-18-
amount may, at the discretion of the City, be transferred to the Surplus Account, which will occur on or after September 15th of each year.
Moneys in the Surplus Account may, at the City ’s discretion, be transferred to the Improvement Fund to pay for costs of the Facilities, to pay the principal of, premium, if any, and interest on the Bonds or to replenish the Reserve Fund to the amount of the Reserve Requirement, but are not pledged to payment of the Bonds. See “–Assignment of Maximum Special Tax” above.”
Deposit and Use of Proceeds of 2022 Bonds
The 2022 Bonds are additionally secured by certain amounts generated from proceeds of the 2022 Bonds, together with interest earnings thereon pledged under the Fiscal Agent Agreement. The proceeds of the initial purchase of the 2022 Bonds shall be paid to the Fiscal Agent, who shall deposit such proceeds in the 2022 Costs of Issuance Fund, the Improvement Fund, and the Reserve Fund established under the Fiscal Age nt Agreement. See APPENDIX C for information on use of the moneys, including investment earnings thereon, in the various funds established under the Fiscal Agent Agreement. See also “– Reserve Fund ” and “– Improvement Fund” below.
Delinquent Payments of Special Tax; Covenant for Foreclosure
The Special Tax will be collected in the same manner and the same time as ad valorem property taxes, except at the City ’s option, the Special Taxes may be billed directly to property owners. In the event of a delinquency in the payment of any installment of Special Taxes, the City is authorized by the Mello -Roos Act to order institution of an action in superior court to foreclose the lien therefore.
The City has covenanted in the Fiscal Agent Agreement with and for the benefit of the Owners of the 2022 Bonds that it will annually on or before September 1 of each year review the public records of the County relating to the collection of the Special Tax in order to determine the amount of the Special Tax collected in the prior fiscal year, and if the City determines on the basis of such review that the amount so collected is def icient by more than 5 % of the total amount of the Special Tax levied in such fiscal year, it will within 30 days thereafter institute foreclosure proceedings as authorized by the Mello-Roos Act in order to enforce the lien of the delinquent installment of the Special Tax against each separate lot or parcel of land in Improvement Area No. 1 for which such installment of the Special Tax is delinquent, and will diligently prosecute and pursue such foreclosure proceedings to judgment and sale; provided, that if the City determines on the basis of such review that (a) the amount so collected is deficient by less than 5% of the total amount of the Special Tax levied in Improvement Area No. 1 in such fiscal year, but that property owned by any single property own er in Improvement Area No. 1 is delinquent by more than $5,000 with respect to the Special Tax due and payable by such property owner in such fiscal year, or
(b) that property owned by any single property owner in Improvement Area No. 1 is delinquent cum ulatively by more than $3,000 with respect to the current and past Special Tax due (irrespective of the total delinquencies in Improvement Area No. 1), ITEM 12.1.
ATTACHMENT 4
-19-
then the City will institute, prosecute and pursue such foreclosure proceedings in the time and manner provided in the Fiscal Agent Agreement against each such property owner.
Under the Mello -Roos Act, foreclosure proceedings are instituted by the bringi ng of an action in the superior court of the county in which the parcel lies, naming the owner and other interested persons as defendants. The action is prosecuted in the same manner as other civil actions. In such action, the real property subject to th e special taxes may be sold at a judicial foreclosure sale for a minimum price which will be sufficient to pay or reimburse the delinquent Special Taxes.
The owners of the 2022 Bonds benefit from the Reserve Fund established pursuant to the Fiscal Agent Agreement; however, if delinquencies in the payment of the Special Taxes are significant enough to completely deplete the Reserve Fund, there could be a default or a delay in payments of principal and interest to the Owners of the 2022 Bonds pending prosecution of foreclosure proceedings and receipt by the City of the proceeds of foreclosure sales.
Additionally, it is possible that no bids are received at a foreclosure sale. Provided that it is not levying the Special Tax at the Maximum Special Tax rates set forth in the Special Tax Formula, the City may adjust the Special Taxes levied on all property within Improvement Area No. 1 subject to the Special Tax to provide an amount required to pay debt service on the 2022 Bonds, and to replenish the Reserve Fund, provided however such adjustment may not exceed the Maximum Special Tax or include an increase as a consequence of delinquency or default by the owner of any other parcel within a community facilities district by more than 10% above the amount that wou ld have been levied in such fiscal year had there never been any such delinquencies or defaults.
Under current law, a judgment debtor (property owner) has at least 140 days from the date of service of the notice of levy in which to redeem the property to be sold. If a judgment debtor fails to redeem and the property is sold, his or her only remedy is an action to set aside the sale, which must be brought within 90 days of the date of sale. If, as a result of such an action a foreclosure sale is set aside , the judgment is revived , and the judgment creditor is entitled to interest on the revived judgment as if the sale had not been made (California Code of Civil Procedure Section 701.680).
Foreclosure by court action is subject to normal litigation delays, the nature and extent of which are largely dependent upon the nature of the defense, if any, put forth by the debtor and the condition of the calendar of the superior court of the county. Such foreclosure actions can be stayed by the superior court on ge nerally accepted equitable grounds or as the result of the debtor’s filing for relief under the Federal bankruptcy laws. The Mello -Roos Act provides that, upon foreclosure, the Special Tax lien will have the same lien priority as is provided for ad valorem taxes and special assessments. See “VALUE OF PROPERTY WITHIN IMPROVEMENT AREA NO. 1 – Priority of Lien.”
Teeter Plan. In 1949, the California Legislature enacted an alternative method for the distribution of property taxes to local agencies. This method, known as the “Teeter Plan,” is found in Sections 4701-4717 of the California Revenue and Taxation Code. Upon adoption and implementation of this method by a county board of supervisors, local agencies for which the county collects property taxes and certain other public agencies and taxing areas located in the county receive annually the full amount of their shares of property taxes and other impositions collected on the secured roll, including delinquent property taxes which have yet to be collected.
While the county bears the risk of loss on unpaid delinquent tax es, it retains the penalties ITEM 12.1.
ATTACHMENT 4
-20-
associated with delinquent taxes when they are paid. In turn, the Teeter Plan provides participating local agencies with stable cash flow and the elimination of collection risk.
The Board of Supervisors of Sacramento County h as adopted the Teeter Plan, and the County elects to apply its Teeter Plan to the collection of the Special Taxes annually. As such, the Teeter Plan has been applicable since the initial year of a Special Tax levy, but no assurance can be given that it wi ll continue in any or all of the years that the 2022 Bonds are outstanding. To the extent that the County ’s Teeter Plan continues in existence and is carried out as adopted, and to the extent the County does not discontinue the Teeter Plan with respect to the City or Improvement Area No. 1, the County’s Teeter Plan may help protect owners of the 2022 Bonds from the risk of delinquencies in the payment of Special Taxes. However, there can be no assurance that the County will not modify or eliminate its Teeter Plan, or choose to remove Improvement Area No. 1 from its Teeter Plan permanently in any year while the 2022 Bonds are outstanding.
Once adopted, a county’s Teeter Plan will remain in effect in perpetuity unless the board of supervisors orders its discontinuance or unless, prior to the commencement of a fiscal year, a petition for discontinuance is received and joined in by resolutions of the governing bodies of not less than two-thirds of the participating districts in the county. An electing county may, however, decide to discontinue the Teeter Plan with respect to any levying agency in the county if the board of supervisors, by action taken not later than July 15 of a fiscal year, elects to discontinue the procedure with respect to such levying agency and the rate of secured tax delinquencies in that agency in any year exceeds 3% of the total of all taxes and assessments levied on the secured roll by that agency.
Reserve Fund
Under the Fiscal Agent Agreement, the Fiscal Age nt established the Reserve Fund and the 2022 Reserve Account therein, which is available for payment of the 2022 Bonds in the event of delinquencies in the payment of the Special Taxes to the extent of such delinquencies.
The City is required to maintain on deposit in the 2022 Reserve Account of the Reserve Fund an amount that is equal to the Reserve Requirement with respect to the 2022 Bonds. The “Reserve Req uirement” means, with respect to any Series of Bonds (unless otherwise specified in a Supplemental Agreement, including to create a single parity reserve fund for multiple Series of Bonds), the least of (i) 125% of the average Annual Debt Service with respect to the applicable Series of Bonds; (ii) Maximum Annual Debt Service with respect to the applicable Series of Bonds; and (iii) 10% of the original principal amount of the applicable Series of Bonds (or, if the applicable Series of Bonds has more than a de minimis amount of original issue discount or premium, 10% of the issue price of such Series of Bonds); provided, that—
(a) if a parity reserve fund for multiple Series of Bonds is established, references to the applicable Series of Bonds shall mean all Bonds co vered by such parity reserve fund;
(b) in no event shall the City be obligated to deposit an amount in any reserve fund in excess of the amount permitted by the applicable provisions of the Code to be so deposited from the proceeds of tax -exempt bonds without having to restrict the yield of any investment purchased with any portion of such deposit and, if the amount of any such deposit is so limited, the Reserve Requirement shall be only the amount of such deposit as permitted by the Code;
ITEM 12.1.
ATTACHMENT 4
-21-
(c) the City m ay meet all or a portion of the Reserve Requirement with respect to any series of Bonds by depositing a Qualified Reserve Fund Credit Instrument in accordance with the Fiscal Agent Agreement; and
(d) the Reserve Requirement shall be set at the time of iss uance of a Series of Bonds and shall not increase thereafter but may decrease as a result of prepayment of the Special Tax.
Amounts deposited in the Reserve Fund will be used and withdrawn by the Fiscal Agent solely for the purpose of making transfers to the Bond Fund in the event of any deficiency at any time in the Bond Fund of the amount then required for payment of the principal of, and interest on, the Bonds secured by the Reserve Fund. Whenever a transfer is made from the Reserve Fund to the Bond Fund due to a deficiency in the Bond Fund, the Fiscal Agent will provide written notice thereof to the City. If there are additional delinquencies after depletion of funds in the Reserve Fund, the City is not obligated to pay the Bonds or supplement the Reserve Fund.
The City may elect that the Reserve Fund will be available on a parity basis among the 2022 Bonds and any other Additional Bonds.
Whenever, on the Business Day prior to any Interest Payment Date, the amount in the Reserve Fund exceeds the then applicable Reserve Requirement, the Fiscal Agent will transfer an amount equal to the excess from the Reserve Fund to the Bond Fund or the Improvement Fund as provided below, except that investment earnings on amounts in the Reserve Fund may be withdrawn from the Reserve Fund for purposes of making payment to the Federal government to comply with rebate requirements.
Moneys in the Reserve Fund will be invested and deposited in accordance with the Fiscal Agent Agreement. Interest earnings and profits resulting from the investment of moneys in the Reserve Fund and other moneys in the Reserve Fund will remain therein until the balance exceeds the Reserve Requirement; any amounts in excess of the Reserve Re quirement will be transferred to the Improvement Fund, if the Facilities have not been completed, or if the Facilities have been completed, to the Bond Fund to be used for the payment of the principal of and interest on the Bonds in accordance with the Fiscal Agent Agreement.
The City has the right at any time to cause the Fiscal Agent to release funds from the Reserve Fund, in whole or in part, by tendering to the Fiscal Agent an irrevocable standby or direct-pay letter of credit or surety bond issued by a commercial bank or i nsurance company (a “Qualified Reserve Fund Credit Instrument ”), provided certain conditions are met, including that the long-term credit rating of such bank or insurance company is rated at least “AA” (without regard to qualifier) by S&P or Moody’s.
Whenever the balance in the Reserve Fund exceeds the amount required to redeem or pay the Outstanding Bonds, including interest accrued to the date of payment or redemption and premium, if any, due upon redemption, and making any other transfer required under the Fiscal Agent Agreement, the Fiscal Agent will transfer the amount in the Reserve Fund to the Bond Fund to be applied, on the next succeeding Interest Payment Date, to the payment and redemption of all of the Outstanding Bonds. If the amount so transferred from the Reserve Fund to the Bond Fund exceeds the amou nt required to pay and redeem the Outstanding Bonds, the balance in the Reserve Fund will be transferred to the City, after payment of any amounts due the Fiscal Agent, to be used for any lawful purpose of the City.
ITEM 12.1.
ATTACHMENT 4
-22-
Improvement Fund
Under the Fiscal Agent Agreement, the Fiscal Agent established an “Improvement Fund,” which is held and used by the Fiscal Agent to pay the costs of the Facilities.
Disbursements from the Improvement Fund will be made by the Fiscal Agent in accordance with written requests of the City.
Before any payment from the Improvement Fund shall be made, the City shall file or cause to be filed with the Fiscal Agent a written request of the City for disbursement of moneys from such fund. Such withdrawals shall be implemented by the City pursuant to the terms and requirements of the Acquisition Agreement (described below). The Fiscal Agent need not make any such payment if it has received notice of any lien, right to lien or attachment upon, or claim affecting the right to receive payment of, any of the moneys to be so paid, that has not been released or will not be released simultaneously with such payment. The Fiscal Agent shall not incur any liability for any disbursement from the Improvement Fund made in reliance upon any requisition. When the City determines that all of the costs of the Facilities to be financed wi th proceeds of the Bonds have been paid, the City shall provide written notification of such determination to the Fiscal Agent and direct the Fiscal Agent to transfer any remaining balance in any Improvement Fund into the Bond Fund. See “THE FACILITIES – Acquisition by the City.”
Additional Bonds
The City is authorized to issue up to $20,350,000 of Bonds for Improvement Area No. 1, of which the 2022 Bonds represent the first series. In addition to the 2022 Bonds, the City expects that it will, by a Supplemental Agreement, authorize the issuance of one or more additional series of bonds (previously defined as the “Additional Bonds ”) secured by the Special Tax Revenues on a parity basis with the 2022 Bonds, upon compliance by the City with the conditions set forth in the Fiscal Agent Agreement, which include the following:
(i) Unless otherwise set forth in the Supplemental Agreement providing for the issuance of such Additional Bonds, there shall be deposited into a reserve account of the Reserve Fund, or into a separate reserve fund, an amount at least equal to the Reserve Requirement with respect to such Additional Bonds.
(ii) For each Bond Year th at the Additional Bonds will be Outstanding, projected Maximum Special Taxes (net of the Administrative Expense Priority ) in each Fiscal Year are equal to or greater than 110% of Debt Service due in the Bond Year that begins in the corresponding Fiscal Year.
(iii) The aggregate value of all parcels in Improvement Area No. 1 subject to the Special Tax, including then existing improvements and any facilities to be constructed or acquired with the proceeds of the proposed series of Bon ds, as determined by an MAI appraisal (including the value of improvements to be financed from proceeds of the Bonds proposed to be issued) or the assessed value of such parcels as shown on the then current County tax roll, or by a combination of both methods, is at least 4.00 times the sum of (i) the aggregate principal amount of all Bonds then outstanding plus (ii) the aggregate principal amount of the series of Bonds proposed to be issued, plus (iii) the aggregate principal amount of any bonds then outstanding and payable from assessments which are a lien against property in Improvement Area No. 1 , plus (iv) a portion of the aggregate principal amount of all ITEM 12.1.
ATTACHMENT 4
-23-
bonds issued under the Act, other than Bonds then outstanding, and payable at least partially from special taxes to be levied on parcels of land subject to the Special Tax within Improvement Area No. 1 (the “Other Mello-Roos Bonds”) equal to the aggregate principal amount of the Other Mello -Roos Bonds multiplied by a fraction, the numerator of which is the amount of special taxes levied for the Other Mello-Roos Bonds on parcels of land within Improvement Area No. 1 subject to the Special Tax, and the denominator of which is the total amount of special taxes levied for the Other Mello-Roos Bonds on all parcels of land subject to the Special Tax against which the special taxes are levied to pay the Other Mello-Roos Bonds (such fraction to be determined based upon the special taxes which could be levied the year in which the Additional Bonds are being issue d), based upon information from the most recent available fiscal year.
The limitations contained in the foregoing paragraphs (ii) and (iii) above shall not be applicable to Additional Bonds which are refunding bonds if the annual debt service on the refunding bonds is less than the annual debt service on the bonds refunded for each year such refunding bonds are scheduled to be outstanding.
Additional Security; Subordinate Bonds. Nothing in the Agreement shall prevent or be construed to prevent the Supplemental Agreement providing for the issuance of Additional Bonds from pledging , or otherwise providing, additional security for the benefit of such Additional Bonds or any portion thereof , or the issuance of bonds , notes or other obligations secured by Special Taxes on a basis subordinate to the pledge securing the Bonds.
ITEM 12.1.
ATTACHMENT 4
-24-
DEBT SERVICE SCHEDULES
Debt Service Schedule . The annual debt service on the 2022 Bonds based on the interest rates and maturity schedule set forth on the cover of this Official Statement is set forth below (assuming no early redemptions).
City of Rancho Cordova
The Ranch Community Facilities District No. 2021-1
Improvement Area No. 1
Special Tax Bonds Series 2022
Debt Service Schedule
Period Ending
Sept. 1
2022 Bonds
Principal
2022 Bonds
Interest(1)
2022 Bonds
Total Debt Service
Total
_____________
(1) A portion of the interest on the 2022 Bonds due through September 1, 2023 will be paid from capitalized interest.
Source: Underwriter.
ITEM 12.1.
ATTACHMENT 4
-25-
Projected Debt Service Coverage . The projected debt service coverage for Fiscal Year 2023-24 is set forth below, and is based on the current status of development and only the 2022 Bonds outstanding. To the extent that development status changes and/or Additional Bonds are issued, the debt service coverage may be different than what is shown. The 2022 Bonds have been structured so there is at least 110% debt service coverage in every year.
City of Rancho Cordova
The Ranch Community Facilities District No. 2021-1
Improvement Area No. 1
Special Tax Bonds Series 2022
Projected Fiscal Year 2023-24 Debt Service Coverage(1)(2)
Maximum
Special Tax
Developed
and Final Map
Property (1)(2)*
Priority
Administration
(4)
Estimated Series
2022 Debt
Service*
Debt Service Coverage
from Developed and
Final Map Property *
$820,660 ($54,009) $709,900 107.99%
* Preliminary; subject to change.
(1) Pursuant to Section 53321(d) of the Government Code, the special tax levied against any assessor's parcel for which an occupancy permit for private residential use has been issued shall not be increased as a consequence of delinquency or default by the owner of any other assessor's parcel within the District by more than 10% above the amount that would have been levied in the fiscal year had there never been any such delinquencies or defaults. (2) Based on currently-expected land uses in the CFD. Subject to change pursuant to Section D of the RMA. (3) Includes projected Maximum Special Tax revenues based on the status of development as of July 31, 2022.
Assumes no future development.
(4) As defined in the Fiscal Agent Agreement.
Sources: Piper Sandler & Co.; Goodwin Consulting Group, Inc.
ITEM 12.1.
ATTACHMENT 4
-26-
IMPROVEMENT AREA NO. 1
Formation and Background
On October 18, 2021 , the City Council adopted a Resolution of Intention to form the District, designate Improvement Area No. 1 as an improvement area therein, and establish the Future Annexation Area, to levy a special tax and to incur bonded indebtedness for the purpose of financing the Facilities and making contributions to certain public facilities. After conducting a noticed public hearing, on December 6, 2021, the City Council adopted the Resolution of Formation, which established the District , designated Improvement Area No. 1 therein, and created the Future Annexation Area , approved the Special Tax Formula for Improvement Area No. 1 and set forth the necessity to incur bonded indebtedness for the District and Improvement Area No. 1 in a total amount not to exceed $ 86,470,000 (excluding bonds or notes described in Section 53364.2(e) of the Mello-Roos Act), initially allocated as follows: (i) for Improvement Area No. 1, $20,350,000 and (ii) for the portion of the District that is not currently in Improvement Area No. 1, $66,120,000. On the same day, an election was held within Improvement Area No. 1 in which K. Hovnanian and the land-bank, as the sole eligible landowner voters in the District, approved the proposed bonded indebtedness and the levy of the Special Tax within Improvement Area No. 1. See “OWNERSHIP OF PROPERTY WITHIN IMPROVEMENT AREA NO. 1” below.
Description and Location
General. The District is referred to by the City as the “The Ranch ” project, which is located within The Ranch Special Planning Area (“ TRSPA”), which lies within the Sunrise Douglas Community Plan area. The TRSPA encompasses approximately 530 gross acres within the southeastern portion of the City of Rancho Cordova, primarily south of Douglas Road, east of Rancho Cordova Parkway, and west and north of Grant Line Road. The specific plan will include approximately 1,690 dwelling units (single and multi-family) at build out.
Overall, “The Ranch” project is projected to dev elop into 1,690 residential units, which comprises 732 single -family homes, 705 age restricted single -family homes, 38 age- restricted rental units, and 215 high density residential affordable rental units. In addition to the residential units, the community will also have 5.73 acres of commercial land and a clubhouse to support the age restricted units. The clubhouse will feature a ballroom building, indoor and outdoor pool, gym, bocce court, horseshoe pits, tennis courts, pickleball courts and community garden. There are also public trails throughout the community and has approximately 198 acres of wetland preserve.
The greater Rancho Cordova area is a mature suburban area, which encompasses all types of land uses, including single-family and multifamily residential, retail, office and industrial, and has experienced continued growth since the mid 1980 ’s. This area currently is a substantial suburban office market within the Sacramento region, as well as a major employment center, most of which is located along U.S. Highway 50 which traverses the City.
For certain demographic information relating to the City and the County , see “APPENDIX D – Sacramento County and City of Rancho Cordova Demographic Information.”
Maps. The following page s show the boundary map of the District (including Improvement Area No. 1 therein) , and the development plan for the villages in Improvement Area No. 1.
ITEM 12.1.
ATTACHMENT 4
-27-
[Insert CFD Boundary Map]
ITEM 12.1.
ATTACHMENT 4
-28-
[Insert Site Plan Map]
ITEM 12.1.
ATTACHMENT 4
-29-
Development in the District
K. Hovnanian has provided the following information with respect to development within the District. No assurance can be given that all information is complete. No assurance can be given that development of the property wi ll be completed, or that it will be completed in a timely manner. Since the ownership of the parcels is subject to change, the development plans outlined below may not be continued by the subsequent owner if the parcels are sold, although development by any subsequent owner will be subject to the Development Agreement and the policies and requirements of the City. No assurance can be given that the plans or projections detailed below will actually occur.
The Ranch Project . K. Hovnanian at Jaeger Ranch, LLC, a California limited liability company (previously defined as “ K. Hovnanian ”), is the master developer of 530 acres of property located in the City of Rancho Cordova being developed as The Ranch (the “ Overall Project”). The Overall Project is anticipated to consist of the following:
• Approximately 120 acres of property proposed to be developed as 732 single - family residential units (the “Market Rate Project”).
• Approximately 152.25 acres of property proposed to be developed as 705 active adult single family units (the “Age Qualified Project”). • Approximately 7.14 acres of property proposed to be developed as 215 high density multifamily units (the “Multifamily Project”).
• Approximately 6.74 acres of property proposed to be developed with com mercial improvements (the “Commercial Project”).
• Approximately 200 acres of parks, trails, open space, detention basins, landscaping, and public roadways.
The Market Rate Project . The Market Rate Project is being developed by K.
Hovnanian in four phases, with Phase I consisting of 209 units, Phase II consisting of 258 units, Phase III consisting of 179 units, and Phase IV consisting of 86 units. The Market Rate project will feature an 11 -acre community active park, a 2 -acre neighborhood active park, a 1.2 -acre passive park, miles of trails, and multiple acres of open space. The Market Rate Project is separated from the Age Qualified Project by open space preserves but is joined by a causeway.
The Age Qualified Project. The Age Qualified Project is being developed by K.
Hovnanian under the 4 Seasons brand. K. Hovnanian's Four Seasons at the Ranch is proposed as a new 55+ age- qualified lifestyle community offering four distinctive collections for a wide variety of buyers. The Age Qualified Project is being developed in four phases, with Phase V consisting of 245 units, Phase VI consisting of 284 units, Phase VII consisting of 132 units, and Phase VIII consisting of 44 units.
The Age Qualified Project will offer a range of amenities, including a linear par k, miles of nature trails, and a private dog park. The project will feature a resort -style clubhouse, an indoor and outdoor pool, fitness rooms, bocce ball courts, pickleball courts, and various indoor activities including a wine and beer bar and caffe.
The Multifamily Project. The Multifamily Project parcel will be dedicated to the City for the development of 215 multifamily units.
The Commercial Project. The Commercial Project site will be sold by K. Hovnanian to a commercial developer.
ITEM 12.1.
ATTACHMENT 4
-30-
As discussed below in more detail herein, only the property in Improvement Area No. 1 serves as security for the Bonds. Improvement Area No. 1 comprises Phases I and II of the Market Rate Project. Information on the Phases III and IV of the Market Rate Project, as well as information on the Active Adult Project, the Multifamily Project, and the Commercial Project, is provided for background and contextual purposes only, and this property is not security for the Bonds.
Improvement Area No. 1. The property in Improvement Area No. 1 consists of Phases I and II of the Market Rate Project and is made up of 6 Villages:
• Village 3 – 65 single family units being marketed as “Canyon.” • Village 4, Unit 1 – 53 single family units being marketed as “Sagebrush.” • Village 4, Unit 2 – 63 single family units being marketed as “Sagebrush.” • Village 5 – 45 single family units being marketed as “Montrose.” • Village 6 – 40 single family units being marketed as “Montrose.” • Village 8 – 130 single family units being marketed as “Paseo.” • Village 9 – 71 single family units being marketed as “Springs.”
Improvement Area No. 1 is being developed by K. Hovnanian.
K. Hovnanian is land banking a portion of the Market Rate Project with AG EHC II (HOV) CA 1, L.P., a Delaware limited partnership (previously defined as “AG”). On August 27, 2021, K.
Hovnanian sold to AG property to be developed as 209 single -family unitslocated in Villages 4 (Unit 1), 5, 6, and 9 (the “ First Conveyed Property”) and in January 2022, K. Hovnanian sold to AG property to be developed as 130 single -family units located in Village 8 (the "Second Conveyed Property" and together with the First Conveyed Property, the "AG Property"). AG is serving as the owner and landbank of the 339 lots of the AG Property and for which K.
Hovnanian has an option to acquire the lots over time pursuant to separate takedown schedules. The takedown schedule s give K. Hovnanian the option (but not the obligation) to acquire between 3 and 14 lots every month commencing February 2022 and en ding in August 2024.
For more information on K. Hovnanian and AG and ownership as of August 1, 2022, see “OWNERSHIP OF PROPERTY WITHIN IMPROVEMENT AREA NO. 1.”
Development Plan. A tentative map was approved for the entirety of the project. A large lot m ap was recorded in July 2022 subdividing the project into villages. Final Maps for Village 9, 4 Unit 1, 5, 6 are recorded and the final map for Village 8 is under review for recordation in March 2022. See the table below for the status of the mapping in Phases 1 and 2.
Village
Actual
(Projected) Lots Map Number Actual (Anticipated) Recording Date 3 65 Subdivision Map 2021-002-06
Small Lot Final Map Recorded
8/1/22, Book 440, Page 3
4 (Unit 2) 63 Subdivision Map 2021-002-07
Small Lot Final Map Recorded
8/1/22, Book 440, Page 4
8 130 Subdivision Map 2021-002-05
Small Lot Final Map Recorded
3/25/22, Book 436, Page 1
4 (Unit 1) 53 Subdivision Map 2021-002-03
Small Lot Final Map Recorded
11/19/21, Book 433, Page 6
5 45 Subdivision Map 2021-002-03 Small Lot Final Map Recorded ITEM 12.1.
ATTACHMENT 4
-31-
11/19/21, Book 433, Page 6
6 40 Subdivision Map 2021-002-03
Small Lot Final Map Recorded
11/19/21, Book 433, Page 6
9 71 Subdivision Map 2021-002-002
Small Lot Final Map Recorded 11/5/21,
Book 433, Page 4
Totals 467
Assuming that K. Hovnanian acquires the AG Property pursuant to the Option Agreements, K. Hovnanian is developing the property in Improvement Area No. 1 in five product lines: Canyon, Paseo, Sagebrush, Montrose, and Springs. Each home in each product line will be a single-family, detached home.
The Sagebrush (Village 4, Unit 1), Montros e, Paseo, and Springs product lines are the subject of the Option Agreements and are in active development. Canyon and Sagebrush (Village 4, Unit 2) are not the subject of the Option Agreement s and are owned by K.
Hovnanian. Each of these product lines is described and summarized below:
Sagebrush (Village 4, Unit 1). The Sagebrush product line is located in Village 4, but is being developed in two units. Sagebrush Unit 1 is being developed as 53 single -family residential units with 4 floor plans. The Sagebrush Unit 1 product line is subject to the First Option Agreement with AG. Each Sagebrush lot is approximately 45’ x 105’. Sagebrush Unit 1 opened for sales in December 2021. K. Hovnanian anticipates exercising its option with AG in a timely manner under the First Option Agreement and developing the lots acquired to final build - out by Summer 2023. As of August 1, 2022, 36 Sagebrush Unit 1 units have been sold (but not closed) to homebuyers.
The following table provides the status of the proposed development of the 53 units of the Sagebrush Unit 1 neighborhood (assuming that all lots are acquired from AG under the First Option Agreement) as of August 1, 2022.
K. Hovnanian – Sagebrush Unit 1
(as of August 1, 2022)
Floor Plan
Approx.
Square
Footage
Total
Number
of
Planned
Units(1)
Units
Completed,
Sold, and
Closed
Units
Completed
and Unsold
or in
Escrow(2)
Finished
Lots
Units Under
Construction(3)
Est. Base
Price(4)
Plan 1 1,785 9 0 0 5 4 $593.000
Plan 2 1,869 13 0 1 8 4 601.000
Plan 3 1,974 11 0 0 9 2 606,000
Plan 4 2,014 20 0 1 15 4 614,000
Totals 53 0 2 37 14
____________________
(1) K. Hovnanian owns 35 units as of August 5, 2022; the lots for the other 18 planned units are owned by AG. K. Hovnanian intends to acquire the remaining lots and construct residential units thereon according to the First Option Agreement (defined herein).
(2) Represents completed model homes.
(3) A unit is considered under construction when trenching begins on the lot, and a building permit has been received. A total of 16 building permits have been issued: 2 for the completed models; __ for units for which vertical construction has started. (4) Base sale prices are estimated as of August 1, 2022. Base sales prices are subject to change and exclude any lot premiums, options, upgrades, incentives and any selling concessions or price reductions which may be offered.
Source: K. Hovnanian.
Montrose (Villages 5 and 6). The Montrose product line is located in Villages 5 and 6.
Montrose is being developed as 85 single -family residential units with 4 floor plans. The ITEM 12.1.
ATTACHMENT 4
-32-
Montrose product line is subject to the First Option Agreement with AG. Each Montrose lot is approximately 45’ x 85’. Montrose opened for sales in December 2021. K. Hovnanian anticipates exercising its option with AG in a timely manner under the First Option Agreement and developing the lots acquired to final build -out by the fourth quarter of 2023. As of August 1, 2022, 30 Montrose units have been sold (but not closed) to homebuyers.
The following table provides the status of the proposed development of the 85 units of the Montrose neighborhood (assuming that all lots are acquired from AG under the First Option Agreement) as of August 1, 2022.
K. Hovnanian – Montrose
(as of August 1, 2022)
Floor Plan
Approx.
Square
Footage
Total
Number
of
Planned
Units(1)
Units
Completed,
Sold, and
Closed
Units
Completed
and Unsold
or in
Escrow(2)
Finished
Lots
Units Under
Construction(3)
Est. Base
Price(4)
Plan 1 2,226 14 0 0 12 2 $617.000
Plan 2 2,382 22 0 0 18 4 635.000
Plan 3 2,479 17 0 0 16 1 641.000
Plan 4 2,628 32 0 0 28 4 652.000
Totals 85 0 0 74 11
____________________
(1) K. Hovnanian owns 28 units as of August 5, 2022; the lots for the other 57 planned units are owned by AG. K. Hovnanian intends to acquire the remaining lots and construct residential units thereon according to the First Option Agreement (defined herein).
(2) Includes 2 model homes.
(3) A unit is considered under construction when trenching begins on the lot, and a building permit has been received . A total of 11 building permits have been issued: 2 for the models; and 9 for units for which vertical construction has started. (4) Base sale prices are estimated as of August 1, 2022. Base sales prices are subject to change and exclude any lot premiums, options, upgrades, incentives and any selling concessions or price reductions which m ay be offered.
Source: K. Hovnanian.
Springs (Village 9) . The Springs product line is located in Village 9. Springs is being developed as 71 single -family residential units with 4 floor plans. The Springs product line is subject to the First Option Agreement with AG. Each Springs lot is approximately 35’ x 78’ .
Springs opened for sales in December 2021. K. Hovnanian anticipates exercising its option with AG in a timely manner under the First Option Agreement and developing the lots acquired to final build-out by February 2023. As of August 1, 2022, 2 Springs units have sold and closed escrow with homebuyers and 61 Springs units have been sold (but not closed) to homebuyers.
The following table provides the status of the proposed development of the 71 units of the Springs neighborhood (assuming that all lots are acquired from AG under the First Option Agreement) as of August 1, 2022.
ITEM 12.1.
ATTACHMENT 4
-33-
K. Hovnanian – Springs
(as of August 1, 2022)
Floor Plan
Approx.
Square
Footage
Total
Number
of
Planned
Units(1)
Units
Completed,
Sold, and
Closed
Units
Completed
and Unsold
or in
Escrow(2)
Finished
Lots
Units Under
Construction(3)
Est. Base
Price(4)
Plan 1 1,868 13 0 0 0 13 $552,000
Plan 2 1,958 18 0 0 0 18 566,000
Plan 3 2,007 22 1 1 0 20 567,000
Plan 4 2,150 18 1 1 0 16 585,000
Totals 71 2 2 0 67
____________________
(1) K. Hovnanian owns 35 units as of August 5, 2022; the lots for the other 36 planned units are owned by AG. K. Hovnanian intends to acquire the remaining lots and construct residential units thereon according to the First Option Agreement (defined herein). (2) Represents completed model homes.
(3) A unit is considered under construction when trenching begins on the lot, and a building permit has been received . All 71 building permits have been issued for Springs product line.
(4) Base sale prices are estimated as of August 1, 2022. Base sales prices are subject to change and exclude any lot premiums, options, upgrades, incentives and any selling concessions or price reductions which may be offered.
Source: K. Hovnanian.
Paseo (Village 8). The Paseo product line is located in Village 8. All of the property in the Paseo product line is currently owned by K. Hovnanian. The Paseo product line is subject to the Second Option Agreement with AG. Paseo is being developed as 130 single -family residential units with 4 floor plans. Each Paseo lot is approximately 30’ x 78’ alley lot. Paseo is anticipated to be opened for sales in April 2022. K. Hovnanian anticipates exercising its option with AG in a timely manner under the Second Option A greement and developing the lots acquired to final buildout by June 2024. As of August 1, 2022, none of the Paseo units have been sold to homebuyers.
The following table provides the status of the proposed development of the 130 units of the Paseo neighborhood (assuming that all lots are acquired from AG under the Second Option Agreement) as of August 1, 2022.
K. Hovnanian – Paseo
(as of August 1, 2022)
Floor Plan
Approx.
Square
Footage
Total
Number of
Planned
Units(1)
Units
Completed,
Sold, and
Closed
Units
Completed
and Unsold
or in
Escrow (1)
Undeveloped
Lots (2)
Unit Under
Construction
(3)(4)
Est. Base
Price(5)
Plan 1 1,727 35 0 0 35 0 $515,000
Plan 2 1,856 35 0 0 35 0 528,000
Plan 3 1,906 30 0 0 29 1 536,000
Plan 4 2,028 30 0 0 29 1 551,000
Totals 130 0 0 128 2
____________________
(1) K. Hovnanian owns 7 units as of August 5, 2022; the lots for the other 123 planned units are owned by AG. K. Hovnanian intends to acquire the remaining lots and construct residential units thereon according to the Second Option Agreement (defined herein). (2) The property in the Paseo product line is 90% completed towards finished lot status, with utilities in and paving scheduled f or October. (3) Represents two model homes under constructio n.
(4) A unit is considered under construction when trenching begins on the lot, and a building permit has been received. A total of 2 building permits have been issued for the 2 model homes.
(5) Base sale prices are estimated as of August 1, 2022. Base sa les prices are subject to change and exclude any lot premiums, options, upgrades, incentives and any selling concessions or price reductions which may be offered.
Source: K. Hovnanian.
ITEM 12.1.
ATTACHMENT 4
-34-
Canyon (Village 3). The Canyon product line is located in Village 3. All of the property in the Canyon product line is currently owned by K. Hovnanian. Canyon is being developed as 65 single-family residential units with 5 floor plans. Each Canyon lot is approximately 50’ x 105’.
Canyon is anticipated to be opened for sal es in November 2022, with final build-out anticipated to be December 2024.
The following table provides the status of the proposed development of the 65 units of the Canyon neighborhood as of August 1, 2022.
K. Hovnanian – Canyon
(as of August 1, 2022)
Floor Plan
Approx.
Square
Footage
Total
Number
of
Planned
Units
Units
Completed,
Sold, and
Closed
Units
Completed
and Unsold
or in Escrow
Undeveloped
Lots
Units Under
Construction
Est.
Base
Price(1)
Plan 1 1,947 17 0 0 17 0 TBD
Plan 2 2,080 17 0 0 17 0 TBD
Plan 3 2,094 17 0 0 17 0 TBD
Plan 4 2,349 7 0 0 7 0 TBD
Plan 5 2,752 7 0 0 7 0 TBD
Totals 65 0 0 65 0
____________________
(1)
Base sale prices have not yet been determined for the Canyon product line. .
Source: K. Hovnanian.
Sagebrush (Village 4, Unit 2). The Sagebrush product line is located in Village 4, but is being developed in two units. Sagebrush Unit 2 is being developed as 63 single -family residential units with 4 floor plans. All of the property in the Sagebrush Unit 2 product line is currently owned by K. Hovnanian. Each Sagebrush lot is approximately 45’ x 105’. Sagebrush Unit 2 is anticipated to be opened for sales in January 2023, with final build- out anticipated for July 2024.
The following table provides the status of the proposed development of the 63 units of the Sagebrush Unit 2 neighborhood as of August 1, 2022.
K. Hovnanian – Sagebrush Unit 2
(as of August 1, 2022)
Floor Plan
Approx.
Square
Footage
Total
Number
of
Planned
Units
Units
Completed,
Sold, and
Closed
Units
Completed
and
Unsold or
in Escrow
Undeveloped
Lots
Units Under
Construction(
Est. Base
Price(1)
Plan 1 1,785 20 0 0 20 0 $593,000
Plan 2 1,869 16 0 0 16 0 601,000
Plan 3 1,974 18 0 0 18 0 606,000
Plan 4 2,014 9 0 0 9 0 614,000
Totals 63 0 0 63 0
____________________
(1) Base sale prices are estimated as of August 1, 2022. Base sales prices are subject to change and exclude any lot premiums, options, upgrades, incentives and any selling concessions or price reductions which may be offered.
Source: K. Hovnanian.
ITEM 12.1.
ATTACHMENT 4
-35-
Infrastructure. The conditions of development for the Overall Project require the construction of various improvements at various times. The followin g conditions impact the property in Improvement Area No. 1:
A. Chrysanthy Blvd.: K. Hovnanian is required to construct Chrysanthy Blvd. from the existing Chrysanthy Blvd. at Rancho Cordova Pkwy. at the west boundary of the Overall Project to the intersection with Wheatridge Drive. Status: substantially complete..
B. Detention Basin 1: Prior to the issuance of the first building permit in the property in Improvement Area No. 1, Detention Basin 1 must be substantially complete, and prior to the first occupancy permit in the property in Improvement Area No. 1, Detention Basin 1 must be complete to the satisfaction of the Public Works Department.
Status: complete.
C. Neighborhood Park in Village 8: Pursuant to the Park Development Agreement dated June 17, 2020 by and between the Cordova Recreation and Park District and K. Hovnan ian (the “Park Agreement”), the neighborhood park located in Village 8 must (i) start design prior to the first production building permit in Village 8, and (ii) start construction prior to the 65
th production building permit in Village 8 or prior to the 234th market-rate production building permit in the Overall Project. Status: design was started prior to the first building permit in Village 8; construction will be started prior to the 65th production building permit in Village 8.
D. Community Park: Pursuant to the Park Agreement, the 11 -acre community park located between Phase II and Phase IV must (i) start outreach and design prior to the 242
nd market rate production building permit is issued and (ii) start construction prior to the 468 th market rate production building permit is issued. Status:
K. Hovnanian intends to comply with this requirement in a timely manner with work projected to start with the Phase III construction (i.e., Villages 2 and 7)..
E. Onsite Infrastructure: All of Improvement Area No. 1 is graded, with home pads. Street, landscaping, medians, and streetlights constructed with the applicable street improvements are being constructed on a Village -by-Village basis. For the Sagebrush (Village 4, Unit 1), Montrose (Village 5 and 6), and Springs (Village 9) product lines, work is completed. The completion of the work for Paseo (Village 8) is scheduled for December 2022. The work for Canyon (Village 3) and Sagebrush (Village 4, Unit 2) will be conducted as those Villages are developed , which is anticipated to be complete by the end of Q1 2023.
Option and Construction Agreement s. On August 27, 2021, AG and K. Hovnanian entered into an Option Agreement regarding the 209 finished lots in Villages 4 (Unit 1), 5, 6, and 9 (the “First Option Agreement”), whereby K. Hovnanian has the option to purchase finished lots from AG pursuant to a takedown schedule. In addition to the First Option Agreement, on August 27, 2021, K. Hovnanian California Operations, Inc., a California corporati on, a general contractor and affiliate of K. Hovnanian (the “ Contractor”), entered into the Construction Agreement regarding the First Conveyed Property (the “ First Construction Agreement”), ITEM 12.1.
ATTACHMENT 4
-36-
whereby AG engaged Contractor, at a fixed fee, to construct improvement to the First Conveyed Property necessary to bring the lots into a finished lot condition.
Under the terms of the First Option Agreement, AG agreed to provide K. Hovnanian the exclusive right and option to purchase the 209 lots in consideration for (a) an initial option payment, which payment has been made to AG; (b) the covenants of K. Hovnanian to timely pay the option payments under the First Option Agreement on a monthly basis in arrears; and (c) upon exercise of the option, the payment of the purchase price for each set of lots acquired.
In January 2022, AG and K. Hovnanian entered into an Option Agreement regarding the 130 finished lots in Villages 8 (the “ Second Option Agreemen t” and together with the First Option Agreement, the " Option Agreements "), whereby K. Hovnanian has the option to purchase finished lots from AG pursuant to a takedown schedule. In addition to the Second Option Agreement, in January 2022, the Contractor entered into the Construction Agreement regarding the Second Conveyed Property (the " Second Construction Agreement " and together with the First Construction Agreement, the "Construction Agreements"), whereby AG engaged Contractor, at a fixed fee, to construct improvement to the Second Conveyed Property necessary to bring the lots into a finished lot condition.
Under the terms of the Second Option Agreement, AG agreed to provide K. Hovnanian the exclusive right and option to purchase the 130 lots in consideration for (a) an initial option payment, which payment has been made to AG; (b) the covenants of K. Hovnanian to timely pay the option payments under the Second Option Agreement on a monthly basis in arrears; and (c) upon exercise of the option, the payment of the purchase price for each set of lots acquired.
The lots must be purchased in certain groups and in a specified order, although K.
Hovnanian may acquire more lots than scheduled and at earlier times so long as the identified lots are ac quired by the applicable takedown date. In addition, pursuant to the Option Agreements and the Construction Agreement s and with some limitations, AG has granted K.
Hovnanian a license to enter upon the property to construct homes before it acquires the lots from AG. It is K. Hovnanian’ intention to substantially complete all horizontal and vertical development on the lots it acquires prior to the applicable takedown. K. Hovnanian anticipates completion of the production homes in a Phase approximately 30 days prior to the takedown date for such a Phase.
The failure to acquire the lots in the specified order will resul t in the payment of a premium in addition to the purchase price.
ITEM 12.1.
ATTACHMENT 4
-37-
Under the First Option Agreement, the lots must be acquired pursuant to the following schedules:
Takedown Schedule
First Option Agreement with AG
as of August 5, 2022
Option Period Acquisition Date
Cumulative Lot Absorption
71 Village
9 Lots
85 Village
5/6 Lots
53 Village 4
Unit 1 Lots
Total
Cumulative
Lots to be
Acquired Status
1 9-5-21 0 0 0 0 --
2 10-5-21 0 0 0 0 --
3 11-5-21 0 0 0 0 --
4 12-5-21 0 0 0 0 --
5 1-5-22 0 0 0 0 --
6 2-5-22 5 4 5 14 Acquired
7 3-5-22 10 8 10 28 Acquired
8 4-5-22 15 12 15 42 Acquired
9 5-5-22 20 16 20 56 Acquired
10 6-5-22 25 20 25 70 Acquired
11 7-5-22 30 24 30 84 Acquired
12 8-5-22 35 28 35 98 Acquired
13 9-5-22 40 32 40 112
14 10-5-22 45 36 45 126
15 11-5-22 50 40 50 140
16 12-5-22 55 44 53 152
17 1-5-23 60 48 53 161
18 2-5-23 65 52 53 170
19 3-5-23 71 56 53 180
20 4-5-23 71 60 53 184
21 5-5-23 71 64 53 188
22 6-5-23 71 68 53 192
23 7-5-23 71 72 53 196
24 8-5-23 71 76 53 200
25 9-5-23 71 80 53 204
26 10-5-23 71 85 53 209
ITEM 12.1.
ATTACHMENT 4
-38-
Under the Second Option Agreement, the lots must be acquired pursuant to the following schedules:
Takedown Schedule
First Option Agreement with AG
as of August 5, 2022
Option Period Acquisition Date
Lots to be
Acquired
Cumulative
Lot
Absorption Status
1 2-5-22 0 0
2 3-5-22 0 0
3 4-5-22 2 2 Acquired
4 5-5-22 0 2 N/A
5 6-5-22 0 2 N/A
6 7-5-22 0 2 N/A
7 8-5-22 5 7 Acquired
8 9-5-22 8 15
9 10-5-22 5 20
10 11-5-22 4 24
11 12-5-22 5 29
12 1-5-23 3 32
13 2-5-23 4 36
14 3-5-23 3 39
15 4-5-23 6 45
16 5-5-23 6 51
17 6-5-23 6 57
18 7-5-23 6 63
19 8-5-23 6 69
20 9-5-23 6 75
21 10-5-23 5 80
22 11-5-23 4 84
23 12-5-23 5 89
24 1-5-24 3 92
25 2-5-25 4 96
26 3-5-24 3 99
27 4-5-24 6 105
28 5-5-24 6 111
29 6-5-24 6 117
30 7-5-24 6 123
31 8-5-24 7 130
Total 130
The option under each Option Agreement expires on the earlier of (i) the last date permitted for the final takedown specified on the takedown schedule and the expiration of any applicable cure period, or (ii) the date K. Hovnanian has acquired all of the Lots in accordance with the applicable Option Agreement. The failure to timely acquire lots could result in the termination of the option and K. Hovnanian will no longer have a right to purchase any of the remaining units under the applicable Option Agreement.
In the event that K. Hovnanian does not exercise its option or the right to purchase the lots expires or is terminated, AG being an investor only and not a homebuilder, would likely attempt to sell such lots to another merchant builder.
During the term of the Option Agreement and the Construction Agreement, K.
Hovnanian is obligated to pay all taxes on the AG Property.
ITEM 12.1.
ATTACHMENT 4
-39-
COVID-19. Except as described herein, K. Hovnanian has not experienced any material increases in costs, or any development or home sale delays resulting from decisions to reduce financing for the projects, inability to obtain financing, work stoppages, reduced atten dance of workers, lack of or delays in the delivery of building materials or the ability to obtain necessary inspections and approvals, which K. Hovnanian attributes to the COVID -19 pandemic. To date, K. Hovnanian has continued to fund and implement its pr ojects as described in this Official Statement and intends to do so to complete such projects. However, the development of Improvement Area No. 1 is subject to delays caused by the COVID -19 pandemic. As the impacts caused by the outbreak evolve, there coul d be an adverse impact on the timing and costs of the Sage neighborhood. See “BOND OWNERS’ RISKS – COVID-19 Pandemic.” K.
Hovnanian cannot predict the ultimate effects of the COVID -19 outbreak or whether any such effects would have a material adverse effect on the ability to develop the project as planned.
Developer Financing Plan. To date, the Developer has financed its l and acquisition and various site development and homebuilding costs related to its property in Improvement Area No. 1 through internally generated funds. As of August 1, 2022, the Developer has expended approximately $___ million on land acquisition and la nd development and approximately $___ on homebuilding, marketing and sales costs in Improvement Area No. 1 .
The Developer expects to incur approximately $ ___ million on remaining land acquisition and development and approximately $ ____ million on homebuild ing, marketing, and sales costs in Improvement Area No. 1 . The Developer expects to use internal funding to complete its development within Improvement Area No. 1 , and believes that it will have sufficient funds available to complete its planned developmen t as described in this Official Statement. [To Come]
Although the Developer expects to have sufficient funds available to complete its development in Improvement Area No. 1 as described in this Official Statement, there can be no assurance that amounts ne cessary to finance the development costs will be available from the Developer or any other source when needed. Neither the Developer , nor any of its related entities are under any legal obligation of any kind to expend funds for the development of and construction of homes on its property in Improvement Area No. 1 . Any contributions by the Developer or any related parties to fund the costs of such development are entirely voluntary.
If and to the extent that internal funding are inadequate to pay the costs to complete the planned development by the Developer within Improvement Area No. 1 and other financing is not put into place, ther e could be a shortfall in the funds required to complete the planned development by the Developer in Improvement Area No. 1.
Except as described in this Official Statement and except for those consents, permits, authorizations, certifications and approval s of governmental entities required in the ordinary course of development, the Developer has no actual knowledge of any impediment to construction or obtaining land use entitlements which could be reasonably expected to have a material adverse effect on it s ability to complete the planned development of its property within Improvement Area No. 1 as described in the Official Statement. Although the information in this Official Statement reflects the current development expectations of the Developer, no assurance can be given that lot acquisition from AG or home construction and sales will be carried out on the schedule and according to the plans described herein, or that the lot acquisition from AG or home construction and sale plans or base prices set forth herein will not change after the date of this Official Statement. The Developer reserves the right to change its development at any time without notice. Additionally, homes under contract to be sold may not result in closed escrows as sales contracts are subject to cancellation.
ITEM 12.1.
ATTACHMENT 4
-40-
Environmental Matters
Water Supply; Contamination; Jet Fuel Plumes. A local water issue was the subject of consideration during the formation process undertaken for the Sunrise Douglas Community Plan, which is a broader land use plan covering 6,042 acres, including “The Ranch” project . [Confirm] The water issue began in 1999 when the State Department of Health Services indicated it would not allow permits for the construction of housing in the Sunrise -Douglas area, based on the wells proposed for the local project area. Five wells on the former Mather Air Force Base and other nearby areas were contaminated due to past rocket testing and chemical manufacturing by Aerojet and Boeing in the area. In July 2002, the North Vineyard Well Field plan was approved. The water supply plan included the construction of a well field to extract groundwater from the basin of an underlying Zone 40, at a location sufficiently down- gradient to significantly reduce or eliminate the possibility of contamination to the well field by known contaminant plumes. The Sacramento County Water Agenc y (“SCWA”) provides water supply to the Sunridge Specific Plan area and conditions of the Specific Plan rezoning require that the SCWA Board of Directors make certain findings regarding the availability of water prior to approval of any tentative map. The City reports that development in the District is not negatively impacted by the availability of water. However, no assurance can be given as to the impact of this contamination on development or home values in the District in the future.
Flood Hazard Ma p Information . Land in the District is located in Flood Zone X, described as areas outside of the 100 and 500 -year flood plains (less than 0.2% annual chance flooding in any given year - flood insurance not required). This information is according to the Federal Emergency Management Agency Flood Map, Community Panel No. 06067C-0240J, revised July 19, 2018. Land in the District is not subject to the Central Valley Flood Protection Plan (SB 5).
Wetlands. The project has obtained an LOP (letter of permission ) from U.S. Army Corp., a 401 Water Quality Certification from the Regional Water Control Board for the planned development of land within Improvement Area No. 1, and a 1602 Streambed Alteration Agreement from CDFW for the overall project. In addition, th e project has a final authorization all required Section 1602 permits and approvals from the State.
Seismic Conditions. According to the California Seismic Safety Commission, the District is located within Zone 3, areas of moderate seismic activity. Zone 3 is considered to be the lowest risk zone in California. In addition, the District is not located within a Fault -Rupture Hazard Zone (formerly referred to as an Alquist -Priolo Special Study Zone), as defined by Special Publication 42 of the California De partment of Conservation, Division of Mines and Geology.
Wildfire Hazards. Land in Improvement Area No. 1 is not located in a High or Very High Fire Hazard Severity Zone (FHSZ), as defined by CAL FIRE.
ITEM 12.1.
ATTACHMENT 4
-41-
THE FACILITIES
Eligible Facilities
The Facilities eligible to be financed by the District (including Improvement Area No. 1 therein) are set forth in the Resolution of Formation and consist of roadway and transportation improvements, including roadway design, project management, grading, and construction of roadways, including curbs, gutters, sidewalks, pavement, street lighting, dry utilities, soundwalls and landscaping, as well as drainage facilities, park improvements and other miscellaneous improvements. Authorized Facilities also include sanitary sewer facilities, water facilities and other capital improvements for which developer impact fees are payable to the City for development within the District (including Improvement Area No. 1 therein), as well as incidental expenses as authorized by the Mello-Roos Act.
The proceeds of the 2022 Bonds will be used for a portion of the cost of the public improvements (and/or development impact fees) eligible to be financed with the proceeds of the 2022 Bonds (the “Facilities,” as described below). See “FINANCING PLAN” for additional details. The following table estimates the cost of the Facilities needed for development of property in the District, of which Improvement Area No. 1 forms a part.
Table 2
City of Rancho Cordova
The Ranch Community Facilities District No. 2021-1
Improvement Area No. 1
Special Tax Bonds Series 2022
Expected Cost of Facilities
Facility Category Estimated Cost
Construction Costs
(Streets, Drainage, Sewer, Water and Soft Costs) $113,400,000 Development impact fees 42,121,000
Total $155,521,000
Source: CFD Hearing Report.
Acquisition by the City and other Local Agencies
In connection with the issuance of the 2022 Bonds, the City and K. Hovnanian will enter into a Funding, Construction and Acquisition Agreement dated as of October 1, 2022 (the “Acquisition Agreement”) which provides that K. Hovnanian (or successors) will construct (or cause to be constructed or funded) the Facilities. As components of the Facilities are completed, proceeds of a portion of the 2022 Bonds will be used to pay all or a part of the purchase price of various Facilities pursuant to the ter ms of the Acquisition Agreement. The portion of the cost of construction of the Facilities , which will not be provided from 2022 Bond proceeds, will be the responsibility of K. Hovnanian.
It is also anticipated that the City will enter into joint community facilities agreements with the Cordova Recreation and Park District (CRPD) and/or the Sacramento Regional County Sanitation District (SRCSD) so that a portion of the proceeds of the Bonds and other special tax bonds issued for Improvement Area No. 1 may finance the development impact fees and/or Facilities to be acquired by those local agencies.
ITEM 12.1.
ATTACHMENT 4
-42-
The Special Tax Formula provides that the funding of Improvement costs can also be made from collections of the Special Tax available as the “pay-as-you-go” component of Special Taxes. The pay-as-you-go funding component is expected to provide for funding of the cost of a portion of the Facilities (both improvements and fees) in excess of the amount provided from bond proceeds (if such proceeds are not sufficient) through annual Special Tax collections in excess of the amount needed to pay the debt service.
ITEM 12.1.
ATTACHMENT 4
-43-
OWNERSHIP OF PROPERTY WITHIN IMPROVEMENT AREA NO. 1
Unpaid Special Taxes do not constitute a personal indebtedness of the owners of the parcels within Improvement Area No. 1 . There is no assurance that an owner or any subsequent owners have the ability to pay the Special Taxes or that, even if they have th e ability, they will choose to pay such taxes. An owner may elect to not pay the Special Taxes when due and cannot be legally compelled to do so. Neither the City nor any Bondowner will have the ability at any time to seek payment directly from the owner s of property within Improvement Area No. 1 of the Special Tax or the principal or interest on the 2022 Bonds, or the ability to control who becomes a subsequent owner of any property within Improvement Area No. 1.
K. Hovnanian has provided the respective information set forth under the heading “OWNERSHIP OF PROPERTY WITHIN IMPROVEMENT AREA NO. 1 ” below. No assurance can be given that all information is complete. No assurance can be given that development of the property will be c ompleted, or that it will be completed in a timely manner. The Special Taxes are not personal obligations of K. Hovnanian or of any subsequent landowners; the 2022 Bonds are secured only by the Special Taxes and moneys available under the Fiscal Agent Agreement. See “SECURITY FOR THE 2022 BONDS” and “BOND OWNERS’ RISKS” herein.
Current Ownership. As noted above, K. Hovnanian is land banking a portion of the Market Rate Project with AG EHC II (HOV) CA 1, L.P., a Delaware limited partnership (previously defined as “AG”).AG is serving as the owner and landbank of the 339 lots of the AG Property and for which K. Hovnanian has an option to acquire the lots over time pursuant separate a takedown schedule. The takedown schedule s give K. Hovnanian the option (but not the obligation) to acquire between 3 and 14 lots every month commencing February 2022 and ending in August 2024.
A summary of the ownership as of August 1, 2022 is set forth in the table below:
Village Name
No. of
Projected
Lots Property Owner Developer
3 Canyon 65 K. Hovnanian K. Hovnanian
4, Unit 2 Sagebrush 63 K. Hovnanian K. Hovnanian
Subtotal 128
4, Unit 1 Sagebrush 53
AG (23 lots) K.
Hovnanian (30 lots)(1) K. Hovnanian
5 & 6 Montrose 85
AG (61 lots)/ K.
Hovnanian (24 lots)(2) K. Hovnanian
8 Paseo 130
AG (128 lots)
K. Hovnanian (2 lots)(3) K. Hovnanian
9 Springs 71
AG (41 lots) K.
Hovnanian (28 lots)(4)
Homeowners (2 lots) K. Hovnanian
Subtotal 339
Grand Total 467
(1) On August 5, 2022, K. Hovnanian acquired 5 additional Sagebrush lots from AG pursuant to its takedown schedule. (2) On August 5, 2022, K. Hovnanian acquired 4 additional Montrose lots from AG pursuant to its takedown schedule. (3) On August 5, 2022, K. Hovnanian acquir ed 5 additional Paseo lots from AG pursuant to its takedown schedule. (4) On August 5, 2022, K. Hovnanian acquired 5 additional Springs lots from AG pursuant to its takedown schedule.
ITEM 12.1.
ATTACHMENT 4
-44-
K. Hovnanian. K. Hovnanian is an indirect, wholly -owned subsidiary o f Hovnanian Enterprises, Inc., a Delaware corporation (“ Hovnanian”), which is based in Red Bank, New Jersey, and has been in the business of developing residential real estate communities in California since 1994. Hovnanian is subject to the informational requirements of the Securities Exchange Act of 1934 (the “ Exchange Act”) and in accordance therewith files reports, proxy statements, and other information, including financial statements, with the SEC. The SEC maintains an Internet website that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC, including Hovnanian. The address of such internet website is www.sec.gov. All documents subsequently filed by Hovnanian pursuant to the requirements of the Exchange Act after the date of this Official Statement will be available for inspection in such manner as the SEC prescribes.
Copies of Hovnanian’s Annual Report and each of its other quarterly and current reports, including any amendments, are available from Hovnanian’s website at www.khov.com. The website address is given for reference and convenience only. The information on the website may be incomplete or inaccurate and has not been reviewed by the City or the Underwriter.
Nothing on the website is a part of this Official Statement or incorporated into this Official Statement by reference.
AG. AG provides financing for single -family homebuilding and residential land development. AG is not a developer or a merchant builder.
ITEM 12.1.
ATTACHMENT 4
-45-
VALUE OF PROPERTY WITHIN IMPROVEMENT AREA NO. 1
Assessed Values and Building Permits
The following table shows the assessed valuation of taxable property within Improvement Area No. 1 for Fiscal Year 2022 -23. Given the ongoing development of land within Improvement Area No. 1, the City has ordered an appraisal of such land, as described below under “– Appraised Values .” The following table also provides the number of building permits issued.
Assessed Valuation
Fiscal
Year
Land
Assessed
Value
Improvement
Assessed
Value
Total
Assessed
Value
Number
of
Permits
Issued (1)
2022-23 $12,811,140 $0 $12,811,140 83
(1) Represents the number of parcels for which a building permit for new construction was issued prior to June 1 of the prior fiscal year.
Sources: Sacramento County Assessor's Office; Goodwin Consulting Group, Inc.
Appraised Values
General. The value of taxable property within Improvement Area No. 1 is a critical factor in determining the investment quality of the 2022 Bonds. In order to obtain a more accurate estimate of the value of land in Improvement Area N o. 1, the City ordered preparation of an appraisal report (the “Appraisal”), of the estimated value of the taxable land within Improvement Area No. 1 as of the July 27, 2022 date of value. The Appraisal was prepared by Integra Realty Resources, Sacramento, California (the “ Appraiser”). The Appraisal is set forth in APPENDIX B hereto. The description herein of the Appraisal is intended for limited purposes only; the Appraisal should be read in its entirety. The conclusions reached in the Appraisal are subject to certain assumptions, conditions and qualifications which are set forth in the Appraisal.
The Appraisal estimated the market value of all of the land in Improvement Area No. 1, which, as of the date of value, encompasses approximately 530 gross acres within the southeastern portion of the City, primarily south of Douglas Road, east of Rancho Cordova Parkway, and west and north of Grant Line Road. The specific plan wi ll include approximately 1,690 dwelling units (single and multi-family) at build out. Specifically, the subject represents the taxable portion of Phases 1 and 2 of the specific plan, which encompasses approximately 73.31 acres of developable property appro ved for 467 dwelling units. For additional details, see APPENDIX B hereto.
Value Estimate . The appraised valuation excludes the value of all portions of the property in Improvement Area No. 1 designated for public and quasi -public purposes and assumes completion of infrastructure funded by the 2022 Bonds and accounts for the impact of the lien of the Special Tax. The following estimate represents the market value of the property to be subject to the Special Tax, based on the hypothetical condition certain impact fees to be financed by the 2022 Bonds have been paid.
ITEM 12.1.
ATTACHMENT 4
-46-
The value estimate for the property as of the date of value, using the methodologies described in the Appraisal and subject to the limiting and hypothetical conditions and general and special assumptions set forth in the Appraisal is $59,640,000.
The Appraiser’s valuation process utilized both a land residual analysis, a discounted cash flow analysis that considers home prices and costs, leading to an estimate of residual land value, and a sales comparison approach. In the sales comparison approach, adjustments were applied to the prices of comparable bulk lot transactions, and a market value was concluded.
The two approaches are then reconciled into an opinion of market value per improved lot. It should be noted that benchmarks are utilized for subject lot categories and adjustments to the benchmark lot values are considered, as applicable.
The final estimate of market value was estimated by employing a discounted cash flow analysis, whereby, the expected revenue, absorption period, expenses and discount rate associated with the sell-off of the 46 5 lots and 2 completed homes as of the date of value was taken into account . The analysis excluded a typical cost approach since the subject property represents land. However, costs associated with home construction were taken into consideration as part of the land residual analysis and determination of financial feasibility.
Given the limited, if any, income producing potential of the land, an income approach was not utilized.
Hypothetical Condition. The market value estimated by the Appraiser is based on a hypothetical condition. A hypothetical condition is defined by USPAP a s “a condition, directly related to a specific assignment, which is contrary to what is known by the appraiser to exist on the effective date of the assignment results but is used for the purpose of the analysis.” It is a hypothetical condition of the Appraisal that the proceeds from the 2022 Bonds will be used to fund certain improvements. The estimate of market value accounts for the impact of the lien of the Special Taxes securing the Bonds.
Assumptions and Limiting Conditions . In considering the estimate of value evidenced by the Appraisal, the Appraisal is based upon a number of limiting conditions and standard and extraordinary assumptions which affect the estimates as to value, including, among others, the following.
• The value conclusions are based on the following hypothetical conditions that may affect the assignment results. A hypothetical condition is a condition contrary to known fact on the effective date of the appraisal but is supposed for the purpose of analysis. The value conclusions are subject to the following extraordinary assumptions that may affect the assignment results. An extraordinary assumption is uncertain information accepted as fact. If the assumption is found to be false as of the effective date of the appraisal, The Appraiser reserves the right to modify the value conclusions.
• The valuation analysis did not include review of a current title report of all properties to determine any possible conditions of title affecting the properties appraised. The Appraiser accepts no responsibility for matters pertaining to title.
• The Appraiser has also assumed that there is no hazardous material on or in the property that would cause a loss in value. Should future conditions and events involving hazardous material reduce the level of permitted development or delay the completion of any projected development, the value of the undeveloped land would likely be reduced from that estimated by the Appraiser. See “BOND OWNERS ’ RISKS – Land Values” and “ – Hazardous ITEM 12.1.
ATTACHMENT 4
-47-
Substances” below. See “APPENDIX B – The Appraisal” hereto for a description of certain assumptions made by the Appraiser.
Accordingly, because the Appraiser arrived at an estimate of current market value based upon certain conditions and assumptions which may or may not be fulfilled, no assurance can be given that should the parcels become delinquent due to unpaid Special Taxes, and be foreclosed upon and offered for sale for the amount of the delinquency, that any bid would be received for such property or, if a bid is received, that such bid would be sufficient to pay such delinquent Special Taxes.
Currently Changing Market Conditions. The Appraisal includes the following observations regarding current market conditions for homebuilding:
“The residential market conditions, in this region and beyond, were experiencing rapid value changes for new homes and near ready for construction lots to support new home expansion over the past 12 to 18 months. In the subject’s submarket the last completed sales transferred in late 2021 with contracts negotiated months prior. We are aware of more recent lot sales elsewhere in the region that illustrate a step -in price for lots in the first quarter of 2022. However, rising interest rates and slowing demand has put downward pressure on home and lot prices over the last few months. Market participants have noted they believe the top of the market occurred in the first quarter of 2022 and land values have since declined due to the rising interest rates and other economic conditions. While most national builders have not lowered their base prices over the last few months, many have been offering significant concessions, including buying down interest rates and discounts on options. Curr ent market conditions indicate land values have returned to levels observed in late 2021.”
“Information from homebuilders over the last few weeks have noted more turmoil from pending buyers dropping out of contract because the rising interest rates.
Homebuilders have also noted pace of sales have slowed from the historic highs.
Further, homebuilders have begun to offer concessions in the form of buying down interest rates and discounted options, instead of decreasing their base prices. In the past several quarters, homebuilders were able to sell homes faster than they were able to construct the homes, but with the rising interest rates this has since moderated. Based on current information and survey responses, recent increases in interest rates have begun to impact the pace of sales as well as pricing in some markets.”
Limitations of Appraisal Valuation. Property values may not be evenly distributed throughout Improvement Area No. 1 ; thus, certain parcels may have a greater value than others. This disparity is significant because in the event of nonpayment of the Special Tax, the only remedy is to foreclose against the delinquent parcel.
No assurance can be given that the foregoing valuation can or will be maintained during the period of time that the Bonds are outstanding in that the City has no control over the market value of the property within Improvement Area No. 1 or the amount of additional indebtedness that may be issued in the future by other public agencies, the payment of which, through the levy of a tax or an assessment, may be on a parity with the Special Taxes. See “ –Priority of Lien” below.
ITEM 12.1.
ATTACHMENT 4
-48-
For a description of certain risks that might affect the assumptions made in the Appraisal, see “BOND OWNERS’ RISKS” herein.
Value to Special Tax Burden Ratios
The principal amount of the direct and overlapping debt in Improvement Area No. 1 is $12,616,974*, which consists of the estimated amount of 2022 Bond s ($12,060,000*) and $556,974 of overlapping general obligation and CFD bond debt. Consequently, the estimated value of property in Improvement Area No. 1 subject to the Special Tax lien ($59,640,000), is approximately 4.7 times the principal amount of the direct and overlapping debt in Improvement Area No. 1. This is an average and individual parcels may vary considerably from this average.
In comparing the value of the real property within Improvement Area No. 1 to the principal amount of the 2022 Bonds and other direct and overlapping debt for Improvement Area No. 1, it should be noted that only the real property upon which there is a delinquent Special Tax can be foreclosed upon, and the real property within Improvement Area No. 1 cannot be foreclosed upon as a whole to pay delinquent Special Taxes of the owners of such parcels within Improvement Area No. 1 unless all of the property is subject to a delinquent Special Tax.
In any event, individual parcels may be foreclosed upon separately to pay delinquent Special Taxes levied against such parcels.
Other public a gencies whose boundaries overlap those of Improvement Area No. 1 could, without the consent of the City and in certain cases without the consent of the owners of the land within Improvement Area No. 1 , impose additional taxes or assessment liens on the land within Improvement Area No. 1 . The purpose would be to finance additional regional or local public improvements or services. The lien created on the land within Improvement Area No. 1 through the levy of such additional taxes or assessments may be on a parity with the lien of the Special Tax. In addition, construction loans may be obtained by the developers of property in Improvement Area No. 1 or home loans may be obtained by ultimate homeowners.
The deeds of trust securing such debt on property within Improvement Area No. 1, however, will be in a junior position to the lien of the Special Tax.
The land within Improvement Area No.1 is located within the boundary of an Elk Grove Unified School District community facility district, pursuant to which a special tax of $200 per parcel will be levied following issuance of a building permit.
* Preliminary; subject to change.
ITEM 12.1.
ATTACHMENT 4
-49-
Value-to-lien Ratios by Development Status. The following table shows the projected status of development and value-to- lien ratios by village in Improvement Area No. 1 for fiscal year 2023-24, based on the status of development as of July 31, 2022 and assuming no further development. Value-to-lien ratios on individual parcels may vary considerably from any average.
Table 3
City of Rancho Cordova
The Ranch Community Facilities District No. 2021-1
Improvement Area No. 1
Special Tax Bonds Series 2022
Value-to-Lien Ratios by Development Status – Projected for Fiscal Year 2023-24
Development Status (1)
No. of
Parcels
No. of
Expected
Units
Appraised
Value (2)*
Projected
FY 2023-24
Maximum
Special Tax*
Projected
FY 2023-24
Special Tax
Levy (3)*
Percent of
Projected
Special Tax
Levy*
CFD
Bonds (4)*
Overlapping
Debt (5)*
Total
Debt*
Average
Appraised
Value-to-
Lien*
Developed Property
Village 4-Unit 1 14 14 $2,659,851 $24,412 $24,412 3.2% $385,934 $17,457 $403,391 6.6:1 Village 5 9 9 1,649,078 17,594 17,594 2.3 278,151 11,169 289,320 5.7:1 Village 6 2 2 366,462 3,910 3,910 0.5 61,811 2,482 64,293 5.7:1 Village 8 2 2 265,835 2,907 2,907 0.4 45,955 2,394 48,350 5.5:1 Village 9 71 71 10,996,718 119,297 119,297 15.6 1,885,984 86,360 1,972,344 5.6:1 Subtotal 98 98 15,937,943 168,120 168,120 22.0 2,657,835 119,862 2,777,698 5.7:1
Final Map Property
Village 3 1 65 $9,274,184 $143,976 $131,221 17.2% $2,074,487 $78,371 $2,152,858 4.3:1 Village 4-Unit 1 39 39 5,418,076 68,005 61,980 8.1 979,856 46,895 1,026,751 5.3:1 Village 4-Unit 2 1 63 8,752,276 109,854 100,122 13.1 1,582,845 75,753 1,658,598 5.3:1 Village 5 36 36 4,757,994 70,377 64,142 8.4 1,014,029 43,076 1,057,105 4.5:1 Village 6 38 38 5,022,327 74,287 67,705 8.9 1,070,364 45,469 1,115,833 4.5:1 Village 8 128 128 10,477,199 186,040 169,559 22.2 2,680,583 147,548 2,828,131 3.7:1 Subtotal 243 369 $43,702,057 $652,540 $594,730 78.0% $9,402,165 $437,111 $9,839,276 4.4:1
Total 341 467 $59,640,000 $820,660 $762,850 100.0% $12,060,000 $556,974 $12,616,974 4.7:1
* Preliminary; subject to change.
(1) Based on status of development as of July 31, 2022, and assumes no further development. (2) Appraised values were allocated to the individual parcels based on the expected development and lot status for each parcel, as reported in the Appraisal. The alloc ated appraised values are not indicative of the market values of the villages or the individual lots.
(3) Includes building permits issued prior to July 27, 2022, final maps recorded prior to July 31, 2022, and assumes no further development. Includes debt service due in 2024 on the Series 2022 Special Tax Bonds and estimated administrative expenses.
(4) Includes the $12,060,000 par amount of the Series 2022 Special Tax Bonds. Allocated based on the Projected FY 2023 -24 Special Tax Levy. (5) Includes the overlapping debt liens listed under "Direct and Overlapping Tax and Assessment Debt" in the overlapping debt rep ort prepared by California Municipal Statistics, Inc. The overlapping debt report is based on the parcels and assessed values as of FY 2021-22. Does not include any PACE liens secured by assessments or special taxes on the property.
Sources: Sacramento County Assessor’s Office; Integra Realty Resources, Inc.; Piper Sandler & Co.; Goodwin Consulting Group, Inc.
ITEM 12.1.
ATTACHMENT 4
-50-
Value-to-lien Ratios By Category. The following table sets forth the projected value- to-lien ratios by category for parcels in Improvement Area No. 1 for Fiscal Year 2023-24.
Table 4
City of Rancho Cordova
The Ranch Community Facilities District No. 2021-1
Improvement Area No. 1
Special Tax Bonds Series 2022
Value-to-Lien Ratio Ranges – Projected for Fiscal Year 2023-24
Appraised
Value-to-Lien
Category
No. of
Parcels*
No. of
Expected
Units*
Appraised
Value (1)*
Projected
FY 2023-24
Special Tax
Levy (2)*
Percent
of
Projected
Special
Tax Levy*
CFD
Bonds(3)*
Overlapping
Debt (4)* Total Debt*
Average
Appraised
Value-to-
Lien*
15:1 to 20:1 2 2 $1,100,000 $3,360 0.4% $53,126 $3,121 $56,247 19.6:1 5:1 to 10:1 136 198 29,008,295 326,862 42.8 5,167,411 239,390 5,406,800 5.4:1 3:1 to 5:1 203 267 29,531,705 432,627 56.7 6,839,463 314,463 7,153,926 4.1:1 Totals 341 467 $59,640,000 $762,850 100.0% $12,060,000 $556,974 $12,616,974 4.7:1
* Preliminary; subject to change.
(1) Appraised values were allocated to the individual parcels based on the expected development and lot status for each parcel, as reported in the Appraisal. The allocated appraised values are not indicative of the market values of the villages or the individual lots. (2) Includes building permits issued prior to July 27, 2022, final maps recorded prior to July 31, 2022, and assumes no further development. Includes debt service due in 2024 on the Series 2022 Special Tax Bonds and estimated administrative expenses. (3) Includes the $12,060,000 par amount of the Series 2022 Spe cial Tax Bonds. Allocated based on the Projected FY 2023 -24 Special Tax Levy. (4) Includes the overlapping debt liens listed under "Direct and Overlapping Tax and Assessment Debt" in the overlapping debt rep ort prepared by California Municipal Statistics, Inc. The overlapping debt report is based on the parcels and assessed values as of FY 2021 -22. Does not include any PACE liens secured by assessments or special taxes on the property.
Sources: Integra Realty Resources, Inc.; Piper Sandler & Co.; Goodwin Consulting Group, Inc.
Priority of Lien
The principal of and interest on the 2022 Bonds are payable from the Special Tax authorized to be collected within Improvement Area No. 1 , and payment of the Special Tax is secured by a lien on certain real property within Improvement Area No. 1. Such lien is co-equal to and independent of the lien for general taxes and any other liens imposed under the Mello - Roos Act, regardless of when t hey are imposed on the property in Improvement Area No. 1 .
The imposition of additional special taxes, assessments and general property taxes will increase the amount of independent and co-equal liens which must be satisfied in foreclosure. The City, the County and certain other public agencies are authorized by the Mello-Roos Act to form other community facilities districts and improvement areas and, under other provisions of State law, to form special assessment districts, either or both of which could include all or a portion of the land within Improvement Area No. 1. In addition, property owners can voluntarily agree to incur Property Assessed Clean Energy (PACE) liens on their properties.
There can be no assurance that the developers will not petition for the formation of other community facilities districts and improvement areas or for a special assessment district or districts and that parity special taxes or special assessments will not be levied by the County or some other public agency to financ e additional public facilities, however no other special districts are currently contemplated by the City or the developers.
Private liens, such as deeds of trust securing loans obtained by developers of land in Improvement Area No. 1, may be placed upon property in Improvement Area No. 1 at any time.
Under California law, the Special Taxes have priority over all existing and future private liens imposed on property subject to the lien of the Special Taxes.
ITEM 12.1.
ATTACHMENT 4
-51-
Set forth below is a statement of direct and ov erlapping public bonded debt (the “Overlapping Debt Report ”) prepared by California Municipal Statistics, Inc. as of March 1, 2022. The Overlapping Debt Report includes only such information as has been reported to California Municipal Statistics, Inc. by the issuers of the debt described therein and by others.
The Overlapping Debt Report is included for general informational purposes only. Neither the City nor the Underwriter makes any representation as to its completeness or accuracy.
The first column in the table names each public agency which has outstanding bonded debt as of the date of the report and whose territory overlaps Improvement Area No. 1 in whole or in part. The second column shows the assessed value of the area common to Improvement Area No. 1 and the other public agency (overlapping territory), as a percentage of the total assessed value of the other public agency. This percentage, multiplied by the total outstanding bonded debt of each overlapping agency (which is not shown in the table) produces the amount shown in the third column, which is the apportionment of each overlapping agency’s outstanding debt to taxable property in Improvement Area No. 1 . In addition to the bonded debt shown in the Overlapping Debt Report, v arious local agencies, including the City, levy additional parcels charges, assessments and special taxes on parcels in Improvement Area No. 1 . See Table 8 for estimated amounts of these parcel charges, assessments and special taxes for Fiscal Year 2022-23.
The Overlapping Debt Report does not include PACE debt secured by assessments or special taxes on any property. Based on the Special Tax Consultant ’s review for Fiscal Year 2021-22, and given that no individual homeowners yet own property in Improvement Area No. 1, none of the parcels within Improvement Area No. 1 had a PACE lien.
ITEM 12.1.
ATTACHMENT 4
-52-
Table 5
City of Rancho Cordova
The Ranch Community Facilities District No. 2021-1
Improvement Area No. 1
Special Tax Bonds Series 2022
Direct and Overlapping Indebtedness
As of March 1, 2022
2021-22 Local Secured Assessed Valuation: $5,545,932(1)
DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT: % Applicable Debt Los Rios Community College District General Obligation Bonds 0.002% $ 11,984 Elk Grove Unified School District General Obligation Bonds 0.013 39,971 Elk Grove Unified School District Community Facilities District No. 1 0.254 453,065 City of Rancho Cordova CFD No. 2021-1, IA No. 1 100.000 0(2) TOTAL DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT $505,020
OVERLAPPING GENERAL FUND DEBT:
Sacramento County General Fund Obligations 0.003% $ 3,717 Sacramento County Pension Obligation Bonds 0.003 18,118 Sacramento County Board of Education Certificates of Participation 0.003 76 Elk Grove Unified School District Certificates of Participation 0.013 1,464 City of Rancho Cordova Certificates of Participation 0.053 6,767 Sacramento Metropolitan Fire General Fund Obligations 0.007 598 Sacramento Metropolitan Fire Pension Obligation Bonds 0.007 2,172 Cordova Recreation and Park District General Fund Obligations 0.032 2,096 TOTAL GROSS OVERLAPPING GENERAL FUND DEBT $35,008
Less: Sacramento County supported obligations 398 TOTAL NET OVERLAPPING GENERAL FUND DEBT $34,610
GROSS COMBINED TOTAL DEBT $540,028 (3)
NET COMBINED TOTAL DEBT $539,630
Ratios to 2021-22 Local Secured Assessed Valuation:
Direct Debt ($0) ................................................................ 0.00% Total Direct and Overlapping Tax and Assessment Debt . 9.11% Gross Combined Total Debt .............................................. 9.74% Net Combined Total Debt ........................................ 9.73%
_______________
(1) Reflects the assessed valuation of the taxable portion of the parcel based on acreage. The total 2021-22 assessed valuation of APN 067- 0040-008-000 is $40,000,000. The portion of the parcel to be taxed is 73.32 acres. The total acreage of the parcel is 528.82.
(2) Excludes 2022 Bonds to be sold.
(3) Excludes tax and revenue anticipation notes, enter prise revenue, mortgage revenue and non- bonded capital lease obligations.
Source: California Municipal Statistics, Inc.
ITEM 12.1.
ATTACHMENT 4
-53-
Estimated Tax Burden on a Single-Family Home
The following table sets forth the estimated total tax burden on a single -family home, based on projected tax rates for Fiscal Year 2022-23.
Table 6
City of Rancho Cordova
The Ranch Community Facilities District No. 2021-1
Improvement Area No. 1
Special Tax Bonds Series 2022
Sample Tax Bill – Fiscal Year 2022-23
Net Taxable Value Amount
Estimated Average Sales Price (1) $584,000.00
Less: Homeowner's Exemption (7,000.00)
Net Taxable Value $577,000.00
Ad Valorem Property Taxes
Base Property Tax 1.0000% $5,770.00
Los Rios College General Obligation Bond 0.0249% $143.67 Elk Grove Unified General Obligation Bond 0.0367% $211.76 Total Ad Valorem Property Taxes 1.0616% $6,125.43
Parcel Charges, Assessments, and Special Taxes (2)
Water and Drainage Studies - SCWA 13 $6.92
Elk Grove USD CFD No. 1 $200.00
Sunridge CFD No. 2014-1 $436.34
Transit Services Tax $100.94
Rancho Cordova Lighting District 2012 -1 $2.56
Rancho Cordova CFD 2014 -2 $336.30
Rancho Cordova CFD No. 2013- 2 $624.44
Rancho Cordova CFD No. 2021- 1 (3) $1,709.52
Total Parcel Charges, Assessments, and Special Taxes $3,417.02
Total Taxes $9,542.45
Total Effective Tax Rate 1.63%
(1) Represents the estimated values for an average unit, as reported in the Appraisal . (2) Does not include any PACE assessments or special taxes. (3) Equal to the applicable Maximum Special Tax rate in FY 2022-23.
Sources: Integra Realty Resources, Inc.; Goodwin Consulting Group, Inc.
ITEM 12.1.
ATTACHMENT 4
-54-
Special Tax Collections and Delinquencies
Fiscal Year 2022-23 is the first fiscal year during which the Special Tax will be levied, with the first payment due in December 2022. Accordingly, there is no history of collections and delinquencies. The levy of Special Taxes in Improvement Area No. 1 is currently covered by the Teeter Plan in the County. See “SECURITY FOR THE 2022 BONDS – Delinquent Payments of Special Tax; Covenant for Superior Court Foreclosure –Teeter Plan.”
BOND OWNERS’ RISKS
The purchase of the 2022 Bonds involves a degree of risk that may not be appropriate for some investors. The following includes a discussion of some of the risks that should be considered before making an investment decision. This discussion does not purport to be comprehensive or d efinitive or a complete statement of all factors that may be considered as risks in evaluating the credit quality of the 2022 Bonds.
Limited Obligation of the City to Pay Debt Service
The City has no obligation to pay principal of and interest on the 2022 Bonds if Special Tax collections are delinquent or insufficient, other than from amounts, if any, on deposit in the Reserve Fund or funds derived from the tax sale or foreclosure and sale of parcels for Special Tax delinquencies. The City is not obligated to advance funds to pay debt service on the 2022 Bonds.
Concentration of Ownership of Undeveloped Property
All of the land within Improvement Area No. 1 is currently owned and controlled, directly or indirectly, by K. Hovnanian. Although there will be transfers of ownership of this property as development progresses and home sales are closed, the timely payment o f the 2022 Bonds depends upon the willingness and ability of all of the owners of taxable property within Improvement Area No. 1 to pay the Special Taxes when due. The only assets of the owners of property within Improvement Area No. 1 which constitute security for the 2022 Bonds are such owners’ real property holdings located within Improvement Area No. 1 , and each parcel may only be foreclosed against for delinquent Special Taxes levied against such parcel. If the current landowners choose to pay some but not all of the Special Taxes, they may, as owners of parcels in Improvement Area No. 1 , choose to default on payments of the Special Tax on parcels. Also see “– Bankruptcy Delays” below.
Development of undeveloped property within Improvement Area No. 1 may be subject to unexpected delays, disruptions and changes which may affect the willingness and ability of the homebuilder or other property owners to pay the Special Taxes when due. Certain infrastructure improvements remain to be completed in order for homes to be completed on the timeline currently expected by K. Hovnanian . No assurance can be given that the proposed residential development will be partially or fully completed, and for purposes of evaluating the investment quality of the 2022 Bonds, prospective purchasers should consider the possibility that such parcels will remain vacant and only partially improved. See the information set forth under the caption “IMPROVEMENT AREA NO. 1 – Development in the District.”
ITEM 12.1.
ATTACHMENT 4
-55-
Levy and Collection of the Special Tax
General. The principal source of payment of principal of and interest on the 2022 Bonds is the proceeds of the annual levy and collection of the Special Tax against propert y within Improvement Area No. 1.
Limitation on Maximum Annual Special Tax Rate. The annual levy of the Special Tax is subject to the maximum annual Special Tax rate authorized in the Special Tax Formula. The levy cannot be made at a higher rate even if the failure to do so means that the estimated proceeds of the levy and collection of the Special Tax, together with other available funds, will not be sufficient to pay debt service on the 2022 Bonds.
In addition to the maximum annual Special Tax rate limitation in the Special Tax Formula, Section 53321(d) of the Mello-Roos Act provides that the special tax levied against any parcel for which an occupancy permit for private residential use has been issued may not be increased as a consequence of delinquency or default by the owner of any other parcel within a community facilities district by more than 10% above the amount that would have been levied in such fiscal year had there never been any such delinquencies or defaults. In cases of significant delinquency, these factors may result in defaults in the payment of principal of and interest on the 2022 Bonds.
No Relationship Between Property Value and Special Tax Levy. Because the Special Tax Formula is not based on property value, the levy of the Special Tax will rarely, if ever, result in a uniform relationship between the valu e of particular parcels in Improvement Area No. 1 subject to a Special Tax and the amount of the levy of the Special Tax against those parcels. Thus, there will rarely, if ever, be a uniform relationship between the value of the parcels in Improvement Area No. 1 subject to a Special Tax and their proportionate share of debt service on the 2022 Bonds, and certainly not a direct relationship.
Factors that Could Lead to Special Tax Deficiencies. The following are some of the factors that might cause the levy of the Special Tax on any particular parcel of Taxable Property to vary from the Special Tax that might otherwise be expected:
Transfers to Governmental Entities. The number of parcels in Improvement Area No. 1 subject to a Special Tax could be reduced through the acquisition of Taxable Property by a governmental entity and failure of the government to pay the Special Tax based upon a claim of exemption or, in the case of the federal government or an agency thereof, immunity from taxati on, thereby resulting in an increased tax burden on the remaining taxed parcels.
Property Tax Delinquencies . Failure of the owners of Taxable Property to pay property taxes (and, consequently, the Special Tax), or delays in the collection of or inability to collect the Special Tax by tax sale or foreclosure and sale of the delinquent parcels, could result in a deficiency in the collection of Special Tax revenues. See “– Property Tax Delinquencies” below.
Delays Following Special Tax Delinquencies and Foreclosure Sales . The Fiscal Agent Agreement generally provides that the Special Tax is to be collected in the same manner as ordinary ad valorem property taxes are collected and, except as provided in the special covenant for foreclosure described in “SECURITY FOR THE 2022 BONDS – Delinquent Payments of Special Tax; Covenant for Superior Court Foreclosure ” and in the Mello-Roos Act, ITEM 12.1.
ATTACHMENT 4
-56-
is subject to the same penalties and the same procedure, sale and lien priority in case of delinquency as is provided for o rdinary ad valorem property taxes. Under these procedures, if taxes are unpaid for a period of five years or more, the property is deeded to the State and then is subject to sale by the County.
If sales or foreclosures of property are necessary, there could be a delay in payments to owners of the 2022 Bonds pending such sales or the prosecution of foreclosure proceedings and receipt by the City of the proceeds of sale if the Reserve Fund is depleted . See “SECURITY FOR THE 2022 BONDS – Delinquent Payments of Special Tax; Covenant for Superior Court Foreclosure.”
The ability of the City to collect interest and penalties specified by State law and to foreclose against properties having delinquent Special Tax installments may be limited in certain respects with regard to properties in which the Federal Deposit Insurance Corporation (the “FDIC”) has or obtains an interest. The FDIC would obtain such an interest by taking over a financial institution that has made a loan that is secured b y property within Improvement Area No. 1. See “ – FDIC/Federal Government Interests in Properties” below.
Other laws generally affecting creditors ’ rights or relating to judicial foreclosure may affect the ability to enforce payment of Special Taxes or t he timing of enforcement of Special Taxes. For example, the Soldiers and Sailors Civil Relief Act of 1940 affords protections such as a stay in enforcement of the foreclosure covenant, a six -month period after termination of military service to redeem pro perty sold to enforce the collection of a tax or assessment and a limitation on the interest rate on the delinquent tax or assessment to persons in military service if the court concludes the ability to pay such taxes or assessments is materially affected by reason of such service.
Overlapping Tax Districts. The land in Improvement Area No. 1 is also located within the boundaries of various local agencies that could issue debt in the future payable from special taxes or other amounts levied on the parcels in Improvement Area No. 1 ; this would decrease the value to lien ratios of parcels in Improvement Area No. 1.
Property Tax Delinquencies
General. Delinquencies in the payment of property taxes and, consequently, the Special Taxes, can occur because the owners of delinquent parcels may not have received property tax bills from the County in a timely manner, including situations in which the County initially sent property tax bills to the property developer or merchant builder at a time when the parcels in question had already been sold to individual homeowners. Delinquencies can also reflect economic difficulties and duress by the property owner.
Numerous future delinquencies by the owners of Taxable Property in Improvement Area No. 1 in the payment of property taxes (and, consequently, the Special Taxes, which are collected on the ordinary property tax bills) when due could result in a deficiency in Special Tax Revenues necessary to pay debt service on the 2022 Bonds, which could in turn result in the depletion of the Reserve Fund, prior to reimbursement from the resale of foreclosed property or payment of the delinquent Special Tax. In that event, there could be a delay or failure in payments of the principal of and interest on the 2022 Bonds. See “SECURITY FOR THE 2022 BONDS – Reserve Fund,” and “SECURITY FOR THE 2022 BONDS – Delinquent Payments of Special Tax; Covenant for Superior Court Foreclosure.”
ITEM 12.1.
ATTACHMENT 4
-57-
The City intends to take certain actions designed to mitigate the impact of future delinquencies, including: enforcing the lien of the Special Taxes through collection procedures that will include foreclosure actions under certain circumstances (se e “SECURITY FOR THE 2022 BONDS – Delinquent Payments of Special Tax; Covenant for Superior Court Foreclosure”); and increasing the levy of Special Taxes against non -delinquent property owners in Improvement Area No. 1 , to the extent permitted under the Spe cial Tax Formula and the Mello-Roos Act and to the extent the Special Taxes are not already being levied at the Maximum Annual Special Tax rate.
Any future decline in home values in Improvement Area No. 1 could result in property owner unwillingness or inability to pay mortgage payments, as well as ad valorem property taxes and Special Taxes, when due. Under such circumstances, bankruptcies are likely to increase. Bankruptcy by homeowners with delinquent Special Taxes would delay the commencement and completion of foreclosure proceedings to collect delinquent Special Taxes.
It is possible that laws could be enacted in the future to assist homeowners in default in the payment of mortgages and property taxes. It is further possible that federal laws c ould be enacted that would adversely impact the ability of the City to foreclose on parcels with delinquent Special Taxes. No assurance can be given that any such laws will be enacted, or if enacted will be effective in assisting affected homeowners.
Property Values and Risks Related to Development
The value of Taxable Property within Improvement Area No. 1 is a critical factor in determining the investment quality of the 2022 Bonds. If a property owner defaults in the payment of the Special Tax, the City ’s only remedy is to foreclose on the delinquent property in an attempt to obtain funds with which to pay the delinquent Special Tax. Land values could be adversely affected by economic and other factors beyond the City ’s control, such as a general economic downturn, relocation of employers out of the area, shortages of water, electricity, natural gas or oth er utilities, destruction of property caused by earthquake, flood, wildfires, or other natural disasters, environmental pollution or contamination, or unfavorable economic conditions.
The following is a discussion of specific risk factors that could affect the value of property in Improvement Area No. 1.
Current Challenges to the Homebuilding Industry . No assurances can be given that the timing of construction of homes and/or sale of homes to individual homeowners projected by K. Hovnanian in this Official Statement will be accomplished. Due to the current state of world affairs, the pace of homebuilding and sale of homes to individual homeowners in Improvement Area No. 1 may be adversely affected by a variety of factors, including rising interest rates, inflation and changes in economic conditions, increases in certain construction costs, droughts and water shortages and/or other similar environmental factors, and recentl y including workforce shortages and supply chain disruptions. For example, obtaining garage doors and window shortages have recently been challenging for homebuilders. Additionally, homebuilders are currently experiencing a known supply chain disruption wi th respect to obtaining electrical transformers needed for new development. Further, the recent increases in interest rates may slow the demand for new residential homes and a combination of historically high new home prices and rising interest rates may p rice some homebuyers out of entry -level homes. High inflation could force prospective homebuyers to account for other costs over purchasing a new home at a higher interest rate.
ITEM 12.1.
ATTACHMENT 4
-58-
Although such factors are not currently having a significant impact on the o verall development of homes in Improvement Area No. 1, the impacts caused by such factors are evolving and no prediction can be made with respect to the ultimate effects of these factors on K. Hovnanian’s ability to sell and close homes in Improvement Area No. 1. These external factors, if and as they arise, could have a material adverse effect on (a) the ability to develop the homes in Improvement Area No. 1 as planned, and no assurance part, or within any particular time, its construction of homes within Improvement Area No. 1; (b) K. Hovnanian’s ability to avoid additional material increases in development costs or delays resulting from work stoppages, reduced attendance of workers and shortages or delays in the delivery of building materials; or (c) K. Hovnanian’s ability to sell homes, and close home sales or not experience purchase contract cancellations, due to an economic downturn driven by rising interest rates, inflation or other changes in economic conditions.
Natural Disasters. The value of the Taxable Property in the future can be adversely affected by a variety of natural occurrences, particularly those that may affect infrastructure and other public improvements and private improvements on the Taxable Property and the continued habitability and enjoyment of such private improvements.
The areas in and surrounding Improvement Area No. 1, like those in much of California, may be subject to unpredictable seismic activity, including earthquakes. See “IMPROVEMENT AREA NO. 1 – Description and Location.”
Other natural disasters could include, without limitation, floods, wildfires, droughts or tornadoes. One or more natural disasters could occur and could result in damage to improvements of varying seriousness. Although land in Improvement Area No. 1 is not in a high-risk area (or a special fire hazard severity zone) for wildfires, landslides, floods, or tornadoes, natural disasters such as these are unpredictable and may occur anywhere throughout the State, with devastating con sequences. In particular, large fires have impacted other parts of the City and County in recent years. The damage may entail significant repair or replacement costs and that repair or replacement may never occur either because of the cost, or because repair or replacement will not facilitate habitability or other use, or because other considerations preclude such repair or replacement. Under any of these circumstances there could be significant delinquencies in the payment of Special Taxes, and the valu e of the Taxable Property may well depreciate or disappear.
Droughts. The State is subject from time -to-time to drought conditions, which could have an impact on future development in Improvement Area No. 1 . Drought conditions have been present in the S tate numerous times in the recent past. Although much of the State, including property in the City, is now out of the worst drought category, the City cannot predict when worsening drought conditions and concomitant water -reduction requirements will return , what effect drought conditions could have on property values, or whether or to what extent water reduction requirements may affect the development of Improvement Area No. 1.
Legal Requirements . Other events that may affect the value of Taxable Property include changes in the law or application of the law. Such changes may include, without limitation, local growth control initiatives, local utility connection moratoriums and local application of statewide tax and governmental spending limitation measures.
Hazardous Substances . One of the most serious risks in terms of the potential reduction in the value of Taxable Property is a claim with regard to a hazardous substance. In ITEM 12.1.
ATTACHMENT 4
-59-
general, the owners and operators of Taxable Property may be required by law to remedy conditions of the parcel relating to releases or threatened releases of hazardous substances.
The federal Comprehensive Environmental Response, Compensation and Liability Act of 1980, sometimes referred to as “CERCLA” or the “Superfund Act,” is the most well-known and widely applicable of these laws, but California laws with regard to hazardous substances are also stringent and similar. Under many of these laws, the owner or operator is obligated to remedy a hazardous substance condition of property whether or not the owner or operator has anything to do with creating or handling the hazardous substance. The effect, therefore, should any of the Taxable Property be affected by a hazardou s substance, is to reduce the marketability and value of the parcel by the costs of remedying the condition, because the purchaser, upon becoming owner, will become obligated to remedy the condition.
The property values set forth in this Official Statemen t do not take into account the possible reduction in marketability and value of any of the Taxable Property by reason of the possible liability of the owner or operator for the remedy of a hazardous substance condition of the parcel. Although the City is n ot aware that the owner or operator of any of the Taxable Property has such a current liability with respect to any of the Taxable Property, it is possible that such liabilities do currently exist and that the City is not aware of them.
Further, it is pos sible that liabilities may arise in the future with respect to any of the Taxable Property resulting from the existence, currently, on the parcel of a substance presently classified as hazardous but that has not been released or the release of which is not presently threatened, or may arise in the future resulting from the existence, currently on the parcel of a substance not presently classified as hazardous but that may in the future be so classified.
Further, such liabilities may arise not simply from t he existence of a hazardous substance but from the method of handling it. All of these possibilities could significantly affect the value of Taxable Property that is realizable upon a delinquency.
Endangered and Threatened Species. It is illegal to harm or disturb any plants or animals in their habitat that have been listed as endangered species by the United States Fish & Wildlife Service under the Federal Endangered Species Act or by the California Fish & Game Commission under the California Endangered Species Act without a permit. Although K.
Hovnanian believes that no federally listed endangered or threatened species would be affected by the proposed development within Improvement Area No. 1, other than any that are permitted by the entitlements already received (which allow for the impact of development and specify the mitigation required), the discovery of an endangered plant or animal could delay development of vacant property in Improvement Area No. 1 or reduce the value of undeveloped property.
Future Property Development
Continuing development of the parcels in Improvement Area No. 1 may be adversely affected by changes in general or local economic conditions, fluctuations in or a deterioration of the real estate market, increased construction costs, development, financing and marketing capabilities of the developer, water or electrici ty shortages, discovery on the undeveloped property of any plants or animals in their habitat that have been listed as endangered species, changes in law, and other similar factors. Development in Improvement Area No. 1 may also be affected by development in surrounding areas, which may compete with the property in Improvement Area No. 1.
For example, H.R. 1 of the 115th U.S. Congress, known as the “Tax Cuts and Jobs Act,” was enacted into law on December 22, 2017 (the “Tax Act” ). The Tax Act made significant ITEM 12.1.
ATTACHMENT 4
-60-
changes to many aspects of the Code that could have an impact on future property development, although to-date none have been widespread.
Other Possible Claims Upon the Value of Taxable Property
While the Special Taxes are secured by the Taxable Property, the security only extends to the value of such Taxable Property that is not subject to priority and parity liens and similar claims.
The table in the section entitled “VALUE OF PROPERTY WITHIN IMPROVEMENT AREA NO. 1 –Priority of Lien ” shows the presently outstanding amount of governmental obligations (with stated exclusions), the tax or assessment for which is or may become an obligation of one or more of the parcels in Improvement Area No. 1 subject to a Special Tax .
The table also states the additional amount of general obligation bonds the tax for which, if and when issued, may become an obligation of one or more of the parcels in Improvement Area No. 1 subject to a S pecial Tax. The table does not specifically identify which of the governmental obligations are secured by liens on one or more of the parcels in Improvement Area No. 1 subject to a Special Tax.
In addition, other governmental obligations may be authorized and undertaken or issued in the future, the tax, assessment or charge for which may become an obligation of one or more of the parcels in Improvement Area No. 1 subject to a Special Tax and may be secured by a lien on a parity with the lien of the Special Tax securing the 2022 Bonds.
In general, as long as the Special Tax is collected on the County tax roll, the Special Tax and all other taxes, assessments and charges also collected on the tax roll are on a parity, that is, are of equal priority. Questions of priority become significant when collection of one or more of the taxes, assessments or charges is sought by some other procedure, such as foreclosure and sale. In the event of proceedings to foreclose for delinquency of Special Taxes securin g the 2022 Bonds, the Special Tax will be subordinate only to existing prior governmental liens, if any. Otherwise, in the event of such foreclosure proceedings, the Special Taxes will generally be on a parity with the other taxes, assessments and charges , and will share the proceeds of such foreclosure proceedings on a pro rata basis. Although the Special Taxes will generally have priority over non -governmental liens on a parcel of Taxable Property, regardless of whether the non-governmental liens were in existence at the time of the levy of the Special Tax or not, this result may not apply in the case of bankruptcy. See “– Bankruptcy Delays” below.
Exempt Properties
Certain properties are exempt from the Special Tax in a ccordance with the Special Tax Formula and the Mello-Roos Act, which provides that properties or entities of the state, federal or local government are exempt from the Special Tax; provided, however, that property within Improvement Area No. 1 acquired by a public entity through a negotiated transaction or by gift or devise, which is not otherwise exempt from the Special Tax, will continue to be subject to the Special Tax. See “SECURITY FOR THE 2022 BONDS – Special Tax Formula.”
In addition, although the Mello- Roos Act provides that if property subject to the Special Tax is acquired by a public entity through eminent domain proceedings, the obligation to pay the Special Tax with respect to that property is to be treated as if it were a special assessment, the constitutionality and operation of these provisions of the Mello- Roos Act have not been tested, meaning that such property could become exempt from the Special Tax. The Mello- Roos Act ITEM 12.1.
ATTACHMENT 4
-61-
further provides that no other propert ies or entities are exempt from the Special Tax unless the properties or entities are expressly exempted in a resolution of consideration to levy a new special tax or to alter the rate or method of apportionment of an existing special tax.
FDIC/Federal Government Interests in Properties
General. The ability of the City to foreclose the lien of delinquent unpaid Special Tax installments may be limited with regard to properties in which the FDIC, the Drug Enforcement Agency, the Internal Revenue Service, or other federal agency has or obtains an interest.
Federal courts have held that, based on the supremacy clause of the United States Constitution, in the absence of Congressional intent to the contrary, a state or local agency cannot foreclose to collect delinquent taxes or assessments if foreclosure would impair the federal government interest.
The supremacy clause of the United States Constitution reads as follows: “This Constitution, and the Laws of the United States which shall be made in Pursuance thereof; and all Treaties made, or which shall be made, under the Authority of the United States, shall be the supreme Law of the Land; and the Judges in every State shall be bound thereby, any T hing in the Constitution or Laws of any State to the contrary notwithstanding.”
This means that, unless Congress has otherwise provided, if a federal governmental entity owns a parcel that is subject to Special Taxes but does not pay taxes and assessments levied on the parcel (including Special Taxes), the applicable state and local governments cannot foreclose on the parcel to collect the delinquent taxes and assessments.
Moreover, unless Congress has otherwise provided, if the federal government has a mortgage interest in the parcel and the City wishes to foreclose on the parcel as a result of delinquent Special Taxes, the property cannot be sold at a foreclosure sale unless it can be sold for an amount sufficient to pay delinquent taxes and assessment s on a parity with the Special Taxes and preserve the federal government ’s mortgage interest. In Rust v. Johnson (9th Circuit; 1979) 597 F.2d 174, the United States Court of Appeal, Ninth Circuit held that the Federal National Mortgage Association (“FNMA”) is a federal instrumentality for purposes of this doctrine, and not a private entity, and that, as a result, an exercise of state power over a mortgage interest held by FNMA constitutes an exercise of state power over property of the United States.
The City has not undertaken to determine whether any federal governmental entity currently has, or is likely to acquire, any interest (including a mortgage interest) in any of the parcels subject to the Special Taxes, and therefore expresses no view concerning the likelihood that the risks described above will materialize while the 2022 Bonds are outstanding.
FDIC. In the event that any financial institution making any loan which is secured by real property within Improvement Area No. 1 is taken over by the FDIC, and prior thereto or thereafter the loan or loans go into default, resulting in ownership of the proper ty by the FDIC, then the ability of the City to collect interest and penalties specified by State law and to foreclose the lien of delinquent unpaid Special Taxes may be limited.
The FDIC’s policy statement regarding the payment of state and local real property taxes (the “Policy Statement”) provides that property owned by the FDIC is subject to state and local real property taxes only if those taxes are assessed according to the property ’s value, and that ITEM 12.1.
ATTACHMENT 4
-62-
the FDIC is immune from real property taxes assessed on any basis other than property value.
According to the Policy Statement, the FDIC will pay its property tax obligations when they become due and payable and will pay claims for delinquent property taxes as promptly as is consistent with sound business practice and the orderly administration of the institution’s affairs, unless abandonment of the FDIC ’s interest in the property is appropriate. The FDIC will pay claims for interest on delinquent property taxes owed at the rate provided under state law, to the extent the interest payment obligation is secured by a valid lien. The FDIC will not pay any amounts in the nature of fines or penalties and will not pay nor recognize liens for such amounts. If any property taxes (including interest) on FD IC-owned property are secured by a valid lien (in effect before the property became owned by the FDIC), the FDIC will pay those claims. The Policy Statement further provides that no property of the FDIC is subject to levy, attachment, garnishment, foreclosure or sale without the FDIC ’s consent. In addition, the FDIC will not permit a lien or security interest held by the FDIC to be eliminated by foreclosure without the FDIC’s consent.
The Policy Statement states that the FDIC generally will not pay non -ad valorem taxes, including special assessments, on property in which it has a fee interest unless the amount of tax is fixed at the time that the FDIC acquires its fee interest in the property, nor will it recognize the validity of any lien to the extent i t purports to secure the payment of any such amounts.
Special taxes imposed under the Mello -Roos Act and a special tax formula which determines the special tax due each year are specifically identified in the Policy Statement as being imposed each year an d therefore covered by the FDIC’ s federal immunity. The Ninth Circuit issued a ruling on August 28, 2001, in which it determined that the FDIC, as a federal agency, is exempt from special taxes levied under the Act.
The City is unable to predict what eff ect the application of the Policy Statement would have in the event of a delinquency in the payment of Special Taxes on a parcel within Improvement Area No. 1 in which the FDIC has or obtains an interest, although prohibiting the lien of the Special Taxes to be foreclosed out at a judicial foreclosure sale could reduce or eliminate the number of persons willing to purchase a parcel at a foreclosure sale. Such an outcome could cause a draw on the Reserve Fund and perhaps, ultimately, if enough property were to become owned by the FDIC, a default in payment on the 2022 Bonds.
Depletion of 2022 Reserve Account of the Reserve Fund
The 2022 Reserve Account of the Reserve Fund is to be maintained at an amount equal to the Reserve Requirement as defined in the Fiscal Agent Agreement . See “SECURITY FOR THE 2022 BONDS – Reserve Fund.” The 2022 Reserve Account of the Reserve Fund will be used to pay principal of and interest on the 2022 Bonds if insufficient funds are available from the proceeds of the levy and collection of the Special Tax against property within Improvement Area No. 1. If the 2022 Reserve Account of the Reserve Fund is depleted, it can be replenished from the proceeds of the levy and collection of the Special Taxes that exceed the amounts to be paid to the owners of the 2022 Bonds under the Fiscal Agent Agreement. However, because the Special Tax levy is limited to the annual Maximum Annual Special Tax rates, it is possible that no replenishment would be achieved if the Special Tax proceeds, together with other available funds, remain insufficient to pay all such amounts. Thus , it is possible that the 2022 Reserve Account of the Reserve Fund will be depleted and not be replenished by the levy and collection of the Special Taxes.
ITEM 12.1.
ATTACHMENT 4
-63-
Bankruptcy Delays
The payment of the Special Tax and the ability of the City to foreclose the lien of a delinquent unpaid Special Tax, as discussed in “SECURITY FOR THE 2022 BONDS,” may be limited by bankruptcy, insolvency or other laws generally affecting creditors’ rights or by the laws of the State of California relating to judicial foreclosure. The various legal opinions to be delivered concurrently with the delivery of the 2022 Bonds (including Bond Counsel’s approving legal opinion) will be qualified as to the enforceability of the various legal instruments by bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors’ rights, by the application of equitable principles and by the exercise of judicial discretion in appropriate cases.
Although bankruptcy proceedings would not cause the Special Taxes to become extinguished, bankruptcy of a property owner or any other person claiming an interest in the property could result in a delay in superior court foreclosure proceedings and c ould result in the possibility of Special Tax installments not being paid in part or in full. Such a delay would increase the likelihood of a delay or default in payment of the principal of and interest on the 2022 Bonds.
In addition, the amount of any l ien on property securing the payment of delinquent Special Taxes could be reduced if the value of the property were determined by the bankruptcy court to have become less than the amount of the lien, and the amount of the delinquent Special Taxes in excess of the reduced lien could then be treated as an unsecured claim by the court.
Any such stay of the enforcement of the lien for the Special Tax, or any such delay or non - payment, would increase the likelihood of a delay or default in payment of the princi pal of and interest on the 2022 Bonds and the possibility of delinquent Special Taxes not being paid in full.
To the extent that property in Improvement Area No. 1 continues to be owned by a limited number of property owners, the chances are increased t hat the Reserve Fund could be fully depleted during any such delay in obtaining payment of delinquent Special Taxes. As a result, sufficient moneys would not be available in the Reserve Fund to make up shortfalls resulting from delinquent payments of the Special Tax and thereby to pay principal of and interest on the 2022 Bonds on a timely basis.
On July 30, 1992, the United States Court of Appeals for the Ninth Circuit issued its opinion in a bankruptcy case entitled In re Glasply Marine Industries. In that case, the court held that ad valorem property taxes levied by Snohomish County in the State of Washington after the date that the property owner filed a petition for bankruptcy were not entitled to priority over a secured creditor with a prior lien on that property. The court upheld the priority of unpaid ad valorem taxes imposed before the bank ruptcy petition (the “pre-petition taxes ”), but unpaid taxes imposed after the filing of the bankruptcy petition ( “post-petition taxes”) were declared to be unsecured “administrative expenses” of the bankruptcy estate, and were therefore held to be payable from the bankruptcy estate only after payment of all secured creditors. As a result, the secured creditor of the property was able to foreclose on the property and retain all of the proceeds of the sale except for the amount of the pre-petition taxes.
According to the court ’s ruling, as administrative expenses, post -petition taxes would have to be paid, but only if the debtor had sufficient assets not subject to other perfected security interests to do so. In certain circumstances, payment of such administrative expenses may also be allowed to be deferred. Once the property is transferred out of the bankruptcy ITEM 12.1.
ATTACHMENT 4
-64-
estate (through foreclosure or otherwise) it would at that time again become subject to and would secure liens for then current and future ad valorem taxes.
Glasply was controlling precedent on bankruptcy courts in the State of California for several years subsequent to the date of the Ninth Circuit’ s holding. Pursuant to state law, the lien date for general ad valorem property taxes levied in the State of California is the January 1 preceding the fiscal year for which the taxes are levied. Under the Glasply holding, a bankruptcy petition filing would have prevented the lien for general ad valorem property taxes levied in fiscal years subsequent to the filing of a bankrup tcy petition from attaching and becoming a lien so long as the property was a part of the estate in bankruptcy. However, the Glasply holding was for the most part subsequently rendered inoperative with respect to the imposition of a lien for and the collection of ad valorem taxes by amendments to the federal Bankruptcy Code (Title 11 U.S.C.) which were part of the Bankruptcy Reform Act of 1994 (the “Bankruptcy Reform Act ”) passed by Congress during the later part of 1994. The Bankruptcy Reform Act added a provision to the automatic stay section of the Bankruptcy Code which, pursuant to Section 362(b)(18) thereof, excepts from the Bankruptcy Code’s automatic stay provisions, “the creation of a statutory lien for an ad valorem property tax imposed by . . . a p olitical subdivision of a state, if such tax comes due after the filing of the petition ” by a debtor in bankruptcy court. The effect of this provision is to continue the secured interest of ad valorem taxes on real property (i.e., post-petition taxes) in e ffect during the period following the filing of a bankruptcy petition, including during the period bankruptcy proceedings are pending.
Without further clarification by the courts or Congress, the original rationale of the Glasply holding could, however, s till result in the treatment of post- petition special taxes as “administrative expenses,” rather than as tax liens secured by real property, at least during the pendency of bankruptcy proceedings. This treatment might result from the fact that, although the lien of special taxes is of record from the date of the filing of a Notice of Special Tax Lien, the actual special tax is levied annually. As noted above, special taxes have a different lien date than the lien date for general ad valorem taxes in the Sta te of California noted above. The lien of a Mello -Roos special tax attaches upon recordation of the notice of the special tax lien, as provided for in Section 53328.3 of the Act, as opposed to the annual January 1 lien date for general ad valorem taxes. Thus, in deciding whether the original Glasply ruling is applicable to a bankruptcy proceeding involving special taxes rather than general ad valorem property taxes, a court might consider the differences in the statutory provisions for creation of the appli cable tax lien (general ad valorem or special tax) in determining whether there is a basis for post petition special taxes to be entitled to a lien on the property during pending bankruptcy proceedings. If a court were to apply Glasply to eliminate the pri ority of the special tax lien as a secured claim against property with respect to post- petition levies of the Special Taxes made against property owners within Improvement Area No. 1 who file for bankruptcy, collections of the Special Taxes from such prope rty owners could be reduced as the result of being treated as “administrative expenses” of the bankruptcy estate. Also, and most importantly, is the fact that the original holding in Glasply and the mitigation of that holding by the Bankruptcy Reform Act o f 1994 both appear to be applicable only to general ad valorem taxes, and, therefore, the exemption from the automatic stay in Section 362(b)(18) discussed above may not be applicable to special taxes since they were not expressly mentioned or provided for in this section, nor defined to be included within the term “ad valorem taxes.”
Disclosure to Future Purchasers
The City has recorded a notice of the Special Tax lien in the Office of the County Recorder. While title companies normally refer to such notices in title reports, there can be no ITEM 12.1.
ATTACHMENT 4
-65-
guarantee that such reference will be made or, if made, that a prospective purchaser or lender will consider such special tax obligation in the purchase of a parcel of land or a home in Improvement Area No. 1 or the lending of money secured by property in Improvement Area No.
1. The Mello-Roos Act and the City’s Mello-Roos Act Goals and Policies require the subdivider of a subdivision (or its agent or representative) to notify a prospective purchaser or long -term lessor of any lot, parcel, or unit subject to a Mello -Roos special tax of the existence and maximum amount of such spec ial tax using a statutorily prescribed form. California Civil Code Section 1102.6b requires that in the case of transfers other than those covered by the above requirement, the seller must at least make a good faith effort to notify the prospective purcha ser of the special tax lien in a format prescribed by statute. Failure by an owner of the property to comply with these requirements, or failure by a purchaser or lessor to consider or understand the nature and existence of the Special Tax, could adversel y affect the willingness and ability of the purchaser or lessor to pay the Special Tax when due.
No Acceleration Provisions
The 2022 Bonds do not contain a provision allowing for their acceleration in the event of a payment default or other default under the terms of the 2022 Bonds or the Fiscal Agent Agreement. Under the Fiscal Agent Agreement, a Bondowner is given the right for the equal benefit and protection of all Bondowners similarly situated to pursue certain remedies. So long as the 2022 Bonds are in book-entry form, DTC will be the sole Bondowner and will be entitled to exercise all rights and remedies of Bondholders, in accordance with its procedures and rules.
Loss of Tax Exemption
As discussed under the caption “TAX MATTERS, ” interest on the 2022 Bonds might become includable in gross income for purposes of federal income taxation retroactive to the date the 2022 Bonds were issued as a result of future acts or omissions of the City in violation of its covenants in the Fiscal Agent Agreement. The Fiscal Agent Agreement does not contain a special redemption feature triggered by the occurrence of an event of taxability. As a result, if interest on the 2022 Bonds were to become includable in gross income for purposes of federal income taxation, the 2022 Bonds would continue to remain outstanding until maturity unless earlier redeemed pursuant to optional redemption, mandatory sinking fund redemption or special mandatory redemption upon prepayment of the Special Taxes. See “THE 2022 BONDS – Redemption.”
Future legislative proposals, if enacted into law, clarification of the Code or court decisions may cause interest on the 2022 Bonds to be subject, directly or indirectly, to federal income taxation or to be subject to or exempted from state income taxation, or otherwise prevent Bondowners from realizing the full current benefit of the tax status of such interest.
IRS Audit of Tax-Exempt Bond Issues
The Internal Revenue Service (the “IRS”) has initiated an expanded program for the auditing of tax- exempt bond issues, including both random and targeted audits. It is possible that the 2022 Bonds will be selected for audit by the IRS. It is also possible that the market value of such 2022 Bonds might be affected as a result of such an audit (or by an audit of similar bonds or securities).
ITEM 12.1.
ATTACHMENT 4
-66-
Voter Initiatives
Under the California Constitution, the power of initiative is reserved to the voters for the purpose of enacting statutes and constitutional amendments. Since 1978, the voters have exercised this power through the adoption of Proposition 13 and similar measures, including Proposition 218, which was approved in the general election held on November 5, 1996, a nd Proposition 26, which was approved 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 2022 Bonds.
Proposition 218 – Voter Approval for Local Government Taxes —Limitation on Fees, Assessments, and Charges —Initiative Constitutional Amendment, 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.
On November 2, 2010, California voters approved Proposition 26, entitled the “Supermajority Vote to Pass New Taxes and Fees Act. ” Section 1 of Proposition 26 declares that Proposition 26 is intended to limit the a bility of the State Legislature and local government to circumvent existing restrictions on increasing taxes by defining the new or expanded taxes as “fees.” Proposition 26 amended Articles XIIIA and XIIIC of the State Constitution. The amendments to Article XIIIA limit the ability of the State Legislature to impose higher taxes (as defined in Proposition 26) without a two-thirds vote of the Legislature. Article XIIIC requires that all new local taxes be submitted to the electorate before they become eff ective. Special Taxes for general governmental purposes require a majority vote and taxes for specific purposes (“special taxes”) require a two-thirds vote.
The Special Taxes and the bond authorization for Improvement Area No. 1 were each authorized by not less than a two- thirds vote of the landowners within Improvement Area No. 1 who constituted the qualified electors at the time of such voted authorization. The City believes, therefore, that issuance of the 2022 Bonds does not require the conduct of further proceedings under the Act, Proposition 218 or Proposition 26.
Case Law Related to the Mello-Roos Act Voting
On August 1, 2014, the California Court of Appeal, Fourth Appellate District, issued its opinion in City of San Diego v. Melvin Shapiro, et al. (D063997). The case involved a Convention Center Facilities District (the “CCFD”) established by the City of San Diego. The CCFD is a financing district established under the City’s charter (the “Charter”) and was intended to function much like a community facilities district established under the Mello -Roos Act. The CCFD was comprised of all of the real property in the entire City. However, the CCFD special tax was to be levied only on properties in the CCFD that were improved with a hotel.
At the election to authorize the CCFD special tax, the CCFD proceedings limited the electorate to owners of hotel properties and lessees of real property owned by a governmental entity on w hich a hotel was located. Registered voters in the City of San Diego were not permitted to vote. This definition of the qualified electors of the CCFD was based on Section 53326(c) of the Mello- Roos Act, which generally provides that, if a special tax will not be ITEM 12.1.
ATTACHMENT 4
-67-
apportioned in any tax year on residential property, the legislative body may provide that the vote shall be by the landowners of the proposed community facilities district whose property would be subject to the special tax.
The San Diego Court held that the CCFD special tax election did not comply with the City’s Charter and with applicable provisions of the California Constitution -- specifically Article XIIIA, section 4 ( “Cities, Counties and special districts, by a two -thirds vote of the qualif ied electors of such district, may impose special taxes on such district….”) and Article XIIIC, section 2(d) (“No local government may impose, extend, or increase any special tax unless and until that tax is submitted to the electorate and approved by a tw o-thirds vote. ”) -- because the electors in the CCFD election should have been the registered voters residing within the CCFD (the boundaries of which were coterminous with the boundaries of the City of San Diego).
As to Improvement Area No. 1 , there we re fewer than 12 registered voters within Improvement Area No. 1 at the time of the election to authorize the Special Taxes. Significantly, the San Diego Court expressly stated that it was not addressing the validity of a landowner election to impose speci al taxes on residential property pursuant to the Mello -Roos Act in situations where there are fewer than 12 registered voters. Therefore, by its terms, the San Diego Court’s holding does not apply to the special tax election in Improvement Area No. 1.
Moreover, Sections 53341 and 53359 of the Act establish a limited period of time in which special taxes levied under the Mello-Roos Act may be challenged by a third party:
53341. Any action or proceeding to attack, review, set aside, void, or annul the levy of a special tax or an increase in a special tax pursuant to [the Mello -Roos Act] shall be commenced within 30 days after the special tax is approved by the voters….
53359. An action to determine the validity of bonds issued pursuant to [the Mello-Roos Act] or the validity of any special taxes levied pursuant to [the Mello - Roos Act] … shall …. be commenced within 30 days after the voters approve the issuance of the bonds or the special tax …
Section 53326(b) of the Mello -Roos Act defines the authori zed voters for an election in which the special taxes will be levied on residential property: “Except as otherwise provided in subdivision (c), if at least 12 persons, who need not necessarily be the same 12 persons, have been registered to vote within the territory of the proposed community facilities district for each of the 90 days preceding the close of the protest hearing, the vote shall be by the registered voters of the proposed district, with each voter having one vote. Otherwise, the vote shall be by the landowners of the proposed district and each person who is the owner of land at the close of the protest hearing, or the authorized representative thereof, shall have one vote for each acre or portion of an acre of land that he or she owns within the proposed community facilities district not exempt from the special tax….”
Landowner voters approved the Special Taxes and the issuance of bonds for Improvement Area No. 1 in compliance with all applicable requirements of the Mello -Roos Ac and, pursuant to Sections 53341 and 53359 of the Mello -Roos Act, the statute of limitations period to challenge the validity of the special tax has expired. Because the San Diego Court expressly stated that it did not consider the facts presented by Improvement Area No. 1 and the District, and because the period for challenging the Special Taxes has passed, the City believes the Special Taxes are valid and cannot be challenged.
ITEM 12.1.
ATTACHMENT 4
-68-
Secondary Market for Bonds
There can be no guarantee that there will be a secondary market for the 2022 Bonds or, if a secondary market exists, that any 2022 Bonds can be sold for any particular price. Prices of bond issues for which a market is being made will depend upon then -prevailing circumstances.
Such prices could be substantially different from the original purchase price.
No assurance can be given that the market price for the 2022 Bonds will not be affected by the introduction or enactment of any future legislation (including without limitation amendments to the Internal Revenue Code), or changes in interpretation of the Internal Revenue Code, or any action of the IRS, including but not limited to the publication of proposed or final regulations, the issuance of rulings, the selection of the 2022 Bonds for audit examination, or the course or result of any IRS audit or examination of the 2022 Bonds or obligations that present similar tax issues as the 2022 Bonds.
COVID-19 Pandemic
The ongoing COVID -19 coronavirus pandemic, and responses intended to slow its spread, may result in negative impacts to the homebuilding opera tions and sales of homes within Improvement Area No. 1. In addition, no assurance can be given that the property tax payment dates will not be deferred in the future, which may cause a delay in the receipt of Special Tax Revenues by the City for the payment of the 2022 Bonds.
The COVID-19 outbreak is ongoing, and its duration and severity and economic effects are uncertain in many respects. Uncertain too are the additional actions that may be taken by federal, State and local governmental authorities to contain or mitigate the effects of the outbreak. Negative impacts on the collection of Special Taxes could occur because Special Tax payments are deferred, or some taxpayers may be unable to make their property and special tax payments. The negative impacts of COVID -19 and efforts to contain its spread may reduce or negatively affect the pace of development activity in Improvement Area No. 1, as well as home sales, home prices, property values and/or the ability or willingness of property owners to pay Special Taxes levied upon their property, all of which could impact the City’s ability to pay debt service on the 2022 Bonds.
Cyber Security
The City, like many other public and private entities, relies on computer and other digital networks and systems to conduct its operations. As a recipient and provider of personal, private or other sensitive electronic information, the City is potentially subject to multiple cyber threats, including without limitation hacking, viruses, ransomware, malware an d other attacks. No assurance can be given that the City ’s efforts to manage cyber threats and attacks will be successful in all cases, or that any such attack will not materially impact the operations or finances of the City or Improvement Area No. 1 , or the administration of the 2022 Bonds. The City is also reliant on other entities and service providers in connection with the administration of the 2022 Bonds, including without limitation the County tax collector for the levy and collection of Special T axes, the Fiscal Agent, and the dissemination agent. No assurance can be given that the City, Improvement Area No. 1 and these other entities will not be affected by cyber threats and attacks in a manner that may affect the Bond owners.
ITEM 12.1.
ATTACHMENT 4
-69-
Potential Early Redemption of Bonds from Prepayments
Property owners within Improvement Area No. 1 , including K. Hovnanian and individual homeowners, are permitted to prepay their Special Tax obligation at any time. Such prepayments could also be made from the proceeds of bonds issued by or on behalf of an overlapping special assessment district or community facilities distr ict. Such prepayments will result in a redemption of the 2022 Bonds on the interest payment date for which timely notice may be given under the Fiscal Agent Agreement following the receipt of the prepayment. The resulting redemption of 2022 Bonds that we re purchased at a price greater than par could reduce the otherwise expected yield on such 2022 Bonds.
LEGAL MATTERS
Legal Opinion
The legal opinion of Jones Hall, A Professional Law Corporation, San Francisco, California, Bond Counsel, approving the validity of the 2022 Bonds will be made available to purchasers at the time of original delivery and is attached in substantially final form as APPENDIX E.
Jones Hall, A Professional Law Corporation, San Francisco, California, has served as Disclosure Counsel to the City. Meyers Nave, A Professional Law Corporation, Sacramento, California, will pass upon certain legal matters for the City as its City Attorney. Kutak Rock LLP, Irvine, California, is serving as counsel to the Underwriter.
No Litigation
At the time of delivery of the 2022 Bonds, the City will certify that there is no action, suit, proceeding, inquiry or investigation, at law or in equity, before or by any court, public board or body, pending with respect to which the City has been served with process or threatened, which (i) in any way questions the powers of the City Council or the City, (ii) in any way questions the validity of any proceeding taken by the City Council in connection with the issuance of the 2022 Bonds, (iii) wherein an unfavorable decision, ruling or finding co uld have a material adverse effect on the transactions contemplated by the purchase contract with respect to the 2022 Bonds, (iv) which, in any way, could adversely affect the validity or enforceability of the resolutions of the City Council adopted in con nection with the formation of the District or Improvement Area No. 1, or the issuance of the 2022 Bonds, the Fiscal Agent Agreement, the Continuing Disclosure Agreement or the purchase contract with respect to the 2022 Bonds, (v) to the knowledge of the City, which in any way questions the exclusion from gross income of the recipients thereof of the interest on the 2022 Bonds for federal income tax purposes, or (vi) in any other way questions the status of the 2022 Bonds under State tax laws or regulations.
TAX MATTERS
Federal Tax Status. In the opinion of Jones Hall, A Professional Law Corporation, San Francisco, California, Bond Counsel, subject, however to the qualifications set forth below, under existing law, the interest on the 2022 Bonds is excluded from gross income for federal income tax purposes and such interest is not an item of tax preference for purposes of the federal alternative minimum tax. For tax years beginning after December 31, 2022, interest on the Bonds may be subject to the corporate alternative minimum tax.
ITEM 12.1.
ATTACHMENT 4
-70-
The opinions set forth in the preceding paragraph are subject to the condition that the City comply with all requirements of the Internal Revenue Code of 1986, as amended (the “Tax Code”) that must be satisfied subsequent to the issuance of the 2022 Bonds in or der that the interest thereon be, and continue to be, excludable from gross income for federal income tax purposes. The City has made certain representations and covenants in order to comply with each such requirement. Inaccuracy of those representations, or failure to comply with certain of those covenants, may cause the inclusion of such interest in gross income for federal income tax purposes, which may be retroactive to the date of issuance of the 2022 Bonds.
Tax Treatment of Original Issue Discount and Premium. If the initial offering price to the public at which a 2022 Bond is sold is less than the amount payable at maturity thereof, then such difference c onstitutes “original issue discount ” for purposes of federal income taxes and State of California personal income taxes. If the initial offering price to the public at which a 2022 Bond is sold is greater than the amount payable at maturity thereof, then such difference constitutes “original issue premium” for purposes of federal income taxes and State of California personal income taxes. De minimis original issue discount and original issue premium are disregarded.
Under the Tax Code, original issue di scount is treated as interest excluded from federal gross income and exempt from State of California personal income taxes to the extent properly allocable to each owner thereof subject to the limitations described in the first paragraph of this section. The original issue discount accrues over the term to maturity of the 2022 Bond on the basis of a constant interest rate compounded on each interest or principal payment date (with straight-line interpolations between compounding dates). The amount of orig inal issue discount accruing during each period is added to the adjusted basis of such 2022 Bonds to determine taxable gain upon disposition (including sale, redemption, or payment on maturity) of such 2022 Bond. The Tax Code contains certain provisions r elating to the accrual of original issue discount in the case of purchasers of the 2022 Bonds who purchase the 2022 Bonds after the initial offering of a substantial amount of such maturity. Owners of such 2022 Bonds should consult their own tax advisors with respect to the tax consequences of ownership of 2022 Bonds with original issue discount, including the treatment of purchasers who do not purchase in the original offering to the public at the first price at which a substantial amount of such 2022 Bonds is sold to the public.
Under the Tax Code, original issue premium is amortized on an annual basis over the term of the 2022 Bond (said term being the shorter of the 2022 Bond’s maturity date or its call date). The amount of original issue premium amortized each year reduces the adjusted basis of the owner of the 2022 Bond for purposes of determining taxable gain or loss upon disposition.
The amount of original issue premium on a 2022 Bond is amortized each year over the term to maturity of the 2022 Bond on the basis of a constant interest rate compounded on each interest or principal payment date (with straight -line interpolations between compounding dates).
Amortized bond premium is not deductible for federal income tax purposes. Owners of premium 2022 Bonds, including purchasers who do not purchase in the original offering, should consult their own tax advisors with respect to State of California personal income tax and federal income tax consequences of owning such 2022 Bonds.
California Tax Stat us. In the further opinion of Bond Counsel, interest on the 2022 Bonds is exempt from California personal income taxes.
ITEM 12.1.
ATTACHMENT 4
-71-
Other Tax Considerations. Current and future legislative proposals, if enacted into law, clarification of the Tax Code or court decisions may cause interest on the 2022 Bonds to be subject, directly or indirectly, to federal income taxation or to be subject to or exempted from state income taxation, or otherwise prevent beneficial owners from realizing the full current benefit of the ta x status of such interest. The introduction or enactment of any such legislative proposals, clarification of the Tax Code or court decisions may also affect the market price for, or marketability of, the 2022 Bonds. It cannot be predicted whether or in what form any such proposal might be enacted or whether, if enacted, such legislation would apply to bonds issued prior to enactment.
The opinions expressed by Bond Counsel are based upon existing legislatio n and regulations as interpreted by relevant judicial and regulatory authorities as of the date of such opinion, and Bond Counsel has expressed no opinion with respect to any proposed legislation or as to the tax treatment of interest on the 2022 Bonds, or as to the consequences of owning or receiving interest on the 2022 Bonds, as of any future date. Prospective purchasers of the 2022 Bonds should consult their own tax advisors regarding any pending or proposed federal or state tax legislation, regulations or litigation, as to which Bond Counsel expresses no opinion.
Owners of the 2022 Bonds should also be aware that the ownership or disposition of, or the accrual or receipt of interest on, the 2022 Bonds may have federal or state tax consequences other than as described above. Other than as expressly described above, Bond Counsel expresses no opinion regarding other federal or state tax consequences arising with respect to the 2022 Bonds, the ownership, sale or disposition of the 2022 Bonds, or the amount, accrual or receipt of interest on the 2022 Bonds.
CONTINUING DISCLOSURE
The City
The City has covenanted for the benefit of owners of the 2022 Bonds to provide certain financial information and operating data relating to Improvement Area No. 1 by not later than nine months after the end of the City ’s fiscal year (presently June 30) in each year (the “City Annual Report”) commencing with its report fo r the 2021-22 fiscal year (due by April 1, 2023) and to provide notices of the occurrence of certain enumerated events. Additionally, K.
Hovnanian has covenanted for the benefit of owners of the 2022 Bonds to provide certain information with respe ct to the property owned by it and its Affiliates (as defined in the Continuing Disclosure Certificate) within Improvement Area No. 1 (the “Developer Annual Report”) to owners of the 2022 Bonds (so long as it is responsible for a certain percentage of the Special Taxes), as described in the Developer Annual Report, and to provide notices of the occurrence of certain enumerated events.
The City Annual Report and the Developer Annual Report and notices of listed events will be filed with the Municipal Secu rities Rulemaking Board. The covenants of the City have been made in order to assist the Underwriter in complying with Securities Exchange Commission Rule 15c2 -12(b)(5) (the “Rule”). The specific nature of the information to be contained in the Annual Report or the notices of listed events by the City and K. Hovnanian is summarized in “APPENDIX F – Form of Continuing Disclosure Undertakings.”
A review of the City’s compliance with prior continuing disclosure undertakings in the last five years indicates that the City has been in compliance during such period.
ITEM 12.1.
ATTACHMENT 4
-72-
The City retain s Goodwin Consulting Group, Inc. to serve as dissemination agent with respect to the filings to be made with respect to the 2022 Bonds and its other undertakings under the Rule.
K. Hovnanian
K. Hovnanian is not an obligated party under the Rule but has voluntarily agreed to provide annual continuing disclosure for the benefit of Bondowners. K. Hovnanian will enter into a Continuing Disclosure Certificate (Developer) covenanting to provide certain information regarding the development of its propert y and notice of certain material events as they occur until such time as K. Hovnanian owns property in Improvement Area No. 1 responsible for less than 20% of the special tax levy for Improvement Area No. 1.
K. Hovnanian represents that to the Actual Knowledge of K. Hovnanian, K. Hovnanian is not aware of any material failures by it within the past five years to comply with previous undertakings to provide continuing disclosure reports or notices of certain listed material events with respect to community facilities districts or assessment districts in California.
NO RATING
The City has not obtained a formal credit rating on the 2022 Bonds and does not anticipate obtaining one on the 2022 Bonds in the future. Prospective purchasers of the 2022 Bonds are required to make independent determinations as to the credit quality of the 2022 Bonds and their appropriateness as an investment.
UNDERWRITING
The 2022 Bonds are being purchased by Piper Sandler & Co. , as underwriter (the “Underwriter”), at a purchase price of $____________ (which represents the aggregate principal amount of the 2022 Bonds ($____________), [plus/minus] [net] original issue [premium/discount] of $____________, and less an Underwriter’s discount of $____________).
The purchase agreement relating to the 2022 Bonds provides that the Underwriter will purchase all of the 2022 Bonds, if any are purchased, the obligation to make such purchase being subject to certain terms and conditions set forth in such purchase agreement.
The Underwriter may offer and sell the 2022 Bonds to certain dealers and others at prices lower than the offering prices stated on the inside cover page hereof. The offering prices may be changed from time to time by the Underwriter.
PROFESSIONAL FEES
In connection with the issuance of the 2022 Bonds, some or all of fees or other compensation payable to certain professionals is contingent upon the issuance and delivery of the 2022 Bonds. Those professionals include:
• Piper Sandler & Co., as the Underwriter;
ITEM 12.1.
ATTACHMENT 4
-73-
• Jones Hall, A Professional Law Corporation, as Bond Counsel and Disclosure Counsel;
• Kutak Rock LLP, as Underwriter’s Counsel;
• Goodwin Consulting Group, Inc., as Special Tax Consultant; • NHA Advisors, LLC, as Municipal Advisor; and
• U.S. Bank Trust Company, National Association , as Fiscal Agent for the 2022 Bonds.
EXECUTION
The execution and delivery of the Official Statement by the City has been duly authorized by the City Council, acting as the legislative body of the District and Improvement Area No. 1.
CITY OF RANCHO CORDOVA
By:
Chief Financial Officer
ITEM 12.1.
ATTACHMENT 4
A-1
APPENDIX A
RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAX
ITEM 12.1.
ATTACHMENT 4
B-1
APPENDIX B
THE APPRAISAL
ITEM 12.1.
ATTACHMENT 4
C-1
APPENDIX C
SUMMARY OF CERTAIN PROVISIONS OF THE FISCAL AGENT AGREEMENT
ITEM 12.1.
ATTACHMENT 4
D-1
APPENDIX D
SACRAMENTO COUNTY AND CITY OF RANCHO CORDOVA
DEMOGRAPHIC INFORMATION
The following information concerning the City of Rancho Cordova (the “City”) and the County of Sacramento (the “County”) is included only for the purpose of supplying general information regarding the area of the City and County. The 2022 Bonds are not a debt of the City, the County, the State of California (the “State”) or any of its political subdivisions, and neither the City, the County, the State nor any of its political subdivisions is liable therefor.
General
The City. The City was incorporated on July 1, 2003, is located in the northeastern portion of the County, 10 miles east of downtown Sacramento and 90 miles northeast of San Francisco. Organized as a General Law City under State law, the City operates under the Council-Manager form of government with five members elected to the Council, one of which serves as mayor for a year.
The County. The County was incorporated in 1850 as one of the original 27 counties of the State. The County ’s largest city, the City of Sacramento serves as the seat of government for both the County and the State. Sacramento became the State Capital in 1854. The County is the major component of the Sacramento Metropolitan Statistical Area ( “SMSA”), which includes Sacramento, El Dorado, and Placer Counties.
The County encompasses approximately 994 square miles in the northern portion of the Central Valley, which is California’s prime agricultural region. The County is bordered by Contra Costa and San Joaquin Counties on the south, Ama dor and El Dorado Counties on the east, Placer and Sutter Counties on the north, and Yolo and Solano Counties on the west. The County extends from the low delta lands between the Sacramento and San Joaquin rivers north to about ten miles beyond the State Capitol and east to the foothills of the Sierra Nevada Mountains. The southernmost portion of the County has direct access to San Francisco Bay.
Population
The following table lists population estimates for the City, the County and the State for the last five calendar years, as of January 1, 2022.
CITY OF RANCHO CORDOVA, COUNTY OF SACRAMENTO
AND STATE OF CALIFORNIA
Population Estimates
Calendar Years 2018 through 2022, as of January 1
Calendar Year
City of
Rancho Cordova
County of
Sacramento
State of
California
2018 75,815 1,525,099 39,519,535
2019 77,259 1,538,054 39,605,361
2020 78,333 1,553,157 39,648,938
2021 79,536 1,580,624 39,303,157
2022 80,359 1,576,618 39,185,605
Source: State Department of Finance.
ITEM 12.1.
ATTACHMENT 4
E-2
Employment and Industry
The unemployment rate in the Sacramento --Roseville--Arden-Arcade MSA was 3.4 percent in June 2022, up from a revised 2.9 percent in May 2022, and below the year- ago estimate of 7.2 percent. This compares with an unadjusted unemploy ment rate of 4.0 percent for California and 3.8 percent for the nation during the same period. The unemployment rate was 2.9 percent in El Dorado County, 2.6 percent in Placer County, 3.6 percent in Sacramento County, and 3.4 percent in Yolo County.
The table below provides information about employment rates and employment by industry type for the Sacramento MSA (which includes Sacramento, Placer, Yolo and El Dorado Counties) for the calendar years 2017 through 2021.
SACRAMENTO-ARDEN ARCADE-ROSEVILLE MSA
(El Dorado, Placer, Sacramento, Yolo Counties)
Employment by Industry
(March 2021 Benchmark)
2017 2018 2019 2020 2021
Civilian Labor Force (1) 1,074,000 1,088,300 1,100,800 1,091,700 1,099,300 Employment 1,024,800 1,046,900 1,060,300 994,000 1,028,800 Unemployment 49,200 41,500 40,500 97,700 70,500
Unemployment Rate 4.6% 3.8% 3.7% 9.0% 6.4%
Wage and Salary Employment (2)
Agriculture 9,800 9,100 8,700 8,300 9,000
Mining and Logging 400 500 500 600 700
Construction 58,700 64,500 69,400 70,200 74,100
Manufacturing 35,700 36,000 36,800 36,100 37,500
Wholesale Trade 26,500 28,400 28,600 26,500 26,400
Retail Trade 101,400 102,000 100,500 95,200 101,100
Transportation, Warehousing and Utilities 27,400 29,500 32,200 34,300 37,100 Information 12,600 12,400 11,900 10,200 10,000
Finance and Insurance 37,400 36,700 35,200 34,800 34,300 Real Estate and Rental and Leasing 15,200 16,800 17,300 16,900 17,400 Professional and Business Services 132,400 136,000 137,200 132,500 136,700 Educational and Health Services 153,600 159,800 166,600 164,000 168,400 Leisure and Hospitality 103,300 106,200 109,600 83,900 92,800 Other Services 33,000 34,200 35,400 31,000 32,600
Federal Government 14,200 14,100 14,200 14,800 14,500
State Government 118,400 120,400 121,900 121,700 126,800 Local Government 102,600 103,500 105,300 98,900 98,000
Total, All Industries (3) 982,500 1,009,900 1,031,300 979,700 1,017,200
(1) Labor force data is by place of residence; includes self -employed individuals, unpaid family workers, household domestic workers, and workers on strike.
(2) Industry employment is by place of work; excludes self -employed individuals, unpaid family workers, household domestic workers, and workers on strike.
(3) Totals may not add due to rounding.
Source: State of California Employment Development Department.
ITEM 12.1.
ATTACHMENT 4
E-3
Principal Employers
The following table shows the principal employers in the City, as shown in the City ’s Comprehensive Annual Financial Report for fiscal year ending June 30, 2021.
CITY OF RANCHO CORDOVA
Principal Employers
As of June 2021
Employer
Number of
Employees
Percent of Total
Employment
VSP Global 1,639 4.00%
Franklin Templeton 1,476 3.60
Health Net Federal Services 1,177 2.90
Cordova Folsom Unified School District 1,150 2.80
Accentcare Home Health 742 1.80
The Permanente Medical Group 628 1.50
California Dept. of Child Support Services 450 1.10
Nidec Motor Corporation 400 1.00
Dignity Health Medical Foundation 324 0.80
Source: City of Rancho Cordova, Comprehensive Annual Financial Report for the Fiscal Year Ended June 30, 2021.
ITEM 12.1.
ATTACHMENT 4
E-4
Major Employers
The following table lists the major employers within the County as of August 2022, in alphabetical order.
COUNTY OF SACRAMENTO
Major Employers
As of August 2022
Employer Name Location Industry
Aerojet Rocketdyne Inc Rancho Cordova Aerospace Industries (mfrs) Agreeya Solutions Folsom Information Technology Services AMPAC FINE CHEMICALS LLC Rancho Cordova Electronic Equipment & Supplies-Mfrs Apple Distribution Ctr Elk Grove Distribution Centers (whls) California Department-Crrctns Sacramento Insurance Agents Brokers & Service California State Univ Scrmnt Sacramento Schools-Universities & Colleges Academic Corrections Department Sacramento State Govt-Correctional Institutions Dept of Transportation In Ca Sacramento Government Offices-State Disabled American Veterans Sacramento Veterans' & Military Organizations Employment Development Dept Sacramento Outplacement Consultants Environmental Protection Agcy Sacramento State Govt-Air/Water/Solid Waste Management Intel Corp Folsom Semiconductor Devices (mfrs)
Kaiser Permanente South Sacramento Hospitals
L A Care Health Plan Sacramento Health Plans
Mercy General Hospital Sacramento Hospitals
Mercy San Juan Medical Ctr Carmichael Hospitals
Sacramento Bee Sacramento Newspapers (publishers/Mfrs)
Sacramento Municipal Utility Sacramento Utility Contractors Sacramento Municipal Utility Sacramento Electric Contractors Securitas Security Svc USA Sacramento Security Guard & Patrol Service State Compensation Ins Fund Sacramento Insurance
Summit Funding Inc Sacramento Real Estate Loans
Sutter Medical Ctr-Sacramento Sacramento Hospitals
Villara Building Systems Mcclellan Building Contractors Water Resource Dept Sacramento Government Offices-State
Source: State of California Employment Development Department, extracted from The America’s Labor Market Information System (ALMIS) Employer Database, 2022 2nd Edition.
ITEM 12.1.
ATTACHMENT 4
E-5
Effective Buying Income
“Effective Buying Income ” is defined as personal income less personal tax and nontax payments, a number often referred to as “disposable” or “after-tax” income. Personal income is the aggregate of wages and salaries, other labor -related income (such as employer contributions to p rivate pension funds), proprietor ’s income, rental income (which includes imputed rental income of owner -occupants of non -farm dwellings), dividends paid by corporations, interest income from all sources, and transfer payments (such as pensions and welfare assistance). Deducted from this total are personal taxes (federal, state and local), nontax payments (fines, fees, penalties, etc.) and personal contributions to social insurance.
According to U.S. government definitions, the resultant figure is commonl y known as “disposable personal income.”
The following table summarizes the total effective buying income for the City, the County, the State and the United States for the period 2018 through 2022.
CITY OF RANCHO CORDOVA, COUNTY OF SACRAMENTO, THE STATE OF CALIFORNIA
AND THE UNITED STATES
Effective Buying Income
As of January 1, 2018 through 2022
Year Area
Total Effective
Buying Income
(000s’ Omitted)
Median Household
Effective Buying
Income
2018 City of Rancho Cordova $1,670,182 $52,992
County of Sacramento 38,238,821 54,343
California 1,113,648,181 59,646
United States 8,640,770,229 50,735
2019 City of Rancho Cordova $1,747,688 $54,335
County of Sacramento 40,651,806 56,387
California 1,183,264,399 62,637
United States 9,017,967,563 52,841
2020 City of Rancho Cordova $1,882,411 $57,795
County of Sacramento 42,705,779 59,288
California 1,243,564,816 65,870
United States 9,487,165,436 55,303
2021 City of Rancho Cordova $2,040,016 $62,867
County of Sacramento 45,067,224 62,945
California 1,290,894,604 67,956
United States 9,809,944,764 56,790
2022 City of Rancho Cordova $2,246,178 $68,685
County of Sacramento 51,287,459 70,279
California 1,452,426,153 77,058
United States 11,208,582,541 64,448
Source: The Nielsen Company (US), Inc for year 2018; Claritas, LLC for 2019 through 202 2.
ITEM 12.1.
ATTACHMENT 4
E-6
Commercial Activity
A summary of historic taxable sales within the City and the County during the past five years in which data is available is shown in the following tables.
Total taxable sales during the first quarter of calendar year 202 2 in the City were reported to be $ $498,721,705, a 11.73% increase over the total taxable sales of $ 446,378,241 reported during the first quarter calendar year 2021.
CITY OF RANCHO CORDOVA
Taxable Transactions
(Dollars in Thousands)
Retail and Food Services Stores Total All Outlets
Number
of Permits
Taxable
Transactions
Number
of Permits
Taxable
Transactions
2017 1,274 $1,000,266 2,169 $1,512,491
2018 1,311 1,101,787 2,345 1,619,685
2019 1,355 1,170,421 2,487 1,672,142
2020 1,512 1,089,203 2,788 1,655,571
2021 1,404 1,341,196 2,597 1,982,420
Source: California Department of Tax and Fee Administration
Total taxable sales during the first quarter of calendar year 202 2 in the County were reported to be $ 8,519,880,626, a 15.74% increase over the total taxable sales of $7,360,941,432 reported during the first quarter calendar year 2021.
COUNTY OF SACRAMENTO
Taxable Transactions
(Dollars in Thousands)
Source: California Department of Tax and Fee Administration Retail and Food Services Stores Total All Outlets
Number
of Permits
Taxable
Transactions
Number
of Permits
Taxable
Transactions
2017 24,501 $16,729,885 37,317 $24,405,149
2018 24,853 17,593,375 39,066 25,443,669
2019 25,530 18,156,992 40,858 26,717,621
2020 28,055 18,488,106 45,361 27,173,406
2021 25,936 23,764,691 42,482 33,875,840
ITEM 12.1.
ATTACHMENT 4
E-7
Construction Activity
The following tables show a five -year summary of the valuation of building permits issued in the City and the County.
CITY OF RANCHO CORDOVA
Total Building Permit Valuations
(Dollars in Thousands)
2017 2018 2019 2020 2021
Permit Valuation
New Single-family $62,318.3 $104,525.9 $158,521.8 $164,435.7 $171,194.6 New Multi-family 25,608.8 3,069.2 0.0 0.0 0.0
Res. Alterations/Additions 4,198.9 3,798.0 3,492.2 7,657.0 6,503.1 Total Residential 92,126.0 111,393.1 162,014.0 172,092.7 177,697.7
New Commercial 1,740.8 10,152.0 2,320.7 28,635.4 2,672.0 New Industrial 0.0 11,662.0 366.0 0.0 0.0
New Other 1,769.7 805.7 1,336.2 2,150.6 5,970.7
Com. Alterations/Additions 1,579.5 26,283.6 24,046.0 34,812.6 67,569.2 Total Nonresidential 5,090.0 48,903.3 28,068.9 65,598.6 76,211.9
New Dwelling Units
Single Family 217 217 561 575 552
Multiple Family 199 50 0 0 0
TOTAL 316 267 561 575 552
Source: Construction Industry Research Board, Building Permit Summary.
COUNTY OF SACRAMENTO
Total Building Permit Valuations
(Dollars in Thousands)
2017 2018 2019 2020 2021
Permit Valuation
New Single-family $744,066.3 $1,069,568.4 $1,108,399.9 $1,008,391.7 $1,310,379.5 New Multi-family 242,222.8 158,647.0 265,188.8 467,418.7 323,462.6 Res. Alterations/Additions 214,028.1 276,723.6 293,210.5 262,864.6 276,570.4 Total Residential 1,200,317.2 1,504,939.0 1,666,799.2 1,738,675.0 1,910,412.5
New Commercial 298,496.5 303,806.0 666,664.3 449,494.3 197,946.8 New Industrial 3,026.0 14,151.1 31,851.4 31,155.0 83,171.4 New Other 112,607.4 128,325.7 105,555.1 75,356.7 104,932.9 Com. Alterations/Additions 265,764.7 518,663.2 700,604.0 335,458.0 320,447.6 Total Nonresidential 679,894.6 964,946.0 1,504,674.8 891,464.0 706,498.7
New Dwelling Units
Single Family 3,174 3,589 3,981 3,588 4,205
Multiple Family 1,761 1,272 2,008 2,868 2,266
TOTAL 4,935 4,861 5,989 6,456 6,471
Source: Construction Industry Research Board, Building Permit Summary.
ITEM 12.1.
ATTACHMENT 4
E-1
APPENDIX E
FORM OF OPINION OF BOND COUNSEL
[Closing Date]
City Council
City of Rancho Cordova
2729 Prospect Park Drive
Rancho Cordova, California 95670
OPINION: $___________ City of Rancho Cordova
The Ranch Community Facilities District No. 2021-1
Improvement Area No. 1, Special Tax Bonds Series 2022
Members of the City Council:
We have acted as bond counsel to the City of Rancho Cordova (the “City”) in connection with the delivery by the City of the above -referenced bonds (the “Bonds”), issued pursuant to the provisions of the Mello-Roos Community Facilities Act of 1982, as amended, being California Government Code Section 53311, et seq. (the “Act”), and pursuant to a Fiscal Agent Agreement, dated October 1, 2022 , by and between the City and U.S. Bank Trust Company, National Association, as fiscal agent (the “Fiscal Agent Agreement ”). We have examined the Act, an executed copy of the Fiscal Agent Agre ement and such certified proceedings and other papers as we deem necessary to render this opinion.
As to questions of fact material to our opinion, we have relied upon representations of the City contained in the Fiscal Agent Agreement and in the certifi ed proceedings and other certifications of public officials furnished to us, without undertaking to verify the same by independent investigation.
Based upon our examination we are of the opinion, under existing law, that:
1. The City is duly organized and existing under the laws of the State of California, with power to enter into the Fiscal Agent Agreement , to perform the agreements on its part contained therein, and to issue the Bonds.
2. The Bonds have been duly authorized, executed and delivered by the City and are legal, valid and binding obligations of the City.
3. The Fiscal Agent Agreement has been duly approved by the City and constitutes a legal, valid and binding obligation of the City, enforceable against the City in accordance with its terms.
4. Pursuant to the Act, the Fiscal Agent Agreement establishes a valid lien on and pledge of the Special Tax Revenues (as defined in the Fiscal Agent Agreement) and the other sources pledged for the security of the Bonds.
5. Interest on the Bonds is excluded from gross income for federal income tax purposes and is not an item of tax preference for purposes of the federal alternative minimum ITEM 12.1.
ATTACHMENT 4
E-2
tax. It should be noted however that for tax years beginning after Decembe r 31, 2022, interest on the Bonds may be subject to the corporate alternative minimum tax. The opinions set forth in the preceding sentences are subject to the condition that the City comply with all requirements of the Internal Revenue Code of 1986, as a mended, that must be satisfied subsequent to the issuance of the Bonds in order that interest thereon be, or continue to be, excluded from gross income for federal income tax purposes. The City has covenanted to comply with each of such requirements. Fai lure to comply with certain of such requirements may cause the inclusion of such interest in gross income for federal income tax purposes to be retroactive to the date of delivery of the Bonds.
6. The interest on the Bonds is exempt from personal income taxation imposed by the State of California.
We express no opinion regarding any other tax consequences arising with respect to the ownership, sale or disposition of, or the amount, accrual or receipt of interest on, the Bonds.
The rights of the owners of the Bonds and the enforceability of the Bonds and the Fiscal Agent Agreement may be subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors ’ rights heretofore or hereafter enacted and may also be subject to the exercise of judicial discretion in accordance with principles of equity or otherwise in appropriate cases.
This opinion is given as of the date hereof, and we assume no obligation to r evise or supplement this opinion to reflect any facts or circumstances that may hereafter come to our attention, or any changes in law that may hereafter occur. Moreover, our opinions are not a guarantee of a particular result, and are not binding on the Internal Revenue Service or any court; rather, our opinions represent our legal judgment based upon our review of existing law that we deem relevant to such opinions and in reliance upon the representations, opinions, and covenants referenced above.
Our engagement with respect to this matter has terminated as of the date hereof.
Respectfully submitted,
A Professional Law Corporation
ITEM 12.1.
ATTACHMENT 4
F-1
APPENDIX F
FORM OF CONTINUING DISCLOSURE UNDERTAKINGS
CONTINUING DISCLOSURE CERTIFICATE
(City)
$_________
CITY OF RANCHO CORDOVA
THE RANCH COMMUNITY FACILITIES DISTRICT NO. 2021-1
IMPROVEMENT AREA NO. 1
SPECIAL TAX BONDS
SERIES 2022
THIS CONTINUING DISCLOSURE CERTIFICATE (the “Disclosure Certificate”) is executed and delivered by the City of Rancho Cordova, a public body, corporate and politic, organized and existing under and by virtue of the laws of the State of California (the “City”), in connection with the issuance of the bonds captioned above (the “Bonds”). The Bonds are being issued pursuant to a Fiscal Agent Agreement, dated as of October 1, 2022 (the “Fiscal Agent Agreement”), by and between the City and U.S. Bank Trust Company, National Association , as fiscal agent (the “Fiscal Agent”). The City hereby covenants and agrees as follows:
Section 1. Purpose of the Disclosure Certificate. This Disclosure Certificate is being executed and delivered by the City for the benefit of the holders and beneficial owners of the Bonds and in order to assist the Participating Underwriter in complying with S.E.C. Rule 15c2- 12(b)(5).
Section 2. Definitions. In addition to the definitions set forth above and in the Fiscal Agent Agreement, which apply to any capitalized term used in this Disclosure Certificate unless otherwise defined in this Section, the following capitalized terms shall have the following meanings:
“Annual Report ” means any Annual Report provided by the City pursuant to, and as described in, Sections 3 and 4 of this Disclosure Certificate.
“Annual Report Date” means the date that is nine months after the end of the City’s fiscal year (currently April 1 based on the City’s fiscal year end of June 30).
“Dissemination Agent ” means Goodwin Consulting Group , or any successor Dissemination Agent designated in writing by the City and which has filed with the City a written acceptance of such designation.
“District” means the City of Rancho Cordova The Ranch Community Facilities District No. 2021-1.
ITEM 12.1.
ATTACHMENT 4
F-2
“EMMA System” means the Electronic Municipal Market Access system of the MSRB or such other electronic system designated by the MSRB or the Securities and Exchange Commission for compliance with the Rule.
“Improvement Area No. 1” means Improvement Area No. 1 of the District.
“Listed Events” means any of the events listed in Section 5(a) of this Disclosure Certificate.
“MSRB” means the Municipal Securities Rulemaking Board, or any other repository of disclosure information that may be designated by the Securities and Exchange Commission as such for purposes of the Rule in the future.
“Official Statement” means the final official statement executed by the City in connection with the issuance of the Bonds.
“Participating Underwriter” means Piper Sandler & Co., as the initial underwriter of the Bonds.
“Rule” means Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as it may be amended from time to time.
Section 3. Provision of Annual Reports.
(a) The City shall, or shall cause the Dissemination Agent to, not later than the Annual Report Date, com mencing April 1 , 2023, with the report for the 2021-22 fiscal year, provide to the MSRB through the EMMA System an Annual Report that is consistent with the requirements of Section 4 of this Disclosure Certificate. Not later than 15 Business Days prior to the Annual Report Date, the City shall provide the Annual Report to the Dissemination Agent (if other than the City). If by 15 Business Days prior to the Annual Report Date the Dissemination Agent (if o ther than the City) has not received a copy of the Annual Report, the Dissemination Agent shall contact the City to determine if the City is in compliance with the previous sentence. The Annual Report may be submitted as a single document or as separate documents comprising a package, and may include by reference other information as provided in Section 4 of this Disclosure Certificate; provided that the audited financial statements of the City may be submitted separately from the balance of the Annual Report, and later than the Annual Report Date, if not available by that date. If the City ’s fiscal year changes, it shall give notice of such change in the same manner as for a Listed Event under Section 5(c). The City shall provide a written certi fication with each Annual Report furnished to the Dissemination Agent to the effect that such Annual Report constitutes the Annual Report required to be furnished by the City hereunder.
(b) If the City does not provide, or cause the Dissemination Agent t o provide, an Annual Report by the Annual Report Date as required in subsection (a) above, the Dissemination Agent shall provide in a timely manner to the MSRB through the EMMA System, in an electronic format as prescribed by the MSRB, a notice to such effect.
(c) The Dissemination Agent shall:
ITEM 12.1.
ATTACHMENT 4
F-3
(1) determine each year prior to the Annual Report Date the then -applicable rules and electronic format prescribed by the MSRB for the filing of annual continuing disclosure reports; and
(2) if the Dissemination Agent is other than the City, file a report with the City and the Participating Underwriter certifying that the Annual Report has been provided pursuant to this Disclosure Certificate, and stating the date it was provided.
Section 4. Content of Annual Reports . The City’ s Annual Report shall conta in or incorporate by reference the following documents and information:
(a) Audited Financial Statements prepared in accordance with generally accepted accounting principles as promulgated to apply to governmental entities from time to time by the Governmental Accounting Standards Board. If the Issuer ’s audited financial statements are not available by the time the Annual Report is required to be filed pursuant to Section 3(a), the Annual Report shall contain unaudited financial statements in a format sim ilar to the financial statements contained in the final Official Statement, and the audited financial statements shall be filed in the same manner as the Annual Report when they become available. This submission should be made with the following caveat:
THE CITY’S ANNUAL FINANCIAL STATEMENT IS PROVIDED SOLELY TO COMPLY WITH THE SECURITIES EXCHANGE COMMISSION STAFF ’S INTERPRETATION OF RULE 15c2-12. NO FUNDS OR ASSETS OF THE CITY (OTHER THAN THE PROCEEDS OF THE SPECIAL TAXES LEVIED FOR Improvement Area No. 1 AND SECURING THE BONDS) ARE
REQUIRED TO BE USED TO PAY DEBT SERVICE ON THE BONDS AND THE CITY IS NOT
OBLIGATED TO ADVANCE AVAILABLE FUNDS FROM THE CITY TREASURY TO COVER ANY DELINQUENCIES. INVESTORS SHOULD NOT RELY ON THE FINANCIAL CONDITION OF THE CITY IN EVALUATING WHETHER TO BUY, HOLD OR SELL THE BONDS.
(b) The following additional items, indicating information as of the previous September 30th, with respect to the Bonds:
(1) Principal amount of Bonds outstanding under the Fiscal Agent Agreement.
(2) Balance in Reserve Fund.
(3) Table indicating Special Tax levy, amount collected, delinquent amount and percent delinquent for the most recent year , and whether the Special Tax levy is covered by the Teeter Plan.
(4) Status of foreclosure proceed ings and summary of results of foreclosure sales, if any.
(5) Identity of any delinquent taxpayer representing more than 5% of levy and value-to-lien ratios of applicable properties (using assessed values unless more accurate information is available without charge to the City).
(6) Aggregate assessed value for all parcels in Improvement Area No. 1.
ITEM 12.1.
ATTACHMENT 4
F-4
(7) Until the fiscal year in which the Special Tax levied on the developed property in Improvement Area No. 1 is greater than or equal to the annual debt service on the Bonds, the number of building permits issued by the City for single family residential homes in such fiscal year in Improvement Area No. 1.
(c) For so long as there is any owner of property in Improvement Area No. 1 whose properties collectively represent 1 0% or more of the Special Taxes , the following information regarding the status of development in Improvement Area No. 1:
(1) Significant amendments to land use entitlements.
(2) Status of any legislative, administrative and judicial challenges to the construction of the development known to the City.
(3) Assessed valuation of property shown on County Assessor’s tax rolls with no “improvements” value in Improvement Area No. 1 for the current (as of the date of the report) fiscal year.
(4) List of landowners (as shown County Assessor ’s tax roll) and assessor ’s parcel number(s) of parcels held by owners whose properties collectively represent 10% or more of the Special Taxes for the current (as of the date of the report) fiscal year.
(d) In addition to any of the information expressly required to be provided under paragraphs (a), (b) and (c) of this Section, the Issuer s hall provide such further information, if any, as may be necessary to make the specifically required statements, in the light of the circumstances under which they are made, not misleading.
Any or all of the items listed above may be included by specific reference to other documents, including official statements of debt issues of the City or related public entities, which are available to the public on the MSRB’s Internet web site or filed with the Securities and Exchange Commission. The City shall clea rly identify each such other document so included by reference.
Section 5. Reporting of Listed Events.
(a) The City shall give, or cause to be given, notice of the occurrence of any of the following Listed Events with respect to the Bonds:
(1) Principal and interest payment delinquencies.
(2) Non-payment related defaults, if material.
(3) Unscheduled draws on debt service reserves reflecting financial difficulties.
(4) Unscheduled draws on credit enhancements reflecting financial difficulties.
(5) Substitution of credit or liquidity providers, or their failure to perform. (6) Rating Changes.
(7) Adverse tax opinions, the issuance by the Internal Revenue Service of proposed or final determinations of taxability, Notices of Proposed Issue (IRS Form 5701-TEB) or other material notices or determinations with respect to the tax status of the Bonds, or other material events affecting the tax status of the Bonds.
ITEM 12.1.
ATTACHMENT 4
F-5
(8) Modifications to rights of security holders, if material. (9) Bond calls, if material, and tender offers.
(10) Defeasances.
(11) Release, substitution, or sale of property securing repayment of the securities, if material.(12) Bankruptcy, insolvency, receivership or similar event of the City.
(13) The consummation of a merger, consolidation, or acquisition involving the City, or the sale of all or substantially all of the assets of the City (other than in the ordinary course of business), the entry into a definitive agreement to undertake such an action, or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms, if material.
(14) Appointment of a successor or additional Fiscal Agent or the change of name of the Fiscal Agent, if material.
(15) Incurrence of a financial obligation of the City, if material, or agreement to covenants, events of default, remedies, priority rights, or other similar terms of a financial obligation of the City, any of which affect security holders, if material (for a definition of “financial obligation, ” see clause (e)).
(16) Default, event of acceleration, termination event, modification of terms, or other similar events under the terms of a financial obligation of the City, any of which reflect financial difficulties (for a definition of “financial obligation,” see clause (e)).
(b) Whenever the City obtains knowledge of the occurrence of a Listed Event, the City shall, or shall cause the Dissemination Agent (if not the City) to, file a notice of such occurrence with the MSRB through the EMMA System, in an electronic format as prescribed by the MSRB, in a timely manner not in excess of 10 business days after the occ urrence of the Listed Event. Notwithstanding the foregoing, notice of Listed Events described in subsections (a)(8) and (9) above need not be given under this subsection any earlier than the notice (if any) of the underlying event is given to holders of affected Bonds under the Indenture.
(c) The City acknowledges that the events described in subparagraphs (a)(2), (a)(7), (a)(8) (if the event is a bond call), (a)(10), (a)(13), (a)(14) and (a)(15) of this Section 5 contain the qualifier “if ma terial” and that subparagraph (a)(6) also contains the qualifier “material” with respect to certain notices, determinations or other events affecting the tax status of the Bonds. The City shall cause a notice to be filed as set forth in paragraph (b) abov e with respect to any such event only to the extent that it determines the event’s occurrence is material for purposes of U.S. federal securities law. Whenever the City obtains knowledge of the occurrence of any of these Listed Events, the City will as so on as possible determine if such event would be material under applicable federal securities law. If such event is determined to be material, the City will cause a notice to be filed as set forth in paragraph (b) above.
(d) For purposes of this Disclosure Certificate , any event described in paragraph (a)(12) above is considered to occur when any of the following occur: the appointment of a receiver, fiscal agent, or similar officer for the City in a proceeding under the Unit ed States Bankruptcy Code or in any other proceeding under state or federal law in which a court or governmental authority has assumed jurisdiction over substantially all of the assets or business of the City, or if such jurisdiction has been assumed by le aving the existing governing body and officials or officers in possession but subject to the supervision and orders of a court or governmental authority, or the entry of an order confirming a plan of reorganization, ITEM 12.1.
ATTACHMENT 4
F-6
arrangement, or liquidation by a court o r governmental authority having supervision or jurisdiction over substantially all of the assets or business of the City.
(e) For purposes of Section 5(a)(15) and (16), “financial obligation” means a (i) debt obligation; (ii) derivative instrument entered into in connection with, or pledged as security or a source of payment for, an existing or planned debt obligation; or (iii) guarantee of (i) or (ii). The term financial obligation shall not include municipal securities as to which a final official statement has been provided to the Municipal Securities Rulemaking Board consistent with the Rule.
Section 6. Identifying Information for Filings with the MSRB . All documents provided to the MSRB under the Disclosure Certificate shall be accompanied by identifying information as prescribed by the MSRB.
Section 7. Termination of Reporting Obligation . The City ’s obligations under this Disclosure Certificate shall terminate upon the legal defeasance, prior redemption or payment in full of all of the Bonds. If such termination occurs prior to the final maturity of the Bonds, the City shall give notice of such termination in the same manner as for a Listed Event under Section 5(c).
Section 8. Dissemination Agent. The City may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Certificate, and may discharge any such Agent, with or without appointing a successor Dissemination Agent. The initial Dissemination Agent will be Goodwin Consulting Group, Inc.
Section 9. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Certificate, the City may amend this Disclosure Certificate, and any provision of this Disclosure Certificate may be waived, provided that the following conditions are satisfied:
(a) if the amendment or waiver relates to the provisions of Sections 3(a), 4 or 5(a), it may only be made in connection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, nature, or status of an obligated person with respect to the Bonds, or type of business conducted;
(b) the undertakings herein, as proposed to be amended or waived, would, in the opinion of nationally recognized bond counsel, have complied with the requirements of the Rule at the time of the primary offering of the Bonds, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and
(c) the proposed amendment or waiver either (1) is approved by holders of the Bonds in the manner provided in the Fiscal Agent Agreement for amendments to the Fiscal Agent Agreement with the consent of holders, or (2) does not, in the opinion of the Fiscal Agent or nationally recognized bond counsel, materially impair the interests of the holders or beneficial owners of the Bonds.
If the annual financial information or operating data to be provided in the Annual Report is amended pursuant to the provisions hereof, the firs t annual financial information filed pursuant hereto containing the amended operating data or financial information shall explain, in narrative form, the reasons for the amendment and the impact of the change in the type of operating data or financial information being provided.
ITEM 12.1.
ATTACHMENT 4
F-7
If an amendment is made to the undertaking specifying the accounting principles to be followed in preparing financial statements, the annual financial information for the year in which the change is made shall present a comparison between the financial statements or information prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles. The comparison shall include a qualitative discussion of the differences in the ac counting principles and the impact of the change in the accounting principles on the presentation of the financial information, in order to provide information to investors to enable them to evaluate the ability of the City to meet its obligations. To the extent reasonably feasible, the comparison shall be quantitative. A notice of the change in the accounting principles shall be filed in the same manner as for a Listed Event under Section 5(c).
Section 10. Additional Information . Nothing in this Disclosure Certificate shall be deemed to prevent the City from disseminating any other information, using the means of dissemination set forth in this Disclosure Certificate or any other means of communication, or including any other information in any Annual Report or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Certificate. If the City chooses to include any information in any Annual Report or notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Certificate , the City shall have no obligation under this Disclosure Certificate to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event.
Section 11. Identifying Information for Filings with EMMA . All documents provided to EMMA under this Disclosure Certificate will be accompanied by identifying information as prescribed by the MSRB.
Section 12. Default. In the event of a failure of the City to comply with any provision of this Disclosure Certificate, the Participating Underwriter or any holder or beneficial owner of the Bonds may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the City to comply with its obligations under this Disclosure Certificate. A default under this Disclosure Certificate shall not be deemed an Event of Default under the Fiscal Agent Agreement, and the sole remedy under this Disclosure Certificate in the event of any failure of the City to comply with this Disclosure Certificate shall be an action to compel performance.
Section 1 3. Duties, Immunities and Liabilities of Dissemination Agent . The Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Certificate, and the City agrees to indemnify and save the Dissemination Agent, its officers, directors, employees and agents, harmless against any loss, expense and liabilities which it may incur arising out of or in the exercise or performance of its powers and duties hereunder, including the costs and expenses (including attorneys ’ fees) of defending against any claim of liability, but excluding liabilities due to the Dissemination Agent ’s negligence or willful misconduct. The Dissemination Agent shall have no duty or obligation to review any information provided to it hereunder and shall not be deemed to be acting in any fiduciary capacity for the City, the Fiscal Agent, the Bond owners or any other party. The obligations of the City under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Bonds.
Section 14. Beneficiaries. This Disclosure Certificate shall inure solely to the benefit of the City, the Fiscal Agent, the Dissemination Agent, the Participating Underwriter and holders and beneficial owners from time to time of the Bonds, and shall create no rights in any other person or entity.
ITEM 12.1.
ATTACHMENT 4
F-8
Section 15. Counterparts. This Disclosure Certificate may be executed in several counterparts, each of which shall be regarded as an original, and all of which shall constitute one and the same instrument.
Date: _________, 2022
CITY OF RANCHO CORDOVA for and on
behalf of CITY OF RANCHO CORDOVA
THE RANCH COMMUNITY FACILITIES
DISTRICT NO. 2021-1
By:
Authorized Officer
AGREED AND ACCEPTED:
GOODWIN CONSULTING GROUP,
as Dissemination Agent
By:
Name:
Title:
ITEM 12.1.
ATTACHMENT 4
F-9
CONTINUING DISCLOSURE CERTIFICATE
(Developer)
Relating to:
$_________
CITY OF RANCHO CORDOVA
THE RANCH COMMUNITY FACILITIES DISTRICT NO. 2021-1
IMPROVEMENT AREA NO. 1
SPECIAL TAX BONDS
SERIES 2022
THIS CONTINUING DISCLOSURE CERTIFICATE (Developer) (the “Disclosure Certificate”) dated as of __________, 2022, is executed and delivered by K. Hovnanian at Jaeger Ranch, LLC , a California limited liability company (the “Developer”) in connection with the issuance by the City of Rancho Cordova ( the “City”) of its $_________ City of Rancho Cordova The Ranch Community Facilities District No. 2021 -1 Improvement Area No. 1 Special Tax Bonds Series 2022 (the “Bonds”). The Bonds are being executed and delivered pursuant to a Fiscal Agent Agreement, dated as of October 1, 2022 (the “Fiscal Agent Agreement”), by and between the City and U.S. Bank Trust Company, National Association , as fiscal agent (the “Fiscal Agent”). The Developer covenants and agrees as follows:
Section 1. Purpose of the Disclosure Certificate . This Disclosure Certificate is being executed and delivered by the Developer for the benefit of the holders and beneficial owners of the Bonds.
Section 2. Definitions. In addition to the definitions set forth herein and in the Fiscal Agent Agreement, which apply to any capitalized term used in this Disclosure Certificate unless otherwise defined in this Disclosure Certificate, the following capitalized terms shall have the following meanings:
“Affiliatewith respect to the Developer, any oth er Person (i) who directly, or indirectly through one or more intermediaries, is currently controlling, controlled by or under common control with the Developer, and (ii) for whom information, including financial information or operating data, concerning s uch Person is material to potential investors in their evaluation of Improvement Area No. 1 and investment decision regarding the Bonds (i.e. , information regarding such Person’s assets or funds that would materially affect the Developer’s ability to develop the Property as described in the Official Statement or to pay its Special Taxes on the Property (to the extent the responsibility of the Developer) prior to delinquency). For purposes hereof, the term “control” (including the terms “controlling,” “contr olled by” or “under common control with”) means the present possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise AG is not an Affiliate of the Developer. "AG" means AG EHC II (HOV) CA 1, L.P., a Delaware limited partnership, the land bank for the Developer pursuant to the Option Agreements.
“Assumption Agreement” means an undertaking of a Major Owner, or an Affiliate thereof, for the benefit of the holders and beneficial owners of the Bonds containing terms substantially similar to this Disclosure Certificate (as modified for such Major Owner ’s development and financing plans with respect to Improvement Area No. 1), whereby such Major Owner or Affiliate agrees to provide Periodic Reports and notices of significant events, setting forth the information ITEM 12.1.
ATTACHMENT 4
F-10
described in sections 4 and 5 hereof, respectively, with respect to the portion of the property in Improvement Area No. 1 owned by such Major Owner and its Affiliates and, at the option of the Developer or such Major Owner, agrees to indemnify the Dissemination Agent (if any) pursuant to a provision substantially in the form of Section 11 hereof.
“Dissemination Agent” means the entity acting in its capacity as Dissemination Agent hereunder, or any successor Dissemination Agent designated in writing by the Developer and which has filed with the Developer, the City , and the Participating Underwriter a written acceptance of such designation, and which is experienced in providing dissemination agent services such as those required under this Disclosure Certificate . The I nitial Dissemination Agent is the Developer.
“District” means the City of Rancho Cordova The Ranch Commu nity Facilities District No. 2021-1.
“EMMA” shall mean the Municipal Securities Rulemaking Board’s Electronic Municipal Market Access System for municipal securities disclosures, maintained on the Internet at http://emma.msrb.org/.
“Improvement Area No. 1” means Improvement Area No. 1 of the District.
“Listed Events” means any of the events listed in Section 5(a) of this Disclosure Certificate.
“Major Owner” means, as of any Report Date, an owner of land in Improvement Area No. 1 that is responsible in the aggregate for 20% or more of the Special Taxes anticipated to be levied at any time during the then-current fiscal year.
“Official Statement” means the final official statement executed by the City in connection with the issuance of the Bonds.
"Option Agreements" means, collectively, (i) that certain Option Agreement dated August 27, 2021, between AG and the Developer regarding the 209 finished lots in Villages 4 (Unit 1), 5, 6, and 9, and (ii) that certain Option Agreement date d January 2022, between AG and the Developer regarding the 130 finished lots in Villages 8,
“Participating Underwriter” means Piper Sandler & Co., the original underwriter of the Bonds.
“Periodic Report ” means any Periodic Report provided by the Developer pursuant to, and as described in, Sections 3 and 4 of this Disclosure Certificate.
“Person” means an individual, a corporation, a partnership, a limited liability company, an association, a joint stock company, a trust, any unincorporated organization or a government or political subdivision thereof.
“Property” means the real property in Improvement Area No. 1 that is owned by (i) the Developer, (ii) any Affiliate of the Developer , and (iii) AG (during the term of the Option Agreements).
ITEM 12.1.
ATTACHMENT 4
F-11
“Report Date” means April 1 of any fiscal year. If, in any year, the Report Date falls on a Saturday, Sunday, or a holiday, such Report Date shall be extended to the next following day that is not a Saturday, Sunday, or holiday.
“Special Taxes” means the special taxes levied on taxable property in Improvement Area No. 1.
Section 3. Provision of Periodic Reports.
(a) The Developer shall, or, upon written direction of the Developer the Dissemination Agent shall, not later than the Report Date, commencing April 1, 2023, file or cause to be filed with EMMA a Periodic Report which is consistent with the requirements of Section 4 of this Disclosure Certificate with a copy to the Participating Underwriter and the City.
Not later than 15 calendar days prior to the Report Date, the Developer shall provide the Periodic Report to the Dissemination Agent (if different from the Dev eloper). The Developer shall provide a written certification with (or included as a part of) each Periodic Report furnished to the Dissemination Agent (if different from the Developer), the Participating Underwriter and the City to the effect that such Pe riodic Report constitutes the Periodic Report required to be furnished by it unde r this Disclosure Certificate. The Dissemination Agent, the Participating Underwriter and the City may conclusively rely upon such certification of the Developer and shall have no duty or obligation to review the Periodic Report. The Periodic Report may be submitted as a single document or as separate documents comprising a package and may incorporate by reference other information as provided in Section 4 of this Disclosure Certificate.
(b) If the Dissemination Agent does not receive a Periodic Report by 15 calendar days prior to the Report Date, the Dissemination Agent shall send a reminder notice to the Developer that the Periodic Report has not been provided as required u nder Section 3(a) above. The reminder notice shall instruct the Developer to determine whether its obligations under this Disclosure Certificate have terminated (pursuant to Section 6 below) and, if so, to provide the Dissemination Agent with a notice of such termination in the same manner as for a Listed Event (pursuant to Section 5 below). If the Developer does not provide, or cause the Dissemination Agent to provide, a Periodic Report to EMMA by the Report Date as required in subsection (a) above, the Dissemination Agent shall send a notice to EMMA in the form at prescribed by the MSRB, with a copy to City and the Participating Underwriter.
(c) With respect to the Periodic Report, the Dissemination Agent shall, to the extent the Periodic Report has been furnished to it, file the Periodic Report with EMMA and file a report with the Developer (if the Dissemination Agent is other than the Developer), the City and the Participating Underwriter certifying that the Periodic Report has been provided pursuant to this Disclosure Certificate, stating the date it was provided to and filed with EMMA.
Section 4. Content of Periodic Reports . The Developer ’s Periodic Report shall contain or incorporate by reference the information set forth in Exhibit A relating to the Developer, any or all of which may be included by specific reference to other documents, including official statements of debt issues of the Developer or related public entities, which have been submitted to EMMA or the Securities and Exchange Commission. If the document included by reference is a final official statement, it must be available from EMMA. The Developer shall clearly identify each such other document so included by reference.
In addition to any of the information expressl y required to be provided in Exhibit A, the Developer’s Periodic Report shall include such further information, if any, as may be necessary ITEM 12.1.
ATTACHMENT 4
F-12
to make the specifically required statements, in the light of the circumstances under which they are made, not misleading.
Section 5. Reporting of Significant Events.
(a) The Developer shall give, or cause to be given, notice of the occurrence of any of the following Listed Events with respect to itself or the Property, if material:
(i) bankruptcy or insolvency pro ceedings commenced by or against the Developer and, if known, any bankruptcy or insolvency proceedings commenced by or against any Affiliate of the Developer that is reasonably likely to have a significant impact on the Developer’s ability to pay Special T axes on the Property or to sell or develop the Property;
(ii) failure to pay any taxes, special taxes (including the Special Taxes) or assessments due with respect to the Property on or prior to the delinquency date to the extent such failure is not promptly cured by the Developer upon discovery thereof;
(iii) filing of a lawsuit of which the Developer is aware against the Developer or an Affiliate seeking damages, which is reasonably likely to have a significant impact on the Developer’s ability to pay Special Taxes on the Property or to sell or develop the Property;
(iv) material damage to or destruction of any of the improvements on the Property; and
(v) any payment default or other material default by the Developer on the Option Agreements or any loan with respect to the construction of improvements on the Property.
(b) Whenever the Developer obtains knowledge of the occurrence of a Listed Event, the Developer shall as soon as possible determine if such event would be material under applicable Federal securities law.
(c) If the Developer determines that knowledge of the occurrence of a Listed Event would be material under applicable Federal securities law, the Developer shall, or shall cause the Dissemination Agent to, promptly file a notice of such occurrence with EMMA, with a copy to the City and the Participating Underwriter.
Section 6. Duration of Reporting Obligation.
(a) All the Developer ’s obligations hereunder shall commence on the date hereof and terminate (except as provided in Section 11) on the earliest to occur of the following:
(i) upon the legal defeasance, prior redemption or payment in full of all the Bonds, or
(ii) at such time as Property owned by the Developer and AG (during the term of the Option Agreements) is no longer responsible for payment of 20% or more of the Special Taxes levied in Improvement Area No. 1, or
ITEM 12.1.
ATTACHMENT 4
F-13
(iii) the date on which the Developer prepays in full all of the Special Taxes attributable to the Property.
The Developer shall give notice of the termination of its obligations under this Disclosure Certificate in the same manner as for a Listed Event under Section 5.
(b) If a portion of the Property owned by the Developer, or any Affiliate of the Developer, is conveyed to a Person that, upon such conveyance, will be a Major Owner, the obligations of the Developer hereunder with respect to the property in Improvement Area No. 1 owned by such Major Owner and its Affiliates may be assumed by su ch Major Owner or by an Affiliate thereof, and if so assumed the Developer ’s obligations hereunder with respect to such portion of the Property will be terminated. In order to effect such an assumption, such Major Owner or Affiliate shall enter into an Ass umption Agreement. If not so assumed, the Developer shall report the information, as applicable to the transferee, required herein so long as the transferee is a Major Owner.
Section 7. Dissemination Agent . The Developer may, from time to time, appoin t or engage a Dissemination Agent to assist the Developer in carrying out its obligations under this Disclosure Certificate, and may discharge any such Dissemination Agent, with or without appointing a successor Dissemination Agent. The initial Disseminat ion Agent shall be the Developer. The Dissemination Agent may resign by providing thirty days ’ written notice to the City, the Participating Underwriter and the Developer . The acquisition of any portion of the Property by the Developer pursuant to the Option Agreements shall not require any assumption by the Developer.
Section 8. No Amendment. The Developer may not amend this Disclosure Certificate.
Section 9. Additional Information. Nothing in this Disclosure Certificate shall be deemed to prevent the Developer from disseminating any other information, using the means of dissemination set forth in this Disclosure Certificate or any other means of communication, or including any other information in any Periodic Report or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Certificate. If the Developer chooses to include any information in any Periodic Report or notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Certificate, the Developer shall have no obligation under this Disclosure Certificate to update such information or include it in any future Periodic Report or notice of occurrence of a Listed Event.
Section 10. Default. In the event of a failure of the Developer to comply with any provision of this Disclosure Certificate, the Participating Underwriter and any holder or beneficial owner of the Bonds may, take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the Developer to comply with its obligations under this Disclosure Certificate. A default under this Disclosure Certificate shall not be deemed an Event of Default under the Fiscal Agent Agreement, and the sole and exclusive remedy under this Disclosure Certificate in the event of any failure of the Developer to comply with this Disclosure Certificate shall be an action to compel performance. Neither the Developer nor the Dissemination Agent shall have any liability to any holder or beneficial owner of the Bonds or any other party for monetary damages or financial liability of any kind whatsoever arising from or relating to this Disclosure Certificate.
Section 11. Duties, Immunities and Liabil ities of Dissemination Agent . The Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure ITEM 12.1.
ATTACHMENT 4
F-14
Certificate, and the Developer agrees to indemnify and save the Dissemination Agent, its officers, directors, employees and agents (each, an “Indemnified Party”), harmless against any loss, expense and liabilities which it may incur arising out of or in the exercise or performance of its powers and duties hereunder, including the reasonable costs and expenses (including attorneys’ fees) of defending against any claim of liability, but excluding loss, liabilities, costs and expenses due to an Indemnified Party ’s negligence or willful misconduct or failure to perform its duties hereunder. The Dissemination Agent shall be paid com pensation for its services provided hereunder in accordance with its schedule of fees as amended from time to time, which schedule, as amended, shall be reasonably acceptable, and all reasonable expenses, reasonable legal fees and advances made or incurred by the Dissemination Agent in the performance of its duties hereunder. The Dissemination Agent shall have no duty or obligation to review any information provided to it hereunder and shall not be deemed to be acting in any fiduciary capacity for the City, the Developer, the Fiscal Agent, the Bond owners, or any other party. The obligations of the Developer under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Bonds.
Section 12. Notices. Any notice or comm unications to be among any of the parties to this Disclosure Certificate may be given by regular, overnight or electronic mail as follows:
To the Developer K. Hovnanian at Jaeger Ranch, LLC
3721 Douglas Blvd., Suite 150
Roseville, CA 95661
Email: [email protected]
To the City: City of Rancho Cordova
Attn: CFD Administrator
2729 Prospect Park Drive
Rancho Cordova, CA 95670
Email: [email protected];
[email protected]
To the Participating
Underwriter: Piper Sandler & Co.
3626 Fair Oaks Boulevard, Suite 100
Sacramento, CA 95864
Email: [email protected]
Any person may, by written notice to the other persons listed above, designate a different address or telephone number(s) to which subsequent notices or communications should be sent.
ITEM 12.1.
ATTACHMENT 4
F-15
Section 13. Beneficiaries. This Disclosure Certificate shall inure solely to the benefit of the City, the Developer (its successors and assigns), the Dissemination Agent, the Participating Underwriter and holders and beneficial owners from time to time of the Bonds and shall create no rights in any other person or entity. All obligations of the Developer hereunder shall be assumed by any legal successor to the obligations of the Developer as a result of a sale, merger, consolidation or other reorganization.
Section 14. Counterparts. This Disclosure Certificate may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument.
ITEM 12.1.
ATTACHMENT 4
F-16
IN WITNESS WHEREOF, the Developer has executed this Disclosure Certificate as of the date first above written.
K. HOVNANIAN AT JAEGER RANCH, LLC,
A California limited liability company
By: ______________________________
Name: ___________________________
Title: _____________________________
ITEM 12.1.
ATTACHMENT 4
F-17
EXHIBIT A
PERIODIC REPORT
Relating to:
$_________
CITY OF RANCHO CORDOVA
THE RANCH COMMUNITY FACILITIES DISTRICT NO. 2021-1
SPECIAL TAX BONDS
SERIES 2022
This Periodic Report is hereby submitted under Section 4 of the Continuing Disclosure Certificate (Developer) (the “Disclosure Certificate ”) dated ________, 2022 executed by K.
Hovnanian at Jaeger Ranch, LLC , a California limited liability company (the “Developer”) in connection with the issuance of special tax bonds by the City of Rancho Cordova (the “City”) with respect to the City of Rancho Cordova The Ranch Community Facilities District No. 2021-1 (the “District”).
Capitalized terms used in this Periodic Report but not otherwise defined have the meanings given to them in the Disclosure Certificate.
I. Property Ownership and Development
The information in this section is provided as of ____________________ (this date must be not more than 60 days before the date of this Periodic Report).
A. Property currently owned by the Developer or its Affiliates (if any) and AG in Improvement Area No. 1 (the “Property”):
Development name:
Number of lots (acreage if not subdivided):
B. Status of land development or construction activities:
______________________________________________________________________
______________________________________________________________________
C. Number of building permits pulled during the reporting period and the aggregate number of building permits for the Property developed by the Developer or an Affiliate (if any) , and any significant amendments to land use or development entitlements:
______________________________________________________________________
______________________________________________________________________
D. Aggregate property sold, optioned or leased by the Developer or an Affiliate (if any) to end users or merchant builders:
ITEM 12.1.
ATTACHMENT 4
F-18
Since the Reported Date of
Information in the Official
Statement
Since the Last Periodic
Report
Lots ____
Lots ____
E. Any updates to ownership of the Property by the Developer or an Affiliate (if any), as stated in the Official Statement, and any other changes in ownership , whether acquisition of land in Improvement Area No. 1 by the Developer or an Affiliate (if any), or sales of land in Improvement Area No. 1 to other property owners, distinguishing between (i) end users (e.g., single family homeowners), (ii) developers and (iii) merchant builders.
______________________________________________________________________
______________________________________________________________________
II. Legal and Financial Status of Developer
Unless such information has previously been included or incorporated by reference in a Periodic Report, describe any change in the legal structure of the Developer or the financi al condition and financing plan of the Developer that would materially and adversely interfere with its ability to complete its development plan described in the Official Statement.
______________________________________________________________________
______________________________________________________________________
III. Change in Development or Financing Plans
Unless such information has previously been included or incorporated by reference in a Periodic Report, describe any development plans or financing plans relating to the Property that are materially different from the proposed development and financing plan described in the Official Statement.
______________________________________________________________________
______________________________________________________________________
IV. Official Statement Updates
Unless such information has previously been included or incorporated by reference in a Periodic Report, describe any other significant changes in the information relating to the Developer or the Property contained in the Official Statement under the headin g “IMPROVEMENT AREA NO. 1 – Development in the District ” that would materially and adversely interfere with the Developer ’s ability to develop and sell the Property as described in the Official Statement.
______________________________________________________________________
______________________________________________________________________ ITEM 12.1.
ATTACHMENT 4
F-19
V. Other Material Information
In addition to any of the information expressly required above, provide such further information, if any, as may be necessary to make the specifically required statements, in the light of the circumstances under which they are made, not misleading.
_____________________________________________________________________
______________________________________________________________________
Certification
The undersigned Developer hereby certifies that this Periodic Report constitutes the Periodic Report required to be furnished by the Developer under the Disclosure Certificate.
ANY STATEMENTS REGARDING THE DEVELOPER, THE DEVELOPME NT OF THE PROPERTY, THE DEVELOPER ’S FINANCING PLAN OR FINANCIAL CONDITION, OR THE
BONDS, OTHER THAN STATEMENTS MADE BY THE DEVELOPER IN AN OFFICIAL
RELEASE, OR FILED WITH THE MUNICIPAL SECURITIES RULEMAKING BOARD, ARE NOT AUTHORIZED BY THE DEVELOPER. THE DEVELOPER IS NOT RESPONSIBLE FOR
THE ACCURACY, COMPLETENESS OR FAIRNESS OF ANY SUCH UNAUTHORIZED STATEMENTS.
THE DEVELOPER HAS NO OBLIGATION TO UPDATE THIS PERIODIC REPORT OTHER THAN AS EXPRESSLY PROVIDED IN THE DISCLOSURE CERTIFICATE.
Dated:
K. HOVNANIAN AT JAEGER RANCH, LLC,
A California limited liability company
By: ______________________________
Name: ___________________________
Title: _____________________________
ITEM 12.1.
ATTACHMENT 4
G-1
APPENDIX G
DTC AND THE BOOK-ENTRY ONLY SYSTEM
The following description of the Depository Trust Company ( “DTC”), the procedures and record keeping with respect to beneficial ownership interests in the Bonds, payment of principal, interest and other payments on the Bonds to DTC Participants or Beneficial Owners, confirmation and transfer of beneficial ownership interest in the Bonds and other related transactions by and between DTC, the DTC Participants and the Beneficial Owners is based solely on information provided by DTC. Accordingly, no representations can be made concerning these matters and neither the DTC Participants nor the Beneficial Owners should rely on the foregoing information with respect to such matters, but should instead confirm the same with DTC or the DTC Participants, as the case may be.
Neither the issuer of the Bonds (the “Issuer”) nor the trustee, fiscal agent or paying agent appointed with respect to the Bonds (the “Agent”) take any responsibility for the information contained in this Appendix.
No assurances can be given that DTC, DTC Participants or Indirect Participants will distribute to the Beneficial Owners (a) payments of interest, principal or premium, if any, with respect to the Bonds, (b) certificates representing ownership interest in o r other confirmation or ownership interest in the Bonds, or (c) redemption or other notices sent to DTC or Cede & Co., its nominee, as the registered owner of the Bonds, or that they will so do on a timely basis, or that DTC, DTC Participants or DTC Indire ct Participants will act in the manner described in this Appendix. The current “Rules” applicable to DTC are on file with the Securities and Exchange Commission and the current “Procedures” of DTC to be followed in dealing with DTC Participants are on file with DTC.
1. The Depository Trust Company ( “DTC”), New York, NY, will act as securities depository for the securities (the “Securities”). The Securities will be issued as fully -registered securities registered in the name of Cede & Co. (DTC ’s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully -registered Security certificate will be issued for each issue of the Securities, 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 physic al 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 ITEM 12.1.
ATTACHMENT 4
G-2
a wholly-owned subsidiary of The Depository Tr ust & Clearing Corporation ( “DTCC”). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non -U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ( “Indirect Participants”). DTC has a Standard & Poor’ s rating of AA+.
The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com.
3. Purchases of Securities under the DTC system must be made by or through Direct Participants, which will receive a credit for the Securities on DTC ’s records. The ownership interest of each actual purchaser of each Security ( “Beneficial Owner”) is in turn to be recorded on the Direct and Indirect Participants’ records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transa ction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Securities are to be accomplished by entries made on t he books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in Securities, except in the event that use of the book -entry system for the Securiti es is discontinued.
4. To facilitate subsequent transfers, all Securities deposited by Direct Participants with DTC are registered in the name of DTC’s partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of Securities with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Securities; DTC’ s records r eflect only the identity of the Direct Participants to whose accounts such Securities are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers.
5. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangemen ts among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of Securities may wish to take certain steps to augment the transmission to them of notices of significant events with respect to th e Securities, such as redemptions, tenders, defaults, and proposed amendments to the Security documents. For example, Beneficial Owners of Securities may wish to ascertain that the nominee holding the Securities for their benefit has agreed to obtain and t ransmit 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 will be sent to DTC. If less than all of the Securities within an issue are being redeemed, DTC ’s practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed.
7. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consen t or vote with respect to Securities unless authorized by a Direct Participant in accordance with DTC ’s MMI ITEM 12.1.
ATTACHMENT 4
G-3
Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to Issuer as soon as possible after the record date. The Omnibus Proxy assigns Ce de & Co. ’s consenting or voting rights to those Direct Participants to whose accounts Securities are credited on the record date (identified in a listing attached to the Omnibus Proxy).
8. Redemption proceeds, distributions, and dividend payments on the S ecurities 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 Issuer o r Agent, on payable date in accordance with their respective holdings shown on DTC’s records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accou nts of customers in bearer form or registered in “street name,” and will be the responsibility of such Participant and not of DTC, Agent, or Issuer, subject to any statutory or regulatory requirements as may be in effect from time to time.
Payment of redemption proceeds, distributions, and dividend payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of Issuer or Agent, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants.
9. A Beneficial Owner will give notice to elect to have its Securities purchased or tendered, through its Pa rticipant, to the Agent, and will effect delivery of such Securities by causing the Direct Participant to transfer the Participant ’s interest in the Securities, on DTC ’s records, to the Agent. The requirement for physical delivery of Securities in connection with an optional tender or a mandatory purchase will be deemed satisfied when the ownership rights in the Securities are transferred by Direct Participants on DTC ’s records and followed by a book - entry credit of tendered Securities to the Agent’s DTC account.
10. DTC may discontinue providing its services as depository with respect to the Securities at any time by giving reasonable notice to Issuer or Agent. Under such circumstances, in the event that a successor depository is not obtained, Security certificates are required to be printed and delivered.
11. Issuer may decide to discontinue use of the system of book -entry-only transfers through DTC (or a successor securities depository). In that event, Security certificates will be printed and delivered to DTC.
12. The information in this section concerning DTC and DTC ’s book-entry system has been obtained from sources that Issuer believes to be reliable, but Issuer takes no responsibility for the accuracy thereof.
ITEM 12.1.
ATTACHMENT 4
MEMORANDUM
City Council Staff Report - Page 1 of 3
ITEM 12.2.
DATE: September 6, 2022
TO: Honorable Mayor and Council Members
FROM: Albert Stricker, Public Works Director
Edgar Medina, Principal Engineer
SUBJECT: A RESOLUTION AUTHORIZING THE CITY MANAGER TO EXECUTE CONTRACT NO. 2022-180 WITH MARK THOMAS & COMPANY, INC.
IN AN AMOUNT NOT TO EXCEED $9,672,794 FOR FINAL CIVIL
ENGINEERING/STRUCTURAL DESIGN, ENVIRONMENTAL AND
RIGHT OF WAY SUPPORT FOR THE US50/RANCHO CORDOVA
PARKWAY INTERCHANGE PROJECT THAT WILL PROVIDE A
CRITICAL TRANSPORTATION LINK FOR THE CITY AND REGION
RECOMMENDATION
Adopt the Resolution.
RESULT OF RECOMMENDED ACTION
Adoption of Resolution would authorize the City Manager to execute Contract No. 2022-180 with Mark Thomas & Company Inc.in an amount not to exceed $9,672,794 to provide final civil engineering/structural design, environmental, and right of way support for the US50/Rancho Cordova Parkway Interchange Project that will promote livability, increase safety, and provide a critical transportation link fo the City and region.
BACKGROUND
The US50/Rancho Cordova Parkway Interchange Project (Project) is a critical transportation link and project for the City of Rancho Cordova and the Sacramento Region that will alleviate regional congestion, improve roadway safety, support economic development, and promote the livability and quality of life in the City.
The City of Rancho Cordova contains one of the region’s largest employment centers, second to Downtown Sacramento, with over 60,000 commuters coming into the City daily with projected growth currently under way south of the Project Area. The Project proposes a new interchange on U.S 50 at Rancho Cordova Parkway (Refer to Project Map) at the midpoint between the Sunrise Boulevard and Hazel Avenue interchanges. The interchange project will be a “south-only” connection and include the design and construction of an approximate 2-mile stretch of Rancho Cordova Parkway that connects to the newly constructed segment of White Rock Road towards the south.
City Council Staff Report - Page 2 of 3
The project would help to achieve the following objectives:
1. Improve circulation on US-50, Sunrise Boulevard, White Rock Road, Hazel Avenue and White Rock Road;
2. Improve traffic operations at the US-50/Sunrise Boulevard and US-50/Hazel Avenue interchanges;
3. Provide additional access from US-50 to needed and planned housing development and employment centers;
4. Increase emergency and evacuation alternatives;
5. Catalyze housing developments and job creation;
6. Reduce vehicle miles travelled; and
7. Enhance opportunities to regional transit facilities
The Project will also expand the bike network on Rancho Cordova Parkway south of US 50 with the intent of connecting planned bicycle trails and connections along Rancho Cordova Parkway between White Rock Road and Easton Valley Parkway, ultimately connecting to the bicycle lane and trail system in the future Westborough development. When combined with the Westborough system, the project bicycle facilities will allow access to residential and commercial properties making several connections to the City’s main trail system and the Folsom South Canal trail which facilitates safe pedestrian/bicycle modes of travel.
The City conducted a Request for Qualifications (RFQ) for final civil & structural design, land surveying, environmental revalidation, public outreach and engineering construction support services for the U.S. 50/Rancho Cordova Parkway Interchange Project. The solicitation was advertised on the City’s website, CIPList.com, and the Sacramento, Placer, and El Dorado County Builders Exchanges on March 14, 2022 with submittal deadline on April 19, 2022. A total of four Statement of Qualifications (SOQ’s) were received and reviewed as part of the first round of the selection process. On May 23, 2022, Staff conducted a panel interview of all four consulting teams as part of the second round of the selection process.
As a result of the two rounds of the selection process, staff recommends awarding the design service contract to Mark Thomas & Company Inc. and authorizing the City Manager to execute the agreement.
The proposed schedule is to initiate final civil and structural design, environmental re-validation and right of way support in Fall 2022 and design completion in end of 2024. The construction schedule will be developed as the design advances and the funding sources are finalized.
FISCAL IMPACT AND FUNDING SOURCE
Funding for this project will consist of SD Traffic Mitigation Impact Fees, Traffic Mitigation Fees, Supplemental Transportation Fee, Sunridge Anatolia CFC, Sunridge Park CFD, Sunridge North Douglas CFD and Federal Grants, There are no impacts to the City’s General Fund.
This project is included in the City’s current approved 2021/22 – 2025/26 Capital Improvement Plan and in the 2022/23 budget.
ATTACHMENT(S)
1. Resolution
2. Project Location Map
3. Contract No. 2022-180
4. Presentation
City Council Staff Report - Page 3 of 3
ITEM 12.2. ATTACHMENT 1 Resolution No. XX-2022 Page 1 of 2
CITY OF RANCHO CORDOVA
RESOLUTION NO. XX-2022
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF RANCHO CORDOVA,
STATE OF CALIFORNIA, AUTHORIZING THE CITY MANAGER TO EXECUTE CONTRACT 2022-180 WITH MARK THOMAS & COMPANY, INC. IN AN AMOUNT NOT TO EXCEED $9,672,794 FOR FINAL DESIGN SERVICES FOR THE US50/RANCHO CORDOVA
PARKWAY INTERCHANGE PROJECT THAT WILL PROMOTE LIVABILITY, INCREASE
SAFETY AND PROVIDE A CRITICAL TRANSPORATION LINK FOR THE CITY AND REGION
WHEREAS, the City of Rancho Cordova desires to enter into Contract No. 2022-180 with Mark Thomas & Company, Inc. in an Amount not to Exceed $9,672,794 for Final Civil Engineering/Structural Design, Environmental and Right of Way Support for the US50/Rancho Cordova Parkway Interchange Project that will Promote Livability, Increase Safety, and Provide a Critical Transportation Link for the City and Region; and
WHEREAS, the Project proposes a new interchange on U.S 50 at Rancho Cordova Parkway at the midpoint between the Sunrise Boulevard and Hazel Avenue interchanges. The interchange project will be a “south-only” connection and include the design and construction of an approximate 2-mile stretch of Rancho Cordova Parkway that connects to White Rock Road; and
WHEREAS, The City conducted a Request for Qualifications for the U.S. 50/Rancho Cordova Parkway Interchange Project. The solicitation was publicly advertised on March 14, 2022 with a submittal deadline on April 19, 2022. A total of four Statement of Qualifications were received and reviewed as part of the first round of the selection process. On May 23, 2022, Staff conducted a panel interview of all four consulting teams as part of the second round of the selection process. As a result of the two rounds of the selection process, staff recommends a design contract with Mark Thomas & Company, Inc for this project; and
WHEREAS, this contract will be funded through SD Traffic Mitigation Impact Fees, Traffic Mitigation Fees, Supplemental Transportation Fee, Sunridge Anatolia CFC, Sunridge Park CFD, Sunridge North Douglas CFD and Federal Grants, The contract does not impact the general fund and is included in the City’s current approved 2021/22 – 2025/26 Capital Improvement Plan and in the 2022/23 budget.
NOW, THEREFORE, BE IT HEREBY RESOLVED THE CITY COUNCIL OF THE CITY OF RANCHO CORDOVA does authorize the City Manager to execute Contract No. 2022-180 with Mark Thomas & Company Inc.in an amount not to exceed $9,672,794 for the US50/Rancho Cordova Parkway Interchange Project and in a form approved by the City Attorney.
PASSED AND ADOPTED by the City Council of the City of Rancho Cordova on the 6th day of September 2022 by following vote:
AYES:
NOES:
ITEM 12.2. ATTACHMENT 1 Resolution No. XX-2022 Page 2 of 2 ABSENT:
ABSTAIN:
ATTEST:
Donald Terry, Mayor
Stacy Leitner, CMC
City Clerk
Project Location Map
Sunrise Boulevard
White Rock Road
Project Location
ITEM 12.2.
ATTACHMENT 2
Professional Services Agreement between September 6, 2022 City of Rancho Cordova and Mark Thomas & Company, Inc.
PROFESSIONAL SERVICES AGREEMENT BETWEEN
THE CITY OF RANCHO CORDOVA AND
MARK THOMAS & COMPANY, INC. FOR THE
US50/RANCHO CORDOVA PARKWAY INTERCHANGE PROJECT
T
HIS AGREEMENT for professional services is made by and between the City of Rancho Cordova, a California municipal corporation (“City”), and Mark Thomas & Company, a California General Stock Corporation, (“Professional”) as of September _____, 2022.
Section 1. SERVICES. Subject to the terms and conditions set forth in this Agreement, Professional shall provide to City the services described in the Scope of Work attached as Exhibit A at the time and place and in the manner specified therein. In the event of a conflict or inconsistency between the terms of this Agreement and Exhibit A, the Agreement shall prevail.
1.1 Term of Services. The term of this Agreement shall begin on the date first noted above and shall end on June 30, 2029, the date of completion specified in Exhibit A. Professional shall complete the work described in Exhibit A prior to that date, unless the term of the Agreement is otherwise terminated or extended, as provided for in Section 8. The time provided to Professional to complete the services required by this Agreement shall not affect the City’s right to terminate the Agreement, as provided for in Section 8.
1.2 Standard of Performance. Professional shall perform all services required pursuant to this Agreement in the manner and according to the standards observed by a competent practitioner of the profession in which Professional is engaged in the geographical area in which Professional practices its profession. Professional shall prepare all work products required by this Agreement in a substantial, first-class manner and shall conform to the standards of quality normally observed by a person practicing in Professional's profession.
1.3 Assignment of Personnel. Professional shall assign only competent personnel to perform services pursuant to this Agreement. In the event that City, in its sole discretion, at any time during the term of this Agreement, desires the reassignment of any such persons, Professional shall, immediately upon receiving notice from City of such desire of City, reassign such person or persons.
1.4 Time. Professional shall devote such time to the performance of services pursuant to this Agreement as may be reasonably necessary to meet the standard of performance provided in Section 1.2 above and to satisfy Professional’s obligations hereunder.
Section 2. COMPENSATION. City hereby agrees to pay Professional a sum not to exceed Nine Million Six Hundred Seventy-Two Thousand Seven Hundred Ninety-Four Dollars and Zero Cents ($9,672,794.00), notwithstanding any contrary indications that may be contained in Professional’s proposal, for services to be performed and reimbursable costs incurred under this Agreement. In the event of a conflict between this Agreement and Professional’s proposal, attached as Exhibit B, regarding the amount of compensation, the Agreement shall prevail. City shall pay Professional for services rendered pursuant to this Agreement at the time and in the manner set forth herein. The payments specified below shall be the only payments from City to Professional for services rendered pursuant to this Agreement. Professional ITEM 12.2.
ATTACHMENT 3
Contract No. 2022-180
Professional Services Agreement between September 6, 2022 City of Rancho Cordova and Mark Thomas & Company, Inc.
shall submit all invoices to City in the manner specified herein. Except as specifically authorized by City, Professional shall not bill City for duplicate services performed by more than one person.
Professional and City acknowledge and agree that compensation paid by City to Professional under this Agreement is based upon Professional’s estimated costs of providing the services required hereunder, including salaries and benefits of employees and subcontractors of Professional. Consequently, the parties further agree that compensation hereunder is intended to include the costs of contributions to any pensions and/or annuities to which Professional and its employees, agents, and subcontractors may be eligible. City therefore has no responsibility for such contributions beyond compensation required under this Agreement.
2.1 Invoices. Professional shall submit invoices, not more often than once a month during the term of this Agreement, based on the cost for services performed and reimbursable costs incurred prior to the invoice date. Invoices shall contain the following information:
Serial identifications of progress bills; i.e., Progress Bill No. 1 for the first invoice, etc.;
The beginning and ending dates of the billing period; A Task Summary containing the original contract amount, the amount of prior billings, the total due this period, the balance available under the Agreement, and the percentage of completion;
At City’s option, for each work item in each task, a copy of the applicable time entries or time sheets shall be submitted showing the name of the person doing the work, the hours spent by each person, a brief description of the work, and each reimbursable expense;
The total number of hours of work performed under the Agreement by Professional and each employee, agent, and subcontractor of Professional performing services hereunder, as well as a separate notice when the total number of hours of work by Professional and any individual employee, agent, or subcontractor of Professional reaches or exceeds 800 hours, which shall include an estimate of the time necessary to complete the work described in Exhibit A;
The Professional’s signature.
2.2 Monthly Payment. City shall make monthly payments, based on invoices received, for services satisfactorily performed, and for authorized reimbursable costs incurred. City shall have thirty (30) days from the receipt of an invoice that complies with all of the requirements above to pay Professional.
2.3 Final Payment. City shall make the final payment within sixty (60) days after completion of the services and submittal to City of a final invoice, if all services required have been satisfactorily performed.
2.4 Total Payment. City shall pay for the services to be rendered by Professional pursuant to this Agreement. City shall not pay any additional sum for any expense or cost whatsoever incurred by Professional in rendering services pursuant to this Agreement. City shall make no payment for any extra, further, or additional service pursuant to this Agreement.
ITEM 12.2.
ATTACHMENT 3
Contract No. 2022-180
Professional Services Agreement between September 6, 2022 City of Rancho Cordova and Mark Thomas & Company, Inc.
In no event shall Professional submit any invoice for an amount in excess of the maximum amount of compensation provided above either for a task or for the entire Agreement, unless the Agreement is modified prior to the submission of such an invoice by a properly executed change order or amendment.
2.5 Hourly Fees. Fees for work performed by Professional on an hourly basis shall not exceed the amounts shown on the fee schedule set forth in Exhibit B.
2.6 Reimbursable Expenses. Reimbursable expenses, if any, are set forth in Exhibit B.
Expenses not listed in Exhibit B are not chargeable to City. Reimbursable expenses are included in the total amount of compensation provided under this Agreement that shall not be exceeded.
2.7 Payment of Taxes. Professional is solely responsible for the payment of employment taxes incurred under this Agreement and any similar federal or state taxes.
2.8 Payment upon Termination. In the event that the City or Professional terminates this Agreement pursuant to Section 8, the City shall compensate the Professional for all outstanding costs and reimbursable expenses incurred for work satisfactorily completed as of the date of written notice of termination. Professional shall maintain adequate logs and timesheets in order to verify costs incurred to that date.
2.9 Authorization to Perform Services. The Professional is not authorized to perform any services or incur any costs whatsoever under the terms of this Agreement until receipt of authorization from the Contract Administrator.
Section 3. FACILITIES AND EQUIPMENT. Except as set forth herein, Professional shall, at its sole cost and expense, provide all facilities and equipment that may be necessary to perform the services required by this Agreement. City shall make available to Professional only the facilities and equipment listed in this section, and only under the terms and conditions set forth herein.
City shall furnish physical facilities such as desks, filing cabinets, and conference space, as may be reasonably necessary for Professional’s use while consulting with City employees and reviewing records and the information in possession of the City. The location, quantity, and time of furnishing those facilities shall be in the sole discretion of City. In no event shall City be obligated to furnish any facility that may involve incurring any direct expense, including but not limited to computer, long-distance telephone or other communication charges, vehicles, and reproduction facilities.
Section 4. INSURANCE REQUIREMENTS. Before beginning any work under this Agreement, Professional, at its own cost and expense, shall procure "occurrence coverage" insurance against claims for injuries to persons or damages to property that may arise from or in connection with the performance of the work hereunder by the Professional and its agents, representatives, employees, and subcontractors.
Professional shall provide proof satisfactory to City of such insurance that meets the requirements of this section and under forms of insurance satisfactory in all respects to the City. Professional shall maintain the insurance policies required by this section throughout the term of this Agreement. The cost of such ITEM 12.2.
ATTACHMENT 3
Contract No. 2022-180
Professional Services Agreement between September 6, 2022 City of Rancho Cordova and Mark Thomas & Company, Inc.
insurance shall be included in the Professional's bid. Professional shall not allow any subcontractor to commence work on any subcontract until Professional has obtained all insurance required herein for the subcontractor(s) and provided evidence thereof to City. Verification of the required insurance shall be submitted and made part of this Agreement prior to execution. Professional shall maintain all required insurance listed herein for the duration of this Agreement.
4.1 Workers’ Compensation. Professional shall, at its sole cost and expense, maintain Statutory Workers’ Compensation Insurance and Employer’s Liability Insurance for any and all persons employed directly or indirectly by Professional. The Statutory Workers’ Compensation Insurance and Employer’s Liability Insurance shall be provided with limits of not less than ONE MILLION DOLLARS ($1,000,000.00) per accident. In the alternative, Professional may rely on a self-insurance program to meet those requirements, but only if the program of self-insurance complies fully with the provisions of the California Labor Code. Determination of whether a self-insurance program meets the standards of the Labor Code shall be solely in the discretion of the Contract Administrator. The insurer, if insurance is provided, or the Professional, if a program of self-insurance is provided, shall waive all rights of subrogation against the City and its officers, officials, employees, and volunteers for loss arising from work performed under this Agreement.
An endorsement shall state that coverage shall not be canceled except after thirty (30) days' prior written notice by certified mail, return receipt requested, has been given to the City. Professional shall notify City within fourteen (14) days of notification from Professional’s insurer if such coverage is suspended, voided or reduced in coverage or in limits.
The requirement to maintain Statutory Worker’s Compensation and Employer’s Liability Insurance may be waived by the City upon written verification that Professional does not have any employees.
4.2 Commercial General and Automobile Liability Insurance.
4.2.1 General requirements. Professional, at its own cost and expense, shall maintain commercial general liability insurance for the term of this Agreement in an amount not less than TWO MILLION DOLLARS ($2,000,000.00) and automobile liability insurance for the term of this Agreement in an amount not less than ONE MILLION DOLLARS ($1,000,000.00). The commercial general liability and automobile liability insurance shall be per occurrence, combined single limit coverage for risks associated with the work contemplated by this Agreement. If a commercial general liability insurance or an automobile liability form or other form with a general aggregate limit is used, either the general aggregate limit shall apply separately to the work to be performed under this Agreement or the general aggregate limit shall be at least twice the required occurrence limit. Such coverage shall include but shall not be limited to, protection against claims arising from bodily and personal injury, including death resulting therefrom, and damage to property resulting from ITEM 12.2.
ATTACHMENT 3
Contract No. 2022-180
Professional Services Agreement between September 6, 2022 City of Rancho Cordova and Mark Thomas & Company, Inc.
activities contemplated under this Agreement, including the use of owned and non- owned automobiles.
4.2.2 Minimum scope of coverage. Commercial general liability coverage shall be at least as broad as Insurance Services Office Commercial General Liability occurrence form CG 0001 (most recent edition) covering comprehensive General Liability on an “occurrence” basis. Automobile coverage shall be at least as broad as Insurance Services Office Automobile Liability form CA 0001 (most recent edition), Code 1 (any auto). No endorsement shall be attached limiting the coverage.
4.2.3 Additional requirements. Each of the following shall be included in the insurance coverage or added as an endorsement to the policy:
a. City and its officers, employees, agents, and volunteers shall be covered as additional insureds with respect to each of the following: liability arising out of activities performed by or on behalf of Professional, including the insured’s general supervision of Professional; products and completed operations of Professional; premises owned, occupied, or used by Professional; and automobiles owned, leased, or used by the Professional. The coverage shall contain no special limitations on the scope of protection afforded to City or its officers, employees, agents, or volunteers.
b. The insurance shall cover on an occurrence or an accident basis, and not on a claims-made basis.
c. An endorsement must state that coverage is primary insurance with respect to the City and its officers, officials, employees and volunteers, and that no insurance or self-insurance maintained by the City shall be called upon to contribute to a loss under the coverage.
d. Any failure of Professional to comply with reporting provisions of the policy shall not affect coverage provided to City and its officers, employees, agents, and volunteers.
e. An endorsement shall state that coverage shall not be canceled except after thirty (30) days' prior written notice by certified mail, return receipt requested, has been given to the City. Professional shall notify City within fourteen (14) days of notification from Professional’s insurer if such coverage is suspended, voided or reduced in coverage or in limits.
4.3 Professional Liability Insurance. Professional, at its own cost and expense, shall maintain for the period covered by this Agreement professional liability insurance for licensed professionals performing work pursuant to this Agreement in an amount not less ITEM 12.2.
ATTACHMENT 3
Contract No. 2022-180
Professional Services Agreement between September 6, 2022 City of Rancho Cordova and Mark Thomas & Company, Inc.
than TWO MILLION DOLLARS ($2,000,000) covering the licensed professionals’ errors and omissions.
4.3.1 Any deductible or self-insured retention shall not exceed $150,000 per claim.
4.3.2 An endorsement shall state that coverage shall not be suspended, voided, canceled by either party, or reduced in coverage or in limits, except after thirty (30) days' prior written notice by certified mail, return receipt requested, has been given to the City.
4.3.3 The following provisions shall apply if the professional liability coverages are written on a claims-made form:
a. The retroactive date of the policy must be shown and must be before the date of the Agreement.
b. Insurance must be maintained and evidence of insurance must be provided for at least five (5) years after completion of the Agreement or the work, so long as commercially available at reasonable rates.
c. If coverage is canceled or not renewed and it is not replaced with another claims-made policy form with a retroactive date that precedes the date of this Agreement, Professional must provide extended reporting coverage for a minimum of five (5) years after completion of the Agreement or the work. The City shall have the right to exercise, at the Professional’s sole cost and expense, any extended reporting provisions of the policy, if the Professional cancels or does not renew the coverage.
d. A copy of the claim reporting requirements must be submitted to the City prior to the commencement of any work under this Agreement.
4.4 All Policies Requirements.
4.4.1 Acceptability of insurers. All insurance required by this section is to be placed with insurers with a Bests' rating of no less than A:VII.
4.4.2 Verification of coverage. Prior to beginning any work under this Agreement, Professional shall furnish City with certificates of insurance and with original endorsements effecting coverage required herein. The certificates and endorsements for each insurance policy are to be signed by a person authorized by that insurer to bind coverage on its behalf. The City reserves the right to require complete, certified copies of all required insurance policies, at any time.
4.4.3 Subcontractors. Professional shall include all subcontractors as insureds under its policies or shall furnish separate certificates and endorsements for each ITEM 12.2.
ATTACHMENT 3
Contract No. 2022-180
Professional Services Agreement between September 6, 2022 City of Rancho Cordova and Mark Thomas & Company, Inc.
subcontractor. All coverages for subcontractors shall be subject to all of the requirements stated herein.
4.4.4 Deductibles and Self-Insured Retentions. Professional shall disclose to and obtain the approval of City for the self-insured retentions and deductibles before beginning any of the services or work called for by any term of this Agreement.
During the period covered by this Agreement, only upon the prior express written authorization of Contract Administrator, Professional may increase such deductibles or self-insured retentions with respect to City, its officers, employees, agents, and volunteers. The Contract Administrator may condition approval of an increase in deductible or self-insured retention levels with a requirement that Professional procure a bond, guaranteeing payment of losses and related investigations, claim administration, and defense expenses that is satisfactory in all respects to each of them.
4.4.5 Waiver of Subrogation. Professional hereby agrees to waive subrogation which any insurer or contractor may require from vendor by virtue of the payment of any loss. Consultant agrees to obtain any endorsements that may be necessary to e ffect this waiver of subrogation. The Workers’ Compensation policy shall be endorsed with a waiver of subrogation in favor of the entity for all work performed by the Professional, its employees, agents, and subcontractors.
4.4.6 Notice of Reduction in Coverage. In the event that any coverage required by this section is reduced, limited, or materially affected in any other manner, Professional shall provide written notice to City at Professional’s earliest possible opportunity and in no case later than five (5) days after Professional is notified of the change in coverage.
4.5 Remedies. In addition to any other remedies City may have if Professional fails to provide or maintain any insurance policies or policy endorsements to the extent and within the time herein required, City may, at its sole option exercise any of the following remedies, which are alternatives to other remedies City may have and are not the exclusive remedy for Professional’s breach:
Obtain such insurance and deduct and retain the amount of the premiums for such insurance from any sums due under the Agreement;
Order Professional to stop work under this Agreement or withhold any payment that becomes due to Professional hereunder, or both stop work and withhold any payment, until Professional demonstrates compliance with the requirements hereof; and/or
Terminate this Agreement.
Section 5. INDEMNIFICATION AND PROFESSIONAL’S RESPONSIBILITIES.
ITEM 12.2.
ATTACHMENT 3
Contract No. 2022-180
Professional Services Agreement between September 6, 2022 City of Rancho Cordova and Mark Thomas & Company, Inc.
5.1 General Requirement. Professional shall indemnify, defend with counsel selected by the City, and hold harmless the City and its officials, officers, employees, agents, and volunteers from and against any and all losses, liability, claims, suits, actions, damages, and causes of action arising out of any personal injury, bodily injury, loss of life, or damage to property, or any violation of any federal, state, or municipal law or ordinance, to the extent caused, in whole or in part, by the willful misconduct or negligent acts or omissions of Professional or its employees, subcontractors, or agents, by acts for which they could be held strictly liable, or by the quality or character of their work. The foregoing obligation of Professional shall not apply when (1) the injury, loss of life, damage to property, or violation of law arises wholly from the negligence or willful misconduct of the City or its officers, employees, agents, or volunteers and (2) the actions of Professional or its employees, subcontractor, or agents have contributed in no part to the injury, loss of life, damage to property, or violation of law. It is understood that the duty of Professional to indemnify and hold harmless includes the duty to defend as set forth in Section 2778 of the California Civil Code. Acceptance by City of insurance certificates and endorsements required under this Agreement does not relieve Professional from liability under this indemnification and hold harmless clause. This indemnification and hold harmless clause shall apply to any damages or claims for damages whether or not such insurance policies shall have been determined to apply. By execution of this Agreement, Professional acknowledges and agrees to the provisions of this Section and that it is a material element of consideration.
5.2 PERS Indemnification. In the event that Professional or any employee, agent, or subcontractor of Professional providing services under this Agreement is determined by a court of competent jurisdiction or the California Public Employees Retirement System (“PERS”) to be eligible for enrollment in PERS as an employee of City, Professional shall indemnify, defend, and hold harmless City for the payment of any and all employee and/or employer contributions for PERS benefits on behalf of Professional or its employees, agents, or subcontractors, as well as for the payment of any penalties and interest on such contributions, which would otherwise be the responsibility of City, and any attorneys’ fees and costs incurred by the City to enforce this Section.
5.3 Design Professionals. To the extent that the services under this Agreement include design professional services subject to California Civil Code Section 2782.8, as may be amended from time to time, Professional’s duty to indemnify under Sections 5.1 and 5.2 shall only be to the maximum extent permitted by California Civil Code Section 2782.8.
Section 6. STATUS OF PROFESSIONAL.
6.1 Independent Contractor. At all times during the term of this Agreement, Professional shall be an independent contractor as defined in Labor Code Section 3353, and shall not be an employee of City. Nothing contained in this Agreement shall be construed to be inconsistent with the foregoing relationship or status. City shall have the right to control Professional only insofar as the results of Professional's services rendered pursuant to this ITEM 12.2.
ATTACHMENT 3
Contract No. 2022-180
Professional Services Agreement between September 6, 2022 City of Rancho Cordova and Mark Thomas & Company, Inc.
Agreement and assignment of personnel pursuant to Subparagraph 1.3; however, otherwise City shall not have the right to control the means and methods by which Professional accomplishes services rendered pursuant to this Agreement. Professional shall have no power or authority by this Agreement to bind the City in any respect. All employees and agents hired or retained by Professional are employees and agents of Professional and not of the City. The City shall not be obligated in any way to pay any wage claims or other claims made against Professional by any such employees or agents, or any other person resulting from performance of this Agreement.
N otwithstanding any other City, state, or federal policy, rule, regulation, law, or ordinance to the contrary, Professional and any of its employees, agents, and subcontractors providing services under this Agreement shall not qualify for or become entitled to, and hereby agree to waive any and all claims to, any compensation, benefit, or any incident of employment by City, including but not limited to eligibility to enroll in PERS as an employee of City and entitlement to any contribution to be paid by City for employer contributions and/or employee contributions for PERS benefits. Professional shall not allow any employee, agent or subcontractor to become eligible for a claim for PERS benefits.
6.2 Professional Not an Agent. Except as City may specify in writing, Professional shall have no authority, express or implied, to act on behalf of City in any capacity whatsoever as an agent. Professional shall have no authority, express or implied, pursuant to this Agreement to bind City to any obligation whatsoever.
Section 7. LEGAL REQUIREMENTS.
7.1 Governing Law. The laws of the State of California shall govern this Agreement.
7.2 Compliance with Applicable Laws. Professional and any subcontractors shall comply with all laws and regulations applicable to the performance of the work hereunder, including but not limited to, the California Building Code, the Americans with Disabilities Act, and any copyright, patent or trademark law. Professional’s f ailure to comply with any law(s) or regulation(s) applicable to the performance of the work hereunder shall constitute a breach of contract.
7.3 Other Governmental Regulations. To the extent that this Agreement may be funded by fiscal assistance from another governmental entity, Professional and any subcontractors shall comply with all applicable rules and regulations to which City is bound by the terms of such fiscal assistance program.
7.4 Licenses and Permits. Professional represents and warrants to City that Professional and its employees, agents, and any subcontractors have all licenses, permits, qualifications, and approvals of whatsoever nature that are legally required to practice their respective professions. Professional represents and warrants to City that Professional and its employees, agents, any subcontractors shall, at their sole cost and expense, keep in effect at all times during the term of this Agreement any licenses, permits, and approvals ITEM 12.2.
ATTACHMENT 3
Contract No. 2022-180
Professional Services Agreement between September 6, 2022 City of Rancho Cordova and Mark Thomas & Company, Inc.
that are legally required to practice their respective professions. In addition to the foregoing, Professional and any subcontractors shall obtain and maintain valid Business Licenses from City during the term of this Agreement.
7.5 Nondiscrimination and Equal Opportunity. Professional shall not discriminate, on the basis of a person’s race, religion, color, national origin, age, physical or mental handicap or disability, medical condition, marital status, sex, or sexual orientation, against any employee, applicant for employment, subcontractor, bidder for a subcontract, or participant in, recipient of, or applicant for any services or programs provided by Professional under this Agreement. Professional shall comply with all applicable federal, state, and local laws, policies, rules, and requirements related to equal opportunity and nondiscrimination in employment, contracting, and the provision of any services that are the subject of this Agreement, including but not limited to the satisfaction of any positive obligations required of Professional thereby.
Professional shall include the provisions of this Subsection in any subcontract approved by the Contract Administrator or this Agreement.
Section 8. TERMINATION AND MODIFICATION.
8.1 Termination. City may cancel this Agreement at any time and without cause upon written notification to Professional.
Professional may cancel this Agreement upon 30 days’ written notice to City and shall include in such notice the reasons for cancellation.
In the event of termination, Professional shall be entitled to compensation for services performed to the effective date of termination; City, however, may condition payment of such compensation upon Professional delivering to City any or all documents, photographs, computer software, video and audio tapes, and other materials provided to Professional or prepared by or for Professional or the City in connection with this Agreement.
8.2 Extension. City may, in its sole and exclusive discretion, extend the end date of this Agreement beyond that provided for in Subsection 1.1. Any such extension shall require a written amendment to this Agreement, as provided for herein. Professional understands and agrees that, if City grants such an extension, City shall have no obligation to provide Professional with compensation beyond the maximum amount provided for in this Agreement. Similarly, unless authorized by the Contract Administrator, City shall have no obligation to reimburse Professional for any otherwise reimbursable expenses incurred during the extension period.
8.3 Amendments. The Parties may amend this Agreement only by a writing signed by all the Parties.
ITEM 12.2.
ATTACHMENT 3
Contract No. 2022-180
Professional Services Agreement between September 6, 2022 City of Rancho Cordova and Mark Thomas & Company, Inc.
8.4 Assignment and Subcontracting. City and Professional recognize and agree that this Agreement contemplates personal performance by Professional and is based upon a determination of Professional’s unique personal competence, experience, and specialized personal knowledge. Moreover, a substantial inducement to City for entering into this Agreement was and is the professional reputation and competence of Professional.
Professional may not assign this Agreement or any interest therein without the prior written approval of the Contract Administrator. Professional shall not subcontract any portion of the performance contemplated and provided for herein, other than to the subcontractors noted in the proposal, without prior written approval of the Contract Administrator.
8.5 Survival. All obligations arising prior to the termination of this Agreement and all provisions of this Agreement allocating liability between City and Professional shall survive the termination of this Agreement.
8.6 Options upon Breach by Professional. If Professional materially breaches any of the terms of this Agreement, City’s remedies shall include, but not be limited to, the following:
8.6.1 Immediately terminate the Agreement;
8.6.2 Retain the plans, specifications, drawings, reports, design documents, and any other work product prepared by Professional pursuant to this Agreement;
8.6.3 Retain a different Professional to complete the work described in Exhibit A not finished by Professional; or
8.6.4 Charge Professional the difference between the cost to complete the work described in Exhibit A that is unfinished at the time of breach and the amount that City would have paid Professional pursuant to Section 2 if Professional had completed the work.
Section 9. KEEPING AND STATUS OF RECORDS.
9.1 Records Created as Part of Professional’s Performance. All reports, data, maps, models, charts, studies, surveys, photographs, memoranda, plans, studies, specifications, records, files, or any other documents or materials, in electronic or any other form, that Professional prepares or obtains pursuant to this Agreement and that relate to the matters covered hereunder shall be the property of the City. Professional hereby agrees to deliver those documents to the City upon termination of the Agreement. It is understood and agreed that the documents and other materials, including but not limited to those described above, prepared pursuant to this Agreement are prepared specifically for the City and are not necessarily suitable for any future or other use. City and Professional agree that, until final approval by City, all data, plans, specifications, reports and other documents are confidential and will not be released to third parties without prior written consent of both parties.
ITEM 12.2.
ATTACHMENT 3
Contract No. 2022-180
Professional Services Agreement between September 6, 2022 City of Rancho Cordova and Mark Thomas & Company, Inc.
9.2 Professional’s Books and Records. Professional shall maintain any and all ledgers, books of account, invoices, vouchers, canceled checks, and other records or documents evidencing or relating to charges for services or expenditures and disbursements charged to the City under this Agreement for a minimum of three (3) years, or for any longer period required by law, from the date of final payment to the Professional pursuant to this Agreement.
9.3 Inspection and Audit of Records. Any records or documents that Section 9.2 of this Agreement requires Professional to maintain shall be made available for inspection, audit, and/or copying at any time during regular business hours, upon oral or written request of the City. Under California Government Code Section 8546.7, if the amount of public funds expended under this Agreement exceeds TEN THOUSAND DOLLARS ($10,000.00), the Agreement shall be subject to the examination and audit of the State Auditor, at the request of City or as part of any audit of the City, for a period of three (3) years after final payment under the Agreement.
Section 10 MISCELLANEOUS PROVISIONS.
10.1 Attorneys’ Fees. If a Party to this Agreement brings any action, including an action for declaratory relief, to enforce or interpret the provision of this Agreement, the prevailing Party shall be entitled to reasonable attorneys’ fees in addition to any other relief to which that Party may be entitled. The court may set such fees in the same action or in a separate action brought for that purpose.
10.2 Venue. In the event that either Party brings any action against the other under this Agreement, the Parties agree that trial of such action shall be vested exclusively in the state courts of California in the County of Sacramento or in the United States District Court for the Eastern District of California.
10.3 Severability. If a court of competent jurisdiction finds or rules that any provision of this Agreement is invalid, void, or unenforceable, the provisions of this Agreement not so adjudged shall remain in full force and effect. The invalidity in whole or in part of any provision of this Agreement shall not void or affect the validity of any other provision of this Agreement.
10.4 No Implied Waiver of Breach. The waiver of any breach of a specific provision of this Agreement does not constitute a waiver of any other breach of that term or any other term of this Agreement.
10.5 Successors and Assigns. The provisions of this Agreement shall inure to the benefit of and shall apply to and bind the successors and assigns of the Parties.
10.6 Use of Recycled Products. Professional shall prepare and submit all reports, written studies and other printed material on recycled paper to the extent it is available at equal or less cost than virgin paper.
ITEM 12.2.
ATTACHMENT 3
Contract No. 2022-180