Organization and Staff
The City’s Water System is under the direction of the following individuals: Acting City Manager, Alvaro Nunez, Executive Director of Finance & Management Services, Kathryn Downs, Public Works Director Nabil Saba, and the Water Resources Manager, Cesar Barrera.
Alvaro Nunez, Acting City Manager of the City of Santa Ana. Mr. Nunez has served the City in various capacities for over 30 years. His professional journey began as an intern in the City’s Planning and Building Agency, paving the way for a progression through various roles, including Code Enforcement Officer, Code Enforcement Manager, and most recently, Assistant Director of the Planning and Building Agency. Mr. Nunez has a degree in Political Science from the University of California, Irvine, studied Public Policy & Administration / Chicano Studies at California State University, Long Beach, and holds certificates in Property Maintenance and Housing Inspections, Zoning, and Code Enforcement from the International Code Council, and is a Certified Code Enforcement Officer through the California Association for Code Enforcement Officers.
Kathryn Downs, Executive Director of Finance and Management Services. Ms. Downs has served as the Executive Director of Finance and Management Services since October 2018. Ms. Downs has worked over 24 years in local government. Ms. Downs previously served as the Director of Finance for the City of Carson prior to being appointed the City’s Executive Director of Finance and Management Services in 2018. Prior to that, Ms.
Downs worked for the City of Rancho Palo Verdes for 15 years. Ms. Downs began her career as a financial statement auditor, and holds a California CPA license and Bachelor of Business Administration with a major in accounting and a minor in management from Eastern Michigan University.
Nabil Saba, has over 33 years of experience in all aspects of water resources operations, engineering, and management. For the past 4 years, he has served as Director of Public Works for the City of Santa Ana. Prior to that Mr. Saba served as the Deputy Public Works Director - Water Resources Manager for 6 years and as the Water Production Principal Civil Engineer for 6 years for the City. Mr. Saba is certified in water treatment and distribution and is registered Professional Civil Engineer in the State of California. Mr. Saba has a Bachelor of Science degree in Chemical Engineering from the California State Polytechnic University at Pomona and a Master in Science in Civil and Environmental Engineering from Loyola Marymount University in Los Angeles.
Cesar Barrera, Deputy Public Works Director and Water Resources Manager, has over 27 years of experience in all aspects of water resources operations, engineering, and management. For the past three years, he has served as Water Resources Manager for the City of Santa Ana. Prior to that Mr. Barrera served as the Water Production Principal Civil Engineer for 10 years for the City. Mr. Barrera is certified in water treatment and distribution and is registered Professional Civil Engineer in the State of California. Mr. Barrera has a Bachelor of Science degree in Civil Engineering from the California State University at Fullerton and a Master in Science in Civil Engineering from Loyola Marymount University in Los Angeles.
The Water Department is operated by a staff of 76 full-time employees. The following Table 1 summarizes certain operating statistics of the Water System for the past five Fiscal Years. Certain information for the 2023-24 Fiscal Year is estimated.
City Council 3 – 174 6/4/2024
18 Water Sales
Service connections in the Water System range in diameter from 5/8-inch to 8-inches. All water production and consumption is metered. The City currently projects that service connections will increase 0.5% a year for the current and next four fiscal years. Based on projected build-out, the anticipated total water system demand is estimated to remain static for the foreseeable future due to water conservation efforts. The following tables present a summary of water sales by type of customer for the past three fiscal years.
TABLE 1
City of Santa Ana
Water Sold by Type of Customer
(Fiscal Year ending June 30)
(in Thousands of Gallons)
2019 2020 2021 2022 2023
Type of Customer
Residential 7,004,926.5 6,928,365.0 7,299,518.8 7,012,001.8 6,433,512.8 Commercial 2,084,082.8 1,933,951.0 1,868,058.2 1,945,509.1 1,832,659.8 Industrial 337,978.6 319,945.8 653,152.1 655,057.3 525,102.7 Wholesale food 111,505.1 126,488.3 124,643.0 118,849.7 116,764.3 Government 212,388.6 200,024.1 260,122.2 257,119.8 221,737.1 Others(1) 761,244.8 686,484.5 470,696.2 497,282.4 437,531.4 Total 10,512,126.4 10,195,258.7 10,676,190.5 10,485,820.1 9,567,308.1 Total Tier 1 direct rate
per unit(2) $3.02 $2.03 $2.17 $2.31 $2.36
____________________________
(1) Others include: churches, construction use, medical, schools, vacant lots, and reclaim water. (2) A unit is 748 gallons.
Source: City of Santa Ana.
TABLE 2
City of Santa Ana
Water Sold by Type of Customer
(Fiscal Year ending June 30)
(in Dollars)
2019 2020 2021 2022 2023
Type of Customer
Residential $32,609,900 $34,567,073 $41,906,802 $43,550,933 $41,523,434 Commercial 11,981,288 11,732,174 11,370,471 12,422,055 12,253,582 Industrial 1,711,487 1,698,147 1,873,630 2,002,107 1,738,990 Wholesale food 461,059 595,259 760,441 778,918 780,190
Government 1,135,133 1,174,382 2,563,882 2,809,538 2,753,574 Others(1) 3,899,177 3,755,379 4,501,418 4,943,464 4,505,374 Total $51,798,044 $53,522,414 $62,976,644 $66,507,015 $63,555,144 ____________________________
(1) Others include: churches, construction use, medical, schools, reclaim, vacant lots, recycled water and water delivered outside of the City.
Source: City of Santa Ana.
Land Use
The City is responsible for land use policy for most of the area served by the Water System (as the Water System also serves small areas of the cities of Garden Grove and Orange, and unincorporated Orange County).
Relatively little undeveloped land exists within the City. A condition of new or in-fill development is that the developer provide infrastructure sufficient to provide water service for each lot in the proposed development. The City Council 3 – 175 6/4/2024
19 City anticipates servicing these customers from the purchase of additional supplies from its resources described in “Water Sources and Supply; Water Purchases” below.
The Project; Future Water System Improvements
The City established its Water Master Plan (the “Water Master Plan”) in 2017 to document a multi-year capital improvement program for a planning period which covers fiscal years 2017-18 through 2039-40. The Water Master Plan established a capital improvement program (“CIP”) to assist the City with future improvements and replacement of existing facilities to maintain the City’s Water System. The CIP consists of, amongst other things, regularly scheduled repairs and replacements to the Water System including, but not limited to, the rehabilitation and refurbishment of wells, reservoirs, MWD connections, pump stations and appurtenances; drilling new or replacement wells, replacement of cast iron pipes, valves, and connections, improvements to wellhead treatment facilities, pressure regulating stations, service meter upgrades, supervisory control and data acquisition communications and instrumentation upgrades, sustainable energy improvements, and emergency power systems. These projects are ongoing and included in each year’s the City’s budgeting process. While the City has an ongoing CIP with respect to repair and replacement of facilities as needed, it does anticipate new major capital improvements in the next five years which are eligible to be financed by the proceeds of the Bonds.
See “THE FINANCING PLAN – The Project” herein for a description of the improvements to the Water System anticipated to be financed by the proceeds of the Bonds.
Storage Capacity
The City’s existing 55 million gallons of storage capacity provides the Water System with one day (based on average daily use) of emergency supplies. The City also maintains interconnections with the cities of Orange, Fountain Valley and Tustin, and with the Mesa Water District, which serve adjacent areas that could provide water in the event of an emergency.
Water Sources and Supply; Water Purchases
For Fiscal Year 2024-25, the City estimates 85% of its water supply to be sourced from local groundwater, which it receives under the jurisdiction of the Orange County Water District (“OCWD”)The City owns and operates a total of 21 wells located within the City limits. Total capacity is 32,000 gallons per minute (“GPM”), or 46 million gallons per day (“MGD”).
In addition, the City is a charter member of Metropolitan Water District of Southern California (“MWD”).
As such, it has rights to the water supply of MWD on a parity basis with other member agencies of MWD. The City relies on MWD for approximately 15% of its water supply at the present time. The cost of purchasing MWD water represents 27% of the City’s water supply costs. The table below shows a summary of water supply for Fiscal Years 2018-19 through 2022-23.
City Council 3 – 176 6/4/2024
20 TABLE 3
City of Santa Ana
Summary of Water Supply
(Fiscal Year ending June 30)
2019 2020 2021 2022(4) 2023(4)
Water Pumped(1) 25,418 25,581 26,081 25,259 22,557
MWD(2) 7,742 7,649 7,738 7,621 7,897
Total 33,160 33,230 33,819 32,880 30,454
Potable Water Sold(1) 31,999 31,141 32,525 31,392 29,527 Change from previous year(1) -1,241 -858 1,384 -1,133 -1,865 Population 337,716 310,227 310,227 310,217 308,189
Cost of MWD Water $/a-f
(3) $1,033 $1,078 $1,104 $1,143 $1,209 ____________________________ (1) In acre-feet. Pumped from OCWD.
(2) In acre feet. Pursuant to agreement with MWD. (3) Average cost. (4) State mandated water conservation protocols resulted in reduced water sales.
Source: City of Santa Ana.
Groundwater.
Orange County Water District — Groundwater Basin. The lower Santa Ana River groundwater basin, from which the City pumps its water, is under the jurisdiction of the OCWD. The City is a member of OCWD, along with other Orange County cities and water districts which overlie the groundwater basin. OCWD has a comprehensive ground-water replenishment system that includes the injection of highly treated wastewater into the groundwater basin to prevent seawater intrusion and to replenish the basin by spreading at the Anaheim forebay. In the past, sea water intrusion has been a problem in portions of the basin. The member cities of OCWD, including the City, are each allocated a portion of the cost of the groundwater recharge program, depending on a number of factors. The groundwater basin has been relatively stable during this current drought, and the City does not anticipate any curtailment of its ability to pump local groundwater for its service needs.
The following information regarding OCWD has been obtained from OCWD and sources that the Authority believes to be reliable, but the Authority takes no responsibility for the accuracy or completeness hereof.
Additional information about OCWD may be obtained from OCWD’s website at www.ocwd.com. No information contained in such website is incorporated herein by reference.
The OCWD is the agency responsible for managing the Orange County groundwater Basin, which is Santa Ana’s major source of water. OCWD is governed by a ten-member board of directors, which has the power to establish and adjust the annual Basin Production Percentage (“BPP”), the Basin Equity Assessment (the “BEA”) and the Replenishment Assessment (“RA”).
Basin Production Percentage and Basin Equity Assessment. The BPP is defined as the proportion of total water production that can be extracted from groundwater withdrawals without incurring an additional assessment, known as the BEA. The amount of groundwater that an agency can pump without incurring the additional assessment is calculated by multiplying the total water use of such agency by the BPP (the “BPP formula”).
Between Fiscal Years 2013-14 and 2023-24, the BPP varied from 62% to 85%. OCWD board of directors set the BPP at 85% for Fiscal Year 2024-25.Currently, OCWD calculates total water use for the purpose of the BPP without considering recycled water sales to customers. This methodology reduces the amount of groundwater that recycled water sellers such as the District may pump from the Orange County groundwater basin without incurring additional assessments. See the caption “—Complaint against OCWD” for a discussion of a lawsuit filed against OCWD in June 2016 with respect to this issue.
The BEA is an additional assessment incurred by an agency that pumps non-exempt groundwater above the limit established by the BPP. The BEA is established annually by OCWD for every acre foot of groundwater City Council 3 – 177 6/4/2024
21 produced from the Orange County groundwater basin above the BPP formula (with exemptions described further below for pumping that OCWD determines will provide water quality and other benefits) and is intended to increase the cost of producing groundwater in amounts above the BPP formula so that it equals the cost of importing water, thereby encouraging groundwater pumping agencies to supplement their groundwater production with imported water for the portion of their water use that exceeds the BPP. The BEA is a surcharge to discourage, yet still allow for, the production of groundwater in excess of the BPP formula. The BEA for Fiscal Year 2024- 25 is equal to an additional $599 per acre foot for groundwater pumped in excess of the BPP formula Despite the financial disincentive of the BEA, the fact that the City has the ability to pump as much groundwater as the Water System can accommodate provides a reliable source of alternate water supply in the event that MWD water purchases are disrupted.
Based on OCWD’s methodology, the City paid approximately $11.8 million for Fiscal Year 2018-19, $12.5 million for Fiscal Year 2019-20, $12.7 million for Fiscal Year 2020-21, $12.8 million for Fiscal Year 2021- 22, $12.7 million for Fiscal Year 2022-23, and $16.5 million for Fiscal Year 2023-24 and is projected to be $18.5 million for Fiscal Year 2024-25.
Replenishment Assessment. In addition to adjusting the BPP and the BEA annually, OCWD also annually increases the pump tax or Replenishment Assessment (the “RA”), which is the cost that groundwater producers must pay to pump water from the Basin. The RA provides OCWD with the necessary revenue to construct capital improvement projects to enhance Basin production, to protect the water quality of the Basin’s supply, and to purchase replenishment water from MWD when available. The RA for Fiscal Year 2023-24 is set at $624 per acre-foot, and for Fiscal Year 2024-25 it is estimated to be approximately $688 per acre-foot. With the energy costs and operational maintenance costs for pumping the groundwater added to the OCWD RA costs, the City pays approximately $1,500 for each acre-foot of groundwater produced.
OCWD faces various challenges in managing the Orange County groundwater basin. A description of these challenges, as well as a variety of other operating information with respect to OCWD, is included in certain disclosure documents prepared by OCWD. OCWD periodically prepares official statements and other disclosure documents in connection with its bonds and other obligations. OCWD has also entered into certain continuing disclosure agreements pursuant to which OCWD is contractually obligated for the benefit of owners of certain of its outstanding obligations to file certain annual reports, including audited financial statements and notice of certain events, pursuant to Rule 15c2-12. Such official statements, other disclosure documents, annual reports and notices (collectively, the “OCWD Information”) are filed with EMMA at http://emma.msrb.org. The OCWD Information is not incorporated herein by reference thereto, and the District makes no representation as to the accuracy or completeness of such information. OCWD HAS NOT ENTERED INTO ANY CONTRACTUAL COMMITMENT WITH THE CITY, THE TRUSTEE OR THE OWNERS OF THE SERIES 2024 BONDS TO PROVIDE OCWD INFORMATION TO THE DISTRICT OR THE OWNERS OF THE SERIES 2024 BONDS.
OCWD HAS NOT REVIEWED THIS OFFICIAL STATEMENT AND HAS NOT MADE
REPRESENTATIONS OR WARRANTIES WITH RESPECT TO THE ACCURACY OR
COMPLETENESS OF THE INFORMATION CONTAINED OR INCORPORATED HEREIN, INCLUDING INFORMATION WITH REGARD TO OCWD. OCWD IS NOT CONTRACTUALLY
OBLIGATED, AND HAS NOT UNDERTAKEN, TO UPDATE SUCH INFORMATION FOR THE BENEFIT OF THE CITY OR THE OWNERS OF THE SERIES 2024 BONDS UNDER RULE 15c2-12.
PFAS Mitigation. By 2023, the City detected perfluoroalkyl substances (“PFAS”) in 16 of the City’s groundwater production wells. Impacted Wells are 16, 18, 21, 24, 26, 27, 28, 29, 31, 33, 35, 36, 38, 39, 40, and
41. The levels of PFAS detected in the Impacted Wells were above and below the respective notification and response levels established by the State Water Resources Control Board’s Division of Drinking Water (“DDW”) at the time. The wells that had detections above the response level were placed on operational standby and the City is currently pursuing the installation of wellhead treatment facilities at six (6) locations.
The City, along with other Orange County cities and water districts initiated lawsuits against certain manufacturers over the contamination of water resources with PFAS and is currently involved in multidistrict City Council 3 – 178 6/4/2024
22 PFAS litigation in federal court in South Carolina and California. Settlement agreements with defendants Dupont, 3M and Tyco/ChemGuard have been granted final approval. At this time, the specific amount of the award to the City, if any, has not yet been determined in any of the settlements.
Sustainable Groundwater Management Act. On September 16, 2014, the California Governor signed Assembly Bill No. 1739 and Senate Bill Nos. 1168 and 1319 (collectively, the “Sustainable Groundwater Management Act,” or “SGMA”) into law. The SGMA constitutes a legislative effort to regulate groundwater on a Statewide basis. Pursuant to the SGMA, the California Department of Water Resources (“DWR”) has designated the Orange County Groundwater Basin as a medium priority basin for purposes of groundwater management. By January 31, 2017, local Groundwater Producers were required to establish or designate an entity (referred to as a groundwater sustainability agency, or “GSA”), subject to DWR’s approval, to manage each high and medium priority groundwater basin. Each GSA is tasked with submitting a groundwater sustainability plan for DWR’s approval by January 31, 2020. Alternatively, an existing groundwater management agency can submit a groundwater management plan under Part 2.75 of the California Water Code or an analysis for DWR’s review demonstrating that a groundwater basin has operated within its sustainable yield for at least 10 years. Such alternative plans were required to be submitted by January 1, 2017 and updated every five years thereafter.
The SGMA specifically allows the OCWD to develop an alternative plan under the California Water Code to manage those portions of the basin that are within the OCWD’s boundaries. In order for the OCWD to submit an alternative plan, the entire groundwater basin (as mapped by DWR) must be included. Areas adjoining and adjacent to the Orange County Groundwater Basin include the La Habra/Brea Management Area (“MA”), the Santa Ana River Canyon MA and the Southeast Basin MA. On May 4, 2016, the OCWD sent letters to thirteen agencies located in the La Habra/Brea, Santa Ana River Canyon and Southeast Basin MAs requesting that such agencies participate in the development of an alternative plan. The Southeast MA and Santa Ana River Canyon MA are directly adjacent to the OCWD and little to no management or additional monitoring is expected to be required. The La Habra/Brea MA may seek to form a separate GSA, which requires the development of a groundwater sustainability plan and the execution of a coordination agreement with the OCWD. The OCWD submitted its alternative plan to DWR on December 22, 2016, and the alternative plan has been approved by DWR.
Purchased Water. The City is a charter member of MWD Water District of Southern California (“MWD”). As such, it has rights to the water supply of MWD on a parity basis with other member agencies of MWD. The City relies on MWD for approximately 15% of its water supply at the present time. In Fiscal Year 2023, the City purchased 7,894 acre feet of water imported from the Colorado River and northern California by MWD. MWD supplies water through its member agencies. The cost of treated and untreated imported water from MWD as of June 30, 2023 is $1,209 per acre foot and $855 per acre foot, respectively, rising to $1,256 per acre foot and $903 per acre foot, respectively, on January 1, 2024. The City currently pays a fixed charge to MWD in the form of readiness to serve, capacity reservation and service connection charges. In Fiscal Year 2023, the readiness to serve and capacity reservation charges were paid in October 2022 in the amount of $372,557 and in April 2023 in the amount of $382,188.
Composition of MWD. MWD was created in 1928 by vote of the electorates of a number of Southern California cities to provide a supplemental supply of water for domestic and municipal uses at wholesale to its member agencies. The MWD service area comprises approximately 5,200 square miles and includes portions of the six counties of Los Angeles, Orange, Riverside, San Bernardino, San Diego and Ventura. There are 26 member agencies of MWD, consisting of 14 cities, 11 municipal water districts (including the District) and one county water authority (SDCWA). MWD is governed by a Board of Directors, currently numbering 38 members.
Each member agency has at least one representative on the MWD Board. Representation and voting rights are based upon each member agency’s assessed valuation. The City has one representative on the MWD Board. The total population of the MWD service area is approximately 19 million.
MWD Scheduling and Operations. MWD member agencies request water from MWD at various delivery points within MWD’s service area and pay for such water at uniform rates established by the MWD Board for each class of service. For planning purposes, each MWD member agency advises MWD annually in December City Council 3 – 179 6/4/2024
23 of its anticipated delivery requirements for each of the five following fiscal years. Charges for water delivered are billed monthly and payable by the end of the second month following delivery.
MWD Revenues. MWD revenues are primarily derived from water sales. Water rates are established by majority vote of the MWD Board and are not subject to regulation by the California Public Utilities Commission or by any other local, State of California or federal agency. Rates must be uniform for any class of service, and no water may be provided free of charge. Under the Metropolitan Water District Act, California Statutes 1969, Chapter 209, as amended (the “MWD Act”), MWD is required, so far as practicable, to fix such rate or rates for water as will result in revenue which, together with revenue from any water standby or availability charge or assessment, will pay the operating expenses of MWD, provide for repairs and maintenance, provide for payment of the purchase price or other charges for property or services or other rights acquired by MWD and provide for the payment of the interest and principal of the bonded debt of MWD, subject to the applicable provisions of the MWD Act authorizing the issuance and retirement of such bonds. The same water rate is charged for water provided from the Colorado River and the State Water Project.
MWD is also empowered to impose an annual water standby or availability service charge, to be allocated among MWD’s member agencies as determined by the MWD Board based on, among other factors: historical water deliveries by MWD; contracted or projected water service demands by member agencies; service connection capacity; acreage; property parcels; population; and assessed valuation. The charge may be collected from the member agencies or from individual parcels or may be converted into a benefit assessment. MWD imposes a water standby charge ranging from $1.65 to $14.20 for each acre or parcel less than an acre within MWD’s service area, subject to specific exempt categories. Standby charges are assessments under the terms of Proposition 218.
A majority of the MWD Board can approve a higher rate. Different rates may be established for parcels situated within different member agencies.
The following table sets forth MWD’s rates for treated and untreated water from January 1, 2020 to January 1, 2024.
TABLE 4
City of Santa Ana
THE METROPOLITAN WATER DISTRICT OF SOUTHERN CALIFORNIA
Summary of Water Rates in Dollars per Acre Foot
Full Service Domestic
Rates Effective Beginning Treated Untreated
January 1, 2020 Tier 1 $1,078 $ 755
January 1, 2020 Tier 2 1,165 842
January 1, 2021 Tier 1 1,104 777
January 1, 2021 Tier 2 1,146 819
January 1, 2022 Tier 1 1,143 799
January 1, 2022 Tier 2 1,185 841
January 1, 2023 Tier 1 1,209 855
January 1, 2023 Tier 2 1,418 1,064
January 1, 2024 Tier 1 1,256 903
January 1, 2024 Tier 2 1,455 1,102
Source: The City.
MWD levies ad valorem taxes upon all of the property that is taxable for MWD purposes in the MWD service area, including the District’s service area. Between July 1, 1990 and June 30, 2013, in accordance with the MWD Act, MWD has limited its tax levy to the amount that is needed to pay: (i) the general obligation bond debt service of MWD; and (ii) that portion of MWD’s payment obligation under its water supply contract with the State of California attributable to debt service on certain State of California general obligation water bonds.
The MWD tax levy amount has remained at the Fiscal Year 2013 level since Fiscal Year 2013. Taxes will cease to be levied when the general obligation bonds of MWD and the State of California general obligation water bonds City Council 3 – 180 6/4/2024
24 are fully paid, although the MWD Act permits the MWD Board to continue to levy taxes upon a declaration of fiscal necessity.
MWD Supplies
As discussed above, approximately 15% of City’s water supply is imported from MWD. In Fiscal Year 2023, MWD supplied the City with approximately 7,894 acre feet of water. MWD member agencies, which use MWD water to supplement their own local water supplies, can be expected to increase their purchases of MWD water if their local water supplies are reduced. MWD reports that it had approximately 3.40 million acre feet of water in storage as of January 1, 2024, compared to approximately 2.99 million acre feet on January 1, 2023, 3.36 million acre feet on January 1, 2022, and 3.91 million acre feet on January 1, 2021.
MWD faces various challenges in the continued supply of imported water to the City. A description of these challenges as well as a variety of other operating information with respect to MWD is included in certain disclosure documents prepared by MWD. MWD periodically prepares official statements and other disclosure documents in connection with its bonds and other obligations. MWD has also entered into certain continuing disclosure agreements pursuant to which MWD is contractually obligated for the benefit of owners of certain of its outstanding obligations to file certain annual reports, including audited financial statements and notice of certain events, pursuant to Rule 15c2-12 promulgated under the Securities Exchange Act of 1934, as amended (“Rule 15c2-12”). Such official statements, other disclosure documents, annual reports and notices (collectively, the “MWD Information”) are filed with the Municipal Securities Rulemaking Board’s Electronic Municipal Market Access system (“EMMA”) at http://emma.msrb.org. The MWD Information is not incorporated herein by reference thereto, and the District makes no representation as to the accuracy or completeness of such information. MWD HAS NOT ENTERED INTO ANY CONTRACTUAL COMMITMENT WITH THE DISTRICT, THE TRUSTEE OR THE OWNERS OF THE SERIES 2024 BONDS TO PROVIDE MWD INFORMATION TO THE DISTRICT OR THE OWNERS OF THE SERIES 2024 BONDS.
MWD HAS NOT REVIEWED THIS OFFICIAL STATEMENT AND HAS NOT MADE
REPRESENTATIONS OR WARRANTIES WITH RESPECT TO THE ACCURACY OR
COMPLETENESS OF THE INFORMATION CONTAINED OR INCORPORATED HEREIN, INCLUDING INFORMATION WITH REGARD TO MWD. MWD IS NOT CONTRACTUALLY
OBLIGATED, AND HAS NOT UNDERTAKEN, TO UPDATE SUCH INFORMATION FOR THE BENEFIT OF THE CITY OR THE OWNERS OF THE SERIES 2024 BONDS UNDER RULE 15c2-12.
Water Demand, Deliveries and Sales Revenues
The City records the volume of water delivered by the Water System. Over the past five years, the City has delivered, on average, 32,727 acre-feet of potable water. For 2023, the average daily demand is approximately
83.4 acre-feet. The following table summarizes treated water deliveries and the City’s annual Water System Revenues for the most recent five Fiscal Years and the projection for Fiscal Year 2023-24.
City Council 3 – 181 6/4/2024
25 TABLE 5
City of Santa Ana
Historic Potable Water Deliveries(1)
(Fiscal Year ending June 30)
Fiscal Year
Total Water
Delivered
Percent of Ten
Year Average Water Sale Revenue(3)
2020 33,231 97% $41,046,190
2021 33,819 99% 39,978,977
2022 32,880 96% 40,563,188
2023 30,454 89% 37,376,555
2024(2) 33,412 - 41,219,335 ________________
(1) In acre-feet. Includes potable water which is discarded. (2) Estimated, unaudited.
(3) Excludes fixed meter charges.
Source: City of Santa Ana.
See Table 5 herein for a description of historical water deliveries. During Fiscal Year 2022-23, residential uses comprised approximately 68.2% of total consumption while commercial/industrial uses constituted approximately 20.1%. The City has factored this anticipated increase in sales in its revised rate schedules (discussed below).
On April 5, 2022 the City adopted Ordinance No. NS-3016, which amended the City’s water conservation standards, including increased conservation measures based on the level of water shortages. These measures involve limitations on time and duration of landscape irrigation, commercial and industrial water usage restrictions and other measures to reduce waste consistent with and in compliance of California Water Code Section 10632, the City’s updated 2020 Urban Water Management Plan, and the 2020 Water Shortage Contingency Plan.
Water System Rates and Charges
General. In accordance with California law, the City may, from time to time, fix, alter or change fixed monthly system access fees, commodity charges and other fees related to the Water System. Consequently, the City periodically reviews water rates. In accordance with California law, the City reviews such charges and fees to determine if they are sufficient to cover Maintenance and Operations Costs, capital improvement expenditures and debt service requirements. Such charges and fees are set by the City for the services provided by the Water System after a public hearing is held, generally at the time of adoption of the annual budget. Neither the City nor the Water System is subject to the jurisdiction of, or regulation by, the California Public Utilities Commission or any other regulatory body in connection with the establishment of charges and fees related to the Water System.
See “RISK FACTORS – Proposition 218” for a discussion of the treatment of the City’s rates and charges in light of Proposition 218.
The City staff periodically determines the accuracy of the Water System rate structure after full consideration of expected operations, maintenance and capital costs.
The following table discloses the current schedule of water rates and charges of the City effective as of July 1, 2020 through July 1, 2024. Any future changes to the rates and charges will require the City to conduct Proposition 218 proceedings to set rates and charges. In addition, the City is authorized to pass-through increases City Council 3 – 182 6/4/2024
26 to charges and other supply costs imposed by MWD, over which the City has no control. In Fiscal Year 2023-24 these pass-through charges are not projected to result in any increases.
TABLE 6
City of Santa Ana
Water System Rates and Charges
(Effective as of July 1 of Corresponding Fiscal Year)
Monthly Meter Charge
(Fiscal Year ending June 30)
Meter Size 2020 2021 2022 2023 2024
5/8” x 3/4” $ 20.51 $ 21.94 $ 23.37 $ 23.84 $ 24.31
3/4” 30.76 32.91 35.05 35.75 36.47
1” 51.27 54.85 58.42 59.59 60.78
1-1/2” 102.53 109.70 116.83 119.17 121.55
2” 164.04 175.52 186.93 190.67 194.48
3” 358.84 383.96 408.92 417.10 425.44
4” 645.91 691.12 736.04 750.76 765.78
6” 1,332.83 1,426.12 1,518.82 1,549.20 1,580.18
8” 2,460.60 2,632.84 2,803.97 2,860.05 2,917.25 _____________________ Source: City of Santa Ana.
Variable Consumption Charge
(Fiscal Year ending June 30)
Category 2020 2021 2022 2023 2024
Tier 1 $2.03 $2.17 $2.31 $2.36 $2.41
Tier 2 4.76 5.09 5.42 5.53 5.64
Recycled Water 2.15 2.30 2.45 2.50 2.55 ____________________ Source: City of Santa Ana.
The following table presents the current capacity fees levied by the City.
TABLE 7
City of Santa Ana
Water System Capacity Fees
(as of July 1, 2023)
Meter Size Connection Fee
5/8” x 3/4” $ 963.00
3/4” 1,395.00
1” 2,325.00
1 1/2” 4,650.00
2” 7,440.00
3” 16,275.00
4” 30,496.00
6” 62,928.00
8” N/A ______________________
Source: City of Santa Ana.
City Council 3 – 183 6/4/2024
27 The table below sets forth a comparison of average monthly bill for a single family residential unit with a 5/8-inch meter in the City to those of surrounding communities (utilizing 18,700 gallons of water per month):
TABLE 8
City of Santa Ana
Monthly Bill Comparison
(As of April 1, 2024)
Community Monthly Residential Bill
Irvine Ranch WD $55.60
Moulton Niguel WD 72.99
La Palma, City of 79.64
Huntington Beach, City of 82.32
Buena Park, City of 86.41
El Toro WD 98.63
Brea, City of 103.09
Santa Margarita WD 103.91
Anaheim, City of 105.35
Garden Grove, City of 106.28
Santa Ana, City of 112.42
Tustin, City of 114.12
Westminster, City of 116.64
Orange, City of 117.80
Fountain Valley, City of 119.47
South Coast WD 121.42
Fullerton, City of 122.55
Yorba Linda WD 125.86
Newport Beach, City of 131.09
Seal Beach, City of 137.35
East Orange CWD Retail Zone 144.03
La Habra, City of 146.03
Golden State WC 161.21
Serrano WD 167.44
Mesa WD 173.70
Laguna Beach CWD 265.56
Emerald Bay Serv. Distr. 265.56
______________________
Source: City of Santa Ana.
Collection Procedures
The City is on a bi-monthly billing cycle for water charges. Payment is due within 30 days, and is considered delinquent if not paid by that date. If payment is not received by due date, a 7 day urgent delinquent notice is sent, after which time water service is disconnected. The City has not had any material charges considered uncollectible in the past several years. If services are shut-off, a re-establishment fee of $72.00 or $54.00 for low-income qualified residential accounts, is charged. If such re-establishment is required after hours, the fee to re-establish service includes payment of all delinquent fees plus the re-establishment fee of $179.00 or $161.00 for low-income qualified residential accounts.
In 2019, the California Legislature adopted Senate Bill 998, the Water Shutoff Protection Act, codified under Health and Safety Code section 116900 et seq., increasing protections for residents facing termination of residential water service due to non-payment. The Water Shutoff Protection Act requires residential water accounts, among other requirements, to be at least 60 days delinquent before the water service can be shutoff for nonpayment. There are other procedural and substantive requirements that water suppliers must comply with City Council 3 – 184 6/4/2024
28 pursuant to the Water Shutoff Protection Act. Although water providers were required to comply with the Water Shutoff Protection Act beginning in 2020, the Governor of California issued Executive Order N-42-20 on April 2, 2020 due to the COVID-19 emergency, which temporarily prohibited the disconnection of residential water service for nonpayment of a water bill. The COVID-19 emergency moratorium on residential water shutoffs expired in January 2022. The provisions of the Water Shutoff Protection Act remain in effect.
On May 21, 2024, the Treasury & Customer Service Division of Finance will introduce and conduct the first reading of an Ordinance to bring the Santa Ana Municipal Code to compliance with the State’s Water Shutoff Protection Act. The Ordinance is scheduled for adoption at the next City Council Meeting on June 4, 2024. If the Ordinance is adopted, it would go into effect July 4, 2024, and the City would begin delinquency noticing due to nonpayment in August 2024. Should the Ordinance amendment be approved, billing due dates, delinquency notifications and service disconnections will follow the adopted language in Chapter 39 of the City’s Municipal Code.
Outstanding Water System Indebtedness
The Water Enterprise currently has two State Revolving Fund loans, one in the amount of $10,117,365 for the Automated Metering Infrastructure Project (“AMI”), and one for $13,761,712 for the Well 32 Rehabilitation Project. Both projects have an interest rate of 1.1%; the AMI Project loan has a 20-year repayment period, and the Well 32 Rehabilitation Project loan has a 30-year repayment period. The Bonds are being issued on a parity basis with the outstanding State Revolving Fund loans.
Largest Customers
The following are the ten largest potable water customers of the Water System based on estimated consumption as of June 30, 2023. The ten largest potable water users accounted for approximately 4.98% of total water consumption, and approximately 3.96% of revenues, in Fiscal Year 2022-23.
TABLE 9
City of Santa Ana
Largest Water Customers
(Fiscal Year Ending June 30, 2023)
Water Customer Classification
Total Water
Charges
Percentage
of Total
Water
Revenues
Adohr Farms Inc Wholesale Food $ 563,285 0.89%
Chroma Systems Industrial 463,242 0.73
Fairview Villas Apartments 254,155 0.40
Rp/Essex Skyline Holding Inc. Apartments 197,586 0.31
Warwick Square Assoc. Inc. Apartments 127,886 0.20
Power Circuits Inc. Industrial 270,050 0.42
Far West Management Corp Apartments 114,634 0.18
Western Medical Center Hospital 189,175 0.30
County of Orange Government 226,161 0.36
Mac Arthur Village Apartments 106,846 0.17
Totals $ 2,512,020 3.96
Total Fiscal Year Revenues $66,478,509 100.00% ______________________ Source: City of Santa Ana Comprehensive Audited Financial Report.
City Council 3 – 185 6/4/2024
29 Historic Operating Results and Debt Service Coverage The following Table 10 describes the City’s historic operating results, debt service coverage and excess revenues for the Water System for the Fiscal Years ending June 30, 2019 through 2023. The auditor has not reviewed such statements in connection with their inclusion in this Official Statement, nor has the City requested such a review. Selected information from the aforementioned audited financial statements has been used to prepare the following four-year comparative summary of revenues and expenses. The results presented in the following summary are qualified in their entirety by reference to the respective annual consolidated audited financial statements of the City. Copies of the audited financial statements for the City can be obtained at the office of the City’s Finance Director. Table 10 is the City’s historical debt service coverage based upon “System Revenues” and “Maintenance and Operation Costs” as defined in the Installment Purchase Agreement.
TABLE 10
City of Santa Ana
Historic Operating Results and Debt Service Coverage
(Fiscal Year Ended June 30)
2019 2020 2021 2022 2023
Operating Revenues:
Charges for Services $54,969,763 $56,665,706 $63,513,177(1) $66,622,643(3) $66,027,622 Lease Revenues - - - 237,826 237,826
Miscellaneous 1,257,430 396,034 531,444 38,587 213,061
Total Operating Revenues $56,227,193 $57,061,740 $64,044,621 $66,661,230 $66,478,509 Operating Expenses:
Personal Services $ 6,613,837 $ 6,872,423 $ 7,051,066 $ 7,669,572 $ 9,504,772(4) Contractual Services(7) 19,200,248 19,859,140 24,289,548(2) 23,928,584 25,813,812(5) Materials and Supplies(8) 10,905,575 11,424,668 11,526,983 11,445,307 13,612,236(6) Administrative Charges 9,088,288 10,258,676 9,382,529 11,264,633 11,457,436 Total Operating Expenses $45,807,948 $48,414,907 $52,250,126 $54,308,096 $60,388,256 Operating Income (Loss) $10,419,245 $ 8,646,833 $11,794,495 $12,353,134 $ 6,090,253 Non-Operating Revenues:
Intergovernmental - - - - $ 1,971,763
Investment Earnings $ 746,956 $ 821,458 $ 384,332 $ 394,948 328,672 Total Non-Operating Revenues (Expenses) $ 746,956 $ 821,458 $ 384,332 $ 394,948 $ 2,300,435 Net revenues $11,166,201 $ 9,468,291 $12,178,827 $12,748,082 $ 8,390,688 Prior Obligations Debt Service $ 1,355,075 $ 1,353,700 $ 1,355,450 $ 1,350,325 $ 1,353,200 Total debt service $ 1,355,075 $ 1,353,700 $ 1,355,450 $ 1,350,325 $ 1,353,200 Debt Service coverage 824% 699% 899% 944% 620%
Remaining revenues $ 9,811,126 $ 8,114,591 $10,823,377 $11,397,757 $ 7,037,488 ______________________
(1) Increase due to first full fiscal year of new rate structure. (2) Increase in wholesale water costs (OCWD), implementation of new SCADA system, and staff augmentation utilizing contract employees. (3) Water rate increase was 6.5% from previous FY, so a realized revenue increase of 4.9% is expected. (4) Increase due to negotiated 3% increase, step increases for large percentage of employees, and filling of vacancies. (5) Main driver for increase due to additional costs for maintenance and repair of equipment at water production facilities. (6) Main drivers for increased costs are the imported water (MWD) cost increases and purchase of materials and equipment that had been unavailable due to supply chain issues during the COVID-19 pandemic. (7) Includes OCWD RA charges.
(8) Includes MWD charges.
Source: City of Santa Ana Comprehensive Audited Financial Reports.
RISK FACTORS
The following factors, along with other information in this Official Statement, should be considered by potential investors in evaluating the risks in the purchase of the Bonds.
Water System Demand and Growth
There can be no assurance that the local demand for the services provided by the Water System will be maintained at levels described in this Official Statement under the heading “THE WATER SYSTEM.” Reduction in the level of demand due to conservation efforts of the City and MWD, or other factors, could require an increase in rates or charges in order to produce Net System Revenues sufficient to comply with the City’s rate covenant in City Council 3 – 186 6/4/2024
30 the Installment Purchase Agreement. Such rate increases could increase the likelihood of nonpayment, and could also further decrease demand. There can be no assurance that any other entity with regulatory authority over the Water System will not adopt further restrictions on operation of the Water System.
Water System Expenses
There can be no assurance that the City’s expenses for the Water System will be consistent with the levels described in this Official Statement. Changes in technology, new regulatory requirements, inflation, including increases in the cost of energy, supplies, and other expenses would reduce Net System Revenues, and could require substantial increases in rates or charges in order to comply with the rate covenant. Additionally, the cost of purchasing water from MWD continues to increase. Such rate increases could increase the likelihood of nonpayment, and could also decrease demand.
Parity Obligations
Although the City has covenanted not to issue additional obligations payable from Net System Revenues senior to the Installment Payments, the Installment Purchase Agreement permits the issuance by the City of certain indebtedness which may have a lien upon the Net System Revenues which is on a parity basis to the lien which secures the Installment Payments, if certain coverage tests are met (see “THE BONDS – Issuance of Parity Obligations” herein). These coverage tests involve, to some extent, projections of Net System Revenues. If such indebtedness is issued or incurred, the debt service coverage for the Installment Payments securing the Bonds will be diluted below what it otherwise would be subject to under the coverage tests. Moreover, there is no assurance that the assumptions which form the basis of such projections, if any, will be actually realized subsequent to the date of such projections. If such assumptions are not realized, the amount of future Net System Revenues may be less than projected, and the actual amount of Net System Revenues may be insufficient to provide for the payment of the Installment Payments and such additional indebtedness.
Proposition 218
On November 5, 1996, the voters of the State approved Proposition 218, the “Right to Vote on Taxes Act.” Proposition 218 added Articles XIIIC and XIIID to the State Constitution, which contain a number of provisions affecting the ability of the City to levy and collect both existing and future taxes, assessments, fees and charges. Proposition 218 also extends the initiative power to reducing or repealing any local taxes, assessments, fees and charges. This extension of the initiative power is not limited to taxes, assessments, fees and charges imposed on or after November 6, 1996, the effective date of Proposition 218, and could result in retroactive repeal or reduction in any existing taxes, assessments, fees or charges, except those which are pledged to the repayment of debt. If such a repeal or reduction in City fees or charges were to occur, and it was held that any such taxes, assessments, fees or charges were not pledged to any debt repayment, the City’s ability to make Installment Payments could be adversely affected.
In addition, while the matter is not free from doubt, Proposition 218 imposed restrictions on the levy of charges for “property-related services.” In July 2006 the California Supreme Court confirmed that a public agency’s charges for ongoing water delivery are “fees and charges” within the meaning of Proposition 218. As a result, voters within the boundaries of the City could adopt an initiative measure that reduced or repealed water rates and charges levied by the City, although it is not clear (and has not been determined by State courts) whether such action would be enforceable where such fees and charges are pledged to the repayment of indebtedness.
The City’s current fees for water service were adopted in accordance with the requirements of Proposition 218. The City believes that its fees for water service will not be adversely affected by the application of the procedural requirements of Proposition 218, and that Proposition 218 would not have any immediate adverse effect on its ability to operate its Water System. However, there can be no assurance of the availability of remedies to protect fully the interest of the holders of the Bonds. In addition, Proposition 218 affects the levy of rates and charges of certain public agency customers of the City.
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31 Constitutional Limit on Appropriations, Fees and Charges If a portion of the Water System rates or connection charges were determined by a court to exceed the reasonable costs of providing service, any fee which the City charges may be considered to be a “special tax,” which under Articles XIIIA or XIIID of the California Constitution must be authorized by a two-thirds vote of the affected electorate. This requirement is applicable to the City’s rates for service provided by the Water System.
The reasonable cost of service provided by the Water System has been determined by the State Controller to include depreciation and allowance for the cost of capital improvements. In addition, the State courts have determined that fees such as connection fees (capacity charges) will not be special taxes if they approximate the reasonable cost of constructing Water System improvements contemplated by the local agency imposing the fee.
Such court determinations have been codified in the Government Code of the State of California (Section 66000 et seq.).
Under Article XIIIB of the California Constitution, state and local government entities have an annual “appropriations limit” which limits their ability to spend certain moneys called “appropriations subject to limitation,” which consists of tax revenues, certain state subventions and certain other moneys, including user charges to the extent they exceed the costs reasonably borne by the entity in providing the service for which it is levying the charge. In general terms, the “appropriations limit” is to be based on certain Fiscal Year 1978-79 expenditures, and is to be adjusted annually to reflect changes in the consumer price index, population and services provided by these entities. Among other provisions of Article XIIIB, if an entity’s revenues in any year exceed the amount permitted to be spent, the excess would have to be returned by revising tax rates or fee schedules over the subsequent two years.
The City is of the opinion that the rates and use charges imposed by the City in connection with the Water System do not exceed the costs it reasonably bears in providing such services.
Limited Recourse on Default
If the City defaults on its obligation to make Installment Payments, the Trustee, as assignee of the Authority, has the right to accelerate the total unpaid principal amounts of the Installment Payments. However, in the event of a default and such acceleration there can be no assurance that the City will have sufficient Net System Revenues to pay the accelerated Installment Payments.
No Debt Service Reserve Account
The Authority is not funding a debt service reserve account for the Bonds. In the event of a failure by the City to pay Installment Payments when due and the Authority to timely pay debt service on the Bonds, no other source of funds will be available to make such payments while the Trustee pursues available remedies under the Indenture.
Limitations on Remedies Available; Bankruptcy
The enforceability of the rights and remedies of the Owners and the obligations of the City may become subject to the following: the federal bankruptcy code and applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws relating to or affecting the enforcement of creditors’ rights generally, now or hereafter in effect; equitable principles which may limit the specific enforcement under State law of certain remedies; the exercise by the United States of America of the powers delegated to it by the Federal Constitution; and the reasonable and necessary exercise, in certain exceptional situations, of the police power inherent in the sovereignty of the State and its governmental bodies in the interest of servicing a significant and legitimate public purpose.
Bankruptcy proceedings, or the exercising of powers by the federal or State government, if initiated, could subject the Owners to judicial discretion and interpretation of their rights in bankruptcy or otherwise and consequently may entail risks of delay, limitation, or modification of their rights.
City Council 3 – 188 6/4/2024
32 No Obligation or Ability to Tax
The obligation of the City to pay the Installment 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 Installment Payments does not constitute a debt or indebtedness of the City, the State or any of its political subdivisions, within the meaning of any constitutional or statutory debt limitation or restriction. The Authority has no taxing power.
Change in Law
In addition to the other limitations described herein, the State electorate or Legislature could adopt a constitutional or legislative reallocations of property taxes or an initiative with the effect of reducing revenues payable to or collected by the City. There is no assurance that the State electorate or Legislature will not at some future time approve additional limitations that could have the effect of reducing the Net System Revenues and adversely affecting the security of the Bonds.
Geologic and Topographic
The value of the Water System, and the ability to generate System Revenues, is contingent upon the ability of the City to deliver water to its customers. The financial stability of the City can be adversely affected by a variety of factors, particularly those which may affect infrastructure and other public improvements and private improvements and the continued habitability and enjoyment of such private improvements. Such additional factors include, without limitation, geologic conditions (such as earthquakes), topographic conditions (such as earth movements and floods) and climatic conditions (such as droughts and tornadoes). The City is in an active geological area.
Engineering standards require that some of these factors be taken into account, to a limited extent, in the design of improvements, including the Water System. Some of these factors may also be taken into account, to a limited extent, in the design of other infrastructure and public improvements neither designed nor subject to design approval by the City. Design criteria in any of these circumstances are established upon the basis of a variety of considerations and may change, leaving previously-designed improvements unaffected by more stringent subsequently established criteria. In general, design criteria reflect a balance at the time of protection and the future costs of lack of protection, based in part upon a present perception of the probability that the condition will occur and the seriousness of the condition should it occur. Conditions may occur which may result in damage to improvements in varying degrees, and such damage may entail significant repair or replacement costs, and there can be no assurance that such repair or replacement will occur. Under any of these circumstances, the public and private improvements within the City in general may well depreciate or disappear, notwithstanding the establishment of design criteria for any such condition.
The area encompassed by the City, like that in much of California, may be subject to unpredictable seismic activity. Occurrence of earthquakes could cause an interruption of deliveries of water to and from the City until repairs could be effected, thus possibly diminishing the value of the Water System and the amount of Net System Revenues.
Cybersecurity
The City relies on computers and technology to conduct its operations. This City and its departments face cyber threats from time to time including, but not limited to, hacking, viruses, malware and other forms of technology attacks. Recently, there have been significant cybersecurity incidents affecting municipal agencies, including ransomware attacks targeting Los Angeles Unified School District and the San Bernardino County Sheriff’s Department, a freeze affecting computer systems of the City of Atlanta, and attack on the City of Baltimore’s 911 system, an attack on the Colorado Department of Transportation’s computers, an attack that resulted in the temporary closure of the Port of Los Angeles’ largest terminal, and an attack on a water treatment facility in Oldsmar, Florida.
City Council 3 – 189 6/4/2024
33 The City’s Information Technology Department employs a multi-level cyber protection strategy that includes firewalls, anti-virus software, anti-spam/malware software, intrusion protection, intrusion detection, identity management, lateral movement detection, log monitoring, and other security measures. The City contracts with third-party vendors to perform external audits of its network and to perform similar internal audits. The City has also established a security operations center with third-party vendors to monitor and augment internal and external monitoring of the City’s computer systems 24 hours a day, 7 days a week. The City conducts cybersecurity training for all staff and regularly simulates phishing campaigns. Email is inspected inbound and outbound by a cloud email filtering service, and measures are in place to protect against spoofing internal addresses. The City also employs domain name system filtering and endpoint protection on its servers and desktops to catch and prevent cyberattacks. The City practices the principle of lease privilege across all of its systems. It maintains regular, redundant, online and offline backups to minimize damage and to allow for quick recovery in the event of an attack. The City also practices ongoing training, education, and actively monitors security bulletins for all emerging threats and vulnerabilities enabling it to adapt and continually evolve its digital defenses.
To date, the City has not experienced a successful attack against its networks or its servers. However, there can be no assurance that a future attack or attempted attack would not result in disruption of City operations.
The City expects that any such disruptions would be temporary in nature due to its backup/restore procedures, utilization of third-party incident response teams and disaster recovery planning.
Drought Measures
State Orders. California is subject to droughts, and over the past several decades the State faced water shortfalls and reduced snowpack. On January 17, 2014, the California Governor declared a drought state of emergency (the “State Declaration”) with immediate effect which included orders that encouraged local urban water supplies to (a) implement their local water shortage contingency plans; (b) update their urban water management plans to prepare for extended drought conditions; (c) directed the California Department of Water Resources (“DWR”) and the State Water Resources Control Board (the “SWRCB”) to expedite the processing of water transfers; (d) directed the SWRCB to put water rights holders on notice that they may be required to cease or reduce water diversions in the future; (e) directed the SWRCB to consider modifying requirements for reservoir releases or diversion limitations; and (f) directed the DWR to take necessary actions to protect water quality and supply in the Sacramento-San Joaquin River Delta/San Francisco Bay Estuary.
Subsequently, the SWRCB periodically adopted additional emergency regulations which, amongst other things, limited outdoor irrigation to two days per week, extending certain measures previously set for restricting outdoor irrigation and prohibited restaurants from serving water to customers unless requested.
On April 1, 2015, the California Governor issued an executive order (the “2015 Executive Order”) extending the measures set forth in the State Declaration and adopting additional orders to (i) restrict potable urban water usage; (ii) requiring urban water suppliers to provide monthly water usage, conservation and enforcement information; (iii) requiring service providers to monitor groundwater basin levels in accordance with California Water Code § 10933; and (iv) permitting agencies are required to prioritize approval of water infrastructure and supply projects.
On April 7, 2017, the California Governor issued an executive order (the “2017 Executive Order”) which terminates the January 17, 2014 executive order discussed above (except with respect to certain counties within the State) and rescinds the 2015 Executive Order. The 2017 Executive Order continues to require the SWRCB to develop standards for urban water suppliers to set water use efficiency targets and restrict wasteful water use, as provided in the 2015 Executive Order.
On April 21, 2021, the California Governor declared a drought state of emergency in 41 of the State’s 58 counties, primarily in the northern portion of the State and in the Central Valley, which was expanded on May 10, 2021 and July 8, 2021, and was expanded to include all counties in the State on October 19, 2021, and called for Californians to voluntarily reduce water use by 15%. Additionally, he issued Executive Orders N-10-21, N-7-22 (March 28, 2022), N-3-23 (February 13, 2023), and N-4-23 (March 10, 2023). Due to “atmospheric rivers” of City Council 3 – 190 6/4/2024
34 rain during 2022 and 2023, snowfall has greatly improved with indications of record high snow water equivalent levels for this time of year.
Due to the improved drought conditions, on March 24, 2023, the California Governor issued Executive Order N-5-23 (the “2023 Executive Order”), easing drought emergency provisions that are no longer necessary while maintaining certain requirements that are still needed in parts of the State. The 2023 Executive Order included termination of the voluntary reduction of water usage, while retaining the state of emergency in all State counties to allow for drought response and recovery efforts to continue.
In response to the State’s drought proclamations and regulations, the City has adopted a water shortage contingency plan (“WSCP”) in compliance with State guidelines for such plans. The WSCP calls for the City to respond to water shortages in stages or “shortage levels” as described in the WSCP. The City Council has the authority to declare a water shortage and establish the mandatory measures to be taken pursuant to the WSCP.
In the event of water shortages and mandatory reduction measures, the City will experience a reduction in revenue due to reduced water sales. Throughout this period of time, expenditures may increase or decrease with varying circumstances. Expenditures may increase in the event of significant damage to the Water System, resulting in emergency repairs. Expenditures may also decrease as less water is pumped through the system, resulting in lower power costs. Water shortage mitigation actions will also impact revenues and require additional costs for drought response activities such as increased staff costs for tracking, reporting, and communications.
The City receives water revenue from a service charge and a commodity charge. The service charge recovers costs associated with providing water to the serviced property. The service charge does not vary with consumption and the commodity charge is based on water usage. Rates have been designed to recover the full cost of water service in the charges. Therefore, the total cost of purchasing water would decrease as the usage or sale of water decreases. In the event of a drought emergency, the City will impose excessive water use penalties on its customers, which may include additional costs associated with reduced water revenue, staff time taken for penalty enforcement, and advertising the excessive use penalties. The excessive water use penalties are further described in the City’s Municipal Code, Chapter 39, Article VI – Water Shortage Contingency Plan. Reference to the City’s Municipal Code is provided here for convenience and no information contained in such Municipal Code is incorporated herein by such reference.
There are significant fixed costs associated with maintaining a minimal level of service. The City will monitor projected revenues and expenditures should the WSCP be implemented impacting water sales for an extended period of time. To overcome potential revenue losses and/or expenditure impacts, the City may use its reserve funds to offset the lost revenue from water sales. If necessary, the City may reduce expenditures by delaying implementation of its capital improvement program and equipment purchases to reallocate funds to cover the cost of operations and critical maintenance, adjust the work force, implement a drought surcharge, and/or make adjustments to its water rate structure.
Climate Change
Numerous scientific studies on global climate change show that, among other effects on the global ecosystem, sea levels will rise, extreme temperatures will become more common and extreme weather events will become more frequent and more intense as a result of increasing global temperatures attributable to atmospheric pollution.
The Fifth National Climate Assessment, published by the U.S. Global Change Research Program in November 2023 (NCA5), finds that rising temperatures, sea level rise, and more frequent and intense extreme weather and climate-related events, as well as changes in average climate conditions, are expected to continue to increasingly disrupt and damage infrastructure, ecosystems, social systems, property, and regional economies and industries that depend on natural resources and favorable climate conditions.
Beyond the direct adverse material effect of global climate change itself, present, pending and possible regulations aimed at curbing the effects of climate change may directly or indirectly materially adversely affect City Council 3 – 191 6/4/2024
35 the Water System and the ability or willingness of property owners to pay Water System-related charges when due. The City cannot predict the affect climate change, or any related regulations, may have on the Water System.
Environmental Regulation
The kind and degree of water operations which is effected through the Water System is regulated, to a large extent, by the federal government and the State of California. Treatment standards set forth in federal and State law control the operations of the Water System and mandate its use of technology. In the event that the federal government, acting through the Environmental Protection Agency, or the State of California, acting through the Department of Health Services, or additional federal or State legislation, should impose stricter water quality standards upon the City, the Water System’s maintenance and operations costs could increase accordingly, and rates and charges would have to be increased to offset those expenses. It is not possible to predict the direction which federal or state regulation will take with respect to drinking water quality standards, although it is likely that both levels of government will impose more stringent standards with attendant higher costs.
Risks Associated with OCWD and MWD
The operation and physical conditions of the MWD and OCWD facilities are subject to a number of risk factors that could adversely affect the reliability of such water supply and corresponding water deliveries to the City, or increase the operating expenses of OCWD and MWD, which could increase the City’s Maintenance and Operation Costs. See certain risks associated with OCWD and MWD described in “THE WATER SYSTEM” above. Additionally, MWD faces continuing litigation with respect to endangered species protected under federal and state law which is not enumerated in this Official Statement.
OCWD and MWD face various challenges in the continued supply of imported water to Orange County.
A description of these challenges as well as a variety of other operating information with respect to OCWD and MWD is included in certain disclosure documents prepared, respectively, by OCWD and MWD. Both OCWD and MWD have entered into certain continuing disclosure agreements pursuant to which they are contractually obligated, for the benefit of owners of certain of their respective outstanding obligations, to file certain annual reports, notices of certain material events as defined under Rule 15c2-12 of the Exchange Act (“Rule 15c2-12”) and annual audited financial statements with certain information repositories. Neither OCWD nor MWD have entered into any contractual commitment with the Authority, the City, the Trustee or the Owners of the Bonds to provide information to the Authority, the City, the Trustee or the Owners of the Bonds. Neither OCWD or MWD have reviewed this Official Statement and have made no representations or warranties with respect to the accuracy or completeness of the information contained or incorporated herein, including information with regard to OCWD or MWD.
Impact of State Budget
The State has experienced budgetary shortfalls in recent fiscal years, and is currently facing a budget deficit for Fiscal Year 2023-24. The City cannot predict what actions will be taken in the future by the State Legislature and the Governor to deal with changing State revenues and expenditures, and it is possible that future legislation will impact revenues of local agencies. These developments at the State level will most likely adversely affect local governments. However, the City does not currently anticipate that the State budget problems will materially adversely impact the operation of the City’s Water System.
Secondary Market for Bonds
There can be no guarantee that there will be a secondary market for the Bonds or, if a secondary market exists, that any Bonds can be sold for any particular price. Occasionally, because of general market conditions or because of adverse history or economic prospects connected with a particular issue, secondary marketing practices in connection with a particular issue are suspended or terminated. Additionally, prices of issues for which a market is being made will depend upon then-prevailing circumstances. Such prices could be substantially different from the original purchase price.
City Council 3 – 192 6/4/2024
36 Federal Tax-Exempt Status of the Bonds
The Internal Revenue Code of 1986, as amended (the “Code”) imposes a number of requirements that must be satisfied for interest on state and local obligations, such as the Bonds, to be excludable from gross income for federal income tax purposes. These requirements include limitations on the use of Bond proceeds, limitations on the investment earnings on Bonds proceeds prior to expenditure, a requirement that certain investment earnings on the Bond proceeds be paid periodically to the United States and a requirement that the issuers file an information report with the Internal Revenue Service (the “IRS”). The Authority and the City have covenanted in certain of the documents referred to herein that they will comply with such requirements. Failure to comply with the requirements stated in the Code and related regulations, rulings and policies may result in the treatment of interest on the Bonds as taxable, retroactively to the date of issuance of such Bonds.
IRS Audit of Tax-Exempt Issues
The IRS has initiated an expanded program for the auditing of tax-exempt issues, including both random and targeted audits. It is possible that the Bonds will be selected for audit by the IRS. It is also possible that the market value of the Bonds might be affected as a result of such an audit of the Bonds (or by an audit of similar obligations).
Taxpayer Protection and Government Accountability Act Initiative A voter initiative, designated as Initiative 1935 and otherwise known as “The Taxpayer Protection and Government Accountability Act” (“Initiative 1935”), has been determined to be eligible for the State’s November 5, 2024 statewide general election, and, unless withdrawn by its proponent prior to June 27, 2024, or removed pursuant to the emergency petition for writ of mandate filed by the Governor of California seeking such removal, will be certified as qualified for the ballot in such election. If it were to be approved by the voters in the election, Initiative 1935 would amend Article XIIIC of the State Constitution to, among other things, provide that every levy, charge or exaction of any kind imposed by a local government after January 1, 2022 is either a tax or an exempt charge. Charges for government services provided directly to the payor would be “taxes” subject to voter approval unless the local government can prove by clear and convincing evidence that the charge is reasonable and does not exceed the “actual cost” of providing the service or product to the payor. “Actual cost” is defined in Initiative 1935 to mean “(i) the minimum amount necessary to reimburse the government for the cost of providing the service or product to the payor and (ii) where the amount charged is not used by the government for any purpose other than reimbursing that cost.” Initiative 1935 further states that “[i]n computing “actual cost” the maximum amount that may be imposed is the actual cost less all other sources of revenue including, but not limited to taxes, other exempt charges, grants, and state or federal funds received to provide such service or product.” Initiative 1935 would also amend Article XIIIC to state that any tax or exempt charge adopted after January 1, 2022, but prior to the effective date of Initiative 1935, which was not adopted in compliance with the requirements of Initiative 1935 is void 12 months after the effective date of Initiative 1935, if adopted, unless the tax or exempt charge is reenacted in compliance with the provisions of Initiative 1935. Initiative 1935 would require an exempt charge to be imposed by ordinance of the local government’s governing body.
The City’s rates are currently adopted by the City Council to be reasonable and follow cost of service.
Accordingly, the City’s rate structure would still be subject to the exemptions provided for charges that are not subject to voter approval. However, the City Council would now be required to adopt the rates for service by a 2/3 majority. Additionally, the new scope of exempt charges as limited to recover “actual” costs and the heightened burden of proof to demonstrate the applicability of an exemption, would place greater burden on the City in defending litigation challenging the validity of its rates and charges. If submitted to, and approved by the voters, Initiative 1935 would be subject to judicial interpretation.
Global Health Emergencies and Considerations; Infectious Disease Outbreak Global health emergencies, such as COVID-19 pandemic, can negatively affected economic activity throughout the world, including the United States and the State of California. The initial impacts of the stay at home orders globally was unprecedented, with commerce, travel, asset values, and financial markets experiencing City Council 3 – 193 6/4/2024
37 disruptions worldwide. The negative effects of the COVID-19 pandemic and its aftermath on global, national, and local economies may continue at least for some period of time. Future pandemics and other widespread public health emergencies may arise from time-to-time and can impact broader economic conditions in the affected region and potentially worldwide.
Reduced economic activity and its associated impacts, including as a result of the outbreak of infectious disease, such as job losses, income losses, business closures and housing foreclosures or vacancies, and any prolonged recession that may occur, could have a variety of adverse effects on the City, the Water System operations, and the region. Non-payment of utility bills and generalized reduced water usage from customers resulting from the economic disruption may negatively affect the City and the Water System operations. A protracted disruption in the manufacturing and processing of supplies and equipment may affect supply chains or delay construction schedules for, or the implementation of, Water System capital improvement programs and projects, and may increase the costs of such projects or programs or the Water System’s operations.
Future pandemic and other widespread public health emergencies may arise from time-to-time and can impact broader economic conditions in the affected region. Reduced economic activity and its associated impacts, including as a result of the outbreak of infectious disease, such as job losses, income losses, business closures and housing foreclosures or vacancies, and any prolonged recession that may occur, could have a variety of adverse affects on City and in the region. Declines in assessed valuations in City service area and/or increases in property tax delinquencies or non-payment resulting from the economic disruption may negatively affect property tax collections and reduce tax levy receipts. Economic conditions affect aggregate levels of retail water use and may reduce demands in the region and City’s water transactions and revenues. A protracted disruption in the manufacturing or construction industry may affect supply chains or delay construction schedules for, or the implementation of, City’s capital improvement programs and projects, and may increase the costs of such projects or program or City’s operations. A sustained deterioration in global stock market values may impact the market value of assets held in fund City’s pension and other post-employment benefit plans, which could result in future increases in required plan contributions. The City cannot predict whether another national or localized outbreak of highly contagious or epidemic disease in the future could negatively impact the City’s operations and finances and/or the economy of the regions it serves.
TAX MATTERS
In the opinion of Bond Counsel, based upon an analysis of existing laws, regulations, rulings and court decisions, and assuming, among other matters, 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 (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 or corporate alternative minimum taxes, provided however, that for the purpose of calculating federal corporate alternative minimum tax imposed on corporations (as defined for federal income tax purposes), such interest is taken into account in determining certain income and earnings.
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 covenanted to comply with certain restrictions designed to insure that interest on the Bonds will not be included in federal gross income. Failure to comply with these covenants may result in interest on the Bonds being included in federal gross income, possibly from the date of original issuance of the Bonds. The opinion of Bond Counsel assumes 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) after the date of issuance of the Bonds may adversely affect the value of, or the tax status of interest on, the Bonds.
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, to federal income taxation or to be subject to or exempted from state income taxation, or otherwise prevent Bond Owners from realizing the full current benefit of the tax status of such interest. For example, legislative proposals are announced from time to time which generally would limit the exclusion from gross income of interest on obligations like the Bonds to some extent City Council 3 – 194 6/4/2024
38 for taxpayers who are individuals and whose income is subject to higher marginal income tax rates. Other proposals have been made that could significantly reduce the benefit of, or otherwise affect, the exclusion from gross income of interest on obligations like the Bonds. The introduction or enactment of any such legislative proposals, 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 any pending or proposed federal or state tax legislation, regulations or litigation, and regarding the impact of future legislation, regulations or litigation, as to which Bond Counsel expresses no opinion.
Certain requirements and procedures contained or referred to in the Indenture, the Tax Certificate, and other relevant documents may be changed and certain actions (including, without limitation, defeasance of the Bonds) may be taken or omitted under the circumstances and subject to the terms and conditions set forth in such documents. Bond Counsel expresses no opinion as to the exclusion from gross income of interest on any Bond if any such change occurs or action is taken or omitted upon the advice or approval of counsel other than Best Best & Krieger LLP.
The IRS has initiated an expanded program for the auditing of tax-exempt bond issues, including both random and targeted audits. It is possible that the Bonds will be selected for audit by the IRS. It is also possible that the market value of the Bonds might be affected as a result of such an audit of the Bonds (or by an audit of other similar bonds).
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 interest on, the Bonds may otherwise affect a Bond Owner’s federal or state tax liability. The nature and extent of these other tax consequences will depend upon the particular tax status of the Bondholder or the Bond Owner’s other items of income or deduction, and Bond Counsel expresses no opinion regarding any such other tax consequences.
A copy of the proposed form of opinion of Bond Counsel is attached hereto as Appendix C.
CONTINUING DISCLOSURE
The City has covenanted, pursuant to a Continuing Disclosure Agreement, dated as of June 1, 2024, for the benefit of holders and beneficial owners of the Bonds to provide, or cause to be provided, certain financial information and operating data relating to the City by not later than 270 days following the end of the City’s Fiscal Year (which currently would be June 30), commencing with the report for the Fiscal Year ended June 30, 2024 (the “Annual Report”), and to provide notices of the occurrence of certain enumerated events, if material. The Annual Report and notices of material events will be filed by the City with the Municipal Securities Rulemaking Board’s (the “MSRB”) Electronic Municipal Market Access system (“EMMA”), or any successor assigned by the MSRB or the Securities and Exchange Commission. The specific nature of the information to be contained in the Annual Report or the notices of material events is summarized below under the caption “APPENDIX D - Form of Continuing Disclosure Agreement.” These covenants have been made in order to assist the Underwriter in complying with S.E.C. Rule 15c2-12 promulgated under the Securities and Exchange Act of 1934, as amended (the “Rule”).
[In the past five years the City and its related entities have failed on one occasion to comply with their respective prior continuing disclosure undertakings: the City failed to file notice of a rating upgrade on its Gas Tax Revenue Certificates of Participation (2007 Local Street Improvement Project) (the “2007 COPs”) that occurred on November 7, 2019. A notice of rating upgrade was subsequently pastel. The 2007 COPs were prepaid in their entirety on December 23, 2019.]
In order to ensure ongoing compliance by the City and Authority with their continuing disclosure undertakings, (i) the City has instituted procedures to ensure compliance and coordination between the City and the Authority; and (ii) the City has contracted with a consultant to assist the City in filing accurate, complete and timely disclosure reports on behalf of the City and the Authority.
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39 NO LITIGATION
There is no proceeding or litigation of any nature now pending to restrain or enjoin the issuance, sale, execution or delivery of the Bonds, or in any way contesting or affecting the validity of the Bonds, the proceedings of the Authority taken with respect to the issuance or sale thereof, the pledge or application of any moneys or securities provided for the payment of the Bonds, the existence or powers of the Authority or the title of any officers of the Authority to their respective positions. A certificate of the Authority to this effect will be delivered on the date of delivery of the Bonds.
RATING
In connection with the issuance and delivery of the Bonds, Standard & Poor’s Rating Services (“S&P”) has assigned their municipal bond rating of “____” to the Bonds. Such rating reflects only the view of such organization and any desired explanation of the significance of such rating should be obtained from S&P.
Generally, a rating agency bases its rating on the information and materials furnished to it and on investigations, studies and assumptions of its own. There is no assurance that any rating will continue for any given period of time for the Bonds or that it will not be revised downward or withdrawn entirely by such rating agency, if, in the judgment of such rating agency, circumstances so warrant. The Authority undertakes no responsibility either to bring to the attention of the Owners of the Bonds any proposed change in or withdrawal of a rating or to oppose any downward revision or withdrawal of any rating obtained. Any such downward revision or withdrawal of such rating may have an adverse effect on the market price of the Bonds.
FINANCIAL ADVISOR
The Authority has retained Urban Futures Incorporated, Los Angeles, California, as Financial Advisor for the sale of the Bonds. The Financial Advisor is not obligated to undertake, and has not undertaken to make, an independent verification or to assume any responsibility for the accuracy, completeness of fairness of the information contained in this Official Statement. Urban Futures Incorporated is an independent advisory firm and is not engaged in the business of underwriting, trading, or distributing municipal or other public securities.
PROFESSIONAL FEES
In connection with the execution of the Bonds, fees payable to Urban Futures Incorporated, as Financial Advisor and U.S. Bank Trust Company, National Association as Trustee are contingent upon the execution and delivery of the Bonds.
APPROVAL OF LEGALITY
Best Best & Krieger LLP, Irvine, California, Bond Counsel, will render an opinion with respect to the validity and enforceability of the Indenture, and as to the validity of the Bonds. Certain matters will be passed upon for the Authority and City by the City Attorney, and by Best Best Best & Krieger LLP, Irvine, California, Disclosure Counsel.
UNDERWRITING
The Bonds are being sold to ______________________ (the “Underwriter”). The Underwriters have agreed, subject to certain conditions, to purchase the Bonds from the Authority at a purchase price of $____________ (being the principal amount of the Bonds, less an Underwriter’s discount of $____________, plus/less original issue premium of $____________. The obligations of the Underwriter are subject to certain conditions precedent, and they will be obligated to purchase all such Bonds if any such Bonds are purchased. The Underwriter intends to offer the Bonds to the public initially at the prices and/or yield set forth on the inside cover page of this Official Statement, which prices or yields may subsequently change without any requirement of prior notice.
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40 The Underwriter reserves the right to join with dealers and other underwriters in offering the Bonds to the public. The Underwriter may offer and sell Bonds to certain dealers (including dealers depositing Bonds into investment trusts) at prices lower than the public offering prices, and such dealers may re-allow any such discounts on sales to other dealers. In reoffering Bonds to the public, the Underwriter may over-allocate or effect transactions which stabilize or maintain the market prices for Bonds at levels above those which might otherwise prevail. Such stabilization, if commenced, may be discontinued at any time.
ADDITIONAL INFORMATION
Any statements in this Preliminary Official Statement involving matters of opinion, whether or not expressly so stated, are intended as such and not as representations of fact. This Official Statement is not to be construed as a contract or agreement between the Authority and the purchasers or Owners of any of the Bonds.
The execution and delivery of this Official Statement have been authorized by the members of the Authority.
SANTA ANA PUBLIC FINANCING
AUTHORITY
By:
President
CITY OF SANTA ANA
By:
City Manager
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APPENDIX A
CITY OF SANTA ANA
GENERAL DEMOGRAPHIC INFORMATION
The following material is descriptive of the City of Santa Ana and the surrounding areas of Orange County (the “County”). It has been prepared by or excerpted from sources as noted herein, and has not been independently verified by Bond Counsel, Disclosure Counsel, or the Underwriter. The Bonds are payable solely from the sources described herein (see “SECURITY FOR THE BONDS”).
General
Santa Ana is a vibrant community with a youthful population, a diverse economic base and home to approximately 30,000 businesses (as measured by business licenses issued). Notable Fiscal Year 2022-2023 City demographics include:
• Taxable Sales of $5.1 Billion
• Population – 308,771
• Median Household Income- $77,283
• Labor Force of 156,600
• Low unemployment rate of 3.3%
• Building Activity of $465 Million
• Assessed Valuations of $30.4 Billion
Overall, the City has a diverse economy, which is helpful during economic downturns. The top 25 businesses generate about 30% of the City’s total sales tax revenue. The City’s solid retail segment is anchored by Bristol Street Business Corridor, Main Place Mall, and the Santa Ana Auto Mall. Santa Ana also features a historic downtown with many independent restaurants surrounding a cultural artist village. Three of the City’s most popular attractions are the Santa Ana Zoo at Prentice Park, the world-renowned Bowers Museum, and the Discovery Cube. The Zoo hosts a variety of exhibits such as the Colors of the Amazon, the Zoofari, and the FiftyMonkey Ferris Wheel. As the largest and one of the oldest museums in Orange County, Bowers has been voted ‘Best Museum’ in Orange County for the past 30 years by OC Register Readers (2023). The Discovery Cube is a nonprofit interactive science museum and exhibit with a mission to educate and inspire children.
The City’s diverse economic base includes transportation, general retail, business to business, food industry, and construction. Transportation and general retail comprise about approximately half of the City’s sales tax base. However, the top five sales tax segments in the City are restaurants, auto sales, service stations, building materials, and drug stores. In December 2017, Santa Ana received a Federal Opportunity Zone designation of eleven census tracts encompassing 25% of the City. The designation includes areas projected for future development, including the Santa Ana Regional Transportation Center (SARTC) and the route of the Orange County Transportation Authority’s (OCTA) Street Car. These zones have the potential to boost the local economy if developers seize the opportunity to use the federal tax incentives by December 2028 and support the City’s role in creating a business-friendly, safe, and attractive environment. Each new business results in new jobs, increased sales tax revenue and property values.
City Council appropriations of resources are budgeted expenditures. For the 2023-2024 Fiscal Year, citywide appropriations across all funds was $764.1 million. General Fund revenue is unrestricted, meaning it can be used for any lawful purpose. Of the citywide appropriations, General Fund revenue accounts for 52% of total appropriations, which is typical for a municipality. Sales tax and property tax continue to be the primary revenue sources for the General Fund, accounting for more than 60% of the General Fund budget. To help protect city service levels in the event of a recession, City Council adopted a policy to ensure at least 18% of recurring General Fund revenue is set aside as a reserve at all times.
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Population
The following table illustrates population estimates of the City for the last ten fiscal years.
CITY OF SANTA ANA
Population
(As of May 2023)
Calendar
Year Population
2023 308,189
2022 308,771
2021 310,227
2020 332,318
2019 331,912
2018 332,627
2017 333,765
2016 333,417
2015 333,431
2014 308,189 ______________________
Source: U.S. Census Bureau.
Employment
CITY OF SANTA ANA
Principal Employers
(Fiscal Year 2023)
2023
Employer
Number of
Employees
Percent of Total
Employment(1)
County of Orange 16,380 10.80%
Santa Ana Unified School District 5,078 3.30
Santa Ana College 3,521 2.26
KPC Healthcare (formerly Integrated Healthcare Holdings) 1,693 1.09 City of Santa Ana 1,565 1.01
United States Postal Service (3 locations) 1,393 0.90
Allied Universal 1,200 0.80
First American Title 1,084 0.70
Superior Court of CA – County of Orange 760 0.49
Johnson & Johnson 554 0.36 ______________________
(1) “Total Employment” as used above represents the total employment of all employers within the City limits.
Source: City of Santa Ana Audited Comprehensive Financial Report dated as of June 30, 2023.
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ANAHEIM-SANTA ANA-IRVINE
MWD STATISTICAL AREA
LABOR FORCE INDUSTRY EMPLOYMENT
ANNUAL AVERAGES
LAST FIVE FISCAL YEARS
(in thousands)
Title 2019 2020 2021 2022 2023
Civilian Labor Force 1,613,900 1,563,800 1,557,200 1,579,300 1,588,900 Civilian Employment 1,568,400 1,424,300 1,464,100 1,528,500 1,532,400 Civilian Unemployment 45,500 139,500 93,100 50,700 56,500 Civilian Unemployment Rate 2.8% 8.9% 6.0% 3.2% 3.6%
Total, All Industries 1,677,200 1,534,600 1,589,800 1,667,700 1,683,600 Total Farm 1,900 1,900 2,000 1,700 1,700
Total Nonfarm 1,675,300 1,532,700 1,587,800 1,666,100 1,681,900 Mining and Logging 107,100 102,100 102,900 105,900 105,200 Construction 106,100 101,300 102,200 105,300 104,600
Manufacturing 160,100 150,100 149,800 155,400 156,500
Trade, Transportation, and Utilities 261,400 244,100 252,000 258,300 262,100 Information 26,000 24,100 24,000 24,300 22,600
Financial Activities 117,600 115,900 117,100 112,300 104,100 Professional & Business Services 328,400 309,200 321,700 331,500 321,400 Educational & Health Services 233,100 225,800 237,300 249,300 264,300 Leisure & Hospitality 227,700 161,800 180,400 217,900 229,600 Other Services 52,000 44,100 47,500 53,100 55,300
Government 162,500 156,100 155,700 158,200 161,200
______________________
Source: California Economic Development Department.
Regional Economy
The local economy declined during the COVID-19 pandemic but has shown improvement in recent years with the broader recovery of the California economy. The unemployment rate for the City of Santa Ana is 3.3% as of 2022, a reduction from peak unemployment of 9.3% in 2020. Despite the challenges caused by the COVID19 pandemic, the City continued to support the governmental activities of the City and has developed a budgeting plan to enhance the City’s general fund reserves over time.
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Assessed Valuation
Assessed valuation in the City has increased steadily over all in the past ten years.
CITY OF SANTA ANA
Assessed Value and Estimated Actual Value of Taxable Property Last Ten Fiscal Years
(in thousands of dollars)
Fiscal Year
Ended
June 30 Secured Unsecured
Taxable
Assessed
Value(1)
2023 $30,723,826 $1,748,007 $32,325,355
2022 28,865,226 1,676,091 30,393,150
2021 27,590,592 1,489,607 28,930,804
2020 26,373,249 1,570,712 27,791,434
2019 25,027,024 1,493,217 26,366,912
2018 23,719,049 1,513,465 25,076,707
2017 22,436,846 1,449,280 23,728,394
2016 21,528,909 1,484,318 22,853,500
2015 20,432,992 1,642,391 21,914,119
2014 19,579,938 1,539,745 20,955,423 ______________________ (1) Taxable Assessed Value totals includes deductions for property tax exemptions not illustrated herein.
Source: City of Santa Ana Audited Comprehensive Financial Report dated as of June 30, 2023.
Largest Property Taxpayers
Principal property owners in Fiscal Year ending June 30, 2023 amounted 5.00% of the total assessed value in the City. The table below shows the top 10 property taxpayers in the City.
CITY OF SANTA ANA
Principal Property Tax Payers
Fiscal Year 2023
Principal Property Tax Payer(1)
Taxable
Assessed Value Rank
Percentage of
Total City
Taxable
Assessed Value
Main Place Shoppingtown $ 343,869,523 1 1.07%
Bre OC Griffin LLC 240,461,846 2 0.75
RP/Essex Skyline Holdings 152,350,555 3 0.47
First American Title 141,445,558 4 0.44
MDC Coastal 13 LLC 120,758,820 5 0.37
APG OCIC LLC 116,546,455 6 0.36
Centerpoint 2701 Harbor LLC 114,025,000 7 0.35
Cadigan 1901 First LLC 105,463,775 8 0.33
Rexford Industrial – 1800 St 105,300,000 9 0.33
Adagio 366 LLC 104,995,718 10 0.33
TOTAL $1,545,217,250 4.80%
______________________
(1) Presented in order of highest to lowest estimated property tax revenue paid to the City.
Source: City of Santa Ana Audited Comprehensive Financial Report dated as of June 30, 2023.
Commercial Activity
The following table sets forth information regarding taxable sales in the City for Calendar Years 2019 through 2023. The County of Orange has a 7.75% tax rate. The Santa Ana residents approved Measure X, the City Council 3 – 201 6/4/2024 A-5
City’s transactions and use tax on November 6, 2018. Measure X increased the City’s sales tax by one and onehalf (1.5) cents until 2029, then it reduces to one (1) cent until 2039.
CITY OF SANTA ANA
Taxable Sales by Category
Last Five Fiscal Years
(in thousands of dollars)
Category 2023 2022 2021 2020 2019
General Retail $1,125,656 $1,198,512 $1,053,321 $ 892,136 $ 987,259 Food Products 951,935 899,763 748,869 749,169 811,103
Transportation 1,334,415 1,292,315 979,352 890,337 982,554 Construction 633,543 567,508 508,109 445,367 466,522
Business to Business 1,055,587 1,109,496 1,005,516 926,200 1,148,295 Miscellaneous(1) 59,509 50,144 41,171 29,665 38,693
Total $5,160,645 $5,117,739 $4,336,338 $3,932,874 $4,434,427 ______________________
(1) Miscellaneous category includes health & government.
Source: City of Santa Ana Audited Comprehensive Financial Report dated as of June 30, 2023.
City’s Pension Plans
The City contributes to the California Public Employees Retirement System (“PERS”), a multipleemployer, public employee defined benefit plan, which acts as a common investment and administrative agent for participating public entities within the State. The City’s membership is reported as miscellaneous and safety members. The Authority’s employees are eligible to participate in the City’s miscellaneous plan. The City allocates approximately 1.94% of the City’s net pension liability and pension-related transactions to the Authority.
For Fiscal Year 2022-23, the Water System is responsible for approximately $7,451,957 in PERS pension costs (unfunded actuarial liability). PERS issues a separate comprehensive annual financial report, and annual actuarial reports for the City’s retirement plans. Copies of PERS’ annual financial report may be obtained from their executive office at 400 “P” Street, Sacramento, California 95814, or at their website at http://www.calpers.ca.gov.
The foregoing reference to an internet website is made for reference and convenience only; the information contained within the website has not been reviewed by the City or the Authority and is not incorporated in this Official Statement by reference.
All Authority personnel are eligible to participate in PERS upon becoming vested after five years of service. Members with five years of total service are eligible to retire at age 50 to 62 with statutorily reduced benefits. For employees hired on or before December 31, 2012 (“classic” employees), the benefits are calculated at the highest consecutive 12 months for miscellaneous employees and safety employees multiplied by a total number of years employed. For new (PEPRA) members, hired January 1, 2013 or later, final compensation is the average annual pensionable compensation for a 36-consecutive-month period of employment. Monthly retirement benefits are payable for life in an amount equal to a specified percentage as follows:
Miscellaneous Risk Pool
Classic Plan PEPRA Misc. Plan
On or Before On or After
Hire Date 31-Dec-12 1-Jan-13
Benefit formula 2.0% to 2.7% 1.0% to 2.5%
Benefit vesting schedule 5 years of service 5 years of service Benefit payments Monthly for life Monthly for life
Retirement age 50 52 - 67
Required employee contribution rate 8.00% 7.00%
Required employer contribution rate 11.90% 11.90%
For employees hired on or before December 31, 2012, required employee contributions to PERS are
8.00% of compensation for miscellaneous employees. Under the California Public Employees’ Pension Reform Act of 2013 (PEPRA), for new employees hired on or after January 1, 2013, the required employee contributions City Council 3 – 202 6/4/2024 A-6
to PERS is 7.00% of compensation for miscellaneous employees. The City is required to contribute the remaining amounts necessary to fund the benefits for its members, using the actuarial basis recommended by the PERS actuaries and actuarial consultants and adopted by the PERS Board of Administration.
PERS uses a modification of the entry age normal actuarial cost method, which is a projected benefit cost method. That is, it takes into account those benefits that are expected to be earned in the future as well as those already accrued. The City’s contributions to PERS for the fiscal years ended June 30, 2023, 2022 and 2021 were $48,070,659, $70,625,739, and $68,197,329, respectively and are estimated to be $45,680,970 for the fiscal year ending June 30, 2024. The Water System was responsible for $927,875, $1,505,712, and $1,462,642 for fiscal years ended June 30, 2023, 2022 and 2021, respectively and are estimated to be $906,505 for fiscal year ending fund 30, 2024. Contribution rates for each participating employer are determined based on the benefit structure established.
The funded status of each plan as of June 30, 2022, on an actuarial value of assets basis is as follows (dollar amounts in thousands):
Market
Value of
Assets (MVA)
Actuarial Accrued
Liability (AAL)
Entry Age
Unfunded
AAL (UAAL)
Funded Ratio
(MVA / AAL)
Covered
Payroll
Miscellaneous $883,342,083 $1,073,796,340 $190,454,257 82.3% $73,234,214 ___________________________
Source: PERS June 30, 2023 actuarial valuations.
The actuarial studies referenced above incorporate recent changes in actuarial methods and assumptions.
In the PERS’ June 30, 2022 actuarial valuations, PERS used the new actuarial methods for the calculation of the projected contribution rates. PERS states that “projected results reflect the adopted changes to the discount rate… Actuarial Methods and Assumptions. The projections also assume that all actuarial assumptions will be realized and that no further changes to assumptions, contributions, benefits, or funding will occur during the projection period. The projected normal cost percentages in the projections below do not reflect that the normal cost will decline over time as new employees are hired into PEPRA or other lower cost benefit tiers.” The projected rates for each plan as of June 30, 2022, the most recent actuarial valuation, are as follows:
Projected Future Employer Contribution Rates(1)
2024-25 2025-26 2026-27 2027-28 2028-29 2029-30
Miscellaneous 12.22% 11.9% 11.6% 11.3% 11.0% 10.7%
___________________________
(1) Assume 6.8% return for Fiscal Year 2022-23.
Source: PERS June 30, 2022, actuarial valuations.
The Authority cannot anticipate accuracy of the projections above or to what extent the contribution requirements of the Authority will increase in future years.
Other Post-Employment Benefits (“OPEB”)
The City provides a single-employer defined benefit healthcare plan to retirees through PERS under the California Public Employees Medical & Hospital Care Act (“PEMHCA”). Employees are eligible for PEMHCA benefits if they retire from the City on or after age 50 for all Classic Members and age 52 for PEPRA Miscellaneous Members with at least five years of PERS service credit or an approved disability retirement, and a eligible for a PERS pension. The City paid $151 for calendar year 2023 per active safety & miscellaneous employee and retirees for PEMHCA minimum. The CalPERS Board of Administration approves the employer contribution rate and plan changes annually based on Government Code section 22892. As of June 30, 2023, the City’s total liability for post-employment healthcare benefits consisted of the following:
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OPEB Plan
Net OPEB
Liability
Deferred
Outflows of
Resources OPEB Expense
Retiree Benefits Plan $42,713,299 $6,874,118 $159,332
Source: City of Santa Ana Annual Comprehensive Financial Reports for Fiscal Year ending June 30, 2023.
Membership in the health benefit plan consisted of the following on June 30, 2022, the date of the latest actuarial valuation:
Participant Type
Number of
Participants
Inactive participants currently receiving benefits 430
Inactive participants entitled to but not yet receiving benefit payments 52 Active plan member 625
Total 1,107
Source: City of Santa Ana Annual Comprehensive Financial Reports for Fiscal Year ending June 30, 2023.
The City’s net OPEB liability as of June 30, 2023 was $42,713,299. The Authority’s share of such net liability is $2,956,433.
Additionally, the Water Department is responsible for $1,506,103 for compensated absences liability.
For additional details on the City’s OPEB liability, see APPENDIX F – “COMPREHENSIVE AUDITED FINANCIAL REPORT FOR FISCAL YEAR ENDED JUNE 30, 2023 (Note 4).” Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, mortality, and healthcare cost trends. Amounts determined regarding the funded status are subject to continual revisions as actual results are compared with past expectations and new estimates are made about the future.
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APPENDIX B
SUMMARY OF CERTAIN DEFINED TERMS
AND PRINCIPAL LEGAL DOCUMENTS
The following is a collective summary of certain provisions of the Indenture, Master Installment Purchase Agreement and First Supplement to Master Installment Purchase Agreement (each an “Agreement”) and which are not described elsewhere. This summary does not purport to be comprehensive and reference should be made to the respective agreements for a full and complete statement of provisions thereof. Unless the context otherwise requires, the terms defined below shall for all purposes of this summary and of any report or other document mentioned below having the meanings defined below, the following definitions to be equally applicable to both the singular and plural forms of any of the terms defined. All capitalized terms used below and not defined below shall have the meanings ascribed thereto in the applicable Agreement.
INDENTURE
[To Come]
MASTER INSTALLMENT PURCHASE AGREEMENT
[To Come]
FIRST SUPPLEMENT TO
MASTER INSTALLMENT PURCHASE AGREEMENT
[To Come]
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APPENDIX C
FORM OF FINAL OPINION OF BOND COUNSEL
[Closing Date]
Santa Ana Public Financing Authority
20 Civic Center Plaza
Santa Ana, CA 92702
Re: $__________* Santa Ana Public Financing Authority Water Revenue Bonds, Series 2024 Ladies and Gentlemen:
We have reviewed the Constitution and the laws of the State of California and certain proceedings taken by the City of Santa Ana (the “City”) and the Santa Ana Public Financing Authority (the “Authority”) in connection with the issuance by the Authority of its $___________* Revenue Bonds, Series 2024 (the “Bonds”).
The Bonds have been issued under that certain Indenture of Trust, dated as of June 1, 2024 (the “Indenture”), by and between the Authority and U.S. Bank Global Corporate Trust Services, as trustee and pursuant to the provisions of Articles 10 and 11 of Chapter 3 of Part 1 of Division 2 of Title 5 of the California Government Code (the “Refunding Law”). The City Council adopted its resolution approving the issuance of the Bonds on [June 4], 2024 (the “Resolution”). The proceeds of the Bonds have been applied by the Authority to refinance certain improvements to the Water System. All terms not defined herein have their meaning ascribed to those terms in the Indenture.
In such connection, we have reviewed the Indenture, the tax certificate of the Authority for the Bonds dated the date hereof (the “Tax Certificate”), certificates of the Authority 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 events come to our attention after the date hereof. Accordingly, this opinion speaks only as of its date and is not intended to, and may not, be relied upon 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. 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 and the Tax Certificate, including (without limitation) covenants and agreements compliance with which is necessary to ensure 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 and the Tax Certificate and their enforceability may be subject to bankruptcy, insolvency, reorganization, arrangement, fraudulent conveyance, moratorium and 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 their subordinate entities in the State of California. We express no opinion with respect to any indemnification, contribution, penalty, choice of law, choice of forum, choice of venue, waiver or severability provisions contained in the documents * Preliminary, subject to change.
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mentioned in the preceding sentence. Finally, we undertake no responsibility for the accuracy, completeness or fairness of the Official Statement or other offering materials relating to the Bonds and express no opinion with respect thereto.
Based upon the foregoing, we are of the opinion, under existing law, that:
1. The Bonds have been duly and validly authorized by the Authority and are legal, valid, and binding limited obligations of the Authority. The Bonds are secured and payable solely from sources provided therefor in the Indenture.
2. The Indenture has been duly authorized by the Authority, and constitutes the valid and legally binding obligation of the Authority enforceable against the Authority in accordance with its terms, as such enforcement may be limited by bankruptcy, insolvency, moratorium, transfer or conveyance or other laws affecting creditors’ rights generally, or by the exercise of judicial discretion in accordance with general principles of equity or otherwise in appropriate cases; provided, however, that we express no opinion with respect to any indemnification, contribution, choice of law or waiver provisions contained therein.
3. The Indenture creates a valid pledge of that which the Indenture purports to pledge, subject to the provisions of the Indenture, except to the extent that the enforceability of the Indenture may be limited by moratorium, bankruptcy, reorganization, fraudulent conveyance or transfer, insolvency or other laws affecting creditors’ rights generally, or by the exercise of judicial discretion in accordance with general principles of equity or otherwise in appropriate cases.
4. Under existing statutes, regulations, rulings and court decisions, the interest on the Bonds is excluded from gross income for purposes of federal income taxation. Interest on the Bonds is not a specific preference item for purposes of the federal alternative minimum tax imposed on individual and corporations, however, interest on the Bonds is taken into account in determining the annual adjusted financial statement income of certain corporations for the purpose of computing the alternative minimum tax imposed on certain corporations.
Although the interest on the Bonds is excluded from gross income for purposes of federal income taxation, the accrual or receipt of interest on the Bonds, or any portion thereof, may otherwise affect the federal income tax liability of the recipient. The extent of these other tax consequences will depend on the recipient’s particular tax status or other items of income or deduction. We express no opinion regarding any such consequences.
5. Interest on the Bonds is exempt from State of California personal income tax.
Respectfully submitted,
City Council 3 – 207 6/4/2024
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APPENDIX D
FORM OF CONTINUING DISCLOSURE AGREEMENT
Upon issuance of the Bonds, the Authority proposes to enter into a Continuing Disclosure Agreement in substantially the following form:
THIS CONTINUING DISCLOSURE AGREEMENT (the “Disclosure Agreement”), dated as of June 1, 2024, is executed and delivered by the Santa Ana Public Financing Authority (the “Authority”) and Urban Futures, Inc., as dissemination agent (the “Dissemination Agent”), in connection with the issuance by the Authority of $_________ aggregate principal amount of the Santa Ana Public Financing Authority Revenue Bonds, Series 2024 (the “Bonds”). The Bonds are being issued pursuant to an Indenture of Trust, dated as of June 1, 2024 (the “Indenture”), by and between the Authority and U.S. Bank Trust Company, National Association, as trustee.
The Authority and the Dissemination Agent covenant and agree as follows:
Section 1. Purpose of the Disclosure Agreement.
This Disclosure Agreement is being executed and delivered by the Authority and the Dissemination Agent for the benefit of the owners of the Bonds and in order to assist the Participating Underwriters in complying with 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 Agreement unless otherwise defined in this section, the following capitalized terms shall have the following meanings:
“Annual Report” shall mean any Annual Report provided by the Authority pursuant to, and as described in, Sections 3 and 4 of this Disclosure Agreement.
“Annual Report Date” shall mean the date in each year not later than April 1 following the end of the Authority’s fiscal year, the end of which, as of the date of this Disclosure Agreement, is June 30. “Dissemination Agent” shall mean, initially, Urban Futures Inc., acting in its capacity as Dissemination Agent hereunder, or any successor Dissemination Agent that is so designated in writing by the Authority and which has filed with the then current Dissemination Agent a written acceptance of such designation. “Listed Events” shall mean any of the events listed in Section 5(a) of this Disclosure Agreement. “MSRB” shall mean the Municipal Securities Rulemaking Board. “Official Statement” shall mean the Official Statement relating to the Bonds. “Participating Underwriters” shall mean Samuel A. Ramirez & Company, Inc., the original underwriters of the Bonds required to comply with the Rule in connection with the offering of the Bonds. “Rule” shall mean 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 Authority shall, or shall cause the Dissemination Agent to, not later than the Annual Report Date, commencing April 1, 2025, provide to MSRB an Annual Report that is consistent with the requirements of Section 4 of this Disclosure Agreement. Not later than fifteen (15) calendar days prior to each such Annual Report Date, the Authority shall provide its Annual Report to the Dissemination Agent, if such City Council 3 – 208 6/4/2024 D-2
Dissemination Agent is a different entity than the Authority. The Annual Report must be submitted in an electronic format as prescribed by MSRB, accompanied by such identifying information as is prescribed by MSRB, and may include by reference other information as provided in Section 4 of this Disclosure Agreement; provided that the audited financial statements of the Authority (which include information regarding the funds and accounts of the Authority), if any, may be submitted separately from and later than the balance of the Annual Report if they are not available by the applicable Annual Report Date. If the Authority’s fiscal year changes, the Authority shall provide written notice of such change in the same manner as for a Listed Event under Section 5(c). The Authority 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 hereunder.
The Dissemination Agent may conclusively rely upon such certification of the Authority and shall have no duty or obligation to review such Annual Report.
(b) If the Authority is unable to provide to MSRB an Annual Report by the date required in subsection (a), the Authority shall, in a timely manner, send to MSRB a notice in substantially the form attached hereto as Exhibit A. Such notice must be submitted in an electronic format as prescribed by MSRB, accompanied by such identifying information as prescribed by MSRB.
(c) The Dissemination Agent shall:
(i) provide any Annual Report received by it to MSRB by the date required in subsection (a); and
(ii) file a report with the Authority certifying that the Annual Report has been provided to MSRB pursuant to this Disclosure Agreement, and stating the date the Annual Report was so provided.
Section 4. Content of Annual Reports. The Annual Report shall contain or incorporate by reference the following:
(a) Audited financial statements of the Authority, which include information regarding the funds and accounts of the Authority, if any, for the most recent fiscal year of the Authority then ended. If the audited financial statements are not available by the time the Annual Report is required to be filed, the Annual Report shall contain any unaudited financial statements of the Authority in a format similar to the audited financial statements, and the audited financial statements shall be filed in the same manner as the Annual Report when they become available. Audited financial statements of the Authority shall be audited by such auditor as shall then be required or permitted by State law or the Indenture. Audited financial statements shall be prepared in accordance with generally accepted accounting principles as prescribed for governmental units by the Governmental Accounting Standards Board; provided, however, that the Authority may from time to time, if required by federal or state legal requirements, modify the basis upon which its financial statements are prepared. In the event that the Authority shall modify the basis upon which its financial statements are prepared, the Authority shall provide a notice of such modification to MSRB, including a reference to the specific federal or state law or regulation specifically describing the legal requirements for the change in accounting basis. (b) To the extent not contained in the audited financial statements filed pursuant to the preceding clause (a), the Annual Report shall contain information showing the following:
(i) Summary of Operations (for such Fiscal Year only) (Table 1); (ii) Ten Largest Water Customers (for such Fiscal Year only) (Table 9); (iii) Historical Debt Service Coverage (for such Fiscal Year only) (Table 11); and (iv) Any changes in Water System rates and charges in such Fiscal Year.
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(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.
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 Authority or related public entities, which are available to the public on MSRB’s Internet web site or filed with the Securities and Exchange Commission. The Authority shall clearly identify each such other document so included by reference.
Section 5. Reporting of Significant Events.
(a) Pursuant to the provisions of this Section 5, the Authority shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Bonds:
(i) principal and interest payment delinquencies;
(ii) non-payment related defaults, if material;
(iii) unscheduled draws on any reserve fund for the Bonds reflecting financial difficulties;
(iv) unscheduled draws on any credit enhancements securing the Bonds reflecting financial difficulties;
(v) substitution of any credit or liquidity providers, or their failure to perform; (vi) adverse tax opinions, the issuance by the Internal Revenue Service of proposed or final determinations of taxability, Notices of Proposed Issue (IRS Form 5701-TEB), or other material notices or determinations with respect to the tax status of the Bonds, or other material events affecting the tax status of the Bonds;
(vii) modifications to the rights of owners of the Bonds, if material; (viii) Bond calls, if material, and tender offers for the Bonds; (ix) defeasances;
(x) any release, substitution, or sale of property securing repayment of the Bonds, if material;
(xi) rating changes;
(xii) any bankruptcy, insolvency, receivership, or similar event of the Authority. This Listed Event is considered to occur when any of the following occur: the appointment of a receiver, fiscal agent, or similar officer for the Authority in a proceeding under the 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 Authority, or if such jurisdiction has been assumed by leaving the existing governing body and officials or officers in possession but subject to the supervision and orders of a court or governmental authority, or the entry of an order confirming a plan of reorganization, arrangement, or liquidation by a court or governmental authority having supervision or jurisdiction over substantially all of the assets or business of the Authority; (xiii) the consummation of a merger, consolidation, or acquisition involving the Authority or the sale of all or substantially all of the assets of the Authority, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms, if material; City Council 3 – 210 6/4/2024
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(xiv) appointment of a successor or additional trustee or the change of name of a trustee, if material;
(xv) the incurrence of a financial obligation of the Authority, if material, or agreement to covenants, events of default, remedies, priority rights, or other similar terms of a financial obligation of the Authority, any of which affect security holders, if material; and (xvi) default, event of acceleration, termination event, modification of terms, or other similar events under the terms of a financial obligation of the Authority, any of which reflect financial difficulties.
(b) Upon and after the occurrence of a Listed Event listed under subsection (a)(ii), (a)(vii), (a)(viii), (a)(x), (a)(xiii), (a)(xiv), (a)(xv) or (a)(xvi) above, the Authority shall as soon as possible determine if such event would be material under applicable federal securities laws. If the Authority determines that knowledge of the occurrence of such Listed Event would be material under applicable federal securities laws, the Authority shall promptly notify the Dissemination Agent in writing. Such notice shall instruct the Dissemination Agent to report the occurrence pursuant to subsection (d) below. (c) Upon and after the occurrence of any Listed Event (other than a Listed Event listed under subsection (a)(ii), (a)(vii), (a)(viii), (a)(x), (a)(xiii), (a)(xiv), (a)(xv) or (a)(xvi) above), the Authority shall promptly notify the Dissemination Agent in writing. Such notice shall instruct the Dissemination Agent to report the occurrence pursuant to subsection (d) below.
(d) If the Dissemination Agent has been instructed by the Authority to report the occurrence of a Listed Event, the Dissemination Agent shall file a notice of such occurrence with MSRB not in excess of ten (10) business days after the occurrence of such Listed Event. Such notice must be submitted in an electronic format as prescribed by MSRB, accompanied by such identifying information as prescribed by MSRB.
Notwithstanding the foregoing, notice of a Listed Event described in subsection (a)(viii) need not be given under this subsection any earlier than the notice (if any) of the underlying event is given to owners of affected Bonds pursuant to the Indenture. The Authority hereby agrees that the undertaking set forth in this Disclosure Agreement is the responsibility of the Authority and that the Trustee or the Dissemination Agent shall not be responsible for determining whether the Authority’s instructions to the Dissemination Agent under this Section 5 comply with the requirements of the Rule.
Section 6. Termination of Reporting Obligation. The obligations of the Authority, the Trustee, and the Dissemination Agent under this Disclosure Agreement 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 Authority shall give notice of such termination in the same manner as for a Listed Event under Section 5(c).
Section 7. Dissemination Agent. The Authority may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Agreement, and may discharge any such Dissemination Agent, with or without appointing a successor Dissemination Agent. The Dissemination Agent may resign by providing thirty days’ written notice to the Authority and the Trustee. The Dissemination Agent shall not be responsible for the content of any report or notice prepared by the Authority.
The Dissemination Agent shall have no duty to prepare any information report nor shall the Dissemination Agent be responsible for filing any report not provided to it by the Authority in a timely manner and in a form suitable for filing. If at any time there is no designated Dissemination Agent, the Authority shall act as Dissemination Agent.
Section 8. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Agreement, the Authority and the Dissemination Agent may amend this Disclosure Agreement, and any provision of this Disclosure Agreement may be waived, if the Authority has received an opinion of counsel knowledgeable in federal securities laws to the effect that such amendment or waiver would not, in and of itself, cause the City Council 3 – 211 6/4/2024
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undertakings herein to violate the Rule if such amendment or waiver had been effective on the date hereof but taking into account any subsequent change in or official interpretation of the Rule.
Section 9. Additional Information. Nothing in this Disclosure Agreement shall be deemed to prevent the Authority from disseminating any other information, using the means of dissemination set forth in this Disclosure Agreement or any other means of communication, or including any other information in any Annual Report or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Agreement.
If the Authority chooses to include any information in any Annual Report or notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Agreement, the Authority shall have no obligation under this Disclosure Agreement to update such information or include it in any future Annual Report or notice of the occurrence of a Listed Event.
Section 10. Default. In the event of a failure of the Authority to comply with any provision of this Disclosure Agreement, any Owner of a Bond, Participating Underwriters, or Trustee may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the Authority to comply with its obligations under this Disclosure Agreement. A default under this Disclosure Agreement shall not be deemed a default under the Indenture, and the sole remedy under this Disclosure Agreement in the event of any failure of the Authority to comply with this Disclosure Agreement shall be an action to compel performance.
Section 11. Duties, Immunities, and Liabilities of Dissemination Agent. The Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Agreement, and the Authority agrees to indemnify and save the Dissemination Agent and its officers, directors, employees, and agents, harmless against any loss, expense and liabilities that it may incur arising out of or in the exercise or performance of its duties hereunder, including the costs and expenses (including attorneys’ fees) of defending against any claim of liability, but excluding liabilities due to the Dissemination Agent’s negligence or willful misconduct. The obligations of the Authority under this section shall survive resignation or removal of the Dissemination Agent and payment of all of the Bonds. The Dissemination Agent shall not be responsible in any manner for the format or content of any notice or Annual Report prepared by the Authority pursuant to this Disclosure Agreement. The Authority shall pay the reasonable fees and expenses of the Dissemination Agent for its duties hereunder.
Section 12. Beneficiaries. This Disclosure Agreement shall inure solely to the benefit of the Authority, the Trustee, the Dissemination Agent, the Participating Underwriters, and Owners from time to time of the Bonds, and shall create no rights in any other person or entity.
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Section 13. Counterparts. This Disclosure Agreement may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument.
Date: ____________, 2024
CITY OF SANTA ANA
By:
Title:
URBAN FUTURES INCORPORATED
By:
Authorized Signatory
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ATTACHMENT A
NOTICE TO REPOSITORIES
OF FAILURE TO FILE ANNUAL REPORT
Name of Issuer: Santa Ana Public Financing Authority
Name of Issue: Santa Ana Public Financing Authority Water Revenue Bonds, Series 2024 Date of Issuance: June ___, 2024
NOTICE IS HEREBY GIVEN that the City of Santa Ana has not provided an Annual Report with respect to the above-referenced Bonds as required by the Continuing Disclosure Agreement dated as of June 1, 2024 between the City and Urban Futures Incorporated, as Dissemination Agent. The City anticipates that the Annual Report will be filed by __________________________________.
Dated: ____________________ CITY OF SANTA ANA
By:
Authorized Signatory
cc: Issuer
Dissemination Agent
City Council 3 – 214 6/4/2024
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APPENDIX E
BOOK ENTRY PROVISIONS
The description that follows of the procedures and recordkeeping with respect to beneficial ownership interests in the Bonds, payment of principal of, premium, if any, and interest on the Bonds to Participants or Beneficial Owners, confirmation and transfer of beneficial ownership interests in the Bonds, and other related transactions by and between the Depository Trust Company (“DTC”), New York, NY, Participants and Beneficial Owners, is based on information furnished by DTC which the Authority believes to be reliable, but the Authority does not take responsibility for the completeness or accuracy thereof. The Authority cannot and does not give any assurances that DTC, DTC Participants or Indirect Participants will distribute to the Beneficial Owners either (a) payments of principal, premium, if any, and interest with respect to the Bonds or (b) certificates representing ownership interests in or other confirmation of ownership interests in the Bonds, or that they will so do on a timely basis or that DTC, DTC Participants or DTC Indirect Participants will act in the manner described in this Official Statement. The current “Rules” applicable to DTC are on file with the Securities and Exchange Commission and the current “Procedures” of DTC to be followed in dealing with DTC Participants are on file with DTC.
The DTC will act as securities depository for the Bonds. The Bonds will be issued as fully-registered securities registered in the name of Cede & Co. (DTC’s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered bond will be issued for each maturity (and each individual yield in the case of bifurcated maturities) of the Bonds, in the aggregate principal amount of such issue, and will be deposited with DTC.
DTC, the world’s largest securities depository, is a limited-purpose trust company organized under the New York Banking Law, a “banking organization” within the meaning of the New York Banking Law, a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code, and a “clearing agency” registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC’s participants (“Direct Participants”) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants’ accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation (“DTCC”). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly (“Indirect Participants”). DTC has an S&P Global Ratings rating of AA+.
The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com; provided that nothing contained in such website is incorporated into this Official Statement.
Purchases of Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Bonds on DTC’s records. The ownership interest of each actual purchaser of each Bond (“Beneficial Owner”) is in turn to be recorded on the Direct and Indirect Participants’ records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in Bonds, except in the event that use of the book-entry system for the Bonds is discontinued.
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To facilitate subsequent transfers, all Bonds deposited by Direct Participants with DTC are registered in the name of DTC’s partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not affect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Bonds; DTC’s records reflect only the identity of the Direct Participants to whose accounts such Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Bonds, such as redemptions, tenders, defaults, and proposed amendments to the Indenture. For example, Beneficial Owners of Bonds may wish to ascertain that the nominee holding the Bonds for their benefit will agree to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of notices be provided directly to them.
Redemption notices shall be sent to DTC. If less than all of the Bonds within an issue are being redeemed, DTC’s practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed.
Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to Bonds unless authorized by a Direct Participant in accordance with DTC’s MMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the Authority as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.’s consenting or voting rights to those Direct Participants to whose accounts Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy).
Redemption proceeds, distributions, and dividend payments on the Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC’s practice is to credit Direct Participants’ accounts upon DTC’s receipt of funds and corresponding detail information from the Authority or the Trustee, on payable dates in accordance with their respective holdings shown on DTC’s records.
Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in “street name,” and will be the responsibility of such Participant and not of DTC, the Trustee, or the Authority, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds, distributions, and dividend payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the Authority or the Trustee, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants.
The Authority may decide to discontinue use of the system of book-entry-only transfers through DTC (or a successor securities depository). In that event, bond certificates will be printed and delivered to DTC.
NEITHER THE AUTHORITY NOR THE TRUSTEE WILL HAVE ANY RESPONSIBILITY OR
OBLIGATION TO DTC PARTICIPANTS, INDIRECT PARTICIPANTS OR BENEFICIAL OWNERS WITH
RESPECT TO THE PAYMENTS OR THE PROVIDING OF NOTICE TO DTC PARTICIPANTS, INDIRECT PARTICIPANTS OR BENEFICIAL OWNERS OR THE SELECTION OF BONDS FOR REDEMPTION.
DTC (or a successor securities depository) may discontinue providing its services as securities depository with respect to the Bonds at any time by giving reasonable notice to the Authority. The Authority, in its sole discretion and without the consent of any other person, may terminate the services of DTC (or a successor securities depository) with respect to the Bonds. The Authority undertakes no obligation to investigate matters that would enable the Authority to make such a determination. In the event that the book-entry system is discontinued as described above, the requirements of the Indenture will apply.
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THE AUTHORITY AND THE UNDERWRITER CANNOT AND DO NOT GIVE ANY
ASSURANCES THAT DTC, THE PARTICIPANTS OR OTHERS WILL DISTRIBUTE PAYMENTS OF
PRINCIPAL, INTEREST OR PREMIUM, IF ANY, WITH RESPECT TO THE BONDS PAID TO DTC OR ITS
NOMINEE AS THE REGISTERED OWNER, OR WILL DISTRIBUTE ANY REDEMPTION NOTICES OR
OTHER NOTICES, TO THE BENEFICIAL OWNERS, OR THAT THEY WILL DO SO ON A TIMELY BASIS OR WILL SERVE AND ACT IN THE MANNER DESCRIBED IN THIS OFFICIAL STATEMENT. THE
AUTHORITY AND THE UNDERWRITER ARE NOT RESPONSIBLE OR LIABLE FOR THE FAILURE OF
DTC OR ANY PARTICIPANT TO MAKE ANY PAYMENT OR GIVE ANY NOTICE TO A BENEFICIAL OWNER WITH RESPECT TO THE BONDS OR AN ERROR OR DELAY RELATING THERETO.
The information in this section concerning DTC and DTC’s book-entry system has been obtained from sources that the Authority deems reliable, but the Authority takes no responsibility for the accuracy thereof.
DTC may discontinue providing its services as securities depository with respect to the Bonds at any time by giving reasonable notice to the Authority or the Trustee. Under such circumstances, in the event that a successor securities depository is not obtained, Bonds are required to be printed and delivered as described in the Indenture.
The Authority may decide to discontinue use of the system of book-entry transfers through DTC (or a successor securities depository). In that event, Bonds will be printed and delivered as described in the Indenture and payment of interest to each Owner who owns of record $1,000,000 or more in aggregate principal amount of Bonds may be made to such Owner by wire transfer to such wire address within the United States that such Owner may request in writing for all Interest Payment Dates following the 15th day after the Trustee’s receipt of such request.
City Council 3 – 217 6/4/2024
F-1
APPENDIX F
COMPREHENSIVE AUDITED FINANCIAL REPORT
City Council 3 – 218 6/4/2024