NP DRAFT 6/28/23
PRELIMINARY OFFICIAL STATEMENT DATED , 2023
2 0 NEW ISSUE - BOOK -ENTRY ONLY INSURED RATING: S&P: "[_]" , UNDERLYING RATING: S&P: "[ ]"
(See "CONCLUDING INFORMATION - Rating on the Bonds" herein) 0 '" In the opinion of Nixon PeabodyLLP, Bond Counsel, under existinglaw and assumingcompliance with the tax covenants
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.0 4 e described herein, and the accuracy of certain representations and certifications made by the Authority and the City 0 o described herein, interest on the Bonds is excluded from gross income for federal income tax purposes under Section 103 v w o of the Internal Revenue Code of 1986, as amended (the "Code'). Bond Counsel, is also of the opinion that interest on the 0 „ Bonds is not treated as a preference item in calculating the alternative minimum tax imposed under the Code. Bond Counsel is further of the opinion that interest on the Bonds is exempt from personal income taxes of the State of California a .?? ("State') under present law. See "TAX MATTERS" herein regarding certain other tax consequences. a' U +.'
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3 ° 4 PLACENTIA PUBLIC FINANCING AUTHORITY
v
'al LEASE REVENUE BONDS
ro cd
g (PUBLIC SAFETY CENTER PROJECT)
Z
2 SERIES 2023A
2 [(BANK QUALIFIED)]
o ' o. Dated: Date of Delivery Due: As shown on the inside front cover page .o 4
c0 0 The Placentia Public Financing Authority Lease Revenue Bonds (Public Safety Center Project) Series 2023A [(Bank °a ° Qualified)] (the "Bonds") are being issued to finance, along with other available funds of the City, the construction and g › equipping of an approximately 18,805 square foot public safety center, to purchase a municipal bond insurance policy ow,0 •• and a debt serve reserve surety policy for the Bonds and to pay the costs incurred in connection with the issuance of the n
°: 1 Bonds. The Bonds are payable from the revenues pledged under the Indenture, as defined herein, consisting primarily of °' ° •r base rental payments(the "Base Rental Payments") to be made bythe Cityof Placentia(the "City")to the Placentia Public o w , p ym ym )
° .° Financing Authority (the "Authority") as rental for certain City -owned property (the "Leased Property") pursuant to a po 0 Lease Agreement, as defined herein, and from certain funds held under the Indenture and insurance or condemnation Bawards. The City is required under the Lease Agreement to make Base Rental Payments in each fiscal year in consideration • ° c' aS of the use and possession of the Leased Property from any source of available funds in an amount sufficient to pay the 5 g ., annual principal and interest due with respect to the Bonds, subject to abatement, as described herein. See "SOURCES .o ›, OF PAYMENT FOR THE BONDS" and "RISK FACTORS" herein. u co
•o 1 o Interest on the Bonds is payable semiannually on [June] 1 and [December] 1 of each year, commencing [December 1, y o 0 2023], until maturity or earlier redemption. See "THE BONDS — General Provisions" and "THE BONDS — 0 , ; Redemption" herein.
0 :
0 o o ° THE BONDS ARE LIMITED OBLIGATIONS OF THE AUTHORITY PAYABLE SOLELY FROM AND -o SECURED BY A PLEDGE OF REVENUES AND CERTAIN FUNDS AND ACCOUNTS HELD UNDER THE .rd w i' C
5 0 5 INDENTURE. THE AUTHORITY HAS NO TAXING POWER. THE OBLIGATION OF THE CITY TO PAY u w BASE RENTAL PAYMENTS AND ADDITIONAL PAYMENTS DOES NOT CONSTITUTE AN OBLIGATION y y FOR WHICH THE CITY IS OBLIGATED TO LEVY OR PLEDGE ANY FORM OF TAXATION OR FOR " .' w WHICH THE CITY HAS LEVIED OR PLEDGED ANY FORM OF TAXATION. THE BONDS AND THE 0 o U a OBLIGATION OF THE CITY TO PAY BASE RENTAL PAYMENTS AND ADDITIONAL PAYMENTS DOES o a NOT CONSTITUTE A DEBT OF THE CITY, THE STATE OR OF ANY POLITICAL SUBDIVISION " THEREOF WITHIN THE MEANING OF ANY CONSTITUTIONAL OR STATUTORY DEBT LIMITATION v °' '" y OR RESTRICTION.
- g o The scheduled payment of principal and interest on a portion, or all, of the Bonds (such maturities insured to be 13 "5o E specified in the final Official Statement) when due will be guaranteed under a municipal bond insurance policy o 6,4:.,_(:',s (the "Policy") to be issued concurrently with the delivery of the Bonds by INSURER " See "BOND INSURANCE" herein.
A 'o 7,E The Indenture establishes the Reserve Fund which will serve as security for the applicable payments payable by ', o o the Authority under the Indenture with respect to the Bonds. Concurrently with the delivery of the Bonds, a a a" 5 ., municipal bond debt service reserve insurance policy relating to the Bonds will be issued by [INSURER] (the .59,y
. o "Reserve Policy") which the Trustee will credit to the respective reserve fund.
F .- a ¢ [INSURER LOGO]
4885-9887-4678.9
The cover page contains certain information for quick reference only. It is not a summary of the issue. Potential investors must read the entire Official Statement to obtain information essential to the making of an informed investment decision.
See "RISK FACTORS" herein for a discussion of special risk factors that should be considered in evaluating the investment quality of the Bonds.
The Bonds are offered, when, as and if issued, subject to the approval as to their legality by Nixon Peabody LLP, Los Angeles, California, Bond Counsel. Certain legal matters will be passed on for the City and the Authority by the City Attorney, and by Nixon Peabody LLP, Los Angeles, California, as Disclosure Counsel. Certain legal matters will be passed on for the Underwriter by its counsel, Kutak Rock LLP, Irvine, California. It is anticipated that the Bonds, in book - entry form, will be available for delivery on or about , 2023 through the facilities of The Depository Trust Company (see "APPENDIX E — THE BOOK -ENTRY SYSTEM" herein).
Ramirez & Co., Inc.
The date of the Official Statement is , 2023.
4885-9887-4678.9
$
PLACENTIA PUBLIC FINANCING AUTHORITY
LEASE REVENUE BONDS
(PUBLIC SAFETY CENTER PROJECT)
SERIES 2023A
[(BANK QUALIFIED)]
MATURITY SCHEDULE
$ Serial Bonds
(Base CUSIP®t 72588R)
Maturity Date Principal Interest Reoffering Reoffering
[June] 1 Amount Rate Yield Price CUSIP®t
% Term Bonds maturing [June] 1, 20 , Yield %, Price CUSIP®t % Term Bonds maturing [June] 1, 20 , Yield %, Price CUSIP®t Preliminary, subject to change.
t CUSIP® is a registered trademark of the American Bankers Association. CUSIP data herein is provided by CUSIP Global Services, managed by FactSet Research Systems Inc. on behalf of the American Bankers Association.
CUSIP numbers have been assigned by an independent company not affiliated with the Authority, the City, the Underwriter or the Municipal Advisor and are included solely for the convenience of the holders of the Bonds.
None of the Authority, the City, the Underwriter or the Municipal Advisor is responsible for the selection or use of these CUSIP numbers, and no representation is made as to their correctness on the Bonds or as indicated above.
The CUSIP number for a specific maturity is subject to being changed after the execution and delivery of the Bonds as a result of various subsequent actions including, but not limited to, a refunding in whole or in part of such maturity or as a result of the procurement of secondary market portfolio insurance or other similar enhancement by investors that is applicable to all or a portion of certain maturities of the Bonds. 4885-9887-4678.9
GENERAL INFORMATION ABOUT THIS OFFICIAL STATEMENT
Use of Official Statement. This Official Statement is submitted in connection with the offer and sale of the Bonds referred to herein and may not be reproduced or used, in whole or in part, for any other purpose. This Official Statement is not to be construed as a contract with the purchasers of the Bonds.
Effective Date. This Official Statement speaks only as of its date, and the information and expressions of opinion contained in this Official Statement are subject to change without notice. Neither the delivery of this Official Statement nor any sale of the Bonds will, under any circumstances, create any implication that there has been no change in the affairs of the City or any other parties described in this Official Statement.
No Offering May be Made Except by This Official Statement No dealer, broker, salesperson or other person has been authorized by the Authority or the City to give any information or to make any representations in connection with the offer or sale of the Bonds other than those contained herein and if given or made, such other information or representation must not be relied upon as having been authorized by the Authority, the City, the Municipal Advisor 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 Bonds by a person in any jurisdiction in which it is unlawful for such person to make such an offer, solicitation or sale.
Preparation of This Official Statement. The information contained in this Official Statement has been obtained from sources that are believed to be reliable. The information and expressions of opinions 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 City since the date hereof.
This Official Statement is submitted in connection with the sale of the Bonds referred to herein and may not be reproduced or used, in whole or in part, for any other purpose, unless authorized in writing by the City. All summaries of the Bonds, the Lease Agreement, the Indenture or other documents, are made subject to the provisions of such documents 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 City Clerk for further information. See "INTRODUCTION — Summaries Not Definitive."
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 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.
Bonds are Exempt From Securities Laws Registration. The issuance, sale and delivery of the Bonds has not been registered under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, in reliance upon exemptions for the execution, sale and delivery of municipal securities provided under Section 3(a)(2) of the Securities Act of 1933 and Section 3(a)(12) of the Securities Exchange Act of 1934.
Estimates and Forecasts. When used in this Official Statement and in any continuing disclosure by the City, any press release and any oral statement made with the approval of an authorized officer of the City or any other entity described or referenced herein, the words or phrases "will likely result," "are expected to," "will continue," "is anticipated," "estimate," "project," "forecast," "expect," "intend" and similar expressions identify "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated in such forward-looking statements. Any forecast is subject to such uncertainties. Inevitably, some assumptions used to develop the forecasts will not be realized and unanticipated events and circumstances may occur. Therefore, there are likely to be differences between forecasts and actual results, and those differences may be material.
Stabilization of and Changes to Offering Prices. In connection with this offering, the Underwriter may overallot or effect transactions which stabilize or maintain the market price of the Bonds at a level above that which might otherwise prevail in the open market. Such stabilizing, if commenced, may be discontinued at any time. The Underwriter may offer and sell the Bonds to certain dealers and others at prices lower than the public offering prices set forth on the inside front cover page hereof and said public offering prices may be changed from time to time by the Underwriter.
City Website. The City maintains a website. The information on such website is not part of this Official Statement and is not intended to be relied on by investors with respect to the Bonds unless specifically set forth or incorporated herein.
4885-9887-4678.9
CITY OF PLACENTIA, CALIFORNIA
CITY COUNCIL MEMBERS
Ward L. Smith, Mayor
Jeremy B. Yamaguchi, Mayor Pro Tem
Rhonda Shader, Councilmember
Chad P. Wanke, Councilmember
Kevin Kirwin, Councilmember
CITY STAFF
Damien R. Arrula, City Administrator
Luis Estevez, Deputy City Administrator
Jennifer Lampman, Director of Finance
Christian L. Bettenhausen, City Attorney
PROFESSIONAL SERVICES
Bond Counsel and Disclosure Counsel
Nixon Peabody LLP
Los Angeles, California
Municipal Advisor
Kosmont Financial Services
Manhattan Beach, California
Trustee
U.S. Bank Trust Company, National Association
Los Angeles, California
4885-9887-4678.9
TABLE OF CONTENTS
Page
INTRODUCTION
The City and the Authority 1
Purpose 2
Security and Sources of Repayment 2
Limited Obligation 3
Legal Matters 3
Offering of the Bonds 4
Summaries Not Definitive 4
THE FINANCING PLAN 4
Estimated Sources and Uses of Funds
THE LEASED PROPERTY
THE BONDS
Page
1 Other Postemployment Benefits 40
Risk Management 42
City Investment Policy and Portfolio 44
Obligations of the City 44
Financial Statements 45
RISK FACTORS 50
The Base Rental Payments 50
Natural Hazards 51
Cybersecurity 53
5 State Budget 53
Limited Recourse on Default; No Acceleration56
5 Enforcement of Remedies 57
6 Bankruptcy 57
Risks Related to COVID-19 59
Constitutional Limitation on Taxes and
Expenditures 59
Early Redemption Risk 64
Secondary Market Risk 64
Substitution or Removal of Property 64
Loss of Tax Exemption 65
LEGAL MATTERS 65
10 Enforceability of Remedies 65
Approval of Legal Proceedings 65
Absence of Litigation 65
TAX MATTERS 66
General Provisions 6
Redemption 6
Scheduled Debt Service on the Bonds 9
No Additional Bonds 10
BOND INSURANCE 10
[TO COME] 10
SOURCES OF PAYMENT FOR THE
BONDS
Pledge of Revenues
Base Rental Payments
Additional Payments
Abatement
Insurance Relating to the Property
Substitution or Removal of Property
Action on Default
Bond Insurance
Reserve Fund
10 11
11 12
12 13
13 14
14 CITY OF PLACENTIA 15
General Information 15
General Organization 15
Governmental Services 16
Transportation 16
Population 17
Median Household Income 17
Employment and Industry 18
Commercial Activity 20
Building Activity 20
FINANCIAL INFORMATION 21
Financial Policies [CONFIRM/UPDATE] 21
Budgetary Process and Administration 25
Comparative General Fund Revenues and
Expenditures 26
Ad Valorem Property Taxes 28
Local Taxes 33
Employee Relations and Collective Bargaining 34
Retirement Plans 34
i
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CONCLUDING INFORMATION 68
Rating on the Bonds 68
Underwriting 68
[Bank Qualified] 68
The Municipal Advisor 69
Continuing Disclosure 69
Additional Information 69
References 70
Execution 70
APPENDIX A - SUMMARY OF THE
PRINCIPAL LEGAL DOCUMENTS
APPENDIX B - CITY AUDITED FINANCIAL
STATEMENTS
APPENDIX C - FORM OF CONTINUING
DISCLOSURE AGREEMENT
APPENDIX D - PROPOSED FORM OF BOND
COUNSEL OPINION
APPENDIX E - THE BOOK -ENTRY SYSTEM
APPENDIX F — SPECIMEN MUNICIPAL BOND
INSURANCE POLICY
[THIS PAGE INTENTIONALLY LEFT BLANK]
4885-9887-4678.9
OFFICIAL STATEMENT
$ *
PLACENTIA PUBLIC FINANCING AUTHORITY
LEASE REVENUE BONDS
(PUBLIC SAFETY CENTER PROJECT)
SERIES 2023A
[(BANK QUALIFIED)]
This Official Statement which includes the cover page and appendices (the "Official Statement"), is provided to furnish certain information concerning the sale of the Placentia Public Financing Authority (the "Authority") Lease Revenue Bonds (Public Safety Center Project), Series 2023A [(Bank Qualified)] (the "Bonds"), in the aggregate principal amount of $ *.
INTRODUCTION
This Introduction contains only a brief description of this issue and does not purport to be complete. This Introduction is subject in all respects to more complete information in the entire Official Statement and the offering of the Bonds to potential investors is made only by means of the entire Official Statement and the documents summarized herein. Potential investors must read the entire Official Statement to obtain information essential to the making of an informed investment decision (see "RISK FACTORS" herein).
For definitions of certain capitalized terms used herein and not otherwise defined, and the terms relating to the Bonds, see the summary included in `APPENDIXA — SUMMARY OF THE PRINCIPAL LEGAL DOCUMENTS" herein.
The City and the Authority
The City of Placentia (the "City") was incorporated in 1926 as a general law city, adopted a charter form of government in 1965 and operates under the council -administrator form of government. The City encompasses approximately 6.7 square miles and is located in northern Orange County, adjacent to the cities of Brea, Fullerton, Anaheim and Yorba Linda. The City provides a full range of municipal services, which include public safety (police, fire and paramedic), streets, sanitation, refuse collection, parks and recreation, planning and zoning, and housing and community development (see "CITY OF PLACENTIA" herein).
The Authority is a joint exercise of powers authority organized and existing under and by virtue of the Joint Exercise of Powers Act, constituting Articles 1 through 4 (commencing with Section 6500) of Chapter 5, Division 7, Title 1 of the Government Code of the State of California (the "Joint Powers Act"). The City and the former Placentia Redevelopment Agency formed the Authority by the execution of a joint exercise of powers agreement ("JPA Agreement") on July 1, 1996. The Successor Agency to the Placentia Redevelopment Agency (the "Successor Agency") succeeded the former Placentia Redevelopment Agency in 2012. The City, the Successor Agency and the Industrial/Commercial Development Authority of the City of Placentia (the "Development Authority") approved an amendment to the JPA Agreement dated as of October 20, 2020 which removed the Successor Agency as member of the Authority and a party to the JPA * Preliminary; subject to change.
1 4885-9887-4678.9
Agreement and added the Development Authority as a member of the Authority and a party to the JPA Agreement.
Under the JPA Agreement, the Authority is authorized to provide funds to acquire or construct and to refinance public capital improvements, and to refinance obligations of its members issued for such purposes, through the issuance of bonds in accordance with the Joint Powers Act.
The Authority is governed by a five -member Board which consists of all members of the City Council. The Mayor serves as the Chair of the Authority. The City Administrator acts as the Executive Director, the City Clerk acts as the Secretary, the City Treasurer acts as the Treasurer and the City's Director of Finance acts as the Controller of the Authority.
Purpose
The Bonds are being issued to finance, along with other available funds of the City, the construction and equipping of an approximately 18,805 square foot public safety center, to purchase a municipal bond insurance policy and debt service reserve surety policy for the Bonds and pay the costs of issuing the Bonds.
See "THE FINANCING PLAN" herein.
Security and Sources of Repayment
The Bonds are secured under an Indenture, dated as of [August] 1, 2023, (the "Indenture"), by and among the Authority, the City and U.S. Bank Trust Company, National Association, Los Angeles, California, as trustee (the "Trustee") (see "APPENDIX A SUMMARY OF THE PRINCIPAL LEGAL DOCUMENTS" herein).
The Bonds are payable from the revenues pledged under the Indenture. Under the Indenture, "Revenues" includes all base rental payments (the "Base Rental Payments") to be made by the City to the Authority as the rental for real property and improvements thereon (the "Leased Property") pursuant to the Lease Agreement, and all other benefits, charges, income, proceeds, profits, receipts, rents and revenues derived by the Authority from the operation or use of the Leased Property, including interest or profits from the investment of money in any account or fund pursuant to the Indenture. The Bonds are also payable from net proceeds of insurance or condemnation awards with respect to the Leased Property. See "THE LEASED PROPERTY" herein.
Pursuant to a Site Lease, dated as of [August] 1, 2023 (the "Site Lease"), by and between the Authority and the City, the City has leased the Leased Property to the Authority. The Authority has leased the Leased Property back to the City under the Lease Agreement, dated as of [August] 1, 2023, by and between the City and the Authority (the "Lease Agreement"). The Base Rental Payments are to be made by the City pursuant to the Lease Agreement.
Under the Lease Agreement and, subject to abatement, the City is required to make the Base Rental Payments from legally available funds in amounts calculated to be sufficient to pay principal of and interest on the Bonds when due. The City has covenanted in the Lease Agreement to take such actions as may be necessary to include all Base Rental Payments in its annual budgets and to make the necessary annual appropriations for all such Base Rental Payments subject to complete or partial abatement of such Base Rental Payments resulting from a taking of the Leased Property (either in whole or in part) under the powers of eminent domain or resulting from damage or loss of all or any portion of the Leased Property. Pursuant to the Assignment Agreement between the Authority and the Trustee dated as of [August] 1, 2023 (the "Assignment Agreement") the Authority will grant, transfer and assign to the Trustee: (i) all the Authority's rights to receive the Base Rental Payments under and pursuant to the Lease Agreement, (ii) the right to take 2 4885-9887-4678.9
all actions under the Lease Agreement, (iii) the right of access more particularly described in the Lease Agreement, and (iv) any and all other rights and remedies of the Authority in the Lease Agreement as lessor thereunder, provided that so long as no default in payment of Base Rental Payments under the Lease Agreement shall have occurred or be continuing, the Authority shall have and may exercise all rights of the Authority under the Lease Agreement other than the right to receive the Base Rental Payments.
For a summary of the Indenture, the Lease Agreement and the Site Lease, see "APPENDIX A — SUMMARY OF THE PRINCIPAL LEGAL DOCUMENTS" herein. Certain capitalized terms used in this Official Statement and not otherwise defined have the meanings given them in "APPENDIX A." In general, the City is required under the Lease Agreement to pay to the Authority specified amounts for use and possession of the Leased Property which amounts are calculated to be sufficient in both time and amount to pay, when due, the principal of and interest on the Bonds. The City is also required to pay any taxes and assessments levied on the Leased Property and all costs of maintenance and repair of the Leased Property. Except for the Authority's right, title and interest in and to the Base Rental Payments and otherwise to the Lease Agreement which have been assigned to the Trustee, no funds or properties of the Authority or the City are pledged to or otherwise liable for the Bonds or any other obligations of the Authority (see "RISK FACTORS" herein).
Limited Obligation
THE BONDS ARE SPECIAL OBLIGATIONS OF THE AUTHORITY, PAYABLE SOLELY FROM REVENUES AND THE OTHER ASSETS PLEDGED THEREFOR UNDER THE INDENTURE.
NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE AUTHORITY, THE CITY OR THE STATE OF CALIFORNIA ("STATE"), OR ANY POLITICAL SUBDIVISION THEREOF, IS PLEDGED TO THE PAYMENT OF THE BONDS. THE AUTHORITY HAS NO TAXING POWER.
THE OBLIGATION OF THE CITY TO PAY BASE RENTAL PAYMENTS AND ADDITIONAL
PAYMENTS DOES NOT CONSTITUTE AN OBLIGATION FOR WHICH THE CITY IS OBLIGATED
TO LEVY OR PLEDGE ANY FORM OF TAXATION OR FOR WHICH THE CITY HAS PLEDGED ANY FORM OF TAXATION. THE BONDS AND THE OBLIGATION OF THE CITY TO PAY BASE
RENTAL PAYMENTS AND ADDITIONAL PAYMENTS DOES NOT CONSTITUTE A DEBT OF
THE CITY, THE STATE OR OF ANY POLITICAL SUBDIVISION THEREOF WITHIN THE MEANING OF ANY CONSTITUTIONAL OR STATUTORY DEBT LIMITATION OR RESTRICTION. [THE SCHEDULED PAYMENT OF PRINCIPAL AND INTEREST ON A PORTION, OR ALL, OF THE
BONDS (SUCH MATURITIES INSURED TO BE SPECIFIED IN THE FINAL OFFICIAL
STATEMENT) WHEN DUE WILL BE GUARANTEED UNDER MUNICIPAL BOND INSURANCE POLICIES (THE "POLICY") TO BE ISSUED CONCURRENTLY WITH THE DELIVERY OF THE BONDS BY [INSURER]. SEE "BOND INSURANCE" HEREIN.]
Legal Matters
All legal proceedings in connection with the issuance of the Bonds are subject to the approving opinion of Nixon Peabody LLP, Los Angeles, California, as Bond Counsel. Such opinion, and certain tax consequences incident to the ownership of the Bonds are described more fully under the heading "TAX MATTERS" herein. Certain legal matters will be passed on for the City and the Authority by Nixon Peabody LLP, Los Angeles, California as Disclosure Counsel, and by Jones & Mayer, Fullerton, California, as City Attorney and General Counsel to the Authority. Certain legal matters will be passed on for the Underwriter by its Counsel, Kutak Rock LLP, Irvine, California. 3 4885-9887-4678.9
Offering of the Bonds
Authority for Issuance and Delivery. The Bonds are to be issued in accordance with applicable provisions of the California Government Code, the Indenture and by Resolution PPFA-2023- of the Authority adopted on [July 25], 2023.
Offering and Delivery of the Bonds. The Bonds are offered, when, as and if issued, subject to the approval as to their legality by Nixon Peabody LLP, Los Angeles, California, Bond Counsel. It is anticipated that the Bonds, in book -entry form, will be available for delivery on or about [August —], 2023 through the facilities of The Depository Trust Company ("DTC"). See "APPENDIX E — THE BOOK -ENTRY SYSTEM."
Summaries Not Definitive
The summaries and references contained herein with respect to the Indenture, the Site Lease, the Lease Agreement, the Assignment Agreement, the Bonds and other statutes or documents do not purport to be comprehensive or definitive and are qualified by reference to each such document or statute, and references to the Bonds are qualified in their entirety by reference to the form thereof included in the Indenture. Copies of these documents may be obtained after delivery of the Bonds at the trust office of the Trustee, U.S. Bank Trust Company National Association, Los Angeles, California or from the City at 401 East Chapman Avenue, Placentia, California 92870.
THE FINANCING PLAN
The proceeds of the Bonds are expected to be used to finance, along with other available funds of the City, the construction and equipping of a public safety center to be located on the City owned site at 2999 E. La Jolla Street, Anaheim, CA 92806. The public safety center is expected to comprise of a two-story, 18,805 square foot building with a ground -level indoor shooting range and an engineered prefabricated building to house property and evidence collected by the City's police department. A new 911 emergency communications center will be constructed on the second floor of the building. The building will also include a training/conference center, staff office space and outdoor storage units for City departments.
The public safety center is expected to be completed in the summer of 2024 and the total project cost is estimated to be $[20,555,017]. In addition to proceeds from the Bonds, the City expects to contribute $[11,130,000] for the construction of the public safety center. See "— Estimated Sources and Uses of Funds."
4 4885-9887-4678.9
Estimated Sources and Uses of Funds
Under the provisions of the Indenture, the Trustee will receive the proceeds from the sale of the Bonds and will apply them as follows:
Sources:
Principal Amount of Bonds
Plus/Less Original Issue Premium/Discount
Total Sources
Uses:
Construction Fund
Costs of Issuance Fund(')
Total
$
(1) Expenses include Underwriter's Discount and fees and expenses of Bond Counsel, Municipal Advisor, the City Attorney, Disclosure Counsel and Trustee, [premium for the Policy and the Reserve Policy], rating fees, costs of printing the Official Statement, title insurance and other costs of issuance of the Bonds.
THE LEASED PROPERTY
The Leased Property consists of (i) the City's corporate yard of approximately eleven acres, consisting of the main administrative building, a service garage, storage facilities, fuel dispensing station and miscellaneous appurtenant improvements, and (ii) the City Hall, which consists of a single story, concrete building of approximately 38,000 square feet located on a 3.7 acre site. The City Hall was built in 1974 and houses the main administrative functions of the City, as well as the City's police department. It is part of the City's Civic Center complex which includes the City' library. Upon completion of the public safety center and the issuance of a certificate of occupancy, the Leased Property will consist solely of the public safety center and the site on which the public safety center is located, which is within the City's corporate yard.
The City has estimated the value of the Leased Property prior to the completion of the public safety center, excluding all improvements, to be not less than $[ ], based upon the highest and best use value of such Property. A copy of the valuation and supporting documentation is on file with the City's Director of Finance. The estimated value of the Leased Property upon the completion of the public safety center is expected to be $
The Leased Property is not subject to a mortgage or a deed of trust.
The City, with the assistance of Kosmont Realty, a real estate advisory services company, has determined the estimated value of the Leased Property shown above. Pursuant to the Lease Agreement, the City and the Authority will agree and determine that the Base Rental Payments required to be made under the Lease Agreement represents the fair rental value of the Leased Property. The estimated values are provided for informational purposes only. The Leased Property will not be subject to a deed of trust securing the Base Rental Payments and the Trustee has no remedy of foreclosure relating to the Leased Property, although the Authority may repossess and relet the Leased Property upon an event of default under the terms of the Lease Agreement. See "RISK FACTORS — Limited Recourse on Default; No Acceleration" herein. 5 4885-9887-4678.9
As described in "RISK FACTORS Limited Recourse on Default; No Acceleration," the Lease Agreement permits the Trustee to take possession of and release the Leased Property in the event of a default by the City under the Lease.
Substitution or Removal of Property. Under the terms of the Lease Agreement, the City may substitute other real property and/or improvements for existing Leased Property and/or remove real property (including undivided interests therein) and/or improvements from the definition of the Leased Property, or any portion thereof provided that certain conditions set forth in the Lease Agreement are met. See "APPENDIX A — SUMMARY OF THE PRINCIPAL LEGAL DOCUMENTS THE LEASED PROPERTY — Substitution or Removal of Leased Property."
THE BONDS
General Provisions
The Bonds shall be issued in fully registered form without coupons in denominations of $5,000 or any integral multiple thereof. The Bonds shall bear interest from their date of delivery and such interest shall be computed on the basis of a 360 -day year of twelve 30 -day months. Interest on the Bonds will be paid semiannually on [June] 1 and [December] 1 (each, an "Interest Payment Date") of each year, commencing [December 1, 2023].
The interest on the Bonds will be paid in lawful money of the United States. The interest on the Bonds shall be payable on each Interest Payment Date by check sent by first class mail by the Trustee to the Owners of the Bonds as of the Record Date for such Interest Payment Date at their addresses shown on the books required to be kept by the Trustee pursuant to the provisions of the Indenture. The principal and premium, if any, of the Bonds shall be payable upon presentation and surrender thereof on maturity or on redemption prior thereto at the Principal Corporate Trust Office of the Trustee. The term "Record Date," as defined in the Indenture, means the close of business on the 15th day of the month preceding any Interest Payment Date, whether or not such day is a Business Day.
The Owner of $1,000,000 or more in aggregate principal amount of the Bonds may request in writing that the Trustee pay the interest on the Bonds by wire transfer to an account in the United States of America and the Trustee shall comply with such request for all Interest Payment Dates following the 15th day after receipt of such request.
Book -Entry System. DTC will act as securities depository for the Bonds. The Bonds will be issued as fully registered securities registered in the name of Cede & Co. as nominee for DTC or such other name as may be requested by an authorized representative of DTC. Interest on and principal of the Bonds will be payable when due by wire of the Trustee to DTC which will in turn remit such interest and principal to participants in DTC's book -entry only system, which will in turn remit such interest and principal to Beneficial Owners (as defined herein) of the Bonds (see "APPENDIX E — THE BOOK -ENTRY SYSTEM" herein). As long as DTC is the registered owner of the Bonds and DTC's book -entry method is used for the Bonds, the Trustee will send any notices to Bond Owners only to DTC.
Redemption
Optional Redemption. The Bonds maturing on or after [June] 1, 20_ are subject to optional redemption prior to maturity on or after [June] 1, 20 at the option of the City, in whole, or in part, on any date, at a redemption price equal to the principal amount of the Bonds to be redeemed, plus accrued but unpaid interest to the redemption date, without premium.
6 4885-9887-4678.9
Mandatory Sinking Fund Redemption. The Bonds maturing on [June] 1, 20 and [June] 1, 20 (the "Term Bonds") are subject to mandatory redemption on [June] 1 in each year shown below until maturity, from Mandatory Sinking Account Payments (as defined in the Indenture) made by the Authority, at a redemption price equal to the principal amount thereof to be redeemed together with accrued interest thereon to the redemption date, without premium, in the aggregate respective principal amounts and on the respective dates as set forth in the following tables; provided, however, that in lieu of redemption thereof, such Term Bonds may be purchased by the Authority and tendered to the Trustee.
Term Bonds Maturing on [June] 1, 20_
Sinking Fund
Redemption Date
([June] 1)
* Maturity.
Principal Amount to be
Redeemed or Purchased
Term Bonds Maturing on [June] 1, 20_
Sinking Fund
Redemption Date
([June] 1)
* Final maturity.
Principal Amount to be
Redeemed or Purchased
If some but not all of the Term Bonds have been redeemed pursuant to extraordinary or optional redemptions, the total amount of Mandatory Sinking Account Payments to be made subsequent to such redemption shall be reduced in an amount equal to the principal amount of the Term Bonds so redeemed by reducing each such future Mandatory Sinking Account Payment on a pro rata basis (as nearly as practicable) in integral multiples of $5,000, as shall be designated pursuant to written notice filed by Authority with the Trustee.
Extraordinary Redemption From Condemnation Award or Insurance Proceeds. To the extent permitted or required by the Indenture, the Bonds are subject to redemption on any date prior to their respective maturity dates, as a whole, or in part, at the written direction of the City, from the net proceeds of any insurance or condemnation award with respect to the Leased Property or portions thereof, at a redemption price equal to the principal amount of the Bonds plus accrued interest thereon to the date fixed for redemption, without premium.
Notice of Redemption; Rescission. Notice of redemption shall be mailed by first class mail by the Trustee, on behalf and at the expense of the City, not less than 30 nor more than 60 days prior to the redemption date to the respective Owners of Bonds designated for redemption at their addresses appearing on the bond registration books of the Trustee and, unless otherwise instructed by the Authority, provided by the Trustee to the Municipal Securities Rulemaking Board. Each notice of redemption shall state the date of such notice, 7 4885-9887-4678.9
the Bonds to be redeemed, the Series and date of issue of such Bonds, the redemption date, the redemption price, the place or places of redemption (including the name and appropriate address or addresses), the CUSIP number (if any) of the maturity or maturities, and, if less than all of any such maturity are to be redeemed, the distinctive certificate numbers of the Bonds of such maturity to be redeemed and, in the case of Bonds to be redeemed in part only, the respective portions of the principal amount thereof to be redeemed. Each such notice of optional redemption shall also state that such redemption may be rescinded by the City and that, unless such redemption is so rescinded, and provided that on said date funds are available for payment in full of the Bonds then called for redemption, on said date there will become due and payable on each of such Bonds the redemption price thereof or of said specified portion of the principal amount thereof in the case of a Bond to be redeemed in part only, together with interest accrued thereon to the redemption date, and that from and after such redemption date interest thereon shall cease to accrue, and shall require that such Bonds be then surrendered at the address or addresses of the Trustee specified in the redemption notice.
Failure by the Trustee to give notice of redemption pursuant to Indenture to any one or more of the information services or securities depositories, or the insufficiency of any such notice shall not affect the sufficiency of the proceedings for redemption. The failure of any Owner to receive any redemption notice mailed to such Owner and any defect in the notice so mailed shall not affect the sufficiency of the proceedings for redemption.
The City has the right to rescind any optional redemption by written notice to the Trustee on or prior to the date fixed for redemption. Any notice of redemption shall be canceled and annulled if for any reason funds are not available on the date fixed for redemption for the payment in full of the Bonds then called for redemption, and such cancellation shall not constitute an Event of Default under the Indenture. The Trustee shall mail notice of such rescission of redemption in the same manner as the original notice of redemption was sent.
Partial Redemption of Bonds. Whenever less than all the Outstanding Bonds maturing on any one date are called for redemption at any one time, the Trustee shall select the Bonds to be redeemed, from the Outstanding Bonds maturing on such date not previously selected for redemption, by lot in any manner which the Trustee deems appropriate.
Effect of Redemption. If notice of redemption has been duly given as set forth in the Indenture and moneys for the payment of the redemption price of the Bonds to be redeemed are held by the Trustee, then on the redemption date designated in such notice, the Bonds so called for redemption shall become payable at the redemption price specified in such notice; and from and after the date so designated interest on the Bonds so called for redemption shall cease to accrue, such Bonds shall cease to be entitled to any benefit or security under the Indenture and the Owners of such Bonds shall have no rights in respect thereof except to receive payment of the redemption price represented thereby. The Trustee shall, upon surrender for payment of any of the Bonds to be redeemed, pay such Bonds at the redemption price thereof. 8 4885-9887-4678.9
Scheduled Debt Service on the Bonds
The following is a schedule of Base Rental Payments and therefore the total scheduled debt service on the Bonds, assuming no early redemption of Bonds prior to maturity, except for mandatory sinking fund redemption.
Semi -Annual
Period Ending Principal Interest Total
Total
9 4885-9887-4678.9
Annual Total
No Additional Bonds
No additional bonds, notes or other indebtedness will be issued or incurred payable from the Revenues in whole or in part. However, the City may issue other obligations against its revenues in the future. See "RISK FACTORS — The Base Rental Payments."
[TO COME]
BOND INSURANCE
SOURCES OF PAYMENT FOR THE BONDS
Pledge of Revenues
Under the Indenture, the City will irrevocably pledge and transfer to the Trustee, for the benefit of the Owners, all of its right, title and interest in and to all amounts on deposit from time to time in the funds and accounts established under the Indenture, subject to the provisions thereof permitting the disbursement thereof for or to the purposes and on the conditions and terms set forth therein, and in and to the Revenues (as defined below), which shall be used for the punctual payment of the interest and principal of the Bonds.
The Revenues shall not be used for any other purpose while any of the Bonds remain Outstanding.
It is the intent of the parties to the Indenture that the Authority shall not have any right, title, in or to the Revenues. In the event, however, that it should be determined that the Authority has any right, title or interest in or to the Revenues, then the Authority irrevocably pledges and transfers to the Trustee, for the benefit of the Owners, all of such right, title and interest, which shall be used for the punctual payment of the interest and principal of the Bonds. These pledges shall constitute a first and exclusive lien on the funds established under the Indenture and the Revenues in accordance with the terms thereof.
Under the Indenture, "Revenues" includes all Base Rental Payments pursuant to the Lease Agreement, and all other benefits, charges, income, proceeds, profits, receipts, rents and revenues derived by the Authority from the operation or use of the Leased Property, including interest or profits from the investment of money in any account or fund pursuant to the Indenture. See "RISK FACTORS" and "APPENDIX A." The City will covenant in the Lease Agreement to take such action as may be necessary to include all Base Rental Payments and Additional Payments due under the Lease Agreement in its annual budgets and to make the necessary annual appropriations therefor, subject to abatement as provided in the Lease Agreement.
The Authority, pursuant to the Assignment Agreement, will unconditionally grant, transfer and assign to the Trustee without recourse (i) all its rights to receive the Base Rental Payments under and pursuant to the Lease Agreement, (ii) the right to take all actions under the Lease Agreement, (iii) the right of access more particularly described in the Lease Agreement, and (iv) any and all other rights and remedies of the Authority in the Lease Agreement as lessor thereunder; provided, that so long as no default in payment of Base Rental Payments under the Lease Agreement shall have occurred or be continuing, the Authority shall have and may exercise all rights of the Authority under the Lease Agreement other than the right to receive the Base Rental Payments (which rights to receive have been assigned to the Trustee). The City will pay Base Rental Payments directly to the Trustee, as assignee of the Authority. See " — Base Rental Payments" below.
THE BONDS ARE SPECIAL OBLIGATIONS OF THE AUTHORITY, PAYABLE SOLELY FROM REVENUES AND THE OTHER ASSETS PLEDGED THEREFOR UNDER THE INDENTURE.
NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE AUTHORITY, THE CITY 10 4885-9887-4678.9
OR THE STATE, OR ANY POLITICAL SUBDIVISION THEREOF, IS PLEDGED TO THE PAYMENT OF THE BONDS. THE AUTHORITY HAS NO TAXING POWER.
Base Rental Payments
The City will agree under the Lease Agreement to pay to the Trustee, as assignee of the Authority, the Base Rental Payments no later than the five days prior to each Interest Payment Date (the "Base Rental Payment Date") on which such Base Rental Payment is due. All Base Rental Payments received by the Trustee will be deposited by the Trustee in the Revenue Fund to be established under the Indenture (the "Revenue Fund"). Such payments of Base Rental Payments will be paid or payable by the City for and in consideration of the right of the use and possession of, and the continued quiet use and enjoyment of, the Leased Property.
Base Rental Payments for each 12 month period ending [June] 1 (each, a "Lease Year") or portion thereof during the term of the Lease Agreement shall constitute, together with the Additional Payments, the total amount due for such Lease Year or portion thereof and shall be paid or payable by the City for and in consideration of the right of the use and possession of, and the continued quiet use and enjoyment of, the Leased Property. Pursuant to the Indenture, on each Interest Payment Date, the Trustee will transfer amounts in the Revenue Fund as are necessary to provide for the payment of the interest on the Bonds and on each Principal Payment Date, the Trustee will transfer amounts in the Revenue Fund as are necessary to provide for the payment of principal of the Bonds.
The City will covenant in the Lease Agreement to take such action as may be necessary to include all Base Rental Payments and Additional Payments in its operating budget for each fiscal year and to make all necessary appropriations for such Base Rental Payments and Additional Payments, subject to abatement as provided in the Lease Agreement.
THE OBLIGATION OF THE CITY TO MAKE THE BASE RENTAL PAYMENTS AND TO PAY
ADDITIONAL PAYMENTS DOES NOT CONSTITUTE A DEBT OF THE CITY OR THE STATE OR
OF ANY POLITICAL SUBDIVISION THEREOF WITHIN THE MEANING OF ANY
CONSTITUTIONAL OR STATUTORY DEBT LIMIT OR RESTRICTION, AND DOES NOT
CONSTITUTE AN OBLIGATION FOR WHICH THE CITY IS OBLIGATED TO LEVY OR PLEDGE
ANY FORM OF TAXATION OR FOR WHICH THE CITY HAS LEVIED OR PLEDGED ANY FORM OF TAXATION.
Additional Payments
The Lease Agreement requires the City to pay to the Authority or the Trustee, as Additional Payments thereunder, in addition to the Base Rental Payments, such amounts as shall be required for the payment of all costs and expenses incurred in connection with the execution, performance or enforcement of the Lease Agreement or the assignment thereof, the Indenture, or the respective interests in the Leased Property and the lease of the Leased Property by the Authority to the City thereunder, including but not limited to all fees, costs and expenses and all administrative costs of the Authority relating to the Leased Property. Such fees and costs include, without limitation, salaries and wages of employees, overhead, insurance premiums, taxes and assessments (if any), expenses, compensation and indemnification of the Trustee (to the extent not paid or otherwise provided for out of the proceeds of the sale of the Bonds), fees of auditors, accountants, attorneys or engineers, insurance premiums, and all other reasonable and necessary administrative costs of the Authority or charges required to be paid by it to comply with the terms of the Bonds or the Indenture.
Additional Payments will be billed to the City by the appropriate party from time to time, together with a statement certifying that the amount billed has been incurred or paid for one or more of the items 11 4885-9887-4678.9
constituting Additional Payments, or that such amount is then so payable for such items. Amounts so billed shall be paid by the City within 60 days after receipt of a bill by the City for such amounts.
Abatement
Base Rental Payments and Additional Payments are paid by the City in each Lease Year or portion thereof for and in consideration of the right of the use and possession of, and the continued quiet use and enjoyment of, the Leased Property. During any period in which, by reason of material damage, destruction, title defect, or condemnation, there is substantial interference with the use and possession by the City of any portion of the Leased Property, Base Rental Payments due under the Lease Agreement with respect to the Leased Property shall be abated to the extent that the annual fair rental value of the portion of the Leased Property in respect of which there is no substantial interference is less than the annual Base Rental Payments, in which case rental payments shall be abated only by an amount equal to the difference.
In the event the City assigns, transfers or subleases any or all of the Leased Property or other rights under the Lease Agreement, as permitted by the Lease Agreement, for purposes of determining the annual fair rental value available to pay Base Rental Payments, annual fair rental value of the Leased Property shall first be allocated to the Lease Agreement. The City waives the benefits of California Civil Code Sections 1932(2) and 1933(4) and any and all other rights to terminate the Lease Agreement by virtue of any such interference and the Lease Agreement shall continue in full force and effect.
Abatement shall continue for the period commencing with the date of such damage, destruction, title defect or condemnation and ending with the substantial completion of the work of repair or replacement of the portions of the Leased Property so damaged, destroyed, defective or condemned.
Notwithstanding the foregoing, to the extent there are (a) amounts held by the Trustee in the Revenue Fund, (b) amounts received in respect of rental interruption insurance and (c) amounts, if any, otherwise legally available to the Trustee for payments in respect of the Bonds, Base Rental Payments and Additional Payments will not be abated as provided above but, rather, will be payable by the City as a special obligation payable solely from said funds and accounts.
Any abatement of rental payments pursuant to the Lease Agreement is not considered an Event of Default as defined in the Lease Agreement.
See "APPENDIX A — SUMMARY OF THE PRINCIPAL LEGAL DOCUMENTS — RENTAL PAYMENTS — Rental Abatement."
Insurance Relating to the Property
The Lease Agreement requires the City to maintain general public liability and property damage insurance on the Leased Property in an amount at least equal to the lesser of the replacement value of the insured buildings and the aggregate principal amount of the Base Rental Payments outstanding. Such insurance must, as nearly as practicable, cover loss or damage by all "special form" perils. Earthquake insurance will only be carried if available from reputable insurers at a reasonable cost as determined by the Finance Director of the City, therefore, damage from earthquakes may not be covered in future years. The City is also required to maintain rental interruption insurance covering loss of the use of any part of the Leased Property in an amount equal to the maximum Base Rental Payments due during any immediately succeeding 24 -month period. If required by applicable California law, the City shall carry worker's compensation insurance covering all employees on, in, near or about the Leased Property. The Lease Agreement also requires the City to insure title to the Leased Property in an amount not less than the initial principal amount of the Bonds.
12 4885-9887-4678.9
If prior to the termination of the term of the Lease Agreement (a) the Leased Property or any portion thereof is destroyed (in whole or in part) or is damaged by fire or other casualty; or (b) title to, or the temporary use of, the Leased Property or any portion thereof or the estate of the City or the Authority in the Leased Property or any portion thereof is defective or shall be taken under the exercise of the power of eminent domain by any governmental body or by any person or firm or Authority acting under governmental authority, then the City and the Authority will cause the net proceeds of any insurance claim or condemnation award to be applied to the prompt repair, restoration, modification, improvement or replacement of the damaged, destroyed, defective or condemned portion of the Leased Property, and any balance of the net proceeds remaining after such work has been completed shall be paid to the City; provided, that the City, at its option and provided the proceeds of insurance or condemnation award together with any other moneys then available for the purpose are at least sufficient to prepay the aggregate annual amounts of principal and interest components of the Base Rental Payments due under the Lease Agreement attributable to the portion of the Leased Property so destroyed, damaged, defective or condemned (determined by reference to the proportion which the annual fair rental value of the destroyed, damaged, defective or condemned portion thereof bears to the annual fair rental value of the Leased Property), may elect not to repair, reconstruct or replace the damaged, destroyed, defective or condemned portion of the Leased Property and thereupon shall cause said proceeds to be used for the redemption of Outstanding Bonds pursuant to the provisions of the Indenture (see "THE BONDS Redemption — Extraordinary Redemption From Condemnation Award or Insurance Proceeds"). Notwithstanding any other provision in the Lease Agreement, the City shall only prepay less than all of the principal component of the then - remaining Base Rental Payments if the annual fair rental value of the Leased Property after such damage, destruction, title defect or condemnation is at least equal to the aggregate annual amount of the principal and interest components of the Base Rental Payments not being prepaid.
In the event that the proceeds, if any, of said insurance or condemnation award are insufficient either to (i) repair, rebuild or replace the Leased Property so that the fair rental value of the Leased Property would be at least equal to the Base Rental Payments or (ii) to redeem all the Outstanding Bonds, both as provided in the preceding paragraph, then the City may, in its sole discretion, budget and appropriate an amount necessary to effect such repair, rebuilding or replacement or prepayment; provided that the failure of the City to so budget and/or appropriate shall not be a breach of or default under the Lease Agreement.
If there are not sufficient insurance proceeds to complete repair of the Leased Property, the Lease Payment schedule will be proportionally reduced in accordance with the Lease Agreement. Such reduced Lease Payments may not be sufficient to pay principal and interest with respect to the Bonds.
Such reduction would not constitute a default under either the Indenture or the Lease Agreement.
Substitution or Removal of Property
Under the terms of the Lease Agreement, the City may substitute other real property and/or improvements for existing Leased Property and/or remove real property (including undivided interests therein) and/or improvements from the definition of the Leased Property, or any portion thereof provided that certain conditions set forth in the Lease Agreement are met. See "APPENDIX A — SUMMARY OF THE PRINCIPAL LEGAL DOCUMENTS THE LEASED PROPERTY — Substitution or Removal of Leased Property."
Action on Default
If the City defaults on its obligations to make Base Rental Payments with respect to any of the Leased Property, the Trustee, as assignee of the Authority, shall have the option (i) without terminating the related Lease Agreement, to collect each installment of rent as it becomes due regardless of whether or not the City 13 4885-9887-4678.9
has abandoned such Leased Property, or to exercise any and all rights of re-entry upon and to release the Leased Property, or (ii) to terminate the related Lease Agreement and release such Leased Property. The City shall remain liable, if such Leased Property are not relet, to pay the full amount of the rent to the end of the term of the related Lease Agreement or, in the event that such Leased Property are relet, to pay any deficiency in rent that results therefrom. In the event of a default, there is no available remedy of acceleration of Base Rental Payments which have not become due and payable under the Lease Agreement.
The City will only be liable for Base Rental Payments on an annual basis, and the Trustee may be required to seek a separate judgment in each fiscal year for that fiscal year's defaulted Base Rental Payments. In the event that the Trustee elects to terminate the Lease Agreement, such Leased Property may be relet for the remaining term of the Lease Agreement.
It is uncertain what remedies will be practically available to the Trustee in the event of a default, and the enforcement of any remedies may prove both expensive and time-consuming Due to the nature of the Leased Property, no assurance can be given that the Trustee will be able to relet the Leased Property so as to provide rental income sufficient to make principal and interest payments on the Bonds in a timely manner, and the Trustee is not empowered to sell the Leased Property for the benefit of the Owners of the Bonds.
Any suit for money damages would be subject to limitations on legal remedies against cities in California, including a limitation on enforcement of judgments against funds needed to serve the public welfare and interest.
For a description of the events of default and permitted remedies of the Trustee (as assignee of the Authority) contained in the Lease Agreement and the Indenture, see "APPENDIX A — SUMMARY OF THE PRINCIPAL LEGAL DOCUMENTS — MAINTENANCE; TAXES; INSURANCE AND OTHER CHARGES Insurance."
Bond Insurance
[To Come]
Reserve Fund
A Reserve Fund will be established under the Indenture for the Bonds in an amount equal to the Reserve Requirement. The "Reserve Requirement" means as of any calculation date in a Bond Year, an amount equal to the least of (i) ten percent (1 0%) of the sale proceeds (within the meaning of section 148 of the Internal Revenue Code (the "Code")) of the Bonds, (ii) 1 25% of average annual debt service on the Bonds for that and every succeeding Bond Year, or (iii) Maximum Annual Debt Service, provided, however, the Reserve Requirement on any calculation date shall not be greater than the Reserve Requirement amount on the Closing Date. On the Closing Date, the Reserve Requirement has been calculated as $r 1.
The Indenture provides that the Authority may deposit a "Qualified Reserve Fund Credit Instrument" in the Reserve Fund to satisfy the Reserve Requirement (see "APPENDIX A — SUMMARY OF THE PRINCIPAL LEGAL DOCUMENTS — INDENTURE — DEFINITIONS."
Concurrently with the closing of the Bonds, the Trustee shall credit the Reserve Policy, a Qualified Reserve Fund Credit Instrument, in the amount of $r 1 to the Reserve Fund.
On or before each Interest Payment Date, the Trustee shall deposit in the Reserve Fund such amount as may be necessary to maintain a balance therein equal to the Reserve Requirement. No deposit shall be made in the Reserve Fund so long as there shall be on deposit therein an amount equal to the Reserve Requirement. The investments in the Reserve Fund will be valued at their initial cost and there is no requirement to value such investments at their market value or to add moneys to the Reserve Fund should 14 4885-9887-4678.9
the market value of the investments therein be at any time less than the Reserve Requirement. All moneys in the Reserve Fund (or available to be drawn from a Qualified Reserve Fund Credit Instrument as defined in the Indenture) shall be used and withdrawn by the Trustee solely for the purpose of replenishing the Interest Fund or the Principal Fund in such order, in the event of any deficiency at any time in either of such accounts, or for the purpose of paying the interest on or principal of or redemption premiums, if any, on the Bonds in the event that no other money of the Authority is lawfully available therefor. All moneys in the Reserve Fund (or available to be drawn from a Qualified Reserve Fund Credit Instrument) in excess of the Reserve Requirement will be applied as a credit against the next following Base Rental Payment or may be applied to the retirement of all Bonds then Outstanding as directed in a Request by the City.
In any case where the Reserve Fund is funded with a combination of cash and a Qualified Reserve Fund Credit Instrument, the Trustee shall deplete all cash balances before drawing on the Qualified Reserve Fund Credit Instrument. With regard to replenishment, any available moneys provided by the Authority or the City shall be used first to reinstate the Qualified Reserve Fund Credit Instrument and second, to replenish the cash in the Reserve Fund. In the event the Qualified Reserve Fund Credit Instrument is drawn upon, the Authority shall make payment of interest on amounts advanced under the Qualified Reserve Fund Credit Instrument after making any payments pursuant to this provision of the Indenture.
CITY OF PLACENTIA
General Information
The City of Placentia covers 6.7 square miles in northern Orange County. The City is 24 miles southeast of Los Angeles and 22 miles northeast of Long Beach. Placentia's proximity to the junction of the Riverside and Orange freeways provides easy access to all points of the region. The City is bordered by the neighboring communities of Brea, Fullerton, Anaheim and Yorba Linda.
General Organization
The City of Placentia is a charter city and was incorporated in 1926 and adopted a charter form of government in 1965. The City has a Council/ Administrator form of government. The City Council is composed of five members elected by district to four-year terms. The positions of City Clerk and City Treasurer are also elected positions. The City Council appoints the City Administrator who is responsible for the day-to-day administration of City business and the coordination of all departments of the City. The City Council also appoints the City Attorney. As of May 8, 2023, the City employed a staff of 168 full-time employees under the direction of the City Administrator and 7 elected or appointed positions. 15 4885-9887-4678.9
The current members of the City Council, the expiration dates of their terms and key administrative personnel are set forth below.
CITY COUNCIL
Council Member
Ward Smith, Mayor
Jeremy B. Yamaguchi, Mayor Pro Tem
Rhonda Shader, Councilmember
Chad P. Wanke, Councilmember
Kevin Kirwin, Councilmember
Term Expires
December 2024
December 2024
December 2024
December 2026
December 2026
CHIEF ADMINISTRATIVE PERSONNEL
Damien R. Arrula, City Administrator
Luis Estevez, Deputy City Administrator
Jennifer Lampman, Director of Finance
Christian L. Bettenhausen, City Attorney
Governmental Services
The City is a full service City including a Police Department, Fire & Life Safety Department, Public Works Department, Development Services Department and Community Services Department. The Public Works Department is responsible for engineering, street maintenance, building maintenance, vehicle maintenance and park maintenance. The Development Services Department is responsible for planning, building inspection and redevelopment. The Community Services Department is responsible for recreational activities, cultural events and public assistance. Fire services were previously contracted with the Orange County Fire Authority, but the City organized its own Fire & Life Safety Department to provide these services beginning July 1, 2020. Refuse collection is franchised to a private hauler.
Transportation
Highway 57, the Orange Freeway, passes through the City and provides a major north -south link to the surrounding area. Highway 91, the Riverside Freeway, provides access to southern Los Angeles County and the eastern communities of Riverside County.
In 2016, the Orange County Transportation Authority approved the funding and cooperative agreement for the construction of the newest Metrolink Station in Placentia. This station will be the 13th station serving the 91 Metrolink line, which runs from Los Angeles Union Station to downtown Riverside. The Placentia Metrolink station will be the closest station in proximity to the California State University at Fullerton campus and will provide passengers with an alternative to the Fullerton Metrolink station.
John Wayne -Orange County Airport is 14 miles south of the City, Los Angeles International Airport is approximately 36 miles to the west and Ontario International Airport is approximately 27 miles to the northeast.
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Population
The following table provides population growth for Placentia and Orange County between 2019 and 2023.
TABLE NO. 1
CHANGE IN POPULATION
PLACENTIA AND ORANGE COUNTY
2019 — 2023
Placentia Orange County
January 1 Percentage Percentage
Year Population Change Population Change
2019 51,871 3,185,378
2020 51,569 (0.58%) 3,180,491 (0.15%)
2021 51,488 (0.16) 3,167,783 (0.40)
2022 51,327 (0.31) 3,151,946 (0.50)
2023 52,507 2.30 3,137,164 (0.47)
Source: State of California, Department of Finance, "E-4 Population Estimates for Cities, Counties and the State, 2011-2020, with 2010 Census Benchmark" released May 7, 2021 and "E-4 Population Estimates for Cities, Counties and the State, 2021-2023, with 2020 Census Benchmark" released May 1, 2023.
Median Household Income
The most recent available median household income information for the City, the County and the United States is summarized in the following table.
TABLE NO. 2
MEDIAN HOUSEHOLD INCOME
CITY OF PLACENTIA, ORANGE COUNTY AND UNITED STATES
[2017 — 2022]
Year Placentia Orange County United States
2017 88,501 81,851 57,652
2018 89,690 85,398 60,293
2019 102,212 95,934 65,712
2020 100,707 94,441 64,994
2021 103,041 100,485 69,021
[2022] [ l [ l [ 1
Source: U.S. Census, American Community Survey.
17 4885-9887-4678.9
Employment and Industry
Civilian labor force, employment and unemployment statistics for the City, the County, the State and the nation for the years 2018 through 2022 are shown in the following table. As a result of the COVID-19 pandemic (referred to herein as "COVID-19" or "Pandemic"), unemployment rates increased from March 2020, with some recovery in 2021. Unemployment rates at the end of fiscal year 2021-22 have returned to pre -Pandemic levels at 3.2%, 3.2%, 4.2% and 3.6% for the City, County, State and Country, respectively.
Year
TABLE NO. 3
CIVILIAN LABOR FORCE, EMPLOYMENT AND UNEMPLOYMENT
ANNUAL AVERAGES
Civilian Unemployment
Labor Force Employment Unemployment Rate
2018
City of Placentia 25,800 25,000 800 3.0%
Orange County 1,616,144 1,568,273 47,871 3.0
California 19,289,500 18,469,900 819,600 4.2
United States 162,075,000 155,761,000 6,314,000 3.9
2019
City of Placentia 25,700 24,900 800 2.9%
Orange County 1,616,766 1,571,261 45,505 2.8
California 19,413,200 18,617,900 795,300 4.1
United States 163,539,000 157,538,000 6,001,000 3.7
2020
City of Placentia 25,100 22,800 2,200 8.8%
Orange County 1,566,866 1,426,971 139,895 8.9
California 18,971,600 17,047,600 1,924,000 10.1
United States 160,742,000 147,795,000 12,947,000 8.1
2021
City of Placentia 24,900 23,500 1,400 5.8%
Orange County 1,560,697 1,467,342 93,355 6.0
California 18,973,400 17,586,300 1,387,100 7.3
United States 161,204,000 152,581,000 8,623,000 5.3
2022
City of Placentia 25,500 24,700 800 3.2%
Orange County 1,590,882 1,540,561 50,321 3.2
California 19,252,000 18,440,900 811,100 4.2
United States 164,287,000 158,291,000 5,996,000 3.6
Note: The unemployment rate is calculated using unrounded data. Data may not add due to rounding.
Source: State of California Employment Development Department and United States Bureau of Labor Statistics.
The City is located in the Anaheim -Santa Ana -Irvine Metropolitan Division (the "Metropolitan Division").
Wage and salary workers by industry for each of the years 2018 through 2022 in the Metropolitan Division 18 4885-9887-4678.9
is presented in Table No. 4 below. The data below is shown annually for the month of July, and for 2020 and 2021, reflects the declines as a result of the Pandemic.
The industry sectors with the largest declines as a result of the shelter in place orders are Leisure and Hospitality, Manufacturing and Service Producing.
TABLE NO. 4
ANAHEIM -SANTA ANA -IRVINE METROPOLITAN DIVISION
WAGE AND SALARY WORKERS BY INDUSTRY'
(in thousands)
Industry
2018 2019 2020 2021 2022
Government 161.2 162.5 156.1 155.7 160.2
Other Services 51.4 52.0 44.1 47.5 52.7
Leisure and Hospitality 222.6 227.7 161.8 180.4 217.7
Private Education and Health Services 225.2 233.1 225.8 237.3 249.5 Professional and Business Services 317.3 328.4 309.2 321.7 332.5 Finance and Insurance 79.3 77.7 77.7 78.1 74.0
Transportation, Warehousing and Utilities 29.2 29.5 29.6 31.1 33.7 Service Producing
Retail Trade 152.6 150.6 137.6 143.4 146.0
Wholesale Trade 79.8 79.4 74.9 75.6 76.9
Manufacturing
Nondurable Goods 42.2 41.3 37.7 38.3 39.2
Durable Goods 118.6 118.8 112.4 111.4 116.1
Goods Producing
Construction 105.9 106.1 101.3 102.2 106.2
Mining and Logging .5 .5 .4 .4 .3
Total Nonfarm 1,651.8 1,673.4 1,530.8 1,585.9 1,670.0
Total Farm 2.0 1.9 1.9 2.0 1.6
Total (all industries) 1,653.8 1,675.3 1,532.7 1,587.9 1,671.5 (1) Annually, as of April 24, 2023.
Source: State of California Employment Development Department, Labor Market Information Division, "Industry Employment & Labor Force - by month March 2021 Benchmark." 19 4885-9887-4678.9
TABLE NO. 5
PRINCIPAL EMPLOYERS
The principal employers operating within the City and their respective number of employees as of June 30, 2022 are as follows:
Name of Company Employment
Placentia-Yorba Linda Unified School District 3,200
Blackburn Daewoo 500
Interface Rehab Overview 456
Placentia -Linda Hospital 435
Hartwell 375
Source: City of Placentia.
Commercial Activity
The following table compares taxable transactions by type of business for the City for the years 2017 through 2021.
TABLE NO. 6
TAXABLE TRANSACTIONS BY TYPE OF BUSINESS
(in thousands)
2017 - 2021
2017 2018 2019 2020 2021
Apparel Stores1 - - - $21,114
General Merchandise $7,178 $7,440 $ 7,649 $ 8,208 7,907 Food Stores 17,102 17,530 18,363 20,539 19,152
Eating and Drinking Places 85,373 83,083 87,912 77,897 101,361 Building Materials 60,664 68,803 74,767 69,616 89,608
Auto Dealers and Supplies 104,963 82,789 72,781 71,301 99,240 Service Stations 68,101 74,924 73,200 49,981 72,505
Other Retail Stores 74,578 75,597 76,411 65,702 62,668
All Other Outlets 234,501 245,115 268,067 269,831 278,458 Total $652,460 $655,281 $679,150 $633,075 $730,899
1 The category "Apparel Stores" was added in the fiscal year ending June 30, 2022 Annual Comprehensive Financial Report.
Source: City of Placentia Annual Comprehensive Financial Report for fiscal year ending June 30, 2022.
See "FINANCIAL INFORMATION - Local Taxes" herein for a further discussion of City sales tax.
Building Activity
The City issues building permits for new construction (both residential and commercial), remodels, additions, renovations and a variety of other improvements.
The following table provides the building permits issued by the City of Placentia for the five Fiscal Years 2017-18 through 2021-22.
20 4885-9887-4678.9
TABLE NO. 7
BUILDING ACTIVITY
2017-18 through 2021-22
Year Number of Permits Issued
2017-18 1,347
2018-19 1,263
2019-20 1,407
2020-21 1,346
2021-22 1,425
Source: City of Placentia Annual Comprehensive
Financial Report for fiscal year ending June 30,
2022.
FINANCIAL INFORMATION
Financial Policies
Budget- and Reserve -Related Policies. The City Council has adopted the following financial policies as a primary guide for the preparation of the City's annual budget:
• In order to comply with City Charter Section 1203, which requires submission of a proposed budget to the City Council at least 35 days prior to the first day of the fiscal year, the Director of Finance shall publish, by February of each year, a schedule of budget preparation activities, entitled "Budget Calendar for (year)".
• To ensure that future General Fund budgets promote fiscal sustainability:
- All General Fund budgets should be structurally balanced, such that ongoing revenues equal or exceed ongoing expenditures.
- The Contingency Reserve and one-time revenues should be used only for one-time expenditures. Ongoing expenditures should be funded only from ongoing revenues. - A mid -year budget review shall be conducted each year to verify projections and recommend adjustments as necessary so that the budget remains balanced. - Conservative budget planning shall be utilized to identify potential problems and solutions. - Careful, five- and ten-year budget projections shall also be developed and updated to keep the budget in check and to determine continued fiscal sustainability. • A General Fund Reserve Policy is established to maintain a stable revenue structure while providing for the orderly provision of services to the citizens of Placentia, and to assist with maintaining a positive credit rating and to meet seasonal cash flow shortfalls, economic downturns, or a local disaster. It shall be the policy of the City Council of the City of Placentia:
1. To establish a target of and build towards a minimum Contingency Reserve balance in the General Fund of 25% of the General Fund operating expenditures. The reserve goal shall 21 4885-9887-4678.9
be reviewed by the City Council at least once per year during the normal city budgeting cycle to determine if the reserve goal needs to be redefined. The City Council may also adjust the reserve goal as needed at times other than the budget cycle. Such a change, however, must be made as a regular agenda item and cannot be made as part of the consent calendar.
a. The Contingency Reserve Balance shall be available only as a temporary revenue source.
b. Any use of the Contingency Reserve Balance shall require the approval of the City Council by means of approved appropriations. Any such appropriation must be approved as a regular agenda item and not as part of the consent calendar. c. Whenever the Contingency Reserve Balance falls below the Reserve Goal, the City Council shall place a priority on restoring the Contingency Reserve Balance. d. If the City Council approves the use of any portion of the Contingency Reserve Balance which results in the Contingency Reserve Balance falling below the Reserve Goal level, the City Council shall approve at the same time a plan to replenish the Contingency Reserve Balance to the Reserve Goal within a reasonable time period. e. Each fiscal year as a part of the budget process, a multi-year proforma of the General Fund identifying the annual adjustment to the Contingency Reserve Balance shall be presented to members of the community for an independent citizen review and later presented to City Council. The pro forma forecast shall be for a period of no less than five (5) years beyond the current fiscal year being budgeted and the "Forecast" and shall form the basis of determining whether the expected level of General Fund's Contingency Reserve Balance satisfies the Reserve Goal for the entire duration of the Forecast.
2. To commit certain new unrestricted revenues to various reserves to be used for specific purposes.
New Ongoing Revenues:
a. "New Ongoing Revenues" are defined as a new general tax, an increase in the rate of an existing general tax, a new lease of City property or other new, clearly identifiable unrestricted revenue source not previously included in the City's budget at the time of adoption of this policy, which generates at least $100,000 per year in revenue and is expected to continue for at least a period of 20 years. b. Beginning in Fiscal Year 2023-24, revenues generated from New Ongoing Revenues will be allocated as follows, until such time as the General Fund Contingency Reserve reaches the 25% target level:
Reserve Amount
Infrastructure, Vehicles, and Equipment Reserve 40%
Post -Employment Benefits Sustainability 10%
Employee Recruitment and Retention Reserve 30%
General Fund Contingency Reserve 20%
22 4885-9887-4678.9
c. When the General Fund Contingency Reserve has reached its 25% target level, revenues generated from New Ongoing Revenues will be allocated as follows:
Reserve Amount
Infrastructure, Vehicles, and Equipment Reserve 50%
Post -Employment Benefits Sustainability 10%
Employee Recruitment and Retention Reserve 30%
General Fund Contingency Reserve 10%
d. New Ongoing Revenues deposited into the above reserve accounts may be appropriated for ongoing or one-time expenditures.
New One-time Revenues:
a. New One-time Revenues are defined as either: (1) unrestricted revenue from new one- time events (for example, property sales, etc.) of at least $100,000 (excluding recapturing of lost funds); (2) a new, clearly identifiable unrestricted revenue source of at least $100,000 per year and not previously included in the City's budget at the time of adoption of this policy, which is expected to continue for a period of less than 20 years; or (3) unanticipated positive General Fund budget variances of any amount (i.e., positive changes in General Fund financial position greater than final budgeted amounts).
b. Beginning in Fiscal Year 2018-19, revenues generated from New One-time Revenues will be allocated as follows, until such time as the General Fund Contingency Reserve reaches the 25% target level:
Reserve Amount
Infrastructure, Vehicles, and Equipment Reserve 40%
Post -Employment Benefits Sustainability 10%
General Fund Contingency Reserve 50%
c. When the General Fund Contingency Reserve has reached its 25% target level, revenues generated from New One-time Revenues will be allocated as follows:
Reserve Amount
Infrastructure, Vehicles, and Equipment Reserve 80%
Post -Employment Benefits Sustainability 20%
d. New One-time Revenues deposited into the above reserve accounts may only be spent on one-time expenditures.
Purpose of Reserves:
a. Infrastructure. Vehicles. and Equipment Reserve: This reserve will be utilized to fund capital improvement projects that improve public roads and adjacent rights-of-way infrastructure, parks and public facilities, and vehicle and major equipment replacement.
b. Post -Employment Benefits Sustainability Reserve: This reserve is for the purpose of making post -employment benefits (e.g., pension and retiree health benefits) 23 4885-9887-4678.9
sustainable, by setting aside funds to address unfunded liabilities, to reduce the impact of cost increases on the operating budget and to fund these programs based on sound actuarial methods.
c. Employee Recruitment and Retention Reserve: This reserve serves multiple purposes.
It is for the purpose of ensuring that City employees are compensated at levels comparable to employees in similar positions in cities similar to Placentia, to encourage employee retention and to stay competitive with other cities for hiring talented individuals. Part of employee retention is ensuring that the City is adequately staffed so this reserve may also be used to increase staffing levels based on the future growth of the City or to improve efficiency. This reserve may also be used to restore service levels for all City programs cut during the preparation of the 2018-19 budget, using the 2017-18 budget as a baseline.
Use of Reserves:
a. The City Administrator may request from the City Council the ability to utilize the reserves in this section for their specified purposes, as part of the annual budget process or at any other time during the fiscal year.
b. Any use of the reserves shall require the majority approval of the City Council by means of approved appropriations.
Accounting and Reporting of New Ongoing Revenues and Reserve Accounts:
a. New Ongoing Revenues and each reserve account shall be accounted for in separate funds for budgeting purposes.
b. Reports shall be prepared at the time of budget adoption, as part of the mid -year budget review and at fiscal year-end that demonstrate compliance with this policy and indicate the portions of each reserve account balance that can be spent on one-time expenditures and ongoing expenditures.
c. New Ongoing Revenues and New One-time Revenues shall be included as General Fund revenues, and all reserve accounts shall be reported as committed fund balances of the General Fund in the City's Annual Comprehensive Financial Report.
3. Any future bond covenants shall be written to be compliant with this General Fund Reserve Policy.
4. The City established an independent Citizens Oversight Committee (the "Committee") in connection with the voter -approval of 1% sales tax measure in 2018 which constitutes, a new ongoing revenue for purposes of the reserve policy described above. The Committee reviews and reports on all related expenditure plans and financial reports to ensure spending is consistent with reserve policy.
• Capital Improvement Program. The City's Capital Improvement Program ("CIP") document outlines project delivery timelines and funding schedules over a seven-year planning horizon.
As part of the planning process, budget -level cost estimates for capital improvements are identified, and projects are prioritized based on available funding sources and community needs. The City leverages outside funding sources such as Federal and State grant funds as well 24 4885-9887-4678.9
as other non -General Fund revenues to fund capital improvements to the greatest extent possible. Projects are re -prioritized and funded when these outside funds are made available for that purpose.
The CIP is reviewed yearly, during which time the City's needs are re -prioritized and the City's financial capacity to fund capital improvements are re-evaluated. Thus, the CIP is a dynamic planning tool that provides the City flexibility in how and when capital improvements and investments in the City's infrastructure are made. Its overall goal is to provide a thoughtful approach to preserving and enhancing the quality of life for the entire community The CIP priorities are segregated into the following components:
— Assure Safe Right of Way, Parks and Facilities
Preventative Maintenance and Facility Improvements
Replace or Upgrade Outdated or Inadequate Facilities or Equipment — Implement Master Planned Facilities or Upgrades
Future Projects
Debt and Liability -Related Policies. These Financial Policies include:
Debt Management Policy — The City Council formally established the City's Debt Management Policy on July 18, 2017. This policy includes guidelines for the issuance of debt, including the types of debt that may be issued, responsibilities for debt management activities, maintenance of appropriate internal controls, post issuance compliance, and other related issues.
Continuing Disclosure Compliance Policy — The City Council formally established the City's Continuing Disclosure Compliance Policy on October 20, 2020. This policy identifies the staff member of the City with the responsibility for reviewing all reporting requirements for all bond issues, being familiar with the listed events that require notice, and preparing and timely filing of reports and notices.
Other Financial Policies.
Investment Policy — The City's current Investment Policy was most recently approved on July 19, 2022. The Investment Policy imposes certain restrictions on the City's investment management that consistent with those authorized under State law.
Internal Control Policies — The City's internal control policies identify those with responsibility for ensuring the effectiveness of policies and procedures designed to implement internal controls.
These policies cover a range of financial operations including operations of City bank accounts, wire transfer of funds, credit card use, check stock storage and security, daily reconciliation for credit card terminals, cash handling procedures and a fictitious vendors policy.
Budgetary Process and Administration
The City prepares its budgets on the basis of estimated revenues and expenditures and, accordingly, the budget amounts included in the financial statements are presented on a basis substantially consistent with generally accepted accounting principles. Encumbrance accounting is utilized during the fiscal year, whereby purchase orders, contracts and other commitments are recorded in order to control appropriations.
However, at fiscal year-end, all appropriations lapse. Accordingly, encumbrances are canceled and generally are re -appropriated as part of the following year's budget. Encumbrances are not included in reported expenditures.
25 4885-9887-4678.9
Annual budgets are adopted for the General Fund, Special Revenue Funds, Debt Service Funds, and Capital Projects Funds. The City Council approves total budgeted appropriations and any amendments to appropriations throughout the year.
The Finance Director, upon approval of the City Administrator, may authorize transfers of funds from one object to another, within operating departments.
City Administrator approval is required for transfers from one department to another department within the same fund.
Comparative General Fund Revenues and Expenditures
The City's General Fund Budget includes programs which are provided on a largely city-wide basis. The programs and services are financed primarily by the City's share of property taxes, sales tax, and charges for services provided.
Budget and Actual Comparisons
The General Fund actual results for Fiscal Years 2019-20 and 2020-21 along with Fiscal Year 2021-22 Budget and actual results and the Fiscal Year 2022-23 Budget is shown in Table No. 8.
General Fund Revenues
The General Fund revenues in Table No. 8 that follows are categorized as:
• Taxes, detailed in "Table No. 13 - General Fund Tax Revenues by Source," include general property tax (including property tax in -lieu of motor vehicle license fees), sales tax, utility users' tax, transient occupancy tax, franchise tax (cable, gas, telephone), real property transfer tax and other taxes;
• Intergovernmental mainly consist of federal, State and local grants; • Licenses and Permits include building permits, business license permits, and plan check fees; • Fines and Forfeitures are derived from the collection of penalties for vehicle code violations, parking code violations and other administrative citations; • Investment earnings;
• Charges for Services are generally known as user fees that are charged for a variety of services provided to the general public, including plan checking, engineering, recreation fees, special police fees, and code enforcement fees;
• Leases and Rents include facilities rental and cell tower lease revenue as well as lease payments from the Successor Agency relating to the City's 2003 Certificates of Participation (which were refunded in 2022);
• Miscellaneous Revenues consist of revenues such as sale of property, collections from advertising, unclaimed money and contributions and donations; and 26 4885-9887-4678.9
• Transfers in, generally from the Gas Tax Fund, the Supplemental Law Enforcement Fund, Community Development Block Grant Fund and other funds to reimburse for qualifying expenditures in the General Fund.
The largest components of Fiscal Year 2022-23 General Fund budgeted revenues are property tax (40%), sales tax (19%), other revenues (18%), Measure U transfers into the General Fund (8%), utility users' tax (5%) and franchise fees (4%).
General Fund Expenditures
The General Fund expenditures in Table No. 8 that follows are categorized by governmental function. Each function generally includes salaries and benefits, materials and supplies, and contractual services.
Salaries and Benefits include direct personnel costs, benefits, health insurance costs and workers' compensation and unemployment insurance costs. Materials and supplies include non -personnel operating costs. Contractual services include contracts for professional and general services.
Public safety expenditures represent approximately 43% of the total budgeted General Fund budgeted expenditures for Fiscal Year 2022-23. The City established its Fire & Life Safety Department in Fiscal Year 2020-21. The depai tment provides 24-hour emergency response to a wide variety of critical situations, including fires, medical emergencies, accidents, and miscellaneous public assistance requests. The City eliminated its contract for such services with the Orange County Fire Authority ("Fire Authority") as of July 1, 2020 and the City has enjoyed significant savings as a result. There were some overlapping costs in Fiscal Year 2019-20 in preparation for transfer of services. 27 4885-9887-4678.9
TABLE NO. 8
GENERAL FUND REVENUES AND EXPENDITURES
FOR FISCAL YEAR ENDING JUNE 30
Budget Budget Budget
2022 2022 2023 2024
Revenues:
Taxes $34,168,100 $41,621,461 $37,191,624 $35,848,523
Intergovernmental 265,000 952,389 1,140,000 312,000
Licenses and permits 874,900 2,440,102 2,455,000 2,802,000 Fines and forfeitures 444,200 503,302 355,000 452,500
Investment earnings (losses) - (323,152) - -
Charges for services 1,278,200 1,263,215 1,305,400 1,514,000 Leases and rents - 1,422,831 - -
Contributions - - - -
Miscellaneous 2,285,700 785,684 1,920,200 2,454,000
Total revenues
39,316,100 48,665,832 44,367,224 43,383,023
Expenditures:
Current:
General government 11,991,300 12,055,475 13,534,021 14,531,090 Public safety 16,081,300 15,441,982 16,883,593 18,116,117 Public works 4,158,300 3,514,281 4,449,440 4,795,070
Community development 1,351,000 1,482,732 1,835,200 1,571,100 Community services 2,357,100 2,289,940 2,646,380 2,947,452 Capital outlay 529,400 5,034,753 863,746 4,264,280
Debt service 5,177,100 2,271,085 5,179,250 6,021,200
Total expenditures 41,645,500 42,090,248 45,391,630 52,246,309 Revenues over (under) expenditures (2,329,400) 6,575,584 (1,024,406) (8,863,286) Other Financing Sources (Uses):
Transfers in 3,746,300 102,947 1,115,744 6,418,395
Transfers out (53,000) (3,444,522) (37,500) (36,214)
Proceeds from sale of property - -
Proceeds from capital lease -
Issuance of Debt - 2,189,027 - -
Payment to Refunding Bond Escrow Agent (2,069,027) -
Total other financing sources (uses) 3,693,300 (3,221,575) 1,078,244 6,382,181 Net change in fund balances 1,363,900 3,354,009 53,838 (2,481,105) Fund balances:
Beginning of year 16,929,162 20,230,471 20,445,146 21,425,994 End of year 18,293,062 23,584,480 20,498,984 18,944,889 Fund balances:
Nonspendable 2,209,112 2,521,767 3,262,084 2,128,711
Restricted 522,982 2,024 556,084 -
Committed 6,499,328 - -
Unassigned (deficit) 9,061,639 21,060,689 6,849,833 16,816,178 Total $18,293,062 $23,584,480 $20,498,984 $18,944,889
Source: City of Placentia.
Ad Valorem Property Taxes
Taxes are levied for each fiscal year on taxable real and personal property which is situated in the City as of the preceding January 1. For assessment and collection purposes, property is classified either as "secured" or "unsecured," and is listed accordingly on separate parts of the assessment roll. The "secured roll" is that part of the assessment roll containing State assessed property and real property having a tax lien which is sufficient, in the opinion of the assessor, to secure payment of the taxes. Other property is assessed on the "unsecured roll."
28 4885-9887-4678.9
Property taxes on the secured roll are due in two installments, on November 1 and February 1 of the fiscal year. If unpaid, such taxes become delinquent on December 10 and April 10, respectively, and a 10% penalty attaches to any delinquent payment in addition to a $20 cost on the second installment. On July 1 of each fiscal year any property which is delinquent will become defaulted. Such property may thereafter be redeemed by payment of the delinquent taxes and the delinquency penalty, plus a redemption penalty of 11/2% per month to the time of redemption, together with any other charges permitted by law. If taxes are unpaid for a period of five years or more, the property is subject to sale by the County Tax Collector. The exclusive means of enforcing the payment of delinquent taxes with respect to property on the secured roll is the sale of the property securing the taxes for the amount of taxes which are delinquent.
Property taxes on the unsecured roll become delinquent, if unpaid on August 31. A 10% penalty attaches to delinquent taxes on property on the unsecured roll, and an additional penalty of 11/2% per month begins to accrue on November 1 of the fiscal year. The County has four ways of collecting delinquent unsecured personal property taxes: (1) a civil action against the taxpayer; (2) filing a certificate in the office of the County Clerk specifying certain facts in order to obtain a judgment lien on certain property of the taxpayer; (3) filing a certificate of delinquency for record in the County Recorder's Office, in order to obtain a lien on certain property of the taxpayer; and (4) seizure and sale of personal property, improvements or possessory interests belonging or assessed to the assessee.
Taxable Property and Assessed Valuation. Set forth in Table No. 9 are historical assessed valuations for taxable property within the City. Article XIIIA of the California Constitution prescribes the method for determining the full cash value of real property and the maximum ad valorem tax on real property. The full cash value, once established, is subject to annual adjustment to reflect inflation at a rate not to exceed 2% or a reduction in the California Consumer Price Index. There may also be declines in valuations if the California Consumer Price Index is negative.
Proposition 8 provides for the assessment of real property at the lesser of its originally determined (base year) full cash value compounded annually by the inflation factor, or its full cash value as of the lien date, taking into account reductions in value due to damage, destruction, obsolescence or other factors causing a decline in market value. Reductions based on Proposition 8 do not establish new base year values, and the property may be reassessed as of the following lien date up to the lower of the then -current fair market value or the factored base year value. The City experienced a small Proposition 8 reduction in property values at the start of the recession in 2008. Assessed value remained level for a period and pre -recession assessed value was achieved by 2012. Assessed values have continued to increase each year thereafter. See "RISK FACTORS — Constitutional Limitation on Taxes and Expenditures — Article XIIIA" and "— Proposition 8 Adjustments" herein.
29 4885-9887-4678.9
TABLE NO. 9
GROSS ASSESSED VALUE OF ALL TAXABLE PROPERTY
(in thousands)
Fiscal Year Assessed Value % Change
2013-14 $5,206,770
2014-15 5,515,584 5.9%
2015-16 5,877,006 6.6%
2016-17 6,135,107 4.4%
2017-18 6,443,173 5.0%
2018-19 6,775,240 5.2%
2019-20 7,053,115 4.2%
2020-21 7,352,050 4.2%
2021-22 7,561,131 2.8%
2022-23 8,129,792 7.5%
Source: City of Placentia
Proposition 19. Voters in November 2020 approved a Statewide ballot ("Proposition 19") that amends Article XIIIA to: (i) expand special rules that give property tax savings to homeowners who are over the age of 55, severely disabled, or whose property has been impacted by wildfire or natural disaster, when they buy a different home; (ii) narrow existing special rules for inherited properties; and (iii) dedicate most of the potential new State revenue generated from Proposition 19 toward fire protection. The City is unable to predict how it would affect the relationship of the assessed value between land use types (i.e., residential versus commercial) in the City in future years or what other impacts Proposition 19 might have on the local economy or the City's financial condition in future years.
Largest Taxpayers. The principal property taxpayers for Fiscal Year 2021-22 are as shown in Table No.
10. The City does not anticipate any material changes to this list for Fiscal Year 2022-23. 30 4885-9887-4678.9
TABLE NO. 10
LARGEST PROPERTY TAXPAYERS
FOR FISCAL YEAR ENDING JUNE 30, 2022
(in thousands)
Assessed Percent
Taxpayer Valuation of Total
Fairfield Placentia Place LLC $112,754 1.49%
Placentia 422 60,612 .80
Villa Angelina Apartment Fund LTD 57,955 .77
MG Union Place Apartments LLC 47,445 .63
Placentia -Linda Hospital Inc. 40,374 .53
Sedona-Placentia Owner LLC 39,650 .52
NMC Placentia LLC 37,553 .50
Reef Imperial Rose Inc. 31,639 .42
Donahue Schriber Realty Group 29,428 .39
Arlon Graphics LLC 28,897 .38
Total $486,307 6.43%
Source: City of Placentia Annual Comprehensive Financial Report for fiscal year ending June 30, 2022.
Property Tax Collections. Property tax levies and collections for the City for the last five fiscal years are set forth in Table No. 11. The amount of the levy of property tax revenue that can be allocated to the City depends upon the actual collections of taxes within the City. Substantial delinquencies in the payment of property taxes could impair the timely receipt by the City of property tax revenues.
TABLE NO. 11
SECURED TAX LEVIES AND COLLECTIONS
Collections within the
Fiscal Year Total Fiscal Year of the Levy
Ended Tax Levy for Percentage
June 30 Fiscal Year Amount of Levy
2018 $13,471,679 $13,421,607 99.63%
2019 14,144,498 14,244,954 100.71%
2020 14,623,234 14,675,128 100.35%
2021 15,211,067 15,384,500 101.14%
2022 15,734,335 15,777,022 100.27
Source: City of Placentia Annual Comprehensive Financial Report for fiscal year ending June 30, 2022.
Redevelopment - Related Property Tax Considerations. The California Redevelopment Law (Part 1 of Division 24 of the Health and Safety Code of the State) authorized the redevelopment agency of any city or county to receive an allocation of tax revenues resulting from increases in assessed values of properties within designated redevelopment project areas (the "incremental value") occurring after the year the project area was formed. In effect, local taxing authorities, such as the City, realized tax revenues only on the assessed value of such property at the time the redevelopment project was created for the duration of such redevelopment project. Although Assembly Bill No. 26 ("AB X1 26"), enacted on June 29, 2011 as Chapter 31 4885-9887-4678.9
5 of Statutes of 2011, statutorily dissolved redevelopment agencies as of February 1, 2012, the enforceable obligations of dissolved redevelopment agencies continue to be paid from property taxes derived from such incremental value until the enforceable obligations are paid in full in accordance with Parts 1.8 (commencing with Section 34161) and 1.85 (commencing with Section 34170) of Division 24 of the California Health and Safety Code (as such statutory provisions may be amended from time to time the "Dissolution Act").
Under the Dissolution Act, taxing entities within redevelopment projects, such as the City, are to receive distributions (in proportion to such taxing entity's share of property tax revenues in the tax rate area for the applicable fiscal year) of residual amounts of property taxes attributable to incremental value of the redevelopment projects on each June 1 and January 2, after payment of: (i) tax sharing obligations established previously pursuant to the Community Redevelopment Law, (ii) enforceable obligations of the successor agency to the former redevelopment agency, and (iii) an administrative cost allowance to such successor agency. As enforceable obligations of the former redevelopment agency and its successor agency are paid and retired, residual amounts of property tax revenues attributable to redevelopment project area incremental value are expected to increase over time.
The table below summarizes the distributions received by the City of its share of residual amounts of property taxes derived from its redevelopment project from Fiscal Year 2016-17 to 2021-22. These amounts are included in property tax revenues in Table No. 13.
TABLE NO. 12
CITY SHARE OF RESIDUAL PROPERTY TAXES
Fiscal Year Residual Property Taxes
2016-17 $154,678
2017-18 15,889
2018-19 188,399
2019-20 119,858
2020-21 208,716
2021-22 171,153
Source: Orange County Auditor -Controller.
Enhanced Infrastructure Financing District. The City formed its Enhanced Infrastructure Financing District ("EIFD") in 2019 in partnership with the County. The EIFD boundaries encompass just over 300 acres of land, representing approximately 7% of the City. The EIFD includes the City's Old Town Placentia Revitalization Plan area, the proposed Metrolink station and the City's Transit -oriented Development Packing House District. Similar to the former redevelopment tax allocation process, the EIFD will receive an allocation of the City's share and the County's share of tax revenues resulting from increases in assessed values of properties within the EIFD (the "incremental value") occurring after the year the EIFD is formed.
The City limited the contribution to the EIFD to approximately 50% of the City's incremental property tax revenues generated in the EIFD. The City's General Fund will receive the remaining approximate 50% of incremental property tax revenues generated by incremental value of property in the EIFD. The County has also limited its contribution to the EIFD to approximately 50% of the County's incremental property tax revenues generated in the EIFD. The majority of new development in the City is expected to occur in the EIFD. [Discuss proposed amendment to EIFDI
Property Taxes in Lieu of Motor Vehicle License Fees. The motor vehicle license fee ("VLF") is an annual fee on the ownership of a registered vehicle in California. The City received a portion of VLF collected state-wide, until State budget changes altered the payment from a distribution of VLF to a payment 32 4885-9887-4678.9
of property taxes in lieu of VLF. The total amount budgeted for Fiscal Year 2022-23 is approximately $6.0 million and is shown in Table No. 13 as "Property tax in lieu of VLF." Local Taxes
In addition to ad valorem taxes on real property, the City receives the following non -real estate local taxes (see "RISK FACTORS — Constitutional Limitation on Taxes and Expenditures — Proposition 218" herein):
Sales and Use Taxes. Sales tax is collected and distributed by the California Department of Tax and Fee Administration ("CDTFA" - formerly the State Board of Equalization). Each local jurisdiction receives an amount equal to 1% of taxable sales within their jurisdiction.
Measure U. On November 6, 2018, voters in the City approved "Measure U," the levy of an additional 1% sales tax, commencing April 1, 2019.
Pronosition 172. The City also receives a portion of a permanent statewide 1/2 cent sales tax approved by voters in 1993 by Proposition 172. Sales tax generated by this increase is recorded in the General Fund and used to offset certain expenses for public safety. These amounts are included in the sales tax revenues shown in Table No. 13.
Utility Users' Tax. The City levies a utility users' tax, which was approved by voters in 1970 and is restricted for capital equipment replacement, special capital projects or general City operations support. A current tax rate of 3.5% applies to electricity, water, and gas services. Until 2018, these revenues were recorded in a separate Utility Users' Tax Fund and transferred during the year to the General Fund.
Beginning in 2019, these revenues are recorded in the General Fund.
Franchise Taxes. The City levies franchise fees on its utility, trash collection and cable television franchises by agreement.
Transient Occupancy Tax. The City levies a transient occupancy tax on hotel and motel bills. The City's current transient occupancy tax ordinance provides for a rate of 10%. The rate was last modified by ordinance adopted in 1985.
Property Transfer Tax. This is the documentary stamp tax which is assessed for recordation of real property transfers.
There is no time limit established for the collection of the utility users' tax, Measure U sales tax, franchise tax, or transient occupancy tax. See "RISK FACTORS — Constitutional Limitation on Taxes and Expenditures - Proposition 218" herein.
Business License Tax. Business license tax is collected based on gross receipts. The business license tax is approximately $1.02 million in Fiscal Year 2021-22. The City includes business license tax in "Licenses and Permits" for the purposes of its audited financial statements, and such amounts are not included in Table No. 13.
A history of actual tax revenue by source are shown for Fiscal Years 2017-18 through 2021-22, together with the budget for Fiscal Year 2022-23 and 2023-24 in Table No. 13. 33 4885-9887-4678.9
General Property Tax
Property Tax in Lieu of VLF
Total Property Tax
Sales Tax
Sales Tax -Measure U
Transient Occupancy Tax
Utility User Tax
Franchise Tax
Property Transfer Tax
Other Taxes
Total
TABLE NO. 13
GENERAL FUND TAX REVENUES BY SOURCE
Actual Budget Budget
2018 2019 2020 2021 2022 2023 2024
$ 9,709,857 $10,389,889 $10,666,292 $11,218,098 $11,843,166 $12,365,432 $13,183,023 4,813,706 5,087,698 5,314,516 5,534,014 5,708,260 6,072,651 6,395,000 14,523, 563 15,477,587 15,980, 808 16,752,112 17,191,426 18,43 8,083 19,578,023 6,948,279 6,757,698 6,861,920 7,409,742 8,491,412 8,975,000 9,175,000 1,426,966 6,278,995 7,702,915 8,756,568 8,850,000 9,200,000 968,396 961,796 767,421 674,854 1,385,271 1,425,000 1,475,000 2,544,637 2,461,438 2,362,270 2,502,705 2,689,314 2,550,000 2,550,000 2,270,265 2,340,329 2,650,604 2,709,000 2,735,000
224,818 205,369 188,358 312,328 450,575 415,000 330,000 62,395 40,075 91,405 35,624 6,291 5,140 5,500
$27,542,353 $29,671,258 $34,888,961 $37,856,465 $41,621,461 $43,367,223 $45,048,523 Source: City of Placentia.
Employee Relations and Collective Bargaining
City employees are represented by four bargaining units. The largest unit is the Placentia City Employees' Association which represents approximately 40% of all City employees. Most City employees are covered by negotiated agreements. Executive Management and Mid Management groups are unrepresented. The City is in negotiations with the bargaining units. Terms under the respective Memoranda of Understanding will continue to be observed during negotiations of new contracts.
Bargaining Unit
Placentia City Employees' Association
Placentia Police Officers Association
Placentia Police Management Association
Placentia Fire Fighter's Association
Retirement Plans
Lease Revenue Bonds, Series 2020A
Expiration Date of
Memorandum of Understanding
June 30, 2023
June 30, 2023
June 30, 2023
June 30, 2023
In August 2020, Ca1PERS notified the City as to the amount of the currently unamortized, unfunded accrued actuarial liability (the "Unfunded Liability") for each of the City's Miscellaneous Plan (the "Miscellaneous Plan"), and Safety Police Plan (the "Safety Plan") based on the actuarial valuation reports as of June 30, 2019 (the "2019 Ca1PERS Reports"), which is the most recent actuarial valuation routinely performed by Ca1PERS.
On November 12, 2020, the Authority issued its Lease Revenue Bonds, Series 2020A (Federally Taxable) (the "Series 2020A Bonds") to fund 100% of the City's Unfunded Liability for the Miscellaneous Plan and Safety Plan. Upon the issuance of the Series 2020A Bonds, the City paid $43,777,218 to Ca1PERS for deposit to the Ca1PERS Payment Fund. This amount represents the June 30, 2019 Unfunded Liability for the Miscellaneous Plan and Safety Plan shown in the 2019 Ca1PERS Reports, rolled forward to November 12, 2020 and taking into account payments made during Fiscal Year 2019-20 and Fiscal Year 2020-21. The 34 4885-9887-4678.9
City also paid the $1,932,562 remaining monthly Unfunded Liability payments due for the Miscellaneous Plan and Safety Plan for the balance of Fiscal Year 2020-21.
As a result, the City projects average annual savings of approximately $500,000 per year for the next 25 years and City Council has decided to deposit 50% of those savings into a pension trust.
The information provided below does not reflect the payment of the Unfunded Liability with the Series 2020A Bonds.
Defined Benefit Plan
This caption contains certain information relating to Ca1PERS. The information is primarily derived from information produced by Ca1PERS, its independent accountants and its actuaries. Neither the City nor the Underwriter has independently verified the information provided by CalPERS and neither makes any representations nor expresses any opinion as to the accuracy of the information provided by Ca1PERS.
The comprehensive annual financial reports of CalPERS are available on its Internet website at www.calpers.ca.gov . The Ca1PERS website also contains Ca1PERS' most recent actuarial valuation reports and other information concerning benefits and other matters. The textual reference to such Internet website is provided for convenience only. None of the information on such Internet website is incorporated by reference herein. Neither the City nor the Underwriter can guarantee the accuracy of such information.
Actuarial assessments are `forward-looking" statements that reflect the judgment of the fiduciaries of the pension plans, and are based upon a variety of assumptions, one or more of which may not materialize or be changed in the future.
Plan Description. The City provides retirement benefits, disability benefits, periodic cost -of -living adjustments, and death benefits to plan members and beneficiaries (the "Plans") The Plans are part of Ca1PERS, an agent multiple -employer plan administered by Ca1PERS, which acts as a common investment and administrative agent for participating public employers within the State. Benefit provisions are established by State statute and by City resolution covering separate employee bargaining groups. The Plans as described herein cover two separate employee groups - Miscellaneous and Public Safety.
California Public Employees' Pension Reform Act of 2013. On September 12, 2012, the Governor signed into law the California Public Employees' Pension Reform Act of 2013 ("PEPRA"), which made changes to Ca1PERS Plans, most substantially affecting new employees hired after January 1, 2013 (the "Implementation Date"). For non -safety Ca1PERS participants hired after the Implementation Date, PEPRA changed the normal retirement age by increasing the eligibility for the 2% age factor from age 55 to 62 and increased the eligibility requirement for the maximum age factor of 2.5% to age 67.
PEPRA also: (i) requires all new participants enrolled in Ca1PERS after the Implementation Date to contribute at least 50% of the total annual normal cost of their pension benefit each year as determined by an actuary to a maximum of 8% of salary, (ii) requires Ca1PERS to determine the final compensation amount for employees based upon the highest annual compensation earnable averaged over a consecutive 36 -month period as the basis for calculating retirement benefits for new participants enrolled after the Implementation Date, and (iii) caps "pensionable compensation" for new participants enrolled after the Implementation Date at 100% of the federal Social Security contribution and benefit base for members participating in Social Security or 120% for members not participating in Social Security, while excluding previously allowed forms of compensation under the formula such as payments for unused vacation, annual leave, personal leave, sick leave, or compensatory time off. 35 4885-9887-4678.9
Benefit Tiers. In 2011 the City established two tiers of benefits for employees in the Miscellaneous Plan, based on date of hire ("Tier 1" and "Tier 2"). Benefits were reduced for Tier 2 employees hired on or after January 1, 2011.
Due to PEPRA, the City added a benefit tier in each employee group for employees subject to PEPRA ("PEPRA Tier"). Ultimately, PEPRA is expected to reduce the City's long-term pension obligation as existing employees retire and new employees are hired to replace them. The table below details the benefit provisions for each plan for the year ended June 30, 2022.
Benefit formula
Benefit vesting schedule
Benefit payments
Retirement age
Monthly benefits, as a % of
eligible compensation
Required employee
contribution rate
Required employer
contribution rate
Miscellaneous
Tier 1
2.0% @ 55
5 years service
monthly for life
55 2.0%
7.000%
10.880%
Miscellaneous
Tier 2
2.0% @ 60
5 years service
monthly for life
60 2.0%
7.000%
9.130%
Miscellaneous
PEPRA
2.0% @ 62
5 years service
monthly for life
62 2.0%
6.750%
7.590%
Safety
3.0% @ 50
5 years service
monthly for life
50 3.0%
9.000%
23.710%
Safety PEPRA
2.7% @ 57
5 years service
monthly for life
50-57
Source: City of Placentia Annual Comprehensive Financial Report for fiscal year ending June 30, 2022.
2.7%
13.000%
13.130%
Funding Policy. Active members in the Plans are required to contribute a percent of their annual covered salary as shown in the charts above. All employees pay their own employee contributions towards retirement.
Employees Covered. At the June 30, 2020 measurement date, the following employees were covered by the benefit terms for each plan:
Active employees
Transferred employees
Separated employees
Retired employees and
beneficiaries
Total
Miscellaneous Miscellaneous Miscellaneous
Tier 1 Tier 2 PEPRA
23 9 61
52 13 36
31 2 32
180
286 24
Safety
Safety PEPRA
22 29
19 10
10 6
2 119
131 170 45
Source: City of Placentia Annual Comprehensive Financial Report for fiscal year ending June 30, 2022.
The Safety Plan as of June 30, 2018 includes both the Police Safety employees and former Fire Safety employees. The City joined the Fire Authority in 1995 to provide for mutual fire protection, prevention, and suppression services and related and incidental services including, but not limited to, emergency medical and transport services, hazardous materials regulation, as well as providing facilities and personnel for such services. At that time, all City fire personnel were no longer City employees and the Safety Plan with respect to such personnel was closed, although the City's obligation to provide for a portion of fire 36 4885-9887-4678.9
personnel retirement cost continued. In 2019, the City negotiated with Ca1PERS to remove the remaining liability for such fire personnel from the Safety Plan and agreed to a separate repayment schedule for that amount (the "Fire Repayment Plan").
As described herein, the City terminated its contract with the Fire Authority and hired personnel to staff its newly -created Fire & Life Safety Department ("Fire Department"). Employees serving the Fire Department are not included in the Safety Plan. The retirement benefits contributed for Employees serving the Fire Department are described below under "Defined Contribution Plan." Funding Policy. Active members in the Plans are required to contribute a percent of their annual covered salary as shown in the chart below. All employees pay their own employee contributions towards retirement.
Actuarial Methods and Assumptions Used to Determine Total Pension Liability. The total pension liabilities in the June 30, 2019 actuarial valuations, were determined using the following actuarial assumptions:
Valuation Date June 30, 2019
Measurement Date June 30, 2020
Actuarial Cost Method Entry -Age Normal Cost Method
Actuarial Assumptions:
Discount Rate 7.15%
Inflation 2.50%
Projected Salary Increase Varies by Entry Age and Service Mortality Derived using Ca1PERS' Membership Data for all Funds Post-retirement benefit increase Contract COLA up to 2.5% until Purchasing Power Protection Allowance Floor on Purchasing Power applies, 2.5% thereafter The probabilities of mortality are based on the 2017 Ca1PERS experience study ("Experience Study") for the period 1997 to 2015. Pre -retirement and post-retirement mortality rates include 15 years of projected mortality improvement using 90% of Scale MP -2016 published by the Society of Actuaries. Further details of the Experience Study can be found on the Ca1PERS website under Forms and Publications.
Changes in Actuarial Assumptions. Changes in actuarial assumptions generally take two years to affect the City's contribution rate due to the time required by Ca1PERS to calculate and implement the change.
For example, a change made effective July 1, 2018 is reflected in the City's contribution rates (normal cost or unfunded liability) for Fiscal Year 2020-21.
The Ca1PERS Board of Administration has made numerous changes that are reflected in the calculation of the pension liability and the annual contribution toward the unfunded pension liability. The most significant change was a reduction over a period of years to reduce the discount rate from 7.5% to 7.0%. The reduced rate was fully reflected in the Ca1PERS June 30, 2018 actuarial valuation.
Other assumption changes include a reduction in the payroll growth and inflation and, beginning with the June 30, 2019 calculation, changing the amortization of investment gains or losses to 20 years from 30 years. Ca1PERS' Chief Actuary stated that the revised approach provides a single measure of funded status and unfunded liabilities, less rate volatility in extreme years, a faster path to full funding and more transparency to employers about future contribution rates. These changes accelerate the repayment of unfunded liabilities (including Ca1PERS' Fiscal Year 2009 market losses) of the City's Plans in the near term.
37 4885-9887-4678.9
In 2015, the Ca1PERS Board of Administration also adopted a funding risk mitigation policy intended to incrementally lower its discount rate. The funding risk mitigation policy was revised in 2017 and the Ca1PERS Board of Administration suspended implementation of the policy until Fiscal Year 2020-21. The City anticipates the policy will result in a lowering of the discount rate but cannot guarantee when the discount rate will be lowered and at what rate. More information about the funding risk mitigation policy can be accessed through Ca1PERS' web site at the following website address:
https://www.calpers.ca.gov/docs/funding-risk-mitigation-policy.pdf . The reference to this Internet website is provided for reference and convenience only. The information contained within the website may not be current, has not been reviewed by the City and is not incorporated in this Official Statement by reference.
Table No. 14 shows the Ca1PERS impact of the actuarial assumption changes on the City's pension costs.
Contribution Rates. The contribution requirements of Plan members and the City are established by Ca1PERS. Ca1PERS modified the calculation of the contribution rates beginning in Fiscal Year 2017-18.
Ca1PERS now represents only the employer's normal cost as a percentage of payroll and includes a dollar amount for the amortization of the unfunded actuarial liability (UAL). Shown in Table No. 14 are the actual or Ca1PERS projections of the normal cost and amortization of the UAL for the City.
TABLE NO. 14
PROJECTED EMPLOYER RETIREMENT CONTRIBUTIONS
Miscellaneous Safety(3)
Fiscal Year Normal Cost(1) Amortize UAL Normal Cost(1) Amortize UAL 2023-24 12.5% $0 27.1% $0
2024-25(2) 12.5 0 27.1 0
2025-26(2) 12.5 0 27.1 0
2026-27(2) 12.5 0 27.1 0
2027-28(2) 12.5 0 27.1 0
2028-29(2) 12.5 0 27.1 0
(1) For Tier 1 employees, does not reflect lower PEPRA rates (7.68% for Miscellaneous PEPRA Plan and 13.75% for Safety PEPRA Plan in 2023-24).
(2) Projected by Ca1PERS based on various assumptions as of the June 30, 2021 actuarial valuation. (3) Excludes former Fire Safety employees.
Source: California Public Employees' Retirement System Miscellaneous Plan of the City of Placentia Annual Valuation Report as of June 30, 2021 and the Safety Police Plan of the City of Placentia Annual Valuation Report as of June 30, 2021.
The remaining payments under the Fire Repayment Plan are as follows: [Confirm/Update] Fiscal Year Payment
2022-23 $379,968
2023-24 379,968
2024-25 348,304
Pension Liabilities. The City's net pension liability for the Plans is measured as the total pension liability, less the pension plan's fiduciary net position. The City's changes in net pension liability for the Plans between June 30, 2017 and June 30, 2021 was as follows:
38 4885-9887-4678.9
TABLE NO. 15
CHANGES IN NET PENSION LIABILITY BY PLAN
MISCELLANEOUS PLAN
Measurement period, year ended 6/30/2021 6/30/2020 6/30/2019 6/30/2018 6/30/2017 Plan's proportion of the net pension liability (0.45585%) 0.38926% 0.14843% 0.14479% 0.14212% Plan's proportionate share of the net pension liability ($8,655,720) $16,419,169 $15,209,436 $13,952,246 $14,094,828 Plan's covered payroll $4,587,533 $4,453,916 $ 4,324,190 $ 4,198,243 $ 4,075,964 Plan's proportionate share of the net pension liability as a percentage of covered payroll (188.68%) 368.65% 351.73% 332.34% 345.80% Plan's fiduciary net position $67,193,906 $42,161,022 $41,142,220 $40,682,189 $39,816,871 Plan's fiduciary net position as a percentage of the total pension liability 114.79% 71.97% 73.01% 74.46% 73.86%
Plan's proportionate share of aggregate employer
contributions $2,642,842 $1,383,994 $ 1,139,534 $ 932,993 $ 785,438 Source: City of Placentia Annual Comprehensive Financial Report for fiscal year ending June 30, 2022.
TABLE NO. 16
CHANGES IN NET PENSION LIABILITY BY PLAN
SAFETY PLAN
Measurement period, year ended 6/30/2021 6/30/2020 6/30/2019 6/30/2018 6/30/2017 Plan's proportion of the net pension liability (0.41630%) 0.44230% 0.26351% 0.27222% 0.27240% Plan's proportionate share of the net pension liability ($14,609,905) $29,467,303 $27,002,144 $26,231,540 $27,017,047 Plan's covered payroll $4,381,633 $4,254,013 $ 4,130,110 $ 4,009,816 $ 3,893,025 Plan's proportionate share of the net pension liability as a percentage of covered payroll 0.00% 692.69% 653.79% 654.18% 693.99% Plan's fiduciary net position $113,454,370 $69,454,497 $69,358,418 $65,913,238 $62,459,293 Plan's fiduciary net position as a percentage of the total pension liability 114.78% 70.21% 71.99% 71.53% 69.81%
Plan's proportionate share of aggregate employer
contributions $6,061,344 $2,517,884 $ 2,108,590 $ 3,034,432 $ 2,753,462 Source: City of Placentia Annual Comprehensive Financial Report for fiscal year ending June 30, 2022.
Sensitivity of the Net Pension Liability to Changes in the Discount Rate. The following presents the City's net pension liability at June 30, 2022, calculated using the discount rate of 7.15%, as well as what the City's net pension liability would be if it were calculated using a discount rate that is 1% lower or 1% higher than the current rate:
Miscellaneous Plan Safety Plan
Net Pension Liability Net Pension Liability Total
Net Pension Liability 1% Decrease in Discount Rate ($926,869) ($1,304,587) ($2,231,456) Net Pension Liability at June 30, 2022 Discount Rate (8,655,720) (14,609,905) (23,265,625) Net Pension Liability 1% Increase in Discount Rate (15,045,048) (25,538,580) (40,583,628) Source: City of Placentia Annual Comprehensive Financial Report for fiscal year ending June 30, 2022.
See Note 8 of the City's Annual Comprehensive Financial Report included in "APPENDIX B" for further information about the Plan.
39 4885-9887-4678.9
Fire UAL Payoff Loan. On May 5, 2020 the City approved a payment plan to Cal PERS to pay off the $1,878,760 unfunded accrued liability (UAL) on the termination of the City's Safety -Fire category of the City's contract with Ca1PERS. The payment plan is for a period of 5 years with an interest rate of 1.95%.
Payments of $31,664 are payable monthly through May 2025.
Defined Contribution Plan
The City has adopted a 401(a) defined contribution plan through Independent City/County Management Association Retirement Corporation (ICMA-RC) for newly -hired Fire personnel effective January 1, 2020 (the "401(a) Plan"). This alternative retirement benefit is in lieu of a Ca1PERS retirement plan otherwise provided to City employees. The 401(a) Plan highlights are:
• Only provided to sworn full-time fire personnel
• Employees are eligible to participate upon employment without any waiting period • City will contribute 10% of base earnings on behalf of each participant • Earnings do not include any overtime, bonuses or additional pay incentives The City's payroll for employees covered by the 401(a) Plan for the year ended June 30, 2022, was $2,659,736. Total employee contributions paid by the City amounted to $187,311 or 7.04% of covered payroll and of total payroll. As of June 30, 2022, the 401(a) Plan had 26 participants and the market value of the 401(a) Plan amounted to $16,035,262.
Other Postemployment Benefits
Plan Description. The City provides single employer postemployment defined benefits (known as "other postemployment benefits" or "OPEB") to retired employees in the form of a contribution towards their health insurance premiums under the Ca1PERS health plan which provides health insurance benefits to eligible retirees in accordance with various labor agreements (the "OPEB Plan").
All employees hired prior to November 21, 1995 are in Tier I and become eligible for these benefits as long as they are 50 years of age or older and have worked for the City a minimum of five years and elect a service retirement from the City. The health benefits for Tier I retirees include medical, dental, optical, and life. These benefits are considered to be vested for Tier I employees. The City pays the same contribution for these benefits to Tier I employees as is paid to active employees. Vision benefits are also provided to Tier I employees who retired after September 30, 1990. The life insurance is available to Tier I retirees until they reach age of 70.
All employees hired on or after November 21, 1995 are Tier II. The City pays the minimum required medical insurance contribution established by Ca1PERS for Tier II employees.
At June 30, 2020, the most recent valuation date, the following current and former employees were covered by the benefit terms under the Plan:
Active plan members 168
Retirees 148
Total 316
40 4885-9887-4678.9
Total OPEB Liability. The City's total OPEB liability was measured as of June 30, 2020. The total OPEB liability used to calculate the net OPEB liability was determined by an actuarial valuation as of June 30, 2020. The total OPEB liability at June 30, 2022 was $24,910,487.
Contributions. The obligation of the City to contribute to the plan is established and may be amended by the City Council. The City Council has established a policy of funding the actuarially determined contribution (ADC) on a pay as you go basis. For the fiscal year ended June 30, 2022, the City's average contribution rate was 8.16% of covered payroll. Employees are not required to contribute to the plan.
On November 16, 2021, the City Council approved an updated Memorandum of Understanding ("MOU") with the Placentia City Employees Association ("PCEA"). The MOU capped the City's medical contributions at the 2021 contribution levels for active employees and retirees eligible under the 1995 Insurance Benefits Agreement with PCEA. The City Council also approved an updated MOU with the Placentia Police Management Association ("PPMA") which included the addition of the Fire Battalion Chiefs thereby creating the Placentia Police and Fire Management Association ("PPFMA"). The MOU capped the City's medical contributions at the 2021 contribution levels for active employees and retirees eligible under the 1995 Insurance Benefits Agreement with PPMA. On November 16, 2021, the City Council approved benefits for unrepresented employees that included caps on medical contributions at the 2019 rates for active employees and retirees. On December 7, 2021, the City Council approved an updated MOU with the Placentia Police Officers Association ("PPOA"). The MOU capped the City's medical contributions at the 2021 contribution levels for active employees and retirees eligible under the 1995 Insurance Benefits agreement with PPOA. On December 6, 2022 the City Council approved the first MOU with the Placentia Firefighters' Association. The MOU capped the City's medical contributions at the 2022 levels for active employees.
Funded Status and Funding Progress. The net OPEB liability as of June 30, 2019, June 30, 2020 and June 30, 2021 is calculated as shown below. The schedule of funding progress, included in the required supplementary information section of the City's Annual Comprehensive Financial Report, will present multi-year trend information about whether the actuarial value of plan assets (if any) is increasing or decreasing over time relative to the actuarial accrued liability for the benefits. 41 4885-9887-4678.9
TABLE NO. 17
CHANGES IN NET OPEB LIABILITY
Measurement period, year ending: 6/30/2021 6/30/2020 6/30/2019 Total OPEB liability
Service cost $532,568 $359,454 $542,976
Interest 691,435 919,735 1,092,405
Changes of benefit terms
Differences between expected and actual experience (4,989,665) - (2,606,242) Changes of assumptions (1,506,167) 4,699,117 332,593
Benefit payments, including refunds of member contributions (1,143,510) (1,142,314) (1,112,888) Net change in total OPEB liability (6,415,339) 4,835,992 (1,751,156) Total OPEB liability - beginning 31,325,826 26,489,834 28,240,990 Total OPEB liability - ending (a) $24,910,487 $31,325,826 $26,489,834 OPEB fiduciary net position
Contributions - employer
Net investment income
Benefit payments, including refunds of member contributions Administrative expense
Net change in plan fiduciary net position
Plan fiduciary net position - beginning
Plan fiduciary net position - ending (b)
Plan net OPEB liability - ending (a) - (b)
Plan fiduciary net position as a percentage of the total OPEB liability $1,132,073 $1,146,160 $1,142,314
(1,132,073) (1,146,160) (1,142,314)
$24,910,487
0.00%
$31,325,826
0.00%
$26,489,189
0.00%
Covered payroll $17,448,843 $13,993,405 $12,286,189
Plan net OPEB liability as a percentage of covered payroll 143% 224% 216% Source: City of Placentia Annual Comprehensive Financial Report for fiscal year ending June 30, 2022.
Actuarial Methods and Assumptions. Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future.
Examples include assumptions about future employment, mortality, and the health care cost trend. Amounts determined regarding the funded status of the plan and the Actuarially Required Contribution of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future.
In the June 30, 2020 actuarial valuation, the entry age normal actuarial cost method was used to value liabilities. Under the entry age normal cost method, an average age at hire and average retirement age are determined for eligible employees. The actuarial assumptions included (1) a 2.21% discount rate and (2) inflation of 2.50%.
Risk Management
The City is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors and omissions; injuries to employees; and natural disasters. The City participates in municipal agency risk pools for its property, workers' compensation, and excess liability coverage. 42 4885-9887-4678.9
General Liability. The City is a member of the Public Agency Risk Sharing Authority of California ("PARSAC"), a joint powers authority, which provides joint protection programs for public entities covering automobile, general liability, errors and omission losses, workers' compensation, and property claims. Under the program, the City has a $100,000 retention limits similar to a deductible with the PARSAC being responsible for losses above that amount up to $1 million The PARSAC has additional coverage of $34 million in excess of its $1 million retention limit affiliated risk management authorities. The PARSAC also provides $1 billion aggregate per occurrence property coverage to its members with such coverage provided by purchased insurance.
Worker's Compensation. The City is a member of the Local Agency Workers' Compensation Excess (the "LAWCX"), a joint powers authority, which provides joint protection programs for public entities covering worker's compensation claims. Under the program, the City has a $250,000 retention limits similar to a deductible with the LAWCX being responsible for losses above that amount up to $4.7 million. The City has purchased excess coverage for Workers' Compensation excess of $5 million.
Other Insurance. The City has Crime Bond Insurance coverage as a member of PARSAC under Alliant Crime Insurance Program (the "ACIP") excess of $2,500 up to $1 million. This insurance includes coverage for faithful performance of duty, forgery or alteration, inside premises theft of money and securities, inside premises robbery and safe burglary other property, outside the premises, computer fraud, funds transfer fraud, and money orders and counterfeit paper currency fraud.
A reconciliation of changes in aggregates for claims filed in the current and prior fiscal years are as follows:
Worker's Compensation
Fiscal Year
Ending Beginning Claims and Claims Ending
June 30 Balance Changes Payments Balance
2018-19 $1,927,153 $944,772 $(663,980) $2,207,945
2019-20 2,207,945 153,342 (385,700) 1,975,587
2020-21 1,975,587 2,157,487 (697,901) 3,435,173
2021-22 3,435,173 1,034,044 (762,874) 3,706,343
General Liability
Fiscal Year
Ending Beginning Claims and Claims Ending
June 30 Balance Changes Payments Balance
2018-19 $69,015 $19,428 $(64,542) $23,901
2019-20 23,901 264,501 (28,745) 259,657
2020-21 259,657 230,514 (54,841) 435,330
2021-22 435,330 272,173 601,365 1,308,868
Source: City of Placentia Annual Comprehensive Financial Report for the year ending June 30, 2022.
There have been no significant changes to insurance coverage as compared to last year and the City has not experienced settlements in excess of insurance coverage during the past three years. 43 4885-9887-4678.9
City Investment Policy and Portfolio
The City administers a pooled investment program, except for those funds which are managed separately by trustees appointed under bond indentures. This program enables the City to combine available cash from all funds and to invest cash that exceeds current needs. Under the City's most current investment policy adopted by the City Council on July 19, 2022, and in accordance with the Government Code, the City may invest in the following types of investments subject to certain limitations on maturity and amount:
California Local Agency Bonds California Local Agency Obligations State Obligations U.S. Treasury Obligations
Federal Agencies Securities Banker's Acceptances
Commercial Paper Negotiable Certificates of Deposits
Federally Insured Time Deposits Repurchase Agreements
Local Agency Investment Fund (LAIF) Medium Term Notes
Money Market Funds Passbook Savings/Demand Deposits
Orange County Investment Pool Joint Powers Authority Pools (JPA) As of June 30, 2022, the fair value of the City Treasurer's investment portfolio (including cash) was $35.9 million. The diversification of the City Treasurer's investment portfolio assets as of such date is shown in the following table.
Type of Investment % of Combined Portfolio
LAIF 0.04%
Money Market Mutual Funds 0.06
Negotiable Certificates of Deposit(') 2.54
U.S. Treasury Securities(') 74.74
Federal Agency Securitiee 2.59
Held by Fiscal Agent:
Money Market Mutual Funds 20.03
100.00%
(1) Pricing based on institutional bond quotes — evaluations based on various market and industry inputs.
Source: City of Placentia Annual Comprehensive Financial Report for the year ending June 30, 2022.
[As of , 20% of bonds mature within 1-6 months and 80% of bonds mature within 1-5 years.] [Confirm/Update]
Obligations of the City
In addition to the OPEB liability, compensated absences and claims payable, the City had the following outstanding obligations as of June 30, 2022 that are payable from the City's general fund. 44 4885-9887-4678.9
Obligation
2022 Lease Private Placement
2020A Lease Revenue Bonds
Capital Lease — Radios(1)
Capital Lease - Fire Trucks(1)
Capital Lease - Fire Trucks(1)
Fire Repayment Plan(2)
Other Leases Payable
Original
Issue
$2,189,027.38
52,950,000.00
1,319,360.00
3,400,000.00
1,795,000.00
1,808,760.00
Various
(1) The annual payment for the radio equipment is approximately $167,500, and the are approximately $422,000, commencing in Fiscal Year 2020-21. (2) See "Retirement Plans" above. The annual payment is approximately $380,000 Source: City of Placentia.
Financial Statements
June 30, 2022
Amount
Outstanding
$2,189,027
51,890,000
664,014
2,785,389
1,460,450
1,076,463
656,703
Final
Maturity
2027
2045
2027
2030
2030
2025
2026
combined annual payments for the fire trucks
commencing in Fiscal Year 2020-21.
The City's accounting policies conform to generally accepted accounting principles and reporting standards set forth by the State Controller. The audited financial statements also conform to the principles and standards for public financial reporting established by the National Council of Government Accounting and the Governmental Accounting Standards Board ("GASB").
Basis of Accounting and Financial Statement Presentation. The government -wide financial statements are reported using the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Property taxes are recognized as revenues in the year for which they are levied. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met.
Governmental fund financial statements are reported using the modified accrual basis of accounting.
Revenues are recognized as soon as they are both measurable and available. Revenues are considered to be available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. However, debt service expenditures are recorded only when payment is due.
The City retained the firm of CliftonLarsonAllen LLP, Irvine, California, to examine the general purpose financial statements of the City as of and for the Fiscal Year ended June 30, 2022. The Table Nos. 19 and 20 summarize the audited Balance Sheet and audited Statement of Revenues, Expenditures and Changes in Fund Balance of the City's General Fund for Fiscal Years 2017-18 through 2021-22.
See "APPENDIX B" hereto for the audited financial statements for the Fiscal Year ended June 30, 2022.
The City has not requested, and the auditor has not provided, any review or update of such statements in connection with the inclusion in this Official Statement.
GASB Statement No. 54 Fund Balance Reserves. GASB No. 54 establishes fund balance classifications that comprise a hierarchy based primarily on the extent to which a government is bound to observe constraints imposed upon the use of the resources reported in governmental funds.
The initial distinction that is made in reporting fund balance information is identifying amounts that are considered nonspendable, which are amounts that cannot be spent because they are either (a) not spendable 45 4885-9887-4678.9
in form or (b) legally or contractually required to be maintained intact. GASB No. 54 also provides for additional classification as "restricted," "committed," "assigned," and "unassigned" based on the relative strength of the constraints that control how specific amounts can be spent.
Pursuant to the City's Reserve Policy (see "Financial Policies" above), the City designates certain of the sales tax generated by Measure U as "Committed" fund balance for specific purposes.
The table below shows General Fund fund balances as of June 30, 2022. The City has estimated the fund balances for June 30, 2022 and June 30, 2023 and can be found in Table No. 8 above under the caption "General Fund Revenues and Expenditures."
Non -Spendable:
Inventory
Prepaid Items
Loans Receivable
Total Non -Spendable
Restricted:
Debt Service
Committed:
Measure U - Infrastructure
Measure U — OPEB
Metrolink Station
Total Committed
Unassigned
Total Fund Balance
Source: City of Placentia Annual Comprehensive
ending June 30, 2022.
46 4885-9887-4678.9
$173,020
95,891
2,252,856
2,521,767
2,024
4,035,815
770,595
9,049,313
13,855,723
21,060,689
$37,440,203
Financial Report for fiscal year
GASB Statements Regarding Pension and OPEB Liabilities. GASB has issued various statements relating to the reporting of pension and other post-retirement benefit liabilities and expense, and most recently, new accounting and financial reporting requirements for OPEB plans. The required reporting of net pension liability was incorporated into the City's financial statements for the Fiscal Year ending June 30, 2015 and the required reporting of net OPEB liability was incorporated into the City's financial statements for the Fiscal Year ending June 30, 2018. The audited financial statements of the City for the Fiscal Year ended June 30, 2022 included in "APPENDIX B" contain additional information about the retirement plan liabilities and the OPEB liability.
See Note 1 in the City's audited financial statements attached in "APPENDIX B" for a discussion of additional accounting changes.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
47 4885-9887-4678.9
TABLE NO. 19
GENERAL FUND BALANCE SHEET
As of June 30
2018 2019 2020 2021 2022
ASSETS
Cash and investments $ 2,264,185 $ 2,976,618 $6,813,870 $14,701,605 $26,088,314 Receivables:
Accounts 222,950 717,450 3,388,436 253,961 228,067
Taxes 1,880,509 3,085,095 3,176,169 3,646,695 4,222,000 Grants 116,458 6,249 - - -
Accrued interest 29,246 62,163 50,120 13,867 210,518
Loans and notes 4,934,104 4,624,306 3,950,040 3,462,484 2,634,732 Leases - - - - 20,743,281
Prepaid items - 41,868 16,300 93,658 95,891
Due from other funds 409,780 1,313,088 858,052 1,371,540 2,620,039 Inventories 20,322 40,121 60,855 97,075 173,020
Restricted assets:
Cash and investments with fiscal agents 1,019,010 571,396 555,258 556,084 2,024 Total assets $10,896,564 $13,438,354 $18,869,550 $24,196,969 $57,017,886
LIABILITIES, DEFERRED INFLOWS OF
RESOURCES, AND FUND BALANCES
Liabilities:
Accounts payable $765,337 $1,014,894 $2,490,566 $2,012,903 $1,743,077 Accrued Payroll and Benefits - - - - 1,029,247
Deposits Payable - - - - 1,207,237
Retentions Payable - - - - 41,668
Accrued liabilities 469,772 511,212 731,842 885,312 -
Due to other governments 186 186 186 190 -
Due to other funds 34,130 - - - -
Advances from other funds - - - - Unearned revenue - 1,719 - 6,483 8,185,730 Total liabilities 1,269,425 1,528,011 3,222,594 2,904,888 12,206,959 Deferred Inflows of resources:
Leases - - - - 20,771,263
Unavailable revenues 1,599,592 1,561,106 1,680,505 1,061,610 455,184 Total deferred inflows of resources $ 1,599,592 $ 1,561,106 $ 1,680,505 $ 1,061,610 $21,226,447 Fund balances:
Nonspendable 4,954,426 4,706,295 3,734,003 3,346,897 2,521,767 Restricted 1,019,010 571,396 555,258 556,084 2,024
Committed 3,400,000 4,528,259 5,810,898 6,433,605 13,855,723 Assigned - - - - -
Unassigned (deficit) (1,345,889) 543,287 3,866,292 9,893,885 7,204,966 Total fund balances 8,027,547 10,349,237 13,966,451 20,230,471 23,584,480 Total liabilities, deferred inflows of
resources and fund balances $10,896,564 $13,438,354 $18,869,550 $24,196,969 $57,017,886 Source: City of Placentia Annual Comprehensive Financial Reports. 48 4885-9887-4678.9
TABLE NO. 20
GENERAL FUND
STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE For the year ended June 30
2018 2019 2020 2021 2022
Revenues:
Taxes $27,542,353 $29,671,258 $34,830,127 $37,858,390 $41,621,461 Intergovernmental 252,963 353,354 701,864 9,743 952,389 Licenses and permits 1,701,878 1,922,689 2,453,827 2,827,761 2,440,102 Fines & forfeitures 562,390 438,581 418,752 290,534 503,302 Investment earnings 31,161 164,724 170,567 (28,258) (323,152) Charges for services 1,284,507 1,070,821 885,206 879,298 1,263,215 Leases and rents 1,255,240 1,230,532 1,211,622 1,079,979 1,422,831 Contributions from Successor Agency - - 19,000 30,000 - Miscellaneous 708,662 944,874 866,076 460,006 785,684
Total revenues 33,339,154 35,796,833 41,557,041 43,407,453 48,665,832 Expenditures:
Current:
General government 7,977,778 7,823,758 8,298,766 10,911,110 12,055,475 Public safety 18,493,951 17,861,015 21,399,386 14,899,543 15,441,982 Public works 3,272,875 3,435,887 3,980,719 3,430,456 3,514,281 Community development 823,895 997,888 1,198,254 1,215,937 1,482,732 Community services 1,398,588 1,343,251 1,537,369 1,437,912 2,289,940 Capital outlay 334,139 719,324 7,271,232 3,811,664 5,034,753 Debt service:
Principal retirement 1,320,000 1,545,000 582,614 1,270,240 1,320,810 Payment to refunding bond escrow agent - - - - 488,521
Interest and fiscal charges 427,530 293,723 206,426 391,808 343,759 Debt issuance costs - - - - 117,995
Total expenditures 34,048,756 34,019,846 44,474,766 37,368,670 42,090,248 Revenues over (under) expenditures (709,602) 1,776,987 (2,917,725) 6,038,783 6,575,584 Other financing sources (uses):
Issuance of Debt - - - - 2,189,027
Payment to refunding bond escrow agent - - - - (2,069,027) Issuance of capital lease - - - 976,899 -
Transfers in 1,217,225 714,708 1,039,700 725,096 102,947 Transfers out (554,103) (246,098) (270,300) (1,476,758) (3,444,522) Transfer from Successor Agency - 76,093 - - -
Proceeds from sale of property - - 1,547,438 - -
Proceeds from capital lease - - 4,218,101 - -
Total other financing sources (uses) 663,122 544,703 6,534,939 225,237 (3,221,575) Net change in fund balances (46,480) 2,321,690 3,617,214 6,264,020 3,354,009 Fund balances:
Beginning of year, as restated 8,074,027 8,027,547 10,349,237 13,966,451 20,230,471 End of year $ 8,027,547 $10,349,237 $13,966,451 $20,230,471 $23,584,480 Source: City of Placentia Annual Comprehensive Financial Reports. 49 4885-9887-4678.9
RISK FACTORS
The purchase of the Bonds involves investment risk. If a risk factor materializes to a sufficient degree, it could delay or prevent payment of principal of and/or interest on the Bonds. Such risk factors include, but are not limited to, the following matters and should be considered, along with other information in this Official Statement, by potential investors.
The Base Rental Payments
Base Rental Payments are Limited Obligations of the City. The Base Rental Payments and other payments due under the Lease Agreement (including a proportionate share of the costs of improvement, repair and maintenance of the Leased Property and taxes, other governmental charges and assessments levied against the Leased Property) are not secured by any pledge of taxes or other revenues of the City but are payable from yearly appropriations of any funds lawfully available to the City. In the event the City's revenue sources are less than its total obligations, the City could choose to fund other services before paying Base Rental Payments and other payments due under the Lease Agreement. The same result could occur if, because of State Constitutional limits on expenditures, the City is not permitted to appropriate and spend all of its available revenues (see "Constitutional Limitation on Taxes and Expenditures" below). To the extent these types of events or other events adversely affecting the funds available to the City occur in any year, the funds available to pay Base Rental Payments may be decreased.
The City has entered into other obligations which constitute additional charges against its revenues and may enter into additional obligations in the future. To the extent that additional obligations are incurred by the City, the funds available to the City to pay Base Rental Payments may be decreased (see "FINANCIAL INFORMATION — Obligations of the City" herein).
Abatement. In the event of substantial interference with the City's right to use and occupy any portion of the Leased Property by reason of damage to, or destruction or condemnation of the Leased Property, or any defects in title to the Leased Property, Base Rental Payments will be subject to abatement. See "SOURCES OF PAYMENT FOR THE BONDS — Abatement." In the event that such portion of the Leased Property, if damaged or destroyed could not be replaced during the period of time in which proceeds of the City's rental interruption insurance will be available in lieu of Base Rental Payments, plus the period for which funds are available from (a) amounts held by the Trustee in the Revenue Bond, and (b) amounts, if any, otherwise legally available to the Trustee for payments in respect of the Bonds under the Indenture, there could be insufficient funds to make payments to Owners in full.
The Lease Agreement requires casualty insurance on the Leased Property in an amount equal to the lesser of the outstanding principal amount of the Base Rental Payments outstanding, or the replacement cost of the structures located on the Leased Property. Therefore, due to the nature of the Leased Property and limited structures located thereon, there is a minimal amount of casualty insurance currently in place with respect to the Leased Property.
If damage, destruction, title defect or eminent domain proceedings with respect to the Leased Property results in abatement of the Base Rental Payments related to such Leased Property and if such abated Base Rental Payments, if any, together with moneys from rental interruption or use and occupancy insurance (in the event of any insured loss due to damage or destruction) and eminent domain proceeds, if any, are insufficient to make all payments of principal and interest with respect to the Bonds during the period that the Leased Property is being replaced, repaired or reconstructed, then all or a portion of such payments of principal and interest may not be made. Under the Lease Agreement and the Indenture, no remedy is available to the Owners for nonpayment under such circumstances. 50 4885-9887-4678.9
Notwithstanding the provisions of the Lease Agreement and the Indenture specifying the extent of abatement of Base Rental Payments and the application of other funds in the event of the City's failure to have use and occupancy of the Leased Property, such provisions may be superseded by operation of law, and, in such event, the resulting Base Rental Payments of the City may not be sufficient to pay all of the remaining principal and interest represented by the Bonds.
Insurance. The Lease Agreement obligates the City to obtain and keep in force rental interruption insurance in an amount equal to maximum annual Base Rental Payments due during any immediately succeeding 24 - month period (see "APPENDIX A SUMMARY OF THE PRINCIPAL LEGAL DOCUMENTS — LEASE AGREEMENT — MAINTENANCE; TAXES; INSURANCE AND OTHER CHARGES — Insurance" herein). The Lease Agreement requires property insurance against loss or damage to all of the buildings situated on the Leased Property and owned by the City, in an amount at least equal to the lesser of the replacement value of the insured buildings and the aggregate principal amount of the Base Rental Payments outstanding. The City makes no representation as to the ability of any insurer to fulfill its obligations under any insurance policy provided for in the Lease Agreement. In the event the Leased Property is partially or completely damaged or destroyed due to any uninsured or underinsured event, it is likely that Base Rental Payments will be partially or completely abated. If any Leased Property so damaged or destroyed is not repaired or replaced within the period during which the proceeds of rental interruption insurance are available, any such abatement could prevent the City from timely paying Base Rental Payments.
Discovery of a Hazardous Substance That Would Limit the Beneficial Use of the Leased Property. In general, the owners and lessees of a parcel may be required by law to remedy conditions of the property relating to releases or threatened releases of hazardous substances. The federal Comprehensive Environmental Response, Compensation and Liability Act of 1980 sometimes referred to as CERCLA or the Superfund Act, is the most well-known and widely applicable of these laws but California laws with regard to hazardous substances are also stringent and similar. Under many of these laws, the owner (or lessee) is obligated to remedy a hazardous substance condition of property whether or not the owner (or lessee) had any involvement in creating or handling the hazardous substance. The effect, therefore, should the Leased Property be affected by a hazardous substance, might be to limit the beneficial use of the Leased Property upon discovery and during remediation. The City is not aware of any such condition on the Leased Property.
Natural Hazards
General. The City, like all southern California communities, may be subject to unpredictable seismic activity, fires or floods. 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 City.
Seismic Considerations. Southern California is a seismically active area. Potentially active faults are located adjacent to the City; however, there are no Alquist-Priolo Earthquake Fault Zones ("AP Zone") within the city limits. According to the Safety Element of the City's General Plan, although the City does not lie within an AP Zone, seismic risk is still considered high because of the proximity to other active AP faulting in the region. Major faults that have potential to impact the City are (1) the Yorba Linda seismic source zone, a group of faults approximately 0.3 miles northeast of the City which can produce a magnitude
6.4 earthquake, (2) the Puente Hills Thrust Fault that extends approximately 26 miles between downtown Los Angeles and northern Orange County and is considered capable of generating a magnitude 7.1 earthquake, (3) the Peralta Hills Thrust, about 3 mile southeast of the center of the City and the closest known active fault to the City, where the length of the fault zone suggests that a maximum earthquake of about 6.0 to 6.5 is capable of occurring, (4) the Whittier Fault, part of the Whittier -Elsinore fault system that extends from the Los Angeles basin to Mexico, located about 3.8 mile north of the center of the City 51 4885-9887-4678.9
and could be capable of generating a magnitude 6 to 7.2 earthquake, (5) the Newport -Inglewood Structural Zone, located approximately 14.6 miles southwest of the City and considered capable of producing earthquakes with a magnitude of up to 7.4, (6) the Sierra Madre Fault, part of a set of north -dipping reverse faults extending between Santa Barbara Channel east to Chino Basin, located about 17 miles north of the City and considered capable of producing earthquakes with a magnitude of up to 8.0, (7) the San Jacinto Fault system, which is highly seismically active and has been the source of several historical fault ruptures associated with the earthquake magnitudes in the range of 6 to 7, is located about 34 miles northeast of the City and considered capable of producing earthquakes with a magnitude of up to 7.5, (8) the San Andreas Fault system, located approximately 36 miles northerly of the City and considered capable of producing earthquakes with a magnitude of up to 7.9, and (9) the Norwalk Fault located approximately 4.5 miles west- northwest of the City but not classified as an active AP fault by the California Geological Survey.
Although ground rupture is not considered to be a major concern for the City, it is still likely that the City will be subject to some moderate to severe seismic shaking. [There are some areas of the City with high liquefaction potential, but none of the Leased Property are located in an area designated with potential for liquefaction.] [Confirm]
A major earthquake could cause widespread destruction and significant loss of life in a populated area such as the City. If an earthquake were to substantially damage or destroy taxable property within the City, a reduction in taxable values of property in the City and a reduction in revenues available to the General Fund to pay Base Rental Payments would be likely to occur.
Flooding. Flooding hazards may be considered in two categories: natural flooding and dam inundation. [Most of the City, including the Leased Property, is not within the limits of a 100 -year storm plain.][Confirm] In the event of a 500 -year storm, a portion of City would be flooded, primarily around the southern and western borders of the City. Flood inundation resulting from dam failure of Prado Dam or Carbon Canyon Dam is a potential hazard for the City. Inundation from Prado Dam would affect the very southern portions of the City. Inundation from Carbon Canyon would affect the majority of the City generally west of Rose Drive/Tustin Avenue. If such a flood were to substantially damage or destroy taxable property within the City, a reduction in taxable values of property in the City and a reduction in revenues available to the General Fund to pay debt service on the Bonds would be likely to occur.
Fire Hazards. [As of 2019, the City is approaching "build -out" conditions with approximately 98 percent of developable land developed or in the process of developing. Approximately 54.5 acres, or 1.3 percent, of the City's total acreage is vacant.][Update/Confirm] Placentia is surrounded by other build -out cities and is not adjacent to wildland areas; therefore, the risk of Wildland-Urban Interface fires is relatively nonexistent. However, in recent years, wildfires have caused extensive damage throughout the State.
Certain of these fires have burned thousands of acres and in some cases destroyed thousands of homes. In some instances, entire neighborhoods have been destroyed. There can be no assurances that future wildfires will not affect the property located in the City. Property damage due to wildfire could result in a significant decrease in the market value of property in the City and in the ability or willingness of property owners to pay property taxes when due.
The City has adopted a Natural Hazards Mitigation Plan. This plan includes a hazard analysis for earthquake, flood, landslide and fire risk, and is required to comply with Federal Emergency Management Agency requirements for disaster relief funding.
If such events described above occur, the City's emergency response to such an event may add unanticipated expenditures to the General Fund budget, some or all of which may not be reimbursed by federal or state disaster funding, and, if reimbursed, may not be received by the City in a timely manner.
This could lead to reduced ability by the City to make Base Rental Payments. 52 4885-9887-4678.9
Cybersecurity
The City, like many other public and private entities, relies on computer and other digital networks and systems to conduct its operations and finances. As a recipient and provider of personal, private or other electronic sensitive information, the City is potentially subject to multiple cyber threats including, but not limited to, hacking, viruses, malware, ransomeware and other attacks on computer and other sensitive digital networks and systems. Entities or individuals may attempt to gain unauthorized access to the City's systems for the purposes of misappropriating assets or information or causing operational disruption or damage.
The City has never had a major cyber breach that resulted in a financial loss. The City provides training to its staff on phishing and safe browsing and how to avoid potential cyber threats. However, no assurances can be given that the security and operational control measures of the City will be successful in guarding against any and each cyber threat or breach. Although the City maintains insurance coverage for cyber security losses should a successful breach ever occur, the cost of any such disruption or remedying damage caused by future attacks could be substantial and in excess of such insurance coverage. The City has recently started looking into updating the insurance coverage for cybersecurity and currently has a supplemental insurance plan in place.
State Budget
State Budget. Information regarding the State Budget is regularly available at various State -maintained websites. The 2023-24 Proposed State Budget defined and described below may be found at the website of the Department of Finance, www.dof.ca.gov , under the heading "California Budget." Additionally, an impartial analysis of the State's Budgets is posted by the California Legislative Analyst's Office (the "LAO") at www.lao.ca.gov . The information referred to is prepared by the respective State agency maintaining each website and not by the City, and the City, the Underwriter and the Municipal Advisor take no responsibility for the continued accuracy of the internet addresses or for the accuracy, completeness or timeliness of information posted there, and such information is not incorporated herein by these references.
According to the State Constitution, the Governor of the State (the "Governor") is required to propose a budget to the State Legislature (the "Legislature") by no later than January 10 of each year, and a final budget must be adopted by the vote of each house of the Legislature no later than June 15. The State budget becomes law upon the signature of the Governor, who may veto specific items of expenditure.
Prior to Fiscal Year 2010-11, the State budget had to be adopted by a two-thirds vote of each house of the Legislature. However, in November 2010, the voters of the State passed Proposition 25, which reduced the vote required to adopt a budget to a majority vote of each house and which provided that there would be no appropriation from the current budget or future budget to pay any salary or reimbursement for travel or living expenses for members of the Legislature for the period during which the budget was presented late to the Governor.
Fiscal Year 2023-24 Proposed State Budget. On January 10, 2023, Governor Newsom released his proposed fiscal year 2023-24 State budget (the "2023-24 Proposed State Budget"), which projects general fund revenues at $208 billion in fiscal year 2022-23 and $210 billion in fiscal year 2023-24. The 2023-24 Proposed State Budget describes these revenues as significantly lower than previously anticipated, mainly due to declines in withholding and capital gains taxes. The 2023-24 Proposed State Budget forecasts State General Fund revenues to be $29.5 billion lower than was projected in the 2022-23 State Budget, resulting in an estimated budget gap of $22.5 billion in the 2023-24 fiscal year. The 2023-24 Proposed State Budget 53 4885-9887-4678.9
plans to close the projected shortfall using a number of tools including funding delays, reductions, funding shifts, and limited revenue generation and borrowing.
The State is projected to end fiscal year 2022-23 with a reserve balance of approximately $39.6 billion, comprised of approximately $17.2. billion in the Special Fund for Economic Uncertainties (the "SFEU") and approximately $21.4 billion in the Budget Stabilization Account (the "BSA"). Fiscal year 2023-24 is expected to end with a reserve balance of approximately $35.6 billion, comprised of approximately $3.8. billion in the SFEU and approximately $22.4 billion in the BSA. The BSA is now at its constitutional maximum (10% of General Fund revenues) requiring $951 million to be dedicated for infrastructure investments in fiscal year 2023-24. The 2023-24 Proposed State Budget reflects a payment of $365 million into the Public School System Stabilization Account (the "PSSSA"), for a total revised balance of more than $8.5 billion at the end of fiscal year 2022-23.
The 2023-24 Proposed State Budget supports various education, safety, health, business and climate change initiatives. The 2023-24 Proposed State Budget accelerates the pay down of the State's retirement liabilities as required by Proposition 2, with $1.9 billion in additional payments required in fiscal year 2023-24 and approximately $5.3 billion projected to be paid over the next three years.
Although the 2023-24 Proposed State Budget revenue outlook is substantially different than seen in the last two years, the 2023-24 Proposed State Budget recognizes that by using the bulk of the recent surplus to boost the State's budget reserves and pay down prior debts, by focusing on one-time and near-term spending instead of costly long-term obligations, and by tying or "triggering" a handful of new ongoing programs to sufficient revenue availability in fiscal year 2024-25, the State does not have to propose the kind of deep reductions to priority programs that marked the budget shortfalls over the past two decades. It will, however, require the State to delay or forego some spending in the near term.
No prediction can be made by the City as to whether the State will encounter budgetary problems in future fiscal years, and if it were to do so, it is not clear what measures would be taken by the State to balance its budget, as required by law. In addition, the City cannot predict the final outcome of future State budget negotiations, the impact that such budgets will have on City finances and operations or what actions will be taken in the future by the Legislature and the Governor to deal with changing State revenues and expenditures.
Fiscal Year 2023-24 May Revised State Budget.
On May 12, 2023, Governor Gavin Newsom released his May Revision to the 2023-24 Proposed State Budget (the "2023-24 May Revised State Budget"). The 2023-24 May Revised State Budget projects a revenue shortfall, after transfers and adjustments, of $9.3 billion in additional to the $22.5 billion shortfall already projected in the 2023-24 Proposed State Budget. The additional revenue shortfall results in part from higher- than-expected inflation rates, lower-than-expected tax receipts, and federal and State tax filing deadline delays for taxpayers in winter -storm effected counties. When combined with, and accounting for slight adjustments to the $22.5 billion shortfall in the 2023-24 Proposed State Budget, the 2023-24 May Revised State Budget projects a $31.5 billion shortfall.
The 2023-24 May Revised State Budget reflects $37.2 billion in total budgetary reserves and does not project a need to draw on any of the State's reserves as a solution to the budget problem except for a portion of the Safety Net Reserve (the "Safety Net Reserve"). The reserve levels in the 2023-24 May Revised State Budget includes $22.3 billion in the BSA, which fulfills the constitutional maximum mandatory deposit limit of 10% of General Fund tax proceeds, $10.7 billion in the PSSSA, $450 million in the Safety Net Reserve (net of a 54 4885-9887-4678.9
$450 million dollar draw), and $3.8 billion in the SFEU. As the BSA balance is at its constitutional maximum amount, a total of $2.3 billion must be dedicated for infrastructure investments in Fiscal Year 2023-24.
The 2023-24 May Revised State Budget addresses the projected additional $9.3 billion budget shortfall through several solutions to be considered in addition to those already included in the 2023-24 Proposed State Budget, including:
• Spending Reductions and Pullbacks—Reduction of an additional $1.1 billion in spending across the State's 2021-22 through 2023-24 fiscal years. Combined with the 2023-24 Proposed State Budget's $5.7 billion in reductions and pullbacks and a $57 million adjustment, the 2023-24 May Revised State Budget includes total solutions in this category of $6.7 billion. Generally, the reductions in the 2023-24 May Revised State Budget reflect reversions of unused funds, rather than cuts to programs. For example, $200 million in unallocated Middle Class Tax Refunds, $149.4 million in unused funds for the Utility Arrearages Program, and $280 million of unspent funds for the 2021-22 fiscal year for Ca1WORKs county administration and services will revert to the General Fund.
• Delayed Spending—Delays an additional $695 million across the multi-year budget period without reducing the total amount of funding through the same period. Combined with the 2023-24 Proposed State Budget delays of $7.4 billion, $8.1 billion in spending delays is spread across the multi-year.
Major items in this category in the 2023-24 May Revised State Budget include: $295 million moved into the out -years for the Foreclosure Intervention Housing Prevention Program (while maintaining $205 million in the current year and budget year).
• Fund Shifts—Includes $3.3 billion in shifts of spending commitments from the General Fund to other funds. Combined with the 2023-24 Proposed State Budget fund shifts of $4.3 billion and a $90 million adjustment, there is a total of $7.5 billion in shifts to other funds. Major items in this category in the 2023-24 May Revised State Budget include $1.1 billion in climate related investments shifted to a climate bond, $635 million of Zero Emission Vehicle investments shifted to Greenhouse Gas Reduction Fund, and $1.1 billion for student housing projects shifted to bonds. • Revenue/Borrowing—Includes $3.7 billion in revenue and borrowing, which consist primarily of an additional $2.5 billion from the Managed Care Organization tax and $1.2 billion in additional borrowing from special funds. Combined with the 2023-24 Proposed State Budget amount of $1.2 billion, there is a total of $4.9 billion in new revenue or borrowing. • Safety Net Reserve Withdrawal—Includes the withdrawal of $450 million from the Safety Net Reserve. This represents half of the funds available in the reserve, leaving a balance of $450 million if subsequently needed.
The Governor notes in the 2023-24 May Revised State Budget that the State faces additional risks to its finances that could result from the economic fallout from a debt limit impasse if Congress is unable to meet raise the federal debt limit, continued inflation and interest rate growth, uncertainty in the financial system caused by the failures of regional banks, and the difficulty in projecting tax revenues due to the tax returns from most counties in the State not being due until October. While the 2023-24 May Revised State Budget does not project a recession, should risks be realized and a moderate recession occur, revenue declines below the 2023-24 May Revised State Budget forecast could be significant. The 2023-24 May Revised State Budget recognizes that the magnitude of the revenue loss would depend upon the depth and duration of a recession, 55 4885-9887-4678.9
as well as its relative impacts on higher -income individuals. Based on a moderate recession scenario in fiscal year 2023-24, revenues could decrease by $40 billion in fiscal year 2023-24 alone, largely driven by losses in personal income tax and revenue declines relative to the 2023-24 May Revised State Budget forecast could reach an additional $100 billion through fiscal year 2026-27.
There can be no assurance that actions taken by the State to address its financial condition will not materially adversely affect the financial condition of the City. Current and future State budgets will be affected by national and State economic conditions and other factors over which the City has no control.
State Legislative Shifts of Property Tax Allocation. From time to time, the State has realigned certain property tax revenue to deal with its budget problems. Since 1992-93, the State has required that local agencies including cities remit a portion of property taxes received to augment school funding. These funds are deposited in each county's Education Revenue Augmentation Fund ("ERAF"). These property taxes (approximately 17.5%) are permanently excluded from the City's property tax revenues.
On July 24, 2009, the Legislature approved amendments to the 2009-10 Budget to close its anticipated $26.3 billion budget shortfall. The approved amendments included borrowing from local governments by withholding of the equivalent of 8% of Fiscal Year 2008-09 property related tax revenues from cities' and counties' property tax collections under provisions of Proposition 1A (approved by the voters in 2004), which the State was required to repay with interest within three years. The first (and to date, only) shift occurred in Fiscal Year 2009-10. Fiscal Year 2012-13 was the first year that another shift was allowable, but the State has not implemented another borrowing yet.
On March 2, 2004, voters approved a bond initiative formally known as the "California Economic Recovery Act." This act authorized the issuance of $15 billion in bonds to finance the Fiscal Year 2002-03 and Fiscal Year 2003-04 State budget deficits, which would be payable from a fund to be established by the redirection of tax revenues through the "Triple Flip." Under the "Triple Flip," one-quarter of local governments' 1% share of the sales tax imposed on taxable transactions within their jurisdiction were redirected to the State.
In an effort to eliminate the adverse impact of the sales tax revenue redirection on local government, the legislation provided for property taxes in the ERAF to be redirected to local government. Because the ERAF moneys were previously earmarked for schools, the legislation provided for schools to receive other state general fund revenues. The swap of sales taxes for property taxes terminated once the deficit financing bonds were repaid in September 2015. The City treated the Triple Flip property tax revenue as sales tax in its financial statements.
The City also received a portion of Department of Motor Vehicles license fees ("VLF") collected statewide.
Several years ago, the State-wide VLF was reduced by approximately two-thirds. However, the State continued to remit to cities and counties the same amount that those local agencies would have received if the VLF had not been reduced, known as the "VLF backfill." The State VLF backfill was phased out and as of 2011-12 all of the VLF is now received through an in lieu payment from State property tax revenues.
There can be no assurance the State will not take similar actions such as those described above or additional actions to address its financial condition and such actions may materially adversely affect the financial condition of the City. Current and future State budgets will be affected by national and State economic conditions and other factors over which the City has no control, including, and particularly, the Pandemic.
Limited Recourse on Default; No Acceleration
If an event of default occurs and is continuing under the Lease Agreement, there is no remedy of acceleration of any Base Rental Payments which have not come due and payable in accordance with the 56 4885-9887-4678.9
Lease Agreement. The City will continue to be liable for Base Rental Payments as they become due and payable in accordance with the Lease Agreement if the Trustee does not terminate the Lease Agreement, and the Trustee would be required to seek a separate judgment each year for that year's defaulted Base Rental Payments. Any such suit for money damages would be subject to limitations on legal remedies against cities in California, including a limitation on enforcement of judgments against funds or property needed to serve the public welfare and interest. In addition, the enforcement of any remedies provided in the Lease Agreement and the Indenture could prove both expensive and time-consuming.
The Lease Agreement permits the Trustee to take possession of and release the Leased Property in the event of a default by the City under the Lease Agreement. Even if the Trustee could readily release the Leased Property, the rents may not be sufficient to enable it to pay principal of and interest on the Bonds in full when due. Any such releasing of the Leased Property would be subject to existing encumbrances thereon.
In addition, no assurances can be given that a court would permit the Authority or the Trustee to exercise the remedies which are granted under the Lease Agreement to re-enter and relet the Leased Property. See "THE LEASED PROPERTY" herein.
Enforcement of Remedies
The enforcement of any remedies provided in the Lease Agreement and the Indenture could prove both expensive and time consuming. The rights and remedies provided in the Lease Agreement and the Indenture may be limited by and are subject to the limitations on legal remedies against cities, including State constitutional limits on expenditures, and limitations on the enforcement of judgments against funds needed to serve the public welfare and interest; by federal bankruptcy laws, as now or hereafter enacted; applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws relating to or affecting the enforcement of creditors' rights generally, now or hereafter in effect (see "Bankruptcy" below); equity principles which may limit the specific enforcement under State law of certain remedies; the exercise by the United States of America of the powers delegated to it by the Constitution; the reasonable and necessary exercise, in certain exceptional situations, of the police powers inherent in the sovereignty of the State and its governmental bodies in the interest of serving a significant and legitimate public purpose; and the limitations on remedies against municipal entities in the State. Bankruptcy proceedings or the exercise of powers by the federal or State government, if initiated, could subject the Owners of the Bonds to judicial discretion and interpretation of their rights in bankruptcy or otherwise, and consequently may entail risks of delay, limitation or modification of their rights.
The legal opinions to be delivered concurrently with the delivery of the Bonds (including Bond Counsel's legal opinion) will be qualified, as to the enforceability of the Bonds, the Indenture, the Site Lease, the Lease Agreement, the Assignment Agreement and other related documents, by bankruptcy, insolvency, reorganization, moratorium, arrangement, fraudulent conveyance and other laws relating to or affecting creditors' rights, to the application of equitable principles, to the exercise of judicial discretion in appropriate cases, and to the limitation on legal remedies against cities and counties in the State. See "Bankruptcy" below.
Bankruptcy
In addition to the limitations on remedies contained in the Indenture and the Lease Agreement, the rights and remedies in the Lease Agreement may be limited and are subject to the provisions of federal bankruptcy laws, as now or hereafter enacted, and to other laws or equitable principles that may affect the enforcement of creditors' rights.
Under Chapter 9 of the Bankruptcy Code (Title 11, United States Code) (the "Bankruptcy Code"), which governs bankruptcy proceedings of public entities such as the City, no involuntary bankruptcy petition may 57 4885-9887-4678.9
be filed against a public entity. However, upon satisfaction of certain prerequisite conditions, a voluntary bankruptcy petition may be filed by the City. The filing of a bankruptcy petition results in a stay against enforcement of certain remedies under agreements to which the bankrupt entity is a party. A bankruptcy filing by the City could thus limit remedies under the Lease Agreement. A bankruptcy debtor may choose to assume or reject executory contracts and leases, such as the Lease Agreement. However, a debtor may not assume or reject executory contracts to loan money or to make a financial accommodation, such as the Indenture. In the event of rejection of a lease by debtor lessee, the leased property is returned to the lessor and the lessor has a claim for a limited amount of the resulting damages.
Under the Indenture, the Trustee holds a security interest in the revenues in the funds pledged thereunder, including Base Rental Payments, for the benefit of the Owners of the Bonds, but such security interest arises only when the Base Rental Payments are actually received by the Trustee following payment by the City.
The Leased Property itself is not subject to a security interest, mortgage or any other lien in favor of the Trustee for the benefit of the Owners of the Bonds. In the event of a bankruptcy filed by the City and the subsequent rejection of the Lease Agreement by the City, the Trustee is entitled to recover possession of the Leased Property, although as discussed above no assurances can be given that a Court would permit such action to be taken by the Trustee due to the essential governmental purposes served by the Leased Property. In addition, the Trustee would have a claim for damages against the City, although such claim would constitute a secured claim only to the extent of revenues in the possession of the Trustee; the balance of such claim would be unsecured.
Such a bankruptcy could adversely affect the payments under the Indenture. Among the adverse effects might be: (i) the application of the automatic stay provisions of the Bankruptcy Code, which, until relief is granted, would prevent collection of payments from the City or the commencement of any judicial or other action for the purpose of recovering or collecting a claim against the City and could prevent the Trustee from making payments from funds in its possession; (ii) the avoidance of preferential transfers occurring during the relevant period prior to the filing of a bankruptcy petition; (iii) the existence of unsecured or secured debt which may have priority of payment superior to that of the Owners of the Bonds; and (iv) the possibility of the adoption of a plan (the "Plan of Adjustment") for the adjustment of the City's debt without the consent of the Trustee or all of the Owners of the Bonds, which Plan of Adjustment may restructure, delay, compromise or reduce the amount of any claim of the Owners of the Bonds if the Bankruptcy Court finds that the Plan of Adjustment is fair and equitable and in the best interests of creditors.
In a bankruptcy of the City, if a material unpaid liability is owed to Ca1PERS or any other pension system (collectively the "Pension Systems") on the filing date, or accrues thereafter, such circumstances could create additional uncertainty as to the City's ability to make Base Rental Payments. Given that municipal pension systems in California are usually administered pursuant to state constitutional provisions and, as applicable, other state and/or city law, the Pension Systems may take the position, among other possible arguments, that their claims enjoy a higher priority than all other claims, that Pension Systems have the right to enforce payment by injunction or other proceedings outside of a City bankruptcy case, and that Pension System claims cannot be the subject of adjustment or other impairment under the Bankruptcy Code because that would purportedly constitute a violation of state statutory, constitutional and/or municipal law.
It is uncertain how a bankruptcy judge in a City bankruptcy would rule on these matters. In addition, this area of law is presently very unsettled as issues of pension underfunding claim priority, pension contribution enforcement, and related bankruptcy plan treatment of such claims (among other pension -related matters) have been the subject of litigation in the Chapter 9 cases of several California municipalities, including the Cities of Stockton and San Bernardino.
The Authority is a public agency and, like the City, is not subject to the involuntary procedures of the Bankruptcy Code. The Authority may also seek voluntary protection under Chapter 9 of the Bankruptcy 58 4885-9887-4678.9
Code. In the event the Authority were to become a debtor under the Bankruptcy Code, the Authority would be entitled to all of the protective provisions of the Bankruptcy Code as applicable in a Chapter 9 proceeding. Such a bankruptcy could adversely affect the payments under the Indenture. Among the adverse effects might be: (i) the application of the automatic stay provisions of the Bankruptcy Code, which, until relief is granted, would prevent collection of payments from the Authority or the commencement of any judicial or other action for the purpose of recovering or collecting a claim against the Authority; (ii) the avoidance of preferential transfers occurring during the relevant period prior to the filing of a bankruptcy petition; (iii) the existence of unsecured or court -approved secured debt which may have priority of payment superior to that of the Owners of the Bonds; and (iv) the possibility of the adoption of a plan for the adjustment of the Authority's debt without the consent of the Trustee or all of the Owners of the Bonds, which plan may restructure, delay, compromise or reduce the amount of any claim of the Owners of the Bonds if the Bankruptcy Court finds that the Plan is fair and equitable. In a bankruptcy the Authority could challenge the assignment of the Site Lease and the Lease Agreement, and the Trustee and/or the Owners of the Bonds could be required to litigate these issues to protect their interests.
Risks Related to COVID-19
The outbreak of a respiratory disease caused by a new strain of coronavirus ("COVID-19"), was declared a global pandemic by the World Health Organization in March 2020. Since the onset of the pandemic, California Governor Gavin Newsom and other federal, state and local officials have issued numerous restrictions and warnings, and have taken and continue to take, various actions, including executive orders and the passage of laws and regulations, on a wide array of topics, to slow the spread of COVID-19 and to address the ongoing public health and economic consequences of the pandemic. The Authority cannot predict the scope or duration of preventative or mitigating actions taken by federal, state and local officials in response to COVID-19, which continue to evolve in response to the conditions of the virus, or any future pandemic, epidemic or outbreak of a contagious disease.
As part of its budget process, the U.S. Department of the Treasury allocated $9,083,054 of the American Rescue Plan Act ("ARPA") funds to the City. Allocations to the City started in July 2021 when the City received $4,541,527 in the first tranche. The City received the second tranche of $4,541,527 in ARPA funding in July of 2022. Additionally, the City received $636,000 in funding from the State Coronavirus Relief Fund, which was established through the CARES Act and anticipates an additional $400,000 from FEMA. Although the City anticipates the reimbursements due from FEMA, the timing of the receipt is unknown. These revenues are to be used to reimburse emergency response expenditures associated with the City's COVID-19 response.
Constitutional Limitation on Taxes and Expenditures
State Initiative Measures Generally. Under the California Constitution, the power of initiative is reserved to the voters for the purpose of enacting statutes and constitutional amendments. Voters have exercised this power through the adoption of Proposition 13 ("Article XIIIA") and similar measures, such as Propositions 22 and 26 approved in the general election held on November 2, 2010.
Any such initiative may affect the collection of fees, taxes and other types of revenue by local agencies such as the City. Subject to overriding federal constitutional principles, such collection may be materially and adversely affected by voter -approved initiatives, possibly to the extent of creating cash-flow problems in the payment of outstanding obligations such as the Lease Agreement.
Article XIIIA. On June 6, 1978, State voters approved Proposition 13, which added Article XIIIA to the State Constitution. Article XIIIA, as amended, limits the amount of any ad valorem tax on real property to 1% of the full cash value thereof, except that additional ad valorem property taxes may be levied to pay 59 4885-9887-4678.9
debt service: (i) on indebtedness approved by the voters prior to December 1, 1978; (ii) on bonded indebtedness approved by a two-thirds vote on or after December 1, 1978, for the acquisition or improvement of real property; or (iii) bonded indebtedness incurred by a school district, community college district, or county office of education for the construction, reconstruction, rehabilitation, or replacement of school facilities, including the furnishing and equipping of school facilities or the acquisition or lease of real property for school facilities, approved by 55% of the voters voting on the proposition. 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." This full cash value may be increased at a rate not to exceed 2% per year to account for inflation.
Article XIIIA has subsequently been amended to permit reduction of the "full cash value" base in the event of declining property values caused by damage, destruction or other factors, including a general economic downturn, to provide that there would be no increase in the "full cash value" base in the event of reconstruction of property damaged or destroyed in a disaster, and in other minor or technical ways.
Legislation Implementing Article XIIIA. Legislation has been enacted and amended a number of times since 1978 to implement Article XIIIA. Under current law, local agencies are no longer permitted to levy directly any property tax (except to pay voter -approved indebtedness). The 1% property tax is automatically levied by counties and distributed according to a formula among taxing agencies.
Increases in assessed valuation resulting from reappraisals of property due to new construction, change in ownership or from the 2% annual adjustment are allocated among the various jurisdictions in the "taxing area" based upon their respective "situs." Any such allocation made to a local agency continues as part of its allocation in future years.
All taxable property is shown at full cash value on the tax rolls. Consequently, the tax rate is expressed as $1 per $100 of taxable value. All taxable property value included in this Official Statement is shown at 100 percent of taxable value (unless noted differently) and all tax rates reflect the $1 per $100 of taxable value.
Property Tax Base Transfer (Proposition 19). At the November 2020 Statewide election, "Proposition 19" was approved by the electorate. Proposition 19 amended California Constitution Article XIIIA to permit eligible homeowners to transfer tax assessments anywhere in the State, narrow existing special rules for inherited properties, and broaden the scope of triggers for reassessment of properties. Any additional revenues and net savings resulting from Proposition 19 will be allocated to fire protection services and reimbursing local governments for taxation -related changes. The City cannot make any assurance as to what effect the implementation of Proposition 19 will have on City revenues or assessed valuation of real property in the City.
Proposition 8 Adjustments. Proposition 8, approved in 1978, provides for the assessment of real property at the lesser of its originally determined (base year) full cash value compounded annually by the inflation factor, or its full cash value as of the lien date, taking into account reductions in value due to damage, destruction, obsolescence or other factors causing a decline in market value. Reductions based on Proposition 8 do not establish new base year values, and the property may be reassessed as of the following lien date up to the lower of the then -current fair market value or the factored base year value. The State Board of Equalization has approved this reassessment formula and such formula has been used by county assessors statewide. The City experienced Proposition 8 reductions in property values between 2009 and 2011. The COVID-19 impact on the economy may impact future property values and cause an increase in Proposition 8 reductions in future years. See "FINANCIAL INFORMATION-- Ad Valorem Property Taxes — Taxable Property and Assessed Valuation" herein. 60 4885-9887-4678.9
Article XIIIB. On November 6, 1979, California voters approved Proposition 4, or the Gann Initiative, which added Article XIIIB to the California Constitution. Article XIIIB limits the annual appropriations of the State and any city, county, city and county, school district, authority or other political subdivision of the State. The "base year" for establishing such appropriations limit is the 1978-79 Fiscal Year, 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 public agencies.
Appropriations subject to Article XIIIB include generally the proceeds of taxes levied by or for the entity and the proceeds 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, certain State subventions, and the proceeds to an entity of government, from (1) regulatory licenses, user charges and user fees, to the extent that such charges and fees exceed the costs reasonably borne in providing the regulation, product or service, and (2) 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 returned by revising tax rates or fee schedules within the next two subsequent fiscal years.
In the June 1990 election, the voters approved Proposition 111 amending the method of calculation of State and local appropriations limits. Proposition 111 made several changes to Article XIIIB. First, the term "change in the cost of living" was redefined as the change in the California per capita personal income ("CPCPI") for the preceding year. Previously, the lower of the CPCPI or the United States Consumer Price Index was used. Second, the appropriations limit for the fiscal year was recomputed by adjusting the 1986-87 limit by the CPCPI for the three subsequent years. Third and lastly, Proposition 111 excluded appropriations for "qualified capital outlay for Fiscal Year 1990-91 as defined by the legislature" from proceeds of taxes.
Section 7910 of the Government Code requires the City to adopt a formal appropriations limit for each fiscal year. The City's appropriations limit for 2018-19 is $307,052,768. The City's appropriations subject to the limit for 2018-19 are $154,045,587. Based on this, the appropriations limit is not expected to have any impact on the ability of the City to continue to budget and appropriate the Base Rental Payments as required by the Lease.
Proposition 62. Proposition 62 was a statutory initiative adopted in the November 1986 general election.
Proposition 62 added Sections 53720 to 53730, inclusive, to the California Government Code. It confirmed the distinction between a general tax and special tax, established by the State Supreme Court in 1982 in City and County of San Francisco v. Farrell, by defining a general tax as one imposed for general governmental purposes and a special tax as one imposed for specific purposes. Proposition 62 further provided that no local government or district may impose (i) a general tax without prior approval of the electorate by majority vote or (ii) a special tax without such prior approval by two-thirds vote. It further provided that if any such tax is imposed without such prior written approval, the amount thereof must be withheld from the levying entity's allocation of annual property taxes for each year that the tax is collected.
By its terms, Proposition 62 applies only to general and special taxes imposed on or after August 1, 1985.
Proposition 62 was generally upheld in Santa Clara County Local Transportation Authority v. Guardino, a California Supreme Court decision filed September 28, 1995.
Proposition 218. On November 5, 1996, California voters approved Proposition 218 — Voter Approval for Local Government Taxes — Limitation on Fees, Assessments, and Charges — Initiative Constitutional Amendment. Proposition 218 added Articles XIIIC and XIIID to the California Constitution, imposing certain vote requirements and other limitations on the imposition of new or increased taxes, assessments and property -related fees and charges. Proposition 218 states that all taxes imposed by local governments shall be deemed to be either general taxes or special taxes. Special purpose districts, including school 61 4885-9887-4678.9
districts, have no power to levy general taxes. No local government may impose, extend or increase any general tax unless and until such tax is submitted to the electorate and approved by a majority vote. No local government may impose, extend or increase any special tax unless and until such tax is submitted to the electorate and approved by a two-thirds vote.
Proposition 218 also provides that no tax, assessment, fee or charge shall be assessed by any agency upon any parcel of property or upon any person as an incident of property ownership except: (i) the ad valorem property tax imposed pursuant to Article XIII and Article XIIIA of the California Constitution, (ii) any special tax receiving a two-thirds vote pursuant to Section 4 of Article XIIIA the California Constitution, and (iii) assessments, fees, and charges for property related services as provided in Article XIIID.
Proposition 218 added voter requirements for assessments and fees and charges imposed as an incident of property ownership, other than fees and charges for sewer, water, and refuse collection services. In addition, all assessments and fees and charges imposed as an incident of property ownership, including sewer, water, and refuse collection services, are subjected to various additional procedures, such as hearings and stricter and more individualized benefit requirements and findings. The effect of such provisions will presumably be to increase the difficulty a local agency will have in imposing, increasing or extending such assessments, fees and charges.
Proposition 218 also extended the initiative power to reducing or repealing any local taxes, assessments, fees and charges. This extension of the initiative power is not limited to taxes imposed on or after November 6, 1996, the effective date of Proposition 218, and could result in retroactive repeal or reduction in any existing taxes, assessments, fees and charges, subject to overriding federal constitutional principles relating to the impairment of contracts.
Proposition 218 provides that, effective July 1, 1997, fees that are charged "as an incident of property ownership" may not "exceed the funds required to provide the property related services" and may only be charged for services that are "immediately available to the owner of the property." The City levies a franchise tax on its cable television, telephone and gas utility franchises. This tax has not been submitted for approval by voters. See "FINANCIAL INFORMATION — Local Taxes" herein for a discussion of these taxes. The City has a street lighting district formed in 1981 and a landscape maintenance formed in 1982 that levy assessments for street lighting and landscape maintenance, which are used to offset certain General Fund expenses. These assessments have not been submitted for approval by voters.
The City does not expect the application of Proposition 218 will have a material adverse impact on its ability to pay Base Rental Payments.
Voter -Approved Taxes. Placentia levies a utility users' tax. The utility users' tax was first levied pursuant to an ordinance of the City Council adopted in 1970. The City levies a transient occupancy tax on hotel and motel bills. In November 2018, voters approved a general one cent sales tax to be levied and collected on behalf of the City, by majority vote of 63%.
There is no time limit established for the collection of the utility users' tax, the transient occupancy tax or the sales tax.
The City has formed community facilities districts which levy special taxes to pay for certain services.
These special taxes are used to offset certain General Fund expenses. The community facilities districts comply with Proposition 218.
Proposition 1A. Proposition 1A, proposed by the Legislature in connection with the 2004-05 Budget Act and approved by the voters in November 2004, restricts State authority to reduce major local tax revenues 62 4885-9887-4678.9
such as the tax shifts permitted to take place in Fiscal Years 2004-05 and 2005-06. Proposition lA provides that the State may not reduce any local sales tax rate, limit existing local government authority to levy a sales tax rate or change the allocation of local sales tax revenues, subject to certain exceptions. Proposition 1A generally prohibits the State from shifting to schools or community colleges any share of property tax revenues allocated to local governments for any fiscal year, as set forth under the laws in effect as of November 3, 2004. Any change in the allocation of property tax revenues among local governments within a county must be approved by two-thirds of both houses of the Legislature.
Proposition lA provides, however, that beginning in Fiscal Year 2008-09, the State may shift to schools and community colleges up to 8% of local government property tax revenues, which amount must be repaid, with interest, within three years, if the Governor proclaims that the shift is needed due to a severe state financial hardship, the shift is approved by two-thirds of both houses and certain other conditions are met.
Such a shift may not occur more than twice in any 10 -year period. The State may also approve voluntary exchanges of local sales tax and property tax revenues among local governments within a county.
For Fiscal Year 2009-10, 8% of the City's property tax revenues were diverted to the State as a result of a Proposition lA suspension.
Proposition lA also provides that if the State reduces the vehicle license fee rate below 0.65% of vehicle value, the State must provide local governments with equal replacement revenues. Further, Proposition 1A requires the State to suspend State mandates affecting cities, counties and special districts, excepting mandates relating to employee rights, schools or community colleges, in any year that the State does not fully reimburse local governments for their costs to comply with such mandates.
Proposition 22. On November 2, 2010, voters in the State approved Proposition 22. Proposition 22, known as the "Local Taxpayer, Public Safety, and Transportation Protection Act of 2010," eliminates or reduces the State's authority to (i) temporarily shift property taxes from cities, counties and special districts to schools, (ii) use vehicle license fee revenues to reimburse local governments for State -mandated costs (the State will have to use other revenues to reimburse local governments), (iii) redirect property tax increment from redevelopment agencies to any other local government, (iv) use State fuel tax revenues to pay debt service on State transportation bonds, or (v) borrow or change the distribution of State fuel tax revenues.
Proposition 26. On November 2, 2010, voters in the State also approved Proposition 26. Proposition 26 amends Article XIIIC of the State Constitution to expand the definition of "tax" to include "any levy, charge, or exaction of any kind imposed by a local government" except the following: (1) a charge imposed for a specific benefit conferred or privilege granted directly to the payor that is not provided to those not charged, and which does not exceed the reasonable costs to the local government of conferring the benefit or granting the privilege; (2) a charge imposed for a specific government service or product provided directly to the payor that is not provided to those not charged, and which does not exceed the reasonable costs to the local government of providing the service or product; (3) a charge imposed for the reasonable regulatory costs to a local government for issuing licenses and permits, performing investigations, inspections, and audits, enforcing agricultural marketing orders, and the administrative enforcement and adjudication thereof; (4) a charge imposed for entrance to or use of local government property, or the purchase, rental, or lease of local government property; (5) a fine, penalty, or other monetary charge imposed by the judicial branch of government or a local government, as a result of a violation of law; (6) a charge imposed as a condition of property development; and (7) assessments and property -related fees imposed in accordance with the provisions of Article XIIID Proposition 26 provides that the local government bears the burden of proving by a preponderance of the evidence that a levy, charge, or other exaction is not a tax, that the amount is no more than necessary to cover the reasonable costs of the governmental activity, and that the manner in which those costs are allocated to a payor bear a fair or reasonable relationship to the payor's burdens on, or benefits received from, the governmental activity. The 63 4885-9887-4678.9
City does not expect the provisions of Proposition 26 to materially impede its ability to pay Base Rental Payments when due.
Taxpayer Protection and Government Accountability Act Initiative On February 1, 2023, the California Secretary of State announced that a ballot initiative, designated as Initiative 1935 and known as the "Taxpayer Protection and Government Accountability Act," had received the required number of signatures to appear on the November 5, 2024 ballot.
If approved by a majority of voters casting a ballot at the November 5, 2024 Statewide election, Initiative 1935 would make numerous significant changes to Articles XIII, XIIIA, XIIIC and XIIID of the California Constitution to further limit the authority of local governments, and electors via the initiative process, to adopt and impose taxes and fees. See the caption "— Constitutional Limitations on Taxes and Expenditures." The full text of Initiative 1935 may be viewed at the website of the California Attorney General.
The City cannot predict whether Initiative 1935 will be approved by a majority of voters casting a ballot at the November 5, 2024 Statewide election. If Initiative 1935 is approved, the City cannot provide any assurances as to the effect of the implementation or judicial interpretations of Initiative 1935 on the finances of the State or the City.
Future Initiatives. From time to time other initiative measures could be adopted, limiting or otherwise affecting the ability of the City to increase revenues and appropriations.
Early Redemption Risk
Early payment of the Base Rental Payments and early redemption of the Bonds may occur in whole or in part without premium from the net proceeds of insurance or condemnation award with respect to the Leased Property or portions thereof. See "THE BONDS — Redemption — Extraordinary Redemption from Condemnation Award or Insurance Proceeds."
Secondary Market Risk
There can be no assurance that there will be a secondary market for purchase or sale of the Bonds, and from time to time there may be no market for them, depending upon prevailing market conditions, the financial condition or market position of firms who may make the secondary market and the financial condition of the City.
Substitution or Removal of Property
The Lease Agreement provides that, upon the satisfaction of the other conditions specified therein, the City may substitute other real property and/or improvements for existing Leased Property and/or remove real property (including undivided interests therein) and/or improvements from the definition of the Leased Property. The Lease Agreement requires (a) that any project which will comprise the Leased Property after such a substitution or removal, in each lease year during the remaining term of the Lease Agreement must have an annual fair rental value at least equal to the maximum annual Base Rental Payments payable under the Lease Agreement attributable to the Leased Property prior to the substitution or removal, as determined by the City on the basis of commercially reasonable evidence of the annual fair rental value of the Lease Property after the substitution or removal and (b) that the useful life of the Leased Property after substitution or removal equals or exceeds the remaining term of the Lease Agreement. Such a substitution or removal 64 4885-9887-4678.9
could have an adverse impact on the security for the Bonds, particularly if an event requiring abatement of Base Rental Payments were to occur subsequent to such substitution or removal.
Loss of Tax Exemption
As discussed under the heading "TAX MATTERS," the interest on the Bonds could become includable in gross income for purposes of federal income taxation retroactive to the date of delivery of such Bonds as a result of acts or omissions of the Authority or the City in violation of their respective covenants in the Indenture, the Lease Agreement and the Tax Certificate. Should such an event of taxability occur, the Bonds would not be subject to a special redemption and would remain Outstanding until maturity or until redeemed under the redemption provisions contained in the Indenture.
LEGAL MATTERS
Enforceability of Remedies
The remedies available to the Trustee and the Owners of the Bonds upon an event of default under the Indenture, the Lease Agreement, the Site Lease, or any other document described herein are in many respects dependent upon regulatory and judicial actions which are often subject to discretion and delay.
Under existing law and judicial decisions, the remedies provided for under such documents may not be readily available or may be limited. In the case of any bankruptcy proceeding involving the City, the rights of the Owners could be modified at the direction of the court. The various legal opinions to be delivered concurrently with the delivery of the Bonds will be qualified to the extent that the enforceability of certain legal rights related to the Indenture, the Lease Agreement, the Site Lease and other pertinent documents is subject to limitations imposed by bankruptcy, reorganization, insolvency or other similar laws affecting the rights of creditors generally and by equitable remedies and proceedings generally.
Approval of Legal Proceedings
Nixon Peabody LLP, Los Angeles, California, as Bond Counsel, will render an opinion with respect to the validity and enforceability of the Indenture and the Lease Agreement, and as to the validity of the Bonds.
See "APPENDIX D" hereto for the proposed form of Bond Counsel's opinion.
The Authority and the City have no knowledge of any fact or other information which would indicate that the Indenture, the Lease Agreement, the Site Lease or the Bonds are not enforceable against the Authority and the City, as applicable, except to the extent such enforcement is limited by principles of equity, by state and federal laws relating to bankruptcy, reorganization, moratorium or creditors' rights generally and by limitations on legal remedies against municipalities in the State.
Certain legal matters will be passed on for the City and the Authority by Nixon Peabody LLP, Los Angeles, California, as Disclosure Counsel and by the City Attorney. Certain legal matters will be passed on for the Underwriter by its Counsel, Kutak Rock LLP, Irvine, California. Fees payable to Disclosure Counsel and Underwriter's Counsel are contingent upon the sale and delivery of the Bonds.
Absence of Litigation
The Authority and the City will each furnish a certificate dated as of the date of delivery of the Bonds that there is not now known to be pending or threatened any litigation restraining or enjoining the execution or delivery of the Indenture, the Lease Agreement or the sale or delivery of the Bonds or in any manner 65 4885-9887-4678.9
questioning the proceedings and authority under which the Indenture, the Site Lease and the Lease Agreement are to be executed or delivered or the Bonds are to be delivered or affecting the validity thereof.
There exist lawsuits and claims against the City that are incidental to the ordinary course of the City's operations. In the view of the City's management and City Attorney, there is no litigation, present or pending against the City, that will individually or in the aggregate impair the City's ability to make Base Rental Payments when due.
TAX MATTERS
Federal Income Taxes. The Internal Revenue Code of 1986, as amended (the "Code"), imposes certain requirements that must be met subsequent to the issuance and delivery of the Bonds for interest thereon to be and remain excluded from gross income for Federal income tax purposes. Noncompliance with such requirements could cause the interest on the Bonds to be included in gross income for Federal income tax purposes retroactive to the date of issue of the Bonds. Pursuant to the Resolution and a Tax Certificate as to Arbitrage and the Provisions of Sections 103 and 141-150 of the Internal Revenue Code of 1986 (the "Tax Certificate"), the City and the Authority have covenanted to comply with the applicable requirements of the Code in order to maintain the exclusion of the interest on the Bonds from gross income for Federal income tax purposes pursuant to Section 103 of the Code. In addition, the City and the Authority have made certain representations and certifications in the Resolution, the financing agreements and the Tax Certificate. Bond Counsel will not independently verify the accuracy of those representations and certifications.
In the opinion of Nixon Peabody LLP, Bond Counsel, under existing law and assuming compliance with the aforementioned covenant, and the accuracy of certain representations and certifications made by the City and the Authority described above, interest on the Bonds is excluded from gross income for Federal income tax purposes under Section 103 of the Code. Bond Counsel, is also of the opinion that such interest is not treated as a preference item in calculating the alternative minimum tax imposed under the Code. For taxable years beginning after December 31, 2022, interest on the Bonds will be taken into account in computing the alternative minimum tax imposed on certain corporations under the Code to the extent that such interest is included in the "adjusted financial statement income" of such corporations.
State Taxes. Nixon Peabody LLP, Bond Counsel, is also of the opinion that interest on the Bonds is exempt from personal income taxes of the State of California under present law. Nixon Peabody LLP, Bond Counsel expresses no opinion as to other State or local tax consequences arising with respect to the Bonds nor as to the taxability of the Bonds or the income therefrom under the laws of any state other than the State of California.
Original Issue Discount. Bond Counsel, is further of the opinion that the excess of the principal amount of a maturity of the Bonds over its issue price (i.e., the first price at which price a substantial amount of such maturity of the Bonds was sold to the public, excluding bond houses, brokers or similar persons or organizations acting in the capacity of underwriters or wholesalers) (each, a "Discount Bond" and collectively the "Discount Bonds") constitutes original issue discount which is excluded from gross income for federal income tax purposes to the same extent as interest on the Bonds. Further, such original issue discount accrues actuarially on a constant interest rate basis over the term of each Discount Bond and the basis of each Discount Bond acquired at such issue price by an initial purchaser thereof will be increased by the amount of such accrued original issue discount. The accrual of original issue discount may be taken into account as an increase in the amount of tax-exempt income for purposes of determining various other tax consequences of owning the Discount Bonds, even though there will not be a corresponding cash payment. Owners of the Discount Bonds are advised that they should consult with their own advisors with respect to the state and local tax consequences of owning such Discount Bonds. 66 4885-9887-4678.9
Original Issue Premium. Bonds sold at prices in excess of their principal amounts are "Premium Bonds".
An initial purchaser with an initial adjusted basis in a Premium Bond in excess of its principal amount will have amortizable bond premium which offsets the amount of tax-exempt interest and is not deductible from gross income for federal income tax purposes. The amount of amortizable bond premium for a taxable year is determined actuarially on a constant interest rate basis over the term of each Premium Bond based on the purchaser's yield to maturity (or, in the case of Premium Bonds callable prior to their maturity, over the period to the call date, based on the purchaser's yield to the call date and giving effect to any call premium).
For purposes of determining gain or loss on the sale or other disposition of a Premium Bond, an initial purchaser who acquires such obligation with an amortizable bond premium is required to decrease such purchaser's adjusted basis in such Premium Bond annually by the amount of amortizable bond premium for the taxable year. The amortization of bond premium may be taken into account as a reduction in the amount of tax-exempt income for purposes of determining various other tax consequences of owning such Bonds. Owners of the Premium Bonds are advised that they should consult with their own advisors with respect to the state and local tax consequences of owning such Premium Bonds.
Ancillary Tax Matters. Ownership of the Bonds may result in other federal tax consequences to certain taxpayers, including, without limitation, certain S corporations, foreign corporations with branches in the United States, property and casualty insurance companies, individuals receiving Social Security or Railroad Retirement benefits, individuals seeking to claim the earned income credit, and taxpayers (including banks, thrift institutions, and other financial institutions) who may be deemed to have incurred or continued indebtedness to purchase or to carry the Bonds. Prospective investors are advised to consult their own tax advisors regarding these rules.
Interest paid on tax-exempt obligations such as the Bonds is subject to information reporting to the Internal Revenue Service (the "IRS") in a manner similar to interest paid on taxable obligations. In addition, interest on the Bonds may be subject to backup withholding if such interest is paid to a registered owner that (a) fails to provide certain identifying information (such as the registered owner's taxpayer identification number) in the manner required by the IRS, or (b) has been identified by the IRS as being subject to backup withholding.
Nixon Peabody LLP, Bond Counsel, is not rendering any opinion as to any Federal tax matters other than those described in its opinion attached as part of APPENDIX D. Prospective investors, particularly those who may be subject to special rules described above, are advised to consult their own tax advisors regarding the federal tax consequences of owning and disposing of the Bonds, as well as any tax consequences arising under the laws of any state or other taxing jurisdiction.
Changes in Law and Post Issuance Events. Legislative or administrative actions and court decisions, at either the federal or state level, could have an adverse impact on the potential benefits of the exclusion from gross income of the interest on the Bonds for Federal or state income tax purposes, and thus on the value or marketability of the Bonds. This could result from changes to Federal or state income tax rates, changes in the structure of Federal or state income taxes (including replacement with another type of tax), repeal of the exclusion of the interest on the Bonds from gross income for Federal or state income tax purposes, or otherwise. It is not possible to predict whether any legislative or administrative actions or court decisions having an adverse impact on the federal or state income tax treatment of holders of the Bonds may occur.
Prospective purchasers of the Bonds should consult their own tax advisors regarding the impact of any changes in law on the Bonds.
Nixon Peabody LLP, Bond Counsel, has not undertaken to advise in the future whether any events after the date of issuance and delivery of the Bonds may affect the tax status of interest on the Bonds. Nixon Peabody LLP, Bond Counsel, expresses no opinion as to any Federal, state or local tax law consequences with respect 67 4885-9887-4678.9
to the Bonds, or the interest thereon, if any action is taken with respect to the Bonds or the proceeds thereof upon the advice or approval of other counsel.
CONCLUDING INFORMATION
Rating on the Bonds
In connection with the issuance and delivery of the Bonds, S&P Global Ratings ("S&P") is expected to assign its municipal bond rating of "[_]" to the Bonds with the understanding that, upon delivery of the Bonds, policies insuring the payment when due of the principal of and interest on each series of Bonds will be issued by [INSURER]. S&P has assigned an underlying credit rating of"[_]" to the Bonds. Such rating reflects only the views of S&P and any desired explanation of the significance of such rating should be obtained from S&P. Generally, a rating agency bases its rating on the information and materials furnished to it and on investigations, studies and assumptions of its own.
Except as otherwise required in the Continuing Disclosure Agreement, the City undertakes no responsibility either to bring to the attention of the owners of any Bonds any downward revision or withdrawal of any rating obtained or to oppose any such revision or withdrawal. There is no assurance such rating will continue for any given period of time or that such rating will not be revised downward or withdrawn entirely by S&P, if in the judgment of S&P, circumstances so warrant. Any such downward revision or withdrawal of such rating may have an adverse effect on the market price of the Bonds. A rating is not a recommendation to buy, sell or hold securities and may be subject to revision or withdrawal at any time.
Underwriting
The Bonds are being sold at an aggregate purchase price of $ (representing the aggregate principal amount of the Bonds, [plus/less an original issue premium/discount of $ ," less an underwriting discount of $ ) pursuant to a bond purchase agreement ("Bond Purchase Agreement") entered into among the Authority, the City and Ramirez & Co., Inc. (the "Underwriter").
The expenses associated with the issuance of the Bonds are being paid by the Authority from proceeds of the Bonds. The right of the Underwriter to receive compensation in connection with the Bonds is contingent upon the issuance and delivery by the Authority, and the purchase by the Underwriter, of the Bonds. The Bond Purchase Agreement provides that the Underwriter will purchase all of the Bonds if any are purchased and that the obligation of the Underwriter to accept and pay for the Bonds is subject to certain terms and conditions set forth therein, including the approval by counsel of certain legal matters.
The Underwriter will initially offer the Bonds for sale at the prices and yields set forth on the inside cover pages of this Official Statement. Such prices or yields may subsequently change. The Underwriter reserves the right to join with dealers and other investment banking firms in offering the Bonds for sale and may offer to sell Bonds to dealers at prices lower than the initial offering prices. [Bank Qualified]
[The City does not expect to issue any additional tax-exempt obligations, other than the Bonds, in the calendar year commencing January 1, 2023, that exceed the aggregate of $10,000,000. On the basis of this expectation, the City has designated the Bonds as qualified tax-exempt obligations under and for the purposes of Section 265(b)(3) of the Code.]
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The Municipal Advisor
The material contained in this Official Statement was prepared by the Authority and the City with the assistance of Kosmont Financial Services (the "Municipal Advisor") who advised the Authority and the City as to the financial structure and certain other financial matters relating to the Bonds. The information set forth herein received from sources other than the City has been obtained by the Authority from sources which are believed to be reliable, but such information is not guaranteed by Municipal Advisor as to accuracy or completeness, nor has it been independently verified. Fees paid to the Municipal Advisor are contingent upon the sale and delivery of the Bonds.
Continuing Disclosure
The City will provide annually certain financial information and data relating to the City by not later than March 31 in each year commencing March 31, 2023 (the "Annual Report"), and to provide notices of the occurrence of certain other enumerated events in accordance with Rule 15c2-12 of the Securities Exchange Act of 1934 as amended (the "Rule"). Kosmont Financial Services will act as Dissemination Agent. The specific nature of the information to be contained in the Annual Report or the notices of enumerated events and certain other terms of the continuing disclosure obligation are found in the form of the City's Continuing Disclosure Agreement attached in "APPENDIX C - FORM OF CONTINUING DISCLOSURE AGREEMENT."
[In the past five years, the City was late 139 days in filing certain financial information or operating data (calculation of surplus funds) required to be filed on November 1, 2017 with respect to the $4,390,000 Placentia Public Financing Authority 2009 Lease Revenue Bonds (Working Capital Financing).][To be updated as needed]
The City has adopted a Continuing Disclosure Compliance Policy. See "FINANCIAL INFORMATION — Financial Policies — Debt and Liability -Related Policies." Additional Information
The summaries and references contained herein with respect to the Indenture, the Site Lease, the Lease Agreement, the Bonds, statutes and other documents, do not purport to be comprehensive or definitive and are qualified by reference to each such document or statute and references to the Bonds are qualified in their entirety by reference to the form hereof included in the Indenture. Copies of the Indenture, the Site Lease and the Lease Agreement may be obtained after delivery of the Bonds from the City at 401 East Chapman Avenue, Placentia, California 92870.
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References
Any statements in this Official Statement involving matters of opinion, whether or not expressly so stated, are intended as such and not as representations of fact. This Official Statement is not to be construed as a contract or agreement between the Authority and the purchasers or Owners of any of the Bonds.
Execution
The execution of this Official Statement by the Executive Director of the Authority and the City Administrator of the City has been duly authorized by the Authority and by the City, respectively.
PLACENTIA PUBLIC FINANCING AUTHORITY
By:
Executive Director
CITY OF PLACENTIA
By:
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City Administrator
APPENDIX A
SUMMARY OF THE PRINCIPAL LEGAL DOCUMENTS
The following summary discussion of selected provisions of the Indenture and the Lease Agreement are made subject to all of the provisions of such documents. This summary discussion does not purport to be a complete statement of said provisions and prospective purchasers of the Bonds are referred to the complete texts of said documents, copies of which are available upon request sent to the Trustee. [Remainder of Page Intentionally Left Blank]
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APPENDIX B
CITY AUDITED FINANCIAL STATEMENTS
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APPENDIX C
FORM OF CONTINUING DISCLOSURE AGREEMENT
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APPENDIX D
PROPOSED FORM OF BOND COUNSEL OPINION
Upon issuance of the Bonds, Nixon Peabody LLP, Bond Counsel to the Authority, proposes to render its final approving opinion with respect to the Bonds in substantially the following form:
[Date of Delivery]
Placentia Public Financing Authority
Placentia, California
City of Placentia
Placentia, California
$
PLACENTIA PUBLIC FINANCING AUTHORITY
LEASE REVENUE BONDS
(PUBLIC SAFETY CENTER PROJECT)
SERIES 2023A
[(BANK QUALIFIED)]
Ladies and Gentlemen:
We have acted as Bond Counsel to the Placentia Public Financing Authority (the "Authority") in connection with the issuance of $ aggregate principal amount of its Lease Revenue Bonds (Public Safety Center Project) Series 2023A [(Bank Qualified)] (the "Bonds"), issued pursuant to an Indenture, dated as of [August] 1, 2023 (the "Indenture"), by and among the Authority, the City of Placentia (the "City") and U.S. Bank Trust Company, National Association, as trustee (the "Trustee"). Capitalized terms used but not defined herein shall have the meaning ascribed to such term as set forth in the Indenture.
As Bond Counsel, we have examined copies, certified to us as being true and complete, of the Indenture, the Lease Agreement, dated as of [August] 1, 2023 (the "Lease"), between the City and the Authority, the Site Lease, dated as of [August ] 1, 2023, (the "Site Lease"), between the Authority and the City, the Assignment Agreement, dated as of [August] 1, 2023 (the "Assignment Agreement"), between the Authority and the Trustee, the Tax Certificate, dated the date hereof (the "Tax Certificate"), opinions of counsel to the Authority, the City and the Trustee, certificates of the Authority, the City, the Trustee and others, and such other documents, opinions and matters to the extent we deemed necessary to render the opinions set forth herein. We have not undertaken to verify independently the accuracy of the factual matters represented, warranted or certified therein, and we have assumed the genuineness of all signatures thereto. The Lease, the Site Lease, the Indenture and the Assignment Agreement are collectively referred to herein as the "Legal Documents."
We have, with your approval, assumed that all items submitted to us as originals are authentic and that all items submitted as copies conform to the originals.
On the basis of such examination, our reliance upon the assumptions contained herein and our consideration of such questions of law as we considered relevant, and subject to the limitations and qualifications in this opinion, we are of the opinion that:
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1. The Bonds constitute the valid and binding limited obligations of the Authority.
2. The Indenture has been duly executed and delivered by, and, assuming due authorization, execution and delivery by the other parties thereto, constitutes the legally valid and binding obligation of, the Authority, enforceable in accordance with its terms. The Indenture establishes a valid lien on and a pledge of the Revenues (as defined in the Indenture) for the security of the Bonds. Enforcement thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws or equitable principles affecting the enforcement of creditors' rights generally, the exercise of judicial discretion, the application of equitable principles if equitable remedies are sought and limitations on remedies against counties in the State of California.
3. The Lease, the Site Lease and the Assignment Agreement have been duly executed and delivered by, and, assuming due authorization, execution and delivery by the other parties thereto, constitute the legally valid and binding obligations of, the City (except with respect to the Assignment Agreement) and the Authority, enforceable in accordance with their terms.
Enforcement thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws or equitable principles affecting the enforcement of creditors' rights generally, the exercise of judicial discretion, the application of equitable principles if equitable remedies are sought and limitations on remedies against counties in the State of California.
4. The Internal Revenue Code of 1986 (the "Code") sets forth certain requirements which must be met subsequent to the issuance and delivery of the Bonds for interest thereon to be and remain excluded from gross income for federal income tax purposes. Noncompliance with such requirements could cause the interest on the Bonds to be included in gross income for federal income tax purposes retroactive to the date of issue of the Bonds. Pursuant to the Indenture, the Lease, and the Tax Certificate, the Authority and the City, as applicable, have covenanted to comply with the applicable requirements of the Code in order to maintain the exclusion of the interest on the Bonds from gross income for federal income tax purposes pursuant to Section 103 of the Code.
In addition, the Authority and the City, as applicable, have made certain representations and certifications in the Indenture, the Lease, and the Tax Certificate. We have not independently verified the accuracy of those certifications and representations.
Under existing law, assuming compliance with the tax covenants described herein and the accuracy of the aforementioned representations and certifications, interest on the Bonds (including any original issue discount properly allocable thereto) is excluded from gross income for federal income tax purposes under Section 103 of the Code. We are also of the opinion that such interest is not treated as a preference item in calculating the alternative minimum tax imposed under the Code.
For taxable years beginning after December 31, 2022, interest on the Bonds will be taken into account in computing the alternative minimum tax imposed on certain corporations under the Code to the extent that such interest is included in the "adjusted financial statement income" of such corporations.
5. Interest on the Bonds is exempt from personal income taxes of the State of California under present state law.
The opinions set forth in paragraphs 1, 2 and 3 above are subject to (a) applicable bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or affecting creditors' rights generally (including, without limitation, fraudulent conveyance laws), (b) the effect of general principles of equity, including, without limitation, concepts of materiality, reasonableness, good faith and fair dealing and the possible unavailability of specific performance or injunctive relief, regardless of whether considered in a proceeding in equity or at law, and (c) the limitations on legal remedies D-2
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against government entities in the State of California. We express no opinion with respect to any indemnification, contribution, choice of law, choice of forum or waiver provisions contained in the Legal Documents, and we express no opinion on the laws of any jurisdiction other than the State of California and the United States of America.
Except as stated in paragraphs 4 and 5, we express no opinion as to any other federal, state or local tax consequences of the ownership or disposition of, or the amount, accrual or receipt of interest on, the Bonds. Furthermore, we express no opinion as to any federal, state or local tax law consequences with respect to the Bonds, or the interest thereon, if any action is taken with respect to the Bonds or the proceeds thereof upon the advice or approval of other counsel.
No opinion is expressed herein on the accuracy, completeness or sufficiency of any offering material relating to the Bonds. This opinion is expressly limited to the matters set forth above and we render no opinion, whether by implication or otherwise, as to any other matters.
We do not undertake to advise you of any subsequent events or developments which might affect the statements contained herein. Our engagement with respect to this matter has ended as of the date hereof, and we disclaim any obligation to update this letter.
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Respectfully submitted,
APPENDIX E
THE BOOK -ENTRY SYSTEM
The following information has been provided by DTC for use in securities offering documents, and the Authority and the City take no responsibility for the accuracy or completeness thereof. Neither the Authority nor the City can give or does give any assurances that DTC, DTC Direct Participants or DTC Indirect Participants will distribute to the Beneficial Owners either (a) payments of interest, principal or premium, if any, with respect to the Bonds or (b) certificates representing ownership interest in or other confirmation of ownership interest in the Bonds, or that they will so do on a timely basis or that DTC, DTC Direct Participants or DTC Indirect Participants will act in the manner described in this Official Statement.
The current "Rules" applicable to DTC are on file with the Securities and Exchange Commission and the current `Procedures " of DTC to be followed in dealing with DTC Participants are on file with DTC.
1. The Depository Trust Company ("DTC"), New York, New York, will act as securities depository for the Bonds. The 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 certificate will be issued for each issue of the Bonds, each in the aggregate principal amount of such issue, and will be deposited with DTC. If, however, the aggregate principal amount of any issue exceeds $500 million, one certificate will be issued with respect to each $500 million of principal amount, and an additional certificate will be issued with respect to any remaining principal amount of such issue.
2. DTC, the world's largest securities depository, is a limited -purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over
3.5 million issues of U.S. and non -U.S. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC's participants ("Direct Participants") deposit with DTC. DTC also facilitates the post -trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book -entry transfers and pledges between Direct Participants' accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non -U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation ("DTCC"). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non -U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ("Indirect Participants"). DTC has an S&P Global Ratings rating of AA+. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com . The information on such website is not incorporated herein.
3. Purchases of Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the 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 F-1
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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 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 certificates representing their ownership interests in the Bonds, except in the event that use of the book -entry system for the Bonds is discontinued.
4. 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 Owners of the Bonds; DTC's records reflect only the identity of the Direct Participants to whose accounts such 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.
5. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. None of the Authority, the City or the Trustee will have any responsibility or obligation to such Direct Participants and Indirect Participants or the persons for whom they act as nominees with respect to the Bonds. Beneficial Owners of Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Bonds, such as redemptions, tenders, defaults, and proposed amendments to the Indenture and the Facility Lease. For example, Beneficial Owners of Bonds may wish to ascertain that the nominee holding the 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.
6. Redemption notices shall be sent to DTC. If less than all of the Bonds within a maturity are being redeemed, DTC's practice is to determine by lot the amount of the interest of each Direct Participant in such maturity to be redeemed.
7. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to the 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 Authority as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct Participants to whose accounts the Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy).
8. Principal and interest payments with respect to the 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 Trustee, on payable dates 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 Authority, the City or the Trustee, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal and interest to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the Authority, the City 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.
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9. DTC may discontinue providing its services as depository with respect to the Bonds at any time by giving reasonable notice to the Authority or the Trustee. Under such circumstances, in the event that a successor depository is not obtained, Bond certificates are required to be printed and delivered.
10. The Authority may decide to discontinue use of the system of book -entry transfers through DTC (or a successor securities depository). In that event, Bond certificates will be printed and delivered.
11. The information in this section concerning DTC and DTC's book -entry system has been obtained from sources that the Authority and the City believe to be reliable, but the Authority and the City take no responsibility for the accuracy thereof.
The foregoing description of the procedures and record keeping with respect to beneficial ownership interests in the Bonds, payment of principal of and interest and other payments with respect to the Bonds to Direct Participants, Indirect Participants or Beneficial Owners, confirmation and transfer of beneficial ownership interest in such Bonds and other related transactions by and between DTC, the Direct Participants, the Indirect Participants and the Beneficial Owners is based solely on information provided by DTC. Accordingly, no representations can be made concerning these matters and neither the Direct Participants, the 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 Participants, as the case may be.
In the event that the book -entry system is discontinued as described above, the requirements of the Indenture will apply.
THE TRUSTEE, AS LONG AS A BOOK -ENTRY ONLY SYSTEM IS USED FOR THE
BONDS, WILL SEND ANY NOTICE OF REDEMPTION OR OTHER NOTICES TO OWNERS TO ONLY 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 OR SUFFICIENCY OF THE PROCEEDINGS
RELATING TO THE REDEMPTION OF THE BONDS CALLED FOR REDEMPTION OR OF ANY OTHER ACTION PREMISED ON SUCH NOTICE.
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APPENDIX F
SPECIMEN MUNICIPAL BOND INSURANCE POLICY
[TBDI
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