Agendas are available on the City Website
https://www.ridgecrest-ca.gov/council-agendas
Ridgecrest City Council
Successor Redevelopment Agency
Financing Authority
Housing Authority
AGENDA
January 15, 2025
Closed Session 5:00 p.m.
Regular Session 6:00 p.m.
City Hall, Council Chambers
100 100 West California Avenue
Ridgecrest CA 93555
Ricca Charlon, CMC
City Clerk
[email protected]
(760) 499-5002
In compliance with the Americans with Disabilities Act, if you are a disabled person and you need a disability-related modification or accommodation to participate in the meeting, please contact Ricca Charlon at (760) 499-5002. Requests must be made as early as possible and at least one full business day before the start of the meeting.
Watch meetings on-line:
All of our meetings are streamed live at https://ridgecrest-ca.gov/369/Watch or on YouTube at https://www.youtube.com/cityofridgecrest/live and are also available for playback after the meeting.
Call in for public comments:
To participate with verbal comments, please call (760) 499-5010. This phone line will allow only one caller at a time, so if the line is busy, please continue to dial. We will be allowing a 20-30 second delay between callers to give time for media delays and callers to dial in. If you wish to comment on multiple items you will need to call in as each item is presented.
CITY COUNCIL
Travis Endicott, Mayor
Solomon P. Rajaratnam, Mayor Pro-Tem
Kyle Blades, Vice Mayor
L. Scott Hayman, Council Member
John ‘Skip’ Gorman, Council Member
Ron Strand, City Manager
Keith Lemieux, City Attorney
Martin Koczanowicz, City Attorney
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100 W. CALIFORNIA AVE. | RIDGECREST, CA 93555
Phone 760.499.5000 | Fax 760.499.1520
www.ridgecrest-ca.gov
NOTICE AND CALL OF A SPECIAL CLOSED SESSION MEETING OF THE
RIDGECREST CITY COUNCIL / SUCCESSOR REDEVELOPMENT AGENCY /
HOUSING AUTHORITY / FINANCING AUTHORITY
TO THE MEMBERS OF THE RIDGECREST CITY COUNCIL / SUCCESSOR
REDEVELOPMENT AGENCY / HOUSING AUTHORITY / FINANCING AUTHORITY, PUBLIC AND CITY CLERK:
PUBLIC NOTICE that a SPECIAL CLOSED SESSION MEETING of the Ridgecrest City Council/Successor Redevelopment Agency/Housing Authority/Financing Authority is hereby called on:
Wednesday, January 15, 2025 @ 5:00 p.m.
City Council Chambers
100 W. California Avenue
Ridgecrest, California
Said SPECIAL CLOSED SESSION MEETING shall be for the purpose of:
CONFERENCE WITH LEGAL COUNSEL - Existing Litigation Gov Code Section 54956.9 Anderson v. COR, Lloyd; Kern County Superior Court Case # BCV-24-101979 CONFERENCE WITH LEGAL COUNSEL - Existing Litigation (GC Sec. 54956.9) Mojave Pistachios, LLC v Indian Wells Valley Water District, et al.
Orange County Superior Court Case No. 30-2021-01187275-CU-OR-CJC Dated: January 9, 2025
Travis Endicott, Mayor / Chair
ATTEST:
Ricca Charlon, City Clerk
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RIDGECREST CITY COUNCIL
SUCCESSOR REDEVELOPMENT AGENCY
FINANCING AUTHORITY
HOUSING AUTHORITY
AGENDA
Wednesday, January 15, 2025 Closed Session – 5:00 p.m.
Regular Session – 6:00 p.m.
CALL TO ORDER
ROLL CALL
APPROVAL OF AGENDA
CLOSED SESSION
CONFERENCE WITH LEGAL COUNSEL - Existing Litigation Gov Code Section 54956.9 Anderson v. COR, Lloyd; Kern County Superior Court Case # BCV-24-101979 CONFERENCE WITH LEGAL COUNSEL - Existing Litigation (GC Sec. 54956.9) Mojave Pistachios, LLC v Indian Wells Valley Water District, et al.
Orange County Superior Court Case No. 30-2021-01187275-CU-OR-CJC
REGULAR SESSION
• Pledge Of Allegiance
• Invocation
ATTORNEY REPORT OUT OF CLOSED SESSION
PRESENTATIONS
Lifesaving Awards - Officer Coe And Officer Smith Chief Ysit PUBLIC COMMENT OF ITEMS NOT ON THE AGENDA - Persons wishing to address the Council on matters that are within the Council’s jurisdiction and DO NOT ALREADY APPEAR ON THE AGENDA, may do so at this time.
COUNCIL ANNOUNCEMENTS/DIRECTION
CONSENT CALENDAR – All Matters Listed Under The Consent Calendar Are To Be Considered Routine And Enacted By One Motion Unless Pulled By A Council Member Or A Member Of The Public.
1. A Resolution Of The Ridgecrest City Council Approving The Reestablishment Of An Accounting Supervisor Position To The Classification Plan Brewton
2. Proposed Approval For The Authorization Of The Extension Of The University Of California – Davis School Of Veterinary Medicine, Spay/ Neuter Grant Chief Ysit
3. Proposed Approval of Increased Appropriations to The Fiscal Year 2025-2026 Budget To Purchase Police Equipment Chief Ysit
AGENDA - CITY COUNCIL / SUCCESSOR REDEVELOPMENT AGENCY / FINANCING AUTHORITY / HOUSING AUTHORITY REGULAR – January 15, 2025
DISCUSSION / ACTION ITEMS
4. Nomination And Appointment Of Mayor Pro-Tempore And Vice Mayor Charlon
5. Discussion Regarding Needed Appointments To Council Committees, Boards, And Commissions Charlon
6. Discussion Regarding The Board Of The Indian Wells Valley Groundwater Authority (IWVGA) Hayman
7. Approval Of Resolution To Increase Positions Within The Police Officer Classification From 32 Officers To 33 Officers Chief Ysit
8. Authorization To Enter Into A Five (5) Year Agreement With Lens Lock Inc. For FY26 Through FY30 For Body Worn Cameras (BWC), In-Car Video Cameras, Connectivity, Software, Installation, And CAD Integration. Authorization For Approval Of Appropriations In The FY25 Annual Budget To Purchase Connectivity Services Chief Ysit
9. Approving The Form And Authorizing The Execution Of Certain Lease Financing Documents In Connection With The Offering And Sale Of Certificates Of Participation Relating Thereto Finance The Cost Of Construction And Equipping A New Aquatics Facility And Authorizing And Directing Certain Actions With Respect Thereto Brewton
COMMITTEE REPORTS**Committee Meeting dates are subject to change and will be announced on the City website
City Organization and Services Committee (‘City Org’)
Members: Mayor Eric A. Bruen and Skip Gorman
Meeting: 1
st Thursday each month at 5:30 p.m.
Location: City Hall Council Chambers
➢ Next meeting February 6, 2025
Economic Development Committee
Members: Kyle Blades and Solomon Rajaratnam
Meeting: 1st Monday of the month @ 5:15 p.m.
Location: City Hall Conference Room B, 1
st Floor
➢ Report from January 6, 2025
Finance Committee
Members: Mayor Eric A. Bruen and Scott Hayman
Meeting: 2nd Tuesday each month at 5:30 p.m.
Location: City Hall Conference Room B, 1
st Floor
➢ Report from January 14, 2025
Infrastructure Committee
Members: Solomon Rajaratnam and Kyle Blades
Meeting: 4
th Thursday each month at 5:00 p.m.
Location: City Hall Conference Room B, 1
st Floor
➢ Next meeting January 23, 2025
AGENDA - CITY COUNCIL / SUCCESSOR REDEVELOPMENT AGENCY / FINANCING AUTHORITY / HOUSING AUTHORITY REGULAR – January 15, 2025
Parks, Recreation, and Quality of Life Committee
Members: Mayor Eric A. Bruen and Skip Gorman
Meeting: 1
st Tuesday each month at 5:30 p.m.
Location: City Hall Council Chambers
➢ Next meeting February 4, 2025
Ridgecrest Area Convention and Visitor Bureau (RACVB)
Members: Solomon Rajaratnam and Jennifer Rickets (staff) Meeting: 4th Wednesday each month at 9:00 a.m.
Location: California Welcome Center
➢ Next meeting TBD
OTHER COMMITTEES, BOARDS, OR COMMISSIONS
CITY MANAGER REPORT
FUTURE AGENDA ITEMS
MAYOR AND COUNCIL COMMENTS
ADJOURNMENT
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Ridgecrest City Council
Successor Redevelopment Agency
Financing Authority
Housing Authority
STAFF REPORT
SUBJECT: A Resolution Of The Ridgecrest City Council Approving The Reestablishment Of An Accounting Supervisor Position To The Classification Plan PRESENTED BY: Kelly Brewton, Finance Director
SUMMARY:
The City Council, in its adoption of the Fiscal Year 2024-2025 budget, adopted a classification plan that governs approved position descriptions for the City. This plan requires that the City Council authorize the adoption of new position descriptions prior to opening the position for employment purposes. The Finance Department requests City Council approval to reestablish the Accounting Supervisor position. This position will be filled in place of filling the vacant Assistant Finance Director position. The salary ranges from Step 1: $36.5989 to Step 07: $47.8782.
Proposal:
Reestablish of the Accounting Supervisor position within the Finance Department. The Accounting Supervisor will be responsible for overseeing all accounting functions, including the management of accounts receivable, accounts payable, payroll and the overall financial operations of the department.
The Accounting Supervisor will report directly to the Finance Director.
It is recommended that this resolution be adopted authorizing the adoption of an Accounting Supervisor as described in the attached job description.
FISCAL IMPACT: Salary Savings of approximately $15,400 due to reestablishment of Accounting Supervisor in place of filling Assistant Finance Director.
ACTION REQUESTED: It is recommended that the City Council approve the reestablishment of the Accounting Supervisor, with the salary range from Step 1: $36.5989 to Step 07:
$47.8782.
CITY MANAGER’S RECOMMENDATION: Approve as requested.
Submitted by: Kelly Brewton Action Date: January 15, 2025 This Page Intentionally Left Blank
RESOLUTION NO. 25-XX
A RESOLUTION OF THE RIDGECREST CITY COUNCIL APPROVING
THE REESTABLISHMENT OF AN ACCOUNTING SUPERVISOR
POSITION TO THE CLASSIFICATION PLAN
WHEREAS, the City Council of the City of Ridgecrest has, by previous resolution, adopted a classification plan that governs approved position descriptions, and; WHEREAS, this plan requires that the City Council authorize the adoption of reestablished position descriptions prior to opening the position for employment purposes, and;
WHEREAS, the City Council, in its adoption of the Fiscal Year 2024-2025 budget, did not approve an Accounting Supervisor position.
NOW, THEREFORE, BE IT RESOLVED that the City Council of the City of Ridgecrest authorize the reestablishment of an Accounting Supervisor position job description “Exhibit A” into the City’s current classification plan as outlined in “Exhibit B.” APPROVED AND ADOPTED, this 15th day of January 2025, by the following vote:
AYES:
NOES:
ABSTAIN:
ABSENT:
Travis W. Endicott, Mayor
ATTEST:
Ricca Charlon, CMC
City Clerk
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CITY OF RIDGECREST Date Adopted: Jan 15, 2025
ACCOUNTING SUPERVISOR
DEFINITION
Under general supervision, supervises and/or participates in activities pertaining to accounts payable/receivable, payroll, purchasing, billing, budgeting, management information services, auditing, maintenance of financial records and preparation of financial reports, directs or performs governmental accounting; performs related duties as required.
CLASS CHARACTERISTICS
The Accounting Supervisor is a single position class with the incumbent charged with supervision of the day to day activities of a division of the Finance Department. Additionally, the incumbent participates in work of the division and assists the Director of Finance in such activities as may be assigned.
ESSENTIAL FUNCTIONS
These functions may not be present in all positions in multiple position classes. When a position is to be filled, the essential functions will be noted in the announcement of position availability.
Supervises accounts payable and receivable, purchasing, and general ledger accounting activity; prepares or directs the preparation of journal entries, interfund transfers, account reconciliations, related schedules, and reports.
Prepares closing entries to the General Ledger and participates in the preparation of fiscal yearend financial reports; prepares related statistical tables; reviews, approves and makes adjustments to accounts.
Provides liaison to other City personnel and the public regarding accounts payable and receivable, purchasing, or general ledger activity; reviews audit reports.
As assigned, prepares and presents reports or directs special projects related to accounts payable and receivable, purchasing, and general ledger activity.
Participates in the development of division goals, objectives, policies, and procedures; assists in preparation of the department budget through the analysis of needs, cost analysis, and preparation of recommendations.
Participates in the selection of staff; supervises, and trains assigned staff.
ACCOUNTING SUPERVISOR Page 2 of 2
QUALIFICATIONS GUIDELINES
Education and/or Experience
Any combination of education and/or experience that has provided the knowledge, skills, and abilities necessary for satisfactory job performance. Example combinations include three years of municipal or closely related professional accounting experience, which included some supervisory experience, supplemented by college level courses in accounting, business administration, or a related field.
Knowledge, Skills, and Abilities
Thorough knowledge of municipal accounting methods and procedures related to the preparation and maintenance of accounts payable, purchasing, receivable, payroll, utility billings, and the General Ledger; principles of accounting and auditing. Considerable knowledge of computerized accounting systems; governmental accounting and reporting requirements; methods and techniques of supervision. Ability to perform and/or direct the accurate accounting of automated accounts payable and receivable, payroll, purchasing, and general ledger activity; prepare and present reports; interpret and apply related laws, rules and regulations; perform financial and statistical analysis; meet the public in situations requiring diplomacy and tact; communicate effectively both orally and in writing; establish and maintain cooperative working relationships; supervise assigned staff.
PHYSICAL PROFILE; I, 4, 7.
JOB TITLE GRADE STEP 1 STEP 2 STEP 3 STEP 4 STEP 5 STEP 6 STEP 7 STEP 8 STEP 9 STEP 10 STEP 11 Accounting Hourly 36.5989 38.4288 40.3502 42.3677 44.4861 46.7104 47.8782 Supervisor Monthly 6,343.81 6,660.99 6,994.03 7,343.73 7,710.92 8,096.47 8,298.89 Hourly 39.4012 41.3713 43.4399 45.6119 47.8925 50.2871 51.5443 52.8329 54.1537 55.5075 56.8952 Monthly 6,829.54 7,171.03 7,529.58 7,906.06 8,301.37 8,716.43 8,934.35 9,157.70 9,386.64 9,621.30 9,861.83 Assistant Finance Hourly 40.2588 42.2717 44.3853 46.6046 48.9348 51.3815 52.6660 53.9827 55.3323 56.7156 58.1335 Director Monthly 6,978.19 7,327.09 7,693.45 8,078.13 8,482.03 8,906.13 9,128.77 9,357.00 9,590.93 9,830.70 10,076.47 Hourly 40.2588 42.2717 44.3853 46.6046 48.9348 51.3815 52.6660 53.9827 55.3323 56.7156 58.1335 Monthly 6,978.19 7,327.09 7,693.45 8,078.13 8,482.03 8,906.13 9,128.77 9,357.00 9,590.93 9,830.70 10,076.47 Hourly 39.4012 41.3713 43.4399 45.6119 47.8925 50.2871 51.5443 52.8329 54.1537 55.5075 56.8952 Monthly 6,829.54 7,171.03 7,529.58 7,906.06 8,301.37 8,716.43 8,934.35 9,157.70 9,386.64 9,621.30 9,861.83 Chief Plant Hourly 43.4883 45.6627 47.9458 50.3431 52.8603 55.5033 Operator Monthly 7,537.97 7,914.87 8,310.61 8,726.14 9,162.45 9,620.57 Comm & Econ Hourly 40.2588 42.2717 44.3853 46.6046 48.9348 51.3815 52.6660 53.9827 55.3323 56.7156 58.1335 Developement Manager Monthly 6,978.19 7,327.09 7,693.45 8,078.13 8,482.03 8,906.13 9,128.77 9,357.00 9,590.93 9,830.70 10,076.47 Information Hourly 39.4012 41.3713 43.4399 45.6119 47.8925 50.2871 51.5443 52.8329 54.1537 55.5075 56.8952 Technology Manager Monthly 6,829.54 7,171.03 7,529.58 7,906.06 8,301.37 8,716.43 8,934.35 9,157.70 9,386.64 9,621.30 9,861.83 Parks Maintenance Hourly 36.5989 38.4288 40.3502 42.3677 44.4861 46.7104 47.8782 Supervisor Monthly 6,343.81 6,660.99 6,994.03 7,343.73 7,710.92 8,096.47 8,298.89 Police Hourly 47.2577 49.6206 52.1016 54.7067 57.4420 60.3141 61.8220 63.3676 64.9518 66.5756 68.2400 Captain Monthly 8,191.33 8,600.90 9,030.94 9,482.49 9,956.61 10,454.44 10,715.81 10,983.72 11,258.31 11,539.77 11,828.27 Public Works Hourly 36.5989 38.4288 40.3502 42.3677 44.4861 46.7104 47.8782 Supervisor Monthly 6,343.81 6,660.99 6,994.03 7,343.73 7,710.92 8,096.47 8,298.89 Hourly 38.7311 40.6677 42.7011 44.8362 47.0780 49.4319 50.6677 51.9344 53.2328 54.5636 55.9277 Monthly 6,713.39 7,049.07 7,401.52 7,771.61 8,160.19 8,568.20 8,782.40 9,001.96 9,227.02 9,457.69 9,694.13 Transit Services Hourly 38.7311 40.6677 42.7011 44.8362 47.0780 49.4319 50.6677 51.9344 53.2328 54.5636 55.9277 Coordinator Monthly 6,713.39 7,049.07 7,401.52 7,771.61 8,160.19 8,568.20 8,782.40 9,001.96 9,227.02 9,457.69 9,694.13 8598
8667
City Clerk
City Planner 8653
Senior Engineer 8667
8598
8636
8653
8877
Salary Schedule for Mid-Management
Updated January 15, 2025
8636
8593
Administrative Analyst III 8653
Effective on July 1, 2024
8636
8598
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Ridgecrest City Council
Successor Redevelopment Agency
Financing Authority
Housing Authority
STAFF REPORT
SUBJECT: Proposed Approval For The Authorization Of The Extension Of The University Of California – Davis School Of Veterinary Medicine, Spay/ Neuter Grant PRESENTED BY: Mario Ysit, Chief of Police
SUMMARY:
The City of Ridgecrest City Council Approved Resolution No. 23-77 on December 6, 2023.
The resolution authorized the City Manager, or his designee, to approve the Shelter Services Agreement with the Ridgecrest Animal Shelter to maintain and implement the California All Animals Program Grant which is administered through the University of California – Davis School of Veterinary Medicine to increase spay/ neuter services in California Animal Shelters.
The original grant period for the Shelter Services Agreement was September 28, 2023 through December 31, 2024. The original grant funding was in the amount of $562,441.00.
During the grant period, the Ridgecrest Animal Shelter has executed the grant within all provisions and was awarded a grant extension as not all of the funding had been used by the end of the grant period, December 31, 2024.
We are requesting the approval to extend the grant period to October 31, 2025. All other terms and conditions of the agreement shall remain the same. As of January 2, 2025, it is estimated there is approximately $127,000 dollars remaining.
The funding has been approved in the FY 25 budget.
FISCAL IMPACT: As approved in FY25 Budget
ACTION REQUESTED: Approval of grant period extension.
CITY MANAGER’S RECOMMENDATION: Action as requested
Submitted by: Captain Aaron Tucker Action Date: January 15, 2025 This Page Intentionally Left Blank
RESOLUTION NO. 25-XX
A RESOLUTION OF THE RIDGECREST CITY COUNCIL
AUTHORIZING THE EXTENSION OF THE UNIVERSITY OF
CALIFORNIA – DAVIS SCHOOL OF VETERINARY MEDICINE, SPAY
NEUTER GRANT
WHEREAS, the California for All Animals Program which is administered through the University of California – Davis School of Veterinary Medicine awarded the Ridgecrest Animal Shelter grant funding in the amount of $562,441 on October 4, 2023; and, WHEREAS, the Ridgecrest City Council Approved Resolution 23-77 for authorization and execution of the awarded grant for the grant period of September 28, 2023 through December 31, 2024; and,
WHEREAS, the Ridgecrest Animal Shelter has complied with all project agreements through the grant period and has obtained an amendment from the Regents of the University of California to extend the grant period through October 31, 2025; and, WHEREAS, the amendment only allows for the grant extension and all other terms and conditions of the original agreement shall remain the same.
NOW, THEREFORE, BE IT RESOLVED that the City Council of the City of Ridgecrest hereby:
1. Certifies the authorization of the University of California – Davis School of Veterinary Medicine, Spay/ Neuter Grant project has been extended through October 31, 2024; and,
2. Certifies all terms in the original Shelter Services Agreement consummated between UC-Davis and Animal Control Division of the Ridgecrest Police Department remain in place.
BE IT FURTHER RESOLVED, that the City Council of the City of Ridgecrest authorizes the City Manager, or his designee, to approve this grant amendment with the University of California – Davis School of Veterinary Medicine, and to sign and execute any and all documents related to the grant award, including amendments, and is authorized to make any necessary adjustments to the FY25 budget.
APPROVED AND ADOPTED THIS 15
th day of January, 2025, by the following vote.
AYES:
NOES:
ABSENT:
___________________________
Travis W. Endicott, Mayor
ATTEST:
_______________________
Ricca Charlon
City Clerk
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Ridgecrest City Council
Successor Redevelopment Agency
Financing Authority
Housing Authority
STAFF REPORT
SUBJECT: Proposed Approval of Increased Appropriations to The Fiscal Year 2025- 2026 Budget To Purchase Police Equipment
PRESENTED BY: Mario Ysit, Chief of Police
SUMMARY:
The City Council of the City of Ridgecrest has duly adopted its annual budget per resolution and certain increases in annual appropriates and estimated revenues to the budget require City Council Resolution prior to implementation. The City of Ridgecrest Police Department is requesting a City Council Resolution be approved to increase the approved FY25 General Fund Budget in the amount of $115,000.00 from the unallocated Proposition 172 revenue account.
The Proposition 172 account #100.20.2010.4001.202 is a special revenue fund to be expended only on public safety services, as defined in Government Code Section 30052.
The Ridgecrest Police Department has identified the following needs to use the unallocated Proposition 172 Revenue funds for public safety reasons:
Dispatch Radio/ VOIP Gateway Upgrade:
The Ridgecrest Police Department identified a critical safety issue in our Dispatch Communications Center. In 2020, the California Department of Justice notified every police department in the state of California of a policy update that mandated the transmission of sensitive, personally identifiable information (PII) be encrypted. The Ridgecrest Police Department completed the encryption project in FY24. As part of this project, all of our hand-held issued radios were upgraded to the Motorola APX 6000 model and issued to public safety officers. Currently, the radios and VOIP gateways installed in the Dispatch Communications Center are obsolete in communicating with the current Motorola APX 6000 hand-held radios safety functions, such as the emergency distress activation. The radios currently installed in the Dispatch Communications Center are unable to receive the radio emergency button activations made by the hand-held radios deployed in the field. If a public safety officer were to press the emergency distress button, it would notify other hand-held radios, but not identify which officer initiated the activation. As well, it would not notify the Dispatch Communications Center.
The upgraded radios and VOIP gateway will work together to provide enhanced safety for our public safety officers. It was also found the hand-held microphones used by the public safety officers in the field were not equipped with the emergency activation button. Currently, a public safety officer would need to press the emergency distress Ridgecrest City Council
Successor Redevelopment Agency
Financing Authority
Housing Authority
STAFF REPORT
button on the hand-held radio itself in order to operate it, which is unlikely due to the placement of the radios on the officer. With the purchase of new Motorola microphones with the emergency distress button on them, our public safety officers would be able to push the emergency distress button when they are in need. The cost estimate for this upgrade is $21,000.00 dollars. ($15,000.00 – Radio’s, Gateways, Installation, Programming/ $6,000.00 – handheld microphones). We are requesting the amount of $21,000.00 be allocated from FY 25 Prop 172 Account # 100.20.2010.4001.202 and be transferred into FY 25 General Fund Account # 100.20.2003.5302.000.
Firearms Equipment Upgrade:
The Ridgecrest Police Department has identified the need to purchase 32 new patrol rifles (AR-15 platform) and 1 precision .308 caliber rifle. The need to purchase new firearms comes as most of our current firearm inventory is nearing the expected lifespan as many have been in service for 15-20 years. The cost estimate for 32 new patrol rifles, 1 precision rifle, and outfitting equipment (Optics, Slings, Etc.) is $94,000.00 dollars. We are requesting the amount of $94,000.00 be allocated from FY 25 172 Revenue Account # 100.20.2010.4001.202 and be transferred into the FY 25 General Fund Account # 100.20.2001.5202.306.
The requested equipment purchases fall within the provisions of public safety services, as defined in Section 30052 of the Government Code.
FISCAL IMPACT: $115,000.00 from unallocated Proposition 172 revenues.
ACTION REQUESTED: Approval of increased appropriations as requested.
CITY MANAGER’S RECOMMENDATION: Action as requested
Submitted by: Captain Aaron Tucker Action Date: January 15, 2025 RESOLUTION NO. 25-XX
A RESOLUTION OF THE RIDGECREST CITY COUNCIL
AUTHORIZING THE INCREASED APPROPRIATIONS IN THE
ANNUAL BUDGET TO PURCHASE PUBLIC SAFETY
EQUIPMENT
WHEREAS, The City Council of the City of Ridgecrest has duly adopted its annual budget per resolution; and,
WHEREAS, certain increases in annual appropriations and estimated revenues to the budget require City Council Resolution prior to implementation; and, WHEREAS, the Ridgecrest Police Department requests FY25 account number 100.20.2003.5302.000 be increased in the amount of $21,000.00 from FY25 account number 100.20.2010.4001.202 for the unplanned purchase of new public safety radio equipment; and
WHEREAS, the Ridgecrest Police Department requests FY25 account number 100.20.2001.5202.306 be increased in the amount of $94,000.00 from FY25 account number 100.20.2010.4001.202 for the purchase of new public safety firearms and firearms equipment.
NOW, THEREFORE, BE IT RESOLVED that the City Council of the City of Ridgecrest does hereby authorize the Finance Director to make the following adjustments in the FY25 budget: Transfer $21,000.00 from unallocated General Fund Proposition 172 revenue account # 100.20.2010.4001.202 to FY 25 expenditure account number 100.20.2003.5102.000; and Transfer $94,000.00 from unallocated General Fund Proposition 172 revenue account # 100.20.2010.4001.202 to FY 25 expenditure account number 100.20.2001.5202.306.
APPROVED AND ADOPTED THIS 15
th day of January, 2025, by the following
vote.
AYES:
NOES:
ABSENT:
________________________
Travis Endicott, Mayor
ATTEST:
_______________________
Ricca Charlon
City Clerk
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CITY COUNCIL/SUCCESSOR REDEVELOPMENT AGENCY/
FINANCING AUTHORITY/HOUSING AUTHORITY AGENDA ITEM
SUBJECT: Nomination And Appointment Of Mayor Pro Tempore And Vice Mayor PRESENTED BY: Ricca Charlon, City Clerk
SUMMARY:
Upon administration of the oath of office to newly elected Mayor and Council Members, and pursuant to City of Ridgecrest Municipal Code Chapter 2, Article II, §2-25, members are required to make appointments to the positions of Mayor Pro Tempore and Vice Mayor.
Sec. 2-25. - Mayor, vice-mayor, and mayor pro tempore.
(a)The vice-mayor has all the powers and duties of the mayor when the mayor or mayor pro tempore are absent or unable to act.
(b)The council shall meet as soon as new council members take office after a general municipal election to choose one of its members to serve as mayor pro tempore and one of its members to serve as vice-mayor.
Mayor Endicott will accept nominations and conduct a roll call vote of Council Members to select these appointments.
FISCAL IMPACT: None
ACTION REQUESTED: Nominate and vote for appointments to the positions of Mayor Pro Tempore and Vice Mayor
CITY MANAGER / EXECUTIVE DIRECTOR RECOMMENDATION:
Action as requested
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Ridgecrest City Council
Successor Redevelopment Agency
Financing Authority
Housing Authority
STAFF REPORT
SUBJECT: Discussion Regarding Needed Appointments To Council Committees, Boards, And Commissions
PRESENTED BY: Ricca L. Charlon – City Clerk
SUMMARY:
On November 5, 2024 a General Municipal Election was held in the City of Ridgecrest where one Mayor and two Council Members were elected.
Pursuant to Municipal Code Chapter 2, Article VI, § 2-213, Committee members shall be appointed by the mayor with the advice and consent of the council. There are standing council committees, boards, and commissions that require appointments, these are listed below.
Each Council Member is to make a citizen nomination to serve on the following:
• Planning Commission
• Personnel Commission
• Handicap Appeals Board
• Construction Appeals Board
Council Members will hold discussions and decide who among them who would like to serve on the following:
• Finance Committee
• Economic Development Committee
• City Organization and Services Committee
• Infrastructure Committee
• Parks, Recreation and Quality of Life
• Youth Advisory Council
• Ridgecrest Area Convention and Visitors Bureau (RACVB) • Quad State Local Government Authority
• Kern Council of Governments
• Navy Community Council
• IWV Groundwater Authority
• East Kern Air Pollution Control Board
• League of California Cities
• Round Table/BLM
• EAST Kern EDC
• LAFCO
FISCAL IMPACT: None
ACTION REQUESTED: Appoint Members To Committees, Boards, And Commissions CITY MANAGER’S RECOMMENDATION:
Submitted by: Ricca Charlon Action Date: Jan 15, 2025
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Commissions, Board, & Committees Mayor Travis Endicott Skip Gorman L. Scott Hayman Solomon P. Rajaratnam Kyle Blades Planning Commission
(Each Council Member nominates a commissioner) Juan 'Bernie' Mondragon Megan Richter Vanessa Hayman Warren Cox Bill Farris Jr.
Personnel Commission
(Each Council Member nominates a commissioner) Amanda Akam Mike Avery Reg Johnson Roger Ussery Bill Farris Jr.
Construction Appeals Board
(Each Council Member nominates a commissioner) David Percifield Bill Freund Mike Ferguson Bill Farris Jr.
Handicap Access Appeals Board
(Municipal Code requires 2 members be physically handicapped, 2 members experienced in construction, and 1 member be a public member
Pamela Gratton Crisian Loya Chris Hill Bill Farris Jr.
Ridgecrest Area Convention & Visitors Bureau (RACVB) (1 Council Appointment & 1 Alternate) Staff - J. Rickets Rajaratnam Kern Council of Governments (KernCOG)
(1 Council Appointment & 1 Alternate) Gorman Blades
Navy Community Council
(Mayor + 1 Council Appointment) Endicott Rajaratnam
IWV Groundwater Authority Hayman Blades
Finance Committee Hayman Bruen
Youth Advisory Council Hayman Bruen
Civilian & Military Affairs Mayor Chief of Police
East Kern County Air Pollution Control Board Gorman Blades Quad State Local Governments Authority Gorman
League of California Cities Gorman Bruen
Disaster Council (appointments set by Municipal Code) Mayor/Chair City Manager/Director of Emergency Services
Chief of Police/Asst.
Director of Emergency
Services
Round Table/BLM Gorman Hayman
Infrastructure Committee Rajaratnam Blades Planning Commissioner Warren Cox Planning Commissioner
City Organization and Services Gorman Bruen Planning Commissioner Vanessa Hayman
Planning Commissioner
Bill Farris Jr.
Parks, Recreation, Quality of Life (includes Senior Advisory Council and Arts Council) Gorman Bruen Planning Commissioner Vanessa Hayman Planning Commissioner
Economic Development Committee Blades Rajaratnam Planning Commissioner Bill Farris Jr.
Planning Commissioner
Bernie Mondragon
Measure V (Each Council Member nominates a member) Chip Holloway Chris Hill Brandon Temple Gurpreet Badrain Holly Farris Measure P (Each Council Member nominates a member) Bradley Patin Denise Gorman Elidia Dixon Todd St. Laurent Holly Farris EAST Kern EDC Blades Staff - J. Rickets
LAFCO Bruen
Kern EDC Bill Farris Jr.
Other Emergency Service Personnel as
appointed by the Director of Emergency
Services to fulfill critical functions
updated Dec 2 2024
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Ridgecrest City Council
Successor Redevelopment Agency
Financing Authority
Housing Authority
STAFF REPORT
SUBJECT: Discussion Regarding The Board Of The Indian Wells Valley Groundwater Authority (IWVGA)
PRESENTED BY:
L. Scott Hayman, City Council / IWVGA Representative
SUMMARY:
Report and discussion regarding Board meetings of the IWVGA. Including, Board discussion and consideration of issues of importance requiring action by the IWVGA.
FISCAL IMPACT: None
ACTION REQUESTED: Discuss
CITY MANAGER’S RECOMMENDATION: Action as requested
Submitted by: Ricca Charlon Action Date: Jan 15, 2025
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Ridgecrest City Council
Successor Redevelopment Agency
Financing Authority
Housing Authority
STAFF REPORT
SUBJECT: Approval Of Resolution To Increase Positions Within The Police Officer Classification From 32 Officers To 33 Officers
PRESENTED BY: Mario Ysit, Chief of Police
SUMMARY:
Over the past decade, the Ridgecrest Police Department has lost on average, 4.5 police officers annually to other agencies, retirement, injury, or termination. In considering the time from testing prospective applicants, the background process, academy, and field training, the time from the initial process start date to solo patrol officer capability is approximately one (1) year. Additionally, only 2 out of every 3 trainees sent to the police academy successfully graduate. It is vital to get police trainees hired and into an academy as soon as possible considering the length of time before they are “solo” capable and able to hit the streets.
Over the past several years, it has been difficult to attract minimally qualified applicants and when identified, we have always had the open positions available to get these applicants hired and trained while still unfortunately maintaining additional open positions.
At this time, we have a unique set of circumstances that highlight the need to increase positions within the police officer classification to allow flexibility in hiring while navigating the 4.5 positions vacated annually:
• 1 trainee is enrolled in the Academy with an expected graduation date of March, 2025. • 2 trainees have been hired and scheduled to start the Academy in early February, 2025. • After considering the above trainees, we only have one (1) “open” police officer position. • 2 qualified police trainee applicants have sufficiently progressed through the background process and are anticipated to pass backgrounds in a couple of weeks but with only one (1) open position left, we risk losing the other highly qualified trainee to another agency. • All trainees listed above have strong ties to our community. • Ben Clark Training Center has opened two (2) previously “full” spots to accommodate these additional two trainees.
• If forced to wait, the next Academy starts in May, 2025. • Other California police academies do not have on-site lodging which significantly increases our training costs.
• 2 current police officers have just started the Field Training Program and are months away from solo capability.
• Four (4) sworn police officers are currently either out for injury or on restricted duty for extended period(s) of time with fifth/sixth officers expected out for approximately 3 months each during the Summer of 2025.
• Two (2) current police officers have applied and/or in background with other law enforcement agencies.
Ridgecrest City Council
Successor Redevelopment Agency
Financing Authority
Housing Authority
STAFF REPORT
As highlighted above, the Police Department while “full” in terms of police officer positions filled are currently operating with only 22 officers out of slotted 32. Our PD team, while still providing quality service to the community, is tired and strong, continual efforts at hiring is needed. Relief in the form off additional employees is coming, but every day sooner we get an officer on the street is extremely beneficial to our team. Increasing our police officer staffing by even one position will help give us the flexibility in sending a promising recruit to the police academy and then back into our community.
FISCAL IMPACT:
Approximate cost to the City for the remainder of FY25 in the amount of $28, 381.50 in salary/benefits and $18,000.00 in training/travel expenses (basic Police Academy).
Approximate annual cost of a Step 1 police officer to include salary/benefits is $83,525.51.
While this fiscal impact statement assumes that all approved positions are filled for the full fiscal year, previous unfilled positions within the same fiscal year provide a salary savings which will more than cover the cost of this position for the remainder of FY25. Additionally, based upon data from the last ten years, it is conservative to forecast losing 2-4 employees from the police officer classification annually further providing salary savings.
ACTION REQUESTED: Approval of Resolution.
CITY MANAGER’S RECOMMENDATION: Action as requested:
Submitted by: Captain Justin Dampier Action Date: January 15, 2025 (Revised Jan2019)
RESOLUTION NO. 25-XX
A RESOLUTION OF THE RIDGECREST CITY COUNCIL AUTHORIZING THE INCREASE OF POLICE OFFICER POSITIONS FROM 32 OFFICERS TO 33
OFFICERS
WHEREAS, the Ridgecrest Police Department has been understaffed in the police officer classification due to unfilled positions, and;
WHEREAS, on average, the Ridgecrest Police Department annually loses 4.5 police officers to other agencies, retirements, etc., and;
WHEREAS, there are qualified police officer applicants in the hiring process, and; WHEREAS, these qualified applicants have strong ties to this community, and; WHEREAS, an extra police officer position will provide flexibility in department hiring and training of new hires when open positions are forecast, and; WHEREAS, this additional position will help provide quicker relief to police staff with a high workload.
NOW THEREFORE, BE IT RESOLVED that the City Council of the City of Ridgecrest authorizes the City Manager, or his designee, to increase the police officer classification from 32 officers to 33 officers.
BE IT FURTHER RESOLVED, the City Council authorizes the Finance Director to increase the FY25 budget in the amount of $46,381.50, and;
BE IT FURTHER RESOLVED, that this resolution shall remain in full force and effect until a resolution of the City Council is adopted amending or rescinding this resolution.
APPROVED AND ADOPTED THIS 15th day of January, 2025, by the following vote.
AYES:
NOES:
ABSTAIN:
ABSENT:
____________________
Travis Endicott, Mayor
ATTEST:
_______________________
Ricca Charlon, City Clerk
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Ridgecrest City Council
Successor Redevelopment Agency
Financing Authority
Housing Authority
STAFF REPORT
SUBJECT: Authorization To Enter Into A Five (5) Year Agreement With Lens Lock Inc. For FY26 Through FY30 For Body Worn Cameras (BWC), In-Car Video Cameras, Connectivity, Software, Installation, And CAD Integration. Authorization For Approval Of Appropriations In The FY25 Annual Budget To Purchase Connectivity Services
PRESENTED BY: Mario Ysit, Chief of Police
SUMMARY:
Staff is requesting the City Council approve as presented:
Authorization to enter into a five (5) year agreement with Lens Lock Inc. for FY26 through FY30 for 39 Body Worn Cameras (BWC), 22 In-Car Video Camera (s, Software, Installation, and CAD Integration.
• First 9 months free (02/01/25 – 10/31/25) = $0.00
• Year 1 (FY26) – 11/01/2025 – 10/31/2026 = $ 129,300.00 • Year 2 (FY27) – 11/01/2026 – 10/31/2027 = $ 83,600.00 • Year 3 (FY28) – 11/01/2027 – 10/31/2028 = $ 83,600.00 • Year 4 (FY29) – 11/01/2028 – 10/31/2029 = $ 83,600.00 • Year 5 (FY30) – 11/01/2029 – 10/31/2030 = $ 83,600.00 Authorization to purchase service through Verizon Wireless for connectivity (Cellular 5G) services • FY 25 Budget 02/01/25 – 06/31/25) - $7,260.00
• Year 1 (FY26) – 07/01/2025 – 10/31/2026 = $ 18,150.00 • Year 2 (FY27) – 11/01/2026 – 10/31/2027 = $ 14,520.00 • Year 3 (FY28) – 11/01/2027 – 10/31/2028 = $ 14,520.00 • Year 4 (FY29) – 11/01/2028 – 10/31/2029 = $ 14,520.00 • Year 5 (FY30) – 11/01/2029 – 10/31/2030 = $ 14,520.00 DISCUSSION:
The Ridgecrest Police Department Mission Statement is: “Our purpose is to form a lasting and mutually rewarding partnership with our community based on respect and sincerity. Our mission is to provide loyal, fair and ethical police services that actively prevent crime, reduce fear and enhance the safety of citizens through Community Policing.”
Body Worn Cameras (BWCs), are a technology-based tool for law enforcement agencies. Body Worn Cameras provide an unbiased account of interactions between police and the public, fostering trust.
This transparency can significantly reduce complaints against officers and increase accountability in law enforcement practices. Body Worn Cameras provide evidence collection for investigations and improve training opportunities.
In-Car Video (ICVs) are a technology-based tool for law enforcement agencies. In-Car Video is attributed to the ability in promoting police accountably and enhance perceptions of law enforcement transparency, while also providing support to uniformed filed personnel.
Ridgecrest City Council
Successor Redevelopment Agency
Financing Authority
Housing Authority
STAFF REPORT
In-Car Video provide an unbiased account of interactions between police and the public and the manner in which police vehicles are operated in public. This transparency can significantly reduce complaints against officer, increases accountability in law enforcement practices. In-Car Video provides evidence collection for investigations and improve training opportunities.
The Ridgecrest Police Department sought out vendors for products which integrate together, causing seamless transitions and fiscal responsibility. Multiple vendors can convolute integration and performance. The two vendors we sought were Axon and LensLock. While both vendors provide state of the art products and support, we were overwhelmingly pleased with the feedback we got from other agencies which use both product lines. Ultimately, the price point and the customer service recommendations led us to selecting LensLock if approved by the City Council of the City of Ridgecrest. It is our belief LensLock is the most rewarding vendor while maintaining fiscal responsibility.
The Ridgecrest Police Department has put on two (2) Town Hall Meetings to discuss the objectives of implementing the Body Worn Cameras and In-Car Video program. During these meetings, positive feedback was provided. A poll on our Ridgecrest Police Department Facebook page was taken. From those who participated, it was an overwhelming “Yes” vote, accumulating to over 97 percent voting “Yes.”
LensLock would provide the following products and services:
- BWCs – Body Worn Cameras
- ICV - In-Car Video
- Bluetooth auto activation – Code 2/3, Door openings, Speed, Collision, Rifle Rack, Running, Falling, Drawing Firearm.
- Cradlepoint Wireless Router – (One-time fee)
- LensLock Pro-Grade Installation – (One-time fee)
- 60-month Hardware Guarantee
- BWC refresh Every 30 Months
- Standard LensLock CAD Integration
- LensLock FBI-CJIS Compliant Redaction Services
- Premier LensLock Customer Support
- LensLock Evidence Management Software Access
- District Attorney & Defense Based Software Licenses
LensLock is also committed to their understand of agencies duty to remain fiscally responsible and budget cycles. LensLock will provide the first 9 months from signing contract for free. This allows for budget planning and a few months of extra services if we do not choose to renew contract at the conclusion of 5 years.
Ridgecrest City Council
Successor Redevelopment Agency
Financing Authority
Housing Authority
STAFF REPORT
The one-time fees associated with the implementation of this program are the Cradle Point Wireless routers and the installation. Cradlepoint wireless routers allow for a cellular SIM card to be installed and provide a wireless WIFI around the vehicle, thus allowing for instant uploads of all videos to the encrypted cloud database, which is solely accessible by the Ridgecrest Police Department and authorized users. This also allows for the ability for Dispatch and Administration to view live-stream footage of the Body Worn Cameras and In-Car Video of uniformed officers.
The subscription-based fees for the implementation are billed in yearly installments over the course of five (5) years. One considerable factor with using LensLock is the FBI-CJIS Compliant redaction services. This is a significant cost with other vendors as they bill hourly or the agency has to do it themselves. The financial and time burden to provide in-house redaction is estimated to be in the 10’s to 100’s of thousands of dollars.
An additional yearly subscription cost not included from LensLock is the connectivity, in the form of a cellular SIM card. Currently, the Ridgecrest Police Department has Mobile Data Terminals (MDT’s) which allow officer to view our in-house CAD System RIMS in their vehicles. Allowing access to information, rather than having to wait for radio transmissions. If allowed, we will use Verizon Frontline, a cellular network for first responders to bring connectivity to the Cradle Points. Having AT&T in our computers and Verizon in the Cradlepoint will ensure connection in more locations. The estimated cost per month per SIM Card is $55.00 dollars. There are approximately 22 marked patrol units which will be outfitted with In-Car Video and Cradle Points, which is estimated to be a $14,520.00 yearly expense. The initial 6 months of the project in FY25 is estimated to be $7260.00.
We would like to use unallocated Proposition 172 revenue to pay for this. Proposition 172 account # 100.20.2010.4001.202 is a special revenue fund to be expending only on public safety services, as defined in Government Code Section 30052.
The total project cost for implementation of this program would be $547,190.00.
It will be necessary to add more Body Worn Cameras and In-Car Video as staffing levels rise and more marked patrol units are added to the fleet. We would ask upon approval of this project to have a contingency fund allowing for the possibility of 5 additional Body Worn Cameras and 5 In-Car Video systems as needed with staffing levels and fleet size. The total cost for the contingency equipment subscription is $18,790 per fiscal year (LensLock equipment and connectivity services). The total one-time purchase and installation fees cost $9,625.00. In planning, our request for $28,600.00 would be placed in the contingency fund per each fiscal year in order to outfit officers and fleet vehicles as needed.
The maximum project cost for implementation and maintaining this program would be $650,765.00.
This is a projection if all contingency was used from the implementation of contract with LensLock until the contract expires.
Ridgecrest City Council
Successor Redevelopment Agency
Financing Authority
Housing Authority
STAFF REPORT
RECOMMENDATION:
• Authorization to enter into a five (5) year agreement with LensLock Inc. (Not to exceed $172,420.00 for FY26 budget and not to exceed $ 126,640.00 for the FY 27, FY 28 FY 29 and FY 30 budgets for Body Worn Cameras, In-Car Video, Equipment, Software, and Installation, connectivity. • Authorization for the City Manager to authorize the Finance Director to increase appropriations to the FY25 budget for purchase of connectivity for the period of 02/01/2025 through 06/31/2025 not to exceed $7,260.00.
FISCAL IMPACT: The fiscal impact to the FY25 Budget will be $7,260.00. The fiscal impact to the FY26 Budget will be 172,420.00. Additionally, the fiscal impact to the FY27, FY28, FY29, and FY30 budgets will be $126,640.00, per each FY.
ACTION REQUESTED: Approve as requested.
CITY MANAGER’S RECOMMENDATION:
Action as requested
Submitted by: Mario Ysit, Chief of Police Action Date: January 15, 2025 (Revised Jan2019)
Resolution 25-xx
A RESOLUTION OF THE RIDGECREST CITY COUNCIL
AUTHORIZING TO ENTER INTO A FIVE (5) YEAR AGREEMENT
WITH LENSLOCK INC. FOR FY26 THROUGH FY30 FOR BODY WORN
CAMERAS (BWC), IN-CAR VIDEO (ICV), CONNECTIVITY,
SOFTWARE, INSTALLATION, CAD INTEGRATION, AND
CONTINGENCY FOR INCREASED STAFFING LEVELS AND FLEET
AQUIRMENT, AND APPROVAL OF APPROPRIATIONS IN THE
ANNUAL BUDGET TO PURCHASE CONNECTIVITY SERVICES
WHEREAS, The City Council of the City of Ridgecrest will duly adopt their FY26 budget prior to the end of the FY25 budget year per resolution; and, WHEREAS, certain budgeted items require contracts and prior authorization when made prior to the resolution of the adopted budget of the next fiscal year and estimated revenues to the next budget(s) require City Council Resolution prior to implementation; and, WHEREAS, the Ridgecrest Police Department requests to enter into a five (5) year contract with LensLock Inc. for the FY26 through FY30 fiscal years for: Body Worn Cameras (BWC), In-Car Video Camera (ICV), Software, Connectivity, Installation, and CAD Integration; and,
WHEREAS, the Ridgecrest Police Department expects the need of a contingency fund in this agreement for the addition of 5 uniformed patrol officers and 5 marked police patrol units, and is requesting a contingency fund in the amount not to exceed $28,200.00 dollars per fiscal years FY26, FY27, FY28, FY29, and FY30; and,
WHEREAS, the Ridgecrest Police Department requests to enter into the five (5) year agreement with LensLock Inc. and purchase connectivity services not to exceed $172,420.00 dollars for the FY26 budget, and not to exceed $126,640.00 for the FY 27, FY28, FY29, and FY30 budgets; and,
WHEREAS, the Ridgecrest Police Department request authorization for the City Manager to authorize the Finance Director to increase appropriations to the FY25 budget for purchase of connectivity for the period of 02/01/2025 through 06/31/2025 not to exceed $7,260.00; and,
WHEREAS, the Ridgecrest Police Department requests the FY25 account number 100.20.2001.5106.300 be increased in the amount of $7,260.00 from FY25 account number 100.20.2010.4001.202 for the purchase of connectivity services; and, WHEREAS, The Ridgecrest Police Department requests the City Manager, or his designee to approve the use of contingency funds in FY26 through FY30 to purchase equipment based on increased staffing and additional fleet vehicles.
NOW THEREFORE, BE IT RESOLVED that the City Council of the City of Ridgecrest does hereby authorize the City Manager, or his designee, to authorize and sign the five (5) year agreement with LensLock, not to exceed $ 172,420.00 for FY26 budget and not to exceed $ 126,640.00 for the FY 27, FY 28 FY 29 and FY 30 budgets for Body Worn Cameras, In-Car Video, Equipment, Software, and Installation, connectivity. Additionally, the City Council of the Resolution 25-xx Page 2 of 2
City of Ridgecrest does hereby authorize the Finance Director to adjust the FY25 budget of unallocated General Fund Proposition 172 revenue account # 100.20.2010.4001.2020 to FY25 expenditure account # 100.20.2001.5106.300.
APPROVED AND ADOPTED THIS 15
th day of January, 2025, by the following vote.
AYES:
NOES:
ABSENT:
___________________________
Travis Endicott, Mayor
ATTEST:
_______________________
Ricca Charlon
City Clerk
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Ridgecrest City Council
Successor Redevelopment Agency
Financing Authority
Housing Authority
STAFF REPORT
SUBJECT: Approving The Form And Authorizing The Execution Of Certain Lease Financing Documents In Connection With The Offering And Sale Of Certificates Of Participation Relating Thereto Finance The Cost Of Construction And Equipping A New Aquatics Facility And Authorizing And Directing Certain Actions With Respect Thereto PRESENTED BY: Kelly Brewton, Finance Director
SUMMARY:
To facilitate the timely construction and equipping of the new Sgt. Pinney Aquatics Center, we propose entering into a lease agreement with the following conditions:
1. the total lease amount will not exceed $16,000,000, and
2. the true interest cost of the agreement will not exceed 3.164%, and
3. the term of the lease will not extend beyond June 1, 2034.
Following the receipt of bids, staff will determine the appropriate down payment amount to be allocated from the reserved Measure P funds and General Fund reserves.
FISCAL IMPACT:
Not exceed $16,000,000, the true interest cost of the agreement will not exceed 3.164% ACTION REQUESTED:
Approval of the Resolution
CITY MANAGER’S RECOMMENDATION:
Approval as requested
Submitted by: Kelly Brewton Action Date: January 15, 2025 (Revised Jan2019)
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CITY OF RIDGECREST
RESOLUTION NO. 25-xx
RESOLUTION APPROVING THE FORM AND AUTHORIZING THE EXECUTION
OF CERTAIN LEASE FINANCING DOCUMENTS IN CONNECTION WITH THE
OFFERING AND SALE OF CERTIFICATES OF PARTICIPATION RELATING
THERETO TO FINANCE THE COST OF CONSTRUCTING AND EQUIPPING A
NEW AQUATICS FACILITY AND AUTHORIZING AND DIRECTING CERTAIN
ACTIONS WITH RESPECT THERETO
RESOLVED, by the City Council (the “Council”) of the City of Ridgecrest (the “City”):
WHEREAS, the City, with the assistance of the Public Property Financing Corporation of California (the “Corporation”), has determined at this time, due to prevailing interest rates in the municipal bond market and for other reasons, to finance the cost of constructing and equipping a new aquatics facility (the “Project”), and to implement a lease financing for such purposes; WHEREAS, it is in the public interest and for the public benefit that the City authorize and direct execution of the Lease Agreement (hereinafter defined) and certain other financing documents in connection therewith;
WHEREAS, a preliminary official statement containing information material to the offering and sale of the Certificates described below (the “Preliminary Official Statement”) has been prepared on behalf of the City;
WHEREAS, the documents below specified shall be filed with the City and the members of the Council, with the aid of its staff, shall review said documents; and WHEREAS, pursuant to section 5852.1 of the Government Code, which became effective on January 1, 2018 by the enactment of Senate Bill 450, certain information relating to the Certificates is set forth in Exhibit A attached to this Resolution, and such information is hereby disclosed and made public;
NOW, THEREFORE, it is hereby DECLARED and ORDERED, as follows:
Section 1. Certificates of Participation (2025 Aquatics Facility Financing Project) (the “Certificates”) are hereby authorized to be executed and delivered pursuant to the provisions of the Trust Agreement, as hereinafter defined, to finance the Project and to pay the costs of the financing.
Section 2. The below-enumerated documents, in the forms on file with the City Clerk, be and are hereby approved, and the Mayor, the Vice Mayor, the City Manager, the Finance Director, or the designees thereof (the “Designated Officer”), are hereby authorized and directed to execute said documents, with such changes, insertions and omissions as may be approved by such officials:
Resolution 25-xx Page 2 of 4
(a) a site and facility lease, by and between the City, as lessor, and the Corporation, as lessee, pursuant to which the City will lease certain existing City property (collectively, the “Property”) to the Corporation, for the purpose of leasing the Property back to the City pursuant to the Lease Agreement;
(b) a lease agreement relating to the Property, between the Corporation, as lessor, and the City, as lessee (the “Lease Agreement”), so long as the principal amount of the Lease Agreement is not greater than $16,000,000, the true interest cost of the Lease Agreement does not exceed
4.00% and the term of the Lease Agreement does not extend beyond June 1, 2034; (c) a trust agreement, by and among the Corporation, the City and U.S. Bank Trust Company, National Association, as trustee, relating to the execution and delivery of the Certificates (the “Trust Agreement”);
(d) a debt service reserve agreement, by and between Build America Mutual Assurance Company (the “Municipal Bond Insurer“) and the City, relating to the reserve fund municipal bond insurance policy to be issued by the Municipal Bond Insurer for the Certificates ;and (e) a continuing disclosure certificate.
Section 3. A certificate purchase agreement, by and between Hilltop Securities Inc., as underwriter (the “Underwriter”), and the City, relating to the purchase by the Underwriter of the Certificates, in the form on file with the City Clerk, be and is hereby approved, and any Designated Officer is hereby authorized and directed to execute said document, with such changes, insertions and omissions as may be approved by such official, so long as the Underwriter’s discount does not exceed 0.75% of the principal amount of the Certificates.
Section 4. The Council hereby approves the Preliminary Official Statement, in the form on file with the City Clerk, together with any changes therein or additions thereto deemed advisable by any Designated Officer. The Council authorizes and directs any Designated Officer to deem the Preliminary Official Statement “final” pursuant to Rule 15c2-12 under the Securities Exchange Act of 1934 (the “Rule”).
Section 5. Any Designated Officer is authorized and directed to cause the Preliminary Official Statement to be brought into the form of a final official statement (the “Final Official Statement”) and to execute said Final Official Statement, dated as of the date of the sale of the Certificates, and a statement that the facts contained in the Final Official Statement, and any supplement or amendment thereto (which shall be deemed an original part thereof for the purpose of such statement) were, at the time of sale of the Certificates, true and correct in all material respects and that the Final Official Statement did not, on the date of sale of the Certificates, and does not, as of the date of delivery of the Certificates, contain any untrue statement of a material fact with respect to the City or omit to state material facts with respect to the City required to be stated where necessary to make any statement made therein not misleading in the light of the circumstances under which it was made. The Designated Officers Resolution 25-xx Page 3 of 4
shall take such further actions prior to the signing of the Final Official Statement as are deemed necessary or appropriate to verify the accuracy thereof. The execution of the final Official Statement, which shall include such changes and additions thereto deemed advisable by any Designated Officer and such information permitted to be excluded from the Preliminary Official Statement pursuant to the Rule, shall be conclusive evidence of the approval of the final Official Statement by the City.
Section 6. The Final Official Statement, when prepared, is approved for distribution in connection with the offering and sale of the Certificates.
Section 7. The Mayor, the Vice Mayor, the City Manager, the Finance Director, the City Clerk and any and all other officers of the City are hereby authorized and directed, for and in the name and on behalf of the City, to do any and all things and take any and all actions, including execution and delivery of any and all assignments, certificates, requisitions, agreements, notices, consents, instruments of conveyance, warrants and other documents, which they, or any of them, may deem necessary or advisable in order to consummate the delivery of the Certificates and the consummation of the transactions as described herein.
Section 8. This Resolution shall take effect from and after the date of its passage and adoption.
Section 9. The City Clerk shall certify to the adoption of this Resolution and provide for appropriate distribution thereof.
* * * * * * * * * * * *
I, the undersigned hereby certify that the foregoing Resolution was duly and regularly adopted and passed by the City Council of the City of Ridgecrest in a regular meeting assembled on the 15th day of January, 2025, by the following vote to wit:
YAES:
NOES:
ABSENT:
ABSTENTIONS:
Ricca Charlon, City Clerk
Resolution 25-xx Page 4 of 4 Exhibit A
EXHIBIT A
GOVERNMENT CODE SECTION 5852.1 DISCLOSURE
The following information consists of estimates as of 1/6/25 (based on a par amount of $13,185,000 and an original issue premium of $1,183,824.80), that have been provided by the City’s municipal advisor and underwriter which has been represented to have been provided in good faith:
(A) True Interest Cost of the Certificates 3.164%
(B) Finance Charges:
Costs of issuance: $242,957.71
Municipal Bond Insurance Policy 33,044.69
Reserve Fund Municipal Bond Insurance Policy 323,962.50 Underwriter’s discount: 59,869.90
Total $368,824.80
(C) Net Proceeds to be Received: $14,000,000.00
(net of finance charges)
(D) Total Payment Amount through Maturity: $16,522,343.75 The foregoing estimates constitute good faith estimates only.
The principal amount of the Certificates, the true interest cost of the Certificates, the finance charges thereof, the amount of proceeds received therefrom and total payment amount with respect thereto may differ from such good faith estimates due to (a) the actual date of the sale of the Certificates being different than the date assumed for purposes of such estimates, (b) the actual principal amount of Certificates sold being different from the estimated amount used for purposes of such estimates, (c) the actual amortization of the Certificates being different than the amortization assumed for purposes of such estimates, (d) the actual market interest rates at the time of sale of the Certificates being different than those estimated for purposes of such estimates, (e) other market conditions, or (f) alterations in the City’s financing plan, or a combination of such factors. The actual date of sale of the Certificates and the actual principal amount of Certificates sold will be determined by the City based on the timing of the need for proceeds of the Certificates and other factors. The actual interest rates with respect to the Certificates will depend on market interest rates at the time of sale thereof. The actual amortization of the Certificates will also depend, in part, on market interest rates at the time of sale thereof.
Market interest rates are affected by economic and other factors beyond the control of the City.
Stradling Yocca Carlson & Rauth LLP 03/01/24
05/21/24
08/04/24
08/26/24
10/04/24
11/18/24
12/20/24
CONTINUING DISCLOSURE CERTIFICATE
This CONTINUING DISCLOSURE CERTIFICATE (the “Disclosure Certificate”) is executed and delivered by the CITY OF RIDGECREST (the “City”) in connection with the execution and delivery of $_____ Certificates of Participation (2025 Aquatics Facility Financing Project) (the “Certificates”). The Certificates are being executed and delivered pursuant to a Trust Agreement, dated as of February 1, 2025, by and among U.S. Bank Trust Company, National Association, as trustee (the “Trustee”), the City and the Public Property Financing Corporation of California (the “Trust Agreement”). Pursuant to Section 11.08 of the Trust Agreement, the City covenants and agree as follows:
Section 1. Definitions. In addition to the definitions set forth above and in the Trust Agreement which apply to any capitalized term used in this Disclosure Certificate unless otherwise defined in this Section 1, the following capitalized terms shall have the following meanings:
“Annual Report” means any Annual Report provided by the City pursuant to, and as described in, Sections 3 and 4 of this Disclosure Certificate. “Annual Report Date” means the date that is nine months after the end of the City’s fiscal year (currently March 31 based on the City’s fiscal year end of June 30). “Dissemination Agent” shall mean, initially, RSG, Inc., or any successor Dissemination Agent designed in writing by the City and which has been filed with the then current Dissemination Agent a written acceptance of such designation. “Fiscal Year” means any twelve–month period beginning on July 1 in any year and extending to the next succeeding June 30, both dates inclusive, or any other twelve–month period selected and designated by the City as its official fiscal year period under a Certificate of the City filed with the Trustee.
“MSRB” means the Municipal Securities Rulemaking Board, which has been designated by the Securities and Exchange Commission as the sole repository of disclosure information for purposes of the Rule, or any other repository of disclosure information that may be designated by the Securities and Exchange Commission as such for purposes of the Rule in the future. “Official Statement” means the final official statement executed by the City in connection with the issuance of the Certificates.
“Participating Underwriter” means Hilltop Securities Inc., the original underwriter of the Certificates.
“Rule” means Rule 15c2–12(b)(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as it may be amended from time to time. -2-
“Significant Events” means any of the events listed in Section 5(a) of this Disclosure Certificate.
Section 2. Purpose of the Disclosure Certificate. This Disclosure Certificate is being executed and delivered by the City for the benefit of the holders and beneficial owners of the Certificates and in order to assist the Participating Underwriter in complying with S.E.C. Rule 15c2– 12(b)(5).
Section 3. Provision of Annual Reports.
(a) The City shall, or shall cause the Dissemination Agent to, not later than the Annual Report Date, commencing March 31, 2025, with the report for fiscal year 2023-24 provide to the MSRB, in an electronic format as prescribed by the MSRB, an Annual Report that is consistent with the requirements of Section 4 of this Disclosure Certificate. Not later than 15 Business Days prior to the Annual Report Date, the City shall provide the Annual Report to the Dissemination Agent (if other than the City). If by 15 Business Days prior to the Annual Report Date the Dissemination Agent (if other than the City) has not received a copy of the Annual Report, the Dissemination Agent shall contact the City to determine if the City is in compliance with the previous sentence. The Annual Report may be submitted as a single document or as separate documents comprising a package and may include by reference other information as provided in Section 4 of this Disclosure Certificate; provided that the audited financial statements of the City may be submitted separately from the balance of the Annual Report, and later than the Annual Report Date, if not available by that date. If the City’s fiscal year changes, it shall give notice of such change in the same manner as for a Significant Event under Section 5(b). The City shall provide a written certification with each Annual Report furnished to the Dissemination Agent to the effect that such Annual Report constitutes the Annual Report required to be furnished by the City hereunder.
(b) If the City does not provide (or cause the Dissemination Agent to provide) an Annual Report by the Annual Report Date, the City in a timely manner shall provide (or cause the Dissemination Agent to provide) to the MSRB, in an electronic format as prescribed by the MSRB, a notice in substantially the form attached as Exhibit A. (c) With respect to each Annual Report, the Dissemination Agent shall:
(i) determine each year prior to the Annual Report Date the then–applicable rules and electronic format prescribed by the MSRB for the filing of annual continuing disclosure reports; and
(ii) if the Dissemination Agent is other than the City, file a report with the City certifying that the Annual Report has been provided pursuant to this Disclosure Certificate, and stating the date it was provided.
Section 4. Content of Annual Reports. The City’s Annual Report shall contain or incorporate by reference the following:
(a) The City’s audited financial statements prepared in accordance with generally accepted accounting principles as promulgated to apply to governmental entities from time to time by the Governmental Accounting Standards Board. If the City’s audited financial statements are not available by the Annual Report Date, the Annual Report shall contain unaudited financial statements in a format similar to the financial statements contained in the -3-
final Official Statement, and the audited financial statements shall be filed in the same manner as the Annual Report when they become available.
(b) Unless otherwise provided in the audited financial statements filed on or prior to the annual filing deadline for Annual Reports provided for in Section 3 above, financial information and operating data with respect to the City for preceding fiscal year, as follows:
(i) Table 5—General Fund Tax Revenues by Source;
(ii) Table 7—Assessed Valuations;
(iii) Table 11—Largest Local Secured Property Tax Payers; (iv) Table 12—Other Revenue Sources.
(c) In addition to any of the information expressly required to be provided under this Disclosure Certificate, the City shall provide such further material information, if any, as may be necessary to make the specifically required statements, in the light of the circumstances under which they are made, not misleading.
(d) Any or all of the items listed above may be included by specific reference to other documents, including official statements of debt issues of the City or related public entities, which are available to the public on the MSRB’s Internet web site or filed with the Securities and Exchange Commission. The City shall clearly identify each such other document so included by reference.
Section 5. Reporting of Significant Events.
(a) The City shall give, or cause to be given, notice of the occurrence of any of the following Significant Events with respect to the Certificates:
(i) Principal and interest payment delinquencies;
(ii) Non–payment related defaults, if material;
(iii) Unscheduled draws on debt service reserves reflecting financial difficulties; (iv) Unscheduled draws on credit enhancements reflecting financial difficulties; (v) Substitution of credit or liquidity providers, or their failure to perform; (vi) Adverse tax opinions, the issuance by the Internal Revenue Service of proposed or final determinations of taxability, Notices of Proposed Issue (IRS Form 5701–TEB) or other material notices or determinations with respect to the tax status of the security, or other material events affecting the tax status of the security; (vii) Modifications to rights of security holders, if material; (viii) Bond calls, if material, and tender offers;
(ix) Defeasances;
(x) Release, substitution, or sale of property securing repayment of the securities, if material;
(xi) Rating changes;
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(xii) Bankruptcy, insolvency, receivership or similar event of the City or other obligated person;
(xiii) The consummation of a merger, consolidation, or acquisition involving the City or an obligated person, or the sale of all or substantially all of the assets of the City or an obligated person (other than in the ordinary course of business), the entry into a definitive agreement to undertake such an action, or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms, if material; (xiv) Appointment of a successor or additional trustee or the change of name of a trustee, if material;
(xv) The incurrence of a financial obligation of the City or other obligated person, if material, or agreement to covenants, events of default, remedies, priority rights, or other similar terms of a financial obligation of the City or other obligated person, any of which affect security holders, if material; and
(xvi) A default, event of acceleration, termination event, modification of terms, or other similar events under the terms of a financial obligation of the City or other obligated person, any of which reflect financial difficulties. (b) The City shall or shall cause the Dissemination Agent (if not the City) to, file a notice of such occurrence with the MSRB, in an electronic format as prescribed by the MSRB, in a timely manner not in excess of 10 business days after the occurrence of the Significant Event.
Notwithstanding the foregoing, notice of Significant Events described in subsection (a)(viii) above need not be given under this subsection any earlier than the notice (if any) of the underlying event is given to holders of affected Certificates under the Trust Agreement. (c) The City acknowledges that the events described in subparagraphs (a)(ii), (a)(vii), (a)(viii) (if the event is a bond call), (a)(x), (a)(xiii), (a)(xiv) and (a) (xv) of this Section 5 contain the qualifier “if material.” The City shall cause a notice to be filed as set forth in paragraph (b) above with respect to any such event only to the extent that the City determines the event’s occurrence is material for purposes of U.S. federal securities law. The City intends that the words used in paragraphs (xv) and (xvi) and the definition of “financial obligation” to have the meanings ascribed thereto in the Rule.
(d) For purposes of this Disclosure Certificate, any event described in paragraph (a)(xii) above is considered to occur when any of the following occur: the appointment of a receiver, fiscal agent, or similar officer for the City or an obligated person in a proceeding under the United States Bankruptcy Code or in any other proceeding under state or federal law in which a court or governmental authority has assumed jurisdiction over substantially all of the assets or business of the City or an obligated person, or if such jurisdiction has been assumed by leaving the existing governing body and officials or officers in possession but subject to the supervision and orders of a court or governmental authority, or the entry of an order confirming a plan of reorganization, arrangement, or liquidation by a court or governmental authority having supervision or jurisdiction over substantially all of the assets or business of the City.
Section 6. Identifying Information for Filings with the MSRB. All documents provided to the MSRB under this Disclosure Certificate shall be accompanied by identifying information as prescribed by the MSRB.
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Section 7. Termination of Reporting Obligation. The City’s obligations under this Disclosure Certificate shall terminate upon the legal defeasance, prior redemption or payment in full of all of the Certificates. If such termination occurs prior to the final maturity of the Certificates, the City shall give notice of such termination in the same manner as for a Significant Event under Section 5(b).
Section 8. Dissemination Agent. The City may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Certificate, and may discharge any Dissemination Agent, with or without appointing a successor Dissemination Agent. Any Dissemination Agent may resign by providing 30 days’ written notice to the City.
Section 9. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Certificate, the City may amend this Disclosure Certificate, and any provision of this Disclosure Certificate may be waived, provided that the following conditions are satisfied:
(a) if the amendment or waiver relates to the provisions of Sections 3(a), 4, 5(a), 5(b) or 5(c), it may only be made in connection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, nature, or status of an obligated person with respect to the Certificates, or type of business conducted; (b) the undertakings herein, as proposed to be amended or waived, would, in the opinion of nationally recognized bond counsel, have complied with the requirements of the Rule at the time of the primary offering of the Certificates, after considering any amendments or interpretations of the Rule, as well as any change in circumstances; and (c) the proposed amendment or waiver either (i) is approved by holders of the Certificates in the manner provided in the Trust Agreement for amendments to the Trust Agreement with the consent of holders, or (ii) does not, in the opinion of nationally recognized bond counsel, materially impair the interests of the holders or beneficial owners of the Certificates.
If the annual financial information or operating data to be provided in the Annual Report is amended pursuant to the provisions hereof, the first annual financial information filed pursuant hereto containing the amended operating data or financial information shall explain, in narrative form, the reasons for the amendment and the impact of the change in the type of operating data or financial information being provided.
If an amendment is made to the undertaking specifying the accounting principles to be followed in preparing financial statements, the annual financial information for the year in which the change is made shall present a comparison between the financial statements or information prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles. The comparison shall include a qualitative discussion of the differences in the accounting principles and the impact of the change in the accounting principles on the presentation of the financial information, in order to provide information to investors to enable them to evaluate the ability of the City to meet its obligations. To the extent reasonably feasible, the comparison shall be quantitative.
The Dissemination Agent shall not be obligated to enter into any amendment increasing or affecting its duties or obligations hereunder.
A notice of any amendment made pursuant to this Section 9 shall be filed in the same manner as for a Significant Event under Section 5(b).
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Section 10. Additional Information. Nothing in this Disclosure Certificate shall be deemed to prevent the City from disseminating any other information, using the means of dissemination set forth in this Disclosure Certificate or any other means of communication, or including any other information in any Annual Report or notice of occurrence of a Significant Event, in addition to that which is required by this Disclosure Certificate. If the City chooses to include any information in any Annual Report or notice of occurrence of a Significant Event in addition to that which is specifically required by this Disclosure Certificate, the City shall have no obligation under this Disclosure Certificate to update such information or include it in any future Annual Report or notice of occurrence of a Significant Event.
Section 11. Default. If the City fails to comply with any provision of this Disclosure Certificate, the Participating Underwriter or any holder or beneficial owner of the Certificates may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the City to comply with its obligations under this Disclosure Certificate. A default under this Disclosure Certificate shall not be deemed an Event of Default under the Trust Agreement, and the sole remedy under this Disclosure Certificate in the event of any failure of the City to comply with this Disclosure Certificate shall be an action to compel performance.
Section 12. Duties, Immunities and Liabilities of Dissemination Agent. (a) Article VIII of the Trust Agreement is hereby made applicable to this Disclosure Certificate as if this Disclosure Certificate were (solely for this purpose) contained in the Trust Agreement. The Dissemination Agent shall be entitled to the protections and limitations from liability afforded to the Trustee thereunder. The Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Certificate, and the City agrees to indemnify and save the Dissemination Agent, its officers, directors, employees and agents, harmless against any loss, expense and liabilities which they may incur arising out of or in the exercise or performance of its powers and duties hereunder, including the costs and expenses (including attorneys’ fees) of defending against any claim of liability, but excluding liabilities due to the Dissemination Agent’s negligence or willful misconduct. The Dissemination Agent shall have no duty or obligation to review any information provided to it by the City hereunder and shall not be deemed to be acting in any fiduciary capacity for the City, the Bond holders or any other party. The obligations of the City under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Certificates.
(b) The Dissemination Agent shall be paid compensation by the City for its services provided hereunder in accordance with its schedule of fees as amended from time to time, and shall be reimbursed for all expenses, legal fees and advances made or incurred by the Dissemination Agent in the performance of its duties hereunder.
Section 13. Beneficiaries. This Disclosure Certificate shall inure solely to the benefit of the City, the Dissemination Agent, the Participating Underwriter and the holders and beneficial owners from time to time of the Certificates and shall create no rights in any other person or entity.
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Section 14. Counterparts. This Disclosure Certificate may be executed in several counterparts, each of which shall be regarded as an original, and all of which shall constitute one and the same instrument.
Date: February 19, 2025
CITY OF RIDGECREST
By
Ronald Strand
City Manager
ACKNOWLEDGED:
RSG, INC., as Dissemination Agent
By
Authorized Officer
Exhibit A
EXHIBIT A
NOTICE TO MSRB OF FAILURE TO FILE ANNUAL REPORT
Name of Obligor: City of Ridgecrest
Name of Issue: $_____ Certificates of Participation (2025 Aquatics Facility Financing Project) Evidencing Direct, Undivided Fractional Interests of the Owners Thereof in Lease Payments to be made by the City of Ridgecrest, as the Rental for Certain Property Pursuant to a Lease Agreement with the Public Property Financing Corporation of California
Date of Issuance: February 19, 2025
NOTICE IS HEREBY GIVEN that the Obligor has not provided an Annual Report with respect to the above-named Issue as required by the Continuing Disclosure Certificate, dated February 19, 2025, furnished by the Obligor in connection with the Issue. The Obligor anticipates that the Annual Report will be filed by _________________.
Date: ________________
RSG, INC., as Dissemination Agent
By
Authorized Officer
Stradling Yocca Carlson & Rauth LLP 03/01/24
05/21/24
08/04/24
08/26/24
10/04/24
11/18/24
12/20/24
$_____
CERTIFICATES OF PARTICIPATION
(2025 Aquatics Facility Financing Project)
Evidencing the Direct, Undivided Fractional Interests
of the Owners Thereof in Lease Payments to be Made by the
CITY OF RIDGECREST
(Kern County, California),
As the Rental for Certain Property Pursuant to a Lease Agreement with the Public Property Financing Corporation of California
CERTIFICATE PURCHASE AGREEMENT
February 5, 2025
City of Ridgecrest
100 West California Avenue
Ridgecrest, CA 93555
Attention: City Manager
Ladies and Gentlemen:
The undersigned, Hilltop Securities Inc., as underwriter (the “Underwriter”), hereby offers to enter into this Certificate Purchase Agreement (this Certificate Purchase Agreement, together with the exhibits hereto, being herein called the “Purchase Agreement”) with the City of Ridgecrest (the “City”), which, upon acceptance, will be binding upon the City and the Underwriter. This offer is made subject to the acceptance by the City, by execution of this Purchase Agreement and its delivery to the Underwriter prior to 11:59 P.M., Pacific Standard time, on the date hereof, and, if not so accepted, will be subject to withdrawal by the Underwriter upon notice delivered to the City at any time prior to such acceptance.
Capitalized terms used in this Purchase Agreement and not otherwise defined herein shall have the meanings given to such terms as set forth in Trust Agreement, dated as of February 1, 2025 (the “Trust Agreement”) by and among Trust Agreement by and among the Public Property Financing Corporation of California (the “Corporation”), the City, and U.S.
Bank Trust Company, National Association, as trustee (the “Trustee”).
The City hereby acknowledges and agrees that (a) the Underwriter has financial and other interests that differ from those of the City, (b) the primary role of the Underwriter is to purchase securities for sale to investors in an arm’s-length commercial transaction between the City and the Underwriter, (c) in connection therewith and with the discussions, undertakings and procedures leading up to the consummation of such transaction, the Underwriter is and has -2-
been acting solely as a principal and is not acting as the agent or fiduciary of the City, (d) the Underwriter is not acting as a municipal advisor, financial advisor or fiduciary to the City and has not assumed any advisory or fiduciary responsibility to the City with respect to the transaction contemplated hereby and the discussions, undertakings and procedures leading thereto (irrespective of whether the Underwriter has provided or is currently providing other services to the City on other matters), (e) the only obligations the Underwriter has to the City with respect to the transaction contemplated hereby are expressly set forth in this Certificate Purchase Agreement, and (f) the City has consulted its own financial, municipal, legal, accounting, tax and/or other advisors, as applicable, to the extent it has deemed appropriate in connection with the issuance of the Certificates and the other matters contemplated by this Certificate Purchase Agreement. The City has a municipal advisor in this transaction that has legal fiduciary duties to the City.
The City hereby acknowledges receipt from the Underwriter of disclosures required by the Municipal Securities Rulemaking Board (“MSRB”) Rule G-17 (as set forth in MSRB Notice 2012-25 (May 7, 2012), relating to disclosures concerning the Underwriter’s role in the transaction, disclosures concerning the Underwriter’s compensation, conflict disclosures, if any, and disclosures concerning complex municipal securities financing, if any.
Section 1. Purchase and Sale. Upon the terms and conditions and upon the basis of the representations, warranties and agreements herein set forth, the City hereby agrees to sell and deliver to the Underwriter all of the $_____ aggregate principal amount of City of Ridgecrest Certificates of Participation (2025 Aquatics Facility Financing Project) (the “Certificates”), evidencing the direct, undivided fractional interests of the owners thereof in lease payments (the “Lease Payments”) to be made by the City pursuant to a Lease Agreement, dated as of February 1, 2025 (the “Lease Agreement”), with the Corporation. The purchase price of the Certificates shall be $___________ (representing an aggregate principal amount of the Certificates of $_____, plus an original issue premium of $___________, less an Underwriter’s discount of $___________).
As an accommodation to the City, the Underwriter will pay, from the purchase price of the Certificates, the sum of $_________ to Build America Mutual Assurance Company (the “Municipal Bond Insurer”) as the premium for the Municipal Bond Insurer’s municipal bond insurance policy (the “Municipal Bond Insurance Policy”) issued for the Certificates and the sum of $__________ to the Municipal Bond Insurer as the premium for the Municipal Bond Insurer’s reserve fund municipal bond insurance policy issued for the Certificates (the “Reserve Fund Policy”).
Section 2. The Certificates. The Certificates will be dated their date of delivery and will be substantially in the form described in, shall be authorized, executed and delivered under the provisions of, and shall be payable as provided in, the Trust Agreement. The Certificates are being executed and delivered to provide funds to (a) finance the cost of constructing and equipping a new aquatics facility, and (b) pay costs incurred in connection with executing and delivering the Certificates including the purchase of the Municipal Bond Insurance Policy and the Reserve Fund Policy.
The City will lease certain property and the site thereof (the “Property”) to the Corporation pursuant to a Site and Facility Lease, dated as of February 1, 2025 (the “Site Lease”). The Corporation will sublease the Property back to the City pursuant to the Lease Agreement. The Corporation will assign its right to receive Lease Payments from the City under the Lease to the Trustee pursuant to an Assignment Agreement, dated as of February 1, 2025 (the “Assignment Agreement”).
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The City will also enter into a Continuing Disclosure Certificate, dated the Closing Date (the “Continuing Disclosure Certificate”). The Trust Agreement, the Site Lease, the Lease Agreement, the Assignment Agreement, the Continuing Disclosure Certificate and this Purchase Agreement are hereinafter referred to as the “Legal Documents.” Section 3. Public Offering and Establishment of Issue Price. (a) The Underwriter agrees to assist the City in establishing the issue price of the Certificates and shall execute and deliver to the City at Closing an “issue price” or similar certificate, together with the supporting pricing wires or equivalent communications, substantially in the form attached hereto as Exhibit B, with such modifications as may be appropriate or necessary, in the reasonable judgment of the Underwriter, the City and Special Counsel, to accurately reflect, as applicable, the sales price or prices or the initial offering price or prices to the public of the Certificates.
(b) Except as otherwise set forth in Schedule I to Exhibit B, the City will treat the first price at which 10% of each maturity of the Certificates (the “10% test”) is sold to the public as the issue price of that maturity (if different interest rates apply within a maturity, each separate CUSIP number within that maturity will be subject to the 10% test). At or promptly after the execution of this Purchase Agreement, the Underwriter shall report to the City the price or prices at which it has sold to the public each maturity of Certificates. If at that time the 10% test has not been satisfied as to any maturity of the Certificates, the Underwriter agrees to promptly report to the City the prices at which it sells the unsold Certificates of that maturity to the public. That reporting obligation shall continue, whether or not the Closing Date has occurred, until the 10% test has been satisfied as to the Certificates of that maturity or until all Certificates of that maturity have been sold to the public.
(c) The Underwriter confirms that it has offered the Certificates to the public on or before the date of this Purchase Agreement at the offering price or prices (the “initial offering price”), or at the corresponding yield or yields, set forth in Schedule I to Exhibit B, except as otherwise set forth therein. Schedule I to Exhibit B also sets forth, as of the date of this Purchase Agreement, the maturities, if any, of the Certificates for which the 10% test has not been satisfied and for which the City and the Underwriter agree that the restrictions set forth in the next sentence shall apply, which will allow the City to treat the initial offering price to the public of each such maturity as of the sale date as the issue price of that maturity (the “hold-theoffering-price rule”). So long as the hold-the-offering-price rule remains applicable to any maturity of the Certificates, the Underwriter will neither offer nor sell unsold Certificates of that maturity to any person at a price that is higher than the initial offering price to the public during the period starting on the sale date and ending on the earlier of the following:
(i) the close of the fifth (5th) business day after the sale date; or (ii) the date on which the Underwriter has sold at least 10% of that maturity of the Certificates to the public at a price that is no higher than the initial offering price to the public.
The Underwriter shall promptly advise the City when it has sold 10% of that maturity of the Certificates to the public at a price that is no higher than the initial offering price to the public, if that occurs prior to the close of the fifth (5th) business day after the sale date. (d) The Underwriter confirms that any selling group agreement and any retail distribution agreement relating to the initial sale of the Certificates to the public, together with the related pricing wires, contains or will contain language obligating each dealer who is a -4-
member of the selling group and each broker-dealer that is a party to such retail distribution agreement, as applicable, to (A) report the prices at which it sells to the public the unsold Certificates of each maturity allotted to it until it is notified by the Underwriter that either the 10% test has been satisfied as to the Certificates of that maturity or all Certificates of that maturity have been sold to the public and (B) comply with the hold-the-offering-price rule, if applicable, in each case if and for so long as directed by the Underwriter. The City acknowledges that, in making the representation set forth in this subsection, the Underwriter will rely on (i) in the event a selling group has been created in connection with the initial sale of the Certificates to the public, the agreement of each dealer who is a member of the selling group to comply with the hold-the-offering-price rule, if applicable, as set forth in a selling group agreement and the related pricing wires, and (ii) in the event that a retail distribution agreement was employed in connection with the initial sale of the Certificates to the public, the agreement of each broker-dealer that is a party to such agreement to comply with the hold-the-offeringprice rule, if applicable, as set forth in the retail distribution agreement and the related pricing wires. The City further acknowledges that the Underwriter shall not be liable for the failure of any dealer who is a member of a selling group, or of any broker-dealer that is a party to a retail distribution agreement, to comply with its corresponding agreement regarding the hold-theoffering-price rule as applicable to the Certificates. (e) The Underwriter acknowledges that sales of any Certificates to any person that is a related party to the Underwriter shall not constitute sales to the public for purposes of this section. Further, for purposes of this section:
(i) “public” means any person other than an underwriter or a related party, (ii) “underwriter” means (A) any person that agrees pursuant to a written contract with the City (or with the lead underwriter to form an underwriting syndicate) to participate in the initial sale of the Certificates to the public and (B) any person that agrees pursuant to a written contract directly or indirectly with a person described in clause (A) to participate in the initial sale of the Certificates to the public (including a member of a selling group or a party to a retail distribution agreement participating in the initial sale of the Certificates to the public),
(iii) a purchaser of any of the Certificates is a “related party” to an underwriter if the underwriter and the purchaser are subject, directly or indirectly, to (i) at least 50% common ownership of the voting power or the total value of their stock, if both entities are corporations (including direct ownership by one corporation of another), (ii) more than 50% common ownership of their capital interests or profits interests, if both entities are partnerships (including direct ownership by one partnership of another), or (iii) more than 50% common ownership of the value of the outstanding stock of the corporation or the capital interests or profit interests of the partnership, as applicable, if one entity is a corporation and the other entity is a partnership (including direct ownership of the applicable stock or interests by one entity of the other), and
(iv) “sale date” means the date of execution of this Purchase Agreement by all parties.
Section 4. The Official Statement.
(a) By its acceptance of this proposal, the City ratifies, confirms and approves of the use and distribution by the Underwriter prior to the date hereof of the preliminary official statement, dated January 21, 2025, relating to the Certificates (including the cover page, the -5-
inside cover page, all appendices and all information incorporated therein, the “Preliminary Official Statement”). The City hereby certifies that such Preliminary Official Statement is deemed final as of its date, for purposes of Rule 15c2-12 promulgated under the Securities Exchange Act of 1934 (“Rule 15c2-12”) except for certain omissions with respect to the pricing of the Certificates permitted to be omitted therefrom by Rule 15c2-12.
The City hereby agrees to deliver or cause to be delivered to the Underwriter, within seven business days of the date hereof, copies of the final official statement, dated the date hereof, relating to the Certificates (including all information previously permitted to have been omitted by Rule 15c2-12, the cover page, the inside cover page all appendices, all information incorporated therein and any amendments or supplements as have been approved by the City and the Underwriter, the “Official Statement”) in such quantity as the Underwriter shall reasonably request. The City has approved the use and distribution by the Underwriter of the Official Statement, and the City hereby authorizes the use by the Underwriter of the Legal Documents in connection with the offer and sale of the Certificates.
Section 5. Closing. At 8:00 A.M., Pacific Standard time, on February 19, 2025, or at such other time and date as may be agreed upon by the City and the Underwriter (the “Closing Date”), (i) the City will cause to be delivered to the Underwriter the Certificates in definitive form, bearing CUSIP numbers and fully registered, through the book-entry system of The Depository Trust Company, New York, New York (“DTC”); and (ii) the City will cause to be delivered to the Underwriter the other documents herein mentioned at the offices of Stradling Yocca Carlson & Rauth LLP in Newport Beach, California, or another place to be agreed upon by the City and the Underwriter. The Underwriter will accept such delivery and pay the purchase price of the Certificates as set forth in Section 1 hereof in immediately available funds to the order of the Trustee on behalf of the City. This payment and delivery, together with the delivery of the aforementioned documents, is herein called the “Closing.” Notwithstanding the foregoing, neither the failure to print CUSIP numbers on any Certificate nor any error with respect thereto shall constitute cause for a failure or refusal by the Underwriter to accept delivery of and pay for the Certificates on the Closing Date in accordance with the terms of this Purchase Agreement.
Section 6. Representation, Warranties and Covenants of the City. The City represents, warrants and covenants to the Underwriter that:
(a) The City is a municipal corporation and general law city duly organized and validly existing under the Constitution and laws of the State of California (the “State”). The City has all necessary power and authority and has taken all official action necessary to enter into and perform its duties under the Site Lease, the Lease Agreement, the Trust Agreement and this Purchase Agreement (collectively, the “City Documents”). The City Documents and the Official Statement have been duly executed and delivered by the City and, assuming the due authorization, execution and delivery by the other respective parties thereto, the City Documents to the best knowledge of the City will constitute legally valid and binding obligations of the City enforceable against the City in accordance with their respective terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, arrangement, fraudulent conveyance, moratorium or other similar laws or equitable principles relating to or limiting creditors’ rights generally.
(b) To the best of its knowledge, except as may be required under Blue Sky or other securities laws of any state (as to which no representation is made), there is no consent, approval, authorization or other order of, or filing with, or certification by, any regulatory authority having jurisdiction over the City required for the execution, delivery and sale of the Certificates or the consummation by the City of the transactions contemplated by the City -6-
Documents and by the Official Statement, which has not been duly obtained or made on or prior to the date hereof.
(c) There is no action, suit, proceeding, inquiry or investigation at law or in equity, before or by any court or governmental or public entity pending, or to the best knowledge of the City, threatened against the City which affects or seeks to prohibit, restrain or enjoin the execution or delivery of the Certificates, or contesting the powers of the City to enter into or perform its obligations under any of the City Documents or the existence or powers of the City. (d) the distribution of the Preliminary Official Statement and the Official Statement have been duly authorized by the City and as of the date hereof and at all times subsequent thereto up to and including the time of the Closing, the statements and information contained in the Official Statement (excluding statements under the captions “THE CORPORATION,” “UNDERWRITING,” information relating to the Municipal Bond Insurer, the Municipal Bond Insurance Policy, the Reserve Fund Insurance Policy, DTC and the book-entry only system and information as to bond prices on the cover of the Official Statement, as to which no opinion or view is expressed) are and will be true, correct and complete in all material respects and the Official Statement does not and will not omit to state a material fact required to be stated therein or necessary to make such statements and information therein, in the light of the circumstances under which they were made, not misleading in any material respect; (e) The City agrees that, if at any time before the Closing Date any event of which it has knowledge occurs, as a result of which the Official Statement as then in effect would include any untrue or misleading statement of a material fact or omit to state any material fact necessary to make the statements therein not misleading, the City shall promptly prepare or cooperate in the preparation of an amendment or supplement to the Official Statement if in the opinion of the City and the Underwriter or their respective counsel, such event requires the preparation and publication of a supplement or amendment to the Official Statement. The City shall advise the Underwriter promptly of any proposal to so amend or supplement the Official Statement and shall affect such amendment or supplement in a form and manner approved by the Underwriter. The City shall promptly advise the Underwriter of the institution of any action, suit, proceeding, inquiry or investigation seeking to prohibit, restrain or otherwise affect the use of the Official Statement in connection with the offering, sale or distribution of the Certificates.
If any information relating to the City contained in the Official Statement is amended or supplemented pursuant to the immediately preceding subparagraph, at the time of each supplement or amendment thereto and (unless subsequently supplemented or amended pursuant to such subparagraph) at all times subsequent thereto up to and including the date of the Closing, the portions of the Official Statement so supplemented or amended (including any financial and statistical data contained therein) will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make such information therein concerning the City or the City’s affairs, in the light of the circumstances under which it was presented, not misleading. (f) The City shall furnish or cause to be furnished to the Underwriter, in such quantities as shall be reasonably required by the Underwriter, copies of the Official Statement and all amendments and supplements thereto, in each case as soon as available. (g) The proceeds from the sale to the Underwriter of the Certificates will be applied in the manner and for the purposes specified in the Trust Agreement. -7-
(h) The resolution of the City approving the execution and delivery of the City Documents and the Official Statement has been duly adopted by the City, has not been amended, modified or repealed and is in full force and effect on the date hereof. (i) To the best of its knowledge, neither the execution and delivery by the City of the City Documents nor the City’s adoption of the resolution, nor the City’s compliance with such documents or such resolution, nor the consummation of the transactions contemplated by such documents, such resolution or the Official Statement, conflicts with or constitutes a breach of or default under, or will conflict with or constitute a breach of or default under, any term or provision of any applicable law or any administrative rule or regulation of the State or the United States or any applicable judgment, decree, order, license, permit, agreement or instrument to which the City is subject or is otherwise bound has or will have a material adverse effect on the ability of the City to perform its obligations under the City Documents, and no event has occurred and is continuing which, with the passage of time or the giving of notice, or both, would constitute a default or an event of default under any such instruments. (j) The City agrees to cooperate with the Underwriter in endeavoring to qualify the Certificates for offer and sale under the securities or Blue Sky laws of as many jurisdictions of the states of the United States as the Underwriter may request; provided, however, that the City will not be required to expend any of its own funds in connection with such qualifications and will not be required to consent to service of process in any such jurisdiction in which it is not now subject to service of process or to qualify as a broker or a foreign corporation in connection with any such qualification in any jurisdiction.
(k) The City covenants that it will not take any action which would cause interest payable with respect to the Certificates to be subject to federal income taxation or State personal income taxation.
(l) Other than as described in the Preliminary Official Statement and the Official Statement, the City has not failed to comply with any previous continuing disclosure undertaking within the prior 5 years.
Section 7. Conditions to the Obligations of the Underwriter. The Underwriter has entered into this Purchase Agreement in reliance upon the representations and warranties of the City contained herein. The obligations of the Underwriter to accept delivery of and pay for the Certificates on the Closing Date shall be subject, at the option of the Underwriter, to the performance by the City of its obligations, to be performed hereunder and to the performance by the City and the Corporation of their obligations, to be performed under the Legal Documents, at or prior to the Closing Date and the following additional conditions:
(a) The representations, warranties and covenants of the City contained herein shall be true and correct at the date hereof and at the time of the Closing, as if made on the Closing Date; (b) At the time of Closing, the Legal Documents shall be in full force and effect as valid and binding agreements between or among the various parties thereto and the Legal Documents and the Official Statement shall not have been amended, modified or supplemented except as may have been agreed to in writing by the Underwriter, and all such reasonable actions as, in the opinion of Special Counsel or counsel to the Underwriter, shall reasonably deem necessary in connection with the transactions contemplated hereby; (c) Between the date hereof and the Closing Date, the market price or marketability, at the initial public offering prices set forth on the inside cover page of the Official Statement, of -8-
the Certificates shall not have been materially adversely affected, in the reasonable judgment of the Underwriter, by reason of any of the following:
(i) the marketability of the Certificates or the market price thereof, in the opinion of the Underwriter, has been materially adversely affected by an amendment to the Constitution of the United States or by any legislation in or by the Congress of the United States or by the State, or the amendment of legislation pending as of the date of the Purchase Agreement in the Congress of the United States, or the recommendation to Congress or endorsement for passage (by press release, other form of notice or otherwise) of legislation by the President of the United States, the Treasury Department of the United States, the Internal Revenue Service or the Chairman or ranking minority member of the Committee on Finance of the United States Senate or the Committee on Ways and Means of the United States House of Representatives, or the proposal for consideration of legislation by either such Committee or by any member thereof, or the presentment of legislation for consideration as an option by either such Committee, or by the staff of the Joint Committee on Taxation of the Congress of the United States, or the favorable reporting for passage of legislation to either House of the Congress of the United States by a Committee of such House to which such legislation has been referred for consideration, or any decision of any federal or state court or any ruling or regulation (final, temporary or proposed) or official statement on behalf of the United States Treasury Department, the Internal Revenue Service or other federal or state authority affecting the federal or state tax status of the Corporation or the City, or the interest with respect to bonds or notes (including the Certificates); (ii) the declaration of war or engagement in major military hostilities by the United States or the occurrence or escalation of any other national emergency or calamity relating to the normal operation of the government of or the financial community in the United States;
(iii) the declaration of a general banking moratorium by federal, New York or California authorities, or the general suspension of trading on any national securities exchange;
(iv) the imposition by the New York Stock Exchange or other national securities exchange, or any governmental authority, of any material restrictions not now in force with respect to the Certificates or obligations of the general character of the Certificates or securities generally, or the material increase of any such restrictions now in force, including those relating to the extension of credit by, or the charge to the net capital requirements of, underwriters;
(v) an order, decree or injunction issued by any court of competent jurisdiction, or order, ruling, regulation (final, temporary or proposed), official statement or other form of notice or communication issued or made by or on behalf of the Securities and Exchange Commission, or any other governmental agency having jurisdiction of the subject matter, to the effect that (i) obligations of the general character of the Certificates, or the Certificates, including any or all underlying arrangements, are not exempt from registration under the Securities Act of 1933, as amended, or that the Trust Agreement is not exempt from qualification under the Trust Indenture Act of 1939, as amended, or (ii) the execution and delivery, offering or sale of obligations of the general character of the Certificates, or the execution and delivery, offering or sale of the Certificates, including any or all underlying obligations, as contemplated hereby or by the Official Statement, is or would be in violation of the federal securities laws as amended and then in effect; -9-
(vi) any event shall occur which makes untrue any material statement or results in an omission to state a material fact that is necessary to make the statements in the Official Statement, in the light of the circumstances under which they were made, not misleading, which event, in the reasonable opinion of the Underwriter would materially or adversely affect the ability of the Underwriter to market the Certificates (vii) any legislation, ordinance, rule or regulation shall be enacted by any governmental body, department or authority of the State, or a decision by any court of competent jurisdiction within the State shall be rendered which materially adversely affects the market price of the Certificates;
(viii) legislation shall be enacted by the Congress of the United States, or a decision by a court of the United States shall be rendered, to the effect that obligations of the general character of the Certificates, or the Certificates, are not exempt from registration under or other requirements of the Securities Act of 1933, as amended and as then in effect, or the Securities Exchange Act of 1934, as amended and as then in effect, or that the Trust Agreement is not exempt from qualification under or other requirements of the Trust Indenture Act of 1939, as amended and as then in effect; (ix) any rating of the Certificates or the rating of any obligations of the City shall have been downgraded or withdrawn by a national rating service, which, in the opinion of the Underwriter, materially adversely affects the market price of the Certificates; or (x) the commencement of any action, suit or proceeding described in Section 6(c). (d) at or prior to the Closing, the Underwriter shall receive the following documents, in each case to the reasonable satisfaction in form and substance of the Underwriter:
(i) the Legal Documents duly executed and delivered by the respective parties thereto, with only such amendments, modifications or supplements as may have been agreed to in writing by the Underwriter;
(ii) the approving opinion of Special Counsel, dated the Closing Date and addressed to the City, in substantially the form attached as Appendix B to the Official Statement, together with reliance letters addressed to the Underwriter and the Trustee; (iii) a supplemental opinion of Special Counsel dated the Closing Date and addressed to the Underwriter and the City, in form and substance acceptable to each of them to the effect that:
(A) the statements in the Official Statement under the captions, “INTRODUCTION,” “THE CERTIFICATES,” “CONTINUING DISCLOSURE,” “TAX MATTERS,” “APPENDIX A–SUMMARY OF PRINCIPAL LEGAL
DOCUMENTS,” “APPENDIX C–FORM OF CONTINUING DISCLOSURE
CERTIFICATE” AND “APPENDIX D–FORM OF SPECIAL COUNSEL
OPINION,” insofar as such statements purport to summarize certain provisions of the Certificates, security for the Certificates, the Trust Agreement, the Site Lease, the Lease, the Assignment Agreement, the Continuing Disclosure Certificate and the legal opinion of Special Counsel with respect thereto concerning the validity and tax status of interest with respect to the Certificates, are accurate in all material respects; but excluding therefrom information about DTC and the book-entry only system;
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(B) the Purchase Agreement has been duly authorized, executed and delivered by the City and, assuming due authorization, execution and delivery by the other respective parties thereto, constitutes the valid and binding agreement of the City and is enforceable in accordance with its terms, except as enforcement thereof may be limited by bankruptcy, insolvency, reorganization, arrangement, fraudulent conveyance, moratorium or other similar laws affecting enforcement of creditors’ rights and by the application of equitable principles if equitable remedies are sought; and
(C) the Certificates are exempt from registration pursuant to the Securities Act of 1933, as amended, and the Trust Agreement is exempt from qualification as a Trust Agreement pursuant to the Trust Indenture Act of 1939, as amended;
(iv) the letter of Stradling Yocca Carlson & Rauth LLP, in its capacity as Disclosure Counsel, dated the Closing Date and addressed to the City and the Underwriter, to the effect that, based upon its participation in the preparation of the Official Statement as Disclosure Counsel and upon the information made available to it in the course of the foregoing, but without having undertaken to determine or verify independently or assuming any responsibility for the accuracy, completeness or fairness of the statements contained in the Official Statement (except to the extent expressly set forth in the opinion referred to in Section 7(c)(iii) above), nothing has come to the attention of the personnel directly involved in rendering legal advice and assistance in connection with the preparation of the Official Statement that causes them to believe that the Official Statement as of its date or as of the Closing Date contained or contains any untrue statement of a material fact or omitted or omits to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, are not misleading (except for the description of any litigation, any information relating to information relating to the Municipal Bond Insurer, the Municipal Bond Insurance Policy, the Reserve Fund Insurance Policy, DTC, Cede & Co., the book-entry system, any financial statements, forecasts, projections, estimates, assumptions and expressions of opinions and the other financial and statistical data included therein, as to all of which they express no view); (v) the opinion of Aleshire & Wynder, LLP, City Attorney, dated the Closing Date, and addressed to the Underwriter, to the effect:
(A) the City is a municipal corporation and geberal law city organized and existing under and by virtue of the laws and the Constitution of the State and has full legal power and lawful authority to execute and deliver and perform all obligations under the City Documents and to participate in the transactions contemplated by the Official Statement;
(B) the resolution adopted by the City Council of the City approving the form and authorizing the execution of the City Documents has been duly adopted at a meeting of the City Council of the City, which was called and held pursuant to law and with all public notice required by law and at which a quorum was present and acting throughout and such Resolution is in full force and effect and has not been modified, amended or rescinded; (C) the City has duly authorized, executed and delivered the City Documents and, assuming due authorization, execution and delivery by the parties thereto other than the City, the City Documents constitute the legally -11-
valid and binding obligations of the City enforceable against the City in accordance with their respective terms, except as the enforcement thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or other laws affecting the enforcement of creditors’ rights generally and by the application of equitable principles, if equitable remedies are sought. (D) there is no action, suit, proceeding, inquiry or investigation at law or in equity, before or by any court, government agency, public board or body, pending or, to our knowledge after reasonable investigation, threatened: (1) which would materially adversely affect the financial position of the City; (2) affecting, contesting or seeking to prohibit, restrain or enjoin the execution and delivery of any of the Certificates or the City Documents, or in any way contesting or affecting the validity of or security for the Certificates or the City Documents or the consummation of the transactions contemplated thereby, or contesting the powers of the City or its authority to execute and deliver the City Documents or perform its obligations thereunder; or (3) contesting the completeness or accuracy of the Official Statement or asserting that the Official Statement contains any untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, and to our knowledge there is no basis for any action, suit, proceeding, inquiry or investigation of the nature described in subparagraphs (1) through (3) of this paragraph (D);
(E) the City is not in material breach of or default under any applicable constitutional provision, law or administrative regulation of the State or the United States of America or any applicable judgment or decree or any loan agreement, indenture, bond, note, resolution, agreement or other instrument to which the City is a party or to which the City or any of its property or assets is otherwise subject, and no event has occurred or is continuing which with the passage of time or the giving of notice, or both, would constitute a default or an event of default under any such instrument; and the execution and delivery of the City Documents and compliance with the provisions thereof by the City, will not result in a violation of, a breach of, or a default under the articles of incorporation or bylaws of the City or any statute, indenture, mortgage, deed of trust, note agreement, or other agreement or instrument to which the City is a party or by which it or any of its property is bound, or any order, rule, law or regulation of any court or other governmental body having jurisdiction of the City;
(F) no authorization, approval, consent or order of the State or any other governmental authority or agency within the State, other than the governing body of the City, is required for the valid authorization, execution and delivery by the City of the City Documents and the performance by the City of its obligations thereunder.
(G) as of the date hereof, nothing has come to such attorney’s attention causing us to believe that the information contained in the Official Statement relating to the City under the caption “THE CITY” as of its date or as of the date hereof contained any untrue statement of material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading;
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(vi) a certificate, dated the Closing Date, signed by a duly authorized official of the City satisfactory in form and substance in the reasonable judgment of the Underwriter to the effect that:
(A) the City is a municipal corporation and general law city, duly organized and existing under the laws of the State and has all necessary power and authority to enter into and perform its duties under the City Documents; (B) by official action of the City, the City has approved the execution and delivery of and the performance by the City of the obligations on its part contained in the City Documents;
(C) the execution and delivery of the City Documents to which it is a party, compliance with the provisions thereof and performance of its duties thereunder, will not conflict with or constitute a breach of or default under the City’s duties under any law, administrative regulation, judgment, decree, note, resolution, charter, by-law or other agreement to which the City is a party or is otherwise subject or by which its properties may be affected; (D) the information relating to the City contained in the Official Statement does not contain any untrue or misleading statement of a material fact or omit to state any material fact which is necessary to make such statements therein, in the light of the circumstances under which they were made, not misleading;
(E) to the best knowledge of the City, there is no consent, approval, authorization or other order of, or filing with, or certification by, any regulatory authority having jurisdiction over the City required for the execution, delivery and sale of the Certificates or the consummation by the City of the transactions on its part contemplated by the City Documents;
(F) to the best knowledge of the City, the City is not in breach of or default under any applicable law or administrative regulation of the State or the United States or any applicable judgment or decree, agreement or other instrument to which the City is a party or is otherwise subject, and no event has occurred and is continuing which, with the passage of time or the giving of notice, or both, would constitute a default or an event of default under any such instrument, which breach or default has or may have a material adverse effect on the ability of the City to perform its obligations under the City Documents; (G) there is no action, suit, proceeding, inquiry or investigation, at law or in equity before or by any court or governmental agency or body, pending or, to the best knowledge of the City, threatened against the City, except as disclosed in the Official Statement, to restrain or enjoin the execution or delivery of the Certificates, or in any way contesting or affecting the validity or enforceability of the Certificates or the City Documents or contesting the powers of the City to enter into or perform its obligations under any of the foregoing; and (H) the City covenants that it will not take any action which would cause interest with respect to the Certificates to be subject to federal income taxation or California personal income taxes;
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(vii) a certificate, dated the Closing Date, signed by a duly authorized official of the Corporation satisfactory in form and substance in the reasonable judgment of the Underwriter to the effect that:
(A) the Corporation is nonprofit, public benefit corporation, duly organized and validly existing under the laws of the State; (B) the Corporation has all necessary power and authority and has taken all official actions necessary to execute, deliver and perform its duties under each of the Corporation Documents and each of the Legal Documents has been duly authorized, executed and delivered by the Corporation and, assuming the due authorization, execution and delivery by the other respective parties thereto, will constitute legally valid and binding obligations of the Corporation enforceable against the Corporation in accordance with their respective terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to or limiting creditors’ rights generally or principles of equity involving judicial discretion; (C) the Corporation is not in material breach of, or default under, any applicable constitutional provision, law or administrative rule or regulation of the State or the United States of America material to the conduct of its functions or any applicable judgment or decree or any loan agreement, indenture, bond, certificate, note, resolution or other agreement or instrument to which the Corporation is a party or to which the Corporation or any of its properties is otherwise subject, and no event has occurred and is continuing which, with the passage of time or the giving of notice, or both, would constitute a default or an event of default under any of the foregoing; and the authorization, execution and delivery of the Legal Documents, and compliance with the provisions thereof, will not conflict with or constitute a breach of or default under any constitutional provision, law, administrative rule or regulation, or any judgment, decree, license, permit, loan agreement, indenture, bond, certificate, note, resolution, agreement or other instrument to which the Corporation (or any of its officers in their respective capacities as such) is subject or by which it or any of its properties is bound, nor will any such authorization, execution, delivery or compliance result in the creation or imposition of any lien, charge or other security interest or encumbrance of any nature whatsoever upon any of its assets or properties or under the terms of any such law, regulation or instrument except as may be provided by the Legal Documents;
(D) there is no consent, approval, authorization or other order of, or filing with, or certification by, any regulatory entity having jurisdiction over the Corporation required for the execution and delivery of the Legal Documents, or the consummation by the Corporation of the transactions contemplated in the Official Statement or in the Legal Documents, which has not been duly obtained or made on or prior to the date hereof;
(E) there is no action, suit, proceeding, inquiry or investigation, at law or in equity, before or by any court or governmental or public entity pending or, to the knowledge of the Corporation, threatened against the Corporation which affects or seeks to prohibit, restrain or enjoin the execution or delivery of the Certificates or any of the Legal Documents, or contesting the validity of the Certificates or any of the Legal Documents or the powers of the Corporation to -14-
enter into or perform its obligations under the Legal Documents or the existence or powers of the Corporation;
(F) no event affecting the Corporation has occurred since the date of the Official Statement which either makes untrue or incorrect in any material respect as of the Closing Date the statements or information regarding the Corporation contained in the Official Statement or is not reflected in the Official Statement but should be reflected therein in order to make the statements and information therein regarding the Corporation not misleading in any material respect; (viii) a certificate of the Trustee, dated the Closing Date, signed by a duly authorized officer of the Trustee, and in form and substance satisfactory to the Underwriter, to the effect that:
(A) the Trustee is a national banking association duly organized and existing under and by virtue of the laws of the United States of America authorized to carry out corporate trust powers and has all necessary power and authority to enter into and perform its duties under the Trust Agreement and the Assignment Agreement and to execute the Certificates;
(B) the representations of the Trustee in the Trust Agreement and the Assignment Agreement are true and correct in all material respects as of the Closing Date;
(C) to the best of its knowledge, no litigation is pending or threatened (either in state or federal courts) (1) to restrain or enjoin the execution or delivery of any of the Certificates, or (2) in any way contesting or affecting any authority for the execution or delivery of the Certificates or the validity or enforceability of the Trust Agreement or the Assignment Agreement;
(D) the Trustee is duly authorized to execute and deliver the Certificates to the Underwriter upon instruction by the City pursuant to the terms of the Trust Agreement, and the Trust Agreement and the Assignment Agreement constitute legal, valid and binding obligations of the Trustee enforceable in accordance with its respective terms;
(E) to the best of its knowledge, the execution and delivery of the Trust Agreement and the Assignment Agreement, and compliance with the provisions thereof, will not conflict with, or constitute a breach of or default under, the Trustee’s duties under said documents or any law, administrative regulation, court decree, resolution, charter, bylaws or other agreement to which the Trustee is subject or by which it is bound; and
(F) the Certificates have been validly executed and delivered by the Trustee;
(ix) the opinion of counsel to the Trustee, addressed to the Underwriter and the City, dated the Closing Date, to the effect that;
(A) the Trustee has been duly organized and is validly existing in good standing as a national banking association under the laws of the United States of America, with full corporate power to enter into the Trust Agreement and the Assignment Agreement and to accept the trust as provided therein, and to -15-
perform its obligations under the Trust Agreement and the Assignment Agreement;
(B) the Trustee has duly authorized, executed and delivered the Trust Agreement and the Assignment Agreement and by all proper corporate action has authorized the acceptance of the trust of the Trust Agreement; (C) assuming the due authorization, execution and delivery by the other party to the Trust Agreement and the Assignment Agreement, the Trust Agreement and the Assignment Agreement, constitute legally valid and binding agreements of the Trustee, enforceable against the Trustee in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency, moratorium or other similar laws or equitable principles relating to or limiting creditors’ rights generally;
(D) the Certificates have been validly executed by the Trustee; and (E) to the best of such counsel’s knowledge, no authorization, approval, consent or order of any governmental agency or any other person or corporation is required for the valid authorization, execution and delivery of the Trust Agreement and the Assignment Agreement by the Trustee or the authentication by the Trustee of the Certificates;
(x) the opinion of Best Best & Krieger LLP, as counsel to the Underwriter, dated the Closing Date and addressed to the Underwriter, in form and substance acceptable to the Underwriter.
(xi) a copy of the Official Statement, executed on behalf of the City; (xii) a copy of the general resolution of the Trustee authorizing the execution and delivery of the Trust Agreement and the Assignment Agreement; (xiii) copies of all resolutions relating to the Certificates, the Official Statement and the Legal Documents adopted by the Corporation and the City, as applicable, and certified by an authorized official of the Corporation and the City; (xiv) a tax certificate by the City in form and substance acceptable to Special Counsel;
(xv) a copy of the Municipal Bond Insurance Policy;
(xvi) a copy of the Reserve Fund Insurance Policy;
(xvii) an opinion of counsel to the Municipal Bond Insurer, addressed to the City and the Underwriter to the effect that:
(A) the descriptions of the Municipal Bond Insurer, the Municipal Bond Insurance Policy and the Reserve Fund Insurance Policy included in the Official Statement are accurate;
(B) the Municipal Bond Insurance Policy and the Reserve Fund Insurance Policy constitute legal, valid and binding obligations of the Municipal Bond Insurer, enforceable in accordance with their respective terms, except as the -16-
enforcement thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws or equitable principles relating to or limiting creditor’s rights generally and by the application of equitable principles if equitable remedies are sought, and
(C) as to such other matters as the City or the Underwriter may reasonably request;
(xviii) a certificate of the Municipal Bond Insurer, signed by an authorized officer of the Municipal Bond Insurer, to the effect that:
(A) the information contained in the Official Statement relating to the Municipal Bond Insurer, the Municipal Bond Insurance Policy and the Reserve Fund Insurance Policy is true and accurate and
(B) as to such other matters as the City or the Underwriter may reasonably request;
(xix) a letter from S&P Global Ratings, a Standard & Poor’s Financial Services LLC business, indicating that the Certificates have been assigned an insured rating of “AA” and all Certificates have been assigned an underlying rating of “___.” (xx) evidence of good standing of the Corporation with the State; and (xxi) such additional legal opinions, certificates, proceedings, instruments or other documents as Special Counsel and counsel to the Underwriter, if any, may reasonably request to evidence compliance by the Corporation and the City with legal requirements, the truth and accuracy, as of the Closing Date, of the representations and warranties of the Corporation and the City contained herein, and the due performance or satisfaction by the Corporation and the City at or prior to such time of all agreements then to be performed and all conditions then to be satisfied by the Corporation and the City.
Section 8. Changes in Official Statement. After the Closing, the City will not adopt any amendment of or supplement to the Official Statement to which the Underwriter shall object in writing. Within 90 days after the Closing or within 25 days following the end of the underwriting period, whichever occurs first, if any event relating to or affecting the Certificates, the Trustee, the Corporation or the City shall occur as a result of which it is necessary, in the opinion of the Underwriter, to amend or supplement the Official Statement in order to make the Official Statement not misleading in any material respect in the light of the circumstances existing at the time it is delivered to a purchaser, the City will forthwith prepare and furnish to the Underwriter an amendment or supplement that will amend or supplement the Official Statement so that it will not contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances existing at the time the Official Statement is delivered to purchaser, not misleading. The City shall cooperate with the Underwriter in the filing by the Underwriter of such amendment or supplement to the Official Statement with a nationally recognized municipal securities repository. For the purposes of this section the Trustee, the Corporation and the City will each furnish such information with respect to itself as the Underwriter may reasonably request from time to time during such period.
Section 9. Expenses. Whether or not the transactions contemplated by this Purchase Agreement are consummated, the Underwriter shall be under no obligation to pay, and the City -17-
shall pay from the proceeds of the Certificates or otherwise, all expenses and costs of the City and the Corporation incident to the performance of their obligations in connection with the authorization, execution, sale and delivery of the Certificates to the Underwriter, including, without limitation, printing costs, rating agency fees and charges, initial fees of the Trustee, including fees and disbursements of its counsel, if any, fees and disbursements of Special Counsel and Disclosure Counsel and other professional advisors employed by the City or the Corporation, the fee of counsel to the Underwriter and costs of preparation, printing, signing, transportation, delivery and safekeeping of the Certificates. The Underwriter shall pay all outof-pocket expenses of the Underwriter, including, without limitation, advertising expenses, the California Debt and Investment Advisory Commission fee, CUSIP Service Bureau charges, regulatory fees imposed on new securities issuers and any and all other expenses incurred by the Underwriter in connection with the public offering and distribution of the Certificates, shall be paid by the Underwriter.
Section 10. Notices. Any notice or other communication to be given to the City under this Purchase Agreement may be given by delivering the same in writing to the City and the Corporation at the addresses set forth on the first page of this Purchase Agreement, and any notice or other communication to be given to the Underwriter under this Purchase Agreement may be given by delivering the same in writing to: Hilltop Securities Inc., 777 S. Highway 101, Suite 104, Solana Beach, CA 92075,Attention: Managing Director.
The approval of the Underwriter when required hereunder or the determination of the Underwriter’s satisfaction as to any document referred to herein shall be in writing signed by the Underwriter and delivered to you.
Section 11. Parties in Interest. This Purchase Agreement is made solely for the benefit of the City and the Underwriter (including the successors or assigns thereof) and no other person shall acquire or have any right hereunder or by virtue hereof. All representations, warranties and agreements of the City in this Purchase Agreement shall remain operative and in full force and effect regardless of any investigation made by or on behalf of the Underwriter and shall survive the delivery of and payment of the Certificates.
Section 12. Counterparts. This Purchase Agreement may be executed by the parties hereto in separate counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute but one and the same instrument. -18-
Section 13. Governing Law. This Purchase Agreement shall be governed by the laws of the State of California.
HILLTOP SECURITIES INC., as
Underwriter
By
Managing Director
Accepted and Agreed to:
CITY OF RIDGECREST
By
Ronald Strand
City Manager
Time of Execution: ___________
Exhibit A
EXHIBIT A
MATURITY SCHEDULE
$_____
CERTIFICATES OF PARTICIPATION
(2025 Aquatics Facility Financing Project)
Evidencing the Direct, Undivided Fractional Interests
of the Owners Thereof in Lease Payments to be Made by the
CITY OF RIDGECREST
(Kern County, California),
As the Rental for Certain Property Pursuant to a Lease Agreement with the Public Property Financing Corporation of California
MATURITY SCHEDULE
Maturity Date Principal Interest
(June 1) Amount Rate Yield Price
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
c Priced to the June 1, ____, par call date.
Optional Redemption. The Certificates maturing on and after June 1, ____, are subject to optional redemption in whole or in part on any date on and after June 1, ____, in such order of maturity as shall be designated by the City (or, if the City shall fail to so designate the order of redemption, in pro rata among maturities) and by lot within a maturity, at a redemption price equal to the principal amount thereof, together with accrued interest to the date fixed for redemption, without premium, from the proceeds of the optional prepayment of Lease Payments made by the City pursuant to the Lease Agreement.
Extraordinary Redemption. The Certificates are subject to extraordinary redemption, in whole or in part, on any Interest Payment Date, in an order of maturity determined by the City, from the Net Proceeds of insurance or eminent domain proceedings credited towards the redemption of the Lease Payments pursuant to the Lease Agreement, at a redemption price equal to 100% of the principal amount to be redeemed, together with accrued interest represented thereby to the date fixed for redemption, without premium.
Exhibit A
EXHIBIT B
FORM OF ISSUE PRICE CERTIFICATE
$_____
CERTIFICATES OF PARTICIPATION
(2025 Aquatics Facility Financing Project)
Evidencing the Direct, Undivided Fractional Interests
of the Owners Thereof in Lease Payments to be Made by the
CITY OF RIDGECREST
(Kern County, California),
As the Rental for Certain Property Pursuant to a Lease Agreement with the Public Property Financing Corporation of California
ISSUE PRICE CERTIFICATE
The undersigned, on behalf of Hilltop Securities Inc. (“Hilltop”), based on the information available to it, hereby certifies as set forth below with respect to the sale and issuance of the abovecaptioned obligations (the “Certificates”).
I. General
1. Hilltop and the City of Ridgecrest (the “Issuer”) have executed a certificate purchase agreement in connection with the Certificates on the Sale Date. Hilltop has not modified the certificate purchase agreement since its execution on the Sale Date.
II. Price
1. Hilltop offered the Hold-the-Offering-Price Maturities to the Public for purchase at the respective initial offering prices listed in Schedule I (the “Initial Offering Prices”) on or before the Sale Date. A copy of the pricing wire or equivalent communication for the Certificates is attached to this certificate as Schedule II.
2. As set forth in the certificate purchase agreement, Hilltop has agreed in writing that, (i) for each Maturity of the Hold-the-Offering-Price Maturities, it would neither offer nor sell any of the Certificates of such Maturity to any person at a price that is higher than the Initial Offering Price for such Maturity during the Holding Period for such Maturity (the “hold-the-offering-price rule”), and (ii) any selling group agreement would contain the agreement of each dealer who is a member of the selling group, and any retail distribution agreement would contain the agreement of each broker-dealer who is a party to the retail distribution agreement, to comply with the hold-the-offering-price rule.
3. No Underwriter (as defined below) has offered or sold any Maturity of the Hold-theOffering-Price Maturities at a price that is higher than the respective Initial Offering Price for that Maturity during the Holding Period.
III. Defined Terms
1. General Rule Maturities means those Maturities of the Certificates not listed in Schedule I hereto as the “Hold-the-Offering-Price Maturities.”
2. Hold-the-Offering-Price Maturities means those Maturities of the Certificates listed in Schedule I hereto as the “Hold-the-Offering-Price Maturities.”
3. Holding Period means, with respect to a Hold-the-Offering-Price Maturity, the period starting on the Sale Date and ending on the earlier of (i) the close of the fifth business day after the Sale Date, or (ii) the date on which the Underwriter has sold at least 10% of such Hold-the-Offering-Price Exhibit A
Maturity to the Public at prices that are no higher than the Initial Offering Price for such Hold-theOffering-Price Maturity.
4. Maturity means Certificates with the same credit and payment terms. Certificates with different maturity dates, or Certificates with the same maturity date but different stated interest rates, are treated as separate maturities.
5. Public means any person (including an individual, trust, estate, partnership, association, company, or corporation) other than an Underwriter or a Related Party to an Underwriter.
6. A person is a “Related Party” to an Underwriter if the Underwriter and the person are subject, directly or indirectly, to (i) at least 50% common ownership of the voting power or the total value of their stock, if both entities are corporations (including direct ownership by one corporation of another), (ii) more than 50% common ownership of their capital interests or profits interests, if both entities are partnerships (including direct ownership by one partnership of another), or (iii) more than 50% common ownership of the value of the outstanding stock of the corporation or the capital interests or profit interests of the partnership, as applicable, if one entity is a corporation and the other entity is a partnership (including direct ownership of the applicable stock or interests by one entity of the other).
7. Sale Date means the first day on which there is a binding contract in writing for the sale of a Maturity of the Certificates. The Sale Date of the Certificates is February 5, 2025.
8. Underwriter means (i) any person that agrees pursuant to a written contract with the Issuer (or with Hilltop to form an underwriting syndicate) to participate in the initial sale of the Certificates to the Public, and (ii) any person that agrees pursuant to a written contract directly or indirectly with a person described in clause (i) of this paragraph to participate in the initial sale of the Certificates to the Public (including a member of a selling group or a party to a retail distribution agreement participating in the initial sale of the Certificates to the Public).
All terms not defined herein shall have the same meanings as in the Tax Exemption Certificate and Agreement with respect to the Certificates, to which this Certificate is attached. The representations set forth in this certificate are limited to factual matters only. Nothing in this certificate represents Hilltop’ interpretation of any laws, including specifically Sections 103 and 148 of the Internal Revenue Code of 1986, as amended, and the Treasury Regulations thereunder. The undersigned understands that the foregoing information will be relied upon by the Issuer with respect to certain of the representations set forth in its documents and with respect to compliance with the federal income tax rules affecting the Certificates, and by Stradling Yocca Carlson & Rauth LLP in connection with rendering its opinion that the interest on the Certificates is excluded from gross income for federal income tax purposes, the preparation of Internal Revenue Service Form 8038-G, and other federal income tax advice it may give to the Issuer from time to time relating to the Certificates.
IV. Credit
Hilltop has calculated that the present value of the amounts paid to obtain the Build America Mutual Assurance Company (the “Municipal Bond Insurer”) municipal bond insurance and reserve fund municipal bond insurance policies (the “Policies”) is less than the present value of the debt service reasonably expected to be saved as a result of having the Policies, using as the discount factor for this purpose the expected Yield with respect to the Certificates treating the fees paid as interest with respect to the Certificates.
Exhibit A
To the best of Hilltop’s knowledge, the fees paid to obtain the Policies were determined in arm’slength negotiations and were required as a condition to the issuance by the Municipal Bond Insurer of the Policies.
Dated: February 19, 2025
HILLTOP SECURITIES INC., as Underwriter
By
Authorized Officer
Exhibit A
SCHEDULE I TO ISSUE PRICE CERTIFICATE
$_____
CERTIFICATES OF PARTICIPATION
(2025 Aquatics Facility Financing Project)
Evidencing the Direct, Undivided Fractional Interests
of the Owners Thereof in Lease Payments to be Made by the
CITY OF RIDGECREST
(Kern County, California),
As the Rental for Certain Property Pursuant to a Lease Agreement with the Public Property Financing Corporation of California
Hold-theOffering General
Price Rule
Maturities Maturities Maturity Date Principal Interest
(if Marked) (if Marked) (June 1) Amount Rate Price
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
c Priced to the June 1, ____, par call date.
Exhibit A
SCHEDULE II TO ISSUE PRICE CERTIFICATE
PRICING WIRE OR EQUIVALENT COMMUNICATION
Stradling Yocca Carlson & Rauth LLP 03/01/24
05/21/24
08/04/24
08/26/24
10/04/24
11/18/24
12/20/24
LEASE AGREEMENT
Dated as of February 1, 2025
by and between the
PUBLIC PROPERTY FINANCING CORPORATION OF CALIFORNIA, as Lessor and the
CITY OF RIDGECREST, as Lessee
(2025 Aquatics Facility Financing Project)
-iTABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS AND EXHIBITS
Section 1.1. Definitions ....................................................................................................................................................................2 Section 1.2. Interpretation ...............................................................................................................................................................2 Section 1.3. Exhibits .........................................................................................................................................................................2
ARTICLE II
REPRESENTATIONS, COVENANTS AND WARRANTIES
Section 2.1. Representations, Covenants and Warranties of the City .......................................................................................3 Section 2.2. Representations, Covenants and Warranties of Corporation ...............................................................................3
ARTICLE III
DEPOSIT OF MONEYS
Section 3.1. Deposit of Moneys ......................................................................................................................................................5 Section 3.2. Payment of Project Costs ............................................................................................................................................5 Section 3.3. City to Act as Agent of the Corporation ..................................................................................................................5 Section 3.3. Payment of Delivery Costs ........................................................................................................................................6
ARTICLE IV
AGREEMENT TO LEASE; TERM OF THIS LEASE AGREEMENT; LEASE PAYMENTS Section 4.1. Lease 7
Section 4.2. Term of Agreement .....................................................................................................................................................7 Section 4.3. Possession .....................................................................................................................................................................7 Section 4.4. Lease Payments ...........................................................................................................................................................7 Section 4.5. Quiet Enjoyment ..........................................................................................................................................................9 Section 4.6. Title ..............................................................................................................................................................................9 Section 4.7. Additional Payments ................................................................................................................................................10
ARTICLE V
MAINTENANCE; TAXES; INSURANCE; USE LIMITATIONS; AND OTHER MATTERS Section 5.1. Maintenance, Utilities, Taxes and Assessments ...................................................................................................11 Section 5.2. Modification of Property ..........................................................................................................................................11 Section 5.3. Public Liability and Property Damage Insurance ................................................................................................12 Section 5.4. Fire and Extended Coverage Insurance; No Earthquake Insurance ..................................................................12 Section 5.5. Rental Interruption Insurance .................................................................................................................................12 Section 5.6. Title Insurance ...........................................................................................................................................................13 Section 5.7. Insurance Net Proceeds; Form of Policies .............................................................................................................13 Section 5.8. Advances ....................................................................................................................................................................13 Section 5.9. Installation of City’s Equipment .............................................................................................................................13 Section 5.10. Liens ..........................................................................................................................................................................14 Section 5.11. Private Activity Bond Limitation ..........................................................................................................................14 Section 5.12. Federal Guarantee Prohibition ..............................................................................................................................14 Section 5.13. Rebate Requirement ................................................................................................................................................14 Section 5.14. No Arbitrage ............................................................................................................................................................14 Section 5.15. Maintenance of Tax-Exemption ............................................................................................................................14
ARTICLE VI
DAMAGE, DESTRUCTION AND EMINENT DOMAIN; USE OF NET PROCEEDS Section 6.1. Eminent Domain .......................................................................................................................................................15 Section 6.2. Application of Net Proceeds ....................................................................................................................................15 Section 6.3. Abatement of Lease Payments in the Event of Damage or Destruction ...........................................................15
ARTICLE VII
DISCLAIMER OF WARRANTIES; ACCESS; INDEMNIFICATION
Section 7.1. Disclaimer of Warranties ..........................................................................................................................................17 -iiSection 7.2. Access to the Property ..............................................................................................................................................17 Section 7.3. Release and Indemnification Covenants ................................................................................................................17
ARTICLE VIII
ASSIGNMENT, SUBLEASING AND AMENDMENT
Section 8.1. Assignment by the Corporation ..............................................................................................................................18 Section 8.2. Assignment and Subleasing by the City ................................................................................................................18 Section 8.3. Amendment of Lease Agreement ...........................................................................................................................18
ARTICLE IX
EVENTS OF DEFAULT AND REMEDIES
Section 9.1. Events of Default Defined ........................................................................................................................................22 Section 9.2. Remedies on Default .................................................................................................................................................22 Section 9.3. No Remedy Exclusive ...............................................................................................................................................24 Section 9.4. Agreement to Pay Attorneys’ Fees and Expenses ................................................................................................24 Section 9.5. No Additional Waiver Implied by One Waiver ...................................................................................................24 Section 9.6. Application of Proceeds ...........................................................................................................................................24 Section 9.7. Trustee and Certificate Owners to Exercise Rights ..............................................................................................24 Section 9.8. No Right to Terminate for Corporation Default ...................................................................................................24
ARTICLE X
PREPAYMENT OF LEASE PAYMENTS
Section 10.1. Security Deposit ......................................................................................................................................................25 Section 10.2. Prepayment Option .................................................................................................................................................25 Section 10.3. Mandatory Prepayment from Net Proceeds of Insurance, Title Insurance or Eminent Domain ................26 Section 10.4. Credit for Amounts on Deposit .............................................................................................................................26
ARTICLE XI
MISCELLANEOUS
Section 11.1. Notices ......................................................................................................................................................................27 Section 11.2. Information to be Given to the Municipal Bond Insurer ...................................................................................27 Section 11.3. Third Party Beneficiaries ........................................................................................................................................29 Section 11.4. Provisions Relating to the Municipal Bond Insurance Policy ..........................................................................29 Section 11.5. Binding Effect ...........................................................................................................................................................30 Section 11.6. Severability ...............................................................................................................................................................30 Section 11.7. Net-net-net Lease ....................................................................................................................................................30 Section 11.8. Third Party Beneficiary ..........................................................................................................................................30 Section 11.9. Further Assurances and Corrective Instruments ...............................................................................................30 Section 11.10. Execution in Counterparts ...................................................................................................................................30 Section 11.11. Applicable Law ......................................................................................................................................................30 Section 11.12. Corporation and City Representatives ...............................................................................................................30 Section 11.13. Captions ..................................................................................................................................................................31 EXHIBIT A: DESCRIPTION OF THE SITE
EXHIBIT B: DESCRIPTION OF THE FACILTY
EXHIBIT C: SCHEDULE OF LEASE PAYMENTS
LEASE AGREEMENT
THIS LEASE AGREEMENT (the “Lease Agreement”), dated for convenience as of February 1, 2025, by and between the PUBLIC PROPERTY FINANCING CORPORATION OF CALIFORNIA, a nonprofit public benefit corporation organized and existing under the laws of the State of California, as lessor (the “Corporation”), and the CITY OF RIDGECREST, a municipal corporation and general law city, duly organized and existing under and by virtue of the laws of the State of California, as lessee (the “City”); WITNESSETH:
WHEREAS, pursuant to that certain Site and Facility Lease, dated as of February 1, 2025 (the “Site and Facility Lease”), the City has leased those certain parcels of real property situated in Kern County, State of California, more particularly described in Exhibit A attached hereto and made a part hereof (the “Site”), and those certain improvements located on the Site, more particularly described in Exhibit B attached hereto and made a part hereof (the “Facility” and, with the Site, the “Property”), to the Corporation, all for the purpose of enabling the City to finance the cost of constructing and equipping a new aquatics facility (the “Project”); WHEREAS, the Corporation proposes to lease the Property to the City pursuant to this Lease Agreement and to assign its right to receive lease payments under this Lease Agreement (the “Lease Payments”), its right to enforce payment of the Lease Payments and otherwise to enforce its interest and rights under this Lease Agreement in the event of a default hereunder by the City, to U.S. Bank Trust Company, National Association, as trustee (the “Trustee”), pursuant to that certain Assignment Agreement, dated as of February 1, 2025, by and between the Corporation and the Trustee;
WHEREAS, pursuant to that certain Trust Agreement, dated as of February 1, 2025, by and among the City, the Corporation and the Trustee (the “Trust Agreement”), the Trustee will execute and deliver certificates of participation (the “Certificates”) in the Lease Payments; and WHEREAS, the proceeds of the Certificates, together with other available moneys, will be applied by the City to (a) finance the costs of the Project, and (b) pay costs incurred in connection with the execution, delivery and sale of the Certificates, including purchasing a municipal bond insurance policy for the Certificates and a reserve fund municipal bond insurance policy in lieu of cash funding a reserve fund; NOW, THEREFORE, for and in consideration of the premises and the material covenants hereinafter contained, the parties hereto hereby formally covenant, agree and bind themselves as follows:
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ARTICLE I
DEFINITIONS AND EXHIBITS
Section 1.1. Definitions. Unless the context clearly otherwise requires or unless otherwise defined herein, the capitalized terms in this Lease Agreement shall have the respective meanings specified in Section 1.01 of the Trust Agreement.
Section 1.2. Interpretation.
(a) Unless the context otherwise indicates, words expressed in the singular shall include the plural and vice versa and the use of the neuter, masculine, or feminine gender is for convenience only and shall be deemed to mean and include the neuter, masculine or feminine gender, as appropriate.
(b) Headings of articles and sections herein and the table of contents hereof are solely for convenience of reference, do not constitute a part hereof and shall not affect the meaning, construction or effect hereof.
(c) All references herein to “Articles,” “Sections” and other subdivisions are to the corresponding Articles, Sections or subdivisions of this Lease Agreement; the words “herein,” “hereof,” “hereby,” “hereunder” and other words of similar import refer to this Lease Agreement as a whole and not to any particular Article, Section or subdivision hereof.
Section 1.3. Exhibits. The following exhibits are attached to, and by this reference made a part of, this Lease Agreement:
Exhibit A: The description of the Site.
Exhibit B: The description of the Facility.
Exhibit C: The schedule of Lease Payments to be paid by the City hereunder with respect to the Property, showing the Lease Payment Date and amount of each such Lease Payment.
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ARTICLE II
REPRESENTATIONS, COVENANTS AND WARRANTIES
Section 2.1. Representations, Covenants and Warranties of the City. The City represents, covenants and warrants to the Corporation and the Municipal Bond Insurer as follows:
(a) Due Organization and Existence. The City is a municipal corporation and general law city, duly organized and existing under and by virtue of the laws of the State. (b) Authorization. The laws of the State authorize the City to enter into the Site and Facility Lease, this Lease Agreement and the Trust Agreement and to enter into the transactions contemplated by and to carry out the City’s obligations under all of the aforesaid agreements.
The City has duly authorized and executed all of the aforesaid agreements and such agreements constitute the legal, valid and binding agreements of the City, enforceable against the City in accordance with their respective terms.
(c) No Violations. Neither the execution and delivery of the Site and Facility Lease, this Lease Agreement or the Trust Agreement, the fulfillment of or compliance with the terms and conditions hereof or thereof, nor the consummation of the transactions contemplated hereby or thereby, conflicts with or results in a breach of the terms, conditions or provisions of any restriction, agreement or instrument to which the City is now a party or by which the City is bound, constitutes a default under any of the foregoing, or results in the creation or imposition of any lien, charge or encumbrances whatsoever upon any of the property or assets of the City, or upon the Property, except Permitted Encumbrances.
(d) Execution and Delivery. The City has duly authorized and executed the Site and Facility Lease, this Lease Agreement and the Trust Agreement in accordance with all applicable laws.
Section 2.2. Representations, Covenants and Warranties of Corporation. The Corporation represents, covenants and warrants to the City and the Municipal Bond Insurer as follows:
(a) Due Organization and Existence. The Corporation is a nonprofit public benefit corporation, organized and existing under and by virtue of the laws of the State; has power to enter into the Site and Facility Lease, this Lease Agreement, the Assignment Agreement and the Trust Agreement; is possessed of full power to own and hold, improve and equip real and personal property and to lease and sell the same; has duly authorized the execution and delivery of all of the aforesaid agreements and such agreements constitute the legal, valid and binding agreements of the Corporation, enforceable against the Corporation in accordance with their respective terms.
(b) No Encumbrances. The Corporation will not pledge the Lease Payments or other amounts derived from the Property and from its other rights under this Lease Agreement and will not mortgage or encumber the Property, except as provided under the terms of this Lease Agreement and the Trust Agreement.
(c) No Violations. Neither the execution and delivery of the Site and Facility Lease, this Lease Agreement, the Assignment Agreement or the Trust Agreement, the fulfillment of or compliance with the terms and conditions hereof or thereof, nor the consummation of the transactions contemplated hereby or thereby, conflicts with or results in a breach of the terms, conditions or provisions of any restriction or any agreement or instrument to which the Corporation is now a party or by which the Corporation is bound, constitutes a default under -4-
any of the foregoing, or results in the creation or imposition of any lien, charge or encumbrance whatsoever upon any of the property or assets of the Corporation, or upon the Property, except Permitted Encumbrances.
(d) No Assignments. Except as provided herein, the Corporation will not assign this Lease Agreement, its right to receive Lease Payments from the City or its duties and obligations hereunder to any other person, firm or corporation so as to impair or violate the representations, covenants and warranties contained in this Section 2.2. (e) Execution and Delivery. The Corporation has duly authorized and executed this Lease Agreement in accordance with all applicable laws.
(f) No Advisory Relationship. The Corporation is not acting as a municipal advisor or financial advisor to the City, and has no financial advisory relationship, as that term is defined in section 53590(c) of the California Government Code and has not assumed any advisory responsibility to the City with respect to the transaction contemplated hereby and the discussions, undertakings and proceedings leading thereto. -5-
ARTICLE III
DEPOSIT OF MONEYS
Section 3.1. Deposit of Moneys. On the Closing Date, the Corporation shall cause to be deposited with the Trustee the net proceeds of sale of the Certificates net of amounts paid by the Original Purchaser to the Municipal Bond Insurer as an accommodation to the City for the premiums relating to the Municipal Bond Insurance Policy and the Reserve Policy. Amounts required to pay Delivery Costs shall be deposited in the Delivery Costs Fund, and the amount estimated to be required to pay Project Costs shall be deposited in the Project Fund.
Section 3.2. Payment of Project Costs. Payment of Project Costs shall be made from the moneys deposited in the Project Fund, which moneys shall be disbursed for such purpose in accordance and upon compliance with Section 3.04 of the Trust Agreement.
Section 3.3. City to Act as Agent of the Corporation.
(a) Appointment of City. The Corporation hereby appoints the City as its agent to carry out all phases of the construction of the Project, and the City, as agent of the Corporation, assumes all rights, duties, responsibilities and liabilities of the Corporation regarding construction, except as limited herein.
(b) Contracts, Bids and Payments. The City, as agent of the Corporation, may enter into any purchase order, agreement or contract required for construction of the Project upon being assured that moneys sufficient for the payment thereof are then on deposit in the Project Fund or other available moneys of the City. The benefits of all bids received by the City for the Project shall be and shall be deemed to be assigned by the City to the Corporation. (c) Project Description. The City, as agent of the Corporation, shall have the right to make any changes in the description of the Project or of any component thereof whenever the City deems such changes to be necessary and appropriate.
(d) Supervision of Construction. The City, as agent of the Corporation, shall have sole responsibility for, and shall supervise construction of the Project. The City shall monitor the performance by any vendor to the extent the City deems appropriate. The City shall permit the Corporation or its assignee to inspect the Project at any and all reasonable times which are deemed appropriate by the Corporation or its assignee.
(e) Enforcement of Contracts. The Corporation hereby assigns to the City all rights and powers to enforce and execute in its own name or the name of the Corporation such purchase orders or contracts as are required for the Project which enforcement may be at law or in equity; provided, however, that the assignment made by the Corporation herein shall not prevent the Corporation or its assignee from asserting said rights and powers in its own behalf following written notice to the City.
(f) Fixed Price. The Corporation shall not be responsible for payment of, nor shall it pay nor permit to be paid by the Trustee pursuant to the Trust Agreement, any amount for the Project in excess of the amount available therefor in the Project Fund held by the Trustee pursuant to the Trust Agreement. The City shall pay said excess amount to the extent of lawfully available funds.
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(g) Inspection of Records. The Corporation shall have the right to inspect periodically the books and records of the City relating to the Project, and the City shall permit the Corporation to make such inspections thereof at all reasonable times as the City shall deem appropriate. (h) Specifications. The City agrees that it will assure that the Project will be constructed in accordance with final plans and specifications approved by the City. Upon completion of construction of the Project, the City will assure that there is filed with the Trustee a certificate executed by a City Representative and stating that such construction has been completed in accordance with specifications therefor approved by the City. (i) Nondiscrimination. Each contract entered into between the City, as the agent for the Corporation, and any vendor shall provide that such vendor shall not discriminate against any other vendor or any employee or applicant for employment because of the race, religious creed, color, national origin, or sex of such person, unless based upon a bona fide occupational qualification. In addition, in determining vendors, or in employing persons, if any, for the purposes of construction of the Project, the City shall not discriminate on the basis of race, religious creed, color, national origin, or sex of such person, unless based upon a bona fide occupational qualification.
(j) Performance Security. The City shall require the provision of bid bonds or performance bonds in such percentage of the bid or contract price as it deems desirable in advertising for and in awarding contracts or making purchase orders.
Section 3.3. Payment of Delivery Costs. Payment of Delivery Costs shall be made from the moneys deposited in the Delivery Costs Fund, which moneys shall be disbursed for such purpose in accordance and upon compliance with Section 3.02 of the Trust Agreement. -7-
ARTICLE IV
AGREEMENT TO LEASE; TERM OF THIS LEASE AGREEMENT;
LEASE PAYMENTS
Section 4.1. Lease.
(a) The Corporation hereby leases the Property to the City, and the City hereby leases the Property from the Corporation, upon the terms and conditions set forth in this Lease Agreement.
(b) The leasing of the Property by the City to the Corporation pursuant to the Site and Facility Lease shall not affect or result in a merger of the City’s leasehold estate pursuant to this Lease Agreement and its fee estate as lessor under the Site and Facility Lease. (c) The City and the Authority have previously entered into the 2018 Site and Facility Lease and the 2018 Lease Agreement, leasing and subleasing the Property. Therefore, the lease of the Civic Center portion of the Property pursuant to this Lease Agreement is effectively a sub-sub-sublease.
Section 4.2. Term of Agreement. The Term of the Lease Agreement shall commence on the Closing Date, and shall end on June 1, 2034, unless such term is extended as hereinafter provided. If, on June 1, 2034, the Trust Agreement shall not be discharged by its terms or if the Lease Payments or Additional Payments, if any, payable hereunder shall have been abated at any time and for any reason, then the Term of the Lease Agreement shall be extended without the need to execute any amendment to this Section 4.2 until there has been deposited with the Trustee an amount sufficient to pay all obligations due under the Lease Agreement, but in no event shall the Term of the Lease Agreement extend beyond June 1, 2044. If, prior to June 1, 2034, the Trust Agreement shall be discharged by its terms, the Term of the Lease Agreement shall thereupon end.
Notwithstanding the foregoing, the Term of the Lease Agreement shall not end so long as any amounts are owed to the Municipal Bond Insurer with respect to the Municipal Bond Insurance Policy or the Reserve Policy.
Section 4.3. Possession. The City hereby agrees to accept and take possession of the Property on or prior to the date of recordation of this Lease Agreement.
Section 4.4. Lease Payments.
(a) Obligation to Pay. Subject to the provisions of Articles VI and X hereof, the City agrees to pay to the Corporation, its successors and assigns, as rental for the use and occupancy of the Property during each Rental Period, the Lease Payments (denominated into components of principal and interest) in the respective amounts specified in Exhibit C hereto, to be due and payable on the respective Lease Payment Dates specified in Exhibit C hereto. Any amount held in the Lease Payment Fund on any Lease Payment Date (other than amounts resulting from the prepayment of the Lease Payments in part but not in whole pursuant to Article X hereof and other than amounts required for payment of Certificates not yet surrendered) shall be credited towards the Lease Payment then due and payable; and no Lease Payment need be made on any Lease Payment Date if the amounts then held in the Lease Payment Fund are at least equal to the Lease Payment then required to be paid. The Lease Payments for the Property payable in any Rental Period shall be for the use of the Property for such Rental Period. -8-
(b) Effect of Prepayment. In the event that the City prepays all remaining Lease Payments and all Additional Payments due under Section 4.7 hereof in full pursuant to Article X hereof, subject to Section 4.2 hereof, the City’s obligations under this Lease Agreement shall thereupon cease and terminate including, but not limited to, the City’s obligation to pay Lease Payments under this Section 4.4; subject however, to the provisions of Section 10.1 hereof in the case of prepayment by application of a security deposit. In the event that the City optionally prepays the Lease Payments in part but not in whole pursuant to Section 10.2 hereof or pursuant to Section 10.3 hereof as a result of any insurance or condemnation award with respect to any portion of the Property, such prepayment shall be credited entirely towards the prepayment of the Lease Payments as follows: (i) the principal components of each remaining Lease Payment shall be reduced in such order as shall be selected by the City in integral multiples of $5,000; and (ii) the interest component of each remaining Lease Payment shall be reduced by the aggregate corresponding amount of interest which would otherwise be payable with respect to the Certificates thereby redeemed pursuant to Sections 4.01(a) or (b), as the case may be, of the Trust Agreement.
(c) Rate on Overdue Payments. In the event the City should fail to make any of the payments required in this Section 4.4, the payment in default shall continue as an obligation of the City until the amount in default shall have been fully paid and the City agrees to pay the same with interest thereon, to the extent permitted by law, from the date of default to the date of payment at the rate per annum payable with respect to the Certificates. Such interest, if received, shall be deposited in the Lease Payment Fund or in the Reserve Fund to replenish the Reserve Fund.
(d) Fair Rental Value. The Lease Payments for each Rental Period shall constitute the total rental for each such Rental Period and shall be paid by the City in each Rental Period for and in consideration of the right of the use and occupancy and the continued quiet use and enjoyment of the Property during each Rental Period. The parties hereto have agreed and determined that the total Lease Payments for the Property represent the fair rental value of the Property. In making such determination, consideration has been given to the obligations of the parties under this Lease Agreement, the uses and purposes which may be served by the Property and the benefits therefrom which will accrue to the City and the general public. (e) Source of Payments; Budget and Appropriation. Lease Payments and Additional Payments shall be payable from any source of available funds of the City, subject to the provisions of Articles VI and X hereof.
The City covenants to take such action as may be necessary to include all Lease Payments and Additional Payments due hereunder in each of its budgets during the Term of the Lease Agreement and to make the necessary annual appropriations for all such Lease Payments and for Additional Payments due under Section 4.7 hereof. To that end, the Council shall direct budgetary staff to include in each annual budget proposal to the Council an appropriation sufficient to pay Lease Payments and Additional Payments. The City hereby expresses its present intent to appropriate Lease Payments and Additional Payments due under Section 4.7 hereof during the Term of the Lease Agreement. The covenants on the part of the City herein contained shall be deemed to be and shall be construed to be duties imposed by law and it shall be the duty of each and every public official of the City to take such action and do such things as are required by law in the performance of the official duty of such officials to enable the City to carry out and perform the covenants and agreements in this Lease Agreement agreed to be carried out and performed by the City.
(f) Assignment. The City understands and agrees that all Lease Payments have been assigned by the Corporation to the Trustee in trust, pursuant to the Assignment Agreement, for -9-
the benefit of the Owners of the Certificates, and the City hereby assents to such assignment.
The Corporation hereby directs the City, and the City hereby agrees to pay to the Trustee at the Designated Corporate Trust Office, all payments payable by the City pursuant to this Section
4.4 and all amounts payable by the City pursuant to Article X hereof.
The chief business official and all other officers charged with the duty of preparing and submitting the annual budget of the City to the Council are hereby irrevocably directed, following any draw on the Reserve Policy because the value of the Property has been reduced below the total unpaid principal component of Lease Payments and the City is permitted to pay less than the total scheduled Lease Payment, all in accordance with Section 6.3 (an “Abatement Period”), to include in the proposed budget and to request that the Board include in the final approved budget, and thereby appropriate, any amounts necessary to reinstate the Reserve Policy, including interest due and any other amounts payable to the Municipal Bond Insurer (collectively, the “Reinstatement Amount”). Such officers shall use their best efforts to obtain such appropriations.
The request for inclusion in the final approved budget and appropriation shall be made in each Fiscal Year following any Abatement Period so long as reimbursement amounts are owed to the Municipal Bond Insurer. Failure by the chief business official and other officers to request such inclusion and appropriation shall constitute an Event of Default under this Lease Agreement and the Municipal Bond Insurer may exercise remedies accordingly.
The decision of the Council as to whether or not to approve and appropriate any Reinstatement Amount in any given Fiscal Year during any Abatement Period is in the sound discretion of the Board; the failure of the Board to approve and appropriate the Reinstatement Amount in any given Fiscal Year during any Abatement Period shall not constitute an Event of Default under this Lease Agreement or under the Trust Agreement.
Section 4.5. Quiet Enjoyment. During the Term of the Lease Agreement, the Corporation shall provide the City with quiet use and enjoyment of the Property and the City shall, during such Term, peaceably and quietly have and hold and enjoy the Property without suit, trouble or hindrance from the Corporation, except as expressly set forth in this Lease Agreement. The Corporation will, at the request of the City and at the City’s cost, join in any legal action in which the City asserts its right to such possession and enjoyment to the extent the Corporation may lawfully do so. Notwithstanding the foregoing, the Corporation shall have the right to inspect the Property as provided in Section 7.2. hereof.
Section 4.6. Title. During the Term of the Lease Agreement, the Corporation shall hold leasehold title to the Property and the City shall hold fee title to those portions of the Property which are newly acquired or constructed and any and all additions which comprise fixtures, repairs, replacements or modifications to the Property, except for those fixtures, repairs, replacements or modifications which are added to the Property by the City at its own expense and which may be removed without damaging the Property and except for any items added to the Property by the City pursuant to Section 5.8 hereof.
If the City prepays the Lease Payments in full pursuant to Article X hereof or makes the security deposit permitted by Section 10.1 hereof or pays all Lease Payments during the Term of the Lease Agreement as the same become due and payable, subject to Section 4.2 hereof, and pays Additional Payments, if any, all right, title and interest of the Corporation in and to the Property shall be terminated. The Corporation agrees to take any and all steps and execute and record any and all documents reasonably required by the City to consummate any such transfer of title.
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Section 4.7. Additional Payments. In addition to the Lease Payments, the City shall pay when due the following Additional Payments:
(a) Any fees and expenses incurred by the City in connection with or by reason of its leasehold estate in the Property as and when the same become due and payable. (b) Any amounts due to the Trustee pursuant to the Trust Agreement for all services rendered under the Trust Agreement and for all reasonable expenses, charges, costs, liabilities, legal fees and other disbursements incurred in and about the performance of its powers and duties under the Trust Agreement.
(c) Any reasonable fees and expenses of such accountants, consultants, attorneys and other experts as may be engaged by the City, the Corporation or the Trustee to prepare audits, financial statements, reports, opinions or provide such other services required under this Lease Agreement or the Trust Agreement.
(d) Any reasonable out-of-pocket expenses of the City in connection with the execution and delivery of this Lease Agreement or the Trust Agreement, or in connection with the execution and delivery of the Certificates, including any and all expenses incurred in connection with the authorization, execution, sale and delivery of the Certificates, or incurred by the Corporation in connection with any litigation which may at any time be instituted involving this Lease Agreement, the Trust Agreement, the Certificates or any of the other documents contemplated hereby or thereby, or incurred by the Corporation in connection with the Continuing Disclosure Certificate, or otherwise incurred in connection with the administration thereof.
(e) The City agrees to pay any amounts owed to the Municipal Bond Insurer pursuant to Section 6.04 of the Trust Agreement, interest on Insurer Advances (as more fully described in the Trust Agreement) and amounts payable pursuant to the seventh paragraph of Section 14.08 of the Trust Agreement. The City’s obligation to pay such amounts shall expressly survive payment in full of the Certificates.
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ARTICLE V
MAINTENANCE; TAXES; INSURANCE; USE LIMITATIONS;
AND OTHER MATTERS
Section 5.1. Maintenance, Utilities, Taxes and Assessments. Throughout the Term of the Lease Agreement, as part of the consideration for the rental of the Property, all improvement, repair and maintenance of the Property shall be the responsibility of the City and the City shall pay, or otherwise arrange, for the payment of all utility services supplied to the Property which may include, without limitation, janitor service, security, power, gas, telephone, light, heating, water and all other utility services, and shall pay for or otherwise arrange for the payment of the cost of the repair and replacement of the Property resulting from ordinary wear and tear or want of care on the part of the City or any assignee or sublessee thereof. In exchange for the Lease Payments herein provided, the Corporation agrees to provide only the Property, as hereinbefore more specifically set forth. The City waives the benefits of subsections 1 and 2 of section 1932 of the California Civil Code, but such waiver shall not limit any of the rights of the City under the terms of this Lease Agreement.
The City shall also pay or cause to be paid all taxes and assessments of any type or nature, if any, charged to the Corporation or the City affecting the Property or the respective interests or estates therein; provided that with respect to special assessments or other governmental charges that may lawfully be paid in installments over a period of years, the City shall be obligated to pay only such installments as are required to be paid during the Term of the Lease Agreement as and when the same become due.
The City may, at the City’s expense and in its name, in good faith contest any such taxes, assessments, utility and other charges and, in the event of any such contest, may permit the taxes, assessments or other charges so contested to remain unpaid during the period of such contest and any appeal therefrom unless the Corporation or the Municipal Bond Insurer shall notify the City that, in the opinion of Independent Counsel, by nonpayment of any such items, the interest of the Corporation in the Property will be materially endangered or the Property or any part thereof will be subject to loss or forfeiture, in which event the City shall promptly pay such taxes, assessments or charges or provide the Corporation and the Municipal Bond Insurer with full security against any loss which may result from nonpayment, in form satisfactory to the Corporation and the Municipal Bond Insurer. The City shall provide the Corporation and the Municipal Bond Insurer with written notice of any such contest and shall provide such updates on the contest as the Corporation may reasonably request.
Section 5.2. Modification of Property. The City shall, at its own expense, have the right to remodel the Property or to make additions, modifications and improvements to the Property.
All additions, modifications and improvements to the Property shall thereafter comprise part of the Property and be subject to the provisions of this Lease Agreement. Such additions, modifications and improvements shall not in any way damage the Property, substantially alter its nature, cause the interest component of Lease Payments to be subject to federal income taxes or cause the Property to be used for purposes other than those authorized under the provisions of State and federal law; and the Property, upon completion of any additions, modifications and improvements made thereto pursuant to this Section 5.2, shall be of a value which is not substantially less than the value of the Property immediately prior to the making of such additions, modifications and improvements. The City will not permit any mechanic’s or other lien to be established or remain against the Property for labor or materials furnished in connection with any remodeling, additions, modifications, improvements, repairs, renewals or replacements made by the City pursuant to this Section 5.2; provided that if any such lien is established and the City shall first notify the Corporation of the City’s intention to do so, the -12-
City may in good faith contest any lien filed or established against the Property, and in such event may permit the items so contested to remain undischarged and unsatisfied during the period of such contest and any appeal therefrom and shall provide the Corporation with full security against any loss or forfeiture which might arise from the nonpayment of any such item, in form satisfactory to the Corporation. The Corporation will cooperate fully in any such contest, upon the request and at the expense of the City.
Section 5.3. Public Liability and Property Damage Insurance. The City shall maintain or cause to be maintained, throughout the Term of the Lease Agreement, insurance policies, including a standard comprehensive general insurance policy or policies in protection of the Corporation, the City, the Trustee and the Municipal Bond Insurer and their respective members, officers, agents and employees. Such liability insurance may be maintained as part of or in conjunction with any other liability insurance coverage carried by the City and may be maintained through a nonprofit public benefit corporation created for such purpose or, with the prior written consent of the Municipal Bond Insurer, in the form of self-insurance by the City.
Said policy or policies shall provide for indemnification of said parties against direct or consequential loss or liability for damages for bodily and personal injury, death or property damage occasioned by reason of the operation of the Property. Said policy or policies shall provide coverage in the minimum liability limits of $1,000,000 for personal injury or death of each person and $3,000,000 for personal injury or deaths of two or more persons in each accident or event, and in a minimum amount of $100,000 (subject to a deductible clause of not to exceed $5,000) for damage to property resulting from each accident or event. Such public liability and property damage insurance may, however, be in the form of a single limit policy in the amount of $3,000,000 covering all such risks. Such liability insurance may be maintained as part of or in conjunction with any other liability insurance coverage carried by the City and may be maintained in the form of insurance maintained through a nonprofit, public benefit corporation created for such purpose or, with the prior written consent of the Municipal Bond Insurer, in the form of self-insurance by the City. The Net Proceeds of such liability insurance shall be applied toward extinguishment or satisfaction of the liability with respect to which the insurance proceeds shall have been paid.
Section 5.4. Fire and Extended Coverage Insurance; No Earthquake Insurance. The City shall maintain, or cause to be maintained throughout the Term of the Lease Agreement, insurance against loss or damage to any part of the Property constituting structures, if any, by fire and lightning, with extended coverage and vandalism and malicious mischief insurance; provided, however, that the City shall not be required to maintain earthquake insurance with respect to the Property. Said extended coverage insurance shall, as nearly as practicable, cover loss or damage by explosion, windstorm, riot, aircraft, vehicle damage, smoke and such other hazards as are normally covered by such insurance. Such insurance shall be in an amount equal to one hundred percent (100%) of the replacement cost of such portion of the Property, if any.
Such insurance may be subject to deductible clauses of not to exceed $100,000 for any one loss.
Such insurance may be maintained as part of or in conjunction with any other fire and extended coverage insurance carried by the City and, with the prior written consent of the Municipal Bond Insurer, may be maintained in whole or in part in the form of insurance maintained through a nonprofit public benefit corporation created for such purpose. The Net Proceeds of such insurance shall be applied as provided in Section 6.2(a) hereof. The City may not satisfy the requirements of this Section 5.4 for fire and extended coverage insurance with self-insurance except with the prior written consent of the Municipal Bond Insurer.
Section 5.5. Rental Interruption Insurance. The City shall maintain, or cause to be maintained, throughout the Term of the Lease Agreement rental interruption or use and occupancy insurance to cover loss, total or partial, of the use of any part of the Property during the Term of the Lease Agreement as a result of any of the hazards covered in the insurance -13-
required by Section 5.4 hereof, if any, in an amount at least equal to two times maximum annual Lease Payments. The Net Proceeds of such insurance shall be paid to the Trustee and deposited in the Lease Payment Fund and shall be credited towards the payment of the Lease Payments in the order in which such Lease Payments come due and payable. Such insurance may be maintained as part of or in conjunction with any other insurance carried by the City and, with the prior written consent of the Municipal Bond Insurer, may be maintained in whole or in part in the form of insurance maintained through a nonprofit, public benefit corporation created for such purpose but not in the form of self-insurance by the City.
Section 5.6. Title Insurance.
(a) The City shall obtain and maintain throughout the Term of this Lease Agreement, from moneys in the Delivery Costs Fund or at its own expense, on the Closing Date, a CLTA title insurance policy in form and substance acceptable to the Municipal Bond Insurer in the amount of not less than the principal amount of the Certificates, insuring the City’s fee and leasehold estate in the Property, subject only to Permitted Encumbrances. (b) The Net Proceeds of such title insurance shall be applied as provided in Section 6.2(c) hereof.
Section 5.7. Insurance Net Proceeds; Form of Policies. Each policy or other evidence of insurance required by Sections 5.3, 5.4 and 5.5 hereof shall provide that all proceeds thereunder shall be payable to the Trustee and, to the extent required hereunder, shall name the Trustee and the Municipal Bond Insurer as additional insureds and shall be applied as provided in Section 6.2 hereof. Insurance must be provided by an insurer rated “A” or better by S&P or A.M. Best Company, unless waived by the Municipal Bond Insurer (and notified the Trustee in writing). The City shall pay or cause to be paid when due the premiums for all insurance policies required by this Lease Agreement. All policies evidencing required insurance shall provide thirty (30) days’ prior written notice to the Corporation, the City, the Trustee and the Municipal Bond Insurer of any cancellation, reduction in amount or material change in coverage. The Trustee shall not be responsible for the sufficiency of any insurance herein required, including any forms of self-insurance and shall be fully protected in accepting payment on account of such insurance or any adjustment, compromise or settlement of any loss.
The City shall cause to be delivered annually on or before each July 1 to the Trustee and the Municipal Bond Insurer a certification, signed by a City Representative, stating compliance with the provisions of Section 5.3, 5.4 and 5.5 of this Lease Agreement. The Trustee shall be entitled to rely on such certification without independent investigation. The City shall have the adequacy of any insurance reserves maintained by the City or by a nonprofit public benefit corporation, if applicable, for purposes of the insurance required by Section 5.3, 5.4 and 5.5 hereof reviewed at least annually, on or before each July 1, by an independent insurance consultant and shall maintain reserves in accordance with the recommendations of such consultant to the extent moneys are available for such purpose and not otherwise appropriated.
Section 5.8. Advances. If the City shall fail to perform any of its obligations under this Article V, the Corporation or the Trustee may, but shall not be obligated to, take such action as may be necessary to cure such failure, including the advancement of money, and the City shall be obligated to repay all such advances as soon as possible, with interest at a rate equal to the rate then payable with respect to the Certificates from the date of the advance to the date of repayment.
Section 5.9. Installation of City’s Equipment. The City may, at any time and from time to time in its sole discretion and at its own expense, install or permit to be installed items of equipment or other personal property in or upon any portion of the Property. All such items -14-
shall remain the sole property of the City in which neither the Corporation nor the Trustee shall have any interest and may be modified or removed by the City at any time provided that the City shall repair and restore any and all damage to the Property resulting from the installation, modification or removal of any such items. Nothing in this Lease Agreement shall prevent the City from purchasing or leasing items to be installed pursuant to this Section 5.9 under a lease or conditional sale agreement, or subject to a vendor’s lien or security agreement, as security for the unpaid portion of the purchase price thereof, provided that no such lien or security interest shall attach to any part of the Property.
Section 5.10. Liens. The City shall not, directly or indirectly, create, incur, assume or suffer to exist any mortgage, pledge, lien, charge, encumbrance or claim on or with respect to the Property, other than the respective rights of the Corporation and the City as provided herein and Permitted Encumbrances. Except as expressly provided in this Article V, the City shall promptly, at its own expense, take such action as may be necessary to duly discharge or remove any such mortgage, pledge, lien, charge, encumbrance or claim, for which it is responsible, if the same shall arise at any time. The City shall reimburse the Corporation for any expense incurred by it in order to discharge or remove any such mortgage, pledge, lien, charge, encumbrance or claim.
Section 5.11. Private Activity Bond Limitation. The City shall assure that proceeds of the Certificates are not so used as to cause the Certificates or the Lease Agreement to satisfy the private business tests of section 141(b) of the Code or the private loan financing test of section 141(c) of the Code.
Section 5.12. Federal Guarantee Prohibition. The City shall not take any action or permit or suffer any action to be taken if the result of the same would be to cause any of the Certificates or the Lease Agreement to be “federally guaranteed” within the meaning of section 149(b) of the Code.
Section 5.13. Rebate Requirement. The City shall take any and all actions necessary to assure compliance with section 148(f) of the Code, relating to the rebate of excess investment earnings, if any, to the federal government, to the extent that such section is applicable to the Certificates and the Lease Agreement.
Section 5.14. No Arbitrage. The City shall not take or permit or suffer to be taken by the Trustee or otherwise, any action with respect to the proceeds of the Certificates which, if such action had been reasonably expected to have been taken, or had been deliberately and intentionally taken, on the Closing Date would have caused the Certificates or the Lease Agreement to be “arbitrage bonds” within the meaning of section 148 of the Code.
Section 5.15. Maintenance of Tax-Exemption. The City shall take all actions necessary to assure the exclusion of interest with respect to the Certificates from the gross income of the Owners of the Certificates to the same extent as such interest is permitted to be excluded from gross income under the Code as in effect on the Closing Date. -15-
ARTICLE VI
DAMAGE, DESTRUCTION AND EMINENT DOMAIN; USE OF
NET PROCEEDS
Section 6.1. Eminent Domain.
(a) If all of the Property shall be taken permanently under the power of eminent domain or sold to a government threatening to exercise the power of eminent domain, the Term of this Lease Agreement shall cease as of the day possession shall be so taken. If less than all of the Property shall be taken permanently, or if all of the Property or any part thereof shall be taken temporarily under the power of eminent domain, (1) this Lease Agreement shall continue in full force and effect and shall not be terminated by virtue of such taking and the parties waive the benefit of any law to the contrary, and (2) there shall be a partial abatement of Lease Payments as a result of the application of the Net Proceeds of any eminent domain award to the prepayment of the Lease Payments hereunder, in an amount to be agreed upon by the City and the Corporation (with the prior approval of the Municipal Bond Insurer), and so certified to by the parties to the Trustee, such that the resulting Lease Payments represent fair consideration for the use and occupancy of the remaining usable portion of the Property, except to the extent of special funds are available for the payment of Lease Payments. (b) The City hereby covenants and agrees, to the extent it may lawfully do so, that so long as any of the Certificates remain outstanding and unpaid, the City will not exercise the power of condemnation with respect to the Property. The City further covenants and agrees, to the extent it may lawfully do so, that if for any reason the foregoing covenant is determined to be unenforceable or if the City should fail or refuse to abide by such covenant and condemns the Property, the appraised value of the leased property shall not be less than the greater of (i) if such Certificates are then subject to redemption, the principal and interest components of the Certificates outstanding through the date of their redemption, or (ii) if such Certificates are not then subject to redemption, the amount necessary to defease such Certificates to the first available redemption date in accordance with the Trust Agreement.
Section 6.2. Application of Net Proceeds.
(a) From Insurance Award. The Net Proceeds of any insurance award resulting from any damage to or destruction of any portion of the Property constituting structures, if any, by fire or other casualty shall be paid by the City to the Trustee, as assignee of the Corporation under the Assignment Agreement, deposited in the Insurance and Condemnation Fund held by the Trustee and applied as set forth in Section 7.01 of the Trust Agreement. (b) From Eminent Domain Award. The Net Proceeds of any eminent domain award resulting from any event described in Section 6.1 hereof shall be paid by the City to the Trustee, as assignee of the Corporation under the Assignment Agreement, deposited in the Insurance and Condemnation Fund and applied as set forth in Section 7.02 of the Trust Agreement. (c) From Title Insurance. The Net Proceeds of any title insurance award shall be paid to the Trustee, as assignee of the Corporation under the Assignment Agreement, deposited in the Insurance and Condemnation Fund and applied as set forth in Section 7.03 of the Trust Agreement.
Section 6.3. Abatement of Lease Payments in the Event of Damage or Destruction. Lease Payments shall be abated during any period in which, by reason of damage or destruction, there is substantial interference with the use and occupancy by the City of the Property or any -16-
portion thereof (other than any portions of the Property described in Section 5.2 hereof) to the extent to be agreed upon by the City and the Corporation and communicated by a City Representative to the Trustee. The parties agree that the amounts of the Lease Payments under such circumstances shall not be less than the amounts of the unpaid Lease Payments as are then set forth in Exhibit C, unless such unpaid amounts are determined to be greater than the fair rental value of the portions of the Property not damaged or destroyed (giving due consideration to the factors identified in the last sentence of Section 4.4(d)), based upon any appropriate method of valuation, in which event the Lease Payments shall be abated such that they represent said fair rental value. Such abatement shall continue for the period commencing with such damage or destruction and ending with the substantial completion of the work of repair or reconstruction as communicated by a City Representative to the Trustee. In the event of any such damage or destruction, this Lease Agreement shall continue in full force and effect and the City waives any right to terminate this Lease Agreement by virtue of any such damage and destruction. Notwithstanding the foregoing, there shall be no abatement of Lease Payments under this Section 6.3 to the extent that (a) the proceeds of rental interruption insurance or (b) amounts in the Insurance and Condemnation Fund and/or the Lease Payment Fund are available to pay Lease Payments which would otherwise be abated under this Section 6.3, it being hereby declared that such proceeds and amounts constitute special funds for the payment of the Lease Payments. If an abatement event has occurred but remedied, the City shall be required to extend the Term of this Lease Agreement, as described in Section 4.2, so that amounts abated are recouped.
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ARTICLE VII
DISCLAIMER OF WARRANTIES; ACCESS; INDEMNIFICATION
Section 7.1. Disclaimer of Warranties. THE CORPORATION MAKES NO WARRANTY
OR REPRESENTATION, EITHER EXPRESS OR IMPLIED, AS TO THE VALUE, DESIGN,
CONDITION, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OR
FITNESS FOR THE USE CONTEMPLATED BY THE CITY OF THE PROPERTY OR ANY OTHER REPRESENTATION OR WARRANTY WITH RESPECT TO THE PROPERTY. IN NO
EVENT SHALL THE CORPORATION OR ITS ASSIGNS BE LIABLE FOR INCIDENTAL,
INDIRECT, SPECIAL OR CONSEQUENTIAL DAMAGES IN CONNECTION WITH OR
ARISING OUT OF THE SITE AND FACILITY LEASE, THIS LEASE AGREEMENT OR THE
TRUST AGREEMENT FOR THE EXISTENCE, FURNISHING, FUNCTIONING OR THE TOWN’S USE OF THE PROPERTY.
Section 7.2. Access to the Property. The City agrees that the Corporation and any Corporation Representative, and the Corporation’s successors or assigns, and the Municipal Bond Insurer shall have the right at all reasonable times to enter upon and to examine and inspect the Property. The City further agrees that the Corporation, any Corporation Representative, and the Corporation’s successors or assigns, and the Municipal Bond Insurer shall have such rights of access to the Property as may be reasonably necessary to cause the proper maintenance of the Property in the event of failure by the City to perform its obligations hereunder.
Section 7.3. Release and Indemnification Covenants. The City shall and hereby agrees to indemnify and save the Corporation and the Trustee and their officers, agents, directors, employees, successors and assigns harmless from and against all charges, costs, claims, losses and damages, including legal fees and expenses, arising out of (i) the use, maintenance, condition or management of, or from any work or thing done on the Property by the City, (ii) any breach or default on the part of the City in the performance of any of its obligations under this Lease Agreement or the Trust Agreement, (iii) any act or omission of the City or of any of its agents, contractors, servants, employees or licensees with respect to the Property, (iv) any act or omission of any sublessee of the City with respect to the Property, (v) the authorization of payment of Project Costs, or (vi) the authorization of payment of the Delivery Costs. Such indemnification shall include the costs and expenses of defending any claim or liability arising under this Lease Agreement or the Trust Agreement and the transactions contemplated thereby.
No indemnification is made under this Section 7.3 or elsewhere in this Lease Agreement for willful misconduct, negligence or breach of duty under this Lease Agreement by the Corporation, its officers, agents, directors, employees, successors or assigns. -18-
ARTICLE VIII
ASSIGNMENT, SUBLEASING AND AMENDMENT
Section 8.1. Assignment by the Corporation. The Corporation’s rights under this Lease Agreement, including the right to receive and enforce payment of the Lease Payments to be made by the City under this Lease Agreement (but except for its rights to give consents and approvals hereunder), have been assigned to the Trustee pursuant to the Assignment Agreement.
Section 8.2. Assignment and Subleasing by the City. This Lease Agreement may not be assigned by the City. The City may sublease the Property or any portion thereof, but only with the written consent of the Corporation and the Municipal Bond Insurer and subject to, and delivery to the Corporation and the Trustee and the Municipal Bond Insurer of a certificate as to, all of the following conditions:
(a) This Lease Agreement and the obligation of the City to make Lease Payments hereunder shall remain obligations of the City;
(b) The City shall, within thirty (30) days after the delivery thereof, furnish or cause to be furnished to the Corporation, the Trustee and the Municipal Bond Insurer a true and complete copy of such sublease;
(d) No such sublease by the City shall cause the Property to be used for a purpose other than as may be authorized under the provisions of the Constitution and laws of the State; and (d) The City shall furnish the Corporation, the Trustee and the Municipal Bond Insurer with a written opinion of Bond Counsel, which shall be an Independent Counsel, stating that such sublease does not cause the interest components of the Lease Payments to become subject to federal income taxes or State personal income taxes.
Section 8.3. Amendment of Lease Agreement(a) Substitution of Site or Facility. The City shall have, and is hereby granted, the option at any time and from time to time during the Term of the Lease Agreement to substitute other land (a “Substitute Site”) and/or a substitute facility (a “Substitute Facility”) for the Site (the “Former Site”), or a portion thereof, and/or the Facility (the “Former Facility”), or a portion thereof, provided that the City shall satisfy all of the following requirements (to the extent applicable) which are hereby declared to be conditions precedent to such substitution):
(i) If a substitution of the Site, the City shall file with the Corporation, the Trustee and the Municipal Bond Insurer an amended Exhibit A to the Site and Facility Lease which adds thereto a description of such Substitute Site and deletes therefrom the description of the Former Site;
(ii) If a substitution of the Site, the City shall file with the Corporation, the Trustee and the Municipal Bond Insurer an amended Exhibit A to this Lease Agreement which adds thereto a description of such Substitute Site and deletes therefrom the description of the Former Site;
(iii) If a substitution of the Facility, the City shall file with the Corporation, the Trustee and the Municipal Bond Insurer an amended Exhibit B to the Site and Facility Lease which adds thereto a description of such Substitute Facility and deletes therefrom the description of the Former Facility;
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(iv) If a substitution of the Facility, the City shall file with the Corporation, the Trustee and the Municipal Bond Insurer an amended Exhibit B to this Lease Agreement which adds thereto a description of such Substitute Facility and deletes therefrom the description of the Former Facility;
(v) The City shall certify in writing to the Corporation, the Trustee and the Municipal Bond Insurer that such Substitute Site and/or Substitute Facility serve the purposes of the City, constitutes property that is unencumbered, subject to Permitted Encumbrances, and constitutes property which the City is permitted to lease under the laws of the State;
(vi) The City delivers to the Corporation, the Trustee and the Municipal Bond Insurer a Certificate of a City Representative based on any reasonable basis of valuation, that the Site and the Facility, as constituted after such substitution, (1) has an annual fair rental value at least equal to the maximum Lease Payments payable by the City in any Rental Period, and (2) has a useful life in excess of the final maturity of any Outstanding Certificates and confirms in writing to the Trustee that the indemnification provided pursuant to Section 12.03 of the Trust Agreement applies with respect to the Substitute Site and/or Substitute Facility;
(vii) The Substitute Site and/or Substitute Facility shall not cause the City to violate any of its covenants, representations and warranties made herein and in the Trust Agreement, as evidenced by a Certificate of a City Representative delivered to the Trustee;
(viii) The City shall obtain an amendment to the title insurance policy required pursuant to Section 5.6 hereof which adds thereto a description of the Substitute Site and deletes therefrom the description of the Former Site;
(ix) The City shall certify that the Substitute Site and/or the Substitute Facility is of the same or greater essentiality to the City as was the Former Site and/or the Former Facility;
(x) The City shall provide notice of the substitution to any rating agency then rating the Certificates which rating was provided at the request of the City or the Corporation; and
(xi) The City shall furnish the Corporation, the Trustee and the Municipal Bond Insurer with a written opinion of Bond Counsel, which shall be an Independent Counsel, stating that such substitution does not cause the interest components of the Lease Payments to become subject to federal income taxes or State personal income taxes. (b) Release of Site. The City shall have, and is hereby granted, the option at any time and from time to time during the Term of the Lease Agreement to release any portion of the Site, provided that the City shall satisfy all of the following requirements which are hereby declared to be conditions precedent to such release.
(i) The City shall file with the Corporation and the Trustee an amended Exhibit A to the Site and Facility Lease which describes the Site, as revised by such release; (ii) The City shall file with the Corporation and the Trustee an amended Exhibit A to this Lease Agreement which describes the Site, as revised by such release; -20-
(iii) The City delivers to the Corporation and the Trustee a Certificate of a City Representative, based on any reasonable basis of valuation, that the Property, as constituted after such release, (1) has an annual fair rental value at least equal to the maximum Lease Payments payable by the City in any Rental Period, and (2) has a useful life in excess of the final maturity of any Outstanding Certificates and confirms in writing to the Trustee and the Corporation that the indemnification provided pursuant to Section 12.03 of the Trust Agreement applies with respect to the Site, as revised by such release;
(iv) Such release shall not cause the City to violate any of its covenants, representations and warranties made herein and in the Trust Agreement, as evidenced by a Certificate of a City Representative delivered to the Trustee; (v) The City shall obtain an amendment to the title insurance policy required pursuant to Section 5.6 hereof which describes the Site, as revised by such release; and (vi) The City shall provide notice of the release to any rating agency then rating the Certificates which rating was provided at the request of the City or the Corporation. (c) Release of Facility. The City shall have, and is hereby granted, the option at any time and from time to time during the Term of the Lease Agreement to release any portion of the Facility, provided that the City shall satisfy all of the following requirements which are hereby declared to be conditions precedent to such release.
(i) The City shall file with the Corporation, the Trustee and the Municipal Bond Insurer an amended Exhibit B to the Site and Facility Lease which describes the Facility, as revised by such release;
(ii) The City shall file with the Corporation, the Trustee and the Municipal Bond Insurer an amended Exhibit B to this Lease Agreement which describes the Facility, as revised by such release;
(iii) The City delivers to the Corporation, the Trustee and the Municipal Bond Insurer a Certificate of a City Representative, based on any reasonable basis of valuation, that the Property, as constituted after such release, (1) has an annual fair rental value at least equal to the maximum Lease Payments payable by the City in any Rental Period, and (2) has a useful life in excess of the final maturity of any Outstanding Certificates and confirms in writing to the Trustee and the Corporation that the indemnification provided pursuant to Section 12.03 of the Trust Agreement applies with respect to the Facility, as revised by such release;
(iv) Such release shall not cause the City to violate any of its covenants, representations and warranties made herein and in the Trust Agreement, as evidenced by a Certificate of a City Representative delivered to the Trustee; and (v) The City shall provide notice of the release to any rating agency then rating the Certificates which rating was provided at the request of the City or the Corporation. (d) Generally. The Corporation and the City may at any time amend or modify any of the provisions of this Lease Agreement, but only (i) with the prior written consent of the Municipal Bond Insurer, (ii) with the prior written consent of the Owners of a majority in aggregate principal amount of the Outstanding Certificates, or (iii) without the consent of any of -21-
the Owners, but only if such amendment or modification is for any one or more of the following purposes:
(i) to add to the covenants and agreements of the City contained in this Lease Agreement, other covenants and agreements thereafter to be observed, or to limit or surrender any rights or power herein reserved to or conferred upon the City; (ii) to make such provisions for the purpose of curing any ambiguity, or of curing, correcting or supplementing any defective provision contained herein, or in any other respect whatsoever as the Corporation and the City may deem necessary or desirable, provided that, in the opinion of Bond Counsel, such modifications or amendments will not materially adversely affect the interests of the Owners; or (iii) to amend any provision thereof relating to the Code, to any extent whatsoever but only if and to the extent such amendment will not adversely affect the exclusion from gross income of interest with respect to the Certificates under the Code, in the opinion of Bond Counsel.
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ARTICLE IX
EVENTS OF DEFAULT AND REMEDIES
Section 9.1. Events of Default Defined. The following shall be “events of default” under this Lease Agreement and the terms “Events of Default” and “Default” shall mean, whenever they are used in this Lease Agreement, any one or more of the following events:
(a) Failure by the City to pay any Lease Payment, any Additional Payment or other payment required to be paid hereunder at the time specified herein. (b) Failure by the City to observe and perform any covenant, condition or agreement on its part to be observed or performed under this Lease Agreement (including failure to request appropriation pursuant to Section 4.4(e) hereof) or under the Trust Agreement, other than as referred to in clause (a) of this Section 9.1, for a period of thirty (30) days after written notice specifying such failure and requesting that it be remedied has been given to the City by the Corporation, the Trustee, the Municipal Bond Insurer or the Owners of not less than five percent (5%) in aggregate principal amount of Certificates then outstanding; provided, however, if the failure stated in the notice can be corrected, but not within the applicable period, the Corporation, the Trustee (as directed by such Owners of not less than 5% in aggregate principal amount of Certificates then Outstanding) 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; provided further, however, that no grace period for a covenant default shall exceed 30 days, nor be extended for more than 60 days, without the prior written consent of the Municipal Bond Insurer.
(c) The filing by the City of a voluntary petition in bankruptcy, or failure by the City promptly to lift any execution, garnishment or attachment, or adjudication of the City as a bankrupt, or assignment by the City for the benefit of creditors, or the entry by the City into an agreement of composition with creditors, or the approval by a court of competent jurisdiction of a petition applicable to the City in any proceedings instituted under the provisions of the Federal Bankruptcy Act, as amended, or under any similar acts which may hereafter be enacted.
Section 9.2. Remedies on Default. The Trustee, acting at the direction of the Municipal Bond Insurer, shall have the right to re-enter and re-let the Property and to terminate this Lease Agreement. The Municipal Bond Insurer shall have the right to control all remedies for default under both this Lease Agreement and the Trust Agreement.
Whenever any Event of Default referred to in Section 9.1 hereof shall have happened and be continuing, it shall be lawful for the Corporation to exercise any and all remedies available pursuant to law or granted pursuant to this Lease Agreement; provided, however, that notwithstanding anything herein or in the Trust Agreement to the contrary, there shall be no right under any circumstances to accelerate the Lease Payments or otherwise declare any Lease Payments not then in default to be immediately due and payable. Each and every covenant hereof to be kept and performed by the City is expressly made a condition and upon the breach thereof, the Corporation may exercise any and all rights of entry and re-entry upon the Property, and also, at its option, with or without such entry, may terminate this Lease Agreement; provided, that no such termination shall be effected either by operation of law or acts of the parties hereto, except only in the manner herein expressly provided. In the event of such default and notwithstanding any re-entry by the Corporation, the City shall, as herein expressly provided, continue to remain liable for the payment of the Lease Payments and/or damages for breach of this Lease Agreement and the performance of all conditions herein -23-
contained and, in any event, such rent and/or damages shall be payable to the Corporation at the time and in the manner as herein provided, to wit:
(a) In the event the Corporation or the Trustee does not elect to terminate this Lease Agreement in the manner hereinafter provided for in subparagraph (b) hereof, as directed by the Municipal Bond Insurer, the City agrees to and shall remain liable for the payment of all Lease Payments and Additional Payments and the performance of all conditions herein contained and shall reimburse the Corporation for any deficiency arising out of the re-leasing of the Property, or, in the event the Corporation is unable to re-lease the Property, then for the full amount of all Lease Payments and Additional Payments to the end of the Term of the Lease Agreement, but said Lease Payments and Additional Payments and/or deficiency shall be payable only at the same time and in the same manner as hereinabove provided for the payment of Lease Payments and Additional Payments hereunder, notwithstanding such entry or re-entry by the Corporation or any suit in unlawful detainer, or otherwise, brought by the Corporation for the purpose of effecting such re-entry or obtaining possession of the Property or the exercise of any other remedy by the Corporation. The City hereby irrevocably appoints the Corporation as the agent and attorney-in-fact of the City to enter upon and re-lease the Property in the event of default by the City in the performance of any covenants herein contained to be performed by the City and to remove all personal property whatsoever situated upon the Property, to place such property in storage or other suitable place within Kern County, for the account of and at the expense of the City, and the City hereby exempts and agrees to save harmless the Corporation from any costs, loss or damage whatsoever arising or occasioned by any such entry upon and re-leasing of the Property and the removal and storage of such property by the Corporation or its duly authorized agents in accordance with the provisions herein contained. The City hereby waives any and all claims for damages caused or which may be caused by the Corporation in re-entering and taking possession of the Property as herein provided and all claims for damages that may result from the destruction of or injury to the Property and all claims for damages to or loss of any property belonging to the City that may be in or upon the Property. The City agrees that the terms of this Lease Agreement constitute full and sufficient notice of the right of the Corporation to re-lease the Property in the event of such re-entry without effecting a surrender of this Lease Agreement, and further agrees that no acts of the Corporation in effecting such re-leasing shall constitute a surrender or termination of this Lease Agreement irrespective of the term for which such re-leasing is made or the terms and conditions of such re-leasing, or otherwise, but that, on the contrary, in the event of such default by the City the right to terminate this Lease Agreement shall vest in the Corporation to be effected in the sole and exclusive manner hereinafter provided for in paragraph (b) hereof.
(b) In an Event of Default hereunder, the Corporation at the direction of the Municipal Bond Insurer may terminate this Lease Agreement and re-lease all or any portion of the Property. In the event of the termination of this Lease Agreement by the Corporation at its option and in the manner hereinafter provided on account of default by the City (and notwithstanding any re-entry upon the Property by the Corporation in any manner whatsoever or the re-leasing of the Property), the City nevertheless agrees to pay to the Corporation all costs, loss or damages howsoever arising or occurring payable at the same time and in the same manner as is herein provided in the case of payment of Lease Payments. Any surplus received by the Corporation from such re-leasing shall be credited towards the Lease Payments next coming due and payable. Neither notice to pay rent or to deliver up possession of the premises given pursuant to law nor any proceeding in unlawful detainer taken by the Corporation shall of itself operate to terminate this Lease Agreement, and no termination of this Lease Agreement on account of default by the City shall be or become effective by operation of law, or otherwise, unless and until the Corporation shall have given written notice to the City of the election on the part of the Corporation to terminate this Lease Agreement. The City covenants and agrees -24-
that no surrender of the Property and/or of the remainder of the Term of the Lease Agreement or any termination of this Lease Agreement shall be valid in any manner or for any purpose whatsoever unless stated or accepted by the Corporation by such written notice.
Section 9.3. No Remedy Exclusive. No remedy herein is intended to be exclusive, and every such remedy shall be cumulative and shall be in addition to every other remedy given under this Lease Agreement now or hereafter existing at law or in equity. No delay or omission to exercise any right or power accruing upon any default shall impair any such right or power or shall be construed to be a waiver thereof, but any such right and power may be exercised from time to time and as often as may be deemed expedient. In order to entitle the Corporation to exercise any remedy reserved to it in this Article IX it shall not be necessary to give any notice, other than such notice as may be required in this Article IX or by law.
Section 9.4. Agreement to Pay Attorneys’ Fees and Expenses. In the event either party to this Lease Agreement should default under any of the provisions hereof and the non-defaulting party should employ attorneys or incur other expenses for the collection of moneys or the enforcement or performance or observance of any obligation or agreement on the part of the defaulting party herein contained, the defaulting party agrees that it will on demand, pay to the non-defaulting party the reasonable fees and expenses of such attorneys and such other expenses so incurred by the non-defaulting party; provided, however, that the Trustee shall not be required to expend its own funds for any payment described in this Section 9.4.
Section 9.5. No Additional Waiver Implied by One Waiver. In the event any agreement contained in this Lease Agreement should be breached by either party and thereafter waived by the other party, such waiver shall be limited to the particular breach so waived and shall not be deemed to waive any other breach hereunder.
Section 9.6. Application of Proceeds. All net proceeds received from the re-lease or other disposition of the Property under this Article IX, and all other amounts derived by the Corporation or the Trustee as a result of an Event of Default hereunder, shall be applied in accordance with Section 13.03 of the Trust Agreement.
Section 9.7. Trustee and Certificate Owners to Exercise Rights. Such rights and remedies as are given to the Corporation under this Article IX have been assigned by the Corporation to the Trustee under the Assignment Agreement, to which assignment the City hereby consents.
Such rights and remedies shall be exercised by the Trustee, the Municipal Bond Insurer and the Owners of the Certificates as provided in the Trust Agreement and herein.
Section 9.8. No Right to Terminate for Corporation Default. The City shall not have the right to terminate this Lease Agreement as a remedy for a default by the Corporation in the performance of its obligations hereunder.
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ARTICLE X
PREPAYMENT OF LEASE PAYMENTS
Section 10.1. Security Deposit. Notwithstanding any other provision of this Lease Agreement, the City may, on any date, secure the payment of all or a portion of the Lease Payments remaining due by an irrevocable deposit with the Trustee or an escrow holder under an escrow deposit and trust agreement as referenced in Sections 15.01(b) and (c) of the Trust Agreement, of: (a) in the case of a security deposit relating to all Lease Payments, either (i) cash in an amount which, together with amounts on deposit in the Lease Payment Fund and the Insurance and Condemnation Fund and the Reserve Fund, is sufficient to pay all unpaid Lease Payments, including the principal and interest components thereof, in accordance with the Lease Payment schedule set forth in Exhibit C, or (ii) Defeasance Obligations in such amount as will, in the written opinion of an independent certified public accountant or other firm of recognized experts in such matters (addressed to the Municipal Bond Insurer), together with interest to accrue thereon and, if required, all or a portion of moneys or Defeasance Obligations or cash then on deposit and interest earnings thereon in the Lease Payment Fund and the Insurance and Condemnation Fund and the Reserve Fund, be fully sufficient to pay all unpaid Lease Payments on their respective Lease Payment Dates; or (b) in the case of a security deposit relating to a portion of the Lease Payments, a certificate executed by a City Representative designating the portion of the Lease Payments to which the deposit pertains, and either (i) cash in an amount which is sufficient to pay the portion of the Lease Payments designated in such City Representative’s certificate, including the principal and interest components thereof, or (ii) Defeasance Obligations in such amount as will, together with interest to be received thereon, if any, in the written opinion of an independent certified public accountant or other firm of recognized experts in such matters (addressed to the Municipal Bond Insurer), be fully sufficient to pay the portion of the Lease Payments designated in the aforesaid City Representative’s certificate.
In the event of a deposit pursuant to this Section 10.1 as to all Lease Payments and the payment of all fees, expenses and indemnifications owed to the Trustee and payment of all amounts owed to the Municipal Bond Insurer, all obligations of the City under this Lease Agreement shall cease and terminate, excepting only the obligation of the City to make, or cause to be made, all payments from the deposit made by the City pursuant to this Section 10.1 and the obligations of the City pursuant to Section 5.12 hereof and title to the Property shall vest in the City on the date of said deposit automatically and without further action by the City or the Corporation. Said deposit and interest earnings thereon shall be deemed to be and shall constitute a special fund for the payments provided for by this Section 10.1 and said obligation shall thereafter be deemed to be and shall constitute the installment purchase obligation of the City for the Property. Upon said deposit, the Corporation will execute or cause to be executed any and all documents as may be necessary to confirm title to the Property in accordance with the provisions hereof. In addition, the Corporation hereby appoints the City as its agent to prepare, execute and file or record, in appropriate offices, such documents as may be necessary to place record title to the Property in the City.
Section 10.2. Prepayment Option. The Corporation hereby grants an option to the City to prepay the principal component of the Lease Payments in full, by paying the aggregate unpaid principal components of the Lease Payments as set forth in Exhibit C hereto, or in part, in a prepayment amount equal to the principal amount of Lease Payments to be prepaid, together with accrued interest to the date fixed for prepayment, without premium. -26-
Said option may be exercised on any date, on and after May 15, ____. In the event of prepayment in part, the partial prepayment shall be applied against Lease Payments in such order of payment date as shall be selected by the City.
Lease Payments due after any such partial prepayment shall be in the amounts set forth in a revised Lease Payment schedule which shall be provided by, or caused to be provided by, the City to the Trustee and which shall represent an adjustment to the schedule set forth in Exhibit C attached hereto considering said partial prepayment.
Notwithstanding the foregoing, the City shall not be permitted to prepay any Lease Payments if any amounts are owed to the Municipal Bond Insurer with respect to the Municipal Bond Insurance Policy or the Reserve Policy.
Section 10.3. Mandatory Prepayment from Net Proceeds of Insurance, Title Insurance or Eminent Domain. The City shall be obligated to prepay the Lease Payments, in whole on any date or in part on any Lease Payment Date, from and to the extent of any Net Proceeds of an insurance, title insurance or condemnation award with respect to the Property theretofore deposited in the Lease Payment Fund for such purpose pursuant to Article VI hereof and Article VI of the Trust Agreement. The City and the Corporation hereby agree that such Net Proceeds shall be applied first to the payment of any delinquent Lease Payments, and thereafter shall be credited towards the City’s obligations under this Section 10.3. Lease Payments due after any such partial prepayment shall be in the amounts set forth in a revised Lease Payment schedule which shall be provided by, or caused to be provided by, the City to the Trustee and which shall represent an adjustment to the schedule set forth in Exhibit C attached hereto considering said partial prepayment.
Notwithstanding the foregoing, the City shall not be permitted to prepay any Lease Payments if any amounts are owed to the Municipal Bond Insurer with respect to the Municipal Bond Insurance Policy or the Reserve Policy.
Section 10.4. Credit for Amounts on Deposit. In the event of prepayment of the principal components of the Lease Payments in full under this Article X, such that the Trust Agreement shall be discharged by its terms as a result of such prepayment, remaining amounts on deposit in the Lease Payment Fund or the Reserve Fund shall be credited towards the amounts then required to be so prepaid.
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ARTICLE XI
MISCELLANEOUS
Section 11.1. Notices. All notices, certificates or other communications hereunder shall be sufficiently given and shall be deemed to have been received 48 hours after deposit in the United States mail in first-class form with postage fully prepaid:
If to the Corporation: Public Property Financing Corporation of California 2945 Townsgate Road, Suite 200
Westlake Village, CA 91361
Attention: Treasurer
Phone: (805) 267-7140
To the City: City of Ridgecrest
100 West California Avenue
Ridgecrest, CA 93555
Attention: City Manager
Phone: (760) 499-5002
If to the Trustee: U.S. Bank Trust Company, National Association 950 17th Street, 5th Floor
Denver, CO 80202
Attention: Global Corporate Trust
Phone: (303) 585-4596
To the Municipal Bond Insurer: Build America Mutual Assurance Company 200 Liberty Street, 27th Floor
New York, NY 10281
Attention: Surveillance
Re: Policy No. 2025B____/Reserve Policy No. 2025R___
The Corporation, the City and the Trustee and the Municipal Bond Insurer, by notice given hereunder, may designate different addresses to which subsequent notices, certificates or other communications will be sent.
Section 11.2. Information to be Given to the Municipal Bond Insurer. (a) The City shall provide the Municipal Bond Insurer with the following information:
(i) any notice that is required to be given to an Owner, nationally recognized municipal securities information repositories or state information depositories pursuant to Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission or to the Trustee pursuant to the Trust Agreement shall also be provided to the Municipal Bond Insurer, simultaneously with the sending of such notices. In addition, all information furnished by the City pursuant to the Continuing Disclosure Certificate shall also be provided to the Municipal Bond Insurer, simultaneously with the furnishing of such information. In each case in which such notice or other communication refers to an Event of Default or a claim on the Municipal Bond Insurance Policy, then a copy of such notice or other communication shall also be sent to the attention of the General Counsel of the Municipal Bond Insurer at the same address and at [email protected] or Fax: (212) 962-1524 and shall be marked to indicate “URGENT MATERIAL ENCLOSED.”
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(ii) the fiscal year budget of the City within thirty (30) days after adoption of such budget;
(iii) not later than one hundred fifty (150) days after the end of the fiscal year, audited financial statements of the City prepared by an independent certified public accountant, together with a certificate of the City stating that no event of default has occurred or is continuing under this Lease Agreement or the Trust Agreement; (iv) within thirty (30) days following any litigation or investigation that may have a material adverse effect on the financial position of the City of such litigation; (v) immediate notice of any draw on the Reserve Account if from other than the Reserve Policy;
(vi) notice of any Event of Default known to the within five Business Days after knowledge thereof;
(vii) any event of abatement under this Lease Agreement; (viii) prior notice of the advance refunding or redemption of any of the Certificates, including the principal amount, maturities and CUSIP numbers thereof; (ix) notice of the resignation or removal of the Trustee and the appointment of, and acceptance of duties by, any successor thereto;
(x) notice of the commencement of any proceeding by or against the City commenced under the United States Bankruptcy Code or any other applicable bankruptcy, insolvency, receivership, rehabilitation or similar law (an "Insolvency Proceeding");
(xi) notice of the making of any claim in connection with any insolvency proceeding seeking the avoidance as a preferential transfer of any payment of principal or interest with respect to the Certificates;
(xii) a full original transcript of all proceedings relating to the execution of any amendment, supplement, or waiver to the Trust Agreement and/or this Lease Agreement; and
(xiii) all reports, notices and correspondence to be delivered to Owners under the terms of the Trust Agreement and/or this Lease Agreement. (b) The City will permit the Municipal Bond Insurer to discuss the affairs, finances and accounts of the City or any information the Municipal Bond Insurer may reasonably request regarding the security for the Lease Payments with appropriate officers of the City. The City will permit the Municipal Bond Insurer to have access to the Property and have access to and to make copies of all books and records relating to the Certificates at any reasonable time upon reasonable notice on any Business Day.
The Municipal Bond Insurer shall have the right to direct an accounting at the City’s expense, and the City’s failure to comply with such direction within thirty (30) days after receipt of written notice of the direction from the Municipal Bond Insurer shall be deemed an Event of Default hereunder; provided, however, that if compliance cannot occur within such period, then such period will be extended so long as compliance is begun within such period -29-
and diligently pursued, but only if such extension would not materially adversely affect the interests of any Owner.
(c) So long as the Certificates are outstanding or any amounts are due and payable to the Municipal Bond Insurer, the City shall not sell, lease, transfer, encumber or otherwise dispose of the Leased Property or any material portion thereof, except upon obtaining the prior written consent of the Municipal Bond Insurer.
(d) No contract shall be entered into or any action taken by which the rights of the Municipal Bond Insurer or security for or source of payment of the Certificates may be impaired or prejudiced in any material respect except upon obtaining the prior written consent of the Municipal Bond Insurer.
(e) If an event of default occurs under any agreement pursuant to which any Obligation of the City has been incurred or issued and that permits the holder of such Obligation or trustee to accelerate the Obligation or otherwise exercise rights or remedies that are adverse to the interest of the holders of the Certificates or the Municipal Bond Insurer, as the Municipal Bond Insurer may determine in its sole discretion, then an event of default shall be deemed to have occurred under this Lease Agreement and the Trust Agreement for which the Municipal Bond Insurer or the Trustee, at the direction of the Municipal Bond Insurer, shall be entitled to exercise all available remedies under this Lease Agreement and the Trust Agreement, at law and in equity. For purposes of the foregoing "Obligation" shall mean any bonds, loans, certificates, installment or lease payments or similar obligations that are payable and/or secured on a parity or subordinate basis to the Lease Payments.
Section 11.3. Third Party Beneficiaries. To the extent that this Lease Agreement confers upon or gives or grants to the Trustee and any right, remedy or claim under or by reason of this Lease Agreement, the Trustee is explicitly recognized as being a third-party beneficiary hereunder and may enforce any such right, remedy or claim conferred, given or granted hereunder. the Municipal Bond Insurer is recognized as and shall be deemed to be a third party beneficiary of this Lease Agreement and may enforce the provisions of this Lease Agreement as if it was a party hereto.
Section 11.4. Provisions Relating to the Municipal Bond Insurance Policy. (a) So long as the Municipal Bond Insurance Policy is in effect and the Municipal Bond Insurer is not in default in respect of its payment obligations thereunder, the Municipal Bond Insurer shall be (i) deemed to be the sole and exclusive Owner of the Certificates for purposes of all approvals, consents, waivers, institution of any action, and the direction of all remedies and (ii) entitled to direct and control the enforcement of all remedies granted under this Lease Agreement.
(b) No sublease, release, sale, disposition or substitution of the Property subject to the Site and Facility Lease and this Lease Agreement or any mortgage, deed of trust or other document evidencing a security interest in, or otherwise pledged, directly or indirectly, to secure the Certificates, shall occur without the prior written consent of the Municipal Bond Insurer. Without limiting the generality of the foregoing, no portion of the Property may be released following the partial prepayment of lease payments or rentals, the partial redemption of the Certificates, or the exercise of a purchase option or similar right, unless in each case the Municipal Bond Insurer shall have provided its prior written consent to such release. (c) Except for the Certificates, the City shall not issue or incur, directly or indirectly, any additional certificates, notes, bonds or other indebtedness that are (i) payable from or secured -30-
by the lease payments or rentals payable under this Lease Agreement or (ii) secured by, or granted a lien on, the Property.
(d) No termination, assignment (other than to the Trustee in accordance with the Trust Agreement), transfer or sublease of the Lease Agreement or the Site and Facility Lease shall be permitted without the prior written consent of the Municipal Bond Insurer. (e) The City represents, warrants and covenants that neither the Property nor any portion thereof is located in the FEMA 100 year flood plain. (f) The City covenants and agrees to comply in all material respects with all laws applicable to the Property or any portion thereof, including without limitation all local, State and federal environmental and Hazardous Substances laws, rules and regulations, and with any order of any jurisdiction over the Property. For purposes of this paragraph, “Hazardous Substances” means any substances, pollutants, wastes and contaminants now or hereafter included in such (or any similar) term under any federal, state or local ordinance, code or regulation now existing or hereafter enacted or amended.
Section 11.5. Binding Effect. This Lease Agreement shall inure to the benefit of and shall be binding upon the Corporation and the City and their respective successors and assigns.
Section 11.6. Severability. In the event any provision of this Lease Agreement shall be held invalid or unenforceable by any court of competent jurisdiction, such holding shall not invalidate or render unenforceable any other provision hereof.
Section 11.7. Net-net-net Lease. This Lease Agreement shall be deemed and construed to be a “net-net-net lease” and the City hereby agrees that the Lease Payments shall be an absolute net return to the Corporation, free and clear of any expenses, charges or set-offs whatsoever.
Section 11.8. Third Party Beneficiary. The Trustee is hereby made a third party beneficiary hereunder with all rights of a third party beneficiary.
Section 11.9. Further Assurances and Corrective Instruments. The Corporation and the City agree that they will, from time to time, execute, acknowledge and deliver, or cause to be executed, acknowledged and delivered, such supplements hereto and such further instruments as may reasonably be required for correcting any inadequate or incorrect description of the Property hereby leased or intended so to be or for carrying out the expressed intentions of this Lease Agreement.
Section 11.10. Execution in Counterparts. This Lease Agreement may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument. The exchange of copies of this Lease Agreement and of signature pages by facsimile or pdf transmission shall constitute effective execution and delivery of this Lease Agreement to the parties hereto and may be used in lieu of the original Lease Agreement and signature pages for all purposes.
Section 11.11. Applicable Law. This Lease Agreement shall be governed by and construed in accordance with the laws of the State.
Section 11.12. Corporation and City Representatives. Whenever under the provisions of this Lease Agreement the approval of the Corporation or the City is required, or the Corporation or the City is required to take some action at the request of the other, such approval or such request shall be given for the Corporation by a Corporation Representative -31-
and for the City by a City Representative, and each party hereto shall be authorized to rely upon any such approval or request.
Section 11.13. Captions. The captions or headings in this Lease Agreement are for convenience only and in no way define, limit or describe the scope or intent of any provisions or Section of this Lease Agreement.
[Remainder of this page is intentionally left blank]
S-1
[Signature page to Lease Agreement]
IN WITNESS WHEREOF, the Corporation has caused this Lease Agreement to be executed in its name by its duly authorized officers; and the City has caused this Lease Agreement to be executed in its name by its duly authorized officers, as of the date first above written.
PUBLIC PROPERTY FINANCING
CORPORATION OF CALIFORNIA
By
Stefan A. Morton
Treasurer
CITY OF RIDGECREST
By
Ronald Strand
City Manager
Exhibit A
EXHIBIT A
DESCRIPTION OF THE SITE
The land referred to herein is situated in the State of California, County of Kern and described as follows:
Civic Center Complex Site
A PARCEL LOCATED IN THE NORTH HALF OF THE NORTHEAST QUARTER OF SECTION 4, TOWNSHIP 27 SOUTH, RANGE 40 EAST, MOUNT DIABLO BASE AND MERIDIAN, IN THE CITY OF RIDGECREST, COUNTY OF KERN, STATE OF CALIFORNIA, DESCRIBED AS FOLLOWS:
BEGINNING AT THE NORTHEAST CORNER OF SAID SECTION 4; THENCE ON THE EAST SECTION LINE OF SAID SECTION 4, SOUTH 0° 52' 10" WEST 280.024 FEET; THENCE NORTH 89° 52' 50" WEST 275.024 FEET TO THE NORTHWEST CORNER OF TRACT 1846, BEING THE TRUE POINT OF BEGINNING; THENCE FROM SAID TRUE POINT OF BEGINNING SOUTH 0° 52' 18" WEST 830.78 FEET; THENCE SOUTH 45° 22' 33" WEST 14.26 FEET; THENCE SOUTH 89° 52' 46" WEST 1013.15 FEET; THENCE NORTH 0° 54' 00" EAST 780.84 FEET TO A POINT 340 FEET SOUTH OF THE NORTH SECTION LINE OF SAID SECTION 4; THENCE PARALLELING SAID NORTH SECTION LINE OF SAID SECTION 4, NORTH 89° 53' 00" EAST 298.20 FEET; THENCE PARALELLING THE EAST SECTION LINE OF SAID SECTION 4, NORTH 0° 52' 18" EAST 60.01 FEET TO A POINT 280 FEET SOUTH OF SAID NORTH SECTION LINE OF SAID SECTION 4; THENCE PARALLELING SAID NORTH SECTION LINE OF SAID SECTION 4, NORTH 89° 53' 00" EAST 724.56 FEET, MORE OR LESS, TO THE TRUE POINT OF BEGINNING.
EXCEPTING THEREFROM ALL OIL, GAS AND OTHER HYDROCARBON SUBSTANCES, MINERALS
AND WATER WITHIN OR UNDERLYING SAID LAND, PROVIDED, HOWEVER, GRANTOR HEREIN,
THEIR SUCCESSORS AND ASSIGNS, SHALL NOT CONDUCT DRILLING OR OTHER OPERATIONS
UPON THE SURFACE OF SAID LAND, BUT NOTHING HEREIN CONTAINED SHALL BE DEEMED
TO PREVENT SAID GRANTOR, THEIR SUCCESSORS AND ASSIGNS, FROM EXTRACTING OR
CATURING SAID OIL, GAS, PETROLEUM, OTHER HYDROCARBON SUBSTANCES, MINERALS
AND WATER FROM SAID LAND BY DRILLING ON ADJACENT OR NEIGHBORING LANDS AT A DEPTH OF 100 FEET OR MORE BELOW THE SURFACE OF SAID LAND, AS RESERVED IN DEED BY
KERR-MC GEE CHEMICAL CORPORATION, A DELAWARE CORPORATION, RECORDED DECEMBER 6, 1988 IN BOOK 6187 PAGE 2384 OF OFFICIAL RECORDS, DOCUMENT NO. 64323.
APN: 478-010-07
Exhibit B
EXHIBIT B
DESCRIPTION OF THE FACILITY
The Facility consists of the City’s Civic Center Complex.
The Civic Center Complex is located on a portion of the Site at 100 West California Avenue, Ridgecrest, California, and includes the following improvements:
City Hall. The Ridgecrest City Hall, completed in late-1989, is a two story, 41,600 square foot building that houses all of the City’s departments plus the City Council Chambers.
Community Center/Meeting Complex/Recreation Complex. The Community Center, also competed in late1989, contains 40,300 square feet with assembly spaces, public building spaces, a full-service kitchen, an aerobics room, handball courts, basketball courts, craft rooms, day care facilities and offices.
Exhibit C
EXHIBIT C
SCHEDULE OF LEASE PAYMENTS
Lease Total Annual
Payment Principal Interest Lease Lease
Date Component Component Payment Payments
05/15/25
11/15/25
05/15/26
11/15/26
05/15/27
11/15/27
05/15/28
11/15/28
05/15/29
11/15/29
05/15/30
11/15/30
05/15/31
11/15/31
05/15/32
11/15/32
05/15/33
11/15/33
05/15/34
Total
This Preliminary Official Statement and the information contained herein are subject to completion or amendment. These securities may not be sold nor may offers to buy be accepted prior to the time the Official Statement is delivered in final form. Under no circumstances shall this Preliminary Official Statement 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 prior to registration or qualification under the securities laws of such jurisdiction.
PRELIMINARY OFFICIAL STATEMENT DATED JANUARY 21, 2025
NEW ISSUE—FULL BOOK-ENTRY RATINGS:
S&P: “AA” (BAM-Insured)
S&P: “A” (Underlying)
(See “RATINGS” herein)
In the opinion of Stradling Yocca Carlson & Rauth LLP, Newport Beach, California, Special Counsel, under existing statutes, regulations, rulings and judicial decisions, interest (and original issue discount) with respect to the Certificates is excluded from gross income for federal income tax purposes and is not an item of tax preference for purposes of calculating the federal alternative minimum tax imposed on individuals; however, it should be noted that with respect to applicable corporations as defined in section 59(k) of the Internal Revenue Code of 1986, as amended, interest (and original issue discount) with respect to the Certificates might be taken into account in determining adjusted financial statement income for purposes of computing the alternative minimum tax imposed on such corporations. In the further opinion of Special Counsel, interest (and original issue discount) with respect to the Certificates is exempt from State of California personal income tax. See “TAX MATTERS” herein. $__________* CERTIFICATES OF PARTICIPATION (2025 Aquatics Facility Financing Project) Evidencing the Direct, Undivided Fractional Interests
of the Owners Thereof in Lease Payments to be Made by the CITY OF RIDGECREST (Kern County, California),
As the Rental for Certain Property Pursuant to a Lease Agreement with the Public Property Financing Corporation of California Dated: Date of Delivery Due: June 1, as shown on the inside cover The $_________* Certificates of Participation (2025 Aquatics Facility Financing Project) (the “Certificates”), are being sold to provide funds, together with other available moneys, to (a) finance the cost of constructing and equipping a new aquatics facility, and (b) pay costs incurred in connection with the execution, delivery and sale of the Certificates, including purchasing a municipal bond insurance policy for the Certificates and a reserve fund municipal bond insurance policy in lieu of cash funding a reserve fund.
The Certificates will evidence direct, undivided fractional interests of the owners thereof in Lease Payments (as defined herein) to be made by the City of Ridgecrest (the “City’) to the Public Property Financing Corporation of California (the “Corporation”) for the use and occupancy of certain existing property of the City under and pursuant to a Lease Agreement, dated as of February 1, 2025, by and between the Corporation and the City (the “Lease Agreement”). See “THE PROPERTY” hereon. The Corporation will assign its right to receive Lease Payments from the City under the Lease Agreement and its right to enforce payment of the Lease Payments when due or otherwise protect its interest in the event of a default by the City thereunder to U.S. Bank Trust Company, National Association, Los Angeles, California, as trustee (the “Trustee”), for the benefit of the registered owners of the Certificates.
The Certificates will be executed and delivered in book-entry form only, and will be initially registered in the name of Cede & Co. as nominee of The Depository Trust Company, New York, New York (referred to herein as “DTC”). Purchasers of the Certificates (the “Beneficial Owners”) will not receive physical certificates representing their interest in the Certificates. Interest with respect to the Certificates accrues from their date of delivery and is payable semiannually by check mailed on each June 1 and December 1, commencing June 1, 2025. The Certificates may be executed and delivered in denominations of $5,000 or any integral multiple thereof. Payments of principal and interest with respect to the Certificates will be paid by the Trustee to DTC for subsequent disbursement to DTC Participants who will remit such payments to the Beneficial Owners of the Certificates. See “THE CERTIFICATES—Book-Entry-Only System.”
The Certificates are subject to optional and mandatory redemption, as described herein. See “THE CERTIFICATES—Redemption.”
NEITHER THE CERTIFICATES NOR THE OBLIGATION OF THE CITY TO MAKE LEASE PAYMENTS UNDER THE LEASE AGREEMENT CONSTITUTES A
DEBT OR INDEBTEDNESS OF THE CITY OR THE STATE OF CALIFORNIA OR ANY POLITICAL SUBDIVISION THEREOF WITHIN THE MEANING OF ANY
CONSTITUTIONAL OR STATUTORY DEBT LIMITATIONS OR RESTRICTION OR AN OBLIGATION FOR WHICH THE CITY IS OBLIGATED TO LEVY OR PLEDGE ANY FORM OF TAXATION OR FOR WHICH THE CITY HAS LEVIED OR PLEDGED ANY FORM OF TAXATION.
MATURITY SCHEDULE
SEE THE INSIDE COVER
The following firm, serving as financial advisor to the Authority and the City, has structured this issue:
The scheduled payment of principal and interest with respect to all or a portion of the Certificates when due will be guaranteed under a municipal bond insurance policy to be issued concurrently with the delivery of the Certificates by BUILD AMERICA MUTUAL ASSURANCE COMPANY. See “MUNICIPAL BOND INSURANCE” herein.
The cover page contains certain information for general reference only. It is not a summary of all the provisions of the Certificates. Investors must read the entire Official Statement to obtain information essential to the making of an informed investment decision. See “RISK FACTORS” herein for a discussion of special risk factors that should be considered, in addition to the other matters set forth herein, in evaluating the investment quality of the Certificates.
The Certificates will be offered when, as and if delivered and received by the Underwriter subject to approval by Stradling Yocca Carlson & Rauth LLP, Newport Beach, California, as Special Counsel. Certain matters will be passed upon for the City by Stradling Yocca Carlson & Rauth LLP, Newport Beach, California, as Disclosure Counsel, and by the City Attorney, and for the Underwriter by Best Best & Krieger LLP, Los Angeles, California. It is anticipated that the Certificates will be available for delivery to DTC in New York, New York, on or about February 19, 2025.
Hilltop Securities Inc.
Dated: February __, 2025
*Preliminary, subject to change.
$__________*
CERTIFICATES OF PARTICIPATION
(2025 Aquatics Facility Financing Project)
Evidencing the Direct, Undivided Fractional Interests
of the Owners Thereof in Lease Payments to be Made by the
CITY OF RIDGECREST
(Kern County, California),
As the Rental for Certain Property Pursuant to a Lease Agreement with the Public Property Financing Corporation of California MATURITY SCHEDULE*
CUSIP Prefix: _______†
Maturity Principal Interest CUSIP
(June 1) Amount Rate Price Yield Suffix†
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
*Preliminary, subject to change.
†Copyright 2025, American Bankers Association. CUSIP® is a registered trademark of the American Bankers Association. CUSIP data herein is provided by CUSIP Global Services, managed by FactSet Research Systems Inc. on behalf of the American Bankers Association. This data is not intended to create a database and does not serve in any way as a substitute for CUSIP Global Services. CUSIP numbers have been assigned by an independent company not affiliated with the City and are included solely for the convenience of the registered owners of the Certificates. Neither the City nor the Underwriter is responsible for the selection or uses of these CUSIP numbers and no representation is made as to their correctness on the Certificates or as included herein. The CUSIP number for a specific maturity is subject to being changed after the delivery of the Certificates as a result of various subsequent actions including, but not limited to, a 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 Certificates.
For purposes of compliance with Rule 15c2-12 of the United States Securities and Exchange Commission, as amended (“Rule 15c2-12”), this Preliminary Official Statement constitutes an “official statement” of the City with respect to the Certificates that has been deemed “final” by the City as of its date except for the omission of no more than the information permitted by Rule 15c2-12.
No dealer, broker, salesperson or other person has been authorized to give any information or to make any representation other than those contained herein and, if given or made, such other information or representation must not be relied upon as having been authorized. This Official Statement does not constitute an offer to sell or the solicitation of any offer to buy, nor shall there be any sale of the Certificates by a person in any jurisdiction in which it is unlawful for such person to make an offer, solicitation or sale.
This Official Statement is not to be construed as a contract with the purchasers of the Certificates. Statements contained in this Official Statement which involve estimates, forecasts or matters of opinion, whether or not expressly so described herein, are intended solely as such and are not to be construed as representations of facts.
The information set forth herein has been obtained from the City and from other sources and is believed to be reliable but is not guaranteed as to accuracy or completeness. The information and expressions of opinions herein are subject to change without notice and neither the delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the City since the date hereof. This Official Statement is submitted in connection with the sale of the Certificates referred to herein and may not be reproduced or used, in whole or in part, for any other purpose, unless authorized in writing by the City. All summaries of the Certificates, the Lease Agreement, the Trust Agreement, the Assignment Agreement, the Site and Facility Lease (each as defined herein), or other documents, are made subject to the provisions of such documents and do not purport to be complete statements of any or all of such provisions. Reference is hereby made to such documents on file with the Director of Finance for further information. See “INTRODUCTION—Other Information.”
The Underwriter has provided the following sentence for inclusion in this Official Statement: The Underwriter has reviewed the information in this Official Statement in accordance with, and as part of, its responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriter does not guarantee the accuracy or completeness of such information.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CERTIFICATES AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. THE UNDERWRITER MAY OFFER AND SELL THE
CERTIFICATES TO CERTAIN DEALERS, INSTITUTIONAL INVESTORS AND OTHERS AT PRICES LOWER THAN
THE PUBLIC OFFERING PRICES STATED ON THE INSIDE COVER PAGE HEREOF AND SUCH PUBLIC OFFERING PRICES MAY BE CHANGED FROM TIME TO TIME BY THE UNDERWRITER.
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,” “expect,” “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 which may cause actual results, performance or achievements described to be materially different from any future results, performance or achievements expressed or implied by such forwardlooking statements. No assurance is given that actual results will meet the City’s forecasts in any way. Neither the City nor the Corporation is obligated to issue any updates or revisions to the forward-looking statements if or when its expectations, or events, conditions or circumstances on which such statements are based occur or do not occur.
The execution, sale and delivery of the Certificates has not been registered under the Securities Act of 1933 or the Securities Exchange Act of 1934, both as amended, in reliance upon exemptions provided thereunder by Sections 3(a)(2) and 3(a)(12), respectively, for the issuance and sale of municipal securities.
Build America Mutual Assurance Company (the “Municipal Bond Insurer”) makes no representation regarding the Certificates or the advisability of investing in the Certificates. In addition, the Municipal Bond Insurer has not independently verified, makes no representation regarding, and does not accept any responsibility for the accuracy or completeness of this Official Statement or any information or disclosure contained herein, or omitted herefrom, other than with respect to the accuracy of the information regarding the Municipal Bond Insurer supplied by the Municipal Bond Insurer and presented under the heading “MUNICIPAL BOND INSURANCE” and “APPENDIX H—SPECIMEN MUNICIPAL BOND INSURANCE POLICY.” The City maintains a website. Unless specifically indicated otherwise, the information presented on such website is not incorporated by reference as part of this Official Statement and should not be relied upon in making investment decisions with respect to the Certificates.
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TABLE OF CONTENTS
INTRODUCTION....................................................................................... 1 General .................................................................................................. 1 The City................................................................................................. 1 Purpose .................................................................................................. 2 Source of Payment for the Certificates .................................................. 3 Municipal Bond Insurance Policy; Reserve Policy................................. 3 Redemption ........................................................................................... 3 Continuing Disclosure ........................................................................... 4 Summaries of Documents...................................................................... 4 Other Information.................................................................................. 4 ESTIMATED SOURCES AND USES OF FUNDS ................................... 5 THE PROJECT ............................................................................................ 5 THE PROPERTY......................................................................................... 5 DEBT SERVICE SCHEDULE..................................................................... 7 THE CERTIFICATES................................................................................. 7 General .................................................................................................. 7 Redemption ........................................................................................... 8 Transfer and Exchange of Certificates................................................. 11 Book-Entry System.............................................................................. 11 SOURCE OF PAYMENT FOR THE CERTIFICATES........................... 11 General ................................................................................................ 11 Lease Payments; Covenant to Appropriate.......................................... 12 Reserve Fund....................................................................................... 12 Insurance ............................................................................................. 12 Abatement ........................................................................................... 13 Eminent Domain.................................................................................. 14 Optional Prepayment........................................................................... 14 Prepayment from Net Proceeds of Insurance and Condemnation ....... 14 Substitution of Property....................................................................... 14 Events of Default and Remedies.......................................................... 16 Amendment of Lease Agreement ........................................................ 17 MUNICIPAL BOND INSURANCE.......................................................... 17 Municipal Bond Insurance Policy ........................................................ 17 Build America Mutual Assurance Company........................................ 17 THE CITY.................................................................................................. 19 CITY FINANCIAL INFORMATION....................................................... 20 Financial Statements and Budgetary Process....................................... 20 General Fund Balance Sheet................................................................ 22 General Fund Revenues, Expenditures, and Changes in Fund Balances ............................................................................................................. 23 General Fund Budget........................................................................... 24 General Fund Transfers....................................................................... 25 City Financial Management................................................................. 25 Primary Sources of General Fund Revenues........................................ 26 Sales and Use Taxes ............................................................................ 27 Transient Occupancy Taxes................................................................ 28 Property Taxes..................................................................................... 28 Teeter Plan .......................................................................................... 29 Assessed Value .................................................................................... 30 Other Sources of General Fund Revenues........................................... 37 No Material Reliance on State Revenues............................................. 37 OTHER FINANCIAL INFORMATION .................................................. 38 Labor Relations.................................................................................... 38 Risk Management ................................................................................ 38 Employee Retirement Plans................................................................. 39 Other Post-Employment Benefits.........................................................42 Debt Obligations...................................................................................43 Overlapping Debt .................................................................................44 INVESTMENT OF CITY FUNDS............................................................46 THE CORPORATION ...............................................................................46 STATE BUDGET INFORMATION .........................................................46 State Budgeting Process .......................................................................47 Fiscal Year 2024 State Budget..............................................................47 Fiscal Year 2025 State Budget..............................................................47 Future State Budgets............................................................................48
CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES,
REVENUES AND APPROPRIATIONS ....................................................48 Article XIIIA of the California Constitution.........................................48 Article XIIIB of the California Constitution .........................................49 Articles XIIIC and XIIID (Proposition 218) of the California Constitution..........................................................................................50 Proposition 1A of 2004.........................................................................53 Proposition 22 ......................................................................................54 Proposition 26 ......................................................................................55 Proposition 19 ......................................................................................56 Taxpayer Protection and Government Accountability Act Initiative ...56 Future Initiatives..................................................................................56 RISK FACTORS .........................................................................................57 Lease Payments Are Not Debt .............................................................57 Valid and Binding Covenant to Budget and Appropriate......................57 Additional Obligations of the City ........................................................58 Cash Management................................................................................58 Abatement............................................................................................58 No Acceleration Upon Default.............................................................58 Risk of Uninsured Loss.........................................................................59 Eminent Domain ..................................................................................59 Public Health Emergencies...................................................................59 Hazardous Substances..........................................................................59 Natural Calamities................................................................................60 China Lake Naval Weapons Facility.....................................................61 Potential Impact of State Financial Condition on the City ...................61 Risk of Changing Economic Conditions ...............................................62 Pension Benefit Liability.......................................................................62 Risks Related to Cyber Security............................................................62 Bankruptcy ...........................................................................................63 Early Redemption Risk .........................................................................63 Limitations on Remedies......................................................................63 Secondary Market Risk.........................................................................64 Changes in Law ....................................................................................64 Risks Relating to the Municipal Bond Insurance Policy .......................65 ABSENCE OF LITIGATION.....................................................................65 CONTINUING DISCLOSURE..................................................................66 MUNICIPAL ADVISOR.............................................................................66 LEGAL MATTERS ....................................................................................66 TAX MATTERS.........................................................................................67 UNDERWRITING .....................................................................................69 RATINGS....................................................................................................69 FINANCIAL STATEMENTS ...................................................................69 ADDITIONAL INFORMATION ..............................................................69
APPENDIX A GENERAL, ECONOMIC AND DEMOGRAPHIC INFORMATION RELATING TO THE CITY AND THE COUNTY APPENDIX B ANNUAL COMPREHENSIVE FINANCIAL REPORT OF THE CITY FOR THE FISCAL YEAR ENDED JUNE 30, 2023
APPENDIX C INVESTMENT POLICY OF THE CITY
APPENDIX D FORM OF SPECIAL COUNSEL OPINION
APPENDIX E SUMMARY OF THE PRINCIPAL LEGAL DOCUMENTS
APPENDIX F DTC’S BOOK-ENTRY ONLY SYSTEM
APPENDIX G FORM OF CONTINUING DISCLOSURE CERTIFICATE
APPENDIX H: SPECIMEN MUNICIPAL BOND INSURANCE POLICY
CITY OF RIDGECREST
100 West California Avenue
Ridgecrest, CA 93555
(760) 499-5000
https://www.ridgecrest-ca.gov/
CITY COUNCIL MEMBERS
Travis Endicott, Mayor
Kyle Blades, Vice Mayor
Solomon P. Rajaratnam, Mayor Pro Tem
John “Skip” Gorman, Councilmember
L. Scott Hayman, Councilmember
CITY OFFICIALS
Ronald Strand, City Manager
Travis Reed, Deputy City Manager
Kelly Brewton, Finance Director
Ricca Charlon, CMC, City Clerk
Martin Koczanowicz, Esq., City Attorney
PROFESSIONAL SERVICES
Wulff Hansen & Co.
San Rafael, California
Municipal Advisor
Stradling Yocca Carlson & Rauth LLP
Newport Beach, California
Special Counsel and Disclosure Counsel
U.S. Bank Trust Company, National Association
Los Angeles, California
Trustee
$_______*
CERTIFICATES OF PARTICIPATION
(2025 Aquatics Facility Financing Project)
Evidencing the Direct, Undivided Fractional Interests
of the Owners Thereof in Lease Payments to be Made by the
CITY OF RIDGECREST
(Kern County, California),
As the Rental for Certain Property Pursuant to a
Lease Agreement with the
Public Property Financing Corporation of California
INTRODUCTION
This introduction does not purport to be complete, and reference is made to the body of this Official Statement, appendices and the documents referred to herein for more complete information with respect to matters concerning the captioned Certificates. Potential investors are encouraged to read this entire Official Statement. Capitalized terms used and not defined in this Official Statement shall have the meanings assigned to them in APPENDIX E—SUMMARY OF THE PRINCIPAL LEGAL DOCUMENTS—DEFINITIONS.
General
This Official Statement, including the cover page, the inside cover page and appendices hereto, is provided to furnish information in connection with the execution, sale and delivery of $_________* City of Ridgecrest Certificates of Participation (2025 Aquatics Facility Financing Project) (the “Certificates”).
The Certificates are being executed and delivered pursuant to a Trust Agreement, dated as of February 1, 2025 (the “Trust Agreement”), by and among the City of Ridgecrest, California (the “City”), the Public Property Financing Corporation of California (the “Corporation”) and U.S. Bank Trust Company, National Association, as trustee (the “Trustee”).
The City
The City, incorporated in 1963, is located in the southern portion of the Indian Wells Valley in the northeast corner of Kern County (the “County”). The City is the third most populous city in the County.
The City is surrounded by four mountain ranges; the Sierra Nevada on the west, the Coso on the north, the Argus on the east, and the El Paso on the south. The City is approximately an hour and quarter from the Lancaster/Palmdale area and approximately two hours from both Bakersfield and San Bernardino, the two nearest urban areas. During the 1950s and 1960s, the City evolved as a support community to the China Lake Naval Air Weapons Station (“NAWS China Lake”), providing housing and vital services for employees and contractors.
NAWS China Lake is home to the Naval Air Warfare Center Weapons Division, which continues to be a major source of employment for the City’s residents. NAWS China Lake, the United States Navy’s largest single landholding, representing a majority of the Navy’s land for weapons and armaments research, development, acquisition, testing and evaluation. NAWS China Lake has been in continuous operation * Preliminary, subject to change.
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since 1943 and employs hundreds of active-duty military personnel as well as thousands of civilian employees and contractors.
The City operates under a council-manager form of government. The five-member City Council (the “City Council”) is elected on an at large basis by the City’s voters. City Council members serve fouryear terms, with two members elected every two years. The Mayor and Mayor Pro Tem are elected by the City Council members to one-year terms. The City Council appoints the City Manager and the City Attorney. The City Manager is responsible for directing, coordinating and carrying out City Council policies.
For additional information about the City, see “THE CITY,” “CITY FINANCIAL INFORMATION,” APPENDIX A—GENERAL, ECONOMIC AND DEMOGRAPHIC INFORMATION RELATING TO THE CITY AND THE COUNTY and APPENDIX B—ANNUAL COMPREHENSIVE FINANCIAL REPORT OF THE CITY FOR THE YEAR ENDED JUNE 30, 2023.
Purpose
The proceeds of the Certificates will provide funds to (a) finance the costs of constructing and equipping a new aquatics facility, and (b) pay costs incurred in connection with the execution, delivery and sale of the Certificates, including purchasing a municipal bond insurance policy for the Certificates and a reserve fund municipal bond insurance policy in lieu of cash funding a reserve fund. See “THE PROJECT.” The City will lease certain existing property and the improvements thereon (the “Property”) to the Corporation pursuant to a Site and Facility Lease, dated as of February 1, 2025 (the “Site and Facility Lease”). The Corporation will lease the Property back to the City pursuant to a Lease Agreement, dated as of February 1, 2025 (the “Lease Agreement”). The Certificates will be payable solely from and secured by the lease payments (the “Lease Payments”) to be made by the City to the Corporation pursuant to the Lease Agreement from its general fund. See “SOURCE OF PAYMENT FOR THE CERTIFICATES” and “THE PROPERTY.”
The Property was leased by the City to the Corporation in 2018 pursuant to a site and facility lease (the “2018 Site and Facility Lease”) and leased back by the Corporation to the City pursuant to a lease agreement (the “2018 Lease Agreement”) in connection with the City’s Taxable Certificates of Participation (2018 PERS Financing Project) (the “2018 Certificates”). Therefore, the Site and Facility Lease is technically a sub-sub lease and the Lease Agreement is a sub-sub-sub lease as the 2018 Site and Facility Lease and the 2018 Lease Agreement will remain in force and are Permitted Encumbrances.
The 2018 Lease Agreement provides that the City may sublease the Property to the Corporation in connection with a future certificates of participation or lease revenue bond financing so long as the total of the unpaid principal component of the 2018 lease payments and the principal component of the lease payments to be paid with respect to such future certificates of participation or lease revenue bond financing does not exceed the value of the Property.
Interest with respect to the Certificates is payable on June 1 and December 1 of each year, commencing June 1, 2025. The Certificates will mature in the amounts and on the dates and be payable at the interest rates shown on the inside cover of this Official Statement. See “THE CERTIFICATES.” -3-
The Certificates will be delivered in fully registered form only, in the name of Cede & Co., as nominee of the Depository Trust Company, New York, New York (“DTC”). DTC will act as the depository for the Certificates and all payments due with respect to the Certificates will be made to Cede & Co., DTC’s nominee. Ownership interests in the Certificates may be purchased only in book-entry form.
See “THE CERTIFICATES—Book-Entry System” and APPENDIX F—DTC’S BOOK-ENTRY ONLY SYSTEM.
Source of Payment for the Certificates
The Certificates represent direct, undivided interests of the Owners thereof in the Lease Payments to be paid by the City to the Corporation pursuant to the Lease Agreement. The Lease Payments are payable by the City from its General Fund for the right to use and possess the Property. The Lease Payments are subject to abatement during any period in which by reason of damage or destruction there is substantial interference with the use and occupancy by the City of the Property or any portion thereof. The City will covenant under the Lease Agreement to take such action as necessary to include the Lease Payments in its annual budget and to make all necessary appropriations therefor (subject to abatement under certain circumstances described in the Lease Agreement). Pursuant to an Assignment Agreement, dated as of February 1, 2025 (the “Assignment Agreement”), by and between the Corporation and the Trustee, the Corporation will assign to the Trustee, for the benefit of the Owners of the Certificates, certain of its rights under the Lease Agreement, including its right to receive Lease Payments from the City. See “SOURCE OF PAYMENT FOR THE CERTIFICATES—Lease Payments; Covenant to Appropriate and “RISK FACTORS.”
NEITHER THE CERTIFICATES NOR THE OBLIGATION OF THE CITY TO MAKE
LEASE PAYMENTS UNDER THE LEASE AGREEMENT CONSTITUTES A DEBT OR INDEBTEDNESS OF THE CITY OR THE STATE OF CALIFORNIA (THE “STATE”) OR ANY
POLITICAL SUBDIVISION THEREOF WITHIN THE MEANING OF ANY CONSTITUTIONAL
OR STATUTORY DEBT LIMITATIONS OR RESTRICTION OR AN OBLIGATION FOR WHICH
THE CITY IS OBLIGATED TO LEVY OR PLEDGE ANY FORM OF TAXATION OR FOR WHICH THE CITY HAS LEVIED OR PLEDGED ANY FORM OF TAXATION.
Municipal Bond Insurance Policy; Reserve Policy
The scheduled payment of the principal and interest with respect to all or a portion of the Certificates when due will be guaranteed under a municipal bond insurance policy (the “Municipal Bond Insurance Policy”) to be issued by Build America Mutual Assurance Company (the “Municipal Bond Insurer”) simultaneously with the delivery of the Certificates. See “MUNICIPAL BOND INSURANCE.” In addition, the Municipal Bond Insurer has made a commitment to issue a municipal bond insurance policy for the Reserve Fund established for the Certificates (the “Reserve Policy”) in an amount equal to the Reserve Requirement. See “SOURCES OF PAYMENT FOR THE CERTIFICATES— Reserve Fund.”
Redemption
The Certificates are subject to optional and mandatory redemption. See “THE CERTIFICATES—Redemption.”
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Continuing Disclosure
The City will covenant in a continuing disclosure certificate to prepare and deliver annual reports to the Municipal Securities Rulemaking Board (the “MSRB”) through the MSRB’s Electronic Municipal Market Access system. See “CONTINUING DISCLOSURE” and APPENDIX G—FORM OF CONTINUING DISCLOSURE CERTIFICATE.
Summaries of Documents
This Official Statement contains descriptions of the Certificates, the Trust Agreement, the Site and Facility Lease, the Lease Agreement, the Assignment Agreement and various other agreements and documents. The descriptions and summaries of documents herein do not purport to be comprehensive or definitive and reference is made to each such document for the complete details of all terms and conditions.
All statements herein are qualified in their entirety by reference to each such document and, with respect to certain rights and remedies, to laws and principles of equity relating to or affecting creditors’ rights generally.
Other Information
This Official Statement speaks only as of its date and the information contained herein is subject to change. Copies of documents referred to herein and information concerning the Certificates are available for inspection at the office of the City Clerk, City of Ridgecrest, 100 West California Avenue, Ridgecrest, CA 93555, Telephone: (760) 499-5000. The City may impose a charge for copying, mailing and handling.
This Official Statement is not to be construed as a contract with the purchasers of the Certificates.
Statements contained in this Official Statement which involve estimates, forecasts or matters of opinion, whether or not expressly so described herein, are intended solely as such and are not to be construed as representations of fact. The summaries and references to documents, statutes and constitutional provisions referred to herein do not purport to be comprehensive or definitive and are qualified in their entireties by reference to each of such documents, statutes and constitutional provisions.
The information set forth herein has been obtained from sources which are believed to be reliable.
The information and expressions of opinions herein are subject to change without notice and neither delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the City since the date hereof. This Official Statement is submitted in connection with the sale of the Certificates referred to herein and may not be reproduced or used, in whole or in part, for any other purpose. -5-
ESTIMATED SOURCES AND USES OF FUNDS
The following table shows the estimated sources and uses of the proceeds from the sale of the Certificates and other moneys:
Sources
Par Amount of the Certificates
Plus: Original Issue Premium
Total Sources
Uses
Deposit to the Project Fund (1)
Delivery Costs(2)
Total Uses
(1) Amounts deposited in the Project Fund will be used to finance the cost of the Project. See “THE PROJECT.” (2) Delivery Costs include the Underwriter’s discount, fees and expenses of the municipal advisor, special counsel, disclosure counsel and the Trustee, printing expenses, rating fees, title insurance, the premiums for the Municipal Bond Insurance Policy and the Reserve Policy and other costs.
THE PROJECT
A portion of the proceeds of the Certificates will be deposited into a project fund and applied to finance the new Sgt. Pinney Memorial Pool Complex to be located at 205 South Warner Street in the City.
The Pool Complex will include three outdoor pools: a 6,287 square foot competition pool, a 3,000 square foot children’s pool and a 1,200 square foot therapy pool. In addition, there will be two structures on the site: a Community Pool Building with 7,564 square feet of space for an office, mechanical room, bathrooms, snack bar, and a community room and a 2,306 square foot building for a family restroom and pool storage.
THE PROPERTY
Pursuant to the Site and Facility Lease, the Citywill lease the Property to the Corporation. Pursuant to the Lease Agreement, the Corporation will, in turn, lease the Property back to the City. See APPENDIX E—SUMMARY OF THE PRINCIPAL LEGAL DOCUMENTS—Site and Facility Lease and APPENDIX E—SUMMARY OF THE PRINCIPAL LEGAL DOCUMENTS—Lease Agreement.
The Property consists of the City’s Civic Center Complex and the site thereof.
The Civic Center Complex is located on the Site at 100 West California Avenue, Ridgecrest, California, and includes the following improvements:
City Hall. The Ridgecrest City Hall, completed in late-1989, is a two story, 41,600 square foot building that houses all of the City’s departments plus the City Council Chambers.
Community Center/Meeting Complex/Recreation Complex. The Community Center, also competed in late1989, contains 40,300 square feet with assembly spaces, public building spaces, a full-service kitchen, an aerobics room, handball courts, basketball courts, craft rooms, day care facilities and offices. -6-
The current insured value of the Property is in excess of $31,365,000.
The City and the Authority have previously entered into a Site and Facility Lease, dated as of December 1, 2018, and a Lease Agreement, dated as of December 1, 2018 (the “2018 Lease Agreement”), leasing and subleasing the Property. Therefore, the lease of the Property pursuant to the Lease Agreement is effectively a sub-sub-sublease. The City’s payments under the 2018 Lease Agreement have been pledged to the payments of the City’s Taxable Certificates of Participation (2018 PERS Financing Project) (the “2018 Certificates”), currently outstanding in the principal amount of $16,335,000, leaves $15,030,000 of unencumbered value for the Certificates.
The City’s payment obligation under the 2018 Lease Agreement and its payment obligation under the Lease Agreement are equally paid from the City’s general fund without preference or priority.
For a description of certain terms of the Lease Agreement see “SOURCE OF PAYMENT FOR THE CERTIFICATES” and APPENDIX E—SUMMARY OF THE PRINCIPAL LEGAL DOCUMENTS—LEASE AGREEMENT.
Pursuant to the Lease Agreement, the City may substitute the Property, in whole or in part, with other properties, upon the satisfaction of certain conditions. For more information regarding the substitution of property see “SOURCE OF PAYMENT FOR THE CERTIFICATES—Substitution or Removal of Property” and APPENDIX E—SUMMARY OF THE PRINCIPAL LEGAL DOCUMENTS—LEASE AGREEMENT.
The City has not granted any security interest in the Property for the benefit of the Certificates and there is no remedy of foreclosure on the Property upon the occurrence of an Event of Default under the Lease Agreement. For a discussion of remedies upon an Event of Default under the Lease Agreement, see “RISK FACTORS—Limitations on Remedies.”
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DEBT SERVICE SCHEDULE
The following table shows the scheduled annual debt service for the Certificates:
Principal
Payment
Date
(June 1) Principal* (1) Interest (2) Total
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
Total
*Preliminary, subject to change.
(1) Principal payments with respect to the Certificates on each June 1 are derived from Lease Payments made by the City on the preceding May 15. Includes sinking fund payments.
(2) Interest payments with respect to the Certificates on each June 1 and December 1 are derived from Lease Payments made by the City on the preceding May 15 and November 15, respectively.
THE CERTIFICATES
General
The Certificates will be executed and delivered in the aggregate principal amount and will mature on the dates and interest with respect thereto will be payable at the rates per annum as set forth on the cover page of this Official Statement. The Certificates will be delivered in the form of fully registered Certificates without coupons in the denomination of $5,000 or any integral multiple thereof. Interest with respect to the Certificates will be calculated on the basis of a 360-day year of twelve 30-day months and will be payable on June 1 and December 1 of each year, commencing June 1, 2025 (each an “Interest Payment Date”), until maturity or earlier redemption thereof. The Certificates will be initially executed, delivered and registered in the name of “Cede & Co.” as nominee of DTC and will be evidenced by one Certificate maturing on each of the maturity dates in a denomination corresponding to the total principal therein designated to mature on such date. See “THE CERTIFICATES—Book-Entry System” and APPENDIX F—DTC’S BOOK-ENTRY ONLY SYSTEM.
Interest with respect to the Certificates will be payable from the Interest Payment Date next preceding the date of execution thereof, unless: (i) it is executed as of an Interest Payment Date, in which event interest with respect thereto shall be payable from such Interest Payment Date; or (ii) it is executed after a Record Date (i.e., the close of business on the 15th day of the month preceding each Interest Payment Date, whether or not such 15th day is a Business Day) and before the following Interest Payment Date, in which event interest with respect thereto shall be payable from such Interest Payment Date; or (iii) it is executed on or before May 15, 2025, in which event interest with respect thereto will be payable from its dated date; provided, however, that if, as of the date of execution of any Certificate, interest is in default with -8-
respect to any Outstanding Certificates, interest represented by such Certificate shall be payable from the Interest Payment Date to which interest has previously been paid or made available for payment with respect to the Outstanding Certificates. Payment of defaulted interest shall be paid by check mailed to the Owners as of a special record date to be fixed by the Trustee in its sole discretion, notice of which shall be given to the Owners not less than ten (10) days prior to such special record date.
Payment of interest due with respect to any Certificate on any Interest Payment Date will be made to the person appearing on the Registration Books as the Owner thereof as of the Record Date immediately preceding such Interest Payment Date, such interest to be paid by check mailed on the Interest Payment Date by first class mail to such Owner at his or her address as it appears on the Registration Books as of such Record Date or, upon written request filed with the Trustee prior to the Record Date by an Owner of at least $1,000,000 in aggregate principal amount of Certificates, by wire transfer in immediately available funds to an account in the United States designated by such Owner in such written request. Any such written request shall remain in effect until rescinded in writing by the Owner. The principal and redemption price with respect to the Certificates at maturity or upon prior redemption shall be payable by check denominated in lawful money of the United States of America upon surrender of the Certificates at the Principal Corporate Trust Office.
Redemption
Optional Redemption. The Certificates maturing on or before June 1, ____, are not subject to optional redemption. Certificates maturing on and after June 1, ____, are subject to redemption prior to their respective stated maturity dates, from the proceeds of optional prepayments of Lease Payments made by the City pursuant to the Lease Agreement, in whole or in part, on any date on or after June 1, ____, at a redemption price equal to the principal amount to be redeemed, together with accrued interest to the date fixed for redemption, without a premium, from the proceeds of the optional prepayment of Lease Payments made by the City pursuant to the Lease Agreement.
Mandatory Sinking Fund Redemption. The Certificates maturing on June 1, ____, are subject to mandatory redemption in part on June 1, ____, and on each June 1 thereafter, to and including June 1, ____, from the principal components of scheduled Lease Payments required to be paid by the City pursuant to the Lease Agreement with respect to each such redemption date (subject to abatement, as set forth in the Lease Agreement), at a redemption price equal to the principal amount thereof to be redeemed, together with accrued interest to the date fixed for redemption, without premium, as follows:
Year Principal Amount of
(June 1) Certificates to be Redeemed
†Maturity.
Redemption from Net Proceeds of Insurance and Condemnation. The Certificates are subject to mandatory redemption in whole or in part on any date from the Net Proceeds of an insurance, title insurance, condemnation, or eminent domain award to the extent credited towards the prepayment of the Lease Payments by the City pursuant to the Lease Agreement, at a redemption price equal to the principal -9-
amount thereof to be redeemed, together with accrued interest to the date fixed for redemption, without premium. See “SOURCE OF PAYMENT FOR THE CERTIFICATES—Prepayment from Net Proceeds.”
Selection of Certificates for Redemption. Whenever provision is made for the redemption of Certificates and less than all Outstanding Certificates are called for redemption, the Trustee shall select Certificates for redemption in any order of maturity selected by the City (and if not selected by the City, pro rata among maturities) and by lot within a maturity. The Trustee shall promptly notify the City and the Corporation in writing of the Certificates so selected for redemption. Upon the occurrence of a redemption in part, the maturities to be redeemed shall be subject to the approval of the Municipal Bond Insurer.
Notice of Redemption. The City shall be required to give the Trustee written notice of its intention to redeem Certificates at least thirty (30) days prior to the date fixed for redemption unless the Trustee otherwise agrees to a shorter period for such notice. Unless waived in writing by any Owner of a Certificate to be redeemed, notice of any such redemption shall be given by the Trustee on behalf and at the expense of the City, by mailing a copy of a redemption notice by first class mail, postage prepaid, at least twenty (20) days and not more than sixty (60) days prior to the date fixed for redemption to such Owner of the Certificate or Certificates to be redeemed at the address shown on the Registration Books maintained by the Trustee or at such other address as is furnished in writing by such Owner to the Trustee; provided, however, that neither the failure to receive such notice nor any defect in any notice shall affect the sufficiency of the proceedings for the redemption of the Certificates.
All notices of redemption shall be dated and shall state: (i) the redemption date; (ii) the redemption price; (iii) if less than all Outstanding Certificates of a maturity are to be redeemed, the Certificate numbers (and, in the case of partial redemption, the respective principal amounts) of the Certificates to be redeemed; (iv) that on the redemption date the redemption price will become due and payable upon each such Certificate or portion thereof called for redemption and that interest with respect thereto shall cease to accrue from and after said date; (v) the place where such Certificates are to be surrendered for payment of the redemption price, which place of payment shall be the Designated Corporate Trust Office; (vi) the CUSIP numbers of all Certificates being redeemed; (vii) the original date of execution and delivery of the Certificates; (viii) the rate of interest payable with respect to each maturity of Certificates being redeemed; (ix) the maturity date of each Certificate being redeemed; and (x) any other descriptive information needed to identify accurately the Certificates being redeemed.
Notwithstanding the foregoing, in the case of any optional redemption of the Certificates, the notice of redemption shall state that the redemption is conditioned upon receipt by the Trustee of sufficient moneys to redeem the Certificates on the scheduled redemption date, and that the optional redemption shall not occur if, by no later than the scheduled redemption date, sufficient moneys to redeem the Certificates have not been deposited with the Trustee. In the event that the Trustee does not receive sufficient funds by the scheduled optional redemption date to so redeem the Certificates to be optionally redeemed, such event shall not constitute an Event of Default; the Trustee shall send written notice to the Owners, to the Securities Depositories and to one or more of the Information Services to the effect that the redemption did not occur as anticipated, and the Certificates for which notice of optional redemption was given shall remain Outstanding for all purposes of the Trust Agreement.
Notice of redemption having been given as aforesaid and the deposit of the redemption price having been made by the City, the Certificates or portions of Certificates so to be redeemed shall, on the redemption date, become due and payable at the redemption price therein specified, and from and after -10-
such date interest with respect to such Certificates or portions of Certificates shall cease to be payable.
Upon surrender of such Certificates for redemption in accordance with said notice, such Certificates shall be paid by the Trustee at the redemption price. Upon the payment of the redemption price of Certificates being redeemed, each check or other transfer of funds issued for such purpose shall bear the CUSIP number identifying, by issue and maturity, the Certificates being redeemed with the proceeds of such check or other transfer, to the extent possible. Installments of interest due on or prior to the redemption date shall be payable as herein provided for payment of interest. All Certificates which have been redeemed shall be canceled by the Trustee, shall not be redelivered and shall be destroyed pursuant to the Trust Agreement.
In addition to the foregoing notice to the Owners, notice shall also be given by the Trustee, by telecopy or other electronic transmission, registered, certified or overnight mail, to all Securities Depositories and to an Information Service which shall state the information set forth above, but no defect in said notice nor any failure to give all or any portion of such further notice shall in any manner defeat the effectiveness of a call for redemption.
The Trustee shall have no responsibility for a defect in the CUSIP number that appears on any Certificate or in the redemption notice. The redemption notice may provide that the CUSIP numbers have been assigned by an independent service and are included in the notice solely for the convenience of Certificate Owners and that the Trustee and the City shall not be liable in any way for inaccuracies in said numbers.
Partial Redemption of Certificate. Upon surrender of any Certificate redeemed in part only, the Trustee shall execute and deliver to the Owner thereof, at the expense of the City, a new Certificate or Certificates of authorized denominations equal in aggregate principal amount to the unredeemed portion of the Certificate surrendered and of the same interest rate and the same maturity.
Purchase of Certificates. In lieu of redemption of Certificates, amounts held by the Trustee for such redemption may also be used on any Interest Payment Date, upon receipt by the Trustee at least ninety (90) days prior to the next scheduled Interest Payment Date of the written request of a City Representative, for the purchase of Certificates at public or private sale as and when and at such prices (including brokerage, accrued interest and other charges) as the City may in its discretion direct. Such purchases may be affected through the investment department of the Trustee or of an affiliate of the Trustee. The aggregate principal amount of Certificates of the same maturity purchased in lieu of redemption shall not exceed the aggregate principal amount of Certificates of such maturity which would otherwise be subject to such redemption.
Remaining moneys, if any, shall be deposited in the Lease Payment Fund. All Certificates purchased in lieu of redemption shall be canceled by the Trustee.
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Transfer and Exchange of Certificates
The registration of any Certificate may, in accordance with its terms, be transferred upon the Registration Books by the person in whose name it is registered, in person or by his duly authorized attorney, upon surrender of such Certificate for cancellation at the Designated Corporate Trust Office of the Trustee, accompanied by delivery of a written instrument of transfer in a form acceptable to the Trustee, duly executed. Whenever any Certificate or Certificates shall be surrendered for registration of transfer, the Trustee shall execute and deliver a new Certificate or Certificates of the same maturity and aggregate principal amount, in any authorized denominations.
Certificates may be exchanged at the Corporate Trust Office of the Trustee, for a like aggregate principal amount of Certificates of other authorized denominations of the same maturity. The City shall pay any costs of the Trustee incurred in connection with such exchange, except that the Trustee may require the payment by the Certificate Owner requesting such exchange of any tax or other governmental charge required to be paid with respect to such exchange.
Book-Entry System
The Certificates will be initially executed, delivered and registered as one fully registered certificate for each maturity, without coupons, in the name of Cede & Co., as nominee of DTC. DTC will act as securities depository of the Certificates. Individual purchases may be made in book-entry form only, in the principal amount of $5,000 and integral multiples thereof. Purchasers will not receive physical certificates representing their interest in the Certificates purchased. Principal and interest will be paid to DTC which will in turn remit such principal and interest to its participants for subsequent disbursement to the beneficial owners of the Certificates as described herein. So long as DTC’s book-entry system is in effect with respect to the Certificates, notices to Owners of the Certificates by the City or the Trustee will be sent to DTC.
Notices and communication by DTC to its participants, and then to the beneficial owners of the Certificates, will be governed by arrangements among them, subject to then effective statutory or regulatory requirements. See APPENDIX F—DTC’S BOOK-ENTRY ONLY SYSTEM.
In the event that such book-entry system is discontinued with respect to the Certificates, the City will cause the Trustee to execute and deliver replacements in the form of registered certificates and, thereafter, the Certificates will be transferable and exchangeable on the terms and conditions provided in the Trust Agreement.
SOURCE OF PAYMENT FOR THE CERTIFICATES
General
Each Certificate represents a direct, undivided fractional interest in the Lease Payments. Pursuant to the Lease Agreement, the City will lease the Property from the Corporation and agree to make Lease Payments. See “THE PROPERTY.” Upon satisfaction of certain conditions set forth in the Lease Agreement, the City may substitute the Property with other properties. See “Substitution or Removal of Property” and “Abatement” below.
As security for the Certificates, the Corporation will assign to the Trustee for the payment of principal and interest with respect to the Certificates, the Corporation’s rights, title and interest in the Lease -12-
Agreement (with certain exceptions), including the right to receive Lease Payments to be made by the City under the Lease Agreement. The Lease Payments are designed to be sufficient, in both time and amount, to pay when due, the principal and interest with respect to the Certificates. The Lease Payments are payable by the City from any source of legally available funds.
THE OBLIGATION OF THE CITY TO MAKE LEASE PAYMENTS UNDER THE LEASE
AGREEMENT DOES NOT CONSTITUTE AN OBLIGATION OF THE CITY FOR WHICH THE
CITY IS OBLIGATED TO LEVY OR PLEDGE ANY FORM OF TAXATION OR FOR WHICH THE CITY HAS LEVIED OR PLEDGED ANY FORM OF TAXATION. NEITHER THE CERTIFICATES
NOR THE OBLIGATION OF THE CITY TO MAKE LEASE PAYMENTS UNDER THE LEASE
AGREEMENT CONSTITUTES AN INDEBTEDNESS OF THE CITY OR THE STATE OR ANY OF
ITS POLITICAL SUBDIVISIONS WITHIN THE MEANING OF ANY CONSTITUTIONAL OR STATUTORY DEBT LIMITATIONS.
Lease Payments; Covenant to Appropriate
Pursuant to the Lease Agreement, the City has agreed to make Lease Payments for the lease of the Property. Lease Payments will be made by the City to the Trustee on May 15 and November 15 in each year, in advance of the corresponding June 1 and December 1 Interest Payment Dates. The City will also pay as additional payments (“Additional Payments”), amounts required for the payment of all costs and expenses incurred by the Corporation to comply with the provisions of the Trust Agreement or in connection with the execution and delivery of the Certificates. The City has covenanted under the Lease Agreement to take such action as may be necessary to include all Lease Payments in its annual budget and to make the necessary annual appropriations for all such payments. Under certain circumstances described under the Lease Agreement, however, Lease Payments are subject to abatement during periods of substantial interference with the City’s use and occupancy of the Property or any portion thereof. See “SOURCE OF PAYMENT FOR THE CERTIFICATES—Abatement.”
Reserve Fund
The Trust Agreement provides that the Trustee will establish and maintain the Reserve Fund equal to the Reserve Requirement. “Reserve Requirement” means an amount equal to the least of maximum annual Lease Payments, 125% of average annual Lease Payments and 10% of the principal amount of the Certificates, which amount shall be $______ on the Closing Date. Amounts in the Reserve Fund are to be used only for the payment of the principal and interest with respect to the Certificates to the extent amounts in the Lease Payment Fund are insufficient therefor.
On the date of delivery of the Certificates, in lieu of a cash deposit to the Reserve Fund, the Municipal Bond Insurer will issue the Reserve Policy, in an amount equal to the Reserve Requirement.
There is no obligation for the City to replace the Reserve Policy or to cash fund the Reserve Fund if the rating of the Municipal Bond Insurer is downgraded or withdrawn.
Insurance
The City is required to keep or cause to be kept casualty insurance against loss or damage by fire and lightning, with extended coverage and vandalism and malicious mischief insurance, in an amount at least equal to the lesser of (i) 100% of the replacement cost (without deducting for depreciation) of the Property and (ii) the aggregate principal amount of Certificates at the time outstanding. Such insurance -13-
shall, as nearly as practicable, cover loss or damage by explosion, windstorm, riot, aircraft, vehicle damage, smoke and such other hazards as are normally covered by such insurance.
To insure against loss of rental income caused by perils mentioned above, the City is required to maintain, or cause to be maintained throughout the term of the Lease Agreement, rental interruption or use and occupancy insurance to cover loss, total or partial, of the use of any part of the Property as a result of any of the hazards described above in an amount at least equal to the maximum Lease Payments coming due and payable during any two consecutive fiscal years during the remaining term of the Lease Agreement.
Public liability and property damage insurance coverage is required in the minimum liability limits of $1,000,000 for personal injury or death of each person and $3,000,000 for personal injury or deaths of two or more persons in each accident or event, and in a minimum amount of $150,000 (subject to a deductible clause of not to exceed $5,000, or such higher amount as the City shall determine, provided that such higher deductible shall be considered a self-insured retention) for damage to property resulting from each accident or event. Such public liability and property damage insurance may, however, be in the form of a single limit policy in the amount of $3,000,000 covering all such risks. Such liability insurance may be maintained as part of or in conjunction with any other liability insurance coverage carried by the City and may be maintained in the form of insurance maintained through a joint exercise of powers authority created for such purpose or in the form of self-insurance by the City. The net proceeds of such liability insurance shall be applied toward extinguishment or satisfaction of the liability with respect to which the insurance proceeds shall have been paid.
The City shall provide, from moneys in the Costs of Issuance Fund or at its own expense, on the Closing Date, a CLTA title insurance policy in the amount of not less than the principal amount of the Certificates, insuring the City’s leasehold estate in the Property, subject only to Permitted Encumbrances.
See APPENDIX E—SUMMARY OF THE PRINCIPAL LEGAL DOCUMENTS—LEASE AGREEMENT—Insurance.
Abatement
Pursuant to the Lease Agreement, Lease Payments shall be abated during any period in which, by reason of damage or destruction, there is substantial interference with the use and occupancy by the City of the Property or any portion thereof (other than any modified portions of the Property as described in the Lease Agreement) to the extent to be agreed upon by the City and the Corporation and communicated by a City Representative to the Trustee. The parties agree that the amounts of the Lease Payments under such circumstances shall not be less than the amounts of the unpaid Lease Payments, unless such unpaid amounts are determined to be greater than the fair rental value of the portions of the Property not damaged or destroyed), based upon any appropriate method of valuation, in which event the Lease Payments shall be abated such that they represent said fair rental value. Such abatement shall continue for the period commencing with such damage or destruction and ending with the substantial completion of the work of repair or reconstruction as communicated by a City Representative to the Trustee. In the event of any such damage or destruction, the Lease Agreement shall continue in full force and effect and the City waives any right to terminate the Lease Agreement by virtue of any such damage and destruction. Notwithstanding the foregoing, there shall be no abatement of Lease Payments to the extent that (a) the proceeds of rental interruption insurance or (b) amounts in the Insurance and Condemnation Fund and/or the Lease Payment Fund are available to pay Lease Payments which would otherwise be abated, it being hereby declared that such proceeds and amounts constitute special funds for the payment of the Lease Payments. If an abatement -14-
event has occurred but remedied, the City shall be required to extend the Term of the Lease Agreement for up to 10 years, as described in the Lease Agreement, until such time as the amounts abated are recouped.
See “SOURCE OF PAYMENT FOR THE CERTIFICATES—Insurance,” APPENDIX E— SUMMARY OF THE PRINCIPAL LEGAL DOCUMENTS—Lease Agreement—Insurance and APPENDIX E—SUMMARY OF THE PRINCIPAL LEGAL DOCUMENTS—Lease Agreement— Abatement of Rental Payments in the Event of Damage or Destruction.
Eminent Domain
Pursuant to the Lease Agreement, if all of the Property is taken permanently under the power of eminent domain or sold to a government threatening to exercise the power of eminent domain, the term of the Lease Agreement shall cease as of the day possession shall be so taken. If less than all of the Property is taken permanently, or if the Property or any part thereof shall be taken temporarily, under the power of eminent domain, (1) the Lease Agreement shall continue in full force and effect and shall not be terminated by virtue of such taking and the parties waive the benefit of any law to the contrary, and (2) there shall be a partial abatement of Lease Payments as a result of the application of the Net Proceeds of any eminent domain award to the prepayment of the Lease Payments, in an amount to be agreed upon by the City and the Corporation such that the resulting Lease Payments represent fair consideration for the use and occupancy of the remaining usable portion of the Property.
Optional Prepayment
Pursuant to the Lease Agreement, the City has an option to prepay the principal components of the Lease Payments in full, by paying the aggregate unpaid principal components of the Lease Payments, in whole or in part, in a prepayment amount equal to the principal amount of Lease Payments to be prepaid, together with accrued interest to the date fixed for prepayment, with a premium as described above for the redemption of Certificates. See “THE CERTIFICATES—Redemption—Optional Redemption.” Said option may be exercised by the City on any date on or after May 15, ____. In the event of prepayment in part, the partial prepayment will be applied against Lease Payments in such order of payment date as will be selected by the City. Lease Payments due after any such partial prepayment will be in the amounts set forth in a revised Lease Payment schedule which will be provided by, or caused to be provided by, the City to the Trustee and which will represent an adjustment to the schedule set forth in the Lease Agreement taking into account said partial prepayment.
Prepayment from Net Proceeds of Insurance and Condemnation The City shall be obligated to prepay the Lease Payments for the Property, in whole or in part on any date, from and to the extent of any Net Proceeds of insurance award or condemnation award with respect to the Property that have been deposited with the Trustee in the Lease Payment Fund for such purpose. Such proceeds shall be applied to the prepayment of the principal component of the Lease Payments and the prepayment of the Certificates. See “THE CERTIFICATES—Prepayment— Prepayment from Net Proceeds of Insurance and Condemnation.” Substitution of Property
Substitution of Property. The City shall have, and is hereby granted, the option at any time and from time to time during the Term of the Lease Agreement to substitute other land and facilities (“Substitute -15-
Property”) for the Property, provided that the City shall satisfy all of the following requirements (to the extent applicable) which are hereby declared to be conditions precedent to such substitution:
(i) The City shall file with the Corporation, the Trustee and the Municipal Bond Insurer amended exhibits to the Site and Facility Lease which adds thereto a description of such Property and deletes therefrom the description of the Property;
(ii) The City shall file with the Corporation, the Trustee and the Municipal Bond Insurer amended exhibits to the Lease Agreement which adds thereto a description of such Substitute Property and deletes therefrom the description of the Property; (iii) The City shall certify in writing to the Corporation, the Trustee and the Municipal Bond Insurer that such Substitute Property serve the purposes of the City, constitutes property that is unencumbered, subject to Permitted Encumbrances, and constitutes property which the City is permitted to lease under the laws of the State;
(iv) The City delivers to the Corporation, the Trustee and the Municipal Bond Insurer an Officer’s Certificate of the City based on insurance values or any other reasonable basis of valuation received by the City (which need not require an appraisal) that the value of the Property following such substitution is equal to or greater than the Outstanding principal amount of the Certificates and confirms in writing to the Trustee that the indemnification provided pursuant to the Trust Agreement applies with respect to the Substitute Property; (v) The Substitute Property shall not cause the City to violate any of its covenants, representations and warranties made in the Lease Agreement and in the Trust Agreement, as evidenced by an officer’s certificate delivered to the Corporation, the Trustee and the Municipal Bond Insurer;
(vi) The City shall obtain an amendment to the title insurance policy required pursuant to the Lease Agreement which adds thereto a description of the site of the Substitute Property and deletes therefrom the description of the Site;
(vii) The City shall provide notice of the substitution to any rating agency then rating the Certificates which rating was provided at the request of the City; and (viii) The City shall furnish the Corporation, the Trustee and the Municipal Bond Insurer with a written opinion of Special Counsel, which shall be an Independent Counsel, stating that such substitution does not cause the interest components of the Lease Payments to become subject to federal income taxes or State personal income taxes.
Release of Site. The City shall have, and is hereby granted, the option at any time and from time to time during the Term of the Lease Agreement to release any portion of the Site, provided that the City shall satisfy all of the following requirements which are hereby declared to be conditions precedent to such release:
(i) The City shall file with the Corporation, the Trustee and the Municipal Bond Insurer an amended exhibit to the Site and Facility Lease which describes the Site, as revised by such release; -16-
(ii) The City shall file with the Corporation, the Trustee and the Municipal Bond Insurer an amended exhibit to the Lease Agreement which describes the Site, as revised by such release; (iii) The City delivers to the Corporation, the Trustee and the Municipal Bond Insurer an Officer’s Certificate of the City based on insurance values or any other reasonable basis of valuation received by the City (which need not require an appraisal) that the value of the Property, as revised by such release, is equal to or greater than the Outstanding principal amount of the Certificates and confirms in writing to the Trustee and the Corporation that the indemnification provided pursuant to the Trust Agreement applies with respect to the Site, as revised by such release; (iv) Such release shall not cause the City to violate any of its covenants, representations and warranties made herein and in the Trust Agreement, as evidenced by an officer’s certificate delivered to the Trustee;
(v) The City shall obtain an amendment to the title insurance policy required pursuant to the Lease Agreement which describes the Site, as revised by such release; and (vi) The City shall provide notice of the release to any rating agency then rating the Certificates which rating was provided at the request of the City or the Corporation.
Events of Default and Remedies
The following shall be “events of default” under the Lease Agreement:
(a) Failure by the City to pay any Lease Payment or other payment required to be paid hereunder at the time specified herein.
(b) Failure by the City to observe and perform any covenant, condition or agreement on its part to be observed or performed under the Lease Agreement (including failure to request appropriation pursuant thereunder) or under the Trust Agreement, other than as referred to in clause (a) above, for a period of thirty (30) days after written notice specifying such failure and requesting that it be remedied has been given to the City by the Corporation, the Trustee or the Owners of not less than five percent (5%) in aggregate principal amount of Certificates then outstanding; provided, however, if the failure stated in the notice can be corrected, but not within the applicable period, the Corporation, the Trustee (as directed by such Owners of not less than 5% in aggregate principal amount of Certificates then Outstanding) 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. (c) The filing by the City of a voluntary petition in bankruptcy, or failure by the City promptly to lift any execution, garnishment or attachment, or adjudication of the City as a bankrupt, or assignment by the City for the benefit of creditors, or the entry by the City into an agreement of composition with creditors, or the approval by a court of competent jurisdiction of a petition applicable to the City in any proceedings instituted under the provisions of the Federal Bankruptcy Act, as amended, or under any similar acts which may hereafter be enacted.
Whenever any event of default shall have happened and be continuing, it shall be lawful for the Corporation to exercise any and all remedies available pursuant to law or granted pursuant to the Lease Agreement; provided, however, that notwithstanding anything in the Lease Agreement or in the Trust -17-
Agreement to the contrary, there shall be no right under any circumstances to accelerate the Lease Payments or otherwise declare any Lease Payments not then in default to be immediately due and payable.
Each and every covenant to be kept and performed by the City under the Lease Agreement is expressly made a condition and upon the breach thereof the Corporation may exercise any and all rights of entry and re-entry upon the Property, and also, at its option, with or without such entry, may terminate the Lease Agreement. In the event of such default and notwithstanding any re-entry by the Corporation, the City shall, as expressly provided in the Lease Agreement, continue to remain liable for the payment of the Lease Payments and/or damages for breach of the Lease Agreement and the performance of all conditions contained in the Lease Agreement and, in any event, such rent and/or damages shall be payable to the Corporation at the time and in the manner as provided in the Lease Agreement.
Amendment of Lease Agreement
Except as provided below, without the prior written consent of the Trustee, the City will not alter, modify or cancel, or agree or consent to alter, modify or cancel the Lease Agreement, excepting only such alteration or modification as may be permitted by the Trust Agreement.
MUNICIPAL BOND INSURANCE
Municipal Bond Insurance Policy
Concurrently with the delivery of the Certificates, the Municipal Bond Insurer will issue the Municipal Bond Insurance Policy. The Municipal Bond Insurance Policy guarantees the scheduled payment of principal and interest with respect to the Certificates when due as set forth in the form of the Municipal Bond Insurance Policy included as APPNDIX H—SPECIMEN MUNICIPAL BOND INSURANCE POLICY
The Policy is not covered by any insurance security or guaranty fund established under New York, California, Connecticut or Florida insurance law.
Build America Mutual Assurance Company
The Municipal Bond Insurer is a New York domiciled mutual insurance corporation and is licensed to conduct financial guaranty insurance business in all fifty states of the United States and the District of Columbia. The Municipal Bond Insurer provides credit enhancement products solely to issuers in the U.S. public finance markets. The Municipal Bond Insurer will only insure municipal bonds, as defined in Section 6901 of the New York Insurance Law, which are most often issued by states, political subdivisions, integral parts of states or political subdivisions or entities otherwise eligible for the exclusion of income under section 115 of the U.S. Internal Revenue Code of 1986, as amended. No member of the Municipal Bond Insurer is liable for the obligations of the Municipal Bond Insurer.
The address of the principal executive offices of the Municipal Bond Insurer is: 200 Liberty Street, 27th Floor, New York, New York 10281, its telephone number is: 212-235-2500, and its website is located at: www.buildamerica.com.
The Municipal Bond Insurer is licensed and subject to regulation as a financial guaranty insurance corporation under the laws of the State of New York and in particular Articles 41 and 69 of the New York -18-
Insurance Law.
The Municipal Bond Insurer’s financial strength is rated “AA/Stable” by S&P Global Ratings, a business unit of Standard & Poor's Financial Services LLC (“S&P”). An explanation of the significance of the rating and current reports may be obtained from S&P at www.standardandpoors.com. The rating of the Municipal Bond Insurer should be evaluated independently. The rating reflects S&P’s current assessment of the creditworthiness of the Municipal Bond Insurer and its ability to pay claims on its policies of insurance. The above rating is not a recommendation to buy, sell or hold the Bonds, and such rating is subject to revision or withdrawal at any time by S&P, including withdrawal initiated at the request of the Municipal Bond Insurerin its sole discretion. Any downward revision or withdrawal of the above rating may have an adverse effect on the market price of the Bonds. The Municipal Bond Insurer only guarantees scheduled principal and scheduled interest payments payable by the issuer of the Bonds on the date(s) when such amounts were initially scheduled to become due and payable (subject to and in accordance with the terms of the Policy), and the Municipal Bond Insurer does not guarantee the market price or liquidity of the Bonds, nor does it guarantee that the rating on the Bonds will not be revised or withdrawn.
Capitalization of the Municipal Bond Insurer
The Municipal Bond Insurer’s total admitted assets, total liabilities, and total capital and surplus, as of September 30, 2024, and as prepared in accordance with statutory accounting practices prescribed or permitted by the New York State Department of Financial Services were $502.6 million, $246.3 million and $256.3 million, respectively.
The Municipal Bond Insurer is party to a first loss reinsurance treaty that provides first loss protection up to a maximum of 15% of the par amount outstanding for each policy issued by the Municipal Bond Insurer, subject to certain limitations and restrictions.
The Municipal Bond Insurer’s most recent Statutory Annual Statement, which has been filed with the New York State Insurance Department and posted on the Municipal Bond Insurer’s website at www.buildamerica.com, is incorporated herein by reference and may be obtained, without charge, upon request to the Municipal Bond Insurer at its address provided above (Attention: Finance Department).
Future financial statements will similarly be made available when published.
The Municipal Bond Insurer makes no representation regarding the Bonds or the advisability of investing in the Bonds. In addition, the Municipal Bond Insurer has not independently verified, makes no representation regarding, and does not accept any responsibility for the accuracy or completeness of this Official Statement or any information or disclosure contained herein, or omitted herefrom, other than with respect to the accuracy of the information regarding the Municipal Bond Insurer, supplied by the Municipal Bond Insurer and presented under the heading “MUNICIPAL BOND INSURANCE”.
Additional Information Available from the Municipal Bond Insurer Credit Insights Videos. For certain Municipal Bond Insurer-insured issues, the Municipal Bond Insurer produces and posts a brief Credit Insights video that provides a discussion of the obligor and some of the key factors the Municipal Bond Insurer’s analysts and credit committee considered when approving the credit for insurance. The Credit Insights videos are easily accessible on the Municipal Bond Insurer's website at www.buildamerica.com/videos. (The preceding website address is provided for convenience of reference only. Information available at such address is not incorporated herein by reference.) -19-
Credit Profiles. Prior to the pricing of bonds that the Municipal Bond Insurer has been selected to insure, the Municipal Bond Insurer may prepare a pre-sale Credit Profile for those bonds. These pre-sale Credit Profiles provide information about the sector designation (e.g. general obligation, sales tax); a preliminary summary of financial information and key ratios; and demographic and economic data relevant to the obligor, if available. Subsequent to closing, for any offering that includes bonds insured by the Municipal Bond Insurer, any pre-sale Credit Profile will be updated and superseded by a final Credit Profile to include information about the gross par insured by CUSIP, maturity and coupon. The Municipal Bond Insurer pre-sale and final Credit Profiles are easily accessible on the Municipal Bond Insurer's website at www.buildamerica.com/credit-profiles. The Municipal Bond Insurer will produce a Credit Profile for all bonds insured by the Municipal Bond Insurer, whether or not a pre-sale Credit Profile has been prepared for such bonds. (The preceding website address is provided for convenience of reference only. Information available at such address is not incorporated herein by reference.) Disclaimers. The Credit Profiles and the Credit Insights videos and the information contained therein are not recommendations to purchase, hold or sell securities or to make any investment decisions.
Credit-related and other analyses and statements in the Credit Profiles and the Credit Insights videos are statements of opinion as of the date expressed, and the Municipal Bond Insurer assumes no responsibility to update the content of such material. The Credit Profiles and Credit Insight videos are prepared by the Municipal Bond Insurer; they have not been reviewed or approved by the issuer of or the underwriter for the Bonds, and the issuer and underwriter assume no responsibility for their content.
The Municipal Bond Insurer receives compensation (an insurance premium) for the insurance that it is providing with respect to the Bonds. Neither the Municipal Bond Insurer nor any affiliate of the Municipal Bond Insurer has purchased, or committed to purchase, any of the Bonds, whether at the initial offering or otherwise.
THE CITY
The City, incorporated in 1963, is located in the southern portion of the Indian Wells Valley in the northeast corner of the County. The City is the third most populous city in the County. The City is surrounded by four mountain ranges; the Sierra Nevada on the west, the Coso on the north, the Argus on the east, and the El Paso on the south. The City is approximately 120 miles from both Bakersfield and San Bernardino, the two nearest urban areas. During the 1950s and 1960s, the City evolved as a support community to NAWS China Lake, providing housing and vital services for employees and contractors.
NAWS China Lake is home to the Naval Air Warfare Center Weapons Division, which continues to be a major source of employment for the City’s residents. NAWS China Lake, the United States Navy’s largest single landholding, representing a majority of the Navy’s land for weapons and armaments research, development, acquisition, testing and evaluation. NAWS China Lake has been in continuous operation since 1943 and employs hundreds of active-duty military personnel as well as thousands of civilian employees and contractors.
The City’s incorporated rea is approximately 13,020 acres, including approximately 5,000 acres located at NAWS China Lake.
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The City provides a full range of municipal services. These include public safety, recreation and community services, parks, maintenance and improvement of streets and infrastructure, planning and zoning, housing, economic development, transit, and general government. The City also operates and maintains a wastewater plant that serves not only the City residents but also provides service to NAWS China Lake. The City acts as the shopping and business center for the northeastern portion of the County.
The City operates under a council-manager form of government. The five-member City Council (the “City Council”) is elected on an at large basis by the City’s voters. City Council members serve fouryear terms, with two members elected every two years. The Mayor and Mayor Pro Tem are elected by the City Council Members to one-year terms. The City Council appoints the City Manager and the City Attorney. The City Manager is responsible for directing, coordinating and carrying out City Council policies.
For additional information about the City, see “THE CITY,” “CITY FINANCIAL INFORMATION,” APPENDIX A—GENERAL, ECONOMIC AND DEMOGRAPHIC INFORMATION RELATING TO THE CITY AND THE COUNTY and APPENDIX B—ANNUAL COMPREHENSIVE FINANCIAL REPORT OF THE CITY FOR THE YEAR ENDED JUNE 30, 2023.
The current members of the City Council are as follows:
Name and Office Current Term Expires
Eric A. Bruen, Mayor November 2028
Kyle Blades, Vice Mayor November 2028
Solomon P. Rajaratnam, Mayor Pro Tem November 2028
John “Skip” Gorman, Councilmember November 2026
L. Scott Hayman, Councilmember November 2026
CITY FINANCIAL INFORMATION
Financial Statements and Budgetary Process
The City’s accounting policies conform to generally accepted accounting principles. The audited financial statements also conform to the principles and standards for public financial reporting established by the Governmental Accounting Standards Board.
Basis of Accounting and Financial Statement Presentation. The government-wide financial statements are reported using the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Property taxes are recognized as revenues in the year for which they are levied. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met.
Governmental fund financial statements are reported using the modified accrual basis of accounting. Revenues are recognized as soon as they are both measurable and available. Revenues are considered to be available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. However, debt service expenditures are recorded only when payment is due. -21-
Audited Financial Statements. The City retained The Pun Group, LLP, Santa Ana, California (the “City’s Auditor”), to examine the general-purpose financial statements of the City as of and for the year ended June 30, 2023. The audited financial statements for fiscal year ended June 30, 2023, are included in APPENDIX B—ANNUAL COMPREHENSIVE FINANCIAL REPORT OF THE CITY FOR THE FISCAL YEAR ENDED JUNE 30, 2023. The City has not requested, and the City’s Auditor has not provided, any review or update of such financial statements in connection with their inclusion in this Official Statement.
Budget Process. The City Council adopts a budget for the fiscal year by June 30 preceding the beginning of the fiscal year on July 1. The City has adopted an annual budget process that is the foundation for the City’s financial planning and control. The City’s budgets are prepared by fund, function (e.g., public safety), and department (e.g., police). The City’s proposed budgets must be balanced, with balanced being defined as the anticipated annual fiscal expenditures not exceeding the annual fiscal revenues less nonrecurring fund transfers. Budgetary control for operations is maintained at the department level by individual funds. Budgetary control for capital improvement projects (i.e., project-length financial plans) is maintained at the individual project level by fund. The City’s budgeted expenditure authority lapses at the end of each fiscal year. However, outstanding purchase order commitments or capital improvement projects may be re-appropriated for the subsequent fiscal year upon City Council approval. The City makes midcycle budget adjustments as necessary throughout the fiscal year.
The City has adopted certain reserve policies with respect to its General Fund, including a reserve for economic uncertainty, an operating reserve, and a debt reserve. For additional discussion of the City’s General Fund reserve policies, see “City Financial Management.” Certain of the City’s revenues are collected and dispersed by the State (such as sales tax and motorvehicle license fees) or allocated in accordance with State law (most importantly, property taxes).
Therefore, State budget decisions can have an impact on City finances. See “STATE BUDGET INFORMATION.”
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General Fund Balance Sheet
The following table shows the City’s audited General Fund balance sheets for the five most recent fiscal years.
Table 1
CITY OF RIDGECREST
GENERAL FUND BALANCE SHEET
Fiscal Years 2018-19 through 2022-23
Fiscal Year Ending June 30,
2019 2020 2021 2022 2023
Audited Audited Audited Audited Audited
ASSETS
Cash and investments $8,064,006 $9,745,108 $12,372,250 $16,056,007 $20,790,192 Receivables 1,641,809 1,871,234 2,464,121 3,680,094 4,407,531 Due from other funds — 84,650 1,536,253 2,808,737 —
Due from Fiduciary 56,345 56,345 56,345 56,345 56,345
Total Assets 9,762,160 11,757,337 16,428,969 22,601,183 25,254,068
LIABILITIES
Accounts payable 367,772 567,496 557,175 568,738 626,663 Accrued payroll and benefits 413,005 59,181 225,877 343,920 500,270 Deposits and other liabilities 260,050 265,711 253,140 513,040 276,036 Unearned revenue 78,993 44,583 62,795 117,288 108,853
Advances from other funds 3,314,437 3,178,099 3,041,079 2,903,374 2,764,288 Total Liabilities 4,434,257 4,115,070 4,140,066 4,446,360 4,276,110
DEFERRED INFLOWS
Lease-related — — — 702,809 502,006
Total deferred inflows — — — 702,809 502,006
FUND BALANCES
Non-spendable 56,345 56,345 56,345 56,345 56,345
Restricted 512,181 390,413 477,884 763,725 262,431
Assigned 2,445,622 3,992,413 6,322,178 7,199,527 7,199,527 Unassigned 2,313,755 3,202,799 5,432,496 9,432,417 12,957,649 Total Fund Balances 5,327,903 7,642,267 12,288,903 17,452,014 20,475,952 Total Liabilities, Deferred Inflows
and Fund Balances
9,762,160 11,757,337 16,428,969 21,898,374 24,752,062
Sources: City of Ridgecrest Annual Comprehensive Financial Reports for Fiscal Years 2018-19 through 2022-23 -23-
General Fund Revenues, Expenditures, and Changes in Fund Balances The following table shows the City’s audited results for General Fund revenues and expenditures for the four most recent fiscal years and budgeted projections for fiscal year 2023-24.
Table 2
CITY OF RIDGECREST
GENERAL FUND REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES Fiscal Years 2019-20 through 2023-24
Fiscal Year Ending June 30,
2020 2021 2022 2023 2024
Audited Audited Audited Audited Budgeted (1)
REVENUES
Taxes and assessments (2) $12,976,980 $14,977,624 $17,045,507 $19,599,223 $17,132,551 Intergovernmental 159,584 963,045 313,949 658,454 937,469 Licenses and permits 546,627 738,970 804,524 612,814 585,500 Fines and forfeitures 42,455 42,455 72,893 81,580 48,700 Use of money and property 251,184 188,313 402,362 577,516 519,400 Charges for services 442,465 528,631 1,351,176 1,278,259 1,386,100 Transfer from Fiduciary Fund 250,000 250,000 250,000 3,540,403 250,000 Other revenues 124,618 314,753 353,845 239,410 225,000
Total Revenues 14,793,913 18,034,229 20,602,943 26,563,616 21,084,720
EXPENDITURES
General government 2,130,399 2,144,669 2,419,074 3,122,147 3,974,609 Public safety 5,729,303 6,603,020 5,587,410 7,078,009 8,875,550 Culture and leisure 1,515,169 1,555,030 1,794,774 2,011,619 2,800,286 Community development 748,482 797,980 1,031,402 1,389,004 1,535,943 Public works 411,841 454,476 315,392 394,433 1,149,116
Capital outlay 226,116 — 604,514 429,679 —
Debt Service – Principal — — — — —
Debt Service – Interest — — — — —
Total Expenditures 10,761,310 11,693,562 11,752,566 14,424,891 18,335,504 REVENUES OVER EXPENDITURES 4,032,603 6,340,667 8,850,377 12,138,725 2,749,216
OTHER FINANCING SOURCES
Transfers in 1,158,591 1,052,972 — 165,962 510,000
Transfers out (3) (2,876,830) (2,805,003) (3,687,266) (9,280,749) (4,239,393) Total Other Financing Sources (1,718,239) (1,752,031) (3,687,266) (9,114,787) (3,729,393) NET CHANGE IN FUND BALANCES 2,314,364 4,588,636 5,163,111 3,023,938 (980,177) FUND BALANCES – BEGINNING OF YEAR 5,327,903 7,700,267 12,288,903 17,452,014 20,475,952 FUND BALANCES – END OF YEAR 7,642,267 12,288,903 17,452,014 20,475,952 19,495,775 Source: City of Ridgecrest Annual Comprehensive Financial Report for Fiscal Years 2019-20 through 2022-23 data and City of Ridgecrest for Fiscal Year 2023-24 data.
(1) FY2023-24 budgeted data was provided by the City and is based on the City’s FY2023-24 Budget, as originally adopted on June 21, 2023, and as most recently revised on May 15, 2024. (2) For additional detail see “Primary Sources of General Fund Revenues.” (3) For additional detail see “General Fund Transfers.” -24-
General Fund Budget
The following table shows the City’s General Fund budget figures for the two most recent fiscal years, including a comparison of the City’s initial budget, final budget, audited actual for each year.
Table 3
CITY OF RIDGECREST
GENERAL FUND BUDGET COMPARISON
Fiscal Years 2021-22 and 2022-23
Fiscal Year Ended June 30, 2022 Fiscal Year Ended June 30, 2023 Adopted Final Audited Adopted Final Audited
Budget Budget Actuals Budget Budget Actuals
REVENUES
Taxes $14,146,597 $14,350,209 $17,045,507 $16,516,757 $17,991,757 $19,599,223 Intergovernmental 491,441 561,441 313,949 970,839 1,133,261 658,454 Licenses and permits 532,500 532,500 804,524 537,500 537,500 612,814 Fines and Forfeitures 46,250 46,250 81,580 53,250 53,250 57,537 Use of money and property 416,130 416,130 402,362 380,715 380,715 577,516 Charges for services 626,516 626,516 1,351,176 602,965 1,319,681 1,278,259 Transfers from Fiduciary Fund 250,000 250,000 250,000 250,000 250,000 3,540,403 Other revenues 234,400 234,400 353,845 227,400 227,400 239,410 Total revenues 16,743,834 17,017,446 20,602,943 19,539,426 21,893,564 26,563,616
EXPENDITURES
General government 2,748,179 3,032,708 2,419,074 2,608,946 3,273,055 3,122,147 Public safety 6,871,324 6,934,293 5,587,410 7,266,659 7,446,346 7,078,009 Public works 604,277 912,456 315,392 669,907 574,540 394,433 Community development 1,363,415 1,827,354 1,031,402 1,649,699 1,735,273 1,389,004 Culture and leisure 1,876,462 2,074,803 1,794,774 2,171,491 2,241,578 2,011,619 Capital outlay 792,600 928,709 604,514 713,000 313,592 429,679 Debt service 138,394 138,394
Total expenditures 14,393,962 15,848,028 11,752,566 15,218,096 15,722,778 14,424,891
REVENUES OVER (UNDER)
EXPENDITURES
2,349,872 1,169,418 8,850,377 4,321,330 6,170,786 12,138,725
OTHER FINANCING SOURCES
(USES)
Transfers in 967,452 1,255,249 876,716 265,000 1,659,623 Transfers out (7,304,543) (7,925,997) (3,687,266) (9,384,195) (8,870,153) (9,280,749) Total other financing sources (uses) (6,337,091) (6,670,748 (3,687,266) (8,508,195) (8,605,153) (9,114,787) Net change in fund balance (3,987,219) (5,501,330) 5,163,111 (4,186,865) (2,434,367) 3,023,938
FUND BALANCE
Beginning of year 12,288,903 17,452,014
End of Year 17,452,014 20,475,952
Source: City of Ridgecrest Annual Comprehensive Financial Reports for Fiscal Year 2021-22 and Fiscal Year 2022-23. -25-
General Fund Transfers
The following table shows a five-year summary of the transfers out from the City’s General Fund.
Table 4
CITY OF RIDGECREST
GENERAL FUND TRANSFERS OUT DETAIL
Fiscal Years 2018-19 through 2022-23
Fiscal Year Ending June 30,
Transfer Out From the General Fund To: 2019 2020 2021 2022 2023 Fund 102- Gas Tax Fund (Measure V) $ 619,385 $1,261,981 $ 912,313 $1,203,170 $2,459,935 Fund 118-Capital Improvement Fund (Measure V) — 65,704 142,759 1,898,874 5,698,035 Fund 102- Gas Tax Fund 269 — — — (30,000)
Fund 103-RMRA/Gas Tax Fund 144 — — — —
Fund 251-Landscape and Lighting District Fund — — — — 23,420 Fund 300 -TDA Transit Fund 6,630 — — — —
Fund 440-Fleet Maintenance Fund 402 — — — —
Fund 939-RDA Fund — — — — 9,331
Fund 410-Risk Management ISF 559,752 403,238 387,593 — — Fund 191-PERS COP Fund — 1,145,907 1,365,338 1,024,481 1,120,029 Fund 118-Capital Improvement Fund 53,360 — (3,000) — —
TOTAL TRANSFERS OUT $1,239,942 $2,876,830 $2,805,003 $4,126,524 $9,280,749 Source: City of Ridgecrest.
City Financial Management
The City Council has adopted a comprehensive set of financial management policies to provide for:
(i) establishing targeted general fund reserves; (ii) the prudent investment of City funds, and (iii) management of debt. The City’s practice is to incur debt only after deliberation over the effect of such debt on the City’s General Fund and other resources of the City, and in those circumstances where the use of debt would be appropriate to the scale and economic life of the asset being financed and the accumulation or availability of reserves to fund the capital requirement.
Investment Policy. The investment of funds of the City (except pension and retirement funds) is made in accordance with the City’s Investment Policy, most recently approved on April 18, 2018 (the “Investment Policy”), and section 53601 et seq. of the California Government Code. The Investment Policy is subject to revision at any time and is reviewed at least annually to ensure compliance with the stated objectives of safety, liquidity, yield, and current laws and financial trends. All amounts held under the Trust Agreement are invested at the direction of the City in Permitted Investments, as defined in the Trust Agreement, and are subject to certain limitations contained therein. See APPENDIX C—INVESTMENT POLICY OF THE CITY and APPENDIX D—SUMMARY OF THE PRINCIPAL LEGAL DOCUMENTS—TRUST AGREEMENT—Investments.
Debt Management Policy. In accordance with section 8855(i) of the California Government Code the City adopted a debt management policy on November 7, 2018, to establish conditions for the use of debt; to ensure that debt capacity and affordability are adequately considered; to minimize the City’s interest and -26-
issuance costs; to maintain the highest possible credit rating; to provide complete financial disclosure and reporting; and to maintain financial flexibility for the City.
Primary Sources of General Fund Revenues
Sales and use taxes are the City’s largest revenue source and represented approximately 67% of fiscal year 2022-23 General Fund revenues. Property taxes were the second largest revenue source to the General Fund in fiscal year 2022-23, representing approximately 17% of revenues. The City imposes a transient occupancy tax of 15% on short term (30 days or less) room rental which was the third largest revenue source to the General Fund in fiscal year 2022-23, representing approximately 10% of revenues.
For a discussion of potential State Budget impacts on general fund revenues, see “—State Budgets.” For a discussion of sales tax revenues and property taxes, see “—Sales Tax” and “—Ad valorem Property Taxation.”
In addition, the City receives a business license fees and franchise fees.
The following table shows the City’s audited general fund tax revenues by source for the most recent five fiscal years.
Table 5
CITY OF RIDGECREST
General Fund Tax Revenues by Source
Fiscal Years 2018-19 through 2022-23
Fiscal Year Ended June 30,
2019 2020 2021 2022 2023
Source Audited Audited Audited Audited Audited
Sales and Use Taxes $ 8,026,538 $ 8,058,076 $ 9,608,803 $10,955,496 $13,030,058 Property Tax 2,478,324 2,661,305 2,884,711 2,955,090 3,221,039 Transient Occupancy Tax(1) 1,458,498 1,411,102 1,345,337 1,751,721 1,879,068 Business Licenses 145,475 174,527 184,935 202,770 214,423 Franchise Fees 762,399 674,181 963,826 965,077 1,153,716 Total Tax Revenues(1) $12,871,234 $12,979,191 $14,987,612 $16,830,154 $19,498,304 Sources: City of Ridgecrest fiscal years 2018-19 through 2022-23 ACFRs. (1) TOT totals include a 15% assessment that is a pass-through to the Ridgecrest Area Convention and Visitors Bureau.
Sales and Use Taxes. Sales and use taxes are the General Fund’s largest revenue source. The City receives a 1% share of all taxable sales generated within its borders from the State. The City also receives sales and use taxes from a voter-approved 1% transaction and use tax (“Measure V”) and from a voterapproved 1% transaction and use tax (“Measure P”) on all taxable sales generated within its borders, In fiscal year 2022-23, sales and use taxes generated approximately $13,030,058. The City has estimated that sales and use taxes will generate $17,455,737 in Fiscal Years 2023-24. For additional discussion of the City’s General Fund sales tax revenues, see “Sales and Use Taxes.” Property Taxes. Property taxes are the General Fund’s second largest revenue source. The County levies a tax of 1% on the assessed valuation of property within the County. The City receives a share of this 1% levy on the assessed value of property located within the City limits. In Fiscal Year 2022-23, property taxes generated approximately $3,221,039. The City has estimated that property tax revenues will generate -27-
$3,059,314 in Fiscal Year 2023-24. See “Property Taxes” below for additional information relating to the property taxes and the assessed valuation of property located in the City.
Transient Occupancy Taxes. The City currently imposes a voter-approved general transient occupancy tax upon any unit in the City that is occupied for the purposes of sleeping, lodging, or similar reasons for a period of 30 consecutive days or less, charged to the transient (or guest) who is entitled to such occupancy. Transient occupancy tax revenues are the City’sthird largest source of General Fund revenues.
The current rate of the City’s transient occupancy tax is 15% of the taxable revenue charged by the unit operator for the use of the unit. In fiscal year 2022-23, transient occupancy taxes generated approximately $1,879,068. The City has estimated that transient occupancy tax revenues will generate $1,800,000 in fiscal years 2023-24. For additional discussion and detail, see “Transient Occupancy Taxes.” Sales and Use Taxes
A sales tax is imposed on the privilege of consuming personal property in the State. The State 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) (the “State Sales Tax”). In addition, many of the State’s cities, counties, districts and communities have special taxing jurisdiction to impose a transaction (sales) or use tax. These so-called district taxes increase the tax rate in a particular area by adding the local option tax to the statewide tax. While more than one district tax may be in effect for a particular location, counties, municipalities, and districts are allowed to increase the sales tax in specific jurisdictions up to a total of 10.25%.
Measure V. On November 5, 2024, the voters of the City passed Measure V, a 1% sales and use tax.
Measure V taxes will be collected indefinitely unless Measure V is repealed by the voters of the City.
Measure V taxes are available for General Fund purposes.
Measure P. On November 8, 2022, the voters of the City passed Measure P, a 1% sales and use tax.
Measure P taxes will be collected for nine years unless Measure P is repealed by the voters of the City.
Measure P taxes are available for General Fund purposes.
The City’s sales and use tax revenues are dependent in part on economic activity generated by tourism.
The following table shows a breakdown of the composition of the current sales and use tax rate applicable to transactions in the City:
Table 6
CITY OF RIDGECREST
CURRENT SALES AND USE TAX RATES
Component Tax Rate
State Sales Tax 7.250%
Measure V 1.000
Measure P 1.000
Total 9.250%
Source: City of Ridgecrest
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The State’s Department of Tax and Fee Administration actual administrative costs with respect to the portion of sales taxes allocable to the City are deducted before distribution and are determined on a quarterly basis.
Many categories of transactions are exempt from the State Sales Tax. The most important of these exemptions are the sales of food products for home consumption, prescription medicine, edible livestock and their feed, seed and fertilizer used in raising food for human consumption, and gas and electricity and water when delivered to consumers through mains, lines and pipes. In addition, occasional sales (i.e., sales of property not held or used by a seller during activities for which he or she is required to hold a seller’s permit) are generally exempt from both the State Sales Tax; however, the occasional sales exemption does not apply to the sale of an entire business and other sales of machinery and equipment used in a business.
Action by the State Legislature or by voter initiative could change the transactions and items upon which the State Sales Tax are imposed. Such changes or amendments could have either an adverse or beneficial effect on revenues produced by sales taxes. The City is not currently aware of any proposed legislative change that would have a material adverse effect on the State Sales Tax.
Transient Occupancy Taxes
The City levies a transient occupancy tax (“TOT”) rate of 15% upon the taxable revenues generated by visitors to any unit in the City that is occupied for the purposes of sleeping, lodging, or similar reasons for a period of 30 consecutive days or less. The tax is applied to the customer’s lodging bill. Five percent of the TOT is a pass-through to the Ridgecrest Area Convention and Visitor’s Bureau (RACVB).
In past years, TOT collections have provided funding for such economic development initiatives as the RACVB, the Chamber of Commerce, the City’s Community and Economic Development program as well as other city services.
As the City’s transient occupancy tax is a general tax, transient occupancy tax proceeds are deposited into the City’s General Fund and may be used for any and all municipal purposes. For additional discussion, see “General Fund Transfers Out.”
Property Taxes
Under Proposition 13, an amendment to the California Constitution adopted in 1978 that added Article XIIIA of the California Constitution, the county assessor’s valuation of real property is established as shown on the Fiscal Year 1975-76 tax bill, or, thereafter, as the appraised value of real property when purchased, newly constructed, or a change in ownership has occurred. Assessed value of property may be increased annually to reflect inflation at a rate not to exceed 2% per year or reduced to reflect a reduction in the consumer price index or comparable data for the area under taxing jurisdiction or in the event of declining property value caused by substantial damage, destruction, market forces or other factors. As a result of these rules, real property that has been owned by the same taxpayer for many years can have an assessed value that is much lower than that of similar properties more recently sold and may be lower than its own market value. Likewise, changes in ownership of property and reassessment of such property to market value commonly will lead to increases in aggregate assessed value even when the rate of inflation or consumer price index would not permit the full 2% increase on any property that has not changed ownership.
Taxes are levied by the County Assessor for each fiscal year on taxable real and personal property which is situated in the County as of the preceding January 1. Real property which changes ownership or is -29-
newly constructed is revalued 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.
The City receives a share of property tax revenues for real property located within the City but may receive a lower portion of revenues within former redevelopment project areas. State law exempts $7,000 of the assessed valuation of an owner-occupied principal residence. This exemption does not result in any loss of revenue to local agencies since an amount equivalent to the taxes that would have been payable on such exempt values is supplemented by the State.
For assessment and tax collection purposes, property is classified either as “secured” or “unsecured,” and is listed accordingly on separate parts of the assessment roll. The “secured roll” is that part of the assessment roll containing State-assessed property and property (real or personal) for which there is a lien on real property sufficient, in the opinion of the county assessor, to secure payment of the taxes. All other property is “unsecured,” and is assessed on the “unsecured roll.” Secured property assessed by the SBE is commonly identified for taxation purposes as “utility” 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. A penalty of 10% attaches immediately to any delinquent payment. 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 delinquent taxes and the delinquency penalty, plus costs and prepayment penalty of one and one-half percent per month to the time of prepayment. If taxes are unpaid for a period of five years or more, the property is subject to sale by the county treasurer.
Property taxes on the unsecured roll are due as of the January 1 lien date and become delinquent, if unpaid, on August 31. A 10% penalty attaches to delinquent unsecured taxes. If unsecured taxes are unpaid at 5 p.m. on October 31, an additional penalty of one and one-half percent per month attaches to such taxes beginning the second month after the delinquent date, and on the first day of each month until paid. A county 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 and County 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 delinquent taxpayer.
Teeter Plan
The Board of Supervisors of the County has approved the implementation of the Alternative Method of Distribution of Tax Levies and Collections and of Tax Sale Proceeds (the “Teeter Plan”), as provided for in section 4701 et seq. of the California Revenue and Taxation Code. The Teeter Plan guarantees distribution of 100% of the general taxes levied to the taxing entities within the County, with the County retaining all penalties and interest penalties affixed upon delinquent properties and redemptions of subsequent collections. Under the Teeter Plan, the County apportions secured property taxes on a cash basis to local political subdivisions, including the City, for which the County acts as the tax-levying or taxcollecting agency. At the conclusion of each fiscal year, the County distributes 100% of any taxes delinquent as of June 30th to the respective taxing entities.
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The County cash position is protected by a special fund, known as the “Tax Loss Reserve Fund,” which accumulates moneys from interest and penalty collections. In each fiscal year, the Tax Loss Reserve Fund is required to be funded to the amount of delinquent taxes plus one percent of that year’s tax levy.
Amounts exceeding the amount required to be maintained in the tax loss reserve fund may be credited to the County’s general fund. Amounts required to be maintained in the tax loss reserve fund may be drawn on to the extent of the amount of uncollected taxes credited to each agency in advance of receipt.
The Teeter Plan is to remain in effect unless the County Board orders its discontinuance or unless, prior to the commencement of any fiscal year of the County (which commences on July 1), the County Board receives a petition for its discontinuance joined in by resolutions adopted by at least two-thirds of the participating revenue districts in the County, in which event the County Board is to order discontinuance of the Teeter Plan effective at the commencement of the subsequent fiscal year. The County Board may also, after holding a public hearing on the matter, discontinue the Teeter Plan with respect to any tax levying agency or assessment levying agency in the County if the rate of secured tax delinquency in that agency in any year exceeds 3% of the total of all taxes and assessments levied on the secured roll in that agency. If the Teeter Plan is discontinued in the future, only those secured property taxes actually collected would be allocated to political subdivisions (including the City) for which the County acts as the tax-levying or taxcollecting agency, but penalties and interest would be credited to the political subdivisions.
The City is not aware of any petitions for the discontinuance of the Teeter Plan in the County.
Assessed Value
The assessed valuation of property in the City is established by the County Assessor, except for public utility property which is assessed by the SBE. Assessed valuations are reported at 100% of the “full value” of the property, as defined in Article XIIIA 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. No reimbursement is made by the State for such exemptions. Property taxes allocated to the City are collected by the County at the same time and on the same tax rolls as are county and special district taxes. The valuation of secured property by the County Assessor is established as of January 1 and is subsequently equalized in September of each year.
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History of Assessed Values. The tables below show the assessed valuation of taxable property in the City for the 10 recent fiscal years.
Table 7
CITY OF RIDGECREST
HISTORIC ASSESSED VALUATIONS
Fiscal Years 2015-16 to 2023-24
Fiscal Year
Ending %
June 30, Local Secured Utility Unsecured Total Change
2016 $1,386,659,852 $ 800 $33,932,056 $1,420,592,708 -- 2017 1,501,362,707 1,089 33,180,798 1,534,544,594 8.02
2018 1,601,851,993 1,089 35,138,901 1,636,991,983 6.68
2019 1,680,934,495 1,089 34,404,914 1,715,340,498 4.79
2020 1,767,169,314 1,089 34,674,769 1,801,845,172 5.02
2021 1,846,786,928 1,307 33,624,049 1,880,412,284 4.36
2022 1,939,329,433 1,307 33,998,902 1,973,329,642 4.94
2023 2,088,763,903 1,307 38,964,433 2,127,729,643 7.82
2024 2,242,832,172 1,307 50,226,826 2,293,060,305 7.77
Source: California Municipal Statistics, Inc.
Table 8
CITY OF RIDGECREST
SECURED TAX CHARGES AND DELINQUENCIES (1)
Fiscal Years 2014-15 to 2023-24
Fiscal Year
Ending Secured Amt. Del. % Del.
June 30, Tax Charge (2) June 30 June 30
2013-14 $365,303.99 $4,207.17 1.15%
2014-15 368,975.65 4,242.50 1.15
2015-16 364,145.80 4,049.41 1.11
2016-17 362,582.67 4,485.82 1.24
2017-18 365,880.79 3,920.32 1.07
2018-19 368,965.98 4,212.83 1.14
2019-20 360,843.80 5,254.75 1.46
2020-21 372,671.63 4,230.04 1.14
2021-22 371,811.02 4,321.88 1.16
2022-23 376,200.09 5,097.85 1.36
Source: California Municipal Statistics, Inc.
(1) Kern County utilizes the Teeter Plan for assessment levy and distribution. This method guarantees distribution of 100% of the assessments levied to the taxing entity, with the County retaining all penalties and interest. (2) 1% General Fund apportionment.
Assessments may be adjusted during the course of the year when real property changes ownership or new construction is completed. Assessments may also be appealed by taxpayers seeking a reduction as a result of economic and other factors beyond the City’s control, such as a general market decline in property values, reclassification of property to a class exempt from taxation, whether by ownership or use (such as exemptions for property owned by State and local agencies and property used for qualified educational, -32-
hospital, charitable or religious purposes), or the complete or partial destruction of taxable property caused by natural or manmade disaster, such as earthquake, flood, fire, toxic dumping, etc. When necessitated by changes in assessed value in the course of a year, taxes are pro-rated for each portion of the tax year.
Appeals of Assessed Valuation; Blanket Reductions of Assessed Values. There are two basic types of property tax assessment appeals provided for under State law. The first type of appeal, commonly referred to as a base year assessment appeal, involves a dispute on the valuation assigned by the assessor immediately subsequent to an instance of a change in ownership or completion of new construction. If the base year value assigned by the assessor is reduced, the valuation of the property cannot increase in subsequent years more than 2% annually unless and until another change in ownership and/or additional new construction activity occurs.
The second type of appeal, commonly referred to as a Proposition 8 appeal (which Proposition 8 was approved by the voters in 1978), can result if factors occur causing a decline in the market value of the property to a level below the property’s then current taxable value (escalated base year value). Pursuant to State law, a property owner may apply for a Proposition 8 reduction of the property tax assessment for such owner’s property by filing a written application, in the form prescribed by the SBE, with the appropriate county board of equalization or assessment appeals board. A property owner desiring a Proposition 8 reduction of the assessed value of such owner’s property in any one year must apply to the county assessment appeals board (the “Appeals Board”). Following a review of the application by the county assessor’s office, the county assessor may offer to the property owner the opportunity to stipulate to a reduced assessment or may confirm the assessment. If no stipulation is agreed to, and the applicant elects to pursue the appeal, the matter is brought before the Appeals Board (or, in some cases, a hearing examiner) for a hearing and decision. The Appeals Board generally is required to determine the outcome of appeals within two years of each appeal’s filing date. Any reduction in the assessment ultimately granted applies only to the year for which application is made and during which the written application is filed. The assessed value increases to its pre-reduction level (escalated to the inflation rate of no more than 2%) following the year for which the reduction application is filed. However, the county assessor has the power to grant a reduction not only for the year for which application was originally made, but also for the then current year and any intervening years as well. In practice, such a reduced assessment may and often does remain in effect beyond the year in which it is granted.
In addition to the above-described taxpayer appeals, county assessors may independently reduce assessed valuations based on changes in the market value of property, or for other factors such as the complete or partial destruction of taxable property caused by natural or man-made disasters such as earthquakes, floods, fire, drought or toxic contamination pursuant to relevant provisions of the State Constitution.
In addition, Article XIIIA of the State Constitution provides that the full cash value base of real property used in determining taxable value may be adjusted from year to year to reflect the inflationary rate, not to exceed a 2% increase for any given year or may be reduced to reflect a reduction in the consumer price index or comparable local data. This measure is computed on a calendar year basis.
Risk of Decline in Property Values; Fire; Earthquake Risk. Property values could be reduced by factors beyond the City’s control, including fire, earthquake or a depressed real estate market due to general economic conditions in the City, the region and the State.
Other possible causes for a reduction in assessed values include the complete or partial destruction of taxable property caused by other natural or manmade disasters, such as flood, fire, drought, toxic -33-
dumping, acts of terrorism, etc., or reclassification of property to a class exempt from taxation, whether by ownership or use (such as exemptions for property owned by State and local agencies and property used for qualified educational, hospital, charitable or religious purposes).
No assurance can be given that property tax appeals and/or blanket reductions of assessed property values will not significantly reduce the assessed valuation of property within the City in the future.
Assembly Bill 102. On June 27, 2017, the Governor of the State (the “Governor”) signed into law Assembly Bill 102 (“AB 102”). AB 102 restructured the functions of the SBE and created two new separate agencies: (i) the California Department of Tax and Fee Administration, and (ii) the Office of Tax Appeals.
Under AB 102, the California Department of Tax and Fee Administration took over programs previously in the SBE Property Tax Department, such as the Tax Area Services Section, which is responsible for maintaining all property tax-rate area maps and for maintaining special revenue district boundaries. Under AB 102, the SBE continues to perform the duties assigned by the State Constitution related to property taxes, however, effective January 1, 2018, the SBE will only hear appeals related to the programs that it constitutionally administers, and the Office of Tax Appeals will hear appeals on all other taxes and fee matters, such as sales and use tax and other special taxes and fees. AB 102 obligates the Office of Tax Appeals to adopt regulations as necessary to carry out its duties, powers, and responsibilities. No assurances can be given as to the effect of such regulations on the appeals process or on the assessed valuation of property within the City.
State-Assessed Property. Under the Constitution, the SBE assesses property of State-regulated transportation and communications utilities, including railways, telephone and telegraph companies, and companies transmitting or selling gas or electricity. The Board of Equalization also is required to assess pipelines, flumes, canals and aqueducts lying within two or more counties. The value of property assessed by the Board of Equalization is allocated by a formula to local jurisdictions in the county, including school districts, and taxed by the local county tax officials in the same manner as for locally assessed property.
Taxes on privately owned railway cars, however, are levied and collected directly by the Board of Equalization. Property used in the generation of electricity by a company that does not also transmit or sell that electricity is taxed locally instead of by the Board of Equalization. Thus, the reorganization of regulated utilities and the transfer of electricity-generating property to non-utility companies, as often occurred under electric power deregulation in California, affects how those assets are assessed, and which local agencies benefit from the property taxes derived. In general, the transfer of State-assessed property located in the City to non-utility companies will increase the assessed value of property in the City, since the property’s value will no longer be divided among all taxing jurisdictions in the County. The transfer of property located and taxed in the City to a State-assessed utility will have the opposite effect, generally reducing the assessed value in the City as the value is shared among the other jurisdictions in the County. The City is unable to predict future transfers of State-assessed property in the City and the County, the impact of such transfers on its utility property tax revenues, or whether future legislation or litigation may affect ownership of utility assets, the State’s methods of assessing utility property, or the method by which tax revenues of utility property is allocated to local taxing agencies, including the City. -34-
Assessed Valuation by Land Use. The following table gives a distribution of taxable real property located in the City by principal purpose for which the land is used, and the assessed valuation and number of parcels for each use.
Table 9
CITY OF RIDGECREST
ASSESSED VALUATION AND PARCELS BY LAND USE
2023-24
Assessed % of No. of % of
Non-Residential: Valuation (1) Total Parcels Total
Commercial/Office $242,475,701 10.81% 468 3.44%
Vacant Commercial 30,818,106 1.37 257 1.89
Hotel/Motel 77,573,832 3.46 23 0.17
Industrial 26,726,198 1.19 61 0.45
Vacant Industrial 4,621,428 0.21 66 0.48
Recreational 5,350,023 0.24 14 0.10
Government/Social/Institutional 113,039 0.01 153 1.12
Subtotal Non-Residential $387,678,327 17.29% 1,042 7.66% Residential:
Single Family Residence $1,563,283,769 69.70% 7,997 58.76% Condominium 49,812,196 2.22 794 5.83
Mobile Home 27,631,641 1.23 1,125 8.27
Mobile Home Park 15,288,138 0.68 21 0.15
2-4 Residential Units 104,656,973 4.67 613 4.50
5+ Residential Units/Apartments 61,264,001 2.73 140 1.03 Vacant Residential 33,217,127 1.48 1,878 13.80
Subtotal Residential $1,855,153,845 82.71% 12,568 92.34% Total $2,242,832,172 100.00% 13,610 100.00%
Source: California Municipal Statistics, Inc.
(1) Total secured assessed valuation, excluding tax-exempt property. -35-
Assessed Valuation of Single-Family Homes. The following table focuses on single-family residential properties only, which comprise approximately 69.70% of the assessed value of taxable property in the City.
Table 10
CITY OF RIDGECREST
PER PARCEL 2023-24 ASSESSED VALUATION OF SINGLE-FAMILY HOMES Average Median
No. of FY2023-24 Assessed Assessed
Parcels Assessed Valuation Valuation Valuation
Single Family Residential 7.997 $1,563,283,769 $195,484 $185,000 FY 2023-24 No. of % of Cumulative Total % of Cumulative Assessed Valuation Parcels (1) Total % of Total Valuation Total % of Total $0 - $24,999 69 0.863% 0.863% $ 1,109,386 0.071% 0.071% $25,000 -$49,999 251 3.139 4.002 9,580,221 0.613 0.684
$50,000 - $74,999 440 5.502 9.504 27,568,915 1.764 2.447 $75,000 - $99,999 627 7.840 17.344 55,003,973 3.518 5.966 $100,000 - $124,999 701 8.766 26.110 79,218,299 5.067 11.033 $125,000 - $149,999 767 9.591 35.701 105,584,999 6.754 17.787 $150,000 - $174,999 836 10.454 46.155 135,577,511 8.673 26.460 $175,000 - $199,999 780 9.754 55.908 146,404,251 9.365 35.825 $200,000 - $224,999 776 9.704 65.612 164,440,271 10.519 46.344 $225,000 - $249,999 656 8.203 73.815 155,403,179 9.941 56.285 $250,000 - $274,999 567 7.090 80.905 148,411,813 9.494 65.778 $275,000 - $299,999 435 5.440 86.345 124,763,231 7.981 73.759 $300,000 - $324,999 287 3.589 89.934 89,482,155 5.724 79.483 $325,000 - $349,999 193 2.413 92.347 65,075,933 4.163 83.646 $350,000 - $374,999 182 2.276 94.623 65,905,712 4.216 87.862 $375,000 - $399,999 128 1.601 96.224 49,526,448 3.168 91.030 $400,000 - $424,999 76 0.950 97.174 31,295,771 2.002 93.032 $425,000 - $449,999 73 0.913 98.087 31,885,228 2.040 95.071 $450,000 - $474,999 61 0.763 98.850 28,244,430 1.807 96.878 $475,000 - $499,999 39 0.488 99.337 18,995,097 1.215 98.093 $500,000 and greater 53 0.663 100.000 29,806,946 1.907 100.000 7,997 100.000% $1,563,283,769 100.000%
Source: California Municipal Statistics, Inc.
(1) Improved single-family residential parcels. Excludes condominiums and parcels with multiple family units. -36-
Principal Property Taxpayers. Based on fiscal year 2023-24 locally assessed taxable valuations, the top twenty taxable property owners in the City represent approximately 8.03% of the total fiscal year 2023- 24 taxable value. The following table shows the 20 largest owners of taxable property in the City as determined by secured assessed valuation in fiscal year 2023-24. The City is not aware of any plans by the top twenty largest local secured taxpayers to leave the City or terminate operations.
Table 11
CITY OF RIDGECREST
LARGEST LOCAL SECURED PROPERTY TAXPAYERS
Fiscal Year 2023-24
2023-24 % of
Property Owner Primary Land Use Assessed Valuation Total (1)
1. K Partners Ridgecrest I & III LP Hotel/Motel $ 23,387,386 1.04%
2. Walmart Inc. Commercial 19,964,107 0.89
3. Desert Oasis Apts LLC Apartments 13,260,000 0.59
4. Jorawar Chauhan Hotel/Motel 11,802,436 0.53
5. HD Development Maryland Inc. Commercial 10,676,745 0.48
6. La Mirage Condos LLC Condominiums 8,556,859 0.38
7. Aspire Hospitality LLC Hotel/Motel 8,053,387 0.36
8. China Lake & Ridgecrest LLC Commercial 7,618,801 0.34
9. Heritage Living LLC Hotel/Motel 7,549,542 0.34
10. G&L China Lake LLC Commercial 7,407,515 0.33
11. Norma St Apts LLC Apartments 7,140,000 0.32
12. Sixth & Union LLC Apartments & Commercial 7,128,640 0.32
13. Sunstart LLC Apartments 6,707,243 0.30
14. Ridgecrest Capital LP Shopping Center 6,322,322 0.28
15. Izak Kharrazi Commercial 6,297,006 0.28
16. Froehlich 1995 Trust Vacant Commercial 5,950,719 0.27
17. Bobby E. & Judith A. Tharp Trust Commercial 5,946,721 0.27
18. Gateway Villa LLC Apartments 5,457,000 0.24
19. Albertsons LLC Supermarket 5,444,600 0.24
20. Mathew Family Trust Retirement Home 5,421,751 0.24
$180,092,780 8.03%
Source: California Municipal Statistics, Inc.
(1) FY2023-24 Local Secured Assessed Valuation: $2,242,832,172. -37-
Other Sources of General Fund Revenues
In addition to the tax revenues described above, the City receives the following general fund revenues:
Type of Revenue Source Components
Intergovernmental State Taxes, State Grants, County Grants, Federal Grants Licenses and Permits Dog Licenses, Construction Permits, Other Permits (Concealed Weapon, Alarm System, Filming, Special Events)
Fines and Forfeitures Penalties, Court Collected Fines, DUI Fines, Parking Fees, Citations, Forfeited Spay/Rabies Deposits
Use of Money and Property Investment Earnings/Interest, Rent/Lease Revenue, Concessions Charges for Services Abatement fees, construction plan check/inspection fees, recreation fees, fingerprinting and livescan fees, vehicle impound fees, and processing fees Other Revenues Donations, Sales (Reclamation Hay, ACO Supplies, Online Sales), Reimbursements, Refunds, Private Grants (NRA)
The following table shows the City’s audited other general fund revenue sources by source for the most recent five fiscal years:
Table 12
CITY OF RIDGECREST
OTHER REVENUE SOURCES
Fiscal Years 2018-19 to 2022-23
Fiscal Year Ended June 30,
2019 2020 2021 2022 2023
Source Audited Audited Audited Audited Audited
Intergovernmental $ 128,487 $ 159,584 $ 963,045 $ 313,949 $ 658,454 Licenses and Permits 386,978 546,627 738,970 804,524 612,814 Fines and Forfeitures 56,368 42,455 72,893 81,580 57,537 Use of Money and Property 289,651 251,184 188,313 402,362 577,516 Charges for Services 513,062 442,465 528,631 1,351,176 1,278,259 Transfers from Fiduciary Fund 281,978 250,000 250,000 250,000 3,540,403 Other Revenues 170,211 124,618 314,753 353,845 239,410
Total Other Revenues $14,695,260 $14,793,913 $18,034,229 $20,602,943 $26,563,616 Sources: City of Ridgecrest 2018-19 through 2022-23 CAFRs/ACFRs.
No Material Reliance on State Revenues
The City does not rely on the State for a material amount of revenues. There can be no assurance that future State budget difficulties will not adversely affect the City’s revenues or its ability to make the Lease Payments when due. See “STATE BUDGET INFORMATION.” -38-
OTHER FINANCIAL INFORMATION
Labor Relations
Most full-time City employees are represented by two labor union associations, the Police Employees Association of Ridgecrest (PEAR) representing 28% of employees and the United Food and Commercial Workers 8-Golden State (UFCW), representing 29% of employees. All permanent City employees are covered by negotiated agreements with management, confidential, and city attorney employees being unrepresented. The City has never had an employee work stoppage. Negotiated agreements have the following expiration dates:
Number of Contract
Bargaining Unit Employees Expiration Date
Police Employees Association of Ridgecrest (PEAR) 37 6/30/2022 (1) United Food and Commercial Workers 8-Golden State (UFCW), 39 6/30/2024 Total 76
Source: City of Ridgecrest
(1) Will be reviewed in the next compensation study.
Risk Management
The City is a member of California State Association of Counties - Excess Insurance Authority (CSAC-EIA). The Authority is comprised of 55 California counties and currently consists of 273 public agencies, which includes municipalities, school districts, special districts and other Joint Powers Authorities (JPA). CSAC-EIA was formed as a Joint Powers Authority in 1979, pursuant to the California Government Code. The purpose of the Authority is to arrange, provide and administer programs of insurance for the pooling of self-insured losses and to purchase excess insurance coverage.
The Board of Directors is comprised of 62 members, one representative from each member county and seven members elected by the public entity membership.
General Liability Insurance. Annual deposits are paid by member cities and are adjusted retroactively to cover costs. Each member city has a specific retention level. The City has a retention level of $100,000 and pays 100% of all losses incurred under $100,000. The City does not share or pay for losses of other cities under $100,000. Losses of $100,000 to $5,000,000 are prorated among all participating cities on a payroll basis. Losses in excess of $5,000,000 are covered by excess insurance purchased by the participating cities, as a part of the pool, to a limit of $10,000,000. This cost is also prorated on a payroll basis. The City purchased an optional excess coverage which covers up to $20,000,000 and catastrophic coverage up to $50,000,000.
Workers’ Compensation. Beginning July 1, 2006, the City became fully self-insured with respect to Workers’ Compensation. The City has a Self-Insured Retention (SIR) of $150,000 per claim and additional coverage above its SIR with CSAC Excess Insurance Authority (EIA) to $5 million per claim; there is an additional $45 million of reinsurance above CSAC-EIA coverage bringing the total coverage to over $50 million per claim. The CSAC-EIA is ranked as the second largest public entity risk pool and the largest property and casualty pool in the nation.
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The workers’ compensation and general liability claims payable of $1,730,991 reported at June 30, 2017. Of the total claims payable, $519,599 is due within the next fiscal year. During the past three fiscal (claims) years two claims had exceeded the SIR and the excess insurance coverage kicked in to cover the difference. There have been no significant reductions in pooled or insured liability coverage in the prior year.
See APPENDIX B—ANNUAL COMPREHENSIVE FINANCIAL REPORT OF THE CITY FOR THE YEAR ENDED JUNE 30, 2023—Notes to Basic Financial Statements—NOTE 10.
Employee Retirement Plans
The information set forth below regarding the California Public Employees’ Retirement System (“CalPERS”) program, other than the information provided by the City regarding its annual contributions thereto, has been obtained from publicly available sources which are believed to be reliable but are not guaranteed as to accuracy or completeness, and should not be construed as a representation by either the City or the Underwriter.
Plan Description. Substantially all City employees working the equivalent of 1,000 hours per fiscal year are eligible to participate in the Safety Classic, Miscellaneous Classic, Safety PEPRA or Miscellaneous PEPRA cost-sharing multiple employer defined benefit plans administered by California Public Employees Retirement System (CalPERS), which acts as a common investment and administrative agent for its participating member employers. The Classic Plans are closed to new entrants only eligible for employees hired prior to January 1, 2013. Employees hired after January 1, 2013 are eligible to enroll in the PEPRA plans. Benefit Provisions under the Plans are established by State statutes within the Public Employee’s Retirement Law. CalPERS issues publicly available reports that include a full description of the pension plans regarding benefit provisions, assumptions and membership information that can be found on the CalPERS website. Copies of the CalPERS annual financial report may be obtained from the CalPERS Executive Office – 400 P Street, Sacramento, CA 95814.
Benefits Provided. CalPERS provides retirement and disability benefits, annual cost-of-living adjustments, and death benefits to plan members and beneficiaries. A classic safety and miscellaneous CalPERS member becomes eligible for Service Retirement upon attainment of age 50 and 55, respectively, with at least 5 years of credited service. Public Employee Pension Reform Act (PEPRA) safety and miscellaneous members become eligible for service retirement upon attainment of age 57 and 62, respectively, with at least 5 years of service. The service retirement benefit is a monthly allowance equal to the product of the benefit factor, years of service, and final compensation. The final compensation is the monthly average of the member's highest 12 full-time equivalent monthly pay. Retirement benefits for classic safety miscellaneous employees are calculated as 3% and 2.7%, respectively, of the average final 12 months compensation. Retirement benefits for PEPRA safety and miscellaneous employees are calculated as 2.7% and 2%, respectively, of the average final 36 months compensation.
Participant is eligible for non-industrial disability retirement if becomes disabled and has at least 5 years of credited service. There is no special age requirement. The standard non-industrial disability retirement benefit is a monthly allowance equal to 1.8% of final compensation, multiplied by service.
Industrial disability benefits are not offered to miscellaneous employees.
An employee's beneficiary may receive the basic death benefit if the employee dies while actively employed. The employee must be actively employed with the City to be eligible for this benefit. An employee's survivor who is eligible for any other pre-retirement death benefit may choose to receive that -40-
death benefit instead of this basic death benefit. The basic death benefit is a lump sum in the amount of the employee's accumulated contributions, where interest is currently credited at 7.5% per year, plus a lump sum in the amount of one month's salary for each completed year of current service, up to a maximum of six months' salary. For purposes of this benefit, one month's salary is defined as the member's average monthly full-time rate of compensation during the 12 months preceding death.
Upon the death of a retiree, a one-time lump sum payment of $500 will be made to the retiree's designated survivor(s), or to the retiree's estate.
Benefit terms provide for annual cost-of-living adjustments to each employee’s retirement allowance. Beginning the second calendar year after the year of retirement, retirement and survivor allowances will be annually adjusted on a compound basis by 2%.
Employees Covered. At June 30, 2023, measurement date, the following employees were covered by the benefit terms for each Plan.
Miscellaneous Miscellaneous Safety Safety
Plan PERPA Plan PERPA
Active employees 28 51 16 13
Transferred and terminated employees 77 43 25 11
Retire employees and beneficiaries 130 2 52 —
Total 235 96 93 24
Source: City of Ridgecrest 2022-23 ACFR.
CalPERS provide retirement and disability benefits, annual cost-of-living adjustments, and death benefits to plan members and beneficiaries. Classic and PEPRA Safety CalPERS member becomes eligible for service retirement upon attainment of age 55 with at least 5 years of credited service. PEPRA miscellaneous members become eligible for service retirement upon attainment of age 62 with at least 5 years of service. The service retirement benefit is a monthly allowance equal to the product of the benefit factor, years of service, and final compensation. The final compensation is the monthly average of the member's highest 36 full-time equivalent monthly pay.
Following are the benefit provisions for each plan:
Miscellaneous Miscellaneous Safety Safety
Plan PERPA Plan PERPA
Benefit Formula 2.7% @ 55 2.0% @ 62 3.0% @ 50 2.7% @ 57 Benefit vesting schedule 5 years service 5 years service 5 years service 5 years service Benefit payments monthly for life monthly for life monthly for life monthly for life Retirement age 55 62 50 50-57
Monthly benefits as a % of eligible comp 2.7% 2.0% 3.0% 2.0% to 2.7% Required employee contribution rate 8.000% `6.750% 9.000% 12.000% Required employer contribution rate 14.030% 7.470% 21.840% 12.780% Source: City of Ridgecrest 2022-23 ACFR.
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For the year ended June 30, 2023, the contributions recognized as part of pension expense for each plan were as follows:
Miscellaneous Plan $ 568,661
Safety Plan 517,407
Total $1,086,068
Source: City of Ridgecrest 2022-23 ACFR.
Net Pension Liability. The City’s net pension liability for both Plans is measured as the total pension liability, less the plan’s fiduciary net position. Net pension liability is measured as of June 30, 2022 (measurement date), using the Actuarial Valuation Report as of June 30, 2021, rolled forward to June 30, 2022, using standard update procedures.
The following table shows the plan’s proportionate share of the risk pool collective net pension liability over the measurement period:
Plan Total Pension Plan Fiduciary Net Position
Liability Net Position (Liability/Asset)
Miscellaneous
Balance at 6/30/21 $40,781,676 $45,831,107 $(5,049,431) Balance at 6/30/22 42,550,163 40,130,539 2,419,624
Net change 2021-2022 $1,768,487 $(5,700,568) $7,469,055 Safety
Balance at 6/30/21 $33,858,528 $38,030,755 $(4,172,227) Balance at 6/30/22 35,429,201 33,305,906 2,123,295
Net change 2021-2022 $1,570,673 $(4,724,849) $6,295,522 Source: City of Ridgecrest 2022-23 ACFR.
For more information, including actuarial assumptions, a discussion of the discount rate used, and schedules of funding progress for the City’s various pension plans, see APPENDIX B—
COMPREHENSIVE ANNUAL FINANCIAL REPORT OF THE CITY FOR THE YEAR ENDED JUNE 30, 2023—Notes to Basic Financial Statements—NOTE 11.
CalPERS Amortization Period Reform. On February 13, 2018, the CalPERS Board voted to shorten the period over which actuarial gains and losses are amortized from 30 years to 20 years for new pension liabilities. The new 20-year amortization period began with new gains or losses accrued starting with the June 30, 2019 actuarial valuations. The first payments on the new 20-year amortization schedule took place in 2021.
A shorter amortization period will increase annual Unfunded Accrued Liability (“UAL”) contributions for cities that participate in CalPERS so long as CalPERS remains underfunded. The shortened amortization period will also lead to reductions of periods of negative amortization of the UAL, interest cost savings, and faster recoveries of funded status after market downturns. -42-
Cities that participate in CalPERS will also see additional volatility in their future UAL contributions due to market performance as gains or losses will be amortized faster under the new amortization period.
The announcement on July 12, 2021 that CalPERS achieved an investment return of 21.3% for the period from July 1, 2020 through June 30, 2023 caused the CalPERS Board of Administration to lower CalPERS’ discount rate from 7.00% to 6.80% on November 15, 2021 in accordance with a risk mitigation policy that was adopted in 2015, which calls for the discount rate to be lowered if returns exceed the thencurrent discount rate by two or more percentage points.
The City cannot currently estimate the impact the shorter amortization period or lower discount rate will have on its required contributions for its Miscellaneous and Safety Plans. For information concerning the Plans, including descriptions of the actuarial methods and assumptions, please see APPENDIX B—ANNUAL COMPREHENSIVE FINANCIAL REPORT OF THE CITY FOR THE FISCAL YEAR ENDED JUNE 30, 2023, Note 11.
Cities that participate in CalPERS will also see additional volatility in their future UAL contributions due to market performance as gains or losses will be amortized faster under the new amortization period.
The City cannot currently estimate the impact the shorter amortization period will have on its required contributions for its Miscellaneous and Safety Plans.
Other Post-Employment Benefits
The City provides $133 per month subject to the minimum required employer contribution (plus any administration fees) under the CalPERS Health Plan for eligible retirees and surviving spouses in receipt of a pension benefit from CaIPERS. An employee is eligible for this employer contribution provided they are vested in their CalPERS pension benefit and commence payment of their pension benefit within 60 days of retirement with the City. The surviving spouse of an eligible retiree who elected spouse coverage under the CalPERS Health Plan is eligible for the employer contribution upon the death of the retiree. For calendar year 2023, the required employer contributions under the CalPERS Health plan will be $133 per month. CalPERS adjusts this amount annually based on an inflation index.
Retired employees who have health coverage outside CalPERS do not get any premium reimbursement from the City with the exception of those who are members of the Police Employees Association of Ridgecrest ("PEAR"). For PEAR members who retired between the dates of March 17, 2005 and August 31, 2011, they are eligible for a reimbursement of up to $100 per month for non-CalPERS health coverage. For those who retire September 1, 2011 and after, that monthly amount goes up to $250.
On April 2, 2008, the City entered into an agreement with CalPERS to prefund its other postemployment benefits through California Employer’s Retiree Benefit Trust (CERBT) program. The plan is an agent multiple employer plan. It is the City’s funding policy to contribute at least 100% of the annual required contribution as calculated in the actuarial valuation prepared biannually. OPEB benefits are currently paid either directly to the eligible retirees who are not enrolled in the CalPERS Health Benefit program or to CalPERS for those eligible retirees who are enrolled in the CalPERS Health Benefit program.
The total amount of these benefits paid may be deducted from the annual required contribution or be reimbursed directly from the trust. As of June 30, 2018, valuation date, there were 32 participants receiving -43-
these healthcare benefits. Separate financial statements for the CERBT may be obtained by writing to CalPERS at Lincoln Plaza North 400 Q Street, Sacramento, CA 95814, or by visiting the CalPERS website at www.calpers.ca.gov.
The actuarial assumptions are described in detail in in APPENDIX B—COMPREHENSIVE ANNUAL FINANCIAL REPORT OF THE CITY FOR THE YEAR ENDED JUNE 30, 2023—Notes to Basic Financial Statements—NOTE 12.
As of the July 1, 2022, actuarial valuation, the following current and former employees were covered by the benefit terms:
Active employees 109
Inactive employees or beneficiaries currently receiving benefits 34 Inactive employees entitled to, but not yet receiving benefits — Total 143
Source: City of Ridgecrest 2022-23 ACFR.
The obligation of the City to contribute to the plan is established and may be amended by the City Council. The contribution required to be made is based on an Actuarially Determined Contributions (i.e., as medical insurance premiums become due). For fiscal year 2023, contributions were made totaling $163,570.
The City’s net OPEB liability was measured as of June 30, 2022, and the net OPEB liability used to calculate the net OPEB liability was determined by an actuarial valuation as of July 1, 2022.
The net OPEB liability, measured as of June 30, 2022, was determined using the following actuarial assumptions:
Actuarial Valuation Date July 1, 2021
Actuarial Cost Method Early Age Normal, Level Percentage of Pay Amortization Method Level Percent
Asset Valuation Method Market Value
Inflation 2.50%
Payroll Growth 2.75% Plus Merit Scale
Discount Rate 6.75
For more information see APPENDIX B—COMPREHENSIVE ANNUAL FINANCIAL REPORT OF THE CITY FOR THE YEAR ENDED JUNE 30, 2023—Notes to Basic Financial Statements—NOTE 12.
Debt Obligations
Short-Term General Fund-Secured Obligations. The City has no outstanding short-term obligations secured by its general fund.
Long-Term General Fund-Secured Obligations. In 2018, the City caused the execution and delivery of the 2018 Certificates to refinance a portion of the City’s unfunded actuarial accrued liability with respect -44-
to its payment obligations to CalPERS. The 2018 Certificates accrue interest rates between 4.263% and
5.000%. Interest is payable semiannually on each June 1 and December 1. The following table shows the annual debt service requirements of the 2018 Certificates:
Maturity
Date
(June 1) Principal Interest Total
2025 $ 840,000 $ 766,162.06 $ 1,606,162.06
2026 925,000 724,162.06 1,649,162.06
2027 1,020,000 677,912.06 1,697,912.06
2028 975,000 626,912.06 1,601,912.06
2029 1,070,000 578,162.06 1,648,162.06
2030 1,160,000 532,547.96 1,692,547.96
2031 1,260,000 482,517.16 1,742,517.16
2032 1,285,000 427,543.36 1,712,543.36
2033 1,305,000 370,836.30 1,675,836.30
2034 1,295,000 312,594.16 1,607,594.16
2035 1,245,000 250,602.50 1,495,602.50
2036 715,000 191,004.36 906,004.36
2037 480,000 156,777.30 636,777.30
2038 450,000 133,799.70 583,799.70
2039 445,000 112,258.20 557,258.20
2040 485,000 90,956.06 575,956.06
2041 385,000 67,302.60 452,302.60
2042 390,000 48,526.16 438,526.16
2043 330,000 29,505.86 359,505.86
2044 180,000 13,411.76 193,411.76
2045 65,000 4,633.16 69,633.16
2046 30,000 1,463.10 31,463.10
Total $16,335,000 $6,599,590.00 $22,934,590.00
Other Obligations. The City has certain other outstanding obligations, including tax allocation bonds issued by its successor agency, which are not secured by the City’s general fund.
Overlapping Debt
Set forth below is a direct and overlapping debt report (the “Debt Report”) prepared by California Municipal Statistics, Inc. and effective March 1, 2024. The Debt Report is included for general information purposes only. Neither the City nor the Underwriter has reviewed the Debt Report for completeness or accuracy and neither the City nor the Underwriter makes any representation 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 many cases, long-term obligations issued by a public agency are payable only from the General Fund or other revenues of such public agency.
The contents of the Debt Report are as follows: (1) the first column indicates the public agencies which have outstanding debt as of the date of the Debt Report and whose territory overlaps the City; (2) the second column shows the respective percentage of the assessed valuation of the overlapping public agencies identified in column 1 which is represented by property located in the City; and (3) the third -45-
column is an apportionment of the dollar amount of each public agency’s outstanding debt (which amount is not shown in the table) to property in the City, as determined by multiplying the total outstanding debt of each agency by the percentage of the City’s assessed valuation represented in column 2.
Table 15
CITY OF RIDGECREST
DIRECT AND OVERLAPPING BONDED DEBT
as of March 1, 2024
CITY OF RIDGECREST
2023-24 Assessed Valuation: $2,293,060,305
OVERLAPPING TAX AND ASSESSMENT DEBT: % Applicable Debt
3/1/24
Kern Community College District Safety, Repair and Improvement District 1.976% $ 7,466,711 Kern Community College District School Facilities Improvement District No. 1 1.988 1,647,174
Sierra Sands Joint Unified School District 77.742 8,443,684 TOTAL OVERLAPPING TAX AND ASSESSMENT DEBT $17,557,569
DIRECT AND OVERLAPPING GENERAL FUND DEBT:
Kern County General Fund Obligations 1.935% $ 1,904,301 Kern County Pension Obligation Bonds 1.935 1,473,476
Kern County Board of Education Certificates of Participation 1.935 606,236 Kern Community College District General Fund Obligations 1.781 407,439 Kern Community College District Benefit Obligations 1.781 1,280,005 Sierra Sands Joint Unified School District General Fund Obligations 77.742 6,468,263 City of Ridgecrest Certificates of Participation 100.000 17,090,000 (1) TOTAL DIRECT AND OVERLAPPING GENERAL FUND DEBT $29,229,720 OVERLAPPING TAX INCREMENT DEBT (Successor Agency): 100.000 % $19,432,000 COMBINED TOTAL DEBT $66,219,289 (2)
Ratios to 2023-24 Assessed Valuation:
Total Overlapping Tax and Assessment Debt .......................0.77% Total Direct Debt ($17,090,000)................................. 0.75% Combined Total Debt............................................................2.89% Ratios to Redevelopment Successor Agency Incremental Valuation ($1,803,612,486):
Total Overlapping Tax Increment Debt ................................1.08% Source: California Municipal Statistics, Inc.
(1) Excludes issue to be sold.
(2) Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue and non-bonded capital lease obligations. -46-
INVESTMENT OF CITY FUNDS
Revenues collected by the City will be held and invested by the City in accordance with the provisions of the Indenture.
Funds held by the City are invested in accordance with the City’s Statement of Investment Policy (the “Investment Policy”) prepared by the Finance Director as authorized by section 53601 of the Government Code of California. The Investment Policy is submitted to the City Council annually. The Investment Policy allows for the purchase of a variety of securities and provides for limitations as to exposure, maturity and rating which vary with each security type. The composition of the portfolio will change over time as old investments mature, or are sold, and as new investments are made. Invested funds are managed to ensure preservation of capital through high quality investments, maintenance of liquidity and then yield. Further, operating funds may not be invested in any investment with a maturity greater than five years. The City has never invested in derivatives or reverse repurchase agreements and such investments and instruments are not allowed by City policy.
For more information about the City’s investment policy, see APPENDIX C—INVESTMENT POLICY OF THE CITY.
THE CORPORATION
The Corporation was organized on April 15, 1991, as a California nonprofit public benefit corporation. The Corporation was formed for the specific and primary purposes of benefiting California governmental agencies by participating with such governmental agencies in projects to maintain, improve and assist the activities of such governmental agencies by acquiring, purchasing, selling, leasing or otherwise transferring real and personal property in connection with such projects, and assisting the governmental agencies in financing, acquiring and constructing of such projects, as well as other purposes as specified in the Corporation’s articles of incorporation. The Corporation has no financial liability to the owners of the Certificates with respect to the payment of Lease Payments by the City or with respect to the performance by the City of the other agreements and covenants it is required to perform. The Corporation functions as an independent entity and its policies are determined by a board of directors. Under the bylaws of the Corporation, the board of directors of the Corporation consist of at least two but no more than five directors, holding office for terms of six years. The Corporation has no employees, and the directors of the Corporation receive no compensation for work or service performed as Corporation directors.
STATE BUDGET INFORMATION
The following information concerning the State’s budget has been obtained from publicly available information which the City believes to be reliable; however, the City takes no responsibility as to the accuracy or completeness thereof and has not independently verified such information. The following information is provided as supplementary information only, and it should not be inferred from inclusion of this information that the Certificates are payable from State revenues. The Certificates are payable solely from Lease Payments to be made by the City under the Lease Agreement and certain other moneys held under the Trust Agreement. See “SECURITY OF PAYMENT FOR THE CERTIFICTES.” The Certificates Bonds are not a debt of the City, the State, or any of its political subdivisions, and none of the City, the State or any of its political subdivisions is liable thereon. -47-
State Budgeting Process
According to the State Constitution, the Governor is required to propose a budget to the State Legislature no later than January 10 of each year, and a final budget must be adopted by a majority vote of each house of the State Legislature no later than June 15, although this deadline has been routinely breached in the past. The budget becomes law upon the signature of the Governor, who may veto specific items of expenditure.
Information about the State budget is regularly available at various State-maintained websites. Text of the State budget may be found at the State Department of Finance website, www.dof.ca.gov.An impartial analysis of the budget is posted by the Office of the Legislative Analyst (“LAO”) at www.lao.ca.gov. In addition, various State official statements, many of which contain a summary of the current and past State budgets, may be found at the website of the State Treasurer at www.treasurer.ca.gov. The information referred to is prepared by the respective State agency maintaining each website and not by the City, and the City takes no responsibility for the continued accuracy of the internet addresses or for the accuracy or timeliness of information posted there, and such information is not incorporated herein by these references.
Fiscal Year 2024 State Budget
On June 27, 2023, the Governor signed into law the State budget for fiscal year 2023-24 and, on July 10, 2023, the Governor signed a bill with amendments thereto (as so amended, the “2024 State Budget”). The following information is drawn from the State Department of Finance’s summary of the 2024 State Budget and other information disseminated by the State to the public.
The 2024 State Budget projected a downturn of revenues and an estimated $31.7 billion shortfall driven by a declining stock market and persistently high inflation in 2022, rising interest rates, and job losses in high-wage sectors. The 2024 State Budget included a variety of measures to close the projected budget shortfall which included shifting sources of funding for certain programs from the State general fund to other funds ($9.3 billion), expenditure reductions ($8.1 billion), delays in certain program funding from fiscal year 2023-24 to future fiscal years ($7.9 billion), special fund borrowing and renewal of the Managed Care Organization Tax ($6.1 billion), and other reductions in expenditures which would be restored if it is determined in connection in with the preparation of the State’s fiscal year 2024-25 budget that funding is available for such expenditures ($340 million). The 2024 State Budget did not propose to withdraw any funds from the Budget Stabilization Account/Rainy Day Fund (“BSA”) to address the shortfall.
For fiscal year 2024, the 2024 State Budget projected total general fund revenues and transfers of $208.7 billion (excluding prior year balances) and authorizes expenditures of $225.9 billion as compared with unaudited total general fund revenues and transfers of $205.1 billion (excluding prior year balances) and total expenditures of $234.6 billion in fiscal year 2023.
Fiscal Year 2025 State Budget
On January 10, 2024, the Governor released the proposed State budget for fiscal year 2025, and on May 10, 2024, the Governor released the May revision (the “May Revise”) to the Proposed State Budget.
The following information is taken from the LAO’s overview of the May Revise. -48-
The May Revise updated projections for fiscal year 2024 State general fund revenues and expenses.
For fiscal year 2024, total State general fund revenues and transfers are estimated in the May Revise to be $189.4 billion and total general fund expenditures are estimated to be $225.9 billion.
For fiscal year 2025, the May Revise projects total general fund revenues and transfers of $205.2 billion (excluding prior year balances) and authorizes expenditures of $201.0 billion. The LAO’s overview of the May Revise estimates that at the end of fiscal year 2025, the BSA will have a balance of $19.4 billion, the Special Fund for Economic Uncertainties will have a balance of $3.4 billion and the Safety Net Reserve Fund and the Public School System Stabilization Account will have zero balances.
On June 29, 2024, the Governor signed the State budget into law for Fiscal Year 2025 (the “2025 State Budget”). The 2025 State Budget includes general fund expenditures of approximately $211.5 billion and solves for an approximately $46.8 billion deficit through spending reductions, fund shifts, delays, and deferrals. The 2025 State Budget assumes withdrawals from the BSA over the next two fiscal years ($5.1 billion in fiscal year 2025 and $7.1 billion fiscal year 2026) and a withdrawal of $900 million from the Safety Net Reserve Fund in fiscal year 2025. The BSA is estimated to have a balance of $22.2 billion at the end of fiscal year 2025.
Future State Budgets
Changes in the revenues received by the State can affect the amount of funding, if any, to be received from the State by the City and other local agencies in the State. State contributions have not historically been a major revenue source to the City’s General Fund. However, State budgets and budget policies can have either a positive or a negative effect on the City’s financial condition. State budgets are affected by national and State economic conditions and other factors over which the City has no control.
The City monitors fiscal measures taken by the State for their potential effects on the City’s General Fund revenues and expected cash flows. To the extent that the State budget process results in reduced revenues to the City, the City will be required to make adjustments to its budget.
CONSTITUTIONAL AND STATUTORY LIMITATIONS ON
TAXES, REVENUES AND APPROPRIATIONS
The constitutional and statutory provisions discussed in this section have the potential to affect the ability of the City to levy taxes and spend tax proceeds for operating and other purposes.
Article XIIIA of the California Constitution
On June 6, 1978, California voters approved an amendment (commonly known as both Proposition 13 and the Jarvis-Gann Initiative) to the California Constitution. This amendment, which added Article XIIIA to the California Constitution, among other things affects the valuation of real property for the purpose of taxation in that it defines the full cash property 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 newly constructed, or when a change in ownership has occurred after the 1975 assessment.” The full cash value may be adjusted annually to reflect inflation at a rate not to exceed 2% per year, or a reduction in the consumer price index or comparable local data at a rate not to exceed 2% per year orreduced in the event of declining property value caused by damage, destruction or other factors including a general economic downturn. The amendment further limits the amount of any ad valorem tax on real property to -49-
one percent of the full cash value except that additional taxes may be levied to pay debt service on indebtedness approved by the voters prior to July 1, 1978, and 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.
Legislation enacted by the California Legislature to implement Article XIIIA provides that all taxable property is shown at full assessed value as described above. In conformity with this procedure, all taxable property value included in this Official Statement (except as noted) is shown at 100% of assessed value and all general tax rates reflect the $1 per $100 of taxable value. Tax rates for voter approved bonded indebtedness and pension liability are also applied to 100% of assessed value.
The voters of the State subsequently approved various measures which further amended Article XIIIA. 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 XIIIA. Other amendments permitted 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. Other amendments permit the State Legislature to allow persons who are either 55 years of age or older, 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 the November 1990 election, the voters approved an amendment of Article XIIIA 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 hazard mitigation technologies constructed or installed in existing buildings after November 6, 1990.
Article XIIIA has also been amended to provide that there would be no increase in the Full Cash Value base in the event of reconstruction of the property damaged or destroyed in a disaster.
Section 51 of the Revenue and Taxation Code permits county assessors who have reduced the assessed valuation of a property as a result of natural disasters, economic downturns or other factors, to subsequently “recapture” such value (up to the pre-decline value of the property) at an annual rate higher than 2%, depending on the assessor’s measure of the restoration of value of the damaged property.
Section 4 of Article XIIIA also provides that cities, counties and special districts cannot, without a two-thirds vote of the qualified electors, impose special taxes, which has been interpreted to include special fees in excess of the cost of providing the services or facility for which the fee is charged, or fees levied for general revenue purposes.
Both the California State Supreme Court and the United States Supreme Court have upheld the validity of Article XIIIA.
Article XIIIB of the California Constitution
On November 6, 1979, California voters approved Proposition 4, the Gann Initiative, which added Article XIIIB to the California Constitution. In June 1990, Article XIIIB was amended by the voters through -50-
their approval of Proposition 111. Article XIIIB of the California Constitution limits the annual appropriations of the State and any city, county, school district, authority or other political subdivision of the State to the level of appropriations for the prior fiscal year, as adjusted annually for changes in the cost of living, population and services rendered by the governmental entity. The “base year” for establishing such appropriation limit is Fiscal Year 1978-79. Increases in appropriations by a governmental entity are also permitted (1) if financial responsibility for providing services is transferred to the governmental entity, or (2) for emergencies so long as the appropriations limits for the three years following the emergency are reduced to prevent any aggregate increase above the Constitutional limit. Decreases are required where responsibility for providing services is transferred from the government entity.
Appropriations subject to Article XIIIB include generally any authorization to expend during the fiscal year the proceeds of taxes levied by the State or other entity of local government, exclusive of certain State subventions, refunds of taxes, benefit payments from retirement, unemployment insurance and disability insurance funds. Appropriations subject to limitation pursuant to Article XIIIB do not include debt service on indebtedness existing or legally authorized as of January 1, 1979, on bonded indebtedness thereafter approved according to law by a vote of the electors of the issuing entity voting in an election for such purpose, appropriations required to comply with mandates of courts or the Federal government, appropriations for qualified outlay projects, and appropriations by the State of revenues derived from any increase in gasoline taxes and motor vehicle weight fees above January 1, 1990 levels. “Proceeds of taxes” include, but are not limited to, all tax revenues and the proceeds to any entity of government from (1) regulatory licenses, user charges, and user fees to the extent such proceeds exceed the cost of providing the service or regulation, (2) the investment of tax revenues and (3) certain State subventions received by local governments. As amended by Proposition 111, the appropriations limit is tested over consecutive two-year periods. Any excess of the aggregate “proceeds of taxes” received by the City over such two-year period above the combined appropriations limits for those two years is to be returned to taxpayers by reductions in tax rates or fee schedules over the subsequent two years.
As amended in June 1990, the appropriations limit for the City in each year is based on the limit for the prior year, adjusted annually for changes in the costs of living and changes in population, and adjusted, where applicable, for transfer of financial responsibility of providing services to or from another unit of government. The change in the cost of living is, at the City’s option, either (1) the percentage change in California per capita personal income, or (2) the percentage change in the local assessment roll for the jurisdiction due to the addition of nonresidential new construction. The measurement of change in population is a blended average of statewide overall population growth and change in attendance at local school and community college (“K-14”) districts.
Article XIIIB permits any government entity to change the appropriations limit by vote of the electorate in conformity with statutory and Constitutional voting requirements, but any such voterapproved change can only be effective for a maximum of four years.
Articles XIIIC and XIIID (Proposition 218) of the California Constitution On November 5, 1996, the voters of the State approved Proposition 218, a constitutional initiative, entitled the “Right to Vote on Taxes Act” (“Proposition 218”). Proposition 218 added Articles XIIIC and XIIID to the California Constitution and contained a number of interrelated provisions affecting the ability of local governments, including the City, to levy and collect both existing and future taxes and assessments, fees and charges.
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Section 2 of Article XIIIC requires majority voter approval for the imposition, extension or increase of general taxes and requires two thirds voter approval for the imposition, extension or increase of special taxes. These voter approval requirements of Article XIIIC reduce the flexibility of the City to raise revenues by the levy of general or special taxes and, given such voter approval requirements, no assurance can be given that the City will be able to enact, impose, extend or increase any such taxes in the future to meet increased expenditure requirements.
Although a portion of the City’s General Fund revenues are derived from general taxes purported to be governed by Proposition 218, all of such taxes were either imposed, extended or increased prior to the effective date of Proposition 218 or in accordance with the requirements of Proposition 218. No assurance can be given that the voters of the City will not, in the future, approve an initiative or initiatives which reduce or repeal local taxes, assessments, fees or charges, such as the TOT, Proposition 172 revenues, or storm water fees which support the City’s General Fund. TOT and other local taxes, assessments, fees and charges, could be subject to reduction or repeal by initiative under Proposition 218.
Section 3 of Article XIIIC expressly extends the initiative power to give voters the power to reduce or repeal local taxes, assessments, fees and charges, regardless of the date such taxes, assessments, fees or charges were imposed. Section 3 expands the initiative power to include reducing or repealing assessments, fees and charges that had previously been considered administrative rather than legislative matters and therefore beyond the initiative power. This extension of the initiative power is not limited by the terms of Article XIIIC to fees imposed after November 6, 1996, the effective date of Proposition 218, and absent other legal authority could result in the reduction in any existing taxes, assessments or fees and charges imposed prior to November 6, 1996.
“Fees” and “charges” are not expressly defined in Article XIIIC or in SB 919, the Proposition 218 Omnibus Implementation Act enacted in 1997 to prescribe specific procedures and parameters for local jurisdictions in complying with Article XIIIC and Article XIIID (“SB 919”). However, on July 24, 2006, the California Supreme Court ruled in Bighorn-Desert View Water Agency v. Virjil (Kelley) (the “Bighorn Decision”) that charges for ongoing water delivery are fees and charges within the meaning Section 3 of Article XIIIC. The California Supreme Court held that such water service charges may, therefore, be reduced or repealed through a local voter initiative pursuant to Section 3 of Article XIIIC. The Bighorn Decision has been interpreted to mean that ongoing water delivery charges are also property-related fees and charges within the meaning of Article XIIID.
In the Bighorn Decision, the Supreme Court stated that nothing in Section 3 of Article XIIIC authorizes initiative measures that impose voter-approval requirements for future increases in fees or charges for water delivery. The Supreme Court stated that water providers may determine rates and charges upon proper action of the governing body and that the governing body may increase a charge which was not affected by a prior initiative or impose an entirely new charge.
The Supreme Court further stated in the Bighorn Decision that it was not holding that the initiative power is free of all limitations and was not determining whether the initiative power is subject to the statutory provision requiring that water and wastewater service charges be set at a level that will pay debt service on bonded debt and operating expenses. Such initiative power could be subject to the limitations imposed on the impairment of contracts under the contract clause of the United States Constitution.
Additionally, SB 919 provides that the initiative power provided for in Proposition 218 “shall not be construed to mean that any owner or beneficial owner of a municipal security, purchased before or after (the -52-
effective date of Proposition 218) assumes the risk of, or in any way consents to, any action by initiative measure that constitutes an impairment of contractual rights” protected by the United States Constitution.
Article XIIIC also removes many of the limitations on the initiative power in matters of reducing or repealing any local tax, assessment, fee or charge. No assurance can be given that the voters of the City will not, in the future, approve an initiative or initiatives which reduce or repeal local taxes, assessments, fees or charges currently comprising a substantial part of the City’s General Fund. “Assessments,” “fees” and “charges” are not defined in Article XIIIC, and it is unclear whether these terms are intended to have the same meanings for purposes of Article XIIIC as for Article XIIID described below. If not, the scope of the initiative power under Article XIIIC potentially could include any General Fund local tax, assessment, or fee not received from or imposed by the federal or State government or derived from investment income.
If the City is unable to continue to collect assessment revenues for a particular program, the program might have to be curtailed and/or funded by the City’s General Fund. Given the approval requirements imposed by Article XIIID, the City is unable to predict whether it will be able to continue to collect assessment revenues for these programs. If the City chose to fund any such programs from the General Fund instead, the General Fund budget would be affected.
Article XIIID defines a “fee” or “charge” as any levy other than an ad valorem tax, special tax, or assessment imposed by an agency upon a parcel or upon a person as an incident of property ownership, including a user fee or charge for a property-related service. A “property-related service” is defined as “a public service having a direct relationship to a property ownership” herein. Article XIIID further provides that reliance by an agency on any parcel map (including an assessor’s parcel map) may be considered a significant factor in determining whether a fee or charge is imposed as an incident of property ownership.
In the Bighorn Decision, the Supreme Court stated that ongoing water delivery charges are also propertyrelated fees and charges within the meaning of Article XIIID.
Article XIIID requires that any agency imposing or increasing any property-related fee or charge must provide written notice thereof to the record owner of each identified parcel upon which such fee or charge is to be imposed and must conduct a public hearing with respect thereto. The proposed fee or charge may not be imposed or increased if a majority of owners of the identified parcels file written protests against it. As a result, if and to the extent that a fee or charge imposed by a local government for water service is ultimately determined to be a “fee” or “charge” as defined in Article XIIID, the local government’s ability to increase such fee or charge may be limited by a majority protest.
In addition, Article XIIID also includes a number of limitations applicable to existing fees and charges including provisions to the effect that (i) revenues derived from the fee or charge shall not exceed the funds required to provide the property-related service; (ii) such revenues shall not be used for any purpose other than that for which the fee or charge was imposed; (iii) the amount of a fee or charge imposed upon any parcel or person as an incident of property ownership shall not exceed the proportional cost of the service attributable to the parcel; and (iv) no such fee or charge may be imposed for a service unless that service is actually used by, or immediately available to, the owner of the property in question. Propertyrelated fees or charges based on potential or future use of a service are not permitted.
Depending on the interpretation of what constitutes a “property-related fee” under Article XIIID, there could be future restrictions on the ability of the City’s General Fund to charge its enterprise funds for various services provided. In the event that fees and charges of enterprise funds cannot be appropriately increased or are reduced pursuant to exercise of the initiative power, the City may have to decide whether -53-
to supplement any deficiencies in these enterprise funds with moneys from the General Fund or to curtail service, or both.
The interpretation and application of Proposition 218 will ultimately be determined by the courts or through implementing legislation with respect to a number of the matters described above, and it is not possible at this time to predict with certainty the outcome of such determination or the nature or scope of any such legislation.
Both Articles XIIIA and XIIIB, as well as Articles XIIIC and XIIID described above, were adopted as measures that qualified for the ballot pursuant to California’s constitutional initiative process. From timeto-time other initiative measures could be adopted, affecting the ability of the City to increase revenues and to increase appropriations.
Proposition 1A of 2004
The California Constitution and existing statutes give the legislature authority over property taxes, sales taxes and the VLF. The legislature has authority to change tax rates, the items subject to taxation and the distribution of tax revenues among local governments, schools, and community college districts. The State has used this authority for many purposes, including increasing funding for local services, reducing State costs, reducing taxation, addressing concerns regarding funding for particular local governments, and restructuring local finance.
The California Constitution generally requires the State to reimburse the local governments when the State “mandates” a new local program or higher level of service. Due to the ongoing financial difficulties of the State, it has not provided in recent years reimbursements for many mandated costs. In other cases, the State has “suspended” mandates, eliminating both responsibility of the local governments for complying with the mandate and the need for State reimbursements.
The 2004 Budget Act, related legislation and the enactment of Proposition 1A of 2004 (described below) dramatically changed the State-local fiscal relationship. These constitutional and statutory changes implemented an agreement negotiated between the Governor and local government officials (the “Statelocal agreement”) in connection with the 2004 Budget Act.
One change related to the reduction of the VLF rate from 2% to 0.65% of the market value of the vehicle. In order to protect local governments, which had previously received all VLF revenues, the 1.35 percent reduction in VLF revenue to cities and counties from this rate change was backfilled by an increase in the amount of property tax revenues they receive. This worked to the benefit of local governments, because the backfill amount annually increases in proportion to the growth in secured roll property tax revenues, which has historically grown at a higher rate than VLF revenues. Proposition 1A of 2004 requires the State to provide local governments with equal replacement revenues.
On November 3, 2004, the voters of the State approved Proposition 1A (“Proposition 1A of 2004”). Proposition 1A of 2004 amended the State Constitution to, among other things, reduce the Legislature’s authority over local government revenue sources by placing restrictions on the State’s access to local governments’ property tax, sales tax, and VLF revenues as of November 3, 2004. Pursuant to Proposition 1A of 2004, the State is able to borrow up to 8% of local property tax revenues but only if the Governor proclaims such action is necessary due to a severe State fiscal hardship and two-thirds of both houses of the State Legislature approve the borrowing. Any amounts borrowed are required to be repaid -54-
within three years. Proposition 1A of 2004 also permits the State to borrow from local property tax revenues for no more than two fiscal years within a period of 10 fiscal years, and only if previous borrowings have been repaid. In addition, the State cannot reduce the local sales tax rate or restrict the authority of the local governments to impose or change the distribution of the statewide local sales tax. Proposition 1A of 2004 generally prohibits the State from mandating activities on cities, counties, or special districts without providing the funding needed to comply with the mandates, and if the State does not provide funding for the activity that has been determined to be mandated, the requirement on cities, counties, or special districts to abide by the mandate is suspended. Proposition 1A of 2004 also expanded the definition of what constitutes a mandate 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 of 2004 do not apply to schools or community colleges or to mandates relating to employee rights.
Pursuant to statutory changes made in conjunction with amendments to the fiscal year 2008-09 State Budget Act, the Fiscal Year 2009-10 State Budget Act and related budget legislation adopted by the State Legislature and signed by the Governor in February 2012 (collectively, the “February 2012 Budget Package”), the VLF rate increased from 0.65% to 1.15% effective May 19, 2012. Of this 0.50% increase,
0.35% will flow to the State General Fund, and 0.15% will support various law enforcement programs previously funded by the State General Fund.
Proposition 22
Proposition 22 (“Proposition 22”), which was approved by California voters in November 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. Due to the prohibition with respect to State’s ability to take, reallocate, and borrow money raised by local governments for local purposes, Proposition 22 supersedes certain provisions of Proposition 1A of 2004. See “ – Proposition 1 A of 2004” herein. 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 schools’ and community college districts’ 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 State 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. The LAO states that Proposition 22 will prohibit the State from enacting new laws that require redevelopment agencies to shift funds to schools or other agencies.
Proposition 22 prohibits the State from borrowing sales taxes or excise taxes on motor vehicle fuels or changing the allocations of those taxes among local government except pursuant to specified procedures involving public notices and hearings. In addition, Proposition 22 requires that the State apply the formula setting forth the allocation of State fuel tax revenues to local agencies revert to the formula in effect on June 30, 2009. The LAO anticipated that Proposition 22 would require the State to adopt alternative actions to address its fiscal and policy objectives, particularly with respect to short-term cash flow need. The City does not believe that Proposition 22 will have a significant impact on its revenues and expenditures. -55-
Proposition 26
Proposition 26 (“Proposition 26”), which was approved by California voters on November 2, 2010, revises the California Constitution to expand the definition of “taxes.” Proposition 26 re-categorizes many State and local fees as taxes and specifies a requirement of two-thirds voter approval for taxes levied by local governments.
Proposition 26 requires the State obtain the approval of two-thirds of both houses of the State Legislature for any proposed change in State statutes, which would result in any taxpayer paying a higher tax. Proposition 26 eliminates the previous practice whereby a tax increase coupled with a tax reduction that resulted in an overall neutral fiscal effect was subject only to a majority vote in the State Legislature.
Furthermore, pursuant to Proposition 26, any increase in a fee above the amount needed to provide the specific service or benefit is deemed to be a tax and the approval thereof will require such two-thirds vote of approval to be effective. In addition, for State imposed fees and charges, any fee or charge adopted after January 1, 2010 with a majority vote of approval of the State Legislature which would have required a twothirds vote of approval of the State Legislature if Proposition 26 were effective at the time of such adoption is repealed as of November 2011 absent the re-adoption by the requisite two-thirds vote.
Proposition 26 amends Article XIII C of the State Constitution to state that a “tax” means a levy, charge or exaction of any kind imposed by a local government, except (1) a charge imposed for a specific benefit conferred or privilege granted directly to the payor that is not provided to those not charged, and which does not exceed the reasonable costs to the local government of conferring the benefit or granting the privilege; (2) a charge imposed for a specific government service or product provided directly to the payor that is not provided to those not charged, and which does not exceed the reasonable costs to the local government of providing the service or product; (3) a charge imposed for the reasonable regulatory costs to a local government for issuing licenses and permits, performing investigations, inspections and audits, enforcing agricultural marketing orders, and the administrative enforcement and adjudication thereof; (4) a charge imposed for entrance to or use of local government property or the purchase rental or lease of local government property; (5) a fine, penalty, or other monetary charge imposed by the judicial branch of government or a local government as a result of a violation of law; (6) a charge imposed as a condition of property development; or (7) assessments and property related fees imposed in accordance with the provisions of Proposition 218.
Proposition 26 applies to any levy, charge or exaction imposed, increased, or extended by local government on or after November 3, 2010, unless exempted, as stated above. Accordingly, fees adopted prior to that date are not subject to the measure until they are increased or extended or if it is determined that an exemption applies. As of the date hereof, none of the City’s fees or charges has been challenged in a court of law in connection with the requirements of Proposition 26.
If the local government specifies how the funds from a proposed local tax are to be used, the approval will be subject to a two-thirds voter requirement. If the local government does not specify how the funds from a proposed local tax are to be used, the approval will be subject to a fifty percent voter requirement. Proposed local government fees that are not subject to Proposition 26 generally are subject to the approval of a majority of the governing body. In general, proposed property charges will be subject to a majority vote of approval by the governing body although certain proposed property charges will also require approval by a majority of the affected property owners. -56-
Proposition 19
On November 3, 2020, State voters approved a constitutional amendment entitled Property Tax Transfers, Exemptions and Revenue for Wildfire Agencies and Counties Amendment (“Proposition 19”), which will: (i) expand special rules that give property tax savings to homeowners that are over the age of 55, severely disabled, or whose property has been impacted by a natural disaster or contamination, when they buy a different home; (ii) narrow existing special rules for inherited properties; and (iii) broaden the scope of legal entity ownership changes that trigger reassessment of properties. The City cannot make any assurance as to what effect the implementation of Proposition 19 will have on assessed valuation of real property in the City.
Taxpayer Protection and Government Accountability Act Initiative On February 1, 2023, the California Secretary of State announced that a ballot initiative, designated as Initiative 1935 and known as the “Taxpayer Protection and Government Accountability Act,” had received the required number of signatures to appear on the November 5, 2024 ballot.
If approved by a majority of voters casting a ballot at the November 5, 2024 Statewide election, Initiative 1935 would make numerous significant changes to Articles XIII, XIIIA, XIIIC and XIIID of the California Constitution to further limit the authority of local governments, and electors via the initiative process, to adopt and impose taxes and fees. The full text of Initiative 1935 may be viewed at the website of the California Attorney General.
The City cannot predict whether Initiative 1935 will be approved by a majority of voters casting a ballot at the November 5, 2024 Statewide election. If Initiative 1935 is approved, the City cannot provide any assurances as to the effect of the implementation or judicial interpretations of Initiative 1935 on the finances of the City, the County, or the State.
Future Initiatives
Articles XIIIA, XIIIB, XIIIC and XIIID, Propositions 1A, 22, 26 and 19 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 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.
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RISK FACTORS
This section provides a general overview of certain risk factors which should be considered, in addition to the other matters set forth in this Official Statement, in evaluating an investment in the Certificates. This section is not meant to be a comprehensive or definitive discussion of the risks associated with an investment in the Certificates, and the order in which this information is presented does not necessarily reflect the relative importance of various risks. Potential investors in the Certificates are advised to consider the following factors, among others, and to review this entire Official Statement to obtain information essential to the making of an informed investment decision. Any one or more of the risk factors discussed below, among others, could lead to a decrease in the market value and/or in the marketability of the Certificates. There can be no assurance that other risk factors not discussed herein will not become material in the future.
Lease Payments Are Not Debt
The obligation of the City to make the Lease Payments under the Lease Agreement does not constitute an obligation of the City for which the City is obligated to levy or pledge any form of taxation or for which the City has levied or pledged any form of taxation. The obligation of the City to make Lease Payments does not constitute a debt of the City, the State or any political subdivision thereof within the meaning of any constitutional or statutory debt limitation or restriction.
Although the Lease Agreement does not create a pledge, lien or encumbrance upon the funds of the City, the City is obligated under the Lease Agreement to pay the Lease Payments from any source of legally available funds and the City has covenanted in the Lease Agreement that, for so long as the Property is available for its use, it will make the necessary annual appropriations within its budget for the Lease Payments. The City is currently liable and may become liable on other obligations payable from general revenues, some of which may have a priority over the Lease Payments, or which the City, in its discretion, may determine to pay prior to the Lease Payments.
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 Certificates. To the extent that additional obligations are incurred by the City, the funds available to make Lease Payments may be decreased. In the event the City’s revenue sources are less than its total obligations, the City could choose to fund other municipal services before making Lease Payments. The same result could occur if, because of State constitutional limits on expenditures, the City is not permitted to appropriate and spend all of its available revenues. The City’s appropriations, however, have never exceeded the limitations on appropriations under Article XIIIB of the California Constitution. For information on the City’s current limitations on appropriations, see “CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS–Article XIIIB of the California Constitution.” Valid and Binding Covenant to Budget and Appropriate
Pursuant to the Lease Agreement, the City covenants to take such action as may be necessary to include Lease Payments due in its annual budgets and to make necessary appropriations for all such payments. Such covenants are deemed to be duties imposed by law, and it is the duty of the public officials of the City to take such action and do such things as are required by law in the performance of the official duty of such officials to enable the City to carry out and perform such covenants. A court, however, in its discretion may decline to enforce such covenants. Upon delivery of the Certificates, Special Counsel will render its opinion (substantially in the form of APPENDIX D–FORM OF SPECIAL COUNSEL -58-
OPINION) to the effect that, subject to the limitations and qualifications described therein, the Lease Agreement constitutes a valid and binding obligation of the City.
Additional Obligations of the City
The Lease Agreement does not prohibit the City from incurring additional lease and other obligations payable from the City’s General Fund. In that regard, the City may, from time to time, incur General Fund obligations to finance public improvements (see “OTHER CITY FINANCIAL INFORMATION—Long-Term General Fund-Secured Obligations”), which may also include lease obligations payable from its General Fund.
Cash Management
The City has numerous internal or external means to manage its cash flow, including but not limited to interfund borrowing, intrafund borrowing and tax and revenue anticipation notes which may be employed to the extent the City Council is required to make budget adjustments in order to maintain a balanced budget. If the City does not take required actions and the budget remains out of balance, the cash requirements of the City may exceed available cash flow. The ability of the City to borrow on an interim basis to meet any cash shortfalls also may be limited if the budget remains out of balance for a sustained period of time. See “CITY FINANCIAL INFORMATION.”
Abatement
In the event of loss or substantial interference in the use and possession by the City of all or any portion of the Property caused by material damage, title defect, destruction to or condemnation of the Property, Lease Payments will be subject to abatement. In the event that such component of the Property, if damaged or destroyed by an insured casualty, could not be replaced during the period of time that proceeds of the City’s rental interruption insurance will be available in lieu of Lease Payments, or in the event that casualty insurance proceeds or condemnation proceeds are insufficient to provide for complete repair or replacement of such component of the Property or prepayment of the Certificates, there could be insufficient funds to make payments to Owners in full. Reduction in Lease Payments due to abatement as provided in the Lease Agreement does not constitute a default thereunder.
It is not possible to predict the circumstances under which such an abatement of rental may occur.
In addition, there is no statute, case or other law specifying how such an abatement of rental should be measured. For example, it is not clear whether fair rental value is established as of commencement of the lease or at the time of the abatement. If the latter, it may be that the value of the Property is substantially higher or lower than its value at the time of the execution and delivery of the Certificates. Abatement, therefore, could have an uncertain and material adverse effect on the security for and payment of the Certificates.
No Acceleration Upon Default
In the event of a default, there is no remedy of acceleration of the total Lease Payments due over the term of the Lease Agreement and the Trustee is not empowered to foreclose or sell a fee simple interest in the Property and use the proceeds of such sale to prepay the Certificates or pay debt service thereon. Any suit for money damages would be subject to limitations on legal remedies against public agencies in the -59-
State, including a limitation on enforcement of judgments against funds needed to serve the public welfare and interest as described below. See “—Limitations on Remedies.” Risk of Uninsured Loss
The City covenants under the Lease Agreement to maintain certain insurance policies on the Property. See “SOURCE OF PAYMENT FOR THE CERTIFICATES—Insurance.” The City does not insure its facilities against the risk of earthquake. Additionally, the Property could be the subject of an eminent domain proceeding. Under these circumstances an abatement of Lease Payments could occur and could continue indefinitely. There can be no assurance that the providers of the City’s casualty and rental interruption insurance will in all events be able or willing to make payments under the respective policies for such loss should a claim be made under such policies. Further, there can be no assurances that amounts received as proceeds from insurance or from condemnation of the Property will be sufficient to prepay the Certificates.
Under the Lease Agreement the City is required to obtain casualty insurance which provides for a deductible up to $250,000. Should the City be required to meet such deductible expenses, the availability of General Fund revenues to make Lease Payments may be correspondingly affected.
Eminent Domain
If the Property is taken permanently under the power of eminent domain or sold to a government threatening to exercise the power of eminent domain, the term of the Lease Agreement will cease as of the day possession is taken. If less than all of the Property is taken permanently, or if the Property or any part thereof is taken temporarily, under the power of eminent domain, (a) the Lease Agreement will continue in full force and effect and will not be terminated by virtue of such taking, and (b) there will be a partial abatement of Lease Payments as a result of the application of net proceeds of any eminent domain award to the prepayment of the Lease Payments, in an amount to be agreed upon by the City and the Corporation such that the resulting Lease Payments represent fair consideration for the use and occupancy of the remaining usable portion of the Property. The City covenants in the Lease Agreement to contest any eminent domain award which is insufficient to either: (i) prepay the Lease Payments in whole, if all the Property is condemned; or (ii) prepay a pro rata share of Lease Payments, in the event that less than all of the Property is condemned.
Public Health Emergencies
The COVID-19 Pandemic commenced in approximately March 2020 and resulted in a global public health crisis that was fluid and unpredictable with unknown financial and economic impacts. While the health emergency and related declarations have ceased, the City continues to assess the full impacts that the COVID-19 Pandemic has had either directly or indirectly on its operations and finances.
There could be future outbreaks of other COVID-19 variants or other public health emergencies that could have material adverse effects on tourism to the City and the City’s operations and finances.
Hazardous Substances
The existence or discovery of hazardous materials may limit the beneficial use of the Property. In general, the owners and lessees of the Property may be required by law to remedy conditions of such parcel relating to release or threatened releases of hazardous substances. The federal Comprehensive -60-
Environmental Response, Compensation and Liability Act of 1980, sometimes referred to as “CERCLA” or the “Superfund Act,” is the most well-known and widely applicable of these laws, but California laws with regard to hazardous substances are also similarly stringent. Under many of these laws, the owner or lessee is obligated to remedy a hazardous substance condition of the property whether or not the owner or lessee had anything to do with creating or handling the hazardous substance.
Further it is possible that the beneficial use of the Property may be limited in the future resulting from the current existence on the Property of a substance currently classified as hazardous, but which has not been released or the release of which is not presently threatened or may arise in the future resulting from the current existence on the Property of a substance not presently classified as hazardous, but which may in the future be so classified. Further, such liabilities may arise not simply from the existence of a hazardous substance but from the method in which it is handled. All of these possibilities could significantly limit the beneficial use of the Property.
The City is unaware of the existence of hazardous substances on the Property site which would materially interfere with the beneficial use thereof.
Natural Calamities
General. From time to time, the City has been and could be subject to natural calamities, including, but not limited to, earthquakes, severe weather, wildfire, or volcanic activity, that may adversely affect economic activity in the City, and which could have a negative impact on City finances. There can be no assurance that the occurrence of any natural calamity would not cause substantial damage to persons, property and structures in the City and could have a substantial negative effect on the City’s General Fund.
The following is a summary of certain natural calamities that have affected the City and the County and are likely to continue to occur in the future.
Drought. The County and the City both depend on groundwater and surface water, which are susceptible to drought. Droughts are a regular feature in California and are almost certain to continue to occur, with varying severity and duration. Any local drought conditions may impact the water supply systems in the County and the City, as there is no infrastructure to import water from elsewhere in California and, due to the location of the County in the upper portion of the watershed, there is little possibility to divert water from other areas without the cost of pipelines and pumping.
Flood. Like most of California, the City is subject to unpredictable seasonal rainfall, with periods of intense and sustained precipitation occurring every few years. The Property is not located in the 100-year floodplain.
Seismic. The City, like most regions in the State of California, is located in an area of seismic activity and, therefore, could be subject to potentially destructive earthquakes. The occurrence of severe seismic activity in or near the City could result in substantial damage and could lead to successful appeals for reduction of assessed values of property . Such a reduction of assessed valuations could result in a reduction of the general fund revenues available to pay the Certificates.
If there were to be an occurrence of severe seismic activity in the City, there could be substantial damage to and interference with the City’s right to use and occupy all or a portion of the Property, which could result in Lease Payments being subject to abatement. See “—Abatement” above. Damage resulting -61-
from such an event could have a material adverse effect on the City’s financial condition as well, through unexpected recovery costs and reduced tax and other revenues.
Climate Change. Climate change caused by human activities may have adverse effects on the City and its finances. Projections of the impacts of global climate change on the City are complex and depend on many factors that are outside the City’s control. The various scientific studies that forecast the amount and timing of adverse impacts of climate change are based on assumptions contained in such studies, but actual events may vary materially. Also, the scientific understanding of climate change and its effects continues to evolve. Accordingly, the City is unable to forecast with certainty when and where the adverse impacts of climate change will occur or the extent of such impacts. While the impacts of climate change may be mitigated by the City’s past and future investment in adaptation strategies, the City can give no assurance about the net effects of those strategies and whether the City will be required to take additional adaptive mitigation measures.
Hazard Mitigation Plan. The City and the County have adopted a regularly updated multijurisdictional hazard mitigation plan (the “Hazard Mitigation Plan”) that analyzes and discusses the abovementioned natural calamities and lays out mitigation measures. Reference should be made to the complete Hazard Mitigation Plan, which is available from the County’s website at https://mitigatehazards.com/county-of-kern/kern-hmp-docs. The Hazard Mitigation Plan is not incorporated herein by this reference.
China Lake Naval Weapons Facility
The Navy owns and operates NAWS China Lake on over one million acres, of which 5,000 acres lie in the City. NAWS China Lake has a significant economic benefit in the City as a result of its extensive civilian employment and substantial annual budget. Significant declines in assessed values in the City in the early and mid-1990s were, in part, a result of cutbacks in the workforce at NAWS China Lake. Future budget reductions or total closure of NAWS China Lake would most likely have a significant economic impact on the City’s available general fund revenues. The City is not aware of any plans to close NAWS China Lake.
Potential Impact of State Financial Condition on the City During the 2008-09 recession, the State faced a structural deficit that resulted in substantial annual deficits and reductions in expenditures. Although the State has had a budget surplus in the more recent fiscal years, according to the State there remain a number of major risks and pressures that threaten the State’s financial condition, including the threat of recession, potential changes to federal fiscal policies and unfunded long-term liabilities of more than $200 billion related to pensions and other post-retirement benefits. These risks and financial pressures could result in future reductions or deferrals in amounts payable to the City. The State’s financial condition and budget policies affect local public agencies throughout California. To the extent that the State budget process results in reduced revenues to the City, the City will be required to adjust its budget. State budget policies can also impact conditions in the local economy and could have an adverse effect on the local economy and the City’s major revenue sources.
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 -62-
will be taken in the future by the 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 over which the City has no control (see “STATE BUDGET INFORMATION”). The ability of the State to divert funds from the City has been limited by Proposition 1A and Proposition 22, which are discussed herein. See “CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES, REVENUES AND APPROPRIATIONS.”
Risk of Changing Economic Conditions
While the City has historically enjoyed strong economic and financial performance, the City faces several long-term financial challenges including climate change and natural disasters, public health emergencies, changes to the economy of the region and the nation, and the management of pension and post-employment retirement obligations. While the City has adopted measures and policies to better position its operating budgets for future risks and future economic downturns, such measures may not be sufficient.
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 level 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), mortality rates, and differences between actual and anticipated investment 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 the City’s obligations to its pension plans.
Risks Related to Cyber Security
The City relies on computers and technology to conduct its operations. The City and its departments face cyber threats from time to time including, but not limited to, hacking, viruses, malware and other forms of technology attacks. The City owns and operates its own enterprise class data network serving the municipal City government and its operations. The City has retained information technology professionals to support, maintain and protect these operations locally in a purpose-built and physically secure environment. This network and its operations are governed by and in compliance with all applicable governmental regulations as well as the City’s own administrative regulations. Within the City’s operations and guidance is an active cyber-security program designed to protect from, and to quickly identify and mitigate, a multitude of complex security threats. While no network is completely immune from all possible compromise, the City exercises its due diligence in protecting the data it possesses and the systems it operates. To date, there have been no significant cyber-attacks on the City’s computers and technologies.
The City has cyber-insurance. Additionally, the City conducts employee training programs for cybersecurity related matters and has a continuity plan which is regularly tested. The City’s servers are backed up offsite each day and the City’s systems have insider protection to protect against deletion. -63-
While the City routinely maintains its technology systems and continuously implements new information security controls, no assurances can be given that the City’s security and operational control measures will be successful in guarding against all cyber threats and attacks. The results of any attack on the City’s computer and technology could negatively impact the City’s operations, and the costs related to such attacks could be substantial.
Bankruptcy
The City is a unit of State government and therefore is not subject to the involuntary procedures of the United States Bankruptcy Code (the “Bankruptcy Code”). However, pursuant to Chapter 9 of the Bankruptcy Code, the City may seek voluntary protection from its creditors for purposes of adjusting its debts. A City bankruptcy petition could have a material adverse effect on the payment of the Certificates.
The following paragraphs present a discussion of certain potential consequences surrounding a potential City bankruptcy. It is not intended to be an exhaustive discussion of all potential adverse consequences or potential outcomes.
In the event 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 proceeding.
Among the adverse effects of such a bankruptcy 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; (ii) the avoidance of preferential transfers occurring during the relevant period prior to the filing of a bankruptcy petition; (iii) the existence of unsecured or court-approved secured debt which may have a priority of payment superior to that of Owners of Certificates; and (iv) the possibility of the adoption of a plan for the adjustment of the City’s debt (a “Plan”) without the consent of the Trustee or all of the Owners of Certificates, 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.
In addition, the City could either reject the Lease Agreement or assume the Lease Agreement despite any provision of the Lease Agreement which makes the bankruptcy or insolvency of the City an event of default thereunder. In the event the City rejects the Lease Agreement, the Trustee, on behalf of the Owners of the Certificates, would have a pre-petition claim that may be limited under the Bankruptcy Code and treated in a manner under a Plan over the objections of the Trustee or Owners of the Certificates.
Moreover, such rejection would terminate the Lease Agreement and the City’s obligations to make payments thereunder.
Early Redemption Risk
Early redemption of the Certificates may occur in whole or in part without premium, on any date if the Property or a portion thereof is lost, destroyed or damaged beyond repair or taken by eminent domain or from the proceeds of title insurance (see “THE CERTIFICATES—Redemption”).
Limitations on Remedies
The enforcement of any remedies provided in the Lease Agreement and the Trust Agreement could prove both expensive and time consuming. Although the Lease Agreement provides that if the City defaults the Trustee may enter the Property and re-let the Property, portions of the Property may not be easily recoverable, and even if recovered, could be of little value to others because of the Property’s specialized -64-
nature. Additionally, the Trustee may have limited ability to re-let the Property to provide a source of rental payments sufficient to pay the principal of and interest with respect to the Certificates so as to preserve the tax-exempt nature of interest with respect to the Certificates. Furthermore, due to the governmental nature of the Property, it is not certain whether a court would permit the exercise of the remedy of re-letting with respect thereto.
Alternatively, the Trustee may terminate the Lease Agreement and proceed against the City to recover damages pursuant to the Lease Agreement. Any suit for money damages would be subject to limitations on legal remedies against public agencies in the State, including a limitation on enforcement of judgments against funds needed to serve the public welfare and interest.
The rights of the Owners of the Certificates are subject to certain limitations on legal remedies against cities, redevelopment agencies and other governmental entities in the State, including but not limited to a limitation on enforcement against funds that are otherwise needed to serve the public welfare and interest. Additionally, the rights of the Owners of the Certificates may be subject to (i) bankruptcy, insolvency, reorganization, moratorium, or similar laws limiting or otherwise affecting the enforcement of creditors’ rights generally (as such laws are now or hereafter may be in effect), (ii) equity principles (including but not limited to 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 law, (iii) the exercise by the United States of America of the powers delegated to it by the Constitution, and (iv) the reasonable and necessary exercise, in certain exceptional situations, of the police powers inherent in the sovereignty of the State and its governmental bodies in the interest of serving a significant and legitimate public purpose. Under Chapter 9 of the Bankruptcy Code (Title 11, United States Code), which governs bankruptcy proceedings for public agencies, there are no involuntary petitions in bankruptcy. If the City were to file a petition under Chapter 9 of the Bankruptcy Code, the Owners, the Trustee and the Corporation could be prohibited or severely restricted from taking any steps to enforce their rights under the Lease Agreement and from taking any steps to collect amounts due from the City under the Lease Agreement.
Special Counsel has limited its opinion as to the enforceability of the Lease Agreement to the extent that enforceability may be limited by bankruptcy, insolvency, reorganization, fraudulent conveyance or transfer, moratorium, or other similar laws affecting generally the enforcement of creditor’s rights, by equitable principles and by the exercise of judicial discretion. Additionally, the Certificates are not subject to acceleration in the event of the breach of any covenant or duty under the Lease Agreement. The lack of availability of certain remedies or the limitation of remedies may entail risks of delay, limitation or modification of the rights of the Owners.
Secondary Market Risk
There can be no assurance that there will be a secondary market for purchase or sale of the Certificates, and from time to time there may be no market for them, depending upon prevailing market conditions, the financial condition or market position of firms who may make the secondary market and the financial condition of the City.
Changes in Law
There can be no assurance that the electorate of the State will not at some future time adopt additional initiatives or that the Legislature will not enact legislation that will amend the laws or the -65-
Constitution of the State resulting in a reduction of the General Fund revenues of the City and consequently, having an adverse effect on the security for the Certificates.
Risks Relating to the Municipal Bond Insurance Policy
In the event of default of the payment of principal and interest with respect to the Certificates when all or some becomes due, any owner of the Certificates shall have a claim under the Municipal Bond Insurance Policy for such payments. The Municipal Bond Insurance Policy does not insure against redemption premium, if any. The payment of principal and interest in connection with mandatory sinking fund or optional redemption of the Certificates by the City which is recovered by the City from the Owner as a voidable preference under applicable bankruptcy law is covered by the Municipal Bond Insurance Policy, however, such payments will be made by the Municipal Bond Insurer at such time and in such amounts as would have been due absence such prepayment by the City unless the Municipal Bond Insurer chooses to pay such amounts at an earlier date.
The Municipal Bond Insurer may direct and must consent to any remedies and the Municipal Bond Insurer’s consent may be required in connection with amendments to any applicable legal documents.
In the event the Municipal Bond Insurer is unable to make payment of principal and interest as such payments become due under the Municipal Bond Insurance Policy, the Certificates are payable solely from the moneys received pursuant to the applicable legal documents. In the event the Municipal Bond Insurer becomes obligated to make payments with respect to the Certificates, no assurance is given that such event will not adversely affect the market price of the Certificates or the marketability (liquidity) for the Certificates.
The long-term ratings on the Certificates are dependent in part on the financial strength of the Municipal Bond Insurer and its claim paying ability. The financial strength and claims paying ability of the Municipal Bond Insurer are predicated upon a number of factors which could change over time. No assurance is given that the long-term ratings of the Municipal Bond Insurer and of the ratings on the Certificates will not be subject to downgrade and such event could adversely affect the market price of the Certificates or the marketability (liquidity) for the Certificates. See “RATINGS.” The obligations of the Municipal Bond Insurer are general obligations of the Municipal Bond Insurer and in an event of default by the Municipal Bond Insurer, the remedies available may be limited by applicable bankruptcy law or other similar laws related to insolvency.
Neither the City nor the Underwriter has made independent investigation into the claims paying ability of the Municipal Bond Insurer and no assurance or representation regarding the financial strength or projected financial strength of the Municipal Bond Insurer is given. Thus, when making an investment decision, potential investors should carefully consider the ability of the City to make the Lease Payments and the claims paying ability of the Municipal Bond Insurer, particularly over the life of the investment.
ABSENCE OF LITIGATION
At the time of delivery of and payment for the Certificates, the City and the Corporation will certify that there is no action, suit, proceeding, inquiry, or investigation, at law or in equity, before or by any court or regulatory agency, public board, or body pending or threatened against the City or the Corporation affecting their existence or the titles of their respective officers or seeking to restrain or to enjoin the -66-
issuance, sale, or delivery of the Certificates, or the application of the proceeds thereof in accordance with the Trust Agreement, or in any way contesting or affecting the validity or enforceability of the Certificates, any agreement entered into between the City and any purchaser of the Certificates, the Lease Agreement, the Trust Agreement, the Assignment Agreement, the Site and Facility Lease or any other applicable agreements or any action of the City or the Corporation contemplated by any of said documents, or in any way contesting the completeness or accuracy of this Official Statement or any amendment or supplement thereto, or contesting the powers of the City or the Corporation or their authority with respect to the Certificates or any action of the City or the Corporation contemplated by any of said documents, nor, to the knowledge of the City or the Corporation, is there any basis therefor. There is no litigation pending or threatened against the City that could affect the City’s ability to make the Lease Payments.
CONTINUING DISCLOSURE
Pursuant to Rule 15c2-12 of the Securities and Exchange Commission (the “Rule”), the City has agreed, for the benefit of holders of the Certificates, to provide certain financial information and operating data relating to the City relating to the Certificates (the “Annual Reports”) and its audited financial statements, by not later than March 31 of each year commencing with the report for the 2023-24 fiscal year (the “Annual Information”), and to provide notices of the occurrence of certain events. The Annual Reports, audited financial statements and notices of events will be filed by the City with the Municipal Securities Rulemaking Board (the “MSRB”), via its Electronic Municipal Market Access (“EMMA”) system. The nature of the information to be provided in the Annual Reports and the notices of events is set forth in APPENDIX G—FORM OF CONTINUING DISCLOSURE CERTIFICATE. [INSERT CONTINUING DISCLOSURE COMPLIANCE]
MUNICIPAL ADVISOR
Wulff Hansen & Co. (the “Municipal Advisor”) is registered as a “Municipal Advisor” with the Securities Exchange Commission and Municipal Securities Rulemaking Board. The Municipal Advisor has assisted the City in connection with the planning, structuring, sale and issuance of the Certificates. The Municipal Advisor is not obligated to undertake, and has not undertaken to make, an independent verification of or to assume responsibilities for the accuracy, completeness or fairness of the information contained in this Official Statement not provided by the Municipal Advisor. The fees of the Municipal Advisor in respect to the Certificates are contingent upon their sale and delivery.
LEGAL MATTERS
All legal matters in connection with the execution and delivery of the Certificates are subject to the approval of Stradling Yocca Carlson & Rauth LLP, Newport Beach, California, Special Counsel. Special Counsel’s opinion with respect to the Certificates will be substantially in the form set forth in APPENDIX D—FORM OF SPECIAL COUNSEL OPINION. Certain legal matters will also be passed on for the City by Stradling Yocca Carlson & Rauth LLP, Newport Beach, California, as Disclosure Counsel, and by Martin Koczanowicz, Esq., the City Attorney. Certain legal matters will be passed upon for the Underwriter by Best Best & Krieger LLP, Los Angeles, California. The fees and expenses of Special Counsel and Disclosure Counsel are contingent upon the delivery of the Certificates. -67-
TAX MATTERS
In the opinion of Stradling Yocca Carlson & Rauth LLP, Newport Beach, California, Special Counsel, under existing statutes, regulations, rulings and judicial decisions, interest (and original issue discount) with respect to the Certificates is excluded from gross income for federal income tax purposes and is not an item of tax preference for purposes of calculating the federal alternative minimum tax imposed on individuals; however, it should be noted that with respect to applicable corporations as defined in section 59(k) of the Internal Revenue Code of 1986, as amended (the “Code”), interest (and original issue discount) with respect to the Certificates might be taken into account in determining adjusted financial statement income for purposes of computing the alternative minimum tax imposed on such corporations.
In the further opinion of Special Counsel, interest (and original issue discount) on the Certificatesis exempt from State of California personal income tax.
In the opinion of Special Counsel, the difference between the issue price of a Certificate (the first price at which a substantial amount of the Certificates of a maturity is to be sold to the public) and the stated redemption price at maturity of such Certificate constitutes original issue discount. Original issue discount accrues under a constant yield method, and original issue discount will accrue to a Beneficial Owner before receipt of cash attributable to such excludable income. The amount of original issue discount deemed received by a Beneficial Owner will increase the Beneficial Owner’s basis in the applicable Certificate. The amount of original issue discount that accrues to the Beneficial Owner a Certificate is excluded from the gross income of such Beneficial Owner for federal income tax purposes, is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and is exempt from State of California personal income tax.
Special Counsel’s opinion as to the exclusion from gross income for federal income tax purposes of interest on the Certificates (including any original issue discount) is based upon certain representations of fact and certifications made by the District, the Underwriter and others and is subject to the condition that the District complies with all requirements of the Code that must be satisfied subsequent to the issuance of the Certificates to assure that interest on the Certificates (including any original issue discount) will not become includable in gross income for federal income tax purposes. Failure to comply with such requirements of the Code might cause interest on the Certificates (including any original issue discount) to be included in gross income for federal income tax purposes retroactive to the date of issuance of the Certificates. The District will covenant to comply with all such requirements.
The amount by which a Beneficial Owner’s original basis for determining loss on sale or exchange in the applicable Certificate (generally, the purchase price) exceeds the amount payable on maturity (or on an earlier call date) constitutes amortizable bond premium, which must be amortized under section 171 of the Code; such amortizable bond premium reduces the Beneficial Owner’s basis in the applicable Certificate (and the amount of tax-exempt interest received), and is not deductible for federal income tax purposes.
The basis reduction as a result of the amortization of bond premium may result in a Beneficial Owner realizing a taxable gain when a Certificate is sold by the Beneficial Owner for an amount equal to or less (under certain circumstances) than the original cost of the Certificate to the Beneficial Owner. Purchasers of the Certificates should consult their own tax advisors as to the treatment, computation and collateral consequences of amortizable bond premium.
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The Internal Revenue Service (the “IRS”) has initiated an expanded program for the auditing of tax-exempt bond issues, including both random and targeted audits. It is possible that the Certificates will be selected for audit by the IRS. It is also possible that the market value of the Certificates might be affected as a result of such an audit of the Certificates (or by an audit of similar Certificates). No assurance can be given that in the course of an audit, as a result of an audit, or otherwise, Congress or the IRS might not change the Code (or interpretation thereof) subsequent to the issuance of the Certificates to the extent that it adversely affects the exclusion from gross income of interest (and original issue discount) on the Certificates or their market value.
SUBSEQUENT TO THE ISSUANCE OF THE CERTIFICATES THERE MIGHT BE
FEDERAL, STATE, OR LOCAL STATUTORY CHANGES (OR JUDICIAL OR REGULATORY
CHANGES TO OR INTERPRETATIONS OF FEDERAL, STATE, OR LOCAL LAW) THAT
AFFECT THE FEDERAL, STATE, OR LOCAL TAX TREATMENT OF THE CERTIFICATES
INCLUDING THE IMPOSITION OF ADDITIONAL FEDERAL INCOME OR STATE TAXES ON OWNERS OF TAX-EXEMPT STATE OR LOCAL OBLIGATIONS, SUCH AS THE CERTIFICATES.
THESE CHANGES COULD ADVERSELY AFFECT THE MARKET VALUE OR LIQUIDITY OF THE CERTIFICATES. NO ASSURANCE CAN BE GIVEN THAT SUBSEQUENT TO THE
ISSUANCE OF THE CERTIFICATES STATUTORY CHANGES WILL NOT BE INTRODUCED OR
ENACTED OR JUDICIAL OR REGULATORY INTERPRETATIONS WILL NOT OCCUR HAVING THE EFFECTS DESCRIBED ABOVE. BEFORE PURCHASING ANY OF THE CERTIFICATES,
ALL POTENTIAL PURCHASERS SHOULD CONSULT THEIR TAX ADVISORS REGARDING
POSSIBLE STATUTORY CHANGES OR JUDICIAL OR REGULATORY CHANGES OR
INTERPRETATIONS, AND THEIR COLLATERAL TAX CONSEQUENCES RELATING TO THE CERTIFICATES.
Special Counsel’s opinion may be affected by actions taken (or not taken) or events occurring (or not occurring) after the date hereof. Special Counsel has not undertaken to determine, or to inform any person, whether any such actions or events are taken or do occur. The Trust Agreement and the Tax Certificate relating to the Certificates permit certain actions to be taken or to be omitted if a favorable opinion of Special Counsel is provided with respect thereto. Special Counsel expresses no opinion as to the exclusion from gross income for federal income tax purposes of interest (and original issue discount) with respect to any Certificate if any such action is taken or omitted based upon the advice of counsel other than Stradling Yocca Carlson & Rauth LLP.
Although Special Counsel will render an opinion that interest on the Certificates (including any original issue discount) is excluded from gross income for federal income tax purposes provided that the District continues to comply with certain requirements of the Code, the accrual or receipt of interest on the Certificates (including any original issue discount) may otherwise affect the tax liability of the recipient.
Special Counsel expresses no opinion regarding any such tax consequences. Accordingly, all potential purchasers should consult their tax advisors before purchasing any of the Certificates.
The complete text of the final opinion that Special Counsel expects to deliver upon the delivery of the Certificates is set forth in APPENDIX D—FORM OF OPINION OF SPECIAL COUNSEL. -69-
UNDERWRITING
The Certificates are being purchased by Hilltop Securities Inc. (the “Underwriter”) at a price of $_________ (being $__________ aggregate principal amount of the Certificates, plus a net original premium of $__________, and less $________ of Underwriter’s discount). The Underwriter will purchase all of the Certificates if any are purchased, the obligation to make such purchase being subject to certain terms and conditions set forth in the purchase agreement for the Certificates, the approval of certain legal matters by counsel and certain other conditions. The Underwriter may offer and sell Certificates to certain dealers and others at prices lower than the offering prices stated on the inside cover page hereof.
The offering prices may be changed from time to time by the Underwriter.
RATINGS
S&P is expected to assign the rating of “AA” (stable outlook) to the Certificates based on the issuance of the Municipal Bond Insurance Policy by the Municipal Bond Insurer at the time of delivery of the Certificates. See “MUNICIPAL BOND INSURANCE.” In addition, S&P has assigned the underlying rating of “A” to the Certificates without regard to the issuance of the Municipal Bond Insurance Policy.
These ratings reflect only the views of S&P and an explanation of the significance of such ratings may be obtained from S&P. There is no assurance that such ratings will continue for any given period of time or that such ratings will not be revised downward or withdrawn entirely by S&P if, in the judgment of the S&P, circumstances so warrant. Any such downward revision or withdrawal of such ratings may have an adverse effect on the market price of the Certificates.
FINANCIAL STATEMENTS
The City’s financial statements for the Fiscal Year ended June 30, 2023, included in APPENDIX B—ANNUAL COMPREHENSIVE FINANCIAL REPORT OF THE CITY FOR THE FISCAL YEAR ENDED JUNE 30, 2023, have been audited by the City’s Auditor, as stated in its reports appearing in such appendix. The City’s Auditor has not undertaken to update its reports or to take any action intended or likely to elicit information concerning the accuracy, completeness or fairness of the statements made in this Official Statement, and no opinion is expressed by the City’s Auditor with respect to any event subsequent to its report.
ADDITIONAL INFORMATION
All of the preceding summaries of the Certificates, the Trust Agreement, the Lease Agreement, the Assignment Agreement, the Site and Facility Lease, and other documents are made subject to the provisions of such documents respectively and do not purport to be complete statements of any or all of such provisions. Reference is hereby made to such documents on file with the City for further information in connection therewith.
This Official Statement does not constitute a contract with the purchasers of the Certificates. -70-
Any statements made in this Official Statement involving matters of opinion or estimates, whether or not so expressly stated, are set forth as such and not as representations of fact, and no representation is made that any of the estimates will be realized.
References are made herein to certain documents and reports which are brief summaries thereof which do not purport to be complete or definitive and reference is made to such documents and reports for full and complete statements of the contents thereof.
The City will furnish a certificate dated the date of delivery of the Certificates, from an appropriate officer of the City, to the effect that to the best of such officer’s knowledge and belief, and after reasonable investigation, (i) neither the Official Statement or any amendment or supplement thereto contains any untrue statement of a material fact or omits to state any material fact necessary to make the statements therein, in light of the circumstances in which they were made, not misleading; (ii) since the date of the Official Statement, no event has occurred which should have been set forth in an amendment or supplement to the Official Statement which has not been set forth in such an amendment or supplement, and the Certificates, the Trust Agreement, the Lease Agreement, the Assignment Agreement, the Site and Facility Lease, and other applicable agreements conform as to form and tenor to the descriptions thereof contained in the Official Statement; and (iii) the City has complied with all the agreements and has satisfied all the conditions on its part to be performed or satisfied under the Trust Agreement at and prior to the date of the issuance of the Certificates.
The execution and delivery of the Official Statement by the City have been duly authorized by the City Council on behalf of the City.
CITY OF RIDGECREST
By
Ronald Strand,
City Manager
Appendix A