date of redemption, without premium. Optional Redemption. The Series 2022A Bonds maturing on or after November 1, ___, are subject to optional redemption, in whole or in part, on any date on or after November 1, ___, in denominations of $5,000 or any integral multiple thereof, from and to the extent of prepaid Base Rental Payments paid pursuant to the Lease Agreement, at a Redemption Price equal to the principal amount of the Series 2022A Bonds to be redeemed, plus accrued interest thereon to the date of redemption, without premium. Mandatory Sinking Fund Redemption. The Series 2022A Bonds with a stated maturity on November 1, ___, are subject to mandatory sinking fund redemption in part (by lot) on each November 1 on and after November 1, ___, in integral multiples of $5,000 at a Redemption Price equal to the principal amount thereof plus accrued interest to the date fixed for redemption, without premium, in accordance with the following schedule: Redemption Date Principal (November 1) Amount †Maturity.
-7-
The Series 2022A Bonds with a stated maturity on November 1, ___, are subject to mandatory sinking fund redemption in part (by lot) on each November 1 on and after November 1, ___, in integral multiples of $5,000 at a Redemption Price equal to the principal amount thereof plus accrued interest to the date fixed for redemption, without premium, in accordance with the following schedule: Redemption Date Principal (November 1) Amount †Maturity. The Series 2022A Bonds with a stated maturity on November 1, ___, are subject to mandatory sinking fund redemption in part (by lot) on each November 1 on and after November 1, ___, in integral multiples of $5,000 at a Redemption Price equal to the principal amount thereof plus accrued interest to the date fixed for redemption, without premium, in accordance with the following schedule: Redemption Date Principal (November 1) Amount †Maturity. In the event of a partial optional redemption or extraordinary mandatory redemption of any of the Term Bonds, each of the remaining mandatory sinking fund payments for such Term Bonds will be reduced, as nearly as practicable, on a pro rata basis in the amount of $5,000 or any integral multiple thereof as directed by an Authorized City Representative. Selection of Bonds for Redemption. Whenever provision is made in the Indenture for the redemption of less than all of the Bonds, the Trustee shall select the Bonds to be redeemed from all Bonds not previously called for redemption (a) with respect to any optional redemption of Bonds of a Series, among maturities of Bonds of such Series as directed in a Written Request of the Authority provided to the Trustee at least 30 but no more than 60 days prior to the date of such redemption, (b) with respect to any redemption from and to the extent of any insurance proceeds or condemnation award received with respect to all or a portion of the Leased Property and the corresponding provision of any Supplemental Indenture pursuant to which Additional Bonds are issued, among maturities of all Series of Bonds on a pro rata basis as nearly as practicable, as directed in a Written Request of the Authority provided to the Trustee at least 30 but no more than 60 days prior to the date of such redemption, and (c) with respect to any other redemption of Additional Bonds, among maturities as provided in the Supplemental Indenture pursuant to which such Additional Bonds are issued, and by lot among Bonds of the same Series with the same maturity in any manner which the Trustee in its sole discretion deems appropriate and fair. For purposes of such selection, all Bonds will be deemed to be comprised of separate $5,000 denominations and such separate denominations will be treated as separate Bonds which may be separately redeemed.
-8-
Notice of Redemption. Notice of redemption shall be given by the Trustee, not less than 20 nor more than 60 days prior to the redemption date (i) as to Series 2022A Bonds not registered in the name of a Securities Depository or its nominee, to the respective Owners of the Series 2022A Bonds designated for redemption at their addresses appearing on the Registration Books, (ii) as to Series 2022A Bonds registered in the name of a Securities Depository or its nominee, to such Securities Depository for such Series 2022A Bonds, and (iii) the Information Services. Notice of redemption to the Owners pursuant to (i) above shall be given by mail at their addresses appearing on the Registration Books, or any other method agreed upon by such Owner and the Trustee. Notice of redemption to the Securities Depositories pursuant to (ii) above and the Information Services pursuant to (iii) above shall be given by electronically secure means, or any other method agreed upon by such entities and the Trustee. Such notice will state the date of the notice, the redemption date, the redemption place and the Redemption Price and shall designate the CUSIP numbers, the Series 2022A Bond numbers and the maturity or maturities (except in the event of redemption of all of the Series 2022A Bonds of such maturity or maturities in whole) of the Series 2022A Bonds to be redeemed, and will require that such Series 2022A Bonds be then surrendered at the principal corporate trust office of the Trustee for redemption at the Redemption Price, giving notice also that further interest on such Series 2022A Bonds will not accrue from and after the date fixed for redemption. Neither the failure to receive any notice so given, nor any defect in such notice, will affect the validity of the proceedings for the redemption of the Series 2022A Bonds or the cessation of accrual of interest thereon from and after the date fixed for redemption. With respect to any notice of optional redemption of the Series 2022A Bonds, such notice may state that such redemption is conditional upon the receipt by the Trustee, on or prior to the date fixed for such redemption, of moneys sufficient to pay the principal of, premium if any, and interest on the Series 2022A Bonds to be redeemed and upon other conditions set forth therein and that, if such money has not been so received or such other conditions have not been satisfied, said notice is of no force and effect and the Trustee is not required to redeem such Series 2022A Bonds. If any condition stated in the redemption notice for an optional redemption have not been satisfied on or prior to the redemption date: (i) the redemption notice will be of no force and effect, (ii) the Authority will not be required to redeem such Series 2022A Bonds, (iii) the redemption will not be made, and (iv) the Trustee will within a reasonable time thereafter give notice to the persons in the manner in which the conditional redemption notice was given that such condition or conditions were not met and that the redemption was canceled. Partial Redemption of Bonds. Upon surrender of any Bonds redeemed in part only, the Authority will execute and the Trustee will authenticate and deliver to the Owner thereof, at the expense of the Authority, a new Bond or Bonds of the same Series in authorized denominations equal in aggregate principal amount representing the unredeemed portion of the Bonds surrendered. Effect of Notice of Redemption. Notice having been given as aforesaid, and moneys for the Redemption Price, and the interest to the applicable date fixed for redemption, having been set aside in the Redemption Fund, the Bonds will become due and payable on said date, and, upon presentation and surrender thereof at the principal corporate trust office of the Trustee, said Bonds will be paid at the Redemption Price thereof, together with interest accrued and unpaid to said date. If, on said date fixed for redemption, moneys for the Redemption Price of all the Bonds to be redeemed, together with interest to said date, will be held by the Trustee so as to be available therefor on such date, and, if notice of redemption thereof has been given as aforesaid and not canceled, then, from and after said date, interest on said Bonds will cease to accrue and become payable. All moneys held by or on
-9-
behalf of the Trustee for the redemption of Bonds will be held in trust for the account of the Owners of the Bonds so to be redeemed without liability to such Owners for interest thereon. All Bonds paid at maturity or redeemed prior to maturity pursuant to the provisions of the Indenture will be canceled upon surrender thereof and destroyed. Book-Entry Only System DTC will act as securities depository for the Series 2022A Bonds. The Series 2022A Bonds will be issued as fully registered bonds registered in the name of Cede & Co. (DTC’s partnership nominee). One fully registered Series 2022A Bond will be issued for each maturity of the Series 2022A Bonds, each in the initial aggregate principal amount of such maturity and will be deposited with DTC. See APPENDIX F—BOOK-ENTRY ONLY SYSTEM. SOURCES AND USES OF FUNDS The sources and uses of funds with respect to proceeds of the Series 2022A Bonds and other available amounts are shown below. Sources Principal Amount of Series 2022A Bonds Plus: Net Original Issue Premium Total Sources Uses Project Fund Underwriter’s Discount Costs of Issuance(1) Total Uses (1) Includes legal, municipal advisory, rating agency, printing fees, the premiums for the Municipal Bond Insurance Policy and the Reserve Policy and other miscellaneous costs of issuance.
-10-
DEBT SERVICE SCHEDULE Following is the fiscal year schedule of debt service due with respect to the Series 2022A Bonds: Fiscal Year Ending June 30 Principal Interest Total 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 2041 2042 2043 2044 2045 2046 2047 2048 2049 2050 2051 2052 2053 Total Source: The Underwriter.
-11-
THE PROJECT The Project consists of the replacement of the City’s existing 18-hole, 72.5-acre golf course. The Project will include a new 9-hole championship golf course with a putting green complex and a new 6-hole, par 3 golf course with lights. The City also plans to construct a new clubhouse that will be financed from sources other than the proceeds of the Series 2022A Bonds. The City has, in recent years, made transfers from its General Fund to cover golf course operating losses accounted for in the City’s golf course fund (the “Golf Course Fund.”) See “CITY FINANCIAL INFORMATION—Impact of Enterprise Operations on the City’s General Fund.” The City anticipates that the Project will increase golf course operating revenues so that, together with revenues to be received by the City in connection with the Topgolf Project, General Fund transfers will be substantially reduced or eliminated in future years. THE LEASED PROPERTY The Leased Property initially leased under the Site and Facility Lease and the Lease Agreement are (1) the City Hall, located at 1600 West Beverly Boulevard in the City, (2) the Police Headquarters, located at 1600 West Beverly Boulevard in the City, and (3) Fire Station No. 56, located at 1166 South Greenwood Avenue in the City. City Hall is a 37,700 square foot, two level facility completed in the 1960s with additions and improvements completed in the 1990s, including some seismic retrofitting. The facility is the main administrative and customer service building for the City and its residents and customers. The Departments of Administration, Finance, Human Resources, Information Technology, Public Works, Community Development and Fire are located in City Hall. The facility provides service to the community related to plan checks, building permits and other services. In addition, City Council meetings are held in the Council Chambers located in City Hall. Each City Council member also has office space in the facility. In the past two years, significant tenant improvements have been made, increasing and improving office space for Administration, Fire and Finance. City Hall also has a new roof (installation completed in Spring, 2020) and HVAC system (installation completed in 2021). Total value of the roof, HVAC and interior improvements exceeds $3.0 million. The current insured value of City Hall, including land value, is approximately $22,975,000. Police Headquarters, originally a 20,000 square foot, one-story structure, was built in the 1960s. Additions and improvements, including seismic retrofitting, completed in the 1990s, expanded the building into a three-story structure. The 64,400 square foot facility houses all Police Department personnel and includes administrative offices, a jail/holding facility, shooting range, locker rooms, training room, dispatch center, records room, report writing room, gym, and all other necessary facilities for a modern police force. As part of its capital improvement plan, the City recently (within the last 1.5 years) replaced the roof and HVAC equipment at a cost of approximately $2.7 million and began to replace and update flooring in portions of the facility at a cost of approximately $500,000. As part of the flooring project, the City discovered underground water intrusion and mold under the locker room and the gym floors in March 2022. The City has closed the locker room and gym and relocated the locker room to temporary facilities. The City is still investigating the cause of the water intrusion and has not yet begun remediation. The locker room and gym are less than 20% of the square footage of the building. The water intrusion and mold has not impacted operations or use of the remaining portions of the building and such space is more than sufficient
-12-
to continue operations of the police department indefinitely. Depending on the estimated remediation cost, the City has access to several sources of funding. The current insured value of Police Headquarters, including land value, is approximately $22,325,000. Fire Station No. 56. The City has three (3) fire stations that are utilized to provide full-service fire and life safety response to the residents and surrounding community, 24 hours a day, 7 days a week, 365 days per year. Fire Station 56 is the newest of the City’s three stations, built in 1991. The two story structure houses an engine company and provides living space for the necessary full complement of fire fighters required to provide around the clock response.The current insured value of Fire Station No. 56, including land value, is approximately $2,925,000. It is the City’s expectation that, upon the completion of the necessary remediation of the water intrusion and mold in the Policy Headquarters, Fire Station No. 56 will be removed from the Leased Property. It is the City’s expectation that, when the Series 2014 Bonds are fully paid, the City Hall will be removed from the Leased Property, leaving the Police Headquarters as the sole property comprising the Leased Property. SECURITY AND SOURCES OF PAYMENT FOR THE BONDS Pledge of Revenues The Bonds will be secured solely by a pledge of Revenues and such other moneys, funds and accounts pledged primarily to the payment of the Bonds under the Indenture (other than the Rebate Fund). The Base Rental Payments will be paid by the City in an amount sufficient to pay the principal of and interest on the Bonds on each Interest Payment Date. Under the Lease Agreement, in addition to Base Rental Payments, the City has agreed to pay Additional Rental payments in such amounts in each year as shall be required for the payment of all costs and expenses with respect to the Bonds (not otherwise paid for or provided for out of the proceeds of sale of the Bonds) incurred by the Authority or the Trustee in connection with the execution, performance or enforcement of the Lease Agreement or the assignment thereof, the Indenture or the Authority’s or the Trustee’s interest in the Leased Property, including, but not limited to, all fees, costs and expenses, all administrative costs of the Authority relating to the Leased Property (including, without limiting the generality of the foregoing, salaries and wages of employees, overhead, insurance premiums, taxes and assessments (if any), expenses, compensation and indemnification of the Trustee payable by the Authority under the Indenture), fees of auditors, accountants, attorneys or engineers, and all other reasonable and necessary administrative costs of the Authority or charges required to be paid by it to comply with the terms of the Bonds or of the Indenture. The City has agreed, in the Lease Agreement, to take such action as may be necessary to include all Base Rental Payments and Additional Rental due under the Lease Agreement in its annual budget and to make the necessary annual appropriations for all such Base Rental Payments and Additional Rental, subject only to abatement as provided in the Lease Agreement. The covenants on the part of the City contained in the Lease Agreement are duties imposed by law and it will be the duty of each and every public official of the City to take such action and do such things as are required by law in the performance of the official duty of such officials to enable the City to carry out and perform the covenants and agreements in the Lease Agreement agreed to be carried out and performed by the City.
-13-
Pursuant to the Assignment Agreement, the Authority will assign, as further security for its obligations to make timely payment of principal of and interest on the Bonds to the Trustee for the benefit of the Owners certain of the Authority’s rights under the Lease Agreement , including the right to receive Base Rental Payments. On or before the fifth Business Day preceding each May 1 and November 1, the City is required to pay to the Trustee the Base Rental Payments coming due on the next succeeding May 1 and November 1, respectively, from any available sources. Reserve Accounts Under the Indenture a separate Reserve Account is established for each Series of Bonds. The “Reserve Requirement” for each Series of Bonds is defined as an amount not to exceed the least of: (i) 100% of the Maximum Annual Debt Service on such Bonds; (ii) one hundred twenty-five percent (125%) of average Annual Debt Service as of the date of issuance of such Bonds; and (iii) ten percent (10%) of the issue price of such Bonds (as defined pursuant to section 148 of the Code); subject to the conditions established in the Indenture, all or any portion of the respective Reserve Requirement for each Series may be satisfied by the provision of a policy of insurance, a surety bond, a letter of credit or other comparable credit facility, or a combination thereof, which, together with money on deposit in the respective Reserve Account, provide an aggregate amount equal to such Reserve Requirement. See APPENDIX B—SUMMARY OF THE PRINCIPAL LEGAL DOCUMENTS—DEFINITIONS.” On or before each Interest Payment Date, the Trustee will deposit in the applicable Reserve Account such amount as may be necessary to maintain a balance therein equal to the Reserve Requirement. No deposit shall be made in the applicable Reserve Account so long as there is on deposit an amount equal to the applicable Reserve Requirement. All moneys in a Reserve Account are to be used and withdrawn by the Trustee solely for the purpose of replenishing the Interest Account or the Principal Account, in such order, in the event of any deficiency at any time in either of such accounts, or for the purpose of paying the interest on or principal of or redemption premiums, if any, on the applicable Bonds of a Series if no other money of the Authority is lawfully available therefor. All moneys in a Reserve Account in excess of the applicable Reserve Requirement may be applied to the retirement of all Bonds of such Series then Outstanding or as a credit against the next following applicable Base Rental Payments, as directed by the City. On the date of delivery of the Series 2022A Bonds, in lieu of a cash deposit to the Reserve Account applicable to the Series 2022A Bonds, the Municipal Bond Insurer will issue the Reserve Policy, in an amount equal to the Reserve Requirement applicable to the Series 2022A Bonds. There is no obligation for the City to replace the Reserve Policy or to cash fund the Reserve Account for the 2022A Bonds if the rating of the Municipal Bond Insurer is downgraded or withdrawn. Abatement of Base Rental Payments The obligation of the City to pay Base Rental Payments and Additional Rental Payments will be abated during any period in which by reason of any damage, destruction or condemnation there is substantial interference with the use by the City of the Leased Property or any portion thereof. Such abatement will be in an amount such that the resulting Base Rental Payments in any year during which such interference continues does not exceed the fair rental value of the portions of the Leased Property as to which such damage, destruction or taking do not substantially interfere with the City’s use and right of possession, as evidenced by a Certificate of the City. Such abatement shall continue for the period commencing with the date of such interference and ending with the restoration of the Leased Property to tenantable condition. See “RISK FACTORS – Abatement.”
-14-
Additional Obligations The Authority has agreed pursuant to the Indenture that no additional bonds, notes or indebtedness shall be issued or incurred that are payable out of the Revenues in whole or in part, other than Additional Bonds as provided in the Indenture and subject to the specific conditions precedent to the issuance of the Additional Bonds listed in the Indenture, including that the Authority and the City shall not be in default under the Indenture or the Lease Agreement, a deposit shall be made in the applicable Reserve Account or a separate reserve account so that the amounts on deposit therein shall equal the Reserve Requirement, and the Lease Agreement shall be amended so as to increase the Base Rental Payments payable by the City by an aggregate amount equal to the principal and interest due and payable on such Additional Bonds. See “APPENDIX C—SUMMARY OF CERTAIN PROVISIONS OF THE PRINCIPAL LEGAL DOCUMENTS—THE INDENTURE—Additional Bonds.” However, the City may issue or incur other obligations payable from the City’s General Fund. See “RISK FACTORS—No Limitation on Incurring Additional Obligations.” Maintenance, Utilities, Taxes and Assessments During such time as the City, or any assignee or sublessee thereof, is in possession of the Leased Property, all maintenance and repair, ordinary or extraordinary, of the Leased Property shall be the responsibility of the City, and the City shall pay for or otherwise arrange for the payment of (a) all utility services supplied to the Leased Property, (b) the cost of operation of the Leased Property, and (c) the costs of maintenance of and repair to the Leased Property resulting from ordinary wear and tear or want of care on the part of the City. The City shall, at the City’s sole cost and expense, keep and maintain the Leased Property clean and in a safe and good condition and repair. The Authority has no obligation to alter, remodel, improve, repair, decorate, or paint the Leased Property or any part thereof. The City shall comply with all statutes, ordinances, regulations, and other requirements of all governmental entities that pertain to the occupancy or use of the Leased Property. The Authority has no responsibility or obligation whatsoever to construct any improvements, modifications or alterations to the Leased Property. The Authority and the City contemplate that the Leased Property will be used for public purposes by the City and, therefore, that the Leased Property will continue to be exempt from all taxes presently assessed and levied with respect to real and personal property. In the event that the use, possession or acquisition by the Authority or the City of the Leased Property is found to be subject to taxation in any form, the City will pay during the term of the Lease Agreement , as the same respectively become due, all taxes and governmental charges of any kind whatsoever that may at any time be lawfully assessed or levied against or with respect to the Leased Property and any other property acquired by the City in substitution for, as a renewal or replacement of, or a modification, improvement or addition to the Leased Property; provided, that with respect to any governmental charges or taxes that may lawfully be paid in installments over a period of years, the City shall be obligated to pay only such installments as are accrued during such time as the Lease Agreement is in effect. Insurance Coverages The Lease Agreement provides that each policy of insurance required thereby shall name the Trustee as loss payee, and the proceeds of such insurance shall be deposited with the Trustee for application pursuant to the Indenture. Pursuant to the Lease Agreement, the City will obtain one or more California Land Title Association (“CLTA”) title policies insuring the City’s and Authority’s interest in the Leased Property. The
-15-
Lease Agreement requires the City to maintain rental interruption insurance to insure against loss, total or partial, of rental income from any portion of the Leased Property in an amount equal to 24 months of Lease Payments. The City maintains standard comprehensive general public liability and property damage insurance, theft insurance, insurance against fire, lightning or flood damage, including extended coverage and vandalism and malicious mischief insurance and workers’ compensation insurance. Under the Lease Agreement, the City is permitted to maintain such insurance (except rental interruption and title insurance) through a program of self-insurance under certain conditions. See “APPENDIX C – SUMMARY OF CERTAIN PROVISIONS OF THE PRINCIPAL LEGAL DOCUMENTS—THE LEASE AGREEMENT AGREEMENT—Insurance.” The proceeds of any rental interruption insurance will be deposited in the Revenue Fund to be credited towards the payment of the Base Rental Payments. The Lease Agreement requires the City promptly to remit to the Trustee the Net Proceeds of any insurance award either to replace or repair the Leased Property or to prepay the Bonds. The amount of Lease Payments and Additional Payments due under the Lease Agreement may be reduced during any period in which material damage or destruction to all or part of the Leased Property substantially interferes with the City’s use and possession thereof. See “RISK FACTORS—Abatement” herein. Substitution and Release of Property Pursuant to the Lease Agreement , the City shall have, so long as the Lease Agreement is in effect, the option at any time and from time to time, to substitute other real property and/or improvements, for any portion of the Leased Property or release any identifiable real property and/or improvements constituting the Leased Property, provided that the City shall satisfy all of the requirements set forth in the Lease Agreement , including advance notice to each rating agency then rating the Bonds. See “APPENDIX C—SUMMARY OF CERTAIN PROVISIONS OF THE PRINCIPAL LEGAL DOCUMENTS–THE Lease Agreement– Substitution and Release of Property.” Action on Default Should the City default under the Lease Agreement, the Trustee, as assignee of the Authority under the Lease Agreement, may terminate the Lease Agreement and recover certain damages from the City, or may retain the Lease Agreement and hold the City liable for all Base Rental Payments thereunder on an annual basis, and will have the right to re-enter and re-let the Leased Property. In the event such re-letting occurs, the City would be liable for any resulting deficiency in Base Rental Payments. See “RISK FACTORS—Limited Recourse on Default; No Acceleration of Base Rental.” For purposes of certain actions of Bond Owners under the Indenture and the Lease Agreement, such as certain consents and amendments and the direction of remedies following default, Bond Owners do not act alone and may not control such matters to the extent such matters are not supported by the requisite number of the Owners of all Bonds. In the event of a default under the Lease Agreement there is no right under any circumstances to accelerate the Base Rental Payments or otherwise declare any Base Rental Payments not then in default to be immediately due and payable. There is no right under the Indenture to accelerate debt service payments on the Bonds in the event of a default under the Indenture or the Lease Agreement. For a description of the events of default and permitted remedies of the Trustee (as assignee of the Authority) contained in the Lease Agreement and the Indenture, see APPENDIX B—SUMMARY OF THE PRINCIPAL LEGAL DOCUMENTS—THE LEASE AGREEMENT—DEFAULTS AND
-16-
REMEDIES and APPENDIX B—SUMMARY OF THE PRINCIPAL LEGAL DOCUMENTS—THE INDENTURE—DEFAULT AND LIMITATIONS OF LIABILITY. MUNICIPAL BOND INSURANCE Municipal Bond Insurance Policy Concurrently with the issuance of the Bonds, the Municipal Bond Insurer will issue the Municipal Bond Insurance Policy. The Municipal Bond Insurance Policy guarantees the scheduled payment of principal of and interest on the Series 2022A Bonds when due as set forth in the form of the Municipal Bond Insurance Policy included as APPENDIX G—SPECIMENT MUNICIPAL BOND INSURANCE POLICY. The Municipal Bond Insurance Policy is not covered by any insurance security or guaranty fund established under New York, California, Connecticut or Florida insurance law. Municipal Bond Insurer The Municipal Bond Insurer is a New York domiciled financial guaranty insurance company and an indirect subsidiary of Assured Guaranty Ltd. (“AGL”), a Bermuda-based holding company whose shares are publicly traded and are listed on the New York Stock Exchange under the symbol “AGO”. AGL, through its operating subsidiaries, provides credit enhancement products to the U.S. and international public finance (including infrastructure) and structured finance markets and asset management services. Neither AGL nor any of its shareholders or affiliates, other than the Municipal Bond Insurer, is obligated to pay any debts of the Municipal Bond Insurer or any claims under any insurance policy issued by the Municipal Bond Insurer. The Municipal Bond Insurer’s financial strength is rated “AA” (stable outlook) by S&P Global Ratings, a business unit of Standard & Poor’s Financial Services LLC (“S&P”), “AA+” (stable outlook) by Kroll Bond Rating Agency, Inc. (“KBRA”) and “A1” (stable outlook) by Moody’s Investors Service, Inc. (“Moody’s”). Each rating of the Municipal Bond Insurer should be evaluated independently. An explanation of the significance of the above ratings may be obtained from the applicable rating agency. The above ratings are not recommendations to buy, sell or hold any security, and such ratings are subject to revision or withdrawal at any time by the rating agencies, including withdrawal initiated at the request of the Municipal Bond Insurer in its sole discretion. In addition, the rating agencies may at any time change the Municipal Bond Insurer’s long-term rating outlooks or place such ratings on a watch list for possible downgrade in the near term. Any downward revision or withdrawal of any of the above ratings, the assignment of a negative outlook to such ratings or the placement of such ratings on a negative watch list may have an adverse effect on the market price of any security guaranteed by the Municipal Bond Insurer. The Municipal Bond Insurer only guarantees scheduled principal and scheduled interest payments payable by the issuer of bonds insured by the Municipal Bond Insurer on the date(s) when such amounts were initially scheduled to become due and payable (subject to and in accordance with the terms of the relevant insurance policy), and does not guarantee the market price or liquidity of the securities it insures, nor does it guarantee that the ratings on such securities will not be revised or withdrawn.
-17-
Current Financial Strength Ratings On July 8, 2022, S&P announced it had affirmed the Municipal Bond Insurer’s financial strength rating of “AA” (stable outlook). The Municipal Bond Insurer can give no assurance as to any further ratings action that S&P may take. On March 18, 2022, Moody’s announced it had upgraded the Municipal Bond Insurer’s insurance financial strength rating to “A1” (stable outlook) from “A2” (stable outlook). The Municipal Bond Insurer can give no assurance as to any further ratings action that Moody’s may take. On October 20, 2021, KBRA announced it had affirmed the Municipal Bond Insurer’s insurance financial strength rating of “AA+” (stable outlook). The Municipal Bond Insurer can give no assurance as to any further ratings action that KBRA may take. For more information regarding the Municipal Bond Insurer’s financial strength ratings and the risks relating thereto, see AGL’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021. Capitalization of the Municipal Bond Insurer At June 30, 2022: • The policyholders’ surplus of the Municipal Bond Insurer was approximately $2,779 million. • The contingency reserve of the Municipal Bond Insurer was approximately $905 million. • The net unearned premium reserves and net deferred ceding commission income of the Municipal Bond Insurer and its subsidiaries (as described below) were approximately $2,114 million. Such amount includes (i) 100% of the net unearned premium reserve and deferred ceding commission income of the Municipal Bond Insurer, and (ii) the net unearned premium reserves and net deferred ceding commissions of the Municipal Bond Insurer’s wholly owned subsidiaries Assured Guaranty UK Limited (“AGUK”) and Assured Guaranty (Europe) SA (“AGE”). The policyholders’ surplus of the Municipal Bond Insurer and the contingency reserves, net unearned premium reserves and deferred ceding commission income of the Municipal Bond Insurer were determined in accordance with statutory accounting principles. The net unearned premium reserves and net deferred ceding commissions of AGUK and AGE were determined in accordance with accounting principles generally accepted in the United States of America. Incorporation of Certain Documents by Reference Portions of the following documents filed by AGL with the Securities and Exchange Commission (the “SEC”) that relate to the Municipal Bond Insurer are incorporated by reference into this Official Statement and shall be deemed to be a part hereof: (i) the Annual Report on Form 10-K for the fiscal year ended December 31, 2021 (filed by AGL with the SEC on February 25, 2022);
-18-
(ii) the Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2022 (filed by AGL with the SEC on May 6, 2022); and (iii) the Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2022 (filed by AGL with the SEC on August 4, 2022). All information relating to the Municipal Bond Insurer included in, or as exhibits to, documents filed by AGL with the SEC pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, excluding Current Reports or portions thereof “furnished” under Item 2.02 or Item 7.01 of Form 8-K, after the filing of the last document referred to above and before the termination of the offering of the Series 2022A Bonds shall be deemed incorporated by reference into this Official Statement and to be a part hereof from the respective dates of filing such documents. Copies of materials incorporated by reference are available over the internet at the SEC’s website at http://www.sec.gov, at AGL’s website at http://www.assuredguaranty.com, or will be provided upon request to Assured Guaranty Municipal Corp.: 1633 Broadway, New York, New York 10019, Attention: Communications Department (telephone (212) 974-0100). Except for the information referred to above, no information available on or through AGL’s website shall be deemed to be part of or incorporated in this Official Statement. Any information regarding the Municipal Bond Insurer included herein under the caption “MUNICIPAL BOND INSURANCE—Municipal Bond Insurer” or included in a document incorporated by reference herein (collectively, the “Municipal Bond Insurer Information”) shall be modified or superseded to the extent that any subsequently included Municipal Bond Insurer Information (either directly or through incorporation by reference) modifies or supersedes such previously included Municipal Bond Insurer Information. Any Municipal Bond Insurer Information so modified or superseded shall not constitute a part of this Official Statement, except as so modified or superseded. Miscellaneous Matters The Municipal Bond Insurer makes no representation regarding the Series 2022A Bonds or the advisability of investing in the Series 2022A Bonds. In addition, the Municipal Bond Insurer has not independently verified, makes no representation regarding, and does not accept any responsibility for the accuracy or completeness of this Official Statement or any information or disclosure contained herein, or omitted herefrom, other than with respect to the accuracy of the information regarding the Municipal Bond Insurer supplied by the Municipal Bond Insurer and presented under the heading “MUNICIPAL BOND INSURANCE”. THE AUTHORITY The Authority is a joint exercise of powers entity organized and existing under and by virtue of the Joint Powers Act. The City and the Community Redevelopment Agency of the City of Montebello formed the Authority by the execution of a joint exercise of powers agreement on September 2, 1997. In July 2014, the Parking Authority of the City of Montebello replaced the Successor Agency to the Former Redevelopment Agency (as successor to the Community Redevelopment Agency of the City of Montebello) as a member of the Authority. Pursuant to the Joint Powers Act, the Authority is authorized to issue lease revenue bonds to provide funds to acquire or construct public capital improvements, such revenue bonds to be repaid from the lease payments for such improvements, such as the lease payments described herein. The members of the City Council of the City comprise the Authority’s Board of Directors.
-19-
THE CITY The City is situated in the eastern portion of the County. The City encompasses 8.2 square miles and is located 9 miles east of downtown Los Angeles. The City has access to three freeways: the San Gabriel River Freeway (Interstate Highway 605) to the east, the Santa Ana Freeway (Interstate 5) to the south and the Pomona Freeway (State Highway 60) to the north. The City is a balanced community with light industry, residential areas and commercial centers. The City is bordered to the north by the cities of Monterey Park and Rosemead, to the east by the City of Pico Rivera and to the west by the City of Commerce. Other surrounding cities include the cities of Bell Gardens, Whittier, South El Monte and Los Angeles. The City was incorporated as a general law city in 1920. The City operates under the Council-Manager form of government. The five City Council members are elected on alternate slates every two years to four-year terms. The Mayor and the Mayor Pro Tem are selected by the City Council to serve one-year terms. The City Clerk and City Treasurer are also elected to four-year terms. The City Manager and City Attorney are appointed by the City Council. The population of the City was estimated to be 61,622 as of January 1, 2022. The current members of the City Council are as follows: Name and Office Current Term Expires Kimberly Ann Cobos-Cawthorne, Mayor December, 2022 Angie M. Jimenez, Mayor Pro Tem December, 2022 Salvador Melendez, Councilmember December, 2022 Scarlet Peralta, Councilmember December, 2024 David N. Torres, Councilmember December, 2024 City’s Transition to District-Based Elections. The City is in the process of transitioning from at-large elections to district-based elections for its council seats. In a “by-district” election system, each Councilmember would represent a specific section of the City and be elected only by those who live in that defined district. On November 8, 2022, the voters of the City will elect five new councilmembers by district. The five new councilmembers will join the two existing at-large councilmembers to create a seven-member council. The City will temporarily retain the two at-large council seats until the expiration of their terms in 2024, at which point the City will have a five-member council elected entirely by district.
-20-
The following map shows the locations of the five council member districts within the City. CITY OF MONTEBELLO COUNCIL MEMBER DISTRICT MAP (Effective beginning November 8, 2022) Source: City of Montebello Current members of the Council and key administrative personnel of the City are listed at the front of this Official Statement. See APPENDIX A—GENERAL, ECONOMIC AND DEMOGRAPHIC INFORMATION RELATING TO THE CITY AND THE COUNTY for an additional description of the City as well as certain demographic and statistical information. CITY FINANCIAL INFORMATION Financial Statements and Budgetary Process The City’s accounting policies conform to generally accepted accounting principles. The audited financial statements also conform to the principles and standards for public financial reporting established by the Governmental Accounting Standards Board. Basis of Accounting and Financial Statement Presentation. The government-wide financial statements are reported using the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Property taxes are recognized as revenues in the year for which they are levied. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met.
-21-
Governmental fund financial statements are reported using the modified accrual basis of accounting. Revenues are recognized as soon as they are both measurable and available. Revenues are considered to be available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. However, debt service expenditures are recorded only when payment is due. Audited Financial Statements. The City retained Vasquez & Company LLP, Glendale, California, California (the “City’s Auditor”), to examine the general-purpose financial statements of the City as of and for the year ended June 30, 2021. The audited financial statements for fiscal year ended June 30, 2021, are included in APPENDIX C—ANNUAL COMPREHENSIVE FINANCIAL REPORT OF THE CITY FOR THE FISCAL YEAR ENDED JUNE 30, 2021. The City has not requested, and the City’s Auditor has not provided, any review or update of such financial statements in connection with their inclusion in this Official Statement. Budget Process. The City Council adopts an annual budget with appropriations for all City funds prior to the beginning of the fiscal year, which begins on July 1 of each year. The City Council has the legal authority to amend the budget at any time during the fiscal year. The City maintains budgetary controls to ensure compliance with legal provisions embodied in the appropriated budget approved by the City Council. The level of budgetary control (that is, the level at which expenditures cannot legally exceed the appropriated amount) for the City’s operating budget is at the fund level. For the operating budget, the City Manager has the authority to move appropriations between accounts (without dollar limitation) within a budget program and within the same fund. All other appropriation changes require the approval of the City Council. Certain of the City’s revenues are collected and dispersed by the State (such as sales tax and motor-vehicle license fees) or allocated in accordance with State law (most importantly, property taxes). Therefore, State budget decisions can have an impact on City finances. See “STATE BUDGET INFORMATION.”
-22-
General Fund Balance Sheet The following table shows the City’s audited General Fund balance sheets for the five most recent fiscal years. Table 1 CITY OF MONTEBELLO GENERAL FUND BALANCE SHEET Fiscal Years 2016-17 through 2020-21 Fiscal Year ending June 30, 2017 2018 2019 2020 2021 Audited Audited Audited Audited Audited ASSETS Cash and investments $ 6,799,980 $ 12,191,403 $ 17,213,492 $ 5,413,580 $ 9,349,552 Restricted cash and investments 4,666,731 4,666,731 4,837,801 4,666,731 1,921,304 Interest receivable 56,420 132,932 212,495 141,462 41,022 Accounts receivable 1,142,552 1,389,708 2,551,939 2,071,906 2,349,066 Taxes receivable 2,644,616 2,501,514 2,617,772 2,300,549 5,174,071 Due from other funds 2,503,001 2,794,623 2,000,017 2,853,153 8,622,169(1) Advances to other funds — — — 2,300,000 — Due from Successor Agency 3,517 34,241 29,243 23,981 — Prepaid Expenses 171,468 174,398 141,044 129,447 106,416 Due from Agency Fund — — — 23 9,467 Investment in land held for resale 1,208,814 1,208,814 682,538 682,538 682,538 Total Assets 19,197,099 25,093,824 30,286,341 20,583,370 28,255,605 LIABILITIES Accounts payable and accrued liabilities 3,126,571 2,649,448 3,931,905 3,684,083 3,490,270 Deposits payable 5,000 5,000 — — — Due to Agency Fund — — — 865 865 Due to other funds 11,880 — 331,803 4,100 1,475,000 Unearned revenue 2,010,763 5,101,575 5,818,454 7,446,768 15,704,325(2) Total Liabilities 5,154,214 7,756,023 10,082,162 11,135,816 20,670,460 FUND BALANCES Non-spendable 1,380,282 1,383,212 823,582 811,985 788,954 Restricted 4,666,731 4,666,731 4,837,801 4,666,731 1,921,304 Unassigned 7,995,872 11,287,858 14,542,796 3,968,838 4,874,887 Total Fund Balances 14,042,885 17,337,801 20,204,179 9,447,554 7,585,145 Total Liabilities and Fund Balances 19,197,099 25,093,824 30,286,341 20,583,370 28,255,605 Sources: City of Montebello Annual Comprehensive Financial Reports for Fiscal Years 2016-17 through 2020-21. (1) Fiscal year 2020-21 amounts due from other funds include reimbursements to the General Fund from other funds related to construction projects at the City’s two hotel properties not otherwise present in prior years. (2) Fiscal year 2020-21 unearned revenues total includes Coronavirus State and Local Fiscal Recovery Funds received by the City under the American Rescue Plan Act not otherwise included in prior years.
-23-
General Fund Revenues, Expenditures, and Changes in Fund Balances 5-Year Audited Historical Results. The following table shows five years of the City’s historical audited results for its General Fund revenues, expenditures, and changes in fund balances for fiscal years 2016-17 through 2020-21. Table 2A CITY OF MONTEBELLO HISTORICAL GENERAL FUND REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES Fiscal Years 2016-17 through 2020-21 Fiscal Year Ended June 30, 2017 2018 2019 2020 2021 Audited Audited Audited Audited Audited REVENUES Sales taxes (1) $13,267,373 $13,118,981 $14,031,972 $12,817,884 $22,270,247 Property taxes (4) 5,094,185 5,208,975 5,676,411 5,801,965 13,714,565 Other taxes 553,462 585,960 614,485 533,005 476,959 Franchise taxes 1,493,956 2,141,450 2,224,087 2,199,915 2,316,250 Licenses and permits 4,374,761 4,452,210 6,220,483 4,790,211 5,769,474 Fines and forfeitures 2,251,384 2,185,022 2,165,922 2,186,401 2,312,454 Investment Income 29,419 74,742 162,487 136,766 77,455 Intergovernmental (4) 5,950,400 6,157,030 6,526,569 6,909,563 1,096,273 Charges for services 6,382,058 6,438,100 6,657,594 6,053,109 6,317,440 Other revenues 959,391 1,153,423 728,696 489,655 1,762,641 Total Revenues 40,356,389 41,515,893 45,008,706 41,918,474 56,113,758 EXPENDITURES Current: General government 4,869,177 4,976,497 5,873,687 6,337,460 8,335,363 Public safety 31,438,293 31,487,454 29,433,153 32,503,951 32,641,866 Public works 6,812,050 6,778,314 6,639,299 7,395,769 10,635,745 Parks and recreation 3,658,338 3,813,599 3,827,559 4,388,956 4,360,265 Housing and community development 2,058,623 2,006,274 2,209,566 2,370,573 1,752,077 Capital outlay 183,834 265,903 2,052,865 3,559,591 9,014,007 Interfund charges 130,090 (231,650) (366,046) (361,160) (536,079) Debt service – Principal - - - 954,331 656,625 Debt service – Interest - - - - - Total Expenditures 49,150,405 49,096,391 46,670,083 57,149,471 66,859,869 REVENUES OVER EXPENDITURES (8,794,016) (7,580,498) (4,661,377) (15,230,997) (10,746,111) OTHER FINANCING SOURCES/(USES) Other Revenues 4,666,731 - 1,547,962 815,153 - Transfers in (2) 9,978,439 12,257,329 6,758,437 4,416,662 3,570,002 Transfers out (3) (1,255,867) (1,381,915) (778,644) (757,443) (471,300) Issuance of Debt (5) - - - - 5,785,000 Total Other Financing Sources 13,389,303 10,875,414 7,527,755 4,474,372 8,883,702 NET CHANGE IN FUND BALANCES (6) 4,595,287 3,294,916 2,866,378 (10,756,625) (1,862,409) FUND BALANCES – BEGINNING OF YEAR 9,447,598 14,042,885 17,337,801 20,204,179 9,447,554 FUND BALANCES – END OF YEAR 14,042,885 17,337,801 20,204,179 9,447,554 7,585,145 Source: City of Montebello Annual Comprehensive Financial Report for Fiscal Years 2016-17 through 2020-21. (1) General fund sales tax collections for FY2020-21 and future years include amounts from Measure H, a voter-approved 0.75% sales tax that began collections on July 1, 2020. For additional discussion, see “Sales Taxes.” (2) Transfers in are mainly reimbursements for retirement-related pension costs from the Retirement Fund. The Retirement Fund receives monies from a Property Tax Override approved by the voters of the City to pay for retirement-related pension costs. The amount of transfer-in to the General Fund from Retirement Fund for the fiscal years beginning in 2019-20 are lower than prior years due to an accounting change of the unfunded liability payment which was previously charged to each department budget but is now charged directly to the Retirement Fund. For additional discussion, see “OTHER FINANCIAL INFORMATION – Employee Retirement Plans.” (3) Transfers out are mainly to the Golf Enterprise Fund. For additional discussion, see “OTHER FINANCIAL INFORMATION – Impact of Enterprise Operations on the City’s General Fund.” (4) Beginning in FY2020-21 property tax revenues include amounts in-lieu of VLF accounted for as intergovernmental revenues in prior years. (5) Represents the proceeds of a capital lease with ABM Building Solutions to finance a citywide energy efficiency upgrade project. For additional discussion, see APPENDIX C—ANNUAL COMPREHENSIVE FINANCIAL REPORT OF THE CITY FOR THE FISCAL YEAR ENDED JUNE 30, 2021 – Note 8E. (6) Negative changes in fund balances in FY2019-20 and FY2021-22 are a result of impacts to revenue sources caused primarily by the COVID-19 Pandemic, increases in expenses related to the COVID-19 Pandemic, and one-time spending on deferred maintenance and improvements to City facilities.
-24-
Fiscal Year 2021-22 and 2022-23 Projections. Table 2B below shows the City’s fiscal year 2021-22 projected actuals and 2022-23 budgeted projections for the City’s General Fund revenues, expenditures, and changes in fund balances. Fiscal year 2021-22 data are full-year projections provided by the City’s finance department based on actual results through the end of the 3rd quarter of that fiscal year. The City expects its audited fiscal year 2021-22 financial statements to be completed on or about January of 2023. Fiscal year 2022-23 data are from City’s General Fund Budget for fiscal year 2022-23, adopted on June 8, 2022. Categories of expenditures and transfers in Table 2B below are those used by the City for its internal accounting and may not in all cases match those related categories of expenditures and transfers sourced from the City’s Annual Comprehensive Financial Reports and presented in Tables 2A and 3.
-25-
Table 2B CITY OF MONTEBELLO CURRENT AND PROJECTED GENERAL FUND REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES Fiscal Years 2021-22 and 2022-23 Fiscal Year Ended June 30, 2022 2023 Projected (1) Budgeted (2) REVENUES Sales taxes $24,726,000 $25,126,900 Property taxes 14,314,900 14,875,000 Other taxes 700,000 625,000 Franchise taxes 2,396,985 2,445,000 Licenses and permits 7,704,500 6,468,000 Fines and forfeitures 2,660,000 2,920,000 Investment Income 345,500 274,000 Intergovernmental 22,800 12,000 Charges for services 8,019,150 7,945,800 Other revenues 780,425 982,000 Total Revenues 61,670,260 61,673,700 EXPENDITURES Administration 2,624,811 2,736,200 Community Development 2,595,248 2,602,450 Finance 2,616,072 2,648,900 Fire 15,547,246 16,887,400 Human Resources/Information Technology 1,994,670 2,298,300 Non-Departmental 4,578,582 3,158,500 Parks & Recreation 5,757,953 3,140,600 Police 19,299,555 19,611,000 Public Works 11,648,811 14,906,750 Total Expenditures 66,662,949 67,990,100 REVENUES OVER/(UNDER) EXPENDITURES (4,992,689) (6,316,400) OTHER FINANCING SOURCES/(USES) Administrative Overhead 2,839,200 2,912,100 Transfers in (4) 3,900,000 4,100,000 Transfers out (471,300)(5) - Total Other Financing Sources 6,739,200 7,012,100 NET CHANGE IN FUND BALANCES 1,275,211 695,700 FUND BALANCES – BEGINNING OF YEAR (3) 7,585,145 8,860,356 FUND BALANCES – END OF YEAR (3) 8,860,356 9,556,056 Source: City of Montebello Finance Department for Fiscal Year 2021-22 data and City of Montebello Fiscal Year 2022-23 Budget, adopted June 8, 2022. (1) FY2021-22 data are full-year projections provided by the City’s finance department based on actual results through the 3rd quarter. (2) FY2022-23 data is from the City’s FY2022-23 Budget, adopted June 8, 2022. (3) Fund balances in Table 3B do not include $6.3 million in Coronavirus State and Local Fiscal Recovery Funds received by the City under the American Rescue Plan Act and applied to the General Fund in FY2021-22 to reimburse the City for revenue losses during the COVID-19 Pandemic. (4) Transfers in are mainly reimbursements to the General Fund for retirement-related expenses from the Retirement Fund. For additional discussion, see “OTHER FINANCIAL INFORMATION – Employee Retirement Plans.” (5) Projected based on prior year transfer from the General Fund to the Golf Course Fund.
-26-
General Fund Budget to Actuals Comparison The following table shows the City’s General Fund budget figures for fiscal year 2019-20 and 2020-21, including a comparison of the City’s initial budget, final budget, audited actuals for each year. Table 3 CITY OF MONTEBELLO GENERAL FUND BUDGET TO ACTUALS COMPARISON Fiscal Years 2019-20 and 2020-21 Fiscal Year Ended June 30, 2020 Fiscal Year Ended June 30, 2021 Adopted Budget Final Budget Audited Actuals Adopted Budget Final Budget Audited Actuals REVENUES Sales taxes $ 13,146,732 $ 13,146,732 $ 12,817,884 $ 18,241,000 $ 18,241,000 $ 22,270,247 Property taxes 5,967,797 5,967,797 5,801,965 13,026,000 13,026,000 13,714,565 Other taxes 658,201 658,201 533,005 599,000 599,000 476,959 Franchise taxes 2,315,184 2,315,184 2,199,915 2,272,000 2,272,000 2,316,250 Licenses and permits 5,137,999 5,137,999 4,790,211 4,872,800 4,872,800 5,769,474 Fines and forfeitures 2,023,693 2,023,693 2,186,401 2,600,000 2,600,000 2,312,454 Investment Income 179,506 179,506 136,766 150,000 150,000 77,455 Intergovernmental 6,784,372 6,784,372 6,909,563 5,500 790,100 1,096,273 Charges for services 6,914,613 6,914,613 6,053,109 7,200,300 7,200,300 6,317,440 Other revenues 223,200 223,200 489,655 384,000 384,000 1,762,641 Total Revenues 43,351,297 43,351,297 41,918,474 49,370,600 50,155,200 56,113,758 EXPENDITURES Current: General government 5,903,732 6,177,604 6,337,460 6,474,700 7,667,950 8,335,363 Public safety 29,971,059 29,981,264 32,503,951 31,921,200 32,074,821 32,641,866 Public works 7,374,648 8,081,909 7,395,769 8,877,600 9,320,387 10,635,745 Parks and recreation 4,856,969 4,655,852 4,388,956 3,870,800 4,152,215 4,360,265 Housing and community development 2,548,964 3,008,451 2,370,573 2,140,800 2,196,847 1,752,077 Capital outlay 115,536 4,709,189 3,559,591 262,900 4,081,050 9,014,007 Interfund charges (3,620,099) (3,620,099) (361,160) (521,500) (521,500) (536,079) Debt service – Principal 945,640 994,128 954,331 624,100 624,100 656,625 Debt service – Interest - - - - - - Total Expenditures 48,096,449 53,988,298 57,149,471 53,650,600 59,595,870 66,859,869 REVENUES OVER EXPENDITURES (4,745,152) (10,637,001) (15,230,997) (4,280,000) (9,440,670) (10,746,111) OTHER FINANCING SOURCES/(USES) Other Revenues - - 815,153 - - - Transfers in 5,888,806 5,888,806 4,416,662 4,300,000 4,300,000 3,570,002 Transfers out (956,170) (956,170) (757,443) - - (471,300) Issuance of Debt - - - - - 5,785,000 Total Other Financing Sources 4,932,636 4,932,636 4,474,372 4,300,000 4,300,000 8,883,702 NET CHANGE IN FUND BALANCES 187,484 (5,704,365) (10,756,625) 20,000 (5,140,670) (1,862,409) FUND BALANCES – BEGINNING OF YEAR 20,204,179 9,447,554 FUND BALANCES – END OF YEAR 9,447,554 7,585,145 Source: City of Montebello Annual Comprehensive Financial Reports for Fiscal Year 2019-20 and Fiscal Year 2020-21. City Financial Management The City Council has adopted a comprehensive set of financial management policies to provide for the prudent investment of City funds and management of debt. The City’s practice is to incur debt only after deliberation over the effect of such debt on the City’s General Fund and other resources of the City, and in those circumstances where the use of debt would be appropriate to the scale and economic life of the asset being financed and the accumulation or availability of reserves to fund the capital requirement.
-27-
Reserve Policies. The City adopted General Fund reserve policies to provide guidance on maintaining reasonable levels of reserves in the City’s General Fund in accordance with Governmental Accounting Standards Board (GASB) Statement No. 54. The City’s current General Fund reserve policy was first adopted in June, 2020, and has been updated annually as part of the City’s budget process. The City’s General Fund reserve policy provides a comprehensive protocol on what is legally deemed the unrestricted (or spendable) portion of the General Fund balance, and the order in which the classifications are spent. The unrestricted portion of the fund balance is comprised of the General Fund’s resources classified as “Committed,” “Assigned,” or “Unassigned.” The City’s current General Fund reserve policies establish: • a Commitment for Economic Uncertainties equal to an amount calculated as twenty-five percent (25%) of the General Fund’s annual operating revenues, • a Commitment for Unfunded Liabilities equal to an amount calculated as five percent (5%) of the General Fund’s annual operating revenues, • an assignment for equipment and/or technology replacement and upgrade needs will be made that is equal to five (5%) of the General Fund’s annual operating revenues, • an assignment will be made that is equal to five percent (5%) of the General Fund’s annual operating revenues for the purposes of providing funding for any unfunded, unprogrammed or otherwise un-planned capital improvement projects that required a General Fund funding component, • an assignment will be made that is equal to $1,000,000 for the purpose of providing funding for deferred maintenance on the City’s building assets (i.e., City Hall, community centers), sports fields and other related infrastructure items, • an assignment will be made that is equal to $500,000 and is intended to meet the City’s “self-insured retention” for various insurance needs, and • an assignment will be made equal to $1,000,000 to fund economic development sustainability efforts within the City of Montebello. When either Committed or Assigned funds are utilized for their specific, intended purposes, or the levels fall below the policy levels as described and set forth herein, the City Council will develop a reserve replenishment plan to return the various reserves to their policy levels. Investment Policy. The investment of funds of the City (except pension and retirement funds) is made in accordance with the City’s Investment Policy, most recently approved on June 8, 2022 (the “Investment Policy”), and Section 53601 et seq. of the California Government Code. The Investment Policy is subject to revision at any time and is reviewed at least annually to ensure compliance with the stated objectives of safety, liquidity, yield, and current laws and financial trends. All amounts held under the Indenture are invested at the direction of the City in Investment Securities, as defined in the Indenture, and are subject to certain limitations contained therein. Debt Management Policy. In accordance with Section 8855(i) of the California Government Code the City adopted a debt management policy on September 25, 2019, to establish conditions for the use of debt; to ensure that debt capacity and affordability are adequately considered; to minimize the City’s
-28-
interest and issuance costs; to maintain the highest possible credit rating; to provide complete financial disclosure and reporting; and to maintain financial flexibility for the City. Capital Improvement Program. The City’s capital improvement program (the “CIP”) is approved by City Council annually and throughout the year as needed. Capital assets (including infrastructure) are recorded at cost where historical records are available and at an estimated original cost where no historical records exist. Contributed capital assets are valued at their estimated fair market value at the date of contribution. Generally, capital asset purchases more than $5,000 are capitalized if they have an expected useful life of one year or more. The current CIP for fiscal year 2022-23 is $18.68 million, to be funded from available funding sources, including restricted sales tax funds, gas tax funds, and other State and County sources. Pension Funding Policy. On May 13, 2020, the City Council adopted a pension funding policy. The pension funding policy documents the method the City will use to determine its actuarially determined contributions to fund the long-term cost of benefits to the plan participants and annuitants. State Audit In October of 2017, the City received a letter from the California State Auditor (the “State Auditor”) under the “High-Risk Local Government Agency Audit Program,” authorized under Section 8546.10 of the Government Code of the State. The Local High-Risk Agency Audit Program authorizes the State Auditor to use publicly available financial information to identify and audit local government agencies that are at high risk for potential waste, fraud, abuse, or mismanagement, or that have major challenges associated with their economy, efficiency, or effectiveness. Local agencies identified by the State Auditor as “high-risk” because of their audit must submit a corrective action plan and must then provide written updates every six months thereafter regarding its progress in implementing the corrective action plan. Once satisfactory corrective action has been taken the State Auditor will remove the “high-risk” designation. The State Auditor currently identifies the City as a “moderate risk.” The State Auditor released its audit report 2018-802 regarding the City (the “2018 State Audit Report”) on December 11, 2018. In releasing the 2018 State Audit Report, the State Auditor concluded that the City was a high‑risk city because of its significant financial and organizational risks. The State Auditor found, for much of the prior decade, the City struggled to generate sufficient revenues to meet its expenses and as a result, suffered from a structural deficit. Further, the City relied on one‑time revenues to balance its budget and its plans to increase revenues and decrease expenditures were not adequate to eliminate its structural deficit. Additionally, the State Auditor identified the City’s enterprise activities, including the operation of a municipal golf course, water utility, and two hotels, as posing a significant financial risk to the City’s General Fund. To address the identified risk factors, the State Auditor developed recommendations for the city to implement, such as exploring alternate uses for its golf course and recommended that the City amend its municipal code to require competitive bidding for most procurements to ensure that Montebello obtains the best value from the services it received. On November 15, 2018, the City responded to the draft 2018 State Audit Report. The City’s concerns and disagreements with the 2018 State Audit Report are discussed therein and should be read together with the State Audit Report. In summary, the City largely agreed with the conclusions reached in
-29-
the State Audit report and acknowledged that while it has already taken steps towards improving its fiscal and operational efficiencies, there are remaining areas the City still needs to address. Since the publication of the 2018 State Audit Report the City has put into place numerous new procedures and policies directly aimed at responding to the audit reports’ various recommendations. The City’s municipal code chapters dealing with purchasing and procurement were first updated in March 2019, and citywide purchasing training has been conducted on numerous occasions since 2019. Several new administrative policies were developed that addressed the areas of weakness identified by the State Auditor (i.e., petty cash, credit cards, hotel financial reporting, etc.), while other existing policies were updated to incorporate recommendations from the audit reports. As required, City staff has provided status reports to the City Council at regular meetings, which are then forwarded to the State Auditor to show the City’s progress towards meeting the audit report recommendations. City Staff has been in regular contact with State Auditor staff and provides updates on the City’s progress in addressing the recommendations and findings. 2021 Follow-Up Report. On October 14, 2021 the State Auditor published follow up report No. 2021-807 (the “2021 State Audit Report Update”) addressing the City’s efforts to respond to the issues raised in the original 2018 State Audit Report. The State Auditor noted that the City has attempted to improve its operations in multiple areas such as by updating competitive bidding requirements in its municipal code, resolving concerns about the City’s retirement system costs, and improving its golf course operations. The State Auditor did continue to raise concerns about the City’s procurement processes, adherence to competitive bidding and public notice requirements, petty cash and credit card policies, and other related issues. The City responded to the 2021 State Audit Report Update with its own letter to the State Auditor, dated September 27, 2021. In the City’s response letter, the City disagreed with the State Auditor on certain facts, assumptions, and conclusions in the 2021 State Audit Report Update. City staff drew particular attention to the City’s improving General Fund health, its issuance of pension obligation bonds to pay down its unfunded accrued pension liability, its oversight of the City-owned hotels, and publication of new and updated financial policies. Auditor’s Report on Internal Control Over Compliance. As part of the City’s fiscal year 2020-21 audit process, the City’s Auditor reviewed the City’s internal control over financial reporting for the purposes of expressing an opinion on the City’s financial statements. During the fiscal year 2020-21 audit process the City’s Auditor identified a certain deficiency in internal control regarding the City’s hotel enterprise funds that the City’s Auditor considered to be a significant deficiency. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. The City’s Auditor reported delays in obtaining supporting documents and agreements and that certain balances in the City’s enterprise funds for the City’s hotel enterprises were unreconcilable with the general ledger for those accounts. The City’s Auditor recommended that the City establish checklists and procedures, and that the City strictly implement proper reconciliation and closing procedures over the hotels’ accounting operations and assign responsibility for completing the procedures to specific personnel. The City indicated to the Auditor that it intends to fully adopt the Auditor’s recommendations.
-30-
The City remains committed to implementing recommendations from the 2018 State Audit Report, the 2021 State Audit Report Update, and the City Auditor’s Report on Internal Control Over Compliance to satisfy the State Auditor, the City’s Auditor, and formally remove the City from the State Auditor’s high-risk category. City staff will continue to study and implement improvements to its organizational management and internal controls to that effect. Both the 2018 State Audit Report and the 2021 State Audit Report Update, together with the City’s letters in response thereto, can be found on the State Auditor’s website. The City’s progress report updates to the City Council can be viewed on the City’s website. Additional discussion of the 2018 State Audit Report and 2021 State Audit Report Update can be found in the City’s Annual Comprehensive Financial Report, included as APPENDIX C—ANNUAL COMPREHENSIVE FINANCIAL REPORT OF THE CITY FOR THE FISCAL YEAR ENDED JUNE 30, 2021. The progress reports and other information presented on the City’s website are not incorporated by reference as part of this Official Statement. Any failure of the City to meet its financial obligations could have a material adverse impact on the value of the Series 2022A Bonds. See also “RISK FACTORS—Limitations on Remedies Available; Bankruptcy.” Primary Sources of General Fund Revenues The City relies on several sources to balance its General Fund budget. The City’s largest General Fund revenue source is sales and use taxes, which typically account for 40% of the City’s General Fund revenues. The City’s sales tax revenues have increased significantly beginning in fiscal year 2020-21 following the passage of Measure H, a 75-cent transaction and use tax discussed in additional detail below. The second largest General Fund revenue source is property taxes, which typically account for approximately 22% of the City’s General Fund revenues. Charges for services and licenses and permits are the General Fund’s third and fourth largest revenue sources, typically combining for approximately 20% of the City’s General Fund Revenues. Together these four primary sources of General Fund revenues have constituted approximately 80% of the City’s General Fund revenues in recent years. The table below shows the City’s primary General Fund audited revenue sources for the three most recent fiscal years, projected actuals for Fiscal Year 2021-22, and budgeted projections for Fiscal Year 2022-23. Fiscal year 2021-22 data are full-year projections provided by the City’s finance department based on actual results through the end of the 3rd quarter of that fiscal year. The City’s audited financial statements for fiscal year 2021-22 are expected to be available on or about January of 2023. Fiscal year 2022-23 data are from City’s General Fund Budget for fiscal year 2022-23, adopted on June 8, 2022.
-31-
Following the table is a brief discussion of each of the City’s primary sources of General Fund revenues. Table 4 CITY OF MONTEBELLO PRIMARY SOURCES OF GENERAL FUND REVENUES Fiscal Year Ending June 30, 2019 2020 2021 2022 2023 Audited Audited Audited Actuals (1) Budgeted (2) Sales taxes (3) $14,031,972 $12,817,884 $22,270,247 $24,726,000 $25,126,900 Property taxes (4) 5,676,411 5,801,965 13,714,565 14,314,900 14,875,000 Licenses and permits 6,220,483 4,790,211 5,769,474 7,704,500 6,468,000 Charges for services 6,657,594 6,053,109 6,317,440 8,019,150 7,945,800 Total Primary Sources 32,586,460 29,463,169 48,071,726 54,764,550 54,415,700 All Other General Fund Revenues 12,422,246 12,455,305 8,042,032 6,905,710 7,258,000 Total General Fund Revenues $45,008,706 $41,918,474 $56,113,758 $61,670,260 $61,673,700 Source: City of Montebello FY2018-19 through 2020-21 Annual Comprehensive Financial Reports, City of Montebello Finance Department for FY2021-22 data, and the City of Montebello’s FY 2022-23 Budget, adopted June 8, 2022. Note: The amounts of total General Fund revenues in this Table 6 are limited to the General Fund’s operating revenues only and do not include non-operating revenues otherwise available to the General Fund to meet expenses, including transfers in from the Retirement Fund and administrative overhead. (1) FY2021-22 data are full-year projections provided by the City’s finance department based on actual results through the 3rd quarter. (2) FY2022-23 data is from the City’s FY2022-23 Budget, adopted June 8, 2022. (3) Sales tax revenues for FY2020-21 and future years include amounts from Measure H, a voter-approved 0.75% transaction and use tax that began collections on July 1, 2020. For additional discussion, see “Sales Taxes.” (4) Property tax revenues for FY2020-21 and future years include in-lieu of VLF amounts accounted for as intergovernmental revenues in prior years. Sales and Use Taxes. Sales and use taxes are the General Fund’s largest revenue source. The City receives a 1% share of all taxable sales generated within its borders from the State. The City also receives transaction and use taxes from a voter-approved 0.75% sales tax (“Measure H”) on all eligible taxable sales. As Measure H is a general tax, Measure H collections are available to the City’s General Fund for any lawful purpose. Measure H taxes have no expiration date and will be collected indefinitely if not otherwise repealed by the voters of the City. In Fiscal Year 2019-20, sales and use taxes (not including Measure H taxes which began on July 1, 2020) generated approximately $12.8 million and in Fiscal Year 2020-21, sales and use taxes (the first full year of Measure H tax collection) generated approximately $22.3 million. The City has estimated that sales and use tax revenues will generate $24.7 million and has budgeted for $25.1 million in Fiscal Years 2021-22 and 2022-23, respectively. Sales and Use Tax revenues for Fiscal Years 2019-20 through 2022-23 have been impacted by the COVID-19 Pandemic. For additional discussion of the City’s General Fund sales tax revenues and of Measure H, see “Sales and Use Taxes.” Property Taxes. Property taxes are the General Fund’s second largest revenue source. The County levies a tax of 1% on the assessed valuation of property within the County. The City receives a share of this 1% levy on the assessed value of property located within the City limits. In Fiscal Year 2019-20, property taxes generated approximately $12.7 million (including property taxes in-lieu of vehicle license fees). In Fiscal Year 2020-21 property taxes (including property taxes in-lieu of vehicle license fees) generated approximately $13.7 million. The City has estimated that property tax revenues will generate $14.3 million and has budgeted for $14.9 million in Fiscal Years 2021-22 and 2022-23, respectively (including property taxes in-lieu of vehicle license fees). The City’s General Fund property tax revenues have been largely
-32-
unaffected by the COVID-19 Pandemic. See “Property Taxes” below for additional information relating to the property taxes and the assessed valuation of property located in the City. Charges for Services. The City’s charges for services consist of planning services fees and miscellaneous fees for the City’s recreation and community services-related programs. Charges for services are the City’s third largest source of General Fund revenues. In Fiscal Year 2019-20, charges for services generated approximately $6.1 million. In Fiscal Year 2020-21 charges for services generated approximately $6.3 million. The City has estimated that charges for services will generate $8.0 million and has budgeted for $7.9 million in Fiscal Years 2021-22 and 2022-23, respectively. The City’s ability to set fees for services is limited under California law. Generally, a fee may not exceed the estimated reasonable cost of providing the service or product for which the fee is charged, plus overhead. Licenses and Permits. The City’s licenses and permits revenues consist of a business license tax, cannabis operator permits, and various building permits and animal licenses. Licenses and permits are the City’s fourth largest source of General Fund revenues. In Fiscal Year 2019-20, licenses and permits generated approximately $4.8 million. In Fiscal Year 2020-21 licenses and permits generated approximately $5.7 million. The City has estimated that licenses and permits will generate $7.7 million and has budgeted for $6.5 million in Fiscal Years 2021-22 and 2022-23, respectively. While the City’s licenses and permits revenues were affected by reduced business and commercial activities taking place in the City during the COVID-19 Pandemic, the City expects licenses and permits revenues to increase to historical norms as the effects of the COVID-19 Pandemic subside. Property Taxes Under Proposition 13, an amendment to the California Constitution adopted in 1978 that added Article XIIIA of the California Constitution, the county assessor’s valuation of real property is established as shown on the Fiscal Year 1975-76 tax bill, or, thereafter, as the appraised value of real property when purchased, newly constructed, or a change in ownership has occurred. Assessed value of property may be increased annually to reflect inflation at a rate not to exceed 2% per year or reduced to reflect a reduction in the consumer price index or comparable data for the area under taxing jurisdiction or in the event of declining property value caused by substantial damage, destruction, market forces or other factors. As a result of these rules, real property that has been owned by the same taxpayer for many years can have an assessed value that is much lower than that of similar properties more recently sold and may be lower than its own market value. Likewise, changes in ownership of property and reassessment of such property to market value commonly will lead to increases in aggregate assessed value even when the rate of inflation or consumer price index would not permit the full 2% increase on any property that has not changed ownership. Taxes are levied by the County Assessor for each fiscal year on taxable real and personal property which is situated in the County as of the preceding January 1. Real property which changes ownership or is newly constructed is revalued at the time the change in ownership occurs or the new construction is completed. The current year property tax rate will be applied to the reassessment, and the taxes will then be adjusted by a proration factor to reflect the portion of the remaining tax year for which taxes are due. The City receives a share of property tax revenues for real property located within the City but may receive a lower portion of revenues within former redevelopment project areas. State law exempts $7,000 of the assessed valuation of an owner-occupied principal residence. This exemption does not result in any loss of revenue to local agencies since an amount equivalent to the taxes that would have been payable on such exempt values is supplemented by the State.
-33-
For assessment and tax collection purposes, property is classified either as “secured” or “unsecured,” and is listed accordingly on separate parts of the assessment roll. The “secured roll” is that part of the assessment roll containing State-assessed property and property (real or personal) for which there is a lien on real property sufficient, in the opinion of the county assessor, to secure payment of the taxes. All other property is “unsecured,” and is assessed on the “unsecured roll.” Secured property assessed by the SBE is commonly identified for taxation purposes as “utility” property. Property taxes on the secured roll are due in two installments, on November 1 and February 1 of each fiscal year, and if unpaid become delinquent on December 10 and April 10, respectively. A penalty of 10% attaches immediately to any delinquent payment. Property on the secured roll, with respect to which taxes are delinquent, becomes tax defaulted on or about June 30 of the fiscal year. Such property may thereafter be redeemed by payment of delinquent taxes and the delinquency penalty, plus costs and prepayment penalty of one and one-half percent per month to the time of prepayment. If taxes are unpaid for a period of five years or more, the property is subject to sale by the county treasurer. Property taxes on the unsecured roll are due as of the January 1 lien date and become delinquent, if unpaid, on August 31. A 10% penalty attaches to delinquent unsecured taxes. If unsecured taxes are unpaid at 5 p.m. on October 31, an additional penalty of one and one-half percent per month attaches to such taxes beginning the second month after the delinquent date, and on the first day of each month until paid. A county has four ways of collecting delinquent unsecured personal property taxes: (1) bringing a civil action against the taxpayer; (2) filing a certificate in the office of the County Clerk specifying certain facts in order to obtain a lien on certain property of the taxpayer; (3) filing a certificate of delinquency for record in the County Clerk and County Recorder’s office in order to obtain a lien on certain property of the taxpayer; and (4) seizing and selling personal property, improvements, or possessory interests belonging or assessed to the delinquent taxpayer. Assessed Valuation. The assessed valuation of property in the City is established by the County Assessor, except for public utility property which is assessed by the SBE. Assessed valuations are reported at 100% of the “full value” of the property, as defined in Article XIIIA of the California Constitution. Certain classes of property, such as churches, colleges, not-for-profit hospitals and charitable institutions, are exempt from property taxation and do not appear on the tax rolls. No reimbursement is made by the State for such exemptions. Property taxes allocated to the City are collected by the County at the same time and on the same tax rolls as are county and special district taxes. The valuation of secured property by the County Assessor is established as of January 1 and is subsequently equalized in September of each year.
-34-
The table below shows the assessed valuation of taxable property in the City for the ten most recent fiscal years. Table 5 CITY OF MONTEBELLO ASSESSED VALUATIONS Fiscal Years 2012-13 to 2021-22 Fiscal Year Ending Total Assessed % June 30, Local Secured Utility Unsecured Valuation Change 2006 $3,507,904,312 $30,385,099 $170,932,071 $3,709,221,482 n/a 2007 3,848,074,530 21,604,627 178,851,068 4,048,530,225 9.15% 2008 4,167,160,741 26,377,570 213,754,733 4,407,293,044 8.86 2009 4,453,657,847 39,836,244 221,899,005 4,715,393,096 6.99 2010 4,443,483,482 32,218,637 226,508,264 4,702,210,383 (0.28) 2011 4,378,348,647 56,545,427 232,706,940 4,667,601,014 (0.74) 2012 4,463,057,637 56,293,334 235,427,071 4,754,778,042 1.87 2013 4,556,675,666 54,142,738 222,865,075 4,833,683,479 1.66 2014 4,758,858,156 33,444,025 220,730,634 5,013,032,815 3.71 2015 4,928,160,376 41,703,454 228,888,587 5,198,752,417 3.70 2016 5,063,402,936 31,557,094 210,915,229 5,305,875,259 2.06 2017 5,282,681,403 20,057,286 223,110,011 5,525,848,700 4.15 2018 5,468,119,437 20,953,141 221,018,561 5,710,091,139 3.33 2019 5,794,732,247 20,402,706 238,293,460 6,053,428,413 6.01 2020 6,114,345,136 21,715,493 257,035,933 6,393,096,562 5.61 2021 6,420,376,449 21,262,293 271,902,181 6,713,540,923 5.01 2022 6,765,736,018 21,262,292 267,532,770 7,054,531,080 5.08 Source: California Municipal Statistics, Inc. Assessments may be adjusted during the year when real property changes ownership or new construction is completed. Assessments may also be appealed by taxpayers seeking a reduction as a result of economic and other factors beyond the City’s control, such as a general market decline in property values, reclassification of property to a class exempt from taxation, whether by ownership or use (such as exemptions for property owned by State and local agencies and property used for qualified educational, hospital, charitable or religious purposes), or the complete or partial destruction of taxable property caused by natural or manmade disaster, such as earthquake, flood, fire, toxic dumping, etc. When necessitated by changes in assessed value in the course of a year, taxes are pro-rated for each portion of the tax year. Appeals of Assessed Valuation; Blanket Reductions of Assessed Values. There are two basic types of property tax assessment appeals provided for under State law. The first type of appeal, commonly referred to as a base year assessment appeal, involves a dispute on the valuation assigned by the assessor immediately after an instance of a change in ownership or completion of new construction. If the base year value assigned by the assessor is reduced, the valuation of the property cannot increase in subsequent years more than 2% annually unless and until another change in ownership and/or additional new construction activity occurs. The second type of appeal, commonly referred to as a Proposition 8 appeal (which Proposition 8 was approved by the voters in 1978), can result if factors occur causing a decline in the market value of the property to a level below the then current taxable value of the property (escalated base year value). Pursuant to State law, a property owner may apply for a Proposition 8 reduction of the property tax assessment for
-35-
such owner’s property by filing a written application, in the form prescribed by the SBE, with the appropriate county board of equalization or assessment appeals board. A property owner desiring a Proposition 8 reduction of the assessed value of such owner’s property in any one year must apply to the county assessment appeals board (the “Appeals Board”). Following a review of the application by the county assessor’s office, the county assessor may offer to the property owner the opportunity to stipulate to a reduced assessment or may confirm the assessment. If no stipulation is agreed to, and the applicant elects to pursue the appeal, the matter is brought before the Appeals Board (or, in some cases, a hearing examiner) for a hearing and decision. The Appeals Board generally is required to determine the outcome of appeals within two years of each appeal’s filing date. Any reduction in the assessment ultimately granted applies only to the year for which application is made and during which the written application is filed. The assessed value increases to its pre-reduction level (escalated to the inflation rate of no more than 2%) following the year for which the reduction application is filed. However, the county assessor has the power to grant a reduction not only for the year for which application was originally made, but also for the then current year and any intervening years as well. In practice, such a reduced assessment may and often does remain in effect beyond the year in which it is granted. In addition to the above-described taxpayer appeals, county assessors may independently reduce assessed valuations based on changes in the market value of property, or for other factors such as the complete or partial destruction of taxable property caused by natural or man-made disasters such as earthquakes, floods, fire, drought or toxic contamination pursuant to relevant provisions of the State Constitution. In addition, Article XIIIA of the State Constitution provides that the full cash value base of real property used in determining taxable value may be adjusted from year to year to reflect the inflationary rate, not to exceed a 2% increase for any given year or may be reduced to reflect a reduction in the consumer price index or comparable local data. This measure is computed on a calendar year basis. Risk of Decline in Property Values; Fire; Earthquake Risk. Property values could be reduced by factors beyond the City’s control, including fire, earthquake or a depressed real estate market due to general economic conditions in the City, the region and the State. Other possible causes for a reduction in assessed values include the complete or partial destruction of taxable property caused by other natural or manmade disasters, such as flood, fire, drought, toxic dumping, acts of terrorism, etc., or reclassification of property to a class exempt from taxation, whether by ownership or use (such as exemptions for property owned by State and local agencies and property used for qualified educational, hospital, charitable or religious purposes). No assurance can be given that property tax appeals and/or blanket reductions of assessed property values will not significantly reduce the assessed valuation of property within the City in the future. Assembly Bill 102. On June 27, 2017, the Governor of the State (the “Governor”) signed into law Assembly Bill 102 (“AB 102”). AB 102 restructured the functions of the SBE and created two new separate agencies: (i) the California Department of Tax and Fee Administration, and (ii) the Office of Tax Appeals. Under AB 102, the California Department of Tax and Fee Administration took over programs previously in the SBE Property Tax Department, such as the Tax Area Services Section, which is responsible for maintaining all property tax-rate area maps and for maintaining special revenue district boundaries. Under AB 102, the SBE continues to perform the duties assigned by the State Constitution related to property taxes, however, effective January 1, 2018, the SBE will only hear appeals related to the programs that it
-36-
constitutionally administers and the Office of Tax Appeals will hear appeals on all other taxes and fee matters, such as sales and use tax and other special taxes and fees. AB 102 obligates the Office of Tax Appeals to adopt regulations as necessary to carry out its duties, powers, and responsibilities. No assurances can be given as to the effect of such regulations on the appeals process or on the assessed valuation of property within the City. State-Assessed Property. Under the Constitution, the SBE assesses property of State-regulated transportation and communications utilities, including railways, telephone and telegraph companies, and companies transmitting or selling gas or electricity. The Board of Equalization also is required to assess pipelines, flumes, canals and aqueducts lying within two or more counties. The value of property assessed by the Board of Equalization is allocated by a formula to local jurisdictions in the county, including school districts, and taxed by the local county tax officials in the same manner as for locally assessed property. Taxes on privately owned railway cars, however, are levied and collected directly by the Board of Equalization. Property used in the generation of electricity by a company that does not also transmit or sell that electricity is taxed locally instead of by the Board of Equalization. Thus, the reorganization of regulated utilities and the transfer of electricity-generating property to non-utility companies, as often occurred under electric power deregulation in California, affects how those assets are assessed, and which local agencies benefit from the property taxes derived. In general, the transfer of State-assessed property located in the City to non-utility companies will increase the assessed value of property in the City, since the property’s value will no longer be divided among all taxing jurisdictions in the County. The transfer of property located and taxed in the City to a State-assessed utility will have the opposite effect, generally reducing the assessed value in the City as the value is shared among the other jurisdictions in the County. The City is unable to predict future transfers of State-assessed property in the City and the County, the impact of such transfers on its utility property tax revenues, or whether future legislation or litigation may affect ownership of utility assets, the State’s methods of assessing utility property, or the method by which tax revenues of utility property is allocated to local taxing agencies, including the City.
-37-
Assessed Valuation by Land Use. The following table gives a distribution of taxable real property located in the City by principal purpose for which the land is used, and the assessed valuation and number of parcels for each use. Table 6 CITY OF MONTEBELLO ASSESSED VALUATION AND PARCELS BY LAND USE FY2021-22 Assessed Valuation (1) % of Total No. of Parcels % of Total Non-Residential: Commercial/Office $1,019,098,992 15.06% 717 5.39% Vacant Commercial 14,952,678 0.22 61 0.46 Industrial 1,111,871,480 16.43 347 2.61 Vacant Industrial 18,600,104 0.27 39 0.29 Recreational 18,382,469 0.27 17 0.13 Government/Social/Institutional 14,864,604 0.22 197 1.48 Miscellaneous 14,628,076 0.22 99 0.74 Subtotal Non-Residential $2,212,398,403 32.70% 1,477 11.10% Residential: Single Family Residence $2,989,898,486 44.19% 88,934 67.13% Condominium 280,403,998 4.14 1,051 7.90 Mobile Home 587,124 0.01 34 0.26 Mobile Home Park 9,373,035 0.14 4 0.03 2-4 Residential Units 506,389,486 7.48 1,249 9.39 5+ Residential Units/Apartments 610,201,917 9.02 387 2.91 Vacant Residential 156,483,209 2.31 172 1.29 Subtotal Residential $4,553,337,615 67.30% 11,831 88.90% Total $6,765,736,018 100.00% 13,308 100.00% Source: California Municipal Statistics, Inc. (1) Total secured assessed valuation, excluding tax-exempt property.
-38-
Principal Taxpayers. Based on fiscal year 2021-22 locally assessed taxable valuations, the top twenty taxable property owners in the City represent approximately 16.66% of the total fiscal year 2021-22 taxable value. The following table shows the 20 largest owners of taxable property in the City as determined by secured assessed valuation in fiscal year 2021-22. The City is not aware of any plans by the top twenty largest local secured taxpayers to leave the City or terminate operations. Table 7 CITY OF MONTEBELLO LARGEST LOCAL SECURED PROPERTY TAXPAYERS FY2021-22 Assessed % of Property Owner Primary Land Use Valuation Total(1) 1. Metro Heights Montebello LLC Residential Development $ 205,546,677 3.04% 2. Montebello Town Center Shopping Center 196,418,473 2.90 3. Bimbo Bakeries USA Inc. Industrial 84,071,655 1.24 4. Brixmor Montebello Plaza LP Shopping Center 79,404,443 1.17 5. KK 3A Corporation Apartments 51,122,306 0.76 6. Somerset Apartments LLC Apartments 48,622,876 0.72 7. Comref So CA Industrial Industrial 46,718,982 0.69 8. M and M at Montebello LLC Commercial 41,650,000 0.62 9. RreefAmerica REIT 11 corp. KKKK Industrial 41,240,079 0.61 10. Minson Investments Group LLC Industrial 39,465,569 0.58 11. KIR Montebello LP Shopping Center 36,905,455 0.55 12. Stanley A. Sirott Apartments 35,448,258 0.52 13. Combined Properties LP, Lessor Shopping Center 34,427,500 0.51 14. Prologs California 1 LLC Industrial 34,358,478 0.51 15. Phillip J. and Phyllis M. Pace, Trustees Industrial 28,994,727 0.43 16. Royal Paper Box Company of California Industrial 26,563,256 0.39 17. AMB Institutional Alliance Fund 111 LP Industrial 25,609,267 0.38 18. Sentinel Peak Resources CA LLC Oil & Gas 23,899,607 0.35 19. Guardian Life Insurance Company of America Industrial 23,838,193 0.35 20. Park Victoria Apartments LLC Apartments 22,912,107 0.34 Total Top 20 $1,127,217,908 16.66% Source: California Municipal Statistics, Inc. (1) FY2021-22 Local Secured Assessed Valuation: $6,765,736,018. Tax Levies and Delinquencies. Beginning in 1978-79, Article XIIIA and its implementing legislation shifted the function of property taxation primarily to the counties, except for levies to support prior-voted debt, and prescribed how levies on county-wide property values are to be shared with local taxing entities within each county.
-39-
The following tables reflects the historical secured tax levy and year-end delinquencies for property tax levies for property in the City for the most recent fiscal years. TABLE 8 CITY OF MONTEBELLO SECURED TAX CHARGE AND DELINQUENCY Fiscal Year Ending June 30, Secured Tax Charge (1) Amount Delinquent June 30 % Delinquent June 30 2010 $4,690,733.42 $158,300.95 3.37% 2011 4,687,921.67 110,694.12 2.36 2012 4,801,663.63 98,459.20 2.05 2013 4,904,228.68 86,679.85 1.77 2014 5,115,059.55 74,214.32 1.45 2015 5,314,426.53 75,473.56 1.42 2016 5,437,457.99 75,925.48 1.40 2017 5,655,763.80 66,173.32 1.17 2018 5,872,622.32 71,885.24 1.22 2019 6,197,146.22 83,463.94 1.35 2020 6,555,828.53 145,799.96 2.22 2021 6,871,077.75 115,521.53 1.68 Source: California Municipal Statistics, Inc. (1) 1% General Fund apportionment. Excludes redevelopment agency impounds. Reflects countywide delinquency rate. No Teeter Plan. The Los Angeles County Board of Supervisors elected to discontinue the Alternative Method of Distribution of Tax Levies and Collections and of Tax Sales Proceeds (commonly referred to as the “Teeter Plan”) on July 1, 2009. Under the terms of the Teeter Plan, the County had remitted to local agencies the amount of uncollected taxes in exchange for retaining any subsequent delinquent payments, penalties and interest that would have been due to the local agency. As the Teeter Plan has been discontinued, the City’s property tax revenues reflect both reduced property tax revenue from uncollected taxes and increased revenue from the subsequent receipt of delinquent taxes, interest and penalty payments. Sales and Use Taxes A sales tax is imposed on the privilege of consuming personal property in the State. The State does not tax services. The tax rate is established by the State Legislature, and is presently 7.25%, statewide (of which 1% is paid to the City) (the “State Sales Tax”). In addition, many of the State’s cities, counties, districts and communities have special taxing jurisdiction to impose a transaction (sales) or use tax. These so-called district taxes increase the tax rate in a particular area by adding the local option tax to the statewide tax. While more than one district tax may be in effect for a particular location, counties, municipalities, and districts are allowed to increase the sales tax in specific jurisdictions up to a total of 10.25%. Measure H. On March 3, 2020, approximately 61% of the voters of the city approved Measure H, a 0.75% sales tax on retail transactions. The proceeds of Measure H will be available to the General Fund once collection begins on July 1, 2020. Prior to the COVID-19 Pandemic, the City had estimated that Measure H would provide an additional $6 million per year to the City’s General Fund revenues, however actual
-40-
Measure H sales tax collections for Fiscal Year 2020-21 were approximately $7.7 million. Measure H taxes will be collected in perpetuity unless otherwise repealed by the City’s voters. Five separate district taxes are levied on sales in the City by the Los Angeles County Metropolitan Transportation Authority, each having approved by the voters in Los Angeles County. The applicable sales taxes include Measure H taxes, Measure M taxes, Measure R taxes, Proposition C taxes and Proposition A taxes. The following table shows a breakdown of the composition of the current sales and use tax rate applicable to transactions in the City: Table 9 CITY OF MONTEBELLO CURRENT SALES AND USE TAX RATES Component Tax Rate State General Fund 7.25% Los Angeles County 0.25 Measure H(1) 0.75 Measure M 0.50 Measure R 0.50 Proposition C 0.50 Proposition A 0.50 Total 10.25% Source: City of Montebello (1) Measure H sales tax collections began on July 1, 2020. The State’s Department of Tax and Fee Administration actual administrative costs with respect to the portion of sales taxes allocable to the City are deducted before distribution and are determined on a quarterly basis. Many categories of transactions are exempt for the State Sales Tax. The most important of these exemptions are the sales of food products for home consumption, prescription medicine, edible livestock and their feed, seed and fertilizer used in raising food for human consumption, and gas and electricity and water when delivered to consumers through mains, lines and pipes. In addition, occasional sales (i.e., sales of property not held or used by a seller during activities for which he or she is required to hold a seller’s permit) are generally exempt from both the State Sales Tax; however, the occasional sales exemption does not apply to the sale of an entire business and other sales of machinery and equipment used in a business. Action by the State Legislature or by voter initiative could change the transactions and items upon which the State Sales Tax are imposed. Such changes or amendments could have either an adverse or beneficial effect on revenues produced by sales taxes. The City is not currently aware of any proposed legislative change that would have a material adverse effect on the State Sales Tax. The City anticipates that the Topgolf project, if completed, will generate additional sales tax revenues for the City.
-41-
Other Sources of General Fund Revenues In addition, the City receives approximately 15-20% of its annual General Fund revenues from franchise taxes, fines and forfeitures, and other taxes and revenues. No Material Reliance on State Revenues The City does not rely on the State for a material amount of revenues. There can be no assurance that future State budget difficulties will not adversely affect the City’s revenues or its ability to make the Lease Payments when due. See “STATE BUDGET INFORMATION.” OTHER FINANCIAL INFORMATION Labor Relations Currently 541 full-time City employees are covered by negotiated agreements as detailed in the table below. The City also employs part-time employees unrepresented by a collective bargaining unit. Depending on the season, the City employs up to 100 part-time employees. Table 10 CITY OF MONTEBELLO NEGOTIATED EMPLOYEE AGREEMENTS Contract Bargaining Unit Expiration Date MFFA 6/30/25 MCEA 6/30/25 MSA 6/30/25 MPMA 6/30/23 MFMA 6/30/25 MPOA 6/30/23 MMMA 6/30/25 MEMA 6/30/23 MMPA 6/30/25 SMART-TD (1) 12/31/21 Source: City of Montebello (1) Currently under renegotiation. Risk Management The City is partially self-insured for general liability and workers’ compensation claims. The City pays up to $1 million per occurrence for general liability claims and has excess insurance up to $10 million per occurrence. For workers’ compensation, the City provides self-insurance up to a $1,000,000 retention level and has acquired excess insurance coverage of $5 million for each claim. The City also purchases commercial insurance for other risks of loss, including property loss and vehicle physical damage. For additional information about the City’s Risk Management, see APPENDIX C—ANNUAL COMPREHENSIVE FINANCIAL REPORT OF THE CITY FOR THE FISCAL YEAR ENDED JUNE 30, 2021, Note 11.
-42-
Employee Retirement Plans The information set forth below regarding the California Public Employees’ Retirement System (“CalPERS”) program, other than the information provided by the City regarding its annual contributions thereto, has been obtained from publicly available sources which are believed to be reliable but are not guaranteed as to accuracy or completeness, and should not be construed as a representation by either the City or the Underwriter. Plan Description. All qualified permanent and probationary employees are eligible to participate in the Public Agency Cost- Sharing Multiple-Employer Defined Benefit Pension Plan (Plan) administered by the California Public Employees’ Retirement System (CalPERS). The Plan consists of individual rate plans (benefit tiers) within a safety risk pool (police and fire) and a miscellaneous risk pool (all other.) Plan assets may be used to pay benefits for any employer rate plan of the safety and miscellaneous risk pools. Accordingly, rate plans within the safety or miscellaneous pools are not separate plans under GASB Statement No. 68. Individual employers may sponsor more than one rate plan in the miscellaneous or safety risk pools. The City sponsors three miscellaneous rate plans. Benefit provisions under the Plan are established by State statute and City resolution. CalPERS issues publicly available reports that include a full description of the pension plan regarding benefit provisions, assumptions and membership information that can be found on the CalPERS website. Benefits Provided. CalPERS provides service retirement and disability benefits, annual cost of living adjustments and death benefits to plan members, who must be public employees and beneficiaries. Benefits are based on years of credited service, equal to one year of full-time employment. Members with five years of total service are eligible to retire at age 50 (age 52 for Miscellaneous Plan members if membership date is on or after January 1, 2013) with statutorily reduced benefits. All members are eligible for non-duty disability benefits after 5 years of service. The death benefit is one of the following: the Special Death Benefit (Safety only), the Basic Death Benefit, the 1957 Survivor Benefit, or the Optional Settlement 2W Death Benefit. The cost-of-living adjustments for each plan are applied as specified by the Public Employees’ Retirement Law. Employees Covered. On June 30, 2021, the following employees were covered by the benefit terms for each Plan. TABLE 11 CITY OF MONTEBELLO DEFINED BENEFIT PENSION PLAN COVERED EMPLOYEES Safety Misc. Plan Plan Inactive employee or beneficiaries currently receiving benefits 283 440 Inactive employees entitled to but not yet receiving benefits 111 452 Active employees 110 310 Total 504 1,202 Source: City of Montebello 2020-21 ACFR. Contributions. Section 20814(c) of the California Public Employees’ Retirement Law requires that the employer contribution rates for all public employers be determined on an annual basis by the actuary
-43-
and shall be effective on the July 1 following notice of a change in the rate. Funding contributions for both Plans are determined annually on an actuarial basis as of June 30 by CalPERS. The actuarially determined rate is the estimated amount necessary to finance the costs of benefits earned by employees during the year, with an additional amount to finance any unfunded accrued liability. The City is required to contribute the difference between the actuarially determined rate and the contribution rate of employees. The City’s combined contributions to its Miscellaneous and Safety Plans for the most recent is summarized in the following table. Table 12 CITY OF MONTEBELLO HISTORICAL PENSION CONTRIBUTIONS Fiscal Year Ending June 30, Miscellaneous Plan Safety Plan Total Combined Contributions 2017 $ 3,474,912 $ 5,153,218 $ 8,628,130 2018 3,893,457 5,358,752 9,252,209 2019 4,404,730 6,104,047 10,508,777 2020 5,051,169 6,932,392 11,983,561 2021 (1) 61,879,526 103,113,849 164,993,375 Source: City of Montebello fiscal year 2020-21 Annual Comprehensive Financial Report. (1) FY2020-21 amounts reflect the issuance of Pension Obligation Bonds by the City in May of 2020 and the application of the proceeds thereof to the City’s unfunded actuarial liability. For additional discussion, see “2020 Pension Obligation Bonds” below. 2020 Pension Obligation Bonds. In May 2020 the City issued over $153.4 million in Pension Obligation Bonds (POBs). The City used the proceeds from the POBs to pay down the unfunded liability from the City’s Miscellaneous and Safety defined benefit retirement programs. The debt service for the POBs will be paid using revenue from the City’s 1946 voter approved property tax override assessment (the “Retirement Tax” as more fully described below.) Retirement Tax. In 1946, the voters of the City approved an initiative to pay for the obligation of the City to participate in the State’s retirement system, now CalPERS. The City first approved a contract with such system on July 20, 1946, pursuant to City Council Ordinance 398. Since that year, the City Council has annually set an ad valorem property tax rate for the purpose of providing revenue to pay all or a portion of the City’s pension obligations under the CalPERS Contract. Once the property tax rate is established for each fiscal year, the City reports the rate to the Los Angeles County Auditor-Controller to place the tax (the “Retirement Tax”) on the property tax roll of the County. Since the adoption of Ordinance No. 2148 in 1996, (the “1996 Ordinance”) the Retirement Tax has been set at a rate of $0.197875 per one hundred dollars ($100) assessed valuation (as further set forth in Montebello Municipal Code Section 3.28.020). The $0.197875 rate established in the 1996 Ordinance was consistent with the rate imposed for more than a decade prior to adoption of the 1996 Ordinance and is the rate of the Retirement Tax currently imposed by the City. The City accounts for the Retirement Tax in its Retirement Fund. Amounts in the Retirement Fund are used to pay the debt service on the 2020 Pension Obligation Bonds and for making transfers to the General Fund and other funds to reimburse current year pension-related expenses and accruals. While the amount of the Retirement Tax collected in each year has always exceeded the amounts needed to pay any
-44-
amortized amounts due on the City’s unfunded accrued actuarial liabilities, debt service on the City’s pension obligations bonds, and current year normal costs, any retirement related expenses above and beyond available Retirement Tax would be borne directly by the General Fund. For additional discussion of the Retirement Fund, see APPENDIX C—ANNUAL COMPREHENSIVE FINANCIAL REPORT OF THE CITY FOR THE FISCAL YEAR ENDED JUNE 30, 2021. Pension Expenses and Deferred Outflows/Inflows of Resources Related to Pensions. For the fiscal year ended June 30, 2021, the City recognized pension expense of $8,523,612 and $4,902,822 for the safety and miscellaneous plans, respectively. On June 30, 2021, the City reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: Table 13 CITY OF MONTEBELLO DEFERRED OUTFLOWS/INFLOWS OF RESOURCES Fiscal Year 2020-21 Miscellaneous Safety Deferred Outflows Deferred Inflows Deferred Outflows Deferred Inflows of Resources of Resources of Resources of Resources Contributions after measurement date $1,819,035 - $2,711,170 - Diff. btw. actual and expected experience 544,728 $(1,181,589) 667,700 $(198,753) Changes in assumptions - - - - Net diff. btw. projected and actual earnings on investment 2,796,645 - 4,047,677 - Differences in proportions - - - - Changes in employer’s portion - - - - Total $5,160,408 $(1,181,589) $7,426,547 $(198,753) Source: City of Montebello fiscal year 2020-21 Annual Comprehensive Financial Report. For information concerning the City’s pension obligations, including descriptions of the actuarial methods and assumptions, and an explanation of the discount rate used, please see APPENDIX C—ANNUAL COMPREHENSIVE FINANCIAL REPORT OF THE CITY FOR THE FISCAL YEAR ENDED JUNE 30, 2021, Note 9.
-45-
Funded Status. The following table sets forth a summary of the funding progress for the City’s combined Plans for the most recent actuarial valuation dates. Table 14 CITY OF MONTEBELLO HISTORICAL PENSION FUNDING PROGRESS Fiscal Year Ended June 30, Accrued Liability (AL) Market Value of Assets (MVA)
Unfunded Accrued Liability (UAL) Funded Ratio Covered Payroll Miscellaneous Plans 2018 $186,848,452 $135,675,895 $51,172,557 72.61% $16,116,462 2019 193,507,152 143,183,030 50,324,122 43.99 15,903,678 2020 203,041,317 149,160,103 53,881,214 73.46 16,045,340 2021(1) 207,674,011 209,346,248 (1,672,237) 100.81 15,953,606 Safety Plans 2018 $244,445,678 $159,783,828 $84,661,850 65.37% $11,568,474 2019 251,230,560 167,027,974 84,202,586 66.48 11,280,908 2020 263,162,591 172,476,801 90,685,790 65.54 10,934,684 2021(1) 270,879,258 271,648,136 (768,878) 100.28 11,486,487 Source: City of Montebello FY2020-21 ACFR. (1) FY2020-21 amounts reflect the issuance of Pension Obligation Bonds by the City in May of 2020 and the application of the proceeds thereof to the City’s unfunded actuarial liability. For additional discussion, see “2020 Pension Obligation Bonds” above. CalPERS Amortization Period Reform. On February 13, 2018, the CalPERS Board voted to shorten the period over which actuarial gains and losses are amortized from 30 years to 20 years for new pension liabilities. The new 20-year amortization period began with new gains or losses accrued starting with the June 30, 2019, actuarial valuations. The first payments on the new 20-year amortization schedule took place in 2021. A shorter amortization period will increase annual Unfunded Accrued Liability (“UAL”) contributions for cities that participate in CalPERS so long as CalPERS remains underfunded. The shortened amortization period will also lead to reductions of periods of negative amortization of the UAL, interest cost savings, and faster recoveries of funded status after market downturns. Cities that participate in CalPERS will also see additional volatility in their future UAL contributions due to market performance as gains or losses will be amortized faster under the new amortization period. The announcement on July 12, 2021 that CalPERS achieved an investment return of 21.3% for the period from July 1, 2020 through June 30, 2021 caused the CalPERS Board of Administration to lower CalPERS’ discount rate from 7.00% to 6.80% on November 15, 2021 in accordance with a risk mitigation policy that was adopted in 2015, which calls for the discount rate to be lowered if returns exceed the then-current discount rate by two or more percentage points.
-46-
The City cannot currently estimate the impact the shorter amortization period or lower discount rate will have on its required contributions for its Miscellaneous and Safety Plans. For information concerning the Plans, including descriptions of the actuarial methods and assumptions, please see APPENDIX C—ANNUAL COMPREHENSIVE FINANCIAL REPORT OF THE CITY FOR THE FISCAL YEAR ENDED JUNE 30, 2021, Note 9. Other Post-Employment Benefits Plan Description. The City provides postemployment healthcare benefits to eligible employees at retirement through a single employer defined benefit other postemployment benefits plan administered by the City (the “OPEB Plan”). Benefit provisions are established through agreements and memorandums of agreement between the City, its management employees, and unions representing the City’s employees. Employees Covered. Membership of the OPEB Plan consisted of 343 active employees, 0 inactive members entitled to but not yet receiving benefits, and 181 retirees and beneficiaries receiving benefits on June 30, 2021. Funding Policy. The City’s OPEB Plan is not funded. The City finances OPEB benefits on a pay-as-you-go basis. Changes In Net OPEB Liability. The following table shows the changes in the City’s net obligation to the OPEB Plan in fiscal year 2020-21: Table 15 CITY OF MONTEBELLO CHANGE IN NET OPEB LIABILITY Fiscal Year 2020-21 Service cost $ 1,000,546 Interest on OPEB liability 1,060,584 Dif. btw. actual and expected experience (2,969,308) Changes in assumptions 2,769,257 Employer contributions (1,422,435) Net changes 438,644 Net OPEB obligation, beginning of the year 29,920,612 Net OPEB obligation, end of the year $30,359,256 Source: City of Montebello fiscal year 2020-21 Annual Comprehensive Financial Report.
-47-
The following table shows a four-year history of the City’s outstanding OPEB Plan obligation. Table 16 CITY OF MONTEBELLO HISTORIC OPEB LIABILITY Fiscal Year Ending June 30, Net OPEB Obligation (UAAL) 2018 $ 28,012,070 2019 29,957,149 2020 29,920,612 2021 30,359,256 Source: City of Montebello fiscal year 2020-21 Annual Comprehensive Financial Report. Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, investment returns, mortality, and the healthcare cost trend. Amounts determined regarding the funded status of the Plan and the annual required contributions of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. For information concerning the City’s OPEB obligations, including descriptions of the actuarial methods and assumptions, please see APPENDIX C—ANNUAL COMPREHENSIVE FINANCIAL REPORT OF THE CITY FOR THE FISCAL YEAR ENDED JUNE 30, 2021, Note 10. Impact of Enterprise Operations on the City’s General Fund The City’s General Fund faces risks of unbudgeted expenditures from a number of its related enterprise operations as described below. Montebello Golf Course and Quiet Cannon Event Center. The City owns the Montebello Golf Course (the “Golf Course”) and the adjacent Quiet Cannon Event Center (the “Event Center”). The City records revenues from the Golf Course and the Event Center in the Golf Course Fund. Revenues in the Golf Course Fund include Golf Course green fees, special event revenue, and rent and concession revenue from the Event Center. Expenses in the Golf Course Fund include administrative costs, maintenance and labor costs, and debt service.
-48-
The City has, in recent years, made transfers from its General Fund to cover operating losses from the Golf Course and the Event Center accounted for in the Golf Course Fund. The following table shows a 5-year history of transfers from the City’s General Fund to the Golf Course Fund. Table 17 CITY OF MONTEBELLO GENERAL FUND TRANFERS OUT TO GOLF COURSE FUND Fiscal Year Ending June 30, Transfer Out From General Fund to Golf Course Fund 2018 $963,320 2019 641,850 2020 751,000 2021 471,300 2022 (1) 471,300 Source: City of Montebello fiscal year 2016-17 though 2020-21 Annual Comprehensive Financial Reports. (1) Projected based on actual fiscal year 2020-21 results. While the City believes that the completion of the Project and the Top Golf Project will have a positive, material impact on the operating results of the Golf Course Fund, if and to the extent such Golf Course Fund revenues do not exceed Golf Course Fund expenditures, additional transfers out from the City’s General Fund may be required. The City cannot project with certainty whether the revenues in the Golf Course Fund will exceed expenditures for current and future years. Hilton Garden Inn. Lease payments made from the City’s General Fund are the primary source of security for the Montebello Public Finance Authority’s Lease Revenue Bonds, 2019 Series A (Hilton Garden Inn Project) (the “HGI Bonds”), if net revenues from the Montebello Hilton Garden Inn (the “Hilton Garden Inn”) are insufficient to make debt service payments on the HGI Bonds. The City has not previously and does not anticipate needing to make transfers from its General Fund to pay debt service on the HGI Bonds, however changing economic circumstances could make such transfers necessary in the future if the net revenues from the Hilton Garden Inn are insufficient to pay debt service on the HGI Bonds. The HGI Bonds are secured by and payable from a cash funded debt service reserve fund. The maximum annual debt service on the HGI Bonds is $1,067,000. Home2Suites. Lease payments from the City’s General Fund are also the primary source of security for the Montebello Public Finance Authority’s Lease Revenue Bonds, 2016 Series A (Montebello Home2Suites By Hilton Hotel Project) (the “H2S Bonds”), if net revenues from the Montebello Home2Suites By Hilton Hotel (the “Home2Suites”) are insufficient to make debt service payments on the H2S Bonds. The City has not previously and does not anticipate needing to make transfers from its General Fund to pay debt service on the H2S Bonds, however changing economic circumstances could make such transfers necessary in the future if the net revenues from the Home2Suites are insufficient to pay debt service on the H2S Bonds. The H2S Bonds are secured by and payable from a cash funded debt service reserve fund. The maximum annual debt service on the H2S Bonds is $3,652,000. Topgolf. The City is currently in negotiations with Topgolf to develop the Topgolf Project. The Topgolf Project is expected to be financed from bonds to be issued by the Authority in the approximate amount of $65,000,000 (and projected maximum annual debt service of approximately $5,500,000) and secured by City lease payments under a lease-leaseback arrangement for the Topgolf Project property and
-49-
facility. While lease payments from the City’s General Fund are expected to be the primary source of security for the bonds, the venue will be subleased to Topgolf and the revenues from the operation of the venue will be used to make the sublease payments from Topgolf to the City which the City expects to use to pay the debt service requirements of the bonds. The City forecasts that the revenues from the operation of the Topgolf Project will also generate an approximately $1,200,000 annual ground lease payment from Topgolf (with built in escalators) to the City. Topgolf’s obligations under the lease is expected to be supported by a guaranty of Top Golf USA, Inc., a subsidiary of Calloway. So long as Topgolf pays all lease payments to the City in full when due under the Topgolf sublease, no transfers from the City’s General Fund will be required to cover debt service payments with regard to the bonds. However, the City cannot guaranty Topgolf’s performance of its obligations under the Topgolf sublease including the timely payment of lease payments to the City thereunder. If Topgolf fails to pay lease payments to the City under the Topgolf sublease, and payments are not made under the guaranty, the City may not be able to make all payments required to pay the debt service requirements of such bonds, of the Series 2022A Bonds or other obligations of the City payable from the City’s General Fund. It is anticipated that the bonds to finance the Topgolf Project will be issued in the Fall of 2022. For additional detail and discussion of the impacts of certain of the City’s enterprise operations on its General Fund, see “RISK FACTORS – Impact of Enterprise Operations on the City’s General Fund.”
-50-
Debt Obligations The City has the follow outstanding bonds payable in whole or in part from its General Fund: Outstanding Final Issue Par Amount Maturity Montebello Public Financing Authority Lease Revenue Refunding Bonds, 2014 Series A $1,455,000 11/1/2028
Montebello Public Financing Authority Lease Revenue Refunding Bonds, 2014 Series B $4,525,000 11/1/2028
Montebello Public Financing Authority Taxable Lease Revenue Refunding Bonds, 2014 Series C $1,386,660 11/1/2024
Montebello Public Financing Authority Lease Revenue Bonds, 2016 Series A (Montebello Home2 Suites by Hilton Hotel Project)(1) $51,685,000 6/1/2046
Montebello Public Financing Authority Lease Revenue Refunding Bonds, 2019 Series A (Hilton Garden Inn Project)(2) $9,550,000 12/1/2034 City of Montebello Taxable Pension Obligation Bonds, Series 2020(3) $143,015,000 6/1/2045 (1) The payments made by the Hilton Garden Inn are the primary source of the debt service payments on the HGI Bonds. The City will make such payments from its General Fund if such payments are not made by the Hilton Garden Inn. (2) The payments made by Home2Suites are the primary source of the debt service payments on the H2S Bonds. The City will make such payments from its General Fund if such payments are not made by Home2Suites. (3) The City’s Pension Tax Override Revenues are the primary source of the debt service payments on the H2S Bonds City of Montebello Taxable Pension Obligation Bonds, Series 2020. The City will make such payments from its General Fund if such payments are not available from Pension Tax Override Revenues. See APPENDIX C—ANNUAL COMPREHENSIVE FINANCIAL REPORT OF THE CITY FOR THE FISCAL YEAR ENDED JUNE 30, 2021, Note 10, for other obligations of the City not payable from its General Fund. Overlapping Debt Set forth below is a direct and overlapping debt report (the “Debt Report”) prepared by California Municipal Statistics, Inc. and effective August 1, 2022. The Debt Report is included for general information purposes only. Neither the City nor the Underwriter has reviewed the Debt Report for completeness or accuracy and neither the City nor the Underwriter makes any representation in connection therewith. The Debt Report generally includes long-term obligations sold in the public credit markets by public agencies whose boundaries overlap the boundaries of the City in whole or in part. Such long-term obligations generally are not payable from revenues of the City (except as indicated) nor are they necessarily obligations
-51-
secured by land within the City. In many cases, long-term obligations issued by a public agency are payable only from the General Fund or other revenues of such public agency. The contents of the Debt Report are as follows: (1) the first column indicates the public agencies which have outstanding debt as of the date of the Debt Report and whose territory overlaps the City; (2) the second column shows the respective percentage of the assessed valuation of the overlapping public agencies identified in column 1 which is represented by property located in the City; and (3) the third column is an apportionment of the dollar amount of each public agency’s outstanding debt (which amount is not shown in the table) to property in the City, as determined by multiplying the total outstanding debt of each agency by the percentage of the City’s assessed valuation represented in column 2.
-52-
Table 18 CITY OF MONTEBELLO DIRECT AND OVERLAPPING BONDED DEBT as of August 1, 2022 CITY OF MONTEBELLO 2021-22 Assessed Valuation: $7,054,531,080 OVERLAPPING TAX AND ASSESSMENT DEBT: % Applicable Debt 8/1/22 Metropolitan Water District 0.208% $ 41,964 Los Angeles Community College District 0.705 28,205,147 El Rancho Unified School District 0.004 3,731 Los Angeles Unified School District 0.001 102,373 Montebello Unified School District 36.143 53,953,036 TOTAL GROSS OVERLAPPING TAX AND ASSESSMENT DEBT $82,306,251 Less: Los Angeles Unified School District General Obligation Bonds, Election of 2005 Series H and J Qualified School Construction Bonds: Amount accumulated in Interest and Sinking Fund and Set Aside for Repayment 1,549 TOTAL NET OVERLAPPING TAX AND ASSESSMENT DEBT $82,304,702 DIRECT AND OVERLAPPING GENERAL FUND DEBT: Los Angeles County General Fund Obligations 0.398% $ 10,653,334 Los Angeles County Superintendent of Schools Certificates of Participation 0.398 13,546 Los Angeles County Sanitation District No. 2 Authority 9.085 137,902 Los Angeles County Sanitation District No. 15 Authority 0.702 10,907 Los Angeles Unified School District Certificates of Participation 0.001 1,207 Montebello Unified School District Certificates of Participation 36.143 1,913,772 City of Montebello General Fund Obligations 100.000 69,786,441(1) City of Montebello Pension Obligation Bonds 100. 143,015,000 TOTAL GROSS DIRECT AND OVERLAPPING GENERAL FUND DEBT $225,532,109 Less: City of Montebello Obligations supported from golf and hotel revenues 10,628,340 City of Montebello Obligations Pension Obligation Bonds supported by Transit Fund 38,142,101 TOTAL NET DIRECT AND OVERLAPPING GENERAL FUND DEBT $176,761,668 OVERLAPPING TAX INCREMENT DEBT (Successor Agency): 100.000 % $13,668,389 GROSS COMBINED TOTAL DEBT $321,506,749(2) NET COMBINED TOTAL DEBT $272,734,759 Ratios to 2021-22 Assessed Valuation: Total Gross Overlapping Tax and Assessment Debt ........................ 1.17% Total Net Overlapping Tax and Assessment Debt ........................... 1.17% Total Gross Direct Debt ($212,801,441) ................................ 3.02% Total Net Direct Debt ($164,031,000) ................................... 2.33% Gross Combined Total Debt ............................................................. 4.56% Net Combined Total Debt ................................................................ 3.87% Ratios to Redevelopment Successor Agency Incremental Valuation ($2,259,537,762): Total Overlapping Tax Increment Debt 0.60% Source: California Municipal Statistics, Inc. (1) Excludes issue to be sold. (2) Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue and non-bonded capital lease obligations.
-53-
STATE BUDGET INFORMATION Information regarding the State Budget is regularly available at various State-maintained websites. The fiscal year 2022-23 State Budget further described below can be found at the website of the Department of Finance, www.dof.ca.gov, under the heading “California Budget.” Additionally, an impartial analysis of the State’s Budgets is posted by the Office of the Legislative Analyst at www.lao.ca.gov. The information referred to is prepared by the respective State agency maintaining each website and not by the City, and neither the City nor the Underwriter takes responsibility for the continued accuracy of the internet addresses or for the accuracy, completeness or timeliness of information posted there, and such information is not incorporated herein by these references. State Budget Process. Through the State budget process, the State enacts legislation that significantly impacts the source, amount and timing of the receipt of revenues by local agencies, including the City. As in recent years, State budget deficits can result in legislation that adversely impacts local agency budgets. The State’s fiscal year begins on July 1 and ends on June 30. The annual budget is proposed by the Governor by January 10 of each year for the next fiscal year (the “Governor’s Budget”). Under State law, the annual proposed Governor’s Budget cannot provide for projected expenditures more than projected revenues and balances available from prior fiscal years. Following the submission of the Governor’s Budget, the Legislature takes up the proposal. Under the State Constitution, money may be drawn from the Treasury only through an appropriation made by law. The primary source of the annual expenditure authorizations is the Budget Act as approved by the Legislature and signed by the Governor. The Budget Act must be approved by a two-thirds majority vote of each House of the Legislature. The Governor may reduce or eliminate specific line items in the Budget Act or any other appropriations bill without vetoing the entire bill. Such individual line-item vetoes are subject to override by a two-thirds majority vote of each House of the Legislature. Appropriations also may be included in legislation other than the Budget Act. Bills containing appropriations (except for K-14 education) must be approved by a two-thirds majority vote in each House of the Legislature and be signed by the Governor. Bills containing K-14 education appropriations only require a simple majority vote. Continuing appropriations, available without regard to fiscal year, may also be provided by statute or the State Constitution. Funds necessary to meet an appropriation need not be in the State Treasury at the time such appropriation is enacted; revenues may be appropriated in anticipation of their receipt. Recent State Budgets. Certain information about the State budgeting process and the State Budget is available through several State sources. A convenient source of information is the State’s website, where recent official statements for State bonds are posted. The references to internet websites shown below are shown for reference and convenience only; the information contained within the websites has not been reviewed by the City and is not incorporated herein by reference. The State Treasurer’s Internet home page at www.treasurer.ca.gov, under the heading “Financial Information,” posts the State’s audited financial statements. In addition, the “Financial Information” section includes the State’s Rule 15c2-12 filings for State bond issues. The “Financial Information” section also includes the “Overview of the State Economy and Government, State Finances, State Indebtedness, Litigation” from the State’s most current Official Statement, which discusses the State budget and the State budget process in greater detail.
-54-
The State Legislative Analyst’s Office (“LAO”) prepares analyses of the proposed and adopted State budgets. The analyses are accessible on the Legislative Analyst’s Internet home page at www.lao.ca.gov under the heading “Products.” 2022-23 State Budget The Governor signed the fiscal year 2022-23 State budget on June 27, 2022, which was amended through a series of legislative bills, many of which were signed by the Governor on June 30, 2022 (as amended, the “2022-23 State Budget”). The 2022-23 State Budget projects a budget surplus of $7.8 billion, down from a surplus of $22.4 billion in the state’s 2021-22 fiscal year. The 2022-23 State Budget projects a decline in general fund revenue levels of $10 billion from fiscal year 2021-22 levels (from $232.7 billion to $222.6 billion) caused primarily from reduced corporation tax collections. The 2022-23 State Budget offsets the reduction in revenues with a $8.6 billion reduction to general fund expenditures as compared to fiscal year 2021-22 levels (from $242.9 billion to $234.3 billion) with the largest reductions in expenditures occurring in expenditures for government operations. The 2022-23 State Budget projects a draw-down of the State’s operating reserve from $18.2 billion in fiscal year 2021-22 to $3.5 billion, but projects increases in the state’s public school system stabilization account (from $7.3 billion to $9.5 billion) and rainy day fund (from $20.3 billion to $23.3 billion). The State Appropriations Limit, or Gann Limit, caps the amount of revenues from proceeds of taxes that can be appropriated by the State, which serves to constrain State spending. Any excess revenues appropriated above the State's limit over a two-year period must ultimately be reallocated evenly between schools and taxpayer refunds. The 2022-23 State Budget projects the State to be $11 billion below the limit based on statutory changes enacted as part of the 2022-23 State Budget, which includes expanding the definition of State subventions that must first be accounted for in local limits and revising levels of excluded spending in 2021-22. Legislative Analyst’s Office Analysis. An analysis by the non-partisan, Legislative Analyst’s Office (the “LAO”), published on the LAO website on August 12, 2022 (the “LAO Analysis”), has identified approximately $70.2 billion of discretionary general spending in the 2022-23 State Budget. The $70.2 billion amount includes: (1) the $36.4 billion in spending using the overall general fund surplus and (2) the $33.8 billion surplus within the school and community college budget. Schools and community colleges will receive the largest spending allocations reflecting the significant growth in Proposition 98. For non-educational discretionary spending choices, the LAO Analysis determined that roughly 95% of the surplus was devoted to one-time or temporary purposes, with most spending amounts were dedicated to resources and the environment, transportation, health, and housing and homelessness. The following is a summary of certain significant areas of general fund discretionary spending identified by the LAO Analysis in the 2022-23 State Budget. Reference should be made to the complete LAO Analysis and the 2022-23 State Budget for additional detail. One‑Time Refund Payments to California Taxpayers. The 2022-23 State Budget includes $9.5 billion in general fund spending for a one‑time tax refund payment, the Better for Families tax refund. Payments will be made to taxpayers with adjusted gross incomes (“AGI”) below $500,000 (for joint filers) and $250,000 (for single filers). The payment amount is based on AGI, with larger payments going to taxpayers with lower income levels. For example, a married couple with two children whose AGI was $100,000 will receive $1,050. A similar family with AGI of $300,000 will receive $600. The Stated intent of the refund is to help offset higher costs resulting from recent inflation.
-55-
Energy Package. The 2022-23 State Budget includes a total of $8.1 billion across five years from the general fund for energy‑related activities. This includes $4.3 billion, $2.3 billion in 2021‑22 and $2 billion in 2022‑23, appropriated for specific activities, such as actions to ensure there is adequate Statewide electricity supply over the next few years, financial support to cover unpaid household energy bills that accrued during the pandemic and incentives for long‑duration storage projects. Drought Response and Resilience. The 2022-23 State Budget includes $2 billion from the general fund to respond to current drought conditions, as well as for activities to prepare for future droughts. This includes $1.2 billion, $1.14 billion in 2021‑22 and $55 million in 2022‑23, appropriated for specific activities such as actions to improve water conservation, drinking water supplies and projects, grants for repairs to community water systems and steps to protect fish and wildlife from drought impacts. Wildfire Resilience and Response. The 2022-23 State Budget provides a total of $800 million over three years from the general fund for improving landscape health and wildfire resilience. The 2022-23 State Budget also provides roughly $850 million in 2022‑23, of which about $500 million is ongoing, almost entirely from the general fund, for various augmentations aimed at enhancing the State’s wildfire response. These augmentations mainly support additional personnel and equipment at the California Department of Forestry and Fire Protection, but also provide wildfire response resources for the Governor’s Office of Emergency Services, California Military Department and California Conservation Corps. Zero‑Emissions Vehicles (ZEV). The 2022-23 State Budget provides a total of $6.1 billion over five years for Zero‑Emissions Vehicles (“ZEV”). programs. This includes $2.6 billion from various funds for specific programs, such as $1.5 billion from Proposition 98 general fund for zero‑emission school buses, $600 million from the Greenhouse Gas Reduction Fund for heavy‑duty vehicle incentives and $383 million in federal funds for ZEV fueling infrastructure. Retention Payments for Workers in Certain Health Care Facilities. The 2022-23 State Budget includes roughly $1.1 billion from the general fund in 2021‑22 to provide one‑time retention payments to eligible workers in certain health care facilities, including hospitals and skilled nursing facilities. Eligible workers could receive up to $1,500 from the State. A similar payment is being included in labor bargaining agreements for State employees, paid using a mix of general fund and other funds. Behavioral Health. The 2022-23 State Budget includes roughly $2 billion in general fund expenditures in 2022‑23, approved in the prior year, as part of the multiyear Children and Youth Behavioral Health Initiative. This initiative funds a variety of programs administered by multiple State departments intended to transform behavioral health service delivery for children and youth under age 25. In addition, the 2022-23 State Budget includes $1 billion from the general fund in 2022‑23 ($1.5 billion general fund over two years) to establish a State‑level Behavioral Health Bridge Housing program, which will support the creation of immediate, clinically enhanced housing settings for people experiencing homelessness with serious behavioral health conditions. Medi‑Cal Coverage Expansion to Remaining Undocumented Populations. In recent years, the State has taken steps to expand eligibility for comprehensive Medi‑Cal coverage to undocumented residents under the age of 26 as well as those over the age of 49. The 2022-23 State Budget expands eligibility for comprehensive Medi‑Cal coverage to otherwise‑eligible undocumented residents between the ages of 26 and 49 beginning no later than January 1, 2024. Housing and Homelessness. The 2022‑23 State Budget authorizes an additional $4.8 billion from the general fund over three years to nearly 20 major housing and homelessness programs within the
-56-
Business, Consumer Services, and Housing Agency and the Housing and Community Development Department. The vast majority of funding is one time or temporary. However, the 2022-23 State Budget does provide $34 million in ongoing funding beginning in 2023‑24 for housing assistance for foster youth and former foster youth. Most of the funding, $2.9 billion from the general fund, is primarily for housing‑related proposals, while $1.9 billion from the general fund is allocated primarily towards homelessness‑related programs. Some of the major uses of housing and homelessness funding in the 2022‑23 State Budget would support encampment resolutions; provide flexible aid to local governments to help address homelessness in their communities; fund affordable housing development; and establish a new homeownership program. The 2022-23 State Budget also provides funding that could be used to help address homelessness and/or housing affordability in other program areas, including the health, courts, and higher education areas. For additional information regarding the 2022-23 State Budget, please see the Department of Finance website at ebudget.ca.gov. For additional information regarding the LAO Analysis, please see the Legislative Analyst’s Office website at lao.ca.gov. The City can take no responsibility for the continued accuracy of the above-referenced internet address as for the or for the accuracy, completeness, or timeliness of information posted therein, and such information is not incorporated herein by reference. Though the City does not expect that the 2022-23 State Budget will have a materially negative effect on its finances, the City cannot predict such impacts with certainty. Additionally, the City cannot predict the accuracy of any projections made in the 2022-23 State Budget. Future State Budgets. The City receives a portion of its funding from the State. Changes in the revenues received by the State can affect the amount of funding, if any, to be received from the State by the City and other cities in the State. In addition, the City cannot predict the outcome of current and future State budget negotiations, the impact that such budgets will have on its finances and operations or what actions will be taken in the future by the State Legislature and Governor to deal with changing State revenues and expenditures. Current and future State budgets will be affected by national and State economic conditions and other factors over which the City has no control. See also “RISK FACTORS—Dependence on State for Certain Revenues.” CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES, REVENUES AND APPROPRIATIONS The constitutional and statutory provisions discussed in this section have the potential to affect the ability of the City to levy taxes and spend tax proceeds for operating and other purposes. Article XIIIA of the California Constitution On June 6, 1978, California voters approved an amendment (commonly known as both Proposition 13 and the Jarvis-Gann Initiative) to the California Constitution. This amendment, which added Article XIIIA to the California Constitution, among other things affects the valuation of real property for the purpose of taxation in that it defines the full cash property value to mean “the county assessor’s valuation of real property as shown on the 1975-76 tax bill under “full cash value,” or thereafter, the appraised value of real property newly constructed, or when a change in ownership has occurred after the 1975 assessment.” The full cash value may be adjusted annually to reflect inflation at a rate not to exceed 2% per year, or a
-57-
reduction in the consumer price index or comparable local data at a rate not to exceed 2% per year or reduced in the event of declining property value caused by damage, destruction or other factors including a general economic downturn. The amendment further limits the amount of any ad valorem tax on real property to one percent of the full cash value except that additional taxes may be levied to pay debt service on indebtedness approved by the voters prior to July 1, 1978, and bonded indebtedness for the acquisition or improvement of real property approved on or after July 1, 1978, by two-thirds of the votes cast by the voters voting on the proposition. Legislation enacted by the California Legislature to implement Article XIIIA provides that all taxable property is shown at full assessed value as described above. In conformity with this procedure, all taxable property value included in this Official Statement (except as noted) is shown at 100% of assessed value and all general tax rates reflect the $1 per $100 of taxable value. Tax rates for voter approved bonded indebtedness and pension liability are also applied to 100% of assessed value. The voters of the State subsequently approved various measures which further amended Article XIIIA. One such amendment generally provides that the purchase or transfer of (i) real property between spouses or (ii) the principal residence and the first $1,000,000 of the Full Cash Value of other real property between parents and children, do not constitute a “purchase” or “change of ownership” triggering reappraisal under Article XIIIA. Other amendments permitted the State Legislature to allow persons over the age of 55 who meet certain criteria or “severely disabled homeowners” who sell their residence and buy or build another of equal or lesser value within two years in the same county, to transfer the old residence’s assessed value to the new residence. Other amendments permit the State Legislature to allow persons who are either 55 years of age or older, or who are “severely disabled,” to transfer the old residence’s assessed value to their new residence located in either the same or a different county and acquired or newly constructed within two years of the sale of their old residence. In the November 1990 election, the voters approved an amendment of Article XIIIA to permit the State Legislature to exclude from the definition of “new construction” certain additions and improvements, including seismic retrofitting improvements and improvements utilizing earthquake hazard mitigation technologies constructed or installed in existing buildings after November 6, 1990. Article XIIIA has also been amended to provide that there would be no increase in the Full Cash Value base in the event of reconstruction of the property damaged or destroyed in a disaster. Section 51 of the Revenue and Taxation Code permits county assessors who have reduced the assessed valuation of a property because of natural disasters, economic downturns or other factors, to subsequently “recapture” such value (up to the pre-decline value of the property) at an annual rate higher than 2%, depending on the assessor’s measure of the restoration of value of the damaged property. Section 4 of Article XIIIA also provides that cities, counties and special districts cannot, without a two-thirds vote of the qualified electors, impose special taxes, which has been interpreted to include special fees more than the cost of providing the services or facility for which the fee is charged, or fees levied for general revenue purposes. Both the California State Supreme Court and the United States Supreme Court have upheld the validity of Article XIIIA.
-58-
Article XIIIB of the California Constitution On November 6, 1979, California voters approved Proposition 4, the Gann Initiative, which added Article XIIIB to the California Constitution. In June 1990, Article XIIIB was amended by the voters through their approval of Proposition 111. Article XIIIB of the California Constitution limits the annual appropriations of the State and any city, county, school district, authority or other political subdivision of the State to the level of appropriations for the prior fiscal year, as adjusted annually for changes in the cost of living, population and services rendered by the governmental entity. The “base year” for establishing such appropriation limit is Fiscal Year 1978-79. Increases in appropriations by a governmental entity are also permitted (1) if financial responsibility for providing services is transferred to the governmental entity, or (2) for emergencies so long as the appropriations limits for the three years following the emergency are reduced to prevent any aggregate increase above the Constitutional limit. Decreases are required where responsibility for providing services is transferred from the government entity. Appropriations subject to Article XIIIB include generally any authorization to expend during the fiscal year the proceeds of taxes levied by the State or other entity of local government, exclusive of certain State subventions, refunds of taxes, benefit payments from retirement, unemployment insurance and disability insurance funds. Appropriations subject to limitation pursuant to Article XIIIB do not include debt service on indebtedness existing or legally authorized as of January 1, 1979, on bonded indebtedness thereafter approved according to law by a vote of the electors of the issuing entity voting in an election for such purpose, appropriations required to comply with mandates of courts or the Federal government, appropriations for qualified outlay projects, and appropriations by the State of revenues derived from any increase in gasoline taxes and motor vehicle weight fees above January 1, 1990 levels. “Proceeds of taxes” include, but are not limited to, all tax revenues and the proceeds to any entity of government from (1) regulatory licenses, user charges, and user fees to the extent such proceeds exceed the cost of providing the service or regulation, (2) the investment of tax revenues and (3) certain State subventions received by local governments. As amended by Proposition 111, the appropriations limit is tested over consecutive two-year periods. Any excess of the aggregate “proceeds of taxes” received by the City over such two-year period above the combined appropriations limits for those two years is to be returned to taxpayers by reductions in tax rates or fee schedules over the subsequent two years. As amended in June 1990, the appropriations limit for the City in each year is based on the limit for the prior year, adjusted annually for changes in the costs of living and changes in population, and adjusted, where applicable, for transfer of financial responsibility of providing services to or from another unit of government. The change in the cost of living is, at the City’s option, either (1) the percentage change in California per capita personal income, or (2) the percentage change in the local assessment roll for the jurisdiction due to the addition of nonresidential new construction. The measurement of change in population is a blended average of statewide overall population growth and change in attendance at local school and community college (“K-14”) districts. Article XIIIB permits any government entity to change the appropriations limit by vote of the electorate in conformity with statutory and Constitutional voting requirements, but any such voter-approved change can only be effective for a maximum of four years. Articles XIIIC and XIIID (Proposition 218) of the California Constitution On November 5, 1996, the voters of the State approved Proposition 218, a constitutional initiative, entitled the “Right to Vote on Taxes Act” (“Proposition 218”). Proposition 218 added Articles XIIIC and XIIID to the California Constitution and contained several interrelated provisions affecting the ability of
-59-
local governments, including the City, to levy and collect both existing and future taxes and assessments, fees and charges. Section 2 of Article XIIIC requires majority voter approval for the imposition, extension or increase of general taxes and requires two thirds voter approval for the imposition, extension or increase of special taxes. These voter approval requirements of Article XIIIC reduce the flexibility of the City to raise revenues by the levy of general or special taxes and, given such voter approval requirements, no assurance can be given that the City will be able to enact, impose, extend or increase any such taxes in the future to meet increased expenditure requirements. Although a portion of the City’s General Fund revenues are derived from general taxes purported to be governed by Proposition 218, all of such taxes were either imposed, extended or increased prior to the effective date of Proposition 218 or in accordance with the requirements of Proposition 218. No assurance can be given that the voters of the City will not, in the future, approve an initiative or initiatives which reduce or repeal local taxes, assessments, fees or charges, such as the TOT, Proposition 172 revenues, or storm water fees which support the City’s General Fund. TOT and other local taxes, assessments, fees and charges, could be subject to reduction or repeal by initiative under Proposition 218. Section 3 of Article XIIIC expressly extends the initiative power to give voters the power to reduce or repeal local taxes, assessments, fees and charges, regardless of the date such taxes, assessments, fees or charges were imposed. Section 3 expands the initiative power to include reducing or repealing assessments, fees and charges that had previously been considered administrative rather than legislative matters and therefore beyond the initiative power. This extension of the initiative power is not limited by the terms of Article XIIIC to fees imposed after November 6, 1996, the effective date of Proposition 218, and absent other legal authority could result in the reduction in any existing taxes, assessments or fees and charges imposed prior to November 6, 1996. “Fees” and “charges” are not expressly defined in Article XIIIC or in SB 919, the Proposition 218 Omnibus Implementation Act enacted in 1997 to prescribe specific procedures and parameters for local jurisdictions in complying with Article XIIIC and Article XIIID (“SB 919”). However, on July 24, 2006, the California Supreme Court ruled in Bighorn-Desert View Water Agency v. Virjil (Kelley) (the “Bighorn Decision”) that charges for ongoing water delivery are fees and charges within the meaning Section 3 of Article XIIIC. The California Supreme Court held that such water service charges may, therefore, be reduced or repealed through a local voter initiative pursuant to Section 3 of Article XIIIC. The Bighorn Decision has been interpreted to mean that ongoing water delivery charges are also property-related fees and charges within the meaning of Article XIIID. In the Bighorn Decision, the Supreme Court stated that nothing in Section 3 of Article XIIIC authorizes initiative measures that impose voter-approval requirements for future increases in fees or charges for water delivery. The Supreme Court stated that water providers may determine rates and charges upon proper action of the governing body and that the governing body may increase a charge which was not affected by a prior initiative or impose an entirely new charge. The Supreme Court further stated in the Bighorn Decision that it was not holding that the initiative power is free of all limitations and was not determining whether the initiative power is subject to the statutory provision requiring that water and wastewater service charges be set at a level that will pay debt service on bonded debt and operating expenses. Such initiative power could be subject to the limitations imposed on the impairment of contracts under the contract clause of the United States Constitution.
-60-
Additionally, SB 919 provides that the initiative power provided for in Proposition 218 “shall not be construed to mean that any owner or beneficial owner of a municipal security, purchased before or after (the effective date of Proposition 218) assumes the risk of, or in any way consents to, any action by initiative measure that constitutes an impairment of contractual rights” protected by the United States Constitution. Article XIIIC also removes many of the limitations on the initiative power in matters of reducing or repealing any local tax, assessment, fee or charge. No assurance can be given that the voters of the City will not, in the future, approve an initiative or initiatives which reduce or repeal local taxes, assessments, fees or charges currently comprising a substantial part of the City’s General Fund. “Assessments,” “fees” and “charges” are not defined in Article XIIIC, and it is unclear whether these terms are intended to have the same meanings for purposes of Article XIIIC as for Article XIIID described below. If not, the scope of the initiative power under Article XIIIC potentially could include any General Fund local tax, assessment, or fee not received from or imposed by the federal or State government or derived from investment income. If the City is unable to continue to collect assessment revenues for a particular program, the program might have to be curtailed and/or funded by the City’s General Fund. Given the approval requirements imposed by Article XIIID, the City is unable to predict whether it will be able to continue to collect assessment revenues for these programs. If the City chose to fund any such programs from the General Fund instead, the General Fund budget would be affected. Article XIIID defines a “fee” or “charge” as any levy other than an ad valorem tax, special tax, or assessment imposed by an agency upon a parcel or upon a person as an incident of property ownership, including a user fee or charge for a property-related service. A “property-related service” is defined as “a public service having a direct relationship to a property ownership” herein. Article XIIID further provides that reliance by an agency on any parcel map (including an assessor’s parcel map) may be considered a significant factor in determining whether a fee or charge is imposed as an incident of property ownership. In the Bighorn Decision, the Supreme Court stated that ongoing water delivery charges are also property-related fees and charges within the meaning of Article XIIID. Article XIIID requires that any agency imposing or increasing any property-related fee or charge must provide written notice thereof to the record owner of each identified parcel upon which such fee or charge is to be imposed and must conduct a public hearing with respect thereto. The proposed fee or charge may not be imposed or increased if a majority of owners of the identified parcels file written protests against it. As a result, if and to the extent that a fee or charge imposed by a local government for water service is ultimately determined to be a “fee” or “charge” as defined in Article XIIID, the local government’s ability to increase such fee or charge may be limited by a majority protest. In addition, Article XIIID also includes a number of limitations applicable to existing fees and charges including provisions to the effect that (i) revenues derived from the fee or charge shall not exceed the funds required to provide the property-related service; (ii) such revenues shall not be used for any purpose other than that for which the fee or charge was imposed; (iii) the amount of a fee or charge imposed upon any parcel or person as an incident of property ownership shall not exceed the proportional cost of the service attributable to the parcel; and (iv) no such fee or charge may be imposed for a service unless that service is actually used by, or immediately available to, the owner of the property in question. Property-related fees or charges based on potential or future use of a service are not permitted. Depending on the interpretation of what constitutes a “property-related fee” under Article XIIID, there could be future restrictions on the ability of the City’s General Fund to charge its enterprise funds for
-61-
various services provided. If fees and charges of enterprise funds cannot be appropriately increased or are reduced pursuant to exercise of the initiative power, the City may have to decide whether to supplement any deficiencies in these enterprise funds with moneys from the General Fund or to curtail service, or both. The interpretation and application of Proposition 218 will ultimately be determined by the courts or through implementing legislation with respect to several the matters described above, and it is not possible at this time to predict with certainty the outcome of such determination or the nature or scope of any such legislation. Both Articles XIIIA and XIIIB, as well as Articles XIIIC and XIIID described above, were adopted as measures that qualified for the ballot pursuant to California’s constitutional initiative process. From time-to-time other initiative measures could be adopted, affecting the ability of the City to increase revenues and to increase appropriations. Proposition 1A of 2004 The California Constitution and existing statutes give the legislature authority over property taxes, sales taxes and the VLF. The legislature has authority to change tax rates, the items subject to taxation and the distribution of tax revenues among local governments, schools, and community college districts. The State has used this authority for many purposes, including increasing funding for local services, reducing State costs, reducing taxation, addressing concerns regarding funding for particular local governments, and restructuring local finance. The California Constitution generally requires the State to reimburse the local governments when the State “mandates” a new local program or higher level of service. Due to the ongoing financial difficulties of the State, it has not provided in recent years reimbursements for many mandated costs. In other cases, the State has “suspended” mandates, eliminating both responsibility of the local governments for complying with the mandate and the need for State reimbursements. The 2004 Budget Act, related legislation and the enactment of Proposition 1A of 2004 (described below) dramatically changed the State-local fiscal relationship. These constitutional and statutory changes implemented an agreement negotiated between the Governor and local government officials (the “State-local agreement”) in connection with the 2004 Budget Act. One change related to the reduction of the VLF rate from 2% to 0.65% of the market value of the vehicle. To protect local governments, which had previously received all VLF revenues, the 1.35 percent reduction in VLF revenue to cities and counties from this rate change was backfilled by an increase in the amount of property tax revenues they receive. This worked to the benefit of local governments, because the backfill amount annually increases in proportion to the growth in secured roll property tax revenues, which has historically grown at a higher rate than VLF revenues. Proposition 1A of 2004 requires the State to provide local governments with equal replacement revenues. On November 3, 2004, the voters of the State approved Proposition 1A (“Proposition 1A of 2004”). Proposition 1A of 2004 amended the State Constitution to, among other things, reduce the Legislature’s authority over local government revenue sources by placing restrictions on the State’s access to local governments’ property tax, sales tax, and VLF revenues as of November 3, 2004. Pursuant to Proposition 1A of 2004, the State can borrow up to 8% of local property tax revenues but only if the Governor proclaims such action is necessary due to a severe State fiscal hardship and two-thirds of both houses of the
-62-
State Legislature approve the borrowing. Any amounts borrowed are required to be repaid within three years. Proposition 1A of 2004 also permits the State to borrow from local property tax revenues for no more than two fiscal years within a period of 10 fiscal years, and only if previous borrowings have been repaid. In addition, the State cannot reduce the local sales tax rate or restrict the authority of the local governments to impose or change the distribution of the statewide local sales tax. Proposition 1A of 2004 generally prohibits the State from mandating activities on cities, counties, or special districts without providing the funding needed to comply with the mandates, and if the State does not provide funding for the activity that has been determined to be mandated, the requirement on cities, counties, or special districts to abide by the mandate is suspended. Proposition 1A of 2004 also expanded the definition of what constitutes a mandate to encompass State action that transfers to cities, counties, and special districts financial responsibility for a required program for which the State previously had partial or complete responsibility. The State mandate provisions of Proposition 1A of 2004 do not apply to schools or community colleges or to mandates relating to employee rights. Pursuant to statutory changes made in conjunction with amendments to the fiscal year 2008-09 State Budget Act, the Fiscal Year 2009-10 State Budget Act and related budget legislation adopted by the State Legislature and signed by the Governor in February 2012 (collectively, the “February 2012 Budget Package”), the VLF rate increased from 0.65% to 1.15% effective May 19, 2012. Of this 0.50% increase, 0.35% will flow to the State general fund, and 0.15% will support various law enforcement programs previously funded by the State general fund. Proposition 22 Proposition 22 (“Proposition 22”), which was approved by California voters in November 2010, prohibits the State, even during a period of severe fiscal hardship, from delaying the distribution of tax revenues for transportation, redevelopment, or local government projects and services and prohibits fuel tax revenues from being loaned for cash-flow or budget balancing purposes to the State general fund or any other State fund. Due to the prohibition with respect to State’s ability to take, reallocate, and borrow money raised by local governments for local purposes, Proposition 22 supersedes certain provisions of Proposition 1A of 2004. See “ – Proposition 1 A of 2004” herein. In addition, Proposition 22 generally eliminates the State’s authority to temporarily shift property taxes from cities, counties, and special districts to schools, temporarily increase schools’ and community college districts’ share of property tax revenues, prohibits the State from borrowing or redirecting redevelopment property tax revenues or requiring increased pass-through payments thereof, and prohibits the State from reallocating vehicle license fee revenues to pay for State imposed mandates. In addition, Proposition 22 requires a two-thirds vote of each house of the State Legislature and a public hearing process to be conducted to change the amount of fuel excise tax revenues shared with cities and counties. The LAO states that Proposition 22 will prohibit the State from enacting new laws that require redevelopment agencies to shift funds to schools or other agencies. Proposition 22 prohibits the State from borrowing sales taxes or excise taxes on motor vehicle fuels or changing the allocations of those taxes among local government except pursuant to specified procedures involving public notices and hearings. In addition, Proposition 22 requires that the State apply the formula setting forth the allocation of State fuel tax revenues to local agencies revert to the formula in effect on June 30, 2009. The LAO anticipated that Proposition 22 would require the State to adopt alternative actions to address its fiscal and policy objectives, particularly with respect to short-term cash flow need. The City does not believe that Proposition 22 will have a significant impact on its revenues and expenditures.