CITY COUNCIL PRESENTATION
ISSUANCE OF MUNICIPAL BONDS AND
DISCLOSURE RESPONSIBILITIES UNDER FEDERAL SECURITIES LAWS October 13, 2026
2 Overview
I. Project Background
II. Municipal Finance Summary
III. Wastewater Revenue Bonds
IV. Credit Overview
V. Disclosure Training
VI. Preliminary Analysis & Recommendations
SECTION I: PROJECT BACKGROUND
4 2026A Wastewater Revenue Bond Financing Overview
$35M for Laguna Treatment Plant
Electrical Infrastructure
Improvement Project
Refund 2014A and 2016A Bonds
Interest Cost Savings
Partially defease the 2002B Bonds
Reduces maximum annual debt service
Fund Capitalized Interest
Minimize Impact on 2026/27 Budget
Pay Financing Costs
SECTION II: MUNICIPAL FINANCE SUMMARY
6 Introduction to Municipal Bonds
What are municipal bonds?
Debt obligations issued by public agencies
Who issues municipal bonds?
Cities, counties, special districts and joint powers authorities Why are municipal bonds issued?
To fund public infrastructure and capital improvement projects and refinance existing debt
Alternative to cash funding projects
What are some unique features of municipal bonds?
Interest is generally tax-exempt, providing public agencies a lower borrowing cost
7 Typical Municipal Bonds Projects
Civic Facilities
Roads Water/Sewer Public Power
Housing Schools
Ports/Airports
Recreation
8 Bond Financing Structures
• Repayment Source – City General Fund (Budget Appropriation) • Most Common Form of California City Finance
• Can include Sales Tax Revenue as Repayment Source
Lease Revenue Bonds / Certificates of Participation
• Repayment Source – Annual Property Tax levy
• 2/3rds supermajority for cities and special districts • Can only fund Capital Projects (no services or programs) General Obligation Bonds
• Repayment Source - Net Utility Revenues
• Utility Rate Covenant Requires Increases to Meet Debt Service Payments Utility Revenue Bonds
• Repayment Source - Special Tax/Assessment levied on property tax bill • Tax Delinquency May Trigger Foreclosure Action By County • Property Owner Consent or Vote Required
Special Tax / Assessment Bonds
9 Bond Financing Consultants
Municipal Advisor
Fiduciary duty to Issuer
Assists in organizing financing
process
Provides advice on structure and
timing of financing
Bond Counsel
Prepares legal documents
Assures financing conforms to
statutes
Provides tax opinion
Disclosure Counsel
Drafts the Official Statement to
investors
Provides disclosure advice
Underwriter
Markets and sells the bonds to
investors
Makes secondary market
Assists with structuring financing
Assists w/rating presentation
Underwriter’s Counsel
Represents underwriter
Trustee or Fiscal Agent
Holds funds, tracks payments
Involved with defaults
Bond Insurer
Assumes bond payment risk in
exchange for insurance premium
Lowers financing cost
May offer surety reserve
Rating Agency
Assesses bond risks at issuance
and through ongoing surveillance
Other Consultants
Specialized consultants (i.e.,
Appraiser, Special Tax Consultant,
etc.)
Issuer
10 Underwriting & Bond Sale Process
Competitive Bond Sale Negotiated Bond Sale
Similar to Construction Bid Process
Open Bidding (High Transparency)
Lowest TIC (interest rate) wins
Multiple Underwriters Bid
Based on Bid Information & Shorter Review Period
Best fit for:
High-grade credits, “vanilla” structure, active market demand, and stable market conditions
Preselected Underwriter
Transparency: Moderate
Targeted Marketing
Underwriter markets directly to investors
Market Timing Advantage
Sale date and time can shift to capture
favorable market windows
Best fit for:
Complex structures
Volatile financial markets
SECTION III: WASTEWATER REVENUE BONDS
12 What are Wastewater Revenue Bonds?
Purpose: Issued by local governments or wastewater districts to finance Wastewaterrelated infrastructure projects Repayment Source: Principal and interest (debt service) is paid by the Net Revenues of the Wastewater System
Rate Covenant: Requires the issuer to maintain sufficient Net Revenues to cover debt service with a coverage factor, e.g., 125%
Parity Debt Test: Requires the issuer to meet coverage ratios to issue additional debt payable from Net Revenues
Designated Funds: Rate Stabilization Fund and debt reserves can be used to maintain coverage
13 Key Bond Financing Documents
BPU & City Council
Resolutions
Supplemental
Indenture
Preliminary Official
Statement
Bond Purchase
Agreement
Continuing
Disclosure
Agreement
SECTION V. DISCLOSURE TRAINING
15 Federal Securities Laws
Securities Act of 1933
Securities Exchange Act of 1934
SEC Rule 10b-5
SEC Rule 15c2-12
16 Initial Disclosure: Official Statement
The Official Statement or “OS” is the offering
document for municipal bonds
Primary document that is used to sell municipal
bonds to investors
The preliminary Official Statement (POS)
includes all relevant and material information
on the bonds except pricing information so
investors can make an informed investment
decision
OS may not omit/misstate material facts
Lawyers will call this a disclosure document
while underwriters call this a marketing
document
Both are correct
17 Continuing Disclosure
Annual Reporting
Financial and Operating Data of the type included in the OS Audited (or unaudited) Financial Statements
Significant Events
18 Event Notices
Events Notices must be filed within ten (10) business days of their occurrence:
1) Principal and interest payment delinquencies
2) Non-payment related defaults, if material
3) Unscheduled draws on debt service reserves reflecting financial difficulties 4) Unscheduled draws on credit enhancements reflecting financial difficulties 5) Substitution of credit or liquidity providers, or their failure to perform 6) Adverse tax opinions…
7) Modifications to rights of security holders, if material 8) Bond calls, if material, and tender offers
9) Defeasances
10) Release, substitution, or sale of property securing repayment of the securities, if material 11) Rating changes (for both issuer and bond insurer) 12) Bankruptcy, insolvency, receivership or similar event of the obligated person 13) Consummation of a merger, consolidation, or acquisition involving an obligated person… 14) Appointment of a successor or additional trustee or the change of name of a trustee, if material 15) Incurrence of a financial obligation of the obligated person, if material, or agreement to covenants, events of default, remedies, priority rights, or other similar terms of a financial obligation of the obligated person, any of which affect security holders, if material 16) Default, event of acceleration, termination event, modification of terms, or other similar events under the terms of a financial obligation of the obligated person, any of which reflect financial difficulties. 19 SEC Guidance – Orange County
County was relying on risky investment strategies to balance its budget, and failed to disclose the risky nature of its investments
County filed for bankruptcy protection in 1994; SEC brought enforcement action in 1996 (there were no bond defaults)
Board of Supervisors failed to take “steps appropriate under the circumstances” to assure that the County's financial situation was being adequately disclosed to potential investors “Public official may not authorize disclosure while recklessly disregarding facts that indicate that there is a risk that the disclosure may be misleading”
Takeaway: Public officials must exercise reasonable oversight 20 SEC Guidance – San Diego
“Lessons Learned from San Diego,” Linda Chatman Thomsen, Director, SEC Division of Enforcement (2007)
“What should the municipal securities markets take away from these actions? I can tell you that the Enforcement Division believes there are five critical lessons that municipalities should learn from our recent actions”
Adopt written disclosure policies and procedures
Provide appropriate training to city officials and employees Focus on the big picture issues facing the city
Disclose the bad with the good
Hire competent professionals
21 City Debt Management and Disclosure Policy
1 Disclosure Coordinator
Chief Financial Officer appointed disclosure coordinator 2 Official Statements
• Disclosure Coordinator reviews Official Statement to ensure it does not omit/misstate material facts
• City Council approves as new business matter
• Staff report summarizes City Council responsibilities under federal securities laws 3 Continuing Disclosure
Disclosure Coordinator establishes systems to make annual filings and significant event notices on timely basis
4 Training
Disclosure Coordinator arranges securities law training for staff and City Council Initial/Continuing
Disclosure Compliance
Policy 000-58 (2017)
22 Questions
23 NHA Advisors, LLC Regulatory Disclosures
Pursuant to Municipal Securities Rulemaking Board (“MSRB”) Rule G-42, on Duties of Non-Solicitor Municipal Advisors, Municipal Advisors are required to make certain written disclosures to clients which include, amongst other things, Conflicts of Interest and any Legal or Disciplinary events of NHA Advisors, LLC (“NHA Advisors”) and its associated persons.
Conflicts of Interest
Compensation - In connection with the issuance of municipal securities, NHA Advisors may receive compensation from the City or Obligated Person for services rendered, which compensation is contingent upon the successful closing of a transaction and/or is based on the size of a transaction. Consistent with the requirements of MSRB Rule G-42, NHA Advisors hereby discloses that such contingent and/or transactional compensation may present a potential conflict of interest regarding NHA Advisors’ ability to provide unbiased advice to enter into such transaction. This potential conflict of interest will not impair NHA Advisors’ ability to render unbiased and competent advice or to fulfill its fiduciary duty to the City.
It should be noted that other forms of compensation (i.e., hourly or fixed fee based) may also present a potential conflict of interest regarding NHA Advisors’ ability to provide advice regarding a municipal security transaction. These other potential conflicts of interest will not impair NHA Advisors’ ability to render unbiased and competent advice or to fulfill its fiduciary duty to the City.
Other Municipal Advisor Relationships - NHA Advisors serves a wide variety of other clients that may from time to time have interests that could have a direct or indirect impact on the interests of another NHA Advisors client. For example, NHA Advisors serves as municipal advisor to other municipal advisory clients and, in such cases, owes a regulatory duty to such other clients just as it does to the City.
These other clients may, from time to time and depending on the specific circumstances, have competing interests. In acting in the interests of its various clients, NHA Advisors could potentially face a conflict of interest arising from these competing client interests. NHA Advisors fulfills its regulatory duty and mitigates such conflicts through dealing honestly and with the utmost good faith with [Client].
Furthermore, from time to time, NHA Advisors may perform non-municipal advisor work for entities that also could be a municipal advisor client or could become a municipal advisor client. If NHA Advisors becomes aware of any additional potential or actual conflict of interest after this disclosure, NHA Advisors will disclose the detailed information in writing to the City or Obligated Person in a timely manner.
Legal or Disciplinary Events
NHA Advisors does not have any legal events and disciplinary history on its Form MA and Form MA-I, which includes information about any criminal actions, regulatory actions, investigations, terminations, judgments, liens, civil judicial actions, customer complaints, arbitrations and civil litigation. The City may electronically access NHA Advisors’ most recent Form MA and each most recent Form MA-I filed with the Commission at the following website: www.sec.gov/edgar/searchedgar/companysearch.html There have been no material changes to a legal or disciplinary event disclosure on any Form MA or Form MA-I filed with the U. S. Securities and Exchange Commission (“SEC”).
Municipal Securities Rulemaking Board Rule G-10 Disclosure -Pursuant to MSRB Rule G-10, on Investor and Municipal Advisory Client Education and Protection, Municipal Advisors are required to provide certain written information to their municipal entity and obligated person clients which include the following: (1) NHA Advisors is currently registered as a Municipal Advisor with the SEC and MSRB and (2) Within the MSRB website at www.msrb.org, the City may obtain the Municipal Advisory client brochure that is posted on the MSRB website. The brochure describes the protections that may be provided by the MSRB Rules along with how to file a complaint with financial regulatory authorities.