24 reason of the sinking payments set forth in Section 2.03(A)(iii) or any redemption of the Bonds as provided under Section 2.03(A)(i). Moneys in the Prepayment Account shall be disbursed for redemption of Bonds as instructed by the City.
In the event that amounts in the Bond Fund are insufficient to pay regularly scheduled payments of principal of and interest on the Bonds, the Fiscal Agent shall withdraw from the Reserve Fund to the extent of any funds therein, the amount of such insufficiency, and the Fiscal Agent shall provide written notice to the Assistant City Manager of the amounts so withdrawn from the Reserve Fund. Amounts so withdrawn from the Reserve Fund shall be deposited in the Bond Fund.
If, after the foregoing transfer, there are insufficient funds in the Bond Fund to make the payments provided for to pay regularly scheduled payments of principal of and interest on the Bonds, the Fiscal Agent shall apply the available funds first to the p ayment of interest on the Bonds, then to the payment of principal due on the Bonds other than by reason of sinking payments, and then to payment of principal due on the Bonds by reason of sinking payments.
Any sinking payment not made as scheduled shall be added to the sinking payment to be made on the next sinking payment date.
(C) Investment. Moneys in the Bond Fund shall be invested and deposited in accordance with Section 6.01. Interest earnings and profits resulting from such investment and deposit shall be retained in the Bond Fund to be used for the purposes of such fund.
(D) Deficiency. If ten days before any Interest Payment Date it appears to the Fiscal Agent that there is a danger of deficiency in the Bond Fund and that the Fiscal Agent may be unable to pay regularly scheduled debt service on the Bonds in a timely manner, the Fiscal Agent shall report to the Assistant City Manager such fact. The City covenants to increase the levy of the Special Taxes in the next Fiscal Year (subject to the maximum amount authorized by the Resolution of Formation) in accordance with the procedures set forth in the Act for the purpose of curing Bond Fund deficiencies.
If on any Interest Payment Date the Fiscal Agent is unable to pay principal, interest and premium, if any, due on any Interest Payment Date for the Bonds due to insufficient funds in the Bond Fund, or if funds are withdrawn from the Reserve Fund to pay principal and/or interest on the Bonds the Fiscal Agent shall notify the Assistant City Manager in writing of such fact, and the Assistant City Manager shall notify CDIAC of such fact within 10 days of such Interest Payment Date. The Fiscal Agent has no obligation under this Agreement to provide notice or disclosure to the Bondowners of insufficient funds or anticipation of deficiency in the Bond Fund.
Section 4.03. Reserve Fund.
(A) Establishment of Fund . There is hereby established as a separate fund to be held by the Fiscal Agent, known as City of Rancho Cordova “The Ranch Community Facilities District No. 2021-1 Improvement Area No. 4 of Special Tax Bonds Series 2026 Reserve Fund,” and within such fund a “2026 Reserve Account,” to the credit of which a deposit shall be made as required by Section 3.02, and deposits shall be made as provided in Section 3.03(B). A separate reserve account will be established for each series of Additional Bonds. Moneys in each reserve account shall be held in trust by the Fiscal Agent for the benefit of the Owners of the Bonds secured thereby as a reserve for the payment of principal of, and interest on, the respective Bonds and shall be subject to a lien in favor of the Owners of the respective Bonds.
ITEM 19.1.
ATTACHMENT 2
25 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: (1) a Qualified Reserve Fund Credit Instrument, and (2) an opinion of Bond Counsel stating that such release will not, of itself, cause the portion of the interest on the Bonds to become includable in gross income for purposes of federal income taxation. Upon tender of such items to the Fiscal Agent, the Fiscal Agent will transfer such funds from the Reserve Fund to the City.
(B) Use of Fund. Except as otherwise provided in this Section, all amounts deposited in each account of the Reserve Fund shall 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 within five days prior to any Interest Payment Date in the Bond Fund of the amount required for payment of the principal of, and interest on, the respective Bonds secured by the Reserve Fund on such Interest Payment Date. Whenever transfer is made from the Reserve Fund to the Bond Fund due to a deficiency in the Bond Fund, the Fiscal Agent shall provide written notice thereof to the Administrative Services Director.
(C) Transfer of Excess of Reserve Requirement . Whenever, on the Business Day prior to any Interest Payment Date, the amount in the Reserve Fund (or any account therein) exceeds the then applicable Reserve Requirement, the Fiscal Agent shall provide written notice to the Assistant City Manager of the amount of the excess and, following any transfer required pursuant to Section 4.03(D) below, shall transfer an amount equal to the excess from the Reserve Fund to the Improvement Fund, if the Project has not been completed as of the date of such transfer, or if the Project has been completed, to the Bond Fund to be used for the payment of the principal of and interest on the Bonds in accordance with Section 4.02.
(D) Transfer for Rebate Purposes. 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 Section 6.02.
(E) Transfer When Balance Exceeds Outstanding Bonds. 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 after making any transfer required under Section 4.03(D) above and upon receipt of an Officer’s Certificate directing it to do so, the Fiscal Agent shall 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, in accordance with Section 4.02 or 2.03 as applicable, of all of the Outstanding Bonds. In the event that the amount so transferred from the Reserve Fund to the Bond Fund exceeds the amount required to pay and redeem the Outstanding Bonds, the balance in the Reserve Fund shall be transferred to the City, after payment of any amounts due the Fiscal Agent hereunder, to be used for any lawful purpose of the City.
Notwithstanding the foregoing, no amounts shall be transferred from the Reserve Fund pursuant to this Section 4.03(E) until after the calculation, pursuant to Section 6.02, of any amounts due to the federal government following payment of the Bonds and withdrawal of any such amount under Section 4.03(D) for purposes of making such payment to the federal government, and payment of any fees and expenses due to the Fiscal Agent.
(F) Investment. Moneys in the Reserve Fund shall be invested and deposited in accordance with Section 6.01. 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 Requirement will be transferred to the Improvement Fund, if the Project has not been completed, or if the ITEM 19.1.
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26 Project has been completed, to the Bond Fund to be used for the payment of the principal of and interest on the Bonds secured by the Reserve Fund.
ITEM 19.1.
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27 ARTICLE V
OTHER COVENANTS OF THE CITY
Section 5.01. Punctual Payment . The City will punctually pay or cause to be paid the principal of, and interest and any premium on, the Bonds when and as due in strict conformity with the terms of this Agreement, and it will faithfully observe and perform all of the conditions covenants and requirements of this Agreement and all Supplemental Agreements and of the Bonds.
Section 5.02. Limited Obligation. The Bonds are limited obligations of the City on behalf of Improvement Area No. 4 of the District and are payable solely from and secured solely by the Special Tax Revenues and the amounts in the Bond Fund, the Reserve Fund and the Special Tax Fund created hereunder.
Section 5.03. Extension of Time for Payment . In order to prevent any accumulation of claims for interest after maturity, the City shall not, directly or indirectly, extend or consent to the extension of the time for the payment of any claim for interest on any of the Bonds and shall not, directly or indirectly, be a party to the approval of any such arrangement by purchasing or funding said claims for interest or in any other manner. In case any such claim for interest shall be extended or funded, whether or not with the consent of the City, such claim for interest so extended or funded shall not be entitled, in case of default hereunder, to the benefits of this Agreement, except subject to the prior payment in full of the principal of all of the Bonds then Outstanding and of all claims for interest which shall not have been so extended or funded.
Section 5.04. Against Encumbrances . The City will not encumber, pledge or place any charge or lien upon any of the Special Tax Revenues or other amounts pledged to the Bonds superior to or on a parity with the pledge and lien herein created for the benefit of the Bonds, except as permitted by this Agreement.
Section 5.05. Books and Accounts. The City will keep, or cause to be kept, proper books of record and accounts, separate from all other records and accounts of the City, in which complete and correct entries shall be made of all transactions relating to the expenditure of amounts disbursed from the Special Tax Fund and to the Special Tax Revenues. Such books of record and accounts shall at all times during business hours be subject to the inspection of the Owners of not less than ten percent (10%) of the principal amount of the Bonds then Outstanding, or their representatives duly authorized in writing.
The Fiscal Agent will keep, or cause to be kept, proper books of record and accounts, separate from all other records and accounts of the Fiscal Agent, in which complete and correct entries shall be made of all transactions of the Fiscal Agent relating to the expenditure of amounts disbursed from funds and accounts held by the Fiscal Agent hereunder. Such books of record and accounts shall at all times during business hours and upon reasonable prior notice, be subject to the inspection of the City and the Owners of not less than ten percent (10%) of the principal amount of the Bonds then Outstanding, or their representatives duly authorized in writing.
Section 5.06. Protection of Security and Rights of Owners . The City will preserve and protect the security of the Bonds and the rights of the Owners, and will warrant and defend their rights against all claims and demands of all persons. From and after the delivery of any of the Bonds by the City, the Bonds shall be incontestable by the City.
ITEM 19.1.
ATTACHMENT 2
28 Section 5.07. Compliance with Law; Completion of Project. The City will comply with all applicable provisions of the Act and the law in completing the acquisition and construction of the Project; provided that the City shall have no obligation to advance any funds to complete the Project in excess of the amounts available therefor in the Improvement Fund.
Section 5.08. Private Activity Bond Limitation. The City shall assure that the proceeds of the Bonds are not so used as to cause the Bonds to satisfy the private business tests of Section 141(b) of the Code or the private loan financing test of Section 141(c) of the Code.
Section 5.09. Federal Guarantee Prohibition. The City shall not take any action or permit or suffer any action to be taken if the result of the same would be to cause any of the Bonds to be “federally guaranteed” within the meaning of Section 149(b) of the Code.
Section 5.10. Collection of Special Tax Revenues . The City shall comply with all requirements of the Act so as to assure the timely collection of Special Tax Revenues, including without limitation, the enforcement of delinquent Special Taxes.
On or within five Business Days of each June 1, the Fiscal Agent shall provide the Assistant City Manager with a notice stating the amount then on deposit in the Bond Fund and the Reserve Fund. The receipt of such notice by the Assistant City Manager shall in no way affect the obligations of the Assistant City Manager under the following two paragraphs. Upon receipt of such notice, the Assistant City Manager shall ascertain the relevant parcels on which the Special Taxes are to be levied, taking into account any parcel splits during the preceding and then current year.
The City shall effect the levy of the Special Taxes each Fiscal Year in accordance with the Ordinance such that the computation of the levy is complete before the final date on which the County Auditor will accept the transmission of the Special Tax amount s for the parcels within Improvement Area No. 4 for inclusion on the next secured real property tax roll. Upon the completion of the computation of the amounts of the levy, the City shall prepare or cause to be prepared, and shall transmit to the Administrative Services Director, such data as the Coun ty Auditor requires to include the levy of the Special Taxes on the next secured real property tax roll.
The City shall fix and levy the amount of Special Taxes within Improvement Area No. 4 required for the payment of principal of and interest on any Outstanding Bonds becoming due and payable during the ensuing year, including any necessary replenishment or expenditure of the Reserve Fund for the Bonds and an amount estimated to be sufficien t to pay the Administrative Expenses during such year, all in accordance with the Rate and Method and the Ordinance.
The Special Taxes shall be payable and be collected in the same manner and at the same time and in the same installment as the general taxes on real property are payable, and have the same priority, become delinquent at the same times and in the same proportionate amounts and bear the same proportionate penalties and interest after delinquency as do the general taxes on real property. Notwithstanding the foregoing, the Special Taxes may be collected in such other manner as the City shall prescribe if necessary to pay the debt service on the Bonds.
Section 5.11. Further Assurances . The City will adopt, make, execute and deliver any and all such further resolutions, instruments and assurances as may be reasonably necessary or proper to carry out the intention or to facilitate the performance of this Agreement, and for the better as suring and confirming unto the Owners of the rights and benefits provided in this Agreement.
ITEM 19.1.
ATTACHMENT 2
29 Section 5.12. No Arbitrage . The City shall not take, or permit or suffer to be taken by the Fiscal Agent or otherwise, any action with respect to the gross proceeds of the Bonds which if such action had been reasonably expected to have been taken, or had been deliberately and intentionally taken, on the Closing Date would have caused the Bonds to be “arbitrage bonds” within the meaning of Section 148 of the Code and Regulations.
Section 5.13. Maintenance of Tax-Exemption. The City shall take all actions necessary to assure the exclusion of interest on the Bonds from the gross income of the Owners of the Bonds to the same extent as such interest is permitted to be excluded from gross income under the Code as in effect on the date of issuance of the Bonds.
Section 5.14. Annual State Reports . The following requirements shall apply to the Bonds:
(A) Annual Reporting. Not later than October 30 of each calendar year, beginning with the October 30 first succeeding the date of the Bonds, and in each calendar year thereafter until the October 30 following the final maturity of the Bonds, the Assistant City Manager shall prepare and supply the California Debt and Investment Advisory Commission, by mail, postage prepaid, with the information required under Section 53359.5(c) of the Act. The annual reporting shall be made using such form or forms as may be prescribed by CDIAC.
(B) Other Reporting. If within 10 days prior to any Interest Payment Date it appears to the Fiscal Agent that there is a danger of deficiency in the Bond Fund and that the Fiscal Agent may be unable to pay regularly scheduled debt service on the Bonds in a timely manner or if the Fiscal Agent is unable to pay principal, interest and premium, if any, due on any Interest Payment Date for the Bonds due to insufficient funds in the Bond Fund, or if funds are withdrawn from the Reserve Fund to pay principal and/or interest on the Bonds, the Assistant City Manager shall make the reports required under Section 4.02(D) hereof.
(C) Amendment. The reporting requirements of this Section 5.14 shall be amended from time to time, without action by the City or the Fiscal Agent, to reflect any amendments to Section 53359.5(b) or Section 53359.5(c) of the Act.
(D) No Liability . None of the City and its officers, agents and employees, the Assistant City Manager or the Fiscal Agent shall be liable for any inadvertent error in reporting the information required by this Section 5.14.
Section 5.15. Covenant to Foreclose. The City hereby covenants with and for the benefit of the Owners of the Bonds that it will annually on or before September 1 of each year review the public records of the County of Sacramento 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 deficient it will enforce the lien of the Special Taxes by commencing, or cause to be commenced, foreclosure proceedings to judgment and sale in such manner and upon such timing as advised by legal counsel, taking into account the amounts delinquent, the estimate cost of legal proceedings, the status of Special Tax collections and available debt service reserves, under the following circumstances:
ITEM 19.1.
ATTACHMENT 2
30 (a) if the amount so collected is deficient by more than 5% of the total amount of the Special Tax levied in such Fiscal Year, it will enforce the lien on all delinquent parcels; or
(b) if property owned by any single property owner in Improvement Area No. 4 is delinquent on f our or more consecutive semi- annual Special Tax installments (irrespective of the total delinquencies in Improvement Area No. 4) it will enforce the lien against such property.
Additionally, notwithstanding any of the foregoing, in certain instances the amount of a Special Tax delinquency on a particular parcel in relation to the cost of appropriate foreclosure proceedings may be such that the costs do not warrant the foreclosure proceedings costs. In such cases, the City shall pursue collection efforts but foreclosure proceedings may be delayed by the City until there are sufficient Special Tax delinquencies accruing to such parcel (including penalties thereon) to warrant the cost of such foreclosure proceedings.
Section 5.16. Continuing Disclosure to Owners. The City hereby covenants and agrees that it will comply with and carry out all of the provisions of the Continuing Disclosure Certificate.
Notwithstanding any other provision of this Agreement, failure of the City to comply with the Continuing Disclosure Ce rtificate shall not be considered a default hereunder; however, any Participating Underwriter or any holder or beneficial owner of the Bonds may take such actions as may be necessary and appropriate to compel performance by the City of its obligations thereunder, including seeking mandate or specific performance by court order.
Section 5.17. Additional Bonds.
(a) Issuance of Additional Series of Bonds. In addition to the 2026 Bonds, the City may, by a Supplemental Agreement, authorize the issuance of Additional Bonds, payable from Special Taxes and secured, unless otherwise provided in the Supplemental Agreement, by the Special Tax Revenues equally and ratably with the 2026 Bonds, and the City may issue, and the Fiscal Agent may authenticate and deliver to the purchaser thereof, Additional Bonds so established, in such principal amount as shall be determined by the City, but only upon compliance by the City with the requirements set forth in the Supplemental Agreement, and subject to the following specific conditions, which are hereby made c onditions precedent to the issuance of any such series of Additional Bonds:
(i) No default in the Bonds shall have occurred and then be continuing.
(ii) 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 a reserve requirement with respect to such Additional Bonds.
(iii) The Bonds of such Series shall be payable as to principal on September 1 in each year in which principal becomes due, and shall be payable as to interest semiannually on March 1 and September 1.
(iv) For each Bond Year tha t the Additional Bonds will be Outstanding, projected Special Tax Revenues in each Fiscal Year if levied at the Maximum Special Tax (as defined in the Rate and Method) rates, net of the Administrative Expense Priority, is equal to or greater than 110% of Debt Service due in the Bond Year that begins in the ITEM 19.1.
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31 corresponding Fiscal Year (excluding any Debt Service payable from capitalized interest funded by such Additional Bonds); and
(v) After giving effect to the issuance of the Additional Bonds , the aggregate value of all parcels in the District 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 Bonds, 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) a portion of the aggregate principal amount of all bonds issued under the Mello-Roos Act 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. 4 (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. 4 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 within Improvement Area No. 4 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 change is to occur), based upon information from the most recent available fiscal year.
Additional Bonds may be issued for the purpose of refunding any outstanding Bonds without meeting the foregoing clauses (iv) and (v), so long as debt service on the refunding Bonds in each Bond Year is less than debt service on the Bonds refunded.
Nothing in this Section or in this Agreement contained shall prevent or be construed to prevent the Supplemental Agreement providing for the (i) issuance of Additional Bonds from pledging or otherwise providing, (i) in addition to the security given or intended to be given by this Agreement, additional security for the benefit of such Additional Bonds or any portion thereof, or (ii) issuance of bonds secured by Special Taxes on a basis subordinate to the pledge securing the Bonds.
(b) Proceedings for Issuance of Additional Series of Bonds. Whenever the City shall determine to issue an additional Series of Bonds, the City shall authorize the execution of a Supplemental Agreement specifying the principal amount and prescribing the forms of Bonds of such additional Series and providing the te rms, conditions, distinctive designation, denominations, methods of numbering, date, maturity date or dates, interest rate or rates (or the manner of determining same), interest payment dates, redemption provisions (including the amount and dates of Sinking Fund Payments, if any), place or places of payment of principal or redemption price, if any, application of the proceeds thereof and any other provisions respecting the Bonds of such Series not inconsistent with the terms of this Fiscal Agent Agreement.
Before such additional Series of Bond shall be issued and delivered, the Fiscal Agent shall receive a Certificate of the City stating that, to the best knowledge of the City after reasonable investigation, the requirement s of Section 5.17(a) are met, and the City shall file the following documents with the Fiscal Agent:
(i) an executed copy of the Supplemental Agreement authorizing such Series.
ITEM 19.1.
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32 (ii) a certificate of an independent special tax consultant showing that the requirements of clause (A) of subsection (vii) of Section 5.17(a) are satisfied.
(iii) a valuation of taxable property within the District, showing that the requirements of clause (B) of subsection (vi) of Section 5.17(a) are satisfied.
(iv) an Opinion of Counsel that the execution of the Supplemental Agreement has been duly authorized by the City in accordance with this Fiscal Agent Agreement; that all actions required to be taken by the City with respect to the issuance of the additional Series of Bonds have been taken; that such Series, when duly executed by the City and authenticated and delivered by the Fiscal Agent, will be valid and binding limited obligations of the City; that upon the delivery by the Fiscal Agent, will be valid and binding limited obligations of the City; that upon the delivery of such Series the aggregate principal amount of Bonds then Outstanding will not exceed the amount permitted by law or by the Fiscal Agent Agreement; and that the issuance of such Series will not cause the interest on any Bonds previously issued to be includable in the gross income of any Bonds for purposes of federal income taxation.
Section 5.18. Yield of the Bonds. In determining the yield of the Bonds to comply with Section 5.13 and 6.02 hereof, the City will take into account optional and mandatory prepayment redemption (including premium, if any) in advance of maturity based on the reasonable expectations of the City, as of the Closing, without regard to whether or not redemption moneys are received or Bonds are redeemed.
ITEM 19.1.
ATTACHMENT 2
33 ARTICLE VI
INVESTMENTS; DISPOSITION OF INVESTMENT PROCEEDS;
LIABILITY OF THE CITY
Section 6.01. Deposit and Investment of Moneys in Funds. Subject in all respects to the provisions of Section 6.02, moneys in any fund or account created or established by this Agreement and held by the Fiscal Agent, shall be invested by the Fiscal Agent in Permitted Investments, as directed pursuant to an Officer’s Certificate filed with the Fiscal Agent at least two (2) Business Days in advance of the making of such investments. In the absence of any such Officer’s Certificate, the Fiscal Agent shall invest any such moneys in Permitted Investments described in clause (vii) of the definition thereof which by their terms mature prior to the date on which such moneys are required to be paid out hereunder. Subject in all respects to the provisions of Section 6.02, moneys in any fund or account created or establ ished by this Agreement and held by the Assistant City Manager shall be invested by the Assistant City Manager in any lawful investments that the City may make, which by their terms mature prior to the date on which such moneys are required to be paid out hereunder. Obligations purchased as an investment of moneys in any fund shall be deemed to be part of such fund or account, subject, however, to the requirements of this Agreement for transfer of interest earnings and profits resulting from investment of amounts in funds and accounts.
The Fiscal Agent or Assistant City Manager may act as principal or agent in the acquisition or disposition of any investment. Neither the Fiscal Agent nor the Assistant City Manager shall incur any liability for losses arising from any investments made pursuant to this Section. Any losses arising from any investments made pursuant to this Section shall be offset against interest earnings and profits retained in the same fund.
Except as otherwise provided in the next sentence, all investments of amounts deposited in any fund or account created by or pursuant to this Agreement, or otherwise containing gross proceeds of the Bonds (within the meaning of Section 148 of the Code), shall be acquired, disposed of, and valued (as of the date that valuation is required by this Agreement or the Code) at Fair Market Value. For purposes of any Fair Market Value determination hereunder, the Fiscal Agent shall be entitled to conclusively rely on an Officer’s Certificate of the City and shall be fully protected in relying thereon. Investments in funds or accounts (or portions thereof) that are subject to a yield restriction under applicable provisions of the Code and (unless valuation is undertaken at least annually) investments in the Reserve Fund shall be valued at their present value (within the meaning of Section 148 of the Code).
Investments in any and all funds and accounts may be commingled in a separate fund or funds for purposes of making, holding and disposing of investments, notwithstanding provisions herein for transfer to or holding in or to the credit of particular funds o r accounts of amounts received or held by the Fiscal Agent or the Assistant City Manager hereunder, provided that the Fiscal Agent or the Administrative Services Director, as applicable, shall at all times account for such investments strictly in accordance with the funds and accounts to which they are credited and otherwise as provided in this Agreement.
The Fiscal Agent or the Administrative Services Director, as applicable, shall sell or present for redemption, any investment security whenever it shall be necessary to provide moneys to meet any required payment, transfer, withdrawal or disbursement from the fund or account to which such investment security is credited and neither the Fiscal Agent nor the ITEM 19.1.
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34 Assistant City Manager shall be liable or responsible for any loss resulting from the acquisition or disposition of such investment security in accordance herewith.
The City acknowledges that to the extent regulations of the Comptroller of the Currency or other applicable regulatory entity grant the City the right to receive brokerage confirmations of security transactions as they occur, the City specifically waives r eceipt of such confirmations to the extent permitted by law. The Fiscal Agent will furnish the City periodic cash transaction statements which include detail for all investment transactions made by the Fiscal Agent hereunder.
Section 6.02. Rebate of Excess Investment Earnings to the United States . The City covenants to calculate and rebate to the federal government, in accordance with the Regulations, excess investment earnings to the extent required by Section 148(f) of the Code.
The City shall notify the Fiscal Agent of any amounts determined to be due to the federal government, and the Fiscal Agent shall, upon receipt of an Officer’s Certificate of the City, withdraw such amounts from the Reserve Fund pursuant to Section 4.03(D), and pay such amounts to the federal government as required by the Code and the Regulations. In the event of any shortfall in amounts available to make such payments under Section 4.03(D), the Fiscal Agent shall notify the Assistant City Manager in writing of the amount of the shortfall and the Assistant City Manager shall make such payment from any amounts available in the Special Tax Fund. Any fees or expenses incurred by the Fiscal Agent or the City under or pursuant to this Section 6.02 shall be Administrative Expenses.
In order to provide for the administration of this Section 6.02, the City may provide for the employment of independent attorneys, accountants and consultants compensated on such reasonable basis as the City may deem appropriate.
Section 6.03. Limited Obligation. The City’s obligations hereunder are limited obligations of the City on behalf of Improvement Area No. 4 of the District and are payable solely from and secured solely by the Special Tax Revenues and the amounts in the Special Tax Fund, the Bond Fund and the Reserve Fund created hereunder.
ITEM 19.1.
ATTACHMENT 2
35 ARTICLE VII
THE FISCAL AGENT
Section 7.01. Appointment of Fiscal Agent . U.S. Bank Trust Company, National Association, at its Principal Office, is hereby appointed Fiscal Agent for the Bonds. The Fiscal Agent undertakes to perform such duties, and only such duties, as are specifically set forth in this Agreement, and no implied covenants or obligations shall be read into this Agreement against the Fiscal Agent.
Any company into which the Fiscal Agent may be merged or converted or with which it may be consolidated or any company resulting from any merger, conversion or consolidation to which it shall be a party or any company to which the Fiscal Agent may sell or transfer all or substantially all of its corporate trust business, provided such company shall be eligible under the following paragraph of this Section, shall be the successor to such Fiscal Agent without the execution or filing of any paper or any further act, anything herein to the contrary notwithstanding.
The City may remove the Fiscal Agent initially appointed, and any successor thereto, and may appoint a successor or successors thereto, but any such successor shall be a bank or trust company having a combined capital (exclusive of borrowed capital) and surplus of at least $50,000,000, including, for such purpose, the combined capital and surplus of any parent holding company, and subject to supervision or examination by federal or state authority. If such bank or trust company publishes a report of condit ion at least annually, pursuant to law or to the requirements of any supervising or examining authority above referred to, then for the purposes of this Section 7.01, combined capital and surplus of such bank or trust company shall be deemed to be its comb ined capital and surplus as set forth in its most recent report of condition so published.
The Fiscal Agent may at any time resign by giving written notice to the City and by giving to the Owners notice by mail of such resignation. Upon receiving notice of such resignation, the City shall promptly appoint a successor Fiscal Agent by an instrument in writing. Any resignation or removal of the Fiscal Agent shall become effective upon acceptance of appointment by the successor Fiscal Agent.
If no appointment of a successor Fiscal Agent shall be made pursuant to the foregoing provisions of this Section within 30 days after the Fiscal Agent shall have given to the City written notice or after a vacancy in the office of the Fiscal Agent shall ha ve occurred by reason of its inability to act, the Fiscal Agent or any Bondowner may apply to any court of competent jurisdiction to appoint a successor Fiscal Agent. Said court may thereupon, after such notice, if any, as such court may deem proper, appoint a successor Fiscal Agent.
Section 7.02. Liability of Fiscal Agent. The recitals of facts, covenants and agreements herein and in the Bonds contained shall be taken as statements, covenants and agreements of the City, and the Fiscal Agent assumes no responsibility for the correctness of the same, or makes any representations as to the validity or sufficiency of this Agreement or of the Bonds, or shall incur any responsibility in respect thereof, other than in connection with the duties or obligations herein or in the Bonds assigned to or imposed upon it. The Fiscal Agen t shall not be liable in connection with the performance of its duties hereunder, except for its own negligence or willful default. The Fiscal Agent assumes no responsibility or liability for any information, statement or recital in any offering memorandu m or other disclosure material prepared or distributed with ITEM 19.1.
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36 respect to the issuance of the Bonds. The Fiscal Agent has no liability regarding the use of the proceeds from the purchase of the Bonds deposited in funds held by the City.
In the absence of bad faith, the Fiscal Agent may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Fiscal Agent and conforming to the requirements of this Agreement, including all Officer’s Certificates of the City meeting such requirements; but in the case of any such certificates or opinions by which any provision hereof are specifically required to be furnished to the Fiscal Agent, the Fiscal Agent shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Agreement. Except as provided above in this paragraph, the Fiscal Agent shall be protected and shall incur no liability in acting or proceeding, or in not acting or not proceeding, in good faith, reasonably and in accordance with the terms of this Agreement, upon any resolution, order, notice, request, consent or waiver, certificate, statement, affidavit, or other paper or document which it shall in good faith reasonably believe to be genuine and to have been adopted or signed by the proper person or to have been prepared and furnished pursuant to any provision of this Agreement, and the Fiscal Agent shall not be under any duty to make any investigation or inquiry as to any statements contained or matters referred to in any such instrument.
The Fiscal Agent shall not be liable for any error of judgment made in good faith by a responsible officer unless it shall be proved that the Fiscal Agent was negligent in ascertaining the pertinent facts.
No provision of this Agreement shall require the Fiscal Agent to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it.
The Fiscal Agent shall be under no obligation to exercise any of the rights or powers vested in it by this Agreement at the request or direction of any of the Owners pursuant to this Agreement unless such Owners shall have offered to the Fiscal Agent reaso nable security or indemnity against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction.
The Fiscal Agent may become the owner of the Bonds with the same rights it would have if it were not the Fiscal Agent.
Section 7.03. Information. The Fiscal Agent shall provide to the City such information relating to the Bonds and the funds and accounts maintained by the Fiscal Agent hereunder as the City shall reasonably request, including but not limited to quarterly statements reporting funds held and transactions by the Fiscal Agent.
Section 7.04. Notice to Fiscal Agent . The Fiscal Agent may rely and shall be protected in acting or refraining from acting upon any Officer’s Certificate, notice, resolution, request, consent, order, certificate, report, warrant, Bond or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or proper parties and given in accordance with the requirements hereof. The Fiscal Agent may execute any of the powers hereunder or perform any duties hereunder either directly or by or through agen ts or attorneys and the Fiscal Agent shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder. The Fiscal Agent may consult with ITEM 19.1.
ATTACHMENT 2
37 counsel, who may be counsel to the City, with regard to legal questions, and the opinion of such counsel shall be full and complete authorization and protection in respect of any action taken or suffered by it hereunder in good faith and in accordance therewith.
The Fiscal Agent shall not be bound to recognize any person as the Owner of a Bond unless and until such Bond is submitted for inspection, if required, and his title thereto satisfactorily established, if disputed.
Whenever in the administration of its duties under this Agreement the Fiscal Agent shall deem it necessary or desirable that a matter be proved or established prior to taking or suffering any action hereunder, such matter (unless other evidence in respect thereof be herein specifically prescribed) may, in the absence of willful misconduct on the part of the Fiscal Agent, be deemed to be conclusively proved and established by a certificate of the City, and such certificate shall be full warrant to the Fiscal Agent for any action taken or suffered under the provisions of this Agreement or any Supplemental Agreement upon the faith thereof, but in its discretion the Fiscal Agent may, in lieu thereof, accept other evidence of such matter or may require such additional evidence as to it may seem reasonable.
Section 7.05. Compensation, Indemnification . The City shall pay to the Fiscal Agent, but only from Special Tax Revenues, from time to time reasonable compensation for all services rendered as Fiscal Agent under this Agreement, and also all reasonable expenses, charges, counsel fees and other disbursements, including those of their attorneys, agents and employees, incurred in and about the performance of their powers and duties under this Agreement, but the Fiscal Agent shall not have a lien therefor on any funds at any time held by it under this Agreement. The City further agrees, to the extent permitted by applicable law, and only from Special Tax Revenues as the source of funds, to indemnify and save the Fiscal Agent, its officers, employees, directors and agents harmless against any costs, claim s, expenses or liabilities, including, without limitation, fees and expenses of its attorneys which it may incur in the exercise and performance of its powers and duties hereunder which are not due to its negligence or willful misconduct. The obligation o f the City under this Section shall survive resignation or removal of the Fiscal Agent under this Agreement and payment of the Bonds and discharge of this Agreement.
ITEM 19.1.
ATTACHMENT 2
38 ARTICLE VIII
MODIFICATION OR AMENDMENT OF THIS AGREEMENT
Section 8.01. Amendments Permitted . This Agreement and the rights and obligations of the City and of the Owners of the Bonds may be modified or amended at any time by a Supplemental Agreement pursuant to the affirmative vote at a meeting of Owners, or with the written consent without a meeting, of the Owners of at least 60% in aggregate principal amount of the Bonds then Outstanding, exclusive of Bonds disqualified as provided in Section 8.04. No such modification or amendment shall (i) extend the maturity of any Bond or reduce the interest rate thereon, or otherwise alter or impair the obligation of the City to pay the principal of, and the interest and any premium on, any Bond, without the express consent of the Owner of such Bond, or (ii) permit the creation by the City of any pledge or lien upon the Special Taxes superior to or on a parity with the pledge and lien created for the benefit of the Bonds (except as otherwise permitted by the Act, the laws of the State of California or this Agreement), or reduce the percentage of Bonds required for the amendment hereof. No such amendment may modify any of the rights or obligations of the Fiscal Agent without its written consent.
This Agreement and the rights and obligations of the City and of the Owners may also be modified or amended at any time by a Supplemental Agreement, without the consent of any Owners, only to the extent permitted by law and only for any one or more of the following purposes:
(A) to add to the covenants and agreements of the City in this Agreement contained, other covenants and agreements thereafter to be observed, or to limit or surrender any right or power herein reserved to or conferred upon the City;
(B) to make modifications not adversely affecting any outstanding series of Bonds of the City in any material respect;
(C) to make such provisions for the purpose of curing any ambiguity, or of curing, correcting or supplementing any defective provision contained in this Agreement, or in regard to questions arising under this Agreement, as the City and the Fiscal Agent may deem necessary or desirable, and which shall not adversely affect the rights of the Owners of the Bonds; or
(D) to make such additions, deletions or modifications as may be necessary or desirable to assure compliance with Section 148 of the Code relating to required rebate of excess investment earnings to the United States or otherwise as may be necessary to assure exclusion from gross income for federal income tax purposes of interest on the Bonds or to conform with the Regulations;
(E) to facilitate the issuance of Additional Bonds, to the extent permitted by Section 5.17.
Section 8.02. Owners’ Meetings. The City may at any time call a meeting of the Owners.
In such event the City is authorized to fix the time and place of said meeting and to provide for the giving of notice thereof and to fix and adopt rules and regulations for the conduct of said meeting.
ITEM 19.1.
ATTACHMENT 2
39 Section 8.03. Procedure for Amendment with Written Consent of Owners. The City and the Fiscal Agent may at any time enter into a Supplemental Agreement amending the provisions of the Bonds or of this Agreement or any Supplemental Agreement, to the extent that such amendment is permitted by Section 8.01, to take effect when and as provided in this Section. A copy of such Supplemental Agreement, together with a request to Owners for their consent thereto, if such consent is required under Section 8.01, shall be mailed by first class mail, by the Fiscal Agent to each Owner o f Bonds Outstanding, but failure to mail copies of such Supplemental Agreement and request shall not affect the validity of the Supplemental Agreement when assented to as in this Section provided.
If consent of the Owners is required under Section 8.01, such Supplemental Agreement shall not become effective unless there shall be filed with the Fiscal Agent the written consents of the Owners of at least 60% in aggregate principal amount of the Bonds then Outstanding (exclusive of Bonds disqualified as provided in Section 8.04) and a notice shall have been mailed as hereinafter in this Section provided. Each such consent shall be effective only if accompanied by proof of ownership of the Bonds for whi ch such consent is given, which proof shall be such as is permitted by Section 9.04. Any such consent shall be binding upon the Owner of the Bonds giving such consent and on any subsequent Owner (whether or not such subsequent Owner has notice thereof) unless such consent is revoked in writing by the Owner giving such consent or a subsequent Owner by filing such revocation with the Fiscal Agent prior to the date when the notice hereinafter in this Section provided for has been mailed.
After the Owners of the required percentage of Bonds shall have filed their consents to the Supplemental Agreement, the City shall mail a notice to the Owners in the manner hereinbefore provided in this Section for the mailing of the Supplemental Agreement, stating in substance that the Supplemental Agreement has been consented to by the Owners of the required percentage of Bonds and will be effective as provided in this Section (but failure to mail copies of said notice shall not affect the validity of the Supplemental Agreement or consents thereto). Proof of the mailing of such notice shall be filed with the Fiscal Agent. A record, consisting of the papers required by this Section 8.03 to be filed with the Fiscal Agent, shall be proof of the matters therein stated until the contrary is proved. The Supplemental Agreement shall become effective upon the filing with the Fiscal Agent of the proof of mailing of such notice, and the Supplemental Agreement shall be deemed conclusively binding (except as otherwi se herein above specifically provided in this Article) upon the City and the Owners of all Bonds at the expiration of 60 days after such filing, except in the event of a final decree of a court of competent jurisdiction setting aside such consent in a lega l action or equitable proceeding for such purpose commenced within such 60-day period.
Section 8.04. Disqualified Bonds . Bonds owned or held for the account of the City, excepting any pension or retirement fund, shall not be deemed Outstanding for the purpose of any vote, consent or other action or any calculation of Outstanding Bonds provided for in this Article VIII, and shall not be entitled to vote upon, consent to, or take any other action provided for in this Article VIII. Upon request, the City shall provide an Officer’s Certificate to the Fiscal Agent listing those Bonds which are disqualified pursuant to this Section 8.04.
Section 8.05. Effect of Supplemental Agreement . From and after the time any Supplemental Agreement becomes effective pursuant to this Article VIII, this Agreement shall be deemed to be modified and amended in accordance therewith, the respective rights, duties and obligations under this Agreement of the City and all Owners of Bonds Outstanding shall thereafter be determined, exercised and enforced hereunder subject in all respects to such modifications and amendments, and all the terms and conditions of any such Supplemental ITEM 19.1.
ATTACHMENT 2
40 Agreement shall be deemed to be part of the terms and conditions of this Agreement for any and all purposes.
Section 8.06. Endorsement or Replacement of Bonds Issued After Amendments . The City may determine that Bonds issued and delivered after the effective date of any action taken as provided in this Article VIII shall bear a notation, by endorsement or otherwise, in form approved by the City, as to such action. In that case, upon demand of the Owner of any Bond Outstanding at such effective date and presentation of his Bond for that purpose at the Principal Office of the Fiscal Agent or at such other office as the City may select and designate for that purpose, a suitable notation shall be made on such Bond. The City may determine that new Bonds, so modified as in the opinion of the City is necessary to conform to such Owners’ action, shall be prepared, executed and delivered. In that case, upon demand of the Owner of any Bonds then Outstanding, such new Bonds shall be exchanged at the Principal Office of the Fiscal Agent without cost to any Owner, for Bonds then Outstanding, upon surrender of such Bonds.
Section 8.07. Amendatory Endorsement of Bonds . The provisions of this Article VIII shall not prevent any Owner from accepting any amendment as to the particular Bonds held by him, provided that due notation thereof is made on such Bonds.
Section 8.08. Opinion of Counsel Regarding Supplemental Agreement . The Fiscal Agent shall be furnished an opinion of counsel that any Supplemental Agreement entered into by the City and the Fiscal Agent complies with the provisions of this Article VIII, and the Fiscal Agent may conclusively rely upon such opinion.
ITEM 19.1.
ATTACHMENT 2
41 ARTICLE IX
MISCELLANEOUS
Section 9.01. Benefits of Agreement Limited to Parties . Nothing in this Agreement expressed or implied, is intended to give to any person other than the City, the Fiscal Agent and the Owners, any right, remedy, claim under or by reason of this Agreement. Any covenants, stipulations, promises or agreements in this Agreement contained by and on behalf of the City shall be for the sole and exclusive benefit of the Owners and the Fiscal Agent.
Section 9.02. Successor is Deemed Included in All References to Predecessor .
Whenever in this Agreement or any Supplemental Agreement either the City or the Fiscal Agent is named or referred to, such reference shall be deemed to include the successors or assigns thereof, and all the covenants and agreements in this Agreement contained by or on behalf of the City or the Fiscal Agent shall bind and inure to the benefit of the respective successors and assigns thereof whether so expressed or not.
Section 9.03. Discharge of Agreement . If the City shall pay and discharge the entire indebtedness on all or any portion of the Bonds Outstanding in any one or more of the following ways:
(A) by well and truly paying or causing to be paid the principal of, and interest and any premium on, such Bonds Outstanding, as and when the same become due and payable;
(B) by depositing with the Fiscal Agent or other fiduciary, at or before maturity, money which, together with (in the event that all of the Bonds are to be defeased) the amounts then on deposit in the funds and accounts provided for in Sections 4.02 and
4.03, is fully sufficient to pay such Bonds Outstanding, including all principal, interest and redemption premiums; or
(C) by irrevocably depositing with the Fiscal Agent or other fiduciary, cash and Federal Securities in such amount as the City shall determine as confirmed by an independent certified public accountant will, together with the interest to accrue thereon and (in the event that all of the Bonds are to be defeased) moneys then on deposit in the fund and accounts provided for in Sections 4.02 and 4.03, be fully sufficient to pay and discharge the indebtedness on such Bonds (including all principal, interest and redemption premiums) at or before their respective maturity dates;
and if such Bonds are to be redeemed prior to the maturity thereof notice of such redemption shall have been given as in this Agreement provided or provision satisfactory to the Fiscal Agent shall have been made for the giving of such notice, then, at the election of the City, and notwithstanding that any Bonds shall not have been surrendered for payment, the pledge of the Special Taxes and other funds provided for in this Agreement and all other obligations of the City under this Agreement with respect to such Bonds Outstanding shall cease and terminate, except only the obligations of the City under Section 5.13 and to pay or cause to be paid to the Owners of the Bonds not so surrendered and paid all sums due thereon and all amounts owing to the Fiscal Agent pursuant to Section 7.05; and thereafter Special Taxes shall not be payable to the Fiscal Agent. Notice of such election shall be filed with the Fiscal Agent.
ITEM 19.1.
ATTACHMENT 2
42 Any funds thereafter held by the Fiscal Agent upon payments of all fees and expenses of the Fiscal Agent, which are not required for said purpose, shall be paid over to the City.
Section 9.04. Execution of Documents and Proof of Ownership by Owners. Any request, declaration or other instrument which this Agreement may require or permit to be executed by Owners may be in one or more instruments of similar tenor, and shall be executed by Owners in person or by their attorneys appointed in writing.
Except as otherwise herein expressly provided, the fact and date of the execution by any Owner or his attorney of such request, consent, declaration or other instrument, or of such writing appointing such attorney, may be proved by the certificate of any notary public or other officer authorized to take acknowledgments of deeds to be recorded in the state in which he purports to act, that the person signing such request, declaration or other instrument or writing acknowledged to him the execution thereof, or by an affidavit of a witness of such execution, duly sworn to before such notary public or other officer.
Except as otherwise herein expressly provided, the ownership of registered Bonds and the amount, maturity, number and date of holding the same shall be proved by the registry books.
Any request, consent, declaration or other instrument or writing of the Owner of any Bond shall bind all future Owners of such Bond in respect of anything done or suffered to be done by the City or the Fiscal Agent in good faith and in accordance therewith.
Section 9.05. Waiver of Personal Liability. No member, officer, agent or employee of the City shall be individually or personally liable for the payment of the principal of, or interest or any premium on, the Bonds; but nothing herein contained shall relieve any such member, officer, agent or employee from the performance of any official duty provided by law.
Section 9.06. Notices to and Demands on City and Fiscal Agent. Any notice or demand which by any provision of this Agreement is required or permitted to be given or served by the Fiscal Agent to or on the City may be given or served by being deposited postage prepaid in a post office letter box, by overnight courie r or by facsimile (with receipt confirmed by telephone) addressed (until another address is filed by the City with the Fiscal Agent) as follows:
City of Rancho Cordova
2729 Prospect Park Drive
Rancho Cordova, California 95670
Attention: Administrative Services Director
Any notice or demand which by any provision of this Agreement is required or permitted to be given or served by the City to or on the Fiscal Agent may be given or served by being deposited postage prepaid in a post office letter box, by overnight courier o r by facsimile (with receipt confirmed by telephone) addressed (until another address is filed by the Fiscal Agent with the City) as follows:
ITEM 19.1.
ATTACHMENT 2
43 U.S. Bank Trust Company, National Association
633 W. 5th St.
Los Angeles, CA 90071
Attention: Global Corporate Trust
Section 9.07. Partial Invalidity. If any Section, paragraph, sentence, clause or phrase of this Agreement shall for any reason be held illegal or unenforceable, such holding shall not affect the validity of the remaining portions of this Agreement. The City hereby declares that it woul d have adopted this Agreement and each and every other Section, paragraph, sentence, clause or phrase hereof and authorized the issue of the Bonds pursuant thereto irrespective of the fact that any one or more Sections, paragraphs, sentences, clauses, or phrases of this Agreement may be held illegal, invalid or unenforceable.
Section 9.08. Unclaimed Moneys . Anything contained herein to the contrary notwithstanding, any moneys held by the Fiscal Agent in trust for the payment and discharge of the principal of, and the interest and any premium on, the Bonds which remains unclaimed for two (2) years after the date when the payments of such principal, interest and premium have become payable, if such moneys was held by the Fiscal Agent at such date, shall be repaid by the Fiscal Agent to the City as its absolute property free from any trust, and the Fiscal Agent shall thereupon be released and discharged with respect thereto and the Bond Owners shall look only to the City for the payment of the principal of, and interest and any premium on, such Bonds.
Section 9.09. Applicable Law . This Agreement shall be governed by and enforced in accordance with the laws of the State of California applicable to contracts made and performed in the State of California.
Section 9.10. Conflict with Act. In the event of a conflict between any provision of this Agreement with any provision of the Act as in effect on the Closing Date, the provision of the Act shall prevail over the conflicting provision of this Agreement.
Section 9.11. Conclusive Evidence of Regularity . Bonds issued pursuant to this Agreement shall constitute conclusive evidence of the regularity of all proceedings under the Act relative to their issuance and the levy of the Special Taxes.
Section 9.12. Payment on Business Day . In any case where the date of the maturity of interest or of principal (and premium, if any) of the Bonds or the date fixed for redemption of any Bonds or the date any action is to be taken pursuant to this Agreement is other than a Business Day, the payment of interest or principal (and premium, if any) or the action need not be made on such date but may be made on the next succeeding day which is a Business Day with the same force and effect as if made on the date required and no interest shall accrue for the period from and after such date.
Section 9.13. Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original. The exchange of copies of this Agreement and of signature pages by facsimile or PDF transmission shall constitute effective execution and delivery of this Agreement as to the parties hereto and may be used in lieu of the original Agreement and signature pages for all purposes.
Section 9.14. U.S.A. Patriot Act. The City and the District acknowledge that in accordance with Section 326 of the U.S.A. Patriot Act, the Fiscal Agent, like all financial ITEM 19.1.
ATTACHMENT 2
44 institutions and in order to help fight the funding of terrorism and money laundering, is required to obtain, verify, and record information that identifies each person or legal entity that establishes a relationship or opens an account with the Fiscal Agent. The City and the District agree that they will provide the Fiscal Agent with such information as it may request in order for the Fiscal Agent to satisfy the requirements of the U.S.A. Patriot Act.
ITEM 19.1.
ATTACHMENT 2
[Signature page to Fiscal Agent Agreement dated as of October 1, 2026]
IN WITNESS WHEREOF, the City has caused this Agreement to be executed in its name and the Fiscal Agent has caused this Agreement to be executed in its name, all as of October 1, 2026.
CITY OF RANCHO CORDOVA, for itself and
on behalf of CITY OF RANCHO CORDOVA
THE RANCH COMMUNITY FACILITIES
DISTRICT NO. 2021-1
By:
Kim Juran-Karageorgiou
Administrative Services Director
U.S. BANK TRUST COMPANY, NATIONAL
ASSOCIATION, as Fiscal Agent
By:
Michelle Chan
Vice President
ITEM 19.1.
ATTACHMENT 2
A-1
EXHIBIT A
FORM OF BOND
UNITED STATES OF AMERICA
STATE OF CALIFORNIA
No. ________ ***$__________***
IMPROVEMENT AREA NO. 4 OF
CITY OF RANCHO CORDOVA
THE RANCH COMMUNITY FACILITIES DISTRICT NO. 2021-1
SPECIAL TAX BONDS SERIES 2026
INTEREST RATE: MATURITY DATE: BOND DATE: CUSIP:
% September 1, 20__ ___________, 2026
REGISTERED OWNER: CEDE & CO.
PRINCIPAL AMOUNT: ***______________ DOLLARS***
The City of Rancho Cordova (the “City”) for and on behalf of the City of Rancho Cordova The Ranch Community Facilities District No. 2021-1 (the “District”) for Improvement Area No. 4 of the District, for value received, hereby promises to pay solely from the Special Tax (as hereinafter defined) or amounts in certain funds and accounts held under the Agreement (as hereinafter defined), to the Registered Owner named above, or registered assigns (the “Owner”), on the Maturity Date set forth above, unless redeemed prior thereto as hereinafter provided, the Principal Amount set forth above, and to pay interest on such principal amount from the Bond Date shown above, or from the most recent Interest Payment Date (as hereinafter defined) to which interest has been paid or duly provided for, semiannually on March 1 and September 1, commencing March 1, 2027 (the “Interest Payment Dates”), at the Interest Rate set forth above, until the principal amount hereof is paid or made available for payment. The principal of this Bond is payable to the Owner hereof in lawful money of the United States of America upon presentation and surrender of this Bond at the principal corporate trust office of U.S. Bank Trust Company, National Association in Los Angeles, California (the “Fiscal Agent”). Interest on this Bond shall be paid by check of the Fiscal Agent mailed by first class mail on each Interest Payment Date to the Owner hereof as of the close of business on the 15th day of the month preceding the month in which the Interest Payment Date occurs (the “Record Date”) at such Owner’s address as it appears on the registration books maintained by the Fiscal Agent, or by wire transfer made on such Interest Payment Date upon written instructions delivered to the Fiscal Agent by the applicable Record Date of any Owner of $1,000,000 or more in aggregate principal amount of Bonds.
This Bond is one of a duly authorized issue of bonds approved by resolution of the City Council of the City on ___________, 2026 (the “Resolution”), pursuant to the Mello -Roos Community Facilities Act of 1982, as amended, Sections 53311, et seq., of the California ITEM 19.1.
ATTACHMENT 2
A-2
Government Code (the “Mello-Roos Act”) for the purpose of providing moneys for the construction and acquisition of improvements for the District, and is one of the bonds designated “Improvement Area No. 4 of City of Rancho Cordova The Ranch Community Facilities District No. 2021-1 Special Tax Bonds Series 2026” (the “Bonds”). The issuance of the Bonds and the terms and conditions thereof are provided for by a Fiscal Agent Agreement, dated as of October 1, 2026, by and between the City and the Fiscal Agent (the “Agreement”) and this reference incorporates the Agreement herein, and by acceptance hereof the Owner of this Bond assents to said terms and conditions. The Agreement is authorized under, this Bond is issued under and both are to be construed in accordance with, the laws of the State of California. Capitalized terms used but not defined herein are defined in the Agreement.
Pursuant to the Mello-Roos Act, the Agreement and the Resolution, the principal of and interest on this Bond are payable solely from the “Special Tax Revenues,” being the proceeds of the special taxes annually received by the City for Improvement Area No. 4 (the “Special Taxes”), less an amount equal to the Administrative Expense Priority, including all scheduled payments and delinquent payments thereof, penalties thereon and proceeds of the redemption or sale of property sold as a result of foreclosure of the lien of the Special Taxes, and certain funds held under the Agreement.
Interest on this Bond shall be payable from the Interest Payment Date next preceding the date of authentication hereof, unless (i) it is authenticated on an Interest Payment Date, in which event it shall bear interest from such Interest Payment Date, or (ii) such date of authentication is after a Record Date but on or prior to an Interest Payment Date, in which event interest will be payable from such Interest Payment Date, or (iii) such date of authentication is prior to the first Record Date, in which event interest will be payable from the Bond Date shown above; provided however, that if at the time of authentication of this Bond, interest is in default hereon, this Bond shall bear interest from the Interest Payment Date to which interest has previously b een paid or made available for payment hereon.
Any tax for the payment hereof shall be limited to the Special Tax, except to the extent that provision for payment has been made by the City as may be permitted by law. The Bonds do not constitute obligations of the City for which the City is obligated to levy or pledge, or has levied or pledged, general or special taxation other than described herein above.
The Bonds are subject to optional redemption from any source of available funds (other than prepayments of the Special Tax by property owners), in whole or in part among maturities as specified by the City and by lot within a maturity, on any date on and after September 1, ______ at the following respective redemption prices (expressed as percentages of the principal amount of the Bonds to be redeemed), plus accrued interest thereon to the date of redemption:
Redemption Dates
Redemption
Price
September 1, 20__ through August 31, 20__ 103%
September 1, 20__ through August 31, 20__ 102
September 1, 20__ through August 31, 20__ 101
September 1, 20__ and any date thereafter 100
Mandatory Redemption from Prepayments. The Bonds are subject to mandatory redemption from prepayments of the Special Tax by property owners, in whole or in part among maturities as shall be specified by the City and by lot within a maturity, on any Interest Payment ITEM 19.1.
ATTACHMENT 2
A-3
Date at the following respective redemption prices (expressed as percentages of the principal amount of the Bonds to be redeemed), plus accrued interest thereon to the date of redemption:
Redemption Dates
Redemption
Price
Interest Payment Dates through and including March 1, 20__ 103% September 1, 20__ and March 1, 20__ 102
September 1, 20__ and March 1, 20__ 101
September 1, 20__ and any Interest Payment Date thereafter 100
Mandatory Sinking Fund Redemption. The Bonds maturing September 1, 20__ and September 1, 20__ are subject to mandatory sinking payment redemption in part on September 1, 20__ and September 1, 20__ , and on each September 1 thereafter to maturity, by lot, at a redemption price equal to one hundred percent (100%) of the principal amount thereof to be redeemed, without premium, in the aggregate respective principal amounts as set forth in the following tables:
Mandatory
Redemption Date
(September 1)
Sinking Fund
Payment
Mandatory
Redemption Date
(September 1)
Sinking Fund
Payment
The amounts in the foregoing tables shall be reduced pro rata at the direction of the City in an Officer’s Certificate, in order to maintain substantially uniform debt service, as a result of any prior partial redemption of the Bonds.
Notice of redemption with respect to the Bonds to be redeemed shall be given to the Owners thereof, in the manner, to the extent and subject to the provisions of the Agreement.
This Bond shall be registered in the name of the Owner hereof, as to both principal and interest. Each registration and transfer of registration of this Bond shall be entered by the Fiscal Agent in books kept by it for this purpose and authenticated by it s manual signature upon the certificate of authentication endorsed hereon.
No transfer or exchange hereof shall be valid for any purpose unless made by the registered owner, by execution of the form of assignment endorsed hereon, and authenticated as herein provided, and the principal hereof, interest hereon and any redemption premium shall be payable only to the registered owner or to such Owner’s order. The Fiscal Agent shall require the Owner requesting transfer or exchange to pay any tax or other governmental charge required to be paid with respect to such transfer or exchange. No transfer or exchange hereof shall be required to be made (i) within 15 days prior to the date established by the Fiscal Agent for ITEM 19.1.
ATTACHMENT 2
A-4
selection of Bonds for redemption or (ii) with respect to a Bond after such Bond has been selected for redemption.
The Agreement and the rights and obligations of the City thereunder may be modified or amended as set forth therein. The principal of the Bonds is not subject to acceleration upon a default under the Agreement or any other document.
This Bond shall not become valid or obligatory for any purpose until the certificate of authentication hereon endorsed shall have been dated and manually signed by the Fiscal Agent.
It is hereby certified, recited and declared that all acts, conditions and things required by law to exist, happen and be performed precedent to and in the issuance of this Bond have existed, happened and been performed in due time, form and manner as required by law, and that the amount of this Bond, together with all other indebtedness of the City, does not exceed any debt limit prescribed by the laws or Constitution of the State of California.
Unless this Bond is presented by an authorized representative of The Depository Trust Company to the Fiscal Agent for registration of transfer, exchange or payment, and any Bond issued is registered in the name of Cede & Co. or such other name as requested by an authorized representative of The Depository Trust Company and any payment is made to Cede & Co., ANY
TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL since the registered owner hereof, Cede & Co., has an in terest herein.
ITEM 19.1.
ATTACHMENT 2
A-5
IN WITNESS WHEREOF, the City of Rancho Cordova has caused this Bond to be executed in its name by the manual or facsimile signature of its Mayor and attested by the manual or facsimile signature of its City Clerk.
CITY OF RANCHO CORDOVA
By:
Mayor
Attested:
By:
City Clerk
FISCAL AGENT’S CERTIFICATE OF AUTHENTICATION
This is one of the Bonds described in the Resolution and the Agreement.
Dated: _____________, 2026
U.S. BANK TRUST COMPANY, NATIONAL
ASSOCIATION, as Fiscal Agent
By:
Authorized Officer
ITEM 19.1.
ATTACHMENT 2
A-6
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned do(es) hereby sell, assign and transfer unto
(Name, address and Tax Identification Number of Assignee)
the within- mentioned registered Bond and hereby irrevocably constitute(s) and appoint(s) attorney,
to transfer the same on the registration books of the Fiscal Agent with full power of substitution in the premises.
Dated: ________________
Signature Guaranteed:
NOTE: Signature(s) must be guaranteed by an eligible
guarantor institution with membership in an approved
signature guarantee medallion program pursuant to
Securities and Exchange Commission Rule 17A(d)15.
NOTE: The signature(s) on this Assignment must
correspond with the name(s) as written on the face
of the within Bond in every particular without
alteration or enlargement or any change whatsoever.
ITEM 19.1.
ATTACHMENT 2
Jones Hall Draft of 9.10.26
PRELI
MINARY OFFICIAL STATEMENT DATED SEPTEMBER [23], 2026
NEW ISSUE-FULL – BOOK ENTRY NOT RATED
In the opinion of Jones Hall LLP, as Bond Counsel, subject, however to certain qualifications described herein, under existing law, the interest on the 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. Interest on the Bonds may be subject to the corporate alternative minimum tax. In the further opinion of Bond Counsel, such interest is exempt from California personal income taxes. See “TAX MATTERS” herein. $10,000,000*
IMPROVEMENT AREA NO. 4 OF
CITY OF RANCHO CORDOVA
THE RANCH COMMUNITY FACILITIES DISTRICT NO. 2021-1
SPECIAL TAX BONDS
SERIES 2026
Dated: Date of Delivery Due: September 1, as shown on inside cover Authority for Issuance. The above-captioned bonds (the “Bonds”) are being issued by the City of Rancho Cordova (the “City”) by and through Improvement Area No. 4 (“Improvement Area No. 4”) of City of Rancho Cordova The Ranch Community Facilities District No. 2021 -1 (the “District”).
The Bonds are special tax obligations of the City, authorized pursuant to the Mello -Roos Community Facilities Act of 1982, as amended, being California Government Code Section 53311, et seq. (the “Mello-Roos Act”), and are issued pursuant to a Fiscal Agent Agreement, dated as of October 1, 2026 (the “Fiscal Agent Agreement”) by and between the City and U.S. Bank Trust Company, National Association, as fiscal agent (th e “Fiscal Agent”). See “THE BONDS – Authority for Issuance.”
Security and Sources of Payment. The Bonds are secured by and payable from a pledge of Special Taxes (as defined herein) levied on property within Improvement Area No. 4 according to a rate and method of apportionment of special tax, including from the proceeds of any foreclosure actions brought following a delinquency in the payment of the Special Taxes (as defined herein), and from amounts held in cer tain funds under th e Fiscal Agent Agreement, including a debt service reserve fund, all as more fully described herein. Unpaid Special Taxes do not constitute a personal indebtedness of the owners of the parcels within Improvement Area No. 4. In the event of delinquency, proceedings may be conducted only against the parcel of real property securing the delinquent Special Tax. There is no assurance the owners wil l be able to pay the Special Tax or that they will pay such Special Tax even though financially able to do so. See “SECURITY FOR THE BONDS.” Property in Improvement Area No. 4 subject to the Special Tax is comprised of land in the City of Rancho Cordova, Sacramento County, California, under development for 284 age-restricted (55+) single-family homes. It is a continuation of a larger development being undertaken by homebuilder K. Hovnanian at Jaeger Ranch, LLC, a California limited liability company, that is planned for a total of 1,690 residential homes, as well as public and quasi-public uses, parks and open space not subject to the Special Tax, as well as multifamily and commercial uses, at build-out. Home construction, sales and closings are underway, as described herein , and bonds for other improvement areas of the District have previously been issued. See “IMPROVEMENT AREA NO. 4” and “OWNERSHIP OF PROPERTY WITHIN IMPROVEMENT AREA NO. 4.” Use of Proceeds. The Bonds are being issued to (i) construct and acquire certain public facilities, including payment of fees related to publi c facilities, authorized for the District and Improvement Area No. 4; (ii) make a deposit into the debt service reserve fund for the Bonds; (iii) pay capitalized interest on the Bonds through and including September 1, 202 7; and (iv) pay the costs of issuance of the Bonds. See “FINANCING PLAN.” Bond Terms. Interest on the Bonds is payable on March 1 and September 1 of each year, commencing March 1, 2027 . The Bonds will be issued in the denomination of $5,000 or integral multiples of $5,000 in excess thereof. The Bonds, when delivered, will be i nitially registered in the name of Cede & Co., as nominee of The Depository Trust Company (“DTC”). DTC will act as securities depository for the Bonds. See “THE BONDS – Description of the Bonds” and “APPENDIX G – DTC and the Book-Entry Only System.” Redemption. The Bonds are subject to optional redemption, mandatory sinking fund redemption, and special mandatory redemption from prepaid Special Taxes. See “THE BONDS – Redemption.”
THE BONDS ARE SPECIAL LIMITED OBLIGATIONS OF THE CITY, PAYABLE SOLELY FROM THE SPECIAL TAX REVENUES AND CERTAIN OTHER FUNDS AND AMOUNTS HELD BY THE FISCAL AGENT UNDER THE FISCAL AGENT AGREEMENT. THE INFORMATION SET FORTH IN THIS OFFICIAL STATEMENT, INCLUDI NG INFORMATION UNDER THE HEADING “BOND OWNERS’ RISKS,” SHOULD BE READ IN ITS ENTIRETY.
MATURITY SCHEDULE
(see inside cover)
This cover page contains certain information for quick reference only. It is not a summary of essential information about th e Bonds. Potential investors should read this entire Official Statement to obtain information essential for making an informed inv estment decision. Investment in the Bonds involves risks that may not be appropriate for some investors. See “BOND OWNERS’ RISKS” for a discussion of special ri sk factors that should be considered in evaluating the investment quality of the Bonds.
The Bonds are offered when, as and if issued by the City and accepted by the Underwriter, subject to approval as to their leg ality by Jones Hall LLP, San Mateo, California, as Bond Counsel, and subject to certain other conditions. Jones Hall LLP also serves as disclosure counsel to the City.
Certain matters will be passed upon for the City by Meyers Nave, A Professional Law Corporation, Sacramento, California, as C ity Attorney. Certain legal matters will be passed upon for the Underwriter by it s counsel, Kutak Rock LLP, Irvine, California. It is anticipated that the Bonds, in book -entry form, will be available for delivery through the facilities of DTC on or about October 21, 2026*. [PIPER LOGO]
The
date of this Official Statement is: _________, 202 6.
__________
*
Preliminary; subject to change.
This Preliminary Official Statement and the information contained herein are subject to completion or amendment. These securities may not be sold nor may offers to buy be accepted prior to the time the Official Statement is delivered in final form. Under no circumstances shall this Preliminary Official Statement constitu te an offer to sell or a solicitation of an of fer to buy nor shall there be any sale of these securities in any jurisdiction in which such offer solicitation or sale would be unlawful prior to registration or qual ification under the securities laws of such jurisdiction.
ITEM 19.1.
ATTACHMENT 3
MATURITY SCHEDULE
$__________ Serial Bonds
(Base CUSIP†: _______)
Maturity Principal Interest CUSIP†
(September 1) Amount Rate Yield Price ( )
$________ _____% Term Bond due September 1, ____, Yield: _____%, Price: _____%; CUSIP† _____
† CUSIP® is a registered trademark of the American Bankers Association. CUSIP Global Services (CGS) is managed on behalf of the American Bankers Association by FactSet Research Systems Inc. Copyright (c) 2026 CUSIP Global Services.
All rights reserved. CUSIP® data herein is provided by CUSIP Global Services. This data is not intended to create a database and does not serve in any way as a substitute for the CGS database. CUSIP® numbers are provided for convenience of reference only. None of the City, the Underwriter, the Municipal Advisor, or their agents or counsel take any responsibility for the accuracy of such numbers.
ITEM 19.1.
ATTACHMENT 3
CITY OF RANCHO CORDOVA
Ci
ty Council
Garrett Gatewood, Mayor
Linda Budge, Vice Mayor
Joe Little, Councilmember
Siri Pulipati, Councilmember
David M. Sander, Ph.D., Councilmember
Staff
Micah Runner, City Manager
Kim Juran-Karageorgiou, Assistant City Manager
Stacy Leitner, City Clerk
Adam Lindgren of Meyers Nave, A Professional Law Corporation, City Attorney
SPECIAL SERVICES
Bond Counsel and Disclosure Counsel
Jones Hall LLP
San Mateo, California
Municipal Advisor
NHA Advisors, LLC
San Rafael, California
Special Tax Consultant
Goodwin Consulting Group, Inc.
Sacramento, California
Appraiser
Integra Realty Resources
Sacramento, California
Fiscal Agent
U.S. Bank Trust Company, National Association
-Los Angeles, -California
ITEM 19.1.
ATTACHMENT 3
GENERAL INFORMATION ABOUT THIS OFFICIAL STATEMENT
Use of Official Statement. This Official Statement is submitted in connection with the sale of the Bonds referred to herein and may not be reproduced or used, in whole or in part, for any other purpose.
This Official Statement is not to be construed as a contract with the purchasers of the Bonds.
Estimates and Forecasts. When used in this Official Statement and in any continuing disclosure by the City, in any press release and in any oral statement made with the approval of an authorized officer of the City, the words or phrases “will likely result,” “are expected to”, “will continue”, “is anticipated”, “estimate”, “project,” “forecast”, “expect”, “intend” and similar expressions identify “forward looking statements.” Such statements are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated in such forward -looking statements. Any forecast is subject to such uncertainties. Inevitably, some assumptions used to develop the forecasts will not be realized and unanticipated events and circumstances may occur. Therefore, there are likely to be differences between forecasts and actual results, and those differences may be material. The information and expressions of opinion herein are subject to change without notice, and neither the delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, give rise to any implication that there has been no change in the affairs of the City since the date hereof.
Limit of Offering. No dealer, broker, salesperson or other person has been authorized by the City to give any information or to make any representations in connection with the offer or sale of the Bonds other than those contained herein and if given or made, such other information or representation must not be relied upon as having been authorized by the City or the Underwriter. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of the Bonds by a person in any jurisdiction in which it is unlawful for such person to make such an offer, solicitation or sale.
Involvement of Underwriter. The Underwriter has reviewed the information in this Official Statement in accordance with, and as a part of, their responsibilities to investors under the Federal Securities Laws as applied to the facts and circumstances of this transaction, but the Underwriter does not guarantee the accuracy or completeness of such information. The information and expressions of opinions herein are subject to change without notice and neither delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the City since the date hereof. All summaries of the documents referred to in this Official Statement are made subject to the provisions of such documents, respective ly, and do not purport to be complete statements of any or all of such provisions.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVERALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE BONDS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
THE BONDS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, IN RELIANCE UPON AN EXCEPTION FROM THE REGISTRATION REQUIREMENTS CONTAINED IN SUCH ACT. THE BONDS HAVE NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES LAWS OF ANY STATE.
ITEM 19.1.
ATTACHMENT 3
TABLE OF CONTENTS
Page Page
INTRODUCTION ............................................ 1 FINANCING PLAN ......................................... 6 THE BONDS .................................................. 7 Authority for Issuance ................................. 7 Description of the Bonds ............................ 7 Redemption ................................................ 8 Transfer or Exchange of Bonds ................ 10
SECURITY FOR THE BONDS ..................... 11
Special Taxes ........................................... 11 Rate and Method ...................................... 12 Special Tax Fund ...................................... 15 Deposit and Use of Proceeds of Bonds .... 16
Delinquent Payments of Special Tax;
Covenant for Foreclosure ..................... 16
Reserve Fund ........................................... 18 Improvement Fund ................................... 19 Additional Bonds ....................................... 20 DEBT SERVICE SCHEDULES .................... 22
IMPROVEMENT AREA NO. 4 ..................... 24
Formation and Background ...................... 24
Description and Location .......................... 24
Development of the Overall Project .......... 27
Status of Backbone Improvements ........... 28
Development in Improvement Area No. 4 29
Environmental Factors .............................. 32 THE FACILITIES .......................................... 33 Eligible Facilities ....................................... 33 Acquisition by the City and other Local
Agencies ............................................... 33
OWNERSHIP OF PROPERTY WITHIN
IMPROVEMENT AREA NO. 4 .................. 34
VALUE OF PROPERTY WITHIN
IMPROVEMENT AREA NO. 4 .................. 35
Assessed Valuation .................................. 35 Appraised Value ....................................... 35 Value to Special Tax Burden Ratios ......... 38
Priority of Lien ........................................... 40 Estimated Tax Burden on Single -Family
Home .................................................... 43 Special Tax Collections and Delinquencies44
BOND OWNERS’ RISKS ............................. 44
Limited Obligation of the City to Pay Debt
Service ................................................. 44 Concentration of Ownership of
Undeveloped Property .......................... 44
Appraised Values ...................................... 45 Levy and Collection of the Special Tax ..... 45
Property Tax Delinquencies ...................... 47
Property Values and Risks Related to
Development ........................................ 48 Future Property Development ................... 51
Other Possible Claims Upon the Value of
Taxable Property .................................. 51
Exempt Properties .................................... 52 FDIC/Federal Government Interests in
Properties ............................................. 52 Depletion of the Reserve Fund ................. 54
Bankruptcy Delays .................................... 54 Disclosure to Future Purchasers .............. 56
No Acceleration Provisions ....................... 56
Loss of Tax Exemption ............................. 56
IRS Audit of Tax-Exempt Bond Issues ..... 57
Voter Initiatives ......................................... 57 Case Law Related to the Mello -Roos Act
Voting .................................................... 58 Secondary Market for Bonds .................... 59
Pandemic Diseases .................................. 59 Cyber Security .......................................... 59 Potential Early Redemption of Bonds from
Prepayments ......................................... 60
CONSTITUTIONAL LIMITATIONS ON
TAXATION AND APPROPRIATIONS ...... 60
LEGAL MATTERS ........................................ 61 Legal Opinion ............................................ 61 No Litigation .............................................. 61 TAX MATTERS ............................................. 61 CONTINUING DISCLOSURE ....................... 63
The City .................................................... 63 JV Entity .................................................... 63 NO RATING .................................................. 64 UNDERWRITING ......................................... 64 CONTINGENT FEES .................................... 64 EXECUTION ................................................. 65
APPENDIX A Rate and Method of Apportionment of Special Tax APPENDIX B The Appraisal
APPENDIX C Summary of Certain Provisions of the Fiscal Agent Agreement APPENDIX D Sacramento County and City of Rancho Cordova Demographic Information APPENDIX E Form of Opinion of Bond Counsel
APPENDIX F Form of Continuing Disclosure Undertakings
APPENDIX G DTC and the Book-Entry Only System
ITEM 19.1.
ATTACHMENT 3
-1-
__________________________________
OFFICIAL STATEMENT
__________________________________
$10,000,000*
IMPROVEMENT AREA NO. 4 OF
CITY OF RANCHO CORDOVA
THE RANCH COMMUNITY FACILITIES DISTRICT NO. 2021-1
SPECIAL TAX BONDS
SERIES 2026
This Official Statement, including the cover page and all appendices hereto, is provided to furnish certain information in connection with the issuance by the City of Rancho Cordova (the “City”) of the above -captioned bonds (the “ Bonds”), for and on behalf of its Improvement Area No. 4 (“Improvement Area No. 4”) of the City of Rancho Cordova The Ranch Community Facilities District No. 2021-1 (the “District”).
Any statements made in this Official Statement involving matters of opinion or of estimates, whether or not so expressly stated, are set forth as such and not as representations of fact, and no representation is made that any of the estimates will be realized. Definitions of certain terms used herein and not defined herein shall have the meaning set forth in the Fiscal Agent Agreement. See APPENDIX C.
INTRODUCTION
This introduction is not a summary of this Official Statement. It is only a brief description of and guide to, and is qualified by, more complete and detailed information contained in the entire Official Statement, including the cover page and attached ap pendices, and the documents summarized or described in this Official Statement. A full review should be made of the entire Official Statement. The offering of the Bonds to potential investors is made only by means of the entire Official Statement.
Formation of District, Future Annexation Area and Improvement Areas. The District was established, Improvement Area No. 1 was designated as the initial improvement area within the District (“Improvement Area No. 1”) with an initial bond authorization of $20,350,000, and a future annexation area was created for the District (the “Future Annexation Area”), pursuant to proceedings conducted by the City under the Mello- Roos Community Facilities Act of 1982, as amended (Section 53311, et seq., of the Government Code of the State of California) (the “Mello- Roos Act”).
In 2024, land designated as Improvement Area No. 2 of the District (“Improvement Area No. 2”) was annexed to the District from the Future Annexation Area, and an initial bond authorization was established for Improvement Area No. 2 in the amount of $14,000,000 , and land designated as Improvement Area No. 3 of the District (“Improvement Area No. 3 ”) was annexed to the District from the Future Annexation Area, and an initial bond authorization was established for Improvement Area No. 3 in the amount of $16,000,000. Similarly, in 2025, land
* Preliminary; subject to change.
ITEM 19.1.
ATTACHMENT 3
-2-
designated as Improvement Area No. 4 of the District (“Improvement Area No. 4”) was annexed to the District from the Future Annexation Area, and an initial bond authorization was established for Improvement Area No. 4 in the amount of $22,250,000, and land designated as Improvement Area No. 5 of the District (“Improvement Area No. 5”) was annexed to the District from the Future Annexation Area, and an initial bond authorization was established for Improvement Area No. 5 in the amount of $13,870,000.
The Bonds represent the first series of special tax bonds authorized and issued by the City for Improvement Area No. 4 and are secured solely by the Special Taxes (defined herein) levied in Improvement Area No. 4 and no other improvement areas of the District.
The Bonds. The Bonds are issued pursuant to the provisions of the Mello -Roos Act, a Fiscal Agent Agreement, dated as of October 1, 2026 (the “Fiscal Agent Agreement”) between the City and U.S. Bank Trust Company, National Association, as fiscal agent (the “Fiscal Agent”), and a resolution adopted on [September 21], 2026 by the City Council of the City, which authorized the issuance of the Bonds (the “Resolution”).
Registration of Ownership of the Bonds. The Bonds are issued only as fully registered bonds in book-entry form, registered in the name of Cede & Co., as nominee of The Depository Trust Company (“DTC”), without coupons, in the denomination of $5,000 or any integral multiple thereof and shall be dated as of and bear interest from the date of delivery thereof at the rate or rates set forth on the cover page hereof. Interest on the Bonds is payable on M arch 1 and September 1 of each year (each an “ Interest Payment Date ”), commencing March 1, 202 7.
Ultimate purchasers of Bonds will not receive physical certificates representing their interest in the Bonds. So long as the Bonds are registered in the name of Cede & Co., as nominee of DTC, references herein to the Owners shall mean Cede & Co., and s hall not mean the ultimate purchasers of the Bonds. Payments of the principal, premium, if any, and interest on the Bonds will be made directly to DTC, or its nominee, Cede & Co. so long as DTC or Cede & Co. is the registered owner of the Bonds. Disburse ments of such payments to DTC’s Participants is the responsibility of DTC and disbursements of such payments to the Beneficial Owners is the responsibility of DTC’s Participants and Indirect Participants, as more fully described herein. See “APPENDIX G – DTC and the Book-Entry Only System.”
Use of Proceeds. Proceeds of the Bonds will primarily be used to finance a portion of the costs of acquiring and constructing certain public infrastructure improvements necessary for development in the District, including payment of fees related thereto (the “ Facilities,” as described herein). The Facilities consist generally of road and related improvements, including drainage, water, sanitary sewer, joint trench utilities, concrete curbs, gutters and sidewalks, maintenance holes, street lighting, landscaping, masonry walls, traffic signals, park improvements (and/or fees to finance such improvements) and other miscellaneous infrastructure improvements necessary for development of property within the District. Proceeds of the Bonds will also be used to make a deposit i n the Reserve Fund (defined herein), pay capitalized interest on the Bonds through and including September 1, 2027, and pay the cost of issuance of the Bonds.
Security and Sources of Payment of the Bonds. The Bonds are secured by, and payable from, “Special Tax Revenues,” which means the proceeds of the Special Taxes annually received by the City, including all scheduled payments , prepayments and delinquent payments thereof, interest thereon and proceeds of the redemption or sale of property sold as a result of foreclosure of the lien of the Special Taxes, net of the Administrative Expense Priority and excluding any penalties and extraordinary Administrative Expenses collected in connection with any such foreclosure. “ Special Taxes” means the special tax levied on taxable real property ITEM 19.1.
ATTACHMENT 3
-3-
within the boundaries of Improvement Area No. 4 under the Rate and Method of Apportionment of Special Tax for Improvement Area No. 4 (the “ Rate and Method ”), and “ Administrative Expense Priority” means (i) for Fiscal Year 2027-28, $30,000, and (ii) for each subsequent year, an amount equal to the preceding fiscal year’s Administrative Expense Priority plus an additional 2% of such amount.
The Bonds are also payable from amounts held in certain funds and accounts pursuant to the City, including the Reserve Fund, all as more fully described herein. The Special Tax applicable to each taxable parcel in Improvement Area No. 4 will be levied and collected according to the tax liability determined by the application of the Rate and Method, which is set forth in APPENDIX A hereto. The Special Taxes represent fixed liens on the parcels of land subject to a Special Tax in Improvement Area No. 4 and failure to pay the Special Taxes could result in proceedings to foreclose title to the delinquent property. The Special Taxes do not constitute the personal indebtedness of the owners of taxable parcels and no proceedings to collect directly from an owner is permitted. See “SECURITY FOR THE BONDS – Rate and Method” and “APPENDIX A – Rate and Method of Apportionment of Special Tax.”
Pursuant to the Mello-Roos Act, the Resolution of Formation (as defined herein), and the Fiscal Agent Agreement, so long as any Bonds are outstanding, the City will annually levy the Special Tax against all taxable land within Improvement Area No. 4 in accordance with the proceedings for the authorization and issuance of the Bonds and to make provision for the collection of the Special Tax in amounts which will be sufficient to pay interest on, principal of and redemption premium (if any) on the Bonds as such becomes due and payable and to replenish the Reserve Fund (as defined herein) as necessary. See “SECURITY FOR THE BONDS – Special Taxes” herein.
In connection with the issuance of the Bonds, the City will direct the Fiscal Agent to establish a debt service reserve fund (the “Reserve Fund”), which will be funded in an amount equal to the Reserve Requirement (described herein) with respect to the Bonds. Amounts in the Reserve Fund are available for payment of the Bonds in the event of delinquencies in the payment of the Special Taxes to the e xtent of such delinquencies. See “SECURITY FOR THE BONDS – Reserve Fund.” 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.
Additional Bonds. The Bonds represent the first series of special tax bonds issued for Improvement Area No. 4. Additional special tax bonds secured by the Special Tax Revenues on a parity basis with the Bonds (“ Additional Bonds”) are anticipated to be issued in the future, subject to the conditions specified in the Fiscal Agent Agreement. See “SECURITY FOR THE BONDS – Additional Bonds.”
The Ranch Project, the Developer, the Joint Venture and Improvement Area No. 4.
Land in the District (and the improvement areas therein) is located within The Ranch Special Planning Area (“TRSPA”), which is within the Sunridge Specific Plan area of the City. 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 designates approximately 1,690 dwelling units (single and multi-family) at build-out.
Development in the District is being undertaken as part of a larger project being developed by K. Hovnanian at Jaeger Ranch, LLC, a California limited liability company (“ K. Hovnanian”), known as “The Ranch” that includes market rate units, age -qualified units, a multifamily project, ITEM 19.1.
ATTACHMENT 3
-4-
a commercial project and public and quasi-public uses such as parks, trails and open space. At build-out, the project is anticipated to include approximately 1,690 residential units. Bonds have been issued in Improvement Area Nos. 1, 2, and 3 of the District, which improvement areas are within the project.
As of August 1, 2026, of the 732 planned units being developed within the market rate side of the District (IA No s. 1 & 2) , 601 had been sold and closed and owned by individual homeowners. As of August 1, 2026, of the 705 planned units being developed within the age- qualified side of the District (IA Nos. 3 & 4), 117 had been sold and closed and owned by individual homeowners in IA No. 3 with no homes sold and closed in IA No. 4.
As noted above, only taxable property within Improvement Area No. 4 constitutes security for the Bonds. Land in Improvement Area No. 4 is developing into 284 age-restricted (55+) single- family homes in a community being marketed by the JV Entity (as defined below) as “Four Seasons at the Ranch.” Within the community, homes are being built with four product lines spread across five villages with typical lot sizes ranging from 4,000 to 6,300 square feet. The following table shows the status of development of the 284 lots within Improvement Area No. 4 as of August 1, 2026. See “IMPROVEMENT AREA NO. 4” and “OWNERSHIP OF PROPERTY WITHIN IMPROVEMENT AREA NO. 4” for additional details. The model homes for Improvement Area No. 4 are located in Improvement Area No. 3.
Improvement Area No. 4 of
The Ranch Community Facilities District No. 2021-1
Status of Development – As of August 1, 2026
Neighborhood
Total
No.
Planned
Units
No.
Building
Permits
Issued
Units Under
Construction
Units
Completed
and
Unsold or
in Escrow
Sold
and
Closed
Homes
Spring 65 0 0 0 0
Summer 52 6 6 0 0
Autumn 77 0 0 0 0
Winter 90 9 9 0 0
Total 284 15 15 0 0
Source: The JV Entity.
Joint Venture Ownership. On January 30, 2025, K. Hovnanian sold all but 21 of the lots to be developed with Age Qualified units in the Overall Project (as defined herein) to GTIS - HOV Holdings XVI LLC, a California limited liability company (“ JV Entity”), including all of the lots in Improvement Area No. 4. The 21 lots not purchased by the JV Entity were 10 of the 11 model home lots and 11 additional lots that were already under construction and were subsequently sold to individual homeowners outside of Improvement Area No. 4. As of August 1, 2026, all of the property in Improvement Area No. 4 remained owned by the JV Entity. The JV Entity is a joint venture between K. Hovnanian and GTISCal at Four Seasons at the Ranch LLC, a Delaware limited liability company (“ GTISCal”). GTISCal has a 50.1% interest in the JV Entity and K. Hovnanian has a 49.9% interest in the JV Entity. See “IMPROVEMENT AREA NO. 4” and “OWNERSHIP OF PROPERTY WITHIN IMPROVEMENT AREA NO. 4 ” for additional details on the ownership arrangement.
Value of Property. Property in Improvement Area No. 4 is security for the Special Tax.
The City ordered preparation of an appraisal report (the “ Appraisal”), of the estimated value of ITEM 19.1.
ATTACHMENT 3
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the taxable land within Improvement Area No. 4 as of the August 1, 2026 date of value, prepared by Integra Realty Resources, Sacramento, California (the “Appraiser”). The Appraiser indicated a value estimate of $49,850,000, 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, and subject to the conditions and qualifications and the hypothetical condition set forth therein.
The Appraisal is set forth in its entirety as APPENDIX B hereto. The description herein of the Appraisal is intended for limited purposes only; the Appraisal should be read in its entirety. In considering the estimates of value evidenced by the Appraisal, it should be noted that the Appraisal is based upon a n umber of standard and special assumptions that affected the estimates as to value, in addition to the hypothetical condition that proceeds of the Bonds are available to reimburse the JV Entity for certain eligible public improvements already complete .
See “VALUE OF PROPERTY WITHIN IMPROVEMENT AREA NO. 4 – Appraised Value.”
The principal amount of the direct and overlapping debt in Improvement Area No. 4 is $10,000,000*, which consists of the estimated amou nt of Bonds ($ 10,000,000*) and $_____ of overlapping general obligation and CFD bond debt (overlapping debt is based on a report prepared by California Municipal Statistics, Inc. for fiscal year 2026-27). Consequently, the estimated value of property in Improvement Area No. 4 subject to the Special Tax lien ($49,850,000), is approximately 5.0* times the principal amount of the direct and overlapping debt in Improvement Area No. 4. This is an average, and individual parcels may have value -to-lien ratios that are substantially different. See “VALUE OF PROPERTY WITHIN IMPROVEMENT AREA NO. 4 – Value to Special Tax Burden Ratios.”
Risks of Investment. Investment in the Bonds involves risks that may not be appropriate for some investors. See “BOND OWNERS’ RISKS” for a discussion of special factors that should be considered, in addition to the other matters set forth herein, in considering the investment quality of the Bonds.
Limited Obligation of the City. The general fund of the City is not liable and the full faith and credit of the City is not pledged for the payment of the interest on, or principal of or redemption premiums, if any, on the Bonds. The Bonds are not secured by a legal or equitable pledge of or charge, lien or encumbrance upon any property of the City or any of its income or receipts, except the Special Tax Revenues and amounts in certain funds established under the Fiscal Agent Agreement as described herein. The Bonds are special limited obligations of the City, and neither the City Council, the City nor any officer or employee thereof shall be liable for the payment of the interest on or principal of or redemption premiums, if any, on the Bonds other than from the Special Tax Revenues and amounts in certain funds established unde r the Fiscal Agent Agreement as described herein.
Summary of Inf ormation. Brief descriptions of certain provisions of the Fiscal Agent Agreement and certain other documents are included herein. The descriptions and summaries of documents herein do not purport to be comprehensive or definitive, and reference is made to each such document for the complete details of all its respective terms and conditions, copies of which are available for inspection at the office of the City. All statements herein with respect to certain rights and remedies are qualified by reference to laws and principles of equity relating to or affecting creditors’ rights generally. Capitalized terms used in this Official Statement and not
* Preliminary; subject to change.
ITEM 19.1.
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otherwise defined herein have the meanings ascribed to such terms in the Fiscal Agent Agreement. See “APPENDIX C – Summary of Certain Provisions of the Fiscal Agent Agreement.” The information and expressions of opinion herein speak only as of the date o f this Official Statement and are subject to change without notice. Neither delivery of this Official Statement, any sale made hereunder, nor any future use of this Official Statement shall, under any circumstances, create any implication that there has been no change in the affairs of the City or Improvement Area No. 4 since the date hereof.
FINANCING PLAN
The Bonds are being issued to (i) construct and acquire certain public facilities, including payment of fees related to public facilities, authorized for the District and Improvement Area No. 4 (referred to herein as the “ Facilities”); (ii) make a deposit into the Reserve Fund equal to the initial Reserve Requirement for the Bonds; (iii) fund capitalized interest on the Bonds through and including September 1, 2027; and (iv) pay the costs of issuance of the Bonds.
A summary of the estimated sources and uses of funds associated with the sale of the Bonds follows:
Estimated Sources of Funds:
Principal Amount of the Bonds $
Plus/less: [Net] Original Issue Premium/Discount
Total $
Estimated Uses of Funds:
Deposit to Improvement Fund $
Deposit to Reserve Fund(1)
Deposit to Capitalized Interest Account of Bond Fund(2) Costs of Issuance(3)
Total $
(1) Equal to the initial Reserve Requirement for the Bonds. (2) Used to pay capitalized interest on the Bonds through and including September 1, 2027. (3) Used to pay costs of issuance of the Bonds, including initial fees, expenses and charges of the Fiscal Agent, costs of printing the preliminary and final Official Statements, administrative fees of the City, Underwriter’s discount, Municipal Advisor, f ees of Bond Counsel and Disclosure Counsel, and other costs of issuance.
ITEM 19.1.
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THE BONDS
Authority for Issuance
The Bonds are issued pursuant to the Fiscal Agent Agreement, the Resolution adopted by the City Council on [September 21], 2026, and the Mello-Roos Act.
Description of the Bonds
The Bonds are being issued as fully registered bonds, registered in the name of Cede & Co. as nominee of The Depository Trust Company (“ DTC”), and will be available to ultimate purchasers in the denomination of $5,000 or any integral multiple thereof, under the book -entry system maintained by DTC. Ultimate purchasers of Bonds will not receive physical certificates representing their interest in the Bonds. So long as the Bonds are registered in the name of Cede & Co., as nominee of DTC, references herein to the Owners shall mean Cede & Co., and shall not mean the ultimate purchasers of the Bonds. Payments of the principal, premium, if any, and interest on the Bonds will be made directly to DTC, or its nominee, Cede & Co., by U.S. Bank Trust Company, National Association, as the fiscal agent, registrar and transfer agent (the “Fiscal Agent”) for the Bonds, so long as DTC or Cede & Co. is the registered owner of the Bonds.
Disbursements of such payments to DTC’s Participants is the responsibility of DTC and disbursements of such payments to the Beneficial Owners is the responsibility of DTC ’s Participants and Indirect Participants, as more fully described herein. See “APPENDIX G – DTC and the Book-Entry Only System.”
The Bonds will be dated as of and bear interest from the date of delivery thereof at the rates and mature in the amounts and years, as set forth on the cover page hereof. The principal of the Bonds and premiums due upon the redemption thereof, if any, will be payable in lawful money of the United States of America at the principal corporate trust office of the Fiscal Agent in -Los Angeles , - California, or such other place as designated by the Fiscal Agent, upon presentation and surrender of the Bonds.
Interest on the Bonds, computed on the basis of a 360 -day year consisting of twelve 30- day months, will be paid in lawful money of the United States of America semiannually on March 1 and September 1 of each year (each an “Interest Payment Date”), commencing March 1, 2027.
Interest on the Bonds (including the final interest payment upon maturity or earlier redemption) is payable by check of the Fiscal Agent mailed on each Interest Payment Date by first class mail to the registered Owner thereof at such registered Owner’s address as it appears on the registration books maintained by the Fiscal Agent at the close of business on the 15th day of the calendar month preceding the Interest Payment Date (the “ Record Date”), or by wire transfer made on such Interest Payment Date upon written instructions received by the Fiscal Agent on or before the Record Date preceding the Interest Payment Date, of any Owner of $1,000,000 or more in aggregate principal amount of Bonds; provided that so long as any Bonds are in book-entry form, payments with respect to such Bonds shall be made by wire transfer, or such other method acceptable by the Fiscal Agent, to DTC. See “APPENDIX G – DTC and the Book -Entry Only System.”
Each Bond shall bear interest from the Interest Payment Date next preceding the date of authentication thereof unless (i) it is authenticated on an Interest Payment Date, in which event it shall bear interest from such date of authentication, or (ii) it is authenticated prior to an Interest Payment Date and after the close of business on the Record Date preceding such Interest Payment Date, in which event it shall bear interest from such Interest Payment Date, or (iii) it is ITEM 19.1.
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authenticated prior to the Record Date preceding the first Interest Payment Date, in which event it shall bear interest from the dated date; provided, however, that if at the time of authentication of a Bond, interest is in default thereon, such Bond shall bear interest from the Interest Payment Date to which interest has previously been paid or made available for payment thereon. So long as the Bonds are registered in the name of Cede & Co., as nominee of DTC, payments of the principal, premium, if any, and interest on the Bonds will be made directly to DTC, or its nominee, Cede & Co. Disbursements of such payments to DTC’s Participants is the responsibility of DTC and disbursements of such payments to the Beneficial Owners is the responsibility of DTC’s Participants and Indirect Participants, as more fully described herein. See “APPENDIX G - DTC and the Book-Entry Only System.”
Redemption
Optional Redemption. The Bonds are subject to optional redemption from any source of available funds (other than prepayments of the Special Tax by property owners), in whole or in part among maturities as specified by the City and by lot within a maturity, on any date on an d after September 1, 20__ at the following respective redemption prices (expressed as percentages of the principal amount of the Bonds to be redeemed), plus accrued interest thereon to the date of redemption:
Redemption Dates
Redemption
Price
September 1, 20__ through August 31, 20__ 103%
September 1, 20__ through August 31, 20__ 102
September 1, 20__ through August 31, 20__ 101
September 1, 20__ and any date thereafter 100
Mandatory Redemption from Prepayments. The Bonds are subject to mandatory redemption from prepayments of the Special Tax by property owners, in whole or in part among maturities as shall be specified by the City and by lot within a maturity, on any Interest Payment Date at the following respective redemption prices (expressed as percentages of the pr incipal amount of the Bonds to be redeemed), plus accrued interest thereon to the date of redemption:
Redemption Dates
Redemption
Price
Interest Payment Dates through and including March 1, 20__ 103% September 1, 20__ and March 1, 20__ 102
September 1, 20__ and March 1, 20__ 101
September 1, 20__ and any Interest Payment Date thereafter 100
See “BOND OWNERS’ RISKS – Potential Early Redemption of Bonds from Prepayments” for a discussion of the potential for the Bonds to be priced with original issue premium and then be redeemed from Special Tax prepayments prior to maturity.
Mandatory Sinking Fund Redemption. The Bonds maturing September 1, 20__ and September 1, 20__ (the “Term Bonds”) are subject to mandatory sinking payment redemption in part on September 1, 20__ and September 1, 20__, and on each September 1 therea fter to maturity, by lot, at a redemption price equal to one hundred percent (100%) of the principal amount thereof to be redeemed, without premium, in the aggregate respective principal amounts as set forth in the following tables:
ITEM 19.1.
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September 1, 20__ Term Bonds
Mandatory
Redemption Date
(September 1)
Sinking Fund
Payment
September 1, 20__ Term Bonds
Mandatory
Redemption Date
(September 1)
Sinking Fund
Payment
The amounts in the foregoing table shall be reduced pro rata, in order to maintain substantially uniform debt service, as a result of any prior partial optional redemption or mandatory redemption of the Bonds.
In lieu of redemption, moneys in the Bond Fund may be used and withdrawn by the Fiscal Agent for purchase of Outstanding Bonds, upon the filing with the Fiscal Agent of an Officer’s Certificate requesting such purchase, at public or private sale as and whe n, and at such prices (including brokerage and other charges) as such Officer’s Certificate may provide, but in no event may Bonds be purchased at a price in excess of the principal amount thereof, plus interest accrued to the date of purchase.
Redemption Procedure by Fiscal Agent. The Fiscal Agent shall cause notice of any redemption to be mailed by first class mail, postage prepaid, at least 20 days but not more than 60 days prior to the date fixed for redemption, to the Securities Depositories and to one or more Information Serv ices, and to the respective registered Owners of any Bonds designated for redemption, at their addresses appearing on the Bond registration books in the Principal Office of the Fiscal Agent; but such mailing shall not be a condition precedent to such redem ption and failure to mail or to receive any such notice, or any defect therein, shall not affect the validity of the proceedings for the redemption of such Bonds.
Such notice shall state the redemption date and the redemption price and, if less than all of the then Outstanding Bonds are to be called for redemption, shall designate the CUSIP numbers and bond numbers of the Bonds to be redeemed by giving the individual CUSIP number and number of each Bond to be redeemed or shall state that all Bonds between two stated numbers, both inclusive, are to be redeemed or that all of the Bonds of one or more maturities have been called for redemption, shall state as to any Bon d called in part the principal amount thereof to be redeemed, and shall require that such Bonds be then surrendered at the Principal Office of the Fiscal Agent for redemption at the said redemption price, and shall state that further interest on such Bonds will not accrue from and after the redemption date.
The City has the right to rescind any notice of the optional redemption of Bonds. Any notice of redemption shall be cancelled and annulled if for any reason funds will not be or are not available on the date fixed for redemption for the payment in full of the Bonds then called for redemption, and such cancellation shall not constitute an event of default.
ITEM 19.1.
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Upon the payment of the redemption price of Bonds being redeemed, each check or other transfer of funds issued for such purpose shall, to the extent practicable, bear the CUSIP number identifying, by issue and maturity, the Bonds being redeemed with the proceeds of such check or other transfer.
Whenever provision is made in the Fiscal Agent Agreement for the redemption of less than all of the Bonds of any maturity, the Fiscal Agent shall select the Bonds to be redeemed, from all Bonds or such given portion thereof of such maturity by lot in any manner which the Fiscal Agent in its sole discretion shall deem appropriate. Upon surrender of Bonds redeemed in part only, the City shall execute and the Fiscal Agent shall authenticate and deliver to the registered Owner, at the expense of the City, a ne w Bond or Bonds, of the same series and maturity, of authorized denominations in aggregate principal amount equal to the unredeemed portion of the Bond or Bonds.
Effect of Redemption. From and after the date fixed for redemption, if funds available for the payment of the principal of, and interest and any premium on, the Bonds so called for redemption shall have been deposited in the Bond Fund, such Bonds so called shall cease to be entitled to any benefit under the Fiscal Agent Agreement other than the right to receive payment of the redemption price, and no interest shall accrue thereon on or after the redemption date specified in such notice.
Transfer or Exchange of Bonds
So long as the Bonds are registered in the name of Cede & Co., as nominee of DTC, transfers and exchanges of Bonds shall be made in accordance with DTC procedures. See APPENDIX G. Any Bond may, in accordance with its terms, be transferred or exchanged by the person in whose name it is registered, in person or by his duly authorized attorney, upon surrender of such Bond for cancellation, accompanied by delivery of a duly written instrument of transfer in a form approved by the Fiscal Agent. Whenever any Bond or Bonds shall be surrendered for transfer or exchange, the City shall execute and the Fiscal Agent shall authenticate and deliver a new Bond or Bonds, for a like aggregate principal amount of Bonds of authorized denominations and of the same maturity. The cost for any services rendered or any expenses incurred by the Fiscal Agent in connection with any such transfer or exchange shall be paid by the City. The Fiscal Agent shall collect from the Owner requesting such transfer any tax or other governmental charge required to be paid with respect to such transfer or exchange.
No transfers or exchanges of Bonds shall be required to be made (i) within 15 days prior to the date established by the Fiscal Agent for selection of Bonds for redemption or (ii) with respect to a Bond after such Bond has been selected for redemption.
ITEM 19.1.
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SECURITY FOR THE BONDS
The Bonds are secured by and payable from a first pledge of the proceeds of the “Special Tax Revenues,” which means the proceeds of the Special Taxes annually received by the City, including all scheduled payments, prepayments and delinquent payments thereof, interest thereon and proceeds of the redemption or sale of property sold as a result of foreclosure of the lien of the Special Taxes, net of the Administrative Expense Priority and excluding any penalties and extraordinary Administrative Expenses collected in connection with any such foreclosure. “Administrative Expense Priority” means (i) for Fiscal Year 2027-28, $30,000, and (ii) for each subsequent year, an amount equal to the preceding fiscal year’s Administrative Expense Priority plus an additional 2% of such amount.
All of the Special Tax Revenues and all moneys deposited in the Bond Fund and, until disbursed as provided in the Fiscal Agent Agreement, the Improvement Fund and the Special Tax Fund are pledged to secure the repayment of the Bonds. In addition, the Bonds are secured by a pledge of all amounts in the Reserve Fund, and any series of additional bonds may be secured by a reserve account within the Reserve Fund or a separate reserve fund, as provided in the applicable Supplemental Agreement for such Series. Such pledge shall constitute a first lien on the Special Tax Revenues and said amounts.
The Special Tax Revenues and all moneys deposited into said funds are pledged to the payment of the principal of, and interest and any premium on, the Bonds as provided in the Fiscal Agent Agreement and in the Mello-Roos Act until all of the Bonds have been paid and retired or until moneys or Federal Securities (as defined in the Fiscal Agent Agreement) have been set aside irrevocably for that purpose. The City may issue additional bonds secured on a parity with the Bonds; see “– Additional Bonds” below.
Amounts in the Costs of Issuance Fund established under the Fiscal Agent Agreement are not pledged to the repayment of the Bonds. The Facilities are not in any way pledged to the repayment of the Bonds. Any proceeds of condemnation, destruction or other d isposition of any Facilities are not pledged to the repayment of the Bonds and are free and clear of any lien or obligation imposed under the Fiscal Agent Agreement.
Special Taxes
A Special Tax applicable to each taxable parcel in Improvement Area No. 4 will be levied and collected according to the tax liability determined by the City through the application of the Rate and Method prepared by Goodwin Consulting Group, Inc., Sacramento, California (the “Special Tax Consultant ”) and set forth in APPENDIX A hereto, for all taxable properties in Improvement Area No. 4. Interest and principal on the Bonds is payable from the annual Special Taxes to be levied and collected on such property within Improvement Area No. 4, from amounts held in certain funds and accounts established under the Fiscal Agent Agreement and from the proceeds, if any, from the sale of such property for delinquency of such Special Taxes.
The Special Taxes are exempt from the property tax limitation of Article XIIIA of the California Constitution, pursuant to Section 4 thereof as a “special tax” authorized by a two-thirds vote of the qualified electors. The levy of the Special Taxes was authorized by the City pursuant to the Mello- Roos Act in a maximum amount determined according to the Rate and Method approved by the City. See “– Rate and Method” below and “APPENDIX A – Rate and Method of Apportionment of Special Tax.”
ITEM 19.1.
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The amount of Special Taxes that the City may levy in any year on taxable property in Improvement Area No. 4, from which principal and interest on the Bonds is to be paid, is limited by the maximum rates approved by the qualified electors within Improvement Area No. 4 which are set forth as the “Maximum Special Tax” in the Rate and Method. Under the Rate and Method, Special Taxes will be levied annually in an amount not in excess of the Maximum Special Tax for the purpose of making payments on the Bonds. The Special Taxes and any interest earned on the Special Taxes shall constitute a trust fund for the principal of and interest on the Bonds pursuant to the Fiscal Agent Agreement a nd, so long as the amount levied for principal of and interest on these obligations remains unpaid, the Special Taxes and investment earnings thereon shall not be used for any other purpose, except as permitted by the Fiscal Agent Agreement, and shall be held in trust for the benefit of the owners thereof and shall be applied pursuant to the Fiscal Agent Agreement. The Rate and Method apportions the Special Tax Requirement (as defined in the Rate and Method and described below) among the taxable parcels of real property within Improvement Area No. 4 according to the rate and methodology set forth in the Rate and Method. See “ – Rate and Method” below. See also “APPENDIX A – Rate and Method of Apportionment of Special Tax.”
The City may levy the Special Tax at the Maximum Special Tax rate authorized by the qualified electors within Improvement Area No. 4 as set forth in the Rate and Method if conditions so require and the City has covenanted to annually levy the Special Taxes in an amount at least sufficient to pay the Special Tax Requirement (as defined below). Because each Special Tax levy for payment of the Bonds is limited to the Maximum Special Tax rates authorized as set forth in the Rate and Method, no assurance can be given that, in the event of Special Tax delinquencies, the amount of the Special Tax Requirement will in fact be collected in any g iven year. See “BOND OWNERS’ RISKS – Levy and Collection of the Special Tax” herein. The Special Taxes are collected for the City by the County in the same manner and at the same time as ad valorem property taxes.
In addition to the Maximum Special Tax rate limitation in the Rate and Method, 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.
Rate and Method
The Special Tax authorized under the Mello -Roos Act applicable to land within Improvement Area No. 4 will be levied and collected according to the tax liability determined by the City through the application of the appropriate amount or rate as described in the Rate and Method (defined terms set forth below in this section have the meanings set forth in the Rate and Method) set forth in “APPENDIX A – Rate and Method of Apportionment of Special Tax.” The Special Tax will be levied each year from parcels within Improvement Area No. 4 in an amount at least sufficient to pay debt service on outstanding Bonds and administrative expenses. The Special Tax is expected to be collected at the same time and in the same manner as ad valorem property taxes. The City reserves the right to collect the taxes in another manner if required to meet annual obligations of Improvement Area No. 4.
Each year, the City will determine the Special Tax Requirement for the upcoming fiscal year. The “ Special Tax Requirement ” is defined in the Rate and Method as the amount necessary in any fiscal year (i) to pay principal and interest on Bonds which are due in the ITEM 19.1.
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calendar year which begins in such fiscal year, (ii) to pay periodic costs for the Bonds, including but not limited to, credit enhancement, liquidity support and rebate payments on the Bonds, (iii) to replenish reserve funds to the extent such replenishment was not included in the computation of the Special Tax Requirement in a previous fiscal year , (iv) to cure any delinquencies in the payment of principal or interest on Bonds which have occurred in the prior fiscal year or, based on prior delinquencies, are expected to occur in the current fiscal year , (v) to pay Administrative Expenses, and (vi) to pay directly for Authorized Facilities, so long as such levy under this clause (vi) does not increase the Special Tax on Final Map Property or Undeveloped Property (as defined in the Rate and Method). The Specia l Tax Requirement components in clauses (i) and (ii) may be reduced in any fiscal year by (a) interest earnings on, or surplus balances in, funds and accounts for the Bonds to the extent that such earnings or balances are available to apply against debt service pursuant to the Indenture, Bond resolution, or other legal document that set for th these terms, (b) in the sole and absolute discretion of the City, proceeds received by the City from the collection of penalties associated with delinquent Special Taxes; and (c) any other revenues available to pay such costs as determined by the City.
Parcels Subject to the Special Tax. The City will prepare a list of the parcels subject to the Special Tax using the records of the City and the County Assessor. The City has the authorization to tax all parcels within Improvement Area No. 4 except tax-exempt parcels as described in the Rate and Method.
Each Fiscal Year, the Administrator shall: (i) assign each Parcel of Taxable Property to the appropriate Development Class, (ii) for Developed Property, categorize each Parcel as Single Family Property or Other Property, (iii) for Single Family Property, determine within which Village each Parcel of Developed Property is located and the number of Residential Units on the Parcel; (iv) for Other Property, determine the Acreage of each Parcel; and (v) determine the Special Tax Requirement for the Fiscal Year. In addition, the Administrator shall, on an ongoing basis, monitor the Tentative Map, Final Maps, and Building Permits to determine if there are any proposed Land Use Changes that would change the Expected Maximum Special Tax Revenues.
If the Expected Maximum Special Tax Revenues will be revised pursuant to a proposed Land Use Change, the Administrator shall apply the steps set forth in Section D of the Rate and Method. In any Fiscal Year, if it is determined that: (i) a parcel map for property in Improvement Area No. 4 was recorded after January 1 of the prior Fiscal Year (or any other date after which the Assessor will not incorporate the newly -created Parcels into the then current tax roll), (ii) because of the date the parcel map was recorded, the Assessor does not yet recognize the new Parcels created by the parcel map, and (iii) one or more of the newly-created Parcels is in a different Development Class and/or Land Use Category than other Parce ls created by the subdivision, the Administrator shall calculate the Special Taxes for the property affected by recordation of the parcel map by determining the Special Taxes that apply separately to the property within each Development Class and/or Land Use Category, then applying the sum of the individual Special Taxes to the Parcel that was subdivided by recordation of the parcel map.
Assignment of Maximum Special Tax. The Rate and Method describes in detail the precise method for assigning the Maximum Special Tax to parcels within Improvement Area No. 4, which generally provides that each year the City will use the definitions contained in the Rate and Method to classify each parcel as tax-exempt or taxable. Changes to maximum special tax rates due to Land Use Changes are handled pursuant to Section D of the Rate and Method. See APPENDIX A.
ITEM 19.1.
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Maximum Special Tax Rates. The Maximum Special Tax for a Parcel of Developed Property or Final Map Property is the greater of (i) the Base Special Tax set forth below, or (ii) the Maximum Special Tax determined pursuant to Section D of the Rate and Method. For additional details, see APPENDIX A.
Land Use Category
Fiscal Year 2027-28
Base Special Tax (1)(2)
Single Family Property
Village 22 $2,448.06 per Residential Unit / SFD Lot
Villages 18 & 21-2 $3,171.14 per Residential Unit / SFD Lot Village 15-2 $3,271.02 per Residential Unit / SFD Lot
Village 12-2 $4,174.08 per Residential Unit / SFD Lot
Other Property $35,019.86 per Acre
(1) On July 1 each fiscal year, the Maximum Special Taxes shall be increased by two percent of the amount in effect in the previous fiscal year.
(2) Represents the Maximum Special Tax based on currently -expected land uses in the CFD. Subject to change pursuant to Section D of the RMA.
Source: Goodwin Consulting Group, Inc.
In addition to the Maximum Special Tax rate limitation in the Rate and Method, 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.
Levy of Special Tax . Once the Special Tax Requirement has been determined for a particular Fiscal Year, the Special Tax will be levied according to steps set forth in the Rate and Method. See Section E of the Rate and Method set forth as APPENDIX A.
Termination of the Special Tax. The Special Tax will be levied until all Bonds have been repaid and all authorized facilities have been funded; however, Special Taxes cannot be levied under any circumstance after fiscal year 2065-66.
Prepayment of the Special Tax. The Special Tax obligation assigned to a particular parcel within Improvement Area No. 4 can be prepaid, which will release the parcel making the prepayment from the Mello-Roos special tax lien. Section H of the Rate and Method sets forth a detailed formula by which the prepayment for a parcel can be calculated. Proceeds of such prepayment will be used to redeem a portion of the Bonds and to fund facilities, as determined pursuant to Section H of the Rate and Method. See “THE BONDS – Redemption.”
ITEM 19.1.
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Projected Fiscal Year 2027-28 Special Tax Levy . The following table shows the projected Fiscal Year 2027-28 special tax levy by village for Improvement Area No. 4
Projected Fiscal Year 2027-28
Special Tax Levy By Village (1)
Village
Projected
FY 2027-28
Maximum
Special Tax Levy
Projected
FY 2027-28
Special Tax Levy
(2)*
Village 22 $220,325 $145,784
Villages 18 & 21-2 209,295 130,618
Village 15-2 166,822 111,489
Village 12-2 321,404 200,583
$917,847 $588,475
* Preliminary, subject to change.
(1) Based on building permits issued prior to August 1, 2026, and final maps recorded by June 30, 2026.
(2) Includes debt service due in 2028 on the Series 2026 Special Tax Bonds and estimated administrative expenses in the amount of $30,000.
Sources: Goodwin Consulting Group, Inc.
Special Tax Fund
When received, the Special Tax Revenues are required under the Fiscal Agent Agreement to be deposited into a Special Tax Fund to be held by the City in trust for the benefit of the City and the Owners of the Bonds. Within the Special Tax Fund, the City wi ll establish and maintain two accounts, (i) the Debt Service Account, to the credit of which the City will deposit, immediately upon receipt, all Special Tax Revenues, and (ii) the Surplus Account, to the credit of which the City will deposit surplus Speci al Tax Revenue as described below.
Moneys in the Special Tax Fund will be disbursed as provided below and, pending any disbursement, will be subject to a lien in favor of the Owners of the Bonds. Notwithstanding the foregoing, the City may semi -annually transfer from the Special Tax Fund so held an amount equal to one -half of the Administrative Expense Priority as necessary for the payment of Administrative Expenses up to the Administrative Expense Priority.
All Special Tax Revenue will be deposited in the Debt Service Account upon receipt. No later than 10 Business Days prior to each Interest Payment Date, the City will withdraw from the Debt Service Account of the Special Tax Fund and transfer (i) to the Fiscal Agent for deposit in the Reserve Fund, an amount which when added to the amount then on deposit therein, is equal to the Reserve Requirement, and (ii) to the Fiscal Agent for deposit in the Bond Fund an amount, taking into account any amounts then on deposit in the Bond Fund, such that the amount in the Bond Fund equals the principal, including any mandatory sinking fund payments, premium, if any, and interest due on the Bonds on the next Interest Payment Date. At such time as deposits to the Debt Service Account equal the principal, including any mandatory sinking fund payments, premium if any, and interest becoming due on the Bonds for the current Bond Year and the amount needed to restore the balance of the Reserve Fund to the Reserve Requirement, t he amount in the Debt Service Account in excess of such 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.
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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 th e Reserve Requirement, but are not pledged to payment of the Bonds. See “ – Assignment of Maximum Special Tax” above.”
Deposit and Use of Proceeds of Bonds
The Bonds are additionally secured by certain amounts generated from proceeds of the Bonds, together with interest earnings thereon pledged under the Fiscal Agent Agreement. The proceeds of the initial purchase of the Bonds shall be paid to the Fiscal Agent, who shall deposit such proceeds in the 2026 Costs of Issuance Fund, the Improvement Fund, the Bond Fund (for capitalized interest) and the Reserve Fund established under the Fiscal Agent 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 Bonds that it will annually on or before September 1 of each year review the public records of the County of Sacramento 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 deficient it will enforce the lien of the Special Taxes by commencing, or cause to be commenced, foreclosure proceedings to judgment and sale in such manner and upon such timing as advised by legal counsel, taking into account the amounts delinquent, the estimate cost of legal proceedings, the status of Special Tax collections and available debt service reserves, under the following circumstances:
(a) if the amount so collected is deficient by more than 5% of the total amount of the Special Tax levied in such Fiscal Year, it will enforce the lien on all delinquent parcels; or
(b) if property owned by any single property owner in Improvement Area No. 4 is delinquent on four or more consecutive semi -annual Special Tax installments (irrespective of the total delinquencies in Improvement Area No. 4) it will enforce the lien against such property.
Additionally, notwithstanding any of the foregoing, in certain instances the amount of a Special Tax delinquency on a particular parcel in relation to the cost of appropriate foreclosure proceedings may be such that the costs do not warrant the foreclosure proceedings costs. In such cases, the City will pursue collection efforts but foreclosure proceedings may be delayed by the City until there are sufficient Special Tax delinquencies accruing to such parcel (including interest and penalties thereon) to warrant the cost of such foreclosure proceedings.
ITEM 19.1.
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The owners of the 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 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 Rate and Method, the City may adjust the Special Taxes levied on all property within Improvement Area No. 4 subject to the Special Tax to provide an amount required to pay debt service on the 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 would 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 generally 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. 4 – 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 r isk of loss on unpaid delinquent taxes, it retains the penalties 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 has 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 is expected to be applicable to the Special Tax levies, but no assurance can be given that it will continue in any or all of the years that the Bonds are outstanding. Per a recent policy change, the County indicates it intends to remove parcels from th e Teeter Plan after one year of non- payment, effectively meaning that if the first and second installments are both delinquent, the County would not cover the full amount, and in the following year delinquencies on the subject parcel would also not be covered.
ITEM 19.1.
ATTACHMENT 3
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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. 4, the County’s Teeter Plan may help protect owners of the 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. 4 from its Teeter Plan permanently in any year while the 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 th e secured roll by that agency.
Reserve Fund
Under the Fiscal Agent Agreement, the Fiscal Agent established the Reserve Fund and a 2026 Reserve Account. Moneys in the 2026 Reserve Account are available for payment of the 2026 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 2026 Reserve Account an amount that is equal to the Reserve Requirement for the 2026 Bonds. The “ Reserve Requirement” is the least of (i) 125% of the average Annual Debt Service on the 2026 Bonds; (ii) Maximum Annual Debt Service on the 2026 Bonds; and (iii) 10% of the original principal amount of the 2026 Bonds (or, if the 2026 Bonds have more than a de minimis amount of original issue discount or premium, 10% of the issue price of the 2026 Bonds); provided, that –
(a) in no event shall the City be obligated to deposit an amount in the 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;
(b) the City may meet all or a portion of the Reserve Requirement with respect to the 2026 Bonds by depositing a Qualified Reserve Fund Credit Instrument in accordance with the Fiscal Agent Agreement; and
(c) the Reserve Requirement for the 2026 Bonds shall not increase thereafter but may decrease.
A separate reserve account will be established for each series of Additional Bonds.
Amounts deposited in the accounts of 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 respective Bonds secured by the account. Whenever a transfer is made from the ITEM 19.1.
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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.
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 Imp rovement 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 unt il the balance exceeds the Reserve Requirement; any amounts in excess of the Reserve Requirement 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 amount 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.
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 disburs ement from the Improvement Fund made in reliance upon any ITEM 19.1.
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requisition. When the City determines that all of the costs of the Facilities to be financed with 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 may, by a Supplemental Fiscal Agent Agreement, authorize the issuance of Additional Bonds, secured by the Special Tax Revenues equally and ratably with the Bonds, and the City may issue, and the Fiscal Agent may authenticate and deliver to the purchaser thereof, such Additional Bonds in the principal amount as shall be determined by the City, subject to the following specific conditions, which are hereby made conditions precedent to the issuance of any such Additional Bonds:
(i) No default in the Bonds Outstanding shall have occurred and then be continuing.
(ii) 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 a reserve requirement with respect to such Additional Bonds.
(iii) The Bonds of such Series shall be payable as to principal on September 1 in each year in which principal becomes due, and shall be payable as to interest semiannually on March 1 and September 1.
(iv) For each Bond Year tha t the Additional Bonds will be outstanding, projected Special Tax Revenues in each Fiscal Year if levied at the Maximum Special Tax rates, net of the Administrative Expense Priority, is equal to or greater than 110% of debt service due in the Bond Year that begins in the corresponding Fiscal Year (excluding any Debt Service payable from capitalized interest funded by such Additional Bonds).
(v) After giving effect to the issuance of the Additional Bonds, the aggregate value of all parcels in the CFD subject to the Special Tax, including then existing improvements and any facilities to be constructed or acquired with the proceeds of the Additional Bonds, as determined by an MAI appraisal 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 (A) the aggregate principal amount of the Additional Bonds proposed to be issued and the Bonds then outstanding plus (B) the aggregate principal amount of any bonds then outstanding and payable from assessments which are a lien against property in the CFD, plus (C) a portion of the aggregate principal amount of all bonds issued under the Mello- Roos Act then outstanding, and payable at least partial ly from special taxes to be levied on parcels of land subject to the Special Tax within the CFD (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 the District 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 against which 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 in the first year in which the Special Taxes ITEM 19.1.
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will be levied to pay debt service on the Additional Bonds), based upon information from the most recent available fiscal year.
Additional Bonds may be issued for the purpose of refunding any outstanding Bonds without meeting the foregoing clauses (iv) and (v), so long as debt service on the refunding Bonds in each Bond Year is less than debt service on the Bonds refunded.
Nothing in the Fiscal Agent Agreement prohibits the issuance of bonds, notes or obligations secured by the Special Tax Revenues on a subordinate basis to the Bonds or prohibits any Supplemental Fiscal Agent Agreement from providing for the issuance of Addi tional Bonds and pledging or otherwise providing, in addition to the security given or intended to be given by the Fiscal Agent Agreement, additional security for the benefit of such Additional Bonds or any portion thereof.
ITEM 19.1.
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DEBT SERVICE SCHEDULES
Debt Service Schedule. The annual debt service on the 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. 4
Special Tax Bonds Series 2026
Debt Service Schedule
Period Ending
Sept. 1
Bonds
Principal
Bonds
Interest(1)
Bonds
Total Debt Service
Total
_____________
(1) Interest on the Bonds due through September 1, 2027 will be paid from capitalized interest.
Source: Underwriter.
ITEM 19.1.
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Projected Debt Service Coverage. The projected debt service coverage on the Bonds for Fiscal Year 2027-28 is set forth below, and is based on the current status of development and only the Bonds outstanding. The Bonds have been structured so there is at least 110% debt service coverage from Special Tax Revenues in every year the Bonds are outstanding.
City of Rancho Cordova
The Ranch Community Facilities District No. 2021-1
Improvement Area No. 4
Special Tax Bonds Series 2026
Projected Fiscal Year 2027-28 Debt Service Coverage(1)(2)
Bond Year
Maximum
Special Tax
Developed
and Final Map
Property(3)
Priority
Administration(4)
Series 2026 Debt
Service*
Debt Service Coverage
from Developed and Final
Map Property *
2028 $917,847 ($30,000) $558,475 158.98%
* 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) Represents the Maximum Special Tax 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 August 1, 2026. Assumes no future development. For illustration purposes, the Maximum Special Tax may not be levied for fiscal year 2027/28 . (4) As defined in the Fiscal Agent Agreement, the Administrative Expense Priority for fiscal year 2027 -28 is $30,000 and escalates by 2% per year.
Sources: Piper Sandler & Co.; Goodwin Consulting Group, Inc.
ITEM 19.1.
ATTACHMENT 3
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IMPROVEMENT AREA NO. 4
Formation and Background
On December 6, 2021, the City Council, as legislative body of the District and Improvement Area No. 1, established the bonded indebtedness limit for the District in the principal amount of not to exceed $86,470,000 (excluding bonds 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 land within the Future Annexation Area, $66,120,000. Under the provisions of the Mello - Roos Act, since there were fewer than 12 registered voters residing within Improvement Area No. 1 at any point during the 90-day period preceding the adoption of the City’s resolution forming the District on December 6, 2021 (the “Resolution of Formation”), the sole qualified elector was the developer/landowner who was entitled to cast one vote for each acre or portion of an acre of land owned within Improvement Area No. 1. The landowner voted to incur the indebtedness and to approve the annual levy of Special Taxes to be collected within Improvement Area No. 1, for the purpose of paying for the Facilities, including repaying any indebtedness of Improvement Area No. 1, replenishing reserve funds and paying administrative expenses.
In April 2024, land designated as Improvement Area No. 2 of the District was annexed to the District from the Future Annexation Area, and an initial bond authorization was established for Improvement Area No. 2 in the amount of $14,000,000 , and land designated as Improvement Area No. 3 of the District was annexed to the District from the Future Annexation Area, and an initial bond authorization was established for Improvement Area No. 3 in the amount of $16,000,000.
In July 2025, land designated as Improvement Area No. 4 of the District was annexed to the District from the Future Annexation Area, and an initial bond authorization was established for Improvement Area No. 4 in the amount of $22,250,000 , and land designated as Improvement Area No. 5 of the District was annexed to the District from the Future Annexation Area, and an initial bond authorization was established for Improvement Area No. 5 in the amount of $13,870,000.
In October 2022, bonds were issued for Improvement Area No. 1 in the principal amount of $12,975,000. In March 2025, bonds were issued for Improvement Area No. 2 in the principal amount of $10,880,000. In October 2025, bonds were issued for Improvement Area No. 3 in the principal amount of $12,980,000.
The Bonds are the first series of special tax bonds issued for Improvement Area No. 4 and Additional Bonds are anticipated to be issued in the future, as development progresses . The Bonds are secured only by Special Taxes levied in Improvement Area No. 4; there is no cross - collateralization of security among improvement areas.
Description and Location
General. Land in the District is being developed by the JV Entity as part of K. Hovnanian’s “The Ranch” project, which is located within The Ranch Special Planning Area (“TRSPA”), which lies within the Sunridge Specific 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 o f Grant Line Road. The specific plan will include approximately 1,690 dwelling units (single and multi-family) at build out.
ITEM 19.1.
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Under the TRSPA “The Ranch” project was designated for development 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 feat ure 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 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.”
CFD Boundary Map. The following page show s the consolidated boundary map of the District (including Improvement Area Nos. 1 through 5 therein).
ITEM 19.1.
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[Insert Map 1 – CFD Consolidated Boundary Map]
ITEM 19.1.
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Development of the Overall Project
The JV Entity has provided the following information with respect to development of the Overall Project (defined below) within the District. No assurance can be given that all information is complete. No assurance can be given that development of the property will 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 gross acres of property located in the City being developed as “The Ranch” (the “Overall Project”). Currently the project is expected to include approximately 1,437 single family residences at build out. 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 commercial 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. As of August 1, 2026, there have been 601 homes developed and closed with homeowners.
The Age Qualified Project. The Age Qualified Project is being developed by the JV Entity under K. Hovnanian’s Four 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. As of August 1, 2026, there have been 117 closings to homeowners in Phase V (i.e., Improvement Area No. 3).
The Age Qualified Project offer s a range of amenities, including a linear park, a pocket park, miles of nature trails, and multiple acres of open space. The project also features a resort- style clubhouse complex featuring three buildings: a main clubhouse building of approximately ITEM 19.1.
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11,470 square feet; a fitness building with indoor pool and spa of approximately 12,600 square feet; and an events building of approximately 5,400 square feet. The clubhouse complex features indoor and outdoor swimming pools, fitness center, pickleball courts, bocce ball courts, horseshoe pit, café and dining area, catering kitchen, billiards and lounge.
A homeowner’s association (HOA) has been established for common area maintenance and community amenities. At build -out, the JV Entity estimates that dues will be approximately $250 per home, per month.
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.
Status of Backbone Improvements
The conditions of development for the Overall Project require the construction of various improvements at various times. As of August 1, 2026, approximately 829 (EDU) building permits have been issued in the Overall Project. The following conditions impact the property in Improvement Area No. 4:
A. Rancho Cordova Parkway: Prior to the issuance of more than 1,184 EDU building permits in the Overall Project (excluding model homes and the clubhouse), Rancho Cordova Parkway (including but not limited to sidewalks, landscaping, signals and pad push buttons) shall be substantially complete to the satisfaction of the Public Works Department within the limits shown on the phasing plan (generally from Chrysanthy Boulevard to the southern SPA boundary).
B. Signals B and C: Prior to the issuance of more than 1,184 (EDU) building permits within the Overall Project ( excluding model homes ), Signal B (located on Chrysanthy Boulevard approximately 1 ,000-feet east of Rancho Cordova Parkway) and Signal C (located on Chrysanthy Boulevard at the front entrance to Caymus Community Park) shall be complete to the satisfaction of the Public Works Department.
C. North Campus Road: Prior to issuance of more than 1,200 EDU building permits (excluding model homes and the clubhouse) within the Overall Project, p roject frontage of the North Campus Road shall be substantially complete to the satisfaction of the City. If project frontages are required to connect future phases of improvement road to Americanos Blvd or Rancho Cordova Parkway at the required time of construction, and with prior approval from the Public Works Department, developer may construct the required portion of North Campus Road or obligations in-lieu of construction in an amount of engineer’s estimate for said frontage including reasonable design and administrative costs. K. Hovnanian and the City have agreed that the In Lieu Fee for such work is $1.2 million.
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 468th market rate production building permit is issued; provided, however, that in lieu of starting construction, K. Hovnanian was permitted to provide a construction bond ITEM 19.1.
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to cover the anticipated costs of the park. K. Hovnanian started outreach and design prior to the 242nd building permit and, pursuant to an amendment to the Park Agreement, posted the required construction bond . With the construction bond in place, K. Hovnanian can continue building and selling market rate units, notwithstanding the 468 market unit limitation referenced in the original Park Agreement . K. Hovnanian is currently under construction on the Community Park, and anticipates construction will be completed by Fall 2027.
E. Onsite Infrastructure: All of Improvement Area No. 4 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 all Villages in Improvement Area No. 4 other than Village 12-2, all onsite infrastructure is completed.
The Village 12 -2 lots are graded, underground utilities are complete, and topside infrastructure is underway, with paving and substantial completion anticipated by December 2026.
There were several other conditions that have been previously complied with, including:
A. Chrysanthy Blvd.: K. Hovnanian was 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: complete.
B. Detention Basin 4: Prior to the issuance of the first building permit in Village 13, Detention Basin 4 must be substantially complete, and prior to the first occupancy permit in Village 13, Detention Basin 4 must be complete. Status: complete.
C. Detention Basin 5: Prior to the issuance of the first building permit in Villages 15-1,19, 20, and 21- 1, Detention Basin 5 must be substantially complete, and prior to the first occupancy permit in Villages 15 -1,19, 20, and 21 -1, Detention Basin 5 must be complete. Status: complete.
D. Neighborhood Park in Village 8: Pursuant to the Park Development Agreement dated June 17, 2020 by and between the Cordova Recreation and Park District (the “Park District”) and K. Hovnanian, as amended by the First Amendment to Park Development Agreement The Ranch Development dated August 21, 2024, by and between the Park District and K. Hovnanian (as amended, 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 of the park is complete and the park was accepted by the Cordova Recreation and Park District on August 21, 2024. Status: complete.
Development in Improvement Area No. 4
Status of Development . The property in Improvement Area No. 4 consists of approximately 52.04 acres comprised of 284 Age Qualified residential lots as Phase V I of the Overall Project. Development by the JV Entity is underway as multiple product lines of the Age Qualified Project within 5 villages, comprising 4 marketing neighborhoods. Typical lot sizes range from 4,000 to 6,300 square feet.
ITEM 19.1.
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All of the 284 units planned for Improvement Area No. 4 are production homes. The model homes for Improvement Area No. 4 are located in Improvement Area No. 3. Additional development details follow in and after the table.
Improvement Area No. 4 of
The Ranch Community Facilities District No. 2021-1
Status of Development – As of August 1, 2026
Neighborhood
Total
No.
Planned
Units
Sq. Ft. Range
Estimated
Base Sales Price(1)
No.
Building
Permits
Issued
Units Under
Construction(2)
Units
Completed
and
Unsold or
in Escrow
Sold
and
Closed
Homes
Spring 65 1,670 – 1,978 $495,990 – 507,990 0 0 0 0
Summer 52 1,771 – 2,076 $512,990 – 528,990 6 6 0 0
Autumn 77 2,264 – 2,916 $596,990 – 681,990 0 0 0 0
Winter 90 1,307 – 1,701 $422,990 – 461,990 9 9 0 0
Totals 284 15 15 0 0
(1) Base sale prices are estimated as of August 1, 2026. 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. (2) A unit is considered under construction when trenching begins on the lot, and a building permit has been received .
Source: JV Entity.
Spring (65 lots). The Spring product line is located in Villages 1 8 and 21-2 and is being developed as 65 single-family residential units with 3 floor plans. Each Spring lot is approximately 44’ x 105’ (traditional lot configuration).
Summer (52 Lots). The Summer product line is located in Village 15 -2 and is being developed as 52 single-family residential units with 3 floor plans. Each Summer lot is approximately 50’ x 105’ (traditional lot configuration).
Autumn ( 77 Lots). The Autumn product line is located in Village 12-2 and is being developed as 77 single-family residential units with 4 floor plans. Each Autumn lot is approximately 60’ x 105’ (traditional lot configuration).
Winter (90 Lots). The Winter product line is located in Village 22 and is being developed as 90 single-family residential units with 4 floor plans (56 homes in a “4 -pack” lot configuration and 34 homes with a traditional lot configuration).
Developer Financing Plan. To date, K. Hovnanian and the JV Entity have financed the land acquisition and various site development and homebuilding costs related to its property in Improvement Area No. 4 through internally generated funds and through a construction loan (the “Construction Loan”) with Western Alliance Bank (“Western”).
As of August 1, 2026 , K. Hovnanian , on behalf of the JV Entity, has completed work estimated to cost approximately $ 15,741,641 for land development and approximately $ ____ million on homebuilding, marketing and sales costs in Improvement Area No. 4. K. Hovnanian, on behalf of the JV Entity, expects to complete work costing approximately $3,896,840 on remaining land development, and approximately $___ million on homebuilding, marketing, and sales costs in Improvement Area No. 4. K. Hovnanian expects to use the proceeds of the Construction Loan (described below) and internal funding to complete its development within Improvement Area No.
ITEM 19.1.
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4, and believes that it will have sufficient funds available to complete its planned development as described in this Official Statement.
On March 28, 2025, the JV Entity entered into the Construction Loan with Western, which includes an A&D loan in the principal amount of up to $79,800,000 and a revolving line of credit of up to $30,000,000 (for a total of $109,800,000). The Construction Loan is secured by a Deed of Trust recorded against the property in Improvement Area No. 4 (and elsewhere in the Overall Project) owned by the JV Entity. The Deed of Trust secures a debt in the maximum principal amount of $109,800,000. The Construction Loan (both the A&D loan and the revolving line of credit) is due on March 28, 2028, but is subject to two 12-month extensions.
The lien of the Construction Loan Deed of Trust on property in Improvement Area No. 4 has been, and will be, reconveyed with each home sale. If there is a default under the Construction Loan, Western could seek foreclosure of the Deed of Trust on the property in Improvement Area No. 4 (as well as other property owned by the JV Entity) to cure the delinquency.
As of August 1, 2026, the outstanding balance of the A&D Loan was $47,010,898.75. The A&D Loan is not a revolver and once principal is paid back, it is no longer available for additional borrowing. The amount available as of August 1, 2026 is approximately $11.4 million.
As of August 1, 2026, the outstanding balance of the revolving line of credit was $14,609,302.87, leaving the available balance on the revolving line of credit of $15,390,697.13.
As the principal of the revolving line of credit is paid, such amounts may be reborrowed, so long as the outstanding amount does not exceed $30 million.
Interest on the Construction Loan is payable monthly. As of August 1, 202 6, the Construction Loan is in good standing.
Although the JV Entity expects to have sufficient funds available to complete its development in Improvement Area No. 4 as described in this Official Statement, there can be no assurance that amounts necessary to finance the development costs will be available from the JV Entity, the Construction Loan, or any other source when needed. Neither K. Hovnanian, the JV Entity, 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. 4. Any contributions by K. Hovnanian, the JV Entity, or any related parties to fund the costs of such development are entirely voluntary.
If and to the extent that internal funding and the Construction Loan are inadequate to pay the costs to complete the planned development by the JV Entity within Improvement Area No. 4 and other financing is not put into place, there could be a shortfall in the funds required to complete the planned development in Improvement Area No. 4.
Except as described in this Official Statement and except for those consents, permits, authorizations, certifications and approvals of governmental entities required in the ordinary course of development, the JV Entity 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 its ability to complete the planned development of its property within Improvement Area No. 4 as described in the Official Statement. The JV Entity 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 19.1.
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Environmental Factors
Flood Hazard Map 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 -0317H, revised 8/16/2012. Land in the District meets the requirements of 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, and a 1602 Streambed Alteration Agreement from CDFW for the overall project. Section 404 of the Clean Water Act requires authorization from the Secretary of the Army, acting through the Corps of Engineers, for the discharge of dredged or fill material into all waters of the United States, including wetlands; K Hovnanian has obtained the required 404 permit for development to occur in Improvement Area No. 4. In addition, the project has permits and approvals from the State and approximately 198 acres of wetland preserve.
Seismic Conditions. All properties in California are subject to some degree of seismic risk. The Alquist- Priolo Earthquake Fault Zoning Act was enacted by the State of California in 1972 to regulate development near active earthquake faults. The Act required the State Geologist to delineate “Earthquake Fault Zones” (formerly known as “Special Studies Zones”) along known active faults in California. Cities and counties affected by the identified zones must limit certain development projects within the zones unless geologic investigations demonstrate that the sites are not threatened by surface displacement from future faulting.
According to information from the California Department of Conservation and the California Geological Survey, the subject is not located within an Alquist -Priolo Special Studies Zone. The subject is not located in a liquefaction zone.
Wildfire Hazards. The Fire and Resource Assessment Program of CAL FIRE has classified areas in California by Fire Hazard Severity Zone. Land in Improvement Area No. 4 is classified in a “moderate” Fire Hazard Severity Zone (FHSZ), as defined by CAL FIRE.
ITEM 19.1.
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THE FACILITIES
Eligible Facilities
The Facilities eligible to be financed by the District (including Improvement Area No. 4 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 fa cilities, 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. 4 therein), as well as incidental expenses as authorized by the Mello-Roos Act.
The proceeds of the 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 Bonds (the “Facilities,” as described below). See “FINANCING PLAN” for additional details.
Acquisition by the City and other Local Agencies
In connection with the formation of the District, the City and K. Hovnanian entered 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 Bonds will be used to pay all or a part of the purchase p rice of various Facilities pursuant to the terms of the Acquisition Agreement. The portion of the cost of construction of the Facilities, which will not be provided from District bond proceeds, will be the responsibility of K.
Hovnanian.
Joint community facilities agreements have been or will be entered into with the Cordova Recreation and Park District, Sacramento County Water Agency and/or the Sacramento Regional County Sanitation District so that a portion of the proceeds of the District bonds may finance the development impact fees and/or Facilities to be acquired by those local agencies.
The Rate and Method 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 19.1.
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OWNERSHIP OF PROPERTY WITHIN IMPROVEMENT AREA NO. 4
Unpaid Special Taxes do not constitute a personal indebtedness of the owners of the parcels within Improvement Area No. 4. 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 the 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 owners of property within Improvement Area No. 4 of the Special Tax or the principal or interest on the Bonds, or the ability to control who becomes a subsequent owner of any property within Improvement Area No. 4.
The JV Entity has provided the information set forth below. No assurance can be given that all information is complete. No assurance can be given that development of the property will be completed, or that it will be completed in a timely manner. The Special Taxes are not personal obligations of K. Hovnanian , the JV Entity, or of any subsequent landowners; the Bonds are secured only by the Special Taxes and moneys available under the Fiscal Agent Agreement. See “SECURITY FOR THE BONDS” and “BOND OWNERS’ RISKS” herein.
JV Entity. As noted above, on January 30, 2025, K. Hovnanian sold all but 21 of the lots to be developed with Age Qualified units in the Overall Project to GTIS -HOV Holdings XVI LLC, a California limited liability company ( previously defined as the “JV Entity”), including all of the lots in Improvement Area No. 4. The 21 lots not purchased by the JV Entity were 10 of the 11 model home lots and 11 additional lots that were already under construction and were subsequently sold to individual homeowners outside of Improvement Area No. 4 . As of August 1, 2026, all of the property in Improvement Area No. 4 was owned by the JV Entity.
The JV Entity is a joint venture between K. Hovnanian and GTISCal at Four Seasons at the Ranch LLC, a Delaware limited liability company (“GTISCal”). GTISCal has a 50.1% interest in the JV Entity and K. Hovnanian has a 49.9% interest in the JV Entity.
GTISCal is an affiliate of GTIS Partners (“ GTIS”). GTIS is an investor in real estate in the United States and Brazil. GTIS has investments in 11,285 apartments 5,649 build- to-ren units, and 56,638 single family units in the U.S.
K. Hovnanian is the managing member of the JV Entity.
K. Hovnanian and the JV Entity entered in a Master Services Agreement, wherein K.
Hovnanian, as an independent contractor and not an employee of JV Entity, contracted to develop and construct the Age Qualified portion of the Overall Project on behalf of the JV Entity.
K. Hovnanian. K. Hovnanian is an indirect, wholly -owned subsidiary of Hovnanian Enterprises, Inc., a Delaware corporation (“ Hovnanian”), which is based in Matawan, 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.
ITEM 19.1.
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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 incorpo rated into this Official Statement by reference.
VALUE OF PROPERTY WITHIN IMPROVEMENT AREA NO. 4
Assessed Valuation
The value of taxable property within Improvement Area No. 4 is a critical factor in determining the investment quality of the Bonds. The remedy for non-payment of the Special Tax is potential foreclosure of the delinquent real property.
Assessed Valuation Generally. As provided by Article XIIIA of the California Constitution, county assessors’ assessed values are to reflect market value as of the date the property was last assessed (or 1975, whichever is more recent), increased by a maximum of 2% per year. Properties may be reassessed by the County only upon a change of at least 51% ownership of existing property or upon new construction. The assessed values of parcels in the District thus reflect the estimate of the County Assessor (the “ Assessor”) of market value when acquired (or 1975, whichever is later), possibly increased by up to 2% per year, and for parcels on which construction has occurred since their date of acquisition, the Assessor’s estimate of market value as of the time of construction, possibly increased by up to 2% per year.
The following table provides assessed valuations of taxable property in Improvement Area No. 4 for Fiscal Year 2026-27.
Table 1
City of Rancho Cordova
The Ranch Community Facilities District No. 2021-1
Improvement Area No. 4
Special Tax Bonds Series 2026
History of Assessed Valuation
Fiscal Year
Assessed Land
Value
Improvement
Assessed Value
Total Assessed
Value
Building Permits
Issued (1) (2)
2026-27 $32,062,308 $0 $32,062,308 0
______________________
(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. As of June 1, 2026, 0 building permits have been pulled. (2) As of August 1, 2026, the date of value, 15 building permits have been pulled. Assumes no further development.
Source: Sacramento County Assessor’s Office, Goodwin Consulting Group, inc.
Appraised Value
General. In order to obtain a more accurate estimate of the value of land in Improvement Area No. 4, the City ordered preparation of an appraisal report (the “Appraisal”), as of the August 1, 2026 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 ITEM 19.1.
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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. 4, which, as of the date of value, encompasses land within The Ranch at Sunridge Specific Plan area at the southeastern portion of the City, primarily south of Douglas Road, east of Rancho Cordova Parkway, and west and north of Grant Line Road. Land in Improvement Area No. 4 is developing into 284 age-restricted (55+) single -family homes as part of K. Hovnanian’s “Four Seasons at the Ranch” community. 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. 4 designated for public and quasi- public purposes and assumes completion of infrastructure funded by the 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 Bonds have been paid. The value estimate for the property as of the August 1, 2026 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 $49,850,000. based on the following summary.
Appraised Property Summary by Ownership
as of August 1, 2026
Owner
Lots/
Homes
Value per
Component
Market
Value (Rd.)
JV Entity
Partially-Improved Lots
Spring Collection 65 $183,615 $11,935,000
Summer Collection 46 192,365 8,849,000
Autumn Collection 77 161,908 12,467,000
Winter Collection 81 163,344 13,231,000
Homes Under Construction
Summer Collection 6 241,955 1,452,000
Winter Collection 9 212,934 1,916,000
Totals 284 $49,850,000
___________________
Source: Appraisal.
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 sub ject lot categories and adjustments to the benchmark lot values are considered, as applicable. This value estimate represents a “not -less-than” value based on the market value for the smallest floor plan for each product line improved with a completed home without a complete assessed improvement value reflected on the County Assessor’s tax roll.
The final market value estimate employed the sales comparison approach and land residual analysis, as detailed in the Appraisal in APPENDIX B . The estimate of market value accounts for the impact of the lien of the Special Taxes securing the Bonds.
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Hypothetical Condition. The market value estimated by the Appraiser is based on a hypothetical condition. A hypothetical condition is defined by USPAP as “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 Bonds will be used to reimburse K. Hovnanian for certain improvements already completed.
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 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 Substances” below. See “APPENDIX B – The Appraisal” hereto for a descript ion 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.
Limitations of Appraisal Valuation. Property values may not be evenly distributed throughout Improvement Area No. 4; 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. 4 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.
For a description of certain risks that might affect the assumptions made in the Appraisal, see “BOND OWNERS’ RISKS” herein.
ITEM 19.1.
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Value to Special Tax Burden Ratios
The principal amount of the direct and overlapping debt in Improvement Area No. 4 is $10,000,000*, which consists of the estimated amount of Bonds ($10,000,000*) and $________ of overlapping general obligation and CFD bond debt (overlapping debt is based on a report prepared by California Municipal Statistics, Inc. for fiscal year 2026-27). Consequently, the estimated value of property in Improvement Area No. 4 subject to the Special Tax lien ($49,850,000), is approximately 5.0* times the principal amount of the direct and overlapping debt in Improvement Area No. 4. 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. 4 to the principal amount of the Bonds and other direct and overlapping debt for Improvement Area No. 4, 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. 4 cannot be foreclosed upon as a whole to pay delinquent Special Taxes of the owners of such parcels within Improvement Area No. 4 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 agencies whose boundaries overlap those of Improvement Area No. 4 could, without the consent of the City and in certain cases without the consent of the owners of the land within Improvement Area No. 4, impose additional taxes or assessment liens on the land within Improvement Area No. 4. The purpose would be to finance additional regional or local public improvements or services. The lien created on the land within Improvement Area No. 4 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. 4 or home loans may be obtained by ultimate homeowners. The deeds of trust securing such debt on property within Improvement Area No. 4, however, will be in a junior position to the lien of the Special Tax.
The land within Improvement Area No. 4 is located within the boundary of an Elk Grove Unified School District community facility district, pursuant to which an annual special tax of $200 per parcel will be levied following issuance of a building permit. As additional development occurs in Improvement Area No. 4 the Elk Grove Unified School District CFD lien amount may be larger than what is shown.
* Preliminary; subject to change.
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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. 4 for fiscal year 2027-28, based on the status of development as of August 1, 2026 and assuming no further development. Value-to-lien ratios on individual parcels may vary considerably from any average.
Table 2
Improvement Area No. 4 of City of Rancho Cordova
The Ranch Community Facilities District No. 2021-1
Special Tax Bonds Series 2026
Value-to-Lien Ratios by Development Status – Projected for Fiscal Year 2027-28
Ownership and
Development
Status (1)
No. of
Units
Appraised
Value(2)*
Projected
FY 2027-
28 Maximum
Special
Tax*
Projected
FY 2027-
28 Special
Tax
Levy(3)*
Percent
of
Projected
Special
Tax
Levy*
CFD
Bonds(4)*
Overlapping
Debt(5) *
Total
Debt*
Average
Appraised
Value-to-
Lien*
GTIS-HOV Holdings XVI, LLC
Developed
Property
Village 15-2 6 $1,452,000 $19,626 $19,626 3.3% $333,508 $10,532 $344,040 4.2 Village 22 9 1,916,000 22,033 22,033 3.7 374,401 23,139 $397,540 4.8
Final Map
Property
Village 22 81 13,231,000 198,293 123,752 21.0 2,102,924 205,108 $2,308,032 5.7 Village 18 41 7,536,985 130,017 81,141 13.8 1,378,843 68,585 $1,447,428 5.2 Village 21-2 25 4,590,385 79,279 49,477 8.4 840,758 66,353 $907,111 5.1 Village 15-2 45 8,656,630 147,196 91,863 15.6 1,561,035 78,903 $1,639,938 5.3 Village 12-2 77 12,467,000 321,404 200,583 34.1 3,408,531 208,519 $3,617,050 3.4 Total 284 $49,850,000 $917,847 $588,475 100.0% $10,000,000 $661,138 $10,661,138 4.7
* Preliminary; subject to change.
(1) Based on building permits issued prior to August 1, 2026, and final maps recorded by June 30, 2026. (2) Appraised values were allocated to the individual parcels based on the expected development and lot status for each parce l, as reported in the Appraisal. The allocated appraised values may not be indicative of the market values of the Villages or the i ndividual lots. (3) As of August 1, 2026, the date of value, 15 building permits have been pulled. Assumes no further development. Includes debt service due in 2028 on the Series 2026 Special Tax Bonds and estimated administrative expenses in the amount of $30,000.
(4) Includes the $10,000,000 par amount of the Series 2026 Special Tax Bonds. Allocated based on the projected fiscal year 2027 -28 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 fiscal year 2025-26. Does not include any PACE liens secured by assessments or special taxes on the property.
Sources: Piper Sandler & Co.; Integra Realty Resources, Inc.; California Municipal Statistics, Inc.; Goodwin Consulting Group , Inc.
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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. 4 for Fiscal Year 2027-28.
Table 3
Improvement Area No. 4 of City of Rancho Cordova
The Ranch Community Facilities District No. 2021-1
Special Tax Bonds Series 2026
Value-to-Lien Ratio Ranges – Projected for Fiscal Year 2027-28
Appraised
Value-to-Lien
Category
No. of
Units*
Appraised
Value(1)*
Projected
FY 2027-28
Special
Tax
Levy(2)*
Percent of
Projected
Special
Tax Levy*
CFD
Bonds(3)*
Overlapping
Debt(4)* Total Debt*
Average
Appraised
Value-to-
Lien*
Greater than 5:1 192 $34,015,000 $346,233 58.8% $5,883,561 $418,949 $6,302,509 5.4 3:1 to 5:1 92 15,835,000 242,242 41.2% 4,116,439 242,190 4,358,629 3.6 Total 284 $49,850,000 $588,475 100.0% $10,000,000 $661,138 $10,661,138 4.7
* 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 may not be indicative of the market values of the Villages or the indiv idual lots. (2) As of August 1, 2026, the date of value, 15 building permits have been pulled. Assumes no further development. Includes debt service due in 2028 on the Series 2026 Special Tax Bonds and estimated administrative expenses in the amount of $30,000. (3) Includes the $10,000,000 par amount of the Series 2026 Special Tax Bonds. Allocated based on the projected fiscal year 2027 -28 special tax levy. (4) Includes the overlapping debt liens listed under Direct and Overlapping Tax and Assessment Debt in the overlapping debt repor t prepared by California Municipal Statistics, Inc. The overlapping debt report is based on the parcels and assessed values as of f iscal year 2025 -26. Does not include any PACE liens secured by assessments or special taxes on the property.
Sources: Piper Sandler & Co.; Integra Realty Resources, Inc.; California Municipal Statistics, Inc.; Goodwin Consulting Group , Inc.
Priority of Lien
The principal of and interest on the Bonds are payable from the Special Tax authorized to be collected within Improvement Area No. 4, and payment of the Special Tax is secured by a lien on certain real property within Improvement Area No. 4. 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 they are imposed on the property in Improvement Area No. 4. 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. 4. 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 finance 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. 4, may be placed upon property in Improvement Area No. 4 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 19.1.
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Set forth below is a statement of direct and overlapping public bonded debt (the “Overlapping Debt Report”) prepared by California Municipal Statistics, Inc. based on the parcels and assessed values as of fiscal year 2025-26. Does not include any PACE liens secured by assessments or special taxes on the property. 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. 4 in whole or in part. The second column shows the assessed value of the area common to Improvement Area No. 4 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. 4. In addition to the bonded debt shown in the Overlapping Debt Report, various local agencies, including the City, levy additional parcels charges, assessments and special taxes on parcels in Improvement Area No. 4. See Table 6 for estimated amounts of these parcel charges, assessments and special taxes for Fiscal Year 2025-
26. 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 2025-26.
Elk Grove Unified School District. Land in the District is within the Elk Grove Unified School District and subject to tax for payment of a portion of its general obligation bonds and Community Facilities District No. 1 bonds. The original authorization for the general obligation bonds is $476.0 million and no unused authorization remains. The authorization for the Community Facilities District No. 1 bonds is $205 million and the current unused authorization is approximately $17.2 million. In addition, the school district successfully passed Measure N on the November 2024 ballot, which authorized the school district to issue an additional $542 million of general obligation bonds. Likewise, the Sacramento Metropolitan Fire District successfully passed its Measure O on the November 2024 ballot, which authorized the issuance of $415 million of general obligation bonds. The Measure O has $255 million in authorization remaining.
ITEM 19.1.
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Table 4
Improvement Area No. 4 of City of Rancho Cordova
The Ranch Community Facilities District No. 2021-1
Special Tax Bonds Series 2026
Direct and Overlapping Indebtedness
As of August 1, 2026
2025-26 Local Secured Assessed Valuation: $31,849,287
DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT: % Applicable Debt 8/1/26 Los Rios Community College District General Obligation Bonds 0.011% $26,618 Elk Grove Unified School District General Obligation Bonds 0.056 309,604 Elk Grove Unified School District Community Facilities District No. 1 0.324 274,245 Sacramento Metro Fire District General Obligation Bonds 0.032 50,671 City of Rancho Cordova Community Facilities District No. 2021-1, I.A. 4 100.000 0(1) TOTAL DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT $661,138
OVERLAPPING GENERAL FUND DEBT:
Sacramento County General Fund Obligations 0.013% $10,187 Sacramento County Pension Obligation Bonds 0.013 21,464 Sacramento County Board of Education Certificates of Participation 0.013 74 Elk Grove Unified School District Certificates of Participation 0.056 55,897 City of Rancho Cordova Certificates of Participation 0.217 20,952 Sacramento Metropolitan Fire General Fund Obligations 0.032 2,038 Sacramento Metropolitan Fire Pension Obligation Bonds 0.032 5,492 Cordova Recreation and Park District General Fund Obligations 0.140 6,970 TOTAL GROSS OVERLAPPING GENERAL FUND DEBT $123,074
Less: Sacramento County supported obligations 1,030 TOTAL NET OVERLAPPING GENERAL FUND DEBT $122,044
GROSS COMBINED TOTAL DEBT $784,212 (2)
NET COMBINED TOTAL DEBT $783,182
Ratios to 2025-26 Local Secured Assessed Valuation:
Direct Debt ($0) ........................................................................... 0.00% Total Direct and Overlapping Tax and Assessment Debt ............. 2.08% Gross Combined Total Debt ......................................................... 2.46% Net Combined Total Debt ............................................................. 2.46% ____________________
(1) Excludes Mello-Roos Act bonds to be sold.
(2) Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue and non -bonded capital lease obligations.
Source: California Municipal Statistics, Inc.
ITEM 19.1.
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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 2026-27.
Table 5
Improvement Area No. 4 of City of Rancho Cordova
The Ranch Community Facilities District No. 2021-1
Special Tax Bonds Series 2026
Sample Tax Bill – Fiscal Year 2026-27
Village 22 Village 15-2
Net Taxable Value Amount Amount
Estimated Market Values(1) $460,000.00 $540,000.00
Less: Homeowner's Exemption (7,000.00) (7,000.00)
Net Taxable Value $453,000.00 $533,000.00
Ad Valorem Property Taxes(2) Rate Amount Amount
Base Property Tax 1.0000% $4,530.00 $5,330.00
Sacramento Metro Fire District General Obligation Bond 0.0098% $44.39 $52.23 Elk Grove Unified General Obligation Bond 0.0249% $112.80 $132.72 Los Rios College General Obligation Bond 0.0208% $94.22 $110.86 Total Ad Valorem Property Taxes 1.0555% $4,781.42 $5,625.82
Parcel Charges, Assessments, and Special Taxes(2)(3) Amount Amount Rancho Cordova Lighting District 2012-1 $2.56 $2.56
Transit Related Services Zone 2(4) $114.50 $114.50
Rancho Cordova CFD 2014-2 $350.74 $350.74
Rancho Cordova CFD No. 2013-2(4) $473.10 $473.10
Rancho Cordova CFD No. 2018-2 $24.74 $24.74
Elk Grove USD CFD No. 1 $200.00 $200.00
CRPD CFD No. 2018-1 $177.08 $177.08
SCGA SGMA Fee $2.50 $2.50
The Ranch IA 4 CFD No. 2021-1(4)(5) $2,400.06 $3,206.88 Total Parcel Charges, Assessments, and Special Taxes $3,745.28 $4,552.10
Total Taxes $8,526.69 $10,177.92
Total Effective Tax Rate 1.85% 1.88%
(1) Represents the base retail values provided in the Appraisal. Actual home sale prices will vary, which may increase or decrease the total effective tax rate from that shown.
(2) Based on fiscal year 2025-26 charges identified on the Sacramento County -issued property tax bills. Charges subject to change in future years.
(3) Does not include any PACE liens secured by assessments or special taxes on the property. (4) Equal to the applicable Maximum Special Tax rate in fiscal year 2026 -27. (5) No special taxes were levied in fiscal year 2026- 27.
Sources: Sacramento County Tax Collector's Office; Goodwin Consulting Group, Inc.
ITEM 19.1.
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Special Tax Collections and Delinquencies
Fiscal Year 2027-28 is the first fiscal year during which the Special Tax will be levied, with the first payment due in December 2027. Accordingly, there is no history of collections and delinquencies. The levy of Special Taxes in Improvement Area No. 4 is currently covered by the Teeter Plan in the County. See “SECURITY FOR THE BONDS – Delinquent Payments of Special Tax; Covenant for Superior Court Foreclosure –Teeter Plan.”
BOND OWNERS’ RISKS
The purchase of the 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 definitive or a complete statement of all factors that may be considered as risks in evaluating the credit quality of the Bonds.
Limited Obligation of the City to Pay Debt Service
The City has no obligation to pay principal of and interest on the Bonds in the event Special Tax collections are delinquent, 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 on which levies of the Special Tax are delinquent, nor is the City obligated to advance funds to pay such debt service on the Bonds. The Bonds are not general obligations of the City but are limited obligations of the City, payable solely from the proceeds of the Special Tax and certain funds held under the Fiscal Agent Agreement, including amounts deposited in the Reserve Fund and investment income thereon, and the proceeds, if any, from the sale of property in the event of a foreclosure. See “SECURITY AND SOURCES OF PAYMENT FOR THE BONDS.” Any tax for the payment of t he Bonds will be limited to the Special Tax to be collected within Improvement Area No. 4.
Concentration of Ownership of Undeveloped Property
All of the taxable property within Improvement Area No. 4 is currently owned 100% by the JV Entity. Although it is anticipated that there will be transfers of ownership of this property as development progresses and home sales are closed, the timely payment of the Bond s depends upon the willingness and ability of all of the owners of taxable property within Improvement Area No. 4 to pay the Special Taxes when due. The only assets of the owners of property within Improvement Area No. 4 which constitute security for the Bonds are such owners’ real property holdings located within Improvement Area No. 4, 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. 4, choose to default on payments of the Special Tax on parcels. Also see “– Bankruptcy Delays” below.
Development of undeveloped property within Improvement Area No. 4 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 evalua ting the investment ITEM 19.1.
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quality of the 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. 4 – Development in Improvement Area No. 4.”
Appraised Values
The Appraisal summarized in APPENDIX B estimates the market value of certain taxable property within Improvement Area No. 4. This market value is merely the present opinion of the Appraiser and is subject to the assumptions and limiting conditions stated in the Appraisal. The City has not sought the present opinion of any other appraiser of the value of the taxed parcels .
A different present opinion of value might be rendered by a different appraiser.
The opinion of value relates to sale by a willing seller to a willing buyer as of the date of valuation, each having similar information and neither being forced by other circumstances to sell or to buy. Consequently, the opinion is of limited use in predicting the selling price at a foreclosure sale, because the sale is forced and the buyer may not have the benefit of full information.
In considering the estimates of value evidenced by the appraisal, it should be noted that the appraisal is based upon a number of standard and special assumptions which affect the estimates as to value, in addition to hypothetical conditions, as set forth in the Appraisal (see APPENDIX B hereto). Some of the improvements to be financed by the Bonds were not in place as of the date of inspection; thus, the value estimate is subject to a hypothetical condition (of such improvements being in place)
In addition, the opinion is a present opinion of the Appraiser as of the indicated date of value. It is based upon present facts and circumstances. Differing facts and circumstances may lead to differing opinions of value. The appraised market value is not evidence of future value because future facts and circumstances may differ significantly from the present.
No assurance can be given that any of the appraised property in Improvement Area No. 4 could be sold in a foreclosure for the estimated market value contained in the Appraisal. Such sale is the primary remedy available to Bondowners if that property should become delinquent in the payment of Special Taxes.
Levy and Collection of the Special Tax
General. The principal source of payment of principal of and interest on the Bonds is the proceeds of the annual levy and collection of the Special Tax against property within Improvement Area No. 4.
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 Rate and Method. 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 Bonds.
In addition to the maximum annual Special Tax rate limitation in the Rate and Method, 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 ITEM 19.1.
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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 Bonds.
No Relationship Between Property Value and Special Tax Levy. Because the Rate and Method is not based on property value, the levy of the Special Tax will rarely, if ever, result in a uniform relationship between the value of particular parcels in Improvement Area No. 4 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. 4 subject to a Special Tax and their proportionate share of debt service on the 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. 4 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 taxation, 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 BONDS – Delinquent Payments of Special Tax; Covenant for Superior Court Foreclosure” and in the Mello -Roos Act, is subject to the same penalties and the same procedure, sale and lien priority in case of delinquency as is provided for ordinary 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 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 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 Insura nce 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 by property within Improvement Area No.
4. See “ – FDIC/Federal Government Interests in Properties” below.
ITEM 19.1.
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Other laws generally affecting creditors’ rights or relating to judicial foreclosure may affect the ability to enforce payment of Special Taxes or the timing of enforcement of Special Taxes.
For example, the Soldiers and Sailors Civil Relief Act of 1940 a ffords protections such as a stay in enforcement of the foreclosure covenant, a six-month period after termination of military service to redeem property 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. 4 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. 4; this would decrease the value to lien ratios of parcels in Improvement Area No. 4.
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. 4 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 Bonds, which could in turn r esult 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 Bonds. See “SECURITY FOR THE BONDS – Reserve Fund,” and “SECURITY FOR THE BONDS – Delinquent Payments of Special Tax; Covenant for Superior Court Foreclosure.”
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 (see “SECURI TY FOR THE 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. 4, to the extent permitted under the Rate and Method 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. 4 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 could be enacted that would adversely impact the ability of the City to foreclose on parcels with delinquent ITEM 19.1.
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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 the taxable property within Improvement Area No. 4 is a critical factor in determining the investment quality of the Bonds. If a property owner defaults in the payment of the Special Tax, the City may bring an action to foreclose on the delinquent property in an attempt to obtain funds with which to pay debt service on the Bonds. Land development and land values could be adversely affected by economic and other factors beyond the City’s control, such as: a general economic downturn; adverse judgments in future litigation t hat could affect the scope, timing or viability of development; relocation of employers out of the area; stricter land use regulations; shortages of water, electricity, natural gas or other utilities; destruction of property caused by earthquake, flood or other natural disasters; environmental pollution or contamination.
The Appraisal information included as APPENDIX B sets forth certain assumptions of the Appraiser in estimating the market value of the property within Improvement Area No. 4 as of the date indicated. No assurance can be given that the land values are accurate if these assumptions are incorrect or that the values will not decline in the future if one or more events, such as natural disasters or adverse economic conditions, occur. See “Appraised Values” above.
Neither the City nor the Underwriter has evaluated development risks. Since these are largely business risks of the type that property owners customarily evaluate individually, and inasmuch as changes in land ownership may well mean changes in the evaluat ion with respect to any particular parcel, the City is issuing the Bonds without regard to any such evaluation. Thus, the issuance of the Bonds in no way implies that the City or the Underwriter has evaluated these risks or the reasonableness of these risks. The following is a discussion of specific risk factors that could affect the timing or scope of property development in Improvement Area No. 4 or the value of property in Improvement Area No. 4.
Land Development. Land values are influenced by the level of development in the area in many respects.
First, undeveloped or partially developed land is generally less valuable than developed land and provides less security to the owners of the Bonds should it be necessary for the City to foreclose on undeveloped or partially developed property due to the nonpayment of Special Taxes.
Second, failure to complete development on a timely basis could adversely affect the land values of those parcels that have been completed. Lower land values would result in less security for the payment of principal of and interest on the Bonds and lower proceeds from any foreclosure sale necessitated by delinquencies in the payment of the Special Tax. See “VALUE OF PROPERTY WITHIN IMPROVEMENT AREA NO. 4 – Value to Special Tax Burden Ratios.” No assurance can be given that the proposed development within Improvement Area No. 4 will be completed, and in assessing the investment quality of the Bonds, prospective purchasers should evaluate the risks of noncompletion.
Neither K. Hovnanian nor the JV Entity can provide any assurances to the City that the project will be developed or that sources of financing that will actually be available will be sufficient to complete the currently projected development. Neither K. Hovnanian nor the JV Entity has any ITEM 19.1.
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obligation to the City or to owners of the Bonds to complete the project overall or particular developments therein.
Risks of Real Estate Investment Generally . Continuing development of land within Improvement Area No. 4 may be adversely affected by changes in general or local economic conditions, fluctuations in the real estate market, increased construction costs, development, financing and marketing capabilities of individual property owners, water or electricity shortages, and other similar factors. Development in Improvement Area No. 4 may also be affected by development in surrounding areas, which may compete with development in Improvement Area No. 4. In addition, land development operations are subject to comprehensive federal, state and local regulations, including environmental, land use, zoning and building requirements. There can be no assurance that proposed land development operations within Improvement Area No. 4 will not be adversely affected by future government policies, including, but not limited to, governmental policies to restrict or control development, or future growth control initiatives. There can be no assurance that land development operations within Improvement Area No. 4 will not be adversely affected by these risks.
Natural Disasters. The value of the parcels in Improvement Area No. 4 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 parcels in Improvement Area No. 4 and the continued habitability and enjoyment of such private improvements.
For example, the areas in and surrounding Improvement Area No. 4, like those in much of California, may be subject to earthquakes or other unpredictable seismic activity, however, Improvement Area No. 4 is not located in a seismic special studies zone.
Other natural disasters could include, without limitation, landslides, floods, droughts, wildfires or tornadoes. One or more natural disasters could occur and could result in damage to improvements of varying seriousness. Although the land in Improvement Area No. 4 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 consequences. 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 repa ir or replacement. Under any of these circumstances there could be significant delinquencies in the payment of Special Taxes, and the value of the parcels may well depreciate.
Drought. The State is subject from time-to-time to drought conditions, which could have an impact on future development in the District. Drought conditions have been present in the State numerous times in the recent past. Although much of the State, including prop erty 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 the District.
Wildfires. In recent years, drought conditions in the State (see “– Drought above”) have led to increased risk of wildfire. In particular, certain electrical operators in the State have seen their distribution/transmission lines cause billions of dollars in property damage and the loss of lives. In 2023, as in several prior years, for example, devastating wildfires burned in various communities in California, causing wide- spread damage. In 20 25, communities in Los Angeles ITEM 19.1.
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County, including Pacific Palisades, Malibu and Altadena, experienced widespread devastation from wildfires causing losses of life, thousands of burned homes, and billions of dollars in property damage. Although not located in a very high fire hazard severity zone, no assurance can be given that wildfires will not erupt in Improvement Area No. 4 and negatively impact property in Improvement Area No. 4 in the future.
Various insurance companies in the State have restricted the availability of fire insurance.
Should homeowners within Improvement Area No. 4 be unable to obtain fire insurance, they may not be able to qualify for a mortgage, which in turn may affect the rate of home values within Improvement Area No. 4. The City can provide no assurance going forward that fire insurance will be readily available to homeowners within Improvement Area No. 4 . The inability to obtain adequate insurance coverage could impact the ability of the homeowners in Improvement Area No. 4 to reconstruct their home in the event of damage due to fire.
Legal Requirements. Other events that may affect the value of a parcel 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 statewi de tax and governmental spending limitation measures. Development in Improvement Area No. 4 may also be adversely affected by the application of laws protecting endangered or threatened species.
Hazardous Substances. Any discovery of a hazardous substance detected on property within Improvement Area No. 4 would affect the marketability and the value of some or all of the property in Improvement Area No. 4. In that event, the owners and operators of a parcel within Improvement Area No. 4 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.
California laws with regard to hazardous substances are also applicable to property within Improvement Area No. 4 and are as stringent as the federal laws. 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 parcels be contaminated by a hazardous substance is to reduce the marketability and value of the parcel by the costs of remedying the condition, because the purchaser, upon becoming owner, will become obligated to remedy the condition just as is the seller.
The values set forth in the Appraisal do not take into account the possible reduction in marketability and value of any of the parcels within Improvement Area No. 4 by reason of the possible liability of the owner (or operator) for the remedy of a hazardous substance condition on a parcel. Although the City is not aware that the owner (or operator) of any of the property within Improvement Area No. 4 has a current liability for a hazardous substance with respect to any of the parcels, it is possible that such liabilities do currently exist and that the City is not aware of them.
Further, it is possible that liabilities may arise in the future with respect to any of the parcels within Improvement Area No. 4 resulting from the existence, currently, on the parcel of a substance presently classified as hazardous but which has not been released or the release of which is not presently threatened, or may arise in the future resulting from the existence, currently, on the parcel of a substance not presently classified as hazardous but which may in the future be so classified. Further, such liabilities may arise not simply from the existence of a hazardous ITEM 19.1.
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substance but from the method of handling it. All of these possibilities could significantly affect the value of a parcel within Improvement Area No. 4 that is realizable upon a foreclosure sale.
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 th e 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. 4, 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. 4 or reduce the value of undeveloped property.
Future Property Development
Continuing development of the parcels in Improvement Area No. 4 may be adversely affected by changes in general or local economic conditions, new legislation, fluctuations in or a deterioration of the real estate market, increased construction costs, development, financing and marketing capabilities of the developer, water or electricity 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. 4 may also be affected by development in surrounding areas, which may compete with the property in Improvement Area No. 4.
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. 4 –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. 4 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. 4 subject to a Special 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. 4 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. 4 subject to a Special Tax and may be secured by a lien on a parity with the lien of the Special Tax securing the 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 securing the 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 ITEM 19.1.
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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, reg ardless 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 accordance with the Rate and Method 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. 4 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 BONDS – Rate and Method.”
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 further provides that no other properties 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 Thing 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 assessments on a parity with the Special Taxes and preserve the federal government’s mortgage interest. In Rust v. Johnson (9th Circuit; ITEM 19.1.
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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 Bonds are outstanding.
FDIC. In the event that any financial institution making any loan which is secured by real property within Improvement Area No. 4 is taken over by the FDIC, and prior thereto or thereafter the loan or loans go into default, resulting in ownership of the property by the FDIC, then the ability of the City to collect interest and penalties specified by State law and to foreclose the li en 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 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 FDIC -owned property are secured by a valid lien (in effect before the property became owned by the FDIC), the FDIC will pay those claims. T he 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 elimina ted 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 it purports to secure the payment of any such amounts. Special taxes imposed under the Mello -Roos Act and a Rate and Method which determines the special tax due each year are specifically identified in the Policy Statement as being imposed each year and 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 effect 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. 4 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 Bonds.
ITEM 19.1.
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Depletion of the Reserve Fund
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 BONDS – Reserve Fund.” The Reserve Fund will be used to pay principal of and interest on the Bonds if insufficient funds are available from the proceeds of the levy and collection of the Special Tax against property within Improvement Area No. 4. If 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 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 Reserve Fund will be depleted and not be replenished by the levy and collection of the Special Taxes.
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 BONDS,” may be limited by bankruptcy, insolvency or other laws generally affecting creditors’ rights or b y the laws of the State of California relating to judicial foreclosure. The various legal opinions to be delivered concurrently with the delivery of the 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 could re sult 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 Bonds.
In addition, the amount of any lien 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 de linquent 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 principal of and interest on the Bonds and the possibility of delinquent Special Taxes not being paid in full.
To the extent that property in Improvement Area No. 4 continues to be owned by a limited number of property owners, the chances are increased that 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 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 ITEM 19.1.
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creditor with a prior lien on that property. The court upheld the priority of unpaid ad valorem taxes imposed before the bankruptcy 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 admin istrative expenses may also be allowed to be deferred. Once the property is transferred out of the bankruptcy 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 bankruptcy 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 political 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 effect 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, still 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 State 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 applicable 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 priority 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. 4 who file for bankruptcy, collections of the Special Taxes from such property owners could ITEM 19.1.
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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 of 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 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. 4 or the lending of money secured by property in Improvement Area No. 4. 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 special tax using a statutorily prescribed form. California Civil Code Section 1102.6b requires that in the case of transfers other than those covered by the above requirement, the seller must at le ast make a good faith effort to notify the prospective purchaser of the special tax lien in a format prescribed by statute. Failure by an owner of the property to comply with these requirements, or failure by a purchaser or lessor to consider or understand the nature and existence of the Special Tax, could adversely affect the willingness and ability of the purchaser or lessor to pay the Special Tax when due.
No Acceleration Provisions
The 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 Bonds or the Fiscal Agent Agreement.
Under the Fiscal Agent Agreement, a Bondowner is given the right for the eq ual benefit and protection of all Bondowners similarly situated to pursue certain remedies. So long as the 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 Bonds might become includable in gross income for purposes of federal income taxation retroactive to the date the 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 Bonds were to become includable in gross in come for purposes of federal income taxation, the 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 BONDS – Redemption.”
From time to time, legislative proposals are made to terminate tax-exempt municipal bond programs and no prediction can be made as to the eventual outcome of such proposals. Future legislative proposals, if enacted into law, clarification of the Code or court decisions may cause interest on the 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 ITEM 19.1.
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full current benefit of the tax status of such interest. In such event the City and the District would have no obligation to bondholders for adverse consequences.
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 Bonds will be selected for audit by the IRS. It is also possible that the market value of such Bonds might be affected as a result of such an audit (or by an audit of similar bonds or securities).
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 me asures, including Proposition 218, which was approved in the general election held on November 5, 1996, and 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 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 limita tions 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 ability 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 effective. 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. 4 were each authorized by not less than a two- thirds vote of the landowners within Improvement Area No. 4 who constituted the qualified electors at the time of such voted authorization. The City believes, therefore, that issuance of the Bonds does not require the conduct of further proceedings under the Act, Proposition 218 or Proposition 26.
ITEM 19.1.
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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 which 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 apportioned in any tax year on residential property, the le gislative 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 qualified 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 approve d by a two -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. 4, there were fewer than 12 registered voters within Improvement Area No. 4 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 special 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. 4.
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 authorized 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 ITEM 19.1.
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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 v ote. 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. 4 in compliance with all applicable requirements of the Mello -Roos Act 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. 4 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.
Secondary Market for Bonds
There can be no guarantee that there will be a secondary market for the Bonds or, if a secondary market exists, that any 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 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 Bonds for audit examination, or the course or result of any IRS audit or examination of the Bonds or obligations that present similar tax issues as the Bonds.
Pandemic Diseases
In recent years, public health authorities have warned of threats posed by outbreaks of disease and other public health threats. Pandemic diseases arising in the future could have significant adverse health and financial impacts throughout the world, leading to loss of jobs and personal financial hardships, and/or actions by federal, State and local governmental authorities to contain or mitigate the effects of an outbreak.
Taxpayer assistance measures may include deferral of due dates of property taxes, which was an assistance program during the COVID-19 pandemic, and with or without a deferral some taxpayers may be unable to make their property and Special Tax payments. 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 Taxes. In addition, home values may be affected by a reduction in demand stemming from personal finances, or ge neral widespread economic circumstances resulting from pandemic diseases.
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, ITEM 19.1.
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including without limitation hacking, viruses, ransomware, malware and 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. 4, or the administration of the Bonds. The City is also reliant on other entities and service providers in connection with the administration of the Bonds, including without limitation the County tax collector for the levy and collection of Special Taxes, the Fiscal Agent, and the dissemination agent. No assurance can be given that the City, Improvement Area No. 4 and these other entities will not be affected by cyber threats and attacks in a manner that may affect the Bond owners.
Potential Early Redemption of Bonds from Prepayments
Property owners within Improvement Area No. 4, including the JV Entity 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 district. Such prepayments will result in a redemption of the 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 Bonds that were purchase d at a price greater than par could reduce the otherwise expected yield on such Bonds.
CONSTITUTIONAL LIMITATIONS ON TAXATION AND APPROPRIATIONS
Article XIIIA of the California Constitution, commonly known as “ Proposition 13,” provides that each county will levy the maximum ad valorem property tax permitted by Proposition 13 and will distribute the proceeds to local agencies in accordance with an allocation formula based in part on pre -Proposition 13 ad valorem property tax rates levied by local agencies.
Article XIIIA limits the maximum ad valorem tax on real property to 1% of “full cash value,” which is defined as the County Assessor’s valuation of real property as shown on the 1975-76 tax bill under full cash value, or, thereafter, the appraised value of real property when purchased, newly constructed, or a change in ownership has occurred after the 1975 assessment. The full cash value may be adjusted annually to reflect increases of no more than 2% per year or decreases in the consumer price index or comparable local data, or declining property value caused by damage, destruction or other factors.
Article XIIIA exempts from the 1% tax limitation any taxes to repay indebtedness approved by the voters prior to July 1, 1978, and requires a vote of two-thirds of the qualified electorate to impose Special Taxes or any additional ad valorem, sales, or transaction taxes on real property.
In addition, Article XIIIA requires the approval of two-thirds of all members of the State Legislature to change any State laws resulting in increased tax revenues. On June 3, 1986, California voters approved an amendment to Article XIIIA of the California Constitution to allow local governments and school districts to raise their property tax rates above the constitutionally mandated 1% ceiling for the purpose of paying off certain new general obligation de bt issued for the acquisition or improvement of real property and approved by two -thirds of the votes cast by the qualified electorate. If any such voter -approved debt is issued, it may be on a parity with the lien of the Special Tax on the parcels within Improvement Area No. 4.
ITEM 19.1.
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State and local government agencies in the State, and the State itself are subject to annual appropriation limits, imposed by Article XIIIB of the State Constitution. Article XIIIB prohibits government agencies and the State from spending “appropriations subject to limitation” in excess of the appropriations limits imposed. “Appropriations subject to limitation” are authorizations to spend “proceeds of taxes,” which consist of tax revenues, certain state subventions and certain other funds, including proceeds from regulatory licenses, user charges or other fees to the extent that such proceeds exceed the cost reasonably borne by such entity in providing the regulation, product or service. No limit is imposed on appropriations of funds which are not “proceeds of taxes” such as debt service on indebtedness existing or authorized before January 1, 1979, or subsequently authorized by the voters, appropriations required to comply with mandates of courts or the federal government, reasonable user charges or fees and certain other non-tax funds.
LEGAL MATTERS
Legal Opinion
The legal opinion of Jones Hall LLP, San Mateo, California, Bond Counsel, approving the validity of the 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 LLP also serves 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 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 Bonds, (iii) wherein an unfavorable decision, ruling or finding could have a material adverse effect on the transactions contemplated by the purchase contract with respect to the Bonds, (iv) which, in any way, could adversely affect the validity or enforceability of the resolutions of the Ci ty Council adopted in connection with the formation of the District or Improvement Area No. 4, or the issuance of the Bonds, the Fiscal Agent Agreement, the Continuing Disclosure Agreement or the purchase contract with respect to the 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 Bonds for federal income tax purposes, or (vi) in any other way questions the status of the Bonds under State tax laws or regulations.
TAX MATTERS
Federal Tax Status. In the opinion of Jones Hall LLP, as Bond Counsel, subject, however to the qualifications set forth below, under existing law, the interest on the 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. Interest on the Bonds may be subject to the corporate alternative minimum tax.
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”) ITEM 19.1.
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relating to the exclusion from gross income for federal income tax purposes of interest on obligations such as the Bonds. 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 Bonds.
Tax Treatment of Original Issue Discount and Premium. If the initial offering price to the public at which a Bond is sold is less than the amount payable at maturity thereof, then such difference constitutes “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 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 p ersonal income taxes. De minimis original issue discount and original issue premium are disregarded.
Under the Tax Code, original issue discount 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 t he first paragraph of this section. The original issue discount accrues over the term to maturity of the 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 original issue discount accruing during each period is added to the adjusted basis of such Bonds to determine taxable gain upon disposition (including sale, redemption, or payment on maturity) of such Bond. The Tax Code contains certain provisions relating to the accrual of original issue discount in the case of purchasers of the Bonds who purchase the Bonds after the initial offering of a substantial amount of such maturity. Owners of such Bonds should consult their own tax advisors with respect to the tax consequences of ownership of Bonds with original issue discount, including the treatment of purchasers who do not purchase in the original offering, the allowance of a deduction for any loss on a sale or other disposition, and the treatment of accrued original issue discount on such Bonds under federal individual alternative minimum taxes.
Under the Tax Code, original issue premium is amortized on an annual basis over the term of the Bond (said term being the shorter of the 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 Bond for purposes of determining taxable gain or loss upon disposition. The amount of original issue premium on a Bond is amortized each year over the term to maturity of the 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 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 Bonds.
California Tax Status. In the further opinion of Bond Counsel, interest on the Bonds is exempt from California personal income taxes.
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 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 tax 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 p rice for, or ITEM 19.1.
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