PRELIMINARY OFFICIAL STATEMENT DATED JULY ___, 2022
NEW ISSUE–FULL BOOK-ENTRY NOT RATED
In the opinion of Jones Hall, A Professional Law Corporation, San Francisco, California, Bond Counsel, subject, however to ce rtain qualifications described herein, under existing law, the interest on the Bonds is excluded from gross income for federal income tax purposes and such interest is not an item of tax preference for purposes of the federal alternative minimum tax. In the further opini on of Bond Counsel, such interest is exempt from California personal inc ome taxes. See “TAX MATTERS.” $____________*
CITY OF STOCKTON
COMMUNITY FACILITIES DISTRICT NO. 2019-1 (CANNERY PARK II)
SPECIAL TAX BONDS
SERIES 2022
Dated: Date of Delivery Due: September 1, as shown on inside cover The City of Stockton (the “City”) is issuing the above -captioned bonds (the “Bonds”) for its Community Facilities District No. 2019-1 (Cannery Park II ) (the “District”) under the Mello -Roos Community Facilities Act of 1982 (the “Act”), the Resolution of Issuance (as defined herein), and a Fiscal Agent Agreement, dated as of August 1, 2022 (the “Fiscal Agent Agreement ”), by and between the City and U.S. Bank Trust Company, National Association, as fiscal agent (the “Fiscal Agent”). See “THE BONDS – Authority for Issuance.” The Bonds are being issued to (i) construct and/or acquire certain public facilities authorized for the District, (ii) establish a debt service reserve fund for the Bonds , (iii) pay the costs of issuing the Bonds and (iv) pay a portion of the interest on the Bonds through September 1, 2023. See “FINANCING PLAN.”
The Bonds are payable from the Net Taxe s (as defined herein) received by the City from special taxes levied on property within the District according to the rate and m ethod of apportionment of special tax for the District . The Bonds are secured by a first pledge of the Net Taxes and the moneys on deposit in certain funds held by the Fiscal Agent u nder the Fiscal Agent Agreement. The Bonds represent the first series of special tax bonds issued for the District and additional series of parity bonds are anticipated in the future. See “SECURITY FOR THE BONDS.”
Interest on the Bonds is payable on March 1, 2023 , and semiannually thereafter on each September 1 and March 1. The Bonds will be issued in denominations of $5,000 or integral multiples of $5,000. The Bonds, when delivered, will be initially registered in the name of Cede & Co., as nominee of The Deposi tory Trust Company ( “DTC”). DTC will act as securities depository for the Bonds. See “THE BONDS – Description of the Bonds” and “APPENDIX G – DTC and the Book-Entry Only System.” The Bonds are subject to optional redemption , mandatory sinking fund redemption and special mandatory redemption from prepaid special taxes. See “THE BONDS – Redemption.”
The Bonds, the interest thereon, and any premiums payable on the redemption of any Bonds, are not an indebtedness of the City (except to the limited extent described in this Official Statement), the State of California (the “State”) or any of their respective political subdivisions . None of the City (except to the limited extent described in this Official Statement), the State or any of its political subdivisions is liable for the Bonds. Neither the faith and credit nor the taxing power of the City (except to the limited extent described in this Official Statement) or the State or any of their respective political subdivisions is pledged to the payment of the Bonds. Other than the Net Taxes, no taxes are pledged to the payment of the Bonds. The Bonds do not constitute a general obligation of the City, but are limited obligations of the City payable solely from the Net Taxes as more fully described in this Official Statement.
MATURITY SCHEDULE
(see inside cover)
This cover page contains certain information for quick reference only. It is not a summary of essential information about the Bonds. Potential investors should read this entire Official Statement to obtain information essential for making an informed investment decision. Investment in the Bonds involves risks that may not be appropriate for some investors. See “SPECIAL RISK FACTORS” for a discussion of special risk factors that should be considered in evaluating the investment quality of the Bonds.
The Bonds are offered when, as and if issued by the City and accepted by the Underwriter, subject to approval as to their legality by Jones Hall, A Professional Law Corporation, San Francisco, California, Bond Counsel, and subject to certain other conditions. Jones Hall, A Professional Law Corporation, is also serving as disclosure counsel to the City . Certain matters will be passed upon for the City by the City Attorney, and for the Underwriter by Kutak Rock LLP. It is anticipated that the Bonds, in book -entry form, will be available for delivery through the facilities of DTC on or about ______________, 2022. [RBC logo]
The date of this Official Statement is: ________________, 2022. ___________________________
*Preliminary; subject to change.
This Preliminary Official Statement and the information contained herein are subject to completion or amendment. Under no circumstances shall this Preliminary Official Statement constitute an offer to sell or a solicitation of an offer to buy nor shall there be any sale of these securities in any jurisdiction in which such offer solicitation or sale would be unlawful pr ior to registration or qualification under the securities laws of such jurisdiction.
Exhibit 2
MATURITY SCHEDULE
$ _______________ Serial Bonds
(Base CUSIP†: __________)
Maturity Principal Interest
(September 1) Amount Rate Yield Price CUSIP†
$ ___ __% Term Bond due September 1, 20___, Yield: __%, Price: __%, CUSIP† No. _______
$ ___ __% Term Bond due September 1, 20___, Yield: __%, Price: __%, CUSIP† No. _______
† CUSIP Copyright 2022, American Bankers Association. CUSIP data herein are provided by CUSIP Global Services, managed by Standard & Poor’ s Capital IQ, and are provided for convenience of reference only. Neither the City nor the Underwriter assumes any responsibility for the accuracy of these CUSIP data . Neither the City nor the Underwriter takes any responsibility for the accuracy of the CUSIP data.
Exhibit 2
CITY OF STOCKTON, CALIFORNIA
City Council
Kevin J. Lincoln II, Mayor
Christina Fugazi, Vice Mayor and Councilmember, District 5 Sol Jobrack, Councilmember, District 1
Dan Wright, Vice Mayor and Councilmember, District 2
Paul Canepa, Councilmember, District 3
Susan Lenz, Councilmember, District 4
Kimberly Warmsley, Councilmember, District 6
City Staff
Harry E. Black, City Manager
Kimberly Trammel, Chief Financial Officer
Jayden Sangha, Assistant Chief Financial Officer
Kevin Beltz, Program Manager III Debt and Treasury
Eliza Garza, City Clerk
Lori M. Asuncion, Acting City Attorney
____________________________
SPECIAL SERVICES
Municipal Advisor
Del Rio Advisors, LLC
Modesto, California
Bond Counsel and Disclosure Counsel
Jones Hall, A Professional Law Corporation
San Francisco, California
Special Tax Consultant
Willdan Financial Services
Temecula, California
Appraiser
Integra Realty Resources – Sacramento
Sacramento, California
Absorption Consultant
The Gregory Group
Folsom, California
Fiscal Agent
U.S. Bank Trust Company, National Association
Los Angeles, California
Exhibit 2
i
TABLE OF CONTENTS
Page Page
INTRODUCTION ............................................... 1
ESTIMATED SOURCES AND USES OF
FUNDS ........................................................... 5 THE BONDS ...................................................... 6 Authority for Issuance .................................... 6 Description of the Bonds ................................ 6 Redemption* .................................................. 7 Transfer or Exchange of Bonds ..................... 9
SECURITY FOR THE BONDS ........................ 10
Pledge of Special Taxes .............................. 10 Special Taxes .............................................. 10 Special Tax Methodology ............................. 11 Annual Special Tax; Maximum Special
Tax ........................................................... 12 Levy and Collection of Special Taxes .......... 13
Special Tax Fund ......................................... 13 Reserve Fund .............................................. 14 Delinquent Payments; Teeter Plan;
Covenant for Superior Court
Foreclosure .............................................. 16 Additional Bonds .......................................... 18 DEBT SERVICE SCHEDULE .......................... 21
THE DISTRICT ................................................ 23 Formation of the District ............................... 23 Location and Description of the District
and the Immediate Area .......................... 23
Environmental Matters ................................. 25 Development Agreement and
Subdivision Agreement ............................ 25
Current and Anticipated Development in
the District ................................................ 25 The Improvements ....................................... 26 Master Developer’s Financing Plan ............. 27
Market Absorption Report ............................ 28
OWNERSHIP OF PROPERTY WITHIN THE
DISTRICT .................................................... 30 Top Taxpayers ............................................. 30 The Master Developer ................................. 32 KB Home ...................................................... 32 LGI Homes ................................................... 33
VALUE OF PROPERTY WITHIN THE
DISTRICT AND SPECIAL TAX BURDEN ... 35
Assessed Valuation ...................................... 35 The Appraisal ............................................... 36 Value to Special Tax Burden Ratios ............ 38
Overlapping Liens and Priority of Lien ......... 41
Special Tax Collection and Delinquency
Rate .......................................................... 42 Sample Tax Bill ............................................ 43 SPECIAL RISK FACTORS .............................. 44
Limited Obligation of the City to Pay
Debt Service ............................................. 44 Levy and Collection of the Special Tax ........ 44
Concentration of Ownership ......................... 45 Appraised Values ......................................... 45 Property Values and Property
Development ............................................ 46 Other Possible Claims Upon the Value
of Taxable Property .................................. 48 Bankruptcy and Foreclosure Delays ............ 49
FDIC/Federal Government Interests in
Properties ................................................. 50 No Acceleration Provisions .......................... 51 Loss of Tax Exemption ................................. 51 IRS Audit of Tax-Exempt Bond Issues ......... 51
Voter Initiatives ............................................. 51 Case Law Related to the Mello-Roos
Act ............................................................ 52 COVID-19 ..................................................... 53 Cybersecurity ............................................... 53 TAX MATTERS ................................................ 53 LEGAL MATTERS ........................................... 55 Legal Opinion ............................................... 55 No Litigation ................................................. 55 CONTINUING DISCLOSURE .......................... 56
The City ........................................................ 56 KB Home ...................................................... 56 LGI Homes ................................................... 57 NO RATINGS ................................................... 57 UNDERWRITING ............................................. 57 MUNICIPAL ADVISOR .................................... 58 EXECUTION .................................................... 59
APPENDIX A – Rate and Method of Apportionment of Special Tax APPENDIX B – The Appraisal
APPENDIX C – The Absorption Report
APPENDIX D – San Joaquin County and City of Stockton Demographic Information APPENDIX E – Form of Opinion of Bond Counsel
APPENDIX F – Forms of Continuing Disclosure Undertakings APPENDIX G – DTC and the Book-Entry Only System
APPENDIX H – Summary of Certain Provisions of the Fiscal Agent Agreement Exhibit 2
GENERAL INFORMATION ABOUT THIS OFFICIAL STATEMENT
Use of Official Statement. This Official Statement is submitted in connection with the sale of the Bonds referred to herein and may not be reproduced or used, in whole or in part, for any other purpose. This Official Statement is not to be construed as a contract with the purchasers of the Bonds. Statements contained in this Official Statement which involve estimates, foreca sts or matters of opinion, whether or not expressly so described herein, are intended solely as such and are not to be construed as a representation of facts.
Estimates and Forecasts. When used in this Official Statement and in any continuing disclosure by the District or the City, in any press release and in any oral statement made with the approval of an authorized officer of the District or the City, the words or phrases “will likely result, ” “are expected to, ” “will continue,” “is anticipated,” “estimate,” “project,” “forecast,” “expect,” “intend” and similar expressions may identify “forward looking statements.” Such statements are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated in such forward-looking statements. Any forecast is subject to such uncertainties. Inevitably, some assumptions used to develop the forecasts will not be realized and unanticipated events and circumstances may occur. Therefore, there are likely to be differences between forecasts and actual results, and those differences may be material. The information and expressions of opinion herein are subject to change without notice, and neither the delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, give rise to any implication that there has been no change in the affairs of the District or the City since the date hereof.
Limit of Offering. No dealer, broker, salesperson or other person has been authorized by the City or the Underwriter to give any information or to make any representations other than those contained herein and, if given or made, such other information or representation must not be relied upon as having been authorized by any of the foregoing. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of the Bonds by a person in any jurisdiction in which it is unlawful for such person to make such an offer, solicitation or sale.
Involvement of Underwriter. The Underwriter has reviewed the information in this Official Statement in accordance with, and as a part of, its responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriter does not guarantee the accuracy or completeness of such information. The information and expressions of opinions herein are subject to change without notice and neither delivery of this Official Statement nor any s ale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the City or the District since the date hereof. All summaries of the Fiscal Agent Agreement or other documents referred to in this Official Statement, are made subject to the provisions of such documents, respectively, and do not purport to be complete statements of any or all of such provisions.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVERALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE BONDS OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET.
SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TI ME. THE UNDERWRITER
MAY OFFER AND SELL THE BONDS TO CERTAIN DEALERS, INSTITUTIONAL INVESTORS AND
OTHERS AT PRICES LOWER THAN THE PUBLIC OFFERING PRICE STATED ON THE COVER PAGE
HEREOF AND SAID PUBLIC OFFERING PRICE MAY BE CHANGED FROM TIME TO TIME BY THE UNDERWRITER.
THE BONDS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, IN RELIANCE UPON AN EXCEPTION FROM THE REGISTRATION REQUIREMENTS CONTAINED IN SUCH ACT. THE BONDS HAVE NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES LAWS OF ANY STATE.
The City maintains an Internet website, but the information on that website is not incorporated in this Official Statement.
Exhibit 2
1 _________________________
OFFICIAL STATEMENT
_________________________
$____________*
CITY OF STOCKTON
COMMUNITY FACILITIES DISTRICT NO. 2019-1 (CANNERY PARK II)
SPECIAL TAX BONDS
SERIES 2022
This Official Statement, including the cover page, inside cover and attached appendices, is provided to furnish information regarding the bonds captioned above (the “Bonds”) to be issued by the City of Stockton (the “City”) on behalf of the City of Stockton Community Facilities District No. 2019-1 (Cannery Park II) (the “District”).
Any statements made in this Official Statement involving matters of opinion or of estimates, whether or not so expressly stated, are set forth as such and not as representation s of fact, and no representation is made that any of the estimates will be realized. Definitions of certain terms used herein and not defined herein have the meaning set forth in the Fiscal Agent Agreement. See “APPENDIX H – Summary of Certain Provisions of the Fiscal Agent Agreement.”
INTRODUCTION
This introduction is not a summary of the entire Official Statement. It is only a brief description of and guide to, and is qualified by, more complete and detailed infor mation contained throughout the Official Statement, including the cover page, inside cover and attached appendices, and documents summarized or described in this Official Statement. A full review should be made of the entire Official Statement. The offer ing of the Bonds to potential investors is made only by means of the entire Official Statement.
Authority for Issuance. The Bonds are issued pursuant to the provisions of the Mello - Roos Community Facilities Act of 1982, as amended (Sections 53311, et seq., of the Government Code of the State of California) (the “Act”) and pursuant to a Fiscal Agent Agreement dated as of August 1, 2022 (the “Fiscal Agent Agreement”) between the City and U.S. Bank Trust Company , National Association, as fiscal agent (the “Fiscal Agent”), and a resolution (the “Resolution of Issuance”) adopted on [July 12], 2022 by the City Council of the City (the “City Council”), as legislative body of the District . See “THE BONDS – Authority for Issuance.”
The City and the County. The City whose boundaries encompass approximately 64.8 square miles, is located in the center of San Joaquin County (the “County”) in California’s San Joaquin Valley, 78 miles east of the San Francisco Bay area, 345 miles north of Los Angeles and 45 miles south of Sacramento. The Stockton Metropolitan Statistical Area, which encompasses the entire County, covers approximately 1,400 square miles. The City is a municipal corporation and a charter city, duly organized and existing under the constitution and
* Preliminary; subject to change.
Exhibit 2
2 laws of the State. For economic and demographic information regarding the area in and around the City, see “APPENDIX D – San Joaquin County and City of Stockton Demographic Information.”
Description of the Bonds. The Bonds will be issued in denominations of $5,000 or any integral multiple of $5,000. Interest is payable semiannually on each March 1 and September 1, commencing March 1, 2023 . T he Bonds will be initially issued only in book -entry form and registered to Cede & Co. as nominee of The Depository Trust Company (“DTC”), which will act as securities depository of the Bonds. Principal and interest (and premium, if any) on the Bonds is payable by the Fiscal Agent to DTC, which remits such payments to its Participants for subsequent distribution to the registered owners a s shown on the Fiscal Agent’s books. See “THE BONDS.”
Use of Proceeds. Proceeds of the Bonds will primarily be used to finance a portion of the costs of acquiring and constructing certain public infrastructure improvements authorized to be financed by t he District (the “Improvements,” as described herein). The Improvements consist generally of roadway, water, drainage, wastewater, and other infrastructure improvements necessary for completion of development of property within the District. The cost of a portion of the Improvements will be reimbursed by the proceeds of the Bonds and may also be reimbursed using pay-as-you go financing from the Special Tax. See “THE IMPROVEMENTS.” Proceeds of the Bonds will also be used to establish a reserve fund (described below) available for payment on the Bonds and to provide initial administration costs and to pay the costs of the issuance of the Bonds.
The District and Current Property Ownership. Land in the District is located south of Eight Mile Road, west of Highway 99 and east of the Union Pacific Railroad tracks in the City .
Taxable property in the consists primarily of land developing into 721 single-family residential units. Eight Mile Road Investors, LLC and Holman Investors LLC (together, the “ Master Developer”) is the master developer for the project and has been building necessary infrastructure to sell the 721 currently planned single-family residential lots to merchant homebuilders. Taxable land in the District also includes a multifamily residential site planned for 210 multi -family residential units and 4 parcels currently zoned for non- residential uses, 3 of which the Master Developer desires to rezone to residential uses in the future as described herein; however, no assurance can be given such rezone will take place or the timing related thereto.
The Master Developer has sold 515 of the 721 currently planned residential lots to two merchant homebuilders: KB Home North Bay, LLC, a California limited liability company (“KB Home”), is building out Village A, B and C ( 128 total lots), and LGI Homes – California, LLC, a California limited liability company (“LGI Homes”), is building out Villages E1, E2, F1 and F2 (387 total lots). The remaining 206 planned residential lots are owned by the Master Developer.
Homebuilding activity is underway by KB Home and LGI Homes. As of June 15, 2022, LGI had sold and delivered 26 homes to individual homeowners.
See “THE DISTRICT” and “OWNERSHIP OF PROPERTY WITHIN THE DISTRICT ” for additional details on ongoing development in the District.
Security and Sources of Payment for the Bonds. The City Council annually levies special taxes on the property in the District (the “Special Taxes”) in accordance with the Rate , Method of Apportionment and Manner of Collection of Special Tax for City of Stockton Community Facilities District No. 2019-1 (Cannery Park II) (the “Special Tax Formula”), which Exhibit 2
3 is attached as APPENDIX A to this Official Statement. The Bonds are secured by and payable from a first pledge of the “Net Taxes,” which are comprised of Gross Taxes less Administrative Expenses. “Gross Taxes ” is defined in the Fiscal Agent Agreement as the proceeds of the “Special Tax A” levied for facilities pursuant to the Special Tax Formula and received by the City, including any scheduled payments and any prepayments thereof and interest thereon, and proceeds of the redemption or sale of property sold as a result of foreclosure of the lien of the Special Taxes to the amount of said lien and interest thereon. “Gross Taxes” does not include any penalties collected in connection with delinquent Special Taxes or any interest in excess of the interest due on the Bonds . The Bonds are also secured by certain funds and accounts established and held under the Fiscal Agent Agreement. In particular, a debt service reserve fund (the “Reserve Fund ”), and within the Reserve Fund, the “ 2022 Reserve Account ,” established in connection with the issuance of the Bonds in an amount equal to the Reserve Requirement (as defined herein) for the Bonds as of their date of delivery . See “SECURITY FOR THE BONDS.”
Pursuant to the Act, the Resolution of Issuance, and the Fiscal Agent Agreement, so long as any Bonds are outstanding, the City will annually levy the Special Tax against all land within the District taxable under the Act in accordance with the Special Tax Formula and to make provision for the collection of the Special Tax in amounts which will b e sufficient to pay interest on, principal of and redemption premium (if any) on the Bonds as such becomes due and payable and to replenish the Reserve Fund as necessary. See “SECURITY FOR THE BONDS – Special Tax Methodology” and “APPENDIX A – Rate and Me thod of Apportionment of Special Tax.”
Unpaid Special Taxes do not constitute a personal indebtedness of the owners of any of the parcels within the District. In the event of delinquency, proceedings may be conducted only against the real property on whi ch the Special Tax is delinquent. The unpaid Special Taxes are not required to be paid upon sale of property within the District.
Covenant to Foreclose. The City has covenanted in the Fiscal Agent Agreement to cause foreclosure proceedings to be commenc ed and prosecuted against certain parcels with delinquent installments of the Special Taxes. For a more detailed description of the foreclosure covenant, see “SECURITY FOR THE BONDS – Delinquent Payments; Covenant for Superior Court Foreclosure.”
Additional Bonds. The maximum bond authorization for the District is $25,000,000.
The Bonds represent the first series of bonds issued under the authorization and additional series of parity bonds are anticipated as development progresses . See “SECURITY FOR THE BONDS – Additional Bonds.”
Value Estimate of Property in the District. Taxable real property within the District is security for the Special Tax securing the Bonds and is comprised of both developed and undeveloped property. To obtain an estimate of the value of the 515 single-family homes being developed by KB Home and LGI Homes in the District , the City ordered an appraisal (the “Appraisal”), with a date of value of May 4, 2022 , prepared by Integra Realty Resources, Sacramento, California (the “Appraiser”). The Appraisal is described herein under the caption “VALUE OF PROPERTY WITHIN THE DISTRICT AND SPECIAL TAX BURDEN – The Appraisal” and attached hereto in its entirety as APPENDIX B. As described further herein, the appraised value of the 515 single -family homes being developed by KB Home and LGI Homes is not less than $ 90,172,000. The Appraiser also noted that the 4 non-residential sites and 1 multi-family residential site that are subject to the Special Tax had an assessed value of Exhibit 2
4 $4,965,466, for a t otal estimated value of taxable property in the District of not less than $95,137,466.
Based upon the $ 95,137,466 estimated total valuation of taxable property in the District and an estimated principal amount of Bonds of $9,410,000 *, as well as overlapping land- secured debt attributable to those parcels of $375,452, for a total direct and overlapping debt amount of $9,785,452*, the value -to-lien ratio for such property is approximately 9.72* to 1; provided, however, that the value -to-lien ratio of indivi dual parcels may vary significantly. See “VALUE OF PROPERTY WITHIN THE DISTRICT AND SPECIAL TAX BURDEN – Value to Special Tax Burden Ratios.”
Market Absorption Report . In connection with the issuance of the Bonds, the City hired The Gregory Group, Folsom, California (the “Absorption Consultant”) to perform market absorption study services related to the 515 single -family homes being developed by KB Home and LGI Homes. The Absorption Consultant’s report (the “Absorption Report”) describes the planned development based on information available as of May 2022, and is attached hereto as APPENDIX C. The Absorption Consultant estimates that the 515 single -family residential homes being developed by KB Home and LGI Homes will be absor bed by the end of 2027, in accordance with the absorption schedule set forth in the Absorption Report and summarized herein. See “THE DISTRICT – Market Absorption Report” and APPENDIX C.
Redemption of Bonds Before Maturity. The Bonds are subject to opti onal redemption, mandatory sinking fund redemption and special mandatory redemption from prepaid Special Taxes. See “THE BONDS – Redemption.”
Risk Factors Associated with Purchasing the Bonds. Investment in the Bonds involves risks that may not be appropriate for some investors. See “SPECIAL RISK FACTORS” for a discussion of certain risk factors which should be considered, in addition to the other matters set forth in this Official Statement, in considering the investment quality of the Bonds. In particular, no assurance can be given that the timing of construction of homes and/or sale of homes projected by KB Home and LGI Homes in this Official Statement will be accomplished. Neither the City nor the Underwriter can predict the impact of COVID -19 on home production and home sales activities or the willingness of current owners of land in the District or any subsequent owner, to pay the Special Taxes securing the Bonds. See “SPECIAL RISK FACTORS – COVID-19.”
Limited Obligation of the City. The Bonds, the interest thereon, and any premiums payable on the redemption of any Bonds, are not an indebtedness of the City (except to the limited extent described in this Official Statement), the State of California (the “State”) or any of their respective political subdivisions. None of the City (except to the limited extent described in this Official Statement), the State or any of its political subdivisions is liable for the Bonds. Neither the faith and credit nor th e taxing power of the City (except to the limited extent described in this Official Statement) or the State or any of their respective political subdivisions is pledged to the payment of the Bonds.
Other than the Net Taxes, no taxes are pledged to the payment of the Bonds. The Bonds do not constitute a general obligation of the City, but are limited obligations of the City payable solely from the Net Taxes as more fully described in this Official Statement.
* Preliminary; subject to change.
Exhibit 2
5 Summary of Information. Brief descriptions of certain provisions of the Fiscal Agent Agreement and certain other documents are included herein. The descriptions and summaries of documents herein do not purport to be comprehensive or definitive, and reference is made to each such document for the complete details of all its respective terms and conditions, copies of which are available for inspection at the office of the City. All statements herein with respect to certain rights and remedies are qualified by reference to laws and principles of equity relating to or affecting creditors’ rights generally. Capitalized terms used in this Official Statement and not otherwise defined herein have the meanings ascribed to such terms in the Fiscal Agent Agreement. See “APPENDIX H – Summary of Certain Provisio ns of the Fiscal Agent Agreement.” The information and expressions of opinion herein speak only as of the date of this Official Statement and are subject to change without notice. Neither delivery of this Official Statement, any sale made hereunder, nor any future use of this Official Stat ement shall, under any circumstances, create any implication that there has been no change in the affairs of the City or the District since the date hereof.
ESTIMATED SOURCES AND USES OF FUNDS
A summary of the estimated sources and uses of funds associated wit h the sale of the Bonds follows.
Sources
Principal Amount of Bonds $
Plus/Less: [Net] Original Issue Premium/Discount
Total Sources $
Uses
Improvement Fund $
Capitalized Interest (1)
Deposit to 2022 Reserve Account of Reserve Fund (2)
Costs of Issuance (3)
Total Uses $
(1) Used to pay interest on a portion of the Bonds through September 1, 2023. (2) Equal to the Reserve Requirement with respect to the Bonds as of their date of delivery. (3) Includes, among other things, the fees and expenses of Bond Counsel and Disclosure Counsel, the Fiscal Agent, the Municipal Advisor, the Appraiser , the Absorption Consultant, and the Special Tax Administrator, Underwriter’s discount, as well as the cost of printin g the preliminary and final Official Statements.
Exhibit 2
6 THE BONDS
This section generally describes certain of the terms of the Bonds contained in the Fiscal Agent Agreement. See “APPENDIX H – Summary of Certain Provisions of the Fiscal Agent Agreement.”
Authority for Issuance
The Bonds are issued pursuant to the Fiscal Agent Agreement, the Resolution of Issuance, and the Act. On May 21, 2019, the City Council adopted Resolution No. 1503-01 (the “Resolution of Formation” ), which formed the District. The District was established and authorized to incur bonded indebtedness in an aggregate principal amount not to exceed $25,000,000 at a special election in the District held on the same day. The Bonds are the first series to be issued under the authorization and additional series of parity bonds are expected to be issued in the future, as development progresses.
Description of the Bonds
The Bonds are being issued as fully registered bonds, registered in the name of Cede & Co. as nominee of The Depository Trust Company (“DTC”), and will be available to ultimate purchasers in the denomination of $5,000 or any integral multiple thereof, under the book -entry system maintained by DTC. Ultimate purchasers of Bonds will not receive ph ysical certificates representing their interest in the Bonds. So long as the Bonds are registered in the name of Cede & Co., as nominee of DTC, references herein to the Owners will mean Cede & Co., and will not mean the ultimate purchasers of the Bonds.
Payments of the principal, premium, if any, and interest on the Bonds will be made directly to DTC, or its nominee, Cede & Co., so long as DTC or Cede & Co. is the registered owner of the Bonds. Disbursements of such payments to DTC’s participants is the responsibility of DTC, and disbursements of such payments to the Beneficial Owners is the responsibility of DTC’s participants and indirect participants, as more fully described in “APPENDIX G – DTC and the Book-Entry Only System.”
The Bonds will be dated as of, and bear interest from, the date of their delivery at the rates contained, and mature in the amounts and years shown on the inside cover page of this Official Statement.
The principal of, and any redemption premium due with respect to, the Bonds will be payable in lawful money of the United States of America at the principal corporate trust office of the Fiscal Agent in Los Angeles, California, or such other place as designated by the Fiscal Agent, upon presentation and surrender of the Bonds. Interest on the Bonds, computed on the basis of a 360-day year consisting of twelve 30 -day months, will be paid in lawful money of the United States of America semiannually on March 1 and September 1 of each year (each an “Interest Payment Date”), commencing March 1, 2023.
Interest on the Bonds (including the final interest payment upon maturity or earlier redemption) is payable by check of the Fiscal Agent mailed on each Interest Payment Date by first class mail to the registered Owner thereof at such registered Owner’s address as it appears on the registration books maintained by the Fiscal Agent at the close of business on the 15th
day of the calendar month preceding the Interest Payment Date (the “Record Date”), or by wire transfer made o n such Interest Payment Date upon written instructions received by the Fiscal Exhibit 2
7 Agent on or before the Record Date preceding the Interest Payment Date, of any Owner of $1,000,000 or more in aggregate principal amount of Bonds; provided that so long as any Bonds are in book -entry form, payments with respect to such Bonds will be made by wire transfer, or such other method acceptable by the Fiscal Agent, to DTC. See “APPENDIX G – DTC and the Book-Entry Only System.”
Each Bond will bear interest from the Int erest Payment Date next preceding the date of authentication thereof unless (i) it is authenticated on an Interest Payment Date, in which event it will bear interest from such date of authentication, or (ii) it is authenticated prior to an Interest Payment Date and after the close of business on the Record Date preceding such Interest Payment Date, in which event it will bear interest from such Interest Payment Date, or (iii) it is authenticated prior to the Record Date preceding the first Interest Payment Date, in which event it will bear interest from the dated date; provided, however, that if at the time of authentication of a Bond, interest is in default thereon, such Bond will bear interest from the Interest Payment Date to which interest has previously been paid or made available for payment thereon.
So long as the Bonds are registered in the name of Cede & Co., as nominee of DTC, payments of the principal, premium, if any, and interest on the Bonds will be made directly to DTC, or its nominee, Cede & Co. Disbursements of such payments to DTC’s participants is the responsibility of DTC and disbursements of such payments to the Beneficial Owners is the responsibility of DTC’ s direct participants and indirect participants, as more fully described herein. See “APPENDIX G – DTC and the Book-Entry Only System.”
Redemption*
Optional Redemption. The Bonds are subject to optional redemption from any source of available funds prior to maturity, in whole, or in part among maturities as specified by the City and by lot within a maturity, on any date on or after September 1, ______, at the following respective redemption prices (expressed as percentages of the principal amount of the Bonds to be redeemed), plus accrued interest thereon to the date of redemption:
Redemption Dates Redemption Price
September 1, _____ through August 31, _____
September 1, _____ through August 31, _____
September 1, _____ through August 31, _____
September 1, _____ and thereafter
Mandatory Redemption from Prepayments. The Bonds are subject to mandatory redemption from Prepayments of the Special Tax by property owners, in whole or in part among maturities as specified by the City and by lot within a maturity, on any Interest Payment Date at the following respective redemption prices (expressed as percentages of the principal amount of the Bonds to be redeemed), plus accrued interest thereon to the date of redemption:
Redemption Dates Redemption Price
Interest Payment Dates through March 1, _____
September 1, _____ and March 1, _____
September 1, _____ and March 1, _____
September 1, _____ and Interest Payment Dates thereafter
* Preliminary; subject to change.
Exhibit 2
8 Mandatory Sinking Fund Redemption. The Bonds maturing September 1, ___ _ and September 1, ____ (the “Term Bonds”) are subject to mandatory sinking payment redemption in part on September 1, ____ and September 1, ____, respectively, and on each September 1 thereafter to maturity, by lot, at a redemption price equal to 100% of the principal amount thereof to be redeemed, without premium, in the aggregate respective principal amounts as set forth in the following tables:
Term Bonds Due September 1, ____
Mandatory
Redemption Date
(September 1)
Sinking Fund
Payment
Term Bonds Due September 1, ____
Mandatory
Redemption Date
(September 1)
Sinking Fund
Payment
The amounts in the foregoing tables will be reduced pro rata, in order to maintain substantially uniform debt service, as a result of any prior partial optional redemption or mandatory redemption of the Term Bonds.
Purchase In Lieu of Redemption. In lieu of redemption, moneys in the Redemption Account may be used and withdrawn by the Fiscal Agent for purchase of outstanding Bonds, upon the filing with the Fiscal Agent of an Officer ’s Certificate requesting such purchase, at public or private sale as and when, and at such prices (including brokerage and other charges) as such Officer’s Certificate may provide, but in no event may Bonds be purchased at a price in excess of the principal amount thereof, plus interest accrued to the date of purchase.
Redemption Procedure by Fiscal Agent. The Fiscal Agent will cause notice of any redemption to be mailed by first class mail, postage prepaid, at least 20 days but not more than 60 days prior to the date fixed for redemption, to the Securities Depositories and to one or more Information Services, and to the res pective registered Owners of any Bonds designated for redemption, at their addresses appearing on the Bond registration books in the principal office of the Fiscal Agent; but such mailing is not a condition precedent to such redemption and failure to mail or to receive any such notice, or any defect therein, will not affect the validity of the proceedings for the redemption of such Bonds.
Such notice will state the redemption date and the redemption price and, if less than all of the then outstanding Bond s are to be called for redemption, will designate the CUSIP numbers and Bond numbers of the Bonds to be redeemed by giving the individual CUSIP number and Bond number of each Bond to be redeemed or will state that all Bonds between two stated Bond numbers, both inclusive, are to be redeemed or that all of the Bonds of one or more maturities have been called for redemption, will state as to any Bond called in part the Exhibit 2
9 principal amount thereof to be redeemed, and will require that such Bonds be then surrender ed at the principal office of the Fiscal Agent for redemption at the said redemption price, and will state that further interest on such Bonds will not accrue from and after the redemption date.
Whenever provision is made in the Fiscal Agent Agreement for the redemption of less than all of the Bonds of any maturity, the Fiscal Agent will select the Bonds to be redeemed, from all Bonds or such given portion thereof of such maturity by lot in any manner which the Fiscal Agent in its sole discretion deems app ropriate. Upon surrender of Bonds redeemed in part only, the City will execute and the Fiscal Agent will authenticate and deliver to the registered Owner, at the expense of the City, a new Bond or Bonds, of the same series and maturity, of authorized deno minations in aggregate principal amount equal to the unredeemed portion of the Bond or Bonds.
City’s Right to Rescind. The City has the right to rescind any notice of the optional redemption of Bonds and such notice may be cancelled and annulled if for any reason funds will not be or are not available on the date fixed for redemption for the payment in full of the Bonds then called for redemption. Neither the City nor the Fiscal Agent will have any liability to the Owners of the Bonds or any other party related to any such rescission of redemption.
Effect of Redemption. From and after the date fixed for redemption, if funds available for the payment of the principal of, and interest and any premium on, the Bonds so called for redemption are deposited in the Redemption Account, such Bonds so called will cease to be entitled to any benefit under the Fiscal Agent Agreement other than the right to receive payment of the redemption price, and no interest will accrue thereon on or after the redemption date specified in such notice.
Transfer or Exchange of Bonds
So long as the Bonds are registered in the name of Cede & Co., as nominee of DTC, transfers and exchanges of Bonds will be made in accordance with DTC procedures. See APPENDIX G. Any Bond may, in accordance with its terms, be transferred or exchanged by the person in whose name it is registered, in person or by his duly authorized attorney, upon surrender of such Bond for cancellation, accompanied by delivery of a duly written instrument of transfer in a form approved by the Fiscal Agent. Whenever any Bond(s) will be surrendered for transfer or exchange, the City will execute and the Fiscal Agent will authenticate and deliver a new Bond(s), for a like aggregate principal amount of Bond(s) of authorized denominations and of the same maturity. The City will pay the cost for any services rendered or any expenses incurred by the Fiscal Agent in connection with any such transfer or exchange. The Fiscal Agent will collect from the Owner requesting such transfer any tax or other governmental charge required to be paid with respect to such transfer or exchange.
No transfers or exchanges of Bonds will be required to be made (i) within 15 days prior to the date established by the Fiscal Agent for selection of Bonds for redemption or ( ii) with respect to a Bond after that Bond has been selected for redemption.
Exhibit 2
10 SECURITY FOR THE BONDS
Pledge of Special Taxes
The Bonds are secured by and payable from a first pledge of the Net Taxes. The Bonds are secured by and payable from a first pledge of the “Net Taxes, ” which are comprised of Gross Taxes less Administrative Expenses. “Gross Taxes ” is defined in the Fiscal Agent Agreement as the proceeds of the Special Taxes (i.e., “Special Tax A” levied for facilities under the Special Tax Formula) received by the City, including any scheduled payments and any prepayments thereof and interest thereon, and proceeds of the redemption or sale of property sold as a result of foreclosure of the lien of the Special Taxes to the amount of said lien and interest thereon. “Gross Taxes ” does not include any penalties collected in connection with delinquent Special Taxes or any interest in excess of the interest due on the Bonds. The Bonds are also secured by the Reserve Fund held under the Fiscal Agent Agreement and, subject to prior disbursement to pay costs of the Improvements, moneys in the Improvement Fund . Until disbursed as provided in the Fiscal Agent Agreement, moneys in the Special Tax Fund , are pledged to the payment of the principal of, and interest and any premium on, the Bonds, as provided in the Fiscal Agent Agreement and in the Act, until all the B onds have been paid and retired, or until moneys or Federal Securities have been set aside irrevocably for that purpose.
The Improvements are not pledged to pay the debt service on the Bonds. Any proceeds of condemnation, destruction or other dispositio n of any Improvements are not pledged to pay the debt service on the Bonds and are free and clear of any lien or obligation imposed under the Fiscal Agent Agreement.
Special Taxes
Special Tax es applicable to each taxable parcel in the District will be levied and collected according to the tax liability determined by the City Council through the application of the Special Tax Formula, the complete copy of which is set forth in APPENDIX A hereto, for all taxable properties in the District, by Willdan Financial Services, Temecula, California , the special tax consultant for the District (the “Special Tax Consultant”). Interest and principal on the Bonds is payable from the annual Special Taxes to be levied and collected on taxable property within the District, from amounts held in the funds and accounts established under the Fiscal Agent Agreement (other than the Rebate Fund) and from the proceeds, if any, from the sale of such property for delinquency of such Special Taxes. As used herein, Special Tax refers only to “Special Tax A” levied for facilities under the Special Tax Formula.
The Special Taxes are exempt from the property tax limitation of Article XIIIA of the California Constitution, pursu ant to Section 4 thereof as a “special tax ” authorized by a two- thirds vote of the qualified electors. The levy of the Special Taxes was authorized by the City pursuant to the Act in an amount determined according to the Special Tax Formula approved by the City. See “–Special Tax Methodology ” below and “APPENDIX A – Rate and Method of Apportionment of Special Tax.”
The amount of Special Taxes that the District may levy in any year, and from which principal and interest on the Bonds is to be paid, is strictly limited by the maximum rates approved by the qualified electors within the District which are set forth as the “Maximum Annual Special Tax” in the Special Tax Formula. Under the Special Tax Formula, Special Taxes for the purpose of making payments on the Bonds will be levied annually in an amount, not in excess of the annual Maximum Annual Special Tax. The Special Taxes and any interest Exhibit 2
11 earned on the Special Taxes constitute a trust fund for the principal of and interest on the Bonds pursuant to the Fiscal Agent Agreement and, so long as the principal of and interest on these obligations remains unpaid, the Special Taxes and investment earnings thereon will not be used for any other purpose, except as permitted by the Fiscal Agent Agreement, and will be held in trust for the benefit of the owners thereof and will be applied pursuant to the Fiscal Agent Agreement. The Special Tax Formula apportions the Annual Costs (as defined in the Special Tax Formula and described below) among the taxable parcels of real property within the District according to the rate and methodology set forth in the Special Tax Formula. See “–Special Tax Methodology” below. See also “APPENDIX A – Rate and Method of Apportionment of Special Tax.”
The City may levy the Special Tax at the Maximum Annual Special Tax rate, which has been authorized by the qualified electors within the District, as set forth in the Special Tax Formula, if conditions so require. The City does not expect to need to levy at the Maximum Annual Special Tax rate for Fiscal Year 2022-23 or future years. However, the City has covenanted to annually levy the Special Taxes in an amount at least sufficient to pay the Annual Costs (as defined below). Because each year’s Special Tax levy is limited to the Maximum Annual Special Tax rates authorized as set forth in the Speci al Tax Formula, no assurance can be given that, in the event of Special Tax delinquencies, the amount of the Annual Costs will in fact be collected in any given year. See “SPECIAL RISK FACTORS – Levy and Collection of the Special Tax” herein. The Special Taxes are collected for the City by the County in the same manner and at the same time as ad valorem property taxes.
Special Tax Methodology
The Special Tax authorized under the Act applicable to land within the Dis trict will be levied and collected according to the tax liability determined by the City through the application of the appropriate amount or rate as described in the Special Tax Formula set forth in “APPENDIX A – Rate and Method of Apportionment of Special Tax” and in accordance with the Act. See “SPECIAL RISK FACTORS – Levy and Collection of Special Tax. ” Capitalized terms set forth in this section and not otherwise defined have the meanings set forth in the Special Tax Formula.
Determination of Annual Facilities Costs. Each year, the City will determine the Annual Facilities Costs of the District for the upcoming Fiscal Year. The “Annual Facilities Costs” includes the following items (less any applicable credits for available revenues):
(i) Administrative Expenses (including charges levied by the County); (ii) Debt Service on to be paid from Special Taxes;
(iii) Amounts needed to replenish bond reserve funds;
(iv) Amounts needed to cure any delinquencies in the payment of principal or interest on Bonds, which have occurred in the prior Fiscal Year and to fund any foreseeable deficiency of the amount to be available for the payment of principal or interest on Bonds, which are expec ted to occur in such Fiscal Year; and
(v) Pay-as-you-go construction expenditures for Authorized Facilities.
The Annual Facilities Costs are the basis for the amount of Special Tax to be levied within the District. In no event may the City levy a Spe cial Tax in any year above the Maximum Annual Special Tax identified for each parcel in the Special Tax Formula.
Exhibit 2
12 Parcels Subject to the Special Tax. Each Fiscal Year, the Administrator will prepare a list of the parcels subject to the Special Tax using the records of the City and the County Assessor. The City will tax all parcels within the District except property that is exempt from the Special Tax pursuant to the Special Tax Formula. A Taxable Parcel that is acquired by a public agency after the District has been formed will remain subject to the Special Tax unless a “trade” resulting in no loss of Special Taxes can be made, as described in the Special Tax Formula.
Annual Special Tax Levy. The Special Tax will be levied each year by calculat ing the Annual Costs, which needs to be generated by the Taxable Parcel in the District; the Special Tax (up to maximum allowable amount) will be levied against each Taxable Parcel until the total scheduled Special Taxes equals the Annual Facilities Costs, however the Special Tax Formula establishes a priority for which properties will be levied a Special Tax, with “Developed Parcels” receiving a Special Tax levy prior to “Final Map Parcels” and “Undeveloped Parcels ,” all as defined in the Special Tax Formula. For residential use parcels, “Developed Parcel” means that a building permit was pulled by May 1 of the Fiscal Year preceding the levy. See the Special Tax Formula in APPENDIX A.
Termination of the Special Tax. The Special Tax will be levied and collected (up to maximum allowable amount) for as long as needed to pay the principal and interest on the Bonds and other costs incurred in orde r to construct and acquire the authorized District -funded facilities and to pay the Annual Facilities Costs. The Special Tax Formula provides that the Special Tax may not be levied on any parcel in the District after Fiscal Year 2058-59. When all Annual Facilities Costs incurred by the District have been paid, the Special Tax will cease to be levied.
Prepayment of the Special Tax. The Special Tax Formula provides that landowners may permanently satisfy all or a portion of the Special Tax by a cash sett lement with the City.
The amount of the prepayment required is to be calculated according to a formula set forth in the Special Tax Formula, which is generally based on the parcel’s share of the outstanding Bonds, remaining facilities costs which have not been bonded, the reserve fund , fees, call premiums, negative arbitrage and any expenses incurred by the City in connection with the prepayment and expected future facilities costs.
Annual Special Tax; Maximum Special Tax
The annual Special Tax will be calculated by the City and levied each year to meet the Annual Costs. However, in no event may the City levy a Special Tax in any year above the Maximum Annual Special Tax identified for each parcel in the Special Tax Formula. The Maximum Annual Special Tax rates for single-family residential parcels is $1,600 per parcel (without an escalator) . For taxable Nonresidential Use parcels, Final Map Parcels, and Undeveloped Parcels, the Special Tax is based upon the gross acres or number of units planned for such parcels. See “APPENDIX A – Rate and Method of Apportionment of Special Tax.”
In addition to the maximum annual Special Tax rate limitation in the Special Tax Formula, Section 53321(d) of the Act provides that the special tax levied against any parcel for which an occupancy permit for private residential use has been issued may not be increased as a consequence of delinquency or default by the owner of any other parcel within a community facilities district by more than 10% above the amount that would have been levied in such Fiscal Year had there never been any such delinquencies or defaults. The debt service on the Bonds has been structured so that an annual Special Tax levy only on residential properties will be Exhibit 2
13 sufficient for annual payments on the Bonds , however i n cases of significant delinquencies , default in the payment of principal of and interest on the Bonds may occur.
The Special Tax levy may include a pay -as-you-go component. The Special Tax Formula provides a mechanism whereby the City may utilize the pay -as-you-go component to pay for and/or reimburse developers of property in the District for a portion of the cost of Improvements not funded by proceeds of the bonds issued for the District. In the event it is utilized, proceeds of the annual Special Tax levy will first be used to pay the Annual Costs other than pay-as-you-go expenditures and second, if the levy included a pay-as-you-go component, for authorized facilities costs not funded from Bond proceeds.
Levy and Collection of Special Taxes
The City shall cause Special Taxes in an amount corresponding to Annual Costs to be levied each Fiscal Year in accordance with the Ordinance such that the computation of the levy is complete before the final date on which the County Treasurer -Tax Collector will accept the transmission of the Special Tax amounts for the parcels within the District for inclusion on the next secured real property tax roll. Upon the completion of the computation of the amounts of the levy, the City shall prepare or cause to be prepared, and shall transmit to the County Treasurer-Tax Collector such data as the County Treasurer -Tax Collector requires to include the levy of the Special Taxes on the next secured real property tax roll.
The City shall fix and levy the amount of Special Taxes within the District required for the payment of principal of and interest on any outstanding Bonds of the District becoming due and payable during the ensuing Bond Year, including any necessary replenishment or expenditure of the Reserve Fund for the Bonds and an a mount estimated to be sufficient to pay the Administrative Expenses during such year, all in accordance with the rate and method of apportionment of the Special Taxes for the District and the Ordinance. In any event, the Special Taxes so levied shall not exceed the authorized amounts as provided in the proceedings pursuant to the Resolution of Formation.
The Special Taxes shall be payable and be collected in the same manner and at the same time and in the same installment as the general taxes on real property are payable, and have the same priority, become delinquent at the same times and in the same propo rtionate amounts and bear the same proportionate penalties and interest after delinquency as do the general taxes on real property.
Special Tax Fund
The City covenants that it will receive Net Taxes in trust for the Owne rs and will instruct the Chief Financial Officer to deposit all Net Taxes with the Fiscal Agent at leas t three Business Days prior to each Interest Payment Date, and the City shall have no beneficial right or interest in the amounts so deposited , except as provided by this Agreement. All such Net Taxes shall be disbursed, allocated and applied solely to the uses and purposes set forth in this Agreement, and shall be accounted for separately and apart from all other money, funds, accounts or other resources of the City.
Pursuant to the Fiscal Agent Agreement, the Fiscal Agent establishes as a separate fund to be held by the Fiscal Agent for the benefit of the owners of the Bonds , the Special Tax Fund. The Fiscal Agent is required to deposit the Special Taxes in the Special Tax Fund and Exhibit 2
14 thereafter transfer the Net Taxes on the dates and in the amounts in the following order of priority:
(1) To the Interest Account of the Special Tax Fund, at least one Business Day prior to each Interest Payment Date, the amount required to pay interest the Bonds on the immediately succeeding Interest Payment Date; provided, that to the extent that deposits have been made in the Interest Account from the proceeds of the sale of an issue of the Bonds, o r otherwise, the transfer from the Special Tax Fund need not be made;
(2) To the Principal Account of the Special Tax Fund, at least one Business Day prior to each Interest Payment Date , the amount required to pay principal of the Bonds (including mandato ry sinking fund payments) on the immediately succeeding Interest Payment Date ; provided, that to the extent that deposits have been made in the Interest Account from the proceeds of the sale of an issue of the Bonds, or otherwise, the transfer from the Special Tax Fund need not be made;
(3) To the Redemption Account of the Special Tax Fund , moneys needed for the purpose of redeeming Bonds called for optional redemption prior to maturity, to be applied on or after the redemption date to the payment of princ ipal, interest and premiums, if any, on the Bonds to be redeemed;
(4) To the Reserve Fund, after taking into account amounts then on deposit in the Reserve Fund, the amounts needed so that the amount in the Reserve Fund equals the Reserve Requirement; and
(5) To the Surplus Fund, as soon as practicable after each September 2, all remaining amounts in the Special Tax Fund. The amounts in the Surplus Fund are not pledged to the repayment of the Bonds and may be used by the City for any lawful purpose. Moneys deposited in the Surplus Fund shall be transferred by the Fiscal Agent upon the direction of the City.
Reserve Fund
The Fiscal Agent Agreement establishes the Reserve Fund, and within the Reserve Fund, the 2022 Reserve Account, to be held by the Fiscal Agent, to the credit of which a deposit shall be made upon issuance of the Bonds in the amount of the Reserve Requirement with respect to the Bonds as of the date of their delivery . Moneys in the 2022 Reserve Account of the Reserve Fund shall be held in trust by the Fiscal Agent for the benefit of the Owners of the Bonds as a reserve for the payment of principal of, and interest on, the Bonds and will be subject to a lien in favor of the Owners of the Bonds.
Upon delivery of the Bonds, the amount on deposit in t he 2022 Reserve Account of the Reserve Fund will be established by dep ositing certain proceeds of the Bonds in the amount of the “Reserve Requirement” for the Bonds, which means , as of the date of any calculation, an amount equal to the lesser of (a) Maximum Annual Debt Service on the respective Outstanding Bonds covered by the Reserve Fund , (b) 125% of the average Annual Debt Service on the respective Outstanding Bonds covered by the Reserve Fund, or (c) 10% of the original principal amount of the respective Bonds covered by the Reserve Fund (or the issue price of the respective Bonds excluding accrued interest, if the net original issue discount or premium is less than 98% or more than 102% of the principal amount of the respective Bonds), as calculated by Exhibit 2
15 the City. However, in no event will the City, in connection with the issuance of Additional Bonds covered by the Reserve Fund be obligated to deposit an amount in the Reserve Fund which is in excess of the amount permitted by the applicable provisions of the Tax Code to be so deposited from the proceeds of tax -exempt bonds without having to restrict the yield of any investment purchased with any portion of such deposit and, in the event the amount of any such deposit into the Reserve Fund is so limited, the Reserve Requirement will, in connection with the issuance of such Additional Bonds, be increased only by the amount of such deposit as permitted by the Code, and the District may meet all or a portion of the Reserve Requirement by depositing a Qualified Reserve Fund Credit Instrument in the Reserve Fund as described above.
The City is required to maintain an amount of money or other security equal to the Reserve Requirement in the Reserve Fund at all times tha t the Bonds are outstanding. Except as otherwise provided in the Fiscal Agent Agreement, all amounts deposited in the Reserve Fund will be used and withdrawn by the Fiscal Agent solely for the purpose of making transfers to the Special Tax Fund in the event of any deficiency of the amount required for payment of the principal of, and interest on, the Bonds on such Interest Payment Date.
Whenever the amount in the Reserve Fund exceeds the then applicable Reserve Requirement, the Fiscal Agent will transfer an amount equal to the excess from the Reserve Fund to the Improvement Fund, if the Project has not been completed as of the date of suc h transfer, or if the Project has been completed, to the Special Tax Fund to be used for the payment of the principal of and interest on the Outstanding Bonds , except that investment earnings on amounts in the Reserve Fund may be withdrawn from the Reserve Fund for purposes of making payment to the Federal government to comply with rebate requirements.
The City has the right at any time to cause the Fiscal Agent to release funds from the Reserve Fund, in whole or in part, by tendering to the Fiscal Agent: (1) a Qualified Reserve Fund Credit Instrument, and (2) an opinion of Bond Counsel stating that such release will not, of itself, cause the portion of the interest on the Bonds to become includable in gross income for purposes of federal income taxation. Upon tender of such items to the Fiscal Agent, the Fiscal Agent will transfer such funds from the Reserve Fund to the City. Prior to the expiration of any Qualified Reserve Fund Credit Instrument, the City is obligated either to replace such Qualified Reserve Fund Credit Instrument with a new Qualified Reserve Fund Credit Instrument, or to deposit or cause to be deposited with the Fiscal Agent an amount of funds such that the funds on deposit in the Reserve Fund together with all Qualified Reserve Fund Cre dit Instruments held by the Fiscal Agent is at least equal to the Reserve Requirement (which funds may come from a draw by the Fiscal Agent on the Qualified Reserve Fund Credit Instrument prior to its expiration). Any Qualified Reserve Fund Credit Instrument deposited with the Fiscal Agent shall contain instructions to the Fiscal Agent with respect to the purpose and use thereof.
Under the Fiscal Agent Agreement, a “Qualified Reserve Fund Credit Instrument ” is defined as an irrevocable standby or direct -pay letter of credit or surety bond issued by a commercial bank or insurance company, provided that all of the following requirements are met:
(a) the long -term credit rating of such bank or insurance company is rated at the time of issuance in the “AA” category or higher by S&P or Moody’s (without regard to qualifier); (b) such letter of credit or surety bond has a term of at least 12 months; (c) such letter of credit or surety bond has a stated amount at least equal to the portion of the Reserve Requiremen t; and (d) the Fiscal Agent is authorized pursuant to the terms of such letter of credit or surety bond to draw thereunder an amount equal to any deficiencies which may exist from time to time in the Special Exhibit 2
16 Tax Fund for the purpose of making payments required pursuant to the Fiscal Agent Agreement or the amount to be restored to the Reserve Fund if not timely renewed or extended.
If a Qualified Reserve Fund Credit Instrument were obtained in the future, and the long - term credit rating of the provider thereof was downgraded after the date of issuance of such Qualified Reserve Fund Credit Instrument, the City would not be obligated to replace the Qualified Reserve Fund Credit Instrument or otherwise fund the Reserve Fund.
Delinquent Payments; Teeter Plan; Covenant for Superior Court Foreclosure
General. The Special Tax will be collected in the same manner and the same time as ad valorem property taxes, except at the City’ s option, the Special Taxes may be billed directly to property owners or collected at a different time to meet the City ’s financial obligations. In the event of a delinquency in the payment of any installment of Special Taxes, the City is authorized by the Act to order institution of an action in superior court to foreclose the lien therefor.
Teeter Plan. In 1949, the California Legislature enacted an alternative method for the distribution of property taxes to local agencies. This method, commonly known as the Teeter Plan, is set forth in Sections 4701 -4717 of Revenue and Taxation Code of the State of California. The San Joaquin County Board of Supervisors (the “Board of Supervisors”) approved implementation of the Teeter Plan in November 1993, both as to general and special taxes entered and collected on the secured tax roll.
Generally, the Teeter Plan provides for a tax distribution procedure by which secured roll taxes, special taxes and assessments are distributed to taxing agencies within a county included in the Teeter Plan on the basis of the tax levy, rather than on the basis of actual tax collections. A county then receives all future delinquent tax payments, penalties and interest, and a complex tax redemption distribution system for all taxing agencies is avoided. In connection with the Teeter Plan, a county can advance to the participating taxing agencies an amount equal to 95% of the total then -prior years’ delinquent secured property taxes, 100% of the total then- prior years’ delinquent secured special taxes, including the associated penalties and interest, and 100% of the then-current year’s secured roll levy.
The Teeter Plan remains in effect unless the Board of Supervisors orders discontinuance. The County policy provides that it may order discontinuance of the Teeter Plan as to special taxes for the next year if the rate of delinqu ency for a taxing district exceeds 3% in any Fiscal Year. Unless and until the Board of Supervisors orders discontinuance of the Teeter Plan with respect to the District, the City is credited with 100% of the scheduled Special Tax payments without regard to actual amounts collected. The City can give no assurance, however, that the Teeter Plan will be continued in future years.
If any tax or assessment which was distributed to a Teeter Plan participant is subsequently changed by correction, cancellation or refund, a pro rata adjustment for the amount of the change is made on the records of the treasurer of the County and the Coun ty Auditor. Such an adjustment would be an offset to future distributions of tax revenues to the District.
So long as the County maintains its policy of collecting taxes pursuant to said procedures and the City meets the Teeter Plan requirements, the Cit y will receive 100% of the annual installments levied on taxable parcels in the District without regard to actual collections.
No assurance can be given that the County will continue to include special taxes levied within Exhibit 2
17 community facilities districts in the Teeter Plan, and the County could decide to discontinue the inclusion of such special taxes in the Teeter Plan at any time, or to discontinue the Teeter Plan in its entirety.
Foreclosure Covenant. The City has covenanted in the Fiscal Agent Agreem ent with and for the benefit of the Owners of the Bonds that it will annually on or before October 1 of each year review the public records of the County of San Joaquin relating to the collection of the Special Tax in order to determine the amount of the S pecial Tax collected in the prior Fiscal Year, and if the City determines on the basis of such review that:
Aggregate Delinquencies. The amount so collected is deficient by more than 5% of the total amount of the Special Tax levied in such Fiscal Year, it will within 30 days thereafter institute foreclosure proceedings as authorized by the Act in order to enforce the lien of the delinquent installment of the Special Tax against each separate lot or parcel of land in the District for which such installment of the Special Tax is delinquent, and will diligently prosecute and pursue such foreclosure proceedings to judgment and sale; or
Individual Delinquencies. The amount so collected is deficient by less than 5% of the total amount of the Special Tax levied in the District in such Fiscal Year, but that property owned by any single property owner in the District is delinquent by more than $3,000 with respect to the Special Tax due and payable by such property owner in such Fiscal Year and prior Fiscal Year(s), it will within 30 days thereafter institute foreclosure proceedings as authorized by the Act in order to enforce the lien of the delinquent installment of the Special Tax against each such property, and will diligently prosecute and pursue such foreclosure proceedings to judgment and sale..
The Chief Financial Officer shall notify legal counsel of any such delinquency of which it is aware, and such legal counsel shall commence, or cause to be commenced, such actions to collect such delinquencies and subsequent foreclosure proceedings in such a manner as such counsel deems appropriate.
Notwithstanding the foregoing, the City's obligation to pursue foreclosure shall be at the option of the City so long as (i) the Teeter Plan is in effect with respect to any delinquent parcel meeting the conditions above, and (ii) there is no then-outstanding draw on any amounts in the Reserve Fund.
Foreclosure Proceedings. Under the Act, foreclosure proceedings are instituted by the bringing of an action in the superior court of the county in which the parcel lies, naming the owner and other interested persons as defendants. The action is prosecuted in the same manner as other civil actions. In such action, the real proper ty subject to the special taxes may be sold at a judicial foreclosure sale for a minimum price that will be sufficient to pay or reimburse the delinquent special taxes.
The Owners of the Bonds benefit from the Reserve Fund established pursuant to the Fiscal Agent Agreement; however, if delinquencies in the payment of the Special Taxes with respect to the Bonds are significant enough to completely deplete the Reserve Fund, there could be a default or a delay in payments of principal and interest to the owne rs of the Bonds pending prosecution of foreclosure proceedings and receipt by the City of the proceeds of foreclosure sales. Provided that it is not levying the Special Tax at the Maximum Annual Special Tax rates set forth in the Special Tax Formula, the City may adjust (but not to exceed Exhibit 2
18 the Maximum Annual Special Tax and subject to the limitation described under the caption “– Special Tax Methodology – Limitation on Increases of Special Tax Levy ” above) the Special Taxes levied on all property within the District subject to the Special Tax to provide an amount required to pay debt service on the Bonds and to replenish the Reserve Fund.
Under current law, a judgment debtor (property owner) has at least 120 days from the date of service of the notice of le vy in which to redeem the property to be sold. If a judgment debtor fails to redeem and the property is sold, his or her only remedy is an action to set aside the sale, which must be brought within 90 days of the date of sale. If, as a result of such an action a foreclosure sale is set aside, the judgment is revived and the judgment creditor is entitled to interest on the revived judgment as if the sale had not been made (California Code of Civil Procedure Section 701.680).
Foreclosure by court action is subject to normal litigation delays, the nature and extent of which are largely dependent upon the nature of the defense, if any, put forth by the debtor and the condition of the calendar of the superior court of the county. Such foreclosure actions can be stayed by the superior court on generally accepted equitable grounds or as the result of the debtor’s filing for relief under the Federal bankruptcy laws. The Act provides that, upon foreclosure, the Special Tax lien will have the same lien priority as is provided for ad valorem taxes and special assessments. See “VALUE OF PROPERTY WITHIN THE DISTRICT AND SPECIAL TAX BURDEN – Overlapping Liens and Priority of Lien.”
No assurances can be given that the real property subject to a judicial foreclosure sa le will be sold or, if sold, that the proceeds of sale will be sufficient to pay any delinquent Special Tax installment. The Act does not require the District to purchase or otherwise acquire any lot or parcel of property foreclosed upon if there is no other purchaser at such sale.
Section 53356.6 of the Act requires that property sold pursuant to foreclosure under the Act be sold for not less than the amount of judgment in the foreclosure action, plus post - judgment interest and authorized costs, unless the consent of the owners of 7 5% of the outstanding Bonds is obtained. However, under Section 53356.6 of the Act, the District, as judgment creditor, is entitled to purchase any property sold at foreclosure using a “credit bid,” where the District could submit a bid crediting all or p art of the amount required to satisfy the judgment for the delinquent amount of the Special Tax. If the District becomes the purchaser under a credit bid, the District must pay the amount of its credit bid into the redemption fund established for the Bonds, but this payment may be made up to 24 months after the date of the foreclosure sale.
Additional Bonds
The Bonds are the first series of special tax bonds issued for the District and additional parity bonds (“Additional Bonds”) are anticipated to be issued as development progresses .
Issuance of Additional Bonds requires compliance by the City with the following conditions:
(i) No default in the Bonds shall have occurred and then be continuing.
(ii) The Supplemental Agreement providing for the issuance of the Additional Bonds shall specify the purpose for which such Additional Bonds being issued, which shall be one or more of the following:
Exhibit 2
19 (A) to provide moneys needed to constr uct and acquire a portion of the Project, by depositing into the Improvement Fund the proceeds of such Additional Bonds to be so applied, or
(B) to refund all or part of the Bonds or Additional Bonds then Outstanding, by depositing in trust with the Fisca l Agent, moneys or Federal Securities in the amount necessary to discharge all liability of the City with respect to the bonds to be refunded.
(iii) The Bonds of such Series shall be payable as to principal on September 1 in each year in which principal b ecomes due, and shall be payable as to interest semiannually on March 1 and September 1, except that the first installment of interest may be payable on either March 1 or September 1 and shall be for a period not longer than 6 months.
(iv) Fixed serial ma turities or Sinking Fund Payments, or any combination thereof, shall be established in amounts sufficient to provide for the retirement of all of the Bonds of such Series on or before their respective maturity dates.
(v) The aggregate principal amount of all additional Series of Bonds plus the 2022 Bonds shall not exceed $25,000,000, being the total amount of Bonds for the District authorized to be issued.
(vi) After giving effect to the issuance of such Series of Bonds:
(A) Projected Maximum Special Taxes plus projected investment earnings on amounts held in the Reserve Fund to be transferred to the Special Tax Fund pursuant to the terms of this Fiscal Agent Agreement for each Bond Year are equal to or greater than 110% of maximum Debt Service for each B ond Year that the Bonds and Additional Bonds will be outstanding; provided that such projection of investment earnings on amounts held in the Reserve Fund may assume an investment rate equal to the City's average portfolio rate available to the City at the time of determination; and
(B) The aggregate value of all parcels in the District subject to the Special Tax, including then existing improvements and any facilities to be constructed or acquired with the proceeds of the proposed series of Bonds, as determined by an MAI appraisal or, in the alternative, the assessed value of all such parcels and improvements thereon (and improvements to be financed from proceeds of the Bonds proposed to be issued) as shown on the then current County tax roll, or by a combination of both methods, is at least 3.00 times the sum of (i) the aggregate principal amount of all Bonds then outstanding plus (ii) the aggregate principal amount of the series of Bonds proposed to be issued, plus (iii) the aggregate principal amount of any bonds then outstanding and payable from assessments which are a lien against property in the District, plus (iv) a portion of the aggregate principal amount of all Mello -Roos bonds, other than Bonds then outstanding, and payable at least partially from special taxes to be levied on parcels of land subject to the Special Tax within the District (the “Other Mello-Roos Bonds”) equal to the aggregate principal amount of the Other Mello -Roos Bonds multiplied by a fraction, the numerator of which is the a mount of special taxes levied for the Other Mello -Roos Bonds on parcels of land within the District subject to the Special Tax, and the denominator of which is the total amount of special taxes levied for the Other Mello-Roos Bonds on all parcels of land subject to the Special Tax against which the special taxes are levied to pay the Other Mello -Roos Bonds (such fraction to be determined based upon the special taxes which could be levied the year in which Exhibit 2
20 maximum annual debt service on the Other Mello -Roos Bonds occurs), based upon information from the most recent available fiscal year.
Notwithstanding the preceding paragraphs of this subsection (vi), if a developer shall have deposited with the Fiscal Agent cash or a letter of credit from a reputable bank which is acceptable to the City, in an amount (the “Letter of Credit Amount”) equal to the shortfall in the valuation of the property in the District to meet the value -to-lien requirement set forth in the preceding paragraph, the Letter of Credit Amount shall be excluded from the debt computation under this subsection. Any such letter of credit deposited with the Fiscal Agent shall remain in effect, and the Letter of Credit Amount shall not be reduced or the letter of credit thereafter terminated, until satisfaction of the preceding paragraphs of this subsection (B) with respect to the amount by which the letter of credit is proposed to be reduced, or with respect to the Letter of Credit Amount in connection with the proposed termination of the letter of credit.
Additional Bonds may be issued for the purpose of refunding any outstanding Bonds without meeting the foregoing conditions of this subsection (vi) so long as debt service on the refunding Bonds in each Bond Year is less than debt service on the Bonds refunded.
Nothing in the Agreement prohibits issuance of bonds or Additional Bonds secured on a subordinate basis to the Bonds , or prevents the City from pledging or otherwise providing, in addition to the security given or intended to be given by the Agreement, additional security for the benefit of such Additional Bonds or any portion thereof.
Exhibit 2
21 DEBT SERVICE SCHEDULE
The annual debt service on the Bonds, based on the interest rates and maturity schedule set forth on the inside cover of this Official Statement (assuming no early redemptions), is set forth below.
City of Stockton
Community Facilities District No. 2019-1 (Cannery Park II) Special Tax Bonds Series 2022
Debt Service Schedule*
Period Ending
(Sept. 1)
Bonds
Principal
Bonds
Interest
Bonds
Total
* Preliminary; subject to change.
Source: Underwriter.
The Special Tax Formula is structured to produce Net Taxe s from the levy of the Maximum Annual Special Tax on residential properties which, when applied to the projected annual debt service on the Bonds, is anticipated to result in a debt service coverage ratio of at least 110% for the life of the Bonds.
Exhibit 2
22 The projected annual debt service coverage on the Bonds (based on the Maximum Annual Special Tax and the projected debt service on the Bonds) is shown below.
City of Stockton
Community Facilities District No. 2019-1 (Cannery Park II) Special Tax Bonds Series 2022
Debt Service Coverage Based on Maximum Annual Special Tax (1) *
Period
Ending
(Sept. 1)
Maximum
Special Tax
Revenue(2)
Administrative
Costs Net Revenue
Total
Debt Service*(3)(4)
Debt Service
Coverage*(3)
2023 $113,600.00 $25,000.00 $88,600.00
2024 824,000.00 25,500.00 798,500.00 $652,950.00 122.29% 2025 824,000.00 26,010.00 797,990.00 650,518.76 122.67
2026 824,000.00 26,530.20 797,469.80 652,831.26 122.16
2027 824,000.00 27,060.80 796,939.20 649,631.26 122.68
2028 824,000.00 27,602.02 796,397.98 651,175.00 122.30
2029 824,000.00 28,154.06 795,845.94 652,206.26 122.02
2030 824,000.00 28,717.14 795,282.86 652,725.00 121.84
2031 824,000.00 29,291.48 794,708.52 652,731.26 121.75
2032 824,000.00 29,877.31 794,122.69 652,225.00 121.76
2033 824,000.00 30,474.86 793,525.14 651,206.26 121.85
2034 824,000.00 31,084.36 792,915.64 654,112.50 121.22
2035 824,000.00 31,706.04 792,293.96 651,212.50 121.66
2036 824,000.00 32,340.17 791,659.83 652,775.00 121.28
2037 824,000.00 32,986.97 791,013.03 653,531.26 121.04
2038 824,000.00 33,646.71 790,353.29 653,481.26 120.95
2039 824,000.00 34,319.64 789,680.36 652,625.00 121.00
2040 824,000.00 35,006.04 788,993.96 650,962.50 121.20
2041 824,000.00 35,706.16 788,293.84 653,493.76 120.63
2042 824,000.00 36,420.28 787,579.72 649,950.00 121.18
2043 824,000.00 37,148.68 786,851.32 650,600.00 120.94
2044 824,000.00 37,891.66 786,108.34 654,700.00 120.07
* Preliminary; subject to change.
(1) Maximum Special Tax is shown on a fiscal year basis. In addition to the Maximum Special Tax rate set forth in the Special Tax Formula, Section 53321(d) of the Act provides that the special tax levied against any parcel for which an occupancy permit for private residential use has been issued may not be increased as a consequence of delinquency or default by the owner of any other parcel within a community facilities district by more than 10% above the amount that would have been levied in such fiscal year had there never been any such delinquencies or defaults. (2) FY2022-23 based on 71 parcels classified as "Developed" as defined in the RMA. Future Years based on residential parcels in villages (A, B, C, E1, E2, F1 and F2).
(3) Debt service shown on a calendar year basis.
(4) Debt service and debt service coverage based on the Bonds. Does not include overlapping debt.
Source: The Underwriter and Willdan Financial Services.
Exhibit 2
23 THE DISTRICT
Formation of the District
On May 21, 2019, the City Council adopted the Resolution of Formation, which formed the District. On the same day, an election was held within the District in which a single land0- developer, comprising all of the qualified landowners in the District , approved the proposed bonded indebtedness in the maximum aggregate principal amount of $ 25,000,000 and the levy of the Special Tax in accordance with the Special Tax Formula . The Bonds are the first series to be issued under the authorization and additional series of parity bonds are expected to be issued in the future, as development progresses.
Location and Description of the District and the Immediate Area
The District. The District is generally located south of Eight Mile Road, west of Highway 99 Frontage Road, east of the Union Pacific Railroad tracks, and north of George Lincoln Mosher Elementary School, within the City of Stockton, San Joaquin County, California.
The District represents a portion of the 450-acre Cannery Park Master Plan area that was annexed to the City and originally approved in 2004 and designated for a variety of land uses r anging from more than 1,000 single or multi -family residential units to parks, an elementary school, fire station, business park as well as commercial and offices uses, and developable in accordance with a Development Agreement entered into in October 2004 (with a 20-year term). Land located outside the District but within the Cannery Park Master Plan does not provide security for the Bonds.
The City. The City is within San Joaquin County within the Central Valley of California, commonly referred to as one of the most diverse and productive agricultural areas in the world.
The original city was founded on the San Joaquin River, in the northern San Joaquin Valley.
The City is located in and along the eastern Sacramento-San Joaquin Delta; the largest estuary on the west coast of the Western Hemisphere with over 700 miles of waterways ( per the State Department of Water Resources). Stockton is located approximately 45 miles s outh of Sacramento and 80 miles east of San Francisco. The City currently occupies a total area of 64.8 square miles.
Map. The map on the following page shows the boundary of the District.
Exhibit 2
24 [Reserved for CFD Boundary Map]
Exhibit 2
25 Environmental Matters
Flood Zone. According to the Federal Emergency Management Agency (FEMA) National Flood Insurance Program, Flood Insurance Rate Map (FIRM), the subject is located within Zone X (areas outside of the 0.2% annual chance flood plain), as reflected by FEMA map panel 06077C- 0320F (dated October 16, 2009).
Seismic Conditions. According to the Seismic Safety Commission, the subject properties are located within Zone 3, which is considered to be the lowest risk zone in California. There are only two zones in California: Zone 4, which is assigned to areas near major faults; and Zone 3, which is assigned to all other areas of more moderate seismic activity. In addition, the subject is not located in a Fault- Rupture Hazard Zone (formerly referred to as an Alquist -Priolo Special Study Zone), as defined by Special Publication 42 (revised January 1994) of the California Department of Conservation, Division of Mines and Geology.
Fire Hazard. Land in the District is not located within a High Fire Hazard Severity Zone or Very High Fire Hazard Severity Zone as defined by CalFIRE.
Development Agreement and Subdivision Agreement
Development Agreement. The City entered into a Development Agreement in October 2004 (as amended to date, the “Development Agreement”) with Holman Investors, LLC, which Development Agreement also binds successors in interest. The Development Agreement’s purpose is to preserve existing policies, rules and regulations with respect to the Cannery Park project. All of the property in the District is subject to the requirements of the Development Agreement. The Development Agreement was entered into in accordance with Sections 65864 through 65869.5 of the California Government Code, as implemented through the Stockton City Code. The Development Agreement runs with the property and is set to expire in October 2024.
Subdivision Agreement. The City entered into a Subdivision Agreement in December 2005 (as amended to date, the “ Subdivision Agreement”) with Holman Investors, LLC . The Subdivision Agreement is the primary implementation tool for the development of the Cannery Park project and creates a binding contract between the City and Holman Investors, LLC, and its successors in interest, which sets forth the needed infrastructure improvements, park dedication requirements, timing and method for financing impro vements and other specific performance obligations of the City and Holman Investors, LLC and its successors, including obligations related to development of the property in the District, with the terms, conditions, rules, regulations, entitlements, vested rights and other provisions relating to the development of the property in the District. Included are provisions relating to infrastructure improvements, public dedication requirements, landscaping amenities and other obligations of the parties.
The Subdivision Agreement runs with the property, and may be modified only by mutual consent of the parties. With the Subdivision Agreement in place, subject to compliance with the terms of the Subdivision Agreement, construction of homes within the District may occur upon City approval of subdivision maps, satisfaction of certain design requirements and conditions of such maps and issuance of building permits.
Current and Anticipated Development in the District
Current Zoning/Entitlements . Taxable property in the consists primarily of land developing into 721 single-family residential units. The Master Developer is the master Exhibit 2
26 developer for the project and has been building necessary infrastructure to sell all 721 currently planned residential lots to merchant homebuilders. Taxable land in the District also includes a multifamily residential site planned for 210 multi -family residential units and 4 parcels currently zoned for non-residential uses, 3 of which the Master Developer desires to rezone to residential uses in the future as described below ; however, no assurance can be given such rezone will take place or the timing related thereto.
Of the total 721 planned residential units, KB Home is building out Village A, B and C (128 total lots) and LGI Homes is building out Villages E1, E2, F1 and F2 (38 7 total lots). The remaining 206 lots are owned by the Master Developer. Homebuilding activity is underway by KB Home and LGI Homes. As of June 15 , 2022, LGI had sold and delivered 26 homes to individual homeowners. See “OWNERSHIP OF PROPERTY WITHIN TH E DISTRICT” for additional details.
Master Developer’s Plans to Re -Zone Certain Parcels . Taxable land in the District currently includes 4 non -residential parcels and one multi -family residential site. The Master Developer plans to submit to the City applications to rezone 4 out of the 5 undeveloped parcels, resulting in additional single -family residential (SFR) units in the District. Anticipated timing would be for the Master Developer to seek approval for the rezone of these parcels, first with the C ity of Stockton Planning Commission in fall 2022, followed by City Council approval in spring 2023. If such approvals were received, and backbone improvements required for development were completed (including the planned Holman Road Bridge), residential development could commence as early as summer 2023. However, no assurance can be given such rezone will take place or the timing related thereto.
Unless and until the parcels are re -zoned, the parcels are subject to a per acre special tax in accordance w ith the Special Tax Formula. If certain parcels were re- zoned to single- family residential uses, each residential unit would be subject to a $1,600 per unit special tax, in accordance with the Special Tax Formula. See APPENDIX A.
The Master Developer’s plans with respect to the 4 non -residential parcels and 1 multi - family residential parcel in the District are set forth in the following table.
APN
Large
Lot
Acreage
Current Land Use
Re-Zoned Land Use
(Not Yet Approved)
122-020-033 4 19.70 Business Park/Commercial Business Park/Commercial 122-020-032 4 12.34 Business Park/Commercial 250 – 300 MFR units 122-020-038 (por) 5A 44.18 Highway Commercial 257 SFR units 122-020-038 (por) 5B 11.70 MFR 122-020-043 6 11.89 Commercial Office 64 SFR units
___________
Source: Master Developer.
The Improvements
The City expects to utilize proceeds of the Bonds to reimburse costs expended for infrastructure facilities constructed and necessary to facilitate development in the District , including transportation improvements, water and wastewater system improvements, drainage system improvements, sound walls, landscaping and certain incidental expenses.
The Master Developer reports that all backbone infrastructure required for the 515 single-family homes being developed by KB Home and LGI Homes in the District is complete.
Exhibit 2
27 The following table shows improvements funded to -date and anticipated for the remainder of the District.
List of Key Backbone Improvements within the District
As of June 1, 2022
Contract Estimated Percent Cost Incurred CFD 2019-1
Improvement Cost Cost(1)(2) Complete to Date Funded
Holman Road - Phase 1 $ 922,686.00 100.00% $ 922,686.00 - PFC Jess Mizener Street 2,834,429.00 100.00 2,834,429.00 - Nash Drive Roundabout 646,725.00 100.00 646,725.00 -
Dry Utilities - Holman Road Phase 1 462,639.00 100.00 462,639.00 - Dry Utilities - PFC Jesse Mizener 574,622.00 80.00 459,697.60 - Dry Utilities - Nash Drive Roundabout 28,464.00 100.00 $28,464.00 - Holman Road/ PFC Jesse Mizener Signal 457,054.00 90.00 411,348.60 - Holman Road - Phase 1 - Landscaping 221,143.00 40.00 $88,457.20 $221,143.00 Woodbridge Irrigation District Box Culvert 977,255.00 100.00 977,255.00 977,255.00 Holman Road Bridge 6,296,150.00 5.00 314,807.50 6,296,150.00 Holman Road Bridge - CM, Permit Compliance 608,005.00 10.00 60,800.50 608,005.00 Holman Road - Phase 2 and Dry Utilities $4,798,371.00 0.00 4,798,371.00 Eight Mile Road Widening and Dry Utilities 4,500,000.00 0.00 4,500,000.00 Tri-Valley Drive and Dry Utilities 850,000.00 0.00 850,000.00 Collector A and Dry Utilities 850,000.00 0.00 850,000.00 Cannery Drive and Dry Utilities 1,450,000.00 0.00 1,450,000.00 Signature Drive and Dry Utilities 1,250,000.00 0.00 1,250,000.00
Totals $14,029,172.00 $13,698,371.00 $7,207,309.40 $21,800,924.00
Total Contract and Estimated Cost (1) $27,727,543.00
(1) Estimates, subject to change.
(2) Anticipated to be financed from various bond issuances.
Source: Master Developer.
The Special Tax Formula provides that the funding of Improvement costs can also be made from collections of the Special Tax available as the “pay-as-you-go” component of Special Taxes. The pay -as-you-go funding component could provide for funding of the c ost of the Improvements in excess of the amount provided from Bond proceeds through annual Special Tax collections in excess of the amount needed to pay the debt service. See “SECURITY AND SOURCES OF PAYMENT FOR THE BONDS – Special Tax Methodology.”
Master Developer’s Financing Plan
Cost Incurred for the Improvements . The Master Developer has expended over $ 14 million dollars on the construction and installation of Improvements for the District to date. An additional $13.7 million are estimated to be required to complete the project.
The Improvements already completed include various road improvements (Holman Road – Phase 1 and Jess Mizener Street) and dry utilities. Major future Improvements consist of completion of the Holman Road Bridge (already underway), Holman Road – Phase 2, Eight Mile Road widening and related dry utilities.
Funding Sources. The Master Developer has used, and intends to use, the following sources of funds to finance the Improvements for the development:
• Equity sources available to the Master Developer;
Exhibit 2
28 • Sales of lots in the District to merchant builders and other end users;
• Proceeds of special tax bonds secured by land within the District; and
• Pay-as-you-go Special Taxes available to the Master Developer under the Acquisition Agreement (see “–Acquisition Agreement” below).
Notwithstanding the belief of the Master Developer that it will have sufficient funds to complete its planned development, no assurance can be given that sources of financing available to the Master Developer will be sufficient to complete such development as c urrently anticipated. While the Master Developer has made internal financing available in the past for similar activities, there can be no assurance whatsoever of its willingness or ability to do so in the future. Neither the Master Developer nor any of its affiliates has any legal obligation of any kind to make any such funds available or to obtain loans or lines of credit. If and to the extent that internal financing, loan proceeds, lines of credit, or bond proceeds are inadequate to pay the costs to complete the Master Developer’s planned development, there could be a shortfall in the funds required to complete such proposed development and portions of such development might not be completed.
Acquisition Agreement. In connection with the issuance of the Bonds, the City and the Master Developer will enter into a Funding, Construction and Acquisition Agreement (the “Acquisition Agreement”) which provides that the Master Developer will construct (or cause to be constructed or funded) the Improvements, and the City, upon completion of construction and acceptance (or through progress payments on segments of a particular Improvement prior to completion of the entire Improvement), will purchase the Improvements or reimburse the Master Developer for expended amou nts from the proceeds of the Bonds and/or Special Taxes on a pay-as-you-go basis. The Master Developer will be responsible for the portion of the cost of construction of the Improvements not paid with Bond proceeds.
The Rate and Method provides that the funding of Improvement costs can also be made from collections of the Special Tax available as the “pay -as-you-go” component of Special Taxes. The pay-as-you-go funding component is expected to provide for funding of the cost of a portion of the Improvements in excess of the amount provided from bond proceeds (if such proceeds are not sufficient) through annual Special Tax collections in excess of the amount needed to pay the debt service. Pursuant to current City polic y, the City contemplates utilizing this funding mechanism during the expected build -out of the District or 20 years, whichever is shorter.
Market Absorption Report
In connection with the issuance of the Bonds, the Ci ty hired The Gregory Group, Folsom, California (the “Absorption Consultant”) to perform market absorption study services related to the 515 single-family homes being developed by KB Home and LGI Homes. The Absorption Consultant’s report (the “Absorption Report”) describes the planned development based on information available as of May 2022, and is attached hereto as APPENDIX C.
The Absorption Report included market pricing and absorption analysis for the 515 single-family homes planned for the District, and being marketed/sold by KB Home and LGI Homes. The absorption analysis is based on information provided by the Master Developer, KB Home and LGI Homes to the Absorption Consultant (as well as estimates by the Absorption Consultant) which includes an estimate as to when the villages opened for sales, infrastructure Exhibit 2
29 development, grading schedules, marketing considerations and anti cipated market conditions.
Furthermore, there are expected to be (and the market can sustain) several different projects selling simultaneously within each product type but built by different builders. Additional factors considered in predicting absorption rates are:
• The desirability of Cannery Park II as a new -home destination including the availability and affordability of housing
• Increasing new-home sales within the subject market area
• Limited future inventory in the subject market area
• Current absorption rates for similar product types within the subject market area
• Overall strong economic conditions and excellent housing conditions within the North Central Valley Region.
The Absorption Consultant concludes that the District can absorb between 1.00 and 1.25 sales per week per product offering (1.13 sales per week) for all of the product offerings over the marketing life of the development given the pricing (with home sizes ranging from 1,342 to 3,061 square feet and base prices range from $504,900 to $631,000).
Based on the foregoing and as set forth in more detail in the Absorption Report, the Absorption Consultant’s conclusions on absorption of the 515 single-family homes planned by KB Home and LGI Homes is 5.46 years, are set forth in the following tablet:
Project/Village
Merchant
Builder
Total
Units
Sold as
of
3/31/22
Remainder
2022
2023
2024 2025 2026 2027
The Preserve at Creekside KB Home 128 0 0 22 52 52 2 -- Cannery Park LGI Homes 387 32 49 65 65 65 65 46
Totals/Averages 515 32 49 87 117 117 67 46
___________
Note: The number of units that are being absorbed in the above table are based on home sales (i.e., entering into a contract) and are not based on actual closings to individual homeowners.
Source: Absorption Consultant.
Neither the City nor the Underwriter is obligated to make, and neither has undertaken to make, an independent verification of the information contained in the Absorption Report and neither the City nor the Underwriter assumes responsibility for the accuracy or completeness of the Absorption Report. The Absorption Report should be read in its entirety, and a complete copy thereof is set forth as APPENDIX C – THE ABSORPTION REPORT.
Exhibit 2
30 OWNERSHIP OF PROPERTY WITHIN THE DISTRICT
Unpaid Special Taxes do not constitute a personal indebtedness of the owners of the parcels within the District. There is no assurance that the present property owners or any subsequent owners will have the ability to pay the Special Taxes or that, even i f they have the ability, they will choose to pay the Special Taxes. An owner may elect to not pay the Special Taxes when due and cannot be legally compelled to do so. Neither the City nor any Bondowner will have the ability at any time to seek payment dire ctly from the owners of property within the District of the Special Tax or the principal or interest on the Bonds, or the ability to control who becomes a subsequent owner of any property within the District.
The Master Developer, KB Home and LGI Homes have provided the respective information set forth in the section entitled “OWNERSHIP OF PROPERTY WITHIN THE DISTRICT.” In addition, any Internet addresses included below are for reference only, and the information on those Internet sites is not a part of th is Official Statement or incorporated by reference into this Official Statement. Certain other information contained below has been obtained from the Appraisal. For more detailed information on the ownership of undeveloped lots in the District, see the Appraisal attached hereto as APPENDIX B.
No assurance can be given that development of the property will be completed, or that it will be com pleted in a timely manner. The Special Taxes are not personal obligations of the developers or of any subsequent landowners; the Bonds are secured only by the Special Taxes and moneys available under the Fiscal Agent Agreement. See “SECURITY FOR THE BONDS” and “SPECIAL RISK FACTORS” herein.
Top Taxpayers
The table on the following page shows the anticipated top payers of the Special Taxes in the District, based on the projected Fiscal Year 2022-23 Special Tax levy amount. Additional information concerning the Master Developer, KB Home and LGI Homes follows thereafter.
Exhibit 2
31 Table 1
City of Stockton
Community Facilities District No. 2019-1 (Cannery Park II) Top Payers of Projected Fiscal Year 2022-23 Special Tax Levy
Property Owner (1)
No. of
Parcels
Number of
Assessable
Lots
Total
Assessed /
Appraised
Values (2)
Bonded
Debt (3)
Other
Overlapping
Land Secured
Debt (4)
Aggregate
Bond
Indebtedness
Maximum
Special Tax
Percentage
of Maximum
Special Tax
Estimated
FY 2022-23
Special Tax
Levy
Value to
Aggregate
Bonded
Debt
LGI Homes - California LLC 179 361 $63,542,000 $6,596,136 $221,990 $6,818,126 $577,600 39.25% $72,000 9.32 KB HOME NORTH BAY LLC 3 128 17,152,000 2,338,796 10,559 2,349,355 204,800 13.92% 0 7.30 Individual Homeowners 26 26 9,478,000 475,068 30,583 505,651 41,600 2.83% 41,600 18.74 HOLMAN INVESTORS LLC 5 0 4,965,466 0 112,321 112,321 647,579 44.01% 0 44.21 Total 213 515 $95,137,466 $9,410,000 $375,452 $9,785,452 $1,471,579 100.00% $113,600 9.72
(1) Ownership as of June 15, 2022.
(2) Based on Appraisal Report dated May 27, 2022. Appraised values were assigned to completed and final mapped lots. Assessed V alues were utilized for the vacant parcels currently designated for high density residential, commercial and industrial uses. (3) Bonded Debt allocated by Maximum Special Taxes for Developed and Final Mapped parcels. (4) Overlapping Debt provided by CalMuni as of June 1, 2022. Source: FY 2021-22 San Joaquin County Secured Roll, Appraisal Report by Integra Realty Resources, Willda n Financial Services
Exhibit 2
32 The Master Developer
Holman Investors LLC ( “Holman”), and its affiliate Eight Mile Road Investors, LLC (“Eight Mile Road” and together with Holman, the “ Master Developer”), is a local Stockton investment entity whose principals are Howard Arnaiz, Russell Ray, and Matt Arnaiz. Holman has been in business since October 2001. The Master Developer originally owned all of the land in the District, having acquired the land in 2002. The Master Developer was the entity that originally requested the District to be formed by the City in anticipation of facilitating new development of the property for the mixed uses anticipated by the Cannery Park Master Plan.
Current business activities of the Master Developer, in addition to maintaining the existing industrial-use space in the District , include leasing land to farmers, preserving entitlements, infrastructure and master planning. Holman is currently working with the City to pursue the permitting necessary to construct the Holman Road Bridge and allow for City utilities to be extended north of Bear Creek which will facilitate development of its holdings in those areas.
KB Home
KB Home North Bay, LLC, the developer of the land in the District and referred to herein as KB Home, is a subsidiary of KB Home, a Delaware corporation (“KB Home Corporation”), a public company whose common stock is traded on the New York Stock Exchange under the symbol “KBH”. Founded in 1957 and headquartered in Los Angeles, California, KB Home Corporation, through its affiliates, constructs and sells homes through its operating divisions in 7 states and 35 metropolitan markets of the United States.
KB Home purchased 128 lots from the Master Developer. KB Home plans to build out these units within “ The Preserve at Creekside ” neighborhood. The first homes in the neighborhood are expected to be sold and closed to individual homeowners in late 2023, and the final homes in the neighborhood by the end of 20 26. KB Home’s plans are summarized as follows:
Project/Village
No. of
Lots
Floor
Plans
Square
Footage
Base
Pricing
The Preserve at Creekside 128 6 1,769 – 3,093 $504,900 and up
KB Home anticipates the following absorption schedule for its 128 lots in the District.
Project/Village
No. of
Lots
Sold as
of
3/31/22
Remainder
2022
2023
2024 2025 2026 2027
The Preserve at Creekside 128 0 0 20 48 48 12 --
To date, KB Home has financed its land acquisition and various site development costs related to its development within the District through internally generated funds. KB Home expects to use home sales and internal funding to complete the development. H owever, home sales revenues for KB Home projects in the District are not segregated and set aside for completing its projects in the District. Home sales revenue is swept daily from KB Home ’s divisions for use in operations, to pay down debt and for other corporate purposes and might get diverted to other KB Home needs at the discretion of KB Home management. Notwithstanding the foregoing, KB Home believes that it will have sufficient funds available to complete its Exhibit 2
33 proposed development in the District, c ommensurate with the development timing described in this Official Statement.
Although KB Home expects to have sufficient funds available to complete its development in the District, commensurate with the development timing described in this Official Statement, there can be no assurance, however, that amounts necessary to finance the remaining development and home construction costs will be available from KB Home or any other source when needed. Neither KB Home, nor its parent, KB Home Corporation, nor any of its related entities are under any legal obligation of any kind to expend funds for the remaining development of and construction of homes on its property in the District. Any contributions by KB Home to fund the costs of such development and home construction are entirely voluntary.
KB Home Corporation is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act ”), and in accordance therewith files reports, proxy statements and other information, including financial statements, with the Securities an d Exchange Commission (the “SEC”). Such filings, particularly KB Home Corporation’s Annual Report on Form 10 -K for its most recent fiscal year , as filed by KB Home with the SEC, set forth certain data relative to the consolidated results of operations and financial position of KB Home Corporation and its subsidiaries, including KB Home, as of such date.
The SEC maintains an Internet web site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC, including KB Home Corporation. The address of such Internet web site is www.sec.gov. All documents subsequently fil ed by KB Home Corporation pursuant to the requirements of the Exchange Act after the date of this Official Statement will be available for inspection in such manner as the SEC prescribes. The Internet address and references to filings with the SEC are included for reference only, and the information on these Internet sites and on file with the SEC are not a part of this Official Statement and are not incorporated by reference into this Official Statement.
KB Home’ s website address is www.kbhome.com. The website address is given for reference and convenience only. The information on the website may be incomplete or inaccurate and has not been reviewed by the City or the Underwriter. Nothing on the website is a part of this Official Statement or incorporated into this Official Statement by reference.
LGI Homes
LGI Homes – California, LLC (defined as LGI Homes) is engaged in the design and construction of homes across Texas, Arizona, Florida, Georgia, New Mexico, North Carolina, South Carolina, Colorado, Washington, Tennessee, Minnesota, Oklahoma, Alabama, Oregon, California, Nevada, West Virginia, Virginia and Pennsylvania. Since commencing operations in 2003, LGI Homes and its affiliates have constructed and sold over 50,000 homes. LGI Homes’ parent company is listed on the NASDAQ stock exchange under the ticker symbol “LGIH.”
LGI Homes purchased 387 lots from the Master Developer. LGI Homes plans to build out these units within its “Cannery Park” neighborhood. LGI Homes’ first homes in the neighborhood were sold and conveyed to individual homeowners in April 2022, and the final homes in the neighborhood are expected to be conveyed to individual homeowners by the end of 2025. LGI Homes’ plans are summarized as follows:
Exhibit 2
34 Community
No. of
Lots
Floor
Plans
Square
Footage
Base
Pricing
Cannery Park 387 5 1,342 – 2,215 $501,900 and up
As of June 15, 2022, LGI Homes had obtained building permits for 95 homes and had 24 homes in escrow that had not yet closed. To date, LGI Homes has financed its land acquisition and various site development costs related to its development within the District through internally generated funds. LGI Homes expects to use home sales and internal funding to complete the development. However, home s ales revenues for LGI Homes projects in the District are not segregated and set aside for completing its projects in the District. Home sales revenue is swept daily from LGI Homes’ divisions for use in operations, to pay down debt and for other corporate purposes and might get diverted to other LGI Homes needs at the discretion of LGI Homes management. Notwithstanding the foregoing, LGI Homes believes that it will have sufficient funds available to complete its proposed development in the District, commensurate with the development timing described in this Official Statement.
As of June 15, 2022, LGI Homes estimated it had remaining costs of approximately $2,000,000 to be incurred for horizontal improvements to its land in the District and approximately $80,000,000 for the construction and sale of the homes it intended to build in the District. Although LGI Homes expects to have sufficient funds available to complete its development in the District, commensurate with the development timing described in this Official Statement, there can be no assurance that amounts necessary to finance the remaining development and home construction costs will be available from LGI Homes or any other source when needed. Neither LGI Homes, nor its parent, nor any of its related entities are under any legal obligation of any kind to expend funds for the remaining development of and construction of homes on its property in the District. Any contributions by LGI Homes to fund the costs of such development and home construction are entirely voluntary.
LGI Homes, Inc. , which is the parent company to LGI Homes, is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and in accordance therewith files reports, proxy statements and other information, including financial statements, with the Securities and Exchange Commission (the “SEC”).
Such filings, particularly its Annual Report on Form 10 -K for its most recent fi scal year, as filed with the SEC, set forth certain data relative to the consolidated results of operations and financial position of LGI Homes, Inc. and its subsidiaries, as of such date.
The SEC maintains an Internet web site that contains reports, pr oxy and information statements and other information regarding registrants that file electronically with the SEC, including LGI Homes, Inc. The address of such Internet web site is www.sec.gov. All documents subsequently filed by LGI Homes, Inc. pursuant to the requirements of the Exchange Act after the date of this Official Statement will be available for inspection in such manner as the SEC prescribes. The Internet address and references to filings with the SEC are included for reference only, and the information on these Internet sites and on file with the SEC are not a part of this Official Statement and are not incorporated by reference into this Official Statement.
LGI Homes, Inc.’s website address is www.lgihomes.com. The website address is given for reference and convenience only. The information on the website may be incomplete or inaccurate and has not been reviewed by the City or the Underwriter. Nothing on the website is a part of this Official Statement or incorporated into this Official Statement by reference.
Exhibit 2
35 VALUE OF PROPERTY WITHIN THE DISTRICT AND SPECIAL TAX BURDEN
The value of the land within the District is a critical factor in determining the investment quality of the Bonds. If a property owner defaults in the payment of the Special Tax, the City ’s only remedy is to foreclose on the delinquent property in an attempt to obtain funds with which to pay the delinquent Special Tax. A lthough a portion of the District is developed, a variety of economic, political, and natural occurrences incapable of being accurately predicted can affect land values and eventual completi on of development. See “SPECIAL RISK FACTORS – Property Values and Property Development.”
Unpaid Special Taxes do not constitute a personal indebtedness of the owners of the parcels within the District, and the owners have made no commitment to pay the principal of or interest on the Bonds or to support payment of the Bonds in any manner. Ther e is no assurance that the owners have the ability to pay the Special Taxes or that, even if they have the ability, they will choose to pay such taxes. An owner may elect to not pay the Special Taxes when due and cannot be legally compelled to do so. Nei ther the City nor any Bondholder will have the ability at any time to seek payment from the owners of property within the District of any Special Tax or any principal or interest due on the Bonds, or the ability to control who becomes a subsequent owner of any property within the District.
Assessed Valuation
In connection with valuing property in the District, the Appraiser has obtained the 2021- 22 County Assessed Valuation of certain property in the District. In addition, to comply with internal policies and in order to provide a more accurate valuation of the 515 single -family residential parcels being developed by KB Homes and LGI Homes in the District , the City ordered an appraisal of such land. See “– The Appraisal.”
Due to the recent and ongoing nature of development of homes in the District, the County assessed valuations are not in all cases reflective of most current development status, as is the case with certa in properties in the District. As provided by Article XIII A of the California Constitution, county assessors’ assessed values are to reflect market value as of the date the property was last assessed (or 1975, whichever is more recent), increased by a maximum of 2% per year. Properties may be reassessed by the County only upon a change of at least 51% ownership of existing property or upon new construction. The assessed values of parcels in the District thus reflect, for undeveloped parcels, the estimate of the County Assessor (the “Assessor”) of market value when acquired (or 1975, whichever is later), possibly increased by 2% per year, and for parcels on which construction has occurred since their date of acquisition, the Assessor’s estimate of market value as of the time of construction, possibly increased by 2% per year. The actual market value of parcels in the District, if sold at foreclosure, may be higher or lower than the Assessor’s assessed values, depending upon the date of the Assessor’s most recent assessment. The actual fair market value of any parcel can often be more accurately established through an arms -length sale or an appraisal by an independent appraiser.
Because of the general limitation to 2% per year in increases in full cash val ue of properties that remain in the same ownership, the County tax roll does not reflect values uniformly proportional to actual market values. No assurance can be given that , should a parcel with delinquent Special Taxes be foreclosed and sold for the amount of the delinquency, any bid will be received for such property, or if a bid is received that such bid will be sufficient to pay such delinquent installments.
Exhibit 2
36 The Appraisal
General. At the request of the City, Integra Realty Resources, Sacramento , California (the “Appraiser”) prepared an Appraisal Report with a date of value of May 4, 2022 (the “Appraisal”). The Appraisal is set forth in its entirety in APPENDIX B hereto. The description herein of the Appraisal is intended for limited purposes only; the Appraisal should be read in its entirety. The conclusions reached in the Appraisal are subject to certain assumptions and qualifications which are set forth in the Appraisal.
Property Appraised . The Appraisa l estimates the value of the 515 single -family residential parcels being developed by KB Homes and LGI Homes in the District . It also notes the assessed values for the 4 non-residential parcels and 1 multi -family residential parcel not appraised. The 14 completed single-family homes within the boundaries of the District (as of the date of the Appraisal) are not currently assessed for a complete improvement value by the San Joaquin County Assessor; as such, a “not-less-than” estimate of market value based on the smallest floor plan constructed was appraised and assigned to each respective assessor’s parcel within the District.
Value Estimates. The Appraiser was requested to provide a market value of the appraised properties by assessor’s parcel, as welI as a cumulative, or aggregate, value of all taxable property in the District, as of the date of inspection (value). The Appraiser has concluded a value estimate of $95,137,466 for taxable property in the District, as shown below.
Table 2
City of Stockton
Community Facilities District No. 2019-1 (Cannery Park II) Estimate of Aggregate Value of Taxable Property in District
Lots/Homes/
Parcels
Lot/
Home Value
Permits
and Fees
Remaining Site
Development
Costs
Value per
Component
Market Value
(Rd.)
KB Home North Bay LLC
Partially Improved Lots - Village A 50 $181,000 -- $(47,000) $134,000 $6,700,000 Partially Improved Lots - Village B 33 181,000 -- (47,000) 134,000 4,422,000 Partially Improved Lots - Village C 45 181,000 -- (47,000) 134,000 6,030,000 Total 128 $17,152,000
LGI Homes - California LLC
Improved Lots - Village E1 129 181,000 -- -- 181,000 $23,349,000 Improved Lots - Village E2 100 181,000 -- -- 181,000 18,100,000 Improved Lots - Village F1 2 181,000 -- -- 181,000 362,000 Under Construction - Village F1 56 181,000 $43,000 -- 224,000 12,544,000 Completed Home - Village F1 1 -- --- -- 485,000 485,000* Partially Improved Lots - Village F2 85 181,000 -- (47,000) 134,000 11,390,000 Total 373 $66,230,000
Individual Homeowners
Completed Home - Village F1 14 -- --- -- 485,000 6,790,000* Total 14 $6,790,000
Aggregate, or Cumulative, Appraised Values 515 $90,172,000
Aggregate, or Cumulative, Assessed Values 5 $4,965,466
Total Aggregate, or Cumulative, Value 520 $95,137,466 ______________
* Not-less-than value.
Source: Integra Realty Resources.
Exhibit 2
37 The estimate of value above represents a “not-less-than” value due to the fact the Appraiser was requested to provide a market value of the smallest floor plan on each single - family residential lot improved with a completed home without an assessed improvement value assigned. The valuation accounts for the impact of the lien of the Special Tax and excludes property in the District designated for public and quasi -public purposes and not subject to the Special Tax of the District.
Appraisal Methodology. In the Appraisal, the Appraiser provides estimates of market value of the appraised properties by ownership and Assessor’s parcel, as well as an aggregate, or cumulative value of the properties. The Appraiser used the sales comparison approach to value to determine the market value of each component comprising the appraised properties (being partially improved residential lots, finished residential lots, partially completed homes, completed homes without assessed values and the industrial parcels).
The cumulative, or aggregate, value of the appraised properties represents the sum of the value estimates concluded for each ownership interest, which is not equivalent to the market value of the District as a whole. Since the vested property owners have a number of lot(s) that could sell in bulk to one buyer within 12 months, no discounting was ne cessary. For additional details, see APPENDIX B.
Hypothetical Condition. The market value estimated by the Appraiser is based on a hypothetical condition. A hypothetical condition is defined by USPAP as “a condition, directly related to a specific assignment, which is contrary to what is known by the appraiser to exist on the effective date of the assignment results, but is used for the purpose of the analysis. ” The estimate of market value is subject to the hypothetical condition that certain of the proceeds from the Bonds are available to reimburse for infrastructure improvements completed. The estimate of market value accounts for the impact of the Lien of the Special Taxes securing the Bonds.
Extraordinary Assumptions and Limiting Conditions. In considering the estimate of value evidenced by the Appraisal, the Appraisal is based upon a number of standard and special assumptions that affect the estimates as to value, some of which include that there were no adverse soil conditions, toxic substances or other environmental hazards that may interfere or inhibit development of the appraised properties. If, at some future date, items are discovered that are determined to have a detrimental impact on value, the Appraiser reserves the right to amend the opinion of value stated in the Appraisal . For more information and a complete description of certain other assumptions made by the Appraiser, see “APPENDIX B – The Appraisal.”
Because the Appraiser arrived at an estimate of current market va lue based upon certain assumptions which may or may not be fulfilled, no assurance can be given that , should the parcels become delinquent due to unpaid Special Taxes, and be foreclosed upon and offered for sale for the amount of the delinquency, any bid would be received for such property or, if a bid is received, that such bid would be sufficient to pay such delinquent Special Taxes.
No assurance can be given that the estimated absorption will be achieved or attained over an extended period of time; real estate is cyclical in nature, and it is impossible to accurately forecast and project specific dem and over a projected absorption period. See “SPECIAL RISK FACTORS – Property Values and Property Development.”
Exhibit 2
38 Limitations of Appraised or Assessed Valuation. Property values may not be evenly distributed throughout the District; thus, certain parcels may have a greater value than others.
This disparity is significant because in the event of nonpayment of the Special Tax, the only remedy is to foreclose against the delinquent parcel.
No assurance can be given that the foregoing valuation can or will be maintained during the period of time that the Bonds are outstanding in that the City has no control over the market value of the property within the District or the amount of additional indebtedness that may be issued in the future by other public agencie s, the payment of which, through the levy of a tax or an assessment, may be on a parity with the Special Taxes. See “– Overlapping Liens and Priority of Lien” below.
For a description of certain risks that might affect the assumptions made in the Appraisal, see “SPECIAL RISK FACTORS” herein.
Value to Special Tax Burden Ratios
The value of the land within the District is a critical factor in determining the investment quality of the Bonds. If a property owner defaults in the payment of a Special Tax, the County ’s only remedy is to foreclose on the delinquent property in an attempt to obtain funds with which to pay the delinquent Special Taxes. See “SECURITY FOR THE BONDS - Delinquent Payments; Covenant for Superior Court Foreclosure ” and “SPECIAL RISK FACTORS - Bankruptcy and Foreclosure Delays.” Reductions in District property values due to a downturn in the economy, natural disasters such as earthquakes or floods, stricter land use regulations or other events could have an adverse impact on the security for payment of the Special Taxes.
The Special Tax is levied on each parcel within the District and only the respe ctive individual parcel is responsible for its allocated Special Tax.
Based upon the $ 95,137,466 estimated total valuation of taxable property in the District and an estimated principal amount of Bonds of $9,410,000 *, as well as overlapping land-
secured debt attributable to those parcels of $375,452, for a total direct and overlapping debt amount of $9,785,452*, the value -to-lien ratio for such property is approximately 9.72* to 1; provided, however, that the value-to-lien ratio of individual parcels may vary significantly.
In comparing the value of the real property within the District and the principal amount of the Bonds, it should be noted that only the real property upon which there is a delinquent Special Tax can be foreclosed upon, a nd the real property within the District cannot be foreclosed upon as a whole to pay delinquent Special Taxes of the owners of such parcels within the District unless all of the property is subject to a delinquent Special Tax. In any event, individual parcels may be foreclosed upon separately to pay delinquent Special Taxes levied against such parcels.
Value-to-Lien Ratios by Development Status and by Ranges . Table 3 on the following pages summarize the value-to-lien ratios of property in the District against the Bonds and overlapping debt in the District, by development status for purposes of application of the Special Tax Formula . Table 4 on the following page summarizes the appraised value-to-lien ratios of residential property in the District against the Bonds, by value -to-lien ratio ranges (excluding the two industrial zoned parcels).
* Preliminary; subject to change.
Exhibit 2
39 Table 3
City of Stockton
Community Facilities District No. 2019-1 (Cannery Park II) Maximum Special Tax, Projected Fiscal Year 2022-23 Special Tax Levy, Allocable Debt and Value-to-Lien Ratios by Development Status
Land Use
No. of
Parcels
Number of
Assessable
Lots
Assessed /
Appraised
Values (3)
Bonded
Debt (4)
Other
Overlapping
Land Secured
Debt
Aggregate
Bond
Indebtedness
Percentage
of Bonded
Debt
Maximum
Special Tax
Percentage
of
Maximum
Special Tax
Estimated
FY 2022-23
Special Tax
Levy
Developed (1) 71 71 $19,819,000 $1,297,301 $83,514 $1,380,815 14.11% $113,600 7.72% $113,600 Undeveloped - Final Map 137 444 70,353,000 8,112,699 179,617 8,292,316 84.74 710,400 48.27 0 Undeveloped - Other Land Uses (2) 5 0 4,965,466 0 112,321 112,321 1.15 647,579 44.01 0 Total 213 515 $95,137,466 $9,410,000 $375,452 $9,785,452 100.00% $1,471,579 100.00% $113,600
(1) Per the RMA, parcels are classified as "Developed" if a building permit is issued before May 1 of the preceding fiscal year. (2) Parcel 122-020-190 is within CFD 2019-1 boundary and subject to the Special Tax as defined per the RMA. The parcel is classified as Industrial with structure impr ovements per San Joaquin County Secured Roll. However, because the buildings existed before the formation of the CFD, the parcel will be classified as Undeveloped until it is further developed. (3) Based on Appraisal Report dated May 27, 2022. Appraised values were assigned to completed and final mapped lots. Assessed V alues were utilized for the vacant parcels currently designated for high density residential, commercial and industrial uses. (4) Bonded Debt allocated by Maximum Special Taxes for Developed and Final Mapped parcels Source: FY 2021-22 San Joaquin County Secured Roll, Appraisal Report by Integra Realty Resources, Willdan Financial Services
Exhibit 2
40 Table 4
City of Stockton
Community Facilities District No. 2019-1 (Cannery Park II) Estimated Valuation of District Property and Value-to-Lien Ratios by Range (Debt Allocated Based on Maximum Special Tax)
Value to
Bonded Debt
Number of
Parcels
Number of
Assessable
Lots
Total
Assessed /
Appraised
Values (1)
Bonded
Debt (2)
Other
Overlapping
Land Secured
Debt (3)
Aggregate
Bond
Indebtedness
Maximum
Special Tax
Percentage of
Maximum
Special Tax
FY 2022-23
Estimated
Special
Tax Levy
Greater than 20:1 20 15 $12,240,466 $274,078 $129,965 $404,042 $671,579 45.64% $24,000 15:1 to 19.99:1 0 0 0 0 0 0 0 0.00 0
10:1 to 14.99:1 56 56 12,544,000 1,023,223 65,871 1,089,094 89,600 6.09 89,600 5:1 to 9.99:1 137 444 70,353,000 8,112,699 179,617 8,292,316 710,400 48.27 0 Total 213 515 $95,137,466 $9,410,000 $375,452 $9,785,452 $1,471,579 100.00% $113,600
(1) Based on Appraisal Report dated May 27, 2022. Appraised values were assigned to completed and final mapped lots. Assessed V alues were utilized for the vacant parcels currently designated for high density residential, commercial and industrial uses. (2) Bonded Debt allocated by Maximum Special Taxes for Developed and Final Mapped parcels (3) Overlapping Debt provided by CalMuni as of June 1, 2022.
Source: FY 2021-22 San Joaquin County Secured Roll, Appraisal Report by Integra Realty Resources, Willdan Financial Services Exhibit 2
41 Overlapping Liens and Priority of Lien
The principal of and interest on the Bonds are payable from the Special Tax authorized to be collected within the District, and payment of the Special Tax is secured by a lien on certain real property within the District. Such lien is co -equal to and independent of the lien for general taxes and any other liens imposed under the Act, regardless of when they are imposed on the property in the District. The imposition of additional special taxes, assessments and general property taxes will increase the amou nt of independent and co -equal liens which must be satisfied in foreclosure. The City, the County and certain other public agencies are authorized by the Act to form other community facilities districts and improvement areas and, under other provisions of State law, to form special assessment districts, either or both of which could include all or a portion of the land within the District.
Other public agencies whose boundaries overlap those of the District could, without the consent of the City and in certain cases without the consent of the owners of the land within the District, impose additional taxes or assessment liens on the land within the District. The lien created on the land within the District through the levy of such additional taxes or ass essments may be secured on parity with the lien of the Special Tax. In addition, construction loans may be obtained by the homebuilder owners and home loans are likely to be obtained by ultimate homeowners. The deeds of trust securing such debt on proper ty within the District, however, will be subordinate to the lien of the Special Tax.
For example, a dditional CFD obligations on land in the District include City of Stockton Community Facilities District No. 2018-3 (Citywide Services and Maintenance). This CFD levies special taxes that pay for authorized public services, which special taxes are on a parity to the lien securing the Special Taxes securing the Bonds.
There can be no assurance that the current owners, or any subsequent owner, will not petition for the formation of other community facilities districts and improvement areas or for a special assessment district or districts and that parity special taxes or special assessments will not be levied by the County or some other public agency to finan ce additional public facilities, however no other special districts are currently contemplated or foreseen by the City.
Set forth on the following page is an overlapping debt table showing the existing authorized indebtedness payable with respect to prope rty within the District. This table has been prepared by California Municipal Statistics Inc. as of the date indicated, and is included for general information purposes only. The City has not reviewed the data for completeness or accuracy and makes no representations in connection therewith.
Exhibit 2
42 Table 5
City of Stockton
Community Facilities District No. 2019-1 (Cannery Park II) Summary of Overlapping Bonded Debt
As of June 1, 2022
2021-22 Local Secured Assessed Valuation: $16,597,967
DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT: % Applicable Debt 6/1/22 San Joaquin Delta Community College District General Obligation Bonds 0.017% $ 32,864 Lodi Unified School District General Obligation Bonds 0.083 251,677 Lodi Unified School District SFID No. 1 General Obligation Bonds 0.211 90,911 City of Stockton Community Facilities District No. 2019-1 100.000 - (1) TOTAL DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT $375,452
OVERLAPPING GENERAL FUND DEBT:
San Joaquin County Certificates of Participation 0.018% $11,036 Lodi Unified School District Certificates of Participation 0.083 8,382 City of Stockton Pension Obligation Bonds 0.063 33,700
TOTAL OVERLAPPING GENERAL FUND DEBT $53,118
COMBINED TOTAL DEBT $428,570 (2)
Ratios to 2021-22 Assessed Valuation:
Direct Debt ($0) ..................................................................... 0.00% Total Direct and Overlapping Tax and Assessment Debt ...... 2.26% Combined Total Debt ............................................................. 2.58% _____________
(1) Excludes the Bonds to be sold.
(2) Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue and non -bonded capital lease obligations.
Source: California Municipal Statistics, Inc.
Special Tax Collection and Delinquency Rate
The first year for levy and collection of the Special Taxes will be for Fiscal Year 2022-23; accordingly, there is no delinquency history.
Future delinquencies in the payment of property taxes (including the Special Taxes) with respect to property in the Di strict could result in draws on the Reserve Fund established, and perhaps, ultimately, a default in the payment on the Bonds. See “SPECIAL RISK FACTORS.”
Exhibit 2
43 Sample Tax Bill
The following table summarizes the representative pr operty tax bill for single-family residential property in the District.
Table 6
City of Stockton
Community Facilities District No. 2019-1 (Cannery Park II) Representative Property Tax Bill for Fiscal Year 2021-22(1)
ASSESSED VALUATION AND PROPERTY TAXES
Assessed Values (2) $485,000.00
Percent of
Assessed
Value
Projected
Amount
AD VALOREM PROPERTY TAXES 1.0000% $4,850.00
ASSESSMENTS, SPECIAL TAXES, AND PARCEL CHARGES (3)
Lodi USD Bond 2012R 0.0088% $42.68
Lodi USD Bond 2015R 0.0022 10.66
Lodi SFID Bond 2016R 0.0233 113.00
Lodi USD Bond 2017 0.0108 52.38
Lodi USD Bond 2017R 0.0231 112.02
Lodi SFID 1 Bond 2018 0.0020 9.70
Lodi USD Bond 2020 0.0434 210.48
Lodi USD Bond 2021 0.0145 70.32
Lodi SFID 1 Bond 2020 0.0259 125.60
SJ Delta College Bond 2015R 0.0088 42.68
SJ Delta College Bond 2018D 0.0028 13.58
SJ Delta College Bond 2020R 0.0019 9.20
SJ Delta College Bond 2021R 0.0028 13.58
Cannery Park Zn 2B Storm Drain 29.12
Water Zone 2 2.31
SJC MOSQ & VCTR CONT 11.22
SJAFCA FLDOM 9.06
CSA No. 53 4.00
Flood Zone 9 6.97
SJC MOSQUITO ABA 1.43
Cannery Park LMAD No. 96-2 Zone A-10 429.61
CFD 2019-1 Cannery Park II (Facilities) 1,600.00
CFD 2019-1 Cannery Park II (Services) 562.43
Total Assessments, Special Taxes, and Parcel Charges $3,482.03 PROJECTED TOTAL PROPERTY TAXES $8,332.03
PROJECTED TOTAL EFFECTIVE TAX RATE 1.72%
(1) Sample tax bill for a single-family home with the median land use and median home value. (2) Assessed value reflects estimated total assessed value.
Source: Willdan Financial Services & County of San Joaquin .
Exhibit 2
44 SPECIAL RISK FACTORS
The purchase of the Bonds described in this Official Statement involves a degree of risk that may not be appropriate for some investors. The following includes a discussion of some of the risks which should be considered before making an investment decisi on. This discussion does not purport to be comprehensive or definitive or a complete statement of all factors that may be considered as risks in evaluating the credit quality of the Bonds.
Limited Obligation of the City to Pay Debt Service
The City has no obligation to pay principal of and interest on the Bonds in the event Special Tax collections are delinquent, other than from amounts, if any, on deposit in the Reserve Fund or funds derived from the tax sale or foreclosure and sale of parcels on which levies of the Special Tax are delinquent, nor is the City obligated to advance funds to pay such debt service on the Bonds. The Bonds are not general obligations of the City but are limited obligations of the City and the District payable solely from the proceeds of the Special Tax and certain funds held under the Fiscal Agent Agreement, including amounts deposited in the Reserve Fund and investment income thereon, and the proceeds, if any, fro m the sale of property subject to the Special Tax in the event of a foreclosure. See “SECURITY FOR THE BONDS.” Any tax for the payment of the Bonds will be limited to the Special Tax to be collected within the jurisdiction of the District.
Levy and Collection of the Special Tax
General. The principal source o f payment of principal of and interest on the Bonds is the proceeds of the annual levy and collection of the Special Tax against property within the District.
Limitation on Maximum Annual Special Tax Rate. The annual levy of the Special Tax is subject to the maximum annual Special Tax rate authorized in the Special Tax Formula. The levy cannot be made at a higher rate even if the failure to do so means that the estimated proceeds of the levy and collection of the Special Tax, together with other availa ble funds, will not be sufficient to pay debt service on the Bonds.
In addition to the maximum annual Special Tax rate limitation in the Special Tax Formula, Section 53321(d) of the Act provides that the special tax levied against any parcel for which an occupancy permit for private residential use has been issued may not be increased as a consequence of delinquency or default by the owner of any other parcel within a community facilities district by more than 10% above the amount that would have been levied in such Fiscal Year had there never been any such delinquencies or defaults. In cases of significant delinquency, these factors may result in defaults in the payment of principal of and interest on the Bonds.
No Relationship Between Property Value and Special Tax Levy. Because the Special Tax Formula is not based on property value, the levy of the Special Tax will rarely, if ever, result in a uniform relationship between the value of particular Taxable Parcels and the amount of the levy of the Special Tax against those parcels. Thus, there will rarely, if ever, be a uniform relationship between the value of the Taxable Parcels and their proportionate share of debt service on the Bonds, and certainly not a direct relationship.
Exhibit 2
45 Factors that Could Lead to Special Tax Deficiencies. The following are some of the factors that might cause the levy of the Special Tax on any particular Taxable Parcels to vary from the Special Tax that might otherwise be expected:
Transfers to Governmental Entities . The number of Taxable Parcels could be reduced through the acquisition of Taxable Parcels by a governmental entity and failure of the government to pay the Special Tax based upon a claim of exemption or, in the case of the federal government or an agency th ereof, immunity from taxation, thereby resulting in an increased tax burden on the remaining taxed parcels.
Property Tax Delinquencies . Failure of the owners of Taxable Parcels to pay property taxes (and, consequently, the Special Tax), or delays in the collection of or inability to collect the Special Tax by tax sale or foreclosure and sale of the delinquent parcels, could result in a deficiency in the collection of Net Taxes. For a summary of recent Special Tax collection and delinquency rate s in the District, see “VALUE OF PROPERTY WITHIN THE DISTRICT AND SPECIAL TAX BURDEN” herein.
Concentration of Ownership
A substantial amount of taxable land within the District is owned by the Master Developer, KB Home and LGI Homes . The owner of property in the District is not personally obligated to pay the Special Tax attributable to the owner’s property. Rather, the Special Tax is an obligation only against the parcel of property, secured by the amount which could be realized in a foreclosure proceeding against the property, and not by any promise of the owner to pay. If the value of the property is not sufficient, taking into account other obligations also constituting a lien against the property, the City, Fisca l Agent and owners of the Bonds have no recourse against the owner, such as filing a lawsuit to collect money.
Failure of the Master Developer, KB Home, LGI Homes or any future owner of significant property subject to the Special Taxes in the District to pay installments of Special Taxes when due could cause the depletion of the Reserve Fund prior to reimbursement from the resale of foreclosed property or payment o f the delinquent Special Tax and, consequently, result in the delinquency rate reaching a level that would cause an insufficiency in collection of the Special Tax to meet the District ’s obligations on the Bonds. In that event, there could be a delay or failure in payments on the Bonds. See “SPECIAL RISK FACTORS – Bankruptcy and Foreclosure Delays ” below and “SECURITY FOR THE BONDS – Delinquent Payments; Covenant for Superior Court Foreclosure.”
Development of undeveloped property within the District may be subject to unexpected delays, disruptions and changes which may affect the willingness and ability of landowners to pay the Special Taxes when due. Certain infrastructure improvements remain to be completed in order to complete construction of the rema ining homes in the District. No assurance can be given that the remaining proposed residential development will be partially or fully completed, and for purposes of evaluating the investment quality of the Bonds, prospective purchasers should consider the possibility that such parcels will remain vacant and only partially improved.
Appraised Values
The Appraisal estimates the market value of certain taxable property within the District.
This market value is merely the pr esent opinion of the Appraiser, and is subject to the assumptions and limiting conditions stated in the Appraisal. The City has not sought the Exhibit 2
46 present opinion of any other appraiser of the value of the taxed parcels . A different present opinion of value might be rendered by a different appraiser.
The opinion of value relates to sale by a willing seller to a willing buyer as of the date of valuation, each having similar information and neither being forced by other circumstances to sell or to buy. Consequently, the opinion is of limited use in predicting the selling price at a foreclosure sale, because the sale is forced and the buyer may not have the benefit of full information.
In considering the estimates of value evidenced by the Appraisal, it should be noted that the Appraisal is based upon a number of standard and special assumptions which affect the estimates as to value, as well as the hypothetical condition of the Improvements having been completed, as set forth in the Appraisal (see APPENDIX B hereto). The improvements to be financed by the Bonds were not in place as of the date of inspection; thus, the value estimate is subject to a hypothetical condition (of such improvements being in place).
In addition, the opinion is a present opini on. It is based upon present facts and circumstances. Differing facts and circumstances may lead to differing opinions of value. The appraised market value is not evidence of future value because future facts and circumstances may differ significantly from the present.
No assurance can be given that any of the appraised property in the District could be sold in a foreclosure for the estimated market value contained in the Appraisal. Such sale is the primary remedy available to Bondowners if that proper ty should become delinquent in the payment of Special Taxes.
Property Values and Property Development
The value of taxable property within the District is a critical factor in determining the investment quality of the Bonds. If a property owner defaults in the payment of the Special Tax, the City’s only remedy is to foreclose on the delinquent property in an attempt to obtain funds with which to pay the delinquent Special Tax. Land values could be adversely affected by economic and other factors beyond the City ’s control, such as a general economic downturn, relocation of employers out of the area, shortages of water, electricity, natural gas or other utilities, destruction of property caused by earthquake, flood, wildfires, or other natural disasters, environmental pollution or contamination, or unfavorable economic conditions.
Neither the District nor the City has evaluated development risks related t o the development of land in the District . Since these are largely business risks of the type that property owners customarily evaluate individually, and inasmuch as changes in land ownership may well mean changes in the evaluation with respect to any par ticular parcel, the District is issuing the Bonds without regard to any such evaluation. Thus, the creation of the District and the issuance of the Bonds in no way implies that the District or the City has evaluated these risks or the reasonableness of these risks.
The following is a discussion of specific risk factors that could affect the timing or scope of property development in the District or the value of property in the District.
Land Development. Land values are influenced by the level of development in the area in many respects.
Exhibit 2
47 First, undeveloped or partially developed land is generally less valuable than developed land and provides less security to the Owners of the Bonds should it be nece ssary for the District to foreclose on undeveloped or partially developed property due to the nonpayment of Special Taxes.
Second, failure to complete development on a timely basis could adversely affect the land values of those parcels that have been c ompleted. Lower land values would result in less security for the payment of principal of and interest on the Bonds and lower proceeds from any foreclosure sale necessitated by delinquencies in the payment of the Special Tax. See “VALUE OF PROPERTY WITHIN THE DISTRICT AND SPECIAL TAX BURDEN – Value to Special Tax Burden Ratios.” No assurance can be given that the proposed development within the District will be completed, and in assessing the investment quality of the Bonds, prospective purchasers should evaluate the risks of non-completion.
Neither KB Home Sacramento, Inc. , LGI Homes nor any other person provides any assurances that the project currently envisioned for the land in the District will be completed, or that available sources of financing that will actually be available and sufficient to complete such projected development. Developers have no obligation to the City or to owners of the Bonds to complete the project.
Risks of Real Estate Investment Generally . Continuing development of land within the District may be adversely affected by changes in general or local economic conditions, fluctuations in the real estate market, increased construction costs, development, financing and marketing capabilities of individual p roperty owners, water or electricity shortages, and other similar factors. Development in the District may also be affected by development in surrounding areas, which may compete with the District. In addition, land development operations are subject to comprehensive federal, state and local regulations, including environmental, land use, zoning and building requirements. There can be no assurance that proposed land development operations within the District will not be adversely affected by future gover nment policies, including, but not limited to, governmental policies to restrict or control development, or future growth control initiatives. There can be no assurance that land development operations within the District will not be adversely affected by these risks.
Natural Disasters. The value of the parcels in the District in the future can be adversely affected by a variety of natural occurrences, particularly those that may affect infrastructure and other public improvements and private impro vements on the parcels in the District and the continued habitability and enjoyment of such private improvements. For example, the areas in and surrounding the District, like those in much of the State, may be subject to earthquakes or other unpredictable seismic activity. See “THE DISTRICT – Environmental Matters.”
Other natural disasters could include, without limitation, landslides, floods, droughts or tornadoes. One or more natural disasters could occur and could result in damage to improvements of varying seriousness. The damage may entail significant repair or replacement costs and that repair or replacement may never occur either because of the cost, or because repair or replacement will not facilitate habitability or other use, or because other considerations preclude such repair or replacement. Under any of these circumstances there could be significant delinquencies in the payment of Special Taxes, and the value of the parcels may well depreciate.
Legal Requirements. Other events that may affect the value of a parcel include changes in the law or application of the law. Such changes may include, without limitation, local Exhibit 2
48 growth control initiatives, local utility connection moratoriums and local application of statewide tax and governmental spending limitation measures. Development in the District may also be adversely affected by the application of laws protecting endangered or threatened species.
Hazardous Substances. Any discovery of a hazardous substance detected on property within the District would affect the marketability and the value of some or all of the property in the District. In that event, the owners and operators of a p arcel within the District may be required by law to remedy conditions of the parcel relating to releases or threatened releases of hazardous substances. The federal Comprehensive Environmental Response, Compensation and Liability Act of 1980, sometimes re ferred to as “CERCLA” or the “Superfund Act,” is the most well -known and widely applicable of these laws. State law with regard to hazardous substances are also applicable to property within the District and are as stringent as the federal laws. Under ma ny of these laws, the owner (or operator) is obligated to remedy a hazardous substance condition of property whether or not the owner (or operator) has anything to do with creating or handling the hazardous substance. The effect, therefore, should any of the parcels be contaminated by a hazardous substance is to reduce the marketability and value of the parcel by the costs of remedying the condition, because the purchaser, upon becoming owner, will become obligated to remedy the condition just as is the seller.
The values set forth in the Appraisal do not take into account the possible reduction in marketability and value of any of the parcels within the District by reason of the possible liability of the owner (or operator) for the remedy of a hazardous s ubstance condition on a parcel.
Although the City is not aware that the owner (or operator) of any of the property within the District has a current liability for a hazardous substance with respect to any of the parcels, it is possible that such liabilities do currently exist and that the City is not aware of them.
Further, it is possible that liabilities may arise in the future with respect to any of the parcels within the District resulting from the existence, currently, on the parcel of a substance presently classified as hazardous but which has not been released or the release of which is not presently threatened, or may arise in the future resulting from the existence, currently, on the parcel of a substance not presently classified as hazardous but w hich may in the future be so classified. Further, such liabilities may arise not simply from the existence of a hazardous substance but from the method of handling it. All of these possibilities could significantly affect the value of a parcel within the District that is realizable upon a foreclosure sale.
Endangered and Threatened Species. It is illegal to harm or disturb any plants or animals in their habitat that have been listed as endangered species by the United States Fish & Wildlife Service under the Federal Endangered Species Act or by the California Fish & Game Commission under the California Endangered Species Act without a permit. The discovery of an endangered plant or animal could delay development of undeveloped property in the District or reduce the value of such property.
Other Possible Claims Upon the Value of Taxable Property
While the Special Taxes are secured by the Taxable Parcels in the District, the security only extends to the value of such property that is not subject to priority and parity liens and similar claims. The table in the section entitled “VALUE OF PROPERTY WITHIN THE DISTRICT AND SPECIAL TAX BURDEN – Overlapping Liens and Priority of Lien” shows the presently outstanding amount of governmental obligations (with stated exclusions), the tax or assessment for which is or may become an obligation of one or more of the Taxable Parcels.
The table also states the additional amount of gen eral obligation bonds the tax for which, if and Exhibit 2
49 when issued, may become an obligation of one or more of the Taxable Parcels. The table does not specifically identify which of the governmental obligations are secured by liens on one or more of the Taxable Parcels.
The City, the County and certain other public agencies are authorized by the Act to form other community facilities districts and improvement areas and, under other provisions of State law, to form special assessment districts, either or both of which could include all or a portion of the land within the District. Other governmental obligations may be authorized and undertaken or issued in the future, the tax, assessment or charge for which may become an obligation of one or more of the parcels of taxable property and may be secured by a lien on a parity with the lien of the Special Tax securing the Bonds.
In general, as long as the Special Tax is collected on the County tax roll, the Special Tax and all other taxes, assessments and charges also collected on the tax roll are on a parity, that is, are of equal priority. Questions of priority become significant when collection of one or more of the taxes, assessments or charges is sought by some other procedure, such as foreclosure and sale. In the event of proceedings to foreclose for delinquency of Special Taxes securing the Bonds, the Special Tax will be subordinate only to existing prior governmental liens, if any.
Otherwise, in the event of such foreclosure proceedings, the Special Taxes will generally be on a parity with the other taxes, assessments and charges, and will share the proceeds of such foreclosure proceedings on a pro rata basis. Although the Special Taxes will generally have priority over non -governmental liens on a Taxable Parc el, regardless of whether the non - governmental liens were in existence at the time of the levy of the Special Tax or not, this result may not apply in the case of bankruptcy. See “– Bankruptcy and Foreclosure Delays” below.
Bankruptcy and Foreclosure Delays
The Fiscal Agent Agreement generally provides that the Special Tax is to be collected in the same manner as ordinary ad valorem property taxes are collected and, except as provided in the spe cial covenant for foreclosure described in “SECURITY FOR THE BONDS – Delinquent Payments of Special Tax; Covenant for Superior Court Foreclosure ” and in the Act, is subject to the same penalties and the same procedure, sale and lien priority in case of delinquency as is provided for ordinary ad valorem property taxes. Under these procedures, if taxes are unpaid for a period of five years or more, the property is deeded to the State and then is subject to sale by the County.
If sales or foreclosures of property are necessary, there could be a delay in payments to owners of the Bonds pending such sales or the prosecution of foreclosure proceedings and receipt by the City of the proceeds of sale if the Reserve Fund is depleted . See “SECURITY FOR THE BONDS – Delinquent Payments; Covenant for Superior Court Foreclosure.”
The ability of the City to collect interest and penalties specified by State law and to foreclose against properties having delinquent Special Tax installments may be limited in certain respects with regard to properties in which the Federal Deposit Insurance Corporation (the “FDIC”) has or obtains an interest. The FDIC would obtain such an interest by taking over a financial institution that has made a loan that is secured by property within the District.
The payment of the Special Tax and the ability of the City to foreclose the lien of a delinquent unpaid Special Tax may also be limited by bankruptcy, insolvency or other laws generally affecting creditors’ rights or by the laws of the St ate of California relating to judicial foreclosure. The various legal opinions to be delivered concurrently with the delivery of the Exhibit 2
50 Bonds (including Bond Counsel ’s approving legal opinion) will be qualified as to the enforceability of the various legal i nstruments by bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors ’ rights, by the application of equitable principles and by the exercise of judicial discretion in appropriate cases.
Other laws generally affecting creditors’ rights or relating to judicial foreclosure may affect the ability to enforce payment of Special Taxes or the timing of enforcement of Special Taxes. For example, the Soldiers and Sailors Civil Relief Act of 1940 affords protections such as a stay in enforcement of the foreclosure covenant, a six -month period after termination of military service to redeem property sold to enforce the collection of a tax or assessment and a limitation on the interest rate on the delinquent tax or assessment to p ersons in military service if the court concludes the ability to pay such taxes or assessments is materially affected by reason of such service.
To the extent that property in the District continues to be owned by a limited number of property owners, the chances are increased that the Reserve Fund could be fully depleted during any such delay in obtaining payment of delinquent Special Taxes. As a result, sufficient moneys would not be available in the Reserve Fund to make up shortfalls resulting from delinquent payments of the Special Tax and thereby to pay principal of and interest on the Bonds on a timely basis.
FDIC/Federal Government Interests in Properties
General. The ability of the District to foreclose the lien of delinquent unpaid Special Tax installments may be limited with regard to properties in which the Federal Deposit Insurance Corporation (the “FDIC”), the Drug Enforcement Agency, the Internal Revenue Service, or other federal agency has or obtains an interest.
Federal courts have held that, based on the supremacy clause of the United States Constitution, in the absence of Congressional intent to the contrary, a state or local agency cannot foreclose to collect delinquent taxes or assessments if foreclosure would impair the federal government interest.
The supremacy clause of the United States Constitution reads as follows: “This Constitution, and the Laws of the United States which shall be made in Pursuance thereof; and all Treaties made, or which shall be made, under the Authority of the United States, shall be the supreme Law of the Land; and the Judges in every State shall be bound thereby, any Thing in the Constitution or Laws of any State to the contrary notwithstanding.”
This means that, unless Congress has otherwise provided, if a federal governmental entity owns a parcel that is subject to Special Taxes within the District but does not pay taxes and assessments levied on the parcel (including Special Taxes), the applicable state and local governments cannot foreclose on the parcel to collect the delinquent taxes and assessments.
Moreover, unless Congress has otherwise provided, if the federal government has a mortgage interest in the parcel and the District wishes to foreclose on the parcel as a result of delinquent Special Taxes, the property cannot be sold at a foreclosure sale unless it can be sold for an amount sufficient to pay delinquent taxes and assessments on parity with t he Special Taxes and preserve the federal government ’s mortgage interest. In Rust v. Johnson (9th Circuit; 1979) 597 F.2d 174, the United States Court of Appeal, Ninth Circuit held that the Federal National Mortgage Association (“FNMA”) is a federal instrumentality for purposes of this Exhibit 2
51 doctrine, and not a private entity, and that, as a result, an exercise of state power over a mortgage interest held by FNMA constitutes an exercise of state power over property of the United States.
No Acceleration Provisions
The Bonds do not contain a provision allowing for their acceleration in the event of a payment default or other default under the terms of the Bonds or the Fiscal Agent Agreement.
Under the F iscal Agent Agreement, a Bondowner is given the right for the equal benefit and protection of all Bondowners similarly situated to pursue certain remedies. So long as the Bonds are in book-entry form, DTC will be the sole Bondowner and will be entitled to exercise all rights and remedies of Bond holders, in accordance with its procedures and rules.
Loss of Tax Exemption
As discussed under the caption “TAX MATTERS,” interest on the Bonds might become includable in gross income for purposes of federal income taxation retroactive to the date the Bonds were issued as a result of future acts or omissions of the City in violation of its covenants in the Fiscal Agent Agreement. The Fiscal Agent Agreement does not contain a spe cial redemption feature triggered by the occurrence of an event of taxability. As a result, if interest on the Bonds were to become includable in gross income for purposes of federal income taxation, the Bonds would continue to remain outstanding until maturity unless earlier redeemed pursuant to optional redemption, mandatory sinking fund redemption or special mandatory redemption upon prepayment of the Special Taxes.
IRS Audit of Tax-Exempt Bond Issues
The Internal Revenue Service (the “IRS”) has initiated an expanded program for the auditing of tax- exempt bond issues, including both random and targeted audits. It is possible that the Bonds will be selected for audit by the IRS. It is also possible tha t the market value of such Bonds might be affected as a result of such an audit of such Bonds (or by an audit of similar bonds or securities).
Voter Initiatives
From time to time, initiative measures qualify for the State ballot pursuant to the State ’s constitutional initiative process and those measures could be adopted by State voters. The adoption of any such initiative might place limitations on the ability of the State, the City, the County or other local districts to increase revenues or to increase appropriations or on the ability of the landowners to complete the development of the District. See “– Property Values and Property Development” above.
Under the State Constitution, the power of initiative is reserved to the voters for the purpose of enacting statutes and constitutional amendments. Since 1978, the voters have exercised this power through the adoption of Proposition 13 and similar measures, including Proposition 218, which was approved in the general election held on November 5, 1996, and Proposition 26, which was approved on November 2, 2010.
Any such initiative may affect the collection of fees, taxes and other types of revenue by local agencies such as the District. Subject to overriding federal constitutional principles, such collection may be materially and adversely affected by voter-approved initiatives, possibly to the Exhibit 2
52 extent of creating cash- flow problems in the payment of outstanding obligatio ns such as the Special Tax Bonds.
Proposition 218 —Voter Approval for Local Government Taxes —Limitation on Fees, Assessments, and Charges —Initiative Constitutional Amendment, added Articles XIIIC and XIIID to the State Constitution, imposing certain vote r equirements and other limitations on the imposition of new or increased taxes, assessments and property-related fees and charges.
On November 2, 2010, State voters approved Proposition 26, entitled the “Supermajority Vote to Pass New Taxes and Fees Act ”. Section 1 of Proposition 26 declares that Proposition 26 is intended to limit the ability of the State Legislature and local government to circumvent existing restrictions on increasing taxes by defining the new or expanded taxes as “fees.” Proposition 26 amended Articles XIIIA and XIIIC of the State Constitution. The amendments to Article XIIIA limit the ability of the State Legislature to impose higher taxes (as defined in Proposition 26) without a two -thirds vote of the Legislature. Article XIIIC requ ires that all new local taxes be submitted to the electorate before they become effective. Taxes for general governmental purposes require a majority vote and taxes for specific purposes ( “special taxes”) require a two-thirds vote.
The Special Taxes and the Bonds were each authorized by not less than a two -thirds vote of the landowners within the District who constituted the qualified electors at the time of such voted authorization. The District believes, therefore, that issuance of the Bonds does not require the conduct of further proceedings under the Act, Proposition 218 or Proposition 26.
Like their antecedents, Proposition 218 and Proposition 26 are likely to undergo both judicial and legislative scrutiny before the impact on the District can be de termined. Certain provisions of Proposition 218 and Proposition 26 may be examined by the courts for their constitutionality under both State and federal constitutional law, the outcome of which cannot be predicted.
Case Law Related to the Mello-Roos Act
On August 1, 2014, the California Court of Appeal, Fourth Appellate District, issued its opinion in City of San Diego v. Melvin Shapiro, et al. (D063997). The case involved a Convention Center Facili ties District (the “CCFD”) established by the City of San Diego. The CCFD is a financing district established under San Diego’s city charter (the “Charter”) and was intended to function much like a community facilities district established under the Act. The CCFD was comprised of all of the real property in the entire city. However, the CCFD special tax was to be levied only on properties in the CCFD that were improved with a hotel.
At the election to authorize the CCFD special tax, the CCFD proceedings limited the electorate to owners of hotel properties and lessees of real property owned by a governmental entity on which a hotel was located. Registered v oters in the City of San Diego were not permitted to vote. This definition of the qualified electors of the CCFD was based on Section 53326(c) of the Act, which generally provides that, if a special tax will not be apportioned in any tax year on residentia l property, the legislative body may provide that the vote shall be by the landowners of the proposed community facilities district whose property would be subject to the special tax. The San Diego Court held that the CCFD special tax election did not com ply with its Charter and with applicable provisions of the State Constitution -- specifically Article XIIIA, section 4 (“Cities, Counties and special districts, by a two -thirds vote of the qualified electors of such district, may impose special taxes on such district . . ..”) and Article XIIIC, section 2(d) (“No Exhibit 2
53 local government may impose, extend, or increase any special tax unless and until that tax is submitted to the electorate and approved by a two -thirds vote.”) -- because the electors in the CCFD election should have been the registered voters residing within the CCFD (the boundaries of which were coterminous with the boundaries of the City of San Diego).
As to the District, there were no registered voters within the District at the time of the election to authorize the Special Taxes. Significantly, the San Diego Court expressly stated that it was not addressing the validity of a landowner election to impose special taxes on property pursuant to the Act in situations where there are fewer than 12 reg istered voters. Therefore, by its terms, the San Diego Court’s holding does not apply to the special tax election in the District.
Moreover, Sections 53341 and 53359 of the Act establish a limited period of time in which special taxes levied under the Act may be challenged by a third party , which time period has now passed.
COVID-19
The COVID-19 pandemic remains ongoing. Although to date, development of taxable property in the District has not been materially adversely impacted by COVID -19, the continued spread of COVID-19, and responses intended to slow its spread, may result in negative impacts to the homebuilding operations and sales of homes within the District. T here can be no assurances that the spread of the virus and any future shelter in place orders and social distancing requirements imposed by the State of California, or other State or local mandates and/or other responses intended to slow its spread will not materially advers ely impact the pace of sales of lots or homes or the willingness of owners of land in the District, including the Master Developer, KB Home, LGI Homes, or individual homeowners, to pay the Special Taxes securing the Bonds. In addition, no assurance can be given that the property tax payment dates will not be deferred in the future, which may cause a delay in the receipt of Net Taxes by the City for the payment of the Bonds. Finally, stock and municipal bond markets in the U.S. and globally have seen significant volatility attributed to COVID-19 concerns over the past few years; there can be no assurances that these or other concerns that emerge later will not materially adversely impact the secondary market for the Bonds.
Cybersecurity
The City, like most other public and private entities, relies on computer and other digital technology and systems to conduct its operations, including with respect to the District and the Bonds. As a recipient and provider of personal, p rivate or other sensitive electronic information, the City is subject to multiple cyber threats, including without limitation hacking, viruses, ransomware, malware and other attacks. No assurance can be given that the efforts of the City to manage cyber threats and attacks will be successful in all cases, or that any such attack will not materially impact the operations or finances of the City, or the administration of the Bonds.
The City is also reliant on other entities and service providers in connection with the administration of the Bonds, including without limitation the County tax collector for the levy and collection of Special Taxes and the Fiscal Agent for the administration of the Bonds . No assurance can be given that the City and these other entities will not be affected by cyber threats and attacks in a manner that may material adversely affect the Bond owners.
TAX MATTERS
Exhibit 2
54 Federal Tax Status. In the opinion of Jones Hall, A Professional Law Corpora tion, San Francisco, California, Bond Counsel, subject, however to the qualifications set forth below, under existing law, the interest on the Bonds is excluded from gross income for federal income tax purposes and such interest is not an item of tax prefe rence for purposes of the federal alternative minimum tax.
The opinions set forth in the preceding paragraph are subject to the condition that the City comply with all requirements of the Internal Revenue Code of 1986, as amended (the “ Tax Code”) that must be satisfied subsequent to the issuance of the Bonds in order that the interest thereon be, and continue to be, excludable from gross income for federal income tax purposes .
The City has made certain representations and covenants in order to comply w ith each such requirement. Inaccuracy of those representations, or failure to comply with certain of those covenants, may cause the inclusion of such interest in gross income for federal income tax purposes, which may be retroactive to the date of issuance of the Bonds.
Tax Treatment of Original Issue Discount and Premium. If the initial offering price to the public at which a Bond is sold is less than the amount payable at maturity thereof, then such difference constitutes “original issue discount” for purposes of federal income taxes and State of California personal income taxes. If the initial offering price to the public at which a Bond is sold is greater than the amount payable at maturity thereof, then such difference constitutes “ original issue premium” for purposes of federal income taxes and State of California personal income taxes. De minimis original issue discount and original issue premium are disregarded.
Under the Tax Code, original issue discount is treated as interest excluded from f ederal gross income and exempt from State of California personal income taxes to the extent properly allocable to each owner thereof subject to the limitations described in the first paragraph of this section. The original issue discount accrues over the term to maturity of the Bond on the basis of a constant interest rate compounded on each interest or principal payment date (with straight- line interpolations between compounding dates). The amount of original issue discount accruing during each period is added to the adjusted basis of such Bonds to determine taxable gain upon disposition (including sale, redemption, or payment on maturity) of such Bond. The Tax Code contains certain provisions relating to the accrual of original issue discount in the case of purchasers of the Bonds who purchase the Bonds after the initial offering of a substantial amount of such maturity. Owners of such Bonds should consult their own tax advisors with respect to the tax consequences of ownership of Bonds with original is sue discount, including the treatment of purchasers who do not purchase in the original offering to the public at the first price at which a substantial amount of such Bonds is sold to the public.
Under the Tax Code, original issue premium is amortized o n an annual basis over the term of the Bond (said term being the shorter of the Bond’s maturity date or its call date). The amount of original issue premium amortized each year reduces the adjusted basis of the owner of the Bond for purposes of determinin g taxable gain or loss upon disposition. The amount of original issue premium on a Bond is amortized each year over the term to maturity of the Bond on the basis of a constant interest rate compounded on each interest or principal payment date (with straight-line interpolations between compounding dates). Amortized Bond premium is not deductible for federal income tax purposes. Owners of premium Bonds, including purchasers who do not purchase in the original offering, should consult their own tax advisor s with respect to State of California personal income tax and federal income tax consequences of owning such Bonds.
Exhibit 2
55 California Tax Status. In the further opinion of Bond Counsel, interest on the Bonds is exempt from California personal income taxes.
Other Tax Considerations. Current and future legislative proposals, if enacted into law, clarification of the Tax 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 beneficial owners from realizing the full current benefit of the tax status of s uch interest. The introduction or enactment of any such legislative proposals, clarification of the Tax Code or court decisions may also affect the market price for, or marketability of, the Bonds. It cannot be predicted whether or in what form any such proposal might be enacted or whether, if enacted, such legislation would apply to bonds issued prior to enactment.
The opinions expressed by Bond Counsel are based upon existing legislation and regulations as interpreted by relevant judicial and regulat ory authorities as of the date of such opinion, and Bond Counsel has expressed no opinion with respect to any proposed legislation or as to the tax treatment of interest on the Bonds, or as to the consequences of owning or receiving interest on the Bonds, as of any future date. Prospective purchasers of the Bonds should consult their own tax advisors regarding any pending or proposed federal or state tax legislation, regulations or litigation, as to which Bond Counsel expresses no opinion.
Owners of the Bonds should also be aware that the ownership or disposition of, or the accrual or receipt of interest on, the Bonds may have federal or state tax consequences other than as described above. Other than as expressly described above, Bond Couns el expresses no opinion regarding other federal or state tax consequences arising with respect to the Bonds, the ownership, sale or disposition of the Bonds, or the amount, accrual or receipt of interest on the Bonds.
LEGAL MATTERS
Legal Opinion
The legal opinion of Jones Hall, A Professional Law Corporation, San Francisco, California, Bond Counsel, approving the validity of the Bonds will be made available to purchasers at the time of original delive ry and is attached in substantially final form as APPENDIX E.
Jones Hall, A Professional Law Corporation, San Francisco, California, is also serving as Disclosure Counsel to the City. The City Attorney will pass upon cer tain legal matters for the City. Kutak Rock LLP, Irvine, California will pass upon certain legal matters for the Underwriter.
No Litigation
Exhibit 2
56 At the time of delivery of and payment for the Bonds, the City Attorney will deliver his opinion that to the best of its knowledge there is no action, suit, proceeding, inquiry or investigation at law or in equity before or by any court or regulatory agency pending against the City affecting its existence or the titles of its officers to office or seeking to restrain or to enjoin the issuance, sale or delivery of the Bonds, the application of the proceeds thereof in accordance with the Fiscal Agent Agreement, or the collection or application of the Special Tax to pay the principal of and interest on the Bonds, or in any w ay contesting or affecting the validity or enforceability of the Bonds, the Fiscal Agent Agreement or any action of the City contemplated by any of said documents, or in any way contesting the completeness or accuracy of this Official Statement or any amendment or supplement thereto, or contesting the powers of the City or its authority with respect to the Bonds or any action of the City contemplated by any of said documents.
CONTINUING DISCLOSURE
The City
The City will covenant for the benefit of owners of the Bonds to provide certain financial information and operating data relating to the District (the “City Annual Report” ) by not later than March 31 following the end of the City’s fiscal year, commencing March 31, 2023, with the report for the fiscal year ending June 30, 2022, and to provide notices of the occurrence of certain listed events (“Notice Events”). These covenants have been made in order to assist the Underwriter in complying with Securities Exchange Commission Rule 15c2 -12(b)(5), as amended (the “ Rule”). The specific nature of the information to be contained in the Annual Report or the notices of listed events is set forth in APPENDIX F.
In the preceding five years, the City failed to timely comply in certain respects with its previous undertakings with regard to the Rule to provide annual reports, adopted budgets, or notices of Notice Events, and in some instances, information was not ass ociated with the correct CUSIP number, including that the Fiscal Year 2017 -18 budget was filed 3 months late with respect to certain obligations . In addition, on occasions during the last five years the City failed to provide its audited or unaudited finan cial statements in the time required by its continuing disclosure undertakings , including that the Fiscal Year 2016- 17 audited financial statements were filed 1 week late and the Fiscal Year 2020 -21 audited financial statements were filed 6 weeks late with respect to certain obligations, and failure to file notices were not filed.
KB Home
KB Home will also agree for the benefit of the owners of the Bonds in a Continuing Disclosure Certificate to provide certain information on March 31 of each year (the “ Developer Annual Report”), and notice of the occurrence of certain events with respect to itself and the property it owns in the District. The complete text of the Continuing Disclosure Certificate of KB Home is set forth in APPENDIX F.
KB Home’s obligation to provide the Developer Annual Report and listed event disclosure will terminate when KB Home and its affiliates , including successor thereto, own parcels in the District that are subject to less than 20% of the annual Special Tax levy.
Exhibit 2
57 KB Home has represented to the City that, with respect to prior continuing disclosure undertakings, during the past five years, KB Home has not missed any filings. [Confirm]
LGI Homes
LGI Homes will also agree for the benefit of the owners of the Bonds in a Continuing Disclosure Certificate to provide certain information on March 31 of each year, under a Developer Annual Report, and notice of the occurrence of certain events with respect to itself and the property it owns in the District. The complete text of the Continuing Disclosure Certificate of KB Home is set forth in APPENDIX F.
LGI Homes’ obligation to provide the Developer Annual Report and listed event disclosure will terminate when LGI Homes and its affiliates own parcels in the District that are subject to less than 20% of the annual Special Tax levy.
LGI Homes has represented to the City that, with respect to prior continuing disclosure undertakings in California, during the past five years, LGI Homes filed two semi-annual reports with respect to a Rio Vista Community Facilities District that included a few errors in the reported data. Corrected reports were then filed subsequently. Otherwise, during the previous five years, LGI Home s has complied in all internal respects with all continuing disclosure undertakings in California.
NO RATINGS
The City has not applied to a rating agency for the assignment of a rating to the Bonds and does not contemplate applying for a rating.
UNDERWRITING
The Bonds are being purchased by RBC Capital Markets, LLC (the “Underwriter”), at a purchase price of $________, which represents the aggregate principal amount of the Bonds ($________) less an Underwriter’s discount of $________ and [less/ plus] an original issue [discount/premium] of $_____________.
The purchase agreement relating t o the Bonds provides that the Underwriter will purchase all of the Bonds, if any are purchased, the obligation to make such purchase being subject to certain terms and conditions set forth in such purchase agreement.
The Underwriter may offer and sell the Bonds to certain dealers and others at prices lower than the off ering prices stated on the inside cover page hereof. The offering prices may be changed from time to time by the Underwriter.
The Underwriter and its affiliates are full-service financial institutions engaged in various activities that may include securities trading, commercial and investment banking, municipal advisory, brokerage, and asset management. In the ordinary course of business, the Underwriter and its affiliates may actively trade debt and, if applicable, equity securities (or related derivative securities) and provide financial instruments (which may include bank loans, credit support or interest rate swaps). The Underwriter and its affiliates may engage in transactions for their own accounts involving the securities and instruments made the subject of Exhibit 2
58 this securities offering or other offering of the District. The Underwriter and its affiliates may make a market in credit default swaps wi th respect to municipal securities in the future. The Underwriter and its affiliates may also communicate independent investment recommendations, market color or trading ideas and publish independent research views in respect of this securities offering or other offerings of the District.
MUNICIPAL ADVISOR
The City has retained Del Rio Advisors, LLC of Modesto, California, as municipal advisor (the “Municipal Advisor”) in connection with the offering of the Bonds. All fin ancial and other information presented in this Official Statement has been provided by the City and others from their records. Unless otherwise footnoted, the Municipal Advisor takes no responsibility for the accuracy or completeness of the data provided b y the City or others and has not undertaken to make an independent verification or does not assume responsibility for the accuracy, completeness, or fairness of the information contained in this Official Statement. The Municipal Advisor has assisted the City with the structure, timing and terms for the sale of the Bonds. The Municipal Advisor provides municipal advisory services only and does not engage in the underwriting, marketing, or trading of municipal securities or other negotiable instruments. Th e fee of the Municipal Advisor is contingent upon the successful closing of the Bonds.
Exhibit 2
59 EXECUTION
The execution and delivery of the Official Statement by the City has been duly authorized by the City Council, acting as the legislative body of the District.
CITY OF STOCKTON
By:
Chief Financial Officer
Exhibit 2
A-1
APPENDIX A
RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAX
Exhibit 2
B-1
APPENDIX B
THE APPRAISAL
Exhibit 2
C-1
APPENDIX C
THE ABSORPTION REPORT
Exhibit 2
D-1
APPENDIX D
SAN JOAQUIN COUNTY AND CITY OF STOCKTON
DEMOGRAPHIC INFORMATION
Improvement Area 2 of the District is located in the City of Stockton (the “City”), which is located in the center of San Joaquin County (the “County”), California (the “State”). Certain financial and economic data for the City, County and State are presented in this appendix for information purposes only. The Bonds are not a debt or obligation of the City, County or State, but are a limited obligation of the City secured sole ly by the Net Taxes generated in Improvement Area 2 and certain other funds held pursuant to the Fiscal Agent Agreement, all as described in more detail in this Official Statement.
General
The City is situated amidst the farmland of California’s San Joaq uin Valley, a subregion of the Central Valley, whose boundaries encompass 64.8 square miles of waterways, which make up the California Delta. The City is located 78 miles east of the San Francisco Bay area, 345 miles north of San Francisco and 45 miles so uth of Sacramento. The Stockton Metropolitan Statistical Area, which encompasses the entire County, covers approximately 1,400 square miles.
The City was founded by Captain Charles Maria Weber in 1849 after he acquired Rancho de los Franceses and is named after Robert F. Stockton and was the first community in State to not have a name of Spanish or Native American origin. The City is located on the San Joaquin River in northern San Joaquin Valley. With 322,489 people, Stockton is the 13th largest city in California and the 63rd largest city in the United States. According to the United States Census Bureau, the city occupies a total area of 64.8 square miles, of which 61.7 square miles is land and 3.1 square miles (4.76%) is water. The City is a municipal corporation and a charter city, duly organized and existing under the constitution and laws of the State.
Stockton is the largest inland seaport in California. Since the California Gold Rush, it has served as a gateway to the Central Valley. It provided easy access for trade and transportation to the southern gold mines. It has been the location of the oldest chartered university in California, University of the Pacific, since 1923. Historically an agricultural community, Stockton’s economy has since dive rsified into other industries, which include telecommunications and manufacturing. Stockton’s central location, relative to both San Francisco, and Sacramento, as well as its proximity to the state and interstate freeway system, together with its comparati vely inexpensive land costs, have prompted several companies to base their regional operations in the City.
Exhibit 2
D-2
Population
Population figures for the City, the County and the State for the last five years are shown in the following table.
CITY OF STOCKTON, SAN JOAQUIN COUNTY AND THE STATE OF CALIFORNIA Population Estimates
Calendar Years 2018 through 2022 as of January 1
Calendar
Year
City of
Stockton
San Joaquin
County
State of
California
2018 315,099 752,958 39,519,535
2019 317,356 764,373 39,605,361
2020 323,456 779,233 39,538,223
2021 323,884 782,372 39,303,157
2022 322,489 784,298 39,185,605
Source: State Department of Finance estimates.
Major Employers
The following table lists the largest employers within the City.
CITY OF STOCKTON
Principal Employers
Fiscal Year 2020-21
Employer Name
No. of
Employees
Stockton Unified School District 5,205
St. Joseph’s Medical Center 4,600
Amazon 2,100
City of Stockton 2,099
San Joaquin County 2,000
Pacific Gas and Electric 1,550
Lincoln Unified School District 1,212
Kaiser Permanente 1,065
University of the Pacific 1,021
San Joaquin Delta College 1,007
Source: City of Stockton Annual Comprehensive Financial Report 2020 -21.
Exhibit 2
D-3
The County’s major employers are set forth below in alphabetized order.
COUNTY OF SAN JOAQUIN
Major Employers
(As of May 2022)
Employer Name Location Industry
A Sambado & Sons Inc Linden Nuts-Edible
Amazon Fulfillment Ctr Stockton Mail Order Fulfillment Service Ashley Lane LP Stockton Real Estate
Blue Shield of California Lodi Insurance
Dameron Hospital Stockton Hospitals
Deuel Vocational Instn Fire Tracy Fire Departments
Foster Care Svc Stockton Government Offices-County
Leprino Foods Co Tracy Cheese Processors (mfrs)
Lodi Health Home Health Agency Lodi Home Health Service Lodi Memorial Hospital Lodi Hospitals
NA Chaderjian Youth Stockton State Govt-Correctional Institutions Pacific Coast Producers Lodi Canning (mfrs)
Prima Frutta Packing Inc Linden Fruit & Produce Packers Safeway Distribution Ctr Tracy Distribution Centers (whls) San Joaquin County CA Pubc Stockton Government Offices-County San Joaquin County Human Svc Stockton Government Offices-County San Joaquin County Sch Stockton School Districts
San Joaquin General Hospital French Camp Hospitals
San Joaquin Sheriff's Office French Camp Government Offices-County Sjgov Stockton Government Offices-County
St Joseph's Cancer Ctr Stockton Cancer Treatment Centers St Joseph's Regional Health Stockton Hospitals
Stockton Police Dept Stockton Police Departments
Stockton Unified School Dist Stockton School Districts
Walmart Supercenter Stockton Department Stores
Source: California Employment Development Department, extracted from The America ’s Labor Market Information System (ALMIS) Employer Database, 2022 2nd Edition.
Exhibit 2
D-4
Employment and Industry
The Community Facilities District is included in the Stockton Metropolitan Statistical Area (“MSA”), which includes all of San Joaquin County. The unemployment rate in the San Joaquin County was 5.7 percent in March 2022, down from a revised 6.6 percent in Fe bruary 2022, and below the year-ago estimate of 10.2 percent. This compares with an unadjusted unemployment rate of 4.2 percent for California and 3.8 percent for the nation during the same period.
Set forth below is data from calendar years 2017 to 2021 reflecting the County’s civilian labor force, employment and unemployment. These figures are county -wide statistics and may not necessarily accurately reflect employment trends in the Community Facilities District.
STOCKTON-LODI MSA
(San Joaquin County)
Annual Average Labor Force and Employment by Industry
Calendar Years 2017 through 2021
(March 2021 Benchmark)
2017 2018 2019 2020 2021
Civilian Labor Force (1) 323,000 324,100 327,100 334,300 334,300 Employment 300,200 304,200 307,500 295,600 305,300
Unemployment 22,700 19,900 19,600 38,700 29,000
Unemployment Rate 7.0% 6.1% 6.0% 11.6% 8.7%
Wage and Salary Employment: (2)
Agriculture 16,400 15,600 15,400 14,600 13,700
Mining and Logging 100 100 100 100 100
Construction 11,700 12,800 13,100 13,000 13,800
Manufacturing 20,300 20,600 20,600 20,200 20,900
Wholesale Trade 11,200 11,800 11,700 10,600 10,800
Retail Trade 26,800 26,700 26,200 24,600 26,100
Transportation, Warehousing and Utilities 26,200 28,400 31,300 38,800 41,700 Information 1,800 1,800 1,600 1,200 1,200
Financial Activities 7,800 7,800 7,900 7,800 8,000
Professional and Business Services 19,200 19,600 20,200 21,300 22,400 Educational and Health Services 38,200 38,800 39,100 37,300 38,400 Leisure and Hospitality 21,500 22,000 22,600 18,500 21,100 Other Services 7,600 7,600 7,800 6,800 7,100
Federal Government 3,100 3,100 3,200 3,300 3,100
State Government 6,600 6,700 6,800 6,800 6,000
Local Government 32,800 33,700 34,900 33,000 32,800
Total All Industries (3) 251,200 257,000 262,500 257,800 267,100
(1) Labor force data is by place of residence; includes self -employed individuals, unpaid family workers, household domestic workers, and workers on strike.
(2) Industry employment is by place of work; excludes self -employed individuals, unpaid family workers, household domestic workers, and workers on strike.
(3) Totals may not add due to rounding.
Source: State of California Employment Development Department.
Exhibit 2
D-5
Construction Activity
The tables below summarize building activity in the City and the County from calendar years 2016 through 2020. Annual figures are not yet available for calendar year 2021.
CITY OF STOCKTON
Building Permit Activity
For Calendar Years 2016 through 2020
(Dollars in Thousands)
2016 2017 2018 2019 2020
Permit Valuation
New Single-family $58,734.6 $65,565.6 $104,468.2 $99,207.4 $129,515.4 New Multi-family 14,797.4 13,036.7 0.0 32,175.0 12,061.1 Res. Alterations/Additions 75,506.4 62,938.1 61,592.1, 66,557.3 11,378.0 Total Residential 149,038.4 141,540.4 166,060.3 197,939.7 152,954.5
New Commercial 6,368.7 9,109.4 21,301.7 20,758.4 25,926.8 New Industrial 1,890.0 140,561.4 68,896.1 104,091.5 7,898.5 New Other 3,068.0 1,823.1 665.0 1,684.1 5,213.4
Com. Alterations/Additions 112,910.9 104,330.1 109,640.5 179,066.8 46,657.9 Total Nonresidential $124,237.6 $265,829.6 $200,503.3 $305,600.8 $85,696.6
New Dwelling Units
Single Family 215 238 324 302 481
Multiple Family 25 115 0 262 93
TOTAL 240 353 324 564 574
Source: Construction Industry Research Board, Building Permit Summary.
COUNTY OF SAN JOAQUIN
Building Permit Activity
For Calendar Years 2016 through 2020
(Dollars in Thousands)
2016 2017 2018 2019 2020
Permit Valuation
New Single-family $467,494.7 $652,308.1 $883,071.1 $843,700.9 $870,859.6 New Multi-family 66,794.5 62,635.8 99,601.4 57,271.1 38,411.8 Res. Alterations/Additions 99,049.9 86,516.1 95,073.4 98,681.9 40,144.4 Total Residential 633,339.1 801,460.0 1,077,745.9 999,653.9 949,415.8
New Commercial 218,485.4 357,856.9 498,359.0 380,383.3 255,761.2 New Industrial 61,687.0 179,728.4 240,073.7 120,003.8 534,199.5 New Other 46,379.4 27,794.7 31,904.4 61,991.7 33,112.3
Com. Alterations/Additions 298,721.9 269,172.8 249,142.4 363,841.0 135,285.4 Total Nonresidential $625,273.7 $834,552.8 $1,019,479.5 $926,219.8 $958,358.4
New Dwelling Units
Single Family 1,754 2,078 2,765 2,564 2,843
Multiple Family 550 516 593 461 245
TOTAL 2,304 2,594 3,358 3,025 3,088
Source: Construction Industry Research Board, Building Permit Summary .
Exhibit 2
D-6
Effective Buying Income
“Effective Buying Income ” is defined as personal income less personal tax and nontax payments, a number often referred to as “disposable” or “after-tax” income. Personal income is the aggregate of wages and salaries, other labor -related income (such as employer contributions to p rivate pension funds), proprietor ’s income, rental income (which includes imputed rental income of owner -occupants of non- farm dwellings), dividends paid by corporations, interest income from all sources, and transfer payments (such as pensions and welfare assistance). Deducted from this total are personal taxes (federal, state and local), nontax payments (fines, fees, penalties, etc.) and personal contributions to social insurance.
According to U.S. government definitions, the resultant figure is commonl y known as “disposable personal income.”
The following table summarizes the total effective buying income for the City, the County, the State and the United States for the period 2018 through 2022.
CITY OF STOCKTON, SAN JOAQUIN COUNTY AND THE STATE OF CALIFORNIA Effective Buying Income
2018 through 2022
Year
Area
Total Effective
Buying Income
(000’s Omitted)
Median
Household
Effective Buying
Income
2018 City of Stockton $5,300,135 $42,327
San Joaquin County 14,792,618 49,883
California 1,113,648,181 59,646
United States 8,640,770,229 50,735
2019 City of Stockton $5,963,524 $46,022
San Joaquin County 16,800,979 55,534
California 1,183,264,399 62,637
United States 9,017,967,563 52,841
2020 City of Stockton $6,301,309 $47,701
San Joaquin County 17,868,858 58,141
California 1,243,564,816 65,870
United States 9,487,165,436 55,303
2021 City of Stockton $6,408,269 $49,625
San Joaquin County 18,493,713 59,914
California 1,290,894,604 67,956
United States 9,809,944,764 56,790
2022 City of Stockton $7,510,371 $58,964
San Joaquin County 21,672,926 68,971
California 1,452,426,153 77,058
United States 11,208,582,541 64,448
Source: The Nielsen Company (US), Inc for year 2018; Claritas, LLC for 2019 through 2022.
Exhibit 2
D-7
Commercial Activity
A summary of historic taxable sales within the City and the County during the past five years in which data is available is shown in the following tables.
The total taxable sales during calendar year 2021 in the City were reported to be $6,108,929,148, a 29.18% increase from the total taxable sales of $ $4,729,022,477 reported during calendar year 2020.
CITY OF STOCKTON
Taxable Retail Sales
Number of Permits and Valuation of Taxable Transactions
(Dollars in Thousands)
Retail Stores Total All Outlets
Number
of Permits
Taxable
Transactions
Number
of Permits
Taxable
Transactions
2017 3,932 $3,173,796 5,812 $4,211,728
2018 4,094 3,351,992 6,160 4,494,043
2019 4,262 3,458,758 6,470 4,694,505
2020 4,797 3,498,450 7,411 4,729,022
2021 4,729 4,477,798 7,347 6,108,929
Source: State of California, Board of Equalization.
The total taxable sales during calendar year 2021 in the County were reported to be $22,244,519,236, a 41.22% increase over the total taxable sales of $15,752,224,761 reported during calendar year 2020.
SAN JOAQUIN COUNTY
Taxable Retail Sales
Number of Permits and Valuation of Taxable Transactions (Dollars in Thousands)
Retail Stores Total All Outlets
Number
of Permits
Taxable
Transactions
Number
of Permits
Taxable
Transactions
2017 9,506 $7,994,473 14,758 $12,153,268
2018 9,660 8,855,169 15,473 13,457,721
2019 9,978 9,058,063 16,144 14,311,068
2020 11,188 10,122,979 18,358 15,752,225
2021 10,642 15,100,195 17,665 22,244,519
Source: State of California, Board of Equalization.
Exhibit 2
D-8
Transportation
The City. The City is located on Interstate 5, the West Coast ’s major route from Canada to Mexico. The City’s Crosstown Freeway connects Interstate 5 with State Route 99, the State’s other principal north -south freeway. Other freeway connections provide convenient access to the San Francisco Bay area and Reno. Thirty -five major transcontinental truck lines and nearly 200 contract carriers serve the City. The City is also served by Greyhound and the San Joaquin Regional Transit District.
The Port of Stockton, the largest inland deep water seaport in the State, is served by numerous international shipping companies through the Stockton Channel to the San Francisco Bay. The port facility handles dry and liquid bulk commodities and general cargo.
The Stockton Metropolitan Airport serves the San Joaquin Valley with passenger and air freight facilities, including regularly scheduled commercial passenger service.
Railroad service is provided to the City by Burlington Northern, Santa Fe and the Union Pacific railroads. Daily passenger service by Amtrak is available San Francisco and Sacramento.
The County . Major highways in the County include: Interstate 5, Interstate 205, Interstate 580, State Route 99, State Route 4 (Crosstown Freeway/California Delta Highway) and State Route 120. The San Joaquin Regional Transit Di strict provides bus service within the City of Stockton in addition to routes throughout the County and commuter routes to Livermore, Pleasanton, Sacramento and Santa Clara County. Greyhound and Amtrak also provide service.
The Stockton Metropolitan Airport serves the San Joaquin Valley with passenger and air freight facilities.
Education
Within the City, there are 4 colleges, Delta College, California State University Stanislaus extension (public), University of the Pacific, and Humphrey’s College with a total of approximately 13,250 students. There are 6 high schools, 7 middle schools and 35 elementary schools (17 private).
Exhibit 2
E-1
APPENDIX E
FORM OF OPINION OF BOND COUNSEL
________________, 2022
City Council
City of Stockton
425 N El Dorado Street
Stockton, California 95202
OPINION: $____________ City of Stockton Community Facilities District No. 2019-1 (Cannery Park II) Special Tax Bonds Series 2022
Members of the City Council:
We have acted as bond counsel to the City of Stockton (the “City”) in connection with the issuance by the City of its $____________ City of Stockton Community Facilities District No. 2019-1 (Cannery Park II) Special Tax Bonds Series 2022 (the “Bonds”), pursuant to the Mello - Roos Community Facilities Act of 1982, as amended, constituting Section 53311, et seq. of the California Government Code (the “Act”) and a Fiscal Agent Agreement dated as of August 1, 2022 (the “Fiscal Agent Agreement”) by and between th e City, for and on behalf of the City of Stockton Community Facilities District No. 2019-1 (Cannery Park II ), and U.S. Bank Trust Company, National Association, as fiscal agent. We have examined the law and such certified proceedings and other papers as we deem necessary to render this opinion.
As to questions of fact material to our opinion, we have relied upon representations of the City contained in the Fiscal Agent Agreement , and in the certified proceedings and other certifications of public officials furnished to us, without undertaking to verify the same by independent investigation.
Based upon the foregoing, we are of the opinion, under existing law, as follows:
1. The City is duly created and validly existing as a public body, corporate and politic, with the power to adopt the resolution author izing the issuance of the Bonds (the “Resolution”), enter into the Fiscal Agent Agreement, and perform the agreements on its part contained therein, and issue the Bonds.
2. The Bonds have been duly authorized, executed and delivered by the City and are valid and binding limited obligations of the City, payable solely from the sources provided therefor in the Fiscal Agent Agreement.
3. The Fiscal Agent Agreement has been duly entered into by the City and constitutes a valid and binding obligation of the City enforceable upon the City.
Exhibit 2
E-2
4. Pursuant to the Act, the Fiscal Agent Agreement creates a valid lien on the funds pledged by the Fiscal Agent Agreement.
5. The interest on the Bonds is excluded from gross income for federal income tax purposes and is not an item of tax preference for purposes of the federal alternative minimum tax. The opinion set forth in the preceding sen tence is subject to the condition that the City comply with all requirements of the Internal Revenue Code of 1986 that must be satisfied subsequent to the issuance of the Bonds in order that such interest thereon be, or continue to be, excluded from gross income for federal income tax purposes. The City has covenanted to comply with each such requirement. Failure to comply with certain of such requirements may cause the inclusion of interest on the Bonds in gross income for federal income tax purposes to be retroactive to the date of issuance of the Bonds. We express no opinion regarding other federal tax consequences arising with respect to the ownership, sale or disposition of the Bonds, or the amount, accrual or receipt of interest on the Bonds.
6. The interest on the Bonds is exempt from personal income taxation imposed by the State of California.
The rights of the owners of the Bonds and the enforceability of the Bonds, the Resolution and the Fiscal Agent Agreement may be subject to bankruptcy, inso lvency, reorganization, moratorium and other similar laws affecting creditors’ rights heretofore or hereafter enacted and may also be subject to the exercise of judicial discretion in appropriate cases.
This opinion is given as of the date hereof, and we assume no obligation to revise or supplement this opinion to reflect any facts or circumstances that may hereafter come to our attention, or any changes in law that may hereafter occur. Our engagement with respect to this matter has terminated as of the date hereof.
Respectfully submitted,
A Professional Law Corporation
Exhibit 2
F-1
APPENDIX F
FORM OF CONTINUING DISCLOSURE UNDERTAKINGS
CONTINUING DISCLOSURE CERTIFICATE
(City)
$________
CITY OF STOCKTON
COMMUNITY FACILITIES DISTRICT NO. 2019-1 (CANNERY PARK II)
SPECIAL TAX BONDS
SERIES 2022
This CONTINUING DISCLOSURE CERTIFICATE (this “Disclosure Certificate”), dated as of ____________, 2022 is executed and delivered by the CITY OF STOCKTON (the “City”), for and on behalf of the City of Stockton Community Facilities District No. 2019-1 (Cannery Park II ) (the “District”), in connection with the execution and delivery of its City of Stockton Community Facilities District No. 2019-1 (Cannery Park II) Special Tax Bonds Series 2022 (the “Bonds”). The Bonds are being executed and delivered pursuant to a Fiscal Agent Agreement, dated as of August 1, 2022 (the “Fiscal Agent Agreement”), by and between the City and U.S. Bank Trust Company, National Association, as fiscal agent (the “Fiscal Agent”).
The City covenants and agrees, for and on behalf of the District, as follows:
Section 1. Purpose of the Disclosure Certificate . This Disclosure Certificate is being executed and delivered by the City for the benefit of the holders and beneficial owners of the Bonds and in order to assist the Participating Underwriter in complying with the Rule.
Section 2. Definitions. In addition to the definitions set forth above and in the Fiscal Agent Agreement , which apply to any capitalized term used in this Disclosure Certificate unless otherwise defined herein, the following cap italized terms shall have the following meanings:
“Annual Report” means any Annual Report provided by the City pursuant to, and as described in, Sections 3 and 4 of this Disclosure Certificate.
“Dissemination Agent” means, initially, Willdan Financial Services, or any successor Dissemination Agent designated in writing by the City and which has filed with the City a written acceptance of such designation in accordance with Section 8 of this Disclosure Certificate.
“Listed Events ” means any of the events listed in Section 5(a) of this Disclosure Certificate.
“MSRB” means the Municipal Securities Rulemaking Board, which has been designated by the Securities and Exchange Commission as the sole repository of disclosure information for purposes of the Rule, or any other repository of disclosure information that may Exhibit 2
F-2
be designated by the Securities and Exchange Commission as such for purposes of the Rule in the future.
“Official Statement ” means the final official statement executed by the City in connection with the issuance of the Bonds.
“Participating Underwriter ” means RBC Capital Markets , LLC, as the original underwriter of the Bonds.
“Rule” means Rule 15c2 -12(b)(5) adopted by the Securities and Exchange Commission under the Securities E xchange Act of 1934, as it may be amended from time to time.
“Special Taxes ” means the special taxes of the District levied on taxable property within the District.
Section 3. Provision of Annual Reports.
(a) The City shall, or shall cause the Dissemination Agent to, not later than March 31 following the end of the City’s Fiscal Year (presently June 30), commencing with the report for the 2021-22 Fiscal Year due March 31, 2023, provide to the MSRB, in an electronic format as prescribed by the MSRB, an Annual Report that is consistent with the requirements of Section 4 of this Disclosure Certificate. Not later than 15 Business Days prior to the Annual Report Date, the City shall provide the Annual Report to the Dissemination Agent (if other than the City). If by 15 Business Days prior to the Annual Report Date the Dissemination Agent (if other than the City) has not received a copy of the Annual Report, the Dissemination Agent shall contact the City to determine if the City is in compliance with the previous sentence. The Annual Report may be submitted as a single document or as separate documents comprising a package, and may include by reference other information as provided i n Section 4 of this Disclosure Certificate; provided , that the audited financial statements of the City may be submitted separately from the balance of the Annual Report, and later than the Annual Report Date, if not available by that date. If the City’s Fiscal Year changes, it shall give notice of such change in the same manner as for a Listed Event. The City shall provide a written certification with each Annual Report furnished to the Dissemination Agent to the effect that such Annual Report constitutes the Annual Report required to be furnished by the City hereunder.
(b) If the City does not provide (or cause the Dissemination Agent to provide) an Annual Report by the Annual Report Date, the City shall provide (or cause the Dissemination Agent to provide) to the MSRB in a timely manner, in an electronic format as prescribed by the MSRB, a notice in substantially the form attached as Exhibit A to this Disclosure Certificate.
(c) With respect to each Annual Report, the Dissemination Agent shall:
(i) determine prior to each Annual Report Date the then -applicable rules and electronic format prescribed by the MSRB for the filing of annual continuing disclosure reports; and
(ii) if the Dissemination Agent is other than the City, file a report with t he City certifying that the Annual Report has been provided pursuant to this Disclosure Certificate, and stating the date it was provided.
Exhibit 2
F-3
Section 4. Content of Annual Reports . The City’ s Annual Report shall contain or incorporate by reference the following:
(a) The City’s audited financial statements prepared in accordance with generally accepted accounting principles as promulgated to apply to governmental entities from time to time by the Governmental Accounting Standards Board. If the City ’s audited financial statements are not available by the Annual Report Date, the Annual Report shall contain unaudited financial statements in a format similar to the financial statements contained in the Official Statement, and the audited financial statements shal l be filed in the same manner as the Annual Report when they become available.
(b) For the report due no later than March 31, 2023 and each Annual Report due thereafter, the following additional information:
(i) A maturity schedule for the outstanding Bonds, and a listing of Bonds, if any, redeemed prior to maturity during the prior Fiscal Year.
(ii) Balance in Reserve Fund, and statemen of the Reserve Requirement for the Bonds. Statement of projected reserve fund draw, if any.
(iii) Balance in other funds and accounts held by the City or Fiscal Agent related to the Bonds.
(iv) A table indicating the levy of Special Tax es, amount collected, delinquent amount and percent of Special Tax levy delinquent for the most recent Fiscal Year.
(v) The aggregate assessed value of the properties in the District for the most recent Fiscal Year.
(vi) Identification of each delinquent property owner in the District representing more than 5% of the levy of Special Taxes in the District, and the value - to-lien ratios of the corresponding property, together with the following information respecting each such parcel:
(A) the amount delinquent (exclusive of late charges and monthly penalties for reinstatement) and the assessed value of such parcel;
(B) the date of the first delinquency;
(C) the status of any foreclosure action by the City;
(D) in the event a foreclosure complaint has been filed respecting such delinquent parcel and such complaint has not yet been dismissed, the date on which the complaint was filed in the California Superior Court; and
(E) in the event a foreclosure sale has occurred respecting such delinquent parcel, a summary of the results of such foreclosure sale.
(c) Any or all of the items listed above may be included by specific reference to other documents, including official statements of debt issues of the City or related public Exhibit 2
F-4
entities, which are available to the public on the MSRB ’s Internet web site or filed with the Securities and Exchange Commission. The City shall clearly identify each such other document so included by reference.
Section 5. Reporting of Listed Events.
(a) The City shall give, or cause to be given, notice of the occurrence of any of the following Listed Events with respect to the Bonds:
(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, the issuance by the Internal Revenue Service of proposed or final determinations of taxability, Notices of Proposed Issue (IRS Form 5701- TEB) or other material notices or determinations with respect to the tax status of the security, or other material events affecting the tax status of the security.
(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.
(12) Bankruptcy, insolvency, receivership or similar event of the City or other obligated person.
(13) The consummation of a merger, consolidation, or acquisition involving the City or an obligated person, or the sale of all or substantially all of the assets of the City or an obligated person (other than in the ordinary course of business), the entry into a definitive agreement to undertake such an action, or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms, if material. (14) Appointment of a successor or additional fiscal agent or the change of name of the fiscal agent, if material.
(15) Incurrence of a financial obligation of the City, if material, or agreement to covenants, events of default, remedies, priority rights, or other similar terms of a financial obligation of the City, any of which af fect security holders, if material (for the definition of financial obligation, see clause (e)).
(16) Default, event of acceleration, termination event, modification of terms, or other similar events under the terms of a financial obligation of the City, any of which reflect financial difficulties (for the definition of financial obligation, see clause (e)).
(b) Whenever the City obtains knowledge of the occurrence of a Listed Event, the City shall, or shall cause the Dissemination Agent (if not the City) to, file a notice of such Exhibit 2
F-5
occurrence with the MSRB, in an electronic format as prescribed by the MSRB, in a timely manner not in excess of 10 business days after the occurrence of the Listed Event.
(c) The City acknowledges that the events described in subparagraphs (a)(2), (a)(7), (a)(8) (if the event is a bond call), (a)(10), (a)(13), (a)(14) and (a)(15) of this Section 5 contain the qualifier “if material” and that subparagraph (a)(6) also contains the qualifier “material” with respect to certain notices, determinations or other events affecting the tax status of the Bonds. The City shall cause a notice to be filed as set forth in paragraph (b) above with respect to any such event only to the extent that it determines the event ’s occurrence is material for purposes of U.S. federal securities law. Whenever the City obtains knowledge of the occurrence of any of these Listed Events, the City will as soon as p ossible determine if such event would be material under applicable federal securities law. If such event is determined to be material, the City will cause a notice to be filed as set forth in paragraph (b) above.
(d) For purposes of this Disclosure Certi ficate, any event described in paragraph (a)(12) above is considered to occur when any of the following occur: the appointment of a receiver, fiscal agent, or similar officer for the City in a proceeding under the United States Bankruptcy Code or in any o ther proceeding under state or federal law in which a court or governmental authority has assumed jurisdiction over substantially all of the assets or business of the City, or if such jurisdiction has been assumed by leaving the existing governing body and officials or officers in possession but subject to the supervision and orders of a court or governmental authority, or the entry of an order confirming a plan of reorganization, arrangement, or liquidation by a court or governmental authority having supervision or jurisdiction over substantially all of the assets or business of the City.
(e) For purposes of Section 5(a)(15) and (16), “financial obligation” means a (i) debt obligation; (ii) derivative instrument entered into in connection with, or pledged as security or a source of payment for, an existing or planned debt obligation; or (iii) guarantee of (i) or (ii). The term financial obligation shall not include municipal securities as to which a final official statement has been provided to the MSRB consistent with the Rule.
Section 6. Identifying Information for Filings with the MSRB. All documents provided to the MSRB pursuant to this Disclosure Certificate shall be accompanied by identifying information as prescribed by the MSRB.
Section 7. Termination of Reporting Obligation . The City’ s obligations under this Disclosure Certificate shall terminate upon the legal defeasance, prior redemption or payment in full of all of the Bonds. If such termination occurs prior to the final maturity of the Bonds, the City shall give notice of such term ination in the same manner as for a Listed Event under Section 5(c).
Section 8. Dissemination Agent. The City may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Certificate, and may discharge any Dissemination Agent, with or without appointing a successor Dissemination Agent. Any Dissemination Agent may resign by providing 30 days ’ written notice to the City. The initial Dissemination Agent shall be Willdan Financial Services.
Section 9. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Certificate, the City may amend this Disclosure Certificate, and any provision of this Disclosure Certificate may be waived, provided that the following conditions are satisfied:
Exhibit 2
F-6
(a) if the amendment or waiver relates to the provisions of Sections 3(a), 4 or 5(a), it may only be made in connection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, na ture, or status of an obligated person with respect to the Bonds, or type of business conducted; and
(b) the proposed amendment or waiver either (i) is approved by holders of the Bonds in the manner provided in the Fiscal Agent Agreement for amendments to the Fiscal Agent Agreement with the consent of holders, or (ii) does not, in the opinion of nationally recognized bond counsel, materially impair the interests of the holders or beneficial owners of the Bonds.
If the annual financial information or opera ting data to be provided in the Annual Report is amended pursuant to the provisions hereof, the first Annual Report filed pursuant hereto containing the amended operating data or financial information shall explain, in narrative form, the reasons for the a mendment and the impact of the change in the type of operating data or financial information being provided.
If an amendment is made to this Disclosure Certificate modifying the accounting principles to be followed in preparing financial statements, the Annual Report for the year in which the change is made shall present a comparison between the financial statements or information prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles. Th e comparison shall include a qualitative discussion of the differences in the accounting principles and the impact of the change in the accounting principles on the presentation of the financial information, in order to provide information to investors to enable them to evaluate the ability of the City to meet its obligations. To the extent reasonably feasible, the comparison shall be quantitative.
A notice of any amendment made pursuant to this Section 9 shall be filed in the same manner as for a Listed Event under Section 5(b).
Section 10. Additional Information . Nothing in this Disclosure Certificate shall be deemed to prevent the City from disseminating any other information, using the means of dissemination set forth in this Disclosure Certificate or any other means of communication, or including any other information in any Annual Report or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Certificate. If the City chooses to include any information in a ny Annual Report or notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Certificate, the City shall have no obligation under this Disclosure Certificate to update such information or include it in an y future Annual Report or notice of occurrence of a Listed Event.
Section 11. Default. If the City fails to comply with any provision of this Disclosure Certificate, the Participating Underwriter or any holder or beneficial owner of the Bonds may take suc h actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the City to comply with its obligations under this Disclosure Certificate. A default under this Disclosure Certificate shall not be d eemed an Event of Default under the Fiscal Agent Agreement , and the sole remedy under this Disclosure Certificate in the event of any failure of the City to comply with this Disclosure Certificate shall be an action to compel performance.
Exhibit 2
F-7
Section 12. Duties, Immunities and Liabilities of Dissemination Agent.
(a) The Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Certificate, and the City agrees to indemnify and save harmless the Dissemination Agent, its officers, directors, employees and agents (each, an “Indemnified Party”), against any loss, expense and liability which it may incur arising out of or in the exercise or performance of its powers and duties hereunder, including the reasonable costs and expenses (including reasonable attorneys’ fees) of defending against any claim of liability, but excluding losses, liabilities, costs and expenses due to an Indemnified Party ’s negligence, willful misconduct or failure to perform its duties hereunder . The Dissemination Agent shall have no duty or obligation to review any information provided to it by the City hereunder, and shall not be deemed to be acting in any fiduciary capacity for the City, the holders and beneficial owners from time to time of the Bonds or any other party. The obligations of the City under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Bonds.
(b) The Dissemination Agent shall be paid compensation by the City for its services provided hereunder in accordance with its schedule of fees as amended from time to time, and shall be reimbursed for all reasonable and documented expenses, legal fees and advances made or incurred by the Dissemination Agent in the performance of its duties hereunder.
Section 13. Beneficiaries. This Disclosure Certificate shall inure solely to the benefit of the City, the Dissemination Agent, the Participating Underwriter and the holders and beneficial owners from time to time of the Bonds, and shall create no rights in any other person or entity.
Section 14. Counterparts. This Disclosure Certificate may be executed in several counterparts, each of which shall be regarded as an original, and all of which shall constitute one and the same instrument.
Exhibit 2
F-8
IN WITNESS WHEREOF, the parties hereto have executed this Disclosure Certificate as of the date first above written.
CITY OF STOCKTON, for and on behalf
of City of Stockton Community Facilities
District No. 2019-1 (Cannery Park II)
By:
Authorized Officer
Accepted by Dissemination Agent:
WILLDAN FINANCIAL SERVICES,
as Dissemination Agent
By:
Name:
Title:
Exhibit 2
F-9
EXHIBIT A
NOTICE OF FAILURE TO FILE ANNUAL REPORT
Name of Issuer: City of Stockton
Name of Bond Issue: $____________ City of Stockton Community Facilities District No. 2019-1 (Cannery Park II) Special Tax Bonds, Series 2022 Date of Issuance: ________, 2022
NOTICE IS HEREBY GIVEN that the City of Stockton (the “City”), on behalf of City of Stockton Community Facilities District No. 2019-1 (Cannery Park II ), has not provided an Annual Report with respect to the above -named Bonds as required by the Fiscal Agent Agreement dated as of August 1, 2022 (the “Fiscal Agent Agreement ”) by and between the City and U.S. Bank Trust Company , National Association, as Fiscal Agent. The City anticipates that the Annual Report will be filed by _____________.
Dated: _______________
[Dissemination Agent]
By:
Authorized Officer
cc: City of Stockton
Exhibit 2
F-10
FORM OF CONTINUING DISCLOSURE CERTIFICATE
(Developer)
$________
CITY OF STOCKTON
COMMUNITY FACILITIES DISTRICT NO. 2019-1 (CANNERY PARK II)
SPECIAL TAX BONDS
SERIES 2022
THIS CONTINUING DISCLOSURE CERTIFICATE (the “Disclosure Certificate”) dated as of _________, 2022, is executed by _______________ (the “Developer”) in connection with the execution and delivery by the City of Stockton (the “City”), for and on behalf of the City of Stockton Community Facilities District No. 2019-1 (Cannery Park II) (the “District”), of its City of Stockton Community Facilities District No. 2019-1 (Cannery Park II ) Special Tax Bonds Series 2022 (the “Bonds”). The Bonds are being executed and delivered pursuant to a Fiscal Agent Agreement, dated as of August 1, 2022 (the “Fiscal Agent Agreement”), by and between the City and U.S. Bank Trust Company , National Association, as fiscal agent (the “Fiscal Agent”).
The Developer covenants and agrees as follows:
Section 1. Purpose of the Disclosure Certificate . This Disclosure Certificate is being executed and delivered by the Developer for the benefit of the holders and beneficial owners of the Bonds.
Section 2. Definitions. In addition to the definitions set forth above and in the Fiscal Agent Agreement, which apply to any capitalized term used in this Disclosure Certificate unless otherwise defined in this Section, the following capitalized terms shall have the following meanings:
“Affiliate” of another Person means (a) a Person directly or indirectly owning, controlling, or holding with power to vote, 5% or more of the outstanding voting securities of such other Person, (b) any Person, 5% or more of whose outst anding voting securities are directly or indirectly owned, controlled, or held with power to vote, by such other Person, and (c) any Person directly or indirectly controlling, controlled by, or under common control with, such other Person. For purposes her eof, control means the power to exercise a controlling influence over the management or policies of a Person, unless such power is solely the result of an official position with such Person.
“Assumption Agreement ” means an undertaking of a Major Owner, or an Affiliate thereof, for the benefit of the holders and beneficial owners of the Bonds containing terms substantially similar to this Disclosure Certificate (as modified for such Major Owner ’s development and fin ancing plans with respect to the District), whereby such Major Owner or Affiliate agrees to provide periodic reports and notices of significant events, setting forth the information described in sections 4 and 5 hereof, respectively, with respect to the po rtion of the property in the District owned by such Major Owner and its Affiliates and, at the option of the Developer or such Major Owner, agrees to indemnify the Dissemination Agent (if any) pursuant to a provision substantially in the form of Section 11 hereof.
Exhibit 2
F-11
“Dissemination Agent ” means Willdan Financial Services, or any successor Dissemination Agent designated in writing by the Developer, and which has filed with the Developer, the City and the Fiscal Agent a written acceptance of such designation, and which is experienced in providing dissemination agent services such as those required under this Disclosure Certificate.
“Listed Events” means any of the events listed in Section 5(a) of this Disclosure Certificate.
“Major Owner” means, as of any Repo rt Date, an owner of land in the District that is responsible in the aggregate for 20% or more of the Special Taxes in the District anticipated to be levied at any time during the then-current fiscal year.
“MSRB” means the Municipal Securities Rulemaking Board, which has been designated by the Securities and Exchange Commission as the sole repository of disclosure information for purposes of the Rule, or any other repository of disclosure information that may be designated by the Securities and Exchange Commission as such for purposes of the Rule in the future.
“Official Statement ” means the final official statement executed by the City in connection with the issuance of the Bonds.
“Participating Underwriter” means RBC Capital Markets, LLC, the original Underwriter of the Bonds.
“Periodic Report” means any Periodic Report provided by the Developer pursuant to, and as described in, Sections 3 and 4 of this Disclosure Certificate.
“Person” means an individual, a corporation, a partnership, a limited liability company, an association, a joint stock company, a trust, any unincorporated organization or a government or political subdivision thereof.
“Property” means the property owned by the Developer or an Affiliate in the District.
“Report Date” means March 31 of each fiscal year.
“Rule” means Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time.
“Special Ta xes” means the special taxes of the District levied on taxable property within the District.
Section 3. Provision of Periodic Report.
(a) The Developer shall, or, upon written direction of the Developer the Dissemination Agent shall, not later than the Report Date, commencing March 31, 2023, file or cause to be filed with the MSRB a Periodic Report which is consistent with the requirements of Section 4 of this Disclosure Certificate with a copy to the Fiscal Agent (if different from the Dissemination Agent), the Participating Underwriter and the City. Not later than 15 calendar days prior to the Report Date, the Developer shall provide the P eriodic Report to the Exhibit 2
F-12
Dissemination Agent (if different from the Developer). The Developer shall provide a written certification with (or included as a part of) each Periodic Report furnished to the Dissemination Agent (if different from the Developer), t he Fiscal Agent (if different from the Dissemination Agent), the Participating Underwriter and the City to the effect that such Periodic Report constitutes the Periodic Report required to be furnished by it under this Disclosure Certificate.
The Dissemination Agent, the Fiscal Agent, the Participating Underwriter and the City may conclusively rely upon such certification of the Developer and shall have no duty or obligation to review the Periodic Report. The Periodic Report may be submitted as a single document or as separate documents comprising a package, and may incorporate by reference other information as provided in Section 4 of this Disclosure Certificate.
(b) If the Dissemination Agent does not receive a Periodic Report by 15 calendar days prior to the Report Date, the Dissemination Agent shall send a reminder notice to the Developer that the Periodic Report has not been provided as required under Section 3(a) above. The reminder notice shall instruct the Developer to determine whether its obligations under this Disclosure Certificate have terminated (pursuant to Section 6 below) and, if so, to provide the Dissemination Agent with a notice of such termination in the same manner as for a Listed Event (pursuant to Section 5 below). If the Developer does not provide, or cause the Dissemination Agent to provide, a Periodic Report to the MSRB by the Report Date as required in subsection (a) above, the Dissemination Agent shall send a notice to the MSRB in substantially the form attached hereto as Exhib it A, with a copy to the Fiscal Agent (if other than the Dissemination Agent), the City and the Participating Underwriter.
(c) With respect to the Periodic Report, the Dissemination Agent shall, to the extent the Periodic Report has been furnished to it, file the Periodic Report with the MSRB and file a report with the Developer (if the Dissemination Agent is other than the Developer), the City and the Participating Underwriter certifying that the Periodic Report has been provided pursuant to this Disclosu re Certificate, stating the date it was provided to and filed with the MSRB.
Section 4. Content of Periodic Reports. The Developer’s Periodic Report shall contain or incorporate by reference the information set forth in Exhibit B relating to the Developer, any or all of which may be included by specific reference to other documents, including official statements of debt issues of the Developer or related public entities, which have been submitted to the MSRB or the Securities and Exchange Commission. If the document included by reference is a final official statement, it must be available from the MSRB. The Developer shall clearly identify each such other document so included by reference.
In addition to any of the information expressly required to be provided in Exhibit B, the Developer’s Periodic Report shall include 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.
Section 5. Reporting of Significant Events.
(a) The Developer shall give, or cause to be given, notice of the occurrence of any of the following Listed Events with respect to itself or the Property, if material:
(i) bankruptcy or insolvency proceedings commenced by or against the Developer and, if known, any bankruptcy or insolvency proceedings commenced by or against any Affiliate of the De veloper that is reasonably likely to have a significant Exhibit 2
F-13
impact on the Developer ’s ability to pay Special Taxes or to sell or develop the Property;
(ii) failure to pay any taxes, special taxes (including the Special Taxes) or assessments due with respect to the Property on or prior to the delinquency date;
(iii) filing of a lawsuit of which the Developer is aware against the Developer or an Affiliate seeking damages, which is reasonably likely to have a significant impact on the Developer’s ability to pay Special Taxes or to sell or develop the Property;
(iv) material damage to or destruction of any of the improvements on the Property; and
(v) any payment default or other material default by the Developer on any loan with respect to the construction of improvements on the Property.
(b) Whenever the Developer obtains knowledge of the occurrence of a Listed Event, the Developer shall as soon as possible determine if such event would be material under applicable Federal securities law.
(c) If the Developer determines that knowledge of the occurrence of a Listed Event would be material under applicable Federal securities law, the Developer shall, or shall cause the Dissemination Agent to, promptly file a notice of such occurrence with the MSR B, with a copy to the Fiscal Agent, the City and the Participating Underwriter.
Section 6. Duration of Reporting Obligation.
(a) All the Developer ’s obligations hereunder shall commence on the date hereof and terminate (except as provided in Section 11) on the earliest to occur of the following:
(i) upon the legal defeasance, prior redemption or payment in full of all the Bonds, or
(ii) at such time as the Developer and its affiliates, including successor thereto, own parcels in the District that are subject to less than 20% of the annual Special Tax levy, or
(iii) the date on which the Developer prepays in full all of the Special Taxes attributable to the Property, or
(iv) the date on which (A) the Developer has completed construction of all buildings to be constructed within the Property and (B) each such building constructed by the Developer and intended for lease by the Developer has been, since completion of construction, at least 80% occupied at one time or another.
The Developer shall give notice of the termination of its obligations under this Disclosure Certificate in the same manner as for a Listed Event under Section 5.
(b) If a portion of the Property owned by the Developer, or any Affiliate of the Developer, is conveyed to a Person t hat, upon such conveyance, will be a Major Owner, the obligations of the Developer hereunder with respect to the property in the District owned by Exhibit 2
F-14
such Major Owner and its Affiliates may be assumed by such Major Owner or by an Affiliate thereof, and if so assumed the Developer’s obligations hereunder with respect to such portion of the Property will be terminated. In order to effect such an assumption, such Major Owner or Affiliate shall enter into an Assumption Agreement in form and substance reasonably satisfactory to the City and the Participating Underwriter. If not so assumed, the Developer shall report the information, as applicable to the transferee, required herein so long as the transferee is a Major Owner.
Section 7. Dissemination Agent. The D eveloper may, from time to time, appoint or engage a Dissemination Agent to assist the Developer in carrying out its obligations under this Disclosure Certificate, and may discharge any such Dissemination Agent, with or without appointing a successor Disse mination Agent. The initial Dissemination Agent shall be the Developer. The Dissemination Agent may resign by providing 30 days’ written notice to the City, the Developer and the Participating Underwriter.
Section 8. Amendment; Waiver . Notwithstanding any other provision of this Disclosure Certificate, the Developer may amend this Disclosure Certificate, and any provision of this Disclosure Certificate may be waived, provided that the following conditions are satisfied (provided, however , that the Dissemination Agent shall not be obligated under any such amendment that modifies or increases its duties or obligations hereunder without its written consent thereto):
(a) if the amendment or waiver relates to the provisions of sections 3(a), 4 or 5(a), it may only be made in connection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, nature, or status of an obligated person with respect to the Bonds, or type of business conducted; and
(b) the proposed amendment or waiver either (i) is approved by holders of the Bonds in the manner provided in the Fiscal Agent Agreement, with the consent of holders, or (ii) does not, in the opinion of nationally recognized bond counsel, ma terially impair the interests of the holders or beneficial owners of the Bonds.
Section 9. Additional Information . Nothing in this Disclosure Certificate shall be deemed to prevent the Developer from disseminating any other information, using the means of dissemination set forth in this Disclosure Certificate or any other means of communication, or including any other information in any Periodic Report or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosu re Certificate. If the Developer chooses to include any information in any Periodic Report or notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Certificate, the Developer shall have no obligation u nder this Disclosure Certificate to update such information or include it in any future Periodic Report or notice of occurrence of a Listed Event.
Section 10. Default. In the event of a failure of the Developer to comply with any provision of this Disclosure Certificate, the Fiscal Agent shall (upon written direction and only to the extent indemnified to its satisfaction from any liability, cost or expense, including fees and expenses of its attorneys), and the Participating Underwriter and any holder or beneficial owner of the Bonds may, take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the Developer to comply with its obligations under this Disclosure Certificate. A default u nder this Disclosure Certificate shall not be deemed an Event of Default under the Fiscal Agent Agreement, and the sole and Exhibit 2
F-15
exclusive remedy under this Disclosure Certificate in the event of any failure of the Developer to comply with this Disclosure Certificate 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 Certificate, and the Developer agrees to indemnify and save the Dissemination Agent, its officers, directors, employees and agents (each, an “Indemnified Party ”), harmless against any loss, expense and liabilities which it may incur arising out of or in the exercise or performance of its powers and duties hereunder, including the reasonable costs and expenses (including attorneys ’ fees) of defending against any claim of liability, but excluding loss, liabilities, costs and expenses due to an Indemnified Party ’s negligence or willful misconduct or failure to perform its duties hereunder. The Dissemination Agent shall be paid compensation for its services provided hereunder in accordance with its schedule of fees as amended from time to time, which schedule, as amended, shall be reasonably acceptable, and all reasonable expenses, reasonable legal fees and advances made or incurred by the Dissemination Agent in the performance of its duties hereunder. The Dissemination Agent shall have no duty or obligation to review any information provide d to it hereunder and shall not be deemed to be acting in any fiduciary capacity for the City, the Developer, the Fiscal Agent, the Bond owners, or any other party. The obligations of the Developer under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Bonds.
Section 12. Notices. Any notice or communications to be among any of the parties to this Disclosure Certificate may be given as follows:
To the Developer _______________
_______________
_______________
Attn: _______________
To the Issuer/City: City of Stockton
425 N. El Dorado Street
Stockton, California 95202
Attn: Chief Financial Officer
To the Fiscal Agent: U.S. Bank Trust Company, National Association 633 West Fifth Street, 24th Floor LM-CA-T24T
Los Angeles, CA 90071
Attention: Corporate Trust Department
To the Participating
Underwriter: RBC Capital Markets, LLC
Two Embarcadero Center, Suite 1200
San Francisco, CA 94111
Attn: Managing Director
Any pe rson may, by written notice to the other persons listed above, designate a different address or telephone number(s) to which subsequent notices or communications should be sent.
Exhibit 2
F-16
Section 13. Beneficiaries. This Disclosure Certificate shall inure solely t o the benefit of the City, the Developer (its successors and assigns), the Fiscal Agent, the Dissemination Agent, the Participating Underwriter and holders and beneficial owners from time to time of the Bonds, and shall create no rights in any other person or entity. All obligations of the Developer hereunder shall be assumed by any legal successor to the obligations of the Developer as a result of a sale, merger, consolidation or other reorganization.
Section 14. Counterparts. This Disclosure Certificate 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.
IN WITNESS WHEREOF, the Developer has executed this Disclosure Certificate as of the date first above written.
________________________
By:
Name:
Exhibit 2
F-17
EXHIBIT A
NOTICE TO REPOSITORIES OF FAILURE TO FILE PERIODIC REPORT
Name of Issuer: City of Stockton
Name of Bond Issue: $____________ City of Stockton Community Facilities District No. 2019-1 (Cannery Park II) Special Tax Bonds, Series 2022 Date of Issuance: ________, 2022
NOTICE IS HEREBY GIVEN that the _______________ (the “Developer”), on behalf of City of Stockton Community Facilities District No. 2019-1 (Cannery Park II ), has not provided an Annual Report with respect to the above -named Bonds as required by the Continuing Disclosure Certificate . The Developer anticipates that the Annual Report will be filed by _____________.
Dated: _______________
___________________________________,
Dissemination Agent
By: __________________________________
Its: __________________________________
cc: Developer
Exhibit 2
F-18
EXHIBIT B
PERIODIC REPORT
This Periodic Report is hereby submitted under Section 4 of the Continuing Disclosure Certificate (the “Disclosure Certificate”) dated ________, 2022 executed by the undersign ed (the “Developer”) in connection with the issuance of the above -captioned bonds by the City of Stockton (the “City”) with respect to its Community Facilities District No. 2019-1 (Cannery Park II) (the “District”).
Capitalized terms used in this Periodi c Report but not otherwise defined have the meanings given to them in the Disclosure Certificate.
I. Property Ownership and Development
The information in this section is provided as of ____________________ (this date must be not more than 30 days before the date of this Periodic Report).
A. Property currently owned by the Developer in the District (the “Property”):
Development name:
Number of lots (or acreage):
B. Status of land development or construction activities:
_____________________________________________________________________
_____________________________________________________________________
C. Status of building permits and any significant amendments to land use or development entitlements:
_____________________________________________________________________
_____________________________________________________________________
DStatus of any land purchase contracts (other than sales to homeowners) with regard to the Property.
_____________________________________________________________________
_____________________________________________________________________
E. Number of Homes in the District sold by the Developer to date: ___________ Number of Homes in the District under contract for sale as of ___________, 20__: ___________
II. Legal and Financial Status of Developer
Exhibit 2
F-19
Unless such information has previously been included or incorporated by reference in a Periodic Report, describe any change in the legal structure of the Developer or the financial condition and financing plan of the Developer that would materially and adversely interfere with its ability to complete its development plan described in the Official Statement.
_____________________________________________________________________
_____________________________________________________________________
III. Change in Development or Financing Plans
Unless such information has previously been included or incorporated by reference in a Periodic Report, describe any development plans or financing plans relating to the Property that are materially different from the proposed development and financing pla n described in the Official Statement.
_____________________________________________________________________
_____________________________________________________________________
IV. Official Statement Updates
Unless such information has previously b een included or incorporated by reference in a Periodic Report, describe any other significant changes in the information relating to the Developer or the Property contained in the Official Statement under the heading “OWNERSHIP OF PROPERTY WITHIN THE DIST RICT – [Developer]” that would materially and adversely interfere with the Developer ’s ability to develop and sell the Property as described in the Official Statement.
_____________________________________________________________________
_____________________________________________________________________
V. Other Material Information
In addition to any of the information expressly required above, provide such further information, if any, as may be necessary to make the specifically required statemen ts, in the light of the circumstances under which they are made, not misleading.
_____________________________________________________________________
_____________________________________________________________________
Certification
The undersigned Developer hereby certifies that this Periodic Report constitutes the Periodic Report required to be furnished by the Developer under the Disclosure Certificate.
ANY STATEMENTS REGARDING THE DEVELOPER, THE DEVELOPMENT OF THE PROPERTY, THE DEVELOPER’S FINANCING PLAN OR FINANCIAL CONDITION, OR THE Exhibit 2
F-20
BONDS, OTHER THAN STATEMENTS MADE BY THE DEVELOPER IN AN OFFICIAL
RELEASE, OR FILED WITH THE MUNICIPAL SECURITIES RULEMAKING BOARD, ARE NOT AUTHORIZED BY THE DEVELOPER. THE DEVELOPER IS NOT RESPONSIBLE
FOR THE ACCURACY, COMPLETENESS OR FAIRNESS OF ANY SUCH UNAUTHORIZED STATEMENTS.
THE DEVELOPER HAS NO OBLIGATION TO UPDATE THIS PERIODIC REPORT OTHER THAN AS EXPRESSLY PROVIDED IN THE DISCLOSURE CERTIFICATE.
Dated:
_____________________________
By: _____________________________
_____________________________
_____________________________
Exhibit 2
G-1
APPENDIX G
DTC AND THE BOOK-ENTRY ONLY SYSTEM
The following description of the Depository Trust Company ( “DTC”), the procedures and record keeping with respect to beneficial ownership interests in the Bonds, payment of principal, interest and other payments on the Bonds (herein, the “Securities”) to DTC Participants or Beneficial Owners, confirmation and transfer of beneficial ownership interest in the Securities and other related transactions by and between DTC, the DTC Participants and the Beneficial Owners is based solely on information provided by DTC. Accordingly, no representations can be made concerning these matters and neither the DTC Participants nor the Beneficial Owners should rely on the foregoing information with respect to such matters, but should instead confirm the same with DTC or the DTC Participants, as the case may be.
Neither the issuer of the Securities (the “Issuer”) nor the trustee, fiscal agent or paying agent appointed with respect to the Securities (the “Agent”) takes any responsibility for the information contained in this Appendix.
No assurances can be given that DTC, DTC Participa nts or Indirect Participants will distribute to the Beneficial Owners (a) payments of interest, principal or premium, if any, with respect to the Securities, (b) certificates representing ownership interest in or other confirmation or ownership interest in the Securities, or (c) redemption or other notices sent to DTC or Cede & Co., its nominee, as the registered owner of the Securities, or that they will so do on a timely basis, or that DTC, DTC Participants or DTC Indirect Participants will act in the manner described in this Appendix. The current “Rules” 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.
1. The Depository Trus t Company ( “DTC”) will act as securities depository for the securities (the “Securities”). The Securities 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 Security certificate will be issued for each issue of the Securities, each in the aggregate principal amount of such issue, and will be deposited with DTC. If, however, the aggregate principal amount of any issue exceeds $500 million, one certificate will be issued with respect to each $500 million of principal amount, and an additional certificate will be issued with respect to any re maining principal amount of such issue.
2. 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 th e 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 phy sical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and Exhibit 2
G-2
dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Deposito ry 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 a Standard & Poor’s rating of AA+.
The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about D TC can be found at www.dtc c.com. The information contained on this Internet site is not incorporated herein by reference.
3. Purchases of Securities under the DTC system must be made by or through Direct Participants, which will receive a credit for the Securities on DTC ’s records . The ownership interest of each actual purchaser of each Security ( “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. Benef icial 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 Securities 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 Securities, except in the event that use of the book -entry system for the Securities is discontinued.
4. To facilitate subsequent transfers, all Securities 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 Securities with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Securities; DTC’ s records reflect only the identity of the Direct Participants to whose accounts such Securities 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.
5. 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 Securities may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Securities, such as redemptions, tenders, defaults, and proposed amendments to the Security documents. For example, Beneficial Owners of Securities may wish to ascertain that the nominee holding the Securities for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and reque st that copies of notices be provided directly to them.
6. Redemption notices shall be sent to DTC. If less than all of the Securities 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.
Exhibit 2
G-3
7. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to Securities unless authorized by a Direct Participant in accordance with DTC ’s MMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to Issuer 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 Securities are credited on the record date (identified in a listing attached to the Omnibus Proxy).
8. Redemption proceeds, distributions, and dividend payments on the Securities 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 Issuer or Agent, on payable date in accordance with their respective holdings shown on DTC ’s records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in “street name,” and will be the responsibility of such Participant and not of D TC, Agent, or Issuer, 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 Issuer or Agent, 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.
9. DTC may discontinue providing its services as depository with respect to the Securities at any time by giving reasonable notice to Issuer or Agent. Under such circumstances, in the event that a successor depository is not obtained, Security certificates are required to be printed and delivered.
10. Issuer may decide to discontinue use of the system of book -entry-only transfers through DTC (or a successor securities depository). In that event, Security certificates will be printed and delivered to DTC.
11. The information in this section concerning DTC and DTC ’s book-entry system has been obtained from sources that Issuer believes to be reliable, but Issuer takes no responsibility for the accuracy thereof.
Exhibit 2
H-1
APPENDIX H
SUMMARY OF CERTAIN PROVISIONS OF FISCAL AGENT AGREEMENT
The following contains a brief summary of certain provisions of the Fiscal Agent Agreement not found in the main body of the Official Statement. Investors are hereby directed to obtain a complete copy of the Fiscal Agent Agreement, which is available from the City or the Fiscal Agent upon request.
Certain Definitions
"Act" means the Mello -Roos Community Facilities Act of 1982, as amended, being Sections 53311 et seq. of the California Government Code.
“Administrative Expenses” means any or all of the following:
(a) the expenses directly related to the administration of the District, including, but not limited to, the costs of computing the Special Taxes and preparing the annual Special Tax collection schedules (whether by the City or a designee thereof or both); the costs of collecting t he Special Taxes (whether by San Joaquin County, the City or otherwise); the costs of remitting the Special Taxes to the Fiscal Agent; the costs associated with preparing Special Tax disclosure statements and responding to the public inquiries regarding th e Special Taxes; the costs of the City, the District or any designee thereof related to an appeal of the Special Tax;
(b) the costs of the Fiscal Agent (including its legal counsel) in the discharge of the duties of the Fiscal Agent pertaining to the Bonds required under this Fiscal Agent Agreement and any Supplemental Agreement;
(c) the costs of the City or any designee thereof of complying with the City, the District, or obligated person disclosure requirements associated with applicable federal or state securities laws of the Act pertaining to the Bonds;
(d) any amounts required to be rebated to the federal government; and
(e) all other costs and expenses of the City (including, but not limited to, an allocable share of the salaries of the City st aff directly related to the foregoing, a proportionate amount of City general administrative overhead related to the foregoing, and amounts advanced by the City for any administrative purpose of the District, including costs related to prepayments of Speci al Taxes, recordings related to such prepayments and satisfaction of Special Taxes, amounts advanced to ensure maintenance of tax exemption, and the costs of prosecuting foreclosure of delinquent Special Taxes, which amounts advanced are subject to reimbur sement from other sources, including proceeds of foreclosure) and the Fiscal Agent incurred in connection with the discharge of their respective duties hereunder and in any way related to the administration of the District and all actual costs and expenses incurred in connection with the administration of the Bonds.
"Agreement" means the Fiscal Agent Agreement, as it may be amended or supplemented from time to time by any Supplemental Agreement.
Exhibit 2
H-2
"Annual Debt Service" means, for each Bond Year and each Ser ies of Outstanding Bonds, the sum of (i) the interest due on the respective Series of Outstanding Bonds in such Bond Year, assuming that such Outstanding Bonds are retired as scheduled, and (ii) the principal amount of the respective Series of Outstanding Bonds, including any mandatory sinking fund payments, due in such Bond Year.
"Authorized Officer" means the City Manager, Chief Financial Officer, City Clerk, City Attorney, including any deputy, acting or interim officer holding such position, or any oth er officer or employee authorized by the City Council of the City or by an Authorized Officer to undertake the action referenced in this Agreement as required to be undertaken by an Authorized Officer.
"Bond Counsel" means any attorney or firm of attorneys acceptable to the City and nationally recognized for expertise in rendering opinions as to the legality and tax -exempt status of securities issued by public entities.
"Bond Year" means each twelve -month period begi nning on September 2 in any year and extending to the next succeeding September 1, both dates inclusive; except that the first Bond Year shall begin on the Closing Date and end on September 1, 2022.
"Business Day" means any day other than (i) a Saturday o r a Sunday or (ii) a day on which banking institutions in the state in which the Principal Office of the Fiscal Agent is located are authorized or obligated by law or executive order to be closed.
"CDIAC" means the California Debt and Investment Advisory Commission of the office of the State Treasurer of the State of California or any successor agency or bureau thereto.
"Closing Date" means the date upon which there is a physical delivery of the Bonds in exchange for the amount representing the purchase p rice of the Bonds by the Original Purchaser.
"Code" means the Internal Revenue Code of 1986 as in effect on the date of issuance of the Bonds or (except as otherwise referenced herein) as it may be amended to apply to obligations issued on the date of iss uance of the Bonds, together with applicable temporary and final regulations promulgated, and applicable official public guidance published, under the Code.
"Continuing Disclosure Certificate" means the Continuing Disclosure Certificate, dated as of the Closing Date, by and between the City and Willdan Fi nancial Services, or successors, in its capacity as Dissemination Agent, as originally executed and as it may be amended from time to time in accordance with the terms thereof.
"Debt Service" means the scheduled amount of interest and amortization of principal payable on the Bonds during the period of computation, excluding amounts scheduled during such period which relate to principal which has been retired before the beginning of such period.
"District" means the City of Stockton Community Facilities District No. 2019-1 (Cannery Park II) formed pursuant to the Resolution of Formation.
"Fair Market Value " means the price at which a willing buyer woul d purchase the investment from a willing seller in a bona fide, arm's length transaction (determined as of the Exhibit 2
H-3
date the contract to purchase or sell the investment becomes binding) if the investment is traded on an established securities market (within the meaning of Section 1273 of the Code) and, otherwise, the term "Fair Market Value" means the acquisition price in a bona fide arm's length transaction (as referenced above) if (i) the investment is a certificate of deposit that is acquired in accordance wi th applicable regulations under the Code, (ii) the investment is an agreement with specifically negotiated withdrawal or reinvestment provisions and a specifically negotiated interest rate (for example, a guaranteed investment contract, a forward supply co ntract or other investment agreement) that is acquired in accordance with applicable regulations under the Code, (iii) the investment is a United States Treasury Security —State and Local Government Series that is acquired in accordance with applicable regu lations of the United States Bureau of Public Debt, or (iv) the investment is the Local Agency Investment Fund of the State of California, but only if at all times during which the investment is held its yield is reasonably expected to be equal to or greater than the yield on a reasonably comparable direct obligation of the United States.
"Federal Securities" means any of the following which are non -callable and which at the time of investment are legal investments under the laws of the State of California for funds held by the Fiscal Agent (the Fiscal Agent entitled to rely upon investment direction from the City as a certification that such investment constitutes a legal investment).
(i) Direct general obligations of the United States of America (includi ng obligations issued or held in book -entry form on the books of the United States Department of the Treasury) and obligations, the payment of principal of and interest on which are directly or indirectly guaranteed by the United States of America, includi ng, without limitation, such of the foregoing which are commonly referred to as "stripped" obligations and coupons; or
(ii) Any of the following obligations of the following agencies of the United States of America: (i) direct obligations of the Export-Import Bank, (ii) certificates of beneficial ownership issued by the Farmers Home Administration, (iii) participation certificates issued by the General Services Administration, (iv) mortgage -backed bonds or passthrough obligations issued and guaran teed by the Government National Mortgage Association, (v) project notes issued by the United States Department of Housing and Urban Development, and (vi) public housing notes and bonds guaranteed by the United States of America.
"Chief Financial Officer " means the duly acting Chief Financial Officer or Treasurer of the City, or if the City has no Chief Financial Officer , such officer of the City serving a similar role.
"Fiscal Agent" means the Fiscal Agent appointed by the City and acting as an independent fiscal agent with the duties and powers in the Agreement provided, its successors and assigns, and any other corporation or association which may at any time be substituted in its place, as provided in the Agreement.
"Fiscal Year" means the twelve-month period extending from July 1 in a calendar year to June 30 of the succeeding year, both dates inclusive.
“Gross Taxes” means the proceeds of the Special Taxes received by the City, including any scheduled payments and any prepayments thereof, interest thereon and proceeds of the redemption or sale of property sold as a result of foreclosure of the lien of the Special Taxes to Exhibit 2
H-4
the amount of said lien and interest thereon. “Gross Taxes ” does not include any penalties collected in connection with delinque nt Special Taxes or any interest in excess of the interest due on the Bonds.
"Information Services" means “EMMA” or the “Electronic Municipal Market Access” system of the Municipal Securities Rulemaking Board; or, in accordance with then -current guidelines of the Securities and Exchange Commission, such other services providing information with respect to called bonds as the City may designate in a n Officer's Certificate delivered to the Fiscal Agent.
"Maximum Annual Debt Service" means, for each Series o f Outstanding Bonds, the largest Annual Debt Service for any Bond Year after the calculation is made throu gh the final maturity date of the respective Series of Outstanding Bonds.
“Net Taxes ” means Gross Taxes minus amounts set aside to pay Administrative Expenses.
"Officer's Certificate" means a written certificate of the City signed by an Authorized Officer of the City.
"Ordinance" means any ordinance of the City levying the Special Taxes.
"Original Purchaser" means the first purchaser of the Bonds from the City.
"Outstanding," when used as of any particular time with reference to Bonds, means (subject to the provisions of the Agreement) all Bonds except (i) Bonds theretofore canceled by the Fiscal Agent or surrendered to the Fiscal Agent for cancellation; (ii) Bonds paid or deemed to have been paid within the meaning of the Agreement; and (iii) Bonds in lieu of or in substitution for which other Bonds shall have been authorized, executed, issued and delivered by the City pursuant to the Agreement or any Supplemental Agreement.
"Owner" or "Bondowner" means any person who shall be the registered owner of any Outstanding Bond.
"Participating Underwriter" shall have the meaning ascribed thereto in the Continuing Disclosure Certificate.
“Prepayment” means moneys received by the City from the prepayment of Special Taxes as provided in the “Rate, Method of Apportionment, and Manner of Collection of Special Tax” applicable to the District.
"Principal Office" means the corporate trust office of the Fiscal Agent set forth in the Agreement, or such other or additional offices as may be designated by the Fiscal Agent.
"Record Date" means the fifteenth (15th) day of the month next preceding the month of the applicable Interest Payment Date whether or not such day is a Business Day.
"Regulations" means temporary and permanent regulations promulgated under the Code.
Exhibit 2
H-5
"Supplemental Agreement" means an agreement the execution of which is authorized by a resolution which has been duly ado pted by the City under the Act and which agreement is amendatory of or supplemental to the Agreement, but only if and to the extent that such agreement is specifically authorized under the Agreement.
Certain Covenants
Punctual Payment. The City will punctually pay or cause to be paid the principal of, and interest and any premium on, the Bonds when and as due in strict conformity with the terms of the Agreement, and it will faithfull y observe and perform all of the conditions covenants and requirements of the Agreement and all Supplemental Agreements and of the Bonds.
Extension of Time for Payment . In order to prevent any accumulation of claims for interest after maturity, the City shall not, directly or indirectly, extend or consent to the extension of the time for the payment of any claim for interest on any of the Bonds and shall not, directly or indirectly, be a party to the approval of any such arrangement by purchasing or fundi ng said claims for interest or in any other manner. In case any such claim for interest shall be extended or funded, whether or not with the consent of the City, such claim for interest so extended or funded shall not be entitled, in case of default under the Agreement, to the benefits of the Agreement, except subject to the prior payment in full of the principal of all of the Bonds then Outstanding and of all claims for interest which shall not have been so extended or funded.
Against Encumbrances. The City will not encumber, pledge or place any charge or lien upon any of the Special Tax Revenues or other amounts pledged to the Bonds superior to or on a parity with the pledge and lien herein created for the benefit of the Bonds, except as permitted by the Agreement.
Books and Accounts . The City will keep, or cause to be kept, proper books of record and accounts, separate from all other records and accounts of the City, in which complete and correct entries shall be made of all transactions relating to t he expenditure of amounts disbursed from the Special Tax Fund and to the Special Tax Revenues. Such books of record and accounts shall at all times during business hours be subject to the inspection of the Fiscal Agent and the Owners of not less than ten percent (10%) of the principal amount of the Bonds then Outstanding, or their representatives duly authorized in writing.
The Fiscal Agent will keep, or cause to be kept, proper books of record and accounts, separate from all other records and accounts of the Fiscal Agent, in which complete and correct entries shall be made of all transactions relating to the expenditure of amounts disbursed from the Bond Fund, the Reserve Fund and the Costs of Issuance Fund. Such books of record and accounts shall at all times during business hours and upon reasonable prior notice, be subject to the inspection of the City and the Owners of not less than ten percent (10%) of the principal amount of the Bonds then Outstanding, or their representatives duly authorized in writing.
Protection of Security and Rights of Owners . The City will preserve and protect the security of the Bonds and the rights of the Owners, and will warrant and defend their rights against all claims and demands of all persons. From and after the delivery of any of the Bonds by the City, the Bonds shall be incontestable by the City.
Private Activity Bond Limitation . The City shall assure that the proceeds of the Bonds are not so used as to cause the Bonds to satisfy the private business tests of Section 141(b) of the Code or the private loan financing test of Section 141(c) of the Code.
Exhibit 2
H-6
Federal Guarantee Prohibition. The City shall not take any action or permit or suffer any action to be taken if the result of the same would be to cause any of the Bonds to be "federally guaranteed" within the meaning of Section 149(b) of the Code.
Collection of Special Tax Revenues . The City shall comp ly with all requirements of the Act so as to assure the timely collection of Special Tax Revenues, including without limitation, the enforcement of delinquent Special Taxes. On or within five (5) Business Days of each June 1, the Fiscal Agent shall provid e the Chief Financial Officer with a notice stating the amount then on deposit in the Bond Fund and the Reserve Fund.
The City shall effect the levy of the Special Taxes each Fiscal Year in accordance with the Ordinance such that the computation of the levy is complete before the final date on which County Auditor will accept the transmission of the Special Tax amounts for the parcels within the District for inclusion on the next secured real property tax roll. Upon the completion of the computation of the amounts of the levy, the City shall prepare or cause to be prepared, and shall transmit to the Chief Financial Officer , such data as the County Auditor requires to include the levy of the Special Taxes on the next secured real property tax roll.
The City shall fix and levy the amount of Special Taxes within the District required for the payment of principal of and interest on any outstanding Bonds of the District becoming due and payable during the ensuing Bond Year, including any necessary replenish ment or expenditure of the Reserve Fund for the Bonds and an amount estimated to be sufficient to pay the Administrative Expenses during such year, all in accordance with the rate and method of apportionment of the Special Taxes for the District and the Ordinance. In any event, the Special Taxes so levied shall not exceed the authorized amounts as provided in the proceedings pursuant to the Resolution of Formation.
The City covenants that it will receive Net Taxes in trust for the Owners and will instruct the Chief Financial Officer to deposit all Net Taxes with the Fiscal Agent at leas t three Business Days prior to each Interest Payment Date, and the City shall have no beneficial right or interest in the amounts so deposited , except as provided by this Ag reement. All such Net Taxes shall be disbursed, allocated and applied solely to the uses and purposes set forth in this Agreement, and shall be accounted for separately and apart from all other money, funds, accounts or other resources of the City.
Further Assurances. The City will adopt, make, execute and deliver any and all such further resolutions, instruments and assurances as may be reasonably necessary or proper to carry out the intention or to facilitate the performance of the Agreement, and for t he better assuring and confirming unto the Owners of the rights and benefits provided in the Agreement.
No Arbitrage . The City shall not take, or permit or suffer to be taken by the Fiscal Agent or otherwise, any action with respect to the gross proceeds of the Bonds which if such action had been reasonably expected to have been taken, or had been deliberately and intentionally taken, on the Closing Date would have caused the Bonds to be "arbitrage bonds" within the meaning of Section 148 of the Code and Regulations.
Maintenance of Tax-Exemption. The City shall take all actions necessary to assure the exclusion of interest on the Bonds from the gross income of the Owners of the Bonds to the same extent as such interest is permitted to be excluded from gross income under the Code as in effect on the date of issuance of the Bonds.
Exhibit 2
H-7
Yield of the Bonds . In determining the yield of the Bonds to comply with the Agreement, the City will take into account redemption (including premium, if any) in advance of maturity based on the reasonable expectations of the City, as of the Closing, without regard to whether or not redemption moneys are received or Bonds are redeemed.
Modification or Amendment of the Fiscal Agent Agreement
The Agreement and the rights and obligations of the City and of the Owners of the Bonds may be modified or amended at any time by a Supplemental Agreement pursuant to the affirmative vote at a meeting of Owners, or with the written consent without a meeting, of the Owners of at least sixt y percent (60%) in aggregate principal amount of the Bonds then Outstanding, exclusive of Bonds disqualified as provided in the Agreement. No such modification or amendment shall (i) extend the maturity of any Bond or reduce the interest rate thereon, or otherwise alter or impair the obligation of the City to pay the principal of, and the interest and any premium on, any Bond, without the express consent of the Owner of such Bond, or (ii) permit the creation by the City of any pledge or lien upon the Speci al Taxes superior to or on a parity with the pledge and lien created for the benefit of the Bonds (except as otherwise permitted by the Act, the laws of the State of California or the Agreement), or reduce the percentage of Bonds required for the amendment hereof. No such amendment may modify any of the rights or obligations of the Fiscal Agent without its written consent.
The Agreement and the rights and obligations of the City and of the Owners may also be modified or amended at any time by a Supplemental Agreement, without the consent of any Owners, only to the extent permitted by law and only for any one or more of the following purposes:
(A) to add to the covenants and agreements of the City in the Agreement contained, other covenants and agreements thereafter to be observed, or to limit or surrender any right or power in the Agreement reserved to or conferred upon the City;
(B) to make modifications not adversely affecting any outstanding series of Bonds of the City in any material respect;
(C) to make such provisions for the purpose of curing any ambiguity, or of curing, correcting or supplementing any defective provision contained in the Agreement, or in regard to questions arising under the Agreement, as the City and the Fiscal Agent may deem nec essary or desirable, and which shall not adversely affect the rights of the Owners of the Bonds;
(D) to make such additions, deletions or modifications as may be necessary or desirable to assure compliance with Section 148 of the Code relating to required rebate of excess investment earnings to the United States or otherwise as may be necessary to assure exclusion from gross income for federal income tax purposes of interest on the Bonds or to conform with the Regulations.
No such amendment may modify any of the rights or obligations of the Fiscal Agent without its written consent.
If consent of the Owners is required, the Supplemental Agreement shall not become effective unless there shall be filed with the Fiscal Agent the written consents of the Owners of Exhibit 2
H-8
at least 60% in aggregate principal amount of the Bonds then Outstanding (exclusive of Bonds disqualified as provided in the Agreement) and a notice shall have been mailed as hereinafter provided. Each such consent shall be effective only if accompani ed by proof of ownership of the Bonds for which such consent is given, which proof shall be such as is permitted by the Agreement. Any such consent shall be binding upon the Owner of the Bonds giving such consent and on any subsequent Owner (whether or no t such subsequent Owner has notice thereof) unless such consent is revoked in writing by the Owner giving such consent or a subsequent Owner by filing such revocation with the Fiscal Agent prior to the date when the notice hereinafter provided for has been mailed.
After the Owners of the required percentage of Bonds shall have filed their consents to the Supplemental Agreement, the City shall mail a notice to the Owners in the manner hereinbefore provided for the mailing of the Supplemental Agreement, stating in substance that the Supplemental Agreement has been consented to by the Owners of the required percentage of Bonds and will be effective as provided (but failure to mail copies of said notice shall not affect the validity of the Supplemental Agreemen t or consents thereto). Proof of the mailing of such notice shall be filed with the Fiscal Agent. A record, consisting of the papers required to be filed with the Fiscal Agent, shall be proof of the matters therein stated until the contrary is proved. T he Supplemental Agreement shall become effective upon the filing with the Fiscal Agent of the proof of mailing of such notice, and the Supplemental Agreement shall be deemed conclusively binding (except as otherwise above specifically provided) upon the City and the Owners of all Bonds at the expiration of sixty (60) days after such filing, except in the event of a final decree of a court of competent jurisdiction setting aside such consent in a legal action or equitable proceeding for such purpose commence d within such sixty- day period.
Bonds owned or held for the account of the City, excepting any pension or retirement fund, shall not be deemed Outstanding for the purpose of any vote, consent or other action or any calculation of Outstanding Bonds provide d for in the Agreement, and shall not be entitled to vote upon, consent to, or take any other action provided for in the Agreement. Upon request, the City shall provide an Officer's Certificate to the Fiscal Agent listing those Bonds which are disqualified pursuant to the Agreement.
Defeasance and Discharge
If the City shall pay and discharge the entire indebtedness on all or any portion of the Bonds Outstanding in any one or more of the following ways:
(A) by well and truly paying or causing to be paid the principal of, and interest and any premium on, such Bonds Outstanding, as and when the same become due and payable;
(B) by depositing with the Fiscal Agent, in trust, at or before maturity, money which, together with (in the event that all of the Bonds are to be defeased) the amounts then on deposit in the funds and accounts provided for in the Agreement, is fully sufficient to pay such Bonds Outstanding, including all principal, interest and redemption premiums, or;
(C) by irrevocably depositing with the Fiscal Agent, in trust, cash and Federal Securities in such amount as the City shall determine as confirmed by an independent certified public accountant will, together with the interest to accrue thereon Exhibit 2
H-9
and (in the event that all of the Bonds are to be defeased) moneys then on deposit in the fund and accounts provided for in the Agreement, be fully sufficient to pay and discharge the indebtedness on such Bonds (including all principal, interest and redemption premiums) at or before their respective maturity dates;
and if such Bonds are to be redeemed prior to the maturity thereof notice of such redemption shall have been given as in the Agreement provided or provision satisfactory to the Fiscal Agent shall have been made for the giving of such notice, then, at the election of the City, and notwithstanding that any Bonds shall not have been surrendered for payment, the pledge of the Special Taxes and other funds provided for in the Agreement and all other obligations of the City under the Agreement with respect to such Bonds Outstanding shall cease and terminate, except only the obligations of the City related to certain tax matters and to pay or cause to be paid to the Owners of the Bonds not so surrendere d and paid all sums due thereon and all amounts owing to the Fiscal Agent pursuant to the Agreement; and thereafter Special Taxes shall not be payable to the Fiscal Agent. Notice of such election shall be filed with the Fiscal Agent.
Exhibit 2