17 be limited by bankruptcy, insolvency, reorganization, moratorium or tother laws affecting enforcement of creditors’ rights or by the application of equitable principles if equitable remedies are sought; (iv) the execution and delivery by the Authority of the Authority Documents, and compliance by the Authority with the provisions thereof, under the circumstances contemplated thereby, do not and will not in any material respect conflict with or constitute a breach of or default under any law, administrative regulation, court decree, resolution, or agreement to which the Authority is subject to or by which it is bound;
(v) except as otherwise disclosed in the Official Statement, there is no action, suit, proceeding, inquiry, or investigation at law or in equity, before or by any court, regulatory agency, or public board or body, pending and notice of which has been received by the Authority or, to the best knowledge of such counsel after reasonable investigation, threatened (a) in any way questioning the existence of the Authority or the titles of the officers of the Authority to their respective offices, (b) affecting, contesting, or seeking to prohibit, restrain, or enjoin the issuance of the Bonds or the execution or delivery of any of the Authority Documents, or the payment or collection of any amounts pledged or to be pledged to pay the principal of and interest on the Bonds, or in any way contesting or affecting the validity of the Bonds or the Authority Documents or the consummation of the transactions contemplated thereby or any proceeding of the Authority taken with respect to any of the foregoing, or contesting the exclusion of the interest on the Bonds from taxation or contesting the powers of the Authority and its authority to make the pledges set forth in the Indenture, (c) that may result in any material adverse change relating to the Authority that will materially adversely affect the Authority’s ability to perform its obligations under the Authority Documents, or (d) contesting the completeness or accuracy of the Preliminary Official Statement or the Official Statement or any supplement or amendment thereto or asserting that the Preliminary Official Statement or the Official Statement contained any untrue statement of a material fact or omitted to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; and
(vi) no authorization, approval, consent, or other order of the State or any other governmental authority or agency within the State having jurisdiction over the Authority is required for the valid authorization, execution, and delivery by the Authority of the Authority Documents;
(5) a letter (which may be combined with referenced in (2) above) from Orrick, Herrington & Sutcliffe LLP, Sacramento, California, disclosure counsel to the City and the Authority (“Disclosure Counsel”), dated the Closing Date, addressed to the Underwriter, to the effect that, in such capacity, based upon its participation in the preparation of the Official Statement as counsel to the City and the Authority and without having undertaken to determine independently the fairness, accuracy, or completeness of the statements contained in the Preliminary Official Statement or the Official Statement, such counsel has no reason to believe that the Preliminary Official Statement as of its date or the Official Statement as of its date and as of the Closing Date (excluding therefrom the reports, CUSIP numbers, financial, accounting, statistical, economic, engineering or demographic data or forecasts, numbers, charts, tables, graphs, estimates, projections, assumptions or expressions of opinion, any determinations regarding valuation, real estate, and environmental matters, litigation, any statements about compliance with prior continuing disclosure undertakings, relationships among the parties, or any information about book-entry, DTC, Cede & Co.,the Underwriter or underwriting; and the information included in the Appendices thereto, as to which no view need be expressed) contained or contains any untrue statement of a material fact or omitted or omits to state any material fact
18 necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading;
(6) A certificate, dated the Closing Date, signed by a duly authorized officer of the Authority, satisfactory in form and substance to the Underwriter, to the effect that:
(i) the Authority Resolution was duly adopted at a regular meeting of the Authority, at which a quorum was present and acting throughout, is in full force and effect as of the date hereof and has not been amended, modified or supplemented, except as agreed to by the Underwriter;
(ii) the representations, warranties and covenants of the Authority contained in this Purchase Contract are true and correct in all material respects on and as of the Closing Date with the same effect as if made on the Closing Date by the Authority, and the Authority has complied with, in all material respects, all of the terms and conditions of the Purchase Contract required to be complied with by the Authority at or prior to the Closing Date; (iii) no event affecting the Authority has occurred since the date of the Official Statement which should be disclosed in the Official Statement for the purposes for which it is to be used or which is necessary to disclose therein in order to make the statements and information therein not misleading in any material respect;
(iv) the information and statements contained in the Official Statement under the caption “THE AUTHORITY” did not as of its date and do not as of the Closing contain an untrue statement of a material fact or omit to state any material fact that is necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading in any material respect; and
(v) the Authority is not, in any material respect, 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 or any loan agreement, indenture, bond, note, resolution, agreement (including but not limited to the Lease Agreement) or other instrument to which the Authority is a party or is otherwise subject, which would have a material adverse impact on the Authority’s ability to perform its obligations under the Authority Documents, and no event has occurred and is continuing which, with the passage of time or the giving of notice, or both, would constitute such a default or event of default under any such instrument;
(7) A certificate, dated the Closing Date, signed by a duly authorized officer of the City, satisfactory in form and substance to the Underwriter, to the effect that:
(i) the City Resolution was duly adopted at a regular meeting of the City Council of the City, at which a quorum was present and acting throughout, is in full force and effect as of the date hereof and has not been amended, modified or supplemented, except as agreed to by the Underwriter;
(ii) the representations, warranties and covenants of the City contained in this Purchase Contract are true and correct in all material respects on and as of the Closing Date with the same effect as if made on the Closing Date by the City, and the City has complied with,
19 in all material respects, all of the terms and conditions of the Purchase Contract required to be complied with by the City at or prior to the Closing Date;
(iii) no event affecting the City has occurred since the date of the Official Statement which should be disclosed in the Official Statement for the purposes for which it is to be used or which is necessary to disclose therein in order to make the statements and information therein not misleading in any material respect;
(iv) the information and statements contained in the Official Statement (other than information in the Official Statement under the caption “UNDERWRITING” and information regarding DTC and its book-entry only system) did not as of its date and do not as of the Closing contain an untrue statement of a material fact or omit to state any material fact that is necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading in any material respect; and
(v) the City is not, in any material respect, 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 or any loan agreement, indenture, bond, note, resolution, agreement (including but not limited to the Lease Agreement) or other instrument to which the City is a party or is otherwise subject, which would have a material adverse impact on the City’s ability 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 such a default or event of default under any such instrument;
(8) a certificate, dated the date of the Preliminary Official Statement, from the Authority and the City, in the form attached hereto as Exhibit B; (9) an opinion of counsel to the Trustee, dated the Closing Date, addressed to the Underwriter, the Authority, and the City, to the effect that:
(i) the Trustee is a national banking association and is validly existing, duly qualified to do business and in good standing under the laws of each jurisdiction in which the performance of its duties under the Indenture and the Memorandum of Lease Agreement and Assignment (collectively, the “Trustee Documents”) would require such qualification and has the requisite power and authority to execute, deliver and perform its obligations under the Trustee Documents;
(ii) the Trustee is duly eligible and qualified to act as Trustee under the Indenture;
(iii) the Trustee has all requisite power, authority and legal right to execute and deliver the Trustee Documents and to perform its obligations under the Trustee Documents, and has taken all necessary corporate action to authorize the execution and delivery of and the performance of its obligations under the Trustee Documents; (iv) the Trustee has duly executed and delivered the Trustee Documents. Assuming the due authorization, execution and delivery thereof by the other parties thereto, the Trustee Documents are the legal, valid, and binding agreements of the Trustee enforceable against the Trustee in accordance with their terms, except to the extent enforceability thereof may be
20 subject to (A) bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and other similar laws affecting creditors’ rights and remedies heretofore or hereafter enacted, and (B) the application of equitable principles and the exercise of judicial discretion in appropriate cases; (v) the Bonds have been duly authenticated by the Trustee; (vi) the execution, delivery and performance of the Trustee Documents by the Trustee and the consummation of the transactions contemplated thereby do not and will not (a) to the knowledge of such counsel, conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, any indenture, mortgage, deed of trust, loan agreement, or other agreement or instrument to which the Trustee is a party or by which the Trustee is bound or to which any of the property or assets of the Trustee or any of its subsidiaries is subject, (b) result in any violation of the provisions of the charter, articles of association, by-laws, or applicable resolutions of the Trustee, or (c) to the knowledge of such counsel, result in any violation of any statute or any order, rule, or regulation of any court or government agency or body having jurisdiction over the Trustee or any of its properties or assets; and
(vii) to the knowledge of such counsel, there are no actions, proceedings or investigations pending or threatened against the Trustee before any court, administrative agency or tribunal (a) asserting the invalidity of the Trustee Documents, (b) seeking to prevent the consummation of any of the transactions contemplated thereby, or (c) that might materially and adversely affect the performance by the Trustee of its obligations under, or the validity or enforceability of the Trustee Documents;
(10) a certificate, dated the Closing Date, signed by a duly authorized officer of the Trustee, to the effect that;
(i) the Trustee is a national banking association organized and existing under and by virtue of the laws of the United States of America, having the necessary power to enter into, accept, and administer the trusts created under the Indenture and to authenticate the Bonds;
(ii) the Trustee Documents have been duly authorized, executed, and delivered by a duly authorized officer of the Trustee, and the execution, delivery, and performance of the Trustee Documents has been duly authorized by all necessary action of the Trustee; (iii) the Trustee Documents constitute the legal, valid, and binding obligations of the Trustee enforceable in accordance with their terms, except as enforcement thereof may be limited by bankruptcy, insolvency, or other laws affecting the enforcement of creditors’ rights generally and by the application of equitable principles, if equitable remedies are sought; (iv) the Bonds have been duly authenticated by a duly authorized officer of the Trustee;
(v) no consent, approval, authorization, or other action by any governmental or regulatory authority having jurisdiction over the Trustee that has not been obtained is or will be required for the execution and delivery of the Trustee Documents or the performance by the Trustee of its duties and obligations under the Trustee Documents;
21 (vi) the execution and delivery by the Trustee of the Trustee Documents and compliance with the terms thereof will not conflict with, or result in a violation or breach of, or constitute a default under, any loan agreement, indenture, bond, note, resolution, or any other agreement or instrument to which the Trustee is a party or by which it is bound, or any law or any rule, regulation, order, or decree of any court or governmental agency or body having jurisdiction over the Trustee or any of its activities or properties (except that no representation, warranty, or agreement need be made with respect to any federal or State securities or blue sky laws or regulations); (vii) the Trustee’s action in executing and delivering the Trustee Documents will not contravene the articles or bylaws of the Trustee and is in full compliance with, and does not conflict with, any applicable law or governmental regulation currently in effect, and such action does not conflict with or violate any contract to which the Trustee is a party or any administrative or judicial decision by which the Trustee is bound; and (viii) there is no action, suit, proceeding, or investigation, at law or in equity, before or by any court or governmental agency, public board, or body that has been served on the Trustee, or to the best knowledge of the Trustee, threatened against the Trustee which in the reasonable judgment of the Trustee would affect the existence of the Trustee or in any way contesting or affecting the validity or enforceability of the Trustee Documents or contesting the powers of the Trustee or its authority to enter into and perform its obligations thereunder; (11) a letter from Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California, counsel to the Underwriter (“Underwriter’s Counsel”), dated the Closing Date, addressed to the Underwriter, in form and substance acceptable to the Underwriter;
(12) certified copies of the City Resolution, the Authority Resolution, and an incumbency resolution of the Trustee;
(13) copies each of the Authority Documents, the City Documents, and the Official Statement, duly executed and delivered by the respective parties thereto; (14) evidence that the rating on the Bonds of “__” from S&P Global Ratings, a Standard & Poor’s Financial Services LLC business, is in full force and effect on the Closing Date;
(15) copies of the statements with respect to the sale of the Bonds required to be delivered to the California Debt and Investment Advisory Commission; (16) evidence that a debt management policy which complies Section 8855 of the California Government Code has been adopted by both the City and the Authority; (17) a copy of the Blanket Letter of Representations to DTC relating to the Bonds signed by the Authority;
(18) a copy of an ALTA or CLTA title insurance policy in an amount equal to the principal amount of the Bonds, insuring the City’s leasehold interest in the Property, subject only to permitted encumbrances or such other encumbrances approved in writing by the Underwriter;
22 (19) A certificate regarding compliance with certain tax matters with respect to the maintenance of the tax-exempt status of the Bonds, duly executed by the City, together with Form 8038-G, duly executed by the City.
(20) Specimen Bonds, duly executed by the Trustee.
(21) such additional legal opinions, certificates, proceedings, instruments, and other documents as the Underwriter, Underwriter’s Counsel, or Bond Counsel may reasonably request to evidence compliance by the City and the Authority with legal requirements, the accuracy, as of the time of Closing, of the Authority and the City’s representations herein contained, and the due performance or satisfaction by the City and the Authority at or prior to such time of all agreements then to be performed and all conditions then to be satisfied by the City and the Authority.
If the City or the Authority shall be unable to satisfy the conditions to the Underwriter’s obligations contained in this Purchase Contract or if the Underwriter’s obligations shall be terminated for any reason permitted by this Purchase Contract, this Purchase Contract shall terminate and none of the City, the Authority, or the Underwriter shall have any further obligation hereunder.
9. The performance by each of the Authority and the City of its obligations is conditioned upon (i) the performance by the Underwriter of its obligations hereunder and (ii) receipt by the Authority, the City, and the Underwriter of opinions and certificates being delivered at the Closing by persons and entities other than the Authority and the City.
10. No expenses and costs of the City or the Authority incident to the performance of the Authority’s or the City’s obligations in connection with the authorization, issuance, and sale of the Bonds to the Underwriter, such as the costs of preparation (including word processing, printing, and reproduction), distribution and delivery of the Preliminary Official Statement, the Official Statement, and this Purchase Contract, in reasonable quantities, fees of rating agencies, fees and expenses of any municipal advisor to the City, and fees and expenses of Bond Counsel or Disclosure Counsel for the City shall be paid by the Underwriter. Except as indicated above, all out-of-pocket expenses of the Underwriter, including the California Debt and Investment Advisory Commission fee, traveling, advertising expenses, any costs and expenses incurred in connection with the preparation and distribution of any blue sky surveys or any legal investment memoranda, fees and expenses of Underwriter’s Counsel and other expenses and the fees and expenses of the Underwriter, shall be paid by the Underwriter.
11. Any notice or other communication to be given to the City under this Purchase Contract may be given by delivering the same in writing to the City of San Luis Obispo, 990 Palm Street, San Luis Obispo, California 93401, Attention: City Manager, or to such other person as the City Manager may designate in writing. Any notice or other communication to be given to the Authority under this Purchase Contract may be given by delivering the same in writing to the San Luis Obispo Public Financing Authority, 990 Palm Street, San Luis Obispo, California 93401, Attention: Treasurer, or to such other person as the Treasurer may designate in writing. Any notice or other communication to be given to the Underwriter under this Purchase Contract may be given by delivering the same in writing to Raymond James & Associates, Inc., One Embarcadero Center, Suite 650, San Francisco, California 94111, Attention: Emily Giles, Managing Director. The approval of the Underwriter when required hereunder or the determination of its satisfaction as to any document referred to herein shall be in writing signed by the Underwriter and delivered to the Authority.
23 12. For all purposes of this Purchase Contract, a default shall not be deemed to be continuing if it has been cured, waived, or otherwise remedied. This Purchase Contract shall be governed by and construed in accordance with the laws of the State applicable to contracts made and performed within the State.
13. This Purchase Contract 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.
14. This Purchase Contract when accepted by the Authority and the City in writing shall constitute the entire agreement among the City, the Authority, and the Underwriter and is made solely for the benefit of the City, the Authority, and the Underwriter (including the successors or assigns of the Underwriter approved by the City and the Authority). No other person shall acquire or have any right hereunder or by virtue hereof. All of the representations, warranties, and agreements of the City and the Authority contained in this Purchase Contract shall remain operative and in full force and effect regardless of (a) any investigation made by or on behalf of the Underwriter (but, if the Underwriter does discover by its investigation that the Official Statement contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, the Underwriter shall so notify the City and the Authority); (b) the delivery of and payment for the Bonds; and (c) any termination of this Purchase Contract.
S-1
15. This Purchase Contract shall not be modified or amended without the prior written consent of the Underwriter, the City, and the Authority.
Very truly yours,
RAYMOND JAMES & ASSOCIATES, INC.
By:
Managing Director
Accepted at ______ [AM/PM] as of the date hereof:
SAN LUIS OBISPO PUBLIC FINANCING AUTHORITY
By:
Treasurer
CITY OF SAN LUIS OBISPO
By:
City Manager
A-1
EXHIBIT A
$__________
San Luis Obispo Public Financing Authority
Lease Revenue Bonds (Cultural Arts District Parking Project), Series 2023 Maturity
Date
([December
1])
Principal
Amount
Interest
Rate Yield Price
10% Test
Used
Hold the
Offering
Price
Used
$ % %
[
C Priced to the first optional redemption date of December 1, 20__ at par.] [
T Term Bond.]
Redemption
Extraordinary Redemption. The Bonds will be subject to redemption, in whole or in part, on any date, in denominations of $5,000 and integral multiples thereof (“Authorized Denominations”), from and to the extent of any Net Proceeds received with respect to all or a portion of the Property and deposited by the Trustee in the Redemption Fund in accordance with the provisions of the Indenture at a redemption price equal to the principal amount thereof, plus accrued interest thereon to the date fixed for redemption, without premium.
Optional Redemption. The Bonds maturing on or after [December 1, 20__] will be subject to optional redemption, in whole or in part, in Authorized Denominations, on any date on or after [December 1, 20__] from and to the extent of prepaid Base Rental Payments paid pursuant to the Lease Agreement, at a redemption price equal to the principal amount of the Bonds to be redeemed, plus accrued interest thereon to the date of redemption, without premium.
Mandatory Sinking Fund Redemption. The Bonds maturing [December 1, 20__] will be subject to mandatory sinking fund redemption, in part, on [December 1] in each year, commencing [December 1, 20__], at a redemption price equal to the principal amount thereof, plus accrued interest thereon to the date fixed for redemption, without premium, in the aggregate respective principal amounts and on the respective dates set forth in the following table:
A-2
Sinking Fund
Redemption Date
[(December 1)]
Principal Amount to be
Redeemed
$
†
† Maturity Date.
If some but not all of the Bonds maturing on [December 1, 20__] are redeemed as provided under the caption “Extraordinary Redemption,” the principal amount of Bonds maturing on [December 1, 20__] to be redeemed pursuant to this section will be reduced by the aggregate principal amount of the Bonds maturing on [December 1, 20__] so redeemed from Net Proceeds, such reduction to be allocated among redemption dates as nearly as practicable on a pro rata basis, in denominations of $5,000 and integral multiples thereof, as determined by the Trustee, notice of which determination will be given by the Trustee to the Authority and the City. If some but not all of the Bonds maturing on [December 1, 20__] are redeemed as provided under the caption “Optional Redemption,” the principal amount of Bonds maturing on [December 1, 20__] to be redeemed pursuant to this section will be reduced by the aggregate principal amount of the Bonds maturing on [December 1, 20__] so optionally redeemed, such reduction to be allocated among redemption dates in Authorized Denominations, as designated by the City in a Written Certificate of the City.
B-1
EXHIBIT B
CERTIFICATE AS TO FINALITY
OF PRELIMINARY OFFICIAL STATEMENT
SAN LUIS OBISPO PUBLIC FINANCING AUTHORITY
LEASE REVENUE BONDS (CULTURAL ARTS DISTRICT PARKING PROJECT), SERIES 2023
The San Luis Obispo Public Financing Authority (the “Authority”) and the City of San Luis Obispo (the “City”), acting through the undersigned authorized officer of the Authority and the City, hereby certify and represent as follows:
(1) The undersigned is a duly appointed and acting representative of the Authority and the City, and as such is duly authorized to execute and deliver this Certificate on behalf of the Authority and the City.
(2) This Certificate is delivered in connection with the offering and sale of the abovecaptioned bonds (the “Bonds”) to enable Raymond James & Associates, Inc., as the underwriter for the Bonds, to assist the Authority and the City in connection with this financing, in order to comply with Rule 15c2-12 adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934 (the “Rule”).
(3) In connection with the offering and sale of the Bonds, there has been prepared a Preliminary Official Statement, dated _________, 2023 (including the front cover, the inside front cover, the introduction and all appendices thereto, the “Preliminary Official Statement”), setting forth information concerning the Bonds, the Authority and the City. (4) The Preliminary Official Statement is, except for Permitted Omissions (defined below), deemed final within the meaning of the Rule.
As used herein, “Permitted Omissions” shall mean the offering price(s), interest rate(s), selling compensation, aggregate principal amount, principal amount per maturity, delivery dates and other terms of the Bonds depending on such matters all with respect to the Bonds.
Dated: _________, 2023
SAN LUIS OBISPO PUBLIC
FINANCING AUTHORITY
By
Treasurer
CITY OF SAN LUIS OBISPO
By
City Manager
B-2
EXHIBIT C
CERTIFICATE OF THE UNDERWRITER
with reference to
$__________
San Luis Obispo Public Financing Authority
Lease Revenue Bonds (Cultural Arts District Parking Project), Series 2023
Dated: _______, 2023
The undersigned, on behalf of Raymond James & Associates, Inc. (“Raymond James”) hereby certifies as set forth below with respect to the sale and delivery of the above-captioned obligations (the “Bonds”).
1. Sale of the General Rule Maturities. As of the date of this certificate, for each Maturity of the General Rule Maturities, the first price at which at least 10% of such Maturity was sold to the Public is the respective price listed in Schedule A.
2. Initial Offering Price of the Hold-the-Offering-Price Maturities. (a) Raymond James offered the Hold-the-Offering-Price Maturities to the Public for purchase at the respective initial offering prices listed in Schedule A (the “Initial Offering Prices”) on or before the Sale Date. A copy of the pricing wire or equivalent communication for the Bonds is attached to this certificate as Schedule B.
(b) As set forth in the Bond Purchase Contract, dated June __, 2023, by and among Raymond James, as the Underwriter (as defined below), the City of San Luis Obispo and the Issuer (as defined below), Raymond James has agreed in writing that: (i) for each Maturity of the Hold-theOffering-Price Maturities, it would neither offer nor sell any of the Bonds 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 shall contain the agreement of each dealer who is a member of the selling group, and any third-party distribution agreement shall contain the agreement of each broker-dealer who is a party to the thirdparty distribution agreement, to comply with the hold-the-offering-price rule. Pursuant to such agreement, no Underwriter has offered or sold any Maturity of the Hold-the-Offering-Price Maturities at a price that is higher than the respective Initial Offering Price for that Maturity of the Bonds during the Holding Period.
3. Defined Terms.
(a) General Rule Maturities means those Maturities of the Bonds identified in Schedule A hereto under the column “10% Test Used.”
(b) Hold-the-Offering-Price Maturities means those Maturities of the Bonds identified in Schedule A hereto under the column “Hold the Offering Price Used.”
B-3
(c) 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 (which Sale Date is June __, 2023), or (ii) the date on which Raymond James has sold at least 10% of such Hold-the-Offering-Price Maturity to the Public at prices that are no higher than the Initial Offering Price for such Hold-the-Offering-Price Maturity. (d) Issuer means the San Luis Obispo Public Financing Authority. (e) Maturity means Bonds with the same credit and payment terms. Bonds with different maturity dates, or Bonds with the same maturity date but different stated interest rates, are treated as separate maturities.
(f) 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.
The term “related party” for purposes of this certificate generally means any two or more persons who have greater than 50 percent common ownership, directly or indirectly. (g) Sale Date means the first day on which there is a binding contract in writing for the sale of a Maturity of the Bonds. The Sale Date of the Bonds is ______, 2023. (h) Underwriter means: (i) any person that agrees pursuant to a written contract with the Issuer and the City of San Luis Obispo (or with the lead underwriter to form an underwriting syndicate) to participate in the initial sale of the Bonds 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 Bonds to the Public (including a member of a selling group or a party to a third-party distribution agreement participating in the initial sale of the Bonds to the Public).
The representations set forth in this certificate are limited to factual matters only. Nothing in this certificate represents Raymond James’s 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 and the City of San Luis Obispo with respect to certain of the representations set forth in the Tax Certificate and with respect to compliance with the federal income tax rules affecting the Bonds, and by Orrick, Herrington & Sutcliffe LLP, in connection with rendering its opinion that the interest on the Bonds is excluded from gross income for federal income tax purposes, the preparation of the Internal Revenue Service Form 8038-G, and other federal income tax advice that it may give to the Issuer or the City of San Luis Obispo from time to time relating to the Bonds. The certifications contained herein are not necessarily based on personal knowledge, but may instead be based on either inquiry deemed adequate by the undersigned or institutional knowledge (or both) regarding the matters set forth herein.
RAYMOND JAMES & ASSOCIATES, INC.
By:
Name:
Dated: ______, 2023
B-4
SCHEDULE A
SALE PRICES OF THE GENERAL RULE MATURITIES AND INITIAL OFFERING
PRICES OF THE HOLD-THE-OFFERING-PRICE MATURITIES
(Attached)
C-1
SCHEDULE B
PRICING WIRE OR EQUIVALENT COMMUNICATION
(Attached)
OH&S Draft
08/03/2023
4125-9942-2535.12
This Preliminary Official Statement and the information contained herein are subject to completion and amendment. Under no circumstances shall this Preliminary Official Statement constitute an offer to sell or the 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 the registration or qualification under the securities laws of such jurisdiction.
PRELIMINARY OFFICIAL STATEMENT DATED [________], 2023
NEW ISSUE - FULL BOOK-ENTRY RATING: S&P: [AA]
(See “RATING” herein)
In the opinion of Orrick, Herrington & Sutcliffe LLP, Bond Counsel to the Authority, based upon an analysis of existing laws, regulations, rulings and court decisions, and assuming, among other matters, the accuracy of certain representations and compliance with certain covenants, interest on the Bonds is excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986 and is exempt from State of California personal income taxes. In the further opinion of Bond Counsel, interest on the Bonds is not a specific preference item for purposes of the federal individual alternative minimum tax. Bond Counsel observes that, for tax years beginning after December 31, 2022, interest on the Bonds included in adjusted financial statement income of certain corporations is not excluded from the federal corporate alternative minimum tax.
Bond Counsel expresses no opinion regarding any other tax consequences related to the ownership or disposition of, or the amount, accrual or receipt of interest on, the Bonds. See “TAX MATTERS” herein. $[PAR]*
SAN LUIS OBISPO PUBLIC FINANCING AUTHORITY
LEASE REVENUE BONDS (CULTURAL ARTS DISTRICT PARKING PROJECT), SERIES 2023
Dated: Date of Delivery Due: December 1, as shown on the inside cover The San Luis Obispo Public Financing Authority Lease Revenue Bonds (Cultural Arts District Parking Project), Series 2023 (the “Bonds”) are being issued by the San Luis Obispo Public Financing Authority (the “Authority”) to provide funds to (i) finance costs of the acquisition, design, engineering, fabrication, construction, improvement and installation of a parking structure in the City’s Cultural Arts District and certain other public capital improvements, (ii) redeem and defease the 2012 Bonds (as defined herein) and (iii) pay costs incurred in connection with the issuance, sale and delivery of the Bonds. See “THE PLAN OF FINANCE” herein.
Interest on the Bonds will be payable on June 1 and December 1 of each year, commencing December 1, 2023. The Bonds will be issued as fully-registered bonds without coupons and will be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York (“DTC”). DTC will act as securities depository for the Bonds. Purchases of beneficial interests in the Bonds will be made in book-entry form through DTC participants and no physical delivery of the Bonds will be made to purchasers, except as otherwise described herein. Payment of principal, premium, if any, and interest will be made by U.S. Bank Trust Company, National Association, as trustee (the “Trustee”), to DTC which is obligated to remit such payments to its participants for subsequent disbursement to the Beneficial Owners of the Bonds. See Appendix F—“DTC DESCRIPTION” hereto. The Bonds will be issuable in denominations of $5,000 or any integral multiple thereof.
The Bonds are being issued pursuant to an Indenture dated as of [September 1, 2023] (the “Indenture”) between the Authority and the Trustee. The Bonds shall be special obligations of the Authority, payable solely from the Lease Revenues and the other assets pledged under the Indenture. Neither the faith and credit nor the taxing power of the Authority, the City of San Luis Obispo (the “City”) or the State of California (the “State”), or any political subdivision thereof, is pledged to the payment of the Bonds. Lease Revenues consist primarily of Base Rental Payments to be received by the Authority from the City pursuant to a Lease Agreement between the Authority, as lessor, and the City, as lessee. Such Base Rental Payments are calculated to be sufficient to pay the principal of and interest on the Bonds when due. Base Rental Payments are payable from any source of legally available funds in each year that the City has use and possession of the Leased Property.
No debt service reserve fund will be established for the Bonds.
The Bonds are subject to optional redemption and extraordinary redemption prior to maturity as more fully described herein. See “THE BONDS—Redemption” herein.
The Bonds are limited obligations of the Authority and are not secured by a legal or equitable pledge of, or charge or lien upon, any property of the Authority or any of its income or receipts, except the Lease Revenues. Neither the full faith and credit of the Authority, the City nor any member of the Authority is pledged for the payment of the principal of or interest on the Bonds or for the payment of Base Rental Payments. Neither the payment of the principal of or interest on the Bonds nor the obligation to make Base Rental Payments constitutes a debt, liability or obligation of the Authority, the City or any member of the Authority for which any such entity is obligated to levy or pledge any form of taxation or for which any such entity has levied or pledged any form of taxation. The Authority has no taxing power.
This cover page contains certain information for general reference only. It is not a summary of this issue. Investors must read the entire Official Statement to obtain information essential to the making of an informed investment decision on the Bonds.
The Bonds are offered when, as and if issued, subject to the approval of validity of the Bonds and certain other legal matters by Orrick, Herrington & Sutcliffe LLP, Bond Counsel to the Authority, and subject to certain other conditions. Orrick, Herrington & Sutcliffe LLP has also served as Disclosure Counsel. Certain legal matters will be passed upon for the Authority and * Preliminary; subject to change.
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for the City by the City Attorney. Certain legal matters will be passed upon for the Raymond James & Associates, Inc. (the “Underwriter”) by its counsel, Stradling Yocca Carlson & Rauth, A Professional Corporation. It is expected that the Bonds will be available for delivery through the DTC book-entry only system in New York, New York on or about [September _, 2023]. [RAYMOND JAMES LOGO]
Date of Official Statement: _____________.
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$[PAR]*
SAN LUIS OBISPO PUBLIC FINANCING AUTHORITY
LEASE REVENUE BONDS (CULTURAL ARTS DISTRICT PARKING PROJECT), SERIES 2023
MATURITY SCHEDULE
Maturity
Date
(December 1)
Principal
Amount
Interest
Rate Yield Price
CUSIP
Number†
$___________ ____% Term Bond due December 1, 20__; Yield ____%; CUSIP† Suffix ___ $___________ ____% Term Bond due December 1, 20__; Yield ____%; CUSIP† Suffix ___ * Preliminary; subject to change.
† CUSIP® is a registered trademark of the American Bankers Association. CUSIP Global Services (“CGS”) is managed on behalf of the American Bankers Association by FactSet Research Systems Inc. Copyright© 2023 CUSIP Global Services. All rights reserved. CUSIP® data herein is provided by CUSIP Global Services. This data is not intended to create a database and does not serve in any way as a substitute for the CGS database. CUSIP numbers are provided for convenience of reference only. None of the Authority, the City, the Underwriter or their agents or counsel assume responsibility for the accuracy of such numbers.
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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 involves known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forwardlooking statements. The City does not plan to issue any updates or revisions to those forward-looking statements if or when its expectations, or events, conditions or circumstances on which such statements are based, change.
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.
No dealer, broker, salesperson or other person has been authorized by the Authority, the City or the Underwriter to give any information or to make any representations other than those contained herein and, if given or made, such other information or representations must not be relied upon as having been authorized by any of the foregoing.
This Official Statement is not to be construed as a contract with the purchasers of the Bonds.
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 furnished by the Authority and the City and other sources as noted that the Authority and the City believe reliable. The information and expressions of opinion herein are subject to change without notice, and neither the delivery of this Official Statement nor any sale made hereunder shall under any circumstances create any implication that there has been no change in the affairs of the Authority and the City since the date hereof. This Official Statement, including any supplement or amendment thereto, is intended to be deposited with one or more nationally recognized municipal securities information repositories.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVERALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE
BONDS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
THIS OFFICIAL STATEMENT DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY THE BONDS, NOR SHALL THERE BE ANY SALE OF
ANY OF THE BONDS, BY ANY PERSON IN ANY JURISDICTION IN WHICH, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER, SOLICITATION OR SALE. In making an investment decision, potential investors must rely on their own examination of the Authority and the City and the terms of the offering, including the merits and risks involved. The Bonds have not been registered or qualified under the securities laws of any state. These securities have not been recommended by any federal or state securities commission or regulatory authority. Furthermore, the foregoing authorities have not confirmed the accuracy or determined the adequacy of this Official Statement. Any representation to the contrary is a criminal offense.
The summaries and references to the Indenture, the Continuing Disclosure Certificate and statutes and other documents do not purport to be comprehensive or definitive and are qualified in their entireties by reference to each such document and statute. The Bonds have not been registered under the Securities
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Act of 1933, as amended, in reliance upon exemptions from the registration requirements contained in such Acts.
The City maintains a website. Unless specifically indicated otherwise, the information presented in the website is not incorporated by reference as part of this Official Statement and should not be relied upon in making an investment decision with respect to the Bonds.
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CITY OF SAN LUIS OBISPO, CALIFORNIA
City Council
and
San Luis Obispo Public Financing Authority Governing Board Erica A. Stewart, Mayor/Chair
Jan Marx, Vice Mayor/Vice Chair
Emily Francis, Council Member/Director
Andy Pease, Council Member/Director
Michelle Shoresman, Council Member/Director
City and Authority Staff
Derek Johnson, City Manager/Executive Director
Emily Jackson, Finance Director/Chief Financial Officer J. Christine Dietrick, Esq., City Attorney/General Counsel Trustee
U.S. Bank Trust Company, National Association
Municipal Advisor
PFM Financial Advisors LLC
San Francisco, California
Bond Counsel
Orrick, Herrington & Sutcliffe LLP
Disclosure Counsel
Orrick, Herrington & Sutcliffe LLP
TABLE OF CONTENTS
Page Page
-i4125-9942-2535.12
INTRODUCTION .............................................1 Purpose ........................................................1 Sources of Payment for the Bonds ..............1
The Authority ..............................................2 The City.......................................................2 Summaries Not Definitive;
Definitions ............................................2 Continuing Disclosure.................................3 Other General Fund Obligations .................3
THE LEASED PROPERTY..............................3
General ........................................................3 Description of Leased Property...................3
Additions to the Leased Property,
Substitution or Release of
Property.................................................4 THE PLAN OF FINANCE................................4
Cultural Arts District Parking
Structure................................................4 Refunding ....................................................7
ESTIMATED SOURCES AND USES OF
PROCEEDS.................................................8 THE BONDS .....................................................8 General ........................................................8 Redemption .................................................9 Notice of Redemption ...............................11
Effect of Redemption ................................11
SOURCES OF PAYMENT FOR THE
BONDS .....................................................11 General ......................................................11 Base Rental Payments...............................12
Additional Rental Payments......................12
No Debt Service Reserve Fund .................13
Insurance ...................................................13 Damage or Destruction of the
Leased Property ..................................14
Remedies Upon Default ............................15
RISK FACTORS .............................................15 No Pledge of Revenues or Lien on
Assets of the City................................15
Additional Obligations of the City ............16
Abatement .................................................16 Risk of Uninsured Loss.............................17
Limited Recourse on Default.....................17
No Acceleration Upon Default..................17
Bankruptcy................................................18 Risk of Tax Audit; Loss of Tax
Exemption...........................................19
Limited Secondary Market........................19
Hazardous Substances...............................19
Cyber Security...........................................20 Natural Disasters and Other Events ..........20
Environmental Focus and Climate
Change................................................21 Pandemic and Infectious Disease..............22
Dependence on State for Certain
Revenues.............................................22 Changes in Law.........................................23 City Pension Benefit Liability...................23
No Liability of Authority to the
Owners................................................23
CERTAIN LIMITATIONS ON TAXES
AND APPROPRIATIONS .......................23
Article XIIIA of the State
Constitution ........................................23 Article XIIIB of the State
Constitution ........................................24 Articles XIIIC and XIIID of the
State Constitution ...............................25
Proposition 22 ...........................................26 Proposition 26 ...........................................26 Proposition 62 ...........................................27 Unitary Property........................................27 Future Initiatives.......................................28 THE AUTHORITY .........................................28 THE CITY .......................................................28 CITY FINANCIAL INFORMATION ............29
Budgetary Process.....................................29 Financial Statements.................................33 General Fund Balance Sheet .....................33
General Fund Revenues,
Expenditures and Changes in
Fund Balances.....................................35
Recent Developments................................37
Taxes and Other Revenues........................38
Sales and Use Taxes..................................39 Property Taxes ..........................................41 Transient Occupancy Tax .........................44
Other Taxes and Revenues........................44
TABLE OF CONTENTS
(continued)
Page
-ii4125-9942-2535.12
Parking Rates (Specific to Parking
Enterprise)...........................................45 Outstanding General Fund Debt and
Other Obligations................................45
Direct and Overlapping Bonded
Debt.....................................................47 Employee Relations...................................49 Insurance ...................................................49 Employee Retirement System ...................50
City Investment Policy and Portfolio ........55
TAX MATTERS..............................................56 CERTAIN LEGAL MATTERS.......................58
MUNICIPAL ADVISOR.................................58
VERIFICATION..............................................59 LITIGATION...................................................59 CONTINUING DISCLOSURE.......................59
RATING ..........................................................59 UNDERWRITING ..........................................59 MISCELLANEOUS ........................................60 APPENDIX A – AUDITED FINANCIAL
STATEMENTS FOR FISCAL YEAR
ENDED JUNE 30, 2022
APPENDIX B – CERTAIN
INFORMATION REGARDING THE
CITY OF SAN LUIS OBISPO
APPENDIX C – SUMMARY OF
CERTAIN PROVISIONS OF
PRINCIPAL LEGAL DOCUMENTS
APPENDIX D – PROPOSED FORM OF
BOND COUNSEL OPINION
APPENDIX E – FORM OF CONTINUING
DISCLOSURE CERTIFICATE
APPENDIX F – DTC DESCRIPTION
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OFFICIAL STATEMENT
$[PAR]*
SAN LUIS OBISPO PUBLIC FINANCING AUTHORITY
LEASE REVENUE BONDS (CULTURAL ARTS DISTRICT PARKING PROJECT), SERIES 2023
INTRODUCTION
This Introduction is qualified in its entirety by reference to the more detailed information included and referred to elsewhere in this Official Statement. The offering of the Bonds to potential investors is made only by means of the entire Official Statement. Capitalized terms used in this Introduction and not otherwise defined herein shall have the respective meanings assigned to them elsewhere in this Official Statement.
Purpose
The purpose of this Official Statement, including the appendices hereto, is to furnish information regarding the issuance and sale by the San Luis Obispo Public Financing Authority (the “Authority”) of $[PAR]*aggregate principal amount of its Lease Revenue Bonds (Cultural Arts District Parking Project), Series 2023 (the “Bonds”). The Bonds are being issued pursuant to the provisions of a resolution of the Authority adopted on [August 15, 2023] (the “Resolution”) and an Indenture dated as of [September 1, 2023] (the “Indenture”), between the Authority and U.S. Bank Trust Company, National Association, as trustee thereunder (the “Trustee”). The Bonds will be issued in full conformity with the Constitution and laws of the State of California (the “State”), including the Marks-Roos Local Bond Pooling Act of 1985, constituting Article 4 (commencing with Section 6584) of Chapter 5, Division 7, Title 1 of the California Government Code, as amended from time to time.
The primary purpose of issuing the Bonds is to finance costs of the acquisition, design, engineering, fabrication, construction, improvement and installation of a parking structure in the City’s Cultural Arts District (the “Series 2023 Project”) and to redeem and defease the outstanding principal amount of the City of San Luis Obispo Capital Improvement Board 2012 Refunding Lease Revenue Bonds (the “2012 Bonds”).
See “THE PLAN OF FINANCE” herein. Proceeds of the Bonds will also be used to pay costs incurred in connection with the issuance, sale and delivery of the Bonds.
Pursuant to a Ground Lease (the “Ground Lease”), between the City of San Luis Obispo (the “City”), as lessor and the Authority, as lessee, the City will lease to the Authority the real property and the improvements thereon (the “Leased Property”). Concurrently, the Authority will lease the Leased Property to the City pursuant to a Lease Agreement (the “Lease Agreement”), between the Authority, as lessor and the City, as lessee. See “THE LEASED PROPERTY” herein.
Sources of Payment for the Bonds
The Bonds shall be special obligations of the Authority, payable solely from the Lease Revenues (hereafter defined) and the other assets pledged under the Indenture. Neither the faith and credit nor the taxing power of the Authority, the City or the State, or any political subdivision thereof, is pledged to the payment of the Bonds. The Authority will assign to the Trustee all of the Lease Revenues and all of the rights of the Authority in the Lease Agreement, except for certain rights to indemnification set forth therein.
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The Base Rental Payments (as further defined herein) are designed to be sufficient in both time and amount to pay, when due, the principal of and interest on the Bonds. The City has covenanted under the Lease Agreement to take such action as may be necessary to include all Rental Payments (as further defined herein) due thereunder as a separate line item in its annual budgets and to make necessary annual appropriations for all such Rental Payments. However, during any period in which, by reason of material damage to, or destruction or condemnation of, the Leased Property, or any defect in title to the Leased Property, there is substantial interference with the City’s right to use and occupy any portion of the Leased Property, Rental Payments shall be abated proportionately. Such abatement shall continue for the period commencing with the date of interference resulting from such damage, destruction, condemnation or title defect and, with respect to damage to or destruction of the Leased Property, ending with the substantial completion of the work of repair or replacement of the Leased Property, or the portion thereof so damaged or destroyed. See “RISK FACTORS—Abatement” herein. The obligation of the City to make the Rental Payments, including the Base Rental Payments, does not constitute a debt of the City or of the State or of any political subdivision thereof within the meaning of any constitutional or statutory debt limit or restriction, and does not constitute an obligation for which the City or the State is obligated to levy or pledge any form of taxation or for which the City or the State has levied or pledged any form of taxation.
The City has assumed responsibility under the Lease Agreement for the operation, maintenance and repair of the Leased Property, and is required to maintain or cause to be maintained insurance on the Leased Property, including title insurance, fire and extended coverage, comprehensive public liability and property damage insurance, and rental income interruption insurance with respect to property damage risks in an amount not less than the product of two times the maximum amount of Base Rental Payments scheduled to be paid during any rental period. See “SOURCES OF PAYMENT FOR THE BONDS” herein.
No debt service reserve fund will be established for the Bonds.
The Authority
The Authority is a joint exercise of powers authority established pursuant to an agreement between the City and the City of San Luis Obispo Parking Authority (the “Parking Authority”). See “THE AUTHORITY” herein.
The City
For certain information concerning the City, including the City’s current financial situation, see “CITY FINANCIAL INFORMATION” herein and Appendix A—“AUDITED FINANCIAL STATEMENTS FOR FISCAL YEAR ENDED JUNE 30, 2022” hereto.
Summaries Not Definitive; Definitions
Brief descriptions of the Bonds, the Authority, the City, the Series 2023 Project and the Leased Property are included in this Official Statement, together with summaries of the Indenture, the Lease Agreement and the Ground Lease. Such descriptions do not purport to be comprehensive or definitive. All references herein to the Bonds, the Indenture, the Lease Agreement and the Ground Lease are qualified in their entirety by reference to the actual documents or with respect to the Bonds, the form of which is included in the Indenture. Copies of all such documents are available for inspection at the corporate trust office of the Trustee in Los Angeles, California.
Definitions of certain capitalized terms used in this Official Statement and not otherwise defined herein or in Appendix C hereto shall have the meanings set forth in the Indenture and the Lease Agreement.
The summaries of and references contained herein to the Indenture, the Bonds, the Lease Agreement,
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Ground Lease, statutes and other documents do not purport to be comprehensive or definitive and are qualified by reference to each such document, instrument or statute.
Continuing Disclosure
The City has covenanted for the benefit of owners of the Bonds to provide certain financial information and operating data and to provide notices of the occurrence of certain enumerated events in order to assist the Raymond James & Associates, Inc. (the “Underwriter”) in complying with Securities Exchange Commission Rule 15c2-12(b)(5). See “CONTINUING DISCLOSURE” herein.
Other General Fund Obligations
The City has other obligations payable from its general fund and may enter into additional obligations payable from its general fund in the future. For additional detail, see Note 6 (“Long-Term Debt”) in Appendix A—“AUDITED FINANCIAL STATEMENTS FOR FISCAL YEAR ENDED JUNE 30, 2022” hereto.
THE LEASED PROPERTY
General
The City will lease all of the Leased Property summarized below to the Authority pursuant to the Ground Lease, and the Authority will lease back all of the Leased Property to the City pursuant to the Lease Agreement. The Leased Property consists of a number of essential City properties and the sites thereof. The Leased Property includes site development, landscaping, utilities, equipment, furnishings, improvements and appurtenant, and related facilities located on the real property, including any future improvements made to such Leased Property.
The City covenants that so long as the Leased Property is available for use and occupancy, the City will take such actions as may be necessary to include all Base Rental Payments and Additional Rental Payments with respect to each Leased Property asset in its annual budgets and to make the necessary annual appropriations therefor.
The value of each facility of the Leased Property is based upon projected construction cost, historical costs, estimates of replacement cost or insured value. The actual market value may differ materially from the estimated value listed below. The Authority has only a leasehold interest in the Leased Property and is not authorized to sell any such asset. The City represents and agrees in the Lease Agreement that the annual Base Rental Payments represent the fair rental value of the respective Leased Assets.
Description of Leased Property
Pursuant to the Lease Agreement, the City will sublease from the Authority the Leased Property, which consists of the facilities described below.
Marsh Street Parking Structure. The City is leasing its parking structure located at 871 Marsh Street, an approximately 215,838 square foot, [4 floor] concrete building with 520 parking spaces and 19 electric vehicle (EV) charging stations, [as well as 4,000 square feet of retail space and 15,000 square feet of office space.] The structure was built in 1991. The approximate value of land and improvements is estimated at $75,305,490 based on a commercial broker price opinion the City received from McCarty Davis Commercial Real Estate on June 30, 2023.
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No other property of the City or the Authority will initially be subject to the Lease Agreement.
Under the Lease Agreement and the Indenture, the City may change or substitute other capital facilities for the Leased Property subject to the provisions described therein. See Appendix C—“SUMMARY OF CERTAIN PROVISIONS OF PRINCIPAL LEGAL DOCUMENTS—LEASE AGREEMENT—Lease of Leased Property; Term; Substitution—Substitution and Release of Property” hereto.
Additions to the Leased Property, Substitution or Release of Property The City may amend the Lease Agreement to add additional real property to the Leased Property, substitute alternate real property for any portion of the Property or to release a portion of the Property from the Lease Agreement, upon completion of the conditions set forth in the Lease Agreement. In order to effect such release and substitution, the City is required to provide the Authority and the Trustee, among other things, (a) an ALTA policy of title insurance insuring the City’s leasehold estate under the Lease Agreement in the Leased Property, subject only to Permitted Encumbrances in an amount which, together with the amount of title insurance applicable to the unreleased portion of the Leased Property, equals at least the aggregate principal amount of Bonds then outstanding, and (b) an opinion of bond counsel stating that such substitution or release will not, in and of itself, cause the interest on the Bonds to be included in gross income for federal income tax purposes. A substitution or release of Leased Property under the Lease Agreement will not cause a reduction in, or abatement of, the Base Rental Payments due from the City.
THE PLAN OF FINANCE
Cultural Arts District Parking Structure
A portion of the proceeds of the Bonds will be used to finance the costs of the acquisition, design, engineering, fabrication, construction, improvement and installation of the City’s Cultural Arts District Parking Structure, an approximately 163,000 square foot, 5-story building, with approximately 397 parking spaces. The Cultural Arts District Parking Structure will be located at 609 Palm Street, with access on Palm Street and Nipomo Street, adjacent to a new San Luis Obispo Repertory Theatre site with two performance spaces expected to open in early 2027. There is a potential that up to 12 housing units could be developed on the property, adjacent to the structure, by an as of yet undetermined party. The diagrams on the following pages represent the location of the Cultural Arts District Parking Structure and other nearby parking structures.
Contractors and Schedule. Construction of the Cultural Arts District Parking Structure is being completed in two phases. The first phase, consisting of demolition of tree protection, demolition of vacant residential buildings, and demolition of an existing surface-level parking structure, is underway. The City expects to award the construction contract for the second phase, consisting of vertical construction of the Cultural Arts District Parking Structure, to the contractor(s) submitting the lowest responsive responsible bid based upon a guaranteed maximum price procurement approach. Construction is expected to commence in December 2023 and be completed in late 2025.
Environmental and Land Use Approvals. Projects undertaken by the City, including the Cultural Arts District Parking Structure, are generally subject to the California Environmental Quality Act, as amended (Division 13 of the California Public Resources Code) (“CEQA”). Under CEQA, a public agency is required, following preparation of an initial study, to determine whether an environmental impact report (an “EIR”), a negative declaration or a mitigated negative declaration is required for a project. If there is substantial evidence that significant environmental effects may occur, an EIR is required to be prepared.
The City prepared an EIR for the Cultural Arts District Parking Structure that was certified on July 17, 2018. In addition, the City prepared an addendum in July 2019 due to certain changes to the zoning and
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land use designations. All other land use approvals necessary to proceed with the Cultural Arts District Parking Structure have been obtained or are expected to be obtained in due course.
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Refunding
A portion of the proceeds of the Bonds, together with other available moneys, will be applied to redeem and defease the 2012 Bonds. The 2012 Bonds will be redeemed and defeased on or about [2012 Bonds Redemption Date] (the “Redemption Date”) pursuant to the legal documents under which the 2012 Bonds were issued.
The City issued the 2012 Bonds in the aggregate principal amount of $5,050,000 for the purpose of refunding three series of lease revenue bonds originally issued in 2001. The 2012 Bonds are currently outstanding in the aggregate principal amount of $2,415,000, which will be redeemed in full, on a current basis on the Redemption Date, at a Redemption Price equal to 100% of the principal amount thereof, together with interest coming due and payable on the redemption date. In order to accomplish the refinancing plan, the a portion of the net proceeds of the Bonds, together with certain other funds on hand with respect to the 2012 Bonds, will be transferred to U.S. Bank Trust Company, N.A., acting as the current trustee for the 2012 Bonds (the “Escrow Agent”), for deposit in an escrow fund to be established under the Escrow Agreement dated as of [September 1, 2023], given by the Authority and the City to the Escrow Agent. Prior to the Closing Date, the City will deposit with the trustee for the [2012 Bonds the amount equal to the debt service on the 2012 Bonds coming due on [December 1, 2023.]] [Moneys deposited to defease the bonds will be held by the Escrow Agent either as cash or as non-callable federal securities, the principal of and interest on which when due will, in the written opinion of an Independent Accountant filed with the City, the Capital Improvement Board of the City and the Trustee, provide money sufficient to pay the principal of and interest on the Bonds to be paid on the Redemption Date.] The 2012 Bonds to be redeemed and defeased in whole upon issuance of the Bonds are set forth in the following table.
Maturity Date
(December 1) Principal Amount Interest Rate
CUSIP
798641
2023 $305,000 4.00% LC4
2024 315,000 4.00 LD2
2025 325,000 4.00 LE0
2026 345,000 4.00 LF7
2027 360,000 4.00 LG5
2028 375,000 4.00 LH3
2029 390,000 4.00 LJ9
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ESTIMATED SOURCES AND USES OF PROCEEDS
The proceeds of the sale of the Bonds are estimated to be applied as shown below:
Sources of Funds:
Principal Amount of Bonds $ [PAR].00
[Plus/Less] [Net] Original Issue [Premium/Discount]
Other Funds on Hand
Total Sources $
Uses of Funds:
Refunding of 2012 Bonds
Underwriter’s Discount
Deposit to Costs of Issuance Fund(1)
Total Uses $
_______________
(1) Costs of Issuance includes rating fees, legal fees, advisory fees, printing costs and other miscellaneous expenses.
THE BONDS
General
The Bonds shall be issued in fully registered form without coupons in Authorized Denominations, so long as no Bond shall have more than one maturity date. The Bonds shall be dated as of the Closing Date, shall be issued in the aggregate principal amount of $[Par Amount], shall mature on [Maturity Month] 1 of each year, shall bear interest at the rates per annum (calculated on the basis of a 360-day year comprised of twelve 30-day months) and shall be in the principal amounts set forth on the inside cover page hereof.
The Bonds shall initially be issued as Book-Entry Bonds. Payment of principal of, and interest and premium, if any, on, any Book-Entry Bond registered in the name of the Nominee shall be made on the applicable payment date by wire transfer of New York clearing house or equivalent next day funds or by wire transfer of same day funds to the account of the Nominee. Such payments shall be made to the Nominee at the address that is, on the Record Date, shown for the Nominee in the Registration Books.
The Bonds shall be executed in the name and on behalf of the Authority with the manual or facsimile signature of an Authorized Representative of the Authority attested by the manual or facsimile signature of the Secretary of the Authority. The Bonds shall then be delivered to the Trustee for authentication by it. In case any of such officers of the Authority who shall have signed or attested any of the Bonds shall cease to be such officers before the Bonds so signed or attested shall have been authenticated or delivered by the Trustee, or issued by the Authority, such Bonds may nevertheless be authenticated, delivered and issued and, upon such authentication, delivery and issue, shall be as binding upon the Authority as though those who signed and attested the same had continued to be such officers, and also any Bonds may be signed and attested on behalf of the Authority by such Persons as at the actual date of execution of such Bonds shall be the proper officers of the Authority although at the nominal date of such Bonds any such Person shall not have been such officer of the Authority. The Trustee shall keep or cause to be kept, at the Office of the Trustee, sufficient records for the registration and transfer of ownership of the Bonds, which shall be available for inspection and copying by the Authority and the City during regular business hours and upon reasonable notice; and, upon presentation for such purpose, the Trustee shall,
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under such reasonable regulations as it may prescribe, register or transfer or cause to be registered or transferred, on such records, the ownership of the Bonds provided in the Indenture.
Interest on the Bonds shall be payable from the Interest Payment Date next preceding the date of authentication thereof unless (i) a Bond is authenticated on or before an Interest Payment Date and after the close of business on the preceding Record Date, in which event interest thereon shall be payable from such Interest Payment Date, (ii) a Bond is authenticated on or before the first Record Date, in which event interest thereon shall be payable from the Closing Date, or (iii) interest on any Bond is in default as of the date of authentication thereof, in which event interest thereon shall be payable from the date to which interest has previously been paid or duly provided for. Interest shall be paid in lawful money of the United States on each Interest Payment Date. Except as otherwise provided in the Letter of Representations, interest shall be paid by check of the Trustee mailed by first-class mail, postage prepaid, on each Interest Payment Date to the Owners of the Bonds at their respective addresses shown on the Registration Books as of the close of business on the preceding Record Date, or by wire transfer at the written request of an Owner of not less than $1,000,000 aggregate principal amount of Bonds, which written request is received by the Trustee on or prior to the Record Date. Notwithstanding the foregoing, interest on any Bond that is not punctually paid or duly provided for on any Interest Payment Date shall, if and to the extent that amounts subsequently become available therefor, be paid on a payment date established by the Trustee to the Person in whose name the ownership of such Bond is registered on the Registration Books at the close of business on a special record date to be established by the Trustee for the payment of such defaulted interest, notice of which shall be given to such Owner not less than ten days prior to such special record date.
Redemption
The Bonds are subject to optional redemption and extraordinary redemption as described below.
Optional Redemption
The Bonds maturing on or after December 1, 20__, shall be subject to optional redemption, in whole or in part in Authorized Denominations on any date on or after December 1, 20__, from and to the extent of prepaid Base Rental Payments, at a Redemption Price equal to the principal amount of the Bonds to be redeemed, plus accrued interest thereon to the date of redemption, without premium.
Extraordinary Redemption
The Bonds shall be subject to redemption, in whole or in part, on any date, in Authorized Denominations, from and to the extent of any Net Proceeds received with respect to all or a portion of the Leased Property and deposited by the Trustee in the Redemption Fund in accordance with the provisions of the Indenture, at a Redemption Price equal to the principal amount thereof, plus accrued interest thereon to the date fixed for redemption, without premium. See “SOURCES OF PAYMENT FOR THE BONDS— Insurance” herein. See also Appendix C—“SUMMARY OF CERTAIN PROVISIONS OF PRINCIPAL LEGAL DOCUMENTS—LEASE AGREEMENT—Prepayment” hereto.
Mandatory Sinking Fund Redemption
The Bonds maturing December 1, 20__, shall be subject to mandatory sinking fund redemption, in part, on June 1 in each year, commencing December 1, 20__, at a Redemption Price equal to the principal amount thereof, plus accrued interest thereon to the date fixed for redemption, without premium, in the aggregate respective principal amounts in the respective years as follows:
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Sinking Fund
Redemption Date
(December 1)
Principal Amount to be
Redeemed
$
†
† Maturity Date.
If some but not all of the Bonds maturing on December 1, 20__, are extraordinarily redeemed, the principal amount of Bonds maturing on December 1, 20__, to be redeemed shall be reduced by the aggregate principal amount of the Bonds maturing on December 1, 20__, so extraordinarily redeemed, such reduction to be allocated among redemption dates as nearly as practicable on a pro rata basis, in amounts equal to Authorized Denominations, as determined by the Trustee, notice of which determination shall be given by the Trustee to the Authority and the City. If some but not all of the Bonds maturing on December 1, 20__, are optionally redeemed, the principal amount of Bonds maturing on December 1, 20__, to be redeemed shall be reduced by the aggregate principal amount of the Bonds maturing on December 1, 20__, so optionally redeemed, such reduction to be allocated among redemption dates in Authorized Denominations, as designated by the City in a Written Request of the City.
The Bonds maturing December 1, 20__ shall be subject to mandatory sinking fund redemption, in part, on June 1 in each year, commencing December 1, 20__, at a Redemption Price equal to the principal amount thereof, plus accrued interest thereon to the date fixed for redemption, without premium, in the aggregate respective principal amounts in the respective years as follows:
Sinking Fund
Redemption Date
(December 1)
Principal Amount to be
Redeemed
$
†
† Maturity Date.
If some but not all of the Bonds maturing on December 1, 20__ are redeemed pursuant to Section 4.01 hereof, the principal amount of Bonds maturing on December 1, 20__ to be redeemed pursuant to this Section shall be reduced by the aggregate principal amount of the Bonds maturing on December 1, 20__ so redeemed pursuant to Section 4.01 hereof, such reduction to be allocated among redemption dates as nearly as practicable on a pro rata basis, in amounts equal to Authorized Denominations, as determined by the Trustee, notice of which determination shall be given by the Trustee to the Authority and the City.
If some but not all of the Bonds maturing on December 1, 20__ are redeemed pursuant to Section 4.02 hereof, the principal amount of Bonds maturing on December 1, 20__ to be redeemed pursuant to this Section shall be reduced by the aggregate principal amount of the Bonds maturing on December 1, 20__ so redeemed pursuant to Section 4.02 hereof, such reduction to be allocated among redemption dates in Authorized Denominations, as designated by the City in a Written Certificate of the City.
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Notice of Redemption
The Trustee on behalf and at the expense of the Authority shall mail (by first class mail) notice of any redemption to the respective Owners of any Bonds designated for redemption at their respective addresses appearing on the Registration Books at least 20 but not more than 60 days prior to the date fixed for redemption. Such notice shall state the date of the notice, the redemption date, the redemption place and the Redemption Price and shall designate the CUSIP numbers, if any, the Bond numbers, Series and the maturity or maturities of the Bonds to be redeemed (except in the event of redemption of all of the Bonds of such Series, maturity or maturities in whole), and shall require that such Bonds be then surrendered at the Office of the Trustee for redemption at the Redemption Price, giving notice also that further interest on such Bonds will not accrue from and after the date fixed for redemption. Neither the failure to receive any notice so mailed, nor any defect in such notice, shall affect the validity of the proceedings for the redemption of the Bonds or the cessation of accrual of interest thereon from and after the date fixed for redemption.
With respect to any notice of any optional redemption of Bonds of a Series, unless at the time such notice is given the Bonds to be redeemed shall be deemed to have been paid within the meaning of the Indenture, such notice shall state that such redemption is conditional upon receipt by the Trustee, on or prior to the date fixed for such redemption, of moneys that, together with other available amounts held by the Trustee, are sufficient to pay the Redemption Price of, and accrued interest on, the Bonds to be redeemed, and that if such moneys shall not have been so received said notice shall be of no force and effect and the Authority shall not be required to redeem such Bonds. In the event a notice of redemption of Bonds contains such a condition and such moneys are not so received, the redemption of Bonds as described in the conditional notice of redemption shall not be made and the Trustee shall, within a reasonable time after the date on which such redemption was to occur, give notice to the Persons and in the manner in which the notice of redemption was given, that such moneys were not so received and that there shall be no redemption of Bonds pursuant to such notice of redemption.
Effect of Redemption
Notice having been mailed, and moneys for the Redemption Price, and the interest to the applicable date fixed for redemption, having been set aside with the Trustee, the Bonds shall become due and payable on said date, and, upon presentation and surrender thereof at the Office of the Trustee, said Bonds shall be paid at the Redemption Price thereof, together with interest accrued and unpaid to said date.
If, on said date fixed for redemption, moneys for the Redemption Price of all the Bonds to be redeemed, together with interest to said date, shall be held by the Trustee so as to be available therefor on such date, and, if notice of redemption thereof shall have been mailed as aforesaid and not canceled, then, from and after said date, interest on said Bonds shall cease to accrue and become payable. All moneys held by or on behalf of the Trustee for the redemption of Bonds shall be held in trust for the account of the Owners of the Bonds so to be redeemed without liability to such Owners for interest thereon.
All Bonds paid at maturity or redeemed prior to maturity pursuant to the provisions of the Indenture shall be canceled upon surrender thereof and destroyed.
SOURCES OF PAYMENT FOR THE BONDS
General
The Bonds shall be special obligations of the Authority, payable solely from the Lease Revenues and the other assets pledged therefor hereunder. Neither the faith and credit nor the taxing power of the Authority, the City or the State, or any political subdivision thereof, is pledged to the payment of the Bonds.
The term “Lease Revenues” means all Base Rental Payments payable by the City pursuant to the Lease
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Agreement, including any prepayments thereof, any Net Proceeds and any amounts received by the Trustee as a result of or in connection with the Trustee’s pursuit of remedies under the Lease Agreement upon a Lease Default Event.
Under the Indenture, the Authority assigns and transfers to the Trustee, irrevocably and absolutely, without recourse, for the benefit of the Owners, all of its right, title and interest in and to the Ground Lease and the Lease Agreement, including, without limitation, the right to receive Base Rental Payments and the right to exercise any remedies provided in the Lease Agreement in the event of a default by the City thereunder; provided, however, that the Trustee shall not be required to perform any of the substantive obligations of the Authority thereunder, and, provided, further that Authority shall retain the rights to indemnification, to give consents and approvals thereunder, and to payment or reimbursement of its reasonable costs and expenses under the Lease Agreement. The Trustee hereby accepts said assignment for the benefit of the Owners, subject to the provisions of the Indenture.
Subject only to the provisions of the Indenture permitting the application thereof for the purposes and on the terms and conditions set forth therein, in order to secure the payment of the principal of, premium, if any, and interest on the Bonds in accordance with their terms, the provisions of the Indenture and the Act, the Authority hereby pledges to the Owners, and grants thereto a lien on and a security interest in, all of the Lease Revenues and any other amounts held in the Payment Fund. Said pledge shall constitute a first lien on and security interest in such assets, which shall immediately attach to such assets and be effective, binding and enforceable against the Authority, its successors, purchasers of any of such assets, creditors and all others asserting rights therein, to the extent set forth in, and in accordance with, the Indenture, irrespective of whether those parties have notice of the pledge of, lien on and security interest in such assets and without the need for any physical delivery, recordation, filing or further act.
The Bonds are special obligations of the Authority, payable, as provided in the Indenture, solely from Lease Revenues and the other assets pledged therefor thereunder. Neither the faith and credit nor the taxing power of the Authority, the City or the State, or any political subdivision thereof, is pledged to the payment of the Bonds. The Lease Revenues consist of all Base Rental Payments payable by the City pursuant to the Lease Agreement, including any prepayments thereof, any Net Proceeds and any amounts received by the Trustee as a result of or in connection with the Trustee’s pursuit of remedies under the Lease Agreement upon a Lease Default Event.
Base Rental Payments
Rental Payments, consisting of Base Rental Payments and Additional Rental Payments, will be paid by the City to the Authority for and in consideration of the right to use and occupy the Leased Property and in consideration of the continued right to the quiet use and enjoyment thereof during each Rental Period for which such Rental Payments are to be paid. The Base Rental Payments shall be due and payable no later than the fifth Business Day next preceding each Interest Payment Date (the “Base Rental Deposit Date”) on which such Base Rental Payment is due in an amount equal to the principal, if any, of and interest on the Bonds due and payable on such Interest Payment Date, including principal due and payable by reason of mandatory sinking fund redemption of the Bonds.
Additional Rental Payments
In addition to the Base Rental Payments, the Lease Agreement requires the City to pay, as Additional Rental Payments, such amounts as will be required for the following:
(i) all taxes and assessments of any type or nature charged to the Authority or the City or affecting the Property or the respective interests or estates of the Authority or the City therein;
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(ii) insurance premiums for all insurance required pursuant to Article V hereof; and (iii) all other payments not constituting Base Rental Payments required to be paid by the City pursuant to the provisions of this Lease Agreement.
Amounts constituting Additional Rental Payments payable hereunder shall be paid by the City directly to the person or persons to whom such amounts shall be payable. The City shall pay all such amounts when due or at such later time as such amounts may be paid without penalty or, in any other case, within 60 days after notice in writing from the Trustee to the City stating the amount of Additional Rental Payments then due and payable and the purpose thereof.
No Debt Service Reserve Fund
No debt service reserve fund will be established for the Bonds.
Insurance
General Liability Insurance. The Lease Agreement requires the City to maintain or cause to be maintained, throughout the term of the Lease Agreement, a standard comprehensive general liability insurance policy or policies in protection of the City, the Authority and their respective members, officers, agents and employees. Said policy or policies shall provide for indemnification of said parties against direct or contingent loss or liability for damages for bodily and personal injury, death or property damage occasioned by reason of the use or ownership of the Leased 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 a single accident or event, and in a minimum amount of $500,000 for damage to property (subject to a deductible clause of not to exceed $100,000) resulting from a single 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 or required to be carried 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 Net Proceeds of such insurance shall have been paid. The City’s obligations to provide general liability insurance may be satisfied by self-insurance in accordance with the Lease Agreement. See Appendix C—“SUMMARY OF CERTAIN PROVISIONS OF PRINCIPAL LEGAL DOCUMENTS—LEASE AGREEMENT—Insurance” hereto.
Casualty Insurance. The Lease Agreement requires the City to maintain or cause to be maintained casualty insurance insuring the Leased Property against fire, lightning and all other risks covered by an extended coverage endorsement (excluding earthquake and flood) to the full insurable value of the Leased Property, subject to a $100,000 loss deductible provision. Full insurable value shall not be less than the aggregate principal amount of the Outstanding Bonds. The City’s obligations under this subsection may be satisfied by self-insurance in accordance with the Lease Agreement.
Rental Interruption Insurance. The Lease Agreement requires the City to maintain rental interruption insurance to cover the Authority’s loss, total or partial, of Base Rental Payments resulting from the loss, total or partial, of the use of any part of the Leased Property as a result of any of the hazards required to be covered by the casualty insurance policy in an amount not less than the product of two times the maximum amount of Base Rental Payments scheduled to be paid during any Rental Period. The Net Proceeds of such rental interruption insurance shall be applied to the payment of Rental Payments during the period in which, as a result of the damage or destruction to the Leased Property that resulted in the receipt of such Net Proceeds, there is substantial interference with the City’s right to the use or occupancy
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of the Leased Property. The City’s obligations to provide rental interruption insurance may not be satisfied by self-insurance.
The insurance required under the Lease Agreement other than self-insured as provided shall be provided by reputable insurance companies with claims paying abilities determined, in the reasonable opinion of the City’s professionally qualified risk manager or an independent insurance consultant, to be adequate for the purposes of the Lease Agreement. All such policies shall contain a standard lessee clause in favor of the Trustee and the general liability insurance policies shall be endorsed to show the Trustee, as an additional insured. All such policies shall provide that the Trustee shall be given 30 days’ notice of the expiration thereof, any intended cancellation thereof or any reduction in the coverage provided thereby.
The Trustee shall be fully protected in accepting payment on account of such insurance or any adjustment, compromise or settlement of any loss agreed to by the City.
Title Insurance. The Lease Agreement requires the City to provide, on the Closing Date, at its own expense, one or more CLTA or ALTA title insurance policies for the Leased Property, in the aggregate amount of not less than the aggregate principal amount of the Bonds. Said policy or policies shall insure (a) the fee interest of the City in the Leased Property (b) the Authority’s ground leasehold estate in the Leased Property under the Ground Lease, and (c) the City’s leasehold estate under the Lease Agreement in the Leased Property, subject only to Permitted Encumbrances; provided, however, that one or more of said estates may be insured through an endorsement to such policy or policies.
Damage or Destruction of the Leased Property
If the Leased Property or any portion thereof is damaged or destroyed, the City will, within 30 days of the occurrence of the event of damage or destruction, notify the Trustee in writing of the City’s determination as to whether or not such damage or destruction will result in a substantial interference with the City’s right to the use or occupancy of the Property and an abatement in whole or in part of Rental Payments pursuant to the Lease Agreement. If the City determines that such damage or destruction will not result in a substantial interference with the City’s right to the use or occupancy of the Property and an abatement in whole or in part of Rental Payments pursuant to the Lease Agreement, the City shall, as expeditiously as possible, continuously and diligently prosecute or cause to be prosecuted the repair or replacement thereof.
If the City determines that such damage or destruction will result in a substantial interference with the City’s right to the use or occupancy of the Property and an abatement in whole or in part of Rental Payments pursuant to the Lease Agreement, then the City shall (i) apply sufficient funds from the Net Proceeds of any insurance (other than Net Proceeds of rental interruption insurance), including the proceeds of any self-insurance, received on account of such damage or destruction and other legally available funds to the repair or replacement of the Property or the portions thereof that have been damaged or destroyed to the condition that existed prior to such damage or destruction, provided that, within 40 days of the occurrence of the event of damage or destruction, the City delivers to the Trustee a Written Certificate of the City (A) certifying that the City has sufficient funds to so complete such repair or replacement of the Property or such portions thereof and identifying such funds and the location thereof, and (B) stating that such funds will not be used for any other purpose until such repair or replacement is completed, (ii) within 60 days of the occurrence of the event of damage or destruction, cause alternate real property to be substituted for all or a portion of the Property pursuant to the Lease Agreement, or (iii) within 60 days of the occurrence of the event of damage or destruction, deliver sufficient funds from such Net Proceeds and other legally available funds to the Trustee for the application to the extraordinary redemption (A) of all of the Outstanding Bonds, or (B) of such portion of the Outstanding Bonds as shall result in (I) the annual fair rental value of the Property after such damage or destruction, and after any repairs or replacements made as a result of such damage or destruction, as certified in a Written Certificate of the City delivered to the
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Trustee, being at least equal to 105% of the maximum amount of the principal (including principal due and payable by reason of mandatory sinking fund redemption of such Bonds) of and interest on the Bonds coming due in the then current Rental Period or any subsequent Rental Period, and (II) the fair replacement value of the Property after such damage or destruction, and after any repairs or replacements made as a result of such damage or destruction, as certified in a Written Certificate of the City delivered to the Trustee, being at least equal to the aggregate principal amount of the Bonds then Outstanding. See [Appendix C— “SUMMARY OF CERTAIN PROVISIONS OF PRINCIPAL LEGAL DOCUMENTS—THE LEASE AGREEMENT—Abatement,” “—Additions to the Property; Substitution or Release of the Property” and “—Damage or Destruction.”]
Remedies Upon Default
If the City defaults under the Lease Agreement, the Authority may enforce its remedies thereunder.
In general, remedies under the Lease Agreement include the right (i) to maintain such Lease Agreement in full force and effect and receive all rent from the City as it becomes due or re-enter and re-let the Leased Property, or (ii) to terminate such Lease Agreement and the City’s right of possession and recover damages recoverable at law. The Indenture provides that any Holder of the Bonds may by legal action compel the Authority to carry out its duties under the Lease Agreement, including maintaining and enforcing its rights under the Lease Agreement. See Appendix C—“SUMMARY OF CERTAIN PROVISIONS OF PRINCIPAL LEGAL DOCUMENTS—INDENTURE” hereto. An abatement of rental in accordance with the terms of the Lease Agreement due to damage, destruction or eminent domain is not an event of default under the Lease Agreement and none of the foregoing remedies is available. See “RISK FACTORS— Abatement” herein.
The Bonds are not subject to acceleration under any circumstances or for any reason, including without limitation upon the occurrence and continuance of an Event of Default under the Indenture. See “RISK FACTORS—No Acceleration Upon Default” herein.
RISK FACTORS
The following factors, along with the other information in this Official Statement, should be considered by potential investors in evaluating purchase of the Bonds. However, they do not purport to be an exhaustive listing of risks and other considerations which may be relevant to an investment in the Bonds.
In addition, the order in which the following factors are presented is not intended to reflect the relative importance of any such risks.
No Pledge of Revenues or Lien on Assets of the City
The Base Rental Payments are not secured by any pledge of or lien on taxes or other revenue of the City, but are payable from all funds lawfully available to the City. The City has the capacity to enter into other obligations which may constitute additional charges against its revenues. In the event the City’s revenue sources are less than its total obligations, the City could choose to fund other obligations before making Base Rental 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 obligation of the City to pay the Base Rental Payments 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 pay Base Rental Payments and additional payments does not constitute a debt of the City, the State or any of its political subdivisions, and does not constitute an indebtedness within the meaning of any constitutional or statutory debt limitation or restriction.
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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 make Base Rental Payments from any source of legally available funds (subject to certain exceptions and conditions), and the City has covenanted in the Lease Agreement to take such action as may be necessary to include all Base Rental Payments in its annual budgets and annually to appropriate amounts necessary to make such Base Rental Payments. The City is also liable for other obligations payable from any source of legally available funds. See “—Additional Obligations of the City” below, “CITY FINANCIAL INFORMATION” herein and Appendix A— “AUDITED FINANCIAL STATEMENTS FOR FISCAL YEAR ENDED JUNE 30, 2022” hereto.
Additional Obligations of the City
The City has a significant amount of obligations payable from its general fund, including but not limited to debt obligations, pension obligations, lease obligations and other obligations related to post employment retirement benefits as well as certain other liabilities (the “General Fund”). See Appendix A— “AUDITED FINANCIAL STATEMENTS FOR FISCAL YEAR ENDED JUNE 30, 2022” hereto. 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 various General Fund obligations to finance public improvements, which may also include lease obligations payable from its General Fund. To the extent such additional obligations are incurred by the City, the funds available to make Base Rental Payments may be decreased.
Abatement
The Base Rental Payments due under the Lease Agreement shall be abated proportionately during any period in which by reason of any damage or destruction (other than by eminent domain) there is substantial interference with the use and occupancy by the City of the Leased Property by the City, in the proportion in which the initial cost of that portion of the Leased Property rendered unusable bears to the initial cost of the whole of the Leased Property. Such abatement shall commence with such damage or destruction and end when use and occupancy or possession is restored. The Base Rental Payments due under the Lease Agreement shall also be abated during any period in which by reason of eminent domain there is substantial interference with the use and occupancy by the City of the Leased Property by the City.
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, at the time of such abatement, the value of the Leased Property may be substantially higher or lower than its value at the time of issuance of the Bonds. Such a circumstance could have an effect on the amount of rental abated under the Lease Agreement and could have a material adverse effect on the security for and payment of the Bonds.
If damage, destruction or eminent domain proceedings with respect to the Leased Property results in abatement of the Base Rental Payments related to such Leased Property and if such abated Base Rental Payments, if any, together with moneys from rental interruption or use and occupancy insurance (in the event of any insured loss due to damage or destruction), eminent domain proceeds, if any, and moneys available in the Payment Fund are insufficient to make all payments of principal of and interest on the Bonds during the period that the Leased Property is being replaced, repaired or reconstructed, then all or a portion of such payments of principal and interest may not be made. Under the Lease Agreement and the Indenture, no remedy is available to the Holders of the Bonds for nonpayment under such circumstances.
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Risk of Uninsured Loss
The City covenants under the Lease Agreement to maintain certain insurance policies on the Leased Property. See “SOURCES OF PAYMENT FOR THE BONDS” herein. These insurance policies do not cover all types of risk. For example, the City is not required to maintain earthquake insurance. The Leased Property could be damaged or destroyed due to an earthquake or other casualty for which the Leased Property is uninsured. Additionally, a portion of the Leased Property could be the subject of an eminent domain proceeding. Under these circumstances, an abatement of Base Rental Payments could occur and could continue indefinitely. Moreover, there can be no assurance that the providers of the City’s liability and rental interruption insurance, among others, 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. There can also be no assurances that amounts received as proceeds from insurance of the Leased Property will be sufficient to redeem the Bonds.
Under the Lease Agreement, the City may obtain certain types of casualty insurance which provide for such a deductible as the City deems adequate and prudent. Should the City be unable to meet such deductible expenses, the availability of General Fund revenues to make Base Rental Payments will be correspondingly affected.
Limited Recourse on Default
If the City defaults on its obligations to make Base Rental Payments with respect to the Leased Property, the Trustee, as assignee of the Authority, may (subject to the restrictions described in the Lease Agreement) retain the Lease Agreement and hold the City liable for all Base Rental Payments on an annual basis and will have the right to re-enter and re-let the Leased Property. In the event such re-letting occurs, the City would be liable for any resulting deficiency in Base Rental Payments. Alternatively, the Trustee may terminate the Lease Agreement with respect to the Leased Property and proceed against the City to recover damages pursuant to the Lease Agreement. However, the Trustee may not sell or foreclose the Leased Property to obtain money for payment of the principal of or interest on the Bonds in the event of a default. See also “—No Acceleration Upon Default” below.
Due to the specialized nature of the Leased Property, no assurance can be given that the Trustee will be able to re-let any portion of the Leased Property so as to provide rental income sufficient to make principal and interest payments with respect to the Bonds in a timely manner, and the Trustee is not empowered to sell the Leased Property for the benefit of the Owners of the Bonds. In addition, due to the governmental function of the Leased Property, it is not certain whether a court would permit the exercise of the remedies of repossession and re-letting with respect thereto. 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.
No Acceleration Upon Default
If the City defaults on its obligations to make Base Rental Payments, the Trustee may have limited ability to re-let the Leased Property so as to preserve the tax exempt nature of the interest on the Bonds. In the event of default, there is no remedy of acceleration of any Base Rental Payments which have not come due and payable in accordance with the Lease Agreement. The City will continue to be liable for lease payments as they become due and payable in accordance with the Lease Agreement if the Trustee does not terminate the Lease Agreement, and the Trustee is required to seek a separate judgment each year for that year’s defaulted Base Rental Payments. Any such suit for money damages would be subject to limitations on legal remedies against cities in California, including a limitation on enforcement of judgments against funds or property needed to serve the public welfare and interest.
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Bankruptcy
The City and the Authority are considered “municipalities” and therefore are 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 or the Authority may seek voluntary protection from its creditors for purposes of adjusting its debts. A City or Authority bankruptcy petition could have a material adverse effect on the payment of the Bonds. The following paragraphs present a discussion of certain potential consequences surrounding a potential City or Authority 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: (1) 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; (2) the avoidance of preferential transfers occurring during the relevant period prior to the filing of a bankruptcy petition; (3) the existence of unsecured or court-approved secured debt which may have a priority of payment superior to that of Holders of the Bonds; and (4) 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 the Holders of the Bonds, which Plan may restructure, delay, compromise or reduce the amount of any claim of the Holders if the bankruptcy court finds that the Plan is fair and equitable.
In addition, if the Lease Agreement were considered a true lease under the Bankruptcy Code, 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 Holders of the Bonds, 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 the Holders of the Bonds. Moreover, such rejection would terminate the Lease Agreement and the City’s obligation to make payments thereunder. If the Lease Agreement were instead considered a secured financing transaction under the Bankruptcy Code, it is possible that the Holders would have a secured claim for the value of the leasehold interest (as determined by the bankruptcy court) and an unsecured claim for any balance. The legal status of the Lease Agreement under the Bankruptcy Code is uncertain as there is currently no binding legal authority on the proper treatment of lease-leaseback transactions such as the one securing the Bonds.
The Authority is a public agency and, like the City, is not subject to the involuntary procedures of the Bankruptcy Code. The Authority may also seek voluntary protection under Chapter 9 of the Bankruptcy Code. In the event the Authority were to become a debtor under the Bankruptcy Code, the Authority would be entitled to all of the protective provisions of the Bankruptcy Code as applicable in a Chapter 9 proceeding. Such a bankruptcy could adversely affect the payments under the Indenture. Among the adverse effects might be: (1) the application of the automatic stay provisions of the Bankruptcy Code, which, until relief is granted, would prevent collection of payments from the Authority or the commencement of any judicial or other action for the purpose of recovering or collecting a claim against the Authority; (2) the avoidance of preferential transfers occurring during the relevant period prior to the filing of a bankruptcy petition; (3) the existence of unsecured or court-approved secured debt which may have priority of payment superior to that of the Holders of the Bonds; and (4) the possibility of the adoption of a plan for the adjustment of the Authority’s debt without the consent of the Trustee or all of the Holders of the Bonds, which plan may restructure, delay, compromise or reduce the amount of any claim of the Holders if the bankruptcy court finds that the plan is fair and equitable.
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Bankruptcies in the City of Stockton, the City of San Bernardino and the City of Detroit have brought scrutiny to municipal securities. Specifically, in the City of San Bernardino bankruptcy, the Court held that in the event of a municipal bankruptcy, payments on pension obligation bonds were unsecured obligations and not entitled to the same priority of payments made to the related pension system. A variety of events including, but not limited to, additional rulings adverse to the interests of bond owners in the City of San Bernardino, the City of Stockton and the City of Detroit bankruptcy cases or additional municipal bankruptcies, could prevent or materially adversely affect the rights of Owners to receive payments on the Bonds in the event the City files for bankruptcy. Accordingly, in the event of bankruptcy, it is likely that Owners may not recover their principal and interest.
Risk of Tax Audit; Loss of Tax Exemption
The Internal Revenue Service (the “IRS”) has an ongoing program of examining tax-exempt obligations to determine whether, in the view of the IRS, interest on such obligations is properly excluded from gross income for federal income tax purposes. It is possible that the Bonds or other tax-exempt obligations of the City may be selected for examination under such program. There is no assurance that an IRS examination of the Bonds or other tax-exempt obligations of the City will not adversely affect the market value of the Bonds. See “TAX MATTERS” herein.
As discussed under the caption “TAX MATTERS,” in order to maintain the exclusion from gross income for federal income tax purposes of the interest on the Bonds, the City has covenanted in the Lease Agreement not to take any action, or fail to take any action, if such action or failure to take such action would adversely affect the exclusion from gross income of interest on the Bonds under Section 103 of the Internal Revenue Code of 1986 (the “Code”). Interest on the Bonds could become includable in gross income for purposes of federal income taxation retroactive to the date the Bonds were issued, as a result of acts or omissions of the City or the Authority in violation of the Code. Should such an event of taxability occur, the Bonds are not subject to early redemption and will remain outstanding to maturity or until prepaid under the optional redemption provisions of the Indenture.
Limited Secondary Market
As stated herein, investment in the Bonds poses certain economic risks which may not be appropriate for certain investors, and only persons with substantial financial resources who understand the risk of investment in the Bonds should consider such investment. There can be no guarantee that there will be a secondary market for purchase or sale of the Bonds or, if a secondary market exists, that the Bonds could be sold for any particular price.
Hazardous Substances
The existence or discovery of hazardous materials may limit the beneficial use of the Leased Property. In general, the owners and lessees of the Leased Property may be required by law to remedy conditions of such parcel relating to the release or threatened releases of hazardous substances. The federal Comprehensive Environmental Response, Compensation and Liability Act of 1980, sometimes referred to as “CERCLA” or the “Superfund Act,” is the most well-known and widely applicable of these laws, but State 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 on 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 Leased Property may be limited in the future resulting from the current existence on the Leased 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
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future resulting from the current existence on the Leased 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 Leased Property.
The City is unaware of the existence of hazardous substances on the Leased Property site which would materially interfere with the beneficial use thereof.
Cyber Security
The City, like many other public and private entities, relies on computer and other digital networks and systems to conduct its operations. As a recipient and provider of personal, private or other sensitive electronic information, the City is potentially subject to multiple cyber threats, including, without limitation, hacking, viruses, ransomware, malware and other attacks. No assurance can be given that the City’s efforts to manage cyber threats and attacks will be successful in all cases, or that any such attack will not materially impact the operations or finances of the City. For a description of the City’s cybersecurity policies and practices, see Appendix B – “CERTAIN INFORMATION REGARDING THE CITY OF SAN LUIS OBISPO – Cyber Security.”
Natural Disasters and Other Events
If a severe natural disaster occurred in or around 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 Leased Property, which could result in abatement of Base Rental Payments. See “RISK FACTORS—Abatement” herein. The City has implemented the City’s General Plan Climate Adaptation and Safety Element updated in 2023 provides policies and programs to help reduce the risk associated with natural disasters and other events. However, the City is not required to maintain earthquake or flood insurance on the Leased Property. In addition, a severe natural disaster could require additional emergency response by the City and the City can give no assurances regarding the impact of such emergency response on the City’s operations and finances. The following describes certain potential natural disasters that may occur within the City.
Earthquake. The City, like all southern California communities, may be subject to unpredictable seismic activity. The Los Osos Fault identified under the California Alquist-Priolo Fault Hazards Act, is adjacent to the City, with the main strand under the intersection of Los Osos Valley Road and Foothill Boulevard. Other known faults nearby the City have the capability to produce strong ground motion in the City.
Seismic activity could lead to a reduction of assessed values in the City. In addition, an occurrence of severe seismic activity in the area of the Leased Property may result in substantial damage to and/or interference with the City’s right to use and occupy all or a portion of the Leased Property, leading to the abatement of Base Rental Payments. There is no requirement under the Lease Agreement that the City maintain earthquake insurance with respect to the Leased Property, and the City cannot provide any assurances that it will decide to obtain or continue to maintain earthquake insurance with respect to the Leased Property.
The City relies on a combination of insurance and general reserves as well as the expectation that some disaster relief funds to address any resulting damage from seismic activity. There is no assurance that, in the event of a significant seismic event disaster relief funds and other sources would be available or sufficient for the repair or replacement of the Leased Property.
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Wildfire. In recent years, wildfires have caused extensive damage throughout the State. In some instances, entire neighborhoods have been destroyed. Several of the fires that occurred in recent years damaged or destroyed property in areas that were not previously considered to be at risk from such events.
Some commentators believe that climate change will lead to even more frequent and more damaging wildfires in the future. The City of San Luis Obispo has experienced significant wildfires in the past including the 1985 “Las Pilitas Fire” which originated East of the City and burned into city limits. In more recent history, the most significant wildfire the city has encountered was the approximately 90-acre “Bridge Fire” in 2020 that occurred in the South Hills Open Space which geographically sits in the center of the city. Fortunately, no structures were damaged, or injuries sustained due to this fire.
Flooding. Portions of the City are within 100-year flood plains, according to Federal Emergency Management Agency maps. Parts of the City are considered to be susceptible to flood events from either a major storm or a dam failure resulting from a significant earthquake or other event. Though the City does not believe that damage to nearby dams could directly cause damage to the Leased Property, the City cannot predict if any such damage to the dams would adversely affect the City’s financial condition, the value of the Leased Property, or the ability of the City to make the Base Rental Payments. For information about the City’s financial obligation with respect to certain nearby dams, see “CITY FINANCIAL INFORMATION – Recent Events.”
Recent storm events in January and March 2023 caused widespread flooding and other stormrelated damage within the City. For information regarding the effects of the recent storms, see “CITY FINANCIAL INFORMATION – Recent Events.”
There is no requirement under the Lease Agreement that the City maintain flood insurance with respect to the Leased Property, and the City cannot provide any assurances that it will decide to obtain or continue to maintain flood insurance with respect to the Leased Property.
Events of Force Majeure. Operation of the Leased Property may also be at risk from other events of force majeure, such as damaging storms, extreme drought, explosions, strikes, sabotage, riots and spills of hazardous substances, among other events. The City cannot predict what force majeure events may occur in the future. For additional information regarding the required insurance coverages under the Lease Agreement, See Appendix C – “SUMMARY OF CERTAIN PROVISIONS OF PRINCIPAL LEGAL DOCUMENTS.”
Environmental Focus and Climate Change
Atmospheric greenhouse gas concentrations have reached a level that guarantees substantial and unavoidable impacts for the foreseeable future. These impacts are expected to include, among other things, an increase in the frequency and severity of extreme weather events and may contribute to an increased incidence of wildfires in the City and elsewhere in the State. As the effects of climate change continue, it is expected that extreme weather events such as drought, wildfires, floods and heat waves will impact the City.
Although the City is actively implementing a climate action plan as described in more detail in Appendix B, the City cannot predict the timing, extent, or severity of climate change and its impact on the City’s operations and finances. However, over time, the costs could be significant and could have a material effect on the City’s finances by requiring greater expenditures to respond to the effects of climate change.
Also, additional actions to address climate change may be necessary and the City can give no assurances regarding the impact of such actions on the City’s operations and finances.
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Pandemic and Infectious Disease
In March 2020, the World Health Organization and the President of the United States separately declared the outbreak of a respiratory disease caused by a novel coronavirus (“COVID-19”) to be a public health emergency. On March 13, 2020, the Governor of California (the “Governor”) declared a state of emergency for the State of California because of the effects of COVID-19. Subsequently, in response to a rise in COVID-19 infections in the State, the Governor issued a number of executive orders intended to help limit the spread of COVID-19 and mitigate injury and the loss of life, including limitations imposed on business operations, social gatherings, travel, and other activities. As of February 28, 2023, the Governor terminated the state of emergency relating to COVID-19 and there are currently no COVID-19 related operating limits imposed by executive order of the Governor for any business or other establishment in the State.
Like other public agencies, the COVID-19 pandemic had a significant impact on the City’s operations and budget. To address the economic uncertainty brought on by the pandemic, the City immediately implemented its Fiscal Health Contingency Plan (FHCP), triggering a number of measures to control expenditures. Similar to other agencies, the City modified its operations by transitioning to remote work where possible, and modified delivery of services to the public. Modified service delivery included but was not limited to: enhanced cleaning of facilities, increased wastewater testing to assist the County in determining the prevalence of COVID in certain areas, moratoriums on water shutoffs due to non-payment, deferral of parking rate increases, and provision of fare-free rides on the City’s fixed route transit service.
For information concerning the financial effect of COVID-19 on the City, see “CITY FINANCIAL INFORMATION – Recent Developments.”
A continued spread of COVID-19 or future outbreak of COVID-19 or variants thereof or another infectious disease, or the fear of any such outbreak, and measures taken to prevent or reduce it, could adversely impact State, national and global economic activities and, accordingly, adversely impact the financial condition and operations of the City, and the extent of impact could be material. The City cannot predict the duration of any pandemic, any reinstatement or expansion of stay-at-home orders and travel or other restrictions and warnings, or what impact those orders would have on the City’s revenues.
Additionally, the City cannot predict what further impact any pandemic may have on the City’s general financial condition or operations, or the assessed values of property within the City.
Dependence on State for Certain Revenues
Nearly half of the City’s revenues are collected and disbursed by the State (such as sales tax and motor-vehicle license fees) or allocated in accordance with State law (most importantly, property taxes).
As a result, State budget decisions can have an impact on City finances. In the event of a material economic downturn in the State, there can be no assurance that any resulting revenue shortfalls to the State will not reduce revenues to local governments (including the City) or shift financial responsibility for programs to local governments as part of the State’s efforts to address any such related State financial difficulties.
Information about the State budget is regularly available at various State-maintained websites. Text of proposed and adopted budgets may be found at the website of the Department of Finance, www.dof.ca.gov, under the heading “California Budget.” An impartial analysis of the budget is posted by the Office of the Legislative Analyst at www.lao.ca.gov. In addition, various State of California 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, www.treasurer.ca.gov. The information referred to is prepared by the respective State agency maintaining each website, and neither the Authority nor the City takes responsibility for the continued accuracy of these internet addresses or for the accuracy, completeness or timeliness of information posted there, and such information is not incorporated herein by these references.
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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 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 Bonds.
City Pension Benefit Liability
Many factors influence the amount of the City’s pension benefit liability, including, without limitation, inflationary factors, changes in statutory provisions of applicable law, changes in the levels of benefits provided or in the contribution rate of the City, increases or decreases in the number of covered employees, changes in actuarial assumptions or methods and differences between actual and anticipated investment experience of the California Public Employees’ Retirement System (“CalPERS”). Any of these factors could give rise to additional liability of the City to CalPERS as a result of which the City would be obligated to make additional payments to CalPERS over the amortization schedule for full funding of the City’s obligations to CalPERS. In 2017, CalPERS made some significant policy changes to address unfunded liabilities systemwide. These policy changes significantly increased required pension contributions for member agencies and in 2018, the City Council adopted Fiscal Health Response Plan (FHRP) to provide a framework for responding to the long-term fiscal impacts of the CalPERS policy changes. The FHRP has enabled the City to make $16.6 million in additional discretionary payments to expedite paydown of its unfunded pension liability. The City expects its pension benefit liability to increase in future years as a result of general market conditions which have significantly impacted CalPERS investments, resulting in a -7.5% return in FY 2021-22. See also “CITY FINANCIAL INFORMATION— Employee Retirement System” herein.
No Liability of Authority to the Owners
Except as expressly provided in the Indenture, the Authority shall not have any obligation or liability to the Owners of the Bonds with respect to the payment when due of the Base Rental Payments by the City, or with respect to the performance by the City of other agreements and covenants required to be performed by it contained in the Lease Agreement or the Indenture, or with respect to the performance by the Trustee of any right or obligation required to be performed by it contained in the Indenture.
CERTAIN LIMITATIONS ON TAXES AND APPROPRIATIONS
While the Lease Agreement does not obligate the City to impose any new taxes or increase any existing taxes to pay Base Rental Payments, limitations on the City’s ability to impose taxes or appropriate funds could adversely affect the City’s ability to raise and spend revenues. In such event, City funds which would otherwise be available absent such limitation might not be available to make Base Rental Payments.
The following is a description of certain legal limitations related to the City’s ability to impose taxes or appropriate funds.
Article XIIIA of the State Constitution
Section 1(a) of Article XIIIA of the State Constitution limits the maximum ad valorem tax on real property to 1% of full cash value (as defined in Section 2 of Article XIIIA), to be collected by counties and apportioned according to law. Section 1(b) of Article XIIIA provides that the 1% limitation does not apply to ad valorem taxes to pay interest or redemption charges on (1) indebtedness approved by the voters prior to July 1, 1978 or (2) any bonded indebtedness for the acquisition or improvement of real property approved on or after July 1, 1978, by two-thirds of the votes cast by the voters voting on the proposition. Section 2
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of Article XIIIA defines “full cash value” to mean “the County assessor’s valuation of real property as shown on the 1975-76 tax bill under full cash value or, thereafter, the appraised value of real property when purchased, newly constructed, or a change in ownership has occurred after the 1975 assessment.” The full cash value may be adjusted annually to reflect inflation at a rate not to exceed 2% per year, or to reflect a reduction in the consumer price index or comparable data for the area under taxing jurisdiction or reduced in the event of declining property value caused by substantial damage, destruction or other factors.
Legislation enacted by the State Legislature to implement Article XIIIA provides that notwithstanding any other law, local agencies may not levy any ad valorem property tax except to pay debt service on indebtedness approved by the voters as described above.
The voters of the State 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 reassessment under Article XIIIA. This amendment could serve to reduce the property tax revenues of the City. Other amendments permitted the State Legislature to allow persons over 55 or “severely disabled homeowners” who sell their residence and buy or build another of equal or lesser value within two years in the same city, to transfer the old residence’s assessed value to the new 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” seismic retrofitting improvements or improvements utilizing earthquake hazard mitigation technologies constructed or installed in existing buildings after November 6, 1990.
Article XIIIA has also been amended to permit reduction of the “full cash value” base in the event of declining property values caused by damage, destruction or other factors, provided that there would be no increase in the “full cash value” base in the event of reconstruction of property damaged or destroyed in a disaster. County assessors may “recapture” the reduced assessed valuation of such property up to its predecline value, depending on the county assessor’s measurement of the value subsequently restored to such property.
Article XIIIB of the State Constitution
Article XIIIB of the State Constitution limits the annual appropriations of the State and of 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 for changes in the cost of living, population and services for which the fiscal responsibility is shifted to or from the governmental entity. The “base year” for establishing this appropriations limit is the 1978-79 fiscal year, and the limit is adjusted annually to reflect changes in population, consumer prices and certain increases or decreases in the cost of services provided by the applicable public agency.
Appropriations of an entity of local government subject to Article XIIIB generally include authorizations to expend during a Fiscal Year the proceeds of taxes levied by or for the entity and the proceeds of State subventions, exclusive of certain State subventions, refunds of taxes, and benefit payments from retirement, unemployment insurance and disability insurance funds. “Proceeds of taxes” include, but are not limited to, all tax revenues, most State subventions and the proceeds to the local governmental entity from (1) regulatory licenses, user charges, and user fees (to the extent that such proceeds exceed the cost reasonably borne by such entity) and (2) the investment of tax revenues.
Article XIIIB provides that if a governmental entity’s revenues in any year exceed the amounts permitted to be spent, the excess must be returned by revising tax rates or fee schedules over the subsequent two years.
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Article XIIIB does not limit the appropriation of moneys to pay debt service on indebtedness existing or authorized as of January 1, 1979, or for bonded indebtedness approved thereafter by a vote of the electors of the issuing entity at an election held for that purpose. Furthermore, in 1990, Article XIIIB was amended to exclude from the appropriations limit “all qualified capital outlay projects, as defined by the Legislature” from proceeds of taxes. The Legislature has defined “qualified capital outlay project” to mean a fixed asset (including land and construction) with a useful life of 10 or more years and a value which equals or exceeds $100,000. As a result of this amendment, the appropriations to pay the lease payments on the City’s long-term General Fund lease obligations (including the Base Rental Payments) are generally excluded from the City’s appropriations limit.
Articles XIIIC and XIIID of the State Constitution
On November 5, 1996, the voters of the State approved Proposition 218, known as the “Right to Vote on Taxes Act.” Proposition 218 adds Articles XIIIC and XIIID to the California Constitution and contains a number of interrelated provisions affecting the ability of the City to levy and collect both existing and future taxes, assessments, fees and charges.
Article XIIIC requires that all new local taxes be submitted to the electorate before they become effective. Taxes for general governmental purposes of the City require a majority vote and taxes for specific purposes, even if deposited in the City’s General Fund, require a two-thirds vote. Further, any general purpose tax which the City imposed, extended or increased without voter approval after December 31, 1994 may continue to be imposed only if approved by a majority vote in an election held within two years after November 5, 1996. The voter approval requirements of Article XIIIC reduce the flexibility of the City to raise revenues for the General Fund, and no assurance can be given that the City will be able to impose, extend or increase such taxes in the future to meet increased expenditure needs.
Article XIIID also adds several provisions making it generally more difficult for local agencies to levy and maintain fees, charges, and assessments for municipal services and programs. These provisions include, among other things, (i) a prohibition against assessments which exceed the reasonable cost of the proportional special benefit conferred on a parcel, (ii) a requirement that assessments must confer a “special benefit,” as defined in Article XIIID, over and above any general benefits conferred, (iii) a majority protest procedure for assessments which involves the mailing of notice and a ballot to the record owner of each affected parcel, a public hearing and the tabulation of ballots weighted according to the proportional financial obligation of the affected party, and (iv) a prohibition against fees and charges which are used for general governmental services, including police, fire or library services, where the service is available to the public at large in substantially the same manner as it is to property owners.
Article XIIID conditions the imposition or increase of any “fee” or “charge” upon there being no written majority protest after a required public hearing and, for fees and charges other than for sewer, water or refuse collection services, voter approval. Article XIIID defines “fee” or “charge” to mean levies (other than ad valorem or special taxes or assessments) imposed by a local government upon a parcel or upon a person as an incident of the ownership or tenancy of real property, including a user fee or charge for a “property-related service.” One of the requirements of Article XIIID is that before a property related fee or charge may be imposed or increased, a public hearing upon the proposed fee or charge must be held and mailed notice sent to the record owner of each identified parcel of land upon which the fee or charge is proposed for imposition. In the public hearing, if written protests of the proposed fee or charge are presented by a majority of the owners of affected identified parcel(s), an agency may not impose the fee or charge.
Article XIIIC also removes limitations on the initiative power in matters of reducing or repealing local taxes, assessments, fees or charges. 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
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charges currently comprising a substantial part of the City’s General Fund. If such repeal or reduction occurs, the City’s operations could be adversely affected.
The City believes its fees, charges, assessments and taxes are in compliance with Articles XIIIC and XIIID.
Proposition 22
In November 2010, the voters of the State adopted Proposition 22 (“Proposition 22”), which 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. It further prevents the State from temporarily shifting property taxes from cities, counties and special districts to schools and community college districts through the Education Revenue Augmentation Fund, a shift that resulted in diversion of City property taxes periodically since Fiscal Year 1992-93 until the passage of Proposition 22.
Proposition 26
On November 2, 2010, the voters of the State approved Proposition 26 (“Proposition 26”), which revises certain provisions of Articles XIIIA and XIIIC of the California Constitution. Proposition 26 recategorizes many State and local fees as taxes, requires local governments to obtain two–thirds voter approval for taxes levied by local governments, and requires the State to obtain the approval of two–thirds of both houses of the State Legislature to approve State laws that increase taxes. Furthermore, pursuant to Proposition 26, any increase in a fee beyond the amount needed to provide the specific service or benefit is deemed to be a tax and the approval thereof will require a two-thirds vote. In addition, for State-imposed charges, any tax or fee adopted after January 1, 2010, with a majority vote which would have required a two-thirds vote 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 XIIIC 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, including late payment fees, fees imposed under administrative citation ordinances, parking violations, etc.; (6) a charge imposed as a condition of property development; or (7) assessments and property related fees imposed in accordance with the provisions of Article XIIID. Fees, charges and payments that are made pursuant to a voluntary contract that are not “imposed by a local government” are not considered taxes and are not covered by Proposition 26.
Proposition 26 applies to any levy, charge or exaction imposed, increased, or extended by local government on or after November 3, 2010. 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.
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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 50% voter requirement.
Proposed local government fees that are not subject to Proposition 26 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 property owners.
Proposition 62
A statutory initiative (“Proposition 62”) was adopted by the voters of the State at the November 4, 1986 General Election which (1) requires that any tax for general governmental purposes imposed by local governmental entities be approved by resolution or ordinance adopted by two-thirds vote of the governmental agency’s legislative body and by a majority of the electorate of the governmental entity, (2) requires that any special tax (defined as taxes levied for other than general governmental purposes) imposed by a local governmental entity be approved by a two-thirds vote of the voters within that jurisdiction, (3) restricts the use of revenues from a special tax to the purposes or for the service for which the special tax was imposed, (4) prohibits the imposition of ad valorem taxes on real property by local governmental entities except as permitted by Article XIIIA, (5) prohibits the imposition of transaction taxes and sales taxes on the sale of real property by local governmental entities and (6) requires that any tax imposed by a local governmental entity on or after March 1, 1985 be ratified by a majority vote of the electorate within two years of the adoption of the initiative or be terminated by November 15, 1988.
Following its adoption by the voters, various provisions of Proposition 62 were declared unconstitutional at the appellate court level. On September 28, 1995, however, the California Supreme Court, in Santa Clara City Local Transportation Authority v. Guardino, upheld the constitutionality of the portion of Proposition 62 requiring a two-thirds vote in order for a local government or district to impose a special tax, and, by implication, upheld a parallel provision requiring a majority vote in order for a local governmental or district to impose any general tax. The Santa Clara decision did not address the question of whether or not it should be applied retroactively.
In response to the Santa Clara decision, the California Legislature adopted Assembly Bill 1362, which provided that the Santa Clara decision should apply only prospectively to any tax that was imposed or increased by an ordinance or resolution adopted after December 14, 1995. Assembly Bill 1362 was vetoed by the Governor, hence the application of the Santa Clara decision on a retroactive basis remains unclear.
Proposition 62, as an initiative statute, does not have the same level of authority as a constitutional initiative, but is analogous to legislation adopted by the State Legislature, except that it may be amended only by a vote of the State’s electorate. However, Proposition 218, as a constitutional amendment and supersedes many of the provisions of Proposition 62.
The City does not believe that it imposes any tax or fee which is subject to the provisions of Proposition 62.
Unitary Property
AB 454 (Chapter 921, Statutes of 1987) provides that revenues derived from most utility property assessed by the State Board of Equalization (“Unitary Property”), commencing with the fiscal year ended June 30, 1989, will be based on a uniform rate within each county and allocated as follows: (a) each jurisdiction will receive up to 102% of its prior year State assessed revenue; and (b) if county wide revenues
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generated from Unitary Property are less than the previous year’s revenues or greater than 102% of the previous year’s revenues, each jurisdiction will share the burden of the shortfall or excess revenues by a specified formula. This provision applies to all Unitary Property except railroads, whose valuation will continue to be allocated to individual tax rate areas.
The provisions of AB 454 do not constitute an elimination of the assessment of any State assessed properties nor a revision of the methods of assessing utilities by the State Board of Equalization. Generally, AB 454 allows valuation growth or decline of Unitary Property to be shared by all jurisdictions in a county.
Future Initiatives
Articles XIIIA, XIIIB, XIIIC and XIIID and Propositions 22, 26, and 62 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, further affecting the City’s revenues or the City’s ability to expend revenues.
THE AUTHORITY
The San Luis Obispo Public Financing Authority was established pursuant to a Joint Exercise of Powers Agreement dated September 8, 2014, by and between the City and the Parking Authority in accordance with provisions of the California Joint Exercise of Powers Act. The Authority was created for the purpose of providing financing for public capital improvements of the City and the Parking Authority.
The Authority has no independent staff and consequently will be dependent upon the City’s officers and employees to administer the Bonds on its behalf. The Governing Board of the Authority is comprised of the members of the City Council of the City.
THE CITY
The City is a charter city, incorporated on February 19, 1856 and chartered on May 1, 1876 under the laws of the State of California. The City is located on the central coast of California, about 200 miles northwest of Los Angeles and 235 miles southeast of San Francisco. The City is the county seat of the County, and had a population estimated at 47,788 as of January 1, 2023. The City is the largest city in the County.
The City operates under a council-mayor-city manager form of government. City Council members are elected at large for staggered four-year terms; the Mayor serves a two-year term. The City Manager, the City Attorney, and all advisory boards, committees and commissions are appointed by the City Council.
The City Manager serves as the administrative head of the City, and is responsible for the day-to-day operations of the City staff, implementing the policies of the City Council. Current City Council members are:
Member Term Expires
Erica A. Stewart (Mayor) 12/2024
Jan Marx (Vice Mayor) 12/2024
Emily Francis 12/2026
Andy Pease 12/2024
Michelle Shoresman 12/2026
The City is a “full-service” city, providing public safety, public utilities, transportation, leisure, cultural, social and community development services to its residents.
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For additional demographic information regarding the City and the County, see Appendix B hereto.
CITY FINANCIAL INFORMATION
Budgetary Process
The City of San Luis Obispo uses a two-year Financial Plan and budgetary process that emphasizes long-range planning and effective program management. The City’s two-year Financial Plan includes the integration of Council goal-setting into the budgetary process and the use of formal policies and measurable objectives. The Financial Plan includes operating budgets for two years and a Capital Improvement Plan (the “CIP”) covering five years.
Under this multi-year approach, appropriations continue to be made annually; however, the Financial Plan is the foundation for preparing the budget for the second year. Additionally, unexpended operating appropriations from the first year may be carried over for specific purposes into the second year with the approval of the City Manager.
Management Policies. The overall goal of the City’s Financial Plan is to establish and maintain effective management of the City’s financial resources. Key budget policies include: continuing basic services at current levels and adequately funding them; maintaining fund balances at levels which will protect the City from future uncertainties; estimating revenues at realistic levels; matching all current expenditures with current revenues; finding solutions to the City’s financial challenges which maintain and promote a quality community; maintaining the City’s traditional commitment to a strong General Fund; and complying with provisions of the State Constitution, City Charter, municipal code and sound fiscal policy. Key revenue policies include: maintaining a diversified and stable revenue base; setting enterprise fund rates at levels that fully recover the total cost of providing services; charging fees for General Fund programs in accordance with adopted user fee cost recovery goals; and ensuring that new development pays its fair share of the cost of constructing necessary community facilities.
Financial Plan Policies. The Financial Plan includes formal policies that cover areas such as fund balance and reserves, investments (see “—City Investment Policy and Portfolio” herein), capital improvement management, debt management, capital financing, human resource management, and productivity. These policies, summarized below, are incorporated in full in the City’s Financial Plan.
Fund Balance and Reserves. The City’s policy on fund balance and reserves requires the City to maintain a minimum fund balance of at least 20% of operating expenditures in the General Fund in order to adequately provide for economic uncertainties, contingencies for unseen needs and cash flow requirements. The City’s fund balance as a percent of General Fund operating expenditures was 23.27% and 23.5% as of June 30, 2021 and June 30, 2022 respectively. The budgeted percentage of fund balance for the current year is 23.0% as of June 30, 2023.
Revenue Stabilization Reserve – General Fund. In addition to the requirement to maintain a minimum fund balance of 20% of operating expenditures in the General Fund, with adoption of the 2023-25 Financial Plan, the City Council established a Revenue Stabilization Reserve which can be used to counteract any adverse revenue forecast during a period of economic uncertainty related to the City’s largest tax revenue sources. For 2023-25, the reserve has been set at $2 million.
CalPERS and Unfunded Liabilities. With adoption of the 2023-25 Financial Plan, the City Council established a policy outlining the City’s long-term commitment to payment of its unfunded pension liability, additional discretionary payments (ADPs), and the needed prioritization to hold the shortened timeline. This policy provides guidance relative to the prioritized use of unassigned
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General Fund balance as follows: 1. Additional discretionary payments to CalPERS, 2.
Infrastructure investments, and 3. Emerging Health and Safety needs of the community. The policy further notes the City’s commitment to ADPs to CalPERS and adding an annual inflator equal to increases in payroll whenever CalPERS reaches its discount rate or larger rates of return based on what is presented in the latest five-year forecast; and indicates that whenever CalPERS does not reach its adopted discount rate, the City commits to first use any unassigned fund balance to counteract the investment loss CalPERS experienced.
Capital Improvement Management. The City’s policy on capital improvement management requires the City to prepare a CIP that balances existing facility maintenance with new projects that expand the City’s fixed assets. The CIP Review Committee, headed by the Assistant City Manager, provides governance of the CIP by evaluating and prioritizing capital projects based upon an established set of criteria to ensure alignment with Major City Goals, the General Plan, strategic growth objectives and needs for services provided within the City. The committee is responsible for assessing the City’s fiscal and staff capacity to deliver projects; recommending to the City Manager the projects and associated budgets that should be included in the biennial financial plan; considering requests for new projects that may be requested outside of financial plan development to address emergent needs; and evaluating the re-prioritization of projects as needs and conditions change in order to ensure consistency with project evaluation criteria, ability to deliver projects, and City priorities. The City’s Planning Commission also reviews the draft CIP for consistency with the City’s General Plan and provides its findings to the City Council before the CIP is adopted. With each two-year Financial Plan, the City prepares fiveyear CIP program recommendations for Council and Approval. The budget set forth in the 2023- 25 Financial Plan includes a two-year CIP investment of $183 million, and a planned CIP investment of $465 million over the five-year plan to maintain or replace existing assets and build new assets to address the needs of the community.
Debt Management. The City’s policy on debt management requires the City to prepare an internal feasibility analysis for each long-term financing to review the impact on current and future budgets for debt service and operations, as well as the reliability of revenues to support debt service.
Under this policy, the City is required to monitor its compliance with bond covenants and federal arbitrage regulations, will seek an investment grade rating on any direct debt and will seek credit enhancement where necessary for marketing purposes and cost-effectiveness.
Capital Financing. The City’s policy on capital financing requires the City to consider debt financing only for one-time capital improvement projects and only when the project’s useful life will exceed the term of the financing and project revenues or specific resources will be sufficient to service the long-term debt. This policy provides further guidelines to evaluate the appropriateness of using pay-as-you-go financing versus long-term financing to fund capital improvements.
Human Resource Management. The City’s policy on human resource management requires the City to fully appropriate the resources needed for authorized regular staffing and provides guidelines for the limited use of supplemental staff. The policy also provides criteria for the use of independent contractors and overtime management.
Productivity. The City’s policy on productivity provides a process to review operations with the goal of delivering services in the most cost-effective manner possible. Productivity issues reviewed in the process include evaluating new technology and capital investments, developing skills and abilities of City employees and evaluating the ability of the private sector to perform the same level of service at a lower cost.
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Budget Process. The City Manager is responsible for preparing the budget and submitting it to the Council for approval. Although specific steps will vary from year to year, the following is an overview of the general approach used under the City’s two-year budgetary process:
First Year. The Financial Plan process begins with a Council goal-setting session to determine major objectives to be accomplished over the next two years. These are incorporated into the budget instructions issued to the operating departments, who are responsible for submitting initial budget proposals. After these proposals are reviewed and a financial forecast is prepared, the City Manager issues the Preliminary Financial Plan for public comment. A series of study sessions and public hearings are then held leading to Council adoption of the budget by June 30.
Second Year. Before the beginning of the second year of the two-year cycle, the Council reviews the progress during the first year, makes adjustments as necessary, and approves appropriations for the second Fiscal Year. Unspent operating appropriations from the first year may be carried over for specific purposes into the second year with the approval of the City Manager.
Unspent operating program appropriations lapse at the end of the second year. Fiscal Year 2021- 22, was the first year of the two-year cycle.
Mid-Year Reviews. The Council formally reviews the City’s financial condition and amends appropriations, if necessary, each February.
Status Reports. On-line access to “up-to-date” financial information is provided to City staff. Comprehensive financial reports are prepared monthly to monitor the City’s fiscal condition.
Additionally, more focused reports are issued monthly on transient occupancy tax and quarterly reports are prepared on the performance of investments and the portfolio’s overall compliance with the City’s investment policy. The status of major program objectives and goals, including CIP projects, is formally reported to the Council on an ongoing basis.
Accounting. Budgets are prepared for each fund in accordance with its respective basis of accounting. All governmental funds have legally adopted budgets, including capital project funds.
While budgets are prepared for the City’s capital project funds, the CIP projects generally span more than one year and are effectively controlled at the project level; accordingly, budgetary comparisons are not presented in the accompanying basic financial statements for capital projects.
Administration. As provided under the City Charter, the City Council may amend or supplement the budget at any time after its adoption by majority vote of the Council. The City Manager has the authority to make or approve administrative adjustments to the budget as long as those changes will not have a significant policy impact nor affect the budgeted year-end fund balances. The level for which expenditures are not to exceed appropriations is at the fund level.
Comparison of General Fund Budgets; Forecast. The table below sets forth a comparison of the City’s General Fund budgets for the current and prior fiscal years as well as a forecast through 2027-28.
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TABLE 1
CITY OF SAN LUIS OBISPO
GENERAL FUND FIVE-YEAR FORECAST
FOR FISCAL YEARS 2021-22 THROUGH 2027-28
2023-25 Financial Plan
General Fund Five‐Year Forecast
(In Thousands)
(A)
Actual
2021-22
(B)
Budget
2022-23(1)
(C)
Budget
2023‐24
(D)
Forecast
2024‐25
(E)
Projected
2025-26
(F)
Projected
2026-27
(G)
Projected
2027-28
Tax & Franchise Revenue
Sales & Use Tax 51,665 52,163 53,340 54,573 55,988 57,465 59,127 Sales Tax General 22,247 21,524 22,579 23,166 23,768 24,410 25,118 Public Safety (Prop 172) 529 497 499 509 519 530 540
Measure G20 28,889 30,142 30,262 30,898 31,701 32,525 33,468 Property Tax 20,711 21,473 22,000 22,652 23,332 24,032 24,752 Transient Occupancy Tax 10,651 10,704 10,704 10,918 11,136 11,359 11,586 Utility Users Tax 5,420 5,544 5,710 5,882 6,058 6,240 6,365 Franchise Fees 1,978 1,800 1,854 1,910 1,967 2,026 2,067 Business Tax Certificates 2,823 3,158 3,252 3,317 3,417 3,519 3,590 Cannabis Tax 999 1,100 1,100 1,450 1,650 1,700 1,733
Total Tax & Franchise Revenue $ 94,247 $ 95,942 $ 97,960 $ 100,702 $ 103,549 $ 106,340 $ 109,220 Fees for Service & Other Revenue
Police Services 555 688 612 612 624 637 649
Fire Services 1,502 1,458 1,578 1,578 1,609 1,642 1,674 Development Review 6,117 6,335 6,276 6,585 6,783 6,986 7,126 Parks & Recreation 1,718 1,969 2,022 2,069 2,110 2,152 2,174 Business Licenses 498 446 459 468 477 487 497
Cannabis Licenses 127 210 208 233 237 242 247
Other Revenues 466 711 2,188 2,269 2,376 2,473 2,574
Subventions & Grants 2,068 777 665 682 440 441 442
Storm Reimbursement ‐ ESTIMATE(2) 4,208 4,208
Total Fees & Other Revenue $ 13,052 $ 12,593 $ 18,214 $ 18,703 $ 14,657 $ 15,059 $ 15,383 Total Revenue $ 107,299 $ 108,535 $ 116,174 $ 119,405 $ 118,206 $ 121,400 $ 124,604 Use of Funds
Staffing 67,639 65,401 67,427 70,620 71,968 73,672 75,279 Contract Services 7,836 9,575 9,380 9,249 8,822 8,998 9,178 Other Operating Expenditures 9,555 9,976 9,858 9,943 9,537 9,728 9,922 Cost Allocation (4,717) (4,462) (5,419) (5,582) (5,694) (5,808) (5,924) Encumbrances from prior year 2,542
Storm Expenditures ‐ ESTIMATE(2) 4,500 4,500
Total Operating Expenditure $ 80,313 $ 87,533 $ 85,746 $ 84,229 $ 84,633 $ 86,591 $ 88,456 Debt Service 1,997 1,992 1,854 1,769 1,761 1,550 1,549
Capital 30,575 22,484 29,728 27,269 27,868 28,488 29,123 Transfers Out/(In)(3) 923 296 1,490 1,487 1,896 2,263 2,678 Total Expenditure $ 113,808 $ 112,305 $ 118,817 $ 114,754 $ 116,157 $ 118,890 $ 121,806 CalPERS Additional Discretionary Payment
(using prior year fund balance) 2,000 2,000 2,000 2,000 2,000 2,000 2,000 Beginning Fund Balance (After
CalPERS ADP) $ 45,118 $ 36,609 $ 30,840 $ 26,196 $ 28,847 $ 28,896 $ 29,406 Revenue Over/(Under) Expenses $ (6,509) $ (3,770) $ (2,643) $ 4,651 $ 2,049 $ 2,509 $ 2,797 Ending Fund Balance $ 38,609 $ 32,840 $ 28,196 $ 30,847 $ 30,896 $ 31,406 $ 32,203 General Fund Reserve (see line 45) 12,014 13,727 11,596 14,526 14,651 15,077 15,516 Revenue Stabilization Reserve 2,000 2,000 2,000 2,000 2,000 2,000 2,000 115 Pension Trust Fund 2,000 2,000 2,000 2,000 2,000 2,000 2,000 Restricted based on Audit 19,232 13,468 12,600 12,200 12,200 12,200 12,200 Undesignated Fund Balance $ 3,364 $ 1,644 $ 0 $ 121 $ 45 $ 129 $ 487 _________________
Source: City of San Luis Obispo 2023-25 Financial Plan. (1) FY 2022-23 budget includes approved carryover and budget amendments made throughout the year. (2) The 2022-23 Adopted Budget did not include expenses paid from the operating reserve in response to storm events in January and March of 2023. Unplanned storm response expenditures will be paid for out of the General Fund reserve. See “RISK FACTORS– Natural Disasters” herein.
(3)
Includes transfers to the City’s Debt Service Fund for debt service payments as more particularly described in Appendix A— “AUDITED FINANCIAL STATEMENTS FOR FISCAL YEAR ENDED JUNE 30, 2022.
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Financial Statements
Accounting Policies. The accounting policies of the City conform to generally accepted accounting principles. The Governmental Accounting Standards Board (“GASB”) published its Statement No. 34 “Basic Financial Statements – and Management’s Discussion and Analysis – for State and Local Governments” on June 30, 1999. Statement No. 34 provides guidelines to auditors, state and local governments and special purpose governments such as school districts and public utilities, on new requirements for financial reporting for all governmental agencies in the United States.
Generally, the basic financial statements and required supplementary information should include (i) Management’s Discussion and Analysis; (ii) financial statements prepared using the economic measurement focus and the accrual basis of accounting and (ii) fund financial statements prepared using the current financial resources measurement focus and the modified accrual method of accounting and (iii) required supplementary information.
Accounts of the City are organized on the basis of funds each of which is considered a separate accounting entity. The operation of each fund is accounted for with a separate set of self-balancing accounts.
The various funds are grouped into broad categories, as follows: Governmental Funds (General, Local Revenue Measure Sub-Fund, Special Revenue, Capital Projects and Debt Service), Proprietary Funds (Enterprise Funds, including the Water, Sewer, Parking, and Transit funds) and Fiduciary Funds (Custodial).
Basis of Accounting. All Governmental Funds and Fiduciary Funds use the modified accrual basis of accounting. The Proprietary Funds use the accrual basis of accounting.
Audited Financial Statements. The City’s most recent audited financial statements for the Fiscal Year ending June 30, 2022, are attached as Appendix A to this Official Statement, which were prepared by the City and audited by Badawi & Associates, Certified Public Accountants, Berkeley, California (the “Auditor”).
The financial statements should be read in their entirety. The City has not requested nor did the City obtain permission from the Auditor to include the audited financial statements as an appendix to this Official Statement. Accordingly, the Auditor has not performed any post-audit review of the financial condition or operations of the City or the General Fund. In addition, the Auditor has not reviewed this Official Statement.
General Fund Balance Sheet
Set forth on the following page are the City’s General Fund balance sheets for the Fiscal Years 2019-20 through 2021-22.
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TABLE 2
CITY OF SAN LUIS OBISPO
GENERAL FUND BALANCE SHEET
AS OF JUNE 30 FOR FISCAL YEARS 2019-20 THROUGH 2022-23
Assets:
2019-20
Audited
2020-21
Audited
2021-22
Audited
2022-23
Estimated
Cash and investments $ 33,437,815 $ 39,956,449 $ 34,540,875 $ 33,570,000 Receivables:
Taxes 5,936,633 12,110,685 11,473,880 11,500,000
Accounts 1,042,550 1,410,544 1,004,373 685,000
Accrued interest 122,010 87,395 210,686 200,000
Other 87,333 76,791 63,568 75,000
Due from other funds 148,712 45,813 -- --
Prepaid items -- 41,155 90,797 101,500
Loans receivable -- -- 240,637 240,600
Leases receivable -- -- 1,251,050 1,121,000
Total Assets $ 40,775,053 $ 53,728,832 $ 48,875,866 $ 47,493,100 Liabilities, Deferred Inflows of
Resources and Fund Balances:
Liabilities
Accounts payable $ 2,964,457 $ 1,665,320 $ 2,325,910 $ 2,000,000 Accrued liabilities 2,909,403 2,702,968 1,593,058 1,600,000 Due to other funds 49,694 -- -- --
Other liabilities 91,803 220,688 212,617 200,000
Unearned revenue 1,108,400 2,021,785 2,471,916 1,800,000 Total Liabilities $ 7,123,757 $ 6,610,761 $ 6,603,501 $ 5,600,000 Deferred Inflows of Resources
Lease related -- -- $ 1,225,534 $ 1,121,000
Unavailable revenue -- -- 301,325 --
Total deferred inflows of
resources -- -- $ 1,526,859 $ 1,121,000
Fund Equity and other Credits
Fund balances:
Nonspendable $ -- $ 41,155 $ 90,797 $ --
Committed to general
governmental programs 10,384,119 9,299,971 5,696,864 8,000,000 Committed to risk management 1,498,078 1,955,966 1,845,935 500,000 Committed to contingency fund 10,251,000 11,830,380 12,014,000 13,700,000 Assigned to subsequent years
expenditures 4,395,492 18,678,807 12,741,186 10,000,000 Unassigned 7,122,607 5,311,792 8,356,724 8,572,100
Total Fund Balances $ 33,651,296 $ 47,118,071 $ 40,745,506 $ 40,772,100 _______________
Source: City of San Luis Obispo Audited Financial Statements.
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General Fund Revenues, Expenditures and Changes in Fund Balances The General Fund is the general operating fund of the City and is used to account for all financial resources except those required to be accounted for in another fund.
In Fiscal Year 2022-23, the major General Fund revenues are estimated as follows:
Taxes and Franchise Fees 87%
Charges for Services 9%
Subventions and Grants 1%
In Fiscal Year 2022-23, the major General Fund expenditures are estimated as follows:
Public Safety 42%
General Government 22%
Community Development 16%
Leisure, Cultural and Social Services 11%
Set forth below is a statement of revenues, expenditures and changes in fund balances for the City’s General Fund for the last three fiscal years.
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TABLE 3
CITY OF SAN LUIS OBISPO
STATEMENT OF GENERAL FUND REVENUES, EXPENDITURES AND
CHANGES IN FUND BALANCES
FISCAL YEAR ENDED JUNE 30
2019-20
Audited
2020-21
Audited
2021-22
Audited
2022-23
Estimated
Revenues
Taxes and franchise fees(1) $ 59,366,052 $ 70,470,941 $ 93,919,985 $ 98,200,000 Fines, forfeitures and penalties 239,048 223,882 173,915 100,000 Use of money and property(2) 1,161,703 (12,521) (1,455,527) 1,300,000 Subventions and grants(3) 1,460,410 3,626,087 2,596,930 1,400,000 Charges for services 11,319,551 11,742,215 10,682,921 10,400,000 Other revenues 1,231,038 697,104 481,313 1,300,000
Total revenues $ 74,777,802 $ 86,747,708 $ 106,399,537 $ 112,700,000 Expenditures
General Government $ 14,503,410 $ 13,041,242 $ 17,190,472 $ 19,300,000 Public Safety 30,174,346 31,643,320 39,656,509 37,100,000 Transportation 3,440,849 3,866,286 4,818,976 6,800,000
Leisure, Cultural and Social Services 8,416,687 9,091,647 10,156,139 9,800,000 Community Development 8,821,689 9,854,482 12,726,420 13,900,000 Capital Outlay – Direct LRM(4) 4,711,633 4,727,261 1,996,731 640,000 Total expenditures $ 70,068,614 $ 72,224,238 $ 86,545,247 $ 87,540,000 Excess of revenues over (under)
expenditures $ 4,709,188 $ 14,523,470 $ 19,854,290 $ 25,160,000 Other financing sources (uses):
Transfers in $ 3,347,367 $ 7,128,857 $ 3,942,248 $ 4,587,325 Transfers out(4) (6,108,418) (8,332,098) (30,416,749) (27,954,000) Total other financing sources
(uses) $ (2,761,051) $ (1,203,241) $ (26,474,501) $ (23,366,675) Net Change in Fund Balance $ 1,948,137 $ 13,320,229 $ (6,620,211) $ 1,793,325 Fund balance - July 1, as restated $ 31,703,159 $ 33,797,840 $ 47,365,717 $ 40,745,506 Fund balance - June 30 $ 33,651,296 $ 47,118,071 $ 40,745,506 $ 42,538,831 _______________
(1) For a breakdown of each component of taxes and franchise fees, see the following table. (2) This includes adjustments for the Fair Market Value of City investments, which were negative adjustments in FY 2020-21 and 2021-22.
(3) The increases in FY 2020-21 and FY 2021-22 reflect receipt of Coronavirus Aid, Relief, and Economic Security Act (CARES) funding, as well as mutual aid reimbursements to offset overtime expenditures in the Fire Department, resulting from mutual aid provided to other agencies in support of multiple fires throughout the state. (4)
Capital Outlay expenditures represent direct project expenditures from the Local Revenue Measure sub-fund. Beginning in FY 2021-22, the entire Capital Budget was transferred out of the General Fund and into the Capital Outlay Funds and this included in the “Transfers Out” line. There are some historical project balances remaining in the Local Revenue Measure subfund, explaining expenditures in FY 2021-22 through FY 2023-24. (5)
Includes transfers to the City’s Debt Service Fund for debt service payments as more particularly described in Appendix A— “AUDITED FINANCIAL STATEMENTS FOR FISCAL YEAR ENDED JUNE 30, 2022.” Source: City of San Luis Obispo Audited Financial Statements.
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Recent Developments
Storm Response. Storm events in January and March 2023 caused widespread flooding and other storm-related damage. The City activated its Emergency Operations Center (“EOC”) and Department Operations Center (“DOC”) for both storm events, to coordinate response to the storms and protect public health and safety. The City expended approximately $4 million on initial storm response efforts including debris removal from the public right-of-way and waterways; emergency protective measures including repair to roads degraded by the storms, traffic control to restrict access to certain areas of the city, costs to support EOC and DOC operations; and staff time. The City is still assessing the costs associated with the recent storm events, but it is estimated that the costs could be significant. To fund storm response efforts, the City has forecasted use of $9 million from its operating reserve over the course of FY 2022-23 and FY 2023-24, and has programmed an additional $2.75 million into its Capital Improvement Plan for FY 2023- 24 to make permanent repairs to damaged areas. The City is contracting with E&Y (formerly Ernst & Young) to provide disaster recovery technical assistance in order to maximize reimbursement for storm related costs from FEMA and the California Office of Emergency Services and is working closely with both agencies to review damages and develop projects for consideration of reimbursement. With the effects of climate change, it is likely that these storm events will increase in severity and frequency. The City has implemented an emergency services plan to respond to and mitigate the effects of storms and flooding. See “RISK FACTORS – Natural Disasters” herein.
Dam Repairs. The Nacimiento Dam and Reservoir (“Nacimiento”), located in the northern part of San Luis Obispo County (the “County”), was evaluated by the State Division of Safety of Dams, which classified Nacimiento as having an extremely high downstream hazard and mandated certain emergency repairs to be made to Nacimiento. The Monterey County Flood Control and Water Conservation District, the owner and operator of Nacimiento, has completed required repairs at no cost to the City of San Luis Obispo. Completed repairs permit the full operation of Nacimiento and water storage and delivery to the City. As part of the 1959 Nacimiento agreement, the County of San Luis Obispo holds a financial responsibility to share in costs associated with the costs to operate and maintain the San Antonio dam and spillway, despite not receiving water from this reservoir. The San Antonio dam and spillway were recently analyzed, and major repairs are necessary at this facility. As a recipient of Nacimiento water, the City may have a responsibility to share in the costs to repair the San Antonio Spillway. It is currently estimated that the City’s portion of the repair costs will be $6 million-$7 million.
Dams at Whale Rock Reservoir (“Whale Rock”) and the Salinas Reservoir (“Salinas”) have undergone inspection to evaluate dam safety. Whale Rock Reservoir requires minor repairs to the underdrains of the spillway, with repairs estimated to cost approximately $350,000. The City is responsible for 55.05% of this cost and all other operating and capital costs at Whale Rock, with the State of California being responsible for the remaining 44.95%. Project construction is anticipated to be complete in October of 2023, prior to the beginning of the rainy season. Salinas Dam, which is currently owned by the United States Army Corps of Engineers, had a semi-quantitative risk assessment performed in 2019. This assessment resulted in a provisional Dam Safety Action Classification rating of Level IV (Low Urgency) and requires no immediate repairs under federal standards. If the dam was required to be transferred to a local entity, which is preferred by the Army Corps of Engineers, it would fall under the jurisdiction of the California Division of Safety of Dams and would require a retrofit to meet State seismic safety standards.
If transferred to local ownership, it is envisioned that repair funding to bring the dam into compliance with California state standards would be provided by the State or Federal entities.
Covid-19 Response. Despite being economically affected by the COVID-19 pandemic, the City ended FY 2019-20, FY 2020-21 and FY 2021-22 in a solid financial position, with most major revenue sources performing well or above initial downward adjusted assumptions.
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In FY 2020-21, the City invested $4,748,515 into COVID-19 relief efforts. These efforts were funded through a combination of local sales tax revenue, CARES Act funding and General Fund balance.
Despite the unbudgeted costs related to COVID-19, the City ended FY 2020-21 with operating savings due to its strict adherence to cost saving measures identified in the FHCP. With adoption of the 2021-23 Financial Plan, the City Council established a Major City Goal of ‘Economic Recovery, Resiliency and Fiscal Sustainability’ which specifically called out efforts to support economic recovery from the pandemic.
Fitch Ratings’ analysts have previously commended the City’s ability to respond to the economic impacts of the COVID-19 pandemic, “budget management at times of recovery is very strong, leaving the city well prepared to manage the current period of economic stress. The city engages in thorough and conservative long-term financial planning with a focus on maintaining structural budget balance, maintaining the city’s capital assets with minimal debt reliance, and proactive efforts to pay down its unfunded retirement liabilities above actuarially determined levels.”
Throughout the COVID-19 pandemic, the federal government enacted certain relief acts, stimulus bills and funding measures to assist local governments impacted by COVID-19. To date, the City has received $17,218,963 in funding passed through various agencies, including US Treasury and the State.
This amount does not include transit ARPA funding that has been allocated to the City but not drawn down.
Taxes and Other Revenues
Taxes and other sources of revenue received by the City are listed in the table below. Certain general taxes currently imposed by the City are affected by Proposition 218. See “CERTAIN LIMITATIONS ON TAXES AND APPROPRIATIONS—Article XIIIC And Article XIIID of the State Constitution” herein.
The following table presents the tax revenues and franchise revenues of the City’s General Fund for the last three fiscal years.
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TABLE 4
CITY OF SAN LUIS OBISPO
GENERAL FUND TAX AND FRANCHISE REVENUES BY SOURCE
2019-20 2020-21 2021-22
2022-23
Estimate
2022-23
% of Total
Sales and use tax-general $ 16,571,064 $ 19,642,604 $ 21,718,004 $ 22,000,000 22.4 Sales and use tax-Local Revenue Measure(1) 7,554,375 12,779,713 29,172,258 30,700,000 31.2 Sales tax- Prop 172 416,459 425,136 529,299 500,000 0.5 Property tax 12,913,661 13,727,986 14,166,259 15,200,000 15.4 Transient occupancy tax (“TOT”) 6,325,841 6,960,035 10,650,762(2) 10,700,000 10.9 Utility users tax 5,439,144 5,225,979 5,338,325 6,100,000 6.2 Property tax in lieu of VLF 5,290,215 5,660,661 5,994,592 6,300,000 6.4 Franchise fees 1,888,414 1,796,829 1,978,295 2,100,000 2.2 Business tax 2,995,263 3,782,115 2,823,163 3,200,000 3.3 Cannabis tax(3) 998,875 1,000,000 1.0
Real property transfer tax 388,075 469,883 550,153 400,000 0.4 Total Tax and Franchise Revenues $ 59,782,511 $ 70,470,941 $ 93,919,985 $ 98,200,000 100.0% _______________
Source: City of San Luis Obispo.
Numbers may not add due to rounding.
(1) The increase in Local Revenue Measure receipts in FY 2020-21 and FY 2021-22 is due to implementation of a new voter approved sales tax measure (Measure G-20, approved in November 2020) in April 2021. Measure G-20 increased the local sales tax from 0.5 percent to 1.5 percent. The increased tax rate will be in place until ended by voters. (2) The increase in TOT revenue in FY 2021-22 surpasses a recovery from earlier declines in TOT revenue caused by the Covid19 pandemic. See “CITY FINANCIAL INFORMATION—Transient Occupancy Tax” herein. (3) Prior to 2021-22, Cannabis tax was recorded in Sales and Use Tax – General.
Sales and Use Taxes
Sales and use taxes represent the largest source of tax revenue to the City. This section describes the current system for levying, collecting and distributing sales and use tax revenues in the State. See “CERTAIN LIMITATIONS ON TAXES AND APPROPRIATIONS” herein for a description of certain limitations on the collection of taxes.
State Sales and Use Tax Law. The City collects 1.0% of taxable sales in the City (minus certain administrative costs imposed by the CDTFA, as defined below) pursuant to the Bradley-Burns Uniform Local Sales and Use Tax (the “Sales and Use Tax Law”).
Local Revenue Measure. In November 2020, the qualified voters of the City passed Measure G-20 with 58.23% voter approval. Effective April 1, 2021, this 1 1/2 percent sales tax increased the local sales tax by 1 percent and replaced the 2014 local sales tax measure. Measure G-20 will be in place until ended by voters and there is no specific designation for these tax revenues.
Sales Tax Rates. Currently, taxable transactions in the City are subject to the following sales and use tax, of which the City’s share is only a portion. The State collects and administers the tax, and makes distributions on taxes collected within the City, as follows.
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TABLE 5
CITY OF SAN LUIS OBISPO
SALES TAX RATES
AS OF JULY 1, 2023
State (General Fund) 3.6875%
State (Fiscal Recovery Fund) 0.25
State (Local Revenue Fund) 1.5625
State (Local Public Safety Fund) 0.50
Local (City and County Operations) 1.00
Local (County transportation funds) 0.25
Local (Local Revenue Measure) 1.50
Total Sales Tax Rate 8.75%
_______________
Source: California Department of Tax and Fee Administration Application of Sales Tax. Sales and use taxes are complementary taxes; when one applies, the other does not. In general, the statewide sales tax applies to gross receipts of retailers from the sale of tangible personal property in the State. The use tax is imposed on the purchase, for storage, use or other consumption in the State of tangible personal property from any retailer. The use tax generally applies to purchases of personal property from a retailer outside the State where the use will occur within the State. The Sales Tax is imposed upon the same transactions and items as the statewide sales tax and the statewide use tax. Certain transactions are exempt from the State sales tax, as identified by the California Department of Tax and Fee Administration (“CDTFA” formerly the State Board of Equalization).
Sales Tax Collection Procedures. Collection of the sales and use tax is administered by the CDTFA.
According to the CDTFA, it distributes quarterly tax revenues to cities, counties and special districts using the following method:
Using the prior year’s like quarterly tax allocation as a starting point, the CDTFA first eliminates nonrecurring transactions such as fund transfers, audit payments and refunds, and then adjusts for growth, in order to establish the estimated base amount. The CDTFA disburses 90% to each local jurisdiction in three monthly installments (advances) prior to the final computation of the quarter’s actual receipts. Ten percent is withheld as a reserve against unexpected occurrences that can affect tax collections (such as earthquakes, fire or other natural disaster) or distributions of revenue such as unusually large refunds or negative fund transfers. The first and second advances each represent 30% of the 90% distribution, while the third advance represents 40%. One advance payment is made each month, and the quarterly reconciliation payment (clean-up) is distributed in conjunction with the first advance for the subsequent quarter. Statements showing total collections, administrative costs, prior advances and the current advance are provided with each quarterly clean-up payment.
Under the Sales and Use Tax Law, all sales and use taxes collected by the CDTFA under a contract with any city, city and county, redevelopment agency, or county are required to be transmitted by the CDTFA to such city, city and county, redevelopment agency, or county periodically as promptly as feasible.
These transmittals are required to be made at least twice in each calendar quarter.
Under its procedures, the CDTFA projects receipts of the sales and use tax on a quarterly basis and remits an advance of the receipts of the sales and use tax to the City on a monthly basis. The amount of each monthly advance is based upon the CDTFA’s quarterly projection. During the last month of each quarter, the CDTFA adjusts the amount remitted to reflect the actual receipts of the sales and use tax for the previous quarter.
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The CDTFA receives an administrative fee based on the cost of services provided by the CDTFA to the City in administering the City’s sales tax, which is deducted from revenue generated by the sales and use tax before it is distributed to the City.
History of Taxable Transactions. The following table presents a summary of historic taxable sales reported within the City for calendar year 2017 through calendar year 2022 and the first quarter of 2023.
TABLE 6
CITY OF SAN LUIS OBISPO
TAXABLE RETAIL SALES
(DOLLARS IN THOUSANDS)
2017 2018 2019 2020 2021 2022 2023 (Q1)
Motor Vehicle and Parts
Dealers $ 301,326 $ 300,576 $ 296,732 $ 304,610 $ 383,092 $ 362,228 $ 77,698 Home Furnishings and
Appliance Stores 72,375 74,243 66,208 59,781 74,116 71,736 15,555 Building Material and
Garden Equipment and
Supplies Dealers 125,990 129,582 127,607 137,471 145,463 149,993 35,226 Food and Beverage
Stores 63,843 64,364 65,855 69,447 70,965 72,044 17,679 Gasoline Stations 83,481 94,570 95,193 66,485 98,307 121,521 22,768 Clothing and Clothing
Accessories Stores 90,141 91,876 82,217 58,493 82,305 78,665 15,713 General Merchandise
Stores 185,391 182,784 184,645 176,221 207,707 235,959 51,043 Food Services and
Drinking Places 191,831 190,571 194,381 137,876 202,468 228,881 53,890 Other Retail Group 149,428 149,593 149,006 148,906 179,825 196,627 44,242 Total retail stores $ 1,263,806 $ 1,278,160 $ 1,261,845 $ 1,159,290 $ 1,444,247 $ 1,517,654 $ 333,813 All other outlets 232,639 235,809 267,630 213,575 362,059 341,915 81,606 Total $ 1,496,445 $ 1,513,969 $ 1,529,475 $ 1,372,865 $ 1,806,306 $ 1,859,569 $ 415,418 _______________
Source: California Department of Tax and Fee Administration The closure of retail businesses and the fitness, entertainment, and dining industry in response to the COVID-19 pandemic impacted taxable sales within the city in calendar year 2020. However, quick action by congress and substantial aid packages ranging from additional unemployment benefits, one-time payments to households, protection from rent and utility payments lead to an accumulation of wealth that resulted in continued purchasing power and consumption. The City invested heavily in supporting its business community by implementing parklets for outdoor dining, grants to small businesses, and various promotions to support local commerce. This resulted in taxable sales tracking slightly higher than projected at the end of the third quarter of FY 2020-21 and positioned the City well once vaccination rates increased and restrictions were lifted as seen with a significant increase in taxable sales in 2021.
Property Taxes
General. Property taxes represent the second largest source of tax revenue to the City. This section describes property tax levy and collection procedures and certain information regarding historical assessed values and major property tax payers in the City. See “CERTAIN LIMITATIONS ON TAXES AND APPROPRIATIONS” herein.
Property taxes have historically been the primary revenue source affected by voter initiatives and legislative actions. With approval of Proposition 13 in 1978, property tax revenues were curtailed when
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they were reduced by two-thirds and thereafter limited to 2% annual increases or the CPI, whichever was less.
Levy and Collection. Property taxes are levied for each fiscal year on taxable real and personal property as of the preceding January 1. For assessment and collection purposes, property is classified either as “secured” or “unsecured” and is listed accordingly on separate parts of the assessment roll. The “secured roll” is that part of the assessment roll containing State-assessed public utilities property and real property the taxes on which are a lien sufficient, in the opinion of the County Assessor, to secure payment of the taxes. Other property is assessed on the “unsecured roll.” Property taxes on the secured roll are due in two installments, on November 1 and February 1 of each fiscal year, and become delinquent on December 10 and April 10, respectively. A penalty of 10% attaches immediately to all delinquent payments. Property on the secured roll with respect to which taxes are delinquent become tax defaulted on or about June 30 of the fiscal year. Such property may thereafter be redeemed by payment of a penalty of 1% per month to the time of redemption, plus costs and a redemption fee. If taxes are unpaid for a period of five years or more, the property is deeded to the State and may be sold at public auction.
Property taxes on the unsecured roll are due as of the January 1 lien dates and become delinquent on August 31. A 10% penalty attaches to delinquent unsecured taxes. If unsecured taxes are unpaid at 5:00 p.m. on October 31, an additional penalty of 1% attaches to them on the first day of each month until paid. The County has four ways of collecting delinquent unsecured personal property taxes: (1) a civil action against the taxpayer; (2) filing a judgment 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 Recorder’s office in order to obtain a lien on certain property of the taxpayer; and (4) seizure and sale of personal property, improvements or possessory interests belonging or assessed to the assessee.
Beginning in 1978-79, Proposition 13 and its implementing legislation shifted the function of property tax allocation to the counties, except for levies to support prior voted debt, and prescribed how levies on county-wide property values are to be shared with local taxing entities within each county.
Teeter Plan. San Luis Obispo County has implemented the Alternative Method of Distribution of Tax Levies and Collections and of Tax Sale Proceeds (the “Teeter Plan”), pursuant to Sections 4701 through 4717 of the State Revenue and Taxation Code, which applies to taxes levied for the City. Under the Teeter Plan, the County guarantees that the City will receive 100% of the taxes levied for it. Any delinquencies are borne by the County, which in return collects and retains all penalties and interest which accrue on the delinquent taxes. Consequently, the City’s tax receipts do not reflect any delinquencies.
The Teeter Plan, once adopted by a county, remains in effect unless the County Board of Supervisors orders its discontinuance or unless, prior to the commencement of any fiscal year, the board of supervisors receives a petition for its discontinuance from two-thirds of the participating revenue districts in the county. A board of supervisors may, after holding a public hearing on the matter, discontinue the procedures under the Teeter Plan with respect to any tax levying agency in the county when delinquencies for taxes levied by that agency exceed 3%.
Assessed Valuation. All property is assessed using full cash value as defined by Article XIIIA of the State Constitution. State law provides exemptions from ad valorem property taxation for certain classes of property such as churches, colleges, non-profit hospitals, and charitable institutions. See “CERTAIN LIMITATIONS ON TAXES AND APPROPRIATIONS” herein.
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Future assessed valuation growth allowed under Article XIIIA (new construction, certain changes of ownership, 2% inflation) will be allocated on the basis of “situs” among the jurisdictions that serve the tax rate area within which the growth occurs. Local agencies and schools will share the growth of “base” revenues from the tax rate area. Each year’s growth allocation becomes part of each agency’s allocation in the following year.
Assessed Valuation History. The summary below presents a 10-year history of the assessed value of property within the City.
TABLE 7
CITY OF SAN LUIS OBISPO
ASSESSED VALUATION
FISCAL YEARS 2012-13 THROUGH 2022-23
Fiscal
Year
Secured Roll
Gross Value
Nonunitary
Utilities Unsecured Roll TOTAL
2012-13 $ 5,964,248,670 $ 5,382,272 $ 279,327,968 $ 6,248,958,910 2013-14 6,153,784,758 5,300,173 295,750,397 6,454,835,328 2014-15 6,512,370,260 5,032,204 297,325,321 6,814,727,785 2015-16 6,965,233,454 4,883,115 305,427,553 7,275,544,122 2016-17 7,393,890,993 5,269,573 303,122,262 7,702,282,828 2017-18 7,844,131,236 4,369,188 331,183,030 8,179,683,454 2018-19 8,688,541,007 4,231,993 359,588,899 9,052,361,899 2019-20 9,156,811,458 3,990,145 360,372,662 9,521,174,265 2020-21 9,872,892,242 4,194,503 371,969,399 10,249,056,144 2021-22 10,449,275,830 4,154,621 369,153,263 10,822,583,714 2022-23 11,352,719,604 3,840,493 414,262,072 11,770,822,169 _______________
Source: HdL, Coren & Cone 2022/23 Roll Summary table
Major Property Taxpayers. The following table shows the top 10 local secured property taxpayers for the current fiscal year.
TABLE 8
CITY OF SAN LUIS OBISPO
TOP TEN LOCAL SECURED TAXPAYERS
FISCAL YEAR 2022-23
Property Owner
Industry or
Type
Number
of Parcels
Secured
Assessed Valuation
% of
Total
1. Jamestown Premier San Luis Obispo Retail Commercial 10 $ 116,755,505 1.06%
2. CAP VIII - Mustang Village LLC Residential 5 100,005,897 0.91%
3. Sierra Vista Hospital Inc. Institutional 8 83,107,362 0.76%
4. San Luis Obispo Promenade DE LLC Commercial 10 56,100,000 0.51%
5. Charles Pasquini Jr Trust Et Al Commercial 4 53,422,118 0.49%
6. Irish Hills Plaza East LLC Commercial 6 53,213,898 0.48%
7. Vintage at San Luis Obispo Alderwood Residential 2 51,000,000 0.46%
8. Hotel San Luis Obispo LLC Commercial 1 37,529,832 0.34%
9. Costco Wholesale Corporation Commercial 1 38,444,903 0.35%
10. Laurel Creek Industrial 4 35,195,481 0.32%
51 $ 624,774,996 5.69%
_______________
Source: California Municipal Statistics, Inc.
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Transient Occupancy Tax
Transient occupancy tax (“TOT”) receipts are estimated at $10,700,000 in Fiscal Year 2022-23 (9.5% of 2022-23 estimated General Fund revenues). The City’s transient occupancy tax is imposed on overnight visitors who occupy a room or rooms in a hotel, inn, motel, bed & breakfast, or other lodging facility within the City’s limits for stays of less than 30 consecutive days.
The amount of the tax is 10% of the total rental amount and was increased from 9% to 10% on October 1, 1993. This increase was not approved by majority vote of the electorate, but is not governed by Proposition 62 because the City is a charter city. See “CERTAIN LIMITATIONS ON TAXES AND APPROPRIATIONS—Proposition 62” herein. The tax does not have a sunset provision.
COVID-19 travel restrictions and the curtailment of classes at California Polytechnic University impacted the city’s hospitality industry and decreased transient occupancy tax receipts for the City. TOT revenue in FY 2019-20 decreased by $1.7 million compared to FY 2018-19 (the most significantly impacted revenue source in that year). Though TOT increased slightly in FY 2020-21, it remained 14% under FY 2018-19 levels. In FY 2021-22, tourism along the central coast made a strong comeback, as the region reopened and benefited from being a drive-to destination. Monthly TOT receipts reached all-time highs in FY 2021-22 ($1.6 million over projections for the year), driven largely by high room rates.
Other Taxes and Revenues
Utility Users Tax. The City levies a utility users tax which is estimated at $6,100,000 in Fiscal Year 2022-23 (5.4% of estimated General fund revenues). Adopted by the voters in 2012, the City levies a 5% tax on all residences and businesses using telephone, electricity, natural gas and water utilities, and a 4.8% rate for video and telecommunications. Although the tax is collected for the City by the utility companies, it is a tax on the user, not the utility. The utility users tax does not have a sunset provision.
Vehicle License Fee. The State imposes the vehicle license fee, which is the fee paid annually in lieu of personal property taxes on a vehicle, and distributed to cities and counties. The vehicle license fee is based on vehicle value (originally in the amount of 2% of the market value of the vehicle) and declines as the vehicle ages. Since 1998 the fee has been incrementally reduced from 2% of a vehicle’s current estimated value, but any such reductions were “backfilled” to local governments by the State from other sources. However, under the 2004-05 State Budget, the VLF was permanently reduced to 0.65% of the estimated value, and backfill by the State to local governments was eliminated, and instead will be met by an increased property tax apportionment to cities and counties. This amounts to approximately $6 million annually as a revenue neutral swap for the City.
TABLE 9
CITY OF SAN LUIS OBISPO
STATE OF CALIFORNIA MOTOR VEHICLE IN-LIEU PAYMENTS
FISCAL YEARS 2017-18 THROUGH 2022-23
Source 2017-18 2018-19 2019-20 2020-21 2021-22 2022-23
Motor Vehicle In-Lieu $4,637,253 $4,961,080 $5,290,215 $5,660,661 $5,994,592 $6,283,397 _______________
Source: City of San Luis Obispo.
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Parking Rates (Specific to Parking Enterprise)
The City has budgeted revenues of its Parking Fund for payment of debt service on the portion of the Bonds purposed toward the construction of the Cultural Arts District Parking Structure. The Parking Fund is not pledged for the payment of the Bonds.
The City’s Parking Fund implements the Access and Parking Management Plan and directs the operations and maintenance of the City’s parking facilities. Parking Fund revenues include rates and fees charge for parking services, property lease income, and one-time incomes such as Parking In-Lieu fee payments. According to City Fiscal Policies, rates must be sufficient to cover operations, capital asset improvements and maintenance, debt obligations, and to maintain appropriate reserve levels to keep the fund healthy and prepared for unforeseen and long-term funding needs. Parking Fund revenues for FY 2021-22 are $5,164,226 and are projected to reach $10,203,324 for FY 2023-24. The City Council has approved two parking rate increases to hourly paid parking effective July 1, 2023 and July 1, 2025 as shown in the table below. Based on the City’s forecast for Fiscal Year 2024-25 and projections for later fiscal years, the City expects that the City’s Parking Fund revenues will be sufficient to offset the City’s obligation to make lease payments relating to the Bonds from the General Fund.
Parking Hourly Rate Changes
Parking Spots
Subject to
Rate
Current
Parking Rate
Increase
Effective
July 1, 2023
Increase
Effective
July 1, 2025
Hourly Rate – Parking Meters
Tier 1 (Super Core) 389 $2.00 $4.00 $5.00
Tier 2 (Core) 147 $2.00 $4.00 $5.00
Tier 3 (Outlaying Areas) 585 $1.50 $3.00 $3.00
Hourly Rate – Parking Structures
Hourly 1,127 $1.50 $3.00 $3.00
_______________
Source: City of San Luis Obispo.
PROJECTED PARKING REVENUES
FISCAL YEARS 2021-22 THROUGH 2027-28
2021-22 2022-23 2023-24 2024-25 2025-26 2026-27 2027-28 Parking Meters $2,210,191 $2,268,500 $4,876,000 $4,876,000 $5,688,700 $5,688,700 $5,688,700 Parking Structures $999,138 $1,328,450 $3,242,100 $3,388,400 $3,655,700 $3,655,700 $3,667,300 Outstanding General Fund Debt and Other Obligations
For additional information regarding the City’s outstanding General Fund debt and lease obligations, see Appendix A hereto.
Lease-Purchase Financing. In 2018 the City obtained lease-purchase financing in the amount of $673,095 to purchase a fire truck. The lease agreement bears an interest rate of 3.178% due in quarterly installments of $36,533, through September 5, 2023.
In 2020, the City obtained lease-purchase financing in the amount of $636,240 to purchase Motorola radios and equipment for public safety. The lease agreement bears an interest rate of 2.66% due in annual installments of $217,671 beginning June 1, 2021 through June 1, 2023.
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Energy Sources Conservation State Loan. In 2014, the City obtained a note in the amount of $850,775 for purchase of streetlights. The note bears an interest rate of 1% due in semi-annual installments on December 22 and June 22 through December 22, 2023 in the amount of $92,242.
Long-Term Obligations. The City is currently obligated to make lease payments supporting debt service on the following outstanding lease revenue bonds. The table below does not include the Bonds currently being issued, which are payable in whole or in part from lease payments secured by General Fund revenue sources.
Bonds Purpose
Date of
Issuance
Original
Principal
Amount
Outstanding
Principal
Amount (as of
06/30/2023)
Final
Maturity
Capital Improvement Board 2012
Refunding Lease Revenue Bonds(1)
Refunding June 7, 2012 $5,050,000 $2,415,000 Dec. 1, 2029 San Luis Obispo Public Financing
Authority Lease Revenue Bonds (Los
Osos Valley Road Interchange Project),
Series 2014
Los Osos Valley
Rd Interchange
October 23,
2014
$7,580,000 $6,275,000 Nov. 1, 2044
San Luis Obispo Public Financing
Authority Lease Revenue Refunding
Bonds, Series 2018
Refunding May 8, 2018 $16,905,000 $12,350,000(1) June 1, 2039 _______________
Source: City of San Luis Obispo.
(1) Expected to be refunded with the proceeds of the Bonds. (2) This amount represents the total outstanding principal amount for the 2018 Series Bonds. The City’s Water, Sewer, Parking, Transit and General Fund are budgeted towards these payments and after such budgeted offset, the General Fund’s share of this outstanding amount is $8,089,250.
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TABLE 10
GENERAL FUND DEBT
Fiscal Year Series 2012(1) Series 2014 Series 2018 Series 2023* Total Debt
Service*
Less: Parking
Fund Offset*
Total Net
Debt Service*
2024 $ 69,067 $ 420,531 $ 1,439,656 $ 1,508,810 $ 3,438,064 $ 1,947,905 $ 1,490,159 2025 369,000 422,731 1,438,256 2,735,813 4,965,800 3,174,481 1,791,319 2026 364,750 419,631 1,436,006 2,732,313 4,952,700 3,170,295 1,782,405 2027 369,750 421,231 1,101,506 2,732,188 4,624,675 3,068,147 1,556,528 2028 373,750 423,556 1,096,256 2,735,188 4,628,750 3,069,546 1,559,204 2029 371,875 421,731 1,099,506 2,736,188 4,629,300 3,071,537 1,557,763 2030 374,125 424,681 1,100,756 2,735,188 4,634,750 3,070,919 1,563,831 2031 422,253 1,100,006 2,732,188 4,254,447 3,067,690 1,186,757 2032 423,963 1,102,256 2,736,938 4,263,157 3,073,126 1,190,031 2033 419,950 1,097,256 2,734,313 4,251,519 3,068,976 1,182,543 2034 420,675 1,091,706 2,734,313 4,246,694 3,067,283 1,179,411 2035 421,050 1,090,344 2,736,688 4,248,082 3,069,243 1,178,839 2036 420,713 1,096,763 2,736,313 4,253,789 3,070,826 1,182,963 2037 419,650 281,831 2,733,188 3,434,669 2,819,147 615,522 2038 418,213 278,225 2,732,188 3,428,626 2,817,047 611,579 2039 420,900 279,450 2,733,063 3,433,413 2,818,295 615,118 2040 417,700 2,735,563 3,153,263 2,735,563
2041 419,000 2,734,563 3,153,563 2,734,563
2042 419,700 2,734,938 3,154,638 2,734,938
2043 419,800 2,736,438 3,156,238 2,736,438
2044 419,300 2,733,938 3,153,238 2,733,938
2045 418,200 2,732,313 3,150,513 2,732,313
2046 2,736,188 2,736,188 2,736,188
2047 2,735,313 2,735,313 2,735,313
2048 2,734,563 2,734,563 2,734,563
2049 2,733,688 2,733,688 2,733,688
2050 2,732,619 2,732,619 2,732,619
2051 2,732,022 2,732,022 2,732,022
2052 2,732,403 2,732,403 2,732,403
2053 2,733,556 2,733,556 2,733,556
2054 2,735,275 2,735,275 2,735,275
_______________
Source: City of San Luis Obispo.
* Preliminary, subject to change.
(1) Expected to be refunded with the proceeds of the Bonds.
Direct and Overlapping Bonded Debt
Set forth below is a direct and overlapping debt report (the “Debt Report”) prepared by California Municipal Statistics, Inc., effective August 19, 2022 for debt issued as of June 30, 2022. The Debt Report is included for general information purposes only. The City has not reviewed the Debt Report for completeness or accuracy and makes no 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.
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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 percentage of the assessed valuation of the overlapping public agency identified in column 1 which is represented by property located within the City; and (3) the third 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 11
CITY OF SAN LUIS OBISPO
STATEMENT OF DIRECT AND OVERLAPPING BONDED DEBT
2021-22 Assessed Valuation: $10,485,899,151
Overlapping Tax and Assessment Debt
Total Debt
6/30/22
%
Applicable(1)
City’s Share of
Debt 6/30/22
San Luis Obispo Community College District $ 163,735,000 16.652% $ 27,265,152 San Luis Coastal Unified School District 148,855,000 51.836 77,160,478 City of San Luis Obispo Community Facilities
District No. 2019-1 19,660,000 100.000 19,660,000
Total Overlapping Tax and Assessment Debt $ 124,085,630 Direct and Overlapping General Fund Debt
San Luis Obispo County General Fund Obligations $ 22,396,208 16.720% $ 3,744,646 San Luis Obispo County Pension Obligation Bonds 29,843,112 16.720 4,989,768 City of San Luis Obispo Lease Revenue Bonds 24,251,532 100.000 24,251,532(2) Total Gross Direct and General Fund
Overlapping Debt $ 32,985,946
Less: City of San Luis Obispo obligations
supported by enterprise revenues (4,560,900)
Total Net Direct And Overlapping General
Fund Debt $ 28,425,046
Total Gross Direct Debt $ 24,251,532
Total Net Direct Debt $ 19,690,632
Total Overlapping Debt $ 132,820,044
Gross Combined Total Debt $ 157,071,576(3)
Net Combined Total Debt $ 152,510,676
_______________
(1) The percentage of overlapping debt applicable to the city is estimated using taxable assessed property value. Applicable percentages were estimated by determining the portion of the overlapping district’s assessed value that is within the boundaries of the city divided by the district’s total taxable assessed value. (2) Includes share of San Luis Obispo County Financing Authority lease revenue bonds ($1,871,532). (3) Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue and non-bonded capital lease obligations.
Ratios to 2021-22 Assessed Valuation:
Overlapping Tax and Assessment Debt................................................... 1.18% Total Gross Direct Debt ($24,251,532)................................................. 0.23% Total Net Direct Debt ($19,690,632)..................................................... 0.19% Gross Combined Total Debt.................................................................... 1.50% Net Combined Total Debt ....................................................................... 1.45% _______________
Source: California Municipal Statistics, Inc.
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Employee Relations
The City has 462.75 authorized full-time equivalent staff positions for Fiscal Year 2022-23. City employees are represented by four labor organizations, the principal of which is the San Luis Obispo City Employees’ Association, which represents approximately 44% of all City employees in a variety of classifications.
There have been no work stoppages by City employees. Approximately 75% of all regular City employees are covered under negotiated agreements, summarized and with the expiration dates set forth below:
Bargaining Units Number of Employees Agreement Expiration Date San Luis Obispo City Employees’ Association 204.25 June 30, 2025 Police Officers’ Association 67 June 30, 2024
Police Staff Officers’ Association 17 June 30, 2027
Firefighters(1) 56.5 December 31, 2023
_______________
(1) Both the city and Fire negotiating teams are currently in active discussions and making preparations to begin official negotiations in early September 2023.
Management and Confidential employees of the City are not represented and make up the remaining 25% of the regular City employees. The resolutions covering Management and Confidential employees expires June 30, 2025.
Insurance
A summary of insurance coverage for the City, effective as of June 30, 2022, is provided below.
General Liability and Workers’ Compensation. The City is a member of the California Joint Powers Insurance Authority (“CJPIA”), which provides joint protection programs and group purchased insurance for public entities covering liability, errors and omission losses, auto liability, employment practices liability, crime, pollution, workers’ compensation injuries and coverage for city-owned property. The City has a retained limit of $500,000 per occurrence for liability and a retained limit of $500,000 per occurrence for workers’ compensation.
Liabilities of the City are reported to CJPIA when it is probable that a loss has occurred and the amount of the loss can be reasonably estimated. Liabilities include an amount for claims that have been incurred but not reported. The result of the actuarial process to estimate the claims liability is not an exact amount as it depends on many complex factors, such as inflation, changes in legal doctrines and damage awards. Accordingly, claims are reevaluated periodically to consider the effects of economic and social factors. The estimate of the claims liability (reserve amount set on each claim) also includes amounts for incremental claim adjustment expenses related to specific claims and other claim adjustment expenses regardless of whether or not they are attributable to specific claims. Estimated recoveries, for example from salvage or subrogation, are another component of the claims liability estimate.
During the past three fiscal years, none of the protection programs experienced settlements or judgments that exceeded pooled or insured coverage. There were also no significant reductions in pooled or insured coverage in 2021-22.
CJPIA covers workers’ compensation claims up to a pooled limit of $2 million per occurrence and provides excess coverage to statutory limits with a group purchased commercial insurance policy. The City pays an annual contribution to CJPIA and may share in any member refunds in the event that pooled funding
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exceeds the cost of pooled claims and claim-related expenses, or the City may be required to pay additional contributions based upon CJPIA’s operating results. Financial statements of CJPIA may be obtained from its administrative office located at 8081 Moody Street, La Palma, California 90623, or by calling (562) 467- 8700.
Additional claims and lawsuits have been filed against the City in the normal course of business. It is reasonably possible that the City may be liable for claims not to exceed $500,000. In the opinion of management, the resolution of these matters will not have a material adverse effect on the financial condition of the City. See Appendix A—“AUDITED FINANCIAL STATEMENTS FOR FISCAL YEAR ENDED JUNE 30, 2022 – Note 13: Risk Management” hereto.
Employee Retirement System
Retirement Plan.
General. The City contributes to the California Public Employees’ Retirement System (“CalPERS”) under an agent-multiple employer public employee retirement plan (for miscellaneous members, the “Miscellaneous Plan”) and cost-sharing employer public employee retirement plans (for safety members, the “Safety Plans”) that acts as a common investment and administrative agent for participating entities within the State of California. Benefit provision and all other requirements are established by State statute and City ordinance. Copies of CalPERS’ annual financial report are available from their Executive Office, 400 P Street, Sacramento, California 95814. CalPERS is a separate and distinct legal entity from the City and serves as an independent fiduciary in managing the City’s retirement plan assets.
Eligibility. All full-time and part-time benefited City employees are eligible to participate in the retirement program. Benefits vest after five years of service. In addition to basic retirement benefits, the retirement program also provides death and survivor’s benefits. These benefit provisions and all other requirements are established by State statute and City ordinance.
About CalPERS. Along with over 3,000 other cities and local agencies, the City contracts with CalPERS for its “defined benefit” retirement plan, which covers all of its regular employees (except in rare circumstances, temporary employees are not covered by the CalPERS plan). Due to changes made by the City and through legislation, there are several CalPERS retirement benefit programs. The City enacted a 2nd Tier benefit plan program which provides a lower level of benefits than the original plan. This plan is available to eligible new employees who are hired after August 30, 2012 (for sworn fire personnel plan members) and after December 6, 2012 for miscellaneous and sworn police safety plan members. A 3rd Tier program was created following the enactment of the Public Employee Pension Reform Act (AB 340) in January 2013. Under this program, employees who are considered new to the CalPERS retirement program are enrolled as required by the new law. The 3rd Tier program provides the lowest level of benefit of the three plans that are now in effect. The following chart summarizes these benefits which reflect the benefit earned each year, as a percentage of the employees qualifying salary and the normal retirement age for the program:
1st Tier 2nd Tier 3rd Tier
Miscellaneous 2.7% @ 55 2% @ 60 2% @ 62
Fire Sworn 3% @ 50 3% @ 55 2.7% @ 57
Police Sworn 3% @ 50 2% @ 50 2.7% @ 57
Contribution Rates. All employees contribute the full amount of the required member contribution.
For safety employees, the required contribution is either 8%, 9% or 13.75% of annual covered salary
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depending on the plan they participate in. For safety employees, the required contribution is either 9% or
13.75% of annual covered salary depending on the plan they participate in. For miscellaneous plan members the required contribution is either 7% or 8% of annual covered salary depending upon which plan they participate in. The City’s required contribution to CalPERS is shown below for Fiscal Years 2020-21 and 2021-22. As of the Fiscal Year 2017-18 contribution, CalPERS no longer determines the employer contribution toward the Unfunded Liability as a percentage of payroll, but as a flat dollar contribution. The employer contribution toward the Normal Cost is still provided as a percentage of payroll:
Fiscal Year 2020-21
Employer
Normal Cost
Unfunded
Liability
Payment
Miscellaneous Plan* 10.623% $ 6,020,512
Safety Plan Tier 1 25.54 5,330,744
Police Safety Tier 2 19.825 13,198
Fire Safety Tier 2 22.397 26,207
Police Safety Tier 3 13.884 26,528
Fire Safety Tier 3 13.884 2,481
*CalPERS provides a blended rate for all 3 tiers.
Fiscal Year 2021-22
Employer
Normal Cost
Unfunded
Liability
Payment
Miscellaneous Plan* 9.95% $ 6,819,439
Safety Plan Tier 1 25.59 6,029,105
Police Safety Tier 2 19.88 16,086
Fire Safety Tier 2 22.47 33,223
Police Safety Tier 3 13.98 31,825
Fire Safety Tier 3 13.98 3,197
*CalPERS provides a blended rate for all 3 tiers.
Fiscal Year 2022-23
Employer
Normal Cost
Unfunded
Liability
Payment
Miscellaneous Plan* 9.65% $ 7,337,577
Safety Plan Tier 1 25.64 6,697,068
Police Safety Tier 2 19.87 16,915
Fire Safety Tier 2 22.48 35,296
Police Safety Tier 3 13.66 33,517
Fire Safety Tier 3 13.66 1,300
*CalPERS provides a blended rate for all 3 tiers.
Annual Pension Cost and Required Contribution. For the Fiscal Year ended June 30, 2022, the City’s annual pension cost for the employer’s contribution to CalPERS was $7,709,918 for miscellaneous employees and $7,167,638, for safety employees.
The required employer contribution was determined as part of the actuarial valuation dated June 30, 2019 using the entry age normal actuarial cost method. PERS reports that the lag time is necessary due to the amount of time needed for them to extract and test the membership and financial data, and due to the need to provide public agencies with their employer contribution rates well in advance of the start of the fiscal year.
The actuarial assumptions included: (i) 7.15% investment rate of return (net of investment and administrative expenses); (ii) projected salary increases that vary by duration of service ranging from 3.1% to 20% for both miscellaneous and safety members; (iii) an inflation factor of 2.5% compounded annually,
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and (iv) 2.5% annual cost-of-living adjustments for miscellaneous and safety members. The unfunded liability is amortized as a “level percent of pay.” Commencing with the June 30, 2013 valuation, all new gains or losses are amortized over a fixed 30-year period with a 5-year ramp up at the beginning and a 5-year ramp down at the end of the amortization period.
In 2017, CalPERS made significant policy changes to address unfunded liabilities systemwide.
These policy changes significantly increased required pension contributions for member agencies. As a result, the City had to reduce ongoing expenditures by $8.9 million (across all funds) in order to address and increase its pension contributions in line with new CalPERS requirements. To provide a framework to respond to the long-term fiscal impacts of the significant increases in required pension contributions to the CalPERS retirement system, the City Council adopted a Fiscal Health Response Plan (FHRP), containing three key components, which began implementation with adoption of the FY 2018-19 Financial Plan Supplement and continued through FY 2020-21. The three components of the FHRP included:
identification of new revenues, identification of operating reductions and new ways of doing business, and employee concessions.
Over the three years of the FHRP, the City negotiated in good faith with its represented and unrepresented bargaining groups to achieve approximately $1.9M of ongoing employee concessions. The employee concessions aimed at a recipe of increasing the employee contribution to CalPERS (“retirement cost-sharing”) by three (3%) percent of pay and offsetting that employee burden by providing a 4% costof-living adjustment over a two-year period and continuing the annual City health insurance cost-sharing contribution. Ultimately, the City was able to successfully negotiate retirement cost-sharing with all groups except the San Luis Obispo City Employees Association.
In addressing unfunded pension liability as it related to employee concessions, the Council adopted policies such as the Fiscal Sustainability Policy, Compensation Philosophy, and Labor Relations Objectives to provide guidance and address and implement the concept of “shared responsibility.” This concept acknowledges the responsibility of the City, and its employees, to share the burden of pension and health costs, including addressing unfunded liabilities, while recognizing that increasing the employee share of this cost may impact the City’s ability to attract and retain well-qualified employees that ultimately deliver programs and services to the community. With that in mind, employee concessions were proposed as a significant component of the FHRP. To date, implementation of the concessions has resulted in employees from all bargaining groups, except members of the San Luis Obispo City Employees’ Association, paying an additional three (3%) percent of retirement cost sharing ongoing.
Implementation of the components noted above have contributed to the City’s ability to address increased CalPERS contributions and make a total of $16.6 million in additional discretionary payments in order to paydown its pension liability. The City’s commitment to paying down its pension debt by making additional discretionary payments (ADPs) has helped to make progress on improving the plan’s overall funded status. Unfortunately, the CalPERS 2022 investment loss of 7.5% has adversely impacted the City’s funded status (as well as that of other PERS agencies throughout California).
The ADPs that the City has made have helped to make progress in paying down the unfunded pension liabilities. As of 2021, the funded status of the City’s pension had reached 70.1%, a significant improvement compared to 64.4% in 2015. Absent the ADPs, the funded status in 2021 would have been
68.5%. Unfortunately, the CalPERS -7.5% investment return in FY 2021-22 significantly impacted the City’s funded status (as well as that of other PERS agencies). The City’s current unfunded liability (UFL) is approximately $180 million. This UFL is addressed through ongoing regular payments to CalPERS and paydown is expedited by the City’s ability to make ADPs. Actuarial Analysis Feedback provided by the City’s independent Actuary is that the City is taking appropriate action to make progress in paying down
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the unfunded pension liabilities, but that market conditions impacting CalPERS investments hinder progress.
Three-Year Trend Information. The following table provides three-year trend information on the City’s annual pension cost and the funded status of the Tier 1 plans.
TABLE 12
CITY OF SAN LUIS OBISPO
Three-Year Trend Information for CALPERS
Actuarial
Valuation Date
Accrued
Liability (AL)
Market Value
of Assets
(MVA)(1)
Unfunded
Accrued
Liabilities
(UAL)
Funded
Ratio
(MVA/AL)
Annual
Covered
Payroll
Safety Plan Tier 1
6/30/19 $ 205,097,380 $ 127,661,453 $ 77,435,927 62.2% 7,147,567 6/30/20 210,170,278 128,700,330 81,469,948 61.2 6,639,579 6/30/21 220,803,796 153,350,001 67,453,795 69.5 6,075,621 Police Safety Tier 2
6/30/19 773,047 674,344 98,703 87.2 591,136
6/30/20 1,009,449 871,774 137,675 86.4 718,135
6/30/21 1,402,421 1,413,979 (11,558) 100.8 765,882
Fire Safety Tier 2
6/30/19 1,812,170 1,699,660 112,510 93.8 1,236,389
6/30/20 2,425,936 2,231,886 194,050 92.0 1,433,450
6/30/21 3,242,867 3,416,497 (173,630) 105.4 1,395,894
Police Safety Tier 3
6/30/19 1,339,239 1,210,679 128,560 90.4 1,884,193
6/30/20 2,007,628 1,807,181 200,447 90.0 2,273,360
6/30/21 2,856,793 2,977,745 (120,952) 104.2 2,203,505
Fire Safety Tier 3
6/30/19 62,298 57,953 4,345 93.0 393,854
6/30/20 190,169 180,065 10,104 94.7 495,399
6/30/21 373,349 407,669 (34,320) 109.2 485,767
Miscellaneous Plan
6/30/19 234,600,386 144,624,229 89,976,157 61.6 21,212,049 6/30/20 240,866,177 147,848,333 93,017,844 61.4 23,168,222 6/30/21 255,715,513 177,819,133 77,896,380 69.5 23,905,476 _______________
Source: CalPERS actuarial valuation reports as of June 30, 2021 for the respective plans. The June 30, 2022 valuation reports are expected to be made available by CalPERS in August or September 2023.
Net Pension Liability. The City recognizes a net pension liability for the Miscellaneous Plan, measured as the total pension liability, less the pension plan’s fiduciary net position. The net pension liability was measured as of June 30, 2021, using an actuarial valuation as of June 30, 2020 rolled forward to June 30, 2021 using standard update procedures. The changes in net pension liability for the Miscellaneous Plan is provided below:
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TABLE 13
CITY OF SAN LUIS OBISPO
Changes in Net Pension Liability – Miscellaneous Plan Fiscal Year 2020-21 & 2021-22 Total Pension
Liability
Plan Fiduciary
Net Position
Net Pension
Liability/(Asset)
Balance at June 30, 2020 $ 237,568,349 $ 148,289,275 $ 89,279,074 Changes during the year:
Service Cost 3,939,785 3,939,785
Interest on total pension liability 16,589,680 16,589,680 Differences between expected and actual
experience (755,414) (755,414)
Contribution – employer 8,246,755 (8,246,755)
Contribution – employee 2,056,274 (2,056,274)
Net investment income 32,904,570 (32,904,570)
Benefit payments, including refunds of
employee contributions (13,518,666) (13,518,666) --
Administrative changes (148,132) 148,132
Net Changes 6,255,385 29,540,801 (23,285,416)
Balance at June 30, 2021 $ 243,823,734 $ 177,830,076 $ 65,993,658 _______________
Source: City of San Luis Obispo Audited Financial Statements The City recognizes a net pension liability for each of the Safety Plans, measured as a proportionate share of the net pension liability of the CalPERS Safety Risk Pool. The net pension liability of each of the Safety Plans was measured as of June 30, 2021, and the total pension liability for each Safety Plan used to calculate the net pension liability was determined by an actuarial valuation as of June 30, 2020 rolled forward to June 30, 2021 using standard update procedures. The City’s proportion of the net pension liability was based on a projection of the City’s long-term share of contributions to the Safety Plans relative to the projected contributions of all participating employers in the CalPERS Safety Risk Pool, actuarially determined. The City’s proportionate share of the net pension liability for the Safety Plans as of June 30, 2022 was $58,571,330. The City’s percentage share of the net pension liability for the Safety Plans as of June 30, 2020 and June 30, 2021, based on the reports available from CalPERS, were as follows:
TABLE 14
CITY OF SAN LUIS OBISPO
CHANGES IN NET PENSION LIABILITY – SAFETY PLAN
Proportionate
Share
Percentage share at 6/30/20 0.72250%
Percentage share at 6/30/21 1.08299%
Change – Increase/(Decrease) 0.36049%
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Source: City of San Luis Obispo Audited Financial Statements.
Other Post-Employment Benefits. The City’s primary Other Post-Employment Benefits (“OPEB”) are for retiree health benefits under the City’s election to participate in the CalPERS Health Benefit Program. The City entered the CalPERS medical insurance program in 1993 under the Public Employees’ Medical and Hospital Care Act.
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The required employer contribution is $149.00 per month per retiree in calendar year 2022 and $151.00 per month per retiree in calendar year 2023. Retirees pay the differential monthly amount of the premium, which varies depending on the health benefits they select.
Additionally, the City has established certain post-retirement health care benefits available to executive management employees appointed prior to August 2000 (together with the City’s participation in the CalPERS Health Benefit Program, the “Plan”). One retiree remains eligible for this benefit. The City pays one-half of the retiree health insurance premiums for this retiree.
During the Fiscal Year ended June 30, 2009, the City entered into an agreement with California Employers’ Retiree Benefit Trust (“CERBT”) to pre-fund the City’s OPEB liability. The contribution requirement of the plan members and the City are established and may be amended by the City. The City prefunds the plan through CERBT by contributing at least 100% of the annual required contribution (the “ARC”) including fully funding the implied subsidy. The ARC is an amount actuarially determined in accordance with the parameters of GASB standards. The City’s ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover the normal cost each year and amortize the unfunded liability over a period of 30 years.
For Fiscal Year 2021-22, the City contributed $949,000 to the Plan, which fully funded the annual required contribution. The City paid a total of $340,000 to the CalPERS Health Benefit Program and retirees during the year and $229,000 to the CERBT. In addition, the City contributed an additional $360,000 to prefund benefits and pay down a portion of the implied subsidy of the Plan.
CERBT is a tax-qualified irrevocable trust organized under Internal Revenue Code Section 115 and established to pre-fund retiree healthcare benefits. CERBT issues a publicly available financial report including GASB disclosure information in aggregate with other CERBT participating employers. That report may be obtained by contacting CalPERS, 400 P Street, Sacramento, CA 95814.
For the Fiscal Years ended June 30, 2020, 2021 and 2022, the City’s annual OPEB costs (expense) of $1,190,000, $921,000 and $949,000, respectively, were equal to the annual required contribution. Trend and funding status information is as follows, based on the Plan’s most recent actuarial valuation date of June 30, 2021.
Fiscal Year
Ending June 30
Annual OPEB
Cost (AOC)
Actual
Contributions
% of AOC
Contributed
Net OPEB
Obligation (Asset)
2022 $ 949,000 $ 949,000 100% $ --
2021 921,000 921,000 100% --
2020 1,190,000 1,190,000 100% --
Actuarial accrued liability (AAL) $ 14,884,000
Actuarial value of plan assets 10,177,000
Unfunded AAL $ 4,707,000
Funded ratio (actuarial value of plan assets/AAL) 68.4% Covered payroll (active plan members) $ 30,033,000
UAAL as % of covered payroll 15.7%
City Investment Policy and Portfolio
The City’s primary investment objective is to achieve a reasonable rate of return while minimizing the potential for capital losses arising from market changes or issuer default. Safety, liquidity and yield are the factors considered, in priority order, in determining individual investment placements. In April 2013, an Investment Oversight Committee was formed to advise the City Treasurer on investment policy and
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compliance. Investment policies are reviewed and approved annually by the City Council and the Investment Oversight Committee, consisting of the Mayor, City Manager, City Treasurer, staff, and a member of the public meets quarterly with an investment advisor to review compliance.
The composition of investments in the City pool will vary from time-to-time depending on cash flow needs of the City, the maturity of investments, purchases of new securities, and due to fluctuations in interest rates. All investments are in compliance with the City’s investment policy. As of March 31, 2023, 55% of the investments within the City pool were in highly liquid instruments. The average duration of the investments managed by the City’s contracted investment advisor was 2.05 years.
As of March 31, 2023, the investments in the City pool were as follows:
TABLE 15
CITY OF SAN LUIS OBISPO INVESTMENT POOL
SUMMARY OF ASSETS HELD
Local Agency Investment Fund – Money Market Fund City & CIB $ 44,807,639 JP Morgan Chase – Money Market 50,000,000
PFMAM Managed Investments 100,649,077
Pacific Premier Bank – Collateralized Certificate of Deposit 1,000,000 Pacific Premier Bank – Money Market 1,026,162
TOTAL INVESTMENTS $ 197,482,878
Bank Balance $ 25,952,182
TOTAL TREASURY BALANCE $ 223,435,060
_______________
Source: City of San Luis Obispo.
TAX MATTERS
In the opinion of Orrick, Herrington & Sutcliffe LLP, Bond Counsel to the Authority, based upon an analysis of existing laws, regulations, rulings and court decisions, and assuming, among other matters, the accuracy of certain representations and compliance with certain covenants, interest on the Bonds is excluded from gross income for federal income tax purposes under Section 103 of the Code and is exempt from State of California personal income taxes. Bond Counsel is of the further opinion that interest on the Bonds is not a specific preference item for purposes of the federal individual alternative minimum tax.
Bond Counsel observes that, for tax years beginning after December 31, 2022, interest on the Bonds included in adjusted financial statement income of certain corporations is not excluded from the federal corporate alternative minimum tax. Bond Counsel expresses no opinion regarding any other tax consequences related to the ownership or disposition of, or the amount, accrual, or receipt of interest on, the Bonds. A complete copy of the proposed form of opinion of Bond Counsel is set forth in Appendix D.
To the extent the issue price of any maturity of the Bonds is less than the amount to be paid at maturity of such Bonds (excluding amounts stated to be interest and payable at least annually over the term of such Bonds), the difference constitutes “original issue discount,” the accrual of which, to the extent properly allocable to each beneficial owner thereof, is treated as interest on the Bonds which is excluded from gross income for federal income tax purposes and exempt from State of California personal income taxes. For this purpose, the issue price of a particular maturity of the Bonds is the first price at which a substantial amount of such maturity of the Bonds is sold to the public (excluding bond houses, brokers, or similar persons or organizations acting in the capacity of underwriters, placement agents or wholesalers).
The original issue discount with respect to any maturity of the Bonds accrues daily over the term to maturity
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of such Bonds on the basis of a constant interest rate compounded semiannually (with straight-line interpolations between compounding dates). The accruing original issue discount is added to the adjusted basis of such Bonds to determine taxable gain or loss upon disposition (including sale, redemption, or payment on maturity) of such Bonds. Beneficial owners of the Bonds should consult their own tax advisors with respect to the tax consequences of ownership of Bonds with original issue discount, including the treatment of beneficial owners who do not purchase such Bonds in the original offering to the public at the first price at which a substantial amount of such Bonds is sold to the public.
Bonds purchased, whether at original issuance or otherwise, for an amount higher than their principal amount payable at maturity (or, in some cases, at their earlier call date) (“Premium Bonds”) will be treated as having amortizable bond premium. No deduction is allowable for the amortizable bond premium in the case of bonds, like the Premium Bonds, the interest on which is excluded from gross income for federal income tax purposes. However, the amount of tax-exempt interest received, and a beneficial owner’s basis in a Premium Bond, will be reduced by the amount of amortizable bond premium properly allocable to such beneficial owner. Beneficial owners of Premium Bonds should consult their own tax advisors with respect to the proper treatment of amortizable bond premium in their particular circumstances.
The Code imposes various restrictions, conditions and requirements relating to the exclusion from gross income for federal income tax purposes of interest on obligations such as the Bonds. The Authority has made certain representations and covenanted to comply with certain restrictions, conditions and requirements designed to ensure that interest on the Bonds will not be included in federal gross income.
Inaccuracy of these representations or failure to comply with these covenants may result in interest on the Bonds being included in gross income for federal income tax purposes, possibly from the date of original issuance of the Bonds. The opinion of Bond Counsel assumes the accuracy of these representations and compliance with these covenants. Bond Counsel has not undertaken to determine (or to inform any person) whether any actions taken (or not taken), or events occurring (or not occurring), or any other matters coming to Bond Counsel’s attention after the date of issuance of the Bonds may adversely affect the value of, or the tax status of interest on, the Bonds. Accordingly, the opinion of Bond Counsel is not intended to, and may not, be relied upon in connection with any such actions, events or matters.
Although Bond Counsel is of the opinion that interest on the Bonds is excluded from gross income for federal income tax purposes and is exempt from State of California personal income taxes, the ownership or disposition of, or the accrual or receipt of amounts treated as interest on, the Bonds may otherwise affect a beneficial owner’s federal, state or local tax liability. The nature and extent of these other tax consequences depends upon the particular tax status of the beneficial owner or the beneficial owner’s other items of income or deduction. Bond Counsel expresses no opinion regarding any such other tax consequences.
Current and future legislative proposals, if enacted into law, clarification of the Code or court decisions may cause interest on the Bonds to be subject, directly or indirectly, in whole or in part, to federal income taxation or to be subject to or exempted from state income taxation, or otherwise prevent beneficial owners from realizing the full current benefit of the tax status of such interest. The introduction or enactment of any such legislative proposals or clarification of the Code or court decisions may also affect, perhaps significantly, the market price for, or marketability of, the Bonds. Prospective purchasers of the Bonds should consult their own tax advisors regarding the potential impact of any pending or proposed federal or state tax legislation, regulations or litigation, as to which Bond Counsel expresses no opinion.
The opinion of Bond Counsel is based on current legal authority, covers certain matters not directly addressed by such authorities, and represents Bond Counsel’s judgment as to the proper treatment of the Bonds for federal income tax purposes. It is not binding on the IRS or the courts. Furthermore, Bond Counsel cannot give and has not given any opinion or assurance about the future activities of the Authority,
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or about the effect of future changes in the Code, the applicable regulations, the interpretation thereof or the enforcement thereof by the IRS. The Authority has covenanted, however, to comply with the requirements of the Code.
Bond Counsel’s engagement with respect to the Bonds ends with the issuance of the Bonds, and, unless separately engaged, Bond Counsel is not obligated to defend the Authority or the beneficial owners regarding the tax-exempt status of the Bonds in the event of an audit examination by the IRS. Under current procedures, beneficial owners would have little, if any, right to participate in the audit examination process.
Moreover, because achieving judicial review in connection with an audit examination of tax-exempt bonds is difficult, obtaining an independent review of IRS positions with which the Authority legitimately disagrees may not be practicable. Any action of the IRS, including but not limited to selection of the Bonds for audit, or the course or result of such audit, or an audit of bonds presenting similar tax issues may affect the market price for, or the marketability of, the Bonds, and may cause the Authority or the beneficial owners to incur significant expense.
Payments on the Bonds generally will be subject to U.S. information reporting and possibly to “backup withholding.” Under Section 3406 of the Code and applicable U.S. Treasury Regulations issued thereunder, a non-corporate beneficial owner of Bonds may be subject to backup withholding with respect to “reportable payments,” which include interest paid on the Bonds and the gross proceeds of a sale, exchange, redemption, retirement or other disposition of the Bonds. The payor will be required to deduct and withhold the prescribed amounts if (i) the payee fails to furnish a U.S. taxpayer identification number (“TIN”) to the payor in the manner required, (ii) the IRS notifies the payor that the TIN furnished by the payee is incorrect, (iii) there has been a “notified payee underreporting” described in Section 3406(c) of the Code or (iv) the payee fails to certify under penalty of perjury that the payee is not subject to withholding under Section 3406(a)(1)(C) of the Code. Amounts withheld under the backup withholding rules may be refunded or credited against a beneficial owner’s federal income tax liability, if any, provided that the required information is timely furnished to the IRS. Certain beneficial owners (including among others, corporations and certain tax-exempt organizations) are not subject to backup withholding. The failure to comply with the backup withholding rules may result in the imposition of penalties by the IRS.
CERTAIN LEGAL MATTERS
The validity of the Bonds and certain other legal matters are subject to the approving opinion of Orrick, Herrington & Sutcliffe LLP, Bond Counsel to the Authority. A complete copy of the proposed form of Bond Counsel opinion is contained in Appendix D hereto. Certain matters will be passed upon for the Authority and for the City by the City Attorney. Certain legal matters will be passed upon for the Underwriter by Stradling Yocca Carlson & Rauth, A Professional Corporation, Underwriter’s Counsel.
Orrick, Herrington & Sutcliffe LLP has also served as Disclosure Counsel. Orrick, Herrington & Sutcliffe LLP, Bond Counsel and Disclosure Counsel, undertakes no responsibility for the accuracy, completeness or fairness of this Official Statement.
MUNICIPAL ADVISOR
The City has retained PFM Financial Advisors LLC, of San Francisco, California, as municipal advisor (the “Municipal Advisor”) in connection with the issuance of the Bonds. The Municipal Advisor is not obligated to undertake, and has not undertaken to make, an independent verification or assume responsibility for the accuracy, completeness, or fairness of the information contained in this Official Statement. The Municipal Advisor is an independent financial advisory firm and is not engaged in the business of underwriting, trading or distributing municipal securities or other public securities.
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VERIFICATION
[Verification Agent] (the “Verification Agent”) independent accountants, upon delivery of the Bonds, will deliver a report on the mathematical accuracy of certain computations, contained in schedules provided to them by Raymond James & Associates, Inc. (the “Underwriter”), relating to the sufficiency of moneys and securities deposited with the Escrow Agent to pay, when due, the interest, principal and redemption price of the 2012 Bonds.
The report of the Verification Agent will include the statement that the scope of its engagement is limited to verifying the mathematical accuracy of the computations contained in such schedules provided to it and that it has no obligation to update its report because of events occurring, or data or information coming to its attention, subsequent to the date of its report.
LITIGATION
There is no action, suit, or proceeding known by the Authority or the City to be pending or threatened at the present time restraining or enjoining the delivery of the Bonds or in any way contesting or affecting the validity of the Bonds, the Indenture, the Lease Agreement, the Ground Lease or any proceedings of the Authority or the City taken with respect to the execution or delivery thereof.
CONTINUING DISCLOSURE
The City has covenanted for the benefit of owners of the Bonds to provide certain financial information and operating data relating to the City by not later than nine months after the end of the City’s fiscal year (which is currently June 30) in each year commencing with the report for the fiscal year ended June 30, 2023 (the “Annual Report”) and to provide notices of the occurrence of certain enumerated events.
The Annual Report and event notices will be filed by the City with the Municipal Securities Rulemaking Board. These covenants have been made in order to assist the Underwriters in complying with Securities Exchange Commission Rule 15c2-12(b)(5) (the “Rule”). The specific nature of the information to be contained in the Annual Report or the notices of material events by the City is set forth in Appendix E— “FORM OF CONTINUING DISCLOSURE CERTIFICATE.”
In the past five years, the City has from time to time failed to link certain bond CUSIPS to its timely filed audited financial statements. [Such errors have been corrected.] RATING
S&P Global Ratings has assigned the rating of “[AA]” to the Bonds. Certain information was supplied by the Authority and the City to the rating agency to be considered in evaluating the Bonds. Such rating express only the view of the rating agency and is not a recommendation to buy, sell or hold the Bonds. There is no assurance that such rating will continue for any given period of time or that it will not be reduced or withdrawn entirely by the rating agency if in its judgment circumstances so warrant. The Authority, the City and the Trustee undertake no responsibility to oppose any such revision or withdrawal.
Any such downward revision or withdrawal may have an adverse effect on the market price of the Bonds.
UNDERWRITING
The Bonds were purchased by Raymond James & Associates, Inc. (the “Underwriter”). The Underwriter has agreed to purchase the Bonds at a purchase price of $[PURCHASE PRICE] (calculated as the principal amount of the Bonds, plus a net original issue premium of $[PREMIUM] and less an Underwriter’s discount of $[DISCOUNT]). The initial public offering prices set forth on the cover page
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may be changed by the Underwriter. The Underwriter may offer and sell the Bonds to certain dealers and others at prices lower than the public offering prices set forth on the inside cover page hereof.
MISCELLANEOUS
The purpose of this Official Statement is to supply information to prospective buyers of the Bonds.
Quotations from and summaries and explanations of the Bonds and of statutes and other documents contained in this Official Statement do not purport to be complete, and reference should be made to the Bonds and such statutes and other documents for full and complete statements of their provisions.
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The preparation and distribution of this Official Statement have been authorized by the Authority and the City.
SAN LUIS OBISPO PUBLIC FINANCING
AUTHORITY
By:
Executive Director
CITY OF SAN LUIS OBISPO
By:
City Manager
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APPENDIX A
AUDITED FINANCIAL STATEMENTS
FOR FISCAL YEAR ENDED JUNE 30, 2022
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APPENDIX B
CERTAIN INFORMATION
REGARDING THE CITY OF SAN LUIS OBISPO
The Bonds do not constitute an indebtedness of the City within the meaning of any constitutional, statutory or charter provisions or limitations and the City is not obligated to levy any ad valorem taxes therefor or to use any other funds of the City to pay the Bonds or the interest thereon. The following information with respect to the County is presented for information purposes only.
The following information regarding the City and the surrounding area is presented as general background data. The Bonds are payable solely from the sources described in this Official Statement (see “SOURCES OF PAYMENT FOR THE BONDS”).
General
The City of San Luis Obispo, California (the “City”) is located approximately 235 miles south of downtown San Francisco and 200 miles north of Los Angeles, on the central coast of California. The City is situated along State Route 101 and is the county seat of San Luis Obispo County. The City is located 315 feet above sea level in gentle mountain valley. San Luis Obispo has mild summers with an average high temperature of 78 degrees.
San Luis Obispo County (the “County”) is the twenty-fourth largest county in the State and is located on the central coast of California. The County borders the Pacific Ocean, with Monterey County to the north, Santa Barbara County to the south and Kern County to the east.
Population
The following table summarizes the population estimates for the City, the County and State of California as of January 1, for the years 2019 through 2023.
TABLE B-1
CITY OF SAN LUIS OBISPO
2019 THROUGH 2023 POPULATION ESTIMATES
(as of January 1)
Calendar Year
City of
San Luis Obispo
County of
San Luis Obispo
State of
California
2019 45,972 277,850 39,605,361
2020 45,916 276,818 39,648,938
2021 47,163 278,723 39,286,510
2022 47,247 279,751 39,078,674
2023 47,788 278,348 38,940,231
_______________
Source: State Department of Finance.
Employment
The following table summarizes the labor force, employment and unemployment data from 2018 through 2022 (the most current data available) for the City, the County, the State of California and the United States.
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TABLE B-2
LABOR FORCE, EMPLOYMENT AND UNEMPLOYMENT
CITY OF SAN LUIS OBISPO, SAN LUIS OBISPO COUNTY,
STATE OF CALIFORNIA AND UNITED STATES
2018 THROUGH 2022
Area Labor Force Employment Unemployment Rate
2018
City of San Luis Obispo 25,300 24,600 2.6
San Luis Obispo County 140,108 135,892 3.0
California 19,288,540 18,467,259 4.2
United States 162,075,000 155,761,000 3.9
2019
City of San Luis Obispo 25,300 24,700 2.5
San Luis Obispo County 139,905 135,854 2.9
California 19,415,066 18,620,302 4.1
United States 163,539,000 157,538,000 3.7
2020
City of San Luis Obispo 24,600 22,700 7.7
San Luis Obispo County 134,416 123,926 7.9
California 18,966,111 17,041,823 10.1
United States 160,742,000 147,795,000 8.1
2021
City of San Luis Obispo 24,700 23,500 5.0
San Luis Obispo County 135,428 128,208 5.3
California 18,977,110 17,587,983 7.3
United States 161,204,000 152,581,000 5.3
2022
City of San Luis Obispo 25,000 24,400 2.6
San Luis Obispo County 137,204 133,048 3.0
California 19,241,972 18,437,956 4.2
United States 164,287,000 158,291,000 3.6
_______________
Source: U.S. Department of Labor – Bureau of Labor Statistics and State of California Employment Development Department The County comprises the San Luis Obispo-Paso Robles Metropolitan Statistical Area (the “MSA”), reported by the State Employment Development Department. The following table summarizes employment information for the MSA, including unemployment rate and employment by industry.
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TABLE B-3
METROPOLITAN STATISTICAL AREA (SAN LUIS OBISPO COUNTY)
CIVILIAN LABOR FORCE, EMPLOYMENT AND UNEMPLOYMENT
CALENDAR YEARS 2018 THROUGH 2022
ANNUAL AVERAGES
2018 2019 2020 2021 2022
Civilian Labor Force(1) 140,100 140,000 134,400 135,400 137,200 Employment 135,900 135,900 123,900 128,200 133,000
Unemployment 4,200 4,100 10,500 7,200 4,200
Unemployment Rate 3.0% 2.9% 7.8% 5.3% 3.0%
Wage and Salary Employment(2)
Agriculture 5,200 5,000 4,800 5,000 5,700
Natural Resources/Mining/Construction 7,900 8,300 8,500 9,100 9,000 Manufacturing 7,700 7,800 7,300 7,900 8,200
Wholesale Trade 2,700 2,700 2,500 2,600 2,600
Retail Trade 14,300 14,000 12,900 13,500 13,800
Trans., Warehousing, Utilities 4,100 4,100 3,700 3,700 3,800 Information 1,200 1,200 1,100 1,200 1,300
Financial and Insurance 2,300 2,200 2,300 2,300 2,200
Real Estate, Rental & Leasing 1,600 1,700 1,500 1,600 1,800 Professional and Business Services 10,900 11,200 10,500 11,000 10,900 Educational and Health Services 17,700 18,200 17,000 17,500 18,100 Leisure and Hospitality 19,200 19,800 15,400 17,400 19,600 Other Services 4,000 4,100 3,300 3,400 3,700
Federal Government 500 500 600 600 600
State Government 10,800 10,800 10,600 10,200 10,400
Local Government 13,100 13,100 12,400 12,400 12,800
Total All Industries(3) 123,200 124,700 114,400 119,400 124,500 _______________
(1) Labor force data is by place of residence; includes self-employed individuals, unpaid family workers, household domestic workers, and workers on strike.
(2) Industry employment is by place of work; excludes self-employed individuals, unpaid family workers, household domestic workers, and workers on strike.
(3) Totals may not add due to rounding.
Source: State of California Employment Development Department.
The principal employers in the County are shown in the following table.
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TABLE B-4
COUNTY OF SAN LUIS OBISPO
PRINCIPAL EMPLOYERS
FISCAL YEAR 2021-22
Employer Name
Number of
Employees Rank
% of Total County
Employment
Cal Poly State University 3,100 1 12.45%
County of San Luis Obispo 2,920 2 11.73
Dept. of State Hospitals - Atascadero 2,140 3 8.59
Pacific Gas & Electric Company 1,950 4 7.83
California Men’s Colony 1,500 5 6.02
Tenet Health Central Coast 1,305 6 5.24
Compass Health 1,200 7 4.82
San Luis Coastal Unified School District 1,200 8 4.82
Dignity Health Central Coast 1,000 9 4.02
Lucia Mar Unified School District 1,000 10 4.02
TOTAL: 17,315 69.54%
_______________
Source: City of San Luis Obispo Audited Financial Statements, obtained from the Pacific Coast Business Times (The List).
The Diablo Canyon nuclear power plant (“Diablo Canyon”), a principal employer in the County and located in the community of Avila Beach, was to cease operations in 2025 under a plan approved by the State Public Utilities Commission in January 2018. In September 2022, Governor Newsom signed SB 846, enabling Pacific Gas and Electric (PG&E) to extend operations beyond 2025 and in March 2023 the Nuclear Regulatory Commission (NRC) authorized PG&E to continue operating Diablo Canyon while the NRC considers renewal of its license. The initial plan to close Diablo Canyon included a program to retain skilled workers through 2025 and funding to retrain workers displaced by the closure. Despite the continued operation of Diablo Canyon, the City will retain the funding provided via SB 1090 for employee retention.
Per Capita Income
The following table summarizes the per capita income for the City, the County, the State and the United States for the period 2017 through 2021.
TABLE B-5
CITY OF SAN LUIS OBISPO, SAN LUIS OBISPO COUNTY, CALIFORNIA AND UNITED STATES
PER CAPITA INCOME
CALENDAR YEARS 2017 THROUGH 2021
Year
City of San Luis
Obispo San Luis Obispo County State of California United States 2017 $ 29,748 $ 35,982 $ 35,046 $ 32,397
2018 31,914 36,924 37,124 33,831
2019 34,357 38,308 39,393 35,672
2020 36,232 38,686 38,576 35,384
2021 39,464 42,831 42,396 38,332
_______________
Source: U.S. Census Bureau.
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Commercial Activity
Taxable sales within the City are shown in Table 6 under “CITY FINANCIAL INFORMATION— Sales and Use Taxes” herein. Preliminary total taxable sales during calendar year 2022 in the City were reported to be $1,859,569,000, a 2.9% increase over the total taxable sales of approximately $1,806,306,000 reported during calendar year 2021.
Construction Activity
The following tables show a three-year summary of the number and valuation of building permits issued in the City.
Building permits are issued for various projects ranging from the relatively simple (e.g., water heaters, window change outs, reroofing, etc.) to the more complex projects (e.g., additions and new buildings). Plan reviews are typically required for the more complex projects where it is necessary to review proposed design documents for code compliance.
Table B-6 shows the number of plan check applications conducted by the Building Division over the last 3 years. Development activity remained relatively steady in 2022.
TABLE B-6
CITY OF SAN LUIS OBISPO
PLAN CHECK APPLICATIONS SUBMITTED 2020-2022
2020 2021 2022
Plan Check Applications Submitted 1,438 1,426 1,386
_______________
Source: Community Development Department, 2022
Table B-7 depicts the number of building permits issued over the past 3 years. In 2022, 266 permits were issued for new residential projects, representing 562 new residential units.
TABLE B-7
CITY OF SAN LUIS OBISPO
BUILDING PERMITS ISSUED, 2020-2022
2020 2021 2022
permits units permits units permits units
New Single Family 252 252 198 198 162 162
New Accessory Dwelling Units (ADUs)1 44 60 62 93 73 97
New Multi Family & New Mixed Use 22 153 47 326 31 303
Demolitions2 25 -8 22 -3 11 -4
New Commercial 2 0 3 0 10 0
Residential Additions / Alterations 220 0 199 0 214 0
Commercial Additions / Alterations 89 0 99 0 122 0
Total 654 457 630 614 623 558
_______________
Source: Community Development Department, 2022
1 ADU unit totals come from ADU permits and single-family permits. 2 Includes units lost from demolitions.
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Construction valuation is a good indicator of the level of private investment in building construction. Table B-8 depicts the annual construction valuation over the past 3 years. Valuation data shows a substantial increase in commercial valuation while residential valuation remained relatively steady.
The total valuation increased by approximately $41.9 million from 2021 to 2022. This increase is despite a decrease in total number of issued permits. This is an indicator that the cost of construction has increased since 2021.
TABLE B-8
CITY OF SAN LUIS OBISPO
VALUATION OF CONSTRUCTION, 2020-2022
2020 2021 2022
Single Family 53,949,613 34,211,415 32,464,875
Multi Family 8,225,494 46,933,301 43,655,086
Commercial 17,475,937 1,229,510 33,950,000
Residential Additions / Alterations 7,834,680 6,459,062 8,741,375 Commercial Additions / Alterations 11,178,790 6,722,907 18,711,218 Total Valuation $ 98,664,514 $ 95,556,195 $ 137,522,554 _______________
Source: Community Development Department, 2022
Climate Action and Response
The City adopted and is now implementing its Climate Action Plan in 2022 for Community Recovery (2020) with the goal of achieving carbon neutrality within the City by 2035. Through the Climate Action Plan, the City is decreasing transportation emissions by improving bike and pedestrian facilities, installing electric vehicle chargers and upgrading public transit to make community members more likely to adopt alternative forms of transportation. The City is also implementing measures to divert organic waste from the landfill (a source of methane emissions), as well as an initiative to plant 10,000 new trees and to protect and manage its open space lands for carbon sequestration. In addition, the City has implemented a project titled “Resilient SLO” that resulted in the adoption of the Climate Adaptation and Safety Element of the City’s General Plan in 2023, which identifies and prioritizes the actions that are necessary for preparing the community for climate change impacts, focusing on finding the best ways to develop community resilience based on a range of potential physical hazards that are negatively affected by climate change such as floods, extreme heat and wildfires.
Cyber Security
To date, the City is not aware of any significant cyber security events affecting the City or its funds.
The City has cybersecurity policies and practices in place designed to protect the confidentiality, integrity and availability of City data and resources including personally identifiable information and sensitive information. At a high level, these policies are organized into several areas and summarized as follows:
• Risk Assessment: The City conducts regular external and internal assessments to identify and mitigate potential vulnerabilities and threats to the City’s infrastructure. This involves internal analysis and quarterly external expert security assessments of existing systems, networks, assets, and alerts to prioritize updates, patches and other security measures accordingly. • Incident Response Plan: The City has a comprehensive plan outlining the steps to be taken in the event of a cyber incident. This plan includes procedures for reporting, investigating,
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containing, and recovering from cybersecurity breaches as well as contact information for relevant consultant, law enforcement, legal, and insurance representatives. • Access Control and Authentication: The City implements strong access controls and multifactor authentication mechanisms to ensure that only authorized personnel can access sensitive information and critical systems. National Institute of Standards and Technology (NIST) password recommendations, multi-factor authentication, role-based access controls as appropriate and access logging on sensitive or critical data are all enforced. • Network Security: The City has robust layered defenses, and implements new systems based on zero trust methodologies. The City’s security solutions include intrusion detection and prevention systems on north/south and east/west traffic with SSL decryption, virtual private networks (VPNs) for external network access, security proxied web traffic, best in class mail and endpoint security, and segmented network access with firewalls between zones. Network devices, endpoints, and our virtual infrastructure are regularly updated and patched to address known vulnerabilities and protect against emerging threats. • Encryption: Sensitive data (primarily criminal justice information services) is encrypted in transit and at rest. The City uses industry-standard CJIS approved encryption protocols for secure communication and storage of data.
• Employee Awareness and Training: City employees are given data security basics and expectations immediately upon hire and are required to take an hour-long Cybersecurity awareness course within 6 weeks of hire date on data security and expectations. A shorter course is required for continued access to network resources annually. Quarterly phishing “tests” are conducted and any failure results in further education. • Regular Backups and Recovery: The City implements regular data backups to ensure critical information can be recovered in the event of data loss or a successful cyberattack. Backups are maintained with protocols meeting industry best practices. • Vendor and Third-Party Risk: The City continuously assess and manage the cybersecurity risks associated with third-party vendors and contractors access the City’s systems or data and implement the same password and multifactor access requirements required of all employees.
Vendors and third parties are held to contractual obligations regarding data security and due diligence with City data.
• Continuous Monitoring and Incident Detection: The City has automated monitoring and alerting systems tuned to detect potential security incidents in real-time and alert standby network administrators of threats that require our attention. This includes IDS/IPS, mail security, endpoint security, hardware alerts and event monitoring. • Compliance with Regulations: The City’s IT department works with other departments to ensure applicable industry specific cybersecurity regulations, such as data privacy laws and industry standards such as ELAP and CJIS, are followed for accreditation and audit protection. • Insurance: As a member of the California Joint Powers Insurance Authority (CJPIA), the City also has cyber liability coverage of $1,000,000 per year after a $250,000 deductible. The insurance covers privacy incidents, network security incidents, media incidents, and cyber crime with certain exclusions, for both first party and third party liability.
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Education and Community Facilities
The City is adjacent to California Polytechnic State University, San Luis Obispo (“Cal Poly”), one of the more prominent campuses in the California State University system. Cal Poly offers a wide variety of degree programs at both undergraduate and graduate levels. Undergraduate and graduate enrollment at Cal Poly was 22,287 students for the 2022-23 academic year. In FY 2021-22, Cal Poly employed 3,100 people.
Cuesta Community College schedules day and evening courses where residents can complete a two-year degree, obtain vocational training or take general education courses. Fall 2022 enrollment was 14,002 full-time students.
San Luis Coastal Unified School District provides 10 elementary schools, two middle schools, three senior high schools and an adult school (the “District”). The District also provides a full-day, sixweek program from mid-June through the end of July that is open to all current San Luis Coastal kindergarten through high school students free of charge. The total District enrollment is approximately 7,500 students. The boundaries of the San Luis Coastal Unified School District are significantly larger than the City.
Medical facilities include Sierra Vista Regional Medical Center with approximately 164 licensed beds in addition to a designated trauma center and the only dedicated pediatric unit in San Luis Obispo County, and French Hospital with approximately 112 acute care beds.
Recreational facilities in close proximity include 12 golf courses within a 30 minute drive of the City’s downtown, Lake Lopez, Lake Nacimiento and Montana De Oro State Park.
Community facilities include the Performing Arts Center located on the campus of Cal Poly, Mission San Luis Obispo de Tolosa, San Luis Obispo County Historical Museum and San Luis Obispo Art Center. The City has 12 designated open space areas and owns 22 parks and 14 playgrounds. The City operates a 10-hole municipal golf course and the San Luis Obispo Swim Center that offers participants a full range of aquatic programs.
Transportation
Primary access to the City is provided by State Route 101, which is a major transportation corridor that extends in a general north-south direction from Los Angeles to San Francisco. San Luis Obispo can be accessed at various off-ramps from the highway. This network of roads provides access to the various neighborhoods and business areas dispersed throughout the community.
The San Luis Obispo County Airport is within ten minutes from downtown. Commercial service is offered to Dallas, Denver, Los Angeles, Phoenix, Portland, San Diego, San Francisco and Seattle International Airports.
Rail passenger service is provided by AMTRAK, which has a station in the City. Union Pacific Transportation Company provides freight rail service to the City. Local bus service is provided by SLO Transit and is linked to a trolley line which operates seasonally in the City’s downtown area, and to the San Luis Obispo Regional Transit Authority-run bus service.
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APPENDIX C
SUMMARY OF CERTAIN PROVISIONS OF PRINCIPAL LEGAL DOCUMENTS Certain provisions of the Lease Agreement, the Ground Lease and the Indenture, not previously discussed in this Official Statement, are summarized below. These summaries do not purport to be complete or definitive and are qualified in their entirety by reference to the full terms of the documents.
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APPENDIX D
PROPOSED FORM OF BOND COUNSEL OPINION
Upon issuance of the Bonds, Orrick, Herrington & Sutcliffe LLP, Bond Counsel, proposes to render its final approving opinion with respect to the Bonds in substantially the following form:
September [_], 2023
San Luis Obispo Public Financing Authority
San Luis Obispo, California
San Luis Obispo Public Financing Authority
Lease Revenue Bonds (Cultural Arts District Parking Project), Series 2023 (Final Opinion)
Ladies and Gentlemen:
We have acted as bond counsel to the San Luis Obispo Public Financing Authority (the “Authority”) in connection with issuance of $[PAR] aggregate principal amount of its Lease Revenue Bonds (Cultural Arts District Parking Project), Series 2023 (the “Bonds”), issued pursuant to an Indenture, dated as of [September 1, 2023] (the “Indenture”), between the Authority and U.S. Bank Trust Company, National Association, as trustee (the “Trustee”). Capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in the Indenture.
In such connection, we have reviewed the Indenture, the Lease Agreement, the Ground Lease, the Tax Certificate, certificates of the Authority, the City, the Trustee and others, opinions of counsel to the Authority, the City, the Trustee and others, and such other documents, opinions and matters to the extent we deemed necessary to render the opinions set forth herein.
The opinions expressed herein are based on an analysis of existing laws, regulations, rulings and court decisions and cover certain matters not directly addressed by such authorities. Such opinions may be affected by actions taken or omitted or events occurring after the date hereof. We have not undertaken to determine, or to inform any person, whether any such actions are taken or omitted or events do occur or any other matters come to our attention after the date hereof. Accordingly, this letter speaks only as of its date and is not intended to, and may not, be relied upon or otherwise used in connection with any such actions, events or matters. Our engagement with respect to the Bonds has concluded with their issuance, and we disclaim any obligation to update this letter. We have assumed the genuineness of all documents and signatures presented to us (whether as originals or as copies) and the due and legal execution and delivery thereof by, and validity against, any parties other than the Authority and the City. We have assumed, without undertaking to verify, the accuracy of the factual matters represented, warranted or certified in the documents, and of the legal conclusions contained in the opinions, referred to in the second paragraph hereof. Furthermore, we have assumed compliance with all covenants and agreements contained in the Indenture, the Lease Agreement, the Ground Lease and the Tax Certificate, including (without limitation) covenants and agreements compliance with which is necessary to assure that future actions, omissions or events will not cause interest on the Bonds to be included in gross income for federal income tax purposes. We call attention to the fact that the rights and obligations under the Bonds, the Indenture, the Lease Agreement, the Ground Lease and the Tax Certificate and their enforceability may be subject to bankruptcy, insolvency, receivership, reorganization, arrangement, fraudulent conveyance, moratorium and
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other laws relating to or affecting creditors’ rights, to the application of equitable principles, to the exercise of judicial discretion in appropriate cases and to the limitations on legal remedies against cities and joint powers agencies in the State of California. We express no opinion with respect to any indemnification, contribution, liquidated damages, penalty (including any remedy deemed to constitute a penalty), right of set-off, arbitration, judicial reference, choice of law, choice of forum, choice of venue, non-exclusivity of remedies, waiver or severability provisions contained in the foregoing documents, nor do we express any opinion with respect to the state or quality of title to or interest in any of the real or personal property described in or as subject to the lien of the Lease Agreement, the Ground Lease or the Indenture or the accuracy or sufficiency of the description contained therein of, or the remedies available to enforce liens on, any such property. Our services did not include financial or other non-legal advice. Finally, we undertake no responsibility for the accuracy, completeness or fairness of the Official Statement or other offering material relating to the Bonds and express no opinion with respect thereto.
Based on and subject to the foregoing, and in reliance thereon, as of the date hereof, we are of the following opinions:
1. The Bonds constitute the valid and binding limited obligations of the Authority.
2. The Indenture has been duly executed and delivered by, and constitutes the valid and binding obligation of, the Authority.
3. The Ground Lease and the Lease Agreement have been duly executed and delivered by, and constitute the valid and binding obligations of, the City and the Authority.
4. Interest on the Bonds is excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986 and is exempt from State of California personal income taxes. Interest on the Bonds is not a specific preference item for purposes of the federal alternative minimum tax. We express no opinion regarding other tax consequences related to the ownership or disposition of, or the amount, accrual or receipt of interest on, the Bonds.
Faithfully yours,
ORRICK, HERRINGTON & SUTCLIFFE LLP
per
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APPENDIX E
FORM OF CONTINUING DISCLOSURE CERTIFICATE
This Continuing Disclosure Certificate (this “Disclosure Certificate”) is executed and delivered by the City of San Luis Obispo (the “City”), on behalf of itself and the San Luis Obispo Public Financing Authority (the “Authority”), in connection with the issuance of the Authority’s Lease Revenue Bonds (Cultural Arts District Parking Project), Series 2023 (the “Bonds”). The Bonds are being issued under an Indenture dated as of [September 1, 2023] (the “Indenture”) between the Authority and U.S. Bank Trust Company, National Association, as trustee (the “Trustee”). The City covenants and agrees, on behalf of itself and the Authority, as follows:
SECTION 1. Purpose of the Disclosure Certificate. This Disclosure Certificate is being executed and delivered by the City for the benefit of the holders and beneficial owners of the Bonds and in order to assist the Participating Underwriters in complying with S.E.C. Rule 15c2-12(b)(5) (the “Rule”).
SECTION 2. Definitions. In addition to the definitions set forth in the Indenture, which apply to any capitalized term used in this Disclosure Certificate unless otherwise defined in this Section, the following capitalized terms shall have the following meanings:
“Annual Report” means any Annual Report provided by the City under, and as described in, Sections 3 and 4 of this Disclosure Certificate.
“Dissemination Agent” means the City or any successor Dissemination Agent designated in writing by the City and which has filed with the City a written acceptance of such designation. “Financial Obligation” means, for purposes of the listed events set out in Section 5(a)(10) and Section (5)(b)(8), a (i) debt obligation; (ii) derivative instrument entered into in connection with, or pledged as security or a source of payment for, an existing or planned debt obligation; or (iii) guarantee of (i) or (ii).
The term “Financial Obligation” shall not include municipal securities (as defined in the Securities Exchange Act of 1934, as amended) as to which a final official statement (as defined in the Rule) has been provided to the MSRB consistent with the Rule.
“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 12-month period selected and designated by the City.
“Listed Events” means any of the events listed in Section 5(a) hereof. “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.
“Official Statement” means the final official statement dated _____ _, 2023, prepared with respect to the Bonds.
“Participating Underwriter” means the original underwriter of the Bonds required to comply with the Rule in connection with offering of the Bonds.
“Report Date” means March 1 of each year.
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“Rule” means Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time.
SECTION 3. Provision of Annual Reports.
(a) The City shall, or shall cause the Dissemination Agent to, not later than the Report Date, commencing March 1, 2024, with the report for Fiscal Year 2022-2023, 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 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 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 Report Date if not available by the Report Date. If the City’s Fiscal Year changes, it shall give notice of such change in the same manner as for a Listed Event under Section 5(a). 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 under the Indenture. (b) If the City does not provide (or cause the Dissemination Agent to provide) an Annual Report by the Report Date, the City 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 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) Audited financial statements of the City 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 Report Date, the Annual Report shall contain unaudited financial statements in a format similar to the financial statements contained in the final Official Statement, and the audited financial statements shall be filed in the same manner as the Annual Report when they become available. (b) To the extent not contained in the audited financial statements filed under the preceding clause (a), the Annual Report shall contain information showing:
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(i) information concerning the actual revenues, expenditures and beginning and ending fund balances relating to the General Fund of the City for the most recent completed Fiscal Year;
(ii) information showing the aggregate principal amount of long-term bonds, leases and other obligations of the City which are payable out of the General Fund of the City, as of the close of the most recent completed Fiscal Year;
(iii) information concerning the assessed valuation of properties within the City for the most recent completed Fiscal Year;
(iv) information showing the total secured property tax levy and actual amounts collected for the most recent completed Fiscal Year;
(v) with respect to the top 10 property taxpayers in the City, information showing the identity of each such taxpayer, and the total assessed valuation of properties owned by each such taxpayer.
(vi) information concerning the sales and use tax revenue collected by the City for the most recently completed Fiscal Year;
(vii) information concerning the transient occupancy tax revenue collected by the City for the most recently completed Fiscal Year; and
(viii) a statement on whether the County of San Luis Obispo used the Teeter Plan to assess and collect tax during the most recently completed Fiscal Year. (c) In addition to any of the information expressly required to be provided under paragraphs (a) and (b) of this Section, the City shall provide such further information, if any, as may be necessary to make the specifically required statements, in the light of the circumstances under which they are made, not misleading.
(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 Listed Events with respect to the Bonds in a timely manner not later than ten business days after the occurrence of the event:
1. Principal and interest payment delinquencies;
2. Unscheduled draws on debt service reserves reflecting financial difficulties;
3. Unscheduled draws on credit enhancements reflecting financial difficulties;
4. Substitution of credit or liquidity providers, or their failure to perform;
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5. Issuance by the Internal Revenue Service of proposed or final determination of taxability or of a Notice of Proposed Issue (IRS Form 5701 TEB);
6. Tender offers;
7. Defeasances;
8. Rating changes; or
9. Bankruptcy, insolvency, receivership or similar event of the obligated person.
Note: for the purposes of the event identified in subparagraph (9), the event is considered to occur when any of the following occur: the appointment of a receiver, fiscal agent or similar officer for an obligated person in a proceeding under the U.S. 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 obligated person, or if such jurisdiction has been assumed by leaving the existing governmental 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 obligated person.
10. Default, event of acceleration, termination event, modification of terms, or other similar events under the terms of a Financial Obligation of the obligated person, any of which reflect financial difficulties.
(b) The City shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Bonds, if material, in a timely manner not later than ten business days after the occurrence of the event:
1. Unless described in Section 5(a)(5), adverse tax opinions or other material notices or determinations by the Internal Revenue Service with respect to the tax status of the Bonds or other material events affecting the tax status of the Bonds;
2. Modifications to rights of Bond holders;
3. Bond calls;
4. Release, substitution, or sale of property securing repayment of the Bonds;
5. Non-payment related defaults;
6. The consummation of a merger, consolidation, or acquisition involving an obligated person or the sale of all or substantially all of the assets of the 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; or
7. Appointment of a successor or additional trustee or the change of name of a trustee.
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8. Incurrence of a Financial Obligation of the obligated person, or agreement to covenants, events of default, remedies, priority rights, or other similar terms of a Financial Obligation of the obligated person, any of which affect security holders. (c) Whenever the City obtains knowledge of the occurrence of a Listed Event described in Section 5(b), the City shall determine if such event would be material under applicable federal securities laws.
(d) If the City learns of the occurrence of a Listed Event described in Section 5(a), or determines that knowledge of a Listed Event described in Section 5(b) would be material under applicable federal securities laws, the City shall within ten business days of occurrence file a notice of such occurrence with the MSRB. Notwithstanding the foregoing, notice of the Listed Event described in subsections (a)(7) or (b)(3) need not be given under this subsection any earlier than the notice (if any) of the underlying event is given to Holders of affected Bonds pursuant to the Indenture.
SECTION 6. Identifying Information for Filings with the MSRB. All documents provided to the MSRB under the Disclosure Certificate shall be accompanied by identifying information as prescribed by the MSRB.
SECTION 7. Termination of Reporting Obligation. The City’s obligations under this Disclosure Certificate shall terminate upon the legal defeasance, prior redemption or payment in full of all of the Bonds.
If such termination occurs prior to the final maturity of the Bonds, the City shall give notice of such termination in the same manner as for a Listed Event under Section 5(a).
SECTION 8. Dissemination Agent. The City may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Certificate, and may discharge any such Agent, with or without appointing a successor Dissemination Agent.
SECTION 9. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Certificate, the City may amend this Disclosure Certificate, and any provision of this Disclosure Certificate may be waived, provided that the following conditions are satisfied:
(a) if the amendment or waiver relates to the provisions of Sections 3(a), 4 or 5, it may only be made in connection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, nature, or status of an obligated person with respect to the Bonds, or type of business conducted;
(b) the undertakings herein, as proposed to be amended or waived, would, in the opinion of nationally recognized bond counsel, have complied with the requirements of the Rule at the time of the primary offering of the Bonds, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and
(c) the proposed amendment or waiver either (i) is approved by holders of the Bonds in the manner provided in the Indenture for amendments to the Indenture with the consent of holders, or (ii) does not, in the opinion of the Trustee or nationally recognized bond counsel, materially impair the interests of the holders or beneficial owners of the Bonds.
If the annual financial information or operating data to be provided in the Annual Report is amended under 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