Section 2. Provision of Annual Reports. (a) The Community Facilities District shall, or shall cause the Dissemination Agent to, provide to the MSRB an Annual Report that is consistent with the requirements of Section 3 hereof, not later than the Annual Report Date, commencing with the report for the 2021-22 Fiscal Year. The Annual Report may include by reference other information as provided in Section 3 hereof; provided, however, that the audited financial statements of the Community Facilities District, if any, may be submitted separately from the balance of the Annual Report, and later than the date required above for the filing of the Annual Report if they are not available by that date. If the Community Facilities District’s fiscal year changes, it shall, or it shall instruct the Dissemination Agent to, give notice of such change in a filing with the MSRB.
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(b) Not later than 15 business days prior to the date specified in subsection (a) of this Section for the providing of the Annual Report to the MSRB, the Community Facilities District shall provide the Annual Report to the Dissemination Agent and the Trustee (if the Trustee is not the Dissemination Agent). If by such date, the Trustee has not received a copy of the Annual Report, the Trustee shall contact the Community Facilities District and the Dissemination Agent to determine if the Community Facilities District is in compliance with the first sentence of this subsection (b).
(c) If the Trustee is unable to verify that an Annual Report has been provided to the MSRB by the date required in subsection (a) of this Section, the Trustee shall, in a timely manner, send a notice to the MSRB in substantially the form attached as Exhibit A. (d) The Dissemination Agent shall:
(i) provide each Annual Report received by it to the MSRB, as provided herein; and
(ii) file a report with the Community Facilities District and (if the Dissemination Agent is not the Trustee) the Trustee certifying that such Annual Report has been provided pursuant to this Disclosure Agreement and stating the date it was provided to the MSRB.
Section 3. Content of Annual Reports. The Community Facilities District’s Annual Report shall contain or incorporate by reference the following:
(a) The Community Facilities District’s audited financial statements, if any, prepared in accordance with generally accepted accounting principles as promulgated to apply to governmental entities from time to time by the Governmental Accounting Standards Board. If the Community Facilities District’s audited financial statements, if any, are not available by the time the Annual Report is required to be filed pursuant to subsection (a) of Section 2 hereof, the Annual Report shall contain unaudited financial statements, in a format similar to that used for the Community Facilities District’s audited financial statements, and the audited financial statements, if any, shall be filed in the same manner as the Annual Report when they become available. (b) The following information:
(i) The principal amount of Series 2022 Bonds Outstanding as of the December 31 next preceding the Annual Report Date;
(ii) The principal amount of Additional Bonds, if any, Outstanding as of the December 31 next preceding the Annual Report Date; (iii) The balance in (A) the GDC/CDG Esperanza Acquisition Account, and (B) the NMC Acquisition Account, as of the December 31 next preceding the Annual Report Date;
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(iv) The balance in the Reserve Fund, and a statement of the Reserve Requirement, as of the December 31 next preceding the Annual Report Date; (v) The total assessed value of all parcels within the Community Facilities District on which the Special Taxes are levied, as shown on the assessment roll of the San Bernardino County Assessor last equalized prior to the December 31 next preceding the Annual Report Date, and a statement of assessed value-to-Bonded debt ratios therefor, either by individual parcel or by categories (e.g., “below 3:1,” “3:1 to 4:1,” etc.);
(vi) The Special Tax delinquency rate for all parcels within the Community Facilities District, as shown on the assessment roll of the San Bernardino County Assessor last equalized prior to the December 31 next preceding the Annual Report Date, the number of parcels within the Community Facilities District delinquent in payment of Special Taxes as of the December 31 next preceding the Annual Report Date, the amount of each delinquency, the length of time delinquent and the date on which foreclosure was commenced, or similar information pertaining to delinquencies deemed appropriate by the Community Facilities District; provided, however, that parcels with aggregate delinquencies of $2,000 or less (excluding penalties and interest) may be grouped together and such information may be provided by category; (vii) The status of foreclosure proceedings and a summary of the results of any foreclosure sales as of the December 31 next preceding the Annual Report Date;
(viii) The identity of any property owner representing more than 5% of the Special Tax levy delinquent in payment of Special Taxes as of the December 31 next preceding the Annual Report Date;
(ix) A land ownership summary listing property owners responsible for more than 5% of the annual Special Tax, as shown on the assessment roll of the San Bernardino County Assessor last equalized prior to the December 31 next preceding the Annual Report Date; and
(x) A description of any changes to the Rate and Method approved by, or submitted for approval to, the qualified electors of the Community Facilities District during the period from the date of filing the prior year’s Annual Report to the date of filing such Annual Report.
Any or all of the items listed above may be included by specific reference to other documents, including official statements of debt issues of the Community Facilities District or related public entities that have been made available to the public on the MSRB’s website. The Community Facilities District shall clearly identify each such other document so included by reference.
Section 4. Reporting of Significant Events. (a) Pursuant to the provisions of this Section, the Community Facilities District shall give, or cause to be given, notice of the 3778
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occurrence of any of the following events with respect to the Series 2022 Bonds in a timely manner not later than ten business days after the occurrence of the event:
(i) Principal and interest payment delinquencies.
(ii) Unscheduled draws on debt service reserves reflecting financial difficulties.
(iii) Unscheduled draws on credit enhancements reflecting financial difficulties.
(iv) Substitution of credit or liquidity providers, or their failure to perform. (v) Adverse tax opinions or issuance by the Internal Revenue Service of proposed or final determination of taxability or of a Notice of Proposed Issue (IRS Form 5701 TEB).
(vi) Tender offers.
(vii) Defeasances.
(viii) Rating changes.
(ix) Bankruptcy, insolvency, receivership or similar event of the Community Facilities District.
(x) Default, event of acceleration, termination event, modification of terms or other similar events under the terms of a Financial Obligation, any of which reflect financial difficulties.
For purposes of the event identified in paragraph (ix) of this subsection, the event is considered to occur when any of the following occur: the appointment of a receiver, fiscal agent or similar officer for the Community Facilities District in a proceeding under the U.S.
Bankruptcy Code or in any other proceeding under state or federal law in which a court or governmental authority has assumed jurisdiction over substantially all of the assets or business of the Community Facilities District, or if such jurisdiction has been assumed by leaving the existing governmental body and officials or officers in possession but subject to the supervision and orders of a court or governmental authority, or the entry of an order confirming a plan of reorganization, arrangement or liquidation by a court or governmental authority having supervision or jurisdiction over substantially all of the assets or business of the Community Facilities District.
(b) Pursuant to the provisions of this Section, the Community Facilities District shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Series 2022 Bonds, if material, in a timely manner not later than ten business days after the occurrence of the event:
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(i) Unless described in paragraph (v) of subsection (a) of this Section, material notices or determinations by the Internal Revenue Service with respect to the tax status of the Series 2022 Bonds or other material events affecting the tax status of the Series 2022 Bonds.
(ii) Modifications to rights of holders of the Series 2022 Bonds. (iii) Series 2022 Bond calls.
(iv) Release, substitution, or sale of property securing repayment of the Series 2022 Bonds.
(v) Non-payment related defaults.
(vi) The consummation of a merger, consolidation, or acquisition involving the Community Facilities District or the sale of all or substantially all of the assets of the Community Facilities District other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms.
(vii) Appointment of a successor or additional Trustee or the change of name of a Trustee.
(viii) Incurrence of a Financial Obligation, or agreement to covenants, events of default, remedies, priority rights or other similar terms of a Financial Obligation, any of which affect holders of the Series 2022 Bonds. (c) The Trustee shall, within one business day of obtaining actual knowledge of the occurrence of any of the Listed Events, contact the Disclosure Representative and inform such person of the event. The Trustee shall have no responsibility for determining the materiality of any such event, or whether any such event reflects financial difficulties. (d) Whenever the Community Facilities District obtains knowledge of the occurrence of a Listed Event described in subsection (b) of this Section, the Community Facilities District shall determine if such event would be material under applicable Federal securities law. (e) Whenever the Community Facilities District obtains knowledge of the occurrence of a Listed Event described in subsection (a) of this Section, or determines that knowledge of a Listed Event described in subsection (b) of this Section would be material under applicable Federal securities law, the Community Facilities District shall, or shall cause the Dissemination Agent to, file a notice of the occurrence of such Listed Event with the MSRB, within ten business days of such occurrence.
(f) Notwithstanding the foregoing, notice of Listed Events described in paragraph (iii) of subsection (b) of this Section need not be given any earlier than the notice (if any) of the underlying event is given to holders of affected Series 2022 Bonds pursuant to the Indenture. 3780
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Section 5. Format for Filings with MSRB. Any report or filing with the MSRB pursuant to this Disclosure Agreement must be submitted in electronic format, accompanied by such identifying information as is prescribed by the MSRB.
Section 6. Termination of Reporting Obligation. The Community Facilities District’s obligations under this Disclosure Agreement shall terminate upon the legal defeasance, prior redemption or payment in full of all of the Series 2022 Bonds. If such termination occurs prior to the final maturity of the Series 2022 Bonds, the Community Facilities District shall give, or cause to be given, notice of such termination in a filing with the MSRB.
Section 7. Dissemination Agent. The Community Facilities District may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Agreement, and may discharge any such Dissemination Agent, with or without appointing a successor Dissemination Agent. The Dissemination Agent may resign by providing 30 days’ written notice to the Community Facilities District. If at any time there is not any other designated Dissemination Agent, the Trustee shall be the Dissemination Agent.
Section 8. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Agreement, the Community Facilities District and the Trustee may amend this Disclosure Agreement (and the Trustee shall agree to any amendment so requested by the Community Facilities District, so long as such amendment does not adversely affect the rights or materially increase the obligations of the Trustee), and any provision of this Disclosure Agreement may be waived, provided that the following conditions are satisfied:
(a) if the amendment or waiver relates to the provisions of subsection (a) of Section 2 hereof, Section 3 hereof or subsection (a) or (b) of Section 4 hereof, it may only be made in connection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, nature or status of an obligated person with respect to the Series 2022 Bonds, or the type of business conducted; (b) the undertakings herein, as proposed to be amended or waived, would, in the opinion of nationally recognized bond counsel, have complied with the requirements of the Rule at the time of the primary offering of the Series 2022 Bonds, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and
(c) the proposed amendment or waiver (i) is approved by Owners of the Series 2022 Bonds in the manner provided in the Indenture for amendments to the Indenture with the consent of Owners, or (ii) does not, in the opinion of nationally recognized bond counsel, materially impair the interests of Owners or Beneficial Owners of the Series 2022 Bonds.
In the event of any amendment or waiver of a provision of this Disclosure Agreement, the Community Facilities District shall describe such amendment or waiver in the next Annual Report, and shall include, as applicable, a narrative explanation of the reason for the amendment or waiver and its impact on the type (or in the case of a change of accounting principles, on the presentation) of financial information or operating data being presented by the Community 3781
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Facilities District. In addition, if the amendment relates to the accounting principles to be followed in preparing financial statements (i) notice of such change shall be given in a filing with the MSRB, and (ii) the Annual Report for the year in which the change is made shall present a comparison (in narrative form and also, if feasible, in quantitative form) between the financial statements as prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles.
Section 9. Additional Information. Nothing in this Disclosure Agreement shall be deemed to prevent the Community Facilities District from disseminating any other information, using the means of dissemination set forth in this Disclosure Agreement or any other means of communication, or including any other information in any Annual Report or notice required to be filed pursuant to this Disclosure Agreement, in addition to that which is required by this Disclosure Agreement. If the Community Facilities District chooses to include any information in any Annual Report or notice in addition to that which is specifically required by this Disclosure Agreement, the Community Facilities District shall have no obligation under this Disclosure Agreement to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event or any other event required to be reported.
Section 10. Default. In the event of a failure of the Community Facilities District, the Trustee or the Dissemination Agent to comply with any provision of this Disclosure Agreement, the Trustee may (and, at the written direction of any Participating Underwriter or the Owners of at least 25% of the aggregate principal amount of Outstanding Series 2022 Bonds, shall, upon receipt of indemnification reasonably satisfactory to the Trustee), or any Owner or Beneficial Owner of the Series 2022 Bonds may, take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the Community Facilities District, the Trustee or the Dissemination Agent, as the case may be, to comply with its obligations under this Disclosure Agreement. A default under this Disclosure Agreement shall not be deemed an Event of Default under the Indenture, and the sole remedy under this Disclosure Agreement in the event of any failure of the Community Facilities District, the Trustee or the Dissemination Agent to comply with this Disclosure Agreement shall be an action to compel performance.
Section 11. Duties, Immunities and Liabilities of Trustee and Dissemination Agent.
Article VIII of the Indenture is hereby made applicable to this Disclosure Agreement as if this Disclosure Agreement were (solely for this purpose) contained in the Indenture. The Dissemination Agent shall be entitled to the protections and limitations from liability afforded to the Trustee thereunder. Neither the Trustee nor the Dissemination Agent shall be responsible for the form or content of any Annual Report or notice of Listed Event. The Dissemination Agent shall receive reasonable compensation for its services provided under this Disclosure Agreement and shall be reimbursed for its reasonable expenses (including attorneys’ fees and expenses) incurred by it in the exercise or performance of its powers and duties hereunder. The Dissemination Agent (if other than the Trustee or the Trustee in its capacity as Dissemination Agent) shall have only such duties as are specifically set forth in this Disclosure Agreement. To the extent permitted by law, the Community Facilities District agrees to indemnify and save the Dissemination Agent, its officers, directors, employees and agents, harmless against any loss, expense and liabilities incurred by it in the exercise or performance of its powers and duties hereunder, including the costs and expenses (including attorneys’ fees and expenses) of 3782
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defending against any claim of liability, and which are not due to its negligence or its willful misconduct. The obligations of the Community Facilities District under this Section shall survive resignation or removal of the Dissemination Agent and the termination of this Disclosure Agreement.
Section 12. Beneficiaries. This Disclosure Agreement shall inure solely to the benefit of the Community Facilities District, the Trustee, the Dissemination Agent, the Participating Underwriter and the Owners and Beneficial Owners from time to time of the Series 2022 Bonds, and shall create no rights in any other person or entity.
Section 13. Governing Laws. This Disclosure Agreement shall be governed by and construed in accordance with the laws of the State of California.
Section 14. Electronic Signature. Each of the parties hereto agrees that the transaction consisting of this Disclosure Agreement may be conducted by electronic means. Each party agrees, and acknowledges that it is such party’s intent, that if such party signs this Disclosure Agreement using an electronic signature, it is signing, adopting and accepting this Disclosure Agreement and that signing this Disclosure Agreement using an electronic signature is the legal equivalent of having placed its handwritten signature on this Disclosure Agreement on paper.
Each party acknowledges that it is being provided with an electronic or paper copy of this Disclosure Agreement in a usable format.
Section 15. Counterparts. This Disclosure Agreement may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument.
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IN WITNESS WHEREOF, the parties hereto have executed this Disclosure Agreement as of the date first above written.
CITY OF ONTARIO COMMUNITY
FACILITIES DISTRICT NO. 54
(ESPERANZA FACILITIES)
By:
ZIONS BANCORPORATION,
NATIONAL ASSOCIATION, AS
TRUSTEE
By:
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A-1
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EXHIBIT A
NOTICE OF FAILURE TO FILE ANNUAL REPORT
Name of Issuer: City of Ontario Community Facilities District No. 54 (Esperanza Facilities)
Name of Issue: City of Ontario Community Facilities District No. 54 (Esperanza Facilities) Special Tax Bonds, Series 2022
Date of Issuance: ___________, 2022
NOTICE IS HEREBY GIVEN that City of Ontario Community Facilities District No. 54 (Esperanza Facilities) (the “Community Facilities District”) has not provided an Annual Report with respect to the above-named Bonds as required by the Continuing Disclosure Agreement, dated as of ___________ 1, 2022, by and between the Community Facilities District and Zions Bancorporation, National Association, as Trustee. [The Community Facilities District anticipates that such Annual Report will be filed by ____________.] Dated: ____________
Zions Bancorporation, National
Association, as Trustee, on behalf of
City of Ontario Community
Facilities District No. 54 (Esperanza
Facilities)
cc: City of Ontario
Community Facilities District
No. 54 (Esperanza Facilities)
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Draft of March 25, 2022
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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 them be accepted, prior tothe time the Official Statement is delivered in final form. Under no circumstances shall this Preliminary Official Statement constitute an offer to sell or the solicitation of an offer to buy, nor shall therebe any sale of, these securities in any jurisdiction in which such offer, solicitation or sale would be unlawful.
PRELIMINARY OFFICIAL STATEMENT DATED APRIL __, 2022
NEW ISSUE — BOOK-ENTRY-ONLY NO RATING
In the opinion of Orrick, Herrington & Sutcliffe LLP, Bond Counsel to the District, based upon an analysis of existing laws, regulations, rulings and court decisions, and assuming, among other matters, the accuracy of certain representations and compliance with certain covenants, interest on the Series 2022 Bonds is excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986 and is exempt from State of California personal income taxes. In the further opinion of Bond Counsel, interest on the Series 2022 Bonds is not a specific preference item for purposes of the federal alternative minimum tax. Bond Counsel expresses no opinion regarding any other tax consequences related to the ownership or disposition of, or the amount, accrual or receipt of interest on, the Series 2022 Bonds. See “TAX MATTERS” herein. $6,110,000*
CITY OF ONTARIO
COMMUNITY FACILITIES DISTRICT NO. 54
(ESPERANZA FACILITIES)
SPECIAL TAX BONDS, SERIES 2022
Dated: Date of Delivery Due: September 1, as shown on the inside cover page The City of Ontario Community Facilities District No. 54 (Esperanza Facilities) Special Tax Bonds, Series 2022 (the “Series 2022 Bonds”) are being issued and delivered by the City of Ontario Community Facilities District No. 54 (Esperanza Facilities) (the “District”) to (i) provide financing for certain authorized facilities and costs with respect thereto related to the development within the District, (ii) fund a reserve fund with respect to the Series 2022 Bonds, and (iii) pay the costs of issuance with respect to the Series 2022 Bonds.
See “ESTIMATED SOURCES AND USES OF FUNDS” herein. The District has been formed by and is located in the City of Ontario, California (the “City”).
The Series 2022 Bonds are authorized to be issued pursuant to the Mello-Roos Community Facilities Act of 1982, as amended (Section 53311 et seq. of the Government Code of the State of California), and pursuant to an Indenture, dated as of ________1, 2022, by and between the District and Zions Bancorporation, National Association, as trustee (the “Trustee”). The Series 2022 Bonds are special, limited obligations of the District and are payable solely from Net Special Tax Revenues (as defined herein), and the other assets pledged therefor under the Indenture, all as further described herein. Special Taxes (as defined herein) are to be levied according to the amended and restated rate and method of apportionment approved by the City Council of the City and the qualified electors within the District.
The City Council is the legislative body of the District.
The Series 2022 Bonds are issuable in fully registered form and when issued will be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York (“DTC”). Individual purchases of Series 2022 Bonds may be made in principal amounts of $5,000 and integral multiples thereof. Purchasers of Series 2022 Bonds will not receive certificates representing their beneficial ownership of the Series 2022 Bonds but will receive credit balances on the books of their respective nominees. Interest on the Series 2022 Bonds will be payable on each March 1 and September 1, commencing September 1, 2022. Principal of and interest on the Series 2022 Bonds will be paid by the Trustee to DTC for subsequent disbursement to DTC Participants who are expected to remit such payments to the beneficial owners of the Series 2022 Bonds. See “THE SERIES 2022 BONDS — General Provisions” and APPENDIX I — “INFORMATION CONCERNING THE DEPOSITORY TRUST COMPANY AND ITS BOOK-ENTRY SYSTEM” herein.
The Series 2022 Bonds are subject to optional and mandatory redemption as described under the caption “THE SERIES 2022 BONDS — Redemption.”
NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE DISTRICT (EXCEPT TO THE LIMITED
EXTENT SET FORTH IN THE INDENTURE), THE CITY OR THE STATE OF CALIFORNIA, OR ANY POLITICAL SUBDIVISION THEREOF, IS PLEDGED TO THE PAYMENT OF THE SERIES 2022 BONDS. EXCEPT FOR NET SPECIAL TAX REVENUES, NO OTHER TAXES ARE PLEDGED TO THE PAYMENT OF THE SERIES 2022 BONDS.
THE SERIES 2022 BONDS ARE NOT GENERAL OR SPECIAL OBLIGATIONS OF THE CITY BUT ARE SPECIAL,
LIMITED OBLIGATIONS OF THE DISTRICT PAYABLE SOLELY FROM NET SPECIAL TAX REVENUES AND THE OTHER ASSETS PLEDGED THEREFOR UNDER THE INDENTURE AS MORE FULLY DESCRIBED HEREIN.
The purchase of the Series 2022 Bonds involves certain risks. See the section of this Official Statement entitled “SPECIAL RISK FACTORS” for a discussion of certain risk factors that should be considered, in addition to the other matters set forth herein, in evaluating the investment quality of the Series 2022 Bonds.
This cover page contains certain information for general reference only. It is not a summary of this issue. Investors are advised to read the entire Official Statement to obtain information essential to the making of an informed investment decision.
The Series 2022 Bonds are offered when, as and if issued and accepted by the Underwriter, subject to approval as to their legality by Orrick, Herrington & Sutcliffe LLP, Los Angeles, California, as Bond Counsel, and subject to certain other conditions. Certain legal matters will be passed on for the City and the District by Best Best & Krieger LLP, Ontario, California, as Issuer’s Counsel, and by Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California, as Disclosure Counsel. Certain legal matters will be passed upon for the Underwriter by its counsel, Jones Hall, A Professional Law Corporation, San Francisco, California.
It is anticipated that the Series 2022 Bonds will be available for delivery to DTC or its agent in book-entry form on or about May __, 2022.
[STIFEL LOGO]
Dated: April __, 2022
*
Preliminary, subject to change.
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CITY OF ONTARIO
COMMUNITY FACILITIES DISTRICT NO. 54
(ESPERANZA FACILITIES)
SPECIAL TAX BONDS, SERIES 2022
MATURITY SCHEDULE
BASE CUSIP†
: 68304N
Maturity Date
(September 1)
Principal
Amount
Interest
Rate Yield Price CUSIP† No.
$_________ _____% Term Bonds due September 1, 20__ Yield: _____% Price: _______ CUSIP† No. ___ $_________ _____% Term Bonds due September 1, 2052 Yield: _____% Price: _______ CUSIP† No. ___ † CUSIP® is a registered trademark of the American Bankers Association. CUSIP Global Services (CGS) is managed on behalf of the American Bankers Association by FactSet Research Systems Inc. Copyright(c) 2022 CUSIP Global Services. All rights reserved. CUSIP® data herein is provided by CUSIP Global Services. This data is not intended to create a database and does not serve in any way as a substitute for the CGS database.
CUSIP® numbers are provided for convenience of reference only. None of the Underwriter, the City or the District or their agents or counsel assume responsibility for the accuracy of such numbers. 3787
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CITY OF ONTARIO
CITY COUNCIL
Paul S. Leon, Mayor
Alan D. Wapner, Mayor Pro Tem
Jim W. Bowman, Council Member
Debra Dorst-Porada, Council Member
Ruben Valencia, Council Member
STAFF
Scott Ochoa, City Manager
Darlene Sanchez, Assistant City Manager
Armen Harkalyan, Executive Director of Finance
James R. Milhiser, City Treasurer
Sheila Mautz, City Clerk
Best Best & Krieger LLP, City Attorney
BOND COUNSEL
Orrick, Herrington & Sutcliffe LLP
Los Angeles, California
MUNICIPAL ADVISOR
CSG Advisors Incorporated
San Francisco, California
DISCLOSURE COUNSEL
Stradling Yocca Carlson & Rauth, a Professional Corporation Newport Beach, California
TRUSTEE
Zions Bancorporation, National Association
Los Angeles, California
SPECIAL TAX CONSULTANT
Goodwin Consulting Group, Inc.
Sacramento, California
APPRAISER
Kitty Siino & Associates, Inc.
Tustin, California
PRICE POINT CONSULTANT
Empire Economics, Inc.
Capistrano Beach, California
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Except where otherwise indicated, all information contained in this Official Statement has been provided by the City and the District. No dealer, broker, salesperson or other person has been authorized by the City, the District, the Trustee or the Underwriter to give any information or to make any representations in connection with the offer or sale of the Series 2022 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, the District, the Trustee or the Underwriter. 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 2022 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 2022 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.
The information and expressions of opinion herein are subject to change without notice and neither the 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 District or any other parties described herein since the date hereof.
All summaries of the Indenture or other documents are made subject to the provisions of such documents respectively and do not purport to be complete statements of any or all of such provisions. Reference is hereby made to such documents on file with the District for further information in connection therewith.
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 a “plan,” “expect,” “estimate,” “project,” “budget” or similar words. Such forward-looking statements include, but are not limited to certain statements contained in the information under the captions “THE COMMUNITY FACILITIES DISTRICT” and “PROPERTY OWNERSHIP AND THE DEVELOPMENT.”
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. Except as set forth in the District’s Continuing Disclosure Agreement, a form of which is attached hereto as APPENDIX G, neither the District nor the City plans to issue any updates or revisions to the forwardlooking statements set forth in this Official Statement. GDC/CDG Esperanza PA 4 Venture, L.P., a Delaware limited partnership, the owner of the Ventana development within the District, has agreed to provide certain continuing disclosure information concerning GDC/CDG Esperanza PA 4 Venture, L.P. and its property within the District in the form attached hereto as APPENDIX H.
A wide variety of other information, including financial information concerning the City, is available from publications and websites of the City and others. No such information is a part of or incorporated into this Official Statement.
IN CONNECTION WITH THE OFFERING OF THE SERIES 2022 BONDS, THE UNDERWRITER
MAY OVERALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF SUCH SERIES 2022 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 SERIES 2022 BONDS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, IN RELIANCE UPON AN EXEMPTION CONTAINED IN SUCH ACT. THE SERIES 2022 BONDS HAVE NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES LAWS OF ANY STATE.
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TABLE OF CONTENTS
Page
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INTRODUCTION ................................................................................................................................................ 1 The District .................................................................................................................................................... 1 Security and Sources of Payment for the Series 2022 Bonds ........................................................................ 3 Description of the Series 2022 Bonds............................................................................................................ 4 Appraisal Report ............................................................................................................................................ 5 Price Point Study............................................................................................................................................ 5 Professionals Involved in the Offering .......................................................................................................... 5 Continuing Disclosure.................................................................................................................................... 6 Series 2022 Bond Owners’ Risks................................................................................................................... 6 Other Information .......................................................................................................................................... 6 ESTIMATED SOURCES AND USES OF FUNDS ............................................................................................ 7 THE SERIES 2022 BONDS................................................................................................................................. 7 General Provisions......................................................................................................................................... 7 Redemption.................................................................................................................................................... 8 Debt Service Schedule ................................................................................................................................. 11 SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2022 BONDS........................................... 11 General......................................................................................................................................................... 11 Special Taxes ............................................................................................................................................... 13 Rate and Method of Apportionment ............................................................................................................ 13 Collection and Application of Special Taxes............................................................................................... 19 Covenant for Superior Court Foreclosure.................................................................................................... 20 Special Tax Fund ......................................................................................................................................... 21 Reserve Fund ............................................................................................................................................... 21 Investment of Moneys.................................................................................................................................. 22 No Additional Bonds Except for Refunding Bonds..................................................................................... 22 THE COMMUNITY FACILITIES DISTRICT ................................................................................................. 23 General Information Regarding the District ................................................................................................ 23 The Facilities................................................................................................................................................ 24 Direct and Overlapping Debt ....................................................................................................................... 25 Property Values............................................................................................................................................ 27 Value-to-Lien Ratios.................................................................................................................................... 28 Delinquency History .................................................................................................................................... 30 PROPERTY OWNERSHIP AND THE DEVELOPMENT............................................................................... 31 The Developer.............................................................................................................................................. 31 Development Plan........................................................................................................................................ 31 Financing Plan ............................................................................................................................................. 33 SPECIAL RISK FACTORS ............................................................................................................................... 34 Risks of Real Estate Secured Investments Generally – Declines in Value .................................................. 35 Levy of the Special Tax ............................................................................................................................... 36 Collection of the Special Tax....................................................................................................................... 36 Failure to Develop Properties ...................................................................................................................... 37 Concentration of Property Ownership ......................................................................................................... 38 Exempt Properties........................................................................................................................................ 38 Constitutional Limitations on Taxation and Appropriations........................................................................ 39 Maximum Special Tax................................................................................................................................. 42 Payment of the Special Tax is Not a Personal Obligation of the Owners.................................................... 42 Disclosures to Future Purchasers ................................................................................................................. 42 Parity Taxes and Special Assessments......................................................................................................... 42 Depletion of Reserve Fund .......................................................................................................................... 43 Bankruptcy and Legal Delays ...................................................................................................................... 43 3790
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FDIC/Federal Government Interests In Properties....................................................................................... 44 Geologic, Topographic and Climatic Conditions......................................................................................... 45 Methane Gas ................................................................................................................................................ 45 Hazardous Substances.................................................................................................................................. 45 No Acceleration Provision........................................................................................................................... 46 Bonds Are Limited Obligations ................................................................................................................... 46 Loss of Tax Exemption................................................................................................................................ 46 Potential Early Redemption of Bonds from Special Tax Prepayments........................................................ 47 No Teeter Plan ............................................................................................................................................. 47 COVID-19 (Coronavirus) Pandemic............................................................................................................ 47 CONTINUING DISCLOSURE.......................................................................................................................... 48 District Continuing Disclosure Agreement.................................................................................................. 48 Developer Continuing Disclosure Agreement ............................................................................................. 48 TAX MATTERS................................................................................................................................................. 49 ABSENCE OF LITIGATION ............................................................................................................................ 51 ABSENCE OF RATINGS.................................................................................................................................. 51 CERTAIN LEGAL MATTERS ......................................................................................................................... 51 UNDERWRITING ............................................................................................................................................. 51 FINANCIAL INTERESTS................................................................................................................................. 52 MUNICIPAL ADVISOR ................................................................................................................................... 52 ADDITIONAL INFORMATION....................................................................................................................... 52
APPENDIX A AMENDED AND RESTATED RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAX................................................................................................................A-1 APPENDIX B APPRAISAL REPORT ......................................................................................................... B-1 APPENDIX C PRICE POINT STUDY......................................................................................................... C-1 APPENDIX D FORM OF OPINION OF BOND COUNSEL.......................................................................D-1 APPENDIX E GENERAL INFORMATION CONCERNING THE CITY OF ONTARIO ........................ E-1 APPENDIX F SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE ....................................F-1 APPENDIX G FORM OF DISTRICT CONTINUING DISCLOSURE AGREEMENT..............................G-1 APPENDIX H FORM OF DEVELOPER CONTINUING DISCLOSURE AGREEMENT ........................H-1
APPENDIX I INFORMATION CONCERNING THE DEPOSITORY TRUST COMPANY AND ITS BOOK-ENTRY SYSTEM .............................................................................................. I-1 3791
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$6,110,000*
CITY OF ONTARIO
COMMUNITY FACILITIES DISTRICT NO. 54
(ESPERANZA FACILITIES)
SPECIAL TAX BONDS, SERIES 2022
INTRODUCTION
This introduction is not a summary of this Official Statement. It is only a brief description of and guide to, and is qualified by, more complete and detailed information contained in the entire Official Statement, including the cover page and appendices hereto, and the documents summarized or described herein. A full review should be made of the entire Official Statement. The offering of the Series 2022 Bonds to potential investors is made only by means of the entire Official Statement.
The purpose of this Official Statement, which includes the cover page, the table of contents and the attached appendices, is to provide certain information concerning the issuance of the City of Ontario Community Facilities District No. 54 (Esperanza Facilities) Special Tax Bonds, Series 2022 in the aggregate principal amount set forth on the front cover page (the “Series 2022 Bonds”). The proceeds of the Series 2022 Bonds will be used to finance certain public facilities and costs with respect thereto related to the development within the City of Ontario Community Facilities District No. 54 (Esperanza Facilities) (the “District”), to fund a reserve fund for the Series 2022 Bonds (the “Reserve Fund”), and to pay costs of issuance of the Series 2022 Bonds.
The Series 2022 Bonds are being issued pursuant to the Mello-Roos Community Facilities Act of 1982, as amended (Section 53311 et seq. of the Government Code of the State of California) (the “Act”), and pursuant to the Indenture, dated as of ________ 1, 2022 (the “Indenture”), by and between the District and Zions Bancorporation, National Association, as trustee (the “Trustee”). The Series 2022 Bonds are secured under the Indenture by a pledge of, constituting a lien on and security interest in, the Net Special Tax Revenues (as defined herein) and any other amounts held in the Special Tax Fund, the Bond Fund and the Reserve Fund established pursuant to the Indenture.
This introduction is not a summary of this Official Statement. It is only a brief description of and guide to, and is qualified by, more complete and detailed information contained in the entire Official Statement and the documents summarized or described herein. A full review should be made of the entire Official Statement. The sale and delivery of the Series 2022 Bonds to potential investors is made only by means of the entire Official Statement. All capitalized terms used in this Official Statement and not defined shall have the meaning set forth in APPENDIX F — “SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE Definitions” herein.
The District
The District is located in the southwestern portion of County of San Bernardino (the “County”), in the southern portion of the City of Ontario (the “City”) within an area known as “Ontario Ranch” (formerly known as New Model Colony). The District consists of two neighborhoods known as “Dorado” and “Ventana,” respectively. The Dorado site is generally bounded by Mill Creek Avenue to the west, Eucalyptus Avenue to the south, Amherst Avenue to the east and vacant lands to the north. The Dorado site consists of approximately 16.22 gross acres, all within Final Tract Map No. 17931. The Dorado site was owned by GDC/CDG Esperanza PA 10 Venture, L.P., a Delaware limited partnership (“Esperanza PA 10 Venture”). All of the units in Dorado have closed escrow to individual homeowners. The Ventana site is generally bounded by Hamner Avenue to the east, Eucalyptus Avenue to the south, Clifton Street to the west and vacant lands to
* Preliminary, subject to change.
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the north. The Ventana site consists of approximately 8.65 gross acres, all within Final Tract Map No. 20285.
The Ventana site is owned and being developed by GDC/CDG Esperanza PA 4 Venture, L.P., a Delaware limited partnership (“Esperanza PA 4 Venture” or the “Developer”).
See “PROPERTY OWNERSHIP AND THE DEVELOPMENT — The Developer.” The property within the District as part of a master planned community known as “Esperanza.” Esperanza is located within the Esperanza Specific Plan which at build-out is anticipated to include 1,410 dwelling units. Esperanza is part of a multiple phase, multiple master-planned community development known as “Ontario Ranch” (formerly known as New Model Colony). Ontario Ranch is planned to contain over 3,500 acres. At full buildout, Ontario Ranch is expected to include approximately 18,000 dwelling units, approximately 2.9 million square feet of industrial space, approximately 1.5 million square feet of commercial and retail space and over 500,000 square feet of business park space. While much of Ontario Ranch is raw vacant land, many planned communities within the east side of Ontario Ranch have been completed or are currently under construction. The City estimates that approximately 4,000 dwelling units have been built within Ontario Ranch to date.
As mentioned above, the Developer is building and selling homes in the District within a neighborhood named “Ventana;” Esperanza PA 10 Venture previously built and sold homes in the District within a neighborhood named “Dorado.” At full buildout the District is anticipated to include 226 singlefamily detached and attached dwelling units. As of February 1, 2022, the date of value of the Appraisal (defined herein), the District included 100 completed residential units which had closed escrow to individual homeowners (all in Dorado), 3 model units under construction in Ventana and owned by the Developer, and 123 finished lots/pads (of which 15 were in escrow) in Ventana owned by the Developer. All of the homes within the Dorado neighborhood have been conveyed to individual homeowners. As of April 1, 2022, the District included ___ completed residential units which had closed escrow to individual homeowners, __ completed model units in Ventana owned by the Developer, __ completed residential units in Ventana owned by the Developer and __ residential units in various stages of construction (of which __ were in escrow) in Ventana owned by the Developer and ___ building pads in a finished condition in Ventana owned by the Developer. See “PROPERTY OWNERSHIP AND THE DEVELOPMENT — The Development Plan.” The District was formed to finance certain services, facilities and costs with respect thereto related to the development within the District. The Act was enacted by the California legislature to provide an alternative method of financing certain capital facilities and services, especially in developing areas of the State of California (the “State”). Any local agency (as defined in the Act) may establish a community facilities district to provide for and finance the cost of eligible facilities and services. The legislative body of the local agency which forms a community facilities district acts on behalf of such district as its legislative body.
Subject to approval by two-thirds of the votes cast at an election and compliance with the other provisions of the Act, a legislative body of a local agency may issue bonds for a community facilities district and may levy and collect a special tax within such district to repay such indebtedness.
Pursuant to the Act, on April 7, 2020 the City Council of the City (the “City Council”) adopted the necessary resolutions stating its intent to establish the District, to authorize the levy of special taxes on taxable property within the boundaries of the District based on an amended and restated rate and method of apportionment, and to have the District incur bonded indebtedness.
Following public hearings conducted pursuant to the provisions of the Act, the City Council adopted resolutions establishing the District and calling a special election to submit the levy of the special taxes and the incurring of bonded indebtedness to the qualified voters of the District. On May 19, 2020, at an election held pursuant to the Act, Esperanza PA 4 Venture and GDC/CDG Esperanza PA 10 Venture, L.P. (“Esperanza PA 10 Venture”), the qualified voters within the District at the time of the election, authorized the District to incur bonded indebtedness in the aggregate principal amount of not to exceed $25,000,000 and approved an 3795
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amended and restated rate and method of apportionment of the special taxes for the District to pay, among other things, the principal of and interest on the bonds of the District (the “Rate and Method” or “RMA”).
The Rate and Method provides for a special tax (the “Special Tax”) to be levied for the Special Tax Requirement. Under the Rate and Method, “Special Tax Requirement” is defined to mean for any Fiscal Year that amount required, after taking into account available amounts held in the funds and accounts established under the Indenture, for the District to: (i) pay debt service on all Outstanding Bonds (as defined herein) which is due in the calendar year that commences in such Fiscal Year; (ii) pay periodic costs on the Bonds, including, but not limited to, credit enhancement and rebate payments on the Bonds; (iii) pay Administrative Expenses (as defined in the Rate and Method); (iv) provide any amounts required to establish or replenish any reserve fund for the Bonds; (v) pay directly for acquisition or construction of Facilities (as defined in the Rate and Method), or the cost of Services (as defined in the Rate and Method), to the extent that the inclusion of such amounts does not increase the Special Tax levy on Final Mapped Property (as defined in the Rate and Method) or Undeveloped Property (as defined in the Rate and Method); (vi) without duplicating any amounts described in clause (iv), above, provide an amount equal to reasonably anticipated Special Tax delinquencies based on the delinquency rate for the Special Tax in the previous Fiscal Year as determined by the CFD Administrator, as limited by the Act. The Special Tax will be levied against certain property within the District pursuant to the Act, the Ordinance approving the levy of Special Taxes and the Indenture and in accordance with the Rate and Method. Under the Indenture, the portion of the Special Tax levied under the Rate and Method to pay for Services is not pledged to the payment of the Series 2022 Bonds or any Additional Bonds.
The City formed another overlapping community facilities district, the City of Ontario Community Facilities District No. 44 (Esperanza Services) (“CFD No. 44”), overlapping the boundaries of the District, within which the City levies a special tax for services. See Table 3.
Upon the issuance of the Series 2022 Bonds, a principal amount of $18,890,000* will remain authorized but unissued. Pursuant to the Indenture, the District shall not issue additional indebtedness secured by the Net Special Taxes Revenues (as such term is defined herein) on a parity with the Series 2022 Bonds except to refund the Series 2022 Bonds in whole or in part, and only in circumstances where the issuance of such Additional Bonds does not result in an increase in the amount of Annual Debt Service on the outstanding Series 2022 Bonds and Additional Bonds (together, the “Bonds”) in each Bond Year so long as any Bonds are outstanding. Other taxes and/or special assessments with liens equal in priority to the continuing lien of the Special Taxes may be levied on the property within the District. See “SPECIAL RISK FACTORS Parity Taxes and Special Assessments.”
Security and Sources of Payment for the Series 2022 Bonds Under the Indenture, the District has pledged to repay the Series 2022 Bonds from Net Special Tax Revenues and any other amounts held in the Special Tax Fund, the Bond Fund and the Reserve Fund. The Indenture defines “Net Special Tax Revenues” to mean Special Tax Revenues less amounts required to pay Administrative Expenses. The term “Special Tax Revenues” is defined in the Indenture to mean the proceeds of the Special Taxes received by or on behalf of the District, other than proceeds of Special Taxes levied to pay the costs of Services received by or on behalf of the District, including any prepayments thereof, interest and penalties thereon and proceeds of the redemption or sale of property sold as a result of foreclosure of the lien of the Special Taxes, which will be limited to the amount of said lien and interest and penalties thereon. “Services” has the meaning set forth in the Rate and Method. See APPENDIX A — “AMENDED AND RESTATED RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAX.” “Administrative Expenses” is defined in the Indenture to mean any reasonably necessary or appropriate expenses incurred in the administration of the District and the Bonds, including, but not limited to (a) the administrative and legal costs of levying and collecting the Special Taxes (including costs incurred in connection with any appeals
* Preliminary, subject to change.
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relating thereto and litigation expenses incurred in connection with the collection of such Special Taxes), (b) the fees, costs and indemnification due the Trustee, (c) the costs incurred with on-going disclosure in connection with the Bonds, (d) the costs incurred in connection with the disclosure of the Special Taxes to property owners and potential purchasers of property, (e) the amounts required to calculate and pay arbitrage rebate payments to the federal government, and (f) an allocable share of the salaries of the City staff providing services on behalf of the District directly related to the foregoing and an allocable share of City general administrative overhead related thereto.
“Special Taxes” is defined in the Indenture to mean the special taxes approved by the qualified electors to be levied within the District pursuant to the Act and the Rate and Method.
Net Special Tax Revenues are the primary security for the repayment of the Series 2022 Bonds. In the event that Net Special Tax Revenues are not paid when due, the only sources of funds available to pay the debt service on the Series 2022 Bonds are the amounts held by the Trustee for such purpose in the Special Tax Fund, the Bond Fund and the Reserve Fund. See “SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2022 BONDS” herein.
NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE DISTRICT (EXCEPT TO THE LIMITED EXTENT SET FORTH IN THE INDENTURE), THE CITY OR THE
STATE, OR ANY POLITICAL SUBDIVISION THEREOF, IS PLEDGED TO THE PAYMENT OF THE SERIES 2022 BONDS. EXCEPT FOR THE NET SPECIAL TAX REVENUES, NO OTHER TAXES ARE PLEDGED TO THE PAYMENT OF THE SERIES 2022 BONDS. THE SERIES 2022
BONDS ARE NOT GENERAL OR SPECIAL OBLIGATIONS OF THE CITY BUT ARE SPECIAL,
LIMITED OBLIGATIONS OF THE DISTRICT PAYABLE SOLELY FROM NET SPECIAL TAX
REVENUES AND THE OTHER ASSETS PLEDGED THEREFOR UNDER THE INDENTURE AS MORE FULLY DESCRIBED HEREIN.
Description of the Series 2022 Bonds
The Series 2022 Bonds will be issued and delivered as fully registered bonds, registered in the name of Cede & Co. as nominee of The Depository Trust Company, New York, New York (“DTC”), and will be available to actual purchasers of the Series 2022 Bonds (the “Beneficial Owners”) in the denominations of $5,000 and any integral multiple thereof under the book-entry system maintained by DTC, only through brokers and dealers who are or act through DTC Participants as described herein. Beneficial Owners will not be entitled to receive physical delivery of the Series 2022 Bonds. In the event that the book-entry only system described herein is no longer used with respect to the Series 2022 Bonds, the Series 2022 Bonds will be registered and transferred in accordance with the Indenture. See APPENDIX I — “INFORMATION CONCERNING THE DEPOSITORY TRUST COMPANY AND ITS BOOK-ENTRY SYSTEM” herein.
Principal of, premium, if any, and interest on the Series 2022 Bonds is payable by the Trustee to DTC.
Disbursement of such payments to DTC Participants is the responsibility of DTC and disbursement of such payments to the Beneficial Owners is the responsibility of DTC Participants. In the event that the book-entry only system is no longer used with respect to the Series 2022 Bonds, the Beneficial Owners will become the registered owners of the Series 2022 Bonds and will be paid principal and interest by the Trustee, all as described herein. See APPENDIX I — “INFORMATION CONCERNING THE DEPOSITORY TRUST COMPANY AND ITS BOOK-ENTRY SYSTEM” herein.
The Series 2022 Bonds are subject to optional redemption, mandatory redemption from Special Tax prepayments and mandatory sinking fund redemption as described herein. For a more complete description of the Series 2022 Bonds and the basic documentation pursuant to which they are being sold and delivered, see “THE SERIES 2022 BONDS” and APPENDIX F — “SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE” herein.
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Appraisal Report
The District has obtained an appraisal of the Taxable Property (as defined herein) included in the District with a date of value as of February 1, 2022 (the “Appraisal” or “Appraisal Report”). The Appraisal was prepared for the District by Kitty Siino & Associates, Inc., Tustin, California (the “Appraiser”). Subject to the limitations set forth in the Appraisal, the Appraiser is of the opinion that, as of February 1, 2022, the minimum market value of the property within the District was not less than $92,131,779 (the “Appraised Value”). See “THE COMMUNITY FACILITIES DISTRICT— Property Values” and “— Value-to-Lien Ratios.” A copy of the Appraisal is included as APPENDIX B to this Official Statement. It is a condition precedent to the issuance of the Series 2022 Bonds that the Appraiser deliver a certificate stating that nothing has come to the attention of the Appraiser subsequent to the date of the Appraisal that would lead the Appraiser to believe that the value of the Taxable Property in the District is less than the minimum market value of such property reported in the Appraisal.
Price Point Study
In connection with the formation of the District, the City hired Empire Economics, Inc., Capistrano Beach, California (the “Price Point Consultant”), to prepare a price point study of the prices of the homes planned within the District, dated January 17, 2020 (the “Original Price Point Study”). The City hired the Price Point Consultant to conduct an update to the Original Price Point Study within the District, dated February 18, 2020 (the “Revised Price Point Study”). The Special Tax rates set forth in the Rate and Method were based in part on the prices set forth in the Revised Price Point Study. In connection with and in preparation for the issuance of the Series 2022 Bonds, the City hired the Price Point Consultant to conduct an update to the Revised Price Point Study within the District, dated February 2, 2022 (the “Updated Price Point Study”). Pursuant to Section C of the Rate and Method, upon the issuance of Bonds, the City is required to amend the Assigned Special Tax (as defined in the Rate and Method) to the extent necessary to cause the total effective tax burden for residential property in the District to not exceed 1.95% of the minimum sales prices set forth in the Updated Price Point Study. Based on the Updated Price Point Study provided by the Price Point Consultant, the City will not reduce the Assigned Special Tax rates set forth in Section C of the Rate and Method, as the total effective tax burden applicable to each land use class of residential property to be constructed within the District will not exceed 1.95% of the minimum sales prices set forth in the Updated Price Point Study. A copy of the Updated Price Point Study is included as APPENDIX C to this Official Statement. See “SECURITY AND SOURCES FOR THE SERIES 2022 BONDS — Rate and Method of Apportionment.”
Professionals Involved in the Offering
Zions Bancorporation, National Association, Los Angeles, California, will act as Trustee under the Indenture. Stifel, Nicolaus & Company, Incorporated is the Underwriter of the Series 2022 Bonds. The validity of the Series 2022 Bonds and certain other legal matters are subject to the approving opinion of Orrick, Herrington & Sutcliffe LLP, Bond Counsel to the District. CSG Advisors Incorporated, San Francisco, California, is acting as Municipal Advisor for the District in connection with the Series 2022 Bonds. Kitty Siino & Associates, Inc., Tustin, California, is acting as the Appraiser to the District. Goodwin Consulting Group, Inc. is acting as the Special Tax Consultant to the District. Empire Economics, Inc. is acting as the Price Point Consultant to the District. Certain legal matters will be passed on for the City and the District by Best Best & Krieger LLP, Ontario, California, in its capacity as Issuer’s Counsel, and Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California, as Disclosure Counsel. Certain legal matters will be passed upon for the Underwriter by its counsel, Jones Hall, A Professional Law Corporation, San Francisco, California.
For information concerning respects in which certain of the above-mentioned professionals, advisors, counsel and agents may have a financial or other interest in the offering of the Series 2022 Bonds, see “FINANCIAL INTERESTS” herein.
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Continuing Disclosure
The District will agree to provide, or cause to be provided, to the Municipal Securities Rulemaking Board’s Electronic Municipal Market Access system available on the Internet at http://emma.msrb.org (“EMMA”) certain annual financial information and operating data. The District will further agree to provide notice of certain listed events. These covenants will be made in order to assist the Underwriter in complying with Securities and Exchange Commission Rule 15c2-12(b)(5) (the “Rule”). See “CONTINUING DISCLOSURE” herein. See the form of District Continuing Disclosure Agreement attached as APPENDIX G hereto (the “District Continuing Disclosure Agreement”) for a description of the specific nature of the annual reports to be filed by the District and notices of listed events to be provided by the District.
In addition, the Developer will agree to provide or cause to be provided to EMMA certain information on a semi-annual basis with respect to the Developer and its property ownership and development within the District and notice of certain listed events until the date on which at least 181 of the planned 226 residential units within the District have been conveyed to homebuyers. See the form of the Developer Continuing Disclosure Agreement attached as APPENDIX H hereto (the “Developer Continuing Disclosure Agreement”) for a description of the specific nature of the semi-annual reports to be filed by the Developer, and notices of listed events to be provided by the Developer.
Series 2022 Bond Owners’ Risks
Certain events could affect the ability of the District to pay the principal of and interest on the Series 2022 Bonds when due. See the section of this Official Statement entitled “SPECIAL RISK FACTORS” for a discussion of certain factors which should be considered, in addition to other matters set forth herein, in evaluating an investment in the Series 2022 Bonds.
Other Information
This Official Statement speaks only as of its date, and the information contained herein is subject to change.
Brief descriptions of the Series 2022 Bonds and the Indenture are included in this Official Statement.
Such descriptions and information do not purport to be comprehensive or definitive. All references herein to the Indenture, the Series 2022 Bonds and the constitution and laws of the State as well as the proceedings of the City Council, acting as the legislative body of the District, are qualified in their entirety by references to such documents, laws and proceedings, and with respect to the Series 2022 Bonds, by reference to the Indenture.
Copies of the Indenture, the District Continuing Disclosure Agreement and other documents and information referred to herein are available for inspection and (upon request and payment to the City of a charge for copying, mailing and handling) for delivery from the City at 303 East “B” Street, Ontario, California 91764, Attention: City Manager.
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ESTIMATED SOURCES AND USES OF FUNDS
The following table sets forth the expected sources and uses of Series 2022 Bond proceeds and certain other amounts.
Sources:
Principal Amount of the Series 2022 Bonds $
Plus: Original Issue Premium
Less: Underwriter’s Discount
Plus: Funds on Hand(1)
Total $
Uses:
GDC/CDG Esperanza Acquisition Account of the Improvement Fund(2)
$
NMC Acquisition Account of the Improvement Fund(3)
Special Tax Bond
Administrative Expense Fund
Reserve Fund(4)
Cost of Issuance Fund(5)
Total $
(1) Includes a portion of the Special Taxes collected for Fiscal Years 2020-21 and 2021-22. (2) Reflects amounts owed or to be owed to Esperanza PA 4 Venture, for the construction of eligible facilities under the Act. (3) Reflects amounts owed or to be owed to NMC Builders, LLC for the construction of eligible facilities under the Act. (4) Equal to the initial Reserve Requirement.
(5) Includes fees of Bond Counsel and Disclosure Counsel, printing costs, municipal advisor fees, Trustee fees, Appraiser fees, Price Point Consultant fees and other costs of issuance of the Series 2022 Bonds.
THE SERIES 2022 BONDS
General Provisions
The Series 2022 Bonds will be issued in fully registered form without coupons in denominations of $5,000 and any integral multiple thereof (“Authorized Denominations”). The Series 2022 Bonds will be dated the date of issuance thereof. The Series 2022 Bonds are scheduled to mature on September 1, in the years and in the principal amounts, and will bear interest at the rates per annum, shown on the inside front cover page of this Official Statement. Interest on the Series 2022 Bonds will be computed on the basis of a 360-day year comprised of twelve 30-day months and will be payable on March 1 and September 1 of each year, commencing September 1, 2022 (each an “Interest Payment Date”). Interest on each Series 2022 Bond will be payable from the Interest Payment Date next preceding the date of authentication thereof unless (i) such Series 2022 Bond is authenticated on or before an Interest Payment Date and after the close of business on the fifteenth calendar day of the month preceding such Interest Payment Date, whether or not such day is a Business Day (the “Record Date”) in which event interest thereon will be payable from such Interest Payment Date, (ii) such Series 2022 Bond is authenticated on or before the first Record Date, in which event interest thereon will be payable from the Closing Date or (iii) interest on such Series 2022 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 previously paid or duly provided for.
The interest on, and principal of and redemption premiums, if any, on the Series 2022 Bonds are payable in lawful money of the United States of America. Interest is payable by check of the Trustee mailed by first class mail, postage prepaid, on each Interest Payment Date to the Owners of the Series 2022 Bonds at their respective addresses shown on the Registration Books as of the close of business on the preceding Record Date (except that interest on any Series 2022 Bond which is not punctually paid or duly provided for on any Interest Payment Date will, if and to the extent that amounts subsequently become available therefor, be 3800
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payable on a payment date established by the Trustee to the Person in whose name the ownership of such Series 2022 Bond is registered on the Registration Books at the close of business on a special record date to be established by the Trustee pursuant to the Indenture). Payment of principal of any Series 2022 Bond will be made only upon presentation and surrender thereof at maturity or upon earlier redemption at the Office of the Trustee.
The Series 2022 Bonds will initially be issued in book-entry form, and DTC will act as securities depository. So long as the Series 2022 Bonds are held in book-entry form, principal of, premium, if any, and interest on the Series 2022 Bonds will be paid by the Trustee directly to DTC for distribution to the Beneficial Owners of the Series 2022 Bonds in accordance with procedures adopted by DTC. See APPENDIX I — “INFORMATION CONCERNING THE DEPOSITORY TRUST COMPANY AND ITS BOOK-ENTRY SYSTEM.”
The Series 2022 Bonds are not general or special obligations of the City but are special, limited obligations of the District payable solely from Net Special Tax Revenues and the other amounts held under the Indenture in the Special Tax Fund, the Bond Fund and the Reserve Fund. Neither the faith and credit nor the taxing power of the District (except to the limited extent set forth in the Indenture), the City, the State or any political subdivision thereof, is pledged to the payment of the Series 2022 Bonds. See “SPECIAL RISK FACTORS —Bonds Are Limited Obligations.”
Redemption
Optional Redemption.* The Series 2022 Bonds maturing on and after September 1, 20__, shall be subject to optional redemption, in whole, or in part in Authorized Denominations, on any Interest Payment Date on or after September 1, 20__ from any source of available funds, at the following respective Redemption Prices (expressed as percentages of the principal amount of the Series 2022 Bonds to be redeemed), plus accrued interest thereon to the date of redemption:
Redemption Dates Redemption Price
September 1, 2029 and March 1, 2030 103%
September 1, 2030 and March 1, 2031 102
September 1, 2031 and March 1, 2032 101
September 1, 2032 and any Interest Payment Date thereafter 100 Mandatory Redemption from Special Tax Prepayments.
*
The Series 2022 Bonds are subject to
mandatory redemption, in whole, or in part in Authorized Denominations, on any Interest Payment Date, from and to the extent of prepaid Special Taxes required to be applied thereto and any related proportional amounts in the Reserve Fund required to be applied thereto pursuant to the Indenture (see “SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2022 BONDS — Reserve Fund”) at the following respective Redemption Prices (expressed as percentages of the principal amount of the Series 2022 Bonds to be redeemed), plus accrued interest thereon to the date of redemption:
Redemption Dates Redemption Price
September 1, 2022 through March 1, 2030 103%
September 1, 2030 and March 1, 2031 102
September 1, 2031 and March 1, 2032 101
September 1, 2032 and any Interest Payment Date thereafter 100
* Preliminary, subject to change.
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See the caption “SPECIAL RISK FACTORS— Potential Early Redemption of Bonds from Special Tax Prepayments” for a discussion of the potential for a lower than expected yield on the Series 2022 Bonds as a result of a special mandatory redemption from prepayment of Special Taxes.
Mandatory Sinking Fund Redemption. The Series 2022 Bonds maturing September 1, 20__ shall be subject to mandatory sinking fund redemption, in part, on September 1 in each year, commencing September 1, 20__, at a Redemption Price equal to the principal amount of the Series 2022 Bonds maturing September 1, 20__ to be redeemed, without premium, plus accrued interest thereon to the date of redemption, in the aggregate respective principal amounts in the respective years as follows:
Sinking Fund Redemption Date
(September 1)
Principal Amount
to be Redeemed
$
(Maturity)
If some but not all of the Series 2022 Bonds maturing September 1, 20__ are redeemed pursuant to the optional redemption provisions of the Indenture described above, the principal amount of the Series 2022 Bonds maturing September 1, 20__ to be redeemed pursuant to mandatory sinking fund redemption as described above on any subsequent September 1 shall be reduced, by $5,000 or an integral multiple thereof, as designated by the District in a Written Certificate of the District filed with the Trustee; provided, however, that the aggregate amount of such reductions shall not exceed the aggregate amount of the Series 2022 Bonds maturing September 1, 20__ so optionally redeemed. If some but not all of the Series 2022 Bonds maturing September 1, 20__ are redeemed pursuant to the mandatory redemption from Special Tax prepayments provisions of the Indenture described above, the principal amount of the Series 2022 Bonds maturing September 1, 20__ to be redeemed pursuant to mandatory sinking fund redemption as described above on any subsequent September 1 shall be reduced by the aggregate principal amount of the Series 2022 Bonds maturing September 1, 20__ so redeemed, such reduction to be allocated among redemption dates as nearly as practicable on a pro rata basis in amounts of $5,000 or integral multiples thereof, as determined by the Trustee, notice of which determination shall be given by the Trustee to the District.
The Series 2022 Bonds maturing September 1, 20__ shall be subject to mandatory sinking fund redemption, in part, on September 1 in each year, commencing September 1, 20__, at a Redemption Price equal to the principal amount of the Series 2022 Bonds maturing September 1, 20__ to be redeemed, without premium, plus accrued interest thereon to the date of redemption, in the aggregate respective principal amounts in the respective years as follows:
Sinking Fund Redemption Date
(September 1)
Principal Amount
to be Redeemed
$
(Maturity)
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If some but not all of the Series 2022 Bonds maturing September 1, 20__ are redeemed pursuant to the optional redemption provisions of the Indenture described above, the principal amount of the Series 2022 Bonds maturing September 1, 20__ to be redeemed pursuant to mandatory sinking fund redemption as described above on any subsequent September 1 shall be reduced, by $5,000 or an integral multiple thereof, as designated by the District in a Written Certificate of the District filed with the Trustee; provided, however, that the aggregate amount of such reductions shall not exceed the aggregate amount of the Series 2022 Bonds maturing September 1, 20__ so optionally redeemed. If some but not all of the Series 2022 Bonds maturing September 1, 20__ are redeemed pursuant to the mandatory redemption from Special Tax prepayments provisions of the Indenture described above, the principal amount of the Series 2022 Bonds maturing September 1, 20__ to be redeemed pursuant to mandatory sinking fund redemption as described above on any subsequent September 1 shall be reduced by the aggregate principal amount of the Series 2022 Bonds maturing September 1, 20__ so redeemed, such reduction to be allocated among redemption dates as nearly as practicable on a pro rata basis in amounts of $5,000 or integral multiples thereof, as determined by the Trustee, notice of which determination shall be given by the Trustee to the District.
Selection of Bonds for Redemption. Whenever provision is made in the Indenture for the redemption of less than all of the Bonds, the Trustee will select the Bonds to be redeemed from all Bonds not previously called for redemption (i) with respect to any optional redemption of Bonds of a Series, among maturities of the Bonds of such Series as directed in a Written Request of the District, and (ii) with respect to any mandatory redemption of Bonds from prepayments of Special Taxes, among maturities of all Series of Bonds on a pro rata basis as nearly as practicable. The Trustee shall select for redemption the Bonds of the same Series with the same maturity by lot in any manner in which the Trustee, in its sole discretion, shall deem appropriate. For purposes of such selection, all Bonds shall be deemed to be comprised of separate $5,000 denominations, and such separate denominations shall be treated as separate Bonds that may be separately redeemed.
Notice of Redemption. If the Bonds are held in book-entry form, notice of redemption will be mailed to DTC and not to the Beneficial Owners of the Bonds under the DTC book-entry system. Neither the District nor the Trustee is responsible for giving notice of redemption to the Beneficial Owners. See APPENDIX I — “INFORMATION CONCERNING THE DEPOSITORY TRUST COMPANY AND ITS BOOK-ENTRY SYSTEM” herein.
The Indenture provides that the Trustee on behalf and at the expense of the District will give notice of any redemption by first class mail to the respective Owners of any Bonds designated for redemption at their respective addresses appearing on the Registration Books at least 30 but not more than 60 days prior to the date fixed for redemption. Such notice of redemption will state the date of the notice, the redemption date, the redemption place and the Redemption Price and shall designate the CUSIP numbers, if any, the Bond numbers and the maturity or maturities of the Bonds to be redeemed (except in the event of redemption of all of the Bonds of such maturity or maturities in whole). The notice of redemption will require that the Bonds to be redeemed be surrendered at the Office of the Trustee for redemption at the Redemption Price, and give notice that further interest on such Bonds will not accrue from and after the date fixed for redemption. Neither the failure to receive any notice so mailed, nor any defect in such notice, will affect the validity of the proceedings for the redemption of the Bonds or the cessation of accrual of interest thereon from and after the date fixed for redemption.
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, is held by the Trustee so as to be available therefor on such date, and, if notice of redemption thereof will have been mailed 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 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. With respect to any notice of any optional redemption of Bonds, unless at the time such notice is given the Bonds to be redeemed shall be deemed to have been paid within the meaning of the Indenture, such notice will state that such redemption is conditional upon receipt by the Trustee, on or prior to the date fixed for such redemption, of moneys that, together with 3803
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other available amounts held by the Trustee, are sufficient to pay the Redemption Price of, and accrued interest on, the Bonds to be redeemed, and that if such moneys shall not have been so received said notice shall be of no force and effect and the District will not be required to redeem such Bonds. In the event a notice of redemption of Bonds contains such a condition and such moneys are not so received, the redemption of Bonds as described in the conditional notice of redemption will not be made and the Trustee will, within a reasonable time after the date on which such redemption was to occur, give notice to the Persons and in the manner in which the notice of redemption was given, that such moneys were not so received and that there shall be no redemption of Bonds pursuant to such notice of redemption.
Debt Service Schedule
Year Ending
September 1 Principal Interest Total
SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2022 BONDS General
The Series 2022 Bonds are special, limited obligations of the District payable solely from Net Special Tax Revenues and the other assets pledged therefor under the Indenture. The Indenture defines “Net Special Tax Revenues” to mean Special Tax Revenues less amounts required to pay Administrative Expenses. Under 3804
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the Indenture, the portion of the Special Tax levied under the Rate and Method to pay for Services (as defined in the Rate and Method) is not pledged to the payment of the Series 2022 Bonds or any Additional Bonds.
Accordingly, the term “Special Tax Revenues” is defined in the Indenture to mean the proceeds of the Special Taxes received by or on behalf of the District, other than proceeds of Special Taxes levied to pay the costs of Services received by or on behalf of the District, including any prepayments thereof, interest and penalties thereon and proceeds of the redemption or sale of property sold as a result of foreclosure of the lien of the Special Taxes (which shall be limited to the amount of said lien and interest and penalties thereon). The Indenture defines the term “Special Taxes” as the special taxes approved by the qualified electors to be levied within the District pursuant to the Act and the Rate and Method. “Services” has the meaning set forth in the Rate and Method. See APPENDIX A — “AMENDED AND RESTATED RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAX.” “Administrative Expenses” is defined in the Indenture to mean any reasonably necessary or appropriate expenses incurred in the administration of the District and the Bonds, including, but not limited to (a) the administrative and legal costs of levying and collecting the Special Taxes (including costs incurred in connection with any appeals relating thereto and litigation expenses incurred in connection with the collection of such Special Taxes), (b) the fees, costs and indemnification due the Trustee, (c) the costs incurred with on-going disclosure in connection with the Bonds, (d) the costs incurred in connection with the disclosure of the Special Taxes to property owners and potential purchasers of property, (e) the amounts required to calculate and pay arbitrage rebate payments to the federal government, and (f) an allocable share of the salaries of the City staff providing services on behalf of the District directly related to the foregoing and an allocable share of City general administrative overhead related thereto.
Under the Rate and Method, parcels of Taxable Property are classified as Developed Property (each as defined in the Rate and Method) if a building permit has been obtained for such parcel by May 1 of the fiscal year preceding the Special Tax levy. As of May 1, 2021, 90 building permits had been issued for units within the District. In Fiscal Year 2020-21, the first year Special Taxes were levied in the District, Special Taxes in the amount of $58,263 were levied on 18 parcels classified as Developed Property. In Fiscal Year 2021-22, Special Taxes in the amount of $291,040 were levied on 90 parcels classified as Developed Property within the District. As of April 1, 2022, there are __ parcels classified as Developed Property within the District. See “THE COMMUNITY FACILITIES DISTRICT — Delinquency History.” Under no circumstances may the amount of Special Taxes levied by the District in any year exceed the maximum rates approved by the qualified electors within the District, as set forth in the Rate and Method. A copy of the Rate and Method is attached to this Official Statement as APPENDIX A.
In addition to the Net Special Tax Revenues, any other amounts held by the Trustee in the Special Tax Fund, the Bond Fund and the Reserve Fund are pledged pursuant to the Indenture to secure the payment of the principal of, premium, if any, and interest on the Series 2022 Bonds and any Additional Bonds in accordance with their respective terms, the Indenture and the Act. However, those amounts are pledged subject to the provisions of the Indenture permitting the application thereof for the purposes set forth in the Indenture.
Amounts on deposit in the Improvement Fund, the Costs of Issuance Fund, the Redemption Fund, the Administrative Expense Fund and the Rebate Fund are not pledged to the payment of any of the Series 2022 Bonds or any Additional Bonds.
NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE DISTRICT (EXCEPT TO THE LIMITED EXTENT SET FORTH IN THE INDENTURE), THE CITY OR THE
STATE, OR ANY POLITICAL SUBDIVISION THEREOF, IS PLEDGED TO THE PAYMENT OF THE SERIES 2022 BONDS. EXCEPT FOR THE NET SPECIAL TAX REVENUES, NO OTHER TAXES ARE PLEDGED TO THE PAYMENT OF THE SERIES 2022 BONDS. THE SERIES 2022
BONDS ARE NOT GENERAL OR SPECIAL OBLIGATIONS OF THE CITY BUT ARE SPECIAL,
LIMITED OBLIGATIONS OF THE DISTRICT PAYABLE SOLELY FROM NET SPECIAL TAX
REVENUES AND THE OTHER ASSETS PLEDGED THEREFOR UNDER THE INDENTURE AS MORE FULLY DESCRIBED HEREIN.
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Special Taxes
Pursuant to the Act, the City Council adopted a resolution on April 7, 2020 stating its intention to establish the District and to levy a special tax within the District. In accordance with the provisions of the Act, the City Council established the District on May 19, 2020 for the purpose of financing certain public infrastructure improvements necessary for the proposed development within the District. At a special election held on May 19, 2020, Esperanza PA 4 Venture and Esperanza PA 10 Venture, the qualified voters within the District at the time of the election, authorized the District to incur indebtedness in an amount not to exceed $25,000,000 and approved the Rate and Method to, among other things, pay the principal of and interest on the bonds of the District. The Rate and Method approved by the City Council and the qualified electors on May 19, 2020 is set forth in APPENDIX A hereto.
Pursuant to Section C of the Rate and Method, prior to the issuance of the Series 2022 Bonds, the City is required to determine if the Assigned Special Tax (as defined in the Rate and Method) is required to be reduced to the extent necessary to cause the total effective tax burden for single family property in the District to not exceed 1.95% of the minimum sales prices set forth in the Updated Price Point Study, all as further described in Section C of the Rate and Method. A copy of the Updated Price Point Study is included as APPENDIX C to this Official Statement. Based on the conclusions of the Updated Price Point Study, the City will not amend the Rate and Method in connection with the issuance of the Series 2022 Bonds. See “— Rate and Method of Apportionment” below.
Pursuant to the Indenture, the District has covenanted that it will fix and levy the amount of Special Taxes in each Fiscal Year in accordance with the Rate and Method in an amount sufficient (subject to the limitations contained in the Rate and Method as to the maximum Special Tax that may be levied) to yield Special Tax Revenues in the amount required for (i) the payment of principal of and interest on any Outstanding Bonds becoming due and payable during the Corresponding Bond Year, (ii) any necessary replenishment of the Reserve Fund, and (iii) the payment of Administrative Expenses estimated to be paid from such Special Tax Revenues, taking into account the balances in the funds and accounts established under the Indenture. See APPENDIX F — “SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE — Certain Covenants Under the Indenture.” Notwithstanding this covenant, the amount of Special Taxes actually collected each year may be less than the amount described for a variety of different reasons. See “SPECIAL RISK FACTORS — Levy of the Special Tax.”
The Series 2022 Bonds have been structured so that Assigned Special Tax rates set forth in the Rate and Method that may be levied within the District, based on the expected buildout of the District, are at least 110% of debt service on the Series 2022 Bonds in each Bond Year. The Special Taxes levied in any fiscal year may not exceed the maximum rates authorized pursuant to the Rate and Method. See APPENDIX A “AMENDED AND RESTATED RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAX.” There is no assurance that the Net Special Tax Revenues will, in all circumstances, be adequate to pay the principal of and interest on the Series 2022 Bonds when due. Pursuant to the Act, the Special Taxes levied in any fiscal year against any parcel of residential property in the District may not be increased as a consequence of delinquency or default by the owners of any other parcels within the District by more than 10% above the amount that would have been levied in that fiscal year had there never been any such delinquencies or default.
See “SPECIAL RISK FACTORS Levy of the Special Tax” and “ Exempt Properties.” The City formed another overlapping community facilities district, CFD No. 44, overlapping the boundaries of the District, within which the City levies a special tax for services. See Table 3.
Rate and Method of Apportionment
General. The Rate and Method is to be applied by the District each Fiscal Year for the purpose of determining the amount of the Special Tax to be levied against each Assessor’s Parcel of Taxable Property within the District. For purposes of the discussion of the Rate and Method only, terms with initial capital 3806
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letters that are not otherwise defined in this Official Statement shall have the respective meanings assigned to them in the Rate and Method, a copy of which appears in APPENDIX A.
Under the terms of the Indenture, prior to August 1 of each year, the District will ascertain from the County Assessor the relevant parcels on which the Special Taxes are to be levied, taking into account any parcel splits during the preceding and then current year. The District will levy the Special Taxes by August 10 of each Fiscal Year that the Series 2022 Bonds are Outstanding, or otherwise such that the computation of the levy is complete before the final date on which the auditor of the County (the “Auditor”) will accept the transmission of the Special Tax amounts for the parcels within the District for inclusion on the next real property tax roll. Upon the completion of the computation of the amounts of the levy, the District will prepare, or cause to be prepared, and shall transmit to the Auditor, such data as the Auditor requires to include the levy of the Special Taxes on the next real property tax roll.
The Special Taxes levied in any Fiscal Year may not exceed the maximum rates authorized pursuant to the Rate and Method. See APPENDIX A — “AMENDED AND RESTATED RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAX” hereto. There is no assurance that the proceeds of the Special Taxes will, in all circumstances, be adequate to pay the principal of and interest on the Series 2022 Bonds when due. See “SPECIAL RISK FACTORS — Levy of the Special Tax” herein.
Amended and Restated Rate and Method of Apportionment of Special Tax. The District is legally authorized and has covenanted to cause the levy of the Special Taxes in an amount determined according to a methodology, i.e., the Rate and Method, which the City Council and the qualified electors within the District have approved. The Rate and Method apportions the total amount of the Special Taxes to be collected among the Taxable Property in the District as more particularly described below. The City formed another overlapping community facilities district, CFD No. 44, overlapping the boundaries of the District, within which the City levies a special tax for services. See Table 3.
The following is a synopsis of the provisions of the Rate and Method, which should be read in conjunction with the complete text of the Rate and Method which is attached as APPENDIX A — “AMENDED AND RESTATED RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAX.” The meanings of the capitalized but undefined terms used in this section are as set forth in APPENDIX A — “AMENDED AND RESTATED RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAX” hereto. This section provides only a summary of the Rate and Method, and is qualified by more complete and detailed information contained in the Rate and Method attached as APPENDIX A. “CFD Administrator” means an official of the City responsible for determining the Special Tax Requirement, providing for the levy and collection of the Special Taxes, and performing other duties provided for in the Rate and Method.
“Developed Property” means, for each Fiscal Year, all Taxable Property, exclusive of Final Mapped Property, Taxable Property Owner Association Property, and Taxable Public Property, for which a building permit or other applicable permit for new construction was issued after January 1, 2019, and before May 1 of the prior Fiscal Year.
“Final Mapped Property” means, for each Fiscal Year, all Taxable Property, exclusive of Developed Property, Taxable Property Owner Association Property, and Taxable Public Property, which as of January 1 of the previous Fiscal Year was located within a Final Subdivision Map. The term Final Mapped Property shall include any parcel map or Final Subdivision Map, or portion thereof, that creates individual lots for which a building permit may be issued, including Parcels that are designated as a remainder Parcel (i.e., one where the size, location, etc., precludes any further subdivision or taxable use). “Lower Income Household Welfare Exemption Property” means, for each Fiscal Year, an Assessor’s Parcel within the boundaries of the District that is subject to a welfare exemption under subdivision (g) of 3807
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Section 214 of the California Revenue and Taxation Code (or any successor statute), as indicated in the most recent County assessor’s roll finalized prior to such Fiscal Year. “Residential Floor Area” means all of the Square Footage of living area within the perimeter of a Unit, not including any carport, walkway, garage, overhang, patio, enclosed patio, or similar area. The determination of Residential Floor Area shall be as set forth in the building permit(s) issued for such Assessor’s Parcel, or as set forth in other official records maintained by the City’s Building Department or other appropriate means selected by the District. The actual Square Footage shall be rounded up to the next whole square foot. Once such determination has been made for an Assessor’s Parcel, it shall remain fixed in all future Fiscal Years unless an appeal pursuant to Section F of the Rate and Method is approved that results in a change in the actual Square Footage.
“Special Tax” means the special tax authorized by the qualified electors of the District to be levied within the boundaries of the District.
“Special Tax Requirement” means, for any Fiscal Year that amount required, after taking into account available amounts held in the funds and accounts established under the Indenture, for the District to: (i) pay debt service on all Outstanding Bonds which is due in the calendar year that commences in such Fiscal Year; (ii) pay periodic costs on the Bonds, including, but not limited to, credit enhancement and rebate payments on the Bonds; (iii) pay Administrative Expenses; (iv) provide any amounts required to establish or replenish any reserve fund for the Bonds; (v) pay directly for acquisition or construction of Facilities, or the cost of Services, to the extent that the inclusion of such amounts does not increase the Special Tax levy on Final Mapped Property or Undeveloped Property; (vi) without duplicating any amounts described in clause (iv) above, provide an amount equal to reasonably anticipated Special Tax delinquencies based on the delinquency rate for the Special Tax in the previous Fiscal Year as determined by the CFD Administrator, as limited by the Act. “Taxable Property” means, for each Fiscal Year, all of the Assessor’s Parcels within the boundaries of the District which are not exempt from the Special Tax pursuant to law or described below under the subheading “— Exempt Property.”
“Taxable Property Owner Association Property” means, for each Fiscal Year, all Assessor’s Parcels of Property Owner Association Property that are not exempt from the Special Tax pursuant to Section E of the Rate and Method.
“Taxable Public Property” means, for each Fiscal Year, all Assessor’s Parcels of Public Property that are not exempt from the Special Tax pursuant to law or as described below under the subheading “— Exempt Property,” and further described in Section E of the Rate and Method attached hereto as APPENDIX A. “Undeveloped Property” means, for each Fiscal Year, all Taxable Property not classified as Developed Property, Final Mapped Property, Taxable Public Property, or Taxable Property Owner Association Property.
Exempt Property. No Special Tax shall be levied on up to 4.72 Acres of Public Property and up to
3.67 Acres of Property Owner Association Property, as described further in this paragraph. Tax-exempt status will be assigned by the CFD Administrator in the chronological order in which property becomes Public Property or Property Owner Association Property. Property Owner Association Property or Public Property that is not exempt from the Special Tax under the Rate and Method shall be subject to the levy of the Special Tax and shall be taxed Proportionately as part of the fifth or sixth step, respectively, in Section D of the Rate and Method, up to 100% of the applicable Maximum Special Tax for Taxable Property Owner Association Property and Taxable Public Property. No Special Tax shall be levied in any Fiscal Year on Assessor’s Parcels that have fully prepaid the Special Tax obligation pursuant to the formula set forth in Section H of the Rate and Method.
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Under the Rate and Method, no Special Tax shall be levied on Lower Income Household Welfare Exemption Property; provided, however, that if, in any Fiscal Year, applicable law does not require that Lower Income Household Welfare Exemption Property be exempt from some portion, or all, of the Special Tax, such portion, or all, of the Special Tax shall be levied on such property in accordance with the Rate and Method based on the Land Use Class to which the Assessor’s Parcel is assigned. Senate Bill 1473, the “Local Government Omnibus Act of 2020,” amended Government Code Section 53340(c) to provide that in a community facilities district in which the levy of a special tax is authorized by an ordinance adopted on or after January 1, 2020, a property receiving a welfare exemption under subdivision (g) of Section 214 of the California Revenue and Taxation Code shall be exempt from the special tax unless debt is outstanding and the property was subject to the special tax prior to receiving the exemption, in which case the property shall remain subject to the special tax and the special tax shall be enforceable against the property. Therefore, pursuant to the Rate and Method and California law, and given that no property is subject to the welfare exemption as of the date hereof, the Special Tax shall be applicable to Lower Income Household Welfare Exemption Property so long as the Bonds are outstanding.
Maximum Special Tax, Assigned Special Tax and Backup Special Tax. The Maximum Special Tax, Assigned Special Tax and Backup Special Tax for the Special Tax provided for in the Rate and Method is as follows:
Special Tax.
Developed Property. The Maximum Special Tax that may be levied in any Fiscal Year for each Assessor’s Parcel classified as Developed Property will be the greater of (i) the amount derived by application of the Assigned Special Tax or (ii) the amount derived by application of the Backup Special Tax.
Assigned Special Tax. Single Family Detached Property will be assigned to Land Use Classes 1 through 7, Single Family Attached Property will be assigned to Land Use Classes 8 through 14, Other Residential Property will be assigned to Land Use Class 15 and Non-Residential Property shall be assigned to Land Use Class 16 as listed in Table 1 in Section C of the Rate and Method. The Assigned Special Tax applicable to an Assessor’s Parcel classified as Single Family Detached Property ranges from $2,574 per unit for units with a Residential Floor Area of less than 2,201 square feet to $3,761 per unit for units with a Residential Floor Area greater than 3,200 square feet. The Assigned Special Tax applicable to an Assessor’s Parcel classified as Single Family Attached Property ranges from $1,090 per unit for units with a Residential Floor Area of less than 901 square feet to $1,840 per unit for units with a Residential Floor Area greater than 1,900 square feet. The Assigned Special Tax applicable to an Assessor’s Parcel classified as Other Residential Property and Non-Residential Property is $32,813 per acre. Based on the Updated Price Point Study provided by the Price Point Consultant, the Assigned Special Tax rates set forth in Section C of the Rate and Method are not required to be reduced so that the total effective tax burden applicable to each land use class of residential property to be constructed within the District will not exceed 1.95% of the minimum sale prices set forth in the Updated Price Point Study, as required by Section C of the Rate and Method. A copy of the Updated Price Point Study is included as APPENDIX C to this Official Statement.
Backup Special Tax. The Backup Special Tax for an Assessor’s Parcel of Developed Property is $3,235 per Unit for Single Family Detached Property and $1,473 per Unit for Single Family Attached Property, although subject to adjustment as set forth in Section C.1.a.(3) of the Rate and Method.
Final Mapped Property, Taxable Public Property, Taxable Property Owner Association Property and Undeveloped Property. The Maximum Special Tax for Final Mapped Property, Taxable Public Property, Taxable Property Owner Association Property, and Undeveloped Property is $32,813 per acre, and shall not be subject to increase or reduction and, therefore, shall remain the same in every Fiscal Year. 3809
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Method of Apportionment of Special Tax. Each Fiscal Year, beginning with Fiscal Year 2020-21, the CFD Administrator will determine the Special Tax Requirement and, subject to the Maximum Special Tax rates described above, the Special Tax will then be levied as follows:
First: If needed to satisfy the Special Tax Requirement, the Special Tax shall be levied Proportionately on each Assessor’s Parcel of Developed Property up to 100% of the applicable Assigned Special Tax;
Second: If additional monies are needed to satisfy the Special Tax Requirement after the first step has been completed, then the Special Tax shall be levied Proportionately on each Assessor’s Parcel of Final Mapped Property up to 100% of the Maximum Special Tax for Final Mapped Property; Third: If additional monies are needed to satisfy the Special Tax Requirement after the first two steps have been completed, then the Special Tax shall be levied Proportionately on each Assessor’s Parcel of Undeveloped Property up to 100% of the Maximum Special Tax for Undeveloped Property; Fourth: If additional monies are needed to satisfy the Special Tax Requirement after the first three steps have been completed, then the levy of the Special Tax on each Assessor’s Parcel of Developed Property whose Maximum Special Tax is determined through the application of the Backup Special Tax shall be increased Proportionately from the Assigned Special Tax up to the Maximum Special Tax for each such Assessor’s Parcel;
Fifth: If additional monies are needed to satisfy the Special Tax Requirement after the first four steps have been completed, then the Special Tax shall be levied Proportionately on each Assessor’s Parcel of Taxable Property Owner Association Property up to the Maximum Special Tax for Taxable Property Owner Association Property; and
Sixth: If additional monies are needed to satisfy the Special Tax Requirement after the first five steps have been completed, then the Special Tax shall be levied Proportionately on each Assessor’s Parcel of Taxable Public Property up to the Maximum Special Tax for Taxable Public Property.
Notwithstanding the above, under no circumstances shall the Special Tax levied in any Fiscal Year on any Assessor’s Parcel of Single Family Property or Other Residential Property for which an occupancy permit for private residential use has been issued be increased as a result of delinquency or default by the owner or owners of any other Assessor’s Parcel or Assessor’s Parcels within the District by more than ten percent above the amount that would have been levied in that Fiscal Year had there never been any such delinquencies or defaults.
Under the Indenture, the portion of the Special Tax levied under the Rate and Method to pay for Services (as defined in the Rate and Method) is not pledged to the payment of the Series 2022 Bonds or any Additional Bonds. Accordingly, as used in this Official Statement, including the description of the apportionment of the Special Tax, the term “Special Tax Revenues” means the proceeds of the Special Taxes received by or on behalf of the District, other than proceeds of Special Taxes levied to pay the costs of Services received by or on behalf of the District, including any prepayments thereof, interest and penalties thereon and proceeds of the redemption or sale of property sold as a result of foreclosure of the lien of the Special Taxes, which will be limited to the amount of said lien and interest and penalties thereon.
Prepayment of Special Tax. The Special Tax obligation for an Assessor’s Parcel of Taxable Property for which a building permit has been issued, may be prepaid in full, or in part, and only if there are no delinquent Special Taxes with respect to such Assessor’s Parcel at the time of prepayment, provided that the terms set forth under Section H of the Rate and Method are satisfied. The Prepayment Amount is calculated based on the Bond Redemption Amount plus Redemption Premium plus the Future Facilities Amount plus the Defeasance Amount plus the Administrative Fees and Expenses, less a credit for the resulting reduction in the 3810
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Reserve Requirement for the Bonds (if any), all as specified in APPENDIX A — “AMENDED AND RESTATED RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAX — Section H.” Mandatory redemption of Series 2022 Bonds from Special Tax prepayments may result in the reduction in the otherwise expected yield on such Series 2022 Bonds if the Series 2022 Bonds were purchased at a price greater than par. See “SPECIAL RISK FACTORS — Potential Early Redemption of Bonds from Special Tax Prepayments.”
Estimated Debt Service Coverage. The principal amount of the Series 2022 Bonds has been established to produce debt service coverage on the Series 2022 Bonds from Net Special Tax Revenues of at least 110%. The District may levy up to the Maximum Special Tax rates on Taxable Property within the District. See “— Rate and Method of Apportionment — Maximum Special Tax, Assigned Special Tax and Backup Special Tax” and “— Rate and Method of Apportionment — Exempt Property.” Pursuant to the Rate and Method, the status of Developed Property is based on building permits issued as of May 1 of the Fiscal Year preceding the Fiscal Year for which the Special Tax is levied. Based on the development status within the District as of April 1, 2022, ___ parcels of Taxable Property will be classified as Developed Property for Fiscal Year 2022-23. See “PROPERTY OWNERSHIP AND THE DEVELOPMENT” and “SPECIAL RISK FACTORS — Failure to Develop Properties.” In Fiscal Year 2020-21, the first year Special Taxes were levied within the District, Special Taxes in the amount of $58,263 were levied on 18 parcels classified as Developed Property. In Fiscal Year 2021-22, Special Taxes in the amount of $291,040 were levied on 90 parcels classified as Developed Property within the District. See “THE COMMUNITY FACILITIES DISTRICT — Delinquency History.” 3811
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Table 1 below sets forth the projected Special Tax levy for Fiscal Year 2022-23 by property classification as of February 1, 2022 and as expected at build out.
TABLE 1
CITY OF ONTARIO
COMMUNITY FACILITIES DISTRICT NO. 54
(ESPERANZA FACILITIES)
SUMMARY OF PROJECTED FISCAL YEAR 2022-23
SPECIAL TAX LEVY AND EXPECTED LAND USES
Projected Fiscal Year 2022-23 Special Tax Levy(1) Buildout of Expected Land Uses Special Tax
Category
Residential
Floor Area
(Sq. Ft.)
No. of
Units
or
Acres
Special Tax
Rate(2)
Per Unit
or Acre
Annual
Special Tax
Revenues
No. of
Units or
Acres(3)
Maximum
or
Assigned
Special
Tax(2)(4)
Per Unit
or Acre
Annual
Special Tax
Revenues(5)
Developed Property(6)
Single Family Detached Property Units Units
<2,201 0 $ 2,574 per Unit $ 0 0 $ 2,574 per Unit $ 0
2,201-2,400 0 2,848 per Unit 0 0 2,848 per Unit 0
2,401-2,600 31 3,016 per Unit 93,496 31 3,016 per Unit 93,496 2,601-2,800 32 3,216 per Unit 102,912 32 3,216 per Unit 102,912 2,801-3,000 37 3,441 per Unit 127,317 37 3,441 per Unit 127,317 3,001-3,200 0 3,579 per Unit 0 0 3,579 per Unit 0
>3,200 0 3,761 per Unit 0 0 3,761 per Unit 0
Single Family Attached Property
<901 0 $ 1,090 per Unit $ 0 0 $ 1,090 per Unit $ 0
901-1,100 0 1,166 per Unit 0 0 1,166 per Unit 0
1,101-1,300 1 1,312 per Unit 1,312 42 1,312 per Unit 55,104 1,301-1,500 1 1,484 per Unit 1,484 42 1,484 per Unit 62,328 1,501-1,700 1 1,623 per Unit 1,623 42 1,623 per Unit 68,166 1,701-1,900 0 1,766 per Unit 0 0 1,766 per Unit 0
>1,900 0 1,840 per Unit 0 0 1,840 per Unit 0
Subtotal – Developed Property 103 Units $ 328,144 226 Units $ 509,323 Acres Acres
Final Mapped Property(7) 0.00 $ 32,813 per Acre $ 0 0.00 $ 32,813 per Acre $ 0 Undeveloped Property(8) 8.37 16,476 per Acre 137,900 0.00 32,813 per Acre 0 Grand Total $ 466,044 $ 509,323
(1) Based on the building permits issued as of February 1, 2022 and assumes no further development. Includes the debt service due in 2023 on the Series 2022 Bonds and estimated Administrative Expenses in the amount of $89,244. (2) Reflects the final Assigned Special Tax rates. No reductions were required pursuant to Section C.1 of the Rate and Method. (3) Expected land uses are subject to change as development occurs. (4) For Developed Property, the Assigned Special Tax rates are shown. For Final Mapped Property and Undeveloped Property, the Maximum Special Tax rate is shown.
(5) Does not include potential revenues from a Backup Special Tax levy on Developed Single Family Detached Property or Single Family Attached Property.
(6) For the projected Fiscal Year 2022-23 Special Tax levy, includes all taxable parcels which have had a building permit issued by the City prior to February 1, 2022 and assumes no further development. (7) For the projected Fiscal Year 2022-23 Special Tax levy, includes all taxable parcels which were located within a final subdivison map as of January 1, 2022 and assumes no new final maps will be recorded. (8) The projected Fiscal Year 2022-23 Special Tax levy on Undeveloped Property is subject to change as development occurs.
Sources: City; Special Tax Consultant.
Collection and Application of Special Taxes
The Special Taxes are levied and collected by the Treasurer-Tax Collector of the County in the same manner and at the same time as ad valorem property taxes; provided, however, that the District may directly bill the Special Taxes, may collect Special Taxes at a different time or in a different manner if necessary to 3812
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meet its financial obligations, and may covenant to foreclose and may actually foreclose on delinquent Assessor’s Parcels as permitted by the Act.
The District has made certain covenants in the Indenture for the purpose of ensuring that the current maximum rates and method of collection of the Special Taxes are not altered in a manner that would impair the District’s ability to collect sufficient Special Taxes to pay debt service on the Bonds and Administrative Expenses when due. First, the District has covenanted that it will not initiate proceedings under the Act to modify the Rate and Method if such modification would adversely affect the security for the Bonds and if an initiative is adopted that purports to modify the Rate and Method in a manner that would adversely affect the security for the Bonds, the District shall, to the extent permitted by law, commence and pursue reasonable legal actions to prevent the modification of the Rate and Method in a manner that would adversely affect the security for the Bonds. See “SPECIAL RISK FACTORS — Constitutional Limitations on Taxation and Appropriations.” Second, the District has covenanted not to authorize owners of taxable parcels within the District to satisfy Special Tax obligations by the tender of Bonds unless the District shall have first obtained a report of an Independent Consultant certifying that doing so would not result in the District having insufficient Special Tax Revenues to pay the principal of and interest on all Outstanding Bonds when due.
Although the Special Taxes constitute liens on Taxable Property within the District, they do not constitute a personal indebtedness of the owners of such property within the District. Moreover, other overlapping general obligation debt already exists on the property located within the District and other future special tax and assessment liens and overlapping general obligation debt could come into existence in the future in certain situations without the consent or knowledge of the City or the landowners therein. See “SPECIAL RISK FACTORS — Parity Taxes and Special Assessments” herein. There is no assurance that property owners will be financially able to pay the annual Special Taxes or that they will pay such taxes even if financially able to do so, all as more fully described in the section of this Official Statement entitled “SPECIAL RISK FACTORS.”
Under the terms of the Indenture, the Trustee shall establish and maintain a separate fund designated the “Special Tax Fund.” As soon as practicable after the receipt by the District of any Special Tax Revenues, but in any event no later than the date ten Business Days after such receipt, the District shall transfer such Special Tax Revenues to the Trustee for deposit in the Special Tax Fund; provided, however, that any portion of any such Special Tax Revenues that represents prepaid Special Taxes that are to be applied to the payment of the redemption price of Bonds in accordance with the provisions of the Indenture shall be identified to the Trustee as such by the District and shall be deposited in the Redemption Fund. See “— Special Tax Fund” below, “THE SERIES 2022 BONDS — Redemption — Mandatory Redemption from Special Tax Prepayments” and APPENDIX F — “SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE.”
Covenant for Superior Court Foreclosure
Pursuant to Section 53356.1 of the Act, the District has covenanted in the Indenture that it will determine or cause to be determined, no later than August 15 of each year, whether or not any owners of property within the District are delinquent in the payment of Special Taxes and that, if such delinquencies exist, the District will order and cause to be commenced no later than October 1, and thereafter diligently prosecute, an action in the superior court to foreclose the lien of any Special Taxes or installment thereof not paid when due. Notwithstanding the foregoing, the District is not required under the Indenture to order the commencement of foreclosure proceedings if (a) the total Special Tax delinquency in the District for such Fiscal Year is less than 5% of the total Special Taxes levied in such Fiscal Year, and (b) the amount then on deposit in the Reserve Fund is equal to the Reserve Requirement. Notwithstanding the foregoing, if the District determines that any single parcel is delinquent in excess of $7,500 in the payment of the Special Taxes, then the District will diligently institute, prosecute and pursue foreclosure proceedings against such parcel.
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The mere commencement of foreclosure proceedings will not assure a prompt and favorable resolution of Special Tax delinquencies. The ability of the District to foreclose the lien of delinquent unpaid Special Taxes may be limited. See “SPECIAL RISK FACTORS — Bankruptcy and Legal Delays” and “— FDIC/Federal Government Interests in Properties.” Moreover, even if a judgment of foreclosure and order of sale is obtained, the District must cause a notice of levy to be issued. Under current law, the property owner has 120 days from the date of service of the notice of levy in which to redeem the subject property. If the property owner fails to redeem the property and it is sold, the property owner’s only remedy is an action to set aside the sale, which action must be brought within 90 days of the date of sale. If such an action results in the setting aside of the foreclosure sale, the judgment is revived, and the District would be entitled to receive interest on the revived judgment as if the sale had not been made. Under former law a property owner had a period of one year within which to redeem property to be sold, and the constitutionality of the legislation that eliminated the one year redemption period has not been tested.
There can be no assurance that, even if the subject property is sold, the proceeds from such sale will be sufficient to pay the delinquent installments of the Special Tax. The Act does not require the District or any other governmental agency to purchase or otherwise acquire any Assessor’s Parcel being sold if there is no other purchaser at such sale. The Act does require that property being sold pursuant to foreclosure under the Act must be sold for not less than the judgment amount (which must include reasonable attorneys’ fees, together with interest, penalties, and other authorized charges and costs) plus post judgment interest and authorized costs, unless a lower bid price is authorized by the Owners of not less than 75% by value of the Series 2022 Bonds Outstanding.
Special Tax Fund
The Indenture provides that the Trustee will establish and maintain a separate fund designated the “Special Tax Fund.” The Indenture requires that the District transfer Special Tax Revenues (other than prepaid Special Taxes) to the Trustee for deposit into the Special Tax Fund as soon as practicable after the District’s receipt thereof, but in any event no later than ten Business Days after such receipt. No later than the Business Day immediately preceding each Interest Payment Date, after having made any requested transfers to the Administrative Expense Fund, as requested by the District, to have sufficient amounts available therein to pay Administrative Expenses, the Trustee is required by the Indenture to make transfers from the Special Tax Fund to the Interest Account in the Bond Fund, the Principal Account in the Bond Fund and the Reserve Fund in the amounts and in the priority specified in the Indenture. See APPENDIX F — “SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE.”
As soon as practicable after the District’s receipt of prepaid Special Taxes, but in any event no later than ten Business Days after such receipt, the District is required to transfer any prepaid Special Taxes to the Trustee and, in connection therewith, deliver to the Trustee a Written Certificate identifying such amounts as prepaid Special Taxes, identifying the portion of such prepaid Special Taxes so transferred that is to be applied to the Redemption Price of the Bonds and identifying the portion of such prepaid Special Taxes that is to be applied to the payment of interest on the Bonds to be so redeemed. The portion of such prepaid Special Taxes that is to be applied to the Redemption Price will be deposited by the Trustee in the Redemption Fund and will be applied to the redemption of the Bonds pursuant to the Indenture. The portion of such prepaid Special Taxes that is to be applied to the payment of interest on the Bonds to be so redeemed will be deposited by the Trustee in the Interest Account and will be applied to the payment of such interest.
Reserve Fund
The Indenture provides that the Trustee will establish and maintain a special fund designated the “Reserve Fund.” On the Closing Date, the Trustee will deposit in the Reserve Fund the amount specified under the caption “ESTIMATED SOURCES AND USES OF FUNDS.” The Trustee is also required, no later than the Business Day immediately preceding each Interest Payment Date, to transfer from the Special Tax Fund (after the requisite transfers to the Administrative Expense Fund, the Interest Account and the Principal 3814
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Account) the amount, if any, necessary to cause the amount on deposit in the Reserve Fund to be equal to the Reserve Requirement. The Indenture defines “Reserve Requirement” to mean, as of the date of any calculation, the least of (i) “10% of the proceeds of the issue,” within the meaning of Section 148 of the Code, with respect to the Bonds (excluding from such calculation Bonds refunded with the proceeds of subsequently issued Bonds), (ii) Maximum Annual Debt Service and (iii) 125% of Average Annual Debt Service.
Except as otherwise provided in the Indenture, all amounts in the Reserve Fund are to be used and withdrawn by the Trustee solely for the purpose of (i) making transfers to the Interest Account in accordance with the Indenture in the event of any deficiency in the Interest Account of the amount then required for payment of the interest on the Bonds, (ii) making transfers to the Principal Account in accordance with the Indenture in the event of any deficiency in the Principal Account of the amount then required for payment of the principal of the Bonds, and (iii) redeeming Bonds in accordance with the Indenture as described in the following paragraph.
Whenever Bonds are to be optionally redeemed or redeemed from Special Tax prepayments, a proportionate share (determined as provided below) of the amount on deposit in the Reserve Fund will, on the date on which amounts to redeem such Bonds are deposited in the Redemption Fund or otherwise deposited with the Trustee, be transferred by the Trustee from the Reserve Fund to the Redemption Fund or to such deposit held by the Trustee and will be applied to the redemption of said Bonds; provided that, such amount will be so transferred only if and to the extent that the amount remaining on deposit in the Reserve Fund will be at least equal to the Reserve Requirement (excluding from the calculation thereof said Bonds to be redeemed). Such proportionate share will be equal to the largest integral multiple of the minimum Authorized Denomination for said Bonds that is not larger than the amount equal to the product of (i) the amount on deposit in the Reserve Fund on the date of such transfer, times (ii) a fraction, the numerator of which is the principal amount of Bonds to be so redeemed and the denominator of which is the principal amount of Bonds to be Outstanding on the day prior to the date on which such Bonds are to be so redeemed.
Whenever the balance in the Reserve Fund exceeds the amount required to redeem or pay the Outstanding Bonds, including interest accrued to the date of payment or redemption and premium, if any, due upon redemption, the Trustee will, upon receipt of a Written Request of the District, transfer the amount in the Reserve Fund to the Interest Account, Principal Account and/or Redemption Fund, as applicable, to be applied, on the next succeeding Interest Payment Date to the payment and redemption of all of the Outstanding Bonds.
If, as a result of the scheduled payment of principal of or interest on the Bonds, the Reserve Requirement is reduced, the Trustee will transfer an amount equal to the amount of such reduction to the Interest Account.
Investment of Moneys
All moneys held by the Trustee in any of the funds or accounts established pursuant to the Indenture are required to be invested by the Trustee solely in Permitted Investments, as directed in writing by the District. As used in the Indenture, the phrase “Permitted Investments” includes a variety of investments, some of which may not be rated by a national rating service. See APPENDIX F — “SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE — Definitions.”
No Additional Bonds Except for Refunding Bonds
So long as any of the Series 2022 Bonds remain Outstanding, the District will not issue any Additional Bonds or obligations payable from Net Special Tax Revenues senior to the Series 2022 Bonds. The District may issue Additional Bonds or obligations payable on a parity with the Series 2022 Bonds, if, among other things: (i) upon the issuance of such Additional Bonds, no Event of Default will occur or be continuing under the Indenture; (ii) the proceeds of the Additional Bonds will be applied to refund the Series 2022 Bonds or Additional Bonds previously issued under the Indenture, pay Costs of Issuance incurred in connection with the issuance of such Additional Bonds, and/or make any requisite deposit to the Reserve Fund; and (iii) the Annual Debt Service in each Bond Year, calculated for all Bonds that will be Outstanding after the issuance of such 3815
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Additional Bonds, will be less than or equal to Annual Debt Service in such Bond Year, calculated for all Bonds that are Outstanding immediately prior to the issuance of such Additional Bonds. Nothing contained in the Indenture limits the issuance of any special tax bonds payable from Special Taxes if, after the issuance and delivery of such special tax bonds, none of the Bonds theretofore issued under the Indenture will be Outstanding. See APPENDIX F — “SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE.”
THE COMMUNITY FACILITIES DISTRICT
General Information Regarding the District
The District was formed to finance certain services, facilities and costs with respect thereto related to the development within the District. The qualified electors within the boundaries of the District, being the then owners of property in the District, authorized the District to incur bonded indebtedness to finance certain facilities to meet the needs of new development within the District and approved the Rate and Method for, and authorized the levy of, the Special Tax.
The District is located in the southwestern portion of San Bernardino County, in the southern portion of the City within an area known as “Ontario Ranch” (formerly known as New Model Colony). The District consists of two neighborhoods known as “Dorado” and “Ventana,” respectively. The Dorado site is generally bounded by Mill Creek Avenue to the west, Eucalyptus Avenue to the south, Amherst Avenue to the east and vacant lands to the north. The Dorado site consists of approximately 16.22 gross acres, all within Final Tract Map No. 17931. The Ventana site is generally bounded by Hamner Avenue to the east, Eucalyptus Avenue to the south, Clifton Street to the west and vacant lands to the north. The Ventana site consists of approximately
8.65 gross acres, all within Final Tract Map No. 20285.
The property within the District is being developed into two neighborhoods named “Dorado” and “Ventana” within a master planned community known as “Esperanza.” At full buildout the District is anticipated to include 226 single-family detached and attached dwelling units. Esperanza is located within the Esperanza Specific Plan which at build-out is anticipated to include 1,410 dwelling units. Esperanza is part of a multiple phase, multiple master-planned community development known as “Ontario Ranch” (formerly known as New Model Colony). Ontario Ranch is planned to contain over 3,500 acres. At full buildout, Ontario Ranch is expected to include approximately 18,000 dwelling units, approximately 2.9 million square feet of industrial space, approximately 1.5 million square feet of commercial and retail space and over 500,000 square feet of business park space. While most of Ontario Ranch is raw vacant land, many planned communities within the east side of Ontario Ranch have been completed or are currently under construction.
The City estimates that approximately 4,000 dwelling units have been built to date.
As of February 1, 2022, the District included 100 completed residential units which had closed escrow to individual homeowners (comprising the entirety of the Dorado neighborhood), 3 model units under construction In Ventana and owned by the Developer and 123 finished lots/pads (of which 15 were in escrow) in Ventana owned by the Developer. As of April 1, 2022, the District included __ completed residential units which had closed escrow to individual homeowners, __ completed model units in Ventana owned by the Developer, __ completed residential units in Ventana owned by the Developer, __ residential units in various stages of construction (of which __ were in escrow) in Ventana owned by the Developer and __ building pads in a finished condition in Ventana owned by the Developer. See “PROPERTY OWNERSHIP AND THE DEVELOPMENT — The Development Plan.” A detailed description of the status of the construction as of the date of value of the Appraisal is included in APPENDIX B — “APPRAISAL REPORT.” Under the City’s General Plan (Land Use Plan LU-01) land within the Dorado neighborhood is designated as “Low Density Residential”, which allows for 2.1 to 5.0 dwelling units per acre while land within the Ventana neighborhood is designated as “Medium Density Residential” which allows for 11.1 to 25.0 dwelling units per acre. As built and proposed, development within the District legally conforms to these requirements.
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Water and sewer service to the property within the District will be supplied by the City. Electricity will be supplied by Southern California Edison, and gas by Southern California Gas Company.
Like all of Southern California, the land within the District is subject to seismic activity. The District is not located in a designated Earthquake Study Zone. However, the Chino-Central Avenue fault is located approximately 5 miles west of the District and the Cucamonga Fault Zone is located approximately 20 miles north of the District. See “SPECIAL RISK FACTORS — Geologic, Topographic and Climatic Conditions.” Like much of the property within the City and surrounding areas, the property within the District has previously been utilized as dairy pastures and agricultural fields. An updated Methane Gas Investigation Report was prepared by LGC Geo-Environmental, Inc. dated January 14, 2020. The report identified that the District was outside of the methane study area and that methane gas in the Dorado and Ventana neighborhoods was either not detected or less than the level that requires any type of remediation. No additional methane investigations were recommended. See “SPECIAL RISK FACTORS — Methane Gas.” The Federal Emergency Management Agency has determined that the District is located in a Zone “X” flood area (an area of minimal flooding, within the 500-year flood plain), and flood insurance will not be required. See “SPECIAL RISK FACTORS — Geologic, Topographic and Climatic Conditions.” An aerial photo showing the property within the District and a map showing the general location of the District and the surrounding area appears on the pages before Page 1 of this Official Statement. More detailed information about the property therein is contained in APPENDIX B — “APPRAISAL REPORT,” and information about the ownership of such property is set forth under the caption “PROPERTY OWNERSHIP AND THE DEVELOPMENT.” General information about the City is set forth in APPENDIX E.
The Facilities
The City and Esperanza PA 4 Venture entered into an Acquisition and Funding Agreement, dated as of May 1, 2020 (the “Acquisition Agreement”), which provides, among other things, the means by which certain facilities will be financed in connection with the development within the District, including street and traffic circulation system improvements (the “Facilities”).
Pursuant to the Acquisition Agreement, Esperanza PA 4 Venture agreed to construct, and the City agreed to accept, certain Facilities to be acquired with the proceeds of the Series 2022 Bonds and available Special Taxes deposited into the GDC/CDG Esperanza Acquisition Account of the Improvement Fund under the Indenture pursuant to certain requirements contained in the Acquisition Agreement and the Indenture. The Acquisition Agreement also provides guidelines pursuant to which the City may acquire completed segments of the Facilities with the proceeds of the Series 2022 Bonds and available Special Taxes deposited into the GDC/CDG Esperanza Acquisition Account of the Improvement Fund.
Pursuant to the Acquisition Agreement, Esperanza PA 4 Venture has agreed to pay all costs of the Facilities that it constructs pursuant to the Acquisition Agreement in excess of the moneys available therefor in the GDC/CDG Esperanza Acquisition Account of the Improvement Fund. Further, any lack of availability of amounts in the GDC/CDG Esperanza Acquisition Account of the Improvement Fund to pay the acquisition costs of the Facilities shall in no way diminish any obligation of Esperanza PA 4 Venture with respect to the construction of or contributions for public facilities and mitigation measures required by the conditions of approval or any subdivision, development, or other agreement to which Esperanza PA 4 Venture is a party, or any governmental approval to which Esperanza PA 4 Venture or any land within the District is subject, except to the extent expressly set forth in such agreement or approval. 3817
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As of February 1, 2022, all of the Facilities to be constructed by Esperanza PA 4 Venture that are required to serve the development within the District have been substantially completed, pending final approval and acceptance by the City.
Certain facilities (the “NMC Facilities”) were constructed pursuant to an Acquisition and Funding Agreement, dated as of July 21, 2015 (the “NMC Acquisition Agreement”), by and between the City and NMC Builders, LLC, a California limited liability company (“NMC Builders”). In addition to the Facilities constructed by the Developer under the Acquisition Agreement, bond proceeds may be deposited into an NMC Acquisition Account of the Improvement Fund under the Indenture to finance the costs of certain NMC Facilities constructed by NMC Builders and acquired by the City pursuant to the NMC Acquisition Agreement or to reimburse NMC Builders for its prior advances to the City for the costs of certain NMC Facilities. NMC Builders is an entity established by certain current and previous landowners within Ontario Ranch for the purpose of jointly funding and managing the construction of much of the major public infrastructure required for the development of the eastern portion of Ontario Ranch, including some of the facilities being financed through the issuance of the Series 2022 Bonds.
Direct and Overlapping Debt
The District is included within the boundaries of numerous overlapping local agencies providing governmental services. Some of these local agencies have outstanding bonds, and/or the authority to issue bonds, payable from taxes or assessments. The existing and authorized indebtedness payable from taxes and assessments that may be levied upon the property within the District is shown in Table 2 below. In addition to current debt, new community facilities districts and/or special assessment districts could be formed in the future encompassing all or a portion of the property within the District; and such districts or the agencies that formed them could issue more bonds and levy additional special taxes or assessments. 3818
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TABLE 2
CITY OF ONTARIO
COMMUNITY FACILITIES DISTRICT NO. 54
(ESPERANZA FACILITIES)
DIRECT AND OVERLAPPING DEBT
2021-22 Assessed Valuation: $36,506,385
DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT: % Applicable Debt 3/1/22 Metropolitan Water District General Obligation Bonds 0.001% $ 217 Chaffey Community College District General Obligation Bonds 0.027 84,957 Chaffey Union High School District General Obligation Bonds 0.051 262,444 Mountain View School District SFID No. 1 General Obligation Bonds 0.447 37,992 Mountain View School District SFID No. 2 General Obligation Bonds 1.127 213,883 City of Ontario Community Facilities District No. 54 100. 0(1) TOTAL DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT $599,493 OVERLAPPING GENERAL FUND DEBT:
San Bernardino County General Fund Obligations 0.014% $ 25,785 San Bernardino County Pension Obligation Bonds 0.014 16,433 San Bernardino County Flood Control District General Fund Obligations 0.014 6,141 Chaffey Community College District Certificates of Participation 0.027 7,630 City of Ontario General Fund Obligations 0.113 67,851
City of Ontario Pension Obligation Bonds 0.113 263,444
West Valley Vector Control District Certificates of Participation 0.037 698 TOTAL OVERLAPPING GENERAL FUND DEBT $387,982
COMBINED TOTAL DEBT $987,475(2)
Ratios to 2021-22 Local Secured Assessed Valuation:
Direct Debt ($0)...........................................................................................0 Total Direct and Overlapping Tax and Assessment Debt.................. 60.90:1 Combined Total Debt......................................................................... 36.97:1 (1) Excludes Series 2022 Bonds.
(2) Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue and non-bonded capital lease obligations.
Source: California Municipal Statistics, Inc.
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As shown in Table 3, the projected Fiscal Year 2021-22 average total effective tax rate for completed single family detached homes conveyed to individual homeowners as of February 1, 2022 in the District range from approximately 1.66% to 1.86% of the base sales price of sample lots within the Ventana and Dorado neighborhoods of the District. The following table sets forth sample tax bills for selected completed homes owned by individual homeowners within the Ventana and Dorado neighborhoods of the District for Fiscal Year 2021-22.
TABLE 3
CITY OF ONTARIO
COMMUNITY FACILITIES DISTRICT NO. 54
(ESPERANZA FACILITIES)
SAMPLE TAX BILLS
Residential Floor Area (Sq. Ft.): 1,389 2,749
Type of Property: Attached Detached
Community Name: Ventana Dorado
Net Taxable Value
Base Sales Price (1) $ 519,700.00 $ 642,300.00
Less: Homeowner’s Exemption (7,000.00) (7,000.00)
Net Taxable Value $ 512,700.00 $ 635,300.00
Ad Valorem Property Taxes Rate
Base Property Tax 1.0000% $ 5,127.00 $ 6,353.00
Chaffey College Bond 0.0177 90.75 112.45
Chaffey High Bond 0.0371 190.21 235.70
Mountain View Elementary SFID #1 0.0156 79.98 99.11
Mountain View Elementary SFID #2 0.0459 235.33 291.60
Metro Water Mid-Valley Debt 0.0035 17.94 22.24
Total Ad Valorem Property Taxes 1.1198% $ 5,741.21 $ 7,114.09 Parcel Charges, Assessments, and Special Taxes
Vector Control Assessment #1 $ 21.52 $ 21.52
Metro Water - Water Standby 7.59 7.59
City of Ontario CFD No. 44 (Esperanza Services)(2) 1,352.92 1,560.77 City of Ontario CFD No. 54 (Esperanza Facilities)(3) 1,484.00 3,216.00 Total Parcel Charges, Assessments, and Special Taxes $ 2,866.03 $ 4,805.88 Total Taxes $ 8,607.24 $ 11,919.97
Total Effective Tax Rate 1.66% 1.86%
(1) Represents base sales prices for sample lots as reported in the Updated Price Point Study. (2) Equal to the applicable Special Tax for CFD No. 44 for Fiscal Year 2021-22. The Maximum Special Tax for CFD No. 44 increases by up to 4% per year.
(3) Equal to the applicable Assigned Special Tax rate for the District. Reflects the final Assigned Special Tax rates. No reductions were required pursuant to Section C.1 of the Rate and Method.
Sources: San Bernardino County Tax Collector’s Office; Price Point Consultant; Special Tax Consultant.
Property Values
Appraisal. In order to provide information with respect to the value of the land within the District, the District engaged the Appraiser to prepare the Appraisal. The principal of the Appraiser, who was actively involved in the preparation of the Appraisal, has an “MAI” designation from the Appraisal Institute and has prepared numerous appraisals for the sale of land secured municipal bonds. The Appraiser was selected by the District and has no material relationships with the City, the District or the owners of the land within the District other than the relationship represented by the engagement to prepare the Appraisal and other similar 3820
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engagements for the City. The City instructed the Appraiser to prepare its analysis and report in conformity with City-approved guidelines and the Appraisal Standards for Land Secured Financings published in 1994 and revised in 2004 by the commission now known as California Debt and Investment Advisory Commission.
A copy of the Appraisal is included as APPENDIX B to this Official Statement.
The purpose of the Appraisal was to estimate the minimum market value of the fee simple estate, subject to special tax and special assessment liens, of the property within the District in its current condition.
Subject to the contingencies, assumptions and limiting conditions set forth in the Appraisal, the Appraiser concluded that, as of February 1, 2022, the minimum market value of the property within the District was not less than $92,131,779 including $78,657,026 for the 100 completed units conveyed to individual homeowners, and $13,474,753 for the homes and lots owned by the Developer as of such date. See APPENDIX B — “APPRAISAL REPORT.”
Reference is made to APPENDIX B for a complete list and full discussion of the applicable contingencies, assumptions and limiting conditions and the methodology employed by the Appraiser. In the event that any of the contingencies, assumptions and limiting conditions are not actually realized, the value of the property within the District may be less than the amount reported in the Appraisal. In any case, there can be no assurance that any portion of the property within the District would actually sell for the amount indicated by the Appraisal.
The Appraisal merely indicates the Appraiser’s opinion as to the minimum market value of the property referred to therein as of the date and under the conditions specified therein. The Appraiser’s opinion reflects conditions prevailing in the applicable market as of the date of value. The Appraiser’s opinion does not predict the future value of the subject property, and there can be no assurance that market conditions will not further adversely change in the future. See “SPECIAL RISK FACTORS — COVID-19 (Coronavirus) Pandemic.”
It is a condition precedent to the issuance of the Series 2022 Bonds that the Appraiser deliver to the District a certification to the effect that nothing has come to the attention of the Appraiser subsequent to the date of the Appraisal that would cause the Appraiser to believe that the value of property in the District is less than the minimum value reported in the Appraisal.
Value-to-Lien Ratios
The value of the property within the District is significant because, in the event of a delinquency in the payment of Special Taxes, the District may foreclose only against delinquent parcels. Likewise, the ratio of the value of a parcel to its “share” of the Series 2022 Bonds is important because it provides an indication of the extent of the relative burden imposed on each parcel by the applicable Special Tax. As indicated above, the minimum appraised value of the property within the District is not less than $92,131,779. The ratio of that value to the $6,110,000* total principal amount of the Series 2022 Bonds is approximately 15.08* -to-1. Taking
other overlapping tax and assessment debt within the District into account, the ratio of the minimum appraised value to the total amount of existing tax and assessment debt for the District plus the Series 2022 Bonds of $7,097,475* is approximately 12.98*
-to-1. See “— Direct and Overlapping Debt.” Table 4 sets forth the appraised value-to-lien ratios of all the taxable property within the District by ownership and development status as of February 1, 2022.
Additionally, Table 5 below sets forth the stratification of value-to-liens of the parcels within the District, based on the appraised value of such parcels set forth in the Appraisal and such parcels’ respective shares of the principal amount of the Series 2022 Bonds (allocated to each parcel based upon its respective share of the total projected Fiscal Year 2022-23 Special Tax levy) and the ratio of the appraised value to its share of the Series 2022 Bonds.
* Preliminary, subject to change.
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TABLE 4
CITY OF ONTARIO
COMMUNITY FACILITIES DISTRICT NO. 54 (ESPERANZA FACILITIES)
APPRAISED VALUE-TO-LIEN RATIOS BY OWNERSHIP AND STATUS OF DEVELOPMENT Owner
Community
Name
Status of
Development (1)
No. of
Planned
Units
Projected Fiscal
Year 2022-23
Special Tax Levy(2)
Percent of
Projected Fiscal
Year 2022-23
Special Tax Levy
Appraised
Value (3) District Debt (4)*
Average
Appraised
Value-to-Lien*
Individual Homeowners Dorado Completed and Sold 100 $ 323,725 69.46% $ 78,657,026 $ 4,244,148 18.53 Esperanza PA 4 Venture Ventana Under Construction 3 $ 4,419 0.95 $ 320,827 $ 57,935 5.54 Finished Lots 123 137,900 29.59 13,153,926 1,807,917 7.28 Subtotal - Esperanza PA 4 Venture 126 $ 142,319 30.54% $ 13,474,753 $ 1,865,852 7.22 Grand Total 226 $ 466,044 100.00% $ 92,131,779 $ 6,110,000 15.08 * Preliminary, subject to change. (1) Construction status as provided in the Appraisal Report. May not reflect classification of properties for purposes of the Special Tax levy. (2) Based on the building permits issued as of February 1, 2022 and assumes no further development. Includes the debt service due in 2023 on the Series 2022 Bonds and estimated Administrative Expenses in the amount of $89,244.
(3) Represents an allocation of the bulk market values reported in the Appraisal Report. The allocated values are not indicative of the market values of the groupings or the individual lots. (4) Equal to the principal amount of the Series 2022 Bonds. Does not include overlapping debt secured by ad valorem taxes on the property. Allocated based on the proportionate share of the Projected Fiscal Year 2022-23 Special Tax levy.
Sources: Appraiser; Underwriter; Special Tax Consultant. 3822
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TABLE 5
CITY OF ONTARIO
COMMUNITY FACILITIES DISTRICT NO. 54
(ESPERANZA FACILITIES)
APPRAISED VALUE-TO-LIEN RATIOS
Appraised
Value-to-Lien
Category
No. of
Planned
Units
Projected
Fiscal Year
2022-23
Special Tax
Levy(1)
Percent of
Projected
Fiscal Year
2022-23
Special Tax
Levy
Appraised
Value(2) District Debt(3)*
Average
Appraised
Value-toLien*
10:1 to 20:1 100 $ 323,725 69.46% $ 78,657,026 $ 4,244,148 18.53 5:1 to 10:1 126 142,319 30.54 13,474,753 1,865,852 7.22 Total 226 $ 466,044 100.00% $ 92,131,779 $ 6,110,000 15.08 * Preliminary, subject to change. (1) Based on the building permits issued as of February 1, 2022 and assumes no further development. Includes the debt service due in 2023 on the Series 2022 Bonds and estimated Administrative Expenses in the amount of $89,244. (2) Represents an allocation of the bulk market values reported in the Appraisal Report. The allocated values are not indicative of the market values of the groupings or the individual lots. (3) Equal to the principal amount of the Series 2022 Bonds. Does not include overlapping debt secured by ad valorem taxes on property within the District. Allocated based on the proportionate share of the Projected Fiscal Year 2022-23 Special Tax levy.
Sources: Appraiser; Underwriter; Special Tax Consultant.
Delinquency History
The following table is a summary of Special Tax levies, collections and delinquency rates in the District beginning in Fiscal Year 2020-21, the first year of the Special Tax levy.
TABLE 6
CITY OF ONTARIO
COMMUNITY FACILITIES DISTRICT NO. 54
(ESPERANZA FACILITIES)
SPECIAL TAX LEVIES, DELINQUENCIES AND DELINQUENCY RATES As of the end of each Fiscal Year As of March 18, 2022
Fiscal Year
Amount
Levied
Parcels
Levied
Parcels
Delinquent
Amount
Delinquent
Percent
Delinquent
Parcels
Delinquent
Amount
Delinquent
Percent
Delinquent
2020-21 $ 58,263 18 0 $0 0.00% 0 $ 0 0.00%
2021-22(1) 291,040 90 N/A N/A N/A 5 7,853 5.40
(1) Delinquency information reflects the first installment only.
Sources: San Bernardino County Tax Collector’s Office; Special; Tax Consultant. 3823
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PROPERTY OWNERSHIP AND THE DEVELOPMENT
The information provided in this section has been included because it may be considered relevant to an informed evaluation and analysis of the Series 2022 Bonds and the District. No assurance can be given, however, that the proposed development of the property within the District will occur in a timely manner or in the configuration or to the density described herein, or that the Developer, any owners or affiliates thereof, or any other property owner described herein will or will not retain ownership of its respective property within the District. There may be material adverse changes in this information after the date of this Official Statement. Neither the Series 2022 Bonds nor any of the Special Taxes are personal obligations of any property owner within the District and, in the event that any property owner defaults in the payment of its Special Taxes, the District may proceed with judicial foreclosure but has no direct recourse to the assets of any property owner or any affiliate thereof. The Series 2022 Bonds are secured solely by the Net Special Tax Revenues and amounts on deposit in certain of the funds and accounts maintained by the Trustee under the Indenture. See “SPECIAL RISK FACTORS” for a discussion of certain of the risk factors that should be considered in evaluating the investment quality of the Series 2022 Bonds. The following information regarding ownership and planned development of the District has been provided by the Developer. No representation is made by either the District or the Underwriter as to the accuracy or adequacy of such information so provided.
The Developer
The Developer is building and selling homes in the District within a neighborhood named “Ventana” and Esperanza PA 10 Venture previously built and sold homes in the District within a neighborhood named “Dorado.” The Developer is ultimately managed by PLC Communities, Inc., a Delaware corporation (“PLC”).
PLC is a residential home developer with over 30 completed developments in Orange, Los Angeles, Riverside, San Bernardino and San Diego Counties. PLC has been active in the Southern California market since 1996.
Information regarding PLC’s operations in Southern California is available at www.plccommunities.com. This Internet address is included for reference only, and the information on this Internet site is not a part of this Official Statement and is not incorporated by reference into this Official Statement. No representation is made in this Official Statement as to the accuracy or adequacy of the information contained on this Internet site.
As of February 1, 2022, all 100 units of Dorado were sold and closed to individual homeowners, and the Developer owned 3 model homes under construction in Ventana and 123 finished lots/pads in Ventana. As of April 1, 2022, the Developer had completed and conveyed an additional __ residential units in Ventana to individual homeowners.
Development Plan
General Description of the District. The District is located in the southwestern portion of San Bernardino County, in the southern portion of the City, in an area known as “Ontario Ranch” (formerly known as New Model Colony). The District consists of two neighborhoods known as “Dorado” and “Ventana,” respectively, which in total are expected to be developed into 226 single-family detached and attached dwellings. The Dorado site is generally bounded by Mill Creek Avenue to the west, Eucalyptus Avenue to the south, Amherst Avenue to the east and vacant lands to the north. The Dorado site consists of approximately
16.22 gross acres, all within Final Tract Map No. 17931. The Ventana site is generally bounded by Hamner Avenue to the east, Eucalyptus Avenue to the south, Clifton Street to the west and vacant lands to the north.
The Ventana site consists of approximately 8.65 gross acres, all within Final Tract Map No. 20285. Esperanza is located within the Esperanza Specific Plan which at build-out is anticipated to include 1,410 dwelling units.
Esperanza is part of a multiple phase, multiple master-planned community development known as “Ontario Ranch.”
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The Dorado neighborhood within the District consists of 100 detached single-family residential units, all of which have been conveyed to individual homeowners, in three floor plans ranging in size from approximately 2,510 square feet to approximately 2,960 square feet. The Dorado neighborhood is within Final Tract Map No. 17931. The Dorado neighborhood opened for sales in May 2020, and final build-out of the Dorado neighborhood occurred in the fourth quarter of 2021. As of February 1, 2022, all 100 of the single family detached residential units planned within the Dorado neighborhood had been completed and conveyed to individual homeowners. As of February 1, 2022, actual sales prices within the Dorado neighborhood ranged from approximately $552,145 to approximately $889,900.
The Developer is developing the Ventana neighborhood within the District into 126 attached single-family residential units in three floor plans ranging in size from approximately 1,216 square feet to approximately 1,628 square feet. The Ventana neighborhood is within Final Tract Map No. 20285. The Ventana neighborhood opened for sales in November 2021, and the Developer anticipates final build-out of the Ventana neighborhood in the fourth quarter of 2023. As of February 1, 2022, of the 126 single family attached residential units planned within the Ventana neighborhood, 3 model homes were under construction and owned by the Developer and 123 lots contained generally finished pads (15 of which were in escrow) and owned by the Developer. As of February 1, 2022, base sales within the Ventana neighborhood ranged from approximately $494,900 to approximately $574,900. Since February 1, 2022, as of April 1, 2022, __ residential units within the Ventana neighborhood had closed escrow to individual homeowners. As of April 1, 2022, the Developer owned __ model homes, __ completed production home, __ homes under construction and __ finished pads.
All of the backbone infrastructure required to serve the neighborhoods within the District has been completed and no discretionary approvals or remediation is necessary in order for the Developer to obtain the remaining 123 building permits in Ventana to be obtained within the District as of February 1, 2022. See the caption “THE COMMUNITY FACILITIES DISTRICT — General Information Regarding the District.” No assurance can be given that home construction and sales will be carried out on the schedule and according to the plans described herein, or that the home construction and sale plans or base prices set forth above will not change after the date of this Official Statement. Additionally, homes under contract to be sold may not result in closed escrows as sales contracts are subject to cancellation by the homebuyer. See “SPECIAL RISK FACTORS — Failure to Develop Properties.” COVID-19 Impact. The development of the Developer’s planned development within the District is subject to disruption due to the COVID-19 pandemic and related public health and governmental authorities’ orders and actions. With housing construction considered an essential function in the City, the Developer has largely continued, with certain modifications, their home construction and sales activities in the District to date. That is, the Developer has been able to sell, complete, obtain inspections for and close homes during such period, as applicable, and intend to continue its operations to the extent permitted. However, as of February 1, 2022, the Developer has experienced increases in certain construction costs, supply chain delays, work stoppages, reduced attendance of workers/labor shortages, delays in obtaining necessary inspections and approvals for homes, and increased cycle time for home deliveries, which may be attributed, directly or indirectly, to the COVID-19 pandemic. See “SPECIAL RISK FACTORS—COVID-19 (Coronavirus) Pandemic” herein.
The Developer cannot predict the ultimate effects of the COVID-19 outbreak and related public health and governmental authorities’ orders and actions (including, without limitation, the scope of restrictions under potential Stay Home Orders), on their ability to sell and close units within the District. Such effects, if and as they arise, could have a material adverse effect on the ability to develop the District as planned, and no assurance can be provided that the Developer will be able to (a) complete in whole or in any part, or within any particular time, their planned development within the District; (b) avoid material increases in development costs or delays resulting from work stoppages, reduced attendance of workers, shortages or delays in the delivery of building materials, and/or delays in obtaining necessary inspections and approvals; or (c) close any 3825
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additional homes or not experience additional purchase contract cancellations, due to in each case public health or governmental restrictions, further spread of COVID-19, an economic downturn driven by the pandemic, or otherwise.
Financing Plan
The Dorado neighborhood has been fully-built out and sold. Esperanza PA 10 Venture used a combination of internal source, lot sales, and a commercial loan to finance the development of Dorado (which has been paid in full).
For Ventana, to date, the Developer has financed its land acquisition and various site development costs related to Ventana through internally generated funds, lot sales revenues and a revolving construction loan in the maximum amount of $10,000,000 from Zions Bancorporation, N.A. dba California Bank & Trust (the “CB&T Loan”). As of February 1, 2022, the CB&T Loan was outstanding in the amount of $4,049,514.
The CB&T Loan is secured by a deed of trust on the Ventana property owned by the Developer in the District and matures on May 4, 2024, unless extended pursuant to the terms of the CB&T Loan. As homes close to individual homeowners, the lien of the deed of trust on such parcels will be released upon payment of the release price to CB&T.
The Developer estimates that as of February 1, 2022 it remains to incur approximately $38,100,000 in costs to complete its planned development within the District. The Developer expects to use lot sales revenues, internal funding, the CB&T Loan and reimbursement from Series 2022 Bond proceeds to complete its development in the District. The Developer believes that it will have sufficient funds available to complete its planned development in the District in accordance with the development schedule described in this Official Statement.
The following table shows the Developer’s pro forma cash flow for its development within the District.
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TABLE 7
CITY OF ONTARIO
COMMUNITY FACILITIES DISTRICT NO. 54
(ESPERANZA FACILITIES)
PRO-FORMA PROJECT CASH FLOW SUMMARY
AS OF APRIL 1, 2022
Actuals
Through
April 1, 2022
April 2022 -
October 2022
November
2022 -
April 2023
April 2023 -
October 2023
April 2023
through Project
Completion Total
Sources of Funds:
Home Sales Revenue $ $ $ $ $ $
Construction Loan Proceeds
Equity Proceeds
Estimated Bond Proceeds
Total Sources of Funds $ $ $ $ $ $
Uses of Funds:
Engineering, Fees & Mapping $ $ $ $ $ $
Site Development
Home Construction
Fees/Permits
Field Expense
Selling & Marketing
Financial Other (Property Taxes)(1)
Construction Loan Repayment
Repayment of Equity
Total Uses of Funds $ $ $ $ $ $
Cumulative Net Cash Flow(2) $ $ $ $ $ $
(1) Taxes include estimated Special Taxes.
(2) Excludes non-cash items, such as capitalized costs and accruals.
Source: The Developer.
Although the Developer expects to have sufficient funds available to complete its development in the District in accordance with the development schedule described in this Official Statement, there can be no assurance that amounts necessary to finance the remaining development costs will be available from the Developer or any other source when needed. Neither the Developer nor Esperanza PA 10 Venture, nor any of their related entities are under any legal obligation of any kind to expend funds for the development of and construction of homes within the District. Any contributions by the Developer to fund the costs of such development are entirely voluntary.
If and to the extent that internal funding, including but not limited to lot sales revenues, are inadequate to pay the costs to complete the planned development by the Developer within the District and other financing by the Developer is not put into place, there could be a shortfall in the funds required to complete the planned development by the Developer in the District.
SPECIAL RISK FACTORS
The principal source of payment of debt service on the Series 2022 Bonds will be payments of the Special Tax made with respect to the Taxable Property. As discussed under “SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2022 BONDS — Special Taxes,” the Special Tax is to be levied annually against all such Taxable Property either at the maximum rate authorized by the Rate and Method or at such lower rates as are determined by the District Administrator to raise sufficient funds to comply with the agreements, conditions, covenants and terms contained in the Indenture, and in accordance with the Act. The 3827
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Special Tax is to be collected on the tax roll of the District at the same time and in the same manner as general ad valorem real property taxes are collected. The Special Tax cannot be levied at a tax rate higher than the maximum tax rate even if the maximum tax rate will not produce sufficient Net Special Tax Revenues to pay the principal and interest then payable with respect to the Series 2022 Bonds. See discussions below under “— Levy of the Special Tax” and “— Collection of the Special Tax.” Payment of the Special Tax levied on a parcel is secured by a continuing lien against such parcel. In the event an installment of the Special Tax included in the tax bill for a parcel of Taxable Property is not paid when due, the District has covenanted to institute foreclosure proceedings in court to cause the parcel to be sold in order to attempt to recover the delinquent amount from the sale proceeds. Foreclosure and sale may not always result in the recovery of the full amount of delinquent installments of the Special Tax.
See “— Collection of the Special Tax.” The sufficiency of the foreclosure sale proceeds to cover the delinquent amount depends in part upon the market for and the value of the parcel at the time of the sale.
Sufficiency of the foreclosure sale proceeds to cover a delinquency may also depend upon the value of prior or parity liens and similar claims. Further, other governmental claims, such as hazardous substance claims, may affect the realizable value even though such claims may not rise to the status of liens. See “— Hazardous Substances.”
Timely foreclosure and sale proceedings with respect to a parcel of Taxable Property may be forestalled or delayed by a stay in the event the owner of the parcel becomes the subject of bankruptcy proceedings. Not only may foreclosure and sale proceedings be forestalled or delayed, but the sale of a parcel may also be similarly affected by a bankruptcy stay. Further, should the stay not be lifted, payment of the Special Tax may be subordinated to bankruptcy law priorities. See “— Bankruptcy and Legal Delays.” Although bankruptcy proceedings may forestall or delay a foreclosure and sale or a tax sale of a delinquent parcel of Taxable Property, the Special Tax is secured by a lien which, assuming proper procedures are followed, may be enforced against the parcel. There may not be any recourse against a bankrupt property owner since the owner is not personally obligated to pay the Special Tax. Further, if proper disclosure of the authorization of the Special Tax is not made to the owner, the willingness or ability of an owner to pay the Special Tax may be adversely affected. See “— Payment of the Special Tax is Not a Personal Obligation of the Owners.”
The District is not obligated to advance funds to pay such debt service except from moneys on deposit in the Reserve Fund. See “— Bonds Are Limited Obligations.” Even if debt service is timely paid, interest on the Series 2022 Bonds may have to be included in the gross income of the owner of the Series 2022 Bonds by reason of some circumstance occurring subsequent to issuance of the Series 2022 Bonds, thereby reducing the after-tax yield. See “— Loss of Tax Exemption.” Risks of Real Estate Secured Investments Generally – Declines in Value Purchasers of the Series 2022 Bonds will be subject to the risks generally incident to an investment secured by real estate, including, without limitation, (i) adverse changes in local market conditions, such as changes in the market value of real property in the vicinity of the District, the supply of or demand for competitive properties in such area, and the market value of property in the event of sale or foreclosure; (ii) changes in real estate tax rates and other operating expenses, governmental rules and fiscal policies; and (iii) natural disasters (including, without limitation, earthquakes, wildfires and floods), which may result in uninsured losses.
No assurance can be given that the individual property owners within the District will pay Special Taxes in the future or that they will be able to pay such Special Taxes on a timely basis. See the caption “—Bankruptcy and Legal Delays” for a discussion of certain limitations on the District’s ability to pursue judicial proceedings with respect to delinquent parcels within the District. 3828
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Levy of the Special Tax
The principal source of money with which to pay debt service on the Series 2022 Bonds is the proceeds derived from the annual levy and collection of the Special Tax applicable to the Taxable Property in the District. The amount of the Special Tax that can be levied is limited to the maximum tax rates authorized pursuant to the Rate and Method. Additionally, pursuant to Section 53321(d) of the Act, the Special Tax levied against any Assessor’s parcel for which an occupancy permit for private residential use has been issued shall not be increased as a consequence of delinquency or default by the owner of any other Assessor’s parcel within the District by more than ten percent above the amount that would have been levied in that fiscal year had there never been any such delinquencies or defaults. As a result, it is possible that the District may not be able to increase the tax levy to the Assigned Special Tax on residential parcels in all years. The levies cannot be made at higher rates even if the failure to do so would result in insufficient Net Special Tax Revenues to pay the principal of and interest on the Series 2022 Bonds as the same become due and payable.
The levy of the Special Tax will rarely, if ever, result in a uniform relationship between the value of a particular parcel and the amount of the levy of the Special Tax against such parcel. Thus, there will rarely, if ever, be a uniform relationship between the value of a parcel and its proportionate share of the debt service on the Series 2022 Bonds. The Special Tax levied in any particular Fiscal Year on a parcel is based upon the revenue needs of the District and the application of the Rate and Method. The application of the Rate and Method will, in turn, be dependent upon certain development factors with respect to each parcel by comparison with similar development factors with respect to the other parcels in the District. Thus, in addition to annual variations in the revenue needs of the District that must be met from the Special Tax, the following are some of the factors which might cause the levy of the Special Tax on any particular parcel to vary from the Special Tax that might otherwise be expected:
Reduction in the number of parcels of Taxable Property, for reasons such as acquisition of such parcels by a governmental entity and failure of the governmental entity to pay the Special Tax based upon a claim of exemption or, in the case of the federal government or an agency thereof, immunity from taxation, thereby resulting in an increased tax burden on the remaining parcels of Taxable Property; and Failure of the owners of certain parcels of Taxable Property to pay the applicable Special Tax and delays in the collection of or inability to collect such Special Tax by tax sale or foreclosure and sale of the delinquent parcels, thereby resulting in an increased tax burden on the remaining parcels of Taxable Property.
Collection of the Special Tax
The timely payment of the principal of and interest on the Series 2022 Bonds is ultimately dependent upon the timely payment of all Special Taxes. Any money on deposit in the Reserve Fund can be used to make such payment in the event of delinquencies, but the replenishment of the Reserve Fund will be dependent on the recovery of such delinquencies. The Indenture provides that the Special Tax is to be collected in the same manner and at the same time and in the same installment as the general taxes on real property are payable (or in such other manner as the City Council shall determine, including direct billing of the affected property owners) and, except as provided in the special covenant for foreclosure described under the caption “SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2022 BONDS — Covenant for Superior Court Foreclosure” and in the Act, is to be subject to the same proportionate penalties and the same procedure, sale and lien priority in case of delinquency as is provided for ad valorem taxes on real property.
Pursuant to the Act, in the event of any delinquency in the payment of the Special Tax, the District may order the institution of a superior court action to foreclose the lien therefor within specified time limits. In such an action, the real property subject to the unpaid amount may be sold at judicial foreclosure sale. Such judicial foreclosure action is not mandatory. However, the District has covenanted for the benefit of the owners of the Series 2022 Bonds that it will institute foreclosure proceedings as authorized by the Act in order to enforce the lien of the delinquent installments of the Special Tax under certain circumstances. See 3829
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“SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2022 BONDS — Covenant for Superior Court Foreclosure.” In the event that foreclosure proceedings are commenced, such foreclosure proceedings could be stayed by the commencement of bankruptcy proceedings by or against the owner of the property being foreclosed. In the event that sales or foreclosures of property are necessary, there could be a delay in payments to Owners of the Series 2022 Bonds pending such sales or the prosecution of foreclosure proceedings and receipt by the District of the proceeds of sale if the Reserve Fund is depleted.
The District may be unable to make full or timely payment of debt service on the Series 2022 Bonds if property owners in the District fail to pay installments of the Special Tax when due, if the Reserve Fund is depleted, or if the District is unable to sell foreclosed parcels for amounts sufficient to cover the delinquent installments of the Special Tax.
Failure to Develop Properties
Development of property within the District may be subject to unexpected delays, disruptions and changes which may affect the willingness and ability of the Developer or any other property owner to pay the Special Taxes prior to delinquency. Land development is subject to comprehensive federal, State and local regulations. Approval is required from various agencies in connection with the layout and design of developments, the nature and extent of improvements, construction activity, land use, zoning, school and health requirements, as well as numerous other matters. There is always the possibility that such approvals will not be obtained or, if obtained, will not be obtained on a timely basis. Failure to obtain any such agency approval or satisfy such governmental requirements would adversely affect planned land development.
Development of land in the District is also subject to the availability of water. Finally, development of land is subject to economic considerations.
As of February 1, 2022, the District included 100 completed residential units which had closed escrow to individual homeowners (comprising the entirety of the Dorado neighborhood), 3 model units under construction and owned by the Developer, and 123 completed lots or building pads in a finished condition, __ of which were without building permits issued. (See “PROPERTY OWNERSHIP AND THE DEVELOPMENT.” A detailed description of the status of the construction as of the date of value of the Appraisal is included in APPENDIX B — “APPRAISAL REPORT.” As of February 1, 2022, all of the property within the District had been rough-graded and all sewer, water, storm drains, streets, curbs and gutters were complete to serve all 226 homes planned within the District. See “THE COMMUNITY FACILITIES DISTRICT” and “PROPERTY OWNERSHIP AND THE DEVELOPMENT.” However, no assurance can be given that the remaining planned residential development will be partially or fully completed; and for purposes of evaluating the investment quality of the Series 2022 Bonds, prospective purchasers should consider the possibility that such parcels will remain vacant and unimproved.
Undeveloped or partially developed land is inherently less valuable than developed land and provides less security to the Series 2022 Bond Owners should it be necessary for the District to foreclose on the property due to the nonpayment of Special Taxes. The failure to complete development in the District as planned, or substantial delays in the completion of the development may reduce the value of the property within the District and increase the length of time during which Special Taxes will be payable from undeveloped property, and may affect the willingness and ability of the owners of property within the District to pay the Special Taxes prior to delinquency.
There can be no assurance that land development operations within the District will not be adversely affected by a future deterioration of the real estate market and economic conditions or future local, State and federal governmental policies relating to real estate development, an increase in mortgage interest rates, the income tax treatment of real property ownership, or the national economy. A slowdown of the development process and the absorption rate could adversely affect land values and reduce the ability or desire of the 3830
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property owners to pay the annual Special Taxes. In that event, there could be a default in the payment of principal of, and interest on, the Series 2022 Bonds when due.
Series 2022 Bond Owners should assume that any event that significantly impacts the ability to develop land in the District would cause the property values within the District to decrease substantially from those estimated by the Appraiser and could affect the willingness and ability of the owners of land within the District to pay the Special Taxes prior to delinquency.
The payment of principal of and interest on the Series 2022 Bonds is dependent upon the receipt of Special Taxes levied on Developed Property, which includes lots in a finished lot condition. Lots in a finished lot condition also provide less security to the Series 2022 Bond Owners should it be necessary for the District to foreclose on such lot due to the nonpayment of the Special Taxes. Furthermore, an inability to develop the land within the District as currently planned will make the Series 2022 Bond Owners dependent upon timely payment of the Special Taxes levied on Developed Property, which includes lots in a finished lot condition. A slowdown or stoppage in the continued development of the District could reduce the willingness and ability of the Developer to make Special Tax payments on lots in a finished lot condition and could greatly reduce the value of such property in the event it has to be foreclosed upon.
Concentration of Property Ownership
Based on the ownership as of April 1, 2022, the Developer is projected to be responsible for approximately ____% of the total projected Fiscal Year 2022-23 Special Tax to be levied within the District.
While the District includes completed homes owned by individual homeowners as of April 1, 2022, the inability or refusal of the Developer to pay the Special Tax applicable to its property when due could result in the depletion of the Reserve Fund prior to replenishment thereof from sale or foreclosure proceedings, and/or insufficient money with which to pay the principal of and interest on the Series 2022 Bonds as the same became due. Additionally, pursuant to the Act, the Special Taxes levied in any fiscal year against any parcel of residential property in the District may not be increased as a consequence of delinquency or default by the owners of any other parcels within the District by more than 10% above the amount that would have been levied in that fiscal year had there never been any such delinquencies or default. As a result, while the Maximum Special Taxes pursuant to the Rate and Method may be higher, Maximum Special Taxes on parcels of residential parcels cannot be greater than 110% of the projected actual Special Tax levy on such parcels.
Exempt Properties
Certain properties are exempt from the Special Tax in accordance with the Rate and Method. In addition, the Act provides that properties or entities of the State, federal or local government are exempt from the Special Tax; provided, however, that property in the District acquired by a public entity through a negotiated transaction or by gift or devise, which is not otherwise exempt from the Special Tax, will continue to be subject to the Special Tax. In addition, the Act provides that if property subject to the Special Tax is acquired by a public entity through eminent domain proceedings, the obligation to pay the Special Tax with respect to that property is to be treated as if it were a special assessment. The constitutionality and operation of these provisions of the Act have not been tested.
In particular, insofar as the Act requires payment of the Special Tax by a federal entity acquiring property in the District, it may be unconstitutional. If for any reason property in the District becomes exempt from taxation by reason of ownership by a nontaxable entity such as the federal government or another public agency, subject to the limitation of the maximum authorized rates, the Special Tax will be reallocated to the remaining Taxable Properties in the District. This would result in the owners of such property paying a greater amount of the Special Tax and could have an adverse impact upon the timely payment of the Special Tax.
Moreover, if a substantial portion of property in the District becomes exempt from the Special Tax because of public ownership, or otherwise, the Maximum Annual Special Tax which could be levied upon the remaining 3831
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acreage might not be sufficient to pay principal of and interest on the Series 2022 Bonds when due and a default would occur with respect to the payment of such principal and interest.
Constitutional Limitations on Taxation and Appropriations Articles XIIIA and XIIIB of the California Constitution. On June 6, 1978, California voters approved an amendment to the California Constitution, commonly known as Proposition 13 (the Jarvis/Gann Initiative), which added Article XIIIA to the California Constitution. The effect of Article XIIIA is to significantly limit the imposition of new ad valorem taxes, special taxes, transaction taxes, and sales taxes. On November 7, 1978, California voters approved Proposition 8, which made certain clarifications to Article XIIIA.
Article XIIIA of the California Constitution limits the amount of ad valorem taxes on real property to 1% of “full cash value” as determined by the county assessor. Article XIIIA defines “full cash 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 when purchased, newly constructed, or a change in ownership has occurred after the 1975 assessment.” The “full cash value” is subject to annual adjustment to reflect increases, not to exceed 2% per year, or decreases in the consumer price index or comparable local data, or to reflect reductions in property value caused by damage, destruction or other factors.
Article XIIIA exempts from the 1% tax limitation any taxes to repay indebtedness approved by the voters prior to July 1, 1978, and allows local governments to raise their property tax rates above the constitutionally mandated 1% ceiling for the purpose of paying off certain new general obligation debt issued for the acquisition or improvement of real property and approved by two-thirds of the votes cast by the qualified electorate. Article XIIIA requires a vote of two-thirds of the qualified electorate to impose special taxes on real property, while otherwise generally precluding the imposition of any additional ad valorem taxes, special taxes, transaction taxes, and sales taxes. In addition, Article XIIIA requires the approval of two-thirds of all members of the California Legislature to change any State laws resulting in increased tax revenues.
Enactment of Article XIIIA has reduced the amount of general property tax revenues received by the City. This reduction in such revenues makes it less likely that the City or the District will have surplus funds, other than the Reserve Fund for the Series 2022 Bonds, with which to advance funds to make any payments or to cure any deficiency in the Interest Account or Principal Account of the Special Tax Fund, should the City or the District, as applicable, in the exercise of its discretion, choose to do so. If there are additional delinquencies after exhaustion of funds in the Reserve Fund for the Series 2022 Bonds, none of the City or the District has any obligation to transfer into the Interest Account or Principal Account of the Special Tax Fund the amount of any such delinquencies out of any surplus moneys of the City.
On July 2, 1979, the Fifth District Court of Appeal rendered a 3-0 decision in the case of County of Fresno v. Malmstrom (94 Cal.App.3d 974), that determined that special assessments are not subject to the limitations of Article XIIIA (Proposition 13). The Court held the one percent tax limitation imposed by California Constitution Article XIIIA on ad valorem taxes does not apply to special assessments levied pursuant to the Improvement Act of 1911 (Streets and Highways Code, Section 5000 et seq., the relevant portions of which are incorporated in the 1915 Act) and the 1913 Act. The Court further held that because special assessments pursuant to such acts are not within the definition of “special taxes” in Article XIIIA, the Constitution does not require the levy of assessments and the issuance of bonds to be approved by a two-thirds vote of the qualified electors in an assessment district. On September 12, 1979, the California Supreme Court refused to hear an appeal of the lower court’s decision.
At the November 6, 1979, general election, Proposition 4 (the Gann Initiative) was approved by the voters of California. Such proposition added Article XIIIB to the California Constitution. 3832
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Article XIIIB of the California Constitution limits the annual appropriations of the State and of any city, county, school district, authority, or other political subdivision of the State to the level of appropriations of the particular governmental entity for the prior fiscal year, as adjusted for changes in the cost of living, population and services rendered by the governmental entity. The “base year” for establishing such appropriation limit is the Fiscal Year 1978-79 and the limit is to be adjusted annually to reflect changes in population, consumer prices and certain increases in the cost of services provided by these public agencies.
Appropriations subject to Article XIIIB generally include 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. “Proceeds of taxes” include, but are not limited to, all tax revenues and the proceeds to an entity of government from (i) regulatory licenses, user charges, and user fees (but only to the extent such proceeds exceed the cost of providing the service or regulation), and (ii) the investment of tax revenues. Article XIIIB includes a requirement that if an entity’s revenues in any year exceed the amounts permitted to be spent, the excess would have to be allocated to fund schools or be returned by revising tax rates or fee schedules over the subsequent two years.
On December 17, 1980, the Third District Court of Appeal rendered a 3-0 decision in the case County of Placer v. Corin (113 Cal. App. 3d 443) that determined that special assessments are not subject to the limitation of Article XIIIB (Proposition 4). The Court held that the definition of “proceeds of taxes” imposed by California Constitution Article XIIIB does not apply to special assessments and improvement bonds issued pursuant to the 1915 Act and the 1913 Act. The decision of the Court was not appealed.
The enactment of Article XIIIA of the California Constitution (Proposition 13) and subsequent legislative enactments effectively repeal the otherwise mandatory duty on the part of the City, under the 1915 Act, to levy and collect a special tax (in an amount necessary to meet delinquencies, but not to exceed ten cents on each $100 of assessable property within the City in any one year) if other funds are not available to cover delinquencies.
In early 1990, the U.S. Supreme Court struck down as a violation of equal protection certain property tax assessment practices in West Virginia, which had resulted in vastly different assessments of similar properties. Since Article XIIIA provides that property may only be assessed up to 2%, per year, except upon change of ownership or new construction, recent purchasers may pay substantially higher property taxes than long-time owners of comparable property in a community. The Supreme Court in the West Virginia case expressly declined to comment in any way on the constitutionality of Article XIIIA.
Based on this decision, however, property owners in California brought three suits challenging the acquisition value assessment provisions of Article XIIIA. Two cases involve residential property and one case involves commercial property. In all three cases, State trial and appellate courts have upheld the constitutionality of Article XIIIA’s assessment rules and concluded that the West Virginia case did not apply to California’s laws. On June 3, 1991, the U.S. Supreme Court agreed to hear the appeal in the challenge relating to commercial property, but the plaintiff subsequently decided to drop the case.
On October 7, 1991, the U.S. Supreme Court granted the plaintiff’s petition for a writ of certiorari and agreed to hear the Nordlinger v. Lynch case. On June 18, 1992, the U.S. Supreme Court affirmed the Nordlinger decision (112 U.S. 2326) of the California Court of Appeal, Second Appellate District, which previously held that Article XIIIA does not violate the U.S. Constitution.
The City cannot predict whether any other pending or future challenges to the State’s present system of property tax assessment will be successful, when the ultimate resolution of any challenge will occur, or the ultimate effect any decision regarding the State’s present system of property tax assessment will have on the City’s revenues or on the State’s financial obligations to local governments. 3833
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Articles XIIIC and XIIID of the California Constitution. Proposition 218, a state ballot initiative known as the “Right to Vote on Taxes Act,” was approved by California voters on November 6, 1996.
Proposition 218 added Articles XIIIC and XIIID to the State Constitution, and, with the exception of certain provisions, Articles XIIIC and XIIID became effective on November 6, 1996.
Among other things, Proposition 218 imposed certain voting requirements and other limitations on the imposition of new or increased taxes, assessments, and property-related fees and charges. Under Proposition 218 (i) all taxes imposed by local governments are deemed to be either general taxes, or special taxes, (ii) no local government may impose, extend, or increase any general tax unless and until such tax is submitted to the electorate and approved by a majority vote, and (iii) no local government may impose, extend, or increase any special tax unless and until such tax is submitted to the electorate and approved by a two-thirds vote. Special purpose districts, including community facilities districts and assessment districts, have no power to levy general taxes. The City believes that the issuance of the Series 2022 Bonds does not require the conduct of further proceedings under the Mello-Roos Act, or Proposition 218, as applicable, other than as described herein.
Proposition 218 provides that the initiative power shall “not be prohibited or otherwise limited in matters reducing or repealing any local tax, assessment, fee or charge...” Thus, Proposition 218 removes limitations on the initiative power in matters of, among other things, the Special Taxes. Consequently, it is conceivable that the voters of the City or the District could, by future initiative, repeal, reduce, or prohibit the future imposition or increase of any Special Tax, subject to overriding federal constitutional principles relating to impairment of contracts.
Although the provisions of Article XIIIC have not been interpreted by the courts, the City believes that the initiative power cannot be used to reduce or repeal the unpaid Special Taxes that are pledged as security for payment of the Series 2022 Bonds or to otherwise interfere with the mandatory, statutory duty of the City and the County Auditor with respect to the unpaid Special Taxes that are pledged as security for payment of the Series 2022 Bonds.
The Appellate District, Division One, issued its opinion in 2014 in City of San Diego v. Melvin Shapiro, et al. (228 Cal. App. 4th 756) (the “San Diego Decision”). The case involved a Convention Center Facilities District (the “CCFD”) established by the City of San Diego. The CCFD is a financing district much like a community facilities district established under the provisions of the Act. The CCFD is comprised of all of the real property in the entire City of San Diego. However, the special tax to be levied within the CCFD was to be levied only on hotel properties located within the CCFD.
The election authorizing the special tax was limited to owners of hotel properties and lessees of real property owned by a governmental entity on which a hotel is located. Thus, the election was not a registered voter election. Such approach to determining who would constitute the qualified electors of the CCFD was modeled after Section 53326(c) of the Act, which generally provides that, if a special tax will not be apportioned in any tax year on residential property, the legislative body may provide that the vote shall be by the landowners of the proposed district whose property would be subject to the special tax. The Court held that the CCFD special tax election was invalid under the California Constitution because Article XIIIA, Section 4 thereof and Article XIIIC, Section 2 thereof require that the electors in such an election be the registered voters within the district.
The facts of the San Diego Decision show that there were hundreds of thousands of registered voters within the CCFD (viz., all of the registered voters in the City of San Diego). There were no registered voters in the District at the time of formation. In the San Diego Decision, the Court expressly stated that it was not addressing the validity of landowner voting to impose special taxes pursuant to the Act in situations where there are fewer than 12 registered voters. Thus, by its terms, the Court’s holding does not apply to the Special Tax elections in the District. Moreover, Section 53341 of the Act provides that any “action or proceeding to attack, review, set aside, void or annul the levy of a special tax…shall be commenced within 30 days after the 3834
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special tax is approved by the voters.” Similarly, Section 53359 of the Act provides that any action to determine the validity of bonds issued pursuant to the Act be brought within 30 days of the voters approving the issuance of such bonds. On May 19, 2020, Esperanza PA 4 Venture and Esperanza PA 10 Venture, the qualified voters within the District at the time of the election, approved the Special Tax and the issuance of bonds. Based on Sections 53341 and 53359 of the Act and analysis of existing laws, regulations, rulings and court decisions, the City believes the Special Tax is being levied in accordance with the Rate and Method.
The interpretation and application of Proposition 218 will ultimately be determined by the courts with respect to a number of the matters discussed above, and it is not possible at this time to predict with certainty the outcome of such determination.
Maximum Special Tax
Within the limits of the Special Tax, the District may adjust the Special Tax levied on all property in the District to provide an amount required to pay interest on and principal of the Series 2022 Bonds, and the amount, if any, necessary to cure delinquencies and replenish the Reserve Fund to an amount equal to the Reserve Requirement for the respective Bonds and to pay Administrative Expenses. However, the amount of the Special Tax that may be levied against any property in the District is subject to the Maximum Special Tax applicable to it. There is no assurance that the Maximum Special Tax on the property in the District will be sufficient to pay the amounts required to be paid by the Indenture at all times. Additionally, pursuant to the Act, the Special Taxes levied in any fiscal year against any parcel of residential property in the District may not be increased as a consequence of delinquency or default by the owners of any other parcels within the District by more than 10% above the amount that would have been levied in that fiscal year had there never been any such delinquencies or defaults. See “SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2022 BONDS — Special Taxes.”
Payment of the Special Tax is Not a Personal Obligation of the Owners An owner of a parcel of Taxable Property is not personally obligated to pay the Special Tax. Rather, the Special Tax is an obligation only against the parcel of Taxable Property. If the value of a parcel is not sufficient, taking into account other obligations also payable thereby, to fully secure the Special Tax, the District has no recourse against the owner.
Disclosures to Future Purchasers
The District has recorded a notice of the Special Tax lien in the Office of the County Recorder. While title companies normally refer to such notices in title reports, there can be no guarantee that such reference will be made or, if made, that a prospective purchaser or lender will consider such Special Tax obligation in the purchase of a parcel of land, a home or a commercial or industrial facility in the District or the lending of money thereon. The Act requires the subdivider (or its agent or representative) of a subdivision to notify a prospective purchaser or long-term lessor of any lot, parcel, or unit subject to a Mello–Roos special tax of the existence and maximum amount of such special tax using a statutorily prescribed form. California Civil Code Section 1102.6b requires that in the case of transfers other than those covered by the above requirement, the seller must at least make a good faith effort to notify the prospective purchaser of the special tax lien in a format prescribed by statute. Failure by an owner of the property to comply with the above requirements, or failure by a purchaser or lessor to consider or understand the nature and existence of the Special Tax, could adversely affect the willingness and ability of the purchaser or lessor to pay the Special Tax when due.
Parity Taxes and Special Assessments
The ability or willingness of a property owner in the District to pay the Special Tax could be affected by the existence of other taxes and assessments imposed upon the property. The Special Tax and any penalties thereon will constitute a lien against the lots and parcels of land on which they will be annually imposed until 3835
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they are paid. Such lien is on a parity with all special tax and special assessments levied by other agencies and is co-equal to and independent of the lien for general property taxes, other special taxes, and certain special assessments regardless of when they are imposed upon the same property. The Special Tax has priority over all existing and future private liens imposed on the property. In addition, other public agencies whose boundaries overlap those of the District could, with or in some circumstances without the consent of the owners of the land in the District, impose additional taxes or assessment liens on the property in the District in order to finance public improvements to be located inside or outside of the District.
The District has no control over the ability of other entities and districts to issue indebtedness secured by special tax or assessments payable from all or a portion of the property in the District. In addition, the City is not prohibited itself from establishing assessment districts, community facilities districts or other districts which might impose assessments or taxes against property in the District. In the event any additional improvements are financed pursuant to the establishment of an assessment district, community facilities district or other district, any taxes or assessments levied to finance such improvements will have a lien on a parity with the lien of the Special Tax. The imposition of additional liens on a parity with the Special Tax could reduce the ability or willingness of the property owners to pay the Special Tax and increase the possibility that foreclosure proceeds will not be adequate to pay delinquent Special Tax or the principal of and interest on the Series 2022 Bonds when due.
Depletion of Reserve Fund
The Reserve Fund is to be maintained at an amount equal to the Reserve Requirement. Money in said fund may be used to pay debt service on the Series 2022 Bonds in the event the proceeds of the levy and collection of the Special Tax against property in the District are insufficient. If funds in the Reserve Fund are used to pay debt service on the Series 2022 Bonds, the funds can be replenished from the proceeds of the levy and collection of the Special Tax that are in excess of the amount required to pay all amounts to be paid pursuant to the Indenture. However, no replenishment from the proceeds of a levy of the Special Tax can occur as long as the proceeds that are collected from the levy of the Special Tax at the maximum tax rates, together with other available funds, remain insufficient to pay all such amounts. Thus it is possible that the Reserve Fund will be depleted by its use to pay such amounts and will not be replenished by the levy of the Special Tax. There is no assurance that the amount in the Reserve Fund will, at any particular time, be sufficient to pay all such amounts or that any amounts of the Reserve Requirement used for debt service on the Series 2022 Bonds will be fully replenished from the proceeds of the levy and collection of the Special Tax.
Bankruptcy and Legal Delays
The payment of the Special Tax and the ability of the District to foreclose the lien of a delinquent unpaid tax, as discussed in “SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2022 BONDS,” may be limited by bankruptcy, insolvency or other laws generally affecting creditors’ rights or by the laws of the State of California relating to judicial foreclosure. In addition, the prosecution of a foreclosure action could be delayed due to crowded local court calendars or delays in the legal process. The various legal opinions to be delivered concurrently with the delivery of the Series 2022 Bonds (including Bond Counsel’s approving legal opinion) will be qualified as to the enforceability of the various legal instruments by bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors’ rights, by the application of equitable principles and by the exercise of judicial discretion in appropriate cases.
Although bankruptcy proceedings would not cause the obligation to pay the Special Tax to become extinguished, the bankruptcy of a property owner could result in a delay in prosecuting superior court foreclosure proceedings because federal bankruptcy laws may provide for an automatic stay of foreclosure and sale of tax sale proceedings. Any such delays could increase the likelihood of a delay or default in payment of the principal of and interest on the Series 2022 Bonds and the possibility of delinquent tax installments not being paid in full. Moreover, if the value of the subject property is less than the lien of the Special Tax, such excess could be treated as an unsecured claim by the bankruptcy court. Further, should remedies be exercised 3836
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under the federal bankruptcy laws against Taxable Property, payment of the Special Tax may be subordinated to bankruptcy law priorities. Thus, certain claims may have priority over the Special Tax in a bankruptcy proceeding even though they would not outside of a bankruptcy proceeding.
FDIC/Federal Government Interests In Properties
The ability of the District to collect interest and penalties specified by the Act and to foreclose the lien of delinquent Special Taxes may be limited in certain respects with regard to parcels in which the Federal Deposit Insurance Corporation (the “FDIC”), or other federal government entities such as Fannie Mae or Freddie Mac, has or obtains an interest.
In the case of the FDIC, in the event that any financial institution making a loan which is secured by parcels is taken over by the FDIC and the applicable Special Tax is not paid, the remedies available to the District may be constrained. The FDIC’s policy statement regarding the payment of state and local real property taxes (the “Policy Statement”) provides that taxes other than ad valorem taxes which are secured by a valid lien in effect before the FDIC acquired an interest in a property will be paid unless the FDIC determines that abandonment of its interests is appropriate. The Policy Statement provides that the FDIC generally will not pay installments of non-ad valorem taxes which are levied after the time the FDIC acquires its fee interest, nor will the FDIC recognize the validity of any lien to secure payment except in certain cases where the Resolution Trust Corporation had an interest in property on or prior to December 31, 1995. Moreover, the Policy Statement provides that, with respect to parcels on which the FDIC holds a mortgage lien, the FDIC will not permit its lien to be foreclosed out by a taxing authority without its specific consent, nor will the FDIC pay or recognize liens for any penalties, fines or similar claims imposed for the nonpayment of taxes.
The FDIC has taken a position similar to that expressed in the Policy Statement in legal proceedings brought against Orange County, California, in United States Bankruptcy Court and in Federal District Court.
The Bankruptcy Court issued a ruling in favor of the FDIC on certain of such claims. Orange County appealed that ruling, and the FDIC cross-appealed. On August 28, 2001, the Ninth Circuit Court of Appeals issued a ruling favorable to the FDIC except with respect to the payment of pre-receivership liens based upon delinquent property tax.
The District is unable to predict what effect the application of the Policy Statement would have in the event of a delinquency with respect to parcels in which the FDIC has or obtains an interest, although prohibiting the lien of the FDIC to be foreclosed out at a judicial foreclosure sale would prevent or delay the foreclosure sale.
In the case of Fannie Mae and Freddie Mac, in the event a parcel of Taxable Property is owned by a federal government entity or federal government sponsored entity, such as Fannie Mae or Freddie Mac, or in the event a private deed of trust secured by a parcel of Taxable Property is owned by a federal government entity or federal government sponsored entity, such as Fannie Mae or Freddie Mac, the ability to foreclose on the parcel or to collect delinquent Special Taxes may be limited. Federal courts have held that, based on the supremacy clause of the United States Constitution, in the absence of Congressional intent to the contrary, a state or local agency cannot foreclose to collect delinquent taxes or assessments if foreclosure would impair the federal government interest. This means that, unless Congress has otherwise provided, if a federal government entity owns a parcel of Taxable Property but does not pay taxes and assessments levied on the parcel (including Special Taxes), the applicable state and local governments cannot foreclose on the parcel to collect the delinquent taxes and assessments.
Moreover, unless Congress has otherwise provided, if the federal government has a mortgage interest in the parcel and the District wishes to foreclose on the parcel as a result of delinquent Special Taxes, the property cannot be sold at a foreclosure sale unless it can be sold for an amount sufficient to pay delinquent taxes and assessments on a parity with the Special Taxes and preserve the federal government’s mortgage interest.
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The District’s remedies may also be limited in the case of delinquent Special Taxes with respect to parcels in which other federal agencies (such as the Internal Revenue Service and the Drug Enforcement Administration) have or obtain an interest.
Geologic, Topographic and Climatic Conditions
The District, like all California communities, may be subject to unpredictable seismic activity, fires, flood, or other natural disasters. Southern California is a seismically active area. Seismic activity represents a potential risk for damage to buildings, roads, bridges and property within the District. In addition, land susceptible to seismic activity may be subject to liquefaction during the occurrence of such event. The District is not located within an identified earthquake study zone.
No known active earthquake faults cross the District and the nearest active earthquake fault to the District is the Chino-Central Avenue fault, located approximately 5 miles to the west of the District. Other known regional active faults that could affect the site include the Whittier, Elsinore-Glen Ivy, San Jose, Cucamonga, Sierra Madre, San Jacinto-San Bernardino segment, Puente Hills and San Andreas faults.
The Federal Emergency Management Agency has determined that the District is located in a Zone “X” flood area (an area of minimal flooding, within the 500-year flood plain), and flood insurance will not be required. The area is protected by a levee.
In recent years, portions of Southern California have experienced wildfires that have burned thousands of acres and destroyed thousands of homes and structures, even in areas not previously thought to be prone to wildfires. While the District is not aware of any particular risk of wildfire within the District, there can be no assurances that wildfires won’t occur within the District. Property damage due to wildfire could result in a significant decrease in the market value of property in District and in the ability or willingness of property owners to pay Special Taxes when due.
In the event of a severe earthquake, fire, flood or other natural disaster, there may be significant damage to both property and infrastructure in the District. As a result, a substantial portion of the property owners may be unable or unwilling to pay the Special Taxes when due. In addition, the value of land in the District could be diminished in the aftermath of such a natural disaster, reducing the resulting proceeds of foreclosure sales in the event of delinquencies in the payment of the Special Taxes.
Methane Gas
Like much of the property within the City and surrounding areas, the property within the District has previously been utilized as dairy pastures and agricultural fields. An updated Methane Gas Investigation Report for certain tract maps, including Tract Map Nos. 17931 and 20285 covering the Dorado and Ventana neighborhoods, respectively, was prepared by LGC Geo-Environmental, Inc. dated January 14, 2020 (the “Methane Investigation”). The Methane Investigation identified that the Dorado and Ventana neighborhoods were outside the methane study area and that methane gas on the Dorado and Ventana neighborhoods was either not detected or less than the level that requires any type of remediation. No additional methane investigations were recommended.
Hazardous Substances
While governmental taxes, assessments, and charges are a common claim against the value of a parcel of Taxable Property, other less common claims may be relevant. One example is a claim with regard to a hazardous substance.
In general, the owners and operators of a parcel of Taxable Property may be required by law to remedy conditions of the parcel relating to releases or threatened releases of hazardous substances. The federal 3838
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Comprehensive Environmental Response, Compensation and Liability Act of 1980, sometimes referred to as “CERCLA” or the “Superfund Act,” is the most well-known and widely applicable of these laws, but California laws with regard to hazardous substances are also stringent and similar. Under many of these laws, the owner (or operator) is obligated to remedy a hazardous substance condition of property whether or not the owner (or operator) has anything to do with creating or handling the hazardous substance. The effect, therefore, should any of the Taxable Property be affected by a hazardous substance is to reduce the marketability and value of the parcel by the costs of remedying the condition, because the purchaser, upon becoming owner, will become obligated to remedy the condition just as is the seller. Further, such liabilities may arise not simply from the existence of a hazardous substance but from the method of handling it. All of these possibilities could significantly affect the value of the property that is realizable upon a delinquency and foreclosure.
While the District is not aware that the owner (or operator) of any of Taxable Property has such a current liability with respect to any of the Taxable Property, it is possible that such liabilities do currently exist and that the District is not aware of them. The Developer has also represented to the District that they are not aware of any federally or State classified hazardous substances located on their property within the District.
Further, it is possible that liabilities may arise in the future with respect to any of the Taxable Property resulting from the existence, currently, on the parcel of a substance presently classified as hazardous but which has not been released or the release of which is not presently threatened, or may arise in the future resulting from the existence, currently, on the parcel of a substance not presently classified as hazardous but which may in the future be so classified. Further, such liabilities may arise not simply from the existence of a hazardous substance but from the method of handling it. All of these possibilities could significantly affect the value of a parcel of Taxable Property that is realizable upon a delinquency.
No Acceleration Provision
The Indenture does not contain a provision allowing for the acceleration of the Series 2022 Bonds in the event of a payment default or other default under the terms of the Series 2022 Bonds or the Indenture.
Bonds Are Limited Obligations
Neither the faith and credit nor the taxing power of the District (except to the limited extent set forth in the Indenture), the City, the State, or any political subdivision thereof, is pledged to the payment of the Series 2022 Bonds. The Series 2022 Bonds are limited obligations of the District; and, except as provided in the Indenture, they are payable solely from Net Special Tax Revenues and the other assets pledged therefor under the Indenture. Net Special Tax Revenues could be insufficient to pay debt service on the Series 2022 Bonds as a result of delinquencies in the payment of Special Taxes or the insufficiency of proceeds derived from the sale of land within the District following a delinquency in the payment of the applicable Special Tax.
Neither the City nor the District has any obligation to pay debt service on the Series 2022 Bonds in the event of insufficient Net Special Tax Revenues, except to the extent that money is available for such purpose in the Reserve Fund. The District’s only obligation with respect to delinquent Special Taxes is to pursue judicial foreclosure proceedings under the circumstances described in the Indenture. See “SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2022 BONDS — Covenant for Superior Court Foreclosure.” Loss of Tax Exemption
As discussed under “TAX MATTERS,” interest on the Series 2022 Bonds could become includable in gross income for purposes of federal income taxation retroactive to the date of issuance, as a result of acts or omissions of the District subsequent to the issuance of the Series 2022 Bonds in violation of the District’s covenants with respect to the Series 2022 Bonds. Should interest become includable in gross income, the Series 2022 Bonds are not subject to redemption by reason thereof and will remain outstanding until maturity 3839
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or unless earlier redeemed pursuant to optional or mandatory redemption or redemption upon prepayment of the Special Tax.
Potential Early Redemption of Bonds from Special Tax Prepayments Property owners within the District are permitted to prepay their Special Taxes at any time. Such payments will result in a mandatory redemption of Series 2022 Bonds from Special Tax prepayments on the Interest Payment Date for which timely notice may be given under the Indenture following the receipt of such Special Tax prepayment. The resulting redemption of Series 2022 Bonds purchased at a price greater than par could reduce the otherwise expected yield on such Series 2022 Bonds. See “THE SERIES 2022 BONDS — Redemption — Mandatory Redemption from Special Tax Prepayments.” No Teeter Plan
Although the San Bernardino County Board of Supervisors has adopted the Alternative Method of Distribution of Tax Levies and Collections and of Tax Sale Proceeds (the “Teeter Plan”) which allows each entity levying secured property taxes in the County to draw on the amount of property taxes levied rather than the amount actually collected, as provided for in Section 4701 et seq. of the California Revenue and Taxation Code, the District is not included in the Teeter Plan. Consequently, the District may not draw on the County Tax Loss Reserve Fund in the event of delinquencies in Special Tax payments.
COVID-19 (Coronavirus) Pandemic
The spread of the novel strain of coronavirus called COVID-19 (“COVID-19”) is having significant negative impacts throughout the world, including in the City. Since mid-March 2020, based on guidance and directives from the State and public health agencies, the City and the State have undergone varying degrees of closure and limited reopening of public buildings and businesses. There have been confirmed cases of COVID-19 in the City, and confirmed cases of COVID-19 are growing throughout the State and health officials are expecting the number of confirmed cases to continue to grow.
The COVID-19 pandemic is ongoing, and the ultimate geographic spread of the virus, the duration and severity of the outbreak, and the economic and other actions that may be taken by governmental authorities to contain the outbreak or to treat its impacts are uncertain. However, the impact of the COVID-19 outbreak could adversely impact development within the District, including, but not limited to, one or more of the following ways: (i) potential supply chain slowdowns or shutdowns resulting from the unavailability of workers in locations producing construction materials; (ii) slowdowns or shutdowns by local governmental agencies in providing governmental permits, inspections, title and document recordation, and other services and activities associated with real estate development; (iii) delays in construction where one or more members of the workforce becomes infected with COVID-19; (iv) continued extreme fluctuations in financial markets and contraction in available liquidity; (v) extensive job losses and declines in business activity across important sectors of the economy; (vi) declines in business and consumer confidence that negatively impact economic conditions or cause an economic recession; (vii) the failure of government measures to stabilize the financial sector and introduce fiscal stimulus to counteract the economic impact of the pandemic; (viii) delays in sales or fewer sales due to lower traffic at model home complexes and real estate offices; and (ix) delays in sales, or cancellations, due to mortgage lending issues. The ultimate adverse impact of COVID-19 on the District, the Developer’s operations, finances and ability to complete its developments within the District as planned, homebuyers’ willingness and ability to pay Special Taxes when due, and the real estate market in general is unknown. See “PROPERTY OWNERSHIP AND THE DEVELOPMENT — Development Plan — COVID-19 Impact.”
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CONTINUING DISCLOSURE
District Continuing Disclosure Agreement
Pursuant to the District Continuing Disclosure Agreement, the District has agreed to provide, or cause to be provided, to the Electronic Municipal Market Access System of the Municipal Securities Rulemaking Board, which can be found on the Internet at www.emma.msrb.org (“EMMA”) on an annual basis, commencing April 1, 2023, certain financial information and operating data concerning the District. The District has further agreed to provide notice to EMMA of certain listed events. The District’s covenants have been made in order to assist the Underwriter in complying with Rule 15c2-12 adopted by the Securities and Exchange Commission.
The District has not previously entered into any undertaking with respect to Rule 15c2-12. However, the City and its related governmental entities (the “City Entities”) for whom City staff is responsible for undertaking compliance with continuing disclosure undertakings have previously entered into numerous disclosure undertakings under the Rule 15c2-12 in connection with the issuance of long-term obligations.
In order to ensure ongoing compliance with its continuing disclosure undertakings, the City has designated staff members within the Investments & Revenue Resources Department with the responsibility of ensuring timely and complete filings. In addition, the City has retained an outside consultant to conduct periodic reviews of City compliance.
Within the last five years, the City and the City Entities have not failed to timely comply with their respective prior continuing disclosure obligations under Rule 15c2-12 in all material respects. The full text of the form of the District Continuing Disclosure Agreement is set forth in APPENDIX G.
Developer Continuing Disclosure Agreement
Although the Underwriter has concluded that the Developer is not an obligated person under Rule 15c2-12, pursuant to the Developer Continuing Disclosure Agreement, the Developer has agreed to provide, or cause to be provided, to EMMA, on a semi-annual basis certain information concerning the Developer and its property ownership and development within the District. The Developer has further agreed to provide notice to EMMA of certain listed events. The Developer’s obligation to provide semi-annual reports and notices of certain listed events will terminate upon the earlier to occur of certain events, including at such time as at least 101 of the planned 126 Ventana residential units within the District have been conveyed to homebuyers. A default under the Developer Continuing Disclosure Agreement will not, in itself, constitute an Event of Default under the Indenture, and the sole remedy under the Developer Continuing Disclosure Agreement in the event of any failure of the Developer or the dissemination agent, as applicable, to comply with the Developer Continuing Disclosure Agreement will be an action to compel performance. See APPENDIX H — “FORM OF DEVELOPER CONTINUING DISCLOSURE AGREEMENT” for a description of the specific nature of the semi-annual reports to be filed by the Developer and notices of listed events to be provided by the Developer.
Neither the District nor the City has considered, or reached any conclusion as to, whether or not the Developer is an obligated person under Rule 15c2-12 and takes no responsibility for any such conclusion.
Additionally, neither the District nor the City has participated in the preparation, negotiation or implementation of the Developer Continuing Disclosure Agreement or in discussions regarding the form or content thereof.
The District and the City take no responsibility for such form or content or for the adequacy of the Developer Continuing Disclosure Agreement for its intended purpose.
None of the District, the City or the Trustee is a party to the Developer Continuing Disclosure Agreement, and none of the District, the City or the Trustee has any obligation or responsibility to monitor, nor any right or obligation to enforce, compliance by the Developer with the undertakings pursuant to the 3841
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Developer Continuing Disclosure Agreement, and none of the District, the City or the Trustee will be so monitoring or enforcing such compliance.
Developer’s Prior Disclosure Compliance. This is the first continuing disclosure undertaking by the Developer. PLC, as the manager of the Developer, has not failed in any material respect to comply with any previous undertaking by it to provide periodic continuing disclosure reports or notices of material events with respect to community facilities districts or assessment districts in Southern California within the past five years.
TAX MATTERS
In the opinion of Orrick, Herrington & Sutcliffe LLP, Bond Counsel to the District (“Bond Counsel”), based upon an analysis of existing laws, regulations, rulings and court decisions, and assuming, among other matters, the accuracy of certain representations and compliance with certain covenants, interest on the Series 2022 Bonds is excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986 (the “Code”) and is exempt from State of California personal income taxes. Bond Counsel is of the further opinion that interest on the Series 2022 Bonds is not a specific preference item for purposes of the federal alternative minimum tax. Bond Counsel expresses no opinion regarding any other tax consequences related to the ownership or disposition of, or the amount, accrual or receipt of interest on, the Series 2022 Bonds. A complete copy of the proposed form of opinion of Bond Counsel is set forth in APPENDIX D hereto.
To the extent the issue price of any maturity of the Series 2022 Bonds is less than the amount to be paid at maturity of such Series 2022 Bonds (excluding amounts stated to be interest and payable at least annually over the term of such Series 2022 Bonds), the difference constitutes “original issue discount,” the accrual of which, to the extent properly allocable to each Beneficial Owner thereof, is treated as interest on the Series 2022 Bonds which is excluded from gross income for federal income tax purposes and exempt from State of California personal income taxes. For this purpose, the issue price of a particular maturity of the Series 2022 Bonds is the first price at which a substantial amount of such maturity of the Series 2022 Bonds is sold to the public (excluding bond houses, brokers, or similar persons or organizations acting in the capacity of underwriters, placement agents or wholesalers). The original issue discount with respect to any maturity of the Series 2022 Bonds accrues daily over the term to maturity of such Series 2022 Bonds on the basis of a constant interest rate compounded semiannually (with straight-line interpolations between compounding dates). The accruing original issue discount is added to the adjusted basis of such Series 2022 Bonds to determine taxable gain or loss upon disposition (including sale, redemption, or payment on maturity) of such Series 2022 Bonds.
Beneficial Owners of the Series 2022 Bonds should consult their own tax advisors with respect to the tax consequences of ownership of Series 2022 Bonds with original issue discount, including the treatment of Beneficial Owners who do not purchase such Series 2022 Bonds in the original offering to the public at the first price at which a substantial amount of such Series 2022 Bonds is sold to the public.
Series 2022 Bonds purchased, whether at original issuance or otherwise, for an amount higher than their principal amount payable at maturity (or, in some cases, at their earlier call date) (“Premium Series 2022 Bonds”) will be treated as having amortizable bond premium. No deduction is allowable for the amortizable bond premium in the case of bonds, like the Premium Series 2022 Bonds, the interest on which is excluded from gross income for federal income tax purposes. However, the amount of tax-exempt interest received, and a Beneficial Owner’s basis in a Premium Series 2022 Bond, will be reduced by the amount of amortizable bond premium properly allocable to such Beneficial Owner. Beneficial Owners of Premium Series 2022 Bonds should consult their own tax advisors with respect to the proper treatment of amortizable bond premium in their particular circumstances.
The Code imposes various restrictions, conditions and requirements relating to the exclusion from gross income for federal income tax purposes of interest on obligations such as the Series 2022 Bonds. The District has made certain representations and covenanted to comply with certain restrictions, conditions and 3842
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requirements designed to ensure that interest on the Series 2022 Bonds will not be included in federal gross income. Inaccuracy of these representations or failure to comply with these covenants may result in interest on the Series 2022 Bonds being included in gross income for federal income tax purposes, possibly from the date of original issuance of the Series 2022 Bonds. The opinion of Bond Counsel assumes the accuracy of these representations and compliance with these covenants. Bond Counsel has not undertaken to determine (or to inform any person) whether any actions taken (or not taken), or events occurring (or not occurring), or any other matters coming to Bond Counsel’s attention after the date of issuance of the Series 2022 Bonds may adversely affect the value of, or the tax status of interest on, the Series 2022 Bonds. Accordingly, the opinion of Bond Counsel is not intended to, and may not, be relied upon in connection with any such actions, events or matters.
Although Bond Counsel is of the opinion that interest on the Series 2022 Bonds is excluded from gross income for federal income tax purposes and is exempt from State of California personal income taxes, the ownership or disposition of, or the accrual or receipt of amounts treated as interest on, the Series 2022 Bonds may otherwise affect a Beneficial Owner’s federal, state or local tax liability. The nature and extent of these other tax consequences depends upon the particular tax status of the Beneficial Owner or the Beneficial Owner’s other items of income or deduction. Bond Counsel expresses no opinion regarding any such other tax consequences.
Current and future legislative proposals, if enacted into law, clarification of the Code or court decisions may cause interest on the Series 2022 Bonds to be subject, directly or indirectly, in whole or in part, to federal income taxation or to be subject to or exempted from state income taxation, or otherwise prevent Beneficial Owners from realizing the full current benefit of the tax status of such interest. The introduction or enactment of any such legislative proposals or clarification of the Code or court decisions may also affect, perhaps significantly, the market price for, or marketability of, the Series 2022 Bonds. Prospective purchasers of the Series 2022 Bonds should consult their own tax advisors regarding the potential impact of any pending or proposed federal or state tax legislation, regulations or litigation, as to which Bond Counsel expresses no opinion.
The opinion of Bond Counsel is based on current legal authority, covers certain matters not directly addressed by such authorities, and represents Bond Counsel’s judgment as to the proper treatment of the Series 2022 Bonds for federal income tax purposes. It is not binding on the Internal Revenue Service (“IRS”) or the courts. Furthermore, Bond Counsel cannot give and has not given any opinion or assurance about the future activities of the District, or about the effect of future changes in the Code, the applicable regulations, the interpretation thereof or the enforcement thereof by the IRS. The District has covenanted, however, to comply with the requirements of the Code.
Bond Counsel’s engagement with respect to the Series 2022 Bonds ends with the issuance of the Series 2022 Bonds, and, unless separately engaged, Bond Counsel is not obligated to defend the District or the Beneficial Owners regarding the tax-exempt status of the Series 2022 Bonds in the event of an audit examination by the IRS. Under current procedures, Beneficial Owners would have little, if any, right to participate in the audit examination process. Moreover, because achieving judicial review in connection with an audit examination of tax-exempt bonds is difficult, obtaining an independent review of IRS positions with which the District legitimately disagrees, may not be practicable. Any action of the IRS, including but not limited to selection of the Series 2022 Bonds for audit, or the course or result of such audit, or an audit of bonds presenting similar tax issues may affect the market price for, or the marketability of, the Series 2022 Bonds, and may cause the District or the Beneficial Owners to incur significant expense.
Payments on the Series 2022 Bonds generally will be subject to U.S. information reporting and possibly to “backup withholding.” Under Section 3406 of the Code and applicable U.S. Treasury Regulations issued thereunder, a non-corporate Beneficial Owner of Series 2022 Bonds may be subject to backup withholding with respect to “reportable payments,” which include interest paid on the Series 2022 Bonds and the gross proceeds of a sale, exchange, redemption, retirement or other disposition of the Series 2022 Bonds. 3843
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The payor will be required to deduct and withhold the prescribed amounts if (i) the payee fails to furnish a U.S. taxpayer identification number (“TIN”) to the payor in the manner required, (ii) the IRS notifies the payor that the TIN furnished by the payee is incorrect, (iii) there has been a “notified payee underreporting” described in Section 3406(c) of the Code or (iv) the payee fails to certify under penalty of perjury that the payee is not subject to withholding under Section 3406(a)(1)(C) of the Code. Amounts withheld under the backup withholding rules may be refunded or credited against a Beneficial Owner’s federal income tax liability, if any, provided that the required information is timely furnished to the IRS. Certain Beneficial Owners (including among others, corporations and certain tax-exempt organizations) are not subject to backup withholding. The failure to comply with the backup withholding rules may result in the imposition of penalties by the IRS.
ABSENCE OF LITIGATION
In connection with the issuance of the Series 2022 Bonds, Best Best & Krieger LLP (“Issuer’s Counsel”) will deliver an opinion to the effect that, to Issuer’s Counsel’s current actual knowledge, there is no action, suit, proceeding or investigation at law or in equity before or by any court, public board or body, pending (notice of which has been served on the City or the District) or to the Issuer’s Counsel’s current actual knowledge, threatened, wherein an unfavorable decision, ruling or finding, against or affecting the City or the District, would adversely impact the ability of the City or the District to complete the transactions described in, or contemplated by, the Indenture or this Official Statement, restrain or enjoin the collection of the Special Taxes, or in any way contest or affect the validity of the Series 2022 Bonds, the Indenture, the Special Taxes, or the transactions described herein.
ABSENCE OF RATINGS
The District has not made, and does not contemplate making, application to any rating organization for a rating on the Series 2022 Bonds.
CERTAIN LEGAL MATTERS
The validity of the Series 2022 Bonds and certain other legal matters are subject to the approving opinion of Orrick, Herrington & Sutcliffe LLP, Bond Counsel to the District. A copy of the form of such approving opinion is attached hereto as APPENDIX D. Copies of such approving opinion will accompany each Series 2022 Bond. Bond Counsel has not undertaken any responsibility for the accuracy, completeness or fairness of the Official Statement or other offering materials relating to the Series 2022 Bonds and expresses no opinion relating thereto. Certain legal matters will be passed upon for the City and the District by the Issuer’s Counsel and by Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California, as Disclosure Counsel. Certain legal matters will be passed upon for the Underwriter by its counsel, Jones Hall, A Professional Law Corporation, San Francisco, California.
Although it is serving as Bond Counsel to the District in connection with the issuance and sale of the Series 2022 Bonds, Bond Counsel represents the Underwriter in connection with other financings and matters unrelated to the Series 2022 Bonds. Disclosure Counsel and the Issuer’s Counsel also represent the Underwriter in connection with other financings and matters unrelated to the Series 2022 Bonds.
UNDERWRITING
The Series 2022 Bonds are being purchased by Stifel, Nicolaus & Company, Incorporated (the “Underwriter”). The Underwriter has agreed to purchase the Series 2022 Bonds at a price of $_____________ (being the $___________ aggregate principal amount thereof, plus original issue premium of $____________ and less Underwriter’s discount of $_____________). The purchase agreement relating to the Series 2022 Bonds provides that the Underwriter will purchase all of the Series 2022 Bonds if any are purchased. The obligation to make such purchase is subject to certain terms and conditions set forth in the purchase agreement, the approval of certain legal matters by counsel and certain other conditions. 3844
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The Underwriter has entered into an agreement with its affiliate, Vining-Sparks IBG, LLC (“ViningSparks”) for the distribution of certain municipal securities offerings at the original issue price. Pursuant to that distribution agreement, Vining-Sparks may purchase Bonds from the Underwriter at the original issue price less a negotiated portion of the selling concession applicable to any Bonds that Vining-Sparks sells.
The Underwriter may offer and sell the Series 2022 Bonds to certain dealers and others at prices lower than the offering price stated on the cover page thereof. The offering price may be changed from time to time by the Underwriter.
FINANCIAL INTERESTS
The fees being paid to the Municipal Advisor, Bond Counsel, Disclosure Counsel, Underwriter, and Underwriter’s Counsel are contingent upon the issuance and delivery of the Series 2022 Bonds.
MUNICIPAL ADVISOR
The District has retained CSG Advisors Incorporated, San Francisco, California, as municipal advisor (the “Municipal Advisor”) for the sale of the Series 2022 Bonds. The Municipal Advisor is not obligated to undertake, and has not undertaken to make, an independent verification or to assume any responsibility for the accuracy, completeness or fairness of the information contained in this Official Statement.
CSG Advisors Incorporated is an independent advisory firm and is not engaged in the business of underwriting, trading or distributing municipal or other public securities.
ADDITIONAL INFORMATION
The purpose of this Official Statement is to supply information to prospective buyers of the Series 2022 Bonds. Quotations and summaries and explanations of the Series 2022 Bonds and documents contained in this Official Statement do not purport to be complete, and reference is made to such documents for full and complete statements and their provisions.
The execution and delivery of this Official Statement by the City Manager of the City has been duly authorized by the City Council of the City of Ontario acting in its capacity as the legislative body of the District.
CITY OF ONTARIO
COMMUNITY FACILITIES DISTRICT NO. 54
(ESPERANZA FACILITIES)
By:
City Manager
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APPENDIX A
AMENDED AND RESTATED RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAX 3846
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APPENDIX B
APPRAISAL REPORT
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APPENDIX C
PRICE POINT STUDY
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APPENDIX D
FORM OF OPINION OF BOND COUNSEL
[TO BE ATTACHED]
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APPENDIX E
GENERAL INFORMATION CONCERNING THE CITY OF ONTARIO
This appendix sets forth general information about the City of Ontario (the “City”) including information with respect to its finances. The following information concerning the City, the County of San Bernardino (the “County”) and the State are included only for general background purposes regarding the area encompassing the District. The Series 2022 Bonds are special, limited obligations of the District, payable, as provided in the Indenture, solely from Net Special Tax Revenues and the other assets pledged therefor thereunder. Neither the faith and credit nor the taxing power of the District (except to the limited extent set forth in the Indenture), the City or the State of California (the “State”), or any political subdivision thereof, is pledged to the payment of the Series 2022 Bonds.
The City is located in western San Bernardino County, 35 miles inland from downtown Los Angeles and encompasses 50 square miles. Located in the western part of the Inland Empire region, it lies just east of the Los Angeles county line and is part of the Greater Los Angeles Area. The City is home to the LA/Ontario International Airport which is the 15th busiest cargo airport in the United States. Ontario handles the mass of freight traffic between the ports of Los Angeles and Long Beach and the rest of the country.
Government
The City was incorporated as a general law city in 1891, and is governed by a Mayor and four council members elected at large to serve four-year terms. The City operates under the Council - Manager form of government. The City Council appoints the City Manager who is responsible for the day-to-day administration of City business and the coordination of all departments of the City.
The population growth in the City, County and State is shown on the following chart.
POPULATION ESTIMATES
City of Ontario, County of San Bernardino and State of California 2014-2021
Year(1) City of Ontario County of San Bernardino State of California 2014 167,885 2,094,951 38,556,731
2015 169,153 2,112,187 38,865,532
2016 169,491 2,122,579 39,103,587
2017 172,858 2,139,520 39,352,398
2018 175,083 2,150,017 39,519,535
2019 178,606 2,165,876 39,605,361
2020 180,788 2,175,424 39,648,938
2021 182,004 2,175,909 39,466,855
(1) January 1 data.
Source: State of California, Department of Finance, E-4 Population Estimates for Cities, Counties and State, 2011-2021, with 2010 Benchmark.
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Employment
The following table summarizes the labor force, employment and unemployment figures for the years 2015 through 2020 for the City, the County, the State and the United States.
CIVILIAN LABOR FORCE, EMPLOYMENT AND UNEMPLOYMENT RATE
City of Ontario, San Bernardino County, State of California and United States 2015 through 2020(1)
Year and Area Labor Force Employment(2) Unemployment(3) Unemployment
Rate (%)
2015
City of Ontario 81,900 76,600 5,300 6.5%
San Bernardino County 920,000 860,800 59,200 6.4
State of California 18,851,100 17,681,800 1,169,200 6.2 United States 157,130,000 148,834,000 8,296,000 5.3
2016
City of Ontario 82,700 78,400 4,300 5.2%
San Bernardino County 930,200 876,400 53,900 5.8
State of California 19,012,000 17,965,400 1,046,600 5.5 United States 159,187,000 151,436,000 7,751,000 4.9
2017
City of Ontario 84,500 80,800 3,700 4.4%
San Bernardino County 942,700 895,900 46,800 5.0
State of California 19,173,800 18,246,800 927,000 4.8
United States 160,320,000 153,337,000 6,982,000 4.4
2018
City of Ontario 87,700 84,500 3,200 3.6%
San Bernardino County 955,100 915,700 39,400 4.1
State of California 19,263,900 18,442,400 821,500 4.3
United States 162,075,000 155,761,000 6,314,000 3.9
2019
City of Ontario 88,800 85,800 3,000 3.4%
San Bernardino County 965,000 927,400 37,600 3.9
State of California 19,353,700 18,550,500 803,200 4.2
United States 163,539,000 157,538,000 6,001,000 3.7
2020
City of Ontario 90,100 82,100 8,000 8.9%
San Bernardino County 966,200 874,900 91,300 9.4
State of California 18,821,200 16,913,100 1,908,100 10.1 United States 160,742,000 147,795,000 12,947,000 8.1
Note: Data is not seasonally adjusted.
(1) Annual averages, unless otherwise specified.
(2) Includes persons involved in labor-management trade disputes. (3) The unemployment rate is computed from unrounded data; therefore, it may differ from rates computed from rounded figures in this table.
Source: U.S. Department of Labor – Bureau of Labor Statistics, California Employment Development Department. 2020 Benchmark.
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Listed below are the major employers in the City for Fiscal Year 2019-20 and in the County for Fiscal Year 2019-20.
PRINCIPAL EMPLOYERS
City of Ontario
Fiscal Year 2019-20
Employer Number of Employees
Ontario International Airport 5,000 to 9,999
United Parcel Services (UPS) 5,000 to 9,999
Ontario Montclair School District 1,000 to 4,999
Niagara Bottling LLC 1,000 to 4,999
Chaffey Joint Union High School District 1,000 to 4,999 Home Depot 500 to 999
ULINE 500 to 999
FedEx 500 to 999
Cardinal Health 500 to 999
Walmart #3796 250 to 499
Gold Star Foods Inc 250 to 499
Autozone 250 to 499
Toyota Motor Sales 250 to 299
Ventura Foods 250 to 499
Mag Instrument Inc. 250 to 499
Staples 250 to 499
Ajinimoto Windsor 250 to 499
Cardenas Markets LLC 250 to 499
Source: City of Ontario Comprehensive Annual Financial Report for the year ending June 30, 2020.
PRINCIPAL EMPLOYERS
San Bernardino County
2021
Rank Name of Business
Approximate No. of
San Bernardino
County
Employees(1) Type of Business
1 County of San Bernardino ≥10,000 Public Administration 2 Loma Linda University ≥10,000 Education
3 Amazon 5,000-9,999 Electronic Commerce
4 Ontario International Airport 5,000-9,999 Airport
5 Plaxicon Holding Corporation 5,000-9,999 Plastics Manufacturer 6 California State University, San
Bernardino
5,000-9,999 Medical Center
7 James Jones Company 2,500-4,999 Water Products
8 Barrett Business Services, Inc. 2,500-4,999 Management Consulting 9 Damao Luggage International Inc. 2,500-4,999 Retailer 10 San Manuel Tribe & Casino 2,500-4,999 Casino
(1) Due to confidentiality of reporting number of employees, ranges have been provided.
Source: San Bernardino County Comprehensive Annual Report for the year ending June 30, 2021. 3852
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Industries
Residents of the City find employment throughout the Riverside-San Bernardino-Ontario Labor Market Area. This labor market area, as defined for reporting purposes by the California Employment Development Department, has boundaries coterminous with those of Riverside and San Bernardino Counties.
The following table sets forth certain employment data for the Riverside - San Bernardino-Ontario Metropolitan Statistical Area and the County for the period from 2016 through 2020.
RIVERSIDE-SAN BERNARDINO-ONTARIO METROPOLITAN STATISTICAL AREA
INDUSTRY EMPLOYMENT & LABOR FORCE - BY ANNUAL AVERAGE
2016 2017 2018 2019 2020
Civilian Labor Force 1,981,900 2,014,300 2,045,200 2,070,700 2,073,900 Civilian Employment 1,863,600 1,910,800 1,957,200 1,986,100 1,872,600 Civilian Unemployment 118,300 103,500 88,000 84,600 201,300 Civilian Unemployment Rate 6.0% 5.1% 4.3% 4.1% 9.7%
Total Farm 14,600 14,500 14,500 15,400 13,900
Total Nonfarm 1,401,400 1,452,800 1,506,000 1,552,100 1,487,800 Total Private 1,159,100 1,201,800 1,248,800 1,290,900 1,238,700 Goods Producing 190,400 196,400 206,100 208,900 200,500 Mining and Logging 900 1,000 1,200 1,200 1,300
Construction 92,000 97,400 105,200 107,200 105,000
Manufacturing 97,500 98,000 99,800 100,600 94,300
Service Providing 1,211,000 1,256,400 1,299,300 1,343,200 1,287,400 Trade, Transportation and Utilities 346,300 363,400 378,800 394,400 403,800 Wholesale Trade 61,600 62,600 65,500 67,100 64,600
Retail Trade 178,300 180,900 181,200 180,700 168,800
Transportation, Warehousing and Utilities 106,400 119,900 132,100 146,600 170,500 Information 11,800 11,600 11,400 11,500 9,400
Financial Activities 44,900 44,700 44,600 45,000 43,700 Professional and Business Services 145,100 147,300 152,000 158,700 154,000 Educational and Health Services 215,700 226,700 239,500 250,300 248,700 Leisure and Hospitality 160,200 166,300 170,600 175,900 139,200 Other Services 44,600 45,400 45,800 46,200 39,600
Government 242,300 251,000 257,200 261,200 249,100
Total, All Industries 1,416,000 1,467,300 1,520,500 1,567,500 1,501,800 Note: Does not include proprietors, self-employed, unpaid volunteers or family workers, domestic workers in households and persons involved in labor-management trade disputes. Employment reported by place of work. Items may not add to total due to independent rounding. The “Total, All Industries” data is not directly comparable to the employment data found in this Appendix E.
Source: State of California, Employment Development Department, March 2020 Benchmark. 3853
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Personal Income
The following tables show the personal income and per capita personal income for the City, County, State of California and United States from 2014 through 2020.
PERSONAL INCOME
City of Ontario, County of San Bernardino, State of California, and United States 2014-2020
Year
City of
Ontario
County of
San Bernardino California United States
2014 $3,100,249 $70,474,192 $1,980,736,837 $14,969,527,000 2015 3,224,189 74,846,227 2,125,430,316 15,681,233,000
2016 3,159,733 77,937,754 2,218,457,774 16,092,713,000
2017 3,444,006 80,570,617 2,318,644,417 16,845,028,000
2018 3,474,794 83,984,928 2,431,821,953 17,681,159,000
2019 3,826,610 88,261,041 2,544,234,978 18,402,004,000
2020 4,114,067 98,143,792 2,763,311,977 19,607,447,000
Note: Dollars in Thousands.
Source: U.S. Department of Commerce, Bureau of Economic Analysis and City of Ontario Comprehensive Annual Financial Report for the year ending June 30, 2020.
PER CAPITA PERSONAL INCOME(1)
City of Ontario, County of San Bernardino, State of California, and United States 2014-2020
Year
City of
Ontario
County of
San Bernardino California United States
2014 $18,774 $33,586 $51,332 $47,071
2015 19,068 35,399 54,632 48,891
2016 18,601 36,578 56,667 49,812
2017 19,761 37,477 58,942 51,811
2018 19,761 38,781 61,663 54,098
2019 21,129 40,537 64,513 56,047
2020 22,237 44,831 70,192 59,510
(1) Per capita personal income is the total personal income divided by the total mid-year population estimates of the U.S.
Bureau of the Census. All dollar estimates are in current dollars (not adjusted for inflation).
Source: City of Ontario Comprehensive Annual Financial Report for the year ending June 30, 2020, Bureau of Economic Analysis for County, State and U.S.
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Assessed Valuation
The table below sets forth the City’s assessed valuation of property for Fiscal Years 2012-13 through 2019-20.
ASSESSED VALUATION OF TAXABLE PROPERTY
City of Ontario
Fiscal Years 2012-13 to 2019-20
(Dollars in Thousands)
Fiscal Year
Ended June 30
Secured
Value
Unsecured
Value Less Exemptions
Total Assessed
and Estimated
Full Value
2013 $12,065,269 $1,788,106 $(112,198) $13,741,177
2014 12,465,751 1,758,596 (110,182) 14,114,165
2015 12,413,859 2,552,384 (108,252) 14,857,991
2016 13,124,582 2,611,079 (105,864) 15,629,797
2017 13,781,901 2,543,614 (109,080) 16,216,435
2018 14,844,332 2,624,317 (108,915) 17,359,734
2019 16,575,762 2,814,842 (108,701) 19,281,903
2020 18,181,749 2,910,729 (110,654) 20,981,823
Source: City of Ontario Comprehensive Annual Financial Report for the year ending June 30, 2020.
Tax Levy and Tax Collection
Below is a chart which indicates the tax levy and collection records for the City from the 2010-11 through 2019-20 Fiscal Years.
PROPERTY TAX LEVIES AND COLLECTIONS
City of Ontario
Fiscal Years 2010-11 to 2019-20
Fiscal Year
Percent of Levy
Collected
Total Tax
Collections to Tax
Levy to Date(1)
2011 100.31% $23,681,467
2012 98.47 23,550,698
2013 100.86 24,282,466
2014 101.90 25,330,619
2015 101.87 26,352,321
2016 101.39 27,777,778
2017 100.94 28,866,121
2018 101.46 30,921,494
2019 100.69 34,087,147
2020 99.67 36,753,080
(1) Beginning with the City’s Comprehensive Annual Financial Report for the year ending June 30, 2019, the City did not include in its reported property tax collections pass-through payments related to the former Ontario Redevelopment Agency or Redevelopment Property Tax Trust Fund residual payments. The historical property tax collection amounts have been adjusted to reflect this change.
Source: City of Ontario Comprehensive Annual Financial Report for the year ending June 30, 2020. 3855
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Largest Taxpayers
The principal property taxpayers in the City for Fiscal Year 2019-20 are as follows:
PRINCIPAL PROPERTY TAXPAYERS
City of Ontario
Fiscal Year 2019-20
Taxpayer Assessed Valuation
% of Total
Assessed
Valuation
Prologis $ 554,212,904 2.01%
United Parcel Service Co 524,431,546 1.90
Ontario Mills LP 409,216,412 1.48
Vineyard Industrial I LLC 287,535,637 1.04
Watson Land Company 249,455,066 0.90
Rexford Industrial Realty LP 225,730,467 0.82
Catellus Finance 1 LLC 213,113,375 0.77
Roc III California Terracina LLC 150,849,527 0.55
Comref So California Industrial LLC 146,683,701 0.53
Majestic-CCC IV Partners 139,677,379 0.51
TOTAL: $ 2,900,906,014 10.52%
Source: City of Ontario Comprehensive Annual Financial Report for the year ending June 30, 2020.
Building Activity
In addition to annual building permit valuations, the numbers of permits for new dwelling units issued each year from 2016 through 2020 are shown in the following tables for both the County and the City.
BUILDING PERMIT VALUATIONS
San Bernardino County
2016-2020
2016 2017 2018 2019 2020
Valuation ($000’s)
Residential $ 888,142 $ 1,366,023 $ 1,455,281 $ 1,450,638 $ 1,139,459 Non-Residential 994,282 1,285,597 1,080,130 1,377,100 1,064,696 Total $ 1,882,423 $ 2,651,620 $ 2,535,411 $ 2,827,738 $ 2,204,155 Units
Single Family 2,896 4,235 3,311 4,182 3,631
Multiple Family 976 2,578 1,775 1,884 910
Total 3,872 6,831 5,086 6,066 4,541
Note: Totals may not add to sum because of rounding.
Source: Construction Industry Research Board.
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BUILDING PERMIT VALUATIONS
City of Ontario
2016-2020
2016 2017 2018 2019 2020
Valuation ($000’s)
Residential $ 119,456 $ 239,932 $ 517,399 $ 322,837 $ 114,159 Non-Residential 197,786 122,243 185,202 268,019 125,537 Total $ 317,242 $ 362,175 $ 702,600 $ 590,856 $ 239,696 Units
Single Family 446 648 1,056 1,091 472
Multiple Family 206 1,010 273 322 74
Total 652 1,658 1,329 1,413 546
Note: Totals may not add to sum because of rounding.
Source: Construction Industry Research Board.
Taxable Sales
The table below presents taxable sales for the years 2014 through 2020 for the City.
TAXABLE SALES
City of Ontario
2014 through 2020
(Dollars in Thousands)
Year
Retail and Food
Permits
Retail and Food
Taxable
Transactions Total Permits
Total Outlets
Taxable
Transactions
2014 4,422 $4,166,601 6,647 $6,595,978
2015(1) 4,867 4,279,949(1) 7,580 7,174,748(1)
2016 4,875 4,634,312 7,658 8,124,275
2017 4,974 4,775,352 7,888 7,670,943
2018 5,194 4,850,172 8,435 7,939,125
2019 5,306 4,953,629 8,830 8,186,154
2020 5,692 4,416,993 9,543 7,584,137
(1) Beginning in 2015, the outlet counts in these reports show the number of outlets that were active during the reporting period.
Retailers that operate part-time are now tabulated with store retailers. Industry-level data for 2015 are not comparable to that of prior years.
Source: “Taxable Sales in California (Sales & Use Tax)” - California State Board of Equalization for 2014; Taxable Sales in California, California Department of Tax and Fee Administration for 2015-2020. 3857
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The table below presents taxable sales for the years 2014 through 2020 for the County.
TAXABLE SALES
San Bernardino County
2014 through 2020
(Dollars in Thousands)
Year
Retail and Food
Permits
Retail and Food
Taxable
Transactions Total Permits
Total Outlets
Taxable
Transactions
2014 34,555 $22,240,376 48,349 $33,055,967
2015(1) 37,696 23,384,548(1) 56,128 35,580,276(1)
2016 38,370 24,477,003 57,629 37,216,551
2017 39,067 25,603,171 58,956 38,399,373
2018 39,837 26,905,784 61,838 40,554,024
2019 40,964 27,585,905 64,771 41,768,748
2020 44,330 28,745,277 71,145 43,265,512
(1) Beginning in 2015, the outlet counts in these reports show the number of outlets that were active during the reporting period.
Retailers that operate part-time are now tabulated with store retailers. Industry-level data for 2015 are not comparable to that of prior years.
Source: “Taxable Sales in California (Sales & Use Tax)” - California State Board of Equalization for 2014; Taxable Sales in California, California Department of Tax and Fee Administration for 2015-2020.
Transportation
Because Ontario is a major hub for passengers and freight, the City is also served by several major freeways. Interstate 10 and the Pomona Freeway (State Route 60) run east-west through the City.
Interstate 10 is north of the Ontario airport while the Pomona freeway is south of the airport. Interstate 15 runs in the north-south directions at the eastern side of the City. State Route 83, also known as Euclid Avenue, also runs in the north-south direction at the western side of the City.
The City maintains an Amtrak station which is served by the Sunset Limited and Texas Eagle lines.
Ontario also has a Metrolink station off of Haven Avenue. It connects Ontario with much of the Greater Los Angeles area, Orange County and the San Fernando Valley. Public bus transportation is provided by Omnitrans. Rail service is provided by Burlington Northern Santa Fe and Union Pacific.
The Ontario International Airport is a medium-hub, full-service airport, which offers more than 70 daily flights to cities in the U.S., Mexico and Taiwan and is served by AeroMexico, Alaska Airlines, American Airlines, China Airlines, Delta Air Lines, Frontier, JetBlue, Southwest Airlines, United Airlines/United Express and Volaris. The airport’s service area includes a population of approximately six million in San Bernardino and Riverside counties, and portions of Orange and Los Angeles counties. The Ontario International Airport was previously operated by the Department of Airports of the City of Los Angeles (the “Department”). Following protracted litigation among the Department, the City of Ontario and the Ontario International Airport Authority, a joint powers authority was formed by the City of Ontario and the County of San Bernardino (the “Airport Authority”). The Airport Authority assumed ownership and control of the management and operation of the Ontario International Airport on November 1, 2016.
With approximately 570,000 square feet and 26 passenger gates within two terminals, Ontario International Airport is the Western States Regional Terminal for United Parcel Service. In 2019 over approximately 5.9 million passengers used the airport and cargo shipments rose more than 4% from the previous year. In 2020, approximately 2.5 million passengers used the airport and cargo shipments rose more than 18% from the previous year.
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APPENDIX F
SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE
The following is a summary of certain provisions of the Indenture which are not described elsewhere in the Official Statement. This summary does not purport to be comprehensive, and reference should be made to the Indenture for a full and complete statement of their provisions. [TO COME FROM BOND COUNSEL]
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APPENDIX G
FORM OF DISTRICT
CONTINUING DISCLOSURE AGREEMENT
[TO COME FROM BOND COUNSEL]
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APPENDIX H
FORM OF DEVELOPER CONTINUING DISCLOSURE AGREEMENT
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APPENDIX I
INFORMATION CONCERNING THE DEPOSITORY TRUST COMPANY
AND ITS BOOK-ENTRY SYSTEM
The information in this section concerning DTC and DTC’s book-entry only system has been obtained from sources that the District believes to be reliable, but the District takes no responsibility for the completeness or accuracy thereof. The following description of the procedures and record keeping with respect to beneficial ownership interests in the Series 2022 Bonds, payment of principal, premium, if any, accreted value and interest on the Series 2022 Bonds to DTC Participants or Beneficial Owners, confirmation and transfers of beneficial ownership interests in the Series 2022 Bonds and other related transactions by and between DTC, the DTC Participants and the Beneficial Owners is based solely on information provided by DTC to the District which the District believes to be reliable, but the District and the Underwriter do not and cannot make any independent representations concerning these matters and do not take responsibility for the accuracy or completeness thereof. Neither the DTC, Direct Participants, Indirect Participants nor the Beneficial Owners should rely on the foregoing information with respect to such matters, but should instead confirm the same with DTC or the DTC Participants, as the case may be.
The Depository Trust Company (“DTC”), New York, New York, will act as securities depository for the Series 2022 Bonds. The Series 2022 Bonds will be issued as fully-registered securities registered in the name of Cede & Co. (DTC’s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered Bond will be issued for each annual maturity of the Series 2022 Bonds, each in the aggregate principal amount of such maturity, and will be deposited through the facilities of DTC.
DTC, the world’s largest securities depository, is a limited-purpose trust company organized under the New York Banking Law, a “banking organization” within the meaning of the New York Banking Law, a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code, and a “clearing agency” registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 3.6 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC’s participants (“Direct Participants”) deposit with DTC. DTC also facilitates the post trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants’ accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation (“DTCC”). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly (“Indirect Participants”). DTC has a Standard & Poor’s rating of “AA+.” The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com.
Purchases of Series 2022 Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Series 2022 Bonds on DTC’s records. The ownership interest of each actual purchaser of each Bond (“Beneficial Owner”) is in turn to be recorded on the Direct and Indirect Participants’ records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Series 2022 Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive Series 2022 Bonds representing their ownership interests in Series 2022 Bonds, except in the event that use of the book-entry system for the Series 2022 Bonds is discontinued.
To facilitate subsequent transfers, all Bonds deposited by Direct Participants with DTC are registered in the name of DTC’s partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial 3862
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Owners of the Series 2022 Bonds; DTC’s records reflect only the identity of the Direct Participants to whose accounts such Series 2022 Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time.
Beneficial Owners of Series 2022 Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Series 2022 Bonds, such as prepayments, tenders, defaults, and proposed amendments to the Series 2022 Bond documents. For example, Beneficial Owners of Series 2022 Bonds may wish to ascertain that the nominee holding the Series 2022 Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of notices be provided directly to them.
Redemption notices shall be sent to DTC. If less than all of the Series 2022 Bonds within a maturity are being prepaid, DTC’s practice is to determine by lot the amount of the interest of each Direct Participant in such maturity to be redeemed.
Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to Series 2022 Bonds unless authorized by a Direct Participant in accordance with DTC’s MMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the District as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.’s consenting or voting rights to those Direct Participants to whose accounts Series 2022 Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy).
Redemption proceeds, distributions, and dividend payments on the Series 2022 Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC’s practice is to credit Direct Participants’ accounts upon DTC’s receipt of funds and corresponding detail information from the District or the Trustee, on payable date in accordance with their respective holdings shown on DTC’s records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in “street name,” and will be the responsibility of such Participant and not of DTC, the Trustee, or the District, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds, distributions, and dividend payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the District or the Trustee, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants.
A Series 2022 Bond Owner shall give notice to elect to have its Series 2022 Bonds purchased or tendered, through its Participant, to the Trustee, and shall effect delivery of such Series 2022 Bonds by causing the Direct Participant to transfer the Participant’s interest in the Series 2022 Bonds, on DTC’s records, to the Trustee. The requirement for physical delivery of Series 2022 Bonds in connection with an optional tender or a mandatory purchase will be deemed satisfied when the ownership rights in the Series 2022 Bonds are transferred by Direct Participants on DTC’s records and followed by a book-entry credit of tendered Series 2022 Bonds to the Trustee’s DTC account.
DTC may discontinue providing its services as depository with respect to the Series 2022 Bonds at any time by giving reasonable notice to the District or the Trustee. Under such circumstances, in the event that a successor depository is not obtained, physical certificates are required to be printed and delivered.
The District may decide to discontinue use of the system of book-entry only transfers through DTC (or a successor securities depository). In that event, Series 2022 Bonds will be printed and delivered to DTC.
THE TRUSTEE, AS LONG AS A BOOK-ENTRY ONLY SYSTEM IS USED FOR THE SERIES 2022 BONDS, WILL SEND ANY NOTICE OF REDEMPTION OR OTHER NOTICES TO OWNERS ONLY TO DTC.
ANY FAILURE OF DTC TO ADVISE ANY DTC PARTICIPANT, OR OF ANY DTC PARTICIPANT TO NOTIFY
ANY BENEFICIAL OWNER, OF ANY NOTICE AND ITS CONTENT OR EFFECT WILL NOT AFFECT THE
VALIDITY OF SUFFICIENCY OF THE PROCEEDINGS RELATING TO THE REDEMPTION OF THE SERIES 2022 BONDS CALLED FOR REDEMPTION OR OF ANY OTHER ACTION PREMISED ON SUCH NOTICE. 3863