This Preliminary Official Statement and the information contained herein are subject to completion or amendment. Under no circumstance shall this Preliminary Official Statement constitute an offer to sell or a solicitation of an offer to buy, nor shall there be any sale of these securities in any jurisdiction in which such offer, solicitation or sale would be unlawful.
NRF DRAFT
2/2/22
PRELIMINARY OFFICIAL STATEMENT DATED _______, 2022
NEW ISSUE BOOK-ENTRY-ONLY RATING:
S&P “___” (See “RATING” herein.)
In the opinion of Norton Rose Fulbright US LLP, Los Angeles , California, Bond Counsel to the City (“Bond Counsel”), interest on the Series 2022 Bonds is exempt from personal income taxes imposed by the State of California.
Interest on the Series 2022 Bonds is includable in the gross income of the owners of the Series 2022 Bonds for federal income tax purposes. Bond Counsel expresses no opinion regarding any other tax consequences related to the ownership or disposition of, or the accrual or receipt of interest on, the Series 2022 Bonds. See “TAX MATTERS.” $[Par Amount]*
CITY OF RIALTO
TAXABLE PENSION OBLIGATION BONDS,
SERIES 2022
Dated: Date of Delivery Due: June 1, as shown on the inside cover The $[Par Amount] City of Rialto Taxable Pension Obligation Bonds, Series 2022 (the “Series 2022 Bonds”) will be issued as fully registered bonds in book -entry form only, initially registered in the name of Cede & Co., New York, New York, as nominee of The Depository Trust Company (“DTC”), New York, New York. Individual purchases of the Series 2022 Bonds will be in principal amounts of $5,000 or in any integral multiples thereof. Interest on the Series 2022 Bonds will be payable on June 1 and December 1 of each year, commencing December 1, 2022, and principal payable on the Series 2022 Bonds will be paid on June 1 in the years set forth on the maturity schedule on the inside cover of this Official Statement.
Payments of principal of and interest on the Series 2022 Bonds will be paid by U.S. Bank National Association, as trustee (the “Trustee”), to DTC for subsequent disbursement to DTC Participants who will remit such payments to the Beneficial Owners of the Series 2022 Bonds. See “THE SERIES 2022 BONDS.”
The Series 2022 Bonds are being issued pursuant to the provisions of a Trust Agreement, dated as of [As of Date] (the “Trust Agreement”), between the City of Rialto, California (the “City”) and the Trustee, to (i) refinance a portion of the City’s outstanding obligation to the California Public Employees’ Retirement System with respect to certain of the City’s defined benefit retirement plans for its current and retired miscellaneous and safety employees, and (ii) pay the costs of issuing the Series 2022 Bonds. See “FINANCING PLAN.” The City is not funding a debt service reserve fund for the Series 2022 Bonds.
The Series 2022 Bonds are subject to redemption prior to maturity as described herein. See “THE SERIES 2022 BONDS - Redemption.”
The Series 2022 Bonds will be payable by the City from any source of legally available funds. See “SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2022 BONDS” and “RISK FACTORS.” The City filed a complaint in the Superior Court of the State of California for the County of San Bernardino pursuant to the procedures available to it under California Code of Civil Procedure Section 860 and following, seeking judicial validation of the transactions relating to the issuance of the Series 2022 Bonds. On _________, 2022 , the court entered a defaul t judgment to the effect, among other things, that the CalPERS Contract (as defined herein) and the Series 2022 Bonds are valid and binding obligations of the City under the Constitution and laws of the State. Pursuant to Section 870 of the California Code of Civil Procedure and Rule 2(a) of the California Rules of Court, the period during which a notice of appeal of this judgment could be timely filed has expired. As no challenge to the judgment was filed by the time of such expiration, the judgment has be come final, binding, and conclusive in accordance with State of California law. See “VALIDATION PROCEEDINGS.”
THE OBLIGATIONS OF THE CITY UNDER THE SERIES 2022 BONDS, INCLUDING THE OBLIGATION
TO MAKE ALL PAYMENTS OF INTEREST AND PRINCIPAL WHEN DUE, ARE OB LIGATIONS OF THE
CITY IMPOSED BY LAW AND ARE ABSOLUTE AND UNCONDITIONAL, WITHOUT ANY RIGHT OF SET-OFF OR COUNTERCLAIM. NEITHER THE SERIES 2022 BONDS NOR THE OBLIGATION OF THE CITY TO MAKE PAYMENTS ON THE SERIES 2022 BONDS CONSTITUTE AN INDEBTEDNESS OF THE
CITY, THE STATE OF CALIFORNIA, OR ANY OF ITS POLITICAL SUBDIVISIONS WITHIN THE MEANING OF ANY CONSTITUTIONAL OR STATUTORY DEBT LIMITATION OR RESTRICTION.
* Preliminary, subject to change.
This cover page contains certain information for general reference only. It is not intended to be a summary of the security or terms of this issue. Investors must read the entire Official Statement to obtain information essential to the making of an informed investment decision.
The Series 2022 Bonds are offered when, as and if sold and issued, subject to the approval as to their legality by Norton Rose Fulbright US LLP, Los Angeles, California, Bond Counsel to the City. Norton Rose Fulbright US LLP is serving as Disclosure Counsel to the City. Certain legal matters will be passed upon for the Ci ty by the City A ttorney and for the Underwriters by its counsel, Katten Muchin Rosenman LLP, New York, New York. It is anticipated that the Series 2022 Bonds will be available for delivery through the book-entry facilities DTC on or about _________, 2022.
BofA Securities, Inc. J.P. Morgan Securities LLC
Dated: _________, 2022
$[PAR AMOUNT]
CITY OF RIALTO
TAXABLE PENSION OBLIGATION BONDS,
SERIES 2022
MATURITY SCHEDULE
$_________ ___% Term Series 2022 Bonds due June 1, 20__ - Price: ___%; Yield: ___%; CUSIP: ______*
* CUSIP is a registered trademark of the American Bankers Association. CUSIP data herein is provided by CUSIP Global Services, managed by S&P Global Ratings on behalf of The American Bankers Association. This data is not intended to create a database and does not serve in any way as a substitute for the CUSIP Services. CUSIP numbers have been assigned by an independent company not affiliated with the City and are included solely for the convenience of investors. None of the City, the Underwriters, or the Municipal Advisor, is responsible for the selecti on or uses of these CUSIP numbers, and no representation is made as to their correctness on the Series 2022 Bonds or as included herein. The CUSIP number for a specific maturity is subject to being changed after the issuance of the Series 2022 Bonds as a r esult of various subsequent actions including, but not limited to, refunding in whole or in part or as a result of the procurement of secondary market portfolio insurance or other similar enhancement by investors that is applicable to all or a portion of certain maturities of the Series 2022 Bonds.
Maturity Date
(June 1)
Principal
Amount
Interest
Rate Yield Price
CUSIP
(Base No. )
CITY OF RIALTO, CALIFORNIA
CITY COUNCIL
Deborah Robertson, Mayor
Ed Scott, Mayor Pro Tem
Rafael Trujillo, Councilmember
Andy Carrizales, Councilmember
Karla Perez, Councilmember
____________________
CITY OFFICIALS
Marcus Fuller, City Manager
Arron Brown, Deputy City Manager
Edward J. Carrillo, Treasurer
Barbara McGee, City Clerk
Eric Vail, City Attorney
____________________
SPECIAL SERVICES
Bond Counsel and Disclosure Counsel
Norton Rose Fulbright US LLP
Los Angeles, California
Co-Municipal Advisors
NHA Advisors, LLC
San Rafael, California
Bayshore Consulting Group, Inc.
Orange, California
Trustee
U.S. Bank National Association
Los Angeles, California
No dealer, broker, salesperson or other person has been authorized by the City of Rialto, California (the “City”) or the Underwriters to give any information or to make any representations, other than as contained in this Official Statement, and if given or made, such information or representations must not be relied upon as having been authorized by the City or the Underwriters. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of, the Series 2022 Bonds by any person in any jurisdiction in which it is unlawful for such person to make such offer, solicitation or sale.
This Official Statement is not to be construed as a contract with the purchasers of the Series 2022 Bonds. Statements contained in this Official Statement that involve estimates, forecasts or matters of opinion, whether or not expressly described herein, are intended solely as such and are not to be construed as representations of fact.
The information set forth herein has been furnished by the City and includes information from sources that are believed to be reliable. The information and expressions of op inion contained herein are subject to change without notice and neither the delivery of this Official Statement nor any sale made shall, under any circumstances, create any implication that there has been no change in the affairs of the City or other matters described herein since the date hereof.
The Underwriters have provided the following sentence for inclusion in this Offi cial Statement.
The Underwriters have reviewed the information in this Official Statement in accordance with, and as part of, their responsibility to investors under the federal securities laws as applied to the facts and circumstances of this t ransaction, but the Underwriters do not guarantee the accuracy or completeness of such information.
This Official Statement, including any sup plement or amendment hereto, is intended to be deposited with the Municipal Securities Rulemaking Board through the Electronic Municipal Marketplace Access (“EMMA”) website.
The City maintains a website. The information presented therein is not part of t his Official Statement and should not be relied on in making investment decisions with respect to the Series 2022 Bonds. Unless otherwise expressly stated, references to Internet websites in this Official Statement are shown for reference and convenience only, and none of their content (including any content on the City’s website) is incorporated in this Official Statement by reference. The City make no representation regarding the accuracy or completeness of the information presented on such websites.
IN C ONNECTION WITH THE OFFERING OF THE SERIES 2022 BONDS, THE
UNDERWRITERS MAY OVER ALLOT OR EFFECT TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SERIES 2022 BONDS AT LEVELS ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH ST ABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
FORWARD-LOOKING STATEMENTS
Certain statements included or incorporated by reference in this Official Statement constitute “forward-looking statements.” Such statements are generally identifiable by the terminology used, such as “plan,” “project,” “expect,” “anticipate,” “intend,” “believe,” “estimate,” “budget” or other similar words.
The achievement of certain results or other expectations contained in such forward -looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements described to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. The City does not plan to issue any updates or revisions to those forward-looking statements if or when its expectations or events, conditions or circumstances on which such statements are based occur.
TABLE OF CONTENTS
Page
i
INTRODUCTION ......................................................................................................................... 1 General ............................................................................................................................... 1 The City ............................................................................................................................. 1 Authority for the Series 2022 Bonds ................................................................................. 1 Purpose ............................................................................................................................... 2 City Pension Funding Policy; Pension Stabilization Trust Fund ....................................... 2 The Series 2022 Bonds ...................................................................................................... 2 Security for the Series 2022 Bonds .................................................................................... 2 Additional Bonds ............................................................................................................... 3 Judicial Validation ............................................................................................................. 3 Continuing Disclosure ...................................................................................................... 3 Summaries Not Definitive ................................................................................................. 3 FINANCING PLAN ...................................................................................................................... 3 ESTIMATED SOURCES AND USES OF FUNDS ..................................................................... 4 THE SERIES 2022 BONDS .......................................................................................................... 4 General ............................................................................................................................... 4 Book-Entry System ............................................................................................................ 4 Redemption ........................................................................................................................ 5 Additional Bonds ............................................................................................................... 6 DEBT SERVICE SCHEDULE...................................................................................................... 7 SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2022 BONDS ..................... 8 General ............................................................................................................................... 8 Bond Fund .......................................................................................................................... 8 RISK FACTORS ........................................................................................................................... 9 Limitation of Remedies...................................................................................................... 9 Bankruptcy ....................................................................................................................... 10 Pension Benefit Liability ................................................................................................. 11 Natural Disasters .............................................................................................................. 11 City General Fund ............................................................................................................ 12 Public Health Emergencies .............................................................................................. 13 Cybersecurity ................................................................................................................... 14 Articles XIIIC and XIIID of the California Constitution................................................. 14 Secondary Market Risk .................................................................................................... 14
CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND
APPROPRIATIONS ........................................................................................................ 14 Article XIII A of the State Constitution ........................................................................... 14 Article XIII B of the State Constitution – Gann Limit .................................................... 15 Articles XIII C and XIII D of the State Constitution – Proposition 218 and Proposition 26 ......................................................................................................... 16 Proposition 1A ................................................................................................................. 17
TABLE OF CONTENTS
(continued)
Page
ii
Proposition 22 .................................................................................................................. 18 Statutory Limitations ....................................................................................................... 18 Future Initiatives .............................................................................................................. 19 STATE OF CALIFORNIA BUDGET INFORMATION............................................................ 19 VALIDATION PROCEEDINGS ................................................................................................ 20 UNDERWRITING ...................................................................................................................... 20 TAX MATTERS .......................................................................................................................... 21 State Income Tax ............................................................................................................. 21 Federal Income Tax Considerations ................................................................................ 21 U.S. Holders ..................................................................................................................... 22 Non-U.S. Holders............................................................................................................. 24 LITIGATION ............................................................................................................................... 25 FINANCIAL STATEMENTS ..................................................................................................... 26 MUNICIPAL ADVISOR............................................................................................................. 26 RATING ...................................................................................................................................... 26 CONTINUING DISCLOSURE ................................................................................................... 26 APPROVAL OF LEGAL PROCEEDINGS ................................................................................ 26 EXECUTION AND DELIVERY ................................................................................................ 27
APPENDIX A – SELECTED FINANCIAL AND DEMOGRAPHIC INFORMATION RELATING TO THE CITY AND COUNTY ......................................................... A-1 APPENDIX B – AUDITED FINANCIAL STATEMENTS OF THE CITY OF RIALTO FOR THE FISCAL YEAR ENDED JUNE 30, 2021 ............................... B-1 APPENDIX C – SUMMARY OF CERTAIN PROVISIONS OF THE
TRUST AGREEMENT ............................................................................................ C-1 APPENDIX D – FORM OF CONTINUING DISCLOSURE AGREEMENT ................................... D-1 APPENDIX E – FORM OF OPINION OF BOND COUNSEL ......................................................... E-1 APPENDIX F – BOOK-ENTRY SYSTEM ........................................................................................ F-1
1 OFFICIAL STATEMENT
$[PAR AMOUNT]
CITY OF RIALTO
TAXABLE PENSION OBLIGATION BONDS,
SERIES 2022
INTRODUCTION
This introduction contains only a brief summary of certain of the terms of the Series 2022 Bonds being offered, and a brief description of the Official Statement. All statements contained in this introduction are qualified in their entirety by reference to the entire Official Statement.
General
This Official Statement, which includes the cover page, the inside cover page and attached appendices, provides certain information in connection with the sale and delivery of the $[Par Amount] City of Rialto Taxable Pension Obligation Bonds, Series 2022 (the “Series 2022 Bonds”). The Series 2022 Bonds and any Additional Bonds (as defined herein) are collectively referred to herein as the “Bonds.” Capitalized terms used and not otherwise defined herein shall have the meanings given in the Trust Agreement (as defined herein).
The City
The City was incorporated in 1911 under the general laws of the State of California. The City operates under a Council-Manager form of government and provides the following services: public safety (police and fire), highways and streets, parks and recreation, public improvements, planning and zoning, and general administrative services. See APPENDIX A – “SELECTED FINANCIAL AND DEMOGRAPHIC INFORMATION RELATING TO THE CITY AND COUNTY.” Authority for the Series 2022 Bonds
The City is authorized under the provisions of Articles 10 and 11 (commencing with 53570) of Chapter 3 of Part 1 of Division 2 of Title 5 of the California Government Code (the “ Act”), to issue its bonds for the purpose of refunding certain outstanding obligations of the City. The Series 2022 Bonds are being issued pursuant to the Act, Resolution No. 7762 adopted by the City Council of the City on July 27, 2021 and the provisions of a Trust Agreement, dated as of [As of Date] (the “Trust Agreement”), by and between the City and U.S. Bank National Association, as trustee (the “Trustee”).
Purpose
The proceeds of the sale of the Series 2022 Bonds will be used to (i) refinance a portion of the City’s outstanding obl igation to the California Public Employees’ Retirement System (the “CalPERS”) with respect to certain of the City’s defined benefit retirement plans for its current and retired miscellaneous and safety employees, and (ii) pay the costs of issuing the Series 2022 Bonds. See “FINANCING PLAN.” The City is not funding a debt service reserve fund for the Series 2022 Bonds.
2 City Pension Funding Policy; Pension Stabilization Trust Fund Like most municipalities throughout the State, the City is incurring rising pe nsion costs and growing unfunded pension liabilities. The City adopted Resolution No ____ on ______, 2022 to formally establish its pension f unding and stabilization policy and a Section 115 trust under the Internal Revenue Code. The pension funding policy, among other things, provides guidance in making annual budget decisions and creating sustainable and affordable budgets for pension obligations. The issuance of the Series 2022 Bonds is part of the City’s strategy under the policy to address a significant unfunded liability to each of the City’s plans with CalPERS. In addition to creating a more affordable and sustainable shape for its pension costs, the City has determined that the Series 2022 Bonds should help create enhanced resiliency for the City’s General Fund to handle adverse economic situations in the future.
The Series 2022 Bonds
Interest on the Series 2022 Bonds will be payable on June 1 and December 1 of each year, commencing December 1, 2022 (each an “Interest Payme nt Date”), and principal payable on the Series 2022 Bonds will be paid on June 1 in the years set forth on the maturity schedule on the inside cover of this Official Statement. The Series 2022 Bonds are being issued as fully registered bonds and, when exec uted and delivered, will be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York (“DTC”). The Series 2022 Bonds will be issued in denominations of $5,000 or any integral multiple thereof. Individual purchases of Series 2022 Bonds will be made in book-entry form only.
Payments of principal of and interest on the Series 2022 Bonds are to be made to purchasers by DTC through DTC Participants. Purchasers will not receive physical delivery of the Series 2022 Bonds purchased by them.
The Series 2022 Bonds are subject to optional and mandatory redemption as described herein. See “THE SERIES 2022 BONDS - Redemption.”
Security for the Series 2022 Bonds
The Series 2022 Bonds will be payable by the City from any source of legally available funds, including amounts in the City’s General Fund. The obligations of the City under the Series 2022 Bonds, including the obligation to make all payments of interest and principal when due, are obligations of the City imposed by law and are absolute and unconditional, without any right of set -off or counterclaim. Neither the Series 2022 Bonds nor the obligation of the City to make payments on the Series 2022 Bonds constitute an indebtedness of the City, the State of California, or any of its political subdivisions within the meaning of any constitutional or statutory debt limitation or restriction. The City will irrevocably assign and pledge to the Trustee under the Trust Agreement, in trust for the security of the Owners all of the City’s rights, title and interest in and to all money and securities for deposit in, or deposited in, the Bond Fund established under the Trust Agreement and any investment earnings thereon, and any collateral security for, and all proceeds of, any of the foregoing.
Additional Bonds
The City may at any time issue additional bonds on a parity with the Series 2022 Bonds (“Additional Bonds”), solely for the purpose of (i) satisfying any obligation to make payments to CalPERS pursuant to the Retirement Law relating to pension benefits accruing to the CalPERS’ members, and/or for payment of all costs incidental to or co nnected with the issuance of Additional Bonds for such purpose, and/or (ii) refunding any Bonds then Outstanding, including payment of all costs incidental to or connected with such refunding, subject to certain conditions that are specified i n the Trust Agreement. See “SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2022 BONDS” and APPENDIX C –
3 “SUMMARY OF CERTAIN PROVISIONS OF THE TRUST AGREEMENT – Issuance of Additional Bonds.”
Judicial Validation
The City filed a complaint in the Superior Court of the State of California for the County pursuant to the procedures available to it under California Code of Civil Procedure Section 860 and following, seeking judicial validation of the transactions relating to the issuance of Bonds, including the Series 2022 Bonds.
On _________, 2022, the court entered a default judgment to the effect, among other things, that the CalPERS Contract and the Bonds are valid and binding obligations of the City under the Constitution and laws of the State. Pursuant to Se ction 870 of the California Code of Civil Procedure , the thirty-day period during which a notice of appeal of this judgment could be timely filed has passed. The City has not received notice of any appeal of the judgment. See “VALIDATION PROCEEDINGS.” Continuing Disclosure
The City has agreed to provide, or cause to be provided, to the Municipal Securities Rulemaking Board (“MSRB”) certain annual financial information and operating data and notice of certain enumerated events. The City’s covenants have bee n made in order to assist the Underwriter s in complying with the Securities and Exchange Commission’s Rule 15c2 -12 (“Rule 15c2 -12”). See “CONTINUING DISCLOSURE.”
Summaries Not Definitive
The summaries and references of the Series 2022 Bonds, the Trust Agre ement and the other documents, statutes, reports and other instruments referred to in this Official Statement do not purport to be complete, comprehensive or definitive, and each such summary and reference is qualified in its entirety by reference to each document, statute, report, or instrument. See APPENDIX C – “SUMMARY OF CERTAIN PROVISIONS OF THE TRUST AGREEMENT” for summaries of certain of the definitions in the Trust Agreement.
FINANCING PLAN
The City is a member of CalPERS and, as such, is obligated by the Retirement Law and the CalPERS Contract to make contributions to CalPERS to (a) fund pension benefits with respect to certain miscellaneous employees of the City, (b) amortize the unfunded actuarial liability (“UAL”) with respect to such pension benefits, and (c) appropriate funds for the purposes described in (a) and (b). The Series 2022 Bonds are being issued to (i) refinance a portion of the City’s outstanding obligation to CalPERS with respect to certain of the City’s defined benefit retirement plans for its current and retired miscellaneous and safety employees, and (ii) pay the costs of issuing the Series 2022 Bonds.
4 ESTIMATED SOURCES AND USES OF FUNDS
The following table shows the estimated sources and uses of the proceeds from the sale of the Series 2022 Bonds:
Sources:
Principal of Series 2022 Bonds $
Total Sources
Uses:
Pension Payments
Costs of Issuance(1)
Total Uses $
_____________
(1) Costs of issuance include fees and expenses for Bond Counsel, Disclosure Counsel, Co-Municipal Advisor s, Trustee, printing expenses, rating fees, underwriters’ discount and other miscellaneous costs.
THE SERIES 2022 BONDS
General
The Series 2022 Bonds will be issued in the form of fully registered bonds, without coupons, in denominations of $5,000 or any integral multiple of thereof, and will be dated the date of issuance to the original purchaser. The Series 2022 Bonds will mature on the dates and in the amounts set forth on the inside front cover of this Official Statement. Principal represented by the Series 2022 Bonds is payable on June 1 in each of the years and in the amounts set forth on the inside front cover of this Official Statement.
Interest on the Series 2022 Bonds is payable on each Interest Payment Date and continuing to and including the date of maturity or redemption, whichever is earlier.
Payment of interest on the Series 2022 Bonds due on or before the maturity or prior redemption thereof shall be made to the person whose name appears in the Series 2022 Bonds registration books kept by the Trustee as the registered owner th ereof as of the close of business on the Record Date for an Interest Payment Date, whether or not such day is a Business Day, such interest to be paid by check mailed on the Interest Payment Date by first-class mail to such registered owner at the address as it appears in such books; provided that upon the written request of the Owner of $1,000,000 or more in aggregate principal amount of Series 2022 Bonds received by the Trustee prior to the applicable Record Date, interest shall be paid by wire transfer in immediately available funds. As defined in the Trust Agreement, the term “ Record Date” means the close of business on the 15th day of the month preceding any Interest Payment date, whether or not such day is a Business Day.
Book-Entry System
The Series 2022 Bonds, when issued, will be registered in the name of Cede & Co., as registered owner and nominee of The Depository Trust Company, New York, New York (“DTC”). So long as DTC, or Cede & Co. as its nominee, is the registered owner of all Series 2022 Bonds, all payments on the Series 2022 Bonds will be made directly to DTC, and disbursement of such payments to the DTC “Participants” (as defined in APPENDIX F) will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners (as defined in APPENDIX F) will be the responsibility of the Participants. See APPENDIX F – “BOOK-ENTRY SYSTEM.”
104044690.4
5 Redemption*
Optional Redemption. The Series 2022 Bonds maturing on or after June 1, 20__ are subject to redemption prior to their maturity date, at the option of the City, pro rata within a maturity on any date on or after June 1, 20__, at a redemption price equal to the principal amount of the Series 2022 Bonds to be redeemed, plus accrued interest thereon to the date of redemption, without premium.
Mandatory Sinking Fund Redemption. The Series 2022 Term Bonds maturing on June 1, 20__ are subject to mandatory sinking fund redemption on June 1 in each year, commencing June 1, 20__, at a redemption price equal to the principal amount thereof, plus accrued interest to the date of redemption, without premium. The principal amount of such term bonds to be so redeemed and the dates therefor shall be as follows.
Redemption Date
(June 1)
Principal
Amount
$
*
* Maturity Date
Selection of Bonds for Redemption. If less than all of the Outstanding Bonds are to be redeemed prior to maturity, redemption payments will be made on a pro rata basis within a maturity to each Owner in whose name such Bonds are registered at the close of business on the 15th day of the ca lendar month immediately preceding the redemption date. So long as the Bonds are held in book-entry form, Bonds equal to $5,000 or any integral multiple thereof will be redeemed within a maturity on a pro rata pass -through distribution of principal basis i n accordance with DTC procedures; and, if the DTC operational arrangements do not allow for redemption on a pro rata pass -through distribution of principal basis, the portions of the Bonds will be selected for redemption, in accordance with DTC procedures, by lot. It is the City’s intent that the redemption allocations described in the Trust Agreement with respect to the Bonds within a maturity be made on a pro rata pass-through distribution of principal basis. However, the City can provide no assurance tha t DTC, the Participants or any other intermediaries will allocate redemptions among Beneficial Owners on such basis.
“Pro rata” means, in connection with any optional redemption in part, with respect to the allocation of amounts to be redeemed, the application to such amounts of a fraction, the numerator of which is equal to the amount of the specific maturity of the Bonds held by an Owner of such Bonds, and the denominator of which is equal to the total amount of such maturity of Bonds, then Outstanding.
Notice of Redemption. If the City elects to redeem Bonds as provided above, notice of redemption shall be mailed by first class mail or electronically transmitted by the Trustee, on behalf and at the expense of the City, not less than 20 nor more than 60 days prior to the redemption date to the respective Owners of Bonds designated for redemption at their addresses appearing on the bond registration books of the Trustee.
The Trustee shall also provide such additional notice of redemption of Bonds at the tim e and as may be required by the MSRB. Each notice of redemption shall state the date of such notice, the Bonds to be redeemed, the Series and date of issue of such Bonds, the redemption date, the redemption price, the place or places of redemption (including the name and appropriate address or addresses), the CUSIP number (if any) of the maturity or maturities, and, if less than all of any such maturity are to be redeemed, the distinctive certificate numbers of the Bonds of such maturity to be redeemed and, in the case of Bonds to be
* Preliminary, subject to change.
104044690.4
6 redeemed in part only, the respective portions of the principal amount thereof to be redeemed. Each notice of optional redemption shall also state that such optional redemption may be rescinded by the City and that, unless such redemption is so rescinded, and provided that on said date funds are available for payment in full of the Bonds then called for redemption, on said date there will become due and payable on each of such Bonds the redemption price thereof or of said specified portion of the principal amount thereof in the case of a Bond to be redeemed in part only, together with interest accrued thereon to the redemption date, and that from and after such redemption date interest thereon shall cease to accrue, and shall require that such Bonds be then surrendered at the address or addresses of the Trustee specified in the redemption notice. Failure by the Trustee to give notice to any one or more of the Information Services or Securities Depositories, or the insufficiency of any such notice shall not affect the sufficiency of the proceedings for redemption. The failure of any Owner to receive any redemption notice mailed to such Owner and any defect in the notice so mailed shall not affect the sufficiency of the proceedings for redemption.
Conditional Notice of Redemption . The City shall have the right to rescind any optional redemption by providing the Trustee with written notice of such rescission at least two Business Day prior to the date fixed for redemption. Any notice of redemption shall be cancelled and annulled if for any reason funds are not available on the date fixed for redemption for the payment in full of the Bonds then called for redemption, and such cancellation shall not constitute an Event of Default hereunde r. The Trustee shall mail notice of such rescission of redemption in the same manner as the original notice of redemption was sent.
Additional Bonds
In addition to the Series 2022 Bonds the City may at any time issue Additional Bonds, solely for the purpose of (i) satisfying any obligation to make payments to CalPERS pursuant to the Retirement Law relating to pension benefits accruing to the CalPERS’ members, and/or for payment of all costs incidental to or connected with the issuance of Additional Bonds for such purpose, and/or (ii) refunding any Bonds then Outstanding, including payment of all costs incidental to or connected with such refunding, subject to certain conditions that are specified in the Trust Agreement. See APPENDIX C – “SUMMARY OF CERTAIN PROVISIONS OF THE TRUST AGREEMENT – Issuance of Additional Bonds.” The City has the capacity to enter into other obligations payable from the City’s General Fund without the consent of or prior notice to the Owners of the Bonds. See “SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2022 BONDS” and APPENDIX C – “SUMMARY OF CERTAIN PROVISIONS OF THE TRUST AGREEMENT – Issuance of Additional Bonds.”
[Remainder of page intentionally left blank.]
104044690.4
7 DEBT SERVICE SCHEDULE
The following table shows the debt service schedule with respect to the Series 2022 Bonds, assuming no optional redemptions.
Fiscal Year
Ending June 30 Principal Interest Total
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
2037
2038
2039
2040
2041
2042
Total
SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2022 BONDS General
The Series 2022 Bonds and any Additional Bonds issued under the Trust Agreement are payable from any source of legally available funds of the City, including but not limited to amounts held by the City on deposit in its General Fund. Each Fiscal Year the City will include in its budget a provision to provide funds in an amount sufficient to pay the principal, premium, if any, and interest on the Bonds coming due in such Fiscal Year, but only to the extent that such amounts exceed the amount of available funds then on deposit in the Bond Fund (described below), and shall make annual appropriations for all such amounts. If such principal, premium, if any, and interest on the Bonds coming due in any Fiscal Year exceeds the sum of amounts budgeted in respect thereof, together with amounts then on deposit in the Bond Fund, then the City shall amend or supplement the budget to provide for such excess amounts.
The City irrevocably assigns and pledges to the Trustee under the Trust Agreement, in trust for the security of the Owners on the terms set forth in the Trust Agreement all of the City’s rights, title and interest in and to all money and securities for deposit in, or deposited in, the Bond Fund and any investment earnings thereon, and any collateral security for, and all proceeds of, any of the foregoing. The City agrees
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8 under the Trust Agreement to promptly deposit or cause to be deposited with the Trustee on or before each Record Date an amount sufficient to pay the principal of, if any, and interest coming due on the next Interest Payment Date.
Bond Fund
All amounts payable by the City will be promptly deposited by the Trustee upon receipt in a special fund designated as the “Bond Fund” and will be held in trust by the Trustee. On or before each Interest Payment Date or date fixed for redemption of Bonds, the Trustee will transfer from the Bond Fund, in immediately available funds, for deposit into the following respective accounts (each of which is created under the Trust Agreement and which the Trustee will maintain in trust separate and distinct from the other funds and accounts established under the Trust Agreement), the following amounts in the following order of priority, the requirements of each such account (including the making up of any deficiencies in any such account resulting from lack of funds sufficient to make any earlier required deposit) at the time of deposit to be satisfied before any deposit is made to any account subsequent in priority. All money in each of such accounts will be held in trust by the Trustee and applied, used and withdrawn only for the pu rposes described below.
Interest Account. On each Interest Payment Date, the Trustee will set aside from the Bond Fund and deposit into the Interest Account that amount of money which is equal to the amount of interest becoming due and payable on all Outst anding Bonds on such Interest Payment Date. No deposit need be made into the Interest Account if the amount that it contains is at least equal to the aggregate amount of interest becoming due and payable on all Outstanding Bonds on such Interest Payment Date. All money in the Interest Account will be used and withdrawn by the Trustee solely for the purpose of paying the interest on the Bonds as it becomes due and payable (including accrued interest on any Bonds purchased or redeemed prior to maturity).
Principal Account. On or before each principal payment date, the Trustee will set aside from the Bond Fund and deposit into the Principal Account an amount of money equal to the amount of all sinking fund payments required to be made on such principal payment date into the respective sinking fund accounts for all Outstanding Term Bonds and the principal amount of all Outstanding Serial Bonds maturing on such principal payment date. No deposit need be made into the Principal Account if the amount it contains is at least equal to the aggregate amount of the principal of all Outstanding Serial Bonds maturing by their terms on such principal payment date plus the aggregate amount of all sinking fund payments required to be made on such principal payment date for all Outstanding Term Bonds.
All money in the Principal Account will be used and withdrawn by the Trustee solely for the purpose of paying the principal of the Bonds, as applicable, as they become due and payable, whether at maturity or redemption, except that any money in any sinking fund account will be used and withdrawn by the Trustee only to purchase or to redeem or to pay Term Bonds for which such Sinking Account was created.
The Trustee will establish and maintain within the Principal Account a separate subaccount for the Term Bonds of each series and maturity, designated as the “Sinking Account” (if more than one such account is established for such series, inserting the series and maturity designation of such Bonds). With respect to each Sinking Account, on each mandatory sink ing account payment date established for such Sinking Account, the Trustee will apply the mandatory sinking account payment required on that date to the redemption (or payment at maturity, as the case may be) of Term Bonds of the series and maturity for which such Sinking Account was established, upon the notice and in the manner pursuant to the Trust Agreement; provided that, at any time prior to giving such notice of such redemption, the Trustee may, upon the Written Request of the City, apply moneys in such Sinking Account to the purchase for cancellation of Term Bonds
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9 of such series and maturity at public or private sale, as and when and at such prices (including brokerage and other charges, but excluding accrued interest, which is payable from the Inter est Account), as may be directed by the City, except that the purchase price (excluding accrued interest) will not exceed the redemption price that would be payable for such Bonds upon redemption by application of such Mandatory Sinking Account Payment. If , during the twelve -month period immediately preceding said mandatory sinking account payment date, the Trustee has purchased Term Bonds of such series and maturity with moneys in such Sinking Account, such Bonds so purchased will be applied, to the extent of the full principal amount thereof, as applicable, to reduce such mandatory sinking account payment.
Surplus Account. On the Business Day following the last Interest Payment Date of each Fiscal Year, or on such other date as provided in a Supplemental Trust Agreement, any moneys remaining in the Bond Fund will be deposited by the Trustee in the Surplus Account. So long as no Event of Default has occurred and is continuing, moneys deposited in the Surplus Account will be transferred by the Trustee to or upon the order of the City, as specified in a Written Request of the City.
RISK FACTORS
Purchase of the Series 2022 Bonds will constitute an investment subject to certain risks, including the risk of nonpayment of principal and interest. Before purchasing a ny of the Series 2022 Bonds, prospective investors should carefully consider, among other things, the risk factors described below.
However, the following is not meant to be an exhaustive listing of all the risks associated with the purchase of the Series 2022 Bonds. Moreover, the order of presentation of the risk factors does not necessarily reflect the order of their importance.
Limitation of Remedies
The rights of the owners of the Series 2022 Bonds are subject to the limitations on legal remedies against cities in the State, including applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors’ rights generally, in effect, and to the application of general principles of equity, including without li mitation, concepts of materiality, reasonableness, good faith and fair dealing and the possible unavailability of specific performance or injunctive relief, regardless of whether considered in a proceeding in equity or in law.
Bankruptcy
The enforceability of the rights and remedies of the Owners and the obligations of the City may become subject to the following: the federal bankruptcy code and applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws relating to or affecting the enfor cement of creditors’ rights generally, in effect; usual equitable principles which may limit the specific enforcement under state law of certain remedies; the exercise by the United States of America of the powers delegated to it by the Federal Constitution; and the reasonable and necessary exercise, in certain exceptional situations, of the police power inherent in the sovereignty of the State and its governmental bodies in the interest of servicing a significant and legitimate public purpose.
In addition to the limitation on remedies contained in the Trust Agreement, the rights and remedies provided in the Trust Agreement may be limited by and are subject to the provisions of federal bankruptcy laws. The City is a governmental unit and therefore cannot be the subject of an involuntary case under the United States Bankruptcy Code (the “ Bankruptcy Code ”). However, the City is a municipality and therefore may seek voluntary protection from its creditors pursuant to Chapter 9 of the Bankruptcy Code for purposes of adjusting its debts.
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10 If the City were to become a debtor under the Bankruptcy Code, the City would be entitled to all of the protective provisions of the Bankruptcy Code as applicable in a Chapter 9 case. Such a bankruptcy could adversely affect the p ayments under the Trust Agreement. Among the adverse effects might be:
(i) the application of the automatic stay provisions of the Bankruptcy Code, which, until relief is granted, would prevent collection of payments from the City or the commencement of any judicial or other action for the purpose of recovering or collecting a claim against the City and could prevent the Trustee from making payments from funds in its possession; (ii) the avoidance of preferential transfers occurring during the relevant period prior to the filing of a bankruptcy petition; (iii) the existence of unsecured or secured debt that may have priority of payment superior to that of the Owners of the Series 2022 Bonds; and (iv) the possibility of the adoption of a plan (the “Plan”) for the adjustment of the City’s debt without the consent of the Trustee or all of the Owners of the Series 2022 Bonds, which Plan may restructure, delay, compromise or reduce the amount of any claim of the Owners if the Bankruptcy Court finds that the Plan is fair and equitable and in the best interests of creditors.
Further, if the City is in bankruptcy, the parties (including the Trustee and the Owners) may be prohibited from taking any action to coll ect any amount from the City or to enforce any obligation of the City, unless the permission of the bankruptcy court is obtained. These restrictions may also prevent the Trustee from making payments to the Owners of the Series 2022 Bonds from funds in the Trustee’s possession.
The Series 2022 Bonds are not secured by any property other than the funds that the City has actually deposited with the Trustee, and the City is not obligated to deposit any funds with the Trustee until the third business day prior to the applicable bond payment debt. The Series 2022 Bonds are not secured by the funds in the City treasury allocated to pay debt service on the Series 2022 Bonds. If the City is in bankruptcy, it may not be obligated to make any further deposits with the Trustee, it may not be obligated to make any further allocations to the payment of debt service, and it may not be obligated to turn over to the Trustee any moneys that have been allocated in the City treasury. As a result, the Series 2022 Bonds would likely be treated as unsecured obligations of the City in the bankruptcy case. Under such circumstances, the Owners could suffer substantial losses. The City may be able, without the consent and over the objection of the Trustee or the Owners, to alter the priority, interest rate, payment terms, matur ity dates, payment sources, covenants, and other terms or provisions of the Trust Agreement and the Series 2022 Bonds, as long as the bankruptcy court determines that the alterations are fair and equitable.
There may be delays in payments on the Series 2022 Bonds while the court considers any of these issues. There may be other possible effects of a bankruptcy of the City that could result in delays or reductions in payments on the Series 2022 Bonds, or result in losses to the Owners. Regardless of any specific adverse determinations in a City bankruptcy proceeding, the fact of a City bankruptcy proceeding could have an adverse effect on the liquidity and value of the Series 2022 Bonds.
Bankruptcies in the City of Stockton, the City of San Bernardino and th e City of Detroit have brought scrutiny to pension obligation bonds. In the San Bernardino bankruptcy, the Court held that in the event of a municipal bankruptcy, payments on pension obligation bonds, such as the Series 2022 Bonds, were unsecured obligations and not entitled to the same priority of payments made to CalPERS. A variety of events, including, but not limited to, additional rulings adverse to the interests of bond owners in bankruptcy cases could prevent or materially adversely affect the rights of Owners to receive payments on the Series 2022 Bonds in the event the City files for bankruptcy. Accordingly, in the event of bankruptcy, it is likely that the Owners may not recover all of their principal and interest.
Bond Counsel’s opinion will be qualified to the extent the enforceability of the Series 2022 Bonds and the Trust Agreement may be limited by applicable bankruptcy, insolvency, debt adjustment, reorganization, moratorium or similar laws or equitable principles relating to or limiting credi tors’ rights
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11 generally or as to the availability of any particular remedy. No opinion is being delivered by Bond Counsel relating to the treatment of the Series 2022 Bonds or the Trust Agreement or any related matter in a City bankruptcy proceeding.
Pension Benefit Liability
Many factors influence the amount of the City’s pension benefit liabilities, including, without limitation, inflationary factors, changes in statutory provisions of CalPERS retirement system laws, changes in the levels of benefits provided or in the contribution rates of the City, increases or decreases in the number of covered employees, changes in actuarial assumptions or methods (including but not limited to the assumed rate of return), and differences between actual and anticipated i nvestment experience of CalPERS. Any of these factors could give rise to additional liability of the City to its pension plans as a result of which the City would be obligated to make additional payments to its pension plans in order to fully fund of the City’s obligations to its pension plans.
Natural Disasters
Rialto, like most cities in California, is located in a seismically active region. The timing and magnitude of any particular seismic event cannot be predicted by the City. There are three major fau lts within the City: The San Jacinto, Glen Helen, and Lytle Creek Faults. These faults are included in the San Jacinto Fault System, an extension of the San Andreas Fault System. The San Jacinto Fault Zone is considered one of the most active in Southern California. Unless proven otherwise, the area within 50 feet of an active fault is presumed to be underlain by that fault. The fault system parallels Lytle Creek Wash, north of Riverside Avenue and then enters the City limits slightly south of El Rancho Verde Golf Course; it then traverses and cuts through Frisbie Park, runs along the bench area and leaves the City at the intersection of Baseline and Meridian Avenues. The Glen Helen Fault, part of the San Jacinto Fault System, is located in the extreme nort heastern section of the planning area. This fault has been relatively inactive with no major ground displacement occurring along its path. The Lytle Creek Fault, also part of the San Jacinto Fault System, runs along the northernmost section of the planning area and merges with the San Jacinto Fault northwest of the Country Club area. Because of this fault’s close relationship to the San Jacinto System, the possibility of major ground displacement occurring along its path is likely.
The Rialto-Colton Fault System is an ancient fault system that runs between the Rialto and Chino Water Basins. This fault, though inactive for a long period of time, has a maximum credible earthquake magnitude of 6.5 on the Richter Scale. The fault is 16 miles in length and is con sidered relatively stable Liquefaction is unlikely to occur in most portions of Rialto.
Liquefaction is a process whereby strong earthquake shaking causes sediment layers that are saturated with groundwater to lose strength and behave as fluid. This subsu rface process can lead to near-surface or surface ground failure that can result in property damage and structural failure. Liquefaction is a concern in the Lytle Creek Wash area where there are sand soils and a high water table, and in the areas near the Santa Ana River due to an extremely high water table.
The City makes no representation regarding the impact that a future seismic event may have on the Leased Property. The City is not required to, and currently does not, maintain earthquake insurance with respect to the facilities. Therefore, the damage from earthquakes may not be insured in future years.
A major earthquake could cause widespread destruction and significant loss of life in a populated area such as the City. If an earthquake were to substantially damage or destroy taxable property within the City, a reduction in taxable values of property in the City and a reduction in revenues available to the General Fund to make Base Rental Payments would be likely to occur and therefore, Revenues available to pay debt service on the Bonds could be materially adversely affected. Seismic activity may also reduce or eliminate the use and occupancy of the Leased Property by the City. There is no assurance that, in the event
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12 of a natural disaster, sufficient City reserves or Federal Emergency Management Agency assistance would be available for the repair or replacement of any Leased Property.
Flooding. The entire City may be subject to flooding, due to flash flooding, urban flooding (storm drain failure/infrastructure breakdown), river channel overflow, downstream flooding, etc. The City has not historically been vulnerable to storm surge inundation associated with hurricanes and tropical storms.
Wildfires. There are three categories of interface fire: The cl assic wildland/urban interface exists where well-defined urban and suburban development presses up against open expanses of wildland areas; the mixed wildland/urban interface is characterized by isolated homes, subdivisions and small communities situated predominantly in wildland settings; and the occluded wildland/urban interface exists where islands of wildland vegetation occur inside a largely urbanized area. Certain conditions must be present for significant interface fires to occur. The most common conditions include: hot, dry and windy weather; the inability of fire protection forces to contain or suppress the fire; the occurrence of multiple fires that overwhelm committed resources; and a large fuel load (dense vegetation). Once a fire has started, se veral conditions influence its behavior, including fuel topography, weather, drought and development. Although major fire conflagrations have spread over flat areas of communities, because of wind driven flames spotting from roof to roof, most communities are at highest risk of wildland fires in their hillside areas.
If such events described above occur, the City’s emergency response to such an event may add unanticipated expenditures to the General Fund budget, some or all of which may not be reimbursed b y federal or state disaster funding, and, if reimbursed, may not be received by the City in a timely manner.
This could lead to reduced ability by the City to make timely debt service payments on the Series 2022 Bonds. Such event could also result in subst antial damage to properties in the City, which, in turn, could substantially reduce the value of such properties and could affect the ability or willingness of the property owners to pay their property taxes or of businesses to operate and generate sales tax.
City General Fund
The Series 2022 Bonds are payable from lawfully available funds the City. If the amounts which the City is obligated to pay in a fiscal year exceed the revenues for such year, the City may choose to make some payments rather than making other payments, including payments on the Series 2022 Bonds based on the perceived needs of the City. The same result could occur if, because of California Constitutional limits on expenditures, the City is not permitted to appropriate and spend all of its available revenues or is required to expend available revenues to preserve the public health, safety and welfare. The City is permitted to expend for any municipal purpose or otherwise incur other evidences of indebtedness or other obligations payable from the City’s General Fund without the consent of Owners of the Series 2022 Bonds.
A variety of national, state or regional factors, which are beyond the control of the City could reduce the amount of the City’s General Fund revenues.
Public Health Emergencies
[Update before posting][In recent years, public health authorities have warned of threats posed by outbreaks of disease and other public health threats. On February 11, 2020 the World Health Organization (“WHO”) announced the official name for the outbreak of a new disease (“COVID-19”) caused by a strain of novel coronavirus, an upper respiratory tract illness which has since spread across the globe. The WHO has declared the COVID-19 outbreak to be a pandemic, and states of emergency have been declared by the Mayor of the City, the Governor of the State and the President of the United States.
Beginning in early 2020, to mitigate the public health impacts from COVID -19, the County implemented and revised, from time to time, shelter-in-place (“Shelter-in-Place”) emergency orders, which directed individuals to stay home, except for limited travel for the conduct of essential services. The outbreak resulted in the imposition of restrictions on mass gatherings, universities and schools. Many retail
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13 establishments (including restaurants, bars and nightclubs, entertainment venues and gyms) were closed or restricted in response to the Shelter-in-Place orders.
The Governor of the State announced similar Shelter -in-Place emergency orders effective for the entire State. On August 28, 2020, the State adopted a color coded, four‐tiered framework to guide restrictions and reopening statewide, depending on improvements or declines in public health indicators.
For a time, the State imposed additional restrictions based on hospital intensive care unit capacity.
The spread of COVID-19 and the public health responses by government authorities contributed to negative economic impacts throughout the world, including the City. On June 8, 2020 the National Bureau of Economic Research announced that the U.S. officially entered into a recession in February 2020, which lasted approximately two months.
In response to improving public health indicators, the County began to incrementally ease restrictions beginning in January 2021. On June 15, 2021, the State gener ally eliminated the four -tier classification system, with the aim of bringing the State back to pre-pandemic operations. There can be no assurances, however, against a resurgence of the disease and imposition of similar or more restrictive public health restrictions in response. Variants of the coronavirus responsible for COVID-19 could lead to greater disease rates. The longer-term effectiveness of vaccines is yet unproven, and future vaccination rates cannot be predicted with certainty. Thus, the duratio n, severity and economic effects of the pandemic remain uncertain in many respects.
The ultimate impact of COVID-19 on the operations and finances of the City is not fully known, and it may be some time before the full adverse impact of the COVID-19 outbreak is known. Further, there could be other public health emergencies that could have material adverse effects on the operations and finances of the City.]
Cybersecurity
[Discuss] The City, like many other public and private entities, relies on computer and other digital networks and systems to conduct its operations and finances. As a recipient and provider of personal, private or other electronic sensitive information, the City is potentially subject to multiple cyber threats including, but not limited to, hacking, viruses, malware, ransomware and other attacks on computer and other sensitive digital networks and systems. Entities or individuals may attempt to gain unauthorized access to the City’s systems for the purposes of misappropriating assets or i nformation or causing operational disruption or damage. The City provides training to its staff on phishing and safe browsing and how to avoid potential cyber threats. No assurances can be provided, however, that the security and operational control measures of the City will be successful in guarding against any and each cyber threat or breach.
Articles XIIIC and XIIID of the California Constitution See “CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS - Articles XIIIC and XIIID of the State Constitution,” for information about certain risks to the City’s General Fund revenues under Articles XIIIC and Article XIIID of the California Constitution.
Secondary Market Risk
There can be no assurance that there will be a secondary market for purchase or sale of the Series 2022 Bonds, and from time to time there may be no market for them, depending upon prevailing market
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14 conditions, the financial condition or market position of firms who may make the secondary market and the financial condition of the City.
CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS Article XIII A of the State Constitution
Section 1(a) of Article XIII A of the State Constitution (“Article XIII A”) limits the maximum ad valorem tax on real property to 1% of full cash value (as defined in Section 2 of Article XIII A), to be collected by counties and apportioned according to law. Section 1(b) of Article XIII A provides that the 1% limitation does not apply to (i ) ad valorem taxes to pay interest or redemption charges on indebtedness approved by the voters prior to July 1, 1978, or (ii) any bonded indebtedness for the acquisition or improvement of real property approved on or after July 1, 1978 by two-thirds of the votes cast by the voters voting on the proposition, or (iii) any bonded indebtedness incurred by a school district, community college district or county office of education for the construction, rehabilitation or replacement of school facilities or the acquisition or lease of real property for school facilities approved after November 8, 2000 by 55% of the voters of the district or county, as appropriate, voting on the proposition. Section 2 of Article XIII A defines “full cash value” to mean “the county assessor’s valuation of real property as shown on the 1975-76 tax bill under ‘full cash value’ or, thereafter, the appraised value of real property when purchased, newly constructed, or a change in ownership has occurred after the 1975 assessment” (“Full C ash Value”). The Full Cash Value may be adjusted annually to reflect inflation at a rate not to exceed 2% per year, or to reflect a reduction in the consumer price index or comparable data for the area under taxing jurisdiction, or may be reduced in the event of declining property value caused by substantial damage, destruction or other factors. Taxpayers in the City may appeal the determination of the San Bernardino County Assessor of the Full Cash Value of their property. At any given point in time, appeals are pending in the City. If the assessed value of a property is reduced as a result of an assessment appeal, the reduction is borne by relevant taxing agencies, including the City.
Legislation enacted by the State Legislature to implement Article XIII A provides that, notwithstanding any other law, local agencies may not levy any ad valorem property tax except to pay debt service on indebtedness approved by the voters as described above.
The voters of the State have approved amendments to Article XIII A. One such amendment generally provides that the purchase or transfer of (i) real property between spouses or (ii) the principal residence and the first $1,000,000 of the Full Cash Value of other real property between parents and children, do not constitute a “purchase” or “change of ownership” triggering reappraisal under Article XIII A. Another amendment permits the State Legislature to allow persons over the age of 55 who meet certain criteria or “severely disabled homeowners” who sell their residence and buy or build another of equal or lesser value within two years in the same county, to transfer the old residence’s assessed value to the new residence. Another amendment permits the State Legislature to allow persons who are either 55 years of age or olde r, or who are “severely disabled,” to transfer the old residence’s assessed value to their new residence located in either the same or a different county and acquired or newly constructed within two years of the sale of their old residence.
In 1990, the voters approved a further amendment of Article XIII A to permit the State Legislature to exclude from the definition of “new construction” certain additions and improvements, including seismic retrofitting improvements and improvements utilizing earthquake h azard mitigation technologies constructed or installed in existing buildings after November 6, 1990.
Article XIII A has also been amended to provide that there would be no increase in the Full Cash Value base in the event of reconstruction of property damaged or destroyed in a disaster.
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15 Section 4 of Article XIII A provides that cities, counties and special districts cannot, without a two-thirds vote of the qualified electors, impose “special taxes.” Article XIII B of the State Constitution – Gann Limit
State and local government agencies in the State are each subject to an annual “appropriations limit” imposed by Article XIII B of the State Constitution (“Article XIII B”). Article XIII B prohibits government agencies and the State from spending “appropri ations subject to limitation” in excess of the appropriations limit imposed. The base year for establishing such appropriations limit is fiscal year 1978-79. “Appropriations subject to limitation” are generally authorizations to spend “proceeds of taxes,” which include all, but are not limited to, tax revenues, and the proceeds from (i) regulatory licenses, user charges or other user fees to the extent that such proceeds exceed “the cost reasonably borne by that entity in providing the regulation, product, or service,” (ii) the investment of tax revenues, and (iii) certain subventions received from the State. No limit is imposed on appropriations of funds which are not “proceeds of taxes,” appropriated for debt service on indebtedness existing prior to the p assage of Article XIII B or authorized by the voters, or appropriations required to comply with certain mandates of courts or the federal government.
As amended at the June 5, 1990 election by Proposition 111, Article XIII B provides that, in general terms, an agency’s appropriations limit is based on the limit for the prior year adjusted annually to reflect changes in cost of living, population and, when appropriate, transfer of financial responsibility of providing services from one governmental unit to another. Proposition 111 liberalized the aforementioned adjustment factors as compared to the original provisions of Article XIII B. If an agency’s revenues during any two consecutive fiscal years exceed the combined appropriations limits for those two years, the excess must be returned by a revision of tax rates or fee schedules within the two subsequent fiscal years.
Section 7900, et seq. of the State Government Code defines certain terms used in Article XIII B and sets forth the methods for determining the appropriations limits for local jurisdictions.
Articles XIII C and XIII D of the State Constitution – Proposition 218 and Proposition 26 On November 5, 1996, the voters of the State approved Proposition 218, the “Right to Vote on Taxes Act.” Proposition 218 added Articles XIII C and XIII D to the State Constitution, which contain a number of provisions affecting the ability of the City to levy and collect both existing and future taxes, assessments, fees and charges.
Article XIII C of the State Constitut ion (“Article XIII C”) requires that all new local taxes be submitted to the electorate before they become effective. Taxes for general governmental purposes of the City require a majority vote, and taxes for specific purposes, even if deposited in the general fund, require a two-thirds vote. The voter approval requirements of Article XIII C reduce the City’s flexibility to deal with fiscal problems by raising revenue through new or extended or increased taxes and no assurance can be given that the City will be able to raise taxes in the future to meet increased expenditure requirements.
Article XIII D of the State Constitution (“Article XIII D”) contains several new provisions making it generally more difficult for local agencies to levy and maintain “assessments” for municipal services and programs. “Assessment” is defined to mean any levy or charge upon real property for a special benefit conferred upon the real property.
Article XIII D also contains several new provisions affecting a “fee” or “charge,” de fined for purposes of Article XIII D to mean “any levy other than an ad valorem tax, a special tax, or an assessment, imposed by a local government upon a parcel or upon a person as an incident of property ownership,
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16 including user fees or charges for a property related service.” All new and existing property related fees and charges must conform to requirements prohibiting, among other things, fees and charges which (i) generate revenues exceeding the funds required to provide the property related service, (ii) are used for any purpose other than those for which the fees and charges are imposed, (iii) with respect to any parcel or person, exceed the proportional cost of the service attributable to the parcel, (iv) are for a service not actually used by, or immediately available to, the owner of the property in question, or (v) are used for general governmental services, including police, fire or library services, where the service is available to the public at large in substantially the same manner as it is to property owners. Further, before any property related fee or charge may be imposed or increased, written notice must be given to the record owner of each parcel of land affected by such fee or charge. The City must then hold a hearing upon the proposed imposition or increase, and if written protests against the proposal are presented by a majority of the owners of the identified parcels, the City may not impose or increase the fee or charge. Moreover, except for fees or charges for sewer, water and refuse collection services (or fees for electrical and gas service, which are not treated as “property related” for purposes of Article XIII D), no property related fee or charge may be imposed or increased without majority approval by the property owners subj ect to the fee or charge or, at the option of the local agency, two -thirds voter approval by the electorate residing in the affected area.
However, California courts have held that property -related fees which are used by a city for general fund purposes and which are not compensation to the city for the costs of providing the related service are an impermissible tax under Article XIII D.
In addition to the provisions described above, Article XIII C extends the people’s initiative power to the reduction or repeal of local taxes, assessments, and fees and charges imposed prior to its effective date (November 1996). Consequently, the voters of the City could, by future initiative, repeal, reduce or prohibit the future imposition or increase of any local tax, assessment, fee or charge. The California Supreme Court held in Bighorn-Desert View Water Agency v. Verjil , 39 Cal. 4th 205 (2006) that, under Article XIII C local voters by imitative may reduce a public agency’s water rates and delivery charges, as those are property-related fees or charges within the meaning of Article XIII D, and noted that the initiative power described in Article XIII C may extend to a broader category of fees and charges than the property-related fees and charges governed by XIII D (“assessment,” “fee” and “charge,” are not defined in Article XIII C, so it was initially unclear whether the definitions of these terms in Article XIII D (which are generally property-related as described above) would limit the scope of the initiative power set forth in Article XIII C). Accordingly, the Article XIII C initiative power could potentially apply to non-property-related revenue sources that currently constitute a substantial portion of general fund revenues. No assurance can be given that t he voters of the City will not, in the future, approve initiatives that repeal, reduce or prohibit the future imposition or increase of local taxes, assessments, fees or charges.
On November 2, 2010, voters in the State approved Proposition 26. Proposition 26 amends Article XIII C of the State Constitution to expand the definition of “tax” to include “any levy, charge, or exaction of any kind imposed by a local government” except the following: (1) a charge imposed for a specific benefit conferred or privilege granted directly to the payor that is not provided to those not charged, and which does not exceed the reasonable costs to the local government of conferring the benefit or granting the privilege; (2) a charge imposed for a specific government service or product provided directly to the payor that is not provided to those not charged, and which does not exceed the reasonable costs to the local government of providing the service or product; (3) a charge imposed for the reasonable regulatory costs to a l ocal government for issuing licenses and permits, performing investigations, inspections, and audits, enforcing agricultural marketing orders, and the administrative enforcement and adjudication thereof; (4) a charge imposed for entrance to or use of local government property, or the purchase, rental, or lease of local government property; (5) a fine, penalty, or other monetary charge imposed by the judicial branch of government or a local government, as a result of a violation of law; (6) a charge imposed as a condition of property development; and (7) assessments and property-related fees imposed in accordance with the provisions of Article XIII D.
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17 Proposition 26 also provides that the local government bears the burden of proving by a preponderance of the evidence that a levy, charge, or other exaction is not a tax, that the amount is no more than necessary to cover the reasonable costs of the governmental activity, and that the manner in which those costs are allocated to a payor bear a fair or reasonable relationship to the payor’s burdens on, or benefits received from, the governmental activity.
Proposition 1A
As part of then -Governor Schwarzenegger’s agreement with local jurisdictions, Senate Constitutional Amendment No. 4 was enacted by the State Legisl ature and subsequently approved by the voters as Proposition 1A (“Proposition 1A”) at the November 2004 election. Proposition 1A amended the State Constitution to, among other things, reduce the State Legislature’s authority over local government revenue sources by placing restrictions on the State’s access to local governments’ property, sales, and vehicle license fee revenues as of November 3, 2004.
Proposition 1A prohibits the State from mandating activities on cities, counties or special districts without providing for the funding needed to comply with the mandates. If the State does not provide funding for the mandated activity, the requirement on cities, counties or special districts to abide by the mandate would be suspended. In addition, Proposition 1A expanded the definition of what constitutes a mandate on local governments to encompass State action that transfers to cities, counties and special districts financial responsibility for a required program for which the State previously had partial or complete responsibility. The State mandate provisions of Proposition 1A do not apply to schools or community colleges or to mandates relating to employee rights.
Proposition 22
Proposition 22 (“Proposition 22”) which was approved by California voters in Nov ember 2010, prohibits the State, even during a period of severe fiscal hardship, from delaying the distribution of tax revenues for transportation, redevelopment, or local government projects and services and prohibits fuel tax revenues from being loaned for cash-flow or budget balancing purposes to the State General Fund or any other State fund. In addition, Proposition 22 generally eliminates the State’s authority to temporarily shift property taxes from cities, counties, and special districts to schools, temporarily increase a school and community college district’s share of property tax revenues, prohibits the State from borrowing or redirecting redevelopment property tax revenues or requiring increased pass-through payments thereof, and prohibits the St ate from reallocating vehicle license fee revenues to pay for State -imposed mandates. In addition, Proposition 22 requires a two -thirds vote of each house of the State Legislature and a public hearing process to be conducted in order to change the amount of fuel excise tax revenues shared with cities and counties. Proposition 22 prohibits the State from enacting new laws that require redevelopment agencies to shift funds to schools or other agencies. While Proposition 22 will not change overall State and local government costs or revenues by the express terms thereof, it will cause the State to adopt alternative actions to address its fiscal and policy objectives. Due to the prohibition with respect to the State’s ability to take, reallocate, and borrow mone y raised by local governments for local purposes, Proposition 22 supersedes certain provisions of Proposition 1A (2004). In addition, Proposition 22 supersedes Proposition 1A of 2006. Accordingly, the State is prohibited from borrowing sales taxes or excise taxes on motor vehicle fuels or changing the allocations of those taxes among local governments except pursuant to specified procedures involving public notices and hearings.
Statutory Limitations
A statutory initiative (“Proposition 62”) was adopted by State voters at the November 4, 1986 General Election, which (1) requires that any tax for general governmental purposes imposed by local
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18 governmental entities be approved by resolution or ordinance adopted by two -thirds vote of the governmental agency’s l egislative body and by a majority of the electorate of the governmental entity voting in such election, (2) requires that any special tax (defined as taxes levied for other than general governmental purposes) imposed by a local governmental entity be appro ved by a two -thirds vote of the voters within that jurisdiction voting in such election, (3) restricts the use of revenues from a special tax to the purpose or for the service for which the special tax was imposed, (4) prohibits the imposition of ad valorem taxes on real property by local governmental entities except as permitted by Article XIII A, (5) prohibits the imposition of transaction taxes and sales taxes on the sale of real property by local governmental entities and (6) requires that any tax impos ed by a local governmental entity on or after August 1, 1985 be ratified by a majority vote of the electorate voting in such election within two years of the adoption of the initiative or be terminated by November 15, 1988. Proposition 62 requirements are generally not applicable to general taxes and special taxes levied prior to its November 4, 1986 effective date.
On September 28, 1995, the California Supreme Court filed its decision in Santa Clara County Local Transportation Authority v. Carl Guardino, 11 Cal. 4th 220 (1995) (“Santa Clara”), which upheld a Court of Appeal decision invalidating a 1/2-cent countywide sales tax for transportation purposes levied by a local transportation authority. The California Supreme Court based its decision on the failu re of the authority to obtain a two -thirds vote of the electorate for the levy of a “special tax,” as required by Proposition 62. The Santa Clara decision did not address the question of whether or not it should be applied retroactively.
In deciding the Santa Clara case on Proposition 62 grounds, the Court disapproved the decision in City of Woodlake v. Logan, 230 Cal. App. 3d 1058 (1991) (“Woodlake”), where the Court of Appeal had held portions of Proposition 62 unconstitutional as a referendum on taxes pr ohibited by the State Constitution. The State Supreme Court determined that the voter approval requirement of Proposition 62 is a condition precedent to the enactment of each tax statute to which it applies, while referendum refers to a process invoked only after a statute has been enacted. Numerous taxes to which Proposition 62 would apply were imposed or increased without voter approval in reliance on Woodlake. The Court notes as apparently distinguishable, but did not confirm, the decision in City of Westminster v. County of Orange, 204 Cal. App. 3d 623 (1988), which held unconstitutional the provision of Proposition 62 requiring voter approval of taxes imposed during the “window period” of August 1, 1985 until November 5, 1986. Proposition 62 as an initiative statute does not have the same level of authority as a constitutional initiative, but is analogous to legislation adopted by the State Legislature. After the passage of Proposition 218, certain provisions of Proposition 62 (e.g., voter approval of taxes) are now governed by the State Constitution.
Following the Santa Clara decision upholding Proposition 62, several actions were filed challenging taxes imposed by public agencies since the adoption of Proposition 62. On June 4, 2001, the State Supreme Court released its decision in one of these cases, Howard Jarvis Taxpayers Association v.
City of La Habra, et al. (“La Habra”). In this case, the court held that a public agency’s continued imposition and collection of a tax is an ongoing violation upon wh ich the statute of limitations period begins anew with each collection. The court also held that, unless another statute or constitutional rule provided differently, the statute of limitations for challenges to taxes subject to Proposition 62 is three years. Accordingly, a challenge to a tax subject to Proposition 62 may only be made for those taxes received within three years of the date the action is brought.
Future Initiatives
Article XIII A, Article XIII B, Article XIII C, Article XIII D and the propositions described above were each adopted as measures that qualified for the ballot pursuant to the State’s initiative process. From time to time, other initiative measures could be adopted, which may place further limitations on the ability
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19 of the State, the City or local districts to increase revenues or to increase appropriations which may affect the City’s revenues or its ability to expend its revenues.
STATE OF CALIFORNIA BUDGET INFORMATION
General. Information about the State budget is regularly availa ble at various State -maintained websites. Text of proposed and adopted budgets may be found at the website of the Department of Finance, www.dof.ca.gov, under the heading “California Budget.” An impartial analysis of the budget is posted by the Office of the Legislative Analyst at www.lao.ca.gov. In addition, various State official statements, many of which contain a summary of the current and past State budgets and the impact of those budgets on cities in the State, may be found at the website of the State Treasurer, www.treasurer.ca.gov. The information referred to is prepared by the respective State agency maintaining each website and not by the City or the Authority, and the City and the Authority can take no responsibility for the continued accuracy of these internet addresses or for the accuracy, completeness or timeliness of information posted there, and such information is not incorporated herein by these references. Actions by the State, including through its budget process may have material impacts on the City’s operations and finances. 2021-22 State Budget. On July 16, 2021, Governor Newsom signed into law the Fiscal Year 2021-22 State Budget (the “2021-22 State Budget”). The 2021-22 State Budget totals about $262.6 billion.
General Fund spending would increase over Fiscal Year 2020-21 by about $30.4 billion (18.3%) to $196.4 billion. The State is projected to end the Fiscal Year 2020 -21 with available general fund reserves that include: $15.8 billion in the Budget Stabilization Account (the General Fund’s “rainy-day” fund) for fiscal emergencies; $900 million in the Safety Net Reserve (used to maintain benefits and services for CalWORKs and Medi-Cal participants during economic downturns) and $4.5 billion in the Public School System Stabilization Ac count (the Proposition 98 “rainy -day” fund used to lessen the impact of State revenue volatility on K-14 schools). The multi-year forecast reflects a budget roughly in balance; however, risks to the economic forecast remain, including a stock market decli ne that would significantly reduce State revenues.
Governor’s Proposed Fiscal Year 2022 -23 Budget. On January 10, 2022, Governor Gavin Newsom presented his proposed Fiscal Year 2022 -23 State Budget (the “Proposed Budget”) to the California Legislature. The Proposed Budget totals approximately $286.4 billion. The Proposed Budget projects that the State w ill maintain a surplus of $45.7 billion, which includes $20.6 billion in the State’s General Fund for discretionary purposes, $16.1 billion in additional Proposition 98 funding for K -14 education, and $9 billion in reserve deposits and supplemental pension payments. The Proposed Budget allocates 86 percent of the discretionary surplus to one-time investments.
The Proposed Budget also reflects $34.6 billion in budgeted reserves, including $20.9 billion in the Proposition 2 Budget Stabilization Account (Rainy Day Fund) for fiscal emergencies, $9.7 billion in the Public School System Stabilization Account, $900 million in the Safety Net Reserve, and $3.1 billion in the State’s operating reserve. Under the Proposed Budget, the Rainy Day Fund would reach its constitutional maximum limit of 10 percent of General Fund revenues, requiring $2.4 billion to be dedicated fo r infrastructure investments in 2022-23. The Proposed Budget accelerates the pay-down of State retirement liabilities as required by Proposition 2, with $3.9 billion in additional payments in 2022-23 and nearly $8.4 billion projected to be paid over the subsequent three years.
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20 Significant features of the Proposed Budget affecting public agencies in California include:
• COVID-19 Pandemic Response – $1.4 billion in early action monies for efforts to increase vaccination rates and expansion of testing.
• Education and Parents Agenda – $119 billion in total funding for K-12 education; K-12 per-pupil funding totals $15,261 in Proposition 98 General Fund monies and $20,855 per pupil from all funding sources; $1 billion in Proposition 98 General Fund monies to begin universal transitional kindergarten to all four -year-olds; $3.4 billion Proposition 98 General Fund ongoing to support access to expanded -day, full -year instruction for all elementary school students; $937 million Proposition 98 General Fun d to support integrating arts and music into school enrichment programs; expansion of the Young Child Tax Credit to families that file returns without income and proposes to index the credit to inflation.
• Transportation – $9.1 billion ($4.9 billion Gene ral Fund and $4.2 billion Proposition 1A bond funds) to support the development of high-speed rail in California, regional transit and rail projects, bicycle and pedestrian projects, and climate adaptation projects; $1.3 billion General Fund for improvements to the State’s goods movement infrastructure, including improving date interconnectivity to reduce congestion and increase supply chain efficiency; $6.1 billion over five years to support zero -emission vehicles and charging infrastructure in low -income communities across the State.
• Energy – $2 billion in General Fund appropriations over two years to provide incentives for long-duration-storage projects, renewable hydrogen, and industrial decarbonization including the food processing sector.
• CalWORKs Grant Increase – 7.1 percent increase to CalWORKs Maximum Aid Payment levels, with an estimated cost of $200.7 million in 2022-23. These costs are funded via the Child Poverty and Family Supplemental Support Subaccount of the 1991 Local Revenue Fund.
• Homelessness – $2 billion over two years, in addition to last fiscal year’s three -year $12 billion allocation, to continue the State’s efforts to address homelessness by investing in behavioral health housing and encampment cleanup grants.
• Crime – $285 million General Fund allocation over three years for grants to bolster local law enforcement response to organized retail theft crime; $25 million to provide matching grants for local government firearm buy-back programs; $20 million to support small businesses affected by retail theft; $20 million for a drug interdiction program at the California-Mexico border.
• Wildfires – $1.5 billion to significantly increase the State’s ability to prevent wildfires by proposing $1.2 billion over two years for investments in forest health and fire prevention, including reforestation efforts; $400 million to support CAL FIRE firefighters in addressing the effects of the recent prolonged wildfire seasons.
• Drought – $750 million General Fund appropriation to address immediate drought response needs, including $250 million set aside as contingency. This funds are in addition to last fiscal year’s budget appropriation of $5.2 billion over three years to support drought response and long -term water sustainability.
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21 • Workforce Training and Opportunity – $1.5 billion Proposition 98 General Fund appropriation to support development of college and career pathways focused on education, health care, technology, and climate-related fields; $1.7 billion to expand the State’s health and human services workforce.
LAO Overview of Proposed 2022 -2023 State Budget. The Legislative Analyst’s Office (the “LAO”) is a nonpartisan State office which provides fiscal and policy information and advice to the State Legislature. On January 13, 2022, the LAO released its report on Governor Newsom’s Proposed 2022 -23 State Budget entitled “The 2022-23 Budget: Overview of the Governor’s Budget.” In its report, the LAO states that the Governor’s new spending proposals exceed the administration’s estimates of the Budget’s capacity in future years. The LAO also advises that the State Legislature provide greater appropriations to the State budget reserves, as the reserves – aside from the Proposition 98 reserves which have increased from zero in fiscal year 2019-20 to nearly $10 billion in the Proposed Budget – have not increased as a share of other General Fund spending and are currently below their pre-pandemic share.
The LAO finds that the Proposed Budget is projected to end fiscal year 2022 -23 with approximately $24.8 billion in total general purpose reserves, representing an increase of $4.3 billion from the budgeted reserves level of $20.7 billion in fiscal year 2021-22 as set forth in the 2021-22 State Budget.
The increase in the reserves is the res ult of three factors: (1) a $1.6 billion deposit in the State’s Budget Stabilization Account, (2) a $3.5 billion “true-up” deposit in the Budget Stabilization Account for 2022-21 and 2021-22 primarily due to higher estimates of capital gains revenues from those fiscal years, and (3) a decrease in the discretionary Special Fund for Economic Uncertainties of nearly $1 billion.
Future State Budgets. No prediction can be made by the City as to whether the State will encounter budgetary problems in future fiscal years, and if it were to do so, it is not clear what measures would be taken by the State to balance its budget, as required by law. In addition, the City cannot predict the final outcome of future State budget negotiations, the impact that such budgets will have on City finances and operations or what actions will be taken in the future by the State Legislature and the Governor to deal with changing State revenues and expenditures. There can be no assurance that actions taken by the State to address its financial condition will not materially adversely affect the financial condition of the City.
Current and future State budgets will be affected by national and State economic conditions and other factors, including the current economic downturn, over which the City has no control.
VALIDATION PROCEEDINGS
The City, acting pursuant to the provisions of Sections 860 et seq. of the California Code of Civil Procedure, filed a complaint in the Superior Court of the State of California for the County seeking judicial validation of the transactions relating to the issuance of the Bonds, and certain other matters (City of Rialto vs. All Persons Interested, etc., Case No. CIVSB2123274). On __________, 2022, the court entered a default judgment (the “Default Judgment”) and issued a court judgment to the effect, among other things, that the CalPERS Contract and Bonds are valid and binding obligations of the City under the Constitution and laws of the State. As no challenge to the judgment was filed by the time of such expiration, the judgment has become final, binding, and conclusive in accordance with California law. In issuing its approving opinion, Norton Rose Fulbright US LLP, Bond Counsel, will rely on the Default Judgment, among other things.
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22 UNDERWRITING
BofA Securities, Inc. and J.P. Morgan Securities LLC (together, the “Underwriters”) have agreed, subject to certain customary conditions precedent to closing, to purchase the Series 2022 Bonds from the City at a price equal to $ _________ (representing the principal amount of the Series 2022 Bonds, less an underwriters’ discount of $_________).
The Underwriters intend to offer the Series 2022 Bonds to the public initially at the prices set forth on the inside cover page of this Official Statement, which prices may subsequently change without any requirement of prior notice. The Underwriters reserve the right to join with dealers and other underwriters in offering the Series 2022 Bonds to the public. In connection with the offering of the Series 2022 Bonds, the Underwriters may over allot or effect transactions that stabilize or maintain the market price of the Series 2022 Bonds at levels above that which might otherwise prevail in the open market. Such stabilizing, if commenced, may be discontinued at any time.
TAX MATTERS
State Income Tax
In the opinion of Bond Counsel, under existing la w interest on the Series 2022 Bonds is exempt from personal income taxes of the State of California. Except as set forth in the preceding sentence, Bond Counsel will provide no opinion in connection with the issuance or offering of the Series 2022 Bonds with regard to any federal, state o r local tax consequence of the ownership or disposition of or the receipt of interest on any Series 2022 Bond. A copy of the form of opinion of Bond Counsel relating to the Series 2022 Bonds is included in APPENDIX E.
Federal Income Tax Considerations
The following is a general summary of certain federal income tax consequences of the purchase and ownership of the Series 2022 Bonds. The discussion is based upon the Internal Revenue Code of 1986 (the “Code”), United States Treasury Regulations, rulings and decisions now in effect, all of which are subject to change (possibly, with retroactive effect) or possibly differing interpretations. No assurances can be given that future changes in the law will not alter the conclusions reached herein. The discussion b elow is based upon laws, regulations, rulings, and decisions in effect and available on the date hereof, all of which are subject to change, possibly with retroactive effect.
Prospective investors should note that no rulings have been or are expected to be sought from the Internal Revenue Service (the “IRS”) with respect to any of the U.S. federal tax considerations discussed below, and no assurance can be given that the IRS will not take contrary positions. Further, the following discussion does not deal with U.S. tax consequences applicable to any given investor, nor does it address the U.S. tax considerations applicable to all categories of investors, some of which may be subject to special taxing rules (regardless of whether or not such investors consti tute U.S. Holders), such as certain U.S. expatriates, banks, REITs, RICs, insurance companies, tax -exempt organizations, dealers or traders in securities or currencies, partnerships, S corporations, estates and trusts, investors that hold their Series 2022 Bonds as part of a hedge, straddle or an integrated or conversion transaction, or investors whose “functional currency” is not the U.S. dollar. Furthermore, it does not address (i) alternative minimum tax consequences, or (ii) the indirect effects on pers ons who hold equity interests in a holder. This summary also does not consider the taxation of the Series 2022 Bonds under local or non-U.S. tax laws. In addition, this summary generally is limited to U.S. tax considerations applicable to investors that acquire their Series 2022 Bonds pursuant to this offering for the issue price that is applicable to such Series 2022 Bonds and who will hold their Series 2022 Bonds as “capital assets” within the meaning of Section 1221 of the Code.
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23 As used herein, “U.S. Holder” means a beneficial owner of a Bond that for U.S. federal income tax purposes is an individual citizen or resident of the United States, a corporation or other entity taxable as a corporation created or organized in or under the laws of the United States or any state thereof (including the District of Columbia), an estate the income of which is subject to U.S. federal income taxation regardless of its source or a trust where a court within the United States is able to exercise primary supervision over the administration of the trust and one or more United States persons (as defined in the Code) have the authority to control all substantial decisions of the trust (or a trust that has made a valid election under U.S. Treasury Regulations to be treated as a domestic trust). As used herein, “Non -U.S. Holder” generally means a beneficial owner of a Series 2022 Bond (other than a partnership) that is not a U.S. Holder. If a partnership holds Series 2022 Bonds, the tax treatment of such partnership or a partne r in such partnership generally will depend upon the status of the partner and upon the activities of the partnership. Partnerships holding Series 2022 Bonds, and partners in such partnerships, should consult their own tax advisors regarding the tax consequences of an investment in the Series 2022 Bonds (including their status as U.S. Holders or Non-U.S. Holders).
ALL PROSPECTIVE INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISORS IN
DETERMINING THE FEDERAL, STATE, LOCAL, FOREIGN AND ANY OTHER TAX
CONSEQUENCES TO THEM FROM THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE SERIES 2022 BONDS.
U.S. Holders
Interest on the Series 2022 Bonds. Bond Counsel has rendered no opinion regarding the exclusion pursuant to section 103(a) of the Code of interest on the Series 2022 Bonds from gross income for federal income tax purposes. The City has taken no action to cause, and does not intend, interest on the Series 2022 Bonds to be excluded pursuant to section 103(a) of the Code from the gross income of the owners thereof for federal income tax purposes. The City intends to treat the Series 2022 Bonds as debt instruments for all federal income tax purposes, including any applicable reporting requirements under the Code. THE CITY EXPECTS THAT THE INTEREST PAID ON A SERIES 2022 BOND GENERALLY WILL BE
INCLUDED IN THE GROSS INCOME OF THE OWNER THEREOF FOR FEDERAL INCOME TAX
PURPOSES WHEN RECEIVED OR ACCRUED, DEPENDING UPON THE TAX ACCOUNTING METHOD OF THAT OWNER.
Disposition of Series 2022 Bonds, Inclusion of Original Issue Discount and Treatment of Market Discount. To the extent that the issue price of any maturity of the Series 2022 Bonds is less than the amount to be paid at maturity of such Series 2022 Bonds by more than a de minimis amount (excluding amounts stated to be interest a nd payable at least annually over the term of such Series 2022 Bonds), the difference may constitute original issue discount (“OID”). U.S. Holders of Series 2022 Bonds will be required to include OID in income for U.S. federal income tax purposes as it accrues, in accordance with a constant yield method based on a compounding of interest (which may be before the receipt of cash payments attributable to such income). Under this method, U.S. Holders generally will be required to include in income increasingly greater amounts of OID in successive accrual periods.
Amortizable Bond Premium. A holder of a Series 2022 Bond that purchased that bond for an amount that was greater than its stated redemption price at maturity will be considered to have purchased the Series 2022 Bond with “amortizable bond premium” equal in amount to such excess. A U.S. Holder of a Series 2022 Bond purchased with amortizable bond premium may elect to amortize such premium using a constant yield method over the remaining term of the Series 2022 Bond and may offset interest otherwise required to be included in respect of the Series 2022 Bond during any taxable year by the amortized amount of such excess for the taxable year. Bond premium on a Bond held by a U.S. Holder that does not mak e such an election will decrease the amount of gain or increase the amount of loss otherwise recognized on the
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24 sale, exchange, redemption or retirement of a Series 2022 Bond. However, if the Series 2022 Bond may be optionally redeemed after the beneficial owner acquires it at a price in excess of its stated redemption price at maturity, special rules would apply under the Treasury Regulations which could result in a deferral of the amortization of some bond premium until later in the term of the Series 202 2 Bond. Any election to amortize bond premium applies to all taxable debt instruments held by the beneficial owner on or after the first day of the first taxable year to which such election applies and may be revoked only with the consent of the IRS. That a Series 2022 Bond was purchased by the holder with amortizable bond premium may affect the computation of includable original issue discount for that holder.
Sale or other Taxable Disposition of a Bond; Market Discount . Unless a nonrecognition provision of the Code applies, the sale, exchange, redemption, retirement or other taxable disposition of a Series 2022 Bond will be a taxable event for U.S. federal income tax purposes. In such event, in general, a U.S. Holder of a Series 2022 Bond will recognize gain or loss equal to the difference between (i) the amount of cash plus the fair market value of property received (except to the extent attributable to accrued but unpaid interest on the Series 2022 Bond, which will be taxed in the manner described abov e) and (ii) the U.S. Holder’s adjusted U.S. federal income tax basis in the Series 2022 Bond (generally, the purchase price paid by the U.S. Holder for the Series 2022 Bond, decreased by any amortized premium, and increased by the amount of any OID previously included in income by such U.S. Holder with respect to such Series 2022 Bond). Any such gain or loss generally will be capital gain or loss. In the case of a non -corporate U.S.
Holder of the Series 2022 Bonds, the maximum marginal U.S. federal income tax rate applicable to any such gain will be lower than the maximum marginal U.S. federal income tax rate applicable to ordinary income if such U.S. Holder’s holding period for the Series 2022 Bonds exceeds one year. The deductibility of capital losses is subject to limitations.
Under current law, a U.S. Holder of a Series 2022 Bond who did not purchase that Series 2022 Bond in the initial public offering (a “subsequent purchaser”) generally will be required, on the disposition (or earlier partial principal payment) of such Series 2022 Bond, to recognize as ordinary income a portion of the gain (or partial principal payment), if any, to the extent of the accrued “market discount.” In general, market discount is t he amount by which the price paid for such Series 2022 Bond by such a subsequent purchaser is less than the stated redemption price at maturity of that Series 2022 Bond (or, in the case of a Series 2022 Bond bearing original issue discount, is less than the “revised issue price” of that Series 2022 Bond (as defined below) upon such purchase), except that market discount is considered to be zero if it is less than one quarter of one percent of the principal amount times the number of complete remaining years to maturity. The Code also limits the deductibility of interest incurred by a subsequent purchaser on funds borrowed to acquire Series 2022 Bonds with market discount. As an alternative to the inclusion of market discount in income upon disposition, a s ubsequent purchaser may elect to include market discount in income currently as it accrues on all market discount instruments acquired by the subsequent purchaser in that taxable year or thereafter, in which case the interest deferral rule will not apply. The recharacterization of gain as ordinary income on a subsequent disposition of such Series 2022 Bonds could have a material effect on the market value of such Series 2022 Bonds.
Medicare Tax. Certain non-corporate U.S. Holders of Series 2022 Bonds are subject to a 3.8% tax on the lesser of (1) the U.S. Holder’s “net investment income” (in the case of individuals) or “undistributed net investment income” (in the case of estates and certain trusts) for the relevant taxable year and (2) the excess of the U.S. Holder’s “modified adjusted gross income” (in the case of individuals) or “adjusted gross income” (in the case of estates and certain trusts) for the taxable year over a certain threshold (which in the case of individuals is between $200,000 and $250,0 00, depending on the individual’s circumstances). A U.S. Holder’s calculation of net investment income generally will include its interest income on the Series 2022 Bonds and its net gains from the disposition of the Series 2022 Bonds, unless such interest income or net gains are derived in the ordinary course of the conduct of a trade or business (other than a trade or business that consists of certain passive or trading activities). If you are an individual, estate, or trust, you
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25 are urged to consult you r tax advisors regarding the applicability of this tax to your income and gains in respect of your investment in the Series 2022 Bonds.
Information Reporting and Backup Withholding. Payments on the Series 2022 Bonds generally will be subject to U.S. information reporting and possibly to “backup withholding.” Under Section 3406 of the Code and applicable U.S. Treasury Regulations issued thereunder, a non -corporate U.S. Holder of the Series 2022 Bonds may be subject to backup withholding at the current rate of 24% with respect to “reportable payments,” which include interest paid on the Series 2022 Bonds and the gross proceeds of a sale, exchange, redemption, retirement or other disposition of the Series 2022 Bonds. The payor will be required to deduct and withhold the prescribed amounts if (i) the payee fails to furnish a U.S. taxpayer identification number (“TIN”) to the payor in the manner required, (ii) the IRS notifies the payor that the TIN furnished by the payee is incorrect, (iii) there has been a “notified payee underreporting” described in Section 3406(c) of the Code or (iv) the payee fails to certify under penalty of perjury that the payee is not subject to withholding under Section 3406(a)(1)(C) of the Code. Amounts withheld under the backup withholding rules may be refunded or credited against the U.S. Holder’s federal income tax liability, if any, provided that the required information is timely furnished to the IRS. Certain U.S. holders (including among others, corporations and certain tax-exempt organizations) are not subject to backup withholding. A holder’s failure to comply with the backup withholding rules may result in the imposition of penalties by the IRS.
Non-U.S. Holders
Under sections 1441 and 1442 of the Code, nonresident alien individuals and foreign corporations are generally subject to withholding at the current rate of 30% (subject to change) on periodic income items arising from sources within the United States, provided such income is not effectively connected with the conduct of a United States trade or business.
The foregoing notwithstanding, but subject to the discussions below under the headings “Information Reporting and Backup Withholding” and “Foreign Account Tax Compliance Act (“FATCA”)—U.S. Holders and Non -U.S. Holders,” and assuming the interest income of the Non -U.S.
Holder on the Series 2022 Bonds is not treated as effectively connected income within the meaning of section 864 of the Code, such interest will not be subject to 30% withholding, or any lower rate specified in an income tax treaty, if such income is treated as portfolio interest. Int erest will be treated as portfolio interest if: (i) the Non-U.S. Holder provides a statement to the payor certifying, under penalties of perjury, that the Non -U.S. Holder is not a United States person and providing the name and address of such Non-U.S. Holder; (ii) such interest is treated as not effectively connected with a United States trade or business of the Non -U.S. Holder; (iii) such interest payments are not made to a person within a foreign country that the IRS has included on a list of countries having provisions inadequate to prevent United States tax evasion; (iv) interest payable with respect to the Series 2022 Bonds is not deemed contingent interest within the meaning of the portfolio debt provision; (v) the Non -U.S. Holder is not a controlled foreign corporation, within the meaning of section 957 of the Code; and (vi) the Non -U.S. Holder is not a bank receiving interest on the Series 2022 Bonds pursuant to a loan agreement entered into in the ordinary course of the Non-U.S. Holder’s banking trade or business.
Assuming payments on the Series 2022 Bonds are treated as portfolio interest within the meaning of Sections 871 and 881 of the Code, then no withholding under Section 1441 and 1442 of the Code and no backup withholding under Section 3406 of the Code is required with respect to an owner or intermediary who has provided a certification completed in compliance with applicable statutory and regulatory requirements, which requirements are discussed below under the heading “Information Reporting and Backup Withholding,” or an exemption is otherwise established.
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26 Subject to the discussions below under the headings “Information Reporting and Backup Withholding” and “Foreign Account Tax Compliance Act (“FATCA”) —U.S. Holders and Non -U.S.
Holders,” any capital gain realized by a Non-U.S. Holder upon the sale, exchange, redemption, retirement or other taxable disposition of a Bond generally will not be subject to U.S. federal income tax, unless (i) such gain is effectively connected with the conduct by such Non-U.S. Holder of a trade or business within the United States; or (ii) in the case of any gain realized by an individual Non -U.S. Holder, such holder is present in the United States for 183 days or more in the taxable year of such sale, exchange, red emption, retirement or other disposition and certain other conditions are met.
Information Reporting and Backup Withholding . Subject to the discussion below under the heading “Foreign Account Tax Compliance Act (“FATCA”)—U.S. Holders and Non-U.S. Holders,” under current U.S. Treasury Regulations, payments of principal and interest on any Series 2022 Bonds to a Non-U.S. Holder will not be subject to any backup withholding tax requirements if the Non-U.S. Holder of the Series 2022 Bond or a financial institut ion holding the Series 2022 Bond on behalf of the Non -U.S.
Holder in the ordinary course of its trade or business provides an appropriate certification to the payor and the payor does not have actual knowledge that the certification is false. If a Non-U.S. Holder provides the certification, the certification must give the name and address of such Non -U.S. Holder, state that such Non-U.S. Holder is not a United States person, or, in the case of an individual, that such Non-U.S. Holder is neither a citizen nor a resident of the United States, and the Non-U.S. Holder must sign the certificate under penalties of perjury. The current backup withholding tax rate is 24%.
Foreign Account Tax Compliance Act (“FATCA”) —U.S. Holders and Non -U.S. Holders .
Sections 1471 through 1474 of the Code impose a 30% withholding tax on certain types of payments made to foreign financial institutions, unless the foreign financial institution enters into an agreement with the U.S. Treasury to, among other things, undertake to ident ify accounts held by certain U.S. persons or U.S.-owned entities, annually report certain information about such accounts, and withhold 30% on payments to account holders whose actions prevent it from complying with these and other reporting requirements, or unless the foreign financial institution is otherwise exempt from those requirements. In addition, FATCA imposes a 30% withholding tax on the same types of payments to a non-financial foreign entity unless the entity certifies that it does not have any substantial U.S. owners or the entity furnishes identifying information regarding each substantial U.S. owner. Failure to comply with the additional certification, information reporting and other specified requirements imposed under FATCA could result in the 30% withholding tax being imposed on payments of interest and principal under the Series 2022 Bonds and sales proceeds of Series 2022 Bonds held by or through a foreign entity. In general, withholding under FATCA currently applies to payments of U.S. source interest (including OID) and will apply to “foreign passthru payments” but no earlier than two years after the date of publication of final regulations defining the term “foreign passthru payment.” Prospective investors should consult their own tax advisors regarding FATCA and its effect on them.
The foregoing summary is included herein for general information only and does not discuss all aspects of U.S. federal taxation that may be relevant to a particular holder of Series 2022 Bonds in light of the holder’s particular circumstances and income tax situation. Prospective investors are urged to consult their own tax advisors as to any tax consequences to them from the purchase, ownership and disposition of Series 2022 Bonds, including the application and effect of state, local, non-U.S., and other tax laws.
Effect of Defeasance. Pursuant to the Trust Agreement, the Series 2022 Bonds are subject to legal defeasance without the consent of the Owners of the Series 2022 Bonds. Defeasance of any Series 2022 Bond may be treated as a taxable constructive exchange of that Series 2022 Bond, in which event the holder generally would recognize gain or loss for federal income tax purposes equal to the difference between the amount realized from the sale, exchange or retirement (less any accrued qualified stated interest, which will
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LITIGATION
The City is not aware of any pending or threatened litigation concerning the validity of the Series 2022 Bonds, the Trust Agreement, the Default Judgment or challenging any action taken by the City with respect thereto. Furthermore, the City is not aware of any pending or threatened litigation to restrain, enjoin, question or otherwise affect the Trust Agreement or in any way contesting or affecting the validity or enforceability of any of the foregoing or any proceedings of the City taken with respe ct to any of the foregoing.
There are a number of lawsuits and claims pending and threatened against the City unrelated to the Series 2022 Bonds, the Trust Agreement or matters with respect thereto. It is the opinion of the City as of the date hereof that none of the litigation, claims and threatened litigation against the City will materially affect the City’s finances or impair its ability to make debt service payments on the Series 2022 Bonds.
FINANCIAL STATEMENTS
The City’s financial statements for the Fiscal Year ended June 30, 2021, included in APPENDIX B hereto, have been audited by ____________ (the “Auditor”). The Auditor was not requested to consent to the inclusion of its report in APPENDIX B and it has not undertaken to update its report or to ta ke any action intended or likely to elicit information concerning the accuracy, completeness or fairness of the statements made in the Official Statement, and no opinion is expressed by the Auditor with respect to any event subsequent to the date of its report.
CO-MUNICIPAL ADVISORS
The City has retained NHA Advisors, LLC and Bayshore Consulting Group, Inc., as Co-Municipal Advisors in connection with the authorization and delivery of the Series 2022 Bonds. The Municipal Advisors are not obligated to undertake, and have not undertaken to make, an independent verification or assume responsibility for the accuracy, completeness or fairness of the information contained in this Official Statement. The Municipal Advisors are independent municipal advisory firms and are not engaged in the business of underwriting, trading or distributing municipal securities or other public securities.
RATING
S&P Global Ratings (“S&P”) has assigned its rating of “___” to the Series 2022 Bonds. Such rating reflects only the views of S&P. Any explanation of the significance of such rating may only be obtained from S&P. The information set forth on rating agency websites is not incorporated by reference herein.
Generally, a rating agency bases its rating on the information and materi als furnished to it and on investigations, studies and assumptions of its own. There is no assurance that any particular rating will continue for any given period of time or that any of them will not be revised downward, suspended or withdrawn entirely by a rating agency, if in the judgment of such rating agency circumstances so warrant.
Any such downward revision or withdrawal of a rating may have an adverse effect on the market price of the Series 2022 Bonds.
CONTINUING DISCLOSURE
The City has covenanted for the benefit of the Owners and Beneficial Owners of the Series 2022 Bonds pursuant to a Continuing Disclosure Agreement, dated the date of issuance of the Series 2022 Bonds (the “Continuing Disclosure Agreement”), by and between the City and ___________, as Dissemination
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28 Agent, to provide certain financial information and operating data relating to the City (the “Annual Report”) no later than [March 31] following the end of each fiscal year, commencing with the report for Fiscal Year 2022-23, and to pro vide notices of the occurrence of certain enumerated events through the EMMA System. The specific nature of the information to be contained in the Annual Report and the enumerated events is set forth in APPENDIX D – “FORM OF CONTINUING DISCLOSURE AGREEMENT.”
The Successor Agency to the Community Redevelopment Commission of the City of Rialto (the “Successor Agency”) is a separate legal entity from the City and a separate obligated person for purposes of Rule 15c2 -12. The City Council serves as the Commiss ion of the Successor Agency. The Successor Agency failed to timely file under an existing undertaking certain financial information and operating data for fiscal year 2018-19.
APPROVAL OF LEGAL PROCEEDINGS
The issuance of the Series 2022 Bonds is subject to the approving opinion of Norton Rose Fulbright US LLP, Los Angeles, California, Bond Counsel to the City, to be delivered in substantially the form set forth in APPENDIX E. Norton Rose Fulbright US LLP in its role as Bond Counsel has undertaken no responsibility to the owners of the Series 2022 Bonds or any other party for the accuracy, completeness or fairness of this Official Statement or any other offering material related to the Series 2022 Bonds, and expresses no opinion to the Owners with respect thereto. Certain legal matters also will be passed upon for the City by the City A ttorney and for the Underwriter s by their counsel Katten Muchin Rosenman LLP, New York, New York.
EXECUTION AND DELIVERY
The execution and delivery of this Official Statement has been authorized by the City.
CITY OF RIALTO, CALIFORNIA
By:
City Manager
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APPENDIX A
SELECTED FINANCIAL AND DEMOGRAPHIC
INFORMATION RELATING TO THE CITY AND COUNTY
The following information relating to the City of Rialto, California (the “City”) and the County of San Bernardino (the “County”) is provided for informational purposes only. T he Series 2022 Bonds (as defined in the forepart of this Official Statement) are payable solely as described in this Official Statement.
Neither the Series 2022 Bonds nor the obligation of the City to make payments on the bonds constitute an indebtedness of the City, the State of California, or any of its political subdivisions within the meaning of any constitutional or statutory debt limitation or restriction.
COVID 19 Pandemic
The economic and demographic data contained in this Appendix A are the latest available, but are as of dates and for periods before the economic impact of the COVID 19 pandemic and measures instituted to slow it. Accordingly, they are not necessarily indicative of the current financial condition or future prospects of the City, the County or the region or of expected revenues to the General Fund. See “RISK FACTORS – COVID 19 Pandemic” in the forepart of this Official Statement.
General
The City. The City is located in the western portion of the County of San Bernardino (the “County”), approximately 60 miles east of the City of Los Angeles and just west of the City of San Bernardino. The City was incorporated in 1911, and is organized as a general law city with a Council-Manager form of government. The City is approximately four miles wide and eight and one-half miles long. The City is served by Interstate Freeways 210, 215, 10 and 15. The City provides the following services: public safety (police and fire), highways and streets, parks and recreation, public improvements, planning and zoning, and general administrative services.
The County. The County is located in Southern California and was established by an act of the State Legislature on April 23, 1853, which formed the County over an area formerly composing the eastern part of the County of Los Angeles. The County encompasses an area of over 20,000 s quare miles and includes twenty-four incorporated cities. It is bordered on the west by Los Angeles County, on the east by the State of Arizona and the State of Nevada, on the north by Inyo and Kern Counties, and on the south by Orange and Riverside Counties. The County is the largest county in the State of California in terms of geographical area
CERTAIN FINANCIAL AND OPERATIONAL INFORMATION
RELATING TO THE CITY OF RIALTO
Audited Financial Statements
The following table sets forth the City’s General Fund assets, liabilities and fund balances based upon audited financial statements for Fiscal Years ended June 30, 2017 through June 30, 2021 . The City management’s discussion of financial performance for the fiscal year ended June 30, 2021 is presented in the City’s audited financial statements for the fiscal year ended June 30, 2021 attached hereto as APPENDIX B. Significant developments relating to the operations and finances of the City since June 30, 2021 are described herein. See, in particular the tables set forth herein, “– Management Discussion” below and “RISK FACTORS” in the forepart of this Official Statement.
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TABLE A-1
CITY OF RIALTO
GENERAL FUND BALANCE SHEET FOR FISCAL YEARS
ENDED JUNE 30, 2017 THROUGH JUNE 30, 2021
2017 2018 2019 2020
2021
Assets
Cash and investments $78,464,894 $ 87,751,932 $ 84,002,253 $50,769,459 Accounts receivable, Net 3,904,149 4,316,413 3,456,795 5,782,661 Interest receivable 130,262 184,223 214,419 79,484
Prepaid items 120,235 142,765 4,810 5,753
Deposit 2,056,663 4,037,165 4,678,056 4,817,803
Due from other governments 5,492,400 4,303,422 5,774,535 8,544,137 Due from other funds 3,862,905 3,220,138 1,425,581 4,732,147 Due from Successor Agency 10 137,503 220,390 141,480
Advances to other funds 1,300,000 1,300,000 18,799,195 18,799,195 Inventory 50,290 52,184 50,365 56,754
Property held for development - 719,969 719,969 719,969 Restricted assets: Cash and Investments 172,936 182,806 185,383 251,221 Total assets $95,554,744 $106,348,520 $119,531,751 $94,700,063
Liabilities
Accounts Payable and Accrued Liabilities $ 6,164,163 $ 5,570,262 $ 3,658,021 $ 5,449,510 Deposits 996,824 90,361 102,694 99,801
Unearned Revenues 18,461,982 27,390,708 32,992,278 1,541,052 Due to Other Funds 120,368 269,435 230,364 -
Total Liabilities $25,743,337 $ 33,320,766 $ 36,983,357 $ 7,090,363
Total Liabilities and Deferred Inflows of Resources $26,183,492 $ 46,967 $ 49,211 $ 88,187
Total Fund Balances $69,371,252 $ 72,980,787 $ 82,499,183 $87,521,513
Total Liabilities, Deferred Inflows of Resources
and Fund Balances $95,554,744 $106,348,520 $119,531,751 $94,700,063 ____________________
Source: City of Rialto.
.
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The following table summarizes the audited financial statements for the City’s General Fund for the Fiscal Years ended June 30, 2017 through June 30, 2021.
TABLE A-2
CITY OF RIALTO
GENERAL FUND STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE FOR FISCAL YEARS ENDED JUNE 30, 2017 THROUGH JUNE 30, 2021 2017 2018 2019 2020 2021
REVENUES
Taxes $51,429,940 $58,442,946 $ 66,888,344 $68,600,527 Licenses and permits 4,024,422 5,324,291 5,489,889 5,751,170 Fines and forfeitures 555,621 690,784 542,765 504,431
Use of Money and Property (672,652) (368,577) 3,296,456 1,613,398 Revenue from other agencies 7,007,013 9,973,520 5,758,792 7,581,247 Charges for services 19,277,689 8,750,006 11,671,434 9,316,984 Rialto Utility Authority Lease Payments 2,000,000 2,000,000 2,000,000 2,000,000 Reimbursement from Successor Agency - 978,716 - -
Other 1,583,354 1,589,197 4,438,756 2,090,505
Total Revenues $85,205,387 $87,380,883 $100,086,436 $97,458,262
EXPENDITURES
Current:
General government $20,257,564 $16,549,072 $15,068,819 $16,665,951 Public safety 50,864,989 53,280,014 54,270,094 58,704,099 Community development 9,142,825 7,911,202 9,643,504 9,414,121 Capital Outlay 5,103,835 4,867,692 6,984,689 366,554
Debt Service
Principal retirement - 122,029 133,413 -
Interest and Fiscal Charges - 195,524 300,946 -
Total expenditures $85,369,213 $82,925,533 $86,401,465 $85,150,725
Excess of Revenues Over (Under) Expenditures $ (163,826) $ 4,455,350 $13,684,971 $12,307,537 Other Financing Sources (Uses)
Proceeds from Sale of Capital Assets $ 38,047 $ 21,791 $ 19,002 $ 16,112 Transfers in 22,240,151 8,492,760 66,092,173 1,865,036
Transfers out (9,457,698) (9,360,366) (70,277,750) (9,166,355) Total Other Financing Sources (Uses) $12,820,500 $ (845,815) $(4,166,575) $(7,285,207) Net Change in Fund Balances $12,656,674 $ 3,609,535 $ 9,518,396 $ 5,022,330 Fund Balances – Beginning of Year $56,714,578 $69,371,252 $72,980,787 $82,499,183 Fund Balances – End of Year $69,371,252 $72,980,787 $82,499,183 $87,521,513 ____________________
Source: City of Rialto.
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General Fund Revenue Sources
The table below provides the amount of General Fund revenues that each large source represents for the fiscal years shown. The City cannot predict the ultimate impacts on such revenues as a result of the COVID-19 pandemic and potential related economic consequences; however, such impacts may be material and adverse. See “RISK FACTORS – COVID-19 Pandemic.” TABLE A-3
CITY OF RIALTO
GENERAL FUND TAX REVENUES
Tax Revenues
By Source
Actual
Fiscal Year
2017-18
Actual
Fiscal Year
2018-19
Actual
Fiscal Year
2019-20
Actual
Fiscal Year
2020-21
Budget
Fiscal Year
2021-22
Property taxes
Sales taxes
Utility taxes
Other taxes
Totals
_____________________
Source: City of Rialto.
Property Taxes. Taxes are levied by the County for each Fiscal Year on taxable real and personal property which is situated in the City as of the preceding January 1. Effective July 1, 1983, real property which changes ownership or is newly constructed is reassessed at the time the change in ownership occurs or the new construction is completed. The current year property tax rate will be applied to the reassessment, and the taxes will then be adjusted by a proration factor to reflect the portion of the remaining tax year for which taxes are due.
For assessment and collection purposes, property is classified ei ther as “secured” or “unsecured” and is listed accordingly on separate parts of the assessment roll. The “secured roll” is that part of the assessment roll containing State assessed public utilities property and real property having a tax lien which is sufficient, in the opinion of the County Assessor, to secure payment of the taxes. Other property is assessed on the “unsecured roll.” Unsecured property comprises all property not attached to land, such as personal property or business property. Boats and airplanes are examples of unsecured property.
Property taxes on the secured roll are due in two installments, on November 1 and February 1 of each Fiscal Year, and if unpaid become delinquent on December 10 and April 10, respectively, subject to a penalty of ten percent. Property on the secured roll with respect to which taxes are delinquent becomes tax defaulted on or about June 30 of the Fiscal Year. Such property may thereafter be redeemed by payment of a penalty of 1.5 percent per month to the time of redemption, plus costs and a redemption fee. 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 Tax Collector.
Property taxes on the unsecured roll are due as of the Janua ry 1 lien date and, in general, become delinquent on August 31, subject to a ten percent penalty. If unsecured taxes are unpaid on October 31, an additional penalty of 1.5 percent attaches to them on the first day of each month until paid. The City has four ways of collecting delinquent unsecured personal property taxes: (1) bringing a civil action against the taxpayer; (2) filing a certificate in the office of the County Clerk specifying certain facts in order to obtain a lien on certain property of the taxpayer; (3) filing a certificate of delinquency for record in the County Clerk
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and Recorder’s office in order to obtain a lien on certain property of the taxpayer, and (4) seizing and selling personal property, improvements or possessory interests belonging or assessed to the assessee.
Economic and other factors beyond the City’s control, such as economic recession, deflation of land values, or the complete or partial destruction of taxable property caused by, among other things, earthquake, flood or other natural disaster could cause a reduction in the assessed value of taxable property in the City. See also “LIMITATIONS ON REVENUES AND APPROPRIATIONS – Property Tax Limitations – Article XIIIA, XIIIB, XIIIC (Proposition 218)” and “ – Article XIIIA Implemen ting Legislation.”
No Teeter Plan. The County has not adopted the Alternative Method of Distribution of Tax Levies and Collections and of Tax Sale Proceeds (the “Teeter Plan”) or similar plans.
Sales and Use Tax / Transactions and Use Tax. A sales tax is i mposed on the privilege of consuming personal property in California. California does not tax services. The tax rate is established by the State Legislature, and is presently 7.25%, statewide (of which 1% is paid to the City pursuant to the Bradley-Burns Uniform Local Sales and Use Tax Law). The State’s actual administrative costs with respect to the portion of sales taxes allocable to the City are deducted before distribution. In addition, many of California’s cities, counties, and communities have special taxing authority to impose a transactions (sales) and use tax (aka “district tax”) with local voter approval. These so-called district taxes increase the tax rate in a particular area by adding the local voter approved tax to the statewide tax. These district taxes can vary in rates, and more than one district tax may be in effect for a particular location aggregating up to the normal statutory maximum of 2.0%, or with special state legislative approval, an aggregate rate greater than 2.0%.
E-commerce. E-commerce retail sales have increased rapidly during the past ten years to approximately 14% of total retail sales nationally during 2020 as compared to less than 5% in 2010. The COVID-19 pandemic only accelerated this trend, with E-commerce retail sales increasing by an estimated
32.4% during 2020, as compared to a 3.4% increase in total retail sales.
In June 2018, the United States Supreme Court published its landmark decision in South Dakota v.
Wayfair (the “Wayfair Decision”), holding that sales to a customer in a particular state alone are sufficient to create a nexus for purposes of determining whether a seller is required to collect sales taxes of the applicable state. Prior to the Wayfair Decision, courts had interpreted the dormant Commerce Clause of the United States Constitution to require that a company have a physical nexus in a state for the seller to be liable for the collection of that state’s sales tax. Physical nexus is defined as having e ither property or payroll in the state, including a resident employee working from home or inventory stored in that state.
Thus, prior to the Wayfair Decision, states had much more limited means to collect sales tax revenue from E-commerce.
Following the Wayfair Decision, on April 25, 2019 the State of California enacted Assembly Bill No. 147, pursuant to which California Department of Tax and Fee Administration has developed policies and procedures to govern the administration, collection and allocation of sales and use taxes for E-commerce retail sales. Among the factors that determine the allocation of sales and use tax revenue from E-commerce retail sales among California local jurisdictions such as the City, are the location from which the E -commerce or der was placed, the location of the goods at the time of sale, the location of the fulfillment center.
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Key Management
[bios to come]
Management Discussion
[to come]
American Rescue Plan. On March 11, 2021, President Biden signed into law the American Rescue Plan Act of 2021 (the “American Rescue Plan”), which provides total COVID -19 related relief of approximately $1.9 trillion, including $350 billion in economic relief to states, counties, and local governments. In June 2021, the City received its fir st installment of American Rescue Plan funds ($___________) and the City anticipates receiving its second installment of such funds [in approximately the same amount] in 2022. Permitted uses of these funds include but are not limited to the funding of government services affected by revenue reductions resulting from COVID-19. Local governments cannot use American Rescue Plan funds to pay pension expenses. The City intends to use its American Rescue Plan funds to _______________.
Recent and Continued Economic Development. The following are examples of recently completed and currently planned economic development projects in the City. The City makes no assurance whether or when any of the below-listed on-going economic development projects will be completed.
[to come]
Important City Policies
Debt Management Policy. The City has adopted an updated Debt Management Policy by Resolution No. __ on __________, 2022 (the “Debt Policy”). [The Debt Policy establishes prudent debt issuance guidelines, among other things, to ensure the City meets the following objectives outlined in the policy: (i) provide safe and cost effective means of debt issuance to fund the City’s capital and operating plan and refinance existing debt; (ii) maintain moderate debt and debt service payments with effective planning and coordination; (iii) ensure all debt obligations will be met in a timely and efficient manner; (iv) ensure the term of the debt shall not exceed the expected useful life of the capital improvement; (v) mandate that the City comply will all debt covenants; ensure all required disclosure reports are filed on a timely basis; (vi) maintain effective communications with bond r ating agencies and investors; and (vii) preserve financial flexibility. The City intends to issue debt for the purposes stated in the Debt Policy and to implement policy decisions incorporated in the City’s annual operating budget.] Investment Policy. The City has adopted an Investment Policy for the calendar year 2021 that applies to all financial assets investment activities and debt issues of the City and related entities. It is the policy of the City to invest public funds in a manner which will provide the highest investment return with the maximum security while meeting the daily cash flow demands of the City and conforming to all state and City’s laws governing the investment of public funds. Under the Investment Policy, investments will be made with judgment and care -under circumstances then prevailing which persons of prudence, discretion and intelligence exercise in the management of their own affairs, not for speculation, but for investment, considering the probable safety of their cap ital as well as the probable income to be derived.
The primary objectives under the Investment Policy, in priority order, of the City’s investment activities will be:
1. Safety - safety of principal is the foremost objective of the investment program.
Investments of the City of Rialto shall be undertaken in a manner that seeks to ensure the
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preservation of capital in the overall portfolio. To attain this objective, diversification is required in order that potential losses on individual securities do not exceed the income generated from the remainder of the portfolio.
2. Liquidity – The City’s investment portfolio will remain sufficiently liquid to enable the City of Rialto to meet all operating requirements which might be reasonably anticipated.
3. Return on Investments – The City’s investment portfolio shall be designed with the objective of attaining a rate of return throughout budgetary and economic cycles, commensurate with the City of Rialto’s investment risk constraints and the cash flow characteri stics of the portfolio.
City Budget
The City prepares an annual budget consistent with Generally Accepted Accounting Principles (“GAAP”) for all governmental funds on a modified accrual basis where revenues are recognized when they become measurable and a vailable to finance expenditures of the current period. Expenditures are recorded when the goods or services are received, and the liabilities are incurred.
The City Council approves each fiscal year’s budget submitted by the City Manager prior to the beginning of the fiscal year. Public meetings are conducted prior to the adoption by City Council. It is the City Council’s goal to adopt an annual balanced budget, a budget in which current revenues equal recurring expenditures. Once the annual budget is adopted, department directors are responsible, not only to accomplish particular goals within each program, but also to monitor budget allocations consistent to the funding levels adopted by the City Council prior to July 1 of the budget year.
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TABLE A-4
CITY OF RIALTO
GENERAL FUND BUDGETS
Fiscal Year
2020 Final
Budget
Fiscal Year
2020 Actual Variance
Fiscal Year
2021 Final
Budget
Fiscal Year
2021 Actual Variance
Fiscal Year
2022 Adopted
Budget
Revenues
Taxes $64,271,289 $68,600,527 $4,329,238
Licenses and permits 5,330,900 5,751,170 420,270
Fines and forfeitures 626,800 504,431 (122,369)
Use of money and property 956,100 1,613,398 657,298
Revenue from other agencies 5,949,987 7,581,247 1,631,260 Charges for services 18,525,280 9,316,984 (9,208,296)
Rialto Utility Authority Lease Payments 2,000,000 2,000,000 - Other 1,688,551 2,090,505 401,954
Total Revenues $99,348,907 $97,458,262 ($1,890,645)
Expenditures
Current:
General government $19,364,184 $16,665,951 $2,698,233
Public Safety 60,925,173 58,704,099 2,221,074
Community Development 11,154,642 9,414,121 1,740,521
Capital Outlay 592,670 366,554 226,116
Total Expenditures $92,036,669 $85,150,725 $6,885,944
Excess (deficiency) of revenues over (under)
expenditures $ 7,312,238 $12,307,537 $4,995,299
Other Financing Sources (Uses):
Proceeds from Sale of Capital Assets - $ 16,112 $ 16,112 Transfers In $ 1,755,001 1,865,036 110,035
Transfers Out (9,162,708) (9,166,355) (3,647)
Total Other Financing Sources (Uses) ($7,407,707) ($7,285,207) 122,500 Net Change in Fund Balance ($ 95,469) $ 5,022,330 $5,117,799 Fund Balances at Beginning of Year $82,499,183 $82,499,183 - Fund Balances at End of Year $82,403,714 $87,521,513 $5,117,799 _______________________
Source: City of Rialto.
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Appropriations Limit
Section 7910 of the Government Code of the State requires the City to adopt a formal appropriations limit for each fiscal year. The City’s appropria tions limit for Fis cal Year 2021 -22 is $85,237,810. The appropriations limit is not expected to have any impact on the ability of the City to budget and appropriate the amounts required under the Trust Agreement for debt service on the Series 2022 Bonds.
Assessed Valuation
The City’s largest revenue source, property tax, is imposed on real property (land and permanently attached improvements, such as buildings) and tangible personal property (moveable property) located within the City. The assessed valuation of property in the City is established by the County Assessor, except for public utility property which is assessed by the California State Board of Equalization (the “Board of Equalization”). Assessed valuations are reported at 100% of the full cash value of the property, as defined in Article XIII A of the California Constitution. Certain classes of property such as churches, colleges, not-for-profit hospitals and charitable institutions are exempt from property taxation and do not appear on the tax rolls.
Property tax revenue is recognized in the fiscal year for which the taxes have been levied providing they become available. Available means then due or past due and receivable within the current period and collected within the current period or expected to be collected soon enough thereafter (not to exceed 60 days) to be used to pay liabilities of the current period. The County collects property taxes for the City. Tax liens attach annually as of 12:01 A.M. on the first day in January proceeding the fiscal year for which the taxes are levied. Taxes are levied on both real and personal property as it exists on that date. The tax levy covers the fiscal period July 1 to June 30. All secured personal property taxes and one-half of the taxes on real property are due November 1; the second installment is due February 1. All taxes are delinquent, if unpaid, on December 10 and April 10, respectively. Unsecured personal property taxes become due on the first of March each year and are delinquent, if unpaid, on August 31.
Economic and other factors beyond the City’s control, such as economic recession, deflation of land values, or the complete or partial destruction of taxable property caused by, among other things, earthquake, flood or other natural disaster could cause a reduction in the assessed value of taxable property in the City. See “RISK FACTORS.”
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The following table sets forth the historical assessed valuations for secured and unsecured property within the City for the fiscal years shown.
TABLE A-5
CITY OF RIALTO
ASSESSED VALUE OF ALL TAXABLE PROPERTY
(IN THOUSANDS)
Roll
Year Secured Unsecured Total
2020 $5,017,377,275 $115,944,794 $5,133,322,069
2019 4,818,236,009 109,611,675 4,927,847,684
2018 4,623,263,595 110,419,729 4,733,683,324
2017 4,285,131,356 110,931,666 4,396,063,022
2016 4,087,074,418 145,041,534 4,232,115,952
2015 3,941,568,668 94,232,814 4,035,801,482
2014 3,770,232,886 90,987,604 3,861,220,490
2013 3,535,739,682 94,211,095 3,629,950,777
2012 3,363,067,946 94,432,169 3,457,500,115
2011 3,308,499,997 82,776,904 3,391,276,901
_____________________
Source: City of Rialto.
The following table sets forth property tax levies and collections for the City for the fiscal years show.
TABLE A-6
CITY OF RIALTO
TAX LEVIES AND COLLECTIONS
(Fiscal Year Ended June 30)
Fiscal
Year
Total Tax Levy
for
Fiscal Year
Collections within the
Fiscal Year of the Levy Collections
in Subsequent
Years
Total Collections to Date
Amount
Percent
of Levy Amount
Percent
of Levy
2011 $17,611,622 $17,470,784 99.20% $140,838 $17,611,622 100.00% 2012 19,467,112 18,698,687 96.05 768,425 19,467,112 100.00 2013 22,604,425 22,503,375 99.55 101,049 22,604,425 100.00 2014 21,095,830 20,913,162 99.13 182,668 21,095,830 100.00 2015 24,231,424 24,045,621 99.23 185,803 24,231,424 100.00 2016 23,902,218 23,750,424 99.36 151,765 23,902,189 100.00 2017 23,719,160 23,608,043 99.53 110,730 23,718,773 100.00 2018 31,445,680 31,292,569 99.51 152,743 31,445,312 100.00 2019 34,643,458 34,544,095 99.71 99,342 34,643,437 100.00 2020 37,223,333 37,079,154 99.61 144,179 37,223,333 100.00 _______________________
NOTE: Amounts exclude debt service levies and former redevelopment agency property tax increments.
Source: County of San Bernardino Auditor-Controller; City of Rialto.
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Largest Secured Property Taxpayers
The following table sets forth the top ten taxpayers in the City by taxable assessed value.
TABLE A-7
CITY OF RIALTO
LARGEST SECURED PROPERTY TAXPAYERS
(As of __________, 2022)
Taxpayer
Taxable
Assessed Value
Percent of
Total City
Assessed Value
Description of
Primary
Business Use
1. 2.
3. 4.
5. 6.
7. 8.
9. 10.
__________________________
Source: California Municipal Statistics, Inc..
Direct and Overlapping Debt
Set forth on the following table is a direct and overlapping debt report (the “Debt Report”) for the City prepared by California Municipal Statistics, Inc., dated as of _________. The Debt Report is included for general information purposes only. The City has not reviewed the Debt Report for completeness or accuracy and makes no representations in connection therewith.
The Debt Report generally includes long term obligations sold in the public credit markets by public agencies whose boundaries overlap the boundaries of the City in whole or in part. Such long -term obligations generally are not payable from revenues of the City (except as indicated) nor are they necessarily obligations secured by land within the City. In m any cases long-term obligations issued by a public agency are payable from the general fund or other revenues of such public agency.
A-12
TABLE A-8
CITY OF RIALTO
STATEMENT OF DIRECT AND OVERLAPPING DEBT
(_________, 2022)
_______________________
Source: California Municipal Statistics, Inc.
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General Fund Long-Term Obligations
The following obligations payable from the City’s General Fund are identified as governmental activities in the City’s audited financial statements for the Fiscal Year ended June 30, 2020. [UPDATE FROM FY2021 AUDIT]
Long-Term Debt
Beginning at
June 30, 2019 Additions Deletions
Balance
June 30, 2020
Due within
One Year
Due in More
than One Year
Certificates of Participation $ 775,000 - (250,000) $ 525,000 $ 255,000 $ 270,000 Direct Borrowings:
Capital lease 11,795,691 - (310,380) 11,485,311 357,115 11,128,196 Notes payable 2,732,000 - (218,000) 2,514,000 314,000 2,200,000 Compensated absences 8,031,322 $1,621,194 (1,445,638) 8,206,878 1,445,238 6,729,640 Claims payable 15,777,954 2,894,840 (2,840,031) 15,832,763 2,849,897 12,982,866 Total $39,111,967 $4,516,034 (5,064,049) $38,563,952 $5,253,250 $33,310,702 _______________
Source: City of Rialto and APPENDIX B – “AUDITED FINANCIAL STATEMENTS OF THE CITY OF RIALTO FOR THE FISCAL YEAR ENDING JUNE 30, 2021 – Note [9] Long-Term Obligations.” Labor Contracts
The following table sets forth the City’s employee groups. Terms of existing contracts roll forward upon expiration until each group and the City agrees to a new contract. The City has been negotiating with all of its labor organizations to further the City’s efforts to align its revenues and expenses. Historically the relationship between the City and its employee groups has not always been positive. The new management team at the City is working to build positive working relationships with its employee groups.
Group
Budgeted
Number of
Employees
Date of Contract
Expiration
Total
_______________
Source: City of Rialto.
Pension Plans
[UPDATE FULL SECTION WHEN FY2021 AUDIT IS AVAILABLE]
Pension Funding Policy . Like most municipalities, the City is facing rising pension costs and growing unfunded pension liabilities. On __________, 2021, the City Council of the City adopted a pension funding policy. The pension funding policy, among other things, provides guidance in making annual budget decisions and creating sustainable and affordable budgets for pension obligations.
General. All qualified permanent and probationary employees are eligible to participate in the City’s separate Safety (police and fire) and Miscellaneous (all other) Plans. The Plans ar e agent multiple-employer defined benefit pension plans administered by CalPERS, which acts as a common
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investment and administrative agent for its participating member employers. Benefit provisions under the Plans are established by State statute and City resolution. CalPERS issues publicly available reports that include a full description of the pension plan regarding benefit provisions, assumptions and membership information that can be found on the CalPERS website at www.calpers.ca.gov.
Benefits Provided. CalPERS provides service retirement and disability benefits, annual cost of living adjustments and death benefits to plan members, who must be public employees and beneficiaries.
Benefits are based on years of c redited service, equal to one year of fulltime employment. Members with five years of total service are eligible to retire at age 50 to 62 with statutorily reduced benefits. All members are eligible for non -duty disability benefits after 5 years of service . The death benefit is one of the following: the Basic Death Benefit, the 1957 Survivor Benefit, or the Optional Settlement 2W Death Benefit. Safety members can receive a special death benefit if the member dies while actively employed and the death is job-related. Fire members may receive the alternate death benefit in lieu of the Basic Death Benefit or the 1957 Survivor Benefit if the member dies while actively employed and has at least 20 years of total CalPERS service. The cost of living adjustments for each plan are applied as specified by the Public Employees’ Retirement Law.
General Information for the Pension Plans. The Plan’s provisions and benefits in effect at June 30, 2020, are summarized as follows:
Miscellaneous Plan
Hire date
Prior to
January 1, 2013
On or after
January 1, 2013
Benefit formula 2.7% @ 55 2.0% @ 62
Benefit vesting schedule 5 years of service 5 years of service Benefit payments monthly for life monthly for life
Retirement age 50 – 55 52 – 67
Monthly benefits, as a % of eligible compensation 2.0% to 2.7% 1.0% to 2.5% Required employee contribution rates 8.00% 6.75%
Required employer contribution rates 39.291% 11.471%
Safety Plan
Hire date
Prior to
January 1, 2013
On or After
January 1, 2013
Benefit formula 3.0% @ 50 2.7% @ 57
Benefit vesting schedule 5 years of service 5 years of service Benefit payments monthly for life monthly for life
Retirement age 50 50 – 57
Monthly benefits, as a % of eligible compensation 3.0% 2.0% to 2.7% Required employee contribution rates 9.0% 13.0%
Required employer contribution rates 23.369% 13.0%
Employees Covered. As of _______, the following employees were covered by the benefit terms of each Plan:
Miscellaneous Plan Safety Plan
Inactive Employees or Beneficiaries
Currently Receiving Benefits
Inactive Employees entitled to but not
Yet Receiving Benefits
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Active Employees
Total
Contributions. Section 20814(c) of the California Public Employees’ Retirement Law requires that the employer contribution rates for all public employers be determined on an annual basis by the actuary and shall be effective on the July 1 following notice of a change in the rate. The total plan contributions are determined through CalPERS’ annual actuarial valuation process. The actuarially determined rate is the estimated amount necessary to finance the costs of benefits earned by employees during the year, with an addit ional amount to finance any unfunded accrued liability. The employer is required to contribute the difference between the actuarially determined rate and the contribution rate of employees. Employer contribution rates may change if plan contracts are amended. Payments made by the employer to satisfy contribution requirements that are identified by the pension plan terms as plan member contribution requirements are classified as plan member contributions.
Net Pension Liability. The City’s net pension liabil ity for each Plan is measured as the total pension liability, less the pension plan’s fiduciary net position. The net pension liability of each of the Plans is measured as of June 30, 2019, using an annual actuarial valuation as of June 30, 2018, rolled forward to June 30, 2019, using standard update procedures. See APPENDIX B – “AUDITED FINANCIAL STATEMENTS OF THE CITY OF RIALTO FOR FISCAL YEAR ENDED JUNE 30, 2020” at Note 11. A summary of actuarial assumptions and methods used to determine the net pension liability for each Plan is as follows:
Valuation Date June 30, 2018
Measurement Date June 30, 2019
Actuarial Cost Method Entry Age Normal Cost Method
Actuarial Assumptions:
Discount Rate 7.15
Inflation 2.50
Projected Salary Increase Varies(1)
Investment Rate of Return 7.65
Mortality Rate Table CalPERS’ membership data(2)
Post Retirement Benefit Increase See footnote(3)
____________________
Source: APPENDIX B – “AUDITED FINANCIAL STATEMENTS OF THE CITY OF RIALTO FOR FISCAL YEAR ENDED JUNE 30, 2020” at Note 11.
(1) Depending on age, service and type of employment.
(2) The mortality table used was developed based on CalPERS’ specific data. The table includes 15 years of mortality improvements using Society of Actuaries Scale 90% of scale MP 2016. For more details on the table, please refer to the December 2017 experience study report (based on CalPERS demographic data from 1997 to 2015) that can be found on the CalPERS website.
(3) Contract COLA up to 2% until Purchasing Power Protection Allowance Floor on Purchasing Power applies, 2.50% thereafter.
For a description of the net pension liability for each Plan, see APPENDIX B – “AUDITED FINANCIAL STATEMENTS OF THE CITY OF RIALTO FOR FI SCAL YEAR ENDED JUNE 30, 2020” at Note 11.
Public Employees’ Pension Reform Act (“PEPRA”). On September 12, 2012, Governor Brown signed Assembly Bill 340, creating PEPRA. Among other things, PEPRA creates a new benefit tier for new employees/members entering public agency employment and public retirement system membership for the
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first time on or after January 1, 2013. The new tier has a single general member benefit formula and three safety member benefit formulas that must be implemented by all public age ncy employers unless the formula in existence on December 31, 2012 has both a lower normal cost and a lower benefit factor at normal retirement age. PEPRA requires that all new employees/members, hired on or after January 1, 2013, pay at least 50% of the normal cost contribution. The normal cost contribution is the contribution set by the retirement system’s actuary to cover the cost of a current year of service.
Other Post-Employment Benefits (“OPEB”)
[UPDATE SECTION WHEN FY2021 AUDIT IS AVAILABLE]
The City provides postemployment healthcare benefits through the CalPERS healthcare program entitled Public Employees’ Medical and Hospital Care Act (“PEMHCA”) to eligible employees and any qualified family members under the authority of a Memorandum of Understanding with the employee bargaining units. The City contributes toward the health premium based on the Memorandum of Understanding. The City does not provide a retiree contribution for dental, vision, or life insurance benefits.
Upon attainment of a minimum age of 50 (or age 52, if a new miscellaneous employee was hired on or after January 1, 2013) and completion of a minimum State or public agency service requirement of five years, an employee may reti re and remain covered at the City’s expense for period depending on employment classification. The City is obligated to contribute toward the cost of retiree medical coverage for the retiree’s lifetime or until coverage is discontinued. Benefits continue to dependents so long as they remain eligible for coverage. The City contributes 100% of medical premiums for the retiree and his or her covered dependents, but not more than the maximum monthly premiums as follows: $279.25 for single, $558.49 for two -party, and $726.04 for family. In addition, the City does not contribute less than the PEMHCA minimum employer contribution of $136 for 2020 and $136 for 2019. Insurance provided by the City will be supplemental to Medicare upon the retiree reaching the age of 65.
The City established a trust account with Public Agency Retirement Services (“PARS”) to hold assets that are legally restricted for use in administering the City’s OPEB health plan. The OPEB Trust’s specific cash and investments are managed by a third-party portfolio manager under guidelines approved by the City. The City generally makes an annual contribution to the Trust and currently pays benefits either directly to retirees or through PEMHCA during the year as pay-as-you-go expenses.
As of __________, the following current and former employees were covered by the benefit terms under the Plan:
Active Employees
Inactive Employees or Beneficiaries Currently Receiving Benefits Inactive Employees entitled to, but not Yet Receiving Benefits Total
[add 115 trust]
For a further description of the OPEB plan, the City’s net liability, actuarial assumptions and other information, see APPENDIX B – “AUDITED FINANCIAL STATEMENTS OF THE CITY OF RIALTO FOR FISCAL YEAR ENDED JUNE 30, 2020” at Note 12.
A-17
CITY AND COUNTY DEMOGRAPHIC INFORMATION
Population
The following table shows a historical comparison of the respective populations of the City, the County and the State for the last five years.
Table A-8
City of Rialto, San Bernardino,
and the State Of California
Population Comparison(1)
Year
City of
Rialto
San Bernardino
County
State of
California
2017 102,668 2,139,520 39,352,398
2018 102,373 2,150,017 39,519,535
2019 102,733 2,165,876 39,605,361
2020 102,813 2,175,424 39,648,938
2021 102,567 2,175,909 39,466,855
___________________
(1) As of January 1.
Source: State Department of Finance, 2010 Benchmark.
[Remainder of page intentionally left blank.]
A-18
Employment and Industry
The following table summarizes the annual average civilian labor force, employment and unemployment in the County for the calendar years 2016 through 2020.
Table A-9
San Bernardino
Civilian Labor Force, Employment and Unemployment
(Annual Averages)
2016 2017 2018 2019 2020
Civilian Labor Force(1) 930,200 942,700 955,100 965,000 966,200 Employment 876,400 895,900 915,700 927,400 874,900
Unemployment 53,900 46,800 39,400 37,600 91,300
Unemployment Rate 5.8% 5.0% 4.1% 3.9% 9.4%
Wage and Salary Employment:(2)
Total Farm 1,900 2,200 2,200 2,500 2,000
Mining and Logging 600 600 800 700 900
Construction 33,800 35,200 37,800 39,000 38,400
Manufacturing 56,300 56,300 56,600 55,400 51,900
Wholesale Trade 39,100 38,700 40,500 41,500 40,200
Retail Trade 87,400 88,200 88,300 87,000 82,000
Transportation, Warehousing, Utilities 67,000 79,600 87,100 96,300 109,000 Information 5,200 5,200 5,300 5,000 4,000
Finance and Insurance 15,600 13,900 12,700 13,600 13,400 Real Estate and Rental and Leasing 8,300 8,500 9,000 9,800 9,500 Professional and Business Services 80,700 80,300 80,900 85,000 83,400 Educational and Health Services 114,100 119,700 124,500 135,000 136,300 Leisure and Hospitality 71,500 75,200 76,900 78,100 62,900 Other Services 22,800 22,800 23,000 22,900 20,100
Federal Government 13,400 13,500 13,500 13,800 14,600
State Government 12,700 12,900 13,100 13,500 13,500
Local Government 96,800 98,200 100,400 101,700 96,700 Total, All Industries (3) 727,100 750,900 772,700 801,000 778,700 _______________________________
(1) Labor force data is by place of residence; includes self -employed individuals, unpaid family workers, household domestic workers, and workers on strike.
(2) Industry employment is by place of work; excludes self -employed individuals, unpaid family workers, household domestic workers, and workers on strike.
(3) Totals may not add due to rounding.
Source: Labor Division of the California State Employment Development Department, March 2020 Benchmark.
A-19
Major Employers
The following table lists the major employers within the County:
Table A-10
County of San Bernardino
Major Employers – Listed Alphabetically
(As of January 2022)
Employer Name Location Industry
Amazon Fulfillment Ctr Redlands Mail Order Fulfillment Service Amazon Fulfillment Ctr San Bernardino Mail Order Fulfillment Service Arrowhead Regional Medical Ctr Colton Hospitals
Bear Mountain Big Bear Lake Skiing Centers & Resorts
Big Bear Mountain Resorts Big Bear Lake Resorts
Burlington Distribution Ctr San Bernardino Distribution Centers (whls) California State Univ Sn San Bernardino Schools-Universities & Colleges Academic Dignity Health Cmnty Hosp-Sn San Bernardino Hospitals
Environmental Systems Research Redlands Geographics Information Systems Fedex Ground Bloomington Delivery Service
Inland Empire Health Plan Rancho Cucamonga Health Plans Loma Linda Univ Health Board Loma Linda Univ/Clg-Governing Body/Regent/Trustee Loma Linda University Med Ctr Loma Linda Hospitals
Mountain High Ski Resort Wrightwood Skiing Centers & Resorts Ontario International Airport Ontario Airports
Ontario-Montclair School Dist Ontario School Districts
Patton State Hospital Patton Hospitals
Redlands Community Hospital Redlands Hospitals
San Antonio Regional Hospital Upland Hospitals
San Bernardino County Sch Supt San Bernardino Schools & Educational Services NEC San Bernardino County Sheriff San Bernardino County Government-General Offices St Bernardine Medical Ctr San Bernardino Hospitals
St Mary's Medical Ctr Apple Valley Hospitals
Transportation Department San Bernardino State Government-Transportation Programs
Source: California Employment Development Department, extracted from The America’s Labor Market information System (ALMIS) Employer Database, 2022 1st Edition.
A-20
Commercial Activity
The number of establishments selling merchandise subject to sales tax and the valuation of taxable transactions in the City is presented in the following table.
Table A-11
City of Rialto
Taxable Retail Sales
Number of Permits and Valuation of Taxable Transactions (Dollars in Thousands)
Total Retail and
Food Services
Total All Outlets
Taxable
Transactions
Taxable
Transactions
2016 $598,370 $941,404
2017 666,371 1,473,390
2018 804,442 1,759,274
2019 882,892 1,880,217
2020 916,844 1,972,235
Sources: California Department of Tax and Fee Administration, Taxable Sales – Cities by Type of Business.
The number of establishments selling merchandise subject to sales tax and the valuation of taxable transactions in the County is presented in the following table.
Table A-12
San Bernardino
Taxable Retail Sales
Number of Permits and Valuation of Taxable Transactions (Dollars in Thousands)
Number
of Permits
Taxable
Transactions
2016 57,629 $37,216,551
2017 58956 38,399,373
2018 61,838 40,554,024
2019 64,771 41,768,748
2020 71,145 43,265,512
Source: California Department of Tax and Fee Administration, Taxable Sales – By County (2017-2020 data).
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Construction Activity
The following tables show a five year summary of the valuation of building permits issued in the City and the County.
Table A-13
City of Rialto
Building Permit Valuation
2016 2017 2018 2019 2020
Permit Valuation
Single-family dwelling $0 $11,991,671 $3,401,547 $15,054,141 $54,522 Multi-family 0 0 0 0 0
Res. Alterations/Additions 112,200 1,833,441 801,827 1,143,213 267,602 Total Residential 112,200 13,825,112 4,203,374 16,197,354 322,124
Hotels & Motels 0 0 0 0 0
Non-Housekeeping Shelter 0 0 0 0 0
Amusement and Recreation 0 7,586,589 0 0 0
Churches 0 0 0 0 0
Industrial & Manufacturing 0 8,867,158 2,418 111,571,554 0 Parking Garages 0 0 0 0 0
Service Stations 0 307,034 181,116 0 0
Hospitals 0 0 0 0 0
Offices 0 0 0 914,056 0
Public Works 0 0 0 0 0
Schools Education 0 0 908,371 3,348,272 0
Stores, Mercantile & Warehouses 0 23,186,595 12,895,273 22,359,113 0 Other Non-Residential Buildings 0 491,608 515,868 956,392 0 Structures Other Than Buildings 821,092 2,372,438 3,001,049 3,199,608 741,281 Non-Residential Alterations 90,000 40,951,800 15,891,000 108,956,410 7,437,068 Residential Garages 0 197,749 13,708 225,926 4,750 Total Nonresidential 911,092 83,960,971 33,408,803 251,531,331 8,183,099
New Dwelling Units
Single Family 0 47 16 59 1
Multiple Family 0 0 0 0 0
Total 0 47 16 59 1
Source: Construction Industry Research Board, Annual Building Permit Summary.
A-22
Table A-14
San Bernardino
Building Permit Valuation
2016 2017 2018 2019 2020
Permit Valuation
New Single-family $706,601,794 $1,009,450,839 $1,114,777,827 $1,078,797,667 $934,304,422 New Multi-family 119,497,557 278,760,527 268,564,946 232,079,305 143,366,170 Res. Alterations/Additions 62,042,410 77,811,946 71,937,836 139,761,121 61,788,531 Total Residential $888,141,761 $1,366,023, $1,455,280,609 $1,450,638,093 $1,139,459,123
New Commercial $165,286,100 $251,982,349 $211,175,724 $413,404,484 $237,588,657 New Industrial 426,747,927 543,462,721 387,108,590 476,322,279 330,960,066 New Other 308,269,928 330,612,064 388,145,460 365,127,043 486,398,444 Alterations/Additions 93,977,723 159,539,841 93,699,940 122,245,823 9,748,343 Total Nonresidential $994,281,678 $1,285,596,975 $1,080,129,714 $1,377,099,629 $1,064,695,510
New Dwelling Units
Single Family 2,896 4,253 3,311 4,096 3,631
Multiple Family 976 2,578 1,775 1,884 910
Total 3,872 6,831 5,086 5,980 4,541
Source: Construction Industry Research Board, Annual Building Permit Summary.
B-1
APPENDIX B
AUDITED FINANCIAL STATEMENTS OF THE CITY OF RIALTO
FOR THE FISCAL YEAR ENDED JUNE 30, 2021
C-1
APPENDIX C
SUMMARY OF CERTAIN PROVISIONS OF THE TRUST AGREEMENT
The following is a summary of certain provisions of the Trust Agreement which are not described elsewhere in the Official Statement. This summary does not purport to be comprehensive, and reference should be made to the Trust Agreement for a full and complete statement of its provisions.
DEFINITIONS
Act
The term “Act” means Articles 10 and 11 (commencing with Section 53570) of Chapter 3 of Division 2 of Title 5 of the Government Code of the State of California.
Additional Bonds
The term “Addition al Bonds” means all Bonds of the City authorized by and at any time Outstanding pursuant to the Trust Agreement and executed, issued and delivered in accordance with the Trust Agreement.
Aggregate Principal Amount
The term “Aggregate Principal Amount” means, as of any date of calculation, the principal amount of the Bonds referred to.
Authorized Denominations
The term “Authorized Denominations” means $5,000 principal amount or any integral multiple thereof.
Authorized Representative
The term “Authorized Rep resentative” means the Mayor , the City Manager and the Finance Director of the City of Rialto and their respective designees designated in writing to the Trustee.
Beneficial Owner
The term “Beneficial Owner” means the beneficial owner of each such Bond, determined under the rules of DTC.
Bond Fund
The term “Bond Fund” means the Bond Fund established in the Trust Agreement.
Bonds
The term “Bonds” means the Series 2022 Bonds and all Additional Bonds.
C-2
Business Day
The term “Business Day” means any day other th an a Saturday or Sunday or day upon which the Trustee is authorized by law to remain closed.
Certificate of the City
The term “Certificate of the City” means an instrument in writing signed by any one of the Authorized Representatives of the City or such officer’s designee, or by any other officer of the City duly authorized by the City Council of the City in writing to the Trustee for that purpose. If and to the extent required by the provisions of the Trust Agreement as summarized herein under the heading “MISCELLANEOUS—Content of Certificates,” each Certificate of the City shall include the statements provided for in the Trust Agreement as summarized herein under the heading “MISCELLANEOUS-Content of Certificates.”
Closing Date for the Series 2022 Bonds
The term “Closing Date” means the date on which the Series 2022 Bonds are delivered to the original purchaser for the Series 2022 Bonds.
Continuing Disclosure Certificate
The term Continuing Disclosure Certificate shall mean that certain Continuing Disclosure Certificate executed by the City dated the date of issuance and delivery of the Series 2022 Bonds, as originally executed and as it may be amended from time to time in accordance with the terms thereof.
Corporate Trust Office
The term “Corporate Trust Office” means such corporate trust office of the Trustee as may be designated from time to time by written notice from the Trustee to the City, initially being in Los Angeles, California. The Trustee may designate in writing to the City and the Owner such other office or agency from time to time for purposes of registration, transfer, exchange, payment or redemption of Bonds.
Costs of Issuance
The term “Costs of Issuanc e” means all items of expense directly or indirectly payable by or reimbursable to the City and related to the Bonds, including, but not limited to, costs of preparation and reproduction of documents, costs of rating agencies and costs to provide informati on required by rating agencies, filing and recording fees, initial fees and charges of the Trustee, legal fees and charges, fees and disbursements of consultants and professionals, fees and expenses of the underwriter or placement agent, fees and charges for preparation, execution and safekeeping of the Bonds, premiums for bond insurance, if any, and any other cost, charge or fee in connection with the original execution and delivery of the Bonds.
Costs of Issuance Fund
The term “Costs of Issuance Fund” mea ns the Costs of Issuance Fund established in the Trust Agreement.
C-3
Defeasance Securities
The term “Defeasance Securities” means:
(1) Cash; and
(2) obligation of or obligations guaranteed as to principal and interest by, the United States or any agency or instrumentality thereof, when such obligations are backed by the full faith and credit of the United States, including:
• U.S. Treasury obligations
• All direct of fully guaranteed obligations
• Farmers Home Administration
• General Services Administration
• Guaranteed Title XI financing
• Government National Mortgage Association
(GNMA)
• State and Local Government Series
Any security used for defeasance must provide for the timely payment of principal and interest and cannot be callable or prepayable prior to maturity or earlier redemption of the rated debt (excluding securities that do not have a fixed par value and/or whose terms do not promise a fixed dollar amount at maturity or call date).
DTC
The term “DTC” means The Depository Trust Company, New York, New York, a limited- purpose trust company organized under the laws of the State of New York, and its successors as securities depository for the Bonds including any such successor appointed pursuant to the Trust Agreement.
Fiscal Year
The term “Fiscal Year” means the twelve-month period terminating on June 30 of each year, or any other annual accounting period selected and designated by the City as its fiscal year in accordance with applicable law.
MSRB
The term “MSRB” mean s the Municipal Securities Rulemaking Board or any other entity designated or authorized by the Securities and Exchange Commission to receive reports pursuant to the Rule. Until otherwise designated by the MSRB or the Securities and Exchange Commission, filin gs with the MSRB are to be made through the Electronic Municipal Market Access (EMMA) website of the MSRB, currently located at http://emma.msrb.org.
Opinion of Counsel
The term “Opinion of Counsel” means a written opinion of counsel of recognized national standing in the field of law relating to municipal bonds, appointed and paid by the City.
C-4
Outstanding
The term “Outstanding,” when used as of any particular time with reference to Bonds, means (subject to the provisions of the Trust Agreement as summarized herein under the heading “AMENDMENT OF THE TRUST AGREEMENT—Disqualified Bonds”) all Bonds except (1) Bonds theretofore cancelled by the Trustee or surrendered to the Trustee for cancellation; (2) Bonds paid or deemed to have been paid within the meaning of the Trust Agreement as summarized herein under the heading “DEFEASANCE—Discharge of Bonds;” and (3) Bonds in lieu of or in substitution for which other Bonds shall have been executed, issued and delivered by the City pursuant to the Trust Agreement.
Owner
The term “Owner” means any person who shall be the registered owner of any Outstanding Bond.
Permitted Investments
The term “Permitted Investment” means any of the following to the extent permitted by the laws of the State:
(1) Defeasance Securities;
(2) Obligations of any of the following federal agencies which obligations represent the full faith and credit of the United States of America, including:
• Export-Import Bank
• Rural Economic Community Development
Administration
• U.S. Maritime Administration
• Small Business Administration
• U.S. Department of Housing & Urban Development
(PHA’s)
• Federal Housing Administration
• Federal Financing Bank;
(3) Direct obligations of any of the following federal agencies which obligations are not fully guaranteed by the full faith and credit of the United States of America:
• Senior debt obligations issued by the Federal National Mortgage Association (FNMA) or the Federal Home Loan
Mortgage Corporation (FHLMC)
• Obligations of the Resolution Funding Corporation
(REFCORP)
• Senior debt obligations of the Federal Home Loan Bank System
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(4) U.S. dollar denominated deposit accounts, federal funds and bankers’ acceptances with domestic commercial banks (including the Trustee and its affiliates) which have a rating on their short -term certificates of deposit on the date of purchase of “A -1” or “A -1+” by S&P Global Ratings and which mature not more than three hundred sixty (360) calendar days after the date of purchase. (Ratings on holding companies are not considered as the rating of the bank):
(5) Commercial paper which is rated at the time of purchase in the single highest classification, “A -1+” by S&P Global Ratings and which matures not more than two hundred seventy (270) calendar days after the date of purchase; (6) Investments in a money market fund rated at the time of purchase “AAAm” or “AAAm -G” or better by S&P Global Ratings , including funds for which the Trustee or its affiliates receives and retains a fee for services provided to the fund, whether as a custodian, transfer agent, investment advisor or otherwise;
(7) Pre-refunded municipal obligations defined as follows: Any bonds or other obligations of any state of the United States of America or of any agency, instrumentality or local governmental unit of any such state which are not callable at the option of the obligor prior to maturity or as to which irrevocable instructions have been given by the obligor to call on the date specified in the notice; and
(A) which are rated at the time of purchase, based on an irrevocable escrow account or fund (the “escrow”), in the highest rating category of S&P Global Ratings or any successors thereto; or
(B) which are fully secured as to interest and principal and redemption premiums, if any, by an escrow consisting only of cash or obligations described in paragraph (2) of the definition of Defeasance Securities, which escrow may be applied only to the payment of such interest and principal and redemption premiums, if any, on such bonds or other obligations on the maturity date or dates thereof or the specified redemption date or dates pursuant to such irrevocable instructions, as appropriate, and (ii) which escrow is sufficient, as verified by a nationally recognized independent certified public accountant, to pay principal of and interest and redemption premiums, if any, on the bonds or other obligations described in this paragraph on the maturity date or dates specified in the irrevocable instructions referred to above, as appropriate; (8) Municipal obligations rated at the time of purchase “Aaa/AAA” or general obligations of States with a rating of “A2/A” or higher by S&P Global Ratings; and (9) The Local Agency Investment Fund (as that term is defined in Section 16429.1 of the Government Code of the State, as such Section may be amended or recodified from time to time).
The value of the above investments shall be determined as follows:
(a) For the purpose of determining the amount in any fund, all Permitted Investments credited to such fund shall be valued at fair market value. The Trustee shall have no duty in connection with the determination of fair market value other than to follow: (i ) its normal practices in the purchase, sale and determining the value of Permitted Investments; and (ii) the investment directions of the City. The Trustee may utilize and rely on computerized securities pricing services that may be available to it, including those available through its regular accounting system;
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(b) As to certificates of deposit and bankers’ acceptances, the face amount thereof, plus accrued interest thereon; and
(c) As to any investment not specified above, the value thereof established by prior agreement among the City and the Trustee.
Principal Account
The term “Principal Account” means the account by that name established in the Trust Agreement.
Principal Amount
The term “Principal Amount” means as to any Bond, the principal amount thereof.
Principal Payment Date
The term “Principal Payment Date” means each August 1, commencing on the date set forth in the body of the Official Statement.
Rating Agencies
The term “Rating Agencies” means S&P Global Ratings and Fitch Ratings, Inc., or, in the eve nt that S&P Global Ratings and Fitch Ratings, Inc. no longer maintain a rating on the Bonds, any other nationally recognized bond rating agency then maintaining a rating on the Bonds, but, in each instance, only so long as S&P Global Ratings, Fitch Ratings , Inc. or other nationally recognized rating agency then maintains a rating on the Bonds.
Record Date
The term “Record Date” means the close of business on the 15th day of the month preceding any Interest Payment Date, whether or not such day is a Business Day.
Refunding Fund
The term “Refunding Fund” means the fund by that name established in the Trust Agreement.
Representation Letter
The term “Representation Letter” means the Letter of Representations from the City and the Trustee to DTC, or any successor securities depository for the Bonds.
Retirement Law
The term “Retirement Law” means the Public Employees’ Retirement Law, commencing with Section 20000 of the Government Code of the State of California, as amended.
Serial Bonds
The term “Serial Bonds” means Bonds for which no sinking fund payments are provided.
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Series
The term “Series” means all of the Bonds designated as being within a certain series, regardless of variations in maturity date, interest rate, redemption and other provisions, and any Bonds thereafter issued in transfer or exchange for such Bonds pursuant to the Trust Agreement.
Series 2022 Bonds
The term “Series 2022 Bonds” means the Bonds of the City of that Series designation authorized by and at any time Outstanding pursuant to the Trust Agreement and executed, issued and delivered in accordance with the Trust Agreement.
State
The term “State” means the State of California.
Surplus Account
The term “Surplus Account” means the account by that name established in the Trust Agreement.
Supplemental Trust Agreement
The term “Supplemental Trust Agreement” means any trust agreement then in full force and effect which has been duly executed and delivered by the City and the Trustee amendatory of the Trust Agreement or supplemental to the Trust Agreement; but only if and to the extent that such Supplemental Trust Agreement is specifically authorized under the Trust Agreement.
System
The term “System” means the California Public Employees’ Retirement System.
Term Bonds
The term “Term Bonds” means Bonds which are payable on or before their specified maturity dates from sinking fund payments established for that purpose and calculated to retire such Bonds on or before their specified maturity dates.
Trust Agreement
The term “Trust Agree ment” means the Trust Agreement, dated as of [As of Date], between the City and the Trustee, as originally executed and as it may from time to time be amended or supplemented by all Supplemental Trust Agreements executed pursuant to the provisions of the Trust Agreement.
Written Request of the City
The term “Written Request of the City means an instrument in writing signed by any one of the Authorized Representatives of the City or such officer’s designee, or by any other officer of the City duly authorized by the City Council of the City in writing to the Trustee for that purpose.
ISSUANCE OF SERIES 2022 BONDS; GENERAL BOND PROVISIONS
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Transfer and Payment of Bonds. Any Bond may, in accordance with its terms, be transferred in the books required to be kept pursuant to the provisions of the Trust Agreement by the person in whose name it is registered, in person or by his duly authorized attorney, upon surrender of such Bonds for cancellation at the Corporate Trustee Office of the Trustee, accompanied by delivery of a duly executed written instrument of transfer in a form acceptable to the Trustee. Whenever any Bond or Bonds shall be surrendered for transfer, the City shall execute and the Trustee shall authenticate and deliver to the transferee a new Bond or Bonds of the same series and maturity for a like aggregate principal amount. The cost of printing Bonds and any services rendered or expenses incurred by the Trustee in connection with any transfer shall be paid by the City. The Trustee shall require the pa yment by the Owner requesting such transfer of any tax or other governmental charge required to be paid with respect to such transfer as a condition precedent to the exercise of such privilege. Prior to any transfer of the Bonds outside the book-entry system, (including, but not limited to, the initial transfer outside the book-entry system) the transferor shall provide or cause to be provided to the Trustee all information necessary to allow the Trustee to comply with any applicable tax reporting obligatio ns, including without limitation any cost basis reporting obligations under Internal Revenue Code Section 6045, as amended. The Trustee shall conclusively rely on the information provided to it and shall have no responsibility to verify or ensure the accuracy of such information.
The City and the Trustee may deem and treat the registered owner of any Bond as the absolute owner of such Bond for the purpose of receiving payment thereof and for all other purposes, whether such Bonds shall be overdue or not, an d neither the City nor the Trustee shall be affected by any notice or knowledge to the contrary; and payment of the interest on, principal of, and redemption premium (if any) on, such Bonds shall be made only to such registered owner, which payments shall be valid and effectual to satisfy and discharge liability on such Bonds to the extent of the sum or sums so paid.
The Trustee shall not be required to register the transfer of or exchange any Bond which has been selected for redemption in whole or in part, from and after the day of mailing of a notice of redemption of such Bond selected for redemption in whole or in part as provided in the Trust Agreement.
Book-Entry Bonds. Notwithstanding any provision of the Trust Agreement to the contrary, the transfer p rovisions of the Trust Agreement as summarized herein under the heading “ISSUANCE OF SERIES 2022 BONDS; GENERAL BOND PROVISIONS-Transfer and Payment of Bonds” do not apply if the ownership of the Bonds is in book-entry form.
(a) Except as provided in subparagraph (d) below, the registered Owner of all of the Bonds shall be DTC, and the Bonds shall be registered in the name of Cede & Co., as nominee for DTC.
Notwithstanding anything to the contrary contained in the Trust Agreement, payment of interest with respect to any Bond registered as of each Record Date in the name of Cede & Co. shall be made by wire transfer of same-day funds to the account of Cede & Co. on the Interest Payment Date for the Bonds at the address indicated on the Record Date or special record date for Cede & Co. in the Bond registration books required to be kept by the Trustee pursuant to the provisions of the Trust Agreement or as otherwise provided in the Representation Letter.
(b) The Bonds shall be initially executed and delivered in the form of separate single fully registered Bonds in the amount of each separate stated maturity of the Bonds. Upon initial execution and delivery, the ownership of such Bonds shall be registered in the Bond registration books required to be kept by the Trustee p ursuant to the provisions of the Trust Agreement in the name of Cede & Co., as nominee of DTC. The Trustee and the City shall treat DTC (or its nominee) as the sole and exclusive Owner of the Bonds registered in its name for the purposes of payment of the principal, premium, if any, or interest with respect to the Bonds, selecting the Bonds or portions thereof to be redeemed, giving any notice permitted or required to be given to Owners under the Trust Agreement, registering the transfer of Bonds, obtaining any consent or other action to be taken by Owners and for all other purposes whatsoever, and
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neither the Trustee nor the City shall be affected by any notice to the contrary. Neither the Trustee nor the City shall have any responsibility or obligation to any person claiming a beneficial ownership interest in the Bonds under or through DTC, or any other person which is not shown on the Bond registration books required to be kept by the Trustee pursuant to the provisions of the Trust Agreement as being an Ow ner, with respect to (i) the accuracy of any records maintained by DTC; (ii) the payment by DTC of any amount of the principal, premium, if any, or interest on the Bonds; (iii) any notice which is permitted or required to be given to Owners under the Trust Agreement or the selection by DTC of any person to receive payment in the event of a partial redemption of the Bonds; or (iv) any consent given or other action taken by DTC as Owner. The Trustee shall pay all principal, premium, if any, and interest on the Bonds only to DTC, and all such payments shall be valid and effective to fully satisfy and discharge the City’s obligations with respect to the principal, premium, if any, and interest on the Bonds to the extent of the sum or sums so paid. Except under the conditions of (d) below, no person other than DTC shall receive an executed Bond representing the right to receive principal, premium, if any and interest pursuant to the Trust Agreement. Upon delivery by DTC to the Trustee of written notice to the effect that DTC has determined to substitute a new nominee in place of Cede & Co., and subject to the provisions in the Trust Agreement with respect to Record Dates, the term “Cede & Co.” in the Trust Agreement shall refer to such new nominee of DTC. (c) To qualify the Bonds for DTC’s book -entry system, the City and the Trustee (if required) will execute, countersign and deliver to DTC the Representation Letter. The execution and delivery of the Representation Letter shall not in any way limit the provisions of the Trust Agreement as summarized herein under this section or in any other way impose upon the Trustee or the City any obligation whatsoever with respect to persons having interests in the Bonds other than the Owners, as shown on the Bond registration books required to be kept by the Trustee pursuant to the provisions of the Trust Agreement.
(d) If (i) DTC, including any successor as securities depository for the Bonds, determines not to continue to act as securities depository for the Bonds, or (ii) the City determines that the incumbent securities depository shall no longer so act and delivers a written certificate to the Trustee to that effect, then the City will discontinue the book-entry system with the incumbent securities depository for the Bonds. If the Ci ty determines to replace the incumbent securities depository for the Bonds with another qualified securities depository, the City shall prepare or direct the preparation of a new single, separate fully registered Bond for the aggregate outstanding principal amount of Bonds of each maturity, registered in the name of such successor or substitute qualified securities depository, or its nominee, or make such other arrangement acceptable to the City, the Trustee and the successor securities depository for the Bonds as are not inconsistent with the terms of the Trust Agreement. If the City fails to identify another qualified successor securities depository for the Bonds to replace the incumbent securities depository, then the Bonds shall no longer be restricted t o being registered in the Bond registration books required to be kept by the Trustee pursuant to the provisions of the Trust Agreement in the name of the incumbent securities depository or its nominee, but shall be registered in whatever name or the incumbent securities depository for the Bonds, or its nominee, shall designated. In such event the City shall execute and deliver a sufficient quantity of Bonds as to carry out the transfer and exchanges provided in the Trust Agreement. All such Bonds shall be fully registered form in denominations authorized by the Trust Agreement. (e) Notwithstanding any other provision of the Trust Agreement to the contrary, so long as any Bond is registered in the name of DTC, or its nominee, all payments with respect to the principal, premium, if any, and interest on such Bond and all notices with respect to such Bonds shall be made and given, respectively, as provided in the Representation Letter. (f) In connection with any notice or other communication to be provided to Owners pursuant to the Trust Agreement by the City or the Trustee with respect to any consent or other action to be taken by Owner, the City or the Trustee, as the case may be, shall establish a record date for such consent or
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other action and give DTC notice of such record date not less than 15 calendar days in advance of such record date to the extent possible.
Exchange of Bonds. Bonds may be exchanged at the Corporate Trust Office of the Trustee for a like aggregate principal amount of Bonds of the same series and maturity of other Authorized Denominations.
The cost of printing Bonds and any services rendered or expenses incurred by the Trustee in connection with any exchange shall be paid by the City. The Trustee shall require the payment by the Owner requesting such exchange of any tax or other governmental charge required to be paid with respect to such exchange as a condition precedent to the exercise of such privilege. The Trustee shall not be required to exchange any Bond which has been selected for redemption in whole or in part, from and after the day of mailing of a notice of redemption of such Bond selected for redemption in whole or in part as provided in the Trust Agreement.
Bond Registration Books. The Trustee will keep at its Corporate Trust Office sufficient books for the registration and transfer of the Bonds which shall during normal business hours be open to inspection by the City, and upon presentation for such purpose the Trustee shall, under such reasonable regulations as it may prescribe, register or transfer the Bonds in such books as provided in the Trust Agreement.
Mutilated. Destroyed, Stolen or Lost Bonds. If any Bond shall become mutilated the Trustee at the expense of the Owner shall thereupon authenticate and deliver, a new Bond of like ten or and amount in exchange and substitution for the Bond so mutilated, but only upon surrender to the Trustee of the Bond so mutilated. Every mutilated Bond so surrendered to the Trustee shall be cancelled.
If any Bond shall be lost, destroyed or stolen, evidence of such loss, destruction or theft may be submitted to the Trustee and, if such evidence be satisfactory to the Trustee and indemnity satisfactory to the Trustee shall be given, the Trustee, at the expense of the Owner, shall thereupon aut henticate and deliver, a new Bond of like tenor in lieu of and in substitution for the Bond so lost, destroyed or stolen.
The Trustee may require payment of a reasonable sum for each new Bond issued under this section and of the expenses which may be incurred by the City and the Trustee in the premises. Any Bond issued under the provisions of this section in lieu of any Bond alleged to be lost, destroyed or stolen shall be equally and proportionately entitled to the benefits of the Trust Agreement with all other Bonds of the same series secured by the Trust Agreement. Neither the City nor the Trustee shall be required to treat both the original Bond and any replacement Bond as being Outstanding for the purpose of determining the principal amount of Bonds which may be issued under the Trust Agreement or for the purpose of determining any percentage of Bonds Outstanding under the Trust Agreement, but both the original and replacement Bond shall be treated as one and the same.
Temporary Bonds . The Bonds iss ued under the Trust Agreement may be initially issued in temporary form exchangeable for definitive Bonds when ready for delivery. The temporary Bonds may be printed or typewritten, shall be of such denominations as may be determined by the City, shall be in fully registered form and may contain such reference to any of the provisions of the Trust Agreement as may be appropriate. Every temporary Bond shall be executed and authenticated as authorized by the City, in accordance with the terms of the Act. If t he City issues temporary Bonds it will execute and furnish definitive Bonds without delay and thereupon the temporary Bonds may be surrendered, for cancellation, in exchange therefor at the Corporate Trust Office of the Trustee, and the Trustee shall deliver in exchange for such temporary Bonds an equal aggregate principal amount of definitive Bonds of Authorized Denominations. Until so exchanged, the temporary Bonds shall be entitled to the same benefits under the Trust Agreement as definitive Bonds delivered under the Trust Agreement.
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Validity of Bonds. The recital contained in the Bonds that the same are issued pursuant to the Act and pursuant to the Trust Agreement shall be conclusive evidence of their validity and of the regularity of their issuance, an d all Bonds shall be incontestable from and after their issuance. The Bonds shall be deemed to be issued, within the meaning of the Trust Agreement, whenever the definitive Bonds (or any temporary Bonds exchangeable therefor) shall have been delivered to t he purchaser thereof and the proceeds of sale thereof received.
ISSUANCE OF ADDITIONAL BONDS
Conditions for the Issuance of Additional Bonds. The City may at any time issue Additional Bonds on a parity with the Series 2022 Bonds, but only subject to the fo llowing specific conditions, which are made conditions precedent to the issuance of any such Additional Bonds:
(a) The City shall be in compliance with all agreements and covenants contained in the Trust Agreement.
(b) The issuance of such Additional Bonds shall have been authorized pursuant to the Act and shall have been provided for by a Supplemental Trust Agreement which shall specify the following:
(1) The purpose for which such Additional Bonds are to be issued; provided that such Additional Bonds shall be applied solely for (i) the purpose of satisfying any obligation to make payments to the System pursuant to the Retirement Law relating to pension benefits accruing to the System’s members, and/or for payment of all costs incidental to or connected with the issuan ce of Additional Bonds for such purpose, and/or (ii) the purpose of refunding any Bonds then Outstanding, including payment of all costs incidental to or connected with such refunding; (2) The authorized principal amount and designation of such Additional Bonds;
(3) The date and the maturity dates of and the sinking fund payment dates, if any, for such Additional Bonds;
(4) The interest payment dates for such Additional Bonds; (5) The denomination or denominations of and method of numbering such Additional Bonds;
(6) The redemption premiums, if any, and the redemption terms, if any, for such Additional Bonds;
(7) The amount, if any, to be deposited from the proceeds of sale of such Additional Bonds in the Interest Account referred to in the Trust Agreement; and (8) Such other provisions (including the requirements of a book -entry Bond registration system, if any) as are necessary or appropriate and not inconsistent with the Trust Agreement.
Procedure for the Issuance of Additional Bonds. At any time after the sale of any Additional Bonds in accordance with the Act, the City shall execute such Additional Bonds for issuance under the Trust Agreement and shall deliver them to the Trustee, and thereupon such Additional Bonds shall be delivered by the Trustee to the purchaser thereof upon the Written Request of the City, but only upon receipt by the
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Trustee of the following documents or money or securities, all of such documents dated or certified, as the case may be, as of the date of delivery of such Additional Bonds by the Trustee:
(a) An executed copy of the Supplemental Trust Agreement authorizing the issuance of such Additional Bonds;
(b) A Written Request of the City as to the delivery of such Additional Bonds; (c) An Opinion of Counsel to the effect that (1) the City has executed and delivered the Supplemental Trust Agreement, and the Supplemental Trust Agreement is valid and binding upon the City and (2) such Additional Bonds are valid and binding obligations of the City; (d) A Certificate of the City stating that all requirements of the Trust Agreement have been complied with and containing any other such statements as may be reasonably necessary to show compliance with the conditions for the issuance of such Additional Bonds c ontained in the Trust Agreement; and
(e) Such further documents, money or securi ties as are required by the provisions of the Supplemental Trust Agreement providing for the issuance of such Additional Bonds.
Deposit and Investments of Money in Accounts and Funds. All money held by the Trustee in any of the accounts or funds establishe d pursuant to the Trust Agreement shall be invested in Permitted Investments at the Written Request of the City. If no Written Request of the City is received, the Trustee shall hold such funds univested. Such investments shall, as nearly as practicable, m ature on or before the dates on which such money is anticipated to be needed for disbursement under the Trust Agreement. All interest, profits and other income received from any money so invested shall be deposited in the Bond Fund.
The Trustee shall have no liability or responsibility for any loss resulting from any investment made or sold in accordance with the provisions of the Trust Agreement, except for any loss due to the negligence or willful misconduct of the Trustee. The Trustee may act as principal or agent in the acquisition or disposition of any investment and may impose its customary charge therefor.
COVENANTS OF THE CITY
Punctual Payment and Performance. The City will punctually pay the interest on and the principal of and redemption premiums, if any, to become due on every Bond issued under the Trust Agreement in strict conformity with the terms of the Trust Agreement and of the Bonds, and will faithfully observe and perform all the agreements and covenants to be observed or performed by the Ci ty contained in the Trust Agreement and in the Bonds.
Extension of Payment of Bonds . The City shall not directly or indirectly extend or assent to the extension of the maturity of any of the Bonds or the time of payment of any claims for interest by the purchase of such Bonds or by any other arrangement, and in case the maturity of any of the Bonds or the time of payment of any such claims for interest shall be extended, such Bonds or claims for interest shall not be entitled, in case of any default under the Trust Agreement, to the benefits of the Trust 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 thereon which shall not have been so extended. Nothing in this paragraph shall be deemed to limit the right of the City to issue Bonds for the purpose of refunding any Outstanding Bonds, and such issuance shall not be deemed to constitute an extension of maturity of the Bonds.
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Additional Debt. The City expressly reserves the right to enter into one or more other agreements or indentures for any of its purposes, and reserves the right to issue other obligations for such purposes, subject to the restrictions on Additional Bonds provided in the Trust Agreement.
Power to Issue Bonds. The City is duly authorized pursuant to law to issue the Bonds and to enter into the Trust Agreement. The Bonds and the provisions of the Trust Agreement are the legal, valid and binding obligations of the City in accordance with their terms. The Bonds and any Additional Bonds shall constitute obligations imposed by law.
Accounting Records and Reports. The City will keep or cause to be kept proper books of record and accounts in which complete and correct entries shall be made of all transactio ns relating to the receipts, disbursements, allocation and application of moneys on deposit in the funds and accounts established under the Trust Agreement.
Prosecution and Defense of Suits. The City will defend against every suit, action or proceeding at any time brought against the Trustee upon any claim to the extent involving the failure of the City to fulfill its obligations under the Trust Agreement; provided that the Trustee or any affected Owner at its election may appear in and defend any such suit, action or proceeding. The City, to the extent permitted by law, will indemnify and hold harmless the Trustee against any and all liability claimed or asserted by any person to the extent arising out of such failure by the City, and will indemnify and hold harmless the Trustee against any attorney’s fees or other expenses which it may incur in connection with any litigation to which it may become a party by reason of its actions under the Trust Agreement, except for any loss, cost, damage or expense result ing from the negligence, willful misconduct or breach of duty by the Trustee.
Notwithstanding any contrary provision of the Trust Agreement, this covenant shall remain in full force and effect even though all Bonds secured by the Trust Agreement may have been fully paid and satisfied.
Further Assurances. Whenever and so often as reasonably requested to do so by the Trustee or any Owner, the City will promptly execute and deliver or cause to be executed and delivered all such other and further assurances, do cuments or instruments, and promptly do or cause to be done all such other and further things as may be necessary or reasonably required in order to further and more fully vest in the Owners all rights, interests, powers, benefits, privileges and advantage s conferred or intended to be conferred upon them by the Trust Agreement.
Waiver of Laws. The City shall not at any time insist upon or plead in any manner whatsoever, or claim or take the benefit or advantage of, any stay or extension law now or at any ti me in force that may affect the covenants and agreements contained in the Trust Agreement or in the Bonds, and all benefit or advantage of any such law or laws is expressly waived by the City to the extent permitted by law.
Compliance with Continuing Discl osure Certificate. The City has undertaken responsibility for compliance with continuing disclosure requirements with respect to S.E.C. Rule 15c2-12. The failure of the City to comply with the Continuing Disclosure Certificate shall not be considered an Event of Default under the Trust Agreement; however, the Trustee may (and, at the request of any Participating Underwriter (as defined in the Continuing Disclosure Certificate) or the Owners of at least 25% aggregate principal amount in Outstanding Bonds, an d upon receipt of indemnification satisfactory to it, shall) or any Owner or Beneficial Owner may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the City to comply with its obligations under the Trust Agreement.
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THE TRUSTEE
The Trustee . U.S. Bank National Association shall serve as the Trustee for the Bonds for the purpose of receiving all money which the City is required to deposit with the Trustee under the Trust Agreement and for the purpose of allocating, applying and using such money as provided in the Trust Agreement and for the purpose of paying the interest on and principal of and redemption premiums, if any, on the Bonds presented for payment at the Corporat e Trust Office of the Trustee with the rights and obligations provided in the Trust Agreement. The City agrees that it will at all times maintain a Trustee having a corporate trust office in Los Angeles or San Francisco, California.
The City may at any time, unless there exists any event of default as defined in the Trust Agreement as summarized herein under the heading “EVENTS OF DEFAULT AND REMEDIES OF OWNERS—Events of Default,” with 30 days prior notice remove the Trustee initially appointed and any successor thereto and may appoint a successor or successors thereto by an instrument in writing; provided that any such successor shall be a bank, trust company or national banking association doing business and having a corporate trust office in Los Angeles o r San Francisco, California, having a combined capital (exclusive of borrowed capital) and surplus of at least one seventy -five million dollars ($75,000,000) and subject to supervision or examination by federal or state authority. If such bank, national ba nking association or trust company publishes a report of condition at least annually, pursuant to law or to the requirements of any supervising or examining authority above referred to, then for the purpose of this section the combined capital and surplus of such bank, national banking association or trust company shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. The Trustee may at any time resign by giving written notice of such resignation to the City and by mailing to the Owners notice of such resignation. Upon receiving such notice of resignation, the City shall promptly appoint a successor Trustee by an instrument in writing. Any removal or resignation of a Trustee and appointment of a successor Trustee shall become effective only upon the acceptance of appointment by the successor Trustee. If, within thirty (30) days after notice of the removal or resignation of the Trustee no successor Trustee shall have been appointed and shall hav e accepted such appointment, the removed or resigning Trustee may petition any court of competent jurisdiction for the appointment of a successor Trustee, which court may thereupon, after such notice, if any, as it may deem proper and prescribe and as may be required by law, appoint a successor Trustee having the qualifications required by the Trust Agreement.
The Trustee is authorized to pay or redeem the Bonds when duly presented for payment at maturity or on redemption prior to maturity. The Trustee shal l cancel all Bonds upon payment thereof or upon the surrender thereof by the City and shall destroy such Bonds and a certificate of destruction shall be delivered to the City. The Trustee shall keep accurate records of all Bonds paid and discharged and cancelled by it.
The Trustee shall, prior to an event of default, and after the curing of all events of default that may have occurred, perform such duties and only such duties as are specifically set forth in the Trust Agreement and no implied duties or obligations shall be read into the Trust Agreement. The Trustee shall, during the existence of any event of default (that has not been cured), exercise such of the rights and powers vested in it by the Trust Agreement, and use the same degree of care and ski ll in their exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs.
Liability of Trustee. The recitals of facts, agreements and covenants in the Trust Agreement and in the Bonds shall be taken as recitals of facts, agreements and covenants of the City, and the Trustee assumes no responsibility for the correctness of the same or makes any representation as to the sufficiency or validity of the Trust Agreement or of the Bonds, or shall incur any responsibil ity in respect thereof other than in connection with the rights or obligations assigned to or imposed upon it in the Trust Agreement, in the Bonds or in law or equity. The Trustee shall not be bound to recognize any person as the Owner of a Bond
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unless an d until such Bond is submitted for inspection, if required, and such Owner’s title thereto satisfactorily established, if disputed.
The Trustee shall not be liable in connection with the performance of its duties under the Trust Agreement except for its ow n negligence, willful misconduct or breach of duty. The Trustee shall not be liable for any error of judgment made in good faith by a responsible officer, unless it shall be proved that the Trustee was negligent in ascertaining the pertinent facts.
The Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Owners of not less than a majority in Aggregate Principal Amount of the Bonds at the time Outstanding, relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee under the Trust Agreement.
The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by the Trust Agreement at the request, order or direction of any of the Owners pursuant to the provisions of the Trust Agreement unless such Owners shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities that may be incurred therein or thereby. The Trustee has no obligation or liability to the Owners for the payment of interest on, principal of or redemption premium, if any, with respect to the Bonds from its own funds; but rather the Trustee’s obligations shall be limited to the performance of its duties under the Trust Agreement.
The Trustee shall not be bound to ascertain or inquire as to the performance or observance of any of the terms, conditions, covenants or agreements in the Trust Agreement or of any of the documents executed in connection with the Bonds, or as to the existence of a default or event of default thereunder. The Trustee shall not be responsible for the validity or effectiveness of any collateral given to or held by it.
The Trustee may execute any of the trusts or powers under the Trust Agreement or perform any duties under the Trust Agreement either directly or by or through attorneys -in-fact, agents or receivers, shall not be answerable for the negligence or misconduct or any such attorney -in-fact, agent or receiver appointed by it in accordance with the standards specified above. The Trustee shall be entitled to advice of counsel and other professionals concerning all matters of trust and its duty under the Trust Agreement, but the Trustee shall not be answerable for the professional malpractice of any attorney or certified public accountant in connection with the rendering of his professional advice in accordance with the terms of the Trust Agreement, if such attorney or certified public accountant was selected by the Trustee with due care.
Whether or not therein expressly so provided, every provision of the Trust Agreement, or related documents relating to the conduct or affecting the liability of or affording protection to the Trustee shall be subject to the provisions of the Trust Agreement as summarized herein under the heading “THE TRUSTEE.”
The Trustee shall be protected in acting upon any notice, resolution, requisition, request (including any Written R equest of the City), consent, order, certificate, report, opinion, bond or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties.
The Trustee may consult with counsel, who may be counsel of or 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 under the Trust Agreement in good faith and in accordance therewith.
Whenever in the administration of its rights and obligations under the Trust Agreement the Trustee shall deem it necessary or desirable that a matter be established or proved prior to taking or suffering any action under the Trust Agreement, such matter (u nless other evidence in respect thereof be specifically
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prescribed in the Trust Agreement) may, in the absence of bad faith on the part of the Trustee, be deemed to be conclusively proved and established by a Certificate of the City, which certificate shall be full warrant to the Trustee for any action taken or suffered under the provisions of the Trust Agreement upon the faith thereof, but in its discretion the Trustee may in lieu thereof accept other evidence of such matter or may require such additional evidence as it may deem reasonable.
No provision of the Trust Agreement shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance or exercise of any of its duties under the Trust Agreement, or in the exercise of its rights or powers. The Trustee shall have no responsibility, opinion, or liability with respect to any information, statement or recital in any offering memorandum or other disclosure material prepared or distributed with respect to th e issuance of the Bonds. All immunities, indemnifications and releases from liability granted in the Trust Agreement to the Trustee shall extend to the directors, employees, officers and agents thereof. The Trustee shall not be deemed to have knowledge of any Event of Default unless and until it shall have actual knowledge thereof by receipt of written notice thereof at its Corporate Trust Office.
Any company into which the Trustee 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 Trustee may sell or transfer all or substantially all of its corporate trust business, provided that such company shall meet the requirements set forth in the Trust Agreement, shall be the successor to the Trustee under the Trust Agreement and vested with all of the title to the trust estate and all of the trusts, powers, discretions, immunities, privileges and all other matters as was its pred ecessor under the Trust Agreement, without the execution or filing of any paper or further act, anything in the Trust Agreement to the contrary notwithstanding.
AMENDMENT OF THE TRUST AGREEMENT;
SUPPLEMENTAL TRUST AGREEMENT
Amendment of the Trust Agreement.
(a) The Trust Agreement and the rights and obligations of the City and of the Owners may be amended at any time by a Supplemental Trust Agreement which shall become binding when the written consents of the Owners of a majority in Aggregate Principal A mount of the Bonds then Outstanding, exclusive of Bonds disqualified summarized herein under the heading “AMENDMENT OF THE TRUST AGREEMENT—Disqualified Bonds,” are filed with the Trustee. No such amendment shall (1) extend the maturity of or reduce the interest rate on or amount of interest on or principal of or redemption premium, if any, or extend the time of payment on any Bond without the express written consent of the Owner of such Bond, or (2) reduce the percentage of Bonds required for the written consent to any such amendment. (b) The Trust Agreement and the rights and obligations of the City and of the Owners may also be amended at any time by a Supplemental Trust Agreement which shall become binding upon adoption without the consent of, or notice to, any of the Owners for any one or more of the following purposes:
(i) to add to the agreements and covenants required in the Trust Agreement to be performed by the City other agreements and covenants thereafter to be performed by the City, to pledge or assign additional security for the Bonds (or any portion thereof), or to surrender any right or power reserved in the Trust Agreement to or conferred in the Trust Agreement on the City; (ii) to make such provisions for the purpose of curing any ambiguity or of correcting, curing or supplementing any defective provision contained in the Trust Agreement and in any Supplemental
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Trust Agreement or in regard to questions arising under the Trust Agreement which the City may deem desirable or necessary and not inconsistent with the Trust Agreement; (iii) to provide for the issuance of any Addit ional Bonds and to provide the terms of such Additional Bonds, subject to the conditions and upon compliance with the procedure set forth in the Trust Agreement (which shall be deemed not to adversely affect Owners); (iv) to modify, amend or add to the provisions in the Trust Agreement or in any Supplemental Trust Agreement to permit the qualification thereof under the Trust Indenture Act of 1939, as amended, or any similar federal statutes hereafter in effect, and to add such other terms, conditions and provisions as may be permitted by such statute or similar statute; or (iv) to modify, amend or supplement the Trust Agreement and any Supplemental Trust Agreement in any manner that does not materially adversely affect the interest of Owners of Bonds.
Disqualified Bonds. Bonds owned or held by or for the account of the City shall not be deemed Outstanding for the purpose of any consent or other action or any calculation of Outstanding Bonds provided in the Trust Agreement as summarized herein under the headi ng “AMENDMENT OF THE TRUST AGREEMENT,” and shall not be entitled to consent to or take any other action provided in the Trust Agreement as summarized herein under the heading “AMENDMENT OF THE TRUST AGREEMENT.” Upon request of the Trustee, the City shall specify in a certificate to the Trustee those Bonds disqualified pursuant to the Trust Agreement and the Trustee may conclusively rely on such certificate.
Endorsement or Replacement of Bonds After Amendment . After the effective date of any action taken as provided in the Trust Agreement, the City may determine that the Bonds may bear a notation by endorsement in form approved by the City as to such action, and in that case upon demand of the Owner of any Outstanding Bonds and presentation of his Bond for such purpose at the office of the Trustee a suitable notation as to such action shall be made on such Bond. If the City shall so determine, new Bonds so modified as, in the opinion of the City, shall be necessary to conform to such action shall be prepare d and executed, and in that case upon demand of the Owner of any Outstanding Bond a new Bond or Bonds shall be exchanged at the office of the Trustee without cost to each Owner for its Bond or Bonds then Outstanding upon surrender of such Outstanding Bonds.
Amendment by Mutual Consent . The provisions of the Trust Agreement as summarized herein under the heading “AMENDMENT OF THE TRUST AGREEMENT” 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.
Attorney’s Opinion Regarding Supplemental Agreements. The Trustee may obtain an Opinion of Counsel that any amendments or supplements to the Trust Agreement complies with the provisions of the Trust Agreement as summarized herein under the heading “AMENDMENT OF THE TRUST AGREEMENT” and the Trustee may conclusively rely upon such opinion.
EVENTS OF DEFAULT AND REMEDIES OF OWNERS
Events of Default. If one or more of the following events (herein called “events of default”) shall happen, that is to say:
(a) if default shall be made by the City in the due and punctual payment of the interest on any Bond when and as the same shall become due and payable;
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(b) if default shall be made by the City in the due and punctual payment o f the principal of or redemption premium, if any, on any Bond when and as the same shall become due and payable, whether at maturity as therein expressed or by proceedings for redemption; (c) if default shall be made by the City in the performance of any of the agreements or covenants required in the Trust Agreement to be performed by the City, and such default shall have continued for a period of 60 days after the City shall have been given notice in writing of such default by the Trustee or the Owners of not less than twenty-five (25%) in Aggregate Principal Amount of the Bonds at the time Outstanding, specifying such default and requiring the same to be remedied, provided, however, if the default stated in the notice can be corrected, but not within the applicable period, the Trustee and such Owners shall not unreasonably withhold their consent to an extension of such time if corrective action is instituted by the City within the applicable period and diligently pursued until the default is corrected; or (d) if the City shall file a petition or answer seeking arrangement or reorganization under the federal bankruptcy laws or any other applicable law of the United States of America or any state therein, or if a court of competent jurisdiction shall approve a petition filed with or without the consent of the City seeking arrangement or reorganization under the federal bankruptcy laws or any other applicable law of the United States of America or any state therein, or if under the provisions of any other law for the relief or aid of debtors any court of competent jurisdiction shall assume custody or control of the City or of the whole or any substantial part of its property.
Remedies Upon an Event of Default. Upon the occurrence and continuance of any event of default, the Trustee may, and upon the written request of Owners of not less than 51% of the Aggregate Principal Amount of Bonds then Outstanding, and upon being indemnified to its satisfaction, shall:
(a) by mandamus, suit, action or proceeding, compel the City and its members, officers, agents or employees to perform each and every term, provision and covenant contained in the Trust Agreement and the Bonds, and may require the carrying out of any or all such covenants and agreements of the City and the fulfillment of all duties imposed upon it by the Trust Agreement and by the Retirement Law. (b) bring suit upon the defaulted Bonds.
(c) by suit, action or proceeding in equity, enjoin any acts or things which are unlawful, or the violation of any of the Owners’ rights.
(d) by suit, action or proceeding in any court of competent jurisdiction, require the City and its members and employees to account as if it and they were the trustees of an express trust.
Application of Revenues and Other Funds After Default. If an event of default shall occur and be continuing, all amounts then held or thereafter received by the Trustee under any of the provisions of the Trust Agreement shall be applied by the Trustee as follows and in the following order:
(a) To the payment of any fees and expenses necessary in the opinion of the Trustee to protect the interests of the Owners of the Bonds and to the payment of the reasonable charges and expenses of the Trustee (including reasonable fees and disbursements of its counsel, ag ents and advisors) incurred in and about the performance of its powers and duties under the Trust Agreement; (b) To the payment of the principal and interest then due with respect to the Bonds (upon presentation of the Bonds to be paid, and stamping thereo n of the payment if only partially paid, or surrender thereof if fully paid) subject to the provisions of the Trust Agreement, as follows:
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First: To the payment to the Persons entitled thereto of all installments of interest then due in the order of the maturity of such installments, and, if the amount available shall not be sufficient to pay in full any installment or installments maturing on the same date, then to the payment thereof ratably, according to the amounts due thereon, to the Persons entitled thereto, without any discrimination or preference; and Second: To the payment to the Persons entitled thereto of the unpaid principal of any Bonds which shall have become due, whether at maturity or by call for redemption, with interest on the overdue principal at the rate borne by the respective Bonds on the date of maturity or redemption and, if the amount available shall not be sufficient to pay in full all the Bonds, together with such interest, then to the payment thereof ratably, according to the amounts of principal due on such date to the Persons entitled thereto, without any discrimination or preference.
Non-Waiver. Nothing in the Trust Agreement as summarized herein under the heading “EVENTS OF DEFAULT AND REMEDIES OF OWNERS” or in any other pro vision of the Trust Agreement or in the Bonds shall affect or impair the obligation of the City, which is absolute and unconditional, to pay the interest on and principal of and redemption premiums, if any, on the Bonds to the respective Owners of the Bonds at the respective dates of maturity or upon prior redemption as provided in the Trust Agreement, or shall affect or impair the right of such Owners, which is also absolute and unconditional, to institute suit to enforce such payment by virtue of the cont ract embodied in the Trust Agreement and in the Bonds. A waiver of any default or breach of duty or contract by the Trustee or any Owner shall not affect any subsequent default or breach of duty or contract or impair any rights or remedies on any such subs equent default or breach of duty or contract. No delay or omission by the Trustee or any Owner to exercise any right or remedy accruing upon any default or breach of duty or contract shall impair any such right or remedy or shall be construed to be a waiv er of any such default or breach of duty or contract or an acquiescence therein, and every right or remedy conferred upon the Owners by the Act or by the Trust Agreement as summarized herein under the heading “EVENTS OF DEFAULT AND REMEDIES OF OWNERS” may be enforced and exercised from time to time and as often as shall be deemed expedient by the Trustee or the Owners.
If any action, proceeding or suit to enforce any right or exercise any remedy is abandoned, the City, the Trustee and any Owner shall be restored to their former positions, rights and remedies as if such action, proceeding or suit had not been brought or taken.
Actions by Trustee as Attorney -in-Fact. Any action, proceeding or suit which any Owner shall have the right to bring to enforce any right or remedy under the Trust Agreement may be brought by the Trustee for the equal benefit and protection of all Owners, whether or not the Trustee is a Owner, and the Trustee is appointed (and the successive Owners, by taking and holding th e Bonds issued under the Trust Agreement, shall be conclusively deemed to have so appointed it) the true and lawful attorney-in-fact of the Owners for the purpose of bringing any such action, proceeding or suit and for the purpose of doing and performing any and all acts and things for and on behalf of the Owners as a class or classes as may be advisable or necessary in the opinion of the Trustee as such attorney-in-fact.
Remedies Not Exclusive. No remedy in the Trust Agreement conferred upon or reserved t o the Owners is intended to be exclusive of any other remedy, and each such remedy shall be cumulative and shall be in addition to every other remedy given under the Trust Agreement existing at law or in equity or by statute or otherwise and may be exercis ed without exhausting and without regard to any other remedy conferred by the Act or any other law.
Limitation on Owners’ Right to Sue . No Owner of any Bond issued under the Trust Agreement shall have the right to institute any suit, action or proceeding at law or equity, for any remedy under or upon the Trust Agreement, unless (a) such Owner shall have previously given to the Trustee written notice of the
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occurrence of an event of default as defined in the Trust Agreement as summarized herein under the heading “EVENTS OF DEFAULT AND REMEDIES OF OWNERS—Events of Default;” (b) the Owners of at least a majority in Aggregate Principal Amount of all the Bonds then Outstanding shall have made written request upon the Trustee to exercise the powers granted in the Trust Agreement or to institute such suit, action or proceeding in its own name; (c) said Owners shall have tendered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities to be incurred in compliance with such request; and (d) the Trustee shall have refused or omitted to comply with such request for a period of 60 days after such request shall have been received by, and said tender of indemnity shall have been made to, the Trustee. Such notification, request, tender of indemnity and refusal or omission are declared, in every case, to be conditions precedent to the exercise by any owner of Bonds of any remedy under the Trust Agreement; it being understood and intended that no one or more owners of Bonds shall have any right in any manner whatever by his or their action to enforce any right under the Trust Agreement, except in the manner provided in the Trust Agreement, and that all proceedings at law or in equity to enforce any provision of the Trust Agreement shall be in stituted, had and maintained in the manner provided in the Trust Agreement and for the equal benefit of all Owners of the Outstanding Bonds.
Absolute Obligation of City. Nothing in the Trust Agreement or in the Bonds contained shall affect or impair the obligation of the City, which is absolute and unconditional, to pay the principal of, premium, if any and interest on the Bonds to the respective Owners of the Bonds at their respective due dates as provided in the Trust Agreement.
DEFEASANCE
Discharge of Bonds. If the City shall pay or cause to be paid or there shall otherwise be paid to the Owners of all Outstanding Bonds the interest thereon and the principal thereof and the redemption premiums, if any, thereon at the times and in the manner stipulated in the Trust Agreement and therein, and shall pay or provide for the payment of all fees and expenses of the Trustee, then all agreements, covenants and other obligations of the City to the Owners of such Bonds under the Trust Agreement shall thereupon cease, terminate and become void and be discharged and satisfied. In such event, the Trustee shall execute and deliver to the City all such instruments as may be necessary or desirable to evidence such discharge and satisfaction, the Trustee shall pay over or deliver to the City all money or securities held by it pursuant to the Trust Agreement which are not required for the payment of the interest on, principal of, and redemption premium (if any) on, such Bonds.
Any Outstanding Bonds shall prior to the maturit y date or redemption date thereof be deemed to have been paid within the meaning of and with the effect expressed in subparagraph (a) above if (1) in case any of such Bonds are to be redeemed on any date prior to their maturity date, the City shall have given to the Trustee in form satisfactory to it irrevocable instructions to provide notice in accordance with the Trust Agreement, (2) there shall have been deposited with the Trustee either (A) money in an amount which shall be sufficient or (B) Defeasance Securities which are not subject to redemption prior to maturity (including any such Defeasance Securities issued or held in book-entry form on the books of the City or the Treasury of the United States of America), the interest on and principal of which w hen paid will provide money which, together with the money, if any, deposited with the Trustee at the same time, shall be sufficient, in the opinion of an Independent Certified Public Accountant, to pay when due the interest to become due on such Bonds on and prior to the maturity date or redemption date thereof, as the case may be, and the principal of and redemption premiums, if any, on such Bonds, and (3) in the event such Bonds are not by their terms subject to redemption within the next succeeding 60 days, the City shall have given the Trustee in form satisfactory to it irrevocable instructions to mail as soon as practicable, a notice to the Owners of such Bonds that the deposit required by clause (2) above has been made with the Trustee and that such Bonds are deemed to have been paid in accordance with this section and stating the maturity date or
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redemption date upon which money is to be available for the payment of the principal of and redemption premiums, if any, on such Bonds.
Unclaimed Money. Anything contained in the Trust Agreement to the contrary notwithstanding, any money held by the Trustee in trust for the payment and discharge of any of the Bonds or interest thereon which remains unclaimed for two (2) years after the date when such Bonds or interest thereon have become due and payable, either at their stated maturity dates or by call for redemption prior to maturity, if such money was held by the Trustee at such date, or for two (2) years after the date of deposit of such money if deposited with the Trustee after the date when such Bonds have become due and payable, shall be repaid by the Trustee to the City as its absolute property free from trust, and the Trustee shall thereupon be released and discharged with respect thereto and the Owners shall not look to the Trustee for the payment of such Bonds.
MISCELLANEOUS
Benefits of the Trust Agreement Limited to Parties . Nothing contained in the Trust Agreement, expressed or implied, is intended to give to any person other than the City, the Trustee and the Owners any right, remedy or claim under or by reason of the Trust Agreement. Any agreement or covenant required in the Trust Agreement to be performed by or on behalf of the City or any member, officer or employee thereof shall be for the sole and exclusive benefit of the Trustee and the Owners.
Successor Is Deemed Included in All References to Predecessor. Whenever in the Trust Agreement either the City or any member, officer or employee thereof or the Trustee is named or referred to, such reference shall be deemed to include the successor or assigns thereof, and all agreements and covenants required by the Trust Agreement to be performed by or on behalf of the City or the Trustee, or any member, officer or employee thereof, shall bind and inure to the benefit of the respective successors thereof whether so expressed or not.
Execution of Documents by Owners . Any declaration, request or other instrument which is permitted or required in the Trust Agreement to be executed by Owners may be in one or more instruments of similar tenor and may be executed by Owners in person or by their attorneys appointed in writing. The fact and date of the execution by any Owner or his attorney of any declaration, request or other instrument or of any writing appo inting such attorney may be proved by the certificate of any notary public or other officer authorized to make acknowledgments of deeds to be recorded in the state or territory in which he purports to act that the person signing such declaration, request o r 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. The ownership of any Bonds and the amount, maturity, number and date of holding the same may be proved by the registration books relating to the Bonds at the office of the Trustee.
Any declaration, request, consent or other instrument or writing of the Owner of any Bond shall bind all future Owners of such Bond with respect to anything done or suffered to be done by the Trustee or the City in good faith and in accordance therewith.
Waiver of Personal Liability . No member, officer or employee of the City or the City shall be individually or personally liable for the payment of the interest on or principal of or redemption premiums, if any, on the Bonds by reason of their issuance, but nothing in the Trust Agreement contained shall relieve any such member, officer or employee from the performance of any official duty provided by the Act or any other applicable provisions of law or by the Trust Agreement.
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Acquisition of Bonds by City . All Bonds acquired by the City, whether by purchase or gift or otherwise, shall be surrendered to the Trustee for cancellation.
Destruction of Cancell ed Bonds. Whenever provision is made for the return to the City of any Bonds which have been cancelled pursuant to the provisions of the Trust Agreement, the Trustee shall destroy such Bonds and furnish to the City a certificate of such destruction.
Content of Certificates . Every Certificate of the City with respect to compliance with any agreement, condition, covenant or provision provided in the Trust Agreement shall include (a) a statement that the person or persons making or giving such certificate have read such agreement, condition, covenant or provision and the definitions in the Trust Agreement relating thereto; (b) a brief statement as to the nature and scope of the examination or investigation upon which the statements contained in such certifica te are based; (c) a statement that, in the opinion of the signers, they have made or caused to be made such examination or investigation as is necessary to enable them to express an informed opinion as to whether or not such agreement, condition, covenant or provision has been complied with; and (d) a statement as to whether, in the opinion of the signers, such agreement, condition, covenant or provision has been complied with.
Any Certificate of the City may be based, insofar as it relates to legal matters, upon an Opinion of Counsel unless the person making or giving such certificate knows that the Opinion of Counsel with respect to the matters upon which his certificate may be based, as aforesaid, is erroneous, or in the exercise of reasonable care should have known that the same was erroneous. Any Opinion of Counsel may be based, insofar as it relates to factual matters information with respect to which is in the possession of the City, upon a representation by an officer or officers of the City unless t he counsel executing such Opinion of Counsel knows that the representation with respect to the matters upon which his opinion may be based, as aforesaid, is erroneous, or in the exercise of reasonable care should have known that the same was erroneous.
Accounts and Funds; Business Days. Any account or fund required in the Trust Agreement to be established and maintained by the Trustee may be established and maintained in the accounting records of the Trustee either as an account or a fund, and may, for the purposes of such accounting records, any audits thereof and any reports or statements with respect thereto, be treated either as an account or a fund; but all such records with respect to all such accounts and funds shall at all times be maintained in accordance with sound accounting practice and with due regard for the protection of the security of the Bonds and the rights of the Owners. Any action required to occur under the Trust Agreement on a day which is not a Business Day shall be required to occur on the next succeeding Business Day.
Governing Law. The Trust Agreement shall be governed by and construed in accordance with the laws of the State of California.
APPENDIX D
FORM OF CONTINUING DISCLOSURE AGREEMENT
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APPENDIX E
FORM OF BOND COUNSEL OPINION
[Delivery Date]
City of Rialto
Rialto, California
$[Par Amount]
City of Rialto
Taxable Pension Obligation Bonds, Series 2022
Ladies and Gentlemen:
We have acted as Bond Counsel in connection with the issuance of the City of Rialto (the “City”) of its aggregate principal amount of City of Rialto Taxable Pension Obligation Bonds, Series 2022 (the “Bonds”). The Bonds are being issued by the City under the provisions of Articles 10 and 11 (commencing with 53570) of Chapter 3 of Part 1 of Division 2 of Title 5 of the California Government Code (the “Bond Law”), and a Trust Agreement, dated as of [As of Date] (the “Trust Agreement”), by and between the City and U.S. Bank National Association, as trustee. Capitalized terms used herein but not defined shall have the meanings ascribed to them in the Trust Agreement.
As Bond Counsel, we have examined applicable provisions of the Bond Law and copies certified t o us as being true and complete copies of the proceedings of the City for the authorization and issuance of the Bonds. Our services as Bond Counsel were limited to an examination of such proceedings and to the rendering of the opinions set forth below. I n this connection we have also examined such certificates of public officials and officers of the City as we have considered necessary for the purposes of this opinion.
Based on and subject to the foregoing, and in reliance thereon, as of the date hereof, we are of the following opinions:
1. The Bonds constitute valid and binding limited obligations of the City as provided in the Trust Agreement, and are entitled to the benefits of the Trust Agreement. The Bonds are payable from any legally available moneys or funds of the City as provided under the Trust Agreement.
2. The Trust Agreement has been duly and validly authorized, executed and delivered by the City and, assuming the enforceability thereof against the Trustee, constitutes the legally valid and binding obligation of the City, enforceable against the City in accordance with its terms. The Trust Agreement creates a valid pledge of all money and securities for deposit in, or deposited in, the Bond Fund to secure the payment of principal of and interest on the Bonds from any source of legally available funds of the City.
3. Under existing law, interest on the Bonds is exempt from personal income taxes of the State of California.
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The opinions expressed in paragraphs 1 and 2 above are qualified t o the extent the enforceability of the Bonds and the Trust Agreement may be limited by applicable bankruptcy, insolvency, debt adjustment, reorganization, moratorium or similar laws or equitable principles relating to or limiting creditors’ rights generally or as to the availability of any particular remedy. The enforceability of the Bonds and the Trust Agreement is subject to the effect of general principles of equity, including, without limitation, concepts of materiality, reasonableness, good faith and fair dealing, to the possible unavailability of specific performance or injunctive relief, regardless of whether considered in a proceeding in equity or at law, and to the limitations on legal remedies against governmental entities in the State of California.
No opinion is expressed herein on the accuracy, completeness or fairness of the Official Statement or other offering material relating to the Bonds.
Our opinions are based on existing law, which is subject to change. Such opinions are further based on our knowledge of facts as of the date hereof. We assume no duty to update or supplement our opinions to reflect any facts or circumstances that may thereafter come to our attention or to reflect any changes in any law that may thereafter occur or become effective. Moreover, our opinions are not a guarantee of result; rather, such opinions represent our legal judgment based upon our review of existing law that we deem relevant to such opinions and in reliance upon the representations and covenants referenced above.
Respectfully submitted,
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APPENDIX F
BOOK-ENTRY SYSTEM
The information in this APPENDIX F concerning The Depository Trust Company (“DTC”), New York, New York, and DTC’s book -entry system has been obtained from DTC and the City takes no responsibility for the completeness or accuracy thereof. The City cannot and does not give any assurances that DTC, DTC Participants or Indirect Participants will distribute to the Beneficial Owners (a) payments of interest, principal or premium, if any, with respect to the Bonds, (b) certificates representing ownership interest in or other confirmation or ownership interest in the Bonds, or (c) redemption or other notices sent to DTC or Cede & Co., its nominee, as the registered owner of the Bonds, or that they will so do on a timely basis, or that DTC, DTC Participants or DTC Indirect Participants will act in the manner described in this Appendix. The current “Rules” applica ble to DTC are on file with the Securities and Exchange Commission and the current “Procedures” of DTC to be followed in dealing with DTC Participants are on file with DTC.
The Depository Trust Company (“DTC”), New York, New York, will act as securities de pository for the Series 2022 Bonds. The Series 2022 Bonds will be issued as fully-registered securities registered in the name of Cede & Co. (DTC’s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fu lly-registered Series 2022 Bond will be issued for each annual maturity of the Series 2022 Bonds, each in the aggregate principal amount of such maturity, and will be deposited through the facilities of DTC.
DTC, the world’s largest securities depository, is a limited-purpose trust company organized under the New York Banking Law, a “banking organization” within the meaning of the New York Banking Law, a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code, and a “clearing agency” registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 3.6 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC’s participants (“Direct Participants”) deposit with DTC. DTC also facilitates the post trade settlement among Direct Participants of sales and other securities transactio ns in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants’ accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non -U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation (“DTCC”). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non -U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly (“Indirect Participants”). DTC has an S&P Global Ratings rating of “AA+.” The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com. The information set forth on such website is not incorporated herein by reference.
Purchases of Series 2022 Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Series 2022 Bonds on DTC’s records. The ownership interest of each actual purchaser of each Series 2022 Bond (“Beneficial Owner”) is in turn to be recorded on the Direct and Indirect Participants’ records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or
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Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Series 2022 Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive Series 2022 Bonds representing their ownership interests in Series 2022 Bonds, except in the event that use of the book-entry system for the Series 2022 Bonds is discontinued.
To facilitate subsequent transfers, all Series 2022 Bonds deposited by Direct Participants with DTC are registered in the name of DTC’s partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of Series 2022 Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not affect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Series 2022 Bonds; DTC’s records reflect only the identity of the Direct Participants to whose accounts such Series 2022 Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants a nd Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of Series 2022 Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Series 2022 Bonds, such as prepayments, tenders, defaults, and proposed amendments to the Series 2022 Bond documents. For example, Beneficial Owners of Series 2022 Bonds may wish to ascertain that the nominee holding the Series 2022 Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of notices be provided directly to them.
Redemption notices shall be sent to DTC. If less than all of the Series 2022 Bonds within a maturity are being prepaid, DTC’s practice is to determine by lot the amount of the interest of each Direct Participant in such maturity to be redeemed.
Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to Series 2022 Bonds unless authorized by a Direct Participant in accordance with DTC’s MMI Procedures.
Under its usual procedures, DTC mails an Omnibus Proxy to the Authority as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.’s consenting or v oting rights to those Direct Participants to whose accounts Series 2022 Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy).
Redemption proceeds, distributions, and dividend payments on the Series 2022 Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC’s practice is to credit Direct Participants’ accounts upon DTC’s receipt of funds and corresponding detail information from the Authority, the City or the Trustee, on payable date in accordance with their respective holdings shown on DTC’s records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for th e accounts of customers in bearer form or registered in “street name,” and will be the responsibility of such Participant and not of DTC, the Trustee, the Authority or the City, subject to any statutory or regulatory requirements as may be in effect from t ime to time. Payment of redemption proceeds, distributions, and dividend payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the Authority or the Trustee, disbursement of such p ayments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants.
F-3
A Series 2022 Bond Owner shall give notice to elect to have its Series 2022 Bonds purchased or tendered, through its Participant, to the Trustee, and shall effect delivery of such Series 2022 Bonds by causing the Direct Participant to transfer the Participant’s interest in the Series 2022 Bonds, on DTC’s records, to the Trustee. The requirement for physical delivery of Series 2022 Bonds in connection with an optional tender or a mandatory purchase will be deemed satisfied when the ownership rights in the Series 2022 Bonds are transferred by Direct Participants on DTC’s records and followed by a book-entry credit of tendered Series 2022 Bonds to the Trustee’s DTC account.
DTC may discontinue providing its services as depository with respect to the Series 2022 Bonds at any time by giving reasonable notice to the Authority or the Trustee. Under such circumstances, in the event that a successor depository is not obtained, physical certificates are required to be printed and delivered.
The Authority may decide to discontinue use of the system of book -entry only transfers throug h DTC (or a successor securities depository). In that event, Series 2022 Bonds will be printed and delivered to DTC.
THE TRUSTEE, AS LONG AS A BOOK-ENTRY ONLY SYSTEM IS USED FOR THE Series 2022 BONDS, WILL SEND ANY NOTICE OF REDEMPTION OR OTHER NOTICES TO OWNERS ONLY TO DTC. ANY FAILURE OF DTC TO ADVISE ANY DTC PARTICIPANT, OR OF ANY DTC
PARTICIPANT TO NOTIFY ANY BENEFICIAL OWNER, OF ANY NOTICE AND ITS CONTENT
OR EFFECT WILL NOT AFFECT THE VALIDITY OF SUFFICIENCY OF THE PROCEEDINGS RELATING TO THE REDEMPT ION OF THE SERIES 2022 BONDS CALLED FOR REDEMPTION OR OF ANY OTHER ACTION PREMISED ON SUCH NOTICE.